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TMI Blog2004 (5) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... y other financial accommodation to its directors and their relatives. The term financial accommodation and relative had been defined in the annexure of the order and the relatives include Father, Mother, Son, Son s wife, Daughter, Daughter s husband, Brother, Brother s wife, Sister, Sister s husband etc. 2. The petitioner was having an uninterrupted and well maintained overdraft account with the 2nd respondent Urban Co-operative Bank from 1990 onwards. This was renewed from year to year. The limit was Rs. 1,00,000 originally, but from 1995 onwards, this has been raised to Rs. 2,50,000. The direct result of Ext.P2 and P3 was that an application of the petitioner made to the Bank was rejected for the reason that his brother was a me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irculars only when the Reserve Bank of India is satisfied of the necessity of issuing them. Satisfaction of the third party, namely the Parliamentary Committee, is not a contingency contemplated by the statute and therefore, the circulars are not liable to be followed. 4. The next submission raised by the counsel is that even if such powers were there in the matter of issuing circulars, the effect of the above was to discriminate a specified group of persons viz., the relatives of Directors. They have been put to one class for a special treatment, which is thoroughly artificial and result in serious consequences. The impact of the orders have been wholly over looked by the Reserve Bank of India and this is in violation of the fundamen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng irregular about them or its validity and they operated as binding the Urban Banks. 6. The counsel has also referred to the details of the Policy for the year 2003-2004. Paragraph 116 thereof referred to the observations made by the Joint Parliamentary Committee. The Committee had recommended that "In order to prevent irregularities of the type surfaced in the case of some of the co-operative banks which were examined by the Committee, they are of the view that full ban on granting of loans and advances to the directors and their relatives, or the concerns in which they are interested needs to be imposed. Appropriate legal procedures may be initiated to ensure that there is no conflict of interest in the grant of loans and advances to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfaction recorded by the Reserve Bank before the circulars were issued can have no basis, and I hold so. It has been well settled that circulars issued by the Reserve Bank are law to be obeyed by the Banking companies without exception. 7. The next contention is about the issue of discrimination. Counsel submits that the relatives of directors have been classified without proper justification and it may not be a classification, permissible. However, the answer given is that in respect of directors of banking companies including directors of Urban Co-operative Banks, such restrictions were already there as available under section 20 of the Banking Regulation Act. However, in experience, it was found that the provision was not sufficie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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