Gujarat High Court
Colour Merchants Co Op Bank Ltd vs Reserve Bank Of India on 4 July, 2024
Author: Vaibhavi D. Nanavati
Bench: Vaibhavi D. Nanavati
NEUTRAL CITATION
C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 17513 of 2023
With
CIVIL APPLICATION (FOR JOINING PARTY) NO. 1 of 2024
In R/SPECIAL CIVIL APPLICATION NO. 17513 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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COLOUR MERCHANTS CO OP BANK LTD.
Versus
RESERVE BANK OF INDIA
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Appearance:
MR BS PATEL SR.ADV. WITH MR NILAY H PATEL(7856) for the
Petitioner(s) No. 1
for the Respondent(s) No. 1
MR AMAR N BHATT(160) for the Respondent(s) No. 1
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CORAM:HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
Date : 04/07/2024
ORAL JUDGMENT
1. Heard Mr.B.S. Patel, learned Senior Counsel appearing with Mr.Nilay Patel, learned advocate for the petitioner - bank and Mr.Amar Bhatt, learned advocate appearing for the respondent - Reserve Bank of India.
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2. Issue Rule, returnable forthwith. Mr.Amar Bhatt, learned advocate waives service of notice of Rule on behalf of the respondent - Reserve Bank of India .
3. By way of the present petition, the petitioner herein has invoked Article 226 of the Constitution of India, praying for quashing and setting aside the impugned directive dated 25.09.2023 issued by the respondent - bank under Section 35A read with Section 56 of the Banking Regulation Act, 1949 (for short, the "Act of 1949") vide Directive No.AMD.DOS.SSM.No.S1053/11-03-039/ 2023-2024, which is duly annexed at Annexure-A.
4. Brief facts of the case are that the petitioner herein is a co- operative bank registered under the provisions of the Gujarat Co- operative Societies Act, 1961 (for short, the "Act of 1961") and regulated by the Reserve Bank of India under the Act of 1949. The petitioner - bank is incorporated under the banking laws framed under the Act of 1961 on 01.05.1971 and has been serving the society by availing the banking service. The petitioner - bank has a strong financial condition and serving to approximately 11844 savings account holders, 1938 current account holders and having 2691 F.Ds. On 13.05.2022, a new board was appointed in the petitioner - bank and in March, 2023, inspection was carried out by the respondent - bank wherein, no adverse inference was drawn by the authorized officer of the respondent - bank. The petitioner - bank has approximately total payables worth Rs.46,18,53,673/-, which includes Fixed Deposits, Current Accounts, Savings Bank Deposits and Recurring Deposits and on the other hand, the petitioner - bank has total receivables and assets worth Rs.94,56,30,445/-, which clearly depicts the strong financial position of the petitioner - bank. The copy of the sheet, showing payables, receivable and assets of the petitioner - bank, is duly produced at Page 2 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined Annexure 'C'.
4.1. It is the case of the petitioner - bank that as a part and parcel of the banking business, the new board initiated recovery of loans and also initiated proceedings under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (for short, the "SARFAESI Act") against its defaulted borrowers. Therefore, from the year 2022 to September, 2023, the petitioner - bank received more than 40 orders under Section 14 of the SARFAESI Act to speed up the process of recovery. In the meantime, the officers of the petitioner - bank came to know about the modus operandi adopted by the defaulted borrowers and, therefore, on 08.07.2022, the petitioner - bank, through its authorized officer, filed a complaint before Anandnagar police station against various defaulters, who had received loan from the petitioner - bank by creating forged and bogus documents and thus, the petitioner - bank remained vigilant in protecting the depositors' money and recovery of loan amount from the defaulted borrowers.
4.2. It is the case of the petitioner that in turn, the borrowers, who defaulted in making the payment, filed quashing petition before this Court and also filed a police complaint against the petitioner - bank, resultantly, the chairman of the petitioner - bank has been enlarged on bail in all the F.I.Rs. and has also been protected in the quashing petition. One of the defaulted borrowers filed Securitization Application No.176 of 2023 before the learned D.R.T. - 1, Ahmedabad against the order passed by the learned Chief Judicial Magistrate, Ahmedabad (Rural) in CR.M.A./J No.239 of 2023 wherein, the learned D.R.T.-1, Ahmedabad, refused the prayer of interim relief and passed the order in favour of the petitioner - bank, permitting the it to take possession of the property of the defaulted Page 3 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined
- borrowers.
4.3. It is the case of the petitioner that the defaulted - borrowers approached this Court by preferring Special Civil Application No.9309 of 2023, instead of availing statutory remedy under Section 18 of the SARFAESI Act wherein, a notice came to be issued. It is observed in the said order that the Reserve Bank of India shall also indicate to this Court as to proposed action, which could be taken to verify the allegations made in the petition, which are true or not. From 10.08.2023 to 25.09.2023, the Reserve Bank of India had not complied with the order and not made any suggestion to the Court but, on 25.09.2023, the respondent - Reserve Bank of India issued direction at Annexure-A, duly appended to the petition, which is highly illegal and against the settled position of law.
4.4. In light of the aforesaid facts, the petitioner - bank has approached this Court and prayed for the following reliefs:-
"a. Your Lordship may be pleased to admit and allow this petition.
b. Your Lordship may be pleased to issue writ of certiorari or writ of mandamus or writ in nature of the certiorari or writ in nature of mandamus or any other appropriate writ, order or direction quashing and setting aside the impugned directive at Annexure-A dated 25.09.2023 issued by the Respondent viz. Reserve Bank of India under S.35 A read with S.56 of the Banking Regulation Act, 1949 vide Directive No. AMD.DOS.SSM.No. S1053/11-03-039/ 2023-2024 in the interest of justice;
c. Pending admission & till final disposal of this Special Civil Application, stay as to operation, execution and implementation of impugned directive at Annexure- A dated 25.09.2023 issued by the Respondent viz. Reserve Bank of India under S.35 A read with S.56 of the Banking Regulation Act, 1949 vide Directive No. AMD.DOS.SSM.No. S1053/11-03-039/ 2023-2024 in the interest of justice;Page 4 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024
NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined d. Grant Ad-Interim relief in terms of Para (c) above;
e. Award cost.
f. To Grant such other and further relief as the Hon'ble Court may deem fit and appropriate in the facts and circumstances of the case."
5. Mr.B.S. Patel, learned Senior Counsel appearing with Mr.Nilay Patel, learned advocate for the petitioner - bank, relying on the grounds raised in the petition, submitted that the petitioner herein is mainly aggrieved by the impugned direction issued by the respondent - bank on 25.09.2023 under the provisions of Section 35A read with Section 56 of the Act of 1949, as applicable to the Act of 1961. It is submitted that the said direction has been issued without granting an opportunity of hearing to the petitioner - bank. It is submitted that the said direction affects the civil rights of the petitioner - bank and in view thereof, the respondent - bank was required to grant an opportunity of hearing to the petitioner upon which, the petitioner could have satisfied the respondent with regard to the substratum of the petitioner - bank that the petitioner herein has approximately total payables worth Rs.46,18,53,673/- which includes Fixed Deposits, Current Accounts, Savings Bank Deposits and Recurring Deposits. It is submitted that the petitioner also has total receivables and assets worth Rs.94,56,30,445/-, which clearly shows that the petitioner - bank has a strong substratum. It is submitted that the petitioner - bank has approached this Court mainly on the ground that the impugned direction violates the cardinal principles of natural justice.
5.1. To substantiate the aforesaid submission, Mr.Patel, learned Senior Counsel relied upon the order passed by the Hon'ble Kerala High Court in the case of Thiruvalla East Co-Operative Bank Ltd vs. The Reserve Bank of India rendered in WP(C) No.24257 of 2022 on 09.12.2022. Placing reliance on the same, it is submitted that the Page 5 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined impugned direction is not sustainable in the eye of law in absence of granting opportunity of hearing to the affected party. It is submitted that the respondent - Reserve Bank of India could not have arrived at satisfaction required for passing an order after reaching the consequences. It is submitted that the law is well settled that the party adversely affected is required to be granted an opportunity of hearing and such post-decisional hearing is not sustainable in the eye of law. It is also submitted that the said decision rendered by the Hon'ble Kerala High Court in WP(C) No.24257 of 2022 is confirmed in WA No.419 of 2023 wherein, the said principle laid down by the learned Single Judge stood confirmed. It is submitted that the said decision was challenged before the Apex Court and notice was issued however, no stay was granted and in view thereof, the ratio laid down in the aforesaid decision is binding to the respondent - bank and as per the above, the respondent - bank is required to grant opportunity of hearing to the petitioner. It is submitted that on the aforesaid ground alone, the impugned direction is required to be quashed and set aside and the petitioner be granted an opportunity of hearing before any direction is issued under Section 35A of the Act of 1949.
5.2. To substantiate the aforesaid submissions, Mr.Patel, learned Senior Counsel relied on the decision in the case of Dr.T.Rajakumari vs. The Government of Tamil Nadu reported in AIR 2016 Madras 177 and submitted that unless there is a stay granted by the higher forum, the ratio laid down by the Apex Court in the said judgment is applicable in the present case and the respondent - bank is required to comply with the same.
"3.In view of the aforesaid position, it is accepted that the law would be finally laid down by the Hon'ble Supreme Court and thus there is no point in keeping this petition pending and whatever the declaration of Page 6 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined law by the Hon'ble Supreme Court would be equally applied. The only question is as to what would happen till the Hon'ble Supreme Court examines the issue. In this behalf, if the Hon'ble Supreme Court had stayed or would stay the operation of the Judgment, then only could those provisions struck down again come in force."
5.3. In light of the aforesaid, Mr.Patel, learned Senior Counsel submitted that the present petition is required to be allowed on the aforesaid ground alone without entering into the merits of the case and the petitioner - bank may be granted an opportunity of hearing.
6. Mr.Amar Bhatt, learned advocate appearing for the respondent - Reserve Bank of India, placing reliance on the affidavit-in-reply filed by the respondent - bank, at the outset, submitted that Mr.Patel, learned Senior Counsel appearing for the petitioner - bank has relied upon the ratio laid down by the Hon'ble Kerala High Court but, while deciding the issue in question, Section 35A(2) was not placed for consideration before the said Court.
6.1. Mr.Bhatt, learned advocate placed reliance on Section 35A(2) of the Act of 1949 and submitted that upon the directions that are issued by the respondent - bank under Section 35A of the Act, it is always open for the petitioner - bank to make a representation to modify or cancel any direction issued under sub-section (1). It is submitted that no such representation is made by the petitioner - bank.
6.2. Mr.Bhatt, learned advocate, placing reliance on sub-section 5(ca) of Section 35A read with Section 56 of the Act of 1949, submitted that in exercise of powers conferred under Section 21 read with Sections 35A and 56 of the Act of 1949, the Reserve Bank issues various directives and guidelines, including interest rate Page 7 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined directives and guidelines to the banks from time to time. Mr.Bhatt, learned advocate placed reliance on the ratio laid down by the Apex Court in the case of Central Bank of India v. Ravindra and Others, reported in (2002) 1 SCC 367 and submitted that when a power is delegated to enact a policy and issue directions which has a statutory force and when the directions are issued under such statutory force, such guidelines have to be read as supplement to the provisions of the Act of 1949. It is submitted that it is always open for the petitioner to make an appropriate representation to the respondent - bank and the same would be considered by the bank in accordance with law.
6.3. To substantiate the aforesaid submissions, Mr.Bhatt, learned advocate placed reliance on the following judgments:-
(i) Haresh Tekchand Raisinghani and others vs. Union of India and others reported in 2019 SCC OnLine Bom 5825
(ii) Sandeep Bhalla and others vs. Reserve Bank of India and others reported in 2022 SCC OnLine Del 4180
(iii) Ashok Kumar and Company vs. Reserve Bank of India (WRIT -
C No.36445 of 2014).
(iv) ICICI Bank Limited vs. Official Liquidator of APS Star Industries Limited and others reported in (2010)10 SCC 1.
6.4. Placing reliance on the aforesaid judgments, it is submitted that the High Courts have refrained from interfering with the directions issued under Section 35A of the Act of 1949. It is observed by the various High Courts that in exercise of writ jurisdiction, it would not be open for the Court to substitute the conclusion, which has been drawn by the Reserve Bank as an expert statutory body.
6.5. Mr.Bhatt, learned advocate further submitted on merits that in Page 8 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined view of the precarious financial condition, to protect the interest of the depositors of the petitioner - bank, as per the directive dated 25.09.2023, the petitioner was directed to close the business on 25.09.2023. It is submitted that the aforesaid exercise was undertaken to protect the interest of the depositors of the petitioner
- bank. It was placed under All Inclusive Directions (AID) under Section 35A read with Section 56 of the Act of 1949 from the closer of the business on 25.09.2023 to restrict the payment of deposits based on available liquidity in order to prevent any discretionary / discriminatory payment to a small body of depositors vis-a-vis the bank's entire body of depositors. The petitioner is functioning subject to the restrictions imposed vide the said AID. It is submitted that by the impugned direction, the respondent - bank prohibits withdrawal of the deposits in excess of permissible withdrawal limit, which is specified under the said directions. The restrictions so placed, do not extinguish the liability of the petitioner - bank towards its depositors or creditors. They are subject to review/revision based on the prevalent financial condition of the petitioner - bank.
6.6. It is submitted that the respondent - bank was constrained to take the impugned steps under Section 35A of the Act in view of; (a) owing to substantial increase in reported Net NPA of the petitioner - bank as on 31.12.2022, Supervisory Action Framework (SAF) was imposed on the bank on 28.02.2023. The high level of NPA has resulted into deteriorating financial position of the bank. (b) Subsequently, statutory inspection of the bank was conducted between 28.02.2023 and 10.03.2023 with respect to the financial position of the bank as on 31.03.2022 wherein, substantial increase in Net NPA of the bank, decrease in Statutory Capital requirement and accumulated losses were observed, based on which, SAF was imposed on 18.08.2023 with additional stringent conditions in areas Page 9 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined related to loan disbursement, capital expenditure etc. and the petitioner - bank was advised to improve its capital position, NPA position etc. The petitioner - bank was kept under SAF with effect from 28.02.2023. (c) In the month of August 2023, reports in print and local visual media appeared with respect to the arrest of current and previous senior office bearers, including previous chairman of the bank. The RCS, Gujarat also forwarded a letter, along with a copy of complaints about the wrongdoings by the bank officials, based upon which, on-site review of the bank was carried out from August 22 to 28.08.2023 wherein negative net worth and deposit erosion were observed in the bank. Taking into account the deteriorating financial position of the bank and to arrest further deterioration and to safeguard depositors' interests, All Inclusive Direction (AID) was imposed on the bank on 25.09.2023.
6.7. Mr.Amar Bhatt, learned advocate disputed the averments made in paragraphs 3.4 to 3.8 of the petition. Relying on paragraphs 25 to 29 of the affidavit-in-reply, it is submitted that the contention raised by the petitioner herein that in the inspection carried out by the respondent - bank on 03.03.2023, there was no adverse inference drawn by the authorized officer of the respondent - bank. It is submitted that the petitioner - bank was conveyed by RBI's Supervisory letter dated 23.05.2023 with respect to major observations pointed out in Risk Assessment Report (RAR) i.e. the financial position of the petitioner - bank as on 31.03.2022, which are as under:-
(i) Non-adherence to RBI guidelines pertaining to NPA, Cyber Security Controls, divergence of funds and identification of frauds.
(ii) Significant diversion of loan proceeds
(iii) Reported profit of the bank was window-dressed.Page 10 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024
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(iv) Statutory audit report of the bank was deficient
(v) Proceeds of the loan amount used in repayment of existing NPA accounts.
(vi) Complaints made by several borrowers to the bank/police/RBI regarding non-receipt of loan proceeds.
6.8. Placing reliance on paragraph 26 of the reply, it is submitted that the petitioner's assets have witnessed significant deterioration in their quality, as evidenced by significantly high NPA. The assessed gross NPA as on 21.08.2023, stood at Rs.35.19 crore (78.89%). Further, the deposit erosion and net worth as on 21.08.2023 had further deteriorated from 31.03.2023 to 3% and (-) Rs.1.38 crore respectively, implying that the bank is not in a position to pay its present or future depositors in full as and when their claims accrue. The liabilities are short-term in nature while assets are realizable only in the relatively longer term, clearly creating a mismatch in the bank's liquidity position.
6.9. Placing reliance on paragraph 27 of the reply, it is submitted that the petitioner has high gross NPA to the tune of Rs.35.19 crore (78.89%) as on 21.08.2023 due to which, it has incurred the losses. Further, GNPA position (%) has worsened further, implying that the petitioner - bank is not serious about any revival. The recovery in NPAs are insignificant and due to downgrade in the NPAs, the provisioning requirement has increased. Consequently, the bank's deposit erosion and net worth as on 21.08.2023 has deteriorated. The provisioning is expected to increase, if the bank fails to recover the NPAs, which may result in further worsening of the financial condition.
