Punjab-Haryana High Court
Amrit Bank Ltd. And Ors. vs Union Of India (Uoi) And Ors. on 31 January, 1968
JUDGMENT Capoor, J.
1. In this writ petition under Article 226 of the Constitution of India the challenge is to a notification of the Government of India in the Ministry of Finance (Department of Economic Affairs), dated the 1st of December, 1967 (copy annexure "E" to the petition), passed in exercise of the power conferred on it by Sub-section (2) of Section 45 of the Banking Regulation Act, 194D (10 of 1949), hereinafter referred to as the Act, whereby an order of moratorium was made in respect of petitioner No. 1, Armit Bank Limited, Amritsar (hereinafter referred to as the bank), for the period from the close of business on the 2nd December, 1967, up to and inclusive of the 2nd of April, 1968.
2. By that order the commencement or continuance of all actions and proceedings against the Bank during the period of moratorium was stayed and further certain conditions were imposed as to the grant of any loan or advance or incurring of liability by the bank except to the extent and in the manner provided by the order. Various other conditions were placed which it is not necessary to detail here. Petitioner No. 1 was the Amrit Bank Limited, Amritsar, through Shri Jaswant Singh Kochhar, its Chairman. Petitioner No. 2 was Bakshi Hardev Singh, a director of petitioner No. 1. Petitioner No. 3 was Shri Hans Raj Mittal, advocate, a shareholder and creditor of petitioner No. 1. Petitioner No. 4 was Shri Khushi Ram Aggarwal, another director of petitioner No. 1, and petitioner No. 5 was Shri Hans Raj, a creditor of petitioner No. 1. The respondents were (1) The Union of India, (2) The Reserve Bank of India, and (3) The State Bank of Patiala, through its General Manager, Patiala.
3. The bank was established in the year 1935 and has a licence under Section 22 of the Banking Companies Act to carry on banking business. Its authorised, issued and subscribed capital is Rs. 5,00,000 and 60 per cent. of the capital has been paid. Thus the paid-up capital is Rs. 3,00,000. Apart from head office and branch office at Amritsar, the bank has two branches, one at Gurdaspur and the other at Khanna in the State of Punjab. It appears that in addition to the chairman and the two directors (respondents Nos. 2 and 4) there is another director, Bakshi Narinder Singh, who is brother of petitioner No. 2. It is stated in the petition that on the 2nd of December, 1967, the reserves of the bank amounted to Rs. 2,64,000 and its deposits to Rs. 37,28,000. Rs. 25,65,000 odd was invested with various parties, out of which 97.5 per cent. is secured loan, and Rs. 17,21,000 is said to be lying with the bank as cash in hand or invested in scheduled banks or invested in unencumbered Government securities. In 1968, the bank declared a dividend of 10 per cent. and this was with the approval of the Reserve Bank of India., vide its letter dated the 4th of April, 1967 (copy of annexure "B" to the petition). An inspection of the bank's affairs was made on the 19th of November, 1965, under the directions of the Reserve Bank of India in pursuance of the powers conferred on it by Section 35 of the Act and it did not disclose anything unfavourable. Another inspection was made on the 7th of October, 1966, and according to the petitioners it disclosed only routine defects which were suitably dealt with by the management of the bank and the only action taken by respondent No. 2 was as follows :
"After considering the bank comments on the inspection report it Was decided to watch the progress made by it in the rectification of defects pointed out at the time of the next inspection."
4. The emphasis in the petition is on the sound financial position and solvent state of the bank and it is urged that despite these, respondent No. 1 made the order of moratorium which was expressed to have been passed after considering an application made by respondent No. 2. No such application was made available to the petitioner bank and without any notice or even warning the impugned notification was made. The bank approached respondent No. 1 for disclosing the reasons for the moratorium, but there was no response and respondent No. 1 merely sent to petitioner No. 1 a telegram dated the 23rd of December, 1967, declining to lift the moratorium. A draft scheme of amalgamation of the petitioner bank with the State Bank of Patiala was also forwarded in purported exercise of the power under Sub-section (4) of Section 45 of the Act. On the 27th of December, 1967, the New Delhi branch of respondent No. 2 issued to the petitioner bank a letter mentioning that the officials of the State Bank of Patiala be given facilities to scrutinise the assets and liabilities of the petitioner bank and though at first the petitioner bank refused such access to any official or respondent No. 3, it is stated that ultimately this direction was complied with.
