Gujarat High Court
Reserve Bank Of India, Bombay vs Harisidh Co-Operative Bank Ltd. And ... on 4 September, 1987
Equivalent citations: AIR1988GUJ107, [1990]69COMPCAS260(GUJ), (1987)2GLR1289, AIR 1988 GUJARAT 107
Author: G.T. Nanavati
Bench: G.T. Nanavati
JUDGMENT Nanavati, J.
1. Opponent No. I is a Cooperative Bank. Opponents Nos. 2 and 3 are the Joint Managing Director and Director respectively of that Bank. Opponent No. I Bank is an insured Co-operative Bank, and there is no dispute that S. 115A of the Gujarat Co-operative Societies Act, 1961 (hereinafter referred to as "the Act") is applicable to it. The Reserve Bank of India, the applicant herein, by an order dt. 23-7-1987 passed in exercise of the powers conferred on it by S. 115A(3) of the Act, directed the District Registrar, Co-operative Societies (City) Ahmedabad to supersede the Board of Directors of the opponent No. 1 Bank and to appoint an Administrator to take charge and run the affairs of the Bank for an initial period of two years. The Reserve Bank gave this direction because it was satisfied that the affairs of the opponent No. 1 Bank were being conducted in a manner detrimental to the interest of the depositors and for securing the proper management of the Bank, it was necessary to do so. On being required to do so, the District Registrar, opponent No. 4 passed an order under S. 115A(3) of the A& on 31-7-1987 superseding the Board of Directors of the opponent No. 1 Bank and appointing opponent No. 5 as an Administrator for a period of two years. Opponents Nos. 1 to 3 challenged this order passed by the District Registrar by filing Special Civil Application No. 3852 of -1987. By a subsequent amendment, the order dt. 237-1987 passed by the Reserve Bank of India is also challenged.
2. Both the said orders are challenged on the ground that they are passed in violation of the prince pales of natural justice and are without any authority of law. The order passed by the- Reserve Bank of India is also challenged on the ground that the Executive Director of the Reserve Bank had no authority to pass such an order and that the said order has been passed mala fide. On 3-8-1987 the learned single Judge of this Court issued notice pending admission and granted an ad interim stay of the operation and implementation of the order passed by the District Registrar on certain conditions. On 21-8-1987, the learned single Judge, who, heard the petition for admission, issued Rule and confirmed the ad interim relief granted on 3-8-1987. While granting the interim relief this is what the learned single Judge has observed.
"3. In the facts and circumstances of the case the questions with regard to interpretation of Section 115A of the Gujarat Co-operative Societies Act read with certain provisions of the Banking Regulation Act, 1949 and the provisions of Deposit, Insurance and Credit Guarantee Corporation Act, 1961 are required to be interpreted. It is abundantly clear that the questions involved are of importance both-from the point of view of the legal aspect as well as from the point of view of wider ramification which they may have on the affairs of all the co-operative Banks in the State and the Banking business as such. Moreover, to avoid multiplicity of litigation by way of appeal at interim stage and again after final hearing it would be proper that the matter be referred to Division Bench. The petitioners shall take appropriate action to complete the office formalities on or before 25th Aug., 1987 (Mr. K. G. Vakharia, learned counsel for the petitioners undertakes to complete the office formalities on or before 25th Aug., 1987). Thereafter it would be open to the parties to request the Division Bench for fixed date of hearing. It is further clarified that it would be open to both the Registrar as well as the Reserve Bank to impose suitable conditions so as to secure proper management of the Bank and protect the interests of the depositors. The pendency of this matter and the interim relief granted shall not come in the way of the Registrar and the Reserve Bank in taking suitable measures so as to secure proper management of the Bank and protect the interest of the depositors."
3. Aggrieved by the order granting interim relief, the Reserve Bank has filed Letters Patent Appeal No. 270 of 1987. After going through S. 115A of the Act and the relevant provisions of the Banking Regulation Act, 1949, the Deposit, Insurance and Credit Guarantee Corporation Act, 1961 and I the decision of the Supreme Court reported in AIR 1962 SC 1371, we thought it fit to admit the appeal. On the same day, this application was moved for obtaining stay of the operation of the interim order passed by the learned single Judge pending hearing and final disposal of the appeal. We issued Rule and yesterday we heard the applicant and opponents Nos. 1 to 3 on the question as to what interim relief should be granted.
