Calcutta High Court
Peerless General Finance And ... vs Reserve Bank Of India And Ors. on 3 May, 1995
Equivalent citations: [1996]85COMPCAS808(CAL)
JUDGMENT Shyamal Kumar Sen, J.
1. In the instant writ petition the petitioners have challenged the legality and validity of the two amendments made by the Reserve Bank of India to the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987, which were framed by the Reserve Bank of India in 1987 in exercise of the powers under Sections 45J and 45K of the Reserve Bank of India Act, 1934. The impugned amendments have been made through two notifications dated April 10, 1993, and April 19, 1993. The impugned amendments purport to have been made under Sections 45J, 45K and 45L of the Reserve Bank of India Act, 1934.
2. The petitioner-company carries on the business, inter alia, of offering various small savings schemes to the public at large, Under the said scheme, moneys are paid by the subscribers in lump sum or in instalments and the subscribers get back the said money at the end of a contractually stipulated maturity period along with interest accrued thereon and certain guaranteed accretions and bonus. The petitioner-company invests the subscriptions received from the subscribers in such a manner that it is able to give to the subscriber interest (the minimum rate of which is now fixed by statutory directions of the Reserve Bank) and some guaranteed bonus and other accretions. The schemes of the company carry certain privileges like free accident insurance under a tie-up arrangement with the General Insurance Corporation of India, unit : New India Assurance Co. Ltd. Full particulars of the schemes offered by the petitioner-company will appear from a representative sample annexed to the writ petition.
3. It appears from the record that until May 15, 1987, the petitioner-company followed an accounting practice which was popularly known as the actuarial system of accountancy. Under the said system, the company used to transfer a part of the subscriptions received from the certificate holders in the first few years to the profit and loss account, showed the same as income and utilised the same for meeting the working capital requirements of the company like management expenses, staff salaries, agents commission, overheads, etc.
4. It has been contended on behalf of the petitioners that the said accounting practice was commended by the Reserve Bank of India. In this connection the petitioners have referred to the affidavit affirmed by one Venkatachalam Subramanian in this court in a writ petition filed by one Favourite Small Investments Co. Ltd. being C. R. No. 5940 (W) of 1977. The said writ petition was filed by Favourite Small Investments Co. Ltd. challenging the exemption granted to the petitioner-company from the provisions of the 1973 Directions alleging discrimination against Favourite. In the affidavit affirmed in the said proceedings by the Reserve Bank of India as aforesaid, the Reserve Bank praised the accounting practice followed by the petitioner-company whereunder a part of the subscriptions was transferred to the profit and loss account. The Reserve Bank of India also praised the functioning and financial position of the petitioner-company.
5. On or about May 15, 1987, the Reserve Bank of India framed a set of statutory directions known as the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987, in exercise of the powers under Sections 45J and 45K of the Reserve Bank of India Act, 1934. By the said Directions, it was made obligatory for the petitioner-company to invest the entire subscriptions received from a certificate holder along with the accrued interest in the mode specified in the said 1987 Directions. Under the said Directions, it was also made obligatory for the petitioner-company to disclose the entire subscriptions received by way of deposits along with accrued interest as liability of the petitioner-company in its balance-sheets. Thus, it was no longer permissible for the petitioner-company to transfer or utilise any portion of the subscriptions/deposits received from the certificate holders for meeting the working capital requirements. The petitioner-company was facing serious difficulties in complying with the said Directions but in order to avoid confrontation with the Reserve Bank of India it made sincere efforts to comply with the 1987 Directions and in fact complied with the same in toto for two years, i.e., 1987-88 and 1988-89.
6. In 1989, the Timex Finance and Investment Company Limited moved a writ petition in this court challenging the legality and validity of the said 1987 Directions and on the said writ petition an interim order was passed by a learned single judge. The Reserve Bank preferred an appeal before the Division Bench against the interim order. The writ petition was finally heard by the Division Bench and by judgment and order dated March 23, 1990, a Division Bench of this court was pleased to hold that the 1987 Directions were beyond the powers of the Reserve Bank of India and were also unreasonable, arbitrary and violative of the fundamental rights guaranteed under Article 19(1)(g) of the Constitution. The writ petition was allowed in part. The Reserve Bank filed a special leave petition in the Supreme Court against the said judgment and order dated March 23, 1990. The Supreme Court upheld the validity of the 1987 Directions and reversed the judgment of the Division Bench. The judgment of the Supreme Court is reported in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India .
7. The judgment of the Division Bench of this court was operative between March 23, 1990, and January 30, 1992, when the Supreme Court set aside the judgment. There was no interim order staying the operation of the judgment of the Division Bench by the Supreme Court and as such the petitioner-company during the said period restarted transferring a part of the subscriptions to the profit and loss account for meeting the working capital expenses. However, the petitioner-company again started investing the deposits in the manner prescribed by the 1987 Directions on and from January 31, 1992. There has been no complaint or allegation by the Reserve Bank that the petitioner-company has acted in violation of the said 1987 Directions. . ; V
8. It may be noted that in 1973 for the first time the Reserve Bank of India framed the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1973. The petitioner-company had applied for exemption from the said Directions without prejudice to its contention that it was not covered thereby. The petitioner-company was granted exemption from the provisions of the said Directions subject to compliance with certain condition which had been complied with by the petitioner-company. In or about 1978, the Reserve Bank of India enacted the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, and the business of the petitioner-company was sought to be banned on the allegation that the said business constituted a prize chit and/or money circulation scheme as defined in the 1978 Act. The petitioner-company challenged the winding up notices which were issued to it pursuant to the 1978 Act by writ petitions in this court and a Division Bench of this court held by a judgment and order that the business of the petitioner-company did not amount to a prize chit within the meaning of the 1978 Act. The Reserve Bank preferred an appeal against the said judgment before the Supreme Court. The Supreme Court, however, held that the business of the petitioner-company did not amount to a prize chit and dismissed the appeals filed by the Reserve Bank of India. The said judgment of the Supreme Court is reported in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023. In the aforesaid decision, the business of the company has been described by the Supreme Court in para 28 of the report as follows (at page 687 of Comp Cas) ;
"28. The question for our consideration is, 'Is the endowment scheme of the Peerless company, a prize chit within the meaning of Section 2(e) of the Prize Chits and Money Circulation Schemes (Banning Act) ? ' The particulars of the scheme are not in 'dispute. What is its nature ? It is not a gambling scheme. It is not a lottery scheme. There are no prizes, no gifts, no element of chance. It is just a plain recurring deposit scheme such as the many schemes floated by commercial banks and national savings organisation. This is admitted in the inspection report of the Reserve Bank of India."
9. It has been contended on behalf of the petitioner that there are certain schemes of the petitioner-company under which processing charges, maintenance charges are payable by the certificate holders. As stated above, a representative sample of such scheme in which processing/maintenance charges are recoverable, has been annexed to the writ petition. It is expressly mentioned in the terms and conditions of the certificate which are printed in the certificate itself that the said processing/maintenance charges are not refundable. Under the representative table annexed to the writ petition, a sum of Rs. 30 is payable as processing charge in the first year and another sum of Rs. 30 as maintenance charge in the second year in respect of a certificate for an endowment sum of Rs. 1,400. Under the said scheme, the subscriber pays a sum of Rs. 70 in both the first and second years as deposit (apart from the non-refundable processing and maintenance charges as stated above) and the subscriptions to the profit and loss account as well as under the present practice of recovering non-refundable processing/maintenance charges. There is no threat so far as the deposits of the certificate holders are concerned. It has been submitted on behalf of the petitioner-company that the company has to find out its own sources of working capital and it started recovering non-refundable processing/maintenance charges which are not deposits to meet its working capital requirements. It is this contention of the learned advocate for the petitioner that the Supreme Court neve'r said that the business of the petitioner-company needs to be closed down. On the contrary, the Supreme Court in its judgment in the prize chits case, i.e., Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023, has expressly observed that while it is open to the Reserve Bank of India to frame regulatory measures for companies like the petitioner-company, the Reserve Bank of India must take care to protect the thousands of employees. The Supreme Court, while upholding the validity of the 1987 Directions, had also observed that companies like the petitioner-company may function but that it cannot attach any part of the deposits and has to make its own arrangements for working capital. The company has thus arranged for its working capital through recovery of non-refundable processing or maintenance charges which are not deposits. In this regard, reference may be made to the following observations in the judgment of the Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India :
"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 infused in the agents. But it is the look out of the businessman. The absence of a ceiling on the rate of commission would give a choice between the company and its agents to a contract in this regard and has freedom to manage its business. The residuary non-banking companies are free to incur such expenses and organise their business as they desire including payment of commission as they think expedient." .
10. It is the further contention of the petitioner that the petitioner-company duly maintains accounts of how the processing/maintenance charge is utilised. The petitioner-company partially meets its working capital requirements out of such processing/maintenance charge which will appear from the accounts maintained by the petitioner-company as also from the summarised figures in the chart of the writ petition which has been prepared on the basis of figures in the balance-sheet for the accounting year ended March 31, 1992.
11. It has also been submitted on behalf of the petitioner that the petitioner has always tried to make improvements in the schemes of the company by way of providing more benefits to the certificate holders and has made efforts to remove such aspects of the schemes which were considered in certain quarters not to be conducive to the interest of the certificate holders. For such purpose the forfeiture clause was abolished by the company on its own without any direction from any authority in 1986 and the fact of such abolition is recorded in the judgment of the Supreme Court in the prize chits case reported in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023. The Reserve Bank of India had banned the forfeiture clause with effect from May 15, 1987, by the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987.
12. The petitioner has challenged the amendments effected by the notification dated April 19, 1993, i.e., incorporation of paragraph 4A, in the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987, on the basis of the following :
"A. Paragraph 4A is ultra vires Sections 45J, 45K and 45L of the Reserve Bank of India Act, 1934. The said Sections do not empower the Reserve Bank to frame a regulation like paragraph 4A.
B. Paragraph 4A is invalid since it is unreasonable and violative of Article 14 of the Constitution. The Reserve Bank has taken into account irrelevant considerations and has omitted to take into account relevant considerations in purporting to introduce paragraph 4A.
C. Paragraph 4A results in discrimination since it treats unequals as equals and is hence violative of the guarantee of equal protection contained in Article 14 of the Constitution.
D. Paragraph 4A imposes unreasonable restrictions on the fundamental rights of petitioner No. 2 to carry on trade, business, occupation and/or profession guaranteed by Article 19(1)(g) of the Constitution.
E. Paragraph 4A is confiscatory in nature and is hence ultra vires the Reserve Bank of India Act and in particular Sections 45J and 45L thereof which confer only regulatory powers."
13. It has been submitted on behalf of the petitioner that when the validity of subordinate legislation is challenged the court has to consider various aspects to find out as to whether the subordinate legislation has been validly made and the power of the courts in this regard is very wide.
14. The court has to consider the nature, objects and schemes of the subordinate legislation as a whole and on the basis of the examination, it has to consider what exactly is the area over which and the purpose for which power has been delegated by the governing law. The subordinate legislation is liable to be declared invalid if it is manifestly unjust and is directed to an unauthorised end or violative of general principles of law of the land or so vague that it cannot be predicated with certainty as to what has been prohibited by them or so unreasonable that they cannot be attributed to the power delegated or otherwise discloses bad faith. The principle is that the validity of the subordinate legislation is open to question if it is ultra vires the Constitution or the governing Act or repugnant to the general principles of the laws of the land or it is so arbitrary or unreasonable that no fair-minded authority could ever have made it. In support of the aforesaid submission, the petitioners have relied ' on the following decisions :
(i) General Officer Commanding-in-Chief v. Dr. Subhash Chandra Yadav, .
(ii) Supreme Court Employees Welfare Association v. Union of India AIR 1990 SC 534, paras. 60, 62 and 99.
(iii) Indra Sawhney v. Union of India, .
15. Mr. Chatterjee and Mr. Gupta, learned counsel for the petitioner-company, have referred to Sections 45J, 45K and 45L of the Reserve Bank of India Act and submitted that paragraph 4A of the impugned notification has been issued in violation of the aforesaid provision of the statute.
16. It has been submitted on behalf of the petitioners that paragraph 4A is ultra vires Section 45L of the Reserve Bank of India Act, inter alia, for the following reasons :
(a) Section 45L only empowers the Reserve Bank to give directions to financial institutions as defined in the Reserve Bank of India Act. The petitioner-company not being a financial institution within the meaning of the said Act, no direction can be given to the petitioner-company by the Reserve Bank of India under Section 45L.
(b) To enable the Reserve Bank to exercise the powers under Section 45L, it was necessary as per the requirements of the said section itself that the bank was satisfied that for the purpose of enabling it to regulate the credit system of the country to its advantage, it was necessary to issue such directions. The satisfaction of the Reserve Bank as aforesaid is thus a condition precedent for the exercise of the powers under Section 45L. The petitioners contend that the Reserve Bank was never satisfied and could not have been satisfied that it was necessary to frame paragraph 4A for the purpose of enabling the Reserve Bank to regulate the credit system of the country to its advantage. It is the petitioners' case that no reasonable person, properly instructed and acting on materials on record, could have reached the satisfaction contemplated by Section 45L. It has been submitted that in the premises the condition precedent for the exercise of the powers under Section 45L has not been satisfied in the instant case and paragraph 4A is ultra vires Section 45L of the Reserve Bank of India Act.
(c) The Reserve Bank has in any event acted in violation of the requirements of Section 45L(3) of the Reserve Bank of India Act which contains a statutory mandate upon the Reserve Bank to have regard to several conditions which are stated in the said Sub-section (3), namely, the conditions in which and the objects for which the institution has been established, its statutory responsibilities, and the effect the business of such financial institutions is likely to have on trends in the money and the capital markets.
17. It has further been submitted that petitioner No. 1 does not come within the purview of financial institution as defined in Section 45-I(c) of the Reserve Bank of. India Act. In this connection, the learned advocate for the petitioned has referred to the definition of the financial institution as mentioned in Section 45-I(c) of the Reserve Bank of India Act.
18. It has been contended on behalf of the petitioner that it is apparent on a plain reading of Section 45L that the Reserve Bank is empowered under Section 45L to give directions under the said section to financial institutions only, which would mean an institution which satisfies the requirements of Section 45-I(c) of the Reserve Bank of India Act.
19. According to the petitioner, the Supreme Court in its judgment in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , had no occasion to consider as to whether the petitioner-company was a financial institution as defined in the Reserve Bank of India Act and no arguments were addressed on that aspect before the Supreme Court. The subject-matter of challenge in the proceedings before the Supreme Court was the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987, as originally framed, i.e., prior to the amendments impugned in the instant writ petition. It was contended on behalf of the petitioners in the said proceeding that prohibition of the method of deployment of deposits or in other words investments thereof was beyond the powers of the Reserve Bank as conferred by Sections 45L and 45K of the Reserve Bank of India Act.
20. It has been contended on behalf of the petitioner that in the original 1987 Directions, the Reserve Bank stated that it purported to frame the said Directions in exercise of the powers under Sections 45L and 45K of the Reserve Bank of India Act and never referred to Section 45L in the Directions itself.
21. The learned advocate has referred to paragraphs 12, 13 (per Kasliwal J.) and paragraph 73 (per K. Ramaswamy J.) of the aforesaid judgment of the Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , wherein it was held that even if the Reserve Bank has not referred to Section 45L in the recital contained in the said Directions, it was entitled to have recourse to Section 45L on the principle that non-quoting of the source of the power or quoting of the wrong source of power would not invalidate an action if the same is referable to a power contained in the statute.
22. The learned advocates for the petitioners have submitted that the Supreme Court had no occasion to consider the grounds of challenge as urged in the instant proceedings. It has been submitted that the authority of the aforesaid decision of the Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , is confined to matters which were directly and subsequently in issue in that case. It has further been submitted that what is binding as a precedent is a deliberate and solemn decision of the court made after arguments on questions of law fairly arising in the case and necessary for its determination.
23. In support of the aforesaid submissions, the learned advocate for the petitioners has relied upon the decision of the Supreme Court in Orient Paper and Industries Ltd. v. State of Orissa, , and in particular on the observations in paras. 15, 16, 18 and 19 of the said report. Thus, the question as to whether the petitioner-company is a financial institution cannot be said to have been concluded by the judgment of the Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , since that question was never in issue in the said case and never arose therein and no arguments were advanced on the said question.
24. It has been contended that in any event the Supreme Court in its judgment in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , held that the original 1987 Directions could be sustained under Section 45K(3) of the Reserve Bank of India Act (see paragraph 16 at page 1043 of AIR 1992 SC ; at page 85 of 75 Comp Cas).
25. It is the contention of the petitioners that Peerless cannot be said to be carrying on the business of financing by way of making loans or advances or otherwise any activity other than its own as its business or part of its business. Some intercorporate loans which are granted by Peerless, are by reasons of the mandate contained in paragraph 6 of the 1987 Directions which have the force of law and which Peerless is bound to comply with. Prior to the coming into force of the 1987 Directions, Peerless never granted any loans except to its own employees and that too in some special cases. It is well settled that business means a course of dealings or transactions with a profit motive and making a few loans and that too by reasons of the statutory mandate contained in paragraph 6 of the 1987 Directions, cannot be the business or part of the business of Peerless. In support of the aforesaid submission, reliance has been placed by the petitioners on the decision of the Privy Council in CIT v. Shaw Wallace and Co. , and the decision of the Supreme Court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax, .
26. It has been submitted on behalf of the petitioners that that the investment of funds pursuant to statutory directions cannot constitute the business or part of the business of an institution, is apparent from the fact that if the said argument is accepted, the construction of the statute, that is, Section 45-I(c) of the Reserve Bank of India Act, would be totally dependent on the actions of the Reserve Bank of India by reason of the fact that if the Reserve Bank of India, amends the provision regarding investments in future and makes it compulsory for the institutions in question to invest in fixed deposits in nationalised banks, the institution would cease to be a financial institution by reason of such change in the mode of investment. No canon of statutory construction can support an interpretation which is totally dependent on what action the Reserve Bank will take in future. Such a construction would lead to absurdity and uncertainty and must necessarily be avoided.
27. It has further been submitted that the acquisition of securities by. Peerless is also pursuant to the compulsion regarding mode of investment imposed by the statutory directions and hence the same can never be said to be the business or part of the business of Peerless.
28. It has further been submitted that the Reserve Bank of India has framed different sets of statutory directions for different classes of non-banking institutions. A combined reading of the said statutory directions and the schemes thereof along with Section 45-I(c) of the Reserve Bank of India Act will show that Peerless is not and cannot be a "financial institution" as defined in the Reserve Bank of India Act and has never been treated as such by the Reserve Bank of India.
29. The contention of the petitioner-company is that Peerless is not a financial institution as defined in Section 45-I(c) of the Reserve Bank of India Act since it does not fall under any of the categories mentioned in Clauses (i) to (vi) of the said section. It has been submitted further that where a financial institution carries on as its business, any of the activities as mentioned in Clauses (i) to (iv) of Section 45-I(c) of the Reserve Bank of India Act, the said financial institution would answer the description of'the various companies as contained in paragraph 2 of the Non-Banking Financial Companies (Reserve Bank) Directions, 1977, which is a separate set of statutory Directions not applicable to the petitioner-company.
30. In support of this contention, the learned advocate for the petitioner-company has produced a chart in his note showing financial institutions which are covered by the definitions of the companies mentioned under the; Non-Banking Financial Companies (Reserve Bank) Directions, 1977. The submission of the learned advocate for the petitioners is that the Reserve Bank of India has not made out any case that Peerless falls in any of the four aforesaid categories of the companies under the Non-Banking Financial Companies (Reserve Bank) Directions, 1977.
31. It has been contended on behalf of the petitioners that the Non-
Banking Financial Companies (Reserve Bank) Directions, 1977, contain a provision in paragraph 19 which provides that if there is any financial institution which does not belong to any of the categories of the compa nies mentioned in paragraph 2, Clause 1, then such financial institutions would be treated as a "loan company" and the provisions of the said 1977 Directions as applicable to a "loan company" shall apply to such institu tions.
32. It has been submitted that there may be a residuary category of financial institution not covered by the companies defined in paragraph 2 of the 1977 Directions. Paragraph 19 is intended to make the 1977 Directions applicable to the said residuary category and thus bring all the financial institutions under the umbrella of the Non-Banking Financial Companies (Reserve Bank) Directions, 1977. It is an admitted position that the petitioner-company is not a company subject to regulation by the 1977 Directions and has been expressly classified as a residuary non-banking company subject to regulation by the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987. Paragraph 20 of the 1987 Directions expressly excludes the application of paragraph 19 of the 1977 Directions to residuary non-banking companies.
33. The contention of the learned advocates for the petitioners is that the expression "financial institution" as used in the 1977 Directions will bear the same meaning as given in the Reserve Bank of India Act by virtue of paragraph 2(e) of the 1977 Directions.
34. It has been contended on behalf of the petitioners that all non-banking institutions which carry on the activities mentioned in the various clauses of Section 45-I(c), whether they carry on the said activities as their main business or part of their business, come within the purview of the regulatory control of the 1977 Directions. In other words, the non-banking institutions which are financial institutions are all covered under the 1977 Directions.
35. Non-banking companies which have not been categorised under any regulatory directions for specific classes framed prior to 1987, have been treated as residuary non-banking companies and the Residuary Non-Banking Companies Directions have been framed to control their functioning. It is significant to note in this context that the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987, defines a residuary non-banking company as a non-banking institution and consciously omits the word "financial". Further, in the said definition contained in paragraph 2 of the 1987 Directions, a residuary non-banking company has been defined as a company not belonging to any of the categories mentioned as defined in the 1977 Directions, namely, loan company; investment company, insurance company, etc. For the sake of convenience, the definition of the residuary non-banking company as contained in paragraph 2 of the 1987 Directions is set out hereinbelow :
"These directions shall apply to every residuary non-banking company, that is to say, a non-banking institution, being a company, which receives any deposit under any scheme or arrangement, by whatever name called, in one lump sum or in instalments by way of contributions or subscrigtions or by sale of units or certificates or other instruments, or in any other manner and which, according to the definition contained in the Non-Banking Financial Companies (Reserve Bank) Directions, 1977, is not-
(i) an equipment leasing company ;
(ii) a hire purchase finance company ;
(iii) a housing finance company ;
(iv) an insurance company ;
(v) an investment company ;
(vi) a loan company ;
(vii) a mutual benefit financial company ; and
(viii) miscellaneous non-banking company."
36. Further, Clause 20 of the 1987 Directions provides that nothing contained in paragraph 19 of the 1977 Directions will apply to a residuary non-banking company. This amply shows that Peerless is not a financial institution, all categories whereof (that is, financial institutions) are covered by the 1977 Directions and it is a separate category for which separate directions have been framed.
37. This conclusively establishes that Peerless is not and- cannot be a financial institution as defined in the Reserve Bank of India Act and it is not open to the Reserve Bank to contend to that effect. It has been submitted that when the Reserve Bank classified Peerless as a residuary non-banking company, it must have come to the conclusion itself that it is not a financial institution.
38. The question of Peerless falling under Sub-clauses (iii) to (v) cannot and does not arise. So far as Clause (vi) is concerned, the contents thereof are the reproduction of the definition of the prize chit in Section 2(e) of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The Supreme Court in Reserve Bank Of India v. Peeress General Finance and Investment Co. Ltd. [1987] 61 Gomp Cas 663 ; AIR 1987 SC 1023, has expressly held that the business of Peerless does not amount to a prize chit as defined in the 1978 Act and hence the question of Peerless being covered under Clause (vi) of Section 45-I(c) of the Reserve Bank of India Act cannot and does not arise.
39. The contention of the petitioner-company is that it is a pre-condition for the exercise of the powers under Section 45L of the Reserve Bank of India Act that the Reserve Bank must be satisfied that it is necessary to issue directions under Section 45L to regulate the credit system of the country to its advantage. It is the case of the petitioners that the Reserve Bank was never satisfied and could not be satisfied that paragraph 4A was necessary to regulate the credit system of the country to its advantage, paragraph 4A seeks to prohibit the expenses of processing/maintenance charges or any other charges for meeting revenue expenditure of residuary non-banking companies and is totally unrelated to regulation of the credit system of the country. Acceptance of service charges can have no nexus with the credit system of the country. It has been further submitted that assuming without admitting that deposit, which means the refundable subscriptions, have any nexus with the credit system of the country, the same is already regulated by the Reserve Bank by virtue of paragraph 6 of the 1987 Directions. It is the case of the petitioners that an essential pre-condition for the exercise of the powers by the Reserve Bank under Section 45L has not been satisfied and, therefore, paragraph 4A is ultra vires Section 45L of the Reserve Bank of India Act. It has been submitted that it has been consistently held by judicial decisions as well as authoritative text books in England and India that whenever exercise of the powers by a State agency is subject to the satisfaction of the said agency or formation of an opinion by it, the said satisfaction cannot be purely subjective but must be arrived, at on the basis of relevant and material considerations and by exclusion of irrelevant considerations and the said satisfaction is open to judicial scrutiny. It has been further held that when formation of satisfaction is challenged, the burden is upon the agency to prove that such satisfaction was reached on cogent and relevant materials.
