In a recent landmark decision, the Supreme Court directed the Reserve Bank of India to disclose information pertaining to certain banks under the Right to Information Act, 2005. This includes information on show-cause notices and fines imposed by the RBI on these banks; details of the loans taken by industrialists that have not been repaid; and names of the top defaulters who have not repaid their loans to public sector banks.
Although this is a progressive decision, the release of all bank-related enforcement information as a blanket rule may not always be beneficial. In some cases, release of such information may be detrimental. However, Indian laws are at present ill-equipped to balance these competing concerns. The Indian financial sector needs well-drafted legislations like the Indian Financial Code (IFC) to adequately balance the need for regulatory transparency as emphasised by the Supreme Court on the one hand, and the RBI's concerns about protecting sensitive bank-related information on the other.
In RBI v. Jayantilal N Mistry, the Supreme Court was called upon to decide whether this information sought under the RTI Act can be denied by RBI and other banks to the public at large on the ground of economic interest, commercial confidence, fiduciary relationship with the concerned bank on the one hand and the public interest on the other. The SC rejected the RBI's defence that it received this information under fiduciary relationship with the banks and therefore it could not be disclosed. The court reasoned that, since financial institutions are under legal obligation to provide certain information to the RBI, there is no fiduciary relationship between such financial institutions and the RBI. Further, the RBI's argument that disclosure of such information would go against the economic interest of the nation was also dismissed by the court.
The apex court rightly emphasised the fundamental right to information. Citizens have established the democratic state and its instrumentalities. The default principle in the Constitution is that the state should be transparent in its dealings and must release all information to citizens. Only reasonable restrictions on the right to information can be imposed. Each and every restriction must have some cogent and clear policy rationale behind it. Unfortunately, the practice in India is the other way round. Information is suppressed by the state and its instruments unless there is a reason to release it. The Supreme Court came down heavily on such practice since it contradicts the fundamental rights under the Constitution as well as the RTI Act.
The apex court's judgment is unassailable as far as disclosure of quasi-judicial orders - like penalty orders, licence revocation orders, and so on - are concerned. Unlike Sebi, the RBI does not automatically release such orders on its website. It merely issues press releases but not reasoned orders imposing penalties or revoking licences. This practice is arbitrary and improper. Automatic publication of these orders will render the functioning of the RBI transparent and aid in the development of banking law jurisprudence in India.
However, this decision of the Supreme Court also raises some genuine concerns. The Supreme Court has held that, irrespective of anything to the contrary contained in the RBI Act, 1934 or Banking Regulation Act, 1949, the RTI Act shall prevail in so far as transparency and access to information is concerned. This is because section 22 of the RTI Act gives overriding effect to it - that is, if there is any conflict between the RTI Act and another statute, the former overrides the latter. Moreover, the RTI Act being a new law, also overrides older laws. The only exception to access of information is under section 8 of the RTI Act. The court found that the exemptions under section 8 did not apply to this case. This effectively makes a huge amount of information relating to enforcement actions against banks available to the public at large under the RTI Act.
This legal position may be problematic from a regulatory perspective. Disclosure of all kinds of enforcement actions as a blanket principle may not be the best solution in every case. For example, it would be inappropriate to publicly release a show-cause notice issued to a bank, if subsequently RBI did not follow it up with any action against such bank due to lack of sufficient evidence. Automatically releasing such a show-cause notice may unnecessarily cause irreparable damage to the commercial reputation of the bank.
Foreign jurisdictions have clear laws in this regard. For example, Section 395 of the UK Financial Services and Markets Act, 2000 empowers the regulator to issue warning notices, supervisory notices, and decision notices. Under Section 389, if the regulator decides not to take action under a warning notice or decision notice, it issues a discontinuance notice. Section 391 prohibits the regulator as well as the person who receives a warning notice or decision notice from publishing such notices. A notice of discontinuance can be published only if the person to whom it is issued consents to such publication. As a general principle, the regulator may not publish information relating to a notice if, in its opinion, it would be unfair to the person with respect to whom the action was taken or prejudicial to consumers' interests. All decision orders are however published on the regulator's website.
The present Indian laws like the RBI Act, 1934, or the Banking Regulation Act, 1949 do not have similar provisions. The Justice B N Srikrishna Commission (the Financial Sector Legislative Reform Commission, or FSLRC) addressed these concerns in the IFC. Clause 93 of IFC requires orders passed by the regulator to be published, with the exception of those involving private warnings or if such publication prejudices consumers' interest. Enactment of the IFC would adequately balance the Supreme Court's concerns about the need for transparency in RBI as well as RBI's concerns about protecting sensitive information relating to banks. Until the quality of Indian financial laws is substantially improved, courts must not be blamed for judicial activism in the financial sector.
The writer is at the National Institute of Public Finance and Policy