- 1 - NC: 2025:KHC-K:932 WP No. 200087 of 2021 IN THE HIGH COURT OF KARNATAKA KALABURAGI BENCH DATED THIS THE 10TH DAY OF FEBRUARY, 2025 BEFORE THE HON'BLE MR. JUSTICE R.NATARAJ WRIT PETITION NO.200087 OF 2021 (GM-RES) BETWEEN: THE MANAGING DIRECTOR, NEKRTC, CENTRAL OFFICE, KALABURAGI, REPRESENTED BY LAW OFFICER, KALABURAGI-585105. …PETITIONER (BY SRI. MAHANTESH PATIL, ADVOCATE) AND: 1. THE STATE OF BANK OF INDIA, CORPORATE HEAD OFFICE, HYDERABAD, REPRESENTED BY MANAGING DIRECTOR. 2. THE STATE BANK OF INDIA, SUPER MARKET BRANCH, KALABURAGI-585101, REPRESENTED BY GENERAL MANAGER. 3. BANKING OMNBUDSMAN (SBI), C/O RESERVE BANK OF INDIA, 10/3/08, NRUPATHUNGA ROAD, BANGALORE-02. …RESPONDENTS (BY SRI. R.V. NADAGOUDA, ADVOCATE FOR R1 AND R2; R-3 IS SERVED) Digitally signed by RENUKA Location: High Court Of Karnataka - 2 - NC: 2025:KHC-K:932 WP No. 200087 of 2021 THIS WRIT PETITION IS FILED UNDER ARTICLES 226 and 227 OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT IN THE NATURE OF MANDAMUS DIRECTING THE RESPONDENT BANK TO REFUND RS.139 CRORE (1%) AMOUNT DEBITED FROM THE CURRENT ACCOUNT OF THE PETITIONER TOWARDS PENAL INTEREST ON NON-SUBMISSION OF CREDIT RATING, WITH INTEREST, B) ISSUE A WRIT IN THE NATURE OF CERTIORARI TO QUASH THE ORDER DATED 03.07.2019 PASSED BY THE 3RD RESPONDENT VIDE ANNEXURE-L (SENT TO AN EMAIL TO THE PETITIONERS ACCOUNT). THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE R.NATARAJ ORAL ORDER The petitioner-Corporation has challenged an order dated 03.07.2019 passed by respondent No.3 and has sought for a writ in the nature of mandamus to direct the respondent Nos.1 and 2 to refund the penal interest debited from its current account for non submission of external credit rating certificate. 2. The petitioner-Corporation contends that it had availed credit facilities from Canara Bank in the year 2010. Since the rate of interest charged by Canara Bank was higher than what was offered by the erstwhile State Bank - 3 - NC: 2025:KHC-K:932 WP No. 200087 of 2021 of Hyderabad, the petitioner-Corporation requested the respondent to takeover the loan from Canara bank. On 18.11.2009, the respondent-Bank addressed a letter to the petitioner seeking for certain clarifications which were furnished by the petitioner-Corporation on 26.11.2009. Consequently, on 09.01.2010 the respondent-Bank sanctioned the loan subject to compliance of certain conditions. The petitioner-Corporation agreed to the conditions except charging an upfront fee and requested for waiving off the said condition. A loan agreement was executed on 22.06.2010. Thereafter, the respondent Nos.1 and 2 insisted the petitioner-Corporation to obtain an external credit rating certificate from an external agency failing which penal interest at 1% would be charged. The petitioner-Corporation requested the respondents persistently on 09.09.2010, 22.12.2011, 14.12.2013, 08.01.2014 and 23.12.2014 not to insist for obtaining external credit rating certificate. In the meanwhile, the respondent Nos.1 and 2 debited a sum of `1.39 crores towards penal interest and interest thereon though no - 4 - NC: 2025:KHC-K:932 WP No. 200087 of 2021 provision was made for it in the loan agreement. Later, respondent No.2 in terms of a communication dated 05.10.2016 informed the petitioner-Corporation that a sum of `40.76 lakhs would be refunded towards penal interest for the term from 01.04.2012 to 31.12.2015. Later in terms of a communication dated 04.04.2017, the petitioner-Corporation was informed that the competent authority had accorded approval for refund of penal interest of `40.76 lakhs and sought the consent of the petitioner-Corporation. The petitioner-Corporation being aggrieved by the imposition of penal interest filed a complaint before the Deputy General Manager of State Bank of Hyderabad. The respondent No.2 in terms of its communication dated 10.01.2018 reiterated that debit of `1.39 crores was not erroneous. The petitioner- Corporation then approached respondent No.3 by complaint contending that it was entitled for full refund of `1.39 crores which was the penal interest and interest thereon debited by respondent Nos.1 and 2. The respondent No.3 rejected the complaint in terms of its - 5 - NC: 2025:KHC-K:932 WP No. 200087 of 2021 order dated 03.07.2019. The petitioner is therefore before this Court challenging the order passed by respondent No.3 and also has sought for a direction to respondent Nos.1 and 2 to refund the penal interest and the interest charged thereon. 3. Learned counsel for the petitioner-Corporation contends that there is no provision in the loan agreement requiring the petitioner to obtain an external credit rating certificate. Likewise there is no provision in the loan agreement enabling respondent Nos.1 and 2 to collect penal interest at 1% and interest thereon for any delay in furnishing the external credit rating certificate. He submits that respondent Nos.1 and 2 have to conduct their business in accordance with the guideline and circular issued by the Reserved Bank of India regarding collection of interest. He submits that there is no provision of law or any guideline or circular issued by the Reserve Bank of India enabling the collection of penal interest at 1% for non furnishing of the external credit rating certificate - 6 - NC: 2025:KHC-K:932 WP No. 200087 of 2021 (ERC). Therefore, he contends that respondent No.3 lost track of the matter and has rejected the complaint on an erroneous consideration. Therefore, he contends that the impugned order passed by respondent No.3 is liable to be set-aside and a direction deserves to be issued to respondent Nos.1 and 2 to refund the penal interest and interest thereon collected by respondent Nos.1 and 2. 