TMI Blog1997 (3) TMI 628X X X X Extracts X X X X X X X X Extracts X X X X ..... all-scale bank having only one branch. The provisions of section 11(3) of the Banking Regulation Act, 1949 (hereinafter referred to as the Act ), are cited in the petition to reiterate that the bank is fully entitled to continue its business and there is no justification for issuance of the impugned order dated September 30, 1996, under section 45 of the Act. The financial position of the bank regarding its total deposits is specified in paragraph 9 of the petition which reads as follows : ---------------------------------------------------------------------- 30-9-93 31-3-94 30-9-94 31-3-95 30-9-95 31-3-96 ---------------------------------------------------------------------- Total deposits 97.88 122.76 139.23 153.95 166.81 179.84 (Rs. in lakhs) Total advances 46.50 49.88 55.10 83.06 78.88 73.95 (Rs. in lakhs) Total priority 32.37 29.61 37.08 44.26 46.38 41.57 sector advance (Rs. in lakhs) % of priority 69.61 59.36 67.3 53.2 58.8 56.21 sector advance to total bank credit ---------------------------------------------------------------------- 3. Similarly, the liquidity position as on September 30, 1996, has been referred to in paragraphs 12 and 13 which read as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reserve Bank of India at Chandigarh on April 12, 1996, when it was required by the petitioner to take the following steps which are stated in paragraph 15 of the petition : (i) Dispose of its non-banking assets before April 12, 1997. The petitioner has already disposed of 70 per cent of its non-banking assets and will be able to dispose of the rest of the 30 per cent within the stipulated time. (ii) Secondly, the petitioner-bank was required to submit a plan for its expansion before May 12, 1996. The petitioner has already submitted their plan for expansion. However, respondent No. 2 has yet to accord its approval to the same for its implementation. (iii) Thirdly, the petitioner-bank was required to fill up the vacancy on the board of directors of the bank by July, 1996. The said requirement was complied with within the stipulated time and its compliance was reported to the Reserve Bank of India. (iv) Lastly, the petitioner-bank was required to formulate its investment policy by July, 1996. The petitioner bank also complied with this last requirement of the respondent and submitted the same to respondent No. 2 for its approval. 5. On the above basis it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank was 69.8 per cent as against the requirement of 8 per cent. It was further submitted that under the Act, the bank is not required to maintain the capital of ₹ 10 crores. It would be pertinent to submit here that under the Act it is not mandatory for the bank to maintain ₹ 10 crores capital and there are a number of other banks including co-operative banks and respondent No. 2 itself which are having paid-up capital of less than ₹ 10 crores. It will be pertinent to submit that this request of respondent No. 2 was in contravention of section 11(3) of the Banking Regulation Act where under the requirement for the petitioner-bank which is having only one branch in only one State is to have capital of only ₹ 50,000. The request of the Reserve Bank of India, Therefore, was clearly contrary to the provisions of the Act. However, at no point of time respondents Nos. 2 to 5 ever gave any notice under any provisions of law, rules, notifications, etc., for any action for violation of the said directions. The true copies of the letters dated April 30, 1996, May 13, 1996, and the reply of the bank dated July 22, 1996, are enclosed as annexure D (Colly). 6. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh its identity. When the director objected to this and told respondent No. 4 that he cannot participate in such a meeting in this manner and he is walking out of the meeting, respondent No. 4 finding the situation out of control, immediately cooled down and requested the director and other officials to carry on with the meeting. Pertinent it will be to say that respondent No. 4 has been appointed as executive director recently and is looking after the department of banking operations and development. Respondent No. 4 who was nursing a grudge against the petitioner-bank, it has been reliably learnt, has moved the file for imposition of moratorium. 29. That so far as respondent No. 3 is concerned, about 10 months back, one Mr. Vakil allegedly of Vatsa International Ltd. - a non-banking finance company - supposed to be based at Bombay, called upon the ex-director of the petitioner-bank, namely, Mr. Janak Raj telephonically and told him that he has been asked to contact him by respondent No. 3. He told Mr. Janak Raj that Mr. S.P. Talwar has required him to convey that either the bank be sold to the said company otherwise he will get the moratorium sanctioned on the petitioner-ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, is a special kind of business. Banking business is the business of acceptance of with draw able deposits of money from the public for the purpose of lending or investment. While that describes the ordinary nature of banking, that activity in a developing society and economy has acquired an evolutionary nature, in that the essence of banking business in such an economy involves banks operating as basic