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Synopsis

The Bombay High Court has recently rejected a petition filed by the superseded board challenging the Reserve Bank of India’s (RBI) decision to supersede the board. 

A division bench of the high court comprising Justice GS Kulkarni and Justice Fidosh Pooniwalla was hearing a petition filed by the former Chairman of the bank, Sandeep Ghandat. 

In May 2021, the RBI imposed supervisory directions on the bank, following which the bank constituted a board of management as per the RBI's directions.

Later, the RBI appointed an additional director on the board for a period of two years as an observer. In September 2022, the RBI imposed restrictions on fresh loans ranging from ₹50 lakh to ₹65 crore. Subsequently, in November 2023, the RBI superseded the bank's board. 

The petitioners contended that despite complying with all directives issued by the RBI, the board was superseded without adhering to the principles of natural justice. 

The bench, in its judgment, observed that the principles of natural justice cannot be read into Section 36AAA of the Banking Regulation Act.

“Section 36AAA, which immediately follows Section 36AA, does not provide for any such opportunity of hearing before any order is passed by the RBI. In our view, therefore, this clearly shows that the intention of the Parliament is not to include the principles of natural justice in Section 36AAA. In other words, there is a clear mandate to the contrary in the statute. Looking at it in another way it can also be said that the statute excludes by necessary implication the principles of natural justice from Section 36AAA. In our view, for this reason the principles of natural justice cannot be read into Section 36AAA,” the judgement reads.

The high court in its judgement also observed that “In our view, considering the circumstances in which the power under Section 36AAA has to be exercised, if a Show Cause Notice or hearing is given, then it would lead to delay causing further deterioration in the affairs of the Bank and further mismanagement thereby further prejudicing the interests of the Bank and its depositors. This would have the effect of defeating the purposes for which the said power is conferred on the Reserve Bank in Section 36AAA,” the judgement states.

Mr. Atul Rajadhyaksha, Sr. Advocate with Mr. Uttam Dubey, Mr. Abhishek Karnik i/b. Mr. Bhushan Bankar, for the Petitioners.

Mr. Venkatesh Dhond, Sr. Advocate with Mr. Rohan Kelkar, Mr. Prasad Shenoy, Mr. Parag Sharma, Ms. Aditi Pathak, Ms. Kirti Ojha, Mr. Vijay Salokhe, Ms. Megha More, Mr. Ankit Upadhyay, Ms. Saloni Chordia i/b. BLAC Co., for Respondent No.1- RBI.

Mr. Naushad Engineer, Sr. Advocate with Mr. Viraj Parikh and Mr. Omkar Kelkar, for Respondent Nos.2, 3 and 5.

Smt. Uma Palsuledesai, AGP for the Respondent-State.

Case title: Shri Sandeep S. Ghandat & Others vs RBI