In a major setback for the aggrieved depositors of Punjab and Maharashtra Co-operative (PMC) bank, the Bombay High Court on Thursday dismissed a batch of petitions filed by depositors challenging Reserve Bank of India's decision to impose limits on withdrawal of funds from the crisis hit bank.
The bank was placed under an Administrator by the RBI after it was discovered that over 70% of the value of total deposits of the bank had been loaned to Housing Development and Infrastructure Limited (HDIL), which failed to repay the loan.
While dismissing the petitions, division bench of Justice SC Dharmadhikari and Justice RI Chagla noted-
"RBI had acted rightly and reasonably to ensure there is no prejudice caused and to ensure orderly withdrawal of funds. They have acted vigilantly and it has power to impose the said restrictions under Section 35 A.
We cannot agree with the petitioners that RBI was not competent to take action."
One of the petitions filed by the depositors of PMC bank, claimed that loan amounting to Rs.6500 crore was granted by the bank to HDIL, which is more than 70% of the total deposits of the bank.
The RBI failed to exercise control and scrutiny of the accounts and financial transactions of the bank. During the annual inspection for the financial year 2018, RBI reportedly asked the bank to classify the entire HDIL accounts as Non-Performing Assets (NPA), but the same was not adhered to by the bank stating that HDIL had enough collateral security to cover it. The RBI or its Vigilance Committee negligently failed to check and verify the veracity of the collateral security, petition states.
Once RBI placed PMC under Section 35A read with Section 56 of the Banking Regulation Act on September 23, withdrawal of deposits was restricted to Rs.1000, which was later increased to Rs.10,000 and finally increased to Rs.50,000 with effect from November 5.
However, state minister Jayant Patil today told reporters that State government has suggested merger of the crisis hit PMC bank with the Maharashtra State Co-operative Bank.
So far, 12 senior officials of PMC Bank and HDIL, have been arrested by the Economic Offences Wing, Mumbai in connection with the scam.
Last month, RBI filed an affidavit in reply stating that the PMC bank fraudulently submitted manipulated data for sample checks, the sample of accounts picked for inspection did not contain undisclosed HDIL related accounts. The disclosed HDIL accounts were seen and majority of them were assessed as NPA's, RBI told the Court.
RBI also pointed out the issue of conflict of interest as far as Waryam Singh, Chairman of PMC Bank being the former Managing Director of HDIL was concerned.
In order to mitigate the hardship faced by depositors, a former RBI employee has been entrusted with the responsibility of considering on merit any application for withdrawal beyond the stipulated amount with an upward limit of Rs.1 lakh on grounds of medical treatment, marriage, education, livelihood and other hardships. The said withdrawal will be subject to a ceiling of Rs.1 lakh for medical reasons and Rs.50,000 in all other cases.