Money & Banking

Alternate Mechanism: Unions file petition in Rajasthan HC against merger of PSBs

K Ram Kumar Mumbai | Updated on January 11, 2019 Published on January 11, 2019

All India Bank Officers’ Association and Dena Bank Officers’ Union say it is against the statutory provisions of relevant banking laws

The All India Bank Officers’ Association and Dena Bank Officers’ Union have jointly filed a writ petition in the Rajasthan High Court challenging the constitution of an ‘Alternate Mechanism’ by the Central Government for formulating a scheme of amalgamation among three public-sector banks (PSBs) – Bank of Baroda, Vijaya Bank and Dena Bank.

The two trade unions have contended that making provision for and constitution of any such ‘Alternative Mechanism’ (AM), which is a panel of three Cabinet ministers, is ultra vires the statutory provisions of the relevant banking laws – the Banking Companies (Acquisition & Transfer of Undertaking) Act, 1970, and 1980 – and, as such, has no force of law because there is no such provision in the statute to provide for such a mechanism.

Respondents

The respondents in the case are Union of India, Reserve Bank of India, and the three aformentioned PSBs, which have set the ball rolling on amalgamation in a bid to create the second-largest public sector bank in the country.

The unions, as per the petition, have contested the amalgamation decision, both on the grounds of violation of the procedural due process, and also substantively on the merits, as the decisions taken are without considering relevant factors.

According to S Nagarajan, General Secretary, AIBOA, as per the provisions of 9(2) and 9(6) of Act of 1970, the scheme of reconstitution and amalgamation of PSBs is to be made by the Central Government in consultation with the Reserve Bank of India (RBI).

Section 9(6) specifically provides for Parliamentary control of the administrative power of the Central Government (to make any scheme controlling the functioning of banking companies), as it requires any scheme to be laid before both Houses of Parliament. Section 9(2) deals with mandatory consultation with the RBI.

“But the role of the RBI has been curtailed against the statute, and the AM is not required to consult the RBI any more. Rather, it can frame the scheme of amalgamation on its own, and the RBI can only provide inputs for the same which may not be even considered by the AM,” claimed Nagarajan.

Earlier, in the case of amalgamation of New Bank of India with Punjab National Bank, in 1993, as well as in the case of amalgamation of seven associate banks with State Bank of India, the scheme of amalgamation was made by the Central Government in consultation with the RBI in terms of Section 9 of the Act of 1970.

“But, in the instant case, without any rhyme or reason, the provisions of Section 9 have been given the go-by, and an AM has been provided in place of the Central Government without any sanction of law, and without there being any such provision in the Act of 1970,” the petition said.

The petition also challenges the decisions taken by the boards of the three PSBs, in their respective meetings in the last week of September 2018, granting in-principle approval to the proposal (of amalgamating the three PSBs) sent by the Central Government on September 17, 2018.

Nagarajan observed that the amalgamation proposal, and the decisions relating to it, were taken without a nominee of the workmen/officer employee in the board of directors of the bank. The inputs of all members to the board deliberations are crucial to such a major decision.

“But the decisions have been taken in a very hasty manner without any application of mind,” he alleged.

Key point

The petition said a key factor to consider is whether the merger of two PSBs would result in substantial value-addition in the combined entity, or result in value diminution.

Published on January 11, 2019
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