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PETITIONER: JOSEPH KURUVILLA VELLUKUNNEL

       Vs.

RESPONDENT: THE RESERVE BANK OF INDIA AND OTHERS(With connected petition

DATE OF JUDGMENT: 07/03/1962

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L. SHAH, J.C. MUDHOLKAR, J.R.

CITATION:  1962 AIR 1371            1962 SCR  Supl. (3) 632  CITATOR INFO :  R          1963 SC1881  (69,108)  R          1964 SC1279  (5)  RF         1966 SC1953  (6)  RF         1967 SC 295  (62)  RF         1969 SC 707  (24,45)  RF         1981 SC 818  (22)  RF         1992 SC1020  (27)  RF         1992 SC1033  (53)

ACT: Banking  Companies-Winding  up-Enactment  providing  for  an order  for winding up by High Court on the basis of  Reserve Bank’s  opinion-Constitutional  validity-Banking   Companies Act, 1949 (10 of 1949), ss. 2, 35, 35A, 36, 38 Reserve  Bank of  India Act, 1934 (2 of 1934), ss 7, 8, 38 Companies  Act, 1956  (1  of 1956), ss. 433, 450(2)-Constitution  of  India, Arts. 14, 19 (1) (f) and (g), 301, 302.

HEADNOTE: Sub-section (1) of s. 38 of the Banking Companies Act, 1949, provided  : "Notwithstanding anything contained in ss.  391, 392,  433  and 583 of the Companies Act, 1956....  the  High Court shall order the winding up for a banking company  .... if  an application for its winding up has been made  by  the Reserve  Bank under s. 37 of this section." Under  s.  38(b) (iii)  of the Act "the Reserve Bank may make an  application under  this section for the winding up of a banking  company if in the opinion of the Reserve Bank the continuance of the banking  company  is  prejudicial to the  interests  of  its depositors."    In  exercise  of the powers vested in it by  the  Banking companies  Act, 1949, as well as the Reserve Bank  of  India Act,  1934, the Reserve Bank had been inspecting  the  Palai Central  Bank Ltd., periodically, and had been  warning  the Bank  that  it-, business was being conducted  in  a  manner detrimental  to  the interest of its  depositors.   In  June 1960, there was a run on several branches of the Bank.   The Reserve Bank was of the opinion that the Palai Bank was  not in a position to pay its depositors in full and that the

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                           633 continuance  of the Bank was prejudicial to the interest  of the depositors.  On August 8, 1960 the Reserve Bank made  an application   in   the  High  Court  of  Kerala   under   s. 38(3)(b)(iii) of the Banking Companies Act, 1949, read  with the  Companies  Act, 1956, for the winding up of  the  Palai Central Bank Ltd.  After hearing the Reserve Bank, the Palai Bank  and  the  creditors, the High Court  passed  an  order allowing the application of the Reserve Bank, and  directing the  winding  up of the Palai Bank.  It  was  contended  for those  who opposed the application that ss. 38(1)  and  3(b) (iii) of the- Banking Companies Act contravened Arts. 14 and 19  (1)  (f)  and  (g) of the  Constitution  of  India  and, therefore    were   void   because   (a)   they    permitted discrimination  between  a  banking company  and  any  other company  by prescribing different laws for their  respective winding  up,  (b) they created an  unreasonable  restriction upon  the  right  to  carry on banking  and  (c)  the  whole procedure  was denial of the principles of  natural  justice chiefly by denying an access to courts, inasmuch as under s. 433 of the Companies Act 1956, when application was made  to wind up a company, the High Court had to be satisfied  after a fair trial that an order to wind up the company was called for,  and the Judge was free to reach a decision  after  the company  had  shown cause, and there was a right  of  appeal against the decision if adverse to the company, while  under the  procedure laid down in s. 38 of the  Banking  Companies Act,  1939,  the  Reserve Bank was made the  sole  judge  to decide  whether the affairs of a banking company were  being so  conducted as to be prejudicial to the interests  of  the depositors,  and  the court had no option but  to  an  order windings  up the banking company, when the  application  was made.   It was also contended that ss. 38(1)  and  3(b)(iii) were  ultra  vires being in conflict with Art.  301  of  the ’Constitution.    Held,  (Kapur and Shah, JJ., dissenting), that ss.  33(1) and  (3) (b) (iii) of the Banking Companies Act,  1939,  did not offend of Arts. 19(1)(f) and (g) of the Constitution  of India and were valid.    In  view  of  the history of  the  establishment  of  the Reserve Bank as a Central Bank for India, its position as  a Banker’s  Bank,  its  control  over  banking  companies  and banking  in  India, its position as the  issuing  bank,  its power to license banking companies and cancel their licences and  the numerous powers, a law which empowered the  Reserve Bank to come to a decision to wind up a tottering or  unsafe banking company in the interest of the depositors could  not be challenged as 634 unreasonable, because even if the court were called upon  to take  immediate action it would almost always be  guided  by the  opinion of the Reserve Bank.  A law may,  with  reason, leave  the determination of an issue to an expert body,  and such  law is justified on the ground of  expediency  arising from the respective opportunities for action.  The exclusion of courts is however not to be lightly inferred or conceded.    Held,   further  (per  Sinha,  C.J.,   Hidayatullah   and Mudholkar,  JJ.), that : (1) while ordinary companies  dealt with the money of the stock holders, banking companies  were in  a  different class as they dealt with the money  of  the depositors  and  had to be regulated differently ;  and  the Reserve Bank having been given by the Banking Companies  Act the  power  and  invested  with the  duty  of  watching  the affairs,  of every banking company with a view  to  ensuring the  safety  of  the depositors’ money, there  was  a  valid

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classification  ; consequently ss. 38(1) and (3)(b)(iii)  of the  Banking  Companies Act did not offend Art.  14  of  the Constitution.    (2)    ss.  38(1)  and (3)(b)(iii) did not  amount  to  a conversion  of a judicial process into an executive  action. The  sections  only  made the court guide  itself  from  the decision  of  ail outside agency and  the  judicial  process commenced thereafter.    (3)    ss.  38(1) and (3)(b)(iii) were not in  breach  of Art. 301 of the Constitution as they were in public interest and were protected by Art. 302.    Per  Kapur  and  Shah,  JJ.-Section  33  of  the  Banking Companies Act, 1949, was an unreasonable restriction on  the right of a banking company to carry on its business and was, therefore,  unconstitutional.   The  vice  of  the  impugned provision lay in (a) the power vested in the Reserve Bank to apply  to  the  High Court for an order winding  up  a  bank exercisable solely on its subjective satisfaction as to  the existence  of conditions prescribed by the section, and  (b) the  obligation imposed by law upon the High Court  to  make the  order  of  winding up without  at  any  time  enquiring whether the conditions on which the application was  founded did  in truth exist.  A provision of law providing  for  the imposition of restrictions on a citizen’s fundamental  right pursuant to the subjective satisfaction of the Reserve  Bank even  though it is an expert body, as to the existence of  a state  of  affairs, and thereby  permanently  depriving  the citizen of his right or property, is wholly unreasonable.    A.     K.  Gopalan v. State, (1950) S.G.R. 88,  State  of Madras v.  Rao, (1952) S.C.R. 597, The Commissioner of Hindu 635 Religious  Endowments,  Madras  v.  Sri  Lakshmindra  Tirtha Swamiar  of Sri Shirur Muth, (1954) S.C.R. 1005, Mahant  Sri Jagannath Ramanuj Das v. State of Orissa, (1954) S.C.R. 1046 and  Virendra  v.  State  of  Punjab,  (1958)  S.C.R.   308, considered.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 487 of 1961.    Appeal by special leave from the judgment and order dated December  5,  1960.  of  the Kerala  High  Court  in  Baking Companies Petition No. 11 of 1960.                             WITH                 Petition No. 167 of 1961     Petition under Art. 32 of the Constitution of India  for the enforcement of Fundamental Rights.     M.K. Nambiyar, J.B. Dadachanji, O.C. Mathur and Ravinder Narain, for the appellant and the petitioner.    M.C.  Setalvad, Attorney-General of India,  H.N.  Sanyal, Additional Solicitor-General of India, R. Ganapathy Iyer and R. H, Dhebar, for respondents No. 1 in C.A. No. 487 of 1961. G.   S. Pathak and K. R. Choudhuri, for respondents    Nos. 4-6 in C. A. No. 487 of 1961.     M.    C.  Setalvad,  Attorney-General  for  India,  H.N. Sanyal, Additional Solicitor-General of India, R.  Ganapathy Iyer, R. H. Dhebar and T. M. Sen for respondents Nos. 2  and 3 in Petition No. 167 of 1961.     1962,  March  7. The Judgment of B. P. Sinha,  C.J.,  M. Hidayatullah  and  J.R.  Mudholkar, JJ.,  was  delivered  by Hidayatullah, J. The Judgment of J.L. Kapur and J. C.  Shah, JJ., was delivered by Kapur, J.     HIDAYATULLAH, J.-On August 8, 1960, the Reserve Bank  of India made an application in the High Court of Kerala  under

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s.  38 of the Banking Companies Act, 1949 (10 of 1949)  read with the Companies Act, 1956 (1 of 1956), for the winding up of the Palai Central Bank, Ltd. (having its 636 registered office at Palai in the State of Kerala), for  the appointment of the Official Liquidator of the High Court  as the  Liquidator with all the Powers under the said Acts  and for  the  appointment  of the  Official  Liquidator  as  the Provisional   Liquidater   during  the   pendency   of   the application.   This application was allowed on  December  5, 1960,  and the present appeal with special leave,  has  been filed against the order.    The  Palai  Central Bank, Ltd. (herein  referred  as  the Palai  Bank or the Bank) was incorporated in  January,  1927 under  the Travancore Companies Regulations.  Till 1936,  it was  known as ,The Central Bank, Ltd."’. when the  name  was changed.  In March 1937, the Palai Bank was included in  the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934).  According to the balance sheet of the Palai Bank for the  year ending December 31, 1959, the paid-up capital  was Rs. 24,89,639.53. The nominal capital of the Palai Bank  was Rs. 40 lakhs divided into 1,60,000 equity shares of  Rs.25/- The  Palai Bank seems to have greatly extended its  business as  time  passed.   In 1928, the deposits were  a  mere  Rs. 77,000/-, but by 1960, they had become almost Rs. 10 crores. It had, during the years, become the foremost Bank in Kerala State, and its place was 15th in the whole of India.  It had 25 branches in and outside the State of Kerala.     When  Kerala became a Part B State, the Reserve Bank  of India Act was extended to that area, and the Palai Bank came under  the  supervision  of  the  Reserve  Bank,  which,  in exercise of the powers vested in it by the Banking Companies Act  as well as the Reserve Bank of India Act,  periodically inspected  the Palai Bank.  These inspections were  made  in 1951, July 1953, FebruaryMarch 1956, March 1958 and January- February,  1960. Every time the Reserve Bank found irre-                             637 gularities  which were pointed out to the Bank, and  special directions  were  issued.  The main defects  were  that  the advances made by the Palai Bank were not sound that the bulk of  the  advances  were either  irrecoverable  or  "’sticky" (which means, not easily recoverable), that the income taken into  account  represented  to a  great  :extent  unrealised interest on these advances, that large advances were made to the Directors, their relations and Companies, in which  they were interested, on no security or inadequate security,  and that  the  Bank  was declaring dividends  on  the  basis  of profits which were computed without making provision for bad and  doubtful  debt  and by issuing up the  reserves  at  an alarming rate, while the deposits were going down.  In  the, beginning, the Reserve Bank contended itself by  prohibiting further   advances   to  Directors,  their   relations   and individuals, firms or companies, in which the Dircetors were interested, advising the Palai Bank to reduce clean advances and to regularise others, warning the Bank that the Reserve, Bank  considered  that the business of the  Bank  was  being conducted in the manner detrimental to the interests of  its depositors, and that if the directions were not carried out, action under the first proviso to sub-s. (2) of s. 22 of the Banking  Companies  Act would be taken by issuing  a  notice that a licence could not be granted to the Bank.     From  the  correspondence which has been filed  in  this case, it does appear that the Reserve Bank was not satisfied at each following inspection that the position had improved; rather  it  apprehended that it had worsened, and  that  the

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directions  had  not been carried out.  This was  denied  on behalf  of the Bank, but nothing depends upon who  is  right and who is wrong, because no charge of mala fide conduct  is now  made  against  the Reserve Bank.  As a  result  of  the inspection  in FebruaryMarch, 1956, the Reserve Bank  avers, it was found 638 that on December 31, 1955, the advances stood at Rs.  355.02 lakhs,  of  which Rs. 171-27 lakhs were  irrecoverable,  and that the deposits of the Bank had been impaired by Rs.  139- 13 lakhs.  The Reserve Bank also avers that the Bank did not satisfy  the  requirements  of the  Banking  Companies  Act, particularly  s. 11, about the minimum paid up  capital  and reserves, and ss. 22(3) (a) and (b) about the ability of the Bank  to pay its depositors, present and future, in full  or conducting  its  affair in a manner not detrimental  to  the interests  of  the  depositors,  and  did  not  satisfy  the requirements of ss. 42(6)(a)(i) and (ii) of the Reserve Bank of  India  Act.  The Reserve Bank at this stage  deputed  an observer,  and issued further directions and  threatened  to remove  the name of the Palai Bank from the Second  Schedule to the Reserve Bank of India Act, if the directions were not faithfully  and punctually carried out.  All this time,  the Reserve  Bank  was  requiring  the  Palai  Bank  to   submit statements  and returns In the inspection which was made  in March-May,  1958, the position as on February 28, 1958,  was found  to be even worse.  Though the deposits had  gone  up, the  advances had raisen to Rs. 421.56 lakhs, of  which  Rs. 208.05  lakhs  were  said to be irrecoverable,  and  in  the opinion  of the Reserve Bank, after writing off the  paid-up capital,  reserves  etc. of the value of  Rs.  41.17  lakhs, deposits  to the extent of Rs. 177.24 lakhs  were  impaired. More  directions in the game key followed, and the Bank  was warned that it was conducting its affairs in a way which was detrimental  to  the  interests of the  depositors.  in  the scrutiny  in  January-February,  1960, the  position  as  on December  31, 1959, was said to be that out of the  advances of  Rs. 529 lakhs, Rs. 218.51 lakhs were irrecoverable,  Rs. 17.71 lakhs were doubtful, and Rs. 111.57 lakbs were  frozen or sticky.                             639    On  July  21,  1960, the Reserve  Bank  issued  a  letter containing the warnings to which the Palai Bank appeared  to have become indurated, and further gave the Bank 12  month’s time  to  improve  matters  and 30  days  to  reply  to  the inspection  report.  An Officer of the State Bank  of  India (Mr.   Sivaraman)  had already been deputed as  the  General Manager  of the Palai Bank, and had taken charge on July  1, 1960.   On June 23, 1960,the balance sheet of the  Bank  was published showing the position as on December 31, 1959.  The balance  sheet  showed  a loss of  Rs.  14-1/2  lakhs.   The Reserve Bank alleges that even in previous years there  were losses,  but were hidden.  In June 1960, there was a run  on several branches of the Palai Bank.  Whether this was due to the  publication  of the balance sheet showing  a  loss,  or whether  it was due to the appointment of Mr. Sivaraman,  it is  hardly  possible  now to say.   Between  June  24,  1960 (deposits, Rs. 9.82 crores) and July 22, 1960 (deposits, Rs. 9.32  crores)  there was a withdrawal of Rs. 50  lakhs.   By August   3,  1960  (deposits,  8.50  crores)  there  was   a withdrawal  of Rs. 82 lakhs in 12 days.  To meet  this  run, the  Bank had to borrow against Government  securities  with the  result that all its Government securities except  those worth  Rs.  25 lakhs were pledged.  The deposits  (Rs.  8.50 crores)  consisted  of Rs. 4 crores in fixed  deposits,  Rs.

