The Bombay High Court observed that the objective behind issuing the said circular was to protect the entities regulated under the Banking Regulation Act and in the public interest as there was a perception that current accounts were being used to commit fraud.
There was a mushrooming of current accounts by borrowers and therefore, to control the same, the circular was issued.
The Bench noted the mischief which was preventing the illicit diversion of inflows from the lending credit account. It was noted that if the previously opened accounts were to be exempted from the applicability of the circular, the circular would have explicitly said so.
The High Court opined that the circular issued by RBI is naturally applicable to the pre-existing current accounts also. Therefore, if other current accounts are being used to receive funds which are meant to be routed through the EPC account, the same would be prohibited.
Brief Facts:
The present writ has been preferred by the Petitioners being aggrieved with the communications of HDFC Bank with PNB, J& K Bank and CanBank.
The HDFC Bank had issued emails to other banks stating that RBI issued a circular vide which the banking customer cannot have a current account with other banks if that customer has credit facilities in the banking system. According to HDFC Bank, all transactions had to be routed through the account of the borrowing customer with its principal lending bank.
Therefore, it was said that the amounts of the Petitioner had to be remitted with HDFC Bank as it was the bank with whom the Petitioner has a current account.
It was submitted that before HDFC, the Petitioners had a current account with PNB and Can Bank. Similarly, an overdraft account was there with J&K Bank.
Further, HDFC Bank asked PNB, Can Bank and J&K Bank to close the current account of the Petitioner on account of the RBI circular dated 6th August 2020. Hence, the present petition.
Contentions of the Petitioner:
It was contended that the RBI circular was not applicable to the Petitioner as it had accounts with the three banks before opening a current account with HDFC. It was argued that the circular restricted the opening of new current accounts but had no application on the previously opened current accounts.
Contentions of the HDFC Bank:
It was submitted that the actions taken are in consonance with the RBI circular. Further, the matter pertains to contractual banking and commercial relations between the parties, therefore the circular would be applicable.
Observations of the Court:
The High Court observed that the objective behind issuing the said circular was to protect the entities regulated under the Banking Regulation Act and in the public interest as there was a perception that current accounts were being used to commit fraud.
There was a mushrooming of current accounts by borrowers and therefore, to control the same, the circular was issued.
The Bench noted the mischief which was preventing the illicit diversion of inflows from the lending credit account. It was noted that if the previously opened accounts were to be exempted from the applicability of the circular, the circular would have explicitly said so.
The High Court opined that the circular issued by RBI is naturally applicable to the pre-existing current accounts also. Therefore, if other current accounts are being used to receive funds which are meant to be routed through the EPC account, the same would be prohibited.
Lastly, the Court noted that present is the case pertaining to a private contractual dispute. Therefore, the petition would not be maintainable as well.
The decision of the Court:
Based on the aforementioned findings, the petition was accordingly rejected.
Case Title: VJ Jindal Cocoa Pvt. Ltd. & Anr. V. Union of India & Ors. with other connected matters
Coram: Hon’ble Justice G.S.Patel, Hon’ble Justice Neela Gokhale
Case No.: Writ Petition (C) No. 4051 of 2023 with other connected matters
Advocates for the Petitioners: Advs. Mr. Ashish Kamat, Akshay Puranik, Vivek Shetty, Amey Mirajkar, Parimal Kahsyap
Advocates for Respondents: Advs. Ms. Sahiba Ansari, Aisha Shaikh, Tanvi Rane, Mr. Dharmesh S Jain, Anil T Agrawal, Nishit Dhruva, Prakash Shinde, Niyati Merchant, Yash Dhruva, Harsh Sheth, Ravi Kadam, Gaurav Mehta, CD Mehta, Aamir Ali Shaikh
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