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28. On the above materials, we have heard Mr.S.B.Talekar and Ms.Gayatri Singh learned senior counsel appearing for the JVS-PS & MMS, PA Judgment-WPL.3030.19+3.doc petitioners in these petitions. We have also heard Mr.Abdi, who is representing the petitioners in the PIL. The common arguments canvassed before us are that the petitions under Article 226 of the Constitution of India are maintainable. Mr.Talekar contended that in this case, even the Central Government has been impleaded as a party respondent. The Central Government also has a duty and which is carved out by section 61 of the Act of 2002. This section empowers the Government to aid Multi-State Co-operative Societies. Mr.Talekar would submit that this provision overrides anything contained in any law for the time being in force and though the aid to Multi-State Co-operative Societies can be granted on receipt of request from that society, still, the Government need not wait for such a request. It can act with a view to promote co-operative movement and it has a wide discretion, including to give loans or make advances to these societies and guarantee pre-payment of interest on loan and advances to Multi-State Co-operative Societies. Therefore, financial assistance, including subsidies can be extended. Therefore, Mr.Talekar would submit that the Central and the State Government must devise schemes to meet the present contingency. There is an obligation to aid the Multi-State Co- operative Societies. Mr.Talekar would submit that there is no affidavit in reply filed by the P&MC Bank nor is there any JVS-PS & MMS, PA Judgment-WPL.3030.19+3.doc common affidavit of the Credit Guarantee Corporation. Apart therefrom, this Corporation should aid and assist the bank for the benefit of the investors. Thus, the argument is that the aid or assistance is possible either by recourse to section 61 of the Act of 2002 or by appropriate measures or schemes devised by these Governments. This court can, by way of a writ of mandamus, enforce this obligation in the event the court finds that the Central and the State Government have failed to discharge the same. Mr.Talekar submits that we should issue such a writ all the more because the bank's financial position is not sound. Today, Mr.Talekar complains that the Central and the State Governments are but mute spectators and they cannot be permitted to take such a position.

36. Mr. Dhond was at pains to point out that full disclosures were not made and even the RBI was not in a position to deduce the extent of the deals and transactions between the bank and the HDIL. The accounts were prepared in such a manner that only few employees of the bank had knowledge of the dealings. The accounts were drawn up in such a manner that the moneys to HDIL were spread over in small and big accounts. An impression was given to the RBI that this is a regular banking transaction, but all details were not entered in the books or in specific accounts. The RBI, therefore, had no knowledge and the moment it derived it, it stepped in. Mr.Dhond has highlighted the efforts by the RBI by relying on the contents of the impugned communications. Mr.Dhond submits that the RBI's intervention became necessary because there was virtually a run on the bank. Mr.Dhond highlighted the situation by urging that the entire lot of depositors and investors rushes to the branches of the bank and seeks to withdraw the amounts lying deposited with the bank. If such a run on the bank is not controlled, there is every possibility of the Management picking and choosing depositors and confer or extend to them benefit of withdrawal of amount from the deposits. JVS-PS & MMS, PA Judgment-WPL.3030.19+3.doc If such persons manage to withdraw almost everything from their accounts, nothing would be left with the bank to permit other depositors to withdraw their sums. In other words, a few and selected investors would take away the money lying deposited to the detriment of the interest of other depositors. Those close to the management should not derive such benefit and that is why arbitrary distribution of limited funds required the intervention of the RBI. Mr.Dhond would submit that the liquidity crunch and the strain on the limited assets of the bank has prompted the RBI to intervene and issue the directives. The RBI intervened due to indisciplined draining of the funds. There was every possibility of diversion of funds as well. Now, the distribution would be disciplined. The bank can also take such measures as are permissible in law so as to restore the credibility of depositors. For all these reasons, Mr.Dhond would submit that the RBI has issued the directions after the necessary satisfaction was arrived at and recorded by it. Such a satisfaction is based on cogent and reliable materials. It is not a mere ipse dixit of the RBI. The satisfaction is based on relevant and germane materials and therefore, the RBI has not acted arbitrarily, much less mala fide enabling this court to interfere with its decision or directions in writ jurisdiction. In fact, the RBI possesses a more drastic power which it could have invoked by moving the Central Government. JVS-PS & MMS, PA Judgment-WPL.3030.19+3.doc That is found in section 45 of the Act of 1949. For all these reasons, he would submit that the petitions be dismissed.

