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Justice Krishna Dixit of Karnataka HC has held that the response of a bank to its borrower made in the course of commercial dealings cannot be considered an order of the statutory authority. It was further held that the judicial review of a bank’s communication to a customer has to be examined in a different sense from the orders of a statutory authority.

The judgment held that given that a transaction between bankers and its borrowers have commercial overtones of a contractual relationship, it will remain so even if the bank is to be construed as a State under Article 12 of the Constitution. The judgment notes that the irrespective of whether a bank can be considered a State or not, the decision of a bank to not grant credit guarantee scheme to a customer is not an administrative decision having elements of public law to invoke writ jurisdiction.

According to the judgment a decision of a bank as to whether a borrower is to be granted a credit guarantee scheme is an exercise of “Bankers Prudence.” Since they handle public money as trustees, they cannot be compelled to undertake “ventures,” by a court of law as it maybe detrimental to public money.

The judgment holds that a writ court “neither has the means nor has the knowledge,” to re-evaluate the prudential decision of the banks that are made during the course of commercial transactions. It was further held that the scope of judicial review of banker’s decision is too restrictive and cannot be interfered with ordinarily.

The judgment mentions a quote from Bombay Provincial Banking Enquiry Committee (1929-30) which observed that “Banking is my brains and other people’s money,” and hence banking has been treated not as a business but as a profession. According to the judgment “If prudence and the promotion of public confidence have been basic ingredients of good banking, then surely an extra measure of those indispensable ingredients is called for.”

According to the judgment, the individual benefits of a customer under a credit scheme cannot outweigh the public trust which the banks had. The judgments holds that a banker will not dig their responsibility to lend to a creditworthy regular customer, irrespective of their size and that banking needs to run with great caution as unlike other industries a reckless decision will lead to the loss of public money.

This was a judgment in a case where a registered MSME whose account had been declared a Non Performing Asset (NPA) and was proceeded against under SARFAESI Act, 2002 made a request to a bank for financial assistance under Credit Guarantee Scheme for Subordinate Debt. The bank however rejected the their request by a simple communication, the company challenged the communication by filing a writ petition.

Case title: Tragen Systems Pvt Ltd & Ors Vs South Indian Bank Ltd & Ors