5. The grounds on which the impugned notification is challenged as being illegal, null and void are stated in paragraph 25 of the petition and the grounds which are of importance and have been pressed at the hearing of the petition are-
(1) That the order was passed without notice to the petitioner bank, which is against the principles of natural justice.
(2) That the very premises under which Section 45 of the Act can come into operation were lacking inasmuch as there was no ground for suspension or winding up of the bank and so there could be no question of the Reserve Bank moving the Central Government for an order under Section 45.
(3) That the sole reason for action under Section 45 of the Act was to amalgamate the petitioner bank with the State Bank of Patiala, which is a purpose not legal according to the statute, and therefore a gross abuse of the statutory power under Section 45.
(4) That Parts II and IIA of the Act confer ample power on respondent No. 2 to ensure proper functioning of a banking company and there was no occasion for recourse to the drastic power under Section 45(2) of making an order of moratorium.
In paragraph 26 of the petition the draft scheme was also challenged principally on the ground that the order of moratorium being invalid, Sub-section (4) of Section 45 of the Act, which empowers the Reserve Bank to frame a scheme of amalgamation, did not come into play.
6. The petition was verified by the affidavit of the chairman of the petitioner bank, Shri Jaswant Singh Kochhar. Apart from the annexure already mentioned, annual reports of the bank for the year ending the 31st of December, 1963, to the year ending 31st of December, 1966, were also placed on the record, as also a trial balance-sheet as on the 2nd of December, 1967. This was for the purpose of showing that the bank was solvent financially and was making a profit which, considering its small paid-up capital, was substantial.
7. The principal opposition to the petition is by respondent No. 2, and the affidavit in return has been filed by one of its officers, Shri K.S. Chakrapani. On behalf of respondent No. 1 that affidavit was adopted so far as it related to matters concerning respondent No. 1. No return has been filed by respondent No. 3, but Mr. Gopal Singh, Advocate-General, Punjab, has appeared on behalf of all the three respondents to oppose the petition.
8. It is asserted in the return on behalf of respondent No. 2 that as a result of the last two inspections, namely of 1965 and 1966, several undesirable features in respect of a good proportion of the advances made by the bank were discovered and further that the board of the bank had very little effective control over its affairs and that there was no prospect of the board being able to exercise its control. The defects as discovered in the latter inspection were conveyed to the petitioner bank by respondent No. 2's letter dated the 31st of January, 1967 (copy annexure "C" to the affidavit of respondent No. 2). It is headed " Inspection under Section 35 of the Banking Regulation Act, 1949", and the salient features as disclosed in the inspection and which required the attention of the management were indicated in paragraph 1 of the letter. These are-
(i) The proposals for advances put up before the board do not contain adequate information for a proper consideration thereof. The bank has no system of periodical review of advances. The board has not appointed a suitable person as chief executive officer.
(ii) The central office and the Amritsar branch of the bank have not been inspected at any time, although this feature was pointed out in the earlier inspection reports. The remaining two branches have also not been inspected subsequent to August 1963 and July 1965. The periodical statements submitted by the branches to the central office are not comprehensive to cover the various aspects of their working.
(iii) At the Amritsar branch, some of the important books of account have not been maintained properly and checked by any official of the bank. Certain important registers, e.g., market-rates register, document register, etc., are not maintained.
(iv) The deposits of the bank are low despite its existence for over thirty-one years. In several cases it has not observed the usual formalities in respect of opening of accounts, obtaining balance confirmation letters and recording of stop payment instructions.
(v) The bank has not evolved any system of periodical surprise verification of cash and other valuables by an official unconnected with their custody.