financial intermediaries and playing a key role in the country's economy in general and mobilisation and distribution of the country's savings in particular. Banks are the largest repositories of the nation's savings. The conduct and affairs of the banks influence the various sectors of the economy. The economic development of the country depends largely on the safety and soundness of banking institutions. Banks are also the principal means for transmitting the credit policies of the country. Having regard to the delicate position of a bank in the country's economy, 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. In view of all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rliament has vested full discretion in the Reserve Bank and the Central Government so that it should be open for these authorities to decide, depending upon the contingencies, the various alternatives or combination of them as provided by law to ensure protection of the interest of the depositors, the public interest and the interest of banking policy; (c) It is beyond dispute that banks, as financial instrumentalities are required to strive to fulfill, not only the object of achieving commercial efficiency, but also to serve the object of public interest. In fact, without serving public interest, no bank can legitimately claim any right to exist. It is inconceivable that a bank, as an instrumentality of, and also being capable of, wielding powerful weapons for transformation of the socioeconomic structure of the society, can act without taking into account public interest and can act for furtherance of private interests of a limited group of persons. It is submitted that the petitioner-bank was not contributing and was not capable of contributing, and moreover, not even desirous of contributing, to conduct its affairs in a manner appropriate to fulfill the object of public int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 lakhs in 1993-94 and 1994-95 respectively. (ii) The bank's request for declaration of dividend at the rate of 50 per cent for the year ending March 31, 1995 was not acceded to by the Reserve Bank for the reason that the profit was mainly due to sale of non-banking assets of the petitioner-bank. The profit at ₹ 7.34 lakhs for the year 1994-95 was inter alias on account of inclusion of income to the extent of ₹ 6 lakhs from the sale of agricultural land which constituted 81.7 per cent of the profit. But for this income from the sale of fixed assets, the petitioner-bank's operative profit would have been substantially reduced to ₹ 1.34 lakhs. Similarly, for the year 1993-94, the bank had taken to income account a sum of ₹ 9.27 lakhs representing the profit on sale of fixed assets. But for this income, the bank would have suffered a loss of ₹ 1.21 lakhs; (iii) The other major source of the bank's income earning was its investment in fixed deposits in other banks and Government securities. It is submitted that the petitioner-bank was keeping a substantial portion of its funds in fixed deposits which is an activity more akin to non-b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30, 1993. It was also revealed that 26 per cent of total advances were concentrated in the hands of two concerns, namely, Shadi Lal Purl and Kailash Farms as on September 30, 1995. It is significant to note that Shri Deepak Purl of Hoshiarpur who is the owner of Kailash Farms and whose farm is financed by the petitioner-bank was a director of the Punjab Go-operative Bank Ltd. (now under moratorium) which bank was also controlled by the owners of the petitioner-bank. (g) The nature of operations of the petitioner-bank was such as by no stretch of imagination, it could be treated as carrying on genuine banking business as such. It is further submitted that whatever little banking business was being conducted by the petitioner-bank, it was mainly for the benefit of the majority shareholders and the directors of the bank. In this connection, it is pertinent to note the shareholding and management pattern of the petitioner-bank. (i) The major chunk, i.e., 90 per cent of the petitioner-bank's capital was shared by one family, viz., the family of Shri Janak Raj, his relatives and concerns/trusts in which one or more of them was/were interested. (ii) Consistent with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it control were not properly followed. 10. On the above reasoning, the respondent Reserve Bank of India, was of the view that in order to decide the future set up of the petitioner-bank, it was necessary to impose a moratorium in terms of the powers conferred under section 45(2) of the Act. The proposal to convert the petitioner-bank into a non-banking company was mooted as long back as in 1984. The board resolution in this regard was made in May, 1984, followed by the shareholders' resolution in June, 1984. The petitioner-bank, however, had not taken any effective steps in that direction though it had been repeatedly advised to take concrete steps to implement the decision to convert itself into a non-banking company. The Reserve Bank of India's letters dated June 13, 1988, October 6, 1988, and December 2, 1988, addressed to the petitioner-bank which also suggested the amending of the name of the bank as Bari Doab Finance and Trading Ltd. have been filed with the counter affidavit. A no-objection certificate was