Case BriefsHigh Courts

Delhi High Court: Prateek Jalan, J., reiterated the position of law laid down in the decision of Vandana Tyagi v. GNCTD, [WP (C) 1103 of 2019, decided on 07-01-2020.

Petitioner sought direction upon the respondent/State Bank of India [Bank] to release an amount of Rs 30,000 per month to him from the bank account of his incapacitated nephew, Mr Ajit Kumar Singh [AKS].

Petitioner submitted that AKS had been bedridden and incapacitated as he was suffering from acute ischemic strokes since 2018 and his health worsened in November 2020. It was also stated that an amount of ₹30,000 per month would be required so as to meet AKS’s daily and medical expenditure, including doctor’s fees, medicines, food, therapist, nurse etc.

Petitioner being the paternal uncle of AKS stated that he had been taking care of his nephew and had been acting as his guardian, in addition to maintaining his own family, but was not in a position to financially sustain his nephew indefinitely, and meet his medical expenditure as well.

Bank denied the request for withdrawal of the said amount from the bank account of AKS on the ground that there was no policy that allowed such withdrawals, even by family members in cases of medical emergencies.

Instant petition was filed in view of the above circumstances.

Mr Ramesh Singh, Standing Counsel for GNCTD drew the Court’s attention to Clause 5.7 of the Master Circular on Maintenance of Deposit Accounts – UCB dated 01-07-2009 [Master Circular] issued by RBI which was in respect to  “Operation of Bank Accounts by Old/Sick/Incapacitated Customers”

On examination by the medical board it was found that AKS was virtually in a comatose state and would not be able to indicate the person who would be entitled to operate his bank account in terms of Clause 5.7.3 of the Master Circular.

In view of the above stated circumstances and facts, reliance was placed on the decision of Delhi High Court in Vandana Tyagi v. GNCTD, [WP (C) 1103 of 2019, decided on 07-01-2020] which laid down guidelines that may be used to deal with situation such as the present one where a person is unable to discharge his/her functions with respect to his/her assets.

On 04-03-2021, this Court prima facie had opined that the aforesaid decision was applicable to the present matter.

In view of the facts and circumstances of the present case, Bench held that the guidelines issued in Delhi High Court’s decision of Vandana Tyagi v. GNCTD, [WP (C) 1103 of 2019, decided on 07-01-2020] will be applicable to the present case.

Bench was satisfied with the report from the Medical Board that AKS was in a comatose state and incapable of operating his bank account himself or giving necessary directions for this purpose. Tehsildar’s report corroborated the information placed on record.

AKS and his wife had discord in their marital relations and the same was a subject matter of legal proceedings wherein they mutually agreed to divorce upon certain terms and conditions. His adult son stated vide an affidavit that he had no objection to the petitioner being appointed as legal guardian of AKS.

In Court’s opinion, neither AKS’s spouse nor his children were in a position to take care of him and also they had no objection to petitioner taking on the role of guardian to AKS.

High Court held that petitioner shall be appointed at the guardian of AKS for the purpose of withdrawal of a fixed monthly amount from the savings account of AKS, subject to safeguards contained in the guidelines incorporated in Vandana Tyagi case.

Court directed that the petitioner may be permitted to withdraw Rs 20,000 per month from AKS’s account.

  • Bank will file the statement of accounts of the aforesaid account before the Registrar General of this Court every three months to monitor the aforesaid aspect.
  • Petitioner will also file a statement of accounts before the Registrar General every three months stating the items of expenditure with regard to the aforesaid amount of ₹20,000
  • In the event, the petitioner misuses his power or misappropriates, siphons or misutilizes the assets of AKS or fails to utilize the assets in AKS’s best interests, the Court would have the power to remove him as the guardian and appoint another person in his place.
  • Petitioner shall intimate his appointment to the Director, Department of Social Welfare, GNCTD
  • A representative of the Department of Social Welfare, GNCTD, shall visit the residence of the petitioner at least once every quarter, and make a report regarding the condition of AKS, which will be placed before the Director, Department of Social Welfare, GNCTD
  • In case any other relative or a next friend of AKS finds that the petitioner is not acting in the best interests of AKS, such person will also have the locus to approach the Court for issuance of appropriate directions and/or for removal of the petitioner as the guardian.
  • In case, the petitioner wishes to move AKS to another state or even to another country for the purposes of securing better medical treatment for him, he would approach the Court for necessary permission before undertaking such an exercise.

