RBI does not have a fiduciary relationship with the banks for which it is the regulatory authority
Hearing 11 petitions transferred from the High Courts of Bombay and Delhi, the Supreme Court has upheld the order of the Central Information Commission (CIC) directing RBI to disclose information regarding action taken regarding irregularities of Banks, loan defaulters amidst many other areas etc. Earlier On 30.5.2015, the Apex Court had allowed the transfer petitions filed by RBI seeking transfer of various writ petitions filed by it in the High Courts of Delhi and Bombay.
The RTI applicants, through different applications, sought primarily the following information from the RBI:
Transfer Case No.91 of 2015
1) Procedure, Rules and Regulations of Inspection being carried out on Banks i.e. Reports of inspection of public sector Banks / Cooperative Banks / Private banks etc. conducted by the RBI on receipt of complaints of irregularities against them etc. The applicants also sought for the correspondence conducted with them in this regard and asked for the copy of the final reports of RBI in such cases; the findings of the RBI and the fines imposed by it, if any. Further, reports on all co-operative banks gone on liquidation and action taken against all Directors and Managers for recovery of public funds and powers utilized by RBI and analysis and procedure adopted was sought.
Transfer Case No. 92 of 2015
2) Details of violations committed by some banks like SBI, ICICI Bank Ltd, Bank of Baroda, Dena Bank, HSBC Bank etc. who were issued letter of displeasure for violating FEMA guidelines for opening of accounts where as some other banks were even fined Rupees one crore for such violations.
3) Copy of the Warning or ‘Advisory Note’ issued twice to the ICICI bank and the reasons recorded therein
Transfer Case No. 93 of 2015A
4) Copies of inspection reports of Apex Co-operative Banks of various States/Mumbai DCCB from 2005 till date
5) Provide confirmed/draft minutes of meetings of Governing Board/Board of Directors/Committee of Directors of NABARD
Transfer Case No. 94 of 2015
6) What is RBI doing about uploading the entire list of Bank defaulters on the bank’s website? When will it be done? Why is it not done?
Transfer Case No.95 of 2015
7) Complete and detailed information including related documents/correspondence/file noting etc of RBI on imposing fines on some banks for violating rules like also referred in enclosed news clipping
Transfer Case No. 96 of 2015
8) Provide the give bank wise breakup of the MTM Losses the total mark to market losses on account of currency derivatives is to the tune of more than Rs. 32,000 crores.
9) Whether the issue of derivative losses to Indian exporters was discussed in any of the meetings of Governor/Deputy Governor or senior official of the Reserve Bank of India? If so please furnish the minutes of the meeting where the said issue was discussed. Any other Action Taken Reports by RBI in this regard.
Transfer Case No. 97 of 2015
10) The report made by NABARD regarding 86 N.P.A. Accounts for Rs. 3806.95 crore of Maharashtra State Co-operative Bank Ltd. (if any information of my application is not available in your Office/Department/ Division/Branch, transfer this application to the concerned Office/Department/ Division/Branch and convey me accordingly as per the provision of Section 6 (3) of Right to Information Act, 2005.
Transfer Case No. 98 of 2015
11) What contraventions and violations were made by SCB in respect of RBI instructions on derivatives for which RBI has imposed penalty of INR 10 lakhs on SCB in exercise of its powers vested under Section 47(1)(b) of Banking Regulation Act, 1949 and as stated in the RBI press release dated April 26, 2011 issued by Department of Communications RBI
12) the details/copies of the findings recordings, enquiry reports, directive orders file notings and/or any information on the investigations conducted by RBI against SCB in respect of non-compliance by SCB thereby establishing violations by SCBV in respect of non compliances of RBI instructions on derivatives.
Transfer Case No. 99 of 2015
13) What action has the department taken against scams/financial irregularities of United Mercantile Cooperative Bank Ltd as mentioned in the enclosed published news. Provide day to day progress report of the action taken.
Transfer Case No. 100 of 2015
14) Under which Grade The George Town Co-operative Bank Ltd., Chennai, has been categorised as on 31.12.2006
Transfer Case No. 101 of 2015
15) Copies of complaints received by RBI against illegal working of the Deendayal Nagri Shakari Bank Ltd, including violations of the Standing Orders of RBI as well as the provisions under Section 295 of the Companies Act, 1956.
