* HON’BLE SHRI G.S.SINGHVI, THE CHIEF JUSTICE AND HON’BLE SHRI JUSTICE C.V.NAGARJUNA REDDY +WRIT APPEAL Nos.1053, 1072, 1086, 1095, 1116, 1165, 1213 and 1227 of 2005, WRIT APPEAL (SR) No.103185 of 2006 And WRIT PETITION Nos. 6214 of 2005, 18180, 18553 and 20607 of 2006, 737 and 5329 of 2007. % Dated 10-10-2007 Writ Appeal No.1053 of 2005 and batch # Reserve Bank of India, Central Office, Urban Banks Departments, Mumbai & others. … Petitioners/Appellants VERSUS $ Pattem Surya Prakash Rao and others. … Respondents ! Counsel for the petitioners/appellants: Sri K.G. Kannabhiran Sri E. Manohar for Sri S. Ashok Anand Kumar Sri C.V. Mohan Reddy Advocate General Sri K.V. Bhanu Prasad Sri P. Venugopal Sri K. Rathangapani Sri V. Srinivas Sri K. Narasimha Chari Sri D. Seshadri Naidu ^ Counsel for the respondents : Sri S. Ramchandra Rao for Sri K.R. Prabhakar <GIST: > HEAD NOTE: ? Cases referred 1. AIR 1962 SC 1371 7. (1999) 1 SCC 759 2. (1992) 2 SCC 343 8. (2003) 9 SCC 592 3. AIR 1958 SC 398 9. (2004) 11 SCC 213 4. AIR 1989 SC 997 10.(2006) 8 SCC 200 5. (1994) 6 SCC 651 11.2006 (8) Scale 588 6. (1997) 7 SCC 463 12.(2003) 5 SCC 437 13.2004 (6) ALD 699 14.(1980) 4 SCC 109 HON'BLE SHRI G.S.SINGHVI, THE CHIEF JUSTICE AND HON'BLE SHRI JUSTICE C.V. NAGARJUNA REDDY WRIT APPEAL Nos.1053, 1072, 1086, 1095, 1116, 1165, 1213 and 1227 OF 2005, WRIT APPEAL (SR) No.103185 of 2006 And WRIT PETITION Nos.6214 of 2005, 18180, 18553 and 20607 of 2006, 737 and 5329 of 2007 Writ Appeal No.1053 of 2005 Between: Reserve Bank of India, Central Office, Urban Banks Department, Mumbai. ...Appellant And Pattem Surya Prakash Rao and others. ...Respondents Counsel for the appellant : Sri K. G. Kannabhiran, Senior Advocate with Sri M.P. Ugle. Counsel for respondent No.1 : Sri V. Srinivas Counsel for respondent No.2 : Sri C.V. Mohan Reddy, Advocate General. Counsel for respondent Nos.3 and 4 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Counsel for respondent No.5 : Sri S. Ramachandra Rao, Senior Advocate, assisted by Sri K.R. Prabhakar. Writ Appeal No.1072 of 2005 Between: The Prudential Co-op. Urban Bank Ltd., represented by its Liquidator, Secunderabad. ...Appellant And Depositors’ Association of Prudential Co-op. Bank (Twin Cities), represented by its President, Hyderabad and others. ...Respondents Counsel for the appellants : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Counsel for respondent No.1 : None. Counsel for respondent Nos.2 and 3 : Sri C.V. Mohan Reddy, Advocate General. Writ Appeal No.1086 of 2005 Between: M/s. Prudential Co-op. Bank Ltd., represented by its Liquidator, Secunderabad and another. ...Appellants And Pattem Surya Prakash Rao and others. ...Respondents Counsel for the appellants : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Counsel for respondent No.1 : Sri V. Srinivas Counsel for respondent No.2 : Sri K.G. Kannabhiran, Senior Advocate with Sri M.P. Ugle. Counsel for respondent No.3 : Sri C.V. Mohan Reddy, Advocate General. Writ Appeal No.1095 of 2005 Between: The Commissioner for Co-op. & Registrar of Co-op. Societies, Hyderabad. ...Appellant And Pattem Surya Prakash Rao and others. ...Respondents Counsel for the appellant : Sri C.V. Mohan Reddy, Advocate General. Counsel for respondent No.1 : Sri V. Srinivas Counsel for respondent No.2 : Sri K.G. Kannabhiran, Senior Advocate with Sri M.P. Ugle. Counsel for respondent Nos.3 and 4 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Writ Appeal No.1116 of 2005 Between: Depositors’ Association of Prudential Co-op. Bank (Twin Cities), represented by its President, Hyderabad. ...Appellant And Reserve Bank of India, Central Office, Urban Banks Department, Mumbai and others. ...Respondents Counsel for the appellant : Sri K.V. Bhanu Prasad. Counsel for respondent No.1 : Sri K.G. Kannabhiran, Senior Advocate with Sri M.P. Ugle. Counsel for respondent Nos.2 and 5 : Sri C.V. Mohan Reddy, Advocate General. Counsel for respondent Nos.3 and 4 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Writ Appeal No.1165 of 2005 Between: The Government of