In view of the above terms, petition was disposed of.[Bhim Singh v. AGM State Bank of India, 2021 SCC OnLine Del 1552, decided on 08-04-2021]


Advocates before the Court:

For the Petitioner: Dhruv Dwivedi, Advocate

For the Respondents: Rajiv Kapur and Akshit Kapur, Advocates for R-1 and R-2.

Ramesh Singh, Senior Advocate, Amicus Curiae with Tara Narula, Advocate

Case BriefsHigh Courts

Bombay High Court: The Division Bench of R.D. Dhanuka and V.G. Bisht, JJ., while addressing the instant matter, expressed that:

The Registrar, Co-operative Societies has not acted as a rubber stamp of the RBI.

Petitioners sought writ of certiorari or any other appropriate writ with the objective of quashing and setting aside the order passed by the Commissioner for Co-operation and Registrar of Co-operative Societies under Section 110A (1)(iii) of the Maharashtra Co-operative Societies Act, 1960 (MCS Act).

Petitioners claimed to be the Board of Directors of Nashik District Central Co-operative Bank Limited (respondent 4) registered under the MCS Act.

NABARD | Financial Health of Nashik District Central Co-operative Bank Limited

Further, the respondents submitted that NABARD had examined the affairs of respondent 4 and submitted a detailed report along with issues of supervisory concerns. It was NABARD’s opinion that the Board of Directors of respondent 4 had affected the financial health of respondent 4.

29-04-2017 Co-operative Societies, Divisional Joint Registrar’s Officer pointed out the following with regard to the bank:

·      the financial irregularities and loss suffered by respondent 4 bank

·      that the said Bank was left with no liquidity.

·      Not in a position to clear daily transaction

·      For the larger interest of members particularly farmer, existing inefficient Board of Directors were to be removed.

·      Divisional Joint Registrar, Co-operative Societies requested to submit proposal to RBI for the removal.

6-07-2017 ·      NABARD prepared report seeking opinion of G.M. of Additional Chief Secy., Corpn., Government of Maharashtra requesting Government to advice the respondent 4 bank to augment capital funds to improve the financial position.

 

12-07-2017 ·      Office of the Commissioner for Co- operation and Registrar of Co-operative Societies, Maharashtra State by NABARD, stated that in order to secure proper management of respondent 4 and to protect the interest of depositors as well as that of the Bank, prevention of further deterioration was necessary.
11-10-2017 ·      NABARD pointed out financial irregularities and recommended RBI to consider recommending Government of Maharashtra for supersession of Board of Directors.
19-12-2017 ·      RBI passed an order wherein it held that the Commissioner for Corporation and Registrar, Co-operative Societies, Maharashtra State to make an order for supersession of the Board of Directors of the respondent no.4 and for appointing ‘Board of Administrators’, in terms of the provisions of sub-section (1)(iii) of Section 110A of the MCS Act.
27-12-2017 ·      RBI passed an order.
29-12-2017 ·      Commissioner for Co-operation and Registrar, Co-operative Societies, Maharashtra State, Pune passed an order as per the directives issued by RBI under Section 110A(1)(iii) of the MCS Act thereby superseding the then Board of Directors of the respondent 4.

·      Milind Bhalerao, Divisional Joint Registrar, Co-operative Societies, Nashik as Administrator in place of the Board of Directors to manage the affairs of the bank

Senior Counsel, Anturkar submitted that Registrar (respondent 2) could not have superseded the Board of Directors of respondent 4 without applying his mind and without coming to a conclusion whether supersession was necessary or whether suspension of the Board of Directors would be sufficient.

