BANKING AND INSURANCE LAW

CRL 116

RESEARCH PAPER ON BANKER AS AN AGENT: CRITICAL STUDY

SUBMITTED BY: SUBMITTED TO:

GYANENDRA KUMAR NARENDRA KUMAR

LL.M, 2nd Semester Assistant Professor Law

Roll No: 04917707018 VSLLS (VIPS)

 ABSTRACT
Banking can be defined as the business activity of accepting and safeguarding money owned by
other individuals and entities, and then lending out this money in order to earn a profit. However,
with the passage of time, the activities covered by banking business have widened and now
various other services are also offered by banks. The banking services these days include issuance
of debit and credit cards, providing safe custody of valuable items, lockers, ATM services and
online transfer of funds across the country. Banking business has done wonders for the world
economy. The simple looking method of accepting money deposits from savers and then lending
the same money to borrowers, banking activity encourages the flow of money to productive use
and investments. This in turn allows the economy to grow. In the absence of banking business,
savings would sit idle in our homes, the entrepreneurs would not be in a position to raise the
money. Banking is an industry that handles cash, credit, and other financial transactions. Banks
provide a safe place to store extra cash and credit. They offer savings accounts, certificates of
deposit, and checking accounts. Banks use these deposits to make loans. These loans include
home mortgages, business loans, and car loans.

INTRODUCTION

Commercial banks are typically concerned with managing withdrawals and receiving deposits as
well as supplying short-term loans to individuals and small businesses. Consumers primarily use
these banks for basic checking and savings accounts, certificates of deposit and home mortgages.
Investment banks focus on providing corporate clients with services such as underwriting and
assisting with merger and acquisition activity. Central banks are chiefly responsible for currency
stability, controlling inflation and monetary policy, and overseeing money supply. Some of the
world's major central banks include the U.S. Federal Reserve Bank, the European Central Bank,
the Bank of England, the Bank of Japan, the Swiss National Bank and the People’s Bank of
China.1 While many banks are able to offer both a brick-and-mortar location and an online
presence, a new breed of bank that only maintains an online presence started emerging in the early
2010s. Online-only banks often offer consumers higher interest rates and lower fees. Convenience,
interest rates and fees are the driving factors in consumers' decisions of which bank to do business
with. As an alternative to banks, consumers can opt to use a credit union. National banks are
regulated by the Office of the Comptroller of the Currency (OCC). OCC regulations primarily
cover bank capital levels, asset quality, and liquidity. Banks with Federal Deposit Insurance Corp

1
Subs. By Act 20 of 1950 for the words “in the state”
insurance are additionally regulated by the FDIC. In response to the financial crisis, the Dodd-
Frank Wall Street Reform and Consumer Protection Act was passed in 2010 with the intention of
reducing risks in the U.S. financial system. Under this act, large banks are assessed on having
sufficient capital to continue operating under challenging economic conditions. This annual
assessment is referred to as a stress test.2

Various types of bank services

1. Advancing of Loans
Banks are profit-oriented business organizations. So, they have to advance a loan to the public and
generate interest from them as profit. After keeping certain cash reserves, banks provide short-
term, medium-term and long-term loans to needy borrowers.
2. Overdraft
Sometimes, the bank provides overdraft facilities to its customers through which they are allowed
to withdraw more than their deposits.
3. Discounting of Bills of Exchange
This is another popular type of lending by modern banks. Through this method, a holder of a bill
of exchange can get it discounted by the bank, in a bill of exchange, the debtor accepts the bill
drawn upon him by the creditor (i.e., holder of the bill) and agrees to pay the amount mentioned
on maturity.
After making some marginal deductions (in the form of commission), the bank pays the value of
the bill to the holder. When the bill of exchange matures, the bank gets its payment from the party,
which had accepted the bill.3
4. Check/Cheque Payment
Banks provide cheque pads to the account holders. Account holders can draw cheque upon the
bank to pay money. Banks pay for cheques of customers after formal verification and official
procedures.
5. Collection and Payment of Credit Instruments
In modern business, different types of credit instruments such as the bill of exchange, promissory
notes, cheques etc. are used. Banks deal with such instruments. Modern banks collect and pay
different types of credit instruments as the representative of the customers.
6. Foreign Currency Exchange
Banks deal with foreign currencies. As the requirement of customers, banks exchange foreign
currencies with local currencies, which is essential to settle down the dues in the international
trade.

