SALIM AKBARALI NANJIversusUNION OF INDIA AND ORS.

A                           SALIM AKBARALI NANJI
                                          V.

                          UNION OF INDIA AND ORS.
                                                                                      -
                                   MAY 11, 2006

B                  [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
C    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
     against "Revenue & Other Reserves "--The principle shareholders of the
D
     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
E    an exercise undertaken tu clean the balance sheet and is an internal
     accounting procedure- -It does not require the permission of the Reserve
     Bank ofIndia--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
F    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
G   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
    from the "Revenue & Other Reserves" to write off the debts that have
H
                                         306
                   SALIM AKBARALI NANJI v. U.0.1.                       307

turned into non-performing assets. The Board of Directors of the                A
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       B
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              C
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
                                                                                D
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               E
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         F
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    G
an allegation that the Reserve Bank of India acted on extraneous
consideration or that its action was mala fide. (313-G, H, 314-A)

     3. Despite writing-off, the debt is still recoverable by the bank. The
affidavit filed by the bank also discloses the steps which are being taken
to realize the dues from the debtor. Some amounts have been recovered           H
        308                 SUPREME COURT REPORTS [2006] SUPP. 2 S.l.R.

        over the years though the figure does not appear very impressive. Even
A
        so, steps are being taken to recover the dues whenever possible and the
        respondent No. 6 - Bank has furnished particulars of the various
        proceedings pending for recovery of such debts. The write-off is only an
        internal accounting procedure to clean up the balance sheet, and it does
        not affect the right of the creditor to proceed against the borrower to
B       realize his dues. Moreover, it does give some benefit to the bank under
        the Income Tax Laws because after the write-off tax is payable only on
        the amount recovered as and when recovery is made. 1314-C, D, E]

              4. It is no doubt true that the amounts advanced by the banks must
C       be recovered. Such debts should not be permitted to become non-
        performing assets. However, one cannot lose sight of the realities. of the
        situation. Having regard to the oature of the banking business; it is
        possible that the Bank may commit an error of judgment in advancing
        funds to a particular party or industry. It may be that on account of other
        factors beyond its control, or even beyond the control of the borrowers,
D
        it may become difficult, or even impossible to recover the loan advanced
        in accc>rdance v, ith the schedule of repayment, or to recover the loan at
        all. These are risks inllerent in the banking business, though a wise
        banker with foresight and anticipation may reduce such risks tu the
        minimum level. One cannot, however, jump to the conclusion that only
F       because some of the debts have become bad there is a lack of proper
        management of the Bank, or that the conduct of the Bank is dishonest
        or nwlafidc. ln a given case, there may be evidence of such mismanagement
        or dishonest conduct. but in the absence of any such accusation one
        cannot draw an adverse inference against the Bank. In the instant case,
F       though some of the debts have to be written-off with little chance of
        substantial recovery, the fact that the Bank has generated considerable
        operating profits and has built up a substantial general reserve over the
        years, against which the debts written-off have been adjusted, cannot be
        lost sight of. 1317-A-D]

( "'J
             CIVIL APPELLATE JURISDICTlON              Civil Appeal No. 6715 of
        2004.

            t'rum the Judgment/Order dated 18.9.2001 of the High Court of
        Hombay 111 Wnt P~tition No. 2199 of2003.

H
          SALIM AKBARALI NANJ! v. U.O.l. [B.P. SINGH, J.]                 309

     Appellant In-Person.                                                         A
     Dushyant Dave, Sr. Adv., H.S. Chandhoke, Ravisekhar Nair, Abdulla
Hussain, Subramonium Prasad, Kuldeep Parihar, H.S. Parihar, Ms. Rekha
Pandey, Ms. V. Mohana, Ms. Sushma Suri, Advs., with him for the
Respondents.
                                                                                  B
     The Judgment of the Court was delivered by

      B.P. SINGH, J. : This appeal by special leave has been preferred
against the judgment and order of the High Court of Judicature at Bombay
dated September 18, 2003 in Writ Petition No.2199 of2003. The High Court
by its impugned judgment and order dismissed the writ petition preferred by       c
the appellant holding that the issues raised by the appellant in the writ
petition were not justiciable in writ jurisdiction.

