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HIGH COURT OF KERALA
N. NAGARESH, J
CHEMMANUR CREDITS AND INVESTMENTS LTD. – Appellant
Versus
UNION OF INDIA – Respondent
WP(C)/27692/2020
Banking - Non Banking Financial Companies - Reserve Bank of India Act - Sections unspecified - The court evaluated the Reserve Bank of India's directive restricting current accounts for companies with cash credit/overdraft facilities, emphasizing the need for practical resolutions between banks and petitioners while ensuring statutory compliance.
Fact of the Case:
The petitioners, Non-Banking Financial Companies, challenged a Reserve Bank of India directive that restricted current accounts based on cash credit/overdraft facilities, impacting their operations across multiple branches in India.
Finding of the Court:
The court recognized the operational challenges posed by the RBI's directive and emphasized the importance of consultations between the petitioners and their banks to reach a practical solution, maintaining the status quo on their accounts during this process.
Issues: Whether the Reserve Bank of India's directive restricting current accounts due to cash credit/overdraft facilities was lawful and how it affected the operational capabilities of the petitioners.
Ratio Decidendi: The court leaned on the necessity of finding a workable resolution between the petitioners and their banks while upholding the spirit of the RBI's circulars, indicating that such administrative measures should consider operational realities.
Final Decision: The interim orders are vacated, and parties must consult for six months, maintaining status quo on accounts until resolution.
JUDGMENT
Dated this the 9th day of April, 2021 [ WP(C) Nos.22768, 25652 & 27692 of 2020 ]
The petitioners in these three writ petitions are Non Banking Financial Companies registered under the Reserve Bank of India Act, 1934 . The petitioners have large number of Branches spread all over India, serving large number of citizens and employing thousands of employees. To meet their financial needs for business operations, the petitioners have availed a number of credit facilities from the State Bank of India (SBI) and other Banks. They are maintaining more than thousand Current Accounts with various Banks including SBI, which are extremely necessary in view of their nature of business.
2. The Reserve Bank of India, as per Ref.RBI/2020-
21/20 DOR.No.BN.BC/7/21.04.048/2020-21 dated 06.08.2020 directed that no Bank shall open current accounts for customers who have availed credit facilities in the form of cash credit/over draft from the Banking system and all transactions shall be routed through CC/OD account. As per Ext.P1, the petitioners can transact only through the Banks whose exposure to petitioners is beyond 10% (designated Banks). The other Banks who make payments to the petitioners will debit their CC account and credit equivalent fund to CC account maintained in the designated Bank. Only a designated Bank can disburse the funds to the petitioner. Pursuant to the Circular dated 06.08.2020, some of the Branches of SBI have required the petitioners to close Current accounts.
3. The Circular created a situation making it impossible for the petitioners to carry on with their business at various branches. The petitioners therefore submitted representations to the RBI. This Court by way of interim order directed the RBI to consider the representations before enforcing the Circular dated 06.08.2020. The RBI did not accede to the request of the petitioners, but admitted that there could be some operational challenges and advised the petitioners to have consultations with the Banks to arrive at a workable solution, to iron out the operational challenges. Pending these writ petitions, the accounts of the petitioners were not closed and those accounts already closed were revived
4. When these writ petitions were taken up today, the learned Standing Counsel for the RBI submitted that various interim orders passed in these writ petitions, have created a situation where the interim orders are taken as of general application and amounting to stay of the Circulars issued by the RBI which have Statutory flavour. The learned Standing Counsel of the RBI reiterated that the petitioners can still have consultations with their Banks to arrive at a workable solution.
5. After hearing the Standing Counsel for the Reserve Bank of India and the State Bank of India and the learned counsel appearing for the petitioners, this Court is of the opinion that the issues pointed out by the petitioners should be dealt with in an appropriate manner protecting the interest of the petitioners and at the same time recognising the spirit of the circulars of the Reserve Bank of India. In that view of the matter, the petitioners and their Banks may sit together and try to arrive at a workable solution in the matter. In case issues are not resolved or any issue remains, the constituent Banks may approach the Reserve Bank of India for a workable resolution of the issue. Till such time the issues are resolved as stated above by mutual consultation or till such time the Reserve Bank of India passes orders on the specific issues raised by the petitioners, the status quo as regards the accounts of the petitioners as on the date of filing of the writ petitions shall be maintained.
It is made clear that all interim orders passed in these writ petitions earlier will stand vacated. The State Bank of India shall strive to resolve the issues by mutual consultations with the petitioners, within an upper limit of six months, failing which they shall approach the Reserve Bank of India
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