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2.25  crores  in  current accounts and Rs.  2.25  crores  in savings  deposits.   Against these, the Reserve  Bank  found that  the Palai Bank had cash to the extent of Rs. 50  lakhs and a capacity to borrow Rs.1 crore against its  securities. The  appellant, however, urged before us that in the  report of  the General Manager dated November 8, 1960, the cash  in hand was shown to be Rs. 42.18 lakhs and at Banks, Rs. 83.68 lakhs,  the marketable securities, Rs. 22.98 lakhs  and  the estimated  surplus  from assets  specifically  pledged,  Rs. 142.63  lakhs.  These figures do not, of course,  show  that all this 640 money would have been available immediately to stem the run. It  is thus evident that if the run continued  longer  there was  a  likelihood that these depositors who  were  able  to withdraw  their money would obtain payment in full,  leaving the  others  with  nothing or next  to  nothing.   The  Bank alleges  in  its  affidavits  in  reply  that  the  run  was subsiding,  while  the Reserve Bank maintains  that  it  was going  on unabated.  Whether it was abating  or  continuing, the   reputation   and  security  of  the  Bank   had   been considerably  shaken.   The learned Company  Judge,  in  his judgment  under appeal, estimated that Rs. 158 lakhs  (about one-sixth   of   the  deposits)   represented   the   sudden withdrawals.   The  Directors  of the Palai  Bank  sent  Mr. Sivaraman on August 960, to Bombay for urgent consultations, and  Mr. Sivaraman on his return, announced on the 8th  that in application for the winding up of the Bank had been  made that  day, and a provisional Liquidator had been  appointed. He  accordingly,  issued  orders to  the  Branches  to  stop business and close the doors.  The ’Reserve Bank was of  the opinion that the Palai Bank was not in a position to pay its depositors in full, and that the continuance of the Bank was prejudicial to the interests of the depositors.     The application, as already stated, was made on    August 8, 1960.  It was heard by Raman Nayar, J.    He    dispensed with  notice  under s. 450(2) of the  Companies  Act  before passing  the  order appointing the  provisional  Liquidator. He,  however,  issued notice of the  main  application,  and heard  the  Reserve  Bank, the  Palai  Bank,  the  creditors supporting the petition and the creditorsopposing    it, and read several affidavits filed by the parties.     On December 5,1960, he acceptedthe application of the Reserve Bank, and ordered that thePalai  Bank be wound  up.   He was  moved  for  a  certificate  under  Art.  13(1)  of  the Constitution by the present appellant (Mr.  Joseph Kuruvilla Vellukunnel), a                             641 former  Director of the Palai Bank and also a  contributory, but  he  declined to certify the case.  The  appellant  then obtained special leave of this Court, and filed this appeal. Some  others  applied to intervene in the appeal,  and  were allowed   to  be  heard.   One  Mr.  D.  Chacko  Kappon   (a contributory  and also a depositor) filed a  petition  under Art. 32 of the Constitution.  That petition was heard  along with this appeal.  This judgment will dispose of the  appeal as well as the writ petition.    In  the High Court, the application of the  Reserve  Bank was  opposed on two grounds.  The first was that the  action of  the  Reserve  Bank in making  the  application  for  the winding  up  of the Palai Bank was  malafide.   This  ground appears to have been given up in the High Court itself,  and has  not been raised before us.  The second ground was  that s.  38(3)(b)(iii)  of the Banking Companies Act,  1949,  was void, inasmuch as it offends against Arts. 14 and 19 of  the

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Constitution.   In the hearing before us Art. 301  was  also invoked.   The  decision of the High Court was  against  the Bank  and  other answering respondents,  a-rid  this  ground alone has been urged before us.     Though the facts cease to play an important part in  the decision  of  the  question of  law  which  survives,  those narrated  above  were referred to by the  learned  Attorney- General as showing the background of the action taken by the Reserve Bank.  The appellant, in his reply, referred to some other facts in explanation to avoid a possible prejudice  to his case, if the facts as presented by the Reserve Bank only were  considered.  While we are not required to express  any opinion upon the correctness or otherwise of the allegations and counterallegations, we think it necessary to set out  in brief some of the facts, to which our attention was drawn by the appellant, to show that we have borne in 642 mind  the rival contentions in determining the  validity  of the section.    The  appellant  contended that enquiries by  the  Reserve Bank  in the past were not thorough; but in the  application for winding Up, the Reserve Bank had given specific  details of   the   advances  and  their  realisability.    In   this connection, we were referred to a reply made by the  Reserve Bank  in  answer to four schemes of compromise  between  the Bank and its creditors suggested by the Palai Bank.  In that reply, the Reserve Bank said that no definite opinion  could be  expressed  on  the  schemes  except  "after  a  detailed examination  of the Bank’s books of account with a  view  to assessing  the realisability of its assets and the  probable pace  of  recovery of the realisable assets." This,  in  our opinion, was a proper attitude to take, because by then, the condition  of the Bank had materially altered, and  all  the past  data had become out of date.  The reply did  not  show that the Reserve Bank’s inspection was not thorough.   Next, it  was argued that the Reserve Bank’s estimate of cash  and realisable assets was wrong, if one reads the report of  the Provisional  Liquidator  and  the  General  Manager,   dated November  8, 1960.  We have already referred in  an  earlier part  of  this  judgment  to the  amounts  which,  in  their opinion,  constituted  the available assets, and  have  also shown  why  the  Reserve Bank cannot be said  to  have  made mistake.   It  was  then contended that the  run  was  under control,  and our attention was drawn to certain  statements in  which  the  withdrawals during the months  of  July  and August are shown in a tabular form.  The run on the Bank did not  follow a uniform course.  Sometimes, it was  more,  and sometimes it was less, but continue, it did; and that is the main point of the matter.  It was said that the Reserve Bank itself  thought well of the Palai Bank, because in the  year 1954, it allowed the opening of a now Branch at Madurai, and even in its last letter of July 21, 1960, 643 it  gave the Palai Bank one year to improve matters, and  30 days to show cause against the inspection reports, but  took a  hasty  action before even the 30 days had  expired.   The action of the Reserve Bank was undoubtedly taken during  the period  of  grace;  but after July  21,  the  situation  had altered so radically that delay might have defeated the very purpose of the law, under which action was taken.    Finally,  it was contended that the Palai Bank  began  by being  a  rural  Bank,  which was  making  advances  on  the security  of  land, and such security, though  "sticky"  was capable of being realised.  Reference was made to the Report of  the Travancore Cochin Banking Enquiry Commission,  which

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was, appointed in 1956, where, in making a survey of banking in  Travancore-Cochin  State, it was pointed  out  that  the Banks  were  "spread  out into the  rural  interior  of  the State", and the main business of these banks was "to finance the  rural people engaged in a small business-crop  raising, produce  processing,  transporting, vending,  etc."  It  was argued that to a rural Bank of this kind the standards of  a commercial  bank could not be applied and that  the  Reserve Bank   should  have  made  allowances  in  respect  of   the realisability  of the advances, the worse of which  belonged to  a period prior to the extension of the Reserve  Bank  of India  Act to this area.  These advances given  time,  could have  been  cleared,  and an attempt  was,  in  fact,  being earnestly  made  with the assistance of Mr. J. A.  Frost,  a retired senior grade Officer of the Imperial Bank of  India, who  was  appointed an adviser.  It was pointed out  that  3 accounts  were  closed,  26  were  sued  upon,  and  in  13, substantial  remittances  were received.  All  this  may  be true; but it is useless for us to speculate as to what would have  happened if the depositors did not take a hand in  the affairs by making a run; and the action of the Reserve  Bank was precipitated 644 by the exigencies of the situation, which had arisen.  Those who made a run for their money, were not going to wait  till the  Bank  acquired  sufficient  funds  to  pay  them  after recovering its advance.  Those advances, as conceded,  could not  so  easily  be  realised  as  the  advance  made  by  a commercial  bank  on security other than that of  land.   If this  rural  bank  began  to arrange  its  business  like  a commercial  bank it must necessarily be judged by  the  same standard, and the affairs of the Palai Bank, in our opinion, had  long left behind the rural character, and  had  emerged into those of a modern commercial bank.    What we have said above is sufficient to show that  there was  not enough material on which the action of the  Reserve Bank could strictly be characterised as mala fide.   Indeed, the  forbearance with which the Reserve Bank acted  (and  it proved  unwise) has completely demonstrated the futility  of granting  time, and we are not surprised that the  answering respondents  in  the High Court and the  appellant  in  this Court  have not chosen to raise any issue about the  honesty of the action.    We are thus concerned with the contention that ss.  38(1) and (3)(b) (iii) are void, being a breach of Arts. 14 and 19 of the Constitution, and ultra vires being in conflict  with Art. 301.  The arguments anent Arts. 14 and 19 are based  on the same reasoning, but that under Art. 19 takes a few  more facts  into account.  Shortly stated, the argument  is  that ss.38  (1)  and (3)(b)(iii) make the Reserve Bank  the  sole judge to decide Nhether the affairs of a banking company are being so conducted as to be prejudicial to the interests of- the  depositors, and the Court has no option but to pass  an order winding tip the banking company, when the  application is made Section 38 lays down :               "38(1), Notwithstanding anything contained  in               section  391,  section 392,  section  433  and               section                                    645               583  of the Companies Act., 1956, but  without               prejudice  to its powers under  sub-section(1)               of  section  37 of this Act,, the  High  Court               shall  order  the  winding  up  of  a  banking               company--               (a)if the banking company is unable to pay its

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             debts ; or               (b)if an application for its winding up has               been made by the Reserve Bank under section 37               or this section.               (2)The Reserve Bank shall make an  application               under  this  section for the winding up  of  a               banking company if it is directed so to do  by               an order under clause (b) of sub-section               (4)   of section 35.               (3)The  Reserve Bank may make  an  application               under  this  section for the Winding up  of  a               banking company-               (b)if in the opinion of the Reserve Bank               (iii)the continuance of the banking company is               prejudicial   to   the   interests   of    its               depositors.     It  is said that the word "shall" in the first  sub-sec- tion  is  mandatory, and compels the High Court to  pass  an order  winding  up a banking company when ever  the  Reserve Bank chooses to make an application.  It is further  pointed out that these powers exclude the operation of s. 433 of the Companies Act, under which companies arc wound up.    The  power conferred on the, Reserve Bank by the  section is  said  to  be bad under Art. 14.  because  it  enables  a discrimination  between  a  banking company  and  any  other company  by prescribing different laws for their  respective winding up, and is 646 bad  under  Arts.  19(1)  (f) and (g)  as  amounting  to  an unreasonable restriction on the holding of property and  the right to carry on business as a banking company.  To amplify the  first, it is argued that s. 433 of the  Companies  Act, when  an application is made to wind up a company, the  High Court  has to be satisfied after a fair trial that an  order to wind up the company is called for, and the Judge, who  is independent  of  executive control, is  completely  free  to reach  a  decision after the Company has  shown  cause,  and there is a right of appeal against the decision, if  adverse to the company.  But under the procedure laid down in s.  38 of the Banking Companies Act, the banking company  proceeded against  has no opportunity to show cause either  before  or after  the  winding up order, the Reserve Bank  .records  no reasons in writing or communicates them, there is no  access to  Court  and no hearing before the.   Court  to  determine whether the proposed action is justified, and no redress  if a  mistake were made.  Under the exercise of that power,  it is  said,  any  banking company can  be  suppressed  by  the Reserve Bank or by the Central Government and the Courts are powerless, since the opinion of the Reserve Bank and/or  the central Government is not justiciable and there is no appeal against  the  decision of the Reserve Bank or of  the  Court acting on the application of the Reserve Bank.    It  is said that the unreasonableness of the  law  arises further  from  the  fact that the Reserve  Bank  is  not  an independent  or impartial judge, the members of the  Central and  Local Boards whereof, being all nominees of  Government with  no security of tenure, such as is enjoyed by the  High Court  Judges.   The Reserve Bank is subject  to  directions from the Central Government, and even if the Reserve Bank be of a contrary opinion, it has to file an application for the winding up of a banking company, if directed to do so by the Central Government.  It is further argued that this  drastic power under a law which is  647 characterised as ’Draconic’ is ‘uncanalised’, ‘uncontrolled’

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and  ‘despotic’,  and in its exercise,  every  principle  of natural  justice is set at nought, and the very  fundamental conception  of  it, namely, resort to  Court  is  completely absent.    Such  a  law,  it  is  said,  is   so   patently, unreasonable  as to be a gross violation of all  fundamental rights.  Lastly, it is contended that in giving the  Reserve Bank  the power to elect to proceed under the Companies  Act or  under the Banking Companies Act, there is  further  room for  discrimination.  It is thus contended that s. 38(1)  of the Banking Companies Act cannot be upheld as a valid law on any principle. The  learned  Attorney-General appearing for  the  answering respondents contends that the action of the Reserve Bank was fully  supported and justified by the facts.   According  to him, the, Palai Bank was inspected frequently for ten  years and the reports of the inspecting officers were made availa- ble to the Palai Bank not only for information but also  for explanation  and compliance.  The action, says  he,  drastic though  it may seem, was taken after numerous  opportunities to the Palai Bank to mend matters, that even as late as 1960 the  Reserve  Bank gave a year’s time for  improvement,  but immediate  action  had to be taken in view of  the  loss  of confidence among the depositors, a large number of whom made a  run for their money.  The learned  Attorney-General  thus says  that  there were many person who were of  the  opinion that  the  Reserve Bank should have acted earlier  and  that perhaps  the Reserve Bank could be blamed for  delaying  the action  but not for taking a precipitate action.  He  urgues that the Reserve Bank and not the Court was in a position to take  prompt  action  be  cause  the  Reserve  Bank  already possessed  all the necessary information.  He contends  that the  position  of  the  Reserve Bank and  its  statue  as  a responsible  body make it the proper authority to make  such an important decision requiring immediate action and 648 that   unless  the  Reserve  Bank  could  be  charged   with dishonesty (which is not the case) the action of the Reserve Bank  not only cannot be questioned, but should not be  open to  doubt.   According to him, banking companies  are  in  a class  by  themselves, and special law  dealing  with  their winding  up cannot be described as discriminatory.  He  con- tends  that  the  law  is  neither  discriminatory  nor  un- reasonable,  and that a prior judicial determination  of  an issue  of  this  kind is not a condition  precedent  to  the making of a winding up order against a batik.  He therefore, says that the appeal and the petition should be dismissed. Before we consider the arguments of the two sides in detail, we wish to say a few words about the position of the Reserve Bank  in the financial affairs of India and also  about  its place  in the scheme of the law.  The Reserve Bank of  India was  established  on April 1, 1935, by the Reserve  Bank  of India  Act,  1934.   Even before the  establishment  of  the Reserve  Bank, suggestions were made that there should be  a central  bank  in India and the Royal Commission  on  Indian Currency  and  Finance  had recommended  in  1926  that  the currency  and credit of the country could only be put  on  a firm  foundation,  if a central bank was  established.   The first  Bill  introduced in 1927 by Sir  Basil  Blackett  was dropped.   The  Indian Central  Banking  Inquiry  Committee, however,  reported  in  1931 that there was  a  need  for  a central  banking  institution  in India  "for  securing  the development  of  the Indian banking and credit system  on  a sound and proper basis." The Committee pointed out that some of   the  Provincial  Committees  had  also  suggested   the establishment  of the Reserve Bank.  The Committee ended  by

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saying:               "We accordingly consider it to be a matter  of               supreme importance from the point                                    649               of view of the development of banking  facili-               ties in India, and of her economic advancement               generally,  that  a Central  or  Reserve  Bank               should  be  created at the  earliest  possible               date.  The establishment of such a bank  would               by  mobilization of the banking  and  currency               reserves of India in one hand tend to increase               the  volume  of credit  available  for  trade,               industry  and agriculture and to mitigate  the               evils of fluctuating and high charges for  the               use   of  such  credit  caused   by   seasonal               stringency."  (Vol.  I, Part I.  Chap.   XXII,               para, 605) The  White  Paper  on  Indian  Constitutional  Reforms  also recommended  the establishment of a Reserve Bank ’free  from political influence’.  As a result of these findings when  a fresh  Bill  was  introduced  by  Sir  George  Schuster   on September  8, 1933, it was accepted and received the  assent of the Governor General on March 6, 1934. The  functions of the Reserve Bank were generally  indicated in  the preamble as the regulation of the issue of the  Bank notes  and the keeping the reserves with t view to  securing monetary  stability  in India and generally to  operate  the currency and credit system of the country to its  advantage. But  to enable the Reserve Bank to function in this  manner, it  had  to be given other powers, so that it  may  function effectively  as  a central bank.  To this end,  the  Reserve Bank  was  given  the right to hold  the  cash  balances  of important  commercial banks, a right to transact  Government business  in  India which was also its  obligation,  and  to enter  into  agreements with State Governments  to  transact their business. In addition to these, the Reserve Bank could require all Banks included in the Second Schedule to the Act to maintain with the Reserve  Bank a balance not less then 5 per  cent,  of their demand liabilities and 2  per  cent  of their time liabilities.  The 650 Reserve  Bank  also  performed the  normal  functions  of  a central bank as well as an ordinary bank, though the  latter functions are not as detailed as those of in ordinary bank. But  the most important function of the Reserve Bank  is  to regulate the banking system generally.  The Reserve Bank has been  described as a Bankers’ Bank.  Under the Reserve  Bank of India Act, the scheduled banks maintain certain  balances and the Reserve Bank can lend assistance to those banks  "as a  lender  of the last resort".  The Reserve Bank  has  also been  given certain advisory and regulatory functions.   But its  position  as a central bank, it acts as an  agency  for collecting financial information and statistics.  It advises Government  and  of-her  banks  on  financial  and   banking matters,  and for this purpose, it keeps itself informed  of the activities and monetary position of scheduled and  other banks and inspects the books and accounts of scheduled  bank and advises Government after inspection whether a particular bank  should  be  included in the Second  Schedule  or  not. Every scheduled bank is required to send to the Reserve Bank and  to  the  Central  Government a  weekly  return  of  its position in a form, which is prescribed.  Sometime, however, the  Reserve  Bank  allows a particular  bank  to  send  its returns  once  a month instead of every  week.   From  these returns,   the   Reserve   Bank   prepares   and   publishes