issued in October, 1991, for alteration of its memorandum of association under section 49C of the Act. However, in the extraordinary general meeting held on M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indebted to the bank in any way; (ii) Incurring expenditure which has necessarily to be incurred in connection with any suits or appeals filed by or against the decrees obtained by the said bank or for Realizing any amounts due to it, provided that if the expenditure in respect of each such suit or appeal or decree or proceeding is in excess of ₹ 2,500, the permission in writing of the Reserve Bank of India shall be obtained before it is incurred; (iii) Incurring expenditure on any other item in so far as it is in the opinion of the banking company necessary for carrying on the day to day administration of the banking company, provided that where the total expenditure on any item in any calendar month exceeds the average monthly expenditure on account of that item during the six calendar months preceding the order of moratorium, or if no expenditure has been incurred on account of that item in the past exceeds a sum of ₹ 2,500, the permission in writing of the Reserve Bank of India shall be obtained before the additional expenditure is incurred; (iv) Payment of the amounts of any drafts or pay orders issued by the said bank and remaining unpaid on the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etary to the Government of India. 11 . Punjab Go-operative Bank. Ltd. v. Union of India : 12. This bank was also put under moratorium, vide notification issued on September 30, 1996, and the same is impugned in this petition. 13. The petitioner-bank herein was started in the year 1905 and initially had eight branches up to the year 1947. At the time of partition, five branches of the bank which were situated in Pakistan were closed. While closing down its business at the branches situated in Pakistan the bank repaid all its depositors whatever in full without any deduction. Earlier moratorium was imposed upon the petitioner-bank in the year 1961 and on representation to the then Finance Minister, Mr. Morarji Desai, the same was revoked as the bank was in a position to repay all its depositors, if so required, within 24 hours. The bank today is having nine branches, two of which are situated in the backward areas of Punjab and one in a semi-urban area of Punjab. Two other branches are situated in two important cities of Punjab, viz., Amritsar and Jalandhar. It is further submitted that it has always been the policy of the Government to encourage the small scale enterpris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------------------------------------------------- Deposit 400289 355323 12.65% Advances 149282 145869 2.34% Investments 130688 104673 24.85% Operating profits 3300* 5916** - Capital adequacy Over 7%* 04.79% - ---------------------------------------------------------------------- *Provisional *Unedited figures for half-year **Audited figures for full year . 14. Similarly, in paragraphs 12 and 13, the liquidity position of the bank is quoted. These paragraphs as well as other paragraphs raising the plea of mala fides may also be reproduced as under : 12. The petitioner-bank is a financially sound profit-making bank whose deposits are not only sound but liquidity of the bank is such that it can pay off 67.7 per cent of its deposits, i.e., ₹ 2,706.51 lakhs of deposits out of total deposits of ₹ 4,002.89 lakhs without calling back on its advances. The details of the liquidity position of the petitioner-bank are as under : (Rs.) (approx.) Cash in hard 52,55,000 In current account of SBI 69,09,000 Other banks 98,12,000 With RBI 4,47,85,000 Central, State/other Government approved securities 10,01,68,000 Fixed deposits with banks 7,32,05,000 Shares a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank of India to compel the management of a small bank to merge with large group and/or compel it to increase its capital beyond what is required under the statutes especially section 11(3)(i) of the Act. The Reserve Bank of India does not have any power to issue any advice which is in contravention of the statutory limits prescribed by Parliament. In the present case, the requirement of the statutes under section 11 of the Act that the bank should have the capital reserves of ₹ 5 lakhs. Therefore, the said advice by the Reserve Bank of India was totally illegal, unjustified and uncalled for and were beyond their jurisdiction. As a matter of fact this clearly establishes the mala fide and arbitrary attitude of respondent No. 4. A true copy of letter dated January 4, 1995, is enclosed herewith as annexure 'III'. 23. In continuation of its earlier mala fide actions, respondent No. 4 got issued another letter to the bank on June 13, 1995, again categorically telling the bank that it has to meet the capital adequacy ratio by March 31, 1996, and for the said purpose it was advised that the bank shall increase the capital base or initiate action for its merger with any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the functioning of the bank, monitoring of the non-performing advances, reviewing the progress of the bank quarterly, to improve the organisational set up, super vision and control over the credits, improve profitability and better fund management, improve the credit appraisal system of the bank and review the credit reports periodically and submit its progress reports to respondent No. 2. 