Judgment:
Ashok A. Desaf, J.
1. This bunch of petitions by individuals, firms and unincorporated associations of individuals dealing in financing, have challenged the constitutional validity of Section 45-S substituted by the Reserve Bank (Amendment) Act, 1997 (hereinafter referred to tne Impugned provisions), on the ground of absence of legislative competence, as well violatlve of Articles 14 and 19(1)(g) of the Constitution of India. To appreciate the challenge, it would be appropriate to trace the legislative history.
2. In 1934, the Reserve Bank of India Act was Introduced principally to regulate Monetary, Currency and Credit System. Thereafter, in view of the recommendation of the Banking Commission, the Banking Laws(Amendment) Act, 1983 was enacted. The amending Act, inter alia, incorporated to the R.B.I. Act, Chapter III-C under the caption Prohibition of Acceptance of Deposits by unincorporated bodies. Section 45-S (1) under the chapter reads thus :
45-S. Deposits not to be accepted in certain cases.--(1) No persons, being an individual or a firm or an unincorporated association of individuals shall, at any time, have deposits from more than the number of depositors specified against each, in the table below.'
According to the table, the provision has imposed ceiling on acceptance of the deposit. It has prohibited accepting more than 25 depositors excepting the relation of individuals, partners or Individuals constituting association. This was with a view to protect the interest of depositors.
In the course of time, it has been experienced that the existing provision has failed to control the mischief, which continued with extensive proliferation of such non-banking. unincorporated Institute primarily to defeat the law (reference to para 13 of Judgment dated 3.4.98 of the Karnataka High Court in Writ Petition No. 29821 and 30260 of 1997). To overcome the situation. In 1997, the impugned provision under Section 45-S has been substituted. It reads thus :
'Section 45-S. Deposits not to be accepted in certain cases.--(1) No person, being an individual or a firm or an unincorporated association of Individuals shall, accept any deposit :
(i) If his or its business wholly or partly includes, any of the activities specified in clause (c) of Section 45-I ; or
(ii) if his or its principal business is that of receiving of deposits under any scheme or arrangement or in any other manner, or lending in any manner :
Provided that nothing contained in this sub-section shall apply to the receipt of money by an individual by way of loan from any of his relatives or to the receipt of money by a firm by way of loan from the relative or relatives of any of the partners.'
As a consequence of the impugned provision deposit, could be accepted by way of loan only from the relatives of individuals or partners of the firm.
3. According to Mr. Jain, thelearned counsel for the petitioner, theimpugned provision imposedcomplete restriction on lending ofmoney. Entry Nos. 30 and 32 of ListII of Schedule VII respectively dealwith money-lending andincorporation. The State Legislaturealone is, therefore, competent tolegislate on the subject. TheParliament has thus no legislativedomain. The learned counsel couldnot carry the submission any further.
4. The constitutional validity of the Banking Laws (Amendment) Act, 1983 which Introduced original Section 45-S was challenged before the Supreme Court. The Supreme Court, while dealing with the question of legislative competence in T. Velayudhan Achari and another v. Union of India and others. : [1993]1SCR832 , (relevant portion at page 588), has observed thus :
'The business of acceptance of deposits from the public does not fall within Entry 30 or Entry 32 of List II of Schedule VII of the Constitution. It falls within Entry 45 or In any case under Entry 97 of List I of Schedule VII under which only Parliament has power to pass the impugned legislation. Parliament had full competence and power to pass Chapter III-C of the Reserve Bank of India Act. 1934.'
In view of this, the challenge as put forth does not hold any merit.
5. Next it is contended that impugned provisions impose prohibition against theunincorporated bodies from accepting deposit if the business as seen, isakin to the activity specified in clause (c) of Section 45-R. However, similar business is being carried by Non-banking Financial Companies as defined under Section 45-1F, only obligation cast on the Non-banking Financial Companies is to obtain certificate of registration under this chapter. Section 45QA provides further renewal of the deposits accepted by Non-banking Financial Companies. However, there is no total prohibition on the Non-banking Financial Companies from accepting deposits from the persons other than relations. Precisely it is, therefore, submitted that impugned provision under Section 45-S is violative of guarantee under Article 14 of the Constitution.
6. Submissions are totally misconceived. Unincorporated bodies like individuals or firms have a different legal entity than the Non-banking Financial Companies. Both of them cannot be grouped together as a single class so as to claim equality as guaranteed by Article 14 of the Constitution. Incorporated Company carries different obligation under the relevant provisions of the Act. For instance. Section 58A of the Companies Act imposes a limitation on corporate activities in the matter of accepting deposits. As such, petitioners cannot successfully canvass discriminatory treatment on the touchstone of Article 14.
7. Main challenge of the petitioners is that the prohibition Imposed by impugned provisions is violative of Article 19(1)(g) of the Constitution. The Supreme Court upheld the validity of 1983 Banking Laws (Amendment) Act on the test of reasonableness as envisaged under Article 19(6) of the Constitution in a decision reported in : [1993]1SCR832 (supra). According to the learned counsel for the petitioners, 1983 (Amendment) merely brought ceiling on accepting deposits by unincorporated bodies. However. impugned provision in 1997 has brought complete prohibition from accepting deposits from a third person. The argument advanced is that the prohibition as brought by theimpugned provision limiting the category of depositors is not reasonable and, therefore, violative of Article 19(1)(g).
S. The Supreme Court in a decision (1993) 2 SCC 582 (supra), has observed that prime object of the (Amendment) of 1983 was to safeguard the interest of the depositors. Undisputedly, the interest of depositors is an aspect of paramount consideration. With the experience as obtained with then prevailing law, by way of further measure, the impugned provisions vide Amendment of 1997 have been adopted. Supreme Court in Narendra Kumar and others v. Union of India and others : [1960]2SCR375 , while examining the purport on term 'restriction' appearing in clause (6) of Article 19 has observed. 'It is undoubtedly correct, however, that when, the restriction reaches the stage of prohibition, special care has to be taken by the Court to see that the test of reasonableness is satisfied. The greater the restriction, the more, the need for strict scrutiny by the Court'. Having regard to the ratio as laid down, we propose to examine the prohibition introduced by the impugned provision.
9. We have reproduced the impugned provision hereinbefore. Apparently the restriction is more stringent than earlier one. However, there is no complete prohibition on the right of individual or unincorporated bodies, to carry the business. They can carry the activity on their own strength or with the support of relations.
10. The unincorporated bodies have virtually been running a parallel economy. Some time the depositors are left high and dry when the affairs are in turmoil. To minimise the mischief, which is potent, impugned provisions bring further restrictions. It regulates the economic activity. In such activity, right or interest of individuals or association of individuals cannot prevail over the interest of the public. With the experience in past, the restrictions as imposed are by way of precautionary measure. This is to avoid or curtailthe degree of danger, which in all probability the depositors have to face in the event, affairs go topsy turvy. Since the restriction aims to minimise the mischief, it satisfies the test of reasonableness as envisaged by clause (6) of Article 19 of the Constitution.
We, therefore, hold that the challenges as put forth are without merit. The writ petitions are, therefore, dismissed. Interim orders stand vacated.