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Supreme Court orders RBI on RTI

Supreme Court orders RBI on RTI

Relevance:

  • GS 3 || Economy || Banking & Financial Sector || RBI

Why in news?

  • The Supreme Court directed the Reserve Bank of India (RBI) to disclose information pertaining to its annual inspection report of banks and other material under the Right to Information (RTI) Act unless they are exempted under law.

Case

  • 2015 judgment: The 2015 judgment had rejected the RBI’s argument that it could refuse information sought under the RTI on the grounds of economic interest, commercial confidence, fiduciary relationship or public interest.
    • The court had observed that there was “no fiduciary relationship between the RBI and the financial institutions”.
    • The court, in 2015, reminded the RBI that it had the statutory duty to uphold the interests of the public at large, the depositors, the economy and the banking sector.
  • Nov 2016 Disclosure Policy: The Bench was hearing contempt petitions filed against the RBI for not complying with the 2015 judgment.
    • The court found the November 2016 Disclosure Policy of the central bank to be directly contrary to the court’s judgment of December 2015 that the Reserve Bank could not withhold information sought under the RTI Act.

Information sought

  • RBI’s annual inspection reports: The petitioners had sought details pertaining to the RBI’s annual inspection reports of ICICI Bank, AXIS Bank, HDFC Bank and State Bank of India from 01.04.2011 to the date of filing of the application.
  • Information relating to the Sahara Group of Companies and Bank of Rajasthan was also sought from the RBI.
  • The RBI did not provide information in view of the exemption from disclosure under Section 8(1)(a) and (b) of the RTI Act, as the disclosure was not in economic interest of the State, and would adversely affect the competitive position of the third party.
  • Separately, details of showcause notices and fines imposed by the RBI on various banks were also sought.

Current order

  • Withdraw disclosure policy: The Supreme Court gave the Reserve Bank of India (RBI) “a last opportunity” to withdraw the November 2016 Disclosure Policy to the extent to which it stonewalls revelation of every other kind of information under the Right to Information Act, including the list of wilful defaulters and annual inspection reports.
  • The RBI is duty-bound to comply with the provisions of the RTI Act and disclose the information.
  • The RBI’s claim for exemption under Section 8(1) of the RTI Act, on the ground that disclosure of information such as annual inspection reports or details of show cause notices and fines imposed by the RBI on various banks would affect the economic interest of the country was found to be totally misconceived.
  • The court however said some matters of national economic interest like disclosure of information about currency or exchange rates, interest rates, taxes, the regulation or supervision of banking, insurance and other financial institutions, proposals for expenditure or borrowing and foreign investments could harm the national economy, particularly, if released prematurely.

Implications

  • Provide annual inspection reports: The RBI will be required to provide annual inspection reports and other material (such as details of penalties) unless it is exempted under law.
  • While this will provide greater transparency about the affairs of banks, it has the potential to affect the regulatory process of the RBI. Information contained in RBI annual inspection reports relating to banks is highly sensitive.
  • The central bank through these efforts tries to ensure that the banking system remains smooth with minimum disruptions.
  • Greater bank disclosures help investors and depositors, but it can also have unintended consequences.

Additional info

Fiduciary Relationship

  • A fiduciary relationship is one where the key element is that the relationship is principally characterized by trust and the information is given for use only for the benefit of the giver.
  • The traditional definition of a fiduciary is a person who occupies a position of trust in relation to someone else, therefore requiring him to act for the latter’s benefit within the scope of that relationship.

RTI Act and Fiduciary Relationship

In a Judgment, Supreme Court India v. S.C. Agarawal & Anr., it is discussed that the following kinds of relationships may broadly be categorized as fiduciary. This can be invoked under RTI Act Section 8 in following cases –

  1. Lawyer/client
  2. Doctor/patient
  3. Trustee/Beneficiary (Section 88, Indian Trust Act,1882)
  4. Legal guardians/wards (Section 20, Guardians and Wards Act,1890)
  5. Parent/child
  6. Executors and Administrators/legaltees and heirs Board if directors/company
  7. Liquidator/company
  8. Receivers, trustees in bankruptcy and assignees in insolvency/creditors

Mains question

  • Why has the Supreme Court given an ultimatum to the Reserve Bank of India on loan defaulters? Critically analyze RBI’s November 2016 Disclosure Policy. Is apex court’s stand on the issue justified? Analyze.