{"id":9079,"date":"1993-02-05T00:00:00","date_gmt":"1993-02-04T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/t-velayudhan-achari-and-anr-vs-union-of-india-and-others-on-5-february-1993"},"modified":"2017-06-21T23:32:22","modified_gmt":"2017-06-21T18:02:22","slug":"t-velayudhan-achari-and-anr-vs-union-of-india-and-others-on-5-february-1993","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/t-velayudhan-achari-and-anr-vs-union-of-india-and-others-on-5-february-1993","title":{"rendered":"T. Velayudhan Achari And Anr vs Union Of India And Others on 5 February, 1993"},"content":{"rendered":"
Supreme Court of India<\/div>\n
T. Velayudhan Achari And Anr vs Union Of India And Others on 5 February, 1993<\/div>\n
Equivalent citations: 1993 SCR (1) 832, \t 1993 SCC (2) 582<\/div>\n
Author: S Mohan<\/div>\n
Bench: Mohan, S. (J)<\/div>\n
           PETITIONER:\nT.   VELAYUDHAN ACHARI AND ANR.\n\n\tVs.\n\nRESPONDENT:\nUNION OF INDIA AND OTHERS\n\nDATE OF JUDGMENT05\/02\/1993\n\nBENCH:\nMOHAN, S. (J)\nBENCH:\nMOHAN, S. (J)\nSHARMA, L.M. (CJ)\nVENKATACHALA N. (J)\n\nCITATION:\n 1993 SCR  (1) 832\t  1993 SCC  (2) 582\n JT 1993 (1)   580\t  1993 SCALE  (1)586\n\n\nACT:\nConstitution of India 1950: Articles 14, 19(1)(g) and 20(1).\nBanking Laws (Amendment) Act, 1983 : Section 45 S.\nReserve\t Bank of India Act, 1934: Chapter IIIC, Section\t 58B\n(5A).\nDeposits-Acceptance of-Provisions imposing ceilings in\tcase\nof  individuals, firms and associations-Validity  of-Whether\nviolates fundamental rights-Prescription of two year  period\nto   bring  down  the\tdeposits-Prescribed   limits-Whether\nreasonable.\n\n\n\nHEADNOTE:\nThe   petitioners  in  the  writ  petition  challenged\t the\nconstitutional\tvalidity of chapter III-C read with  Section\n58B(5A) of the Reserve Bank of India Act, 1934 introduced by\nthe Banking Laws (Amendment) Act, 1983. Along with the\twrit\npetition   were\t had  several  civil  appeals,\t where\t the\nappellants  had\t unsuccessfully\t challenged  the   aforesaid\nprovisions  as\tviolative  of  Articles 14  and\t 19  of\t the\nConstitution, in the High Court of Delhi, which upheld their\nvalidity, and granted a certificate to appeal to this  Court\nvide Kanta Mehta v. Union of India,<\/a> 1987 (62) Company  Cases\nP.769.\nThe  newly incorporated Section 45S of the Reserve  Bank  of\nIndia  Act  provided  that  no\tindividual  or\tfirm  or  an\nunincorporated\tassociation  of individuals  shall,  at\t any\ntime, have deposits from more than the number of  depositors\nspecified  against each in the table mentioned therein.\t  It\nwas  further provided that where at the commencement of\t the\nAct,  the  deposits held were not  in  accordance  thereof,a\nperiod\tof  two years was prescribed for bringing  down\t the\nnumber of depositors within the relative limits specified in\nthe  Act,  and\tcontravention thereof  was  rendered  penal.\n'These\tprovisions were brought into force on  February\t 15,\n1984.\nOn  behalf of the petitioners it was submitted that  Section\n45B was\n833\nviolative of the fundamental rights under Article 19(1)\t kg)\nof the Constitution as it restricts the number of depositors\nand  the  rate of interest under Section  4(2)(iii)  of\t the\nKerala\tMoneylenders  Act, 1958, that the  two\tyear  period\nprescribed under Section 42 is unreasonable, and that  under\nthe Kerala Act with effect from 15110185 only 149%  interest\nalone could be charged.\t It was further submitted that while\nreceiving  deposits  it was not an offence and making  it  a\ncriminal  liability and directing payment, would  amount  to\nex-postfacto   law   offending\t Article   20(1)   of\t the\nConstitution.\nThe  writ petition and appeals were contested by  submitting\non  behalf of the Reserve Bank of India that it was open  to\nthe  Government\t to regulate economic activities,  and\tthat\nwhile  examining  the validity of such provisions  courts  a\nlaws  have  regard to the wisdom of the\t Legislature  as  it\nalone  has the necessary information and expertise  pointing\nto  the\t needs for such a legislation.\tAttention  was\talso\ndrawn  to  the\tprovisions  of\tthe  Non-Banking   Financial\nCompanies (Reserve Bank) Directions of 1966 which came\tinto\nforce  on January 1, 1969 which specifically  provided\tthat\ndeposits shall be reduced to 25% of the paid up capital\t for\nwhich  a  two years period was prescribed and  that  similar\ndirections knows as Non Banking Financial Companies  Reserve\nBank Directions, 1977 came to be issued with effect from 1st\nof July, 1977,\nDismissing the writ petition and the appeals, this Court,\nHELD:\t  1.  The  impugned  legislation  no  doubt   places\nrestrictions  on  the right of the appellants  to  carry  on\nbusiness,  but what is essential is to safeguard the  rights\nof  various depositors and to see that they are\t not  preyed\nupon. [844G]\n2.   The  Reserve Bank of India, right from 1966,  has\tbeen\nmonitoring  and\t following the\tfunctioning  of\t non-banking\nfinancial  institutions\t which invite deposits\tand  utilise\nthose  deposits\t either\t for  trade  or\t for  other  various\nindustries.   A\t ceiling for acceptance of deposits  and  to\nrequires  maintenance of certain liquidity of funds as\twell\nas  not to exceed borrowings beyond a particular  percentage\nof  the net-owned funds have been provided in the  corporate\nsector.\t But for these requirements, the depositors would be\nleft high and dry without any remedy. [844H, 845A]\n3.   Even the corporate sector was not free from blame.\t  It\nhad  done  damage to the economy and  brought  ruination  to\nsmall depositors.  Ex-\n834\nperience had shown that In many cases deposits taken by\t the\ncompanies had not been refunded on the due dates, either the\ncompanies  had gone in liquidation or funds are depleted  to\nsuch an extent that the companies were not in a position  to\nrefund\t the  deposits.\t  It  was   accordingly\t  considered\nnecessary  to control the activities of the  companies\twhen\naccepting  deposits  from the 'the public\".   That  was\t why\nSection\t 58A  in  the  Companies Act  of  1956\tcame  to  be\nintroduced. [845B, C-D]\n4.   