2/24/2016 0 Comments
DELEP GOSWAMI, FCS, ADVOCATE, SUPREME COURT OF INDIA, NEW DELHI
ANIRRUD GOSWAMI, ADVOCATE, GOSWAMI&GOSWAMI, ADVOCATES, NEW DELHI
India has, in recent past, witnessed many scams, like the 2G spectrum scam causing the Government exchequer losses of Rs.1.76 lakh crores and almost Rs.1.86 lakh crores, in the “Coalgate” scam. All these were brought to the notice of the Hon’ble Supreme Court of India through public interest litigations by public interest activists and NGOs like Common Cause and the Centre for Public Interest Litigation (CPIL) and despite the strenuous efforts made by the Government to hide from the public the file noting on decision making processes, the vital information could be fished out by activists by using the Right to Information Act, 2005 (“RTI Act”). However, another important area of concern is frauds and irregularities committed in the Banking sector in opening of Bank Accounts for siphoning off money from India to foreign tax-free havens. Adding to this, there is laxity shown in recovering loans and outstanding from the defaulters and non-remedial action on host of other irregularities and illegalities which plague the banking sector. However, the Reserve Bank of India (‘RBI’) and other banks have been denying disclosure of all these vital and basic information to information seekers/activists under the garb of the veil of secrecy on the plea that the disclosure of such information does not serve any public interest and that, it would, instead adversely impact public interest and confidence in the banking sector, thereby posing very severe implications and prejudicial impact on the financial and economic stability of the country. More particularly, the RBI argued that the information obtained/provided by the Banks inspected, was “fiduciary” in nature and those were shared on the principle of “trust and confidence” and hence such information could not be shared with the information seekers under the RTI Act.
Given this backdrop, a landmark judgement has been delivered on 16th December, 2015 by the Hon’ble Supreme Court of India in Transferred Cases (Civil) Nos.91 to 101 of 2015 (hereinafter referred to as the “RTI Judgement”) which will have a far-reaching impact on the accountability and responsible behaviour of Banks, and more particularly, the RBI. The moot question in the RTI Judgement was: whether the information sought for under the RTI Act can be denied by RBI and other Banks to the public at large on the ground of economic interest, commercial confidence, fiduciary relationship with other Banks on the one hand and the public interest on the other?
On their RTI Applications being denied by the respective Banks, the RTI Activists filed appeals before the Central Information Commission (CIC), which allowed the petitions and directed the Banks to furnish information to the petitioners. Writ petitions were filed by RBI and other banks against these decisions before the High Courts at Bombay and Delhi. At the same time, RBI also filed a petition in the Supreme Court of India to transfer the pending cases to the Supreme Court and this resulted in the common hearing in the aforesaid RTI Judgement.
The information sought for by public interest activists from the RBI and other Banks included, inter alia, the following:-
1. The procedure, rules and regulations of inspection being carried out on Co-operative Banks by the RBI and the copies of inspection and audit reports in respect of Makarpura Industrial Estate Co-op Bank and report on all Co-operative Banks gone into liquidation and action taken against all Directors and Managers for recovery of public funds and powers utilized by RBI and analysis and procedure adopted; and the names of remaining co-operative banks and RBI’s observations against irregularities and action taken reports.
2. Based on the written statement made by the Finance Minister on the floor of the Parliament that some Banks like SBI, ICICI Bank, Bank of Baroda, Dena Bank, HSBC Bank etc. were issued “letter of displeasure” for violating FEMA guidelines for opening of accounts, whereupon some other Banks were even fined Rs.1 crore for such violations, the RTI activist sought for the names of the Banks with details of violations committed by them. The Activist also sought for “Advisory Note” issued to the ICICI Bank for accounts opened by some fraudsters at the Patna Branch and information sought was about the exact nature of irregularities committed by the Bank under FEMA, and details of other offences committed by the IBL through various branches in India and abroad, along with action taken by the Regulator, including the names and designations of the officials; branch name; type of offence committed and the punishment awarded by the concerned Authority etc. While the RBI stated that “Supervisory actions were taken based on scrutiny conducted under Section 35 of the Banking Regulation (BR) Act”, the information in the scrutiny report is denied citing the ground of fiduciary capacity.
