Gujarat High Court
Gujarat Rajya Karmachari Co-Operative ... vs Reserve Bank Of India (Rbi) on 9 January, 2025
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 19270 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA AGARWAL
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
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Approved for Reporting Yes No
✔
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GUJARAT RAJYA KARMACHARI CO-OPERATIVE BANK LTD.
Versus
RESERVE BANK OF INDIA (RBI) & ORS.
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Appearance:
MR VISHWAS K SHAH(5364) for the Petitioner(s) No. 1
MR AMAR N BHATT(160) for the Respondent(s) No. 1
MR SHUSHIL R SHUKLA(5603) for the Respondent(s) No. 3
NOTICE SERVED BY DS for the Respondent(s) No. 2
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CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
SUNITA AGARWAL
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 09/01/2025
ORAL JUDGMENT
(PER : HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA AGARWAL)
1. Mr. Vishwas K Shah, learned advocate appearing for the petitioner, at the outset, would submit that the petitioners have instructed him not to press the prayer 9(a) made in the writ petition. The said request is hereby accepted. A further prayer made by the learned counsel to delete the Union of Page 1 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined India from the array of parties for the fact that the prayer No. 9(a) of the prayer clause of the writ petition has been withdrawn, is hereby allowed. Prayer 'a' of the Prayer Clause '9' and the Union of India as Respondent No.3 in the array of parties are permitted to be deleted. Learned counsel for the petitioner is directed to make necessary incorporations in the writ petition within the course of the day.
2. Heard learned counsel for the parties and perused the record.
3. The remaining prayers made in the writ petition are as under:-
"(b). Be pleased to declare clause 1.2, 1.3 and 1.4 of Master Circular on area of operation, branch authorization policy, Opening/ upgradation of extension Counters, ATMs and shifting / Splitting / Closure of Offices of Reserve Bank of India as ultra Vires the Constitution of India and Banking Regulation Act, 1949.
(c). Be pleased to quash and set aside impugned communication issued by Reserve Bank of India dated 07.08.15 (Annexure P/1)."
4. The petitioner herein is a co-operative bank registered with the Registrar of Co-operative Societies under the Gujarat Co-operative Societies Act' 1961. The petitioner is a Tier I bank operating in the District Ahmedabad. It is stated that the petitioner bank has a number of branches in the State of Gujarat and is regulated under the Banking Regulation Act' 1949.
5. The challenge in the writ petition is to the Master Circular of the Reserve Bank of India issued in the year 2012 regulating the operations of the banking companies including Page 2 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined co-operative banks, in the matter of expanding their areas of operation and to open new branches.
6. The further challenge is to the communication dated 07.08.2015 issued by the Reserve Bank of India, wherein it is stated that the Registrar, Co-operative Societies vide letter dated 31.01.2009 had given approval to the petitioner bank for operating in districts Ahmedabad, Gandhinagar, Kheda, Anand, Surendranagar, Patan, Mahesana, Vadodara, Bhavnagar and Sabarkantha Districts and six more districts viz. Banaskantha, Bharuch, Narmada, Rajkot, Kachchh - Bhuj and Amreli; adjoining to the aforesaid districts were approved vide the letter dated 10.10.2010 of the Registrar, Co-operative Societies (in total 16 districts).
7. There is a further reference therein of Paragraph 1.2 of the Master Circular on the area of operation dated 01.07.2014, wherein it is provided that the licensed Tier-I Urban Co-operative Banks (UCBs) may extend their area of operations to the whole of the district of registration and its adjoining districts within the state of registration. As the district of registration of the petitioner bank is Ahmedabad, it can expand its business to the adjoining districts only namely Gandhinagar, Kheda, Anand, Surendranagar, Mahesana and Bhavnagar, which are the adjoining districts of Ahmedabad. Further, keeping in mind that two new districts namely Botad and Mahisagar had been created by the bifurcation of the adjoining districts namely Bhavnagar and Kheda; respectively, No Objection Certificate (NOC) has been issued by the Reserve Bank of India to the petitioner bank for those two newly Page 3 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined created districts namely Botad and Mahisagar.
8. Further, direction had been issued in the nature of advisory that in case of any future proposal for extension of the area of operation, NOC from the Reserve Bank of India may be first asked before considering any request for the Urban Co- operating Bank in future. There is a reference of the letter dated 01.07.2015 of the Reserve Bank of India, wherein similar request was made. This letter is addressed to the Registrar, Co-operative Societies, Gandhinagar.
