Business NewsHot Off The PressNews

Legal Entity Identifier

The Legal Entity Identifier (LEI) is a 20-digit number used to uniquely identify parties to financial transactions worldwide. It was conceived as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis.

 LEI has been introduced by the Reserve Bank in a phased manner for participants in the over the counter (OTC) derivative and non-derivative markets as also for large corporate borrowers.

It has now been decided to introduce the LEI system for all payment transactions of value ₹50 crore and above undertaken by entities (non-individuals) using Reserve Bank-run Centralised Payment Systems viz. Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT).

In preparation for the wider introduction of LEI across all payment transactions, member banks should:

  1. advise entities who undertake large value transactions (₹50 crore and above) to obtain LEI in time, if they do not already have one;
  2. include remitter and beneficiary LEI information in RTGS and NEFT payment messages (details of the identified fields in the messaging structures of RTGS and NEFT for inclusion of LEI information are at Annex);
  3. maintain records of all transactions of ₹50 crore and above through RTGS and / or NEFT.

Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF), the body tasked to support the implementation and use of LEI. In India, LEI can be obtained from Legal Entity Identifier India Ltd. (LEIL) (https://www.ccilindia-lei.co.in), which is also recognised as an issuer of LEI by the Reserve Bank under the Payment and Settlement Systems Act, 2007.

These directions are issued under Section 10 (2) read with Section 18 of Payment and Settlement Systems Act, 2007 (Act 51 of 2007) and shall be effective from April 1, 2021.


Reserve Bank of India

[Press Release dt. 05-01-2020]

Hot Off The PressNews

Opening of Current Accounts by Banks

On a review, it has been decided to permit banks to open specific accounts which are stipulated under various statutes and instructions of other regulators/ regulatory departments, without any restrictions placed in terms of the circular dated August 6, 2020. An indicative list of such accounts is as given below:

  1. Accounts for real estate projects mandated under Section 4 (2) l (D) of the Real Estate (Regulation and Development) Act, 2016 for the purpose of maintaining 70% of advance payments collected from the home buyers.
  2. Nodal or escrow accounts of payment aggregators/prepaid payment instrument issuers for specific activities as permitted by Department of Payments and Settlement Systems (DPSS), Reserve Bank of India under Payment and Settlement Systems Act, 2007.
  3. Accounts for settlement of dues related to debit card/ATM card/credit card issuers/acquirers.
  4. Accounts permitted under FEMA, 1999.
  5. Accounts for the purpose of IPO / NFO /FPO/ share buyback /dividend payment/issuance of commercial papers/allotment of debentures/gratuity, etc. which are mandated by respective statutes or regulators and are meant for specific/limited transactions only.
  6. Accounts for payment of taxes, duties, statutory dues, etc. opened with banks authorized to collect the same, for borrowers of such banks which are not authorized to collect such taxes, duties, statutory dues, etc.
  7. Accounts of White Label ATM Operators and their agents for sourcing of currency.

2. The above permission is subject to the condition that the banks shall ensure that these accounts are used for permitted/specified transactions only. Further, banks shall flag these accounts in the CBS for easy monitoring. Lenders to such borrowers may also enter into agreements/arrangements with the borrowers for monitoring of cash flows/periodic transfer of funds (if permissible) in these current accounts.

3. Banks shall monitor all current accounts and CC/ODs regularly, at least on a half-yearly basis, specifically with respect to the exposure of the banking system to the borrower, to ensure compliance with instructions contained in a circular dated August 6, 2020 ibid.

Please read the notification here: NOTIFICATION


Reserve Bank of India

[Notifications dt. 14-2-2020]

Hot Off The PressNews

Reserve Bank had announced in the Statement on Developmental and Regulatory Policies dated October 09, 2020, that the Real Time Gross Settlement System (RTGS) will be available round the clock on all days of the year. Accordingly, RTGS 24x7x365 was launched with effect from 00:30 hours on December 14, 2020.

India became one of the few countries in the world to operate its RTGS system round the clock throughout the year. This comes within a year of operationalising NEFT 24×7 by the Reserve Bank.

RTGS, which began its operations on March 26, 2004, with a soft launch involving four banks, presently handles 6.35 lakh transactions daily for a value of ₹4.17 lakh crore across 237 participant banks. The average ticket size for RTGS in November 2020 was ₹57.96 lakh making it a truly large-value payment system. RTGS uses ISO 20022 format which is the best-in-class messaging standard for financial transactions. The feature of positive confirmation for credit to beneficiary accounts is also available in RTGS.

Round the clock availability of RTGS will provide extended flexibility to businesses for effecting payments and will enable the introduction of additional settlement cycles in ancillary payment systems. This can also be leveraged to enhance operations of Indian financial markets and cross-border payments.


