Case: Indian Bank Association., Bombay  Vs. M/S.Devkala Consultancy Services

3. Interest Tax Act was enacted by the Parliament w.e.f. 1.8.1974 with an object of imposing tax on the total amount of interest received by Scheduled Banks/ Credit Institutions on loans and advances. It, however, was withdrawn in the year 1978, but reintroduced in the year 1980, whereafter it was again withdrawn in the year 1985. The said tax, however, was reintroduced w.e.f. 1.10.1991 by reason of Finance Act, 1991. The Reserve Bank of India by its Circular letter dated 2.9.1991 advised all the Scheduled Commercial Banks that the incidence of interest tax should pro rata be passed on the borrowers wherefor a uniform practice should be followed in consultation with the First Appellant herein4. The first appellant purported to be acting pursuant to or in furtherance of the said circular as also with a view to formulate a structure of uniform interest rate chargeable after including the interest tax payable, which was passed on to the borrowers by the concerned banks, advised them that the rate of interest be loaded with interest tax of 3% and rounded up to the next higher 0.25%. Such rounding up was allegedly found necessary allegedly on account of grossing up involved in calculating the incidence of tax, the Reserve Bank of India purportedly gave its approval to the proposal of the first appellant in terms of its letter dated 22.4.1993. Other appellants herein followed the said purported policy5. The aforementioned action on the part of the appellants herein came to be questioned by the respondents in a public interest litigation filed before the Karnataka High Court, inter alia, on the ground that such purported rounding up is illegal and without jurisdiction as thereby the tax element came to be increased and as a result thereof the banks collected additional sums of Rs. 723.79 crores annually by way of resorting to round up on the basis thereof6. The appellants herein inter alia contended that such rounding up of interest was done by way of enhancement of the rate of interest which is permissible. Such a matter, the appellants contended, being contractual in nature, the writ petition was not maintainable7. The High Court of Karnataka by reason of its impugned judgment dated 18.12.1998 rejected the said contention and found the action on the part of the appellants herein illegal and consequently issued the following directionsThe Writ Petition is allowed. Rule issued is made absolute. The action of thes in rounding up interest rates to the next higher 0.25% is held illegal, arbitrary and untenable. A command is issued to all the Banks to submit an account of the excess interest collected by them from the borrowers and deposit the same with the Reserve Bank of India to be debited in the account of the Union of India, The Reserve Bank of IndiaRespondent No.2 is directed to take immediate effective steps for implementation of our directions by calculating the excess interest collected by the Banks and ensuring the same to be deposited in the funds of the Union of India8. The appellants herein are before us questioning the said judgment.

Court's reasoning:
Keeping in view the fact that there are five crores borrowers throughout India, it may not be feasible to comply with the directions issued by the High Court21. It merely prevails over an agreement under which any term loan has been sanctioned by the credit institution before the 1st day of October, 1991. It was lawful for the credit institution to vary the agreement as regard rate of interest only for the purpose of recovering the amount of tax which was payable by the Appellants and a fortiorinothing over and above the same. Such increase in rate of interest would be (a) to the extent to which such institution is liable to pay the interest tax; (b) in relation to the amount of interest on the term loan; and (c) which is due to the credit institution22. Increase in rate of interest in terms of Section 26C of the Act, the thus, has a direct nexus with the statutory impost. The action on the part of the appellants in rounding up of the interest, thus, was wholly unjustified. Once it is held that increase in interest in a justifiable manner pertains to passing of the burden of tax, the contention that the same had been done by the bank in exercise of its contractual power must be rejected. A taxing statute must be construed reasonably. Nothing can be realised by way of tax or akin thereto which has not been authorised by the Parliament23. The Executive cannot levy tax. It, for the said purpose, therefore, cannot even take recourse to the process of interpretation of a statute27. A plain reading of Section 26C of the Act leaves no manner of doubt that the same was enacted only for a limited purpose, namely, to pass on the burden of tax to the borrowers. The amount of tax must be calculated having regard to the contractual rate of interested as thence obtaining and not upon in addition of the purported interest by way of tax or otherwise. Once Section 26C is read in a meaningful way, no difficulty arises in giving effect ton (2) of Section 4 and Section 5 and 6 of the Act. If the provisions of the Act are read in a manner in which we have made an endeavour, for an amount of Rs. 100/charged and the rate of