Business NewsNews

Bandhan Bank Limited

he Reserve Bank of India (RBI) has, by an order dated October 29, 2019, imposed a monetary penalty of Rs One crore on Bandhan Bank Limited (the bank) for non-compliance with the guidelines on promoter holding contained in ‘Guidelines for Licensing of New Banks in Private Sector’ dated February 22, 2013 (licensing guidelines) read with the conditions imposed by RBI in exercise of powers under section 22 of the Banking Regulation Act, 1949 (the Act) at the time of issuing banking licence to the bank. This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47A(1)(c) read with Section 46(4)(i) of the Act, taking into account the default committed by the bank in complying with the aforesaid licensing guidelines and conditions.

This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank.

Background:

In terms of the aforesaid licensing guidelines read with the licensing conditions, the bank was required to bring down the shareholding of its Non-Operative Financial Holding Company in the bank in excess of 40% of the total paid-up equity capital to 40% within three years from the date of commencement of business of the bank. However, as the bank failed to comply with the said licensing guidelines, a notice (SCN) was issued to the bank advising it to show cause as to why penalty should not be imposed for non-compliance with the said licensing guidelines. After considering the reply received from the bank, submissions made by the bank during the personal hearing and the documents submitted by it, RBI came to the conclusion that the bank had failed to comply with the licensing guidelines read with the licensing conditions imposed by RBI and decided to impose monetary penalty on the bank.


Janata Sahakari Bank Ltd., Pune

The Reserve Bank of India (RBI) has imposed, by order dated October 16, 2019, monetary penalty of Rs 1 crore on Janata Sahakari Bank Ltd., Pune (the bank) for non-compliance with directions issued by RBI on Income Recognition and Asset Classification (IRAC) norms, Management of Advances and Exposure Norms and Statutory/ Other Restrictions. The penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47A(1)(c) read with Section 46(4)(i) and Section 56 of the Banking Regulation Act, 1949, taking into account failure of the bank to adhere to the aforesaid directions issued by RBI.

This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

Background:

The statutory inspection of the bank with reference to its financial position as on March 31, 2018, conducted by RBI, revealed, inter alia, non-compliance with RBI directions on IRAC norms, Management of Advances, Exposure Norms and Statutory/ Other Restrictions and issuance of ATM-cum Debit cards. A Notice was issued to the bank advising it to show cause as to why monetary penalty should not be imposed for non-compliance with the aforesaid directions. After considering the bank’s reply and oral submissions made during the personal hearing, RBI came to the conclusion that the charges regarding non-compliance with the directions on IRAC norms, Management of Advances and Exposure Norms and Statutory/ Other Restrictions, warranted imposition of monetary penalty.


Jalgaon Peoples Co-operative Bank Ltd., Jalgaon (Maharashtra)

The Reserve Bank of India (RBI) has imposed, by order dated October 24, 2019, monetary penalty of Rs25 lakh on the Jalgaon Peoples Co-operative Bank Ltd., Jalgaon, Maharashtra (the bank) for non-compliance with directions issued by RBI on Income Recognition and Asset Classification (IRAC) norms and Management of Advances. The penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47A(1)(c) read with Section 46(4)(i) and Section 56 of the Banking Regulation Act, 1949, for failure of the bank to adhere to the aforesaid directions issued by RBI.

This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

Background:

The statutory inspection of the bank with reference to its financial position as on March 31, 2018, conducted by RBI, revealed, inter alia, non-compliance with RBI directions on IRAC norms and Management of Advances. A notice was issued to the bank to show cause as to why monetary penalty should not be imposed for non-compliance with the aforesaid directions. After considering the bank’s reply and oral submissions made during the personal hearing, RBI concluded that the aforesaid charges warranted imposition of monetary penalty.


[Reserve Bank of India]

[Press Release dt. 29-10-2019]

Case BriefsHigh Courts

Delhi High Court: Vibhu Bakhru, J., addressed a criminal appeal filed by Financial Intelligence Unit-IND, Ministry of Finance under Section 42 of Prevention of Money Laundering Act, 2002 impugning a judgment passed by Appellate Tribunal, Prevention of Money Laundering Act.

