Moneylife: Pune: Friday,
April 18, 2014.
The Central
Information Commission (CIC), while allowing an appeal, directed the Central
Public Information Officer (PIO) of Reserve Bank of India (RBI) to provide
information relating to mark-to-market (MTM) position of banks obtained by the
central bank for discharging the regulatory and supervisory functions.
While giving
the judgement on 7 December 2011, under the Right to Information (RTI) Act,
Shailesh Gandhi, the then Central Information Commissioner, said, "While
banks may have given information to RBI in confidence or in trust, there does
not appear to be any duty cast upon RBI to act in their benefit. RBI being a
regulator of the banking sector obtains and maintains such information in
regulatory or supervisory capacity. Therefore, there is no element of choice as
such available to banks. There does not appear to be a creation of any
fiduciary relationship between RBI and the banks."
Tiruppur,
Tamil Nadu resident, Raja M Shanmugam, on 12 October 2010, sought from the PIO
information regarding mark to market losses on account of currency derivatives
by banks and action taken by the RBI. Here is the information he sought and the
reply provided by the PIO..
1.
Before
the Orissa High Court, RBI has filed an affidavit stating that the total mark
to market losses on account of currency derivatives is to the tune of more than
Rs32,000 crores. Please give bank wise breakup of the MTM losses.
Reply
of the PIO- The information sought is exempted under Sections 8(1)(a) and (e)
of RTI Act.
2.
What
is the latest figure available with RBI of the amount of losses suffered by
Indian business houses? Please furnish the latest figures bank wise and
customer wise.
Reply
of the PIO- NIL
3.
Please
update on action taken against the erring banks who sold the exotic derivative
products in contravention to FEMA Act and RBI Guidelines as per the RBI's
submissions to the Orissa High Court.
Reply
of the PIO- NIL
4.
Recent
press reports suggests RBI has also issued Show Cause Notices to Several banks
that have violated RBI guidelines on the sale of exotic derivative products.
Give the list of banks to which show-cause notices were issued along with the
copy of the notice issued to banks.
Reply
of the PIO- NIL
5.
Whether
any reply received from any of the banks in response to the Show Cause Notice?
If so please furnish copies of the same.
Reply
of the PIO- NIL
6.
RBI
has listed out several violations of RBI guidelines by banks in the sale of
exotic derivative products in its report filed before Orissa High Court.
Whether periodical Audit of Sank branches in the years 2007 and 2008 revealed
any such violation? If so, please furnish RBI Audit Report indicating the said
violation.
Reply
of the PIO- NIL
7.
RBI
has issued a circular dated the 29th of October 2008 asking the banks to park
the proceeds on account of derivative losses in a separate account. However, few
banks, especially State Bank of India is said to have refused to adhere to the
said circular despite repeated demands from the exporters. Whether R5 has
received any complaint stating that any bank is refusing to adhere to the
specific circular cited above? If so furnish as copy of the same.
Reply
of the PIO- NIL
8.
Also
if any complaint is received by RBI as stated above, please give the detail of
enquiry and action taken by the RBI on the erring banks.
Reply
of the PIO- NIL
9.
Whether
the issue of derivative losses to Indian Exporters was discussed in any of the
meetings of Governor I 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.
Reply
of the PIO- The CPIO, Foreign Exchange Department did not have information on
this query.
10. Any other Action Taken Reports by RBI
in this regard.
Reply
of the PIO- The CPIO, Foreign Exchange Department did not have information on
this query.
Citing the information
provided by the PIO as incomplete and unsatisfactory, Shanmugam, the appellant
filed his first appeal.
The First
Appellate Authority (FAA) noted that queries 1, 2, 9 and 10 were replied to by
the CPIO of Foreign Exchange Department (FED) against which first appeal was
filed by the appellant. Queries 3 to 8 were replied to by the CPIO of
Department of Banking Supervision (DBS).
In his
observations, the FAA noted...
Query No. 1:
The appellant
has sought for bank wise break up of the MTM losses, CPIO has claimed exemption
from disclosure under S. 8(1)(a) & (e) of RTI Act.