interest charged by the bank being 10%, the interest thereon having been earned would come to Rs. 10, and, thus, the borrower would be bound to pay only Rs. 10.30 and not Rs. 10.50, which is said to be the effect of calculation at various steps as referred to by the appellants. The appellants are, thus, not correct to contend that they have exercised the power to claim a higher rate of interest only. They may have a power to claim a higher rate of interest under the agreement but they did not exercise the said jurisdiction. They invoked the enabling provisions contained in Section 26C of the Act and/ or raised rate of interest so as to pass on the burden of tax upon the borrowers. They, while purporting to exercise their jurisdiction under a statute were required to act in terms thereof and not in derogation thereto. The appellants sought to achieve the same object indirectly which they could not de directlyd that when a procedure has been laid down the statutory authority, it must exercise its power in the manner prescribed or not at all32. It is not a matter which would not receive the attention of anybody. Not only a public interest litigation was filed but also the association of borrowers of Karnataka has also filed a Special Leave Petition. The amount collected from the borrowers may be negligible for the appellant banks but the amount they have realised from five crores of borrowers is not a small one. By reason of ad confusion, misconception as regard application of a statute and misapplication and misconstruction thereof by the appellants herein had resulted in an illegal action; as a result whereof the borrowers have been deprived of a huge amount. Consequently the Union of India and the appellants have unjustly enriched themselves. When such an unjust enrichment takes place, the doctrine of de minimis, in our view, should not be applied in equity of otherwiseWhile entertaining a public interest litigation, this Court in exercise of its jurisdiction under Article 32 of the Constitution of India and the High Courts under Article 226 thereof are entitled to entertain a petition moved by a person having knowledge in the subject matter of lis and, thus, having an interest, therein as contradistinguished from a busy body, in the welfare of the people. The rule of locus has been relaxed by the courts for such purposes with a view to enable a citizen of India to approach the courts to vindicate legal injury or legal wrong caused to a section of people by way of violation of any statutory or constitutional right36. We, therefore, do not agree with the submissions of the learned counsel of the appellants that the respondent had no locus to maintain the public interest litigation or the writ petition filed by him pro bono publico before the High Court was not maintainable40. It is not in dispute that action on the part of the appellants in grossing up of interest was not at all relevant. The appellants could not have suo motu taken recourse to rounding up to interest for the purpose of obtaining a higher amount of interest or otherwise. The purported practical difficulty sought to have been put forth by the appellants is a self created one. If such practical difficulty existed there was apparently no reason as to why the Reserve Bank of India refused to grant such approval since 199741. In any view of the matter, the purported directions contained in the letter dated 2.9.1991 of the Reserve Bank of India are not even in the nature of the executive construction under the said Act. It was not binding on the banks, far less on the borrowers. In any event by reason of a misplaced and misapplied construction of statute, a third party cannot suffer42. Furthermore, having regard to the provisions contained in Article 265 of the Constitution of India read with Article 366(28) thereof the purported demand from the borrower for a higher amount of tax and consequently a higher amount of interest by way of rounding up was wholly illegal and without jurisdiction. We also fail to understand as to why in this modern electronics age, this difficulty would be encountered while calculating the exact amount of tax43. We, therefore, are of the opinion that the purported approval granted by the Reserve Bank of India was wholly without jurisdiction and ultra vires the provisions of the said Act50. We have noticed hereinbefore that the Reserve Bank of India could not have interpreted the provisions of the said Act nor thereby could have empowered the banks to charge something more from the borrowers by the process of rounding up of interest. The appellants and the Reserve Bank of India with a view to touching the end of their own shadows in the guise of exercise of their contractual powerss Banking Regulation Act exceeded their jurisdiction in recovering the tax imposed on them by way of interest under the Parliamentary Act51. For the reasons aforementioned, we are of the opinion that the impugned judgment cannot be faulted with. However, the matter does not end there. The question which looms large is what effective order can be passed by this Court. More than five crores of borrowers are involved. A huge sum of money is to be recovered from Union of India as also a large number of banks. Directions may be issued for refund of the amount to the borrowers, but