Judgment Case ID: 6998

Judgment:
etition (Civil) No. 508 of 1988. (Under Article 32 of the Constitution of India). (With WP(C) Nos. 534/88	 CA. 5513/85	 5679/85	 5686/85	 183/86	 192	 235 36/86	 363	/86	 447/86	 510 15/86	 529/86	 646/86	 647/86	 1199/86	 1200/86	 1250/86	 WP. (C) Nos. 143	 269	 434/86	 T.P. (C) Nos. 76	 77	 78 79/86	 88/86	 139 49/86	 154/86	 155/86	 CA. Nos. 81 83/86	 T.C. (C) No. 81/86	 I.A. Nos. 1 & 2/92 in CA. No. 5513	185) WITH (CA. No. 174/86 Manipal Finance Crop. vs U.O.L	 and Anr. With CA. 193/86	 624/86	 509/86	 W.P. (C) No. 1506/87	 CA. 69699/86	 949 50/86	 541/86	 W.P. (C) No. 602/89) D.N. Dwivedi	 Additional Solicitor General	 G. Viswanatha Iyer	 K.N. Bhat	 Anil B. Diwan	 E.M.S. Anam	 P.H. Parekh	 C.N. Sree Kumar	 R. Mohan	 section Balakrishnan	 M.K.D	 Namboodiri	 M.S. Ganesh	 S.S. Khanduja	 Y.P. Dhingra	 B.K. Satija	 Kuldeep	 section Paribar. H.S. Parihar	 Ms. A Sub hashini	 C.V. Subba Rao	 K	R. Nambiar	 M.P. Shorawala	 D.K	 Garg	 S.K. Nandy	Randhir Jain	 Ms. Malini Poduval	M.A.Krishna Moorthy	 K.J	John	 Ms. section Vaidyalingam	 A.K. Sanghi	 P.N. Puri	 Ms. Abha Jain	 Ms. Madhu Moolchandani and A.G. Ratnaparkhi for the Appearing Parties. The Judgment of the Court was delivered by MOHAN	 J. All these civil appeals arise by certificate granted by the 836 High Court of Delhi against the decision reported in Kanta Mehta vs Union of India and others	 Company Cases Vol. 62 1987 page 769. All these civil appeals and writ petitions challenge the constitutional validity of Chapter 111 C read with section 58B (5A) of the 	 introduced by the Banking Laws (Amendment) Act	 1983 (Act 1 of 1984). Hence	 they are dealt with under a common judgment. In order to appreciate the challenge the necessary legal background may be set out. In the year 1949	 the Banking Regulation Act of 1949 was enacted. That contained regulatory	 provisions in regard to banking under the surveillance of the Reserve Bank of India as to what would constitute "banking" as defined under Section 5(b) of the 1949 Act. In the year 1959	 the Banking Companies (Amendment) Act	 1959 was passed. Sections 17 and 18 were substituted which required banking companies to create reserve fund and maintain cash reserve. In the year 1963	 Banking Laws (Miscellaneous Provisions) Act	 1963 inserted Chapter III B in the . This Chapter conferred extensive powers on the Reserve Bank of India to issue suitable instructions	 to regulate and monitor diverse activities of non banking companies. The powers to control and regulate these non banking institutions are set out in Sections 45 I to 45 L. While exercising these powers	 the Reserve Bank of India was issuing various directions to these non banking financial institutions. One such important direction was issued on 1st of January	 1967 to the effect that the non banking financial companies were not to hold deposits in excess of 25 per cent of its paid up capital and the reserves as also to non banking	 non financial companies. They were also required to take steps to keep the deposits within the limits. This direction was challenged unsuccessfully before the Madras high Court as seen from the case reported in Mayavaram Financial Corporation vs Reserve Bank of India. In	 1968	 by Banking Laws (Amendment) Act	 1968	 Sections 10A to 10D were introduced. Section 10A provided that the Board of Directors shall include persons with professional or special knowledge. Section 10A(5) empowered the Reserve Bank of India to vary the composition of the Board. 837 When a report of the Study Group of non banking financial intermediaries was submitted in the year 1971 that was studied. Thereafter in 1973 the Reserve Bank of India issued Miscellaneous Non Banking Companies (Reserve Bank) Directions	 1973 placing certain restrictions on companies carrying on prize chit and chit business from receiving deposits from the public. In 1974	 Section 58A of the Companies Act was inserted by the Companies (Amendment) Act of 1974	 which came into force from 1st of February	 1975. The object was to regulate deposits received by non banking non financial companies. The financial companies were already covered by Reserve Bank of India directions under the . Therefore	 they were exempted under Section 58A (7) from the purview of that Section. Since the non banking non financial companies came within the purview of Section 58A	 the earlier directions issued by the to non banking nonfinancial companies in the year 1966 Were withdrawn. By an amendment of 1977	 Section 58A was further enlarged and the Central Government was empowered to grant extensions. In June 1974	 another Study Group was constituted which is popularly known as James Raj