6.10. Placing reliance on paragraphs 28 and 29, it is submitted that the petitioner Bank has not taken any serious steps towards Page 11 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined recovery. It is submitted that the petitioner - bank shows deficiencies in credit appraisal and monitoring systems of the bank, as pointed out in the inspection report. It has also been observed that there was no policy to examine the staff accountability in quick mortality NPA accounts (accounts becoming NPA within one year), which contributed significantly to worsening NPA position. The bank has also not upgraded the skills or knowledge of the staff as regards changes / updation as per the RBI guidelines.
6.11. Placing reliance on paragraph 35 of the reply, contention raised by the learned counsel appearing for the petitioner - bank is controverted and it is submitted that the defaulted borrowers had preferred Special Civil Application No.9309 of 2023 without availing the statutory remedy under Section 18 of the SARFAESI Act wherein, the directions in the said petition were issued to the respondent nos.3 and 4 i.e. the State of Gujarat and the Registrar of Co- operative Societies, Gandhinagar respectively by order dated 10.08.2023. The question of compliance of the order by the respondent herein, in view thereof, does not arise and that, such averment made in the petition is a false averment and there is no question of complying with the same.
6.12. Mr.Bhatt, learned advocate, placing reliance on the aforesaid, reiterated that the respondent herein, as per the exercise of powers under the Act of 1949, on being satisfied that there is a necessity in public interest for preventing the affairs of the petitioner - bank being conducted in a manner detrimental to the interest of depositors and for securing the proper management of the bank, has undertaken the aforesaid exercise under Section 35A of the Act and, therefore, the present petition may not be interfered with under Article 226 of the Constitution of India.
Page 12 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined 6.13. It is submitted that the CRAR and net worth of the petitioner - bank as on 21.08.2023 had further deteriorated from 31.03.2023 to (-) 22.33% and (-) Rs.1.38 crore respectively. The petitioner - bank failed in protecting the interest of depositors as revealed by various irregularities in the bank. After having satisfied about the deteriorating financials of the bank, the respondent - bank sent various communications to the petitioner - bank with respect to the fragile financial position, which were relied upon, as stated in paragraph 32 of the reply, which read thus:-
"(i) SAF was imposed on the Petitioner bank vide RBI's letter dated February 28, 2023 which restricted the bank's operation while advising it to take urgent steps to improve its condition.
(ii) SAF was reimposed on the bank, with more stringent actions vide our letter dated August 18, 2023.
(iii) After emergence of media report and RCS letter dated Aug 11, 2023 - informing arrests of current and previous senior office bearers (including previous Chairman) of the bank, on-
site review of the bank was carried out by RBI from August 22 to August 28, 2023 to assess the financials of the bank and having satisfied itself that the financial position of the bank, instead of showing any improvement, showed fast deterioration, a decision was taken to impose All Inclusive Direction on the bank to safeguard the interest of depositors. Further, there is no requirement of issuing SCN before keeping the bank under AID issued Section 35A of the B.R. Act, 1949."
6.14. Mr.Bhatt, learned advocate submitted that the respondent - bank has imposed AID on the petitioner - bank, based on facts and figures, after thoroughly assessing the financial position and also based on off-site reporting made by the petitioner - bank. It is Page 13 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined submitted that after coverage in the local press and visual media and on receipt of RCS letter dated 11.08.2023, informing about arrests of current and previous senior office bearers (including previous Chairman) of the bank, which resulted into significant withdrawal of fund by the depositors from 11.08.2023 onwards, several meetings were conducted with the management and board members of the petitioner - bank. The management of the petitioner
- bank was impressed upon the need for urgent capital infusion for restoring depositors' confidence in the bank. However, the petitioner - bank failed in its efforts to turnaround its financial position. Accordingly, AID was imposed on the petitioner - bank for preventing the affairs of petitioner - bank to be conducted in a manner detrimental to the interest of depositors.
6.15. It is submitted that based on the data provided by the petitioner - bank, as on 22.09.2023, out of 4867 deposit accounts, 4704 deposit accounts of the bank have deposits of Rs.5 lakhs (constituting around 96.65%), which has been covered under DICGC.
6.16. As per DICGC (Amendment) Act, 2021, DICGC will be liable to pay Rs.5 lakhs to the willing customers of the bank. Accordingly, the petitioner - bank is required to furnish the DICGC a certified list showing outstanding deposits of each of its depositors within a period of 45 days from the effective date of the AID directions.
6.17. In view of the aforesaid, it is submitted that the management of the petitioner - bank, who were responsible to run the affairs of the company, in the interest of depositors, have failed in their duty and in view thereof, the respondent - bank is constrained to exercise its powers under Section 35A(1) read with Section 56 of the Act of 1949 to safeguard the interest of the depositors and in view Page 14 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined of the deteriorating financial condition of the petitioner - bank. It is submitted that in view thereof, the present petition be dismissed in limine.
7. Heard the learned advocates appearing for the respective parties.
8. The undisputed facts, which emerge for consideration of this Court read thus:-
8.1. The petitioner herein is a co-operative bank regulated by the Reserve Bank of India under the Act of 1949 and incorporated on 01.05.1971 under the banking laws framed under the Act of 1961.
The petitioner - bank is aggrieved by the impugned directive issued by the respondent - Reserve Bank of India on 25.09.2023, which is duly produced at Annexure-A. By the said communication, directives are issued by the respondent - bank under Section 35A read with Section 56 of the Act of 1949 and on being satisfied, in the public interest and preventing the affairs of the petitioner - bank, being conducted in a manner detrimental to the interest of the depositors and for securing the proper management of the petitioner - bank, directed the petitioner - bank as under:-
"The Reserve Bank of India, in exercise of its powers under sub-section (1) of section 35A read with section 56 of the Banking Regulation Act, 1949, on being satisfied that it is necessary in public interest and for preventing the affairs of Colour Merchants Cooperative Bank Ltd., Ahmedabad ("the bank"), being conducted in a manner detrimental to the interest of the depositors and for securing the proper management of the bank, hereby directs that the bank, from the close of business on September 25, 2023 (which shall be the Effective date of this directive) shall not, without prior approval in writing from the Reserve Bank of India, grant or renew any loans and advances, make any investment, incur any liability including borrowal of funds and acceptance of fresh deposits, disburse or agree to disburse any payment Page 15 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined whether in discharge of its liabilities and obligations or otherwise, enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets except to the extent and in the manner provided hereunder:
i. For the present, maximum of 50,000/- (Rupees Fifty thousand only) (whether from savings bank, current account, recurring deposit or any other deposit account by whatever name called) may be allowed to be withdrawn by a depositor provided that wherever such depositor is having liability to the bank in any manner, i.e., either as a borrower or surety, the amount may be adjusted to the relevant borrowal account/s;
ii. The bank may.
a. renew the existing term deposits on maturity in the same name and same capacity;
b. incur expenditure that may be required to be met by the bank in respect of the following items:
1. salaries of employees;
2. rent, rates and taxes;
3. electricity bills;
4. printing, stationery, postage, etc.;
5. legal expenses comprising stamp duty/registration charges/arbitration fees which are payable at rates stipulated in the statutes concerned or rules of Court Registrar of Cooperative Societies/Debt Recovery Tribunal;
6. court fee in compliance with the court orders/under provisions of statutes; and
7. payment of fees to lawyers not exceeding Rs.1000/-
(one thousand Rupees
only) in each case.
c. pay premium payable to the Deposit Insurance and Credit Guarantee Corporation in accordance with the provisions of applicable law;
d. incur expenditure on any other item in so far as it is, in the opinion of the bank, necessary for carrying on Page 16 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined the day-to-day administration of the bank provided that total expenditure on.any item in the calendar month shall not exceed the average monthly expenditure on account of that item during the period of six months preceding the date of the directive or, if no expenditure has been incurred on account of that item in the past, it should not exceed a sum of Rs.1000/- (Rupees one thousand only):
e. make investments in Government/SLR-approved securities;
f. accept contribution towards capita from the existing members of the bank, under advice to RBI on a monthly basis;
g. make payment in respect of gratuity/provident fund benefits to its retiring employees, h. make payment in respect of leave encashment and superannuation benefits to retiring/retired employees with the approval of RBI;
iii. The bank shall not incur or extinguish any other liability unless specifically approved in writing by the Reserve Bank of India."
8.2. The impugned directions dated 25.09.2023 restrict withdrawal of deposits beyond Rs.50,000/- of the total balance in every savings and current bank account or any other deposit account by whatever name called, the directions were initially issued for a period of six months, subject to review from time to time. During the course of hearing, it is submitted that the said directions are extended for a further period of six months. By the said directions, the depositors are restricted to the limit mentioned in the directions, so that, preferential payments are not made to a small group of depositors to the detriment of the entire body of depositors. The bank's position is being monitored closely. The respondent - bank has imposed All Inclusive Direction (AID) on the bank, based on the facts and figures and after thoroughly assessing the financial position of the bank and also based on off-site reporting made by the petitioner Page 17 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined
- bank. Based on the data provided by the petitioner - bank as on 22.09.2023, out of 4867 deposit accounts, 4704 deposit accounts of the bank have deposits of Rs.5 lakhs (constituting around 96.65%), which has been covered under the DICGC (Amendment) Act, 2021 whereby, DICGC will be liable to pay Rs.5 lakhs to the willing customers of the bank. Accordingly, the petitioner - bank is required to furnish the DICGC a certified list showing outstanding deposits of each of its depositor within a period of 45 days from the effective date of the AID directions.
8.3. The petitioner - bank, being aggrieved by the impugned directions issued by the respondent - bank under Section 35A of the Act of 1949, as referred above, has preferred the present petition mainly on the ground that the impugned directions are violative of the principles of natural justice and that, the petitioner was required to be heard before issuing the said directions.
8.4. It is the case of the petitioner - bank that because of the impugned action initiated by the respondent - bank, the civil rights of the petitioner - bank are affected and in view thereof, the impugned action by the respondent - bank is required to be quashed and set aside and without going into the merits, the petitioner - bank be accorded an opportunity of hearing.
8.5. It is also the case of the petitioner - bank that on 13.05.2022, a new board was appointed in the petitioner - bank in March, 2023 and inspection was carried out by the respondent without any adverse inference drawn by the authorized officer and in absence of such adverse inference, initiation of action under Section 35A of the Act of 1949, without informing the petitioner, is violative of the basic principles of natural justice.Page 18 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024
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9. Considering the aforesaid facts, this Court has perused the record with respect to the financial position of the petitioner - bank and on perusal of the same, it appears as under:-
"(i) Owing to substantial increase in reported Net NPA of the bank as on December 31, 2022, Supervisory Action Framework (SAF) was imposed on the bank on February 28, 2023. The high level of NPA has resulted in deteriorating financial position of the bank.
(ii) Subsequently, statutory inspection of the bank was conducted between February 28, 2023 and March 10, 2023 w.r.t its financial position as on March 31, 2022 wherein substantial increase in Net NPA of the bank, decrease in Statutory Capital requirement and accumulated losses were observed, based on which SAF was reimposed on August 18, 2023 with additional stringent conditions in areas related to loan disbursement, capital expenditure etc. and the bank was advised to improve its capital position, NPA position etc. The petitioner bank was kept under SAF with effect from February 28,2023 and it was reimposed on August 18, 2023. A copy of the SAFs are marked collectively as Annexure "A_, Colly"
(iii) In the month of August 2023, reports in print and local visual media appeared about arrest of current and previous senior office bearers (including previous Chairman) of the bank. The RCS, Gujarat also forwarded a letter along with a copy of complaints about the wrongdoings by the bank officials (this letter of RCS is annexed and marked as Annexure "B"). Based on which, on-site review of the bank was carried out from August 22 to August 28, 2023 wherein negative net worth and deposit erosion were observed in the bank. Taking into account the deteriorating financial position of the bank and to arrest further deterioration and to safeguard depositors' interests. All Inclusive Direction (AID) was imposed on the bank on September 25, 2023."
10. In light of the aforesaid, in the opinion of this Court, the petitioner - bank was conscious of its deteriorating financial position. In view thereof, the first contention raised by Mr.Patel, learned Senior Counsel for the petitioner - bank that, upon Page 19 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined inspection, there was no adverse inference, is negatived.
11. The aforesaid factual position remained uncontroverted during the course of hearing.
12. In light of the aforesaid, it is apposite to refer to Sections 35A, 35A(2) and 56 of the Act of 1949, which are as under:-
"[35A. Power of the Reserve Bank to give
directions.--
(1) Where the Reserve Bank is satisfied that--
(a) in the [public interest]; or (aa) in the interest of banking policy; or]
(b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or
(c) to secure the proper management of any banking company generally, it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions.
(2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect."
Section 56 in The Banking Regulation Act, 1949
56. Act to apply to co-operative societies subject to modifications.
Notwithstanding anything contained in any other law for the time being in force, the provisions of this Act, Page 20 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined shall apply to, or in relation to, co-operative societies as they apply to, or in relation to, banking companies subject to the following modifications, namely:-
(a) throughout this Act, unless the context otherwise requires,-
(i) references to a "banking company" or "the company" or "such company" shall be construed as references to a co-operative bank;
(ii) references to "commencement of this Act" shall be construed as references to commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965);
(iii) references to "memorandum of association"
or "articles of association" shall be construed as references to bye-laws;
(iv) references to the provisions of the Companies Act, 1956, except in Part III and Part IIIA, shall be construed as references to the corresponding provisions, if any, of the law under which a co- operative bank is registered;
(v) references to "Registrar" or "Registrar of Companies" shall be construed as references to "Central Registrar" or "Registrar of Co-operative Societies", asthe case may be, under the law under which a co-operative bank is registered;
(b) in section 2, the words and figures "the Companies Act, 1956 (1 of 1956), and" shall be omitted;
(c) in section 5,-
(i)[ after clause (cc), the following clauses shall be inserted, namely:- [Substituted by Act 61 of 1981, Section 61 and Sch. II, for sub-Clause (i) (w.e.f. 1.5.1982).] (cci)"Co-operative bank" means a state co-operative bank, a central co-operative bank and a primary co- operative bank;
(ccii)"co-operative credit society" means a co-
operative society, the primary object of which is to provide financial accommodation to its members and includes a co-operative land mortgage bank; [(ccii-a) "co-operative society" means a society registered or deemed to have been registered under any Central Act for the time being in force relating to the multi-State co-operative societies, or any other Central or State law relating to co-operative societies for the time being in force;] Page 21 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined (cciii)"director", in relation to a co-operative society, includes a member of any committee or body for the time being vested with the management of the affairs of that society;
[(cciii-a) "multi-State co-operative bank" means a multi-State co-operative society which is a primary co- operative bank; [Inserted by Act 24 of 2004, Section 2 (w.r.e.f. 1.3.1966). ] (cciii-b) "multi-State co-operative society" means a multi-State co-operative society registered as such under any Central Act for the time being in force relating to the multi-State co-operative societies but does not include a national co-operative society and a federal co-operative;] (cciv)"primary agricultural credit society" means a co- operative society,-
(i) the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops); and
(ii) the bye-laws of which do not permit admission of any other co-operative society as a member:Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose;
(ccv)"primary co-operative bank" means a co- operative society, other than a primary agricultural credit society,-
(i)the primary object or principal business of which is the transaction of banking business;
(ii)the paid-up share capital and reserves of which are not less than one lakh of rupees; and
(iii)the bye-laws of which do not permit admission of any other co-operative society as a member:
Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose; (ccvi)"primary credit society" means a co-operative society, other than a primary agricultural credit society,-
(i) the primary object or principal business of which is the transaction of banking business;
(ii) the paid-up share capital and reserves of which are less than one lakh of rupees; and
(iii)the bye-laws of which do not permit admission of any other co-operative society as a member:Page 22 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024
NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose. Explanation .-If any dispute arises as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi, a determination thereof by the Reserve Bank shall be final;
(ccvii)"central co-operative bank", [* * *] [The words "
co-operative society" omitted by Act 24 of 2004, Section 2 (w.r.e.f. 1.3.1966).], "primary rural credit society" and "State co-operative bank" shall have the meanings respectively assigned to them in the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981);]
(ii)[ clauses (ff), (h) and (nb) shall be omitted] [Substituted by Act 1 of 1984, Section 42, for sub- Clause (ii) (w.e.f. 15.2.1984).].
(e)in section 6, in sub-section (1),-
(iii)in clause (m), after the word "company", the words "or co-operative society" shall be inserted; [(f) for section 7, the following section shall be substituted, namely:-
"7. Use of words "bank", "banker" or "banking".-
(1) No co-operative society other than a co-operative bank shall use as part of its name or in connection with its business any of the words "bank", "banker" or "banking", and no co-operative society shall carry on the business of banking in India unless it uses as part of its name at least one of such words.
