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PETITIONER: BHAVESH D.  PARISH & OTHERS

       Vs.

RESPONDENT: UNION OF INDIA AND ANOTHER

DATE OF JUDGMENT:       12/05/2000

BENCH: M.B.Shah, B.N.Kirpal

JUDGMENT:

     KIRPAL,J.

     The  appellants who carry on the business of shroffs are  impugning the validity of Section 9 of the Reserve Bank of  India  Act  as  amended  by  the  Amendment  Act,   1997 (hereinafter  referred  to as the Act) on the ground  that the  said provision is violative of Articles 14 and 19(1)(g) of the Constitution of India.

     The  trade of business of shroffs in India has been in existence  for  a long time.  This trade is carried  on  not only in cities but also in small towns and villages in parts of India.

     The  appellants are shroffs engaged in the business of providing  credit  to  the  members   of  the  public.   The traditional  mode of organising the business of shroffs over the  past  several  decades had been by way  of  partnership firms.   The  nature  of  the   services  practised  by  the appellants  generally involved maintaining a mutual  current account  where the customer may either place deposit on call or  withdraw money on call, without security.  The financing activity   of   the  shroff   firms  was   through   capital contributions  of the partners/proprietor and deposits  made by  members of the public.  Some of the other activities  of the  shroffs  include  cheque discounting, the  issuance  of hundis, the collection of cheques from different centres and providing  other  similar  facilities   to  customers.   The services  extended by the appellants are availed of by small and  medium sized traders, professionals, salaried  workers, agriculturists and individuals.

     The  Reserve Bank of India (hereinafter referred to as the  RBI)  is a statutory corporation constituted  as  the Central  Banking  Authority for the country by  the  Reserve Bank  of  India  Act, 1934.  The RBI is  constituted,  inter alia,  to  regulate the issue of bank notes and  keeping  of reserves with a view to securing monetary stability in India and  generally to operate the currency and credit system  of the  country to its advantage.  The RBI is also vested  with various powers to regulate the currency and credit system of the  country.  The powers so vested in RBI include the power to  issue  directions to non-banking institutions  receiving deposits  and  to financial institutions.  By  amendment  in 1963 a new Chapter III-B was inserted in the said Act.  This

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chapter inserted Sections 45-H to 45-Q which were provisions relating  to non-banking institutions receiving deposits and financial  institutions.   In the Statement of  Objects  and Reasons  it  was  provided   that  the  existing  enactments relating  to  banks  did not provide for  any  control  over companies  or institutions, which, although were not treated as  banks, accept deposits from the general public or  carry on other business which was allied to banking.  For ensuring more  effective  supervision and management of the  monetary and  credit system by the RBI, it was observed that the  RBI should  be  enabled  to  regulate the  conditions  on  which deposits  may be accepted by these non- banking companies or institutions.   The provisions of the said chapter III-B did not  apply  to individuals or firms like the appellants  who are  not incorporated but still do business which is akin to that of banking.

     In  order to place some restrictions on the acceptance of  deposits  by unincorporated bodies, by the Banking  Laws (Amendment)  Act,  1983 (Act 1 of 1984), Chapter  III-C  and Section  58-B(5A) were inserted into the Act.  The  relevant portion  of  principal restrictions in Chapter  III-C  which were  contained  in Section 45-S, read as under:   Deposits not  to be accepted in certain cases.  1) No person being an individual  or  a firm or an unincorporated  association  of individuals  shall at any time, have deposits from more than the  number of deposits specified against each, in the table below:

     TABLE  (i)  Individual  Not   more  than  twenty-five depositors  excluding depositors who are rel ativ es of  the individual.

     ii) Firm

     Not  more than twenty-five depositors per partner  and not  more  than  two hundred and fifty  depositors  in  all, excluding,  in either case, depositors who are relatives  of any of the partners.

     iii)  Unincorporated Association of individuals.   Not more than twenty five depositors per individual and not more than  two hundred and fifty depositors in all, excluding, in either  case,  depositors  who are relatives of any  of  the individuals constituting the association.

     2.   Where  at the commencement of Section 10  of  the Banking Laws (Amendment) Act, 1983, the deposits held by any such  person are not in accordance with sub-section (1),  he shall,  before the expiry of a period of two years from  the date of such commencement, repay such of the deposits as are necessary  for  bringing the number of deposits  within  the relative limits specified in that sub-section.

