Source: http://www.rishabhdara.com/sc/view.php?case=7884
Timestamp: 2020-07-05 22:33:38
Document Index: 491004667

Matched Legal Cases: ['Art. 19', 'Art. 19', 'Art. 19', 'Application No.\n1281', 'Art. 32', 'Art.\t136', 'Art.\t14', 'Art. 14', 'Art. 19', 'Art. 32', 'Art.\n226', 'Art. 19', 'Art. 14', 'Art. 32', 'Art. 226', 'Art. 19', 'Art. 19', 'Art. 32', 'Art. 226', 'Art.\t226', 'Art. 14', 'Art.\t19', 'Art. 19', 'Art. 19', 'Art. 32', 'Art. 19', 'Art. 226', 'Art. 285', 'Art. 19', 'Art. 226', 'Art. 14', 'Art. 38', 'Art. 46', 'Art.\t13']

DELHI CLOTH AND GENERAL MILLS, versus UNION OF INDIA,
1983 AIR 937	1983 SCR (3) 438 1983 SCC (4) 166	1983 SCALE (2)16
DELHI CLOTH AND GENERAL MILLS, V. UNION OF INDIA, [1983] RD-SC 83 (21 July 1983)
CITATION: 1983 AIR 937	1983 SCR (3) 438 1983 SCC (4) 166	1983 SCALE (2)16
RF	1992 SC1033	(31)
Companies Act, 1956-S. 58A-Companies (Acceptance of Deposit) Rules, 1975-R 3A-Imposition of obligation on Companies inviting/accepting deposits from public to deposit or invest 10 per cent of deposits maturing during the year with a	Scheduled bank	or in government securities,	etc.
Section 58A of the Companies Act, 1956 confers power on the Central Government to	prescribe inter alia	the conditions subject to which deposits	may be	invited or accepted by a	company	either	from public or from	its members. Sub-rule (1) of r. 3A of the Companies (Acceptance of Deposits) Rules, 1975 obligates	a company inviting deposits to deposit or invest, before the 30th day of April of each year, a sum which shall not be less than 10 per cent of the	amount of its deposits	maturing during the	year ending on the 31st day of March next following, according to any one	or more of the methods set out in that sub-rule.
Sub-rule (2) of r. 3A lays down that the amount so deposited or invested shall not be used for any purpose other than for repayment of deposits maturing	during the year referred to in sub-r. (1).
The petitioners/appellants	challenged	the constitutional validity	of both s. 58A and r. 3A mainly on the ground that the obligation imposed by r. 3A contravened the rights guaranteed under Arts. 14 and 19(1) (g).
The respondents raised a	preliminary objection to the maintainability of the writ petitions on the ground that an incorporated company,	being	not a	citizen, could	not complain of denial or	deprivation of the fundamental right guaranteed by Art. 19(1) (g) and that the situation was not improved by joining either a shareholder or a director as co-petitioner.
Dismissing the petitions and appeals, ^
HELD: 1. (a) Rule 3A which makes it obligatory to keep 10 percent of the deposits maturing in a year provides one of the	conditions subject to which deposits can be invited or accepted and, indisputably, s. 58A confers power on the.
Central Government to prescribe by rules the conditions subject to which deposits can be invited or	accepted by companies. This	provision of 10 per cent deposit ensures repayment of deposits maturing	in the year and in order to enable the company to	meet its obligation, a provision is made in sub-r. (2) of r. 3A itself that the amount deposited or invested under sub-r. (1) shall not be utilised for any purpose other than for repayment of deposits maturing during the year referred 439 to in sub-r. (1). This necessarily implies that the 10 per cent deposit can be utilised for refunding the deposits maturing in a year and that in order to provide the company with liquid finance to meet its obligation, the provision of compulsory deposit is introduced. The contention that the protection afforded to the depositors by rule 3A is neither adequate nor sufficient and therefore of doubtful utility and accordingly	must be rejected as arbitrary cannot be accepted. It is true that the provision is not so effective as to ensure every depositor whose deposit is maturing in the year to be fully paid out of the deposit amount. But no regulatory or	protective measure can be	rejected as arbitrary on the short ground that it fails to fully protect the person for whose benefit it is enacted.	Nor can	the contention that	having	regard	to the numerous in-built safeguards in	s. 58A, the imposition of 10 per	cent compulsory deposit under r. 3A is in excess of requirements of protection to depositors and is therefore unnecessary be accepted. No legal step can	be said to be final or unnecessary because social control has inevitably to follow to defuse abuses of economic power. Undoubtedly, depositors with a	company, unless otherwise indicated, would be unsecured creditors and in the event	of winding up of the company, secured creditors and preferential creditors would score a march over them in the distribution of the assets of the company.	But every measure cannot be viewed or interpreted in	the event of a	catastrophe overtaking	the company. One has to view the	immediate object in view to achieve which the provision is made and not	its remote consequences.
[459 F-460 A; 460 D] (b) There	cannot be any quarrel	with the proposition that where power is conferred to effectuate a purpose and for that end in view to impose conditions, the conditions to be valid must fairly and reasonably relate to the object sought to be achieved. The power conferred by s. 58A on the Central Government to prescribe the limits upto which, the manner in which and the conditions subject to which deposits may be	invited or accepted by	non-banking companies had a definite object, namely, to check the	abuse	of economic power by the corporate sector and to protect the depositors.
It cannot be said that the conditions prescribed by	the Deposit Rules are so irrelevant or have no reasonable nexus to the objects sought	to be achieved as to be arbitrary.
These rules do operate	to extend a measure of protection against the notorious	abuses	of economic power by	the corporate sector. [463 E-H] Pyks Granaide Co. v. Ministry of	Housing and Local Govt. &	Anr, [1958] I All England Reports 625; and Chertsey Urban District	Council v. Mixnam's Properties Ltd., [1965] A.C. 735 referred to.
(c) It is clearly discernible from the marginal note of r. 3A that the	requirement of	10 per	cent deposit is a measure to ensure that	part of the funds of a company are kept as	liquid	assets	available for	use for specified purpose. Even when the money is kept in deposit, it remains the property of the company and available for its use albeit as provided in the statute. It is well-known that economic planning may provide for earmarked funds and if by voluntary self-discipline	and sound economic planning financial viability is not maintained, a Welfare State with planned economy may impose statutory discipline in larger public interest. Such	disciplinary	measures cannot be termed deprivatory in character. [461 C-E] 440 (d) The contention that since r. 3A cannot extend even a semblance of protection to the depositor has to be viewed in the	wider spectrum of regulation of credit system of the country, control of circulation of money in the economy and imposition of financial discipline on the corporate sector and that when so viewed it would be clearly ultra vires s.
58A being far in excess of the requirements of that section, ought to be rejected on the short ground that r. 3A does extend some protection to the depositor howsoever minimal it may be. When	viewed	in the	context of various other provisions devised to extend protection to depositors it does play a small but effective part.
[464 F-H] (e) The contention that the proviso to r. 3A (1) is retrospective in operation inasmuch as it requires that in relation to deposits maturing	during the year ending 31-3- 1979 the sum required	to be deposited under that sub-rule shall be deposited before 30-9-1978 irrespective of the fact that such deposits might have been accepted prior to the coming into force of r. 3A and hence r. 3A is ultra vires s.
58A cannot be accepted. A statute is not properly called a retroactive statute because a part of the requisites for its action is drawn from a time antecedent to its passing.
Viewed from this angle the provision can be properly called prospective and not retroactive. [466 C-G] D. S. Nakara v. Union of	India, [1983]	1 S.C.C. 305 referred to.
