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RBI: Under the Hammer

RBI: Under the Hammer
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Above: The SC bench of Justices L Nageswara Rao and MR Shah criticised the RBI’s new disclosure policy and said it must reveal information sought under the RTI/Photo: Anil Shakya

Despite the apex court’s judgment giving a last opportunity to the Reserve Bank of India to disclose information on wilful defaulters, it has not relented due to confidentiality issues   

By Venkatasubramanian

The irony can’t be missed. Even as the Supreme Court administratively fights off demands for transparency over probing allegations of sexual harassment against Chief Justice Ranjan Gogoi, its judicial wing has acted differently. It has given one last opportunity to the RBI to amend its disclosure policy in order to lift the veil on corporate wilful defaulters.

The absence of a vibrant regulatory regime, say observers, has allowed economic offenders and wilful defaulters to fleece banks and leave the country in recent times. As depositors’ savings are the source of funds being lent out to borrowers by banks, it is legitimate to expect that they disclose how they suffer losses because of bad loans and non-performing assets.

The RBI carries out inspections of banks and financial institutions (FIs) on a regular basis. The inspection reports prepared by it contain a wide range of information which, the RBI claims, is collected in a fiduciary capacity. In 1994, the RBI put in place a scheme to collect details about borrowers of banks and FIs with outstanding loans aggregating Rs 1 crore and above which are classified as “doubtful” or “loss of where suits are filed, as on March 31 and September 30 each year”.

In February 1999, the RBI introduced a scheme for collection and dissemination of information on cases of wilful default of borrowers with an outstanding balance of Rs 25 lakh and above. The RBI disseminates a list of such “doubtful” and “loss” borrowed accounts of Rs 1 crore and above on a half-yearly basis to banks and FIs for their confidential use. The list of non-suit-filed accounts of wilful defaulters of Rs 25 lakh and above is also disseminated on a quarterly basis to banks and FIs for their confidential use.

The Supreme Court in 2015 was confronted with the question of whether the RTI Act overrides various provisions of special statutes which confer confidentiality on the information obtained by the RBI. Such statutory provisions exist in the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934, and the Credit Information Companies (Regulation) Act, 2005.

Under the Banking Regulation Act, 1949, the RBI has a right to obtain information from banks under Section 27. But, under Section 34A, production of documents of a confidential nature cannot be compelled. Under Section 35(5), the RBI may carry out inspection of any bank, but its report can only be disclosed if the central government orders it to do so.

Under Section 45E of the RBI Act, 1934, disclosure of any information relating to credit information submitted by a banking company is confidential and under Section 45E(3), notwithstanding anything contained in any law, no court, tribunal or authority can compel the RBI to give information relating to credit information, etc.

Under Section 17(4) of the Credit Information Companies (Regulation) Act, 2005, credit information received by the credit information company cannot be disclosed to any person. Under Section 20, such a company has to ad­opt privacy principles and under Section 22, there cannot be unauthorised access to credit information.

The Credit Information Companies Act, 2005, was brought into force after the RTI Act, 2005, was notified. The RBI, therefore, contended that the RTI Act cannot override credit information sought by any person in contradiction of the statutory provisions for confidentiality. This, the RBI claimed, was in addition to other statutory provisions of privacy in Section 44 of the State Bank of India Act, 1955, Section 52 of the State Bank of India (Subsidiary Banks) Act, 1959 and Section 13 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.

The RBI cited Sections 8(1)(a) (d) and (e) of the RTI Act, 2005, to contend that there is no obligation to give any information which prejudiciously affects the economic interests of the states, or the competitive position of the banks and if such information is received in a fiduciary capacity.

On April 26, the Supreme Court bench of Justices L Nageswara Rao and MR Shah held that the RBI was duty-bound to furnish all information relating to inspection reports and other material, apart from information which has a bearing on the security of the State or relations with neighbouring countries. The Court was dealing with challenges to the RBI’s new disclosure policy, which was uploaded on its website on April 12. The new policy which replaced the old one, dated November 30, 2016, directed various departments not to disclose information that was directed to be given by the Supreme Court’s judgment on December 16, 2015, in Reserve Bank of India vs Jayantilal N Mistry. The November 30, 2016, Disclosure Policy directed public information officers not to disclose virtually all kinds of information.

In the 2015 judgment, the Court dealt with the question of whether the information sought under the Right to Information Act, 2005, could be denied by the RBI and other banks on the grounds of economic interest, commercial confidence, fiduciary relationship or public interest. The bench of Justices MY Eqbal and C Nagappan had held in that case that the RTI Act overrides all earlier laws in order to achieve its objective and the only exceptions to access to information were those which were contained in Section 8 of the RTI Act.

The Supreme Court held that there was no fiduciary relationship between the RBI and the financial institutions and by attaching an additional “fiduciary” label to the statutory duty, regulatory authorities had intentionally or unintentionally created an in terrorem effect (In terrorem is a legal threat given in the hope of compelling someone to act without resorting to a lawsuit or criminal prosecution.) The Court further emphasised that the RBI has a statutory duty to uphold the interests of the public at large, the depositors, the country’s economy and the banking sector. The RBI’s submission that the disclosure would hurt the economic interests of the country was found to be totally misconceived. Interpreting Section 2(f) of the RBI Act, the Supreme Court held in 2015 that the intent of the legislature was to make available to the general public such information which had been obtained by public authorities from private bodies.

However, under Section 8(1) of the RTI Act, information can be denied to the public to guard national security, sovereignty, national economic interest, relations with foreign states, etc.

