TMI Blog2015 (1) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of the enabling Act - while examining the constitutionality of a statute it must be assumed that the legislature understands and appreciates the needs of the people and the laws it enacts are directed to problems which are made manifest by experience and that the elected representatives assembled in a legislature enact laws which they consider to be reasonable for the purpose for which they are enacted - There is a presumption in favour of constitutionality and a law will not be declared unconstitutional unless the case is so clear as to be free from doubt - A statute should not be declared unconstitutional merely because in the opinion of the Court it violates one or more of the principles of liberty, of the spirit of the Constitution, unless such principles and that spirit are found in the terms of the Constitution. Power of the Reserve Bank of India to issue the Master Circular – Held that:- The failure of one bank can have a disastrous effect on the whole banking system, having the potential of leading to systematic crisis with prejudicial effect on the economy as a whole - the banking sector has been a highly regulated area all over the world - It is beyond dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical meaning of the transactions of a bank and nothing more - If any management or supervision is to be done over the banking activities of a bank, it will have to be governed by banking policy - The 'banking policy' and 'banking' are not independent but coordinating subjects and both are covered within the supervisory powers of the Reserve Bank of India within the meaning of Section 35A of the Banking Regulation Act - Even otherwise, the directions issued by the Reserve Bank of India are in the larger interest of the public and it being a body of experts in banking, the directions given by it should not be lightly brushed aside. Statutory status of the Circular – Held that:- The Master Circular has been issued with a particular object - whether a circular issued by a statutory authority would be binding or not, or whether the same has a statutory force or not, would depend upon the nature of the statute - for the said purpose, the intention of the Legislature must be considered – in Sudhir Shantilal Mehta v. C.B.I. [2009 (8) TMI 693 - SUPREME COURT OF INDIA] it has been held that the Reserve Bank of India exercises control over the Banking Companies, the Circular letter was bin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Circular is violative of Article 19(1)(g) of the Constitution of India and deserves to be struck down partially. Except stating that the accounts have been classified as "NPA" and that the unit has defaulted in meeting with its payment/repayment obligation to the bank, no other materials have been disclosed with a view to give an opportunity to the petitioners to meet with the show cause notice - the show cause notice is absolutely vague and contains no factual or other materials – it could not be understood as to on what basis the bank has alleged in the show cause notice that the funds provided by the bank have been siphoned of and the same were used for the purpose other than the project for which the loan was sanctioned - If such are the nature of the allegations, then at least it is expected of the bank to provide some materials so that the petitioners can meet with the same - there is violation of the principles of natural justice - one of the facets of the principles of natural justice is fairness which, we do not find on the part of the bank in the proposed action - since the show cause notice is bereft of basic details and material particulars, the same deserves to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a company being different and distinct from its directors without providing any safeguards - The show cause notice issued to the petitioners of Special Civil Application No.645 of 2014 is held to be bad as it is bereft of the basic details and material particulars - The Standard Chartered Bank although has been included as one of the Scheduled Banks in the Second Schedule to the Reserve Bank of India Act, 1934, yet, being a private bank, is not amenable to the writ jurisdiction of the Court - Merely because a company is carrying on the banking business, it cannot per se become a public authority nor can be considered as discharging public functions – Decided partly in favour of petitioner. - SPECIAL CIVIL APPLICATION NO. 645 of 2014 With SPECIAL CIVIL APPLICATION NO. 10120 of 2014 - - - Dated:- 9-9-2014 - MR. AKIL KURESHI AND MR. J.B.PARDIWALA, JJ. FOR THE APPELLANT : MR MASOOM K SHAH, ADVOCATE, MR VISHWAS K SHAH, ADVOCATE, MR MITUL SHELAT, ADVOCATE FOR THE RESPONDENT : MR S.N.SOPARKAR, SR.ADVOCATE with MR AMAR N BHATT, ADVOCATE, MS NALINI S LODHA, ADVOCATE JUDGEMENT Per: J B Pardiwala: Since the legal issues raised in both the writ applications ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Act, 1949 and/or the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 and/or the Credit Information Companies (Regulation) Act, 2005 and/or the Indian Contract Act. Special Civil Application No.10120 of 2014 : The petitioners availed of the facility of the Home Saver Account vide sanction letter dated 30th September 2010 to the tune of ₹ 3,45,87,900/- in Account No.48111724 from the respondent no.2 Standard Chartered Bank. The petitioners availed one more facility of the Home Saver Account by sanction letter dated 30th September 2010 of ₹ 1,45,12,100/- vide Account No.48134899 from the respondent no.2 - Standard Chartered Bank. The Account No.48134899 was declared as NPA on 1st December 2013 whereas the Account No.48111724 was declared as NPA on 10th January 2013. On 3rd April 2014, the petitioners addressed a letter to the respondent no.2 Bank requesting for a closure of both the accounts. On 20th May 2014, the petitioners were served with the notices under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. On 20th June 2014, the petitioners were served wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Circular is required to have the phrase in public interest or in interest of depositors or in interest of banking policy and should indicate relevant materials and reasons that the Circular was being issued after considering the interest of all the above and for such reasons. In support of such submission, strong reliance has been placed on a decision of the Karnataka High Court in the case of E.Sathyanarayanan and others v. Reserve Bank of India and others, reported in (2002)112 Company Cases 272. The impugned Circular is violative of Article 14 of the Constitution as it has the effect of almost blacklisting the petitioners from obtaining any new loan from any other bank or financial institution and it attaches a social stigma on the Directors who may not be concerned in any manner as regards the day-to-day affairs and management of the company. It is submitted that none of the provisions of the Reserve Bank of India Act or the Banking Regulation Act, 1949 confers any power upon the Reserve Bank of India to impose any penalty relating to a particular conduct of a borrower. The circular confers uncanalized, unbridled and untrammeled power upon the banks to deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) State of Punjab v. Dalbir Singh, (2012)3 SCC 346; (iii) State of Karnataka v. Shri Rameshwara Rice Mills Thirthahalli, (1987)2 SCC 160 and (iv) M/s.J.G.Engineers Pvt. Ltd. v. Union of India and another, (2011) 5 SCC 758. Challenge to the validity of the Notice : Apart from the challenge to the Constitutional validity of the Master Circular issued by the Reserve Bank of India, the petitioners have also challenged the proposed action on the part of the Bank. It has been vehemently submitted by the learned advocates appearing on behalf of the petitioners that having regard to the contents of the notice it could be said that the Bank has already taken a decision to declare the petitioners as willful defaulters without disclosing any reasons in the show cause notice and the show-cause notice is also bereft of the necessary particulars and details. In the absence of the necessary details and the reasons, the petitioners would not be able to effectively put forward their case. Mr. Mitul Shelat, the learned advocate appearing for the petitioners of Special Civil Application No.10120 of 2014, submitted that although the impugned action is at the instance of a private ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI has been conferred with the power to determine policy in relation to advances to be followed by banking companies. The RBI is conferred with wide powers for issue of directions/guidelines to banks under the provisions of the Banking Regulation Act, 1949. It is the duty of the RBI to ensure development of banking in India in an orderly manner. As the banking regulator and supervisor in the country, the RBI has been issuing guidelines/directions to banks from time to time, and the banks are duty bound to implement the same. Section 5(ca) of the Banking Regulation Act defines banking policy as any policy which is specified from time to time by the Reserve Bank of India in the interest of the banking system or in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources. Section 6 of the Banking Regulation Act specifies the forms of business in which banking companies may engage. In terms of Section 21 of the Banking Regulation Act, where the RBI is satisfied that it is nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crease of Non-Performing Assets of the banks. He had further mentioned that the RBI would also publish a list of defaulting borrowers against whom suits had been filed by banks and FIs. In April 1994, the Reserve Bank of India framed a scheme of Disclosure of Information on Defaulting Borrowers of Banks and the Financial Institutions (FIs) for collection/dissemination of information from/to banking companies . The banking company for the purpose also includes the financial institutions that may be notified by the Central Government in this behalf. Under the Scheme, the banks and the notified FIs were advised on 23rd April 1994 to furnish to the RBI the prescribed details of defaulting borrowers with outstanding amount (both funded and non-funded) of one crore and above which were classified as 'Doubtful' and/or 'Loss' and suit filed accounts on half yearly basis (September and March). The Scheme had the following objectives; i) To alert the banks and FIs and to put them on guard against the borrowers who had defaulted in their dues to other lending institutions. ii) To make public the name of the defaulting borrowers against whom suits had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) in a consolidated manner as reported for the purpose by the banks and financial institutions. The Reserve Bank has been issuing various circulars from time to time to the scheduled commercial banks and All India Notified Financial Institutions with regard to dissemination of credit information pertaining to the willful defaulters for cautioning the banks and the financial institutions including action required to be taken against the willful defaulters. All these circulars were consolidated in the Master Circular on Willful Defaulters dated 1st July 2013 (Master Circular) issued by the RBI. The Master Circular was prepared to ensure that all the existing instructions on the subject were incorporated and consolidated in a single document and are available for the use of the banks and the financial institutions as also on the website of the RBI. The Circular on Willful Defaulters has been issued by the RBI under Sections 21 and 35A of the Banking Regulation Act, 1949 and are mandatory and binding on the banks. The Master Circular on Willful Defaulters contains definition of the term willful defaulter and it also provides guidance as to how the terms diversion of funds an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m on borrowers so that such willful defaulters are barred from further institutional credit in terms of the penal measures listed out therein. The Master Circular provides at the end of Para 2.5 that it would be imperative on the part of the banks and FIs to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It should also be ensured that a solitary or isolated instance is not made the basis for imposing the penal action . The Master Circular sets out the broad guidelines and the banks/FIs are expected to follow them dealing