SALIM AKBARALI NANJI versus UNION OF INDIA AND ORS.

Citation: [2006] SUPP. 2 S.C.R. 306 · Decided: 11-05-2006 · Supreme Court of India · Bench: B.P. SINGH · Disposal: Dismissed

Judgment (excerpt)

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SALIM AKBARALI NANJI 
V. 
UNION OF INDIA AND ORS. 
MAY 11, 2006 
[B.P. SINGH AND ALTAMAS KABIR, JJ.] 
Recovery of Debts Due to Banks Act, 1993. Sections 19 & JI-A. 
Bad debts·--Writing-ojf--Non performing assets-Approval by Reserve 
Bank of India- Va/iditv of-Development Credit Bank mude a request to the 
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Reserve Bunk of India to grant permission and allow the Bank to write-off 
from its financial rec:ords debts that had turned into non performing assets 
over the years amounting to Rs. 120 crores- -ft was stated that the Brink had 
taken necessary steps to recover the dues and would continue to take fo//ow-
up action--Reserve Bank of India granted approval tu write-off the debts 
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against "Revenue & Other Reserves "--The principle shareholders of the 
Bank also approved the proposal to write-off of these debts- -A shareholder 
of the Bank filed a writ petition alleging that the Reserve Bank of India had 
failed to exercise statutory powers vested in it and illegally approved the 
proposal for writing-off the bad debts--High Court dismissed the writ 
petition--Correctnl'ss of -Held· The writing off of Non-performing Assets is 
an exercise undertaken tu clean the balance sheet and is an internal 
accounting procedure- -It does not require the permission of the Reserve 
Bank of India--Despite writing-off, the debt is still recoverable by the bank--
The write-off does not ajjeet the right of the creditor to proceed against the 
borrower to realize his dues--Hence, the Reserve Bank of lndia has not 
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committed breach of any statutory provision or acted illegally or arbitrarily 
in the matter- Securitisation Act, 2002, Ss. 13 & 14--Banking Regulation 
Act, 1949. 
The Development Credit Bank - Respondent No, 6 made a request 
to the Reserve Bank of India to grant permission and allow the Bank to 
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write-off from its financial records debts that had turned into non-
performing assets over the years amounting to Rs. 120 crores. It was 
stated that the Bank had taken necessary steps to ~ecover the dues and 
would continue to take follow-up action. The Reserve Bank of India 
advised the respondent No. 6 - Bank that it might utilize Rs. 12 crores 
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from the "Revenue & Other Reserves" to write off the debts that have 
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SALIM AKBARALI NANJI v. U.0.1. 
307 
turned into non-performing assets. The Board of Directors of the 
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respondent No. 6 - Bank and its principal shareholders approved the 
proposal to write-off these debts. 
The appellant, claiming to be a shareholder of respondent No. 6 -
Bank, filed a writ petition before the High Court contending that the 
Reserve Bank of India being statutory and regulatory authority, illegally 
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approved the proposal of respondent No. 6 - Bank for writing off the 
debts amounting to Rs. 120 crores without following the proper procedures 
prescribed under Sections 13 and 14 of the Securitisation Act, 2002, 
Sections 19 and 31-A of the Recovery of Debts Due to Banks Act, 1993 
and the Banking Regulation Act, 1949. The High Court dismissed the 
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writ petition holding that the issues raised by the appellant in the writ 
petition were not justiciable in the writ jurisdiction. Another writ petition 
was filed raising the same issue. Hence the appeal and the transfer case. 
Dismissing the appeal and transfer case, the Court 
HELD: 1. The writing off of Non-performing Assets is an exercise 
undertaken to clean the balance sheet and is an internal accounting 
procedure. It does not require the permission of the Reserve Bank of 
India but the banks usually make such a request as a matter of practice 
and permissions are granted by the Reserve Bank after considering all 
relevant aspects of the matter. In a case where a banking company 
appropriates sums from the reserve fund or the share premium account, 
it is required to report to the Reserve Bank of India within 21 days 
explaining the circumstances relating to such appropriation. (313-E-G) 
2. Jn the instant case also since the respondent No. 6 - Bank -
proposed to appropriate the sums from its reserves, it sought by way of 
abundant caution the approval for the Reserve Bank oflndia. There is, 
therefore, no justification for the grievance that in granting approval to 
the bank to write-off its non-performing assets to the tune of Rs. 120 
crores, the Reserve Bank of India committed breach of any statutory 
provision or acted illegally or arbitrarily in the matter. There is not even 
an allegation that the Reserve B

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