Banking Law

[By Dhanush Thonaparthi] The author is a student of NALSAR University of Law.   Introduction Economic Social and Governance (ESG) policy is a concept of growing relevance among business houses, replacing the more traditional Corporate Social Responsibility (CSR) concept. It is reflected in the legislative and policy space of the government, with the most prominent example of this being the introduction of the Business Responsibility & Sustainability reporting mandated by The Securities and Exchange Board of India (SEBI), for India’s top 1000 listed companies by market capitalization. In this context, the article argues that banks should incorporate the ESG performance of a company alongside other factors when considering a lending decision, with persuasive reasons for the same and examples as to how ESG is already becoming a key factor in credit ratings and lending decisions. What is ESG and how is it relevant for companies?  ESG includes three components, its pillars, namely Environmental, Social and Governance. ESG refers to a set of standards regarding a company’s activities and behavior concerning the components of ESG. These factors, in the corporate context, are used to look at the long-term sustainability of a company. With an increased global push towards environmental consciousness, respecting social considerations, and better governance in companies, this framework becomes important in evaluating a company’s future performance and opportunities. Achieving high ESG standards also becomes important for companies in the context of the stakeholder theory[1], which postulates that corporate success is not dependent only on shareholder and management satisfaction, but also on its relationships with its customers, the Government, creditors, and the public. The long-term survival and profitability of a company depend on it maintaining a good relationship with all its stakeholder groups. This is where ESG standards play an important role, considering that they address the environmental aspect, (which has been a major point of concern across countries and the public) the social aspect (mostly relating to the general public welfare, which is important for a company’s reputation and goodwill) and the governance aspect (better governance instills public and corporate confidence, meaning access to cheaper lending, more and better customers and more investment options). How is ESG relevant to banks when making lending decisions  Banks are financial institutions driven by profit motives and financial considerations. A major concern for banks is non-performing assets and delays in repayments by borrowers, reducing the profitability of the bank. This can lead to unrealized gains and/or unnecessary litigation for recovery, both of which any bank will want to avoid. Therefore, banks would want metrics that help determine whether a lending decision could translate into an unprofitable venture. A key factor that can be incorporated into such metrics is ESG. A review of the literature on ESG as a factor in corporate lending has found that better ESG performance may correlate with lower credit risk, legal risk, and downside risk.[2] Additionally, a survey by Morningstar indicates that better sustainable performance leads to better risk mitigation. We are currently undergoing the largest wealth transfer in history, with experts suggesting that nearly sixty eight trillion dollars of wealth will be transferred to the newer generations. We are in the middle of the largest wealth transfer in history. This is important for financial institutions as millennials fear climate change and would be willing to sacrifice financial benefits in favour of sustainability, and a company that is able to gain a leadership position in sustainability will be more preferred by millennials. Before delving into more specific reasons as to why ESG is important for banks in their lending decisions, we have to, first consider the Environmental pillar of ESG. Companies that are compliant with existing laws and regulations are less likely to be penalized and fined for any potential violation. The future outlook regarding environmental legislation is that it will be more protective of the environment, leading to more restrictions for a company, which translates into more potential liabilities for companies that do not comply and additional costs for compliance. For banks, this becomes important as a compliant company is less likely to incur these additional liabilities that add to the company’s costs. A company that goes beyond legally mandated environmental norms is more insulated from changes in regulation making it less susceptible to changes in legislation. Secondly, the Social pillar of ESG is important for banks, as it helps determine the brand value of the company and to assess how much public goodwill the company enjoys. If companies do not value the rights of people, it leads to public resentment and outcry, which forces the governments to intervene, leading to unnecessary interference and even litigation and reparations. An example in this regard is the case of Facebook. Facebook had to pay nearly 725 million dollars to settle a class action lawsuit after it disclosed that information relating to 87 million users (about twice the population of California) was improperly shared with Cambridge Analytica. Thirdly, Governance is an important pillar for banks to take cognizance of when lending, primarily because better governance means better company performance, a higher level of employee quality, and reliable company disclosures. If a company has bad governance practices, it can spell disaster for banks that choose to make lending decisions based on the company’s financials as disclosed by the company itself. A good example of bad governance translating into unreliable disclosures is the well-known Satyam scandal. In this case, the company had falsified accounts, inflated the share price, and invested enormous amounts in property. Upon admission by the company’s chairman, the fraud became known, leading to a collapse of the market’s reputation and confidence in the company. This is a prime example, demonstrating how dishonest and inefficient governance practices can lead to the collapse of a company, putting lenders at immense risk of their loans turning into non-performing assets or defunct loans. Fourthly, companies must be able to align themselves with the social values of the public and contribute towards the welfare of the society they operate in, because company perception plays