33. Pursuant to the inspection carried out as on December 29, 1995, i.e., a few days after the issuance of the earlier directions dated October 21, 1995, received on November 9, 1995, another letter containing the gist of the inspection report seems to have been prepared by the officials of respondent No. 2. The said letter containing the gist of the inspection report has so far not been served on the petitioner-bank by respondent No. 2 officially. However, a copy of the said letter containing the gist of the inspection report dated September 4, 1996, has been handed over by Mr. M.P. Kothari, who is the RBI nominee director on the board of directors of the petitioner-bank. In the said letter containing the gist of the inspection report again, distorted figures of the assets and liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he application the Reserve Bank of India clearly explained about the shortcomings in the functioning of the petitioner-bank. The finding in regard to the shortcomings of the petitioner-bank were based on the enquiry conducted by the Reserve Bank of India from time to time and it was decided by the Ministry of Finance that the order of moratorium was necessary in the interest of public, depositors and the banking system and, Therefore, the order of moratorium was passed under section 45(2) of the Act by the Ministry of Finance an September 30, 1996. 16. Similarly, counter-affidavit is filed on behalf of the Reserve Bank of India, respondent No. 2 wherein the following facts are pleaded : 5. The financial inspection of the petitioner-bank carried out with reference to its position as on September 30, 1993, showed a substantial erosion in the value of its assets. The erosion as on September 30, 1993, was estimated at ₹ 193.41 lakhs as against ₹ 75.08 lakhs as on September 30, 1992. The provisions made on September 30, 1993, against bad or doubtful debts at ₹ 19.75 lakhs were grossly inadequate to cover the estimated loan losses at ₹ 111.55 lakhs. As aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much more. 7. The bank was last inspected with reference to its position as on December 29, 1995. The financial position of the bank continued to be unsatisfactory. The estimated erosion in the value of its assets at ₹ 182.44 lakhs had affected the provisions fully and reserves partly. The erosion would have affected the reserves and paid-up capital fully and deposits also to the extent of ₹ 110.37 lakhs but for a notional revaluation reserve of ₹ 423.17 lakhs. 8. Although the bank reported a profit of ₹ 18.02 lakhs as on March 31, 1995, the same was achieved by recognising non-realized interest of ₹ 15.84 lakhs of non-performing assets, which was not correct and was also in violation of the Reserve Bank guidelines. The petitioner-bank had also not booked a refund of excess interest of ₹ 3.97 lakhs to its profit and loss account. It is submitted that but for these irregular adjustments, the petitioner-bank would have incurred a net loss for the year 1994-95 also. 9. The position may be summarised as under : 30-9-93 30-12-94 29-12-95 --------------------------------------- 74.90 250.72 517.95. 1. Book value of paid-up capital, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at the time of review nor is likely to affect the decision so taken after careful consideration of all facts/related aspects. The bank's financial position as on March 31, 1996, can, Therefore, have no bearing on the moratorium order. 17. The provisions of law as contained in the Banking Regulation Act, 1949, which are relevant may be reproduced as follows : 5. Interpretation. - In this Act, unless there is anything repugnant in the subject or context, - ... (b) 'banking' means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft, order or otherwise; (c) 'banking company' means any company which transacts the business of banking in India; (ca) 'banking policy' means any policy which is specified from time to time by the Reserve Bank 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m such principal place of business, be deemed to be situated within the same State as such principal place of business. 22. Licensing of banking companies. - (1) Save as hereinafter provided, no company shall carry on banking business in India unless it holds a license issued in that behalf by the Reserve Bank and any such license may be issued subject to such conditions as the Reserve Bank may think fit to impose. (2) Every banking company in existence on the commencement of this Act, before the expiry of six months from such commencement and every other company before commencing banking business in India, shall apply in writing to the Reserve Bank for a license under this section : Provided that in the case of a banking company in existence on the commencement of this Act, nothing in sub-section (1) shall be deemed to prohibit the company from carrying on banking business until it is granted a license in pursuance of this section or is by notice in writing informed by the Reserve Bank that a license cannot be granted to it : Provided further that the Reserve Bank shall not give a notice as aforesaid to a banking company in existence on the commencement of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore of its