Andhra Pradesh, represented by its Principal Secretary, Co-op. & Agriculture Department, Secretariat, Hyderabad and another. ...Appellants And Depositors’ Association of Prudential Co-op. Bank (Twin Cities), represented by its President, Hyderabad and others. ...Respondents Counsel for the appellants : Sri C.V. Mohan Reddy, Advocate General. Counsel for respondent No.1 : Sri K.V. Bhanu Prasad. Counsel for respondent No.2 and 3 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Writ Appeal No.1213 of 2005 Between: Reserve Bank of India, Central Office, Urban Banks Department, Mumbai. ...Appellant And Depositors’ Association of Prudential Co-op. Bank (Twin Cities), represented by its President, Hyderabad and others. ...Respondents Counsel for the appellant : Sri K. G. Kannabhiran, Senior Advocate with Sri M.P. Ugle. Counsel for respondent No.1 : Sri K.V. Bhanu Prasad. Counsel for respondent Nos.2 and 5 : Sri C.V. Mohan Reddy, Advocate General. Counsel for respondent Nos.3 and 4 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Counsel for respondent No.6 : Sri P. Venugopal Writ Appeal No.1227 of 2005 Between: M/s. Hyderabad Tulaman Ltd., Hyderabad, represented by its Managing Director and others. ...Appellants And Depositors’ Association of Prudential Co-op. Bank (Twin Cities), represented by its President, Hyderabad and others. ...Respondents Counsel for the appellants : Sri P. Venugopal Counsel for respondent No.1 : Sri K.V. Bhanu Prasad. Counsel for respondent Nos.2 and 3 : Sri C.V. Mohan Reddy, Advocate General. Counsel for respondent Nos.4 and 5 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Counsel for respondent No.5 : Sri S. Ramachandra Rao, Senior Advocate, assisted by Sri K.R. Prabhakar. Writ Appeal (SR) No.103185 of 2006 Between: Gopal Rao Mukim and another. …Appellants And The Prudential Co-op. Bank Shareholders and Depositors’ Welfare Association, represented by its General Secretary, Secunderabad and others. ...Respondents Counsel for the appellants : Sri K. Rathangapani Reddy Counsel for respondent No.1 : Sri V. Srinivas Counsel for respondent No.2 : Sri P. Venugopal Counsel for respondent No.3 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Writ Petition No.6214 of 2005 Between: The Prudential Co-op. Bank Shareholders and Depositors’ Welfare Association, Secunderabad, represented by its General Secretary. ...Petitioner And Deposit Insurance and Credit Guarantee Corporation, Mumbai, represented by its Managing Director and another. … Respondents Counsel for the petitioner : Sri V. Srinivas Counsel for respondent No.1 : Sri P. Venugopal Counsel for respondent No.2 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Writ Petition No.18180 of 2006 Between: M. Venkat Rao ...Petitioner And The A.P. State Cooperative Tribunal, at Hyderabad through its Chairman and others. …Respondents Counsel for the petitioner : Sri K. Narasimha Chari Counsel for respondent No.1 : None. Counsel for respondent No.2 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Counsel for respondent Nos.3 to 5 : None. Writ Petition No.18553 of 2006 Between: M. Rajasekhar ...Petitioner And The A.P. State Cooperative Tribunal, at Hyderabad through its Chairman and others. …Respondents Counsel for the petitioner : Sri K. Narasimha Chari Counsel for respondent No.1 : None. Counsel for respondent No.2 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Counsel for respondent Nos.3 to 5 : None. Writ Petition No.20607 of 2006 Between: B. Muralidhar ...Petitioner And Reserve Bank of India, Central Office, Urban Banks Department, Mumbai and others. …Respondents Counsel for the petitioners : Sri V. Srinivas Counsel for respondent No.1 : Sri K. G. Kannabhiran, Senior Advocate with Sri M.P. Ugle. Counsel for respondent No.2 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Counsel for respondent No.3 : Sri C.V. Mohan Reddy, Advocate General. Writ Petition No.737 of 2007 Between: The Prudential Co-op. Bank Shareholders and Depositors’ Welfare Association, Secunderabad, represented by its General