2000 Supreme(SC) 1064

2000(4) Supreme 726
SUPREME COURT OF INDIA
(Under Art. 32 of the Constitution of India)
B.N. Kirpal and M.B. Shah, JJ.
Bhavesh D. Parish & Ors. -Petitioners
versus
Union of India & Anr. -Respondents
Writ Petition (C) No. 168 of 1997
Decided on 12-5-2000
Counsel for the Parties :
For the Appearing Parties : K.N. Raval, Additional Solicitor General, A.S. Nambiar, S. Siva Subramaniam, Sr. Advocates, S. Ganesh, R.S. Hegde, Tushar Tijoriwala, P.P. Singh, H.S. Parihar, Kuldeep S. Parihar, Ms. Manisha, Ms. Binu Tamta, S.K. Dwivedi, E.M.S. Anam, S.C. Birla, Ms. Shanta Basudevan, P.K. Manohar, K.V. Vishwanthan, K.V. Venkataraman, Krishnamurthi Swami, T. Harish Kumar, V. Balachandran, A.T.M. Sampath, V. Balaji and Manish Singhvi, Advocates.

IMPORTANT POINTS
Section 45-S of the Reserve Bank of India Act which imposes restrictions on partnership firms doing business of shroff from accepting deposits from public is not violative of Article 19(1(g) of the Constitution.

Headnote:(i) Reserve Bank of India Act, 1934-Section 45-S (as amended by 1997 Act)-Prohibition of acceptance of Deposits by unincorporated Bodies-Constitutional validity of-Shroffs-Section 45-S does not prohibit or restrict unincorporated body or individuals from carrying on business-Restriction is on carrying on of such business by utilising public deposits-There is no total prohibition or ban from accepting deposits by unincorporated bodies-No fundamental right to carry on business of financing with other people s money -Restrictions imposed on partnership firms to carry on their business like that of shroffs not violative of Article 19(1)(g).

       The impugned Section 45-S does not in any way prohibit or restrict any unincorporated body or individual from carrying on the business that it likes. It is open to unincorporated bodies to carry on their financial business either from their own funds or the funds borrowed from their relatives or from financial institutions. The restriction, which is placed by Section 45-S, is on the carrying on of such business by utilising public deposits. (Para 10)

       There is no total prohibition or ban from accepting deposits by incorporated bodies. It is only such incorporated bodies as are carrying on business referred to in Clauses I and II of sub-section (1) of Section 45-S of the Act which cannot accept deposits from the public. They can however receive loans from relatives. The appellants cannot claim a fundamental right to carry on the business of financing with other people s money. In other words, there can be no unrestricted fundamental right to accept deposits from the public. Since the deposit acceptance by unincorporated bodies is incapable of being regulated by virtue of the large number of such bodies, the provisions in the nature of the amended Section 45-S are necessary and unincorporated bodies should do their business with their own money or institutional finance or money borrowed from relatives. In view of the inherent risks to the general public at the hands of the unincorporated bodies engaged in financial activities and accepting public deposits, we agree that the restrictions now imposed by the amended Section 45-S cannot be considered as being un-reasonable. (Paras 17 & 18)

       The amended Section 45-S further expands the provisions of Chapter III-B by making it necessary for all those, who mobilize public funds for deployment in the financial sector, to follow the norms of prudential management which is the internationally accepted practice in relation to those handling public funds. In view of Chapter IIIB, particularly in its revised form after the amendment, it would have been highly incongruous to permit people to side step the discipline of Chapter IIIB by refusing to incorporate themselves. In view of this anomaly which has come about it was decided by the legislature not to permit such activities in the non-corporate sector. Nothing prevented the appellants who alleged to be the partners of different firms from incorporating themselves as a company. The real grievance was that the appellants did not want to comply with the norms of prudential management and, therefore, sought to paint a picture as though their trade had been prohibited. There was no impediment in the trade as long as it was carried on within the norms of Chapter IIIB. In fact, they would have greater latitude to do trade as a corporate body, in that the present restriction on the amount of money to be deposited would stand increased. In this context, it may be emphasised that there is absolutely no restriction on any person to utilise his own funds (including the funds received from his relatives) for any purpose he likes including para banking or financial activity. (Para 19)

