Regulations
Supreme Judgment on RBI Will Have Major Impact
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’.
 
Fiduciary Information

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 sucheta@moneylife.in)

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COMMENTS

Mahesh Khanna

2 years ago

I hope RBI will put the information on its website and comply with SC decision, since it is expert in finding ways to avoid publishing detail son its website , since it has refused ion the past to put its own information on foreign tours of officials, it has refused to put on website its transfer ,promotion details of officials as per required by DOPT guidelines. It has not put the tender details of its work pertaining to Digitalization of records which is mandatory as per CVC guidelines. True Ram Rajya under Dr. Raghuram Rajan the Hon. Governor of RBI.

Baskaran

2 years ago

Sir,
It is perhaps Landmark judgement which will help to expose the manner in which PSB and coop banks were defrauding the public.I suggest that the RTI replies about PSB and coop banks are put in public domain to create pressure on banks to act carefully.

We should also question the wisdom of RBI in pumping money supply based on Nominal GDP and inflation-especially when GDP is debt funded which in turn is pushing up CPI.Un-ending supply of money combined with virtual money created by fractional reserve lending by banks,Secularization of bad loans, PN notes,Restructuring of loans,Commercial papers and borrowing by state and central governments, casino play by stock market and real estate with tacit lending norms of RBI should be exposed using RTI.

A S Bhat

2 years ago

Excellent article once again.
Thanks

Ramesh B Mhadlekar

2 years ago

As it is RBI does not care for SC which is evident from the facts that it has resorted to class IV secretive and Private recruitment contrary too SC decisions which are well settled laws.The RBI officials do not have respect for the Indian Constitution if they had they would have abided by Art 14 and 16 in the matter of recruitment.It is a similar scam to the one of teacher recruitment scam of Hryana the only difference it Chauthala and his son is in the jail and RBI top officials are roaming free.

REPLY

Baskaran

In Reply to Ramesh B Mhadlekar 2 years ago

RBI is still controlled by British Laws and is keeping 265.49 Tons of Indian GOLD with Bank of England paying about 52000 Pounds per quarter and allows BOE to use it to facilitate the Reserve management.The gold in question include 200 tons purchased in 2009 from IMF and it includes the gold pledged and redeemed the same year in 1991.Are incapable of safe guarding our Nations Gold or is RBI misusing it.

Ramesh B Mhadlekar

2 years ago

I do not think RBI will be transparent,since in one of the matter where an applicant sought records of one page Minutes,the CPIO replied that it would divert the resources under Sec 7 (9) since the information was spread all over,which means RBI made thousand pieces of the one page minute and filed it in several files.

Mahesh S Bhatt

2 years ago

Its a challenge where our FM Arun Jaitley is filing a Law suit against AAP for legally correctly paying Rs 16000 for laptop rent & Rs 3000 for printer as we saw Rs 4000 tissue paper in CWG.

These are Legal Eagles legally correct.
Businesswise otherwise as at that price you can buy laptop /printer.But to siphon money rent accounts are legally correct.

Lastly there is serious Moral & Ethical Issue that where is the conscious of Nation Keepers.

Clearly self development where Cricketers sweat in game they sit in AC stadiums & make money.

Great Cricket Managers Sharad Rao Pawar,rajiv Shukla,Shashi Tharoor,Lalit Modi,Arun Jaitley,Amit Shah,etal

I am sure they donot want to manage kabbadi or athletics where there is tough road to create CHAMPS & they are not CHIMPS.

Amen Mahesh

REPLY

nilesh prabhu

In Reply to Mahesh S Bhatt 2 years ago

This is happening in all sporting bodies, whether it is badminton, hockey or football.

we have seen how so called badminton legends have siphoned of sub junior and junior players rightful due. 500 sponsored kits to be given to karnataka sub junior/junior players were sold

The hard working kids are not even aware of the same.

more and more Gandhis and Dalals must emerge to fight and expose these hypocrites.

Mahesh S Bhatt

2 years ago

Let True Truth Prevail & not marketed one.

America was strong on 4 pillars Finance/Technology/Defence superiority & Hollywood marketing America well.

In 2007 -08 great meltdown happened rest is history.QE followed supposed to have cleaned the mess but lot remains to be seen.

Manipulation of Land prices with toxic stocks created a great fall.

India is on similar path high land prices /high Corporate debts poor recovery of NPA/CDR is challenge.

SC & Shailesh Gandhi have achieved impossible with great panache.

Are we seeing another Gandhi uploading Value of Satya to save India.

