1996 (1) TMI 332 - SC - Companies Law

Whether in exercise of the powers conferred on it by the Act the Bank is competent to issue the notification dated 19-4-1993 inserting Paragraph 4A in the 1987 Directions? Whether Paragraph 4A is violative of the provisions of articles 14 and 19(1)(g)? Held that - Appeal allowed. Unable to uphold the judgment of the High Court striking down Paragraph 4A introduced by notification dated 19-4-1993. In our opinion, it is within the competence of the Bank to issue directions in the nature contained in Paragraph 4A and the said provision is not violative of the rights guaranteed under articles 14 and 19(1)(g). Peerless can make a representation to the Bank for the revision of the said amount in the light of the expenses that would be incurred by it on brochure/application form and servicing depositors account and, if such a representation is made, the Bank shall give due consideration to the same and, if the amount prescribed is found to be inadequate, the Bank should revise the same.

Issues Involved:
1. Competence of the Reserve Bank of India (RBI) to issue the notification dated 19-4-1993 inserting Paragraph 4A in the 1987 Directions.
2. Whether Paragraph 4A is violative of Articles 14 and 19(1)(g) of the Constitution of India.
3. Validity of the RBI's amendment reducing the maximum period for deposits from 120 months to 84 months.

Issue-Wise Detailed Analysis:

1. Competence of the Reserve Bank of India (RBI) to Issue Paragraph 4A:
The primary question was whether the RBI had the authority to insert Paragraph 4A in the 1987 Directions, which prohibits residuary non-banking companies from taking processing or maintenance charges from depositors. The Court held that the RBI was competent to issue such directions under Section 45K(3) of the Reserve Bank of India Act, 1934. The Court noted that Section 45K(3) confers a wide power on the RBI to issue directions in respect of any matters relating to or connected with the receipt of deposits. The Court emphasized that the object of Section 45K(3) is to regulate the conditions on which deposits may be accepted by non-banking companies and to prevent malpractices. It was concluded that Paragraph 4A, which seeks to prevent evasion of the directions contained in Paragraphs 6 and 12, falls within the power conferred on the RBI by Section 45K(3).

2. Violation of Articles 14 and 19(1)(g):
The Court examined whether Paragraph 4A violated the right to equality under Article 14 and the right to practice any profession or to carry on any occupation, trade, or business under Article 19(1)(g). The Court rejected the contention that Paragraph 4A was discriminatory because it fixed a uniform maximum ceiling of Rs. 10 for processing or maintenance charges, irrespective of the volume of business or quality of services rendered. The Court held that the uniform amount of Rs. 10 was reasonable and did not suffer from the vice of discrimination. Regarding the challenge under Article 19(1)(g), the Court noted that similar contentions were raised and rejected in Peerless II. The Court reiterated that working capital should not be generated from depositors' money and that companies should arrange for their working capital from their own resources. The Court found that Paragraph 4A did not impose unreasonable restrictions on the right guaranteed under Article 19(1)(g).

3. Validity of the Amendment Reducing the Maximum Period for Deposits:
The Court upheld the validity of the RBI's amendment reducing the maximum period for deposits from 120 months to 84 months. The High Court had earlier held that the RBI was competent to make this amendment under Section 45K(3). The Supreme Court agreed with this view, emphasizing that the RBI has the authority to regulate the periods for which deposits may be received.

Conclusion:
The Supreme Court allowed the appeal, setting aside the judgment of the Calcutta High Court dated 3-5-1995, and dismissed the writ petition filed by the respondents. The Court held that the RBI was competent to issue the directions contained in Paragraph 4A and that the said provision was not violative of Articles 14 and 19(1)(g) of the Constitution. The Court also upheld the amendment reducing the maximum period for deposits from 120 months to 84 months. The Court suggested that the Union Government consider creating a separate instrumentality for the supervision and enforcement of regulatory provisions for non-banking companies and explore the possibility of introducing a Deposit Protection Scheme similar to that in England.

← Previous Next →