Gondekar vs. Reserve Bank of India - Writ Petition
Summary
The Bombay High Court has issued a decision in a consolidated writ petition involving multiple parties against the Reserve Bank of India. The case, heard by Justices Bharati Dangre, concerns significant regulatory matters impacting financial institutions and potentially public companies. The detailed judgment spans 119 pages and addresses complex legal arguments.
What changed
This document details a significant court ruling from the Bombay High Court, consolidating several writ petitions (WP-8534-22, WP-11079-24, WP-5762-22, WP-7753-22, WP-7728-22) against the Reserve Bank of India and other respondents, including the Union of India. The judgment, authored by Justice Bharati Dangre, addresses complex legal challenges likely related to banking regulations, financial policies, or the operational mandates of the Reserve Bank of India. The extensive nature of the ruling, spanning 119 pages, suggests a thorough examination of the issues presented by the petitioners, which include individuals, financial institutions, and industry federations.
Compliance officers and legal professionals in India, particularly those dealing with banking and financial services, must review this judgment to understand its implications. The ruling may introduce new interpretations of existing regulations or establish precedents that affect how financial entities interact with the Reserve Bank of India. Given the substantive nature of writ petitions and the detailed judgment, entities should assess their current compliance frameworks against any directives or clarifications provided in the ruling. While specific compliance deadlines are not immediately apparent from the provided excerpt, the effective date of the judgment (March 9, 2026) indicates that its findings are now in force, requiring immediate attention for any entities named or affected by the precedent set.
What to do next
- Review the full 119-page judgment for specific directives and implications.
- Assess current compliance practices related to Reserve Bank of India regulations.
- Consult with legal counsel regarding any potential impact on operations or existing legal positions.
Source document (simplified)
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Bhalchandra Dinkar Gondekar And Ors vs Reserve Bank Of India Thr. Governor And ... on 9 March, 2026
Author: Bharati Dangre
Bench: Bharati Dangre
2026:BHC-AS:13184-DB
1/119 WP-8534-22 GRP.odt
Salgaonkar
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
MANDIRA MILIND Digitally signed by MANDIRA
MILIND SALGAONKAR
SALGAONKAR Date: 2026.03.17 20:57:24 +0530
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.8534 OF 2022
Bhalchandra Dinkar Gondekar & .. Petitioners
Ors.
Versus
Reserve Bank of India through .. Respondents
Governor & Ors.
WITH
WRIT PETITION NO.11079 OF 2024
Ramesh Lakhpatrai Aggarwal & Anr. .. Petitioners
Versus
Reserve Bank of India & Ors. .. Respondents
WITH
WRIT PETITION NO.5762 OF 2022
Paresh Mehta & Ors. .. Petitioners
Versus
Reserve Bank of India through .. Respondents
Governor & Ors.
WITH
WRIT PETITION NO.7753 OF 2022
Maharashtra Rajya Sahakari .. Petitioner
Patasanstha Federation Ltd. through
its Director
Versus
The Union of India through the .. Respondents
Secretary & Ors.
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2/119 WP-8534-22 GRP.odt
WITH
WRIT PETITION NO.7728 OF 2022
Nashik Road Nagari Sahakari Pat .. Petitioner
Sanstha Ltd. through its Chief
Executive Officer through Chief
Executive
Versus
Punjab And Maharashtra Co-Op. .. Respondents
Bank Ltd. through the Branch
Manager & Ors.
ORDINARY ORIGINAL CIVIL JURISDICTION
WITH
WRIT PETITION NO.4302 OF 2022
Vilas M. Patel & Ors. .. Petitioners
Versus
The Union of India & Ors. .. Respondents
WITH
WRIT PETITION NO.2847 OF 2025
Neha Ramchandani .. Petitioners
Versus
Union of India, Joint Secretary, The .. Respondent
Department of Finance
...
Mr. Virendra Tulzapurkar, Senior Advocate with Mr. Sangram
Chinnappa, Ms. Dipika Sahani, Ms.Bhoomika Vyas and
Mr. Shantanu Shetty, for the Petitioners in WP/8534/2022
and WP/5762/2022.
Mr. Ankit Lohia with Mr. Siddharth Joshi, Viloma Shah,
Mr. Harshad Vyas and Mr. Viraj Raiyani i/b M/s. AVP
Partners, for the Petitioners in WP/4302/2022.
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3/119 WP-8534-22 GRP.odt
Mr. Dhaval Patil i/b M/s. K. Ashar and Co. for Respondent No.
4.
Mr.Shivam Mehra for Respondent Nos. 1 and 2 in
WP/7728/2022.
Dr. Uday P. Warunjikar with Ms. Vaishnavi M. Gujarathi i/b
Aditya P. Kharkar for the Petitioner in WP/7753/2022.
Mr. Anilkumar Patil with Ms. Zeel Jain for the Petitioner in
WP/7728/2022.
Mr. Aseem Naphade with Ms.Subrata Sen, Mr. Akash Loya,
Mr. Sujit Lahoti, Ms.Tejasvi Nakashe and Haaris Koradia i/b
Sujit Lahoti and Associates for the Petitioner in
WP/2847/2025.
Mr. Karl Tamboly with Mr. Bhavin Shah, Mr. Krupesh Bhosle
and Mr. Maulik Tanna, Advocates for the Petitioners in
WP/11079/2024.
Mr. Ravi Kadam, Senior Advocate with Mr. Ameya Gokhale,
Mr. Rishabh Jaisani, Mr. Harit Lakhani, Ms. Richa Bharti and
Mr. Ansh Kumar i/b Shardul Amarchand Mangaldas and Co.,
for the Respondent No.3 in WP/4302/2022, for the Respondent
No.2 in WP/7753/2022, for the Respondent No.1 in
WP/8534/2022, WP/11079/2024, WP/5762/2022, for the
Respondent No. 3 in WP/7728/2022 and for the Respondent
No.2 in WP/2847/2025.
Mr. Ashish Kamat, Senior Advocate with Mr. Shlok Parekh,
Mr. Mustafa Kachwala, Mr. Shantam Mandhyan, Ms. Shrishti
Shetty and Sakshi Sri i/b Krishnamurthy and Co. for
Respondent Nos. 3 and 4 in WP/8534/2022.
Mr.Venkatesh Dhond, Senior Advocate with Mr. Prasad
Shenoy, Mr.Parag Sharma, Ms.Aditi Phatak, Ms.Parichehr
Zaiwalla, Ms. Ishita Desai, Ms. Megha More, Ms. Juhi Bhayani
i/b BLAC Co. for the Respondent No.6(DICGC) in
WP/4302/2022, WP/11079/2024, WP/8534/2022,
WP/5762/2022.
Mr. Shlok Parekh a/w Mr. Mustafa Kachwala, Mr. Shantam
Mandhyan, Ms. Shrishti Shetty and Sakshi Sri i/b
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Krishnamurthy and Co. for Respondent No.5 in
WP/2847/2025 and for the Respondent Nos. 4 and 5 in
WP/4302/2022, for the Respondent No.3 in WP/11079/2024,
for the Respondent Nos.3 and 4 in WP/5762/2022 and for the
Respondent No. 4 in WP/7753/2022.
Mr. Kedar Dighe a/w Ashutosh Mishra for Respondent-UOI in
WP/8534/2022, WP/5762/2022 and WP/7753/2022.
Mr. Mohamedali M. Chunawala with Mr. J. B. Mishra and
Mr. Ashotosh Mishra, for Respondent No.1 in WP/4302/2022.
CORAM: BHARATI DANGRE &
MANJUSHA DESHPANDE, JJ.
RESERVED ON : 16th FEBRUARY, 2026
PRONOUNCED ON : 09th MARCH, 2026
...
JUDGMENT (Per Bharati Dangre, J.) 1. The seven Writ Petitions before us raise a challenge to
the Notification dated 25/01/2022, issued by the Ministry of
Finance, thereby granting its approval to the scheme
formulated by the Reserve Bank of India (for short, 'RBI')
under Section 45 of the Banking Regulation Act, 1949 (for
short, ' BR Act ') in form of "Punjab and Maharashtra Co-
Operative Bank Ltd. (Amalgamation with Unity Small Finance
Bank Limited) Scheme, 2022", which came into force w.e.f.
25/01/2022. In the separate Petitions filed by the
individuals/society, diverse objections are raised against the
scheme of amalgamation, but the commonality of the group of::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 5/119 WP-8534-22 GRP.odt
Petitions listed before us is the relief sought i.e. issuance of
writ of mandamus or any other appropriate writ for quashing
and setting aside the scheme of amalgamation as non-
constitutional, being ultra vires inter alia Article 14 , 19(1)(g) and 300A of the Constitution of India and also being violative
of provisions of the Banking Regulation Act, 1949.
Though we will be separately dealing with the grounds
raised in each of the Petition, with each Petitioner staking a
claim of its interest being adversely affected, before we deal
with each of the contention, we would like to refer to the
background facts, which are placed before us by the RBI, which
is a common Respondent in all the Petitions alongwith the
Ministry of Finance, New Delhi as well as Unity Small Finance
Bank Ltd.(for short, 'USFBL'), which has taken over the affairs
of the Punjab and Maharashtra Co-Operative Bank (for short,
'PMC Bank')
(I) Factual Background Leading to filing of the Writ
Petitions.
- We have collated the background facts from the
pleadings in the Petitions as well as the Affidavits filed on
behalf of the RBI as well as the USFBL and through the rival
contentions advanced before us.
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
6/119 WP-8534-22 GRP.odt
- We are concerned with PMC Bank, a Multi State
Scheduled Urban Co-Operative Bank, which was registered
under the Multi-State Co-Operative Societies Act, 2002 for
carrying on the business of banking in India. As per the
audited figures of PMC Bank, its deposit and advances as on
31/03/2019 were to the tune of Rs.11617.34 crores and
Rs.8383.32 crores respectively as per the audited figure. The
Bank was being managed through a Board of Directors under
the Chairmanship of Mr.Waryam Singh, Director of the Bank
since June 1999, whereas the post of Managing Director was
held by Mr.Joy Thomas since 1987.
The prevailing audit machinery in Urban Co-Operative
Bank at the relevant time existed in the form of statutory
audit conducted on annual basis in terms of the provisions of
the BR Act, 1949, coupled with concurrent audit system being
implemented for timely transaction testing. In addition to the
aforesaid, RBI, the Apex Bank also conduct statutory
inspection of the Urban Co-Operative Bank under Section 35 read with Section 56 of the BR Act at regular intervals,
depending upon the status of the Bank, its financial strength
and assessment of the risk perception. The RBI in conduct of
its statutory inspection rely on various reports/financial::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 7/119 WP-8534-22 GRP.odt
statements including report of statutory and concurrent audit
source data for inspection, besides undertaking sample check
of bank's liabilities through deposits borrowings etc and assets
portfolio alongwith transit account to assess the bank's
financial-capital adequacy, assets quality, liquidity and
earnings etc. alongwith the risk involved.
- Housing Development and Infrastructure Limited
('HDIL'), being a company engaged in Real Estate Development
founded by Mr.Rakesh Kumar Wadhwa, and its related entities
alongwith the promoters faced accusation of committing
serious financial fraud in various banks and companies and
this included the PMC Bank.
On 17/09/2019, a complaint was received by RBI from
senior official of PMC Bank alleging that the bank had
sanctioned amount to HDIL group in gross violation of prudent
banking practices and had manipulated data/information
submitted to the RBI.
Pursuant to this, the statutory inspection of the bank
was conducted by RBI from 19/09/2019 onwards, to assess its
financial position and also to probe the allegations made by the
complainant. The Managing Director of PMC Bank in his letter
addressed to RBI also confessed to many of the alleged::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 8/119 WP-8534-22 GRP.odt
irregularities and upon an inspection being conducted, the
preliminary finding revealed serious financial irregularities
leading to its precarious financial condition. The 2019
inspection disclosed that the total exposure to HDIL Group was
camouflaged and severely under reported to the RBI.
The unreported exposures of PMC Bank towards HDIL
being large and non-performing, warranted additional
provisioning to be made as per the extant instructions of RBI.
During the inspection carried out, it was discovered that the
net worth and CRAR of PMC Bank had year-on-year
plummeted from positive figure of Rs.706.20 crore and 12.72%
as on 31/03/2018 to huge negative figure of Rs.(-)5278.21
crore and (-) 198.70%, with significant deposit erosion of
45.43% as assessed on 31/03/2019. Thus, the inspection
pursuant to the complaint received, reflected the unstable
financial position of the bank with a negative net worth and
this warranted immediate action, so as to protect the
depositor's interest.
- Upon a detailed analysis carried out through the
inspection and the necessary investigation/inquiry being
conducted by the RBI, the Banker's bank, with expertise at its
end to deal with the matters affecting the economy of the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 9/119 WP-8534-22 GRP.odt
entire country, it was noticed that the erstwhile
management/concerned officials of the PMC Bank adopted a
modus operandi, leading to a huge fraud, which could not be
noted and this included (a) tampering with management
information system and NPA identification process adopted, to
camouflage the material data on NPAs.
The investigation revealed that the concerned officials of
PMC Bank had assigned certain specific access codes to the
loan accounts belonging to HDIL and its group entities, which
were used for assigning restricted visibility and less than 25
officials of PMC Bank (out of 1800 staff) could access the
specific codes belonging to HDIL group loan accounts. While
running the script on all advances of PMC Bank for
identification of NPA, certain officials of the Bank had
deliberately excluded these accounts, as a result of which, all
the stressed HDIL Group Accounts were omitted from the
system generated report of NPA accounts and the overdrawn
accounts list maintained by the Bank also do not include the
HDIL related accounts.
This irregularity of non-reporting/exclusion of HDIL
Group Accounts was not identified by the concurrent auditors
of the PMC Bank, where these undisclosed accounts were::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 10/119 WP-8534-22 GRP.odt
parked, though concurrent audit of the branch was conducted
every month. Thus, HDIL Group Accounts had been excluded
from various system generated reports and this came to light
when the inspection was conducted by the RBI.
Apart from this, sanction of loan accounts by the
Managing Director (MD) of PMC Bank and not mentioning loan
sanctions in Loan Committee Minutes and Minutes of the
Board of Directors also contributed to the catastrophe. In
addition, the falsification of off-site returns submitted to RBI
with respect to group exposure was also one of the factor why
the RBI's inspectors could not identify the abnormally high
exposure of PMC Bank to the HDIL group. Falsification of
information indent submitted to the inspection team of RBI,
inter alia, regarding outstanding loan accounts of PMC Bank
was put to use so as to escape the real figures and data. While
disclosing undisclosed HDIL Group Accounts from the master
data, the erstwhile management of the PMC Bank replaced
these accounts by adding 21049 fictitious loan accounts in the
master data, so that the summation of outstanding balance of
all the entities tallied with the balance sheet figure of the PMC
Bank's loan portfolio. Thus, the inspection of the PMC Bank
indicated huge loss and significant deposit erosion as per the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 11/119 WP-8534-22 GRP.odt
preliminary findings, which was concealed by the erstwhile
management/concern officials of PMC Bank by fictitiously
showing profits, which were thereafter used as the basis to
declare dividend and the profit was arrived at by treating NPA
accounts as standard (non-NPA) accounts by concealing major
portion of the accounts of HDIL Group.
- In the wake of the aforesaid situation brought to the
notice of RBI, it took prompt steps to impose all inclusive
directions as its immediate concern was to preserve the scarce
resources of the bank, while it was being necessary to take
steps to ensure protection of depositor's interest.
PMC Bank, in addition to large number of high value
retail/individual deposits, also held deposits of large number of
co-operative banks and co-operative societies apart from the
deposit of institutions such as Trusts etc. RBI, with its
expertise in financial and economic matters, considered it
imperative that all efforts for a non-disruptive resolution of
PMC Bank is made and it explored various possibilities which
would serve the interest of the depositors the best, including
capital infusion/merger by roping the State Government as
well as exploring resolution through NPA recovery and merger
with some strong bank. Eventually taking note of the financial::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 12/119 WP-8534-22 GRP.odt
condition of the Bank and lack of proposals for capital infusion,
it was deemed appropriate to proceed ahead by formulation of
a scheme, in absence of which the drastic steps would have
been cancellation of license and putting the bank under
liquidation.
Considering the imminent prejudice caused due to this
action to the depositors of the PMC Bank, RBI deemed it
appropriate to proceed ahead by invoking the powers available
to it under the BR Act, and in specific, the power under [Section
45](https://indiankanoon.org/doc/1829498/), and thereafter, on obtaining sanction of the Central
Government to the said scheme, it was notified by the Ministry
of Finance on 25/01/2022.
(II) "Punjab and Maharashtra Co-Operative Bank Ltd.
(Amalgamation with Unity Small Finance Bank
Limited) Scheme, 2022"
- Before we consider the contentions raised on behalf of
the Petitioners, raising their objections depending upon the
capacity in which they stand, either individual/retail
investors/institutional investors etc., we will highlight the
salient features of the "Punjab and Maharashtra Co-Operative
Bank Ltd. (Amalgamation with Unity Small Finance Bank
Limited) Scheme, 2022 (hereinafter referred to as
"Amalgamation Scheme").
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Prefacing the background in form of the precarious
financial position of the PMC Bank, emerging in September,
2019 reflecting complete erosion of capital and substantial
deposits, the Notification mention that RBI issued All Inclusive
Directions under Section 35A read with Section 56 of the
Banking Regulation Act, 1949 w.e.f. the close of its business of
September 23, 2019 to protect the interest of the depositors
and to ensure that the bank's available resources are not
misused and diverted.
Recording the conclusion reached by the RBI that the
position of the PMC Bank called for preparation of a scheme of
amalgamation and since Unity Small Finance Bank Ltd.,
promoted by Central Financial Service Ltd. alongwith Resilient
Innovation Pvt. Ltd., which was granted banking license by
RBI on October 12, 2021 and it started transacting business
and the promoters of Unity Small Finance Bank Ltd. alongwith
the joint investors agreed to infuse capital of Rs.1105.10 crore,
after the draft scheme being sent to the concern bank in
accordance with the procedure contemplated under Section 45 of the Act of 1949 and on consideration of the suggestions and
objections received in regard to the scheme, the Notification
record that it was forwarded to the Central Government,::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 14/119 WP-8534-22 GRP.odt
which sanctioned the scheme by its Notification dated
25/01/2022.
- The subject scheme set out the appointed date as
25/01/2022. The eligible depositors was defined in [Section
2(d)](https://indiankanoon.org/doc/191235816/) of the scheme as below :-
"2(d) 'eligible depositors' means depositors whose deposits are
insured under the Deposit Insurance and Credit Guarantee
Corporation Act, 1961."
