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Steps Taken By RBI Are For The Benefit Of Depositors; Bombay HC Refuses To Stay RBI's Decision To Cancel CKP Co-Operative Bank's License [Read Order]

Nitish Kashyap
24 Jun 2020 11:37 AM GMT
Steps Taken By RBI Are For The Benefit Of Depositors; Bombay HC Refuses To Stay RBIs Decision To Cancel CKP Co-Operative Banks License [Read Order]
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The Bombay High Court last week refused to stay the decision of the Reserve Bank of India to cancel the license of CKP Co-operative bank and observed that the steps taken by the central bank are in the interest of depositors.

Division bench of Justice Nitin Jamdar and Justice SP Tavade were hearing two writ petitions filed by Vishwas Utagi and Arun Dhumale challenging RBI's decision to cancel the banking license on April 20, 2020. Petitioners are convenors of 'Save CKP Co-op Bank Kriti Samiti,' which comprises around 500 people including members, shareholders, account holders, depositors, and employees of the said bank.

Advocates Bhavesh Parmar and Rahul Gaikwad instructed by Gravitas Legal appeared for the petitioners and Senior Advocate Venkatesh Dhond appeared on behalf of RBI and the liquidator and AGP Ashwini Purav for the State.

Parmar argued that in spite of the remedy of a statutory appeal available to the CKP Bank, now represented by a liquidator, no statutory appeal is being filed, and hence they have filed the present petitions.

Both respondents RBI and the liquidator filed an affidavit in reply and after going through the same, Court noted-

"Having gone through the pleadings, we do not find that the Petitions need to be taken up for final disposal by Video Conferencing during the LockDown period. The Petitions be placed on Board for further hearing before the Regular Court."

The bench observed that before the licence of the Bank was cancelled, it was preceded by various notices and inspections by the Reserve Bank of India-

"The Reserve Bank of India has the power of superintendence over the Banks in the country in the interest of the banking policy. Various powers are available to the Reserve Bank of India under the Banking Regulations Act, 1949. An inspection under Section 35 of the Act of 1949 was carried out on 31 March 2009. A further requisition was issued on 23 April 2012. On 30 April 2014, All Inclusive Directions were imposed on the Bank. A statutory inspection carried out by the Reserve Bank of India revealed several irregularities."

Moreover, the financial position of the Bank deteriorated from time to time. RBI found that the affairs of the Bank were being conducted in a manner detrimental to the interest of the depositors and public. A show cause notice was issued on June 11, 2015. The bank submitted an action plan in July and November 2016, but the condition did not improve. The financial position of the Bank was considered by the Task Force on Co-operative Urban Banks. Inspection as of March 31, 2019 revealed further deterioration.

It is in this background that the Reserve Bank of India formed an opinion that the impugned order had to be passed, Court said.

Finally, refusing to grant any relief, the bench observed-

"The scope of interference of writ courts in such decisions of the Reserve Bank of India is extremely narrow. The steps taken by the Reserve Bank of India are for the benefit of the depositors, which the Petitioners claim to be. The Reserve Bank of India is entrusted with powers to take necessary steps in the interest of depositors, banks and the public. Prima facie, we do not find that there is any fundamental error in the approach of the Reserve Bank of India to issue any interim directions."

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