Committee. In July 1975	 the above Study Group gave its report. In accordance with the recommendations of the Study Group elaborate rules were issued by the Central Government under Section 58A	 called Banking Companies (Acceptance of Deposits) Rules	 1975 with a view of regulate the various activities of the companies to accept deposits from public. The validity of the section and the deposit rules were questioned. This Court in DCM Ltd. vs U. O.L	 ; upheld the same. In 1977	 directions were issued by the Reserve Bank of India superseding earlier directions of 1966 and 1973. In 1978	 Bill 183 of 1978 called Banking Laws (Amendment) Bill	 1978 was introduced in the Parliament. The said Bill provided limits on depositors which were lower than the current provisions. However	 the Bill lapsed on dissolution of Parliament. Thereafter prize chits and Money Circulation Schemes (Banning) Act	 1978 was enacted. This was also challenged. But that challenge was thrown out by this Court in Srinivasa Enterprises vs Union of India	 ; 838 In 1981	 several new regulatory directions were given by the Reserve Bank of India. Inter alia they included restrictions on accepting or renewing deposits from shareholders	 Directors etc. which exceeded 15 per cent of the net owned funds of the companies as also restricted payment of interest on deposits at a rate of interest exceeding 15 per cent per annum. The validity of the amendment was upheld by the Madras High Court in the case reported in AIR 1983 Madras 330 A.S.P. Ayar vs Reserve Bank of India. In State of West Bengal vs Swapan Kumar Guha	 known as Sanchaita case	 reported in ; 	 this Court while quashing the F.I.R. launched against the firm	 Sanchaita Investments	 directed that the Government and Reserve Bank of India should look into the matter deeply. It is in this background the Banking Laws (Amendment) Act	 1983 came to be enacted. Section 45S states thus: 45 S : Deposits not be accepted in certain cases (1) No person	 being an individual or a firm or an unincorporated association of individuals. shall at any time	 have deposits from more than the number of depositors specified against each	 in the table below. TABLE (i) Individual Not more than twenty five depositors excluding depositors who are relatives of the individual. (ii) Firm Not more than twenty five depositors per partner and not more than two hundred and fifty depositors in all	 excluding	 in either case	 depositors who are relatives of any of the partners. (iii) Unincorporated Not more than twenty five depositors per Association of individual and not more than two hundred and individualsfifty depositors in all excluding	 in either case	 depositors who are relatives of any of the individuals constituting the association. (2) Where at the commencement of Section 10 of the Banking Laws (Amendment) Act	 1983 the deposits her by any such person are not in accordance with sub section 839 (1)	 he shall before the expiry of a period of two years from the date of such commencement	 repay such of the deposits as are necessary for bringing the number of depositors within the relative limits specified in that sub section. Explanation : For the purposes of this section (a) a person shall be deemed to be a relative of another if	 and only if	 (i) they are members of a Hindu undivided family 	 or (ii) they are husband and wife; or (iii) the one is related to the other in the manner indicated in the list of relatives below List of Relatives 1. Father. Mother (including step mother). Son (including Stepson). Son 's wife. Daughter (including step daughter). Father 's father. Father 's mother. Mother 's mother. Mother 's father. Son 's son. Son 's son 's wife. Son 's daughter. Son 's daughter 's husband. Daughter 's husband. Daughter 's son. Daughter 's son 's wife. Daughters daughter. Daughter 's daughter 's husband. Brother (including step brother) . Brother 's wife. Sister (including step sister). Sister 's husband; (b) a person in whose favour a credit balance in outstanding for a period not exceeding six months in any account relating to mutual dealings in the ordinary course of trade or business shall not	 on account of such balance alone	 be deemed to be a depositor." Thus	 the number of depositors has come to be limited. As to the penalty for contravention of Section 45S it is provided for under Section 58B (5A). It runs thus: "(5A). If any person contravenes any provision of Section 45S	 he shall be punishable with imprisonment for a terms which may extend to two years	 or with fine which may extend to twice the amount of deposit received by 840 such person in contravention of that section or rupees two thousand	 whichever is more	 or with