3. In another application, the Activist sought from National Bank for Agriculture and Rural Development (NABARD) copies of all correspondence with Maharashtra State Government/RBI/any other Agency of the State/Central Co-operative Bank from January, 2010 onwards and to provide confirmed/draft minutes of meetings of Governing Boards/Board of Directors/Committee of Directors of NABARD from April, 2007 till date of the application.
4. With regard to RBI uploading the entire list of Bank defaulters on the Bank’s website, the RBI replied that pursuant to Finance Minster’s speech made in Parliament on 28.2.1994, “in order to alert the Banks and FIs and put them on guard against the defaulters to other lending institutions, the RBI has put in place scheme to collect details about borrowers of banks and FIs with outstanding aggregating Rs.1 crore and above, which are classified as “doubtful” or “loss” or where suits are filed, as on 31st March and 30th September each year. In February, 1999, RBI had also introduced a scheme for collection and dissemination of information on cases of wilful default of borrowers with outstanding balance of Rs.25 lakhs and above. At present, RBI disseminates list of above said non-suit filed “doubtful” and “loss” borrowed accounts of Rs.1 crore and above on half-yearly basis (i.e. as on March 31st and September 30th) to Banks and FIs for their confidential use. The list of non-suit filed accounts of wilful defaulters of Rs.25 lakh and above is also disseminated on quarterly basis to Banks and FIs for their confidential use. Section 45-E of the RBI Act, 1934 prohibits the RBI from disclosing “credit information” except in the manner provided therein.”
5. Yet, in another application based on newspaper reports, the Activist sought for details from the RBI on the criterion adopted in deciding fine and penalties imposed on the Banks for contravention of various directions and instructions, such as, failure to carry out proper due diligence on user appropriateness and suitability of products, selling derivative products to users not having risk management policies; not verifying the underlying/adequacy of underlying and eligible limits under past-performance route, issued by RBI in respect of derivate transactions. In reply, the RBI stated that for violations, the Banks were issued with Show-cause Notices and denied the information.
6. In another application, an RTI Activist sought for details from RBI about the total Market-to-Market losses suffered on account of currency derivatives to the tune of Rs.32,000/- crores and wanted the Bank-wise breakup of the MTM losses. In reply, the RBI sought exemption under Section 8(1)(a) and ( e) of the RTI Act, 2005 as, under 8(1)(a) the disclosure of information sought would prejudicially affect the sovereignty and integrity of India and the security, strategic scientific or economic interests of the State, in relation with foreign State or lead to incitement of an offence.
7. Yet, in reply to another RTI application seeking information regarding accusations against SCB for non-compliances of RBI instructions on “derivatives”, the RBI stated that complaints are received the RBI and they constitute the “third party information” and as such it could not be disclosed in terms of Section 8(1)(d) of the RTI Act, 2005. As regards, the details sought from RBI regarding all the written replies/correspondence made by SCB with RBI and the RBI recordings on oral submissions made by SCB, the RBI stated that “action has been taken against the Bank based on the findings of Annual Financial Inspection (AFI) of the Bank, which is conducted under the provisions of Section 35 of the BR Act, 1949 and that the findings of the inspection are confidential in nature intended specifically for the supervised entities and for corrective action by them.
8. Yet, another RTI Activist sought for information from RBI about the basis of classification of Banks into various grades.In all of the above cases, the RBI denied providing any information sought for by citing the ground that the concerned information was received by the RBI in a fiduciary capacity and the disclosure of such information would prejudicially affect the economic interests of the State and harm the Bank’s competitive position and hence such information are exempt from disclosure in terms of the provisions of Section 8(1)(a) (d) and ( e) of the RTI Act, 2005.
