Case: State Bank of Travancore Vs. Goodland Plantations Private Limited

2. The facts are undisputed and may be briefly stated. The plaintiff, viz., the Goodland Plantations (P) Ltd., (hereinafter referred to as the Company) became a subscriber to a monthly chitty run by the Kottayam Orient Bank Limited (the Orient Bank for short) as foreman. The Company was to pay, like all other subscribers, a sum of Rs. 20, 0 00/in 50 monthly installments of Rs. 400/each. The conduct of the chitty was governed by variola exhibit, apart from the various provisions of the Chitties Act. The chitty started on the 10th of September, 1960, when the Company paid the first installment due from it. Three other installments were paid by the Company on1960 and0 to the foreman. On the date last mentioned, an auction was held for the prize amount for which the Company was declared to be the successful bidder, it having elected to accept a sum of Rs. 11, 075/in lieu of the full amount of Rs. 20,. The prize amount was to be paid to the Company a month later, i.e., on the 10th of January, 1961, (when the fifth installment was to become payable) subject to the Company furnishing security for the continued performance of its part of the variola in future. However, before that stage was reached, the Central Government, on the 17th of December, 1960, imposed a moratorium on the Orient Bank under section 45 (2) ofthe Banking Regulation Act, 1949, (hereinafter referred to as the Banking Act) with the consequence that the Orient Bank had to suspend all business/activity. The moratorium was enforced originally for the period ending with the 18th of March, 1961, which was later on extended upto the 16th of June, 1961, (exhibits2 and. The suspension of business resulted in the conduct of the chitty being discontinued so that undern (2) of section 39 of the Chitties Act read with section 41 thereof as also clause (14) of the variola, the chitty stood terminated and the Orient Bank in its capacity as the foreman of the chitty incurred the obligation to pay back all the contributions made bynonprizedsubscribers.On the 16th of May, 1961, the Central Government sanctioned undern (7) of section 45 of the Banking Act a Scheme prepared by the Reserve Bank of India unders (4) to (6) of that section for the amalgamation of the Orient Bank with the State Bank of Travancore (hereinafter called the Travancore Bank). The Scheme provided inter alia that all the assets and liabilities of the Orient Bank would stand transferred to the Travancore Bank with effect from the 17th of June, 1961. In relation to chitties the Scheme laid down:"If the transferor bank was acting immediately before the prescribed date as a foreman in respect of any kuri or chitty as defined in the Travancore Chitties Act (XXVI of 1120) or the Cochin Kuries Regulation (VII of 1107) the rights, duties and obligations in relation to the kuri or chitty shall be regulated in accordance with the following provisions, namely,(i) the transferee bank shall become the foreman of the kuri or chitty and shall continue to exercise all powers and to do all such acts and things as would have been exercised or done by the transferor bank, in so far as they are not in consistent with this scheme;(ii) the funds, if any, of the kuri or chitty lent to or deposited with the transferor bank, or otherwise due from that bank to the kuri or chitty shall be transferred to the transferee bank, and the liabilities corresponding to such funds shall also be payable by the transferee bank in accordance with the other provisions of this scheme;(iii) if on the prescribed date the transferor bank in its capacity as the foreman of any kuri or chitty has deposited any security for the due performance of its duties and obligations in relation to the sa id kuri or chitty, the said security shall continue to be available for the purposes for which it was intended, but shall if and to the extent that it is subsequently released be transferred to and vest in the transferee bank provided that the said security or as the case may be, the surplus, if any, after providing for the discharge of the duties or obligations in respect of the kuri or chitty shall be valued and utilised for the purposes of this scheme."Later on it was realised that the Travancore Bank would not be able to continue the chitties for which the Orient Bank had acted as foreman earlier because those chitties had terminated owing to the failure of the Orient Bank to continue to conduct them by reason of the moratorium and in order to cross this hurdle the Central Government passed another order dated the 4th of December, 1961, which was described as the Kottayam Orient Bank Limited (Amalgamation with the State Bank of Travancore) (Removal of Difficulties) Order, 1961. That order (hereinafter called the impugned order) was passed undern (10) of section 45 of the Banking Act and its relevant portion is extracted below:"2. Notwithstanding anything contained in the Travancore Chitties Act or the Cochin Kuries Regulation, the suspension of any kuri or chitty for the period from the 18th December, 1960, to the 31st December, 1961, or for any part o f that period and any consequent