The danger of allowing deposits to be accepted  without\nregulation is so acute and urgent, that to bind the hands of\nthe  Legislature that only one course alone  is\t permissible\nand not to permit a play of joints would be to totally\tmake\nit ineffective in meeting the challenge of the social  evil. The mechanics\n of any economic legislation has necessarily to\nbe  left to the judgment of the executive and unless  it  is\npatent that there is hostile discrimination against a class,\nthe processual basis has to be accepted\n5.   May be, Kerala Moneylenders Act restricts the rates  of\nInterest under Section 4(2)(iii) but that cannot enable\t the\nwrit petitioners to disregard these provisions introduced by\nthe Banking laws (Amendment) Act 1983 being the\t non-banking\nfinancial institutions. [846D]\n6.   Section  45  (1) (bb) of the Reserve Bank\tAct  defines\n'deposit.   If there are enough sources of deposit there  is\nno reason why the appellants and the writ petitioners cannot\nreduce\tthe  deposits.\t The prescription of  the  two\tyear\nperiod for reduction is therefore reasonable. [847D]\n7.   Moreover,\tsimilar\t directions  cam  to  be  issued  as\nMiscellaneous\t Non-Banking   Companies   (Reserve    Bank)\nDirections.  If, therefore, this was the position, it cannot\nbe contended that suddenly the companies like the appellants\nand  the  writ\tpetitioners  are  called  upon\tthe   reduce\ndeposits.   Even otherwise, the interests of the  depositors\nis the prime concern. [847G, 849B]\nKanta Mehta v. Union of India and others<\/a>, Company Cases Vol.\n62 1987 page 769, approved.\nChiney\tBottling  Co. Pw.  Ltd. v.  Assistant  Registrar  of\nCompanies,   Madras,  61  Company  Cases  1986\t page\t770,\ndisapproved.\nDCM Ltd. v. U. O.I., [1983] 3 SCR 438; Srinivasa  Enterpries\nv. Union\n835\nof  India, [1981] 1 SCR 801; State of West Bengal v.  Swapan\nKumar  Guha<\/a>  [1982] 3 SCR 121; R.K Garg v.  Union  of  India\n[1982]\t1  SCR 947 and Fatehchand Himmatlal  and  others  v.\nState of Maharashtra<\/a> [1977] 2 SCR 828, referred to,\nReserve\t Bank  of  India v.  Peerless  General\tFinance\t and\nInvestment  Co.\t Ltd,<\/a>  [1987] 1 SCC  424;  Peerless  General\nFinance\t and  Investment Co. Ltd v. Reserve Bank  of  India,<\/a>\n[1992]\t2  SCC 344 @ 354; Delhi Cloth and General  Mills  v.\nUnion  of  India,<\/a> [1983] 3 SCR 438 at page 468\tand  Reserve\nBank  of  India v. Timex Finance and  Investment  Co.  Ltd.,<\/a>\n[1992] 2 SCC 344 at page 354, referred to.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL  ORIGINAL JURISDICTION: Writ Petition (Civil) No.\t 508
\nof 1988.\n<\/p>\n
(Under Article 32 of the Constitution of India).
\n(With  WP(C)  Nos.  534\/88,  CA.   Nos.\t 5513\/85,   5679\/85,
\n5686\/85, 183\/86, 192, 235-36\/86, 363,\/86, 447\/86, 510-15\/86,
\n529\/86,\t 646\/86, 647\/86, 1199\/86, 1200\/86, 1250\/86, WP.\t (C)
\nNos.  143,  269,  434\/86, T.P. (C) Nos.\t 76,  77,  78-79\/86,
\n88\/86,\t139-49\/86, 154\/86, 155\/86, CA.\tNos. 81-83\/86,\tT.C.
\n(C) No. 81\/86, I.A. Nos.  1 & 2\/92 in CA.  No. 5513,185)
\n\t\t\t    WITH
\n(CA.   No. 174\/86 Manipal Finance Crop. v. U.O.L,  and\tAnr.
\nWith CA. Nos. 193\/86, 624\/86, 509\/86, W.P. (C) No.  1506\/87,
\nCA.  Nos. 69699\/86, 949-50\/86, 541\/86, W.P. (C) No. 602\/89)
\nD.N.  Dwivedi, Additional Solicitor General,  G.  Viswanatha
\nIyer,  K.N. Bhat, Anil B. Diwan, E.M.S. Anam,  P.H.  Parekh,
\nC.N.   Sree  Kumar,  R.\t Mohan,\t S.   Balakrishnan,   M.K.D,
\nNamboodiri, M.S. Ganesh, S.S. Khanduja, Y.P. Dhingra,  B.K.
\nSatija,\t Kuldeep,  S.  Paribar.\t H.S. Parihar,\tMs.  A\tSub-
\nhashini, C.V. Subba Rao, K,R.  Nambiar, M.P. Shorawala, D.K,
\nGarg, S.K. Nandy,Randhir Jain, Ms.Malini Poduval,M.A.Krishna
\nMoorthy,  K.J,John, Ms. S. Vaidyalingam, A.K.  Sanghi,\tP.N.
\nPuri,  Ms.  Abha  Jain,\t Ms.  Madhu  Moolchandani  and\tA.G.
\nRatnaparkhi for the Appearing Parties.
\nThe Judgment of the Court was delivered by
\nMOHAN,\tJ.  All\t these civil appeals  arise  by\t certificate
\ngranted by the
\n836<\/span>
\nHigh  Court of Delhi against the decision reported in  Kanta
\nMehta  v. Union of India and others<\/a>, Company Cases  Vol.  62
\n1987 page 769.\n<\/p>\n
All  these  civil appeals and writ petitions  challenge\t the
\nconstitutional\tvalidity of Chapter 111-C read with  section
\n58B (5A) of the Reserve Bank of India Act, 1934,  introduced
\nby  the Banking Laws (Amendment) Act, 1983 (Act 1 of  1984).
\nHence, they are dealt with under a common judgment.
\nIn  order  to appreciate the challenge the  necessary  legal
\nbackground may be set out.\n<\/p>\n
In  the\t year 1949, the Banking Regulation Act of  1949\t was
\nenacted.  That contained regulatory, provisions in regard to
\nbanking under the surveillance of the Reserve Bank of  India
\nas  to\twhat  would constitute “banking”  as  defined  under
\nSection 5(b) of the 1949 Act.\n<\/p>\n
In  the\t year 1959, the Banking Companies  (Amendment)\tAct,
\n1959 was passed.  Sections 17 and 18 were substituted  which
\nrequired  banking  companies  to  create  reserve  fund\t and
\nmaintain  cash\treserve.   In the year\t1963,  Banking\tLaws
\n(Miscellaneous Provisions) Act, 1963 inserted Chapter  III-B
\nin  the Reserve Bank of India Act.  This  Chapter  conferred
\nextensive  powers  on  the Reserve Bank of  India  to  issue
\nsuitable  instructions,\t to  regulate  and  monitor  diverse
\nactivities of non-banking companies.  The powers to  control
\nand  regulate these non-banking institutions are set out  in
\nSections  45-I to 45-L.\t While exercising these powers,\t the
\nReserve\t Bank  of India was issuing  various  directions  to
\nthese\tnon-banking   financial\t institutions.\t  One\tsuch
\nimportant  direction was issued on 1st of January,  1967  to
\nthe effect that the non-banking financial companies were not
\nto  hold  deposits in excess of 25 per cent of\tits  paid-up
\ncapital\t and  the  reserves as\talso  to  non-banking,\tnon-
\nfinancial companies.  They were also required to take  steps
\nto keep the deposits within the limits.\t This direction\t was
\nchallenged  unsuccessfully before the Madras high  Court  as
\nseen  from  the case reported in 1971 41 Company  Cases\t 890
\nMayavaram Financial Corporation v. Reserve Bank of India.