Reserve Bank of India

[Press Release dt. 09-12-2020]

Hot Off The PressNews

Cooling Period

To inculcate discipline and encourage the submission of applications by serious players as also for effective utilisation of regulatory resources, it has been decided to introduce the concept of Cooling Period in the following situations –

  1. Authorised Payment System Operators (PSOs) whose Certificate of Authorisation (CoA) is revoked or not-renewed for any reason; or
  2. CoA is voluntarily surrendered for any reason; or
  3. Application for authorisation of a payment system has been rejected by RBI.
  4. New entities that are set-up by promoters involved in any of the above categories; definition of promoters for the purpose, shall be as defined in the Companies Act, 2013.

The Cooling Period shall be for one year from the date of revocation / non-renewal / acceptance of voluntary surrender/rejection of the application, as the case may be. In respect of entities whose application for authorisation is returned for any reason by RBI, condition of Cooling Period shall be invoked after giving the entity an additional opportunity to submit the application.

During the Cooling Period, entities shall be prohibited from submission of applications for operating any payment system under the PSS Act.


Reserve Bank of India

[Notification dt. 04-12-2020]

Hot Off The PressNews

Positive Pay System for Cheque Truncation System (CTS)

The concept of Positive Pay involves a process of reconfirming key details of large value cheques. Under this process, the issuer of the cheque submits electronically, through channels like SMS, mobile app, internet banking, ATM, etc., certain minimum details of that cheque (like date, name of the beneficiary/payee, amount, etc.) to the drawee bank, details of which are cross-checked with the presented cheque by CTS. Any discrepancy is flagged by CTS to the drawee bank and presenting bank, who would take redressal measures.

National Payments Corporation of India (NPCI) shall develop the facility of Positive Pay in CTS and make it available to participant banks. Banks, in turn, shall enable it for all account holders issuing cheques for amounts of ₹50,000 and above. While availing of this facility is at the discretion of the account holder, banks may consider making it mandatory in case of cheques for amounts of ₹5,00,000 and above.

Only those cheques which are compliant with the above instructions will be accepted under dispute resolution mechanism at the CTS grids. Member banks may implement similar arrangements for cheques cleared/collected outside CTS as well.

Banks are advised to create adequate awareness among their customers on features of Positive Pay System through SMS alerts, display in branches, ATMs as well as through their website and internet banking.

Positive Pay System shall be implemented from January 01, 2021.


Reserve Bank of India

[Press Release dt. 25-09-2020]

Cabinet DecisionsLegislation Updates

Scheme of Amalgamation

The Union Cabinet has given its approval to the Scheme of Amalgamation of Lakshmi Vilas Bank Limited (LVB) with DBS Bank India Limited (DBIL).

On 17.11.2020, to protect depositors’ interest and in the interest of financial and banking stability, on RBI’s application under section 45 of the Banking Regulation Act, 1949, LVB had been under a moratorium for a period of 30 days. In parallel, RBI, in consultation with Government, superseded the Board of Directors of LVB and appointed an Administrator to protect the depositors’ interest.

After inviting suggestions and objections from the public and stakeholders, RBI prepared and provided a scheme for the bank’s amalgamation for the Government’s sanction, well in. advance of the end of the period of moratorium so that restrictions on withdrawal faced by the depositors are minimised. With the approval of the scheme, LVB will be amalgamated with DBIL from the appointed date, and with this there will no further restrictions on the depositors regarding the withdrawal of their deposits.

DBIL is a banking company licenced by RBI and operating in India through wholly-owned subsidiary model, DBIL has a strong balance sheet, with strong capital support and it has the advantage of a strong parentage of DBS, a leading financial services group in Asia, with presence in 18 markets and headquartered and listed in Singapore. The combined balance-sheet of DBIL would remain healthy even after amalgamation and its branches would increase to 600.

The speedy amalgamation and resolution of the stress in LVB is in line with the Government’s commitment to a clean banking system while protecting the interests of depositors and the public as well as the financial system.


Cabinet

[Press Release dt. 25-11-2020]

Hot Off The PressNews

No fresh permissions/ renewal of permission shall be granted by the Reserve Bank/AD Category-I banks to any foreign law firm for the opening of Liaison Office in India, till the policy is reviewed based on, among others, final disposal of the matter by the Supreme Court in Bar Council of India v. A.K. Balaji, (2018) 5 SCC 379

Supreme Court has while disposing of the case, held that Advocates enrolled under the Advocates Act, 1961 alone are entitled to practice law in India and that foreign law firms/companies or foreign lawyers cannot practice the profession of law in India.

As such, foreign law firms/companies or foreign lawyers or any other person resident outside India, are not permitted to establish any branch office, project office, liaison office or other place of business in India for the purpose of practicing legal profession. Accordingly, AD Category – I banks are directed not to grant any approval to any branch office, project office, liaison office or other place of business in India under FEMA for the purpose of practicing legal profession in India. Further, they shall bring to the notice of the Reserve Bank in case any such violation of the provisions of the Advocates Act comes to their notice.

All other provisions of the BO/LO/PO policy shall remain unchanged. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers.