Surely & Certainly Let's Stand Up for this Gentlemen.Also for Sucheta Dalal & Debashis of Moenylide who are fighting herculean odds & systems.

God Bless Amen Merry Christmas Kudos & Congrats to whole team who fought for the judgement & Judges who delivered the same.

Cheers for 2016 Happiness in New Year.

Mahesh Bhatt

Mahesh Khanna

2 years ago

xxxxxx

MG Warrier

2 years ago

Excellent analysis by Sucheta Dalal.
As I have already mentioned while commenting on the previous article on the subject, RTI Act has been another significant milestone in the democratic process of governance in India, next only to the ‘Question Hour’ in legislatures and the Act has proactively helped in improving transparency in the working of government and organisations coming under its purview.
There are a couple of issues which may need further debate, for which this analysis by Sucheta Dalal can be the basis. I think:
i) Citizen’s right to information has to be protected at any cost and this landmark verdict should remove any doubt in the minds of those who are taking shelter under protective clauses in the RTI Act. Like fundamental rights, this right also cannot override existing laws which were enacted after due deliberations at various points of time, before and after independence. I am referring to the impression being created after the Apex Court verdict (and court’s observations flashed in the media) about making public information obtained by regulators and supervisors of institutions in the course of performance of duties under law. In such cases, the provisions relating to secrecy in statutes should be revisited and the extent to which and the manner in which such information should be shared and with whom, should be clarified. This should not be mixed up with provisions of RTI Act or powers of Central Information Commissioner.
ii) The type of questions raised or information sought under RTI Act sometimes put government or organisations in embarrassing situations. The recent post at PMO’s website gave an indication of the nature of information sought from PMO under RT I. That is part of the evolution process of any such initiatives.
iii) Instead of celebrating it as a victory over the central bank, the verdict should be seen in the right perspective for making the working of government departments and statutory bodies more transparent and efficient.
iv) After all, it is not the absence of ‘information’ that is preventing the establishment or citizens from moving towards better exploitation and equitable distribution of resources or preventing corrupt practices across public and private sectors. It is the WILL that is lacking and views like this taken by the Apex Court will go a long way in developing faith in the system in the mind of common man and creating the necessary WILL.
M G Warrier, Mumbai

Raghavendra Rao

2 years ago

Bring BCCI alaso

Treatment Given to Retail Investors Is Shoddy!
As a subscriber and regular reader of Moneylife, I would like to bring to the notice of the editor some of the recent activities of some corporate giants which do not treat investors fairly. I hope Moneylife will not only write to the concerned corporate giants but also take up the issues with authorities like the CLB (company law board) so that investors are protected.
 
First, let...
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Why the Real Estate Bill is still half a bridge of hope
While the bill tries to protect consumers, slow approvals are a major reason behind delays and increasing cost of property. The Bill does not address this
 
The Union Cabinet has finally cleared the Real Estate (Regulation and Development) Bill, which is being planned to be tabled in the winter session of the Parliament. In a note on the bill, Liases Foras Real Estate Rating & Research Pvt Ltd, said, "While the bill protects consumer interest, faster approvals are also crucial for developers to prevent delays. Against this backdrop, regulatory authorities aim to promote single window system of clearances for real estate projects, wherein the projects and promoters both can be graded along with digitisation of land records. However, the bill has a long way to go as far as faster sanctioning process is concerned. Thus, the problem is only half-solved." Also, after it becomes an Act, it’s the State’s responsibility to bring it to effect by appropriate measures, Liases Foras added.
 
According to Liases Foras, "...project delays are the Achilles’ heel of Indian real estate and one of the key reasons for sky high prices. As far as responsibility for delay is concerned, it lies with both the developer and the government authorities. Thus, if we look at the larger picture, the delays in execution also have a negative bearing on India’s gross domestic product (GDP)," Liases Foras says.
 
In June 2013, while speaking at a Moneylife Foundation event on the Bill, Parimal Shroff, with over 39 years’ experience in constitutional, corporate, civil and property law, had called the Central Act as “too ambitious”. He had said, "It (the Bill) proposes that all permissions, information, online declarations and registration are to be validated before the project starts. The penalties for failing to comply are too severe. Then, it requires that the plans and designs to be put up online—this gives rise to problems related to protection of intellectual property and security”.
 
The real estate sector in India faces some fundamental issues, which are not fully addressed in the new amended Bill. This includes, issues relating to land acquisition, registration, transfers, taxation and a plethora of permissions and clearances that would remain with state governments and municipal authorities. There is rampant corruption in each of these processes and Central legislation is unlikely to address many of these issues. But first the positives of the Bill.
 
