Legislation UpdatesNotifications

On 02-09-2022, Reserve Bank of India issued guidelines on Digital Lending which would be applicable to the ‘existing customers availing fresh loans’ and to ‘new customers getting onboarded’. REs will be given time till 30-11-2022 to process these guidelines.

Applicability: These guidelines will be applicable to all Commercial Banks, Primary (Urban) Co-operative Banks, District Central Co-operative Banks and Non-Banking Financial Companies(including Housing Finance Companies)(Regular Entities(REs))

Key points:-

  1. REs will ensure that all loan servicing, repayments etc., will be directly executed by the borrower in the RE’s bank without any third party.
  2. All the fees, charges.,etc which has to be paid to the LSP will be directly paid by the REs and not by the borrower.
  3. If there is any penal interest or charges on the borrower then it will be based on the outstanding amount of the loan.
  4. REs has to provide a Key Fact Statement (KFS) to the borrower before executing any contract for all digital lending products.
  5. KFS will contain all the details of Annual Percentage Rate(APR), recovery mechanism, details of grievance redressal officer who will be appointed to deal with digital lending/FinTech related matters and the cooling-off/look-up period.
  6.  REs will confirm that the digitally signed documents on the letter head of the RE would automatically and expeditiously be sent to the borrowers on their registered and verified email/SMS after the execution of loan contracts or transaction.
  7. REs has to publish the list of their Digital Lending Apps(DLAs), Leading Service Providers(LSPs) and the details of their activities explicitly on their website.
  8. REs and LSPs must have a suitable nodal grievance redressal officer to deal with FinTech/digital lending related complaints/issues raised by the borrowers. The complaint lodged by the borrower must be resolved within 30 days and if it is not resolved within the stipulated time then the borrower can complain over the Complaint Management System(CMS) portal.
  9. A Borrower will be given an option to exit digital loan by paying the principal and the proportionate APR without any penalty during the cooling off/look-up period. The period will not be less than 3 days for loans having tenor of 7 days or more and 1 day for loans having tenor of less than 7 days.
  10. REs will ensure that all the collection of data by their DLAs and LSPs must be taken with the explicit consent of the borrower. On time access will be taken for camera, microphone, location.,etc only for the purpose of KYC with the consent of the borrower.
  11. The borrower can give or deny  consent for the use of any data. Explicit consent will be taken from the borrower before sharing any personal information with any third party.
  12.  LSPs/DLAs have no right to store personal information of the borrower except some basic data like name, address etc. No biometric data will be stored in the systems of DLAs and LSPs. All the data will be stored only in the server located within India.
  13. If DLAs want to collect any personal information related to the borrower then they have to make the comprehensive privacy policy available publicly.
  14. REs must fulfill all the technology standards/requirements on cybersecurity prescribed by RBI for undertaking digital lending.


  1. Digital Lending is defined as “A remote and automated lending process, largely by use of seamless digital technologies for customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer service.”
  2. Cooling off/look-up period is defined as “the time window as determined by the Board of the RE which shall be given to borrowers for existing digital loans, in case a borrower decides not to continue with the loan.”
  3. APR is the effective annualised rate charged to the borrower of a digital loan.
  4. DLAs are mobile and web-based applications with user interfaces that facilitate digital lending services.
  5. LSP is an agent of a Regulated Entity who carries out one or more of the lender’s functions.
Case BriefsSupreme Court

Supreme Court: In the Reliance Commercial takeover dispute, the 3-judges Bench comprising Dr. D Y Chandrachud*, Surya Kant and A S Bopanna, JJ., gave a green signal to the voting process to implement the resolution plan. The Court, though upheld the applicability of SEBI circular, it opined that the different voting mechanism proposed under the SEBI Circular will further delay the resolution process and potentially disrupt the efforts undertaken by the stakeholders, including the retail debenture holders. The Court noted,  

“Such unscrambling of the resolution process will not only prove time-consuming, but may also adversely affect the agreed realized gains to the retail debenture holders, who have already consented to the negotiated settlement before the High Court.” 

Factual Matrix 

The instant case relates to takeover of Reliance Commercial Finance Ltd. (RCFL) by Authum Investment and Infrastructure Ltd.; where a dispute arose with regard to the applicability of two circulars issued by RBI and SEBI— Reserve Bank of India (Prudential Framework for the Resolution of Stressed Assets) Directions 2019 and SEBI Standardisation of procedure Circular (13-10-2020).   

RCFL had issued Non-Convertible Debentures to various persons and Vistra ITCL (India) Ltd. was the Debenture Trustee under three Debenture Trust Deeds. RCFL committed its first default under the Debenture Trust Deeds in March 2019. 

The dispute 

Seventeen debenture holders instituted a suit on the Original Side of the Bombay High Court for protection of their interests with respect to the amounts due to them by RCFL, alleging that certain funds available with the Bank of Baroda, were distributed amongst creditors without regard to their status as secured or unsecured creditors without their consent and that they had a first charge on the receivables of RCFL.  

The debenture holders further alleged that the RBI Circular permitted this illegal distribution of funds and hence they urged for setting aside of the RBI Circular as illegal and ultra vires. They also sought an injunction restraining RCFL, Bank of Baroda, and RBI from implementing the RBI Circular. 

Impugned Decision  

The Single Judge held that the SEBI Circular could not be permitted to operate retrospectively and did not govern the Debenture Trust Deeds.  However, opining that a mere reference to the SEBI Circular would not override the express terms of any of the Debenture Trust Deeds, the Single Judge allowed to proceed with the voting process for the takeover of RCFL according to Debenture Trust Deeds signed in compliance with the RBI circular. In appeal, the Division Bench affirmed the aforesaid order of the Single Judge. 


Based on the submissions canvassed by the parties, the following issues arose for determination: 

  1. Whether the civil court had the jurisdiction to entertain the lis in this case; and 
  2. Whether the debenture holders and other parties in the present case were required to follow the procedure under the SEBI Circular. 

Issue 1: Jurisdiction  

On the first issue, the Court noted that Section 15Y of the SEBI Act imposes a bar on the civil court to entertain any suit in respect of any matter that an adjudicating officer appointed under the SEBI Act is empowered to determine; however, since the Adjudicating officer has no jurisdiction under the SEBI Act to grant the relief sought by the plaintiffs in the first instance, the bar in Section 15Y would not operate as against the suit in the instant case. 

Similarly, with regard to the bar under Section 430 of the Companies Act that no civil court shall have the jurisdiction to entertain any suit in respect of any matter which the National Company Law Tribunal or the National Company Law Appellate Tribunal is empowered to determine, the Court observed that since neither the NCLT nor the NCLAT has jurisdiction to adjudicate upon a challenge to the RBI Circular, the bar in Section 430 is not attracted in the case at hand. 

Therefore, the Court held that the Single Judge as well as the Division Bench of the Bombay High Court properly exercised jurisdiction over the subject matter of the suit. 

Issue 2: Applicability of the SEBI Circular  

The RBI Circular provided that certain lenders may opt for a resolution strategy available to them under the existing legal framework, including entering into a resolution plan or initiating legal proceedings for recovery or insolvency. If the lenders chose to implement a Resolution Plan, they were required to enter into an Inter-creditor Agreement (ICA). 

By issuing the SEBI Circular, SEBI subscribed to the overall framework of the RBI Circular and permitted debenture holders to participate in the process specified in the RBI Circular to enter into a Resolution Plan (RBI circular provides only lenders can participate). Under the RBI Circular, the Resolution Plan cannot come into existence without an ICA. The SEBI Circular does not disturb this position. Hence, both the RBI Circular and the SEBI Circular refer to one and the same ICA and Resolution Plan.  

Rejecting the RCFL’s argument that Clauses 22 and 23 of the Fifth Schedule to the Debenture Trust Deed(s) are not concerned with signing an ICA or with the subject matter of the SEBI Circular in general, the Court observed that RCFL’s suggestion that the ICA and the Resolution Plan are distinct and severable is an incorrect interpretation of the circulars in question. The ICA and the Resolution Plan are inextricably intertwined and the latter has its genesis in the former and flows from it. 

Hence, the Court held that any reference to an ICA in the SEBI Circular is also necessarily a reference to the Resolution Plan and vice versa. It is not open to debenture holders to participate in the implementation of the Resolution Plan without being involved in its genesis through the ICA. The Court remarked,  

“There is only one ―door, so to speak, through which debenture holders can gain entry into the Resolution Plan with the lenders and that is through the ICA. Therefore, while the SEBI Circular does not mandate the execution of an ICA as the only route to entering a compromise with the issuer company, it lays down a procedure in the event that debenture holders choose the route of implementing a Resolution Plan with the lenders. This procedure cannot be circumvented.” 

Upholding the applicability of the SEBI circular, the Court pointed out the following: 

  • The purpose of the SEBI Circular is multi-fold – not only does it protect the interests of debenture holders at large (Clause 7), but it also protects the interests of any dissenting debenture holders (Clause 6.6).  
  • In the absence of Clause 7, debenture trustees would likely be unable to exit the ICA or the Resolution Plan even if they were not ―in the interest of investors or if the Resolution Plan was not finalized within 180 days from the end of the review period.  
  • Significantly, the absence of Clause 6.6 could mean that dissenting debenture holders would be bound by decisions taken even by way of a simple majority.  
  • We agree that the language in Regulation 15(7) of the 1993 Regulations and the SEBI Circular is facilitative and not mandatory. This is in recognition of the fact that debenture holders may opt to exercise their rights through mechanisms other than the execution of a Resolution Plan.  
  • The language cannot be construed to be facilitative in the sense of providing debenture holders with the option of by-passing the modalities prescribed by the SEBI Circular while accepting a Resolution Plan. The ICA continues to be the foundation or mother document for the Resolution Plan. 

Retroactive Application of the SEBI Circular  

Though RCFL issued the debentures and defaulted on the payments to the debenture holders prior to the issuance of the SEBI Circular, the Court culled out the following points to uphold the retroactive applicability of the SEBI Circular: 

  • On 13-10-2020 (when the SEBI Circular came into force), a compromise or agreement on the restructuring of the debt owed by RCFL did not exist. The debenture holders were not vested with any rights with respect to the resolution of RCFL‘s debt.  
  • The existence of the debt and the subsequent default by RCFL was the status of events, which existed prior to 13 October 2020. Once it came into force, the SEBI Circular applied to the manner of resolution of debt, as specified therein. 
  • Even assuming that debenture holders were vested with the right to sanction a compromise or arrangement in terms of the special majority in Clause 23 to the Fifth Schedule of the Debenture Trust Deed, they were divested of such a right upon the issuance of the SEBI Circular.  
  • Clause 59 of the Debenture Trust Deed stipulates that any provision in the Debenture Trust Deed which is in conflict with the 1993 Regulations is null and void.  
  • A contractually vested right may be taken away by the operation of a statutory instrument. The SEBI Circular owes its existence to statutory powers conferred by special legislation.  

Can SEBI Circular Bind Dissenting Debenture Holders 

SEBI contended that the compromise arrived at in terms of the direction of the High Court will also bind all the other debenture holders, who were not a party to the original suit before the High Court which will prejudice the dissenting debenture holders as they have to settle for a lesser amount – 24.96% of the principal among with a further 5% of the principal outstanding.  

Agreeing with SEBI‘s submission that the compromise arrived at the Debenture Trust Deed level among the consenting debenture holders should not bind the dissenting debenture holders, the Court directed that the dissenting debenture holders should be provided an option to accept the terms of the Resolution Plan.  

Alternatively, the Court held that the dissenting debenture holders have a right to stand outside the proposed Resolution Plan framed under the lender‘s ICA and pursue other legal means to recover their entitled dues. Hence, the Court disapproved the High Court’s interpretation of SEBI circular.  

Findings and Conclusion  

Though the Court upheld the applicability of the SEBI circular, it refrained from applying the same due to following findings:  

  • Under the present scheme of the Resolution Plan, retail debenture holders having exposure of up to INR 10 lakhs would stand to realize 100% of their principal dues. The secured retail debenture holders having an exposure of more than INR 10 lakhs would realize 29.69%. 
  • In comparison, the secured ICA lenders would receive 24.96% of their principal amount, which is lower than the recovery made by the debenture holders. It is also important to highlight that none of the debenture holders have raised any grievance with regard to the proposed compromise.  
  • The different voting mechanism proposed under the SEBI Circular will further delay the resolution process and potentially disrupt the efforts undertaken by the stakeholders, including the retail debenture holders.  
  • Such unscrambling of the resolution process will not only prove time-consuming, but may also adversely affect the agreed realized gains to the retail debenture holders, who have already consented to the negotiated settlement before the High Court. 

The Court observed,  

“In such a situation, application of the SEBI Circular, though right in law, may lead to unjust outcomes for the retail debenture holders if this court were to reverse the entire course of action which has occurred in the present case.” 

Relying on State v. Kalyan Singh, (2017) 7 SCC 444, the Court opined that the jurisdiction under Article 142 can be used to relax the rigors of law depending upon the peculiar facts and circumstances. Hence, considering that the compromise presently arrived at, which is in the interests of all the parties, will be disturbed if a new process is directed to be commenced in accordance with the SEBI Circular at the present stage, the application of the SEBI Circular will lead to a scenario where a Resolution Plan validly agreed upon by the ICA lenders under the RBI Framework will have to be unscrambled.  

Hence, the Court extended the benefit under Article 142 to the retail debenture holders by allowing the Resolution Plan to pass muster. The appeal was partly allowed and the Authum was allowed to process the takeover of RCFL.  

[SEBI v. Rajkumar Nagpal, 2022 SCC OnLine SC 1119, decided on 30-08-2022] 

*Judgment by: Justice Dr. D Y Chandrachud 


For SEBI: N Venkataraman, Senior Counsel & Additional Solicitor General  

For RCFL: Darius Khambata, Senior Counsel 

For Bank of Baroda: KV Viswanathan, Senior Counsel  

For Authum Investment and Infrastructure Ltd.: Dhruv Mehta, Senior Counsel 

*Kamini Sharma, Editorial Assistant has put this report together.  

Legislation UpdatesRules & Regulations

On 22-08-2022, the Reserve Bank of India (‘RBI’) has issued the Foreign Exchange Management (Overseas Investment) Regulations, 2022 to facilitate business between Indian and foreign entities.

Key Points:

  1. Indian entity can lend or invest in any debt instrument issued by the foreign entity or extend non- fund-based commitment after fulfilling the conditions-

    • Eligible to make Overseas Direct Investment (‘ODI’)

    • ODI should be in the foreign entity

    • The Indian entity has acquired control in foreign entity at the time of making commitments

  2. While lending or investing in debt instruments, the Indian entity should check whether the loan is duly backed by a loan agreement or not and if the rate of interest is charged on an “arm’s length”.

    Note: “Arm’s length” means a transaction between 2 related parties that is conducted as if they were unrelated to avoid any conflict of interest.

  3. In the case of financial commitment by way of a guarantee, it can be issued to or on behalf of the foreign entity:

    • Corporate or performance guarantee by Indian entity

    • Corporate or performance guarantee by a group of Indian entity in India, being a holding company (holding 51% stake in Indian entity), or subsidiary company (51% held by Indian entity), or a promoter group company which should be a corporate body.

    • Personal guarantee by the resident individual promoter

    • Bank guarantee backed by a counter- guarantee or by collateral by the Indian entity and issued by a bank in India.

  4. In case where a guarantee is extended jointly by 2 or more Indian entities, 100% of the amount has to be reckoned towards the individual limits of both the Indian entities.

  5. In case there is a performance guarantee, 50% of the amount has to be reckoned towards the financial commitment limit.

  6. In case of financial commitment by way of pledge, the Indian entity can pledge the equity capital of the foreign entity, held directly by the Indian entity in a foreign entity, in favour of Authorized Dealer (‘AD’) Bank or a public financial institution in India or an overseas lender, for availing fund based or non- fund-based facilities for itself or for any foreign entity in which it has made ODI.

  7. In case of financial commitment by creating charge by way of mortgage, pledge, hypothecation on

    • The assets in India in favour of an AD bank or a public financial institution in India or an overseas lender as security for availing of the fund based or non-fund-based facility or both, for any foreign entity in which it has made ODI or for its step-down subsidiary outside India

    • The assets outside India of the foreign entity y in which it has made ODI or of its step-down subsidiary outside India in favour of an AD bank in India or a public financial institution in India as security for availing of the fund based or non-fund-based facility or both, for itself or any foreign entity in which it has made ODI or for its step-down subsidiary outside India or in favour of a debenture trustee registered with SEBI in India for availing fund-based facilities for itself

  8. In case of acquisition or transfer by way of deferred payment, the payment of amount of consideration for the equity capital ca deferred for a definite period from the date of the agreement as is contained in the agreement in accordance with the conditions:

    • The foreign securities equivalent to the amount of total consideration should be transferred or issued, upfront by the seller to the buyer

    • The full and final consideration should be in compliance with the applicable pricing guidelines

  9. The resident of India acquiring equity capital has to submit the share certificates to the AD bank within 6 months from the date of effecting remittance/ the date on which the dues to such person are capitalized/ the date on which the amount due was allowed to be capitalized.

