Landmark judgement will have a far-reaching impact in making other regulators also more accountable and transparent in providing information under RTI Act
As 2015 winds to a close, a landmark judgement of the Supreme Court of India (SC) has demolished the walls of India’s most formidable ivory tower, giving ordinary citizens the right to information on its decisions, inspections and the failures. A two-member SC bench, of Justices MY Eqbal and C Nagappan, upheld a clutch of 11 orders of the central information commission (CIC) that had been challenged by the Reserve Bank of India (RBI) and a couple of other institutions in the Bombay and Delhi high courts and transferred to the SC, to form part of a clubbed hearing [Transferred Case (Civil) No. 707 of 2012 & other related matters].
The CIC had directed RBI to provide information sought under the Right to Information (RTI) Act in all the cases. This information, that had been denied by RBI, NABARD (National Bank for Agriculture and Rural Development) and others, included inspection reports of banks, especially cooperative banks, which have a high record of failure. They had also denied information on loan defaulters and action taken against them, grade classification of banks, information about penalties imposed and the basis of the decisions and, more importantly, a huge, mark-to-market loss suffered by RBI in the currency derivatives market.
RBI, because of its role as monetary authority and regulator, has always been on a significantly higher pedestal than other financial regulators and is treated with kid-gloves by the bureaucracy as well. It has ruthlessly guarded this position of pompous superiority by controlling access to journalists and citizens and concealed its actions with an iron curtain of secrecy. So much so, that every time there has been a big financial scandal, RBI deftly evades all responsibility for its own regulatory failures and quickly slips into the position of supervising a secretive clean-up. This happened during the Harshad Mehta scam and, again, during the Ketan Parekh scandal, which were a decade apart and saw the collapse of four banks (Mercantile Cooperative Bank, Bank of Karad, Global Trust Bank and Madhavpura Mercantile Cooperative Bank); they also exposed RBI’s failure to regulate overseas cooperative bodies (OCBs). As far as the public knows, not a single central banker has ever been held accountable for supervisory failure. In case of Madhavpura Bank, the bending of rules to pay depositor insurance before liquidating the cooperative bank also remained hidden for almost a decade.
The Supreme Court’s caustic observations have knocked the stuffing out of RBI’s superciliousness. The SC was surprised that the ‘watchdog’ was not “more dedicated towards disclosing information to the general public” under the RTI Act. There are two grounds on which RBI and other regulators have routinely been denying information to the public as exceptions provided under Section 8 of the RTI Act. First, the information is ‘fiduciary’ in nature; and; secondly, it would hurt the ‘economic interests’ of the country. The Court examined both exceptions in detail and observed that RBI is supposed to uphold public interest and not the interest of individual banks, and said that RBI’s attitude of denying information will ‘only attract more suspicion and disbelief’.
The Court has simply smashed the smokescreen of fiduciary information. It said: “RBI is clearly not in any fiduciary relationship with any bank. RBI has no legal duty to maximize the benefit of any public sector or private sector bank, and thus there is no relationship of ‘trust’ between them.” The inspection reports, statements and information obtained by the RBI “…are not under the pretext of confidence or trust… By attaching an additional ‘fiduciary’ label to the statutory duty, the regulatory authorities have intentionally or unintentionally created an in terrorem (terror) effect,” said the Court.
Elaborating on the issue, the Court said further: “If information is available with a regulatory agency not in fiduciary relationship, there is no reason to withhold the disclosure of the same. However, where information is required by mandate of law to be provided to an authority, it cannot be said that such information is being provided in a fiduciary relationship. As in the instant case, the financial institutions have an obligation to provide all the information to the RBI and such information shared under an obligation/duty cannot be considered to come under the purview of being shared in fiduciary relationship.”
At a time when government-owned banks are creaking under the burden of bad loans, getting repeated cash injections of taxpayers’ money and are accused of protecting large industrialists, the Court’s poor opinion about them ought to serve as warning to lenders as well as wilful defaulters. “We have also come across financial institutions which have tried to defraud the public. These acts are neither in the best interests of the country nor in the interests of citizens,” observed the Court. Elsewhere, the order says, “We have surmised that many Financial Institutions have resorted to such acts which are neither clean nor transparent. The RBI in association with them has been trying to cover up their acts from public scrutiny. It is the responsibility of the RBI to take rigid action against those Banks which have been practicing disreputable business practices.” Yet again, it says, “The facts reveal that banks are trying to cover up their underhand actions, they are even more liable to be subjected to public scrutiny... ” These views are probably the first serious indictment, in many decades, of the financial sector as well as the quality of RBI’s banking regulation.
National Economic Interests
RBI’s argument that, if people, who are sovereign, are made aware of the irregularities being committed by the banks, then the country’s economic security would be endangered, “is not only absurd but is equally misconceived and baseless,” said the apex court, brutally demolishing RBI’s second excuse. It concurred with the CIC’s order which said that denying information would be “detrimental to public interest and not in the economic interest of India.” The Court said, national interest cannot be seen devoid of economic interest, which includes a wide range of economic transactions and activities that help attain national goals, including economic empowerment of its citizens. An informed citizen is capable of reasoned action and can evaluate the actions of legislature and democracy, which is in national and economic interest.
This path-breaking order has come at a time when the ruling government has made its disinterest in the RTI Act crystal-clear through its tardiness in appointing appropriate persons as well as filling vacancies for the post of information commissioners. Significantly, 10 of the 11 orders dealt with by the apex court are those of Shailesh Gandhi, the only RTI activist who became a central information commissioner; and one is that of Satyanand Mishra, former chief information commissioner. While giving those 10 orders, Mr Gandhi, in some cases, had even disagreed with a full bench of the CIC. Dismissing the cases challenging the orders, the apex court said, the CIC’s orders were based on elaborate consideration, gave valid reasons why the disclosure of information would not only serve public interest, but that non-disclosure would be detrimental to it. Hence, the bench was clear that the 11 orders did not “suffer from any error of law, irrationality or arbitrariness” and, therefore, “need no interference by this Court.”
Now, with these being upheld by the apex court in one stroke, Mr Gandhi has created a benchmark for sagacity and courage to interpret the law in the peoples’ interests. As Mr Gandhi says, “The order will bring greater accountability in our financial system,” because what applies to RBI will also hold true for the capital market, insurance, pension, electricity and telecom regulators. RBI must realise that transparency increases accountability and good behaviour on the part of regulated entities will reduce its own supervisory burden. Accepting the judgement with good grace will only increase its credibility and set a standard for other regulators as well.
(Sucheta Dalal is the managing editor of
Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected])