RBI's amalgamation scheme under Section 45 BR Act upheld; limited judicial review in economic matters; classification of depositors reasonable to protect public interest and majority retail depositors.

JUDGMENT :

BHARATI DANGRE, J.

1. The seven Writ Petitions before us raise a challenge to the Notification dated 25/01/2022, issued by the Ministry of Finance, thereby granting its approval to the scheme formulated by the Reserve Bank of India (for short ‘RBI’) under Section 45 of the Banking Regulation Act, 1949 (for short, ‘BR Act’) in form of “Punjab and Maharashtra Co-Operative Bank Ltd. (Amalgamation with Unity Small Finance Bank Limited) Scheme, 2022”, which came into force w.e.f. 25/01/2022. In the separate Petitions filed by the individuals/society, diverse objections are raised against the scheme of amalgamation, but the commonality of the group of Petitions listed before us is the relief sought i.e. issuance of writ of mandamus or any other appropriate writ for quashing and setting aside the scheme of amalgamation as non-constitutional, being ultra vires inter alia Article 14, 19(1)(g) and 300A of the Constitution of India and also being violative of provisions of the Banking Regulation Act, 1949.

Though we will be separately dealing with the grounds raised in each of the Petition, with each Petitioner staking a claim of its interest being adversely affected, before we deal with each of the contention, we would like to refer to the background facts, which are placed before us by the RBI, which is a common Respondent in all the Petitions alongwith the Ministry of Finance, New Delhi as well as Unity Small Finance Bank Ltd.(for short, ‘USFBL’), which has taken over the affairs of the Punjab and Maharashtra Co-Operative Bank (for short ‘PMC Bank’)

(I) Factual Background Leading to filing of the Writ Petitions.

2. We have collated the background facts from the pleadings in the Petitions as well as the Affidavits filed on behalf of the RBI as well as the USFBL and through the rival contentions advanced before us.

3. We are concerned with PMC Bank, a Multi State Scheduled Urban Co-Operative Bank, which was registered under the Multi-State Co-Operative Societies Act, 2002 for carrying on the business of banking in India. As per the audited figures of PMC Bank, its deposit and advances as on 31/03/2019 were to the tune of Rs.11617.34 crores and Rs.8383.32 crores respectively as per the audited figure. The Bank was being managed through a Board of Directors under the Chairmanship of Mr.Waryam Singh, Director of the Bank since June 1999, whereas the post of Managing Director was held by Mr.Joy Thomas since 1987.

The prevailing audit machinery in Urban Co-Operative Bank at the relevant time existed in the form of statutory audit conducted on annual basis in terms of the provisions of the BR Act, 1949, coupled with concurrent audit system being implemented for timely transaction testing. In addition to the aforesaid, RBI, the Apex Bank also conduct statutory inspection of the Urban Co-Operative Bank under Section 35 read with Section 56 of the BR Act at regular intervals, depending upon the status of the Bank, its financial strength and assessment of the risk perception. The RBI in conduct of its statutory inspection rely on various reports/financial statements including report of statutory and concurrent audit source data for inspection, besides undertaking sample check of bank’s liabilities through deposits borrowings etc and assets portfolio alongwith transit account to assess the bank’s financial-capital adequacy, assets quality, liquidity and earnings etc. alongwith the risk involved.

4. Housing Development and Infrastructure Limited (‘HDIL’), being a company engaged in Real Estate Development founded by Mr.Rakesh Kumar Wadhwa, and its related entities alongwith the promoters faced accusation of committing serious financial fraud in various banks and companies and this included the PMC Bank.

On 17/09/2019, a complaint was received by RBI from senior official of PMC Bank alleging that the bank had sanctioned amount to HDIL group in gross violation of prudent banking practices and had manipulated data/information submitted to the RBI.

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