(vi) Credit reports on borrowers have not generally been properly compiled and the information furnished by the borrowers is not verified from independent sources. They are also not reviewed periodically. No reports are maintained on certain parties who have been accommodated on an unsecured basis. Certain advances having major undesirable features, together with a decreed debt, aggregate Rs. 4.61 lakhs. Besides, certain advances aggregating Rs. 2.91 lakhs disclose other undesirable features. In several cases the bank has not observed some of the usual and essential safeguards in the case of advances against the pledge of merchandise and those against documentary bills under collection. At the Amritsar branch, in certain cases, stocks of woollen yarn, fabrics and cotton piece-goods held as security have been allowed to be stored after considerable lapse of time from their dates of purchase, while in some accounts the stocks are more than a year old (e.g., items 1 and 2 of part B of appendix XI and 1 to 3, 6 and 8 of appendix XI). Although the value of the stocks, in the accounts of several parties, has gone down by 10 per cent. to 20 per cent., the bank has not revalued them. The margin of 25 per cent. maintained on advances against woollen fabrics is low. At Gurdaspur and Khanna branches, the stocks of foodgrains and Khandsari have not been properly stored.
(vii) In the case of advances against documentary bills under collection, the bank has not prescribed any period of detention for the bills. The Gurdaspur branch does not notify the carriers of the bank's lien on the goods. In a number of accounts, the aggregate amount of bills returned unpaid together with those excluded from the security after the detention period, forms 15 per cent. to 40 per cent. of the total amount of bills received (e.g., items 2, 7 and 10 of appendix XI).
(viii) The bank has not taken effective steps to dispose of the item of non-banking asset acquired in 1957.
9. Certain specific steps to be taken by the bank in regard to these defects in working were stated in the annexure to this letter.
10. Earlier to the issue of the above letter, respondent No. 2 had written to the chairman of the petitioner-bank its letter of the 14th January, 1967 (copy annexure " D " to the affidavit of respondent No. 2), in which it was noticed that petitioner No. 2 had been appointed as manager of the Amritsar branch of the bank from the 5th of February, 1966, and from the 1st July, 1966, he was paid a remuneration of Rs. 637 per mensem, while previously as general manager (chief executive officer) he was drawing only Rs. 5,694 per annum. The attention of the petitioner-bank was drawn to Section 10(1)(b)(iii) of the Act and the bank's comments were invited.
11. A very important document placed on the record by respondent No. 2 is a letter of the 21st of October, 1967 (copy annexure "F" to his affidavit), from Shri Jaswant Singh Kochhar, Chairman of the petitioner-bank to the Deputy Governor of the Reserve Bank of India. It discloses that on the 23rd of September, 1967, the Chairman accompanied by Shri Khushi Ram, director (petitioner No. 4) had a discussion with the Deputy Governor as regards the affairs of the petitioner bank. It mentions that Shri H.S. Bakhshi (petitioner No. 2) had been working as chief executive officer of the bank continuously for sixteen years, from 1950 upto the begining of 1966, but then he was in effect adopting all types of manoeuvres and coercive methods in order to secure his position and influence in the bank. He even started instigating the employees to go on strike and in the market he was telling the bank's clients and depositors that they should withdraw their deposits from the bank as it was no longer safe. It was then that he was appointed branch manager at Amritsar on the remuneration that he was drawing as chief executive officer. It was in order to avoid rush of depositors of the bank. On the 1st of January, 1967, he made a show of repentance and, therefore, the board co-opted him as a director, but even then he did not mend himself, nor did he give up his subversive activities against the bank. He was insisting that he be given 1 per cent. commission on loans, advances and investments made by the bank or that he should be made de facto general manager and be paid salary of Rs. 1,500 per month. He said that he had been advised that he should first get his salary suitably raised as branch manager and then have that salary suitably split under various heads like basic salary, dearness allowance, entertainment allowance, house allowance, conveyance allowance, etc. Therefore, the recommendation for his appointment as general manager on Rs. 1,500 could not be turned down by the bank. One of the illegal activities of petitioner No. 2 which was stressed by the Chairman was that in December, 1966, he of his own accord declared two month's bonus to be paid to the employees of the bank and to achieve the same he attempted to obtain from the agent, Allahabad Bank, the duplicate keys of the cash safe lying in safe custody with the said bank.
12. On behalf of the petitioners a replication was filed which was, however, verified not by the Chairman but by petitioner No. 2. It was pointed out that various objections raised by the Reserve Bank in their letter (copy annexure " C " to the affidavit of respondent No. 2) were dealt with by the petitioner-bank in its letter of 12th March, 1967 (copy annexure "C" to the replication), and a grievance was made that apparently this reply was either not considered at all or not forwarded by respondent No. 2 to respondent No. 1 when making its application for moratorium. The alleged sound financial position of the petitioner-bank was again stressed and it was mentioned that the bank was in a position to pay the depositors from its own funds and, in any event, the directors were prepared to offer suitable security for satisfying withdrawal and meeting all the demands of the creditors. The alleged manoeuvring and subversive activities by petitioner No. 2 against the petitioner-bank were denied.