(f) The contention that the exclusionary clause to the definition of 'deposit' contained in the Rules has been so widely worded that only private sector companies have been arbitrarily signed out for regulatory treatment overlooks the object and purpose	underlying the	enactment of s. 58A and the	Rules made thereunder. It is regulatory measure to checkmate the abuses to which private	sector corporations are prone to. If this object is	kept in view,	the exclusionary clause explains itself. [468 H-469 B]
2. (a) Even prior	to the	introduction of s. 58A, the Reserve Bank of India	had been empowered to	regulate the acceptance and	repayment of	deposits by	non-banking companies. It is manifest from the Statement of Objects and Reasons	appended to	the 1974 Amendment	Act which incorporated s. 58A	in the Companies Act that	the legislature, having become aware that the regulatory measures introduced by the Reserve Bank had not effectively protected the depositors, felt	that the needs of the time necessitated introduction of statutory	provisions enabling the Central Government to	take effective measures.
Experience had	shown that deposits taken by companies were not being refunded on due dates and in many cases either the companies had gone into liquidation or had no funds to refund the deposits. Section 58A, amongst various other things, was designed to introduce some measure of control over the non-banking	companies inviting and accepting deposits in the ultimate interest of the depositors and to meet cases of abuse or distortion of the system. The section must receive its legitimate construction in the back-drop of this fact situation. The interpretation has to be such as to achieve the purpose of imposing a measure of social control to remedy the mischief, to suppress which the provision was enacted. Company is not a field of legislation in which finality is to be expected, as the law falls to be applied to a growing and challenging subject matter and growing use of the company system as an 441 instrument of business and finances and the possibilities of abuse inherent in that system. A vigilant Parliament keeping a close watch over	this corporate sector wielding considerate economic power has	to take steps by doses to eradicate the abuses of economic power. [458 D-459 E; 462 E] (b) The charge of	excessive delegation of essential legislative functions is wholly untenable. The policy is do definite and the guidelines are available from the history of the	legislation and	the Companies Act taken as a whole.
The policy is	the gradual, ever-widening and effective control of the corporate sector so as to ensure a measure of protection to the persons dealing with it and to minimise the abuses of economic	power by that sector. The wisdom of the policy is not for the Court to examine. And in economic legislation, the Court should feel more inclined to judicial deference to legislative judgment. The Deposit Rules have been framed in exercise of power conferred under ss. 58A and 642, and s. 642 requires that every rule framed in exercise of the	power conferred	by it	must be	placed before	each House of Parliament for a period of thirty days and both Houses have power to suggest modification in the proposed rules. This control of Parliament is sufficient to check any transgression of permissible limits of delegated legislation by the delegate.
Prag Ice & Oil	Mills & Anr. v. Union of India, [1978] 3 S.C.R. 292; R. C. Cooper v. Union of India, [1970] 3 S.C.R.
530; D.S. Garewal v. State of	Punjab & Anr., [1959] Supp.
S.C.R. 792, referred to.
(c) Parliament had the legislative competence to enact s. 58A.	Applying the doctrine of pith and substance, s. 58A which is incorporated in the Companies Act is referable to Entries 43 and 44 in the Union List and the enactment viewed as a whole cannot be said to be legislation	on "money- lenders and money-lending" or being referable to Entry 30 in the State List. [466 B, A] A.S. Krishna v. State of Madras,	[1957] S.C.R.	399;
Ishwari Khaitan	Sugar Mills v. U.P. State, [1980] 3 S.C.R.
331; Union of India v. H.S. Dhillon, [1972]	2 S.C.R. 33;
Kerala State Electricity Board v. Indian Aluminium Company, [1976] 1 S.C.R. 552; and State of Karnataka	v. Ranganath Reddy, [1978] 1 S.C.R. 641, referred to.
3. The objection that a company, being not a citizen, cannot complain of denial of the fundamental right conferred by Art. 19(1) (g), is an of treated contention whenever the petitioner is an incorporated	company but the law in this behalf is in a nebulous state; that apart, the trend is in the direction of holding that in the matter of fundamental freedoms guaranteed by Art. 19 the rights of a shareholder and the	company which	the shareholders have	formed	are rather co-extensive and the denial to one of the fundamental freedom would be denial to the other. It is time to put an end to	this controversy but in the present state of law the petitions cannot be thrown out at the threshold. [451 C-G, 453 A-E] State Trading Corporation of India Ltd. v. Commercial Tax Officer,	Vishakhapatnam	[1964]	4 S.C.R. 99;	Tata Engineering and Locomotive Company v.
442 State of Bihar, [1964]	6 S.C.R. 885; R. C. Cooper v. Union of India, [1970] 3 S.C.R. 530; and Bennett Coleman and Co.
v. Union of India, [1973] 2 S.C.R. 757, referred to.
1981 S.C. 1368; and Western Coal Fields Ltd. v. Special Area Development Authority,	A.I.R. 1982 S.C. 697 not relevant to the contention raised.
ORIGINAL JURISDICTION : W.P. Nos. 1637, 1733, 1933-35, 1952, 1961-62,	1963-64, 2002-03, 2007, 2021, 2085, 2109-12, 2114, 2189, 2837, 3131, 3354, 3643, 4233, 4681, 5723, 7447, 7624 of	1981 &	2628, 2835, 3471, 4310, 4382, 4385, 8513, 2404, 2748, 5507, 5508, 2499, 2748 & 9341 of 1982.
From the Judgment and Order dated the 5th December, 1980 of	the Gujarat High Court in Special Civil Application Nos. 1138 to 1148, 1150, 1151, 1153-1155, 1166-67, 1170, 1928 of	1978, 868-869	of 1980, 1152, 2503 of 1978, 1252/80 and 1186, 1863, 1149, 1187, 1185, 1128, 1188, 1184 & 1190 of 1978.
AND Civil Appeal No. 1535 of 1981 From the Judgment and Order dated the 15th April, 1981 of the	Gujarat High Court in Special Civil Application No.
1281 of 1981.
Appeal by	Special leave from the	Judgment and Order dated the 9th July, 1979 of the Allahabad High Court in Civil Mis. W.P. No. 8426 of 1978.
O.P. Malhotra, Harish Salve, P.H. Parekh and Divyang K.
Chhaya in WP. Nos. 2085 and 3131 of 1981.
R.P. Bhatt, Ravinder Narain, O.C. Mathur, Mrs.	A.K.
Verma, Talat Ansari, D.N. Mishra. Miss Meera	Mathur	and Sukumaran in WP. No. 1935 of 1981.
Harish Salve, Ravinder Narain, O.C. Mathur and	D.N.
Misra in WP. No. 1733/81.
O.C. Mathur, D.N. Mishra,	Sukumaran, Sanjay, Mrs. A.K Verma and Miss Meera Mathur in WP. Nos. 1933, 1934, 1952, 2002, 3643, 7643, 7624 of 1981.
A.N. Haksar, O.C. Mathur., Mrs. A.K Verma, Sukumaran, Miss Meera Mathur, Ravinder Narain and Sanjay in WP. No.
2021 of 1981.
P.C. Cokhale, B.R. Agarwala and	Miss Vijayalakshmi Menon in WP. No. 2007 of 1981.
C.A. Shah,	Srikumar and Mr. M.N.	Shroff in WP. Nos.
D.N. Mishra in CA. Nos. 850-52 and 1535	and 1091 of 1981.
P.C. Bkartari in	CA. Nos. 769-773, 854, 941	and 1417/81.
L.N. Sinha, Attorney General, MsA. Subhashini and P.P.
The Judgment of the Court was delivered by DESAI, J. In this group of writ petitions under Art. 32 and appeals by special leave under Art.	136 of	the Constitution, constitutional validity of Rule	3A of	the Companies (Acceptance of Deposit) Rules, 1975 ('Deposits Rules' for short) introduced by Companies (Acceptance of Deposits) Amendment Rules, 1978 which became operative from April 1, 1978 and incidentally of sec. 58A of the Companies Act, 1956 ('Act' for short) inserted by Companies (Amendment) Act, 1974 which came into force on February 1, 1975 is challenged. The challenge proceeds	on diverse grounds which may be briefly summarised.