      The appellant has appeared before us in person and argued his appeal.
He claims to be a shareholder of the Development Credit Bank Ltd.                 D
Respondent No.6 herein. In sum and substance, the grievance of the.
appellant in the writ petition was that the Reserve Bank of India being the
statutory and regulatory authority, illegally approved the proposal of the
Respondent No.6 Development Credit Bank Ltd. for writing off of debts,
amounting to Rs.120 crores, of the Bank without following the proper
procedures prescribed under the provisions of Sections 13 and 14 of the           E
Securitisation Act, 2002 and Sections 19 and 31A of the Recovery of Debts
Due to Banks Act, 1993.

     To appreciate the grievance of the appellant it is necessary to notice
the background in which the controversy arises.                                   F
      On February 19, 2003, Respondent No.6 Bank made a request to the
Reserve Bank of India to grant permission and allow the Bank to write off
from its financial records, debts that had turned non-performing assets over
the years amounting to Rs.120 crores. It was stated in the letter of request,
that to institute better balance sheet management and a tighter control           G
environment, the Board of Directors and the principal shareholders of the
Bank in France had approved the bank's strategy to write off these debts,
subject to approval of the Reserve Bank of India. The Bank had taken
necessary steps to recover the dues and will continue to take follow up action,
but there appeared no prospect of early recoveries from some of these             H
    310                   SUPREME COURT REPORTS (2006] SUPP. 2 S.C.R.


A   accounts. The Bank did not expect to generate enough profits to absorb
    the write off and, therefore, sought permission to allow the write off from
    the amount lying as General Reserve in the books of the bank as on March
    31, 2003, and not from the operating income for the year. It was assured
    that the Bank was estimated to show capital adequacy well above the
    minimum limits as prescribed by the Reserve Bank of India even after the
B   amount is transferred for write off. The Bank brought to the notice of the
    Reserve Bank of India that it had inducted fresh equity capital of Rs.21
    crores. The Bank was also actively considering raising subordinated debt
    amounting to Rs. 75 crores to further augment its capital base during the year.
    It also referred to various other steps being taken to increase its capital base.
c   The letter also refers to the recommendations of Mis. Mekinsey & Co. and
    the decision of the Board of the Bank to act on its recommendations. In the
    above background, the Bank sought approval of the Reserve Bank of India
    to write off an amount of Rs.120 crores from its General Reserve, consequent
    upon writing off debts to the tune of Rs.120 crores.

D           The Reserve Bank of India by its communication of March 3, 2003
    responded to the request of the Respondent No.6 Bank and advised the Bank
    that it may utilize Rs.120 crores from the "Revenue & Other Reserves" to
    write off the debts that have turned NPAs. The drawal should be "'below
    the line" after arriving at the net profit/loss for the year ended March 31,
    2003 on the basis of accepted accounting policies duly approved by the banks
E
    Auditors. The above adjustment should be prominently disclosed in the
    Notes to Accounts.

          After grant of approval by the Reserve Bank of India, the Annual
    General Meeting of the Company was held on September 30, 2003 and the
F   write off of the bad debts was approved by the shareholders of the
    Respondent No.6 Bank.

           In the counter affidavit filed on behalf of the Reserve Bank of India
    before this Court, it has been stated that the Board of Directors of the
    Respondent No.6 Bank and its principal shareholders approved the proposal
G   to write off these debts by appropriating the reserves subject to receiving
    approval from the Reserve Bank of India. Referring to Section 17(1) of the
    Banking Regulation Act, 1949, it was explained that every banking company
    incorporated in India must create the reserve fund and shall out of the balance
    of profit of each year as disclosed in the profit and loss account prepared
H   under Section 29 of the Act, and before any dividend is declared, transfer
          SALIM AKBARALI NANJI v. U.0.1. [B.P. SINGH, J.]                 311

