Sources close to the central bank said the bank would be kept open but prohibitory orders would be clamped on depositors to stop them from withdrawing any money from the bank. The entire deposit base of the bank has been eroded due to the alleged reckless sanctioning of loans by the bank.

The Calcutta high court decision comes as a setback for the RBI as it had managed to get the Sikkim high court to dismiss a writ petition filed by another promoter of Sikkim Bank against the merger Union Bank of India just a day earlier.

The Reserve Bank of India has askedthe bank to continue to refuse withdrawals by citing its precarious financial position even though the six-month moratorium ended on Friday.

Due to the various cases filed before the two high courts, the proposed merger could not be effected before the time limit for the moratorium lapsed. According to banking circles, the RBI is in a fix since the law does not allow the clamping of a second moratorium or extending the earlier one. Reserve Bank officials could not be reached for their comments on this.

Sikkim Bank, which has a network of nine branches across the country, was set up under the Sikkim Companies Act. The bank's entire deposit base of Rs 63.72 crore was nearly eroded by reckless sanctioning of loans, according to a committee set up by the RBI to probe the irregularities. Of the deposit base, Rs 57.16 crore was in term deposits, Rs 2.93 crore in savings and Rs 3.63 crore in current deposits.

According to a February report by the RBI-nominated managing director SN Kundu, Sikkim Bank'snon-performing assets were estimated to be Rs 60.43 crore, or 95 per cent of its total advances.

In January this year, the RBI sacked the then managing director, Amarnath Mitra Mustafi, after serving a show-cause over the huge loans. He was replaced by Kundu, a Bank of Baroda official, as managing director.

An RBI-nominated inspection team sent to look at the books had concluded that the bank would be unable to meet its future deposit liabilities. They noted that a bailout exercise was needed by way of capital infusion, renewing of maturing deposits and fresh mobilisation of bulk deposits.

Unable to script any alternative bailout plan, the RBI proposed that Sikkim Bank be merged with Union Bank of India. However, this move was stayed first by the Sikkim high court and now there is an interim order of stay by the Calcutta high court.

RS Chowdhury, a director of the beleaguered private bank and promoter of North East Financial Corp, filed a writ petition before the Sikkim high court in June challengingthe RBI's actions, including the clamping of a moratorium on withdrawals, the sacking of Mustafi and the nomination of Kundu as managing director.

It is understood that North East Financial Corp--a stakeholder of Sikkim Bank--is likely to file a special leave petition before the Supreme Court against the Sikkim high court order. The prayers in this suit are almost similar to the ones listed in the writ petition before the Sikkim high court.

With the writ in Gangtok now dismissed, all attention will turn towards the case before the Calcutta high court which is again slated to come for hearing on September 6.

Counsels RC Nag, S Pal and PK Mullick appearing for Sikkim Bank told the court today that the merger scheme was sanctioned by RBI-nominated managing director SN Kundu and not by the Sikkim Bank board. They said that under banking rules, the board has to ratify the proposed merger. Last month, the RBI had show-caused director RS Chowdhury against which he had moved the Sikkim high court again.