The Positives
 
The Bill is based on three major foundation stones, transparency, accountability and efficiency. Compulsory disclosures and registration ensures transparency, while taking responsibility in case of any unwarranted deviations in the process ensures accountability. Together, these elements generate efficiency by discarding any kind of deception in prices. 
 
"Firstly, it may usher sales on carpet area, which is a practice followed in the developed countries including Singapore and UK. Secondly, the escrow account will help in curbing diversion and misuse of funds, ruling out speculative practices," Liases Foras said.
 
Another important aspect of the Bill is the redressal mechanism, addressed through adjudicating officers and Appellate Tribunal. Discontented buyers can now approach 644 consumer courts at the district level instead of only the Regulatory Authorities proposed to be established mostly in capital cities. This makes it convenient for buyers and reduces the costs of litigation. In addition, the Bill marks a provision for imprisonment of builders and real estate agents in case of violation of rules.
 
 
Delays 
 
However, the Bill does little to address the major cause of high real estate prices: delays in obtaining approvals.
 
A study conducted by Associated Chambers of Commerce and Industry of India (Assocham) show that over 75% of the total 3,540 projects, worth Rs14 lakh crore, have remained non-starters. "On an average, real estate projects in India are facing a delay of 33 months in completion," DS Rawat, secretary general of Assocham, had said while releasing the study report.
 
According to the study, over 2,300 projects in the realty sector remained non-starter, while over 1,000 on-going projects have registered significant delays in completion.
 
In its analysis of total supply across 25 cities, Liases Foras found that there is a delay of more than 12 months for about 34% of the supply. This estimated delay of residential projects amounts to 1.32% of the estimated GDP (2014-15) at current prices, it said.
 
In addition, there is the issue of unsold stock. Liases Foras says, even in the current depressed state of market, primary supply worth about Rs18.47 lakh crore or over 99% would come under the purview of the Real Estate Regulatory Bill. "There also exists a secondary market, which we estimate is of an equal size. So, the quantum under the Bill’s ambit is huge. Also, the revised bill includes compulsory registration of projects of 500 sq. metres or 8 flats, against the previous norm of 1,000 sq. meters or 12 flats. With a vast universe under coverage, the bill is expected to have far-reaching positive effects on execution and accountability," it added.
 
 
Construction and sale of an apartment, which is the base of real estate sector, has the capacity to catapult the growth of an entire ecosystem on its own. Once the execution delays are reduced considerably, housing sales will receive a boost, the agency feels in three ways:
 
  1. Increased sale of houses create ancillary demand. There will be automatic demand for furniture, consumer durables, fit-outs, automobiles, fibre optics and telecom companies.
  2. This will spur job creation and expansion of industries giving a boost to commercial segment. Benefits of this will also trickle to retail realty as increased income implies enhanced purchasing power.
  3.  An upbeat economy with a functional regulatory mechanism will place India on a global footing and make it one of the most sought after destinations for international investors.

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COMMENTS

vswami

2 years ago

In the Realty Regulatory Bill, not even a whisper made about, or measures of reform factored in, for ushering in any change or improvement in certain procedural legal formalities promoters are obligated to strictly comply under the respective special laws governing Flats and Apartments. Hence the need for sharing,once again,though at this late hour :

The opinion of an expert on the property law as found @ http://www.lawyersclubindia.com/…/Stamp-duty-for-conveyance…
goes to reinforce, in substance, the same basic viewpoint as set out in the several personal Blogs, in public domain, and websites

For ready reference, given below is an extract from what Expert raj kumar makkad says:

Q

It is the duty of the Builder to form a Society or any other legal body ....About 80,000 Housing Societies are waiting for a quick and easy remedy and that has paved the way for Deemed Conveyance.

Only after executing the Conveyance, the legal ownership of the land and building will be with the Society; till such time, the Society will have only possession rights without any legal rights for redevelopment or for earning any commercial benefit.

There are five stages to complete the Conveyance of land and building in favour of the Society even under Deemed Conveyance.......
A Special Cell has been started by the Maharashtra Societies Welfare Association....., to provide guidance on Deemed Conveyance. ....