       Historically, only banks have been allowed to accept deposits repayable on demand because they were subjected to maintenance of cash reserve requirement which would enable them to meet liabilities as and when they are called upon or when any demand is made for repayment. Since non-banking financial companies were not subjected to such cash reserve requirement, it was not desirable to allow non-banking financial companies to accept demand deposits. In any case, such bodies were nothing but para banking institutions and either they had to be regulated on the lines of the financial institutions and if that was not feasible, they should have appropriately been prohibited from accepting deposits from public. After all, the right to raise public deposit could not be construed as a fundamental right. The restrictions imposed cannot be considered unreasonable or arbitrary. (Para 20)

       Even if these restictions incorporated in the Act amount to a total prohibition, such action was necessary in the public interest as the mushroom growth of unincorporated bodies accepting deposits had gone beyond control calling for restriction of the nature imposed by the amended Section 45-S. (Para 23)

       It cannot be denied that shroffs have played an important roll in providingfinance in the rural sector and in small towns. But, deposite the services which they may have rendered, it is difficult to accept the contention that the RBI was not justified in imposing ban on unincorporated bodies accepting deposits from public while carrying on financing business. The inherent danger to the public specially in small towns and villages in permitting such business to be carried on un-checked and un-regulatory was ample justification for the impugned legislation, keeping in mind the experience of the public which had been dealing with such unincorported bodies in Kerala and Tamil Nadu. It is open to the appellants to organise their business within the permissible legal set up by forming non-banking financial corportions and functioning in accordance with Chapter III-B of the Act and the directives issued by the Bank from time to time. The prohibition on partnership firms to carry on their business like that of shroffs cannot be regarded as being an unreasonable restriction on the fundamental right of the appellants to carry on their trade. They can continue lending money as long as they do not borrow from the public. (Para 24)

       Section 45-S no doubt prohibits the conduct of banking business by an unincorporated non-banking entity like a shroff, but this prohibition has come about, inter alia, in the interest of unwary depositors and borrowers (from shroffs) and with a view to prevent them from committing financial suicide. Earlier attempts to adequately regulate the non-banking institutions not having achieved the desired result of protecting large number of depositors from unincorporated financial institutions which would suddenly mushroom overnight and then vanish without a trace, but taking with it depositors money, left the RBI with no alternative but to prohibit such unincorporated entities from conducting financial business which was more than akin to banking. The restrictions imposed against acceptance of deposits by unincorporated bodies carrying on financial activity or the business of deposit acceptance or lending in any manner are in the larger interest of general public vis a vis few persons accepting such deposits. The need for such restrictions had become acute and imperative in view of large scale mis-management of public funds by such unincorporated bodies. Accordingly, we hold that the provisions of Section 45-S of the Act are valid. (Paras 26 to 28)

       (ii) Interpretation of statutes-Validity of piece of legislation-Application for staying operation of piece of legislation-Courts duty-Merely because a statute comes up for examination and some arguable point is raised, legislative will should not normally be put under suspension pending consideration.

       When considering an application for staying the operation of a piece of legislation, and that too pertaining to economic reform or change then the courts must bear in mind that unless the provision is manifestly unjust or glaringly unconstitutional, the courts must show judicial restrain in staying the applicability of the same. Merely because a statute comes up for examinatio and some arguable point is raised, which persuades the courts to consider the controversy, the legislative will should not normally be put under suspension pending such consideration. It is now well-settled that there is always a presumption in favour of the contitutional validity of any legislation, unless the same is set-aside after final hearing and, therefore, the tendency to grant stay of legislation relating to economic reform, at the interim stage, cannot be understood. The system of checks and balances has to be utilised in a balanced manner with the primary objective of accelerating economic growth rather than suspending its growth by doubting its constitutional efficacy at the threshold itself. While the courts should not abrogate its duty of granting interim injunctions where necessary, equally important is the need to ensure that the judicial discretion does not abrogate from the function of weighing the overwhelming public interest in favour of the continuing operation of a fiscal statute or a piece of economic reform legislation, till on a mature consideration at the final hearing, it is found to be unconstitutional. It is, therefore, necessary to sound a word of caution against intervening at the interlocutory stage in matters of economic reforms and fiscal statutes. (Paras 29 & 30)