40. Reliance has been placed in support of the aforesaid contention on the following authorities :
(i) Garner on Administrative Law, 6th edition, pages 104 to 107 and 126.
(ii) Wade on Administrative Law, 6th edition, pages 445 to 453.
(iii) Halsbury's Laws of England, 4th edition, volume 1, paragraphs 22 to 61.
(iv) Board of Trustees of the Maradana Mosque v. Badiuddin Mahamud [1967] 1 AC 13, 25 (PC).
(v) Secretary of State for Education and Science v. Tameside Metropolitan Borough Council [1977] AC 1014, 1024 and 1025 (HL).
(vi) Ashbridge Investments Ltd. v. Minister of Housing and Local Government [1965] 1 WLR 1320, 1326 (CA).
(vii) Barium Chemicals Ltd. v. Company Law Board .
(viii) M.A. Rasheed v. State of Kerala, .
(ix) Mrinal Kanti Das Burman v. State of West Bengal [1976] 1 CLJ 571.
(x) Amal Shankar Bhaduri (Lt. Col.) v. Union of India [1987] 91 CWN paras 42, 47.
(xi) Khudiram Das v. State of West Bengal .
(xii) CIT v. Mahindra and Mahindra Ltd. .
41. The petitioners have also relied upon the following observations of the Supreme Court in M. A. Rasheed v. State of Kerala, , referred to hereinabove (at page 2251) :
"Where powers are conferred on public authorities to exercise the same when 'they are satisfied' or when 'it appears to them' or when 'in their opinion' a certain state of affairs exists ; or when powers enable pubic authorities to take 'such action as they think fit' in relation to a subject-matter, the courts will not readily defer to the conclusiveness of an executive authority's opinion as to the existence of a matter of law or fact upon which the validity of the exercise of the power is predicated." .
42. It has further been submitted on behalf of the petitioners that the question of applicability of Section 45L(1)(a) for the purpose of framing paragraph 4A cannot and does not arise. So far as Clause (b) of Section 45L(1) is concerned, it has been made mandatory by Section 45L(3) that in issuing directions under the said Clause (b), the Reserve Bank shall have due regard to the conditions th which the institution has been established, its statutory responsibilities, if any, and the effect the business of such financial institutions is likely to have on trends in the money and capital markets. The petitioners have challenged that the Reserve Bank did not advert to any of the aforesaid conditions in framing paragraph 4A and that in any event paragraph 4A can have no nexus with the effect the business of Peerless is likely to have on trends in the money and capital markets. The Reserve Bank has thus not taken into account the statutorily prescribed conditions or considerations into account in purporting to frame paragraph 4A.
43. It has also been contended on behalf of the petitioners that the Reserve Bank of India has not taken into account relevant considerations in purporting to frame paragraph 4A. It has not adverted to the question as to whether Peerless is a financial institution, nor has it adverted to the question as to whether the impugned amendments were necessary for regulating the credit system of the country to its advantage nor did it advert to the considerations which the Reserve Bank of India Act has made it obligatory for the Reserve Bank to consider in issuing directions under Section 45L(1)(b) of the Reserve Bank of India Act. The said paragraph 4A is ultra vires Section 45L of the said Act.
44. It has been submitted on behalf of the petitioners that the petitioners have discharged their onus by throwing a challenge in specific terms that para 4A is ultra vires Section 45A on the grounds that Peerless is not a financial institution, that there was no satisfaction on the part Of the Reserve Bank of India and no satisfaction could be reached on the materials on record, that it was necessary to issue the impugned amendments to regulate the credit system of the country to its advantage and also on the grounds that the Reserve Bank of India has not taken into account considerations prescribed in Section 45L(3) and that non-refundable service/ processing charges can have no nexus with either the credit system of the country or the effect the business of Peerless is likely to have on trends in the money and capital markets. It has been submitted on behalf of the petitioner-company that in spite of the challenge thrown in the petition there is no satisfactory explanation in the affidavit-in-opposition. The challenge of the petitioners has been dealt with by the respondents in their affidavit-in-opposition in an evasive manner which establishes the challenge of the petitioners. In other words, the respondents have failed to discharge the onus cast upon them to justify the reasonableness of paragraph 4A or to show that the conditions of Sections 45L were duly complied with. It has been submitted that once the petitioners have thrown a challenge in specific terms, the onus is on the respondents to justify the validity of the impugned amendments including, paragraph 4A. In this connection, reliance has been placed on the following decisions ;
(i) Laxmi Khandsari v. State of Uttar Pradesh, .
(ii) Vrajlal Manilal and Co. v. State of Madhya Pradesh, .
(iii) Mrinal Kanti Das Burman v. State of West Bengal [1976] 1 CLJ 571,
45. It has further been contended that it is the Reserve Bank which has framed the impugned amendments and the relevant records are within the exclusive custody of the Reserve Bank. The petitioners have no access to records or documents which can show whether the Reserve Bank applied its mind to relevant considerations in framing the impugned amendments. Under Section 106 of the Evidence Act, the burden of proof is on the Reserve Bank to establish that they have adverted to relevant considerations and not taken into account extraneous considerations in framing the impugned amendments, since records which can show consideration are especially within the knowledge of the Reserve Bank of India.
46. The learned advocate for the petitioner-company has referred to Section 45J of the Reserve Bank of India Act and submitted that the said section can have nothing to do with the acceptance of non-refundable processing/maintenance charge or receipt of any amount for meeting revenue expenditure and paragraph 4A is not referable to Section 45J of the Reserve Bank of India Act. For the sake of convenience Section 45J is quoted hereinbelow :
"45J. Bank to regulate or prohibit issue of prospectus or advertisement soliciting deposits of money. The bank may, if it considers necessary in the public interest so to do, by general or special order,--
(a) regulate or prohibit the issue by any non-banking institution of any prospectus or advertisement soliciting deposits of money from the public ; and
(b) specify the conditions subject to which any such prospectus or advertisement, if not prohibited, may be issued."
47. It has been submitted on behalf of the petitioners that Section 45J merely empowers the Reserve Bank of India to regulate or prohibit the issuance by any non-banking institution of any prospectus or advertisement soliciting deposits of money and specifying the conditions subject to which any such prospectus or advertisement, may be issued. It is, therefore, clear that Section 45J can have nothing to do with the framing of paragraph 4A. The said paragraph 4A, in so far as it is sought to be sustained on the basis of Section 45J, is invalid since it is ultra vires the said section.
48. It has been contended on behalf of the petitioners that Section 45K only empowers the Reserve Bank to frame regulatory directions concerning deposits received by a non-banking institution from the public. Non-refundable processing/maintenance charge or any sum received for meeting revenue expenditure is not and cannot be deposits and as such the Reserve Bank of India can have no power to frame any regulation relating, to such service/maintenance charge or any sum received for making revenue expenditure in exercise of the powers under Section 45K.
49. It has further been contended that a plain reading of Section 45K of the Reserve Bank of India Act shows that the power conferred by every sub-section thereof is concerning deposits received by non-banking institutions. Sub-section (1) in any event has no application since the said subsection merely empowers the Reserve Bank to give directions to non-banking institutions to furnish to the Reserve Bank of India such statements, information or particulars concerning "deposits" received by such institutions as may be specified by the Reserve Bank of India. Sub-section (2) also deals with the statements or information or particulars referred to in Sub-section (1) but is again confined to deposits received by non-banking institutions from the public. The only sub-section of Section 45K which requires consideration is Sub-section (3). The said sub-section empowers the Reserve Bank of India to give directions to non-banking institutions in matters relating to or connected with the receipt of deposits, including the rates of interest payable on such deposits and periods for which such deposits may be received. It has been stated in this context that the Supreme Court had held that the Reserve Bank of India had the power to frame the original 1987 Directions under Section 45K(j) of the said Act. The said sub-section also cannot be referred to to sustain paragraph 4A inasmuch as the said sub-section merely gave power to the Reserve Bank of India to give directions concerning the deposits received by non-banking institutions from the public. The non-refundable processing/maintenance charge or service charge or sums received for meeting revenue expenditure cannot be "deposit" as contemplated by the said Act. It has accordingly been submitted that paragraph 4A is ultra vires Section 45K(3) of the Reserve Bank of India Act,
50. It has further been contended that that paragraph 4A does not cover deposits, is apparent from the fact that it deals with non-refundable processing/maintenance charge or other sums taken by a non-banking institution for its revenue expenditure which means that the non-banking institutions have no liability to repay the same to the person paying it. "Deposits" necessarily mean such payments in respect of which the recipient has an obligation to repay to the payer. The Reserve Bank of India has also proceeded on that basis as is apparent from paragraph 13 of Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , in which the Supreme Court has recorded the submission on behalf of the Reserve Bank of India in the following words.
"A deposit is, by definition, a sum of money received with a. corresponding obligation to repay the same. Thus, the repayment of the deposit is an integral part of the transaction of a receipt of deposit."
51. In support of the contention of the petitioners, reliance has been placed upon the judgment and decision of the Division Bench of the Bombay High Court in Pennwalt India Ltd., v. Registrar of Companies [1987] 62 Comp Cas 112 and in particular on the observations at page 117 of the report.
52. It has been submitted on behalf of the petitioners that the non-refundable processing/maintenance charge cannot come within the scope of the definition of "deposit" within the meaning of Section 45K of the Reserve Bank of India Act. In this connection, the learned advocate for the petitioner-company has referred to the expression "deposit" as defined in Section 45-I(bb) of the Reserve/Bank of India Act.
53. It has further been contended on behalf of the Reserve Bank of India that any receipt of money by a residuary non-banking company and in particular by Peerless would be a deposit inlcuding the sum of Rs. 10 allowed to be spent by the Reserve Bank of India in terms of the proviso to para. 4A which has been challenged in the instant petition and was , made on the basis of the definition of deposit in Section 45-I(bb) of the Reserve Bank of India Act which should not be accepted.
54. It has been submitted on behalf of the petitioners that deposit has been defined to include any receipt of money by way of deposit or loan or in any other form. It is a common and important characteristic of both deposit and loan that the said terms refer to receipt of moneys which are refundable. The refuhdability of moneys received constitutes the genus of both deposit and loan arid, therefore, the words "in any other form"
must be construed ejusdem generis with the words "loan and deposit"
which means that the receipt of moneys which are contemplated by the Legislature to be included in the definition of deposit by reason of the said words "or in any. Other form" must also necessarily be receipt of moneys in respect of which there is an obligation to repay. In support of this submission that the words "in any other form" must be construed ejusdem generis the petitioners rely on the following authorities :
(i) Francis Bennion on tatutory Construction, pages 829, 830.
(ii) Crawford on Statutory Interpretation, page 326, para. 191,
(iii) Siddeshwari Cotton Mills (P.) Ltd, v. Union of India, .
55. The contention of the learned advocate for the petitioners is that the words "in any other form" have been used by the Legislature for two reasons :
(i) to cover any receipt of money which may not be a deposit or a loan but at the same time is refundable ;
(ii) to guard against any accidental omission by the Legislature as held by the Supreme Court in Siddeshwari Cotton Milts (P.) ltd. v. Vnion of India, , since it is not the category of refundable receipts and to anticipate all possible situations which may arise at any point of time in future.
56. To illustrate, moneys received and held in trust is a form of receipt which would be a deposit by virtue of the word "in any other form"
although the same is not deposit or loan proper. This may include moneys received as consideration for transfer of shares which have not yet been registered in the books of the company in the name of the transferee arid of which the legal ownership continues with the transferor. This may also include moneys received from intending subscribers in the case of an issue of shares, in respect of which no share allotment can be made by reasons of over subscription and which, therefore, has to be necessarily refunded to the applicants.
57. The contention of counsel for the Reserve Bank of India is that the words "in any other form" are of wide import and can cover any receipt of deposit, refundable br non-refundable and such a construction would bring within the field of deposit even a gift of money.
58. It has been submitted on behalf of the petitioners that the whole of Section 45-I(bb) including specifically excluded receipts deals with refundable amounts and the element of refundability pervades the entire section. Assuming without admitting, that the principle of ejusdem generis does not apply in the situation, the rule of interpretation known as "noscitur a sociis" would apply to the expression "in any other form" as the said expression occurs in the company of other words through which runs the thread of the common feature of refundability. The expression "in any other form" must, therefore, be construed to be comprehending within its fold only refundable receipts of money and they cannot cover non-refundable sums. Reliance was placed in this regard on the decision of the Supreme Court in Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise, and Director of Public Prosecutions v. Jordan [1976] 3 All ER 775 (HL).
59. The learned advocate for the petitioner has sought to dispute the contention made on behalf of the Reserve Bank of India that the element of refundability does not pervade the whole of Section 45-I(bb) of the Reserve Bank of India Act because share capital which is one of the excluded categories of receipts is not refundable, since share capital is refundable on the winding up of the company after payment of all debts in accordance with their priorities. Share capital is a capital receipt and has to be shown as "liabilities" in the balance-sheet.
60. It has been submitted on behalf of the petitioners that in order to be a deposit within the meaning of the term as defined in the Reserve Bank of India Act, a receipt of money must carry with it the corresponding obligation to repay the same. Non-refundable processing/maintenance charges being receipt of money for revenue expenditure and' not liable to be repaid, the same cannot be a deposit as contemplated by the Reserve Bank of India Act and in particular Section 45K thereof.
61. It has been contended that consideration of the 1987 Directions as a whole along with paragraph 4A will show that paragraph 4A does not deal with deposits. In all the other provisions of the 1987 Directions, for instance, paragraphs 4, 5, 6, 7 and 12 thereof, the Reserve Bank of India itself has used the term "deposit" whereas in the case of paragraph 4A, it has consciously omitted to use the word "deposit". On the contrary it has sought to prohibit recovery on receipt of the processing or maintenance charges or any such charges by whatever name called for meeting revenue expenditure of a residuary non-banking company. It is, therefore, clear that the Reserve Bank was seeking to prohibit receipt of moneys by a non-banking company for meeting its revenue expenditure. Such moneys can never be deposits since deposit is a capital receipt and can never be a revenue receipt. In support of this submission, the petitioners have relied on the observations of the Supreme Court in its decision in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , and in particular on the observations in para 66 at page 1063 of the report (at page 116 of 75 Comp Cas) :
"The deposit or loan is a capital receipt and not a revenue receipt and its full value shall be shown in the account books or balance-sheet as the liability of the company."
62. It has been submitted that amounts taken for meeting revenue expenditure can never be shown as liability of the company and, therefore, the field traversed by paragraph 4A cannot be "deposits."
63. It has further been submitted on behalf of the petitioners that the proviso to paragraph 4A conclusively establishes that the field covered by paragraph 4A is not "deposits" and hence paragraph 4A is not referable to Section 45K of the Reserve Bank of India Act. By the said proviso, the Reserve Bank of India has allowed the non-banking institutions to accept a sum of Rs. 10 from a new depositor towards cost or expenses for issuing brochures or application forms, servicing the depositor's account, etc. It implies that the said sum of Rs. 10 is not and cannot be deposit since it has allowed the said sum of Rs. 10 to be spent. If the said sum of Rs. 10 was intended to be deposit, then a residuary non-banking company would have to invest the said sum of Rs. 10 in accordance with paragraph 6 and would also have to show the same as liability in terms of paragraph 12.
64. It has been contended that this cannot be the position since the Reserve Bank of India is not permitting residuary non-banking companies to spend the said sum of Rs. 10. It is settled law that a proviso embraces the same field as the main provision. Hence, as the proviso to paragraph 4A is not dealing with deposits, the field covered by the main part of paragraph 4A cannot also be said to be deposits. In support of the aforesaid submission; the petitioners have relied on the following decisions :
(i) Ram Narain Sons Ltd. v. Asst. CST, .
(ii) Abdul Jabar Butt v. State of Jammu and Kashmir, .
(iii) CIT v. Indo-Mercantile Bank Ltd. .
65. The contention of the Reserve Bank of India is that the impugned amendments are clarificatory amendmerits introduced to take care of the alleged circumvention by the petitioners of the 1987 Directions and the judgment of the Supreme Court is not sustainable. Such contention only shows total non-application of mind on the part of the Reserve Bank.
66. The contention of the Reserve Bank that it is empowered under Section 45K(3) of the Reserve bank of India Act to issue directions in matters relating to or connected with deposits and as such receipt of amounts by a non-banking institution for its revenue expenditure when it accepts deposits in the course of its main business is a matter relating to or connected with the acceptance of deposits and as such the Reserve Bank of India is competent to give directions on such processing/maintenance charges.
67. It has been submitted on behalf of the petitioners that the meaning of the words "relating to or connected with" on a reasonable construction does not sustain the aforesaid argument of the Reserve Bank.
68. It has further been suggested that the words "relating to or connected with" have been introduced to enable the Reserve Bank of India to issue directions in the matter as to how deposits are to be dealt with by the non-banking institutions under Section 45K(3) and to ensure that the power to give directions is not construed to be confined to receipt of deposits only.
69. It has further been argued on behalf of the petitioners that the said expression cannot mean that the Reserve Bank will have the power to frame directions in any matter which may be totally alien to the concept of deposits and even though there may be no reasonable nexus between the directions framed and the deposits received by the non-banking insti tutions.
70. It has been submitted that such construction would have given power to the Reserve Bank to issue directions regarding appointment of directors, payment of directors' remuneration, payment of dividends, etc., in respect of the non-banking institutions which accept deposits from the public. Such a construction would lead to an absurdity and must necessarily be avoided.
71. The learned advocates for the petitioners have further submitted that receipt of deposits would have covered by its normal connotation rates of interest on deposits received and the period for which such deposits may be received and it was not necessary to mention the two specifically after having mentioned "receipt of deposit." This shows that the Legislature wanted to exhaust the field of the regulatery powers of the Reserve Bank of India under Section 45K(3) to three areas, namely, the receipt of deposits, the rates of interest payable on such deposits and the period for which deposits may be received. In the instant case, therefore, the Legislature has by using the word "including" not sought to expand but to restrict. In support of the aforesaid submissions reliance has been placed on the decision, of the Supreme Court in the case of South Gujarat Roofing Tiles Manufacturers Association v. State of Gujarat, .
72. The petitioners have also relied upon the decision of the Supreme Court in the case of Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023.
73. It has further been submitted that a combined" reading of the sections in Chapter III-B will reveal that Section 45K(3) cannot bear the construction sought to be placed thereon by the Reserve Bank of India, The Reserve Bank of India is contending that the. said provision; confers very wide powers on the Reserve Bank of India to issue regulatory directions and that any matter which has something to do with deposits or collection of deposits can be regulated by the Reserve Bank of India in exercise of the powers under section. 45K(3). Through this: argument they are seeking to justify para. 4A which deals with non-deposits and matters of revenue expenditure which are essentially general-matters relating to conduct of business by a company. The fallacy of the argument is apparent from a comparative study of the languages of Sections 45J and 45K(3). If the Reserve Bank of India was right in contending that the powers of the Reserve Bank of India to give directions under Section 45K(3) are unlimited and can cover any matter having any nexus even remotely with that of deposit, it would have been unnecessary for the Legislature to enact Section 45J since the subject-matter sought to be covered by Section 45J can very well come within the scope of Section 45K(3), It would have been unnecessary for the Legislature to enact even Section 45K(i) if Section 45K(b) was as wide in scope as is contended for by the Reserve Bank of India. Even Section 45M would be unnecessary. It would also be hot necessary to enact Section 45L since the non banking institution contemplated by Section 45K will take in its fold even financial institutions. Since all the, financial institutions are non-banking institutions, but all non-banking institutions are not financial institutions, non-banking institution is larger in scope and comprises financial institutions. If the Reserve Bank of India's argu-ments have to be accepted, it logically follows that the Legislature has indulged in surplusage or superfluity in enacting Chapter III-B of the Reserve Bank of India Act. The construction sought to be placed by the Reserve Bank of India on Section 45K(3) of the Reserve Bank of India Act would also render the last part of the said sub-section, namely, the part beginning with the words "including" superfluous. This is contrary to the rules of construction as laid down by the Supreme Court of India. Reference may be made to Quebec Railway,.Light Heat and Power Co. v. Vandry AIR 1920 PC 181 ; J. K. Cotton Spg. and Wvg. Mills Co, Ltd. v. State of Vttar Pradesh [1960-61] 19 FJR 463 (SC); Shri Umed v. Raj Singh, and also Reserve Bank of India v. Pewless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023 para 33.
74. It is the submission of the petitioners that para. 4A is unreasonable and arbitrary and violativa of Articles 14 and 19(1)(g) of the Constitution. It has been submitted that unreasonableness and arbitrariness in the instant case follow from non-consideration by the Reserve Bank of the relevant consideration in framing regulatory provisions under the Reserve Bank of India Act and also non-consideration of the intent and purpose of such regulation as also the effect which the said regulation, namely, paragraph 4A, is likely to have on the business of the petitioner-company.
75. It has further been submitted on behalf of the petitioners that, while purporting to exercise powers under the aforesaid provisions of the said Act, the Reserve Bank has not adverted to the most material considerations, namely, whether the petitioner-company is a financial institution as defined in the Reserve Bank of India Act ; whether there was any material for the Reserve Bank of India to b,e satisfied that it was necessary to regulate the credit system of the country to its advantage or whether paragraph 4A or recovery of non-refundable processing or maintenance charges or other charges for meeting revenue expenditure can have any nexus with regulating the credit system of the country ; whether the statutory conditions mentioned in Section 45L(3) of the Reserve Bank of India Act have been complied witli and also whether the field covered by paragraph 4A, i;e., receipt of moneys for meeting revenue expenditure can be termed "deposits" within the meaning of the Reserve Bank of India Act. The said paragraph 4A is thus unreasonable and arbitrary and viola-tive of Article 14 of the Constitution.
76. In support of the said submissions, the learned advocates for the petitioners have relied on the decision of the Supreme Court, in the case of Supreme Court Employees Welfare Association v. Union of India, .
77. It has been submitted on behalf of the petitioners that it is obvious that the Reserve Bank of India has no objection in principle to the recovery of service charges since by the proviso to paragraph 4A they have allowed residuary non-banking companies to collect a sum of Rs. 10 from a new depositor towards meeting the cost of application forms/brochures, servicing depositors' accounts, etc. However, the fixation of the ceiling for service charges at Rs. 10 is totally arbitrary and without any basis. The total arbitrariness of the fixation of such ceiling is apparent from the contents of the proviso itself since the Reserve Bank concedes that a residuary non-banking company has to incur expenses towards cost of application forms/brochures, servicing depositors' accounts, etc., but provides a sum of Rs. 10 only for that purpose. It has been submitted that a sum of Rs. 10 is patently insufficient and arbitrary towards meeting the expenses for the purposes mentioned in the proviso itself. The cost of an application form/brochure on a conservative estimate cannot be less than Rs. 5 which implies that a residuary non-banking company is left with a sum of Rs. 5 for the purpose of servicing the depositor's account, etc. Under the 1987 Directions and assuming without admitting the amendment of the writ petition to be a valid amendment, a certificate of the petitioner-company can be of a duration of seven years. On the basis of Rs. 10 which has been allowed by the Reserve Bank, the petitioner-company will be left with Rs. 5 to serve the depositor's account for seven years and meet other expenses which are contemplated by the expression "etc." This is impossible and hence the ceiling of Rs. 10 contained in the proviso is totally arbitrary and unreasonable and violative of Article 14 of the Constitution.
78. It has been argued on behalf of the Reserve Bank that the sum of Rs. 10 has been allowed for the purpose of meeting the expenses for literature, brochures, etc., which are taken by persons making casual enquiries about the schemes of the company but who do not ultimately subscribe to such scheme and the Reserve Bank of India has termed such expenditure as wasteful expenditure and contends that a sum of Rs. 10 as provided in the proviso to paragraph 4A is intended to meet such "wasteful expenditure".
79. The said allegations have been disputed by the petitioners and it has been contended by the learned advocate for the petitioners that on a plain reading of the proviso which says in so many words that a sum of Rs. 10 is intended to cover the cost of application forms/brochures, servicing depositors' accounts, etc. Servicing depositors' accounts can only mean incurring expenses for and in respect of persons who have subscribed to the schemes of the company and the language of the proviso is totally inconsistent with the allegations of the Reserve,, Bank.
80. It has further been submitted on behalf of the petitioners that it is inconceivable and unimaginable that the Reserve Bank of India which is showing grave concern for the safety of the certificate holders' money, itself provides for payment for non-depositors by depositors.
