PEERLESS GENERAL FINANCE AND INVESTMENT CO. LTD. AND ANR .. v. RESER VE BANK OF INDIA

The Judgment of the Court was delivered by

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Government. A learned Single Judge of the l:jigh Court dismissed both A the writ petitions but appeals preferred by the Peerless under the Letters Patent were allowed by a Division Bench of the Calcutta High Court.

It was declared that the business carried on by the Peerless did not come within the mischief of the Prize Chits Banning Act. Against the judgment of the Division Bench of the Calcutta High Court, the Reserve B Bank of India, .the Union of India and the State of West Bengal preferred appeals before this court. The question considered in the above case was "Is the endowment scheme of the Peerless Company a Prize Chit within the meaning of Section 2(e) of the Prize Chits and Money Circulation Schemes (Banning) Act?" This court held that section 2(e) does not contemplate a scheme without a prize and, therefore, the Endowment C Cert.ificate Scheme of the Peerless Company was outside the Prize Chits Banning Act: Appeals tiled by the Reserve Bank of India, the Union of India and the State of West Bengal were accordingly dismissed. Chinnappa Reddy, J. observed:

"It is open to them to take such steps as are open to them in D law to regulate schemes such a5 those run by the Peerless Company to prevent exploitation of ignorant subscribers. Care must also be taken to protect the thousand of employees. We must also· record our dissatisfaction with some of the schemes of the Life Insurance Corporation which appear to us to be even less advantageous to the subscribers than the Peerless E Scheme. We suggest that there should be a complete ban on forfeiture clauses in all savings schemes, including Life Insur- ance Policies, since these clauses hit hardest .the classes of people who need security and protection most: We have ex- plained this earlier and we do wonder ':"hether the weaker sections of the people are not being made to pay the more F affluent sections' Robbing Peter to pay Paul? It was further observed "We would also like to query what action the Re- serve Bank of India and the Union of India are taking or pro- posing to take against the mushroom growth of finance and investment companies" offering staggeringly high rates of in- terest to depositors leading us to suspect whether these compa- G nies are not speculative ventures floated to attract unwary and credulous investors and capture their savings. One has only to look at the morning's newspaper to be greeted by advertise- ments inviting deposits and offering interest at astronomic rates. On January l, 1987 one of the national newspapers pub- lished from Hyderabad, where one of us happened to be spend- H

420 SUPREME COURT REPORTS [1992] I S.C.R.

A ing the vacation, carried as many as ten advertisements with 'banner headlines' covering the whole of the last page, a quar- ter of the first page and• conspicuous spaces in other pages offering fabulous rates of interest. At least two of the advertis- ers offered to double the deposit in 30 months, 2000 for 1000, 10,000 for 5,000, they said. Another advertiser offered interest B ranging between 30 per cent to 38 per cetit for periods ranging be.tween six months to five years. Almost all the advertisers offered extra interest ranging between 3 per cent to 6 per cent if deposits were made during the Cbristmas-Pongal season. Several of them offered gifts and prizes. If the Reserve Bank of India considers the Peerless Company .with eight hundred c crores invested in government securities, fixed deposits ~th National Banks etc. unsafe for depositors, one wonders what they have to say about the mushroom non-banking companies which are accepting deposits, promising most unlikely return and what action is proposed to be taken to protect the inves- tors. It does not require much imaginahon to realise the adven- D . turous and precarious character of these businesses. Urgent action appears to be called for to protect the public. While on the one band these schemes encourage two vices affecting public economy,. the desi~e to make quick and easy money and the habit of excessive and wasteful consumer spending, on the other hand the investors who generally belong to the E gullible and less affluent classes have no security whatsoever. Action appears imperative." Khalid, J., another learned Judge aggreeing with the judgment of Chinnappa Reddy, J., further added his short but important concluding paragraph as under : F "I share my brother's concern about the mushroom growth of financial companies all over the country. Such companies have proliferated. The victims of the schemes, that are attractively put forward in public media, are mostly middle class and lower middle class people. Instances are legion where such needy G people have been reduced penniless because of the fraud played by such financial vultures. It is necessary for the authorities to evolve fool-proof schemes to see that fraud is not allowed to be played upon persons who are not conversant with the prac- tice of such financial enterprises who pose themselves as bene- factors of people." H Taking note of the weighty observations made by this Court, the

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Reserve Bank of India in exercise of the powers conferred by Section 45 A (J) and 45 (K) of the Reserve Bank of India Act, 1934 (hereinafter re- ferred to as the Act) and of all the powers enabling it in. this behalf and considering it necessary in the public interest issued certain directions by notification No. DFC.55/DG(0)-87 dated the 15th May, 1987 (hereinafter referred to as the 'directions of 1987'). The const.itutional validity of these directions of 1987 was challenged by Timex Finance and Investment Com- B pany Ltd. (hereinafter referred t.o as 'Timex Company') by filing a writ petition in the Calcutta High Court before the 'teamed Single Judge. The learned Single Judge granted an interim ·Order in terms of prayers (g) and (h) of the writ petition. The Reserve Bank of India aggrieved against the mterim order filed an appeal before the Division Bench. A stay petition was also moved on behalf of the Reserve Bank of India for staying the operation of the order dated 7th October, 1988 passed by the learned Single Judge. After hearing the stay petition for sometime, the Division Bench of the. High Court listed the appeal as well as the stay petition for final disposal. The Division Bench of the High Court disposed of the appeal as well as the writ petition by an order dated March 23, 1990 and arrived to the following findings and conclusions: D·

"(a) Reserve Bank of India is empowered tci issue directions to the residuary non,banking companies under the provisions of Sec- tion 45J and 45K of the Reserve Bank of India Act, 1934 for the interest of thousands of depositors. (b) However, to the extent such directions are found to be prohibi- E tory or not workable and as such unreasonable must be held to be beyond the powers of the Reserve Bank oflndia. · (c) The impugned directions providing that they represent irreduc- ible minimum for safeguarding the interest of and for preventing exploitation of small and unwary depositors cannot be imple- F mented without suitable modification. It is not reasonably practi- . cable to comply strictly with the directions as they stand by the writ petitioners and the similarly situated companies. The Su· preme Court in Peerless case (Supra) ... reserved the liberty to the Reserve Bank of India to take such steps as are open to them in law to regufate the schemes such as .those granted by the Peerless G_ to prevent exploitation of subscribers and to p10lect- lho11sands of employees. The impugned directions without modifications will _run counter to the aforesaid directions of the Supreme Court. (d) The. business of savings and investments carried on by .the com- pany and similarly situat.ed companies having not been declared unlawful or banned, power of the .Reserve Bank of India to regu- H