both." These provisions were challenged by the appellants in the various civil appeals as violative of Articles 14 and 19 of the Constitution. A Division Bench of the High Court of Delhi in	 Kanta Mehta 's case supra "Section 45S read with section 58B (5A) of chapter III C of the 	 as introduced by section 10 of the Banking laws Amendment) Act	 1983	 is not violative of articles 14 and 19 of the Constitution. There is nothing demonstrably irrelevant or perverse in limiting in section 45S the number of depositors that an individual	 firm or association could accept. Nor is there any element of compulsion on individuals and firms or associations which are not incorporated to incorporate themselves as a company and article 19(1)(c) is not violated by the provisions of section 45S limiting the number of depositors whom individuals	 firms and unincorporated associations could accept. Chapter III C of the 	 imposes reasonable restrictions on the right of individuals	 firms and unincorporated associations to carry on the business of acceptance of deposits and advancing or giving loans to the public. There is also a further safeguard that Chapter 111 C is being operated under the supervision and control of the Reserve Bank of India. The business of acceptance of deposits from the public does not fall within entry .30 or entry 32 of List II. of Schedule VII of the Constitution. It falls within entry 45 or in any case under entry 97 of List I of Schedule VII under which only Parliament has power to pass the impugned legislation. Parliament had full competence and power to pass Chapter III C of the ." Mr. G. Viswanatha Iyer	 learned counsel for the writ petitioners in 841 WP. 508 and 534 of 1988 submits that Section 45B is violative of the fundamental right under Article 19(1)(g) of the Constitution as it restricts the number of depositors and the rate of interest under Section 4(2)(iii) of the Kerala Money Lenders Act	 1958 (hereinafter referred to as the Kerala Act). The two years ' period prescribed under Section 42 is unreasonable. Under Kerala Act	 with effect from 15.10.85 only 14 per cent interest alone could be charged. In any event	 while receiving deposits it was not an offence	 making it a criminal liability and directing payment	 would amount	 to ex post facto law	 offending Article 20(1) of the Constitution. In support of this submission	 reliance is placed on Chinoy Bottling Co. Pvt. Ltd. vs Assistant Registrar of Companies	 Madras	 page 770 and Oudh Sugar Mills Ltd. vs Union of India	 AIR 1970 SC 1070. The other learned counsel seriously pressed the point relating to criminal liability and prayed for time to comply with the provisions of Section 45S. Mr. Anil B. Diwan	 learned counsel appearing for Respondent 2 in C.A. No. 447 of 1986	 after referring us to the development of law	 would submit that it is open to the Government to regulate the economic activities. While examining the validity of such provisions the courts always have regard to the wisdom of the Legislature because that alone has the necessary information and expertise pointing to the need of such a legislation. In R.K Garg vs Union of India	 ; at 969 70 this aspect of the matter was highlighted. It was in this view	 this Court upheld Maharashtra Debt Relief Act	 1976 in Fatehchand Himmatlal and others vs State of Maharashtra	 ; If properly analysed	 it can be seen that these provisions constitute. a regulatory scheme and not a penal liability. Much is made of the penal provisions under Section 58B (5A). It is submitted that imprisonment of a recalcitrant debtor is permissible in law. If one goes by the facts of these cases even after 1986	 they collect deposits 842 when law required them not to do so. Under Section 45(1)(bb) deposit has been defined. If as per the definition there are enough sources of deposit there is no reason why the appellants cannot reduce the deposits. If	 therefore	 the package is reasonable there is no justification to dilute the effect of Section 58B (5A). While examining the scope of the Section it might be contrasted with Section 125 (3) of the Criminal Procedure Code wherein a sufficient cause is provided. In Reserve Bank of India vs Peerless General Finance and Investment Co. Ltd	 ; this Court had occasion to consider the adventures indulged by the persons like appellants. It criticised the fraud played by such financial vultures. This approach was approved in Peerless General Finance and Investment Co. Ltd vs Reserve Bank of India	 ; @ 354. The learned counsel also draws our attention to the Non banking Financial Companies (Reserve Bank) Directions of 1966. They came into force on January 1	 1967. Clause 4 sub clause (3) specifically