TaxTMI 
TaxTMI 
2026 (4) TMI 752
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...., Viloma Shah, Mr. Harshad Vyas and Mr. Viraj Raiyani i/b M/s. AVP Partners, in WP/4302/2022. For the Respondent No. 4: Mr. Dhaval Patil i/b M/s. K. Ashar and Co. For the Respondent: Mr. Shivam Mehra Nos. 1 and 2 in WP/7728/2022. For the Petitioner: Dr. Uday P. Warunjikar with Ms. Vaishnavi M. Gujarathi i/b Aditya P. Kharkar in WP/7753/2022. For the Petitioner: Mr. Anilkumar Patil with Ms. Zeel Jain in WP/7728/2022. For the Petitioner in WP/2847/2025: Mr. Aseem Naphade with Ms.Subrata Sen, Mr. Akash Loya, Mr. Sujit Lahoti, Ms.Tejasvi Nakashe and Haaris Koradia i/b Sujit Lahoti and Associates. For the Petitioners in WP/11079/2024: Mr. Karl Tamboly with Mr. Bhavin Shah, Mr. Krupesh Bhosle and Mr. Maulik Tanna, Advocates. For the Respondent: Mr. Ravi Kadam, Senior Advocate with Mr. Ameya Gokhale, Mr. Rishabh Jaisani, Mr. Harit Lakhani, Ms. Richa Bharti and Mr. Ansh Kumar i/b Shardul Amarchand Mangaldas and Co., for the Respondent No. 3 in WP/4302/2022, for the Respondent No. 2 in WP/7753/2022, for the Respondent No. 1 in WP/8534/2022, WP/11079/2024, WP/5762/2022, for the Respondent No. 3 in WP/7728/2022 and for the Respondent No. 2 in WP/2847/2025. For the Resp....
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...., 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-Op....
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.... positive figure of Rs. 706.20 crore and 12.72% as on 31/03/2018 to huge negative figure of Rs. (-)5278.21 crore and (-) 198.70%, with significant deposit erosion of 45.43% as assessed on 31/03/2019. Thus, the inspection pursuant to the complaint received, reflected the unstable financial position of the bank with a negative net worth and this warranted immediate action, so as to protect the depositor's interest. 5. Upon a detailed analysis carried out through the inspection and the necessary investigation/inquiry being conducted by the RBI, the Banker's bank, with expertise at its end to deal with the matters affecting the economy of the entire country, it was noticed that the erstwhile management/concerned officials of the PMC Bank adopted a modus operandi, leading to a huge fraud, which could not be noted and this included (a) tampering with management information system and NPA identification process adopted, to camouflage the material data on NPAs. The investigation revealed that the concerned officials of PMC Bank had assigned certain specific access codes to the loan accounts belonging to HDIL and its group entities, which were used for assigning restricted visibility ....
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....ook prompt steps to impose all inclusive directions as its immediate concern was to preserve the scarce resources of the bank, while it was being necessary to take steps to ensure protection of depositor's interest. PMC Bank, in addition to large number of high value retail/individual deposits, also held deposits of large number of co-operative banks and co-operative societies apart from the deposit of institutions such as Trusts etc. RBI, with its expertise in financial and economic matters, considered it imperative that all efforts for a non-disruptive resolution of PMC Bank is made and it explored various possibilities which would serve the interest of the depositors the best, including capital infusion/merger by roping the State Government as well as exploring resolution through NPA recovery and merger with some strong bank. Eventually taking note of the financial condition of the Bank and lack of proposals for capital infusion, it was deemed appropriate to proceed ahead by formulation of a scheme, in absence of which the drastic steps would have been cancellation of license and putting the bank under liquidation. Considering the imminent prejudice caused due to this action ....
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....ns depositors whose deposits are insured under the Deposit Insurance and Credit Guarantee Corporation Act, 1961." The other two definitions, which are relevant for our purpose, are those contained in Sections 2(e) and (f), which read thus:- "2(e) 'institutional depositors' means corporations, companies, partnership firms, societies, Association of Persons, Trusts, and all other depositors who are not retail depositors. 2(f) 'retail depositors' means depositors who hold deposits in the bank in their individual capacity, either singly or jointly with other individual, and include proprietorship firms and Hindu Undivided Families (HUFs)." Punjab and Maharashtra Co-operative Bank Ltd. was referred to as 'transferor bank', whereas Unit Small Finance Bank Ltd. was referred to as 'transferee bank'. 9. As per the (Amalgamation) Scheme of 2022, on and from the appointed date, the undertaking of the transferor bank stood transferred and vested in the transferee bank and it deemed to include all business, assets, estates, rights, titles, interest, powers, claims, licenses, authorities, permits, approvals, permissions, incentives, loans, subsidies and other privilege....
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.... transferor bank, which would be an amount equal to the balance in their deposit accounts or 5,00,000rs (Rupees five lakh only), whichever is less, in accordance with the Deposit Insurance and Credit Guarantee Corporation rules of distribution of such amounts; (ii) at the end of first year from the appointed date, over and above the payment already made, an additional amount equal to the balance in their deposit account or Rs.50,000 (Rupees fifty thousand only), whichever is less, on demand only to the retail depositors of the transferor bank; (iii) at the end of two years from the appointed date, over and above the payment already made, an additional amount equal to the balance in their deposit account or 50,000rs (Rupees fifty thousand only), whichever is less, on demand only to the retail depositors of the transferor bank; (iv) at the end of three years from the appointed date, over and above the payments already made, an additional amount equal to the balance in their deposite account or 1,00,000rs ( Rupees one lakh only), whichever is less, on demand only to the retail depositors of the transferor bank; (v) at the end of four years from the ....