4. What is contended by the learned Advocate for the applicant is that the interim stay granted by the learned single Judge frustrates the very object of passing the impugned order of supersession of the Board of Directors and appointment, of an Administrator as it will indefinitely postpone the operation of the said order. He also submitted that the order passed by the learned single Judge is not in consonance with S. 115A(3) of the Act read with S. 35A of the Banking Regulation Act, 1949. Relying upon the decision of the Supreme Court in Vellukunnel. v. Reserve Bank of India, AIR 1962 SC 1371 wherein S. 38 of the Banking Companies Act, 1949 containing a similar provision with respect to winding up of a Banking Company came up for consideration, he urged that the provision of law authorising the Reserve Bank of India to be the sole Judge to decide whether in the public interest or for preventing the affairs of the Bank being conducted in the manner detrimental to the interest of the depositors supersession of Board of Directors and appointment of an Administrator in place thereof is necessary, cannot be said to offend the principles of natural justice or Art. 14 of the Constitution. He also submitted that when an emergent action is necessary, prior hearing need not be given to the parties concerned and the orders passed in such circumstances, particularly when the law so authorises, cannot be said to be void on the ground that they violate the principles of natural justice. In support of this contention he also relied upon another decision of the Supreme Court reported in AIR 1970 SC 992. He also submitted that in view of S. 7(3) of the Reserve Bank of India Act and Regulation 17(l) of the Reserve Bank of India Regulations, 1949, the Ex.6cutive Director had the jurisdiction and ' authority to give the impugned directions to the District Registrar. He also submitted that the Reserve Bank has passed the said order as it was satisfied on the basis of the material which was available with it that in public interest and in the interest of the depositors it was necessary to give such directions.
5. Mr. Vakharia on the other hand contended that as the impugned orders were passed without giving any hearing to the petitioners they are void being violative of the principles of natural justice. In support of this contention, he relied upon the observations of the Supreme Court in paragraphs 47, 48 and 49 in the case of Olga Tellis v. Bombay Municipal Corpn., AIR 1986 SC 180 : (1985.) 3 SCC 545. With respect to the power of the Executive Director, he submitted that S. 7 deals with the management of the Reserve Bank of India and not other Banks and in absence of a similar provision in S. 115A(3) of the Act, he could not have exercised the powers which are vested in the Reserve Bank. As regards the allegation of mala fide exercise of the powers, he submitted that the Reserve Bank had given certain directions under S. 35A and having withdrawn the same on 27-6-1987 could not have bona fide directed the District Registrar to pass an order under S. 115A(3) of the Act. He submitted that no new material was available to the Reserve Bank of India justifying such a drastic action and that if it was of the opinion that some of the Directors were concerned with the mal-practices alleged against the Bank, then they could have been removed from the management.