  10. An Indian resident having ODI in a foreign entity should realize and repatriate to India all the dues receivable from the foreign entity, within 90 days from the date when such receivables fall due/ the date of transfer or disinvestment/ the date of actual distribution of assets made by the official liquidator.

  11. A person resident in India who has made ODI or making financial commitment or undertaking disinvestment in a foreign entity have to report the financial commitment, disinvestment within 30 days of receipt of such proceeds and restructuring within 30 days from the date of such restructuring.

  12. In the case of Overseas Portfolio Investment or its transferring, a report of the same has to be made within 60 days from the end of the half- year in which such investment or transfer is made as of September or March end.

  13. An Annual Performance Report needs to be submitted with respect to each foreign entity every year by 31st December.

  14. In case of delay in reporting, Late submission fee has to be submitted. This facility can be availed within a maximum period of 3 years from the date of submission or filing.

Reserve Bank of India
Legislation UpdatesNotifications


On 04-08-2022, the Reserve of India (‘RBI') amended the RBI (Gold Monetization Scheme, 2015) with immediate effect.

The amendment inserts following guidelines on Renewal/ Redemption of Medium and Long-Term Government Deposit Guidelines for Renewal/ Redemption of Medium and Long-Term Government Deposit (‘MLTGD'):

  1. The redemption of principal at the time of maturity should either be in Indian Rupee (‘INR') equivalent of the value of deposited gold at the time of redemption or in gold. The option for both is open to the depositor.

  2. If any premature redemption is made it should only be in INR. The bank has the option to collect the maturing proceeds in gold or in INR equivalent to the deposit at the time of initial deposit.

  3. When any account is opened, the nominee details and their share in maturity proceeds should be ascertained by the bank. In case the account already exists, the bank should ensure the details as mentioned earlier and then submit a compliance report to the Reserve Bank of India (‘RBI') within 6 months from the date of issue of these directions.

  4. The interest accrued should be calculated with reference to INR equivalent of value of gold at the time of deposit and should be paid only in INR.

  5. The depositors should be informed by the banks through letter or electronic means, 120 days prior to redemption or renewal, a list of banks (state-wise branches), having the facility of redemption in gold, also specifying the additional administrative charges.

  6. At the time of redemption/renewal/ premature closure of MLTGD, the depositor should provide the original deposit certificate.

  7. At the time of redemption, if the original savings/ current account is not operational then an alternate account detail should be provided to the bank.

  8. A deposit maturing on a non- working day should be redeemed on the next working day without any interest.

  9. No interest will be paid on the outstanding deposit, in case the deposit is not redeemed on the due date / deposit certificate is not furnished on the due date.

  10. The renewal of deposits with retrospective effect shall not be allowed.

  11. The excess interest paid in case of premature closure can either be adjusted from the principal amount at the time of repayment or should be recovered separately from the customer by crediting the full principal amount at the time of redemption.

Redemption in Gold

  1. The quantity of gold should be payable in multiples of 10 grams and the remaining fraction of gold should be paid in INR.

  2. The administrative charge should be 0.5% of the notional redemption amount as on the maturity date.

  3. If in response to its 120 days prior communication, the depositor does not indicate any choice for mode of redemption then the option indicated at the time of account opening will prevail.

  4. If the gold is not redeemed by the customer on the maturity date, then the bank will keep it in its custody for a maximum period of 60 days which can be renewed by the depositor within these 60 days, after paying the administrative charges.

  5. If the deposit is not redeemed/ renewed on the due date or within 60 days from the date of maturity then the redemption will automatically be made in INR and the money should be credited to the linked savings/ current account of the depositor and in case of non-availability of an active bank account, the bank should report the same to RBI.

  6. Arrangement of gold by the designated banks:

    • The bank should maintain the stock at least equivalent to the gold redemption due in the next 3 months.

    • Surplus MLTGD gold with 1 bank can be transferred to another to meet MLTGD redemption.

    • Banks can also purchase India Good Delivery Standard gold/ London Bullion Market Association's (‘LBMA's') Good Delivery Standard (‘LGDS') gold bars from the local refineries empaneled with the banks or Minerals and Metals Trading Corporation (‘MMTC') that can reimbursed from the Government.

    • In case sufficient gold is not available with any bank for redemption, RBI has to inform the Government, at least 3 months prior to the date of redemption.

Redemption in INR- Modalities

The depositor should furnish the original deposit certificate with his account details in any Gold Monetization Scheme branch of the bank and his account will be credited accordingly.

Renewal of Deposit- Modalities

  1. A depositor will be allowed for renewal, irrespective of the option exercised at the time of original gold deposit.

  2. The depositor will have to show his willingness in response to the bank's communication.

  3. Deposit will be accepted at the prevailing rate on the date of receipt of request for renewal.

Partial Renewal and Partial Redemption in gold/INR- Modalities

  1. Part renewal is allowed as per the process and terms mentioned above.

  2. Redemption of the remaining gold deposit is permitted as per the process and terms mentioned above.

Reserve Bank of India
Legislation UpdatesNotifications


On 02-08-2022, the Reserve Bank of India (‘RBI') issued Master Circular on Credit Facilities to Minority Communities, consolidating all circulars issued on the subject till date.

It lays out details about the credit facilities available to the minority communities, and how the same has to be made available to them.

Credit Facilities to Minority Community

  1. The benefits flowing from various Government sponsored schemes, Scheduled Commercial Banks (‘Bank') are advised to keep the flow of bank credit smooth to minority communities.

  2. A list of 121 minority concentration districts, having at least 25% minority population, is forwarded by the Government, excluding the state/UTs where minorities are in majority.

  3. The banks have to specially monitor the credit flow of these 121 districts, ensuring a fair and equitable portion of the credit within the overall target of the priority sector.

  4. According to the Master Direction on Priority Sector Lending dated 04-09-2020, a sub target of 11.5% of Adjusted Net Bank Credit or Credit Equivalent amount of Off- Balance Sheet Exposures, whichever is higher, as on March 31 of the previous year, has been mandated for FY: 2022 —2023 for lending to weaker sections which includes, among others, persons from minority communities.

Definition of Minority Communities

  1. These communities have been notified as minority by the Government of India, Ministry of Minority Affairs:

    • Sikhs

    • Muslims

    • Christians

    • Zoroastrians

    • Buddhists

    • Jain

  2. In a partnership firm, majority of partners being of the specified community, advances granted to such firms will be treated as advances granted to such community.

  3. Further, if the majority beneficial ownership in a partnership firm belongs to the minority community, then such lending can be classified as advances to the specified communities.

Creation of Special Cell and designating an exclusive Officer

  1. A special cell has to be set up by each bank, having a Nodal Officer, holding the rank of DGM/ AGM, who will ensure smooth credit flow to minority communities.

  2. Responsibilities of the Nodal Officer:

    • Look after credit flow problems

    • Publicize various programmes of bank credit

    • Prepare suitable schemes

    • Arrange group meetings for formulation of schemes

  3. The Officer should be attached to the Lead Bank set up at the district level so that he can receive necessary guidance from the Lead District Manager.

  4. The name, designation, and address of the Nodal officer and officer appointed by lead banks in the identified districts to take after the problems of a minority community should be furnished by the banks to the National Commission for Minorities, a copy which should be furnished to the Chief General Manager, Financial Inclusion and Development Department, RBI.

Role of Lead Banks

  1. Lead Banks will have to exercise their proactive role, ensuring that the poor and illiterate have access to bank credit for taking up productive activities

  2. In the 121 identified districts, the Lead Banks may involve State Minority Commission/ Finance Corporation in the extension work: creating awareness, identification of beneficiaries, preparation of viable projects, provision of backward and forward linkages.

  3. Lead Banks can also collaborate with District Development Managers of NABARD/ NGOs/ Voluntary Organizations to reach the poor through Self Help Groups (‘SHG').

  4. The Convenor Banks of the District Consultative Committees (‘DCC'), District Level Review Committees (‘DLRCs) and the State Level Bankers Committees (SLBCs) should ensure that steps are taken to facilitate credit flow and the progress is reviewed at the meetings.

Advances under DRI Scheme

  1. Under this scheme, loans can be routed through State Minority Finance/ Development Corporation.

  2. Banks should ensure proper maintenance of the register to evolve timely sanction and disbursement of loan applications.


  1. Data on credit extended to borrowers should be furnished to RBI and to the Government, Ministry of Finance and Ministry of Minority Affairs, on half yearly basis, at the end of March and September every year.