provides that the deposit shall be reduced to 25 per cent of the paid up capital for which two year period was provided. Similar directions of 1977 known as Non Banking Financial Companies (Reserve Bank) Directions	 1977 came to be issued with effect from 1st of July	 1977. There were complaints	 even then	 that the financial companies were not paying interest regularly and the Reserve Bank was requested to help the depositor. Therefore	 in the teeth of this provision	 to say that suddenly the appellants and the writ petitioners are called upon to reduce	 would work hardship and they should not be penalised	 is incorrect. They took a calculated risk and	 therefore	 they had to suffer for their own fault. In examining the various submissions addressed on behalf of the appellants and the petitioners we propose to examine the same in the following background since it is a law relating to regulation of economic activities. In R.K Garg 's case (supra) it is held at pages 969 70 . "Another rule of equal importance is that laws relating 843 to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech	 religion etc. It has been said by no less a person than Holmes	 J. that the legislature should be allowed some play in the joints	 because it has to deal with complex problems which do not admit of solution through any doctrinaire or straight jacket formula and this is par ticularly true in case of legislation dealing with economic matters	 where	 having regard to the nature of the problems required to be dealt with	 greater play in the joints has to be allowed to the legislature. The greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislature judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey vs Dond	 ; where Frank further	 J. said in his inimitable style: "In the utilities	 tax and economic regulation cases	 there are good reasons for judicial self restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy	 not to reconstruct. When these are added to the complexity of economic regulation	 the uncertainty	 the liability to error	 the bewildering conflict of the experts	 and the number of times the judges have been overruled by events self limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. " The court must always remember that "legislation is directed to practical problems	 that the economic mechanism is highly sensitive and complex	 that many 'problems are singular and contingent	 that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry ' that exact wisdom and nice adaptation of remedy are not always possible and that 'Judgment is largely a prophecy 844 based on meagre and uninterpreted experience". Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. " At page 988 it is held: "That would depend upon diverse fiscal and economic considerations based on practical necessity and administrative expediency and 	would also involve a certain amount of experimentation on which the Court would be least fitted to pronounce. The court would not have the necessary competence and expertise to adjudicate upon such an economic issue. The court cannot possibly assess or evaluate what would be the impact of a particular immunity or exemption and whether it would serve the purpose in view or not. There are so many imponderable that would enter into the determination that it would be wise for the court not to hazard an opinion where even economists may differ	 The court must while examining the constitutional validity of a legislation of this kind	 "be resilient	 not rigid	 forward looking	 not static	 liberal	 not verbal" and the court must always bear in mind the constitutional proposition enunciated by the Supreme Court of the United States in Munn vs Illinois	 namely	 "that courts do not substitute their social and economic beliefs for the judgment of legislative bodies". The court must defer to legislative judgment in matters relating to social and economic policies and must not interfere	 unless the exercise of legislative judgment appears to the palpably arbitrary. The court should constantly remind itself of what the Supreme Court of the United States said in Metropolis Theater Co. vs City of Chicago	 (57 Lawyers ' Edition 730). "The problems of 845 government are practical ones and may justify	 if they do not require	 rough accommodations	 illogical it maybe	 and unscientific. But even such criticism should not be hastily expressed. What is best is not always discernible	 the wisdom of any choice may be disputed or condemned. Mere errors of government are not subject to our judicial review. No doubt	 the impugned legislation places restrictions on the right of the appellants to carry on business	 but what is essential