Central Information Commission
Shri.S S Vohra vs Reserve Bank Of India on 20 June, 2011
CENTRAL INFORMATION COMMISSION
Appeal No.CIC/SM/A/2010/000734 dated 19.05.2010
Right to Information Act, 2005 - Section 19
APPELLANT : Shri S.S. Vohra
RESPONDENTS : The CPIO, Reserve Bank of India (RBI)
Third Party : ICICI Bank Limited
DATE OF DECISION : 20/06/2011
BACKGROUND OF THE CASE:
1. The present matter, as listed before us yet again for hearing, stems from the Order of the Division Bench of the Hon'ble High Court of Judicature at Bombay passed on 23/03/2011 in the matter of 'ICICI Bank Limited vs. S.S. Vohra & Ors.' [W.P.(C) No. 2 of 2011].
2. The Central Information Commission had passed an Order on 06/12/2010 in Case No. CIC/SM/A/2010/000734, of which the following extract is of main concern:
"4. After carefully considering the submissions of both the parties, we partly agree with the contention of the Respondent. It was indeed not possible for the CPIO to identify the exact information desired by the Appellant 1 against some of his queries based on the details given by him. However, in regard to some of those items of information, such as, the copy of the advisory note(s) issued to the ICICI and other Banks for various irregularities, which the CPIO had denied by claiming exemption under some provision or the other of the Right to Information (RTI) Act, we do not find his decision acceptable. We do not see how the disclosure of the advisory notes issued by the RBI to any Bank for any commission or omission can be exempted under any of the provisions of the Right to Information (RTI) Act.
5. Therefore, we now direct the CPIO to provide to the Appellant within 10 working days from the receipt of this order the photocopies of the advisory notes issued by the RBI to the ICICI Bank during the preceding two years for the violation of any RBI guidelines or for contravention of the provisions of the FEMA and the PMLA. Similarly, we also direct him to provide the details of the banks which had been found to have committed any violation of the provisions of the above laws including the penalty, if any, imposed in each case during the same period of preceding two years."
3. The Respondent No.1 ("the ICICI Bank Limited") had on 30/12/2010 filed a writ petition before the Hon'ble Bombay High Court challenging the abovementioned Order of the Commission. On 31/12/2010, the ICICI Bank Limited made an Application to this Commission to review its earlier Order in the present case. However, the Commission disposed off that Application on the same date by holding that there was no provision in the RTI Act for reconsideration or reviewing of Orders passed by the Commission. Aggrieved by the Commission's latest order, the ICICI Bank amended its 2 earlier writ petition pending before the Hon'ble Bombay High Court, which that Hon'ble Court finally heard and disposed off on 23/03/2011. The following directions were issued to this Commission by the Hon'ble Bombay High Court:
"8. Since no notice was given to the third party as contemplated under Section 19 (4) of the Act, we deem it proper to remit the matter back to the CIC with a direction to take a fresh decision. The fresh decision may be taken after hearing the petitioner, respondent No.1 as well as the Reserve Bank of India. If any party wants to place on record any further material, the same can be placed before the CIC. The appropriate decision may be taken expeditiously within three months from today. The impugned orders at Exhibits A and C are accordingly quashed and set aside. In view of what is stated above, the CIC may decide the matter de novo. Rule is made absolute accordingly."
4. Thus, the present matter has come before us yet again for adjudication on de novo basis after having given reasonable opportunity of being heard to the ICICI Bank, the RBI as well as the Appellant, Shri S.S. Vohra. The Notice of hearing in the present matter was duly served upon the concerned parties to this case and the hearing was conducted before the Commission on 10/06/2011. The Appellant, Shri S.S. Vohra was present in person whereas the ICICI Bank Limited and the RBI were represented through their respective Counsels Legal Advisors and Law Officers. 3
5. We have fully considered the submissions made and arguments advanced by all the parties present before us and have carefully perused through the material placed on record before us by the ICICI Bank Limited. ISSUE TO BE DECIDED:
6. The only issue which conjures out of the present proceedings and after hearing the arguments advanced by the Parties before us is "Whether or not the advisory notes issued by the RBI to the ICICI Bank, for the violation of any RBI guidelines or for contravention of the provisions of the FEMA and the PMLA, are exempted under the RTI Act."
DECISION NOTICE:
7. In order to better understand the nature and true character and contents of the Advisory Notes issued by the RBI to the ICICI Bank, it is apposite to apprise ourselves of the backdrop in which the RBI exercises such a prerogative. The RBI was established by the RBI Act, 1934 and some of its main functions include the formulating, implementing and monitoring the monetary policy of India, Regulating and supervising of the financial system of India, Issuing currency notes, being Banker to the Banks, Managing Foreign Exchange inter alia. The RBI Act itself envisages plethora of provisions whereby the RBI has vast regulatory control over the functioning 4 of all other Banks in the country one of them being the imposition of penalties under Chapter V of the RBI Act.
