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PETITIONER: RESERVE BANK OF INDIA & ORS.

       Vs.

RESPONDENT: PEERLESS GENERAL FINANCE AND INVESTMENT COMPANY LTD. & ANR.

DATE OF JUDGMENT:       04/01/1996

BENCH: AGRAWAL, S.C. (J) BENCH: AGRAWAL, S.C. (J) G.B. PATTANAIK (J)

CITATION:  1996 AIR  929            1996 SCC  (1) 753  JT 1996 (1)    38        1996 SCALE  (1)32

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S.C.AGRAWAL, J. :      Special Leave granted.      This  appeal  directed  against  the  judgment  of  the Calcutta High Court dated May 3, 1995, is in the third round of the  litigation between  the Peerless  General Finance  & Investment  Company   Ltd.  (hereinafter   referred  to   as ‘Peerless’) and  the  Reserve  Bank  of  India  (hereinafter referred to as ‘the Bank’).      Peerless was  incorporated in 1932 as a limited company under the  provisions of the Indian Companies Act, 1913 with the name  Peerless General  Insurance and Investment Company Ltd. It  was carrying  on life insurance business. After the enactment  of  the  Life  Insurance  Corporation  Act,  1956 Peerless could  not carry  on life insurance business and it changed its name to ‘Peerless General Finance and Investment Co. Ltd.’  and is  now carrying  on finance  and  investment business. It  offers small  savings schemes to the public at large wherein  the subscribers  are required  to pay a fixed amount as  subscription on  yearly, half-yearly or quarterly basis for  a fixed  number of years and on the expiry of the said period,  the subscriber  is paid  a sum of money called Endowment sum,  which is  the face value of the certificate, and certain  additional amounts  by way  of bonus.  The said schemes  offered  by  Peerless  are  some  what  similar  to Recurring Deposit schemes run by commercial banks.      The business  transacted by  the banking  companies  is regulated by  the Banking  Regulation Act,  1949. Since non- banking companies  started receiving  deposits from  general public on  a  large  scale,  it  became  necessary  to  make suitable provisions  for regulating  the same.  The  Reserve Bank of  India Act,  1934 (hereinafter  referred to  as ‘the Act’) was  amended by  Act No.  55 of 1963 and Chapter III-B [Section  45  (H)  to  45  (Q)]  which  contains  provisions relating to  non-banking institutions receiving deposits and

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financial institutions  was inserted  in the Act. In Section 45-I various  expressions, viz.,  ‘Company’,  ‘Corporation’, ‘Deposit’, ‘financial  institution’, ‘firm’ and ‘non-banking institution’ have  been defined.  Section 45-J  empowers the Bank to  regulate or  prohibit the  issue of  prospectus  or advertisement  by   a  non-banking   institution  soliciting deposits of  money from the public. 45-K enables the Bank to collect information  from  non-banking  institutions  as  to deposits  and  to  give  directions  to  such  institutions. Section 45-L  empowers the Bank to call for information from financial  institutions  and  to  give  directions  to  such institutions. Section  45-Q provides  that the provisions of Chapter -III  B shall  have effect not-withstanding anything inconsistent therewith  contained in  any other  law for the time being  in force  or any  instrument  having  effect  by virtue of any such law. After the insertion of Chapter III-B in the  Act, the  Bank issued  three sets  of directions  to regulate acceptance  of deposits  by non-banking  companies, categorizing  them   into   financial,   non-financial   and miscellaneous  companies.  Non-Banking  Financial  Companies (Reserve Bank)  Directions, 1966 related to companies [other than an  insurance  company,  or  stock  exchange  or  stock brooking company]  engaged in hire-purchase finance, housing finance, investments, loan equipment leasing, mutual benefit business etc.  Non-Banking Non-Financial  Companies (Reserve Bank) Directions,  1966 related to a company which was not a banking company  nor a  financial company referred to above. Miscellaneous  Non-Banking   Companies   (Reserve   Banking) Directions,  1973  related  to  a  company  engaged  in  the business of collecting moneys in one lumpsum or otherwise by sale  of   units,  certificates  or  other  instruments  and utilising the  moneys so collected for giving to a specified number of  subscribers by  lot or draw, prizes or gifts etc. and refunding  the money  with or  without interest to those who have  not won  any prize  etc., or  conducting any other form of  chit or  kuri or any other similar business. It was found that  a vast  majority of  the  non-banking  companies accepting deposits were non-financial companies and in order to  more   effectively  regulate   the   deposit   accepting activities of  these companies,  the  Companies  (Amendment) Act, 1974  was enacted  and  Sections  58-A  and  58-B  were inserted in  the Companies  Act, 1956.  Section  58-A  makes provisions for regulating the acceptance of deposits by such non-banking non-financial companies and vests the said power in the  Central Government. In Delhi Cloth and General Mills etc. v.  Union of India etc. 1983 (3) SCR 438 this Court has upheld the  validity of  Section 58-A  and has  rejected the contention that  it was  violative of  the rights guaranteed under Articles 14 and 19(1)(g) of the Constitution.      After the  issuance of  the  Miscellaneous  Non-Banking Companies (Reserve  Bank) Directions,  1973, Peerless sought exemption from  complying with  the said directions and such exemption was  granted to it by the Bank from the provisions of Paragraph  4 of  the said  directions in  so far as those provisions restricted  the acceptance of subscriptions under the schemes upto 25% of the paid-up capital and free reserve fund. While granting this exemption certain conditions were, however,  imposed.   In  1974,   a  study  group  headed  by Dr.J.S.Raj was appointed by the Bank to examine the existing statutory provisions with a view to assessing their adequacy in  regulating   the  conduct  of  business  by  non-banking companies in  the context  of the monetary and credit policy laid down  by the  Bank from  time to  time and  to  suggest measures for  further tightening  up the  provisions  as  to ensure that  the activities  of such companies, in so far as

