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TMI Blog1997 (3) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... inafter called the Act ), before the Government of India seeking an amalgamation of the Punjab Co-operative Bank with the Oriental Bank of Commerce (a nationalised bank,) and the Bari Doab Bank, and these proceedings are question. 3. In both the cases, the Government of India had issued a moratorium under section 45(1) of the Act. The banks filed writ petitions. On the date when the writ petitions were dismissed, namely, March 5, 1997, a draft scheme in each case has been served on the respective banks. 4. On the first day when these appeals were heard, i.e., on March 12, 1997, we passed an order that the objections to the scheme could be filed by the appellants on or before March 17, 1997, subject to such orders as may be passed by this court later. By our order dated March 14, 1997, the time for filing objections was extended up to March 20, 1997. 5. The facts in the case of Bari Doab Bank Ltd. are that the bank was established in 1915. According to the appellant, it was fully capable and entitled to continue its business under section 11(3) of the Act, but that the Reserve Bank of India filed an application under section 45(1) of the Act on the basis that there was goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Act, 1949, were conceived in the public interest and in the interest of the banking policy, that clause (ca) of the definition in the said Act defines banking policy as a policy which is laid down by the RBI from time to time in the interest of the banking system or in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the efficient use of these deposits and resources. The counter then set out the financial position of the respective banks as indicated from the inspection reports of the years 1993, 1994 and 1995, and then stated that the orders of moratorium were validly passed. Similar replies were filed in the case of Punjab Co-operative Bank Ltd. by the Union of India and the RBI. 9. The learned single judge considered the pleadings of the case and the contentions raised before him in great detail. The learned single judge also referred to the various rulings cited before him, and also referred to the contention of the respondents that the two banks were family controlled banks and were hardly doing any banking business. After referring to the financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Joseph Kuruvilla Vellukunnel v. Reserve Bank of India [1962] 32 Comp Cas 514. The learned judge then distinguished the judgment of the Supreme Court in K.I. Shephard v. Union of India (1988)ILLJ162SC holding that it was a case where the court was dealing with the scheme of amalgamation with regard to the status of employees of the amalgamated bank who were excluded from service of the transferee bank while retaining other similarly situated employees. The learned judge then stated that the records of the case were produced before the court and observed that the same indicated that the matter was examined by the RBI and it was found that there was good reason for it to file the application before the Government of India for ordering a moratorium and that then the Central Government duly considered and passed orders which were not liable to be interfered with under article 226 of the Constitution of India. 11. For the aforesaid reasons, the writ petitions were dismissed. 12. On behalf of the appellants Mr. Arun Jaitley and Mr. Salman Khursheed made elaborate submissions. Mr. T.R. Andhyarujina, the learned Solicitor-General of India made submissions on behalf of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity is given, that would be detrimental to the banks and may result in a run on the bank and then interests of the depositors and the bank would be seriously jeopardised. In the very nature of things, the principles of natural justice are not attracted to section 45(2) stage, he contended. 15. The learned Additional Solicitor-General also contended that this is a situation where there is a post-decisional opportunity at the stage of the approval of the scheme. Such an opportunity is provided before the Reserve Bank of India. The objection that could be filed under section 45(6) before the RBI would include an objection that the scheme was liable to be totally withdrawn because there was no good ground for the Reserve Bank to file an application and also because the grounds stated in section 45(4) did not exist. He also contended that the Reserve Bank is an expert body and its decision cannot be the subject matter of judicial review under article 226 of the Constitution of India. 16. In reply, it was contended for the petitioners that the moratorium was passed by the Government of India while the objections to the draft scheme are to be considered by the Reserve Bank and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in force, where it appears to the Reserve Bank that there is good reason so to do, the Reserve bank may apply to the Central Government for an order of moratorium in respect of a banking company. (2) The Central Government, after considering the application made by the Reserve Bank under sub-section (1), may make an order of moratorium staying the commencement or continuance of all actions and proceedings against the company for a fixed period of time on such terms and conditions as it thinks fit and proper and may from time to time extend the period so however that the total period of moratorium shall not exceed six months. (3) Except as otherwise provided by any directions given by the Central Government in the order made by it under sub-section (2) or at any time thereafter, the banking company shall not during the period of moratorium made any payment to any depositors or discharge any liabilities or obligations to any other creditors. (4) During the period of moratorium, if the Reserve Bank is satisfied that - (a) in the public interest; or (b) in the interests of the depositors; or (c) in order to secure the proper manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er law or any agreement, award or other instrument for the time being in force... 