TaxTMI 
TaxTMI 
1997 (3) TMI 628
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.... without any deductions. The bank is situated in a backward underdeveloped area and is a small-scale bank having only one branch. The provisions of section 11(3) of the Banking Regulation Act, 1949 (hereinafter referred to as "the Act"), are cited in the petition to reiterate that the bank is fully entitled to continue its business and there is no justification for issuance of the impugned order dated September 30, 1996, under section 45 of the Act. The financial position of the bank regarding its total deposits is specified in paragraph 9 of the petition which reads as follows : ---------------------------------------------------------------------- 30-9-93 31-3-94 30-9-94 31-3-95 30-9-95 31-3-96 ---------------------------------------------------------------------- Total deposits 97.88 122.76 139.23 153.95 166.81 179.84 (Rs. in lakhs) Total advances 46.50 49.88 55.10 83.06 78.88 73.95 (Rs. in lakhs) Total priority 32.37 29.61 37.08 44.26 46.38 41.57 sector advance (Rs. in lakhs) % of priority 69.61 59.36 67.3 53.2 58.8 56.21 sector advance to total bank credit ---------------------------------------------------------------------- 3. Similarly, the liquidity po....
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....ace between the chairman and directors of the petitioner bank and general manager of the Reserve Bank of India at Chandigarh on April 12, 1996, when it was required by the petitioner to take the following steps which are stated in paragraph 15 of the petition : "(i) Dispose of its non-banking assets before April 12, 1997. The petitioner has already disposed of 70 per cent of its non-banking assets and will be able to dispose of the rest of the 30 per cent within the stipulated time. (ii) Secondly, the petitioner-bank was required to submit a plan for its expansion before May 12, 1996. The petitioner has already submitted their plan for expansion. However, respondent No. 2 has yet to accord its approval to the same for its implementation. (iii) Thirdly, the petitioner-bank was required to fill up the vacancy on the board of directors of the bank by July, 1996. The said requirement was complied with within the stipulated time and its compliance was reported to the Reserve Bank of India. (iv) Lastly, the petitioner-bank was required to formulate its investment policy by July, 1996. The petitioner bank also complied with this last requirement of the ....
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....apital risk adequacy ratio of 8 per cent. On that date the capital risk adequacy ratio of the petitioner-bank was 69.8 per cent as against the requirement of 8 per cent. It was further submitted that under the Act, the bank is not required to maintain the capital of Rs. 10 crores. It would be pertinent to submit here that under the Act it is not mandatory for the bank to maintain Rs. 10 crores capital and there are a number of other banks including co-operative banks and respondent No. 2 itself which are having paid-up capital of less than Rs. 10 crores. It will be pertinent to submit that this request of respondent No. 2 was in contravention of section 11(3) of the Banking Regulation Act where under the requirement for the petitioner-bank which is having only one branch in only one State is to have capital of only Rs. 50,000. The request of the Reserve Bank of India, Therefore, was clearly contrary to the provisions of the Act. However, at no point of time respondents Nos. 2 to 5 ever gave any notice under any provisions of law, rules, notifications, etc., for any action for violation of the said directions. The true copies of the letters dated April 30, 1996, May 13, 1996, and th....
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.... has wide powers and within 78 hours he can get the moratorium imposed on the bank, and finish its identity. When the director objected to this and told respondent No. 4 that he cannot participate in such a meeting in this manner and he is walking out of the meeting, respondent No. 4 finding the situation out of control, immediately cooled down and requested the director and other officials to carry on with the meeting. Pertinent it will be to say that respondent No. 4 has been appointed as executive director recently and is looking after the department of banking operations and development. Respondent No. 4 who was nursing a grudge against the petitioner-bank, it has been reliably learnt, has moved the file for imposition of moratorium. 29. That so far as respondent No. 3 is concerned, about 10 months back, one Mr. Vakil allegedly of Vatsa International Ltd. - a non-banking finance company - supposed to be based at Bombay, called upon the ex-director of the petitioner-bank, namely, Mr. Janak Raj telephonically and told him that he has been asked to contact him by respondent No. 3. He told Mr. Janak Raj that Mr. S.P. Talwar has required him to convey that either the bank b....