Read the detailed Notification here: NOTIFICATION


Reserve Bank of India

[Press Release dt. 23-11-2020]

Legislation UpdatesNotifications

Reserve Bank of India (RBI) declares that the provisions of Sections 45-IA, 45-IB and 45-IC of the Reserve Bank of India Act, 1934 shall not apply to a non-banking financial company which is a Housing Finance Institution as defined in clause (d) of Section 2 of the National Housing Bank Act, 1987.

Read the notification here: NOTIFICATION


Reserve Bank of India

[Notification dt. 18-11-2020]

Business NewsNews

The Reserve Bank of India has placed in the public domain a draft scheme of amalgamation of The Lakshmi Vilas Bank Ltd. (LVB) with DBS Bank India Ltd. (DBIL), a banking company incorporated in India under Companies Act, 2013, and having its Registered Office at New Delhi.

DBIL is a wholly-owned subsidiary of DBS Bank Ltd, Singapore (“DBS”), which in turn is a subsidiary of Asia’s leading financial services group, DBS Group Holdings Limited and has the advantage of a strong parentage. It has been issued a banking license to operate as a banking company under Section 22 (1) of the B.R Act, on October 4, 2018. DBIL has a healthy balance sheet, with strong capital support. As on June 30, 2020, its total Regulatory Capital was ₹7,109 crore (against Capital of ₹7,023 crore as on March 31, 2020). As on June 30, 2020, its GNPAs and NNPAs were low at 2.7% and 0.5% respectively; Capital to Risk-Weighted Assets Ratio (CRAR) was comfortable at 15.99% (against requirement of 9%), and Common Equity Tier-1 (CET-1) capital at 12.84% was well above the requirement of 5.5%. Although the DBIL is well capitalised, it will bring in additional capital of ₹2500 crore upfront, to support credit growth of the merged entity. Owing to a comfortable level of capital, the combined balance sheet of DBIL would remain healthy after the proposed amalgamation, with CRAR at 12.51% and CET-1 capital at 9.61%, without taking into account the infusion of additional capital.

The Reserve Bank invites suggestions and objections, if any, from members, depositors and other creditors of transferor bank (LVB) and transferee bank (DBIL), on the draft scheme, which may be sent to the address mentioned in the “Notice”. The draft scheme has also been sent to transferor bank and transferee bank for their suggestions and objections. The suggestions and objections will be received by Reserve Bank up to 5.00 PM on November 20, 2020. The Reserve Bank will take a final view thereafter.

It may be recalled that The Lakshmi Vilas Bank Ltd. has been placed under an order of moratorium on November 17, 2020, which will be effective up to December 16, 2020.


Reserve Bank of India

[Press Release dt. 17-11-2020]

Business NewsNews

Co-Lending Model

“Co-Lending Model” (CLM), is to improve the flow of credit to the unserved and underserved sector of the economy and make available funds to the ultimate beneficiary at an affordable cost, considering the lower cost of funds from banks and greater reach of the NBFCs. Detailed features of the CLM are furnished in the Annex.

In terms of the CLM, banks are permitted to co-lend with all registered NBFCs (including HFCs) based on a prior agreement. The co-lending banks will take their share of the individual loans on a back-to-back basis in their books. However, NBFCs shall be required to retain a minimum of 20 per cent share of the individual loans on their books.

The banks and NBFCs shall formulate Board approved policies for entering into the CLM and place the approved policies on their websites. Based on their Board approved policies, a Master Agreement may be entered into between the two partner institutions which shall inter-alia include, terms and conditions of the arrangement, the criteria for selection of partner institutions, the specific product lines and areas of operation, along with provisions related to segregation of responsibilities as well as customer interface and protection issues, as detailed in the Annex.

The Master Agreement may provide for the banks to either mandatorily take their share of the individual loans originated by the NBFCs in their books as per the terms of the agreement, or to retain the discretion to reject certain loans after their due diligence prior to taking in their books, subject to the conditions specified in the Annex.

The banks can claim priority sector status in respect of their share of credit while engaging in the CLM adhering to the specified conditions.

The CLM shall not be applicable to foreign banks (including WOS) with less than 20 branches.

Please read the Circular here: CIRCULAR


Reserve Bank of India

[Circular dt. 05-11-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

 Securities Exchange Board of India: G. Mahalingam, Whole-time member retrained the promoters of the Dewan Housing Finance Limited i.e. DHFL from accessing the securities market.

Dewan Housing Finance Limited (“DHFL”) was incorporated on April 11, 1984, and registered with National Housing Bank (NHB) under Section 29A of the National Housing Bank Act, 1987 has been carrying on the business of providing loans to retail customers for construction or purchase of residential property, loans against property, etc.

The equity shares of the Company are listed on BSE Limited and NSE Limited. The Company had issued Non-Convertible Debentures (NCDs) through public issue as well as private placements, which are listed on the stock exchange(s)and had more than Rs. 24000 crores worth of outstanding NCDs issued through the public issue as on May 31, 2019.

