2021 (3) TMI 543 - HC - Indian Laws

Court affirms RBI's license cancellation for CKP Bank under MCS Act, prioritizing depositors' rights and regulatory compliance.

Arun T. Dhumale, Jyoti A. Dhumale, Kiran Dhumale, Milind Shilotri Versus State of Maharashtra, 1. Commissioner for Co-operation and Registrar of Co-operative Societies, Maharashtra, 2. Reserve Bank of India, The State of Maharashtra Through Ministry of Co-operation, Deposit Insurance and Credit Guarantee Corporation (DICGC), Union of India

Arun T. Dhumale, Jyoti A. Dhumale, Kiran Dhumale, Milind Shilotri Versus State of Maharashtra, 1. Commissioner for Co-operation and Registrar of ... Issues Involved:1. Cancellation of CKP Co-operative Bank's banking license by the Reserve Bank of India (RBI).2. Appointment of a liquidator for CKP Co-operative Bank.3. Alleged violation of principles of natural justice and due process.4. RBI’s refusal to consider revival plans or merger options for CKP Bank.5. Financial aid and reconstruction of CKP Bank.6. Legal procedures and powers under the Banking Regulation Act and Maharashtra Co-operative Societies (MCS) Act.7. Rights and remedies of depositors with deposits exceeding Rs. 5 lakhs.Detailed Analysis:1. Cancellation of CKP Co-operative Bank's Banking License by RBI:The RBI cancelled the banking license of CKP Co-operative Bank on 28th April 2020, citing the bank's continuous financial deterioration and non-compliance with statutory requirements under the Banking Regulation Act, 1949. The RBI's decision was based on multiple statutory inspections revealing severe deficiencies, including negative CRAR, high NPAs, and significant asset erosion. Despite several opportunities and directives to improve its financial condition, the bank failed to demonstrate any substantial progress.2. Appointment of a Liquidator for CKP Co-operative Bank:Following the cancellation of the banking license, the Commissioner for Co-operation and Registrar of Cooperative Societies appointed a liquidator on 4th May 2020. This decision was in compliance with Section 110A of the MCS Act, which mandates the Registrar to wind up the affairs of an insured co-operative bank upon RBI’s direction. The liquidator was tasked with conducting the liquidation proceedings and submitting quarterly progress reports.3. Alleged Violation of Principles of Natural Justice and Due Process:Petitioners argued that the RBI and Registrar's actions violated principles of natural justice due to the delay between show cause notices and the final order, and for not issuing a fresh show cause notice considering subsequent developments. However, the court found that the RBI had given ample opportunities to the bank to address the deficiencies and that the deteriorating financial condition justified the cancellation without further delay.4. RBI’s Refusal to Consider Revival Plans or Merger Options for CKP Bank:The court noted that CKP Bank had submitted multiple revival plans, which were either insufficient or not implemented effectively. The RBI had granted various permissions and relaxations to aid the bank's revival, but the bank failed to show significant progress. The RBI’s decision to cancel the license was deemed justified given the lack of credible commitment towards revival.5. Financial Aid and Reconstruction of CKP Bank:Petitioners sought directions for RBI to prepare a reconstruction or amalgamation scheme for CKP Bank, or alternatively, provide financial aid for its revival. The court held that the RBI had already explored these options and found no viable plan for the bank’s revival. The RBI’s decision was based on the bank’s unsustainable financial position and the public interest.6. Legal Procedures and Powers under the Banking Regulation Act and MCS Act:The court upheld the RBI’s authority under Section 22(4) of the Banking Regulation Act to cancel the banking license and the Registrar’s duty under Section 110A of the MCS Act to wind up the bank upon RBI’s direction. The court emphasized that the Registrar had no discretion in this matter and was bound to comply with RBI’s directives without issuing a separate show cause notice.7. Rights and Remedies of Depositors with Deposits Exceeding Rs. 5 Lakhs:The court acknowledged the hardships faced by depositors with deposits exceeding Rs. 5 lakhs, as the Deposit Insurance and Credit Guarantee Corporation (DICGC) insures only up to Rs. 5 lakhs per depositor. The liquidator had started disbursing insured amounts to eligible depositors. The court noted that any surplus after liquidation would be distributed among the depositors as per statutory provisions.Conclusion:The court dismissed the petitions, upholding the RBI’s decision to cancel CKP Bank’s license and the Registrar’s order to wind up the bank. The court found no violation of principles of natural justice or due process and emphasized the RBI’s duty to protect public interest and depositors’ funds. The court recognized the statutory framework governing the actions of RBI and the Registrar, affirming their compliance with legal requirements.