LexKOTAK MAHINDRA BANK LTD. versus HINDUSTAN NATIONAL GLASS & IND. LTD. AND ORS.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
[2012) 13 S.C.R. 697
KOTAK MAHINDRA BANK LTD.
v.
HINDUSTAN NATIONAL GLASS & IND. LTD. AND ORS.
(Civil Appeal No. 8916 of 2012)
DECEMBER 11, 2012
[A.K. PATNAIK AND SWATANTER KUMAR, JJ.]
Bank/Banking - Master Circular on wilful default issued
A
B
by Reserve Bank of India - Whether covers a derivative
transaction - Held: In view of the mischief the Master Circular C
seeks to remedy and the purpose of the Master Circular, the
definition of 'wilful default' would be construed to mean not
only wilful defaults of dues by a bonuwer to the bank under
/ender-borrower relationship, but also wilful defaults of dues
by a client of the bank under other banking transactions such D
as bank guarantees and derivative transactions - Reserve
Bank of India, Act, 1934 - ss. 45A(c)(v), 45C and 45E.
Interpretation of Statutes: Rule of construction - Held:
Words in a statute or a document are to be interpreted in the E
context or subject-matter in which the words are used and not
according to its literal meaning.
The question for consideration in the present
appeals against the judgments passed by the Calcutta
High Court and the Bombay High Court, which arose was
F
whether the Master Circular on wilful default issued by
Reserve Bank of India would cover the cases of willful
default under a derivative transaction or it was confined
only to a wllful default by a borrower of the bank in a
lender-borrower relationship.
G
Allowing the appeal No. 8916 of 2012 and dismissing
the appeal Nos. 8917 and 8918 of 2012, the Court.
HELD: 1. The Master Circular on wilful default issued
~7
H
698
SUPREME COURT REPORTS
(2012) 13 S.C.R.
A
by Reserve Bank of India, covers not only wilful defaults
of dues by a borrower to the bank but also covers wilful
defaults of dues by a client of the bank under other
banking transactions such as bank guarantees and
derivative transactions. [Para 39] [739-C]
B
2. From the definition of wilful default in the Master
Circular, it is evident that a wilful default would be
deemed to have occurred in any of the events mentioned
in sub-clauses {a), {b), {c) and {d) of clause 2.1 of the
Master Circular. These sub-clauses use the word
C "lender" and for this reason the Calcutta High Court has
taken a view in the impugned judgment that the Master
Circular applies only to a lender-borrower relationship
and a party who has defaulted in meeting its payment
obligation to the bank under the derivative transaction is
D not covered by the Master Circular. The Calcutta High
Court has gone by a literal interpretation of the word
"lender" in sub-clauses {a), {b), {c) and {d) in the definition
of wilful default in clause 2.1 of the Master Circular. This
approach of the Calcutta High Court in interpreting the
E Master Circular is not correct because it is a settled
principle of interpretation that the words in a statute or a
document are to be interpreted in the context or subject-
matter in which the words are used and not according
to its literal meaning. [Paras 28 and 29] [727-C-G]
F
'Principles of Statutory Interpretation' by G.P. Singh
(11th Edition) • referred to.
3. The Bombay High Court has come to the
conclusion in the impugned judgment that the Master
G Circular covers also a default in complying with the
payment obligations under derivative transactions by
relying on the language of not only the Master Circular
dated 01.07.2009 but also of the circulars issued by the
RBI on 08.08.2008, 13.10.2008, 29.10.2008, 09.04.2009 and
H 01.07 .2010 which relate to prudential norms, assets
KOTAK MAHINDRA BANK LTD. v. HINDUSTAN
699
NATIONAL GLASS & IND. LTD.
classification as non-performing assets, etc. This
A
approach of the Bombay High Court in interpreting the
Master Circular is also not correct because the subject
matter of the circulars of the RBI issued on 08.08.2008,
13.10.2008, 29.10.2008, 09.04.2009 and 01.07.2010 do not
relate to wilful default. These circulars are not even
B
amending or clarifying the definition of wilful default in
the Master Circular. The circulars do not constitute the
context or the subject-matter in which the definition of
wilful default in the Master Circular has to be construed.
The context will only include parimateria circulars issued c
by the RBI, but will not include circulars issued by the
RBI on subject-matters other than wilful default. [Para 30]
[729-C-G]
4. The Master Circular originated pursuant to the
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