[By Saiyam Shah] The author is a student of Auro University.   Introduction Insurance, particularly health and life insurance, plays a pivotal role in alleviating stress for most individuals and families, assisting them in coping with unforeseen and unfortunate circumstances. People with disabilities (PWD), especially those with congenital disabilities, are often denied access to health and life insurance policies solely based on their disabilities, without any proper risk analysis or objective justifications. Testimonials of the PWD, who were denied insurance or were not given the amount they were entitled to when required on inconsequential grounds are many. Though the judicial intervention has provided some relief, the attitude of the Insurance Regulatory and Development Authority of India (IRDAI) was not impressive until the intervention of the Delhi High Court.. This article delves into the recent developments concerning discrimination against PWD in insurance-related matters and highlights what IRDAI can learn from the practices of the Australian Human Rights Commission (AHRC) to curb instances of discrimination. The initial section highlights the importance of health and life insurance and sheds light on the direct and indirect discrimination faced by PWD. Subsequently, it briefs about the provisions pertaining to discrimination. In the next part, it delves into two significant decisions by the Delhi High Court on the issue of discrimination and concludes by addressing recent developments and advocating for IRDAI to consider issuing binding circulars or non-binding guidelines akin to those adopted by the AHRC to take substantial steps towards reducing instances of discrimination and fostering a fair and inclusive insurance environment for all. Importance of insurance for the PWD As it is for every individual, health and life insurance are essential for PWD to mitigate accidents and other such uncertain events. As noted by Thomas Weston in the context of the UK, but also applicable generally, the PWD (1) are less likely to be employed by the private sector, (2) their income may be lower than their counterparts, and (3) specific needs for assistive equipment, care, and therapy add to their daily cost burden. Therefore, it becomes all the more necessary for them to have health insurance to financially deal with the uncertain events requiring immediate payment of a large amount. Direct and indirect discrimination Often, PWD are denied health or life insurance solely based on their disability without conducting an objective assessment of the risk factors and considering the possibility of providing a policy with a higher premium and non-standard terms. The PWD are discriminated against by: (1) denying to provide the insurance policy, (2) providing the policy with non-standard terms and/or a higher premium and (3) not paying the legitimate insured amount when required on inconsequential grounds. The discrimination is also visible in instances involving family insurance plans. The legal provisions Section 3 of the Rights of Persons with Disabilities Act (RPWD Act) prohibits any kind of discrimination based on disability unless one satisfies that the same act or omission is a proportionate means of achieving a legitimate aim. Section 24(k) of the Act mandates the appropriate government to make a comprehensive insurance scheme for the PWD, and 26 mandates it to make insurance schemes for employees with disabilities. However, the customised insurance policies, customer service, and range of options available in the private sector make it imperative to ensure that they are available to everyone, including PWD. India has ratified the UN Convention on the Rights of Persons with Disabilities, article 3 of which obligates the states to abide by the principles of non-discrimination and full and effective participation and inclusion in society. Article 25(e) of the CRPD obligates the states to prohibit discrimination against PWD in the provision of health and life insurance where such insurance is permitted by national law. Due to the lack of express provision addressing this issue, the litigants seek relief U/A 14 and 21 of the Constitution against such practices. Protection in foreign jurisdictions The Australian Disability Discrimination Act (ADDA) allows discrimination in life and health insurance only if (i) it (1) is based upon actuarial or statistical data and (2) is reasonable having regard to the matter of the data and other relevant factors; or (ii) if the same is not available and cannot be reasonably obtained, the discrimination is reasonable having regard to any other relevant factors. The US’s Affordable Care Act prohibits insurance companies from not providing insurance to people with pre-existing conditions. Other countries or states, that have some express provision against such discrimination include Hong Kong, Japan, Spain, the UK, Portugal etc. Judiciary on disability discrimination Are PWD more prone to accidental risks? In Vikas Gupta v. Union of India (2012), the petitioner filed a PIL against the discrimination in premium as well as the maximum amount ensured in the Postal Life Insurance Policy for government employees. The respondent defended their actions on the ground that PWD are more prone to accidental risks. As rightly countered by the petitioner, (1) there is no such empirical data to support such a general statement, and (2) living with a disability and suffering from a disease are not synonymous. Can a class be excluded on the ground of the contractual relation The bench referred to LIC v. Consumer Education & Research Centre and observed that though insurance is a contract between the insurer and the insured, the conditions prohibiting a class from entering into such a contract are unconstitutional. The LIC had distinguished the persons working in government, semi- government and reputed commercial firms from those living in vast rural and urban areas engaged in unorganized or self-employed sectors and denied insurance policy to the latter. The court struck down the classification as violative of Article 14 of the Constitution. The bench, applying the same case, held that charging a higher premium and discriminating on the basis of the disability is unconstitutional. Saurabh Shukla v. Max/Niva Bupa Health Insurance & Co.; IRDAI’s failure as a sectoral regulator Regulations ; a paper tiger IRDAI’s 2016 Health Insurance Regulations, Para 8(b) and (C), used

[By Vaibhav Gautam] The author is a student of NALSAR University of Law.   INTRODUCTION Earlier last month, the Reserve Bank of India released a comprehensive circular (“Circular”), on the compromise settlements and technical write-offs, to provide the lenders with multiple options to recover the maximum possible amount from their distressed assets without delay. The RBI’s primary objective behind this move appears to ensure greater transparency in the process of resolving distressed assets. However, this circular can also be seen as an attempt to widen the applicability of the compromise settlements as envisaged under the Prudential Framework for Resolution of Stressed Assets, 2019, (“Prudential Framework”). At the same time, the circular has stirred controversy and invited criticism from several stakeholders, such as major bank unions, like, All India Bank Officer’s Confederation (AIBOC), and All India Bank Employees Association (AIBEA), which are representative of around 6 lakh bank employees. There is a genuine concern among bank unions that a willful defaulter’s refusal to pay the owed amount might potentially lead to a loss of the general public’s money and confidence in the banks. Through this article, the author aims to analyze the said circular, as envisioned by the RBI and also attempts to demystify some of the concerns that have been associated with the circular. BACKGROUND The term “compromise settlement,” as explained by the RBI, basically means that the Regulated Entities (“REs”), primarily the