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TMI Blog1993 (2) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... read with section 58B (5A) of the Reserve Bank of India Act, 1934, introduced by the Banking Laws (Amendment) Act, 1983 (Act 1 of 1984). Hence, they are dealt with under a common judgment. In order to appreciate the challenge the necessary legal background may be set out. In the year 1949, the Banking Regulation Act of 1949 was enacted. That contained regulatory, provisions in regard to banking under the surveillance of the Reserve Bank of India as to what would constitute "banking" as defined under Section 5(b) of the 1949 Act. In the year 1959, the Banking Companies (Amendment) Act, 1959 was passed. Sections 17 and 18 were substituted which required banking companies to create reserve fund and maintain cash reserve. In the year 1963, Banking Laws (Miscellaneous Provisions) Act, 1963 inserted Chapter III-B in the Reserve Bank of India Act. This Chapter conferred extensive powers on the Reserve Bank of India to issue suitable instructions, to regulate and monitor diverse activities of non-banking companies. The powers to control and regulate these non-banking institutions are set out in Sections 45-I to 45-L. While exercising these powers, the Reserve Bank of India was issuing va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s activities of the companies to accept deposits from public. The validity of the section and the deposit rules were questioned. This Court in DCM Ltd. v. U. O.L, [1983] 3 SCR 438 upheld the same. In 1977, directions were issued by the Reserve Bank of India superseding earlier directions of 1966 and 1973. In 1978, Bill 183 of 1978 called Banking Laws (Amendment) Bill, 1978 was introduced in the Parliament. The said Bill provided limits on depositors which were lower than the current provisions. However, the Bill lapsed on dissolution of Parliament. Thereafter prize chits and Money Circulation Schemes (Banning) Act, 1978 was enacted. This was also challenged. But that challenge was thrown out by this Court in Srinivasa Enterprises v. Union of India, [1981] 1 SCR 801. In 1981, several new regulatory directions were given by the Reserve Bank of India. Inter alia they included restrictions on accepting or renewing deposits from shareholders, Directors etc. which exceeded 15 per cent of the net-owned funds of the companies as also restricted payment of interest on deposits at a rate of interest exceeding 15 per cent per annum. The validity of the amendment was upheld by the Madras Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er's son's wife. 17. Daughters daughter. 18. Daughter's daughter's husband. 19. Brother (including step-brother) . 20. Brother's wife. 21. Sister (including step-sister). 22. Sister's husband; (b) a person in whose favour a credit balance in outstanding for a period not exceeding six months in any account relating to mutual dealings in the ordinary course of trade or business shall not, on account of such balance alone, be deemed to be a depositor." Thus, the number of depositors has come to be limited. As to the penalty for contravention of Section 45S it is provided for under Section 58B (5A). It runs thus: "(5A). If any person contravenes any provision of Section 45S, he shall be punishable with imprisonment for a terms which may extend to two years, or with fine which may extend to twice the amount of deposit received by such person in contravention of that section or rupees two thousand, whichever is more, or with both." These provisions were challenged by the appellants in the various civil appeals as violative of Articles 14 and 19 of the Constitution. A Division Bench of the High Court of Delhi in, Kanta Mehta's case supra "Section 45S read with section 58B (5A) of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC 1070. The other learned counsel seriously pressed the point relating to criminal liability and prayed for time to comply with the provisions of Section 45S. Mr. Anil B. Diwan, learned counsel appearing for Respondent 2 in C.A. No. 447 of 1986, after referring us to the development of law, would submit that it is open to the Government to regulate the economic activities. While examining the validity of such provisions the courts always have regard to the wisdom of the Legislature because that alone has the necessary information and expertise pointing to the need of such a legislation. In R.K Garg v. Union of India, [1982] 1 SCR 947 at 969-70 this aspect of the matter was highlighted. It was in this view, this Court upheld Maharashtra Debt Relief Act, 1976 in Fatehchand Himmatlal and others v. State of Maharashtra, [1977] 2 SCR 828. If properly analysed, it can be seen that these provisions constitute. a regulatory scheme and not a penal liability. Much is made of the penal provisions under Section 58B (5A). It is submitted that imprisonment of a recalcitrant debtor is permissible in law. If one goes by the facts of these cases even after 1986, they collect deposits when