422 SUPREME COURT REPORTS [1992] I S.C.R.

A late such business cannot be pennitted to be prohibitory resulting in the ultimate closure of the business carried on by the writ petitioner company and other similarly situated companies. If the modifications as suggested by us are not implemented and if ultimately the business is closed down and the company goes into liquidation, the hard earned money of thousands of deposi- B tors will be lost and the employees would also lose their job. If even after modifications are made to the impugned directions in tenns of this order, any company· fails to comply with such di- rections, the Government may take such steps as are open to them to protect the interests of the thousands of small depositors and.numerous employees. c (e) The reasons why the impugned directions cannot be complied with and are held to be unworkable and unreasonable are mainly because of the definition of liability assigned in the impugned directions. The impugned directions, as they stand now, cannot be implemented by the residuary non-banking companies with- out incurring loss irrespective of their net-worth. According to the impugned directions, the liability is the amount of money deposited by the depositors plus the amount of interest whether or not due to them according to the tenns of the respective contracts at the given point of time. In other words, the entire collection with the interest, Bonus etc. whether Ifayable or not would be the liability of the Company. This leaves no fund for working. If the definition of liability is amended as suggested by us,' it will be possible for the companies to generate working capital. In our view, liability in clause 6 and in other clauses of the impugned directions should be construed to mean total amount of contractual dues of the depositors including interest, premium, bonus or other advantages by whatever name called, accrued on F. the amount according to the terms of contract. Section 451 and 45K of the Act do not authorise the Reserve Bank of India to introduce a concept of liability which is contrary to the accepted com1nercial practice and trading principles. The i1npugned di- rections have failed to make distinction between the actual li- ability in presenti and a liability de fimiro. Liberty must be reserved to the companies to adopt normal accountancy practice recognized and accepted in the trading circles so long as such accounting practice provides for payment of the liability to the depositors in accordance with the contractual obligations. How- ever, the Reserve Bank of India may, having regard to the facts and circumstances of each case issue directions regulating the administrative and management expenses and expenditure on com-

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~ mission and publicity. In the impugned directions no restriction has been imposed on the expenditure by a residl\(rry non-banking company on any of these heads. In our view,_the impugned directions without modifications, in- stead of suppressing the mischief, will only lead to adverse un- workable and/or impracticable results inasmuch as if the residu- ary non-banking companies cannot comply with such directions in toto, such companies have to go out of existence. This cannot be the object of the impugned directions. If the liability in terms of the contractual obligations is provided not only in -the ac- counts but also by suitable investment in terms of Clause 6 of the directions, in our view, all the residuary non-banking compa- nies, irrespective of their net worth, will be able to carry on the c business. (t) Every residuary non-banking company shall disclose its liability in its Books of Accounts and balance sheet the aggregate amount of liability accrued and payable to the· depositors in .accordance with the terms of the contract. D (g) The directions contained in clause 6 for deposit or investment and the liability shall be read subject to the modification of the designation of the liability as aforesaid. (h) The directions are prospective. The period of deposit and· the date of return with respect to all certificates issued prior to 15th May 1987 have been excluded from the purview of the directions as per ciause 18 (!).This exemption should.include all contrac- tual obligations on those certificates. (i) All funds prior to the issue of the directions should be allowed to be kept in the mannh as was being done by the respective re- siduary non-banking c.ompany. The direction with regard to the investment shall be ·ap.plicable from the money collected and/or received on and after 15th May 1987. The companies shall be allowed reasonable time to make good the deficiency in the in- vestment required to be made in terms of the directions after 15th May 1987. Gl We are not unmindful of the fact that exercise of power by legislature llnd executive is subject to judicial restraint. The only check on judicial exercise of power is the self-imposed disci- pline of judicial restraint. But although the courts in exercise of judicial power are not competent to direct the enactment of a . _ particular provision of law, ifthe statutory directions suffer from arbitrariness, the court is competent to issue necessary direction so that. the statutory directions may be brought in conformity

424 SUPREME COURT , REPORTS [1992] I S.C.R.

A with law. As we have held that the Reserve Bank of India has ~· transgressed the statutory power to the extent indicated else- where in the judgment, we are of the view that the Reserve Bank of India shall modify the directions and make them reasonable and workable to safeguard the interest of depositors and protect the employees." B The Division Bench also considered an application filed by Favour- ite Small Investment Company and by order dated 20th December, 1990 directed that the Reserve Hank of India should revoke the prohibitory order and permit Favourite Small Investment Company to accept fresh deposits .and carcy on new business. c ' .- .., ·~· . It may be noted that the Peerless filed a petition before the High Court for becoming a· party-respondent .. The High Court by order dated 31st August, 1990 allowed the said application and further ordered that the cause title and the records proceedings of appeal, memorandum of appeal and. the paper book filed be amended accordingl'y. The Peerless also moved an application for clarification of the judgment and order dated 23rd March, 1990. it' prayed that suitable provision should be made for a depositor who wants back the money before maturity. If the deposi- tor intends to get refund of the money invested before the expiry of actual contract period, he should. be required to keep the funds for a miriimum period in aceordance with the contr.11ct. Before maturity he can only take loan but not the principal amount with interest. The amounts of returns should also be less than 5 per cent to provide for the collection and o.ther expenses of the non-banking companies. The Division Bench of the High Court took the view that the order dated 23rd March, 1990 required clari- fication as it was not made clear as to whether non-residuary banking companies are under an obligation to pay discontinued certificates before the stipulated period in the contract, if so what would be the rate of interest. The Division Bench by order dated December 24, 1990 clarified its earlier order dated 23rd March, 1990 as under : "(a) If the contract by and between the company and the depositor provides that no payment on discontinued certificate will be made before the expiry of the term stipulated in the contract, in such cases, if the certificate is discontinued any time before such stipulated term and payment is made to the depositors according to the terms and conditions of the contract, in other words, on the expiry of the term stipulated in the contract, sui:h depositor shall be paid interest at the rate of 8% compound per annum, but in such a case the company will be at liberty to deduct an amount not exceeding 5% from the total return in or to provide for collection and other expenses' incurred in connection with these

PEERLESS CO. v. R.B.l.[KASLIW AL, J.) 425

discontinued certificates A (b) hi cases where certificates are ·discontinued before or after the I stipulated tenn but the depositors obtain refund only upon matu- rity of the certificates such refund shall be made to the deposi- tors with compound interest at the rate of 8% per annum without any deduction whatsoever. B (c) Since no payment will be made against the discontinued certifi- cates to the depositors in such cases shall be pennitted to take loan, if they so intend, against the payment made till discontinu- ance of such tenns ancl conditions as the company may stipu- late." The Reserve Bank of India aggrieved against all the above orders of C the Calcutta High Court has filed appeals against the orders dated 23rd March, 1990, 31st August, 1990, 20th December, 1990 and 24th De- ·cember, 1990. The Peerless General Finance and Investment Company Ltd., has also filed a writ petition No. 671 of 1991 directly before this Court under Article 32 of the Constitution of India. · D ·In view of the fact that the questions raised in the appeals filed by the Reserve Bank of India against the orders of the High Court and in the ;.. civil writ petition filed by the Peerless Company are common, the same were heard together and are disposed of by a single order. Interlocutory applications were also filed on behalf of the employees of the Peerless Company, agents of Peerless Company working in the field, and some of E the depositors in the Peerless company. W_e have heard.them also.

