Shri Mulraj Jayantilal Sheth vs The Governor, Reserve Bank Of ...
2003 Latest Caselaw 549 Bom

JUDGMENT

R.M. Lodha, J.

1. The Petitioner is a senior citizen. In this writ petition his prayer is for issuance of writ of mandamus or order or direction to the Reserve Bank of India (RBI) and Government of India to ensure that the banks revise their paltry 4% or 4.5% interest rates and pay at least 12% interest on the deposits. The petitioner also prays that the said respondents be refrained from penalising the deposits when they cannot maintain bank's self-determined minimum balance. The aforesaid prayers are sought in view that RBI is regulatory authority for the banks under Section 35-A of the Banking Regulation Act, 1949 and it has authority to decide interest rates and banking policy in the interest of public and depositors.

2. Mr. M.B. Kotak, the learned counsel for the petitioner strenuously and vehemently argued before us that the social welfare is the constitutional duty of the State. In India no welfare work is done for ageds except retiring them from work and making them dependent upon others. There is no social security system. Old aged is refuge of variety of illnesses. Forty per cent of the ageds in India live under poverty line. The medical care for aged is almost negligible. The number of senior citizens in India exceeds 7.5 crore. In this background, it is the constitutional duty and obligation of the regulatory authority like RBI and policy makers to ensure that reasonable rate of interest is given by the banks on the deposits. It is also contended by Mr. M.B. Kotak, the learned counsel for the petitioner that by not giving adequate and reasonable interest on the deposits, the banks are virtually exploiting the depositors. He would urge that the bank must not be allowed to penalise the account holders if their balance falls below minimum balance which is arbitrarily fixed by them.

3. Mr. M.B. Kotak placed reliance on State of Haryana v. Darshana Devi and Ors., 1979 ACJ 205 in support of his submission that it is a public duty of each branch of the State to obey the rule of law and uphold the tryst with the Constitution by making rules to effectuate legislation meant to help the poor. He pressed into service Sovintorg (India) Ltd. v. State Bank of India, 1999 CCJ 1142 in support of his submission for higher award of interest. He also cited Panjikaran Paulose Joseph and Ors. v. Kusum Vithal Patil and Ors., 1993 ACJ 242 wherein it was held that the liability to pay interest is upon those who had have had the use of money which legitimately belonged to the claimants. In support of his submission that judiciary is respected not on account of its power to legalize injustice on technical ground, but because it is capable of removing injustice and is expected to do so, Mr. M.B. Kotak referred to Collector, Land Acquisition v. Katiji and Ors., . He also referred to M.S. Grewal and Anr. v. Deep Chand Sood and Ors., 2001 ACJ 1719 to buttress his point that law courts exist for the society and they have an obligation to meet the social aspirations of citizens and law courts must also respond to the needs of the people.

4. In response to the writ petition, initially counter affidavit was filed by RBI on 4.7.2002, but later on supplementary affidavit was filed on 25.4.2003. By way of reply affidavits, RBI has submitted that fixation of interest rate of savings bank accounts is in tune with the monetary and credit policy and the policy statements. The interest rate is fixed taking into account not only the monetary and credit situation of the country but also the banking scenario at large. In the monetary and credit policy announced on 29.4.2002 it was observed that in view of the present deregulated interest rate environment and the reduction in interest rates on Government's small savings schemes in the recent period, there is an apparent case for deregulation of interest rates on savings account also. However, considering the fact that bulk of such savings deposits are held by households, including households in rural and semi-urban areas, it is not considered as opportune time to deregulate the interest rate on savings account for the present. in any case, the present effective yield of 3.4 per cent is quiet reasonable in relation to other prevailing interest rates on short-term instruments. It is submitted that keeping in mind the interest of small depositors, the present saving deposit rate if fixed marginally higher than the average inflation rate of 3.34 per cent for 2002-03. Giving the details of select international interest rates, it is submitted by the RBI that Indian economy to be globally competitive, it is desirable that interest rates in India are comparable to interest rates in other major low inflation countries. The RBI submitted that one of the objectives of monetary policy in India is to impart greater flexibility to the interest rate structure in the medium term. IN line with monetary easing measures and also the declining trend of inflation rate world wide, nominal interest rates has fallen in India. It is submitted that Government of India has reduced the small savings rates during the recent years. These rates are currently linked to the average yields of the Government securities of corresponding maturities that are traded in the secondary market. It is submitted that the RBI that one of the reasons for relatively modest decline in short term deposit rate relate to the implicit floor-set by the saving deposit rate. Most of the bankers in the regular meetings with the RBI felt that saving deposit rate should be either reduced or deregulated. In the opinion of RBI complete deregulation of saving deposit rate is not considered appropriate as it may go below the rate stipulated by the RBI and thereby adversely affect the small depositors. Therefore, an adjustment of saving deposit rate was due in view of decline in interest rates in the economy in general. The present interest rate on savings deposit rate is well aligned with those of small savings deposits and other short term deposit rates.

