Delhi High Court
Shri Ram Kishan Gupta vs Union Of India & Ors. on 17 January, 2014
Author: Manmohan
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 10266/2009
SHRI RAM KISHAN GUPTA ..... Petitioner
Through Mr. Harish Malhotra, Senior
Advocate with Mr. R.K. Modi,
Advocate
versus
UNION OF INDIA & ORS. ..... Respondents
Through Mr. O.P. Gaggar, Adv. for R-2/UBI
Mr. Jayant Bhushan, Senior Advocate
with Mr. H.S. Parihar and Mr. K.S.
Parihar, Advocates for R-3/DICGC.
Reserved on : 16th December, 2013
% Date of Decision : 17th January, 2014
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE MANMOHAN
JUDGMENT
MANMOHAN, J:
1. Present writ petition has been filed under Article 226 of the
Constitution of India for the following reliefs:-
i) A writ of certiorari or any other appropriate writ or
direction against the respondent thereby quashing the
provisions of section 16(2) of The Deposit, Insurance and
Credit Guarantee Corporation Act, 1961, being ultra vires
and unconstitutional;
ii) A writ of mandamus or any other appropriate writ or
direction in favour of the petitioner and against the
respondents thereby directing the respondents to forthwith
release the balance of the Fixed Deposit/Re-investment
Deposit Receipt dated 23rd February, 1999 for
Rs.25,50,000/- alongwith its all maturity benefits to the
petitioner;
iii) cost of the writ be also awarded in favour of the petitioner
and against the respondents;
iv) pass any other or further orders as this Hon'ble Court may
deem fit and proper in the facts and circumstances of the
case in favour of the petitioner and against the respondents.
Facts
2. The facts of the present case are that on 23rd February, 1999 petitioner
had deposited Rs.25,50,000/- in a Fixed Deposit Receipt (FDR) with
Sikkim Bank Ltd. for a period of ninety-one days. However, on 8th March,
1999, that means before the FDR matured, Government of India passed an
order of moratorium under the Section 45(2) of the Banking Regulation Act,
1949 (for short 'Act, 1949').
3. In pursuance to the aforesaid moratorium order, the Scheme of
Amalgamation (for short 'Scheme') was notified on 21st December, 1999 by
virtue of which Sikkim Bank Ltd. was amalgamated with Union Bank of
India. This Scheme was challenged by various depositors before the
Supreme Court. Finally, on 27th August, 2005 the Supreme Court approved
the validity of the Scheme and held that RBI was not responsible for refund
of the entire money deposited by the customers with interest.
4. In the above connection, it is important to note that Sikkim Bank Ltd.
was duly insured with the respondent no. 3- Deposit Insurance & Credit
Guarantee Corporation and in accordance with Sections 16 and 18 of the
Deposit Insurance & Credit Guarantee Corporation Act 1961 (for short 'Act,
1961'), respondent no. 3 had to pay every depositor atleast the 'specified
amount'. As per the Scheme, the total readily realisable asset of erstwhile
Sikkim Bank Ltd. could meet only 9.037% of the total deposits of the
creditors. Accordingly, the petitioner received a sum of Rs. 2,37,050.63,
which admittedly was more than the 'specified amount' of Rs.1,00,000/-.
5. Thereafter, on 14th July, 2006 petitioner filed a writ petition praying
for a direction to the respondent to forthwith release the balance of the FDR
to the petitioner. The said writ petition was disposed of on 30 th March, 2009
with liberty to the petitioner to file another writ petition urging the same
grounds and also additionally challenging the provisions of the Act, 1961.
Thus, the present writ petition came to be filed before this Court.
Petitioner'S submission
6. Mr. Harish Malhotra, learned senior counsel for the petitioner in the
course of his arguments restricted his prayer to quashing of Section 16(2) of
the Act, 1961 to the extent it restricted the liability of respondent No.3 upto
Rs.1,00,000/- i.e. the 'specified amount'. He contended that under Section
16(2) of the Act, 1961 the difference between the amount paid and the
amount deposited had to be reimbursed by respondent No.3.