Questions for consideration:

  • Whether respondent 2, Commissioner for Cooperation & Registrar of Cooperative Societies was required to issue any show cause notice and grant personal hearing to the petitioners before passing the impugned order of suppression of the Board of Directors and appointment of an administrator?
  • Whether the Commissioner for Cooperation & Registrar of Cooperative Societies has any discretionary power not to follow the directives issued by the RBI or in case of any directives to supersede or suspend the Board of Directors of the Co-operative Bank, the Registrar could only suspend the Board of Directors of the co-operative bank ?
  • Whether the amendment to Section 110A(1)(iii) of the Maharashtra Co-operative Societies Act, 1960 substituting the period of 5 years by one year was in conformity and compliance with the Article 243ZL of the Constitution of India ?
  • If the amendment to Section 110A(1)(iii) of the MCS Act is not in conformity with or in compliance with the amendment to Article 243 ZL, whether the Registrar Co-operative Societies was bound to issue show cause notice followed by the personal hearing to the petitioners ?
  • Whether there is repugnancy in the provisions of Article 243ZL and Section 110(1)(iii) of the MCS Act and if so, whether Article 243ZL of the Constitution of India would prevail ?
  • Whether order passed by the Commissioner for Cooperation & Registrar of Cooperative Societies appointing the sole administrator of the respondent 4 bank is quasi-judicial order or the executive/administrative order and thus does not contemplate any show cause notice or personal hearing before passing the order of supersession of Board of Directors and appointment of an administrator?
  • Whether RBI is empowered to issue directives to the Registrar of Cooperative Societies to superseded the Board of Directors of the Co-operative Bank and to appoint Board of Administrators under the provisions of the Banking Regulation Act, 1949 read with Section 110A of the MCS Act or not?
  • Whether the Registrar, Co-operative Societies is required to follow the procedure prescribed under Section 102 of the MCS Act while complying with the directives issued by the RBI Section 110A(1) (iii) of the MCS Act and superseding the Board of Directors of the Co-operative Bank or while appointing board of administrators/sole administrator of a co-operative bank or not ?

Bench noted that, under Article 243 ZL of the Constitution of India, it is provided that notwithstanding anything contained in any law for the time in force, no board shall be superseded or kept under suspension for a period exceeding six months subject to various provisos. In the fourth proviso of the said Article, it is provided that in case of a co-operative society, other than a multi-State co-operative society, carrying on the business of banking, the provisions of this clause shall have the effect as if for the words “six months”, the words “one year” had been substituted.

Further, the Court added that a conjoint reading of the unamended Section 110A(1)(iii) with the amended Section 110A(1)(iii) would clearly indicate that the period of 5 years originally prescribed under the said provision was substituted by a period of not exceeding 1 year in conformity with period of 1 year under Article 243ZL of the Constitution of India.

By referring to the decision in Arun T. Dhumale v. State of Maharashtra, WP (Stamp) No. 95405 of 2020, it was held that the Registrar, Co-operative Societies is bound by the directives issued by the RBI under Section 110(1)(ii) of the MCS Act and cannot refuse to abide such directives.

In Court’s opinion, the decision of Namdeo Natha Sanap v. State of Maharashtra, 2015(1) Mh.L.J. 838 which was delivered post to Section 110A(1)(iii) of the MCS Act also applies to the facts of the present matter

Order passed by the Registrar, Co-operative Societies is an executive and administrator order, which was passed so as to comply with the mandatory directives issued by the RBI and was thus not a quasi-judicial order.

Hence, Registrar Co-operative Societies was neither required to issue any show-cause notice nor to grant any personal hearing to the petitioners before passing the impugned order.

Section 110A(1)(iii) of the MCS Act clearly indicates that if it is required by the RBI in public interest or for preventing the affairs of the bank being conducted in a manner detrimental to the interest of the depositors or for securing the proper management of the bank, the discretion vests in the RBI to pass an order or directives against the Registrar, Co-operative Societies either for suspension or supersession of the Board of Directors, as the case may be. Such discretion under the said provision does not vest in the Registrar, Co-operative Societies either to suspend or supersede the Board of Directors upon receipt of such directives from the RBI under the said provision.