     The constitutional validity of Section 45-S of the Act was upheld by the Delhi High Court in Kanta Mehta VS.  Union of  India and others 1987 (62) Company Cases 769.  The  main challenge   was  on  the  ground   that  it  infringed   the appellants right under Article 19(1)(g) of the Constitution of  India  and  was  violative of Articles 14 &  19  of  the Constitution.  While upholding the validity of Section 45-S, the High Court noted that expert reports by study groups had recommended  that  it would not be in the interest  of  all, especially  the depositors, if unincorporated bodies such as

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partnerships  were to work as companies without any  control or  supervision of the RBI.  This decision of the High Court was  affirmed  by  this Court in T.  Velayudhan  Achari  and Another  Vs.   Union of India and others (1993) 2  SCC  582. While  upholding the validity of Section 45-S, this Court at page 591 observed as follows:

     No doubt, the impugned legislation places restrictions on  the  right of the appellants to carry on  business,  but what  is  essential  is to safeguard the rights  of  various depositors  and to see that they are not preyed upon.   From the  earlier  narration, it would be clear that the  Reserve Bank  of  India,  right from 1966, has been  monitoring  and following   the   functioning   of   non-banking   financial institutions  which  invite deposits and then utilise  those deposits  either for trade or for other various  industries. A  ceiling  for  acceptance  of   deposits  and  to  require maintenance  of certain liquidity of funds as well as not to exceed  borrowings  beyond  a particular percentage  of  the net-owned  funds have been provided in the corporate sector. But  for  these requirements, the depositors would  be  left high and dry without any remedy.

     It appears that Section 45-S of the Act, as originally incorporated,   did  not  have   the  desired  effect.   The non-corporate sector was virtually free from all disciplines even  though  its  activities were same or  similar  to  the corporate sector, the difference only being in the magnitude and  that  too  only  in   some  cases.   According  to  the respondents  it was to rectify this imbalance that first  an ordinance was issued which sought to completely prohibit any receipt  of  deposits by unincorporated associations in  the non-  corporate sector.  When certain hardships were pointed out by those who did not carry on the business comparable to the  companies which were under Chapter III-B i.e.  who  did not borrow money or receive advances to carry on business in the financial sector but borrow money for their own trade or manufacture,  the Act, which replaced the ordinance, watered down the rigour to some extent.

     The newly incorporated Section 45-S, which is impugned in this writ petition, is as follows:

     45-S  (1) No person, being an individual or a firm or an  unincorporated association of individuals shall,  accept any deposit:

     (i)  If his or its business wholly or partly  includes any of the activities specified in clause © of Section 45-I; or

     (ii)  If  his  or its principal business  is  that  of receiving  of deposits under any scheme or arrangement or in any other manner, or lending in any manner.

     Provided  that  nothing contained in this  sub-section shall  apply to the receipt of money by an individual by way of loan from any of his relatives.

     (2)  Where  any person referred to in sub-section  (1) other than a body corporate holds any deposit on the Ist day of  April, 1997 which is not in accordance with sub- section (1), such deposit shall be repaid by that person immediately

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after  such deposit becomes due for repayment or within  two years  from  the  date of such  commencement,  whichever  is earlier.

     (3) On and from the date of Ist day of April, 1997, no person  referred to in sub-section (1) shall issue or  cause to  be  issued any advertisement in any form for  soliciting deposit.

     Explanation  For the purpose of this section:

     (a)  A  person  shall be deemed to be  a  relative  of another if, and only if :

     (i)  they are members of a Hindu undivided family;  or (ii) they are husband and wife;  or (iii) the one is related to  the  other  in  the  manner indicated  in  the  list  of relatives below:-

     List of relatives

     1.   Father 2.  Mother (including step-mother) 3.  Son (including   step-son),  4.   Sons   wife,   5.    Daughter (including step-daughter), 6.  Fathers father, 7.  Fathers mother, 8.  Mothers mother, 9.  Mothers father, 10.  Sons son,  11.  Sons sons wife, 12.  Sons daughter, 13.  Sons daughters husband, 14.  Daughters husband, 15.  Daughters son,  16.  Daughters sons wife 17 Daughters daughter  18. Daughters  daughters husband 19.  Brother (including step- brother),   20.   Brothers  wife,   21  Sister   (including step-sister), 22.  Sisters husband.

