Banking regulation does not create a duty to repay depositors' losses absent proximity, bad faith, or public misfeasance.

Regulatory and supervisory powers over a bank do not, by themselves, create a duty to indemnify depositors for losses arising from voluntary financial transactions. The Court held that public law compensation principles for breach of fundamental rights could not be extended to such claims, and that banking regulation did not impose a common law duty of care to individual depositors absent proximity, bad faith, or other legally recognised grounds. As the Reserve Bank did not exercise day-to-day control over the bank and no case of public misfeasance was made out, the claim for repayment failed.

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Issues: Whether the Reserve Bank of India could be directed to repay in full the deposits placed with the bank on the footing that its licensing and supervisory functions created a duty to protect depositors and make good the loss caused by the bank's failure.

Analysis: The petition rested on the contention that statutory regulation of banking imposed a duty on the Reserve Bank to ensure that depositors were repaid in full. The Court distinguished authorities dealing with breach of fundamental rights and public law compensation, and held that those principles could not be extended to losses arising out of financial transactions entered into voluntarily in the hope of profit. It accepted the line of authority holding that regulatory functions in the banking field do not, without more, create a common law duty of care to individual depositors. The Reserve Bank had to balance depositors' interests with broader banking and public interests, and it did not exercise day-to-day control over the bank's management. The pleadings also disclosed no allegation of bad faith or public misfeasance sufficient to found the claim.

Conclusion: The Reserve Bank was not liable to repay the depositors' losses, and the writ petition failed.

Ratio Decidendi: Regulatory and supervisory powers over a bank do not, by themselves, create a duty to indemnify depositors for losses suffered in voluntary financial transactions absent proximity, bad faith, or a legally recognised basis for public law compensation.

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