The main controversy centers round paragraphs (6) and (12) of the· directions of 1987 and as such the same are reproduced in full.

l'aragraplrf6j Security for depositors On and from 15th May 1987-

(1) Every residuary non-banking company shall deposit and keep deposited in fixed deposits with public sector banks or invest and keep invested in unencumbered approved securities (Such secu- G rities being valued at their marked value for the time being), or in other investments, w)lich in the opinion of the company are safe, a sum which shall not, at the close of business on 31st December 1987 and thereafter at the end of each half year that is, 30th June and 3 lst n,;cember be less than the aggregate amounts of the liabilities to the depositors whether or not such amounts H have become payable:

426 SUPREME COURT REPORTS [1992] I S.C.R.

A Provided that of the sum so deposited or invested (a) not less than ten percent shall be in fixed deposits with any of the public sector banks; (b) not less than 70 per cent shall be in unapproved securi- ties; B (c) not more than 20 per cent or ten times the net owned funds of the company, whichever amount is Jess, shall be in other investments, provided that such investments shall be with the approval of the Board of Directors of the Company.

c Explanation :

"Net owned 'funds" shall mean the aggregate of the paid-up capital and free reserves as appearing in the latest audited balance sheet of the company as reduced by the amount of accumulated balance of loss, deferred revenue expenditure and D . other intangible assets, if any, as disclosed in the said balance sheet.

(2) Every residuary non-banking company shall entrust to one of the public sector banks designated in that behalf, deposits and secu- rities referred to in clauses (a) and (b) of the proviso to sub- E paragraph (I) to be held by such designated bank for the benefit of the depositors. Such securities and deposits shall not be with- drawn by the residuary non-banking company, or otherwise dealt with, except for repayment to the depositors.

(3) Every residuary non-banking company shall furnish to the Re- serve Bank within thirty days from the close of business on 31st F December 1987 and thereafter at the end of each half year that is as on 30th June and 31st December, a certificate from its audi- ~ tors, being members oflnstitute of Chartered Accountants, to the effect that the amounts deposited in fixed deposits and the in- . vestments made are not Jess than the aggregate amounts of liabilities to the depositors as on 30th June and 3 Jst December of G that year. Explanation·:

For the purpose of this paragraph,

H (a) "Aggregate amounts of liabilities" shall mean total amount of deposits received togetl1er with interest, premium, bo-

PEERLESS CO. v. R.B.l.[KASLIW AL, J.] 427

nus or other advantage by whatever "name called accrued . A on the amount of deposits according to the tenns of con- tract.

(b) "approved securities" means; the securities in which the Trustee is authorised to invest trust money by any law. for the time being in force in India and bonds or fixed depos- B its issued by any corporation· established or constituted under any Central or State enactments.

(c) "public sector banks" means, the State Bank of India, the Subsidiary Banks and the corresponding new banks re- ferred to in Section 45(1) of the Reserve Bank of India Act, 1934 (2of1934). c (d) "unencumbered approved securities" shall illclude the ap- proved securities lodged by the company with another institution for advance or any other credit arrangements to the extent to which such securities have not been drawn against or availed of. D

Paragraph (12) Every residuary non~banking company shall disclose as liabilities in its books of accounts and balance sheets the total amount of deposits received together with interest, bonus, premium or other ad- vantage, accrued or payable to the depositors. E We would first deal with the legal objections raised on behalf of the Peerless and other companies. It has been submitted on behalf of the Peerless and other companies that the directions of 1987 are ultra vires of Sections 45J and 45K of the Reserve Bank of India Act, 1934. None of the said sections authorises the Reserve Bank to fiame any directions pre- F scribing the manner of investment of deposits received or the method of accountancy to be followed or.the manner in which its balance-sheet and books of accounts are to be drawn up. It has been contended that Section 45J has .no manner of application in the present case. Section 45K (3) of the Act on which reliance has been placed on behalf of the Re.serve Bank, mere1y provides that the Reserve Bank may, if it considers necessary in G the public interest so to do, give directions to non-banking institutions either generally or to any non-banking institutions in particular, in respect of any matters relating to or connected with receipts of deposits, including the rate of interest payable on such deposits and the purpose for which deposits will be received. According to Sec. 45K (4) if any non-banking institution fails to comply with any direction given by the bank under sub- H

428 SUPREME COURT REPORTS· [1992] I_ S.C.R.

A s. (3) the Reserve Bank may prohibit the acceptance of deposits by that non-banking institution. It is thus submitted that on a plain reading of Sec.45K (3.) the Reserve Bank is only competent to frame the directions regarding receipt of deposits and such power of direction does not extend to providing the manner in which deposits can be invested or the manner in which the liabilities are to be disclosed in the balance-sheet or books of B accounts of th_e company. It is further submitted that the power under sub- s. (4) is to prohibit acceptance of deposits _and as such the .pennissible field of direction making is limited to receipt of deposits and nQthing more. The Reserve Bank of!ndia in framing the directions of 1987 which is a subordinate piece of legislation has clearly over-stepped the bounds of the parent statute ofSec.45K {3) of the Act. c · 11 is further argued that the Reserve Bank cannot contend that para- graphs 6 and 12 of the directions of 1987 are covered within the powers conferred on the Reserve Bank under Sec. 45L (1) (b) of the Act. It is submitted that the Reserve Bank had at no point of time expressed its intention to invoke its powers under Sec. 45L. Even before the Division D Bench of the Calcutta High Court the Reserve Bank did not rely on Sec. 45L as alleged source of its power to issue the impugned directions nor the Reserve Bank referred to Sec. 45L in its pleadings before the High Court. Wherever the Reserve Bank of India wanted to invoke its power under Sec 45L of the Act, it has expressly mentioned that it was exercis- ing its pow_ers under Sec. 45L. In the case of Mn-banking financial com- £ patties (Reserve Bank) directions 1977, or the miscellaneous non-banking _companies (Reserve Bank) Directions, 1977 it has expressly said that it was invoking its powers under sec.45L of the Act, whereas in the case of the impugned directions, the Reserve Bank has only referred to sections 45J and 45K of the Act. The Reserve bank of India itself in the affidavit . filed before the high Court had stated that the directions of 1987 were framed after careful deliberations at the highest level and now it cannot take the stand that the source of its power in framing the impugned directions was exercised under sec.45L of the Act. It is further contended that in order to invoke the powers under sec.45L of the Act it has to state that the Reserve Bank was satisfied for the purpose of enabling it to regulate the credit system of the country to its advantage and it was necessary to give such institutions directions relating to the conduct of business by financial institUtion or institutions. In order to exercise its powers under sec.45L of the Act, it has to apply its mind for the purpose of arriving at the statutorily required satisfaction. In fact, such recital is necessary since such satisfaction is a pre-condition for the Reserve Bank to exercise its powers under section 45L of the Act. . H On the other hand it has been contended on behalf of the Reserve