Secretary. ...Petitioner And Commissioner for Co-operation and Registrar of Co-operative Societies, Hyderabad and another. …Respondents Counsel for the petitioner : Sri V. Srinivas Counsel for respondent No.1 : Sri C.V. Mohan Reddy, Advocate General. Counsel for respondent No.2 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. Writ Petition No.5329 of 2007 Between: G. Somasekhara Rao ...Petitioner And Commissioner for Co-operation and Registrar of Co-operative Societies, Hyderabad and another. …Respondents Counsel for the petitioner : Sri D. Seshadri Naidu Counsel for respondent No.1 : Sri C.V. Mohan Reddy, Advocate General. Counsel for respondent No.2 : Sri E. Manohar, Senior Advocate with Sri S. Ashok Anand Kumar. :: COMMON JUDGMENT :: 10th October, 2007 Per C.V.NAGARJUNA REDDY, J. Introduction: This batch of 15 cases involves common issues and hence, they are disposed of by a common judgment. Writ Appeal No.1053 of 2005 is filed by the Reserve Bank of India (for short “the RBI”) against common order of the learned Single Judge in Writ Petition No.23156 of 2004. The learned Single Judge disposed of the said writ petition alongwith Writ Petition No.24346 of 2004, 2501 of 2005 and W.P.M.P.No.2333 of 2005 in Writ Petition No.23156 of 2004. Writ Appeal No.1072 of 2005 is filed by M/s.Prudential Cooperative Bank Limited (for short ‘the Bank’) and the Official Liquidator against common order in Writ Petition No.2501 of 2005. Writ Appeal No.1086 of 2005 is filed by Bank and the Official Liquidator against common order in Writ Petition No.23156 of 2004. Writ Appeal No.1095 of 2005 is filed by the Commissioner and Registrar of Cooperative Societies (for short “the Registrar”) against the common order in Writ Petition No.23156 of 2004. Writ Appeal No.1116 of 2005 is filed by the Depositors Association of Prudential Cooperative Bank (twin cities) (represented by its President K.Srinivasulu) against Writ Petition No.24346 of 2004, being partly aggrieved by the order of the learned single judge in not disposing of the issue relating to the validity of cancellation of licence of the Bank by the RBI. Writ Appeal No.1165 of 2005 is filed by the Government of Andhra Pradesh and the Commissioner and Registrar of Cooperative Societies against the common order in Writ Petition No.2501 of 2005. Writ Appeal No.1213 of 2005 is filed by the RBI against common order in Writ Petition No.24346 of 2004. Writ Appeal No.1227 of 2005 is filed with leave against the common order in Writ Petition No.2501 of 2004 by M/s.Hyderabad Tulaman Limited and Others (borrowers). Writ Appeal (SR) No.103185 of 2006 is filed by two individual depositors against the order of the learned Single Judge in Writ Petition No.6214 of 2005. Writ Petition No.6214 of 2005 is filed by the Depositors Welfare Association of the Bank whereunder the petitioner inter alia sought for a direction to the Official Liquidator of the Bank not to disburse the loan amounts till it received a sum of Rs.250 Crores towards insurance from the 1st respondent therein. W.P.M.P.No.30259 of 2005 in W.P.No.6214 of 2005 is filed by the Bank through its Liquidator to review the order dated 26.4.2005 passed in Writ Petition No.6214 of 2005. Writ Petition No.18180 of 2006 and Writ Petition No.18553 of 2006 are filed against the interlocutory orders of the Andhra Pradesh Cooperative Tribunal, Hyderabad whereby it rejected the preliminary objections raised by the petitioners on the maintainability of the Original Petitions filed by the Bank for recovery of the loan amount. These two writ petitions are referred by the learned Single Judge to the Bench on the representation made on behalf of the petitioners that they are seeking to settle the dispute under OTS scheme, in view of the fact that the Batch of cases in which OTS scheme is one of the issues involved, is pending before the Division Bench. Writ Petition No.20607 of 2006 is filed by two individual depositors of the Bank questioning the approval dated 10.11.2005 given by the RBI for One Time Settlement (OTS) Scheme formulated