The other two definitions, which are relevant for our purpose,
are those contained in Sections 2(e) and (f), which read thus :-
"2(e) 'institutional depositors' means corporations, companies,
partnership firms, societies, Association of Persons, Trusts, and all
other depositors who are not retail depositors.2(f) 'retail depositors' means depositors who hold deposits in
the bank in their individual capacity, either singly or jointly with
other individual, and include proprietorship firms and Hindu
Undivided Families (HUFs)."
Punjab and Maharashtra Co-operative Bank Ltd. was
referred to as 'transferor bank', whereas Unit Small Finance
Bank Ltd. was referred to as 'transferee bank'.
- As per the (Amalgamation) Scheme of 2022, on and from
the appointed date, the undertaking of the transferor bank
stood transferred and vested in the transferee bank and it
deemed to include all business, assets, estates, rights, titles,
interest, powers, claims, licenses, authorities, permits,
approvals, permissions, incentives, loans, subsidies and other::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 15/119 WP-8534-22 GRP.odt
privileges and all property, movable and immovable etc.
alongwith goodwill, copyright, cash balances, capital, reserve
funds, investment, transactions in derivatives and all other
rights and interests in, or arising out of such property and all
the rights under the intellectual property etc. Section 3 of the
scheme specifically provided for the effect of the transfer and Section 4 provided for closure of books of the transferor bank
at the close of business on 22/11/2021.
- Clause 6 specifically prescribed the manner of discharge
of liability of transferor bank and it set out the manner in
which the liability of the transferor bank shall be discharged
by the transferee bank, and since, the objections raised in the
Petitions revolve around the manner in which the amount is
received by the depositors in the wake of this provisions,
which is in form of a staggered payment, it is necessary to
reproduce the same and it reads thus :-
"6. Discharge of liability of transferor bank :- (1) In respect of:
(a) any sums deposited by any employee of the transferor bank with
that bank as staff security deposits, together with interest, if any,
accrued thereon upto the appointed date, shall be paid, in case the
employee has chosen not to continue in the services of the
transferee bank or provided for in full by the transferor bank;(b) every savings bank account or current account or any other
deposit account including a fixed deposit, cash certificate, monthly
deposit, deposit payable at call or short notice or any other deposits
by whatever name called with the transferor bank, the transferee
bank shall open with itself on the appointed date a corresponding
and similar account in the name of the respective holder thereof::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 16/119 WP-8534-22 GRP.odtcrediting thereto full amount including interest accrued till March
31, 2021:Provided that where the transferee bank entertains a
reasonable doubt about the correctness of the entries made in any
particular account, it may, with the approval of the Reserve Bank,
withhold the credit to be made in that account for a period not
exceeding three months from the appointed date, within which, the
transferee bank shall ascertain the correct balance in such account.(c) The transferee bank shall pay -
(i) the amount received from Deposit Insurance and Credit
Guarantee Corporation to all the eligible depositors of the
transferor bank, which would be an amount equal to the balance in
their deposit accounts or 5,00,000rs (Rupees five lakh only),
whichever is less, in accordance with the Deposit Insurance and
Credit Guarantee Corporation rules of distribution of such amounts;(ii) at the end of first year from the appointed date, over and
above the payment already made, an additional amount equal to the
balance in their deposit account or ₹50,000 (Rupees fifty thousand
only), whichever is less, on demand only to the retail depositors of
the transferor bank;(iii) at the end of two years from the appointed date, over and
above the payment already made, an additional amount equal to the
balance in their deposit account or 50,000rs (Rupees fifty thousand
only), whichever is less, on demand only to the retail depositors of
the transferor bank;(iv) at the end of three years from the appointed date, over and
above the payments already made, an additional amount equal to
the balance in their deposite account or 1,00,000rs ( Rupees one
lakh only), whichever is less, on demand only to the retail
depositors of the transferor bank;(v) at the end of four years from the appointed date, over and
above the payment already made, an additional amount up to the
balance in their deposit account or ₹2,50,000 (Rupees two lakh
fifty thousand only), whichever is less, on demand only to the retail
depositors of the transferor bank;(vi) at the end of five years from the appointed date, over and
above the payment already made, an additional amount up to the
balance in their deposit account or ₹5,50,000 (Rupees five lakh
fifty thousand only), whichever is less, on demand only to only the
retail depositors of the transferor bank.(vii) the entire remaining amount of deposits (after making
payment as mentioned in clause (i), (ii), (ii), (iv), (v) and (vi) above
in the accounts of the retail depositors of transferor bank after ten
years from the appointed date, on demand.(d) No interest on any of the interest bearing deposits with the
transferor bank shall accrue after March 31, 2021 for a period of
five years from the appointed date, and afterwards, simple interest
at the rate of 2.75 per cent. per annum shall be paid at the end of
each year for the amounts remaining outstanding which shall be
payable from the date after five years from the appointed date.
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
17/119 WP-8534-22 GRP.odt(e) In respect of balances in any current account or any other non-
interest bearing account, no interest shall be payable to the account
holders, except that after a period of five years, simple interest at
the rate of 2.75 per cent. per annum shall be paid to the balances of
the retail depositors in the same manner as applicable to interest
bearing deposits.
(f) On and from the appointed date, 80 per cent. of the uninsured
deposits outstanding (aggregate in various accounts) to the credit
of each institutional depositor of the transferor bank shall be
converted into Perpetual Non-Cumulative Preference Shares of
transferee bank with dividend of one per cent. per annum payable
annually.
(g) At the end of the 10th year from the appointed date, transferee
bank will use 'Net Cash Recoveries' (net of expenses related to such
recoveries) from assets pertaining to Housing Development and
Infrastructure Limited Group in excess of the principal amount of
advances to Housing Development and Infrastructure Limited
Group outstanding as on March 31, 2021 to buyback Perpetual Non-
Cumulative Preference Shares at face value on a pro rata basis.
(h) From the end of 21st year, transferee bank will buy-back the
outstanding principal of the Perpetual Non-Cumulative Preference
Shares, at the rate of at least 1 per cent. of the total Perpetual Non-
Cumulative Preference Shares issued under the scheme per annum,
provided the following conditions are satisfied, namely:-
(i) all restructured liabilities pertaining to the transferor bank
including those towards Deposit Insurance and Credit Guarantee
Corporation under the Scheme are fully discharged;(ii) capital adequacy ratio of the transferee bank is at least three
hundred basis points higher than the regulatory minimum capital-
to-risk weighted assets ratio applicable at that point of time;(iii) net non-performing assets of transferee bank are at least
two hundred basis points lower than the prescribed threshold for
Prompt Corrective Action by Reserve Bank at that point of time;(iv) minimum 'Net Cash Recovery' of the principal amount of
advances to Housing Development and Infrastructure Limited
Group as on March 31, 2021 from assets pertaining to Housing
Development and Infrastructure Limited Group is more than 70 per
cent. of the principal amount of advances;(v) the buyback of the Perpetual Non-Cumulative Preference Shares
shall be capped at 10 per cent. of the yearly net profit of the
transferee bank for the previous year.(i) The remaining 20 per cent. amount of the institutional
deposits shall be converted into equity warrants of transferee bank
at a price of 1rs per warrant and these equity warrants will further
be converted into equity shares of the transferee bank at the time of
the Initial Public Offer when the transferee bank goes for public
issue. The price for such conversion will be determined at the lower
band of the Initial Public Offer price.(2) In respect of every other liability of the transferor bank
including the claims not acknowledged as debt, the transferee bank::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 18/119 WP-8534-22 GRP.odtshall pay only the principal amounts within a period of five years
from the appointed date to the creditors in terms of the agreements
entered or the terms and conditions agreed upon between them
prior to the appointed date.(3) The credit balance in the "asset account" shall be applied
notionally to the extent required to meet the liabilities under this
paragraph and if the balance in the asset account is not sufficient,
so much of the shortfall shall be treated as amount spent by the
transferee bank."
11. One most relevant provision in the scheme is Clause 7,
which direct that Deposit Insurance and Credit Guarantee
Corporation ('DICGC') shall pay to the transferee bank the
amount due to the eligible depositors (as on appointed date) of
the PMC Bank, in accordance with the provisions of the Deposit and Credit Guarantee Corporation Act, 1961 and the
Regulations made thereunder. The said provision
contemplated that the transferee bank shall have time upto 20
years from the appointed date to repay the amount received
from DICGC, with other specifications clearly set out therein.
Clauses 8 and 9 set out the rights and liabilities of the
members and creditors of transferor bank and that of
employees of the transferor bank.
Worth it to note that the said scheme by virtue of Clause
14, provided thus :-
"14. Interpretation of the provisions of the Scheme.- If any
doubt arises in the interpretation of the provisions of this Scheme,
the matter shall be referred to the Reserve Bank and its views on
the issue shall be final and binding on all concerned."
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(III) Contentions Advanced on Behalf of the Petitioners in
the Writ Petitions.
- Since we are called upon to consider the objections raised
by the Petitioners to the scheme, each Petition involving
different Petitioners with respect to their status and the
challenge, we prefer to record the contentions of the respective
counsel in each of the Petition, so as to broadly appreciate the
challenge to the scheme.
- We have heard respective counsel appearing for the
Petitioners and also heard learned senior counsel Mr.Ravi
Kadam, representing the RBI, learned senior counsel
Mr.Ashish Kamat for Unit Small Finance Bank and Resilient
Innovations Pvt. Ltd., learned counsel Mr.Kedar Dighe for
Union of India and the learned senior counsel Mr.Dhond for
Deposit Insurance and Credit Guarantee Corporation.
By consent of the parties, we deem it appropriate to issue
Rule, which is made returnable forthwith.
(A) Writ Petition No.5762 of 2022
- To start with, we have taken Writ Petition No.5762 of
2022, which is filed by Paresh Mehta and 130 Ors., who are the
shareholders and/or retail depositors of erstwhile PMC Bank.
Learned senior counsel Mr.Tulzapurkar representing the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 20/119 WP-8534-22 GRP.odt
Petitioners would invite our attention to the pleadings in the
Petition and it is his submission that PMC Bank, a Multi-State
Co-Operative Bank established in February 1984 till its
downfall, was in good financial condition having capital
adequacy ratio of 12.62%. According to him, the Managing
Director of the PMC Bank had complained to RBI about the
acts of omission and commission by the Bank in the year 1999,
but for want of any regulatory and remedial steps by RBI, the
position of the Bank deteriorated. This precarious position
called for appointment of an Administrator, whose tenure
came to an end on expiry of twelve months, but no positive
steps were taken to uplift the status of the PMC Bank.
- According to the learned senior counsel, on 23/11/2021,
RBI published a draft scheme for amalgamating and/or
transferring all assets of PMC Bank to Unity Finance Bank,
and invited objections and suggestions, pursuant to which the
Petitioners raised objections. RBI pretended that their
objections were considered and notified the final scheme,
which received approval of the Government of India, which
allowed the transfer of assets of PMC Bank to Unity Finance
Bank, providing for a long period for return of deposits.::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
21/119 WP-8534-22 GRP.odt
- Mr.Tulzapurkar, learned senior counsel, by inviting our
attention to various clauses in the impugned scheme, has
raised a serious objection about the final scheme providing for
long period of return of deposits. His specific objection is to the
clauses in the scheme, where the whole capital of PMC Bank is
written off and the assets and liabilities stand transferred to
Unity Finance Bank. He is extremely critical about the
manner of disbursement of the amount in favour of the retail
depositors and his emphasis is on the belated payments
spreading over beyond a period of ten years from the
appointed date and the clause denying interest after
31/03/2021 for a period of five years and, thereafter,
permitting a simple interest at the rate of 2.75% at the end of
each year for the amount remaining outstanding, which is
payable from the date after five years. By inviting our
attention to the manner in which the withdrawals are allowed
to the retail depositors, the learned senior counsel has
submitted that the significant number of the Petitioners are
senior citizens, retirees and medically vulnerable individuals
and freezing of their life savings deny them access to the funds
for medical treatment and affect their livelihood and also their
survival. With the ten year lock-in period for elderly::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 22/119 WP-8534-22 GRP.odt
depositors, he would submit that it has deprived them of their
right to life with dignity.
- It is the submission of Mr.Tulzapurkar that Section 45 of
the BR Act cannot override fundamental rights and co-
operative principles and the overriding effect of [Section
45(14)](https://indiankanoon.org/doc/1727066/) is not absolute. According to him, the federal structure
requires that State laws on co-operatives cannot be completely
overridden without valid constitutional basis, as the
conversion is forced one and not voluntary.
He would submit that RBI's stance that it carefully
examined and considered all the received suggestions and
comments and made appropriate changes to the draft scheme
is baseless as the annexure to the RBI's Summary Submissions
at Annexure 1 clearly reflects that majority of the changes
made were corrections or expansion of abbreviations used in
the draft, and according to him, comparison of the draft and
final Schemes reveals only cosmetic alterations, with the core
terms, the 10-year lock-in, interest reversal, and write-off of
share capital remaining unchanged. According to him, this
paucity of substantive change, despite over 6,000 objections,
proves that the consultation under Section 45(6)(b) was not::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 23/119 WP-8534-22 GRP.odt
meaningful but a mere formality, rendering the Scheme
procedurally arbitrary.
- It is also the submission of Mr.Tulzapurkar that despite
the recurring warnings, RBI failed to take timely and stringent
corrective action under Section 35 of the BR Act and RBI has
abdicated its duty by not supervising the affairs of the PMC
Bank. He would submit that the RBI had red flagged serious
issues pertaining to PMC Bank, like conflict of interest
involving the Chairman of the Bank, ineffective audit
committees and recovery mechanisms, diversion of funds,
Director's related loans in violation of corporate governance
norms, but despite this repeated warrants and serious issues
being flagged, it failed to act for decades.
According to Mr.Tulzapurkar, the PMC Bank fraud was
not just a bank failure, but it was an indictment of broken
regulatory system, and the Petitioners are not the voluntary
risk takers, but they are victims of mis-selling by the very
bank, which RBI was supposed to supervise. It is his
submission that having allowed the regulatory failure to fester
the State cannot now discriminate them by treating their
investment as 'risk capital' worthy of confiscation and this
action, according to him, is arbitrary and unfair.::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
24/119 WP-8534-22 GRP.odt
- Mr.Tulzapurkar has submitted before us that [Article
243ZL(2)](https://indiankanoon.org/doc/173880871/) of the Constitution alongwith Part IXB caps
supersession of multi-state co-operative societies for six
months and the Constitutional mandate introduced by the 97 th
Amendment has an overriding effect. It is also an attempt on
part of Mr.Tulzapurkar to adopt and harmonious conception of Section 36AAA(4)(b) of the BR Act read with Section 38 and 49 of the Multi-State Co-Operative Societies Act, 2002, which
according to him, reveal the true and limited scope of the
Administrator's authority and exposes the fatal infirmity in
the formulation of the impugned scheme. Opportunity to file
written representation, according to Mr.Tulzapurkar, is not
sufficient compliance as individualized hearing is required,
when fundamental rights under Section 19(1)(g) and [Article
300A](https://indiankanoon.org/doc/120077007/) are affected. According to him, placing a draft in public
domain is a constructive notice, but not actual opportunity to
be heard, and thus according to him, consultation was a farce,
as the objections were dismissed with a cryptic and
unreasoned reply.
- By way of rejoinder, Mr.Tulzapurkar has submitted that
the contention that the scheme provide equal, non-
discriminatory treatment to all retail depositors is completely::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 25/119 WP-8534-22 GRP.odt
incorrect. According to him, making depositors wait for ten
years, when alternatives existed and a choice of liquidation
was also available, RBI has chosen amalgamation without any
lawful justification. According to him, there is a stark
difference between liquidation under Section 43A and
amalgamation under Section 45. The principle of equality
underlying Section 43A (pro-rata distribution) should also be a
part of exercise of power under Section 45, and according to
him, even in amalgamation, all depositors of the same class
must be treated equally, but in the present case, the retail
depositors with deposit above Rs.5 lakh are receiving
payments over 10 years, while those below Rs.5 lakh are paid
earlier and this creates a discrimination within the same class.
According to him, the RBI's contention that the liquidation
would have been worse, presents a false binary, as other viable
options would have been; merger with a public sector bank or
co-operative bank with Government backing, scheme of
amalgamation or re-organization of a co-operative bank under Section 18 of the Multi-State Co-Operative Societies Act, 2002,
scheme by the Central Government under Section 36AF of the
BR Act, Section 36AE of the BR Act i.e. power to Central
Government to acquire undertakings of banking companies in::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 26/119 WP-8534-22 GRP.odt
certain cases and lastly, transparent resolution preserving
franchise value.
- Mr.Tulzapurkar has placed heavy reliance upon the
decision of the Apex Court in the case of [Ganesh Bank of
Kurundwad Ltd. & Ors. Vs. Union of India & Ors.](https://indiankanoon.org/doc/139001/) 1, which has
extensively dealt with Section 45 of the Act of 1949 as regards
the imposition of Moratorium on the bank, its permissibility
and also the formulation of scheme of amalgamation by
highlighting that under Section 45 of the Act, the primary
consideration is public interest, as there is an underlying
object of acting swiftly to protect the interest of the depositors
and ensure public confidence in the banking system. A word of
caution by the Apex Court is specifically highlighted by
Mr.Tulzapurkar that exercise of power under Section 45 is an
emergent situation which warrant action in expedition and
this cannot be lost sight of while deciding the legality of the
action. He has also focused on the observations in [the said
decision](https://indiankanoon.org/doc/139001/) as regards the scope of judicial review in
administrative matters, but he would submit that if the
decision is tainted by any vulnerability, or any illegality,
irrationality and procedural impropriety then the Court shall
not hesitate in showing interference. He would also invoke
1 (2006) 10 SCC 645::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 27/119 WP-8534-22 GRP.odt
the principles of 'Wednesbury's case', which has laid down the
basic principles relating to judicial review of administrative or
statutory directions. With the complete non-application of
mind in formulation of the scheme, by the Reserve Bank of
India and its approval by the Central Government, which do
not protect the interest of the depositors, according to
Mr.Tulzapurkar, the scheme is violative of Article 14 of the
Constitution.
According to him, the impugned scheme is contrary to
the provisions of the BR Act, as under Section 44A, any
scheme of amalgamation of the bank has to be presented to the
shareholders, but there is no compliance of this provision and
the claim that the draft scheme was sent to the Administrator
is of no consequence as the tenure of the Administrator had
expired and in no case, he could have represented the
shareholders.
In addition, he would also submit that the amounts of
uninsured depositors are converted into perpetual non
cumulative preference shares of Unity Bank with dividend of
1% p.a. payable annually and the scheme provide for buy back
of outstanding principal of perpetual non cumulative
preference shares at the rate of 1% of the total perpetual non::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 28/119 WP-8534-22 GRP.odt
cumulative preference shares per annum subject to a cap of
10% of the yearly net profit of Unity Bank. The remaining 20%
amount of institutional deposits would be converted into
equity warrants at Rs.1 and it would be converted into equity
shares of Unity Bank at the time of initial public offer,when it
goes for public issue.
