BCCI vs Lodha panel: Banks choking funds to the cricket body is a classic case of overreaction - Firstpost
Powered By:
In Association With:

BCCI vs Lodha panel: Banks choking funds to the cricket body is a classic case of overreaction

The Bank of Maharashtra (BoM) informed the Board of Control for Cricket in India (BCCI) through a letter on Tuesday that the lender intends to freeze operations of BCCI's bank accounts following a directive from the Supreme Court-appointed Justice Lodha committee, which is looking into reforms within the cricket body, CNN-News18 reported on Tuesday.

Besides BoM, Yes Bank, another lender to the BCCI, also froze the board's accounts, reports said. And although both banks unfroze the accounts later in the afternoon, the initial action may have come in haste. Especially considering Justice Lodha clarified to the media saying there was no directive to the banks to stop funding BCCI's routine expenditures, including those regarding the ongoing series against New Zealand.

Justice RM Lodha further said that banks have misread the panel's communication to the BCCI (which was copied to banks as well) regarding stopping further disbursements to state units.

Representational photo. AFP

Representational photo. AFP

The BoM letter, as reported by CNN-News 18, however, gives one the impression that the bank was specifically asked to freeze the accounts, which was later contradicted by Lodha's subsequent clarification. This is the current controversy in a nutshell. Now, what is the truth here?

Prima facie, assuming banks have indeed frozen BCCI's accounts following Justice Lodha's letter, this appears to be a case of banks panicking and jumping the gun and to freeze the accounts before understanding the communication fully. In the process, they forgot the basic due diligence, processes and commitments to an account holder.

A closer look at the details of the initial communication from the Lodha panel to BCCI (copied to the banks) shows that the former asked the board not to proceed with fund disbursements to state associations.

"It has come to the notice of this committee that certain decisions have been taken at the 'Emergent Working Committee' meeting of the BCCI on 30 September, 2016, to disburse large funds to various member associations. You are aware that by way of this committee's direction dated 31.8.2016, no further decisions were to be taken regarding the future apart from routine matters. The disbursement of these amounts are not routine, and in any case, not emergent," the Hindu reported, quoting Lodha's letter.

"You are also aware that the BCCI has chosen to breach the judgment of the Hon’ble Supreme Court as well as the first set of timelines set out by this committee, which includes the fund disbursement policy to be framed by 30.9.2016. As the status report is to be taken up for directions by the Hon’ble Court on Thursday, 6.10.2016, you are hereby directed not to take any steps towards financial disbursement of the amounts as resolved/approved, after the direction dated 31.8.2016. Any violation of this direction will be placed before the Hon’ble Supreme Court for appropriate directions," the report said.

Whether or not a court-appointed panel has the authority to ask a commercial bank to freeze a customer's account without taking into confidence the banking regulator, is a question. To be sure, the panel hasn't done so in this case. Even if one assumes the panel does have the power to do so, it is improper on the part of the banks to freeze accounts of its clients without first looking at the details and following basic due diligence. Ideally, banks should have checked with the Lodha panel on whether the freezing should apply to cash withdrawals for BCCI's daily needs. Particularly so when the Indian team is currently participating in an international tournament. It is no secret that choking funds to BCCI at this juncture would have consequences on the team's very continuation in the tournament. The BCCI, on its part, didn't waste time to grab the opportunity to play the victim and launch a campaign on the Lodha-panel.

Although unrelated, this reminds one of an old case of a farmer and a security guard, whose bank accounts were frozen by Bank of Baroda, mistaking them as directors/guarantors of Vijay Mallya's now defunct Kingfisher Airlines. In the earlier instance, as again on Tuesday, the bank jumped the gun. In the process, bank accounts of a few common account holders were frozen, before the bank realised its mistake.

To be sure, there is no comparison between the BoB incident and the current BCCI episode, except the fact that in both cases banks acted in a hurry without giving much thought to their actions and the consequences it could lead to.

The point here is this: In the BCCI-Lodha episode, what the panel asked the BCCI was to stop funding to the state associations, not to stop funding for routine expenditures of the cricket body. But the banks clearly misread the communication as an order from the Supreme Court to suspend the accounts. The whole episode raises question about how responsible our banking institutions are regarding their account holders, especially when panic attacks strikes them.

Comment using Disqus

Show Comments