8. The word "Advisory note" does not appear anywhere either in the RBI Act or the Banking Regulation Act, 1949.
9. The Law Officer appearing on behalf of the RBI had apprised us of the nature and origin of the Advisory Notes with some detailed insight. As per the submissions advanced by him, the RBI while regulating the functioning of various Banks operating in India conduct timely inspections thereof and prepares inspection reports and scrutiny reports accordingly. On the basis of these reports, if the RBI is of the opinion that a particular Bank is not functioning in accordance with the settled RBI Guidelines and Norms, then there are two options which the RBI often exercises by virtue of the vast regulatory powers as already discussed above. The first option is exercised in cases of extreme gravity, where the RBI will initiate a formal proceeding against such Bank and will accordingly pass a Penalty Order imposing certain Penalty upon that Bank. Such Penalty orders are already in the public domain and regularly updated on the RBI's website. The other option, as the Law Officer of the RBI submits, is that if the RBI is of the opinion that a matter is of some concern but not grave enough to attract penalty 5 proceedings, then it may issue an advisory to that particular Bank which has been found violating the RBI guidelines or Norms. We find reasonable merit in the submissions made by the RBI because having been vested with the onerous responsibility of being the Banker's Bank and the Regulator of financial system in India, the RBI is competent enough to devise its in-house mechanisms for the purpose of efficiently discharging its functions and effectively exercising its control over all other Banks in India. Our observation is further strengthened when viewed in light of the following extract from the Document titled 'History of the Reserve Bank of India' (available on http://rbidocs.rbi.org.in/rdocs/content/PDFs/89636.pdf) on p.114 which reads as follows:
"[...] On the other hand, the Bank could perform a very useful function by acting as a guide and an adviser to the whole of the cooperative financing machinery."
10.The Appellant, Shri S.S. Vohra has sought certain information in relation to the Patna Branch of the ICICI Bank and advisory issued to the Hong Kong Branch of ICICI Bank . He submits that the Hon'ble Finance Minister had made a written statement on the floor of the House on 24/07/2009 that some Banks like SBI, ICICI Bank Ltd., Bank of Baroda, Dena Bank etc. were violating FEMA Guidelines for opening of accounts and categorically 6 mentioned that the Patna Branch of ICICI Bank Limited had opened some fictitious accounts which were opened by fraudsters and hence, an advisory note was issued to the concerned Branch in December 2007 for its irregularities. The Finance Minister even mentioned that the ICICI Bank Limited in 2008 was also warned for alleged irregular dealings in securities in Hong Kong. Hence, it is the case of the Appellant that such Advisory Notes as issued by the RBI to the ICICI Bank, be provided to him.
11.The ICICI Bank has not challenged any of the submissions whereby the Appellant has relied upon the written reply of the Hon'ble Finance Minister. However, the ICICI Bank Limited has taken the shelter of Sub-sections (a),
(d) and (e) respectively of Section 8 of the RTI Act to refuse from divulging such information pertaining to Advisory Notes issued.
12.We are certain and satisfied there being no statutory parameters set out for what may or what must constitute an "Advisory Note", and given the submissions made by the Learned Law Officer appearing on behalf of the RBI, we are convinced that the contents and nature of an advisory note have to be determined on a case by case basis. Hence, it brings us squarely back to the specific facts and circumstances of the matter before us. However, before we proceed to analyze whether the ICICI Bank Limited is justified in 7 their contentions, we find that the factual matrix of the case raises compelling grounds for us to discuss the importance of Know Your Customer (KYC) Norms and Anti-Money Laundering (AML) Standards which are time and again notified by the RBI as part of its Guidelines to Commercial Banks operating all over the Country.