     The  principal features of the amended Section 45-S in so far as they relate to the appellants are:

     (a)  From  1.4.1997, no individual or firm may  accept any  deposit:   (i) if his or its business wholly or  partly includes  financing  activities,  whether by way  of  making loans  or  advances  or otherwise;  or (ii) If  his  or  its principal  business is that of receiving deposits under  any scheme  or  arrangement or lending in any manner.   (b)  The prohibition  on the acceptance of deposits does not apply to loans  from relatives.  (c) A company may continue to accept deposits  for financing activities or lending subject to the regulations  in respect of Non-Banking Financial  Companies. (d)  Individuals and firms holding deposits on 1.4.1997 must repay  such deposits immediately after such deposits  become due  for  repayment or within two years (before  31.3.1999), whichever  is  earlier.   (e)  On   and  from  1.4.1997   no individual  or firm may issue advertisement in any form  for soliciting   deposits.    (f)   All  non-banking   financial companies must have a minimum of Rs.  25,00,000 of net owned funds  (NOF)  and  withdraw the deposits and/or  take  loans before   the   agricultural    operations   commence.    The agriculturists  and small traders who earn valuable interest on net deposits will no longer be able to do so.

     The impugned Section 45-S does not in any way prohibit or  restrict  any  unincorporated body  or  individual  from carrying  on  the  business that it likes.  It  is  open  to unincorporated  bodies to carry on their financial  business either from their own funds or the funds borrowed from their relatives  or from financial institutions.  The restriction, which  is  placed by Section 45-S, is on the carrying on  of such business by utilising public deposits.

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     The  grievance of the appellants is that the firms  of or  individual shroffs, as a result of amendment to  Section 45-S,  will  not be allowed to accept any deposit  from  the public for the purposes of their business activities.  There is  a  complete prohibition on sharafi transactions  (mutual current  account transactions) which had formed the  bedrock of the financing activities of the shroffs.  This is because individuals  and firms will no longer be entitled to  accept deposits on current account and the minimum period for which a  non-banking  financial company may accept deposit is  now one year.  The shroffs will now be compelled to convert from partnership firms into limited companies.

     Challenging   the  virus  of   Section  45-S,  it  was submitted  by  the learned counsel for the  appellants  that shroffs   provided   the  facility  of  deposit   and   loan transactions   24  hours  a  day   and  this  facility   was traditionally  extended  to customers  like  agriculturists, such as cotton farmers, tobacco farmers, vegetable producers etc.   who  had a seasonal need for finance and  a  periodic surplus of investible funds.  The flexibility of deposit and withdrawal  of the funds available to this sector which  was provided  by  the shroff community will now cease.   It  was submitted  that the impugned provisions are violative of the appellants  right  to  carry on their  trade  and  business guaranteed  under  Article  19(1)(g)  of  the  Constitution. Elaborating  this contention it was urged that though it  is open  to the Government to impose reasonable restriction  in the  public interest under Article 19(6) of the Constitution but   impugned   provisions   neither   met  the   test   of reasonableness  nor public interest .  It was also submitted that the impugned provisions were violative of Article 14 of the   Constitution  being   artbitrary,  discriminatory  and un-reasonable.

     This  Court in Papnasam Labour Union VS.  Madura Coats limited  and  another  (1995) 1 SCC  501  while  considering challenge  to  Section 25-M of the Industrial Disputes  Act, 1947  of  being violative of Article 19 of the  Constitution referred  to earlier decisions of this Court and at page 511 set out the following principles and guidelines which should be  kept  in mind for considering the  constitutionality  of statutory  provision upon a challenge on the alleged vice of unreasonableness of the restriction imposed by it:

     a)   The  restriction  sought  be  imposed   on   the Fundamental   Rights  guaranteed  by   Article  19  of   the Constitution must not be arbitrary or of an excessive nature so  as  to  go beyond the requirement of felt  need  of  the society and object sought to be achieved.

     b)  There  must be a direct and proximate nexus  or  a reasonable  connection  between the restriction imposed  and the object sought to be achieved.

     c)  No  abstract or fixed principle can be  laid  down which  may  have universal application in all  cases.   Such consideration  on the question of quality of reasonableness, therefore, is expected to vary from case to case.

     d)  In interpreting constitutional provisions,  courts

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should  be alive to the felt need of the society and complex issues  facing  the people which the Legislature intends  to solve through effective legislation.