81. It has further been submitted that the allegation in paragraph 37 of the affidavit-in-opposition is not correct that while the Reserve Bank of India is not averse to depositors paying for non-depositors, it is allergic to recovery of processing/maintenance charges by the petitioner-company when such charges are being recovered with the full consent of the certificate holder who has full knowledge about non-refundability. This itself shows total arbitrariness and misdirection on the part of the Reserve Bank of India.
82. It has been submitted on behalf of the petitioners that the word "etc." used in the proviso to paragraph 4A has to be given some meaning since it cannot be presumed that while framing the delegated legislation, the Reserve Bank of India has indulged in surplusage.
83. It has further been submitted that at least no explanation for the use of the word "etc." has come from the Reserve Bank in the affidavit-in-opposition filed on its behalf. In support of the submission that each word must have some meaning and cannot be presumed to be surplusage, the petitioners have relied on the following decisions :
(i) Quebec Railway, Light Heat and Power Co. v. Vandry AIR 1920 PC 181.
(ii) J. K. Cotton Spinning and Weaving Mills Co. Ltd. v. State of Vttar Pradesh .
(iii) Hill v. William Hill (Park Lane) Ltd. [1949] 2 All ER 452 (HL). (iv) Shri Umed v. Raj Singh, .
84. The learned advocates for the petitioners referred to the ordinary dictionary meaning of the word "etc." as appearing from The Concise Oxford Dictionary which is as follows :
"etcetera--(1) (a) and the rest; and similar things or people ; (b) or similar things or people.
(2) and so on-n (in pi.) (the usual) sundries or extras."
85. It is the submission of the petitioners that the said paragraph 4A, if given effect to, will result in the closure of the business of the petitioner-company inasmuch as the petitioner-company will not be able to find any source for meeting its working capital requirements. A chart has been annexed with this petition to show the projected working results on the basis of balance-sheet figures for the accounting year ended March 31, 1992. It will appear from the said chart that the said paragraph 4A if given effect to, will result in huge losses to the petitioner-company and the petitioner-company will inevitably face closure. The said paragraph 4A thus imposes unreasonable restrictions on the fundamental rights of the petitioners to carry on trade, business, occupation and/or profession, guaranteed by Article 19(1)(g) of the Constitution.
86. The petitioners have relied on the following decisions in support of their submission that the said paragraph 4A is violative of Articles 14 and 19(1)(g) of the Constitution :
(i) Mohamed Yasin v. Town Area Committee, .
(ii) Rustom Cavasjee Cooper v. Union of India .
(iii) Tahir Hussain v. District Board, Muzaffamagar, .
(iv) Chintamanrao v. State of Madhya Pradesh, .
(v) Maneka Gandhi v. Union of India, .
87. It has already been submitted that when a challenge to reasonableness is thrown, the onus is on the State to show that the impugned provision is reasonable. The petitioners have already referred to and relied upon the decision reported in Vrajlal Manilal and Co. v. State of Madhya Pradesh, , and Laxmi Khandsari v. State of Uttar Pradesh, , for the aforesaid submission.
88. It has further been submitted that the said paragraph 4A is also violative of Article 14 of the Constitution in another sense.
89. It has been argued on behalf of the petitioners that the Reserve Bank of India has permitted a flat ceiling of Rs. 10 for all residuary non-banking companies as charges which can be recovered towards meeting the cost of application form/brochure, servicing depositor's account, etc., and the said flat ceiling has been provided irrespective of the size of the company, the volume of business transacted by it, its staff strength and the number of agents.
90. It has been further submitted that it is inconceivable that a company like Peerless which has a regular staff strength of 5,000, has more than 100 branches all over India and has a 25 lakh field force and gets 50 lakh new business on an average every year, should be treated on the same footing in the matter of service charges with another company whose volume of business transacted and staff strength and administrative expenses may be insignificant compared to that of the petitioner-company.
91. It has been submitted that the proviso to paragraph 4A has treated unequals as equals and thereby violates the guarantee of equal protection contained in Article 14 of the Constitution. In support of the aforesaid submission, the petitioners relied on the following cases :
(i) K. T. Moopil Nair v. State of Kerala, .
(ii) State Bank of India v. State of West Bengal [1979] 1 CLJ 363.
92. It has been also submitted on behalf of the petitioners that the powers of the Reserve Bank of India under the Reserve Bank of India Act are regulatory and such powers cannot be Invoked to frame rules or directions which are in effect prohibitory.
93. It has been contended on behalf of the petitioners that regulation can never mean prohibition. Paragraph 4A has been purported to be framed in exercise of regulatory powers but results in virtual prohibition of the business of the petitioner-company and is thus ultra vires the provisions of the Reserve Bank of India Act under which it has been purported to be framed. In support of the aforesaid submissions that regulation cannot mean prohibition the petitioners have relied on the decision of the Supreme Court in State of Uttar Pradesh v. Hindustan Aluminium Corporation .
94. According to the petitioner-company, contentions raised in the affi davit filed on behalf of the respondent, the Reserve Bank of India that levying service charges by the petitioner-company is in violation of the pre-amended 1987 Directions and of the judgment of the Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , cannot be accepted. The judgment of the Supreme Court was also not on the question of service charges and the Supreme Court of India had no occasion to advert to the said issue. It is idle to contend that the petitioners acted in violation of the 1987 Directions or the Supreme Court judgment since, if that was the case, the Reserve Bank would not have needed to amend the Directions but would have taken action under Section 45K(4) of the Reserve Bank of India Act and other provisions in the said Act for prosecution and penalty of persons acting in violation of Directions issued under Chapter II-B (section 58B of the Reserve Bank of India Act and in particular Sub section (5) thereof) and would have hauled up the petitioners for contempt before the Supreme Court.
95. It has further been contended on behalf of the petitioner that the . very fact that the Reserve Bank had to amend the 1987 Directions shows that service charge was not covered by the 1987 Directions or the judgment of the Supreme Court.
96. The learned advocate for the petitioners referred to the Supreme Court in its judgment in the prize chit case in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023, and submitted that the Supreme Court observed that the Reserve Bank while framing regulatory provisions for companies like the petitioner-company should take care of the thousands of employees. The Supreme Court was equally concerned for the survival of the companies and their employees while ensuring the security of the deposits given by the certificate holders.
97. It has been submitted on behalf of the petitioner-company that processing and maintenance charges are utilised by the petitioner-company for expenses for servicing the certificate holder's account over the contractual period of the certificate, which in its turn includes proportionate elements of management expenses, staff salaries, overheads, agents' commission, etc.
98. It has further been submitted that the recovery of service charge is nothing peculiar to the petitioner-company and the banks also do recover service charges, sometimes of a large amount, in spite of the fact that the banks do not have to pay agents' commission for procuring business for them.
99. It has been contended that such service charges are even prevalent in respect of current accounts in which no interest is payable and savings account in which nominal interest is payable. It appears that the Reserve Bank of India has made no attempt to control or regulate recovery of service charges Which has been left totally to the discretion of the banks both in the public and private sectors. This is established by the documents annexed by the Reserve Bank of India to their affidavit-in-opposi-tion. The said documents totally contradict the allegations of the Reserve Bank of India in the affidavit-in-opposition. On scrutiny, the said documents will reveal that the public sector banks including the State Bank of India levy charges for mere passivity of the constituents, namely, non-operation of the account and the balance in the account falling below a specified minimum. Reference was also made to annexure-C to the affi-davit-in-opposition which shows the. service charges which are levied by Standard Chartered Bank even in respect of current accounts, savings bank accounts and recurring deposits. It has been submitted in this context that the Supreme Court held in its judgment in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023 that the business of the petitioner-company is akin to a plain recurring deposit scheme such as many schemes floated by the commercial banks and the national savings organisations and there was no gambling and no element of chance in such schemes.
100. It has been submitted on behalf of the petitioners that the approach of the Reserve Bank of India in respect of recovery of service charge by banks both in the public and private sectors is very liberal. The learned advocates for the petitioners have cited instances of recovery of service charges at high rates by banks as allowed by the Reserve Bank but it has objection to recovery of service charges by the petitioner-company. It has also been submitted that this is a highly unreasonable attitude resulting . in prejudice and discrimination against the petitioner-company.
101. It has been contended on behalf of the petitioners that the business of the petitioner-company has been held by the Supreme Court to be akin to the business of a recurring deposit scheme of a commercial bank and there is no reason why the same consideration and standards should not be applied in the case of the petitioner-company by the Reserve Bank of India in the matter of recovery of service charges. The Reserve Bank of India has sought to justify the levy of high service charges on the ground that it was necessary for the banks to recover such service charges in order to render sophisticated computerised services and that it was free for a customer to choose a particular bank and he need not go to a bank which levies high service charges if he is dissatisfied thereby. The Reserve Bank of India has further submitted that companies in the private sector can function on a commercial basis. The arguments of the Reserve Bank of India contained in the said letter equally apply to the case of the petitioner-company which has highly sophisticated computerised accounting system. Further, it has been contended that the petitioner-company in the private sector should be allowed to function in accordance with prudent commercial norms and the petitioner-company is also not compelling anybody to come to it and subscribe to its business and it is open to a subscriber not to invest in the schemes of the petitioner-company if he does not like the terms and conditions of the schemes of the petitioner-company. It has been submitted on behalf of the petitioners that the Reserve Bank of India while exercising statutory powers under the Reserve Bank of India Act for framing regulatory directions has to apply its mind and to advert to relevant considerations.
102. It has been submitted on behalf of the petitioners that even though the business of the petitioner-company is akin to the business carried on by a commercial bank, a different standard has been adopted for banks both in the public and private sectors and the Reserve Bank of India has not made any attempt to control the levy of service charges by banks. This establishes that the Reserve Bank of India has no power to do so and that there is no need for such control. It also established that the petitioners have been subjected to hostile discrimination by paragraph 4A in violation of the guarantee of equal protection contained in Article 14 of the Constitution.
103. It has been submitted that the Reserve Bank of India was fully aware of the fact that the petitioner-company was levying service charges and prior to the framing of the impugned directions, had never objected to the same. In fact, the Reserve Bank of India has given its tacit approval when it merely called for a clarification regarding recovery of processing charge by its letter dated March 51, 1993, of the affidavit-in-reply of Peerless, and not writing back after Peerless clarified the query by letter dated April 7, 1993, of the affidayit-in-reply of Peerless.
104. It has further been submitted that the committee set up under the chairmanship of Mr. A. C. Shah to which copious reference has been made by the Reserve Bank in its affidavit has not made any recommendation on the question of recovery of processing/maintenance charge although the service and processing charge was being recovered by the petitioner-
company before the Committee started its deliberations. The Committee never adverted to the said question. The petitioners' representative was interviewed by the said Committee but no question was put on the service and maintenance charge. This shows that the Reserve Bank of India has no power to regulate service charges which are not deposits. It has further been submitted that there is no substance in the allegations of the Reserve Bank of India regarding circumvention of the pre-amended 1987 Direc tions or the judgment of the Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , inasmuch as, if that had been the position, the said Shah Committee which was set up in the wake of the observations of the Supreme Court made while upholding the 1987 Directions would defi nitely have adverted to the said question and made recommendations thereon.
105. It has further been submitted on behalf of the petitioners that the amendment of paragraph 4 of the 1987 Directions as contained in the notification at page 100 of the writ petition is also illegal, unconstitutional and invalid. By the said amendment, the maximum permissible period of a certificate issued by the residuary non-banking company has been fixed as 84 months instead of the previous 120 months. In other words, the maximum period has been curtailed from 10 to 7 years. It has .been submitted on behalf of the petitioner that this is totally inconsistent with the affidavit filed by the Reserve Bank of India in this court in Favourite's case in 1973 relevant extracts whereof have been annexed to the writ petition. The learned advocate for the petitioner-company has submitted from the comparative chart that it is clear that the Reserve Bank of India had itself said in 1978 while dealing with the schemes in Favourite that schemes for shorter periods, i.e., 5 to 7 years are unscientific, unremunera-tive and ultimately will involve accumulation of loss.
106. It has further been submitted on behalf of the petitioners that the arbitrariness of the Reserve Bank of India will be apparent from a combined reading of paragraph 5 of the 1987 Directions and the provisions of the amended paragraph 4 thereof. It has been contended that while framing regulatory directions, the Reserve Bank of India is supposed to have applied its mind and framed Directions which would protect the interest of everybody concerned and ensure the survival of the companies and the security of the certificate holders' deposits. The rate of interest provided and the maximum permissible period of a certificate are very important considerations and a perfect balance of the two, can only make the Directions workable. It is assumed that such balance was struck in the original Directions providing for a return of a minimum of 10 per cent. on a "certificate" running for a full term. Paragraph 4, prior to its amendment, provided the maximum permissible period of a certificate as 10 years and, therefore, the minimum interest of a certificate of a full term must have been fixed taking into account a 10 years certificate. At the same time paragraph 5 provides that for premature payments the interest rate could be reduced by 2 per cent. from the minimum rate fixed, i.e., the interest was payable at a minimum rate of 8 per cent. In other words, for payments to be made before 10 years, i.e., 9 years 11 months for example, the interest rates could be reduced by 2 per cent. from the minimum rate fixed, i.e., the interest rate was payable at a minimum rate of 8 per cent. The Reserye Bank of India by the impugned amendment by the notification has reduced the maximum permissible period of a certificate to 7 years but has not chosen to amend paragraph 5 of the Directions which means that for payments to be made at the maturity of a certificate, i.e., after 7 years, interest will have to be provided at 10 per cent. No explanation has been forthcoming from the Reserve Bank of India as to why it considers provision of interest at 10 per cent. for 7 years certificates to be reasonable when it earlier provided for a rate of interest of 8 per cent. for payments to be made at any time before 10 years, i.e., up to 9 years 11 months and 29 days. The amendment brought in by way of notification has been thoughtlessly made without any application of mind and totally disturbs the equilibrium. The amendment according to the petitioner is thus unjust and unreasonable and violative of Articles 14 and 19(1)(g) of the Constitution. In support of this submission, petitioner No. 2 relied on the authorities which have been relied upon by the company in support of the submission on the question of violation of Articles 14 and 19(1)(g) of the Constitution.
107. It has been submitted on behalf of the petitioner that reduction of the period from 10 to 7 years is also bound to bring in imbalance in the return from investing in the more prescribed directions. For 7 years the return on investment prescribed would be much less and there has been no change in the return pattern of those investments. Therefore, according to the petitioner, the imbalance is twofold :
(i) the petitioner-company receives less for the reduced period and has to pay at the higher rate introduced when a longer period was approved ;
(ii) the older regulation proceeded on the factual basis that reduction of 10 years had to be matched with the reduced return. This has now been done away with by the impugned amendments.
108. It has been submitted further on behalf of the petitioner that in the net position, therefore, the petitio.ner is compelled to pay more when it receives less. This is regulation by extinction which cannot be done under the powers sought to be invoked which are only regulatory.
109. It has also been submitted on behalf of the petitioner that the reduction of the permissible maximum period of a certificate from 10 years to 7 years shows complete non-application of mind by the Reserve Bank of India authorities.
110. It has also been alleged that the authorities did not consider the relevant factors while reducing the permissible maximum period of a certificate from 10 years to 7 years. It is the contention of the learned advocate for the petitioners that the justification sought to be given by the Reserve Bank of India that the authorities have made the reduction on the basis of the reports of the Shah Committee and the James Raj Committee on non-banking companies have no basis since the Shah Committee made no observation on the maximum period of deposits in respect of residuary non-banking companies as it is apparent from para 6.55 of the report of the Shah Committee which has also been quoted at page 39 of the affidavit-in-opposition filed on behalf of the Reserve Bank of India.
111. It has also been submitted that it is apparent from the aforesaid para that residuary non-banking companies have been treated as a separate class of companies distinct from non-banking financial companies and it has been noted that in the case of such residuary non-banking companies, the period of deposits is not more than 120 months. In para 7.17 quoted at page 39 of the affidavit-in-opposition in which the committee has made its recommendation that the non-banking financial companies be allowed to accept deposits for periods ranging between 12 and 84 months as against the existing range of 24 and 120 months, no recommendation has been made in respect of residuary non-banking companies although it is apparent from para 6.55 of the report that the Shah Committee had before it the period of deposits in the case of residuary non-banking companies. So far as the report of the Raj Committee is concerned, the same is totally silent on the period of deposits in the case of residuary non-banking companies. The relevant portions of the report quoted at pages 40 and 41 of the affidavit-in-opposition. of the Reserve Bank of India also do not show that any recommendation was made by the Raj Committee on this question. In any event, the report of the Raj Committee was published in the year 1975 and the Reserve Bank of India has framed the Residuary Non-Banking Companies Directions in 1987, wherein they maintained the maximum period of deposits at 120 months.
112. It has further been submitted on behalf of the petitioners that the impugned notification reducing the maximum period of deposits cannot be, therefore, in implementation of either the Raj Committee or the Shah Committee's recommendations as alleged by the Reserve Bank of India in its affidavit-in-opposition. Further, the Reserve Bank of India has also sought to justify reduction of the maximum permissible period on the ground that the rate of interest payable by banks on fixed deposits is 11 per cent. The said interest rate has since been reduced and has been fluctuating from time to time. Hence, the said interest rate cannot justify the reduction of period which has been sought to be permanently reduced to 84 months, irrespective of fluctuations in the interest rates given by the bank. This shows the Reserve Bank of India has acted arbitrarily and without any application of mind in issuing the notification reducing the maximum permissible period for which deposits can be received by a residuary non-banking companies from 10 years to 7 years.
113. Finally, it has been submitted on behalf of the petitioners that the impugned amendments are illegal and beyond the powers of the Reserve Bank of India and also unconstitutional and void and the same in no way impairs the security of the certificate holders' deposits and the certificate holders are not losing one paisa in the scheme which provided for recovery of processing and maintenance charges. The Reserve Bank has also not alleged a single complaint from a certificate holder regarding the business methods and practice of the company.
114. Accordingly, the learned advocate for the petitioners has submitted that the impugned notification should be struck down.
115. It has also been argued on behalf of the petitioners that the impugned notifications being a subordinate legislation, the court has to consider the nature, objects and schemes of the subordinate legislation as a whole and on the basis of the examination it has to consider what exactly is the area over which and the purpose for which power has been delegated by the governing law. Subordinate legislation is liable to be declared invalid if it is manifestly unjust and is directed to unauthorised end or violative of general principles of law of the land or so vague that it cannot be predicted with certainty as to what has been prohibited by them or so unreasonable that they cannot be attributed to the power delegated or otherwise disclose bad faith, The principle is that the validity of subordinate legislation is open to question if it is ultra vires the Constitution or the governing Act or repugnant to the general principles of laws of the land or it is so arbitrary or unreasonable that no fair-minded authority could ever have "made it.
116. Reliance has been placed upon the following decisions :
1. General Officer Commanding-in-Chief v. Dr. Subhash Chandra Yadav, .
2. Supreme Court Employees Welfare Association v. Union of India, .
3. Indra Sawhney v. Union of India, .
117. The All India Peerless Officers' Association's a body consisting of the officers of the Peerless General Finance and Investment Co. Ltd. who are in the employment of Peerless throughout India. The total number of such officers who are members of the said association is 750.
118. The All India Peerless Officers' Association (hereinafter referred to as "the said association") also intervenes in the proceeding and submissions were made on behalf of the said association by the learned Advocate-General of West Bengal.
119. It has been submitted on behalf of the association that by one of the amendments, the Reserve Bank of India sought to introduce a new provision, namely, para 4A under the 1987 Directions, seeking to prohibit recovery by residuary non-banking companies including Peerless of any sum from a depositor and certificate holder under any name for the purpose of meeting its revenue expenditure except for a sum of Rs. 10 per new certificate and deposit which has been purported to be allowed by the proviso to the said paragraph 4A.
120. By the other impugned amendment, the Reserve Bank of India has purported to provide that the maximum period for which deposits can be received by a residuary non-banking company like Peerless under a certificate issued by it, would be 7 years instead of 10 years which was originally provided under the 1987 Directions.
121. It has been submitted that the All India Peerless Officers' Association has taken legal advice and they have been advised that Peerless's contentions in the writ petition are correct and if para 4A and the other impugned amendment of para 4A of the 1987 Directions are implemented, Peerless will have to close down its business resulting in loss of employment and livelihood for the members of the association most of whom are middle aged and at this stage will not be able to secure any employment elsewhere. The association filed an application for being added as a party to the present proceedings or for being allowed to intervene therein. The association was allowed to file an affidavit and make its submissions through counsel. The association is vitally interested in the subject-matter of the instant writ petition and has locus standi to intervene and make submissions. In this regard the association relied on the decision of the Supreme Court in National Textile Workers' Union v. P. R. Ramakrishnan .
122. It has further been submitted that the attempt of the Reserve Bank of India to regulate the business of Peerless through purported regulatory measures has a long and chequered history starting in the year 1973 when the Reserve Bank of India framed the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1973, Peerless was granted conditional exemption from the said Directions although it was Peerless's stand that it was not covered under the same. This was followed by the Miscellaneous Non-Banking Financial Companies (Reserve Bank) Directions, 1977 and in 1978, Parliament enacted the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. In 1979, notices were issued by the State of West Bengal and the State of Madhya Pradesh (the State Governments having been appointed as implementing agencies under the said Act) directing Peerless to submit winding up plans on the allegation that the business of Peerless amounted to a prize chit/money circulation scheme as defined in the 1978 Act. Peerless challenged the aforesaid notices through two writ applications filed in this court. The writ applications were heard before a learned single judge who dismissed the same and held the business of Peerless to amount to a prize chit. On appeals preferred by Peerless against the said judgment, a Division Bench of this court was pleased to allow the appeals, reverse the judgment of the learned single judge and to hold that the business of Peerless did not amount to a prize chit as defined in the 1978 Act. The Reserve Bank of India took the matter by way of a special leave petition to the Supreme Court of India and the Supreme Court of India by a judgment which is reported in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023, was pleased to dismiss the appeal preferred by the Reserve Bank of India and was pleased to affirm the judgment of the Division Bench of this court and was pleased to hold that the business of Peerless did not amount to a prize chit as defined in the 1978 Act. While dismissing the appeal of the Reserve Bank of India as aforesaid, the Supreme Court, however, observed that it is open to the Reserve Bank of India to frame such regulatory measures as are open to them in law to regulate businesses of the kind run by Peerless. The Supreme Court further observed that while framing such regulatory measures, care must be taken to protect the thousands of employees.
123. It has further been submitted by the learned Advocate-General on behalf of the said association that the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987, was framed by the Reserve Bank of India with effect from May 15, 1987, in exercise of the powers under Sections 45J and 45K of the Reserve Bank of India Act. Under the said directions and in particular under paras 6 and 12 thereof, every residuary non-banking company including Peerless was required to invest and keep invested alt subscriptions received along with accrued interests in a particular mode specified in para. 6 of the 1987 Directions and was also required to disclose all deposits received by them as liabilities in their respective balance-sheets. This implied that no part of the deposits received by Peerless or any other residuary non-banking companies could be utilised by it for meeting its working capital requirements. Since earlier the practice of the residuary non-banking companies and in particular Peerless was to utilise a part of the subscriptions received in the initial years or in the first year for meeting its working capital requirements (the said portion of subscriptions so utilised were, however, made good by investing the balance of the, subscriptions in these years and the subscriptions of the subsequent years in a manner so that the yield from the investment was enough to pay back the depositor the entire amount paid by him along with guaranteed accretions and bonus at the end of the contractually stipulated maturity period), the provisions of the 1987 Directions caused hardship for the company and made it difficult for the company to carry on its business. In this context the learned Advocate-General has referred to the provisions of the 1987 Directions and submitted that the same also imposed a ceiling on the maximum period for which deposits could be received and provided for a minimum rate of interest which was to be paid to a depositor and also provided a minimum rate of interest to be paid to a depositor who discontinues depositing subscriptions midway through the term of the certificate.
124. It has been contended that Peerless initially tried to comply with the 1987 Directions in its entirety for the first two years. In 1989, one Timex Finance and Investment Co. Ltd. which is also a residuary non-banking company filed a writ application in this court challenging the legality and validity of the 1987 Directions and an interim order was made in its favour directing stay of operation of the said Directions so far as Timex was concerned. The Reserve Bank of India preferred an appeal against the said interim order before a Division Bench of this court. Subsequently, the writ application itself was heard out and disposed of by the Division Bench. In the course of the proceedings before the Division Bench, even the records of Peerless were called for by the Division Bench since Peerless happened to be the major residuary non-banking company operating in the country and at that stage Peerless made an application for being added as a party to the proceedings. Such application was allowed and submissions were made by Peerless before the Division Bench supporting the case of Timex and contending that the said 1987 Directions were illegal, unconstitutional and invalid. The Division- Bench by adjudgment and order dated March 23, 1990, reported in [1992] 75 Comp Cas 16 (Gal) ; [19901 2 CLJ 233 held that a part of the 1987 Directions which required all subscriptions to be invested were beyond the powers of the Reserve Bank of India and was unreasonable and residuary non-banking companies were required to keep invested only its contractual liabilities at a given point of time, namely, all amounts which would be payable by such companies at a given point of time as per the contract and not amounts which would fall due in terms of the contract at a latter point of time. The Division Bench held that this was permissible under what is known as the discounting method or actuarial method of accountancy which is well known and accepted in accounting circles and in the commercial world.