13. Mr. Awasthy, the learned counsel for the petitioners, stressed the following points:
(1) The Reserve Bank of India and the Central Government have not considered the relevant facts constituting the limits or restraints of their powers under Section 45 of the Act.
(2) The impugned order was made for ulterior motive not contemplated by the statute, viz., to merge the petitioner-bank with the State Bank of Patiala, and not for any reason connected with the financial stability of the petitioner-bank.
(3) Since the impugned order was passed without any notice to the petitioners and without giving an opportunity to make any representation, the rules of natural justice were not observed.
Points (1) and (2) can conveniently be discussed together.
14. In order to establish the first point, Mr. Awasthy led us to various sections of the Act, and, in particular, analysed Sub-sections (1) and (2) of Section 45 of the Act which are as follows :
"45. (1) Notwithstanding anything contained in the foregoing provisions of this part or in any other law or any agreement, or other instrument, for the time being 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."
15. He pointed out that an alternative to these sub-sections Was found in the provisions of Part III of the Act which is headed "Suspension of business and winding up of banking companies", and Sub-section (1) of Section 37, which occurs in this part, confers on the High Court the power, on application made to it by the banking company which is temporarily unable to meet its obligations, to make an order (a copy of which it shall cause to be forwarded to the Reserve Bank) 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 shall think 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. The operative provisions are similar to those in Sub-section (2) of Section 45 and the learned counsel maintained that the latter section is just an alternative to the power of the High Court under Sub-section (1) of Section 37, and by analogy the Reserve Bank can have recourse to Sub-section (1) of Section 45 only for the reason as stated in Sub-section (1) of Section 37 of the Act, i.e., when a banking company is temporarily unable to meet its obligations. It was stressed that even in respondent No. 2's letter of 31st January, 1967 (copy annexure "C" to the affidavit of respondent No. 2) and its enclosure there was not even a suggestion that the petitioner-bank was unable to meet its obligations, and hence the essential condition which will give jurisdiction to the Reserve Bank to move the Central Government for making an order of moratorium did not exist. Mr. Awasthy is not, however, correct in his argument that Section 45 is merely an alternative to Section 37. Sub-section (14) of Section 45 makes it clear that the provisions of this section and of any scheme made under it shall have effect notwithstanding anything to the contrary contained in any other provision of this Act or in any other law or any agreement, award or other instrument for the time being in force. So the jurisdiction of the Reserve Bank to move the Central Government for an order of moratorium and the power of Central Government to declare a moratorium are entirely independent of what is enacted either in Section 37 or in any other section of the Act, and the restrictions in Section 37 cannot be imported in Section 45. The Reserve Bank has been given very wide powers of superintendence and guidance over banking companies with a view to safeguard not only the interests of the depositors but the public interest and to ensure the proper management of banking companies and in the context of Section 45, it could also act " in the interests of the banking system of the country as a whole". This is specifically provided in Sub-section (4) of Section 45 which is as follows :
" 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 management of the banking company ; or
(d) in the interests of the banking system of the country as a whole,-- it is necessary so to do, the Reserve Bank may prepare a scheme-
(i) for the reconstruction of the banking company, or (ii) for the amalgamation of the banking company with any other banking institution (in this section referred to as ' the transferee bank'.)"