On January 29, 2019, Cobrapost, a media portal, published an article alleging that the promoters of the Company- Mr Kapil Wadhawan and Mr Dheeraj Wadhawan, had siphoned off more than Rs. 31,000 crores of public money primarily through grants and advances to shell companies pursuant to which DHFL issued a press release stating that the allegations are baseless.

On November 20, 2019, Reserve Bank of India (“RBI”) vide its Order superseded the Board of Directors of DHFL and appointed Shri. R Subramaniakumar as the Administrator and later filed an application to initiate corporate insolvency resolution process (“CIRP”) under Section 227 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) and National Company Law Tribunal, Mumbai Bench admitted the application and confirmed the appointment of Shri R Subramaniakumar as the administrator. Grant Thornton India LLP (“Transaction Auditor”) was appointed to assist the RP in conducting a transaction audit of the Company which filed an initial report stating that certain transactions entered into by DHFL during the period FY 2006-07 to FY 2018-19 are fraudulent in nature, as per Section 66 of the IBC.

Observations made in the initial report

  1. DHFL has entered into certain fraudulent transactions, which were shown as bonafide transactions in its published financial statements as well as corporate announcements disseminated in the public domain.
  2. The Company had created a ‘logical partition’ in the Enterprise Resource Planning (ERP) Software used for bookkeeping and loan management purposes to store data pertaining to only one branch – Bandra, which was a virtual branch having a parallel set of books of accounts maintained by the Company and all the loan accounts presented in the said module appeared to be non-genuine.
  3. Out of Rs 23,815 crores shown as disbursed to Bandra Book entities in the accounts of the Company, only Rs 11,755.79 crores was actually disbursed to 91 entities, but was shown as 2, 60,315 home loan accounts in the books of the company.
  4. On verifying the financial statements of 50 of the said 91 entities it was noted that 34 entities had invested a portion of the loan amount received from the lender in companies which were linked to the promoters of DHFL having weak financial strength. These loans were unsecured and given without taking any collateral.
  5. The report concluded that the Company suffered a notional loss of Rs 3,348 crores as the interest charged on such loans was lower than the interest charged for other similar entities by the Company in the normal course of business.

Order by the Board

The Board observed that financial statements of a company are relied upon by debt investors for assessing the financial health and repayment capacity of the Company and hence their investment decisions would have been sullied by these fraudulent misstatements. The interests of investors who bought equity shares of the Company during this period have also been prejudiced because the financial statements of the company did not state the true and fair picture of the affairs of the Company

The Board relied on Regulation 12A(a), (b) and (c) of the Securities and Exchange Board of India Act, 1992 and Regulation 4(1) of SEBI, Regulation 4(2)(f) and Regulation 4(2)(k)  (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (“SEBI PFUTP Regulations, 2003”) which provides as under-

12A. No person shall directly or indirectly—

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;

(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange;

(c) No person shall directly or indirectly engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder.

4. Prohibition of manipulative, fraudulent and unfair trade practices

(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a manipulative, fraudulent or an unfair trade practice in securities markets.”

Regulation 4(2)(f) of SEBI PFUTP Regulations, 2003

“Dealing in securities shall be deemed to be a manipulative, fraudulent or an unfair trade practice if it involves knowingly publishing or causing to publish or reporting or causing to report by a person dealing in securities any information relating to securities, including financial results, financial statements, mergers and acquisitions, regulatory approvals, which is not true or which he does not believe to be true prior to or in the course of dealing in securities.”

Regulation 4(2)(k) of SEBI PFUTP Regulations, 2003

“Dealing in securities shall be deemed to be a manipulative, fraudulent or an unfair trade practice if it involves disseminating information or advice through any media, whether physical or digital, which the disseminator knows to be false or misleading and which is designed or likely to influence the decision of investors dealing in securities.

The Board thus held that the interest of investors who take the decision of investing in the securities of the Company on the basis of financial position of the Company and disclosures made in the financial statements have been, prima facie, affected adversely due to the aforesaid transactions entered into by the Company and the consequent fraudulent misstatements in the financial statements of the Company and have violated Section 12A(a), (b) and (c) of the SEBI Act, 1992, Regulation 3(b), (c), (d), (d), Regulation 4(1) and Regulation 4(2)(f), (k) and (r) of the SEBI PFUTP Regulations, 2003 and Rakesh Kumar Wadhawan and Kapil Wadhawan have prima-facie violated Regulation 4(1) and other related provisions of the SEBI LODR Regulations, 2015.

The Board thus restrained the defaulting promoters from accessing the securities market and are prohibited them from buying, selling or otherwise dealing in securities in any manner whatsoever, either directly or indirectly and associating themselves with any listed public company and any public company as directors/ promoters which intends to raise money from the public or any intermediary registered with SEBI.