is to safeguard the rights of various depositors and to see that they are not preyed upon. From the earlier narration	 it would be clear that the Reserve Bank of India	 right from 1966	 has been monitoring and following the functioning of non banking financial institutions which invite deposits and then utilise those deposits either for trade or for other various industries. A ceiling for acceptance of deposits and to require maintenance of certain liquidity of funds as well as not to exceed borrowings beyond a particular percentage of the net owned funds have been provided in the corporate sector. But for these requirements	 the depositors would be left high and dry without any remedy. Even the corporate sector was not free from blame. It had done damage to the economy and brought ruination to small depositors. This was why Section 58A in the Companies Act of 1956 came to be introduced. It is worthwhile to quote the notes on clauses concerning this provision: "It has been the practice of the companies to take deposits from the public at high rates of interest. Experience had shown that in many cases deposits taken by the companies have not been refunded on the due dates	 either the companies have gone in liquidation or funds are depleted to such an extent that the companies are not in a position to refund the deposits	 it was accordingly considered necessary to control the activities of the companies when accepting deposits from the 'the public". We approve of the reasoning of the Delhi High Court in Kanta Mehta 's case (supra). At pages 798 99 it runs as follows: "The danger of allowing deposits to be accepted without regulation is so acute and urgent	 that to bind the 846 hands of the Legislature that only one course alone is permissible and not to permit a play of joints would be to totally make it ineffective in meeting the challenge of the social evil. For	 it must be remembered that "in the ultimate analysis	 the mechanics of any economic legislation has necessarily to be left to the judgment of the executive and unless it is patent that there is hostile discrimination against a class	 the processual basis of price fixation has to be accepted in the generality of cases as valid. " See Prag Ice and Oil Mills vs Union of India	 ; 	 para 50). Also such provisions meant to check such evil must be viewed	 as Krishna Iyer J. said	 through a socially constructive	 not legally captious	 microscope to discover glaring unconstitutional infirmity	 that when laws affecting large chunks of the community are enacted	 stray misfortunes are inevitable and that social legislation	 without tears	 affecting vested rights is virtually impossible. See B. Banerjee vs Smt. Anita Pan	 ; 	 at pages 1150 51. The stress by learned counsel for the petitioners on the private right of the petitioners to have unrestricted deposits and make advances in any manner they like must receive short shrift	 for by now	 it is too well settled to be doubted that private rights must yield to be public need and that any form of regulation is unconstitutional only if arbitrary	 discriminatory or demonstrably irrelevant to the policy the Legislature is free to adopt. " May be	 Kerala Act restricts the rates of interest under Section 4(2)(iii) but that cannot enable the writ petitioners in W.P. Nos. 508 and 534 of 1988 to disregard these provisions	 being the non banking financial institutions. Hence	 we reject the first of the arguments. As regards the reasonableness of two year period Section 45(1)(bb) of the Reserve Bank Act defines "deposit" as follows: "(bb) "deposit" includes and shall be deemed always to have 847 included any receipt of money by way of deposit or loan or in any other form	 but does not include (i) amounts raised by way of share capital; (ii) amounts contributed as capital by partners of a firm; (iii) any amount received from	 (iv) any amount received from	 (a) the Development Bank; (b) a State Financial Corporation established under the ; (c) any financial institution specified in or under section 6A of the ; or (d) any other financial institution that may be specified by the Bank in this behalf; (v) amounts received	 in the ordinary course of business	 by way of security deposit or dealership deposit; (vi) any amount received from an individual or a firm or an association of individuals not being a body corporate	 registered under any enactment relating to money lending which is	 for the time being in force in any State; and (vii)any amount received by way of subscriptions in respect of a conventional chit. " Therefore	 as rightly argued by Mr. Anil Diwan as per this definition	 .if there are enough sources of deposit there is no reason why