PEERLESS CO. v. R.B.l.[KASL!W AL, J.J 429

Bank that the power of the Reserve Bank to regulate deposit acceptance A activities of non-banking and financial institutions under Chapter lllB of the Act cannot be disputed. The Reserve Bank has power to issue the impugned directions under Sections 45J, 45K and 45L of the Act. The pith and substance of Para 6 of the directions of 1987 is fo ensure that deposit$ received from the public are invested in a manner ·to secure the repayment of the deposits. A deposit is, by definition, a sum of money received with · B. a corresponding obligation to repay the same. Thus, the repayment of the deposit is an integral part of the transaction of a receipt of deposit. It is contended that the expression "receipt of deposit" must be. construed lib- erally, in the light of.the nattlre of the provisions as well as in the light of the wide language used in the provision. It is also argued that even if the impugned directions of 1987 are not covered under the .powers conferred C under Sections 45J and 45K of the Act, those ate squarely covered by Section 45L of the Act. It is submitted that various provisions under the Act are enabling in nature and confer overlapping powers. Even if there is no recital of Sec. 45L, it would not be of much consequence, if such exercise of power can be related to Sec. 45L of the Act. D We have considered the arguments advanced. by learned counsel for the parties. Chapter IIIB laying down provisions relating to non-banking • .>-.. institutions receiving deposits and financial institutions was. inserted in the Reserve Bank of India Act, 1934, by virtue of Act 55 Qf 1963 w.e.f. 1.2.1964. Sections 45J, 45.K (3) & (4) and 45L I (b) relevant for our purpose are given as under : E

Sec. 45.l.

"The Bank may, if it considers necessary in the public interest so to do, by general or special order,- F (a) regulate or prohibit the issue by any non-banking institu- tion of any prospectus or advertisement soliciting depos- its of money from the public; and · (b) ,specify the conditions subject to which any such prospec- tus.or advertisement, if not prohibited, may be .issued. G Section 45K

(I) (2) (3) The Bank may, if it considers necessary in the public interest so to do, give directions to non-banking institutions either generally or to any H

430 SUPREME COURT REPORTS [1992] I S.C.R.

A non-banking institution or group of non-banking institutions in particular, in respect o.f any matters relating to or connected with the receipt of deposits, including the rates of interest payable on such deposits, and the periods for which deposits may be received.

(4) If any non-banking institution fails to comply with any direction B given by the Bank under sub-section (3), the Bank may prohibit the ac- ceptance of deposits by that non-banking institution .

.Section 45L (1) If the bank is satisfied that for the purpose of ena- . bling it to regulate the credit system of the country to its advantage it is necessary so to do; it may - c (a)

{b) give to such institUtions either generally or to any such institution in particular, directions relating to the conduct of . business by them or by it as financial institutions or institution. D A combined reading of the above provisions unmistakably goes to show that the Reserve Bank if considers necessary in the public interest so to do· can specify the conditions subject to which any prospectus or adver- tisement soliciting deposits of money from the public may be issued. It can also give directions to non-banking institutions in respect of any E matters relating to or connected with the receipt of deposits, including the rates of interest payable on such deposits; and the periods for which deposits may be received. This latter power flows from sub-s. (3) of Sec. 45K of the Act. The Bank under this provision can give directions in respect of any matters relating to or connected with the receipt of deposits (emphasis added). In our view a very wide power is given to the Reserve F Bank of India to issue directions in respect of any matters relating to or cormected with the receipt of deposits. It cannot be considered as a power restricted or limited to receipt of deposits as sought to be argued on behalf of the companies that under this power the Reserve Bank would only be competent to stipulate that deposits cannot be received beyond a certain limit or that the receipt of deposits may be Jinked with the capital of the company. Such interpretation would be violating the language of Sec. 45K (3) which furnishes a wide power to the Reserve Bank to give any direc- tions in respect of any matters relating to or connected with the receipt of deposits. The Reserve Bank under this provision is entitled to give direc- tions with regard to the manner in which the deposits are to be invested and also the manner in which such deposits are to be disclosed in the balance-sheet or books of accounts of the company. The word 'any' quali-

PEERLESS CO. v. R.B.l.IKASUWAL, J.J 431

fying matters relating to or connected with the receipt of deposits in the above provision is of great significance and in our view the impugned directions of 1987 are fully covered under Sec. 45K (3) of the Act, which gives power to the Reserve Bank to issue such directions. As a proposition of law we agree with the contention of the learned counsel for the Reserve Bank that when an authority takes action which is whithin its competence, it cannot be held to be invalid merely because it purports to to be made under a wrong provision, if it can be shown to be within its power under any other provision. Learned counsel in this regard has placed reliance on Indian Aluminium Company etc. v. Kera/a State Electricity Board, [1976] l S.C.R. 70.

In our view as already held above, the Reserve Bank was competent and authorised to issue the impugned directions of 1987, in exercise of powers conferred under Section 45K (3) of the Act.

Having cleared the ground of ultra vires we must now turn to the main challenge posed on behalf of the Peerless and other companies and employees. D

Mr. Harish Salve made the leading arguments on behalf of the Re- _>-- serve Bank of India. His main thrust of the argument was that the Reserve Bank of India had issued these directions of 1987 in order.to carry out · observations made by this Court in Peerless case (supra) and in the public interest of safeguarding the money of the depositors in such companies. E The Reserve Bank considered it necessary that the interest of millions of small depositors of rural areas should be made safe and may not be devoured by a mushroom of companies with no stake. According to Mr. Salve it was not the intention of the Reserve Bank to put any restrictions in the nlanner or conduct of business to be done by such companies. But the most important factor weighing in the mind of the Reserve Bank was to safeguard the money of the depositors. It was not the concern of the Reserve Bank as to how and in what manner these companies would regulate their expenses or would be able to conduct such business for earning more profits. According to the Reserve Bank of India these com- panies carmot be allowed to spend a moity of deposits for meeting their . own expenses. They should find out their own resources for meeting the expenses. According to the Reserve Bank the rate of interest to be paid by these companies to the depositors has been fixed as IO per cent per annum. They could easily invest such amount in botids issued by public sector corporation and ean1 interest at the rate of 14 per cent per annu1n or.mo~e and thereby earn a profit of 4 per cent arid regulate their expenses within the limits of such profits. It was submitted that t6e propensity of the H

