PMC Bank Fraud: Inputs given to amend coop societies Act says RBI Governor
RBI Governor Shaktikanta Das on Thursday said there is a forensic audit underway in PMC Bank and that it is closely monitoring the situation and has already given inputs for the proposed amendments in the Cooperative Societies Act to the Finance Ministry to strengthen regulatory control over such banks.
 
"We are providing inputs to the government for legislative changes in the Act (Cooperative Societies Act). The government will decide on the final amendment," Das said after a meeting of the Financial Stability and Development Council (FSDC) here.
 
In the FSDC meeting chaired by the Finance Minister, PMC Bank issues were discussed. 
 
The FSDC is chaired by the Finance Minister and is a body of financial regulators such as SEBI, IBBI, CCI PFRDA, IRDAI. It met on Thursday where NBFC liquidity, commercial banks' credit offtake, PMC Bank situation and macro data of the economy were also taken up.
 
Das said RBI is in touch with various investigating agencies on the realisable value of the assets which were securitized by the PMC Bank. The realisable value or actual market values of assets are also being assessed. These assets are spread over various parts of Maharashtra and some in other parts. Agencies have been appointed and the valuation process is going on. We are checking if these assets have been sold to anyone or if there have multiple owners. 
 
Last month Finance Minister Nirmala Sitharaman had after meeting PMC Bank depositors promised to bring in legislation in the upcoming winter session of Parliament to amend the Act governing cooperative banks.
 
Once a marquee bank, Punjab & Maharashtra Cooperative Bank is now scam-tainted. It was among the top 10 urban cooperative banks in the country, but after fund diversions were disclosed, it was placed under an RBI administrator on September 23 for six months due to massive under-reporting of fictitious loans.
 
The RBI had imposed withdrawal restrictions on account-holders after it found alleged irregularities to the tune of Rs 4,355 crore due to diversion of money to infrastructure firm HDIL. After much dissent by the depositors, on Tuesday, the apex bank enhanced the cash withdrawal limit to Rs 50,000 per account, which was the fourth such increase since PMC Bank was placed under its direct control. 
 
SO far five persons, including HDIL promoters Rakesh and Sarang Wadhwan, have been arrested by the police in the case. Several protests have been held by the depositors in Mumbai and at least 10 depositors have died since the alleged scam came to light fearing loss of their hard earned. Sporadic protests have taken place in front of the RBI main office in Delhi as well.
 
On NBFCs, Das said, "We have a good sense of what's happening in this sector. The overall CRAR requirement of NBFCs is 15%. The sectoral NBFCs CRAR is 19.3%. 
 
Capital to Risk (Weighted) Assets Ratio (CRAR) is also known as Capital Adequacy Ratio, the ratio of a bank's capital to its risk. The banking regulators track a bank's CAR to ensure that the bank can absorb a reasonable amount of loss and complies with statutory capital requirements.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    Are E-Agreements Legally Valid?
    With the evolution of technology, ways of executing documents have also evolved. With the increasing demand for modern, convenient methods for entering into binding transactions, electronic agreements and electronic signatures have gained a lot of currency in recent years. Technological developments have not only changed the ways in which these transactions are entered into but have also revolutionised the execution process significantly. But are they legally valid?
     
    While there have been various cases, where email between parties has also been accepted as a binding contract, the validity and enforceability of click-wrap agreements continues to be a cause of concern. The recent report of the steering committee on fintech issues has also discussed the issue of re-engineering of legal processes for the digital world. 
     
    The committee suggests that insistence on wet signatures on physical loan agreements be replaced by paperless legal alternatives, as these can enable cutting costs and time in access to finance, repayment, and recovery for businesses and financial service companies. The physical loan agreements are unwanted even for the achievement of the goal of a paperless economy. 
     
    The committee has, therefore, recommended that the department of legal affairs should review all such legal processes that have a bearing on financial services and consider amendments permitting digital alternatives in cases such as power-of-attorney, trust deeds, wills, negotiable instrument other than a cheque, any other testamentary disposition, any contract for the sale or conveyance of immovable property or any interest in such property, (where Information Technology- IT Act is not applicable), compatible with electronic service delivery by financial service providers.
     