prolongation of the kuri or chitty shall have effect as though the articles in the variola(s) were altered or added to for that purpose by special resolution(s) of the subscribers of the kuri or chitties and as though the relevant provisions, if any, of the Travancore Chitties Act or the Cochin Kuries Regulation were complied with, and notwithstanding anything contained in the Travancore Chitties Act or the Cochin Kuries regulation, the failure of the foreman to conduct the kuri or chitty during the said period shall not be deemed to have terminated the kuri or chitty.""3. Notwithstanding anything contained in t he variola (s) the period fixed for the duration of the kuri or chitty shall be deemed to have been extended by the period referred to in 2 above.""4. Notwithstanding anything contained in theTravancore Chitties Act or the Cochin Kuries Regulation, theState Bank shall continue the kuri or chitty as if the provisions, if any of the said Act or the said Regulation relating to continuance of the kuri or chitty have been complied with.""5. All the words and expressions used herein but not defined shall have the meanings respectively assigned to them in the Travancore Chitties Act, or as the case may be, the Cochin Kuries Regulation."By another order dated the 15th of January, 1962, (exhibit) the impugned order was amended so that the words "the 31st March, 1962" were substituted for the words "31st of December, 1961" occurring in paragraph 2 thereofThe effect of the impugned order as amended by order exhibit4 was to obliterate the termination of the chitties as resulting from the suspension thereof by reason of the moratorium during the period from the 18th of December, 1960, to the 31st of March, 1962, and to enable the Travancore Bank to continue those chitties as if there had been no suspension thereof at any point of time so that they could be continued as if the relevant provisions of the Chitties Act and the relevant variolas had throughout been complied with3. The litigation started with a suit instituted by the Company on the 6th of December, 1961, claiming refund of the four installments paid by it along with interest. No reference was made in the plaint to the impugned order presumably because the Company had no knowledge of the existence thereof as it had been passed only a couple of days before the suit was filed. The claim of the Company was based on the averment that the Orient Bank had failed to conduct the chitty to which the Company had subscribed, that the chitty had come to a termination by reason of the default made by the Orient Bank, that the Orient Bank had in consequence become liable for payment back to the Company of the installments deposited by it and that the Travancore Bank (the sole defendant) had inherited the liability of the Orient Bank.The suit was resisted on the strength of the impugned order (as amended by order exhibit) but the vires of that order w ere challenged by the Company on whose behalf it was urged that the impugned order did not fall within the ambit ofn (10) of section 45 of the Banking Act and that in any case thatn itself was constitutionally invalid inasmuch as its enactment amounted to an abdication of the legislative power which, under Article 245 of the Constitution of India, vested in Parliament and in Parliament alone4. The suit was originally filed in the Court of the Munsif at Kottayam but was transferred by the High Court to its own file in 1963 because the constitutional validity ofn (10) of section 45 of the Banking Act was questioned5. The suit was dismissed by Raman Nayar, J., who held that the impugned order fell squarely within the scope ofn (10) of section 45 of the Banking Act, whichn also did not suffer, according to the learned judge, from the infirmity of excessive delegation.n (1 0) states:"If any difficulty arises in giving effect to the provisions of the scheme, the Central Government may by order do anything not inconsistent with such provisions which appears to it necessary or expedient for the purpose of removing the difficulty."Raman Nayar, J., noted that the three requirements of the"(1) that a difficulty should arise in giving effect to the provisions of the scheme;(2) that the order to be made must be such as appears to the Central Government to be necessary or expedient for the purpose of removing the difficulty; and(3) that the order must not be inconsistent with any of the provisions of the scheme":and found that all three of them were amply satisfied in the present case. In his view the object of the Scheme promulgated by the Central Government on the 16th of May, 1961, undern (7) of section 35 of the Banking Ac t was that the Travancore Bank should take over the business of the chitties earlier run by the Orient Bank and conduct the same to a "successful conclusion". However, that object, according to the learned Judge, could not be achieved as the Scheme di d not provide for an obliteration of the termination of the said chitties which had already taken place undern (2) of section 38 of the Chitties Act read withn (2) of section 39 thereof and the provisions contained in the variolas. The learned Judge was clearly of the opinion