Bombay High Court dismisses Abhyudaya Bank’s superseded board’s petition against RBI – ET BFSI

The Bombay High Court has dismissed a writ petition filed by former Chairman Sandeep S Ghandat and six other board members of Abhyudaya Bank against the Reserve Bank of India (RBI) action of superseding the bank’s board.

The High Court in its order said, “In these circumstances, in our view, the impugned Order dated 24 November 2023 cannot be assailed on the ground that no notice or hearing was given before passing the said Order. In the light of the aforesaid discussion, and for the aforesaid reasons, we are not inclined to interfere with the impugned order dated 24 November 2023 in our writ jurisdiction under Article 226 of the Constitution of India.”

Abhyudaya Bank, a leading cooperative bank in India operating in Maharashtra, Gujarat, and Karnataka with more than 100 branches, has majority of its branches in Maharashtra.

The timeline till superseding the board

In May 2021, RBI imposed a supervisory action framework on the bank. On June 1, 2021, Abhyudaya Bank constituted a board of management as per the directions given by the central bank. (This Board of Management consisted of two bankers and one advocate as external members and two chartered accountants and one person having more than 25 experience in banking as internal members.)

After this, on July 22, 2021, the RBI appointed Rajendra Kumar, DGM, RBI as an Additional Director for a period of two years as an observer upon the functioning of the bank.

On September 30, 2022, the RBI issued another direction on the bank imposing a cap on its sanctioning of fresh loans to Rs 50 lakh from Rs 65 crore, which the bank claimed made them lose significant business.

A year later, in an order on November 24, 2023, the RBI superseded the board of directors of the bank for a period of one year and appointed an administrator.

The superseded board members’ petition

In their writ petition, the Abhyudaya Bank’s superseded board members took objection to the supersession and claimed that there was no need to appoint an additional director since they had already constituted a committee based on RBI’s guidelines. Also, the petitioners said that despite having an additional director on the board, the RBI again imposed various instructions on the bank in December 2021, which it argued were illegal. The board members filed the writ petition under Article 226 of the Constitution of India, seeking relief under natural justice. They appealed to the High Court to look into the legality and propriety of the impugned order of RBI.

The High Court order

After hearing both sides, the Bombay High Court delivered its verdict on November 18, saying that the RBI has the authority to issue such directions. The High Court also observed that they cannot read the principles of natural justice in Section 36AAA. (The Banking Act section under which RBI appointed administrators at the bank.)

While Abhyudaya Bank’s former chairman along with six other members moved the court against the RBI. In the banking world, there are very few bankers or board members who have appealed against RBI’s order in the High Court.