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....a basis. (h) From the end of 21st year, transferee bank will buy-back the outstanding principal of the Perpetual Non-Cumulative Preference Shares, at the rate of at least 1 per cent. of the total Perpetual Non-Cumulative Preference Shares issued under the scheme per annum, provided the following conditions are satisfied, namely:- (i) all restructured liabilities pertaining to the transferor bank including those towards Deposit Insurance and Credit Guarantee Corporation under the Scheme are fully discharged; (ii) capital adequacy ratio of the transferee bank is at least three hundred basis points higher than the regulatory minimum capital-to-risk weighted assets ratio applicable at that point of time; (iii) net non-performing assets of transferee bank are at least two hundred basis points lower than the prescribed threshold for Prompt Corrective Action by Reserve Bank at that point of time; (iv) minimum 'Net Cash Recovery' of the principal amount of advances to Housing Development and Infrastructure Limited Group as on March 31, 2021 from assets pertaining to Housing Development and Infrastructure Limited Group is more than 70 per....
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....ed." (III) Contentions Advanced on Behalf of the Petitioners in the Writ Petitions. 12. Since we are called upon to consider the objections raised by the Petitioners to the scheme, each Petition involving different Petitioners with respect to their status and the challenge, we prefer to record the contentions of the respective counsel in each of the Petition, so as to broadly appreciate the challenge to the scheme. 13. We have heard respective counsel appearing for the Petitioners and also heard learned senior counsel Mr. Ravi Kadam, representing the RBI, learned senior counsel Mr. Ashish Kamat for Unit Small Finance Bank and Resilient Innovations Pvt. Ltd., learned counsel Mr. Kedar Dighe for Union of India and the learned senior counsel Mr. Dhond for Deposit Insurance and Credit Guarantee Corporation. By consent of the parties, we deem it appropriate to issue Rule, which is made returnable forthwith. (A) Writ Petition No. 5762 of 2022 14. To start with, we have taken Writ Petition No. 5762 of 2022, which is filed by Paresh Mehta and 130 Ors., who are the shareholders and/or retail depositors of erstwhile PMC Bank. Learned senior counsel Mr. Tulzapurkar represent....
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....savings deny them access to the funds for medical treatment and affect their livelihood and also their survival. With the ten year lock-in period for elderly depositors, he would submit that it has deprived them of their right to life with dignity. 17. It is the submission of Mr. Tulzapurkar that Section 45 of the BR Act cannot override fundamental rights and co-operative principles and the overriding effect of Section 45(14) is not absolute. According to him, the federal structure requires that State laws on co-operatives cannot be completely overridden without valid constitutional basis, as the conversion is forced one and not voluntary. He would submit that RBI's stance that it carefully examined and considered all the received suggestions and comments and made appropriate changes to the draft scheme is baseless as the annexure to the RBI's Summary Submissions at Annexure 1 clearly reflects that majority of the changes made were corrections or expansion of abbreviations used in the draft, and according to him, comparison of the draft and final Schemes reveals only cosmetic alterations, with the core terms, the 10-year lock-in, interest reversal, and write-off of share capi....
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....according to him, consultation was a farce, as the objections were dismissed with a cryptic and unreasoned reply. 20. By way of rejoinder, Mr. Tulzapurkar has submitted that the contention that the scheme provide equal, non-discriminatory treatment to all retail depositors is completely incorrect. According to him, making depositors wait for ten years, when alternatives existed and a choice of liquidation was also available, RBI has chosen amalgamation without any lawful justification. According to him, there is a stark difference between liquidation under Section 43A and amalgamation under Section 45. The principle of equality underlying Section 43A (pro-rata distribution) should also be a part of exercise of power under Section 45, and according to him, even in amalgamation, all depositors of the same class must be treated equally, but in the present case, the retail depositors with deposit above Rs.5 lakh are receiving payments over 10 years, while those below Rs.5 lakh are paid earlier and this creates a discrimination within the same class. According to him, the RBI's contention that the liquidation would have been worse, presents a false binary, as other viable options wou....
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.... sent to the Administrator is of no consequence as the tenure of the Administrator had expired and in no case, he could have represented the shareholders. In addition, he would also submit that the amounts of uninsured depositors are converted into perpetual non cumulative preference shares of Unity Bank with dividend of 1% p.a. payable annually and the scheme provide for buy back of outstanding principal of perpetual non cumulative preference shares at the rate of 1% of the total perpetual non cumulative preference shares per annum subject to a cap of 10% of the yearly net profit of Unity Bank. The remaining 20% amount of institutional deposits would be converted into equity warrants at Rs.1 and it would be converted into equity shares of Unity Bank at the time of initial public offer, when it goes for public issue. By the aforesaid scheme, according to Mr. Tulzapurkar, the existing shareholders are deprived of the value of the shares and though new equity shares would come into existence and this approach is unreasonable and arbitrary, as the existing shareholders are also deprived of surplus and reserve, which is created out of the profits, which is no longer available to ....
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....ding to him, instead of directing all the depositors to withdraw a pro rata amount of their deposits, the RBI has permitted a flat amount of withdrawals at certain intervals, meaning that the moneys to which the Petitioners would have been entitled on the basis of pro rata withdrawals, had been withdrawn by small depositors to the detriment of the larger deposit holders. He would submit that even under Section 43A of the Banking Regulation Act, payments made during the winding up of a banking company to the depositors are to be made pro rata and there is no logical reason to digress from such an accepted practice. He would, in specific, invite our attention to the mechanism provided in sub-sections (3) and (4) of Section 43A, which is a provision in relation to preferential payment made to the depositors in the scheme of liquidation. According to him, a pro rata distribution is the norm and the bench mark when a bank is liquidated and it should equally apply when there is a amalgamation of bank under the scheme framed by the Reserve Bank of India, then if at all some deviation is warranted, the RBI ought to have assign reasons. According to him, the methodology adopted in this c....
