Writ Petn. (Civil) No. 508 of 1988 (with W.P. (C) No. 534 of 1988, C.A. Nos. 5513, 5679, 5686 of 1985; 183, 192 and 235-36 of 1986, etc., etc.) WITH (C.A. Nos. 174 and 193 etc. of 1986 and W.P. (C) Nos. 1506 of 1987 and 602 of 1989),. Case: 1. T. Velayudhan Achari and another 2. Manipal Finance Corporation Vs Union of India and others. Supreme Court (India)
| Case Number | Writ Petn. (Civil) No. 508 of 1988 (with W.P. (C) No. 534 of 1988, C.A. Nos. 5513, 5679, 5686 of 1985; 183, 192 and 235-36 of 1986, etc., etc.) WITH (C.A. Nos. 174 and 193 etc. of 1986 and W.P. (C) Nos. 1506 of 1987 and 602 of 1989), |
| Counsel | For Appearing Parties: Mr. D.N. Dwivedi, Addl. Solicitor General, Mr. G. Viswanatha Iyer, Mr. K.N. Bhat and Mr. Anil B. Diwan, Sr. Advocates, Mr. E.M.S. Anam, Mr. P.H. Parekh, Mr. C.N. Sree Kumar, Mr. R. Mohan, Mr. S. Balakrishnan, Mr. M.K.D. Namboodiri, Mr. M.S. Ganesh, Mr. S.S. Khanduja, Mr. Y.P. Dhingra, Mr. B.K. Satija, Mr. Kuldeep S. ... |
| Judges | L. M. Sharma and S. Mohan and N. Venkatachala, JJ. |
| Issue | Reserve Bank of India Act (2 of 1934) - Section 45S; Constitution of India - Article 19(1)(g) |
| Citation | AIR 1993 SCW 1201 |
| Judgement Date | February 05, 1993 |
| Court | Supreme Court (India) |
Judgment:
1. All these civil appeals arise by certificate granted by the High Court of Delhi against the decision reported in Kanta Mehta v. Union of India, (1987) 62 Com Cas 769.
2. All these civil appeals and writ petitions challenge the constitutional validity of Chapter III-C read with Section 58B (5A) of the Reserve Bank of India Act, 1934, introduced by the Banking Laws (Amendment) Act, 1983 (Act 1 of 1984). Hence, they are dealt with under a common judgment.
3. In order to appreciate the challenge the necessary legal background may be set out.
4. In the year 1949, the Banking Regulation Act of 1949 was enacted. That contained regulatory provisions in regards to banking under the surveillance of the Reserve Bank of India as to what would constitute "banking" as defined under Section 5(b) of the 1949 Act.
5. In the year 1959, the Banking Companies (Amendment) Act, 1959 was passed. Sections 17 and 18 were substituted which required banking companies to create reserve fund and maintain cash reserve. In the year 1963, Banking Laws (Miscellaneous Provisions) Act, 1963 inserted Chapter III-B in the Reserve Bank of India Act. This Chapter conferred extensive powers on the Reserve Bank of India to issue suitable instructions, to regulate and monitor diverse activities of non-banking companies. The powers to control and regulate these non-banking institutions are set out in Sections 45-I to 45-L While exercising these powers, the Reserve Bank of India was issuing various directions to these non-banking financial institutions. One such important direction was issued on 1st of January, 1967 to the effect that the non-banking financial companies were not to hold deposits in excess of 25 per cent of its paid-up capital and the reserves as also to non-banking, non-financial companies. They were also required to take steps to keep the deposits within the limits. This direction was challenged unsuccessfully before the Madras High Court as seen from the case reported in (1971) 41 Com Cas 890 (Mayavaram Financial Corporation v. Reserve Bank of India).
6. In 1968, by Banking Laws (Amendment) Act, 1968, Sections 10A to 10D were introduced. Section 10-A provided that the Board of Directors shall include persons with professional or special knowledge. Section 10-A(5) empowered the Reserve Bank of India to vary the composition of the Board.
7. When a report of the Study Group of non-banking financial intermediaries was submitted in the year 1971 that was studied. Thereafter in 1973 the Reserve Bank of India issued Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1973 placing certain restrictions on companies carrying on prize chit and chit business from receiving deposits from the public.