By the aforesaid scheme, according to Mr.Tulzapurkar,
the existing shareholders are deprived of the value of the
shares and though new equity shares would come into
existence and this approach is unreasonable and arbitrary, as
the existing shareholders are also deprived of surplus and
reserve, which is created out of the profits, which is no longer
available to them, as the PMC Bank cease to exist.
(B) Writ Petition No.4302 of 2022
- Mr.Ankit Lohia represented 75 Petitioners in Writ
Petition No.4302 of 2022, who are also the retail depositors.
Even according to Mr.Lohia, the impugned amalgamation
scheme has put the depositors in adverse position.
By inviting our attention to the scheme and the provision
therein clause by clause, it is his submission that the relief to
the Retail Depositors is prolonged and one of the reason, which
he speculate is because the kitty of insurance has shrunk and::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 29/119 WP-8534-22 GRP.odt
had the insurance amount come into the kitty of the PMC Bank
at the relevant time, it would have increased its deposits and
reduced the timeline of its payment. He would submit that a
wrong impression is given that maximum of the depositors are
settled and walked away with the money, as it is to note that
only the small depositors were permitted to withdraw and a
small depositor, who had deposited a sum say of Rs.10 Lakh
was repaid, but a retailer, who has deposited Rs.1 Crore and
brought business to the bank is made to suffer.
According to the Petitioners, they are aggrieved by the
unprecedented freezing of their deposits and the non-payment
of interest that has been mandated by the impugned scheme.
Apart from this, it is the contention of the depositors and the
impugned scheme falls within the Wednesbury Unreasonable
test, viz., that the clauses pertaining to the depositors are so
unreasonable that no rational person would make such a
decision.
- Focusing attention on the discrimination between the the
depositors of PMC Bank inter se, leading to violation of their
rights under Article 14, Mr.Lohia would submit that the
depositors of PMC Bank had distinct amounts of moneys
deposited. Mr.Lohia would submit that RBI has consistently::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 30/119 WP-8534-22 GRP.odt
tried to project that a large percentage of the depositors have
been paid out i.e. approximately 98%. But, according to him,
one key point is missing here, being though 98% of depositors
have withdrawn the balance in their accounts, this amount is
at the most 39% (likely less) of the total amount of deposits
held by PMC Bank. According to him, the Petitioners, though
small in number compared to the entire body of depositors,
have the lion's share of deposits of the erstwhile PMC Bank,
but, unfortunately, this amount has remained frozen by
implementation of the scheme.
According to him, instead of directing all the depositors
to withdraw a pro rata amount of their deposits, the RBI has
permitted a flat amount of withdrawals at certain intervals,
meaning that the moneys to which the Petitioners would have
been entitled on the basis of pro rata withdrawals, had been
withdrawn by small depositors to the detriment of the larger
deposit holders. He would submit that even under Section 43A of the Banking Regulation Act, payments made during the
winding up of a banking company to the depositors are to be
made pro rata and there is no logical reason to digress from
such an accepted practice.
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
31/119 WP-8534-22 GRP.odt
He would, in specific, invite our attention to the
mechanism provided in sub-sections (3) and (4) of [Section
43A](https://indiankanoon.org/doc/313069/), which is a provision in relation to preferential payment
made to the depositors in the scheme of liquidation. According
to him, a pro rata distribution is the norm and the bench mark
when a bank is liquidated and it should equally apply when
there is a amalgamation of bank under the scheme framed by
the Reserve Bank of India, then if at all some deviation is
warranted, the RBI ought to have assign reasons. According to
him, the methodology adopted in this case is unique and
probably adopted for the first time in contrast to the
proceedings that were adopted in case of Yes Bank.
- It is also his contention that impugned scheme could not
reversed the interest paid to the deposits once it was credited,
as he would submit that it is an admitted position that
depositors were given interest on their deposits for the period
between 01/04/2021 to 31/12/2021 and had also deducted
TDS on the same. The impugned scheme reversed this interest
and nullified the benefit of about Rs.400 crore that had
accrued to them. He would submit that the impugned scheme
declared the 'appointed date' as 25/01/2022, and it is
supposed to take effect prospectively, and yet it reverses a::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 32/119 WP-8534-22 GRP.odt
benefit that had accrued prior to 25/01/2022 and this is a
primary example of the lack of application of mind when it
comes to the impugned scheme.
- It is also his contention that the amounts relating to Cash
Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)
should have been released, as ultimately it is the depositors
money and Mr.Lohia urged that the CRR is a percentage of
deposits of a bank held by the RBI as cash reserves for a rainy
day and the SLR is a percentage of deposits held by a bank
itself in the form of liquid assets, again for a rainy day. It is his
contention that if the depositors continuously withdrew
amounts from PMC Bank, the total deposits held by the bank
reduced, and therefore, there ought to have been reduction in
the amount to be kept aside towards CRR and SLR and it would
be at a lower rate, bu the impugned scheme does not account
for payout that ought to be made from CRR/SLR reserves as
the total deposit amount continued to reduce. Instead of
making such a payout to depositors such as Petitioners, the
impugned scheme, according to Mr.Lohia, arranges for this
amount to accrue to the benefit of the Unity Bank. Without
prejudice to the aforesaid submission, the learned counsel
would submit that it is always open to the RBI to relax the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 33/119 WP-8534-22 GRP.odt
CRR/SLR ratio as as to provide relief to affected deposit
holders of PMC Bank. According to him, if there was a lower
CRR fixed, more money would have been made available for
distribution, but the scheme does not even take this into
account.
- Focusing his attention on the aspect of non-application of
mind in regard to the money payable by DICGC, it is submitted
by Mr.Lohia that DICGC's liability did not accrue in small
deposits and relying upon the reply of DICGC, where it has
given the total number of claims it has paid and the total
amount disbursed, he would submit that an amount of Rs.3850
crores is stated to have been disbursed on the date of the
scheme and this amounted to approximately 84% of the
deposits. He has submitted that if approached correctly, the
liability of DICGC ought to have been an additional Rs.920
crores to Rs.1120 crores and it ultimately indicated that it had
paid lesser amount.
- PMC Bank was placed under 'directions, with
restrictions on withdrawals from September 2019 onwards,
and according to the learned counsel, RBI had permitted some
withdrawals through subsequent notifications, but the
withdrawals by the account holders having amount of Rs.0 to::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 34/119 WP-8534-22 GRP.odt
Rs.1 lakh and between Rs.1 lakh to Rs.5 lakhs. Between
placing PMC Bank under 'directions' in September 2019 to the
date of the impugned scheme in January 2022, over a period
of two and half years have been passed and this gap, according
to Mr.Lohia, is unprecedented as schemes pertaining to Laxmi
Vilas Bank and Yes Bank, the gap was much less. Analysing
the effect of this, Mr.Lohia has urged that the withdrawals
made in the 2.5 year window period reduced the overall
liability of the DICGC and an amount that ought to have been
paid/borne by DICGC ended up being subtracted from the total
deposit amounts held by PMC Bank to the detriment of the
large deposit holders such as the Petitioners. According to
him, the impact of this delay could have been averted by the
RBI directing DICGC to make payouts starting from 2019 and
not from January 2022, but this aspect has not at all been
addressed in the impugned scheme. In short, it is the
submission of Mr.Lohia that RBI could always have ensured
that the liability for the period between moratorium and the
impugned scheme was borne by DICGC, instead of making
DICGC pay only from the appointed date in the scheme,
thereby foisting the pre-scheme liability on the existing
deposit holders and, particularly when the fraud and the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 35/119 WP-8534-22 GRP.odt
mismanagement of PMC Bank precede the impugned scheme
and the imposition of moratorium.
- Mr.Lohia also urged that the assertion of the RBI that the
impugned scheme provide 100% protection to all retail
depositors is demonstrably false because according to him for
the first five years of the scheme, money of the depositors
remain frozen with the Unity Bank and it earns no interest
whatsoever. Thereafter, for the next five years, the interest
earned is minuscule i.e. 2.75% and, therefore, Mr.Lohia submit
that the claim of the RBI is falsified, when it assert that 100%
of the money of the depositors is protected. According to
Mr.Lohia, the Unity Bank offered the depositors like the
Petitioners two schemes, which would involve the Petitioners
taking a haircut upto 40% on the amount of their deposits
lying frozen, and therefore, he would submit that if it was so
clear that the depositors' money was protected, the Unity
Bank would not have made an offer requiring them to take
haircut and in no case, it make a commercial sense.
Based on the scheme, Mr.Lohia has prepared a rough
indication of the real loss suffered by the Petitioners and which
according to him, has reduced the value of his money multifold
times.
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36/119 WP-8534-22 GRP.odt
- Comparing the impugned scheme with the amalgamation
scheme of Laxmi Vilas Bank with DBS Bank and the
reconstruction scheme of Yes Bank, according to him, the
interest of the depositors was not compromised in any way, as
clause 6(3) of the Yes Bank Scheme clearly provided that all
the deposits with and liabilities of the reconstructed bank,
except as provided in this scheme, and the rights, liabilities
and obligations of its creditors, shall continue in the same
manner and with the same terms and conditions, completely
unaffected by the scheme.
Mr.Lohia has also placed heavy reliance upon the
decision in the case of Ganesh Bank of Kurundwad Ltd. & Ors. (supra). In addition to the aforesaid, he would also rely upon
the decision of the Apex Court in the case of [Deposit Insurance
and Credit Guarantee Corporation Vs. Ragupathi Ragavan &
Ors.2](https://indiankanoon.org/doc/55437153/) to support his submission that all the depositors by an
large have equal right. Reliance is also placed by him upon the
decision of Axis Trustee Services Limited Vs. Union of India through the Ministry of Finance Department of Financial
Services & Ors.3, wherein the Division Bench of this Court
examined the challenge to a communication under which the
2 (2015) 9 SCC 629
3 (2023) 3 Bom CR 247::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 37/119 WP-8534-22 GRP.odt
Administrator of Yes Bank Ltd. informed the Bombay Stock
Exchange Limited and National Stock Exchange of the writing
off the Additional Tier 1 Debenture bonds, and according to
Mr.Lohia , the said decision has been quashed and set aside,
and he would like us to follow the ratio flowing from the
aforesaid authoritative pronouncement. We are informed that
the SLP filed against the aforesaid decision is pending before
the Apex Court and the stay granted by the High Court to the
operation of the judgment is extended though it is made
subject to the final orders to be passed.
(C) Writ Petition No.11079 of 2024
- We have also heard Mr.Tamboly representing another set
of retail depositors in Writ Petition No.11079 of 2024, who has
also focused on manifest arbitrariness in the scheme of
amalgamation sanctioned by the Government of India and
although his challenge is limited to the validity of clauses 6
and 7 of the scheme, which according to him, discriminates
between depositors based on the quantum of deposit and
retrospectively confiscate accrued interest, which is clearly
violative of Articles 14 , 21 and 300A of the Constitution.
Invoking clause 6(a)(c), which has segregated 'Retail
Depositors' into those fully covered by DICGC upto Rs. 5 lakhs::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 38/119 WP-8534-22 GRP.odt
and those with deposits above Rs.5 lakhs, according to
Mr.Tamboly, create two artificial classes of unsecured
depositors.
It is the specific contention of Mr.Tamboly that there is
no rational nexus between the object of the scheme, being
revival of the bank and the classification purported to be made
depending upon the value of deposits. In his submission, there
is no intelligible differentia that justifies sacrificing the life
savings of a depositor simply because he or she saved more
than Rs.5 lakhs. Prioritizing small depositors but penalizing
larger depositors by locking their funds for a decare cannot
amount to any social welfare goal, and this according to
Mr.Tamboly, has resulted into 'privileged class' of depositors
and a 'penalized class' of depositors, which amounts to hostile
discrimination among persons similarly situated.
In addition to the aforesaid, Mr.Tamboly has urged that
clauses 6(1)(c) and 6(1)(d) have effectively given a 10 year
lock in period for the class of depositors who have invested
amount more than Rs.5 lakhs. Citing an example of Petitioner
No.1, who is 70 years of age, it is urged before us that a 10 year
lock in period effectively would amount to permanent
deprivation of funds to him and a time line that expects the life::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 39/119 WP-8534-22 GRP.odt
expectancy of many depositors, according to Mr.Tamboly, is
manifestly arbitrary and violates the Right to Livelihood
enshrined in Article 21 of the Constitution. Further, fixing
interest at 2.75% which is far below the inflation rate in effect
erodes the principal value of the deposit and this according to
Mr.Tamboly, enriches the private transferee bank at the cost of
the public depositors.
- Apart from the aforesaid submission, Mr.Tamboly has
expressed criticism about the implementation of the scheme
notified on 25/01/2022, but according to him, clause 6(1)(d)
retrospectively freezes interest accrual from 31/03/2021 and Section 45 of the Banking Regulation Act definitely do not
authorize the RBI to confiscate any property belonging to the
depositors retrospectively. The interest accrued between
01/04/2021 and 24/01/2022, which is already credited in the
account of the depositor is the property of the depositor and
once the interest has already been transferred to the account
of a depositor, a bank cannot unilaterally reverse the interest
is his submission. According to him, no scheme/Notification/
provision of law can retrospectively authorize the bank to
debit the account of a depositor once it has been credited in
accordance with law and this would violate Article 300A of the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 40/119 WP-8534-22 GRP.odt
Constitution and definitely amounts to serious violation of the
fundamental rights of a person and, therefore, he prayed that
clause 6(1)(d) must be struck down.
Mr.Tamboly has placed before us a table reflecting the
application of the scheme to depositors holding a deposit in
three different slabs i.e. upto Rs.5 lakhs, above Rs.15 lakhs
and above Rs.30 crores and putting these deposits in different
phases, he would submit that a depositor more than Rs.15
lakhs will have his money locked in and it would cause serious
erosion of his deposit.
Similarly, based on the scheme interest i.e. 0% from
2022 to 2027 and 2.75% interest from 2027 to 2032, by
placing before us the following table, he would submit that
value of Rs.30 crores in 2032 will be less than 40% on account
of its deprivation.
- It is an attempt on behalf of Mr.Tamboly to point out the
inequality in three classes of depositors, and according to him,
the mathematical reality to the aforesaid effect would
demonstrate that the scheme is not merely restructuring the
debt, but is in reality confiscatory and discriminatory, and
according to him, though the net loss on deposit is 36.5%, the
Erosion due to Inflation is actually almost 45% since the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 41/119 WP-8534-22 GRP.odt
amount the bank pays in 2032 would be 34.12 crores whereas
the real worth of that amount as shown in Table B is only
19.06 crore. This implies that when the bank ultimately pays
the depositor 34.12 crore in 2032, almost 45% of the amount
i.e. 15.06 crore has no purchasing power compared to 2022. It
is merely compensating for the increase in prices from 2022 to
2032.
- Mr.Tamboly has placed reliance upon the decision of the
Apex Court in K.T.Shephard & Ors. Vs. Union of India & Ors. 4
holding that the scheme-making process is administrative and
not legislative in character and necessarily the principles of
natural justice are not excluded. In other words, according to
him, fair play is part of public policy and is a guarantee for
justice to citizens. He would also place reliance upon the
decision in the case of [Motor General Traders & Anr. Vs. State
of Andhra Pradesh & Ors.5](https://indiankanoon.org/doc/1351547/), and in particular, observations in
paragraph 10, as regards Article 14 of the Constitution. He
also submit that while Article forbids class legislation, it does
not forbid classification for purposes of implementing the right
of equality guaranteed by it.
4 (1987) 4 SCC 431
5 (1984) 1 SCC 222::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 42/119 WP-8534-22 GRP.odt
(D) Writ Petition No.7753 of 2022
- Learned counsel Mr.Warunjikar representing the Petitioner in Writ Petition 7753 of 2022,Maharashtra Rajya
Sahakari Patasanstha Federation Ltd., has submitted that the
Petitioner is a federation of various Credit Co-operative
Societies and members of the Petitioner are different Credit
Co-operative Societies whose depositors and/or shareholders
are all common citizen of India and they are entitled to
fundamental rights guaranteed under the Constitution of
India. According to the present Petitioner, since the PMC Bank
is Multi-Scheduled Urban Co-operative Bank registered under
the provisions of the [Multi-State Co-Operative Societies Act,
2002](https://indiankanoon.org/doc/1123621/), the members of the Petitioner started keeping their
hard earned money as deposit with the bank, but on account of
the steps taken by RBI under Section 35A read with Section 56 of the Banking Regulation Act, directing the closure of the
business of bank w.e.f. 23/09/2019, the Petitioner alongwith its
members are put to tremendous loss.
It is the contention of Mr.Warunjikar that the members
of the Petitioner are all institutional depositors, as they are
various patsansthas, who have have collected money from the
individuals and the scheme do not offer any protection to a::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 43/119 WP-8534-22 GRP.odt
credit society, as it only take into consideration either retail or
institutional depositors, which is the biggest flaw which the
scheme suffers from. According to him, the members of the
Petitioner have advanced loan to common persons, many of
who are small depositors, and in fact this factor should have
been taken into consideration by RBI as well as the
Government, as it will now result into a failure as well as
disruption in financial system of micro financing and certain
long term measures ought to have been taken by the RBI. The
money invested by the members of the Petitioner is now
blocked for a long period and there is no exit, which is possible
and the scheme introduced only permit repayment of the
amount after the specific period is over and the erstwhile bank
stand discharged of its liability after the payment, and hence,
according to Mr.Warunjikar, the scheme formulated is
contrary to the banking system in the country. This he says
so, as according to him, the amount which is kept in deposit,
nowhere in the banking system will fetch a lessor value in the
future as a person invest the amount in the bank in the fixed
deposit to get its appreciation, but the scheme has resulted
into providing for a negative appreciation or lesser a
appreciation than what is already accrued, and therefore, it is::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 44/119 WP-8534-22 GRP.odt
contrary to the basic cannon of the banking. According to him,
the Petitioner and its members ought to have been treated at
par with individual depositors under the scheme of the [Deposit
Insurance and Credit Guarantee Corporation Act](https://indiankanoon.org/doc/63925284/), and in
absence of it, interference by this Court is necessary. It is the
contention of Mr.Warunjikar that in a hurried manner, the
entire exercise was completed which itself creates a doubt
about the intentions of the concerned.
It is also contended that the by-laws of the Petitioner do
not permit investment in private bank and that is why the
money was deposited in a Multi-State Co-Operative Bank and
that is how the Petitioner alongwith its 300 members are
stuck. He has taken his submission ahead by submitting that
the aforesaid scheme, resulting violation of his right under
Article19(1)(c), which guarantees to the citizens fundamental
right to form associations or unions or co-operative societies
and by the said scheme, this right has been defeated and no
steps are taken by the RBI to uplift the rights of the Petitioner
and its members, which is guaranteed by the Constitution.