  2. The progress made in credit flow should be reviewed regularly at the meetings of the DCC and the SLBC.

  3. The Lead Banks should furnish the relevant extracts and minutes of the meetings of the DCCs and of the SLBCs to the Union Ministry of Finance and to the Ministry of Minority Affairs on a quarterly basis.


  1. To ensure that the bank staff and officers have a proper perspective of the various programmes for the welfare of minorities, banks should include suitable lecture sessions as part of all training programmes like induction courses, programmes on rural lending, financing of priority sectors and poverty alleviation programmes.

  2. Lead Banks should motivate the staff posted to identified districts through proper training to assist the minority community.

  3. Lead banks should train the staff of the banks regarding micro credit/ lending to SHGs with the help of DDMa pf NABARD, by conducting workshops.

  4. Lead Banks should organize Entrepreneur Development Programmes so that the members of such group in these areas are enabled to derive the benefit of various programmes being financed by the banks.


The anti-poverty programmes of the Government regarding credit facilities available from banks should be publicized through:

  • Print media

  • TV channels

  • Participation/ setting of stalls

National Minorities Development and Finance Corporation (NMDFC)

  1. It is the apex body and channelizes its funds through the State Minority Finance Corporation of each State/ Union Territory.

  2. It promotes economic and development activities for the backward sections amongst the minorities.

Prime Minister's new 15 Point Programme for the Welfare of Minorities

  1. The objective is to ensure that an appropriate percentage of the priority sector lending is targeted for the minority communities and that the benefits of various government-sponsored schemes reach the under-privileged, including the minority group.

  2. This programme should be implemented by the Central Ministries/ Departments in minority concentration districts.

  3. All Scheduled commercial banks are required to ensure that the minority communities receive an equitable portion of credit.

Reserve Bank of India
Legislation UpdatesNotifications


On 01-08-2022, the Reserve Bank of India (‘RBI') issued Master Circular — Credit facilities to Scheduled Castes (‘SC') & Scheduled Tribes (‘ST') to help the SCs/ STs by increasing self-employment, generate income to make themselves self- liquidating and help in easy loan sanctioning.

The Master Circular consolidates the circulars issued by RBI on the subject till date.

Planning Process

The Banks should follow these measures to set up their advances to SCs/STs:

  1. The District Consultative Committees should continue to be the principal mechanism of co-ordination between banks and development agencies.

  2. Banks should establish a closer working relationship with the District Industries Centres to promote self-employment.

  3. Credit planning should be designed, at the block level itself, in such a way that bank schemes are in the favour of them and they participate in a larger flow of credit ensuring self-employment.

  4. Banks should periodically keep a check that loans are sanctioned in time, are adequate and production oriented and they generate incremental income to make them self- liquidating.

  5. Villages having sizeable population of SC/ ST communities should be specially chosen.

Role of Banks

  1. The staff of the Banks should help the customers to fill in forms, complete formalities to help them to get credit facility within a stipulated time.

  2. Banks should spread awareness through circulating brochures and visits by the field staff about the salient features of the scheme and its advantages.

  3. The bank should also conduct exclusive meetings to understand credit needs and then incorporate them in the credit plan.

  4. Banks should not insist on deposits while considering loan applications under poverty alleviation schemes/ self-employment programmes. It also has to be ensured that subsidy is not held back while releasing the loan component till full repayment of bank dues.

  5. The Banks should enable the National Schedule Tribes Finance & Development Corporation (‘NSFDC') and National Scheduled Castes Finance & Development Corporation (‘SCDC') to achieve their desired objectives.

  6. Rejection of loan applications to be done at the next higher level of Bank and reasons should be clarified as to why the application has been rejected.

Reservation under major Centrally Sponsored Schemes

Under these schemes, credit is provided by banks, and subsidies are received through Government agencies where RBI monitors the credit flow.

Centrally Sponsored Schemes:

  1. Deendayal Antyodaya Yojana – National Rural Livelihoods Mission (‘DAY-NRLM'):

  2. Differential Rate of Interest (‘DRI') Scheme: ensures that persons belonging to SCs/STs also derive adequate benefit under the DRI Scheme, banks have been advised to grant eligible borrowers belonging to SCs/STs such advances to the extent of not less than 2/5th (40 percent) of total DRI advances.

Guidelines on Credit Enhancement Guarantee Scheme for Scheduled Castes (‘CEGSSC')

CEGSSC was launched on 06-05-2015 with the objective of promoting entrepreneurship amongst the Scheduled Castes (SCs), by providing credit enhancement guarantees to Member Lending Institutions (‘MLI'), which extend financial assistance to these entrepreneurs. IFCI Ltd is its Nodal Agency. The amount of guarantee covered under this programme ranges from Rs. 0.15 cr to a maximum of Rs. 5.00 cr. The tenure is up to a maximum of 7 years or repayment period.

Monitoring and Reviewing

  1. The monitoring and reviewing of such Banks will be done at their Head Offices where a special cell will be set up for the same purpose.

  2. Responsibilities of the special cell:

    • Ensure implementation of RBI guidelines

    • Responsible for collection of relevant data from the branches of the banks

    • Submission of the returns to RBI and Government

  3. Every Head Office of the bank has to review the credit extended to SCs/ STs on the basis of returns. Any gap or variation in credit flow should be reported to the Board.

  4. Bank should also review the measures taken to enhance the flow of credit to the borrowers on a quarterly basis. Progress made should also be reviewed.

  5. State Level Banker's Committee (‘SLBC') has to invite the representative of National Commission for SCs/ STs to attend SLBC meetings. The Convenor bank may also invite representatives of NSFDC and SCDC to attend SLBC meetings.

Reporting Requirements

Data/Statements on advances has to be reported quarterly and yearly to RBI, Financial Inclusion and Development Department, Statistics Division, Central Office, within 15 days and 1 month, respectively from the date of ending of each quarter and financial year.

Legislation UpdatesRules & Regulations

On 28-07-2022, the Reserve Bank of India (RBI) has issued Foreign Exchange Management (Borrowing and Lending) (Third Amendment) Regulations, 2022 to further amend the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.

The amendment temporarily increases individual borrowing limit of USD 750 million or equivalent per financial year to USD 1500 million or equivalent.


After Paragraph 8 of Schedule 1 which specifies “Individual Limits of borrowing”, the following shall be added:

8A: The limit of USD 750 million or equivalent per financial year is temporarily increased to USD 1500 million or equivalent. This dispensation will be available for External Commercial Borrowing (ECBs) raised till December 31, 2022.

Legislation UpdatesNotifications

On 15-02-2021, the Reserve Bank of India had constituted the Expert Committee on Urban Co-operative Banks (‘the Committee’) to examine the issues in urban co-operative banking sector, provide a medium term road map, suggest measures for faster resolution of UCBs and recommend suitable regulatory/ supervisory changes for strengthening the sector by leveraging the recent amendments to Banking Regulation Act, 1949.

The Committee, inter alia, recommended a four-tiered regulatory framework based on size of deposits of the banks and their area of operations. The differentiated regulatory approach was mainly recommended for key parameters such as net worth, Capital to Risk-weighted Assets Ratio (CRAR), branch expansion and exposure limits. Membership in an Umbrella Organization (UO) also formed a vital part of the recommendations.

The major recommendations which have been accepted are as follows:

  1. Adopt a simple four-tiered regulatory framework with differentiated regulatory prescriptions aimed at strengthening the financial soundness of the existing UCBs. Specifically, a minimum net worth of ₹2 crore for Tier 1 UCBs operating in single district and ₹5 crore for all other UCBs (of all tiers) has been stipulated.
  2. Minimum Capital to Risk Weighted Assets Ratio (‘CRAR’) requirement for Tier 1 banks is retained at the present prescription of 9% under current capital adequacy framework based on Basel I. For Tier 2, Tier 3 and Tier 4 UCBs, while retaining the current capital adequacy framework, it has been decided to revise the minimum CRAR to 12% so as to strengthen their capital structure.
  3. Introduce automatic route for branch expansion to UCBs which meet the revised Financially Sound and Well Managed (FSWM) criteria and permit them to open new branches up to 10% of the number of branches as at the end of the previous financial year.
  4. Assign the risk weights on the basis of Loan to Value (LTV) Ratio alone which would result in capital savings. This will be applicable to all Tiers of UCBs.
  5. Revaluation Reserves will be considered for inclusion in Tier-I capital subject to applicable discount on the lines of scheduled commercial banks.