7. According to Mr. Harish Malhotra, by virtue of Section 45(5)(g) of
the Act, 1949, depositors had to be paid in full satisfaction of their claim in
respect of their rights or interests against the banking company before its
amalgamation. The relevant portion of Section 45 of the Act, 1949 is
reproduced hereinbelow:-
"45. Power of Reserve Bank to apply to Central Government for
suspension of business by a banking company and to prepare
scheme of reconstitution or amalgamation.--
xxxx xxxx xxxx
(5) The scheme aforesaid may contain provisions for all or any of
the following matters, namely:
xxxx xxxx xxxx
(g) the payment in cash or otherwise to depositors and other
creditors in full satisfaction of their claim--
(i) in respect of their interest or rights in or against the
banking company before its. reconstruction or
amalgamation; or
(ii) where their interest or rights aforesaid in or against the
banking company has or have been reduced under Cl. (f), in
respect of such interest or rights as so reduced;"
8. Mr. Malhotra stated that as per the Scheme, pro rata share had to be
provided which had to be valued on the basis of the assets received by the
transferee bank at the first instance and the balance amount had to be paid
after receiving the same from respondent no. 3. According to him, Clause
6(b) and 6(c) of the Amalgamation Scheme was void as it was contrary to
Section 45(5)(g) of the Act, 1949. Clause 6(b) and 6(c) of the
Amalgamation Scheme are reproduced hereinbelow:-
"Chapter III : Payment to creditors and depositors
6.Discharge of liability of the transferor bank:--In
consideration of the transfer of the property, and the assets of
the transferor bank to the transferee bank, the transferee bank
shall discharge the liabilities of the transferor bank to the extent
mention in this and the following clauses, namely:-
xxxx xxxx xxxx
(b) in respect of every savings bank account or current account
or any other deposit account including a fixed deposit, cash
certificate, monthly deposit, deposit payable at call or short
notice or any other deposit by whatever name called with the
transferor bank and every other account not covered by clause
(a) including the interest to extent payable under the scheme,
the transferee bank shall open with itself on the prescribed date
a corresponding and similar account in the name of the
respective holders thereof crediting thereto the pro rata share
available in respect of each of the accounts out of the assets
referred to in para 5 as valued for the purposes of this scheme
on the prescribed date, after excluding from the said assets as
so valued the advances considered not readily realizable or bad
or doubtful or recovery, any asset or portion of an asset not
valued on the prescribed date and any amount needed for the
payment or provisions mentioned at clause (a) above and after
adding to the said assets so valued the aggregate amount of the
payments made in terms of clause (a) (i) of paragraph 2 of the
order of moratorium dated the 4th September, 1999 issued to the
transferor bank:.....
(c) After the credits referred to in clause (b) above have been
afforded, the transferee bank shall, with the least possible delay
but in any case not later than three months from the prescribed
date, furnish to the Deposit Insurance and Credit Guarantee
Corporation established under the Deposit Insurance and
Credit Guarantee Corporation Act, 1961 (hereinafter referred
to as the Corporation) a list complying in all respects with the
requirements of sub-section (1) of section 18 of that Act and
thereafter whenever amounts referred to in sub-section (2) of
section 18 of that Act are received from the Corporation, the
transferee bank shall credit each of the accounts referred to in
clause (b) above, within seven days from the date or dates on
which the amount are received, to the extent of the sums due to
that amount in accordance with sub-section (2) of section 18 of
that Act.........."
(emphasis supplied)
9. Mr. Malhotra submitted that since respondent no. 3-Corporation had
been receiving premium on the entire deposit, respondent no. 3-Corporation
could not turn around and say that their liability was restricted to Rs.
1,00,000/- only i.e. the specified amount. According to him, Sections 16(2),
16(3), 16(4), 18 along with Sections 15, 2(j), 2(l) made it absolutely clear
that in the case of amalgamation, the difference in the amount paid and the
amount deposited had to be paid by respondent no.3. He submitted that the
specified amount which was earlier Rs.1500/- but later increased to
Rs.1,00,000/-, had no relevance to the payment to be made in the present
case under Section 16(2) i.e. in the case of reconstruction, arrangement or
amalgamation. In any event, he submitted that if such a limitation of
liability is read under Section 16(2), then it would be contrary to main object
of the Act and would negate Section 15 of the Act, 1961.