FAA
observation: I agree with the CPIO that disclosure of bank wise break up of MTM
losses in the derivative transactions would affect the economic interests of
the state as such disclosure to the public could be detrimental to the interest
of the subject bank and to the banking system in general. Also, information
relating to MTM position of banks are obtained by Reserve Bank for discharging
the regulatory and supervisory functions and are held by the Reserve Bank in
fiduciary capacity; Therefore, I do not find any infirmity in the exemption
claimed by the CPIO under S. 8(1)(a) & (e) of the RTI Act. The decision of
the Hon'ble Delhi High Court, referred to by the appellant, is not applicable
to the facts o this case. The observations of the Full Bench of CIC in the case
of Shri Ravin Ranchchodlal Patel & ----. Reserve Bank of India (Decided on
December 7, 2006), wherein absolute discretion was granted to the Reserve Bank to
assess the desirability of disclosure of Inspection Report in individual cases,
are equally relevant to the kind of information sought by the appellant
especially when he desires to have bank wise break up. I do not consider that
this is a fit case warranting invocation of S. 8(2) of RTI Act by the CPIO and
accordingly, no fault can be found on the part of CPIO in not disclosing the
information sought by the appellant.
Query No. 2.
The appellant
desired to know the amount of losses suffered by Indian Business Houses and its
latest figures, bank wise and customer wise.
FAA
Observations: CPIO has not given a separate reply to this Query. Instead, he
has made a cross reference to his reply to Query No. 1. I direct the CPIO to
clarify to the appellant whether the information relating to the losses
suffered by Indian Business Houses is available with the Reserve Bank. If
available, CP is directed to consider the request of the appellant subject to
the exemptions provided under the RTI Act.
Query Nos.
9&10:
The appellant
wanted to know whether the issue of derivative losses to Indian exporters was
discussed in any of the meetings of the Governor/ Deputy Governor or senior
official of Reserve Bank and if so, to furnish the minutes of the meeting. In
Query No. 10, the appellant sought for Action taken Reports by RBI in the
matter. CPIO has replied that no information is available.
FAA
Observations: Whether a particular state of fact exist or not, ideally has to
be replied either in the affirmative or in the negative. Replying that no
information is available is not appropriate. In my view, based on the records,
CPIO should state whether there were any meetings or action taken reports, as sought
by the appellant. Therefore, I direct
the CPIO to revisit Query Nos. 9 & 10 and give appropriate replies to the
appellant. However, I wish to clarify that disclosure of minutes of meetings or
copies of reports, if any, shall be subject to the exemptions provided under
the RTI Act."
Not satisfied
with the FAA's order, Shanmugam, then approached the CIC with his second
appeal.
During the
hearing on 15 November 2011, the CPIO of RBI neither appeared nor did submit
any documents or letter before the Bench. Shanmugam, the appellant, who was
present, sought the attention of the Bench to a judgement of Orissa High Court
in WP (Crl) No344/2009. Mr Gandhi, the then Central Information Commissioner,
then reserved his order.
During the
hearing on 7 December 2011, Mr Gandhi said, he perused the papers including
submission of the appellant, who was seeking information on queries 1, 2, 9 and
10.
The PIO
denied the information on the basis of Sections 8(1)(a) and (e) of the RTI Act.
The FAA has upheld the PIO's reply in query 1 and cited the CIC's decision in
RR Patel vs RBI (CIC/MA/A/2006/00406 and 00150 dated 7 December 2006). As
regards query 2, the FAA directed the CPIO to consider the appellant's request
subject to the provisions of the RTI Act.
Relying on
the CIC's decision in the RR Patel case, the FAA observed that disclosure of
bank-wise break-up of MTM losses in the derivative transactions would affect
the economic interests of the State as such disclosure to the public could be
detrimental to the interest of the subject bank and the banking system in
general.
Mr Gandhi
said, "In RR Patel's Case, the Full Bench was considering the issue of
disclosure of RBI's inspection report of a Cooperative Bank. One of the issues
before the Bench was whether the inspection report was exempt from disclosure
under Section 8(1)(a) of the RTI Act. The Full Bench relied on a decision of
the Punjab & Haryana High Court in RBI vs Central Government Industrial
Tribunal (dated 07/05/1958) which had observed that 'In an integrated economy
like ours, the job of a regulating authority is quite complex and such an
authority has to decide as to what would be the best course of action in the
economic interest of the State. It is necessary that such an authority is
allowed functional autonomy in decision making and as regards the process
adopted for the purpose'."
Based on the
above, the Full Bench, in paragraph 16, ruled inter alia that, "In view of
this, and in light of the earlier discussion, we have no hesitation in holding that
the RBI is entitled to claim exemption from disclosure u/s 8(1)(a) of the Act
if it is satisfied that the disclosure of such report would adversely affect
the economic interests of the State. The RBI is an expert body appointed to
oversee this matter and we may therefore rely on its assessment. The issue is
decided accordingly".