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consolidated statements showing the monetary position in the country.  The inclusion of a bank in the Second Schedule  is the  function  of the Reserve Bank, and under  ss.  42(6)(a) (iii)  and (b)(ii) it satisfies itself inter alia  that  the affairs of the particular bank are not being conducted in  a manner detrimental to the interests of its depositors.   The Reserve Bank has further the power to prohibit any scheduled bank from receiving, after a week, any fresh deposits.                             651 The above analysis of some of the provisions of the  Reserve Bank  of India Act show that the Reserve Bank of  India  has been  created as a central bank with powers of  supervision, advice  and  inspection,  over  banks,  particularly   those desiring  that  they be included in the Second  Schedule  or those  scheduled already.  The Reserve Bank thus  safeguards the economy and the financial stability of the country.   No doubt, the Board is composed of nominated members ; but from the  nature of things, it could not be  otherwise.   Neither election  nor competitive examinations can effectively  take the place of nominations, if the Board is to be composed  of men  of  proved worth and standing, and there  is  no  other method  which  can  even be  contemplated.   No  doubt,  the members  of  the Board are subject to removal,  but  neither integrity nor efficiency is secured only by such  guarantee, and  we have no reason to think that the Reserve Bank  acted in this case, or acts in other cases under pressure or  from oblique  motives.  As was pointed out in another  connection by  this Court in All India Bank Employees’  Association  v. National Industrial Tribunal (1).               "If it was not the Reserve Bank of India,  the               only  other authority that could be  entrusted               with   the  function  would  be  the   Finance               Ministry  of the Government of India and  that               department would necessarily be guided by  the               Reserve  Bank  having regard to  the  intimate               knowledge  which the Reserve Bank has  of  the               banking  structure of the country as  a  whole               and   of   the  affairs  of   each   bank   in               particular." The  position  of  the Reserve Bank being such  as  we  have stated from the Reserve Bank of India Act, the next thing to enquire is its powers under (1)  [1962] 3 S.C.R. 269, 299. 652 the  Banking Companies Act.  The Banking Companies  Act,  in its  present  form,  is  the  product  of  many  legislative enactments.   The Banks’ Liquidation  Proceedings  Committee (1962)  correctly  described it as "made up  of  shreds  and patches"  We  were  taken through  the  entire  evolutionary process  by  the  learned Attorney-General; but  we  do  not consider it necessary to trace the various steps.  We  shall content ourselves with a reference to the salient landmarks. In  the  Indian Companies Act, 1913, there  was  no  special procedure  for banking companies, particularly  relating  to their  winding  up.  Special provisions were  introduced  in that  Act  by the Indian Companies  (Amendment)  Act,  1936. Part X-A, which was then introduced, merely enacted  certain regulatory   provisions,  but  of  winding  up  of   banking companies,  it ,said nothing.  The amendment hardly met  the purpose and the Reserve Bank of India framed a draft bill as far  back as 1939 from which has been fashioned the  present Banking Companies Act. During  the War years, the Indian Companies Act was  amended several times to meet some special exigencies, with which we are not concerned.  But by July, 1946, it was realised  that

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certain  undesirable features in banking had come to  exist. Banks were then getting control of non-banking companies and by  the interlocking of shares, the banking  companies  were able to manipulate the finances at their disposal.  The main features were ’the grant of loans to persons connected  with the management of banks without adequate security  extensive window-dressing  at  the time of  preparing  balance-sheets, and,  in general, a tendency to utilise the bank’s funds  to the  detriment of the interests of the depositors." It  must not  be forgotten that the Indian Companies Act,  1913,  was concerned  primarily with safeguarding the interests of  the stockholders, whereas in a banking company, the interests of the depositors are invariably many times  653 those of the stockholders, if those interests can be said to be  represented  by the monies  invested  respectively.   In 1946,  an Ordinance was promulgated consisting of  only  six sections of which the operative sections were the last four. Section  3  enabled  the Central Government  to  direct  the Reserve  Bank  to  cause an inspection to  be  made  of  any banking  company  and its books and accounts and to  make  a report  to the Central Government.  Section 4  provided  the machinery  and  the procedure to implement s. 3.  Section  5 empowered Government to prohibit a bank from receiving fresh deposits  or  to direct the Reserve Bank not  to  include  a particular  bank in the Second Schedule, or to exclude  it., if  already included.  Sub-section (2) provided for  certain penalties,  and  s. 6 authorised the Central  Government  to publish,  after  reasonable notice to  the  banking  company concerned,  any report or parts thereof This was an  attempt to  ensure  the depositors a certain measure  of  safety  in regard to their money. This  Ordinance  was  followed  by  the  Banking   Companies (Restriction  of  Branches) Act, 1946, which,  is  its  name shows, put a curb on the indiscriminate opening of  branches by  some  banks.  The evil of indiscriminate  advancers  and loans was then sought to be met by an Ordinance  promulgated in 1948 intituled "The Banking Companies Control  Ordinance" (XXV of 1948).  In that Ordinance, it was provided that  the Court shall appoint the Reserve Bank as the Official  Liqui- dator of a banking company on the application of the Reserve Bank in that behalf.  The Reserve Bank of India Act was also amended  to enable the Reserve Bank to give a loan or  loans to  a banking company with a first charge on the assets,  if wound  up.  A large number of banking companies  had  failed during  the  years, 1947, 1948 and 1949.  Between  1926  and 1937, 23 Banks had suspended payment.  In 1938 and 1939,  46 Banks 654 failed, from 1940 to 1946, 95 Banks were involved.  But,  in 1947,  1948  and  1949 there were as many  as  123  failures involving outside liabilities of Rs. 82 crores ! The largest number  was  in Calcutta with 83 Banks.  In the  winding  up proceeding that     followed,  many unsatisfactory  features were noticed.   It  was noticed that the  realisations  were insignificant,  while  the costs were  great,  and  enormous expenditure  of  time  took place.  The winding  up  of  any company,  be it a banking company or any other, requires  an investigation  of the affairs, the recovery and  realisation of assets and distribution of what is realised.  While these matters can,, of course, be carried on without undue  hurry, the  decision whether there should be a winding up  or  not, cannot be unduly deferred in the case of a banking  company, if  the interests of the depositors are to  be  safeguarded. To  achieve  solidarity in banking operations  and  also  to

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preserve the rights of the depositors while a bank continues and  more so when it cannot, the Banking Companies  Act  was the logical, and indeed, the only answers. We  have seen that the Reserve Bank was already  functioning as a central bank with a certain measure of control over the other  banks,  scheduled or unscheduled.  This  control  was tightened in the Banking Companies Act by making  provisions which  were  intended  to  protect  the  interests  of   the depositors.   Differences  noticeable  between  the  Banking Companies Act, on the one hand and the Companies Act, on the other, which have been characterised as discriminatory,  are thus explainable on the basis of the object to be  achieved. We shall soon illustrate this by a reference to the sections themselves.  For the present we only wish to emphasise  that banking  companies cannot be compared with other  companies. The   ordinary  companies  deal  with  the  money   of   the stockholders, who own a share in the assets,                             655 who  appoint their own Directors, for better or  for  worse, and whose liability is also limited.  The banking  companies are  in an entirely different class, as they deal  with  the money  of  the depositors who have no  security  except  the solvency of the banking company and its sound dealings  with their  money.   Ex  facie, the  banking  companies  must  be regulated  somewhat  differently, and the interests  of  the depositors  must  be paramount and the winding  up  of  such companies  depends  upon other considerations,  chief  among which  is  the  desire to pay off the creditors  as  far  as possible in full or at least equitably.  The action is  thus dictated not from any abstract consideration of a long-range view  of the future ability of a bank to pay  its  creditors but  its  ability to pay them at any given  time.   In  this connection,  the Reserve Bank has been given by the  Banking Companies  Act  the  power and invested  with  the  duty  of watching the affairs of every banking company with a view to ensuring  the  safety of the depositors’  money.   There  is thus, at the very start, a reasonable classification,  which is also a very just and practical classification, to achieve the avowed purpose. It  is hardly necessary to examine each and every  provision of  the Banking Companies Act.  When the  Banking  Companies Act  was  originally  enacted,  the  main  objects  were  to prescrible minimum capital standards, to prohibits the  non- banking companies to accept deposits repayable on demand and to  limit dividends payable.  But included in the Act was  a comprehensive scheme for licensing of banks and a  conferral on the Reserve Bank of power to call for periodical  returns and  balance  sheets and to inspect books  and  accounts  of banking  companies.   The  Act also  empowered  the  Central Government  to  take action against banks  conducting  their affairs  in  a mariner detrimental to the interests  of  the depositors, and 656 provided  for  a quicker procedure for  winding  up  banking companies. When  the Banking Companies Act was passed in 1919,  it  was explained  in the note on cl. 37, which corresponded  to  s. 38,  that  the  provisions of the Indian  Companies  Act  in respect  of  liquidation  of companies did not  seem  to  be suitable for banking companies, that a bank’s business being of   an  over-the-counter  kind,  the  bank  has   to   meet immediately its liability and a provision for winding up  of the banking company when it refuses to meet a lawful  demand within  a  stated time, was necessary.  It was  also  stated that  the Reserve Bank was given authority to apply for  the

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liquidation  of  the banking company, if  its  affairs  were conducted   to  the  detriment  of  the  interests  of   the depositors.   An  examination of the Banking  Companies  Act reveals two things prominently.  The first is that the whole intend and purpose of that Act is to secure the interests of the depositors.  The second is that the Reserve Bank is  the instrumentality by which this intend is to be achieved.  The Act, at every turn, makes the Reserve Bank the authority  to sanction,   permits,  certify,  inspect,   report,   advise, control, direct, license and prohibit.  There is hardly  any provision  where  the Reserve Bank’s judgment  is  not  made final  vis-a-vis  a banking company except rarely  where  an appeal to the Central Government can lie.  No useful purpose will be served in referring to these sections in detail. Nor  do  the  powers of the Reserve  Bank  end  there.   The Reserve  Bank  not only has powers  over  banking  companies while they are functioning, but it has also powers when  the banking  companies wish or are forced to cease to  function. If  a  banking  company wants to suspend  its  business  and applies to the High Court for a moratorium, the  application is not maintainable, unless                             657 it is accompanied by a report of the Reserve Bank indicating that in the opinion of the Reserve Bank the banking  company will  be able to pay its debts.  When the High Court  grants the relief without such report, it has to call for a  report from  the Reserve Bank.  The High Court is also required  to have  regard  to the interests of the depositors,  and  even during  the period of moratorium granted by the High  Court, the Reserve Bank can apply for the winding up of the banking company.   Sections 39 and 41-A give special powers  to  the Reserve  Bank in winding up proceedings.  Even in  voluntary winding  up  of a banking company, the Reserve Bank  has  to certify that the banking company is able to pay in full  all its debts to its creditors, as they accrue.  In amalgamation of  banking companies, the scheme has to be approved by  the Reserve  Bank.  Similarly, in ;compromises  or  arrangements between  the banking company and its creditors, the  Reserve Bank  has  to  be  satisfied.  In  all  these  matters,  the satisfaction inter alia, must be as to the interests of  the depositors.   In reconstruction of banking company after  an application by the Reserve Bank for an order moratorium, the Reserve  Bank has to satisfy- itself and prepare  a  scheme, which,  inter  alia,  must  be  in  the  interests  of   the depositors. This  brief  survey of some of the other provisions  of  the Banking Companies Act, in addition to the general provisions earlier  noticed,  makes  it  plain  that  the   legislature considers  that  consistent with its position as  a  central bank  and  more  so with its  duties  and  obligations,  the Reserve Bank must have a decisive voice in certain  matters. It  is in this context and setting that the,  provisions  of ss. 38(1) and (3)(b)(iii) of the Banking Companies Act  must be viewed.  It must not be overlooked that the  legislature, in  view of the sad experiences of the past, was anxious  to devise  a  machinery  for the  supervision,  inspection  and effective functioning 658 of  banking companies in the country.  Associated with  this was  the  speedy closure of banking  companies,  which  were harmful to the interests of the depositors.  The legislature achieved  both  these objectives through the  Reserve  Bank, which, because of its special powers and advantages, was  in a  position  to act promptly and effectively.   To  aid  the Reserve  Bank, the Courts were required by law to be  guided

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in  certain  matters  by the opinion  and  judgment  of  the Reserve Bank, and in the matter of their disposal of winding up cases relating to banking companies, a special  procedure was enacted in Part IIIA of the Banking Companies Act. We are now in a position to deal with the argument that  ss. 38(1) and (3)(b)(iii) of the Banking Companies Act are void- firstly  because they permit discrimination between  banking companies on the one hand, and non-banking companies on  the other,  and  also between banking companies  inter  se,  and secondly  because  they create an  unreasonable  restriction upon the right to carry on banking, and lastly, because  the whole  procedure  is a denial of the principles  of  natural justice, chiefly by denying an access to Courts.  Though the arguments in this appeal have for their immediate object the declaration  that ss. 38(1) and (3)(b) (iii) of the  Banking Companies  Act are void, they have ranged over a  very  wide field.   In support of the first limb of the argument,  Art. 14 is invoked, and in support of the second and third, Arts. 19(1)(f)  and (g); and the argument proceeds along lines  so well-known now as to need hardly any further  amplification. There being no direct ruling either of this Court or of  any High  court,  assistance  is  sought  to  be  derived   from observations in previous decisions of this Court relating to other  laws.   In reply, the  learned  Attorney-General  has relied  upon  the  provisions of  certain  banking  laws  in America and Japan and decisions of the                             659 American Courts, where such American laws were tested  under the  due process’ clause.  We shall refer to those laws  and briefly rulings in the sequel, As  regards  the first point, viz.,  discrimination  between banking companies and non-banking companies, we have already sufficiently  indicated  the  wide  difference  that  exists between  these  two  types and the  need  for  special  laws dealing  with banking companies.  We have also  pointed  out the  mischief  that was sought to be remedied  and  how  the present   law   has   been   evolved   after    considerable deliberation.    A  special  Committee  called  the   Banks’ Liquidation Proceeding Committee was appointed in 1952,  and the  findings  and  recommendations of  the  Committee  were implemented,  amending the Banking Companies Act and  incor- porating  changes,  of  which the impugned  section  in  its present form is one.  There being a very clear-cut and valid classification, the different procedure cannot be said to be discriminatory, because it is based on differences which are related  to the end sought to be achieved.  Further,  we  do not think that the possibility that the procedure under  ss. 38(1)  and (3)(b)(iii) may be invoked in some cases and  the procedure  of  the  Companies  Act  in  others,  makes   any difference, because the different procedures will be invoked to suit different situations, and it cannot be said that the Reserve  Bank would act arbitrarily from case to case.   The Reserve  Bank,  apart from its being a reasonable  body,  is answerable to the Central Government, and the public opinion is certainly strong and vocal enough for it to heed.  If the Reserve  Bank were to act mala fide, the Central  Government and  in  the  last  resort, the Courts,  will  be  there  to intervene.  In our judgment, the provisions of ss. 38(1) and (3)(6)(iii) cannot be said to be a breach of Art. 14 of  the Constitution. 660 That  leaves  over  the second and  third  arguments,  which proceed  upon the same materials.  In this  connection,  the main  grounds  of attack have already been set out  in  this judgment.   Before we deal with the central point, we  shall

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deal  with certain others which proceed, so to  speak,  from the  side lines.  The objection that the Reserve Bank  gives no  hearing,  records  no reasons in writing  and  does  not communicate  them  is  met  at least in  this  case  by  the admitted  facts.   ’The  numerous  inspection  reports   and directions  issued  by  the Reserve Bank over  a  period  of nearly  nine years, together with the application  filed  in this case, prove amply that there was enough hearing of  and enough communication of the grounds of action to, the  Palai Bank.  The Bank had also sufficient time and opportunity  to establish its own point of view before the Reserve Bank.  It was  impossible that the Reserve Bank, with the run  on  the Bank, would sit down to decide after hearing whether to take action or not, while withdrawals were being made at the rate of  Rs.  7 lakhs per day.  The emergency of  the  situations which  may  arise,  is  itself  the  justification  for  the procedure open under the Act and taken in this case.  In our opinion,  these  grounds  cannot  be  entertained.   It   is difficult  to  imagine  that  the  Reserve  Bank  would  act differently in another case. The  main  ground  of  attack  is  the  way  ss.  38(1)  and (3)(b)(iii) make it mandatory for the High Court to pass  an order winding up a banking company whenever the Reserve Bank under its powers or under an order of the Central Government makes  an  application  for  the winding  up  of  a  banking company.  It is argued that such a power to the Reserve Bank is  an  uncontrolled and despotic power and  to  crown  all, access  to Courts is not possible because the  Court  itself must  pass an order without deciding whether the affairs  of the banking  661 company  are being conducted in a manner detrimental to  the interests of the depositors--a fact capable of being  proved like any other fact.  It is argued as a matter of  principle that  any law which bars a decision by the Court  is  itself unreasonable without more.  Mr. Pathak, in supplementing the above contentions of Mr. Nambiar, also contends that by  the law  in question a judicial process has been converted  into an executive action, and subjective determination has  taken the place of judicial determination.  He also contends  that the  Reserve Bank accuses a banking company, and then  tries the issue to the complete exclusion of Courts. It  must not be overlooked that the winding up of a  banking company  takes  place before the High Court  and  under  the process  of law.  The judicial process is excluded  only  in respect of the momentous decision whether a winding up order should be made or not.  This opinion is left to the  Reserve Bank, and the Court merely passes an order according to  the Reserve  Bank’s  opinion, and then proceeds to wind  up  the banking  company according to law.  The narrow  question  is whether in leaving this decision to the Reserve Bank the law offends  the principles of natural justice, and  becomes  so unreasonable,  viewed in the light of Art. 19, as to  become void.   This  is the point on which the  respective  parties joined  issue and had much to say, and this is  the  crucial point in this case. In  support  of this contention, reliance on behalf  of  the appellant is placed upon certain cases of this Court, and we shall  begin  by  noticing them in brief.   The  first  case relied  upon  is A. K. Gopalan v. The State  (1).   In  that case,  the  validity of ss. 3, 7, 10-14  of  the  Preventive Detention Act, 1950, was challenged on a petition under Art. 32 of the Constitution for a writ of habeas corpus.  Certain observations of Kania, C.J., and Fazl Ali, J., were (1)  [1950] S.C.R. 88.