2
(1986) 60 Com Cases 472(P&H)
3
AIR 1936 PC 193
 7. Consultancy
Modern commercial banks are large organizations.
They can expand their function to a consultancy business. In this function, banks hire financial,
legal and market experts who provide advice to customers regarding investment, industry, trade,
income, tax etc.
8. Bank Guarantee
Customers are provided the facility of bank guarantee by modern commercial banks. When
customers have to deposit certain fund in governmental offices or courts for a specific purpose, a
bank can present itself as the guarantee for the customer, instead of depositing fund by customers.
9. Remittance of Funds
Banks help their customers in transferring funds from one place to another through cheques,
drafts, etc.
10. Credit cards
A credit card is cards that allow their holders to make purchases of goods and services in exchange
for the credit card’s provider immediately paying for the goods or service, and the cardholder
promising to pay back the amount of the purchase to the card provider over a period of time, and
with interest.
11. ATMs Services
ATMs replace human bank tellers in performing giving banking functions such as deposits,
withdrawals, account inquiries. Key advantages of ATMs include:4
▪ 24-hour availability
▪ Elimination of labour cost
▪ Convenience of location
12. Debit cards
Debit cards are used to electronically withdraw funds directly from the cardholders’ accounts.
Most debit cards require a Personal Identification Number (PIN) to be used to verify the
transaction.
13. Home banking
Home banking is the process of completing the financial transaction from one’s own home as
opposed to utilizing a branch of a bank. It includes actions such as making account inquiries,
transferring money, paying bills, applying for loans, directing deposits.
14. Online banking
Online banking is a service offered by banks that allows account holders to access their account
data via the internet. Online banking is also known as “Internet banking” or “Web banking.”
Online banking through traditional banks enable customers to perform all routine transactions,

4
Commercial India, November,1982,p.452
 such as account transfers, balance inquiries, bill payments, and stop-payment requests, and some
even offer online loan and credit card applications. Account information can be accessed anytime,
day or night, and can be done from anywhere.
15. Mobile Banking
Mobile banking (also known as M-Banking) is a term used for performing balance checks,
account transactions, payments, credit applications and other banking transactions through a
mobile device such as a mobile phone or Personal Digital Assistant.
16. Accepting Deposit
Accepting deposit from savers or account holders is the primary function of a bank. Banks accept
deposit from those who can save money but cannot utilize in profitable sectors. People prefer to
deposit their savings in a bank because by doing so, they earn interest.
17. Priority banking
Priority banking can include a number of various services, but some of the popular ones include
free checking, online bill pays, financial consultation, and information.
18. Private banking
Personalized financial and banking services that are traditionally offered to a bank’s digital, high
net worth individuals (HNWIs). For wealth management purposes, HNWIs have accrued far more
wealth than the average person, and therefore have the means to access a larger variety of
conventional and alternative investments. Private Banks aim to match such individuals with the
most appropriate options.

Banker and Customer Relationship

Relationship between a banker and customer comes into existence when the banker agrees to open
an account in the name of customer. The relationship between bank and customer is based on
simple contract.
A banker is a dealer in capital or more properly a dealer in money. He is an intermediate party
between the borrower and the lender. He borrows from one party and lends to another.5

According to H L Hart,
“A banker or bank is a person carrying on the business of receiving money and collecting drafts
for customers subject to the obligation of honouring the cheques drawn upon them from time to
time by the customers to the extent of the amounts available on their current accounts”.

According to G Crowther,
“A banker is a dealer in debt of this own and other people”.

5
Bank of Commerce Ltd v. Kunj Behari Kar., AIR 1945
 A banker is a dealer in capital or more properly a dealer in money. He is an intermediate party
between the borrower and the lender. He borrows from one party and lends to another.