officers, of the affairs of any banking company and its books and accounts; and (b) a copy of the report of the scrutiny shall be furnished to the banking company if the banking company makes a request for the same or if any adverse action is contemplated against the banking company on the basis of the scrutiny. (2) It shall be the duty of every director or other officer or employee of the banking company to produce to any officer making an inspection under sub-section (1) or a scrutiny under sub-section (1A) all such books, accounts and other documents in his custody or power and to furnish him with any statements and information relating to the affairs of the banking company as the said officer may require of him within such time as the said officer may specify. (3) Any person making an inspection under sub-section (1) or a scrutiny under sub-section (1A) may examine on oath any director or other officer or employee of the banking company in relation to its business, and may administer any oath accordingly. (4) The Reserve Bank shall, if it has been directed by the Central Government to cause an inspection to be made, and may, in any other case, rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner prejudicial to the interests of the banking company; or (c) to secure the proper management of any banking company generally; it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions. (2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect. 38. Winding up by High Court. - (1) Notwithstanding anything contained in section 391, section 392, section 433 and section 583 of the Companies Act, 1956, but without prejudice to its powers under sub-section (1) of section 37 of this Act, the High Court shall order the winding up of a banking company - (a) if the banking company is unable to pay its debts; or (b) if an application for its winding up has been made by the Reserve Bank under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strar. 45. Power of Reserve Bank. to apply to Central Government for suspension of business by a banking company and to prepare scheme of reconstitution or amalgamation. - (1) Notwithstanding anything contained in the foregoing provisions of this part or in any other law or any agreement or other instrument, for the time being in force, where it appears to the Reserve Bank that there is good reason so to do, the Reserve Bank may apply to the Central Government for an order of moratorium in respect of a banking company. (2) The Central Government, after considering the application made by the Reserve Bank under sub-section (1), may make an order of moratorium staying the commencement or continuance of all actions and proceedings against the company for a fixed period of time on such terms and conditions as it thinks fit and proper and may from time to time extend the period so, however, that the total period of moratorium shall not exceed six months. (3) Except as otherwise provided by any directions given by the Central Government in the order made by it under sub-section (2), or at any time thereafter, the banking company shall not during the period of moratorium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or rights which the members, depositors and other creditors have in or against the banking company before its reconstruction or amalgamation to such extent as the Reserve Bank considers necessary in the public interest or in the interest of the members, depositors and other creditors or for the maintenance of the business of the banking company; (g) the payment in cash or otherwise to depositors and other creditors in full satisfaction of their claim - (i) in respect of their interest or rights in or against the banking company before its reconstruction or amalgamation; or (ii) where their interest or rights aforesaid in or against the banking company has, or have been reduced under clause (f), in respect of such interest or rights as so reduced; (h) the allotment to the members of the banking company for shares held by them therein before its reconstruction or amalgamation whether their interest in such shares has been reduced under clause (f) or not, of shares in the banking company on its reconstruction or, as the case may be, in the transferee bank and where any members claim payment in cash and not allotment of shares, or where it is not possible to allot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment or grant mentioned in that clause, to the Reserve Bank whose decision thereon shall be final; (j) notwithstanding anything contained in clause (i) where any of the employees of the banking company not being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947), are specifically mentioned in the scheme under clause (i), or where any employees of the banking company have by notice in writing given to the banking company or, as the case may be, the transferee bank at any time before the expiry of one month next following the date on which the scheme is sanctioned by the Central Government, intimated their intention of not becoming employees of the banking company on its reconstruction or, as the case may be, of the transferee bank, the payment to such employees of compensation, if any, to which they are entitled under the Industrial Disputes Act, 1947, and such pension, gratuity, provident fund and other retirement benefits ordinarily admissible to them