6. The contention of Mr. Vakharia with respect to the power of the Executive Director, prima facie does not appear to have any substance. It is also the duty and, therefore, the business of the Reserve Bank of India to supervise the affairs of the insured Co-operative Banks. Section 35A of the Banking Regulation Act authorises the Reserve Bank to give necessary directions to secure the proper management of any banking company. It is not in dispute that this provision applies to an insured Co-operative Bank also. If Section 115A is read with Sections 7 and 35A of the Banking Regulation Act, it becomes difficult to accept at this stage the contention of Mr. Vakharia. So also there does riot appear to be any substance, prima facie, in the contention that the power to supersede the Board of Directors and appoint an Administrator has been exercised in this case mala fide. The directions which the Reserve Bank had given on 19-6-1987 were for achieving a different object. "'As the purpose of giving those directions was served, the said directions came to be withdrawn on 27-6-1987. At this stage what appears from the record is that considering the consequences of the alleged malpractices of the Bank and other irregularities, the Reserve Bank was satisfied' about the necessity of giving the impugned directions dt. 23-7-1987. It is not possible to say that the said satisfaction of the Reserve Bank is based on no material; or that the said directions were given on extraneous considerations. With respect to the contention that both the impugned orders are void as violating the principles of natural justice, it must be stated that the final4ecision in this behalf can be taken only when the Special Civil Application is finally heard. When an emergent action is required to be taken, orders passed without giving a prior opportunity of hearing the persons adversely affected by such orders are upheld by the Courts Legislations, excluding application of certain principles of natural justice like prior hearing, have been held to be valid, if such a legislation is not regarded as unreasonable for that reason in view of the object of the Legislation or for similar reasons. Even in the case of Olga Tellis (AIR 1986 SC 180)(supra) the Supreme Court in paragraph 45, has observed as under -
"45. It must further be presumed that, while vesting in the Commissioner the power to act without notice, the Legislature intended that the power should be exercised sparingly and in cases of urgency which brook no delay. In all other cases, no departure from the audi alteram partem rule (Hear the other side) could be "presumed to have been intended. Section 314 is so designed, as to exclude the principles of natural justice by way of exception and not as a general rule. There are situations which demand the exclusion of the rules of natural justice by reason of diverse factors like time, place, the apprehended danger and so on. The ordinary rule which regulates all procedure is that persons who are likely to be affected by the proposed action must be afforded an opportunity of being heard as to why that action should not be taken. The hearing may be given individually or collectively, depending upon the facts*of each situation. A departure from this fundamental rule of natural justice may be presumed to have been intended by the Legislature only in circumstances which warrant it. Such circumstances must be shown to exist, when so required, the burden being upon those who affirm their existence."
7. Having considered the rival contentions of the parties, the relevant provisions of law and the decision's relied upon, we prima facie feel that the order passed by the learned single Judge is not in consonance with the provisions of law; and, therefore, deserves to be stayed. Before coming to this conclusion we have also considered that the matter before us is by way of Letters Patent Appeal against the discretionary order granting interim relief. We have thought it fit to interfere with such an order by staying the same, as in our opinion, allowing the said order to operate would amount to staying the operation of S.115A(3). of the Act. The District Registrar is legally bound to pass an order as directed by the Reserve Bank and so long as the direction given by the Reserve Bank is not declared to be illegal and bad, the operation of the order passed under S. 115A(3) cannot be stayed. We also enquired from Mr. Vakil, the learned advocate representing the Reserve Bank of India whether the Reserve Bank is willing to give hearing to opponents Nos. 1 to 3 so as to convince the Reserve Bank that the directions given by it and the order passed by opponent No. 4 pursuant thereto deserve to be modified or revoked. Mr. Vakil stated that though he is not conceding that opponents Nos. I to 3 have such a right, the Reserve Bank is willing to give such a hearing.
8. In the result, we stay the operation of the interim order passed by the learned single Judge whereby the operation and implementation of the impugned order dt. 317-19,87 passed by opponent No. 4 has been stayed. Rule is, therefore, made absolute with no order as to costs.
9. When we were about to pronounce this order, Mr. Vaifiaria, the learned Advocate for opponents Nos.' 1 to 3 submitted that the Letters Patent Appeal is not maintainable as it is filed against an order passed in a petition under Art. 227 of the Constitution. In our opinion, there is no substance in this contention, because the orders passed by the Reserve Bank of India and opponent No. 4 respectively are purely executive orders; and, therefore, the petition is rightly filed under Art. 226 of the Constitution.
10. After we pronounced our Order, Mr. Vakharia, learned advocate for opponents Nos. 1 to 3 submitted that the operation of this order may be stayed for a period of six weeks as opponents Nos. 1 to 3 are desirous off Ring an appeal to the Supreme Court against this order. Considering the facts and circumstances of the case, we are of the opinion that the operation of this order cannot be stayed for a longer period and ends of justice will be met if the operation of this order is stayed for a period of two weeks. The result will be that the interim order passed by the learned single Judge will continue to operate on the same terms and conditions on which the interim relief was granted, for-a period of two weeks from today.
11. Order accordingly.