( 1 ) IN the instant writ petition the petitioners have challenged the legality and validity of the two amendments made by the Reserve Bank of India to the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987, which were framed by the Reserve Bank of India in 1987 in exercise of the powers under Sections 45j and 45k of the Reserve Bank of India Act, 1934. The impugned amendments have been made through two notifications dated April 10, 1993, and April 19, 1993. The impugned amendments purport to have been made under Sections 45j, 45k and 45l of the Reserve Bank of India Act, 1934.

( 2 ) THE petitioner-company carries on the business, inter alia, of offering various small savings schemes to the public at large, Under the said scheme, moneys are paid by the subscribers in lump sum or in instalments and the subscribers get back the said money at the end of a contractually stipulated maturity period along with interest accrued thereon and certain guaranteed accretions and bonus. The petitioner-company invests the subscriptions received from the subscribers in such a manner that it is able to give to the subscriber interest (the minimum rate of which is now fixed by statutory directions of the Reserve Bank) and some guaranteed bonus and other accretions. The schemes of the company carry certain privileges like free accident insurance under a tie-up arrangement with the General Insurance Corporation of India, unit : New India Assurance Co. Ltd. Full particulars of the schemes offered by the petitioner-company will appear from a representative sample annexed to the writ petition.

( 3 ) IT appears from the record that until May 15, 1987, the petitioner-company followed an accounting practice which was popularly known as the actuarial system of accountancy. Under the said system, the company used to transfer a part of the subscriptions received from the certificate holders in the first few years to the profit and loss account, showed the same as income and utilised the same for meeting the working capital requirements of the company like management expenses, staff salaries, agents commission, overheads, etc.

( 4 ) IT has been contended on behalf of the petitioners that the said accounting practice was commended by the Reserve Bank of India. In this connection the

petitioners have referred to the affidavit affirmed by one Venkatachalam Subramanian in this court in a writ petition filed by one Favourite Small Investments Co. Ltd. being C. R. No. 5940 (W) of 1977. The said writ petition was filed by Favourite Small Investments Co. Ltd. challenging the exemption granted to the petitioner-company from the provisions of the 1973 Directions alleging discrimination against Favourite. In the affidavit affirmed in the said proceedings by the Reserve Bank of India as aforesaid, the Reserve Bank praised the accounting practice followed by the petitioner-company whereunder a part of the subscriptions was transferred to the profit and loss account. The Reserve Bank of India also praised the functioning and financial position of the petitioner-company.

( 5 ) ON or about May 15, 1987, the Reserve Bank of India framed a set of statutory directions known as the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987, in exercise of the powers under Sections 45j and 45k of the Reserve Bank of India Act, 1934. By the said Directions, it was made obligatory for the petitioner-company to invest the entire subscriptions received from a certificate holder along with the accrued interest in the mode specified in the said 1987 Directions. Under the said Directions, it was also made obligatory for the petitioner-company to disclose the entire subscriptions received by way of deposits along with accrued interest as liability of the petitioner-company in its balance-sheets. Thus, it was no longer permissible for the petitioner-company to transfer or utilise any portion of the subscriptions/deposits received from the cer