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662 relied upon to show that the right to be heard and tried  is the  very  basis of the rule of law, Fazl  Ali,J.,  observed that there is a fundamental principle   that a person  whose rights  are  affected  must be  heard.   The  learned  Judge referred  to several cases in which the maxim, audi  alteram partem,  has  been  invoked and  applied,  particularly  the observations  of  Lord Macnaghten in Lapointe  v.  L’  Asso- ciation,  etc., de Montreal (1), who condemned  a  procedure which  required  no hearing as being "contrary to  rules  of society and above all contrary to the elementary  principles of justice." It cannot reasonably be said that there would be no  hearing in cases of this type.  While we agree that it is  obnoxious to  the  rule of law as it exists among  civilized  nations, that  a person should be condemned, unheard, we  cannot  say that  in  this case the Palai Bank was not heard,  and  this case is really typical of those cases in which such a  power would   be  invoked.   The  learned  Attorney  General   was justified in saying that there was plenty of hearing  before the  application was filed.  The gist of the objection  must thus be taken to be that the Palai Bank was not heard in the High  Court before the making of the impugned order.   If  a valid law could be made leaving to the determination of  the Reserve  Bank whether a banking company should be  wound  up and the Court to implement that decision, then this petition must fail ; but if it cannot be made, then it must  succeed. We  have  thus to see whether there is any  inviolable  rule that  every determination must always be made by  the  Court and by no other authority. In  dealing with the rulings of this Court cited to us,   of which  we  have  already mentioned  one,  we  shall  enquire whether  such  a wide proposition can be said to  have  been established (1)  [1906] A.C.535.                             663 before.  In A. K. Gopalan’s case(1), s.14 of the  Preventive Detention  Act was held void as contravening Art.  22(5)  of the Constitution in so far as it prohibited a person who was detained  from disclosing even to the Court the  grounds  of his  detention and the representation made by him.   It  was said that the right to move an appropriate Court for a  writ of habeas corpus and therein to show that the detention  was improper,  was undeniable and it was held that s. 14,  which Stood  in  the  way of this right,  was  void.   No  general proposition  that the Court must decide whether  the  person should  be detained or not was laid down in that case.   The law   which  allowed  a  subjective  determination  of   the executive was in fact, upheld, and there are passages in the judgments  of the majority to show that a judicial trial  in cases of preventive detention was  not considered necessary.    In State of Madras v. V. G. Row (2), SS. 15(2)-(b)  and 16  of  the  Indian Criminal Law  Amendment  Act,  1908  [as amended  by the Indian Criminal Law Amendment (Madras)  Act, 1950],  were called in question, inter alia, on  the  ground that  they  empowered  the  State  to  declare  associations illegal  by a notification without a provision for  judicial enquiry.   It was held by this Court that the  conferral  of authority on the executive Government to impose restrictions on the right of association without allowing the grounds  of such  imposition both in their factual and legal aspects  to be duly tested in a judicial enquiry was a strong element to be  taken into account in judging the reasonableness of  the restriction.  It was also added :               "The formula of subjective satisfaction of the

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             Government  or  of  its.  officers,  with   an               Advisory   Board   thrown  into   review   the               materials  on  which the Government  seeks  to               override a basic freedom guaranteed to the (1) [1950] S.C.R. 88. (2) [1952] S.C.R. 597. 664 citizen,   may  be  viewed  as  reasonable  only   in   very exceptional, circumstances......... Earlier, in the same judgment it was said               ""...the  test  of  reasonableness,   wherever               prescribed, should be applied to each  indivi-               dual statute, impugned, and no abstract  stan-               dard,  or general pattern,  of  reasonableness               can be laid down as applicable to all cases." V.   G.  Row’s case (1) shows that laws allowing  subjective determination by the executive are not to be struck down out of  hand,  but  that their  reasonableness  must  be  judged according to the standards appropriate to the circumstances. It  may, however, be mentioned that in V. G, Row case (1)  a distinction  was made between a law  requiring  anticipatory action particularly on grounds of suspicion, and a law which authority action based on the factualexistence of certain grounds.  A. K. Gopalan’s case(2) and Dr. N. B.Khare v. The  State  of Delhi (3) were distinguished on  this  narrow ground  which  appears  to have been conceded  then  by  the learned Attorney-General.  The factual existence of grounds- amenable  to an objective determination by the Court in  the present  case,  namely  prejudice to the  interests  of  the depositors was said to place this case within the rule in V. G. Row’s case (1).  But cases of detention and  associations declared  unlawful  are not in the same class as  a  banking company on which there is a run by the depositors and  whose affairs,  on  inspection,  are found to  be  mismanaged  and conducted in such a way that it is unable to pay all  lawful demands upon it.  The factual background will not be one  of suspicion, and action will be based on concrete facts, which will  normally  be checked and rechecked  before  the  final decision,  and, in our opinion, it is impossible  to  equate such  a case with either A. K. Gopalan’s case (2) or  V.  G. Row’s case(1). (1) [1952] S.C.R. 597.      (2) [1950] S.C.R. 88. (3) [1950] S.C.R. 519, 665 The next case to which reference was made is Thakur Raghubir Singh  v. The Court of wards, Ajmer (1).  In that  case,  s. 112  of the Agra Tenancy and Land Records Act (42  of  1950) was declared void.  That section allowed the Court of  Wards to  take  over the property of a landlord  under  the  Ajmer Government  Wards  Regulation (1 of 1888)  if  the  landlord habitually infringed the rights of tenants.  Such a landlord was  under s. 112 deemed to be "disqualified to  manage  his property." The reason for striking down the section was that it  completely  negatived the fundamental right  under  Art. 19(1)(f)by  making the enjoyment of the right to  depend  on the  mere discretion of the executive.  The absence  of  any provision  which  would  enable the landlord held  to  be  a habitual  infringer  of the rights of his tenants,  to  have recourse  to  a Civil Court to test the correctness  of  the determination against him was held to create the invalidity. It  is  to be noticed that the learned  Attorney-General  in that case conceded the point, but the reason behind the rule appears to be that the law there prescribed a punishment  or penalty for the bad behaviour of the landlord, and no person should  be  punished without having an opportunity  to  show

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cause.. The question, therefore, is, can the ruling be  made applicable  ?  It does not lay down  any  general  principle applicable  to all cases beyond the one we  have  mentioned. The action to wind up a banking company cannot be said to be a  punishment  for  mismanagement  but  action  designed  to preserve   the  rights  of  the  depositors,  and  the   two situations are hardly similar. The next two cases relied upon were The Commissioner,  Hindu Religious  Endowments,  Madras  v.  Sri  Lakshmindra  Tirtha Swamiar  of  Sri Shirur Mutt (2) and  Mahant  Sri  Jagannath Ramanuj Das v.The State of Orissa it was (1)  [1953] S.C. R. 1049. (2)  [1954] S.C.R. 1005. (3)  [1954] S.C.R. 1046. 666 conceded by the counsel for the State that certain  sections of  the Madras Religious and Charitable Endowments Act  (XIX of 1951) and of the Orissa   Hindu Religious Endowments Act, 1939 (as amended in 1952), were ultra vires Arts.  19(1)(f), 25 and 26 of the Constitution.  This Court also found in the former  case that the provisions were extremely  drastic  in their character and the worst feature ,Was that there was no access  to  Courts.   The Act  in  question  was  considered drastic  because under it a religious institution  could  be notified  and taken over and vested in an executive  officer merely by stating that the Board "was satisfied that in  the interests  of  proper  administration of the  Math  and  its endowments,  the settlement of a scheme was  necessary."  In the latter case, it was observed as follows               "’Sections 38 and 39 relate to the framing  of               a  scheme.  A scheme can certainly be  settled               to  ensure due administration of  the  endowed               property  but the objection seems to  be  that               the  Act provides for the framing of a  scheme               not by a civil court or under its  supervision               but   by   a  Commissioner  who  is   a   mere               administrative or executive officer.  There is               also  no  provision for  appeal  againsts  his               order to the court." After commenting upon the amendment of sub-s. (4) of s.  39, which took away the right of suit and made the order of  the Commissioner final and conclusive, this Court concluded               "We  think  that the settling of a  scheme  in               regard  to  a  religious  institution  by   an               executive officer without the intervention  of               any  judicial  tribunal  amounts  to  an   un-               reasonable restriction upon the right of  pro-               perty   of  the  superior  of  the   religious               institution which is blended with his  office.               Sections                                    667               38 and 39 of the Act must, therefore, be  held               to be invalid." These  words would seem to show that the ‘intervention of  a ’judicial  tribunal  is  the  sine  qua  non  of  reasonable determination  of any issue,.  But these cases must be  read with the case reported in Sri Sadasib Prakash Brahmachari v. The  State of Orissa (1).  After the judgment of this  Court in  the  case  from Orissa, the  Orissa  Legislature  passed Orissa  Act XVII of 1954 purporting to amend not the Act  of 1939 but Orissa Act II of 1952 which had been passed but not brought  into  force.   The Orissa Act  XVIII‘  of  1954  on receiving  the  assent of the President came into  force  at once,  and Act II of 1952 became amended and modified.   The 1952  Act was then brought into force from January 1,  1955,

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by a notification. By  the new Act, which provided for the same  subject-matter as  the Act of 1939, the right of suit still remained  taken away,  but  a right of appeal direct to the High  Court  was provided.  It was contended again that the Act continued  to be  bad for the reasons given in the earlier case  of  1951. This Court then observed :               "It is further urged that the initial decision               in  a scheme-proceeding is still on the  basis               of  an  executive  enquiry  by  an   executive               officer and that  in any case a direct  appeal               to    the   High   Court   as   against    the               Commissioner’s  order cannot be as adequate  a               safeguard regarding the rights of Mahants as a               suit  and a right of’ appeal therefrom in  the               ordinary course to the higher courts would be.               It is undoubtedly true that from a  litigant’s               point of view an appeal to the High Court from               the  Commissioner’s order is not the same  as,               an independent right of suit and an appeal  to               the  higher  courts from the  result  of  that               suit.  But in order to judge               (1)   [1956] S.C.R. 43,               668               whether  the  provisions in- the  present  Act               operate by way of unreasonable restriction for               constitutional purposes what is to be seen  is               whether the person affected gets a  reasonable               chance  of presenting his entire  case  before               the  original tribunal which has to  determine               judicially the questions raised and whether he               has a regular appeal to the ordinarily consti-               tuted  court or courts to correct the  errors,               if  any,  of the tribunal of  first  instance.               For that purpose it is relevant to notice that               in  the  present  Act,  the  Commissioner   of               Endowments   has,  by  virtue  of  section   4               thereof,  to  be  a  member  of  the  Judicial               Service  (of the State) not being  below,  the               rank  of  a  Subordinate  Judge,  while  under               section  7 of Act IV of 1939, Commissioner  of               Endowments  could  be a person of  either  the               judicial  or  the executive service  and  that               even where a member of the judicial service is               appointed he may be a person below the rank of               a   Subordinate  Judge.    Another   important               difference has also to be noticed, viz.,  that               while under section 38 of the previous Act the               enquiry has to be conducted in such manner  as               may  be prescribed’ which means as  prescribed               by  the  Provincial Government by  rules  made               under  the  Act and hence  changeable  by  the               Government,  under  the present  Act,  Section               42(1)(b)   specifically   enjoins   that   the               ’Commissioner  shall  bold an enquiry  in  the               manner  prescribed  and so far as  may  be  in               accordance with the provisions of the Code  of               Civil  Procedure  relating  to  the  trial  of               suits". This  Court, therefore, held that the scheme framed was  not unreasonable.  At p. 59 of the Report, a summary of the four steps which made. for reasonableness was given as follows               "(1) The scheme is to be framed by                                    669               a  Commissioner,  who  is,  by  appointment  a

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             judicial officer.               (2)The  procedure is far as  may be, the  same               its that in the trial of suits.               (3)There  is  a preliminary_  enquiry  by  the               Assistant Commissioner.               (4)There is an appeal to the High Court." This was a departure from the insistence on the intervention of  a  judicial tribunal.  It was considered enough  if  the person was a judicial officer and the procedure was that  of the  trial  of suits, as laid down in  the  Civil  Procedure Code.   The Court still went further when it dealt with  the earlier  schemes  which  might have been framed  by  (a)  an executive   officer  and  (b)  in  pursuance  of   procedure prescribed by the Executive Government.  The Court said that "this was merely a theoretical possibility".  The absence of a  preliminary  enquiry  in No. (3)  was  not  considered  a serious  point.  The order of the executive officer  in  No. (1)  was held not of importance, as the Commissioner  was  a Subordinate  Judge  of  the Orissa  Judicial  Service.   The question of procedure (No. 2) was also not considered impor- tant,  because the procedure prescribed by  rules  resembled that of trial of suits.  As regards the right of appeal,  s. 79A  gave  a  right  in all  decided  cases,  and  that  was considered enough; but whether it was invoked or not in  all cases does not appear to have been ascertained. It would appear from these three decisions that the gist  of reasonableness  was held to be not so much in the  label  of the officer as in a judicial approach to the question to  be decided  according  to a procedure which  gave  an  adequate hearing.   That the Commissioner was a judicial  officer  of the rank ’of 670 a  Subordinate Judge was considered enough for  up   holding his action as reasonable.  That every decision should be  by the Court was thus not the proposition laid down.  In  fact, the case shows that it is not the sine qua non so long as  a person trained to the task of deciding controversies does it according  to  a procedure in which parties can be  said  to have been heard fully. We  need  not consider in detail the case of  Ebrahim  Vazir Mavat  v.  The  State of Bombay (1), in which s.  7  of  the Influx  from  Pakistan (Control) Act, 1949, was  held  void. Section ’7 authorised the Central Government to remove  from India,  any  person  "who has committed or  against  whom  a reasonable  suspicion  exists  that  he  has  committed,  an offence under this Act..." In dealing with the section, this Court said :               "......  section  7  imposes  the  penalty  of               removal  not  only  upon  a  conviction  under               ,section  5 but goes further and brings  about               the same result even where there is a  reason-               able  suspicion  entertained  by  the  Central               Government  that  such  an  offence  has  been               committed.   The question whether  an  offence               has  been  committed is left entirely  to  the               subjective determination of Government." This Court pointed out that there was no opportunity to  the offender  to  clear  his conduct, and  held  that  this  was "nothing  short of a travesty of the right of  citizenship". The case is explainable on the ground that an Indian citizen has a fundamental right to stay in India and if he is to  be removed for committing an offence or under suspicion that he has  committed  an offence, the removal is a  penalty  which cannot  be inflicted without an opportunity to the  offender to  clear his conduct.  As pointed out by us already,  while

