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Judgment
Ms. K.Mamata Choudary, learned Senior Counsel representing Mr. Challa Gunaranjan, learned counsel for the petitioners.
Mr. Gadi Praveen Kumar, learned Deputy Solicitor General of India for respondent No.1.
Mr. B.Nalin Kumar, learned Senior Counsel for respondent No.2.
In this writ petition, petitioner No.1 is a private limited company. The petitioners (hereinafter referred to as ‘petitioner company’) have assailed the constitutional validity of Chapters IIIB, IIIC and V of the Reserve Bank of India Act, 1934 (briefly referred to hereinafter as ‘the Act’) insofar as it restricts the petitioner company from carrying on the business of acquisition of shares, stocks, bonds and other securities with its wholly owned funds on the ground that the same is arbitrary, illegal, unconstitutional and violative of Articles 14 and 19(1)(g) of the Constitution of India. In the alternative, the petitioner company has prayed for the relief that the provisions of Chapters IIIB, IIIC and V of the Act do not apply to the petitioner company.
Facts giving rise to filing of this petition briefly stated are that the petitioner company is a private limited company. The petitioner company neither receives any deposits or contributions from the public nor has undertaken lending/financing business in any manner. The petitioner company invests in equity and accruals in sister concerns and listed securities/mutual funds.
The petitioner company submitted an application on 03.07.1997 for issuance of certificate of registration under Section 45-IA(1) of the Act. The petitioner company by a communication dated 10.07.2000 informed the Reserve Bank of India that it is not engaged in the business of non-banking financial company and also tendered a resolution dated 03.07.2000 stating that it will not accept deposits from the public without prior regulatory approval. However, by an order dated 04.01.2003, the application submitted by the petitioner company was not processed. Thereupon, the petitioner company has filed this writ petition seeking the relief supra.
Learned Senior Counsel for the petitioner company submitted that the petitioner company is “not a non-banking financial company” as defined under Section 45-I(f) of the Act as it is neither a financial institution nor a company which has its principal business of receiving the deposits and lending in any manner. It is further submitted that the petitioner company is also not a financial institution. Therefore, neither the provisions of Chapter IIIB nor Chapter IIIC of the Act apply to the case of the petitioner company. Alternatively, it is contended that in case provisions of Chapter IIIB of the Act are held to be applicable to the petitioner company, it is ultra vires the rights of the petitioner company under Articles 14, 19(1)(g) and 19(6) of the Constitution of India.
In support of the aforesaid submissions, reliance has been placed on the following decisions:
i. National Insurance Company Limited v. Kirpal Singh (2014) 5 SCC 189
ii. Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. (1987) 1 SCC 424
iii. M.K. Ranganathan v. Government of Madras (1955) 2 SCR 374
iv. The South Gujarat Roofing Tiles Manufacturers Association v. The State of Gujarat (1976) 4 SCC 601
v. State of Orissa v. State of A.P. (2006) 9 SCC 591
vi. Philips Medical Systems (Cleveland) Inc. v. Indian MRI Diagnostic and Research Limited (2008) 10 SCC 227
vii. Chintamanrao v. State of Madhya Pradesh 1950 SCC OnLine SC 34
viii. Anuradha Bhasin v. Union of India (2020) 3 SCC 637
ix. R.M.D. Chamarbaugwalla v. Union of India AIR 1957 SC 628
On the other hand, learned counsel for respondent No.2 has submitted that the provisions of Chapter IIIB of the Act apply to financial institution as well as non-banking financial institution. It is further submitted that the petitioner is a non-banking financial company, which is covered by Section 45-I(f) of the Act. However, it is fairly submitted by learned counsel for respondent No.2 that the provisions of Chapter IIIC of the Act do not apply to the case of the petitioner company as the petitioner company is neither an individual nor an association of persons. It is further submitted that Chapter V of the Act provides for consequences of non-compliance of the provisions contained in Chapters IIIB and IIIC of the Act. It is further submitted that the petitioner company is complying with the provisions of Section 45-I(c) of the Act as the petitioner company has filed income tax returns for the years 2020-21, 2021-22 and 2022-23, in which it is clearly indicated that the petitioner company is maintaining the reserve funds. It is further submitted that the provisions of the Act do not suffer from any infirmity.
We have considered the rival submissions made on both sides and have perused the record.