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....y scheme of the Acts made by Parliament for regulation of banking business, which unlike any other business, is a special kind of business. Banking business is the business of acceptance of with draw able deposits of money from the public for the purpose of lending or investment. While that describes the ordinary nature of banking, that activity in a developing society and economy has acquired an evolutionary nature, in that the essence of banking business in such an economy involves banks operating as basic financial intermediaries and playing a key role in the country's economy in general and mobilisation and distribution of the country's savings in particular. Banks are the largest repositories of the nation's savings. The conduct and affairs of the banks influence the various sectors of the economy. The economic development of the country depends largely on the safety and soundness of banking institutions. Banks are also the principal means for transmitting the credit policies of the country. Having regard to the delicate position of a bank in the country's economy, the failure of one bank can have a disastrous effect on the whole banking system, having the pote....
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....o to prevent a perceived failure or crisis in the affairs of the banking company. In respect of such matters, Parliament has vested full discretion in the Reserve Bank and the Central Government so that it should be open for these authorities to decide, depending upon the contingencies, the various alternatives or combination of them as provided by law to ensure protection of the interest of the depositors, the public interest and the interest of banking policy; (c) It is beyond dispute that banks, as financial instrumentalities are required to strive to fulfill, not only the object of achieving commercial efficiency, but also to serve the object of public interest. In fact, without serving public interest, no bank can legitimately claim any right to exist. It is inconceivable that a bank, as an instrumentality of, and also being capable of, wielding powerful weapons for transformation of the socioeconomic structure of the society, can act without taking into account public interest and can act for furtherance of private interests of a limited group of persons. It is submitted that the petitioner-bank was not contributing and was not capable of contributing, and moreover, ....
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....ncrease in profits of the bank for the last two years was mainly due to income from sale of land which was Rs. 9.27 lakhs and Rs. 6 lakhs in 1993-94 and 1994-95 respectively. (ii) The bank's request for declaration of dividend at the rate of 50 per cent for the year ending March 31, 1995 was not acceded to by the Reserve Bank for the reason that the profit was mainly due to sale of non-banking assets of the petitioner-bank. The profit at Rs. 7.34 lakhs for the year 1994-95 was inter alias on account of inclusion of income to the extent of Rs. 6 lakhs from the sale of agricultural land which constituted 81.7 per cent of the profit. But for this income from the sale of fixed assets, the petitioner-bank's operative profit would have been substantially reduced to Rs. 1.34 lakhs. Similarly, for the year 1993-94, the bank had taken to income account a sum of Rs. 9.27 lakhs representing the profit on sale of fixed assets. But for this income, the bank would have suffered a loss of Rs. 1.21 lakhs; (iii) The other major source of the bank's income earning was its investment in fixed deposits in other banks and Government securities. It is submitted that the pet....
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....s and Constituting 65.4 per cent of the total advances were outstanding in the names of 10 borrowers as on September 30, 1993. It was also revealed that 26 per cent of total advances were concentrated in the hands of two concerns, namely, Shadi Lal Purl and Kailash Farms as on September 30, 1995. It is significant to note that Shri Deepak Purl of Hoshiarpur who is the owner of Kailash Farms and whose farm is financed by the petitioner-bank was a director of the Punjab Go-operative Bank Ltd. (now under moratorium) which bank was also controlled by the owners of the petitioner-bank. (g) The nature of operations of the petitioner-bank was such as by no stretch of imagination, it could be treated as carrying on genuine banking business as such. It is further submitted that whatever little banking business was being conducted by the petitioner-bank, it was mainly for the benefit of the majority shareholders and the directors of the bank. In this connection, it is pertinent to note the shareholding and management pattern of the petitioner-bank. (i) The major chunk, i.e., 90 per cent of the petitioner-bank's capital was shared by one family, viz., the family of Shri ....