16) Finding of the enquiry made by RBI, actions proposed and taken against the bank and its officials-official notings, decisions, and final orders passed and issued.
Contentions made by RBI
The Counsel for the RBI Mr. T.R. Andhyarujina argued that the information is exempt from disclosure under Section 8(1) (a), Section 8(1) (d) and Section 8(1) (e) of the Right to Information Act, 2005.
1. The RBI in exercise of powers of powers conferred under Section 35 of the Banking Regulation Act, 1949 conducts inspection of the banks in the country.
2. The RBI in its capacity as the regulator and supervisor of the banking system of the country has access to various information collected and kept by the banks. The inspecting team and the officers carry out inspections of different banks and much of the information accessed by the inspecting officers of RBI would be confidential. Referring to Section 28 of the Banking Regulation Act, it was submitted that the RBI in the public interest may publish the information obtained by it, in a consolidated form but not otherwise.
3. The role of RBI is to safeguard the economic and financial stability of the country and it has large contingent of expert advisors relating to matters deciding the economy of the entire country and nobody can doubt the bona fide of the bank. Reference was made to the judgment in:-
a. Peerless General Finance and Investment Co. Limited and Another Vs. Reserve Bank of India, 1992 Vol. 2 SCC 343 – The Courts are not to interfere with the economic policy which is a function of the experts.
b. B. Suryanarayana Vs. N. 1453 The Kolluru Parvathi Co-Op. Bank Ltd., 1986 AIR (AP) 244, It was contended that the Court will be highly chary to enter into and interfere with the decision of Reserve Bank of India.
4. As per the RBI policy, the reports of the annual financial inspection, scrutiny of all banks/ financial institutions are confidential document cannot be disclosed. The annual financial inspection/ scrutiny report reflect the supervisor’s critical assessment of banks and financial institutions and their functions. Disclosure of these scrutiny and information would create misunderstanding/ misinterpretation in the minds of the public. This may prove significantly counter productive.
5. The disclosure of information sought for by the applicant would not serve the public interest as it will give adverse impact in public confidence on the bank. This has serious implication for financial stability which rests on public confidence. This will also adversely affect the economic interest of the State and would not serve the larger public interest.
6. Disclosure of information would prejudicially affect the economic interest of the State. Further, if the information 28 sought for is sensitive from the point of adverse market reaction leading to systematic crisis for financial stability.
7. The statutory provisions of confidentiality in the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934 and the Credit Information Companies (Regulation) Act, 2005 cannot be repealed or overruled by the Right to Information Act, 2005. Specific provisions referred to were:-
a) U/s 34A of RBI Act, 1934, production of documents of confidential nature cannot be compelled.
b) U/s 35 (5) of RBI Act, 1934, the RBI may carry out inspection of any bank but its report can only be disclosed if the Central Government orders the publishing of the report of the RBI when it appears necessary
c) U/s Section 45E of the RBI Act, 1934, disclosure of any information relating to credit information submitted by banking company is confidential.
d) U/s 45E(3) of RBI Act, 1934 notwithstanding anything contained in any law no court, tribunal or authority can compel the RBI to give information relating to credit information etc.
e) U/s 17(4) of the Credit Information Companies (Regulation) Act, 2005, credit information received by the credit information company cannot be disclosed to any person.
f) U/s 20 of the Credit Information Companies (Regulation) Act, 2005, the credit information company has to adopt privacy principles
g) U/s Section 22 The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in the Official Secrets Act, 1923 (19 of 1923), and any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in the Official Secrets Act, 1923 (19 of 1923), and any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. of the Credit Information Companies (Regulation) Act, 2005, there cannot be unauthorized access to credit information.
h) Other statutory provisions of privacy in:-
· Section 44 of State Bank of India Act, 1955,
· Section 52, State Bank of India (Subsidiary Banks) Act, 1959,
· Section 13 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970.