The contention put in the forefront was that in the absence of guidelines both sec. 58A and the Rule 3A of the Deposits Rules enacted in exercise of the power conferred by sec. 58A confer arbitrary and uncanalised powers and hence are violative of Art.	14. Contravention of Art. 14	was canvassed for the additional reason that the power to exempt from the application of the rule confers wide discretion so that it	can be used arbitrarily to pick and choose with the result that equality before law is denied.	Further	the obligation to deposit 10% of the deposits maturing during the year ending 31st March next following has no rational nexus to the object sought to be achieved by the provisions and is either in excess of the requirement or irrelevant and in any	case arbitrary.	The next in order of priority came the challenge that having regard to the numerous inbuilt safeguards provided hl sec.	58A, the imposition of a liability to deposit 10% of the total deposits maturing in a year in	the manner as required by the impugned rule, if it was enacted for the protection of the depositors,	the protection is illusory and does not subserve the purpose for which it is enacted and therefore, requirement is wholly unreasonable and imposes an unreasonable restriction on the freedom to carry on business conferred by Art. 19 (1)(g). As a corrolary, it was submitted that if Rule 3A is enacted not for the	limited purpose of protecting depositors, but has a wider aim particularly with regard to	the regulation of credit system of the country, control	of circulation of money in India's economy and imposing financial discipline, it is clearly ultra vires sec. 58A. As a second string to the bow, it was contended that if	sec. 58A enacts a legislative policy, a rule framed to	carry out the policy must be relevant to the implementation of the policy so laid down, but the provision contained in	Rule 3A	is neither relevant nor capable of being	regarded as relevant	for implementation of the policy and therefore, it is ultra vires sec. 58A.
Mr. S.T. Desai, who appeared in	some matters further contended that	if sec. 58A is widely construed to encompass the mode or manner of utilisation of	the funds of	the company which will include the deposits made with	the company, obviously sec. 58A	itself will	be rendered unconstitutional as transgressing the permissible limits of delegated legislation	and it would appear that	the Legislature was guilty of abdication of its essential legislative 446 functions. It was said that Rule 3A cannot be saved as a regulatory measure because the regulatory measure	must subserve some purpose	which Rule 3A	fails	to achieve, namely,	protection of	depositors and in examining	the matter, the Court should eschew a dogmatic or doctrinaire approach.
Mr. O.P. Malhotra, learned counsel appearing in some matters raised	an additional contention that Parliament did not have legislative competence to enact sec. 58A and ipso facto Rule 3A because the legislation is referable to Entry 30 in the State List: Money lending	and money lenders;
Mr. G.A. Shah, appearing	in some	matters raised an additional contention	that	to the extent limited retrospectivity is given to Rule 3A, it is ultra vires sec.
Mr. A. Subba Rao,	learned counsel appearing in	some other matters canvassed one more contention when he urged that the obligation to deposit 10% of the amount of deposits maturing in the year constitutes temporary deprivation of property without any countervailing obligation or benefit and therefore it is ultra vires the Constitution.
The learned Attorney General appearing for the Union of India raised a preliminary objection that the writ petitions under Art. 32 or those filed	in the High Court under Art.
226 were not maintainable because the incorporated company being not a citizen, freedom guaranteed by Art. 19 (1) (g) is not secured to it, and situation would not b. improved by merely impleading a Director or a shareholder as one of the petitioners because company has a juristic	personality independent of	the shareholders and the Directors and trade or business carried on	by the company cannot be said to be the trade or	business carried on by the	Director or Shareholders. And to keep Art. 14 out of the way, it was urged that it is merely a facade to invoke the jurisdiction of this	Court. It was next urged that sec. 58A enacts a legislative policy, and wisdom or necessity of the policy is in the	domain of the Legislature and the Court R never undertakes to	examine	the wisdom or otherwise of	the legislative policy. Proceeding along this line, it was said that if Rule 3A is enacted for the implementation of the legislative policy, the Court	is precluded from examining the wisdom or otherwise of the 447 policy; because legislature is the best Judge in this behalf. It was urged that the charge of excessive delegation is unsustainable because the legislative policy underlying the provision was devised after consulting and obtaining guidance of an expert	body like the Reserve Bank' of India and the	relevant rules	were placed before the Parliament which had complete control over the rules and exemption or exclusionary clause can be properly implemented because of the guidance available from the scheme of the Act as also the purpose and object underlying the impugned provision. An alternative submission was that the Court need not undertake the examination	of the	validity of the exemption provision because it is severable and its invalidity will not affect the rest of the scheme if it was otherwise valid. In answer to the contention whether the impugned rule has nexus to the objects sought	to be achieved and the effectiveness of the rule, it was submitted	that firstly sec. 58A must receive such interpretation as	would	suppress the mischief	and advance the remedy. It	was pointed out that	the mischief which was sought to be remedied is clearly discernible from the Statement of objects and Reasons	as also the notes on clauses published while introducing 1974 Amendment Act. It was next urged that if the rule imposes a restriction on the fundamental freedom to carry on trade or business, the same is reasonable because it is of a regulatory nature enacted with a	view to protecting depositors coming from a socially and economically weaker section who may be tempted by the alluring promises made in an advertisement inviting depoists with no umbrella of protection when the company folds up its tent; becomes sick and	in winding-up, the depositor has to stand in a queue as an unsecured creditor. It was lastly submitted that even if it can be said that there was limited retrospectivity, the same is permissible because the mere fact that a part of the requisite for the application of the rule is	derived from an anterior date by itself will not make it retrospective.
Before we	examine the various contentions summarised here, a	brief review of the relevant provisions of the Act and the Deposits Rules would be advantageous. The Companies Act. 1956 was enacted	to consolidate	and amend the	law relating to companies and certain other associations. Sec.
58A was	introduced by	the Companies (Amendment) Act, 1974.
The relevant portion of sec. 58A is extracted hereunder:- "58A: Deposits not to be invited	without issuing an advertisement: (1) .......
448 (2) No company shall invite, or allow any other person to invite or	cause to be invited on its behalf any deposit unless:- (a) such deposit	is invited or is caused to be invited in accordance with the rules made under sub-sec. (1) and (b) an	advertisement,	including herein a statement showing the financial position of the company, has been issued by the company in such form and in such manner as	may be prescribed.
(3)(a) Every deposit accepted by a company at any time before the commencement of the Companies (Amendment	Act,	1974 in accordance with the directions made by the Reserve Bank of	Indian under Chapter III B of the Reserve Bank of India Act, 1934	(2 of 1934), shall, unless renewed in accordance with clause (b) be repaid in accordance with the terms of such deposit .
(b) No deposit referred to in . clause (a) be renewed by	the company after the	expiry of the term thereof unless the deposit is such that it could have	been accepted	if the rules made under sub-sec. (I) were in force at the time when the deposit was initially accepted by the Company.
(c) Where, before the commencement	of the companies (Amendment) Act, 1974,	any deposit was received by a company in	contravention	of any direction made under Chapter III of the Reserve Bank of India Act, 1934 (2 of 1934), repayment of such deposit shall be made in full on or before the 1st day of April, 1975 and	such repayment shall be without prejudice to any action that may be taken under the Reserve Bank of India Act, 1934 for the	acceptance of such deposit in contravention of such direction.
(4) Where any deposit is	accepted by a Company after the commencement of the Companies (Amendment Act, 1974, in	contravention	of the rules made under sub- 449 section (1), repayment of	such deposit shall be made by the company within thirty days from the date of acceptance of such deposit or within such further time, not exceeding thirty days,	as the Central Government	may, on sufficient cause being shown by the company, allow.
(7) (a) Nothing contained in this	section shall apply to:- (i) a banking company, or (ii) such other company was the Central Government may, after consultation with the Reserve Bank of	India, specify in this behalf.
(b) Except the	provisions relating to advertisement contained in clause (b) of sub- section (2),	nothing in this section shall apply to such classes of financial companies as the Central Government may,	after consultation with the Reserve Bank of India, specify in this behalf." In exercise of power conferred by sec. 58A read with sec. 642 of	the Act, Central Government	enacted	and promulgated the	Companies (acceptance	of Deposits) Rules, 1975. Rule 2B defines 'deposit' to mean any deposit of money with, and included any	amount borrowed by a	company; but does not include what	is set out in subclauses (i) to (x).