\nIn,  1968, by Banking Laws (Amendment) Act,  1968,  Sections
\n10A  to 10D were introduced.  Section 10A provided that\t the
\nBoard  of Directors shall include persons with\tprofessional
\nor special knowledge.  Section 10A(5) empowered the  Reserve
\nBank of India to vary the composition of the Board.\n<\/p>\n
837<\/span><\/p>\n
When  a report of the Study Group of  non-banking  financial
\nintermediaries\twas  submitted\tin the year  1971  that\t was
\nstudied.   Thereafter  in  1973 the Reserve  Bank  of  India
\nissued\tMiscellaneous Non-Banking Companies  (Reserve  Bank)
\nDirections,  1973 placing certain restrictions on  companies
\ncarrying  on  prize chit and chit  business  from  receiving
\ndeposits from the public.\n<\/p>\n
In  1974, Section 58A of the Companies Act was\tinserted  by
\nthe Companies (Amendment) Act of 1974, which came into force
\nfrom  1st  of February, 1975.  The object  was\tto  regulate
\ndeposits  received by non-banking  non-financial  companies.
\nThe financial companies were already covered by Reserve Bank
\nof  India  directions under the Reserve Bank of\t India\tAct.
\nTherefore, they were exempted under Section 58A (7) from the
\npurview\t of  that  Section.   Since  the  non-banking\tnon-
\nfinancial companies came within the purview of Section\t58A,
\nthe  earlier directions issued by the Reserve Bank of  India
\nAct  to non-banking nonfinancial companies in the year\t1966
\nWere  withdrawn.  By an amendment of 1977, Section  58A\t was
\nfurther enlarged and the Central Government was empowered to
\ngrant extensions.\n<\/p>\n
In  June 1974, another Study Group was constituted which  is
\npopularly known as James Raj Committee.
\nIn  July  1975, the above Study Group gave its\treport.\t  In
\naccordance  with  the  recommendations of  the\tStudy  Group
\nelaborate rules were issued by the Central Government  under
\nSection\t  58A,\tcalled\tBanking\t Companies  (Acceptance\t  of
\nDeposits)  Rules, 1975 with a view of regulate\tthe  various
\nactivities of the companies to accept deposits from  public.
\nThe  validity  of  the section and the\tdeposit\t rules\twere
\nquestioned.  This Court in DCM Ltd. v.\tU. O.L, [1983] 3 SCR
\n438 upheld the same.\n<\/p>\n
In 1977, directions were issued by the Reserve Bank of India
\nsuperseding earlier directions of 1966 and 1973.
\nIn  1978, Bill 183 of 1978 called Banking  Laws\t (Amendment)
\nBill, 1978 was introduced in the Parliament.  The said\tBill
\nprovided  limits  on depositors which were  lower  than\t the
\ncurrent\t  provisions.\t However,   the\t  Bill\t lapsed\t  on dissolution
\nof  Parliament.\t Thereafter  prize  chits  and
\nMoney  Circulation Schemes (Banning) Act, 1978 was  enacted.
\nThis was also challenged.  But that challenge was thrown out
\nby  this Court in Srinivasa Enterprises v. Union  of  India,<\/a>
\n[1981] 1 SCR 801.\n<\/p>\n
838<\/span><\/p>\n
In 1981, several new regulatory directions were given by the
\nReserve\t  Bank\t of  India.   Inter   alia   they   included
\nrestrictions   on  accepting  or  renewing   deposits\tfrom
\nshareholders,  Directors etc. which exceeded 15 per cent  of
\nthe  net-owned\tfunds of the companies\tas  also  restricted
\npayment\t of  interest  on deposits at  a  rate\tof  interest
\nexceeding  15  per  cent per annum.   The  validity  of\t the
\namendment  was upheld by the Madras High Court in  the\tcase
\nreported in AIR 1983 Madras 330 A.S.P. Ayar v. Reserve\tBank
\nof India.\n<\/p>\n
In  State  of  West Bengal v. Swapan Kumar  Guha,  known  as
\nSanchaita  case,  reported in [1982] 3 SCR 121,\t this  Court
\nwhile  quashing\t the  F.I.R.  launched\tagainst\t the   firm,
\nSanchaita  Investments,\t directed that\tthe  Government\t and
\nReserve\t Bank of India should look into the  matter  deeply.
\nIt  is in this background the Banking Laws (Amendment)\tAct,
\n1983 came to be enacted.  Section 45S states thus:\n<\/p>\n
\t      45  S  : Deposits not be accepted\t in  certain
\n\t      cases  (1) No person, being an individual\t or
\n\t      a\t firm  or an unincorporated  association  of
\n\t      individuals. shall at any time, have  deposits
\n\t      from  more  than\tthe  number  of\t  depositors
\n\t      specified against each, in the table below.-<\/p><\/blockquote>\n
\t       TABLE\n<\/p>\n
(i)  Individual\t    -Not  more than  twenty-five  depositors
\nexcluding depositors who are relatives of the individual.\n<\/p>\n
(ii) Firm -Not more than twenty-five depositors per  partner
\nand  not more than two hundred and fifty depositors in\tall,
\nexcluding,  in either case, depositors who are relatives  of
\nany of the\t    partners.\n<\/p>\n
(iii)  Unincorporated-Not more than twenty  five  depositors
\nper Association of individual and not more than two  hundred
\nand individualsfifty  depositors in all\t excluding,  in
\neither case,   depositors who are relatives of\tany   of
\nthe individuals constituting the association.\n<\/p>\n
\t      (2)   Where at the commencement of Section  10
\n\t      of the Banking Laws (Amendment) Act, 1983\t the
\n\t      deposits\ther  by any such person are  not  in
\n\t      accordance with sub-section
\n\t      839<\/span>
\n\t      (1), he shall before the expiry of a period of
\n\t      two years from the date of such  commencement,
\n\t      repay  such of the deposits as  are  necessary
\n\t      for  bringing the number of depositors  within
\n\t      the  relative  limits specified in  that\tsub-
\n\t      section.\n<\/p>\n
\t      Explanation :- For the purposes of this section\n<\/p>\n
\t      (a)   a  person  shall  be  deemed  to  be   a
\n\t      relative of another if, and only if,\n<\/p>\n
\t      (i)   they  are members of a  Hindu  undivided
\n\t      family-, or\n<\/p>\n
\t      (ii)  they are husband and wife; or\n<\/p>\n
\t      (iii) the\t one is related to the other in\t the
\n\t      manner  indicated\t in the\t list  of  relatives
\n\t      below–\n<\/p>\n
\t\t\t    List of Relatives\n<\/p>\n
1.   Father.  2.  Mother  (including  step-mother).  3.\t Son
\n(including  Stepson). 4. Son’s wife. 5. Daughter  (including
\nstep-daughter).\t 6. Father’s father. 7. Father’s mother.  8.