9. The relevant clauses of the 2015 Master Circular at the writ petition at Page '203' namely Clauses '1.2', '1.3' and '1.4', which are subjected to challenge in the writ petition are to be extracted hereinunder in the writ petition for ready reference:-
"1.2 Licensed Tier I and Tier II UCBs satisfying the criteria stated below may extend their area of operation to the whole of the district of registration and to its adjoining districts within their State of registration, without prior permission from the Reserve Bank of India subject to satisfying the following norms:
(a) CRAR not being less than 10 per cent;
(b) Net NPAs being less than five per cent;
(c) No default in the maintenance of CRR / SLR during the preceding financial year;
(d) Continuous net profit for the last three years;
(e) Sound internal control systems with at least two professional directors on the Board; and
(f) Regulatory comfort based on, inter-alia, record of compliance with the provisions of Banking Regulation Act, Page 4 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined 1949 (AACS), RBI Act, 1934 and the instructions / directions issued by RBI from time to time.
The Urban Co-operative Banks, which fulfill the above stated six norms, are called "Financially Sound and Well Managed (FSWM)" UCBs.
Such FSWM UCBs need not approach Reserve Bank of India for seeking 'no objection' for extension of area of operation as stated above. Such banks may directly approach the RCS of the State concerned for extension of area of operation to the entire district of registration and its adjoining districts within the State of registration.
1.3 The uni-state Tier II UCBs may extend their area of operation to the entire State of Registration on fulfilling the conditions stipulated for FSWM UCBs.
1.4 Tier II UCBs registered or deemed to be registered under the Multi-State Co-operative Societies Act, 2002 satisfying the criteria for FSWM UCBs will be permitted to extend their area of operation to the entire State of original registration. RBI will consider requests for expansion of area of operation to the entire state from licensed Tier II UCBs or UCBs registered or deemed to be registered under the Multi-State Co-operative Societies Act, 2002 and which fulfil the above criteria stated for FSWM UCBs as per the last RBI inspection. Also the Assessed Net Worth (ANW) of such FSWM UCBs should not be less than the entry point capital norms prescribed for the highest category centre in that district(s), applicable to a new general category bank, as indicated in Annex I. While considering such applications, RBI will give due consideration to system of internal controls prevailing in the bank and supervisory comfort. UCBs desirous of extending their area of operation to the entire state may approach the Regional Offices of Reserve Bank of India for prior approval."
10. Placing these clauses before us, it was sought to be submitted by the learned counsel for the petitioner that there Page 5 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined is no rationale for restraining Tier-I banks from expanding their areas of operation beyond their districts of registration and the adjoining districts. The petitioner bank is a registered Co- operative society besides being a co-operative bank. Though the petitioner being a co-operative bank is being covered by the Banking Regulation Act' 1949 and is regulated by the Reserve Bank of India and no quarrel can be made with regard to the application of the Banking Regulation Act' 1949 or the Master Circular issued by the Reserve Bank of India. However, there is no rationale behind different criterias being adopted for two categories of bank namely Tier-I banks and Tier-II banks. The contention is that both the banks being co- operative societies registered under the Co-operative Societies Act cannot be discriminated. In the affidavit filed by the Reserve Bank of India, no rationale or plausible reason could be pointed out which would give any justification to the classification.
11. The reliance is placed on the decision of the Apex Court in the case of Ramesh Chandra Sharma v. State of U.P., [(2024) 5 SCC 217] to submit that the offending clauses of the circular as noted hereinabove cannot withstand the scrutiny of two tests namely the reasonable classification test and proportionality test.
12. With the aid of the said decision, it was argued that for any classification to survive the test of Article 14, the classification must be based on intelligible differentia, and it Page 6 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined must have a rational nexus to the objects sought to be achieved by the law. The object sought to be achieved must also be lawful, and if the object of the law itself is found to be discriminatory, then such discrimination must be struck down.
13. Placing the law relating to the proportionality test, it is submitted that the proportionality test has been used by Indian Courts to examine as to whether the appropriate and / or least-restrictive choice of measures has been made by the legislature or the administrator so as to achieve the object of the legislation or the purpose of the administrative order, as the case may be. Under the proportionality principle, the Court will see that the legislature and the administrative authority maintain a proper balance between the adverse effects which the legislation or the administrative order may have on the rights, liberties or interests of persons keeping in mind the purpose which they were intended to serve.