According to Doctor Herbert Hart,

A banker or a bank is a person carrying on the business of receiving money and
collecting data for customers subject to the obligation of honouring available on their current
accounts. According to the banking company's ordinance 1962 banking has been defined as
accepting for the purpose of lending or investment of deposits of money from public repayable on
demand or otherwise and withdrawals by cheques, draft or order.

Meaning of a Customer
Customer is such a person to whom you extend your services in return of consideration. A
customer is a
person who maintains an account with the bank without taking into consideration the duration and
frequency
of operation of his account. A customer is a person who maintains a regular account with the bank
without taking into consideration the duration and frequency of operation of his account. To be a
customer for any bank the individual should have an account with the bank. The individual should
deal with the bank in its nature of regular banking business. He should deal with the bank without
consideration of the duration and frequency of operation of his account. The relationship between
banker and customer is of utmost importance. If is generally studied under the following two
heads one is general relationship and special relationships. The relationship between banker and
customer is of utmost importance. Now we can define the nature of relationship that exists
between a banker and customer6.
According to John Paget, “The relation of a banker and a customer is primarily that of debtor and
creditor the respective position been determined by the existing state of the account.”

General Relationship
Debtor and Creditor
The customer becomes a creditor and the banker becomes debtor when money is deposited in the
bank. The relationship becomes opposite i.e. a customer become debtor and bank creditor when
loan is advanced.
BANKER AND CUSTOMER- When a customer deposits money in a bank the relationship of
debtor and creditor is established. When a customer pays in money to the credit of his account, the
banker becomes the debtor and When a bank grants loan or other credit facilities to the customer,

6
10 TLR (1894) 386.
 relationship is reverse customer the creditor, but when the banker makes a loan to a customer the
position is reversed, as the customer is then the debtor and the banker the creditor. The money
which a banker receives from a customer is at the free disposal of the banker he may preserve it in
his till invest it in some security, or lend it out to another customer, but the customer retains the
right to demand back a similar amount, or to draw cheques upon the banker up to that sum, the
cheques
being payable either to the customer himself or to some other person. The customer may also
accept bills and arrange with the banker that they be charged to his account at maturity, or he may,
in certain cases, make arrangements for the banker to accept bills on his behalf. In order to
constitute a person a customer, Lord Davey said, in Great Trestern Railway v. London and County
Banking Co. (1901, A.C. 414): I think there must be some sort of account, either a deposit or a
current account or some similar relation." When money has lain dormant with a banker for six
years, the Statute of Limitations no doubt applies, as in an ordinary case of debtor and creditor, but
a banker never takes advantage of the statute, and is always ready to repay the money upon the
demand of the customer or of his legal representatives. If a customer leaves with his banker a
parcel of securities for safe custody, the banker's position is that of a bailee, and his liability
depends. to a certain extent, upon whether he undertakes the duty gratuitously or for reward. The
difference between a hanker as a debtor to his customer and as a bailee may be illustrated as
follows:

John Brown pays in 120 to the credit of his account, the banker becomes Brown's debtor and is
liable to repay to Brown on demand, but until the demand is made the banker can do what he likes
with the money, and the 120 which is ultimately repaid to Brown is not, of course, the same coins
as were originally handed by Brown to the banker ; but if Brown gives to the banker a sealed bag
containing, say, coins to the value of 120 and leaves it for safe custody, the hanker becomes a
bailee and must take care of the bag, as entrusted to him, and return it, with the contents un
touched, to the customer 7
when required. The position between banker and customer may also be that of mortgagee and
mortgagor, as where a customer grants a mortgage, for a fixed amount, to the banker. In such a
case the banker can charge simple interest only upon the loan account. A banker and his staff are
bound to secrecy regarding the business and accounts of the customers, but a hanker may, in
certain cases, be compelled to give evidence in a court of law.
Special relationships
Principal and Agent

7
AIR 1970 KER 74
This relationship arises only in certain cases. When a customer deposits draft, cheques, dividends,
certificates etc., for collection, he becomes the principal and bank acts as his agent. In other words
when a bank is performing agency services for his customers he is acting as their agents. In certain
situations, the banker serves as agent of the customer (principal) some of these situations are
enumerated below:

i)Collection of cheques on behalf of the customer

ii)Collection of dividends and bills of exchange
iii)Acting as attorney, executor

