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Privatization of Public Sector Banks: Can Judiciary Play a Role to Protect the Interests of Employees?

In a first of its kind move, the Finance Minister of India Smt. Nirmala Sitharaman in her budget speech for the fiscal year 2021-22 announced that the Government will privatize two public sector banks (PSB’s) and one insurance company in the year 2021-22.  As soon as the news proliferated the employees of Public Sector Banks went on nationwide strike on 15th -16th March 2021 expressing their displeasure at the intention of Government to privatize PSB’s. The primary reason of the strike was that the privatization would be inimical to the interest of the employees presently working in these PSB’s. In response to this strike and to assuage the concerns of PSB’s employees the Finance Minister in her press statement on 16th March, 2021 clarified that the interest of employees working in PSB’s will be protected at all cost. In pursuance of the aforesaid intentions the NITI Aayog on June 3, 2021 has recommended the names of two PSB’s to the Government panel for privatization.

The legislative or executive measures to protect the interest of PSB’s employees are yet to be deliberated upon. But can judiciary pave the way for safeguarding the interests of these employees? Is there a need to revisit the earlier restrictive interpretation of Article 226 which excluded private banks from its wide sweep? Is it the need of hour to allow writ petitions against private banks?

Through this article I discuss that the proposition explicated by the Supreme Court in Federal Bank case, whereby Private Banks were excluded from the purview of Article 226 needs to be relooked into and consequently writ petitions preferred under Article 226 against the private banks should be held as maintainable particularly in the wake of Government’s intention to privatize PSB’s.


Remedy of Article 226 against Private Establishments

Article 226 of the Constitution prescribes that High Courts have the power to issue writs to ‘any person or authority’ Through catena of judgements it is now well settled in the ethos of constitutional jurisprudence in India that a Writ Petition under Article 226 of the Constitution would lie against a purely private establishment performing public duties. The Supreme Court made an emphatic observation in ZEE Telefilms v. Union of India, wherein it dilated that a private body performing public functions is amenable to writ jurisdiction of High Courts under Article 226 and concomitantly on this reasoning Board of Control of Cricket in India (BCCI) was held amenable under Article 226. On a similar reasoning the Supreme Court in Marwari Balika Vidyalaya v. Asha Srivasatva and Ors. observed that a writ petition against a private unaided educational institution is maintainable as imparting education is a public duty.

Ratio of above decisions is crystal clear that a writ petition under Article 226 is maintainable against a private body performing public duties. Now, two pertinent question arises (i) Do private banks perform public duty (ii) If yes, then should they be amenable to writ jurisdiction of High Courts?


Public Duty and Banks 

Courts have often deliberated upon when an establishment can be said to be performing public duties. Supreme Court in Binny Ltd. v. V. Sadasivan took a view that a body is performing public duties when its purpose is to collectively benefit the public at large or in other words when it ‘participates in social or economic affairs’ of the country in ‘public interest’. Banks, be it private or public, participate in the economic affairs of the country and perform pivotal role in the financial sector of our economy. Private banking institutions also performs myriad functions which are inextricably connected with day to day lives of the entire population.

Before a company can start its banking business in the country, it has to mandatorily obtain license from Reserve Bank of India (RBI) under Section 22 of the Banking Regulation Act (“Act”) and muster through the rigors mentioned therein. Bare perusal of clauses of Section 22 of the Act would demonstrate that ‘public interest’ is of topmost priority for RBI while deciding a licensing application. For instance, Section 22 (3)(e) of the Act states that RBI shall grant a license to a private bank only after it is satisfied that public interest would be served.

Applying the ‘Participation in Social and Economic Affairs’ test or the ‘Public Interest’ test or any other parameter, it can invariably be concluded that private that private bank performs public duties.

The ratio of Supreme Court in Janet Jeyapaul v. SRM University needs to be applied to private banks also. In the above case the primary question before the Court was whether the termination of teacher of a Private Deemed University can be challenged before a Writ Court. The Supreme Court answered the question in affirmative primarily on three grounds (i) The act of imparting education is a public function (ii) the University is Deemed University under Section 3 of the UGC Act (iii) All the provisions of the UGC Act are applicable to the University in order to effectively discharge its public function. Drawing the same analogy to private banks, they are also (i) Performing public functions (ii) Are granted license by RBI under Banking Regulation Act, 1949 (iii) Have to prescribe mandatorily to the provisions of the Banking Regulation Act and the guidelines and circulars issued by RBI from time to time to discharge its public function. Satisfying all the above conditions, the case for exercise of jurisdiction by High Courts under Article 226 to review the decisions made by the private banks is definitely made out.

A silver lining could be found in the recent decision of Calcutta High Court in the matter of Pearson Drums & Barrels Pvt. Ltd. v. Reserve Bank of India and Ors., wherein the writ petition was filed seeking refund of processing fee from IndusInd Bank. The High Court disregarding all technical objections as to maintainability issued a direction to Private (IndusInd) Bank to refund the processing fees as claimed by the petitioner under its writ jurisdiction. This decision could be taken as a paradigm shift from earlier stance of the Courts that Writ Petition against private banks is not maintainable and could act as a catalyst prompting the Courts to revisit their earlier judgements qua maintainability of Writ Petitions against private banks.


Safeguarding Interests of Employees

With the avowed objective of privatization of banks, the question that will necessarily arise is that who will protect the interests of employees who were earlier working under Government owned corporations but after privatization shall be transferred to private companies, that too without their choice. A workman as defined under Section 2(s) of Industrial Disputes Act, 1947 has the remedy to go to Labour court/Industrial Tribunal for redressal of his grievance. But the protection of the Industrial Disputes Act is not available to person employed in a managerial, administrative or supervisory capacity. Let us understand this by way of an example. Supposedly if a manager is illegally terminated from the newly formed Private Bank (erstwhile Public Sector Bank), he will have no remedy to seek reinstatement of his service because neither he can file an application before the Labour Court( as Industrial Disputes Act is not applicable to him) nor he can get the relief of reinstatement from Civil Court as enforcement of a contract which involves performance of continuous duty that cannot be supervised by Courts is barred by Section 14(b) of the Specific Relief Act. So, at best the illegally terminated manager can file a civil suit for damages.

This would perhaps result in an anomalous and discriminatory approach wherein the earlier protection awarded to the manager or a person in an administrative/supervisory capacity to challenge his termination under Article 226 (as he was working in a PSB) would now be taken away under the garb of privatization of banks, leaving him helpless in case he is illegally terminated from service by the newly formed private bank. Therefore, in order to protect the interest of employees that will be transferred to private banks, it is imperative that the judiciary extend the umbrella of Article 226 to private banks also.



The Government decision to privatize two PSB’s could very well be taken as a harbinger of its larger goal of disinvesting in PSB’s. That certainly means, in future years the country is going to witness more privatization of PSB’s and other public limited companies. The employees working in PSB’s will be on tenterhooks apprehending that their interest may be subdued under the guise of privatization of banks. One certain measure to alleviate this distress, lies in the hands of judiciary i.e. to entertain writ petitions against private banks.



Arihant Samdaria is currently pursuing B.A. LL.B. (Hons.) from Dr. Ram Manohar Lohia National Law University Lucknow. He has a deep-rooted interest in Constitutional and Criminal Laws.

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