Facts of the Case

The petitioner, A. Zeenath Alikunju, approached the Kerala High Court challenging the recovery proceedings initiated by Federal Bank Ltd. under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) for recovery of outstanding loan dues.

The petitioner contended that she was engaged in the cashew industry and was entitled to the benefits of various decisions taken by the State Level Bankers' Committee (SLBC) and the Government of Kerala for the revival and rehabilitation of the cashew industry. On this basis, she sought directions restraining the bank from continuing recovery proceedings and requiring it to extend the benefits contemplated under the Government's rehabilitation measures.

Issues Involved

  1. Whether the decisions taken by the Government of Kerala or the State Level Bankers' Committee regarding revival of the cashew industry are binding upon scheduled banks and financial institutions.
  2. Whether the borrower could compel the bank to extend rehabilitation benefits based on State Government decisions.
  3. Whether recovery proceedings under the SARFAESI Act should be stayed in view of such Government decisions.

Petitioner’s Arguments

The petitioner submitted that:

  • She was entitled to the benefits announced for the revival of the cashew industry.
  • The State Government and the State Level Bankers' Committee had evolved rehabilitation measures intended to assist financially distressed cashew industries.
  • The respondent bank ought to consider those benefits before proceeding with coercive recovery under the SARFAESI Act.
  • The Court should direct the bank to implement the rehabilitation package and suspend recovery proceedings accordingly.

Respondent’s Arguments

The respondent bank relied upon the legal position that:

  • Banking falls exclusively within the legislative competence of the Union under Entry 45 of List I (Union List) of the Constitution of India.
  • Decisions taken by the State Government or the State Level Bankers' Committee cannot legally bind banks or financial institutions.
  • Recovery proceedings initiated under the SARFAESI Act were lawful and could not be interdicted merely because of State Government policy decisions.

Court Order / Findings

The Kerala High Court dismissed the principal claim of the petitioner and held that:

  • It had already settled the issue in an earlier judgment dated 22.06.2022 in W.P.(C) No.1615 of 2022.
  • Decisions taken by the State Level Bankers' Committee or the Government of Kerala regarding financial benefits for the cashew industry cannot bind banks or financial institutions.
  • Since banking is a subject exclusively falling under Entry 45 of List I (Union List), the executive powers of the State Government cannot compel banks to grant concessions.
  • Therefore, no direction could be issued requiring the respondent bank to grant benefits under the State Government's rehabilitation decisions.

However, considering the overall circumstances, the Court granted limited relief by observing that:

  • The petitioner is free to approach the bank seeking:
    • regularisation of the loan,
    • restructuring of the account, or
    • One Time Settlement (OTS).
  • The bank shall consider such proposal strictly in accordance with the applicable banking norms.
  • If the petitioner submits the proposal within two weeks, coercive recovery measures shall remain deferred until the bank decides the proposal.

Accordingly, the writ petition was disposed of with the above directions.

Important Clarification

This judgment reiterates several important legal principles:

  • State Government rehabilitation schemes cannot automatically bind banks.
  • Banking regulation remains exclusively within the legislative competence of Parliament.
  • Borrowers cannot enforce State Government policy decisions against banks unless supported by statutory provisions.
  • Courts may nevertheless grant equitable relief by permitting borrowers to seek restructuring or One-Time Settlement.
  • Temporary protection from recovery proceedings may be granted only to facilitate consideration of such proposals and not as a matter of right.

Sections Involved

  • SARFAESI Act, 2002
  • Entry 45, List I (Union List), Seventh Schedule, Constitution of India
  • Banking Regulation Principles
  • Loan Restructuring Guidelines
  • One Time Settlement (OTS) Framework

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785566844_2514compressed.pdf 

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.