SANJIB BANERJEE, J. - (1.) THE writ petitioners question a decision of April 7, 2009 by the grievance redressal committee of the respondent private bank declaring the petitioner company to be a wilful defaulter within the meaning of a Reserve Bank of India master circular dated July 1, 2008. There are several levels on which the challenge has been launched. The petitioners allege that the master circular is unconstitutional and, in any event, the grievance redressal mechanism contemplated thereunder is a meaningless, facile exercise. They say that even if the master circular is upheld in its entirety, the relevant committee of the bank may still be found to have acted without jurisdiction since the master circular applies to lender-borrower transactions between a bank and another; and, the nature of the agreement which is the subject-matter of the proceedings did not involve a lender-borrower relationship between the bank and the petitioner company. The petitioners also allege violation of the principles of natural justice in the bank committing procedural impropriety and maintain that the decision is tainted by institutional and personal bias.
(2.) THE prayers are resisted primarily by the Kotak Mahindra Bank and by the Reserve Bank of India. These respondents say that since the principal act complained of is of a private bank, a petition under Article 226 of the Constitution is inappropriate. They claim that there is an efficacious alternative remedy available by way of arbitration which should deter the Court from entering into the factual disputes and onerous matters involving commercial and banking expertise. The private bank claims that the Reserve Bank has been impleaded and the legality of the master circular questioned to present a facade of maintainability and only to Ward off a summary dismissal of the petition. The bank says that it is not shy of meeting the real challenge since the Reserve Bank of India Act, 1934 and the guidelines issued by the central bank would demonstrate that it was and continues to be a lender-borrower relationship between the bank and the petitioner company in respect of the matters covered by the relevant agreement. The bank insinuates that the proceedings were instituted and have now been unnecessarily stretched to keep the serious consequence of the petitioner being declared a wilful defaulter at bay. The petitioners say that in January, 2006 the bank approached the company for entering into derivative transactions relating to hedging foreign exchange fluctuation risks. The petition speaks of the company having an exposure of US $ 5 million in respect of an external commercial borrowing. The petition says that on or about March 14, 2007, "in the guise of derivative contract" Kotak Mahindra Bank induced the petitioner company to enter into a range accrual transaction. The petitioners claim that such range accrual transaction is not a derivative transaction or otherwise permitted in law. According to the petition, a substantial payout became imminent under the range accrual transaction by or about the end of August, 2007 whereupon the petitioner company took up the matter with the concerned officials of Kotak Mahindra Bank and entered into a new agreement on September 6, 2007. The petitioners allege that the company had been deceived into entering such subsequent agreement under which only the original currency pair of Euro and US dollar was changed to US dollar and Swiss Franc. The bank apparently made a demand in the sum of US $ 600,000 on the company in March, 2008 which shot up to Rs.14,62,61,186.69 being the Indian equivalent of the dollar claim by October 22, 2008.
(3.) IN April, 2008 the bank invoked the arbitration clause said to be contained in the agreement between the parties following which the company instituted TS No. 1475 of 2008 before the City Civil Court at Calcutta claiming a declaration that the agreements of March 14, 2007 and September 6, 2007 were illegal, null and void and not enforceable and consequential reliefs in respect of the claims made by the bank on the company. On May 6, 2008 the company made a representation to the Reserve Bank claiming that the transaction between the company and Kotak Mahindra Bank was not in derivatives and otherwise invalid. The company contended that the transaction was a capital account transaction under a set of regulations brought in by the Foreign Exchange Management Act.;