432 SUPREME COURT REPORTS (1992] I S.C.R.

A problem bas increased maliifold in. Yiew of the fact that the amount of deposits .and investments bas gone to staggering heights worth several thousand crores of lower middle class persons living mostly in the rural areas. A bogey of employmeni hazards. of $everal thousand regular em- ployees and still a large number of agents working in the field cannot deter the Re.ser~ Bank to lay down some directions which may act harshly and resulting in lessening of profits of such companies. It was also sub- mitted. that according to the affidavit submitted before this Hon'ble Court on behalf of the Reserve Bank of India it has been stated that prior to 1987 directions. there were 747 i>uch companies which were conducting deposit scheme. At present they could classify only 392 such companies as reqwred infc)rmation for classifying of the remaining companies had not been received Most of such companies have not designated their banks as it reqilired under paragraph (6) of the directions and in most of such. cases amounts invested in bank deposits and approved securities fall much short of deposit liabilities. The· companies operating in these areas also at times become untraeeable jn that a number of show cause notices issued have been returned as "addres.see not known" etc. In some cases those wllO have chosen to reply have given evasive replies. It has been further stated in 1he affidavit that most of these companies did not comply with the financial discipline sought to be imposed upon them and have avoided and abhorred any scrutiny into .their accounts. ... .. It has thus been submitted that to get over these difficulties, the directions ·of 1987 attempt to provide a steady, stable· identifiable and · monitorable method by which the companies will be able to disclose all their true liabilities and also utilise the money raised from the depositors for investment in safe identifiable and quantifiable securities instead of investing them in other ventures. This will ensure complete security to the depositors at all times and will also make the accounts of the companies compehensible and easy to monitor. As regards the formula laid down by the High Court it bas been submitted that if a variable as against a fixed ·".Al and definite percentage of·investment with respect to amounts collected by way ofeach·instalment is permitted it would be impossible to find out and verify whether the amounts invested are in accordance with the direc- tions at any given point of time when there are thousands of certificates with different and varying maturity periods. In the circumstances, the formula laid down by the High Court is self-defeating and also deprives the depositor of the security envisaged under the directions.

It was also submitted on behalf of the Reserve Bank that it is an admitted position that the business of RNBCs is to collect funds from the public and invest the same in Government securities and bank deposits. In

PEERLESS CO. v. R.B.l.[KASLIW AL, J. I 433

the applicatioi1 ~orms and in the advertisement's issued by these compa- A nies it is expressly held out to the public .that their moneys are safe with the banks and in Government securities. It is the very nature of their business which makes it non-viable if they are to give fair return to the depositors and private security for the repayment of their money. The scheme ofcoritrol as provided in the directions of 1987 might be harsh but the saine is in conformity widi the assertions held out by these companies B to the public at large, These directions subject the companies to proper · discipline by monitoring their actions and such directions cannot be con- sidered as unreasonable'. The.reasonableness ofthe directions when looked at fronf the point Of view of the depositors for whose. safeguard they have been issued, is beyond question. Return provided and the security to be given through ·proper investment cannot be taulted on any ground. Thus c what seems to be an.impossible situation for these companies is not due to the impugnecfdirections but because of the nature of business itself. The funds are C()lhicted at exhorbitant Costs and on that account it becomes difficult for.the companies to give a fair return to ihe depositors . These companies are not genuine investment companies. If they want to do genuine investmen.t business .they can do so by choosing freely their in- D vestment, but in that case Reserve Bank of India directions applicable to such companies would permit them to accept deposits not exceeding 25 per cent of paid up capital and r~serve. The directions of 1987 had not imposed any restriction on the right to carry on business but those direc- tions only place a restriction with respect to one of the modes of raising reserves i.e". through public deposits. E It has been further argued that the reasonableness _of the directions has not to be looked into from the point of view of the· company to whom any such restrictions will be irksome and may therefore be regarded· as unreasonable. The framing of the directions are only regulatory in.nature keeping in view the interest of the depositors without unduly jeopardising the interest of the employees. Keeping this in mind it has been provided that the minimum return would be at I0 per cent, though there are govt. and public sector bonds which pay interest at a much higher rate. Even presently bank deposits and other company deposits give return varying between 13 to 15 per cent. There is no limitation on the quantum of deposits· with reference to the overall capital as shown in the case of companies governed by the companies (Acceptance of Deposits) Rules 1975, Non Banking Financial Companies (Reserve Bank) Directions, 1917 ruld Miscellaneous Non Banking Companies· (Reserve Bank ) Directions,

1977. The linking of deposits with capital as in the case of other regula- ........ tions is a measure to secure the interest ·of the depositors namely e.g . Companies (Acceptance of Deposit) Rules, 1975, ensure that the assets H

434 SUPREME COURT REPORTS [1992] I S.C.R.

A are at least three times the deposits received. In view of the low or total r ·• non-existent capital of the RNBCs, it was not possible to secure the de- posits in this manner. Instead, it has been provided that the entire liability towards the depositors should be invested and no part of the deposits be utilised for payment of commission etc. or incurring other expenses. In any event, even if, the directions do not prescribe existence of owners capital as security, it does not imply that it is permissible to use the deposits received to bridge the time gap between income and expenditure. Merely because the directions do not fix a ceiling on the rate of commis- sions it does not imply that the Reserve Bank has granted its permission to payment of high commission or incurring of large expenses on manage- ment etc. The RNBCs are free to incur such expenses and organize their business as they desire as long as the depositors are fully secured at all times. The contention that the business. of the RNBCs will close down if the directions of 1987. an; to be adhered to is not based on facts and misconceived in law. A perusal of the Directors' Report of Peerless for the years 1988, 1989 and 1990 clearly go to show that they did not consider the company in any financial difficulty and in fact paid larger dividends even after complying with the impugned directions of 1987. '

It has thus been submitted that given a wide latitude in judging the validity of economic legislation on the touch stone of reasonableness, in the absence of patent arbitrariness but having nexus with the public objec- tive sought to be attained, the directions cannot be condemned as being violative of Article 19(1) (g). The result of the contentions put forward on behalf of RNBCs would be that in the case of endowments repayable· after, say 10 years, there will be nothing due and· payable in the first nine years and as such there would be no need of investing any sums for the first nine years. The interpretation placed by the respondent companies upon the judgment of the High Court is that it is now open to them to determine as per their own peculiar estimate, what would be sufficient to meet the liabilities towards the deposits and according•v such amount would be their "aggregate liability". According to the Peerless Company if it deposits 75 per cent of the first year's subscription, it is adequate to cover its liabilities to the depositors. On the other hand as per Timex Company a deposit of only 50 per cent of the first year's subscription would be adequate to cover its liabilities to the depositors. Whereas the Favourite Company contends that investment of 40 per cent of the first year's subscription will be adequate to cover the liabilities to the deposi- tors. It has been submitted that according to well accepted accounting practice where any sum· is received as a loan or as a deposit it has to be shown as a liability together with accrued interest irrespective of when it is due. The amount contributed by the depositors being a capital receipt and not a revenue receipt cannot under any circumstances be shown in the

