ANOTHER CHANCE

New Delhi , June 9: In a temporary relief for Sahara India Financial Corporation Ltd (SIFCL), the Supreme Court today asked the Reserve Bank of India (RBI) to give a fresh hearing to the company, while keeping in abeyance the RBI’s June 4 order that refrained the Sahara arm from accepting fresh deposits from the public.

A two-judge vacation bench headed by Justice Arijit Pasayat said SIFCL would appear before the RBI for a personal hearing on June 12.

In its petition, the company alleged that the RBI had failed to give it an opportunity to defend itself before taking any action against it.

Sahara senior counsel Mukul Rohtagi contended that action was taken against the company even before the regulatory body had received a reply to its show cause notice. RBI counsel T.R. Andhyarujina, however, denied the charge.

“The RBI is not in the habit of being arbitrary,” he told the apex court. “The dimensions of the case are enormous…the company has failed to pay some Rs 582 crore in deposits which have matured to depositors,” Andhyarujina said.

“Ample opportunities were given…several infirmities were highlighted,” he added.

Rohtagi argued that “the RBI action has affected a large number of employees and depositors.” Sahara has around five crore depositors.

The RBI had asked Sahara not to collect fresh deposits from customers, to repay existing deposits on maturity and to wind up its para-banking business by 2010. But the company moved Allahabad High Court and got a stay on the order.

The RBI then appealed to the Supreme Court last Friday against the high court stay. The bank regulator had cited several violations on SIFCL’s part justifying its decision.

Among the violations the apex bank cited were failure to pay the minimum rate of interest, not maintaining an asset-liability match, violating the RBI’s know-your-customer norms for opening deposit accounts, not informing depositors about maturity of their deposits and the non-repayment of deposits which had matured.

SIFCL, a residuary non-banking finance company, has an asset base of Rs 18,000 crore.

The RBI had earlier issued a show cause notice to SIFCL on violation of various norms. However, despite the warning, the company continued to violate the guidelines, the RBI said.

A residuary non-banking finance company is wholly dependent on public deposits unlike non-banking finance companies that tap market borrowings and banks for funds.