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dealing  with Thakur Raghubir Singh’s Case (2), there is  no question of a (1) [1954]S.C.R. 933.   (2) [1953] S.C.R. 1049.  671 punishment  here, and there is, in fact, a  hearing,  though not  before  a Court.  There is nothing in the  Influx  from Pakistan (Control) Act to show that the opportunity to clear his conduct of the alleged offence must be by resort to  the Court. The appellant also relied upon K. T. Moopil Nair v. State of Kerala  (1), where a taxing statute was struck down  on  the ground  that it provided no procedure for assessment of  the tax, Abdul Hakim v. State  of Bihar (2) and State of  Madhya Pradesh v.     Baldeo Prasad (3), but they do not deal  with the  point now raised, and were decided on facts which  were entirely  different.   It will thus be seen  that  the  wide proposition,  that  every Determination  affecting  liberty, rights  or  property  must  always be  made  by  a  judicial tribunal and none else, does not find support from the cases above considered.  It is enough to say that the Reserve Bank in  its  dealings  with banking companies does  not  act  on suspicion but on proved facts.  These facts are  statutorily required  to  be  submitted to the  Reserve  Bank,  and  the Reserve  Bank  further inspects the banking  companies.   It licenses such banking companies as conduct their affairs  in the  interests  of  the depositors,  and  can  withdraw  the licence if they do not.  With such a statutory access to the affairs  of a banking company, there is sufficient  guidance in the words detrimental to the interests of the depositors’ to show to the Reserve Bank when and how the power is to  be exercised.   Indeed, in this case itself, the  Reserve  Bank has  given  an easily understandable view  of  the  monetary position  of the Palai Bank.  By comparing the total  demand and  time  liabilities  of the Palai Bank  with  the  liquid assets, borrowing power and realisable advances, the Reserve Bank  has  shown  the inability of the Palai  Bank  to  meet lawful  demands, and a state of affairs is disclosed,  which is certainly not beneficial to the (1) [1961] 3 S.C.R.77.   (2) [1961] 2 S.C.R. 610. (3)  [1961] 1 S.C.R. 1970. 672 interest  of  those unfortunate depositors, whose  money  is still  involved.  The Reserve Bank has not yet told  us  all that  it has found.  It will all be found in the winding  up proceedings.   But this seems certain that the action  would not  be  taken  without scrutinising all  the  evidence  and checking and rechecking all the findings.  It is  impossible to  say that observations in the cases discussed  above  can apply to the facts here. The  learned Attorney-General, on the other side,  drew  our attention  to Virendra v. The State of Punjab (1), where  it has  been pointed out that in judging the reasonableness  of any  particular law "the surrounding circumstances in  which the impugned law came to be enacted, the underlying  purpose of  the  enactment and the extent and urgency  of  the  evil sought  to be remedied" must also be considered.  That  case concerned the freedom of speech and its alleged  curtailment by the Punjab Special Powers (Press) Act, 1956.  In  judging the  reasonableness  of  the  law  from  the  angle  of  the exclusion of Courts, this Court observed:               "Legislature had to ask itself the question  :               who  will  be  the  appropriate  authority  to               determine  at  any given point of time  as  to               whether  the prevailing circumstances  require               some restriction to be placed on the right  to

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             freedom of speech and expression and the right               to carry on any occupation, trade or  business               and  to what extent ? The answer was  obvious,               namely,  that  as  the  State  Government  was               charged with the preservation of law an  order               in the State, as it alone was in possession of               all  material  facts  it  would  be  the  beat               authority to investigate the circumstances and               assess the urgency of the situation that might               arise and to make up its mind whether any and,               if so, what anticipatory action must               (1) [1958] S.C.R. 308.                                    673               be taken for the prevention of the  threatened               or anticipated breach of the peace.  The court               is wholly unsuited to gauge the seriousness of               the situation, for it cannot be in  possession               of  materials which are available only to  the               executive  Government.  Therefore, the  deter-               mination  of the time when and the  extent  to               which  restrictions should be imposed  on  the               Press  must of necessity be left to the  judg-               ment  and discretion of the  State  Government               and  that is exactly what the legislature  did               by passing the statute......... Quick decision               and swift and effective ’action must be of the               essence of these powers and the exercise of it               must,  therefore,  be left to  the  subjective               satisfaction  of the Government...... To  make               the  exercise of these powers justiciable  and               subject  to the judicial scrutiny will  defeat               the very purpose of the enactment." These  observations  lay  down clearly  that  there  may  be occasions and situations in which the legislature may,  with reason, think that the determination of an issue may be left to an expert executive like the Reserve Bank rather than  to Courts  without  incurring  the penalty of  having  the  law declared void.  The law thus made is justified on the ground of expediency arising from the respective opportunities  for action.   Of course, the exclusion of Courts is not  lightly to   be   inferred  nor  lightly  to   be   conceded.    The reasonableness  of  such a law in  the  total  circumstances will,  if  challenged, have to be made out to  the  ultimate satisfaction  of this Court, and it is only when this  Court considers   that   it  is  reasonable  in   the   individual circumstance that the law will be upheld. In  the  present  case,  in  view  of  the  history  of  the establishment  of  the Reserve Bank as a  central  bank  for India, its position as a Banker’s Bank, its 674 control  over  banking companies and banking in  India,  its position  as the issuing bank, its power to license  banking companies  and cancel their licences and the numerous  other powers,  it is unanswerable that between the Court  and  the Reserve Bank, the momentous decision to wind up a  tottering or  unsafe banking company in the interests of  the  deposi- tors, may reasonably be left to the Reserve Bank.  No doubt, the Court can also, given the time, perform this task.   But the decision has to be taken without delay, and the  Reserve Bank  already  knows  intimately  the  affairs  of   banking companies  and has had access to their  books and  accounts. If  the Court were called upon to take immediate action,  it would almost always be guided by the opinion of the  Reserve Bank.   It  would  be impossible for the Court  to  reach  a conclusion unguided by the Reserve Bank if immediate  action

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was  demanded. But the law which gives the same position  to the   opinion   of  the  Reserve  Bank  is   challenged   as unreasonable.   In  our  opinion, such a  challenge  has  no force.  The situation that arose in this case is typical  of the  occasions  on  which  this  extraordinary  power  would normally be exercised, and, as we have said already, if  the power  is  abused by the Reserve Bank, what will  be  struck down  would  be the action of the Reserve Bank but  not  the law.   An  appeal  against the Reserve Bank’s  action  or  a provision  for  an  ex post facto finding by  the  Court  is hardly necessary.  An appeal to the Central Government  will be only an appeal from Caesar to Caesar, because the Reserve Bank would hardly act without the concurrence of the Central Government  and  the  finding by the Court  would  mean,  to borrow  the macabre phrase of Raman Nayar, J., a  postmortem examination of the corpse of the banking company. It is a matter of not a little interest that a procedure for winding up other banks and institutions to the exclusion  of the Companies Act is to be                             675 found  in other statutes.  The co-operative  Societies,  the State  Financial Corporations, the State Bank of India,  the Industrial   Finance   Corporation,   the   Life   Insurance Corporation  and finally, the Reserve Bank itself are to  be liquidated  under  special  laws to  the  exclusion  of  the Companies Act, under the statutes creating them.    In  view of what we have said above, it is not  necessary to  refer to American and Japanese precedents.  However,  if these  laws are examined, they show that even in the  United States  of America and Japan, the closure of banks and  also their liquidation proceed from executive action.  Under  the Banking  Law of Japan(Law No. 21, March 30,1929), Arts.  22, 23,  24  and 27 provide that the  competent  Minister  would decide  such  issues.   Article  22  may  be  read  in  this connection :               "If the competent Minister finds it  necessary               to do in view of the affairs of a bank  or the               conditions of its property, he may order it to               suspend   business,  deposit   property   with               official  depository, or issue any such  order               as may be necessary." (Japanese Laws  Relating               to  Banks-Eibun-Horei-Sha, Inc.  Tokyo  Japan,               p. VI (BA 4). It  is also interesting to note that Arts. 22 and 29 of  the Japanese Constitution guarantee to the people the freedom to own  property and choose occupations, much as has been  done under our Constitution. In  the  United  States of America, Banks  are  regarded  as proper  subject of legislative regulation under  the  police power  (Corpus Juris Secundum, Vol.  IX. paras 4 and  5,  p. 32),  and  this  power is not  subject  to  the  limitations arising  from the Fourteenth Amendment, except that it  must be  reasonably  exercised.  The Banks in the  United  States being 676 either  National  or State Banks, different laws  have  been framed  to deal with the winding up of insolvent Banks.   In almost  all the States statutes provide special  proceedings for  the      affairs  of  insolvent  State  Banks  and  the National Bank Act also makes special provision in respect of National Banks.  The closing of the doors of a National Bank by the Comptroller of Currency on account of its insolvency_ and the appointment of a receiver do not amount to a  breach of  the  due  process clause.  As  stated  in  Corpus  Juris Secundum, Vol.  IX, par a 419, p. 835 :

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             "The   courts  have  generally   upheld   the,               validity   of  statutes  providing   for   the               liquidation  of  state’ banks,  including  the               control  and administration of the  assets  by               state officials or by receivers or liquidators               appointed  by them, the determination of  the,               bank’s solvency, claims against the bank...... The  power is thus conferred on the Comptroller of  Currency by  the  National  Bank Act and by the State  law  upon  the superintendents of Banks Under some statutes of the  States, banking officials have no power to liquidate insolvent Banks independently  of the judiciary.  But in others, this  power is specifically conferred.  These propositions were cited to us  from American Jurisprudence Vol. 7, Vols.  IX, XIII  and XVIA  of  Corpus Juris Secundum and from  the  Law  Reports, particularly  Title Guaranty and Surety Co. v. Idaho Ex  Rd. Allen(1), Bushnell v. Leland (2), Ex  parte Chetwood (3) and some others. Mr.  Nambiar,  however,  joined  issue on  the  use  of  the American  precedents on the grounds that banking in  America is  by grace of legislature, and is either a franchise or  a privilege, which has no place in our Constitution.  He added that the (1)  (1916) 240) U.S. 130 : 60 L. ad. 566. (2)  (1897) 164 U. S. 684, 41 L. ad. 598. (3)  (1897) 165 U.S. 443,41 L. ad. 782.  677 carrying on of business is not one of the provisions of  the American  Bill  of Rights, nor a fundamental  right,  as  we understand   it,   though  by  judicial   construction   the individual  right  has been brought  within  the  Fourteenth Amendment.  He, therefore, contended that American cases and American laws should not be used.  ID our opinion, no useful purpose   will  be  served  by  trying  to   establish   the similarities   or   discrepancies   between   the   American Constitution  and  banking laws, on the one  hand,  and  our Constitution  and our banking laws, on the other, and we  do not  wish to rest our decision on the American and  Japanese analogies. We do not also agree that the impugned section amounts to an encroachment on the judicial power by the legislature.   The statute  book  is full of instances in which the  Courts  of Civil  Judicature  guide themselves by the  decision  of  an outside  agency.   The  Arbitration  Act  itself  affords  a readily available instance.  Under that Act the Court passes its  decree  on an award of almost any one the  parties  may choose.  Nor is the possibility of a mistake by the  Reserve Bank of such vital consequence.  If the Reserve Bank acts in good  faith and with circumspection, there is as much or  as little chance of error as before a Court of law. Lastly  we do not think that this was a case in  which  some lesser   action   like   moratorium   or   amalgamation   or reconstruction would have been feasible.  The difficulty  of the  Palai Bank was the nature of its advances,  which  were either  not  recoverable  or  not  easily  recoverable.    A moratorium with the limitation of time involved in it  would not  have  been an adequate measure,  and  amalgamation  and reconstruction  were out of question at the stage which  had been reached. We are thus satisfied that ss. 38(1) and (3)(b)(iii) of  the Banking Companies Act are neither 678 discriminatory nor unreasonable, and cannot be declared void under  Arts.  14  and 19 of  the  Constitution.   Since  the provisions  are  manifestly  in the  public  interest,  they

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cannot also be declared ultra vires under Art. 301,  because they are protected by Art. 302 of the Constitution. The  appeal  and the petition thus fail, and  are  dismissed with costs one set only. KAPUR,  J.-The facts of this case have been set-out  in  the judgment of our learned brother Hidayatullah, J., and it  is not necessary to restate them. The main question for decision is whether the provisions  of s.  38(3)(b)(iii)  of the Banking Companies Act  (Act  X  of 1948)   are  ultra  vires  of  the  Constitution  as   being unreasonable  restriction  which  infringe  the  petitioners right  under  Art.  14 and Art. 19 (1)(f)  and  (g)  of  the Constitution.    Under  s.  38(3)(b)(iii)  of  the   Banking Companies  Act  the  winding up petition was  filed  by  the Reserve  Bank of India against the Palai Bank Ltd.,  in  the Kerala  High  Court on August 8,1960.  On the  same  day  an application for the appointment of a Provisional  Liquidator was  also made and a Provisional Liquidator  was  appointed. On  behalf  of the Directors an objection was taken  in  the High  Court  that  s.  38(3)  (b)  (iii)  was  invalid   and unconstitutional  because it contravenes Arts. 14 and 19  of the Constitution and that the petition was mala fide. After  the  appointment  of the liquidator  four  scheme  of arrangement  under s. 44B of the Banking Companies Act  were presented  to  the  Court.  On October 6,  1960,  the  Court ordered  the  Reserve Bank to examine the work  ability  and efficacy  of the schemes.  The Reserve Bank of  India  filed its  report  on October 22, 1960, to the effect  that  prima facie the schemes were not workable.  The order                             679 of winding up was then passed on December 5, 1960.  The plea of  mala fides was not pressed and the High Court hold  that there  was no infringement of the petitioners’  right  under Arts.  14  and  19.   The  Court  also  held  that  although according  to the, language used in the  impugned  provision the  Reserve  Bank  of India need  not  have  disclosed  the material  on  which it arrived at the  conclusion  that  the continuance  of  the  Palai  Bank  was  prejudicial  to  the interest  of the depositors, it had chosen to place all  the materials before the Court which showed that ever since 1952 the  Reserve Bank of India was drawing the attention of  the Palai Bank to the grave defects in its working and had given it  opportunities to explain the defects or to remedy  them. The Palai Bank chose to do neither and "the Reserve Bank far from  having acted without material or in a hasty  and  ill- considered   manner,   had,   doubtless   alive   to   grave responsibility  placed  upon  it  to  preserve  the  banking structure  of the country, acted with a degree of  care  and circumspection which has drawn to it adverse criticism  from those  who do not share its responsibility.  Faced with  the run  it would have failed in its duty by the depositors  had it not acted as it did." The history of the Banking Companies Act and how it came  to be  enacted is this.  The Government of India appointed  the Indian  Central  Banking Enquiry Committee  which  made  its report  on  June 2, 1931.  In para. 674 it pointed  out  the principal causes of failures of Banks.  By Act 2 of 1936  Part XA was introduced into the Indian  Companies Act of 1913 and that  part dealt with Banking Companies but no separate  and special  provision  was made for the winding up  of  banking companies.  In 1934 the Reserve Bank of India Act (Act II of 1934)  was  enacted.   There were minor  amendments  in  the Indian Companies Act in regard to Banking Companies by  Acts 21 680