PEERLESS CO. v. R.B.!.IKASLIWAL, J.j 435

"·--f balance sheet otherwise than at its full value. Moreover, being a capital receipt, it cannot be credited to the profit and loss account since Part II of Schedule VI to the Companies Act, 1956 requires that the amounts to be shown in the profit and loss account should be confined to the income and expenditure of the company. Thus, crediting a part of the first and subse- quent year's deposit instalments to the profit and loss account and not showing them fully as a liability in the balance sheet would be a contra- B vention of the provisions of the Companies Act.

It has been further submitted on behalf of the Reserve Bank that the question which arises for consideration is whether liability to the deposi- tors can be calculated on an actuarial basis. It may be noted that actuarial basis is normally adopted (a) in respect of items of income and expendi- C ture, (b) where there is a significant element of uncertainty. Thus, in so far as· the liability arising out of the repayment to the depositors of the amount capitalised by him is considered, the actuarial basis cannot be adopted and this liability must always be stated at its full value. The· principle of actuarial valuation is inapposite for the business of RNBCs. It has also been submitted that the formula laid down by the High Court D about the quantum of investments to be made by RNBCs is incapable of effectively monitoring and hence the provisions made in the directions of 1987 regarding security to depositors would be rendered wholly illusory. Such impossibility in the monitoring has been demonstrated as follows:

(A) These companies do not fix a definite but variable percentage of investment with respect to amounts collected by way of each instalment under the certificates of deposits; e.g. Peerless would invest 75% of the collections made out of !st instalment (retain- ing and taking to P & L Ne, 25%) and 82% out of 2nd instal- ment and so on. At any given point of time, there will be thousands of deposit certificates with varying maturity and the amounts collected would be an impossibility to find oui and verify whether the amounts invested are in accordance, with the proportion fixed )ly the companies with respect to each instal- ment. Regulatory authority would have to depend entirely on these companies for doing its monitoring exercise. (B) Each company fixes its own proportion of investment with re, spect to each instalment based on the projected yield from its investment; e.g. Favourite Finance Company claims that it needed to invest only 40% of the amounts collected by way of Isl instal- ment claiming ihat the projected yield from its investment would be 14.8%. This would compound the impossibility of monitor- ing further. H

436 SUPREME COURT REPORTS (1992] 1 S.C.R.

A It has thus been argued that the fonnula laid doWll by the High court y-- is self-defeating and depriving altogether benefits of security provisions given to depositors under the directions of 1987. ·

Mr. Somnath Chatterjee, learned senior counsel appearing on behalf of Peerless Company contended that the. Peerless being the largest RNBC B in India having an impeccable record of public service decided to give effect to the directions of 19.87 as it wanted to avoid any ci:infrontation withReserve Bank and further not to give an impression of seeking to avoid "regulatory control'', tried its best to comply with the said directions w.e.f. 15tb May, 1987 till 31st.March, 1989. However,. from its working results it appeared bcfnafide to the Board of Directors of Peerless that it C was impossible to carry on its traditional business for any longer period without incurring huge losses. The company as such decided to approach the High Court for obtaining the benefit of judgment delivered in the Timex case. Tlnd'eerless has only challenged a part of Paragraph 6 of the directions of ·1987 and the consequential direction contained in para 12 which shows that Peerless does not wish to remain outside of the regula- D tory controls of Reserve Bank but challenges only those directions which make the business totally unworkable. There has been no attempt on the part of Peerless to carry on its business in a manner which may jeopardize the Interest of.any depositor or which will not protect fully every paisa deposited with Peerless at all points of time. No real complaint was made by or on behalf of Reserve Bank as to any depositor of Peerless running a E risk of loss of any amount or that it has carried on or is carrying on the business in an undesirable manner. It has been submitted that Peerless should not be made to suffer for the illegality or improprieties, if any, committed by any. other RNBC and neither Peerless nor its 14 lac field agents, 3 thousand field officers and 4 thousand direct employees should be made to suffer. The result of foilowing directions of 1987 would be that all the above agents,. officers and: employ.ees of the Peerless could loose their jobs and their family members will be thrown on the streets. j y The Peerless had abolished the provision of forfeiture in all its schemes as early as in 1986 that is even prior to coming into force of the directions of

1987. The Peerless has been compelled to challenge paragraphs 6 and 12 of the directions of 1987 since enforcement of these provisions would result in complete annihilation of the undertaking of Peerless in the near future.

It was further contended that it is inherent in the business carried on by Peerless and other similar RNBCs that the working capital is generated out of the subscriptions received from the certificate holders. Such busi- H ness comprises in collecting subscriptions from depositors either in lumpsum

PEERLESS CO. v.. R.B.l.[KASLIWAL, J.] 437

or in instalments :ll1d such deposits are paid back with the guaranteed accretions, bonus, i.nte~est etc. in tenns of the contract at the end· of the stipulated tenn: Through this business such companies have .rendered iµ-eat anq commendable service to.tl)e nation in mobilizing small Savings · and givin1fi boost to the movement of capital fonnation in the country. Such coil\panies have placed at the disposal of Governmental institutions including public sectl)r banks arid other financial institutions huge depos- .. B . its which could not be eolleCted by the said .financial institutions them- selves or by.anybody in the organised sector: The method followed by the a companies in cat'ryirig oll'the afores;tid business is that certain portion of the .subscriptions received by it is transferred to the profit and loss ac- count, shown aS income,. and'.the satne is .used to defray inevitable work- ing capital, reqiilrem~iits of ·ihe company, namely, payment of agent's C commisSion; mll!lligement· expenses> ~taff S3laries and. other overheads. However, Uie balanee of the subs9tjptions (excluding the appropriated part) is. transfeiredto a fund each, year and the corpus of the fund is invested in tum in interest bearing. investment The Peerless company . iniiiallyused to transfer :approximately .95% of the first year's subscrip- tions to the profinUid loss account and used. to invest the s11bscriptions D · received from ihe setiind year onwards: Ho~ever, at present, Peetless is . appropriating 25% of the first year's subscription 'to the profit and loss account and investing the 'balance 75% in ·the manner and mode pre- · scribed by paragraph 6. of the directions of 1987. It bas been contended a that the investment is planned in·such manner.that at the .end of the contractually stipidaied matUrity period or at any other point of time when · E any sum of money rriay become contractually payable to a depositor, a RNBC is always in a position to pay all its contractual dues to the certifi- cate holder. There is thus no threat to the safety of the ·dep.ositors money inspite of the aforesaid transfer of a portion of the subscription received to the profit and loss account showing it as income aiid utilising it for meet- ing the working capital requirements. It was pointed out that Peerless had F · been .assessed to incom·e on the basis of above method of accounting and no objection has ever. been taken by the revenue authorities or by the auditors of Peerless or even by R.B.I. before the issuance of the directions of 1987. It was submitted that the Peerless was incorporated in the year 1932 when it used to carry on life insurance business. It changed over to . .. the present fonn of business from 1956 and since then it has been carrying G ' on such business with the full knowledge of R.B.J. as well as other con- cerned authorities .. The R:B.I. never objected to the accounting system followed by the Peerless. In view of the abolition of the forfeiture clause the alleged risk to the depositors has become totally non-existent. It was further argued that the R.B.l. framed regulatory measures in 1973 such . miscellaneous non-banking companies (Reserve- Bank) Directions; .. 1973. H

