2004 (2) TMI 714 - SC - Indian Laws

Summary

Issues:
Challenging a scheme framed by the Reserve Bank of India under Section 45 of the Banking Regulation Act, 1949.

Analysis:

1. License Application and Operational Deficiencies:
Sikkim Banking Limited (SBL) applied for a banking license, and the Reserve Bank of India (RBI) pointed out operational deficiencies in 1996. SBL was instructed to address these deficiencies and raise additional capital of Rs. 50 crores through a rights preferential issue. Despite raising only Rs. 15.18 crores, with a portion from its own funds, SBL failed to meet RBI's requirements. Subsequent financial inspections in 1997 and 1998 revealed significant shortcomings, including high non-performing assets and a net loss of Rs. 56.22 crores.

2. Government Intervention and Scheme of Amalgamation:
Following RBI's actions, the Government of India imposed a moratorium under Section 45(2) of the Act in March 1999, leading to SBL's challenge in the High Court of Sikkim, which was dismissed. Subsequently, the Government issued a Scheme of Amalgamation under Section 45(7) in December 1999, merging SBL with Union Bank of India (UBI). The scheme aimed to pay depositors on a pro-rata basis, with depositors receiving only 9.037% of their deposits.

3. Challenge to the Scheme:
Petitioners contested the amalgamation scheme, arguing that it contravened Section 45 of the Act, lacked proper audit, undervalued assets, and did not consider depositors' interests. They claimed that since SBL did not have a banking license, RBI had no authority to frame the scheme. However, the court found no rational grounds to challenge the scheme, noting that a comprehensive audit was conducted, recovery efforts were made, and Section 22 allowed SBL to operate as a banking company.

4. Debts Recovery and Dismissal of Petitions:
Despite efforts to recover debts, petitioners rejected the option to undertake recoveries themselves. The court dismissed the writ petitions, finding no merit in the challenges raised against the scheme, with no costs awarded.

In conclusion, the judgment upholds the validity of the scheme of amalgamation under Section 45 of the Act, dismissing challenges regarding its implementation, audit, and compliance with legal provisions. The court found that RBI's actions were within its regulatory authority, and the scheme aimed to address the financial distress of SBL in a lawful manner.