with individual cases. The Master Circular takes every possible care to make the process transparent and objective. Para 3 of the Master Circular prescribes the broad framework within which the banks/FIs are mandated to constitute and operate the Grievance Redressal Committees, leaving certain amount of flexibility for each banks/FIs to prescribe its detailed process, if found necessary, before declaring its borrower as a willful defaulter. Further, the mechanism provided under para 3 requires involvement of higher functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on No.10120 of 2014 may be entitled to challenge the constitutional validity of the Master Circular issued by the Reserve Bank of India, yet no writ could be issued by this Court under Article 226 of the Constitution in so far as the proposed action pursuant to the issue of show-cause notice is concerned. In support of his submission, Mr.Soparkar has placed strong reliance on the decision of the Supreme Court in the case of the Federal Bank Ltd. v. Sagar Thomas others, (2003)10 SC 737. Mr.Soparkar further submitted that the contention raised on behalf of the petitioners as regards the absence of power on the part of the Reserve Bank of India to issue the impugned Master Circular is also devoid of any merit. According to Mr.Soparkar, the Reserve Bank of India being one of the watchdogs of finance and economy of the nation derives the power from the provisions of Sections 21 and 35-A of the Banking Regulation Act, 1949. In response to our specific query as regards the control of the RBI upon the non-banking financial institutions, Mr.Soparkar drew our attention to Chapter-IIIB of the Reserve Bank of India Act, 1934, i.e. the provisions relating to Non- Banking Institutions re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Mr.Soparkar submitted that a mere possibility of an abuse of any provision of law, rule, regulation or a circular like the one in the present case, by itself, would not be sufficient to condemn the same as ultra vires the provisions of the Constitution of India or other banking enactments. Mr.Soparkar submitted that the contention of bias and the bank being a judge in its own cause, is also devoid of any merit. Mr.Soparkar submits that the maxim nemo judex in causa sua constitute the basic elements of a fair hearing and is sought to be applied mechanically without any basis for such an apprehension. According to Mr.Soparkar, the policy decision of the Reserve Bank of India to issue such a circular cannot be condemned on mere application of the doctrine referred to above. In a given case, if the action pursuant to such a policy decision is found to be tainted with bias, then in such circumstances, the Court can always correct such an arbitrary action. However, that by itself would not render the policy decision bad in law. Mr.Soparkar in support of his submission has placed strong reliance on a decision of the Supreme Court in the case of Union of India v. Bipinkuma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion of the Court it violates one or more of the principles of liberty, of the spirit of the Constitution, unless such principles and that spirit are found in the terms of the Constitution. FEW SALIENT FEATURES OF THE MASTER CIRCULAR : Since the issue revolves around the legality and validity of the Master Circular issued by the Reserve Bank of India, we deem it necessary to look into the same in little details. The need and necessity to issue the Circular has been explained in the Master Circular, which reads as under : Pursuant to the instructions of the Central Vigilance Commission for collection of information on willful defaults of ₹ 25 lakhs and above by RBI and dissemination to the reporting banks and FIs, a scheme was framed by RBI with effect from 1st April 1999 under which the banks and notified All India Financial Institutions were required to submit to RBI the details of the willful defaulters. Willful default broadly covered the following: a) Deliberate non-payment of the dues despite adequate cash flow and good networth; b) Siphoning off of funds to the detriment of the defaulting unit; c) Assets fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as defaulted in meeting its payment/ repayment obligations to the lender and has also disposed off or removed the movable fixed assets or immovable property given by him or it for the purpose of securing a term loan without the knowledge of the bank/lender. The terms diversion of funds and siphoning of funds have also been defined in the impugned Master Circular. They read as under : 2.2 Diversion and siphoning of funds The terms diversion of funds and siphoning of funds should construe to mean the following:- 2.2.1 Diversion of funds, referred to at para 2.1(b) above, would be construed to include any one of the under noted occurrences: (a) utilisation of short-term working capital funds for long-term purposes not in conformity with the terms of sanction; (b) deploying borrowed funds for purposes/activities or creation of assets other than those for which the loan was sanctioned; (c) transferring funds to the subsidiaries/Group companies or other corporates by whatever modalities; (d) routing of funds through any bank other than the lender bank or members of consortium without prior permission of the len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry. c) Wherever possible, the banks and FIs should adopt a proactive approach for a change of management of the willfully defaulting borrower unit. d) A covenant in the loan agreements, with the companies in which the banks/notified FIs have significant stake, should be incorporated by the banks/FIs to the effect that the borrowing company should not induct a person who is a promoter or director on the Board of a company which has been identified as a willful defaulter as per the definition at paragraph 2.1 above and that in case, such a person is found to be on the Board of the borrower company, it would take expeditious and effective steps for removal of the person from its Board. Immediately after mentioning the penal measures in the Master Circular, it has been stated that it would be imperative on the part of the banks and financial institutions to put in place a transparent mechanism for the entire process so that the penal measures are not misused and the scope of such discretionary orders are kept to the barest minimum. To ensure that the identification of a willful defaulter is transparent and objective so as not to cause any inconvenience to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and safeguards in the impugned Master Circular to protect the interest of the borrowers. The object and purpose behind issuing the Master Circular appears to be plain and simple. The Master Circular has been issued to take care of the defects and problems experienced in the past. It is a policy decision which seems to have been taken after thorough examination of the problems faced by the banks and the financial institutions. The foundation of a scheme has been explained in the Master Circular, which reads as under : 2. Guidelines issued on wilful defaulters Further, considering the concerns expressed over the persistence of willful default in the financial system in the 8th Report of the Parliament's Standing Committee on Finance on Financial Institutions, the Reserve Bank of India, in consultation with the Government of India, constituted in May 2001 a Working Group on Willful Defaulters (WGWD) under the Chairmanship of Shri S.S.Kohli, the then Chairman of the Indian Banks' Association, for examining some of the recommendations of the Committee. The Group submitted its report in November 2001. The recommendations of the WGWD were further examined by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. These principles governing the banking business have been embodied in the banking laws of India, viz. the Reserve Bank of India Act, 1934, and the Banking Regulation Act, 1949. The significance of the Reserve Bank's position as the central bank of the country needs no emphasis. As the central bank and as the primary regulator of the banking business, the Reserve Bank has been vested with very wide powers and is also charged with certain duties as reflected in the preambles to and the provisions of the two legislations referred to above. The preamble to the Reserve Bank of India Act states that the bank is established, inter alia, generally to operate the currency and credit system of the country to its advantage. The powers under the Reserve Bank of India Act as also under the Banking Regulation Act have been conferred on the bank with a view to fulfill these objectives. The various powers under the Banking Regulation Act are related to public interest or the interest of banking policy. The expression banking policy has been defined in clause (ca) of section 5 of the Banking Regulation Act as under : (ca) 'banking policy' means any policy which is speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, (c) the maximum amount of advances or other financial accommodation which, having regard to the paid-up capital, reserves and deposits of a banking company and other relevant considerations, may be made by that banking company to any one company, firm, association of persons or individual, (d) the maximum amount up to which, having regard to the considerations referred to in clause (c), guarantees may be given by a banking company on behalf of any one company, firm, association of persons or individual, and (e) the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantees may be given. (3) Every banking company shall be bound to comply with any directions given to it under this section. 35A : Power of the Reserve Bank to give directions (1) Where the Reserve Bank is satisfied that- (a) in the [public interest]; or [(aa) in the interest of banking policy; or] (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k to take many steps to strengthen the financial soundness of the banking system. Increasing the capital base of the banks is one such measure. Similarly, various other policy measures have been initiated to ensure better quality of assets, induction of professional management, diversified credit portfolio, improved accounting systems, transparency in balance-sheets, etc. The question for our consideration is, whether it will be open for this court to review the decisions which have been taken by a specialised body like the Reserve Bank of India and arrive at different conclusions. The scope of jurisdiction in such matters has been settled by various judgments of the Supreme Court and the same may be referred to at this stage. In Joseph Kuruvilla Vellukunnel v. Reserve Bank of India, AIR 1962 SC 1371, the position of the Reserve Bank of India is clearly stated in the following paragraphs which are referred to at pp.1379-80 and 1382 as under : But the most important function of the Reserve Bank is to regulate the banking system generally. The Reserve Bank has been described as a bankers' bank. Under the Reserve Bank of India Act, the scheduled banks maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted in this case, or acts in other cases under pressure or from oblique motives. As was pointed out in another connection by this court in All India Bank Employees Association v. National Industrial Tribunal, AIR 1962 SC 171 at p.183 : If it was not the Reserve Bank of India, the only other authority that could be entrusted with the function would be the Finance Ministry of the Government of India and that department would necessarily be guided by the Reserve Bank having regard to the intimate knowledge which the Reserve Bank has of the banking structure of the country as a whole and of the affairs of each bank in particular. ...... ..... ..... ..... Nor do the powers of the Reserve Bank end there. The Reserve bank not only has powers over banking companies while they are functioning, but it has also powers when the banking companies wish or are forced to cease to function. If a banking company wants to suspend its business and applies to the High Court for a moratorium, the application is not maintainable, unless it is accompanied by a report of the Reserve Bank indicating that in the opinion of the Reserve Bank the banking company will be able to pay i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emergency of the situations which may arise, is itself the justification for the procedure open under the Act and taken in this case. In our opinion, these grounds cannot