Judgment

S.MOHAN, J.

(1) ALL these civil appeals arise by certificate granted by the High court of Delhi against the decision reported in Kanta Mehta v. Union of India .

(2) ALL these civil appeals and writ petitions challenge the constitutional validity of Ch. III-C read with Section 58-B(5-A) of the Reserve Bank of India Act, 1934, introduced by the Banking Laws (Amendment) Act, 1983 (Act 1 of 1984. Hence, they are dealt with under a common judgment.

(3) IN order to appreciate the challenge the necessary legal background may be set out.

(4) IN the year 1949, the Banking Regulation Act of 1949 was enacted. That contained regulatory provisions in regard to banking under the surveillance of the Reserve Bank of India as to what would constitute "banking" as defined under Section 5(b) of the 1949 Act.

(5) IN the year 1959, the Banking Companies (Amendment) Act, 1959 was passed. S. 17 and 18 were substituted which required banking companies to create reserve fund and maintain cash reserve. In the year 1963, Banking Laws (Miscellaneous Provisions) Act, 1963 inserted Chapter III-B in the Reserve Bank of India Act. This Ch. conferred extensive powers on the Reserve Bank of India to issue suitable instructions, to regulate and monitor diverse activities of non-banking companies. The powers to control and regulate these non-banking institutions are set out in S. 45-1 to 45-L. While exercising these powers, the Reserve Bank of India was issuing various directions to these non-banking financial institutions. One such important direction was issued on 1/01/1967 to the effect that the non-banking financial companies were not to hold deposits in excess of 25 per cent of its paid- up capital and the reserves as also to non-banking, non-financial companies. They were also required to take steps to keep the deposits within the limits. This direction was challenged unsuccessfully before the Madras High court as seen from the case of Mayavaram Financial Corporation Ltd. v. Reserve Bank of India .

(6) IN 1968, by Banking Laws (Amendment) Act, 1968, S. 10-A to 10-D were introduced. Section 10-A provided that the Board of Directors shall include persons with professional or special knowledge. Section 10-A(5 empowered the Reserve Bank of India to vary the composition of the Board.

(7) WHEN a report of the Study Group of non-banking financial intermediaries was submitted in the year 1971 that was studied. Thereafter in 1973 the Reserve Bank of India issued Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1973 placing certain restrictions on companies carrying on prize chit and chit business from receiving deposits from the public.

(8) IN 1974, Section 58-A of the Companies Act was inserted by the Companies (Amendment) Act of 1974, which came into force from 1/02/1975. The object was to regulate deposits received by non- banking non-financial companies. The financial companies were already covered by Reserve Bank of India directions under the Reserve Bank of India Act. Therefore, they were exempted under Section 58-A(7 from the purview of that section. Since the non-banking non-financial companies came within the purview of Section 58-A, the earlier directions issued by the Reserve Bank of India Act to non-banking non-financial companies in the year 1966 were withdrawn. By an amendment of 1977, Section 58-A was further enlarged and the central government was empowered to grant extensions.

(9) IN June 1974, another Study Group was constituted which is popularly known as James Raj Committee.

(10) IN July 1975, the above Study Group gave its report. In accordance with the recommendations of the Study Group elaborate rules were issued by the central government under Section 58-A, called Banking Companies (Acceptance of Deposits) Rules, 1975 with a view to regulate the various activities of the companies to accept deposits from public. The validity of the sec