Section 45 amalgamation schemes override other laws and are subject to limited judicial review.

The Punjab and Maharashtra Co-operative Bank Ltd. (PMC Bank), a Multi-State Scheduled Urban Co-operative Bank, collapsed in September 2019 following the discovery of a major financial fraud involving the HDIL Group

Statutory inspections by the Reserve Bank of India (RBI) revealed that the bank’s net worth was negative INR (-) 5278.21 crore with significant deposit erosion

Consequently, the RBI imposed "All Inclusive Directions" under Section 35A of the Banking Regulation Act (BR Act) and appointed an Administrator

After exploring several resolution options, including capital infusion and merger with public sector banks, the RBI formulated an amalgamation scheme with Unity Small Finance Bank Ltd. (USFBL)

The Ministry of Finance sanctioned the "Punjab and Maharashtra Co-Operative Bank Ltd. (Amalgamation with Unity Small Finance Bank Limited) Scheme, 2022" on 25.01.2022

Petitioners, comprising retail and institutional depositors, challenged the scheme, primarily objecting to the 10-year staggered repayment schedule, the reduction of interest rates to 2.75% after five years, and the classification of depositors

The court primarily applied Section 45 of the Banking Regulation Act, 1949, which empowers the RBI to prepare schemes for reconstruction or amalgamation of banking companies in the "public interest" or in the "interest of depositors"

This section includes a non-obstante clause under sub-section (14), giving the scheme overriding effect over other laws or agreements

The court relied on the doctrine of judicial deference to expert economic policy as established in Peerless General Finance and Investment Co. Ltd. v. RBI

Ganesh Bank of Kurundwad Ltd. v. Union of India, which held that "public interest" is the paramount consideration under Section 45

Provisions of the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961, regarding the INR 5 lakh insurance ceiling were also applied

The Court noted that the PMC Bank's financial state made liquidation the only alternative to amalgamation; however, liquidation would have limited most depositors to a maximum recovery of INR 5 lakhs from DICGC

By contrast, the Scheme ensured a 100% return of the principal amount for all depositors, albeit through a staggered timeline

Regarding Article 14, the Court held that the classification between retail (individuals) and institutional (corporates/societies) depositors was based on an intelligible differentia intended to prioritize individual relief to subserve the "public interest"

The reduction of interest rates was found to be explicitly permitted under Section 45(5)(f) of the BR Act to maintain the business viability of the transferee bank

On procedural grounds, the Court observed that the RBI had invited and considered over 6,000 objections before finalization, which satisfied the statutory requirement under Section 45(6); an individualized oral hearing is not mandated for such administrative/policy schemes

Finally, the Court emphasized that in matters of complex economic policy, it cannot substitute its wisdom for that of the RBI unless the decision is manifestly arbitrary

The Court held that the Scheme was constitutionally valid, legally sound under Section 45 of the BR Act, and formulated in the larger interest of the depositors to prevent the total loss of funds that would have resulted from liquidation

The Court declined to interfere with the staggered payment schedule or the interest rate modifications, noting that 99.45% of eligible DICGC claims had already been disbursed and the transferee bank was now operating profitably

All interim reliefs were vacated, and Rule was discharged