therefore that a difficulty had arisen in giving effect to the provisions of the Scheme which was sought to be remedied by the impugned order. The argument that the Scheme did not envisage the continuation of the chitties by the Travancore Bank, that all that the Scheme provided for was that the rights and obligations of the orient Bank in relation to the chitties stood transferred to the Travancore Bank and that in consequence, the latter became liable for the return of the amounts deposited by the subscribers with the Orient Bank, was turned down by the learned Judge with the following observations:"It is no use saying that the defendant Bank could have had no difficulty in accepting that the chitty had terminated and paying off the unprized subscribers. For, that would not be to work the scheme which clearly contemplates that the defendant bank should run the chitties to a successful conclusion. The difficulty that stood in the way of this being done was certainly a difficulty in giving effect to the provisions of the Scheme"For repelling the contention put forward on behalf of the Company about the constitutional invalidity ofn (10) of section 45 of the Banking Act, the learned Judge relied on In re Art. 143 Constitution of India, etc.(1) and Rajnarain Singh v. Chairman, P.A. Committee (2)6. Against the dismissal of its suit, the Company instituted the appeal which was accepted by the Division Bench through the judgment challenged before us. Isaac, J., speaking for himself and Pillai, J., disagreed with the learned trial Judge as to the object of the Scheme of amalgamation and observed that in so far as the chitties were concerned, there was nothing in the Scheme to show that such object was to run them to a successful conclusion. He was further of the opinion that there was no difficulty at all in the way of the Scheme, as originally promulgated, being given effect to In this connection he remarked:"There is no difficulty in paying the amount. The difficulty is only for not paying it; and what was achieved by exhibits3 and4 was the creation of that difficulty. What exhibit3 provides is that the period during which the chitty was not conducted would be treated as a period of suspension of the chitty by a special resolution of the subscribers. The result of that provision was that the right of the plaintiff to get from the defendant the amount subscribed to the chitty was taken away and substituted with a liability to draw the prize amount on furnishing security for payment of future installments. This is a provision which is clearly inconsistent with the provisions of the Scheme. Exhibits3 and4 are, therefore in my view beyond the scope of the power conferred on the Central Government undern (10) of section 45 of the Banking Companies Act."In regard to the question of constitutional validity ofn (10), however, the Division Bench concurred with the learned trial Judge and held thatn (10) did not suffer from excessive delegation of legislative powerAllowing the appeal, the Division Bench decreed the suit with costs of the proceedings in both the courts.

Reasoning: These pervasive provisions embraced within their ambit a complete transfer of all rights and liabilities of whatever nature, of the Orient Bank to the Travancore Bank and no special provision was therefore needed to be included in the Scheme in regard to chitties if they were not to be continued to a "successful conclusion". As it is, the portion of paragraph 2 extracted by us earlier did provide for chitties on a special footing which could not have been the case if the rights and liabilities of the Orient Bank in regard to chitties were sought to be transferred to the Travancore Bank on the basis of the termination of the chitties which h ad already become operative because of the moratorium and as a consequence of suspension of the chitty business by the Orient Bank. Nor was it necessary to provide in clause (1) occurring in paragraph 2 of the Scheme that "the transferee bank shall become the foreman.. and shall continue to exercise all powers and to do all such acts and things as would have been exercise or done by the transferor bank.." if the chitties were to be dealt with as having come to a termination. The special provision for the chitty business in the Scheme cannot be regarded as redundant and it was obviously made with a purpose which, in the circumstances of the case, could be nothing more or less than to provide for the continuation of the chitties in supersession of their termination. No other reasonable explanation of that special provision appears to us possible. And if that be so, the entire reasoning adopted in the impugned judgment for arriving at the conclusion that the impugned order was beyond the scope ofn (10) of section 45 of the Banking Act would become unacceptable; for, in that case, the difficulty which the impugned order sought to overcome would become very real so that the Central Government would be fully competent under the provisions of thatn to pass an order removing that difficulty and the order actually passed could not be considered to be inconsistent with the provisions of the Scheme to any extent or in any manner.