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M/s. Pearson Drums & Barrels Pvt. Ltd. v. General Manager, IndusInd Bank: A Limited Analysis

By Atreya Chakraborty

INTRODUCTION

In the following discussion, the author would like to deliberate on the limited yet seemingly decided question regarding maintainability of writ petition against private banks, which arose during the adjudication of a writ petition, namely, M/s. Pearson Drums & Barrels Pvt. Ltd. v. General Manager, IndusInd Bank & Ors.¹, heard and decided by a Single Bench of the Hon’ble High Court at Calcutta in the month of March, 2021. Shorn of unnecessary details, the facts appurtenant to the case may be summarised as follows:

The writ petitioner i.e. M/s. Pearson Drums & Barrels, a company incorporated under the erstwhile Companies Act, 1956 and falling within the purview of the Micro, Small and Medium Enterprises Development Act, 2006, is engaged in the business of manufacture and supply of M.S. Barrels. The company had applied for a credit facility of nearly Rs. 25 crore from a private bank, namely IndusInd Bank. Incidentally, albeit the contract for seeking credit facility ultimately fell through, the processing fee which had been paid by the writ petitioner company for meeting processual needs, was forfeited by the bank. In the midst thereof, the Consumer Education and Protection Cell (‘CEPC’), functioning under the aegis and control of the Reserve Bank of India, on its own motion, had passed an adverse order against the writ petitioner. Aggrieved, the company approached the High Court at Calcutta with a prayer to quash the decision of the CEPC and to direct the bank to refund the processing fee in full.²

Thus, one of the seminal questions which arose during the course of this case, was whether or not, the Court could issue a writ against a private bank. As would be evident from a perusal of the judgment, the Hon’ble Court had answered the question in the affirmative. The Court held that since the bank was discharging function of a public nature,³ which is within the domain of the State to discharge, the Court can direct the bank to refund the processing fee. In the said conspectus, a deliberation as regards the meaning of the phrase ‘public function’ and its relationship with the maintainability of a writ petition under Article 226 of the Constitution of India, against a private bank assumes importance.

MAINTAINABILITY OF WRIT PETITION AGAINST PRIVATE BANKS — A DISCUSSION

At the outset, it would be prudent to bear in mind that the scope of writ jurisdiction vested in the High Courts under Article 226 of the Constitution of India has a wide amplitude and the words contained in the said Article have always been interpreted liberally for securing justice. Instead of reiterating numerous well-settled judicial precedents on the rudiments of progressive expansion of public law jurisdiction in matters where an interplay between private interest and public duty has been detected by the Courts, a reference to the landmark judgment in the case of Andi Mukta Sadguru Shree Muktajee Trust v. V.R. Rudani & Ors.⁴ would be sufficient. A perusal of the said judgment leaves no doubt that the words “any person or authority” as found under Article 226 ought to be construed liberally and they cannot be said to be confined only to statutory authorities and instrumentalities of State and must include within its ambit, any person or body performing public duty.⁵ Thus, the legal position as far as maintainability of writ against a private entity is concerned, is no more res integra in light of various decisions of the Supreme Court as well as various High Courts wherein it has consistently held that the issuance of writ cannot be denied merely because it was sought to be issued against a private person or entity. Each time, a question arises on the anvil of maintainability of a writ petition against a private body, judicial endeavour demands proper appreciation of the relationship inter se the parties and detection of whether or not, such relationship collaterally or concomitantly involves performance of any public duty so as to bring a dispute arising out of such relationship within the fold of the High Court’s writ jurisdiction under Article 226. In this regard, reliance is placed upon the observations made in the case of Marg Limited v. Karaikal Port (P) Ltd. by the High Court at Madras.⁶

Reliance is now placed on the judgment delivered by the Supreme Court in the case of Binny Ltd. v. Sadasivan.⁷ In this case, the Hon’ble Court had recognised that it is sometimes quite difficult to differentiate between public and private functions especially when they are being discharged by a purely private entity.⁸ At the same time, however, it was held that a body is generally regarded to be performing a ‘public function’ when it seeks to achieve some collective benefit for the public and/or participates in social or economic affairs in public interest.⁹ Such indication by the Apex Court as regards what may be considered as ‘public function’, is of significance in the context of the judgment delivered in the case of Pearson Drums and Barrels (supra). Here, the High Court’s reasoning that the private bank performs a public function arguably stems from the fact that the private bank is a Member Lending Institution (‘MLI’) under the Credit Guarantee Fund Scheme for Micro and Small Enterprises (‘CGFS’) and as such, its function insofar as disbursement of credit facilities is concerned, is public in nature. Although, very little indication in this regard is evinced from the text of the judgment, there lies no doubt that IndusInd bank, in the capacity of an enlisted MLI functioning under the provisions of CGFS, a scheme formulated by the Ministry of Micro, Small and Medium Enterprises, Government of India; plays a role in catalysing flow of institutional credit to Micro and Small Enterprises (‘MSEs’), strengthening the credit delivery system and facilitating flow of credit to enterprises such as M/s. Pearson Drums and Barrels.¹⁰ Therefore, the Hon’ble High Court at Calcutta has arguably premised its reasoning on the fact that the private bank was participating in social and economic affairs in public interest by disbursing credit facility to the concerned company in accordance with the provisions of CGFS and in the said conspectus, it was held to be amenable to writ jurisdiction under Article 226.

