Bombay High Court Upholds PMC Bank–Unity SFB Amalgamation, Dismisses Challenges To RBI Scheme
The Bombay High Court has recently dismissed a batch of writ petitions challenging the amalgamation of Punjab and Maharashtra Co-operative Bank (PMC Bank) with Unity Small Finance Bank.
The court upheld the scheme framed by the Reserve Bank of India and the notification dated January 25, 2022, issued by the Ministry of Finance approving the “PMC Bank (Amalgamation with Unity Small Finance Bank) Scheme, 2022.”
A Division Bench of Justices Bharati Dangre and Manjusha Deshpande held that the scheme was framed in public interest and aimed at ensuring an orderly resolution of a financially distressed bank. The court observed:
“We do not find any reasons to disrupt the existing scheme of amalgamation, which is presently in operation and which has done best for the depositors and is doing best for those who have not yet received their principal amount back, but the scheme has assured 100% return of their principal with the permissible interest, as provided in the scheme.”
The controversy traces back to September 17, 2019, when RBI received a complaint from a senior official of PMC Bank alleging that the bank had extended large undisclosed loans to the HDIL Group in violation of prudent banking norms. It was found that HDIL's exposure of PMC Bank to the group ran into thousands of crores, forming a major portion of its loan book.
Subsequent inspection revealed large scale financial irregularities, including suppression of non performing assets and manipulation of records, leading to drastic erosion of the bank's net worth. As per audited figures, PMC Bank had deposits of over Rs. 11,617 crore as on March 31, 2019.
RBI imposed operational restrictions on PMC Bank on September 23, 2019 to safeguard depositor interests and explored various resolution options. It formulated an amalgamation scheme with Unity Small Finance Bank backed by capital infusion from investors.
The depositors and shareholders objected to the staggered repayment mechanism, which spread payments over several years and argued that it unfairly restricted access to their deposits. Various depositors as well as the RBI and the Union of India defended the scheme as a necessary regulatory measure designed to balance depositor protection with systemic stability.
The court examined the banking framework and emphasized RBI's role as an expert regulator in financial matters. It observed that such policy decisions, taken to preserve public confidence in the banking system warrant limited judicial interference.
“We conclude that the RBI in its economic wisdom, which it possess, had formulated the scheme, which received the final approval from the Central Government in larger interest of the public as well as of the depositors, do not suffer from any legal infirmity though it might have caused some inconvenience to a few. In any case, since we do not agree that the scheme formulated is arbitrary or so perverse, which would have warranted our interference, in exercise of judicial review available to us.”, the bench said.
The court said that mere dissatisfaction with the repayment structure or preference for alternative measures such as liquidation or different restructuring models cannot be a ground to invalidate the scheme.
The bench also noted that Unity Small Finance Bank had effectively “pulled up” PMC Bank by offering relief to depositors across categories and securing their interests through a structured resolution mechanism.
Finding no illegality and arbitrariness in the scheme, the court dismissed the petitions and upheld the validity of the amalgamation scheme.
For Petitioners: Senior Advocate Virendra Tulzapurkar with Advocates Sangram Chinnappa, Dipika Sahani, Bhoomika Vyas, Shantanu Shetty, Ankit Lohia, Siddharth Joshi, Viloma Shah, Harshad Vyas, Viraj Raiyani, Uday P. Warunjkar, Vaishnavi M. Gujarathi, Aditya P. Kharkar, Anilkumar Patil, Zeel Jain, Aseem Naphade, Subrata Sen, Akash Loya, Sujit Lahoti, Tejasvi Nakashe, Haaris Koradia, Karl Tamboly, Bhavin Shah, Krupesh Bhosle, Maulik Tanna instructed by AVP Partners
For Respondents: Senior Advocates Ashish Kamat, Ravi Kadam, Venkatesh Dhond, with Advocates Dhaval Patil, K. Ashar and Co, Shivam Mehra, Ameya Gokhale, Rishabh Jaisani, Harit Lakhani, Richa Bharti, Ansh Kumar, Shlok Parekh, Mustafa Kachwala, Shantam Mandhyan, Shrishti Shetty, Sakshi Sri, Prasad Shenoy, Parag Sharma, Aditi Phatak, Parichehr Zaiwalla, Ishita Desai, Megha More, Juhi Bhayani, Kedar Dighe, Ashutosh Mishra, Mohamedali M. Chunawala, J.B. Mishra, Ashotosh Mishra, Shardul Amarchand Mangaldas & Co, Krishnamurthy and Co., and Krishnamurthy and Co