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....ICGC's liability did not accrue in small deposits and relying upon the reply of DICGC, where it has given the total number of claims it has paid and the total amount disbursed, he would submit that an amount of Rs.3850 crores is stated to have been disbursed on the date of the scheme and this amounted to approximately 84% of the deposits. He has submitted that if approached correctly, the liability of DICGC ought to have been an additional Rs.920 crores to Rs.1120 crores and it ultimately indicated that it had paid lesser amount. 27. PMC Bank was placed under 'directions, with restrictions on withdrawals from September 2019 onwards, and according to the learned counsel, RBI had permitted some withdrawals through subsequent notifications, but the withdrawals by the account holders having amount of Rs. 0 to Rs.1 lakh and between Rs.1 lakh to Rs.5 lakhs. Between placing PMC Bank under 'directions' in September 2019 to the date of the impugned scheme in January 2022, over a period of two and half years have been passed and this gap, according to Mr. Lohia, is unprecedented as schemes pertaining to Laxmi Vilas Bank and Yes Bank, the gap was much less. Analysing the effect of this, Mr....
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.... Scheme clearly provided that all the deposits with and liabilities of the reconstructed bank, except as provided in this scheme, and the rights, liabilities and obligations of its creditors, shall continue in the same manner and with the same terms and conditions, completely unaffected by the scheme. Mr. Lohia has also placed heavy reliance upon the decision in the case of Ganesh Bank of Kurundwad Ltd. & Ors. (supra). In addition to the aforesaid, he would also rely upon the decision of the Apex Court in the case of Deposit Insurance and Credit Guarantee Corporation Vs. Ragupathi Ragavan & Ors. (2015) 9 SCC 629 to support his submission that all the depositors by an large have equal right. Reliance is also placed by him upon the decision of Axis Trustee Services Limited Vs. Union of India through the Ministry of Finance Department of Financial Services & Ors. (2023) 3 Bom CR 247, wherein the Division Bench of this Court examined the challenge to a communication under which the Administrator of Yes Bank Ltd. informed the Bombay Stock Exchange Limited and National Stock Exchange of the writing off the Additional Tier 1 Debenture bonds, and according to Mr. Lohia, the said decisio....
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....mboly, is manifestly arbitrary and violates the Right to Livelihood enshrined in Article 21 of the Constitution. Further, fixing interest at 2.75% which is far below the inflation rate in effect erodes the principal value of the deposit and this according to Mr. Tamboly, enriches the private transferee bank at the cost of the public depositors. 31. Apart from the aforesaid submission, Mr. Tamboly has expressed criticism about the implementation of the scheme notified on 25/01/2022, but according to him, clause 6(1)(d) retrospectively freezes interest accrual from 31/03/2021 and Section 45 of the Banking Regulation Act definitely do not authorize the RBI to confiscate any property belonging to the depositors retrospectively. The interest accrued between 01/04/2021 and 24/01/2022, which is already credited in the account of the depositor is the property of the depositor and once the interest has already been transferred to the account of a depositor, a bank cannot unilaterally reverse the interest is his submission. According to him, no scheme/Notification/ provision of law can retrospectively authorize the bank to debit the account of a depositor once it has been credited in acco....
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....ion for purposes of implementing the right of equality guaranteed by it. (D) Writ Petition No. 7753 of 2022 34. Learned counsel Mr. Warunjikar representing the Petitioner in Writ Petition 7753 of 2022,Maharashtra Rajya Sahakari Patasanstha Federation Ltd., has submitted that the Petitioner is a federation of various Credit Co-operative Societies and members of the Petitioner are different Credit Co-operative Societies whose depositors and/or shareholders are all common citizen of India and they are entitled to fundamental rights guaranteed under the Constitution of India. According to the present Petitioner, since the PMC Bank is Multi-Scheduled Urban Co-operative Bank registered under the provisions of the Multi-State Co-Operative Societies Act, 2002, the members of the Petitioner started keeping their hard earned money as deposit with the bank, but on account of the steps taken by RBI under Section 35A read with Section 56 of the Banking Regulation Act, directing the closure of the business of bank w.e.f. 23/09/2019, the Petitioner alongwith its members are put to tremendous loss. It is the contention of Mr. Warunjikar that the members of the Petitioner are all instituti....
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....o-operative societies and by the said scheme, this right has been defeated and no steps are taken by the RBI to uplift the rights of the Petitioner and its members, which is guaranteed by the Constitution. Mr. Warunjikar has also submitted before us that the Directors of the Petitioner are getting notices of breach, as the money was deposited into PMC Bank. Another submission of Mr. Warunjikar is, that if the PMC Bank was a co-operative bank so the merger ought to have been with the co-operative bank. (E) Writ Petition No. 2847 of 2025 35. Mr.Aseem Naphade representing the Petitioner in Writ Petition No. 2847 of 2025 has again advanced his submission on behalf of retail depositors and he has asserted that the scheme has resulted into artificial distinction in two classes of depositors i.e. institutional and retail depositors, which has no nexus with the object sought to be achieved. According to him, Section 45 prohibits creation of two classes, but the scheme has ignored this and attempted to create an unjusticiable classification, which suffers from arbitrariness, and therefore, deserve to be quashed. Citing an instance, Mr. Naphade would submit that it is evident from S....
