RBI is “State” under Article 12 and Private banks Perform Public Function, So Writ is maintainable- Cal HC

Recently, the Calcutta High Court ruled that the Reserve Bank of India is a State under Article 12 of the Indian Constitution, and therefore a writ against it is maintainable.

The judgment further reads that even private banks can’t seek the refuge of being non-state actors to challenge the writ petition’s maintainability filed against them, as their function is to discharge public duties.

A Single Bench of Hon’ble Justice Sabyasachi Bhattacharya remarked that since the RBI is an instrument of the State, it comes within the meaning of State as mentioned in Article 12 of the Constitution; therefore, the instant writ is maintainable. He further added that respondent no.4 (Indusind Bank) discharges a public function, so a writ can be filed against it.

Hon’ble Court refused to apply the dictum laid down by the Apex Court in Federal Bank Limited vs Sagar Thomas & Ors that stated that a writ under Article 226 is not maintainable against private banks.

Background:

In the instant case, the petitioner (an MSME) and the IndusInd Bank got into a dispute related to the refund of a prospective loan facility’s processing fee.

According to the petitioner, IndusInd had assured him that in case the loan is not given due to some reason from their side, they will refund the processing fee. As there was a delay in sanctioning the loan, the petitioner asked for a refund. However, the Bank stated that the fee was non-refundable.

Later, RBI informed the petitioner that, according to them, the fee was non-refundable.

Aggrieved, the petitioner moved to the High Court.

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Observations of the Court

The Bench observed that the issue, in this case, has wide ramifications as it deals with liabilities of a bank regarding the refund of processing fees.

After going through the material on record, the Court noted that the Bank backtracked on its promise.

The Bench relied on emails between the parties and the in-principle sanction letter to conclude that the bank acted dehors its own promise of refunding the loan processing fee.

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