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.... (vii) The post-sanction supervision and control of advances portfolio was deficient in several aspects. (viii) The RBI directions on selective credit control were not properly followed. 10. On the above reasoning, the respondent Reserve Bank of India, was of the view that in order to decide the future set up of the petitioner-bank, it was necessary to impose a moratorium in terms of the powers conferred under section 45(2) of the Act. The proposal to convert the petitioner-bank into a non-banking company was mooted as long back as in 1984. The board resolution in this regard was made in May, 1984, followed by the shareholders' resolution in June, 1984. The petitioner-bank, however, had not taken any effective steps in that direction though it had been repeatedly advised to take concrete steps to implement the decision to convert itself into a non-banking company. The Reserve Bank of India's letters dated June 13, 1988, October 6, 1988, and December 2, 1988, addressed to the petitioner-bank which also suggested the amending of the name of the bank as Bari Doab Finance and Trading Ltd. have been filed with the counter affidavit. A no-objection certificate was iss....
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....m not exceeding Rs. 5,000 of the total balance in every savings bank or current account or any other deposit by whatever name called, provided that no amount shall be paid to any depositor who is indebted to the bank in any way; (ii) Incurring expenditure which has necessarily to be incurred in connection with any suits or appeals filed by or against the decrees obtained by the said bank or for Realizing any amounts due to it, provided that if the expenditure in respect of each such suit or appeal or decree or proceeding is in excess of Rs. 2,500, the permission in writing of the Reserve Bank of India shall be obtained before it is incurred; (iii) Incurring expenditure on any other item in so far as it is in the opinion of the banking company necessary for carrying on the day to day administration of the banking company, provided that where the total expenditure on any item in any calendar month exceeds the average monthly expenditure on account of that item during the six calendar months preceding the order of moratorium, or if no expenditure has been incurred on account of that item in the past exceeds a sum of Rs. 2,500, the permission in writing of the Reserve....
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....e margins on the said goods or securities below the stipulated proportions or the proportions which were maintained before the order of moratorium came into force, whichever may be higher. (Sd.) D.R.S. Chaudary, Joint Secretary to the Government of India." 11. Punjab Go-operative Bank. Ltd. v. Union of India : 12. This bank was also put under moratorium, vide notification issued on September 30, 1996, and the same is impugned in this petition. 13. The petitioner-bank herein was started in the year 1905 and initially had eight branches up to the year 1947. At the time of partition, five branches of the bank which were situated in Pakistan were closed. While closing down its business at the branches situated in Pakistan the bank repaid all its depositors whatever in full without any deduction. Earlier moratorium was imposed upon the petitioner-bank in the year 1961 and on representation to the then Finance Minister, Mr. Morarji Desai, the same was revoked as the bank was in a position to repay all its depositors, if so required, within 24 hours. The bank today is having nine branches, two of which are situated in the backward areas of Punjab and one in a se....
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....k has made still further progress despite the fact that the present chairman joined on August 3, 1996. (000's omitted) ---------------------------------------------------------------------- As on 30-9-1996 31-3-1996 % increase in six months ---------------------------------------------------------------------- Deposit 400289 355323 12.65% Advances 149282 145869 2.34% Investments 130688 104673 24.85% Operating profits 3300* 5916** - Capital adequacy Over 7%* 04.79% - ---------------------------------------------------------------------- *Provisional *Unedited figures for half-year **Audited figures for full year". 14. Similarly, in paragraphs 12 and 13, the liquidity position of the bank is quoted. These paragraphs as well as other paragraphs raising the plea of mala fides may also be reproduced as under : "12. The petitioner-bank is a financially sound profit-making bank whose deposits are not only sound but liquidity of the bank is such that it can pay off 67.7 per cent of its deposits, i.e., Rs. 2,706.51 lakhs of deposits out of total deposits of Rs. 4,002.89 lakhs without calling back on its advances. The details of the liquidity position of the....