Respondent no. 2'S submissions
10. Mr. O.P. Gaggar, learned counsel for the respondent no. 2 stated that
the present case was not a case of consensual amalgamation as understood in
Company law but was a takeover of an undertaking and transfer of the same
by Reserve Bank of India with the permission of government under its
statutory powers. He stated that since majority of the funds of the erstwhile
Sikkim Bank Ltd. had been siphoned off by its promoters, the total readily
realisable asset, as per Scheme, was only 9.037% of the total deposits.
Mr.Gaggar pointed out that criminal prosecutions have been launched by the
Central Bureau of Investigation against the promoters of the erstwhile
Sikkim Bank Ltd. before the special court.
11. Mr. Gaggar submitted that the petitioner is not entitled to any relief in
the present petition since he had himself chosen to deposit his money in lure
of a very high rate of interest. He stated that Sikkim Bank Ltd. had never
been granted a licence by Reserve Bank of India.
12. Mr. Gaggar further submitted that the present writ petition was not
maintainable for recovery of the amount deposited, as deposit in a bank is in
the nature of private contract.
Respondent no. 3'S submissions
13. Mr. Jayant Bhushan, learned senior counsel for respondent no. 3-
Corporation submitted that the Act, 1961 was enacted for the purpose of
insurance of small deposits and guaranteeing of credit facilities. He stated
that respondent no. 3-Corporation subsisted on very small premium
(15 paise/Rs.100) charged from the banks (not from the depositors) and as
per Section 16(1) and (2) of the Act, 1961 Rs. 1 lakh had been determined to
be the maximum amount which could have been insured. The relevant
portion of Section 16 of the Act, 1961 is reproduced hereinbelow:-
16.(1).............
xxxx xxxx xxxx xxxx
Provided further that the total amount payable by the
Corporation to any one depositor in respect of his deposit in that
bank in the same capacity and in the same right shall not exceed
one thousand and five hundred rupees5.
---------------------------------------
(5. In exercise of power conferred under Second proviso to
section 16 (1), the amount of Rs. 1,500 raised to Rs. 5,000 w.e.f.
January 1, 1968; Rs. 10,000 w.e.f. April 1, 1970; Rs. 20,000
w.e.f. January 1,1976; Rs. 30,000 w.e.f. July 1, 1980; and
Rs. 1,00,000 w.e.f. May 1, 1993.)"
14. Mr. Jayant Bhushan further stated that the petitioner had already
received the maximum admissible amount as per the Scheme and therefore,
respondent no. 3-Corporation was not liable to pay any further amount under
Section 16(2) of the Act, 1961 as the amount received was far in excess of
the 'specified amount' of Rs.1,00,000/- mentioned in the Act, 1961.
Statement of Objects and Reasons as well as the relevant provisions of
the Act, 1961
15. Having heard learned counsel for parties, this Court is of the view that
it is first essential to outline the Statement of Objects and Reasons as well as
the relevant provisions of the Act, 1961. The same are reproduced
hereinbelow:-
" Statement of Objects and Reasons
The question of establishing statutory Corporation for insuring
deposits in commercial banks has been under consideration for
some time. Various suggestions or proposals, in this connection
including the recommendations made by the Shroff Committee on
finance for private sector which reported in 1954, have been
examined in consultation with the Reserve Bank and the
representatives of the commercial banks and is now considered
desirable that the scheme should be implemented at a very early
date.
2. The Deposit Insurance Corporation will be established as a
wholly owned subsidiary of the Reserve Bank with a paid up
capital of a crore of rupees. It will insure all deposits in
commercial banks including the State Bank of India and its
subsidiaries other than the deposits belonging to Central
Government or to a State or foreign Government or to insured
banks. The limit of insurance cover will be Rs.1500 but this limit
may be raised by the Corporation with the previous approval of
the Central Government. The maximum rate for which provisions
is being made in the Bill is 15 naye paise per hundred rupees per
annum.
3. The Corporation's liability will arise and be discharged in
the event of liquidation of a bank or the enforcement in relation to
it a scheme of compromise or arrangement or reconstruction or
amalgamation. The payment due to depositors upto limit of
insurance cover offered by the Corporation will be made in most
convenient and expeditious manner, which may be possible.
4. The Bill is intended to give effect to these proposals. The
notes on clauses explain in detail the various provisions contained
in the Bill.