438 SUPREME COURT REPORTS [1992] 1 S.C.R.

'y-- A The Reserve Bank granted exception to Peerless from the provisions of the said Directions of 1973, by an order dated 3rd December, 1973. The. Favourite Small Investments Limited filed a writ petition challenging the refusal of Reserve Bank to grant exemption to them from the provisions of the said 1973 Directions to granting such exemption to Peerless. In the said writ petition the R.B.I. filed an affidavit justifying the denial of exemption to Favourite Small Investments Ltd. and in the aforesaid affi- davit submitted in detail the accounting procedure of Peerless including the fact that Peerless was transferring a portion of the subscriptions to the profit and loss account as income and it also certified that the said method was a permissible business method and by following the said method Peer!ess would be in a position to pay all contractual dues of the certifi- C cate holders at the end of the maturity period. Thus the said system of accounting which is called an actuarial system of accounting was found satisfactory by the R.B.I. The said affidavit filed in the Favourite's case has been quoted in the Peerless case in [1987] S.C.C 424, and the said actuarial system of accounting was not held as impermissible or against any recognized method of accounting. ' D It was also contended on behalf of the Peerless that the interest of depositors is certainly an important an consideration but the interest of the depositors is not impaired in any manner whatsoever by the method of accountancy now being followed by Peerless and in fact by all similar companies, namely, appropriation of a part of the subscription to the profit and loss account and meeting the working capital requirements out of the same. In respect of the above contention certain charts were also produced during the course of arguments and from such charts it was sought to establish that except for the first two years the principal amount paid by a subscriber is always covered by matching investment. Further, on the date on which a deposit becomes contractually repayable, there is full coverage of such liability.

It was submitted on behalf of All India Peerless Field Officers Asso- ciation that the said association represents about 14 lac field workers. These 14 lac persons are engaged by Peerless on the basis of individual contracts of engagements and eam their livelihood solely by collecting business for Peerless. For collecting such business Peerless pays to them commission at a contractual agreed percentage on the value of business collected. The said field officers have to meet all expenses for procuring such business such as travelling expenses, boarding, lodging, office and administrative expenses etc. out of such commission. Field officers have to undertake long tours and have to travel into remote villages to reach the small depositors. It has been submitted that if the directions of 1987 are upheld, the undertaking of Peerless will face inevitable closure and almost

PEERLESS CO. v. R.il.I.[KASLIW AL, J.] 439

·---.: 14 lac field officers will lose their only source of livelihood and will be virtually thrown on the streets. The field officers and their families will face starvati.on and extreme penury in case the validity of such directions is upheld. Thus any restrict.ion which would be prohibitive or which would result in closure of the undertaking of Peerless would be against publiGJ interest. B We have heard the argu.ments of learned counsel for the parties. It may be made clear at the outset that questions raised in these cases re- garding the validity of paragraphs 6 and 12 of the directions of 1987 cannot be determined merely by taking' into consideration the working of the financial soundness of the one company alone like Peerless but the matter has to be·exatnined in a broader perspective of all RNBCs. We C have to keep in mind, while deciding the controversies raised in the argu- ments, such RNBCs which are doing the same kind of business of taking deposits and returning the same to the certificate holders after a gap of 7 to 10 years along with interest, bonus etc. In the affidavit submitted before this Court on behalf of Reserve Bank of India it has been stated that prior to 1987 directions, there were 747 such companies which were D conducting this business under various deposit schemes. At. present they could classify 392 such companies spread over across the entire country. According to the above affidavit, as on 3 lst March, 1990 in the eastern zone out of 185 companies, only 35 have filed the annual returns and out of which only 30 have filed the balance sheet. Similarly, out of 140 companies in the northern zone only 28 have filed annual returns and 32 E have filed balance she.et. A perusal of the returns given by 51 of these companies discloses that 35 companies have a negative net worth (i.e. their losses far exceed their share capital and reserves) which necessarily means that they have not only wiped out the share capital and reserves but their liabilities are far in excess. Only 16 companies have a positive net worth including Peerless. It has been further pointed out ·in the affidavit that apart from Peerless the aggregate capital investment by 15 companies is Rs.158 lacs only. As against this, the negative net worth of the 35 companies aggregated to Rs.3.6 crores. Despite large accumulated losses (in some cases with meagre or nominal capital) these companies apart . from Peerless, have realised deposits to the tune of Rs.86 crores. Apart from the financial parameters most of these small companies are family concerns. Most of such companies have not designated their banks as is required under Paragraph 6 of the directions and in most of such cases amounts deposited in banks and approved securities fall much short of deposit liabilities. It has also been pointed out in the affidavit that the co1npanies c;>perating in these .areas also at times beco1ne untraceable in that a number of show. cause notices issued have been returned as "ad- H

440 • RjlPORTS SUPREME COURT [1992] 1 S.C.R. y·- A dressee not knoWll"etc. Thus we have to keep in mind the above mush- room of companies . ' also which have set. foot in this sort ' . of business.