be entertained. It is difficult to imagine that the Reserve Bank would act differently in another case. ..... ..... ..... ..... The learned Attorney General, on the other side, drew our attention to Virendra v. State of Punjab,, where it has been pointed out that in judging the reasonableness of any particular law 'the surrounding circumstances in which the impugned law came to be enacted, the underlying purpose of the enactment and the extent and urgency of the evil sought to be remedied' must also be considered. That case concerned the freedom of speech and its alleged curtailment by the Punjab Special Powers (Press) Act, 1956. In judging the reasonableness of the law from the angle of the exclusion of courts, this court observed : Legislature had to ask itself the question : who will be the appropriate authority to determine at any given point of time as to whether the prevailing circumstances require some restriction to be placed on the right to freedom of speech and expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant functions is to regulate the banking system in the country. It is the duty of the Reserve Bank to safeguard the economy and financial stability of the country. While examining the power conferred by section 58A of the Companies Act, 1956, on the Central Government to prescribe the limits up to which, the manner in which and the conditions subject to which deposits may be invited or accepted by non-banking companies, this court in Delhi Cloth and General Mills Co. Ltd. v. Union of India, AIR 1983 SC 937, observed as under : Mischief was known and the regulatory measure was introduced to remedy the mischief. The conditions which can be prescribed to effectuate this purpose must, a fortiori, to be valid, fairly and reasonably, relate to checkmate the abuse of juggling with the depositors/investors hard earned money by the corporate sector and to confer upon them a measure of protection namely availability of liquid assets to meet the obligation of repayment of deposit which is implicit in acceptance of deposit. Can it be said that the conditions prescribed by the Deposit Rules are so irrelevant or have no reasonable nexus to the objects sought to be achieved as to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucture of the country by strengthening the rule as well as apparent credit structure of the banks operating in the country and the interest of depositors. In an underdeveloped country like ours, where majority of the population are illiterate and poor and are not conversant with banking operations and in underdeveloped money and capital market with mixed economy, the Constitution charges the State to prevent exploitation and so the RBI would play both promotional and regulatory roles. Thus the RBI occupies a place of 'pre-eminence' to ensure monetary discipline and to regulate the economy or the credit system of the country as an expert body. It also advises the Government in public finance and monetary regulations. The banks or non-banking institutions shall have to regulate their operations in accordance not only with the provisions of the Act but also the rules and directions or instructions issued by the RBI in exercise of the power thereunder. Chapter 3-B expressly deals with regulations of deposit and finance received by the RNBCs. The directions, therefore, are statutory regulations. Thus, from the above, the law is well-settled that the Reserve Bank of India, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arnataka High Court in the case of E.Sathyanarayanan (supra), yet with due deference we are unable to subscribe to the views expressed by His Lordship, more particularly, when there are Supreme Court decisions on the issue. DELEGATED LEGISLATION : The above takes us to deal with the submission as regards the scope and power of the Reserve Bank of India to issue the Master Circular in exercise of powers under the delegated legislation. It is true that a delegated legislation can be challenged before the Courts on the ground of being ultra vires the parent Act. The Courts can adjudge the legality and validity of delegated legislation by applying the doctrine of ultra vires. The doctrine of ultra vires has two aspects: substantive and procedural. When delegated legislation goes beyond the scope of the authority conferred by, or it is in conflict with, the parent statute it is invalid and this is known as substantive ultra vires. When the regulation-making authority deviates from the procedure, if any, prescribed by the parent statute for making regulations, it is known as procedural ultra vires. In these writ petitions, what is urged is the substantive ultra vires only and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or a statute, must be intra vires the parent law under which power has been delegated. If the regulation-making power is conferred and the regulations made are in excess of that power the regulation would be void even if the Act provided that they shall have effect as if enacted in the Act. The validity of the regulation is always open to challenge on the ground that it is unauthorised. The validity of the delegated legislation is a question of vires, that is, whether or not the power has been exceeded or otherwise wrongfully exercised or is inconsistent with the parent Act. The doctrine of ultra vires quite often is one of the recognised principles/grounds to invalidate a delegated legislation. The basic principle of this doctrine is that an authority being the creature of the law it has only such powers as are granted to it by the law. Declaring a rule in the Karnataka Motor Vehicle Rules, 1963 ultra vires the Motor Vehicles Act, 1939 as the rule was inconsistent with a section in the Act, the Supreme Court, in State of Karnataka v. H.Ganesh Kamath, AIR 1983 SC 550, held that the rule-making power cannot include within its scope the power to make a rule contrary to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n question. Thus, the Court while reviewing the validity of a delegated legislation, should presume such delegated legislation prima facie to be intra vires and it is for the person aggrieved to prove affirmatively that the presumption in favour of constitutionality, competence, fairness and reasonableness is unsustainable as held by the Apex Court in State of U. P. v. Baburam, AIR 1961 SC 751. The onus of establishing invalidity is on the challenger. The question whether a particular delegated legislation is in excess of the power of the supporting legislation conferred on the delegate, has to be determined with regard not only to specific provisions contained in the relevant statute conferring the power to make rule or regulation, but also the object and purpose of the Act as can be gathered from the various provisions of the enactment. It would be wholly wrong for the Court to substitute its own opinion as to what principle or policy would best serve the objects and purposes of the Act, nor is it open to the Court to sit in judgment of the wisdom, the effectiveness or otherwise of the policy, so as to declare a regulation to be ultra vires merely on the ground that, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in banking, the directions given by it should not be lightly brushed aside. STATUTORY STATUS OF THE CIRCULAR: The above takes us now to deal with the submission as regards the statutory status of the Master Circular. It has been strenuously contended before us by the learned advocates appearing on behalf of the petitioners that the impugned Master Circular has no force in law and cannot be termed as a statutory circular. In short, the sum and substance of the submission canvassed on behalf of the petitioners is that, if the Reserve Bank of India wanted to issue a Master Circular laying down a policy for declaring the borrowers as willful defaulters and the consequences of the same, then the same could have been done only by enacting a law within the meaning of Article 13 of the Constitution of India, otherwise a circular will have no force of law. We are not impressed even by such submission as we have already indicated in our earlier part of the judgment the source of power and the exercise of the same by the Reserve Bank of India in the interest of banking and banking policy. It is clear that the Master Circular has been issued with a particular object. Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. 7. The question relating to a post-constitution order or notification in the context whether it amounts to law was considered by the Supreme Court in Jayantilal Amratlal v F. N. Rana, AIR 1964 SC 648....The Court further observed as follows: This is not to say that every order issued by an executive authority has the force of law. If the order is purely administrative, or is not issued in exercise of any statutory authority it may not have the force of law. But where a general order is issued even by an executive authority which confers power exercisable under a statute, and which thereby in substance modifies or adds to the statute, such conferment of powers must be regarded as having the force of law. ... The issue as regards the statutory force of a circular is no longer res integra. The Supreme Court, in the case of B.O.I. Finance Ltd. v. The Custodian and others, AIR 1997 SC 1952, and Central Bank of India v. Ravindra and others, AIR 2001 SC 3095, has examined such issue at length. While examining the Securities Contracts (Regulation) Act and the Banking Regulation Act in B.O.I. Finance Ltd.(supra), the Supreme Court specifically dealt with the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the authority exercises a function which does not culminate in a binding decision. The rule generally applies, at least with full force, only to the conduct leading directly to a final act of the decision, and not to the making of a preliminary decision or to an investigation designed to obtain information for the purpose of a report or a recommendation on which a subsequent decision may be founded. (see Halsbury's Laws of England, Vol.1(i), 4th Edition, paras 85 and 94.) The standard of fairness may be different where the proceedings are in inquisitorial form. Bias can be classified under three different heads: (a) a legal interests which mean that the Judge is in such a position that a bias must be assumed. (b) pecuniary interest. (c) personal bias. Law in this regard has expanded to a great extent. In J.F.Garner's Administrative Law, it was stated: The natural justice 'bias' rule looks to external appearances rather than to proof of actual improper exercise of power. If the reasonable observer would have the requisite degree of suspicion of bias in the decision maker then that decision can be challenged. It is a matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scrutinise the affidavits very critically to determine which of them deserves to be believed. Naturally, in dealing with such a question of fact in appeal, we are normally inclined to attach importance to the findings of fact recorded by the High Court itself. Recently, in the case of Union of India v. Vipan Kumar Jain, (2005)9 SCC 579, the Supreme Court held that an officer who had carried out a search under Section 132 of the Income Tax Act, 1961, was competent to act as an assessing officer and there was no inherent infirmity or defect in permitting the assessing officer to gather information and assess the value of the information himself. The Supreme Court referred to a decision of the U.S. Supreme Court in the case of Harold Withrow v. Duane Larken and observed thus: Even though it could be said that in a sense since the Assessing Officer was acting on behalf of the Revenue, in discharging the functions as an Assessing Officer, he was a party to the dispute, nevertheless there is no presumption of bias in such a situation. As said in H.C.Narayanappa and others v. The State of Mysore and others, 1960 SCR(3) 742 at p 753: It is also true that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest and his duty. In Gullapalli Nageswara Rao case the Secretary who had framed the Scheme then proceeded to hear the objections and advise the Chief Minister. It is because of the personal involvement of the Secretary that the majority took the view. Even then two Judges held that it did not follow that he was an improper person to hear the objections. Thus, the authorities disclose that mere appointment of an officer of the corporation does not by itself bring into play the doctrine that 'no man can be a judge in his own cause'. For