under the rules or authorisations of the banking company immediately before the date of the order of moratorium; (k) any other terms and conditions for the reconstruction or amalgamation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45(1) of the Act requires the Reserve Bank to make an application to the Central Government for grant of moratorium. Therefore, the RBI should have communicated the reasons to the petitioner banks for making the said application and as a matter of fact should have called upon them to state their shortfalls, if any, under section 35A by giving sufficient opportunity to comply with the directions; (iv) the test of reasonableness and fair play has not been satisfied in this case and the decision is clearly arbitrary and vocative of the provisions of article 14 of the Constitution of India. The concept of fair play is part of public policy and cannot be given a go-by in the present set up and the rules of natural justice have been violated by the impugned action. 19. The following judgments have been cited to support the proposition as canvassed in this writ petition : 20. Commissioner of Police v. Gordhandas Bhanji , [1952]1SCR135 , K.I. Shephard v. Union of India (1988)ILLJ162SC , Food Corporation of India v. Kamdhenu Cattle Feed Industries AIR1993SC1601 , Life Insurance Corporation of India v. Consumer Education and Research Centre AIR1995SC1811 and Anirudhsinhj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad as follows (at page 250 of 63 Comp Cas) : Allegation advanced on behalf of the excluded employees is that the draft scheme contemplated under sub-section (6)(a) did not specifically mention the names of the excluded employees and at a later stage when the scheme was sent up by the RBI to the Central Government a schedule containing the names of the excluded employees was attached to each of the schemes. Section 45 of the Act provides a legislative scheme and the different steps required to be taken under this section have been put one after the other. A reading of this section indicates a sequence oriented pattern. What would ordinarily be incorporated in the draft scheme is indicated in sub-section (5). After the requirements of sub-section (5) are complied with and the scheme comes to a presentable shape, sub-section (6)(a) requires a copy thereof as prepared by the RBI to be sent to the banking company (transferor) as also to the transferee bank. Clause (b) of sub-section (6) authorises RBI to make modifications in the draft scheme as it may consider necessary in the light of suggestions and objections received from the banking company and the transferee bank. On a simpl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the contention does not impress us. 24. The findings are recorded in para. 15 as below (at page 258 of 63 Comp Cas) : Fair play is a part of the public policy and is a guarantee for justice to citizens. In our system of rule of law every social agency conferred with power is required to act fairly so that social action would be just and there would be furtherance of the well being of citizens. The rules of natural justice have developed with the growth of civilisation and the content thereof is often considered as a proper measure of the level of civilisation and rule of law prevailing in the community. Man within the social frame has struggled for centuries to bring into the community the concept of fairness and it has taken scores of years for the rules of natural justice to conceptually enter into the field of social activities. We do not think in the facts of the case there is any justification to hold that rules of natural justice have been ousted by necessary implication on account of the time frame. On the other hand we are of the view that the time limited by statute provides scope for an opportunity to be extended to the intended excluded employees before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are in the field of private law and they are free to prescribe any conditions or limitations in their actions as private citizens, simpliciter, do in the field of private law. Its actions must be based on some rational and relevant principles. It must not be guided by irrational or irrelevant considerations. Every administrative decision must be hedged in by reasons. The Administrative Law by Wade, 5th edition, at page 513 in Chapter 16, Part IV, dealing with remedies and liabilities, stated thus : 'Until a short time ago anomalies used to be caused by the fact that the remedies employed in Administrative Law belong to two different families. There is the family of ordinary private law remedies such as damages, injunction and declaration and there is a special family of public law remedies particularly certiorari, prohibition and mandamus, collectively known as prerogative remedies. Within each family, the various remedies can be sought separately or together or in the alternative. But each family had its own distinct procedure'. At page 514, it was elaborated that 'this difficulty was removed in 1977 by the provision of a comprehensive, application for judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual relations the court cannot ignore that the public authority must have constitutional conscience so that any interpretation put up must be to avoid arbitrary action, lest the authority would be permitted to flourish as imperium a imperia. Whatever be the activity of the public authority, it must meet the test of article 14 and judicial review strikes at arbitrary action. 