Duties of the Agent:

Duties of agent are contained in sec 211 to 218 of the Contract Act. Some of the important duties
are given below:

iv)To follow instructions

v)To show required skill and diligence
vi)Agent to render proper accounts
vii)Agent to pass on any benefits derived by him

Sec 211: Agent’s duty in conducting principal’s business: an agent is bound to conduct the
business of his principal according to the directions given by the principal, or, in the absence of
any such directions, according to the custom which prevails in doing business of the same kind at
the place where the agent conducts such business. When the agent acts otherwise, if any loss be
sustained, he must make it good to his
principal, and, if any profit accrues, he must render accounts for it to the Principal.

Sec 212: Skill and diligence required from agent. An agent is bound to conduct the business of the
agency with as much skill as is generally possessed by persons engaged in similar business,
unless, the principal has notice of his want of skill. The agent is always bound to act with
reasonable diligence, and to use such skill as he possesses; and to make compensation to his
principal in respect of the direct consequences of his own neglect, want of skill or misconduct, but
not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of
skill, etc.

Sec 213: Agent’s Duty to Render accounts. An agent is bound to render proper accounts to his
principal on demand.
Sec 214: Agent’s duty to communicate with principal it is the duty of an agent in case of
difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to
obtain his instructions.

Sec 215: Right of principal when agent deals on his own account in business of agency without
principal’s consent: if an agent deals on his own account in the business of the agency, without
first obtaining the consent of his principal and acquainting him with all material circumstances
which have come to his own knowledge on the subject, the principal may repudiate the
transaction, if the case shows either that any material fact has been dishonestly concealed from
him by the agent, or that the dealings of the agent have been disadvantageous

Sec 216: principal’s right to benefit from any gains by agent dealing on his own account in
business of agency if an agent without the knowledge of his principal, deals in the business of the
agency on his own account instead of on account of his principal, the principal is entitled to claim
from the agent any benefit which may have resulted to him from the transaction.

Sec 218: agent’s duty is to pay the sum received for principal subject to such deductions, the agent
is bound to pay to his principal all sums received on his account.
Duties of Principal
1. Payment of remuneration to the agent
2. not to prevent his agent from performing the duties/ acts assigned to him under the contract and
for which remuneration is payable.
3. Any legitimate expenses which have been incurred by the agent in the course of performance of
his duties are to be indemnified by the principal.

Pawner and Pawnee

A pawner is a person who pledges the goods. A pawnee is a person to whom goods are pledged.
Pawner and Pawnee Relationship. When credit facility is provided by a bank to its customers
against security (Collateral of movable property) the Relationship of Pledger and Pledgee is
established.

Bailor and Bailee

Bailment means delivery of goods by one person to another for some purpose upon a contract.
When a customer places his valuable with the bank for safe custody he becomes bailor and the
bank becomes bailee.
Bailor and Bailee Relationship:
In banker customer relationship, bailment is also an important type of relations. It may arise in the
following situations:
i) Availing safe custody services lockers.
ii) Pledge of stocks as security for availing credit from bank.

Mortgagor and Mortgagee

When a customer takes loan from the bank and mortgages his property with the bank, he becomes
mortgagor and bank mortgagee.
Mortgagor and Mortgage relationship:
When credit facility is provided by the bank to a customer against the security(collateral) of
immovable property, the relationship of Mortgagor and Mortgagee is established.

Financer and Finance

We all know that bank give loans to their clients after accepting appropriate security. When a loan
is grated or finance is provided, bank becomes financer and client becomes financee.

Termination of contract between a customer and banker.

The following are the circumstances under which the relationship between the two is terminated.

Termination of relationship by a customer: A customer due to change of place, may like to close
the account with the bank.
•If the customer is not satisfied with the working of the bank, he may then close his account the
bank.
•The account is also closed on the death of a customer. The outstanding balance is paid to the
nominee of the customer.