\nMother’s  mother.  9. Mother’s father. 10.  Son’s  son.\t 11.
\nSon’s son’s wife. 12.  Son’s daughter. 13.  Son’s daughter’s
\nhusband.  14. Daughter’s husband. 15.  Daughter’s  son.\t 16.
\nDaughter’s   son’s  wife.  17.\t Daughters   daughter.\t 18.
\nDaughter’s  daughter’s\thusband.  19.\tBrother\t  (including step-brother)
\n. 20.  Brother’s wife. 21.  Sister  (including
\nstep-sister).\n<\/p>\n
22.  Sister’s husband;\n<\/p>\n
(b)  a\t person\t in  whose  favour  a  credit\tbalance\t  in
\noutstanding  for  a period not exceeding six months  in\t any
\naccount\t relating to mutual dealings in the ordinary  course
\nof  trade or business shall not, on account of such  balance
\nalone, be deemed to be a depositor.”\n<\/p>\n
Thus, the number of depositors has come to be limited.
\nAs  to\tthe penalty for contravention of Section 45S  it  is
\nprovided for under Section 58B (5A).  It runs thus:\n<\/p>\n
\t      “(5A).\tIf   any  person   contravenes\t any
\n\t      provision\t  of  Section  45S,  he\t  shall\t  be
\n\t      punishable with imprisonment for a terms which
\n\t      may  extend to two years, or with\t fine  which
\n\t      may  extend  to twice the\t amount\t of  deposit
\n\t      received by
\n\t      840<\/span>
\n\t      such  person in contravention of that  section
\n\t      or rupees two thousand, whichever is more,  or
\n\t      with both.”\n<\/p><\/blockquote>\n
These  provisions were challenged by the appellants  in\t the
\nvarious civil appeals as violative of Articles 14 and 19  of
\nthe  Constitution.   A Division Bench of the High  Court  of
\nDelhi in, Kanta Mehta’s case supra
\n\t      “Section\t45S  read with section 58B  (5A)  of
\n\t      chapter  III-C  of the Reserve Bank  of  India
\n\t      Act, 1934, as introduced by section 10 of\t the
\n\t      Banking  laws  Amendment) Act,  1983,  is\t not
\n\t      violative\t of  articles  14  and\t19  of\t the
\n\t      Constitution.   There is nothing\tdemonstrably
\n\t      irrelevant or perverse in limiting in  section
\n\t      45S   the\t  number  of  depositors   that\t  an
\n\t      individual, firm or association could accept.
\n\t      Nor  is  there any element  of  compulsion  on
\n\t      individuals  and firms or\t associations  which
\n\t      are not incorporated to incorporate themselves
\n\t      as  a  company  and article  19(1)(c)  is\t not
\n\t      violated\tby  the provisions  of\tsection\t 45S
\n\t      limiting\t the  number  of   depositors\twhom
\n\t      individuals,    firms    and    unincorporated
\n\t      associations could accept.\n<\/p>\n
\t      Chapter  III-C  of the Reserve Bank  of  India
\n\t      Act, 1934, imposes reasonable restrictions  on
\n\t      the   right   of\t individuals,\tfirms\t and
\n\t      unincorporated  associations to carry  on\t the
\n\t      business\t of  acceptance\t of   deposits\t and
\n\t      advancing\t or  giving  loans  to\tthe  public.
\n\t      There is also a further safeguard that Chapter
\n\t      111-C is being operated under the\t supervision
\n\t      and control of the Reserve Bank of India.
\n\t      The  business of acceptance of  deposits\tfrom
\n\t      the  public does not fall within entry .30  or
\n\t      entry  32 of List II. of Schedule VII  of\t the
\n\t      Constitution.  It falls within entry 45 or  in
\n\t      any case under entry 97 of List I of  Schedule
\n\t      VII  under which only Parliament has power  to
\n\t      pass the impugned legislation.  Parliament had
\n\t      full competence and power to pass Chapter III-
\n\t      C of the Reserve Bank of India Act, 1934.”
\nMr.   G.  Viswanatha  Iyer, learned  counsel  for  the\twrit
\npetitioners in
\n841<\/span>
\nWP.  Nos.  508 and 534 of 1988 submits that Section  45B  is
\nviolative of the fundamental right under Article 19(1)(g) of
\nthe  Constitution as it restricts the number  of  depositors
\nand  the  rate of interest under Section  4(2)(iii)  of\t the
\nKerala\tMoney Lenders Act, 1958 (hereinafter referred to  as
\nthe Kerala Act).\n<\/p>\n
The  two  years’  period  prescribed  under  Section  42  is
\nunreasonable.\n<\/p>\n
Under Kerala Act, with effect from 15.10.85 only 14 per cent
\ninterest alone could be charged.\n<\/p>\n
In  any\t event,\t while\treceiving deposits  it\twas  not  an
\noffence,  making  it  a\t criminal  liability  and  directing
\npayment,  would\t amount,  to ex post  facto  law,  offending
\nArticle\t 20(1)\tof  the Constitution.  In  support  of\tthis
\nsubmission,  reliance is placed on Chinoy Bottling Co.\tPvt.
\nLtd. v. Assistant Registrar of Companies, Madras, 61 Company
\nCases  1986 page 770 and Oudh Sugar Mills Ltd. v.  Union  of
\nIndia, AIR<\/a> 1970 SC 1070.\n<\/p>\n
The  other  learned  counsel  seriously\t pressed  the  point
\nrelating to criminal liability and prayed for time to comply
\nwith the provisions of Section 45S.\n<\/p>\n
Mr. Anil B. Diwan, learned counsel appearing for  Respondent
\n2  in  C.A.  No.  447 of 1986, after  referring\t us  to\t the
\ndevelopment  of\t law, would submit that it is  open  to\t the
\nGovernment  to\tregulate  the  economic\t activities.   While
\nexamining the validity of such provisions the courts  always
\nhave  regard to the wisdom of the Legislature  because\tthat
\nalone  has the necessary information and expertise  pointing
\nto the need of such a legislation.\n<\/p>\n
In  R.K Garg v. Union of India, [1982] 1 SCR 947  at  969-70
\nthis aspect of the matter was highlighted.
\nIt  was\t in this view, this Court  upheld  Maharashtra\tDebt
\nRelief Act, 1976 in Fatehchand Himmatlal and others v. State
\nof Maharashtra,<\/a> [1977] 2 SCR 828.  If properly analysed, it
\ncan  be seen that these provisions constitute. a  regulatory
\nscheme and not a penal liability.\n<\/p>\n
Much is made of the penal provisions under Section 58B (5A).
\nIt  is submitted that imprisonment of a recalcitrant  debtor
\nis  permissible in law.\t If one goes by the facts  of  these
\ncases even after 1986, they collect deposits
\n842<\/span>
\nwhen law required them not to do so.\n<\/p>\n
Under Section 45(1)(bb) deposit has been defined.  If as per
\nthe definition there are enough sources of deposit there  is
\nno  reason  why the appellants cannot reduce  the  deposits.
\nIf,  therefore,\t the  package  is  reasonable  there  is  no
\njustification  to  dilute the effect of\t Section  58B  (5A).