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....tter clearly shows that respondent No. 4 was bent upon dislodging the management of the bank and compel the management to hand it over to some other group or to sell it off. It is worthwhile to submit here that it is none of the functions of the Reserve Bank of India to compel the management of a small bank to merge with large group and/or compel it to increase its capital beyond what is required under the statutes especially section 11(3)(i) of the Act. The Reserve Bank of India does not have any power to issue any advice which is in contravention of the statutory limits prescribed by Parliament. In the present case, the requirement of the statutes under section 11 of the Act that the bank should have the capital reserves of Rs. 5 lakhs. Therefore, the said advice by the Reserve Bank of India was totally illegal, unjustified and uncalled for and were beyond their jurisdiction. As a matter of fact this clearly establishes the mala fide and arbitrary attitude of respondent No. 4. A true copy of letter dated January 4, 1995, is enclosed herewith as annexure 'III'. 23. In continuation of its earlier mala fide actions, respondent No. 4 got issued another letter to the ....
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....s of respondent No. 2. However, in the directions issued along with the letter, there was no direction to the bank in this regard. The directions contained basically were regarding the involvement of the board of directors in the key areas of the functioning of the bank, monitoring of the non-performing advances, reviewing the progress of the bank quarterly, to improve the organisational set up, super vision and control over the credits, improve profitability and better fund management, improve the credit appraisal system of the bank and review the credit reports periodically and submit its progress reports to respondent No. 2. 33. Pursuant to the inspection carried out as on December 29, 1995, i.e., a few days after the issuance of the earlier directions dated October 21, 1995, received on November 9, 1995, another letter containing the gist of the inspection report seems to have been prepared by the officials of respondent No. 2. The said letter containing the gist of the inspection report has so far not been served on the petitioner-bank by respondent No. 2 officially. However, a copy of the said letter containing the gist of the inspection report dated September 4, 199....
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...., etc." 15. A counter-affidavit has been filed by respondents Nos. 1 and 6 wherein, inter alia, it has been pleaded that, (a) the Reserve Bank of India submitted an application under section 45(1) of the Act to the Ministry of Finance on July 15, 1996; (b) in the application the Reserve Bank of India clearly explained about the shortcomings in the functioning of the petitioner-bank. The finding in regard to the shortcomings of the petitioner-bank were based on the enquiry conducted by the Reserve Bank of India from time to time and it was decided by the Ministry of Finance that the order of moratorium was necessary in the interest of public, depositors and the banking system and, Therefore, the order of moratorium was passed under section 45(2) of the Act by the Ministry of Finance an September 30, 1996. 16. Similarly, counter-affidavit is filed on behalf of the Reserve Bank of India, respondent No. 2 wherein the following facts are pleaded : "5. The financial inspection of the petitioner-bank carried out with reference to its position as on September 30, 1993, showed a substantial erosion in the value of its assets. The erosion as on September 30, 1993, was estimate....
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....et loss of Rs. 67.43 lakhs. This also did not reflect the correct position inasmuch as there was also a shortfall in the provisions estimated at Rs. 32.73 lakhs. Had a full provision been made, the losses would have been much more. 7. The bank was last inspected with reference to its position as on December 29, 1995. The financial position of the bank continued to be unsatisfactory. The estimated erosion in the value of its assets at Rs. 182.44 lakhs had affected the provisions fully and reserves partly. The erosion would have affected the reserves and paid-up capital fully and deposits also to the extent of Rs. 110.37 lakhs but for a notional revaluation reserve of Rs. 423.17 lakhs. 8. Although the bank reported a profit of Rs. 18.02 lakhs as on March 31, 1995, the same was achieved by recognising non-realized interest of Rs. 15.84 lakhs of non-performing assets, which was not correct and was also in violation of the Reserve Bank guidelines. The petitioner-bank had also not booked a refund of excess interest of Rs. 3.97 lakhs to its profit and loss account. It is submitted that but for these irregular adjustments, the petitioner-bank would have incurred a net los....
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....me time in May-June, 1996, and a recommendation made to Government of India in this regard in July, 1996. The financial position of the bank as on March 31, 1996, as submitted by the petitioner-bank, was neither available at the time of review nor is likely to affect the decision so taken after careful consideration of all facts/related aspects. The bank's financial position as on March 31, 1996, can, Therefore, have no bearing on the moratorium order." 17. The provisions of law as contained in the Banking Regulation Act, 1949, which are relevant may be reproduced as follows : "5. Interpretation. - In this Act, unless there is anything repugnant in the subject or context, - ... (b) 'banking' means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft, order or otherwise; (c) 'banking company' means any company which transacts the business of banking in India; (ca) 'banking policy' means any policy which is specified from time to time by the Reserve Bank in the interest of the banking system or in the interes....