Since, High Court found that there was no repugnancy in the provisions of Article 243 ZL and Section 110A(1)(iii) of the MCS Act, Article 243 ZL of the Constitution of India does not prevail over the Section 110A(1)(iii) of the MCS Act.

Bench found no infirmity in the order passed by the Registrar, Co-operative Societies in appointing sole administrator.

“…appointment of a sole administrator made by the Registrar, Co-operative Societies cannot be set aside on the ground that the RBI had directed the Registrar, Co-operative Societies to appoint Board of Administrators.”

Under Section 110(A)(1)(iii) of the MCS Act, the Registrar, Co-operative Societies is bound to comply with the directives issued by the RBI under the said provisions and has no discretion.

The order passed by the Registrar, Co-operative Societies to supersede or suspend the Board of Directors in compliance with the directives issued by the RBI is an administrative or executive order.

Further, the Court also explained that Registrar, Co-operative Societies is empowered to pass an order of winding up of such co-operative bank.

Powers of the Registrar under Section 102 of the MCS Act cannot be equated with the duty of the Registrar, Co-operative Societies to comply with the directives issued by the RBI under Section 110A (1)(iii) of the MCS Act.

The Registrar, Co-operative Societies is thus not bound to follow the procedure prescribed under Section 102 of the MCS Act while complying with the duties under Section 110A(1)(iii) of the MCS.

In High Court’s opinion, Senior Counsel, Mr Dhond rightly placed reliance upon Section 56(zb) and 56(za) in support of submission that in case of Multi State Co-operative Bank, the RBI is empowered to exercise the powers under Section 110A (1)(iii) of the MCS Act in directing the Registrar, Co-operative Societies in superseding or suspending the Board of Directors of such Multi-State Co-operative Bank and in case of Single State Co-operative Society, RBI has no power under the provisions of the MCS Act to supersede the Board of Directors of such co-operative bank.

Provisions of the Banking Regulation Act are preserved by virtue of the said third proviso to Article 243 ZL of the Constitution of India and does not affect the power of the RBI to take any action under the provisions of the Banking Regulation Act or under Section 110A(1)(iii) of the MCS Act.

Adding to the above analysis, Bench also stated that the word ‘shall’ in Section 110A(1)(iii) would clearly indicate that the Registrar, Co-operative Societies is bound to comply with the directives of the RBI and mandatorily.

“…amendment carried out by the State Government to Section 110A(1)(iii) of the MCS Act in the year 2013 is in conformity with the provisions of Article 243 ZL of the Constitution of India and is in tune with fourth proviso to Article 243 ZL of the Constitution of India.”

While parting with the decision, High Court stated that since the order passed by the Registrar, Co-operative Societies was in mandatory compliance with the directives issued by the RBI to supersede or suspend the Board of Directors of respondent 4 by Co-operative Societies, Court could not interfere with such order passed by the Registrar, Co-operative Societies.

Petition was found to be devoid of merit and the petitioners were directed to handover the charge of affairs and management of respondent 4 to the administrator appointed by respondent 2. [Keda Tanaji Aher v. State of Maharashtra, 2021 SCC OnLine Bom 413, decided on 19-03-2021]


Advocates before the Court:

Mr. Ashutosh A. Kumbhakoni, Advocate General a/w Mr. Akshay Shinde, ‘A’ Panel a/w Mr. Yuvraj D. Patil, AGP for the Applicants-State in CAW/271/2019 and for Respondent Nos.1 to 3 in WP/2301/2018. Mr. Anil V. Anturkar, Senior Advocate a/w Mr. Yatin Malvankar i/by

Mr. I. M. Khairdi for the Petitioners in WP/2301/2018.

Mr. Ritesh Wagh h/for Mr. Tejpal S. Ingale for the Applicants in CAW/ 1275/2018.

Mr. Shrinivas S. Patwardhan a/w Mr. Bhooshan R. Mandlik for Respondent No.4.

Mr. Venkatesh Dhond, Senior Advocate a/w Mr. Prasad Shenoy, Ms.Aditi Phatak and Ms. Kirti Ojha i/by Udwadia and Co. for the Respondent No.5-Reserve Bank of India.

