Moratorium and conversion into a non-banking company: court upheld regulatory action, hearing, and rejection of the request.

The moratorium was upheld because the record showed a factual and legal basis for its exercise under the Banking Regulation Act, 1949, and the earlier findings supporting it had not been displaced. No denial of effective post-decisional hearing was shown, because objections to the draft scheme and moratorium-related action had been available and were considered by the competent authority before the impugned orders. The request to allow conversion into a non-banking company was also rejected, since the RBI Act, 1934, as amended, required registration for such an entity and did not support the conversion route sought; the request was also found belated and unsupported by public interest.

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Issues: (i) Whether there was justification for the order of moratorium; (ii) whether the impugned orders were vitiated for want of an effective post-decisional hearing; and (iii) whether the rejection of the request to permit the petitioner-bank to function as a non-banking company was illegal.

Issue (i): Whether there was justification for the order of moratorium

Analysis: The earlier proceedings had upheld the moratorium and had recorded that the reasons disclosed by the Reserve Bank of India and the Government were relevant to the exercise of power under the Banking Regulation Act, 1949. The petitioner did not show that those findings had been reversed, nor was it shown that objections were filed after the Supreme Court permitted post-decisional consideration. The record, therefore, disclosed a factual and legal basis for the moratorium.

Conclusion: The moratorium was justified and this issue was decided against the petitioner.

Issue (ii): Whether the impugned orders were vitiated for want of an effective post-decisional hearing

Analysis: The petitioner had been given an opportunity to place objections against the draft scheme and the moratorium-related action, but it did not avail of that opportunity after the Supreme Court's order. The communications relied upon were sent before the later consideration and did not show that any post-order objections were pursued before the competent authority. The objections raised were also considered by the authority before passing the impugned orders.

Conclusion: There was no denial of effective post-decisional hearing and this issue was decided against the petitioner.

Issue (iii): Whether the rejection of the request to permit the petitioner-bank to function as a non-banking company was illegal

Analysis: The relevant provisions of the Reserve Bank of India Act, 1934, as amended, required registration for a non-banking financial company and did not contemplate conversion of a banking company into such an entity in the manner sought. The petitioner had earlier resolved to convert but later rescinded that resolution. The authority's view that the request was belated and unsupported by public interest was upheld, and the alternative reliance on the Banking Regulation Act, 1949, was found unavailable on the facts and in law.

Conclusion: The rejection of the request for conversion was not arbitrary and this issue was decided against the petitioner.

Final Conclusion: The challenge to the moratorium, the amalgamation scheme, and the rejection of conversion into a non-banking company failed, leaving no ground for judicial interference.

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