Rule 3	prescribes conditions subject to which the deposits may be	accepted. Deposits against unsecured debentures or deposits from share-holders of a public company or deposits guaranteed by any person, who at the time of giving	the guarantee, is a director of the company, together	with short-term deposits, if any, accepted shall not exceed 10% of the paid-up capital and free reserves of the company. Any deposit other than those mentioned herein before shall not exceed 25% of the paid-up capital and free reserves of the company. No deposit for a term less than six months	and exceeding thirty-six months can be accepted save what is called short-term deposit as set out in the proviso to rule 3(1)(b). A ceiling on	the rate of interest was imposed at 15% per annum (See 450 rule 3). Then comes Rule 3A which is	the centre of this fierce controversy. It may be reproduced in extenso:
(1) Every company shall, before the 30th day of April of each year deposit or invest, as the case may be, a sum which shall not be less then	ten percent of the	amount	of its deposits maturing during the	year ending on the 31st day of March next following, in any one or more of the following methods, namely:
(a)	in a current or other deposit account with any scheduled bank, free from charge or lien;
(b)	in unencumbered securities	of the Central	Government or	of any State Government;
(c)	in unencumbered securities mentioned in clauses (a) to (d) and (ee) of section 20 of the Indian Trusts Act. 1882 (2 of 1882).
Provided that	with relation	to the deposits maturing during the year	ending on the 31 st day of March,	1979, the sum required to be deposited or invested under this sub-rule shall be deposited or invested before the 30th day	of September, 1978.
Explanation: For the purposes of this sub- rule, the	securities referred to in clause (b) or clause (c)	shall not be reckoned at their market value.
(2) The amount deposited or invested, as the case may be, under sub-rule (1),	shall	not be utilised for any	purpose other	than for the repayment of deposits maturing during the year referred to in that sub-rule, provided that the amount remaining deposited or invested,	as the case may be, shall not at any time fall below ten percent of	the amount of deposits maturing until the 31st day of March of that year," 451 Rule 4 prescribes form and particulars of advertisement which must be issued for	inviting deposits. Rule 5 prescribes the	form of	application to be made for deposits and Rule 6 makes it obligatory to furnish a receipt for the deposit. Rule 7 obligates the company to maintain register of deposits. Rule 10 requires the company to file a return of deposits with the Registrar. These	are the conditions prescribed by rules subject to which deposits can be invited and accepted. The challenge is confined to Rule 3A	only which obligates	the company to deposit 10% of the deposits maturing during the prescribed year in the manner set out in cl. (a), (b) and (c) of sub-rule 1 of rule 3A.
The learned Attorney General raised a	preliminary objection to the maintainability of the writ petitions filed in this Court under Art. 32 and those filed in the High Court under Art. 226 of the Constitution. The submission was founded on the ground that an incorporated company being not a citizen for the purposes of Art. 19	and therefore	it cannot complain	of the denial or deprivation of fundamental freedom guaranteed by Art. 19(1)(g) of the Constitution and the situation is not improved by joining either a share- holder or a Director as co-petitioner. It was said that the company	has a	juristic personality independent of	the Director or a shareholder and the business or trade carried on by the company is not that of either the shareholder or the Director. As the corrolary, it was urged that even if the impugned Rule 3A imposes an unreasonable restriction on the fundamental	freedom to carry on trade or business, this Court cannot entertain a petition under Art. 32 nor the High Court can entertain one under Art. 226 of the Constitution.
Frankly	speaking, this is an oft	repeated contention whenever the F petitioner is an incorporated company but the law in	this behalf is in a nebulous state and therefore, it is not	possible to throw out the petition at the threshold.
More so because a	petition under	Art.	226 of	the Constitution can be filed by the company for any other purpose and also the petitioners complain of violation of Art. 14	of the	Constitution. The reasons for stating that the law	is in a nebulous state may briefly be mentioned. In State Trading Corporation of India Ltd. v. The Commercial Tax Officer,	Visakhapatnam(1) and Tata Engineering & Locomotive Co.	v. State of Bihar,(2) this Court held that a Corporation was not a citizen within the comprehension 452 of Art.	19 and	therefore, could not complain of denial of fundamental freedom guaranteed by Art. 19 to a citizen of this country. These two decisions are an authority for the proposition that an incorporated company being not a citizen could not complain of	violation of	fundamental freedom guaranteed to citizens under Art. 19. But a different note was struck in R.C. Cooper v. Union of India,(1) when it was held that 'a measure executive or legislative may impair the rights of the company	alone, and not of its share-holders;
it may	impair the rights of the shareholders as well as of the company. It was further held that jurisdiction of the Court to grant relief cannot be denied, when by State action the rights of the individual shareholder are impaired. if that action impairs the rights of the company as well. In that case, the Court entertained the petition under Art. 32 of the	Constitution at	the instance of a Director and the shareholder of	a company and granted relief. The	two conflicting trends in this behalf were noticed by this Court in Bennett Coleman & Co. & Ors v. Union of India & Ors.(2) where after review of	the afore-mentioned decisions and several others, it was held as under:- "As a result of the Bank Nationalisation case (supra) it follows that	the Court finds out whether the legislative measure directly touches the company of	which	the petitioner	is a shareholder. A shareholder is	entitled to protection of Art. 19. That invidiual right is not lost by	reason of the fact	that he is a shareholder of	the	company. The	Bank Nationalization case (supra) has	established the view that	the fundamental	rights of shareholders as citizens are not lost when they associate to form a company. When their fundamental rights as shareholders are impaired by State action their rights as	shareholders are protected. The reason is that the shareholders'	rights are equally and necessarily affected if the rights of the company are affected. The	rights	of shareholders with regard to	Article 19 (1)(a) are	projected and manifested	by the the	newspapers owned and controlled by the shareholders through the medium of the corporation." 453 Our attention was, however, invited to two later decisions:
(1) The	Divisional Forest officer v	Bishwanath Tea	Co.
Ltd.(1) and (2) Western Coalfields Ltd. v. Special	Area Development Authority, Korba and another(2). But we can draw no assistance from the	aforementioned two cases because in the first case	the question	this Court considered	was whether a petition merely for refund of a tax paid under a mistaken impression at the instance of a company can be entertained under Art. 226 and the question in the second case was whether the properties of a	Govt.	company	are exempt from levy of tax imposed by state or its delegate under Art. 285(1). The contention raised in these two cases does not touch the question under examination. Thus apart from the law being in a nebulous state, the trend is in the direction of holding that in	the matter of	fundamental freedoms guaranteed by Art. 19, the rights of a shareholder and the	company which	the shareholders have	formed	are rather coextensive and the denial to one of the fundamental freedom would be denial to the other. It is time to put an end to	this controversy but in the present state of law we are of	the opinion that the petitions should not be thrown out at	the threshold.	We reach this	conclusion for	the additional reasons that apart	from the complaint of denial of fundamental right to carry on trade or business, numerous other contentions have been raised which the High Court had to examine in a petition under Art. 226. And there	is a grievance of denial of	' equality before law as guaranteed by Art. 14.	We accordingly	over-rule the	preliminary objection and proceed to examine the contentions on merits.
Let the camouflage of alleged violation of fundamental right in these petitions not deceive any one; let no one be in doubt that the petitions are filed to vindicate	some fundamental rights encroachment on which is resented. At the root lies the fierce and unending battle royal between political power	and economic power to	gain ascendance one over the other. Piercing the veil of legalese the core- question is the degree	of social control imposed by	the State and resisted at every turn by the corporate sector in the internal administration of corporate sector. Therefore, a bird's eye-view of the development	of company law which represents the State intervention in management of companies would be advantageous.
