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2004 DIGILAW 203 (KER)

Johny Kuruvilla v. Reserve Bank of India

2004-05-26

M.RAMACHANDRAN

body2004
Judgment :- M. Ramachandran, J. The issue that has been agitated by the petitioner is justifiability and suitability of Ext.P2 and P3 circulars issued by the Reserve Bank of India dated 29.4 2003 and 26.6.2003. The cumulative effect of the above circulars is that Primary Co operative Banks of the country are not to make, provide or renew either secured nor unsecured loans and advances nor extend any 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 member of the Director Board of the Bank. Petitioner felt that the above was high-handed and unnecessary interference with his basic rights. It has resulted in the Writ Petition. 3. Sri. S. Easwaran, learned counsel appearing for the petitioner projected two grounds in support of his attack. The powers of the Reserve Bank of India, according to the counsel, for issuing circulars could be tranced to S.21 and S.35A of the Banking Regulation Act, 1949 alone. Even though such powers are invoked in the present orders, a scrutiny, will reveal that there has not been any independent consideration at the instance of the Reserve Bank of India while issuing such circulars. Petitioner does not dispute that, where the Reserve Bank of India is satisfied that it is necessary and expedient in public interest and in the interest of the Banking policy or to the interest of the depositors or to the interests of the banking company generally, power is there to issue circulars binding the banking companies. But he is categoric that there has not been any independent consideration at the level of the Bank for bringing this restriction. The petitioner's right to avail overdraft facilities, was settled over a period of time and he was uninterruptedly enjoying it from 1990 onwards. But he is categoric that there has not been any independent consideration at the level of the Bank for bringing this restriction. The petitioner's right to avail overdraft facilities, was settled over a period of time and he was uninterruptedly enjoying it from 1990 onwards. Even though reference is made to the Parliamentary Committee Reports as leading to the above such circulars, he is positive that they cannot be taken as materials, since power is expressly limited to issue circulars 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 fundamental rights of the petitioner and he stands discriminated under Art.14 of the Constitution of India. 5. The submissions made as above has been controverted by the Reserve Bank of lndia by way of a counter affidavit filed by them. I had heard Sri.Jacob Varghese, Standing Counsel for the Bank. He submits that the Reserve Bank of India is expected to issue circulars under Ss. 21 and 35A of the Banking Regulation Act as occasions necessarily arises. He refutes the further submission of the learned counsel for the petitioner that there was no satisfaction of the Reserve Bank of India before the promulgation of the two circulars. As a matter of fact, the monitory and credit policy for the year 2003 and 2004 issued by the Bank are positive to indicate that every aspects had been considered by the Bank and they have come to an independent conclusion that such restrictions are eminently required. It is conceded that basically the idea had been instilled because of the report of the Joint Parliamentary Committee. But such materials adequately could be basis for formulating a policy. It is conceded that basically the idea had been instilled because of the report of the Joint Parliamentary Committee. But such materials adequately could be basis for formulating a policy. When Joint Parliamentary Committee had recommended that such measures are to be adopted, it would not have been justifiable on the part of the Reserve Bank of India to discard the suggestion. The Joint Parliamentary Committee was conceded about the issue of financial well being of the country. Regulations thereafter were issued purely in public interest after due deliberations and there was nothing 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 the directors and their relatives and the concerns in which they are interested". It was in line with the above recommendation, the Urban Co-operative Banks were prohibited from extending loans and advances to specified class of persons. It is submitted by the learned counsel that the Securities Scam, that rocked the country and the Stock Market in the year 1992-93 had resulted in the Joint Parliamentary Committee examining the issue. Not only the Urban Banks were subjected to examination. A cross section of banking companies/financial institutions came within the purview of scrutiny of the Committee. When we digest these materials supplied by the Reserve Bank, the inescapable conclusion is that measures for public interest alone have been implemented. The wealth of materials available from the Joint Parliamentary Committee report, like any other documents could have been the basis for the circulars of the Bank. When we digest these materials supplied by the Reserve Bank, the inescapable conclusion is that measures for public interest alone have been implemented. The wealth of materials available from the Joint Parliamentary Committee report, like any other documents could have been the basis for the circulars of the Bank. Also, it may not be within the scope of jurisdiction of this Court to probe into the deliberations the had been carried out by the Reserve Bank, when once we find that such measures were to curb the possible misuse of position of persons, who were at the helms of affairs of Urban Banks. That the petitioner, as an individual account holder, was having a clean record, can have no relevance there when a policy decision is implemented. The adage, it appears could be appropriately quoted here, viz., that "a stitch in time saves nine". The argument that there was no satisfaction recorded by the Reserve Bank before the circulars were issued can have no basis, and 1 hold so. It has beenwell 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 S.20 of the Banking Regulation Act. However, in experience, it was found that the provision was not sufficient enough to restrict the directors availing of loans in the name of their relatives. Effectively there was loopholes for evasion of the stringent provisions of S.20. The circulars had been intended to curb the mischief as above and it was only for public benefit and for the purpose of strengthening the economy. I think this is a satisfactory answer and the classification of a group of persons as relatives of the directors, cannot be considered as objectionable or arbitrary. In the above said circumstances, the petition is not entertainable. 8. Because of the interim orders that have been passed on 6.4.2004, the petitioner has been permitted to continue to avail of the facilities. In the above said circumstances, the petition is not entertainable. 8. Because of the interim orders that have been passed on 6.4.2004, the petitioner has been permitted to continue to avail of the facilities. The learned counsel submits that the transactions are being routinely carried on and in case it is terminated forthwith, the petitioner may be put into a very difficult situation. The respondent Bank is prepared to give him accommodation as they always were. Accordingly, I direct that the petitioner should be permitted to close the accommodation given to him by 31.8.2004. But it will always be on the risk of himself and the Bank, as had been provided by the interim orders, on the strength of which the arrangements had continued. The Writ Petition is dismissed.