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Synopsis

A division bench of the Bombay High Court comprising Justice GS Patel and Justice Neela Gokhale has clarified that it has not stayed the 2016 RBI Circular of Frauds Classification and Reporting by Commercial Banks and Select FIs. 

Today, during the mentioning, when a lawyer appearing for the State Bank of India mentioned a matter before the court, the bench said, "Don't go by media reports. We cannot and we have not stayed the RBI circular". "The Supreme Court has also not stayed," Justice Patel said. 

The division bench told the lawyer to check the order which was in the process of being uploaded. The clarification was made by the high court in the order which was uploaded by the high court today on the website.

"We have not stayed the operation of the Master Circular (which has not been struck down by the Supreme Court decision). The Supreme Court has only read certain requirements into the Master Circular. It follows, therefore, that actions under the Master Circular consistent with the Supreme Court judgment and decision may undoubtedly proceed," the high court clarified. 

The clarification was made by the high court after several media outlets published news articles yesterday that the high court had stayed the effect of the 2016 circulars.

The high court was hearing several pleas including a plea filed by the founder of Jet Airways, Naresh Goyal, that had challenged the RBI circular on load frauds.

Two essential provisions were challenged through the pleas. Firstly, the circular allowed the bank to classify an account as fraud and report the Central Repository of Information on the Large Credits platform to alert other banks. Secondly, if a bank straightaway classifies an account as fraud then it needs to report it to RBI and the investigating agency in 21 days.

The circular was challenged on the ground that the account holders were not given an opportunity of being heard and that there was a violation of natural justice. It further claimed that the account holders were not being given copies of the material relied on by the banks to declare an account as a fraud account.

The high court in its clarification recorded that,

"The Supreme Court decision clearly states that no hearing is necessary before filing of FIRs, even if the charge is of fraud accounts. In other words, the investigating agencies are at liberty to file and proceed with FIRs without reference to any findings by the bank under the Master Circular in question. Equally, all remedies available in law to private parties remain unaffected by this order and may be pursued," the court recorded.

The high court also clarified that the CBI can continue the proceedings which are ongoing and the high court's order is not be construed as interference.

"We clarify that where the Central Bureau of Investigation (“CBI”) is involved and there are criminal proceedings that are ongoing, our order is not to be construed as interfering with those proceedings. Those will continue on merits. This is, of course, on the basis that the CBI proceedings are based on FIRs which are dehors the Master Circular," the court noted

The case will now be taken up by the high court on 7th and 8th of September, 2023.

Case title: SS Hemani vs RBI