TaxTMI 
TaxTMI 
1997 (3) TMI 627
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....after called "the RBI") under section 45(1) of the Banking Regulation Act, 1949 (hereinafter called "the Act"), before the Government of India seeking an amalgamation of the Punjab Co-operative Bank with the Oriental Bank of Commerce (a nationalised bank,) and the Bari Doab Bank, and these proceedings are question. 3. In both the cases, the Government of India had issued a moratorium under section 45(1) of the Act. The banks filed writ petitions. On the date when the writ petitions were dismissed, namely, March 5, 1997, a draft scheme in each case has been served on the respective banks. 4. On the first day when these appeals were heard, i.e., on March 12, 1997, we passed an order that the objections to the scheme could be filed by the appellants on or before March 17, 1997, subject to such orders as may be passed by this court later. By our order dated March 14, 1997, the time for filing objections was extended up to March 20, 1997. 5. The facts in the case of Bari Doab Bank Ltd. are that the bank was established in 1915. According to the appellant, it was fully capable and entitled to continue its business under section 11(3) of the Act, but that the Reserve Bank of Indi....
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....e provisions of the Act stating that the powers of the RBI under the Banking Regulation Act, 1949, were conceived in the public interest and in the interest of the banking policy, that clause (ca) of the definition in the said Act defines "banking policy" as a policy which is laid down by the RBI from time to time in the interest of the banking system or in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the efficient use of these deposits and resources. The counter then set out the financial position of the respective banks as indicated from the inspection reports of the years 1993, 1994 and 1995, and then stated that the orders of moratorium were validly passed. Similar replies were filed in the case of Punjab Co-operative Bank Ltd. by the Union of India and the RBI. 9. The learned single judge considered the pleadings of the case and the contentions raised before him in great detail. The learned single judge also referred to the various rulings cited before him, and also referred to the contention of the respondents that the two banks were family contr....
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....such a plea is not permissible in matters of urgent nature in view of the judgment of the Supreme Court in Joseph Kuruvilla Vellukunnel v. Reserve Bank of India [1962] 32 Comp Cas 514. The learned judge then distinguished the judgment of the Supreme Court in K.I. Shephard v. Union of India (1988)ILLJ162SC holding that it was a case where the court was dealing with the scheme of amalgamation with regard to the status of employees of the amalgamated bank who were excluded from service of the transferee bank while retaining other similarly situated employees. The learned judge then stated that the records of the case were produced before the court and observed that the same indicated that the matter was examined by the RBI and it was found that there was good reason for it to file the application before the Government of India for ordering a moratorium and that then the Central Government duly considered and passed orders which were not liable to be interfered with under article 226 of the Constitution of India. 11. For the aforesaid reasons, the writ petitions were dismissed. 12. On behalf of the appellants Mr. Arun Jaitley and Mr. Salman Khursheed made elaborate submissions. M....
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....otect the interests of the depositors, etc., that if the reasons are made public and opportunity is given, that would be detrimental to the banks and may result in a "run" on the bank and then interests of the depositors and the bank would be seriously jeopardised. In the very nature of things, the principles of natural justice are not attracted to section 45(2) stage, he contended. 15. The learned Additional Solicitor-General also contended that this is a situation where there is a post-decisional opportunity at the stage of the approval of the scheme. Such an opportunity is provided before the Reserve Bank of India. The objection that could be filed under section 45(6) before the RBI would include an objection that the scheme was liable to be totally withdrawn because there was no good ground for the Reserve Bank to file an application and also because the grounds stated in section 45(4) did not exist. He also contended that the Reserve Bank is an expert body and its decision cannot be the subject matter of judicial review under article 226 of the Constitution of India. 16. In reply, it was contended for the petitioners that the moratorium was passed by the Government of In....
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....ing company and to prepare scheme of reconstitution or amalgamation. - (1) Notwithstanding anything contained in the foregoing provisions of this part or in any other law or any agreement or other instrument, for the time being in force, where it appears to the Reserve Bank that there is good reason so to do, the Reserve bank may apply to the Central Government for an order of moratorium in respect of a banking company. (2) The Central Government, after considering the application made by the Reserve Bank under sub-section (1), may make an order of moratorium staying the commencement or continuance of all actions and proceedings against the company for a fixed period of time on such terms and conditions as it thinks fit and proper and may from time to time extend the period so however that the total period of moratorium shall not exceed six months. (3) Except as otherwise provided by any directions given by the Central Government in the order made by it under sub-section (2) or at any time thereafter, the banking company shall not during the period of moratorium made any payment to any depositors or discharge any liabilities o....