the appellants and the writ petitioners cannot reduce the deposits. Further	 non banking financial companies are required under clause 4 sub clause (3) as follows: "(3) Every non banking financial company	 not being a hire purchase finance company	 or a holding finance company	 which on the date of commencement of these 848 directions holds deposits in excess of twenty five per cent of its paid up capital and free reserves shall secure before the expiry of a period of two years from the date of such commencement	 by taking such steps as may be necessary for this purpose	 that the deposits	 received by the company and outstanding on its books are not in excess of the aforesaid limit. " These directions came into force from 1st of January	 1967. Similar directions came to be issued as Miscellaneous Non Banking Companies (Reserve Bank) Directions. Clause 5 dealing with acceptance of deposits states as under: "Acceptance of deposits by miscellaneous non banking companies: On and from 1st of July	 1977	 no miscellaneous nonbanking company shall: (a) receive any deposit repayable on demand or on notice	 or repayable after a period of less than six months and more than thirty six months from the date of receipt of such deposit or renew any deposit received by it	 whether before or after the aforesaid date unless such deposit	 on renewal	 is repayable not earlier than six months and not later than thirty six months from the date of such renewal; Provided that where a miscellaneous non banking company has before the 1st July	 1977	 accepted deposits repayable after a period of more than thrity six months	 such deposits shall	 unless renewed in accordance with these directions	 be repaid in accordance with the terms of such deposits; Provided further that nothing contained in this clause shall apply to monies raised by the issue of debentures or bonds. (b) receive or renew: 849 (i) any deposit against an unsecured debenture or any deposit from a shareholder (not being a deposit received by a private company from its shares holders as is referred to in clause (vi) or paragraph 4) or any deposit guaranteed by any person who	 at the time of giving such guarantee	 was or is a director to the company	 if the amount of any such deposits together with the amount of such other deposits of all or any of the kinds referred to in this sub clause and outstanding in the books of the company as on the date of acceptance or renewal of such deposits	 exceeds fifteen per cent of its net owned funds. (ii) any other deposit	 if the amount of such deposit	 together with the amount of such other deposits	 not being deposits of the kind referred to in sub clause (i) of this clause already received and outstanding in the books of the company as on the date of acceptance of such deposits	 exceeds twenty five per cent of its net owned funds. " If	 therefore	 this was the position	 it cannot be contended that suddenly the companies like the appellant and the petitioners arc called upon to reduce deposits. Even otherwise	 the interests of the depositors is the prime concern. Coming to the last point	 as to whether Section 58B (5A) is violative of Article 20(1) of the Constitution	 we find	 when a similar argument was raised against Section 58A of the Companies Act	 that was repelled by this Court in Delhi Cloth and General Mills vs Union of India	 ; at page 468 which runs thus: "Mr. G.A. Shah canvassed one more contention. After stating that Rule 3A became operative from April 1	 19 '	8	 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 850 deposits maturing during the year ending 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. Unquestionably	 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 vs Union of India	 ; 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 form this angle	 the provision can be properly called prospective and not retroactive. Therefore	 the contention does not commend to us. " In the light of this	 we should hold that the ruling of the Madras High Court in Chinoy Bottling Co. Pvt. Ltd. (supra) is incorrect. As to the plight of these depositors we need only to quote the case in Peerless General Finance and Investment Co. Ltd.; 	 At paragraph 37 it is held: "We would also like to query what action the Reserve Bank of India and the Union of India are taking or proposing to take against the mushroom growth of 'finance and investment companies ' offering staggeringly high rates of interest to depositors leading us to suspect whether these companies are not speculative ventures floated to attract unwary and credulous investors and capture their savings. One has only to look at the morning 's newspaper to be greeted by advertisements inviting deposits and offering interest at astronomic rates. 