that doctrine to come into play it must be shown that the officer concerned has a personal bias or a personal interest or has personally acted in the matter concerned and/or has already taken a decision one way or the other which he may be interested in supporting. This being the law it will have to be held that the decision of the Delhi High Court is erroneous and cannot be sustained and the view taken by the Punjab and Haryana High Court is correct. It will, therefore, have to be held that Managing Director of a financial corporation can be appointed as an authority under Section 32-G of the Act. Thus, from the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Rao v. State of T.N. while interpreting a provision, the Court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of the process of law, it is for the legislature to amend, modify or repeal it, if deemed necessary. In a nine-Judge Bench decision of the Supreme Court in the case of I.R.Coelho (dead) by L.Rs. v. State of T.N., AIR 2007 SC 861, the Supreme Court made the following observations, which are worth noting: It is also contended that the power to pack up laws in the Ninth Schedule in absence of any indicia in Article 31B has been abused and that abuse is likely to continue. It is submitted that the Ninth Schedule which commenced with only 13 enactments has now a list of 284 enactments. The validity of Article 31B is not in question before us. Further, mere possibility of abuse is not a relevant test to determine the validity of a provision. The people, through the Constitution, have vested the power to make laws in their representatives through Parliament in the same manner in which they have entrusted the responsibility to adjudge, interpret and construe law and the Constitution including its li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l public and not merely from the point of view of the persons upon whom the restrictions are imposed vide Hanif Quareshi v. State of Bihar, AIR 1958 SC 731. Moreover, the impugned action of the authorities cannot be said to be unreasonable merely because in a given case, they may operate harshly, vide State of Gujarat v. Shantilal, AIR 1969 SC 634 (vide Para 52). As observed by the Supreme Court in Laxmi Khandsari v. State of UP., AIR 1981 SC 873; Divert v. State of Gujarat, AIR 1986 SC 1323; State of Madras v. Row, 1952 SCR 597; Peerless v. Reserve Bank, AIR 1992 SC 1033; and Harakchand v. Union of India, AIR 1970 SC 1453 etc., the nature of the right alleged to have been infringed, the underlying purpose of the restriction imposed and the extent and urgency of the evil sought to be remedied thereby, disproportion of the imposition, prevailing conditions at the time etc., are the relevant considerations for determining whether the restriction is reasonable. 11. Further, as held in Jyoti Pershad v. Union Territory of Delhi, AIR 1961 SC 1602, the standard of reasonableness must also vary from age to age and be related to the adjustments necessary to solve the problems which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al phenomena. If legislation or executive action is to deal with realities it must address itself to variations in society. The State must, therefore, be left with wide latitude in devising ways and means of social control and Regulation, and the Court should not, unless compelled by the law, encroach into this field. 16. As Justice Frankfurter of the U.S. Supreme Court observed in American Federation of Labour v. American Sash and Door Co., 335 US 538 (1949):- Even where the social undesirability of a law may be convincingly urged, invalidation of the law by a Court debilitates popular Democratic Government. Most laws dealing with social and economic problems are matters of trial and error. That which before trial appears to be demonstrably bad may belie prophecy in actual operation. But, even if a law is found wanting on trial, it is better that its defects should be demonstrated and removed by the legislature than that the law should be aborted by judicial fiat. Such, an assertion of judicial power defeats responsibility from those on whom in a democratic society it ultimately rests. Hence, rather than exercise judicial review Courts should ordinarily allow le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter embraces within it even the directors of the company. We may, once again, at the cost of repetition, highlight few provisions of the Circular which, in our opinion, deserve consideration. In clause (2.5), which relates to penal measures, sub-clause (d) reads as under: (d) A covenant in the loan agreements, with the companies in which the banks/notified FIs have significant stake, should be incorporated by the banks/FIs to the effect that the borrowing company should not induct a person who is a promoter or director on the Board of a company which has been identified as a willful defaulter as per the definition at paragraph 2.1 above and that in case, such a person is found to be on the Board of the borrower company, it would take expeditious and effective steps for removal of the person from its Board. Clause (5) is with regard to reporting names of the directors. Clauses (5.1) and (5.2) read as under : 5.1 Need for Ensuring Accuracy RBI/Credit Information Companies disseminate information on non-suit filed and suit filed accounts respectively, as reported to them by the banks/FIs and responsibility for reporting correct information and also accur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and nominee directors. The circular speaks about director and independent and nominee director . The classification of the directors under the Companies Act is as under : A. Classification under the Companies Act Categories of Directors The Companies Act refers to the following two specific categories of Directors: 1. Managing Directors; and 2. Whole-time Directors. A Managing Director is a director who has substantial powers of management of the affairs of the company subject to the superintendence, control and direction of the Board in question. A Whole-time Director includes a director who is in the whole-time employment of the company, devotes his whole-time of working hours to the company in question and has a significant personal interest in the company as his source of income. Every public company and private company, which is a subsidiary of a public company, having a share capital of more than Five Crore rupees (Rs. 5,00,00,000/-) must have a Managing or Whole-time Director or a Manager. Further classification of Directors Based on the circumstances surrounding their appointment, the Companies Act r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor purports to act, and is seen to the outside world as acting, as a Director of the company. Such a de facto Director is liable as a Director under the Companies Act. 7. Rotational Directors: At least two-thirds of the Directors of a public company or of a private company subsidiary of a public company have to retire by rotation and the term rotational Director refers to such Directors who have to retire (and may, subject to the Articles, be eligible for re-appointment) at the end of his or her tenure. 8. Nominee Directors: They can be appointed by certain shareholders, third parties through contracts, lending public financial institutions or banks, or by the Central Government in case of oppression or mismanagement. The extent of a nominee Director's rights and the scope of supervision by the shareholders, is contained in the contract that enables such appointments, or (as appropriate) the relevant statutes applicable to such public financial institution or bank. However, nominee Directors must be particularly careful not to act only in the interests of their nominators, but must act in the best interests of the company and its shareholders as a whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector, at least half of the Board should comprise independent Directors. Where the non-executive Chairman is a promoter of the company or is related to any promoter or person occupying management positions at the Board level or at one level below the Board, at least one-half of the Board of the company shall consist of independent Directors. Independent Directors The Agreement defines an Independent Director as a non-executive Director of the company who: a. apart from receiving Director's remuneration, does not have material pecuniary relationships or transactions with the company, its promoters, its Directors, its senior management, or its holding company, its subsidiaries, and associates which may affect independence of the Director; b. is not related to promoters or persons occupying management positions at the board level or at one level below the board; c. has not been an executive of the company in the immediately preceding three (3) financial years; d. is not a partner or an executive or was not a partner or an executive during the preceding three (3) years, of any of the following: i. the statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est of reasonableness. Where a mode is prescribed for doing an act and there is no impediment in following that procedure, performance of the act otherwise and in a manner which does not disclose any discernible principle which is reasonable, may itself attract the vice of arbitrariness. Every State action must be informed by reason and it follows that an act uninformed by reason, is arbitrary. Rule of law contemplates governance by laws and not by humour, whims or caprices of the men to whom the governance is entrusted for the time being. It is trite that be you ever so high, the laws are above you. This is what men in power must remember, always. 37. Almost a quarter century back, this Court in S.G. Jaisinghani v. Union of India indicated the test of arbitrariness and the pitfalls to be avoided in all State actions to prevent that vice, in a passage as under: In this context it is important to emphasize that the absence of arbitrary power is the first essential of the rule of law upon which our whole constitutional system is based. In a system governed by rule of law, discretion, when conferred upon executive authorities, must be confined within clearly defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts or provides for it, and the second, where due to glaring facts established on record it is found that a complex web has been created only with a view to defraud the revenue interest of the bank, thereby the revenue interest of the State. We may quote with profit a Division Bench decision of this Court, to which one of us (Akil Kureshi, J.) was a party, in the case of Pravinbhai M.Kheni v. Assistant Commissioner of Income-Tax and others, (2013)353 ITR 585 (Guj), wherein it has been explained in details the concept of lifting or piercing the corporate veil. His Lordship (Akil Kureshi, J.) observed thus: ....The principle of lifting or piercing the corporate veil is neither new nor unknown. It is however, not possible of any precise definition or application in a straitjacket formula. We may notice some of the authorities dealing with such a concept. 