"It
appears that the Full Bench was of the view that if RBI concluded that
disclosure of inspection reports would adversely affect the economic interests
of the State, the said information may be denied under Section 8(1)(a) of the
RTI Act. There is no observation that the Full Bench had come to this
conclusion by itself. Further, the observations of the Punjab & Haryana
High Court in RBI vs Central Government Industrial Tribunal (dated 7 May 1958)
relied on by the Full Bench were made much before the advent of the RTI Act and
cannot therefore, be a guide for deciding on exemptions under the RTI
Act," the Bench noted.
Furthermore,
the RBI in RR Patel's case claimed that if inspection reports of banks were to
be disclosed it would affect the economic interests of the state. The Full
Bench decision appears to rely on the submissions of the Deputy Governor of RBI
provided vide letter dated 21 November 2006 and were as follows:
i.
Among
the various responsibilities vested with RBI as the country's Central Bank, one
of the major responsibilities relate to maintenance of financial stability.
While disclosure of information generally would reinforce public trust in
institutions, the disclosure of certain information can adversely affect the
public interest and compromise financial sector stability.
ii. The
inspection carried out by RBI often brings out weaknesses in the financial
institutions, systems and management of the inspected entities. Therefore,
disclosure can erode public confidence not only in the inspected entity but in
the banking sector as well. This could trigger a ripple effect on the deposits
of not only one bank to which the information pertains but others as well due
to contagion effect.
iii. While
the RBI had been conceding request for information on actions taken by it on
complaints made by members of the public against the functioning of the banks
and financial institutions and that they do not have any objection in giving
information in respect of such action taken or in giving the substantive
information pertaining to such complaints provided such information is
innocuous in nature and not likely to adversely impact the system.
iv.
(iv)However,
disclosure of inspection reports as ordered by the Commission in their decision
dated September 6, 2006 would not be in the economic interest of the country
and such disclosures would have adverse impact on the financial stability.
v.
It
would not be possible to apply section 10(1) of the Act in respect of the Act
in respect of the inspection report as portion of such reports when read out of
context result in conveying even more misleading messages.
Mr Gandhi
noted that the RBI argued that that it did not wish to share the information
sought as some of it could "adversely affect the public interest and
compromise financial sector stability". RBI was unwilling to share
information, which might bring out the 'weaknesses in the financial
institutions, systems and management of the inspected entities'. It was further
contended that 'disclosure can erode public confidence not only in the
inspected entity but in the banking sector as well. This could trigger a ripple
effect on the deposits of not only one bank to which the information pertains
but others as well due to contagion effect'.
He said,
"It appears that the RBI argued that citizens were not mature enough to
understand the implications of weaknesses, and RBI was the best judge to decide
what citizens should know. Citizens must be given selective information about
weaknesses exposed in inspection, to ensure that they have faith in the banking
sector. They must see the financial and banking sector only to the extent,
which RBI wishes. If the RBI made mistakes, or there was corruption, citizens
would suffer. This appears to go against the basic tenets of democracy and
transparency."
The CIC cited
a clarion call in State of Uttar Pradesh vs Raj Narain (1975) 4 SCC 428, by
Justice Mathew that stated...
"In a
government of responsibility like ours, where all the agents of the public must
be responsible for their conduct, there can be but few secrets. The people of
this country have a right to know every public act, everything that is done in
a public way by their public functionaries. They are entitled to know the
particulars of every public transaction in all its bearing. Their 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".
Mr Gandhi
said, "The idea that citizens are not mature enough to understand and will
panic is repugnant to democracy. The exemptions under Section 8 and 9 of the
RTI Act are the constraints put by Parliament and adjudicating bodies have to
carefully consider whether the exemptions apply before denying any information
under the RTI framework."
"It is
pertinent to mention that in RR Patel's case, the Full Bench did not come to
any specific conclusion that disclosure of inspection reports would
prejudicially affect the economic interests of the State. Instead it left it to
RBI to determine whether disclosure of the said information would attract
Section 8(1)(a) of the RTI Act. This was primarily on the basis that RBI is an
expert body and that any decision taken by it should be relied upon by the
Commission. No legal reasoning whatsoever was given by the Bench for concluding
the above. There is no evidence or indication that the Commission after taking
cognizance of RBI's views had come to the same conclusion."
