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TMI Blog1959 (5) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies Act, 1949, referred to hereafter as the Act, came into force on 16-3-1949. Section 22 of the Act provided amongst other things that every banking company in existence at the commencement of this Act should before the expiry of six months from such commencement and, every other company before commencing banking business in India, apply in writing to the Reserve Bank for a licence under the section to carry on banking business. The section further provided that the Banking Companies in existence at the commencement of the Act could continue to carry on their banking business till final orders were passed on their applications for licence. 3. On 14-9-1949, the petitioner bank applied under Section 22 of the Act, to the respondent for a licence to carry on banking business. The Officers of the Reserve Bank inspected the petitioner bank under Section 22 of the Act in July 1952. A report of that inspection was prepared on 11-10-1952. The inspection appears to have revealed the existence of certain defects in the working of the bank. The Reserve Bank therefore decided to keep in abeyance the consideration of the question of issuing a licence evidently with a view to watch the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were performed by the Imperial Bank of India. This dichotomy between currency and credit was found to be a weakness in the Indian monetary system by the Royal Commission of Indian Currency and Finance in 1926. The Commission recommended the establishment of a Central Bank by charier on certain lines which experience had proved to be sound. It is said that the structure of the Bank was modelled very largely on the Bank of England. It is a non-political statutory body, the general superintendence and management of the bank's affairs being vested in the Central Board of Directors. For each, of the four regional areas, Bombay, Calcutta, 'Madras and New Delhi, there is a local Board functioning. The functions of the local Boards are to advise the Central Board on such matters as may be referred to them or perform such duties as the Central Board may validly delegate to them. The preamble to the Reserve Bank Act states that the bank was constituted to regulate the issue of bank notes; to keep up reserves with a view to secure monetary stability in India and generally to operate currency and credit system of the country to its advantage. The main function, therefore, of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hdrawable by cheque, draft or otherwise. 9. An ordinary money lender who does not accept moneys on terms enabling a depositor to draw cheques upon him would not, therefore, be a bank or banker properly so called. The provisions of the Act would, therefore, apply only to the limited class of cases where the bank or banker allows the withdrawal of money by the issue of cheques. A banking company has been defined to be a company which transacts the business of banking in India. Section 6 provides that in addition to banking business a banking company may engage themselves in various allied businesses which are more "or less incidental to or essential for the carrying on of the banking business. Section 13 prescribes the minimum standards as to paid up capital and aggregate reserves. Sections 12 and 12(a) prevent the control of companies by a few persons to the detriment of a majority of shareholders and permits the Reserve Bank of India to require a banking company to call for a general meeting of the shareholders of the company, to elect fresh directors in accordance with the voting rights. Section 14 prohibits the creation of charges on unpaid capital. Sections 17 and 18 prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecommend that any bank, Indian or non-Indian, wishing to do banking business in India should be required to take out a licence from the Reserve Bank when it is established. This is partly, necessary in the interests of depositors and partly for giving the Reserve Bank some control over the banks operating in the country. Licences should be freely granted to the already established banks and it would be the business of the licensing authority to see that the provisions of the law and any other conditions specified in the licences are complied with ..... Having regard to the present stage of literacy of the people, we consider it essential that a bank should be organised on certain recognised principles of banking and that no institution calling itself a bank should start operations without obtaining a licence from the Reserve Bank. As pointed out by us in Chapter XIX, even the foreign banking experts, who are generally not in favour of introduction of a licensing system recognise that the Reserve Bank may be trusted to act in this respect in a sound and impartial way". Section 22 introduces a complete system of licensing of banks by the Reserve Bank. Shortly stated the grant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ires to be satisfied when granting the licence, cease to be fulfilled or if the company ceases to carry on banking business in India or goes into liquidation; (b) at any time after granting a licence under this section require that any of the said conditions, on the fulfilment of which it did not require to be satisfied when granting the licence, shall be fulfilled to its satisfaction within such time as it may specify, and if the condition is not so fulfilled, cancel the licence. (5) Any banking company aggrieved by the cancellation of its licence under Sub-section (4) may appeal to the Central Government, and the decision of the Central Government on such appeal shall be final". Sub-sections (1) and (2) provide for the necessity of obtaining a licence by a banking company and the time at which the licence is to be applied. The proviso to Sub-section (2) authorises an existing banking company to continue to function until it is granted a licence or refused a licence. The conditions for granting the licence by the Reserve Bank are set out in Sub-section (3). The section also provides for the cancellation by the Reserve Bank of a licence granted by it. In that case the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g) of