Mr. Girish S. Godbole i/by Mr. Vishwajeet Mohite and Ms. Pooja Mankoji for the Respondent Nos. 6 and 7 in WP/2301/2018.

Mr. Girish S. Godbole i/by Mr. Ketan Joshi and Ms. Pooja Mankoji for the Respondent Nos. 8 and 9 in WP/2301/2018.

Hot Off The PressNews

Extension of Cheque Truncation System (CTS) across all bank branches in the country.

What is Cheque Truncation System (CTS)?

Cheque Truncation System of Image-based Clearing System is for faster clearing of cheques.

Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces the scope of loss of instruments in transit, lowers the cost of collection of cheques, and removes reconciliation-related and logistics-related problems, thus benefitting the system as a whole.

When was CTS implemented?

The CTS is in use since 2010 and presently covers around 1,50,000 branches. All the erstwhile 1219 non-CTS clearing houses (ECCS centres) have been migrated to CTS effective September 2020. It is, however, seen that there are branches of banks that are outside any formal clearing arrangement and their customers face hardships due to longer time taken and cost involved in collection of cheques presented by them.

CTS to extend across all bank branches

To leverage the availability of CTS and provide uniform customer experience irrespective of location of her/his bank branch, it has been decided to extend CTS across all bank branches in the country. To facilitate this, banks shall have to ensure that all their branches participate in image-based CTS under respective grids by September 30, 2021. They are free to adopt a model of their choice, like deploying suitable infrastructure in every branch or following a hub & spoke model, etc. and concerned banks shall coordinate with the respective Regional Offices of RBI to operationalise this.


Reserve Bank of India

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of AM Khanwilkar*, Indi Malhotra and Ajay Rastogi has held that the condition predicated in Section 31 of the Foreign Exchange Regulation Act, 1973 of obtaining “previous” general or special permission of the RBI for transfer or disposal of immovable property situated in India by sale or mortgage by a person, who is not a citizen of India, is mandatory.

“Until such permission is accorded, in law, the transfer cannot be given effect to; and for contravening with that requirement, the concerned person may be visited with penalty under Section 50 and other consequences provided for in the 1973 Act.”

The important question to be decided before the Court was whether transaction specified in Section 31 of the 1973 Act entered into in contravention of that provision is void or is only voidable and it can be voided at whose instance.

Object of the Statute

1973 Act was brought into force to consolidate and amend the law relating to certain payments, dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange and the import and export of currency, for the conservation of the foreign exchange resources of the country and the proper utilisation thereof in the interests of the economic development of the country.

Object of Section 31

While introducing the Bill in the Lok Sabha and explaining the object of Section 31 of the 1973 Act,  Mr. Y.B. Chavan, the then Minister of Finance stated:

“As a matter of general policy it has been felt that we should not allow foreign investment in  landed property/buildings constructed by foreigners and foreign controlled companies as such investments offer scope for considerable amount of capital liability by way of capital repatriation. While we may still require foreign investments in certain sophisticated branches of industry, there is no reason why we should allow foreigners and foreign companies to enter real estate business.”

The object of Section 31 of the 1973 Act was thus to minimise the drainage of foreign exchange by way of repatriation of income from immovable property and sale proceeds in case of 16 disposal of property by a person, who is not a citizen of India.  Section 31, hence, puts restriction on acquisition, holding and disposal of immovable property in India by foreigners – non citizens.

Absence of explicit mention of failure to seek previous permission

It is true that the consequences of failure to seek such previous permission has not been explicitly specified in the same provision or elsewhere in the Act, but then the purport of Section 31 must be understood in the context of intent with which it has been enacted, the general policy not to allow foreign investment in landed property/buildings constructed by foreigners or to allow them to enter into real estate business to eschew capital repatriation, including the purport of other provisions of the Act, such as Sections 47, 50 and 63.

Section 47

Sub-Section (1) clearly envisages that no person shall enter into any contract or agreement which would directly or indirectly evade or avoid in any way the operation of any provision of the 1973 Act or of any rule, direction or order made thereunder.  What is significant to notice is that sub¬Section (2) declares that the agreement shall not be invalid if it provides that thing shall not be done without the permission of the Central Government or the RBI.  That would be the implied requirement of the agreement in terms of this provision.

