Bombay HC questions RBI’s, finance ministry’s conflicting demonetisation orders
The notification included state cooperative banks in the process, but in its November 14 circular, the RBI has prohibited DCC banks from accepting any deposits in form of demonetised notes or exchange themmumbai Updated: Nov 22, 2016 00:21 IST
The Bombay high court on Monday asked the Ministry of Finance to clarify the reason behind the conflict between the demonetisation notification issued by the ministry and the RBI circular of November 14, which keeps district central cooperative (DCC) banks out of the demonetisation policy.
“Prima facie, it appears that there is inconsistency in the notification of November 8 and the November 14 circular,” said the division bench of Justices Abhay Oka and MS Karnik. The court noted that the notification issued specifically included state cooperative banks in the demonetisation process, but in its November 14 circular, the Reserve Bank of India has prohibited DCC banks from accepting any deposits in form of demonetised Rs500 or Rs1,000 notes or exchange the old notes for new ones, as is currently being done by every other bank.
The court was hearing petitions filed by Mumbai and Solapur DCC banks challenging validity of the RBI circular. Advocate VM Thorat, who represented Solapur DCC bank, pointed out that these banks were the backbone of rural economy, and by keeping them out of the process, the RBI has indirectly prohibited a large section of rural population from exchanging demonetised currency lying with them.
The lawyer added that in villages most of the people have cooperative bank accounts and with a ban on these banks, the farming population is unable to get their currency exchanged.
While talking about difficulties faced by Solapur DCC Bank, he said it has an account with the State Bank of India but since November 12, SBI has refused to accept old currency as the bank’s deposit. Now, since all the cheques issued by the customers of the DCC Bank are cleared through SBI, now they apprehend that their cheques will start bouncing en-masse.
Mumbai Bank, on the other hand, has contended in its petition that the RBI does not have the power to issue such a circular which is against the licence provided to them. It also calls the circular discriminatory as all other banks, including urban co-operative banks have been allowed to carry out business as usual, except them, though they act as clearing agents for many urban co-operative banks. “The circular has the effect of discouraging the customers from maintaining their accounts with the petitioner bank and encourages them to transfer the accounts to another bank,” reads the petition.
The bank’s petition stated that apart from accounts of 12,285 housing societies, there are 1,03,873 savings accounts including of many hospitals, petrol pumps, medical stores and educational institutions – some of which have been asked to accept old currency notes.