Termination of relationship by a banker

•If a customer keeps a very small amount in his account which may be deemed un-remunerative
by banker.
•If customer does not responded to the notice serve on him by the banker and he continuously
ignore them, then banker can close his account.
•In case of the death of the customer the banker will close his account.
•In case the customer goes mad insane, the relationship of customer and banker automatically
terminates and the banker will close his account.
•When banker receives the notice about insolvency of the customer, all his duties comes to an end
and the will close the account of the customer transferring any balance in it to the official assignee
or liquidator.
•When bank receives a garnishee orders his relationship to the customer comes to an end.
•Assignment of accounts means that customer directs the bank to pay all his balance to any other
party. When the banker executes such an instruction, the account is closed and relationship comes
to an end.

The services are as follows:

1 Agency service,
2 Banker as a trustee,
3 Banker as an executor,
4 Banker as administrator.

Banker as an Agent
The banker act as the agent of his customer in performing the following functions:
Payment and collection of subscription, dividends, salaries, pensions etc. Bankers make payments
and receive money on behalf of their customer in the following ways:
▪ Payment of insurance premium.
▪ Payment of membership subscription to club, library, and professional association
▪ Payment of rents and salaries.
▪ Collections of dividends on behalf of customers.
▪ A collection of pensions, rents etc.
▪ Transfers of tunas from one account to another.
▪ The banker charges a nominal amount for this service. For doing this service the banker should
get clear instructions in writing from customers. The instructions of the customer should be clear
and not be end uncertain loans which give rise to controversial meaning. The banker may not
accept the instructions which are difficult to comply with but once accepted it is the duty of the
banker to carry out the instructions.

Purchases and sales of securities: Banker undertakes to purchase and sell shares and debentures of
joint stock Company on behalf of his customer only. Whenever the customer delegates the work to
the bank the banker should get clear and precise instructions in special forms used for this
purpose. The form should contain the following things:
▪ The particulars of securities to be sold or purchased.
▪ The minimum and maximum price at which the securities are to be sold or purchased.
▪ The period within which they are to be sold or purchased.
▪ The names, addresses of the persons in whose name they are to be registered.
▪ In executing services, the banker act as an agent of his customer. Only members of the stock
exchange can sell or purchase of securities. As the bank is not the members of the stock exchange.
They appoint brokers who act as sub-agents of the bank to carry out the instructions.

Acting as an attorney
Power of attorney may be given by a customer to the Tanker. By granting power of attorney, the
customer authorized the banker to receive dividends and interest on securities belonging to him
and give a valid discharge, therefore.8

Banker as a Trustee
A person may desire that after his death, a part or whole of his property be held in a trust for the
benefit of various beneficiaries named in the will. In such a case he may create a trust under his
will directing a certain person to hold the property to such persons after a specified time. When the
bankers take the liability to administrate of this type of property, he will be called trustee.

Banker as an Executor
A person may make will expressing his intention regarding the disposal of his property after his
death. A will has to be in writing, signed by the person making the will which called trusted and
attested by two witnesses. A will becomes effective only after it is approved by the court as a
private. A private is a copy of the will duly certify under the seal of the court together with a grant
administrator.
The person appointed as an administrator of the deceased is known as executor. The bank may
appoint as an executor for such service.

Banker as an Administrator
In case a person dies without making a valid will, the property of the deceased may be
administered according to law. The bank may be appointed for the administration of this property
and then the banker will be called the administration

DEVELOPMENT BANKS
History of development Banking in India can be traced to the establishment of the Industrial
Finance Corporation of India in 1948. Subsequently, with the passing of State Financial
Corporation Act,1951, several SFCs came into being. With the introduction of financial sector
reforms, many changes have been witnessed in the domain of development banking. There are