(2)Nothing in this section apply to-
(a) a primary credit society, or
(b) a co-operative society formed for the protection of the mutual interest of co-operative banks or co- operative land mortgage banks, or
(c) any co-operative society, not being a primary credit society, formed by the employees of-
(i)a banking company or the State Bank of India or a corresponding new bank or a subsidiary bank of such banking company, State Bank of India or a corresponding new bank, or
(ii)a co-operative bank or a primary credit society or a co-operative land mortgage bank, insofar as the word "bank", "banker" or "banking" appears as part of the name of the employer bank, or as the case may be, of the bank whose subsidiary the employer bank is".];
[(fi) in section 8, for the proviso, the following proviso shall be substituted, namely:-
"Provided that this section shall not apply -Page 23 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024
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(a)to any such business as aforesaid which was in the course of being transacted on the commencement of clause (iii) of section 42 of the Banking Laws (Amendment) Act, 1983 (1 of 1984), so, however, that the said business shall be completed before the expiry of one year from such commencement; or
(b)to any business as is specified in pursuance of clause
(o) of sub-section (1) of section 6;";
(fii)in section 9, for the second proviso, the following provisos shall be substituted, namely:-
"Provided further that in the case of a primary credit society which becomes a primary co-operative bank after the commencement of clause (iii) of section 42 of the Banking Laws (Amendment) Act, 1983 (1 of 1984), the period of seven years shall commence from the day it so becomes a primary co-operative bank: Provided also that the Reserve Bank may, in any particular case, extend the aforesaid period of seven years by such period as it may consider necessary where it is satisfied that such extension would be in the interests of the depositors of the co-operative bank".]
(g)[sections 10, 10-A, [10-B, 10-BB, 10-C] [Substituted by Act 58 of 1968, Section 21, for " section 10" (w.e.f.
1.2.1969).] and 10-D] [Inserted by Act 1 of 1984, Section 42 (w.e.f. 15.2.1984).] shall be omitted;
(h)for section 11, the following section shall be substituted, namely:-
"11. Requirement as to minimum paid-up capital and reserves.-(1) Notwithstanding any law relating to co- operative societies for the time being in force, no co- operative bank shall commence or carry on the business of banking in India unless the aggregate value of its paid-up capital and reserves is not less than one lakh of rupees:
Provided that nothing in this sub-section shall apply to-
(a)any such bank which is carrying on such business at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965), for a period of three years from such commencement; or
(b)to a primary credit society which becomes a primary co-operative bank after such commencement, for a period of two years from the date it so becomes a primary co-operative bank or for such further period not exceeding one year, the Reserve Bank, having regard to the interests of the depositors of the primary co-
operative bank, may think fit in any particular case to allow.
(2)For the purposes of this section, "value" means the real or exchangeable value and not the nominal value which may be shown in the books of the co-operative bank concerned.
Page 24 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined (3)If any dispute arises in computing the aggregate value of the paid-up capital and reserves of any co- operative bank, a determination thereof by the Reserve Bank shall be final for the purposes of this section.";
(i)sections 12, 12-A, 13 and 15 to 17 shall be omitted; [(j) for section 18, the following section shall be substituted, namely:-
"18. Cash reserve.-(1) Every co-operative bank, not being a [a co-operative bank] for the time being included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934) [(hereinafter referred to as a "scheduled co-operative bank")] [Substituted for the words "(hereinafter referred to as a "scheduled State co-operative bank")" by Act No. 4 OF 2013], shall maintain in India by way of cash reserve with itself or by way of balance in a current account with the Reserve Bank or the State co-operative bank of the State concerned or by way of net balance in current accounts, or, in the case of a primary co-operative bank, with the central co-operative bank of the district concerned, or in one or more of the aforesaid ways, a sum equivalent to [such per cent.] [Substituted for the words "at least three per cent." by Act No. 4 OF 2013] of the total of its demand and time liabilities in India, as on the last Friday of the second preceding fortnight [as the Reserve Bank may specifY, by notification in the Official Gazette, from time to time having regard to the needs for securing the monetary stability in the country] [Inserted by Act No. 4 OF 2013] and shall submit to the Reserve Bank before the fifteenth day of every month a return showing the amount so held on alternate Fridays during a month with particulars of its demand and time liabilities in India on such Fridays or if any such Friday is a public holiday under the Negotiable Instruments Act, 1881 (26 of 1881), at the close of business on the preceding working day.
Explanation. - In this section and in section 24-
(a)"liabilities in India" shall not include-
(i)the paid-up capital or the reserves or any credit balance in the profit and loss account of the co- operative bank;
(ii)any advance taken from a State Government, the Reserve Bank, [***] [Wrods "the Development Bank"
ommtted by Act No. 4 OF 2013]the Exim Bank, [the Reconstruction Bank,][Inserted by Act 62 of 1984, Section 71 and Sch. III (w.e.f. 20.3.1985).][the National Housing Bank,][Inserted by Act 53 of 1987, Section 56 and Sch. II (w.e.f. 9.7.1988).]the National Bank, [the Small Industries Bank][Inserted by Act39 of 1989, Section 53 and Sch. II (w.e.f. 7.3.1990).]or from the National Co-operative Development Corporation Page 25 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined established under section 3 of the National Co-operative Development Corporation Act, 1962 (26 of 1962) by the co-operative bank;
(iii)in the case of a State or central co-operative bank, also any deposit of money with it representing the reserve fund or any part thereof maintained with it by any other co-operative society within its area of operation, and in the case of a central co-operative bank, also an advance taken by it from the [Co- operative Bank][Substituted for the words "State co- operative bank" by Act No. 4 OF 2013]of the State concerned;
(iv)in the case of a primary co-operative bank, also any advance taken by it from the [Co-operative Bank] [Substituted for the words "State co-operative bank" by Act No. 4 OF 2013]of the State concerned or the Central co-operative bank of the district concerned;
(v)in the case of any co-operative bank, which has granted an advance against any balance maintained with it, such balance to the extent of the amount outstanding in respect of such advance; and
(vi)in the case of any co-operative bank, the amount of any advance or other credit arrangement drawn and availed of against approved securities;
(b)"fortnight" shall mean the period from Saturday to the second following Friday, both days inclusive;
(c)"net balance in current accounts" shall, in relation to a co-operative bank, mean the excess, if any, of the aggregate of the credit balances in current account maintained by that co-operative bank with the State Bank of India or a subsidiary bank or [a corresponding new bank or IDBI Bank Ltd.] [Substituted for the words "a corresponding new bank" by Act No. 4 OF 2013], over the aggregate of the credit balances in current accounts held by the said banks with such co-operative bank;
(d)for the purpose of computation of liabilities, the aggregate of the liabilities of a co-operative bank to the State Bank of India, a subsidiary bank, a corresponding new bank, a Regional Rural Bank, a banking company or any other financial institution notified by the Central Government in this behalf shall be reduced by the aggregate of the liabilities of all such banks and institutions to the co-operative bank;
(e)any cash with a co-operative bank or any balance held by a co-operative bank with another bank, shall not, to the extent such cash or such balances represents the balance in, or investment of, Agricultural Credit Stabilisation Fund of such co-operative bank, be deemed to be cash maintained in India .(1A)[ If the balance held by co-operative bank referred to in sub-clause (CCI) of clause (c) of section 56 of the Page 26 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined Banking Regulation Act, 1949, at the close of business on any day is below the minimum specified under sub- section (1), such co-operative bank shall, without prejudice to the provisions of any other law for the time being in force, be liable to pay to the Reserve Bank, in respect of that day, penal interest at a rate of three per cent. above the bank rate on the amount by which such balance falls short of the specified minimum, and if the shortfall continues further, the penal interest so charged shall be increased to a rate of five per cent. above the bank rate in respect of each subsequent day during which the default continues.
(IB)Notwithstanding anything contained in this section, if the Reserve Bank is satisfied, on an application in writing by the defaulting co-operative bank, that such defaulting co-operative bank had sufficient cause for its failure to comply with the provisions of sub-section (1), it may not demand the payment of the penal interest. (lC)The Reserve Bank may, for such period and subject to such conditions as may be specified, grant to any co- operative bank such exemptions from the provisions of this section as it thinks fit with reference to all or any of its officers or with reference to the whole or any part of its assets and liabilities.][Inserted by Act No. 4 OF 2013];
(2)The Reserve Bank may, for the purposes of this section and section 24, specify from time to time, with reference to any transaction or class of transactions, that such transaction or transactions shall be regarded as liability in India of a co-operative bank, and, if any question arises as to whether any transaction or class of transactions shall be regarded for the purposes of this section and section 24, as liability in India of a co- operative bank, the decision of the Reserve Bank thereon, shall be final";] [Substituted by Act 1 of 1984, Section 42, for Clause (j) (w.e.f. 29.3.1985).]
(k)for section 19, the following section shall be substituted, namely:-
"19. Restriction on holding shares in other co-operative societies.-No co-operative bank shall hold shares in any other co-operative society except to such extent and subject to such conditions as the Reserve Bank may specify in that behalf:
Provided that nothing contained in this section shall apply to-
(i)shares acquired through funds provided by the State Government for that purpose;
(ii)in the case of a central co-operative bank, the holding of shares in the State co-operative bank to which it is affiliated;
(iii)in the case of a primary co-operative bank, the Page 27 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined holding of shares in the central co-operative bank to which it is affiliated or in the State co-operative bank of the State in which it is registered:
Provided further that where any shares are held by a co- operative bank in contravention of this section at the commencement of the Banking Laws (Application to Co- operative Societies) Act, 1965 (23 of 1965), the co- operative bank shall without delay report the matter to the Reserve Bank and shall, notwithstanding anything contained in this section, be entitled to hold the shares for such period and on such conditions as the Reserve Bank may specify";
[(l) for section 20 of the principal Act, the following section shall be substituted, namely:-
"20. Restrictions on loans and advances.-(1) No co- operative bank shall-
(a)make any loans or advances on the security of its own shares; or
(b)grant unsecured loans or advances-
(i)to any of its directors; or
(ii)to firms or private companies in which any of its directors is interested as partner of managing agent or guarantor or to individuals in cases where any of its directors is a guarantor; or
(iii)to any company in which the chairman of the Board of directors of the co-operative bank (where the appointment of a chairman is for a fixed term) is interested as its managing agent, or where there is no managing agent, as its chairman or managing director:
Provided that nothing in clause (b) shall apply to the grant of unsecured loans or advances-
(a)made by a co-operative bank-
(i)against bills for supplies or services made or rendered to Government or bills of exchange arising out of bona fide commercial or trade transactions, or
(ii)in respect whereof trust-receipts are furnished to the co-operative bank;
(b)made by a primary co-operative bank to any of its directors or to any other person within such limits and on such terms and conditions as may be approved by the Reserve Bank in this behalf.
(2)Every co-operative bank shall, before the close of the month succeeding that to which the return relates, submit to the Reserve Bank a return in the prescribed form and manner showing all unsecured loans and advances granted by it to companies in cases [other than those in which the co-operative bank is prohibited under sub-section (1) to make unsecured loans and advances in which any of its directors is interested as director or managing agent or guarantor. (3)If, on examination of any return submitted under sub-Page 28 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024
NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined section (2), it appears to the Reserve Bank that any loans or advances referred to in that sub-section are being granted to the detriment of the interests of the depositors of the co-operative bank, the Reserve Bank may, by order in writing, prohibit the co-operative bank from granting any such further loans or advances or impose such restrictions on the grant thereof as it thinks fit, and may by like order direct the co-operative bank to secure the re-payment of such loan or advance within such time as may be specified in the order.";] [Substituted by Act 58 of Section 21, for Clause (l) (w.e.f. 1.2.1969).] [(m) in section 20-A, in sub-section (1),-
(i)the words and figures "Notwithstanding anything to the contrary contained in section 293 of the Companies Act, 1956 (1 of 1956)," shall be omitted;
(ii)in clause (a), for the words "any of its directors", the words "any of its past or present directors" shall be substituted;]
(n)in section 21, in sub-section (2), in clauses (c) and
(d), for the words "any one company, firm, association of persons or individual", the words "any one party"
shall be substituted;
(o)in section 22,-
(i)for sub-sections (1) and (2), the following sub-sections shall be substituted, namely:-
"(1) Save as hereinafter provided, no co-operative society shall carry on banking business in India unless-
(a)[***][Clause (a) ommtted by Act No. 4 OF 2013]
(b)it is a co-operative bank and holds a licence issued in that behalf by the Reserve Bank, subject to such conditions, if any, as the Reserve Bank may deem fit to impose:
Provided that nothing in this sub-section shall apply to a co-operative society, not being a primary credit society or a co-operative bank carrying on banking business at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965), for a period of one year from such commencement. [Provided further that nothing in this sub-section shall apply to a primary credit society carrying on banking business on or before the commencement of the Banking Laws (Amendment) Act, 2012, for a period of one year or for such further period not exceeding three years, as the Reserve Bank may, after recording the reasons in writing for so doing, extend.][Inserted by Act No. 4 OF 2013];
(2)[ Every co-operative society carrying on business as a co-operative bank at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965) shall before the expiry of three Page 29 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined months from the commencement, every co-operative bank which comes into existence as a result of the division of any other co-operative society carrying on business as a co-operative bank, or the amalgamation of two or more co-operative societies carrying on banking business shall, before the expiry of three months from its so coming into existence, [every primary credit society which had become a primary co-
operative bank On or before the commencement of the Banking Laws (Amendment) Act, 2012, shall before the expiry of three months from the date on which it had become a primary co-operative bank][Substituted by Act 1 of 1984, Section 42, for sub-Section (2) (w.e.f. 15.2.1984).]and every co-operative society [***][Wrods "other than a primary credit society" ommtted by Act No. 4 OF 2013]shall before commencing banking business in India, apply in writing to the Reserve Bank for a licence under this section:
Provided that nothing in clause (b) of sub-section (1) shall be deemed to prohibit-
(i)a co-operative society carrying on business as a co-
operative bank at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965); or
(ii)a co-operative bank which has come into existence as a result of the division of any other co-operative society carrying on business as a co-operative bank, or the amalgamation of two or more co-operative societies carrying on banking business at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965) or at any time thereafter;
(iii)[***][Clause (iii) ommtted by Act No. 4 OF 2013]
(ii)[sub-section (3-A) shall be omitted;
(iii)in sub-section (4), in clause (iii), the words, brackets, figures and letter "and sub-section (3-A)" shall be omitted;] [Substituted by Act 1 of 1984, Section 42, for sub-Clause (ii) (w.e.f. 15.2.1984). ] [22-A. Validation of licences granted by Reserve Bank to multi-State co-operative societies.[Inserted by Act 24 of 2004, Section 2 (w.e.f. 24.9.2004).]- Notwithstanding anything contained in any law or, judgment delivered or decree or order of any Court made,-
(a)no licence, granted to a multi-State co-operative society by the Reserve Bank under section 22, which was subsisting on the date of commencement of the Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004, shall be invalid or be deemed ever to have been invalid merely by the reason of such judgment, decree or order;
(b)every licence, granted to a multi-State co-operative Page 30 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined society by the Reserve Bank under section 22, which was subsisting on the date of commencement of the Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004, shall be valid and be deemed always to have been validly granted in accordance with law;
(c)a multi-State co-operative society whose application for grant of licence for carrying on banking business was pending with the Reserve Bank on the date of commencement of the Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004 shall be eligible to carry on banking business until it is granted a licence in pursuance of section 22 or is, by a notice in writing notified by the Reserve Bank that the licence cannot be granted to it;]
(p)["in section 23,-
(i)for sub-section (1), the following sub-section shall be substituted, namely:-] "(1) Without obtaining the prior permission of the Reserve Bank, no co-operative bank shall open a new place of business or change otherwise than within the same city, town or village, the location of an existing place of business:
Provided that nothing in this sub-section shall apply to-
(a)the opening for a period not exceeding one month of temporary place of business within a city, town or village or the environs thereof within which the co-
operative bank already has a place of business, for the purpose of affording banking facilities to the public on the occasion of an exhibition, a conference or a mela or any other like occasion;
(b)the [opening or changing the location of branches] [Substituted by Act 58 of 1968, Section 21, for "
opening of branches" (w.e.f.] by a central co-operative bank within the area of its operation.";
(ii)[ after sub-section (4), the following sub-section shall be inserted, namely:- [Inserted by Act 61 of 1981, Section 61 and Sch. II (w.e.f. 1.5.1982) and substituted by Act 1 of 1984, Section 42 (w.e.f. 15.2.1984).] "(4-A) Any co-operative bank other than a primary co-
operative bank requiring the permission of the Reserve Bank under this section shall forward its application to the Reserve Bank through the National Bank which shall give its comments on the merits of the application and send it to the Reserve Bank:
Provided that the co-operative bank shall also send an advance copy of the application directly to the Reserve Bank".][Substituted by Act 61 of 1981, Section 61 and Sch. II, for certain words (w.e.f. 1.5.1982).] [ (q) in section 24,-
(i)in sub-section (1), the words "After the expiry of two Page 31 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined years from the commencement of this Act", shall be omitted;
(ii)[ for sub-section (2A), the following sub-section shall be substituted, namely :-"(2A) A scheduled co-operative bank, in addition to the average daily balance which it is, or may be, required to maintain under section 42 of the Reserve Bank of India Act, 1934 and 2 of 1934. every other co-operative bank, in addition to the cash reserve which it is required to maintain under section 18, shall maintain in India, assets, the value of which shall not be less than such percentage not exceeding forty per cent. of the total of its demand and time liabilities in India as on last Friday of the second preceding fortnight as the Reserve Bank may, by notification in the Official Gazette, specify from time to time and such assets shall be maintained in such form and manner, as may be specified in such notification.]