1) In case of State Trading Corporation of India Ltd. v. The Commercial Tax Officer and others, reported in AIR 1963 Supreme Court 1811, nine Judge Bench of the Supreme Court considered the question whether a company can be considered a citizen and be permitted to approach Supreme Court under Article 32 of the Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... City of London, (1632) 8 SV Tr. 1087 at p.1138 when he asked Can you hang its common seal? . It is true that sometimes the law permits the corporate veil to be lifted, but of that later. In the later portion of the judgement, learned Judge dealt with the question of lifting of corporate veil in that case, for benefit of the company and observed as under : 65. The next question is whether the State Trading Corporation is a department or organ of Government notwithstanding the formality of incorporation. On behalf of the Corporation it is contended that if the corporate veil is pierced one sees that the right to invoke Art. 19(1)(f) and (g) is being claimed by three persons who are admittedly citizens of India namely the President of India and the two secretaries. The contention on the other side is that the corporate veil cannot be pierced at all and that if it is, then behind that veil there is the Government of India. In my judgment it is not possible to pierce the veil of incorporation in our country to determine the citizenship of the members and then to give the corporation the benefit of Art. 19. If we did pierce the veil and saw that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere due to glaring facts established on record it is found that a complex web has been created only with a view to defraud the revenue interest of the State. If it is found that incorporation of an entity is only to create a smoke screen to defraud the revenue and shield the individuals who behind the corporate veil are the real operators of the company and beneficiaries of the fraud, the Courts have not hesitated in ignoring the corporate status and striking at the real beneficiaries of such complex design. Section 179 of the Act itself is a statutory creation of piercing of corporate veil. Ordinarily, directors of a company even that of a private company would not be answerable for the tax dues of the company. Under subsection(1) of section 179 of the Act, however, subject to satisfaction of certain conditions, the directors can be held jointly and severally liable to pay the dues of the company. (Emphasis supplied) In In re National Bank of Wales, Ltd., (1899)2 Ch 629, it was held that, A director who is acting honestly himself is entitled to trust the officers of the company not to conceal from him what they ought to report to him, if he has no reasonable gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to details of management . In In re City Equitable Fire Insurance Co. Ltd., (1925)1 Ch 407, dividend had been paid out of capital and losses had been occasioned by unjustified investments and loans. The liquidator sought to make the directors responsible for the loss on the ground that they had been guilty of breach of duty and their act on that account amounted to misfeasance. The five principles which Romer, J. laid down in connection with the duty of directors were : (1) A director is only liable for gross or culpable negligence, this means that he does not owe a duty to his company, to take all possible care. It is some degree of care less than that. The care that he is bound to take has been described by Neville, J. in the case referred to above as reasonable care to be measured by the care an ordinary man might be expected to take in the circumstances on his own behalf. (2) A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. (3) A director is not bound to give continuous attention to the affairs of his company. His duties are of an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company. We find an element of arbitrariness in such policy decision. To this limited extent, we hold that the Master Circular is violative of Article 19(1)(g) of the Constitution of India and deserves to be struck down partially. LEGALITY AND VALIDITY OF THE NOTICE: Since we have dealt with all the submissions regarding the constitutional validity of the Master Circular, we shall now look into the legality and validity of the notice issued by the bank so far as the proposed action of declaring the petitioners as willful defaulters is concerned. So far as the petitioners of Special Civil Application No.645 of 2014 are concerned, they were served with a notice dated 19th February 2013, indicating that they had been availing the facilities from the branch office of the bank at Ahmedabad, the details have been stated in the notice. It has been further stated that their accounts were classified as NPA on 30th June 2012 with the outstanding balance of ₹ 10,27,23,076=00. They were informed that the bank had already taken the SARFAESI action and filed O.A. No.200 of 2012 for recovery of ₹ 10.80 crore in D.R.T.-I, Ahmedabad. It is further stated that the bank pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... networth; (b) Siphoning off of funds to the detriment of the defaulting unit; (c) Assets financed either not been purchased or been sold and proceeds have been misutilised; (d) Misrepresentation/falsification of records; (e) Disposal/removal of securities without bank's knowledge; (f) Fraudulent transactions by the borrower. The show cause notice is absolutely silent regarding the same. It could be the case of the bank that there has been a deliberate non-payment of the dues despite adequate cashflow and good net-worth but, before alleging, there has to be some material with the bank and the same should be prima facie disclosed to the borrower so that he could make good his case that there has been no deliberate non-payment of the dues. For example, if it is the case of the bank that there is adequate cash-flow and good net-worth and despite that the borrower has failed in repayment of the loan, then the bank should disclose the source of information regarding the adequate cash-flow and good net-worth. We are not satisfied with the manner in which the bank wants to proceed against the petitioners. The bank can definitely proceed in acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (6) Specifically, if a department of Govt. is transferred to a corporation, it would be a strong factor supportive of this inference of the Corporation being an instrumentality or agency of Government. Proceeding further, the Supreme Court held that it was immaterial whether the corporation was created by a statute or under a state. The test is whether it is an instrumentality or agency of the Government and not as to how it was created. In the said case their Lordships proceeded to observe that the Government may act through the instrumentality or agency of a natural person or it may employ the instrumentality or agency of juridical person to carry out its functions. The test is that it will be considered to be an agency and instrumentality of the State. It is true that the corporation is a distinct juristic entity with a corporate structure of its own and it carries on its functions on business principles with a certain amount of autonomy which is necessary as well as useful from the point of view of effective business management but behind the formal ownership which is cast in the corporate mould, the reality is very much the deeply pervasive presence of the Government, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatus conferred by the State. With regard to the fourth test, there is nothing to indicate existence of deep and pervasive State control . All that can be said is that the directives of the Reserve Bank of India are binding on the bank. With regard to the fifth test, although it has been very vociferously submitted by Mr.Shelat, the learned appearing on behalf of the petitioners, that the functions of the bank are of public importance and further the bank could be said to be discharging a public function which is akin to a Governmental function, yet this argument pales into insignificance in view of the decision of the Supreme Court in the case of Federal Bank Limited v. Sagar Thomas and others, (2003)10 SCC 733. We shall discuss the decision of the Supreme Court in the case of Federal Bank Limited (supra) a little later. While dealing with the test based on functions of the Corporation of public importance, the Supreme Court in Ramana Dayaram Shetty's case, AIR 1979 SC 1628, referred to E.S.Evans v. Charles E.Newton, (1966)382 US 296 and Smith v. Allwright, (1943)32 US 649, and observed that the decisions show that the test of public or governmental character of the funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory authority would be within the meaning of 'other authorities' if it has been invested with statutory power to issue binding directions to the parties, disobedience of which would entail penal consequences or it has the sovereign power to make rules and regulations having the force of law . In Sukhdev Singh's case, the principal reason which prevailed with A.N. Ray, CJ for holding ONGC, LIC and IFC as authorities and hence 'the State' was that rules and regulations framed by them have the force of law. In Sukhdev Singh's case, Mathew J. held that the test laid down in RSEB's case was satisfied so far as ONGC is concerned but the same was not satisfied in the case of LIC and IFC and, therefore, he added to the list of tests laid down in RSEB's case, by observing that though there are no statutory provisions, so far as LIC and IFC are concerned, for issuing binding directions to third parties, the disobedience of which would entail penal consequences, yet these corporations (i) set up under statutes, (ii) to carry on business of public importance or which is fundamental to the life of the people ___ can be considered as the State within the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartments to statutory Corporations, whilst retaining Govt. control. Company legislation in India permits tearing of the corporate veil in certain cases and to look behind the real legal personality. But Mathew J. achieved the same result by a different route, namely, by drawing out the implications of Article 13(2) (Para 7.57 ibid). The terms instrumentality or agency of the State are not to be found mentioned in Article 12 of the Constitution. Nevertheless they fall within the ken of Article 12 of the Constitution for the simple reason that if the State chooses to set up an instrumentality or agency and entrusts it with the same power, function or action which would otherwise have been exercised or undertaken by itself, there is no reason why such instrumentality or agency should not be subject to same constitutional and public law limitations as the State would have been. In different judicial pronouncements, some of which we have reviewed, any company, corporation, society or any other entity having a juridical existence if it has been held to be an instrumentality or agency of the State, it has been so held only on having found to be an alter ego, a double or a proxy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances, an authority may also be found to be an instrumentality or agency of the State and to that extent they may overlap. Tests 1, 2 and 4 in Ajay Hasia enable determination of Governmental ownership or control. Tests 3, 5 and 6 are 'functional' tests. The propounder of the tests himself has used the words suggesting relevancy of those tests for finding out if an entity was instrumentality or agency of the State. Unfortunately thereafter the tests were considered relevant for testing if an authority is the State and this fallacy has occurred because of difference between 'instrumentality and agency' of the State and an 'authority' having been lost sight of sub-silentio, unconsciously and undeliberated. In our opinion, and keeping in view the meaning which 'authority' carries, the question whether an entity is an 'authority' cannot be answered by applying Ajay Hasia tests. (2) The tests laid down in Ajay Hasia's case are relevant for the purpose of determining whether an entity is an instrumentality or agency of the State. Neither all the tests are required to be answered in positive nor a positive answer to on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent from paragraph 31 of the judgment in Biswas (supra). Para 31 reads as under : 31. The tests to determine whether a body falls within the definition of 'State' in Article 12 laid down in Ramana with the Constitution Bench imprimatur in Ajay Hasia form the keystone of the subsequent jurisprudential superstructure judicially crafted on the subject which is apparent from a chronological consideration of the authorities cited. The subsequent paragraphs of the judgment noticed the efforts made to further define the contours within which to determine, whether a particular entity falls within the definition of other authority, as given in Article 12. The ultimate conclusion of the Constitution Bench are recorded in paragraph 39 and 40 as under :- 39. Fresh off the judicial anvil is the decision in Mysore Paper Mills Ltd. v. Mysore Paper Mills Officers' Assn., (2002)2 SCC 167, which fairly represents what we have seen as a continuity of thought commencing from the decision in Rajasthan Electricity Board in 1967 up to the present time. It held that a company substantially financed and financially controlled by the Government, managed by a Board of Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, however, found that the Federal Bank performed a public duty, and as such, it would get covered under the definition of 'other authority' within the meaning of Article 12, and as such, the writ petition was maintainable. The order passed by the learned Single Judge was carried in appeal and the appeal was also dismissed. The Federal Bank challenged the order passed by the High Court, dismissing the appeal, before the Supreme Court. The question which fell for the consideration before the Supreme Court on appeal was, whether the appellant Bank was a private body or fell within the definition of a State or legal or other authorities under the control of the Government within the meaning of Article 12 of the Constitution of India. The observations of the Supreme Court as contained in paragraphs 26 to 33 are worth noting: 26. A company registered under the Companies Act for the purposes of carrying on any trade or business is a private enterprise to earn livelihood and to make profits out of such activities. Banking is also a kind of profession and a commercial activity, the primary motive behind it can well be said to earn returns and profits. Since time immemor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs of the company. For other companies in general carrying on other business activities may be manufacturing, other industries or any business, such checks are provided under the provisions of the Companies Act, as indicated earlier. There also, the main consideration is that the company itself may not sink because of its own mismanagement or the interest of the shareholders or people generally may not be jeopardized for that reason. Besides taking care of such interest as indicated above, there is no other interest of the State, to control the affairs and management of the private companies. The care is taken in regard to the industries covered under the Industries (Development and Regulation) Act, 1951 that their production which is important for the economy may not go down yet the business activity is carried on by such companies or corporations which only remains a private activity of the entrepreneurs/companies. 