Banking Law Case: Piyush Bahadur Amatya vs. Nepal Rastra Bank, NKP (2064), No. 8, P. 1034.
Case: Certiorari and Related Writs
Petitioner/Applicant: Piyush Bahadur Amatya
Defendant/ Respondents: Nepal Rastra Bank and others.
Decision Number: 7872
This case is related to whether blacklisting the directors and shareholders of a loan-defaulting company violates their constitutional rights and whether they must be given a hearing before blacklisting.
Facts of the Case:
Phulwari Ltd. was a company operating a five-star hotel in Pokhara. To construct the hotel, it received loans totaling NPR 31 crore from Nepal Bank Limited and Rastriya Banijya Bank. The company later faced serious financial difficulties due to the collapse of Nepal’s tourism industry and could repay only a small part of the loan.
The banks recognized the company’s financial difficulties and had agreed to support and restructure the loan. The company repeatedly requested the banks to implement this agreement. However, the banks later changed their position and required the company to deposit 25% of the outstanding interest within 15 days before considering rescheduling.
The company argued that it was a sick industry and that the financial problems were caused by circumstances beyond its control. It also claimed that the banks’ new demand was contrary to their earlier agreement.
Later, the banks sent the names of the company’s directors and shareholders, including Piyush Bahadur Amatya, to the Credit Information Centre for blacklisting as “willful defaulters.” The company and the affected individuals were not given prior notice or an opportunity to explain their position.
They challenged the blacklisting, arguing that the banks had violated the principles of natural justice and the applicable credit information rules. They also claimed that the blacklisting unfairly restricted their rights and was done without proper legal authority.
Legal Issues:
- Whether the blacklisting of the petitioner without a prior hearing was lawful.
- Whether the Credit Information Centre had legal authority to blacklist the petitioner.
- Whether blacklisting violated the petitioner’s constitutional rights.
- Whether the petitioner was entitled to challenge the blacklisting through a writ petition.
Different Courts’ Decisions:
Patan Appellate Court:
The Appellate Court, Patan, issued an interim order stopping the group of lending banks from taking loan-recovery action until the related contractual dispute was resolved.
Supreme Court:
The Court held that banks have a statutory right to recover loans and take lawful recovery measures against defaulting borrowers. Since the company had failed to repay its loans, it could not challenge lawful recovery action simply by invoking the Supreme Court’s writ jurisdiction.
On natural justice, the Court held that blacklisting did not amount to punishment or cause a civil penalty. It only prevented the company and its directors from obtaining further loans from the concerned banks until the debt was repaid. Therefore, a prior hearing was not required before blacklisting.
The Court also held that the blacklisting directive and the Credit Information Centre had valid legal authority under the applicable Nepal Rastra Bank laws and regulations.
Regarding loan rescheduling, the Court held that rescheduling or restructuring a loan is a banking discretion, not a legal or fundamental right. Therefore, refusal to provide the same facility to the petitioner did not violate the right to equality.
The Court further held that blacklisting did not prevent the petitioner from carrying on a business, profession, or other economic activities. It only restricted further borrowing from the concerned banks until the outstanding loan was repaid. Therefore, there was no violation of the rights to equality, profession, or property.
The Court concluded that the blacklisting was lawful and did not violate the petitioner’s rights. The writ petition was therefore dismissed.
Principle Established:
- A loan defaulter cannot challenge lawful recovery or blacklisting merely through writ jurisdiction.
- Prior hearing is not required for blacklisting when it only restricts further borrowing and imposes no penalty.
- Directives under a repealed law remain valid unless the new law expressly cancels them.