In other words, though ostensibly the agreement would be a conditional one made subject to permission of the Central Government or the RBI, as the case may be and if such term is not expressly mentioned in the agreement, it shall be an implied term of every contract governed by the law — of obtaining permission of the Central Government or the RBI before doing the thing provided for in the agreement.

In that sense, such a term partakes the colour of a statutory contract. Notably, Section 47 of the 1973 Act applies to all the contracts or agreements covered under the 1973 Act, which require previous permission of the RBI.

Section 50

Section 50 reinforces the position that transfer of land situated in India by a person, who is not a citizen of India, would visit with penalty. Indeed, inserting such a provision does not mean that the 1973 Act is a penal statute, but is to provide for penal consequence for contravention of provisions, such as Section 31 of the 1973 Act.

Section 63

Section 63 of the 1973 Act empowers the court trying a contravention under Section 56 which includes one under Section 51 of the 1973 Act, to confiscate the currency, security or any other money or property in respect of which the contravention has taken place. The expression “property” in Section 63, takes within its sweep immovable property referred to in Section 31 of the 1973 Act.

Effect of reading Section 31 with Sections 47, 50 and 63 

“The requirement specified in Section 31 is mandatory and, therefore, contract or agreement including the gift pertaining to transfer of immovable property of a foreign national without previous general or special permission of the RBI, would be unenforceable in law.”

From the analysis of Section 31 of the 1973 Act and upon conjoint reading with Sections 47, 50 and 63 of the same Act, we must hold that the requirement of taking “previous” permission of the RBI   before executing the sale deed or gift deed is the quintessence; and failure to do so must render the transfer unenforceable in law.

“The dispensation under Section 31 mandates “previous” or “prior” permission of the RBI before the transfer takes effect.  For, the RBI is competent to refuse to grant permission in a given case. The sale or gift could be given effect and taken forward only after such permission is accorded by the RBI. There is no possibility of ex post facto permission being granted by the RBI under Section 31 of the 1973 Act.”

Before grant of such permission, if the sale deed or gift deed is challenged by a person affected by the same directly or indirectly and the court declares it to be invalid, despite the document being registered, no clear title would pass on to the recipient or beneficiary under such deed. The clear title would pass on and the deed can be given effect to only if permission is accorded by the RBI under Section 31 of the 1973 Act to such transaction.

“Merely because no provision in the Act makes the transaction void or says that no title in the property passes to the purchaser in case there is contravention of the provisions of Section 31, will be of no avail. That does not validate the transfer referred to in Section 31, which is not backed by “previous” permission of the RBI.”

In light of the general policy that foreigners should not be permitted/allowed to deal with real estate in India; the peremptory condition of seeking previous permission of the RBI before engaging in transactions specified in Section 31 of the 1973 Act and the consequences of penalty in case of contravention, the transfer of immovable property situated in India by a person, who is not a citizen of India, without previous permission of the RBI must be regarded as unenforceable and by implication a prohibited act. That can be avoided by the RBI and also by anyone who is affected directly or indirectly by such a transaction. There is no reason to deny remedy to a person, who is directly or indirectly affected by such a transaction.  He can set up challenge thereto by direct action or even by way of collateral or indirect challenge.

“In other words, until permission is accorded by the RBI, it would not be a lawful contract or agreement within the meaning of Section 10 read with Section 23 of the Contract Act. For, it remains a forbidden transaction unless permission is obtained from the RBI. The fact that the transaction can be taken forward after grant of permission by the RBI does not make the transaction any less forbidden at the time it is entered into. It would nevertheless be a case of transaction opposed to public policy and, thus, unlawful.”

