Financial Institution Necessary Party To Challenge Freezing Order: AP High Court Rejects School Teacher's Plea Against Account Freeze

Emphasizing on significance of impleading a necessary and proper party to the petition, Justice Subba Reddy Satti observed,

“A “necessary party” is a person who ought to have been joined as a party and in whose absence no effective decree could be passed at all by the court. If a “necessary party” is not impleaded, the suit itself is liable to be dismissed. A “proper party” is a party who, though not a necessary party, is a person whose presence would enable the court to completely, effectively and adequately adjudicate upon all matters in dispute in the suit, though he need not be a person in favour of or against whom the decree is to be made.”

The court said that the petitioner was aware of the tribunal's order directing the bank to freeze her account, passed on an application made by the Financial Institution/Creditor. Having filed a copy of the Tribunal's order, for the reasons best known, the petitioner did not add the financial institution as a party respondent to her writ petition, the court observed. 

"In the considered opinion of this Court, whether the writ petition is maintainable or not, the financial institution is a necessary and proper party for a proper and better adjudication of the lis. In the absence of the financial institution as party respondent, coupled with the interim order passed by the Arbitral Tribunal, the writ petition itself is not maintainable. The contention of learned counsel for the petitioner that freezing of account violates Articles 14, 21 and 300-A of the Constitution of India, in the considered opinion of this Court, is misconceived," the court said.

Background

The writ petition was filed by a Government Teacher against an order of State Bank of India (Respondent) whereby her bank account was frozen from May, 2024, onwards in pursuance to an order passed by the Sole Arbitrator. 

The petitioner had obtained a loan of Rs.19.5 lakhs in December 2022, and an amount of Rs. 38,530 was being deducted as EMI. The remaining amount of Rs.44,573 had been freezed by the respondent from May, 2024 onwards without jurisdiction and notice.

Upon approaching the bank, the petitioner was informed for the first time, that the bank had received an order from the Tis Hazari Court to mark hold of the petitioner's account under section 17 of the Arbitration & Conciliation Act, upon an application was filed by M/s Piramal Capital & Housing Finance Limited.

It was the case of the petitioner that her salary was her asset and neither any notice was given nor any enquiry was conducted before freezing the salary. This amounted to a violation of the due process requirement and thus infringed her fundamental rights under Articles 14, 19 and 21 of the Constitution.

The Bank countered by stating that the financial institution was not made as party respondent to the writ petition. Additionally, the petitioner had not availed the remedy under the Arbitration & Conciliation Act and a writ petition was not an is not maintainable. 

Thus, the Court was to determine— (i) whether the freezing of bank account of the petitioner by the respondent, in pursuance of the order passed by the Arbitral Tribunal, violated the principles of natural justice and the petitioner's fundamental, and (ii) whether the writ petition was maintainable without arraying the financial institution as party respondent to the petition.

Findings

Additionally, the court noted that it is impermissible for the writ petitioner to approach the High Court demanding exercise of its extraordinary jurisdiction to annul the order passed by the Tribunal when when an interim order has already been passed by a competent Arbitral Tribunal and the efficacious remedy under Section 37 (Appealable orders) of the Act is not exhausted. In this regard, the Court further held,

“As seen from the copy of the order filed along with the writ petition, an interim order was passed by the Tribunal. The petitioner should have approached the Tribunal by making an application or an application under Section 34 of the Act, a proper and effective remedy. Without availing the proper and effective remedy, invoking the jurisdiction of this Court, the writ petition itself is not maintainable.”

Regarding the submission that the bank was frozen without tendering any notice to the petitioner, which amounted to arbitrariness, the Court held,

“This Court is unable to concur with the said submission. In the considered opinion of this Court, the said submission lacks merit. Since the competent tribunal passed an order directing the bank to freeze the bank account, being a judicial order, the respondent-bank should implement the order, in its letter and spirit. Indeed, the respondent bank implemented the order passed by the tribunal. The petitioner, without availing an efficacious remedy under the Act and without arraying the financial institution, filed the writ petition. On both counts, the writ petition is liable to be dismissed.”

Finding no merit in the petition, the Court dismissed it. 

Case Title: PAMPANA KALYANI v. STATE BANK OF INDIA

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