banks, can enter into a negotiated agreement with the borrowers. The main purpose of such a resolution process is to effectively streamline the resolution process and also to rectify the problems that are caused by the distressed assets, such as huge losses for the lenders, financial instability in the economy, etc. Compromise Settlements resolve this by allowing the lender to recover the maximum possible amount of such distressed assets by reaching a mutually beneficial agreement involving a waiver of claims by the borrower, and a partial waiver of the amount by the banks. This is not the first instance of the RBI introducing such a concept. In 2007, RBI provided for compromise settlements as a valid resolution practice, where the banks were allowed to enter into compromise settlements with the borrowers, contingent on the decision of the management board of the bank. In the present circular, RBI has clarified its position regarding the compromise settlements, however this time they have also taken other REs into account, such as cooperative and local area banks. It has also reiterated the prescriptive cooling period of a minimum of 12 months, where the borrowers can take fresh loans after the said period. Later, on June 20, RBI published FAQs on the circular, where it provided clarification that this process of compromise settlements is not a major overhaul of the current resolution framework but rather it has been in practice for more than 15 years, with the earliest guidelines being released in the year 2007. CONCERNS OF THE STAKEHOLDERS One of the major concerns raised by the stakeholders, particularly bank unions has been that this circular will unduly advantage the defaulters by condoning their fraudulent or default act, thereby, eroding the public’s confidence in the banking system. Furthermore, it might set a dangerous precedent by allowing the defaulters to settle their large defaults by paying a minuscule amount of their original debt. Secondly, bank unions have further argued that these guidelines bring a sudden change into the process of clearing distressed assets from banks’ accounts, and will lead to the reversal of the guidelines that are provided under the Prudential Framework of 2019. Additionally, there is an apprehension that this reversal might entail major implications for the overall economy, such as systemic instability in the financial institutions, adverse market behavior, etc. Lastly, there is a concern that the circular would allow the defaulters to restructure their loan records to keep their reportable Non-Performing Assets (NPA) levels lower than they are, through the process of “evergreening.” This process allows for additional adjustments to be made to the existing debts of the borrowers, to make the repayment more feasible. However, instead of constituting a concrete solution to the recovery of distressed assets, evergreening is a temporary measure and different from compromise settlements. UNRAVELLING THE BANK UNIONS’ CONCERNS The concerns of the bank unions are seemingly contrary to the purpose envisioned by the RBI. These guidelines as provided by the circular impose the liability on the REs, primarily the banks to create and enforce a comprehensive framework that would be contingent on the approval of the management board of the bank. This requirement aligns with the ultimate goal of the circular, i.e., to increase the transparency and accountability between the lenders and the borrowers. The circular also clarifies the position on the minimum cooling period of 12 months. Accordingly, it will be the discretion of the banks to decide the upper limit of the cooling period. And only after that period has ended can the fresh loans be issued to the respective borrower. It is crucial to understand that rather than setting a dangerous precedent, this requirement puts a reasonable and justifiable restriction on the willful defaulter who seeks to get a fresh loan from a bank. The compromise settlements that are undertaken in consonance with these guidelines would be without prejudice to criminal proceedings and other penal matters. Hence, the argument that it unduly advantages the willful defaulters and the fraudsters, is not tenable. With respect to maintaining the integrity of the process, the permission of the board plays an imperative role, as it is provided in the circular, such borrowers might get debarred from issuing a fresh loan for 5 years. It is largely a misplaced concern of the bank unions to assume that the present circular would bring major changes to the process that is provided under the 2019 framework. It is pertinent to note that the Prudential framework deals with the illegibility of the defaulters for restructuring their debts whereas the current circular concerns compromise settlements. So, essentially, they are

[By Dhaval Bothra & Rajdeep Bhattacharjee] The authors are student of Symbiosis Law School, Pune.   Introduction The verbiage related to loss-sharing models has been a predicament for a substantial period now for the Reserve Bank of India (RBI). Post its Guidelines on Digital Lending (DL Guidelines) on 2 September 2022, a certain conundrum prevailed across the regulatory landscape concerning the validity of the same as it did not explicitly bar the arrangements of loss sharing but suggested that the Reserve Bank of India‘s (Securitization of Standard Assets) Directions 2021 (Securitization Directions),  paragraph 6(c), be adhered to for financial products involving contractual loss sharing modalities. However, under the recent Guidelines on Default Loss Guarantee in Digital Lending (DLG Guidelines), the air has been cleared by the regulator. Express permission has been granted to DLG arrangements subject to specific conditions, taking cognizance of all the stakeholders involved. The DLG Guidelines aim to boost confidence and growth in digital lending by allowing fintech companies to expand their customer base while lowering default risk. Prudent lending approaches, thorough credit evaluations, and modern data analytics should be prioritized for long-term lending practices. To limit risks, borrowers’ creditworthiness, income security, and repayment capacity must be carefully evaluated. This article compares the guidelines to past RBI norms, addresses industry issues, considers alternate options for addressing the stated concerns and suggests a way forward. Analysis and Interplay with Securitization Directions Under the guaranteeing ambit, two entities exist: Regulated Entities (REs) are permitted to retain the loans and associated credit risk of loans on their balance sheet, under Section 5(b) of the Banking Regulation Act 1949. The Lending Service Providers (LSPs) function either in liaising with the credit facilities provided by the REs or the acquisition of borrowers thereof, in a digital landscape. To provide access to the loan exposures for investors of different classes, a RE repackages the credit risk in a securitization structure into tradable securities with varying levels of risk. This enables a lender to share the risk of a loan with those third parties who might not have otherwise been able to access a loan exposure directly. These transactions that involve the redistribution of credit risk in assets