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they pertained  to the  acceptance of deposits, investments, lending operations  etc. subserved the national interest and served more effectively as adjuncts to the regulation of the monetary  and   credit  policies   of  the  country  besides affording  the  degree  of  protection  to  the  depositors’ moneys. Having  regard to  the recommendations  of  the  Raj Committee, the  Bank, in  1977 issued the Miscellaneous Non- Banking Companies  (Reserve Bank)  Directions, 1977  and the Non-Banking Financial  Companies (Reserve  Bank) Directions, 1977. In  the Miscellaneous  Non-Banking Companies  (Reserve Bank) Directions,  1977, there  was  a  departure  from  the earlier directions  of 1973  in the sense that for the first time a  ceiling was fixed in respect of the period for which deposits could  be accepted  and that  the said period could not be  more than thirty six months. Peerless applied to the Bank for  being granted exemption from the provisions of the said Directions  of 1977. While the said matter was pending, the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 was  enacted by  Parliament and it came into force with effect from  December 12,  1978. The Bank took the view that the schemes  conducted  by  Peerless  were  covered  by  the provisions of  the said  Act and  as Peerless was prohibited from doing  fresh business  it was  required to  wind up its existing business  under the  Act. The  Bank was of the view that there  was no  question of  granting any  exemption  to Peerless from  the provisions of the Directions of 1977. The Bank,  however,   considered  the   claim  of  Peerless  for exemption on  merits and  found that  it  was  necessary  to cancel the  exemption already  granted.  Thereupon  Peerless filed a  writ petition  in the  Calcutta High  Court  for  a declaration that  the  Prize  Chits  and  Money  Circulation Schemes (Banning)  Act, 1978  did not  apply to the business carried on  by it.  The said  writ petition  of Peerless was allowed by  a Division  Bench of the Calcutta High Court and it was declared that the business carried on by Peerless did not fall  within the  mischief of  the the  Prize Chits  and Money Circulation Schemes (Banning) Act, 1978. The said view of the Division Bench of the High Court was affirmed by this Court in Reserve Bank of India v. Peerless General Finance & Investment Co.  Ltd., 1987  (2) SCR 1, (hereinafter referred to as  ‘Peerless I’). The Court, after examining the various schemes offered by Peerless, held that the said schemes were not covered  by he  expression ‘prize  chits’ as  defined in Section 2(e)  of the  said Act. While upholding the decision of the  Calcutta High Court in that regard, it was, however, observed :      "The appeals  filed by  the Reserve Bank      of India,  the Union  of India  and  the      State of  West  Bengal  are  accordingly      dismissed. It  is open  to them  to take      such steps as are open to them in law to      regulate schemes  such as  those run  by      the   Peerless    Company   to   prevent      exploitation  of  ignorant  subscribers.      Care must  also be  taken to protect the      thousands of employees." In this  context, Chinnappa Reddy J. (who delivered the main judgment) has  referred to  the mushroom growth of financial and investment companies offering staggeringly high rates of interest to  depositors leading the court to suspect whether these companies  are not  speculative  ventures  floated  to attract unwary  and credulous  investors and  capture  their savings and has said :      "It does not require much imagination to      realise the  adventurous and  precarious

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    character of  these  businesses.  Urgent      action  appears  to  be  called  for  to      protect the  public. While  on  the  one      hand these  schemes encourage  two vices      affecting public  economy, the desire to      make quick  and easy money and the habit      of  excessive   and  wasteful   consumer      spending,  on   the   other   hand   the      investors who  generally belong  to  the      gullible and  less affluent classes have      no security  whatsoever. Action  appears      imperative."      [p.46] Khalid, J,  in his  concurring judgment,  has expressed  the same sentiments when he said :      "I share  my brother’s concern about the      mushroom growth  of financial  companies      all over  the  country.  Such  companies      have proliferated.  The victims  of  the      schemes,  that   are  attractively   put      forward  in  public  media,  are  mostly      middle  class  and  lower  middle  class      people. Instances  are legion where such      needy people have been reduced penniless      because of  the  fraud  played  by  such      financial vultures.  It is necessary for      the  authorities  to  evolve  fool-proof      schemes to see that fraud is not allowed      to be  played upon  persons who  are not      conversant with  the  practice  of  such      financial    enterprises     who    pose      themselves as benefactors of people."      [p. 12] Keeping in  view the  observations of this Court in Peerless I, the  Bank issued Residuary Non-Banking Companies (Reserve Bank) Directions, 1987 (hereinafter referred to as the ‘1987 Directions’) vide  notification dated May 15, 1987. The said directions are stated to have been issued in exercise of the powers conferred  by Sections  45-J and  45-K  of  the  Act. Paragraph 2  of the  1987  Directions  prescribes  that  the Directions are  applicable to  every  residuary  non-banking institution, being  a company,  which receives  any  deposit under any  scheme or arrangement by whatever name called, in one lumpsum  or in  instalments by  way of  contributions of subscriptions or  by sale  of the  units or  certificates or other  instruments,  or  in  any  other  manner  and  which, according  to   the  definitions  contained  in  Non-Banking Financial Companies  (Reserve Bank)  Directions, 1977 or, as the case  may be,  the Miscellaneous  Non-Banking  Companies (Reserve Bank) Directions, 1977, is not an equipment leasing company, a  hire purchase finance company, a housing finance company, an insurance company, an investment company, a loan company,  a   mutual  benefit   financial  company   and   a miscellaneous non-banking  company.  Paragraph  4  initially provided that  on and from 15th May, 1987, no residuary non- banking company  shall  receive  any  deposit  repayable  on demand or on notice or after a period of less than 12 months or more  than 120  months from  the date  of receipt of such deposit, or  renew any deposit received by it whether before or after  that date,  unless such  deposit, on  renewal,  is repayable not  earlier than 12 months and not later than 120 months from the date of such renewal. Paragraph 5 prescribes that the  minimum rate of return, shall not be less than the amount calculated  at the  rate of  10%  per  annum  (to  be compounded annually)  on the  amount deposited.  By  way  of

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security  for   depositors,  Paragraph   6  made   provision regarding investment  of the amounts which are received by a residuary non-banking company in the following terms :      "6. On and from 15th May, 1987,      (1)  every residuary non-banking company      shall deposit  and  keep  deposited  the      fixed deposits  with public sector banks      or   invest   and   keep   invested   in      unencumbered approved  securities  (such      securities being  valued at their market      value for  the time  being), or in other      investments, which in the opinion of the      company are safe, a sum which shall not,      at  the   close  of   business  on  31st      December 1987  and thereafter at the end      of each  half year that is 30th June and      31st December be less than the aggregate      amounts  of   the  liabilities   to  the      depositors whether  or not  such amounts      have become payable;           Provided  that   of  the   sum   so      deposited or invested      (a)  not less  than 10 per cent shall be      in fixed deposits with any of the public      sector banks;      (b)  not less  than 70 per cent shall be      in approved securities;      (c)  not more  than 20  per cent  or ten      times  the   net  owned   funds  of  the      company, whichever amount is less, shall      be in other investments,           Provided  that   such   investments      shall be  with the approval of the Board      of Directors of the Company.       x      x      x      x      x      x" In Paragraph 7 provision is made for abolition of forfeiture and it  is directed  that on  and from  15th  May,  1987  no residuary  non-banking  company  shall  forfeit  any  amount deposited by  a depositor, or any interest, premium bonus or other advantage  accrued thereon. Paragraph 8 prescribes the particulars  to   be  specified   in  an   application  form soliciting  deposits.   Paragraph  9   requires  that  every residuary  non-banking   company  shall   furnish  to  every depositor a receipt for every amount which has been or which may be  received by  the company by way of deposit before or after the  commencement of the 1987 Directions. Paragraph 10 makes provision  for keeping  register/registers of deposits and the  particulars to  be entered  therein.  Paragraph  11 prescribes information  which must be included in the report of the Board of Directors that is laid before the company in general meeting. Paragraph 12 provides as under :      "Every  residuary   non-banking  company      shall disclose  as  liabilities  in  its      books of  accounts and  balance  sheets,      the total  amount of  deposits  received      together with  interest, bonus,  premium      or other  advantage, accrued  or payable      to the depositors." Paragraph 13  prescribes that  copies of the audited balance sheet and  the profit  and loss account together with a copy of the  report of  Board of Directors should be furnished to the Bank  within 15 days of the meeting of the company under Section 217(1)  of the  Companies Act,  1956.  Paragraph  14 requires a  residuary non-banking  company to  submit to the Bank returns  furnishing information on matters specified in

