The Bombay High Court has dismissed a petition challenging the Reserve Bank of India's (RBI) decision to supersede the board of a cooperative bank.
The plea was filed by the bank's former chairman, Sandeep Ghandat, and heard by a division bench comprising Justice G.S. Kulkarni and Justice Firdosh Pooniwalla.
In May 2021, the RBI had imposed supervisory directions on the bank, leading to the formation of a board of management as per the RBI’s instructions. Subsequently, an additional director was appointed by the RBI for two years as an observer.
By September 2022, the RBI restricted the bank from issuing fresh loans ranging from ₹50 lakh to ₹65 crore. Finally, in November 2023, the bank’s board was superseded.
The petitioners argued that the board’s supersession occurred despite full compliance with the RBI’s directives and without following the principles of natural justice. However, the court held that the principles of natural justice do not apply to 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
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