by RE lenders are governed under paragraph 4 of the RBI‘s Securitization Directions. The DL Guidelines required REs participating in First Loss Default Guarantee (FLDG) arrangements to follow the RBI Securitization Directions, particularly its clause 6(c) about synthetic securitization. Therefore, the three possible interpretations were: An arrangement that is specifically related to the credit risk underpinning a pool of loans is called synthetic securitization. Herein, fintech companies could offer loan-specific guarantees. Only REs are covered by the Securitization Directions. So, if any regulatory flexibility on FLDG is allowed, it will only apply to RBI-recognized REs. Without obtaining a regulatory license, such as one to run an NBFC or small finance bank, the unregulated entities may not be able to offer FLDGs. Since synthetic securitisation is prohibited by the Securitisation Directions, any form of risk transfer in a pool of loans to a third party by a lender RE while keeping the pool on its balance sheet is prohibited. However, this res intergra position was addressed effectively by the Guidelines, hence clearing the air around this interpretative conundrum and it has been laid down that the DLG arrangements which are subjected to the provisions enlisted under Annex I to the circular, shall not be treated under the mandate of synthetic securitisation and/or the loan participation provisions. Thus, the RBI has provided clarity to LSPs regarding the extension of FLDGs. Industry Concerns FLDG To prevent borrower defaults, REs and LSPs must collaborate under the FLDG. FLDG acts as a risk-sharing mechanism in the domain of online lending. However, there can be concerns regarding how FLDG will be implemented under the DLG Guidelines. These include DLG provider eligibility requirements, DLG coverage constraints (capped at 5%), and the need for detailed disclosure guidelines to promote transparency. Additionally, further clarification is needed regarding the relationship between DLG arrangements and the RBI’s Master Direction on Securitization of Standard Assets 2021 to ensure compliance and avoid ambiguity. Excessive Data Collection and Misuse The DLG Guidelines and the DL Guidelines have failed to recognize the privacy concerns and exploitation risk when Digital Lending Aggregators (DLAs) and LSPs obtain superfluous data and permissions. These can include personal and financial information. From past scenarios, it is imperative to protect borrower data. This is crucial to prevent fraud and maintain trust in digital lending. DLAs and LSPs must prioritize strong data security measures like multi-factor authentication and upgraded encryption. The erosion of consumer trust hampers the growth of digital lending, so a comprehensive regulatory framework is needed. The framework should include explicit permission procedures, clear data retention and sharing policies, and strict penalties for noncompliance. To resolve this, a model akin to the European Banking Authority (EBA) Guidelines on the Security of Internet Payments can be adopted which comprehensively addresses the bottleneck and mitigates the concerns. ‘Buy Now Pay Later’ (BNPL)Applications These Guidelines will have a substantial impact on BNPL applications, particularly in terms of credit levels and operations. The effects of the DLG Guidelines on credit lines on BNPL platforms include the prohibition on loading non-bank Prepaid Payment Instruments (PPIs) through credit lines, changes to operational procedures, and the challenges faced by BNPL enterprises. The DLG Guidelines will impact the credit limitations of BNPL platforms. Specific conditions and new rules will be imposed on REs offering BNPL services, necessitating an evaluation of credit line practices and structures for regulatory compliance. BNPL companies must adjust their credit line policies accordingly. Additionally, DLG arrangements for BNPL platforms need to be reviewed to ensure adherence to the guidelines. This requires the development of clear and binding contracts between the RE and the DLG supplier, specifying the scope, categories, timeframe, and disclosure requirements of DLG coverage. Meeting these standards may involve investments in infrastructure, technology, and changes in business practices for BNPL companies. Mitigating Industry Concerns We propose the following alternative

[By Shobhit Shukla] The author is a student of Maharashtra National Law University, Mumbai.   In an effort to stop more damage in the banking industry, US regulators on May 1, 2023 seized struggling First Republic Bank and immediately sold all of its deposits and the majority of its assets to the nation’s largest bank, JPMorgan Chase. In the past few months, this is just another example of a bank collapsing post-COVID-19, adding it to the long list of major banks around the world such as Credit Suisse, Silicon Valley Bank, and Signature Bank. India however has remained a shelter during this global financial crisis. This is not unprecedented however, a similar outcome was also seen in 2008 where India with its domestic institutions, supported by good regulatory policies, displayed resilience uncanny to any other jurisdiction. This is remarkable because in the banking sector, unlike other industries, perception affects a majority of the business. As is the case in the current crisis, customers may run on the bank and cause liquidity problems, if they think the banks are about to declare bankruptcy. This perception by the customers has been at the core of the issue regarding the recent collapse of the banking sector around the world, therefore analysing the country’s banking system, with recent regulations to contain this becomes imperative. With reference to this, the article will examine recent measures that the regulator has implemented to lessen perception-based banking in India. In the age of startups and digitization, it will also examine how secure Indian banks have historically performed, particularly in response to some specific policy and judiciary measures. The article analyses the extent to which the government and the regulator have been involved with keeping the sector in check. Lastly, the article will analyse various case laws and their effect on the sector in India, and while also appreciating the regulator for its notable achievements, the article will conclude with some recommendations for what lies ahead. Introduction The Indian banking system has shown remarkable resilience in the face of various crises, such as the 2008 global financial crisis, and the recent post-COVID-19 pandemic banking crisis around the world. This resilience is attributable to a range of factors, including strong regulatory oversight, sound risk management practices, and a conservative approach to lending.  