In view of the above, the order was passed without any prejudice to Direction(s) or Order that may be passed by NCLT during CIRP of the Company under IBC, 2016.[Dewan Housing Finance Corporation Ltd., In Re., 2020 SCC OnLine SEBI 138, decided on 22-09-2020]


Arunima Bose, Editorial Assistant has put this story together

Hot Off The PressNews

There have been several media reports alluding to steep increase in service charges by certain Public Sector Banks (PSBs).  In this context, the factual position is as follows:

  • Basic Savings Bank Deposit (BSBD) accounts including Jan Dhan accounts – No service charge is applicable on the 60.04 crore BSBD accounts, including 41.13 crore Jan Dhan accounts opened by the poor and unbanked segments of society, for the free services prescribed by RBI.
  • Regular Savings accounts, Current Accounts, Cash credit accounts & Overdraft accounts:  In this regard, while the charges have not been increased, Bank of Baroda had made certain changes w.e.f. 1st November, 2020, with regard to the number of free cash deposits and withdrawals per month.  The number of free cash deposits and withdrawals, have been reduced from 5 each per month to 3 each per month, with no change in the charges for transactions in excess of these free transactions.

Bank of Baroda has since informed that in the light of the current COVID related situation, they have decided to withdraw the changes.  Further, no other PSB has increased such charges recently.

Although, as per RBI guidelines, all banks, including PSBs, are permitted to levy charges for their services in a fair, transparent and non-discriminatory manner, based upon costs involved, other PSBs have also intimated that they do not propose to raise bank charges in the near future in view of the COVID pandemic.


Ministry of Finance

[Press Release dt. 03-11-2020]

[Source: PIB]

Case BriefsHigh Courts

Madras High Court: A Division Bench of Amreshwar Pratap Sahi, CJ and Senthilkumar Ramamoorthy, J., to consider the issue with regard to the participation of advocates before Ombudsman under the Banking Ombudsman Scheme, 2006.

Issue Raised:

OMBUDSMAN

In the instant petition, the issue was regard to the permissibility of participation of advocates in proceedings before Ombudsman under the Banking Ombudsman Scheme 2006 promulgated by Reserve Bank of India.

Contentions:

Petitioner submitted that on the basis certain information received, there is no legal bar in the appearance of the advocates otherwise and secondly, the respondents are discriminating so far as the individual complainants are concerned about allowing Law Officers of the Bank to appear in such proceedings, whereas, at the same time, denying the individuals of the assistance of advocates.

Analysis 

Bench called upon the respondent’s counsel to come forward explaining the nature of functions of Ombudsman and the powers exercised by him in order to ascertain the following:

Whether the nature of the proceedings do require any such legal assistance and can be barred or not?

RBI annexed its 2006 Scheme, where Clause 7 entails the power and jurisdiction of the Ombudsman, Clause 10 prescribes the procedure for calling for information and Clause 11 or thereof indicates the exercise of jurisdiction by the Ombudsman to be not bound by any rules of evidence and allow him to follow such procedure as may be considered just and proper, where providing an opportunity to the complainant along with documentary evidence has been made permissible within a time frame.

Petitioner’s counsel contended that in the decision of Fidelity Finance Ltd. v. Banking Ombudsman, 2002 SCC OnLine Mad 864, it was held that the Ombudsman under the Scheme performs a quasi-judicial function and therefore, in view of the said pronouncement, it is evident that the Ombudsman proceeds like an adjudicatory forum and consequently, the legal assistance of an advocate should not be denied more so keeping in view the fact that law officers of the bank are allowed to attend such proceedings.

In view of the above background, Court stated that it required more clarification on the said aspect and respondents may file an appropriate response in order to explain the status, jurisdiction and the powers exercisable by the Ombudsman in order to further proceed in the matter.

Court has also asked both the parties to throw light on Clause 12(8) of the Scheme which provides that if any Award is rendered by Ombudsman it shall lapse and shall be of no use unless a letter of acceptance of full and final settlement of the claim is tendered by the complainant.

Matter to be listed on 03-12-2020.[M. Sivalingam v. State of Tamil Nadu, WP No. 3450 of 2014, decided on 12-10-2020]

Amendments to existing lawsLegislation Updates

Banking Regulation (Amendment) Bill, 2020 received Presidential Assent on 29-09-2020.

The Banking Regulation (Amendment) Act, 2020

The Banking Regulation (Amendment) Act, 2020 will replace the Banking Regulation (Amendment) Ordinance, 2020.

Certain amendments were considered necessary in the said Act to provide for better management and proper regulation of co-operative banks and to ensure that the affairs of the co-operative banks are conducted in a manner that protects the interests of the depositors, by increasing professionalism, enabling access to capital, improving governance and ensuring sound banking through the Reserve Bank of India.

Further amendments were proposed to be made in Section 45 of the Act to enable the Reserve Bank of India to make a scheme to protect the interests of the public, the banking system, depositors or to secure the banking company’s proper management, without first making an order of moratorium so as to avoid disruptions in the financial system.