8
Woods v. Martin Bank Ltd.,(1959) 1 QB 55.
 more than 60 Development Banking Institutions at both Central and State level. We are discussing
here below the major four development banks which assist in extending long term lending and re-
finance facilities to different areas of economy for the economic development pertaining to Small
Scale and Medium industries, Agricultural Sector and Housing Sector. These financial institutions
play crucial role in assisting different segments including the rural economic development.
National Bank for Agriculture and Rural Development (NABARD) was established in July 1982
by an Act of Parliament based on the recommendations of CRAFICARD. It is the apex institution
concerned with the policy, planning and operations in the field of agriculture and other rural
economic activities. NABARD has evolved several refinance and promotional schemes over the
years and has been making constant efforts to liberalize, broad base and refine/ rationalize the
schemes in response to the field level needs. The refinance provided by NABARD has two basic
objectives9:
(i)Ensuringsimultaneouslythebuildupofasound,efficient,effectiveandviablecooperativecreditstructu
re and RRBs for purveying credit.
(ii)Supplementing the resources of the cooperatives banks and RRBs for meeting the credit needs
of its clientele.
NABARD undertakes a number of inter-related activities/services which fall under three broad
categories:

a)CREDIT DISPENSATION
NABARD prepares for each district annually a potential linked credit plan which forms the basis
for district credit plans. It participates in finalization of Annual Action Plan at block, district and
state levels and monitors implementation of credit plans at above levels. It also provides guidance
in evolving the credit discipline to be followed by the credit institutions in financing production,
marketing and investment activities of rural farm and non- farm sectors.

b)DEVELOPMENTAL AND PROMOTIONAL

The developmental role of NABARD can be broadly classified as:-
i)Nurturing and strengthening of the Rural Financial Institutions like SCBs/ SCARDBs, CCBs,
RRBs etc. by various institutional strengthening initiatives.
ii)Development and promotional initiatives in farm and non-farm sectors
iii)Fostering the growth of the SHG Bank linkage programme and extending essential support to
SHPIs NGOs/VAs/ Development Agencies and client banks.
iv)ActingasacatalystforAgricultureandruraldevelopmentinruralareas
v)Extending assistance for Research and Development.

9
Government Access to Bank Records,(1974) 83 Yale Law Journal 1439
 A SUPERVISORY ACTIVITY
As the Apex Development Bank, NABARD shares with the Central Bank of the country some of
the supervisory functions in respect of Cooperative Banks.

CASE LAW
Central Bank of India v/s State of AP & Others, 2005

Brief Facts and Procedural History:

The petitioner, Central Bank of India, is a nationalized bank. According to the petitioner, M/s.
Kirlampudi Sugar Mills Limited (KSML), the fifth respondent, availed cash credit limit and term
loans from one of the branches of the petitioner bank. To secure the loan, KSML had
hypothecateda the plant and machinery of its factory and created equitable mortgage by deposit of
title deeds in respect of the agricultural land.
As on 31/08/2005, KSML owes a sum of R. 392.37 Lakhs to the petitioner bank. It appears that
the Government is proposing to proceed against KSML for realizing sugarcane dues payable to
farmers and arrears of purchase tax to the Government. This action of the Government is in lieu of
A.P. Revenue Recovery Act, 1864. The petitioner bank claims priority over the mortgaged
properties and is aggrieved by such notice of the Government pertaining to the public auction of
the land. According to the petitioner, if the public auction is conducted then the bank would be
deprived of its right to recover the loan amount sanctioned and disbursed to KSML. A writ
petition under Article 226 of the Indian Constitution is thus filed before the AP High Court.10

Issues before the Court:

1) Whether a writ petition filed by the bank (secured creditor) for restraining the Government from
realizing sugarcane arrears and purchase tax arrears is maintainable under Article 226 of the
Indian Constitution?
2) Can it be permitted for the petitioner bank to enforce its rights under Article 226 of the Indian
Constitution when it has on its own volition not availed any of the remedies under the RDB Act
and other enactments?
Statutory Provisions-
By virtue of Section 2(zd) of the Securitisation Act, “secured creditor” means any bank or
financial institution or any consortium or group of banks or financial institutions including other
such classes of financial institutions. Chapter III of the Securitisation Act provides for
enforcement of “security interest” which as per section 2(zf) means right, title and interest of any

