RBI Seeks Exemption For Banks From Class Action Suits (06-Sep-2010)
The Reserve Bank of India (RBI) has urged the ministry of corporate affairs to exempt the scheduled banks from the class action suits that formulate a part of the proposed new Companies Act. The proposed act is currently pending with a parliamentary standing committee.
The RBI contends that by exempting the banks from class actions suits, the interests of borrowers would remain on top, which is a basis of trust in Indian banking industry and will continue to ensure strong fundamentals of the industry. In its response to the parliamentary standing committee on finance, which is deliberating on the new companies act, the central bank had said that, including banks within the purview of class-action suits may affect depositors’ interest in the long run.
Class action lawsuit, popular in many countries including the US, can be filed by one person on behalf of a group of people who have same grievance against a company. As proposed under the new companies act, class action suit in India would allow members, shareholders or creditors of a company to file complaints against the organization in case of mismanagement by its board.
The RBI has argued that the Indian banking sector already has a well-defined grievance redress mechanism, which includes the banking ombudsman scheme. The scheme that was started in 1995 has largely been successful in addressing the complaints of banks’ customers. The central bank also added that if required, some modifications can also be made in scheme to increase its applicability.
The corporate affairs ministry is saying that it will take care of the concerns expressed by the central bank in the final draft of the bill. However, the ministry is understood to be not willing to make any sector specific exemptions in the companies act and wants the RBI to suggest other ways to mitigate the impact of banks coming under the purview of class actions suits.
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