29. Similarly, reliance is placed on the judgment of the Supreme Court in Anirudhsinghji Karansinghji Jadeja v. State of Gujarat 1995CriLJ4154 to reiterate the proposition that there is failure to exercise jurisdiction and discretion on the part of the Central Government as it is only the Reserve Bank which has been instrumental in issuance of the order of moratorium and has exercised powers which are not vested in it by statute. 30. The learned Solicitor-General appearing for respondents Nos. 2 to 5 has argued that on careful consideration of the matter the moratorium was imposed under the provisions of section 45 of the Act and there were good reasons so to do. The Reserve Bank of India as well as the Central Government have applied their mind and as a consequence made an order of moratorium which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of ₹ 67 lakhs and for the year ending March 31, 1995, a nominal profit of ₹ 18 lakhs was shown but there was a carried forward loss of ₹ 97 lakhs. The Reserve Bank of India told the Punjab Co-operative Bank Ltd. to take steps to bring at least ₹ 10 crores by way of capital which would have helped to stop the deterioration and a number of communications were sent in this regard but no steps were taken. The Reserve Bank of India has categorically stated in this court that in the circumstances of the case, the Reserve Bank does not think that reconstruction of the bank is the alternative but it is proposed to amalgamate the bank with another bank i.e., Oriental Bank of Commerce Ltd., a nationalised public bank which will safeguard the interest of the depositors. Therefore, the allegation of the petitioners with regard to mala fides has no basis either in fact or in law. Similarly, submissions have been made with regard to Bari Doab Bank Ltd. This bank was also informed from 1984 onwards that it should take steps to convert itself into a non-banking company if it desired to function in the way in which it was functioning but the bank took no concrete steps to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conducted in a manner detrimental to the interests of its depositors. The Reserve Bank has further the power to prohibit any scheduled bank from receiving, after a week, any fresh deposits. The above analysis of some of the provisions of the Reserve Bank of India Act show that the Reserve Bank of India has been created as a central bank with powers of supervision, advice and inspection, over banks, particularly those desiring that they be included in the Second Schedule or those scheduled already. The Reserve Bank thus safeguards the economy and the financial stability of the country. No doubt, the board is composed of nominated members; but from the nature of things, it could not be otherwise. Neither election nor competitive examinations can effectively take the place of nominations, if the board is to be composed of men of proven worth and standing, and there is no other method which can even be contemplated. No doubt, the members of the board are subject to removal, but neither integrity nor efficiency is secured only by such guarantee, and we have no reason to think that the Reserve Bank acted in this case, or acts in other cases under pressure or from oblique motives. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from AIR1962SC660 : That leaves over the second and third arguments, which proceed upon the same materials. In this connection, the main grounds of attack have already been set out in this judgment. Before we deal with the central point, we shall deal with certain others which proceed said so to speak, from the side lines. The objection that the Reserve Bank gives no hearing, records no reasons in writing and does not communicate them is met at least in this case by the admitted facts. The numerous inspection reports and directions issued by the Reserve Bank over a period of nearly nine years, together with the application filed in this case, prove amply that there was enough hearing of and enough communication of the grounds of action to the Palai Bank. The Bank had also sufficient time and opportunity to establish its own point of view before the Reserve Bank. It was impossible that the Reserve Bank, with the run on the bank, would sit down to decide after hearing whether to take action or not, while withdrawals were being at the rate of ₹ 7 lakhs per day. The emergency of the situations which may arise, is itself the justification for the procedure open under the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay down clearly that there may be occasions and situations in which the Legislature may, with reason, think that the determination of an issue may be left to an expert executive like the Reserve Bank rather than the courts without incurring the penalty of having the law declared void. The law thus made is justified on the ground of expediency arising from the respective opportunities for action. Of course, the exclusion of courts is not lightly to be inferred nor lightly to be conceded. The reasonableness of such a law in the total circumstances will, if challenged, have to be made out to the ultimate satisfaction of this court, and it is only when this court considers