Reserve Bank of India
Legislation UpdatesNotifications

On 12-07-2022, the Reserve Bank of India (‘RBI’) imposed a penalty of Rs 1 crore and 67.80 lakh on Ola Financial Services Private Ltd (‘Ola’) for not complying with certain provisions of Master Direction on Prepaid Payment Instruments (‘PPI’) dated 27-08-2021 and Master Direction Know Your Customer (‘KYC’) Direction dated 25-02-2016.

Key Points:

  1. Ola was non-compliant with KYC directions issued by RBI to which a show cause was issued as to why penalty should not be imposed.
  2. On the basis of Ola’s response, RBI concluded that there is non-compliance and warranted imposition of monetary penalty.
  3. The penalty is based on deficiencies in regulatory compliance and the intention is not to pronounce validity of any transaction or agreement entered into by the entity with its customers.
  4. The penalty has been imposed in exercise of powers vested in RBI under Section 30 of the Payment and Settlement Systems Act, 2007 that should be paid within a period of 30 days from the date of issue.
Reserve Bank of India
Legislation UpdatesNotifications


On 11-07-2022, Reserve Bank of India has issued guidelines on International Trade Settlement in Indian Rupees to promote growth of global trade, emphasizing exports, and to support the increasing interest of global trading community in INR.

According to this new mechanism an additional arrangement for invoicing, payment, and settlement of exports/ imports in Indian Rupees (‘INR') will be made. Authorized Dealer (‘AD') banks have to get approval from Foreign Exchange Department of Reserve Bank of India (‘RBI'), Central office, Mumbai.

Key Points:

  1. Broad Framework for cross-border transactions:

    • Invoicing in INR

    • Exchange Rate between currencies of two trading partner countries must be market determined.

    • Settlement of trade transactions must take place in INR

  2. Special Vostro Account: is an account that a correspondent bank holds on behalf of another bank. AD banks have been permitted to open such accounts under Regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016. Th following measures have to be taken in order to allow such a transaction:

    • Indian importers must make payment in INR that will be credited into such account against the invoices.

    • Indian exporters must be paid in INR from the balances in such accounts of the correspondent bank.

  3. Documentation: Letter of credit and other trade related documents must be decided mutually between the banks of partner trading countries under the framework of Uniform Customs and Practice for Documentary Credits.

  4. Advance against exports must be received in INR through Rupee Payment Mechanism. Indian banks must ensure that the available funds in these accounts are used towards the payment obligations arising out of already executed export orders/ export payments in the pipeline and only then any further advance payment against exports must be accepted.

  5. Setting off of export receivables against import payables must be allowed through Rupee Payment Mechanism subject to the conditions under master Direction on Export of Goods and Services 2016.

  6. Bank Guarantee is permitted subject to adherence to the provisions of FEMA Notification No. 8 and the provisions of Master Direction on Guarantee and Co-acceptances.

  7. The Rupee Surplus balance has to be used for permissible capital and current account transactions. Such as:

    • Payment of projects and investments

    • Export/ Import advance low management

    • Investment in Government Treasury Bills, Securities

  8. Reporting of cross-border transactions to be done in adherence to guidelines under FEMA, 1999.

  9. Approval Process: The bank of the partner country can approach an AD bank for opening of Vostro Account. The AD bank has to seek approval from the RBI with details of arrangement. AD bank must ensure that the correspondent bank is not from a country or jurisdiction in the updated Financial Action Task Force (‘FATF’) Public Statement on High Risk & Non-Co-operative Jurisdictions on which FATF has called for counter measures.

Reserve Bank of India
Legislation UpdatesNotifications

The Reserve Bank of India (‘RBI’) has imposed a penalty of Rs. 1.5 crore on Kotak Mahindra Bank Ltd.(‘Kotak’) for contravening the provisions of the Banking Regulation Act, 1949, the Depositor Education and Awareness Fund Scheme, 2014, and RBI directions.

As per the Statutory Inspection for Supervisory Evaluation(‘ISE’) conducted by RBI, Kotak failed to:

  1. Credit eligible amount to the Depositor Education and Awareness Fund within the period of 3 months.

  2. Credit (shadow reversal) the amount involved in the unauthorized electronic transactions to the customers’ account within 10 working days from the date of notification by the customer.

  3. Maintain/ apply margin on advances to stock brokers.

Kotak has been penalized for contravention of Section 26(A)(2) of the Banking Regulation Act, 1949 read with paragraph 3 of ‘The Depositor Education and Awareness Fund Scheme, 2014′ and for non-compliance with the directions on ‘Customer Protection — Limiting Liability of Customers in Unauthorized Electronic Banking Transactions’, and ‘Loans and Advances — Statutory and Other Restrictions’.

Reserve Bank of India
Legislation UpdatesNotifications


On 04-07-2022, the Reserve Bank of India (‘RBI') has issued a circular determining the requirements for obtaining prior approval in case of any takeover or/and acquisition of control of non-bank Payment System Operators (‘PSOs') and sale or transfer of payment system activity of the same.

Key Points:

  1. Prior approval of RBI is required in the case of:

    • Change of management may or may not change in case of takeover/ acquisition: an application, information about the proposed directors and complete details about the new shareholders must be submitted to Department of Payment and Settlement System (‘DPSS'), Central Office (‘CO') and to Securities and Exchange Board of India (‘SEBI').

    • Sale/ Transfer of payment activity to an entity not authorized for undertaking similar activity: the seller must apply for authorization along with the requisite application fee.

    • In case a bank is an acquiring entity then it must apply to DPSS, CO and RBI for approval.

    • Sale/ transfer can be proceeded once Certificate of Authorization (‘CoA') is obtained.

    • The seller PSO must surrender its CoA according to the process mentioned in RBI circular dated 12-05-2016.

  2. Non- bank PSOs must inform RBI within 15 days in case of change of management or directors and in case of sale/ transfer.

  3. RBI must respond within 45 days after the receipt of complete details from both seller and buyer.

Reserve Bank of India
Legislation UpdatesNotifications


On 01-07-2022, Reserve Bank of India (‘RBI') issued guidelines on authentication of note and fitness sorting parameters for the Note Sorting Machines (‘Machine') installed in banks.

Key Points:

  1. To get recycled, a note must pass all the fitness parameters: genuine notes, authenticity check.

  2. When RBI decides to phase out a specific series of specific denomination of notes, such notes will be sorted out by the machine as unfit, irrespective of their physical condition.

  3. Parameters: applicable to machines operated by banks, namely, note processing machines and machines which check only the authenticity of notes.

  4. Authenticity check: to be done with reference to features of genuine notes as disclosed by RBI on its website and the notes not fulfilling the criteria will be classified as suspect/ reject by the machine.

  5. Fitness sorting criteria:

S. No.





General distribution of dirt across the entire note



Structural deterioration resulting in a marked lack of stiffness


Dog ears

Corner folds



Lengthwise and crosswise cuts



Holes of a specific diameter



Localized concentration of dirt



Deliberate graphic alteration of the note



Multiple random folds



Lack of ink on part or whole of the note



Folds reducing the length or width of the note



Note repaired using adhesive tape/ paper/ glue

  1. Mutilated, imperfect, mismatched notes and build up notes will be classified as suspect/ reject.

  2. Duty of the Bank to ensure that the Machines are tested for accuracy and consistency on a quarterly basis and recalibrated if required.

Reserve Bank of India
Legislation UpdatesNotifications


On 28-08-2022, Reserve Bank of India (‘RBI') notified that for smooth functioning of the Regional Rural Banks (‘RRBs') and to ensure smooth implementation of Clause 77 of the Master Direction- Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (‘MD-TLE') notified on 24-09-2021, the difference between the carrying value of Security Receipts (‘SR') should be calculated over a 5-year period starting with the financial year ending 31-03-2022.

According to Clause 77 of MD-TLE, investments by lenders in SRs issued by Asset Reconstruction Companies (‘ARC') must be valued periodically by calculating the Net Asset Value declared by the ARC based on the recovery ratings received for such instrument. The circular “Guidelines on Sale of Stressed Assets by Banks, excludes the RRB from its ambit. Hence, to provide a glide path for the RRBs it is advised that in respect of valuation of investments in SRs outstanding on the date of issuance of MD-TLE ie.24-09-2021 these have to be followed:

  1. The difference between the carrying value of such SRs must be provided over a 5-year period starting with the financial year ending 31-03-2022: FY2021-22 till FY2025-26.

  2. Subsequent valuation of investment in such SRs should be strictly in compliance with provisions of MD-TLE.

Hot Off The PressNews

The Reserve Bank of India (RBI) has extended the deadline for tokenisation of debit and credit cards by another three months to September 30, 2022. The RBI had earlier set a deadline of June 30, whereby merchants and payment aggregators had to delete all card details and replace it with tokens.