Thus, during the course of arguments before the Supreme Court, the RBI submitted that the impugned orders passed by the CIC under the RTI Act were illegal and without jurisdiction and referred to various provisions of the RBI Act, 1934; the Banking Regulation (BR) Act, 1949 and the Credit Information Companies (Regulation) (“CICR”) Act, 2005 and submitted that the RBI being the statutory authority has been constituted under the RBI Act, 1934 for the purpose of regulating and controlling the money supply in the country. The powers, role and duties of the RBI were reiterated before the Supreme Court, including RBI’s powers to determine “Banking Policy” in the interest of banking system, monetary stability and sound economic growth. The RBI submitted that it exercises powers conferred under Section 35 of the BR Act, 1949 and conducts inspection of the Banks in the country and in its capacity as the regulator and supervisor of the banking system of the country, RBI has access to various information collected and kept by the Banks and such information accessed by the inspecting officers of the RBI would be confidential. RBI also submitted that its role is to safeguard the economic and financial stability of the country and it has large contingent of expert advisors relating to matters deciding the economy of the entire country and nobody can doubt the bona-fide of the RBI. Referring to the decision of the AP High Court in B. Suryanarayana –vs- TheKolluru Parvathi Co-op Bank Ltd (1986-AIR-AP-244), the RBI submitted that the Court will be highly chary to enter into and interfere with the decision of the RBI and also referring to another Supreme Court decision in Peerless General Finance and Investment Company Limited & Another –vs- RBI (1992-Vol.2-SCC-343) and contended that the Courts are not to interfere with the economic policy which is a function of the experts. The RBI also submitted that it is empowered to supervise and monitor the Banks under its jurisdiction through on-site inspection conducted on annual basis under the statutory powers derived by it under section 35 of the BR Act, 1949, off-site returns on key financial parameters and engaging banks in dialogue through periodical meetings and RBI takes supervisory actions where warranted for violations of its guidelines/directives, depending on the seriousness of the offence, its systematic implications and penal action may range from imposition of penalty, issuance of strictures or letters of warning. RBI further submitted that while RBI recognizes and promotes enhanced transparency in bank’s disclosures to the public, as transparency strengthens market discipline, a bank may not be able to disclose all data that may be relevant to assess its risk profile, due to the inherent need to preserve confidentiality in relation to its customers. Further, as per RBI policy, the reports of the annual financial inspections, scrutiny of all banks/financial institutions are confidential documents and cannot be disclosed as its disclosure would create misunderstanding/misinterpretation in the minds of the public and that may prove significantly counter-productive and would not serve the public interest, as it might adversely impact public confidence on the Banks and would have serious implication for financial stability and would adversely affect the economic interest of the State and would not serve the larger public interest.
The RBI also argued that the CIC also erred in holding that even if the information sought for is “exempted” under Section 8(1)(a), (d) or ( e) of the RTI Act, still Section 8(2) of the RTI Act would mandate the disclosure of the information and questioned whether the RTI Act, 2005 over-rides various provisions of special statutes, which confer confidentiality in the information obtained by the RBI and if the RTI Applicants were right in their contention, the various provisions of the BR Act; RBI Act and CICR Act would be repealed or over-ruled by the RTI Act, 2005. Further RBI contended that under Section 34A of the BR Act, 1949, production of documents of confidential nature cannot be compelled and that its inspection report on other Banks u/s 35(5) can only be disclosed, if the Central Government orders the publishing of such report. The RBI Counsel also pointed out that other statutory provisions of privacy are contained in the SBI Act, 1955; the SBI(subsidiary Banks) Act, 1959 and Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970 and hence, it was argued that the RTI Act, 2005 cannot override the provisions for confidentiality conferred on the RBI by the earlier statutes referred to hereinabove.