In recent years, the Reserve Bank of India (“RBI”), government, and judiciary have taken several steps to address issues related to the resilience of the Indian banking system. The RBI has issued several circulars and master directions aimed at strengthening the banking system and improving its resilience. For instance, in February 2021, the RBI issued a circular on the ‘Resolution Framework 2.0 for COVID-19 Related Stress’, which aimed to provide relief to borrowers affected by the pandemic and prevent the build-up of Non-Performing Assets (“NPAs”) in the banking system. The RBI has also taken measures to improve the governance and accountability of banks. In August 2020, the RBI issued a ‘Governance in Commercial Banks’ circular, which outlined the roles and responsibilities of board members and senior management in ensuring effective governance and risk management in banks. In addition, the government has taken steps to strengthen the banking system through legislative reforms. In September 2020, the government passed the Banking Regulation (Amendment) Act, 2020, which aimed to improve the regulation and supervision of cooperative banks in India. Lastly, even the judiciary has also played a role in curbing issues related to the resilience of the banking system. Overall, these efforts are aimed at ensuring that the banking system remains stable and resilient, even during times of economic stress and uncertainty. Policy-Based Measures Capital Adequacy One of the key measures of a bank’s resilience is its capital adequacy. Capital adequacy refers to the ability of a bank to absorb losses and continue to operate. In India, the RBI has set minimum capital adequacy norms for banks, which are in line with the Basel III framework. The minimum capital adequacy ratio (CAR) for banks is set at 9%, with a minimum Tier I capital ratio of 6%. The RBI’s guidelines on capital adequacy require banks to maintain capital levels that are commensurate with the risks they undertake. The guidelines require banks to assess their capital needs based on their risk profile and to maintain a buffer above the minimum regulatory requirement. Banks are also required to maintain capital conservation buffers, which are designed to ensure that banks have adequate capital during periods of stress. Risk Management Sound risk management practices are critical for ensuring the resilience of banks. In India, the RBI has put in place a range of guidelines and regulations to ensure that banks adopt sound risk management practices. The RBI’s guidelines on risk management cover various aspects, including credit risk, market risk, operational risk, and liquidity risk. The guidelines require banks to conduct regular stress tests to assess the impact of adverse economic scenarios on their portfolios. The RBI’s guidelines on market risk management require banks to adopt appropriate risk management policies and practices to manage their exposure to market risk. The guidelines require banks to conduct regular stress tests to assess the impact of adverse market scenarios on their portfolios. Liquidity Risk Liquidity risk refers to the risk of not being able to meet obligations as they fall due. In India, the RBI has put in place regulations to ensure that banks have adequate liquidity buffers to manage their liquidity risk. The RBI’s guidelines on liquidity risk management require banks to maintain a liquidity coverage ratio (LCR) of at least 100%. The LCR is designed to ensure that banks have sufficient high-quality liquid assets to meet their obligations during a 30-day stress scenario. Judiciary’s Perspective The Banking Regulation Act, 1949 (“the Act”), is the primary legislation governing the banking system in India. The Act provides for the regulation and supervision of banking companies in India and is designed to ensure the stability and soundness of the banking system. The Act also provides for the regulation of the business of

[By Naman Kothari] The author is a student of Government Law College, Mumbai.   Introduction This assessment delves into the flaws surrounding the issuance of bank licenses in India, with a focus on two crucial aspects. Firstly, it examines the shortcomings of the ‘fit and proper’ criteria, which lack precise guidelines and introduce subjectivity, potentially leading to favoritism and arbitrary decision-making. Secondly, it scrutinizes the refusal of licenses by the Reserve Bank of India (RBI) and the existing redressal mechanism. Specifically, it explores the need for transparency and fairness in the licensing process under the guidelines for ‘on tap’ licensing of universal and small finance banks in the private sector. The “Fit and Proper” Criteria: The “fit and proper” criteria entail various requirements, such as the eligible promoters (both individuals and entities/non-banking financial companies) having a minimum of 10 years of experience in banking and finance at a senior level. Additionally, they should possess a track record of sound credentials, integrity, financial soundness, and a successful professional history of at least 10 years. For entities, preference is given to those with a diversified portfolio in the case of Universal Banks. Furthermore, for Small Finance Banks, applicants must exhibit a record of sound credentials, integrity, financial soundness, and a successful track record of professional experience or running their businesses for a minimum period of five years. However, it is noteworthy that these criteria remain highly ambiguous, leaving significant room for subjective discretion by the RBI. The lack of precise guidelines in these areas introduces a potential for arbitrariness and invites allegations of favoritism. Despite revisions to the previous guidelines, this aspect has not been effectively addressed, perpetuating the concerns surrounding the subjective nature of the “fit and proper” criteria. To effectively assess whether a promoter meets the criteria of being “fit and proper” under the aforementioned guidelines, the RBI exercises its authority to conduct a comprehensive multi-layer scrutiny process. This includes the ability to request additional information from the promoter at any stage of the examination process, ensuring a thorough evaluation. Furthermore, the RBI has the power to collaborate with other regulatory bodies, as well as enforcement and investigative agencies such as the Income Tax Department, Enforcement Directorate, and the Central Bureau of Investigation (CBI), to review the promoter’s history and obtain relevant information. This level of scrutiny provides the RBI with a detailed understanding of the promoter’s background and financial standing. Though this level of discretion also allows a window for potential corruption or undue influence, where applicants may seek to manipulate or circumvent the scrutiny through illicit means. The subjective nature of assessing a promoter’s history, credentials, and financial standing introduces an additional challenge, as it allows for varying interpretations in the decision-making process. This subjectivity opens the door to apprehensions of bias, favoritism, or arbitrary decision-making, thereby eroding stakeholder and public confidence in the integrity of the licensing process. Refusal of License by RBI and Redressal Mechanism: Vide its press release dated April 15, August 30, and December 31 2021 the RBI announced names of Applicants under the Guidelines for ‘on tap’ Licensing of Universal Banks and Small Finance Banks in the Private Sector. A) The applicants under Guidelines for ‘on tap’ Licensing of Universal Banks: UAE Exchange and Financial Services Limited. The Repatriates Cooperative Finance and Development Bank Limited (REPCO Bank). Chaitanya India