Notwithstanding the contents of the foregoing paragraphs, the decision reached by the High Court at Calcutta may be doubted in light of the Supreme Court’s judgment in the case of Sagar Thomas v. Federal Bank.¹¹ This judgment was placed before the High Court at Calcutta for substantiation of the argument that private banks fell beyond the purview of Article 226. In the case of Federal Bank (supra), a two-Judge Bench of the Supreme Court, upon summarising the law regarding maintainability of a writ petition under Article 226, enlisted categories of authorities or entities against whom a writ would lie. One of these categories was “a private body discharging a public duty or positive obligation of a public nature”.¹² Additionally, the Hon’ble Court expressly held that a private company carrying out banking business would not be regarded as an institution discharging any public function or public duty merely because its business is subject to the regulatory policies of the RBI and certain provisions of relevant statutes.¹³

It is submitted that the decision of the Supreme Court in Federal Bank (supra) that a writ would not lie against a private bank merely because it is carrying out banking business as a scheduled bank under the regulatory measures of the RBI, cannot be viewed as a complete exclusion of private banks from the ambit of the writ jurisdiction vested in High Courts. Such view would lead to an unwarranted constriction of the High Court’s wide powers to issue writs under Article 226, especially when the law in relation to the issuance of a writ of mandamus has been interpreted liberally since time immemorial. Instead, the Supreme Court’s dictum in Sagar Thomas (supra), ought to be read as reinforcement of the cautionary principle that writs ought to be issued only in appropriate cases and as such, merely because a private bank’s operation results in creation of employment, generation of resources and circulation of money thereby causing an impact on the economy of the country in general, such operation by itself cannot be construed as falling within the category of discharging duties or functions of a public nature.

In view thereof, albeit the judgment delivered in Sagar Thomas (supra) was placed before the High Court at Calcutta, the Hon’ble Court proceeded to issue a direction against the private bank because in the latter case, the Court was of the opinion that the bank was involved in the discharge of a public function, namely, disbursement of credit facilities to MSMEs enjoined by the obligations stipulated under a scheme formulated by the Government. Furthermore, the writ petition in Sagar Thomas (supra), was borne out of a service dispute between an employee and the employer bank and as such, in the absence of any positive obligation attributable to the bank or the need for enforcement of any statutory duty, the said petition was dismissed on grounds of non-maintainability. The stark contrast between the factual matrix involved in Sagar Thomas (supra) and that of M/s. Pearson Drums & Barrels (supra), may have contributed to the High Court’s decision of not following the precedent laid down in the former case. The High Court’s decision in M/s. Pearson Drums and Barrels (supra), of issuing a writ against a private bank is primarily based on the interpretation of the term ‘public function’.

As mentioned earlier, the Supreme Court in Binny Ltd. (supra), held that a body is regarded to be performing a ‘public function’ when it seeks to achieve some collective benefit for the public and/or participates in social or economic affairs in public interest. The scope of such interpretation is quite wide and its liberal application might have the result of subsuming many private bodies within the writ jurisdiction under Article 226 by dint of their functions affecting social and economic affairs in public interest.

A higher threshold for equating a private body’s function to a ‘public function’, was earlier set in the matter of G. Bassi Reddy v. International Crops Research Institute¹⁴ wherein it was held that public functions are those functions which are closely related to the ones performable by the State in its sovereign capacity. Again, in the landmark judgment delivered in BCCI v. Cricket Association of Bihar,¹⁵ the standard of sovereign function, as highlighted in G. Bassi (supra), was not dealt with by the Hon’ble Apex Court. In BCCI (supra), the Supreme Court held the BCCI to be amenable to writ jurisdiction under Article 226 on the ground of the importance of function performed by the BCCI and the exclusive nature of the function dispensed by BCCI.¹⁶ In other words, the fact that no other organisation regulates cricket on a national scale in India, weighed heavily in the mind of the Supreme Court. In this regard, reliance is placed upon the article written by Praharsh Johorey in the Indian Constitutional Law and Philosophy Blog.¹⁷