RBI also referred to certain exemptions carved out in the RTI Act to harmonise the conflicting interests and in that context referred to the Supreme Court’s decision in CBSE & Another –vs-
Aditya Bandopadhyay & Others (2011-8-SCC-497).
On behalf of the RTI Activists, it was argued that it is the people who have created legislatures, executives and the judiciary to exercise such duties and functions as laid down in the Constitution itself and that the right to information regarding the functioning of public institutions is a fundamental right as enshrined in Article 19 of the Constitution of India. They reiterated observations of the Supreme Court in the case of S.P. Gupta –vs- President of India and Ors (AIR-1982-SC-149) regarding the right to information in the following paragraph:-
“There is also in every democracy, a certain amount of public suspicion and distrust of Government, varying of course, from time to time, according to its performance, which prompts people to insist upon maximum exposure of its functioning. It is axiomatic that every section of the Government must be actuated by public interest, but even so, we find cases, though not many, where Governmental action is taken not for public good, but for personal gain or other extraneous considerations. Sometimes Governmental action is influenced by political and other motivations and pressures and at times, there are also instances of misuse or abuse of authority on the part of the executive. Now, if secrecy were to be observed in the functioning of the Government and the processes of Government were to be kept hidden from public scrutiny, it would tend to promote and encourage oppression, corruption and misuse or abuse of authority, for it would all be shrouded in the veil of secrecy, without any public accountability. But, if there is an open Government with means of information available to the public, there would be greater exposure of the functioning of Government and it would help to assure the people a better and more efficient administration. There can be little doubt that exposure to public gaze and scrutiny is one of the surest means of achieving a clean and healthy administration. It has been truly said that an open Government is clean Government and a powerful safeguard against political and administration aberration and inefficiency.”
The RTI Activist’s counsel also pointed out to para 56 of the Supreme Court’s judgement in Union of India –vs- Association for Democratic Reforms (AIR-2002-SC-2112) that “the right to get information in a democracy is recognized all throughout and is a natural right flowing from the concept of democracy.” Further submission was made that the RTI Act, 2005, as noted in its very preamble, does not create any new right, but only provides machinery to effectuate the fundamental right to information and that the institution of the CIC and the SICs are part of that machinery.
In its aforesaid RTI Judgement, the Supreme Court noted that one of the RTI Activists had asked about the details of the loans taken by industrialists that have not been repaid and he had asked about the names of the top defaulters who have not repaid their loans to public sector banks. The RBI resisted the disclosure of the information claiming exemption under Section 8(1)(a) and 8(1)( e) of the RTI Act on the ground that disclosure would affect the economic interest of the country, and that the information has been received by the RBI from the Banks in fiduciary capacity. The CIC found these arguments made by RBI to be totally misconceived in facts and in law, and held that the disclosure would be in public interest. While tracing the origin of passing of the RTI Bill by the Parliament, the Supreme Court observed that the right to information has been held as inherent in Article 19 of our Constitution, thereby, elevating it to a fundamental right of the citizen. Therefore, a citizen has to merely make a request to the concerned Public Information Officer specifying the particulars of the information sought by him and he is not required to give any reason for seeking information, or any other personal details, except those necessary for contacting him. The RTI Bill also stated that the categories of information exempted from disclosure are a bare minimum and are contained in clause 8 of the Bill and that even these exemptions are not absolute and access can be allowed to them in public interest, if disclosure of the information outweighs the harm to the public authorities. The information exempted from disclosure are those which would prejudicially affect the sovereignty and integrity of India; which has been expressly forbidden, which may result in a breach of privileges of Parliament or the Legislature; and also information pertaining to defence matters and these are listed in Section 8(1) (a) to (g) and that there are exceptions this clause.