851 On January 1	 1987 one of the national newspapers published from Hyderabad	 where one of in happened to be spending the vacation	 carried as many as ten advertisements with 'banner headlines '	 covering the whole of the last page	 a quarter of the first page and conspicuous spaces in other pages offering fabulous rates of interest. At least two of the advertisers offered to double the deposit in 30 months. 2000 for 1000	 10	000 for 5	000	 they said. Another advertiser offered interes t ranging between 30 per cent to 38 per cent for periods ranging between six months to five years. Almost all the advertisers offered extra interest ranging between 3 per cent to 6 per cent deposits were made during the Christmas Pongal season. Several of them offered gifts and prizes. If the Reserve Bank of India considers the Peerless Company with eight hundred crores invested in government securities	 fixed deposits with National Banks etc. unsafe for depositors	 one wonders what they have to say about the mushroom non banking companies which are accepting deposits	 promising most unlikely returns and what action is proposed to be taken to protect the investors. It does not require much imagination to realise the adventurous and precarious character of these businesses. Urgent action appears to be called for to protect the public. While on the one hand these schemes encourage two vices affecting public economy	 the desire to take quick and easy money and the habit of excessive and wasteful consumer spending	 on the other hand the investors who generally belong to the gullible and less affluent classes have no security whatsoever. Action appears imperative." And paragraph 42 also requires to be quoted "I share my brother 's concern about the mushroom growth of financial companies all over the country. Such companies have proliferated. The victims of the schemes	 that the attractively put forward in public media	 are mostly middle class and lower middle class people. Instances are legion where such needy people have been 852 reduced penniless because of the fraud played by such financial vultures. It is necessary for the authorities to evolve fool proof schemes to see that fraud is not allowed to be placed upon persons who are not conversant with the practice of such financial enterprises who pose themselves as benefactors of people. " We may also add that this has been reaffirmed in Reserve Bank of India vs Timex Finance and Investment Co. Ltd.	 at page 354. Therefore	 we are in entire agreement with the Delhi High Court. Since	 as we have stated above	 all the appellants and writ petitioners were praying for time to comply with these provisions	 the matter was adjourned from time to time. Though some of them have complied with the requirements of law yet a few others have not done so. We make it clear that in spite of this indulgence	 their failure to comply cannot be countenanced. We dismiss the appeals and the petitions along with 1A.Nos.1 and 2 in C.A. No.5513 of 1985. However	 there shall be no orders as to cost. N.V.K. Petitions and appeals dismissed.

Summary:
The petitioners in the writ petition challenged the constitutional validity of chapter III C read with Section 58B(5A) of the introduced by the Banking Laws (Amendment) Act	 1983. Along with the writ petition were had several civil appeals	 where the appellants had unsuccessfully challenged the aforesaid provisions as violative of Articles 14 and 19 of the Constitution	 in the High Court of Delhi	 which upheld their validity	 and granted a certificate to appeal to this Court vide Kanta Mehta vs Union of India	 The newly incorporated Section 45S of the provided that no individual or firm or an unincorporated association of individuals shall	 at any time	 have deposits from more than the number of depositors specified against each in the table mentioned therein. It was further provided that where at the commencement of the Act	 the deposits held were not in accordance thereof	a period of two years was prescribed for bringing down the number of depositors within the relative limits specified in the Act	 and contravention thereof was rendered penal. 