Following are the features:

(i) substitution of Section 3 to provide that the Act shall not apply to— (a) a primary agricultural credit society; or (b) a co-operative society whose primary object and principal business is providing of long term finance for agricultural development, if such society does not use as part of its name, or in connection with its business, the words “bank”, “banker” or “banking” and does not act as drawee of cheques;

(ii) amendment of Section 45 to address the potential disruptions in the financial system by providing for the Reserve Bank of India to prepare a scheme for the reconstruction or amalgamation of the banking company without the necessity of first making an order of moratorium;

(iii) amendment of Section 56 to provide that notwithstanding anything contained in any other law for the time being in force, the provisions of the Act shall apply to co-operative societies, subject to the modifications specified therein.

Read the Act, here: Banking Regulation (Amendment) Act, 2020


Ministry of Law and Justice

Case BriefsHigh Courts

Bombay High Court: A Division Bench of R.K. Deshpande and N.B. Suryawanshi, JJ., while addressing an issue with regard to the deduction of pension by the Bank without any confirmation from the employer, observed that,

“The pension payable to the employees upon superannuation is a ‘property’ under Article 300-A of the Constitution of India and it constitutes a fundamental right to livelihood under Article 21 of the Constitution of India.”

“Pension cannot be deducted without authority of law.”

Petitioner a retired assistant foreman had a basic pension of Rs 1,334 as on 01-10-1994, consequent upon an increase in the pension and dearness allowance, the basic pension of Rs 25, 634 was fixed, for which the petitioner was entitled to and accordingly he was paid.

Right to Information Act, 2005

In the month of August, 2019 petitioner’s pension was reduced without consent or knowledge of the petitioner and thus he filed an application under the Right to Information Act, 2005 to know the reason for deduction and details as to the revision of the pension during the period 2015-16 and 2016-17.

Excess Payment of Pension

Respondent stated that there was an excess payment of pension to the petitioner.

Petitioner in view of the above approached the Court challenging the action of the respondent and sought a further direction to the respondents to restore the position in respect of payment of pension, prevailing prior to the deduction which commenced from 01-08-2019.

Excess Payment by SBI

State Bank of India-respondent stated that an amount of Rs 872 per month was erroneously paid in excess to the petitioner due to technical error in the system.

Reserve Bank of India

According to Circular No.RBI/2015-16/340-DGBA.GAD.No.2960/45.01.001/2015-16 dated 17-3-2016, clause (c), the bank claims to have an authority to recover the excess payment to the petitioner.

“c) In case the pensioner expresses his inability to pay the amount, the same may be adjusted from the future pension payments to be made to the pensioners. For recovering the over-payment made to pensioner from his future pension payment in installments 1/3rd of net (pension + relief) payable each month may be recovered unless the pensioner concerned gives consent in writing to pay a higher installment amount.”

Employer’s stand is very clear in the present case that the fixation of the petitioner’s pension was correct and proper.

Further, the employer has supported the claim of the petitioner and has no role to play in the matter of reduction of pension or its recovery.

Bench states that it is not the authority of the Bank to fix the entitlement of the pension amount of the employees other than the employees of the respondent-Bank.

Hence the action of the Bank to reduce the pension of the petitioner is unauthorised and illegal.

Furthermore, the Bank has failed to demonstrate any technical error in the calculations.

With regard to the RBI clause as stated above, Court stated that “once we hold that in fact there was no excess payment made to the petitioner, the question of applicability of the instructions issued by the RBI or undertaking given by the petitioner does not arise.” 

Principles of Natural Justice

Without following the principles of natural justice in the manner of either carrying out correspondence with regard to the correctness of the pension or an explanation in respect of the deduction, the said action on the part of the Bank is arbitrary, unreasonable, unauthorised and in flagrant violation of the principles of natural justice.

Breach of Trust

Bank is the trustee of the pensioner’s account and has no authority in the eyes of the law to dispute the entitlement of the pension payable to the employees other than those who are employed in the bank.

To tamper with the account is nothing but a breach of trust.

Court directed Bank to refund the amount of Rs 3,26,045 to the petitioner by crediting it in his pension account with interest at the rate of 18% p.a. from the date of deduction.

Further, the bank is required to be directed to pay the costs of Rs 50,000 to the petitioner towards the expenses of this petition.

Unfortunately, the time has come to tell the Bank that the aging is natural process, which leads to weakening of the body and mind.

Adding to its conclusion, Court stated that the Bank officials must realize that tomorrow it may be their turn, upon superannuation, to fight for the pension or post-retiral benefits. The thought process, therefore, to be adopted should be of a person in a situation like the petitioner.

Respect, dignity, care, sensitivity, assistance, and security would automatically follow.

Senior Citizens

It is a high time for the Banks to create a separate cell and to device a method to provide personal service through the men of confidence, at the door-step to the old aged, disabled and sick persons who are the senior citizens.

