High Court upholds validity of amended RBI Act provision restricting deposits to protect public funds

The High Court of Andhra Pradesh upheld the constitutional validity of the amended section 45S of the Reserve Bank of India Act, 1934. The court dismissed the writ petitions challenging the provision, which imposed restrictions on accepting deposits, ruling that the amendment was necessary to protect depositors and borrowers from unincorporated financial entities posing risks to public funds. The court referenced a Supreme Court judgment supporting the validity of the amendment in the interest of public welfare and regulating deposit acceptance through incorporated bodies, ultimately denying the petitioners' claims of violating fundamental rights under the Indian Constitution.

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Issues:
Constitutional validity of amended section 45S of the Reserve Bank of India Act, 1934.

Analysis:
The batch of writ petitions before the High Court of Andhra Pradesh challenged the constitutional validity of the amended section 45S of the Reserve Bank of India Act, 1934. The petitioners, mostly firms and individuals dealing in finance, argued against the amended provision which imposed restrictions on accepting deposits. The original section 45S limited the number of depositors but was found ineffective due to loopholes leading to abuse by unscrupulous entities. The amended provision post-1997 required entities accepting deposits to be incorporated under specific laws and obtain licenses from the RBI. The petitioners contended that the amendment violated fundamental rights under Articles 14, 19, and 21 of the Indian Constitution, alleging unreasonable restrictions. However, the High Court referred to a Supreme Court judgment in Bhavesh D. Parish v. Union of India, which upheld the validity of the amended section 45S in the interest of public welfare and regulating deposit acceptance from the public through incorporated bodies. The High Court concluded that the restrictions were necessary to protect depositors and borrowers from unincorporated financial entities that posed risks to public funds. Consequently, the court dismissed the writ petitions, upholding the validity of section 45S without awarding costs to either party.

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