Rupee Cooperative. banking…cancellation of banking license…appeal and judicial review…

In case Rupee Bank is sure of its position, then instead of putting RBI under its crosshairs, it should resort to appeal and judicial review, statutory and constitutional remedy respectively available to it… This could perhaps be doing good to innocent and unfortunate depositors.

This will fix the fault lines…

Since RBI revoked the banking license of the Pune-based Rupee Co-operative Bank, a bank with which the name of Lokmanya Bal Gangadhar Tilak is associated, various opinions have been expressed. Discussions are ongoing among members of the banking fraternity and in a few vernacular newspapers as to whether there are still options for the bank to survive. RBI, while revoking the license, said that the bank does not have sufficient capital and revenue prospects, the continuation of the bank is detrimental to the interests of its depositors, the bank with its current financial situation would not be able to pay its current depositors in full and in public interest would be adversely affected if the bank were allowed to continue banking.

The RBI appointed trustees had put forward several stimulus proposals but it could not make much headway. It is learned from the media that the Maharashtra State Co-operative Bank was willing to merge this bank with itself, but neither that nor the merger proposals of Saraswat Bank and Mehesana Co-operative Bank and some nationalized banks did not have received a positive response from the RBI. Undoubtedly, RBI must have its own view which however is not known. The media also reports that some cooperative banking activists claim that the bank’s big depositors have not adopted a positive attitude and have been stubborn. But what was expected of them was not specified.

RBI canceled the banking license of Mantha Nagari Co-operative Bank, Jalna, Independence Co-operative Bank, Nashik in February 2022, Sarjerao Dada Naik Shirala Co-operative Bank, Shirala (Sangli) in March 2022, Shree Anand Co-operative Bank, Chinchwad Pune in July 2022, Shivajirao Bhosle Co-operative Bank in May 2021 and Karnala Nagari Sahakari Bank, Panvel in August 2021. But there was hardly any shouting then about the action of the RBI as c This is the case today with regard to the Rupee bank.

RBI also revoked the banking license of People’s Co-operative Bank of Uttar Pradesh in March 2022 and Millath Co-operative Bank of Davangere Karnataka in June 2022.

RBI while granting the banking license ascertains by inspecting the books of the requesting entity under Section 22(3) of the Banking Regulation Act 1949 (the Act) whether the entity will be able to repay the money of its present and future depositors, that its affairs are not likely to be conducted in a manner detrimental to the interests of its present or future depositors, that the general character of the entity’s proposed management will not be not prejudicial to the public interest or the interest of its depositors, that the entity has sufficient share capital and prospects for profit, that the public interest will be served by granting a license and that it will not be detrimental to the consolidation and strengthening of all banking activities in the region.

The RBI may under Section 22(4) of the Act cancel the license if the entity ceases to carry on banking business or if the conditions fixed at the time of granting the license are not complied with or the matters contemplated in subsection 3 mentioned above are not met. RBI may give the entity, under certain conditions, the opportunity to take corrective action necessary to comply with the conditions if it is of the opinion that the interest of the depositors will not be prejudiced by the delay in revoking the license .

In case the bank is not satisfied with RBI’s decision to cancel the license, he may appeal to the Central Government in accordance with Section 22(5) of the Act within thirty days from the date of the decision. The RBI’s decision and the central government’s decision on an appeal are final but are nonetheless subject to judicial review. This means that the option of filing a petition for an injunction under Section 226 of the constitution with the High Court for judicial review of this decision is also available to Rupee Bank.

This judicial review is not an appeal. The purpose of this review is to verify whether the decision-making authority has exceeded its jurisdiction, has carried out its work in accordance with the law and the regulations and whether the relevant questions have been taken into account and whether irrelevant questions have not been taken into account. One cannot go to court to ask for the correction of formal or technical errors which could have been committed by the decision-making authority. In short, judicial review cannot be turned into an appeal. The review examines the decision-making process, not the decision itself or its merits.

The court will intervene if the decision rendered is illegal, irrational or abusive and if the prescribed procedure has not been followed. The purpose of judicial review is not to see if the officer has made a decision that the court deems just, but to see if he has made the decision by exercising his power properly, if the complainant has been treated fairly and if the principles of justice was followed. It is now a well-established principle of law in our country that the courts do not interfere in economic policies, which it considers to be the prerogative of experts. RBI is an expert organization in the banking field.

It should be noted in this context that while refusing to grant interim relief in a written petition filed with the Bombay High Court for cancellation of the license of CKP Co-operative Bank, the two-judge bench had observed that RBI had broad powers to oversee the operation of banks and the written jurisdiction of the court to interfere in these matters is very narrow.

The Calcutta High Court had ordered RBI to consider action against Bank of Baroda, including revoking its banking license in a case against the bank for delay in performing its obligations under the guarantee that she gave and the Supreme Court dismissed her appeal. This decision says a lot about what our judicial system thinks of the banking profession.



The opinions expressed above are those of the author.