     e)  In appreciating such problems and felt need of the society  the judicial approach must necessarily be  dynamic, pragmatic and elastic.

     f)   It  is  imperative   that  for  consideration  of reasonableness  of  restriction  imposed by a  statute,  the Court should examine whether the social control as envisaged in  Article  19  is  being effectuated  by  the  restriction imposed on the Fundamental Rights.

     g)  Although  Article  19  guarantees  all  the  seven freedoms  to the citizen, such guarantee does not confer any absolute or unconditional right but is subject to reasonable restriction,  which  the  Legislature may impose  in  public interest.  It is therefore necessary to examine whether such restriction  is  meant to protect social welfare  satisfying the need of prevailing social values.

     h)  The reasonableness has got to be tested both  from the  procedural  and substantive aspects.  It should not  be bound  by  processual  perniciousness  or  jurisprudence  of remedies.

     j)  Restriction  imposed  on  the  Fundamental  Rights guaranteed  under Article 19 of the Constitution must not be arbitrary, unbridled, uncanalised and excessive and also not unreasonably  discriminatory.   Ex hypothesi,  therefore,  a restriction  to  be reasonable must also be consistent  with Article 14 of the Constitution.

     k)  In  judging the reasonableness of the  restriction imposed  by clause (6) of Article 19, the Court has to  bear in mind Directive Principles of State Policy.

     l)  Ordinarily, any restriction so imposed, which  has the   effect  of  promoting  or  effectuating  a   directive principle, can be presumed to be a reasonable restriction in public interest.

     Keeping  the  aforesaid principles in mind let us  now examine the reasons for enacting Section 45-S.

     In  the affidavit filed by the respondent it has been, inter  alia, stated that the growing volume of deposits with unorganised  financial  sector  affected  the  operation  of monetary  and credit policy to the extent that it involved a loss of control by the central monetary authority on the use of  these  funds.  Further, the unincorporated  bodies  were susceptible  to  default as the costs of funds  and  returns could  not  be  matched in a viable way leading  to  adverse selection  i.e.  the funds being directed to risky  illiquid investments.   Whereas  incorporated bodies were subject  to regulatory   controls,  it  was   impossible   to   regulate unincorporated  bodies  at  all.  It is also stated  in  the affidavit  that  over the years, the functioning of  various

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unincorporated bodies was under observation and in 1984 when Chapter  III-C  was  added to the Act,  the  prohibition  to accept deposits was partial in the sense that unincorporated bodies were allowed to accept deposits from a limited number of depositors with no ceiling on the amount of deposit.  The working of the provisions of Chapter III-C did not result in healthy  development  but there was a proliferation of  such unincorporated  bodies engaged in financial  intermediation. As  pointed  out in para-3 of the Statement of  Objects  and Reasons the existing provisions were flouted by unscrupulous entities by floating different partnership firms when a firm reached the level of 250 depositors.  This multiplication of firms took place with a view to circumvent the rigour of the law.

     It appears that after the introduction of Section 45-S in  1984,  several complaints were received by the RBI  from various parts of the country regarding rampant mal-practices being  adopted  by several persons/firms especially  in  the State  of  Kerala.   Sample studies, which  were  conducted, revealed several astonishing features and the menace of such unincorporated  associations  accepting public deposits  and the  mushroom growth of such intermediaries.  These business firms  were commonly known in Kerala as blade companies so called  because of their usurious lending rates.  The  study showed  that  these blade companies drew  sustenance  from human greed.  These blade companies were offering interest of 36% and in turn were charging excessive interest from the borrowers.   By the time the study was conducted, it  showed that the private financing scenario in Kerala pointed out to near  desolation.  Where as in 1987 the daily newspapers and periodicals  were  filled  with  flashy  advertisements  for attracting  business  subsequently  most of  the  firms  had dis-appeared.   Public confidence had been shattered  beyond description  and the fate of several depositors stood sealed with  the tragedy which had over- taken on them having  lost their  hard  earned money.  Similarly complaints  were  also received  by the RBI of individuals/firms and unincorporated bodies  accepting  deposits  in   Tamil  Nadu.   The  report received  from  that State recommended that the  RBI  should over-see  the  functioning  of such financial firms  and  it ought to consider banning the activities in public interest.

