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12. It is interesting to note that by way of completion of the regulatory measures, the non-corporate sector comprising individuals, partnership firms and associations were also brought under the regulatory measures by introducing Chapter III-C in the Reserve Bank of India Act.

13. According to the respondents, the scope of content of the power of the Reserve Bank of India, as disclosed in sections 45-I, 45J, 45K, 45L of the Reserve Bank of India Act can never be disputed and do not exclude the nidhi companies, as contended by the petitioners. The counter-affidavit then proceeds to describe the nidhi companies and explains the rationale behind the impugned notification. There is reference to a study undertaken by the Reserve Bank of India with reference to the nidhi companies and the non-banking financial companies, which had self-styled themselves as nidhi companies. I will refer to the result of the said study at a later stage. According to the respondents, the nidhi companies fall squarely within the definition of "financial institutions" under section 45-I(c) of the Reserve Bank of India Act, 1934. The counter-affidavit also points out that under paragraph 2(k) of the 1977 Directions, "mutual benefit financial company" is defined as a company notified under section 620A of the Companies Act. However, paragraph 4 of the said Directions granted exemption to such companies from paragraphs 5, 7, 10, 10A, 11, 12, 13A and 16 of the Directions. The remaining provisions of the 1977 Directions did apply to nidhi companies. After the report of the study team, the Reserve Bank of India has thought it fit to remove some of the exemptions granted under paragraph 4 of the 1977 Directions and have, therefore, placed some restrictions on the nidhi companies also with relation to their rates of interest, payments of brokerage and advertisements. Certain clarifications have also been issued on August 24, 1996, after the filing of the writ petitions, permitting the nidhi companies to fix their own rates of interest on deposits selectively on a case to case basis. The said relief is available to the nidhi companies, which have positive net owned funds in the ratio of 1 : 20 and as certified by their chartered accountants. Therefore, these nidhi companies which are founded on sound principles of finance could not have any complaint. The restrictions have been imposed purely in the interest of the general public and not in violation of the fundamental rights, guaranteed under the Constitution of India.

"(i) The nidhi company has complied with the directions contained in the Government of India, Department of Company Affairs Notification No. G.S.R. 773(E), dated December 4, 1995 [See [1996] 85 Comp Cas (St.) 2.].
(ii) The net owned fund of the nidhi company is positive as on March 31, 1996.
(iii) The nidhi company is and will be in a position to repay the amount of its liabilities including the interest payable to the depositors as and when their claims arise.
(iv) The ratio of net owned fund to deposits of the nidhi company does not exceed 1 : 20, as on the date of the application.

43. The next argument of the petitioners is that they are advancing loans only on prescribed security and that there is no danger of the nidhi companies getting into an unsound financial position. Secondly, it is pointed out that they pay interest on deposits only in the range of 18 per cent. to 21 per cent. per annum, whereas their lending rate ranges from 22 to 24 per cent. per annum. Therefore, it is contended that there is absolutely no basis for the apprehension of the Reserve Bank of India that a ceiling has got to be fixed on the rate of interest in respect of the nidhi companies. According to the petitioners, the Reserve Bank of India has only the unincorporated bodies in mind while imposing the present restrictions. I cannot impute such lack of knowledge on the part of the Reserve bank of India. I have already referred to the study undertaken by the Reserve Bank of India before imposing the restrictions. It has been pointed out that out of the 15 notified nidhi companies as many as three nidhi companies were having negative net owned fund. The ratio of net owned fund to deposits varied between 1 : 21 and 1 : 144 and in one case, the ratio stood as high 1 : 276. In the case of one nidhi company in the northern region, interest was being offered on deposits at such a high rate as 40 per cent. per annum. It may be one of the extreme cases, but even then, when a study is undertaken, the Reserve Bank of India has certainly the necessary criteria and materials on the basis of which they had decided to impose certain restrictions. The foresight of the Reserve Bank of India in apprehending an approaching disease cannot be easily ignored or underestimated.

45. In this connection, "net owned funds" has been defined in the 1977 Directions as follows :

"For the purpose of this paragraph 'net owned fund' shall mean the aggregate of the paid-up capital and free reserves as appearing in the latest audited balance-sheet of the company as reduced by the amount of accumulated balance of loss, deferred revenue expenditure and other intangible assets, if any, as disclosed in the said balance-sheet."

46. It is thus seen that even in the year 1977 in respect of non-banking financial companies other than the mutual benefit financial company, certain restrictions were imposed with reference to the "net owned fund". The clarification issued on August 24, 1996, relaxing the ceiling on interest in respect of nidhi companies having "net owned funds" in relation to deposits in the ratio of 1 : 20, is not, therefore, a new innovation but the usual mode adopted by the Reserve Bank of India for subserving the cause of investors.