125. It has been submitted that the special leave petition was filed against the Division Bench judgment by the Reserve Bank of India and Peerless also filed a substantive application under Article 32 of the Constitution challenging the legality and validity of the said 1987 Directions. It has been submitted that the said special leave petition and the writ petition of Peerless were heard and disposed of by the Supreme Court of India by a judgment dated January 30, 1992, in Peerless General Finance and Investment Co, Ltd. v. Reserve Bank of India , by which the Supreme Court set aside the judgment of the Division Bench and upheld the validity of the 1987 Directions. The Supreme Court in the said judgment held, inter alia, that deposits mean refundable amounts received from subscribers and all amounts which are so refundable are capital receipts, have to he necessarily disclosed as liabilities of a residuary non-banking company at all points of time and no part of such refundable amounts can be touched by the residuary non-banking company for its own requirements at any point of time.
126. In 1992, Peerless introduced certain schemes whereunder Peerless recovers non-refundable processing/maintenance charges as stated hereinabove. Such schemes were introduced upon prior intimation to the Reserve Bank of India, In April, 1993, the Reserve Bank of India introduced the impugned amendments to the 1987 Directions.
127. It has been submitted on behalf of this intervener association that the provisions of para 4A of the 1987 Directions are beyond the statutory powers of the Reserve Bank of India under Sections 45J, 45K and 45L of the Reserve Bank of India Act. It has been submitted that Section 45J of the Reserve Bank of India Act can have no application in the context of para. 4A. It has also been contended that the same has been mechanically referred to by the. Reserve Bank of India which demonstrates total non-application .of mind on its part. So far as Section 45K of the Reserve Bank of India Act is concerned, it is the case of Peerless that the same empowers the Reserve Bank of India to make regulatory provisions relating to deposits. In the instant case, what is being sought to be prohibited under para 4A, being recovery of any sum by a residuary company for meeting its revenue expenditure, are not arid cannot be refundable sums. In fact, para. 4A is directed to prohibit the receipt of such moneys which ate non-deposits even if they are recovered with, the consent of the payer/depositors. It has been submitted that the said sums, recovery whereof is sought to be prohibited by para. 4A (in the instant case, the non-refundable processing/maintenance charges) are necessarily non-deposits, the same being non-refundable and cannot form the subject-matter of regulation by the Reserve Bank of India in exercise of the powers under Section 45K of the Reserve Bank of India Act, 1934.
128. Reliance has been placed by the Reserve Bank of India on the provisions of Section 45K(3) of the Reserve Bank of India Act and in particular the following words :
"any matter relating to or connected with the receipt of deposits".
129. It has been submitted on behalf of the intervener association that the aforesaid words relied on by the Reserve Bank of India are followed by the following words :
"including the rates of interest payable on such deposits and the periods for which deposits may be received".
130. Rates of interest on deposits received and period of the deposits received would have come within the normal meaning of the expression "receipts of deposits". Therefore, by using the word "including", the Legislature wanted to curtail the rule-making power of the Reserve Bank of India to the receipt of deposits, the period for which deposits may be received and the rate of interest payable on such deposits. In support of the aforesaid submission this intervener placed reliance on the following decisions :
(i) South Gujarat Roofing Tiles Manufacturers Association v. State of Gujarat, and (ii) Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023.
131. It has been contended on behalf of the Reserve Bank of India that the supposedly wide powers conferred on the Reserve Bank of India by Section 45K(3) have been affirmed by the Suprerne Court of India in its decision in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , when it sustained paras 6 and 12 of the 1987 Directions with reference to Section 45K(3)., It has been submitted that para 6 of the 1987 Directions provides the mode of investment which is necessarily linked up with the rate of interest mandatorily and compulsorily required to be paid by every residuary non-banking company by para 5 of the 1987 Directions. The rate of interest required to be paid is sought to be ensured by specifying the mode of investment and thus the power to lay down the mode of investment flows from the power of the Reserve Bank of India under Section 45K(3) of the Reserve Bank of India Act to regulate the rates of interest on deposits received.
132. It has also been submitted on behalf of the intervener that if the argument of the Reserve Bank of India that Section 45K(3) of the Reserve Bank of India Act empowers it to make any and every regulation which has some nexus with deposits, however remote or insignificant the same may be, is carried to its logical conclusion, then the Reserve Bank of India would be empowered to make provision regulating even the payment of salaries to the staff of residuary non-banking companies on the ground that such staff are working in connection with the business of the residuary non-banking companies which is the receipt of deposits and, therefore, regulations governing their salary conditions would also be related to or connected with the receipt of deposits and, therefore, sustainable under Section 45K(3) of the Reserve Bank of India Act. This would result in an absurdity and hence such a construction of Section 45K(3) of the Reserve Bank of India Act has to be necessarily avoided.
133. It has been contended on behalf of the intervener association that the field covered by para 4A is not and cannot be deposits as defined in the Reserve Bank of India. Act and contemplated by Section 45K of the said Act will be evident from the definition of "deposit" as contained in Section 45K(bb) of the Reserve Bank of India Act which provides that deposit includes and shall be deemed always to have included any receipt of mpney by way of deposit or loan or in any other form. This is followed by certain specific instances of receipt of money which have been specifically excluded by the said provision from the purview of deposits. It has been submitted that it is well settled that deposit necessarily means refundable sums of money. This is evident from the observations of the Supreme Court in paragraphs 13 and 66 of its judgment in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India . The only question which remains is whether the receipt of non-refundable sums of money, namely, the processing/maintenance charge in the instant case comes within the words "in any other form" used in Section 45-I(bb). The words "in any other form" have to be construed ejusdem generis with "deposit" or "loan", the genus being refundable amounts. It may be seen that the whole of Section 45-I(bb) including the specifically excluded receipts deals with refundable amounts and the element of refundability pervades the entire section. It has further been submitted on behalf of the said association that the said question of refundability arises on the winding up of the company after repayment of all debts in accordance with their priorities. Further, share capital is a capital receipt and has to be shown in the "liabilities" column in the balance-sheet.
134. It has been submitted on behalf of the intervener association that the words "in any other form" have been used by the Legislature for two reasons-
(i) to cover any receipt of money which cannot be a deposit or a loan but at the same time is refundable ;
(ii) to guard against any accidental omission by the Legislature as laid down by the Supreme Court in Siddeshwari Cotton Mills (P.) Ltd. v. Union of India, .
135. It has also been submitted on behalf of the intervener that the fact that the field sought to be covered by para 4A is not deposit is evident from the proviso to para 4A. By the said proviso, every residuary non-
banking company has been empowered to recover from a new depositor a sum of Rs. 10 made for defraying the cost of the brochures/application forms, servicing depositors' accounts, etc. This means that the sum of Rs. 10 which is, therefore, depositors' money is allowed to be spent. This implies that this money although depositors' money is not treated as deposits since had it been deposits, the company would be required to invest the same in accordance with para 6 arid disclose the same as its liability in the balance-sheet, which is not possible because the said sum of Rs. 10 is allowed to be spent. It is settled law that a proviso embraces the same field as the main provision and is inextricably linked with the main provision which means that the entire field sought to be covered by para 4A is non-deposits and hence beyond the regulatory powers of the Reserve Bank of India under Section 45K of the Reserve Bank of India Act. In support of the aforesaid submission, the intervener relied on the following decisions :
(i) Ram Narain Sons Ltd. v. Asst. CST, .
(ii) Abdul Jabar Butt v. State of Jammu and Kashmir, .
(iii) CIT v. Indo-Mercantile Bank Ltd. .
136. It has been submitted that Section 45L can have no application so far as framing of para 4A of the 1987 Directions is concerned for, inter alia, the following reasons-
(a) Peerless is not a financial institution as defined under Section 45-I(c).
(b) The Reserve Bank of India cannot be satisfied and was not satisfied that it was necessary to frame para 4A for regulating the credit system of the country to its advantage.
(c) The Reserve Bank of India in framing para 4A did not have due regard to the conditions in which and the objects for which Peerless has been established, its statutory responsibilities and the effect the business of Peerless is likely to have on trends in the money and capital markets.
137. It has further been contended on behalf of the intervener that it is not a financial institution as defined in Section 45-I(c) of the Reserve Bank of India Act, 1934, and as such Section 45L of the said Act cannot he had recourse to by the Reserve Bank of India for framing regulatory directions for companies like Peerless.
138. The contention of the intervener is that to become a financial institution as defined in Section 45-I(c) of the Reserve Bank of India Act, the making of loans or investment in securities has to be the principal business or part of the business of Peerless. It has further been submitted that the granting of the corporate loans by Peerless and investment by it in shares and securities is by reason of the mandate contained in the provisions of para 6 of the Residuary Npn-Banking Companies (Reserve Bank) Directions, 1987, prescribing the mode of investment of all subscriptions received by Peerless and accrued interest. It has been contended on behalf of the intervener association that the figures shown in the annual accounts as loan and, investment in securities represent investments of subscriptions received and accrued interest in terms of para 6 of the 1987 Directions and the said granting of loans and making up investment are thus as a result of compulsion and cannot be said to be the business or part of the business of Peerless. In the event para 6 is not there, it has further been contended that the said loans or investments may not be there. Even if para 6 is amended, the said loans and investments may cease. If Peerless's classification is determined on the basis of such loans and investment, such classification would fluctuate according to the terms of para 6 of the 1987 Directions. Peerless's classifications will change with every change in para 6. This cannot be the position and the same will lead to an absurdity.
139. It has further been contended that "financial institution" as defined in Section 45-I(c) of the Reserve Bank of India Act, means any non-banking institution which carries on as its business or part of its business any of the activities specified in Clauses (i) to (iv) subject to the exceptions mentioned thereafter. The first aspect which has to be examined are the kinds of non-banking institutions which carry on as their business the activities mentioned in the various clauses of Section 45-I(c).
140. The contention of the learned Advocate-General on behalf of the intervener association is that the language of this clause corresponds to Clause 2(j) of the Non-Banking Financial Companies (Reserve Bank) Directions, 1977, which defines a "loan company" and hence every non-banking institution which carries on as its main business, the activity mentioned in Clause (i) is a loan company covered by the Non-Banking Financial Companies (Reserve Bank) Directions, 1977.
141. It has further been submitted on behalf of the intervener association that the language of this clause exactly corresponds to Clause 2(i) of the Non-Banking Financial Companies (Reserve Bank) Directions, 1977, which defines "an investment company" and hence every non-banking institution which carries on the activity mentioned in Clause (ii) as its main business is an investment company covered by the 1977 Directions.
142. It has further been contended on behalf of the intervener association that all non-banking institutions which carry on the activities described in Clauses (i) to (iv) of Section 45-I(c) of the Reserve Bank of India Act as their principal business are covered by the definitions of various non-banking financial companies in the Non-Banking Financial Companies (Reserve Bank) Directions, 1977. In other; words,--
RBI 1977 Directions Name Section 45-I(c) Para 2(j) Loan company. Sectioin 45-I(c)(ii) Para 2(i) Investment company. Section 45-I(c)(iv) Para 2(h) Insurance company.
143. The learned Advocate-General has referred to Clause 2(10) of the 1977 Directions and submitted that a non-banking financial company has been defined in the said clause as follows :
(i) Hire-purchase finance company,
(ii) Housing finance company,
(iii) Investment company,
(iv) Loan company,
(v) Mutual benefit finance company,
(vi) Equipment leasing company.
144. It has further been submitted that in the said 1977 Directions, there are some general regulatory provisions which are applicable to all species of non-banking financial companies as stated hereinabove. There are also some special provisions which are applicable to particular species of non-banking financial companies. For instance, the provisions of paragraphs 4 and 6 which are applicable only to mutual benefit financial companies, the provisions of para 5 are applicable only to loan and investment companies and the provisions of para 12 are applicable only to hire purchase finance companies, housing finance companies and equipment leasing companies.
145. It has, accordingly, been submitted that the, non-banking institutions contemplated by Clauses (i) and (ii) of Section 45-I(c) of the Reserve Bank of India Act which carry on the activities mentioned in the said clauses as their main business are covered by the definitions of loan company and investment company respectively and the provisions of the 1977 Directions applicable to such companies shall govern the functioning of such companies.
146. The further contention made on behalf of the said intervener association is that the non-banking institutions contemplated by Clauses (i) and (ii) of Section 45-I(c) of the Reserve Bank of India Act are wider than the loan companies and investment companies as defined in the 1977 Directions because such companies carry on the activities mentioned in Clauses (i) and (ii) as their principal business whereas the definition of financial institution covers non-banking institutions which carry on the activities mentioned in Clauses (i) and (ii) as part of their business. As such there are non-banking institutions which are financial institutions but not one of the companies defined in the 1977 Directions. The question is whether Peerless can be said to be a financial institution (although it is not a loan company or an investment company) on the ground that it carries on the activities described in Clauses (i) and (ii) of Section 45-I(c) of the Reserve Bank of India Act as part of its business.
147. It has further been submitted that the provisions of para. 19 of the 1977 Directions which is intended to take care of such non-banking institutions which, though they carry on the activities mentioned in the various clauses of Section 45-I(c), do not fall within the various species of non-banking financial companies as stated in para 31 hereinabove because they carry on such activities not as their principal business which the definitions of such species require but they carry on the said activities only as part of their business.
148. The learned advocate has referred to paragraph 19 which provides as follows :
(i) if there is a company which is a financial institution as defined in Section 45-I(c) but,
(ii) does not belong to any of the species of non-banking financial companies as mentioned in para 2(i) of the 1977 Directions and as stated in para 31 hereinabove.
149. The provisions of the 1977 Directions which apply to a loan company proper as defined in Clause 2(j) shall apply to such a company.
150. It has been submitted that this is a financial institution but does not answer the definitions of various species of non-banking financial companies as stated above and is treated to be a loan company and the provisions of the 1977 Directions, as they apply to a loan company, become applicable to such deemed loan company.
151. It has further been submitted that all non-banking institutions, which carry on the activities mentioned in the various clauses of Section 45-I(c) whether they carry on the said activities as their main business or part of their business come within the purview of the regulatory control of the 1977 Directions. In other words, the non-banking institutions which are financial institutions are all covered under the 1977 Directions.
152. Accordingly, it has been contended that Peerless cannot, therefore, be a financial institution since it is not and cannot be governed by the provisions of the 1977 Directions. This is clear from the fact that Peerless has been classified to be a residuary non-banking company governed by the Residuary Non-Banking Companies (Reserve' Bank) Directions, 1987, which excludes from its purview the various species of non-banking financial companies as defined in para 2(i) of the 1977 Directions and as stated in para 31 hereinabove. Further, it cannot be said to be a financial institution by reason of carrying on any of the activities mentioned, in Clauses (i) to (iv) of Section 45-I(c) of the Reserve Bank of India Act as part of its business because in that event it would be governed by the provisions of para 19 which has been framed with the intention to regulate such non-banking institutions which carry on the activities mentioned in Clauses (i) to (iv) of Section 45-I(c) as part of their business. Para 20 of the 1987 Directions, to which Peerless has been classified to belong, specifically excludes the applicability of para 19 of the 1977 Directions.
153. It has been submitted on behalf of the intervener association that so far as Clause (vi) of Section 45-I(c) of the Reserve Bank of India Act is concerned, the same is exactly similar to the definition of a prize chit as contained in the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. In the year 1979 Peerless was sought to be brought within the mischief of the 1978 Act by alleging that the business of Peerless amounted to a prize chit as defined in the said Act. The Supreme Court in its judgment in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023, has categorically held that the business of Peerless does not amount to a prize chit as defined in the 1978 Act. Hence, the question of the business of Peerless falling within Clause (vi) of Section 45-I(c) of the Reserve Bank of India Act cannot and does not arise.
154. It has also been submitted on behalf of the intervener association that whether Peerless is a financial institution was never in issue in the proceedings before the Supreme Court which resulted in the said decisions. The original 1987 Directions were framed ostensibly in exercise of the powers under Sections 45J and 45K of the Reserve Bank of India Act but at the hearing the same was sustained with reference to Section 45L, It was argued on behalf of Peerless that recourse to Section 45L was not permissible since the same was not expressly invoked in the recital. The Supreme Court has negatived the contention on the principle that not quoting the source of power or incorrect quoting of the correct source of powers does not invalidate, the action if the power in fact exists. The question as to whether Peerless is a financial institution was never raised or argued. The decision in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , cannot be said to have laid down anything as to whether Peerless is a financial institution as defined in the Reserve Bank of India Act.
155. It is the case of this intervener that the Reserve Bank of India was not satisfied and could not be satisfied that it was necessary to frame para 4A to regulate the credit system of India to its advantage. There were no materials for forming such satisfaction. A specific challenge has been thrown by Peerless in this regard in para 32 of page 22 of the writ petition to which there is no reply at all by the Reserve Bank of India in its affidavit in opposition. It has been submitted on behalf of the intervener that the satisfaction required to be formed or reached under Section 45L has to be arrived at with reference to objective considerations and is open to judicial scrutiny. In support of the submission, the intervener relied on the following decisions :
(i) Barium Chemicals Ltd. v. Company Law Board .
(ii) Rohtas Industries Ltd. v. S.D. Agarwal .
(iii) Rampur Distillery and Chemical Co. Ltd. v. Company Law Board .
(iv) S.R. Bommai v. Union of India .
156. It has been submitted on behalf of the intervener that the reference by the Reserve Bank of India in its written notes to the reports of Raj Committee and the Sukhamoy Chakraborty Committee is misplaced since they were published much before para 4A was introduced and even prior to the framing of the 1987 Directions originally. In any event, the credit system of the country implies the lending rates fixed by the Reserve Bank of India and followed by the commercial banks. Peerless's business can have no role to play in the said credit system and if at all its effect will be insignificant and its contribution will be a microscopic percentage in the total credit transactions in India and does not and cannot require any regulation by framing para 4A as has been sought to be done.
157. Accordingly, it has been submitted that the writ petition should be allowed.
158. Mr. P.K. Roy, learned advocate for the other association of employees, also supported the case of the petitioner.
159. Mr. Shanti Bhushan, learned advocate with Mr. Subrata Roy, and Mr. Prasun Ghosh seriously opposed the application on behalf, of the Reserve Bank of India. It has been submitted on behalf of the Reserve Bank of India that the said two notifications have been issued in exercise of the powers conferred on the Reserve Bank by Sections 45J, 45K and 45L of the Reserve Bank of India Act, 1934.
160. It has further been submitted on behalf of the Reserve Bank of India that the validity of the original directions which were issued by the Reserve Bank on May 15, 1987, were earlier challenged by the petitioner-company, viz., Peerless. Even though these were held to be invalid by this court, on appeal by the Reserve Bank, the judgment of this court was reversed and the Directions upheld in their entirety. The Supreme Court judgment was in Peerless General finance and Investment Co. Ltd. v. Reserve Bank of India , and was delivered in January, 1992, and till the matter was decided by the Supreme Court, Peerless was not treating any part of the amounts obtained by it from the depositors as non-refundable. The entire amount obtained from them was repayable to the depositors under the then existing schemes with not less than 10 per cent, compound interest required to be paid by paragraph 5 of the Reserve Bank Directions, 1987.
161. The learned advocate for the Reserve Bank has referred to the said judgment and submitted that it was contended on behalf of Peerless in the Supreme Court by its counsel Shri Somnath Chatterjee that if the Reserve Bank's Directions were upheld in their entirety, it was impossible for Peerless to carry on business any longer without incurring huge losses. The learned advocate also quoted from paragraph 25 of the said judgment which is to the following effect (at page 90 of 75 Comp Cas) :
"25. Mr. Somnath Chatterjee, learned senior counsel appearing on behalf of Peerless company, contended that Peerless being the largest residuary non-banking company in India having an impeccable record of public service decided to give effect to the Directions of 1987 as it wanted to avoid any confrontation with the Reserve Bank and further not to give an impression of seeking to avoid "regulatory control" tried its best to comply with the said Directions with effect from May 15, 1987, till March 31, 1989; However, from its working results it appeared bona fide to the board of directors of Peerless that it was impossible to carry on its traditional business for any longer period without incurring huge losses."
162. It has been argued on behalf of the Reserve Bank of India trial after the Supreme Court upheld the Reserve Bank's Directions in their entirety Peerless decided to get round the directions by making a change in its schemes. While all the amounts obtained from the depositors were required to be repaid along with a minimum interest of 10 per cent, compound interest, as required by the Reserve Bank Directions, it was decided by Peerless that part of the amounts obtained from the depositors would be obtained from them in the name of processing charges or maintenance charges and the schemes expressly provided that this would not be refundable or repayable to the depositors. The amounts to be so realised from the depositors were not any small fixed amount but a high percentage of the total deposits obtained in the first two years from the depositors ranging from 40 per cent, to 30 per cent, of the total amount payable for the first year and the second year. The counter-affidavit of the Reserve Bank would show the various percentages of the processing/maintenance charges in respect of Tables Nos. 21 to 25.
163. It has been pointed out by Mr. Shanti Bhushan that while the Supreme Court had upheld the directions for fully protecting the interests of the depositors notwithstanding the contentions of Peerless that by following the directions it will be sustaining huge losses, Peerless, subsequent to the judgment, altered the scheme to the serious prejudice of the depositors by making very high percentage of the amounts obtained from the depositors non-refundable. A sample form relating to the deposit has been annexed by the petitioner in the petition. Conditions Nos. 13 and 14 clearly provide that the processing charges and the maintenance charges are not repayable to the depositors.
164. It has been argued by Mr. Shanti Bhusan that any substantial amounts obtained from a depositor which are not repayable or refundable to them would amount to a forfeiture of those amounts obtained from the depositors. It may be mentioned that, prior to 1987, Peerless was having in its scheme a forfeiture clause and its deposit schemes were providing that, in case of non-payment of subsequent instalments, the deposits made in the first year would be forfeited. Even though under the contracts entered into by the depositors with Peerless, the depositors were consenting to such forfeiture of some amounts paid by them, the Supreme Court had condemned such provision in the contract in its judgment in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023. The Supreme Court also observed in the aforesaid judgment that the Reserve Bank could take other steps in law to regulate the schemes of Peerless to prevent exploitation of the ignorant subscribers.
165. It has been argued that it is evident from the above extract that the Supreme Court was not prepared to condone any amount of the payment made by depositors to be forfeited, subsequent to the 1992 judgment of the Supreme Court by which the Reserve Bank Directions were upheld in their entirety, the modification made by Peerless in their deposit schemes has really introduced something in the nature of the forfeiture clause by which 40 per cent, to 30 per cent, of the amounts paid by the depositors in the first two years would not be refunded or repaid to the depositors at all. This action of Peerless was so unconscionable that it was the duty of the Reserve Bank to protect the depositors against such action.
166. It has been submitted that when people are dealing with common men who are ignorant and gullible in the words of the Supreme Court it is no argument to say that they have willingly entered into certain terms of contract with companies like Peerless ; it is the duty of the State to prevent their exploitation and the powers conferred on the Reserve Bank of India by Sections 45K and 45L are needed to achieve this object.
167. It has further been submitted by Mr. Shanti Bhushan that the insertion of paragraph 4A in the Reserve Bank Directions, was by way of a clarification only to remove any doubt in the matter. It is, however, the submission of the Reserve Bank of India that even without paragraph 4A, making any part of the payments obtained from the depositors non-refundable or non-repayable would have contravened the original directions of the Reserve Bank. This would be in view of the definition of deposit in 45Ktion 45-I(bb) of the Reserve Bank of India Act which includes any receipt of money whether by way of deposit or loan or in any other form. Since whatever is obtained by Peerless from the depositors in the name of processing charges or maintenance charges is clearly a receipt of money, it is immaterial in which form or in which name the money is received as the same clearly falls in the definition of deposit in the Act. Since under paragraph 5 of the original Directions all deposits are repayable along with interest which is not to be less than 10 per cent, compounded annually, it is not permissible for Peerless to stipulate in their schemes that any part of the amounts obtained by them from the depositors would not be refundable or repayable.
168. The learned advocate for the respondent, the Reserve Bank of India has referred to the judgment of the Supreme Court in the case of Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , and submitted that if the directions issued by the Reserve Bank of India are within the ambit of the statutory provision by which powers are conferred., on the Reserve Bank, it is not for the courts to decide matters relating to financial and economic policies in view of the fact that the Reserve Bank is an expert body and it is for it to determine as to how the legitimate interests of the depositors are to be protected.