The framework for CoF Tokenization (‘CoFT’) Tokenization was mandated by the RBI as an alternative to card storage. According to this framework, cardholders can create Tokens” in lieu of card details and then these tokens can be stored by the merchants for processing the transactions in future. Hence, this system is also as convenient for the cardholders. This framework is safer as the card details are not shared with merchant.

Op EdsOP. ED.

As of December 2020, total wilful defaults amounted to INR 2,44,602 crores from 12,917 accounts.[1] This number has grown even bigger in the year 2021. Many of these accounts includes defaulters like Gitanjali Gems, ABG Shipyard, Ruchi Soya Industries Limited, Nakshatra Brands Limited and Coastal Projects Limited, among others.[2] This increasing tally of bad loans amply indicates[3] that this has a significant impact on the growth of India’s financial system and lack of credit availability in the market. However, it also indicates that the banking and finance sector is mindful of the regulatory and legal recourses available to them to timely identify such problematic accounts and have them subjected to the tough and stringent action, including actions meant not only to deter future wilful defaults but also to prevent access of further finance to such defaulters.

The Circular dated 1-7-2013 titled as Master Circular on Wilful Defaulters (RBI Circular, 2013)[4], issued by Reserve Bank of India (RBI) has assumed much significance in this regard. By way of this circular, RBI has sought to put in place a system whereby banks and financial institutions (FIs) attempt to lower the number of wilful defaults by the borrowers and penalise them for defaulting by disseminating the credit information among other banks and FIs to caution them and ensure that further bank finance is denied to the borrowers who have been declared to be a“wilful defaulter”.[5]

In 2015, RBI sought to strengthen the RBI Circular, 2013 by issuing Master Circular of 1-7-2015 (Master Circular, 2015). By way of the Master Circular, 2015, RBI widened the scope and extended the definition of the term “lender” to include all banks and financial institutions to whom any amount is due under a banking transaction. It also clarified that a banking transaction would also include transaction not on the balance sheet such as derivatives, guarantees and letters of credit.[6]This resulted in defaults with respect to such transactions being considered as wilful default and widened the scope thereof.

Master Circular, 2015: Scope

The Master Circular, 2015 defines “wilful defaulter” to mean any “unit” which defaults in meeting payment/repayment obligations to the “lender”, (i)even when it has capacity to honour it[7]; or (ii) has diverted the funds of the lender to things other than for which he has taken up such finance[8]; or (iii) has siphoned off the funds such that the funds are neither utilised for the purpose it was taken for nor it is available in the form of other assets with the unit[9]; or (iv) has disposed of or removed the movable fixed assets or immovable property pledged for securing the loan without the knowledge of the lender.[10]

By defining who can be a “wilful defaulter”, Master Circular, 2015 has delineated the incidents which would amount to a “wilful default”. It further defines the term “unit” to include individuals, juristic persons, and all other forms of business enterprises, whether incorporated or not, and such other persons who have the responsibility of managing the affairs of a business enterprise. This wide definition of “unit” has also enlarged the applicability of the Master Circular, 2015, as detailed below.

Liability of Directors: Defaults by company

From the definition of “unit”, it is evident that a wilful defaulter includes a company and the individuals who are in charge and responsible for managing the affairs of the company which is said to have wilfully defaulted. The Master Circular, 2015 mandates reporting of the names of such individuals, which typically include the promoters and whole-time directors.[11]It further provides that, except in very rare cases[12], a non-whole-time director should not be considered as a wilful defaulter. It is only when it is conclusively established that such a non-whole-time director was aware of the fact of wilful default by the borrower by virtue of any proceedings recorded in the minutes of meeting of the Board or if the wilful default had taken place with his consent or connivance, can such a director be held liable.[13]However, such exception is not applicable in case of a promoter director, even if he or she is not a whole-time director.

Under the Master Circular, 2015, in cases where a company is declared to be a wilful defaulter, there is an automatic presumption that the promoter/whole-time director who is in control of such a company, at the relevant time, is also liable to be declared a wilful defaulter.

However, such presumption is limited to only such promoters/whole-time directors who were/are associated with the company within a period of 90 days prior to the time the company account was classified as non-performing asset. It is because of the reason that the classification of an account as non-performing asset is made after the required repayments in the loan account remain overdue for a continuous period of 90 days. Thus, identifying such officials who were associated with the company at the time when the company committed acts that led to the default is necessary as these officials are responsible for such omissions or commissions of the company.[14]

Procedure for declaring “wilful defaulter”

The Master Circular, 2015 provides a detailed procedure for the banks and FIs to undertake while identifying and reporting instances of wilful defaults. The broad steps under the Master Circular, 2015 are as under:

  1. Step I: A three-member committee comprising of two senior officers of the rank of General Manager/Deputy General Manager, headed by an Executive Director or equivalent (First Committee/Identification Committee/Screening Committee) is to examine the evidence of wilful default on the part of the borrowing company and its promoter/whole-time director at the relevant time[15].
  2. Step 2: If, the First Committee concludes that an event of wilful default has occurred, it shall issue a show-cause notice to the borrower concerned and/or the promoter/whole-time director and call for their submissions/representations as to why they should not be declared a “wilful defaulter”. After considering their submissions, the First Committee may issue an order recording or rejecting the fact of wilful default and the reasons for the same.[16]

An opportunity may be given to the borrower and/or the promoter/whole-time director for a personal hearing if the First Committee feels such an opportunity is necessary. However, such opportunity does not confer a right to the borrower and the promoter/whole-time director to be represented by a lawyer before the First Committee as it is not judicial but an in-house proceeding.[17]

  1. Step 3: The order of the First Committee, in case wilful default is recorded, should be reviewed by a Second Committee headed by the Chairman/Chairman & Managing Director or the Managing Director & Chief Executive Officer/CEOs and consisting, in addition, two independent directors/non-executive directors of the bank (Review Committee).[18]The order passed by the First Committee shall become final only after it is confirmed by the said Review Committee.

Additional checks and balances to prevent arbitrary exercise of powers

While the aforesaid procedure is robust, one could argue it had scope for abuse. The Supreme Court[19]considering the severe implications of such a declaration, has added some additional checks and balances to further bolster the fairness of this process. The Supreme Court has incorporated following in this regard:

  1. the First Committee must supply a copy of its order to the borrower as soon as it is made;[20]
  2. the borrower must be given an opportunity to represent against such an order of the First Committee within a period of 15 days to the Review Committee;
  3. the Review Committee, at the time of passing its reasoned order, must take into consideration the representation made by the borrower/its director(s); and
  4. once the aforesaid procedure is properly followed, the order of the Review Committee must be communicated to the borrower and its director(s).

The aforesaid procedure laid down by the RBI in the Master Circular, 2015, and later supplemented by the Supreme Court, ensures that the principles of natural justice are not violated while making declaration of “wilful default”. It ensures that prior to any borrower being classified as a wilful defaulter, adequate opportunity is provided to such borrower to make representations against such declaration before the Review Committee, comprising of high-ranking officials of the Bank.[21]

Challenges by borrowers to declaration of “wilful defaulter”

Since, declaration of a wilful defaulter has far-reaching civil and criminal consequences,[22]it is only natural that there is substantial litigation surrounding it. In the absence of grievance redressal mechanism under the Master Circular, 2015, invocation of writ jurisdiction of a High Court is the only option available for an aggrieved person. The common grounds of challenge in such petitions are usually as below:

Challenge at the stage of issuance of show-cause notice

  1. The constitution of the First Committee issuing the show-cause notice is not in knowledge of the person declared as “wilful defaulter”, or that the First Committee is not formed as per the terms of the Master Circular, 2015.[23]
  2. The show-cause notice is not signed or issued by all the members of the First Committee.[24]
  3. The First Committee did not apply its mind to the case, and instead delegated the work to another agency instead of forming its own opinion by conducting its own independent enquiry.[25]
  4. The proposal classifying a person as wilful defaulter is not substantiated with documents constituting event of “wilful default”.[26]

Challenge to the decision of the First Committee/Review Committee

  1. The First Committee/Review Committee premeditated and concluded that the events of default have been committed by the defaulter.[27]
  2. The precise facts to conclude that an event of wilful default has occurred is not provided and/or that the relevant documents have not been supplied to the borrower, therefore, there is a violation of principles of natural justice[28].
  3. The opportunity to represent before the First Committee/Review Committee is not provided or the representations/submissions of the alleged defaulter is not considered by the First Committee/Review Committee while passing an order of wilful default Therefore, such an order is not a reasoned order[29].
  4. Review Committee did not apply its own mind while assessing the correctness of the opinion of the Identification Committee.[30]
  5. The order of the First Committee declaring the borrower a “wilful defaulter” is not supplied to the borrower.[31]
  6. The director cannot be made liable without classifying the company as wilful defaulter.[32]
  7. The Director was not a person associated with the company in default during the relevant period.[33]
  8. That the moratorium under Insolvency and Bankruptcy Code, 2016[34] is imposed on the debts and defaults of the company[35]; or that the company stands absolved of the debt[36].

