Banks must abide by state laws

Oct 11 2013, 04:55 IST
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SummarySupreme Court has dismissed the appeals moved by former directors of Vasavi Cooperative Urban Bank Ltd

Bank depositors and the AP Act

Upholding the constitutional validity of the Andhra Pradesh Protection of Depositors of Financial Establishments Act 1999, the Supreme Court has dismissed the appeals moved by former directors of Vasavi Cooperative Urban Bank Ltd, who were accused of swindling the depositors. In this case, Soma Suresh Kumar versus Government of Andhra, large number of complaints were received from the depositors stating that the Board of The banks’s directors had siphoned away money amounting to crores of rupees by creating fake documents. The charge sheet was filed against several persons, including the directors, who moved the apex court for quashing all proceedings passed by the competent authority and the Special Court constituted under the Act. They also wanted to restrain the authorities from arresting them or attaching their properties. However, both Andhra Pradesh and the Central government justified the action saying that while the accused had entered into a criminal conspiracy with the borrowers of the bank and created fake proprietary concerns, firms/companies and swindled away money of the depositors by accepting defective, forged title deeds and defaulted in paying the depositors’ dues.

The Union government stated that the provisions of the Andhra Act were not opposed to public policy nor unconstitutional nor did they violate the fundamental rights of the accused. Stating that similar laws were passed by Tamil Nadu, Maharashtra and Pondicherry to protect small depositors, the apex court rejected the objection of the accused that the AP does not have the competence to enact the 1999 law since the subject “banking” is covered under Entry 45 of List I of Seventh Schedule, hence, only the central government is entitled to enact the law relating to the subject of “accepting of deposit from the public and repayment of the same on demand”.

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