14. It is submitted that the Apex Court therein has held that the legislature and the administrative authorities are, though, given an area of discretion or a range of choices but as to whether the choice made infringes the rights excessively or not is for the court to see and that is what is meant by proportionality. The submission, thus, is that the rationale behind the classification of two categories of banks and restricting Tier I banks from extending their area of operations as employed in Clauses '1.2', '1.3' and '1.4' of the RBI Circular under challenge, if tested on the anvil of reasonable Page 7 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined classification and proportionality, would fall to the standards laid down by the Apex Court.
15. This Court, therefore, is called upon to invoke its power of judicial review to examine as to whether the classification created, has a rational nexus to the object sought to be achieved and the restrictions put forth by the RBI can withstand the test of proportionality, which does not infringe the rights excessively.
16. Mr. Amar Bhatt, learned advocate appearing for the Respondent RBI has invited attention of the Court with the stand of the RBI taken in the affidavit dated 11.07.2016. It is stated therein that the RBI has been issuing instructions on matters relating to area of operation, opening of branches, etc. in terms of the powers vested in it under Sections 22, 23 and 35 A of the Banking Regulation Act, 1949 either directly to primary (urban) co-operative banks or through the Registrar of Co-operative Societies of the concerned states upto September 2003. The instructions on extension of area of operation, etc. are in vogue since April 2001. An urban co-operative bank desirous of extending its area of operation beyond adjoining districts to its district of registration but within the State may do so with the prior permission of the Reserve Bank, subject to compliance of the prescribed norms.
17. Reliance has been placed in the decision of the Apex Court in the case of Bhavesh D. Parish v. Union of Page 8 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined India, [(2000) 5 SCC 471] to place that:-
"23. It was further submitted that the amendments were introduced after taking into account the recommendations of successive committees, appointed by the Bank and the Government of India, which had studied the functioning of these bodies. The question of restricting such financial activity by unincorporated bodies, is a question of economic policy as it involves regulation of economic activities by different constituents . In such matters of economic policy, this Hon'ble Court does not interfere with the decision of the expert bodies which have examined the matter. The following observations of this Hon'ble Court made in R.K. Garg v. Union of India at p.969 are appropriate to:-
"8. Another rule of equal importance is that laws relating 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 straitjacket formula and this is particularly 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 court should feel more inclined to give judicial deference to legislative 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 v. Doud [354 US 457 : 1 L Ed 2d 1485] where Frankfurter, 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 Page 9 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined 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 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 p. 988 it is further held: (SCC p. 706, para 19) "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."
18. We may also refer to the decision of the Apex Court in Bhavesh D. Parish (supra), relied by the learned counsel for the Respondent RBI, wherein referring to the previous decision of the Apex Court in the case of R.K. Garg v. Union of India [(1981) 4 SCC 675], it was noted that the laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. 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 Page 10 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined doctrinaire or straitjacket formula. Particularly in the 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 Court should not interfere rather the Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved.
19. The Master Circular issued by the Reserve Bank of India is basically a consolidation of all related circulars and it is reviewed every year in the month of July to incorporate the changes / modifications made from July to June of the previous years. In terms of the Master Circular dated 02.07.2012, Tier-2 UCBs were permitted to extend their area of operation beyond adjoining districts only with prior permission of RBI.
20. It is clarified that as extension of area of operation entails organic growth of a bank by way of opening of new branches and advancement of credit to new members in its extended area of operation, it has been a conscious decision on the part of RBI to permit only those banks having the requisite internal control system commensurate with the increased challenges that will be faced by the UCBs in its extended geography to extend to the whole of state. Thus, Financially Sound and well managed Tier-I UCBs (having deposit of less than 100 crore) are permitted to grow to Tier-II by allowing them to open branches / extend advances in the adjoining district to achieve a critical mass and once this Page 11 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined critical mass is achieved, Tier-II UCBs (having deposits of more than 100 crore) are permitted to grow further, keeping in view their improved risk taking capabilities, commensurate with their size.
