Bombay HC Suspends RBI Order on Rupee Co-op Bank Licence up to 17th October
Moneylife Digital Team 23 September 2022
The Bombay High Court (HC) has suspended the operation of the Reserve Bank of India (RBI) order cancelling the banking licence of the 110-year old Rupee Co-op Bank Ltd, which was to come into effect from 22nd September. On the day on which the Bank was to cease operations, the HC has offered last minute relief to investors and suspended the RBI order till next month.
The HC said that “pending appeal before the appellate authority, operation of the 8 August 2022 order shall remain suspended and the appellate authority shall dispose of the appeal positively on 17th October in accordance with law.”
A single-judge bench of justice Sandeep K Shinde on Thursday passed an order in a plea by the Bank and Rupee Sangharsh Samiti, an association of depositors. The petitioners said the impugned order was challenged before the appellate authority, department of financial service (banking division) ministry of finance.
The court order by judge Sandeep K Shinde stated, “Pending appeal before the appellate authority-Respondent No.2 (RBI), operation of the impugned order dated August 8, 2022 shall remain suspended. The appellate authority shall dispose of the appeal positively on October 17, 2022 in accordance with law. It is clarified that this court has not expressed any opinion either on merits and pleas of bank and respondent are kept open.”
The appellate authority, through its 19th September order, had found no reason to interfere with the impugned RBI order and, thus, the prayer for interim relief was declined. The said order was then challenged by the Bank and Rupee Sanghash Samiti.
The HC in its order observed that RBI recorded its satisfaction stating that, though the Bank was put under all inclusive directions in February 2013, and had ample time and opportunity for its revival, the Bank’s financials continued to be precarious. The merger proposals of other urban cooperative banks either did not materialise or were found not acceptable by the DICGC (Deposit Insurance and Credit Guarantee Corporation) or viable; the task force for cooperative Urban Banks (TAFCUB) recommended for cancellation of licence of the Bank.
Earlier RBI had argued that the gross non-performing assets (NPAs) of the Bank were as high as 98.44% as on 31 March 2021. The erosion in the deposit assessed, as on 31 March 2021 was 41.49%; whereas net worth was Rs537.97 crore. Thus, the banking regulator concluded that efforts made by the Bank were not sufficient to justify continuation of its operation.
The HC took the view that it is not the function of the court “to sit in judgement over matters of economic policy and it must necessarily be left to the expert bodies, equally applies herein.”
The HC further observed that, in any case, RBI, before cancelling the licence, had examined revival and merger proposals. Justice Shinde said “I am not inclined to interfere with the 8th August order on merits and that is left open for appellate authority to examine in appeal.”
Senior advocate Venkatesh Dhond, counsel for RBI, justified the RBI order and said that there was 85.93% deposit erosion as on 31st March and gross NPAs of the Bank were at Rs285.42 crore and there was no improvement in financial position even after nine years from the imposition of operational instructions. If the petitioner is allowed to carry on its business any further, it would adversely affect the public interest, RBI argued.
It is also being argued that the single-judge bench does not have power to decide plea against the impugned order as per HC Rules and same may lie before a division bench comprising two judges.
Advocate Pratap Patil for the Bank contended that the appellate authority has not recorded its independent finding while declining interim relief and simply upheld the RBI order. He added that the proposal of the group of investors to convert the cooperative bank into a small finance bank (SFB) with infusion of capital has not been considered by the banking regulator while passing the  impugned order.
The HC bench held, “In the interest of justice, if the operation of RBI’s order is not suspended, until the disposal of the statutory appeal, the appeal itself would be rendered infructuous at this stage. I deem it appropriate to suspend the August 8 order passed by the RBI till the conclusion of Bank’s appeal pending before the Appellate Authority.”
Administrator of the Rupee Co-operative Bank (RCB) Sudhir Pandit said, “We are happy with the decision of Bombay High Court. Though it is not the ultimate solution, we have gotten a breathing time to further strengthen our efforts to protect the interest of depositors, employees and banks. We are hopeful of positive developments in days to come ”
It may be recalled that the Bank had submitted various options for resolution of the Bank which include an exploratory proposal for merger. The administrator of the Bank, Sudhir Pandit, had said last year that RBI had given an undertaking in the Bombay High Court to take an appropriate decision before 31 December 2022 with respect to the resolution of the Bank.
Saraswat Cooperative Bank, which had submitted its proposal in January 2022, had subsequently raised queries about the loss of business it would face as around Rs700 crore has been paid to RCB account holders under the directive of the DICGC.
When Saraswat Cooperative Bank submitted its proposal, DICGC had directed RCB to start payment of deposits up to Rs5 lakh into accounts held then in Bank of Baroda. The Corporation had asked RCB to collect willingness forms from account-holders. Subsequently, 64,024 people had applied and the Corporation sanctioned payouts worth Rs700 crore.
Interestingly, RBI had given in-principle approval to the merger proposal 45 days after it was submitted. But when .the payout was given before the in-principle approval, Saraswat Cooperative Bank had raised questions about the viability of the merger in May 2022.
The board of administrators of  the Bank led by Mr Pandit had been trying to revive the troubled Bank or merge it with a stronger bank for a while. Many proposals were received—from Maharashtra State Cooperative Bank, Mehsana Cooperative Bank and others.
In December 2022, Mr Pandit said investors have approached the Bank and a multi-state schedule cooperative bank has submitted a preliminary proposal for a merger for approval to RBI. RBI had at that time  invoked provisions of Section 18A (7) of the DICGC Amendment Act, 2021, and advised DICGC to defer the refund of deposits up to Rs5 lakh for another 90 months, he said. 
The Bank has recovered a total Rs326.49 crore, earned operating profit aggregating Rs70.82 crore during the past five years and disbursed Rs376.95 crore to 95,115 depositors under hardship withdrawal, according to the note shared by Mr Pandit in December 2022.
There was a run on this Bank sometime in 2002 and the board of the Bank was dismissed. It was put under an administrator. According to some banking professionals who were advising the administrators, they were appalled that no proper records were available and the Bank was unable to prepare its financial statements. The Bank ought to have been put under moratorium at that time itself. 
After five years under the 'supervision' of these administrators, in 2007, fresh elections were held for the board of directors and many who were responsible to get the Bank into trouble in the first place were re-elected!
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