The RBI's imposition of directives under Section 35A of the Banking Regulation Act does not necessitate pre-decisional hearings, emphasizing the need for depositor protection over procedural formalities.

JUDGMENT :

Vaibhavi D. Nanavati, J.

1. Heard Mr. B.S. Patel, learned Senior Counsel appearing with Mr. Nilay Patel, learned advocate for the petitioner – bank and Mr. Amar Bhatt, learned advocate appearing for the respondent – Reserve Bank of India.

2. Issue Rule, returnable forthwith. Mr. Amar Bhatt, learned advocate waives service of notice of Rule on behalf of the respondent – Reserve Bank of India .

3. By way of the present petition, the petitioner herein has invoked Article 226 of the Constitution of India, praying for quashing and setting aside the impugned directive dated 25.09.2023 issued by the respondent – bank under Section 35A read with Section 56 of the Banking Regulation Act, 1949 (for short, the “Act of 1949”) vide Directive No.AMD.DOS.SSM.No.S1053/11-03-039/ 2023-2024, which is duly annexed at Annexure-A.

4. Brief facts of the case are that the petitioner herein is a co-operative bank registered under the provisions of the Gujarat Co-operative Societies Act, 1961 (for short, the “Act of 1961”) and regulated by the Reserve Bank of India under the Act of 1949. The petitioner – bank is incorporated under the banking laws framed under the Act of 1961 on 01.05.1971 and has been serving the society by availing the banking service. The petitioner – bank has a strong financial condition and serving to approximately 11844 savings account holders, 1938 current account holders and having 2691 F.Ds. On 13.05.2022, a new board was appointed in the petitioner – bank and in March, 2023, inspection was carried out by the respondent – bank wherein, no adverse inference was drawn by the authorized officer of the respondent - bank. The petitioner – bank has approximately total payables worth Rs.46,18,53,673/-, which includes Fixed Deposits, Current Accounts, Savings Bank Deposits and Recurring Deposits and on the other hand, the petitioner – bank has total receivables and assets worth Rs.94,56,30,445/-, which clearly depicts the strong financial position of the petitioner – bank. The copy of the sheet, showing payables, receivable and assets of the petitioner – bank, is duly produced at Annexure ‘C’.

4.1. It is the case of the petitioner – bank that as a part and parcel of the banking business, the new board initiated recovery of loans and also initiated proceedings under the provisions of the SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT (for short, the “SARFAESI Act”) against its defaulted borrowers. Therefore, from the year 2022 to September, 2023, the petitioner – bank received more than 40 orders under Section 14 of the SARFAESI Act to speed up the process of recovery. In the meantime, the officers of the petitioner – bank came to know about the modus operandi adopted by the defaulted borrowers and, therefore, on 08.07.2022, the petitioner – bank, through its authorized officer, filed a complaint before Anandnagar police station against various defaulters, who had received loan from the petitioner – bank by creating forged and bogus documents and thus, the petitioner – bank remained vigilant in protecting the depositors’ money and recovery of loan amount from the defaulted borrowers.

4.2. It is the case of the petitioner that in turn, the borrowers, who defaulted in making the payment, filed quashing petition before this Court and also filed a police complaint against the petitioner – bank, resultantly, the chairman of the petitioner - bank has been enlarged on bail in all the F.I.Rs. and has also been protected in the quashing petition. One of the defaulted borrowers filed Securitization Application No.176 of 2023 before the learned D.R.T. - 1, Ahmedabad against the order passed by the learned Chief Judicial Magistrate, Ahmedabad (Rural) in CR.