Advisory RBI circulars lack statutory force; state re-linkage of co-operative societies was upheld without prior hearing.

An RBI circular on rural credit was treated as advisory and policy-oriented, not as having statutory force, because it was issued for study and guidance and did not operate as a binding direction for co-operative societies. A State circular re-linking primary agricultural co-operative societies to district central co-operative banks was upheld as an administrative measure within the State's control over co-operative societies, applying the pith and substance doctrine and not as invalid banking legislation. The change in financial linkage did not show established adverse civil consequences, so prior hearing was not required. The challenge failed on all material grounds.

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Issues: (i) Whether the circular of the Reserve Bank of India had statutory force. (ii) Whether the State Government circular directing re-linkage of primary agricultural co-operative societies with district central co-operative banks was beyond legislative competence and therefore beyond executive power. (iii) Whether the change in financial linkage attracted civil consequences so as to require a prior opportunity of hearing.

Issue (i): Whether the circular of the Reserve Bank of India had statutory force.

Analysis: The circular was treated as advisory and policy-oriented, issued after a study of rural credit arrangements. Section 54 of the Reserve Bank of India Act enabled study and expert guidance, but did not convert such guidance into a statutory direction. Section 21 of the Banking Regulation Act applied to banking companies and not to co-operative societies governed by the State enactment. The circular therefore lacked statutory force.

Conclusion: The issue was answered against the petitioners.

Issue (ii): Whether the State Government circular directing re-linkage of primary agricultural co-operative societies with district central co-operative banks was beyond legislative competence and therefore beyond executive power.

Analysis: The societies were co-operative societies under the State Act and not banking companies. Applying the pith and substance doctrine, the circular was characterised as an administrative direction within the State's control over co-operative societies, not as legislation on banking under Entry 45 of List I. The measure did not trench upon the field of banking so as to invalidate it on competence grounds.

Conclusion: The issue was answered against the petitioners.

Issue (iii): Whether the change in financial linkage attracted civil consequences so as to require a prior opportunity of hearing.

Analysis: The change from commercial banks to district central co-operative banks was implemented after consideration by a task force and government action. The Court found no demonstrated adverse civil consequence to the societies, since their linkage to financing agencies continued and no material prejudice was shown. In the absence of established detriment, the requirements of natural justice were not attracted.

Conclusion: The issue was answered against the petitioners.

Final Conclusion: The challenge to the impugned circulars failed on all material grounds, and the writ appeals were dismissed.

Ratio Decidendi: An advisory policy circular issued in the context of co-operative societies does not acquire statutory force merely because it is traceable to the Reserve Bank's power to study and guide rural credit, and an administrative direction regulating co-operative societies under a State Act does not become invalid merely because it incidentally touches the banking field.

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