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....ertified in writing by an officer of the Central Government to be a true copy thereof, shall, in all legal proceedings (whether in appeal or otherwise and whether instituted before or after the commencement of said section 21), be admitted as evidence to the same extent as the original scheme... (14) The provisions of this section and of any scheme made under it shall have effect notwithstanding anything to the contrary contained in any other provisions of this Act or in any other law or any agreement, award or other instrument for the time being in force..." 19. For the purpose of deciding these two points, it is necessary to analyze the scheme of section 45 of the Act. Section 45 deals with the power of the Reserve Bank to apply to the Central Government for suspension of business by a banking company and to prepare a scheme of reconstitution or amalgamation. Sub-clause (1) enables the Reserve Bank of India to submit an application to the Central Government for ordering a moratorium on the bank, provided "there is good reason so to do". The Central Government under sub-clause (2) "may" make an order of moratorium staying the commencement or continua....
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....tors, or (c) in order to secure proper management of the banking company, or (d) in the interest of the banking system of the country as a whole. 21. In other words, the moratorium for a maximum period of six months is to help in considering whether the bank is to be put under a scheme of reconstruction or amalgamation. Therefore, in our view, the moratorium is a step which subserves the main purpose of introduction of a scheme. While it is true that section 45(4) considers the introduction of a scheme during the pendency of the period of a moratorium, the existence of a moratorium is, in our view, the first stage wherein conditions suitable for formulation of a scheme are introduced. In that sense, the existence of a moratorium is not an independent stage which is an end in itself. It is a means leading to an end. Therefore, the moratorium application under section 45(1) and a moratorium order under section 45(2) are, to describe by analogy - an interlocutory stage anterior to but yet dependent on the result of the draft scheme and its finalisation. In the event the scheme is finalised as per section 45(6) and approved by the Government under section 45(7), the scheme starts op....
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....itioner contended that the grounds for filing an application under section 45(1) could be different or in addition to the grounds stated in section 45(4). In our opinion, the moratorium being of an interlocutory nature, the "good reasons" in section 45(1) would necessarily be within the scope and range of the grounds mentioned in section 45(4). If that be so, the section 45(2) stage is not an independent stage which is an end in itself. In fact, the grounds for introducing a scheme set out in section 45(4) and referred to above, cover the entire gamut - namely, interests of general public, depositors, of the bank and the banking system in the country. Learned counsel tried to give some examples where the reasons for imposing a moratorium could be alien to the grounds mentioned in section 45(4) but, in our view, the plausible contingencies for imposing a moratorium could not be outside the four reasons mentioned in section 45(4). We have already stated that the section 45(2) order of moratorium is to subserve a superior purpose, namely, considering whether a scheme could be introduced. The moratorium order is intended to make the scheme when finalised efficacious and not rendered ot....
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....e in force, a suspension of the provisions of the Act cannot be granted as such suspension of provisions does not fall within the scope of "terms and conditions" that may be imposed as per section 45(2). It is also argued that if only section 35(4) and section 38 are available, section 45(4) powers of introduction of a draft scheme are not available. 30. In our view, when the Central Government passes an order under section 45(2) staying the commencement or continuance of all actions and proceedings against the banking company during the period of moratorium, "subject to the condition that such stay shall not in any manner prejudice the exercise by the Central Government of its powers under clause (b) of sub-section (4) of section 35 of the said Act or the exercise by the Reserve Bank of India of its powers under section 38 of the said Act," what is actually done is that the stay of action or proceedings against the bank will not deter the Government exercising powers under section 35(4) or the Reserve Bank of India under section 38. The words subject to such "terms and conditions" "as it thinks fit", in our view, permit staying of all actions and proceedings against the bank. S....
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....does not extend to the grounds for section 45(1) application or for section 45(4) decision to introduce a draft scheme. The respondents are prepared to permit at the section 45(6) stage, the appellants to contend that neither section 45(1) grounds not section 45(4) grounds exist. We record the above submission and hold that the appellants can, in that event, have no real grievance at all. If a pre-decisional hearing at the stage of section 45(1) is not practicable and if the said grounds for a section 45(1) are within the scope of the grounds for introduction of a draft scheme under section 45(4), then the objections to be filed by the appellants to the scheme can include objections to the section 45(1) and section 45(2) stages also. The appellants need not deny to themselves the benefits of the submission of the respondents' counsel which is favourable to them and which removes their grievance in regard to violation of the principles of natural justice. Point No. 4 is decided accordingly against the appellants. Point No. 5 : 34. We next come to a different aspect of the matter. The Inspectors of the Reserve Bank of India have evaluated the "value" of its paid-up capital,....