(iii)in sub-section (3), for the proviso, the following proviso shall be substituted, namely:-
"Provided that every co-operative bank, other than a primary co-operative bank, shall also furnish within the said period, a copy of the said return to the National Bank.";
(iv)in sub-section (6), in clause (a), for the words "fourteen days", the words "the thirty days" shall be substituted;][Substituted by Act 1 of 1984, Section 42, for sub-Clause (q) (w.e.f. 29.3.1985).].
[(qq) after section 24, the following section shall be inserted, namely:-
"24-A. Power to exempt .-Without prejudice to the provisions of section 53, the Reserve Bank may, by notification in the Official Gazette, declare that, for such period and subject to such conditions as may be specified in such notification the whole or any part of the provisions of section 18 or section 24, as may be specified therein, shall not apply to any co-operative bank or class of co-operative banks, with reference to all or any of the offices of such co-operative bank or banks, or with reference to the whole or any part of the assets and liabilities of such co-operative bank or banks".];
(r)section 25 shall be omitted;
(ri)[ in the second proviso to section 26, for the expression "regional rural bank", the expression "co-
operative bank, other than a primary co-operative bank" shall be substituted;[Inserted by Act 61 of 1981, Section 61 and Sch. II (w.e.f. 1.5.1982).] [(ria) in section 26A, for the words "banking companies", the words "co-operative bank][Inserted by Act 1 of 1984, Section 42 (w.e.f. 15.2.1984).]shall be Page 32 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined substituted;';
(rii)in section 27, for sub-section (3), the following sub- section shall be substituted, namely:-
"(3) Every co-operative bank, other than a primary co-
operative bank, shall submit a copy of the return which it submits to the Reserve Bank, under sub-section (1) also to the National Bank and the powers exercisable by the Reserve Bank under sub-section (2) may also be exercised by the National Bank in relation to co- operative banks, other than primary co-operative banks.";
(s)for [section 29][Substituted for the words "sections 29 and 30" by Act No. 4 OF 2013], the following section shall be substituted, namely:-
"29. Accounts and balance-sheet .-(1) At the expiration of each year ending with the 30th days of June, [or at the expiration of a period of twelve months ending with such date as the Central Government may, by notification in the Official Gazette, specify in this behalf,][Inserted by Act 54 of 1991, Section 2 (w.e.f. 20.12.1991).]every co-operative bank, in respect of all business transacted by it, shall prepare with reference to that year [or the period][Inserted by Act 54 of 1991, Section 2 (w.e.f. 20.12.1991).]a balance-sheet and profit and loss account as on the last working day of the year [or the period][Inserted by Act 54 of 1991, Section 2 (w.e.f. 20.12.1991).]in the Forms set out in the Third Schedule as near thereto as circumstances admit:
(2)The balance-sheet and profit and loss account shall be signed by the manager or the principal officer of the bank and where there are more than three directors of the bank, by at least three of those directors, or where there are not more than three directors, by all the directors.
(3)The Central Government, after giving not less than three months' notice of its intention so to do by a notification in the Official Gazette, may, from time to time by a like notification, amend the Forms set out in the Third Schedule:] [Provided that with a view to facilitating the transition from one period of accounting to another period of accounting under this sub-section, the Central Government may, by order published in the Official Gazette, make such provisions as it considers necessary or expedient for the preparation of, or for other matters relating to, the balance-sheet or profit and loss account in respect of the concerned year or period, as the case may be.;][Inserted by Act 54 of 1991, Section 2 (w.e.f. 20.12.1991).] [(sa) for section 30, the following section shall be substituted, namely :-Page 33 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024
NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined
"30. Audit. - (1) Without prejudice to anything contained in any other law for the time being in force, where the Reserve Bank is satisfied that it is necessary in the public interest or in the interest of the co- operative bank or its depositors so to do, it may at any time by general or special order direct that an additional audit of the co-operative bank accounts, for any such transactions or class of transactions or for such period or periods as may be specified in the order, shall be conducted and may by the same or a different order appoint a person duly qualified under any law for the time being in force to be an auditor of companies to conduct such audit, and the auditor shall comply with such directions and make a report of such audit to the Reserve Bank and forward a copy thereof to the co- operative bank.
(2)The expenses of, or incidental to, the additional audit specified in the order made by the Reserve Bank shall be borne by the co-operative bank. (3)The auditor referred to in sub-section (1) shall have such powers, exercise such functions vested in and discharge the duties and be subject to the liabilities and penalties imposed on auditors of companies by section 227 of the Companies Act, 1 956 and also that of the auditors, if any, appointed by the law establishing, constituting or forming the co-operative bank to the extent the provisions of the Companies Act, 1 956 are not inconsistent with the provisions of such law. (4)In addition to the matters referred to in the order under sub-section (1) the auditor shall state in his report-
(a)whether or not the information and explanation required by him have been found to be satisfactory;
(b)whether or not the transactions of the co-operative bank which came to his notice have been within the powers of the co-operative bank;
(c)whether or not the returns received from branch offices of the co-operative bank have been found adequate for the purpose of his audit;
(d)whether the profit and loss accounts, shows a true balance or profit or loss for the period covered by such account;
(e)any other matter which he considers should be brought to the notice of the Reserve Bank and the shareholders of the co-operative bank.]' [(t) in section 31,-
(i)for the words "within three months" and "of three months", the words "within six months" and "of six months" shall, respectively, be substituted;
(ii)for the second proviso, the following proviso shall be substituted, namely:-
Page 34 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined "Provided further that a co-operative bank, other than a primary co-operative bank, shall furnish such returns also to the National Bank.";] (u)sections 32 to 34 shall be omitted;
(v)in section 34-A, sub-section (3) shall be omitted; (w)in section 35,-
(i)in sub-section (1),-
(a)for the words and figures "section 235 of the Companies Act, 1956 (1 of 1956)", the words "any law relating to co-operative societies for the time being in force" shall be substituted;
(b)[ the following proviso shall be inserted at the end, namely:-[Substituted by Act 1 of 1984, Section 42 (w.e.f. 15.2.1984).] "Provided that the Reserve Bank may, if it considers it necessary or expedient so to do, cause an inspection to be made of a primary co-operative bank under this sub-
section by one or more officers of a State co-operative bank in the State in which such primary co-operative bank is registered."];
(ii)in sub-section (4), clause (b) shall be omitted;
(iii)[ after sub-section (4), the following sub-section shall be inserted, namely:-[Inserted by Act 1 of 1984, Section 42 (w.e.f. 15.2.1984).] "(4-A) Without prejudice to the provisions of sub-section (4), the Reserve Bank may, if it considers it necessary or expedient so to do supply a copy of the report on any inspection or scrutiny to the State co-operative bank and the Registrar of co-operative societies of the State in which the bank which has been inspected or whose affairs have been scrutinised is registered."];
(iv)[ in sub-section (6), for the expressions "regional rural banks" and "regional rural bank", wherever they occur, the expressions "co-operative banks other than primary co-operative banks" and "co-operative bank other than a primary co-operative bank" shall, respectively, be substituted;] [Sub-Clause (iii) renumbered as sub-Clause (iv) by Act 1 of 1984, Section 42 (w.e.f. 15.2.1984).]
(v)[][Sub-Clause (iv) renumbered as sub-Clause (v) by Act 1 of 1984, Section 42 (w.e.f. 15.2.1984).] the Explanation shall be omitted;
(x)in section 35-A, in sub-section (1), in clause (c), for the words "any banking company", the words "the banking business of any co-operative bank" shall be substituted;
(y)section 35-B shall be omitted;
[(z) in section 36, in sub-section (1),-
(a)clause (b) shall be omitted;
(b)for clause (d), the following clause shall be substituted, namely:-
Page 35 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined "(d) at any time, if it is satisfied that for the reorganisation or expansion of co-operative credit on sound lines it is necessary so to do by an order in writing and on such terms and conditions as may be specified therein,-
(i)depute one or more of its officers to watch the proceedings at any meeting of the Board of directors of the co-operative bank or of any other body constituted by it and require the co-operative bank to give an opportunity to the officer so deputed to be heard at such meetings and to offer such advice on such matters as the officer may consider necessary or proper for the reorganisation and expansion of co-operative credit on sound lines, and also require such officer to send a report of such proceedings to the Reserve Bank;
(ii)appoint one or more of its officers to observe the manner in which the affairs of the co-operative bank or its offices or branches are being conducted and make a report thereon;"];
(za)in section 36-A,-
(i)for sub-section (1), the following sub-section shall be substituted, namely:-
"(1) The provisions of section 11, section 18 and section 24 shall not apply to a co-operative bank which has been refused a licence under section 22 or whose licence has been cancelled under that section or which is or has been prohibited or precluded from accepting deposits by virtue of any order made under this Act or of any alteration made in its bye-laws.";
(ii)after sub-section (2), the following sub-section shall be inserted, namely:-
"(3) Subject to the provisions of sub-sections (1) and (2), a co-operative society carrying on business as a primary co-operative bank at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965), or a co-operative society which becomes a primary co-operative bank after such commencement shall, notwithstanding that it does not at any time thereafter satisfy the requirements of the definition of primary co-operative bank [in clause (ccv) of section 5][Substituted by Act 1 of 1984, Section 42, for " in clause (ccc) of section 5" (w.e.f. 15.2.1984).], continue to be a primary co-operative bank within the meaning of this Act, and may, with the approval of the Reserve Bank and subject to such terms and conditions as the Reserve Bank may specify in that behalf, continue to carry on the business of banking.";
[(zaa) after section 36-AA of the principal Act, the following sections shall be inserted, namely:-
"36-AAA. Supersession of Board of directors of a multi- State co-operative bank. - (1) Where the Reserve Bank Page 36 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined is satisfied that in the public interest or for preventing the affairs of a multi-State co-operative bank being conducted in a manner detrimental to the interest of the depositors or of the multi-State co-operative bank or for securing the proper management of the multi-State co- operative bank, it is necessary so to do, the Reserve Bank may, for reasons to be recorded in writing, by order, supersede the Board of directors of such multi- State co-operative bank for a period not exceeding five years as may be specified in the order, which may be extended from time to time, so, however, that total period shall not exceed five years.
(2)The Reserve Bank may, on supersession of the Board of directors of the multi-State co-operative bank under sub-section (1) appoint an Administrator for such period as it may determine.
(3)The Reserve Bank may issue such directions to the Administrator as it may deem appropriate and the Administrator shall be bound to follow such directions. (4)Upon making the order of supersession of the Board of directors of a multi-State co-operative bank,-
(a)the chairman, managing director and other directors as from the date of supersession of the Board shall vacate their offices as such;
(b)all the powers, functions and duties which may, by or under the provisions of the Multi-State Co-operative Societies Act, 2002 (39 of 2002) or this Act or any other law for the time being in force, be exercised and discharged by or on behalf of the Board of directors of such a multi-State co-operative bank or by a resolution passed in general meeting of such co-operative bank, shall, until the Board of directors of such co-operative bank is reconstituted, be exercised and discharged by the Administrator appointed by the Reserve Bank under sub-section (2):
Provided that the power exercised by the Administrator shall be valid notwithstanding that such power is exercisable by a resolution passed in the general meeting of such multi-State co-operative bank. (5)(a)The Reserve Bank may constitute a committee of three or more persons who have experience in law, finance, banking, administration or accountancy to assist the Administrator in discharge of his duties.
(b)The committee shall meet at such times and places and observe such rules of procedure as may be specified by the Reserve Bank.
(6)The salary and allowances to the Administrator and the members of the committee constituted by the Reserve Bank shall be such as may be specified by the Reserve Bank and be payable by the concerned multi-
State co-operative bank.
Page 37 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined (7)On and before expiration of period of supersession of the Board of directors as specified in the order issued under sub-section (1), the Administrator of the multi- State co-operative bank shall call the general meeting of the society to elect new directors.
(8)Notwithstanding anything contained in any other law or in any contract, or bye-laws of a multi-State co-operative bank, no person shall be entitled to claim any compensation for the loss or termination of his office.
(9)The Administrator appointed under sub-section (2) shall vacate office immediately after the Board of directors of the multi-State co-operative society has been constituted."
13. Section 35A of the Act of 1949 provides respondent - bank to exercise statutory powers conferred upon the Bank under the said section wherein, the bank can issue direction for initiating an inquiry into the affairs of the bank.
14. In the facts of the present case, as referred above, considering the aforesaid facts, which are undisputed, the respondent - bank had issued the impugned directives, exercising powers under Section 35A of the Act of 1949. It is also apposite to refer to Section 35A(2), which reads thus:-
"(2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect."
15. Section 35A(2) provides that the respondent - bank may, upon a representation so made by the petitioner - bank or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction, impose such conditions as it thinks fit, subject to which the modification or cancellation shall have the effect.
Page 38 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined
16. In the facts of the present case, the petitioner - bank, admittedly, has not approached the respondent - bank under Section 35A(2) of the Act of 1949.
16.1. The respondent - bank informed the petitioner - bank with respect to substantial increase in NPA of the petitioner - bank as on 31.12.2022 and resultantly, deterioration in the financial position of the petitioner - bank. Subsequently, statutory inspection of the petitioner - bank was conducted between 28.02.2023 and 10.03.2023 with respect to financial position of the petitioner - bank as on 31.03.2022 wherein, substantial increase in Net NPA of the petitioner - bank was noticed and decrease in Statutory Capital requirement and accumulated losses were observed, based on which, SAF was re-imposed on 18.08.2023 with the conditions more stringent in the areas related to loan disbursement, capital expenditure etc. and the petitioner - bank was advised to improve its capital position, NPA position etc. In view thereof, the petitioner - bank was kept under SAF with effect from 28.02.2023 and it was re- imposed on 18.08.2023. An on-site review of the petitioner - bank was once-again carried out from 22.08.2023 to 28.08.2023 wherein, negative net worth and deposit erosion were observed in the petitioner - bank. Taking into account the aforesaid deteriorating financial position of the petitioner - bank and to safeguard the interest of the depositors and the public at large, All Inclusive Direction (AID) was imposed on the petitioner - bank on 25.09.2023. In view thereof, in the opinion of this Court, the directions issued by the respondent - bank under Section 35A of the Act of 1949 being violative of the principles of natural justice pale into insignificance in view of the fact that, as referred above, it was within the knowledge of the petitioner - bank since 31.12.2022 whereby, Supervisory Action Framework (SAF) was imposed on the petitioner - bank on Page 39 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined 28.02.2023. Opportunities came to be granted to the petitioner - bank to improve its financial substratum, capital position, NPA position etc. However, having failed to do so, All Inclusive Direction (AID) came to be imposed upon the petitioner - bank on 25.09.2023 in the interest of public at large and in the interest of the depositors. It was open for the petitioner - bank to prefer a representation to the respondent - bank to place before it, factual scenario with respect to improve the financial substratum of the petitioner - bank and the same would be considered by the respondent - bank.
16.2. In the facts of the present case, rather than availing statutory remedy under Section 35A(2) of the Act of 1949, the petitioner - bank has approached this Court, seeking reliefs, as referred above, mainly on the ground that the impugned directions dated 25.09.2023 issued by the respondent - bank under Section 35A of the Act of 1949 are violative of the principles of natural justice.