454 Any scientific attempt at	presenting the	history of company law in our country inevitably	telescopes into the history of company law	in U.K. because more	or less	the framers of the company	law in India followed in the shadow of the	development of	the law	in U.K. Corporate sector wields tremendous economic power and this organised sector has throughout	challenged by all the means at its command, social	control	by political institutions	and	more particularly the State. The law developed in the footsteps of abuse by the corporate sector of its economic power and dominating influence	in the	world	of national and international industry, trade and commerce. If uncontrolled, the result is disastrous and the infamous South-Sea Bubble should be an eye-opener. The first and second decades of the 18th century were marked by an almost frenetic boom in company	flotations. When the flood of	speculative enterprises was at its height, Parliament in U.K. decided to intervene to check the gambling mania when it drew attention to the numerous undertakings which were purporting to act as corporate bodies without legal	authority, practices which manifestly tend	to the	prejudice of the public trade and commerce of the kingdom.(1) That which governs the least, governs the best, the	laissez faire doctrine	was firmly entrenched. Since then	at regular intervals, the State control became	more or less	discernible in successive company acts.
The State	intervention into the	functioning of	the corporate sector initially took the form of the prosecution for breach of some of the laws, the first notable case being the one	in November, 1807. The Attorney General at	the instance of a private relator sought	criminal information against two unincorporated companies	both of which	had freely transferable shares and advertised that the liability of the	members would be limited. Lord Ellenborough in R. v.
Dad(2) dismissed the application because of the lapse of 87 years, since the Act was previously invoked but he issued a stern warning that no	one in the future could pretend that the statute was obsolete aud indicated that 'a speculative project founded	on joint stock or transferable shares' was prohibited.
Returning to the native soil, the first	legislative measure to regulate the companies in India was the enactment of the Joint Stock 455 Companies Act of 1850.	It was	amended in 1857, a notable feature	of the amendment being extension	of limited liability benefit to insurance	and banking companies. The Amending Acts,	one in	1866 and the other in 1913 followed.
The Indian Companies Act of 1913 was a fairly comprehensive measure taking	into its stride the	amendments in	U.K.
Companies Act till then made.	This Act was	extensively amended in 1936 and again at regular intervals thereafter.
The Government	of India appointed a Committee in 1950 under chairmanship of Shri Bhabha to consider amongst other things the extent to which it was possible to adjust the structure and methods of the corporate form of business management with a	view	to weaving an integrated	pattern	of relationships as between promoters,	investors and	the management, principal among them being the legitimate rights of investors and the interest of creditor, labour and other partners in production and	distribution may be	duly safeguarded and the attainment of the ultimate end of social policy towards	which the corporate sector must work. A comprehensive statute	being Companies Act of 1956	was enacted	pursuant to the recommendations of	the Bhabha Committee. The two notable features of the 1956 Act from the point of view of the	present	discussion are compulsory maintenance and	audit of company accounts, and power of inspection and	investigation by the Central Government When the Act	of 1956 functioned for a period of about a year and some difficulties surfaced in its actual implementation, the Government of	India	appointed a committee under	the chairmanship of	Justice A V. Vishwanatha Sastri, retired Judge of the Madras High Court in May 1957 to examine the working of the Companies Act, 1956. The terms of reference of the	committee were	quite wide. This Committee submitted its Report in 1957, which led to the Companies (Amendment) Act, 1960. This amendment was specifically directed to the safeguarding of	the private investment in the corporate sector. The Government of India acquired extensive powers for regulation	of the	financial management of the private sector companies, under the 1960 (Amendment)	Act. In	the meantime, the Government of India having received numerous complaints of fraud, embezzlement of	funds and a gross irregularities in the companies controlled and managed by Dalmia-Jain combine, appointed a Commission of Enquiry first presided over by Justice S.R. Tendulkar and subsequently by Shri Vivian Bose, a retired Judge of the Supreme Court of India. This Commission submitted its report in the fall of 1962. Vivian Bose Enquiry Commission Report unearths	the intrigue, abuse	of trust jugglery of company funds, misuse and abuse of positions of power 456 in the	management of the affairs of Dalmia-Jain Group of Companies as also criminal breach of trust in respect of the funds of the	Company reposed in	the promoters	and controllers of	the private companies and how they utilised the corporate finances for their personal advancement. This report, led to the enactment of Companies (Amendment) Act, 1965 which vastly increased the Governmental control of the private sector	companies. The	Companies (Amendment)	Act, 1974 which inter alia	introduced sec.	58A simultaneously ushered in vast changes in the 1956	Act making greater inroads by Central Government in the management of companies governed by 1956 Act.	A step	by step study of the various amendments would unmistakably reveal the greater and greater intervention and control by State and	this control was in direct proportion to the abuse of the economic power wielded by the corporate sector.
The Companies Act of 1956 to some extent also attempts to translate into action Art. 38 and 39 in Part IV of the Constitution by	which	the State was	directed that	the ownership and control of the	material resources of	the community are so distributed a best to subserve the common good and the operation	of the	economic system does	not result in concentration of wealth and means of production to the common detriment. Further Art. 46 mandates the State to promote economic interests of weaker sections of the people from. all forms of exploitation. A fortiori every provisions of the	Companies Act must receive such interpretation as to supress the mischief to remedy which	it was	enacted	and advance the object as	also to achieve and translate into action the underlying intendment of the enactment for the realisation of	the constitutional goals as set out in Part IV of the Constitution.
As	a high priority promise of independence	laws directed to agrarian	reforms rolled out	from State legislatures in quick	succession Urban elite found it disadvantageous to invest their savings in	agricultural land. It is	said that rent Restriction Acts were a disincentive for investment in	urban house property. Gold control measure	dried up gold as a venue of investment of savings. Bank.	interests were discouraging. Social security in old	age being niggardly or non	existent there	was fascinating attraction for	deposits in	non-banking companies. There was such tremendous rush in this direction that even Banks stood aghast at this phenomenon. This point can be 457 buttressed by a mere reference to the fact that in the year 1973-74 deposits of non-banking companies rose from 747.8 crores to Rs. 1028 crores and	by 1978 it rose to 1313.0 crores.(1) And	failure to meet obligation by companies the consequent misery of middle and lower	middle	classes as tragically illustrated by Sanchaita syndrome attracted the attention of Parliament. This	additional aspect has to be kept- in view while examining the contentions canvassed in these petitions and appeals.
Be fore we turn	to s.	58A and the rules framed thereunder, a reference to the earlier attempts to exercise some degree of control over non-banking companies attracting and inviting deposits from public would be advantageous.
Chapter III-B was introduced in the Reserve Bank of India Act, 1934 by Act No. 55 of 1963 which came into force on Feb. 1,	1964. Fasciculus of sections in Chapter llI-B bears the title 'Provisions relating	to non-banking institutions receiving deposits and financial institutions.' Sec. 45 (1) defined company	to mean a company as defined in sec. 3 of the Companies Act and includes a foreign company within the meaning of s. 591 of that Act. Deposit was	defined to include any money received by a non-banking institution by way of deposit etc. There was an exclusionary clause in pari materia with the exclusionary	clause in sec. 2 (b) of the Deposit Rules of 1975.	Sec. 45 J conferred power on	the Reserve Bank to regulate or prohibit the issue by any non- banking	institution of any prospectus or advertisement soliciting deposits of money from the public and to specify the conditions	subject to which any	such prospectus or advertisement if not prohibited may be issued. Sec.	45 K conferred power	on the	Reserve Bank to collect information from non-banking institution as to deposits and also to give directions in this behalf. There were other provisions incidental to these substantive provisions. In exercise of this power, Reserve Bank issued various directions upto and inclusive of 1977 which included ceiling of maximum deposits that can be accepted,	the minimum and maximum period for which the same can	be accepted and other incidental provisions. These legal provisions are the prelude to the provisions impugned in these	petitions and	they would unravel	the intendment, object, purpose, the mischief prevalent and attempt at remedying the same by sec. 58A and the Deposit Rules of 1975.
(1) Project Report on	Government Regulation	of Financial Management of the Private Sector Companies in India by V. D. Kulshrestha.