    In this article, we discuss the legal validity of electronic agreements and electronic signatures. 
     
     
    Section 10 of the Contract Act lays down as to what agreements are contracts. It states:
     
    “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.” 
     
    Contracts executed electronically are also governed by the basic principles provided in the Contract Act, which mandates that a valid contract should have been entered into with a free consent and for a lawful consideration between two majors. The intent of the parties is, therefore, relevant.
     
    In case of click wrap agreements also, if the terms and conditions are provided to the user (offer) and he confirms to the same by ticking on “I Agree” (acceptance), then he shall be held liable to honour the obligations under the contract. 
     
     
    Section 10A of the IT Act expressly provides for validity of contracts formed through electronic means and states that- 
     
    “Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.”
     
    An e-agreement subsequent to its execution is stored/recorded with the executing parties in electronic form, and is considered an electronic record under the IT Act. In this regard, it is relevant to refer to Section 2(1)(t) of the IT Act, which defines an electronic record as “data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche”. 
     
    The terms electronic signature and digital signature have been defined under the IT Act.
     
    In fact, the IT Act quite comprehensively covers the legalities of digital signature certificates (DSCs). Section 5 of the IT Act gives electronic signatures their legal character.  
     
    “5. Legal recognition of electronic signatures: Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of electronic signature affixed in such manner as may be prescribed by the Central government. “
     
    Considering that the IT Act has recognised e-signatures as legal and binding, the same may also form a strong basis for initiating litigation before a court of law.
     
    Recognition of E- Agreement and E- Signature under Stamp Acts
     
    While a majority of state stamp laws do not specifically include electronic records within their ambit, some state stamp duty laws do recognise “electronic records” within the purview of “instrument”. For instance, Section 2(l) of the Maharashtra Stamp Act, 1958 specifically refers to electronic records in the definition of the term “instrument” as under:
     
    “instrument includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt;
     
    Explanation. – The term “document” also includes any electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000.
     
    The Maharashtra E-Registration and E-Filing Rules, 2013 also make appending of electronic signature or biometric thumb print mandatory, thereby further giving recognition and legal validity to e-contract and e- signature. The Indian Penal Code, the Banker’s Book of Evidence Act 1891 and the Reserve Bank of India Act, 1934 also contain provisions in relation to such electronic contracts which contain digital signature.
     
    Admissibility of E-agreements as evidence 
     
    Under the Evidence Act, 1872, an e-agreement has the same legal effect as a paper based agreement. The definition of “evidence” as provided under Section 3 of the Evidence Act includes “all documents including electronic records produced for the inspection of the court.” 
     
    Section 65B(1) of the Evidence Act provides that any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer shall be deemed to be also a document and shall be admissible in any proceedings, without further proof or production of the original, as evidence of any contents of the original or of any fact stated therein of which direct evidence would be admissible”.
     
    Further, Section 47A of the Evidence Act stipulates that when the court has to form an opinion as to the electronic signature of any person, the opinion of the certifying authority which has issued the electronic signature certificate is a relevant fact, and Section 85B of the Evidence Act stipulates that unless the contrary is proved, the court shall presume that- 
     
    (1) the secure electronic record has not been altered since the specific point of time to which the secure status relates; 
     
    (2) the secure digital signature is affixed by the subscriber with the intention of signing or approving the electronic record. 
     
    Global Laws
     
     
    In 1996, the United Nations Commission on International Trade Law (UNCITRAL) adopted the model law on electronic commerce to bring uniformity in the law in different countries. Based on which, India enacted the Information Technology Act, 2000.
     
    Subsequently, in 2001, as an addition to the existing model law, a model law on electronic signatures was adopted by the general assembly of UNICTRAL. 
     
    Article 2 (a) of the model law defines electronic signatures as below:
     
    “Electronic signature” means data in electronic form in, affixed to or logically associated with, a data message, which may be used to identify the signatory in relation to the data message and to indicate the signatory’s approval of the information contained in the data message;”
     
    The model law has further examined various electronic signature techniques being used, and has broadly recognised two categories of electronic signatures- 
     
    (1) Digital signatures relying on public-key cryptography; and
     
    (2) Electronic signatures relying on techniques other than public-key cryptography.
     