In accordance with the impugned order, Appellate Tribunal had modified the orders passed by Director, FIU under Section 13(2) of the Act.

Facts of the case

Director, FIU had imposed a maximum fine of Rs 1 lakh for thirteen instances of failure on part of the respondent banks in respect of the compliance with obligations set out in Section 12 of the Act read with Prevention of Money Laundering (Maintenance and Records) Rule, 2005.

The Appellate Tribunal’s modifying order held that the violation of the reporting obligations on part of the respondent banks warranted issuance of a warning in writing under Section 13(2)(a) of the Act, instead of a monetary penalty as imposed under Section 13(2)(d) of the Act.

Contentions

Senior Standing Counsel appearing for the FIU, Satish Aggarwala, assailed the impugned order on a solitary ground. He submitted that Section 13(2) of the Act, prior to 15-02-2013 did not contemplate issuance of a warning for failure to comply with the provisions of Section 12 of the Act and failure to comply with Section 12 of the Act prior to 15-02-2013 required to be visited with fine not less than Rs 10,000 for each failure.

Issue

Question required to be considered in view of the above terms was:

Whether the Appellate Tribunal could modify the order passed by Director, FIU in terms of reducing the penalty imposed?

Background to the present matter

Controversy that arose in the present case is from a sting operation conducted by reporters of an online media portal named “Cobrapost.com”. The said sting operation was conducted during the year 2012-13.

The sting operation entailed undercover reporters approaching employees of various banks representing themselves to be customers who required to be open accounts to deposit black money belonging to “a Minister” and for laundering the same, and it was basically designed to expose the role of banks in money laundering.

Several conversations were recorded in the above terms and reported on the media portal, Cobrapost. The said conversations were indicating that the officials of the banks had expressed willingness to accept deposits of black money in accounts to be opened by the reporters posing as prospective customers.

Respondent-banks contended that the conversations placed on the public domain were incomplete, edited and extracted in a manner so as to feed the perception that the respondent banks are complicit in money laundering.

Once the conversations were in public domain, FIU issued letters to the respondent-banks and said proceedings culminated in orders imposing monetary fines under Section 13 of the Act.

Further, it has been stated that the reporters of Cobrapost had conducted the sting operation at 13 branches of Axis Bank Limited. Axis Bank appointed KPMG Private Limited to investigate allegations published on the Cobrapost website.

Thereafter, FIU issued a letter calling upon Axis Bank to provide certain intimation under Section 12(a) of the Act. It contended that the conversations recorded in the sting operation constituted ‘suspicious transactions’ within the meaning of Rule 2(g) of the Rules, and since Axis Bank had failed to file any Suspicious Transaction Reports (STRs) it was alleged that it had violated the provisions of Section 12 of the Act.

FIU further passed an order holding Axis Bank guilty of not complying with the provisions of Section 12 of the Act read with Rules 2,3,5 and 7 and imposing a fine of Rs 13 lakhs for 13 failure instances.

Aggrieved by the above, Axis Bank filed an appeal before the Appellate Tribunal. The said appeal was disposed of by the impugned order in which it was held that non-compliances did not warrant the imposition of the maximum penalty and this was a fit case where a penalty of warning, provided under Section 13(2)(a) of the Act, ought to have been issued.

Conclusion

Court noted that FIU’s contention that provisions of Section 13(2) prior to amendment on 15-02-2013 are applicable, is bereft of any factual foundation. Since there is no material on record to establish that the sting operation had been conducted prior to 15-02-2013, the said conversation is unfounded.

Court referred to Section 13 of the Act as was in force prior to 15-02-2013. Section 13 of the Act was amended by virtue of Section 11 of the Prevention of Money Laundering (Amendment) Act, 2012 with effect from 15-02-2013. Another point to be noted is that all the orders passed by the Director, FIU under Section 13(2) were after 15-02-2013.

Thus, the only question that falls for consideration is:

Whether the amended provisions of Section 13 of the Act, which provide for a lesser punitive measure, are applicable retrospectively?

