Private Company Carrying On Banking Business As Scheduled Bank Can’t Be Termed As Company Carrying On Public Function Or Duty: Supreme Court

The Special Leave Petition before the Apex Court was filed challenging an order whereby it was held that the Company Muthoot Finance Ltd. is not a “State” within the meaning of Article 12 of the Constitution and therefore not amenable to writ jurisdiction of the High Court under Article 226.

The Division Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan asserted, “If a private body is discharging a public function and the denial of any rights is in connection with the public duty imposed on such body, the public law remedy can be enforced. The duty cast on the public body may be either statutory or otherwise and the source of such power is immaterial but, nevertheless, there must be the public law element in such action.”

AOR Brajesh Kumar represented the Petitioner.

Arguments

It was the case of the petitioner that although the Finance Company may not be strictly falling within the ambit of State yet being a non-banking financial institution it is governed by the rules and regulations framed by the RBI and if the statutory rules and regulations framed by the RBI are breached by a non-finance banking company then as a statutory authority such finance company is amenable to writ jurisdiction.

Reasoning

The Bench explained that a body, public or private, should not be categorized as “amenable” or “not amenable” to writ jurisdiction. The most important and vital consideration should be the “function” test as regards the maintainability of a writ application. If a public duty or public function is involved, any body, public or private, concerned or connection with that duty or function, and limited to that, would be subject to judicial scrutiny under the extraordinary writ jurisdiction of Article 226 of the Constitution of India.

Applying the test, the Bench held that the respondent-Company cannot be called a public body. It has no duty towards the public. Its duty is towards its account holders, which may include the borrowers having availed of the loan facility. It has no power to take any action, or pass any order affecting the rights of the members of the public. The binding nature of its orders and actions is confined to its account holders and borrowers and to its employees. Its functions are also not akin to Governmental functions.

The Bench thus enumerated the following principles:

• For issuing writ against a legal entity, it would have to be an instrumentality or agency of a State or should have been entrusted with such functions as are Governmental or closely associated therewith by being of public importance or being fundamental to the life of the people and hence Governmental.
• A writ petition under Article 226 of the Constitution of India may be maintainable against (i) the State Government; (ii) Authority; (iii) a statutory body; (iv) an instrumentality or agency of the State; (v) a company which is financed and owned by the State; (vi) a private body run substantially on State funding; (vii) a private body discharging public duty or positive obligation of public nature; and (viii) a person or a body under liability to discharge any function under any Statute, to compel it to perform such a statutory function.
• Although a non-banking finance company like the Muthoot Finance Ltd. with which we are concerned is duty bound to follow and abide by the guidelines provided by the Reserve Bank of India for smooth conduct of its affairs in carrying on its business, yet those are of regulatory measures to keep a check and provide guideline and not a participatory dominance or control over the affairs of the company.
• A private company carrying on banking business as a Scheduled bank cannot be termed as a company carrying on any public function or public duty.
• Normally, mandamus is issued to a public body or authority to compel it to perform some public duty cast upon it by some statute or statutory rule. In exceptional cases a writ of mandamus or a writ in the nature of mandamus may issue to a private body, but only where a public duty is cast upon such private body by a statute or statutory rule and only to compel such body to perform its public duty.
• Merely because a statue or a rule having the force of a statute requires a company or some other body to do a particular thing, it does not possess the attribute of a statutory body.

Referring to Halsbury's Laws of England, 3rd Ed. Vol.30, 12 p.682, wherein it is stated that a public authority is a body not necessarily a county council, municipal corporation or other local authority which has public statutory duties to perform, and which perform the duties and carries out its transactions for the benefit of the public and not for private profit, the Bench opined that there cannot be any general definition of public authority or public action. The facts of each case decide the point.

Considering the fact that the High Court protected the interest of the parties while rejecting the writ petition on the ground of its maintainability, the Apex Court dismissed the petition and ordered, “... if the petitioner has any grievance to redress against the finance company it shall be open for the petitioner to avail appropriate legal remedy before the appropriate forum in accordance with law including approaching the Ombudsman of the RBI.”

Cause Title: S Shobha v. Muthoot Finance Ltd. (Neutral Citation: 2025 INSC 117)

Appearance:

Petitioner: AOR Brajesh Kumar, Advocates Saurav Kumar, Neha Kumari Singh, Sachin Verma

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