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the Schedule to the Directions. Paragraph 16 makes provision regarding  advertisements   and  statements   in   lieu   of advertisement which  are issued  by a  residuary non-banking company. Paragraph 19 empowers the Bank, if it con siders it necessary for  avoiding any  hardship or  any other just and sufficient reason,  to grant  extensions of  time to  comply with or  exempt any  company or class of companies, from all or any  of the provisions of the Directions either generally or for  any specified  period subject  to such conditions as the Bank  may impose.  Paragraph 20  lays down  that nothing contained in  Paragraph  19  of  the  Non-Banking  Financial Companies (Reserve Bank) Directions, 1977 shall apply to the residuary non-banking companies.      After  the  issuance  of  the  1987  Directions,  Timex General Finance  & Investment Co. Ltd. filed a writ petition challenging the  validity of  the said directions before the Calcutta High  Court. The said writ petition was disposed of by a  Division Bench  of the  Calcutta  High  Court  whereby certain directions were given to the Bank to modify the 1987 Directions  and   make  them   reasonable  and  workable  to safeguard  the   interest  of  depositors  and  protect  the employees. After  the said  decision,  Peerless  got  itself impleaded as  a party-respondent  in the  said writ petition and obtained  further directions  from the  High Court.  The said orders  of the  High Court  were challenged by the Bank before this Court. Peerless also filed a writ petition under Article 32  of the  Constitution challenging the validity of the 1987  Directions. The appeals of the Bank as well as the writ petition  filed by  Peerless were  disposed of  by this Court by  its  judgment  in  Peerless  General  Finance  and Investment Co.  Ltd. &  Anr. v.  Reserve Bank of India, 1992 (1) SCR 406, (hereinafter referred to as ‘Peerless II’).      In Peerless  II  the  main  controversy  central  round Paragraphs 6  and 12  of the  1987 Directions.  It was urged that  the   1987  Directions  were  ultra  vires  the  power conferred on  the Bank  by Sections 45-J and 45-K of the Act inasmuch as  none of  these sections  authorises the Bank to frame any directions prescribing the manner of investment of deposits  received  or  the  method  of  accountancy  to  be followed or  the manner  in which  its  balance  sheets  and business of accounts are to be drawn up. The said contention was negatived  by this  Court. Kasliwal J. has held that the Bank  was   competent  and  authorised  to  issue  the  1987 Directions in exercise of powers conferred under Section 45- K(3) of  the Act  which confers  a wide power on the Bank to give any  direction in  respect of any matter relating to or connected with  the receipt  of deposits  and that under the said provision  the Bank is entitled to give directions with regard to  the manner  in  which  the  deposits  are  to  be invested and  also the  manner in which such deposits are to be disclosed  in the  balance sheets or books of accounts of the company. Ramaswamy J., in his concurring judgment, while agreeing with  the view  of Kasliwal  J. that the directions could be upheld under Section 45-K(3), has further held that the directions  could also  be upheld  under Section 45-L of the Act.      As  regards  the  challenge  to  the  validity  of  the provisions contained  in Paragraphs  6 and  12 of  the  1987 Directions on  the ground  of being  violative of  the right guaranteed under  Article 19(1)(g)  of the  Constitution, it may be  stated that  Peerless was  following  the  actuarial method which  is adopted  by  insurance  companies  and  was treating a certain percentage of the amount collected by way of each  instalment under  the certificates  of deposits  as part of  the income  and it  was retained  and taken  to the

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profit and  loss account  and it was utilised for payment of commission to  the agents  and for incurring other expenses. Since such a course was impermissible under Paragraphs 6 and 12  of  the  1987  Directions,  the  validity  of  the  said directions was  challenged on  the ground that the same were violative of  the right guaranteed under Article 19(1)(g) of the Constitution.  On behalf  of Peerless  it was  submitted that it  is inherent  in the business carried on by Peerless and other  residuary non-banking  companies that the working capital is  generated out of the subscriptions received from the certificate  holders  and  such  business  comprises  in collecting subscriptions  from depositors  either in lumpsum or in  instalments and  such deposits are paid back with the guaranteed accretions, bonus, interest, etc. in terms of the contract at  the end of the stipulated term and through this business such  companies have rendered great and commendable service to the nation in mobilising small savings and giving a boost to the movement of capital formation in the country. It was  submitted that  though interest  of depositors is an important  consideration   but  the  said  interest  is  not impaired  in   any  manner   whatsoever  by  the  method  of accountancy that  was being  followed by Peerless and by all similar companies  namely, appropriation  of a  part of  the subscription to  the profit and loss account and meeting the working capital requirements out of the same. Arguments were also  advanced   on  behalf  of  All  India  Field  Officers Association which claimed to represent 14 lac field officers engaged by  Peerless on the basis of individual contracts of engagements.  It   was  submitted   that  they   earn  their livelihood solely  by collecting  business for  Peerless and for collecting  such business  Peerless pays them commission at a  contractual agreed percentage on the value of business collected and  that the said field officers have to meet all expenses for  procuring such  business  such  as  travelling expenses,  boarding,   lodging,  office  and  administrative expenses etc.  out of  such  commission  and  they  have  to undertake long tours and have to travel into remote villages to reach  the small depositors. It was submitted that if the 1987 Directions  were upheld,  the undertaking  of  Peerless will  face  inevitable  closure  and  almost  14  lac  field officers will  lose their only source of livelihood and will be virtually  thrown on the streets and thus any restriction which would  be prohibitive or which would result in closure of the  undertaking of  Peerless  would  be  against  public interest. The  said contentions  were rejected by the Court. It was held :      Kasliwal J.      "In our  view the  Reserve Bank is right      in  taking   the  stand  that  if  these      companies want  to  do  their  business,      they should  invest  their  own  working      capital   and    find   such   resources      elsewhere with  which the  Reserve  Bank      has no concern".      [p. 445]      "We cannot  ignore  the  possibility  of      persons having  no stake  of  their  own      starting   such   business   and   after      collecting  huge   deposits   from   the      investors  belonging  to  the  poor  and      weaker sections  of the society residing      in  rural   areas,  and   to  stop  such      business after  a  few  years  and  thus      devouring the  hard earned  money of the      small investors. It cannot be lost sight