\nWhile  examining  the  scope  of the  Section  it  might  be
\ncontrasted  with Section 125 (3) of the\t Criminal  Procedure
\nCode wherein a sufficient cause is provided.
\nIn  Reserve  Bank of India v. Peerless General\tFinance\t and
\nInvestment  Co.\t  Ltd,<\/a>\t[1987]\t1 SCC  424  this  Court\t had
\noccasion to consider the adventures indulged by the  persons
\nlike  appellants.   It criticised the fraud played  by\tsuch
\nfinancial vultures.\n<\/p>\n
This  approach was approved in Peerless General Finance\t and
\nInvestment  Co. Ltd v. Reserve Bank of India,<\/a> [1992]  2\t SCC
\n343 @ 354.\n<\/p>\n
The  learned  counsel also draws our attention to  the\tNon-
\nbanking\t Financial  Companies (Reserve Bank)  Directions  of
\n1966.\tThey came into force on January 1, 1967.   Clause  4
\nsub-clause (3) specifically provides that the deposit  shall
\nbe  reduced to 25 per cent of the paid-up capital for  which
\ntwo-year  period was provided.\tSimilar directions  of\t1977
\nknown  as  Non Banking Financial  Companies  (Reserve  Bank)
\nDirections,  1977 came to be issued with effect from 1st  of
\nJuly, 1977.\n<\/p>\n
There  were  complaints,  even\tthen,  that  the   financial
\ncompanies were not paying interest regularly and the Reserve
\nBank was requested to help the depositor.  Therefore, in the
\nteeth of this provision, to say that suddenly the appellants
\nand  the writ petitioners are called upon to  reduce,  would
\nwork   hardship\t and  they  should  not\t be  penalised,\t  is
\nincorrect.  They took a calculated risk and, therefore, they
\nhad to suffer for their own fault.\n<\/p>\n
In examining the various submissions addressed on behalf  of
\nthe appellants and the petitioners we propose to examine the
\nsame in the following background since it is a law  relating
\nto regulation of economic activities.
\nIn R.K Garg’s case (supra) it is held at pages 969-70-.\n<\/p>\n
\t      “Another rule of equal importance is that laws
\n\t      relating
\n\t      843<\/span>
\n\t      to  economic activities should be viewed\twith
\n\t      greater  latitude\t than  laws  touching  civil
\n\t      rights  such  as freedom of  speech,  religion
\n\t      etc.   It\t has been said by no less  a  person
\n\t      than Holmes, J. that the legislature should be
\n\t      allowed  some play in the joints,\t because  it
\n\t      has to deal with complex problems which do not
\n\t      admit  of solution through any doctrinaire  or
\n\t      straight\tjacket\tformula\t and  this  is\tpar-
\n\t      ticularly true in case of legislation  dealing
\n\t      with economic matters, where, having regard to
\n\t      the  nature  of the problems  required  to  be
\n\t      dealt with, greater play in the joints has  to
\n\t      be  allowed to the legislature.\tThe  greater
\n\t      play  in the joints has to be allowed  to\t the
\n\t      legislature.   The  court\t should\t feel\tmore
\n\t      inclined\t to  give  judicial   deference\t  to
\n\t      legislature judgment in the field of  economic
\n\t      regulation   than\t  in   other   areas   where
\n\t      fundamental   human   rights   are   involved.
\n\t      Nowhere\thas   this  admonition\t been\tmore
\n\t      felicitously expressed than in Morey v.  Dond,
\n\t      (354  US 457) where Frank further, J. said  in
\n\t      his inimitable style:\n<\/p><\/blockquote>\n
\t      “In the utilities, tax and economic regulation
\n\t      cases,  there  are good reasons  for  judicial
\n\t      self-restraint  if not judicial  deference  to
\n\t      legislative  judgment.  The legislature  after
\n\t      all  has the affirmative responsibility.\t The
\n\t      courts have only the power to destroy, not  to
\n\t      reconstruct.   When  these are  added  to\t the
\n\t      complexity   of\teconomic   regulation,\t the
\n\t      uncertainty,  the\t liability  to\terror,\t the
\n\t      bewildering  conflict of the experts, and\t the
\n\t      number of times the judges have been overruled
\n\t      by events\t self-limitation can be seen to\t be
\n\t      the path to judicial wisdom and  institutional
\n\t      prestige and stability.”\n<\/p><\/blockquote>\n
\t      The   court   must   always   remember\tthat
\n\t      “legislation   is\t  directed   to\t   practical
\n\t      problems,\t that  the  economic  mechanism\t  is
\n\t      highly   sensitive  and  complex,\t that\tmany
\n\t      ‘problems\t are singular and  contingent,\tthat
\n\t      laws are not abstract propositions and do\t not
\n\t      relate  to  abstract units and are not  to  be
\n\t      measured\tby  abstract  symmetry’\t that  exact
\n\t      wisdom  and nice adaptation of remedy are\t not
\n\t      always possible and that ‘Judgment is  largely
\n\t      a prophecy
\n\t      844<\/span>
\n\t      based on meagre and uninterpreted experience”.
\n\t      Every  legislation  particularly\tin  economic
\n\t      matters is essentially empiric and it is based
\n\t      on experimentation or what one may call  trial
\n\t      and  error  method  and  therefore  it  cannot
\n\t      provide\tfor  all  possible   situations\t  or
\n\t      anticipate all possible abuses.  There may  be
\n\t      crudities\t  and  inequities   in\t complicated
\n\t      experimental economic legislation but on\tthat
\n\t      account  alone  it cannot be  struck  down  as
\n\t      invalid.”\n<\/p><\/blockquote>\n
\t      At page 988 it is held:\n<\/p><\/blockquote>\n
\t      “That  would  depend upon diverse\t fiscal\t and
\n\t      economic\tconsiderations\tbased  on  practical
\n\t      necessity\t and administrative  expediency\t and
\n\t      ,would  also  involve  a\tcertain\t amount\t  of
\n\t      experimentation  on which the Court  would  be
\n\t      least  fitted to pronounce.  The\tcourt  would
\n\t      not   have   the\tnecessary   competence\t and
\n\t      expertise to adjudicate upon such an  economic
\n\t      issue.   The court cannot possibly  assess  or
\n\t      evaluate\twhat  would  be\t the  impact  of   a
\n\t      particular  immunity or exemption and  whether
\n\t      it would serve the purpose in view or not.