that it is reasonable in the individual circumstance that the law will be upheld. In the present case, in view of the history of the establishment of the Reserve Bank as a central bank for India, its position as a bankers' bank, its control over banking companies and banking in India, its position as the issuing bank, its power to license banking companies and cancel their licences and the numerous other powers, it is unanswerable that between the court and the Reserve Bank, the momentous decision to wind up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed that where a right to a prior notice and an opportunity to be heard before an order is passed would obstruct the taking of prompt action, such a right can be excluded. This right can also be excluded where the nature of the action to be taken, its object and purpose and the scheme of the relevant statutory provisions warrant its exclusion; nor can the audi alteram partem rule be invoked if importing it would have the effect of paralysing the administrative process or where the need for promptitude or the urgency of taking action so demands, as pointed out in Maneka Gandhi's case , [1978]2SCR621 . If legislation and the necessities of a situation can exclude the principles of natural justice including the audi alteram partem rule a fortiori so can a provision of the Constitution, for a constitutional provision has a far greater and all-pervading sanctity than a statutory provision. 36. The scope of powers of the Reserve Bank of India is further amplified in the judgment reported as Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India 1991CriLJ1391 . Paragraphs 30, 31 and 52 may be reproduced as under : 30. Before examining the scope and eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rivate sector companies ? To the extent companies develop sickness, in direct proportion the controllers of such companies become healthy. In a welfare State, it is the constitutional obligation of the State to protect socially and economically weaker segments of the society against the exploitation by corporations. We, Therefore, see no merit in the submission, that the conditions prescribed bear no relevance to the object or the purpose for which the power was conferred under section 58A on the Central Government.' 31. The function of the court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority. It is well settled that a public body invested with statutory powers must take care not to exceed or abuse its power. It must keep within the limits of the authority committed to it. It must act in good faith and it must act reasonably. Courts are not to interfere with economic policy which is the function of experts. It is not the function of the courts to sit in judgment over matters of economic policy and it must necessarily be left to the expert bodies. In such matters even experts can seriously and doubtlessly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d applied to the Central Government to accept its opinion on the necessity of moratorium for the reasons as stated by the Reserve Bank of India in its counter affidavits filed in this court. The Reserve Bank of India possesses the expertise to arrive at its finding which cannot be questioned in the present proceedings under article 226 of the Constitution of India as it will involve examination of facts and figures. There is no evidence of non-application of mind as the matter has been examined in detail by the Reserve Bank of India as well as by the Central Government. The plea that the figures as given by the petitioners bear a sound position cannot be accepted as the opinion of the Reserve Bank of India, which is based on cogent evidence on record, cannot be discarded. Similarly, the submissions that the petitioners should have been heard before the moratorium was issued cannot be sustained in law as to give any notice of such a measure would be defeating the whole purpose of moratorium and this plea has been clearly discarded and overruled in matters of urgent nature and the feasibility and practicability of granting a hearing and recording of reasons have been explained in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Act and this court does not have the expertise to hold that the decision taken is without any foundation or basis, particularly, when certain material is already placed on record by the respondents to justify the impugned action. 40. The law is well-settled that the function of the court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority . The provisions of section 45 of the Act are substantially complied with and it will not be open if this court to reappraise the material to arrive at a contrary conclusion as it is not the function of the courts to sit in judgment over such matters. The plea of mala fides as raised in the petition also has no basis or foundation. The fear of the petitioner that the Reserve Bank is indulging in this exercise to enable it to pass on the banks to other interested financial institutions cannot be accepted as it has been categorically stated at the Bar by the learned Solicitor-General that there are no such plans and a decision has been taken to amalgamate the petitioner-banks with the Oriental Bank of Commerce. 41. Learned counsel for the interveners who has appeared for ..... 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