Fin Credit Private Limited. Shri Pankaj Vaish and others. B) The applicants under Guidelines for ‘on tap’ Licensing of Small Finance Banks: VSoft Technologies Private Limited. Calicut City Service Co-operative Bank Limited. Shri Akhil Kumar Gupta. Dvara Kshetriya Gramin Financial Services Private Limited. Cosmea Financial Holdings Private Limited. Tally Solutions Private Limited. West End Housing Finance Limited. On May 17, 2022, the RBI issued its decision regarding the 6 applications out of the 11 names provided earlier. The RBI declared that all applications submitted for the establishment of universal banks, specifically VSoft Technologies Private Limited, and Calicut City Service Co-operative Bank Limited under the category of Small Finance Banks, have been rejected. However, the applications of the remaining candidates are still under examination by the RBI. It is noteworthy that the RBI did not provide any specific reasons other than deeming the rejected entities unsuitable to receive a banking license. According to the guidelines set forth in 2016 and 2019, the RBI has the authority to reject applications if they fail to meet the “fit and proper” criteria and is not obligated to provide any reason for rejection. The applicants are also required to submit their business plans along with applications, which should be realistic and viable. The RBI holds the authority to assess the business plan and may impose penalties or restrictions if there is a deviation from the stated plan even after the issuance of a license. The business plan should address key aspects such as achieving financial inclusion, including the underlying assumptions, existing infrastructure, product lines, target clientele, target locations, utilization of technology, risk management, human resources, branch network, presence in unbanked rural areas, compliance with priority sector requirements, and financial projections for a period of five years. It is evident that, alongside the “fit and proper” criteria, the submission of a meticulously detailed business plan plays a pivotal role. It should be noted that any deviations or provision of incorrect information/objectives in the business plan may serve as grounds for rejection. The process for obtaining a banking license under the 2016 and 2019 guidelines is the same and it involves several stages. Initially, the applications are screened based on eligibility criteria provided in the guidelines, with the possibility of applying additional criteria beyond the prescribed “fit and proper” requirements. Subsequently, the RBI establishes a Standing External Advisory Committee (SEAC), comprising experienced individuals from the banking, financial sector, and relevant fields. The SEAC develops its screening procedures, periodically convenes meetings, and has the authority to request more information, hold discussions, and seek clarifications from applicants. The SEAC then presents its recommendations to the RBI for consideration. Further in the process,

[By Mahim Raval] The author is as student of Gujarat National Law University.   Introduction Recently, on 11 April, 2023 Reserve Bank of India (RBI) issued guidelines for Green Deposit framework for Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFCs), & Housing Finance Companies (HFCs) excluding Regional Rural Banks (RRBs), Local Area Banks (LABs), and Payments Banks, which have now become effective from 1st June, 2023 onwards. This comes in the backdrop of RBI’s joining the Central Banks and Supervisors Network for Greening the Financial System (NGFS) in April, 2021. NGFS is a consortium of central banks of various countries which aims to green the financial ecosystem and sharing their experience and best trade-practices. It is in line with the release of discussion paper titled, ‘Climate Risk & Sustainable Finance’ by RBI in July, 2022 and also the speech of the deputy governor wherein he emphasized upon the role of banking institutions towards national environmental commitments. Green deposits are mainly interest-bearing deposits which aims to fund green ventures and activities. This helps to channel the depositor’s funds towards green initiatives which are still in nascent developmental stage and needs external funding to survive. However, for successful implementation of such initiative in Indian Financial system which needs necessary regulatory guidelines as well as an formal green taxonomy to address the concerns and apprehensions. This move can be seen as a pioneering one to making provisions for voluntary disclosures and third-party inspections for safeguarding depositor’s interests. Green deposits are no different than regular deposits, however the primary aim of ‘green’ deposit is to fund green projects and entice individuals and corporates to venture into green projects and activities. Before this framework, the green deposits were already in existence and offered by companies like HDFC Green & Sustainable Deposits and Federal bank. The eligibility criteria to classify a particular activity or project as a green one is listed out in the framework under different heads. This will be applicable on the ‘regulated entities’, and they will have to disclose their deposits and money raised in a particular financial year annually. In this article, the author will discuss upon the existing green deposits (GD Framework), greenwashing and other concerns, and potential solution for effective implementation of it in India. Framework Financing Aspects Various eligible activities and project enumerated in Para 7 can be financed with help of funds raised through such green deposits. RBI mentions that allocation of funds shall be done on the basis of introduction of formal green taxonomy however, since it is not yet functioning, it should be utilized for reduction of carbon emissions, incorporating energy efficiency in resource utilization as well as promoting preservation of natural ecosystem and biodiversity. To ensure that funds are utilized for these activities only, allocation & distribution of funds shall be approved by Board of directors of the regulated entity (RE) only. Supervision RBI has mandated that there should be a supervisory as well as advisory role of the board of directors of the RE. Every RE shall submit a comprehensive report about the implementation to its board of director in the initial 3 months of the new financial year. The board of directors shall be held responsible for overseeing the overall apprehended risks and controls, and it shall appoint the requisite experts to ensure that financial risks posed by climate change & degradation can be mitigated. Senior management and key managerial personnel shall also be updated about national & international policy initiatives and developments. In long term, such supervision will serve as a crucial aspect in effective implementation & enforcement of policy guidelines and it shall be also responsible for hiring the necessary workforce and training them to implement green policies. Disclosures REs shall disclose the amount & details of raised funds through green deposits while submitting their annual financial statements. The policy adopted and modified as per the need of the RE, framework related to raised funds, the report and suggestions