The Supreme Court of India has taken up an appeal filed by the Reserve Bank of India (RBI) against the Kerala High Court's order that lifted loan restrictions imposed on Thiruvalla East Co-Operative Bank Ltd. The High Court had lifted the restrictions as the bank was not given an opportunity of hearing before the RBI's order was issued.

Background:

• The Kerala High Court had affirmed the decision of a single bench to lift the restriction imposed by the RBI, which prohibited Thiruvalla East Co-Operative Bank from further sanctioning and disbursing loans and advances.
• The RBI had conducted an inspection of the bank and found deficiencies in banking practices, including loan advance schemes that were susceptible to misuse.
• However, the High Court referred to the Banking Regulation Act, 1949, and held that the RBI cannot completely prohibit the bank's transactions under Sections 35 and 36 unless exceptional circumstances exist.
• The High Court ruled that the RBI must provide factual reasons for passing such prohibitory orders and must give the banking company an opportunity to be heard before taking such action.
• The High Court found that the RBI's order lacked proper reasoning and showed a lack of application of mind, as no demonstrable reasons were given before imposing the prohibition on loan disbursals.

Current Development:

• The Supreme Court has issued notice to the RBI in response to the appeal filed by the central bank.
• A division bench comprising Justice Sanjay Kishan Kaul and Justice Sudhanshu Dhulia will preside over the case.
• The Attorney General for India, R Venkataramani, represented the RBI in the Supreme Court.

Case Details:

• Case Title: Reserve Bank of India v. Thiruvalla East Co-Operative Bank Ltd
• Case Number: Special Leave to Appeal (C) No(s). 15667/2023

The Supreme Court's decision to issue notice indicates that it will now examine the appeal and consider the arguments presented by both parties involved. The outcome of the case will have significant implications for the regulatory powers of the RBI concerning cooperative banks and the necessity of providing an opportunity of hearing before imposing prohibitory orders.