The Delhi High Court has ruled that courts should not entertain casual allegations of financial impropriety against banks unless backed by concrete material, observing that banks acting in good faith cannot be compelled to justify the economic soundness of their decisions before the judiciary.
A bench of Justices C Hari Shankar and Ajay Digpaul made the remarks while dismissing a public interest litigation filed by NGO Infrastructure Watchdog, which sought a probe by the CBI and CVC into the alleged undervaluation of the Hyatt Regency Hotel during one-time settlement (OTS) deals between Asian Hotels (North) Pvt. Ltd. and two public sector banks — Punjab National Bank (PNB) and Bank of Maharashtra (BoM).
“The banking sector constitutes the backbone of the nation’s economy,” the bench said, adding that the judiciary must first ascertain facts by calling upon banks or involved enterprises to respond before allowing speculative litigation.
“Easy allegations of financial impropriety by banks should not be entertained by courts. Banks, acting bona fide, cannot be made answerable to the judiciary regarding the economic expediency of their decisions, except where the attention is drawn, by the court, to cogent material which seems to point in that direction,” the court observed.
The bench held that no case was made out even for issuing notice in the PIL, terming it “a shot in the dark, based on surmises, conjectures and assumptions.”
The petitioner NGO had claimed that the hotel’s valuation was deliberately depressed in the OTS process, leading to heavy “haircuts” — a reduction in asset value — for the banks.
Rejecting this argument, the court noted that earning a profit from every transaction cannot be seen as a legal duty of banks. What matters, it said, is that banks follow due diligence and necessary checks while making commercial decisions.
“Once this is done, the transaction cannot be called into question, in a court, on the ground that it was not financially expedient, or that it resulted in a loss which might have been avoided, had another avenue been explored,” the order stated.
The court concurred with Attorney General R Venkataramani and Additional Solicitor General Chetan Sharma that entertaining such petitions would destabilise the banking system and discourage financial institutions from entering bona fide commercial transactions.
It also warned that allowing PILs of this nature would embolden “unscrupulous quasi-public interest litigants” to weaponize the system against legitimate business deals. “The possibility of blackmail, in the garb of public interest litigations, looms large,” the bench said. “We are clear in our minds that such attempts must be nipped in the bud.”
Emphasising the sensitivity of ordering probes into corporate affairs, the court said that the mere issuance of notice seeking a CBI investigation could damage a company’s reputation and standing both in India and abroad.
“Molehills metamorphose into mountains in the virtual universe,” the bench noted, cautioning that reputations built over years can collapse instantly under public scrutiny.
In conclusion, the high court said the petitioner had merely relied on a valuation report and presumed the property was undervalued, without any supporting evidence of wrongdoing by the banks. It dismissed the PIL at the preliminary stage, making it clear that speculative litigation cannot be permitted to trigger criminal or investigative processes.