13.The RBI had issued a Master Circular (DBOD. AML. BC. No. 2/14 . 01.001/2009-10) on 01/07/2009 to all Commercial Banks in India. The following excerpts are of vital interest to the present matter before us:
"Customer Identification Procedure (CIP)
a) The policy approved by the Board of banks should clearly spell out the Customer Identification Procedure to be carried out at different stages i.e. while establishing a banking relationship; carrying out a financial transaction or when the bank has a doubt about the authenticity/veracity or the adequacy of the previously obtained customer identification data. Customer identification means identifying the customer and verifying his/her identity by using reliable, independent source documents, data or information. Banks need to obtain sufficient information necessary to establish, to their satisfaction, the identity of each new customer, whether regular or occasional, and the purpose of the intended nature of banking relationship. Being satisfied means that the bank must be able to satisfy the competent authorities that due diligence was observed based on the risk profile of the customer in compliance with the extant guidelines in place. Such risk based approach is considered necessary to avoid disproportionate cost to banks and a burdensome regime 8 for the customers. Besides risk perception, the nature of information/documents required would also depend on the type of customer (individual, corporate etc.). For customers that are natural persons, the banks should obtain sufficient identification data to verify the identity of the customer, his address/location, and also his recent photograph. For customers that are legal persons or entities, the bank should (i) verify the legal status of the legal person/entity through proper and relevant documents; (ii) verify that any person purporting to act on behalf of the legal person/entity is so authorized and identify and verify the identity of that person; (iii) understand the ownership and control structure of the customer and determine who are the natural persons who ultimately control the legal person. Customer identification requirements in respect of a few typical cases, especially, legal persons requiring an extra element of caution are given in paragraph 2.5 below for guidance of banks. Banks may, however, frame their own internal guidelines based on their experience of dealing with such persons/entities, normal bankers' prudence and the legal requirements as per established practices.
If the bank decides to accept such accounts in terms of the Customer Acceptance Policy, the bank should take reasonable measures to identify the beneficial owner(s) and verify his/her/their identity in a manner so that it is satisfied that it knows who the beneficial owner(s) is/are. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxx
c) Banks should introduce a system of periodical updation of customer identification data (including photograph/s) after the account is opened. The periodicity of such updation should not be less than once in five years in case of low risk category customers and not less than once in two years in case of high and medium risk categories.
9
d) An indicative list of the nature and type of documents/information that may be may be relied upon for customer identification is given in Annex-I to this Master Circular. It is clarified that permanent correct address, as referred to in Annex-I, means the address at which a person usually resides and can be taken as the address as mentioned in a utility bill or any other document accepted by the bank for verification of the address of the customer.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx 2.5 Customer Identification Requirements - Indicative Guidelines
i) Trust/Nominee or Fiduciary Accounts There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent the customer identification procedures. Banks should determine whether the customer is acting on behalf of another person as trustee/nominee or any other intermediary. If so, banks should insist on receipt of satisfactory evidence of the identity of the intermediaries and of the persons on whose behalf they are acting, as also obtain details of the nature of the trust or other arrangements in place.
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx
ii) Accounts of companies and firms Banks need to be vigilant against business entities being used by individuals as a 'front' for maintaining accounts with banks. Banks should examine the control structure 10 of the entity, determine the source of funds and identify the natural persons who have a controlling interest and who comprise the management. These requirements may be moderated according to the risk perception e.g. in the case of a public company it will not be necessary to identify all the shareholders.
iii) Client accounts opened by professional intermediaries When the bank has knowledge or reason to believe that the client account opened by a professional intermediary is on behalf of a single client, that client must be identified. Banks may hold 'pooled' accounts managed by professional intermediaries on behalf of entities like mutual funds, pension funds or other types of funds. Banks also maintain 'pooled' accounts managed by lawyers/chartered accountants or stockbrokers for funds held 'on deposit' or 'in escrow' for a range of clients. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxx
iv) Accounts of Politically Exposed Persons (PEPs) resident outside India Politically exposed persons are individuals who are or have been entrusted with prominent public functions in a foreign country, e.g., Heads of States or of Governments, senior politicians, senior government/judicial/military officers, senior executives of state-owned corporations, important political party officials, etc. Banks should gather sufficient information on any person/customer of this category intending to establish a relationship and check all the information available on the person in the public domain. Banks should verify the identity of the person and seek information about the sources of funds before accepting the PEP as a customer. The decision to open an account for a PEP should be taken at a senior level which should be clearly spelt out in Customer 11 Acceptance Policy. Banks should also subject such accounts to enhanced monitoring on an ongoing basis. The above norms may also be applied to the accounts of the family members or close relatives of PEPs.
v) Accounts of nonfacetoface customers With the introduction of telephone and electronic banking, increasingly accounts are being opened by banks for customers without the need for the customer to visit the bank branch. In the case of non-face-to-face customers, apart from applying the usual customer identification procedures, there must be specific and adequate procedures to mitigate the higher risk involved. Certification of all the documents presented should be insisted upon and, if necessary, additional documents may be called for. In such cases, banks may also require the first payment to be effected through the customer's account with another bank which, in turn, adheres to similar KYC standards. In the case of cross- border customers, there is the additional difficulty of matching the customer with the documentation and the bank may have to rely on third party certification/introduction. In such cases, it must be ensured that the third party is a regulated and supervised entity and has adequate KYC systems in place.