Mr.Warunjikar has also submitted before us that the Directors
of the Petitioner are getting notices of breach, as the money
was deposited into PMC Bank. Another submission of::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 45/119 WP-8534-22 GRP.odt
Mr.Warunjikar is, that if the PMC Bank was a co-operative
bank so the merger ought to have been with the co-operative
bank.
(E) Writ Petition No.2847 of 2025
- Mr.Aseem Naphade representing the Petitioner in Writ
Petition No.2847 of 2025 has again advanced his submission
on behalf of retail depositors and he has asserted that the
scheme has resulted into artificial distinction in two classes of
depositors i.e. institutional and retail depositors, which has no
nexus with the object sought to be achieved. According to him, Section 45 prohibits creation of two classes, but the scheme
has ignored this and attempted to create an unjusticiable
classification, which suffers from arbitrariness, and therefore,
deserve to be quashed.
Citing an instance, Mr.Naphade would submit that it is
evident from Section 45(5)(f) and (g) that 'reduction of
interest or rights' is applicable to all 'depositors and other
creditors' and Section 45 of the BR Act, which is an enabling
provision under which the impugned Notification is issued do
not permit creation of different class of depositors. Relying
upon Section 45(k)(l) of the Banking Regulation Act providing
that the scheme of reconstruction/amalgamation can contain::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 46/119 WP-8534-22 GRP.odt
any other terms and conditions and such incidental,
consequential and supplementary matters, have to be read in
terms of the preceding clauses, according to Mr.Naphade, the
said provision cannot be invoked to justify the creation of
different class of depositors, which is prohibited by the
preceding clauses i.e. clauses (f) and (g), which must apply
with equal force to everyone. According to him, if required,
every depositor will take haircut, but it must apply equally
irrespective of the class in which the depositor find himself.
His precise submission is, that the Notification issued under
statutory enactment must be in conformity with the same and
cannot contradict it.
He would adopt the arguments advanced by Mr.Lohia as
well as by Mr.Tamboly, that the classification made by statute
must be based on intelligible differentia, which have rational
nexus to the object of the Act in question and if the object is to
safeguard the right of the depositor, then there cannot be
different classes of depositor entirely based on the status of
the depositor, namely, individual, corporate etc. Apart from
this, Mr.Naphade has urged that the institutional depositors
include a partnership firm, whereas the retail depositors refer
to depositors, who hold deposits in the bank in their individual::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 47/119 WP-8534-22 GRP.odt
capacity, either singly or jointly and as it is the settled law that
the partnership firm is a compendium of persons and does not
have any separate legal existence, it has lead to an
incongruous situation, where 'A' and 'B' are individuals holding
two bank accounts, one in the name of a partnership firm
where they are partners and the other in their own individual
names, but this lead to different classification as the
partnership firm account will be classified as an institutional
depositor, whereas the individual account will be classified as
retail depositor and this superficial distinction has no rational
nexus with the object of the Act. Another submission of
Mr.Naphade is relating to clause 8(2) of the Notification as
regards Long Term Deposit (LTD) and he submit that there is
equal treatment as that of the institutional depositors.
(F) Writ Petition No.7728 of 2022
- In Writ Petition No.7728 of 2022, the Petitioners are
represented by Mr.Anilkumar Patil, who adopts the arguments
advanced by Mr.Warunjikar in Writ Petition No.7753 of 2022.
(G) Writ Petition No.8534 of 2022
- In Writ Petition No.8534 of 2022, there is no appearance
on behalf of the Petitioners.
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48/119 WP-8534-22 GRP.odt
IV) Submissions Advanced on behalf of RBI and Unity Bank-
The Respondents.
- The contentions of the respective counsel for the Petitioners received vehement opposition from learned senior
counsel Mr.Ravi Kadam representing the Reserve Bank of
India and the learned senior counsel Mr.Ashish Kamat
representing the Unity Small Finance Bank Ltd.
Citing the background, Mr.Kadam has urged that the RBI
received a complaint from the PMC Bank's senior officer with
regard to HDIL group and the activity carried out being in
violation of prudent banking practices and that there was
manipulation of information submitted to RBI. This prompted
the RBI to depute a team to carry out annual financial
inspection of PMC Bank and scrutiny of HDIL account, the
inspection focused on dealings and/or exposure of PMC Bank
with the HDIL Group. The findings of the team, on
19/09/2019,highlighted that the total exposure to HDIL Group
was camouflaged/or severely under reported to RBI and the
assessed NPAs of the Bank were significantly higher than the
reported NPAs. It also reported that the PMC Bank's net
worth had turned negative and deposit erosion was significant.
In light of the aforesaid reporting, RBI acted swiftly and
imposed 'All Inclusive Directions' under Section 35A read with::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 49/119 WP-8534-22 GRP.odt Section 56 of the BR Act, initially for a period of six months.
These directions, according to Mr.Kadam, imposed restrictions
on payment of deposits beyond the threshold limit as well as
advancing of fresh loans and increasing the liabilities and this
was done with the aim to prevent the possibility of preferential
payment of deposits/reckless lending and preservation of the
available assets of PMC, so that an attempt can be made for its
revival.
RBI superseded the Board of Directors of PMC bank and
appointed an Administrator on 23/09/2019, to handle day-to-
day operational matters, including the recovery of NPA and
payment to eligible depositors. It is the submission of
Mr.Kadam that the Committee comprising of three
experienced professionals was appointed to assist the
Administrator in discharge of his duties.
- Taking the sequence of events ahead, according to
Mr.Kadam, from time to time, RBI continued to analyse the
financial position of the Bank and withdrawal limits for
depositors were enhanced from time to time from INR 1,000 to
Rs.10,000/-, Rs.25,000/-, Rs.40,000/-, Rs.50,000/-and finally
to Rs.1,00,000/- i.e. gradually more withdrawal were
permitted. According to Mr.Kadam, even before the approval::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 50/119 WP-8534-22 GRP.odt
and implementation of the scheme, with relaxation in the
withdrawal limits, more than 84% of the depositors of the bank
were able to withdraw their entire account balance and this
limit was gradually enhanced, considering the hardship
ground, including medical expenses, education, marriage etc.
- On 30/09/2021, the net worth of PMC Bank was in the
negative, and according to Mr.Kadam, to the extent of (-)
6737.61 crores and the deposit erosion steadily increased to
62.99%. As the analysis was in negative on 30/09/2021,
around 83% of the PMC Bank's loan portfolio was non-
performing asset and this hampered resolution of the PMC
Bank through recovery. The realizable value of the assets was
not sufficient to cover the operating expenses. Since PMC
Bank had larger number of individual depositors and
institutional depositors, RBI considered it imperative to arrive
at a non-disruptive resolution/liquidation and it explored the
multiple possibilities, but on finding that they are not feasible,
on 03/11/2020, PMC Bank invited the expression of interest
through public advertisement for investment/equity
participation.
- In this process, RBI was informed that three proposals
were received, but only two submitted final offers. One of the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 51/119 WP-8534-22 GRP.odt
proposer-Centrum Financial Services Ltd. (Centrum)
alongwith Resilient Innovation Pvt. Ltd. (RIPL) formed a joint
venture, namely, Unity Small Finance Bank (Unity Bank), and
a draft scheme of amalgamation of PMC Bank with Unity Bank
was placed in public domain.
On consideration of suggestions and objections from
members, depositors and other creditors, with a gap of three
weeks, the proposal was forwarded to the Government on
17/02/2021 and on 25/01/2022, the Central Government
sanctioned the scheme of amalgamation. Referring to the
current status of implementation of the scheme as on
02/02/2026, Mr. Kadam make a statement that INR 4,852.33
crores have been paid to the depositors.
- Heavy reliance is placed by learned senior counsel
representing RBI on the decision of the Apex Court in the case
of [Peerless General Finance And Investment Co. Limited &
Anr. Vs. Reserve Bank of India6](https://indiankanoon.org/doc/1316639/), which had analysed the
scheme formulated by Reserve Bank of India while discharging
its role in regulating country's economy in the context of
functioning of Residuary Non-Banking Companies.
Relying upon the relevant observations of the Apex
Court, which has held that the Reserve Bank of India which is
6 (1992) 2 SCC 343::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 52/119 WP-8534-22 GRP.odt
'Banker's bank' is a creature of statute and plays the
important role in the economy and financial uplifts of India
and its key function, being to regulate the banking, it was held
by the Court that it had large contingent of expert advice
relating to matters affecting the economy of the entire country
and nobody can doubt the bonafides of the Reserve Bank in
issuing directions under Section 45-K(3), being statutory in
nature.
Mr.Kadam has also invoked the pertinent observations of
the Apex Court in paragraph 36 to the following effect :-
"The function of the Court is not to advise in matters relating to
financial and economic policies for which bodies like Reserve Bank
are fully competent. The Court can only strike down some or entire
directions issued by the Reserve Bank in case the Court is satisfied
that the directions were wholly unreasonable or violative of any
provisions of the Constitution or any statute. It would be hazardous
and risky for the courts to tread an unknown path and should leave
such task to the expert bodies. This court has repeatedly said that
matters of economic policy ought to be left to the government."
43. By relying upon the decision in the case of [New Bank of
India Employees' Union & Anr. Vs. Union of India & Ors.](https://indiankanoon.org/doc/942673/) 7,
Mr.Kadam has urged that no scheme of amalgamation can be
fullproof and the Court would be entitled to interfere only
when it comes to a conclusion that either the scheme is
arbitrary or irrational or has been framed on some extraneous
consideration. It is, therefore, the submission of Mr.Kadam
7 (1996) 8 SCC 407::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 53/119 WP-8534-22 GRP.odt
and unless and until this Court, based on the submissions
advanced in relation to the flaw pointed out in the scheme,
arrive at this conclusion, the interference in the scheme
framed by the body with expertise in economic affairs and
definitely at a higher footing than that of the individual
Petitioners do not warrant any interference. Mr.Kadam has
also placed reliance upon the observations of the Apex Court
in the case of [Deposit Insurance and Credit Guarantee
Corporation](https://indiankanoon.org/doc/55437153/) (supra), and in specific, paragraphs 18 to 20,
which read thus :-
"18. Be that as it may, now we are concerned with a direction
given by the High Court to the Official Liquidator and the Special
Officer of the Bank, which is in liquidation, whereby they have been
directed to pay the unpaid amount to the depositors instead of paying
the same to the Corporation.
The object with which the Act has been enacted has been stated
hereinabove in a nutshell. The object was to insure the depositors so
that they may not have to stand in a queue before the Official
Liquidator for every paisa deposited by them with the bank concerned.
As on today, as per the provisions of Section 16(1) of the Act, a sum of
Rs 1 lakh is being insured or guaranteed in respect of each depositor.
So a depositor is safe and he has not to wash his hands off his deposit if
the amount deposited by him is less than Rs 1 lakh. The Official
Liquidator, as per the provisions of the Act, has to give details about
the depositors and the amount deposited by them in a prescribed form
within three months from the date on which the liquidation order is
passed or from the day on which he takes charge, whichever is later
and within two months from the date on which the details are
submitted to the Corporation, the Corporation has to make payment to
the above extent either to the depositors directly or to them through
the Official Liquidator.Thus, as per the abovereferred scheme, each depositor,including each original petitioner, must have received Rs 1 lakh from
the Official Liquidator. Initially, upon the bank being ordered to be
wound up, the original petitioners and other depositors had a right to
recover Rs. 1 lakh or the amount deposited, whichever was less, from
the Official Liquidator and the said amount must have been paid to
them when the petitions were filed."
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
54/119 WP-8534-22 GRP.odtMr.Kadam has advanced his submissions based on the
affidavit filed by the General Manager of the Reserve Bank of
India, Mr.Abhinav Pushp in Writ Petition No.2847 of 2025
affirmed on 30/01/2026, and according to him, the affidavit
take care largely of all the arguments canvassed on behalf of
the Petitioners. Recording the precarious position of the Bank
the affidavit state thus :-
"10. It is clear from the above table that the financial position
of the PMC Bank has been precarious with negative net-worth of
INR (-) 6737.61 crore as on 30 September 2021. Further, the
deposit erosion has also steadily increased from 45.43% on 3l
March 2019 to 62.99% on 30 September 2021
As on 30 September 2021, around 83% of the PMC Bank'sloan portfolio was non-performing asset (.'NPA") and this further
hampered resolution of the PMC Bank through recovery, since
process of NPA recovery is generally tedious and long drawn, more
so in the case of PMC Bank, where largescale fraud had taken place.PMC Bank had a total deposit of Rs.10,535.47 crore as on 3l
March 2021 and the number of depositors was around 9.25 lakh.
The advances of the PMC Bank as on 3l March 2021 were Rs.
4,129.03 crores of which 82.05% were NPA. This meant that out of
Rs.4129.03 crores of advances, Rs.3383.14 crores had turned NPA.
Accordingly, as on 31 March 2021, PMC Bank had a huge gap
between its assets and liabilities as reflected in negative net worth
of Rs.(-)6,522.28 crore as on 31 March 2021. Its deposits were
eroded to the extent of 6l.91% (as on 3l March 2021). Therefore, it
is in the background of such grave financial circumstances,
Respondent No. 2 was required to come up with a viable resolution
which would be in the interest of all stakeholders.
Respondent No. 2 took into account all relevant factors including
the contemporaneous financial position while arriving at the
repayment schedule under the Scheme for both retail and
institutional depositors."Regarding the staggered release of payment, the affidavit
states thus :-
"17. In fact, one of the suggestions received by Respondent No.
2, pertained to linking of repayment as per recoveries made by PMC
Bank/Unity Bank. It is pertinent to note that as per the data::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 55/119 WP-8534-22 GRP.odtavailable, PMC bank was able to recover only Rs.184 crores for FY
2020-21 and Rs. 28 crores for FY 2021-22 (till September 30,
2021). Thus, the recovery amounts were too insignificant to link
the same to repayment of depositors and would have led to much
lower amounts being repaid as compared to current schedule of
payment and would have been detrimental to the interest of the
depositors. Therefore, at all stages of formulating the Scheme,
including while reviewing the suggestions/objections received f'rom
various stakeholders, the interest of the depositors was kept in
mind by Respondent No.2.
- In this background, it is clear that it was important for Respondent No.2 to categorize the depositors based on the nature of entity, since the prevailing financial position did not allow immediate or faster withdrawal of the entire uninsured deposits by depositors."
- The affidavit, in great detail, has justified the decision of
the RBI in adopting the scheme of amalgamation, as it is stated
that pursuant to EOI issued by the PMC Bank and the
deliberations and discussion, the draft scheme involving
amalgamation of the Bank with Unity Bank was prepared and
the reasoning as to why the Bank chose this mechanism over
liquidation is also to be found in paragraph 19.15 which reads
thus :-
"19.15 Given the financial condition of PMC Bank (eg. cash, balance
with other banks and investments totalling INR 2882.51 crores as on
31 March 2021) and lack of proposals for capital infusion, Respondent
No. 2, in the absence of the Scheme, would have had to consider
cancellation of licence and taking PMC Bank into liquidation. However,
this step would have been immensely prejudicial to the depositors of
PMC Bank as the depositors would have only received amounts up to
5,000,000 which is the insurance coverage provided by Respondent
No. 4, DICGC. Further, PMC Bank (which merged into Unity Bank)
would not get the benefit of repaying DICGC within 20 years from 25
January 2022 (as provided in the Scheme) and would have had to
make payments as per the DICGC Act upon liquidation of PMC Bank
from the available assets/funds of PMC Bank. In such a situation, the
deposit holders would not have received payout over and above INR 5
lakhs since the DICGC would have to be paid the amount paid by DICGC
to the depositors of PMC Bank."
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56/119 WP-8534-22 GRP.odt
- The contention about the artificial discrimination being
created by the scheme, the RBI has categorically stated that
the scheme was so formulated to protect interest of all the
depositors and what is relevant to note is paragraphs 25 and
26 of the affidavit, which read thus :-
"25. The Petitioners' primary grievance appears to be that the
Scheme allegedly does not consider the quantum of the amount
deposited by each depositor for the purpose of categorizing
depositors into retail and institutional depositors. Further, it has
also been contended that Petitioners' being purported HNI (which
Respondent No. 2 does not admit) ought to have been classified as
institutional depositors. However, such contentions are completely
misplaced and legally not tenable. In any event and without
prejudice to the other contentions of Respondent No. 2, the
Petitioners having already taken benefit of payouts as retail
depositors under the Scheme and cannot now seek classification as
institutional depositors.
- The Scheme classifies depositors based on the nature of entity at the time of deposit having been made with PMC Bank i.e. two categories: (a) retail depositors, and (b) institutional depositors. The Petitioners being individual depositors (at the time of making their deposit with PMC Bank), have been correctly classified as retail depositors under the Scheme. The quantum of deposit does not alter the nature of the deposit. Therefore, merely because the Petitioners have relatively large amounts of deposits would not convert them from retail to institutional depositors. There is no basis to the contention of the Petitioners that the Petitioners should be treated as institutional depositors."
- In order to rebut the contention that no consideration
was given to the objections raised, and particularly,
responding to the submission of Mr.Tulzapurkar, Mr.Kadam
would submit that a draft was initially prepared and circulated
and on the suggestions and objections, the Notification came to
be issued and by the colour scheme of the Notification, he has
demonstrated that the green marking is where the clauses are::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 57/119 WP-8534-22 GRP.odt
shifted, whereas the red is the draft and the blue is the scheme
that was adopted.
- Another important facet of the matter argued by
Mr.Kadam is the [Deposit Insurance and Credit Guarantee
Corporation Act, 1961](https://indiankanoon.org/doc/63925284/) (for short, "DICGC Act"), a statute
providing for establishment of Corporation for the purpose of
insurance of deposits and guarantee of credit facilities.
Inviting our attention to the definition of the term 'deposit', he
would submit that the term means the aggregate of the unpaid
balances due to a depositor in respect of all his accounts, with
a corresponding new bank or with a Regional Rural Bank or
with a banking company or a co-operative bank. In addition,
he would submit that 'eligible co-operative bank' in terms of
the Act is a co-operative bank with a definition prescribed in Section 2 (gg).
Highlighting the provision in form of Section 16 as
regards the liability of Corporation in respect of insured
deposits, he has specifically focused his attention on sub-
section (2) thereof, which is relevant qua an insured bank and
he would submit that the transferee bank has to transfer/pay
money to the insurer in 20 years and this is what is included
in paragraph 7 of the scheme.