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....ade is relating to clause 8(2) of the Notification as regards Long Term Deposit (LTD) and he submit that there is equal treatment as that of the institutional depositors. (F) Writ Petition No.7728 of 2022 36. In Writ Petition No. 7728 of 2022, the Petitioners are represented by Mr. Anilkumar Patil, who adopts the arguments advanced by Mr. Warunjikar in Writ Petition No. 7753 of 2022. (G) Writ Petition No. 8534 of 2022 37. In Writ Petition No. 8534 of 2022, there is no appearance on behalf of the Petitioners. IV) Submissions Advanced on behalf of RBI and Unity Bank-The Respondents. 38. The contentions of the respective counsel for the Petitioners received vehement opposition from learned senior counsel Mr. Ravi Kadam representing the Reserve Bank of India and the learned senior counsel Mr. Ashish Kamat representing the Unity Small Finance Bank Ltd. Citing the background, Mr. Kadam has urged that the RBI received a complaint from the PMC Bank's senior officer with regard to HDIL group and the activity carried out being in violation of prudent banking practices and that there was manipulation of information submitted to RBI. This prompted the RBI to depute a team ....
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....he PMC Bank's loan portfolio was non-performing asset and this hampered resolution of the PMC Bank through recovery. The realizable value of the assets was not sufficient to cover the operating expenses. Since PMC Bank had larger number of individual depositors and institutional depositors, RBI considered it imperative to arrive at a non-disruptive resolution/liquidation and it explored the multiple possibilities, but on finding that they are not feasible, on 03/11/2020, PMC Bank invited the expression of interest through public advertisement for investment/equity participation. 41. In this process, RBI was informed that three proposals were received, but only two submitted final offers. One of the proposer-Centrum Financial Services Ltd. (Centrum) alongwith Resilient Innovation Pvt. Ltd. (RIPL) formed a joint venture, namely, Unity Small Finance Bank (Unity Bank), and a draft scheme of amalgamation of PMC Bank with Unity Bank was placed in public domain. On consideration of suggestions and objections from members, depositors and other creditors, with a gap of three weeks, the proposal was forwarded to the Government on 17/02/2021 and on 25/01/2022, the Central Government san....
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....d in relation to the flaw pointed out in the scheme, arrive at this conclusion, the interference in the scheme framed by the body with expertise in economic affairs and definitely at a higher footing than that of the individual Petitioners do not warrant any interference. Mr. Kadam has also placed reliance upon the observations of the Apex Court in the case of Deposit Insurance and Credit Guarantee Corporation (supra), and in specific, paragraphs 18 to 20, which read thus :- "18. Be that as it may, now we are concerned with a direction given by the High Court to the Official Liquidator and the Special Officer of the Bank, which is in liquidation, whereby they have been directed to pay the unpaid amount to the depositors instead of paying the same to the Corporation. 19. The object with which the Act has been enacted has been stated hereinabove in a nutshell. The object was to insure the depositors so that they may not have to stand in a queue before the Official Liquidator for every paisa deposited by them with the bank concerned. As on today, as per the provisions of Section 16(1) of the Act, a sum of Rs 1 lakh is being insured or guaranteed in respect of each de....
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....3 crores of advances Rs.3383.14 crores had turned NPA. Accordingly, as on 31 March 2021, PMC Bank had a huge gap between its assets and liabilities as reflected in negative net worth of Rs.(-)6,522.28 crore as on 31 March 2021. Its deposits were eroded to the extent of 6l.91% (as on 3l March 2021). Therefore, it is in the background of such grave financial circumstances, Respondent No. 2 was required to come up with a viable resolution which would be in the interest of all stakeholders. Respondent No. 2 took into account all relevant factors including the contemporaneous financial position while arriving at the repayment schedule under the Scheme for both retail and institutional depositors." 45. Regarding the staggered release of payment, the affidavit states thus:- "17. In fact, one of the suggestions received by Respondent No. 2, pertained to linking of repayment as per recoveries made by PMC Bank/Unity Bank. It is pertinent to note that as per the data available, PMC bank was able to recover only Rs.184 crores for FY 2020-21 and Rs. 28 crores for FY 2021-22 (till September 30, 2021). Thus, the recovery amounts were too insignificant to link the same to repa....
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.... of the affidavit, which read thus:- "25. The Petitioners' primary grievance appears to be that the Scheme allegedly does not consider the quantum of the amount deposited by each depositor for the purpose of categorizing depositors into retail and institutional depositors. Further, it has also been contended that Petitioners' being purported HNI (which Respondent No. 2 does not admit) ought to have been classified as institutional depositors. However, such contentions are completely misplaced and legally not tenable. In any event and without prejudice to the other contentions of Respondent No. 2, the Petitioners having already taken benefit of payouts as retail depositors under the Scheme and cannot now seek classification as institutional depositors. 26. The Scheme classifies depositors based on the nature of entity at the time of deposit having been made with PMC Bank i.e. two categories: (a) retail depositors, and (b) institutional depositors. The Petitioners being individual depositors (at the time of making their deposit with PMC Bank), have been correctly classified as retail depositors under the Scheme. The quantum of deposit does not ....