It would also be important to note that most of the depositors in such companies belong to the rural .areas and who are persons belonging to lower middle class, small agriculturists and small traders: pensioners etc. B These Companie$ advertise their schemes widely in beguiling terms. Through such advertisements they lure the small savings of the poor ignorant vil- lagers through a special structure of agents, special agents, different kinds of orgallisers and so on. The agents commission for the firSt years sub- scription is very high and which offers inceiitive to the agents on securing a a fresh business and dis.incentive to collect silbscriptions of i;ubsequent c years. It is a matter of comm6n"experie11ce-an.d knowledge that most rural folk particularly those belonging to the lower strata of society will not pay their subscriptions regularly unless somebody takes the trouble of collect- ing their subscription with the same enthusiasm as may be shown in enrolling the subscribers in the beginning. It is no doubt correct that these companies do tap and collect the deposits from such areas where the D agents of public sector banks or public sector companies or instrumentalities of the state are .unable to reach. Thus these companies mop up a large amount of money for ultimately investing in the nationalised banks or other Govt owned corporations or companies. However, the Reserve Bank considered the safety of the money of the .depositors as the para- mount consideration in issuing the directions of 1987. It cannot be dis- E puted that the interest of the employees as well as the field officers and agents have also to be taken into consideration while deciding the rea- sonableness of the impugned directions. It may be further noted that in the Reserve Bank of India v. Peerless Company case (supra) this Court though came to the conclusion that the Endowment Certificate Scheme of the Peerless company was outside the Prize Chit and Money Circulation F Schemes {Banning) Act, still it was observed that it would be open to the Reserve Bank to take such steps as are open to them in law to regulate sch~mes such as those run by the Peerless company to prevent exploita- tion of ignorant subscribers though care !)lust also be taken to protect the thousands of employees. The Court expressed grave concern with regard to the mushroom growth of 'financial investment companies' offering staggeringly high rates of interests to depositors leading to the suspicion whether these companies are not speculative ventures floated to attract unwary and credulous investors and capture their savings. It was clearly pointed out that if the Reserve Bank of India considers the Peerless com- pany with 800 crores invested in Govt. securities, fixed deposits with national banks etc. unsafe for depositors one wonders what they have to say about the mushroom of non-banking companies which are accepting (

. PEERLESS CO. v. R.B.l.[KASLIWAL, J,) 441

~--y deposits ~romising most unlikely returns and as such what action was proposed to be taken by the R:B.L to protect the investors. 'In the. above ·.· · background the Reserve Bank came forward with the impugned directions of 1~87. Before examiningthe scope .and. effect of the impugned paragraphs 6 and .12 ofthe directions of 1987, .itis also:irnportant to note that Reserve .B Bank of.India which is· bilnkerS'. bank is a creature of Statute. It had large contlngentcif expert advice relating io matters affecting th~ economy of the entire country and ~obod}' can (loubt the bonaficles of the . Reserve ,Bank in· issuing ihe impunged directions. 6f 1987. The':Reserve Bllllk 'plays an imporliuitrole in .the economy and financial affairs Of India and one of its. important functions is to regulate the· banking. system in the C country. It is the duty of.theResen:e:Biuikto ;siifeguard the.economy and financial stability of the country. W,)iile examining the. power conferred by Sec. 58Aofthe Companies Act, 1956 on. the Central Govt. to prescribe the limits upto which, the.manner in which and the conditions subject to which deposits may' be invited cir accepted by non banking companies, this Court in Delhi Cloth and General Mills, etc. v. Union of India, etc., D [1983].3 S.C.R, 438 observed as under:

"Mischief was known and the regulatory measure was intro- duced to remedy the mischief. The conditions which can be prescribed to effectuate this purpose must a fortiori, to be valid, fairly and reasonably, relate to checkmate the abuse of juggling with the depositors/investors' hard earned money by the corporate sector and to confer upon them a m·easure of protection namely availability of liquid assets to meet the obli- gation of repayment of dep'osit which is implicit in acceptanee of deposit. Can it. be said that the conditions prescribed by the Deposit Rules are so irrelevant or have no reasonable nexus to the objects sought .to be achieved· as to be arbitrary? The answer is emphatically in the negative. Even at the cost of repetition, it can be stated with confidence that the rules which. prescribed conditions subject to which deposits can be invited . and accepted do operate to extend a measure of protection against the notorious abuses of ec.onomic power by the corpo- G rate se.ctor, to the detriment of depositors/investors, a segment\ of.the society which can be appropriately described as weaker. '·-..._ - in relation to the mighty corporation. One need not go so far with Ralph Nadar in 'America Incorporated' to establish that political institutions may fail to arrest the control this ever- widening power of corporations. And can one wish away the H

442 SUPREME COURT REPORTS [ J 992] I S.C.R.

A degree of sickness in private sector companies? To the extent companies develop sickness, in direct proportion the control- lers of such companies become healthy. In a welfare state, 'it ·is the constitutional obligation of the state to protect socially and economically weaker segments of the society against the exploitation by corporations. We therefore, see no merit in the B submission that the conditions prescribed bear no relevance to the object or the purpose for which the power was conferred under Sec.58A on the Central Government." The function of the Court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority. It is well settled that a public body invested with statutory powers must c take care not to exceed or abuse its power. It must keep within the limits of ihe authority committed to it. It must act in good faith and it must aci reasonably. Courts are not to interfere with economic policy which is the function of experts. It is not the function of the Courts to sit in Judgment over matters of economic policy and it must necessarily be left to the expert bodies. In such matters even experts can seriously and doubtlessly differ. Courts cannot be expected to decide them without even the aid of experts.

The main grievance raised on behalf of respondent companies is that if the provisions of paragraphs 6 and 12 of the directions of 1987 are complied with, the companies will be left without any fund to meet their working capital. It would be impossible to run the business without a working capital and to meet even reasonable expenses incurred for pay- ment of agents commission, management expenses and other overhead expenses. During the course of hearing the counsel for the companies had relied on some charts to show the unworkability and unreasonableness of the impugned paragraphs 6 and 12 of the directions. It was also pointed out that the arguments made on behalf of the Reserve Bank overlooked the fact that in case of investments in long term schemes such as Indira Vikas Patra and Kisan Vikas Patra the companies will not be able to utilise its return from such investments before the end of the minimum period for which these schemes operate. The respondent companies will thus be left without any income during the period of operation of such schemes and cannot meet_ its working capital requirements. It has been submitted that the directions of 1987 really amount to prohibition of the a business in commercial sense without reasonable basis and are thus violative of Art. l9(l)(g) of the Constitution. In support of the above contention reliance has been placed on Mohammad Yasin v. The Town H Area Committee, .Ja/a/tlbad and another. [1952] SCR 572; Premier Auto-

PEERLESS CO. v. R.B.l.[KASLIW AL, J.] 443

mobiles Ltd. and anothers v. Union ~f India, AIR 1972 SC 1690 and on A Shree Meenakshi Mills Ltd. v. Union of India, AIR 1974 SC 366. It has also been. contended that it is now well settled by plethora of judicial pronouncements that the restrictions on any business caused by regula- tions should not be more than what would be necessary in the interest of the general public and such restrictions should not overreach the scope of the objects achieved by the regulations. B