[Asha John Divianathan v. Vikram Malhotra, 2021 SCC OnLine SC 147, decided on 26.02.2021]


*Judgment by: Justice AM Khanwilkar

Know Thy Judge| Justice AM Khanwilkar

Appearances before the Court by:

For appellant: Advocate Navkesh Batra

For respondent: Senior Advocate C.A. Sundram

Hot Off The PressNews

Master Direction on Digital Payment Security Controls

The Master Direction provides necessary guidelines for the Regulated Entities (Scheduled Commercial Banks, Small Finance Banks, Payment Banks and Credit Card issuing NBFCs) to set up a robust governance structure and implement common minimum standards of security controls for digital payment products and services.

The guidelines are technology and platform agnostic and shall create an enhanced and enabling environment for customers to use digital payment products in a more safe and secure manner.

The Master Direction consolidates important control aspects broadly in the following areas viz., Governance and Management of Security Risks, Generic Security Controls, Application Security Life Cycle (ASLC), Authentication Framework, Fraud Risk Management, Reconciliation Mechanism, Customer Protection, Awareness and Grievance Redressal Mechanism, specific controls related to Internet Banking, Mobile Payments Application Security Controls and Card Payments Security.


Reserve Bank of India

[Press release dt. 18-02-2021]

Business NewsNews

The Banking Regulation Act, 1949 has been amended by the Banking Regulation (Amendment) Act, 2020 notified for the Primary (Urban) Co-operative Banks (UCBs) on September 29, 2020, and deemed to have been effective from June 29, 2020. Consequently, Section 20 of the principal Act has become applicable to UCBs.

Keeping in view the above, the extant directions on the subject issued to UCBs have been reviewed and the revised directions are issued as under.

UCBs shall not make, provide or renew any loans and advances or extend any other financial accommodation to or on behalf of their directors or their relatives, or to the firms / companies / concerns in which the directors or their relatives are interested (collectively called as “director-related loans”). Further, the directors or their relatives or the firms / companies / concerns in which the directors or their relatives are interested shall also not stand as surety/guarantor to the loans and advances or any other financial accommodation sanctioned by UCBs. ‘Advances’ for the purpose shall include all types of funded / working capital limits such as cash credits, overdrafts, credit cards, etc.

  • The following categories of director-related loans shall, however, be excluded from “loans and advances” for the purpose of these directions:
  1. Regular employee-related loans to staff directors, if any, on the Boards of UCBs;
  2. Normal loans, as applicable to members, to the directors on the Boards of Salary Earners’ UCBs;
  3. Normal employee-related loans to Managing Directors / Chief Executive Officers of UCBs;
  4. Loans to directors or their relatives against Government Securities, Fixed Deposits and Life Insurance Policies standing in their own name.

Explanation: For the purpose of these directions –

i. The term ‘any other financial accommodation’ shall include funded and non-funded credit limits and underwritings and similar commitments, as under:

  1. The funded limits shall include loans and advances by way of bill/cheque purchase/ discounting, pre-shipment and post-shipment credit facilities and deferred payment guarantee limits extended for any purpose including purchase of capital equipment and acceptance limits in connection therewith sanctioned to borrowers, and guarantees by issue of which a bank undertakes financial obligation to enable its constituents to acquire capital assets. It shall also include investments which are in the nature of / in lieu of credit.
  2. The non-funded limits shall include letters of credit, guarantees other than those referred to in paragraph (a) above, underwritings and similar commitments. It shall also include off-balance sheet exposure in the form of derivatives.

ii. The word “relative” shall have the meaning as under:

A person shall be deemed to be a relative of another, if and only if:-

a) They are members of a Hindu Undivided Family; or

b) They are husband and wife; or

c) The one is related to the other (or vice-versa) in the manner indicated below:

  1. Father (including step-father)
  2. Mother (including step-mother)
  3. Son (including step-son)
  4. Son’s wife
  5. Daughter (including step-daughter)
  6. Daughter’s husband
  7. Brother (including step-brother)
  8. Brother’s wife
  9. Sister (including step-sister)
  10. Sister’s husband

iii. The word “interested” shall mean the director of the UCB or his relative, as the case may be, being a director, managing agent, manager, employee, proprietor, partner, coparcener or guarantor, as the case may be, of the firm / company / concern (including HUF):