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    that  in  such  kind  of  business,  the      agents always  take interest  in finding      new depositors  because they  get a high      rate of  commission  out  of  the  first      instalment, but  they do  not have  same      enthusiasm  in  respect  of  deposit  of      subsequent   instalments.    In    these      circumstances, if  the Reserve  Bank has      issued  the   directions  of   1987   to      safeguard the  larger  interest  of  the      public and small depositors it cannot be      said  that   the   directions   are   so      unreasonable   as    to   be    declared      constitutionally invalid".      [pp. 447-448]      Ramaswamy J.      "No-one can have fundamental right to do      any  unregulated   business   with   the      subscribers/depositors’ money.  Even the      banks or  the  financial  companies  are      regulated by  ceiling on public deposits      fixing nexus  between deposits  and net-      worth of  the company  at the  ratio  of      3:1, i.e.  25% of the capital net-worth.      No one would legitimately be expected to      get  immediate   profits   or   dividend      without capital  investment. The concept      of  profit   or  interest   per-supposes      capital investment."      [p. 461] The Court  rejected the contention that in case the impugned directions are  not struck down, Peerless will have to close down its  business and  several thousands  of employees  and their families  and several  lakhs of  field agents would be thrown on  the streets  and left  with no employment. It was observed by Kasliwal J. :      "We are  not impressed with the argument      of Mr.Somnath Chatterjee, Learned Senior      Advocate for  the  Peerless  that  after      some years  the Peerless  will  have  to      close down  its business  if  directions      contained in  paragraphs 6 and 12 are to      be followed.  The working capital is not      needed every  year as  it can be rotated      after  having   invested  once.  If  the      entire  amount  of  the  subscribers  is      deposited or  invested in the proportion      of 10%  in public  sector banks,  70% in      approved securities  and  20%  in  other      investments,  such   amounts  will  also      start  earning  interest  which  can  be      added and  adjusted while  depositing or      investing  the   subsequent   years   of      deposits of the subscribers."      [p.448]      "Paragraph 5  of the  directions relates      to the  minimum rate  of return fixed at      10% per  annum  for  a  deposit  with  a      maturity of  10 years. It is a matter of      common knowledge  that  in  the  present      times    even    the    public    sector      corporations   and   banks   and   other      financial  and  non-financial  companies      pay interest  at much  more higher rates      ranging from  14 to  18%. Thus according

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    to  the   above  scheme  the  respondent      companies  and  the  others  doing  such      business can  easily earn  a profit of 4      to 5% on their investments."      [p. 444] Similarly, Ramaswamy J. has said :      "The mechanism evolved in the directions      is foolproof,  as directed by this Court      in first  Peerless case,  to secure  the      interest of  the depositors,  as well is      capable   t    monitor   the    business      management of  every R.N.B.C.  It  also,      thereby,  protects   interest   of   the      employees/field staff/commission  agents      etc. as  on permanent  basis  overcoming      initial convulsion.  It was intended, in      the best  possible manner,  to  subserve      the interest  of all without putting any      prohibition in  the ability of a company      to  raise   the  deposit,  even  in  the      absence of  any adequate paid up capital      or reserve  fund or  such pre-commitment      of the owner, to secure such deposits."      [p. 462] After the  said decision in Peerless II upholding Paragraphs 6 and  12 of  the 1987  Directions, Peerless has resorted to the course  of splitting  up the amounts received in respect of the  first two  instalments in  the  scheme.  By  way  of illustration we  would refer  to their  scheme in  Table 23. Under this Scheme endowment amount was Rs. 1400/- payable on maturity after  10 years  and the  yearly instalment was Rs. 100/-. Out  of the sum of Rs. 100/- received by way of first and second  instalments, Rs.70/-  was treated  as deposit in each of the two years. The balance amount of Rs. 30/- out of the first  instalment was credited as processing charges and the balance  amount of Rs. 30/- out of the second instalment was  credited   as  maintenance  charges.  On  maturity  the subscriber was  entitled to  be paid Rs. 1400/- as endowment sum and  an additional amount of Rs.353/- as bonus. The case of Peerless  is that  the two amounts of Rs. 30/- each which were retained  by way  of processing charges and maintenance charges were  not part  of deposit  and it was not necessary for Peerless  to comply  with the  directions  contained  in Paragraphs 6 and 12 of the 1987 Directions in respect of the said sums.  In order  to cover  up  this  mode  of  avoiding compliance with  the requirements  of Paragraphs 6 and 12 of the 1987  Directions, the  Bank, by notification dated April 19, 1993, amended the 1987 Directions and inserted Paragraph 4A which contains the following provision :      "4A. No  residuary  non-banking  company      shall take from any depositor/subscriber      to any  schemes run by the company, with      or  without  his  consent,  any  amounts      towards   processing    or   maintenance      charges or any such charges, by whatever      name called,  for  meeting  its  revenue      expenditure.      Provided that  a company may charge to a      new depositor a one time initial sum not      exceeding  Rs.   10  towards   cost   or      expenses           for           issuing      brochures/application  form,   servicing      the depositor’s account, etc." By notification  dated April  10, 1993, Paragraph 4 was also amended and  on and  from April  12, 1993 the maximum period

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for deposits was reduced from 120 months to 84 months.      Feeling aggrieved  by the said amendments introduced in the 1987  Directions, Peerless  filed a writ petition, being C.O. No.21038(W)  of 1993,  in the  Calcutta High  Court  to assail the  validity of  the said  amendments. The said writ petition has been partly allowed by the learned Single Judge of the  High Court  by the  impugned judgment  dated May  3, 1995.  The  High  Court  has  upheld  the  validity  of  the notification dated April 10, 1993 whereby the maximum period of deposits  was reduced from 120 months to 84 months and it has been  held that  the Bank was competent to make the said amendment in  view of  the  powers  conferred  on  it  under Section 45-K(3)  of the  Act. The  High Court  has, however, held that  the notification  dated April  19,  1993  whereby Paragraph 4A was introduced in the 1987 Directions was ultra vires the powers conferred on the Bank and that the Bank was not competent to issue such a notification under Section 45- J, 45-K or 45-L of the Act. Hence this appeal.      The first  question  which  requires  consideration  is whether in exercise of the powers conferred on it by the Act the Bank  is competent to issue the notification dated April 19, 1993 inserting Paragraph 4A in the 1987 Directions. Shri Harish N.  Salve, the  learned senior  Counsel appearing for the Bank,  has submitted  that the  direction  contained  in Paragraph 4A  could be  given by the Bank in exercise of the power conferred  on it under sub-section (3) of Section 45-K and, in  the alternative, Shri Salve has urged that, insofar as  Peerless   is  concerned,   since  it   is  a  financial institution as  defined in clause (c) of Section 45-I of the Act, the directions contained in Paragraph 4A could be given in exercise of the power conferred on the Bank under Section 45-L of  the Act.  We will  first examine  the provisions of Section 45-K(3) of the Act which reads as under :      "45-K(3). The  Bank may, if it considers      necessary in  the public  interest so to      do,  give   directions  to   non-banking      institutions either  generally or to any      non-banking institution or group of non-      banking institutions  in particular,  in      respect of  any matters  relating to  or      connected with  the receipt of deposits,      including the  rates of interest payable      on such  deposits, and  the periods  for      which deposits may be received." According to  the High  Court,  Section  45-K(3)  cannot  be invoked for  two reasons,  namely, (i)  Paragraph  4A  makes provision  regarding   recovery  of  processing  charges  or maintenance charges  which cannot be regarded as a ‘deposit’ as defined  in clause  (bb) of  Section 45-I;  and (ii)  the words "in  respect of  any matters  relating to or connected with"  in   Section  45-K(3)  have  to  be  construed  in  a restricted sense  in view  of the words "including the rates of interest  payable on  such deposits,  and the periods for which deposits may be received".      Shri Salve has submitted that the object underlying the enactment of  Section 45-K  (which is part of Chapter III B) is to  regulate the  conditions on  which  deposits  may  be accepted by  non-banking companies  or institutions  and  to prevent malpractices  and with  that end  in view  very wide powers have  been conferred  on the  Bank to give directions under Section  45-K(3) of  the Act.  The submission  of Shri Salve is  that in  Peerless II  this Court  has  upheld  the directions contained  in Paragraphs  6 an  12  of  the  1987 Directions and  that the  directions that  are contained  in Paragraph 4A  are designed  to prevent  the evasion  of  the