\n\t      There  are  so many  imponderable\t that  would
\n\t      enter into the determination that it would  be
\n\t      wise  for the court not to hazard\t an  opinion
\n\t      where  even economists may differ,  The  court
\n\t      must   while  examining\tthe   constitutional
\n\t      validity\tof a legislation of this  kind,\t “be
\n\t      resilient,  not  rigid, forward  looking,\t not
\n\t      static,  liberal,\t not verbal” and  the  court
\n\t      must  always bear in mind\t the  constitutional
\n\t      proposition enunciated by the Supreme Court of
\n\t      the  United  States in Munn  v..Illinois,\t (94
\n\t      U.S.   13)   namely,  “that  courts   do\t not
\n\t      substitute  their social and economic  beliefs
\n\t      for the judgment of legislative bodies”.\t The
\n\t      court  must defer to legislative\tjudgment  in
\n\t      matters\trelating  to  social  and   economic
\n\t      policies\tand must not interfere,\t unless\t the
\n\t      exercise\tof legislative judgment\t appears  to
\n\t      the  palpably  arbitrary.\t  The  court  should
\n\t      constantly  remind itself of what the  Supreme
\n\t      Court of the United States said in  Metropolis
\n\t      Theater  Co. v. City of Chicago, (57  Lawyers’
\n\t      Edition 730).  “The problems of
\n\t      845<\/span>
\n\t      government are practical ones and may justify,
\n\t      if they do not require, rough  accommodations,
\n\t      illogical\t it  maybe, and\t unscientific.\t But
\n\t      even  such  criticism should  not\t be  hastily
\n\t      expressed.    What  is  best  is\tnot   always
\n\t      discernible,  the wisdom of any choice may  be
\n\t      disputed\t or  condemned.\t  Mere\t errors\t  of
\n\t      government  are  not subject to  our  judicial
\n\t      review.\n<\/p><\/blockquote>\n
No  doubt, the impugned legislation places  restrictions  on
\nthe  right of the appellants to carry on business, but\twhat
\nis   essential\tis  to\tsafeguard  the\trights\tof   various
\ndepositors  and to see that they are not preyed upon.\tFrom
\nthe  earlier narration, it would be clear that\tthe  Reserve
\nBank  of  India, right from 1966, has  been  monitoring\t and
\nfollowing   the\t  functioning\tof   non-banking   financial
\ninstitutions  which invite deposits and then  utilise  those
\ndeposits  either for trade or for other various\t industries.
\nA  ceiling  for\t acceptance  of\t deposits  and\tto   require
\nmaintenance of certain liquidity of funds as well as not  to
\nexceed borrowings beyond a particular percentage of the net-
\nowned funds have been provided in the corporate sector.\t But
\nfor  these requirements, the depositors would be  left\thigh
\nand dry without any remedy.\n<\/p>\n
Even  the corporate sector was not free from blame.  It\t had
\ndone  damage to the economy and brought ruination  to  small
\ndepositors.   This was why Section 58A in the Companies\t Act
\nof  1956 came to be introduced.\t It is worthwhile  to  quote
\nthe notes on clauses concerning this provision:-\n<\/p>\n
\t      “It has been the practice of the companies  to
\n\t      take deposits from the public at high rates of
\n\t      interest.\t  Experience had shown that in\tmany
\n\t      cases deposits taken by the companies have not
\n\t      been  refunded  on the due dates,\t either\t the
\n\t      companies\t have gone in liquidation  or  funds
\n\t      are  depleted  to\t such  an  extent  that\t the
\n\t      companies are not in a position to refund\t the
\n\t      deposits,\t  it  was   accordingly\t  considered
\n\t      necessary\t to  control the activities  of\t the
\n\t      companies\t when  accepting deposits  from\t the
\n\t      ‘the public”.\n<\/p><\/blockquote>\n
We approve of the reasoning of the Delhi High Court in Kanta
\nMehta’s case (supra).  At pages 798-99 it runs as follows:\n<\/p>\n
\t      “The   danger  of\t allowing  deposits  to\t  be
\n\t      accepted\twithout regulation is so  acute\t and
\n\t      urgent, that to bind the
\n\t      846<\/span>
\n\t      hands of the Legislature that only one  course
\n\t      alone is permissible and not to permit a\tplay
\n\t      of   joints  would  be  to  totally  make\t  it
\n\t      ineffective  in meeting the challenge  of\t the
\n\t      social evil.  For, it must be remembered\tthat
\n\t      “in  the ultimate analysis, the  mechanics  of
\n\t      any economic legislation has necessarily to be
\n\t      left  to\tthe judgment of\t the  executive\t and
\n\t      unless  it  is patent that  there\t is  hostile
\n\t      discrimination against a class, the processual
\n\t      basis of price fixation has to be accepted  in
\n\t      the  generality of cases as valid.”  See\tPrag
\n\t      Ice and Oil Mills v. Union of India, AIR<\/a>\t1978
\n\t      SC 1296, para 50).  Also such provisions meant
\n\t      to check such evil must be viewed, as  Krishna
\n\t      Iyer J. said, through a socially constructive,
\n\t      not  legally captious, microscope to  discover
\n\t      glaring unconstitutional infirmity, that\twhen
\n\t      laws  affecting large chunks of the  community
\n\t      are enacted, stray misfortunes are  inevitable
\n\t      and  that social legislation,  without  tears,
\n\t      affecting\t   vested   rights   is\t   virtually
\n\t      impossible.   See B. Banerjee v.\tSmt.   Anita
\n\t      Pan, AIR<\/a> 1975 SC 1146, at pages 1150-51.
\n\t      The   stress  by\tlearned\t counsel   for\t the
\n\t      petitioners  on  the  private  right  of\t the
\n\t      petitioners to have unrestricted deposits\t and
\n\t      make  advances  in any manner they  like\tmust
\n\t      receive  short shrift, for by now, it  is\t too
\n\t      well settled to be doubted that private rights
\n\t      must yield to be public need and that any form
\n\t      of  regulation  is  unconstitutional  only  if
\n\t      arbitrary,   discriminatory  or\tdemonstrably
\n\t      irrelevant  to the policy the  Legislature  is
\n\t      free to adopt.”\n<\/p><\/blockquote>\n
May  be,  Kerala Act restricts the rates of  interest  under
\nSection\t  4(2)(iii)   but  that\t cannot\t enable\t  the\twrit
\npetitioners  in W.P. Nos. 508 and 534 of 1988  to  disregard
\nthese\tprovisions,   being   the   non-banking\t   financial
\ninstitutions.\n<\/p>\n
Hence, we reject the first of the arguments.