27. Such private companies would normally not be amenable to the writ jurisdiction under Article 226 of the Constitution. But in certain circumstances a writ may issue to such private bodies or persons as there may be statutes which need to be complied with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained and not get disturbed by the malfunctioning of such companies or institutions involved in the business of banking. These are regulatory measures for the purposes of maintaining the healthy economic atmosphere in the country. Such regulatory measures are provided for other companies also as well as industries manufacturing goods of importance. Otherwise these are purely private commercial activities. It deserves to be noted that it hardly makes any difference that such supervisory vigilance is kept by the Reserve Bank of India under a Statute or the Central Government. Even if it was with the Central Government in place of the Reserve Bank of India it would not have made any difference, therefore, the argument based on the decision of All India Bank Employees' Association (supra) does not advance the case of the respondent. It is only in case of malfunctioning of the company that occasion to exercise such powers arises to protect the interest of the depositors, shareholders or the company itself or to help the company to be out of the woods. In the times of normal functioning such occasions do not arise except for routine inspections etc. with a view to see that things ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to that petitioner. But it is not the case here. Our attention has been drawn by the learned counsel for the appellant to paragraphs 12, 13 and 21 of the decision (Andi Mukta) to indicate that even according to this case no writ would lie against the private body except where it has some obligation to discharge which is statutory or of public character. 32. Merely because the Reserve Bank of India lays the banking policy in the interest of the banking system or in the interest of monetary stability or sound economic growth having due regard to the interests of the depositors etc. as provided under Section 5(c)(a) of the Banking Regulation Act does not mean that the private companies carrying on the business of or commercial activity of banking, discharge any public function or public duty. These are all regulatory measures applicable to those carrying on commercial activity in banking and these companies are to act according to these provisions failing which certain consequences follow as indicated in the Act itself. Provision regarding acquisition of a banking company by the Government, it may be pointed out that any private property can be acquired by the Government in pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he performance of public duties by public authorities. Originally, the writ of mandamus was merely an administrative order from the sovereign to subordinates. In England, in early times, it was made generally available through the Court of King's Bench, when the Central Government had little administrative machinery of its own. Early decisions show that there was free use of the writ for the enforcement of public duties of all kinds, for instance against inferior tribunals which refused to exercise their jurisdiction or against municipal corporation which did not duly hold elections, meetings, and so forth. In modern times, the mandamus is used to enforce statutory duties of public authorities. The courts always retained the discretion to withhold the remedy where it would not be in the interest of justice to grant it. It is also to be noticed that the statutory duty imposed on the public authorities may not be of discretionary character. A distinction had always been drawn between the public duties enforceable by mandamus that are statutory and duties arising merely from contract. Contractual duties are enforceable as matters of private law by ordinary contractual remedies suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged by a purely private authority. A body is performing a public function when it seeks to achieve some collective benefit for the public or a section of the public and is accepted by the public or that section of the public as having authority to do so. Bodies therefore exercise public functions when they intervene or participate in social or economic affairs in the public interest. In a book on Judicial Review of Administrative Action (Fifth Edn.) by de Smith, Woolf Jowell in Chapter 3 para 0.24, it is stated thus: A body is performing a public function when it seeks to achieve some collective benefit for the public or a section of the public and is accepted by the public or that section of the public as having authority to do so. Bodies therefore exercise public functions when they intervene or participate in social or economic affairs in the public interest. This may happen in a wide variety of ways. For instance, a body is performing a public function when it provides public goods or other collective services, such as health care, education and personal social services, from funds raised by taxation. A body may perform public functions in the form of ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts' complaint; but that since, on the facts, there were no grounds for interfering with the panel's decision, the court would decline to intervene. 13. Lloyd L.J., agreeing with the opinion expressed by Sir John Donaldson M.R. held : I do not agree that the source of the power is the sole test whether a body is subject to judicial review, nor do I so read Lord Diplock's speech. Of course the source of the power will often, perhaps usually, be decisive. If the source of power is a statute, or subordinate legislation under a statute, then clearly the body in question will be subject to judicial review. If at the end of the scale, the source of power is contractual, as in the case of private arbitration, then clearly the arbitrator is not subject to judicial review. 14. In that decision, they approved the observations made by Lord Diplock in Council of Civil Service Unions vs. Minister for the Civil Service (1985) A.C. 374, 409 wherein it was held: For a decision to be susceptible to judicial review the decision-maker must be empowered by public law (and not merely, as in arbitration, by agreement between private parties) to make deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian Companies Act and at the material time the Union Government and the Government of Andhra Pradesh held 56 per cent and 32 per cent of its shares respectively. Respondent workmen filed a writ petition under Article 226 in the High Court of Andhra Pradesh challenging the validity of an agreement entered into between the employees and the company, seeking a writ of mandamus or an order or direction restraining the appellant from implementing the said agreement. The appellant raised objection as to the maintainability of the writ petition. The learned Single Judge dismissed the petition. The Division Bench held that the petition was not maintainable against the company. However, it granted a declaration in favour of three workmen, the validity of which was challenged before this Court. This Court held at pages 589-590 as under: ....that the applicant for a mandamus should have a legal and specific right to enforce the performance of those dues. Therefore, the condition precedent for the issue of mandamus is that there is in one claiming it a legal right to the performance of a legal duty by one against whom it is sought. An order of mandamus is, in form, a command dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that not all the activities of the private bodies are subject to private law, e.g., the activities by private bodies may be governed by the standards of public when its decisions are subject to duties conferred by statute or when by virtue of the function it is performing or possible its dominant position in the market, it is under an implied duty to act in the public interest. By way of illustration, it is noticed that a private company selected to run a prison although motivated by commercial profit should be regarded, at least in relation to some of its activities, as subject to public law because of the nature of the function it is performing. This is because the prisoners, for whose custody and care it is responsible, are in the prison in consequence of an order of the court, and the purpose and nature of their detention is a matter of public concern and interest. After detailed discussion, the learned authors have summarized the position with the following propositions: (1) The test of a whether a body is performing a public function, and is hence amenable to judicial review, may not depend upon the source of its power or whether the body is ostensibly a public o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from service. The respondent challenged his dismissal by filing a writ petition. The learned Single Judge held that the Federal Bank was performing a public duty and as such it fell within the definition of other authorities under Article 12 of the Constitution. The appellant bank preferred an appeal, but the same was dismissed and the decision of the Division Bench was challenged before this Court. This Court observed that a private company carrying on business as a scheduled bank cannot be termed as carrying on statutory or public duty and it was therefore held that any business or commercial activity, whether it may be banking, manufacturing units or related to any other kind of business generating resources, employment, production and resulting in circulation of money which do have an impact on the economy of the country in general, cannot be classified as one falling in the category of those discharging duties or functions of a public nature. It was held that that the jurisdiction of the High Court under Article 226 could not have been invoked in that case. 23. The counsel for the respondent in Civil Appeal No. 1976 of 1998 and for the appellant in the civil appeal ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their duties and to act within their bounds. It may be used to do justice when there is wrongful exercise of power or a refusal to perform duties. This writ is admirably equipped to serve as a judicial control over administrative actions. This writ could also be issued against any private body or person, specially in view of the words used in Article 226 of the Constitution. However, the scope of mandamus is limited to enforcement of public duty. The scope of mandamus is determined by the nature of the duty to be enforced, rather than the identity of the authority against whom it is sought. If the private body is discharging a public function and the denial of any right is in connection with the public duty imposed on such body, the public law remedy can be enforced. The duty cast on the public body may be either statutory or otherwise and the source of such power is immaterial, but, nevertheless, there must be the public law element in such action. Sometimes, it is difficult to distinguish between public law and private law remedies. According to Halsbury's Laws of England 3rd ed. Vol. 30, page-682, a public authority is a body not necessarily a county council, mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch body is amenable to the jurisdiction under Article 226 of the Constitution and the High Court under Article 226 of the Constitution can exercise judicial review of the action challenged by a party. But there must be a public law element and it cannot be exercised to enforce purely private contracts entered into between the parties. 