by the State of Andhra Pradesh. Writ Petition No.737 of 2007 is filed by some of the Depositors of the Bank questioning the OTS scheme of 2007 introduced by the State of Andhra Pradesh. Writ petition No.5329 of 2007 is filed by an individual seeking implementation of OTS scheme 2007 framed by the Liquidator of the Bank with the approval of the Registrar. The Background: The Bank was registered as a Co-operative Society on 5.4.1921 and later on it was converted into a Mutually Aided Cooperative Society under the provisions of Andhra Pradesh Mutually Aided Cooperative Societies Act 1995 (for short ‘the 1995 Act’) on 9.4.1997. On 23.9.1998 it was granted licence to carry on banking business under Section 22 of the Banking Regulation Act 1949 (for short ‘the 1949 Act’). As a part of its annual inspection, the RBI conducted its XXII statutory inspection of the books of accounts of the Bank between 2.5.2002 and 27.5.2002 with reference to the latter’s financial position as on 31.3.2002. The inspection report revealed deteriorating financial position of the Bank and its violation of the various provisions of the 1949 Act and directions issued thereunder. The report also revealed the Bank’s failure to repay the matured deposits. After supplying the inspection report to the Bank and noticing the further deterioration of financial position of the Bank, the RBI classified the Bank as “sick Bank”. After taking certain measures such as advising the Bank to draw up an action plan etc., the RBI superseded the Board of Directors on 21.3.2003 and appointed an administrator. After conducting its XXIII Statutory inspection of the Bank between 29.9.2003 and 31.10.2003 with reference to the Bank’s financial position as on 30.6.2003, the RBI was satisfied that the Bank’s financial position was precarious and its non-performing assets (NPAs) were at alarming levels. The RBI pointed out defects and communicated the same to the Bank on 30.11.2003. The compliance report dated 10.2.2004 sent by the Bank was not found to be satisfactory by the RBI. After holding its XXIV statutory inspection by the RBI with reference to the Bank’s financial position as on 30.6.2004, a show cause notice dated 29.9.2004 was issued by the RBI under Section 22 of the 1949 Act. The Bank submitted its explanation dated 12.10.2004 and the RBI having not found the explanation satisfactory passed its order dated 3.12.2004 whereby it cancelled the Banks’ licence. The RBI also vide its order dated 3.12.2003 requested the Commissioner and Registrar of Cooperative Societies (for short ‘the Registrar’) to make an order for winding up of the Bank and appointed a Liquidator in terms of Section 36-A of the 1995 Act read with Section 115-B (ii) of the Andhra Pradesh Cooperative Societies Act 1964 (for short ‘the 1964 Act’) and Section 13-D of Depositors Insurance and Credit Guarantee Corporation Act 1961 (for short ‘the 1961 Act’). Accordingly, the Registrar vide his proceedings dated 7.12.2004 issued directions for winding up of the Bank and appointed Sri V.Amrender Rao, Joint Register/Managing Director of A.P.State Cooperative Union Limited, Hyderabad as Liquidator under the 1995 Act. The Liquidator assumed charge on 8.12.2004. One Pattem Suryaprakash Rao, s/o.late Pattem Venkateshwar Rao, claiming to be a shareholder of the Bank, holding shares worth Rs.3,000/- and also holding deposits to a tune of Rs.4.50 lakhs in his name and another sum of Rs.6.00 lakhs jointly with Kumari K.Amrutha, filed Writ Petition No.23156 of 2004 for a writ of mandamus to quash the proceedings dated 6.12.2004 of the RBI whereby the licence of the Bank was cancelled. He also filed W.P.M.P.No.2333 of 2005 to suspend proceedings dated 24.1.2005 issued by the Registrar appointing the Liquidator. An association by name Depositors Welfare Association of Prudential Cooperative Bank (twin cities) through its President Sri K.Srinivasulu filed W.P.No.24346 of 2004 for a similar relief as was sought in W.P.No.23156 of 2004. The said association also filed Writ Petition No.2501 of 2005 