\nAs  regards  the reasonableness of two-year  period  Section
\n45(1)(bb)  of  the  Reserve Bank Act  defines  “deposit”  as
\nfollows:\n<\/p>\n
\t      “(bb)  “deposit” includes and shall be  deemed
\n\t      always to have
\n\t      847<\/span>
\n\t      included\tany  receipt  of  money\t by  way  of
\n\t      deposit or loan or in any other form, but does
\n\t      not include\n<\/p><\/blockquote>\n
\t      (i)   amounts raised by way of share capital;\n<\/p><\/blockquote>\n
\t      (ii)  amounts   contributed  as\tcapital\t  by
\n\t      partners of a firm;\n<\/p><\/blockquote>\n
\t      (iii) any amount received from,\n<\/p><\/blockquote>\n
\t      (iv)  any amount received from,\n<\/p><\/blockquote>\n
\t      (a)   the Development Bank;\n<\/p><\/blockquote>\n
\t      (b)   a\t  State\t   Financial\t Corporation
\n\t      established under the
\n\t      State Financial Corporations Act, 1951;\n<\/p><\/blockquote>\n
\t      (c)   any\t financial institution specified  in
\n\t      or   under  section  6A  of   the\t  Industrial
\n\t      Development Bank of India Act, 1964; or\n<\/p><\/blockquote>\n
\t      (d)   any other financial institution that may
\n\t      be specified by the  Bank in this behalf;\n<\/p><\/blockquote>\n
\t      (v)   amounts received, in the ordinary course
\n\t      of  business,  by way of security\t deposit  or
\n\t      dealership deposit;\n<\/p><\/blockquote>\n
\t      (vi)  any\t amount received from an  individual
\n\t      or a firm or an association of individuals not
\n\t      being  a body corporate, registered under\t any
\n\t      enactment relating to money lending which\t is,
\n\t      for the time being in force in any State; and\n<\/p><\/blockquote>\n
\t      (vii)any\t  amount   received   by   way\t  of
\n\t      subscriptions  in\t respect of  a\tconventional
\n\t      chit.”\n<\/p><\/blockquote>\n
Therefore,  as rightly argued by Mr. Anil Diwan as per\tthis
\ndefinition, .if there are enough sources of deposit there is
\nno reason why the appellants and the writ petitioners cannot
\nreduce\t the  deposits.\t  Further,   non-banking   financial
\ncompanies  are\trequired under clause 4\t sub-clause  (3)  as
\nfollows:\n<\/p>\n
\t      “(3) Every non-banking financial company,\t not
\n\t      being  a hire-purchase finance company,  or  a
\n\t      holding finance company, which on the date  of
\n\t      commencement of these
\n\t      848<\/span>
\n\t      directions holds deposits in excess of  twenty
\n\t      five per cent of its paid-up capital and\tfree
\n\t      reserves\tshall secure before the expiry of  a
\n\t      period  of  two years from the  date  of\tsuch
\n\t      commencement,  by taking such steps as may  be
\n\t      necessary for this purpose, that the deposits,
\n\t      received by the company and outstanding on its
\n\t      books  are  not  in excess  of  the  aforesaid
\n\t      limit.”\n<\/p><\/blockquote>\n
These directions came into force from 1st of January,  1967.
\nSimilar\t directions came to be issued as Miscellaneous\tNon-
\nBanking\t Companies  (Reserve  Bank)  Directions.   Clause  5
\ndealing with acceptance of deposits states as under:\n<\/p>\n
\t      “Acceptance of deposits by miscellaneous\tnon-
\n\t      banking companies:\n<\/p><\/blockquote>\n
\t      On   and\t from\t1st  of\t  July,\t  1977,\t  no
\n\t      miscellaneous nonbanking company shall:-\n<\/p><\/blockquote>\n
\t      (a)   receive any deposit repayable on  demand
\n\t      or  on notice, or repayable after a period  of
\n\t      less than six months and more than thirty\t six
\n\t      months  from  the\t date  of  receipt  of\tsuch
\n\t      deposit  or renew any deposit received by\t it,
\n\t      whether  before  or after the  aforesaid\tdate
\n\t      unless such deposit, on renewal, is  repayable
\n\t      not earlier than six months and not later than
\n\t      thirty-six  months  from\tthe  date  of\tsuch
\n\t      renewal;\n<\/p><\/blockquote>\n
\t      Provided\tthat  where  a\tmiscellaneous\tnon-
\n\t      banking company has before the 1st July, 1977,
\n\t      accepted deposits repayable after a period  of
\n\t      more  than  thrity six months,  such  deposits
\n\t      shall, unless renewed in accordance with these
\n\t      directions,  be repaid in accordance with\t the
\n\t      terms of such deposits;\n<\/p><\/blockquote>\n
\t      Provided\tfurther\t that nothing  contained  in
\n\t      this  clause shall apply to monies  raised  by
\n\t      the issue of debentures or bonds.\n<\/p><\/blockquote>\n
\t      (b)   receive or renew:-\n<\/p><\/blockquote>\n
\t      849<\/span><\/p>\n
\t      (i)   any\t  deposit   against   an   unsecured
\n\t      debenture\t or any deposit from  a\t shareholder
\n\t      (not  being  a deposit received by  a  private
\n\t      company from its shares holders as is referred
\n\t      to  in  clause  (vi) or paragraph\t 4)  or\t any
\n\t      deposit  guaranteed by any person who, at\t the
\n\t      time  of\tgiving such guarantee, was or  is  a
\n\t      director to the company, if the amount of\t any
\n\t      such deposits together with the amount of such
\n\t      other  deposits  of all or any  of  the  kinds
\n\t      referred to in this sub-clause and outstanding
\n\t      in the books of the company as on the date  of
\n\t      acceptance   or  renewal\tof  such   deposits,
\n\t      exceeds  fifteen\tper cent of  its  net  owned
\n\t      funds.\n<\/p><\/blockquote>\n
\t      (ii)  any other deposit, if the amount of such
\n\t      deposit, together\t   with\t the amount of\tsuch
\n\t      other deposits, not being deposits  of\t the
\n\t      kind  referred  to in sub-clause (i)  of\tthis
\n\t      clause already received and outstanding in the
\n\t      books  of\t the  company  as  on  the  date  of
\n\t      acceptance  of such deposits,  exceeds  twenty
\n\t      five per cent of its net owned funds.”\n<\/p><\/blockquote>\n
 If,  therefore,  this\twas  the  position,   it  cannot  be
\ncontended that suddenly the companies like the appellant and
\nthe  petitioners arc called upon to reduce  deposits.\tEven
\notherwise,  the\t interests of the depositors  is  the  prime
\nconcern.\n<\/p>\n
Coming to the last point, as to whether Section 58B (5A)  is
\nviolative  of  Article 20(1) of the Constitution,  we  find,
\nwhen  a similar argument was raised against Section  58A  of
\nthe Companies Act, that was repelled by this Court in  Delhi
\nCloth and General Mills v. Union of India,<\/a> [1983] 3 SCR\t 438
\nat page 468 which runs thus:\n<\/p>\n
\t      “Mr.  G.A. Shah canvassed one more contention.
\n\t      After  stating that Rule 3A  became  operative
\n\t      from  April  1, 19′,8,  he  specifically\tdrew
\n\t      attention to the proviso to Rule 3A (1)  which
\n\t      required\tthat with relation to  the  deposits
\n\t      maturing\tduring the year ending on  the\t31st
\n\t      day  of  March, 1979, the sum required  to  be
\n\t      deposited\t or invested under sub-rule  3A\t (1)
\n\t      shall be deposited or invested before the 30th
\n\t      day of September, 1978.  It was then contended
\n\t      that   this   provision\twould\t necessitate
\n\t      depositing 10% of the
\n\t      850<\/span>
\n\t      deposits maturing during the year ending\t31st
\n\t      March, 1979 which may have been accepted prior
\n\t      to  the  coming into force of rule 3A  and  to
\n\t      this   extent   the   rule   has\t been\tmade
\n\t      retrospective  and  as  there  was  no   power
\n\t      conferred by sec. 58A to prescribe  conditions
\n\t      subject  to  which deposits  can\tbe  accepted
\n\t      retrospectively  Rule 3A is ultra\t vires\tsec.