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directions contained in Paragraphs 6 and 12 and to make them effective and  that the  power to issue directions contained in Pragraphs  6 and 12 would necessarily encompass the power to issue  directions to  ensure that they are not avoided by contrivances or  devices which  essentially involve a change in nomenclature.  Shri Salve  has further submitted that the expression ‘deposit’  as defined  in clause  (bb) of Section 45-I has  been defined in very wide terms to include receipt of money  by way of deposit or loan or in any other form and since the  said  definition  is  contained  in  an  enabling statute, it  would be  inapposite to construe the words used in the  said definition in a restrictive sense particularly, when there  are provisions  expressly excluding  a number of items which would otherwise fall within the definition which clearly indicates  that the  legislature intended to use the expression in  its widest  sense as including receipts which may be revenue in nature. Shri Salve has also contended that the words  "in respect  of any matters or connected with the receipt of  deposits" in  Section 45-K(3)  are of  very wide amplitude and  they cannot  be restricted by the words which follow these words.      Shri Somnath  Chatterjee, the  learned  Senior  Counsel appearing for  Peerless, has,  on the  other hand, supported the judgment  of the  High Court  and has urged that deposit means  a   sum  of   money  received  with  a  corresponding obligation to repay the same and that processing/maintenance charges  recovered  by  Peerless,  being  non-refundable  in nature, cannot  be deposits. Shri Chatterjee has argued that the words  "any other  form" in  the definition of ‘deposit’ contained  in  Clause  (bb)  of  Section  45-I  have  to  be construed ejusdem  generis with the words "deposits or loan" which  precede   these  words.   In  the  alternative,  Shri Chatterjee has  invoked the  rule of  Noscitur-a-Sociis  and that since  the words  "any other form" occur in the company of the  words "deposit  or loan"  they mean  other forms  of payment which are refundable. As regards the words "relating to or connected with the receipt of deposits" in Section 45- K(3) of  the Act,  the submission of Shri Chatterjee is that the words  "including rates  of  interest  payable  on  such deposits  and  the  period  for  which  deposits  have  been received"  which   follow  these  words  indicate  that  the preceding words  have been  used in  a restricted  sense  or otherwise there  was no  need to  use the words which follow them.      While constructing  the ambit of the power conferred on the Bank  under Section 45-K(3), we cannot lose sight of the object underlying  the said  provision. Section 45-K is part of Chapter III-B which was inserted in the Act by Act No. 55 of 1963. In the Statement of Objects and Reasons appended to the Bill  it was  expressly mentioned  that "it is desirable that the  Reserve Bank  should be  enabled to  regulate  the conditions on  which deposits  may be accepted by these non- banking companies  or institutions".  In  the  Statement  of Objects and  Reasons, hope  was expressed  "that the Reserve Bank will  be able  to prevent malpractices, if any, to stop unhealthy competition  for deposits,  and to  prescribe  and enforce reasonable  conditions including  realistic rates of interest, disclosure  of any  information or  particulars in which  the  depositors  may  be  interested,  provision  for returning of  money to  them in  certain  contingencies  and other relevant  matters". It  would thus appear that Section 45-K(3) is an enabling provision enacted to empower the Bank to regulate the conditions on which deposits may be accepted by non-banking  companies or  institutions  and  to  prevent malpractices in  the matter  of acceptance of such deposits.

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Such an  enabling provision  must  be  so  construed  as  to subserve the  purpose for which it has been enacted. It is a well accepted  canon of  statutory construction  that "it is the duty  of  the  court  to  further  Parliament’s  aim  of providing a  remedy  for  the  mischief  against  which  the enactment  is   directed  and  the  court  should  prefer  a construction which  advances this  object  rather  than  one which attempts  to find some way of circumventing it. [See : Francis Bennion  on Statutory  Interpretation, 2nd  Edn., p. 711]      This words  "in respect  of any  matters relating to or connected with  the receipt  of deposits" in Section 45-K(3) are of  wide amplitude.  Shri Chatterjee  sought to cut down their amplitude  by reference  to the judgment of this Court in Madhav Rao v. Union of India, 1971 (3) SCR 9, wherein the expression "provisions  of this Constitution relating to" in Article 363  of the  Constitution has been construed to mean "provisions having a dominant and immediate connection with" and "it  does not  mean merely  having a  reference to". [p. 96]. We  are unable  to agree. The decision in Madhav Rao v. Union of  India (supra)  was given  in the  context  of  the provisions of Article 363 which excludes the jurisdiction of the Court  and it  was observed  that the  principle that  a provision which  purports to exclude the jurisdiction of the courts in  certain matters  and so  deprives  the  aggrieved party of the normal remedy will be strictly construed, "is a principle not  be whittled  down" [p. 95]. In that case, the Court has emphasised :      "The meaning  of a  word  or  expression      used  in   the  Constitution   often  is      coloured by  the  context  in  which  it      occurs: the  simpler and more common the      word or  expression, the  more  meanings      and shades of meanings it has. It is the      duty of  the Court  to determine in what      particular meaning  and particular shade      of meaning  the word  or expression  was      used by  the Constitution makers, and in      discharging the duty the Court will take      into account  the context  in  which  it      occurs, the object to serve which it was      used,  its   collocation,  the   general      congruity with  the concept or object it      was intended to articulate and a host of      other considerations."      [pp. 95-96]      Moreover, in  Peerless II, this Court has construed the expression  "in  respect  of  any  matters  relating  to  or connected with  the receipt  of deposits" in Section 45-K(3) of the Act and has held :      "It  (Reserve   Bank)  can   also   give      directions to  non-banking  institutions      in respect of any matters relating to or      connected with  the receipt of deposits,      including rates  of interest  payable on      such deposits; and the periods for which      deposits may  be received.  This  latter      power flows  from sub-s.  (3) of Sec.45K      of  the   Act.  The   Bank  under   this      provision can give directions in respect      of any  matters relating to or connected      with the  receipt of  deposits (emphasis      added). In our view a very wide power is      given to  the Reserve  Bank of  India to      issue  directions   in  respect  of  any