169. It has been submitted on behalf of the respondent that the courts can strike down the statutory directions issued by the Reserve Bank either when the court finds that they are mala fide amounting to abuse of power or that they are not within the scope of the authority conferred on the Reserve Bank by the relevant Sections which, in this case, are Section 45K(3) and Section 45L(1)(b) of the Reserve Bank of India Act.
170. It has been contended on behalf of the respondent that if Section 45L has application no further question arises because the power to issue directions is in very general terms and any direction relating to the conduct of business by the financial institutions can be issued by the Reserve Bank. It has been submitted that nobody can contend that the impugned Directions do not relate to conduct of business by Peerless and the only contention advanced on behalf of Peerless is that since a direction under this section can be issued only to what are financial institutions, the Directions cannot apply to Peerless as it is not a financial institution.
171. It has been submitted that if, therefore, the true position is that "Peerless is a financial institution" as defined in the Act, the impugned Directions would be clearly covered by Section 45L and no further questions would arise.
172. The learned advocate for the respondent has referred to the observation of K. Ramaswamy J. in the Supreme Court judgment in the case of Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , wherein it has held an observation to the effect that the Directions then challenged by Peerless were correct under Section 45L.
173. It has been submitted on behalf of the respondent that Justice K. . Ramaswamy had upheld the Directions as falling under Section 45L and it was only in the alternative that he had observed that even otherwise Section 45K(3) itself was sufficient to uphold the Directions.
174. It has further been submitted by the respondent that in the Supreme Court it was never contended by Peerless that it was not a financial institution as defined and the only ground on which it was submitted that the Directions cannot be upheld under Section 45L was that since the Reserve Bank had not expressly invoked Section 45L in issuing the Directions and reference has been made only to Sections 45J and 45K, the Reserve Bank could not justify the Directions with regard to Section 45L. In this connection, the learned advocate for the Reserve Bank of India also referred to the observations made by Justice Kasliwal in paragraph 15 and also by Justice K. Ramaswamy in paragraph 73 of the said judgment.
175. The learned advocate has also referred to the report in the Study Group of Non-Banking Companies, which is also known as the Raj Committee Report, and which was submitted on July 14, 1975. The said report throws ample light on this question. The learned advocate referred to paragraph 2.2 of the said report which is set out hereinbelow :
"As pointed out by the Banking Commission in its report, undertakings accepting deposits may be divided into three categories, viz.,--
(i) those accepting chequeable deposits ;
(ii) those accepting non-chequeable deposits for the purpose of lending or investment ; and
(iii) those accepting non-chequable deposits for financing their own business such as manufacture or trade.
Undertakings falling in category (i) above are termed as banks, those in (ii) as non-banking financing institutions and those in (iii) as deposit receiving institutions."
176. Relying on the aforesaid paragraph 2.2 of the said report it has been submitted that when the facilities are offered for withdrawal by cheques, the deposit receiving institutions are banks. However, other companies receiving deposits are divided into two categories. Since the deposits the companies receive cannot be drawn by cheques they are not banks. If these companies receive deposits for financing their own business such as manufacture or trade they are merely non-banking companies but not financial institutions. On the other hand, if the deposits which the companies receive are not for the purpose of financing the company's own business of manufacture or trade but for the purpose of lending or investment, such companies are regarded as non-banking financial institutions.
177. It has been contended that it is clear from the business of Peerless that it receives deposits not for its own trade or manufacture but for the purpose of lending or investment, it is clearly a financial institution and covered by Section 45L of the Reserve Bank of India Act, 1934.
178. It has further been submitted that the definition of financial institution in Clause (c) of Section 45-I would show that the argument now advanced before this court by Peerless that it does not fall within the definition of financial institution is wholly misconceived.
179. It has been submitted on behalf of the respondent that the definition of financial institution would show that any non-banking institution which carries on as its business or part of its business any of the six activities as specified in Clause (c) would be a financial institution unless it is one of the excepted institutions, which Peerless is not.
180. It has been submitted on behalf of the respondent that Peerless would fall in the definition of a financial institution for several reasons. It has further been submitted that it would come under the category of financial institution within Clause (vi) and also under Clause (i) of the definition. In this connection the learned advocate referred to Clause (vi) and Clause (i) of the said definition.
181. It has further been submitted by him that as part of its business, Peerless is collecting, under its schemes, monies in lump sum or other- wise and is also disbursing monies to persons from whom monies are collected.
182. It has further been submitted on behalf of the respondent that under its welfare endowment schemes, Peerless is collecting deposits, which are payable in advance either annually, half-yearly or quarterly, and is disbursing moneys to the depositors which are called endowment sums at the time of maturity of the endowment policies. Since the collection of deposit by Peerless and disbursal of endowment sums to the depositors is admittedly an activity carried on by Peerless as part of its business, Peerless is clearly a financial institution covered by this definition in Clause (c) of Section 45-I.
183. It has been contended on behalf of the respondent that it appears both from the memorandum of association of Peerless as well as its balance-sheet for 1991-92 which has been produced before the court by counsel for Peerless that it is also part of the business of Peerless to carry On the activity of financing by making loans or advances of activities other than its own. Clause (i) of the definition of financial institution reads as follows :
"(i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own."
184. The learned advocate for the respondent has also referred to Clause (i) of the definition of financial institution and submitted that this part of the definition of financial institution would show that any company which finances the activities of other companies whether by way of making loans or advances to them is a financial institution within the meaning of the Act.
185. The learned advocate for the respondent has also referred to page 20 of the annual report and accounts of Peerless which have already been produced by the petitioners' counsel before the court which would show that the company has been giving extensive loans and advances as part of its business. It has further been submitted that on the said page under the main heading current assets, loans and advances there is a sub-heading "(B) Loans and advances under which an amount of Rs. 11,432.67 lakhs has been shown as loans (considered good by the management) secured against mortgage and hypothecation of properties/shares. Another amount of Rs. 18,622.03 lakhs has "also been shown as loan/deposits to companies (including subsidiaries Rs. 3,301-01 lakhs)."
186. Reference has also been made to pages 16, 17, 18 and 19 of the same annual report which would also show that Peerless also carries on the activity, as a part of its business, of the acquisition of shares, stocks, bonds, debentures and other securities. The balance-sheet, accordingly and clearly shows that Peerless has been acquiring shares of as many as a hundred different companies from time to time and also acquiring debentures of about fifty companies from time to time and also acquiring bonds in a large number of public sector companies.
187. The learned advocate has accordingly contended that Peerless is covered by Clause (i) of the definition of financial institution as also by Clause (ii) and also by Clause (vi) of the same definition. For the aforesaid reasons, Peerless would be a financial institution as defined in Section 45-I(c) and Section 45L would be applicable to it.
188. It has accordingly been contended that if Peerless is a financial institution and Section 45L is applicable to it, it may not be necessary to make a reference to Section 45K(3). The learned advocate for the respondent, however, submitted that even Section 45K(3) of the Act would also clearly show that the impugned direction has been rightly issued under the said section:
It has been disputed on behalf of the respondent-Reserve Bank of India that the impugned directions contained in a newly added paragraph, 4A by which the non-banking financial institutions .have been prohibited from receiving any amount from the depositors by way of processing or maintenance charges for meeting the revenue expenditure of such companies, cannot be treated as those for regulating the credit system of the country to its advantage as contemplated by the petitioners. The said contention of the petitioners, according to the learned advocate for the respondent, is totally without substance and betrays a total non-comprehension of what constitutes the credit system of the country and how it is required to be regulated by the Reserve Bank in the best interests of the country.
189. In this connection, the learned advocate has referred to the report of the Sukhamoy Chakraborty Committee to review and report on the working of the monetary system in India. The said report was submitted on April 10, 1985, and is known as the "Report" of the Committee to review the working of the monetary system. Paragraphs 4.1 and 4.2 of the report are set out hereinbelow :
"4.1 The financial system, consisting of financial institutions, financial instruments and financial markets provides an effective payments and credit system, and thereby facilitates the channeling of funds from the savers (surplus sectors) to the investing (deficit) sectors in the economy. The task of the financial institutions, or financial intermediaries as they are called, is to mobilise the savings of the community and ensure efficient allocation of these savings to high yielding investment projects so that they are in a position to offer attractive and assured returns to the savers. This process gives rise to money and other financial assets which, therefore, have a central place in the development process. These assets provide the vital links between saving, investment and income.
4.2 As the financial system has an important role to perform in the growth and development of the economy, it is essential that the system,
(a) functions at a high level of both allocational and operational efficiency,
(b) is stable, and (c) introduces innovations in instruments and financing techniques to meet the ever changing preferences of the community of savers and investors. The financial system satisfying these requirements will be in a position to provide an effective means for implementing monetary and other economic policies to achieve the desired socio-economic objectives."
190. It has been submitted on behalf of the respondent-Reserve Bank of India that the country's economy requires that the savings of the community be mobilised and thereafter channelised for investment in such sectors of the economy as to ensure the proper growth of the economy.
191. It has further been submitted that growth in production and commerce which is beneficial to the country requires making available to it a lot of credit, that is, moneys which can be given to them by way of loans for being utilised for productive purposes to help the national economy.
192. The contention of the learned advocate for the respondent is that an efficient credit system which benefits the national economy requires not only mobilisation of the savings of the community but also that such savings be channelised by way of credit to such sectors of the economy which are more useful to the nation. Since the banking institutions are fully under the control of the Reserve Bank and the savings of the community which go into the banking system can be utilised for the benefit of the national economy through the directions of the Reserve Bank to the banking institutions it is necessary that the savings of the community do not get diverted to other channels to a substantial extent and that the savings of the community are not in any case frittered away. It is the responsibility of the Reserve Bank to see that the demands of the national economy do not suffer and that no company is permitted to waste the savings of the community in its revenue expenditure. It is necessary to see that the revenue expenditure is met not from the savings of the community but from the income generated by non-banking institutions themselves out of their own investments. If as much as 40 per cent, or 30 per cent, of the deposits obtained by non-banking institutions are allowed to be appropriated towards the revenue expenditure of such companies, it is obvious that to that extent the savings of the community are not being utilised for the good of the national economy.
193. It has been submitted that it is clear from annexure "F" to the writ petition, being the profit and loss account of Peerless company for the year ending March 31, 1993, that only in one year 1992-93 Peerless has realised from the depositors Rs. 152 crores by way of processing and service charges to meet only its revenue expenditure and thus this huge amount of Rs. 152 crores in one year alone has been lost by the credit system of the country causing detriment to the national economy.
194. It has been submitted that the impugned direction contained in paragraph 4A was necessary to regulate the credit system of the country to its advantage and the statutory satisfaction of the Reserve Bank to this effect could not be challenged in the court.
195. Mr. Shanti Bhusan, learned advocate for the Reserve Bank of India, has also referred to the report of the Study Group on Non-Banking Financial Intermediaries (Bhabatosh Datta Committee). He made particular reference to Chapter 3 of the report and also paragraphs 3.3, 3.19, 3.20, 3.21, 3.22 and 3.23 of the said report.
196. Mr. Shanti Bhusan has also referred to certain paragraphs of the Raj Committee Report of the Study Group on Non-Banking Companies, 1975.
197. He has also referred to paragraph 2.12 which provides the role of non-banking companies deposits in the process of savings and investment and also paragraph 2.15 which referred to the implication for monetary and credit policy. He also referred to paragraph 2.19 of the report which provides regulation of deposits with non-banking companies and protection of depositors' interests. Referring to the aforesaid paragraphs of the report, Mr. Shanti Bhusan submitted that one of the objects of regulation of acceptance of deposits by the non-banking companies is framing of depositors form. He also referred to Chapter 3 relating to evaluation of regulations governing acceptance of deposits by the non-banking companies and also paragraphs 3.1, 3.33 and 3.5 of the said report.
198. On the question whether processing charges and maintenance charges are "deposits" within the meaning of the definition of deposit, Mr. Shanti Bhusan pointed out that the definition of deposit in Clause (bb) of Section 45-I includes every receipt of money in any form and, therefore, even amounts received under the name of processing charges arid maintenance charges would also fall under the definition of deposit. The impugned direction in paragraph 4A would clearly be in respect of what are deposits, as defined. In the alternative, even if these amounts were not to be treated as deposits, the power under Sub-section (3) of Section 45K is more wide and includes the giving of directions in respect of any matters relating to, or connected with the receipt of deposits. Evidently, the processing charges and maintenance charges are received only in connection with the deposits and, therefore, any direction relating thereto would clearly be in respect of matters relating to or connected with the receipt of deposits. If a direction is issued that any non-banking company which is receiving deposits from depositors shall not receive any other amounts from such depositors except an amount not exceeding Rs. 10 to cover the costs of brochure/application form and the servicing of the depositor's account, etc., it will be a direction in respect of a matter relating to or connected with the deposits and, therefore, will be clearly covered by Section 45K(3) of the Act.
199. Mr. Shanti Bhusan has further submitted that the contention made on behalf of the petitioner-company that it is a non-banking institution and not a financial institution cannot be accepted according to him. It has been contended by Mr. Shanti Bhusan that every company, corporation or co-operative society is a non-banking institution as defined in Clause (e) of Section 45-I. Section 45K would, therefore, cover all companies, corporations or co-operative societies and directions in respect of any matter relating to or connected with the receipt of deposit can be given to all companies, corporations or co-operative societies. Even financial institutions as defined are also non-banking institutions but all non-banking institutions are not financial institutions. The power to issue directions under Section 45L is much wider and need not be in respect of matters relating to or connected with the deposits only. They can refer to the conduct of business of such companies in regard to any matter and are not confined to those relating to or connected with the receipt of deposits. It was for this reason that the Supreme Court in Peerless General Finance and Investment Co. Ltd, v. Reserve Bank of India had noticed the Reserve Bank's submission about various provisions of the Act overlapping. A company like Peerless, which is not only a non-banking institution but is also a financial institution, is governed both by Section 45K as well as Section 45L. Directions accordingly can be given in respect of such a company by the Reserve Bank. While the directions under Section 45L can be in respect of any part of business, directions under Section 45K have to be in respect of matters relating to or connected with the receipt of deposits only. It . has, accordingly, been submitted that the impugned directions are fully covered by Sections 45K and 45L of the Reserve Bank of India Act and, reasonable, bona fide, and are needed to protect the ignorant and gullible people against unjustified exploitation and that the writ petition deserves to be dismissed.
200. It has also been submitted by Mr. Shanti Bhusan that it is not for the court to sit in judgment over the wisdom of the statutory directions issued by the Reserve Bank so long as these are bona fide and are within the ambit of the statutory provisions under which they are issued. In this connection, he has referred to the decision of the Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , wherein the Supreme Court has drawn a distinction between economic measures and measures of other kinds. It has been repeatedly emphasised by the Supreme Court that the scope of judicial review by the court in matters of economic measures is extremely limited and cannot be equated with the exercise of judicial review in matters like that concerning the liberty of the subject or other fundamental rights of the subjects. Mr. Shanti Bhusan also referred to paragraph 32 and paragraph 70 of the aforesaid decision of the Peerless General Finance and Investment Co. Ltd, v. Reserve Bank of India .
201. Mr. Shanti Bhusan has also relied upon the judgment and decision of the Supreme in the case of Shri Sitaram Sugar Co. Ltd. v. Union of India, . He has also referred to paragraph 39 of the said judgment. He has relied upon the judgment and decision of the Supreme Court in the case of R.K. Garg v. Union of India . In the aforementioned proposition he submitted that the decisions cited on behalf of the petitioner-company do not relate to judicial review in respect of matters in the economic field and, therefore, are not really germane to the issues before this court.
202. On the question of applicability of the rule of ejusdem generis in the definition of deposits in Section 45-I(bb) of the Reserve Bank of India Act, 1934, it has been submitted by Mr. Shanti Bhusan that the definition of deposit is an inclusive definition and provides that it shall be deemed always to have included any receipt of money by way of deposit or loan or in any other form.
203. Mr. Shanti Bhusan has further submitted that the expression in any other form may be construed ejusdem generis with the preceding term deposit and loan and since deposit arid loan are refundable and any other receipt of money in any other form must also refer to an amount which is refundable under the contract and accordingly, the amounts obtained from the depositors towards processing or maintenance charges in respect of their nature could not be deemed to be deposit as defined and cannot be accepted.
204. It has been submitted on behalf of the Reserve Bank of India that under Section 45K(3) of the Act directions can be issued in respect of any matter relating to or connected with the receipt of deposits. The directions contained in paragraph 4A would be in order even if the amounts do not fall in the definition of deposits because, providing that no amounts would he received towards processing or maintenance charges of the non-banking companies would certainly be in respect of a matter relating to or connected with the receipt of deposits.
205. It has further been contended on behalf of the Reserve Bank that the principle of ejusdem generis is not applicable to the definition of deposits. In this connection, Mr. Shanti Bhusan referred to the judgment and decision of the Supreme Court in the case of Siddeshwari Cotton Mills (P.) Ltd. v. Union of India, , which has been relied upon by the learned advocates for the petitioners. Referring to the said decision Mr. Shanti Bhusan has submitted that the rule of ejusdem generis cannot be applied for construing the definition of deposit. Deposit and loan are specific words which have been expressly mentioned in the definition. It is not possible to conceive of any other receipt of money which would belong to this class. Thus, the expression of deposit or loan exhaust the class to which they refer. The general words following them, viz., receipt of money in other form would become redundant if the rule of ejusdem generis is applied. The result would be that even the receipt of money by way of processing or maintenance charges would constitute receipt of money in any other form and would thus fall in the definition of deposit.
206. He has further submitted that this very conclusion is also streng- thened by reference to the expressed exclusions contained in the definition itself. Amounts raised by way of share capital are expressly excluded by Clause (i) in the definition of deposit. Similarly, amounts contributed as capital by partners of a firm are also expressly excluded. Evidently, these amounts raised or contributed as capital cannot be treated as refundable amounts belonging to the same class as deposit or loan if the Legislature took care to expressly exclude them. It obviously intended that the expression in other form to be of a wide nature and not governed by the ejusdem generis.
207. With regard to the contention of the petitioners that there has been no complaint against Peerless of having contravened the directions of the Reserve Bank, it has been pointed out on behalf of the Reserve Bank, that the same is not a correct statement of fact and that in various letters which have been issued by the Reserve Bank to Peerless, it has been pointed out that the petitioner-company has not been complying with the various provisions of the Reserve Bank directions. In fact, they have been informed that they have violated the provisions of paragraphs 6(1)(b), 6(1)(c), 6(2), 6(3), 7, 8, 12 and 16 of the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987.
208. On the question of validity of the amendment to paragraph 4 of the Directions by reducing the maximum period of deposits from 120 months to 84 months, it has been submitted by Mr. Shanti Bhusan that this condition is in the nature of a direction, clearly in respect of a matter connected with or in respect of the receipt of deposits and is thus clearly covered by Section 45K(3) and the matter was within the scope of authority conferred on the Reserve Bank. He has further submitted that the interest which is given to the depositors is only 10 per cent. It is also well known, that the longer the period of fixed deposit, the higher has to be the rate of interest and even the nationalised banks have till now been paying 11 per cent, compound interest on fixed deposits for as short a period as three years. It has further been submitted by him that the deposits made with companies like Peerless cannot be regarded as safe as deposits with nationalised banks. It is the contention of the respondent-Reserve Bank of India that there is no reason as to why the Reserve Bank should permit the depositors' money to be locked up with companies like Peerless for a period longer than seven years when the interest paid is as low as 10 per cent. only. It has also been pointed out that interest payable on Indra Vikas Patra floated by the Government is 14 1/2 per cent. compound interest which investment is totally safe and the lock-in-period is only 5 1/2 years. Companies like Peerless certainly cannnot have legal rights to take advantage of the ignorance of gullible uneducated or less educated poor. people of semi-urban or rural areas and thus cause loss to them. It is the duty of the Reserve Bank to protect such ignorant or gullible persons against explbitation by investment companies like Peerless.
209. I have considered the respective submissions of the parties and the decisions cited from the Bar. It appears to me that the question involved is if paragraph 4A inserted by way of amendment to paragraph 4 which fixes a sum of Rs. 10 being the maximum limit which can be realised in the form of processing and maintenance charges or any charges for meeting its revenue expenditure, can be said to be part of the deposit or relating to deposit and the other question is if the petitioner is a financial institu- tion so that such amendment would coyer the petitioner and in that event if the Reserve Bank of India is competent for the purpose of regulating the credit system of the country and can issue such directions. For the purpose of ascertainment of the first question, it is necessary to consider the definition of the "deposit".
210. Section 45-I(bb) provides as follows :
' "Deposit" includes and shall be deemed always to have included any receipt of money by way of deposit or loan or in any other form but does not include, --
(i) amounts raised by way of share capital ;
(ii) amounts contributed as capital by partner of a firm ;
(iii) amounts received from a scheduled bank or a co-operative bank or any other banking company as defined in Clause (c) of Section 5 of the Banking Regulation Act, 1949 ;
(iv) any amount received from,--
(a) the Development Bank,
(b) a State Financial Corporation,
(c) any financial institution specified in or under Section 6A of the Industrial Development Bank of India Act, 1964, or
(d) any other institution that may be specified by the bank in this behalf ;
(v) amounts received in the ordinary course of business, by way of,--
(a) security deposit,
(b) dealership deposit,
(c) earnest money, or
(d) advance against orders for goods properties or services ;
(vi) any amount received from an individual or a firm or an association of individuals not being a body corporate, registered under any enactment relating to money lending which is for the time being in force in any State ; and
(vii) any amount received by way of subscriptions in respect of a chit.
Explanation I.--"Chit" has the meaning assigned to it in Clause (b) of Section 2 of the Chit Funds Act, 1982.
Explanation II.--Any credit given by a seller to a buyer on the sale of any property (whether movable or immovable) shall not be deemed to be deposit for the purposes of this clause) ;'
211. In Black's Law Dictionary, fifth edition, certificate of deposit has been defined in the manner following :
"Certificate of deposit.--A written acknowledgment by a bank or banker of a deposit with promise to pay to depositor, to his order, or to some other person or to his order, U.C.C. $ 3-104(2)(c). Document evidencing existence of a time deposit. Sev v. Fifth Ave., Coach Lines, Inc. D.C.N.Y. (289 F. Supp. 3.31). Documents showing deposits in building and loan association in form of passbooks or any other appropriate written recital. Alter v. Security Building and Loan Co. of Defiance (58 Ohio App. 114 ; 16 N.E. 2d, 228, 223)."
212. In Black's Law Dictionary, fifth edition, deposit relating to money has been also defined, inter alia, as follows :
"Money lodged with a person as an earnest or security for the performance of some contract, to be forfeited if the depositor fails in his undertaking. It may be deemed to be part payment and to that extent may constitute the purchaser the actual owner of the estate.
The act of placing money in the custody of a bank or banker for safety or convenience, to be withdrawn at the will of the depositor or under rules and regulations agreed on. Also, the money so deposited, or the credit which the depositor receives for it. Deposit, according to its commonly accepted and generally understood meaning among bankers and by the public, includes not only deposits payable on demand and subject to check, but deposits not subject to check for which certificates, whether interest bearing or not may be issued payable on demand, or on . certain notice or at a fixed future time.
A quantity of ore or other mineral substances occurring naturally in the earth, as a deposit of gold, oil, etc."
213. See Bailment, Escrow. General classification.
"According to the classification of the civil law, deposits are of the following several sorts : (1) Necessary, made upon some sudden emergency and from some pressing necessity as for instance, in case of a fire a shipwreck or other overwhelming calamity when property is confided to any person whom the depositor may meet without proper opportunity for reflection or choice and thence it is called 'miserable depositum'. (2) Voluntary, which arises from the mere consent and agreement of the parties. The common law has made no such division. The civilians again divide deposits into 'simple deposits' made by one or more persons having a common interest and 'sequestrations' made by one or more persons each of whom has a different and adverse interest in controversy touching it; and these last are of two sorts--'conventional' or such as are made by the mere agreement of the parties without any judicial act and 'judicial' or such as are made by order of a court in the course of some proceeding. Thus, under Louisiana statutes it is said that the difference between 'sequestration' and 'deposit' is that the former may have for its object both movable and immovable property, while the latter is confined to movables.