of the third-party auditor as well as impact assessment report shall be disclosed and uploaded on the website of RE. The objective of such disclosure is to keep the depositors informed about the allocation of funds and investments in green initiatives done by the RE. This disclosure will help to keep a check on greenwashing and other concerns. Although, it seems that third-party auditing and reporting will help to provide authenticity and legitimacy of channeling of funds. However, it is not a complete solution and apprehensions related to integrity and accountability of such independent auditors are raised. Further, it could lead to a false sense of complacency. There is no regulation exists as of now to monitor those aspects however, RBI as an interim measure may implement stringent auditing system for these. One potential solution can be implementation of TFCD guidelines which will help the REs to disclose information in a better way. Third Party Audits In addition to the board’s primary obligation for adhering to the GD framework, including the end-use of funds authorized for green deposits, the RBI has added an extra check by subjecting REs to an objective third-party verification/assurance, which will be performed annually. Given that effect assessment is a developing field, the RBI has taken a flexible approach, as evidenced by its prescription enabling voluntary impact assessment for the fiscal year 2023-24. However, beginning with the fiscal year 2024-25, the same will be required. Furthermore, the RBI has established specific effect metrics for each category of qualifying project, such as ‘energy savings per year’ in the case of clean transport. If REs are unable to measure the impact of their lending/investment, they must explain the causes, the problems came across, and the time-bound future plans to remedy the same. The RBI’s ‘comply and explain’, solution-oriented, flexible, and forward-thinking approach allows some flexibility to REs. However, depositors face a problem. Because their funds are ostensibly being invested in green initiatives, there will be a need to ensure alignment between the pledge and actual investment, as well as

[By Anupama Reddy Eleti] The author is a student of Gujarat National Law University.   Introduction Recently the Supreme Court in the case of Yogesh Upadhyay vs. Atlanta Limited, established the power of the court under sec.406 of CrPC to transfer cases to include cases of cheque  dishonor under sec.138 of the Negotiable Instruments Act, 1881 (hereinafter “NI Act”). The court restored this power by “notwithstanding the non-obstante clause” present in sec.142(1) of the NI act, which provides for the procedure in which cognizance of sec.138 offences must be taken, as well as the territorial jurisdiction for such offences. The judgement delved into the jurisdictional conundrum surrounding sec.138 offences by tracing the evolution of cases on the same up until The Negotiable Instruments (Amendment) Act, 2015 (hereinafter “the 2015 amendment”) and conclusively justified extension of the scope of sec.406 by analyzing the underlying object of sec.142 and of the 2015 amendment. This article seeks to analyze the consequences of this judgement upon the rights of the drawer and payee of a cheque, in light of previous judgements and reasonings of the court. Background on the jurisdictional conundrum Earlier, a lack of clarity, broadness of legislation, and contrasting position of the judiciary in different cases, created confusion and burden on courts handling claims of territorial jurisdiction. Inundated with prosecutions on this issue, the apex court in K. Bhaskaran v. Sankaran Vaidhyan Balan (hereinafter “K.Bhaskaran”), framed five actions forming the essentials of the offence and declared, “the complainant can choose any one of those courts having jurisdiction over any one of the local areas within the territorial limits of which any one of those five acts was done”. Such leniency and expansive allocation of power in the hands of the payee to establish jurisdiction in a place of his convenience caused much expected upheaval. It was not until  Dashrath Rupsingh Rathod v State of Maharashtra & Anr (hereinafter “Dashrath Rupsingh”), that the court narrowed down the scope of jurisdiction. In this landmark judgement, the court observed that an unreasonable use of the court’s ruling in K.Bhaskaran as an instrument of oppression by the payee was leading to “hardship, harassment and inconvenience to the accused persons”. An unfair manipulation of the legal system by the payee for personal collateral benefits, while hindering the accused’s exercise of his right to fair trial was highlighted. The ratio in this instance was that the jurisdiction must be limited to the location of the drawee bank. In addition, the court expanded the scope of the ruling by giving it retrospective application, thereby offering relief to all accused. However, the Dashrath Rupsingh case only held the field for one year, until a subsequent amendment came about. The Negotiable Instruments (Amendment) Act, 2015 was introduced by the legislature with retrospective effect, upholding the rights of the payee. The present position of the law clearly demarcates the jurisdiction to try such an offence, in the Court within whose jurisdiction the branch of the Bank where the cheque was delivered for collection, through the account of the payee or holder in due course, is situated. The ordinance provided a definitive resolution to this confusion. Facts of the case In the present case, Yogesh Upadhyay and his proprietary concern, M/s. Shakti Buildcon, filed transfer petitions under Section 406 Cr.P.C. seeking the transfer of two cases titled ‘Atlanta Limited Vs. M/s Shakti Buildcon & Anr.’ pending before the Civil Judges at Nagpur, Maharashtra, to be tried along with four complaint cases titled ‘Atlanta Limited Vs. Yogesh Upadhyay’ pending before the Courts at Dwarka, New Delhi. These cases involved six cheques issued by the petitioners, out of which the first cheque was honoured, but the remaining six cheques were dishonoured on the basis of ‘Stop payment’ instructions. The first two complaint cases were filed in Nagpur, Maharashtra, as the first two cheques were presented there, and the remaining four complaint cases were filed in Dwarka, New Delhi, as the remaining four cheques were presented there. The counsel representing the respondent company argued that Section 142 of the Negotiable Instruments Act, 1881 superseded Section 406 of the Criminal Procedure Code (Cr.P.C.) due to the non-obstante clause present in Section 142. Consequently, the counsel asserted that the two cases filed in Nagpur, Maharashtra could not be transferred. Judicial Reasoning and Ratio Decidendi The court’s reasoning was three-fold. Firstly, it was noted that the ‘non-obstante clause’ is not a recent addition resulting from the amendment but has been present in the original Section 142 itself. It is to be noted that the amendment inserted two new additions, Sec.142(2) and 142A which clarified the territorial jurisdiction as well as attached retrospective application to it. Secondly, the non-obstante clause is present in Sec.142(1), which provides for certain procedural requirements that need to be