UQ

Note: The Expert has, in a simplistic manner, stressed that ”till such time, the Society will have only possession rights without any legal rights for redevelopment or for earning any commercial benefit". However, in the nature of things, the better or logical conclusion would be that, till such time final conveyance takes place in favour of 'Society' or 'Owners' Association' , 'absolute ownership' cannot be regarded to have become vested in the purchasers; so much so, the purchasers cannot, if strictly viewed/ construed, rightly claim to have acquired all such rights and interests (not merely the two such rights as found mentioned/shortlisted) as are supposed to pass on/devolve only along with profoundly "absolute ownership".

To be quite precise, the 'society' in the case of Flats, and the 'owners' association' if apartments, ought to have been duly formed and registered , strictly as required by the special enactments, so that the final conveyance of the 'property' in favour of such society or association could be effected; as, otherwise, the final conveyance could never be effected / take place - that is, would remain incomplete.

It is a matter of great regret and disappointment to realize that, while Maharashtra has shown the righteous way, the Karnataka government,- to be precise its concerned authorities, though duly vested with necessary powers,- has thus far remained woefully mute, and disparagingly immune ; despite the matter being undeniably of the utmost importance from the viewpoint of public interest (in its true sense).

PRAKASH D. BASRUR

2 years ago

In all such discussions the buyer's views are not mentioned ! The article fully depends upon the views of an agency which is on the side of the builder/developer lobby ! The agony gone through by the actual buyer of houses for the last 60 years is well known to everyone including the writer , i.e. the unscrupulous ways of buyer's arm twisting by the builder/developers and the infamous "estate agents" ! That community comprises of shady elements is a very well known fact and over the years millions of property buyers have had to admit to the dictat of that developer/builder/agent nexus. Unfortunately neither the bill nor the writer of the article seem to have gone through the horrors that the property buyers have had to go through for last 60 years ! This is typical of our "blind folded" society's futile attempts in solving consumer problems through the round abut ways of our parliament of the people , by the people and for the people ! Jai Hind !

REPLY

Sucheta Dalal

In Reply to PRAKASH D. BASRUR 2 years ago

Every article will not have the buyers views. Moneylife has plenty more on real estate which represent the buyers point of view.

In addition, there is Moneylife Foundation, a NGO, where our legal helpline provides assistance on housing related issues.

Why not explore the work we do ? Check out foundation.moneylife.in

And finally, unless people get together to push for reform, nothing will change. We try to do it in our small way, but we need SIGNIFICANTLY larger numbers to be able to generate the right momentum.
So how about spreading the word about these activities? Most articles and the NGO are free -- so it costs nothing to join and help your self and people like you!

That does not mean that the foundation can run without financial support and donations -- but we can come to that later...

PRAKASH D. BASRUR

In Reply to Sucheta Dalal 2 years ago

Dear Sucheta !
I am already a small amount donor of your (our ?) NGO ! I have done about 10 deals in aquiring flats in Mumbai-Pune area and have had a bitter experience of dealing with the developer-builder-estate agent nexus in my active life of last 50 years ! I am sure you too have dealt with this "triangle" and got entangled into their web ?

Sucheta Dalal

In Reply to PRAKASH D. BASRUR 2 years ago


Dear Mr Basrur

Thank you for your support to Moneylife Foundation.

On the flat deals... we have been fortunate -- or probably followed what we preach... but thankfully not suffered.

Best wishes to you for the New Year.

Deepak Mahulkar

2 years ago

First of all, I have an apprehension about relation between project delays and high price. Everyone knows that Rates are quoted before commencement of project which inter alia means the builder envisages project delays at the time of inception. In case project gets completed within time, builder is benefited. When delayed, he is not at loss. Of late, most of the people in building industry are with political clout or dubious characters thus having no knowledge of construction or the policy. The delay is therefore obvious. Sanctioning authorities in Government further adds the delay.

RITENDRA KUMAR ROYCHOWDHURY

2 years ago

construction violating plan is the rule of the day. without the help of ruling political party it can not be happened.so new laws can be made but who will implement it?our country is govern by various lobby, one of them is the builder.

Mahesh S Bhatt

2 years ago

Strucural support for 5 years should have been 15 years minimum as life of the building is supposed to be 75 years.

Also no mention in terms of workmanship of other parts of construction such as external/internal water proofing.Poor tiling/plastering/accessories like sliding doors etc

Good Start 2016

Mahesh

vswami

2 years ago

IMPROMPTU

AS shared on Facebook;and HERE and http://swaminathanv208.blogspot.in/2015/...

satdin.in

2 years ago

no laws can be helpful unless builder-political-municipal nexus is abolished.almost every project is violating exiting law in one way or other. every body knows way?

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