173. Since we are on the issue of public functions, we may also quote with profit a portion of the decision of the Supreme Court in the case of Jatya Pal Singh (supra) as contained in paragraphs 48, 51 and 52, which read thus: 48. Dr. K.S.Chauhan had also relied on the Human Rights Act, 1998 (Meaning of Public Function) Bill which sets out the factors to be taken into account in determining whether a particular function is a public function for the purpose of sub-section (3)(b) of Section 6 of the aforesaid Act. Section (1) enumerates the following factors which may be taken into account in determining the question as to whether a function is a function of public nature. 1(a) the extent to which the state has assumed responsibility for the function in question; (b) the role and responsibility of the state in relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. 52. These observations make it abundantly clear that in order for it to be held that the body is performing a public function, the appellant would have to prove that the body seeks to achieve some collective benefit for the public or a section of public and accepted by the public as having authority to do so. In Shri Anadi Mukta Sadguru Shree Muktajee Vandasjiswami Suvarna Jayanti Mohtsav Smarak Trust v. V.R.Rudani, AIR 1989 SC 1607, on which strong reliance has been placed by Mr.Shelat in support of his submission regarding amenability, the Supreme Court dealt with the case of a science college at Ahmedabad, which was being which was being run by a Trust and has temporary affiliation to the Gujarat University under the Gujarat University Act, 1949, which, of course, later received permanent affiliation as amended by Gujarat Act VI of 1973. The University teachers and those employed in the affiliated colleges were paid in the pay scale recommended by the University Grants Commission. At one stage there was some dispute between the University area teachers Association and the University and the implementation of certain pay scales. That dispute by agreement of part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he two cases, the respondent institution was a Degree College managed by a registered co-operative society. A suit was filed against the college by the dismissed principal for reinstatement. It was contended that the Executive Committee of the college which was registered under the Co-operative Societies Act and Affiliated to the Agra University (and subsequently to Meerut University) was a statutory body. The importance of this contention lies in the fact that in such a case, reinstatement could be ordered if the dismissal is in violation of statutory obligation. But this Court refused to accept the contention. It was observed that the management of the college was not a statutory body since not created by or under a statute. It was emphasised that an institution which adopts certain statutory provisions will not become a statutory body and the dismissed employee cannot enforce a contract of personal service against a non-statutory body. The decision in Vaish Degree College was followed in Deepak Kumar Biswas case. There again a dismissed Lecturer of a private college was seeking reinstatement in service. The Court refuse to grant the relief although it was found that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedural disadvantages. To overcome the difficulties, Lord Gardiner (the Lord Chancellor) in pursuance of Section 3(l)(e) of the Law Commission Act, 1965, requested the law Commission to review the existing remedies for the judicial control of administrative acts and commissions with a view to evolving a simpler and more effective procedure. The Law Commission made their report in March, 1976 (Law Com No. 73) it was implemented by Rules of Court (Order 53) in 1977 and given statutory force in 198! by Section 31 of the Supreme Court Act, 1981. It combined all the former remedies into one proceeding called judicial review. Lord Denning explains the scope of this Judicial review : At one stroke the courts could grant whatever relief was appropriate. Not only certiorari and mandamus, but also declaration and injunction. Even damages. The procedure was much more simple and expeditious. Just a summons instead of a writ. No formal pleadings. The evidence was given by affidavit. As a rule no cross-examination, no discovery, and so forth. But there were important safeguards. In particular, in order to qualify, the applicant had to get the leave of a judge. The stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. The Constitution designedly used a wide language in describing the nature of the power, the purpose for which and the person or authority against whom it can be exercised. It can issue writs in the nature of prerogative writs as understood in England; but the use of the expression nature , for the said expression does not equate the writs that can be issued in India with those in England, but only draws an analogy from them. That apart, High Courts can also issue directions, orders or writs other than the prerogative writs. It enables the High Courts to mould the reliefs to meet the peculiar and complicated requirements of this country. Any attempt to equate the scope of the power of the High Court under Art. 226 of the Constitution with that of the English Courts to issue prerogative writs is to introduce the unnecessary procedural restrictions grown over the years in a comparatively small country like England with a unitary form of Government into a vast country like India functioning under a federal structure. Such a construction defeats the purpose of the article itself. The term authority used in Art. 226, in the context, must receive a liberal meaning unlike t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It should remain flexible to meet the requirements of variable circumstances. Mandamus is a very wide remedy which must be easily available lo reach injustice whenever it is found . Technicalities should not come in the way of granting that relief under Art. 226. We, therefore, reject the contention urged for the appellants on the maintainability of the writ petition. The ratio discernible from Shri Anadi Mukta Sadguru (supra) is that, the form of the body concerned is not very much relevant. What is relevant is the nature of duty imposed on the body. A writ of mandamus can be issued against a person or a body to carry out the duties placed on them by the statute, even though they are not public officials or statutory bodies. In Praga Tools Corporation v. C.V. Immaneul, AIR 1969 SC 1306, the Supreme Court observed: Article 226 provides that every High Court shall have power to issue to any person or authority orders and writ, including writs in the nature of habeas corpus, mandamus, etc., or any of them for the enforcement of any of the rights conferred by Part-III of the Constitution and for any other purpose. But, it is well understood that a mandamus lies to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nction. (3) Although a private banking company like the Standard Chartered Bank with which we are concerned is duty bound to follow and abide by the guidelines provided by the Reserve Bank of India for smooth conduct of its affairs in carrying on its business, yet those are of regulatory measures to keep a check and provide guideline and not a participatory dominance or control over the affairs of the company. (4) A private company carrying on banking business as a Scheduled bank cannot be termed as a company carrying on any public function or public duty. (5) Normally, mandamus is issued to a public body or authority to compel it to perform some public duty cast upon it by some statute or statutory rule. In exceptional cases a writ of mandamus or a writ in the nature of mandamus may issue to a private body, but only where a public duty is cast upon such private body by a statute or statutory rule and only to compel such body to perform its public duty. (6) Merely because a statue or a rule having the force of a statute requires a company or some other body to do a particular thing, it does not possess the attribute of a statutory body. (7) If a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC 1370, it was contended before the Supreme Court that the Life Insurance Corporation was an instrumentality of the State, and was debarred by Article 14 from acting arbitrarily. It was also contended that it was obligatory upon the Corporation to disclose the reasons for its action complained of, namely, its requisition to call an extra-ordinary general meeting of the company for the purpose of moving a Resolution to remove some Directors and appoint others in their place. Such argument was opposed by the State, contending that the actions of the State or an instrumentality of the State, which do not properly belong to the field of public law but belong to the field of private law, were not subject to judicial review. Dealing with the said contentions, the Supreme Court observed :- While we do find considerable force in the contention of the learned Attorney-General it may not be necessary for us to enter into any lengthy discussion of the topic, as we shall presently see. We also desire to warn ourselves against readily referring to English cases on questions of Constitutional law' Administrative Law and Public Law as the law in India in these branches has forced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inction in mind. Lord Denning in his book The Closing Chapter has this to say on the subject: The first thing to notice is that public law is confined to 'public authorities'. What are 'public authorities'? There is only one avenue of Approach. It is by asking, in the words of Section 31(2)(b) of the Supreme Court Act 1981: What is the 'nature of the persons and bodies against whom relief may be granted by such orders', that is, by mandamus, prohibition or certiorari? These are divided into two main categories : First, the persons or bodies who have legal authority to determine questions affecting the common law or statutory rights or obligations of other persons as individuals. That is the formula stated by Lord Justice Atkin in R. v. Electricity Commissioners, ex parte London Electricity Joint Committee Co., (1920) Ltd, (1924)1 KB 171 / 205 as broadened by Lord Diplock in O'Reilly v. Mackman (1982) 3, WLR 1096/ 1104). Second, the persons or bodies who are entrusted by Parliament with functions, powers and duties which involve the making of decisions of a public nature....To which I would add the words of Lord Godda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l View (published in Public Law Summer (1986) ). The learned Law Lord stated further in the same Article, at page 223: While public law deals only with public bodies, this does not mean that the activities of public bodies are never governed by private law. Like public figures, at least in theory, public bodies are entitled to have a private life. There have been suggestions that in the commercial field public bodies should adopt different and higher ethical standards than private individuals, but this is not yet required as a matter of law and in relation to purely commercial transactions the same law is applicable, whether or not a public duty is involved. Prima facie, the same is true in relation to employment. The servant employed by a public body ordinarily has the same private rights as any other servant . The position may, however, be different pointed out the learned Law Lord if such relationship is circumscribed by a statutory provision. 