Introduction
In S. Shobha v. Muthoot Finance Ltd., Special Leave Petition (C) Nos. 2625-2627 of 2025 (decided on 24 January 2025), the Supreme Court of India reaffirmed the limited scope of writ jurisdiction under Article 226 of the Constitution, holding that private non-banking financial companies (NBFCs) like Muthoot Finance Ltd. are not “State” or instrumentalities of the State under Article 12. Consequently, writ petitions cannot be entertained against such private entities unless they discharge public functions or duties akin to governmental functions.
1. Factual Background and Procedural History
The petitioner, S. Shobha, had availed a gold loan from Muthoot Finance Ltd., a private NBFC. During the pendency of litigation, the company allegedly acted contrary to an interim order and auctioned the pledged gold. Aggrieved by this, the petitioner filed writ petitions before the High Court, seeking relief under Article 226.
A Single Judge entertained the petition despite acknowledging that Muthoot Finance did not qualify as a “State” under Article 12. However, the Division Bench of the High Court reversed this, ruling that no writ would lie against a private company not discharging public functions. The petitioner then approached the Supreme Court, challenging the High Court’s order dismissing the writ petitions on maintainability grounds.
2. Identification of Legal Issues
The Supreme Court considered the following legal issues:
- Whether a writ petition under Article 226 is maintainable against a private finance company like Muthoot Finance Ltd.
- Whether a company governed by RBI regulations becomes amenable to writ jurisdiction.
- What is the applicable test to determine if a private body is performing public functions warranting judicial review.
- Whether regulatory oversight by statutory authorities like the RBI transforms private conduct into public action.
- What remedies are available to a borrower aggrieved by the conduct of a private NBFC.
3. Arguments of the Parties
Petitioner – S. Shobha:
- Asserted that though Muthoot Finance is a private entity, it is governed by RBI regulations.
- Claimed that violation of such statutory guidelines renders it amenable to judicial review.
- Argued that the NBFC performed functions that affect public interest and thus must comply with public law standards.
- Contended that the company violated interim court orders, justifying writ intervention.
Respondent – Muthoot Finance Ltd.:
- Emphasized that it is a private company registered under the Companies Act, 1956.
- Asserted that it does not perform any public or sovereign function.
- Claimed the dispute was contractual in nature, governed by a loan agreement that includes an arbitration clause.
- Argued that civil and arbitral remedies are the proper legal recourse—not a writ petition.
4. Court’s Analysis and Reasoning
On Maintainability under Article 226:
The Supreme Court upheld the High Court’s conclusion that Muthoot Finance is not a “State” under Article 12 and does not discharge any public duty. Therefore, no writ petition can lie against it under Article 226. The Court reiterated that:
- Writ jurisdiction is generally reserved for State entities or non-State actors discharging public functions.
- A mere breach of RBI guidelines or contract terms by a private NBFC does not create a public law remedy.
- The presence of an arbitration clause further supports the conclusion that private remedies are available and should be pursued.
Public Function Test:
The Court extensively relied on prior rulings, including:
- LIC of India v. Escorts Ltd. (AIR 1986 SC 1370): Distinguished between private law and public law domains.
- Sukhdev v. Bhagatram (AIR 1975 SC 1331): Recognized that the “governing power” must be subjected to constitutional limits if performing public duties.
- R v. Panel on Takeovers and Mergers (1987): Emphasized the “function test” over the “form test” to determine public law applicability.
However, the Court held that Muthoot Finance:
- Performs commercial functions,
- Has no statutory obligation to serve the public at large,
- And acts within the private contractual framework with its borrowers.
Hence, it fails the public function test.
Summarized Legal Principles:
The Court distilled its reasoning into key principles:
- A writ may lie against non-State actors only when they discharge statutory or public duties.
- Regulatory compliance (e.g., RBI norms) does not by itself create public law obligations.
- Mandamus lies only to compel statutory or public duties—not private contractual obligations.
- Civil suits, arbitration, or statutory complaints (e.g., to the RBI Ombudsman) are the appropriate remedies in such cases.
5. Final Conclusion and Holding
The Supreme Court dismissed the petitions, affirming that:
- Muthoot Finance Ltd., as a private NBFC, is not amenable to writ jurisdiction under Article 226.
- Writ petitions against such entities are not maintainable unless they perform a public duty imposed by law.
- Petitioners must seek redress through civil suits, arbitration, or statutory complaints, not through constitutional writs.
The Court also protected the parties’ interim interests by directing the auction proceeds of ₹24,39,085 to remain in deposit with the Registry, allowing the petitioner to earn interest but not withdraw or encumber the amount.
FAQs:
1. Can a writ petition be filed against Muthoot Finance Ltd. or similar private NBFCs?
No, writ petitions under Article 226 are not maintainable against private NBFCs like Muthoot Finance Ltd. unless they perform public duties or are State instrumentalities.
2. Do RBI regulations make NBFCs subject to judicial review under Article 226?
Not by themselves. Regulatory compliance obligations do not convert private financial companies into public bodies amenable to writ jurisdiction unless a public duty is involved.
3. What legal remedies are available against NBFCs like Muthoot Finance?
Aggrieved borrowers can file civil suits, initiate arbitration proceedings if there’s an arbitration clause, or approach the RBI Ombudsman for grievances.
4. What is the “public function test” under Article 226?
It determines whether a private entity is performing duties or functions of public importance akin to governmental responsibilities, making it subject to writ jurisdiction.
5. Can writ jurisdiction be invoked for violation of an interim court order by a private company?
Not unless the company is discharging a public function or statutory obligation. Violations of interim orders in contractual disputes must be addressed in civil or arbitral forums.
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