The Supreme Court held that the directions issued by the Reserve Bank of India (RBI) are Statutory Binding on Financial Institutions Like Small Industries Development Bank of India (SIDBI).
Plaintiff SIBCO purchased the Bonds in the form of promissory notes issued by the defendant SIDBI. These are termed as SIDBI Bonds 2003 (4th Series) carrying 13.50% interest and SIDBI Bonds 2004 (5th Series) generating interest at the rate of 12.50%, from one Shankar Lal Saraf on 1st July, 1998. The interest is payable on a half-yearly basis. The Bonds are freely tradable in the market. M/s. SIBCO purchased Bonds of the face value of ten lakhs each for an aggregate price of Rs. 3.69 crores on 1st July, 1998 by M/s. SIBCO from the said, Shankar Lal Saraf. The Bonds were deposited with M/s. SIDBI (defendant) on July 2, 1998, with the request to endorse the name of the Plaintiff-purchaser on the said Bonds. On refusal to register and/or record the name of the SIBCO by the defendant on the ground that CRB Capital had gone into involuntary liquidation proceedings at the instance of the RBI. At first, Plaintiff filed the petition before the Calcutta High Court seeking a mandamus upon the defendant to transfer the aforesaid Bonds in favor of the plaintiff and also to pay the interest accrued on them.
The issue raised was whether the plaintiff has set forth a just claim, based on the Bonds issued by the defendant, or is it a case of that trial in Shakespeare’s The Merchant of Venice where Shylock is claiming the promised pound of flesh in the form of interest on delayed payment on the Bonds purchased by the plaintiff.
The division bench of Justice Subhash Reddy and Justice Hrishikesh Roy has stated that the Reserve Bank of India (RBI) has wide supervisory powers over financial institutions like the Small Industries Development Bank of India (SIDBI). So, deriving power from the RBI Act or the Banking Regulation (BR) Act, any direction issued by it is statutorily binding.
The bench observed that firstly, the defendant was justified in withholding payment, as they were under RBI’s direction to do so; secondly, the defendant hasn’t derived any undue benefit by their act and; thirdly, due payment was promptly made to the plaintiffs upon settlement of rights by the court. Moreover, the concerned transactions were during the “suspect spell”. This is our view shows that the defendant acted bona fide and there was no undue delay on their part, to remit the dues.
Subscribe Taxscan Premium to view the JudgmentSmall Industries Development Bank of India vs M/s SIBCO Investment Pvt Ltd
2022 TAXSCAN (SC) 102
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