458 Sec 58A conferred power on the Central Govt. to be exercised in consultation with the Reserve Bank of India to prescribe the limits upto which, the manner in which and the conditions subject to which the deposits may be invited or accepted by a	company either	from public or from	its members. The	challenge is directed	to Rule 3A which obligates the	company	inviting deposits to	deposit or invest, as the case may be fore the	30th day of April of each year, a sum which shall not be less than ten percent of the amount of its deposits maturing during the year ending on the 31st day of March next following according to any one or more	of the	methods set out in the rule. Sub-rule (2) imposes a fetter on the power	of the	company to use the amount so deposited and invested for any purpose other than for the	repayment of deposits	maturing during the	year referred to in sub-rule (1). And this is subject to a further condition that deposit shall not any time fall below ten percent of the amount or	deposits maturing until the 31st day of March next following.	The deposit herein contemplated is to be made with any scheduled bank free from charge or lien or in unencumbered securities of the Central Government or of any State Government or in	unencumbered securities mentioned in clauses (a) to (d) and (ee) of sec.
20 of the Indian Trust Act, 1882.
The first	contention is that having regard to	the numerous inbuilt sefeguards provided in Sec.	58A and	the rules made thereunder, the imposition of 10% deposit under Rule 3A	is unreasonable and arbitrary particularly because the provision does not effectively protect the depositors if that was the	underlying intendment. Even	prior	to introduction of	sec. 58A, the Reserve	Bank of India	was empowered to regulate	the acceptance	and repayments of deposits by the non-banking	companies. The	legislature having become aware that the regulatory measures introduced by the	Reserve Bank of India have not effectively protected the depositors, felt	needs	of the time	necessitated introduction of	statutory provisions enabling the Central Government to take effective measures for the protection of the depositors.	This becomes manifest from the Statement of Objects and Reasons wherein it was stated that: 'experience has shown that in many cases	deposits so taken by	the companies have	not been refunded on the due dates. In many such cases, either the companies have gone into liquidation or the	funds with the companies are depleted	to such an extent that the companies are not in a position to refund the deposits. lt is accordingly considered necessary to control companies inviting deposits from the	public.' The Legis 459 lature conferred wide power on the Central Government to introduce regulatory and remedial measures by which	the depositors can	be given some protection. To say that the protection is neither adequate nor sufficient and therefore of doubtful utility and accordingly must be	rejected as arbitrary is to put a premium	on these practices which necessitated a	further measure	of social control, taking more effective steps to checkmate the abuse of this powerful corporate sector and to leave the mischief unrepaired. Any interpretation of sec. 58A has to be such as to achieve the purpose of imposing a	measure of social control to remedy the mischief, to suppress which the provision was enacted.
To revert to	the language	of sec. 58A,	the Central Government was authorized to prescribe the limits subject to which, the manner in which and the conditions subject to which the deposits may be invited or accepted by	the company. The Deposit Rules viewed as a whole amongst others prescribe the limits upto which a company can invite and accept deposits	(rule 3 (1) & (2)). The obligation to issue an advertisement on par with	the prospecutus (Rule 4, obligation to furnish receipt	to the depositors (Rule 7), all necessarily	prescribe the	manner in which deposits may be invalid or accepted. Rule 3A makes it obligatory to keep 10% of the deposits maturing in a year, and it thus provides one of	the conditions	subject to which deposits can be invited or accepted. And indisputably, sec.	58A confers power on the Central Government to prescribe all the three things by rules made in this behalf.
It was, however, urged that this rule 3A is arbitrary for more than one reason: (1) that it deprives the company the use of 1()% of its funds even though the company is obliged to pay interest to the depositors as contracted between the parties and (2) if the rule was intended to afford some safeguard in the interest of the depositors or protect them, the protection is illusory because in winding- up proceedings, the depositors will have to stand pari passu With other unsecured creditors	while secured	creditor and preferential creditor , will score a march over them even in regard to the 10% deposit because that would be treated as an asset of the company available for distribution amongst various persons entitled to recover claims from the company.
Undoubtedly, depositors with a company unless otherwise indicated would	be unsecured creditors. Secured creditors and preferential creditors in the event of winding up of the company 460 would score a march over them in distribution of the assets of the	company. But every measure cannot be viewed or interpreted in	the event of a	catastrophy over-taking the company. The provision	for deposit of 10%	of deposits ensnares repayment of deposits	maturing in the year and in order to enable the company to meet	its obligation, a provision is made in sub-rule (2) of Rule 3A itself that the amount deposited or invested, as the case may be, under sub- rule (1), shall not be utilised for any purpose other than for the	repayment of deposits	maturing during the	year referred to in sub-rule (1). This necessarily implies that this l0% deposit can be utilised for refunding the deposit maturing in a year and that itself is an obligation of the company and in order provide the company with liquid finance to meet its obligation, the provision of compulsory deposit is introduced. The same	cannot be questioned on the ground that it	constitutes deprivation of property of a company or is of a confiscatory nature. The amount deposited to meet with the obligation of	Rule 3A is and remains the property of the company nor anyone else has any access to it. One has to see	the immediate object in view to achieve which the provision is made and	not its	remote consequences. And it would be an interesting question of law to be decided in an appropriate case as to	the position and character of this statutory 10% deposit in distribution of assets of a company in winding-up proceedings. The argument that this provision was made for increasing the deposits in Nationalised Banks or augmenting the investment	in the	Central and State securities, is so far fetched that it leaves us unconvinced.
The second limb	of the submission is that	this provision fails to accord reliable	protection to	the depositors. We	are at a loss to appreciate this submission.
Undoubtedly, it	is not	so effective as admitted by	the Minister of Law, Justice and Company Affairs while replying to a question in Parliament on September 15, 1981 to ensure every depositor	whose deposit is maturing in the year to be fully paid out of the deposit amount. But no regulatory or protective measure can be rejected as arbitrary on the short ground that it fails to fully protect the person for whose benefit it is enacted. It is an argument of despair that let there either be full protection or no protection. This is the fatalist attitude which the court can neither encourage nor appreciate.	One has to keep in view the cumulative effect of protective and regulatory measures.
Anything English has such	an over-powering attraction that without any attempt at assimilating the developmental stage of two 461 wholly dissimilar societies, provisions of English Act were held out as a	model and the impugned provision attacked by impermissible comparisons. Reference was made to Protection Of Depositors Act, 1963 of U.K. and it was urged that to afford real protection, provision similar to U.K. Act should have been enacted. The submission leaves us cold. What form a regulatory measure must take is for the legislature to decide and the	court	would not examine its wisdom or efficacy except to the extent that Art.	13 of	the Constitution is	attracted. Having said this,	it may be stated that except a little more detailed provision there is nothing very useful or of such innovative nature as would be impressive even for a recommendation.
Requiring the company to	invest 10% of its deposits maturing in a year in deposit with prescribed institutions or in trust securities	cannot be termed as deprivation of the funds of the company. It	is a measure to ensure that part of	the funds of a company are kept as liquid assets available for use for	specified purpose. This is clearly discernible from the marginal note of	Rule 3A. Regulatory measure ensuring availability of liquid asset cannot be termed as deprivation of property. It becomes an earmarked fund and it is	well-known that the economic	planning may provide for earmarked	funds and if	by voluntary self- discipline and	sound economic	planning financial viability is not	maintained, a Welfare State with planned economy may impose statutory discipline in larger public interest. Such disciplinary measures	cannot	be termed deprivatory in character. Even when the money is kept in	deposit, it remains the property of the company and available for its use albeit as provided in the statute. The Legislature was not unaware of a known malady that	the private sector companies were	becoming sick after incurring	huge debts, rendering small	investors destitutes,	heaping miseries on the weaker sections of	the society and therefore if by a measure a company which is permitted	to attract deposits from the public generally described as gullible simultaneously,	an obligation is imposed	Lo keep an infinitesimally small portion of assets as liquid finance available for meeting the obligations, namely repayment of deposits maturing in a	given year, it cannot be said that this constitutes deprivation of company's fund. If a trust can be	compelled to	deposit	trust	finds in a manner prescribed by the statute, if a nationalised or scheduled bank is compelled to maintain requisite liquidity in respect of which a charge of deprivation of	property cannot be validly made, it is difficult to entertain the submission that as a regulatory measure if a 462 company for the benefit it enjoys of an enabling power to invite deposits	from public is asked to keep in deposit 10% of the	deposits maturing in a year	the same would be deprivatory and therefore arbitrary.
