Business
Standard: Opinion: Sunday, 20 December 2015.
In a recent
landmark decision, the Supreme Court directed the Reserve Bank of India to
disclose information pertaining to certain banks under the Right to Information
Act, 2005. This includes information on show-cause notices and fines imposed by
the RBI on these banks; details of the loans taken by industrialists that have
not been repaid; and names of the top defaulters who have not repaid their
loans to public sector banks.
Although this
is a progressive decision, the release of all bank-related enforcement
information as a blanket rule may not always be beneficial. In some cases,
release of such information may be detrimental. However, Indian laws are at
present ill-equipped to balance these competing concerns. The Indian financial
sector needs well-drafted legislations like the Indian Financial Code (IFC) to
adequately balance the need for regulatory transparency as emphasised by the
Supreme Court on the one hand, and the RBI's concerns about protecting
sensitive bank-related information on the other.
In RBI v.
Jayantilal N Mistry, the Supreme Court was called upon to decide whether this
information sought under the RTI Act can be denied by RBI and other banks to
the public at large on the ground of economic interest, commercial confidence,
fiduciary relationship with the concerned bank on the one hand and the public
interest on the other. The SC rejected the RBI's defence that it received this
information under fiduciary relationship with the banks and therefore it could
not be disclosed. The court reasoned that, since financial institutions are
under legal obligation to provide certain information to the RBI, there is no
fiduciary relationship between such financial institutions and the RBI.
Further, the RBI's argument that disclosure of such information would go
against the economic interest of the nation was also dismissed by the court.
The apex
court rightly emphasised the fundamental right to information. Citizens have established
the democratic state and its instrumentalities. The default principle in the
Constitution is that the state should be transparent in its dealings and must
release all information to citizens. Only reasonable restrictions on the right
to information can be imposed. Each and every restriction must have some cogent
and clear policy rationale behind it. Unfortunately, the practice in India is
the other way round. Information is suppressed by the state and its instruments
unless there is a reason to release it. The Supreme Court came down heavily on
such practice since it contradicts the fundamental rights under the
Constitution as well as the RTI Act.
The apex
court's judgment is unassailable as far as disclosure of quasi-judicial orders
- like penalty orders, licence revocation orders, and so on - are concerned.
Unlike Sebi, the RBI does not automatically release such orders on its website.
It merely issues press releases but not reasoned orders imposing penalties or
revoking licences. This practice is arbitrary and improper. Automatic
publication of these orders will render the functioning of the RBI transparent
and aid in the development of banking law jurisprudence in India.
However, this
decision of the Supreme Court also raises some genuine concerns. The Supreme
Court has held that, irrespective of anything to the contrary contained in the
RBI Act, 1934 or Banking Regulation Act, 1949, the RTI Act shall prevail in so
far as transparency and access to information is concerned. This is because section
22 of the RTI Act gives overriding effect to it - that is, if there is any
conflict between the RTI Act and another statute, the former overrides the
latter. Moreover, the RTI Act being a new law, also overrides older laws. The
only exception to access of information is under section 8 of the RTI Act. The
court found that the exemptions under section 8 did not apply to this case.
This effectively makes a huge amount of information relating to enforcement
actions against banks available to the public at large under the RTI Act.
This legal
position may be problematic from a regulatory perspective. Disclosure of all
kinds of enforcement actions as a blanket principle may not be the best
solution in every case. For example, it would be inappropriate to publicly
release a show-cause notice issued to a bank, if subsequently RBI did not
follow it up with any action against such bank due to lack of sufficient
evidence. Automatically releasing such a show-cause notice may unnecessarily
cause irreparable damage to the commercial reputation of the bank.
Foreign
jurisdictions have clear laws in this regard. For example, Section 395 of the
UK Financial Services and Markets Act, 2000 empowers the regulator to issue
warning notices, supervisory notices, and decision notices. Under Section 389,
if the regulator decides not to take action under a warning notice or decision
notice, it issues a discontinuance notice. Section 391 prohibits the regulator
as well as the person who receives a warning notice or decision notice from
publishing such notices. A notice of discontinuance can be published only if
the person to whom it is issued consents to such publication. As a general
principle, the regulator may not publish information relating to a notice if,
in its opinion, it would be unfair to the person with respect to whom the
action was taken or prejudicial to consumers' interests. All decision orders
are however published on the regulator's website.
The present
Indian laws like the RBI Act, 1934, or the Banking Regulation Act, 1949 do not
have similar provisions. The Justice B N Srikrishna Commission (the Financial
Sector Legislative Reform Commission, or FSLRC) addressed these concerns in the
IFC. Clause 93 of IFC requires orders passed by the regulator to be published, with
the exception of those involving private warnings or if such publication
prejudices consumers' interest. Enactment of the IFC would adequately balance
the Supreme Court's concerns about the need for transparency in RBI as well as
RBI's concerns about protecting sensitive information relating to banks. Until
the quality of Indian financial laws is substantially improved, courts must not
be blamed for judicial activism in the financial sector.
(The writer
is at the National Institute of Public Finance and Policy)
.JPG)
.JPG)