Relevant provisions of the Act, 1961
16. Liability of Corporation in respect of insured deposits.
xxx xxx xxx
(2) Where in respect of an insured bank a scheme of compromise
or arrangement or of reconstruction or amalgamation has been
sanctioned by any competent authority and the said scheme
provides for each depositor being paid or credited with, on the
date on which the scheme comes into force, an amount which is
less than the original amount and also the specified amount, the
Corporation shall be liable to pay to every such depositor in
accordance with the provisions of section 18 an amount
equivalent to the difference between the amount so paid or
credited and the original amount, or the difference between the
amount so paid or credited and the specified amount, whichever is
less :
Provided that where any such scheme also provides that any
payment made to a depositor before the coming into force of the
scheme shall be reckoned towards the payment due to him under
that scheme, then the scheme shall be deemed to have provided for
that payment being made on the date of its coming into force.
xxx xxx xxx
(4) In this section,
xxx xxx xxx
(b) "specified amount" means one thousand and five hundred
rupees, or as the case may be, the amount fixed by the
Corporation under the third proviso to sub-section (1).
xxx xxx xxx
18. (1) Where a scheme of amalgamation of any insured bank with
any other banking institution (hereinafter referred to as the
transferee bank) or a scheme of compromise or arrangement or of
reconstruction in respect of such bank has been sanctioned and
the Corporation has become liable to pay to depositors of the
insured bank under sub-section (2) of section 16, the transferee
bank where the scheme is of amalgamation and the insured bank
in any other case shall, with the least possible delay and in any
case not later than three months from the date on which such
scheme, takes effect, furnish to the Corporation a list in such form
and manner as may be specified by the Corporation and certified
to be correct by the chief executive officer of the transferee bank
or, as the case may be, of the insured bank showing separately
deposits in respect of each depositor and the amounts of set off
referred to in sub-section (3) of section 16 and also the amounts
paid or credited or deemed to have been paid under the scheme.
(2) Before the expiry of two months from the receipt of such list,
the Corporation shall pay the amount payable under section 16
either directly to the depositor or to the transferee bank or the
insured bank for being credited in his account."
(emphasis supplied)
Intention of Parliament was to protect the interest of the small
depositors fully and protect other depositors upto a limited extent
16. Upon a harmonious construction of the aforesaid provisions as well as
the Statement of Objects and Reasons of the Act 1961, we are of the view
that the insurance required to be provided by respondent no.3 is not full or
general insurance, but only upto a limit of Rs.1,00,000/- (raised in stages
from the original amount of Rs.1500/-). It is pertinent to mention that the
Statement of Objects and Reasons to the Act, 1961, clearly shows that the
intention of the Parliament was to protect the interest of the small depositors
fully and protect other depositors upto a limited extent. In our opinion, it
was never the intention of legislature while enacting Act, 1961 to provide
full protection to large depositors. Keeping in view the changing economic
scenario, the limit which was initially fixed at Rs.1500/- has been enhanced
w.e.f. 1st May, 1993 to Rs.1,00,000/-.
17. Moreover, petitioner's interpretation of Section 16(2) is contrary to the
explicit language of the Section itself. Section 16(2) clearly stipulates that
only if the scheme of amalgamation provides for an amount which is less
than the original amount and/or the specified amount (i.e. Rs. 1,00,000/-)
would the Respondent No. 3 be liable to pay any amount. In the present
case since the petitioner has already received more than the specified
amount (i.e. Rs. 1,00,000/-), respondent No. 3 is not liable to pay anything
more.
Present limit of Rs.1,00,000/- is reasonable and has nexus with the
object sought to be achieved by the Act, 1961
18. We are in agreement with Mr. Bhushan's argument that with the
present limit of Rs.1,00,000/- a majority of small depositors of banks are
fully protected. Further, as respondent no.3 subsists on very small premium
charged from the banks (not from the depositors) it cannot be said that the
entire amount of the depositors is insured. In our view, Rs.1,00,000/- which
has been determined to be the maximum insured amount, is reasonable and
has nexus with the object sought to be achieved by the Act, 1961.