\n\t      58A.   Unquestionably, Rule 3A is\t to  deposit
\n\t      10%  of the deposits maturing during the\tyear
\n\t      in  the  manner  prescribed in  Rule  3.\tSome
\n\t      deposits\twould be maturing between  April  1,
\n\t      1978 and March 31, 1979.\tTo provide for\tsuch
\n\t      marginal\tsituation,  a proviso  is  inserted.
\n\t      Does  it\tto make the  rule  retroactive?\t  Of
\n\t      course, not.  In D.S. Nakara v.\t  Union\t  of
\n\t      India,<\/a>  [1983] 1 SCC 305 a Constitution  Bench
\n\t      of    this   Court  has,\tin   this   context,
\n\t      observed as under:\n<\/p><\/blockquote>\n
\t      “A   statute   is\t not   properly\t  called   a
\n\t      retroactive  statute  because a  part  of\t the
\n\t      requisites for its action is drawn from a time
\n\t      antecedent to its passing.”\n<\/p><\/blockquote>\n
\t      Viewed  form this angle, the provision can  be
\n\t      properly\t  called   prospective\t  and\t not
\n\t      retroactive.   Therefore, the contention\tdoes
\n\t      not commend to us.”\n<\/p><\/blockquote>\n
In the light of this, we should hold that the ruling of\t the
\nMadras High Court in Chinoy Bottling Co. Pvt.  Ltd.  (supra)
\nis incorrect.\n<\/p>\n
As  to the plight of these depositors we need only to  quote
\nthe  case  in Peerless General Finance\tand  Investment\t Co.
\nLtd., [1987] 1 SCC 424.\t At paragraph 37 it is held:\n<\/p>\n
\t      “We  would also like to query what action\t the
\n\t      Reserve  Bank of India and the Union of  India
\n\t      are  taking or proposing to take\tagainst\t the
\n\t      mushroom\tgrowth\tof ‘finance  and  investment
\n\t      companies’  offering staggeringly\t high  rates
\n\t      of  interest  to\tdepositors  leading  us\t  to
\n\t      suspect\twhether\t these\tcompanies  are\t not
\n\t      speculative ventures floated to attract unwary
\n\t      and  credulous  investors\t and  capture  their
\n\t      savings.\t  One  has  only  to  look  at\t the
\n\t      morning’s\t  newspaper   to   be\tgreeted\t  by
\n\t      advertisements inviting deposits and  offering
\n\t      interest at astronomic rates.<\/p><\/blockquote>\n
\t      851<\/span><\/p>\n
\t      On  January  1,  1987  one  of  the   national
\n\t      newspapers published from Hyderabad, where one
\n\t      of  in happened to be spending  the  vacation,
\n\t      carried  as  many as ten\tadvertisements\twith
\n\t      ‘banner headlines’, covering the whole of\t the
\n\t      last  page,  a quarter of the first  page\t and
\n\t      conspicuous  spaces  in other  pages  offering
\n\t      fabulous\trates of interest.  At least two  of
\n\t      the advertisers offered to double the  deposit
\n\t      in 30 months. 2000 for 1000, 10,000 for 5,000,
\n\t\t\t    they said.\tAnother advertiser offered interes
\nt
\n\t      ranging between 30 per cent to 38 per cent for
\n\t      periods  ranging\tbetween six months  to\tfive
\n\t      years.   Almost  all the\tadvertisers  offered
\n\t      extra interest ranging between 3 per cent to 6
\n\t      per   cent  deposits  were  made\tduring\t the
\n\t      Christmas-Pongal\tseason.\t  Several  of\tthem
\n\t      offered gifts and prizes.\t If the Reserve Bank
\n\t      of  India considers the Peerless Company\twith
\n\t      eight  hundred crores invested  in  government
\n\t      securities, fixed deposits with National Banks
\n\t      etc.  unsafe for depositors, one wonders\twhat
\n\t      they  have  to  say about\t the  mushroom\tnon-
\n\t      banking\tcompanies   which   are\t   accepting
\n\t      deposits, promising most unlikely returns\t and
\n\t      what action is proposed to be taken to protect
\n\t      the  investors.\tIt  does  not  require\tmuch
\n\t      imagination  to  realise the  adventurous\t and
\n\t      precarious  character  of\t these\t businesses.
\n\t      Urgent  action  appears to be  called  for  to
\n\t      protect  the  public.  While on the  one\thand
\n\t      these  schemes encourage two  vices  affecting
\n\t      public  economy, the desire to take quick\t and
\n\t      easy  money  and the habit  of  excessive\t and
\n\t      wasteful consumer spending, on the other\thand
\n\t      the  investors  who generally  belong  to\t the
\n\t      gullible\tand  less affluent classes  have  no
\n\t      security\t  whatsoever.\t  Action     appears
\n\t      imperative.”\n<\/p>\n
\t       And paragraph 42 also requires to be quoted
\n\t      “I  share\t my  brother’s\tconcern\t about\t the
\n\t      mushroom\tgrowth\tof financial  companies\t all
\n\t      over   the  country.   Such   companies\thave
\n\t      proliferated.   The  victims of  the  schemes,
\n\t      that  the attractively put forward  in  public
\n\t      media,  are  mostly  middle  class  and  lower
\n\t      middle  class  people.  Instances\t are  legion
\n\t      where such needy people have been
\n\t      852<\/span>
\n\t      reduced penniless because of the fraud  played
\n\t      by  such financial vultures.  It is  necessary
\n\t      for  the\tauthorities  to\t evolve\t  fool-proof
\n\t      schemes to see that fraud is not allowed to be
\n\t      placed  upon  persons who are  not  conversant
\n\t      with   the   practice   of   such\t   financial
\n\t      enterprises who pose themselves as benefactors
\n\t      of people.”\n<\/p>\n
We  may\t also add that this has been reaffirmed\t in  Reserve
\nBank  of  India v. Timex Finance and  Investment  Co.  Ltd.,<\/a>
\n[1992] 2 SCC 344 at page 354.\n<\/p>\n
Therefore,  we are in entire agreement with the\t Delhi\tHigh
\nCourt.\n<\/p>\n
Since, as we have stated above, all the appellants and\twrit
\npetitioners  were  praying  for time to\t comply\t with  these
\nprovisions,  the  matter was adjourned from  time  to  time.
\nThough\tsome of them have complied with the requirements  of
\nlaw  yet  a few others have not done so.  We make  it  clear
\nthat  in spite of this indulgence, their failure  to  comply
\ncannot be countenanced.\n<\/p>\n
We dismiss the appeals and the petitions along with 1A.Nos.1
\nand  2 in C.A. No.5513 of 1985.\t However, there shall be  no
\norders as to cost.\n<\/p>\n
N.V.K.\t\t      Petitions and appeals dismissed.\n<\/p>\n
853<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India T. Velayudhan Achari And Anr vs Union Of India And Others on 5 February, 1993 Equivalent citations: 1993 SCR (1) 832, 1993 SCC (2) 582 Author: S Mohan Bench: Mohan, S. (J) PETITIONER: T. VELAYUDHAN ACHARI AND ANR. Vs. RESPONDENT: UNION OF INDIA AND OTHERS DATE OF JUDGMENT05\/02\/1993 BENCH: MOHAN, S. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-9079","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nT. 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