In passing	it was	stated that having regard to	the numerous inbuilt safeguards in s. 58A of the Companies Act, the imposition of 10% compulsory deposit under Rule 3A is in excess of the requirements of the protection and therefore unreasonable and arbitrary. Having had the legacy of	the laissez faire doctrine imposed	by foreign rulers till the end of 19th century, and even with the tormenting experience of South-Sea Bubbble,	the State was	least	inclined to interfere with	the working of the incorporated companies.
But as noticed in the Statement of objects and Reasons while introducing the	1974 Amendment	Act which incorporated sec.
58A in	the Companies Act, it was designed to meet cases of abuse or distortion of	system which have, of late, assumed comparatively serious proportion and a stringent measure of control has become inevitable.	This is in accord with the Deport of the Jenkin's	Committee in the United Kingdom in which it was observed	that the Company is not a field of legislation in	which finality is to be expected, as the law falls to be applied to a growing and	challenging subject matter	and growing use of	the company system as an instrument of business and finances and the possibilities of abuse inherent in that system. A vigilant Parliament keeping a close watch over	this corporate sector wielding considerable economic power has to take steps by doses to eradicate the	abuses	of the economic power by these corporations. More insidious the abuses of economic power greater social	control became unavoidable for the health of national economy and protection of the persons dealing with corporations. No legal step can be said final or unnecessary because social	control has inevitably to follow to defuse abuses of economic power. In such a situation, to say, that a further measure of protection is arbitrary in view of the protection already afforded is	begging the issue and	the contention must be negatived on this short ground.
Having cleared the ground, we must now turn to the main challenge posed on behalf of the	petitioners to	the constitutional validity of Rule 3A. It was urged that when a regulatory measure imposes conditions	the same must fairly and reasonably	relate to the objects sought to be achieved.
Developing the	argument it was submitted that if Rule 3A enacted in exer- 463 cise of	power conferred by sec. 58A imposes	a statutory condition to deposit 10% of the amount collected by way of deposits by a non-banking company and	maturing in a given year in	the manner prescribed, this	condition bears no relevance to the objects sought to be achieved, the object being the protection of the depositors. And if it does not bear relevance	to the	object it is arbitrary. Reliance was placed on Pyks Granaide Co. v. Ministry of Housing and Local Govt. &	Anr(1) Lord Denning posed the question whether if the permission	of the	planning authority before breaking fresh surface is necessary, what conditions can the planning authority lawfully impose. Answering the question	the learned Law Lord observed:
"The principles to be applied are	not, I think, in doubt. Although the planning authorities are given	very	wide powers to impose "such conditions as they think	fit", nevertheless the law says that those conditions, to be valid must fairly and	reasonably relate to	the permitted development. The planning authority are	not at liberty to use their powers for an ulterior object, however desirable that object may seem to them to be in the public interest." Lord Reid	in Chertsey	Urban District	Council v.
Mixnam's Properties Ltd.(2) approved the statement of law by Lord Denning reiterating that the same was already approved in Faweett Properties Ltd. v Buckingham County Council.(3) There cannot be any quarrel with the proposition that where power is conferred to	effective a purpose and for that end in view	to impose conditions, the conditions to be valid must fairly and reasonably relate to the object sought to be achieved. In the absence of this causal connection,	the conditions may	be rejected as superfluous or arbitrary unrelated to purpose. The power conferred by sec. 58A on the Central Government to prescribe the limits up to which, the manner in which and the conditions subject to which deposits may be	invited or accepted by	non-banking companies had a definite objeut; nameiy, to check the abuse by the corporate sector and to protect the depositors/investors. Mischief was known and the regulatory measure was	introduced to remedy the mischief. The conditions which can be prescribed to effectuate this pur- 464 pose must a fortiori,	to be valid, fairly and reasonably, relate	to checkmate	the abuse of	juggling with	the depositors/investors' hard earned-money by the corporate sector and to confer upon them a measure of protection namely availability of liquid assets to meet the obligation of repayment of deposit which is implicit in acceptance of deposit. Can it be said that	the conditions prescribed by the Deposit Rules are	so irrelevant or have no reasonable nexus to the objects	sought	to be	achieved as to be arbitrary? The	answer is emphatically in the negative. Even at the	cost of repetition, it can be stated with confidence that the rules which prescribed conditions subject to which deposits can be invited and accepted do operate to extend a measure	of protection against the notorious abuses of economic power	by the corporate sector, to the detriment of depositors/investors, a	segment of the society which can be appropriately described	as weaker in relation to the mighty corporation. One need not go so far with Ralph Nadar in 'America Incorporated' to	establish that political institutions may fail to arrest the	control	this ever- widening power	of corporations. And can one wish away the degree of sickness in	private sector	companies ? To	the extent companies develop sickness, in direct proportion the controllers of	such companies	become healthy. In a welfare state, it is the constitutional obligation of the state to protect socially and economically weaker segments of	the society	against the	exploitation by corporations. We therefore, see	no merit in the submission that	the conditions prescribed bear no relevance to the object or the purpose for which the power was conferred under sec. 58A on the Central Government.
Basing the	submission on	the assumption	that Rule 3A cannot extend even a semblance of protection to depositor, it was	urged that if it was to be viewed in the wider spectrum of regulation of credit system of the country, control of the circulation of the money in India's economy and imposing financial discipline on corporate sec tor, rule 3A is clearly ultra vires sec. 58A being far in excess of the requirements of rule 58A. The submission ought to be rejected on the short	ground that Rule 3A does extend some protection to a depositor howsoever minimal it may be. When Rule 3A is viewed in the context of various other provisions devised to extend protection to depositors and investors it does play a small but effective part whereby liquid finance would be available to	the company accepting deposits	for meeting its obligation of repaying the deposits maturing during the year. Therefore, there is no merit in	the submission.
465 lt was next contended that Rule 3A is ultra vires the provision of sec. 58A	of the Companies Act as it is beyond the scope and ambit	of the section. Developing	this argument, it was submitted that if sec. 58A is widely construed to encompass the mode or manner of utilisation of the funds of the company which will include	the deposits made with the company,	obviously sec.	58A itself will be rendered unconstitutional as transgressing the permissible limits of delegated legislation. While tracing the history of the	gradually increasing' State control over	the activities of corporate sector, it was noticed that if the State would not effectively	control the	activities checkmating the	possible abuses' individuals dealing	with these economic	giants would be at the mercy of the latter.
May be	that this 'hands off' attitude was respectable when laissez faire dictated the state approach, but a welfare state cannot remain indifferent to this sensitive field of exploitation of the weaker section. Sec. 58A amongst various other things was designed to	introduce some	measure of control	over	the non-banking companies inviting	and accepting deposits in the	ultimate interest of	the depositors, and by compelling limited liquidity	in resources, the	society at large was sought to be protected from the ever haunting spectre of sickness in industry often conveniently resorted to by the private sector companies.
Sec. 58A must receive	its legitimate	construction in	the back-drop of this fact	situation. Viewed from this angle, Sec. 58A will enable the Central Government to prescribe conditions subject to which deposits can be accepted and one such condition would be how to readily make, a small portion of the	deposit, available for repayment because while inviting and accepting deposits, it is implicit therein that repayment would be assured on the date of maturity.