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58/119 WP-8534-22 GRP.odt
In addition, he would also invite our attention to [Sections
18](https://indiankanoon.org/doc/1315108/) and 18A alongwith Section 21 and as to how it is translated
into the impugned scheme.
Apart from this, Mr.Kadam has also placed before us the
Regulations of 1961 framed in exercise of power conferred by
sub-section (3) of Section 50 of the DICGC Act.
Mr.Kadam would submit that the distinction made by the
scheme between between an individual and institutional
depositor is perfectly justified as the latter are business
entities and they have been allotted preferential/equity shares
in contrast the individual depositors. In any case, he would
submit that this Court shall not sit in appeal over the wisdom
exercised by RBI, definitely in larger public interest and few
persons through the Petitions cannot call in question [the said
decision](https://indiankanoon.org/doc/55437153/), as the scope of interference is very limited.
- Learned senior counsel Mr.Ashish Kamat, representing
the Unity Small Finance Bank Ltd., in addition to the
submissions advanced by Mr.Kadam, has urged before us that
some facts are undisputed and this include a fact that net-
worth of the PMC Bank was in negative. It is also not in
dispute that a decision was taken in a full drawn process by
the RBI that amalgamation of the PMC Bank was the best::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 59/119 WP-8534-22 GRP.odt
solution. Another point which he would urge before us that no
procedural impropriety is alleged by the either of the
Petitioners, and lastly, he would submit that what was done by
the RBI was the best which could have been done in the given
scenario.
Focusing his attention on the scope of judicial review in
matter of economic complicity, involving technical aspect of
banking and particularly in relation to the scheme, arising
under Section 45 of the Banking Regulation Act, he would
submit that Section 45 of the Act confer power to RBI to apply
to the Central Government for suspension of business by a
banking company and to prepare a scheme of reconstruction
or amalgamation. Under sub-section (4), if the RBI is satisfied
that the banking company is required to amalgamate with any
other banking institute, it may draw up a scheme for the said
purpose. Under sub-section (6), the RBI is required to forward
the draft of the Scheme to the transferor and the transferee
bank for suggestion and RBI shall make such modification, if
any, in the draft scheme as it may consider necessary in light
of the suggestions received. Thereafter, the said Scheme,
under sub-section (7) has to be placed before the Central
Government for approval.
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
60/119 WP-8534-22 GRP.odt
According to the learned senior counsel, on a reading of [Section 45](https://indiankanoon.org/doc/1829498/) of the BR Act, it can be seen that, there is a thread
mechanism providing for application of mind by the RBI,
inviting of suggestions and the Government applying itself, to
the proposed scheme. RBI being the regulatory body for the
Indian banking system, has been given the power to draw up
the scheme of amalgamation and thereafter only forward the
same for 'suggestion'. Section 45(6) gives power to RBI to
either accept or disregard to the suggestions given in relation
to the scheme. Under Section 45 of the BR Act, RBI has been
given complete power to formulate a Scheme being the expert
and regulatory body. This is because, in matters of such
economic complexity, it is RBI alone who would have the
necessary expertise, and capacity to appreciate and
appropriately evolve the scheme. He has also placed heavy
reliance upon the verdict of the Apex Court in the case of Peerless General Finance And Investment Co. Limited & Anr. (supra).
- According to Mr.Kamat, since the downfall of the PMC
Bank had begun and as its net-worth had turned negative and
deposit erosion was significant, and its financial position was
precarious, RBI was forced to step in and exercise its power::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 61/119 WP-8534-22 GRP.odt
under Section 45 of the BR Act to safeguard the interest of all
the stakeholders and maintain the confidence of the depositors
in the banking industry. The financial condition of the PMC
Bank constrained the RBI to take relevant steps under Section
36AAA read with Section 56 of the BR Act, imposing
restrictions on the functions of the PMC Bank and permitting
withdrawals from time to time, which was followed by
formulation of the scheme and his client, Unity Bank taking
over affairs of the PMC Bank. According to him, the action
taken by the RBI is in the interest of all the depositors, which
includes the Petitioners in all the Writ Petitions.
Mr.Kamat has thrown light on the process followed by
RBI, when it issued EOI, which ultimately culminated into
formulation of scheme, which is fair, bonafide and reasonable.
Mr.Kamat submitted that as per the EOI invitation, PMC Bank
had total deposits of Rs.10727.12 crore, total advances of
Rs.4471.78 crore and gross NPA of Rs.3518.89 crore as on
31/03/2020. The share capital of the bank was Rs.292.94
crore. However, the bank registered a net loss of Rs.6835
crores during the financial year of 2019-20 and had a negative
net worth of Rs.5850.61 crore. As of 31/03/2021, the negative
net worth of PMC Bank was Rs.7581 crores and pursuant to::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 62/119 WP-8534-22 GRP.odt
the EOW, according to Mr.Kamat, the following steps were
taken.
"6.2. Pursuant to the EOI, the following steps were taken:
i. On December 15, 2020, PMC Bank informed RBI that it has
received initial proposals from (a) Central Financial
Services Ltd ("CFSL") along wit Resilient Innovations Pvt.
Ltd., ("RIPL"); (b) Dr. G. Mahesh Kumar, Group Chairman,
RAMMMS Group of Companies; (c) Wyelands Capital Ltd.
(through Liberty Street India Limited); and (d) Ideal
Vitamin Food Products Ltd.ii. As on February 1, 2021, at the expiry of the extended
timelines, only Centrum/RIPL and LSIL submitted their
final offers, while Ideal Vitamin submitted a tentative offer.iii. PMC Bank informed RBI that Ideal Vitamin had failed to
provide a final offer despite repeated follow ups and had
indicated that it would conduct diligence only once its
proposal was approved in principle.iv. LSIL submitted a letter dated 16 March 2021 indicating that
owing to some difficulty, the capital infusion would be
delayed by another 9 to 12 months.v. CFSL along with RIPL formed a joint venture, namely USFB
which was granted small finance bank ("SFB") license. USFB
was ready and complied with the timelines to infuse funds
into the Bank."
52. As regards the credentials of USFBL is concerned, which
participated in the process, which was in form of open
competition, Mr.Kamat would submit that its credibility can be
borne out of the following :-
"i. USFB is a joint venture of CFSL, who owns 51% stake in USFB
and RIPL. who owns 49% stake in USFB. Both Central
Financial Services Ltd and Resilient Innovations Pvt. Ltd are
well-known entities providing financial services to its clients.ii. The Centrum Group has 3 (three) licensed business verticals
which have combined assets under management ("AUM") of Rs.
1800 crore. The group also manages AUM of Rs. 20,000 crores
through other wealth management services. Respondent No.4
is India's number 1 acquirer of offline UPI transactions which::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 63/119 WP-8534-22 GRP.odtdesigns and develops consumer payment applications.
Respondent No.4's brand "BharatPe" processes payments
worth Rs. 48,000 crores annually.iii. Therefore, both the entities promoting USFB are not unknown
to the banking business and that they have immense
experience and reputation in the banking industry. USFB may
be a new entity, however the reputation of the companies
promoting USFB cannot be ignored.iv. Hence, RBI has considered the background of USFB and the
financial solvency which it will bring in order to amalgamate
with PMC."
53. Inviting our attention to the subsequent facts
demonstrating successful implementation of the scheme by
Unity Bank, Mr.Kamat would rely on the affidavit, which has
stated thus :-
"7.2 As of 31st December 2025, 99.45% depositors of the PMC
Bank has withdrawn a total amount of 3835.04 crores out of
3856.26 crores, which was released by DICGC.7.3 In addition to the above, USFB, in compliance of the
Scheme, has paid the following further amounts to the depositors :a. On 25th January, 2023 -Rs.147.27 Crores
b. On 25th January, 2024-Rs.133.90 Crores
c. On 25th January 2025-Rs.238.98 Crores
d. On 25th January 2024-Rs.476.77 Crores7.4 Pursuant to the sanction of the present Scheme and USFB
taking over the management of the bank, USFB has substantially
grown the business and the book of the bank:i. USFB has grown its balance sheet at a CAGR of 60% from 11946
Crores in March 2023 to Rs.19152 Crores in March 2025. Further,
USFB has been profitable during these years and that the profits
have in fact increased from Rs.35 crores in March 2023 to Rs.482
crores in March 2025 i.e. the growth rate of 271%.ii. Further, USFB has expanded beyond 6 states where PMC Bank
operated to almost 20 states in India and from 110 branches to 291
branches, making it a PAN India bank. More and more savings and
current accounts are being opened in the bank on an everyday
basis."
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
64/119 WP-8534-22 GRP.odtIn addition to the aforesaid, Mr.Kamat has also contested the
claim raised in each Petition individually.
54. An additional affidavit is filed on behalf of the Authorised
Signatory of USFBL, where a following statement is made.
"3. Upon the approval of the Scheme, USFBL has largely
implemented the Scheme and as on December 31, 2025, the
depositors (including the Petitioners herein as also in the connected
Writ Petitions) withdrew a total amount of Rs. 3835.04 crores out
of Rs. 3856.26 crores released by Deposit Insurance and Credit
Guarantee Corporation ("DICGC").
- In addition to the above-mentioned amounts paid by DICGC, USFBL has also paid the following amounts as per the Scheme to the depositors (which include the Petitioners herein as also the connected Writ Petitions):
a. On 25.01.2023-Rs. 147.27 crores
b. On 25.01.2024-Rs. 133.90 crores
c. On 25.01.2025-Rs. 238.98 crores
d. On 25.01.2026 Rs. 476.77 crores
Hence, it can clearly be seen that a considerable amount has been
paid to the depositors (including the Petitioners herein and in the
connected Writ Petitions) and therefore a large part of the Scheme
has already been implemented.
- On bare perusal of the Scheme it can be seen that, the Scheme envisages proposed payouts to the individual depositors in 3 stages, viz, i. Payment up to Rs.5,00,000/- by DICGC to all individual depositors; ii. Payment from Rs.5,00,000/- to Rs.15,00,000/- to individual depositors having more than Rs.5,00,000/- deposit and
iii Payment above Rs.15,00,000/- to individual depositors
having more than Rs.15,00,000/- deposit "
- A positive statement is to be found in the said affidavit,
which record thus :-
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
65/119 WP-8534-22 GRP.odt
"9. In addition to the above, it is also pertinent to note that
USFBL has consistently grown its business. USFBL pursues
profitable growth opportunities within its regulatory environment
and has been a profitable bank since its operations i.e. from
Financial Year 2022-23. It is pertinent to note that, USFBL has been
profitable while ensuring to meet all its liabilities to the depositors
of erstwhile PMC Bank.
USFBL has grown its balance sheet at a CAGR of 60%from Rs. 11946 crores in March 2023 to Rs. 19152 crores in March
- This has been on the back of strong growth in advances with the loans having grown at CAGR of 66% from Rs. 6601 crores in March 2023 to Rs. 10985 crores in March 2025, as well as strong mobilization of deposits which have grown from Rs. 2685 crores to Rs. 11952 crores in the same period. USFBL has been profitable during this period with the profits of the bank having increased from Rs. 35 crores in March 2023 to Rs. 482 crores in March 2025, a growth rate of 271%. The bank has adequate capital to continue to meet its growth projections with a CRAR of 29%, as against regulatory requirement of 15%.
... ... ...
Several customers have shown their trust in USFBL andthe same is reflected from the fact that not only have they obtained
loans from USFBL but have opened several current and savings
bank accounts with USFBL. Hereto annexed and marked as Exhibit
A is a list of current account and savings accounts opened after the
Appointed Date of the Scheme."
The learned senior counsel ultimately seek dismissal of the
Petitions.
- Mr.Kedar Dighe, the counsel appearing for the Finance
Ministry, has supported the impugned Notification and
submitted that it is a well settled principle in law that in
financial policy matters pertaining to the State and its
instrumentalities, the Court shall be slow to show indulgence
and impose its view. In particular, as regards the decision of
RBI, he would submit that it comprises of experts in the field of::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 66/119 WP-8534-22 GRP.odt
finance, who are competent to take advised policy decisions,
whenever the need arises.
Apart from this, it is also submitted by Mr.Dighe that
each of the Petitioners has derived benefit from the scheme,
but have chosen to raise a challenge to the same, despite the
fact that 97% of the account holders/depositors are repaid
their deposited amount and all 100% will also be paid, but in
time slabs as per the scheme, ensuring that every depositor
shall get his money back.
Mr.Dighe has, therefore, prayed for dismissal of all the
Writ Petitions.
- The learned senior counsel Mr.Dhond, representing
DICGC, has submitted that the Authority has very limited role
to play as it performed a mechanical task of paying the amount
to the depositors, who could not get the assured amount of
Rs.5 lakhs and DICGC will compensate a depositor by paying
the balance amount. In any case, it is the submission of
Mr.Dhond that there is no relief sought against DICGC.
Mr.Dhond has placed before us a chart, with reference to
the number of claims, the amount disbursed and the date of
sanction of the amount, which is to the following effect :-::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
67/119 WP-8534-22 GRP.odt
Sr. Type of Claim No of Claims Amount Date of
No. Sanction
- Depositor List 11,63,997.00 38,66,94,28,075.06 - submitted by Unity SFB* Eligible Claims Sanctioned by DICGC
- Main Claim 8,47,506 37,91,55,33,367.64 31-03-2022
- Supplementary Claim 19,225 38,98,08,655.80 05-07-2022 List 1
- Supplementary Claim 1,531 20,30,50,195.17 22-11-2022 List 2 5 Supplementary Claim 467 3,28,78,532.77 16-01-2024 List 3 6 Supplementary Claim 126 75,11,698.21 13-09-2024 List 4 7 Supplementary Claim 142 1,38,77,259.11 23-06-2025 List 5 8,68,997 38,56,26,59,708.70 It is his categorical submission that all the eligible and
admissible claims submitted are paid with reference to the
balance as on cut-off date of the original list.
V) Analysis of Rival Claims/Contentions :-
A] Scheme of Amalgamation under the Banking Regulation
Act, 1949. 58. The rival contentions canvassed before us deserve
appreciation in the background facts to which we have made
reference in the primordial part of the judgment as to the
circumstances, which warranted exercise of the power by the
Reserve Bank of India, for suspension of business of the
banking company and to prepare a scheme for amalgamation
of the PMC Bank with Unity Small Finance Bank Ltd.. The::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 68/119 WP-8534-22 GRP.odt
Notification issued on 25/01/2022 by the Ministry of Finance,
is issued in exercise of the powers conferred by sub-section (4)
of Section 45 of the Banking Regulation Act, 1949, granting
sanction to the scheme referred to as "Punjab and
Maharashtra Co-Operative Bank Ltd. (Amalgamation with
Unity Small Finance Bank Limited) Scheme, 2022". The
Notification contain a reference to the issuance of 'All Inclusive
Directions' issued by the RBI to the PMC Bank under [Section
35A](https://indiankanoon.org/doc/587034/) read with Section 56 of the Banking Regulation Act with
effect from close of business from 23/09/2019.
It also contain a reference to the supersession of the
Board of Directors of the Bank and appointment of
Administrator in exercise of the powers conferred under sub-
section (1) and (2) of Section 36AAA read with Section 56 of
the BR Act.
RBI invoked the provision contained in Section 45 for
preparation of a scheme for amalgamation, as it arrived at a
conclusion that the position of PMC Bank called for immediate
attention. Upon the Centrum Financial Services Limited, as
Promoters alongwith Resilient Innovation Private Limited as
'Joint Investor', expressing their interest in acquiring PMC
Bank, through a suitable scheme of amalgamation, and since::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 69/119 WP-8534-22 GRP.odt
they offered the desired solution in larger public interest, the
proposal was accepted. The promoters alongwith the joint
investor infused capital in Unity Small Finance Bank as on
November 1, 2021 and the scheme was ready for
implementation.
- It is necessary to appreciate the scope of the power of the
RBI, as contemplated in Banking Regulation Act, 1949 and the
various steps, which it is competent to initiate for regulating
the business of the PMC Bank, a Multi-State Scheduled Urban
Co-Operative Bank, when it took cognizance of its precarious
financial condition, on account of complete erosion of its
capital in exercise of its supervisory jurisdiction. Section 35 of
the BR Act aurhorises the RBI, at any time and on being
directed by the Central Government to cause an inspection to
be made of any banking company and its books and accounts
and supplying it with a copy of a report. Sub-section (4) of Section 35 also confer a power on Reserve Bank, on being
directed by the Central Government, to cause an inspection
and report to it and if the Central Government, on the basis of
the report, is satisfied that the affairs of the banking company
are being conducted to the detriment of the interests of its
depositors, it may, after giving opportunity to the banking::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 70/119 WP-8534-22 GRP.odt
company to make representation in connection with the report
as, in the opinion of the Central Government, seems
reasonable, (a) prohibit the banking company from receiving
fresh deposits (b) direct the Reserve Bank to apply under section 38 for winding up of the banking company.
In the scheme of the enactment, the Reserve Bank is
vested with the power to give directions and Section 35A permit the Reserve Bank to issue such directions generally or
to any banking company in particular, from time to time, as it
deems fit and the banking company, as the case may be, shall
be bound to comply with such orders. If the RBI is satisfied
that it is necessary (a) in the public interest or (aa) in the
interest of banking policy or (b) to prevent the affairs of any
banking company being conducted in a manner detrimental to
the interests of the depositors or in a manner prejudicial to the
interests of the banking company, or (c) to secure the proper
management of any banking company generally.
Section 56 of the Act, being included in Part V, inserted
w.e.f. 01/03/1966, provide that the provisions of the [Banking
Regulation Act, 1949](https://indiankanoon.org/doc/1129081/), notwithstanding anything contained in
any other law for the time being in force, shall apply to, or in
relation to, co-operative societies, as they apply to, or in::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 71/119 WP-8534-22 GRP.odt
relation to, banking companies subject to the specified
modifications. The term 'Co-operative bank' is defined to mean
a state co-operative bank, a central co-operative bank and a
primary co-operative bank, whereas 'multi-State co-operative
bank' means a multi-State co-operative society which is a
primary co-operative bank for the purposes of Part V. It is
thus clear that the provisions of the [Banking Regulation Act,
1949](https://indiankanoon.org/doc/1129081/) are also applicable to the co-operative societies, with the
modifications set out in Part V.
The aforesaid Part has the presence of Section 36AAA,
which is a provision permitting the Reserve Bank of India to
supersede the Board of Directors of a co-operative bank, if it is
in a public interest or for preventing the affairs of the co-
operative bank, being conducted in a manner detrimental to
the interest of the depositors or for securing the proper
management and the said provision reads thus :-
"36-AAA. Supersession of Board of directors of a co-operative
bank.-
(1) ... ... ..
(2) ... .. ..
(3) The Reserve Bank may issue such directions to the
Administrator as it may deem appropriate and the Administrator
shall be bound to follow such directions.(4) ... ... ...