     
    (1) The law commission has considered various forms of e- signatures such as typed names and digital images of handwritten signatures, passwords and PINs, biometrics, and digital signatures. The following are the key discussions in the consultation paper with respect to alternative modes of signature: A rudimentary electronic signature may consist of a typed name in an electronic document, or a digital image of a handwritten signature. Such digital images may be produced by a scan or a photograph of the signature. However, there is a high risk of fraud in these forms of e- signature, as any person can copy the signature of any other person.
     
    (2) A biometric signature is a type of electronic signature that measures a unique physical attribute of the signatory in order to authenticate a document. For instance, fingerprints, retina scan, voice recognition, facial recognition. A biodynamic manuscript signature is also a type of biometric signature that is increasingly being used, where the unique way by which a person signs is recorded by way of various parameters including speed, pressure, and even the angle of the stylus, however, the reliability of biodynamic signatures varies on the systems used to record and analyse them.
     
    Conclusion
     
    On a combined reading of the national and international laws, it can be said that e-agreements are valid and enforceable in the courts, however, since the risk associated with e-signatures are high, for high stake transactions, parties still insist on wet signatures on physical agreements. 
     
    For fintech entities, who have been vigorously using e- mode of documentation and execution, in order to avoid fraud or forgery, e- signatures can be used with an additional layer of security, for instance, by verifying the electronic signature via sending an OTP at the registered mobile number, or by using geo location, to capture the IP address, or such other mechanism to track the detail of the electronic device from where the e-signature has been affixed. Such a two-tier verification process shall also ensure authenticity of the signatory. 
     
    (Anita Baid is senior manager and Richa Saraf is legal advisor at Vinod Kothari Consultants P. Ltd
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    IRDA Asks Reliance Health Insurance to Transfer Entire Portfolio to Reliance General Insurance
    The Insurance Regulatory and Development Authority of India (IRDA) has asked Reliance Anil Dhirubhai Ambani group (ADAG) company Reliance Health Insurance Ltd transfer its entire portfolio to Reliance General Insurance following sharp reduction in net worth, investments and bank balance in the health insurer.
     
    In an order, the regulator has asked Reliance Health Insurance to transfer to Reliance General Insurance on 15 November 2019 its entire health insurance portfolio, all investments pertaining to policyholders and those lying in shareholders' accounts, bank balance and cash in hand, premium collected by agents and branches and any other financial assets. Reliance Health Insurance has been asked to inform through a notice all policyholders about transfer of its entire portfolio to Reliance General Insurance.
     
     
    Reliance General Insurance, on the other hand is directed by IRDA to keep all assets and liabilities of Reliance Health Insurance separate from its general insurance business and report it as separate line of business. Reliance General Insurance should promptly settle claims arising out of Reliance Health Insurance portfolio and display the procedure for this on its website and on the notice board at offices and branches, IRDA had said.
     
    According to the insurance regulator, Reliance Health Insurance was granted a certificate of registration in October 2018 and within a year, its solvency fell to 63% as on September 2019 from 106% on 30 June 2019. Section 64VA(3) of the Insurance Act requires an insurer to maintain control level of solvency at 150%.
     
    In its submission, Reliance Capital Ltd, the promoter of Reliance Health Insurance admitted to violations of provisions under Section 64VA(1) and 64VA(3) of the Act. While affirming that Reliance Health Insurance had sufficient assets to cover policyholders' liabilities, Reliance Capital informed IRDA that the proposed induction of a new promoter or investor was not proceeding as envisaged and it would submit a detailed plan to merge Reliance Health Insurance with Reliance General Insurance. 
     
    "Given the fact that the solvency of Reliance Health Insurance is considerably below the control level of solvency and based upon the submissions made by Reliance Health Insurance and Reliance Capital, the promoter, the Authority has come to the conclusion that continuation of health insurance business by Reliance Health Insurance at this junction will not be in the interest of the policyholders," the order from IRDA says.
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