"If the
position of the Full Bench is to be accepted, it would lead to a situation
where RBI would have the final say in whether information should be provided to
a citizen or not. Extending this logic, all public authorities could be the
best judge of what information could be disclosed, since they are likely to be
experts in matters connected with their working. In such an event the
Information Commission would have no role to play. Parliament evidently
expected that the Information Commission would independently decide whether the
exemptions are applicable. The Full Bench did not give any independent finding
that the disclosure of information would affect the economic interests of the
State in its decision. This would completely negate the fundamental right to
information guaranteed to the citizens under the RTI Act. In the case being
considered by the full bench, it decided to accept the judgment of RBI. It is
open to a Commission to defer to a judgment of another body, but this does not
establish any principle of law, and would apply only to the specific
matter," Mr Gandhi said.
The Bench
said, "It is apparent from the scheme of the RTI Act that the Commission
is a quasi- judicial body which is responsible for deciding appeals and
complaints arising under the RTI Act. While deciding such cases, the Commission
would necessarily have to consider whether there were any cogent reasons for
denial of information under Sections 8 and 9 of the RTI Act. Since the Full
Bench has not recorded any comment which shows that it consciously agreed that
Section 8 (1)(a) of the RTI Act was applicable in such matters, it does not
establish any legal principle or interpretation which can be considered as a
precedent or ratio. Thus the decision is applicable only to the particular
matter before it, and does not become a binding precedent."
Mr Gandhi
said, the powers of the Commission are limited under the RTI Act and certainly
do not confer upon it the power of review. "It is clear from the Full
Bench ruling in RR Patel's case that it was reviewing the two decisions of
Professor MM Ansari, then Information Commissioner on merits. The Full Bench
certainly did not have the power to do so, given the provisions of the RTI Act
and the law laid down by the Supreme Court in this regard. In fact, the Supreme
Court in the Kapra Mazdoor Ekta Union Case clearly considered and clarified the
ruling in the Grindlays' Bank Case (relied upon by the Full Bench). It appears
that the Full Bench reviewed the issues based on merits in RR Patel's case in
ignorance of the law laid down by the Supreme Court in Kapra Mazdoor Ekta Union
Case. In other words, the RR Patel Case is per incuriam and is consequently,
not binding on this Bench," he added.
"Having
laid down the above," Mr Gandhi said, "this Bench is of opinion that
even if the information sought was exempted under Section 8(1)(a) of the RTI
Act,-as claimed by the Respondent,- Section 8(2) of the RTI Act would mandate
disclosure of the information sought."
Section 8 (2)
of the RTI Act states, "Notwithstanding anything in the Official Secrets
Act, 1923 nor any of the exemptions permissible in accordance with sub-section
(1), a public authority may allow access to information, if public interests in
disclosure outweighs the harm to the protected interests".
Mr Gandhi
noted that the RBI is a regulatory authority which is responsible for inter
alia monitoring banks and financial institutions along with flow of public
funds and forex in accordance with applicable law. "In the present matter
where MTM losses on currency derivatives are to the extent of more than
Rs32,000 crores, it is certainly a matter of national importance. There appears
to be a large financial scam affecting the economy as a whole and citizens have
a right to know about the same," he added.
The Bench
then considered whether information sought in queries 1 and 2 is exempt from
disclosure under Section 8(1)(e) of the RTI Act.
Section
8(1)(e) of the RTI Act exempts from disclosure "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;".
Mr Gandhi
said, "This Bench, in a number of decisions, has held that the traditional
definition of a fiduciary is a person who occupies a position of trust in
relation to someone else, therefore requiring him to act for the latter's
benefit within the scope of that relationship. Information provided in
discharge of a statutory requirement, or to obtain a job, or to get a license,
cannot be considered to have been given in a fiduciary relationship."
The PIO has
denied information on queries 1 and 2 on the basis of Section 8(1)(e) of the
RTI Act. This was upheld by the FAA which further observed that information
relating to MTM position of banks are obtained by RBI for discharging the
regulatory and supervisory functions and are held by RBI in fiduciary
capacity.
However, Mr
Gandhi said, "Information provided by banks or institutions subordinate to
RBI is done in fulfilment of statutory compliance. This would not create any
fiduciary relationship as such between RBI and the subordinate banks or
institutions. The criteria defining a fiduciary relationship, as described
above, must be satisfied which does not appear to have been done in the present
matter. Inspections, audits and investigations are done by RBI officers as part
of statutory duty and banks have to undergo this in compliance with statutory
requirements. Therefore, the denial of information on queries 1 and 2 on the basis
of Section 8(1)(e) is rejected".
While
allowing the appeal, the Bench directed the CPIO of FED to provide complete
information to Shanmugam on queries 1, 2, 9 and 10 before 5 January 2012.
.JPG)
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