     It  is  the  case  of the RBI  that  the  flexibility, convenience  and facilities etc.  provided by the appellants were  turning out to be mirages for the gullible public  who ultimately  had  to  bear the burnt of the callous  ways  in which  the  unincorporated bodies extended credit under  the guise  of flexibility and convenience.  Unquestionably  high interest  rates  were  charged  by   such  firms  from   the borrowers,  but  when the time came for the return of  money borrowed by such firms, a number of such firms had folded up resulting in great loss to the depositors.  The RBI, being a statutory  expert  body entrusted with monetary  management, came  to  the  conclusion that these  unincorporated  bodies which  were  functioning as financial intermediaries  in  an informal  and  unorganised manner be restrained from  having access  to  deposits  from  public.  The  spread  of  formal financial agencies such as, commercial banks, regional rural banks, cooperative banks, development financial institutions and  non-banking financial companies etc.  had taken care of the  need to mobilise the domestic savings of the nation and to deploy the same in a proper manner.

     As regards availability of banking facilities in small

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towns  and  villages  is  concerned,  the  number  of  rural branches of commercial banks, which were 1833 in June, 1969, increased to 33069 as on June, 1996.  The average population per branch has increased manifold.  The regional rural banks had  been  established  in  1975 with a view  to  serve  the people.   Several State Governments had promoted cooperative banking  culture  amongst the rural masses  for  effectively taping   the   resources  so  as   to  meet   their   credit requirements.   It appears that the institutional finance is available  far  more  easily now than  before.   With  these facilities  now being available and in view of the  inherent risks   to   the  general  public  at  the  hands   of   the unincorporated  bodies  engaged in financial activities  and accepting  public  deposits, we agree that the  restrictions now imposed by the amended Section 45-S cannot be considered as being un-reasonable.

     As  has  already  been  observed, there  is  no  total prohibition  or ban from accepting deposits by  incorporated bodies.  It is only such incorporated bodies as are carrying on  business referred to in Clauses I and II of  sub-section (1)  of Section 45-S of the Act which cannot accept deposits from  the  public.   They  can however  receive  loans  from relatives.   The appellants cannot claim a fundamental right to  carry  on the business of financing with other  peoples money.   In  other  words,  there  can  be  no  unrestricted fundamental  right to accept deposits from the public.  This Honble  Court has observed in Peerless General Finance  and Investment  Co.   Limited and Another Vs.  Reserve  Bank  of India  and  others  [  1992(2) SCC 343]  that  there  is  no fundamental  right  to  do  any  unregulated  business  with subscribers/depositors  money.  This Honble Court in  that case upheld the directions issued by RBI requiring residuary non-banking companies to invest the amount collected by them as deposits in a particular way.  This Honble Court further held  that  such companies should invest their  own  working capital  and  find such resources elsewhere with  which  the Reserve  Bank has no concern.  Since the deposit  acceptance by  unincorporated bodies is incapable of being regulated by virtue of the large number of such bodies, the provisions in the  nature  of the amended Section 45-S are  necessary  and unincorporated  bodies  should do their business with  their own  money  or institutional finance or money borrowed  from relatives.

     The   amended  Section  45-S   further   expands   the provisions  of Chapter III-B by making it necessary for  all those,  who  mobilize  public funds for  deployment  in  the financial   sector,  to  follow   the  norms  of  prudential management which is the internationally accepted practice in relation to those handling public funds.  In view of Chapter IIIB,  particularly in its revised form after the amendment, it  would  have been highly incongruous to permit people  to side  step  the  discipline of Chapter IIIB by  refusing  to incorproate  themselves.  In view of this anomaly which  has come  about it was decided by the legislature not to  permit such  activities  in  the non-  corporate  sector.   Nothing prevented  the appellants who alleged to be the partners  of different  firms from incorporating themselves as a company. The  real grievance was that the appellants did not want  to comply   with  the  norms  of  prudential  management   and, therefore,  sought to paint a picture as though their  trade had  been prohibited.  There was no impediment in the  trade as  long  as it was carried on within the norms  of  Chapter

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IIIB.  In fact, they would have greater latitude to do trade as  a corporate body, in that the present restriction on the amount  of money to be deposited would stand increased.   In this  context, it may be emphasised that there is absolutely no  restriction  on  any  person to utilise  his  own  funds (including  the  funds received from his relatives) for  any purpose  he  likes  including   para  banking  or  financial activity.