the Constitution. That decision is also valuable for ascertaining whether in a particular case what was intended was only a licence for the regulation of trade or a permit as a condition precedent to the exercise of a business by an arbitrary power in the authority to grant or refuse a licence. The existence of rules for the guidance of the authority, the insistence of reasons for the refusal of a licence, provision for a right of appeal, the nature of the enquiry before the refusal of a licence being judicial in an enquiry were held to constitute that what was prescribed by a statute was only a regulation of trade by the issue of licence and not the insistence of a permit. The question then is whether the provisions of Section 22(1) of the Banking Companies Act which require a licence for carrying on business by a banking company should be held a system of enabling the doing of such a business by the issue of permits or whether only a licence intended to regulate the, business of banking. There is no doubt that the Banking Companies Act was passed in the interests of the public after detailed enquiry by a Committee and after consideration of its reports. As I pointed out al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R. Co. v. Clinton Country Commissioners, 1 Ohio St. 88, "The true distinction is between the delegation of power to make the law which necessarily involves a discretion as to what it shall be and conferring authority or discretion as to its, execution, to be exercised under and in pursuance of the law; The first cannot be done; to the: latter no valid objection can be made". In the present case, I have already pointed out that the Banking law has been comprehensively laid down in the Indian Banking Companies Act, 1949. The question then is only to administer the law. A power to carry out its provisions would be necessary having regard to the technical nature of the subject, and necessity for investigation of details in individual cases. Such a power is given to the Reserve Bank of India under Section 22. There could therefore be no valid objections to the grant of the power. 13. In Harishankar Bagla v. State of Madhya Pradesh. MANU/SC/0063/1954MANU/SC/0063/1954 : 1954CriLJ1322 , Mahajan C. J. observed at page, 388 (of SCR); (at p. 468 of AIR) thus: "In other words, the legislature cannot delegate its functions of laying down legislative policy in respect of a mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government in the matter of setting up one or the other of them. The purpose sought to be achieved by the Act has been well defined in the preamble to the Act. The scope of industrial disputes is defined in Section 2(k) of the Act and there are also provisions contained in the other sections of the Act which relate to strikes and lockouts lay off and retrenchment etc.. Following the observations of the Supreme Court, I am of the opinion that in the present case there is sufficient legislative guidance for the granting of licence embodied in the provisions of the Act and of Section 22 in particular and the delegation of the power having been made to a non-political body who is statutorily vested with the credit structure of the country, it could not but he held that the restriction imposed in the regulation of the banking business is anything but reasonable. 14. It must also be noticed that the refusal of the licence under Section 22 of the Act does not mean a stoppage of business. I have already referred to the facts that the essence of banking is the opening of current account and the enabling of the constituent to draw by cheques. It follows that the refusal of a licence would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wala v. H. C. Bhari, MANU/SC/0071/1955MANU/SC/0071/1955 : [1955]28ITR941(SC) a discretionary power is riot necessarily the discriminatory power and abuse of power should not be easily assumed where discretion is vested in a public authority, and not in a minor official. In such cases the delegation as such could hot be held to be invalid, though in individual cases, if such a body exceeds its jurisdiction or abuses its power it would be open to an aggrieved party to apply to the superior court for the issue of a writ under Article 226 of the Constitution. 17. This leads us to the next question, namely, whether the power in this case has been arbitrarily exercised by the respondent, as is complained by the petitioner. There is no complaint in this case that sufficient opportunity was not given. But what is contended on behalf of the petitioner is that further opportunities should have been given to rectify the errors rather than refuse the licence. It is also contended that the petitioner had complied with all the directions which the respondent gave from time to time and that there was really no default on its part. Mr. Rajah Iyer also contended that while the respondent was givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nspection reports with the corresponding representation of the bank and the comments of the bank. It was only after a careful consideration of all the matters that the Reserve Bank came to the conclusion that the continuance of the bank would be likely to prove detrimental to the interests of prospective depositors and that the petitioner was not entitled to a licence. The respondent did not take any hasty action. The progress and working of the bank was closely watched for more than 4 years and every opportunity was given to the bank to justify its claim as a sound banking concern. The learned Advocate General explained that the delay in the disposal of the application by the respondent was due to their anxiety not to precipitate a crisis which a quick decision to refuse licence might occasion and which might further lead to undesirable results. Far from the action of the Reserve Bank being, arbitrary, I am satisfied that it has given the utmost consideration to the petitioner's case. I can find no justification for the criticism that the respondent had decided to refuse licence, even before waiting to see whether the petitioner rectified the defects. As I have indicated abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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