(5) (a) The Reserve Bank may constitute a committee of three or
more persons who have experience in law, finance, banking,
administration or accountancy to assist the Administrator in
discharge of his duties.
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
72/119 WP-8534-22 GRP.odt(b) The committee shall meet at such times and places and
observe such rules of procedure as may be specified by the Reserve
Bank.(6) ... ... ...
(7) On and before expiration of period of supersession of the Board
of directors as specified in the order issued under sub-section (1),
the Administrator of the co-operative bank shall call the general
meeting of the society to elect new directors.(8) ... ... ...
(9) The Administrator appointed under sub-section (2) shall vacate
office immediately after the Board of directors of the multi-State co-
operative society has been constituted.(10) The provisions of section 36-ACA shall not apply to a co-
operative bank."
- Section 45 also empower the RBI to apply to the Central
Government for an order of moratorium, in respect of a
banking company, if it appears to the bank that there is a good
reason so to do and the Central Government on consideration
of the application may make an order staying the
commencement or continuance of all actions and proceedings
against the company for a fixed period of time, on such terms
and conditions as it thinks fit and proper and it may, from time
to time, extend the period. However that total period of
moratorium shall not exceed six months.
By virtue of sub-section (4) of Section 45, during the
period of moratorium or any other time, the Reserve Bank is
satisfied that (a) in the public interest; or (b) in the interests of
the depositors; or (c) in order to secure the proper
management of the banking company, or (d) in the interest of::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 73/119 WP-8534-22 GRP.odt
the banking system of the country as a whole,- it is necessary
so to do, the Reserve Bank may prepare a scheme (i) for the
reconstruction of the banking company, or (ii) for the
amalgamation of the banking company with any other banking
institution (in this section referred to as "the transferee bank".
Sub-section (5) of Section 45 prescribe the matters
which shall be contained in the scheme and it include the
following :-
"(a) the constitution, name and registered office, the capital, assets,
powers, rights, interests,authorities and privileges, the liabilities,
duties and obligations of the banking company on its reconstruction
or, as the case may be, of the transferee bank;(b) in the case of amalgamation of the banking company, the
transfer to the transferee bank of the business, properties, assets
and liabilities of the banking company on such terms and conditions
as may be specified in the scheme;
(c) ... ... ...
(d) ... ... ...
(e) ... ... ...
(f) the reduction of the interest or rights which the members,
depositors and other creditors have in or against the banking
company before its reconstruction or amalgamation to such extent
as the Reserve Bank considers necessary in the public interest or in
the interest of the members, depositors and other creditors or for
the maintenance of the business of the banking company;(g) the payment in cash or otherwise to depositors and other
creditors in full satisfaction of their claim--(i) in respect of their interest or rights in or against the banking
company before its reconstruction or amalgamation; or(ii) where there interest or rights aforesaid in or against the
banking company has or have been reduced under clause (f), in
respect of such interest or rights as so reduced;(h) the allotment to the members of the banking company for
shares held by them therein before its reconstruction or
amalgamation [whether their interest in such shares has been
reduced under clause (f) or not], of shares in the banking company::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 74/119 WP-8534-22 GRP.odton its reconstruction or, as the case may be, in the transferee bank
and where any members claim payment in cash and not allotment
of shares, or where it is not possible to allot shares to any members,
the payment in cash to those members in full satisfaction of their
claim--(i) in respect of their interest in shares in the banking company
before its reconstruction or amalgamation; or(ii) where such interest has been reduced under clause (f) in
respect of their interest in shares as so reduced;
(i) ... ... ...
(j) ... ... ...
(k) any other terms and conditions for the reconstruction or
amalgamation of the banking company;
(l) such incidental, consequential and supplemental matters as are
necessary to secure that the reconstruction or amalgamation shall
be fully and effectively carried out."
61. Sub-section (6) of Section 45 provide that a copy of the
scheme prepared by Reserve Bank shall be sent in draft to the
banking company and also to the transferee bank and any
other banking company concerned in the reconstruction or
amalgamation for suggestions and objections, if any, within
such period as may be specified for the said purpose and it may
make such modifications, if any in the draft scheme, as it may
consider necessary in the light of the suggestions and
objections received. Sub-section (7) then prescribe that the
scheme shall be placed before the Central Government for its
sanction, which may be sanctioned without any modification or
with such modification as the Central Government may
consider necessary and the scheme as sanctioned by the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 75/119 WP-8534-22 GRP.odt
Central Government shall come into force on such date as
specified by it on that behalf. It is also permissible for the
Central Government to specify different dates for different
provisions of the scheme.
The consequences for coming into operation of the
scheme are also clearly provided in Section 45, as sub-section
(8) provide that on coming into operation of the scheme or any
provision thereof, it shall be binding on the banking company,
or, as the case may be, on the transferee bank and any other
banking company concerned in the amalgamation and also on
all the members, depositors and other creditors and employees
of each of those companies and of the transferee bank, and on
any other person having any right or liability in relation to any
of those companies or the transferee bank,including the
trustees or other persons managing, or connected to any other
manner with, any provident fund or other fund maintained by
any of those companies of the transferee bank.
Sub-sections (9) and (12) of Section 45 postulate the
consequences of the applicability of the scheme of
amalgamation in following words :-
"(9) On and from the date of the coming into operation, or as
the case may be, the date specified in this behalf in, the scheme, the
properties and assets of the banking company shall, by virtue of
and to the extent provided in the scheme, stand transferred to, and
vest in, and the liabilities of the banking company shall, by virtue of::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 76/119 WP-8534-22 GRP.odtand to the extent provided in the scheme, stand transferred to, and
become the liabilities of the transferee bank.
(10) ... ... ...
(11) ... ... ...
(12) Where the scheme is a scheme for amalgamation of the
banking company, any business acquired by the transferee bank
under the scheme or under any provision thereof shall, after the
coming into operation of the scheme or such provision, be carried
on by the transferee bank in accordance with the law governing the
transferee bank, subject to such modifications in that law or such
exemptions of the transferee bank from the operation of any
provisions thereof as the Central Government on the
recommendation of the Reserve Bank may, by notification in the
Official Gazette, make for the purpose of giving full effect to the
scheme :Provided that no such modification or exemption shall be made
so as to have effect for a period of more than seven years from the
date of the acquisition of such business."
The supremacy of the scheme formulated under [Section
45](https://indiankanoon.org/doc/1829498/) is attained by sub-section (14) of Section 45, as it provide
for as below :-
"(14) The provisions of this section and of any scheme made
under it shall have effect notwithstanding anything to the contrary
contained in any other provisions of this Act or in any other law or any
agreement, award or other instrument for the time being in force."
B) Applicability of the Statutory Scheme to the PMC Bank:-
- None of the Petitioners have raised any doubt about the
power of the RBI to apply to the Central Government for any
order of moratorium or for preparation of the scheme, but we
have faintly heard some arguments that the amalgamation
scheme framed by the Reserve Bank, to which the Central
Government has granted approval, is not in public interest or
in the interest of the depositors.
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
77/119 WP-8534-22 GRP.odtIn the backdrop of the precarious financial situation in
which the PMC Bank found itself, after detection of certain
instances of fraud by HDIL and its group companies in
September 2019, which resulted in complete erosion of capital
and substantial deposit erosion, and the figures placed before
us through the affidavit filed by the General Manager of the
RBI are startling. The affidavit has stated that upon inspection
of PMC Bank conducted by it in 2019, the net-worth and
Capital to Risk Assets Ratio (CRAR) had plummeted from
positive figures of Rs.706.20 crore and 12.72% as on
31/03/2018 to a huge negative figures of Rs.(-)5278.21 crore
and (-)198.70% with significant deposit erosion of 45.43 per
cent as assessed on 31/03/2019. The affidavit has placed
before us the financial parameters of PMC Bank between 2019
and 2021, and as on 30/09/2021, the PMC Bank had negative
net-worth of INR (-) 6737.61 crore. It is also noted that PMC
Bank had a huge gap between the assets and liabilities on
account of the negative net-worth and all these relevant
factors,including the contemporaneous financial position, were
taken into account, while taking recourse to the provisions
under Section 45 of the BR Act.
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
78/119 WP-8534-22 GRP.odtThough we have also heard an argument on behalf of the
Petitioners that the RBI was cautioned about gross
irregularities in PMC Bank's functioning since 2011, but the
RBI did not take any cognizance and it is only when a
complaint was received by it from a senior official of the PMC
Bank itself on 17/09/2019, where it was alleged that the bank
has sanctioned large credit facility to HDIL Group in gross
violation of prudent banking practices and the
data/information furnished to RBI was manipulated, it woke
up from deep slumber and ordered statutory inspections
under Section 35 read with Section 56 of the BR Act, 1949 to
find that the allegations made are true.
We do not find any reason in getting into the reason why
the RBI did not take cognizance earlier, if some complaints
were preferred, but it is sufficient to note that the preliminary
findings on the inspection being conducted by RBI in 2019,
revealed serious financial irregularities and brought on
surface the perilous financial condition of the bank. The
inspection also revealed that the total exposure to HDIL Group
was camouflaged and severely under reported to the RBI and
this had caused the bank dearly, as it had resulted into a steep
deterioration in its financial calculations, warranting an::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 79/119 WP-8534-22 GRP.odt
immediate action. In light of the fraud that had surfaced, upon
the inspection being carried out, it was necessary for the
Reserve Bank of India to sprung into action to protect the
interest of the depositors and immediately explore the
possibility of its rehabilitation.
- From the affidavit-in-reply filed by the RBI, it is evidently
clear that in the precarious situation that had surfaced on
record through the inspection of the books and accounts as well
as into its financial affairs, it was necessary to take prompt
steps to impose 'All Inclusive Directions' and to preserve the
scarce resources of PMC Bank while taking all steps to ensure
protection of depositor's interest. Considering that the PMC
Bank had large number of high value retail/individual
depositors and it also held deposits of a large number of co-
operative banks and co-operative societies apart from other
institutions such as Trusts etc., RBI considered it imperative to
take recourse for non-disruptive resolution of PMC Bank rather
than a simple liquidation, which would not have been in the
interest of the depositors and would have resulted in the
depositors only receiving amounts upto Rs.5 lakhs from DICGC.
Paragraph 19.14 of the affidavit of the RBI has disclosed the
option exercised by the RBI and we reproduce its contents :-::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
80/119 WP-8534-22 GRP.odt
"Accordingly, as detailed in the RBI Replies, various options were
explored by Respondent No. 2. The options explored by Respondent
No. 2/PMC Bank are as follows --
a) Capital infusion/merger: Respondent No. 2 consider infusion of
fresh capital imperative for revival of PMC Bank. Several attempts
were made to rope in the State Government by PMC Bank (with
correspondence to the level of Principal Secretary, Government of
Maharashtra) in the revival efforts. Several potential options were
suggested including acquisition of properties belonging to the HDIL
group by the government, acquisition of the branches of PMC Bank
in Maharashtra etc. However, the efforts did not yield the desired
results.
b) The option of reconstruction of PMC Bank under Section 45 read with Section 56 of the BR Act through restructuring of deposit
liabilities including haircuts on the deposits was also explored.
However, without infusion of fresh capital, revival of the bank was
not found feasible. Respondent No. 2 through various discussions
and deliberations was made aware that considering the financial
condition of PMC Bank no investor might be willing to put in the
minimum investment amount of more than Rs. 6000 Crores, which
was required to make it a positive net worth bank and continue
under the co-operative structure.
c) This is also evident from the fact that upon floating of the EOI,
only four entities showed interest. Further, Unity Bank was the only
contender found to be eligible since others had either backed out or
indicated delay at their end. In this regard, the contents of the RBI
Replies are reiterated.
d) Exploring Resolution through NPA recovery: While PMC Bank
made efforts for recoveries by initiating actions under the available
means, the progress had been rather slow because of various legal
constraints. The realizable value of the securities available with
PMC Bank was still not considered adequate.
e) Merger with strong bank: Respondent No. 2/PMC Bank also
addressed correspondence to some of the (i) large nationalised
banks such as State Bank of India, Bank of India, Canara Bank,
Punjab National Bank; (ii) commercial banks such as Axis Bank,
ICICI Bank; and cooperative banks such as Maharashtra State Co-
operative Bank for a possible merger which again did not find
favour with any of the other banks, owing primarily to the large gap
between the liabilities and the realizable value of the assets.
C) Scope of Judicial Review :-
- The stand adopted by the RBI deserve an appreciation in
the backdrop that the monetary policy framework in India is::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 81/119 WP-8534-22 GRP.odt
operated by the Reserve Bank of India, constituted under the Reserve Bank of India Act, 1934 for regulating the issue of
Bank notes and the keeping of reserves with a view to securing
monetary stability in the country and generally to operate the
currency and credit system of the country to its advantage.
The role played by the Reserve Bank of India, was expanded
from time to time, when the Reserve Bank of India Act, 1934 was amended, as and when the exigency arose and expanding
the role of Reserve Bank of India to act as an agent of the
Central Government for implementing the scheme in form of
grant of loans by commercial banks and other financial
institutions to variety of borrowers, by guaranteeing the loans
sanctioned in respect of such unit and the amendment
afforded an opportunity to authorise the bank to extend loan
facilities to the State financial corporations and other
institutions notified by the State Government. As and when
the need was felt to further expand the role of RBI, by
exercising control over the companies and institutions, which
though not treated as banks but accepted deposits from
general public or carry on the business, allied to banking, the
Act came to be amended. The further amendment to the
enactment took place taking into consideration the activities::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 82/119 WP-8534-22 GRP.odt
of the non-banking institutions and unincorporated bodies
receiving deposits.
The Reserve Bank of India has thus emerged as
Regulatory Body for the Indian Banking System and Indian
currency and it is responsible for control, issue and supply of
Indian Rupee and it manages country's main payment system.
From the preamble of the statute under which the Reserve
Bank is constituted, its basic functions are set out, to regulate
the issue of bank notes and keeping reserves and also to have a
modern monetary policy framework to meet the challenge of
increasingly complex economy, to maintain rights stability
while keeping in mind the objective growth.
The Central Board of Directors is the main Committee of
the Central Bank and the Government of India appoints the
Directors for a fixed term. The Board consists of a Governor
and not more than four Deputy Governors, four Directors to
represent Regional Board, two Secretaries, Economic Affairs
Secretary and Financial Services Secretary from the Ministry
of Finance and ten other Directors from various fields. The
objective of RBI, being to undertake consolidated supervision
of the financial sector comprising commercial banks, financial
institutions and non-banking finance companies, and since it::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 83/119 WP-8534-22 GRP.odt
aims at ensuring financial stability and maintaining of public
confidence in the banking system, the Central Board of
Directors comprising of experts in the financial field, exercise
the powers and discharge the functions entrusted to it by the
statute. The Reserve Bank of India, which also works as a
Central Bank where the commercial banks are account
holders, is referred to as, 'Banker's bank' and it maintains
banking accounts of all scheduled banks. It is the duty of RBI
to control the credit through Cash Reserve Ratio (CRR), Repo
rate and open market operations and as the Banker's Bank, it
facilitate the clearing of cheques between the commercial
banks and helps the inter-bank transfer of funds and is also
empowered to grant financial accommodation to scheduled
banks. It also act as the Lender of the last resort by arranging
emergency advances to the banks.
The Reserve Bank of India is also the custodian of
country's reserves of international currency and this enables
to it deal with crisis connected with adverse balance of
payments position.
- The Reserve Bank of India, established under the statute
thus discharges its functions through various experts,
including the Monetary Policy Committee as the monetary::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 84/119 WP-8534-22 GRP.odt
policy decision by the Central Bank can have far reaching
implications for the economy, investors as well as borrowers,
and individual decisions may prove to be detrimental at
occasions, and therefore, the RBI Act was amended to hand
over the job of monetary policy making in India to a Monitory
Policy Committee which is a six-member panel, comprising of
three members from the RBI and three independent members
to be selected by the Governor. With an expertise at its hands,
into the decisions involving maintaining price stability while
focusing upon the objective of growth, the functions to be
discharged by the bank involve crucial decisions and this
include the decisions to be taken in larger public interest and
the framework for which is to be found in the [Banking
Regulation Act, 1949](https://indiankanoon.org/doc/1129081/), which has specifically set out the
business of banking companies with the control to be exercised
by the Reserve Bank, by empowering it to give directions in
the public interest or in the interest of the banking policy, or to
prevent the affairs of any banking company being conducted in
a manner detrimental to the interest of the depositors or to
secure the proper management of any banking company.
Similarly the Central Government is also empowered to
authorise RBI to issue directions to any banking company to::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 85/119 WP-8534-22 GRP.odt
initiate any insolvency resolution process in respect of a
default under the provisions of the Insolvency and Bankruptcy
Code, 2016.
The Banking Regulation Act has conferred several
powers upon the Reserve Bank of India, which includes the
power to remove managerial and other persons from the office
and take over the control as well as the power of supersession
of the Board of Directors in certain cases. In the gamut of the
powers conferred on the Reserve Bank, is the power of the
Reserve Bank to apply to the Central Government for
suspension of business by a banking company and to prepare a
scheme of reconstruction or amalgamation as contemplated
under Section 45 of the Act, the power which is permitted to be
exercised for a good reason and if the Reserve Bank is of the
opinion that it is in the 'public interest' or in the 'interest of the
depositors' or in order to secure proper management of the
banking company to prepare a scheme for reconstruction of
the banking company or amalgamation of the banking
company with any other banking institution. Needless to state
that the power available is permitted to be exercised in public
interest or in the interest of the depositors.::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
86/119 WP-8534-22 GRP.odt
- In the light of the statutory framework, permitting the
supervision over the banking business in the country through
the Reserve Bank of India through the power conferred upon it
to issue directions from time to time relating to economic or
financial policy, it is necessary to ascertain as to what extent
the Court's intervention would be warranted, if a decision is
taken by the 'Banker's Bank and the Lender of the Last Resort'
whose objective is to ensure monetary stability in India and
regulate the credit system in the country. In [Peerless General
Finance And Investment Co. Limited & Anr.](https://indiankanoon.org/doc/1316639/) (supra), the
limited scope of interference of the court in the directions
issued by the Reserve Bank of India in form of Directions of
1987 was examined, when it was noted that the Reserve Bank
of India, which is a Banker's Bank is a creature of statute and
it has large contingent of expert advice relating to matters
affecting the economy of the entire country and nobody can
doubt the bona fides of the Reserve Bank in issuing the
impugned directions of 1987.
Emphasizing that the Reserve Bank plays an important
role in the economy and financial affairs of India and one of its
important functions is to regulate the banking system in the
country, it is noted that the duty of the Reserve Bank is to::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 87/119 WP-8534-22 GRP.odt
safeguard the economy and financial stability of the country.