'These provisions were brought into force on February 15	 1984. On behalf of the petitioners it was submitted that Section 45B was 833 violative of the fundamental rights under Article 19(1) kg) of the Constitution as it restricts the number of depositors and the rate of interest under Section 4(2)(iii) of the Kerala Moneylenders Act	 1958	 that the two year period prescribed under Section 42 is unreasonable	 and that under the Kerala Act with effect from 15110185 only 149% interest alone could be charged. It was further submitted that while receiving deposits it was not an offence and making it a criminal liability and directing payment	 would amount to ex postfacto law offending Article 20(1) of the Constitution. The writ petition and appeals were contested by submitting on behalf of the Reserve Bank of India that it was open to the Government to regulate economic activities	 and that while examining the validity of such provisions courts a laws have regard to the wisdom of the Legislature as it alone has the necessary information and expertise pointing to the needs for such a legislation. Attention was also drawn to the provisions of the Non Banking Financial Companies (Reserve Bank) Directions of 1966 which came into force on January 1	 1969 which specifically provided that deposits shall be reduced to 25% of the paid up capital for which a two years period was prescribed and that similar directions knows as Non Banking Financial Companies Reserve Bank Directions	 1977 came to be issued with effect from 1st of July	 1977	 Dismissing the writ petition and the appeals	 this Court	 HELD: 1. The impugned legislation no doubt places restrictions on the right of the appellants to carry on business	 but what is essential is to safeguard the rights of various depositors and to see that they are not preyed upon. [844G] 2. The Reserve Bank of India	 right from 1966	 has been monitoring and following the functioning of non banking financial institutions which invite deposits and utilise those deposits either for trade or for other various industries. A ceiling for acceptance of deposits and to requires maintenance of certain liquidity of funds as well as not to exceed borrowings beyond a particular percentage of the net owned funds have been provided in the corporate sector. But for these requirements	 the depositors would be left high and dry without any remedy. [844H	 845A] 3. Even the corporate sector was not free from blame. It had done damage to the economy and brought ruination to small depositors. Ex 834 perience had shown that In many cases deposits taken by the companies had not been refunded on the due dates	 either the companies had gone in liquidation or funds are depleted to such an extent that the companies were not in a position to refund the deposits. It was accordingly considered necessary to control the activities of the companies when accepting deposits from the 'the public". That was why Section 58A in the Companies Act of 1956 came to be introduced. [845B	 C D] 4. The danger of allowing deposits to be accepted without regulation is so acute and urgent	 that to bind the hands of the Legislature that only one course alone is permissible and not to permit a play of joints would be to totally make it ineffective in meeting the challenge of the social evil. The mechanics of any economic legislation has necessarily to be left to the judgment of the executive and unless it is patent that there is hostile discrimination against a class	 the processual basis has to be accepted 5. May be	 Kerala Moneylenders Act restricts the rates of Interest under Section 4(2)(iii) but that cannot enable the writ petitioners to disregard these provisions introduced by the Banking laws (Amendment) Act 1983 being the non banking financial institutions. [846D] 6. Section 45 (1) (bb) of the Reserve Bank Act defines 'deposit. If there are enough sources of deposit there is no reason why the appellants and the writ petitioners cannot reduce the deposits. The prescription of the two year period for reduction is therefore reasonable. [847D] 7. Moreover	 similar directions cam to be issued as Miscellaneous Non Banking Companies (Reserve Bank) Directions. If	 therefore	 this was the position	 it cannot be contended that suddenly the companies like the appellants and the writ petitioners are called upon the reduce deposits. Even otherwise	 the interests of the depositors is the prime concern. [847G	 849B] Kanta Mehta vs Union of India and others	 Company Cases Vol. 62 1987 page 769	 approved. Chiney Bottling Co. Pw. Ltd. vs Assistant Registrar of Companies	 Madras	 page 770	 disapproved. DCM Ltd. vs U. O.I.	 ; ; Srinivasa Enterpries vs Union 835 of India; 	 ; State of West Bengal vs Swapan Kumar Guha ; ; R.K Garg vs Union of India ; and Fatehchand Himmatlal and others vs State of Maharashtra ; 	 referred to	 Reserve Bank of India vs Peerless General Finance and Investment Co. Ltd	 ; ; Peerless General Finance and Investment Co. Ltd vs Reserve Bank of India	 @ 354; Delhi Cloth and General Mills vs Union of India; 	 at page 468 and Reserve Bank of India vs Timex Finance and Investment Co. Ltd.	 at page 354	 referred to.