Provided that a director of a UCB or his relative shall also be deemed to be interested in a company, being the subsidiary or holding company, if he/she is a director, managing agent, manager, employee or guarantor of the respective holding or subsidiary company:

Provided further that a director of a UCB shall also be deemed to be interested in a company/firm if he/she holds substantial interest in or is in control of the company/firm or in a company, being the subsidiary or holding company, if he/she holds substantial interest in or is in control of the respective holding or subsidiary company:

Provided further that a relative of a director of a UCB shall also be deemed to be interested in a company/firm if he/she is a major shareholder or is in control of the company/firm or in a company, being the subsidiary or holding company, if he/she is a major shareholder or is in control of the respective holding or subsidiary company:

iv. The term “substantial interest” shall have the same meaning as assigned to it in section 5(ne) of the Banking Regulation Act, 1949.

v. The term “control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in another manner.

vi. The term “major shareholder” shall mean a person holding 10% or more of the paid up share capital.

  • UCBs shall submit information pertaining to their director-related loans as at the end of each quarter (i.e. 31 March, 30 June, 30 September and 31 December), in the format given in the Annex to these directions, to the concerned Regional Office of Department of Supervision of Reserve Bank of India within fifteen days from the end of the respective quarter. In the case of UCBs functioning under Administrator(s) / Person(s)-in-Charge / Special Officers, the UCBs concerned should submit the information in respect of loans and advances availed by the Administrator(s) / Person(s)-in-Charge / Special Officers, including their relatives.
  • These directions supersede the earlier directives / instructions issued on the subject and shall come into force immediately. The existing director-related loans sanctioned/granted by UCBs in terms of the earlier directives / instructions prior to the issue of this circular, if any, may continue till their respective maturity and shall not be renewed further.

Reserve Bank of India

[Press Release dt. 05-02-2021]

Legislation UpdatesNotifications

Central Government, after consultation with the Reserve Bank, hereby makes the following Scheme further to amend the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970:

  • Nationalised Banks (Management and Miscellaneous Provisions) Amendment Scheme, 2021
  • In the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970, after paragraph 14, the following paragraph shall be inserted, namely:—

“14A. Special provision.—Where a nationalised bank is required by law to do any act or thing and in order to do so the recommendations or determination of, or resolution of grievances of security holders by, or in respect of any appointment, approval or review by any Committee of the Board of the bank is required, and if the Board is satisfied that quorum for meeting of such Committee cannot be met on account of either existence of any vacancy in such Committee or recusal by member thereof, the Board may do that act or thing.”


Ministry of Finance

Notification dt. 25-01-2021

Business NewsNews

It has been brought to the notice of RBI that the recovery of excess /wrong pension payments from the pensioners are being made in a manner that is not in keeping with the extant guidelines / Court orders.

The said issue has been examined by RBI and it has been decided that the following circulars issued by Department of Government and Bank Accounts, Reserve Bank of India related to the recovery of excess pension paid by agency banks stands withdrawn with effect from the date of this circular –

  1. Circular no DGBA.GAD.No.2960/45.01.001/2015-16 dated March 17, 2016
  2. Circular no CO.DGBA (NBS) No.44/GA.64 (11-CVL) 90/91 dated April 18, 1991
  3. Circular no CO DGBA (NBS) No.50/GA.64 (11-CVL) 90/91 dated May 6, 1991.

Further, RBI noted that though the above-mentioned circulars issued under the signature of RBI stand withdrawn, agency banks are requested to seek guidance from respective Pension Sanctioning Authorities regarding the process to be followed for recovery of excess pension paid to the pensioners, if any.

As regards the issue of refund to be made to the government of excess/wrong pension payments, banks may be guided by the guidelines laid down in our Circulars Nos.DGBA.GAD.H10450/45.03.001/2008-09 dated June 1, 2009, and DGBA.GAD.H.4054/45.03.001/2014-15 dated March 13, 2015. Agency banks are again advised that, where excess pension payment has arisen on account of mistakes committed by the bank, the amount paid in excess should be refunded to the Government in lump sum immediately after detection of the same and without waiting for recovery of any amount from the pensioners.


Reserve Bank of India

Notification dt. 21-01-2021

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