There is another class of deposits called 'involuntary' which may be without the assent or even knowledge of the depositor, as lumber, etc., left upon another's land by the subsidence of a flood. An 'involuntary' deposit is one made by the accidental leaving or placing of personal property in the possession of any person without negligence on the part of the owner: Another class of deposits is called 'irregular' as when a person having a sum of money which he does not think safe in his own hands, confides it to another, who is to return to him, not the same money, but a like sum when he shall demand it. A regular deposit is a strict or special deposit, a deposit which must be returned in specie, i.e., the thing deposited must be returned. A quasi-deposit is a kind of implied or involuntary deposit, which takes place where a party comes lawfully into possession of another person's property by finding it. Particularly with reference to money, deposits are also classed as general or special. A general deposit is where the money deposited is not itself to be returned but an equivalent in money (that is a like sum) is to be returned. It is equivalent to a loan, and the money deposited becomes the property of the depository. A special deposit is a deposit in which the identical thing deposited is to be returned to the depositor. The particular object of this kind of deposit is safekeeping. In banking law, this kind of deposit is contrasted with a 'general' deposit, as above, but in the civil law it is the antithesis of an 'irregular' deposit. A gratuitous or naked deposit is a bailment of goods to be kept for the depositor with hire or reward on either side, or one for which the depository receives no consideration beyond the mere possession of the thing deposited. Properly and originally, all deposits are of this description, for according to Roman law, a bailment of goods for which hire or a price is to be paid is not called 'depositum' but 'locatio'. If the owner of the property pays for its custody or care, it is a 'locatio custodiae', if, on the other hand, the bailee pays for the use of it, it is 'locatio rei' (see locatio). But, in the modern law, a gratuitous or naked deposit is distinguished from a 'deposit for hire' in which the bailee is to be paid for his services in keeping the article. There is also a specific deposit, which exists where money or property is given to a bank for some specific and particular purpose, as a note for collection, money to pay a particular note, or property for some other specific purpose."
214. The notifications impugned in the petition were issued in exercise of the powers conferred by Sections 45J, 45K and 45L of the Reserve Bank of India Act, 1934. So far as the notification dated April 19, 1993, is concerned, the said notification seeks to restrict the amount that may be received by a residuary non-banking company from any depositor/ subscriber to any schemes towards processing or maintenance charges or any such charges, by whatever name called, for meeting its revenue expenditure. Such restrictions imposed under Sections 45J, 45K and 45L of the Reserve Bank of India Act, 1934. The said Sections 45J, 45K and 45L are set out hereinbelow :
"45J. Bank to regulate or prohibit issue of prospectus or advertisement soliciting deposits of money.--The bank may, if it considers necessary in the public interest so to do, by general or special order,--
(a) regulate or prohibit the issue by any non-banking institution of any prospectus or advertisement soliciting deposits of money from the public ; and
(b) specify the conditions subject to which any such prospectus or advertisement, if not prohibited, may be issued.
45K. Power of bank to collect information from non-banking institutions as to deposits and to give direciions.--(1) The bank may at any time direct that every non-banking institution shall furnish to the bank, in such form, at such intervals and within such time, such statements, information or particulars relating to or connected with deposits received by the non-banking institution, as may be specified by the bank by general or special order.
(2) Without prejudice to the generality of the power vested in the bank under Sub-section (1), the statements, information or particulars to be furnished under Sub-section (1) may relate to all or any of the following matters, namely, the amount of the deposits, the purposes and periods for which and the rates of interest and other terms and conditions on which they are received.
(3) The bank may, if it considers necessary in the public interest so to do, give directions to non-banking institutions either generally or to any non-banking institution or group of non-banking institutions in particular, in respect of any matters relating to or connected with the receipt of deposits, including the rates of interest payable on such deposits, and the periods for which deposits may be received.
(4) If any non-banking institution fails to comply with any direction given by the bank under Sub-section (3), the bank may prohibit the acceptance of deposits by that non-banking institution . . .
(6) Every non-banking institution receiving deposits shall, if so required by the bank and within such time as the bank may specify, cause to be sent at the cost of the non-banking institution a copy of its annual balance-sheet and profit and loss account or other annual accounts to every person from whom the non-banking institution holds, as on the last day of the year to which the accounts relate, deposits higher than such sum as may.be specified by the bank.
45L. Power of bank to call for information from financial institutions and to give directions.-(1) If the bank is satisfied that for the purpose of enabling it to regulate the credit system of the country to its advantage it is necessary so to do, it may-
(a) require financial institutions either generally or any group of financial institutions, or financial institution in particular, to furnish to the bank in such form at such intervals and within such time, such statements, informations or particulars relating to the business of such financial institutions or institution, as may be specified by the bank by general or special order ;
(b) give to such institutions either generally or to any such institution in particular, directions relating to the conduct of business by them or by it as financial institutions or institution.
(2) Without prejudice to the generality of the power vested in the bank under Clause (a) of Sub-section (1), the statements, information or particulars to be furnished by a financial institution may relate to all or any of the following matters, namely, the paid-up capital, reserves or other liabilities, the investments whether in Government securities or otherwise, the persons to whom, and the purposes and periods for which, finance is provided and the terms and conditions, including the rates of interest, on which it is provided.
(3) In issying directions to any financial institution under Clause (b) of Sub-section (1), the bank shall have due regard to the conditions in which, and the objects for which, the institution has been established, its statutory responsibilities, if any, and the effect the business of such financial institution "is likely to have on trends in the money and capital markets."
215. Section 45J relates to the power of the Reserve Bank to regulate or prohibit the issue by any non-banking institution of any prospectus or advertisement soliciting deposits of money which apparently cannot have any bearing on the impugned notification dated April 19, 1993.
216. Section 45K provides for power of the bank to collect information from non-banking institutions as to deposits and to give directions. Subsections (1) and (2) of Section 45K cannot have any bearing on the said impugned notification dated April 19, 1993. So far as Sub-section (3) is concerned it provides for the power of the Reserve Bank to issue necessary directions to non-banking institutions either generally or to any non-banking institution or group of non-banking institutions in particular in respect of any matter relating to or connected with the receipt of deposits, including the rates of interest payable on such deposits and the periods for which deposits may be received. The question, therefore, arises if the Reserve Bank has taken into account several factors required to be considered under Section 45K(3), namely, the Reserve Bank must be satisfied in public interest that such directions are necessary, secondly, the direction can be only in respect of deposits or any manner relating to or connected with the receipt of deposits, including the rates of interest payable on such deposits, and the periods for which deposits may be received. The impugned direction dated April 19, 1993, can be issued provided it relates to or is connected with the receipt of deposits and if the Reserve Bank has been satisfied that it is necessary to issue such directions.
218. The judgment and decision in the case of Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India along with Reserve Bank of India v. Timex Finance and Investment Co, Ltd., , may be taken note of in this connection. In this judgment, certain directions issued by the Reserve Bank providing for the manner in which the deposits received by the residuary non-banking companies are to be deposited by them and the manner in which such deposits are to be disclosed in the balance-sheets or books of account of the company in exercise of the powers conferred under Section 45K(3) of the Reserve Bank of India Act were challenged before, the Supreme Court on the ground that the Reserve Bank was not competent to issue such directions under Section 45K(3). The Division Bench of this court held that such directions could not have been passed by the Reserve Bank under Section 45K(3). Against such decision of the Division Bench, the Reserve Bank went up in appeal to the Supreme Court.
219. It was contended on behalf of Peerless and other companies before the Supreme Court that the Directions of 1987 are ultra vires Sections 45J and 45K of the Reserve Bank of India Act, 1934. None of the said sections authorise the Reserve Bank to frame any direction prescribing the manner of investment or deposits received or the method of accountancy to be followed or the manner in which its balance-sheet and books of account are to be drawn up. It was further contended that Section 45J has no manner of application in the present case. Section 45K(3) of the Act on which reliance has been placed on behalf of the Reserve Bank, merely provides that the Reserve Bank may, if it considers necessary in public interest so to do, give directions to non-banking institutions either generally or to any non-banking institution in particular, in respect of any matters relating to or connected with receipts of deposits, including the rate of interest payable on such deposits and the purpose for which deposits will be received. According to Section 45K(4), if any non-banking institution fails to comply with any direction given by the bank under Sub-section (3), the Reserve Bank may prohibit the acceptance of deposits by that non-banking institution. It was submitted that on a plain reading of Section 45K(3) the Reserve Bank is only competent to frame the directions regarding receipt of deposits and such power of direction does not extend to providing the manner in which deposits can be invested or the manner in which the liabilities are to be disclosed in the balance-sheet or books of account of the company. It was further submitted that the power under Sub-section (4) is to prohibit acceptance of deposits and as such the permissible field of direction making it limited to receipt of deposits and nothing more. The Reserve Bank of India in framing the Directions of 1987, which is a subordinate piece of legislation has clearly over-stepped the bounds of the parent statute of Section 45K(3) of the Act.
220. If was further argued that the contention of the Reserve Bank that paragraphs 6 and 12 of the Directions of 1987 are covered within the powers conferred on the Reserve Bank under Section 45L(1)(b) of the Act should not be accepted. The further submission of Peerless in the said case appear from paragraph 12 and the submission of the Reserve Bank at paragraph 13 of the said judgment which are set out hereinbelow (at page 82 of 75 Comp Cas) :
"It is submitted that the Reserve Bank had at no point of time expressed its intention to invoke its powers under Section 45L. Even before the Division Bench of the Calcutta High Court,.the Reserve Bank did not rely on Section 45L as the alleged source of its power to issue the impugned directions nor did the Reserve Bank refer to Section 45L in its pleadings before the High Court. Wherever the Reserve Bank of India wanted to invoke its power under Section 45L of the Act, it has expressly mentioned that it was exercising its powers under Section 45L. In the case of the Non-Banking Financial Companies (Reserve Bank) Directions, 1977, or the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977, it has expressly said that it was invoking its powers under Section 45L of the Act, whereas in the case of the impugned directions, the Reserve Bank has only referred to Sections 45J and 45K of the Act. The Reserve Bank of India itself in the affidavit filed before the High Court had stated that the Directions of 1987 were framed after careful deliberations at the highest level and now it cannot take the stand that the source of its power in framing the impugned directions was exercised under Section 45L of the Act. It is further contended that in order to invoke the powers under Section 45L of the Act it has to state that the Reserve Bank was satisfied for the purpose of enabling it to regulate the credit system of the country to its advantage and it was necessary to give such institutions directions relating to the conduct of business by financial institution or institutions. In order to exercise its powers under Section 45L of the Act, it has to apply its mind for the purpose of arriving at the statutorily required satisfac- tion. In fact, such recital is necessary since such satisfaction is a precondition for the Reserve Bank to exercise its powers under Section 45L of the Act.
On the other hand, it has been contended on behalf of the Reserve Bank that the power of the Reserve Bank to regulate deposit acceptance activities of non-banking financial institutions under Chapter III-B of the Act cannot be disputed. The Reserve Bank has power to issue the impugned directions under Sections 45J, 45K and 45L of the Act. The pith and substance of para 6 of the Directions of 1987 is to ensure that deposits received from the public are invested in a manner so as to secure the repayment of the deposits. A deposit is, by definition, a sum of money received with a corresponding obligation to repay the same. Thus, the repayment of the deposit is an integral part of the transaction of a receipt of deposit. It is contended that the expression "receipt of deposit" must be construed liberally, in the light of the nature of the provisions as well as in the light of the wide language used in the provision. It is also argued that even if the impugned Directions of 1987 are not covered under the powers conferred under Sections 45J and 45K of the Act, those are squarely covered by Section 45L of the Act. It is submitted that various provisions under the Act are enabling in nature and confer overlapping powers. Even if there is no recital of Section 45L, it would not be of much consequence if such exercise of power can be related to Section 45L of the Act."
221. It appears from the aforesaid contention of the Reserve Bank that the deposit really is a sum of money received with corresponding obligation to repay the same. Thus, repayment of the deposit is an integral part of the transaction of a receipt of deposit. In the instant case, the notification dated April 19, 1993*, provides for a new paragraph, being paragraph 4A, which is set out hereinbelow ;
"4A. No residuary non-banking company shall take from any depositor/subscriber to any schemes run by the company, with or without his consent, any amounts towards processing or maintenance charges or any such charges, by whatever name called, for meeting its revenue expenditure :
Provided that a company may charge to a new depositor a one-time initial sum not exceeding Rs. 1-0 towards cost or expenses for issuing brochure/application form, servicing the depositor's account, etc."
222. It appears that the said new paragraph 4A restricts the residuary non-banking company from taking from any depositor/subscriber to any scheme run by the company, with or without his consent, any amount towards processing or maintenance charges or any such charges, by whatever name called, for meeting its revenue.expenditure, provided that a company may charge a new depositor a one-time initial sum not exceed-ing Rs. 10 towards cost or expenses for issuing brochure/application form, servicing the depositor's account, etc. Therefore, no residuary non-banking company on the basis of the said paragraph 4A will be entitled to charge any depositor towards processing or maintenance charges except a sum not exceeding Rs. 10 towards cost or expenses for issuing brochure/ application form, servicing the depositor's account, etc.
223. It is apparent on the face of the record that the said new paragraph 4A does not deal with the question of deposit or receipt of deposit. In view of the Reserve Bank's own submission as noted aforesaid the deposit is always refundable and the said charges referred to in paragraph 4A which are not refundable in nature and for meeting its revenue expenditure cannot be said to be deposits.
224. In paragraph 22 of the aforesaid judgment in the case of Peerless General Finance and Investment Co. Ltd v. Reserve Bank of India , it has been, inter alia, observed that it has been submitted that according to well accepted accounting practice where any sum is received as a loan or as a deposit it has to be shown as a liability together with accrued interest irrespective of when it is due. The amount contributed by the depositors being a capital receipt and, not a revenue receipt cannot under any circumstance be shown in the balance-sheet otherwise than at full, value. Moreover, being a capital receipt it cannot be credited to the profit and loss account since Part II of Schedule VI to the Companies Act, 1956, requires that the amounts to be shown in the profit and loss account should be confined to the income and expenditure of the company. Thus, crediting a part of the first and subsequent year's deposit instalment to the profit and loss account and not showing them fully as a liability in the balance-sheet would be a contravention of the provisions of the Companies Act.
225. It is apparent from a plain reading of Section 45J, that Section 45J can have nothing to do with the acceptance of non-refundable processing, maintenance charge or receipt of any amount for meeting its revenue expenditure and paragraph 4A is riot referable to Section 45J of the Act.
226. It is apparent from the aforesaid provision that Section 45J merely empowers the Reserve Bank to regulate or prohibit the issuance by any non-banking institution of any prospectus or advertisement soliciting deposits of money and specifying conditions subject to which any such prospectus or advertisement may be issued. It is, therefore, clear that Section 45) can have nothing to do with the framing of paragraph 4A. The said paragraph 4A, in so far as it is sought to be sustained on the basis of Section 45J, is invalid.
227. The next question, therefore, arises if Section 45K can be applied to the impugned notification inserting paragraph 4A since it has been mentioned therein that the same has been issued pursuant to the provisions of Section 45K also.
228. The element of refundability pervades the entire Section 45-I(bb). Assuming without admitting that the principle of ejusdem generis does not apply in the situation, the rule of interpretation known as "noscitiir a sociis" would apply to the expression "in any other form" as the said expression occurs in the company of other words through which runs the thread of the common feature of refundability. The expression "in any other form" must, therefore, be construed to be comprehending within its fold only refundable receipts of money and cannot cover non- refundable sums. In this connection reliance was placed on the judgment and decision of the Supreme Court in the ca'se of Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise, . In the said case what was in issue was an exemption notification issued under the Central Excises and Salt Act, 1944. The second proviso of the said notification took out of the purview of exemption certain products, namely, cigarette tissue, glassine paper, grease proof paper, coated paper, etc. The company was manufacturing art paper and chrome paper. The contention of the department was that the said varieties of paper constitute coated paper and was, therefore, outside the purview of the exemption by virtue of the second proviso of the exemption notification. It was held by the Supreme Court that paper covers particularly two varieties, namely, industrial paper and cultural paper, and held that cigarette tissue, glassine paper and grease proof paper which precede coated paper in the notification admittedly fall under the category of industrial paper and hence the denial of concession by the proviso is to be restricted only to coated paper falling under the industrial variety. By applying the principle of noscitur a sociis, the Supreme Court held that the notification excepts not one but a group of items arid there was a common thread running through them, namely, industrial paper and hence the expression "coated paper" should, therefore, be construed limited to coated paper of the industrial variety only and the products of the company should not be denied the benefit of the notification since the paper manufactured by them, although coated paper, did not belong to the industrial variety.
229. Reliance has been placed on behalf of the petitioner and the respondent supporting the petitioner on the judgment and decision in the case of Director of Public Prosecutions v. Jordan [1976] 3 All ER 775 (HL), which was concerned with Section 4(1) of the Obscene Publications Act, 1959. The said section enables the accused to prove that publication of the article in question is justified as being for the public good on the ground that it is in the interests of science, literature, art or learning or of other objects of general concern. It was held by the House of Lords that the general words "other objects of general concern" operated in the same area which was covered by the words "science, literature, art or learning"., that these words did not fall in the totally different area of sexual behaviour and could not enable the accused to prove that the articles seized, which were hard pornographic have some psychotherapeutic value for various categories of persons, namely, for persons of heterosexual taste and perverts to relieve their sexual tensions.
230. The unreported decision of the Punjab and Haryana High Court which has been relied on by the learned advocate for the Reserve Bank of India is of no assistance since the said decision did not take into account any of the arguments which have been advanced in the instant case. The court, therefore, did not have benefit of the arguments as are being advanced in the instant case. At least none of the said arguments has been referred to or noticed in the said judgment. The said judgment in any event is not binding on this court.
231. It has been argued on behalf of the Reserve Bank of India that the element of refundability does not pervade the whole of Section 45-I(bb) of the Reserve Bank of India Act, because share capital which is one of the excluded category of receipts is not refundable. This submission, however, does not appear to be correct since share capital is refundable on the winding up of the company after payment of all the debts in accordance with their priorities. Share capital is a capital receipt and has to be shown as "liabilities" in the balance-sheet.
232. In order to be a deposit within the meaning of the term as defined in the Reserve Bank of India Act a receipt of money must carry with it the corresponding obligation to repay the same. The non-refundable processing/maintenance charges being a receipt of money for revenue expenditure and not liable to be repaid, the same cannot be a deposit as contemplated by the Reserve Bank of India Act and in particular Section 45K thereof.
233. It also appears that a consideration of the 1987 Directions as a whole along with paragraph 4A will show that paragraph 4A does not deal with deposits. In all the other provisions of the 1987 Directions, for instance, paragraphs 4, 5, 6, 7 and 12 thereof, the Reserve Bank, itself has used the term "deposit" whereas in the case of paragraph 4A, it has consciously, omitted to use the word "deposits". On the contrary, it has sought to use and prohibit recovery on receipt of money, processing or maintenance charges or any such charges by whatever name called for meeting its revenue expenditure of a residuary non-banking company. It is, therefore, clear that the Reserve Bank was seeking to prohibit receipt of moneys by a non-banking company for meeting its revenue expenditure. Such moneys can never be deposits since the deposit is a capital receipt and can never be a revenue receipt. In this connection the observation of the Supreme Court in the case of Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India, of the said report may be considered.
"The deposit or loan is a capital receipt and not a revenue receipt and its full value shall be shown in the account books or balance-sheet as the liability of the company."
234. It is a settled view of accounting practice that amounts realised for meeting its revenue expenditure can never be shown as liability of the company and, therefore, the scope of paragraph 4A cannot be extended to deposits since it has been specifically mentioned in the said paragraph that amounts to be so realised shall be for the purpose of meeting revenue expenditure.
235. The proviso to paragraph 4A conclusively establishes that the field covered by paragraph 4A is not "deposits" and hence paragraph 4A is not ' referable to Section 45K of the Reserve Bank of India Act. By the said proviso, the Reserve Bank has allowed the non-banking institutions to accept a sum of Rs. 10 from a new depositor towards cost or expenses for issuing brochure or application form, servicing depositor's account, etc. It implies that the said sum of Rs. 10 is not and cannot be deposits since it has allowed the said sum of Rs. 10 to be spent. If the said sum of Rs. 10 was intended to be a deposit, then a residuary non-banking company would have to invest the said sum of Rs. 10 in accordance with paragraph 6 and would also have to show the same as liability in terms of paragraph 12. This cannot be the position since the Reserve Bank is permitting residuary non-banking companies to spend the said sum of Rs. 10. It is settled law that a proviso embraces the same field as the main provision. Hence, as the proviso to paragraph 4A is not dealing with deposits, the field covered by the main part of paragraph 4A cannot also be said to be deposits. In support of the aforesaid submissions the petitioners have relied on the following decisions :
(i) Ram Narain Sons Ltd. v. Asst. CST, .
(ii) Abdul Jabar Butt v. State of Jammu and Kashmir, .
(iii) CIT v. Indo-Mercantile Bank Ltd. .
The contention of the Reserve Bank is that it is empowered under Section 45K(3) of the Reserve Bank of India Act to issue directions in matters relating to or connected with deposits and as such receipt of amounts by a non-banking institution for its revenue expenditure when it accepts deposits in the course of its main business is a matter relating to or connected with the acceptance of deposits and as such the Reserve Bank of India is competent to give directions on such processing/maintenance charges. The meaning of the words "relating to or connected with" on a reasonable construction does not sustain the aforesaid argument of the Reserve Bank. The provision of Section 45K(3) reasonably construed, would mean that the Reserve Bank can give directions as to the manner in which the company will deal with the "deposits received from the public, namely, investments of the deposits. The said words "relating to or connected with" are followed by the words "the receipt of deposits". The said words "relating to or connected with" were introduced to pre-empt a possible argument that the Reserve Bank of India is only competent to give directions regarding receipt of deposits and was not competent to prescribe any other conditions relating to the manner in which the said deposits received shall be dealt with by the non-banking institutions. The words "relating to or connected with" have been introduced to enable the Reserve Bank of India to issue directions in the matter as to how deposits are to be dealt with by non-banking institutions under Section 45K(3) and to ensure that the power to give directions is not construed to be confined to receipt of deposits only. However, the said expression cannot mean that the Reserve Bank will have the power to frame directions in any matter which may be totally alien to the concept of deposits and even though there may be no reasonable nexus between the directions framed and the deposits received by the non-banking institutions. If that be the construction, the Reserve Bank would have given power or directions regarding appointment of directors, payment of directors' remuneration, payment of dividends, etc., in respect of non-banking institutions which accept deposits from the public. Such a construction would lead to an absurdity and must necessarily be avoided.
The words "any matters relating to or connected with receipts of deposit" occurring in Section 45K(3) of the Reserve Bank of India Act have to be considered in the light of the words which follow the same, namely, "including the rates of interest payable on such deposits and the periods for which such deposits may be received".
236. In this connection it may be noted that the receipt of deposits would have covered by its normal connotation rates of interest on deposits received and the period for which such deposits may be received and it was not necessary to mention the two specifically after having mentioned "receipt of depgsit". This shows that the Legislature wanted to exhaust the field of the regulatory powers of the Reserve Bank under Section 45K(3) to three areas, namely the receipt of deposits, the rates of interest payable on such deposits and the period for which deposits may be received. In the instant case, therefore, the Legislature has by using the word "including" has not sought to expand but to restrict. In this connection the decision of the Supreme Court in South Gujarat Roofing Tiles Manufacturers'Association v. State of Gujarat, , may be taken note of. In the said case, the .Explanation to entry 22 of Part I in the Schedule to the Minimum Wages Xct, 1948, provided that the entry "potteries industry" includes the manufacturers of-certain specified classes of items of potteries, namely, crockeries, sanitary appliances and fittings, refractories, jars, etc. It was argued that since the definition of potteries in the Explanation used the word "including", the intention of the Legislature was to expand the scope of the definition and not to limit the articles to be covered under the Explanation to those expressly mentioned therein. This argument was negatived by the Supreme Court in the following words :
"It is true that 'includes' is generally used as a word of extension, but the meaning of a word or phrase is extended when it is said to include things that would not properly fall within its ordinary connotation ..... Thus, where 'includes' has an extending force, it adds to the word or phrase a meaning which does not naturally belong to it. It is difficult to agree that 'includes' as used in the Explanation to entry 22 has that extending force. The Explanation says that for the purpose of entry 22, potteries industries includes the manufacture of the nine 'articles of pottery' specified in the Explanation. If the objects specified are also 'articles of pottery', then these objects are already comprised in the expression 'potteries industry'. It hardly makes any sense to say that potteries industry includes the manufacture of articles of pottery, if the intention was to enlarge the meaning of potteries industry in any way ... It seems to us that the word 'includes' has been used here in the sense of 'means' ; this is the only construction that the word can bear in the context. In that sense it is not a word of extension, but limitation ; it is exhaustive of the meaning which must be given to potteries industry for the purpose of entry 22. The use of the word 'includes' in the restrictive sense is not unknown."
237. The judgment and decision of the Supreme Court in the case of Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. AIR 1987 SC 1023 ; [1987] 61 Comp Cas 663, 691, in para 32 of the judgment at page. 1041 may also be considered in this connection.