8. In 1974, Section 58A of the Companies Act was inserted by the Companies (Amendment) Act of 1974, which came into force from 1st of February, 1975. The object was to regulate deposits received by non-banking non-financial companies. The financial companies were already covered by Reserve Bank of India directions under the Reserve Bank of India Act. Therefore, they were exempted under Section 58A (7) from the purview of that Section. Since the non-banking non-financial companies came within the purview of Section 58A, the earlier directions issued by the Reserve Bank of India Act to non-banking non-financial companies in the year 1966 were withdrawn. By an amendment of 1977, Section 58A was further enlarged and the Central Government was empowered to grant extensions.
9. In June 1974, another Study Group was constituted which is popularly known as James Raj Committee.
10. In July 1975, the above Study Group gave its report. In accordance with the recommendations of the Study Group elaborate rules were issued by the Central Government under Section 58A, called Banking Companies (Acceptance of Deposits) Rules, 1975 with a view to regulate the various activities of the companies to accept deposits from public. The validity of the section and the deposit rules were questioned. This Court in DCM Ltd. v. U.O.I., (1983) 3 SCR 438: (AIR 1983 SC 937) upheld the same.
11. In 1977, directions were issued by the Reserve Bank of India superseding earlier directions of 1966 and 1973.
12. In 1978, Bill 183 of 1978 called Banking Laws (Amendment) Bill, 1978 was introduced in the Parliament. The said Bill provided limits on depositors which were lower than the current provisions. However, the bill lapsed on dissolution of Parliament. Thereafter Prize Chits and Money Circulation Schemes (Banning) Act, 1978 was enacted. This was also challenged. But that challenge was thrown out by this Court in Srinivasa Enterprises v. Union of India, (1981) 1 SCR 801: (AIR 1981 SC 504).
13. In 1981, several new regulatory directions were given by the Reserve Bank of India. Inter alia they included restrictions on accepting or renewing deposits from shareholders, Directors etc. which exceeded 15 per cent of the net-owned funds of the companies as also restricted payment of interest on deposits at a rate of interest exceeding 15 per cent per annum. The validity of the amendments was upheld by the Madras High Court in the case reported in AIR 1983 Mad 330 (A.S.P. Aiyar v. Reserve Bank of India).
14. In Slate of West Bengal v. Swapan Kumar Guha known as Sanchaita case, reported in (1982) 3 SCR 121: (AIR 1982 SC 949), this Court while quashing the F.I.R. launched against the firm, Sanchaita Investments, directed that the Government and Reserve Bank of India should look into the matter deeply. It is in this background the Banking Laws (Amendment) Act, 1983 came to be enacted. Section 45-S states thus:
45-S: "Deposits not be accepted in certain cases - (1) No person, being an individual or a firm or an unincorporated association of individuals shall, at any time, have deposits from more than the number of depositors specified against each, in the table below:-
TABLE
| (i) | Individual | Not more than twentyfive depositors excluding depositors who are relatives of the individual. |
| (ii) | Firm | Not more than twentyfive depositors per partner and not more than two hundred and fifty depositors in all,excluding, in either case, depositors who are relatives of any of the partners. |
| (iii) | Unincorporated association of individuals | Not more than twentyfive depositors per individual and not more than two hundred and fifty depositors in all, excluding, in either case, depositors who are relatives of any of the individuals constituting the association. |
(2) Where at the commencement of Section 10 of the Banking Laws (Amendment) Act, 1983 the deposits held by any such person are not in accordance with sub-section (1), he shall, before the expiry of a period of two years from the date of such commencement, repay such of the deposits as are necessary for bringing the number of depositors within the relative limits specified in that sub-section.
Explanation:- For the purposes of this section -
(a) a person shall be deemed to be a relative of another if, and only if, -
(i) they are members of a Hindu undivided family; or
(ii) they are husband and wife; or
(iii) the one is related to the other in the manner indicated in the list of relatives below:-
List of Relatives
1. Father 2. Mother (including step-mother) 3. Son (including step-son). 4. Son's wife. 5. Daughter (including step daughter). 6. Father's father. 7. Father's mother. 8. Mother's mother. 9. Mother's father. 10. Son's son. 11...
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