Bench directed registry to forward the copies of the Judgment to the Centralized Processing Pension Centres of all the Nationalized Banks and also to the Reserve Bank of India and the Chief Secretary, Government of Maharashtra, to consider the question of the constitution of separate cell and release of appropriate guidelines so as to attain the constitutional goal of providing respect, dignity, care, sensitivity, assistance and security to all the pension account holders in the Banks.[Naini Gopal v. Union of India, LD-VC-CW-665 of 2020, decided on 20-08-2020]

Case BriefsHigh Courts

Delhi High Court: Anup Jairam Bhambhani J., granted bail to an accused in a money-laundering case involving a sum of more than INR 2000 crores. Upholding the legal principle of the presumption of innocence of an accused until proven guilty, the Court found that in the absence of compelling grounds and reasons, the under-trial accused could not be detained in judicial custody.

The applicant sought regular bail after being arrested in the complaint case arising from an Enforcement Case Information Report (ECIR). According to the Enforcement Directorate’s (ED) allegations, the applicant owns 50% shares in a company which in turn owns 50% of an RBI recognized non-banking financial company Religare Enterprises Ltd. (REL). It is alleged that the applicant misappropriated money, amounting to over INR 2036 crores, lent by REL to entities controlled or owned by the applicant.

The Court opined that the applicant was not in a position to tamper with evidence, since the allegedly offending transactions cannot be altered by virtue of their being reflected in several records, including those of regulatory bodies such as the RBI, SEBI, etc. and also because all records of such transactions had already been seized by the ED. Since the ED had confirmed that it would not interrogate the applicant while he was in judicial custody, it found the applicant’s detention unreasonable, especially as there was no foreseeable timeline within which the ED was to complete its investigations.

Bench held that the applicant had deep roots in society and was not a flight-risk, so “no purpose would be served by keeping him in judicial custody.” The nature of an offence should have a limited role in determining the merits of a bail application, and even though the applicant is accused of committing an offence whose financial implications are large in quantum, such losses cannot be compensated for by keeping the under-trial applicant in prolonged custody. It emphasized on the importance of time-bound investigations, stating that “criminal investigation is not a metaphorical fishing-rod handed to an investigating agency, to indulge its penchant for ‘fishing around’ for evidence.”

Highlighting the dire situation of undertrials in prisons, it reiterated Sanjay Chandra v. CBI’s (2012) 1 SCC 40 ruling that every man is innocent until duly tried and found guilty, and that it would be inappropriate to refuse bail to an undertrial simply to give him “a taste of imprisonment as a lesson.” It approved the bail application and directed the applicant to be released, subject to certain conditions laid down in the order. [Shivinder Mohan Singh v. Directorate of Enforcement, 2020 SCC OnLine Del 766 , decided on 23-07-2020]

Case BriefsCOVID 19High Courts

Karnataka High Court: Suraj Govindaraj, J., dealt with a petition which was filed in order to enforce the regulatory package announced by the RBI by issuing directions to the RBI to  monitor the implementation of the Circular, including verification  of whether there are Board-approved policies formulated by each of the lenders, direct all the banks to submit the Board-approved policies for approval to the RBI, to approve such board-approved policy, verify if such a board-approved policy contains objective criteria, set up a proper and effective grievance redressal forum for any aggrieved borrower to approach on account of the  improper or non-implementation of the Policy and/or Circular etc.

The Petitioner had availed term loan facilities from respondents namely HDFC Bank Limited, Federal Bank and Aditya Birla Finance Limited. The Petitioner has been in the business of running an Information Technology Park, a 5 star Hotel, both of which have been constructed on the land belonging to the Petitioner. In order to service the aforesaid loan, there was an agreement arrived at between lenders that the revenue from the lease rentals of the Technology Park would be credited into Escrow Account and revenue from the  Petitioner’s hotel business would be credited into another Escrow Account. Respondents were entitled to appropriate the Equated Monthly Installment payable on the loans due to them from the Escrow Account where the lease rentals were deposited; the excess rental was to be released from the Escrow Account to the current account of the Petitioner for utilization by the Petitioner to meet its expenses. Similarly, the revenue arising out of the hotel business was to be deposited in the Escrow Account relating to the hotel business, from and out of which, the Petitioner was entitled to draw monies to its current account on a daily basis for use in connection with its hotel business and from the balance, make payment of the equated monthly installment on the loan borrowed on account of the hotel business to respondent on the due date that was 13th of every month. The RBI had set out the various development and regulatory policies to address the stress in the financial condition caused by COVID-19 so as to ease the financial stress which included relaxing  the repayment pressures on the borrowers and by improving access to the working capital by such borrowers. On the basis of which the petitioners had filed the present petition. The Respondents had filed objections contending that the Petitioner had suppressed the material facts in that the Petitioner was receiving rentals from the Technology Park, merely because income/revenue was not being received from the hotel, the Petitioner would not be eligible for any moratorium and the circular issued by the RBI was not mandatory in nature, only directory.