With increasing challenges to the declaration of “wilful default”, the judicial position on these aspects is further developing day by day. For instance, in most of these cases involving challenge to the show-cause notice, courts have adopted a uniform approach to reject such challenge on the preliminary ground of it being premature[37] as no actions has yet been taken making the borrower aggrieved.

Earlier the position of law, however, was not uniform across various High Courts in this regard. For instance, the Calcutta High Court in Atlantic Projects Ltd. v. Allahabad Bank[38]had held that Master Circular, 2015 does not envisage that the First Committee can even delegate the ministerial task of issuance of show-cause notice to a subordinate, on the ground that the Master Circular, 2015 requires it to apply its own mind to even the task of issuance of show-cause notice. On the other hand, the Delhi High Court in Sanjay Singal v. SBI[39]and the Division Bench of the Calcutta High Court in Union Bank of India v. Sudhir Kumar Patodia[40]had set aside similar challenge and held that it is the First Committee which examined the conduct of the borrower and the utilisation of credit facilities before proposing classification of the account as wilful default, and it was only the mere act of communicating such proposal vide issuance of show-cause notice which has been delegated.

It can therefore be said that the law on this subject is still in a nascent stage and/or remains an enigma for both the lenders and the borrowers as all the possible issues and disputes arising out of the Master Circular, 2015 are yet to be conclusively addressed or settled. However, there is no doubt that, in the current economic scenario, the Master Circular, 2015 remains an important ammunition in the lender’s arsenal, provided the procedure envisaged thereunder is followed in letter and spirits.

*Partner, Cyril Amarchand Mangaldas and “Top Individual Lawyer”, Forbes Legal Powerlist 2021.

**Principal Associate Designate, Cyril Amarchand Mangaldas.

***Senior Associate, Cyril Amarchand Mangaldas.

[1] George Mathew and Khushboo Narayan, Amid Covid Effect, Bank Steps, Wilful Defaults Rise Rs 38,976 crores, Indian Express, 11-5-2021, available at https://indianexpress.com/article/business/amid-covid-effect-bank-steps-wilful-defaults-rise-rs-38976-crore-7309969/.

[2] Nachiket Kelkar, 2,426 Wilful Defaulters Owe Rs 1.47 Lakh Crores to State-owned Banks, Reveals Bank Union, The Week, 18-7-2020, available at <https://www.theweek.in/news/biz-tech/2020/07/18/2426-wilful-defaulters-owe-rs-147-lakh-crore-to-state-owned-banks-reveals-bank-union.html>.

[3]Rise by over INR 38,976 Crores from the Default as of December 2019. See George Mathew and Khushboo Narayan, Amid Covid Effect, Bank Steps, Wilful Defaults Rise Rs 38,976 Crores, Indian Express, 11-5-2021, available at https://indianexpress.com/article/business/amid-covid-effect-bank-steps-wilful-defaults-rise-rs-38976-crore-7309969/.

[4]Master Circular on Wilful Defaulters, RBI/2013-14/63 dated 1-7-2013.

[5]See also, Sudarshan Overseas Ltd. v. RBI, 2009 SCC OnLine Del 1656, para 13:

  1. A borrower who is a wilful defaulter can otherwise go to different banks or financial institution and obtain loans. Past conduct of wilful default by way of diversion and siphoning off funds, etc. is always a relevant consideration for deciding whether or not additional funds/facilities should be granted. Past conduct as a wilful defaulter should be in the knowledge of bank/financial institutions advancing the money. The Master Circular obviously has a laudatory purpose behind it and cannot be rejected.

[6]Guidelines on Wilful Defaulters— Clarification regarding Guarantor, Lender and Unit, accessed at <http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9224&Mode=0>.

[7]Master Circular, 2015, Para 2.1.3(a).

[8] Master Circular, 2015, Para 2.1.3(b).

[9]Master Circular, 2015, Para 2.1.3(c).

[10]Master Circular, 2015, Para 2.1.3(d).

[11]Master Circular, 2015, Regn. 3.

[12]Kailash Shahra v. IDBI Bank Ltd., 2019 SCC OnLine Bom 3279, para 35.

[13]Master Circular, 2015, Regn. 3(d).

[14]Ramesh Kumar Sareen v. Union of India, 2016 SCC OnLine Del 3374.

[15]Master Circular, 2015, Regn. 3(a).

[16]Master Circular, 2015, Regn. 3(b).

[17]SBI v. Jah Developers (P) Ltd., (2019)6 SCC 787 (Jah Developers).

[18] It may be noted that the First Committee and the Review Committee are constituted with different officials to ensure a process of impartiality and objectivity to the final decision of the Bank.

[19]SBI v. Jah Developers, (2019) 6 SCC 787.

[20]In SBI v. Jah Developers, (2019) 6 SCC 787, 803, Supreme Court also analysed the RBI Circular 2013 and observed that:

  1. 24. … given the fact that Para3 of the Master Circular dated 1-7-2013 permitted the borrower to make a representation within 15 days of the preliminary decision of the First Committee, we are of the view that first and foremost, the Committee comprising of the Executive Director and two other senior officials, being the First Committee, after following Para3(b) of the Revised Circular dated 1-7-2015, must give its order to the borrower as soon as it is made….Given the fact that the earlier Master Circular dated 1-7-2013 itself considered such steps to be reasonable, we incorporate all these steps into the Revised Circular dated 1-7-2015.

[21]See also, Sudarshan Overseas Ltd. v. RBI, 2009 SCC OnLine Del 1656 : (2009) 160 DLT 77. In this case, challenge was made to Master Circular dated 2-7-2007 on wilful defaulters. The  Delhi High Court held that the circular lays guidelines for banks and FIs, which they have to necessarily adhere to, and enough safeguards are provided for the protection of the borrowers, and in case of violations, complaints can be made as the action to declare borrower as wilful defaulter is an internal action of the bank and such declaration can only be made after hearing the representation and giving right to hearing. Thus, the circular was held to have enough safeguards as to differentiate between wilful defaulter and genuine borrowers.

[22] The consequences of being declared a wilful defaulter includes:

  1. no additional facilities to be granted by any bank/financial institution [Master Circular, 2015, Para 2.5(a)];
  2. entrepreneurs/promoters would be barred from institutional finance for a period of 5 years [Master Circular, 2015, Para 2.5(a)];
  3. any legal proceedings can be initiated, including criminal complaints [Master Circular, 2015, Para 2.5(a)];
  4. banks and financial institutions to adopt proactive approach in changing the management of the wilful defaulter [Master Circular, 2015, Para 2.5(c)];
  5. promoter/Director of wilful defaulter shall not be inducted by another borrowing company [Master Circular, 2015, Para 2.5(d)]; and
  6. as per 29-A of the Insolvency and Bankruptcy Code, 2016, a wilful defaulter cannot be a resolution applicant.

[23]Sandip Kumar Bajaj v. SBI,2020 SCC OnLine Cal 1659.

[24]Union Bank of India v. Sudhir Kumar Patodia, 2020 SCC OnLine Cal 3259.

[25]Union Bank of India v. Sudhir Kumar Patodia, 2020 SCC OnLine Cal 3259.

[26]Kingfisher Airlines Ltd. v. Union of India, 2014 SCC OnLine Del 7731.

[27]Siemens Ltd. v. State of Maharashtra, (2006) 12 SCC 33; see also, Union Bank of India v. Sudhir Kumar Patodia, 2020 SCC OnLine Cal 3259.

[28]Ionic Metalliks v. Union of India, 2014 SCC OnLine Guj 10066; Narendra Seoomal Sabnani v. SBI, 2021 SCC OnLine Bom 4604..

[29]Aap Infrastructures Ltd. v. Bank of Baroda, 2019 SCC OnLine Del 9670; see also, Frost International Ltd. v. Punjab National Bank, 2021 SCC OnLine Del 3683.

[30]Senthil Arumugasamy v. SBI, 2021 SCC OnLine Mad 2899.

[31]Aap Infrastructures Ltd.v. Bank of Baroda, 2019 SCC OnLine Del 9670.

[32]Ishwari Prasad Tantia v. IDBI Bank Ltd., 2021 SCC OnLine Cal 3683.