39. In this context, it would be appropriate to refer to two important English decisions, where a public duty was implied even in the absence of a statutory provisions. They are R. v. Criminal Injuries C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : We have, as it seems to me, reached the position when the ambit of certiorari can be said to cover every case in which a body of persons, of a public as opposed to a purely private or domestic character, has to determine matters affecting subjects provided always that it has a duty to act judicially. Looked at in this way, the Board in my judgment comes fairly and squarely within the jurisdiction of this Court. The Board are, as counsel for the Board said, a servant of the Crown, charged by the Crown, by executive instructions, with the duty of distributing the bounty of the Crown . The Board are clearly, therefore, performing public duties. Moreover, the Board are quite clearly under a duty to act judicially . The same idea was put forward by Diplock, L.J., in his separate opinion, where he said: If new tribunals are established by acts of Government, the supervisory jurisdiction of the High Court extends to them if they possess the essential characteristics on which the subjection of inferior tribunals to the supervisory control of the High Court is based... . Ashworth, J., justified the issue of certiorari in that case on the following basis: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -overs and mergers and to the public consequences of non-compliance with the Code, the Panel on takeovers and mergers was performing a public duty when prescribing and administering the Code and its rules and was subject to public law remedies. Accordingly, it was held that an application for judicial review would lie in an appropriate case. The approach to be adopted in such cases, it was stated by Sir John Donaldson, M.R., is to recognize the realities of executive power .This is what the learned Master of Rolls stated :- In fact, given its novelty, the panel fits surprisingly well into the format which this court had in mind in R. v. Criminal Injuries Compensation Board (1967-2 QB 867). It is without doubt performing a public duty and an important one. This is clear from the expressed willingness of the Secretary of State for Trade and Industry to limit legislation in the field of take-overs and mergers and to use the panel as the centerpiece of his regulation of that market. The rights of citizens are indirectly affected by its decisions, some, but by no means all of whom, may in a technical sense be said to have assented to this situation, e.g., the members of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as sufficient for coming to the conclusion that it was a State under Article 12. It was also submitted that in a welfare State, the definition of Governmental functions had to be widened to include within its scope of functions, which were of public importance. Hence, any organization which performs a public function must be considered as a State under Article 12. The Full Bench took the view that it was too broad a proposition and sounded a note of caution considering the decision of the Supreme Court in the case of Ajay Hasai (supra). The Court took the view that every organization which carried out a function, which was of public importance, did not necessarily become State under Article 12. Conferment of Statehood depended upon various other factors also, such as the nexus of such organizations with the State, the extent of State control etc. The following observations of the Full Bench are worth taking note of:- There may be many functions of public importance which can be performed by private organisation also. We have a large number of organisations doing important social work vital to the community. There are, for example, organisations which look after, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract was awarded by the respondents in favour of the appellant. As the work was not completed within the contractual period, an extension was granted for the period specified, without levying any liquidated damages. The contractor continued the work even thereafter. At a later stage, finding the progress to be sold, the Government terminated the contract. The appellant filed writ petition challenging the cancellation. However, in view of the existence of an arbitration clause, the High Court referred the parties to arbitration. The dispute between the parties was adjudicated by the Arbitrator. Few counter-claims were also filed by the respondents, however, all those counter-claims were rejected. The respondents approached the District Court under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside the award. However, the court dismissed the petition. The High Court set-aside the award on certain grounds. In such circumstances, the contractor filed appeal before the Supreme Court. In the aforesaid factual background, the Supreme Court had the occasion to consider the question, whether one party has committed breach or not, cannot be decided by the party all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute a suit in the court to modify or set-aside such order. The effect of the provisions under challenge was that a scheme could be framed by the Commissioner alone on a report of the Assistant Commissioner on such inquiry as he would think fit and not by the Commissioner in association with one or more Government officers to be appointed for the purpose by the Government. Secondly, there was no right on suit for challenging the validity or the correctness of the scheme framed by the Commissioner, but there was an appeal provided directly to the High Court. In such circumstances, it was urged before the Supreme Court that the provisions were in the form of unreasonable restrictions and were ultra vires and unconstitutional. It is in the aforesaid background that the Supreme Court took the view that in order to judge, whether the provisions in the Act operated by way of unreasonable restrictions for the constitutional purposes, what was necessary to be seen was whether the person affected got a reasonable chance of presenting his entire case before the original Tribunal which had to determine judicially, the question raised and whether he had a regular appeal to the ordinarily consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at assuming for the sake of arguments that the terms of Clause 12 of the agreement afforded scope for being construed as empowering the officer of the State to decide upon the question of breach as well as assess the quantum of damages, it could not be thought of that the adjudication by the officer regarding the breach of the contract could be sustained under the law because a party to the agreement cannot be an arbiter in his own cause. The Supreme Court further observed that the interests of justice and equity required that where a party to the contract disputes the committing of any breach of conditions, the adjudication should be by an independent person or body and not by the other party to the contract. The position would be different only if there was no dispute or there was a consensus between the contracting parties regarding the breach of conditions. Here again, the case is one of contract entered into between the two parties relating to purchase of paddy under the Paddy Procurement Scheme, 1959. Disputes arose between the parties to the contract and, in such circumstances, the observations noted above fell from the Supreme Court. This decision also, in our opinion, is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Interest Act nor thereby could have empowered the banks to charge something more from the borrowers by the process of rounding up of interest. Ultimately, the Supreme Court dismissed the appeals, holding that the appellants and the Reserve Bank of India, with a view to touching the end of their own shadows in the guise of exercise of their contractual powers vis-a-vis the Banking Regulation Act, exceeded their jurisdiction in recovering the tax imposed on them by way of interest under the Parliamentary Act. This decision of the Supreme Court is sought to be relied upon to fortify the submissions canvassed on behalf of the petitioner that in the present case also the Reserve Bank of India could not have issued direction in the form of a Master Circular relating to willful default and willful defaulters . According to the petitioners, such policy decision of the Reserve Bank of India is beyond the scope of its powers under the Banking Regulations Act and the Reserve Bank of India Act. We are afraid, we are unable to understand how this decision of the Supreme Court is helpful to the petitioners. The Supreme Court took the view that the Reserve Bank of India should not have un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad Narayan Sahi (supra), the Supreme Court considered the prayer for a writ in the nature of mandamus, directing the opposite party not to take any action under an Act passed by the Bihar Legislative Assembly in 1950 and known as the Sathi Lands (Restoration) Act which was challenged as void and unconstitutional. His Lordship Patanjali Shastri, C.J. (as His Lordship then was) in a concurring judgment observed that the dispute was purely between private parties and the matter for determination by duly constituted courts to which it is entrusted, in every free and civilized society, the important function of adjudicating on dispute legal rights, after observing the well established procedural safeguards which includes the right to be heard, the right to produce witnesses and so for. His Lordships observed that such was the protection which the law guaranteed equally to all persons, and the Constitution prohibited by Article 14 every State from denying such protection to anyone. Taking clue from such observations made by the Supreme Court, it is sought to be contended in the present case that having regard to the nature of the inquiry, more particularly the mode and the manner, it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, the Court took the view that it could not be held that an action by the Scheduled bank, to which the provisions of the SARFAESI Act were applicable and had been invoked by it, would be immune from the extraordinary writ jurisdiction of that court. We are afraid, this decision of the Punjab and Haryana High Court is also of no assistance to the petitioners. We are not concerned with a case wherein any action is taken or proposed to be taken under the SARFAESI Act. The circular of the Reserve Bank of India does not say that any decision as regards the declaration of willful defaulters will not be open to challenge before the civil court. There is no bar so far as the jurisdiction of civil court is concerned. In Apex Electricals Limited (supra), a learned Single Judge of this Court had the occasion to consider an identical issue as regards the maintainability of a writ application against a private bank. In the said case, it was the ICICI Bank Limited against whom writ was prayed for by the petitioners. It was in context with the provisions of the SARFAESI Act that the learned Single Judge took the view that a writ petition was maintainable against a private bank like ICICI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... many words to have been issued in public interest and also the source of power, yet if the source of power is traceable, exercise of such power cannot be set-aside merely because the same has not been disclosed. (3) The Master Circular does not suffer from the vice of impermissible delegation of a legislative power. It confirms exactly to the power granted. (4) The Master Circular has the force of law and could be termed as a statutory circular. (5) The application of the maxim nemo judex in causa sua on the part of the petitioners on the premise that the bank itself will be a judge in its own cause is completely misplaced. In a given case, if the court finds the action to be tainted with malafide or bias, then the same could always be condemned and set at right. On mere apprehension of misuse of such provision, an otherwise valid statute, should not be struck down or condemned. A mere possibility or likelihood of abuse of power does not make the provision ultra vires or bad in law. (6) The Master Circular does not impose an unreasonable restriction upon the promoters/entrepreneurs, being violative of the Article 19(1)(g) of the Constit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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