19. For the purpose of deciding these two points, it is necessary to analyze the scheme of section 45 of the Act. Section 45 deals with the power of the Reserve Bank to apply to the Central Government for suspension of business by a banking company and to prepare a scheme of reconstitution or amalgamation. Sub-clause (1) enables the Reserve Bank of India to submit an application to the Central Government for ordering a moratorium on the bank, provided there is good reason so to do . The Central Government under sub-clause (2) may make an order of moratorium staying the commencement or continuance of all actions and proceedings against the company for a fixed period of time on such terms and conditions as it thinks fit and proper and may, from time to time, extend the period. However the total period of moratorium shall not exceed six months. Section 45(3) says that during the moratorium, the company shall not make any payment to any depositors or discharge any liabilities or obligations to any creditors. Section 45(4) says that during the period of moratorium, if the Reserve Bank is satisfied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view, the first stage wherein conditions suitable for formulation of a scheme are introduced. In that sense, the existence of a moratorium is not an independent stage which is an end in itself. It is a means leading to an end. Therefore, the moratorium application under section 45(1) and a moratorium order under section 45(2) are, to describe by analogy - an interlocutory stage anterior to but yet dependent on the result of the draft scheme and its finalisation. In the event the scheme is finalised as per section 45(6) and approved by the Government under section 45(7), the scheme starts operating under its own mechanism and the moratorium simply lapses because it was intended only to create the necessary atmosphere for considering the introduction of a scheme. In case the scheme is withdrawn, the moratorium also lapses automatically. If, Therefore, the moratorium is to act a interim to maintain a particular status quo, the position, in our opinion, is that no principles of natural justice can at all be attracted at that stage. Natural justice can be relegated to a later stage, namely, the stage of finalisation of the scheme. 22. Yet another reason - as to why there can be no ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... system in the country. Learned counsel tried to give some examples where the reasons for imposing a moratorium could be alien to the grounds mentioned in section 45(4) but, in our view, the plausible contingencies for imposing a moratorium could not be outside the four reasons mentioned in section 45(4). We have already stated that the section 45(2) order of moratorium is to subserve a superior purpose, namely, considering whether a scheme could be introduced. The moratorium order is intended to make the scheme when finalised efficacious and not rendered otiose. In the two appeals, an examination of the good reasons mentioned by the Reserve Bank in the applications made under section 45(2), makes it clear that the two applications clearly fall under one or other of the four broad reasons mentioned in section 45(4). 26. Learned counsel for the petitioner contended that the fact that under section 45(2), the Central Government may order moratorium is an indication that, at that stage, notice is contemplated. We are unable to agree. Merely because the sub-section uses the word may , it does not necessarily follow that natural justice principles are implied at that stage. 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judice the exercise by the Central Government of its powers under clause (b) of sub-section (4) of section 35 of the said Act or the exercise by the Reserve Bank of India of its powers under section 38 of the said Act, what is actually done is that the stay of action or proceedings against the bank will not deter the Government exercising powers under section 35(4) or the Reserve Bank of India under section 38. The words subject to such terms and conditions as it thinks fit , in our view, permit staying of all actions and proceedings against the bank. Such stay orders would very much come within the words used in section 45(4). In any event, the exercise of statutory power under section 45(4) is not an action or proceeding against the banking company as stated in the order passed under section 45(2) inasmuch it is the exercise of power to bring in a draft scheme. When the Government of India is proposing to bring in a draft scheme, surely, the exercise of such a statutory power does not fall within the words staying all actions and proceedings against the company . The power to frame a draft scheme under section 45(4) is an independent power which can be exercised notwithsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellants to the scheme can include objections to the section 45(1) and section 45(2) stages also. The appellants need not deny to themselves the benefits of the submission of the respondents' counsel which is favourable to them and which removes their grievance in regard to violation of the principles of natural justice. Point No. 4 is decided accordingly against the appellants. Point No. 5 : 34. We next come to a different aspect of the matter. The Inspectors of the Reserve Bank of India have evaluated the value of its paid-up capital, reserves, profits and losses in a particular fashion. The point is whether the appellant can question the method adopted by the respondents as being contrary to section 11(5)(b). 35. In this behalf, the respondents contend that the Reserve Bank is an expert body, that the inspection report and the correspondence relating to compliance with the defects pointed out therein, showed that the voluminous figures relating to the petitioner banks' performance have been fully analysed by the Reserve Bank. It is argued that it is not permissible for the petitioner to seek review thereof by filing a writ petition under article 226 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank and of the Bari Doab Bank and say that they are being run as family concerns and further that so far as Bari Doab Bank is concerned, it is a small bank which, in the interests of the bank, its depositors and the policy of the Reserve Bank, be merged with a bigger bank - it is not for us to go into the correctness of the expert opinion of the bank. 40. In fact, the reasons specified in the files by the Government of India for preparing draft schemes for the two banks which we have perused are also based upon facts and figures as evaluated by the Reserve Bank of India and its inspectors from time to time and we are satisfied that the reasons are relevant for purposes of section 45(1) as well as section 45(4). 41. As the reasons are now set out substantially in the counter-affidavits and as it has been fairly stated by the learned Solicitor-General of India that the appellants can file objection to the reasons so set out in the counter-affidavit, it will be for the appellants to include in their objections their response to the said reasons referred to in the counter-affidavits. As the reasons are certainly relevant to the passing of an order of moratorium and for preparing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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