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....of ten lakhs of rupees. Explanation. - For the purposes of this sub-section, a place of business situated in a State other than that in which the principal place of business of the banking company is situated shall, if it is not more than twenty-five miles distant from such principal place of business, be deemed to be situated within the same State as such principal place of business." "22. Licensing of banking companies. - (1) Save as hereinafter provided, no company shall carry on banking business in India unless it holds a license issued in that behalf by the Reserve Bank and any such license may be issued subject to such conditions as the Reserve Bank may think fit to impose. (2) Every banking company in existence on the commencement of this Act, before the expiry of six months from such commencement and every other company before commencing banking business in India, shall apply in writing to the Reserve Bank for a license under this section : Provided that in the case of a banking company in existence on the commencement of this Act, nothing in sub-section (1) shall be deemed to prohibit the company from carrying on banking business until i....
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....Bank shall supply to the banking company a copy of its report on such inspection. (1A)(a) Notwithstanding anything to the contrary contained in any law for the time being in force and without prejudice to the provisions of sub-section (1), the Reserve Bank, at any time, may also cause a scrutiny, to be made by any one or more of its officers, of the affairs of any banking company and its books and accounts; and (b) a copy of the report of the scrutiny shall be furnished to the banking company if the banking company makes a request for the same or if any adverse action is contemplated against the banking company on the basis of the scrutiny. (2) It shall be the duty of every director or other officer or employee of the banking company to produce to any officer making an inspection under sub-section (1) or a scrutiny under sub-section (1A) all such books, accounts and other documents in his custody or power and to furnish him with any statements and information relating to the affairs of the banking company as the said officer may require of him within such time as the said officer may specify. (3) Any person making an inspection under sub-section ....
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....its branches whether situated in India or outside India." "35A. Power of the Reserve Bank, to give directions. - (1) Where the Reserve Bank is satisfied that - (a) in the public interest; or (aa) in the interest of banking policy; or (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or (c) to secure the proper management of any banking company generally; it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions. (2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect." "38. Winding up by High Court. - (1)....
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....o meet any lawful demand made at any of its offices or branches within two working days, if such demand is made at a place where there is an office, branch or agency of the Reserve Bank, or within five working days, if such demand is made elsewhere, and if the Reserve Bank certifies in writing that the banking company is unable to pay its debts. (5) A copy of every application made by the Reserve Bank under sub-section (1) shall be sent by the Reserve Bank to the Registrar." "45. Power of Reserve Bank. to apply to Central Government for suspension of business by a banking 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 cont....
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....on its reconstruction or, as the case may be, of the transferee bank for the purpose of altering the capital thereof or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation; (e) subject to the provisions of the scheme, the continuation by or against the banking company on its reconstruction or, as the case may be, the transferee bank, of any actions or proceedings pending against the banking company immediately before the date of the order of moratorium; (f) the reduction of the interest or rights which the members, depositors and other creditors have in or against the banking company before its reconstruction or amalgamation to such extent as the Reserve Bank considers necessary in the public interest or in the interest of the members, depositors and other creditors or for the maintenance of the business of the banking company; (g) the payment in cash or otherwise to depositors and other creditors in full satisfaction of their claim - (i) in respect of their interest or rights in or against the banking company before its reconstruction or amalgamation; or (ii) where their interest or rights af....
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.... to the qualifications and experience of the said employees being the same as or equivalent to those of such other employees of the transferee bank : Provided further that if in any case under clause (ii) of the first proviso any doubt or difference arises as to whether the qualification and experience of any of the said employees are the same as or equivalent to the qualifications and experience of the other employees of corresponding rank or status of the transferee bank, the doubt or difference shall be referred, before the expiry of a period of three years from the date of the payment or grant mentioned in that clause, to the Reserve Bank whose decision thereon shall be final; (j) notwithstanding anything contained in clause (i) where any of the employees of the banking company not being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947), are specifically mentioned in the scheme under clause (i), or where any employees of the banking company have by notice in writing given to the banking company or, as the case may be, the transferee bank at any time before the expiry of one month next following the date on which the scheme is sanctio....