16. It is, therefore, futile to argue that it is only on the limited ground of a banking company being temporarily unable to meet its liabilities that the Reserve Bank can exercise its powers under Section 45. Assuming for the sake of argument that no such temporary financial difficulty existed so far as the petitioner-bank was concerned when the impugned order was made, it is abundantly clear from the letter of the 31st of January, 1967, and its enclosure that there were grave defects in the management of the banking company as on the date of inspection. One of the more important of these was that, after the retirement of Bakhshi Hardev Singh, petitioner, as general manager of the petitioner-bank, the bank had been unable to fill the corresponding post of chief executive officer and this defect was rectified. Even the Chairman of the petitioner-bank wrote in his letter of 21st October, 1967 (copy annexure "F" to the affidavit of respondent No. 2) that there was a virtual deadlock in the working of the bank which had resulted from the disloyalty and subversive acts of petitioner No. 2 who had gone to the extreme of instigating the employees to go on strike and exhorted the bank's clients and depositors that they should withdraw their deposits as the bank might crash. It was contended by Mr. Awasthy that the letter (annexure " F ") gave a one-sided picture and subsequently the differences between the directors, petitioner No. 2 and his brother, Shri Narinder Singh Bakhshi, on one side and the Chairman Shri Jaswant Singh Kochhar, and the director, Shri Khushi Ram Aggarwal, on the other, were reconciled, which was proved by the fact that they had joined in making the writ petition. This, however, is a subsequent state of affairs which probably arose as a direct result of the impugned order when the directors may well have thought that, in order to preserve their separate entity in the control of the bank, they must resist the impugned order. As on 21st October, 1967, the Deputy Governor of the Reserve Bank, to whom this letter is addressed, had no reason to doubt what two of the four directors of the petitioner-bank, including its Chairman, wrote to him, we do not see how it can reasonably be urged that the Reserve Bank did not have good reason to consider that, in order to secure the proper management of this banking company, it was necessary to prepare a scheme either for its reconstruction or for its amalgamation with another banking institution and as a necessary pre-requisite to that scheme, to declare a moratorium.
17. Mr. Awasthy argued that since Sub-section (4) occurs after Sub-section (1), while considering whether an application should be made to the Central Government under Sub-section (1) of Section 45, the Reserve Bank could not lawfully keep in view any of the considerations mentioned in Sub-Section (4) and that this could be done only during the period of moratorium. He did not go in so far as to urge that it was only something which happened during the period of moratorium which could persuade the Reserve Bank to prepare a scheme under Sub-section (4). But the learned counsel loses sight of the fact that before a scheme can be prepared a moratorium must necessarily be declared, because if an order of moratorium is not made and the creditors and depositors of the bank come to know that the banking company is likely to be reconstructed or amalgamated with another company or banking institution, there will be a sudden run on the bank which will almost inevitably lead to its liquidation. If for any of the reasons given in Sub-section (4) and, in particular, for proper management of a banking company, as in this case, the Reserve Bank considers preparation of the scheme necessary, the precedent step is to obtain from the Central Government an order of moratorium. The position taken up by Mr. Awasthy in this connection is untenable.
18. It was submitted on behalf of the petitioners that the Reserve Bank had ample powers under other provisions of the Act to correct any defects noticed by it in the management of the petitioner-company. Thus, if its practices in making advances were objectionable, the Reserve Bank could issue orders under Sub-section (3) of Section 20 imposing such a restriction as it considered proper on the grant of loans or advances and could even order the banking company to secure the redemption of such loans or advances within such time as may be specified in the order. No such order was, however, made. Again, under Section 21 it could determine the policy in relation to advances to be followed by banking companies generally or by the banking company in particular. The licence given to the petitioner-bank under Section 22 in the year 1964, could be cancelled under Sub-section (4) for the reasons given therein, inter alia, that the affairs of the bank were being or were likely to be conducted in a manner detrimental to the interests of its present or future depositors, but the learned counsel maintained that this course was not followed because it normally required the Reserve Bank to give an opportunity to the banking company for taking the necessary steps for compliance, and Sub-section (5) also provided for an appeal to the Central Government against the Reserve Bank's order cancelling a licence. The fact that the Reserve Bank chose to act under Section 45 rather than under Sub-section (4) of Section 22 of the Act, was given as an indication of mala fides. Under Section 35A of the Act, the Reserve Bank had power to give directions on a very wide sphere including such as may be calculated to secure the management of any banking company generally, if as a result of inspection made under Section 35 of the Act such directions were considered necessary. Again Section 36A conferred on Reserve Bank general powers to remove any director or managerial staff from his office, to appoint another person as director or chief executive officer or other officer or employee in the office so vacated and under Section 36AB to appoint additional directors. The grievance made on behalf of the petitioners was that instead of taking these remedial measures under the statute, the Reserve Bank all of a sudden chose to clamp moratorium on the petitioner-bank with a view to summarily end its existence, and this was sought to be a sufficient indication of mala fides and it was even contended that the letter (copy annexure " F" to the return) was manipulated by the Reserve Bank in order to serve its ulterior object of amalgamating the petitioner-bank with the State Bank of Patiala. All these arguments are far-fetched and beside the mark. It is stated in paragraph 1 of the return that during the discussion about the affairs of the bank with the Deputy Governor of the Reserve Bank on the 23rd September, 1967, the Chairman of the bank readily agreed to the suggestion by the Deputy Governor that it would be preferable to have the petitioner-bank merged with the State Bank of Patiala. In the replication by the second petitioner, there is no contradiction of this assertion. It is futile, if not ridiculous, to contend that the mighty banking colossus (the Reserve Bank) would out of mala fide intention attempt to extinguish the identity of the petitioner-bank with a petty paid-up capital of rupees three lakhs only.