"We do not think it necessary to launch into a discussion of either Dilworth's case [1899] AC 99 (PC) or any of the other cases cited. All that is necessary for us to say is this : The Legislatures resort to inclusive definitions (1) to enlarge the meaning of words or phrases so as to take in the ordinary, popular and natural sense of the words and also the sense which the statute wishes to attribute to it, (2) to include meanings about which there might be some dispute, or (3) to bring under one nomenclature all transactions possessing certain similar features but going under different names. Depending on the context, in the, process of enlarging, the definition may even become exhaustive. We do not think that by using the word 'includes', in the definition in Section 2(a) of the Act, Parliament intended to so expand the meaning of prize chit as to take in every scheme involving subscribing and refunding of money. The word 'includes', the context shows, was intended not to expand the meaning of 'prize chit' but to cover all transactions or arrangements of the nature of prize chits but under different names. The expression 'prize chit' had nowhere been statutorily defined before. The Bhabatosh Datta Study Group and the Raj Study Group had identified the schemes popularly called 'prize chits'. The study groups also recognised that 'prize chits' were also variously called benefit/savings schemes and lucky draws and that the basic common features of the schemes were the giving of a prize and the ultimate refund of the amount of subscriptions (vide para 6.3 of the Report of the Raj Study Group). It was recommended that prize chits and the like by whatever name called should be banned. Since prize chits were called differently, 'prize chits', 'benefit/savings schemes', 'lucky draws', etc., it became necessary for Parliament to resort to an inclusive definition so as to bring in all transactions or arrangements containing these two elements. We do not think that in defining the expression 'prize chit', Parliament intended to depart from the meaning which the expression had come to acquire in the world of finance, the meaning which the Datta and the Raj Study Groups had given to it. That this is the only permissible interpretation will also be further evident from the text of the chit and the context as we shall presently see."
238. In this connection the judgment and decision in the case of Ram Narain Sons Ltd. v. Asst. CST, may also be taken note of. In the aforesaid decision it has been held that it is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other.
239. The same principle has been reiterated by the Supreme Court in the subsequent two decisions, (i) Abdul Jabar Butt v. State of Jammu and Kashmir, , and (ii) C1T v. Indo-Mercantile Bank Ltd., .
240. In the case of Abdul Jabar Butt v. State of Jammu and Kashmir, , the Supreme Court held'nhat it is a fundamental rule of construction that a proviso must be considered with relation to the principal matter to which it stands as a proviso. Therefore, the proviso to Section 8(1) has to be construed harmoniously with the provisions of subsection (1) to which it is a proviso.
241. In the case of CIT v. Indo-Mercantile Bank Ltd., , the Supreme Court held that the proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment Ordinarily, it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment.
242. The territory of a proviso, therefore, is to carve out an exception to the main enactment and exclude something which otherwise would have been within the section. It has to operate in the same field and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect. (S) and (S) and and 1946 AC 32 (37), Ref. It may also be noted that the word "etc." used in the proviso to paragraph 4A has to be given some meaning since it cannot be presumed that while framing delegated legislation, the Reserve Bank of India indulged in surplusage.
243. The word "etc." as appearing is as follows :
"etcetera--1 (a) and the rest ; and similar things or people ; (b) or similar things or people.
2. and so on--n (in pl.) (the usual) sundries or extras."
244. The meaning of the "etc." according to Webster's New International Dictionaiy "others of the like kind ; and the rest; and so on ; and so forth-used to point out that other things which could be mentioned are to be understood. Sometimes written as one word usually abbreviated into etc. or and C."
245. The whole purpose of inserting paragraph 4A appears to be that a residuary non-banking company shall not take from any depositor/subscriber to any schemes run by the company, with or without his consent any amount towards processing or maintenance charges or any such charges, by whatever name called, for faceting its revenue expenditure except that it may be permitted under the proviso to take an amount not exceeding Rs. 10 towards cost or expenses for issuing brochure/application form, servicing the depositor's account, etc.
246. The contention of the Reserve Bank as made out in the affidavit-in-opposition to the effect that the sum of Rs. 10 has been allowed for the purpose of meeting expenses for literature brochure, etc., which are taken by persons making casual enquiries about the schemes of the company but who do not ultimately subscribe to such scheme and the Reserve Bank of India has termed such expenditure as wasteful expenditure and contends that a sum of Rs. 10 as provided in.the proviso to paragraph 4A is intended to meet such "wasteful expenditure" cannot, therefore, be correct.
247. On a plain reading of the proviso to paragraph 4A, it appears that a sum of Rs. 10 is intended to cover the cost of application form/brochure, servicing depositor's account, etc. Servicing depositor's account can only mean incurring expenses for and in respect of persons who have subscribed to the scheme of the company and the language of the proviso is thus totally inconsistent with the allegations of the Reserve Bank as made out in paragraph 37 of the affidavit of Jayadev Goswami affirmed on May 27, 1993, filed on behalf of the Reserve Bank of India.
248. It also appears to be highly unreasonable that the Reserve Bank which is showing grave concern for the safety of the certificate holders' money itself provides for payment for non-depositors by depositors.
249. The said paragraph 4A and the proviso thereto in effect show that the Reserve Bank has no objection in principle to the recovery of a service charge since by the proviso to paragraph 4A, a residuary non-banking company has been allowed to collect a sum of Rs. 10 from a new depositor towards meeting the cost of application form/brochure, servicing the depositor's account, etc. The fixation of the ceiling for the service charge at Rs. 10 is totally arbitrary and without any basis or rationality. The total arbitrariness of the fixation of such ceiling is apparent from the contents of the proviso itself since the Reserve Bank concedes that a residuary non-banking company has to incur expenses towards cost of application form/ brochure, servicing the depositor's account, etc., but provides a sum of Rs. 10 only for that purpose. The fixation of Rs. 10 as the maximum amount appears to be patently insufficient and arbitrary towards meeting the expenses for the purposes mentioned in the proviso itself.
250. By introduction of paragraph 4A, the Reserve Bank has sought to ban the recovery of money by residuary Agri-banking companies for meeting their revenue expenditure. What is recovered by the petitioner-company as processing/maintenance charge is utilised by the petitioner-company for expenses for servicing the certificate holder's account over the contractual period of the certificate, which in its turn includes proportionate element of management expenses, staff salary, overheads, agents' commission, etc. The recovery of the service charge is nothing peculiar to the petitioner-company and the banks also do recover service charge, sometimes of a large amount, in spite of the fact that the banks do not have to pay agents' commission for procuring business for them. Further, such service charges are even prevalent in respect of current accounts in which no interest is payable and savings accounts in which nominal interest is payable. It appears that the Reserve Bank has made no attempt to control or regulate recovery of service charges which has been left totally to the discretion of the banks both in the public and private sectors. This is established by the documents annexed by the Reserve Bank in its affidavit-in-oppo-sition. The said documents totally contradict the allegations of the respondent-bank. On scrutiny, the said documents will reveal that the public sector banks including the State Bank of India levy charges for mere passivity of the constituents, namely, non-operation of the account and the balance in the account falling below a specified minimum. Reference may also be made to the affidavit-in-opposition of the Reserve Bank which will show the service charges which are levied by Standard Chartered Bank even in respect of current accounts, savings bank accounts and recurring deposits. It has been submitted in this context that the Supreme Court has held in its judgment in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023, that the business of the petitioner-company is akin to a plain recurring deposit scheme such as many schemes floated by the commercial banks and national savings organisations and there was no gambling and no element of chance in such schemes. The said observations of the Supreme Court have been collected in the writ petition.
251. It appears that the Reserve Bank has no objection to recovery of service charges at high rates by banks but it has objection to recovery of service charges by the petitioner-company. This is a highly unreasonable attitude resulting in prejudice and discrimination against the petitioners. The business of the petitioner-company has been held by the Supreme Court to be akin to the business of a recurring deposit scheme of a commercial bank and there is no reason why the same considerations and standards should not be applied in the case of the petitioner-company by the Reserve Bank of India in the matter of recovery of service charges. The Reserve Bank has sought to justify the levy of high service charges on the ground that it was necessary for the banks to recover such service charges in order to render sophisticated computerised services and that it was free for a customer to choose a particular bank and he need not go to the bank which levies high service charges if he is dissatisfied thereby. The Reserve Bank has further stated that companies in the private sector can function on a commercial basis. The contention of respondent No. 1 contained in the said lette'r equally applies to the case of the petitioner-company which has a Highly sophisticated computerised accounting system. Further, the petitioner-company in the private sector should be allowed to function in accordance with prudent commercial norms and the petitioner-company is also not compelling anybody to come to it and to subscribe to its business and it is open to subscribers not to invest in the schemes of the petitioner-company if they do not like the terms and conditions of the schemes of the petitioner-company.
252. On behalf of the petitioners, reference has been made to service charges realised by the commercial banks on which no restriction has been imposed although the commercial banks also carried on the same type of activity.
253. In the event, the Reserve Bank authorities feel that the manner in which Peerless or any residuary non-banking company has been realising any amount which is inconsistent with the Directions issued by the Reserve Bank in 1987 and/or contrary to the order of the Supreme Court, it is open to the Reserve Bank to take appropriate steps.
254. It has been contended on behalf of the Reserve Bank of India that the direction adding paragraph 4A prohibiting any residuary non-banking company to charge from any depositor/subscriber to any scheme run by the company, with or without the depositor's consent, any amount towards processing or maintenance charges for meeting its revenue expenditure is clearly a direction in respect of a matter relating to or connected with the receipt of deposits. On behalf of the Reserve Bank, reference has been made to the petitioner-company's own document being annexure "B" to the writ petition at page 67. The said document is an application form for welfare endowment certificate, which is the/instrument on the basis of which the relative deposits are received by the petitioner-company, namely, Peerless. It has been submitted on behalf of the respondent-Reserve Bank of India that on the very first page of this application form at page 67, being annexure "B" to the writ petition, just above the place where the applicant's signature has to be appended, the following sentences appear, viz. :
"... I also agree to pay non-refundable processing/maintenance charges as mentioned overleaf to continue this certificate. If the certificate is discontinued, I shall not be entitled to get more than the sum mentioned in Clause 7 of the terms and conditions and agree to abide by the same."
255. Referring to the aforesaid it has been submitted by Mr. Shanti Bhusan, the learned advocate for the Reserve Bank, that the contents of the application form thus make it absolutely clear that it is a condition for the receipt of deposits from a depositor that he would also pay non-refundable processing/maintenance charges as required under the terms and conditions of the deposits.
256. It has been submitted further that in fact, the application form contains in the first page, the form of the receipts for the processing charges also.
257. It has been argued on behalf of the Reserve Bank that the payment by a depositor of processing and maintenance charges being a condition for payment of receipt of deposits, the same is clearly a matter relating to or connected with the receipt of deposit within the meaning of Section 45K(3) of the Reserve Bank of India Act.
258. The Reserve Bank of India would, therefore, be clearly entitled to give directions in respect of such processing or maintenance charges and . the direction contained in paragraph 4A cannot be regarded as being outside the purview of Section 45K(3) of the Act.
259. The learned advocate for the Reserve Bank has also referred to all the tables introduced by the petitioner-company subsequent to the Supreme Court judgment in January, 1992, which contain similar provisions in the application form.
260. The question in issue in the instant writ petition is if the amendment by way of insertion of paragraph 4A is valid or not. It is always open to the Reserve Bank to take appropriate action but that does not imply that for a particular defaulting residuary non-banking company general directions will be issued having no reasonable nexus with the original Directions of 1987 or not in consonance with the relevant provisions of the Reserve Bank of India Act being Sections 45J, 45K and 45L of the said Act.
261. As already noted, in the case of a deposit there is a corresponding obligation to repay and as such the said words in the application form at page 67 of the writ petition, in any event do not come within the purview of the deposit since they refer to non-refundable processing/maintenance charges.
262. The learned advocate has referred to the judgment and unreported decision of the Division Bench of the Punjab and Haryana High Court in Fairland Colonizers and financiers Pvt. Ltd. v. Reserve Bank of India (Civil Writ Petition No. 4312 of 1968). In my view, the said decision cannot apply to the facts of the instant case and, as such, does not assist the respondent.
263. The question is whether the Reserve Bank was competent to issue the impugned notification dated April 19, 1995, by invoking the provisions of Section 45L of the Reserve Bank of India Act.
264. It appears from a true construction of Section 45L 'that the said Section only empowers the Reserve Bank to give directions to financial institution as defined in the Reserve Bank of India Act. The question, therefore, arises if the petitioner-company is a financial institution within the meaning of the said Act ?
265. Section 45-I(c) of the Reserve Bank of India Act is as follows :
"(c) 'financial institution' means any non-banking institution which carries on as its business or part of its business any of the following activities, namely :--
(i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own ;
(ii) the acquisition of shares, stocks, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature ;
(iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in Clause (c) of Section 2 of the Hire-Purchase Act, 1972 (26 of 1972) ;
(iv) the carrying on of any class of insurance business ;
(v) managing, conducting or supervising as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto ;
(vi) collecting for any purposes or under any scheme or arrangement by whatever name called, monies in lump sum or otherwise, by way of subscriptions or by sale of units, or other instruments or in any other manner and awarding prizes or gifts, whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which,--
(i) is an industrial concern as defined in Clause (c) of Section 2 of the Industrial Development Bank of India Act, 1964 (18 of 1964) ; or
(ii) carries on as its principal business,--
(a) agricultural operations ; or
(b) the purchase or sale of any goods (other than securities) or the providing of any services ; or
(c) the purchase, construction or sale of immovable property, so, however, that no portion of the income of the institution is derived from the financing of purchases, constructions or sales of immovable property ; by other persons ;".
266. It has, however, been argued on behalf of the respondent that the Supreme Court in its judgment in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , held that the Reserve Bank of India has the power under Section 45L of the Reserve Bank of India Act to give directions to companies like the petitioner-company and that the issue, therefore, has already been settled.
267. The contention of the petitioner, on the other hand, is that the Supreme Court in the said judgment had no occasion to consider as to whether the petitioner-company was a financial institution as defined in the Reserve Bank of India Act and no arguments were addressed on that aspect before the Supreme Court.
268. The question before the Supreme Court arose in view of the fact that the original 1987 Directions were issued by the Reserve Bank in exercise of the powers under Sections 45L and 45K of the Reserve Bank of India Act and no reference was made to Section 45L. While meeting the challenge of the petitioners in the said proceedings before the Supreme Court, counsel for the Reserve Bank of India submitted that the said directions and in particular the method of investment prescribed thereby was sus-tainable under Section 45L of the Reserve Bank of India Act even if it is held that it was beyond the scope of Sections 45J and 45K and that merely because the Reserve Bank of India had not stated that it was invoking the powers under Section 45L that would not invalidate the directions since non-quoting of a provision of law would not render an action invalid if the power to do the act can be traced to some provision in the statute. It may be noted that it was never stated by the Reserve Bank of India in any of the pleadings filed by it in the said case that it was invoking the powers under Section 45L. The Supreme Court, while disposing of the challenge of the petitioners in the said proceeding as aforesaid, noted in paragraphs 12, 13 (per Kasliwal J.) and paragraph 73 (per K. Ramaswamy J.) that even if the Reserve Bank has not referred to Section 45L in the recital contained in the said direction, it was entitled to have recourse to Section . 45L, on the principle that non-quoting of the source of power or quoting the wrong source of power would not invalidate an action if the same is referable to a power contained in the statute. The Supreme Court had no occasion to consider the grounds of challenge as urged in the instant proceedings and there is no finding or observation by the Supreme Court on the said aspects. It is settled law that a decision is binding as a precedent, on the basis of the ratio decided. In other words a case is only an authority for what it decides.
269. The judgment and decision of the Supreme Court in the case of Orient Paper and Industries Lid. v. State of Orissa, , may be taken note of in this connection.
270. Quoting from its earlier judgment in the case of State of Orissa' v. Sudhansu Sehhar Misra, , the Supreme Court observed as follows (at page 680) :
' "What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it." '
271. The Supreme Court also quoted from the earlier decision in the case of Krishena Kumar v. Union of India, , to the effect as follows (at page 680) ;
' "The doctrine of precedent, that is being bound by a previous decision, is limited to the decision itself and as to what is necessarily involved in it. It does not mean that this court is bound by the various reasons given in support of it, especially,when they contain 'propositions wider than the case itself required' ... A deliberate and solemn decision of court made after argument on question of law fairly arising in the case, and necessary to its determination is an authority or binding precedent.
In this connection, the decision in the case of Quinn v. Leathem [1901] AC 495, 506 (HL) may also be taken note of. In the aforesaid decision it was held ". . . there are two observations of a general character which I wish to make and one is to repeat what I have very often said before, that every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what it actually decides, I entirely deny that it can be quoted for a proposition that may seem to follow logically from it. Such a mode of reasoning assumes that the law is necessarily a logical code, whereas every lawyer must acknowledge that the law is not always logical at all."
272. The question whether Peerless was a financial institution or not, in fact, was never in issue in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India , and the observations of the Supreme Court were in effect made in the context of the question noted above, and, accordingly, the said observation cannot be said to be ratio decided by the Supreme Court.
273. The contention of Peerless is that Peerless does not carry on the business of financing by way of making loans or advances or otherwise of any activity other than its own as its business or part of its business. Some intercorporate loans which are granted by Peerless are by reason of the mandate contained in paragraph 6 of the 1987 Directions of the Reserve Bank cannot be said to be without any substance. Incurring of such loans or advances pursuant to statutory directions cannot constitute business or part of its business. The nature and character of the business of the company cannot be made to depend on the nature of such directions as may be made by the Reserve Bank from time to time. In this connection, the judgment and decision of the Judicial Committee of the Privy Council in the case of CIT v. Shaw Wallace and Co. , may be taken note of. In the aforesaid decision, it was held that the words used in that definition are no doubt wide but underlying each of them is the fundamental idea of the continuous exercise of an activity. The word "business" connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. On the other hand, a single and isolated transaction has been held to be conceivably capable of falling within the 'definition of business as being an adventure in the nature of trade provided the transaction bears clear indicia of trade. The question, therefore, whether a particular source of income is business or not must be decided according to our ordinary notions as to what a business is. The same view has been taken by the Supreme Court also in the case of Narain Swadeshi Weaving Mills v. CEPT .
274. The acquisition of securities by Peerless is also according to the directions as contained, issued by the Reserve Bank. The financial institution carries on as its business any of the activities as mentioned in Clauses (i) to (iv) of Section 45-I(c) of the Reserve Bank of India Act not applicable to the petitioner-company. The following financial institutions mentioned in column 1 of the chart hereinbelow are covered by the definition of the companies mentioned against the same in column 2 thereof :
Section 45-I(c)(i) ... 2(j) of 1977 Directions. Section 45-I(c)(ii) ... 2(i) of 1977 Directions. Section 45-I(c)(iii) ... 2(f) of 1977 Directions. Section 45-I(c)(iv) ... 2(h) of 1977 Directions. Section Reserve Bank of India Act Clause Non-Banking Financial Companies (Reserve Bank) Directions, 1977 45-I(c)(i)
The financing whether by way of making loans or advances or otherwise of any activity other than its own.
2(j) "Loan company"
means any company which is a financial institution carrying on as its principal business, the providing of finance, whether by banking oans or advances or otherwise for any activity other than its own but does not include an equipment leasing company or a hire-purchase finance company or a housing finance company.
45-I(c)(ii) The acquisition of shares, stocks, bonds, debentures or securities issued by the Government or local authority or other marketable securities of a like nature.
2(i) "Investment company" means any company which is a financial institution carrying on as its principal business, the acquisition of the securities.
45-I(c)(iii) "Letting or delivering" of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire Purchase Act, 1972 (26 of 1972).
2(f) Hire-purchase finance company means any company which is a financial institution carrying on as its principal business, hire-purchase transactions or the financing of such transactions.
45-I(c)(iv) The carrying on of any class of insurance business.
2(h) "Insurance company" means any company registered for any class of insurance business under section 3 of the Insurance Act, 1938 (4 of 1938).
275. It is not the case of the Reserve Bank of India, neither has it been alleged that Peerless falls in any of the four aforesaid categories.
276. The Non-Banking Financial Companies (Reserve Bank) Directions, 1977, contain a provision in paragraph 19 which provides that if there is any financial institution which does not belong to any of the categories of the companies mentioned in paragraph 2(1), then such financial institutions would be treated as "loan company" and the provisions of the said 1977 Directions as applicable to a "loan company" shall apply to such institutions. Assuming without admitting that there may be a residuary category of financial institution not covered by the companies defined in paragraph 2 of the 1977 Directions, paragraph 19 is intended to make the 1977 Directions applicable to the said residuary category and thus bring all financial institutions under the umbrella of the Non-Banking Financial Companies (Reserve Bank) Directions, 1977. It is an admitted position that the petitioner-company is not a company subject to regulation by the 1977 Directions and has been expressly classified as a residuary non-banking company subject to regulation by the Residuary Non-Banking Companies-(Reserve Bank) Directions, 1987. Paragraph 20, 1987 Directions, expressly excludes the application of paragraph 19 of the 1977 Directions to residuary non-banking financial companies. The expression "financial institution", as used in the 1977 Directions, will bear the same meaning as given in the Reserve BanX of India Act by virtue of paragraph 2(o) of the 1977 Directions.
277. All non-banking institutions which carry on the activities mentioned in the various clauses of Section 45-I(c) whether they carry on the said activities as their main business or part of their business come within the purview of the regulatory control of the 1977 Directions. In other words, the non-banking institutions which are financial institutions are all covered under the 1977 Directions.
278. Non-banking companies, which have not been categorised under any regulatory direction for specific classes framed prior to 1987, have been treated as residuary non-banking companies and the residuary non-banking companies directions have been framed to control their functioning. It is significant to note in this context that the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987, defines a residuary non-banking company as a non-banking institution and consciously omits the word "financial". Further, in the said definition, contained in paragraph 2 of the 1987 Directions, a residuary non-banking company has been defined as a company not belonging to any of the categories mentioned and defined in the 1977 Directions, namely; loan company, investment company, insurance company, etc.
279. The said Directions shall apply to every residuary non-banking company, that is to say, a non-banking institution, being a company, which receives any deposit under any scheme or arrangement, by whatever name called, in one lump sum or in instalments by way of contributions or subscriptions or by sale of units or certificates or other instruments, or in any other manner and which, according to the definition contained in the Non-Banking Financial Companies (Reserve Bank) Directions, 1977, is not-
(i) an equipment leasing company ;
(ii) a hire-purchase finance company ;
(in) a housing finance company ;
(iv) an insurance company ;
(v) an investment company ;
(vi) a loan company ;
(vii) a mutual benefit financial company ; and
(viii) miscellaneous non-banking company.
280. Further," Clause 20 of the 1987 Directions provides that nothing contained in paragraph 19 of the 1977 Directions will apply to residuary non-banking companies. This amply shows that Peerless is not a financial institution, all categories whereof are covered by the 1977 Directions and it is a separate category for which separate Directions have been framed.
281. Under Section 45L of the Reserve Bank of India Act, the Reserve Bank must be satisfied that it is necessary to issue directions under Section 45L to regulate the credit system of the country to its advantage. The Reserve Bank was never satisfied and could not be satisfied that paragraph 4A was necessary to regulate the credit system of the country to its advantage, paragraph 4A seeks to prohibit expenses of processing/maintenance charges or any other charges for meeting the revenue expenditure of residuary non-banking companies and is totally unrelated to regulation of the credit system of the country. Acceptance of service charges can have no nexus with the credit system of the country. Assuming without admitting that deposits which mean refundable subscriptions have any nexus with the credit system of the country, the same is already regulated by the Reserve Bank by virtue of paragraph 6 of the 1987 Directions. As the essential pre-condition for the exercise of powers by the Reserve Bank under Section 45L has not been satisfied and, therefore, paragraph 4A is ultra vires Section 45L of the Reserve Bank of India Act. It has been consistently held by judicial decisions as well as authoritative text books in England and India that whenever exercise of powers by a State agency is subject to the satisfaction of the said agency or formation of an opinion by it, the said satisfaction cannot be purely subjective but must be arrived at on the basis of relevant and material considerations and by exclusion of irrelevant considerations and the said satisfaction is open to judicial scrutiny. It has been further held that when the formation of satisfaction is challenged, the burden is upon the agency to prove that such satisfaction was reached on cogent and relevant materials.
282. The Supreme Court, in the case of M. A, Rasheed v. State of Kerala, , held as follows (at page 2251) :
" Where powers are conferred on public authorities to exercise the same when 'they are satisfied' or when 'it appears to them', or when 'in their opinion' a certain state of affairs exists ; or when powers enable public authorities to take 'such action as they think fit' in relation to a subject-matter, the courts will not readily defer to the conclusiveness of an executive authority's opinion as to the existence of a matter of law or fact upon which the validity of the exercise of the power is predicated."
283. The question has been raised if the Reserve Bank has taken into account relevant considerations while framing paragraph 4A. It has been argued on behalf of the petitioner that it was incumbent upon the Reserve Bank to consider if Peerless is a financial institution so far as to apply the said notification inserting paragraph 4A in the case of Peerless. It is the specific case of the petitioner that there was no satisfaction on the part of the Reserve Bank of India Act and no satisfaction could be reached on the materials on record.
