IMPORTANT POINT
It is in the competence of Reserve Bank of India to issue directions in the nature contained in Para 4A (inserted in Residuary Non-Banking Companies (Reserve Bank) Directions, 1987 by notification dated 19.4.1993) and the said provision is not violative of rights guaranteed under Articles 14 & 19(1)(g) of the Constitution.

Headnote:(i) Residuary Non-Banking Companies (Reserve Bank) Directions 1987-Notification by RBI dated 19.4.1993 inserting Paragraph 4A in 1987 directions restricting receipt of any amount towards processing or maintenance charges by any residuary non-banking company for meeting its revenue expenditure-Respondent Peerless Co. filing writ petition in Calcutta High Court-High Court holding that RBI was not competent to issue such notification under Sections 45-J, 45K, 45L of RBI Act, 1934-Appeal against to Supreme Court-Whether RBI is competent to issue notification dated 19.4.1993 inserting para 4A in 1987 directions under RBI Act ? (Yes)-High Court reversed. (Paras 18 to 28)
Held : It must, therefore, be concluded that Paragraph 4A, which has been inserted by notification dated April 19, 1993 in the 1987 Directions, falls within the power conferred on the Bank to issue directions under Section 45K(3) of the Act and the High Court was in error in holding that the said provision is ultra vires the power conferred on the Bank by the Act. In that view of the matter, we do not consider it necessary to go into the question whether the processing/maintenance charges received by Peerless from the subscribers under the schemes can be regarded as deposit as defined in clause (bb) of Section 45-I of the Act. For the same reason it is not necessary to go into the question whether the said direction could be sustained under Section 45-L of the Act. (Para 28)
(ii) Residuary Non-banking Companies (Reserve Bank) Directions, 1987-Notification of RBI dated 19.4.1993 inserting para 4A in 1987 directions-Para 4A restricting receipt of any amount towards processing or maintenance charges by any residuary non-banking Co. for meeting its revenue expenditure-Whether this paragraph 4A is violative of Articles 14 and 19(1)(g) of the Constitution ? (No) (Paras 29 to 37) -However, suggestion made to U.O.I. to make separate provisions for protection of interest of depositors.
Held : The working of Peeless and other residuary non-banking companies cannot be equated with that of mutual funds governed by SEBI (Mutual Funds) Regulations, 1993. Moreover, the schemes operated by Peerless are also not comparable with those of Mutual Funds. Even as regards the expenses, it may be stated that under Table 23 Peerless was receiving by way of processing charges and maintenance charges 30 of the first two instalments and under Table 26 it is receiving 18 of the first instalment. It is not disputed that a number of schemes are discontinued after the payment of one or two instalments and the subscriber gets only the amount of deposit excluding the processing charges and maintenance charges. The fact that processing charges and maintenance charges raised by Peerless are less than 6 of the endowment sum payable on maturity cannot, therefore, be the basis for holding that Paragraph 4A whereby the residuary non-banking companies are prohibited from receiving any amount by way of processing charges, maintenance charges or any similar charge imposes unreasonable restrictions on the right guaranteed under Article 19(1)(g) of the Constitution. (Para 34)
Held also : The question whether the amount of Rs. 10 that has been prescribed in the proviso to Paragraph 4A is inadequate to meet the cost of brochure/application form, and expenses servicing charges for depositors account cannot be gone into in the absence of the necessary pleadings and material in support thereof and, therefore, it is not possible to say that the amount of Rs. 10/- that has been prescribed in the proviso to Paragraph 4A is arbitrary or unreasonable. (Para 36)

JUDGMENT

S.C. Agrawal, J.-Special Leave granted.

2. This appeal directed against the judgment of the Culcutta High Court dated May 3, 1995, is in the third round of the litigation between the Peerless General Finance & Investment Company Ltd. (hereinafter referred to as Peerless ) and the Reserve Bank of India (hereinafter referred to as the Bank )

3. Peerless was incorporated in 1932 as a limited company under the provisions of the Indian Companias Act, 1913 with name Peerless General Insurance and Investment Company Ltd. It was carrying on life insurance business. After the enactment of the Life Insurance Corporation Act, 1936 Peerless could not carry on life Insurance business and it changed its name to Peerless General Finance and Investment Co. Ltd. and is now carrying on finance and investment business. It offers small saving schemes to the public at large wherein the subscribers are required to pay a fixed amount as subscription on yearly, half-yearly or quarterly basis for a fixed number of years and on the expiry of the said period, the subscriber is paid a sum of money called Endowment sum, which is the face value of the certificate, and certain additional amounts by way of bonus. The said schemes offered by Peerless are somewhat similar to Recurring Deposit Schemes run by commercial banks.

4. The business transacted by the banking companies is regulated by the Banking Regulation Act, 1949. Since non-banking companies started receiving deposits from general public on a large scale, it became necessary to make suitable provisions for regulating the same. The Reserve Bank of India Act, 1934 (hereinafter referred to as the Act ) was amended by Act No. 55 of 1963 and Chapter III-B [Sections 45(H) to 45 (Q)] which contains provision relating to non-banking institutions receiving deposits and financial institutions was inserted in the Act. In Section 45-I various expressions, viz., Company , Corporation , Deposit , financial institution , firm and non-banking institution have been defined. Section 45-J empowers the Bank to regulate or prohibit the issue of prospectus or advertisement by a non-banking institution soliciting deposits of money from the public. 45-K enables the Banks to collect information from non-banking institutions as to deposits and to give directions to such institutions. Section 45-L empowers the Bank to call for information from financial institutions and to give directions to such institutions. Section 45-Q provides that the provisions of Chapter-III B shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. After the insertion of Chapter III-B in the Act, the Bank issued three sets of directions to regulate acceptance of deposits by non-banking companies, categorising them into financial, non-financial and miscellaneous companies. Non-Banking Financial Companies (Reserve Bank) Directions, 1966 related to companies [other than an insurance company, or stock exchange or stock broking company] engaged in hire-purchase finance, housing finance, investments, loan equipment leasing, mutual benefit business etc. Non-Banking Non-Financial Companies (Reserve Bank) Directions, 1966 related to a company which was not a banking company nor a financial company referred to above. Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1973 related to a company engaged in the business of collecting moneys in one lumpsum or otherwise by sale of units certificates or other instruments and utilising the moneys so collected for giving to a specified number of subscribers by lot or draw, prizes or gifts etc. and refunding the money with or without interest to those who have not won any prize etc., or conducting any other for of chit or kuri or any other similar business. It was found that a vast majority of the non-banking companies accepting deposits were non-financial companies a

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1996 Supreme(SC) 24

Cases Referred (5)