     Historically,  only banks have been allowed to  accept deposits  repayable on demand because they were subjected to maintenance  of cash reserve requirement which would  enable them to meet liabilities as and when they are called upon or when  any  demand is made for repayment.  Since  non-banking financial  companies were not subjected to such cash reserve requirement,  it  was  not desirable  to  allow  non-banking financial companies to accept demand deposits.  In any case, such  bodies were nothing but para banking institutions  and either  they  had  to  be  regulated on  the  lines  of  the financial  institutions  and if that was not feasible,  they should  have  appropriately been prohibited  from  accepting deposits  from public.  After all, the right to raise public deposit  could not be construed as a fundamental right.  The restrictions  imposed  cannot be considered unreasonable  or arbitrary.

     The  RBI  has  not  acted  hastily.   Before  amending Section  45-S  of  the Act in 1997, it had  the  benefit  of having  with it the reports of number of committees, all  of whom  had  recommended  that   the  unincorporated  business firms/individuals  be brought under certain discipline  and, if  possible,  non-banking financial business was not to  be permitted to be carried on by the unincorporated bodies.  It will  be useful in this regard to refer to the report of the study   group   on   non-banking  financial   intermediaries appointed  by  the  Banking Commission in 1971.   The  study group  after  making a detailed study of the  then  existing non-banking  financial  intermediaries stated in respect  of unincorporated bodies in para 8.25 of its report as under:

     8.25  We, therefore, suggest that the Reserve  Banks control   may  be  extended  to  finance  corporations   and necessary enabling legislation be passed to that effect.  We recognise  that  the  administrative task  of  watching  and regulating  the operations of a large number of small  firms will  be difficult.  We, therefore, suggest that if the  law permits,  only  companies may be allowed to do  the  banking business  in the sense of accepting deposits from the public for the purpose of lending or investment.  IN that case, the Banking  Regulation  Act would govern the operations of  the Bangalore  type finance corporations.  If, however, the  law does not permit it, any scheme of regulation may have as one of  its  objections the reduction in the number  of  finance corporations  besides,  of  course,   the  safeguarding   of depositors interest.

     It  was  further  submitted that the  amendments  were introduced  after taking into account the recommendations of successive  committees, appointed by the Bank and Government of India, which had studied the functioning of these bodies. The  question  of  restricting such  financial  activity  by unincorporated  bodies, is a question of economic policy  as it  involves regulation of economic activities by  different constituents.   In  such  matters of economic  policy,  this

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Honble  Court  does not interfere with the decision of  the expert bodies which have examined the matter.  The following observations  of this Honble Court made in R.K.  Garg  Vs,. Union of India, 1982 (1) SCR 947 at 969 are appropriate:

     Another  rule  of  equal   importance  is  that  laws relating  to  economic  activities  should  be  viewed  with greater  latitude  than laws touching civil rights  such  as freedom  of  speech, religion etc.  It has been said  by  no less a person than Holmes,J.  that the legislature should be allowed some play in the joints, because it has to deal with complex  problems which do not admit of solution through any doctrinaire   or  straight  jacket   formula  and  this   is particularly  true  in  case  of  legislation  dealing  with economic  matters, where, having regard to the nature of the problems  required  to  be dealt with, greater play  in  the joints  has  to  be allowed to the legislature.   The  court should  feel  more  inclined to give judicial  deference  to legislature  judgment  in the field of  economic  regulation than  in  other  areas where fundamental  human  rights  are involved.    Nowhere   has  this    admonition   been   more felicitously  expressed than in Morey V.  Dond (354 US  457) where Frankfurther J.  said in his inimitable style:

     In  the utilities, tax and economic regulation cases, there  are  good reasons for judicial self-restraint if  not judicial deference to legislative judgment.  The legislature after  all  has the affirmative responsibility.  The  courts have  only  the power to destroy, not to reconstruct.   When these  are  added to the complexity of economic  regulation, the  uncertainty,  the liability to error,  the  bewildering conflict  of the experts, and the number of times the judges have  been  overruled by events  self  limitation  can  be seen  to  be the path to judicial wisdom  and  institutional prestige and stability.