Before proceeding further, it is apposite to take note of the relevant provisions of the Act. The Reserve Bank of India is an Act to establish the National Bank for Financing Infrastructure and Development to support the development of long term non-recourse infrastructure financing in the country including development of bonds and derivatives, markets necessary for infrastructure financing and to carry on the business of financing infrastructure and in the matters acting incidental or ancillary thereto. Chapter IIIB of the Act contains the provisions relating to non-banking institutions receiving deposits and financial institutions. Section 45-I of the Act which deals with definition is relevant for the purposes of controversy involved in this petition. The relevant extract of Section 45-I of the Act reads as under:
“Section 45-I. Definitions.- In this Chapter, unless the context otherwise requires,-
(c) “financial institution” means any non-banking institution which carries on as its business or part of its business any of the following activities, namely:--
(i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own;
(ii) the acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature;
(iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire-Purchase Act, 1972 (26 of 1972);
(iv) the carrying on of any class of insurance business;
(v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto;
(vi) collecting, for any purpose or under any scheme or arrangement by whatever name called, monies in lump sum or otherwise, by way of subscriptions or by sale of units, or other instruments or in any other manner and awarding prizes or gifts, whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person,
but does not include any institution, which carries on as its principal business,-
(a) agricultural operations; or
(aa) industrial activity; or
(b) the purchase, or sale of any goods (other than securities) or the providing of any services; or
(c) the purchase, construction or sale of immovable property, so, however, that no portion of the income of the institution is derived from the financing of purchases, constructions or sales of immovable property by other persons;
Explanation.-For the purposes of this clause, “industrial activity” means any activity specified in sub-clauses (i) to
(xviii) of clause (c) of section 2 of the Industrial Development Bank of India Act, 1964 (18 of 1964);
(f) “non-banking financial company” means-
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner;
(iii) such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify.”
Section 45-IA of the Act deals with requirement of registration and net owned fund.
The petitioner company is a financial institution which includes any non-banking institution which carries on business of acquisition of shares, stocks, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature. Merely because the petitioner company does not deal with securities issued by a Government or local authority or other marketable securities of a like nature, it will not cease to be a financial institution as defined under Section 45-I(c) of the Act. The petitioner company admittedly deals with the acquisition of shares, stocks and bonds and therefore is covered under Section 45-I of the Act. The contention that the provisions of Chapter IIIB of the Act do not apply to the case of the petitioner company is therefore misconceived.
Admittedly, the provisions of Chapter IIIC of the Act do not apply to the case of the petitioner company as the petitioner company is neither the individual nor an association of individuals. Chapter V of the Act provides for consequences of non-compliance with provisions of Chapters IIIB and IIIC of the Act. The provisions of Chapter IIIB of the Act apply to the case of the petitioner company and therefore, in case petitioner company does not comply with the provisions contained in Chapter IIIB of the Act, the consequences prescribed in Chapter V of the Act will ensue.
It is trite law that a party invoking protection of Article 14 of the Constitution of India has to make an averment with details to sustain such a plea and has to adduce material to establish the allegations made and the burden is on the party to plead and prove that its right under Article 14 of the Constitution of India has been infringed.
(See State of Uttar Pradesh v. Kartar Singh AIR 1964 SC 1135 and Dantuluri Ram Raju v. State of Andhra Pradesh (1972) 1 SCC 421). It is equally well settled legal proposition that in the absence of any pleading, the challenge to the constitutional validity of a provision has to be rejected in limine (See State of Haryana v. State of Punjab (2004) 12 SCC 673).
In the background of the aforesaid well settled legal principles, we may advert to the pleadings made in the writ petition at paragraphs 14 and 15, in which the challenge has been made to the provisions of the Act. Paragraphs 14 and 15 of the writ petition read as follows:
“14. It is submitted that placing restrictions on a company engaged in investments in shares, stocks, bonds, debentures and other marketable securities with its own money without accepting any deposits is arbitrary illegal and unconstitutional. It is submitted that in so far as individuals, partnerships and associations of persons are concerned there is no restriction imposed by Section 45-IA for carrying on business of acquiring and trading in shares, stocks, bonds, debentures and other marketable securities. However, pursuant to the amendment Act unreasonable restriction are being imposed on the petitioner company i.e, the petitioner company has been called upon to increase its net owned fund to Rs. 25 lakhs and also to obtain a certificate under Section 45-1A for carrying on business of acquiring and trading in shares, stocks, bonds, debentures and other marketable securities with its own money. It is submitted that the RBI has through various letter referred to herein above called upon the petitioner company to increase its net own fund to Rs. 25 lakhs or wind up the company. The above action of the respondents is arbitrary, illegal and violative of the rights guaranteed under Article 14 and 19(1)(g) of the Constitution of India.
It is submitted that the provisions of Chapter IIIB and IIIC of the RBI Act, 1934 have to be interpreted so as to exclude from within its purview companies engaged in the business of holding shares in its group/associate companies and also companies purchasing shares in other companies from out of its own funds as otherwise the said provisions of Chapter IIIB and IIIC imposing a restriction that the company shall own a minimum net owned fund to carry on the business of holding shares in its group/associate companies and also companies purchasing shares in other companies from out of its own funds is unreasonable, arbitrary, and violative petitioner’s rights guaranteed under Article 14 and 19(1)(g) of the Constitution of India.”
Thus, it is evident that the petitioner company has not laid any foundation to challenge the provisions of Chapters IIIB, IIIC and V of the Act. The petitioner company has a fundamental right to carry on the business, but the same can be regulated in exercise of powers under Article 19(2) of the Constitution of India.
Therefore, we do not find any force in the submission that the provisions of Chapters IIIB, IIIC and V of the Act are violative of petitioner company’s rights guaranteed under Articles 14, 19(1)(g) and 19(6) of the Constitution of India.
For the aforementioned reasons, we do not find any merit in the petition. The same fails and is hereby dismissed. No costs.
As a sequel, miscellaneous petitions, pending if any, stand closed.