PENALTIES THAT CAN BE IMPOSED BY RESERVE BANK OF INDIA

[Mr. M. GOVINDARAJAN]

Functions of RBI

The Reserve Bank of India (‘RBI’ for short) is a statutory body established under the Reserve Bank of India Act, 1934.  RBI performs the following functions-

• Monetary authority;
• Regulator and supervisor of the banking and financial system;
• Manager of foreign exchange;
• Issuer of currency;
• Development role;
• Regulator and supervisor of Payment and Settlement systems;
• Other related functions.

Administration of laws by RBI

RBI administered the following Acts as amended from time to time-

• Reserve Bank of India Act, 1934;
• Government Securities Act, 2006 read with Government Securities Regulations, 2007;
• Banking Regulation Act, 1949;
• Foreign Exchange Management Act, 1999;
• Credit Information Companies (Regulation) Act, 2005;
• Payment and Settlement Systems Act, 2007 and regulations, 2008;
• Factoring Regulation Act, 2011.

Penalties

RBI can levy penalty for the contravention of provisions of any law abovesaid and its circulars issued from time to time.  The penalty that can be imposed by RBI is of two types-

• Category A
• Category B

Category A penalties

• Under RBI Act-

• Imposition of penalty on agency banks (vide circular No. DGBA GAD No. 2132/42.01.011/2016-17;
• Penalty/Penal interest for  non-maintenance of CRR and SLR by banks / and SLR for NBFCs (Vide circular No. DOR No. RET.REC.32/12.01.2001/2021-2022;
• Penalty for accepting fresh deposits where the company is prohibited by RBI to do so (Vide section 58G read with sub section (4A) and 5(a) and (aaa) of 58B, sub section (1) of 45IA, 45K, 45MB of RBI Act, 1934.

• Under Government Securities Act-

• Penalty for bouncing of subsidiary general ledger account Forms, vide Circular No.IDMD.DOD.17/11.01.01(B)/2010-11, dated 14.01.2010.

• Under Banking Regulation Act-

• Penalty/penal interest for non-maintenance of CRR and SLR by banks, vide circular No. DOR.No. RET.REC.32/12.01.001/2021-22);
• Penalty/penal interest on CCS/banks vide circular No. DCM CC No. G4/03.35.01/2022-23, date 01.04.2022;
• Penalty/penal interest on CCS/banks vide circular No. DCM CC No. G5/03.44.01/2022-23, date 01.04.2022;
• Penalty for ATM cash out, vide circular No. DCM (RMMT) No. 5153/11.01.11/2021-2022;
• Penalty for accepting fresh deposits where the company is prohibited by RBI to do so, vide section 47A(1)(a)(b)(c) read with section 46(2)(3)(4) of BR Act, 1949.

• Under Foreign Exchange Management Act, 1999-

• Late submission fees for delayed regulatory reporting on account of external commercial borrowings and trade credits availed under FEMA, 1999, vide Notification No. FEMA3(R)/2018-RB, dated 17.12.2018 as amended from time to time and Circular No. A.P. (DIR series) Circular No. 16, dated 30.09.2022;
• Late submission fees for delayed regulatory reporting of foreign investments under FEMA, 1999, vide Notification No. FEMA.395/2019-RB, dated 17.10.2019 and circular No. AP (DIR Series) Circular No. 16, dated 30.09.2022.

• Under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Chapter II)-

• Penalty for contravention of direction of RBI, vide Section 30A of SARFAESI Act, 2002.

• Under Credit Information Companies (Regulation) Act, 2005-

• Penalty for unlawful access of credit information vide Section 25 read with section 22(2), 23(2) and 23(4) of Credit Information Companies (Regulation) Act, 2005.

• Under Payment and Settlement Systems Act, 2007-

• Penalty for submission of false statement or information, vide circular No. DPSS.CO.OD No. 1328/06.08.005/2018-19, dated 10.01.2020;
• Penalty for contravention of any of the provisions of Payment and Settlement Systems Act, 2007 circular No. DPSS.CO.OD No. 1328/06.08.005/2018-19, dated 10.01.2020.

• Under Factoring Regulation Act, 2011-

• Penalty for non-adherence of directions of RBI, vide Section 22, read with section 6 of the Factoring Regulation Act, 2011.

Category B penalties

Penalty of the nature for non-performance or under performance on contractual agreement with third party vendors.

• RBI engages into contractual agreements with third party vendors to avail various services like deployment of shredding and briquetting system and currency verification and processing machines, Annual maintenance contracts etc. at their premises.  As a part of such contracts, say the contract for deployment of shredder and currency machines where such machines, have a downtime or there is faulty machine, RBI recovers penalty amount from such vendors in terms of underlying contract.  Similarly, there can be various other services which RBI may avail from a vendor under a contractual agreement wherein the terms can provide for recovery or levy of penalty under a contractual agreement wherein the terms can provide for recovery or levy of penalty on or from such vendor for non-performance or under performance of the services desired to be availed by RBI.