DELHI CLOTH AND GENERAL MILLS COMPANY LIMITED ARVIND MILLS LIMITED MADHUSUDAN VEGETABLE PRODUCTS CO LIMITED MODI SPINNING AND WVG MILLS CO LIMITED GOETZE INDIA LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) In this group of writ petitions under Art. 32 and appeals by special leave under Art. 136 of the Constitution, constitutional validity of Rule 3A of the Companies (Acceptance of Deposits) Rules, 1975 ('Deposits Rules' for short) introduced by Companies (Acceptance of Deposits) Amendment Rules, 1978 which became operative from April 1, 1978 and incidentally of Section 58A of the Companies Act, 1956 ('Act' for short) inserted by Companies (Amendment) Act, 1974 which came into force on February 1, 1975 is challenged. The challenge proceeds on diverse grounds which may be briefly summarised.

(2.) At the very outset, it must be noticed that the factual matrix has little or practically no relevance in this case.

(3.) The contention put in the forefront was that in the absence of guidelines both S. 58A and the R. 3A of the Deposits Rules enacted in exercise of the power conferred by S. 58A confer arbitrary and uncanalised powers and hence are violative of Art. 14. Contravention of Art. 14 was canvassed for the additional reason that the power to exempt from the application of the rule confers wide discretion so that it can be used arbitrarily to pick and choose with the result that equality before law is denied. Further the obligation to deposit 10% of the deposits maturing during the year ending 31st March next following has no rational nexus to the object sought to be achieved by the provisions and is either in excess of the requirement or irrelevant and in any case arbitrary. The next in order of priority came the challenge that having regard to the numerous inbuilt safeguards provided in Section 58A, the imposition of a liability to deposit 10% of the total deposits maturing in a year in the manner as required by the impugned rule, if it was enacted for the protection of the depositors, the protection is illusory and does not subserve the purpose for which it is enacted and therefore, requirement is wholly unreasonable and imposes an unreasonable restriction on the freedom to carry on business conferred by Art. 19 (1) (g). As a corrolary, it was submitted that if Rule 3A is enacted not for the limited purpose of protecting depositors, but has a wider aim particularly with regard to the regulation of credit system of the country, control of circulation of money in India's economy and imposing financial discipline, it is clearly ultra vires Section 58A. As a second string to the bow, it was contended that if Section 58A enacts a legislative policy, a rule framed to carry out the policy must be relevant to the implementation of the policy so laid down, but the provision contained in Rule 3A is neither relevant nor capable of being regarded as relevant for implementation of the policy and therefore, it is ultra vires Section 58A.