17. In light of the aforesaid, it is apposite to refer to the position of law in the case of Haresh Tekchand Raisinghani and others vs. Union of India and others reported in 2019 SCC OnLine Bom 5825, more particularly, paragraphs 44 and 45 thereof, which read thus:-
"44. To our mind, the arguments of the petitioners before us are self defeating and contradictory. While they accuse the RBI of not taking prompt action although having prior knowledge, after the RBI acted and has taken action, the petitioners have challenged it on the ground that the same does not meet the requirement of section 35A of the Act of 1949. Pertinently, the petition filed in public interest challenges the RBI's action alleging that it is contrary to public interest. We do not think that such an assertion of the petitioners can be accepted in such a situation. We have found repeatedly that litigation, either in public or private interest, is instituted in this court by invoking its writ jurisdiction without knowing the restrictions and limits of the same as also the fundamental and primary requirement of complete and authentic pleadings. There is nothing on record by Page 40 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined which one can conclude that the primary burden cast by law on such petitioners has been discharged by them. We do not know whether all investors are totally innocent or unaware of the dealings and transactions of the concerned bank with the HDIL Group. The litigants must realise that this court cannot grant reliefs on specious ground of sympathy. We are bound by law. No writ contrary to law can be issued. We render justice in accordance with law. We cannot, therefore, ignore the materials that have been brought before us by the RBI on oath and prefer some general and vague allegations of the petitioners to the contrary. When there are specific materials placed on record by the RBI to support its action under section 35A, we cannot agree with the petitioners' counsel that the RBI was not required to interfere or step in. In fact, Mr.Dhond, on instructions, has clarified that the RBI intends to bring some order and discipline in the affairs of the P&MC Bank. The bank is not yet placed under liquidation. The RBI is trying to take a stock of all the assets and properties of the P&MC Bank. The RBI is trying to ascertain its financial base as well. The RBI is trying its best to revive its operations and bring some normality in the affairs of the bank. The RBI has not stepped in only because it desired to place restrictions on the bank. We are in agreement with Mr.Dhond that if indiscriminate withdrawals are permitted, possibly, nothing would be left with the bank. Those close to wrongdoers and Management of the affairs at the relevant time would be benefited by rushing to the bank and withdrawing the amounts in their accounts entirely. Thereafter, the bank would have been left with no liquidity. It is in these circumstances that the RBI has, by the impugned directives, held that it cannot allow such withdrawals as are claimed.
45. The overriding power of the RBI under section 35A enables it to record a satisfaction and to take measures so as to prevent the affairs of the bank being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company. We think that on the basis of the available material, the RBI was rightly satisfied that such protective measures are indeed necessary and therefore, it must issue the directions. Further, it has been stated by the RBI in its affidavit that upto 78% of the depositors could withdraw their entire deposits despite these protective measures. We do not think that we can, in writ jurisdiction, substitute the opinion or satisfaction of the RBI with our order or direction, much less to the contrary. We possess no Page 41 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined experience and expertise in financial and fiscal matters. In matters of banking practices and the business of banking and its regulation, we must leave everything to the wisdom of the RBI. In fact, the presumption is that it will prevent the acts conducted in a manner prejudicial to the interest of depositors. We do not think that any proof to the contrary has been placed before us and on the sketchy materials in the form of averments and allegations, which are sweeping and general, we can not set aside the impugned directives."
18. The aforesaid was the subject matter of challenge before the Apex Court in the case of Guru Nanak Vidhyak Society vs. Reserve Bank of India and others rendered in Special Leave Petition (Civil) Diary No.13047 of 2020 on 31.07.2020. Paragraph 3 of the said judgment reads thus:-
"3. In the event that any genuine depositor has a grievance in regard to a disbursement for the purpose of attending to urgent medical or educational requirements, we will leave it open to the depositor to move a representation to the competent authority in the Reserve Bank of India and/or the Administrator appointed by the Reserve Bank of India. The Administrator may devise appropriate modalities within the terms of the existing directives as applicable to ensure that genuine cases of hardship on medical and educational grounds are duly attended to."
18.1. It is apposite to deal with the judgments relied upon by Mr.B.S. Patel, learned Senior Counsel appearing for the petitioner, which are as follow:-
(i) Writ Petition (Civil) No.24257 of 2022. Paras 7 to 10 read as under:-
"7. Sr. Adv. E.K.Nandakumar appearing for the RBI as instructed by Adv. Poulose Abraham, refuted the petitioner's contentions and put forth the following arguments;
The RBI constituted under Sec. 3 of the RBI Act 1934 Page 42 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined acts as the Central Bank of the country and exercises supervisory and regulatory powers over other banks and banking institutions as empowered by the Banking Regulation Act. Sec. 35 read with Sec. 56 of the Act provides RBI with the power to inspect and conduct special scrutiny of Co-operative Banks. Under Sec. 35(1), the RBI is invested with the power to conduct inspection at any time at its discretion. The RBI can also conduct inspection as directed by the Central Government. Only when the RBI is directed by the Central Government to inspect, it is bound to report to the Central Government and in such event, it is for the Central Government to take necessary action. As the inspection in the case at hand was conducted by the RBI on its own, it is not required to forward the report of inspection to the Central Government and it is not for the Central Government to take action under Section 35 (4), after considering the report and after hearing the petitioner Bank. Even without resorting to the procedure under Section 35, the RBI can, in exercise of the power under Sec.35A, issue such directions as it deems fit to prevent the affairs of any co-operative bank from being conducted in a manner detrimental to the interest of the depositors or prejudicial to the interest of the bank. The Act also confers the RBI with power under Section 36(1A) to prohibit any banking company from entering into any particular transaction or class of transactions. Although the inspection was conducted as per Sec. 35(1), the direction in Ext.P2 is issued in exercise of the power under Section 35A and Section 36. Neither Section 35A or Section 36 envisages an opportunity of hearing to the petitioner Bank. Hence, the challenge on that ground, premised on the procedure prescribed in Section 35 cannot be countenanced. Relying on Small Industries Development Bank of India v. SIBCO Investment Private Limited [(2022) 3 SCC 56], it is argued that it is not necessary for the RBI to mention any specific provision for issuing directions. The nature and scope of powers conferred on the RBI is highlighted with the aid of the decision in Internet and Mobile Association of India v. Reserve Bank of India [(2020) 10 SCC 274]. It is contended that the impugned order issued strictly within the four corners of the statutory power and in public interest, warrants no interference.
6. Before proceeding to decide the dispute involved, it may be relevant to note that, the provisions of the Act will not apply to a primary agricultural credit society, a cooperative land mortgage bank and any other co-operative bank, except in the manner and to Page 43 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined the extent specified in part V. The provisions of the Act are made applicable to Co-operative Societies by virtue of Section 56 in Chapter V. The petitioner being an Urban Co-operative Bank is thus amenable to the supervisory and regulatory control of the RBI. Having found the RBI to be having supervisory and regulatory powers, it is also necessary to consider the autonomous character of co-operative societies. For this, one need only refer to the preamble of the Kerala Co-operative Socialites Act, 1969 extracted hereunder;
"Preamble.- WHEREAS with a view to provide for the orderly development of the Co-operative sector in the State, it is essential to organize the Co-operative Societies in accordance with Co-operative principles as self governing democratic institutions, to achieve the objects of equity, social justice and economic development, as envisaged in the directive principles of State Policy of the Constitution of India, and to promote scientific and technological development, health care, market intervention and management excellence in the Co-operative Sector it is expedient to consolidate, amend and unify the law relating to Co-operative societies in the State."
7. No doubt, despite the autonomous nature of Co- operative Societies, Chapter V of the Act provides sufficient power to the RBI to intervene and correct the mistakes and defects of co-operative societies/banks. But while exercising Such power, the RBI should tread with caution and circumspection, keeping in mind that Co-operative Societies are democratic self governing institutions.
8. On the contention based on the power under Section 35 of the Act, it is evident from a reading of Sub-section (1) of Section 35 that a copy of the report of inspection has to be supplied to the banking company, irrespective of whether the inspection was conducted at the instance of the Central Government or by the RBI on its own. But that does not take away the powers of the RBI to act on its own. Although Sections 35A and 36 of the Act confers the RBI with the power to act on its own, the question is whether such power can be exercised without affording an opportunity of hearing to the banking company. As the provisions do not specifically spell out such opportunity, the principle of audi alteram partem will have to be read into the statute, the same being an integral and unavoidable limb of the rules of natural justice. Dilating on this point, the Apex Court in Maneka Gandhi v. Union of Page 44 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined India 1978(1) SCC 248 observed as under:
" Now, as already pointed out, the doctrine of natural justice consists principally of two rules, namely, nemo debet esse judex in propria causa : no one shall be a judge in his own cause, and audi alteram partem : no decision shall be given against a party without affording him a reasonable hearing......The audi alteram partem rule is intended to inject justice into the law and it cannot be applied to defeat the ends of justice, or to make the law "lifeless, absurd, stultifying, self- defeating or plainly contrary to the common sense of the situation". Since the life of the law is not logic but experience and every legal proposition must, in the ultimate analysis, be tested on the touchstone of pragmatic realism, the audi alteram partem rule would, by the experiential test, be excluded, if importing the right to be heard has the effect of paralysing the administrative process or the need for promptitude or the urgency of the situation so demands. But at the same time it must be remembered that this is a rule of vital importance in the field of administrative law and it must not be jettisoned save in very exceptional circumstances where compulsive necessity so demands. It is a wholesome rule designed to secure the rule of law and the court should not be too ready to eschew it in its application to a given case. True it is that in questions of this kind a fanatical or doctrinaire approach should be avoided, but that does not mean that merely because the traditional methodology of a formalised hearing may have the effect of stultifying the exercise of the statutory power, the audi alteram partem should be wholly excluded. The court must make every effort to salvage this cardinal rule to the maximum extent permissible in a given case. It must not be forgotten that "natural justice is pragmatically flexible and is amenable to capsulation under the compulsive pressure of circumstances". The audi alteram partem rule is not cast in a rigid mould and judicial decisions establish that it may suffer situational modifications. The core of it must, however, remain, namely, that the person affected must have a reasonable opportunity of being heard and the hearing must be a genuine hearing and not an empty public relations exercise. That is why Tucker, L.J., emphasised in Russel v. Duke of Norfolk [(1949) 1 All ER 109] that "whatever standard of natural justice is adopted, one essential is that the person concerned should have a reasonable opportunity of presenting his case". What opportunity may be regarded as reasonable would necessarily depend on the practical necessities of the Page 45 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined situation. It may be a sophisticated full-fledged hearing or it may be a hearing which is very brief and minimal :
it may be a hearing prior to the decision or it may even be a post-decisional remedial hearing. The audi alteram partem rule is sufficiently flexible to permit modifications and variations to suit the exigencies of myriad kinds of situations which may arise."
The position was reiterated in a series of decisions, including Rajesh Kumar v. CIT [( 2007) 2 SCC 181] " Effect of civil consequences arising out of determination of lis under a statute is stated in State of Orissa v. Dr. Binapani Dei [(1967) 2 SCR 625 : AIR 1967 SC 1269] . It is an authority for the proposition when by reason of an action on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice are required to be followed. In such an event, although no express provision is laid down in this behalf, compliance with principles of natural justice would be implicit . In case of denial of principles of natural justice in a statute, the same may also be held ultra vires Article 14 of the Constitution."
9. Therefore, even accepting that the direction in Ext. P2 is issued in exercise of the power under Sec,. 35 A and 36, the order cannot be sustained since it was passed without hearing the affected party.
10. Moreover, a careful scrutiny of Ext.P2 reveals that none of the circumstances enumerated mentioned in Section 35A are mentioned in the order. Without even referring to those circumstances, the RBI could not have arrived at the satisfaction required for passing an order having far reaching consequences. Now, coming to Section 36, even if the power to prohibit banking company from entering into any particular transaction or class of transactions is conceded, it is the fundamental that the order passed in exercise of such power should reflect the basis for prohibiting a transaction or class of transactions. Surprisingly, Ext. P2 or the accompanying report does not contain any such material. Moreover, an omnibus direction prohibiting disbursal of all loans Page 46 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined and advances cannot be termed as an order prohibiting any particular transaction or class of transactions. The above discussion leads to the only conclusion that, Ext. P2, to the extent it directs stoppage of further sanction/disbursal of fresh loans and advances is patently illegal and hence unsustainable."
The aforesaid judgment came to be confirmed by the Division Bench of the Kerala High Court in Writ Appeal No.419 of 2023. The respondent - Reserve Bank of India has approached the Apex Court whereby, notice came to be issued.
The aforesaid order is challenged by the respondent - bank by way of Special Leave to Appeal (Civil) No.15667 of 2023, which is pending before the Apex Court.
The aforesaid judgment is relied upon by Mr.Patel, learned Senior Counsel wherein, it is held that principles of natural justice are required to be followed before issuing directions under Section 35A of the Act of 1949.
In the opinion of this Court, the said judgment has persuasive value.
(ii) Mr.Patel, learned Senior Counsel also relied upon the decision in the case of Peerless General Finance and Investment Co. Limited and another vs. Reserve Bank of India reported in (1992)2 SCC 343, more particularly, paragraphs 66 and 67 thereof.
(iii) K.I. Sheprad vs. Union of India reported in (1987)4 SCC 431.
In the said decision, the question was whether excluded employees are required to be heard before excluding their names in the draft scheme of amalgamation framed under Section 45(6) of Page 47 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined the Act of 1949, the same is not applicable to the facts of the present case.
(iv) Apexa Co-operative Bank Limited vs. District Registrar & others reported in 1997(0) AIJEL-HC 200700:-
The said decision relied upon by Mr.Patel, learned Senior Counsel is under Section 107 of the Gujarat Co-operative Societies Act, 1961 and Section 35A of the Act of 1949 is not discussed in the same.
Section 35A of the Act of 1949 provides that in extreme cases, pre-dicisional hearing can be dispensed with. Further, the aforesaid is not provided in Section 35A of the Act of 1949 and the same is not read into as granting of opportunity of hearing before issuing the directions under Section 35A of the Act.
(v) Canara Bank vs. V.K. Awasthy reported in (2005)6 SCC 321 The aforesaid decision is not applicable to the facts of the present case, the matter being under the provisions of labour and service law.
(vi) Aabedinbhai S Baldiwala and others vs. Registrar, Co-
operative Societies and others reported in 2010(3) GLR 2349.
12.1. As already noted, in the present case, order requiring the Registrar to supersede the Board of Directors of the Bank was passed on 26-11-2008. In a communication of the same date appended to such an order, reasons for such a decision have been recorded. It is recorded that several irregular- ities were noticed in conducting the affairs of the Bank. It was recorded that in view of unsatisfactory state of affairs of the Bank, R.B.I. was of the view that the Board of Directors may be superseded and an Administrator be appointed. Based on this com-
Page 48 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined munication, Registrar, Co-operative Society passed order dated 19-12-2008 superseding the Board of Directors and Administrator to take charge of the affairs of the Bank. These orders were challenged before the Court on various grounds including the ground that no hearing was granted before passing such orders. Learned Single Judge, however, per- mitted the petition to be withdrawn for making representation to the R.B.I. by way of post-deci- sional hearing. Representation thereupon was made by the petitioners to R.B.I. which representa- tion also came to be rejected.
12.2. Before passing the above-mentioned orders, R.B.I. had brought to the notice of the Bank several irregularities. In fact, at one stage after issuing show-cause notice, penal order imposing fine of Rs. 5 lakhs was passed. Fine was actually paid by the Bank.
12.3. In the affidavit dated 28-4-2010 filed by Shri Hemant, son of Yeshwant Joshi, Assistant General Manager of R.B.I., major irregularities noticed in conducting the affairs of the Bank have been stated as under :
"(i) the Bank had not prepared any panel of bro- kers.
(ii) All these securities transactions were under-
taken with Samay Trade Link either as seller or purchaser as a counter party.
(iii) the Register for the S.L.R. securities was also not maintained properly. No checking of the invest- ments was being done by any officer of the Bank. The investment decision was being taken by the Chairman or Managing Director and one officer. One clerk was doing the work of both front office and the back office, however, he is not signing any voucher.
(iv) The security transactions were not subjected to concurrent audit.
(v) The Bank had not used any scientific method to decide the rate of securities or verified rates with any authority while purchase or sale of such secu- rities.
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(vi) Although, concurrent audit has been intro- duced, securities transactions were not subjected to concurrent audit.
(vii) The Board of Directors had not carried out a half yearly review of securities transactions. The Bank did not forward the review note on securities transactions to the Regional office by 15th Novem- ber/15th May, as required under Circular B.P.D. (P.C.B.). No. 37/12-5-01/2004-2005 dated February 26, 2005.
(viii) Shri Chaviwala, General Manager was associ- ated with back office business/entering/posting of deals transactions and was also operating the Banks C.S.G.L. account with H.D.F.C. Bank. During the inspection, it was revealed that Alavi Bank had not followed any sound system of credit appraisal and that it did not take into account im- portant aspects such as financial position of the borrower, purpose of loan, business prospects, turnover, income generating capacity, liquidity etc. and that the Alavi Bank also did not obtain credit opinion on the borrower. The inspection further re- vealed that the loans and advances were made to the relatives of the Directors in total disregard to the guidelines issued by the R.B.I. in this regard. 12.4. We may also recall that the petitioners who were the members of the Board of Directors of the Bank were elected in the year 2006 for a period of three years. Their term thus came to an end in the year 2009. Last order extending the term of Ad- ministrator passed by R.B.I. on 11-12-2009 clearly provides that Administrator shall hold the office till fresh elections of Board of Directors are held.