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    matters relating  to or  connected  with      the receipt  of deposits.  It cannot  be      considered  as  a  power  restricted  or      limited to receipt of deposits as sought      to be  argued on behalf of the companies      that under  this power  the Reserve Bank      would only  be  competent  to  stipulate      that deposits  cannot be received beyond      a certain  limit or  that the receipt of      deposits may  be linked with the capital      of  the   company.  Such  interpretation      would  be   violating  the  language  of      Sec.45K (3) which furnishes a wide power      to  the   Reserve  Bank   to  give   any      directions in  respect  of  any  matters      relating  to   or  connected   with  the      receipt of  deposits. The  Reserve  Bank      under this provision is entitled to give      directions with  regard to the manner in      which the  deposits are  to be  invested      and  also   the  manner  in  which  such      deposits are  to  be  disclosed  in  the      balance-sheet or  books of  accounts  of      the company.  The word  ‘any’ qualifying      matters relating  to or  connected  with      the receipt  of deposits  in  the  above      provision is  of great  significance and      in our  view the  impugned directions of      1987 are fully covered under Sec.45 K(3)      of the  Act, which  gives power  to  the      Reserve Bank to issue such directions."      [pp. 430-31]      It is  thus evident  that the  words "in respect of any matters  relating  to  or  connected  with  the  receipt  of deposits" in Section 45-K(3) confer a wide power on the Bank to issue  directions and the said power is not restricted or limited to  receipt of  deposits only. The amplitude of this power cannot  be curtailed by the words "including the rates of interest  payable on  such deposits  and the  periods for which deposits may be received" in Section 45-K(3). It is no doubt true  that the  word "including"  is generally used in extensive sense  to bring  within the ambit of the provision matters referred  to in  the inclusive clause which normally would not  have been  covered by  the provision. But that is not always  so. Many times the Legislature uses an inclusive phrase to  specifically include  a matter by way of abundant caution. Having  regard to the object and purpose underlying the enactment of Section 45-K, we are unable to construe the words "including  the  rate  of  interest  payable  on  such deposits and the periods for which deposits may be received" as restricting  the ambit  of the  words "in  respect of any matters  relating  to  or  connected  with  the  receipt  of deposits", which,  in  our  opinion,  must  be  given  their natural meaning  as construed  by this Court in Peerless II. This means  that the  Bank has been given the power to issue directions in respect of any matter relating to or connected with the receipt of deposits.      The processing/maintenance  charges  or  other  similar charge received  by a  non-banking  company  from  the  sub- scriber to  the schemes are received with the avowed purpose of  processing  and  maintenance  of  the  deposits  by  the subscriber under  the scheme.  These amounts are received as part of  the instalments  paid by  the subscriber.  They are undoubtedly related  to and  connected with  the receipt  of deposits and  it is not possible to say that the said charge

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are not  matters related to or connected with the receipt of deposits. Paragraph  4A which  prohibits receipt  by a  non- banking company  from any depositor/subscriber to any scheme run by  the company, with or without his consent, any amount by way of processing/maintenance charges or any such charge, by  whatever   name  called,   for   meeting   its   revenue expenditure,   is,   therefore,   a   provision   containing directions in  respect of  matters relating  to or connected with the receipt of deposits by a non-banking company.      In this  context, it  would also be relevant to mention that in  Peerless II  this Court  has upheld  the directions contained in Paragraphs 6 and 12 of the 1987 Directions. The directions which  are contained  in Paragraph 4A, introduced by way  of amendment  by notification  dated April 19, 1993, seek to plug the loopholes by which the directions contained in Paragraphs  6  and  12  were  sought  to  be  evaded  and circumvented. Paragraph  4A thus seeks to prevent evasion of the directions contained in Paragraphs 6 and 12. If the Bank is competent  to give the directions contained in Paragraphs 6 and  12 of  the 1987  Directions, it stands to reason that the Bank  should be competent to give directions which would prevent  evasion   of  those  directions  and  secure  their effective implementation.  Section 45-K  is in the nature of an enabling  provision. In  the matter  of  construction  of enabling statutes  the principle  applicable is  that if the Legislature enables  something to be done, it gives power at the same  time, by  necessary implication,  to do everything which is  indispensable for  the purpose of carrying out the purpose in  view. [See  : Craies  on Statutes,  7th Edn.  p. 258]. It  has been  held that  the power  to make a law with respect to any subject carries with it all the ancillary and incidental powers to make the law effective and workable and to prevent  evasion. [See : Sodhi Transport Company V. State of U.P., 1986 (1) SCR 939 at pp. 947-48]      It must,  therefore, be  concluded that  Paragraph  4A, which has been inserted by notification dated April 19, 1993 in the  1987 Directions, falls within the power conferred on the Bank  to issue  directions under  Section 45 K(3) of the Act and the High Court was in error in holding that the said provision is  ultra vires the power conferred on the Bank by the Act.  In that  view of the matter, we do not consider it necessary   to    go   into   the   question   whether   the processing/maintenance charges received by Peerless from the subscribers under  the schemes  can be regarded as ‘deposit’ as defined  in clause  (bb) of  Section 45-I of the Act. For the same  reason it is not necessary to go into the question whether the  said direction could be sustained under Section 45-L of the Act.      We may now examine whether Paragraph 4A is violative of the  provisions   of  Articles   14  and   19(1)(g)  of  the Constitution.      Shri  Chatterjee   has  urged   that  Paragraph  4A  is violative of  the right to equality guaranteed under Article 14 for  the reason  that (i)  it  fixes  a  uniform  maximum ceiling of  Rs.10/- towards  cost or  expenses  for  issuing brochure/application   form,   servicing   the   depositors’ account,  etc.,  irrespective  of  the  volume  of  business transacted, quality  of  services  rendered,  the  level  of technology adopted  in the matter of rendering services etc. and thereby  unequals are  treated equally;  and (ii) though stringent restrictions  have been  imposed  on  recovery  of service charges  by Peerless and other residuary non-banking companies, no similar control has been exercised by the Bank in respect  of levy  of service  charges by others similarly situate, namely,  commercial banks.  As  regards  the  first