to the reserve fund a sum equivalent to not less than 20% of such profit. The     A
said limit was raised to 25% in December 1974. In terms of Section 17(2),
a banking company can appropriate sums from the reserve fund or the share
premium account, and the same must be reported to the Reserve Bank of
India within 21 days -explaining the circumstances relating to such
appropriation. This implies that appropriation of the statutory reserve fund
does not require the Reserve Bank's prior approval though there is a statutory    B
obligation on banks to report appropriation to the Reserve Bank of India.
The appropriation of other reserves does not cast any obligation on banking
companies to report to the Reserve Bank. However, as a matter of practice,
the banking companies are approaching the Reserve Bank for permission
before appropriating their reserves for writing off the bad debts. The Reserve
Bank considers the financial position of the applicant banking company
before granting permission to utilize the reserves for the purpose.

        Dealing with the facts of this case, it was averred that the Respondent
No.6 Bank had earned a net profit of Rs.34.05 crores during the financial
year 2001- 02 and transferred Rs.8.55 crores to statutory reserve and Rs.0.30     D
crore to investment fluctuation reserve. The gross and net NPAs of
Respondent No.6 Bank_ were Rs.215.45 crores and Rs.149.33 crores
respectively as on March 31, 2002. The Capital to Risk-weighted Assets
Ratio (CRAR) was at 11.49% as on March 31, 2002. Even after the amount
was transferred from the reserves for write off as on March 31, 2003, the         E
CRAR stood at 10.08%. which was above the minimum prescribed CRAR
of9%. During the year 2002-03, an amount ofRs.21 crores has been induced
as fresh equity capital by the principal shareholders of the banking company.
After taking into consideration the above facts and the need for cleansing
the balance sheet of the Respondent No.6 Bank, the Reserve Bank has
allowed it to utilize Rs.120 crores from the revenue and other reserves to        F
write off debts that have turned NPAs, vide letter DBOD. No.PSBS.1036/
 16.01. 132/2002-03 dated March 3, 2003.

      It was further explained that the write off is an internal accounting
procedure to clean up the balance sheet of the Bank. Such write off is
resorted to even in cases where the Bank has not exhausted all the avenues
                                                                                  G
for recovery of dues. Such write off does not affect the right of the Bank
to proceed against the borrowers to collect the dues. The legal proceedings
initiated by the Bank to recover the loans or to enforce the security against
the borrowers may continue. The write off does not bar the Bank from
following up recoveries. Further recoveries, if any, in these accounts are        H
    312                  SUPREME COURT REPORTS [2006) SUPP. 2 S.C.R.


A   creditt::d to the income account, in tum improving the net worth of the Bank.
    Replying to the Petitioner's allegation that the Reserve Bank had failed to
    exercise its statutory powers and authority of law against the Bank under the
                                                                                       -
    various provisions of the Banking Regulation Act, 1949 to restrain it from
    taking any steps or acting in furtherance to write off the secured debts of
    the sum of Rs.120 crores, which is detrimental to the interests of the Bank,
B   its depositors, investors and >hares holders, it was submitted that the banking
    companies do not need Reserve Bank's permission to write off bad debts.
    As mentiontd earlier, the banking companies are also not under statutory
    obligation to seek the Bank's approval for appropriation of sums from their
    reserves. However, as a matter or practice, the banking companies do
C   approach the Reserve Bank for permission, before utilizing their reserves,
    for writing off the bad debts and the Reserve Bank grants approval, if it is
    in order, on considering their financial position and other related factors as
    stated above.