14.It is apparent on the face of record as to how essential and mandatory it is for Banks to religiously abide by the Guidelines relating to KYC Norms, AML Standards etc. issued by the RBI in order to ensure that the financial system of the country is managed efficiently, regulated properly and run effectively. Opening of fraudulent accounts in a Commercial Bank is a grave 12 concern and a major setback to our financial system especially when the RBI has taken the pains and effort to prevent such kind of unwarranted activities. The fraudsters who are a part of such illegal activities not only need to be penalized in accordance with procedure established by law but their fraudulent dealings must also be thrown split wide open in the daylight for the people at large to watch and be careful of. It will rather be too audacious on the part of a Bank to say that it will not divulge the details of such fraudsters and scammers because there happens to be a Bank-Customer relationship which is fiduciary in nature. We are of the opinion that instead of protecting them under the Bank-Customer contract, each and every Bank must pro-actively divulge details such as Account No, Name of Account Holder, PAN Card used/TAN Cards used, Address used etc. in order to warn other entities not to be duped and uphold the principles of transparency, rule of law and the Guidelines set out by the RBI itself. It is akin to sending circulars to the members of the public about the fake currency in circulation. The details will be for any banker to see that the accounts are not opened by fraudulent means using the same or similar information. Hence reliance on Section 8 (1)(e) as well as on Section 8(1)(a) is clearly misplaced.
15.An advisory Note in the present matter is with respect to the violation of KYC Norms and AML standards in relation to the Patna Branch of the 13 ICICI Bank and Hong Kong Branch of ICICI Bank respectively. We have already illustrated that violation of RBI Guidelines not only attracts some action taken against the concerned Bank by the RBI but also demands the disclosure of the result of such action so taken. If that action is a Penalty proceeding, then we have already been apprised by the Learned Law Officer on behalf of the RBI that details of such Penalty Orders are readily updated on the RBI's website. Similarly, if an 'Advisory Note' is issued by the RBI to a particular Bank in similar cases such as the one before us, then the contents of such Advisory Note must be made available to the public at large. Infraction of law cannot be washed away by taking recourse to commercial confidence. Section 8(1)(d) does not exempt violation of the law of the land. Such a practice will not hamper the commercial position of the Bank concerned.
16.In any case, an Advisory Note, as the name suggests and as seconded by the Legal Officer of RBI, is an advice to the concerned Bank and not a penal action which could possibly malign the Bank's reputation. If the RBI is providing Penalty Orders against various Banks to the public at large, we find no reason why an Advisory Note - which is of a milder nature and carries no penal repercussions - should be exempted from disclosure under the RTI Act.
14
17.It has been contended by the Counsel on behalf of ICICI Bank Limited that an advisory note is prepared after reliance on documents such as Inspection Reports, Scrutiny reports etc. and hence, will contain the contents of those documents too which are otherwise exempt from disclosure. We have already expressed our view in express terms that whether or not an Advisory Note shall be disclosed under the RTI Act will have to be determined on case by case basis. In some other case, for example, there maybe a situation where some contents of the Advisory Note may have to be severed to such an extent that details of Inspection Reports etc. can be separated from the Note and then be provided to the RTI Applicant. Section 10 of the RTI Act leaves it open to decide each case on its merits after having satisfied ourselves whether an Advisory Note needs to be provided as it is or whether some of its contents maybe severed since they maybe exempted per se under the RTI Act. However, we find no reason, whatsoever, to apply Section 10 of the RTI Act in order to severe the contents of the Advisory Note issued by the RBI to the ICICI Bank Limited as the matter has already been placed on the floor of the Lok Sabha by the Hon'ble Finance Minister.
18.This is a matter of concern since it involves the violation of policy Guidelines initiated by the RBI and affects the public at large. Transparency cannot be brought overnight in any system and one can hope to witness 15 accountability in a system only when its end users are well-educated, well- informed and well-aware. If the customers of commercial banks will remain oblivious to the violations of RBI Guidelines and standards which such banks regularly commit, then eventually the whole financial system of the country would be at a monumental loss. This can only be prevented by suo motto disclosure of such information as the penalty orders are already in public domain.
19.We find no merit in the contention that the Advisory Note issued by the RBI to the ICICI Bank in the present case will, by any stretch of imagination, fall under Sub-sections (a), (d) or (e) of Section 8(1) of the RTI Act.
20.We therefore, direct the CPIO, RBI to furnish the information pertaining to the Advisory Notes as requested by the Appellant, Shri S.S. Vohra in the present case within 15 working days of receiving of this Order. The information shall be provided free of costs, given the time taken for final adjudication of this appeal before us.
21.The Appeal is accordingly disposed off.
Satyananda Mishra (Chief Information Commissioner) 16 Authenticated True Copies Vijay Bhalla (Deputy Registrar) 17