[RBI Master Circular on fraud classification] Bombay High Court stays action by banks till September 11

Bombay High Court: In a batch of petitions challenging the actions taken by banks in pursuance of Frauds (Classification and Reporting by Commercial Banks and Select FI) Directions, 2016 (‘RBI directions’) issued by the Reserve Bank of India (‘RBI’), G.S. Patel and Neela Gokhale, JJ. imposed stay to restrict actions by banks and their in-house committees in furtherance of the Master Circular.

As pointed out by the Court in the instant matter, the Supreme Court had considered the said RBI directions in SBI v. Rajesh Agarwal, 2023 SCC OnLine SC 342 and concluded regarding classification of an account as fraud being akin to blacklisting and opportunity of being heard by following audi alteram partem. Thereafter, the State Bank of India (‘SBI’) filed an application apprehending that the Supreme Court’s judgment in SBI v. Rajesh Agarwal (supra) may be interpreted to mean that mandatory personal hearing, the Supreme Court pointed at the specific paragraphs to be taken as operative directions and disposed of the matter.

The Court noted that all the petitions in the instant matter complained against the violation of principles of natural justice while following RBI directions, not being afforded the opportunity of hearing, not receiving copies of material relied upon, etc. The Court found it necessary to issue Rule and grant stay against further actions by banks in furtherance of Master Circular for impugned RBI directions till 11-09-2023. The stay would restrict actions by banks and their in-house committees under the RBI directions in question.

The Court also clarified that the instant petitions would ordinarily have been decided immediately, but the matter requires several procedural steps to complete the pleadings. The Court listed the entire group of hearing for final disposal on 7-09-2023 and 8-09-2023.

The Court also clarified that the instant order would not interfere with the matters wherein the Central Bureau of Investigation (‘CBI’) was involved, and criminal proceedings were in progress. It further explained that “investigating agencies are at liberty to file and proceed with FIRs without reference to any findings by the bank under the Master Circular in question. Equally, all remedies available in law to private parties remain unaffected by this order and may be pursued.”

The Courts also kept the Banks at liberty to rescind, withdraw or cancel any orders already passed under the RBI directions which may be inconsistent with Supreme Court’s decision in SBI v. Rajesh Agarwal (supra). The Banks may also re-initiate the process consistent with the said decision. Since the Master Circular of RBI directions was not struck down by the Supreme Court, the High Court did not stay the operation of the said directions.

[SS Hemani v. The Reserve Bank of India, 2023 SCC OnLine Bom 1226, dated 19-06-2023]

Advocates who appeared in this case :

For Petitioner: Advocate Mayur Khandeparkar, Advocate Niret Mehta, Advocate Alya Khan, Senior Advocate GS Godbole, Advocate Devashish Godbole, Advocate Prasad Nagargoje, Advocate Ryan Peter, Senior Advocate Gaurav Joshi, Advocate Shreni Shetty, Advocate Antara Kalambi, Senior Advocate Milind Sathe, Advocate Abhishek Kale, Advocate Arya Bile, Advocate Parikshith K., Senior Advocate Aabad Ponda;

For Respondents: Advocate Alok Mishra, Advocate VN Ajitkumar, Advocate Rajan Pillai, Advocate Prasad Shenoy, Advocate Aditi Phatak, Advocate Vijay Salokhe, Advocate Anant Bamne, Advocate AR Bamne, Advocate Ramchandra Apte, Advocate Mayuresh Lagu, Advocate Akanksha Hambir, Advocate Rathina Maravarman, Advocate Yashvi Shah, Advocate Nishit Dhruva, Advocate Prakash Shinde. Advocate Niyati Merchant, Advocate Yash Dhruva, Advocate Harsh Sheth, Advocate Kuldeep A Patil, Advocate Priya Nigwekar, Advocate Purnima Awasthi, Advocate Parag Vyas, Advocate Karuna Yadav, Government Pleader PH Kantharia, Advocate Dashrath Dube, Advocate YR Mishra, Advocate Bharat Mirchandani, Advocate Hiten Venegaonkar, Advocate Alizain Patel, Advocate Jamshed Ansari, Advocate Sagar Chaturvedi, Advocate Shreeram Shirsat.