19. Instead of imposing the comparatively mild course of getting an order of moratorium, the Reserve Bank had ample powers under Section 38 of the Act to make an application for the winding up of the company. Under Sub-section (2) the Reserve Bank must make such an application if it is directed so to do by an order of the Central Government under Clause (b) of Sub-section (4) of Section 35 as a result of inspection made under that section. Again, under Sub-section (3) of Section 38, the Reserve Bank could make such an application for a number of reasons, vide Sub-clause (iii) of Clause (b) to Sub-section (3) if, in its opinion, the continuance of the bank was prejudicial to the interests of the depositors. It could hardly be gainsaid that the letter of 31st January, 1967, along with its enclosure as well as the letter of the bank's Chairman (annexure "F") disclosed such a state of affairs that the interests of the depositors were gravely prejudiced.
20. It is, therefore, pointless to argue that in the circumstances cited above, the Reserve Bank should have chosen one course rather than the other of the many choices it had under the provisions of the Act of remedial measures in relation to the affairs of the petitioner-bank. In this connection, it is useful and relevant to refer to Joseph Kuruvilla v. Reserve Bank of India, [1962] 32 Comp. Cas. 514 (S.C.) the well-known case of the Palai Central Bank Ltd. This was an appeal against the order of the High Court of Kerala passed on an application made to it by the Reserve Bank of India under Section 38 of the Banking Companies Act read with the Indian Companies Act, for the winding up of the Palai Central Bank Ltd. One of the contentions on behalf of the petitioners was that Sections 38(1) and (3)(b)(iii) make the Reserve Bank the sole judge to decide whether the affairs of a banking company were being so conducted as to be prejudicial to the interests of the depositors, and the court has no option but to pass an order winding up the banking company when the application is made by the Reserve Bank, and apart from other challenges it was stressed that the whole procedure was a denial of the principles of natural justice, chiefly by denying an access to courts. Hidayatullah J., speaking for the majority of the court, observed that [1962] 32 Comp. Cas. 514, 542 (S.C.):
"...in view of the history of the establishment of the Reserve Bank as a central bank for India, its position as a banker's bank, its control over banking companies and banking in India, its position as the issuing bank, its power to license banking companies and cancel their licences and the numerous other powers, it is unanswerable that between the court and the Reserve Bank, the momentous decision to wind up a tottering or unsafe banking company in the interests of the depositors, may reasonably be left to the Reserve Bank. No doubt, the court can also, given the time, perform this task. But the decision has to be taken without delay, and the Reserve Bank already knows intimately the affairs of banking companies and has had access to their books and accounts. If the court were called upon to take immediate action, it would almost always be guided by the opinion of the Reserve Bank. It would be impossible for the court to reach a conclusion unguided by the Reserve Bank if immediate action was demanded. But the law which gives the same position to the opinion of the Reserve Bank is challenged as unreasonable. In our opinion, such a challenge has no force."
21. Reliance was placed on the observations in an earlier case of the Supreme Court, Virendra v. State of Punjab, [1958] S.C.R. 308 where it has been pointed out that in judging the reasonableness of any particular law the surrounding circumstances in which the impugned law came to be enacted, the underlying purpose and the extent and urgency of the evil sought to be removed, must also be considered.
22. These observations are apt to the case before us, not only as regards the first two points urged by Mr. Awasthy, but as regards the third point "preservation of natural justice". Mr. Awasthy referred to further observations in Palai Bank's case that if the power is abused by the Reserve Bank, what would be struck down would be the action of the Reserve Bank and not the law and he maintained that he was not challenging the vires of the law as such, but only the action of the Reserve Bank in applying to the Central Government under Sub-section (1) of Section 45 of the Act and the order of the Central Government thereon. However, it has already been shown in the preceding discussion that far from the impugned order being mala fide there was ample material before the Government of India to justify it.
