Summary
The Supreme Court declined to interfere with a High Court ruling that writ petitions against Muthoot Finance Ltd. over a gold loan were not maintainable, holding that a private non-banking finance company is not 'State' under Article 12 and does not become amenable to Article 226 merely because it must follow Reserve Bank of India regulations; the borrower was left to civil, arbitral or RBI Ombudsman remedies.
Issues
- Whether a private non-banking finance company is 'State' under Article 12 of the Constitution and amenable to writ jurisdiction under Article 226.
- Whether an NBFC's obligation to comply with RBI rules and guidelines makes it amenable to writ jurisdiction for an alleged breach of those rules in a loan transaction.
Provisions considered
- Article 12, Constitution of IndiaThe Court agreed with the High Court that Muthoot Finance Ltd., a privately registered company, is not 'State' or an instrumentality of the State. (¶¶ 2, 3)
- Article 226, Constitution of IndiaApplying the 'function' test, the Court held that the company owes no public duty, does not exercise governmental functions and binds only its account holders, borrowers and employees, so a writ petition against it over a gold loan transaction does not lie; RBI regulation is regulatory oversight, not control. (¶¶ 3, 4, 5, 7, 8, 9)
Held
- A private non-banking finance company is not 'State' under Article 12, and a loan transaction secured by pledge of gold does not involve any public function; writ petitions under Article 226 against it are not maintainable. (¶¶ 3, 7)
- Maintainability of a writ petition turns on the 'function' test: any body, public or private, is subject to Article 226 only to the extent that it is connected with a public duty or public function, and there must be a public law element in the action complained of. (¶¶ 8, 9)
- The RBI guidelines that an NBFC must follow are regulatory measures, not participatory dominance or control over its affairs; merely being required by statute or rule to do a particular thing does not give a company the character of a statutory body, and mandamus issues to a private body only to compel performance of a public duty cast on it by statute or statutory rule. (¶¶ 4, 5, 9)
- The Court summarised the entities against which a writ may lie, including the State, statutory bodies, State instrumentalities, State-owned or substantially State-funded bodies, private bodies discharging a public duty, and persons under a statutory duty, to compel performance of that duty. (¶ 9)
Result
Delay condoned; special leave petitions dismissed. The High Court's arrangements (deposit of the auction proceeds and liberty to pursue civil or arbitral remedies) were noted, and the petitioner was left free to pursue any appropriate remedy, including before the RBI Ombudsman.