[33]Ramesh Kumar Sareen v. Union of India, 2016 SCC Online Del 3374.

[34]Insolvency and Bankruptcy Code, 2016.

[35]Gouri Prasad Goenka v. SBI, 2021 SCC OnLine Cal 1942; see also, Union Bank of India v. Sudhir Kumar Patodia, 2020 SCC OnLine Cal 3259.

[36]Ishwari Prasad Tantia v. IDBI Bank Ltd., 2021 SCC OnLine Cal 3683.

[37]Ganpatlal Pawan Kumar Traders (P)Ltd. v. RBI, 2019 SCC OnLine Cal 6941.

[38]2019 SCC OnLine Cal 611.

[39] 2020 SCC OnLine Del 2127.

[40]2020 SCC OnLine Cal 3259.

Case BriefsHigh Courts

Kerala High Court: In a case wherein, due to low CIBIL Score education loan was denied, N. Nagaresh, J., directed for reconsideration of loan applications, disregarding the low Credit Score of the co-obligants.

Petitioners were aggrieved by the denial of the education loan in the present case. The 2nd respondent had rejected the application for an education loan for the reason that the CIBIL Score of the co-applicant was not up to the mark.

On being aggrieved with the above, the petitioner approached the Court.

Petitioner cited the decision of this Court in Pranav S.R. v. SBI, [2020 KHC 4695], wherein it was held that unsatisfactory credit scores of the parents of the petitioner cannot be a ground to reject an educational loan application because the repayment capacity of the petitioner after his education should be the deciding factor. Therefore, the respondents are compellable to sanction and disburse the educational loan applied for by the petitioners.

Analysis and Decision

High Court expressed that, in the exercise of the powers conferred by Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949, the Reserve Bank of India, in public interest, has issued Reserve Bank of India (Priority Sector Lending- Targets and Classification) Directions, 2020. Direction 4 contained therein categorises Education as a priority sector. Direction 11 states that Loans to individuals for educational purposes, including vocational courses, not exceeding ₹20 lakhs will be considered as eligible for priority sector classification.

Bench stated that, this Court in the decision of Pranav S.R. v. SBI, [2020 KHC 4695], has held that for educational loans, the repayment possibilities are to be decided not on the financial position of the parents but solely on the projected future earnings of the students on employment after education.

Hence, in the present matter, Court found no reason to take any different view and allowed the petitions.

Lastly, the High Court directed the respondents to reconsider the loan applications, disregarding the low Credit Score of the co-obligants, if any, and sanction and disburse the eligible loan amount.[Kiran David v. SBI, 2022 SCC OnLine Ker 1193, decided on 2-3-2022]

Advocates before the Court:

For the Petitioner:



         JISHA SASI

         C.B. SABEELA

         APARNA G.


For the Respondents:




Case BriefsHigh Courts

Calcutta High Court: The Division Bench of Prakash Shrivastava, CJ. and Rajarshi Bharadwaj, J. dismissed a petition which was filed by the petitioner with the plea that having regard to the contribution of Netaji Subhas Chandra Bose in the freedom struggle, his picture should be printed on the Indian currency.

Having the parties the Court noticed that the similar issue had come up before the Division Bench of the Madras High Court in K.K. Ramesh v. Union of India, 2021 SCC OnLine Mad 5022 wherein initially the Division Bench had directed the authorities to consider the representation and thereafter, taking note of the decision on the said representation the Division Bench of the Madras High Court had dismissed the petition holding that,

“8.This Court is not underestimating the fight and sacrifice made by Netaji Subash Chandra Bose and other great leaders for freedom moment of this Country. There are many known heroes and unsung heroes. If everybody starts making such a claim there will not be an end. Moreover, recent days, there are claims and counter claims based on religion, community and region. If every claim is started to be entertained, there will not be any end. The Central Government as well as Reserve Bank of India have already constituted a Committee and took a decision that it is only the father of the Nation Mahatma Gandhi could represent the ethos of India and therefore, it was decided to retain the Mahatma Gandhi’s image in the currency notes and no other personality image is decided to be included. The said decision cannot be found fault with. It is only the Government which can take a decision and this Court cannot substitute the views stated in the Committee report which has been accepted by the Government.”

The Court dismissed the petition relying on the abovementioned order and clarified that the abovementioned issue has already been considered the Committee constituted by the Reserve Bank of India who had deliberated upon similar prayer and had not found it feasible to accept it.[Haren Bagchi Biswas v. Union of India, 2022 SCC OnLine Cal 898, decided on 05-04-2022]

Mr Rabindra Narayan Dutta, Mr Sibasis Ghosh, Mr Hare Krishna Halder, Mr Ardhendu Nag, Mr Arkoday Mukherjee: for the petitioner

Mr Y. J. Dastoor, ASG, Ms Sarda Sha: for the respondent 1

Mr Prasun Ghosh, Ms Suchishmita Chatterjee (Ghosh): for the respondent 2

Suchita Shukla, Editorial Assistant has reported this brief.

Central Information Commission
Case BriefsTribunals/Commissions/Regulatory Bodies

Central Information Commission (CIC): Neeraj Kumar Gupta (Information Commissioner) addressed a matter wherein it was alleged that the respondent intentionally provided an evasive reply by stating that the information sought was not clear, hence issue of prompt response of CPIO was raised.

Complainant filed an application under the Right to Information Act, 2005 before the Central Public Information Officer, Reserve Bank of India seeking the information as under:

CPIO informed the applicant that the information sought was not specific/clear and it was not able to furnish information on the matter.

The complainant filed a complaint under Section 18 of the RTI Act before the Commission requesting to take appropriate legal action against the CPIO under Section 20 of the RTI Act.


The Commission observed that the preliminary information sought were wide/general and non-specific and largely based on the situational queries.

Further, the complainant contended that information sought had not been provided by the respondent which amounts to deemed refusal of information of the complainant.

Additionally, it was stated that, the CPIO is only a communicator of information based on the records held in the office and hence, he cannot expect to do research work to deduce anything from the material therein and then supply it to him.

Coram observed that while examining the complaint under Section 18 of the RTI Act, 2005, the CIC has no jurisdiction to direct disclosure of any information.

The above-said legal position had been authoritatively settled by the Supreme Court in Chief Commissioner v. State of Manipur, Civil Appeal Nos. 10787-10788 of 2011.

Hence, Commission opined that the respondent has already provided a suitable reply to the complainant and prima facie the adequacy of information cannot be adjudicated by the Commission while examining the complaint and there is no malafide intention of obstructing the information.

Therefore, no action is warranted under Section 20 of the RTI Act.

In view of the above, complaints were disposed of. [Shishir Gupta v. CPIO, RBI; 2022 SCC OnLine CIC 159, decided on 28-3-2022]

Bombay High Court
Case BriefsHigh Courts

Bombay High Court: The Division Bench of G.S. Patel and Madhav J. Jamdar, JJ., addressed a matter concerning currency notes pre-demonetisation and their replacement with current valid tender.

The petitioner had filed a criminal revision under Sections 420, 504 and 506 of the Penal Code, 1860. In the said matter, the Judicial Magistrate directed the accused to deposit Rs 1,60,000 with the police station and the same was deposited in cash.

Petitioner and one witness were asked to collect the above-stated amount from the police station and the petitioner was entitled to Rs 60,000 and the witness was entitled to Rs 1 lakh.

Vide Government of India Notification dated 8-1-2016, demonetization of certain currency notes was done.

Petitioner believed that since his cash was with an authority it was protected from demonetization.

Further, it was stated that, when the Petitioner finally went back to the police station for the return of his money, he was handed the old currency notes, all by then demonetized and every note, as the Petitioner puts it in the Petition, “just a piece of paper having a photo of Mahatma Gandhi.”

The solution that the petitioner asked for was a direction to the RBI to replace the old currency notes since they were all along in custody of the police with valid current tender.

High Court while exercising equitable discretionary jurisdiction under Article 226 of the Constitution of India directed the RBI to replace the currency tendered by the petitioner with current valid tender, subject to the petitioner complying with other requirements such as mentioning serial numbers etc. The said particulars are set out in Notification dated 12-5-2017 and in paragraphs 10 and 11 in RBI’s affidavit.[Kishor Ramesh Sohoni v. Union of India, 2022 SCC OnLine Bom 629, decided on 22-2-2022]

Advocates before the Court:

Ms Sadhna Singh, for the Petitioner.

Mr A I Patel, Addl Government Pleader with Mr K S Thorat, AGP for

the Respondent-State.

Ms Aditi Phatak, i/b Bombay Litigation & Corporate Company for

Respondent No 2.