The Court while answering if the writ of Mandamus could be issued against a private bank to implement the circular issued by RBI, held that the writ would be maintainable for the enforcement of public duty. Answering next two questions of whether the circular was mandatory, directory or discretionary and whether grant of moratorium was at the discretion of the bank the Court said that the circular was no doubt discretionary but as far as the power to grant or not a moratorium by a bank, it is mandatory for the Bank to ensure the continuity of viable businesses, in that, the non-grant of a moratorium should not result in adversely affecting the survival and continuity of a viable business and because of the nature of the circular being discretionary any directions cannot be issued to the respondents 1 & 2 to for implementation of the circular.

The Court while disposing of the petition directed the respondents to grant the petitioner with the moratorium period and restrained them from either jointly or severally recovering the loan repayment installments/EMI due in respect of loan accounts of the petitioner during the period of moratorium. It further directed to reverse the recovery of loan repayment installments/EMI already affected and transfer the same to the Current Account of the Petitioner. [Velankani Information Systems Ltd. v. Union of India, 2020 SCC OnLine Kar 835 , decided on 08-07-2020]

Cabinet DecisionsLegislation Updates

While announcing a series of Cabinet Decisions, Union Minister, Prakash Javdekar announced the approval of an ordinance to bring Urban and Cooperative Banks under the supervision of Reserve Bank of India.

 

Cabinet approves an ordinance to bring 1,482 urban and 58 multi state cooperative banks under the supervision power of RBI.

It will give an assurance to 8.6 crore depositors in these banks that their money will stay safe.

[Source of Tweet: PIB India]


Cabinet

Case BriefsSupreme Court

Supreme Court: The bench of Arun Mishra and UU Lalit, JJ directed the banks and financial institutions to release loans to home buyers of Amrapali Group, whose loans have been sanctioned, notwithstanding the fact that their accounts are declared as Non-Performing Assets (NPAs).

“Let there be restructuring of the loan amount. It may be released under the current norms of the RBI for releasing loans and the rates fixed by the RBI therefor.”

The Court further said that the disbursement of further loans may be based on the present rate of interest fixed by the RBI; this we order in the peculiar facts of the case. It may be released stage-wise and long-term restructuring of the loans may be done so that construction is completed and buyers are able to repay the loan.

Earlier, ASG Vikramjit Banerjee had submitted before the Court that that RBI instructions do not come in the way of releasing home buyers’ loans whose accounts are NPAs and that the banks were ready to release the loan to the home buyers.

Considering the fact that the housing projects have been stalled for the last several years, the Court noticed that the home buyers have obtained loans but cannot enjoy the fruits of their investment. At the same time, if projects are not completed and home buyers are not sure of handing over of flats, it would be difficult for them to pay bank dues till eternity and it is in the interest of home buyers as well as banks and financial institutions as they can recover money when projects are completed in an effective manner.

On Interest to be realized on the outstanding dues by Noida and Greater Noida Authorities

Receiver submitted before the Court that there is a lack of clarity concerning dues of local authorities/banks/lenders and that proper relaxations and concessions are required to be given concerning such dues. It was also submitted before the Court that the projects are incomplete, there were various litigations which created a huge financial impact and non-delivery of projects, which reflects the pathetic condition of the real estate sector. The developers and the home buyers both are adversely affected due to non-delivery of booked flats in the regions of Noida and Greater Noida etc.

Considering the current state of real estate, the projects are standstill, and in order to give impetus to such housing projects and mainly considering plight of home buyers and as pointed out by Noida and Greater Noida Authorities that 114 plots were allotted from 2005 onwards, most of projects are incomplete, the Court directed:

  • Rate of interest on the outstanding premium and other dues to be realized in all such cases at the rate of 8% per annum and the Noida and Greater Noida Authorities should do a restructuring of the repayment schedule so that amount is paid and Noida and Greater Noida Authorities are able to realize the same.
  • In case of failure to pay, the concession granted shall stand withdrawn.
  • Noida and Greater Noida Authorities shall also ensure that not only instalments/money are deposited, but also all such projects are completed within the stipulated time.

On NBCC’s scope of responsibilities and legal immunity

The Court directed that NBCC is immune from any legal actions for any existing disputes involving and in relation to the Amrapali Projects.

“we request the Courts/ Consumer Redressal Commission and other authorities not to permit impleadment of NBCC as respondent and not to issue summons to NBCC as they are doing the work under the supervision of this Court and are not answerable to any other court, tribunal, authorities.”

It further directed that NBCC is granted immunity to be sued in any other court or commission, and they are answerable to Supreme Court only in the pending proceedings. Thus, they cannot be dragged in the litigation filed by existing home buyers, previous contractors, co-developers, landowners, banks, financial institutions, other lenders and creditors, and any Government authorities before any other Court/ Commission or Authority.

It is also made clear that NBCC is not responsible for attending to queries made by the home buyers. They have to report the progress to the Receiver, who then, has to put progress reports of projects on the blog/website.

[Bikram Chatterjee v. Union of India, 2020 SCC OnLine SC 494 , decided on 10.06.2020]