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Issues Involved:
1. Applicability of Prize Chits and Money Circulation Scheme (Banning) Act, 1978 to Peerless' Endowment Scheme. 2. Constitutional validity of the Reserve Bank of India's (RBI) directions of 1987. 3. Reasonableness and feasibility of RBI's directions under Sections 45J, 45K, and 45L of the Reserve Bank of India Act, 1934. Summary: Issue 1: Applicability of Prize Chits and Money Circulation Scheme (Banning) Act, 1978 to Peerless' Endowment Scheme The Supreme Court in the earlier case of Reserve Bank of India v. Peerless General Finance and Investment Company Ltd. and Others, [1987] 1 S.C.C. 424, decided that the Endowment Scheme of Peerless did not fall within the definition of 'Prize Chits' u/s 2(e) of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978. The Court held that section 2(e) does not contemplate a scheme without a prize, and thus, the Endowment Certificate Scheme of Peerless was outside the Prize Chits Banning Act. Issue 2: Constitutional validity of the Reserve Bank of India's (RBI) directions of 1987 The RBI issued directions in 1987 under Section 45(J) and 45(K) of the Reserve Bank of India Act, 1934, to regulate the activities of residuary non-banking companies (RNBCs) like Peerless. The directions were challenged on the grounds of being ultra vires of Sections 45J and 45K, and for being unreasonable and unworkable. The High Court had partially upheld and partially modified these directions, but the Supreme Court overturned the High Court's judgment, holding that the RBI's directions were within its powers and were not unconstitutional. Issue 3: Reasonableness and feasibility of RBI's directions under Sections 45J, 45K, and 45L of the Reserve Bank of India Act, 1934 The Supreme Court examined the RBI's directions, particularly paragraphs 6 and 12, which required RNBCs to deposit and keep invested a sum not less than the aggregate amounts of liabilities to the depositors. The Court held that the RBI has wide powers under Section 45K(3) to issue directions in respect of any matters relating to or connected with the receipt of deposits. The directions were found to be reasonable and necessary to safeguard the interests of millions of small depositors. The Court emphasized that while the directions might seem harsh, they were essential for ensuring the security and repayment of depositors' money and preventing the misuse of funds by RNBCs. The Supreme Court also noted that the RBI's directions were issued after careful consideration and were intended to prevent exploitation of ignorant subscribers, ensure the safety of depositors' money, and maintain financial stability. The Court concluded that the directions were neither arbitrary nor unreasonable and were within the RBI's statutory powers. Conclusion: The Supreme Court upheld the constitutional validity of the RBI's directions of 1987, emphasizing that they were necessary to protect the interests of depositors and ensure the financial stability of RNBCs. The appeals filed by the RBI were allowed, and the writ petition filed by Peerless was dismissed.
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