The next limb of	the submission is: is there an excessive delegation of essential legislative functions without prescribing any guidelines ? It is indisputable that the Companies Act as a whole and sec. 58A in part lays down a legislative	policy,	namely, gradual everwidening	and effective control of the corporate sector so as to ensure a measure of protection to the persons	dcaling with it. The wisdom of the	legislative policy is	not for Court to examine. And in economic legislation, the Court should feel more inclined to judicial deference to legislative judgment.
(See R.	K Garg	etc. v. Union of India & ors. etc (1) Prug Ice & oil Mills & Anr. etc. v. Union of India(a) and R. C.
Cooper v. Union of India(3).
466 The charge of excessive delegation of essential legislative functions is wholly untenable. The history of the Company Law in India, the	object and Reason Statement while introducing 1974 Amendment,	regulatory measures undertaken by the Reserve Bank of India prior to	the introduction of	Sec. 58A, all point in the direction of taking gradual	steps with a view to	introducing greater State intervention and control so as to minimize the abuses by the	corporate sector, an inescapable evil directly attributable to	concentration of economic power. The test which Prof. Willis has set-down in his 'Constitutional Law' pages 586 & 587 may be recalled:
"If a	statute declares a definite	policy, there is a sufficiently definite standard for the rule against the delegation of legislative power, and also	for equality	if the standard is reasonable. If no standard is set up to avoid the violation of equality, those exercising the power must act as though they were administering a valid standard." The policy is definite, guidelines are available from the history of the legislation and Companies Act taken as a whole and one cannot shut one's eye to articulated sickness in private sector undertakings	all around so that this feeble measure	extending only a semblance of protection can be struck down as arbitrary or a violating the permissible limits of delegated legislation. Add to this the fact that Deposit	Rules	have been framed in	exercise of power conferred by sec. 58A and 642 of the Companies Act. Sec. 642 requires that every rule enacted in exercise of the power conferred by it, must	be placed before each House of Parliament for	a period of Thirty days and both Houses have power to suggest modification	in the	proposed rules. This control of Parliament is sufficient to	check	any transgression of permissible limits of delegated legislation by the	delegate. In D.S. Garewal v. State of Punjab	and Another(1) the	Constitution Bench of this Court observed that the requirement that the rules are to be placed before both Houses of Parliament with power to suggest modification would make it perfectly clear that Parliament has in no way abdicated its authority, but is keeping strict vigilance and control over its delegate.
Mr. O. P. Malhotra raised a contention	as to	the legislative competence	of the	Parliament to enact sec. 58A and the Deposit 467 Rules enacted in exercise of the power conferred by sec. 58A read with Sec. 642 of the Companies Act, 1956. This is only to be mentioned to be rejected. Mr Malhotra urged that when a company invites and	accepts deposits, there comes into existence a lender borrower	relationship	between	the depositor and the company, and therefore the	legislation dealing with the subject squarely falls under Entry 30 of the State List, money-lending	and money lenders'. If this submission were to carry conviction, every depositor in the bank would be a moneylender and the transaction would be one of money-lending. Is the banking industry to	be covered under Entry 30 ? on the other hand, Entry 45 in Union List is a specific Entry 'Banking' and therefore any legislation relating to banking would be referable to Entry 45 in the Union List. Entry 43 in the Union List is: 'incorporation, regulation and winding-up of trading corporations, including bank, insurance, financial corporations but not including co-operative societies'. Entry 44 refers to 'incorporation.
regulation. and winding up of the	corporation whether trading or not when business is not confined to one State but not including universities.' obviously the power to legislate about	the companies is referable to Entry 44 when the objects of the company are not confined to one state and irrespective of	the fact whether it is trading or not. When a law is impugned on the ground that it is ultra vires the powers of the legislature which inacted it, what has to be ascertained is	the true character of the legislation. To do that one must have regard to	the enactment as a whole, to its objects and to the scope and effect of its, provisions (See A.	S. Krishna v. State of Madras(1). To resolve the controversy if	it becomes necessary to ascertain to which entry in the three lists, the legislation is referable, the Court has evolved the doctorine of pith and substance. If in pith and substance. the legislation falls within one entry or the	other but some portion of the subject-matter of the legislation incidentally trenches upon	and might enter a field under another list, then it must held to be valid in its entirety, even though it might incidentally trench on matters	which	are beyond its competence. (See Ishwari Khaitan Sugar Mills v	U.P. State & Anr.(2), Union of India v. H. S. Dhillon(3), Kerala State Electricity Board v.
Indian Aluminium Company(4) 468 and State of Karnataka and another etc. v. Ranganath Reddy & Anr.(1). Applying this doctorine of pith and substance, sec.
58A which is incorporated in the Companies Act is referable to Entry 43 and 44 in	the Union List and the enactment viewed as a whole cannot be said to be legislation on money- lenders and money-lending or being referable to Entry 3() in the State List. Undoubtedly, therefore the Parliament had the legislative competence to enact sec. 58A.
Mr. G.A. Shah canvassed one more contention. After stating that Rule 3A became operative from April 1, 1978, he specifically drew attention to	the proviso to Rule 3A (1) which required	that with relation to the deposits maturing during the year ending on the 31st day of March, 1979, the sum required to be deposited or invested under sub-rule 3A (1) shall be deposited	or invested before the 30th day of September, 1978. It was then contended that this provision would necessitate depositing 10% of the deposits maturing during the year ending with 31st March, 1979 which may have been accepted prior to the coming into force of rule 3A and to this	extent the rule has been made retrospective and as there was no power conferred	by sec. 58A to prescribe conditions subject to which	deposits can	be accepted retrospectively	Rule	3A is	ultra	vires	sec.	58A.
The obligation	cast by	Rule 3A is to	deposit 10% of the deposits maturing during the year in the manner prescribed in Rule 3. Some deposits would be maturing between April 1, 1978 and March 31. 1979. To	provide	for such marginal situation, a proviso is inserted. Does it to make the rule retroactive ? of course, not. In D.S. Nakara	v. Union of India,(2) a Constitution Bench of this Court has, in this context, observed as under:
"A statute	is not	properly called a retroactive statute because a	part of the requisites for its action is drawn from a time antecedent to its passing." Viewed from this angle, the provision can be properly called prospective and	not retroactive. Therefore the contention does not commend to us.
It was next contended that while giving definition of the expression	'deposit in the dictionary clause of	the Deposit Rules, the 469 exclusionary clause is so widely worded that it	has successfully kept a large number of	similarly situated corporations outside the purview of the Act and the picking and choosing	is so	arbitrary that	one can say	with confidence that	only private sector companies	are singled out for	this regulatory treatment. The submission overlooks the object and purpose under lying enacting sec. 58A and the Rules made thereunder. As has been repeatedly noted, it is a regulatory measure to checkmate the abuses, which private sector corporations are prone to. If this object is kept in view, the exclusionary clause explains itself. To enumerate briefly, the bodies excluded from the operation of the rules are Central and State Govt., State Bank of India Nationalised Banks, Industrial Finance Corporation of India, State Financial	Corporations established under the State Financial Corporations	Act, Industrial	Development Bank of India, Electricity Boards constituted under the Electricity (Supply) Act, Life Insurance Corporation of India and such other bodies which if viewed properly disclose a perspective in enacting the exclusionary clause. The perspective is that the bodies which are accountable to public and Parliament as also those whose failure to meet	with obligation is inconceivable such as the Central and	the State Govt. are excluded from the regulatory measure. This perspective, in fact, reinforces the conclusion that the control was to be exercised over	those corporations which are prone to abuse the economic power enjoyed by them. We therefore see nothing arbitrary or unreasonable in the exclusionary clause.
A detailed	analysis of the provisions, in the light of submissions would clearly negative any contention of	the violation of Arts. 14 and 19 (1) (g) and we must reject the challenge to the constitutionality of r sec. 58A and the rules made thereunder.
Not a single contention canvassed on behalf of	the petitioners, individually or	collectively,	bears	the scrutiny and therefore the petitions and the appeals must fail and are dismissed with costs in each matter.
H.L.C.	Petitions and Appeals dismissed.