2000 (5) TMI 959 - SC - Companies Law

Provisions of section 45S challenged - Held that - Appeal dismissed. A number of petitions had been filed in this Court seeking transfer of writ petitions pending in different High Courts. By order dated 17-2-2000, those transfer petitions were dismissed as not pressed. Besides the writ petitions, in respect of which, those transfer petitions had been filed, a number of other petitions are pending disposal in various High Courts. In quite a few of them the High Courts have granted an interim injunction staying the operation of the implementation of the amended section 45-S. For the view we have taken now, it is imperative that these petitions, pending in the different High Courts, are formally disposed of at an early date. We, therefore, request all the High Courts, in which the petitions are pending challenging the provisions of section 45S, to dispose them of within a period of three months. Needless to say inasmuch as the validity of section 45S has been upheld by us, the said provision shall be liable to be enforced notwithstanding any interim orders to the contrary which may have been passed by any High Court, which interim order must necessarily now lose all its significance.

Issues Involved:
1. Validity of Section 45S of the Reserve Bank of India Act, 1934.
2. Alleged violation of Articles 14 and 19(1)(g) of the Constitution of India.
3. Reasonableness and public interest of the restrictions imposed by Section 45S.
4. Judicial restraint in staying the operation of economic reform legislation.

Issue-wise Detailed Analysis:

1. Validity of Section 45S of the Reserve Bank of India Act, 1934:

The appellants, who are shroffs engaged in providing credit, challenged the validity of Section 45S of the Reserve Bank of India Act, 1934, as amended by the Amendment Act, 1997. They argued that the provision violated their constitutional rights under Articles 14 and 19(1)(g). The Supreme Court upheld the validity of Section 45S, noting that the restriction was necessary to protect depositors from the risks posed by unincorporated bodies accepting public deposits. The Court emphasized that the restriction was aimed at ensuring monetary stability and preventing financial mismanagement by unregulated entities.

2. Alleged violation of Articles 14 and 19(1)(g) of the Constitution of India:

The appellants contended that Section 45S infringed their right to carry on business under Article 19(1)(g) and was discriminatory under Article 14. The Court, however, found that the restriction imposed by Section 45S was reasonable and in the public interest. It highlighted that the provision did not prohibit individuals or firms from carrying on their business but restricted them from accepting public deposits, which posed significant risks to depositors. The Court cited previous judgments, including T. Velayudhan Achari v. Union of India and Peerless General Finance and Investment Co. Ltd. v. RBI, to support its conclusion that there is no fundamental right to do unregulated business with depositors' money.

3. Reasonableness and public interest of the restrictions imposed by Section 45S:

The Court examined the reasons for enacting Section 45S and found that the growing volume of deposits with unorganized financial sectors affected the central monetary authority's control over these funds. The provision aimed to prevent unincorporated bodies from engaging in financial intermediation without regulatory oversight, which had led to malpractices and financial losses for depositors. The Court noted that the restriction was necessary to protect the public from unscrupulous entities and to ensure the proper deployment of domestic savings through regulated financial institutions.

4. Judicial restraint in staying the operation of economic reform legislation:

The Court emphasized the importance of judicial restraint in staying the operation of economic reform legislation. It noted that unless a provision is manifestly unjust or glaringly unconstitutional, courts should show restraint in granting interim relief against economic reforms. The Court highlighted the presumption of constitutional validity of legislation and the need to balance judicial intervention with the objective of accelerating economic growth. The Court requested High Courts to dispose of pending petitions challenging Section 45S within three months and indicated that interim orders staying the provision's implementation should lose significance in light of the Supreme Court's judgment.

Conclusion:

The Supreme Court dismissed the writ petitions challenging Section 45S of the Reserve Bank of India Act, 1934, upholding its validity. The Court found that the provision was a reasonable restriction in the public interest, aimed at protecting depositors and ensuring monetary stability. It emphasized the need for judicial restraint in matters of economic reform and requested High Courts to expedite the disposal of related petitions. The respondents were entitled to costs.

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