2006 Supreme(SC) 788

2006(8) Supreme 308
SUPREME COURT OF INDIA
(From Bombay High Court)
Arijit Pasayat and C.K. Thakker, JJ.
Ganesh Bank, Kurundwad Ltd.—Appellant
versus
Union of India & Ors.—Respondents
Civil Appeal No. 3698 of 2006
(Arising out of SLP (C) No. 7188 of 2006)
Decided on 28-8-2006
Counsel for the Parties :
For the Appellants : Raju Ramachandran, Sr. Advocate, Himanshu Gupta and Shivaji M. Jadhav, Advocates.
For the Respondents : Jaideep Gupta, Dr. A.M. Singhvi, Sr. Advocates, Kuldeep S. Parihar, H.S. Parihar, Kirat Singh Nagra, Indramil Deshmukh, Mark D’ Souza (for M/s. Suresh A. Shroff & Co.), Advocates.

IMPORTANT POINTS
1. Under Section 45 of the Banking Regulation Act, the primary consideration is public interest. There is an underlying object of acting swiftly and decisively to protest interests of depositors and ensure public confidence in the banking system.
2. There should be judicial restraint while making judicial review in administrative matters. However, it is trite law that exercise of power, whether legislative or administrative, will be set aside if there is manifest error in the exercise of such power or the exercise of the power is manifestly arbitrary.

Headnote:(i) Banking Regulation Act, 1949—Section 45(1)—Order imposing a moratorium in respect of appellant Bank—Notification proposing a scheme of amalgamation of appellant Bank with Federal Bank, another private sector commercial bank—Validity—Appellant Bank founded in year 1920, having a banking license given by the RBI, has some 32 branches and around 1,75,000 depositors—Writ petitions filed challenging order of amalgamation alleging that order imposing moratorium and then order appointing two Directors were malafide to suit convenience of Federal Bank, ultra vires the power of the RBI and Central Government, therefore bad in law, illegal and void—Allegations that subsequent framing of scheme of amalgamation and the decision to sanction the amalgamation were motivated and pre-planned decisions for the benefit of Federal Bank—High Court held that inference drawn by RBI was a positive inference, therefore, the decision of the RBI to impose moratorium was neither unjustified nor against the provisions of Section 45(1) of the Act—High Court held that allegation of malafides was not substantiated—Whether judgment of the High Court suffers from any infirmity to warrant interference—(No).

       Held : Under Section 45 of the Act, the primary consideration is public interest. There is an underlying object of acting swiftly and decisively to protest interests of depositors and ensure public confidence in the banking system. The emergent situation which warrants action with expedition cannot be lost sight of while deciding the legality of the action. It is brought on record that Federal Banks strength lay on the fact that it is a strong bank with huge net worth, large capital funds and huge amount of deposits with more than adequate CRAR. Its net worth is about Rs.897 crores, capital is around Rs.85 crores, and deposits to the tune of Rs.16,448 crores. Its CRAR (11.34 ) exceeds the RBI requirement (9 ) and percentage of NPAs (Gross and Net) is (5.17 and 1.41 respectively). For the accounting period ending 31st December, 2005 its profit is Rs.174 Crores.(Paras 46 and 47)

       As observed by this Court in Bari Doab Bank Ltd. v. Union of India and Ors. (1997 (6) SCC 417) the provisions of Section 45 of the Act provide adequate opportunity of a representation and no additional opportunity is required to be given. The objection filed by the appellant-Bank was duly considered. In fact, certain objections were raised and comments of the RBI on them were forwarded to the Central Government along with the final recommendations. The RBI was of the view that the proposal received from the Federal Bank was best under the circumstances and, therefore, the same appears to have been accepted.(Para 48)

       At this juncture it is to be noted that offer of Federal Bank was an unconditional offer, whereby it proposed to take over the responsibility of any regulatory forbearance. Three reasons given by the Federal Bank to take over the appellants Bank were considered cogent reasons and, therefore, RBIs decision cannot be faulted. As rightly contended the offers received from the City Bank, Standard Chartered Bank were neither comprehensive nor unconditional. In fact, they were not concluded offers, since they were both dependent upon a request for due diligence and in certain instances regulatory forbearances. Ratnakar Banks offer was not accepted as it was itself an ailing bank. (Para 49)

       (ii) ADMINISTRATIVE LAW—Judicial Review in Administrative Matters—Scope—Where administrative decisions have nexus with facts on record, there is no scope for interference—Exercise of power, whether legislative or administrative, will be set aside if there is manifest error in exercise of such power or exercise of the power is manifestly arbitrary—Doctrine of immunity from judicial review—Applicability.