With regard to the contention of the RBI about “fiduciary relationship”, the Supreme Court referred to its own decisioin in CBSE & Anr –vs- Aditya Bandopadhyay & Ors, where, after referring to various authorities to ascertain the meaning of the term “fiduciary relation” the Court had observed thus :-
“ A relationship in which one person is under a duty to act for the benefit of the other on matters within the scope of the relationship. Fiduciary relationships – such as trustee-beneficiary, guardian-ward, agent-principal, and attorney-client – require the highest duty of care. Fiduciary relationships usually arise in one of four situations : (1) when one person places trust in the faithful integrity of another, who as a result gains superiority or influence over the first, (2) when one person assumes control and responsibility over another, (3) when one person has a duty to act for or give advice to another on matters falling within the scope of the relationship, or (4) when there is a specific relationship that has traditionally been recognized as involving fiduciary duties, as with a lawyer and a client or a stockbroker and a customer.”
The Supreme Court held that the RBI does not place itself in a fiduciary relationship with the financial institutions (though, in word it puts itself to be in that position) because, the reports of the inspections, statements of the bank, information related to the business obtained by the RBI are not under the pretext of confidence or trust. In this case neither the RBI nor the Banks act in the interest of each other. By attaching an additional “fiduciary” label to the statutory duty, the Regulatory authorities have intentionally or unintentionally created an in terrorem effect. The Supreme Court also observed that the RBI is supposed to uphold public interest and not the interest of individual banks. RBI is clearly not in any fiduciary relationship with any bank. RBI has no legal duty to maximize the benefit of any public sector or private sector bank, and thus there is no relationship of ‘trust’ between them. RBI has a statutory duty to uphold the interest of the public at large, the depositors, the country’s economy and the banking sector. Thus, RBI ought to act with transparency and not hide information that might embarrass individual banks. It is duty bound to comply with the provisions of the RTI Act and disclose the information sought by the respondents herein.
The Supreme Court observed that the baseless and unsubstantiated argument of the RBI that the disclosure would hurt the economic interest of the country is totally misconceived. In the impugned order, the CIC has given several reasons to state why the disclosure of the information sought by the respondents would hugely serve public interest, and non-disclosure would be significantly detrimental to public interest and not in the economic interest of India. RBI’s argument that if people, who are sovereign, are made aware of the irregularities being committed by the banks then the country’s economic security would be endangered, is not only absurd but is equally misconceived and baseless.
The Supreme Court also observed that the Financial Institutions have an obligation to provide all the information to the RBI and such an information shared under an obligation/duty, cannot be considered to come under the purview of being shared in “fiduciary relationship” and that one of the main characteristic of a “fiduciary relationship” is “trust and confidence”, something that RBI and the Banks lack between them.
The Supreme Court also referred to section 2(f) of the RTI Act which defines “information” and it means, inter-alia “information relating to any private body which can be accessed by a public authority under any other law for the time being in force”. The Supreme Court therefore held that the RBI is liable to provide information regarding inspection report and other documents to the general public and that by not making them accessible to the public under the guise of “fiduciary relationship”, reveals that the Banks are trying to cover up their underhand actions and hence they are even more liable to be subjected to public scrutiny, especially when many FIs have resorted to such acts, which are neither clean nor transparent, and the RBI in association with them has been trying to cover up their acts from public scrutiny and thus the Supreme Court observed that it is the responsibility of the RBI to take rigid action against those Banks which have been practising disreputable business practices. The Supreme Court also rejected the argument of the RBI that disclosure of information sought for will also go against the economic interest of the nation and held that argument to be “wholly misconceived”. Making the information available to the people is actually economic empowerment of its citizens so that evaluate the actions of the legislature and executives, which is very important in a participative democracy and this will serve the Nation’s interest better, including its economic interests.
This landmark decision of the Supreme Court would hopefully bring in the desired positive changes in the banking industry which is having non-performing assets worth Rs.2.78 lakh crores as in 2014-15, besides addressing numerous violations plaguing the banking sector.
Anirrud Goswami, Advocate, Goswami & Goswami, Associates and Advocates,