law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot admit of solution through any doctrinaire or straight jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislature judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Dond, (354 US 457) where Frank further, J. said in his inimitable style: "In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nited States said in Metropolis Theater Co. v. City of Chicago, (57 Lawyers' Edition 730). "The problems of government are practical ones and may justify, if they do not require, rough accommodations, illogical it maybe, and unscientific. But even such criticism should not be hastily expressed. What is best is not always discernible, the wisdom of any choice may be disputed or condemned. Mere errors of government are not subject to our judicial review. No doubt, the impugned legislation places restrictions on the right of the appellants to carry on business, but what is essential is to safeguard the rights of various depositors and to see that they are not preyed upon. From the earlier narration, it would be clear that the Reserve Bank of India, right from 1966, has been monitoring and following the functioning of non-banking financial institutions which invite deposits and then utilise those deposits either for trade or for other various industries. A ceiling for acceptance of deposits and to require maintenance of certain liquidity of funds as well as not to exceed borrowings beyond a particular percentage of the netowned funds have been provided in the corporate sector. But for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate rights must yield to be public need and that any form of regulation is unconstitutional only if arbitrary, discriminatory or demonstrably irrelevant to the policy the Legislature is free to adopt." May be, Kerala Act restricts the rates of interest under Section 4(2)(iii) but that cannot enable the writ petitioners in W.P. Nos. 508 and 534 of 1988 to disregard these provisions, being the non-banking financial institutions. Hence, we reject the first of the arguments. As regards the reasonableness of two-year period Section 45(1)(bb) of the Reserve Bank Act defines "deposit" as follows: "(bb) "deposit" includes and shall be deemed always to have included any receipt of money by way of deposit or loan or in any other form, but does not include (i) amounts raised by way of share capital; (ii) amounts contributed as capital by partners of a firm; (iii) any amount received from, (iv) any amount received from, (a) the Development Bank; (b) a State Financial Corporation established under the State Financial Corporations Act, 1951; (c) any financial institution specified in or under section 6A of the Industrial Development Bank of India Act, 1964; or (d) any other financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nothing contained in this clause shall apply to monies raised by the issue of debentures or bonds. (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 shares holders as is referred to in clause (vi) or paragraph 4) or any deposit guaranteed by any person who, at the time of giving such guarantee, was or is a director to the company, if the amount of any such deposits together with the amount of such other deposits of all or any of the kinds referred to in this sub-clause and outstanding in the books of the company as on the date of acceptance or renewal of such deposits, 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 kind 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 of such deposits, exceeds twenty five per cent of its net owned funds." If, therefore, this was the position, it cannot be contended that suddenly the companies like the appellant and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and the Union of India are taking or proposing to take against the mushroom growth of 'finance and investment companies' offering staggeringly high rates of interest to depositors leading us to suspect whether these companies are not speculative ventures floated to attract unwary and credulous investors and capture their savings. One has only to look at the morning's newspaper to be greeted by advertisements inviting deposits and offering interest at astronomic rates. On January 1, 1987 one of the national newspapers published from Hyderabad, where one of in happened to be spending the vacation, carried as many as ten advertisements with 'banner headlines', covering the whole of the last page, a quarter of the first page and conspicuous spaces in other pages offering fabulous rates of interest. At least two of the advertisers offered to double the deposit in 30 months. 2000 for 1000, 10,000 for 5,000, they said. Another advertiser offered interest ranging between 30 per cent to 38 per cent for periods ranging between six months to five years. Almost all the advertisers offered extra interest ranging between 3 per cent to 6 per cent deposits were made during the Christmas-Po ..... X X X X Extracts X X X X X X X X Extracts X X X X
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