Banking licence regulation upheld as valid where statutory standards guided discretion and refusal rested on sound banking concerns.

A statutory banking licence scheme was upheld as a reasonable regulatory control, because the Act itself supplied the policy and standards guiding discretion, including financial soundness and depositor protection, so the provision was not treated as unconstitutional restraint or excessive delegation. The Reserve Bank's refusal of a licence was found non-arbitrary, as it rested on repeated inspections, communications, and materials showing unsatisfactory accounts, weak reserves, inadequate deposits, and other indications that the applicant was not being run on sound banking lines. Inspection material was also held usable when considering a pending licence application, and the refusal was sustained.

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Issues: (i) Whether Section 22 of the Banking Companies Act, 1949 imposed an unconstitutional restraint on the right to carry on banking business and amounted to excessive delegation; (ii) whether the Reserve Bank of India acted arbitrarily in refusing the licence; (iii) whether, after an inspection under Section 35, the Reserve Bank could rely on the inspection material while refusing a licence under Section 22.

Issue (i): Whether Section 22 of the Banking Companies Act, 1949 imposed an unconstitutional restraint on the right to carry on banking business and amounted to excessive delegation.

Analysis: The licensing provision was part of a comprehensive statutory scheme intended to regulate banking in the public interest and to protect depositors. The Act itself supplied the policy and the standards for grant of a licence, including the financial soundness of the company and the conduct of its affairs. The power was vested in a statutory banking authority, not in an unguided individual officer, and was therefore treated as a regulated licensing power rather than a prohibitory permit. The restriction was held to be a reasonable one within the constitutional power to regulate trade.

Conclusion: Section 22 was held constitutional and not invalid for excessive delegation.

Issue (ii): Whether the Reserve Bank of India acted arbitrarily in refusing the licence.

Analysis: The record showed repeated inspections, communications, and opportunities given to the bank to explain and rectify defects. The materials revealed unsatisfactory accounts, weak reserves, inadequate public deposits, and other features suggesting that the bank was not being run on sound lines. The refusal was reached only after sustained scrutiny and consideration of the bank's representations, and the decision was treated as one made on relevant statutory criteria rather than on whim or caprice.

Conclusion: The refusal of the licence was not arbitrary and was upheld.

Issue (iii): Whether, after an inspection under Section 35, the Reserve Bank could rely on the inspection material while refusing a licence under Section 22.

Analysis: Section 35(4) was held to apply to banks that had already been licensed, but the Court accepted that facts disclosed in an inspection under Section 35 could nevertheless be taken into account when deciding a pending licence application under Section 22, because the statute did not prohibit consideration of all relevant material bearing on the grant of a licence.

Conclusion: The procedure adopted was held lawful and within jurisdiction.

Final Conclusion: The refusal to grant a banking licence was sustained, and no ground for interference in certiorari was made out.

Ratio Decidendi: A statutory licensing scheme for banking is valid if the statute itself supplies the policy and standards governing the discretion of the licensing authority, and the authority may lawfully refuse a licence on relevant material showing that the applicant is not being conducted on sound banking lines.

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