Bar and Bench - Indian Legal news
PMC Bank Crisis: Bombay HC dismisses pleas by depositors against RBI

PMC Bank Crisis: Bombay HC dismisses pleas by depositors against RBI

Omkar Gokhale

The Bombay High Court on Thursday dismissed the pleas filed by depositors of Punjab and Maharashtra Cooperative Bank (PMC Bank) against the Reserve Bank of India (RBI) seeking to quash limits put on withdrawals for a period of six months.

The RBI had imposed withdrawal limits in September, this year on account of fraud by top management of the Bank.

While dismissing the pleas filed in protest by depositors, the Division Bench of Justices SC Dharmadhikari and RI Chagla said,

In dismissing them, we hold that RBI was rightly satisfied and acted reasonably to ensure there is no prejudice caused and to ensure the timely withdrawal of funds.”

The petitioners had claimed that the RBI had colluded with the PMC Bank and failed to take necessary protective measures. The petitioners had also contended that the RBI cannot impose withdrawal limits under the Banking Regulation Act on depositors owing to the fraud done by the bank officials.

The pleas stated that the RBI’s decision under Section 35 (A) of the Banking Regulation Act, 1949 taken under the guise of ‘public interest’ deprives depositors their rights to have access to their own property, which itself is contradictory with the provisions of the Act. They had raised grievance that the RBI restrictions on the PMC Bank is detrimental to account holders or depositors at large, who have invested their own hard-earned money in the Bank. According to petitioners, there are 16 lakh investors of PMC Bank. Therefore, petitioners had requested the Court to pass directions to ease the withdrawal limits.

However, the High Court has now rejected their claims and dismissed the pleas, based on parameters set out by the Supreme Court in past judgments. The Court ruled,

We are in agreement with Senior Counsel Dhond (for the RBI) that if untimely action had been taken by RBI, it would have helped people close to the management of the PMC Bank to withdraw amounts first. Arguments made before us by petitioners are self-contradictory and vague. We cannot agree with the petitioners that RBI was not competent to take action. The petitions are dismissed accordingly.”

On Thursday, appearing for the RBI and replying to rejoinders filed by petitioners, Senior Counsel Venkatesh Dhond denied the claim that the Central Bank was aware of the fraud and failed to take preventive action. Moreover, Dhond submitted that as on March 2019, nearly 29% of deposits of the assets of the PMC Bank were wiped out and the amount was revealed to be over 40 % after further inspection by the RBI.

He submitted that 22,000 bogus accounts were created and that the RBI was kept in dark. He said,

We are sympathetic to the depositors. However, their argument was factually misplaced. RBI is not sitting on depositors’ money but it is trying to recover it. My client had to put restrictions on withdrawal. Had these directions not been imposed, persons close to management would have got away with most of the money. The administrator is trying to recover the assets along with other probing agencies.”

The Court had earlier asked the RBI to file affidavit enlisting necessary steps taken to prevent further damage to the depositors.

In response, the RBI had informed the Court that it has appointed a retired officer as an Administrator for PMC Bank. The RBI had further informed the Court that depositors can approach the Administrator to withdraw up to Rs. 1 lakh on hardship grounds. In Thursday’s hearing, Dhond went on to note that the RBI Administrator looking after the Bank has been submitting reports on improvement in cash flows and will continue to do so.

Image source: Business Today

[Read Judgement]

Bombay HC dismisses PMC Bank depositors pleas.pdf