     The  court  must always remember that legislation  is directed  to practical problems, that the economic mechanism is  highly  sensitive  and complex, that many  problems  are singular   and  contingent,  that   laws  are  not  abstract propositions and do not relate to obstract units and are not to  be measured by abstract symmetry that exact wisdom  and nice  adaptation of remedy are not always possible and  that judgement  is  largely  a  prophecy  based  on  meager  and uninterrupted  experience.  Every legislation  particularly in  economic matters is essentially empiric and it is  based on  experimentation  or  what one may call trial  and  error method  and  therefore  it cannot provide for  all  possible situations  or anticipate all possible abuses.  There may be crudities   and  inequities  in   complicated   experimental economic  legislation but on that account alone it cannot be struck down as invalid.

     At page 988 it is further held:

     That  would  depend upon diverse fiscal and  economic considerations    based   on     practical   necessity   and administrative  expediency and would also involve a  certain amount  of experimentation on which the court would be  last fitted to pronounce.  The court would not have the necessary competence and expertise to adjudicate upon such an economic issue.   The  court cannot possibly assess or evaluate  what would  be  the impact of a particular immunity or  exemption and whether it would sere the purpose in view or not.

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     Even  if  these restrictions incorporated in  the  Act amount  to a total prohibition, such action was necessary in the public interest as the mushroom growth of unincorporated bodies  accepting  deposits had gone beyond control  calling for restriction of the nature imposed by the amended Section 45-S.   In  the case of Reserve Bank of India Vs.   Peerless General  Finance and Investment Co.  Ltd.  and others (1987) 61  Company  Cases  663, this Honble  Court  took  judicial notice of and expressed concern about the mushroom growth of such  bodies  by referring to the advertisements  issued  by various  such  bodies  in the press.   While  upholding  the constitutional  validity  of  the   Prize  Chits  and  Money Circulation   Schemes   (Banning)   Act,   1978   (Srinivasa Enterprises  Vs.   Union  of India, 1980 (4) SCC  507)  this Honble  Court  pointed  out that for saving  the  poor  and unwary   public  from  the   unscrupulous   racketeers   who glamourise  and prey upon the gambling instinct to get  rich through  prizes, banning was necessary.  The court  observed how  can you save moth from the fire except by putting  out the  fatal  fire ? On the same analogy for safeguarding  or protecting  the public from the loss which was likely to  be caused  to  them  by the failure  of  unincorporated  bodies promising  high  returns,  it   was  necessary  to  prohibit unincorporated  bodies  from  accepting  deposits  from  the public.   Further,  as  observed by this Court  in  Srinivas Enterprises case (supra) it is a constitutional truism that restrictions  in extreme cases should be pushed to the point of  prohibition, if any lesser strategy will not achieve the purpose.

     It  cannot  be  denied  that shroffs  have  played  an important  roll in providing finance in the rural sector and in  small  towns.  But, despite the services which they  may have rendered, it is difficult to accept the contention that the  RBI was not justified in imposing ban on unincorporated bodies  accepting  deposits  from public while  carrying  on financing  business.   The  inherent danger  to  the  public specially  in  small towns and villages in  permitting  such business  to be carried on un-checked and un-regulatory  was ample justification for the impugned legislation, keeping in mind  the  experience of the public which had  been  dealing with  such  unincorporated bodies in Kerala and Tamil  Nadu. It  is  open  to the appellants to organise  their  business within  the permissible legal set up by forming non- banking financial  corporations  and functioning in accordance  with Chapter  III-B  of the Act and the directives issued by  the Bank  from  time  to time.  The prohibition  on  partnership firms to carry on their business like that of shroffs cannot be  regarded  as  being an unreasonable restriction  on  the fundamental right of the appellants to carry on their trade. They  can  continue  lending money as long as  they  do  not borrow from the public.

     The  services rendered by certain informal sectors  of the  Indian economy could not be belittled.  However, in the path of economic progress, if the informal system was sought to be replaced by a more organised system, capable of better regulation  and  discipline,  then   this  was  an  economic philosophy reflected by the legislation in question.  Such a philosophy  might  have its merits and demerits.  But  these were  matters of economic policy.  They are best left to the wisdom of the legislature and in policy matters the accepted principle is that the courts should not interfere.  Moreover in  the  context  of  the   changed  economic  scenario  the

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expertise  of people dealing with the subject should not  be lightly   interfered  with.   The   consequences   of   such interdiction  can have large-scale ramifications and can put the  clock  back  for  a number of years.   The  process  of rationalisation of the infirmities in the economy can be put in  serious  jeopardy and, therefore, it is  necessary  that while  dealing with economic legislations, this Court, while not jettisoning its jurisdiction to curb arbitrary action or unconstitutional legislation, should interfere only in those few cases where the view reflected in the legislation is not possible to be taken at all.

