2020 (1) TMI 171 - HC - Indian Laws

Legality and validity of directives issued by the Chief General Manager, Reserve Bank of India, Mumbai dated 23rd, 24th, 26th September, 2019 and 3rd and 14th October, 2019 - withdrawal of restrictions imposed in exercise of its power conferred under Section 35A of the Banking Regulation Act, 1949 - restriction on withdrawal of amount from Bank - HELD THAT - The overriding power of the RBI under section 35A enables it to record a satisfaction and to take measures so as to prevent the affairs of the bank being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company. We think that on the basis of the available material, the RBI was rightly satisfied that such protective measures are indeed necessary and therefore, it must issue the directions. Further, it has been stated by the RBI in its affidavit that upto 78% of the depositors could withdraw their entire deposits despite these protective measures. We do not think that we can, in writ jurisdiction, substitute the opinion or satisfaction of the RBI with our order or direction, much less to the contrary. We possess no experience and expertise in financial and fiscal matters. In matters of banking practices and the business of banking and its regulation, we must leave everything to the wisdom of the RBI. In fact, the presumption is that it will prevent the acts conducted in a manner prejudicial to the interest of depositors. We do not think that any proof to the contrary has been placed before us and on the sketchy materials in the form of averments and allegations, which are sweeping and general, we can not set aside the impugned directives. The RBI has deliberately not stepped in earlier or has stepped in belatedly in order not to protect the public interest or the interest of the depositors or the banking company, but allowed some of the officials, managing the affairs of the P MC Bank, to get away We do not think that the RBI can be faulted for issuing the directions as are impugned in these petitions. We also cannot interfere with the limits placed by the RBI on the withdrawal. In fact, the RBI has acted fairly, justly and reasonably in revising the limits on withdrawal from time to time. When the first limit of ₹ 1,000/- was placed, the RBI was aware of the hardship and difficulty of depositors. In a timely manner, it has stepped in to enhance the limit and which is now enhanced as aforenoted. The aspects covered by the RBI regarding medical emergencies and education are such that in appropriate cases, depending upon the facts brought before the Administrator, he can allow the withdrawal up to specific limits - We do not think that the petitioners, styling themselves aggrieved investors and depositors, can complain. Each of these petitions have no merit and they deserve to be dismissed - no interference is permissible with the impugned directions of the RBI as they are based on the pre-requisites or the pre-satisfaction in terms of section 35A of the Act of 1949. Petition dismissed.

Issues Involved:
1. Challenge to RBI directives.
2. Withdrawal restrictions under Section 35A of the Banking Regulation Act, 1949.
3. Obligations of RBI and the Deposit Insurance and Credit Guarantee Corporation.
4. Role of Central and State Governments under the Multi-State Co-operative Societies Act, 2002.
5. RBI's audit and inspection mechanisms.
6. Maintainability of writ petitions under Article 226 of the Constitution of India.
7. RBI's intervention and its impact on depositors.
8. Reliefs sought by depositors and educational institutions.

Detailed Analysis:

1. Challenge to RBI Directives:
The petitioners challenged the directives issued by the Chief General Manager, RBI, Mumbai, dated 23rd, 24th, 26th September, 2019, and 3rd and 14th October, 2019, under Article 226 of the Constitution of India. They sought withdrawal of restrictions imposed under Section 35A of the Banking Regulation Act, 1949.

2. Withdrawal Restrictions under Section 35A of the Banking Regulation Act, 1949:
The petitioners questioned the restrictions placed on the withdrawal of amounts by depositors, arguing that the hardship limits prescribed were arbitrary, unreasonable, and did not cover extraordinary circumstances. The RBI's directives limited withdrawals to ?40,000, with exceptions for specific needs like marriage, education, and medical assistance.

3. Obligations of RBI and the Deposit Insurance and Credit Guarantee Corporation:
The petitioners argued that the RBI had an obligation to ensure depositors did not suffer and that the Deposit Insurance and Credit Guarantee Corporation should make sufficient funds available for easy and unhindered withdrawal of deposits. The RBI, in its affidavit, stated that it had conducted statutory inspections and audits at regular intervals and had taken necessary actions based on its findings.

4. Role of Central and State Governments under the Multi-State Co-operative Societies Act, 2002:
The petitioners sought a direction to the Central and State Governments to exercise their powers under the Multi-State Co-operative Societies Act, 2002, to provide aid to the bank in question. They argued that the Central Government had a duty under Section 61 of the Act to aid Multi-State Co-operative Societies.

5. RBI's Audit and Inspection Mechanisms:
The RBI, in its affidavit, detailed its audit and inspection mechanisms, including statutory inspections under Section 35 read with Section 56 of the Banking Regulation Act. The RBI's inspection team had discovered financial irregularities and fraudulent transactions involving the bank's dealings with HDIL Group, which led to the issuance of the impugned directives.

6. Maintainability of Writ Petitions under Article 226 of the Constitution of India:
The RBI argued that the writ petitions were not maintainable as they involved policy matters and the RBI's actions were based on its satisfaction and expertise in financial and fiscal matters. The court agreed, stating that it could not substitute the RBI's opinion or satisfaction with its own.

7. RBI's Intervention and Its Impact on Depositors:
The RBI's intervention was aimed at protecting the interest of the bank and its depositors, preventing further damage, and providing an opportunity to rectify irregularities. The court found that the RBI had acted fairly, justly, and reasonably in revising the limits on withdrawals and that the petitioners had not provided any contra material to prove otherwise.

8. Reliefs Sought by Depositors and Educational Institutions:
The petitioners, including an educational institution, sought reliefs to allow withdrawals for specific needs like medical emergencies, education, and marriage. The court found that the RBI had already provided for such exceptions and had enhanced withdrawal limits in a timely manner.

Conclusion:
The court dismissed all the writ petitions and the PIL, stating that the RBI had acted within its powers under Section 35A of the Banking Regulation Act, 1949, and that the petitioners had not provided sufficient material to prove that the RBI's actions were arbitrary or unreasonable. The court also held that the Central and State Governments could not be compelled to provide aid to the bank under Section 61 of the Multi-State Co-operative Societies Act, 2002, in the absence of a specific request from the bank.

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