The exclusivity of the function being performed and the same being akin to a function exercised by the State in its sovereign capacity, are two principles which were reiterated by the Supreme Court in the recent case of Ramkrishna Mission v. Kago Kunya.¹⁸ It is submitted that the dicta of analogizing functions performed by private bodies to those performed by the State in sovereign capacity, in Ramkrishna Mission (supra) and G. Bassi Reddy (supra), have set an extremely high threshold which is difficult to overcome. A very narrow construction of the judgments so delivered, would arguably lead to the constriction of the High Court’s jurisdiction under Article 226 of the Constitution of India. This is because sovereign functions are inalienable in nature i.e. no one other than the State could possess the power to perform these functions. Such assertion stands substantiated in light of judgments delivered in cases such as Agricultural Produce Market Committee v. Ashok Harikuni.¹⁹ A perusal of these judgments shall reveal that what the Supreme Court has held to be ‘sovereign’ so far, are defense of the country, raising armed forces, declaring war and peace, grant of pardon, maintenance of internal and external security, the power to acquire and retain territory and so on. Functions such as these or similar to these, cannot possibly be expected to be exercised by private bodies. Thus, a question automatically arises as regards the manner in which one can decipher the likeness of a function being exercised by a private body to that of a sovereign function. In an answer to such question, one could possibly argue that if the function being performed by a private body is one that would ordinarily be performed by one of the Departments of the Government, but the Government has, through the sanction of law, allowed the said private body to carry out such function then the same could be considered to be a public function. If this were to be correct, then a private body performing welfare activities of the State, which are ramifications of sovereignty, could also be regarded as performing a public function. In a gist, it is submitted that the sovereign function test does not envisage the performance of a ‘sovereign function’ by a private body rather it means functions including welfare activities which would ordinarily be performed by the Government/State in its individual capacity.

CONCLUSION

Upon a combined reading of the judicial precedents as highlighted above, it would appear that a private body would be regarded as performing a public function if such function secures any collective social benefit (Binny Ltd. (supra)), the same is ordinarily exercisable by the State in its singular capacity (test of sovereign capacity) and there is no other private body or organisation which performs the said function (test of exclusivity).

In the case of Pearson Drums and Barrels (supra), the concerned bank i.e., IndusInd Bank lends credit facilities to MSMEs in the capacity of an MLI under the CGFS. Thus, it could be said that by dint of extending credit facilities, the said bank, otherwise engaged in the commercial activity of providing banking services, does perform a function which secures some collective social benefit. Further, it could be argued that funding of MSMEs is a function which is largely attributable to the State as it bears the responsibility of augmenting the economy in general and industrial growth in particular. Moreover, such function is being performed by the bank under sanction of a scheme which places the Government in the capacity of a guarantor for MLIs providing credit facilities to MSMEs.²⁰ Thus, with limited certainty, it may be said that the second test is met to a certain extent. However, the said bank is not the only institution or organisation which is engaged in the lending of credit facilities under CGFS. Rather, it is one out of several banks which have been registered as MLIs for extension of credit facilities under CGFS.²¹ Thus, it would appear that the final test of exclusivity is not met. Upon a liberal interpretation, all banks enlisted as MLIs under the CGFS,²² could be looked upon as an exclusive determinate class of institutions engaged in the disbursement of credit facilities but such liberal construction would have meaning only if it can be shown that no other institution performs the function of disbursing credit facilities to MSMEs.

In conclusion, it would be safe to state that the decision by the Single Bench of the Hon’ble High Court at Calcutta in Pearson Drums & Barrels (supra), would be heavily debated in the appeal presently pending against such judgment before the concerned Division Bench of the Hon’ble Court.

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[1] 2021 SCC OnLine Cal 503.

[2] Ibid at ¶ 1.

[3] Supra note 1, at ¶ 23.

[4] (1989) 2 SCC 691.

[5] Ibid at ¶ 17.

[6] 2021 SCC OnLine Mad 2585.

[7] (2005) 6 SCC 657.

[8] Ibid at ¶¶ 17, 29.

[9] Ibid.

[10] Please see official website of Credit Guarantee Fund Trust for Micro and Small Enterprises, available at https://www.cgtmse.in/Home (last visited on 6th August, 2022)

[11] (2003) 10 SCC 733.

[12] Ibid at ¶¶ 18, 31.

[13] Supra note 11, at ¶ 33.

[14] (2003) 4 SCC 225.

[15] (2016) 8 SCC 535.

[16] Praharsh Johorey, Guest Post: Social Media, Public Forums and the Freedom of Speech — II, Indian Constitutional Law and Philosophy (Aug. 06, 2022, 12:10 PM), https://indconlawphil.wordpress.com/2020/01/28/guest-post-social-media-public-forums-and-the-freedom-of-speech-ii/

[17] Ibid.

[18] (2019) 16 SCC 303.

[19] (2000) 8 SCC 61.

[20] Supra note 10.

[21] Ibid.

[22] Ibid.

The author is a student of LL.M at the University of Sussex, England.

Disclaimer: Any academic content published in Legis Sententia will be for informational and academic purposes only, and shall not be reflective of the views of the Department of Law, University of Calcutta or the Editorial Board thereof or any other institution, but only the views of the author concerned.