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ground  of   challenge   based   on   the   principle   that discrimination may result by unequals being treated equally, it may  be stated  that equal  treatment of unequal objects, transactions or  persons is  not liable to be struck down as discriminatory unless  there is  simultaneously absence of a rational relation  to the  object intended to be achieved by the law.  [See :  Jalan Trading  Co.(P) Ltd. v. Mill Mazdoor Union 1967 (1) SCR 15 at p 36].      The uniform  amount of Rs.10/- that has been prescribed in Paragraph 4A is for the expenses for brochure/application form and  for servicing  the depositors’ account which would be  incurred  by  the  residuary  non-banking  companies  in respect of  their schemes.  The said  charges would not vary from person  to person and would normally be the same in all cases and therefore, the fixation of a uniform amount of Rs. 10/- which  can be  charged by  a company does not mean that Paragraph 4A  inserted in  the 1987  Directions suffers from the vice  of discrimination  on the ground that unequals are being treated equally.      The other ground of discrimination based on non-banking companies being treated differently from commercial banks in the matter  of service  charges, is  also without substance. Shri Chatterjee  has invited  our attention to the documents filed  as   Annexure  -  E  (colly.)  to  the  supplementary affidavit of  Shri Patit  Pavan Roy  filed on  behalf of the respondents which  show that  certain foreign  banks  demand service charges  for the  services rendered  by them  to the account  holders.  The  said  documents  relate  to  current account or  savings bank  accounts.  No  document  has  been brought to  our notice  which may  show that commercial bank levy service  charges in  respect  of  a  recurring  deposit scheme similar  to that  operated by Peerless. Therefore, it cannot be  said that there is discrimination between persons similarly situate  in  the  matter  of  receipt  of  service charges for  the deposits and Paragraph 4A cannot be held to be violative  of Article  14 of  the  Constitution  on  that account.      Assailing the constitutional validity of the directions contained in  Paragraph 4A  on the  ground that the same are violative of  the right guaranteed under Article 19(1)(g) of the Constitution,  Shri Chatterjee  has submitted  that  the processing charges and maintenance charges that are received by Peerless  from the  depositors/subscribers in  connection with the schemes are for the purpose of meeting the expenses that are incurred by Peerless for operating the said schemes and to pay commission to the agents who secure the deposits, and that  if Peerless  is deprived  of these funds, it would not be  possible for  it to  carry  on  its  business.  Shri Chatterjee has  pointed that  under the  scheme in Table 23, that was  being operated  by Peerless  after the decision in Peerless II,  the endownment  sum was  Rs. 1400  and  yearly instalment of Rs. 100 was payable for 10 years. A sum of Rs. 30 was being set apart towards processing charges out of the amount of  Rs. 100  received by  way of first instalment and out of  the amount  of Rs.  100 received  by way  of  second instalment, a  sum of  Rs. 30  was set apart for maintenance charges. The  submission of  Shri Chatterjee is that setting apart  of   this  amount   towards  processing  charges  and maintenance charges  did  not,  in  any  way,  prejudicially affect the  depositor/subscriber because  on maturity he was being paid  the total  amount  paid  by  him  including  the processing charges  and maintenance charges with interest at the rate  of 10%  on compound basis on the whole amount paid and the  fact that  part of  the amount  raised in first and second instalments  was adjusted  towards processing charges

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and maintenance  charges did not cause any financial loss to the depositor.  According  to  Shri  Chatterjee,  the  total amount of  Rs. 60/-  that was  received by way of processing charges and maintenance charges against the endowment sum of Rs. 1400 was slightly more than 4% of the whole amount. Shri Chatterjee has  also stated  that after  the decision of the High Court and the interim order passed by this Court on May 8, 1995,  Peerless has  started a  new scheme under Table 26 wherein endowment  sum of  Rs. 3500  is payable  on maturity after a  period of  7 years and the yearly instalment is Rs. 500. Rs.  90 is  received along with the first instalment as processing charges  which is not refundable. On maturity the depositor/subscriber not  only gets  the aforesaid endowment sum of  Rs. 3500  but he also gets a guaranteed bonus of Rs. 1717.94, maturity  bonus of  Rs. 200  and a special bonus of Rs. 175.40,  i.e., a  total amount  of Rs.  5593.33.  It  is submitted that,  on maturity,  the  depositor/subscriber  is paid the  sum of  Rs. 3500  in full as well as sum of Rs. 90 paid by  him as  processing charges  and  he  is  also  paid interest at  the rate  of 10% on compound basis per annum on the total  sum of  Rs. 3500  plus Rs.  90 paid by him and an additional amount  of Rs. 200/- is paid as bonus which shows that the  depositor/subscriber is,  in no  way, a  loser  in paying the  processing charges  under the  new  scheme.  The submission is  that the  said sum of Rs. 90 which is paid as processing charges  is less  than 3% of the endowment sum of Rs. 3500,  and that  by charging processing fee of Rs. 90 on the scheme,  Peerless would  be earning  a net profit of Rs. 9.75 crores  on the  total business  of Rs.  750 crores in a year but  if Peerless is restricted to recovering Rs. 10, as per the  proviso to  Paragraph 4A,  it would  be suffering a loss of  Rs. 87.2  crores in a year and that it would not be possible for  Peerless to carry on its business any more and it  will   have  close   down  its   business  resulting  in unemployment of  a large  number of its employees as well as nearly 14  lac field  officers. In support of his submission Shri  Chatterjee   has  placed   strong  reliance   on   the observations of  Chinnappa Reddy  J. in  Peerless I wherein, while permitting  the Bank to take such steps as are open to it in  law to  regulate the  schemes such  as those  run  by Peerless to prevent exploitation of ignorant subscribers, it was observed  that "care  must be taken to protect thousands of its  employees". Shri  Chatterjee has  also  invited  our attention to  Regulation 50  of  the  SEBI  (Mututal  Funds) Regulations 1993, providing for limitation of expenses which enables the  Asset Management  Company to  charge the mutual fund with  its agents’  commission as  part of the recurring expenses and prescribes that "initial expenses in respect of any one  scheme shall not exceed 6% of the fund raised under that scheme".  The submission of Shri Chatterjee is that the amount that  was being  recovered  by  Peerless  by  way  of processing charges and maintenance charges under the earlier scheme in Table 23 and the processing charges that are being raised under  the current  scheme in  Table 26 are much less than 6%.      We are unable to accept these contentions urged by Shri Chatterjee. Similar  submissions were  advanced by  Peerless before this Court in Peerless II wherein it was submitted on behalf of  Peerless that  it was  inherent in  the  business carried on  by Peerless  or  other  similar  residuary  non- banking companies  that the working capital is generated out of the  subscription received  from the  certificate holders and that  certain portion  of subscription  received by  the company was  transferred to  the profit and loss account and the same  was used to defray working capital requirements of

