Deposit-taking limits upheld as reasonable economic regulation protecting public depositors and falling within Parliament's legislative competence.

Economic regulation limiting the number of depositors that an individual, firm or unincorporated association may accept was treated as a reasonable measure to protect the public and small depositors. The constitutional challenge under Articles 14, 19 and 19(1)(c) was rejected because the law did not compel incorporation, merely imposed differential regulatory treatment, and the restriction was neither arbitrary nor excessive. Parliament was also found competent to legislate on deposit-taking activity, which was treated in pith and substance as allied to banking, with residuary power available in any event. The legislation was therefore sustained as valid deposit-control regulation.

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Issues: (i) Whether the newly inserted provisions limiting the number of depositors that may be accepted by an individual, firm or unincorporated association, and prescribing penal consequences for contravention, violated Articles 14 and 19 of the Constitution of India, including the plea under Article 19(1)(c). (ii) Whether Parliament had legislative competence to enact the impugned provisions under the Constitution.

Issue (i): Whether the newly inserted provisions limiting the number of depositors that may be accepted by an individual, firm or unincorporated association, and prescribing penal consequences for contravention, violated Articles 14 and 19 of the Constitution of India, including the plea under Article 19(1)(c).

Analysis: The challenge was examined in the setting of long-standing regulatory measures aimed at protecting depositors in banking and non-banking financial activity. The impugned provisions were treated as economic regulation intended to curb unrestricted acceptance of public deposits, which had been shown by prior reports and experience to expose small depositors to serious risk. The Court held that reasonableness under Article 19 depends on the nature of the right, the object of the restriction, the urgency of the evil sought to be remedied, and the deference due to legislative judgment in economic matters. It further held that the law did not compel anyone to form a company, but only treated companies and individuals differently for regulatory purposes, and therefore no violation of Article 19(1)(c) was made out. The restriction was found to be neither arbitrary nor excessive, and was upheld as a measure designed to protect the public and depositors.

Conclusion: The provisions were held to be valid and not violative of Articles 14, 19 or 19(1)(c) of the Constitution of India.

Issue (ii): Whether Parliament had legislative competence to enact the impugned provisions under the Constitution.

Analysis: The business of accepting public deposits and lending money was treated as allied to banking in pith and substance. The Court rejected the contention that the subject fell within the State List entries relating to money-lending or unincorporated trading, holding instead that Parliament was competent to legislate under the Union List entry relating to banking, and in any event under the residuary power. The classification adopted by the legislation was found to be constitutionally permissible and directly connected with the object of regulating deposit-taking activity.

Conclusion: Parliament was held to have full legislative competence to enact the impugned provisions.

Final Conclusion: The writ petitions failed on all substantial grounds, and the impugned legislation was sustained, though certificate to appeal was granted.

Ratio Decidendi: In economic regulation meant to protect depositors and the public, a statutory ceiling on deposit-taking by unincorporated persons or firms is a reasonable restriction if it is neither arbitrary nor demonstrably irrelevant, and Parliament is competent to legislate on deposit-taking activity that is allied to banking in pith and substance.

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