14. In view of the factual background noticed above, we are of the view that learned Single Judge committed no error in dismissing the petition. In facts of the case, it cannot be stated that the principles of natural justice were violated. Order of R.B.I. was preceded by series of actions in form of bringing certain defects to the notice of the Bank and also of passing penal order after issuing show-cause notice. It cannot be stated that the Bank and its Directors were not aware about several irregularities noticed by the R.B.I. This coupled with the fact that the appellants earlier approached this Court and agreed to accept post- decisional hearing would convince us not to Page 50 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined entertain the challenge of the Bank any further. In any case, we find that the term of the office of Directors having come to an end, question of their re-induction would not arise. Further we propose to direct the Registrar to hold the elections as early as possible.
16.1. Under Sec. 35A of the Banking Regulation Act, the R.B.I. has powers to give directions, if it is satisfied that in the public interest or in the inter- est of the Banking policy or to prevent the affairs of any Banking company being conducted in a manner detrimental to the interests of the deposi- tors or in a manner prejudicial to the interests of the Banking company or to secure proper manage- ment of any Banking company, it is necessary to issue directions generally or in a particular case and the concerned Co-operative Bank is bound to comply with such directions. Under sub-sec. (2) of Sec. 35A, it is open for the R.B.I. either on repre- sentation made to it or on its own motion, to mod- ify or cancel any direction under sub-sec. (1). Pow- ers under Sec. 35A of the Banking Regulation Act as is apparent are very wide. Before passing any order under sub-sec. (1) of Sec. 35A, the statute does not specifically provide for any pre-decisional hearing. Sub-section (2) of Sec. 35A, however, per- mits post-decisional hearing. We do not wish to ex- amine the scope of the powers of R.B.I. under Sec. 35A of the Banking Regulation Act nor do we in- tend to comment on the nature of hearing required to be given under the said Section. These provi- sions are noticed only for the purpose of compari- son to the relevant statutory provisions under the Co-operative Societies Act.
24. In the result, appeal is disposed of with fol- lowing observations and directions :
(iii) In case of urgency, where any delay is likely to adversely affect public interest or cause serious prejudice to the interests of the depositors or to the Bank, R.B.I. would have the power to issue ap-
propriate directions. In such a case also, however, by way of post-decisional hearing, R.B.I. must con- sider the representation if any made by the per- sons affected by the said decision and dispose of such representation by recording reasons howso- ever brief.
Page 51 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined It is, however, clarified that it is not possible to lay down any rigid outline of requirements of hearing and the same must depend on facts of each case.
(iv) So far as present appeal is concerned, as al- ready noted earlier, we neither find that impugned orders passed by the R.B.I. suffer from breach of principles of natural justice nor do we find that learned Single Judge committed any error in the impugned judgment. The Registrar of Co-operative Societies is, however, directed to hold the elections of the Managing Committee of the appellant-Bank expeditiously and in any case not later than three months from the date of receipt of a copy of this order.
In the aforesaid judgment, it is held by the Division Bench that before recommending supersession of the Board of Directors of the co-operative bank under Section 115A of the Gujarat Co-operative Societies Act, 1961, the Reserve Bank of India should ordinarily grant pre-decisional hearing.
In the facts of the said case, the decision of the Reserve Bank of India, based on irregularities pointed out by the respondent - Bank of India, was upheld. The said decision is with respect to pre- decisional hearing be granted ordinarily. However, the said judg- ment has not decided the powers under Section 35A of the Act.
(vii) In the case of Dr.T.Rajakumari vs. The Government of Tamil Nadu (supra), the Apex Court held that the law was struck down by one High Court and in light of the same, the Apex Court held that till there is a stay on the order, which is passed, the said provision would not be in operation. The said ratio does not apply to the facts of the present case wherein, the Kerala High Court has only interpreted Section 35A of the Act of 1949.
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(viii) In the case of Dharani Sugars & Chemicals Ltd. vs. Union of India reported in (2019)5 SCC 480, it is held that the Reserve Bank of India has wide powers under Section 35A of the Act. Paragraphs 39 and 46 thereof, read as under:-
"39. A cursory reading of Section 35-A makes it clear that there is nothing in the aforesaid provision which would indicate that the power of RBI to give directions, when it comes to the Insolvency Code, cannot be so given. The width of the language used in the provision which only uses general words such as "public interest" and "banking policy", etc. makes it clear that if otherwise available, we cannot interdict the use of Section 35-A as a source of power for the impugned RBI circular on the ground that the Insolvency Code, 2016 could not be said to have been in the contemplation of Parliament in 1956, when Section 35-A was enacted. Dr Singhvi's contention must, therefore, fail."
46. There is no doubt that Sections 21 and 35-A do confer very wide powers on RBI to give directions when it comes to the matters specified therein. However, this does not answer the precise question before us. This question can only be answered by referring to Sections 35-AA and 35- AB.
The aforesaid decision distinguishes the powers conferred to the respondent - bank under Sections 21, 35-A, 35AA and 35AB of the Act of 1949.
The aforesaid judgment holds that the Reserve Bank of India acknowledges the powers conferred under Section 35A of the Act of 1949.
(ix) Moon Technology Limited vs. Union of India reported in (2019)18 SCC 401 Reliance is placed on paragraph 100 of the said judgment. In Page 53 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined the said judgment, it is explained by the decision given by the Bench of three Hon'ble Judges reported in (2020)10 SCC 274 in paragraph 177.
The said judgment is delivered in context of Section 396 of the Companies Act, 1956 with respect to compulsory amalgamation.
(x) Ganesh Bank of Kurudwad vs. Union of India reported in (2006) 10 SCC 645. The ratio laid down in the said judgment is duly discussed and approved in the case of Internet and Mobile Association of India vs. Reserve Bank of India reported in (2020)10 SCC 274 in Paragraphs 36, 42, 43, 44, 46, 49, 189 to 192.
POSITION OF LAW:-
19. It is also apposite to refer to the ratio laid down by the Apex Court in the following judgments:-
(i). Joseph Kuruvilla Vellukunnel vs. Reserve Bank of India and others reported in 1962 SCC OnLine SC 3. Paragraphs 3,4,7,17,19,23 and 33 thereof, read thus:-
3. When Kerala became a Part B State, the Reserve Bank of India Act was extended to that area, and the Palai Bank came under the supervision of the Reserve Bank, which, in exercise of the powers vested in it by the Banking Companies Act as well as the Reserve Bank of India Act, periodically inspected the Palai Bank.
These inspections were made in 1951, July 1953, February-March 1956, March 1958 and January- February 1960. Every time, the Reserve Bank found irregularities which were pointed out to the Bank, and special directions were issued. The main defects were that the advances made by the Palai Bank were not sound, that the bulk of the advances were either irrecoverable or "sticky" (which means, not easily recoverable), that the income taken into account represented to a great extent unrealised interest on these advances, that large advances were made to the Page 54 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined Directors, their relations and Companies, in which they were interested, on no security or inadequate security, and that the Bank was declaring dividends on the basis of profits which were computed without making provision for bad and doubtful debts and by using up the reserves at an alarming rate, while the deposits were going down. In the beginning, the Reserve Bank contented itself by prohibiting further advances to Directors, their relations and individuals, firms or companies, in which the Directors were interested, advising the Palai Bank to reduce clean advances and to regularise others, warning the Bank that the Reserve Bank considered that the business of the Bank was being conducted in a manner detrimental to the interests of its depositors, and that if the directions were not carried out, action under the first proviso to sub-section (2) of Section 22 of the Banking Companies Act would be taken by issuing a notice that a licence could not be granted to the Bank.
4. From the correspondence which has been filed in this case, it does appear that the Reserve Bank was not satisfied at each following inspection that the position had improved; rather it apprehended that it had worsened, and that the directions had not been carried out. This was denied on behalf of the Bank, but nothing depends upon who is right and who is wrong, because no charge of mala fide conduct is now made against the Reserve Bank. As a result of the inspection in February-March 1956, the Reserve Bank avers, it was found that on December 31, 1955, the advances stood at Rs 355.02 lakhs, of which Rs 171.27 lakhs were irrecoverable, and that the deposits of the Bank had been impaired by Rs 139.13 lakhs. The Reserve Bank also avers that the Bank did not satisfy the requirements of the Banking Companies Act, particularly Section 11, about the minimum paid-up capital and reserves, and Sections 22(3)(a) and (b) about the ability of the Bank to pay its depositors, present and future, in full or conducting its affairs in a manner not detrimental to the interests of the depositors, and did not satisfy the requirements of Sections 42(6)(a)(i) and (ii) of the Reserve Bank of India Act. The Reserve Bank at this stage deputed an observer, and issued further directions, and threatened to remove the name of the Palai Bank from the Second Schedule to the Reserve Bank of India Act, if the directions were not faithfully and punctually carried out. All this time, the Reserve Bank was requiring the Palai Bank to submit statements and returns. In the inspection which was made in March-May 1958, the Page 55 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined position as on February 28, 1958, was found to be even worse. Though the deposits had gone up, the advances had raisen to Rs 421.56 lakhs, of which Rs 208.05 lakhs were said to be irrecoverable, and in the opinion of the Reserve Bank, after writing off the paid-up capital, reserves etc. of the value of Rs 41.17 lakhs, deposits to the extent of Rs 177.24 lakhs were impaired. More directions in the same key followed, and the Bank was warned that it was conducting its affairs in a way, which was detrimental to the interests of the depositors. In the scrutiny in January-February 1960, the position as on December 31, 1959, was said to be that out of the advances of Rs 529 lakhs, Rs 218.51 lakhs were irrecoverable, Rs 17.71 lakhs were doubtful, and Rs 111.57 lakhs were frozen or sticky.
7. In the High Court, the application of the Reserve Bank was opposed on two grounds. The first was that the action of the Reserve Bank in making the application for the winding-up of the Palai Bank was mala fide. This ground appears to have been given up in the High Court itself, and has not been raised before us. The second ground was that Section 38(3)(b)(iii) of the Banking Companies Act, 1949, was void, inasmuch as it offends against Articles 14 and 19 of the Constitution. In the hearing before us. Article 301 was also invoked. The decision of the High Court was against the Bank and other answering respondents, and this ground alone has been urged before us.
17. The functions of the Reserve Bank were generally indicated in the preamble as the regulation of the issue of the Bank notes and the keeping of the reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage. But to enable the Reserve Bank to function in this manner, it had to be given other powers, so that it may function effectively as a central bank. To this end, the Reserve Bank was given the right to hold the cash balances of important commercial banks, a right to transact Government business in India which was also its obligation, and to enter into agreements with State Governments to transact their business. In addition to these, the Reserve Bank could require all Banks included in the Second Schedule to the Act to maintain with the Reserve Bank a balance not less than 5 per cent of their demand liabilities and 2 per cent of their time liabilities. The Reserve Bank also performed the normal functions of a central bank as well as an ordinary bank, Page 56 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined though the latter functions are not as detailed as those of an ordinary bank.
19. The above analysis of some of the provisions of the Reserve Bank of India Act shows that the Reserve Bank of India has been created as a central bank with powers of supervision, advice and inspection over banks, particularly those desiring that they be included in the Second Schedule or those scheduled already. The Reserve Bank thus safeguards the economy and the financial stability of the country. No doubt, the Board is composed of nominated members; but from the nature of things, it could not be otherwise. Neither election nor competitive examinations can effectively take the place of nominations, if the Board is to be composed of men of proved worth and standing, and there is no other method which can even be contemplated. No doubt, the members of the Board are subject to removal, but neither integrity nor efficiency is secured only by such guarantee, and we have no reason to think that the Reserve Bank acted in this case, or acts in other cases under pressure or from oblique motives. As was pointed out in another connection by this Court in All India Bank Employees' Association v. National Industrial Tribunal [(1961) 11 LLJ 386, 399] :
"If it was not the Reserve Bank of India, the only other authority that could be entrusted with the function would be the Finance Ministry of the Government of India and that department would necessarily be guided by the Reserve Bank having regard to the intimate knowledge which the Reserve Bank has of the banking structure of the country as a whole and of the affairs of each bank in particular."
23. We have seen that the Reserve Bank was already functioning as a central bank with a certain measure of control over the other banks, scheduled or unscheduled. This control was tightened in the Banking Companies Act by making provisions which were intended to protect the interests of the depositors. Differences noticeable between the Banking Companies Act, on the one hand and the Companies Act, on the other, which have been characterised as discriminatory are thus explainable on the basis of the object to be achieved. We shall soon illustrate this by a reference to the sections themselves. For the present, we only wish to emphasise that banking companies cannot be compared with other companies. The ordinary companies deal with the money of the stockholders who own a share in the assets, who Page 57 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined appoint their own Directors, for better or for worse, and whose liability is also limited. The banking companies are in an entirely different class, as they deal with the money of the depositors, who have no security except the solvency of the banking company and its sound dealings with their money. Ex facie, the banking companies must be regulated somewhat differently, and the interests of the depositors must be paramount and the winding-up of such companies depends upon other considerations, chief among which is the desire to pay-off the creditors as far as possible in full or at least equitably. The action is thus dictated not from any abstract consideration of a long-range view of the future ability of a bank to pay its creditors but its ability to pay them at any given time. In this connection, the Reserve Bank has been given by the Banking Companies Act the power and invested with the duty of watching the affairs of every banking company with a view to ensuring the safety of the depositors' money. There is thus, at the very start, a reasonable classification, which is also a very just and practical classification, to achieve the avowed purpose.
33. In support of this contention, reliance on behalf of the appellant is placed upon certain cases of this Court, and we shall begin by noticing them in brief. The first case relied upon is A.K. Gopalan v. State [1950 SCC 228 : (1950) SCR 88] . In that case, the validity of Sections 3, 7, 10-14 of the Preventive Detention Act, 1950 was challenged on a petition under Article 32 of the Constitution for a writ of habeas corpus. Certain observations of Kania, C.J., and Fazl Ali, J. were relied upon to show that the right to be heard and tried is the very basis of the rule of law. Fazl Ali, J. observed that there is a fundamental principle that a person whose rights are affected must be heard. The learned Judge referred to several cases in which the maxim, audi alteram partem, has been invoked and applied, particularly the observations of Lord Macnaghten in Lapointe v. L'Association etc. de Montreal [(1906) AC 535] who condemned a procedure which required no hearing as being "contrary to rules of society and above all contrary to the elementary principles of justice".
(ii). R.K. Garg vs. Union of India and others reported in (1981) 4 SCC 675. Paragraph 19 thereof, reads as under:-
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19. It is true that certain immunities and exemptions are granted to persons investing their unaccounted money in purchase of Special Bearer Bonds but that is an inducement which has to be offered for unearthing black money. Those who have successfully evaded taxation and concealed their income or wealth despite the stringent tax laws and the efforts of the tax department are not likely to disclose their unaccounted money without some inducement by way of immunities and exemptions and it must necessarily be left to the legislature to decide what immunities and exemptions would be sufficient for the purpose. It would be outside the province of the Court to consider if any particular immunity or exemption is necessary or not for the purpose of inducing disclosure of black money. That would depend upon diverse fiscal and economic considerations based on practical necessity and administrative expediency and would also involve a certain amount of experimentation on which the Court would be least fitted to pronounce. The Court would not have the necessary competence and expertise to adjudicate upon such an economic issue. The Court cannot possibly assess or evaluate what would be the impact of a particular immunity or exemption and whether it would serve the purpose in view or not.
There are so many imponderables that would enter into the determination that it would be wise for the Court not to hazard an opinion where even economists may differ. The Court must while examining the constitutional validity of a legislation of this kind, "be resilient, not rigid, forward looking, not static, liberal, not verbal" and the Court must always bear in mind the constitutional proposition enunciated by the Supreme Court of the United States in Munn v. Illinois [94 US 13] , namely, "that courts do not substitute their social and economic beliefs for the judgment of legislative bodies". The Court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. The Court should constantly remind itself of what the Supreme Court of the United States said in Metropolis Theater Company v. City of Chicago.:
"The problems of government are practical ones and may justify, if they do not require, rough accommodations, illogical it may be, 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.Page 59 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024
NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined Mere error of government are not subject to our judicial review."
It is true that one or the other of the immunities or exemptions granted under the provisions of the Act may be taken advantage of by resourceful persons by adopting ingenious methods and devices with a view to avoiding or saving tax. But that cannot be helped because human ingenuity is so great when it comes to tax avoidance that it would be almost impossible to frame tax legislation which cannot be abused. Moreover, as already pointed out above, the trial and error method is inherent in every legislative effort to deal with an obstinate social or economic issue and if it is found that any immunity or exemption granted under the Act is being utilised for tax evasion or avoidance not intended by the legislature, the Act can always be amended and the abuse terminated. We are accordingly of the view that none of the provisions of the Act is violative of Article 14 and its constitutional validity must be upheld.