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....fied as the latter are business entities and they have been allotted preferential/equity shares in contrast the individual depositors. In any case, he would submit that this Court shall not sit in appeal over the wisdom exercised by RBI, definitely in larger public interest and few persons through the Petitions cannot call in question the said decision, as the scope of interference is very limited. 50. Learned senior counsel Mr. Ashish Kamat, representing the Unity Small Finance Bank Ltd., in addition to the submissions advanced by Mr. Kadam, has urged before us that some facts are undisputed and this include a fact that net-worth of the PMC Bank was in negative. It is also not in dispute that a decision was taken in a full drawn process by the RBI that amalgamation of the PMC Bank was the best solution. Another point which he would urge before us that no procedural impropriety is alleged by the either of the Petitioners, and lastly, he would submit that what was done by the RBI was the best which could have been done in the given scenario. Focusing his attention on the scope of judicial review in matter of economic complicity, involving technical aspect of banking and partic....
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....ct, imposing restrictions on the functions of the PMC Bank and permitting withdrawals from time to time, which was followed by formulation of the scheme and his client, Unity Bank taking over affairs of the PMC Bank. According to him, the action taken by the RBI is in the interest of all the depositors, which includes the Petitioners in all the Writ Petitions. Mr. Kamat has thrown light on the process followed by RBI, when it issued EOI, which ultimately culminated into formulation of scheme, which is fair, bona fide and reasonable. Mr. Kamat submitted that as per the EOI invitation, PMC Bank had total deposits of Rs. 10727.12 crore, total advances of Rs. 4471.78 crore and gross NPA of Rs.3518.89 crore as on 31/03/2020. The share capital of the bank was Rs. 292.94 crore. However, the bank registered a net loss of Rs. 6835 crores during the financial year of 2019-20 and had a negative net worth of Rs. 5850.61 crore. As of 31/03/2021, the negative net worth of PMC Bank was Rs. 7581 crores and pursuant to the EOW, according to Mr. Kamat, the following steps were taken. "6.2. Pursuant to the EOI, the following steps were taken: i. On December 15, 2020, PMC Bank inf....
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.... financial solvency which it will bring in order to amalgamate with PMC." 53. Inviting our attention to the subsequent facts demonstrating successful implementation of the scheme by Unity Bank, Mr. Kamat would rely on the affidavit, which has stated thus :- "7.2 As of 31st December 2025, 99.45% depositors of the PMC Bank has withdrawn a total amount of 3835.04 crores out of 3856.26 crores, which was released by DICGC. 7.3 In addition to the above, USFB, in compliance of the Scheme, has paid the following further amounts to the depositors : a. On 25th January, 2023 -Rs. 147.27 Crores b. On 25th January, 2024-Rs. 133.90 Crores c. On 25th January 2025-Rs. 238.98 Crores d. On 25th January 2024-Rs. 476.77 Crores 7.4 Pursuant to the sanction of the present Scheme and USFB taking over the management of the bank, USFB has substantially grown the business and the book of the bank: i. USFB has grown its balance sheet at a CAGR of 60% from 11946 Crores in March 2023 to Rs.19152 Crores in March 2025. Further, USFB has been profitable during these years and that the profits have in fact increased from Rs.35 crores in Mar....
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....3. It is pertinent to note that, USFBL has been profitable while ensuring to meet all its liabilities to the depositors of erstwhile PMC Bank. 10. USFBL has grown its balance sheet at a CAGR of 60% from Rs. 11946 crores in March 2023 to Rs. 19152 crores in March 2025. This has been on the back of strong growth in advances with the loans having grown at CAGR of 66% from Rs. 6601 crores in March 2023 to Rs. 10985 crores in March 2025, as well as strong mobilization of deposits which have grown from Rs. 2685 crores to Rs. 11952 crores in the same period. USFBL has been profitable during this period with the profits of the bank having increased from Rs. 35 crores in March 2023 to Rs. 482 crores in March 2025, a growth rate of 271%. The bank has adequate capital to continue to meet its growth projections with a CRAR of 29%, as against regulatory requirement of 15%. 11. ... ... ... 12. Several customers have shown their trust in USFBL and the same is reflected from the fact that not only have they obtained loans from USFBL but have opened several current and savings bank accounts with USFBL. Hereto annexed and marked as Exhibit A is a list of current account an....
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....,56,26,59,708.70 It is his categorical submission that all the eligible and admissible claims submitted are paid with reference to the balance as on cut-off date of the original list. V) Analysis of Rival Claims/Contentions :- A] Scheme of Amalgamation under the Banking Regulation Act, 1949. 58. The rival contentions canvassed before us deserve appreciation in the background facts to which we have made reference in the primordial part of the judgment as to the circumstances, which warranted exercise of the power by the Reserve Bank of India, for suspension of business of the banking company and to prepare a scheme for amalgamation of the PMC Bank with Unity Small Finance Bank Ltd.. The Notification issued on 25/01/2022 by the Ministry of Finance, is issued in exercise of the powers conferred by sub-section (4) of Section 45 of the Banking Regulation Act, 1949, granting sanction to the scheme referred to as "Punjab and Maharashtra Co-Operative Bank Ltd. (Amalgamation with Unity Small Finance Bank Limited) Scheme, 2022". The Notification contain a reference to the issuance of 'All Inclusive Directions' issued by the RBI to the PMC Bank under Section 35A read wit....
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....give directions and Section 35A permit the Reserve Bank to issue such directions generally or to any banking company in particular, from time to time, as it deems fit and the banking company, as the case may be, shall be bound to comply with such orders. If the RBI is satisfied that it is necessary (a) in the public interest or (aa) in the interest of banking policy or (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company, or (c) to secure the proper management of any banking company generally. Section 56 of the Act, being included in Part V, inserted w.e.f. 01/03/1966, provide that the provisions of the Banking Regulation Act, 1949, notwithstanding anything contained in any other law for the time being in force, shall apply to, or in relation to, co-operative societies, as they apply to, or in relation to, banking companies subject to the specified modifications. The term 'Co-operative bank' is defined to mean a state co-operative bank, a central co-operative bank and a primary co-operative bank, whereas 'multi-State co-operative bank' means ....
