P SUBRAMANIAM Vs. RESERVE BANK OF INDIA

JUDGEMENT

(1.) THESE writ appeals arise out of the common judgment dated February 9, 1983, rendered by Padmanabhan J. in W. P. Nos. 3180 and 3208 of 1979 (A.S P. Aiyer v. Reserve Bank of India dismissing the same. The appellants herein had filed the above writ petitions praying for the issue of a writ of mandamus directing the respondents herein to forbear from enforcing the Miscellaneous Non-Banking Companies' (Reserve Bank) Directions, 1973 (hereinafter referred to as "the Directions"), on the ground that the said Directions are not valid and enforceable. THESE writ petitions having been dismissed by Padmanabhan J., the appellants have filed these appeals reiterating the contentions which they urged before the learned judge.

(2.) THE appellants are partners of the Palghat Credit Corporation, a partnership firm registered under the Partnership Act, 1932. THEy are also shareholders and directors of Palghat Chit Funds (P.) Ltd., a company registered under the Companies Act, 1956 (hereinafter referred to as "the company"). THE partnership firm receives deposits from and lends money to the members of the public. During financial crisis of the company, the partnership firm helps it by paying money to it to discharge the obligations of the company directly or get a credit in the books of the company. As on December 31, 1976, the company owed to the partnership firm a sum of Rs. 24, 43, 601.87 which stood reduced to Rs. 6, 40, 000 as on May 31, 1979. THE money advanced by the partnership firm to the company is said to be the money deposited with the partnership firm by the members of the public. THE Reserve Bank with a view to impose certain restrictions on non-banking institutions including chit funds companies receiving deposits from the public have issued the above Directions. Under the said Directions, the deposits accepted by non-banking institutions from its shareholders will, however, be exempted if a declaration was given by the shareholder to the effect that such money has, not been given by him by borrowing or accepting deposits from the members of the public. As the Palghat Chit Funds (P.) Ltd. received deposits from the partnership firm which had received deposits from the members of the public and as the amount of deposits also exceeded the limits specified in the Directions, the second respondent filed C.C. No. 3220 of 1979 on the file of the Sixteenth Metropolitan Magistrate, Madras, against the appellants on the ground that they had violated the said Directions. It is, in these circumstances, the appellants filed the above writ petitions. THE appellants herein have challenged the validity of the said Directions. THE first ground of attack is that in so far as the 1973 Directions make a departure from the 1966 Directions as regards the shareholders' right to receive deposits and to lend the same to the company, the same are open to attack as violative of art. 19(1)(g) of the Constitution and, therefore, the decision of this court in Mayavaram Financial Corporation Ltd. v. Reserve Bank of India holding the 1966 Directions to be valid can have no application. THE second ground of attack is that the 1973 Directions restricting the shareholders' right to receive deposits and to lend it to the company is not "with reference to the receipt of deposits by the company" as contemplated by s. 45H of the Reserve Bank of India Act, 1934, and, therefore, that portion of the Directions should be taken to be ultra vires s. 45H. THE third ground of attack is that the 1973 Directions in so far as they make a classification with reference to the source of deposit is discriminatory and is violative of art. 14 of the Constitution in view of the definition of "deposit".For the purpose of appreciating the above contentions, it is necessary to scan through the relevant statutory provisions. Section 45K of the Reserve Bank of India Act, 1934, provides as follows: (1) THE Bank may at any time direct that every non-banking institution shall furnish to the Bank, in such form, at such intervals and within such time, such statements, information or particulars relating to or connected with deposits received by the non-banking institution, as may be specified by the Bank by general or special order. (2) Without prejudice to the generality of the power vested in the Bank under sub-section (1), the statements, information or particulars to be furnished under sub-section (1) may relate to all or any of the following matters, namely, the amount of the deposits, the purposes and periods for which, and the rates of interest and other terms and conditions on which, they are received. (3) THE Bank may, if it considers necessary in the public interest so to do, give directions to non-banking institutions either generally or to any non-banking institutions or group of non-banking institutions in particular, in respect of any matters relating to or connected with the receipt of deposits, including the rates of interest payable on such deposits, and the periods for which deposits may be received. (4) If any non-banking institution fails to comply with any direction given by the Bank under sub-section (3), the Bank may prohibit the acceptance of deposits by that non-banking institution...... (6) Every non-banking institution receiving deposits shall, if so required by the Bank and within such time as the Bank may specify, cause to be sent at the cost of the non-banking institution a copy of its annual balance-sheet and profit and loss account or other annual accounts to every person from whom the non-banking institution holds, as on the last day of the year to which the accounts relate, deposits higher than such sum as may be specified by the Bank.

(3.) NOTHING contained in paragraphs 5 to 9 and 13 of these Directions shall apply to the following types of deposits received by a miscellaneous non-banking company, namely :--... (vi) any money received from a person who, at the time of the receipt of the money was or is a director of the company or any money received from its shareholders by a private company including a private company deemed to be a public company by virtue of the provisions of section 43A of the Companies Act, 1956 (1 of 1956): Provided that, in the case of any money received on or after the commencement of these Directions, the person from whom the money is received, has furnished to the company at the time when the money is received, a declaration in writing that the money has not been given by him out of funds acquired by him by borrowing or accepting deposits from another person."Clause 5 reads as follows : " On and from 1st July 1977, no miscellaneous non-banking company shall --... (b) receive or renew-- (i) any deposit against an unsecured debenture or any deposit from a shareholder [not being a deposit received by a private company from its shareholders as is referred to in clause (vi) of paragraph (4)] or any deposit guaranteed by any person who, at the time of giving of such guarantee, was or is a director of the company, if the amount of any such deposit, together with the amount of such other deposits, of all or any of the kinds of deposits referred to in this sub-clause already received and outstanding in the books of the company as on the date of acceptance or renewal of such deposit, exceeds fifteen per cent. of its net owned funds (ii) any other deposit, if the amount of such deposit, together with the amount of such other deposits, not being deposits of the kinds referred to in sub-clause (i) of this clause, already received and outstanding in the books of the company as on the date of acceptance or renewal of such deposit, exceeds twenty-five per cent. of its net owned funds. Explanation--For the purposes of this paragraph 'net owned funds' shall mean the aggregate of the paid-up capital and free reserves as appearing in the latest audited balance-sheet of the company as reduced by the amount of accumulated balance of loss, deferred revenue expenditure and other intangible assets, if any, as disclosed in the said balance-sheet.