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....r imposition of moratorium orders. The petitioner banks were fully qualified to continue to do business under the provisions of section 11(3) of the Act and it was erroneous on the part of the respondents to ask the petitioners to raise the capital to Rs. 10 crores by effecting merger. This advice was unreasonable, unjustified and in violation of the principles of law; (ii) the approach of respondents Nos. 3 and 4 and other officials of respondent No. 2 is arbitrary, mala fide and unjustified. The order of moratorium has been issued on extraneous considerations and cannot be sustained in law; (iii) section 45(1) of the Act requires the Reserve Bank to make an application to the Central Government for grant of moratorium. Therefore, the RBI should have communicated the reasons to the petitioner banks for making the said application and as a matter of fact should have called upon them to state their shortfalls, if any, under section 35A by giving sufficient opportunity to comply with the directions; (iv) the test of reasonableness and fair play has not been satisfied in this case and the decision is clearly arbitrary and vocative of the provisions of articl....
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....I. Shephard v. Union of India (1988)ILLJ162SC . The court was dealing with the plea of the petitioners with regard to the challenge to the exclusion of the names of the employees in the scheme at a later stage in exercise of powers under section 45 of the Act. In this case some excluded employees had filed a petition on the ground that they were not given hearing and the relief of continuance of service was not granted. The court directed that the excluded employees should be absorbed on the same terms and conditions of employment under the respective banking companies prior to amalgamation. The contentions as taken read as follows (at page 250 of 63 Comp Cas) : "Allegation advanced on behalf of the excluded employees is that the draft scheme contemplated under sub-section (6)(a) did not specifically mention the names of the excluded employees and at a later stage when the scheme was sent up by the RBI to the Central Government a schedule containing the names of the excluded employees was attached to each of the schemes. Section 45 of the Act provides a legislative scheme and the different steps required to be taken under this section have been put one after the other. A r....
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....e are of the view that in case some employees of the banking company are intended to be excluded, their names have to be specifically mentioned in the scheme at the draft stage. The requirement of specific mention is significant and the Legislature must be taken to have intended compliance with the requirement at that stage. Mr. Salve for the RBI adopted the stand that the provisions of section 45 did not specifically concede a right of objection or making of suggestions to employees and in sub-section (6)(b) mention was made only of members, depositors or other creditors. For the reasons we have indicated above, this aspect of the contention does not impress us." 24. The findings are recorded in para. 15 as below (at page 258 of 63 Comp Cas) : "Fair play is a part of the public policy and is a guarantee for justice to citizens. In our system of rule of law every social agency conferred with power is required to act fairly so that social action would be just and there would be furtherance of the well being of citizens. The rules of natural justice have developed with the growth of civilisation and the content thereof is often considered as a proper measure of the level ....
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....search Centre [1995] 84 Comp Cas 168 of which paragraphs 23 and 24 have been relied upon which read as follows : "Every action of the public authority or the person acting in public interest or where its acts give rise to public element, should be guided by public interest. It is the exercise of the public power or action hedged in with a public element which becomes open to challenge. If it is shown that the exercise of the power is arbitrary, unjust and unfair, it should be no answer for the State, its instrumentality, public authority or person whose acts have the insignia of public element to say that their actions are in the field of private law and they are free to prescribe any conditions or limitations in their actions as private citizens, simpliciter, do in the field of private law. Its actions must be based on some rational and relevant principles. It must not be guided by irrational or irrelevant considerations. Every administrative decision must be hedged in by reasons. The Administrative Law by Wade, 5th edition, at page 513 in Chapter 16, Part IV, dealing with remedies and liabilities, stated thus : 'Until a short time ago anomalies used to be ca....