10
Central Bank of India v/s State of AP & Others, 2005
 kind whatsoever upon property, created in favour of any secured creditor and includes any
mortgage, charge, hypothecation, and assignment. This Chapter III also contains provisions
enabling a secured creditor to enforce security interest. In case of default of repayment of secured
debt, the secured creditor may classify it as Non-Performing Asser (NPA) and may require the
borrower by notice to discharge the liabilities within 60 days. As per section 13(4) of the
Securitisation Act, it borrower fails to discharge the liability within 60 days then it is open for the
secured creditor to take possession of the secured asset and to use it in order to realize the secured
debt. Section 35 of the Securitisation Act gives an overriding effect. According to Section 37, the
Securitisation Act shall be in addition to, and not in derogation of the Companies Act, 1956;
Securities and Exchange Board of India (SEBI) Act, 1992; RDB Act and Securities Contracts
(Regulation) Act, 1956 or any other law for the time being in force.11
According to section 19(2-A) of Sugarcane Act, if the price of the cane is unpaid on the expiration
of 14 days of the delivery then such amount shall be recovered as an arrear of land revenue with
15% interest rate from the date of delivery. Under section 21(3), any sum due to other government
towards purchase tax shall be a first charge on the sugar produced out of the cane already subject
to purchase tax. According to section 21(6) if the tax is not paid with interest, it shall be
recoverable as an arrear of land revenue. Under section 19(4), if the price of sugarcane delivered is
not paid then the competent authorities can either initiate action under the Revenue Recovery Act
and/or proceed to recover the sugarcane price by the sale of 65% of sugar produced from out of
sugarcane.
Judicial Interpretation-
The constitutional validity of the Securitisation Act was upheld by the Division Bench of the
Supreme Court in Mardia Chemicals Limited v/s Union of India (Air 2004 SC 2371).
Additionally in Allahabad v/s Canara Bank ([2000] 2 SCR 1102), the Supreme Court held that at
the stage of adjudication or execution of recovery certificate, the provisions of RDB Act, 1993,
confers exclusive jurisdiction on the Tribunal and the Recovery Officer in respect of the debts
payable to the banks and financial institutions and that there can be no interference by the
company court under section 442 read with Section 537 or under Section 446(1) of the Companies
Act. It was also held that even in regard to execution, the jurisdiction of the Recovery Officer is
exclusive.
A joint reading of the above two judgments and the provisions of the RDB Act and the
Securitisation Act would show that the bank has ample powers to proceed against a borrower for
the realization of a secured debt. These powers of the bank are also enumerated under the
provisions of other enactment mentioned under section 37 of the Securitisation Act.
In the present case, the bank has not availed any remedy available under section 13(2) of the

11
(1919) 21 Bom LR1.
Securitisation Act or any other enactments. In such a situation, a writ petition before the High
Court is not maintainable. It is to be concluded that the harmonious reading of section 17 and
section 18 of the Act shows that it is only in regards to the matters enumerated under section 17 of
the RDB Act that a writ petition is maintainable before the High Court by virtue of section 18 of
the RDB Act. In the present case, the petitioner has directly approached the High Court without
approaching the DRT and thus the writ is not maintainable.
Decision Held:
Thus, by virtue of the preliminary observations, the writ petition is dismissed. All the questions
pertaining to the merits of the case will be accordingly decided by the appropriate legal forum.

CONCLUSION

Banking system occupies an important place in nation's economy. A banking institution is

indispensable in a modern society. It plays a pivotal role in the economic development of a
country. Thus, economic development of a country depends upon success of banking industry and
success of banking Industry is determined to a large extent by now well then needs of its
customers have been understood and satisfied.
The Indian banking industry has come a long way from being a sleepy business institution to a
highly proactive and dynamic entity. The liberalization and economic reforms have largely
brought about this transformation. The entry of private banks has revamped the services and
product portfolio of nationalized banks. With efficiency being the major focus, the private banks
are leveraging on their strengths. To compete with the private banks, the public sector banks are
now going in for major image changes and customer friendly schemes. Increasing competition and
technology driven products are some of the trends which the banking industry is currently
experiencing. The technology, oriented banking has become one of the latest success in market,
especially to win over the customers. Due to entry of private banks which are known for technical
and financial innovation their professional management has gained a remarkable position in
banking sector.