          In its counter affidavit filed before this Court the Respondent No.6
D   Bank stated that the dues from various debtors had necessarily to be shown
    as non-perfom1ing assets (NPAs) as per the guidelines issued by the Reserve
    Bank of India. The Reserve Bank of India monitors the NPAs strictly and
    during the periodical inspections, goes into the matter of NP As in detail. The
    Reserve Bank of India had issued a circular letter dated July 28, 1995, and
    has been issuing circulars/ directions/ guidelines from time to time prescribing
E
    the manner in which NP As could be categorized and where and how amounts
    should be written off. Compliance of these guidelines is rigorously
    monitored by the Reserve Bank of India at the time of periodic inspections.
    The last suc:1 detailed periodic inspection by the Reserve Bank of India in
    the case of Respondent No.6 Bank was conducted sometime in September,
F   2003 when all these and other matters were gone into by the Reserve Bank
    of India.

          It is further stated that Respondent No.6 Bank was negotiating with
    several reputed foreign investors, including International Financial
    Corporation, Washington (IFC), for a major infusion of capital into Bank.
G    rhe foreign investors including IFC, Washington indicated to the Respondent
    No.6 Bank that they would very much like to see the Bank's balance sheet
    cleaned up by writing off the NPAs and especially so because the Respondent
    No.6 Bank had accumulated huge reserves which had been built up out of
    the profits earned by the Bank since 1995. The write off of the amounts
H   of N PAs against the reserves of the Bank was therefore a book entry with
              SALIM AKBARALI.NANJI v. U.0.1. [B.P. SINGH, J.]                313

    the object of cleaning up the balance sheet and without any prejudice to the     A
    Bank's right to continue with the proceedings to recover the amounts from
    the debtors in question.

          It was reiterated that the mere write off of a debt by the Bank did not
    require the prior permission or subsequent approval of the RBI. However,
/   if bad debt is to be written off against the reserves, it is necessary for the   B
    Bank to intimate the RBI. The normal practice being, however, to apply to
    RBI for approval, the Respondent No.6 Bank had approached the RBI by
    its letter dated February 19, 2003. Thereafter, the Reserve Bank of India,
    by its letter dated March 3, 2003 granted approval for the write off of the
    bad debts against the reserves of the Bank. It is also important to note that    C
    the audited profit and loss account and the balance sheet of the Bank were
     approved at the Annual General Meeting held on September 30, 2003 by an
     overwhelming majority of the shareholders, by show of hands and the
     appellant was present in the said meeting. It was, therefore, submitted that
     the write off of the bad debts has also the approval of the shareholders of
     the Bank, and the sam~ gives a true and fair view of financial position of      D
    the Bank. Such write off is also pre-eminently in the interest of the Bank
    and all its shareholders.

         The Bank has, further, explained that almost 80% of the NPAs/ bad
    debts relate to the loans advanced to 15 parties. The particulars about these
    15 parties and the steps taken by the Bank to recover the amounts due, have
                                                                                     E
    been set out in the counter affidavit which was filed in compliance of the
    order of this Court dated July 5, 2004.

         It will thus appear from the facts noticed above that the writing off of
    NP As is an exercise undertaken to clean the balance sheet, and is an internal   F
    accounting procedure. It does not require the permission of the Reserve
    Bank of India but as explained by the Reserve Bank of India, banks usually
    make such a request as a matter of practice and pennissions are granted by
    the Reserve Bank after considering all relevant aspects of the matter. In the
    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       G
    India within 21 days explaining the circumstances relating to such
    appropriation.

         In the instant case also since the Respondent No.6 Bank proposes to
    appropriate the sums from their reserves, it sought by way of abundant           H
    314                  SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R.


A   caution the approval of the Reserve Bank of India. There is, therefore, no
    justification for the grievance that in granting approval to the bank to write
    off its non-performing assests 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
     Bank of India acted on extraneous consideration, or that its action was mala-
B   fide.

         The appellant submitted before us that writing off of Rs.120 crores
    would cause a great loss to the Bank, because the sum of Rs.120 cores would
    be lost to the bank. He submitted that it is not as if the loans cannot be
c   recovered. In most cases, securities are provided before loans are advanced.
    There are guarantors against whom the Bank can proceed. In these
    circumstances, there was no justification for the Bank to write off these debts.