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....ether they have so acted must be discernible from the conduct of such Corporations. Every activity of public authority must be informed by reasons and guided by the public interest. All exercises of discretion or power by public authority must be judged by that standard. In that case when the building owned by the port trust was exempted from the Rent Act, on terminating the tenancy for development when possession was sought to be taken, it was challenged under article 226 that the action of the port trust was arbitrary and no public interest would be served by terminating the tenancy. In that context, this court held that even in contractual relations the court cannot ignore that the public authority must have constitutional conscience so that any interpretation put up must be to avoid arbitrary action, lest the authority would be permitted to flourish as imperium a imperia. Whatever be the activity of the public authority, it must meet the test of article 14 and judicial review strikes at arbitrary action. 29. Similarly, reliance is placed on the judgment of the Supreme Court in Anirudhsinghji Karansinghji Jadeja v. State of Gujarat 1995CriLJ4154 to reiterate the proposition t....
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....ction 11 of the Act for minimum paid-up capital and reserves can also not be complied with as its capital and reserves were wiped out. Sub-section (6) of section 11 of the Act specifically states that if any dispute arises in computing the aggregate value of paid-up capital and reserves of the banking company, a determination thereof by the Reserve Bank of India shall be final for the purpose of this section. Therefore, it is not open to the petitioners to dispute the real and exchangeable value of the capital and reserves of the petitioner-banks. It has been in loss for the year ending 1993 of Rs. 48 lakhs, for the year ending 1994 of Rs. 67 lakhs and for the year ending March 31, 1995, a nominal profit of Rs. 18 lakhs was shown but there was a carried forward loss of Rs. 97 lakhs. The Reserve Bank of India told the Punjab Co-operative Bank Ltd. to take steps to bring at least Rs. 10 crores by way of capital which would have helped to stop the deterioration and a number of communications were sent in this regard but no steps were taken. The Reserve Bank of India has categorically stated in this court that in the circumstances of the case, the Reserve Bank does not think that recon....
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....r not. Every scheduled bank is required to send to the Reserve Bank and to the Central Government a weekly return of its position in a form, which is prescribed. Sometimes, however, the Reserve Bank allows a particular bank to send its returns once a month instead of every week. From these returns, the Reserve Bank prepares and publishes consolidated statements showing the monetary position in the country. The inclusion of a bank in the Second Schedule is the function of the Reserve Bank, and under sections 42(6)(a)(iii) and (b)(ii) it satisfies itself, inter alia, that the affairs of the particular bank are not being conducted in a manner detrimental to the interests of its depositors. The Reserve Bank has further the power to prohibit any scheduled bank from receiving, after a week, any fresh deposits. The above analysis of some of the provisions of the Reserve Bank of India Act show that the Reserve Bank of India has been created as a central bank with powers of supervision, advice and inspection, over banks, particularly those desiring that they be included in the Second Schedule or those scheduled already. The Reserve Bank thus safeguards the economy and the financial....
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....ank. Similarly, in compromises or arrangements between the banking company and its creditors, the Reserve Bank has to be satisfied. In all these matters, the satisfaction, inter alia, must be as to the interests of the depositors. In reconstruction of banking company after an application by the Reserve Bank for an order of moratorium, the Reserve Bank has to satisfy itself and prepare a scheme, which inter alias must be in the interests of the depositors." 34. The feasibility and practicability of granting hearing, recording of reasons and communicating the same to the parties has been explained in the following paragraphs from AIR1962SC660 : "That leaves over the second and third arguments, which proceed upon the same materials. In this connection, the main grounds of attack have already been set out in this judgment. Before we deal with the central point, we shall deal with certain others which proceed said so to speak, from the side lines. The objection that the Reserve Bank gives no hearing, records no reasons in writing and does not communicate them is met at least in this case by the admitted facts. The numerous inspection reports and directions issued by the Rese....