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...., from time to time, extend the period. However that total period of moratorium shall not exceed six months. By virtue of sub-section (4) of Section 45, during the period of moratorium or any other time, the Reserve Bank is satisfied that (a) in the public interest; or (b) in the interests of the depositors; or (c) in order to secure the proper management of the banking company, or (d) in the interest of the banking system of the country as a whole,- it is necessary so to do, the Reserve Bank may prepare a scheme (i) for the reconstruction of the banking company, or (ii) for the amalgamation of the banking company with any other banking institution (in this section referred to as "the transferee bank". Sub-section (5) of Section 45 prescribe the matters which shall be contained in the scheme and it include the following:- "(a) the constitution, name and registered office, the capital, assets, powers, rights, interests, authorities and privileges, the liabilities, duties and obligations of the banking company on its reconstruction or, as the case may be, of the transferee bank; (b) in the case of amalgamation of the banking compa....
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....ned in the reconstruction or amalgamation for suggestions and objections, if any, within such period as may be specified for the said purpose and it may make such modifications, if any in the draft scheme, as it may consider necessary in the light of the suggestions and objections received. Sub-section (7) then prescribe that the scheme shall be placed before the Central Government for its sanction, which may be sanctioned without any modification or with such modification as the Central Government may consider necessary and the scheme as sanctioned by the Central Government shall come into force on such date as specified by it on that behalf. It is also permissible for the Central Government to specify different dates for different provisions of the scheme. The consequences for coming into operation of the scheme are also clearly provided in Section 45, as sub-section (8) provide that on coming into operation of the scheme or any provision thereof, it shall be binding on the banking company, or, as the case may be, on the transferee bank and any other banking company concerned in the amalgamation and also on all the members, depositors and other creditors and employees of each ....
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....e Central Government for any order of moratorium or for preparation of the scheme, but we have faintly heard some arguments that the amalgamation scheme framed by the Reserve Bank, to which the Central Government has granted approval, is not in public interest or in the interest of the depositors. In the backdrop of the precarious financial situation in which the PMC Bank found itself, after detection of certain instances of fraud by HDIL and its group companies in September 2019, which resulted in complete erosion of capital and substantial deposit erosion, and the figures placed before us through the affidavit filed by the General Manager of the RBI are startling. The affidavit has stated that upon inspection of PMC Bank conducted by it in 2019, the net-worth and Capital to Risk Assets Ratio (CRAR) had plummeted from positive figures of Rs. 706.20 crore and 12.72% as on 31/03/2018 to a huge negative figures of Rs.(-)5278.21 crore and (-)198.70% with significant deposit erosion of 45.43 per cent as assessed on 31/03/2019. The affidavit has placed before us the financial parameters of PMC Bank between 2019 and 2021, and as on 30/09/2021, the PMC Bank had negative net-worth of INR (....
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.... a large number of co-operative banks and co-operative societies apart from other institutions such as Trusts etc., RBI considered it imperative to take recourse for non-disruptive resolution of PMC Bank rather than a simple liquidation, which would not have been in the interest of the depositors and would have resulted in the depositors only receiving amounts upto Rs.5 lakhs from DICGC. Paragraph 19.14 of the affidavit of the RBI has disclosed the option exercised by the RBI and we reproduce its contents :- "Accordingly, as detailed in the RBI Replies, various options were explored by Respondent No. 2. The options explored by Respondent No. 2/PMC Bank are as follows - a) Capital infusion/merger: Respondent No. 2 consider infusion of fresh capital imperative for revival of PMC Bank. Several attempts were made to rope in the State Government by PMC Bank (with correspondence to the level of Principal Secretary, Government of Maharashtra) in the revival efforts. Several potential options were suggested including acquisition of properties belonging to the HDIL group by the government, acquisition of the branches of PMC Bank in Maharashtra etc. However, the efforts did....
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....as amended, as and when the exigency arose and expanding the role of Reserve Bank of India to act as an agent of the Central Government for implementing the scheme in form of grant of loans by commercial banks and other financial institutions to variety of borrowers, by guaranteeing the loans sanctioned in respect of such unit and the amendment afforded an opportunity to authorise the bank to extend loan facilities to the State financial corporations and other institutions notified by the State Government. As and when the need was felt to further expand the role of RBI, by exercising control over the companies and institutions, which though not treated as banks but accepted deposits from general public or carry on the business, allied to banking, the Act came to be amended. The further amendment to the enactment took place taking into consideration the activities of the non-banking institutions and unincorporated bodies receiving deposits. The Reserve Bank of India has thus emerged as Regulatory Body for the Indian Banking System and Indian currency and it is responsible for control, issue and supply of Indian Rupee and it manages country's main payment system. From the preamble....
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....d to hand over the job of monetary policy making in India to a Monitory Policy Committee which is a six-member panel, comprising of three members from the RBI and three independent members to be selected by the Governor. With an expertise at its hands, into the decisions involving maintaining price stability while focusing upon the objective of growth, the functions to be discharged by the bank involve crucial decisions and this include the decisions to be taken in larger public interest and the framework for which is to be found in the Banking Regulation Act, 1949, which has specifically set out the business of banking companies with the control to be exercised by the Reserve Bank, by empowering it to give directions in the public interest or in the interest of the banking policy, or to prevent the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors or to secure the proper management of any banking company. Similarly the Central Government is also empowered to authorise RBI to issue directions to any banking company to initiate any insolvency resolution process in respect of a default under the provisions of the Insolvency and B....