21. Taking note of the above, we may record that Clauses 1.2, 1.3 and 1.4 of the Master Circular' 2015 which are under challenge in this present petition are the economic policy decisions of the RBI. It is a settled position of law that in the matters of economic policy, the decision of the RBI should not be ordinarily interfered with. We may also note that the rationale given by the RBI in its affidavit ensures organic growth of a co-operative bank.
22. The contention of the learned counsel for the petitioner that the restrictions put forth by the Master Circular in not permitting the Tier I bank from operating beyond the district of its registration and its adjoining districts, has no rationale with the objects sought to be achieved, therefore, is found to be devoid of merits. The principle of proportionality, as sought to be pressed in service, cannot be applied in this case, inasmuch as, it is not a case where two persons belonging to the same class have been discriminated.
23. The Tier-I and Tier-II banks have been classified into separate classes by the RBI taking into consideration of the financial capacity and the ability to take risk. The manner in which the organic growth of co-operative banks, is ensured with the conditions put forth in the Master Circular of RBI, is a Page 12 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined matter of pure economic policy and the Constitutional Court, in its limited power of judicial review under Article 226 of the Constitution of India, cannot act as a court of appeal to substitute its view, inasmuch as, the Courts are not experts in economic policies.
24. The reference may be made to paragraph Nos.47, 93 and 98 the decisions of the Apex Court in the case of BALCO Employees' Union (Regd.) v. Union of India, [(2002) 2 SCC 333], which reads as under:-
"47. Process of disinvestment is a policy decision involving complex economic factors. The courts have consistently refrained from interfering with economic decisions as it has been recognised that economic expediencies lack adjudicative disposition and unless the economic decision, based on economic expediencies, is demonstrated to be so violative of constitutional or legal limits on power or so abhorrent to reason, that the courts would decline to interfere. In matters relating to economic issues, the Government has, while taking a decision, right to "trial and error" as long as both trial and error are bona fide and within limits of authority. There is no case made out by the petitioner that the decision to disinvest in BALCO is in any way capricious, arbitrary, illegal or uninformed. Even though the workers may have interest in the manner in which the Company is conducting its business, inasmuch as its policy decision may have an impact on the workers' rights, nevertheless it is an incidence of service for an employee to accept a decision of the employer which has been honestly taken and which is not contrary to law. Even a government servant, having the protection of not only Articles 14 and 16 of the Constitution but also of Article 311, has no absolute right to remain in service. For example, apart from cases of disciplinary action, the services of government servants can be terminated if posts are abolished. If such employee cannot make a grievance based on Part III of the Constitution or Article 311 then it cannot stand to reason that like the petitioners, non-government employees working in a company which by reason of judicial pronouncement may be regarded as a State for the purpose of Part III of the Constitution, can claim a superior or a better right than a government servant and impugn its change of status. In taking of a policy decision in economic matters at length, the principles of natural justice have no role to play. While it is expected of a responsible employer to take all aspects into consideration including welfare of the labour before taking any Page 13 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025 NEUTRAL CITATION C/SCA/19270/2015 JUDGMENT DATED: 09/01/2025 undefined policy decision that, by itself, will not entitle the employees to demand a right of hearing or consultation prior to the taking of the decision.
93. Wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. In other words, it is not for the courts to consider relative merits of different economic policies and consider whether a wiser or better one can be evolved. For testing the correctness of a policy, the appropriate forum is Parliament and not the courts. Here the policy was tested and the motion defeated in the Lok Sabha on 1-3-2001.
98. In the case of a policy decision on economic matters, the courts should be very circumspect in conducting any enquiry or investigation and must be most reluctant to impugn the judgment of the experts who may have arrived at a conclusion unless the court is satisfied that there is illegality in the decision itself."
25. Taking note of the above, we do not find any force in the challenge. The writ petition challenging the Clauses of the Master Circular issued by the RBI and the communication dated 07.08.2015 of the RBI directing the Co-operative Registrar to seek for NOC of the RBI before granting permission to co-operative banks for expansion of their areas, cannot be sustained as they cannot be said to suffer from any error of law.
26. The writ petition is, accordingly, dismissed. No order as to costs.
(SUNITA AGARWAL, CJ ) (PRANAV TRIVEDI,J) SAHIL S. RANGER Page 14 of 14 Uploaded by MR. SAHIL SAMIULLA RANGER(HC01898) on Sat Jan 18 2025 Downloaded on : Fri Jan 31 23:48:00 IST 2025