for a writ of mandamus to quash the consequential proceedings dated 24.1.2005 issued by the Registrar, appointing Liquidator. These two writ petitions and the above mentioned W.P.M.P., were heard by the learned Single Judge and disposed of vide common order dated 5.5.2005. The order under challenge: The learned Single Judge in his common order impugned in this batch of writ appeals, framed the following points for consideration: “ 1. Whether the writ petitions questioning the order of RBI cancelling the Banking Licence of the Bank, when an appeal filed under Section 22(5) of the Act is pending before the Central Government is maintainable? 2. Whether appointment of a Liquidator to the Bank by the RBI to wind up the Bank is not valid? 3. Whether the OTS scheme impugned is not valid?” On point No.1, the learned Judge held that the writ petitions, to the extent of challenging the order of RBI cancelling the banking licence of the Bank are not maintainable in view of the filing of the appeal by the person in charge of the Bank under Section 22(4) of 1949 Act and its pendency before the Government of India. The learned Judge while so holding gave liberty to the writ petitioners to get impleaded as parties to the appeal before the Central Government and to pursue the further remedies open to them depending on the result of the appeal. On point No.2, the learned Judge held that the RBI should not have passed an order for winding up of a Cooperative Bank simultaneously or alongwith an order cancelling licence. He also held that if at all the RBI desires that the Bank shall be wound up after cancellation of its licence, it has to issue a show cause notice to the cooperative bank concerned to enable its members to discuss among themselves on the course of action and that since no such notice was given, the order of RBI directing winding up of the bank without issuing a notice to the Bank and the consequential order passed by the Registrar without following the procedure prescribed either in the 1995 Act or in the 1964 Act are liable to be set aside and accordingly they were set aside. On point No.3, the learned Judge held that the decision to introduce OTS scheme was taken by the State Government with an intention to help the “big debtors” of the Bank and that since the Government has no power to direct introduction of OTS scheme in the Bank, the scheme was liable to be set aside and it was accordingly set aside. We have heard Sri K.G.Kannabiran, learned Senior Counsel assisted by Sri M.P.Ugle for RBI, Sri C.V.Mohan Reddy, learned Advocate General for the State Government and the Registrar, Sri E.Manoher, learned Senior Counsel assisted by Sri Ashok Anand Kumar, for the Liquidator of the Bank, Sri S.Ramchandra Rao, learned Senior Counsel assisted by Sri B.Srinivas for respondent No.5 in Writ Appeal No.1053 of 2005, Sri P.Venugopal for the applicant in W.A.M.P.No.729 of 2007 in Writ Appeal No.1213 of 2005 and Sri V.Srinivas for respondent No.1 in Writ Appeal No.1053 of 2005 and Batch and also for writ petitioners in Writ Petition No.6214 of 2005, W.P.No.20607 of 2006 and W.P.No.737 of 2007. Before proceeding further, it is necessary to point out that during the hearing of these cases, on the submissions made by Sri Vedula Srinivas that the Government of India while disposing of the appeal filed against the order of cancellation of licence failed to give an opportunity of personal hearing to the appellant, we have summoned the record from the Central Government which was produced by Sri A.Rajasekhar Reddy, learned Assistant Solicitor General. On perusal of the record we were satisfied that a fair opportunity was indeed given by the Central Government - the appellate authority before passing order dated 08.11.2005 and when we pointed out the same to the learned counsel, he submitted that since the order of the appellate authority does not contain detailed reasons and to avoid multiplicity of proceedings, this Court may, independent of the order passed by the Government of India in appeal, decide the issue