fulfilled for cognizance of the offense. This includes, ensuring that the complaints for Sec.138 offences are filed within one month of the cause of action, unless the complainant can provide sufficient cause for the delay, allowing the court to take cognizance of the complaint even after the prescribed period. In light of this, the reasoning of the court in the instant case is that the non-obstante clause must be understood and applied only for the purposes of the section for which it is used and therefore cannot be taken to mean an express bar on the power of the court in Sec.406. Thirdly, the court placed reliance on a previous case, (A.E. Premanand Vs. Escorts Finance Ltd. & Others), wherein the court exercised its power under Sec.406  to transfer Sec.138 petitions. Herein the court found it appropriate in the “interest of justice” to transfer all petitions to be tried in one court. Owing to the foregoing reasons, the court finetuned the understanding of the non-obstante clause to state that, “notwithstanding the non obstante clause in Section 142(1) of the Act of 1881, the power of this Court to transfer criminal cases under Section 406 Cr.P.C. remains intact in relation to offences under Section 138 of

[By Mansi Verma] The author is a student of Gujarat National Law University.   Introduction Bank locker facilities continue to hold the popularity of bank’s customers as a secured safety vault guarded by the bank’s infrastructure. They keep the customer’s valuables, and any changes in such facilities’ operation directly impact the hirer. In this blog, the author primarily seeks to analyse how the new liability clause recently implemented by virtue of Reserve Bank of India (“RBI”) Locker facilities/Safe Deposit facility guidelines would affect the Banker Customer relationship vis a vis the position prior to the insertion of such a clause and what are the issues and challenges associated with the enforcement of the clause while proposing solutions for the benefit of the customers of a bank. RBI’s Safe Deposit Locker instructions Apart from performing their core functions of receiving money on deposit for the purposes of lending, commercial banks also perform several other ancillary functions in addition to their core functions, which include Agency Services and General Utility Services. The Safe Deposits Vaults, Safety Lockers or Bank Lockers form a part of a commercial bank’s General Utility Services. RBI, as the primal monetary authority of the nation, has powers under sections 35A, 45ZC and 45ZF of the Banking Regulation Act, 1949 Act read with Section 56 of the same Act to issue binding directions to the banking companies in the public interest. In exercising such powers, RBI issued the new binding Instructions on Safe deposit vaults (“revised instructions”), making the banks liable in case of loss of items placed in the locker under certain circumstances. Part VII of the revised instructions lays down the compensation policy and liability for Banks in cases of natural calamities, and Instruction Number 7.2 lays down “bank’s liability in events like fire, theft, burglary, dacoity, robbery, building collapse or in case of fraud committed by the employees of the bank”. The revised instructions entrust the liability  of  the bank to the tune of compensation if the events occur due to the bank’s own negligence with no fault on the part of the customer. When the events mentioned in instruction number 7.2 occur, the bank shall pay compensation amounting to 100 times the prevailing annual rent of the safe deposit locker. In light of the revised instructions, a timeline till 1 January 2023 was specified for the banks to renew their locker agreements with the existing customers incorporating the liability clause and ensuring the inclusion of fair terms. The Liability Clause: Issues and Challenges Including this clause in the new locker agreement is a promising provision in that it provides recourse to law for the customers availing the facility. However, long waiting lists make it difficult for the common man to avail the locker facilities and put their valuables in safe custody. In this regard, the Banks are undoubtedly in an advantageous position considering the stringent terms and conditions a customer must adhere to in the memorandum of letting. In this way, including the liability clause is a progressive step towards ensuring transparency and enhanced locker security standards. Examining the nuances of the provision, it is clear that the provision opens the legal avenues for the grant of relief to a   helpless locker holder who suffered the loss of items and had no remedy against redeeming the cost of the locker items because prior to the coming of the guidelines, the locker agreement contained a waiver of liability clause which ensured that the bank would not incur any liability to insure them. The current position of law requires the remedy to be sought in the court of law. The provision requires that the events mentioned in the provision must occur on the premises of the banks due to their own negligence, shortcomings or any act of omission or commission. This puts the burden of proof of negligence on the part of banks upon the customers. The Distorted Balance of power There is strong jurisprudence to show that it has been extremely difficult for the complainant customers to show knowledge on the part of the banks with respect to the contents stored in the locker as well as negligence on the part of the banks as it is standard industry practice for the banks to disclaim liability for the loss of goods kept in the locker. The cases of Mohinder Singh Nanda v. Bank of Maharashtra and Atul Mehra v. Bank of India are the most appropriate cases to show the distorted balance of power. In both these cases, the appellants could not prove knowledge of locker contents on the part of the respondent banks and could also not show the presence of the goods inside the locker. Hence even when there was a breach of duty on the part of the banks to take reasonable care of the goods, they could not be entrusted with the liability of the missing articles of the locker. The courts undoubtedly took a liberal route by lowering the threshold of proof for the customers, but that provided some respite. The national commission in Pune Zilla Madyawarti Sahakari Bank Limited v. Ashok Bayaji Ghogare even held that an affidavit of the locker holder, if not impeached by cross-examination can be accepted to prove the locker contents. However, even this was not very helpful as compelling evidence of the bank’s negligence and knowledge has to be shown by the customer claiming compensation. The issue of disparate positions taken by the banks regarding their relationship with the customer with respect to the contents of the locker was one of the astute observations made by the Competition Commission of India in the case of Amitabh Dasgupta v United Bank of India (Amitabh Das Gupta). The basis of making such an observation was non-uniform practices followed while assigning liabilities by commercial banks. The banks exhibited non-uniformity as some of them considered the facts and circumstances surrounding the loss of goods to assume liability, some strictly adhered to the conditions set out in the memorandum