SC issues notice to RBI and HDFC Bank on regulator’s power to enforce merger scheme

The Supreme Court on Monday issued notice to RBI, HDFC Bank and others on a plea seeking clarity on the RBI’s powers to enforce a merger scheme of banks, which was approved by it earlier. The issue relates to the merger of HDFC Bank and the Centurion Bank of Punjab (CBoP), which got the RBI nod on May 20, 2008.

A bench, headed by Justice MY Eqbal, issued notice to the banking regulator, HDFC Bank and others after the HDFC Bank Officers’ Association sought the apex court’s intervention in deciding two issues  — whether the banking regulator has no power to enforce a scheme which was sanctioned by it and if the RBI’s statutory power as a banking regulator to give directions for the proper functioning and management of a bank does not extend to giving directions to enforce a scheme sanctioned by it earlier.

Challenging the Kerala High Court’s order that held that the RBI is helpless in directing a bank to enforce a scheme, which RBI itself sanctioned and approved, the association alleged that discriminatory treatment meted to its members by the HDFC Bank is in violation of the scheme sanctioned by RBI. It also sought a direction to RBI to probe the issue.

As per the scheme of amalgamation entered into between HDFC Bank and Centurion Bank of Punjab, the employees of CBoP became the employees of the HDFC Bank without any break or interruption in service, on terms and conditions which were no less favourable to the employees of CBoP than those on which they were employed with CBoP, the petition said.

After the approval by RBI, the scheme was binding on the banks and any deviation from the same made the amalgamation null and void, it said. However, HDFC later violated this scheme by making the service conditions of the employees much worse than what they were entitled to under the scheme, the association stated.

“RBI has full power and duty to enforce its own scheme under Section 44A read with Section 35A of the Banking Regulation Act, 1949. Section 35A gives wide power to RBI to give directions to any bank to secure the proper management of any banking company. Therefore, the HC erred in holding that RBI is helpless in the face of violation of a scheme which it itself sanctioned and approved as a condition precedent to an amalgamation,” the petition filed through counsel Prashant Bhushan stated.