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of  1942  and  4  of 1944.   On  January  15,  1946  Banking Companies  Ordinance  (4  of  1946)  Was  promulgated  which enabled the Central Government to direct the Reserve Bank to cause  inspection to be made of any banking company and  its books and accounts.  It empowered the Central Government, on the  receipt  of  a report that the  affairs  of  a  banking company  were  being  conducted  to  the  detriment  of  the interest of the depositors, to prohibit the banking  company from  receiving fresh deposits or to refuse it to be  placed in  the schedule of the Reserve Bank of India Act or to  de- schedule  it. On March 10, 1949, the Banking  Companies  Act (Act  X  of  1949) was passed.  On December  31,  1952,  the Banks’  Liquidation Proceedings committee of 1952  made  its report.   According to that report the number of bank  which suspended  payments  during the year 1926 to 1952  was  851. The  total liabilities of these banks were Rs. 96.86  lakhs. Of these banks 123 were in Travancore-Cochin which were  the most  numerous.   Then it was stated how many  banks  failed during  different  periods and it was pointed out  that  the slow  progress  of liquidation proceedings was  due  to  the facts  that the advances were mostly unsecured and  recovery involved  litigation, so much so that there were not  enough funds to take legal proceedings ; many claims were barred by limitation  :  contributories could not be  traced  and  the unpaid  capital could not be recovered.  In cases  of  small banks advances were small and legal expenses for realisation were  out  of  proportion to the amounts  involved  and  the claims  had  therefore  to be given  up  and  the  Directors invariably delayed the submission of their statements  under s. 177A of the Companies Act and this hampered the  progress of  the liquidation proceedings.  The Banking Companies  Act was then amended from time to time and by s. 26 of Act 33 of 1959 the present s. 38  681 providing  for  winding up was substituted in place  of  the old. s. 38. In order to determine the constitutionality of the  impugned provision  it will be helpful to examine the scheme  of  the Reserve Bank of India Act and of the, Banking Companies Act. The preamble of the Reserve Bank of India Act is that it has been constituted with a view to ensure monetary stability in India  and to operate the currency and credit system of  the country.   By s.3 the Reserve Bank has been established  for the  purpose of taking over the management of  the  currency from the Central Government and of carrying on the  business of banking in accordance with the provisions of the  Reserve Bank  Act.  Section 7 deals with management and it gives  to the Central Government the power to give such directions  to the  Bank after consultation with the Governor of  the  Bank which are considered necessary in the public interest.   The Central  Board of the Bank is constituted under s. 8 and  it consists  of  the Governor four Directors nominated  by  the Central  Government  from  amongst  the  local  Boards,  six Directors  nominated  by  the  Central  Government  and  one Government   official  to  be  nominated  by   the   Central Government.   In other words all the Directors are  nominees of the Central Government.  By s. 11 tile Central Government has  the power of removing the Governor or any Director  and casual  vacancies  are  also to be  filled  by  the  Central Government under s. 12.  Section 17 deals with the  business which  the  bank  may transact and Chapter  III  relates  to Central banking functions.  Under s. 30 the Central  Govern- ment  has  the power to supersede the Central Board  and  to entrust  it to such agency as it may determine It will  thus be seen that the Reserve Bank is an institution  established

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for the purpose of carrying on central banking functions and its  management  is  entirely in the hands  of  the  Central Government or its nominees. 682 Section  2  of the Banking Companies Act provides  that  the provisions  of that Act are in addition to and  not,  unless expressly  so provided, in derogation of the Companies  Act, 1956,  and  any  other  law for the  time  being  in  force. Section 4 gives the Central Government the power to  suspend the  operation  of  the Act on  the  representation  of  the Reserve Bank. Section 5 is the interpretation clause.  Part II  deals with "Business of the Banking Companies".  Section II in that Part deals with requirement as to minimum paid up Capital  and  reserve  of  banking  companies.   Section  22 empowers  the Reserve Bank to give licences to banking  com- panies  and  prohibits the carrying on of  banking  business without  a licence issued by the Reserve Bank which  may  be issued subject to such conditions as the Reserve Bank thinks fit.  Every banking company in existence at the commencement of  this  Act  had to apply for such a  licence  within  six months  of  the  commencement of the  Act  and  every  other company had to apply before commencing banking business  but companies  which  were  in existence  could  continue  their banking  business  until the licence was granted or  it  was refused.   But it could not be refused before the expiry  of three  years referred to in sub-s. (1) of s. 11  Sub-section (3)  of  that section entities the Reserve Bank  to  inspect books of the Banking company to satisfy itself in regard  to matters contained in that sub-section.  Under sub-s. (4) the Reserve  Bank  can  cancel a licence granted  to  a  banking company provided that before cancelling the licence it gives an opportunity to the Banking Company to show cause why  its licence  should  not  be cancelled.  Under  sub-s.  (5)  any banking  company aggrieved by the order of the Reserve  Bank cancelling its licence can appeal to the Central  Government whose decision is final. Under  s.  24  every  banking  company  has  to  maintain  a percentage of its assets in cash gold or                             683 unencumbered approved securities and an amount which is  not less  than  20%  of  the  total  of  its  time  and   demand liabilities   and  return  to  that  has  to  be   furnished periodically  to  the Reserve Bank. Section  25  deals  with assets  of  every banking company in India,  s.27  with  the making  of monthly returns by the banking companies  to  the Reserve  Bank and s. 30 with audit.  The Reserve Bank  under s.  35 may at any time and on being directed by the  Central Government  shall  cause  an inspection to be  made  of  any banking company.  Sub-section (4) of that section reads:-               "The  Reserve  Bank  shall,  if  it  has  been               directed  by the Central Government  to  cause               inspection  to be made, and may, in any  other               case  report to the Central Government on  any               inspection  made under this section,  and  the               Central Government, if it is of opinion  after               considering the report that the affairs of the               banking  Company  are being conducted  to  the               detriment  of the interests of its  depositors               may,  after  giving such  opportunity  to  the               banking  company to make a  representation  in               connection with the report as, in the  opinion               of the Central Government, seems reasonable by               order in writing.               (a)prohibit the banking company from receiving               fresh deposits;

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             (b)direct  the  Reserve Bank  to  apply  under               section  38 for the winding up of the  banking               company:               Provided  that  the  Central  Government   may               defer,  for such period as it may  think  fit,               the  passing  of  an  order  under  this  sub-               section,  or cancel or modify any such  order,               upon such terms and conditions as it may think               fit to impose." 684 Under  s.  35A power is given to the Reserve  Bank  to  give directions.  When quoted it reads:                 S.35A(1)   "Where   the  Reserve   Bank   is               satisfied that-               (a)   in the public interest; or               (b)   to  prevent the affairs of  any  banking               company   being   conducted   in   a    manner               detrimental to the interests of the depositors               or in a manner prejudicial to the interests of               the banking company; or               (c)to  secure  the proper  management  of  any               banking  company generally               it is necessary to issue directions to banking               companies generally or to any banking  company               in particular, it may, from time to time issue               such  directions  as  it deems  fit,  and  the               banking  companies or the banking company,  as               the  case  may be, shall be  bound  to  comply               with such directions.               (2)The  Reserve Bank may on  representation               made  to  it or on its own motion,  modify  or               cancel  any direction issued under  subsection               (1)  and  in so modifying  or  cancelling  any               direction  may  impose such conditions  as  it               thinks fit, subject to which the  modification               or cancellation shall have effect." Section  36  defines  further powers and  functions  of  the Reserve  Bank.   It has power to caution or  to  prohibit  a banking   company   from  entering   into   any   particular transaction or class of transactions, to assist any proposal for  amalgamation  of companies, to give  loans  to  banking companies, to require banking companies to call a meeting of the  directors  for the purpose of  considering  any  matter relating  to  or arising out of the affairs of  the  banking company                             685 to depute one or more of its officers, to watch  proceedings at any meeting of the board of directors, to appoint one  or more  of  its officers to observe the manner  in  which  the affairs  of the banking company are conducted or to  require the  banking company to make such changes in the  management as Reserve bank may consider necessary. Part III deals with suspension of business and winding up of banking   companies.   Section  37  provides  that  on   the application  of  a banking company the High Court  may  stay commencement or continuance of all actions against a banking company and may impose a moratorium; but the application  is not maintainable unless it is accompanied by a report of the Reserve  Bank indicating that in the opinion of the  Reserve Bank  the banking company will be able to pay its  debts  if the application is granted, provided that the High Court may for  sufficient reason grant relief under this section  even if  the application is not accompanied by such  report.   In that  case the High Court shall call for a report  from  the Reserve Bank on the affairs of the banking company and  pass

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such  order  as may be proper in the  circumstances.   Under sub-section  3 the High Court can appoint a special  officer to  take  into  custody or control  all  assets,  books  and documents  of  the banking company and shall  exercise  such other powers as it thinks fit having regard to the interests of the depositors of the banking company.  Under sub-s. 4 if the  Reserve  Bank is satisfied that a  banking  company  in respect  of  which an order has been so  made  conducts  its affairs  in  a manner detrimental to the  interests  of  its depositors it can make an application to the High Court  for the winding up of the company and where such an  application is  made the High Court shall not make any  order  extending the 686 period. The impugned provision of section 38 which   deals with winding up reads: -                     S.38   (1)   "Notwithstanding   anything               contained in section 391, section 392, section               433 and section 583 of the Companies Act, 1956               but without prejudice to its powers under sub-               section (1) of section 37 of this Act the High               Court shall order the winding up of a  banking               company -               (a)if the banking company is unable to pay its               debts ; or               (b)if an application for its winding up has               been made by the Reserve Bank under section 37               or this section.               (2)The Reserve Bank shall make, an application               under  this  section for the winding  up-of  a               banking company if it is directed so to do  by               an  order under clause (b) of sub-section  (4)               of section 35.               (3)The  Reserve Bank may make  an  application               under  this  section for the winding up  of  a               banking company -               (a)   if the banking company -               (i)has failed to comply with the  requirements               specified in section 11 ; or               (ii)has by reason of the provisions of section               22  become  disentitled to  carry  on  banking               business in India ; or               (iii)has been prohibited from receiving  fresh               deposits by an order Under clause. (1) of sub-               section (4) of section 35 or under clause  (b)               of  sub-section  3(A)  of section  42  of  the               Reserve Bank of India Act, 1934 or;                687               (iv)having   failed   to   comply   with   any               requirement   of  this  Act  other  than   the               requirements  laid  down in  section  11,  has               continued such failure, or having  contravened               any  provision of this Act has continued  such               contravention beyond such period or periods as               I  may  be  specified in that  behalf  by  the               Reserve Bank from time to time after notice in               writing  of such failure or contravention  has               been conveyed to the banking company ; or               (b)if in the opinion of the Reserve               Bank- (i)   a   compromise   or    arrangement               sanctioned  by  a  Court  in  respect  of  the               banking     company    cannot    be     worked               satisfactorily  with or without  modifications               or               (ii)the  returns,  statements  or  information

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             furnished  to it under or in Pursuance of  the               provisions  of  this  Act  disclose  that  the               banking company is unable to pay its debts or               (iii)the  ’Continuance of the banking  company               is   prejudicial  to  the  interests  of   its               depositors.               (4)Without   prejudice   to   the   provisions               contained in section 434 of the Companies  Act               1956, a banking company shall be deemed to  be               unable  to pay its debts if it has refused  to               meet  any  lawful demand made at  any  of  its               offices or branches within two working days if               such demand is made at a place where there  is               an  office,  branch or agency of  the  Reserve               Bank  or  within five working  days,  if  such               demand is made elsewhere, and if the Reserve               688               Bank  certifies  in writing that  the  banking               company is unable to pay its debts.               (5)A  copy  of every application made  by  the               Reserve  Bank under sub-section (1)  shall  be               sent by- the Reserve Bank to the registrar." Section  44A  lays down the procedure  for  amalgamation  of banking  companies and s. 44B for restriction on the  powers of  the  High Court to sanction  compromise  or  arrangement between   a  banking  company  and  its   creditors   unless compromise  or arrangement is certified by the Reserve  Bank as being capable of being worked as not being detrimental to the  interest  of  the depositors Section 45  gives  to  the Reserve  Bank the power to apply to the  Central  Government for  an  order of moratorium in respect of  banking  company which the Central Government may order and it also gives  to the  Reserve  Bank  the  power  to  prepare  a  scheme   for reconstitution or amalgamation.  Sub-section (1) and (2)   of s. 45 are as follows -                  S.45(1)  "Notwithstanding  anything   con-               tained  in  the foregoing provisions  of  this               Part  or in any other law or any agreement  or               other instrument for the time being in  force,               where  it  appears to the  Reserve  Bank  that               there is good reason so to do the Reserve Bank               may  apply  to the Central Government  for  an               order  of moratorium in respect of  a  banking               company.               (2)The  Central  Government,  after  consi-               dering  the  application made by  the  Reserve               Bank  under sub-section (1) may make an  order               of  moratorium  staying  the  commencement  or               continuance  of  all  action  and  proceedings               against the company for a fixed period of time               on  such terms and conditions as it think  fit               and proper and may from time to time                689               extend  the period so however that  the  total               period  of  moratorium shall  not  exceed  six               months." It  will thus be seen that the Banking Companies  Act  gives very  extensive  powers  to the Reserve Bank  in  regard  to banking  companies.  It gives to the Reserve Bank the  power to  license  existing  banking  companies  or  the   banking companies,  which  want to commence business, and  for  that purpose  it can inspect the books of the banking company  in order to determine whether it is or will be able to pay  its depositors.    It   can   cancel  a   licence   in   certain circumstances  but after giving to the banking  company,  an

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opportunity to be heard.  A banking companies is required to keep  a portion of its assets in a liquid form  the  Reserve Bank can order inspection of any banking company at any time it  thinks  proper  and Central  Government  can  order  the Reserve  Bank to make an inspection of any  banking  company and  on  that report drastic steps against the  company  may follow.  The Reserve Bank can give directions as to how  the business  of a banking company shall be conducted.   It  can appoint observers and give directions to the directors of  a banking company as to what they should do or should not  do. Moratorium can be imposed by the High Court at the  instance of  a  banking company but the Reserve Bank  may  have  that order  varied  and  set aside if the order  is  not  in  the interest  of the depositors and if the Reserve  Bank  thinks that  the  continuance of a banking company is  not  in  the interest  of the depositors it may apply to the  High  Court for  winding  up  of  the banking  company.   In  regard  to amalgamation   of  banking  companies  through   scheme   of compromise and arrangement the Reserve Bank has a great deal of  control  and power.  The Reserve Bank may apply  to  the Government to impose a moratorium on any banking company and if an application is so made the 690 Government  may make such an order.  But where it  comes  to winding  up  provisions  the Reserve  Bank  has  pre-emptory powers,  in  that  if it applies for the winding  up  of’  a banking  company  the  Court is bound to  order  winding  up because the words used are "the High Court shall" order  the winding  up. Moreover the Government can direct the  Reserve Bank  to  make  such an application so  that  the  Executive Government  can take any banking company  into  liquidation. The  power  given in sub-s. (3)(b)(iii) of s. 38  it;  still more  drastic because if the Reserve Bank is of the  opinion that the continuance of a banking company is prejudicial  to the interest of the depositors it may apply for winding  up; in  other words on its subjective satisfaction it may  apply and if it does so the High Court has no option but to  order the  winding  up  it  is  this  provision  to  which  strong objection has been taken by the appellant and is assailed by him. This  provision was sought to be supported on behalf of  the Reserve Bank by the learned Attorney-General who first  drew our  attention to the facts of the present case and  to  the various  opportunities  which were given to the  Palai  Bank since 1952 to carry out certain directions and on  different occasions  the Palai Bank had made representations  and  its Directors  had interviewed the officers of the Reserve  Bank and had given explanations till ultimately on July 21, 1960, the  Reserve  Bank called upon the Palai Bank to  carry  out certain directions which were enclosed with the letter.  The Reserve Bank there wrote as follows :               "The bank should therefore, in the interest of               its  depositors remedy within a period  of  12               months the features observed in its working." It was also stated therein that if the Palai Bank desired to make  any  representation  in  regard  to  contents  of  the inspection report it could make its  691 representation  within 30 days of the receipt of the  letter and  the  complaint of the appellant is  that  before  these thirty  days  were over winding up application was  made  on August  8.1960, which the Reserve Bank submits was for  very good  reasons,  the  protection  of  the  interest  of   the depositors. The  test  of  reasonableness  has to  be  applied  to  each

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individual  statute  and  no abstract  standard  or  general pattern  can  be laid down which will be applicable  to  all cases : Patanjali Sastri, C.J., in State of Madras v. V.  O. Row (1) observed :               "The formula of subjective satisfaction of the               Government  or  of  its  officers,  which   an               advisory  Board thrown in to review the  mate-               rials  on which the Government seeks to  over-               ride   a  basic  freedom  guaranteed  to   the               citizen,  may be viewed as reasonable only  in               very exceptional circumstances and within  the               narrowest limits, and cannot receive  judicial               approval  as a general pattern  of  reasonable               restrictions on fundamental rights." See  also  Abdul Hakim v. State of Bihar  (2)  Although  the legislature  is  the  best judge of what  is  good  for  the community  ;  State  of  Bihar  v.  Kameshwar  Singh(3)  the ultimate responsibility for determining the validity of  the law  must, rest with the Court and the Court must not  shirk that  final  duty  cast on it by  the  Constitution.   Abdul Hakim’s case (2). It  was submitted by the learned Attorney-General  that  (1) reasonableness of the impugned legislation has to be  judged in its own setting and not on any abstract test and (2) that the absence of judicial scrutiny is not an inviolable  rule. It  can be dispensed within certain circumstances  as  being unsuitable  or  defeating the purpose for which  an  Act  is passed.   In  support  of  the former  he  relied  upon  the observations of Patanjali Sastri, C. J., in (1) [1952] S. C. R. 597,60 7,608.  (2) [1961] 2 S.C.R. 610. (3) [19S2] S.C.R. 889. 692 State   of Madras v. V. G. Row (1) where the  learned  Chief Justice observed               "The nature of the right alleged to have  been               infringed, the underlying purpose of the  res-               trictions  imposed, the extent and urgency  of               the  evil sought to be remedied  thereby,  the               disproportion    of   the   imposition,    the               prevailing conditions at the time, should  all               enter into the judicial verdict. and  also to the following observation at  p.               608 :               "As  pointed  out by Kania, C. J.,at   p.  121               quoting Lord Finlay in Rex  v. Halliday (1917)               A. C. 260, 269, the courtwas    the     least               appropriate   tribunal  to  investigate   into               circumstances  of  suspicion  on  which   such               anticipatory action must be largely based." But in that very case the learned Chief Justice pointed  out that   the  formula  of  subjective  satisfaction   of   the Government  with an Advisory Board thrown in to  review  the materials on which the Government seeks to override a  basic guaranteed freedom can be viewed as reasonable only in  very exceptional  circumstances and within the  narrowest  limits and cannot receive judicial approval as a general pattern of reasonable restriction.  In that case the court did not find any  reasonableness in the claim of the Government  to  shut out judicial enquiry into the underlying facts.    In support of the second submission reference was made to Virendra v. The State of Punjab (2) where the constitutional validity of a Punjab Act which prohibited the publication by the  Editor and Printer of any matter relating to the  "Save Hindi" agitation was challenged.  The question raised  there was, are the restrictions imposed

