Back
2022 Supreme(Online)(Mad) 54247
IN THE HIGH COURT OF JUDICATURE AT MADRAS
N. Sathish Kumar, J
S. Ramachandran – Appellant
Versus
Union of India – Respondent
W.P.No.4061 of 2012 & M.P.No.2 of 2012
For the Appellants/Petitioners: Mr. T. Saikrishnan
For the Respondents: Mr. K. S. Jeya Ganesan, SPC for R1, Mr. T. Poornam for R2, Mr. K. Rajasekaran for R3
Judicial deference is essential in economic regulation; courts must respect administrative expertise unless actions are blatantly arbitrary.
Headnote:(A) Constitution of India - Articles 14, 19(1)(g), 21 - Writ of Declaration challenging circular issued by the Reserve Bank of India declaring it illegal and unconstitutional and opposed to public policy - Petitioner contended that the circular unjustly enriched lenders through compound interest practices; the circular mandates banks to apply retrospective interest rates, violating constitutional provisions. (Paras 2-5)
(B) Jurisdiction of Reserve Bank of India to regulate interest practices - Respondents argued the circular was within their legislative authority under the Banking Regulation Act, enabling control over banks and reflecting expert economic advice. (Paras 3-4)
(C) Judicial Deference to Legislative Judgment - Court emphasized the importance of judicial restraint in economic legislation, asserting courts should not substitute their judgments for those of economic experts without palpable arbitrariness. (Paras 10-11)
Facts of the case:
The petitioner challenged the RBI circular imposing retrospective compound interest rates on loans, alleging it led to unjust enrichment of banks. The petitioner sought legal action against regulatory overreach. The RBI countered that the directive was part of prudent banking practices initiated in 2002, not a retrospective application. (Paras 1-8)
Findings of Court:
The Court found the RBI’s circular to be lawful and within its authority, emphasizing the need for deference to regulatory judgments in economic matters, dismissing the writ petition aimed at quashing the circular. (Paras 12-13)
Issues: The principal issue revolved around the legitimacy of the RBI's directive on interest practices and its compliance with constitutional protections against unjust enrichment.
Ratio Decidendi: The court upheld the RBI's authority to issue circulars on banking practices while asserting judicial restraint and deference to economic regulation by knowledgeable authorities, ensuring consumer protections are not overly intrusive. (Paras 10-11)
Result: Writ Petition is dismissed.
| Table of Content |
|---|
| 1. challenge against rbi circular for public policy violation. (Para 1 , 2) |
| 2. rbi's authority is supported by legislative and economic considerations. (Para 3 , 4 , 5 , 6) |
| 3. judicial deference in banking regulation emphasized. (Para 7 , 8 , 12) |
| 4. economic legislation judged with more leniency. (Para 10 , 11) |
| 5. writ petition dismissed. (Para 13) |
ORDER
Writ Petition has been filed challenging the impugned circular of the second respondent bearing Ref. RBI/2006-07/14 DBOD. Dir.BC.5/13.03.00/2006-07, dated 01.07.2006 as illegal and unconstitutional and opposed to public policy.
2. The main ground on which the challenge is made to the circular is that the circular retrospectively directs all the banks to charge compound interest at monthly interest and also prescribing minimum rate of interest. According to the petitioner the rate of interest should be reasonable and the very concept of capitalization is only for the deterrent effect and not for unjust enrichment of the lenders. The impugned circular leads only to unjust enrichment and it mandatorily directs all the Banks to be Shylocks and as such it is opposed to public policy. The impugned circular is violative of Article 14 of the Constitution of India and 19(1)(g) of the Constitution of India and seeks to quash the impugned circular issued by the 2nd respondent.
3. Learned counsel for the 2nd respondent would submit that the Writ Petition is not maintainable as Reserve Bank of India, which is banker's bank, is creature of statute. It has large contingent of expert advice relating to the matters affecting the economy of entire country and nobody can doubt the bona fides of the Reserve Bank, in issuing the impugned directions and as per Sec.21 of the Banking Regulation Act, 1949, the Reserve Bank would control the banks.
4. The allegation that the interest rates at monthly rests are made applicable retrospectively is beyond truth and denied. The instructions in respect of charging of interest rates at monthly rests were issued to all scheduled commercial banks by the Reserve Bank in view of the circular dated March 9, 2002, wherein the banks were advised to move over to charging of interest on loans/advances at monthly rest with effect from 01.04.2002.
5. Learned counsel for the petitioner submitted that penal interest has been applied under the pretext of above circular. Practice of charing interest on compound interest will lead to changing interest even on monthly rests and capitalizing the same. Therefore, according to him the circular is violative of Art. 14, 19(1) (g) and 21 of the Constitution of India. In support of his submissions, learned counsel relied on the judgment of the Hon'ble Supreme Court in the case of Central Bank of India Vs. Ravindra and Others, (2002) 1 SCC 367
6. Learned counsel appearing for the 2nd respondent would submit that circular has been issued taking note of the functioning of the banks and economy as a growth and only on the advice of the expertize the circular has been issued and the Writ Court has no jurisdiction to interfere with the same. In support of his submissions, learned counsel relied on the judgment of this Court in the case of Deccan Chronicles Holdings Limited vs. Union of India, (2014) 4 MLJ and the case of Peerless General Finance and Investment Co.Ltd vs. Reserve Bank of India, AIR 1992 SC 1033.
7. Heard the learned counsel for the petitioner and the learned counsel for the respondents and I have perused the entire materials.
8. The main challenge is the circular, which according to the petitioner directs the banks to retrospectively apply the interest in a monthly rests and the same has been regularized by the Reserve Bank of India. It is the contention of the RBI that only the banks are adviced to move over for changing of interest on loans with monthly rests with effect from 01.04.2002. Therefore, the contention that there is a direction to apply retrospective interest is misconceived. What was issued is only a direc