23. Coming now to the third point, Mr. Awasthy has cited some recent judgments of the Supreme Court in which it has been laid down that even administrative orders, if they are under some statute, have to be made in consonance with the rules of natural justice of which the fundamental one is that no such order should prejudice any party without giving it any opportunity of being heard. The first case is Associated Cement Companies v. P.N. Sharma, A.I.R. 1965 S.C. 1595, 1600, 1601. After placing reliance on the recent decision of the House of Lords in Ridge v. Baldwin, [1964] A.C. 40, it was held that the area where the principles of natural justice have to be followed and judicial approach has to be adopted, has become wider and consequently the necessity to follow the same in the judicial or other decision which the Tribunal has been authorised to reach. Another decision on the same lines is Barium Chemicals Ltd. v. Company Law Board, [1966]36 Comp. Cas. 639 (S.C.), in which it was observed by majority judgment, again relying on Ridge v. Baldwin , that the words '' reason to believe " or " in the opinion of " do not always lead to the construction that the process of entertaining " reason to believe " or " the opinion " is altogether subjective process not lending itself even to a limited scrutiny by the court that such " a reason to believe" or "opinion" was not formed on relevant facts or within the limits of the restraints of the statute as an alternative safeguard to the rule of natural justice where the function is administrative. Arguing on the basis of this case, it was urged that the words "good reasons" where it appears to the Reserve Bank that there is good reason to apply for an order of moratorium, indicate that the opinion of the Reserve Bank cannot be subjective and before it is to be formed, opportunity of hearing had to be given to the petitioner-bank. The third case on the same lines relied on by Mr. Awasthy was State of Orissa v. Dr. (Miss) Binapani Devi, A.I.R. 1967 S.C. 1269, which was, however, a service matter.
24. It is now necessary to consider whether, before the Reserve Bank made an application under Sub-section (1) of Section 45, it was incumbent upon it to give an opportunity of hearing to the petitioner-bank. It has been stated in paragraph 18 of the return that, if such an opportunity had been given, the information would have leaked out and the very mischief which the order of moratorium was calculated to prevent, would have occurred.
25. Further, it was possible that some depositors of the banking company may attempt and succeed in obtaining preferential payments to themselves to the prejudice of the other depositors. So, in the nature of things, the application had to be made to the Central Government without allowing any information about such an application passing out to any one. This was all the more necessary in the instant case (as is clear from annexure " F " to the return) because the Chairman of the banking company had represented to the Deputy Governor of the Bank that one of the directors, an influential one, was himself instigating the depositors to withdraw the deposits. These are strong and cogent considerations leading to the conclusion that having in view the surrounding circumstances in which the impugned law came to be enacted, the underlying purpose of the enactment and the extent and urgency of the evil sought to be remedied, vide Virendra v. State of Punjab, [1958] S.C.R. 308, not only was it not incumbent on the Reserve Bank to issue notice before the impugned action was initiated, but such a notice or opportunity would have defeated the very object of the statute. It must be mentioned here that, as disclosed in the petition itself, very soon after the order of moratorium was made, the Reserve Bank (vide copy annexure " J " dated the 23rd December, 1967) forwarded to the petitioner-bank the draft scheme of amalgamation under Section 45 of the Act and invited objections and suggestions not only from the bank but directed to arrange that its members and directors had opportunity to acquaint themselves with the draft scheme. Objections or suggestions were to be forwarded to the designated officer of the Reserve Bank of India within ten days of the notice in this connection which was to be published in the Tribune, Ambala, and Hindi Milap, Jullundur. Some suggestions and objections have actually been received.
26. In view of what has been stated above, it appears to us that the present petition is not only void of legal force, but also misconceived. The order of moratorium is really for the protection of the bank and ample opportunity was given to make any objections against the draft scheme of amalgamation and there was no reason to anticipate that if any valid objections were put forward, the Reserve Bank would not lift the moratorium. The writ petition accordingly fails and is dismissed. Counsel fee Rs. 250.
Jindra Lal, J.
27. I agree.