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....he executive Government. Therefore, the determination of the time when and the extent to which restrictions should be imposed on the Press must of necessity be left to the judgment and discretion of the State Government and that is exactly what the Legislature did by passing the statute... Quick decision and swift and effective action must be of the essence of these powers and the exercise of it must, Therefore, be left to the subjective satisfaction of the Government... To make the exercise of these powers justiciable and subject to the judicial scrutiny will defeat the very purpose of the enactment.' These observations lay down clearly that there may be occasions and situations in which the Legislature may, with reason, think that the determination of an issue may be left to an expert executive like the Reserve Bank rather than the courts without incurring the penalty of having the law declared void. The law thus made is justified on the ground of expediency arising from the respective opportunities for action. Of course, the exclusion of courts is not lightly to be inferred nor lightly to be conceded. The reasonableness of such a law in the total circumstances will,....
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....ndia v. Tulsi Ram Patel (1985)IILLJ206SC elaborated the concept. The following portion from paragraph 101 may be noticed : "Not only, Therefore, can the principles of natural justice be modified but in exceptional cases they can even be excluded. There are well-defined exceptions to the nemo judex in causa sua rule as also to the audi alteram partem rule. The nemo judex in causa sua rule is subject to the doctrine of necessity and yields to it as pointed out by this court in J. Mohapatra and Co. v. State of Orissa [1985]1SCR322 . So far as the audi alteram partem rule is concerned, both in England and in India, it is well established that where a right to a prior notice and an opportunity to be heard before an order is passed would obstruct the taking of prompt action, such a right can be excluded. This right can also be excluded where the nature of the action to be taken, its object and purpose and the scheme of the relevant statutory provisions warrant its exclusion; nor can the audi alteram partem rule be invoked if importing it would have the effect of paralysing the administrative process or where the need for promptitude or the urgency of taking action so demands, as....
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....e cost of repetition, it can be stated with confidence that the rules which prescribed conditions subject to which deposits can be invited and accepted do operate to extend a measure of protection against the notorious abuses of economic power by the corporate sector, to the detriment of depositors/investors, a segment of the society which can be appropriately described as weaker in relation to the mighty corporation. One need not go so far with Ralph Nader in America incorporated to establish that political institutions may fail to arrest or control this ever-widening power of corporations. And can one wish away the degree of sickness in private sector companies ? To the extent companies develop sickness, in direct proportion the controllers of such companies become healthy. In a welfare State, it is the constitutional obligation of the State to protect socially and economically weaker segments of the society against the exploitation by corporations. We, Therefore, see no merit in the submission, that the conditions prescribed bear no relevance to the object or the purpose for which the power was conferred under section 58A on the Central Government.' 31. The function....
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....e banking system and certain regulatory functions have been assigned to it by the provisions of the Act. The question now arises as to whether the Reserve Bank has exceeded its brief and applied to the Central Government for an order of moratorium without application of mind when there were no good reason so to do. The Central Government duly considered the application made by the Reserve Bank of India and passed orders of moratorium in terms of sub-section (2) of section 45 of the Act. The record which has been produced and the submissions made at the Bar would clearly establish that the Reserve Bank of India carefully determined the matter and applied to the Central Government to accept its opinion on the necessity of moratorium for the reasons as stated by the Reserve Bank of India in its counter affidavits filed in this court. The Reserve Bank of India possesses the expertise to arrive at its finding which cannot be questioned in the present proceedings under article 226 of the Constitution of India as it will involve examination of facts and figures. There is no evidence of non-application of mind as the matter has been examined in detail by the Reserve Bank of India as well a....
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....l Government for orders of moratorium in respect of the petitioner banks. The Central Government duly considered the application made by the Reserve Bank and made the orders by finding no cogent ground to differ from the recommendations. It is quite possible that some pleas of the petitioners with regard to the financial position of the respective banks may not have been considered with mathematical accuracy but will this court go into the question of sufficiency or insufficiency of material to determine the validity of impugned orders. I am afraid this course is not permissible. The Reserve Bank of India has been assigned a certain role under the Act and this court does not have the expertise to hold that the decision taken is without any foundation or basis, particularly, when certain material is already placed on record by the respondents to justify the impugned action. 40. The law is well-settled that the "function of the court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority". The provisions of section 45 of the Act are substantially complied with and it will not be open if this court to reappraise the mater....