Limit of insurance and premium to be paid are purely policy matters,
which cannot be adjudicated upon
19. Further, the legislature under the third proviso to Section 16(1) of the
Act, 1961 has conferred on the Corporation with the previous approval of
the Central Government, the power to raise the limit upto which an account
is to be insured and how much premium is to be paid. Consequently, we are
of the view that both the issues namely, limit of insurance and premium to
be paid are purely policy matters, which cannot be adjudicated upon. The
Supreme Court in State of Madhya Pradesh & Ors. vs. Nandlal Jaiswal &
Ors., (1987) 1 SCR 1 had held "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 of
logical......"
Section 45(5)(g) of the Act, 1949 is not mandatory
20. Reliance by Mr. Harish Malhotra, learned senior counsel for
petitioner on Section 45(5)(g) of the Act, 1949, is misplaced in law. Section
45(5) of Act, 1949 contains the word 'may' in the opening sentence itself.
Consequently, Section 45(5)(g) is not mandatory in nature but only
directory. Consequently, said sub-section cannot be enforced and Clause
6(b) and (c) of the Scheme cannot be struck down as void.
Supreme Court has already upheld the validity of the present Scheme
21. It is pertinent to mention that Supreme Court in Pramod Malhotra &
Ors. vs. Union of India & Ors., (2004) 3 SCC 415 has upheld the validity of
the present Scheme of Amalgamation. In fact, the Supreme Court held that
the present Scheme is in the interest of public at large and interest of a few
depositors cannot outweigh the interest of others. The relevant portion of
the aforesaid judgment is reproduced hereinbelow:-
" 25. We have heard the submissions of both the parties. Whilst
we sympathise with the depositors for their loss, we are unable
to accept the submission of Mr Lalit that the principles laid
down in cases relating to breach of Article 21 rights can be
applied to cases of loss caused in financial transactions
undertaken by individuals with open eyes. In our view the
principles laid down in the cases of Yuen Kun-yeu v. Attorney
General of Hong Kong and Davis v. Radcliffe are fully
applicable. In our view the principles laid down in Anns case
have no application to financial transactions. RBI is
undoubtedly performing a statutory function. Undoubtedly, the
general public interest has to be kept in mind by RBI. But that is
not the only thing they have to keep in mind. They also have to
balance general public interest with the interests and need of
banks and financial institutions. They cannot easily close down
a banking institution merely because there are a few
irregularities. They have to keep in mind the implications of
closing a bank or a financial institution. The closing of a bank
or financial institution has its impact not just on that
bank/financial institution and its customers and debtors but on
the future of financial services in that region. Thus competing
interests have to be weighed and balanced. In the hindsight it is
easy to point fingers. However, at that stage it would not have
been an easy decision for RBI to have closed SBL when it was a
major bank in a small State like Sikkim. One may criticize the
decision of RBI to grant SBL a licence to open a branch in
Delhi when the licence under Section 22 had not yet been
granted. But still that will not be sufficient to foist liability on
RBI to repay all depositors. What the petitioners want is to foist
on RBI liability for the default of SBL. Such liability will be
rarely imposed. RBI did not have day-to-day management or
control on SBL. Also the relationship of RBI with creditors or
depositors of SBL is not such that it would be just or reasonable
to impose a liability in negligence on RBI.
26. Even otherwise, we find that there are no proper averments.
There is absolutely no averment regarding bad faith. It was
fairly admitted by Mr Lalit that there is no case made out on the
basis of public misfeasance. He fairly stated that at the highest
the case could only be that of a violation of statutory duties.
However, as observed above, compensation for violation of a
statutory duty to enable individuals to recoup financial loss has
never been recognized in India. In our view the petitioners
having chosen on their own to deposit amounts with SBL cannot
claim to recover against RBI. In such a case the loss has to be
allowed to fall where it falls."
(emphasis supplied)
Section 16(2) is constitutional
22. We are also of the opinion that no case has been made out for
declaring Section 16(2) as unconstitutional. In any case, if Section 16(2) as
prayed is struck down, it would not help the petitioner as there is no other
section under which the Corporation is under any liability to pay any amount
to the depositor in case of amalgamation.
23. In our opinion, since the petitioner has already received more than the
specified amount in accordance with Section 16(1) of the Act, 1961,
respondent no. 3-Corporation is not liable to pay any additional amount to
the petitioner in the present case.
24. In view of the aforesaid observations, present writ petition is
dismissed, but with no order as to costs.
MANMOHAN, J
CHIEF JUSTICE
JANUARY 17, 2014/rn/ro