284. Whether processing/maintenance charges towards cost or expenses for issuing brochure/application form, servicing the depositor's account, etc., may be treated as a "fee" and if it is permissible to impose a ceiling limit on fee--the said question was raised by me after hearing was concluded and the matter was thereafter heard on April 15, 1995, and April 19, 1995.
285. Mr. A. K. Sen, senior advocate, on behalf of Peerless Karmachari Samiti, submitted that such a charge may really be treated as a "fee" and in that event it cannot come within the definition of "deposit" since "deposit" involves refund of the amount, any such charge not being refundable cannot form part of the deposit.
286. In support of his contention he has referred to the decision of the Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India . He has further contended that the Reserve Bank is not entitled to issue the aforesaid notification which is beyond its power under Section 45K. Mr. Sen has strongly relied upon the observation of the Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India . In the aforesaid decision, the Supreme Court observed that the function of the court is to see that lawful authority is not abused. He has also referred to several other judgments, in support of his contention that said charge imposed by the aforesaid insertion under paragraph 4A really amounts to imposition of fee with a ceiling limit of Rs. 10. Mr. Sen referred to Black's Law Dictionary, 5th edition, at page 518 and also Words and Phrases (Permanent edition) volume 16, at page 553. He has tried to distinguish between a tax and a fee and submitted that the charges imposed by way of fee must have some connection with the expenses incurred in that account.
287. He has submitted that there is a distinction between a tax and a fee. In this connection, he has referred to Basu's Shorter Constitution, 11th edition, at page 892. He has also submitted that a fee is a payment levied by the State in respect of services performed by it for the benefit of the individual. He has particularly referred to the observation of Basu's Shorter Constitution, llth edition, at page 893, to the effect-
" It is levied on a principle just opposite to that of a tax. While a tax is paid for the common benefits conferred by the Government on all taxpayers, a fee is a payment made for some special benefit, enjoyed by the payer and the payment is usually proportional to the special benefit."
288. He has also referred to the decision in the case" of Om Parkash Agarwal v. Girt Raj Kishori . In the aforesaid decision, it was held that in determining a levy as a fee the true test must be whether its primary and essential purpose is to render specific services to a specified area or class, it being of no consequence that the State may ultimately and indirectly be benefited by it.
289. The other decision which has been relied upon by Mr. Sen is the case of Hingir-Rampur Coal Co. Ltd. v. State of Orissa, . In the aforesaid decision, it was held that it is true that when the Legislature levies a fee for rendering specific services to a specified area or to a specified class of persons or trade or business, in the first analysis such services may indirectly form part of services to the public in general. If the special service rendered is distinctly and primarily meant for the benefit of a specified class or area the fact that in benefiting the specified class or area the State as a whole may ultimately and indirectly be benefited would not detract from the character of the levy as a fee. Where, however, the specific service is indistinguishable from public service, and in essence is directly a part of it, different considerations may arise. In such a case, it is necessary to enquire what is the primary object of the levy and the essential purpose which it is intended to achieve. Its primary object and the essential purpose must be distinguished from its ultimate or incidental results or consequences. That is the true test in determining the character of the levy : [1950] AC 87, Ref. to.
290. He has also referred to the judgment and decision in the case of Kewal Krishan Puri v. State of Punjab, . In the aforesaid decision it was held that generally speaking a fee is defined to be a charge for a special service rendered to individuals by some governmental agency. A question arises -- "special service" rendered to whom, which kind of individuals ? The argument that service rendered must be correlated to those on whom the ultimate burden of the fee falls is neither logical nor sound. The imposition of fee and the liability to pay it is on a particular individual or a class of individuals. They are under the obligation to submit accounts, returns or the like to the authorities concerned in cases where quantification of the amount of fees depends upon the same. They have to undergo the botherations and harassments, sometimes justifiably and sometimes even unjustifiably, in the process of discharging their liability to pay the fee. The authorities levying the fee deal with them and realize the fee from them. By operation of the economic laws in certain kinds of impositions of fee, the burden may be passed on to different other persons one after the other. The authorities, more often than not, almost invariably, will not be able to know the individual or individuals on whom partly or wholly the ultimate burden of the fee will fall. They are not concerned to investigate and find out the position of the ultimate burden. It is axiomatic that the special service rendered must be to the payer of the fee. The element of quid pro quo must be established between the payer of the fee and the authority charging it. It may not be the exact equivalent of the fee by a mathematical precision, yet, by and large, or predominantly, the authority collecting the fee must show that the service which they are rendering in lieu of the fee is for some special benefit of the payer of the fee. It may be so intimately connected or interwoven with the service rendered to others that it may not be possible to do a complete dichotomy and analysis as to what amount of special services was rendered to the payer of the fee and what proportion went to others. But generally and broadly speaking it must be shown with some amount of certainty, reasonableness or preponderance of probability that quite a substantial portion of the amount of fee realised is spent for the special benefit of its payers [1950] AC 87 Ref. to.
291. The other judgment cited on the question of nature of fee is in the case of Gasket Radiators Pvt. Ltd. v. Employees' State Insurance Corporation .
292. In the aforesaid decision it was held that the payment of contri bution by an employer towards the premium of an employee's compulsory insurance under the Employees' State Insurance Act falls directly within entries 23 and 24 of List III and it is wholly unnecessary to seek justi fication for it by recourse to entry 97 of List I or entry 47 of List III in any circumlocutous fashion. These contributions or for example contri butions to provident funds or payments of other benefits to workers are neither taxes nor fees.
293. Even if the charge of employer's special contribution under Chapter V-A is to be construed as a fee, it is justifiable on that basis also as there was sufficient quid pro quo. Services and benefits are meant to be and are bound to be conferred on the employees and through them on the employer, in due course, when the scheme becomes fully operative in all areas. Merely because the benefits to be received are postponed, it cannot be said that there is no quid pro quo. Though, ordinarily, a return in praesenti is generally present when fee is levied, but simultaneity or contemporaneity of payment and benefit is not the most vital or crucial test to determine whether a levy is a fee or not. It may often happen that the rendering of a service or the conferment of a benefit may only follow after the consolidation of a fund from the fee levied. It is only after a sufficient nucleus is available that one may reasonably expect a compensating return. The question of how soon a return may be expected or ought to be given must necessarily depend on the nature of the services required to be performed and the benefits required to.be conferred. (K. C. Sarma v. E.S.I, Corporation [1962-63] 23 FJR 511 ; AIR 1962 Assam 120, followed).
293. The observation in Kewal Krishan Puri v. State of Punjab, , that the benefit should not be indirect and remote was not made in connection with any delayed benefit from the point of view of time, but, with reference to the very benefit itself and its connection with the levy, and, therefore, cannot be relied upon in the present context. Judgments of courts are not to be construed as Acts of Parliament. Nor can a judgment on a particular aspect of a question be read as a holy book covering all aspects of every question whether such questions and facets of such questions arose for consideration or not in that case.
294. In the case of Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Ttiirtha Swamiar of Sri Shirur Mutt [1954] SCR 1005, 1042, it was held that it is not possible to formulate a definition of fee that can apply to all cases as there are various kinds of fees. But a fee may generally be defined as a charge for a special service rendered to individuals by some governmental agency. The amount of fee levied is supposed to be based on the expenses incurred by the Government in rendering the services, though in many cases such expenses are arbitrarily assessed.
" The distinction between a tax and a fee lies primarily in the fact that a tax is levied as a part of a common burden, while a fee is a payment for a special benefit or privilege."
295. It was also held in the said judgment as follows (at page 1042) :
"As Seligman says, it is the special benefit accruing to the individual which is the reason for payment in the case of fees ; in the case of a tax, the particular advantage if it exists at all is .an incidental result of State action."
296. If, as we hold, a fee is regarded as a sort of return or consideration for services rendered, it is absolutely necessary that the levy of fees should, on the face of the legislative provision, be co-related to the expenses incurred by Government in rendering the services. As indicated in article 110 of the Constitution, ordinarily, there are two classes of cases where Government imposes "fees" upon persons. In the first class of cases, Government simply grants a permission or privilege to a person to do something, which otherwise that person would not be competent to do and extracts fees either heavy or moderate from that person in return for the privilege that is conferred. A most common illustration of this type of cases is furnished by the licence fees for motor vehicles. Here the costs incurred by the Government in maintaining an office or bureau for the granting of licences may be very small and the amount of imposition that is levied is based really not upon the costs incurred by the Government but upon the benefit that the individual receives. In such cases, according to all the writers on public finance, the tax element is predominant, and if the money paid by licence holders goes for the upkeep of roads and other matters of general public utility, the licence fee cannot but be regarded as a tax.
297. In the other class of cases, the Government does some positive work for the benefit of persons and the moneys taken as the return for the work done or services rendered. If the money thus paid is set apart and appropriated specifically for the performance of such work and is not merged in the public revenues for the benefit of the general public, it could be counted as fees and not a tax. There is really no generic difference between the tax and fees and as said by Seligman, the taxing power of a State may manifest itself in three different forms known respectively as special assessments, fees and taxes.
298. The Supreme Court in the case of Ratilal Panachand Gandhi v. State of Bombay [1954] SCR 1055 held that Section 58 of the Bombay Public Trust Act imposing contribution upon each public trust, at certain rates to be fixed by the rules, in proportion to the gross annual income of such trust is not ultra vires the State Legislature because the contribution imposed under the section is not a tax but a fee which comes within the purview of entry 47 of List III in Schedule VII to the Constitution.
299. In the aforesaid decision it was further held that two elements are essential in order that a payment may be regarded as a fee. In the first place, it must be levied in consideration of certain services which the individuals accepted either willingly or unwillingly and' in the second place, the amount collected must be earmarked to meet the expenses of rendering these services and must not go to the general revenues of the State to be spent for general public purposes. As has been pointed out in the Madras case mentioned above, too much stress should not be laid on the presence or absence of what has been called the "coercive" element. It is not correct to say that as distinguished from taxation which is compulsory payment, the payment of fees is always voluntary, it being a matter of choice with individuals either to accept the service or not for which fees are to be paid. We may cite for example the case of a licence fee for a motor car. It is argued that this would be a fee and not a tax, as it is optional with a person either to own a motor car or not and in case he does not choose to have a motor car, he need not pay any fees at all but the same argument can be applied in the case of a house tax or land tax. Such taxes are levied only on those people who own lands or houses and it could be said with equal propriety that a man need not own any house or land and in that event he could avoid the payment of these taxes. In the second place, even if the payment of a motor licence fee is a voluntary payment, ft can still be regarded as a tax if the fees that are realised on motor licences have no relation to the expenses that the Government incurs in keeping an office or bureau for the granting of licences and the collections are not appropriated for that purpose but go to the general revenues. Judging by this test, it appears to us that the High Court was perfectly right in holding that the contributions imposed under Section 58 of the Bombay Public Trusts Act are really fees and not taxes. In the first place, the contributions, which are collected under Section 58, are to be credited to the Public Trusts Administration Fund as constituted under Section 57. This is a special fund which is to be applied exclusively for payment of charges for expenses incidental to the regulation of public trusts and for carrying into effect the provisions of the Act. It vests in the Charity Commissioner the custody and investments of the money belonging to the fund and the disbursement and payment therefrom are to be effected not in the manner in which general revenues are disbursed, but in the way prescribed by the rules made under the Act. The collections, therefore, are not merged in the general revenues, but they are earmarked and set apart for this particular purpose. It is true that under Section 6A of the Act, the officers and servants appointed under the Act are to draw their pay and allowances from the Consolidated Fund of the State but, we agree with what has been said by Mr. Justice Shah of the Bombay High Court that this provision is made only for the purpose of facilitating the administration and not with a view to mix up the fund with the general revenues collected for Government purposes. This would be clear from the provision of Section 6B which provides that out of the Public Trusts Administration Fund all the costs, which the State Government may determine on account of pay, pension, leave and other allowances of all the officers appointed under this Act, shall be paid. It is the Public Trusts Administration Fund, therefore, which meets all the expenses of the administration of trust property within the scheme of the Act, arid-it is to meet the expenses of this administration that these collections are levied; As has been said by the learned judges of the High Court, according to the concept of a modern State, it is not necessary that services should be rendered only at the request of particular people ; it is enough that payments are demanded for rendering services which the State considers beneficial in public interest and which the people have to accept whether they are willing or not. Our conclusion, therefore, is that Section 58 is not ultra vires the State Legislature by reason of the fact.that it is not a tax but a fee which comes within the purview of entry 47 of List III in Schedule VII to the Constitution.
300. It has further been submitted, that the authority must act in a reasonable manner and the decision taken by the authority must be on the basis of the appropriate materials.
301. The contention of Mr. Sen is that the Reserve Bank had no authority under Section 45K to impose such charges. He has further submitted that the public authority must act reasonably and not arbitrarily.
302. In support of his contention, he has referred to several decisions :
1. District Collector, Hyderabad v. Ibrahim and Co., .
2. Vrajlal Manilal and Co. v. State of M. P., .
3. Ramana Dayaram Shetty v. International Airports Authority of India, .
4. Abdul Hamid Sahib v. Rahmat Bi, .
5. Khyerbari Tea Co. v. State of Assam, .
303. It has also been submitted by Mr. Sen that in view of the settled law on the question laid down by the Supreme Court, the Reserve Bank of India was bound in law to disclose the relevant materials to justify the reasonableness of the fixation of Rs. 10.
304. It has been suggested that in view of the fact that the Reserve Bank has. deliberately refused to discharge that burden and avoided its responsibility to this court of placing the materials on record, the only inference in law which is open to the court is that there were no materials whatsoever on the basis of which the said fee of Rs. 10 was arrived at.
305. The contention of the learned advocate is that it is for the authority to establish from the materials on record that the restriction was reasonable and failure to do so must inevitably lead to the conclusion that the fixation of the cost of servicing the depositor's account, brochure, applications, etc. at Rs. 10 was clearly arbitrary.
306. It has been submitted that although the Residuary Non-Banking Companies Directions are concerned with all residuary non-banking companies and not with the individual case of Peerless, by way of illustration, and only to show the absurdity of restricting the cost of servicing the depositors' account, the cost of brochure and application at Rs. 10.
307. It has been contended that the Reserve Bank of India has not been empowered under section. 45K of the Reserve Bank of India Act to issue directions controlling or regulating services to be rendered by the residuary non-banking companies to their customers nor has the Reserve Bank of India been conferred with any power to regulate the charges to be taken by the residuary non-banking companies for such services.
308. It has been further contended that such charges can be realised under the new paragraph 4A but to fix the ceiling limit of Rs. 10 is arbitrary.
309. A supplementary written note has been filed on behalf of the petitioner-company by Mr. Bhaskar Gupta. The learned advocate shortly stated in the said written note, which has been submitted by Mr. Gupta that conceptually and jurisprudentially, a "fee" is a levy which is imposed for rendering some services. The ordinary concept of a fee is a compulsory exaction of money by the State even against the will of the payer, there being a quid pro quo for such imposition in the form of rendering some service by the State or one of its agencies. Initially, an imposition of fee had to be decided on the basis that the service rendered, namely, the quid pro quo should be exactly commensurate with the quantum of the imposition. This was the view expressed by the Supreme Court in the case . of Kewal Krishan Puri v. State of Punjab, . The following observations in the said judgment summarise the concept at that point of time, of a fee levied by the State (at page 1015) :
" Generally speaking a fee is defined to be a charge for a special service rendered to individuals by some governmental agency . . .
The element of quid pro quo must be established between the payer of the fee and the authority charging it. It may not be the exact equivalent of the fee by mathematical precision, yet, by and large, or predominantly, the authority collecting the fee must show that the service which they are rendering in lieu of the fee is for some special benefit of the payer of the fee. It may be so intimately connected or interwoven with the service rendered to others that it may not be possible to do a complete dichotomy and analysis as to what amount of special service was rendered to the payer of the fee and what proportion went to .others. But generally and broadly speaking it must be shown with some amount of certainty, reasonableness or preponderance of probability that quite a substantial portion of the amount of fee realised is spent for the special benefit of its payers."
310. It has also been submitted that the concept of fee, however, has undergone a radical change in recent years and the element of quid pro quo as a justification for levy of fees has been considerably eroded.
311. In this connection, he has referred to the following decisions of the Supreme Court :
1. Municipal Corporation of Delhi v. Mohamed Yasin, .
2. Sreenivasa General Traders v. State of A. P., .
3. Krishna Das v. Town Area Committee .
4. Kishanlal Lakhmichand v. State of Haryana .
312. The learned advocate has quoted from the observation of the Supreme Court in the last mentioned decision which is to the following effect (at page 429) :
" It is trite to reiterate the law laid down by this court of the distinction between the tax and the fee and its demarcating line vis-a-vis the power of the Legislature to make law for imposition of fee in that behalf. Suffice to reiterate the ratio laid in Sreenivasa General Traders v. State of A. P., , that the traditional view that there must be actual quid pro quo for a fee has undergone a sea change. The distinction between a tax and a fee lies primarily in the fact that a tax is levied as part of a common burden, while a fee is for payment of a specific benefit or privilege although the special advantage is secondary to the primary purpose of regulation in public interest, if the element of revenue for the general purposes of the State predominates the levy becpmes a tax. In regard to a fee, there is, and must always be, correlation between the fee collected and the service intended to be rendered. In determining whether a levy, is a fee, the true test must be whether its primary and essential purpose is to render specific services to a specified area or class ; it may be of no consequence that the State may ultimately and indirectly be benefited by it. The power of any Legislature to levy a fee is conditioned by the fact that it must be 'by and large' a quid pro quo for the services rendered. However, co-relationship between the levy and the services rendered/expected is one of general character and not of mathematical exactitude. All that is necessary is that there should be a 'reasonable relationship' between the levy of the fee and the services rendered. There is no generic difference between a tax and a fee. Both are compulsory exactions of money by public authorities."
313. Mr. Gupta has pointed out in this note that the aforesaid decision of the Supreme Court referred to a fee in the sense of a charge being imposed for a service rendered, the imposer, however, being the State and the levy having an element of compulsion in it. He has referred to different kinds of fees although in the nature of a charge for services rendered, viz., fees chargeti by professionals for rendering services. For instance, doctors, lawyers, chartered accountants, tax consultants charge fees for professional services rendered. It is quite true that such fees have the element of a quid pro quo but are not an imposition by the State neither is there any element of compulsion in it since the professional concerned is not forcing anybody to come to him availing of his service nor is he rendering services on a monopoly basis. The question arises as to whether it is open to the State or one of its agencies to prescribe a ceiling for such fees which are charged by professionals as stated above. The answer must be in the negative since the professional is a self-employed person practising his own profession and he is not compelling anybody to avail of his service nor is he rendering such services on a monopoly basis. Therefore, any restriction sought to be imposed on charging of fees by a professional would be in violation of the fundamental right of such professional, if he is a citizen of India, to carry on trade, business, occupation and/or profession guaranteed by Article 19(1)(g) of the Constitution.
314. It is the submission by Mr. Gupta that the processing/maintenance charges being recovered by the company may be said to be in the nature of fees because the same are being charged in lieu of services rendered. The services rendered being, inter alia, "servicing depositors' account". The service rendered to the depositors forms the quid pro quo for the processing, maintenance charge.
315. He has also submitted that it is not open to the State or any of its agencies to impose unreasonable restrictions on the amount of fees which may be charged by the petitioners for rendering services to the depositors. In the instant case, the ceiling prescribed, namely, Rs. 10, is wholly confis-catory, expropriatory, illusory and unrealistic and hence such ceiling is violative of Articles 14 and 19(1)(g) of the Constitution.
316. It has been submitted that the onus is entirely on the respondents to show as to how the sum of Rs. 10 is a reasonable restriction on the amount of fees which may be charged. The respondents have not produced any reason or materials in support of their contention before this court.
317. Mr. Gupta has contended that since the processing/maintenance charge is in the nature of a fee, it cannot be a deposit, which can alone form the subject-matter of rule-making by the Reserve Bank of India under the powers conferred by the Reserve Bank of India Act, 1934. Fees cannot also come within the scope of "relating to or connected with".
318. Mr. Narayan Gooptu, learned Advocate-General, has also filed a supplementary written note. Apart from the points already urged by him in his original written note, he has also submitted that the processing/ maintenance charge is really in the nature of a fee which is a levy imposed in lieu of services rendered. In the instant case, the processing/maintenance charges are being recovered for providing services to the depositors and hence are and/or are in the nature of a fee and fees can never be deposits. Since the processing/maintenance charges cannot be deposits, the same cannot be the subject matter of regulation under Section 45K of the Reserve Bank of India Act, 1934, since the said provision empowers the Reserve Bank only to regulate the deposits and/or sums in the nature of deposits.
319. On the aforesaid question, namely, if the processing/maintenance charges towards cost or expenses for issuing brochure/application form, servicing the depositor's account, may be treated as "fees", no written note was submitted on behalf of the Reserve Bank of India although opportunity was given for the same.
320. It appears to me that the distinction between "fee" and "deposit" is vital to the decision in the instant case since the Supreme Court in the second Peerless case , has clearly held that the Reserve Bank of India's power to put restrictions on RNBCs (Residuary Non-Banking Companies) is restricted to -regulating "deposits", i.e., moneys received which require to be repaid. The processing and maintenance charges are not deposits, but are in the nature of "fees" being a charge for particular services rendered, which are non-refundable. The attempt by the Reserve Bank of India to put restrictions on the power of Peerless to levy the said charges is clearly beyond the scope of the authority conferred by the statute upon the Reserve Bank of India by the Reserve Bank of India Act, in particular Section 45(3) of the said Act.
321. By notification dated April 10, 1993, amendment has been effected to paragraph 4 of the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987, contained in Notification No. DFC55/DG(O)-87, dated May 15,1987. The said amendment was stated to have been effected in exercise of the powers conferred by Sections 45J, 45K and 45L of the Reserve Bank of India Act, 1934.
322. In paragraph 4, the words and figures "May 15, 1987" and "120 months", wherever they occur, shall be substituted by the words "April 12, 1993" and "84 months" respectively.
323. It, therefore, appears by the said amendment that the maximum permissible period of a certificate issued by the residuary non-banking company has been fixed as 84 months instead of the previous 120 months. The maximum period has been curtailed from 10 to 7 years. It has been submitted on behalf of the petitioners that the said curtailment of the maximum period is inconsistent with the affidavit filed by the Reserve Bank of India in Favourite's case in 1973, relevant extracts whereof have been annexed at page 61 of the writ petition.
324. As already noted, the question is whether the Reserve Bank is competent under Sections 45J, 45K and 45L of the Reserve Bank of India Act, 1934. The said Section 45K(3) has already been analysed. The only challenge is that it Was not proper for the Reserve Bank of India to reduce, the period of deposit. It cannot be doubted that the Reserve Bank is competent under Section 45K(3) to deal with or take appropriate action as it may deem fit and proper in public interest with regard to deposit or receipt relating to deposits if.the Reserve Bank so desires. There cannot be any dispute or doubt that the act of the Reserve Bank in issuing the said notification thereby reducing the period of deposit is in respect of the deposit or receipt relating to deposit and if the same has been done by the Reserve Bank by way of economic policy, it is not open to the writ court to interfere with regard to such policy matter. Accordingly, the arguments advanced on behalf of the petitioners to the effect that the said deduction was impermissible and inconsistent cannot be accepted.
325. For the reasons already noted, the following order is passed :
So far as the first notification dated April 10, 1993, thereby amending the earlier Directions dated May 15, 1987, reducing the period of deposit as already noted is concerned, the said Direction was clearly made in respect of any matter relating to or connected with the receipt of deposits, including the rates of interest payable on such deposits, and the periods for which deposits may be received, and,the said Direction clearly falls within the words as provided under Section 45K(3) of the Reserve Bank of India Act, 1934, and, as such, in my view, the writ court should not interfere with the same, and, accordingly, the prayer of the writ petitioners to that extent cannot be allowed.
326. So far as the other notification dated April 19, 1993, is concerned for the reasons already noted, I am of the view that the Reserve Bank of India is not competent to issue such notification inserting paragraph 4A, by way of amendment and the same is declared invalid. The Reserve Bank of India is, accordingly, directed not to give effect to the said notification inserting paragraph 4A by way of amendment.
327. This order, however, will not prevent the Reserve Bank of India from taking appropriate action in accordance with law if there is any violation of. the 1987 Directions against any residuary non-banking company including the petitioners.
328. The writ petition is, accordingly, disposed of with the direction as above.
329. There will be no order as to costs.
330. Let plain copies of the operative part of the judgment duly counter signed by the Assistant Registrar (Court) be given to the learned advocates for the parties on the usual undertaking to pray for and obtain certified copy of this order.