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the company, viz., payment of agents’ commission, management expenses, staff  salaries and  other overheads.  It was also urged that  if Peerless was refrained from doing so, all the agents, officers  and employees of Peerless would lose their jobs and  their  family  members  would  be  thrown  on  the streets. The  said contention was, however, rejected by this Court. It  was observed  that working  capital could  not be mopped up  out of depositors’ money and that for the purpose of entering  this field  of business  a company  should make arrangements on  its own  resources for  working capital and for meeting  the expenses  and it cannot insist on utilising the money of the depositors/subscribers for this purpose. In this context, the Court has mentioned that under Paragraph 5 of the  1987 Directions the minimum rate of interest that is fixed is  10% per annum and that it is common knowledge that in present  times even  the public  sector corporations  and companies and  other financial  and non-financial  companies pay interest  at much  higher rates  ranging from 14% to 18% and that  companies doing  such business  can easily  earn a profit of  4% to  5% on their investments. In the context of Peerless which  is already  in  the  field,  the  Court  has observed that  there is  no possibility  of its closing down the business because it has already large accummulated funds collected by  making profits  in the  past several years and that it  has enough  working capital  in order  to meet  the expenses.  These   observations  made   in  the  context  of Paragraphs 6  and 12  of the  1987  Directions  are  equally applicable in  respect of the directions which are contained in Paragraph  4A introduced in the 1987 Directions by way of notification dated  April 19,  1993, whereby  the  residuary non-banking companies  are prohibited  from  recovering  any amount by  way of  processing charges/maintenance charges or any such  change from  the depositor  and  are  required  to arrange for  the working  capital from  their own resources. The working  of Peerless  and  other  residuary  non-banking companies cannot  be  equated  with  that  of  mutual  funds governed by SEBI (Mutual Funds) Regulations, 1993. Moreover, the schemes  operated by  Peerless are  also not  comparable with those of Mutual Funds. Even as regards the expenses, it may be  stated that under Table 23 Peerless was receiving by way of processing charges and maintenance charges 30% of the first two instalments and under Table 26 it is receiving 18% of the first instalment. It is not disputed that a number of schemes are  discontinued after  the payment  of one  or two instalments and  the subscriber  gets  only  the  amount  of deposit excluding  the processing  charges  and  maintenance charges. The  fact that  processing charges  and maintenance charges raised by Peerless are less than 6% of the endowment sum payable  on maturity cannot, therefore, be the basis for holding that  Paragraph 4A whereby the residuary non-banking companies are prohibited from receiving any amount by way of processing  charges,  maintenance  charges  or  any  similar charge  imposes   unreasonable  restrictions  on  the  right guaranteed under Article 19(1)(g) of the Constitution.      Shri Chaterjee  has next  contended  that  the  maximum amount of  Rs.10 that  has been prescribed in the proviso to Paragraph 4A  is wholly arbitrary and totally inadequate and has no  nexus with the need of working expenses. It has been urged that  from Paragraph  4A itself it is evident that the said amount  of Rs.  10 has been fixed per depositor to meet the cost of brochure/application form, servicing depositors’ account, etc.  and that  servicing depositors’ account means maintenance of  the account of the depositor for a period of 7  years   and  taking   the   cost   of   the   application form/brochure, at  a low  figure of  Rs. 5/-  less than  one

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rupee  would   be  available  per  year  for  servicing  the depositors’ account which would be insufficient to cover the cost of  postage  and  stationery,  including  the  cost  of reminder notices  for renewal  deposits, discharge vouchers, receipt, etc.      Shri Salve has, however, submitted that the said amount of Rs.  10 as  prescribed in  the proviso to Paragraph 4A is meant to  cover the  cost of brochure/application form, etc. and since  the case  of Peerless is that the same cost Rs. 5 only, the  said amount  cannot be  said  to  be  inadequate. According to  Shri Salve, by prescribing the said amount, it is not  the intention  to allow  the residuary  non  banking companies  to  recover  any  sum  for  meeting  the  revenue expenditure of  the residuary  non-banking company including the payment of commission to its agents. Shri Salve has also urged that  no material  was placed  by  Peerless  in  their pleadings to  show that  the fixation  of the said amount is unreasonable or  arbitrary. The  question whether the amount of Rs.  10 that  has  been  prescribed  in  the  proviso  to Paragraph  4A   is  inadequate   to   meet   the   cost   of brochure/application form,  and expenses  servicing  charges for depositors’  account cannot  be gone into in the absence of the  necessary pleadings  and material in support thereof and, therefore, it is not possible to say that the amount of Rs.  10/-  that  has  been  prescribed  in  the  proviso  to Paragraph 4A is arbitrary or unreasonable. Peerless can make a representation  to the  Bank for  the revision of the said amount in  the light  of the expenses that would be incurred by it on brochure/application form and servicing depositors’ account and,  if such  a representation  is made,  the  Bank shall give  due consideration to the same and, if the amount prescribed is found to be inadequate, the Bank should revise the same.      For the reasons aforementioned, we are unable to uphold the judgment  of the  High Court  striking down Paragraph 4A introduced by  notification dated  April 19,  1993.  In  our opinion, it  is within  the competence  of the Bank to issue directions in  the nature  contained in Paragraph 4A and the said provision  is not  violative of  the rights  guaranteed under Articles 14 and 19(1)(g) of the Constitution.      During the  course of  his submissions  Shri  Chaterjee laid emphasis  on the good record of performance of Peerless and has  pointed out that this has also been noticed by this Court in  the earlier  judgments in  Peerless I and Peerless II. Shri  Chatterjee has submitted that having regard to the said record,  the Bank  should grant  exemption to  Peerless from complying  with the  directions contained  in Paragraph 4A. Shri Salve has disputed the said claim of Peerless about its performance  and has invited our attention to the report of Inspection  conducted under  Section 45-N of the Act with respect to the financial position of the company as on March 31, 1993, which refers to violation of various provisions of 1987 Directions.  Shri Chaterjee  has, however, disputed the correctness of  the observations  that have been made in the said report.  We do not propose to go into this question. It is a  matter which  has to  be examined  by the  Bank in the light of the explanation that is offered by Peerless for the violations  referred   to  in  the  Inspection  Report.  The question as  to  whether  exemption  should  be  granted  to Peerless under  Paragraph 19  of the  1987 Directions,  is a matter for  the Bank  to consider  and we do not wish to say anything in that regard.      It  cannot   be  denied   that  residuary   non-banking companies, like  Peerless, play a useful role in the economy by mobilising  savings by tapping that section of the people

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which the  commercial banks  are not able to tap. But at the same time,  it  cannot  be  ignored  that  there  should  be adequate protection  for the  funds  entrusted  to  them  by depositors and  for that  purpose it  is necessary  that the working of  these companies  should be closely monitored and supervised  and  adequate  provisions  should  be  made  for enforcement of  regulatory  provisions  that  are  made  for enforcement of  regulatory provisions  that are made for the protection of the interest of the depositors. Since the Bank is required  to discharge  multi-farious functions, it would not be  in a  position to  devote the  requisite  amount  of attention in  the matter  of monitoring  and supervising the functions of  these companies.  The  Union  Government  may, therefore, consider  whether it would be advisable to create a separate  instrumentality which  may be entrusted with the task  of  supervision  and  enforcement  of  the  provisions regulating the  functioning of  these companies.  The  Union Government may also consider whether the existing provisions need to  be further  strengthened  so  as  to  give  greater protection to  the interests of the depositors. We find that in England  the Banking  Act, 1987  contains provisions  for Deposit  Protection   Scheme  for   the  protection  of  the depositors. It  may  be  considered  whether  provisions  on similar lines could be introduced here.      In the  result, the  appeal is allowed, the judgment of the Calcutta  High Court  dated May  3,  1995  in  C.O.  No. 21038(W) of  1993 is  set aside  and the  said writ petition filed  by   the  respondents   is  dismissed.  But,  in  the circumstances, there is no order as to costs.