The Court made it clear that lower-level economic and financial information like contracts and departmental budgets should not be withheld under this exemption.

One of the exemptions in the 2016 Disclosure Policy was that information relating to specific supervisory issues emanating from inspection or scrutiny reports received from other supervisory departments are exempted from disclosure. Similar exemption was given to the inspection reports falling within the purview of the “department of banking supervision”.  Any information obtained from/submitted by banks/financial institutions and held by the RBI in a fiduciary capacity was also exempted from disclosure.

Following the 2015 judgment of the Court, an applicant under the RTI Act sought information relating to the inspection reports of ICICI Bank, Axis Bank, HDFC Bank and State Bank of India from April 1, 2011 to the date of filing of the application. He also sought further information relating to the Bank of Rajasthan. The RBI denied the information under Section 8(1)(a) and (b) of the RTI Act on the ground that disclosure was not in the economic interest of the State and would adversely affect the competitive position of the third party.

The RBI, in response to the allegation that it was guilty of contempt of the Supreme Court’s 2015 judgment, claimed that the 2016 Disclosure Policy had been superseded by another one, and therefore, complaints against the old policy could not be entertained by the Court. The RBI uploaded the new Disclosure Policy on April 12, 10 days after the Court reserved the judgment in the contempt petitions. As the April 12 Disclosure Policy also came under attack from the petitioners for
non-compliance with the Supreme Court’s 2015 judgment, the RBI promised the Court that it would be deleted from its website.

The Supreme Court held on April 26, 2019, that there is an element of public policy in punishing civil contempt as the administration of justice would be undermined if the order of any court of law could be disregarded with impunity. The Court found that the RBI committed contempt of court by exempting disclosure of material that was directed to be given by it in 2015. The Court further held that its directions are general in nature and any violation of such directions would enable an aggrieved party to file a contempt petition.

The Supreme Court held in Paragraph 10 of the April 26 judgment: “Though we could have taken a serious view of the respondents (RBI) continuing to violate the directions issued by this Court, we give them a last opportunity to withdraw the disclosure policy insofar as it contains exemptions which are contrary to the directions issued by this Court… Any further violation shall be viewed seriously by this Court.”

On April 30, the RBI uploaded a new disclosure policy on its website. Putting its history of non-compliance with the Supreme Court’s 2015 judgment behind it, the RBI declared that it considered disclosure of information under the RTI Act a very important responsibility and it has a positive bias towards disclosure and transparency. However, it added that being the central bank of the country, in its roles as a banker to the government and to the banks, it received and held a lot of sensitive information, the disclosure of which may not, at all times, be in the interest of the nation or serve public interest.

Similarly, the RBI claimed that it was privy at times to personal information of customers of banks and FIs apart from its own staff and this disclosure would not only compromise the privacy of the concerned individuals, but may also, in some extreme cases, endanger their life security.

The new Disclosure Policy uploaded on April 30 cites the Central Information Commission’s October 28, 2010, order directing it to prepare a policy in respect of information it may not disclose under the exemption provisions of the RTI Act and post this policy on its website. While compiling the list, the RBI claimed that it had been its endeavour to ensure the objectives of the RTI Act without jeopardising the financial stability and economic interests of the State. More important, it added: “It may also be noted that the list is only indicative and not exhaustive and is subject to review/revision.”

Sections 45E and 45 NB of the RBI Act permit the central bank not to share information on a bank’s credit and other specified transactions with anybody. But Section 22 of the RTI Act overrides these provisions. It says: “The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in the Official Secrets Act, 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 new Disclosure Policy may also come under criticism for non-compliance with the Supreme Court’s April 26 judgment in the contempt case. While purporting to give a list of information which it may not disclose under the exemption provisions of the RTI Act, the recent policy again includes information on inspection/supervisory/scrutiny reports of banks and FIs. Any information derived from these reports or contained in such reports, and supervisory action taken thereon is exempt from disclosure under Section 8(1)(h) and 8(1)(j) of the RTI Act, the policy said.

Section 8(1)(h) deals with information which would impede the process of investigation or apprehension or prosecution of offenders. Section 8(1)(j) deals with the obligation to protect the right to privacy of an individual in the absence of a larger public interest which satisfies the central or state public information officer or the appellate authority.

In its 2015 judgment, the Supreme Court clearly held that the RBI was supposed to uphold public interest and not the interest of individual banks. More important, it is not in any fiduciary relationship with any bank. The RBI has no legal duty to maximise the benefit of any public sector or private sector bank, and thus, there is no relationship of trust between them, it held.

The RBI, the Court further held, has a statutory duty to uphold the interest of the public at large, the depositors, the country’s economy and the banking sector. Thus, the RBI ought to act with transparency and not hide information that might embarrass individual banks, the Court held.

The Supreme Court agreed with the Central Information Commission that disclosure would hugely serve public interest, and non-disclosure would be significantly detrimental to it and not in the economic interest of the country. The Court found the 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, as not only absurd, but misconceived and baseless.

In its 2015 judgment, the Supreme Court held that the ideal of a government by the people makes it necessary that they have access to information on matters of public concern. The free flow of information about affairs of the government paves the way for debate in public policy and fosters accountability in government, it observed. It creates a condition for “open governance” which is a foundation of democracy, it added.

However, as the RBI’s new Disclosure Policy shows, a leopard cannot change its spots. Commenting on the new policy uploaded on April 30, a lawyer representing one of the petitioners seeking contempt action against the RBI before the Supreme Court said: “The real test would be when the RBI supplies or denies information.  These clauses are ambiguous.”

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