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....eguard the economy and financial stability of the country. In this regard, the limited role which the Court can exercise in the whole affair was set out as below: "31. The function of the Court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority. It is well settled that a public body invested with statutory powers must take care not to exceed or abuse its power. It must keep within the limits of the authority committed to it. It must act in good faith and it must act reasonably. Courts are not to interfere with economic policy which is the function of experts. It is not the function of the Courts to sit in judgment over matters of economic policy and it must necessarily be left to the expert bodies. In such matters even experts can seriously and doubtlessly differ. Courts cannot be expected to decide them without even the aid of experts. 32. ... ... ... 36....... It is not the concern of this court to find out as to whether actuarial method of accounting or any other method would be feasible or possible to adopt by the companies while carrying out the conditions contained in paragraphs 6 and ....
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.... the Apex Court noted that no scheme of amalgamation can be full-proof and the Court would be entitled to interfere only when it come to the conclusion that the scheme is arbitrary or irrational or has been framed on extraneous consideration and this was so reflected from the aforesaid decision, which recorded thus:- "Coming down to the second question the legal position is fairly settled that no Scheme of Amalgamation can be foolproof and a court would be entitled to interfere only when it comes to the conclusion that either the scheme is arbitrary or irrational or has been framed on some extraneous consideration. Learned Additional Solicitor General, Mr Reddy appearing for the respondents in this context contended that the only enquiry which the court can make is whether the provisions of this scheme are arbitrary and irrational so that it results in no inequality of opportunities amongst employees belonging to the same class. In support of this contention he placed strong reliance on the decision of this Court in the case of Reserve Bank of India v. N.C. Paliwal. In that case the Reserve Bank had 5 different departments which were broadly divided into two groups called ....
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.... an additional amount equal to their balance in the account or Rs. 5,50,000/-whichever is less to the retail depositors, whereas entire remaining amount of deposits after making the aforesaid payments shall come to the retail depositors after ten years from the appointed date. What is most objected to is the classification amongst the class of depositors, as it is urged that the classification between different type of depositors is unreasonable and not based on rational criteria. It is also urged that the depositors are deprived of interest after 31/03/2021 for a period of five years from the appointed ate and rate of interest is reduced to 2.75% p.a., which becomes payable after five years from the appointed date, which deprives the shareholders/depositors of the value of their money and the shareholders are deprived of surplus and reserve, which were created out of profits and available to the shareholders of the PMC Bank. The emphasis of Mr. Lohia is on not permitting the withdrawals of pro-rata amount of the deposits, but permitting flat amount of withdrawals at certain intervals, leading to a situation that small depositors were benefited to the detriment of the larger ....
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....ositors is because of their peculiar characteristic, as retail depositors have deposits in their individual capacity, whereas the institutional depositors are the one, who are not the retail depositors. There is no separate class, as is sought to be canvassed by the Petitioners, being a class of small deposits or big deposits. The rational distinction attempted to be canvassed is not the feature of the scheme and if the Petitioners' contention is to be accepted then small depositors for a value of less than INR 5 lakhs would have to be waited for longer period and this definitely would not have been in the interest of the depositors or in the public interest, as looking at the figure of depositors, who have been settled i.e. approximately 84%, the potential unrest that would have been created because of the larger number of unsatisfied depositors, is taken care of. 71. The decision in the case of Ganesh Bank of Kurundwad Ltd. & Ors. (supra), on which heavy reliance is placed by the counsel for the Petitioners, has clearly highlighted that under Section 45 of the Act, the primary consideration is 'public interest' and there is an underlying object of acting swiftly and decisively....
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.... depositors, as we find that the two classes are separate by the nature of their deposits and satisfying the claim of individual depositors in preference to the institutional depositors, according to us, has a direct nexus with the object of formulating the scheme, being to subserve the public interest and to protect the overall interest of the depositors, while the erstwhile bank is amalgamated with the transferee bank, which is considered to be necessary in public interest and to protect the interest of the depositors, irrespective of their class. 73. Another submission, which we deem necessary to mention just to be rejected, is the submission of Mr. Tulzapurkar about violation of principle of natural justice and his submission that RBI ought to have given a hearing or atleast response to the objections and representations made. In the affidavit filed the Reserve Bank of India, it is categorically stated that RBI placed the draft scheme in public domain on 22/11/2021 and suggestions and the comments were invited by 10/12/2021 as contemplated under sub-section (6) of Section 45. Several suggestions and objections were received and the same were examined and considered and so....
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....o six months and maximum period of twelve months and the Board of the PMC Bank was superseded for a period far in excess of that prescribed under the said provision, we have noted that PMC Bank, being a co-operative bank, was superseded in exercise of power under Section 36AAA read with Section 56 of the BR Act. The provision in form of Section 36AAA applicable to the co-operative bank, permit the RBI to supersede the Board of Directors for a period not exceeding five years, which may be extended from time to time so that the total period shall not exceed five years. Further, clause 10 of Section 36AAA provide that provision contained in Section 36ACA, shall not apply to the co-operative bank and, therefore, the limitation of twelve months of supersession, as contained in the said provision, is not made applicable to the PMC Bank. 75. A common contention largely on behalf of the Petitioners is about rate of interest having been reduced to 2.75% after five years from the appointed date. In this regard the affidavit filed by RBI in Writ Petition No. 5762 of 2022 is perused by us and we have taken note of the precarious situation of the PMC Bank, which had a negative net-worth o....