(iii). Peerless General Finance and Investment Co. Limited and another (supra). Paragraphs 66 and 67 read as under:-
66. No one can have fundamental right to do any unregulated business with the subscribers/depositors' money. Even the banks or the financial companies are regulated by ceiling on public deposits fixing nexus between deposits and net worth of the company at the ratio of 3:1, i.e. 25 per cent of the capital net worth. No one would legitimately be expected to get immediate profits or dividend without capital investment. The concept of profit or interest presupposes capital investment. The effect of the clauses (a) and (b) of the proviso to paragraph (6)(1) of the direction, no doubt, freezes the right to profit for a short time, and fastens an incidental and consequential obligation to mop up paid up capital or investment towards establishment and commission charges to tide over teething trouble.
But that is no ground to say that it is impossible of compliance, nor could it be said that the directions are palpably arbitrary or unreasonable. Anyone may venture to do business without any stake of his own but is subject to the regulations. A new company without any paid up capital, no doubt, cannot be expected to come into existence nor would operate its business at initial existence with profits. Clause (c) of the proviso to paragraph (6)(1) of the directions gives freedom or Page 60 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined leeway to invest or rotate, not more than 20 per cent of collections etc. in any profitable manner at its choice as a prudent businessman to generate its resources to tide over the teething troubles till it is put on rails to receive succour to its existence, without inhibiting the company's capacity to mop up small savings, and the directions do not control its operation. The only rider is the approval of the Board of Directors which is inherent. Absence of imposition of any limit on quantum of deposits with reference to paid up capital or reserve fund like non-banking financial companies, etc. is a pointer in this regard. Thus there is a reasonable nexus between the regulation and the public purpose, namely, security to the depositors' money and the right to repayment without any impediment, which undoubtedly is in the public interest.
67. Looking from operational pragmatism, the restriction though apparently appearing to be harsh in form, in its systematic working, it would inculcate discipline in the business management, subserve public confidence in the ability of the company to honour the contractual liability and assure due repayment at maturity of the amount deposited together with interest, etc. without any impediment. In other words, the restrictions in paragraph 6 of the directions intended to alongate the twin purposes, viz. habit of thrift among the needy without unduly jeopardising the interest of the employees of the companies and the RNBCs working system itself in addition to safety and due payment of depositors' money. True, as contended by Shri Chatterji that there arises corresponding obligation to pay higher amount of commission to its agents and the commitment should be kept performed and the confidence enthused in the agents. But it is the lookout of the businessman. The absence of ceiling on the rate of commission would give choice between the company and its agents to a contract in this regard and has freedom to manage its business. The RNBCs are free to incur such expenses and organise their business as they desire including payment of commission as they think expedient. But the subscribers/depositors' liability, under no circumstances, would be in jeopardy and the directions were designed to ensure that the interest of the subscribers/depositors is secured at all times, prescribing investment of an equal sum to the total liability to the subscribers/depositors. Paragraph (12) is only a bridge between the depositors and the promise held out and the contract executed in furtherance thereof as a monitoring myocardium to Page 61 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined keep the heart in paragraph (6) functioning without any hiatus. It is settled law that regulation includes total prohibition in a given case where the mischief to be remedied warrants total prohibition. Vide Narendra Kumar v. Union of India [(1960) 2 SCR 375 : AIR 1960 SC 430] . But the directions do not do that but act as a siphon between the subscriber/depositor and the business itself. Therefore, they are neither palpably arbitrary nor unjust nor unfair. The mechanism evolved in the directions is foolproof, as directed by this Court in First Peerless case [(1987) 1 SCC 424] , to secure the interest of the depositors, as well is capable to monitor the business management of every RNBC. It also, thereby, protects interest of the employees/field staff/commission agent etc. as on permanent basis overcoming initial convulsions. It was intended, in the best possible manner, to subserve the interest of all without putting any prohibition in the ability of a company to raise the deposit, even in the absence of any adequate paid-up capital or reserve fund or such pre-commitment of the owner, to secure such deposits.
(iv). Bari Doab Bank Ltd. vs. Union of India and others reported in (1997) 6 SCC 417. Paragraphs 3 and 6 read as under:-
"3. The learned Judges on the Division Bench of the High Court have held that having regard to the purpose of a moratorium the petitioners could not claim a right to be heard at a stage prior to the passing of an order under Section 45(2) but have held that the petitioners will have post-decisional opportunity at the stage of filing objections to the draft scheme framed under Section 45(4) when forwarded by the Reserve Bank of India under Section 45(6) of the Act.
6. The learned Attorney General appearing on behalf of the Central Government and the learned Solicitor General appearing on behalf of the Reserve Bank of India have submitted that the objections submitted by the petitioners against the order of moratorium dated 30-9-1996 as well as the draft scheme framed by the Reserve Bank of India under Section 45(4) have to be considered by the Central Government under Section 45(7) of the Act in the light of the comments that are made by the Reserve Bank of India on the said objections and that the apprehension of the petitioners that the said objections will not be considered by the Central Government is unfounded. In view of the said submission urged on Page 62 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined behalf of the respondents, we are of the opinion that no fault can be found in the matter of post-decisional hearing in respect of the order of moratorium passed under Section 45(2) of the Act."
(v). Central Bank of India vs. Ravindra and others reported in (2002) 1 SCC 367. Paragraph 55 reads as under:-
55. During the course of hearing it was brought to our notice that in view of several usury laws and debt relief laws in force in several States private moneylending has almost come to an end and needy borrowers by and large depend on banking institutions for financial facilities. Several unhealthy practices having slowly penetrated into prevalence were pointed out. Banking is an organised institution and most of the banks press into service long-running documents wherein the borrowers fill in the blanks, at times without caring to read what has been provided therein, and bind themselves by the stipulations articulated by the best of legal brains. Borrowers other than those belonging to the corporate sector, find themselves having unwittingly fallen into a trap and rendered themselves liable and obliged to pay interest the quantum whereof may at the end prove to be ruinous. At times the interest charged and capitalised is manifold than the amount actually advanced. Rule of damdupat does not apply. Penal interest, service charges and other overheads are debited in the account of the borrower and capitalised of which debits the borrower may not even be aware. If the practice of charging interest on quarterly rests is upheld and given a judicial recognition, unscrupulous banks may resort to charging interest even on monthly rests and capitalising the same. Statements of accounts supplied by banks to borrowers many a times do not contain particulars or details of debit entries and when written in hand are worse than medical prescriptions putting to test the eyes and wits of the borrowers. Instances of unscrupulous, unfair and unhealthy dealings can be multiplied though they cannot be generalised. Suffice it to observe that such issues shall have to be left open to be adjudicated upon in appropriate cases as and when actually arising for decision and we cannot venture into laying down law on such issues as do not arise for determination before us. However, we propose to place on record a few incidental observations, without which, we feel, our answer will not be complete and that we do as under:Page 63 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024
NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined (1) Though interest can be capitalised on the analogy that the interest falling due on the accrued date and remaining unpaid, partakes the character of amount advanced on that date, yet penal interest, which is charged by way of penalty for non-payment, cannot be capitalised. Further interest i.e. interest on interest, whether simple, compound or penal, cannot be claimed on the amount of penal interest. Penal interest cannot be capitalised. It will be opposed to public policy.
(2) Novation, that is, a debtor entering into a fresh agreement with a creditor undertaking payment of previously borrowed principal amount coupled with interest by treating the sum total as principal, any contract express or implied and an express acknowledgement of accounts, are the best evidence of capitalisation. Acquiescence in the method of accounting adopted by the creditor and brought to the knowledge of the debtor may also enable interest being converted into principal. A mere failure to protest is not acquiescence.
(3) The prevalence of banking practice legitimatises stipulations as to interest on periodical rests and their capitalisation being incorporated in contracts. Such stipulations incorporated in contracts voluntarily entered into and binding on the parties shall govern the substantive rights and obligations of the parties as to recovery and payment of interest.
(4) Capitalisation method is founded on the principle that the borrower failed to make payment though he could have made and thereby rendered himself a defaulter. To hold an amount debited to the account of the borrower capitalised it should appear that the borrower had an opportunity of making the payment on the date of entry or within a reasonable time or period of grace from the date of debit entry or the amount falling due and thereby avoiding capitalisation. Any debit entry in the account of the borrower and claimed to have been capitalised so as to form an amalgam of the principal sum may be excluded on being shown to the satisfaction of the court that such debit entry was not brought to the notice of the borrower and/or he did not have the opportunity of making payment before capitalisation and thereby excluding its capitalisation.
(5) The power conferred by Sections 21 and 35-A of the Banking Regulation Act, 1949 is coupled with duty to Page 64 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined act. The Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding directions, having statutory force, in the interest of the public in general and preventing banking affairs from deterioration and prejudice as also to secure the proper management of any banking company generally. The Reserve Bank of India is one of the watchdogs of finance and economy of the nation. It is, and it ought to be, aware of all relevant factors, including credit conditions as prevailing, which would invite its policy decisions. RBI has been issuing directions/circulars from time to time which, inter alia, deal with the rate of interest which can be charged and the periods at the end of which rests can be struck down, interest calculated thereon and charged and capitalised. It should continue to issue such directives.
Its circulars shall bind those who fall within the net of such directives. For such transaction which are not squarely governed by such circulars, the RBI directives may be treated as standards for the purpose of deciding whether the interest charged is excessive, usurious or opposed to public policy.
(6) Agricultural borrowings are to be treated on a pedestal different from others. Charging and capitalisation of interest on agricultural loans cannot be permitted in India except on annual or six-monthly rests depending on the rotation of crops in the area to which the agriculturist borrowers belong.
(7) Any interest charged and/or capitalised in violation of RBI directives, as to rate of interest, or as to periods at which rests can be arrived at, shall be disallowed and/or excluded from capital sum and be treated only as interest and dealt with accordingly.
(8) Award of interest pendente lite and post-decree is discretionary with the court as it is essentially governed by Section 34 CPC dehors the contract between the parties. In a given case if the court finds that in the principal sum adjudged on the date of the suit the component of interest is disproportionate with the component of the principal sum actually advanced the court may exercise its discretion in awarding interest pendente lite and post-decree interest at a lower rate or may even decline awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner.
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(vi). Ajit Kumar Nag vs. General Manager (PJ), Indian Oil Corporation Limited, Haldia and others reported in (2005)7 SCC 764. Paragraph 44 reads as under:-
44. We are aware of the normal rule that a person must have a fair trial and a fair appeal and he cannot be asked to be satisfied with an unfair trial and a fair appeal. We are also conscious of the general principle that pre-decisional hearing is better and should always be preferred to post-decisional hearing. We are further aware that it has been stated that apart from Laws of Men, Laws of God also observe the rule of audi alteram partem. It has been stated that the first hearing in human history was given in the Garden of Eden. God did not pass sentence upon Adam and Eve before giving an opportunity to show cause as to why they had eaten the forbidden fruit. (See R. v. University of Cambridge [(1723) 1 Str 557 : 93 ER 698] .) But we are also aware that the principles of natural justice are not rigid or immutable and hence they cannot be imprisoned in a straitjacket. They must yield to and change with exigencies of situations. They must be confined within their limits and cannot be allowed to run wild. It has been stated:" 'To do a great right' after all, it is permissible sometimes 'to do a little wrong'."
[Per Mukharji, C.J. in Charan Lal Sahu v. Union of India [(1990) 1 SCC 613] (Bhopal Gas Disaster), SCC p. 705, para 124.] While interpreting legal provisions, a court of law cannot be unmindful of the hard realities of life. In our opinion, the approach of the Court in dealing with such cases should be pragmatic rather than pedantic, realistic rather than doctrinaire, functional rather than formal and practical rather than "precedential".
(vii). ICICI Bank Limited vs. Official Liquidator of APS Star Industries Limited and others reported in (2010)10 SCC 1. Paragraphs 35 and 36, 40 read as under:-
35. Section 21 deals with the power of RBI to control advances by banking companies. Section 21 empowers RBI to frame policies in relation to advances to be followed by banking companies. It further says that once such policy is made all banking companies shall be bound to follow them. Section 21(1) is once again a general provision empowering RBI to determine policy in relation to advances whereas Section 21(2) Page 66 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined empowers RBI to give directions to banking companies as to items mentioned there i.e. in Section 21(2). Under Section 21(3) every banking company is bound to comply with directions given by RBI at the peril of penalty being levied for non-compliance. Section 35-A says that where RBI is satisfied that in the interest of banking policy it is necessary to issue directions to banking companies it may do so from time to time and the banking companies shall be bound to comply with such directions. Thus, in exercise of the powers conferred by Sections 21 and 35-A of the said Act, RBI can issue directions having statutory force of law.
Section 36 deals with further powers and functions of RBI. Under Section 39 it is RBI which shall be the Official Liquidator in any proceedings concerning winding up of a banking company.
36. The above analysis of the various provisions of the 1949 Act shows that RBI is empowered to regulate the business of the banking companies. That, RBI is empowered to control management of banking companies in certain situations. It is empowered to lay down conditions on which the banking companies will operate. It is empowered to regulate paid-up capital, reserve fund, cash fund and above all to lay down policies in the matter of advances to be made by the banking companies, allocation of resources, etc. While laying down such policies under the said Act, RBI can lay down parameters enabling banking companies to expand its business. For example, RBI's permission is required to be obtained if a banking company seeks to deal in "derivatives". It is a business which will not fall in clauses (a) to (o) of Section 6(1) and yet RBI can lay down guidelines and directions enabling banking companies to deal in derivatives like futures and options.
40. When a delegate is empowered by Parliament to enact a policy and to issue directions which have a statutory force and when the delegatee (RBI) issues such guidelines (policy) having statutory force, such guidelines have got to be read as supplement to the provisions of the BR Act, 1949. The "banking policy" is enunciated by RBI. Such policy cannot be said to be ultra vires the Act. The idea behind empowering RBI to determine the policy in relation to advances is to enable banking companies to expand their business of banking and in that sense such guidelines also define-- as to what constitutes banking business.
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(viii) Internet and Mobile Association of India vs. Reserve Bank of India (supra). Paragraphs 36, 42, 43, 44, 46, 49, 189 to 192 read as under:-
"36. It appears that the Committee so constituted, submitted a report on 28-2-2019 indicating the action to be taken in relation to virtual currencies. A Bill known as "Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019"
had also been prepared by then to be introduced in the Lok Sabha. To this report of the Committee, is appended, the minutes of the discussions of the Committee in the meetings held on 27-11-2017, 22-2-2018, and 9-1-2019. The contents of the report of the Inter-Ministerial Committee dated 28- 2-2019, can be well understood only if we look at the Record of Discussions of the meetings of the Committee. The Record of Discussions held on 27- 11-2017 shows that the Inter-Ministerial Committee was of the initial view that the banning option was difficult to implement and that it can also drive some operators underground, encouraging the use of such currencies for illegitimate purposes. But it was generally agreed in the said meeting that VCs cannot be treated as currency. However, in the meeting held on 22-2- 2018, the Deputy Governor, RBI made an initial intervention and argued in favour of using the banning option. Eventually, the other members of the Committee agreed, and it was resolved in the said meeting that a detailed paper on the option of banning VCs, including a draft law could be prepared and submitted by RBI and CBDT. It was also resolved to prepare a detailed paper within Department of Economic Affairs on options of regulating cryptoassets. Following the same, it was resolved in the next meeting held on 9-1-2019 that a Standing Committee should be constituted to revisit certain issues. Eventually, the Inter- Ministerial Committee submitted the aforesaid report dated 28-2-2019. The key aspects of this report are:
(i) Virtual currency is a digital representation of value that can be digitally traded and it can func-
tion as a medium of exchange and/or a unit of ac- count and/or a store of value, though it does not have the status of a legal tender.
(ii) Initial Coin Offerings (hereinafter "ICO") are a way for companies to raise money by issuing digi- tal tokens in exchange for fiat currency or cryp- tocurrency, but there is a clear risk with the is-
Page 68 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined suance of ICOs as many of the companies are look- ing to raise money without having any tangible products. In the year 2018, as many as 983 ICOs were issued, through which funds to the tune of USD 20 billion were raised.
(iii) Virtual currencies are accorded different legal treatment by different countries, which range from barter transactions to mode of payment to legal tender. Countries like China have imposed a com- plete ban.
(iv) The mining of non-official virtual currencies is very resource-intensive requiring enormous amounts of electricity which may prove to be an environmental disaster.
(v) They may also affect the ability of the Central banks to carry out their mandates.