4. The learned counsel for respondent Nos.1 and 2 has not filed any statement of objection. However, the learned counsel for respondent Nos.1 and 2 has placed on record the Banking Ombudsman Scheme 2006 and contends that Clause 8 of the Scheme encompasses the “grounds on which a complaint” can be filed. He submits that the claim of petitioner is that respondent Nos.1 and 2 had charged penal interest wrongly, which was not a ground available to the petitioner before respondent No.3. He therefore contends that the respondent No.3 was right in rejecting the complaint filed by the petitioner. He also submits that under Clause 14 there is an appeal remedy - 7 - NC: 2025:KHC-K:932 WP No. 200087 of 2021 provided and therefore the petitioner is bound to approach the appellate authority against the order passed by respondent No.3. He also referred to Clause No.13 of the Scheme and contended that respondent No.3 may reject a complaint, at any stage, if it appears to him that the complaint made is not on the “grounds of complaint” referred to in Clause 8. 5. I have considered the submissions of the learned counsel for the petitioner and the learned counsel for respondent Nos.1 and 2. 6. The letter sanctioning the loan in favour of petitioner-Corporation did not contemplate any condition that the petitioner-Corporation had to furnish an external credit rating certificate, failing which, penal interest at the rate of 1% and interest thereon would be applied. There is nothing to show in the loan agreement that the petitioner- Corporation and the respondent Nos.1 and 2 had entered into such an agreement. - 8 - NC: 2025:KHC-K:932 WP No. 200087 of 2021 7. Learned counsel for respondent Nos.1 and 2 was not able to point out to any circulars or the guidelines issued by the Reserve Bank of India authorizing respondent Nos.1 and 2 to collect penal interest and interest thereon for non furnishing the external credit rating certificate. He also could not place anything on record to show that respondent Nos.1 and 2 were justified in calling upon the petitioner-Corporation to furnish an external credit rating certificate. The petitioner- Corporation purportedly submitted the external credit rating certificate on 04.04.2015. However, by that time the respondent Nos.1 and 2 had already applied and debited the penal interest from 01.04.2012 to 31.12.2015. 8. Later, it appears that the respondent offered to settle the issue by refunding `40,76,000/- which was not accepted by the petitioner. Therefore, for the period from 01.04.2012 to 28.02.2013 the penal interest is not credited into the account of the petitioner. No doubt, the petitioner had approached the respondent No.3 with a - 9 - NC: 2025:KHC-K:932 WP No. 200087 of 2021 complaint that respondent Nos.1 and 2 had collected penal interest without any proper authorization. The respondent No.3 unmindful of Clause 8 of sub-Rule 2(a) has rejected the complaint on the ground that the petitioner did not make out any case. When the respondent Nos.1 and 2 were not authorized to collect penal interest and interest thereon and when they could not have compelled the petitioner to obtain an external credit rating certificate; failing which it would impose penal interest, the manner in which the respondent Nos.1 and 2 acted in debiting a sum of `1.39 crores into the account of the petitioner is unbecoming and amounts to unlawful usurpation of the money of a customer. 9. An alternate remedy is not always a bar for entertaining a petition under Article 226 of the Constitution of India. The respondent Nos.1 and 2 are commercial banks and the petitioner is an arm of the State Government. Therefore, the respondent Nos.1 and 2 are bound to conduct themselves in a businesslike manner and - 10 - NC: 2025:KHC-K:932 WP No. 200087 of 2021 have to stick to the agreement that is entered into with the petitioner. When the agreement did not provide for collection of penal interest, it is sad that the respondent Nos.1 and 2 have proceeded beyond the agreement to debit a sum of `1.39 crores as penal interest for non furnishing the external credit rating certificate. Even otherwise, it is not in dispute that the petitioner had submitted the external credit rating certificate on 04.04.2015. If that be so, the creditworthiness of the petitioner is beyond a pale of doubt and therefore respondent Nos.1 and 2 must have refunded the penal interest that was debited to the account of the petitioner. 10. In that view of the matter, this writ petition is allowed and the impugned order passed by respondent No.3 is quashed and a direction is issued to respondent Nos.1 and 2 to refund a sum of `1,39,00,000/- being penal interest and interest thereon debited to the account of the petitioner for non furnishing the external credit rating certificate. - 11 - NC: 2025:KHC-K:932 WP No. 200087 of 2021 11. This shall be complied by respondent Nos.1 and 2 within a period of three months from the date of receipt of copy of this order. Sd/- (R.NATARAJ) JUDGE SN List No.: 1 Sl No.: 48 CT:SI