8. Section 22 The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in the Official Secrets Act, 1923 (19 of 1923), and any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in the Official Secrets Act, 1923 (19 of 1923), and any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. of the Right to Information Act, 2005 cannot have the effect of nullifying and repealing earlier statutes in relation to confidentiality. Reliance was placed on:-
a)Raghunath vs. state of Karnataka 1992(1) SCC 335 at p.348 pages 112 and 114
b) ICICI Bank vs. SIDCO Leather etc., 2006(10) SCC 452 at p. 466, paras 36 & 37
c) Central Bank vs. Kerala, 2009 (4) SCC 94 at p. 132-133 para 104
d) AG Varadharajalu vs. Tamil Nadu, 1998 (4) SCC 231 at p. 236 para 16.
9. Individual Commissioners of the Information have disregarded the decision of the Full Bench and directed disclosure of information which was per incurium.
Arguments on behalf of the applicants
The counsel for the RTI applicant referred to the following cases :-
1. Constitution Bench judgment in the case of State of U.P. vs. Raj Narain, AIR 1975 SC 865 –“The people of this country have a right to know every public act, everything that is done in a public way, by their functionaries. The right to know, which is derived from the concept of freedom of speech, though not absolute, is a factor which should make one wary, when secrecy is claimed for transactions which can, at any rate, have no repercussion on public security. To cover with veil of secrecy, the common routine business is not in the interest of public….”
2. In S.P. Gupta v. President of India and Ors., AIR 1982 SC 149, it was held that “ …..if secrecy were to be observed in the functioning of Government and the processes of Government were to be kept hidden from public scrutiny, it would tend to promote and encourage oppression, corruption and misuse or abuse of authority, for it would all be shrouded in the veil of secrecy without any public accountability …”
3. In Union of India vs. Association for Democratic Reforms, AIR 2002 SC 2112, the Court had held that “The right to get information in a democracy is recognized all throughout and is a natural right flowing from the concept of democracy ….”
It was argued that the RTI Act, 2005, as noted in its very preamble, does not create any new right but only provides machinery to effectuate the fundamental right to information. The institution of the CIC and the SICs are part of that machinery.
View of the Supreme Court
The bench of Justice M.Y. Eqbal and Justice C. Nagappan of the Apex Court examined whether all the information sought for under the RTI Act, 2005 can be denied by the RBI and other Banks to the public at large on the ground of economic interest, commercial confidence and fiduciary relationship with other Bank and held that:-
1. The RBI does not place itself in a fiduciary relationship with the Financial institutions (though, in word it puts itself to be in that position) because, the reports of the inspections, statements of the bank, information related to the business obtained by the RBI are not under the pretext of confidence or trust. In this case neither the RBI nor the Banks act in the interest of each other. By attaching an additional “fiduciary” label to the statutory duty, the Regulatory authorities have intentionally or unintentionally created an in terrorem effect.
2. RBI is supposed to uphold public interest and not the interest of individual banks. RBI has no legal duty to maximize the benefit of any public sector or private sector bank, and thus there is no relationship of ‘trust’ between them. RBI has a statutory duty to uphold the interest of the public at large, the depositors, the country’s economy and the banking sector. Thus, RBI ought to act with transparency and not hide information that might embarrass individual banks.
3. The baseless and unsubstantiated argument of the RBI that the disclosure would hurt the economic interest of the country is totally misconceived. RBI’s argument that if people, who are sovereign, are made aware of the irregularities being committed by the banks then the country’s economic security would be endangered, is not only absurd but is equally misconceived and baseless
4. The exemption contained in Section 8(1)(e) Notwithstanding anything contained in this Act, there shall be no obligation to give any citizen, information available to a person in his fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information; applies to exceptional cases and only with regard to certain pieces of information, for which disclosure is unwarranted or undesirable. If information is available with a regulatory agency not in fiduciary relationship, there is no reason to withhold the disclosure of the same. However, where information is required by mandate of law to be provided to an authority, it cannot be said that such information is being provided in a fiduciary relationship. As in the instant case, the Financial institutions have an obligation to provide all the information to the RBI and such an information shared under an obligation/ duty cannot be considered to come under the 57 purview of being shared in fiduciary relationship. One of the main characteristic of a Fiduciary relationship is “Trust and Confidence”. Something that RBI and the Banks lack between them.
5. It had long since come to our attention that the Public Information Officers (PIO) under the guise of one of the exceptions given under Section 8 of RTI Act, have evaded the general public from getting their hands on the rightful information that they are entitled to.