5. It is no doubt true that petitioner has raised a very vital issue concerning bank depositors generally and aged and senior citizens in particular. The question is : is it the domain of the Court in such matters.

6. Banking Regulation Act, 1949 is the Act to consolidate the law relating to banks and to provide nature of transactions that can be carried on by the banks in India. Since the entire thrust of the Petitioner's argument is based on Sections 5(ca) which defines banking policy and Section 35-A that deals with the power of RBI, we deem it proper to first refer to the said provisions. Section 5(ca) defines "banking policy" thus:-

"(ca) "banking policy" means any policy which is specified from time to time by the Reserve Bank in the interest of the banking system or in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources;"

7. Section 35A deals with the power of RBI. It reads thus:

"Power of the Reserve Bank to give directions-

(1) Where the Reserve Bank is satisfied that-

(a) in the public interest; or (aa) in the interest of banking policy; or

(b) to prevent the affairs of any banking company being conducted in a manner detrimental tot he interests of the depositors or in a manner prejudicial to the interests of the banking company; or

(c) to secure the proper management of any banking company generally;

it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions."

8. There cannot be any dispute that RBI is monetary regulator and it forms banking policy. Such banking policy is specified by RBI from time to time in the interest of banking system or monetary stability or sound economic growth. While formulating banking policy, RBI gives due regard to the interest of deposits and other resources of the bank and need for equitable allotment and efficient use of these deposits and resources. The 'banking policy' as the definition itself suggests is in the nature of policy. It is formulated by the Reserve Bank keeping in view; i) interest of depositors, ii) volume of depositors, iii( other resources of the bank, iv) need for equitable allocation, v) efficient use of these deposits and resources. We are afraid while sitting in the writ jurisdiction under Article 226 this Court would not examine the merits of policy to find out that there could have been better policy and interfere with such policy. Banking policy requires economic and fiscal expertise. The experts who are qualified to address the issue relating to interest rate on bank deposits take into consideration the norms and parameters suggested in Section 5(ca). On matters affecting policy and those requiring expertise, the Court should show deference to interfere unless such policy is contrary to statutory provisions, arbitrary or otherwise unconstitutional. In R.K. Garg v. Union of India (AIR 1981 SC 213), constitution bench of the Apex Court was examining constitutional validity of Special Bearer Bonds (Immunities and Exemptions) Act, as well as Special Bearer Bonds (Immunities and Exemptions) Ordinance. The Apex Court observed 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 court should feel more inclined to give judicial deference in legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. The Apex Court referred to More v. Doud (1956) 354 US 457 where Frankfurter, J. in his inimitable style observed thus:-

"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."

In the backdrop of the aforesaid observations of Frankfurter, J., the Apex Court went on to observe:

"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 adaption of remedy are not always possible and that "judgment is largely a prophecy based on meagre and uninterpreted experience".