          The submission proceeds on the assumption that the bad debts written
    off cannot be recovered. In fact and in law it is not so. Despite writing off
D   the debt is still recoverable by the Bank. The affidavit filed by the Bank
    also discloses the steps which are being taken to realize the dues from the
    debtor. Some amounts have been recovered over the years though the figure
    does not appear very impressive. Even so, steps are being taken to recover
    the dues whenever possible and Respondent No.6 Bank has furnished
E   particulars of the various proceedings pending for recovery of such debts.
    The write off is only an internal accounting procedure to clean up the balance
    sheet, and it does not affect the right of the creditor to proceed against the
    borrower to realize his dues. Moreover, it does give some benefit to the Bank
    under the Income Tax Laws because after write off tax is payabk only on
    the amount recovered as and when recovery is made. In the guidelines
F   issued by the Reserve Bank of India, it is observed :

             "Writing off ofNPAs -- In terms of section 43D of the Income- tax
             Act, I 96 I, income by way of interest in relation to such categories
             of bad and doubtful debts as may be prescribed having regard to
G            the guidelines issued by the RBI in relation to such debts, shall be
             chargeable to tax in the previous year in which it is credited to the
             bank's profit and loss account or received, whichever is earlier.

             This stipulation is not applicable to provisioning required to be
             made as indicated above. In other words, amounts set aside for
H
              SALIM AKBARALI NANJI v. U.0.1. [B.P. SINGH, J.]                  315

             making provision for NPAs as above are not eligible for tax               A
             deductions.

             Therefore, the banks should either make full provision as per the
             guidelines or write-off such advances and claim such tax benefits
             as are applicable, by evolving appropriate methodology in
j            cons~itation with their auditors/ tax consultants. Recoveries made        B
             in such accounts should be offered for tax purposes as per the rules".

          The appellant submitted before us that the Reserve Bank of India had
    failed to exercise the statutory powers vested in it and therefore, it failed to
    perform a legal duty cast upon it by law. The appellant was, therefore,
    entitledto invoke the writ jurisdiction of the High Court for issuance of Writ     C
    of Mandamus to the Reserve Bank of India to act in accordance with its
    statutory obligations. In this connection, reference has been made to
    Sections 21, 22(4), 27, 30, 35, 35A, 36, 31;1AA, and 45 of the Banking
    Regulation Act, 1949.

          Section 21 of the Banking Regulation Act empowers the Reserve Bank           D
    to determine the policy in relation to advances to be followed by banking
    companies generally, or by any banking company in particular. The policy,
    if so, determined by the Reserve Bank of India in public interest or in the
    interest of depositors or banking policy, must be followed by all banking
    companies. In the instant case there is no material whatsoever to demonstrate
                                                                                       E
    that the Reserve Bank of India has failed to exercise its powers under Section
    21 of the aforesaid Act, nor is there anything to prove that the Respondent
    No.6 Bank herein has not followed any policy so determined by the Reserve
    Bank of India.

         Section 22 (4) of the aforesaid Act empowers the Reserve Bank oflndia         F
    to cancel a licence granted to a banking company in the circumstances
    mentioned therein. We fail to understand how the said provision is at all
    relevant since it is not the case of the appellant that the licem;e granted to
    the Respondent No.6 Bank should be cancelled.

          Section 27 casts an obligation on every banking company to submit to         G
    the Reserve Bank a retu_m in the prescribed form and manner showing its
    assets and liabilities in accordance with the aforesaid provision. The Reserve
    Bank is also authorized at any time to direct a banking company to furnish
    it such statements and information relating to the business or affairs of the
    banking company as it may consider necessary or expedient to obtain for
                                                                                       H
    316                  SUPREMr COURT REPORTS (2006] SUPP. 2 S.C.R.

A   the purposes of the Act. We fail to understand how Section 27 is at all
    relevant in the instant case because it is not the case of the appellant, nor
    has any material being placed on record to show, that there has been breach
    of Section 27 of the aforesaid Act.