In this regard, the limited role which the Court can exercise in
the whole affair was set out as below :
"31. The function of the Court is to see that lawful authority is
not abused but not to appropriate to itself the task entrusted to that
authority. It is well settled that a public body invested with
statutory powers must take care not to exceed or abuse its power. It
must keep within the limits of the authority committed to it. It must
act in good faith and it must act reasonably. Courts are not to
interfere with economic policy which is the function of experts. It is
not the function of the Courts to sit in judgment over matters of
economic policy and it must necessarily be left to the expert bodies.
In such matters even experts can seriously and doubtlessly differ.
Courts cannot be expected to decide them without even the aid of
experts.
- ... ... ...
36....... It is not the concern of this court to find out as to whether
actuarial method of accounting or any other method would be
feasible or possible to adopt by the companies while carrying out
the conditions contained in paragraphs 6 and 12 of the directions of
1987. The companies are free to adopt any mode of accounting
permissible under the law but it is certain that they will have to
follow the entire terms and conditions contained in the impugned
directions of 1987 including those contained in paragraphs 6 and
- It is not the function of the Court to amend and lay down some other directions and the High Court was totally wrong in doing so. The function of the Court is not to advise in matters relating to financial and economic policies for which bodies like Reserve Bank are fully competent. The Court can only strike down some or entire directions issued by the Reserve Bank in case the Court is satisfied that the directions were wholly unreasonable or violative of any provisions of the Constitution or any statute. It would be hazardous and risky for the courts to tread an unknown path and should leave such task to the expert bodies. This court has repeatedly said that matters of economic policy ought to be left to the government..."
- Reliance is placed upon the observations of the
Constitution Bench in the case of R.K.Garge Vs. Union of India8,
where it is held that the Court should feel more inclined to give
judicial deference to legislative judgment in the field of
8 (1981) 4 SCC 675::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 88/119 WP-8534-22 GRP.odt
economic regulation than in other areas where fundamental
human rights are involved. Quoting Frankfurter, J. in Morey
v. Doud9, paragraph 38 recorded thus :-
"In the utilities, tax and economic regulation cases, there are good
reasons for judicial self-restraint if not judicial deference to
legislative judgment. The legislature after all has the affirmative
responsibility. The courts have only the power to destroy, not to
reconstruct. When these are added to the complexity of economic
regulation, the uncertainty, the liability to error, the bewildering
conflict of the experts, and the number of times the judges have
been overruled by events-self limitation can be seen to be the path
to judicial wisdom and institutional prestige and stability".
In conclusion, it was held that if the Reserve Bank had
issued Directions of 1987 to safeguard larger interest of public
and small depositors, it cannot be said that the directions are
so unreasonable to be declared as constitutionally invalid.
- Examining the scheme of amalgamation in [New Bank of
India Employees' Union & Anr.](https://indiankanoon.org/doc/942673/) (supra), the Apex Court noted
that no scheme of amalgamation can be fullproof and the Court
would be entitled to interfere only when it come to the
conclusion that the scheme is arbitrary or irrational or has
been framed on extraneous consideration and this was so
reflected from the aforesaid decision, which recorded thus :-
"Coming down to the second question the legal position is fairly
settled that no Scheme of Amalgamation can be foolproof and a
court would be entitled to interfere only when it comes to the
conclusion that either the scheme is arbitrary or irrational or has
been framed on some extraneous consideration. Learned Additional
Solicitor General, Mr Reddy appearing for the respondents in this
context contended that the only enquiry which the court can make
9 354 US 457::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 89/119 WP-8534-22 GRP.odtis whether the provisions of this scheme are arbitrary and
irrational so that it results in no inequality of opportunities
amongst employees belonging to the same class. In support of this
contention he placed strong reliance on the decision of this Court in
the case of Reserve Bank of India v. N.C.Paliwal. In that case the
Reserve Bank had 5 different departments which were broadly
divided into two groups called the general department and the
specialised department and each department was treated as a
separate wing for the purpose of determining seniority and
promotion of the employees within the group. The employees of the
specialised department were having greater opportunities for
confirmation and promotion as compared to the employees of the
general department. On account of this disparity the employees of
the general department claimed for equalisation of their chance of
confirmation and promotional opportunity by having a combined
seniority list of all employees irrespective of the departments to
which they belong. Ultimately the Reserve Bank of India introduced
a scheme called Optee Scheme. In May 1972 the Reserve Bank
issued another scheme called Combined Seniority Scheme which
provided for integration of clerical staff of the general department
with the clerical staff of the specialised department and it also
made provision for determination of inter se seniority. The validity
of the said scheme had been challenged on the ground that the
scheme is violative of the constitutional principle of equality and
must be held to be discriminatory. This Court negativing the
aforesaid contentions held that the integration of different cadres
into one cadre cannot be said to involve any violation of the equality
clause.D) Whether the Amalgamation Scheme, 2022 violate the
rights of the Depositors and whether it is contrary to the
Statutory Scheme.
69. Considering the limited scope of judicial interference as
set out in the aforesaid authoritative pronouncements, we
have considered the contentions advanced on behalf of the
Petitioners, raising various challenges to the scheme of
amalgamation.
In Writ Petition No.5762 of 2022 and Writ Petition
No.4302 of 2022, the Petitioners are the retail depositors and
they urged before us that the scheme has put them into an::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 90/119 WP-8534-22 GRP.odt
adverse position. Learned counsel Mr.Tulzapurkar and
learned counsel Mr.Lohia, have attacked the scheme and
urged that under the scheme, Unity Bank shall pay the amount
received from the deposit insurance and credit DICGC to all
eligible depositors bank, which would be an amount equal to
the balance in their account or Rs.5,00,000/- whichever is less.
According to them, the scheme has assured staggered
payment spread over timelines and at the end of the fifth year,
Unity Bank would pay over and above an additional amount
equal to their balance in the account or Rs.5,50,000/-
whichever is less to the retail depositors, whereas entire
remaining amount of deposits after making the aforesaid
payments shall come to the retail depositors after ten years
from the appointed date.
What is most objected to is the classification amongst the
class of depositors, as it is urged that the classification between
different type of depositors is unreasonable and not based on
rational criteria. It is also urged that the depositors are
deprived of interest after 31/03/2021 for a period of five years
from the appointed ate and rate of interest is reduced to 2.75%
p.a., which becomes payable after five years from the
appointed date, which deprives the shareholders/depositors of::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 91/119 WP-8534-22 GRP.odt
the value of their money and the shareholders are deprived of
surplus and reserve, which were created out of profits and
available to the shareholders of the PMC Bank.
The emphasis of Mr.Lohia is on not permitting the
withdrawals of pro-rata amount of the deposits, but permitting
flat amount of withdrawals at certain intervals, leading to a
situation that small depositors were benefited to the detriment
of the larger deposit holders, and this according to him, is
violative of Article 14 of the Constitution of India.
- This argument is dealt with by Mr.Kadam by submitting
that, the small investors were settled first (83%), with an
intention that the focus can then be shifted to large investors
and do not find any unreasonableness here. Perusal of the
scheme would reveal that the depositors are classified as
'retail depositors' i.e. depositors who hold deposits in the bank
in their individual capacity and include Proprietorship Firms
and Hindu Undivided Families. Other class of depositors as per
the scheme are the 'institutional depositors' meaning
Corporations, Companies, Partnership Firms, Societies,
Association of Persons and Trusts and all other depositors who
are not retail depositors.
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
92/119 WP-8534-22 GRP.odt Section 45 of the BR Act, which is the power of the
Reserve Bank to apply to the Central Government to prepare a
scheme for amalgamation, in essence, require the Reserve
Bank to be satisfied, during the period of moratorium or at any
other time about the public interest, the interest of the
depositors or in order to secure the proper management of the
banking company and this being the focus of the RBI for
amalgamation of the banking company, with any other banking
institution, it is permissible to have reduction of the interest or
rights, which the members, depositors and other creditors
have in the banking company before its amalgamation and
such reduction shall be to such extent as the RBI considers
necessary in public interest or in the interest of the depositors
or creditors or for maintenance of the business of the banking
company. The classification of the investors under the scheme
was aimed at securing public interest and protecting the
interest of the largest number of depositors by continuing the
operations of the PMC Bank.
We find that by application of the scheme, 84% of the
small depositors were the beneficiaries in the first run and
they were prioritized over the institutional depositors. The
argument that the scheme is discriminatory, as it has created::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 93/119 WP-8534-22 GRP.odt
a 'privileged class of depositors' (small depositors holding INR
5 to 15 lakhs) and a 'penalized class of depositors' (larger
depositors holding more than INR 15 lakhs), without any
intelligible differentia, do not appeal to us. The classification
between the retail depositors (individual) and institutional
depositors is because of their peculiar characteristic, as retail
depositors have deposits in their individual capacity, whereas
the institutional depositors are the one, who are not the retail
depositors. There is no separate class, as is sought to be
canvassed by the Petitioners, being a class of small deposits or
big deposits. The rational distinction attempted to be
canvassed is not the feature of the scheme and if the
Petitioners' contention is to be accepted then small depositors
for a value of less than INR 5 lakhs would have to be waited for
longer period and this definitely would not have been in the
interest of the depositors or in the public interest, as looking at
the figure of depositors, who have been settled i.e.
approximately 84%, the potential unrest that would have been
created because of the larger number of unsatisfied depositors,
is taken care of.
- The decision in the case of [Ganesh Bank of Kurundwad
Ltd. & Ors.](https://indiankanoon.org/doc/139001/) (supra), on which heavy reliance is placed by the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 94/119 WP-8534-22 GRP.odt
counsel for the Petitioners, has clearly highlighted that under Section 45 of the Act, the primary consideration is 'public
interest' and there is an underlying object of acting swiftly and
decisively to protect the interest of the depositors and to
retain public confidence in the banking system. The emergent
situation, which warrants action with expedition, has been
determined as the yardstick while deciding the legality of the
action.
True it is that the decision involving Section 45 of the
Act is permitted to be tested in the exercise of power of judicial
review available to the Court, but is to be noted that this power
shall be restricted in deciding whether the decision making
authority has exceeded its power, committed an error of law,
acted in breach of rules of natural justice or reached a
decision, which no reasonable court/tribunal would have
reached or it has abused its power. An administrative action,
which is subject to control by judicial review, can be tested on
the parameters of illegality, irrationality by applying the
Wednesbury test of unreasonableness and on procedural
impropriety.
- When we tested the impugned scheme formulated by
RBI, which has received the approval of Central Government,::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 95/119 WP-8534-22 GRP.odt
in the backdrop of the submission that unequal cannot be
treated equally and equal protection to unequal would violate
'equal protection class' enshrined by Article 14 of the
Constitution, we find the principle inapplicable, as Article 14,
which guarantees equality before law and equal protection of
law, though forbid 'class legislation' but permit 'reasonable
classification', provided it is based on intelligible differentia
that distinguishes persons grouped together from others and
the difference has a rational nexus to the object sought to be
achieved.
The class of individual depositors stand apart from the
class of institutional depositors and the classification is based
on their nature of deposits/accounts, retail depositors included
the individual deposits, whereas the institutional depositors
are the business entities, institutions etc. whose deposits are
commercial or non individual in nature and they have been
separated from individual depositors. By prioritizing
individuals over institutions, the scheme has achieved the
mandate of 'public interest' and 'interest of depositors' as
specified in Section 45 of the BR Act.
The submission that creation of two separate categories
would tantamount to preferential treatment to certain section::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 96/119 WP-8534-22 GRP.odt
of depositors fails to convince us about the discriminatory
treatment being meted out to the depositors, as we find that
the two classes are separate by the nature of their deposits
and satisfying the claim of individual depositors in preference
to the institutional depositors, according to us, has a direct
nexus with the object of formulating the scheme, being to
subserve the public interest and to protect the overall interest
of the depositors, while the erstwhile bank is amalgamated
with the transferee bank, which is considered to be necessary
in public interest and to protect the interest of the depositors,
irrespective of their class.
- Another submission, which we deem necessary to
mention just to be rejected, is the submission of
Mr.Tulzapurkar about violation of principle of natural justice
and his submission that RBI ought to have given a hearing or
atleast response to the objections and representations made.
In the affidavit filed the Reserve Bank of India, it is
categorically stated that RBI placed the draft scheme in public
domain on 22/11/2021 and suggestions and the comments
were invited by 10/12/2021 as contemplated under sub-
section (6) of Section 45. Several suggestions and objections
were received and the same were examined and considered::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 97/119 WP-8534-22 GRP.odt
and some appropriate changes were also made to the draft
scheme before its presentation to the Central Government.
Alongwith the affidavit filed by the RBI, the track mode of
the draft scheme and the sanctioned scheme is placed on
record, indicating the changes effected on consideration of the
objections, which include deletion of some portion and shifting
of certain clauses. In Ganesh Bank of Kurundwad Ltd. & Ors. (supra), the Apex Court has ruled that provisions of [Section
45](https://indiankanoon.org/doc/1829498/) provided an adequate opportunity for representation and
no additional opportunity is required to be given. In a case
where certain objections were raised and comments of RBI on
them were forwarded to the Central Government alongwith
final recommendations, there is no requirement of an
opportunity of hearing as a written representation is
sufficient compliance of the provision.
The tracking of the scheme placed before us reveal that
on consideration of the objections raised, the scheme was
modified before it received the final approval and in any case,
we do not expect each and every depositor to be heard on the
objection raised, as the view of every depositor will vary as
everybody would be interested in securing his own interest
and with the RBI possessing the expertise and applying its::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 98/119 WP-8534-22 GRP.odt
mind before finalization of the scheme, as it is an expert body
regulating the banking activities, we do not find substance in
the submission raised in this regard.
Similarly, the submission that there is no compliance of Section 44A, as the scheme of amalgamation though notified
on 25/01/2022, was not presented to the shareholders of the
PMC Bank also deserve rejection as it is to be noted that the
scheme was prepared under Section 45(4) read with [Section
45(5)](https://indiankanoon.org/doc/124318/) and not under Section 44A of the BR Act, which
empower the RBI to make scheme for amalgamation of banks
in public interest and Section 45 read with Section 56, is a
complete code and once that is adhered to, the scheme
becomes fullproof. Apart from this, it is to be noted that sub-
section (14) of Section 45 gives the said section and the
scheme framed under it, an overriding effect over any other
provisions of the Act or any other law or agreement on
instrument for the time being in force.
- As far as the contention of Mr.Tulzapurkar as regards Section 36ACA of the Act limiting the power to supersede the
Board of the banking company to six months and maximum
period of twelve months and the Board of the PMC Bank was
superseded for a period far in excess of that prescribed under::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 99/119 WP-8534-22 GRP.odt
the said provision, we have noted that PMC Bank, being a co-
operative bank, was superseded in exercise of power under
Section 36AAA read with Section 56 of the BR Act.
The provision in form of Section 36AAA applicable to the
co-operative bank, permit the RBI to supersede the Board of
Directors for a period not exceeding five years, which may be
extended from time to time so that the total period shall not
exceed five years. Further, clause 10 of Section 36AAA
provide that provision contained in Section 36ACA, shall not
apply to the co-operative bank and, therefore, the limitation of
twelve months of supersession, as contained in the said
provision, is not made applicable to the PMC Bank.
- A common contention largely on behalf of the Petitioners
is about rate of interest having been reduced to 2.75% after
five years from the appointed date. In this regard the affidavit
filed by RBI in Writ Petition No.5762 of 2022 is perused by us
and we have taken note of the precarious situation of the PMC
Bank,which had a negative net-worth of INR (-) 6737.61 crores
and the statutory inspection revealed the unreported
exposures of the bank towards HDIL being large and non
performing and this resulted in steep deterioration in the
financials, warranting immediate action.
::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
100/119 WP-8534-22 GRP.odt
Since the investigation disclosed the failure of management at the Board level, immediate steps were taken to
supersede the Board of Directors of the Bank and a committee
of three experienced professionals being appointed to assist
the Administrator in discharge of his duties in terms of Section
36AAA (5)(a) read with Section 56 of the Act. After
reviewing the liquidity position of the bank and its ability to
pay the depositors, with a view to mitigate the hardship of the
depositors, RBI deemed it appropriate to permit the
withdrawal of a meager sum of Rs.1,000/-, which was
progressively enhanced from time to time. Upon the
amalgamation of the PMC Bank with the Unity Bank as per the
scheme, which was expected to carry on business, generate
income/profit and make further provisions for withdrawals
and eventually pay the depositors in a staggered manner, the
RBI deemed it appropriate to stop accruing interest after
31/03/2021 and any interest accruals accounted post
31/03/2021 was reversed prior to amalgamation.
In order to maintain the stability, the scheme directed
that no interest will accrue on the deposits between
31/03/2021 and five years from the appointed date of
amalgamation and post that period, the interest will accrue at::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 101/119 WP-8534-22 GRP.odt
the rate of 2.75% p.a. for both, interest bearing and non
interest bearing accounts. As per the scheme, which targeted
the 'public interest' by allowing the withdrawals of the
maximum number of depositors and we are informed that as
on 02/02/2026, 96.67% of depositors are paid in full and at the
end of five years i.e. 25/01/2027, 98.82% depositors are
expected to be fully repaid their deposits, and it is a meager
figure of 1.18% of the depositors, who would have to await
payments of their remaining amounts upto 2032. Even for
this period, a depositor will be paid interest, at the reduced
rate at the end of each year i.e. 2.75% p.a.
- In the sequence of events, it is noted that on 23/09/2019,
after conduct of the annual financial inspection of RBI Bank
and scrutiny of HDIL accounts which revealed that the
exposure to HDIL Group was camouflaged and the assessed
NPAs of the Bank were significantly higher than the one
reported and the Bank's net-worth had turned negative and
deposit erosion was significant, RBI imposed All Inclusive
Directions on 23/09/2019 initially for a period of six months
imposing restrictions on the operations of the bank with a view
to preserve the resources while giving PMC Bank an
opportunity to revive itself, which would have been in the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 102/119 WP-8534-22 GRP.odt
interest of the depositors. The Administrator was appointed to
oversee the affairs of the Bank by superseding the existing
Board of Directors and taking into consideration the net-worth
gap between the assets and liabilities of the PMC Bank, certain
curbs were imposed on the withdrawal limits of the depositors.
Exploring various possibilities of infusing capital for
revival of the Bank or its merger with a stronger bank vis-a-vis
the cancellation of license and liquidation, the expression of
interest were invited through public advertisement for
investment/equity participation, and upon Unity Bank coming
forward, the Central Government sanctioned the scheme of
amalgamation on 25/01/2022. Considering weak financial
position of PMC Bank and since the RBI is authorised to reduce
the rate of interest, all deposits transferred from PMC Bank
stopped accruing interest after 31/03/2021.
