RESERVE BANK OF INDIA Vs. UNION OF INDIA

JUDGEMENT

(1.) The short question that has arisen in this Petition is whether the impugned Order dated 14.9.2004, which reviewed and altered the Order dated 13.9.2002 dismissing the Appeal filed by the Respondent is legally proper, especially as to existence of any Review jurisdiction.

(2.) The facts of the case are that in November, 1996 the Respondent had filed a Proposal for grant of a licence to it to commence Banking business in terms of Section 22 of the Banking Regulation Act, 1949 (hereinafter referred as "the Act"). In January, 1999 the Petitioner, namely, Reserve Bank of India, conveyed its approval in principle for the promotion of a local area Bank on sundry Terms and Conditions. In May, 2000 the Respondent submitted a Compliance Report to the effect that it had a capital of Rs.511 lacs on that date out of which Rs.195 lacs was in Fixed Deposit and Rs.316 lacs in Current Account. Relying on these documents filed by the Respondent Bank a Licence was granted to it on 28.7.2000 under Section 22 of the Act to commence and carry on Banking business. Thereafter, certain irregularities and violations were noticed during an on-site supervisory visit which were duly intimated to the Respondent Bank. However, according to the Petitioner Bank, requisite rectifications were not carried out. A second on-site quarterly supervisory monitoring took place in April, 2001 in the course of which several irregularities were again detected and notified to the Respondent Bank in June, 2001. Keeping the gravity and severity of these deficiencies and discrepancies in view, including lack of minimum prescribed capital, a Notice to Show Cause was issued on 4.7.2001. The Respondent Bank did not restore the original minimum capital of Rs.500 lacs which was an essential requirement for the grant of the licence. In the course of arguments learned counsel for the Respondent Bank has submitted that the shortfall can be made good if a fortnight's time is allowed to it. In September, 2001 in exercise of powers conferred under Section 35A of the Act the Petitioner Bank prohibited the Respondent Bank from granting any loans and advances, making any investment or incurring liability including borrowal of funds and acceptance of fresh deposit or removal of existing deposit etc. without the prior approval of the Reserve Bank. On 13.11.2001 an oral hearing was granted to the Respondent Bank in the course of which it admitted that lapses had occurred and that rectificatory steps will be taken by 22.12.2001. Time was extended upto 3.1.2002 but the irregularities were not removed. In these circumstances, by Order dated 16.1.2002, in exercise of powers conferred under Section 22 of the Act, the licence granted to the Respondent Bank was cancelled.

(3.) The Respondent Bank filed a statutory Appeal under Section 22(5) of the Act on 12.2.2002, which came to be dismissed on 13.9.2002. Thereupon, the Respondent Bank filed a Writ Petition in the High Court of Rajasthan in October, 2002 during the pendency of which the First Review Petition filed by the Respondent was dismissed by the Appellate Authority on 23.12.2003. One of the grounds for dismissal was that the Appellate Authority did not possess powers to Review a previous Order. Undaunted, a Second Review Petition was filed on 5.4.2004 which was allowed by an officer different to the one who had decided the Appeal. The Writ filed by the Respondent Bank in the High Court of Rajasthan was disposed of on 4.4.2005 stating - "During the pendency of the writ petition, final order has been passed by the appellate authority on 14.9.2004. In view of this fact, the writ petition stands disposed of".