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(1)  [1952] S.C.R. 597, 607, 608. (2)  [1958] S.C.R. 308  693 reasonable in view of all the surrounding circumstances.  In other  words were they reasonably necessary in the  interest of  public  order  under Art. 19(2) or in  the  interest  of general public under Art. 19(6).  Das, C.J., there  observed that  the legislature had to ask itself the question  as  to who would be the proper authority to determine at any  given time  as  to whether the prevailing  circumstances  required some  restrictions  on the right to freedom  of  speech  and expression  and  the  answer  was  obvious  that  the  State Government  was  charged with the preservation  of  law  and order  ; it alone had in possession all the  material  facts and  it  would  be the best authority’  to  investigate  the circumstances  and assess the urgency of the  situation  and make  up  its minde as to what anticipatory action  must  be taken for prevention of the threatened or anticipated breach of peace :               "The  court  is wholly unsuited to  gauge  the               seriousness of the situation, for it cannot be               in possession of material which are  available               only  to the executive Government.   Therefore               the  determination  of the time when  and  the               extent to which restrictions should be imposed               on the Press must of necessity be left to  the               judgment   and   discretion   of   the   State               Government  and  that  is  exactly  what   the               Legislature did by passing the statute." This passage from the judgment of Das, C.J., and the passage from  the  judgment of Patanjali Sastri, C.J., in  State  of Madras  v.  V.G.  Row (1) where reference was  made  to  the observations of Kania, C.J. were strongly relied upon by the Attorney-General in support of his contention that the power given  to the Reserve Bank in regard to winding up  and  the mandatory  provision  for the order for winding  up  by  the court were reasonable restrictions; because the judge of the urgency and of the measures to meet the urgency could be the Reserve Bank or the court; (1)  [1952] S.C.R. 597,607, 608. 694 and  the  legislature  had rightly given the  power  to  the Reserve  Bank,  because  it was in  possession  of  all  the material facts and was the best authority to investigate the circumstances and assess the urgency of the situation.   The analogy between Virendra’s case(1) and the present case  is, in our opinion, wholly in apt.  In Virendra’s case(1)  there was an agitation by a section of the Punjab public which was likely to have serious consequences on the public order  and the tranquility of the state.  It required quick measures to control  it.  The order was to meet an emergency, the  order Could at the most remain applicable for two months and there was   a  provision  for  making  a  representation  to   the Government.  In the case of a banking company, assuming that an  urgency  like that which existed in  Virendra’s  case(1) arises and a proper case is made out the Court will act with promptitude  make  such interim orders as the facts  of  the case  may  require  e.g. the appointment  of  a  provisional liquidator.  There is one essential difference between V. G. Row’s case(2) and Virendra’s case (1) and the one before us. In the former two cases executive action of State Government was challenged.  The Court there had not to give a  judicial verdict in accordance with the opinions of the executive but had  to  determine the constitutionality of  action  already taken.   It  did not pass an order, judgment  or  decree  in

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accordance   with  the  subjective  determination   of   the Executive   but   expressed   the  opinion   that   in   the circumstances  there was no infringement  of  constitutional rights.   In  the present case the Court  is  debarred  from deciding  the adequacy of the acts of mismanagement and  the parlous  state  of its finances alleged  against  the  Palai Bank.   Besides  the  complaint before us is  not  that  the Reserve  Bank should not have filed an application but  that the  court  could not order liquidation till  after  it  had heard the Palai (1) [1958] S.C.R. 308. (2) [1952] S.C.R. 597, 607, 608. 695 Bank  in its defence and had afforded it an  opportunity  of meeting  the  allegations in the winding  up  petition.   In other  words a law which authorises a banking company to  be condemned  unheard merely on the subjective satisfaction  of one  of the suitors even though it was the Reserve  Bank  is unconstitutional. It  was  next contended that the provision of  s.38  of  the Banking Companies Act were not so unusual and that in  other countries  in  similar circumstances much wider  powers  had been given in regard to the winding up of banking companies. Reference  was made to the National Bank Act in  the  United States Code, s.191 of which deals, with general grounds  for appointment  of  receivers.   It provides  inter  alia  that whenever   the  Comptroller  shall  be  satisfied   of   the insolvency  of a national banking association he may,  after due examination of its affairs appoint a receiver who  shall proceed  to  close  up  such  association  and  enforce  the personal liability of the shareholder.  It also empowers the Comptroller  to  appoint receivers  for  insolvent  national banks and to make rateable assessments upon the stockholders but  do not vest judicial power in him in violation  of  the Constitution.  The power of the Comptroller is exclusive and not  subject  to review of all matters properly  within  his discretion.   A  national  bank  in  America  is  a  banking corporation  organised by private persons and  operated  for private gain, the power and duties of which are defined  and limited  by  Acts of Congress, providing  for  creation  and liquidation  of such institutions and being  established  to aid or promote governmental purpose and to provide  national currency  they are often regarded as public or  quasi-public institutions. Reference  was  next made to 92 American  L.R,  (Annotated), pp.1257-58,  which deals with the constitutionality  of  the power given under the 696 statute  conferring authority upon the Bank Commissioner  to wind  up the affairs of the Bank.  It is there  stated  that the  fact of insolvency having been discovered  the  statute directs  the Bank Commissioner’s course and the  designation by him of a person to wind up the affairs of the Bank  which is  no  more a judicial act than his order to the  Board  of Directors  to remove a dishonest cashier.  "His  powers  are purely  administrative,  and  in no way  infringe  upon  the ancient  authority of courts determine rights of person  and property in specific controversies pending before them" Reference was also made to Corpus Juris Secundum, Vol.   IX, p.844, para 425, where it is stated that under some statutes banking officials liquidating a Bank are not subject to  the directions of a court. Again reference was made to Corpus Juris Secundum, Vol. 16A, pp.1219-1220, para. 711, where similar statement is made  in regard to the same statutes.  But the following passage from

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that paragraph is significant:               "Legislation   is  in  contravention  of   the               guaranty  where it takes away  one’s  property               and leaves him no remedy whatever by which  he               can regain it or obtain redress." In  Corpus Juris Secundum, Vol. 16, p.506, para. 117, it  is stated that appointment of a receiver, in certain instances, does  not  perforce violate constitutional  provisions  with regard to separation of legislative and judicial powers.  So the  appointment of a receiver by the legislature to  settle the  affairs of an insolvent bank has been held not to be  a judicial act but where the cause is properly before a  court the  appointment  of  a  receiver  constitutes  a   judicial function without the scope of legislative control.  697 It was then submitted that in America closing the doors of a bank without awaiting court’s orders is not, a violation  of due process of law.  See Title ’Guaranty & Surety Company of Scranton  v. State of Idaho (1) where it was held  that  the State’s  power to put upon a Bank Commissioner the  duty  of closing  the doors of State Bank if, on examination,  it  is found to be insolvent without awaiting judicial  proceedings is not a violation of the due process of law, but it appears that  the proposition that such a power was a  violation  of the  14th Amendment had not been argued in the State  Court. The  following  observations of Mr. Chief Justice  White  at p.569 are significant.               "We  say  this because, in  its  opinion,  the               court  observed that if that was  the  conten-               tion,  it was irrelevant, as the  statute  did               not  authorise liquidation except as a  result               of  judicial  proceedings  although  they  did               impose  upon the bank commissioner  the  duty,               after  he  found a bank to  be  insolvent,  to               close  its  doors  and  prevent  the   further               transaction of business until, in the  orderly               course  of procedure, a  judicial  liquidation               might be accomplished." The only question there was whether the State could  empower the Commissioner to close the doors of a bank.  It was not a case where the statute authorised any liquidation except  as a  result of judicial proceedings.  Therefore it was  not  a case of liquidation being ordered by an authority other than a court. Another  case relied upon was Bushnell v. Leland  (2)  where the  assessment made upon stockholder of a national bank  by the  Comptroller of Currency was held to be evidence  in  an action  brought by the receiver of a bank against  a  stock- holder to enforce payment of double liability imposed (1)  (1916] 240 U.S. 136. 60 L. Ed. 566. (2)  (1897) 164 U.S., 684. 41 L. Ed 598. 698 by  law.  It was also held that the giving of  authority  on the Comptroller empowering him to make a rateable call  upon stockholder was not tantamount to vesting that officer  with judicial power.  In Ex parte Johan Chetwood (1) it was  held that  the  receiver  of a national  bank  appointed  by  the Comptroller  of Currency is not an officer of any court  but agent and officer of the United States. The  aid  of American concepts, laws and precedents  in  the interpretation of our laws is not always without its dangers and they have therefore to be relied upon with some  caution if  not  with hesitation because of the  difference  in  the nature  of those laws and of the institutions to which  they apply.   Mr. Nambiyar relied upon these  different  concepts

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and submitted that in U.S.A. the right to carry on  business is not a fundamental right but is a "franchise", though,  it has  by  legal  interpretation,  been  brought  within   the fourteenth amendment arid the doctrine of "franchise" has no place  in the Indian Constitution : C.S.S. Motor Service  v. State  of  Madras (2) approved in Saghir Ahmad v.  State  of U.P.  (3)  Similarly the right to form a corporation  is  in U.S.A.   a  "franchise"  or  a  "privilege"  which  can   be withdrawn.  To apply the analogy of Banks in U.S.A. to those in India or the mode of exercise by and extent of the powers of  a Controller of Currency or some similar authority  will more likely than not lead to erroneous conclusions. To support the submission that this procedure for winding up in  the case of banking companies was not  unreasonable,  it was  submitted  that there are many other  corporations  and societies  which are not wound under the Companies  Act  but under  a  different procedure-by the orders of  the  Central Government---e.g. the Life Insurance Corporation, the  State Finance Corporation, the State Bank of (1)  [1897] 165 U.S. 413 41 L.  Ed. 782 (2) I.L.R. [1933] Mad. 304. (3) [1955] 1 S.C.R. 707, 718.  699 India  and some others.  They are all owned by  the  Central Government  and  are  therefore  not  comparable  with   the respondent  company.   Besides  merely  because  some  other corporations  or societies of a different kind can be  wound up  in  a different manner or under a special  procedure  is hardly   a   ground   for   holding   in   favour   of   the constitutionality  of  the impugned provision.   To  further support the reasonableness of the impugned provision it  was argued  that because of the special knowledge  of  financial matters  possessed  by  the  Reserve  Bank  and  to  protect financial structure of the country special powers have  been conferred  on  the Reserve Bank and  the  learned  Attorney- General  relied on the observations of Rajagopala  Ayyangar, J.,  All  India  Bank  Employees’  Association  v.  National Industrial Tribunal (1) :               "From  what  we  have stated  earlier  as  the               genesis  of  the legislation now  impugned  it               would  be  apparent  that  Government  bad  to               effect a reconciliation between two  conflict-               ing  interests ; one was the need to  preserve               and maintain the delicate fabric of the credit               structure of the country by strengthening  the               real as well as the apparent credit-worthiness               of banks operating in the country." But  that was in a different context.  That was a matter  in regard to the provisions s.34A of the Banking Companies Act, sub-s.   (1)   of  which  gives   immunity   under   certain circumstances  to  books and accounts of a  banking  company against production and inspection in a proceeding before the Industrial  Tribunal and sub-section (2) of  which  provides that if in any proceedings in relation to any company  other than the Reserve Bank any question arises whether the amount of  reserves should be taken into account by  the  authority before  which such proceeding is pending the  authority  may refer the question to (1)  [1962] 3 S.C.R. 269, 298. 700 the  Reserve Bank and the Reserve Bank shall,  after  taking into  account,  the  principle of sound  banking  and  other circumstances  furnish  to  the  authority  a   certificate, stating  that the authority shall not take into account  any amount as such reserve and such certificate shall be  final.

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All  that  this  case laid down was that  such  a  provision balanced  the  interests  of the parties  and  the  delicate fabric of the credit structure of the country.  Besides that provision relates to production and inspection of  documents and relates to what facts can be taken into consideration by an Industrial Tribunal or whether a certificate by the  bank is  proof  of  a  particular fact or  not.   Again  what  is applicable to a quasi-judicial authority like an  Industrial Tribunal adjudicating upon industrial disputes seeking to do social  justice  may  be  inapplicable  to  Courts  of   law adjudicating  upon the rights of a citizen to carry  on  his trade and avocation or not.    Next  case  cited was Sajjan Bank v.  Reserve  Bank  (1). That was a case where the validity of  s.    22    of    the Banking Companies Act was challenged on the  ground of  Art. 19(1) of the Constitution and it   was held not to be  ultra vires  on the ground that power of licensing is  not  vested with  a  mere  officer  of the bank  and  the  standard  for exercise of power has been laid down in the section  it-self and  the  power  granted  to the  Reserve  Bank  is  not  an arbitrary one. The  vital  question  for decision is whether  a  law  which requires  the  High Court to order winding  up  because  the Reserve Bank is of the opinion that a banking company should be wound up is constitutional.  In other words can a statute which  takes  away the power of the Court to  proceed  in  a normal judicial manner to determine a question submitted  to it for its decision on the (1)  [1959] 2 M L.J. 455.                             701 materials  proved  before it and requires it  to  decide  it merely in accordance with the subjective satisfaction of one party to the dispute ’and without giving the other party the right  to be heard at any stage of the proceeding and  prove its  defence be called a reasonable restriction  under  Art. 19(1)(f)  and  (g)of the Constitution.  Will the  law  which excludes  the  application  of  the  judicial  process,  and compels the Court to merely carry out the behests of one  of the  parties  by giving effect to  that  party’s  subjective satisfaction  and  thus  to abdicate  its  judgment  to  the opinion  of  a suitor be valid.  Dealing with  emergence  of judicial   power  Griffith,  C.J.,  in  Waterside   Workers’ Federation  of  Australia v. J. W. Alexander Ltd.  (1)  said that as soon as man emerged from the savage state and formed settled  communities  it became necessary to have  rules  to regulate conduct for the enforcement of which provision  was made  and  this ’power vested in some  person  or  authority representing  the  community.  Hence arose  law  givers  and Judges and as civilisation advanced distinction began to  be drawn  between  the diverse functions of the  community  and these functions were called "the judicial power" as  distin- guished  from  the legislative and  executive  powers.   The learned Chief Justice then defined what ,Judicial power" is. He said :               "Without  attempting an exhaustive  definition               of the term ’,judicial power," it may be  said               that  it  includes  the power  to  compel  the               appearance  of person before the  tribunal  in               which  it  is vested,  to  adjudicate  between               adverse  parties as to legal  claims,  rights,               and  obligations whether their origin, and  to               order right to be done in the matter." Lord   Macnaghten   in  Lapointe  v.   L’   Association   de Bienfaisance  et  de  Retraite  de  la  Police  de  Montrial (2)condemned  in  the case of persons,  other  than,  judges

