The Bombay High Court has refused to interfere with an RBI circular that permits only one active current account for borrowers with a total credit facility exceeding ₹50 crore. This decision comes as a setback to VJ Jindal Cocoa Pvt Ltd, as the court upheld HDFC Bank's email that led to the freezing of current accounts held by the cocoa manufacturer in various banks. The court stated that since the company's "exposure" exceeded ₹50 crore, it was not allowed to have multiple active current accounts. Exposure here refers to the total credit facilities availed by a borrower.
HDFC Bank had written to three other banks, Punjab National Bank, Jammu & Kashmir, and Canara Bank, in February 2023, stating that according to RBI's circular, a banking customer cannot have other current accounts with other banks if that customer already had credit facilities in the form of Cash Credit/Export Packing Credit (CC/EPC) in the banking system. All transactions had to be routed through HDFC as it was its principal lending bank. Following this, Canara Bank and J&K Bank blocked Jindal's accounts and sought a No-Objection Certificate (NOC) from HDFC Bank.
Jindal had approached the HC seeking to de-freeze the accounts, contending that the other accounts were opened much before the HDFC account and that the conditions in the circular were inapplicable. However, the HC dismissed a petition filed by VJ Jindal challenging HDFC's action, contending that it was exempted from the relevant RBI circular because its current accounts with other banks pre-dated the HDFC account.
RBI circular aims to prevent fraudulent activities
The judges noted that the RBI had issued the Consolidated Circular on Opening of Current Accounts and Cash Credit/Over Draft Accounts by Banks dated August 19, 2022, to protect private banks as current accounts in other banks were being used to divert funds and commit fraud. The circular aimed to tackle a mushrooming of current accounts by unscrupulous borrowers, especially with non-lender banks, and funds being diverted for unauthorized purposes. Lending banks were unable to monitor cash flows or efficiently recover their dues, leading to an increase in non-performing assets (NPAs).
Different rules for borrowers with different credit facilities
The RBI circular in question divides a borrower's aggregate exposure into three categories: less than ₹5 crore, ₹5-15 crore, and above ₹50 crore. Each category has different rules for borrowers with different credit facilities.
High court considers the potential implications of granting relief
The high court remarked that the application of the circular could be called erroneous in the facts and circumstances of the case. However, granting the petitioner relief would possibly permit the continuance or growth of the very mischief that the circular sought to address. This decision is likely to impact other borrowers with credit facilities exceeding ₹50 crore who hold multiple current accounts across different banks. It highlights the importance of complying with RBI circulars and the need for banks to monitor the activities of their borrowers. The decision may also provide clarity on the interpretation of RBI's circulars for future cases.
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