9. What was said by the Supreme Court while considering the legality and constitutionality of the laws relating to the economic activities was equally applied to the matters challenging executive action in the field of economic activities by Apex Court. In the State of M.P. v. Nandlal , the Supreme Court observed thus:-

"What we said in that case in regard to legislation relating to economic matters must apply equally in regard to executive action in the field of economic activities, though the executive decision may not be placed on as high a pedestal as legislative judgment in so far as judicial deference is concerned. We must not forget that in complex economic matters every decision is necessarily empiric and it is based on experimentation or what one may call 'trial and error method' and, therefore, its validity cannot be tested on any rigid 'a priori' considerations, or on the application of any strait jacket formula. The court must while adjudging the constitutional validity of an executive decision relating to economic matters grant a certain measure of freedom or 'play' in the "joints" to the executive. "The problem of Government" as pointed out by the Supreme Court of the United States in Metropolis Theatre Company v. State of Chicago, (1912) 57 L ed 730 "are practical ones and may justify, if they do not require, rough accommodations, illogical, it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not discernible, the wisdom of any choice may be disputed or condemned. Mere errors of Government are not subject to our judicial review. It is only its palpably arbitrary exercise while can be declared void". The Government, as was said in Permian Basin Area Rate cases, (1968) 20 L ed (2d) 312, is entitled to make pragmatic adjustments which may be called for by particular circumstances. The Court cannot strike down a policy decision taken by the State Government merely because it feels that another policy decision would have been fairer or wiser or more scientific or logical. The Court can interfere only if the policy decision is patently arbitrary, discriminatory or mala fide. It is against the background of these observations and keeping them in mind that we must now proceed to deal with the contention of the petitioners based on Article 14 of the Constitution'.

10. Applying the aforesaid yardstick, we are afraid, the banking policy framed by RBI and under challenge before us, cannot be said to be patently arbitrary or discriminatory or mala fide. Nor can it be said that the RBI has not taken into consideration diverse factors such as interest on deposits, value of deposits, resource of the bank, need for equitable allocation, efficient use of such deposits and resources, decline in interest rates in economic yield of Government Securities of corresponding maturities and low interest rates in other major low inflation countries, while formulating the banking policy. The very fact that the RBI has not acceded to demand of various banks for non deregulation of interest rates, itself suggests that RBI has had due regard to the interest of depositors. RBI apprehends that in the event deregulation of interest rate is made, interest rate on saving deposits may still go low. Interest of depositors thus, has been kept in mind. In the regime of liberalised economy, if policy makers, to make Indian market competitive and comparable wit global market, have gone in for soft interest rates, they must have freedom to play in the joints. All in all the power conferred upon RBI to give directions under Section 35-A can not be said to have not been exercised in public interest or in the interest of banking policy. It is true that senior citizens who are dependent on interest income have been victims of low interest regime and because of lack of social security and health care have suffered substantially, but this problem has to be addressed by policy makers and early it is done, better it is. We fervently hope that the concerned authorities shall address this issue for welfare of large number of ageds and senior citizens in the country.

11. We do not find it necessary to refer to the judgments cited by the learned Counsel for the petitioners individually as in our considered view none of those judgments has direct relevance or bearing on the questions raised in this writ petition. We remind ourselves of the classic statement of the Privy Council in Quinn v. Leathem (1901 A.C. 495) that a case is only an authority for what it actually decides and not what seems to logically follow from it. The judgments referred to, relied upon as cited by the learned Counsel for the petitioners relate to controversy raised therein concerning interest in claim cases and has nothing to do with the interest rate fixed by monetary regulator.

12. We may also observe that while hearing the writ petition, we have taken into consideration the amendments proposed by the petitioner in the Civil Application treating it as part of the Writ Petition.

With the aforesaid observations, we dispose of the writ petition and Civil Application as well. No costs.

Certified copy expedited.