       Held : There should be judicial restraint while making judicial review in administrative matters. Where irrelevant aspects have been eschewed from consideration and no relevant aspect has been ignored and the administrative decisions have nexus with the facts on record, there is no scope for interference. The duty of the court is (a) to confine itself to the question of legality; (b) to decide whether the decision making authority exceeded its powers (c) committed an error of law (d) committed breach of the rules of natural justice and (e) reached a decision which no reasonable Tribunal would have reached or (f) abused its powers. Administrative action is subject to control by judicial review in the following manner:

       (i)Illegality: This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it.

       (ii)Irrationality, namely, Wednesbury unreasonableness.

       (iii)Procedural impropriety.

       One of the points that falls for determination is the scope for judicial interference in matters of administrative decisions. Administrative action is stated to be referable to broad area of Governmental activities in which the repositories of power may exercise every class of statutory function of executive, quasi-legislative and quasi-judicial nature. It is trite law that exercise of power, whether legislative or administrative, will be set aside if there is manifest error in the exercise of such power or the exercise of the power is manifestly arbitrary.(Paras 52 and 53)

       The authority in which discretion is vested can be compelled to exercise that discretion, but not to exercise it in any particular manner. In general, discretion must be exercised only by the authority to which it is committed. That authority must genuinely address itself to the matter before it; it must not act under the dictates of another body or disable itself from exercising discretion in each individual case. In the purported exercise of its discretion, it must not do what it has been forbidden to do, nor must it do what it has not been authorized to do. It must act in good faith, must have regard to all relevant considerations and must not be influenced by irrelevant considerations, must not seek to promote purposes alien to the letter or to the spirit of the legislation that gives it power to act, and must not act arbitrarily or capriciously. These several principles can conveniently be grouped in two main categories: (i) failure to exercise a discretion, and (ii) excess or abuse of discretionary power. The two classes are not, however, mutually exclusive. Thus, discretion may be improperly fettered because irrelevant considerations have been taken into account, and where an authority hands over its discretion to another body it acts ultra vires. The present trend of judicial opinion is to restrict the doctrine of immunity from judicial review to those classes of cases which relate to deployment of troupes, entering into international treaties, etc. The distinctive features of some of these recent cases signify the willingness of the Courts to assert their power to scrutinize the factual basis upon which discretionary powers have been exercised. One can conveniently classify under three heads the grounds on which administrative action is subject to control by judicial review. The first ground is illegality the second irrationality, and the third procedural impropriety.(Paras 53 & 54)

       The court will be slow to interfere in such matters relating to administrative functions unless decision is tainted by any vulnerability enumerated above; like illegality, irrationality and procedural impropriety. Whether action falls within any of the categories has to be established. Mere assertion in that regard would not be sufficient. The famous case commonly known as "The Wednesburys case" is treated as the landmark so far as laying down various basic principles relating to judicial review of administrative or statutory direction.(Paras 55 & 56)

       Therefore, to arrive at a decision on "reasonableness" the Court has to find out if the administrator has left out relevant factors or taken into account irrelevant factors. The decision of the administrator must have been within the four corners of the law, and not one which no sensible person could have reasonably arrived at, having regard to the above principles, and must have been a bona fide one. The decision could be one of many choices open to the authority but it was for that authority to decide upon the choice and not for the Court to substitute its view.(Para 58)

       In other words, to characterize a decision of the administrator as "irrational" the Court has to hold, on material, that it is a decision "so outrageous" as to be in total defiance of logic or moral standards. Adoption of "proportionality" into administrative law was left for the future.(Para 60)