On 16th January, 2019, the Supreme Court stayed the order passed by the Bombay High Court which directed the shifting of HDIL promoters arrested in connection with the PMC bank scam. The order was passed by the Bombay High Court to ensure the co-operation of HDIL promoters to the committee formed by the court for speedy disposal of cases filed against HDIL so as to provide relief for the depositors of PMC bank.
Punjab and Maharashtra Co-operative Bank was established in the year 1984. By the year 2000, it obtained the status of Scheduled Bank. The bank has established 137 branches across 7 states. Housing Development and Infrastructure Ltd is a firm carrying its business in real estate sector. HDIL is one among the customers of PMC bank.
The PMC Bank has advanced 70% of its total credit facilities to HDIL in violation of RBI norms. It is significant here to note that the firm HDIL was already declared as defaulter by other banks. On August 2019, the Bank of India initiated insolvency proceedings against HDIL. Even after the proceedings were initiated by the BOI, the firm managed to avail rupees 96 crore as loan from PMC. In order to hide the 44 loan accounts of HDIL, the bank officials created 21,049 fictitious accounts. It is pertinent to note that HDIL had Rs.4533 crore outstanding due owing to PMC bank. The accounts relating to HDIL were accessible to only limited staffs and were secured by passwords. The HDIL turned out to be a non-performing asset and this was not disclosed to Reserve bank of India.
According to the annual report of the PMC bank for the year 2018-2019, it had a deposit worth 11,000 crore, net profit of 99.69 crore, 3.76% advances as gross NPA in March, 2019 which is a good number, where other banks were reporting 10% gross NPA. However behind the veil the bank had around 2500 crore bad loans which were not disclosed in the annual report.
This came to the note of RBI during the month of September, 2019 when a whistleblower addressed a letter to it exposing the violation of RBI norms to advance loans to HDIL and the creation of fictitious accounts to hide loan accounts of HDIL. Pursuant to the letter, the PMC bank was brought under the scanner by RBI. The board of directors of the bank was superseded and J.B.Bhoria was appointed as administrator by RBI to take appropriate measures. The RBI further imposed restrictions on banking services where the customers were allowed to withdraw only upto Rs. 1000 per day which was subsequently raised from time to time leaving thousands of customers in trouble.
Later, FIR was filed by Jasbir Singh Matta, the manager, recovery Department, PMC bank, against the two promoters of HDIL and senior officials of PMC bank. FIR was registered under section 409 of IPC dealing with Criminal breach of trust by public servant and bank, Section 420 of IPC relating to Cheating, Section 468, 466 and 471 of IPC relating to forgery and Section 120(b) of IPC dealing with Criminal conspiracy.
Rakesh Kumar Wadhwan and Sarang Wadhawan, the promoters of HDIL, were arrested by the Economic Offences Wing and Enforcement Directorate in pursuance to the filing of FIR. Subsequently Joy Thomas, Managing Director of PMC, Waryam Singh, Chairman of PMC, Surjith Singh Arora, Director of PMC and 7 other officials including 2 women directors and auditors of the bank were also arrested in connection with the PMC bank fraud. On 27th December, 2019 charge sheet was filed against the 5 prime accused involved in the scam.
Meanwhile efforts were taken to attach and sell the properties of the HDIL firm and its associates to meet the dues payable to the customers. Personal properties of Rakesh kumar and Sarang Wadhwan were also attached.
In the meantime, public interest litigation was filed by an advocate Sarosh Damania before the Bombay High Court Bench comprising Justice Ranjith More and Justice Surendra Tavade seeking direction to set up a committee for speedy disposal and auction of HDIL properties. Further the PIL sought for using the proceeds of the auction to settle the dues of the customers by giving preference over other creditors. On 15th January, 2020, The Bombay High Court passed an order setting up a 3 member committee headed by retired justice S.Radha Krishnan.
1. The bench directed the committee to identify the properties owned or controlled by Wadhawans that were mortgaged with PMC bank alone. The original documents related to the properties are to be obtained by the committee from Economic Offences Wing and Enforcement Directorate.
2. The bench further directed the PMC bank to provide the list of depositors of the bank and the dues payable to them.
3. The bench further stated that if the sale proceeds of mortgaged properties are insufficient to meet the dues payable to the customers, the properties that were mortgaged jointly with other banks are also to be sold to meet the dues.
4. The committee was also directed to identify and dispose the encumbered personal properties of wadhwans to pay the dues of customers of PMC bank.
The Bombay High Court directed the committee to submit its report by April 30. To ensure wadhwans’ co-operation to the committee, the Bombay high court ordered shifting of wadhwans to their residence along with two jail guards. Against this clause, Economic Offences wing and Enforcement Directorate filed a plea before the Supreme Court. The Supreme Court bench comprising CJI Justice S.A. Bobde, Justice B.R.Gavai and Justice Suryakant accepted the plea and stayed the shifting of wadhwans to their residence until further orders leaving rest of the directions to be in force. The bench also ordered notice to the respondents to file their replies to the plea within 4 weeks.
Edited by J. Madonna Jephi
Approved & Published – Sakshi Raje
1. Indian Express, PMC Bank Fraud Case: Several Red Flags fluttered right under RBI’s nose, https://www.google.com/amp/s/indianexpress.com/article/business/banking-and-finance-/pmc-bank-fraud-case-several-rede-flags-fluttered-right-under-rbis-nose-6061451/lite/ (last visited on 18th January, 2020)
2. Indian Express, Explained: Why RBI has put restrictions on PMC bank, what happens now, https://www.google.com/amp/s/indianexpress.com/article/why-rbi-has-put-restrictions-on-a-cooperative-bank-what-happens-now-6029219/ (last visited on 18th January, 2020)
3. Times of India, PMC bank Scam: Supreme Court stays HC order allowing shifting of HDIL promoters from jail, https://www.google.com/amp/s/m.timesofindia.com/business/india=business/pmc-bank-scam-supreme-court-stays-hc-order-a;llowing-shifting-of-hdil-promoters-from-jail/amp_articleshow/73291815.cms (last visited on 18th January, 2020)