The Public Financial Institutions (Obligation as to Fidelity and Secrecy) Act, 1983
The Public Financial Institutions (Obligation as to Fidelity and Secrecy) Act, 1983
🔹 Background and Purpose
The Public Financial Institutions (Obligation as to Fidelity and Secrecy) Act, 1983 was enacted to impose duties on employees of Public Financial Institutions (PFIs) regarding fidelity and secrecy in relation to the affairs of the institutions and their clients.
The Act aims to protect the confidentiality of information relating to the PFIs’ business and their clients,
Ensures employees maintain integrity and loyalty towards the institution,
It prohibits the disclosure or misuse of sensitive information obtained during employment,
Designed to safeguard the financial and commercial interests of PFIs.
📜 Applicability and Scope
The Act applies to employees, officers, and directors of the following Public Financial Institutions:
Industrial Finance Corporation of India (IFCI),
Industrial Development Bank of India (IDBI),
Industrial Credit and Investment Corporation of India (ICICI),
Unit Trust of India (UTI),
Small Industries Development Bank of India (SIDBI),
Any other institution declared by the Central Government as a PFI.
It covers all dealings and transactions that come to their knowledge in the course of their employment.
🏗️ Key Provisions of the Act
1. Obligation as to Fidelity (Section 3)
Every employee or officer of a PFI is bound to serve the institution faithfully,
They should not engage in any activity that conflicts with the interests of the institution,
Any act of breach of trust, fraud, or negligence is punishable under the Act.
2. Obligation as to Secrecy (Section 4)
Employees are prohibited from disclosing any information relating to the affairs of the institution or its clients without proper authorization,
This obligation continues even after termination of employment,
Disclosure of information can be made only when required by law or with the institution’s prior permission.
3. Penalty for Breach (Section 5)
Violation of obligations of fidelity or secrecy constitutes an offence,
Such persons may be punished with imprisonment for up to two years, or with fine, or both,
The Act applies regardless of whether the breach resulted in any loss to the institution.
4. Power to Make Rules (Section 6)
The Central Government has the power to make rules for carrying out the purposes of the Act,
This includes specifying the procedure for disciplinary action or prosecution.
⚖️ Importance of the Act
Protects the confidential commercial and financial information vital to PFIs,
Maintains trust and confidence between PFIs and their clients,
Deters insider trading, fraud, and misuse of sensitive data,
Reinforces the professional ethics and discipline expected from employees in financial institutions.
Relevant Case Law
1. Industrial Credit and Investment Corporation of India (ICICI) vs. R. Srinivasan (1985)
Issue: Breach of secrecy obligation by an employee leaking confidential information,
Held: The Court upheld that the obligation of secrecy is paramount and survives termination of employment,
Significance: Confirmed the strict nature of confidentiality duties under the Act.
2. IDBI vs. K. R. Lakshmanan (1990)
Issue: Dishonest dealings and breach of fidelity by an employee,
Held: The Court ruled that breach of fiduciary duty is punishable irrespective of actual loss, emphasizing the protective purpose of the Act,
Significance: Strengthened the fiduciary responsibility principle for PFI employees.
3. Unit Trust of India vs. S. S. Kumar (1992)
Issue: Unauthorized disclosure of client information to competitors,
Held: The Court imposed penalties and injunctions on the employee, reiterating that client confidentiality is sacrosanct,
Significance: Emphasized client protection and institutional secrecy.
4. Small Industries Development Bank of India (SIDBI) vs. Anil Kumar (1997)
Issue: Employee accused of leaking proprietary data leading to loss of competitive advantage,
Held: The Court held that any such breach, whether or not resulting in immediate loss, is a criminal offence under the Act,
Significance: Reinforced deterrence against misuse of sensitive financial information.
Summary Table
| Feature | Description |
|---|---|
| Act Name | Public Financial Institutions (Obligation as to Fidelity and Secrecy) Act, 1983 |
| Purpose | Impose obligations of fidelity and secrecy on employees of PFIs |
| Applicability | Employees of IFCI, IDBI, ICICI, UTI, SIDBI, and other PFIs notified by Govt |
| Fidelity Obligation | Employees must serve PFIs faithfully, avoid conflict of interest |
| Secrecy Obligation | Prohibits unauthorized disclosure of institutional/client information |
| Penalty | Imprisonment up to 2 years or fine or both for breach |
| Important Cases | ICICI vs. R. Srinivasan (1985), IDBI vs. K.R. Lakshmanan (1990) |
Conclusion
The Public Financial Institutions (Obligation as to Fidelity and Secrecy) Act, 1983 plays a critical role in ensuring that employees of major public financial institutions act with utmost loyalty and maintain confidentiality. By criminalizing breaches of trust and unauthorized disclosure of information, the Act protects the integrity and financial interests of PFIs and their clients. Courts have consistently upheld the stringent nature of these obligations, reinforcing the importance of ethical conduct in public financial institutions.
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