- The implementation of the scheme could be concised
with the reference to the number and percentage of the
depositors eligible to withdraw their deposits in the following
manner.
Repayment Date Amount to be repaid to Number and percent
(From Effective Date) each eligible depositor of depositors eligible to
withdraw their entire
deposit amount
After ₹ 5 lakhs or actual 8,56,456
implementation of outstanding, (95.98%)
the Scheme whichever is less (from
DICGC)::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 103/119 WP-8534-22 GRP.odt
At the end of 1st ₹ 50,000 or actual 8,56,456+3,035 =
year outstanding, 8,59,491
whichever is less (96.32%) At the end of 2nd ₹ 50,000 or actual 8,59,491+2,723=
year outstanding, 8,62,214
whichever is less (96.62%)
At the end of 3rd ₹ 100,000 or actual 8,62,214+4,308=
year outstanding, 8,66,522 (97.11%)
whichever is less
At the end of 4th ₹ 250,000 or actual 8,66,522+7,060=
year outstanding, 8,73,582
whichever is less (97.90%)
At the end of 5th ₹ 550,000 or actual 8,73,582+8,258=8,8
year outstanding, whichever 1,840
is less (98.82%)
As we are apprised by DICGC, represented by learned
senior counsel Mr.Dhond that as on 23/06/2025 868997
claims have been settled resulting into disbursement of
Rs.38,56,26,59,708.70 by crediting the amount to the account
of the Unity Bank for payment of eligible depositors of the PMC
Bank.
- An allegation is also levelled that the scheme is
prejudicial to the rights and interest of the shareholders of the
Bank, as RBI, by writing of capital value of the Petitioners'
share, have violated their rights and failed to fulfill its
statutory duty to protect the interest of the shareholders. The
scheme also face an accusation that the shareholders were
kept in dark by the RBI and the Administrator.
It is pertinent to note that the scheme of amalgamation
of PMC Bank is formulated under Section 45 of the BR Act, to::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 104/119 WP-8534-22 GRP.odt
the contrary of the procedure contemplated under [Section
44A](https://indiankanoon.org/doc/1446663/), which require a Resolution to be approved by majority of
the shareholders. In the wake of the steps taken by RBI, being
placed before us through Mr.Kadam and projected through the
affidavits filed, in the backdrop of its precarious financial
position, which necessitated issuance of All Inclusive
Directions and eventually merger with Unity Small Finance
Bank as per the scheme, we find a serious effort on part of the
RBI to protect the interest of all stakeholders irrespective of
their class/category. As per the scheme, the depositors had
access to Rs.5 lakhs of their deposits immediately, which
enable more than 95% of the depositors to withdraw the entire
balance in their respective deposit accounts. Further, with the
depositors were permitted to get additional amount of Rs.15
lakhs within first five years, around 99% of retail depositors
will be able to withdraw the entire balance in their accounts
and rest of the retail depositors will be paid after ten years.
As against this, the institutional depositors, who formed
a class by themselves, are also protected by the scheme as
they had large deposits in PMC Bank and they are also
protected from wiping out of their entire deposit amount,
which could have resulted into huge losses and systematic::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 105/119 WP-8534-22 GRP.odt
damage to the co-operative banking sector and, therefore the
institutional depositors were repaid through capital
investments, as the scheme has a distinct arrangement for
them as on and from the appointed date, 80% of the uninsured
deposits outstanding to the credit of each institutional
depositor is converted into perpetual non cumulative
preference shares of transferee bank with dividend of 1% p.a.
payable annually. As far as remaining 20% of the institutional
deposits, by the scheme are converted into equity warrants of
transferee bank at the price of Rs.1/- per warrant, which are to
be converted into equity shares of transferee bank at the time
of initial public offer, when the transferee bank goes for public
issue, the price for such conversion to be determined at the
lower band of initial public offer price. We find the above
arrangement only suited for institutional depositors.
- Another objection about the scheme being arbitrary is
advanced by stating that by permitting withdrawal of amounts
during imposition of moratorium prior to the scheme, the
liability of DICGC has been reduced by approximately INR 920
to 1120 crores.
As regards the said contention, it is to be noted that on
23/09/2019, RBI imposed All Inclusive Directions under::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 106/119 WP-8534-22 GRP.odt Section 35A read with Section 56 of the BR Act and between
26/09/2019 to 19/06/2020, on analysing the financial position
of the bank, enhanced the withdrawals by the depositor from
INR 1,000/- to INR 10,000/- and finally upto INR 1,00,000/-.
This was done to ensure immediate financial relief to the
depositors in order to enable them to meet critical expenses
and to avoid any hardship faced by the depositors. Despite
this amount being permitted to be withdrawn upfront, the
additional payment made by DICGC has to be repaid as per the
DICGC Act. Considering that the additional liability towards
DICGC would have put extra burden on the Unity Bank and
affected its operations, thereby hindering the repayments to
the depositors under the scheme, the amount was not infused
immediately, but in any case, the liability of the DICGC under
the scheme is ensured as per the provisions of the Act and it
has never been reduced or increased.
It is also an allegation of the Petitioners that the liability
of DICGC has been limited to Rs.5 lakhs per depositor, which is
also arbitrary and violative of the provisions of the Act. It is
worth to note that DICGC has been constituted to provide
deposit insurance cover to the deposits placed in the bank and
as per the principle of deposit insurance, DICGC collect::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 107/119 WP-8534-22 GRP.odt
premium from all banks in the country and in case of failure
on part of the bank, protect the depositors upto the ceiling of
deposit insurance as prescribed in the DICGC Act and the
Regulations framed thereunder. The funds available from
DICGC to the insured bank are limited to the cover prevalent
at the relevant time and though initially the protection was
only upto Rs.1 lakh, the limit has been raised to Rs.5 lakhs
w.e.f. 04/02/2020 and, therefore, in terms of Section 16 of the
Act, DICGC is entitled to offer funds equal only to the insured
portion of deposits i.e. all depositors fund upto maximum of
Rs.5 lakhs.
Section 21 of the Act read with Regulation 22 provide for
'repayment of amount' to the Corporation and the aforesaid
provision makes it mandatory for the insured bank or the
transferee bank, as the case may be, to repay the amount to
the DICGC within such time and in such manner, as may be
prescribed. The Petitioners' apprehension that their deposit
will be encumbered is unfounded, as the depositors are free to
carry on any transactions in their saving accounts, which are
now transferred to Unity Bank, as their accounts have been
credited with the funds received by Unity Bank from DICGC.::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
108/119 WP-8534-22 GRP.odt
A categorical statement is made in the affidavit that
pursuant to the said scheme, various depositors have
withdrawn the amounts from their savings accounts now
maintained with the Unity Bank.
In light of the specific scheme formulated under the Act
and in specific Section 16, which has prescribed the liability of
Corporation in respect of insured deposits, inapplicable to
scheme of amalgamation, the Corporation is liable to pay to
every depositor an amount equivalent to the difference
between the amount so paid and the original amount or the
difference between the amount so paid or credited and the
specified amount whichever is less.
By virtue of Section 18 in relation to the scheme of
amalgamation of any insured bank with any other banking
institution as in the present case Unity Bank, the Corporation
becomes liable to pay to the depositors of the insured bank
under sub-section (2) of Section 16 and the transferee bank,
where the scheme is of amalgamation, with the least possible
delay and in any case, not later than three months from the
date on which such scheme takes effect, furnish the list to the
Corporation to be certified by its Chief Executive Officer,
showing separately deposits of each depositor and the amount::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 109/119 WP-8534-22 GRP.odt
of set of and also the amount paid or credited or deemed to
have been paid.
As per Section 21 of the Act, it is the duty of the
transferee bank in a scheme of amalgamation to repay to the
Corporation out of the amount, if any, to be paid or credited in
respect of any deposit after the date of coming into force of the
scheme, such sum which would make up the amount paid or
provided by the Corporation in respect of the said deposit. It is
open for the Corporation to differ or vary the time limit for
receipt of the repayments due to it from the transferee bank,
as the case may be.
Therefore, we do not find any violation of the provisions
of the DICGC Act or the Regulations.
- All the Writ Petitions filed before us, raised a challenge to
the scheme of amalgamation formulated under Section 45 of
the BR Act, the challenge being mounted on the count of Article 14, Article 19(1)(g) and Article 300A of the
Constitution.
We have examined the challenge by keeping in mind the
scope of judicial review in relation to such scheme, which is
formulated in larger interest of the public, including the
depositors and finally received approval from the Central::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 110/119 WP-8534-22 GRP.odt
Government. The procedure for formulating a scheme for
amalgamating one banking company with any other banking
institution is itself provided in the statute in form of [Section
45](https://indiankanoon.org/doc/1829498/), a provision which exists, as a special one, notwithstanding
anything contained in the provisions of the Act itself or any
other law or any agreement or instrument for the time being in
force, the power being vested in the Reserve Bank to apply to
the Central Government for an order of moratorium. Upon
such an application being preferred by the RBI, the Central
Government, ordered moratorium i.e. restricted operations of
the bank, staying the commencement or continuation of all
actions and proceedings against the company for a fixed
period, in an attempt to provide a resolution to the problem
faced by it.
The RBI is given complete power to formulate the scheme
being a regulatory body possessing the necessary expertise,
although what shall be length and width of the scheme is
specifically highlighted in sub-section(5) of Section 45 and it is
permissible for the RBI to provide for all or any of the matters
specifically provided therein. We have noted that the
precarious financial situation of the PMC Bank allowed or
rather made it imperative for the Reserve Bank to take::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 111/119 WP-8534-22 GRP.odt
appropriate steps to protect the interest of the depositors and
consider all the viable options, that were open to it and
ultimately in the interest of the depositors, it decided to
amalgamate the PMC Bank with Unity Bank, by transferring
the business of the former to the latter alongwith all its
properties, assets and liabilities. As the scheme contemplate
reduction of the interest or rights which the depositors and the
other creditors had or against the banking company, it is well
within the powers of Reserve Bank to make the payment to the
depositors in the satisfaction of their claim in the manner set
out in the scheme and this include the staggered payment and
classification of the depositors considering their
worth/investment in the bank. Since the financial condition of
the PMC Bank was alarming and its net-worth had turned
negative, appreciating the downfall of PMC Bank, the RBI was
forcefully required to step in and exercise the powers available
to it under Section 36AAA read with Section 56 of the BR Act,
superseding its Board of Directors and appointing an
Administrator and issuing All Inclusive Directions, inter alia,
imposing restrictions on its functions, including withdrawals
of deposits to be followed by formulation of the scheme by
which the business of PMC Bank is transferred to a new entity.::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
112/119 WP-8534-22 GRP.odt
The action of the RBI, in our view, is in the interest of the
depositors as we must note that if the liquidation proceedings
were to be adopted, then we doubt whether the eligible
depositors would have entitled for a sum more than Rs.5 lakhs
from the DICGC irrespective of their total deposits with the
PMC Bank, and in any case, it would have been a long drawn
process and the depositors would have been required to stand
in queue and wait for their turn till the other creditors are
satisfied.
- We have also noted that the whole process adopted by the
Reserve Bank was rightful, open and transparent. Though it is
vehemently urged that only the Administrator's objections
were considered, from the reply affidavit filed on behalf of the
RBI, we have noted that the objections were considered before
the draft of the scheme was given a final shape, and according
to us, in such a situation every objector/depositor need not be
heard or his objection need not be considered, as the power
under Section 45 of the Banking Regulation Act, 1949 is a
power to be exercised in an emergent and peculiar scenario.
When in the larger public interest or in the interest of the
depositors or to secure proper management of the banking
company, a scheme is to be formulated and ultimately, it is the::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 113/119 WP-8534-22 GRP.odt
satisfaction of the Reserve Bank of India that, it is necessary
to impose a moratorium staying the commencement or
continuation of the business of a particular bank for such
period as it deem fit, considering the surrounding
circumstances and in this case, we are satisfied that in the
wake of the debacle of the PMC Bank with its net-worth was
already in the negative and to prevent its annihilation, it was
necessary for the RBI, a supervisory body, to step in and take
prolific and productive steps to prevent further damage and
we find that this is what RBI did precisely. Since Section 45 of
the BR Act, 1949 is a non obstante provision, it operates
independently and has its effect over all other provisions in
the Act or any law for the time being in force, we do not find
any legal or procedural impropriety on part of the RBI or the
Central Government in approving the scheme of the
amalgamation.
On a consideration of the merit in the objection about the
distribution to the depositors not being pro-rata and, hence,
the scheme being not equitable, we have noted that the two
classes of depositors are created in the scheme, the 'individual'
and the 'institutional', but since they are two distinct classes
of depositors, though definitely have been treated differently,::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 114/119 WP-8534-22 GRP.odt
but it is not a case, where equals are treated unequally as all
similarly placed depositors received equal treatment.
The aim of the scheme of RBI, according to us, is
intelligible, being return of the deposits of every Depositor to
its full extent, though the period of waiting would differ
depending upon the class to which he belong. The depositors
in PMC Bank are of all age group and, no benefit is granted
only because a particular class is of a senior citizens and,
according to us, applying the pro-rata principle would not have
served the interest of all the depositors and we reject the
contention that Section 43A, which is applicable in
proceedings of winding up of a company and based on pro-rata
basis, but this definitely do not hold good for a scheme framed
under Section 45, in the wake of a non obstante clause. We
conclude that the RBI in its economic wisdom, which it
possess, had formulated the scheme, which received the final
approval from the Central Government in larger interest of the
public as well as of the depositors, do not suffer from any legal
infirmity though it might have caused some inconvenience to a
few.
Equally incorrect is the submission that the CRR should
have been distributed as it is the money of depositors, as we::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 115/119 WP-8534-22 GRP.odt
find that the CRR is the Cash Reserve Ratio, imperative to be
maintained by every bank as a going concern and paying the
depositors from all the reserves of the bank would ipso facto
result in liquidating the bank itself. Similarly, the payment of
minimum interest of 2.75%, to be paid after five years which is
also alleged to be arbitrary, do not deserve any interference as
the statutory scheme under Section 45 of the BR Act itself
contemplate reduction of interest or rights of the depositors
and other creditors and if the purpose of the scheme is to
benefit the maximum depositors, and the scheme intends to
return the principal amount, small or large whatever the
depositor has invested, we find it to be a profitable deal as
otherwise on account of the negative net-worth of the Bank, all
the depositors would have been deprived of their money, had
the PMC Bank put under liquidation, and in our view, unless
and until it is pointed out that the decision taken by RBI and
Central Government is arbitrary or smack of mala fides, we
refrain ourselves from exercising the power of judicial review.
- As far as arguments advanced on behalf of the Petitioner
in Writ Petition 7753 of 2022, which is a federation of various
Credit Co-operative Societies, we find various Credit Co-
Operative Societies hold deposits in the bank, whose investors::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 116/119 WP-8534-22 GRP.odt
are individuals. The depositors of the Credit Co-Operative
Societies have deposited their money in respective Credit Co-
Operative Society, which in turn invested/deposited it in the
PMC Bank as a group of persons. Had they invested in
individual capacities, they would have been categorised as
'retail depositors', but since they have deposited through
Credit Co-Operative Societies, which is an association of
persons, they lose their identity as 'retail depositors' and are
considered as 'institutional depositors'.
Mr.Warunjikar has argued that the Petitioner has 300
members and some of the members are shareholders and
institutional depositors and citing an example, he would
submit that Shivkrupa's investment in PMC Bank is Rs.88
crores, but when we specifically sought clarification from him,
he would submit that the Federation has 363260
shareholders, but they are not the shareholders in the PMC
Bank, but his grievance is that there is no provision for
protection of a federation like the Petitioner, which is a society
and when it is seen that the societies are covered in the
definition of 'institutional depositors', as defined in [Section
2(e)](https://indiankanoon.org/doc/97316180/), he would submit that there is no category of co-operative
society, though Banking Regulation Act is specifically made::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 117/119 WP-8534-22 GRP.odt
applicable to the co-operative society. For this contention, we
have no answer as it is for the Legislature to create class of
depositors and it is not the function of the Court.
- In any case, since we do not agree that the scheme
formulated is arbitrary or so perverse, which would have
warranted our interference, in exercise of judicial review
available to us, we uphold the impugned scheme, as we find
that the objections raised, do not justify disruption of the
formulation of the Amalgamation Scheme, its approval and its
present existence and operation.
Through the affidavit placed before us by the Unity Small
Finance Bank Limited, its banking activity is placed before us
and we find that as on 31/12/2025, 99.45% depositors of the
PMC Bank have withdrawn the total amount of Rs.3835.04
crores out of Rs.3856.26 crores, which was released by DICGC.
Apart from this, the Unity Bank has also grown its balance
sheet from Rs.11946 crores in March 2023 to Rs.19152 crores
in March 2025, and in fact it is also pointed out to us that the
Unity Bank is making a profitable business and the profits have
increased from Rs.35 crores in March 2023 to Rs.482 crores
in March 2025 i.e. its growth rate is 271%. Apart from this,
the bank has expanded its business to 20 States in India and::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 118/119 WP-8534-22 GRP.odt
have spread over to 291 branches in place of 110 branches,
making it a PAN India Bank, with more and more savings and
current accounts being opened. Since this statement is made
on oath by filing an affidavit by the Unity Bank represented by
learned senior counsel Mr.Kamat, we have no reason to
dispute the same.
Thus, we must note that the Unity Bank had literally
pulled up the PMC Bank and its depositors, who faced an acute
financial crisis and has rather offered a fresh breath of air, by
securing the interest of the depositors right from the small
depositors below Rs.5 lakhs to an institutional depositor, who
has deposited amount more than Rs.5 lakhs.
We do not find any reasons to disrupt the existing
scheme of amalgamation, which is presently in operation and
which has done best for the depositors and is doing best for
those who have not yet received their principal amount back,
but the scheme has assured 100% return of their principal
with the permissible interest, as provided in the scheme.
The comparison of the schemes in relation to other banks
is not of any succor to the Petitioners as we find that every
case had to be considered on its own merits and on the basis of
the existing and surrounding circumstances and ultimately::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 ::: 119/119 WP-8534-22 GRP.odt
since we find that the expert body like Reserve Bank of India
had made a serious attempt to save an ailing bank and its
depositors, we do not find any scope to interfere merely
because for some other bank, the provisions of the scheme
differed, as long as the present scheme of amalgamation is in
consonance with the statutory scheme under Section 45 of the
Banking Regulation Act.
In light of the above, finding no merit and substance, we
dismiss all the Writ Petitions.
Rule is discharged.
(MANJUSHA DESHPANDE, J.) (BHARATI DANGRE, J.)::: Uploaded on - 17/03/2026 ::: Downloaded on - 20/03/2026 21:29:40 :::
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