Referring to the Case of T. Barai v. Henry Ah Hoe, (1983) 1 SCC 177, in which the Supreme Court had explained that,

“insofar as a new enactment creates new offences or enhances punishment for a particular type of offence, no person can be convicted by such ex post facto law nor can the enhanced punishment prescribed by the amendment, be imposed. However, if a punishment for an offence is reduced, there is no reason why the accused should not have the benefit of the reduced punishment. It was further explained that the rule of beneficial construction requires that even an ex post facto law should be applied to mitigate the rigors of the law.”

Counsel representing FIU, submitted that the respondent banks have suffered a civil liability and therefore the above decisions are inapplicable.

To the above contention, Court found no merit and stated that “even if it is assumed that the liability imposed on the respondent banks is a civil liability, no distinction can be drawn on the aforesaid ground so as to deprive the respondents of the “rule of beneficial construction”.

Further, the Court also referred to the Supreme Court judgment in CIT v. Vatika Township (P) Ltd., (2015) 1 SCC 1, in which again the point that is to be noted is that,

“Supreme Court had authoritatively held that if a  legislation confers the benefit on some persons without inflicting corresponding detriment on same other person or where it appears that the intention of legislature is to confer such benefit, the rule of purposive construction would be applicable and the said legislation would be construed as applicable with retrospective effect.”

Therefore, the Court in view of the below stated, held that

“The rule that the enactment must be construed as prospective is not applicable in cases of beneficial legislation. In such cases, the same must be construed retrospectively. It would be unfair to impose a higher punishment than as prescribed under a statute as currently in force, merely because the person visited with such punishment has committed the offence/default prior to the legislation being enacted.”

Even if it is assumed that the sting operation was conducted prior to 15-02-2013, there is no infirmity in the decision of the Appellate Tribunal to modify the punishment from a monetary fine to a warning in writing, in terms of Section 13(2)(a) of the Act as substituted with effect from 15-02-2013. [Financial Intelligence Unit-IND v. Corporation Bank, 2019 SCC OnLine Del 9950, decided on 04-09-2019]

Business NewsNews

Reserve Bank of India (RBI) has, by an order dated July 31, 2019, imposed monetary penalty on seven banks for non-compliance with certain provisions of directions issued by RBI on “Code of Conduct for Opening and Operating Current Accounts”, “Opening of Current Accounts by Banks – Need for Discipline”, “Discounting/ Rediscounting of Bills by Banks”, “Reserve Bank of India (Frauds classification and reporting by commercial banks and select FIs) directions 2016”, “End Use of Funds – Monitoring ” and “Deposits on Balance Sheet Date”, as detailed below:

Sl. No. Name of the bank Amount of penalty
(Rs in crore)
1. Allahabad Bank 2.0
2. Bank of Baroda 1.5
3. Bank of India 1.5
4. Bank of Maharashtra 2.0
5. Indian Overseas Bank 1.5
6. Oriental Bank of Commerce 1.0
7. Union Bank of India 1.5

The penalties have been imposed in exercise of powers vested in RBI under the provisions of Section 47A(1)(c) read with Sections 46(4)(i) and 51(1) of the Banking Regulation Act, 1949, taking into account the failure of the banks to adhere to the aforesaid directions issued by RBI. This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers.

Background

A scrutiny was carried out by RBI in the accounts of the companies of a Group and it was observed that the banks had failed to comply with provisions of one or more of the directions issued by RBI as mentioned above. Based on the findings of the scrutiny, Notices were issued to the banks advising them to show cause as to why penalty should not be imposed for non-compliance with the directions. After considering the replies received from the banks, oral submissions made in the personal hearings, where sought by the banks, and examination of additional submissions, if any, RBI came to the conclusion that the aforesaid charges of non-compliance with RBI directions were sustained and warranted imposition of monetary penalty on aforementioned seven banks, based on the extent of non-compliance in each bank.


[Press release dt. 02-08-2019]

Reserve Bank of India

Business NewsNews

RBI has imposed, by an order dated February 25, 2019, a monetary penalty of Rs 20 million (Rupees Twenty Million) on Punjab National Bank (the bank) for non-compliance with directions issued by RBI. This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949, taking into account failure of the bank to adhere to the aforesaid directions issued by RBI and based on the extent of non-compliance in the bank.

This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

[Press Release: 2018-2019/2300]

[Dt. 27-03-2019]

Reserve Bank of India