implementation thereof would take a long time. The court may not be able to effectively monitor such recovery52. The Union of India, as noticed hereinbefore, had proposed that the banks concerned be directed to deposit the excess recovered by it, if no direction is issued by us that the same be returned to the borrowers. Interestingly, the Union of India has not volunteered, which as a State it should have done, to suo motu undertake the exercise of identifying the borrowers and refund the excess amount recovered, a part whereof had been deposited by way of interest tax by the concerned, banks. Furthermore, directing the Union of India to refund the excess amount collected through the banks and consequently ask the banks to refund the same to the borrowers whether with the amount retained by them by way of rounding up of interest invariably would take a long time53. We, therefore, are of the opinion that a fund may be created for the benefit of the disadvantaged people57. We are also not oblivious that the Parliament enacted the The National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 providing for constitution of a National Trust which would provide for maintenance allowance for persons with disabilities the object being to enable the disabled persons to live independently within the community, to deal with problems of such persons who do not have family support, to facilitate the realisation of equal opportunities protection of rights, full participation of such persons; to evolve a procedure for appointment of guardians or trustees for such persons requiring protection58. We are, furthermore aware the Ministry of Social Justice and Empowerment had taken had taken the following actions to implement the provisions of the aforementioned Acts:n Committee as per Section 3 of the Act(ii) Notification of Central Executive Committee as per Section 9 of the Act(iii) Creation of post of Chief Commissioner, Deputy Chief Commissioner, and Staff for Office of Chief Commissioner(iv) Five core groups of experts and officials of relevant Ministries have been set up to make recommendations and formulate schemes to give effect to various provisions of the Act. These are (a) Group on Prevention Early Detection and Intervention, (b) Vocational training and employment, includingl education; (d) Barrier free environment; (e) Women and children with disabilities(v) National Fund for People with Disabilities set up on 11/08/1983 has been activated and assistance has been sanctioned tot agencies, 17 projects have been sanctioned under the schemethe Viklang Bandhu has been formulated to provide training to disabled volunteers(vii) A National Programme for Rehabilitation of Persons with Disabilities has been submitted to the Planning Commission for establishment of infrastructure for realizing the Act. The Programme contemplates the establishment of a District Level Rehabilitation Centre, twoe rehabilitation workers at the Block/PHC level; two community based rehabilitation workers at the Gram Panchayat level(viii) To support entrepreneurial activity by the disabled, the National Handicapped Finance and Development Corporation has been operationalised with effect from 24/10/1997(ix) The proposal for the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities with a corpus fund of Rs, 1000 crores has been approved by the Cabinet59. This Court as also the High Courts have takene views in the matter of implementation of the rights of the disabled63. Despite the progressive stance of the Court and the initiatives taken by the Government, the implementation of the Disabilities Act is far from satisfactory. The disabled are victims of discrimination in spite of the beneficial provisions of the Act64. We are, therefore, of the opinion that in a larger interest a fund for the aforementioned purpose should be created with the amount at the hands of the Union of India and the Appellants and other concerned Banks, which may be managed by the Comptroller and Auditor General of India65. We would request the Comptroller and Auditor General of India to effect recoveries of all the excess amount realised by the Union of India by way of interest tax and interest by the banks and other financial institutions and create the corpus of such fund therefrom. The appellant and other concerned banks are also hereby directed to contribute to the extent of Rs. 50 lakhs each in the said fund68. The Committee as also the Committees set up by the Central Government should act in close cooperation with each other. The Committee may, if it thinks proper, invest any amount in the Trust set up by the Central Government under the 1999 Act or any other scheme framed by the Central Government, as noticed hereinbefore69. The trustees aforementioned with a view to give effect to this order may frame an appropriate scheme. In case of any difficulty they may approach this Court for any other or further order/orders or direction/directions70. The Central Government, however, with a view to implement the aforementioned provisions may be amending the 1995 Act provide for creation of such a fund and in such an event, the statutory authority, if any, would be entitled to take over the corpus of the fund but so long no legislative step is taken in this behalf, this order shall remain in force.