This is a petition under Article 226 of the Constitution for the issue of a writ of certiorari calling for the records connected with the notice dated 18th March, 1957, issued by the Reserve Bank of India, Madras, in DBO (M) No. L.I. 485/Ns. S-2 (L)-57 and quashing the same.

The Sajjan Bank (Private) Ltd., which is carrying on business at Alandur, originated from Sajjan & Co., Ltd., which was incorporated in November, 1944, with the main object of carrying on money-lending business. In May, 1946, the Company was converted into a banking company and in November of that year its name was changed into Sajjan Bank (Private) Ltd. All its shares are held by its three directors who are said to be closely related. The Banking Companies Act, 1949,. referred to hereafter as the Act, came into force on 16th March, 1949. Section 22 of the Act provided amongst other things that every banking company in existence at the commencement of this Act should before the expiry of six months from suck commencement and, every other company before commencing banking business, in India, apply in writing to the Reserve Bank for a licence under the section to carry on banking business. The section further provided that the Banking Companies in existence at the commencement of the Act could continue to carry on their banking business till final orders were passed on their applications for licence.

On 14th September, 1949, the petitioner-bank applied under section 22 of the Act, to the respondent for a licence to carry on banking business. The Officers or the Reserve Bank inspected the petitioner-bank under section 22 of the Act in July, 1952. A report of that inspection was prepared on 11th October, 1952. The inspection appears to have revealed the existence of certain defects in the working of the Bank. The Reserve Bank therefore decided to keep in abeyance the consideration of the question of issuing a licence evidently with a view to watch the progress of the bank in eradicating the defects pointed out by the inspection report. The defects noticed were the subject-matter of subsequent correspondence between the petitioner and the Reserve Bank. A fresh inspection of the petitioner bank was carried out in September, 1956, under section 35 of the Act. That also revealed certain defects. The respondent was evidently not satisfied that the affair of the petitioner-bank were being conducted in the interests of the depositors. The question of the grant of licence was taken up. The petitioner was directed to show cause against the refusal of the licence. The Bank was also furnished with a copy of the inspection report. After considering the representation of the petitioner the respondent by its letter dated 18th March, 1957, declined to grant the licence to the petitioner to carry on banking business in terms of the First proviso to sub-section (2) of section 22 of the Act. Aggrieved by that the petitioner has moved this Court for the issue of a writ of certiorari to quash the order of the respondent refusing to grant a licence to carry on business as a banking; company.

The petition is contested by the respondent, the Reserve Bank of India.

Mr. Rajah Iyer, the learned advocate for the petitioner, raised before me three contentions:

(1) That section 22 of the Banking Companies Act was unconstitutional in so far as it proceeded to restrict the fundamental right of the petitioner to carry on. its business, namely the banking business.

(2) Even if the provisions of section 22 of the Act be held to be in accordance with the Constitution, the action of the respondent was arbitrary.

(3) In any event the procedure adopted by the respondent was illegal in. that after an inspection under section 35 it could only proceed to act under section 35 (4) and not refuse the licence altogether.

Before considering the various contentions urged on behalf of the petitioner, it is necessary to refer briefly to the position of the Reserve Bank of India and also to certain provision