           Similarly, Section 30 which deals with audit of the balance sheet and
B   profit and loss account of a banking company by a qualified auditor is not
    at all relevant. Sub-St:ction (IB) ofSt:ction 30 empowers the Reserve Bank
    to order a special audit. In the instant case we are not concerned at all with
    the appointment of auditors.

          Section 35 relatt:s to inspection of banking companies. It empowers
c the Reserve Bank to cause an inspection to be made by one or more of its
    officers of any banking company and its books and accounts.

          Section 36 enumerates the other powers and functions of the Reserve
    Bank. Similarly Section 36AA empowers the Reserve Bank to remove from
    office any Chairman, Director, Chief Executive Officer or other officer or
D   employee of the banking company, subject to the conditions laid down in
    that provision.

         Section 45 confers power on the Reserve Bank to apply to the Central
    Government for suspension of business by a banking company and to
    prepare scheme of reconstitution or amalgamation. We fail to appreciate
E   how any of these provisions is relevant to the issue that arises in the instant
    appeal. No doubt, the Reserve Bank has been vested with wide powers to
    control and regulate the functioning of banks. If need be, those powers may
    be exercised by the Reserve Bank. In the instant case, we are only concerned
    with the writing off of non-performing assets. Nothing has been produced
F   on record to satisfy us that the Reserve Bank has acted in breach of its legal
    obligations in the matter of granting permission to the Respondent No.6 Bank
    to write off the debts that have become non-performing assets.

          The appellant made a general submission that there was no justification
    for writing off the bad debts amounting to Rs.120 crores. Respondent No.6
G   Bank should have takt:n all necessary steps to recover the debts and to
    enforce its rights under Sections 13 and 14 of the Securitisation Act, 2002
    and Sections 19 and 3 l A of the Recovery of Debts Due to Bank Act, 199 3.
    The Bank can proceed against the original security and the secured assets
    of the borrowers and recover its dues. Writing off bad debts was detrimental
    to the interest of a banking company.
H
          SALIM AKBARALI NANJI v. U.0.1. [B.P. SINGH, J.]                 317

      It is no doubt true that amounts advance by banks must be recovered.        A
Such debts should not be pennitted to become non-perfonning assets.
However, one cannot lose sight of the realities of the situation. Having
regard to the nature of banking business, it is possible that the Bank may
commit an error of judgment in advancing funds to a particular party or
industry. It may be that on account of other factors beyond its control, or
even beyond the control of the borrowers, it may become difficult, or even        B
impossible to recover the loan advanced in accordance with the schedule of
re-payment, or to recover the loan at all. These are risks inherent in the
banking business, though a wise banker with foresight and anticipation may
reduce such risks to the minimum level. One cannot however, jump to the
conclusion that only because some of the debts have become bad, there is          c
lack of proper management of the Bank, or that the conduct of the Bank is
dishonest or mala-fide. In a given case, there may be evidence of such mis-
management or dishonest conduct, but in the absence of any such accusation
one cannot draw an adverse inference against the Bank. In the instant case,
 though some of the debts have to be written off, with little chance of
 substantial recovery, we cannot lose sight of the fact that the Bank has         D
generated considerable operating profits and has built up a substantial
general reserve over the years, against which the debts written off have been
adjusted.

     We, therefore, find no merit in this appeal. The same is accordingly         E
dismis~ed but without any order as to costs.

                                                           Appeal dismissed.

     TRANSFERRED CASE NO. 48 OF 2005

      B.P. SINGH, J. : The issues involved in this case are the same as in        F
the connected civil appeal which we have dismissed by our judgment and
order today. In this case as well the petitioner prayed for quashing or setting
aside the pennission granted by the Reserve Bank oflndia to the Respondent
Bank to write off the non-perfonning assets. The petitioner had filed a writ
petition before the High Court of Judicature at Bombay being Writ Petition        G
No.2615 of2004. By our order dated July 25, 2005, the case was transferred
to this Court so as to be heard and disposed of with the connected civil
appeal. This case is also dismissed but without any order as to costs.

V.S.S.                                           Transferred case dismissed.
                                                                                  H