of validity of cancellation of licence by the RBI. All the learned counsel appearing for the parties in this batch of cases agreed for the said course. Therefore, with the consent of all the learned counsel we have heard their submissions on merits on the validity of the decision of the RBI cancelling the Bank’s license, though the learned Single Judge refrained from going into the said issue on the ground of pendency of appeal before the Central Government. Contentions: Though Sri Kannabiran commenced the arguments in this batch of cases, in view of the issue of the validity of the cancellation of the Bank’s licence having to be decided by us as the learned Judge has not adjudicated the said issue, we permitted Sri Vedula Srinivas to make his submissions to substantiate his challenge to the order of cancellation of the Bank’s licence. Accordingly, he made his submissions followed by the learned counsel appearing for the respective parties including the learned Advocate General. Sri Vedula Srinivas advanced the following contentions: 1. The RBI while cancelling the licence invoked the provisions of Sections 11, 18 and 24 of the 1949 Act which are made inapplicable to the Bank by virtue of Section 56(za) read with Section 36-A of the 1949 Act as it has been prohibited or precluded from accepting deposits by virtue of earlier orders passed by the RBI. 2. The order of the RBI cancelling licence is vitiated on the ground of its consideration of irrelevant aspects and its failure to consider the relevant aspects. 3. The RBI failed to consider that the Bank’s financial position was not irretrievable, in that, its asset position is clearly on a higher side as against the deposits to be repaid and that mere inability of the Bank to immediately repay the deposits is not a justifiable ground for cancellation of licence. 4. The RBI acted hastily in directing winding up of the Bank on 3.12.2004 itself even before cancelling the Bank’s licence and this action prevented the Bank from exhausting the remedy of filing a statutory appeal under Section 22(5) of the 1949 Act. 5. The action of the Registrar in winding up the Bank without following the procedure under Section 64 and 115-B of the 1964 Act is illegal. That, Section 115-B prescribed procedure for winding up of an eligible cooperative bank. Under Section 64 the Registrar shall issue a notice to the society before passing the order for winding up of the Bank. As this procedure is not followed, the order of the Registrar winding up the Bank cannot be sustained. 6. The RBI indulged in discrimination by not cancelling the Bank’s licence while not doing so in respect of the Charminar Co-operative Bank and Vasavi Co-operative Bank which were also more or less similarly situated to that of the Bank. 7. The OTS schemes periodically introduced by the RBI or the State Government or the Registrar, as the case may be, are to the detriment of the Banks’ interests; that the reduction of rate of interest as originally agreed by the borrowers from the date of disbursement of loan itself is contrary to the RBI guidelines besides being in violation of Section 115-B of the 1964 Act under which prior approval of the RBI is mandatory. 8. The State Government treated the Bank differently from the Charminar Co-operative Bank and Vasavi Co-operative Bank in whose cases it obtained prior approval of the RBI for implementation of the OTS scheme, while no such approval is obtained in the case of the Bank. Sri Vedula Srinivas supplemented his arguments with brief written submissions. Sri K.G.Kannabiran, learned senior counsel appearing for the appellant (RBI) in W.A.No.1053 of 2005 made the following submissions: 1. the decision of the RBI to cancel the banking licence of the Bank was taken in the best interest of the depositors. 2. the RBI after a thorough satisfaction arrived at by a series of inspections and the reports that the affairs of the Bank are being conducted in a manner detrimental to the interests of its present and future depositors and that public interest would be