Central Bank of India v. Ravindra

Facts

• RBI issued directions regarding income recognition and asset classification for banking companies
• A borrower contended that interest rate charged by the bank was inconsistent with RBI directives
• The bank argued that its internal policies governed interest rates, not RBI directions

Issue

1. Whether RBI directions issued under S.35A of the Banking Regulation Act, 1949 have statutory force binding on banking companies and override internal bank policies.

Held

• The Supreme Court held that S.35A confers on RBI the power to issue directions to banking companies in the interest of the public, in the interest of banking policy, or to prevent the affairs of the banking company being conducted in a manner detrimental to depositors. Such directions have the force of law. Banking companies are bound to comply, and their internal policies cannot override RBI directions. Non-compliance constitutes a breach of statutory duty.

Ratio Decidendi

Directions issued by RBI under S.35A are not merely administrative instructions but have the character of subordinate legislation. They bind all banking companies to the same extent as provisions of the Act itself.