6. The RBI and the Banks have sidestepped the General public’s demand to give the requisite information on the pretext of “Fiduciary relationship” and “Economic Interest”. This attitude of the RBI will only attract more suspicion and disbelief in them. RBI as a regulatory authority should work to make the Banks accountable to their actions.
7. The Legislature’s intent was to make available to the general public such information which had been obtained by the public authorities from the private body. Had it been the case where only information related to public authorities was to be provided, the Legislature would not have included the word “private body”. As in this case, the RBI is liable to provide information regarding inspection report and other documents to the general public.
8. The facts reveal that Banks are trying to cover up their underhand actions, they are even more liable to be subjected to public scrutiny. Financial Institutions have resorted to such acts which are neither clean nor transparent. The RBI in association with them has been trying to cover up their acts from public scrutiny. It is the responsibility of the RBI to take rigid action against those Banks which have been practicing disreputable business practices.
9. The submission that the disclosure of information sought for will also go against the economic interest of the nation is wholly misconceived. Economic interest of a nation in most common parlance are the goals which a nation wants to attain to fulfil its national objectives. It is the part of our national interest, meaning thereby national interest can’t be seen with the spectacles (glasses) devoid of economic interest. It includes in its ambit a wide range of economic transactions or economic activities necessary and beneficial to attain the goals of a nation, which definitely includes as an objective economic empowerment of its citizens. It has been recognized and understood without any doubt now that one of the tool to attain this goal is to make information available to people. Because an informed citizen has the capacity to reasoned action and also to evaluate the actions of the legislature and executives, which is very important in a participative democracy and this will serve the nation’s interest better which as stated above also includes its economic interests.
10. Disclosure of information about currency or exchange rates, interest rates, taxes, the regulation or supervision of banking, insurance and other financial institutions, proposals for expenditure or borrowing and foreign investment could in some cases harm the national economy, particularly if released prematurely. However, lower level economic and financial information, like contracts and departmental budgets should not be withheld under this exemption. This makes it necessary to think when or at what stage an information is to be provided i.e., the appropriate time of providing the information which will depend on nature of information sought for and the consequences it will lead to after coming in public domain.
11. In Mardia Chemicals Limited vs. Union of India, (2004) 4 SCC 311, it was held that “….. though the transaction may have a character of a private contract yet the question of great importance behind such transactions as a whole having far reaching effect on the economy of the country cannot be ignored ….”
The SC ruled that the Central Information Commissioner (CIC) has passed the impugned orders giving valid reasons and the said orders, therefore, need no interference by this Court.
Impact of the Judgment
1. The banking and financial sector has been habitual of working in an opaque system. This judgment would shake the foundations of the structure and force adoption of new way of working.
2. The rising NPAs and scams have created doubts about the strength of banking industry as a whole. Hopefully, more disclosure would clear the maze and repose confidence in the system. The sector is likely to face the gaze of increased public scrutiny.
3. The judgment has defined the relationship between RBI and the banks / financial institutions. There would be increased pressure on the RBI to uphold public interest and not the interest of individual banks. The expectation that the RBI ought to act with transparency and not hide information that might embarrass individual banks would see a lot of information about private banks coming in public domain.
4. The view that the objective of economic interest of a nation includes the economic empowerment of its citizens would open new vistas for disclosure. The Court has ruled that one of the tool to attain this goal is to make information available to people as an informed citizen has the capacity to evaluate the actions of the legislature and executives, which is very important in a participative democracy which includes its economic interests.
5. The Court has pointed out that if the information is available with a regulatory agency not in fiduciary relationship, it should be disclosed. Further, the court has held that when the information is required by mandate of law to be provided to an authority, it cannot be said that such information is being provided in a fiduciary relationship. This line of argument appear to be FLAWED and can lead to difficulties if extended to other areas. By this logic, all the Income Tax returns would be liable to be disclosed. Same would also be the case in other areas where information is supplied under legal obligation like application for passport, application for PAN No. etc.
For a copy of the Apex Court Judgment, please click the link - http://supremecourtofindia.nic.in/FileServer/2015-12-16_1450252953.pdf
For a copy of the CIC order in case of Jayantilal M Mistry, please click the link below.
RTI Citation : RTIFI/2015/CIC/1482
Click here to view original RTI order of Court / Information Commission