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JVS-PS & MMS, PA Judgment-WPL.3030.19+3.doc

39. A summary of the above would leave us in no manner of doubt that the RBI arrived at a satisfaction that the financial position of the P&MC Bank has been substantially impaired by certain persons. As soon as the matter came to the notice of the RBI, action was taken by appointing an Administrator and ensuring that the bank's available resources are protected and not misused or diverted. Based on a complaint filed by the bank against its officials and borrowers associated with the fraud/ financial irregularities in the bank and manipulation of its books of accounts, the Economic Offences Wing, Maharashtra Police has started its investigations into the matter. The Forensic Auditors have been appointed by the Administrator of the bank to look into the related transactions. The administrator and the three member Advisory Committee appointed by the RBI are working for speedy resolution of the various issues being faced by the bank in conducting its operations. The RBI is closely monitoring the developments and shall continue to take necessary steps in the interest of the depositors of the bank. If this is the gist and summary of the communications, then, it is futile to urge, particularly in the absence of contra material, that the directions issued by the RBI are arbitrary or suffer from any error of law apparent on the face of the record. The RBI has been conferred with specific powers. The power of the RBI to give directions is JVS-PS & MMS, PA Judgment-WPL.3030.19+3.doc based on the satisfaction that such directions have to be given in public interest or in the interest of banking policy or to prevent the affairs of any banking company being conducted in a manner detrimental to the interest of depositors or in a manner prejudicial to the interest of banking company. The directions are issued to banking company generally or to any banking company in particular from time to time and they have to be issued as the RBI deems it fit and the banking company shall be bound to comply with such directions. These directions can be modified or cancelled by the RBI on a representation made to it or on its own motion and in order to modify or cancel any direction, the RBI may impose such conditions as it thinks fit subject to which the modification or cancellation shall have effect. As far as this satisfaction is concerned, the RBI has filed a detailed affidavit. In the affidavit filed on behalf of the RBI and its Chief General Manager, the RBI has referred to its internal audit machinery. It is said in terms there is a statutory audit which has to be carried out by qualified persons once in a year to certify the balance-

40. Although the counsel appearing for the petitioners before us would refer to the Act of 1949, what their argument overlooks is that this is an Act to consolidate and amend the law relating to banking. The Act of 1949 is in addition to the Companies Act, 1956 or any other law for the time being in force and its JVS-PS & MMS, PA Judgment-WPL.3030.19+3.doc provisions shall not be treated to be in derogation of any other laws save and except to the extent of any activity which is prohibited or restricted. Section 2 of this Act says that application of other laws is not barred. The cases which are covered for applicability of the Act to co-operative societies are set out in section 3. Nothing in this Act shall apply to a primary agricultural credit society, a co-operative land mortgage bank and any other co-operative society, except in the manner and to the extent specified in Part V. A survey of the provisions of the Act of 1949 discloses that by Part II, titled as "Business of Banking Companies", there are provisions enacted so as to prohibit trading, disposal of non-banking assets, prohibition of employment of managing agents and restrictions on certain forms of employment. The Board of Directors ought to include persons with professional or other experience. The banking company is to be managed by whole time chairman. Power of the RBI to appoint Chairman of the Board of Directors on a whole-time basis or a managing director of a banking company. There are other provisions with regard to maintaining minimum paid-up capital and reserves. Regulation of paid-up capital, subscribed capital and authorised capital and voting rights of shareholders is possible by section 12 and the regulatory measures postulated by this law extends to the elections, acquisition of shares or voting JVS-PS & MMS, PA Judgment-WPL.3030.19+3.doc rights. The restriction mechanism takes care of commission, brokerage, discount etc. on sale of shares and then there are prohibitory sections as well. The further provisions in this Part make it possible to carry out the banking business in a regulated manner. There are various powers conferred in the RBI, including the power to control advances by banking companies. The banking business can be controlled by exercising a control over Management and that is possible by Part IIA. While section 35 falls in Part II, it is preceded by sections which provide for accounts and balance-sheet to be audited, submission of returns, copies of balance-sheets and accounts to be sent to Registrar, display of audited balance-sheet by companies incorporated outside India, accounting provisions of this Act not to be treated as retrospective and thereafter production of documents of confidential nature etc.