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performing judicial functions, (1) (1918) 25 C.L.R. 434, 442. (2) [1906] A.C. 535, 539. 702 following a procedure "contrary to the rules of the ,society and  above  all  contrary to the  elementary  principles  of justices." The  importance of the judicial process, was  emphasised  by Patanjali  Sastri,  C. J. in Ram Prasad Narain Sahi  v.  The State of Bihar (1), a case where the dispute was between the State of Bihar and a private individual about the settlement of lands belonging to Bettiah Raj :               "This  is  purely a  dispute  between  private               parties and a matter for determination by duly               constituted  courts to which is entrusted,  in               every  free and civilised society, the  impor-               tant  function  of  adjudicating  on  disputed               legal   rights   after  observing   the   well               established   procedural   safeguards    which               include  the rights to be heard, the right  to               produce  witness  and so forth.  This  is  the               protection which the law guarantees equally to               all persons and our Constitution prohibits               by  Article 14: every State from denying  such               protection to anyone." No  doubt there the question was raised under Art. 14 ;  but it  is  the importance of the judicial process  in  disputes between  the  State  and  a  private  individual  that   was emphasised.   At p. 1133 the learned Chief  Justice  pointed out  the dangers inherent in special enactments in a  system of  Government  by political  parties  depriving  particular named persons of their liberty or property.  In Mahant  Sri, Jagannath Ramanuj Das v. The State of Orissa (2),  objection was  taken  to  certain  provisions  in  the  Orissa   Hindu Religious  Endowments Act which related to the framing of  a scheme.  Under those provisions a scheme could be settled to ensure due administration of the endowed properties but  the objection (1) [1953] S.C.R. 1129, 1134. (2) [1954] S.C.R. 1046, 1052.  703 was that the Act provided for the framing of a scheme not by the Civil Courts nor under provisions of the Civil Procedure Code but by a ’Commissioner who was merely an administrative officer.   There  was no provision for  appeal  against  his order.   Mukherjea, J. (as he then was), said at p. 1052  as follows                   "We think that the settling of a scheme in               regard  to  a  religious  institution  by   an               executive officer without intervention of  any               judicial  tribunal amounts to an  unreasonable               restriction upon the right of property of  the               superior of the religious institution which is               blended  with his office.  Sections 38 and  39               of   Act  must,  therefore,  be  held  to   be               invalid." See  also The Commissioner of Hindu Religious Endowments  v. Sri Lakshmindra (1).  In Sri Sadasib Prakash Brahmachari  v. The  State of Orissa (2) which was a decision in  regard  to the  same  Act after its amendment after ss. 38 and  39  had been   declared  to  unconstitutional.   By  the   amendment although the scheme was to be prepared by the Commissioner a right  of appeal direct to the High Court was given  against the  determination of the Commissioner settling the  scheme. It was held that although from the litigant’s point of  view

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an appeal to the High Court from the Commissioner’s order is not  the same as an independent right of suit and an  appeal to  the  higher  court but in order  to  judge  whether  the operation  of the provision was or was not  an  unreasonable restriction  what  had  to be seen was  whether  the  person affected  got a reasonable chance of presenting  his  entire case  before  the original tribunal which has  to  determine judicially the question raised and whether he has a right to regular. appeal to the ordinary constitution court or courts to  correct  the  errors if any of  the  tribunal  of  first instance.  It was also (1) [1954] S.C.R. 1005, 1037. (2) [1956] S.C.R. 43. 704 emphasised  in that case that the Commissioner had to  be  a member  of the judicial service and the enquiry  before  the Commissioner  was  assimilated to and was  governed  by  the provisions relating to the trial of suits by enjoining  that as  far as it might be it was to be in accordance  with  the provisions of the Code of Civil Procedure relating to  trial of  suits.  The framing of a scheme in this manner was  held not  to be an unreasonable restriction on the rights of  the Mahant under Art. 19(1) (f ). It is important to notice that there the right of appeal was in very wide and general terms both  on facts and on law and it could relate not merely  to the  merits of the scheme but also to all basic matters  the determination  of which was implicit in the very framing  of the scheme. The importance of the judicial power was pointed out by  the Privy Council in Attorney-General for Australia v. The Queen and the, Boilermakers’ Society of Australia (1) where it was held  that  the  function of  an  industrial  arbitrator  is completely outside the realms of judicial power and is of  a different  order.   At p. 315 Viscount Simonds  observed  as follows :-               "On  the other hand, in a federal  system  the               absolute independence of the judiciary is  the               bulwark    of   the    constitution    against               encroachment whether by the legislature or  by               the-executive.  To vest in the same body  exe-               cutive and judicial power is to remove a vital               constitutional safeguard". A  great deal of emphasis was laid by the learned  Attorney- General  on  the  fact that the Reserve Bank is  a  body  of expert  bankers which could more appropriately determine  as to when the continuance of a banking company is  prejudicial to the interests (1) [1957] A.C. 288. 705 the  depositors than a judicial tribunal.  This argument  is in our opinion fallacious because the liquidation of banking companies  in  this  country as of any other  company  is  a judicial  function and therefore within the jurisdiction  of Courts  and it has never been seriously suggested  that  the Courts  have found or will in future find any difficulty  in adjudicating  on  any  technical  matter  dealing  with  the peculiar  nature of banking companies.  It cannot  with  any justification  be argued that in dealing with  such  matters the  exercise  of jurisdiction by Courts is  less  desirable than  any  other matters which are  litigated  before  them. Indeed  it  would be a negation of the rule of  law  if  the citizen were to be denied to have his rights adjudicated  by an independent tribunal like a Court of law and it will  not subserve  the  interests  of  the Rule  of  Law  in  a  free democratic  society, if adjudication of the question of  the

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solvency  of  banking  houses’ was left  to  the  subjective opinion  of  an executive body like the  Reserve  Bank  even though   it  may  be  expert  in  banking.   The   following observations  of  Lord  Morton, of  Henryton  in  Baldwin  & Francis Ltd. v. Patents Appeal Tribunal (1) which was a case relating to patents are very relevant :-                "It would, indeed, be regrettable in. present               times,   when  certiorari  lies  to  so   many               tribunals dealing with scientific matters,  if               the  courts  were precluded  from  considering               whether there was an errors of law on the face               of  the record because they did not  know  the               meaning of certain technical terms." In  an American case Ohio Valley Water Company v.  Ben  Avon Borough 2) it was held that withholding from courts power to determine  question of confiscation according to  their  own independent  judgment must be deemed to deny due process  of law. (1) [1959] A.C 663, 679. (2)  (1920) 253 U.S. 287, 64 L Ed. 908. 706 In Halsbury’s Laws of England, Vol. 7, (Simonds Edition), at p. 198 it has been stated that it is the right of a  subject to have any dispute affecting him brought before a  judicial tribunal  and  tried in accordance with  the  principles  of natural  justice  and that no party ought  to  be  condemned unheard  or to have a decision given against him  unless  he has  been given a reasonable opportunity of putting  forward his case. It  was further submitted by the appellant that the  Reserve Bank  is  entirely  an  executive  body,  and  therefore   a mandatory  provision  like  s.  38  (1)  and   38(3)(b)(iii) practically  leaves the question of liquidation  of  banking companies  in  the hands of the Executive.  By s. 7  of  the Reserve  Bank  Act  the  Reserve Bank  is  required  to  act according to the orders of the Government.  The directors of the Reserve Bank, according to s. 8 are all nominated by the Government.  Under s. 38(2) the Reserve Bank is enjoined  to apply for the liquidation of a bank if it is so directed  by the  Central Government and therefore any opinion formed  by the Reserve Bank in regard to the insolvency or otherwise of a bank must necessarily be the determination of an important branch of the Executive and when s.38(1) requires the  court to  order  the  winding  up  of  a  banking  company  if  an application in that behalf is made by the Reserve Bank  then it  is  the  substitution of executive  power  in  place  of judicial  determination and judicial decision is one of  the main  features of the rule of law.  To quote from  Stephen’s Commentaries on the Laws of England, Vol.  III, p. 565 :               "The importance of the judicial element in our               Constitution can hardly be exaggerated, for it               rests with the Courts to ensure the conformity               of  Government with law..................  The               ,Rule of Law’ which Dicey held to be a leading               principle of our Constitution, does not                                    707               involve  the  decision  of  every  dispute  by               Courts  of  law.  But it does imply  that  all               authorities in the State act under the eye  of               the  Courts,  and  are  liable  to  have   the               legality of their conduct inquired into." What  then  is  the position in the  present  case.   It  is claimed  on behalf of the Reserve Bank that the position  of the Palai Bank was very precarious and that its assets  were not  sufficient  for  the  purpose of  the  payment  to  its

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depositors in full or to meet its liabilities.  It was  also alleged that on several occasions directions had been  given to  the  Palai  Bank to conduct its affairs  in  the  manner required by the Reserve Bank and that many opportunities had been  given to it to give its explanation as to the  defects and  irregularities  in  its working and to  carry  out  the directions  of the Reserve Bank and it had failed to  comply with them.  The allegation that the bank was in a precarious position,  unable to meet its demands and it had  no  liquid assets  to pay off it’s depositors, has been  challenged  by the  appellant.  The High Court would have adjudicated  upon that question if it had been competent to do into it.   That is exactly what is required in a judicial determination  and that is what the Palai Bank, has been deprived of and it  is that  which  affects the constitutionality of  the  impugned statute.  The position under s. 38 of the Banking  Companies Act  is that if the Reserve Bank is of the opinion that  the continuation  of  a banking company is deterimental  to  the interests of the depositors and it makes an application  for winding  up,  the  Court  is  bound  to  order  winding   up irrespective of whether the banking company has or has not a good  defence.  Therefore the Court has to put its  judicial seal on the opinion of another which is absolute negation of the  exercise of the judicial process.  It was  argued  that the  Reserve Bank, before it takes action,  inspects,  gives instructions,  takes  explanations  and  hears  the  banking company but it is not bound to do so. 708 The  vice  of the impugned provision lies in (a)  the  power vested in the Reserve Bank to apply to the High Court for an order winding up a bank       exercisable   solely  on   its subjective  satisfaction as to the existence  of  conditions prescribed  by s. 38, and (b) the obligation imposed by  law upon the High Court to make the order of winding up  without at  any time enquiring whether the conditions on  which  the application is founded do in truth exist.  In adjudging  the reasonableness  of the restriction imposed by a statute  the Court  has to consider its purpose, the evil it  intends  to remedy and it tries to strike a balance between the interest of  the  aggrieved citizen and the  larger  public  interest sought to be served by the statute ; the Court in each  case considers  whether the restriction imposed  is  appropriate, fair  and  reasonable.   The Court will not  uphold  a  res- triction which is not necessary for achieving the purpose of the  statute  or is a arbitrary.  Are the  circumstances  so compelling  in  the present case that unless  the  provision requiring  a Court to order winding up of a banking  company because  the Reserve Bank feels satisfied that it should  be wound  up to protect the interests of the depositors is  up- held the interests of the public cannot be safeguarded ?  In considering  this question it may be legitimate  to  enquire whether the High Court which normally exercises jurisdiction in  the  matter  of  ordering winding  up  of  companies  is incompetent  or  its procedure inadequate  to,  examine  the charges against a banking company.  The credit of a  banking institution is undoubtedly very sensitive.  It thrives  upon the  confidence  of  the  public  in  the  honesty  of   its management,  and  its  reputation  of  solvency.   There  is however  nothing  peculiar  in the  business  of  a  banking company  that  it  must be ordered to be  wound  up  on  the subjective satisfaction of the Reserve Bank. The  Reserve  Bank is undoubtedly an expert body  with  vast facilities for making enquiries into                             709 the  affairs  of banking companies in India.   But  on  that

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account  it cannot be presumed that the view of the  Reserve Bank that any banking institution should be liquidated  must always be correct.  It cannot be said that the Reserve  Bank can  never act mistakenly or even negligently.  The  Reserve Bank  may  even be directed by the  Central  Government  for reasons  of  its  own to apply for liquidation  of  a  Bank. Under the Constitution the Courts are the custodians of  the fundamental rights of citizens ; but by this  extra-ordinary piece  of  legislation these Very custodians  are  made  the instruments of the Reserve Bank for imposing an order  which prima  facie  is  destructive of  a  guaranteed  fundamental freedom.    Under  our  Constitution  the  legislative   and executive  actions  are subject to  judicial  review  within certain  well defined limits.  But by s. 38(1)(b) read  with ol.   (iii)   the  Court  is  not  only  deprived   of   its Constitutional functions but is commanded to lend its aid in defeating  a fundamental freedom of banking companies.   The impugned  provision makes the Reserve Bank  the  complainant and Judge in its own cause ; it authorises the Reserve  Bank on it subjective satisfaction as to the existence of a state of affairs prescribed by the statute even without an enquiry if it deems, fit, to demand that the High Court shall  order liquidation of a banking company without making any  enquiry as to the sufficiency or even the existence of the  material on  which its satisfaction depends.  The provision making  a litigant the Judge in his own cause is an absolute  negation of the rule of law.  It is the foundation of the edifice  of our judicial system that no one shall be condemned  unheard, however  strong the circumstances against him may appear  to be.   He is entitled to be told., if the freedom of  citizen is to have any reality, what he has done to merit punishment or  penalty, be must be afforded an opportunity to deny  the correctness of the charge 710 and to set up his plea in denial or extenuation, and also be afforded  an opportunity to persuade the authority  imposing penalty or punishment that the appropriate order is not  the one   proposed  against  him.   But  by  a  stroke  of   the legislative   pen  all  these  protections  which  are   the foundation  of  the  rule  of  law  are  destroyed  and  the satisfaction  of  the Reserve Bank is  made  conclusive  for entering  a  verdict  for determination of the  right  of  a banking company to continue to exist. In  our  view it would be a tragedy if by this  and  similar legislation  citizens  are  to  be  convicted  of  offences, penalties  are  to  be imposed  upon  them,  their  property sequestered, and their rights trampled upon without  enquiry by  the  courts  by the simple expedient  of  requiring  the courts  to  lend their aid in imposing their  authority  and thereby  creating  a  judicial facade to what  is  in  truth exercise  of purely executive authority.  It is a matter  of no  moment  that the executive authority invested  with  the power  to call upon the court to lend its aid, is an  expert body  which  performs  an  important  function  directly  or indirectly  in the governance of the State.  However  august the body so set up may be, a provision of law providing  for imposition of restrictions on a citizen’s fundamental  right pursuant to its subjective satisfaction as to the  existence of a state of affairs, and thereby permanently depriving the citizen  of his right or property is in our judgment  wholly unreasonable. The  plea  of constitutionality of a  statute  infringing  a fundamental right cannot be negatived on the assumption that the  autocratic power of imposing penalty or  punishment  is entrusted to the executive authority which will exercise  it

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only  in proper cases and there will be no abuse  of  power. In  the larger interest, our Constitution makers  have  been averse to conferral of auto cratic power                             711 and  have tried to protect the citizen against the  exercise of  such power by guaranteeing him the fundamental  freedoms and  have also provided protection against  infringement  or those freedoms by legislative or executive action. We are prepared to assume, though counsel for the Palai Bank very  vehemently  challenged the truth of the  case  of  the Reserve  Bank,  that  the affairs of  the  Palai  Bank  were mismanaged and that there was a mounting run on the bank and it was practically in an insolvent condition.  The  validity of  a  statute  is  not to be judged in  the  light  of  the propriety   or  otherwise  of  executive  action,   or   its beneficient  effects,  in a given ease.  The  invalidity  of this  statute  arises  because  of  the  exclusion  of   any opportunity  of  judicial investigation into  the  fairness, propriety  and reasonableness of executive action  involving deprivation of a fundamental rights.  It if; unnecessary  to consider the steps which it is claimed the Reserve Bank  had taken  from time to time to obtain information and  to  give advice  and  direction  and also  the  allegation  that  the application  to wind up was submitted because the  condition of the Bank was deteriorating as each day passed.  These are it  must be observed, matters in dispute.  Normally, ’it  is the function of the judicial power to investigate whether  a banking  company  should continue to function or  should  be liquidated.  By the impugned provision the exercise of  that judicial  power  is  excluded.  That exclusion  is,  in  our opinion,  not based on any inappropriateness of exercise  of the  judicial  power,  or  existence  of  other   compelling circumstances in the public interest, and is invalid because the  statute, examined in the light of its  repercussion  on the fundamental right of the citizen is unreasonable. As  we have shown above, under the Constitution  the  courts are the bulwark for the protection 712 of  the  right of the citizens and they are a check  on  the vagaries, negligence and mistakes of the executive or on the high-handedness  of  one party before  it  against  another. This Court has emphasised that the deprivation of the  right to  resort to court is an unreasonable restriction.   It  is true  that in the present case an appeal to this  Court  has not been taken away but what is left is a wholly ineffective right of appeal because if the law is constitution then  all that  a court can do is to act according to the  opinion  of the  Reserve  Bank  and abdicate its  judicial  function  in favour of the opinion of an executive body. We   are  therefore  of  the  opinion  that  s.  38  is   an unreasonable  restriction on the right of the Palai Bank  to carry on its business and is therefore unconstitutional.  We need   express  no  opinion  on  the  question  of   hostile discrimination  by the adoption of the procedure  prescribed but  the statute, if it be found unreasonable, is liable  to be  declared invalid.  For these reasons the appeal must  be allowed and the order of the High Court set aside. BY COURT-In accordance with the opinion of the majority, the appeal  and the writ petition fail, and are  dismissed  with costs, one set only.                      Appeal and petition dismissed.                 _____________________                             713

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