     Examining  the validity of the amended Section 45-S of the Act by applying the principles enunciated over the years by  this  Court, and as encapsuled in the passage quoted  in the earlier part of this judgment from this Courts decision in Papnasan Labour Unions Case (supra) we find that the said Section is in no way illegal or bad in law.  Section 45-S no doubt  prohibits  the  conduct  of banking  business  by  an unincorporated  non-banking  entity like a shroff, but  this prohibition  has come about, inter alia, in the interest  of unwary  depositors  and borrowers (from shroffs) and with  a view  to  prevent  them from committing  financial  suicide. Earlier  attempts  to  adequately regulate  the  non-banking institutions  not  having  achieved the  desired  result  of protecting  large  number of depositors from  unincorporated financial   institutions  which   would  suddenly   mushroom overnight  and then vanish without a trace, but taking  with it depositors money, left the RBI with no alternative but to prohibit   such  unincorporated   entities  from  conducting financial business which was more than akin to banking.

     The   restrictions  imposed   against  acceptance   of deposits  by  unincorporated  bodies carrying  on  financial activity or the business of deposit acceptance or lending in any  manner are in the larger interest of general public vis a  vis  few persons accepting such deposits.  The  need  for such restrictions had become acute and imperative in view of large   scale  mis-management  of   public  funds  by   such unincorporated bodies.

     Accordingly,  we  hold that the provisions of  Section 45-S of the Act are valid.

     Before we conclude there is another matter to which we must  advert  to.   It has been brought to our  notice  that Section 45- S of the Act has been challenged in various High Courts  and few of them have granted the stay of  provisions of  Section  45-S.   When  considering  an  application  for staying  the  operation of a piece of legislation, and  that too  pertaining to economic reform or change then the courts must  bear  in mind that unless the provision is  manifestly unjust  or glaringly unconstitutional, the courts must  show judicial  restrain in staying the applicability of the same. Merely  because a statute comes up for examination and  some arguable  point  is  raised, which persuades the  courts  to consider  the  controversy, the legislative will should  not normally be put under suspension pending such consideration. It  is now well- settled that there is always a  presumption in favour of the constitutional validity of any legislation, unless  the  same  is set- aside after  final  hearing  and, therefore,  the  tendency  to   grant  stay  of  legislation relating to economic reform, at the interim stage, cannot be understood.   The  system of checks and balances has  to  be utilised  in a balanced manner with the primary objective of

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accelerating  economic  growth  rather than  suspending  its growth  by  doubting  its  constitutional  efficacy  at  the threshold itself.

     While  the  courts  should not abrogate  its  duty  of granting   interim  injunctions   where  necessary,  equally important is the need to ensure that the judicial discretion does  not  abrogate  from  the   function  of  weighing  the overwhelming  public  interest in favour of  the  continuing operation  of a fiscal statute or a piece of economic reform legislation,  till  on a mature consideration at  the  final hearing,  it  is  found  to  be  unconstitutional.   It  is, therefore,  necessary  to  sound a word of  caution  against intervening  at  the  interlocutory   stage  in  matters  of economic reforms and fiscal statutes.

     A  number  of petitions had been filed in  this  Court seeking transfer of writ petitions pending in different High Courts.   By order dated 17.2.2000, those Transfer Petitions were  dismissed as not pressed.  Besides the writ petitions, in  respect  of  which, those transfer  petitions  had  been filed,  a number of other petitions are pending disposal  in various High Courts.  In quite a few of them the High Courts have  granted an interim injunction staying the operation of the  implementation of the amended Section 45-S of the  Act. For  the view we have taken now, it is imperative that these petitions,  pending  in  the   different  High  Courts,  are formally  disposed  off  at an early date.   We,  therefore, request  all  the  High Courts, in which the  petitions  are pending  challenging  the  provisions of  Section  45-S,  to dispose  them of within a period of three months.   Needless to  say  inasmuch as the validity of Section 45-S  has  been upheld  by  us,  the said provision shall be  liable  to  be enforced  notwithstanding any interim orders to the contrary which  may have been passed by any High Court, which interim order must necessarily now loose all its significance.

     For  the  aforesaid  reasons, this  writ  petition  is dismissed.  The respondents will be entitled to costs.