Coming down heavily on the RBI, the central information commissioner under the RTI Act, said the idea put forward by the central bank that citizens are not mature enough to understand and will panic and harm their own interests, is repugnant to democracy

In what could possibly be a path breaking and a most important decision, Central Information Commissioner (CIC) Shailesh Gandhi has ruled that citizens have a right to know about the functioning of banks including any regulatory lapses. “If there are irregularities in the functioning of a bank pursuant to which action has been taken by the Reserve Bank of India (RBI), citizens certainly have a right to know about the same,” the CIC said in a recent order.

While allowing the appeal filed by Ashwini Dixit, the CIC asked the central bank to provide information regarding action taken by the RBI against scams/economic inconsistencies of United Mercantile Cooperative Bank (UMC Bank) along with the daily progress reports.

Mr Dixit, a resident from Kanpur, has sought information regarding the UMC Bank. He asked the RBI to provide...
1. Action taken by RBI against scams/economic inconsistencies of United Mercantile Cooperative Bank (the "Bank") along with daily progress reports.
2. Number of extension counters which can be opened by the Bank—as authorized by the RBI along with details of expenditure incurred in opening the same. Did the Bank adopt any tender procedure in relation to such counters? If yes, provide description of such tenders.

While the public information officer (PIO) from RBI admitted that it had done an inspection of the UMC Bank, it refused to share details of the report citing Sections 8(1)(a) and (e) of the RTI Act.

Not satisfied with the reply from the PIO, the appellant (Mr Dixit) approached the CPIO and the Information Commission. The Commission, said, while information sought under query 2 has already been provided, it will decide whether the information sought in query 1 is exempt from disclosure under Sections 8(1)(a) and (e) of the RTI Act.

The central bank submitted that the information sought is based on the scrutiny conducted by the RBI in exercise of its powers under Section 35(1A) of the Banking Regulation Act, 1949 (the BR Act) and disclosure of inspection reports and the information submitted to the RBI or collected by the RBI in terms of Section 27 of the BR Act would be detrimental to the interest of depositors, public and banking policies.

However, the CIC said this provision appears inconsistent with the RTI Act. He said, “This (exemption sought under the BR Act) is prima facie inconsistent with the RTI Act, which mandates disclosure of information unless exempted under Sections 8 and 9 of the RTI Act. Therefore, in accordance with Section 22 of the RTI Act, the Commission holds that the provisions of the RTI Act shall override the provisions of the BR Act as regards furnishing information.”

The Commission also observed that the RBI has sought a stay on the orders issued by the CIC in several matters from the high courts and obtained an ex-parte interim stay in seven matters. The RBI said since the seven matters are related with whether inspection reports are protected from disclosure under Section 8 of the RTI Act, has not been conclusively determined and are pending before the courts, the multiplicity must be avoided to the extent possible as a matter of public policy.

After perusing the stay orders, the CIC found that all the matters cited by the RBI do not pertain to the specific issue of protection of inspection reports under Section 8 of the RTI Act and the central bank also had not provided evidence about the specific issue. “The Commission is a statutory authority set up specifically for the purpose of adjudicating on matters relating to the RTI Act. Given the above, the Commission must continue to discharge the duty placed upon it and authoritatively resolve issues arising under the RTI Act,” Mr Gandhi said.

In its submission, the RBI said that any misreading or out of context appreciation of the observations made in the inspection reports may be hazardous and lead to cascading effect on all other entities which may have exposure to such bank or share business relations with such bank. “The consequences may be irreversible and may result in dilution of confidence of the banking system. The adverse market reactions to such sensitive information may be phenomenal and may be of systemic risk to the economy, banks being the backbone of the economy,” it added.

The central bank also cited a ruling by Punjab & Haryana High Court in the RBI vs Central Government Industrial Tribunal that was used by the full bench of the CIC in the RR Patel vs RBI case. The CIC said that the full bench was of the 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 and there is no observation that the Full Bench had come to this conclusion by itself.

Further the observations of the Punjab & Haryana HC in the RBI vs Central Government Industrial Tribunal were made much before (on 7 May 1958) the advent of the RTI Act and, therefore cannot be a guide for deciding on the applicability of exemptions under the RTI Act.

The RBI argued 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”. The RBI was unwilling to share information which might bring out the “weaknesses in the financial institutions, systems and management of the inspected entities”. It 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 a contagion effect”.

However, this argument did not find any favour from the CIC and instead attracted strictures. The CIC said, “It appears that the RBI argued that citizens were not mature enough to understand the implications of weaknesses, and the RBI was the best judge to decide what citizens should know. Citizens, who are considered mature enough to decide on who should govern them, who give legitimacy to the government and framed the Constitution of India 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.”

“It follows that if the RBI made mistakes, or there is corruption, citizens should suffer. This appears to go against the basic tenets of democracy and transparency. The idea that citizens are not mature enough to understand and will panic and harm their own interests, is repugnant to democracy. The case for transparency is that when citizens are watching and monitoring Institutions, they are forced to be on their toes, and will continuously improve,” Mr Gandhi noted.

Maintaining that the Commission is a quasi-judicial body responsible for appeals and complaints arising under the RTI Act, the CIC said, it cannot abdicate its responsibilities under the RTI Act to the RBI on the ground that the latter is an expert body.

Section 8(1)(a) of the RTI Act exempts—“information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic  interests of the state, relation with a foreign state or lead to incitement of an offence”.

Mr Gandhi, in his ruling said, “This bench is unable to understand how disclosing information about the action taken by the RBI against scams/economic inconsistencies of the UMC Bank along with the daily progress reports would affect the economic interests of the Indian nation. Financial stability of a nation cannot lie solely on public confidence in banks/financial institutions, and certainly not where banks/financial institutions holding public funds are involved in irregularities.

“This bench is not convinced with the argument that disclosure of information would lead to any harm to the economic interests of India; in fact it would help to improve the fundamental strength of the economic foundations of the country and safeguard against sudden disruptions, which could be caused if all the information was not available to public. This bench therefore cannot leave such a decision to the wisdom of RBI,” the CIC said.

In the order, Mr Gandhi said, “The Commission is of the opinion that the information sought in query 1 is not exempt under Sections 8(1)(a), (d) and (e) of the RTI Act, as claimed by the respondent. Even if it had been exempt, Section 8(2) of the RTI Act would mandate disclosure of the information sought. Citizens have a right to know about the functioning of banks including any regulatory lapses. If there are irregularities in the functioning of a bank pursuant to which action has been taken by RBI, as sought in query 1, citizens certainly have a right to know about the same. A larger public interest would be served by disclosing this information under Section 8(2) of the RTI Act. The nation’s interest would be better served through transparency and exposure of arbitrary, wrong, corrupt or illegal acts.”