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....ly higher than the one reported and the Bank's net-worth had turned negative and deposit erosion was significant, RBI imposed All Inclusive Directions on 23/09/2019 initially for a period of six months imposing restrictions on the operations of the bank with a view to preserve the resources while giving PMC Bank an opportunity to revive itself, which would have been in the interest of the depositors. The Administrator was appointed to oversee the affairs of the Bank by superseding the existing Board of Directors and taking into consideration the net-worth gap between the assets and liabilities of the PMC Bank, certain curbs were imposed on the withdrawal limits of the depositors. Exploring various possibilities of infusing capital for revival of the Bank or its merger with a stronger bank vis-a-vis the cancellation of license and liquidation, the expression of interest were invited through public advertisement for investment/equity participation, and upon Unity Bank coming forward, the Central Government sanctioned the scheme of amalgamation on 25/01/2022. Considering weak financial position of PMC Bank and since the RBI is authorised to reduce the rate of interest, all deposits tr....
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....ank as per the scheme, we find a serious effort on part of the RBI to protect the interest of all stakeholders irrespective of their class/category. As per the scheme, the depositors had access to Rs.5 lakhs of their deposits immediately, which enable more than 95% of the depositors to withdraw the entire balance in their respective deposit accounts. Further, with the depositors were permitted to get additional amount of Rs.15 lakhs within first five years, around 99% of retail depositors will be able to withdraw the entire balance in their accounts and rest of the retail depositors will be paid after ten years. As against this, the institutional depositors, who formed a class by themselves, are also protected by the scheme as they had large deposits in PMC Bank and they are also protected from wiping out of their entire deposit amount, which could have resulted into huge losses and systematic damage to the co-operative banking sector and, therefore the institutional depositors were repaid through capital investments, as the scheme has a distinct arrangement for them as on and from the appointed date, 80% of the uninsured deposits outstanding to the credit of each institutional ....
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....o the ceiling of deposit insurance as prescribed in the DICGC Act and the Regulations framed thereunder. The funds available from DICGC to the insured bank are limited to the cover prevalent at the relevant time and though initially the protection was only upto Rs.1 lakh, the limit has been raised to Rs.5 lakhs w.e.f. 04/02/2020 and, therefore, in terms of Section 16 of the Act, DICGC is entitled to offer funds equal only to the insured portion of deposits i.e. all depositors fund upto maximum of Rs.5 lakhs. Section 21 of the Act read with Regulation 22 provide for 'repayment of amount' to the Corporation and the aforesaid provision makes it mandatory for the insured bank or the transferee bank, as the case may be, to repay the amount to the DICGC within such time and in such manner, as may be prescribed. The Petitioners' apprehension that their deposit will be encumbered is unfounded, as the depositors are free to carry on any transactions in their saving accounts, which are now transferred to Unity Bank, as their accounts have been credited with the funds received by Unity Bank from DICGC. A categorical statement is made in the affidavit that pursuant to the said scheme, va....
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....one banking company with any other banking institution is itself provided in the statute in form of Section 45, a provision which exists, as a special one, notwithstanding anything contained in the provisions of the Act itself or any other law or any agreement or instrument for the time being in force, the power being vested in the Reserve Bank to apply to the Central Government for an order of moratorium. Upon such an application being preferred by the RBI, the Central Government, ordered moratorium i.e. restricted operations of the bank, staying the commencement or continuation of all actions and proceedings against the company for a fixed period, in an attempt to provide a resolution to the problem faced by it. The RBI is given complete power to formulate the scheme being a regulatory body possessing the necessary expertise, although what shall be length and width of the scheme is specifically highlighted in sub-section(5) of Section 45 and it is permissible for the RBI to provide for all or any of the matters specifically provided therein. We have noted that the precarious financial situation of the PMC Bank allowed or rather made it imperative for the Reserve Bank to take a....
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....ercised in an emergent and peculiar scenario. When in the larger public interest or in the interest of the depositors or to secure proper management of the banking company, a scheme is to be formulated and ultimately, it is the satisfaction of the Reserve Bank of India that, it is necessary to impose a moratorium staying the commencement or continuation of the business of a particular bank for such period as it deem fit, considering the surrounding circumstances and in this case, we are satisfied that in the wake of the debacle of the PMC Bank with its net-worth was already in the negative and to prevent its annihilation, it was necessary for the RBI, a supervisory body, to step in and take prolific and productive steps to prevent further damage and we find that this is what RBI did precisely. Since Section 45 of the BR Act, 1949 is a non obstante provision, it operates independently and has its effect over all other provisions in the Act or any law for the time being in force, we do not find any legal or procedural impropriety on part of the RBI or the Central Government in approving the scheme of the amalgamation. On a consideration of the merit in the objection about the dist....
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....have been deprived of their money, had the PMC Bank put under liquidation, and in our view, unless and until it is pointed out that the decision taken by RBI and Central Government is arbitrary or smack of mala fides, we refrain ourselves from exercising the power of judicial review. 82. As far as arguments advanced on behalf of the Petitioner in Writ Petition 7753 of 2022, which is a federation of various Credit Co-operative Societies, we find various Credit Co-Operative Societies hold deposits in the bank, whose investors are individuals. The depositors of the Credit Co-Operative Societies have deposited their money in respective Credit Co-Operative Society, which in turn invested/deposited it in the PMC Bank as a group of persons. Had they invested in individual capacities, they would have been categorised as 'retail depositors', but since they have deposited through Credit Co-Operative Societies, which is an association of persons, they lose their identity as 'retail depositors' and are considered as 'institutional depositors'. Mr. Warunjikar has argued that the Petitioner has 300 members and some of the members are shareholders and institutional depositors and citing an ....