(vi) China has not only banned trading in cryp- tocurrencies but also used its firewall to ban cryp- tocurrency exchanges. China even blocked cryp- tocurrency focused accounts from WeChat and cryptocurrency related content from Baidu. How- ever, Chinese traders use VPNs to circumvent these bans.
The report dated 28-2-2019 of the Inter-Ministerial Committee finally made certain recommendations which included a complete ban on private cryp- tocurrencies.
42. Thereafter, the present writ petitions were taken up for hearing and this Court passed an in- terim direction on 21-8-2019, directing [Internet & Mobile Assn. of India v. RBI, 2019 SCC OnLine SC 1800] the Reserve Bank of India to give a detailed point-wise reply to the representations dated 29-5- 2018 and 30-5-2018. The reply already given by RBI to the representations dated 29-5-2018 and 30-5-2018 was found by this Court to be inade- quate and hence this direction. Accordingly, RBI gave a detailed point-wise reply on 4-9-2019 and 18-9-2019. Thereafter, the present writ petitions were taken up for hearing.
43. The archaeological excavations carried out at the (world wide web) sites, reveal that this digital currency civilisation is just 12 years old (at the most, 37 years). But these excavations became necessary since virtual currencies, known by differ- ent names such as cryptoassets, cryptocurrencies, digital assets, electronic currency, digital currency, etc. elude an exact and precise definition, making Page 69 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined it impossible to identify them as belonging either to the category of legal tender solely or to the cat- egory of commodity/goods or stock solely.
44. Any attempt to define what a virtual currency is, it appears, should follow the Vedic analysis of negation, namely, "neti, neti". Avadhuta Gita of Dattatreya says, "by such sentences as 'that thou are', our own self or that which is untrue and composed of the 5 elements, is affirmed, but the sruti says 'not this not that'." The concept of Neti Neti is an expression of something inexpressible, but which seeks to capture the essence of that to which no other definition applies. This conundrum will squarely apply to cryptocurrencies and hence this flashback, into its genesis, so that its DNA is sequenced.
46. But all these experiments continued to hit roadblocks, until the emergence of Satoshi Nakamoto (who still remains anonymous) in the world of netizens. It appears that Satoshi sent an e-mail in August 2008 to Adam Back attaching a whitepaper prepared by him on what was called "Bitcoin". The gist of what Satoshi stated in his pa- per is indicated in simple terms, for the under- standing of the common man, by Nathaniel Pop- per, in his book as follows:
"Rather than relying on a Central bank or company to issue and keep track of the money -- as the ex- isting financial system and Chaum's DigiCash did
-- this system was set up so that every Bitcoin transaction, and the holdings of every user, would be tracked and recorded by the computers of all the people using the digital money, on a commu- nally maintained database that would come to be known as the blockchain.
The process by which this all happened had many layers, and it would take even experts, months to understand how they all worked together. But the basic elements of the system can be sketched out in rough terms, and were in Satoshi's paper, which would become known as the Bitcoin whitepaper.
According to the paper, each user of the system could have one or more public Bitcoin addresses
-- sort of like bank account numbers -- and a pri-Page 70 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024
NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined vate key for each address. The coins attached to a given address could be spent only by a person with the private key corresponding to the address. The private key was slightly different from a tradi- tional password, which has to be kept by some central authority to check that the user is entering the correct password. In Bitcoin, Satoshi har- nessed the wonders of public-key cryptography to make it possible for a user -- let's call her Alice again -- to sign off on a transaction, and prove she has the private key, without anyone else ever needing to see or know her private key.
Once Alice signed off on a transaction with her pri- vate key she would broadcast it out to all the other computers on the Bitcoin network. Those computers would check that Alice had the coins she was trying to spend. They could do this by consulting the public record of all Bitcoin transac- tions, which computers on the network kept a copy of. Once the computers confirmed that Al- ice's address did indeed have the money she was trying to spend, the information about Alice's transaction was recorded in a list of all recent transactions, referred to as a block, on the blockchain. [...] The result of this complicated process was some- thing that was deceptively simple but never previ- ously possible : a financial network that could cre- ate and move money without a central authority. No bank, no credit card company, no regulators. The system was designed so that no one other than the holder of a private key could spend or take the money associated with a particular Bit- coin address. What's more, each user of the sys- tem could be confident that, at every moment in time, there would be only one public, unalterable record of what everyone in the system owned. To believe in this, the users didn't have to trust Satoshi, as the users of DigiCash had to trust David Chaum, or users of the dollar had to trust the Federal Reserve. They just had to trust their own computers running the Bitcoin software, and the code Satoshi wrote, which was open source, and therefore available for everyone to review. If the users didn't like something about the rules set down by Satoshi's software, they could change the rules. People who joined the Bitcoin network were, quite literally, both customers and owners of both the bank and the mint."Page 71 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024
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49. Therefore, it is beyond any pale of doubt that irrespective of the metamorphosis (or gene mutation) it has undergone over the years, Bitcoin, the Adam or Manu of the race of cryptocurrencies, was developed as an alternative to fiat currency. Keeping this birth chart of virtual currencies in mind, let us now see how the petitioners are aggrieved by the impugned decisions of RBI, the grounds on which they challenge the same and the justification sought to be provided by RBI."
189. It is contended by Shri Ashim Sood, learned Counsel for the petitioners that the impugned Circular does not have either the status of a legislation or the status of an executive action, but is only the exercise of a power conferred by statute upon a statutory body corporate. Therefore, it is his contention that the judicial rule of deference as articulated in R.K. Garg v. Union of India [R.K. Garg v. Union of India, (1981) 4 SCC 675 : 1982 SCC (Tax) 30] , BALCO Employees' Union v. Union of India [BALCO Employees' Union v. Union of India, (2002) 2 SCC 333] and Swiss Ribbons (P) Ltd. v. Union of India [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] will not apply to the decision taken by a statutory body like RBI. If, a legislation relating to economic matters is placed at the highest pedestal, an executive decision with regard to similar matters will be placed only at a lower pedestal and the decision taken by a statutory body may not even be entitled to any such deference or reverence.
190. But given the scheme of the RBI Act, 1934 and the Banking Regulation Act, 1949, the above argument appears only to belittle the role of RBI. RBI is not just like any other statutory body created by an Act of legislature. It is a creature, created with a mandate to get liberated even from its creator. This is why it is given a mandate -- (i) under the Preamble of the RBI Act, 1934, to operate the currency and credit system of the country to its advantage and to operate the monetary policy framework in the country; (ii) under Section 3(1), to take over the management of the currency from the Central Government; (iii) under Section 20, to undertake to accept monies for account of the Central Government, to make payments up to the amount standing to the credit of its account and to carry out its exchange, remittance and other banking operations, including the management of the public Page 72 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined debt of the Union; (iv) under Section 21(1), to have all the money, remittance, exchange and banking transactions in India of the Central Government entrusted with it; (v) under Section 22(1), to have the sole right to issue bank notes in India and (vi) under Section 38, to get rupees into circulation only through it, to the exclusion of the Central Government. Therefore, RBI cannot be equated to any other statutory body that merely serves its master. It is specifically empowered to do certain things to the exclusion of even the Central Government. Therefore, to place its decisions at a pedestal lower than that of even an executive decision, would do violence to the scheme of the Act.
191. On the primary question of switching over to judicial "silent mode" or "hands-off mode", qua economic legislation, it is not necessary to catalogue all the decisions of this Court such as State of Gujarat v. Shri Ambica Mills Ltd. [State of Gujarat v. Shri Ambica Mills Ltd., (1974) 4 SCC 656 : 1974 SCC (L&S) 381] , G.K. Krishnan v. State of T.N. [G.K. Krishnan v. State of T.N., (1975) 1 SCC 375] , R.K. Garg v. Union of India [R.K. Garg v. Union of India, (1981) 4 SCC 675 : 1982 SCC (Tax) 30] , State of M.P. v. Nandlal Jaiswal [State of M.P. v. Nandlal Jaiswal, (1986) 4 SCC 566] , P.M. Ashwathanarayana Setty v. State of Karnataka [P.M. Ashwathanarayana Setty v. State of Karnataka, 1989 Supp (1) SCC 696] , Peerless General Finance & Investment Co. Ltd. v. RBI [Peerless General Finance & Investment Co. Ltd. v. RBI, (1992) 2 SCC 343] , T. Velayudhan Achari v. Union of India [T. Velayudhan Achari v. Union of India, (1993) 2 SCC 582] , Delhi Science Forum v. Union of India [Delhi Science Forum v. Union of India, (1996) 2 SCC 405] , Bhavesh D. Parish v. Union of India [Bhavesh D. Parish v. Union of India, (2000) 5 SCC 471] , Ugar Sugar Works Ltd. v. Delhi Admn. [Ugar Sugar Works Ltd. v. Delhi Admn., (2001) 3 SCC 635] , Balco Employees' Union v. Union of India [Balco Employees' Union v. Union of India, (2002) 2 SCC 333] , State of A.P. v. P. Laxmi Devi [State of A.P. v. P. Laxmi Devi, (2008) 4 SCC 720] , Villianur Iyarkkai Padukappu Maiyam v. Union of India [Villianur Iyarkkai Padukappu Maiyam v. Union of India, (2009) 7 SCC 561] , DG of Foreign Trade v. Kanak Exports [DG of Foreign Trade v. Kanak Exports, (2016) 2 SCC 226] , State of J&K v. Trikuta Roller Flour Mills (P) Ltd. [State of J&K v. Trikuta Roller Flour Mills (P) Ltd., (2018) 11 SCC 260] and Pioneer Urban Land & Infrastructure Ltd. v. Union of India [Pioneer Urban Land & Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416 : (2019) 4 SCC (Civ) 1] Page 73 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined as the entire history of the doctrine of deference from Lochner [Lochner v. New York, 1905 SCC OnLine US SC 100 : 49 L Ed 937 : 198 US 45 (1905)] era has been summarised by this Court in Swiss Ribbons (P) Ltd. v. Union of India [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] . In fact, even the learned counsel for the petitioners is ad idem with the learned Senior Counsel for RBI that economic regulations require due judicial deference. The actual argument of the learned counsel for the petitioners is that such deference may differ in degree from being very weak in respect of the decision of a statutory authority, to being very strong in respect of a legislative enactment.
192. But as we have pointed out above, RBI is not just any other statutory authority. It is not like a stream which cannot be greater than the source. The RBI Act, 1934 is a pre-constitutional legislation, which survived the Constitution by virtue of Article 372(1) of the Constitution. The difference between other statutory creatures and RBI is that what the statutory creatures can do, could as well be done by the executive. The power conferred upon the delegate in other statutes can be tinkered with, amended or even withdrawn. But the power conferred upon RBI under Section 3(1) of the RBI Act, 1934 to take over the management of the currency from the Central Government, cannot be taken away. The sole right to issue bank notes in India, conferred by Section 22(1) cannot also be taken away and conferred upon any other bank or authority. RBI by virtue of its authority, is a member of the Bank of International Settlements, which position cannot be taken over by the Central Government and conferred upon any other authority. Therefore, to say that it is just like any other statutory authority whose decisions cannot invite due deference, is to do violence to the scheme of the Act. In fact, all countries have Central banks/authorities, which, technically have independence from the Government of the country. To ensure such independence, a fixed tenure is granted to the Board of Governors, so that they are not bogged down by political expediencies. In the United States of America, the Chairman of the Federal Reserve is the second most powerful person next only to the President. Though the President appoints the seven- member Board of Governors of the Federal Reserve, in consultation with the Senate, each of them is appointed for a fixed tenure of fourteen years. Only one among those seven is appointed as Chairman for a period of four years. As a result of the fixed tenure of 14 years, all the members of Board of Governors survive in office more than three Governments. Even the European Page 74 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined Central Bank headquartered in Frankfurt has a President, Vice-President and four members, appointed for a period of eight years in consultation with the European Parliament. Worldwide, central authorities/banks are ensured an independence, but unfortunately Section 8(4) of the RBI Act, 1934 gives a tenure not exceeding five years, as the Central Government may fix at the time of appointment. Though the shorter tenure and the choice given to the Central Government to fix the tenure, to some extent, undermines the ability of the incumbents of office to be absolutely independent, the statutory scheme nevertheless provides for independence to the institution as such. Therefore, we do not accept the argument that a policy decision taken by RBI does not warrant any deference.
(ix). National Highways Authority of India and others vs. Madhukar Kumar and others reported in (2022)14 SCC 661. Paragraphs 49 and 73 read as under:-
49. An administrative authority, exercising judicial or a quasi-judicial power, must record reasons for its decision. This is subject to the exception where the requirement has been expressly or by necessary implication done away with.
73. The Constitution does not contemplate any public authority, exercising power with caprice or without any rationale. But here again, in the absence of the duty to record reasons, the Court is not to be clothed with power to strike down administrative action for the mere reason that no reasons are to be found recorded. In certain situations, the reason for a particular decision, may be gleaned from the pleadings of the authority, when the matter is tested in a court. From the materials, including the file notings, which are made available, the court may conclude that there were reasons and the action was not illegal or arbitrary.
From admitted facts, the court may conclude that there was sufficient justification, and the mere absence of reasons, would not be sufficient to invalidate the action of the public authority. Thus, reasons may, in certain situations, have to be recorded in the order. In other contexts, it would suffice that the reasons are to be found in the files. The court may, when there is no duty to record reasons, support an administrative decision, with reference to the pleadings aided by materials.
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20. Considering the facts of the present case and the position of law, as referred above, Mr.Patel, learned Senior Counsel appearing for the petitioner - bank, has placed reliance on the decisions of the Kerala High Court, as referred above, wherein, it is held that it is incumbent under Section 35A to grant an opportunity of hearing. The same are persuasive.
20.1. The issue in question has also been considered by the Apex Court also in catena of decisions, as referred above wherein, it is held from time to time that it is open for the respondent - Reserve Bank of India, under Section 35A of the Act of 1949, to place certain restrictions on withdrawals by the depositors from their accounts, in the interest of the depositors and in larger public interest. In the facts of the present case, the aforesaid action undertaken by the respondent - bank is in public interest and in the interest of the depositors. The Apex Court, in catena of decisions, held as under:-
20.2. In the case of ICICI Bank Limited vs. Official Liquidator of APS Star Industries Limited (supra), in paragraph 35, the Apex Court held that in exercise of powers conferred under Sections 21 and 35A of the said Act, RBI can issue directions having statutory force of law.
20.3. In the case of Central Bank of India vs. Ravindra and others (supra), the Apex Court held that power conferred by Sections 21 and 35A of the Banking Regulation Act, 1949 is coupled with duty to the act. The Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding directions, having statutory force, in the interest of the public in general and preventing banking affairs from deterioration and prejudice as also to secure proper management of any banking company generally.
The Reserve Bank of India is one of the watchdogs of the finance Page 76 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined and economy of the nation.
20.4. In the case of Peerless General Finance and Investment Co. Limited and another (supra), in paragraph 66, the Apex Court held that no one can have fundamental right to do any unregulated business with the subscribers or depositors' money. Even the banks or the financial companies are regulated by ceiling on public deposits fixing nexus between deposits and net worth of the company at the rate of 3:1, i.e. 25 per cent of the capital net worth. No one would legitimately be expected to get immediate profits or dividend without capital investment.
20.5. In line with the ratio laid down by the Apex Court in the case of National Highways Authority of India and others (supra), in the opinion of this Court, the respondent - bank has, after recording satisfaction, issued the impugned directions dated 25.09.2023, exercising powers under Section 35A of the Act of 1949.
21. As discussed above, in tune with the DICGC (Amendment) Act, 2021, once the petitioner - bank furnish the DICGC a certified list showing outstanding deposits of each of its depositors within a period of 45 days from the effective date of the AID directions, amount of Rs.5 lacs would also be released from the said scheme upon due certification by the petitioner - bank. Further, in the facts of the present case, the petitioner - bank was also aware with respect to its deteriorating financial condition and in view thereof, the respondent - bank inspected the petitioner - bank from time to time and put it to certain restrictions.
22. In the opinion of this Court, the petitioner - bank has been given ample opportunity by the respondent - bank and the petitioner - bank is aware of its deteriorated financial position since Page 77 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024 NEUTRAL CITATION C/SCA/17513/2023 JUDGMENT DATED: 04/07/2024 undefined 31.12.2022 and has been subjected to statutory inspection from time to time, as referred above and in view thereof, the contention raised by the learned Counsel appearing for the petitioner that there was no adverse inference drawn during the inspection performed by the respondent - bank, is negatived.
23. For the reasons, as referred above, this Court is not inclined to exercise extraordinary jurisdiction under Article 226 of the Constitution of India.
24. The petition fails and is accordingly dismissed. Rule is discharged.
(VAIBHAVI D. NANAVATI,J) Hitesh Page 78 of 78 Downloaded on : Fri Jul 26 20:59:16 IST 2024