632 Sl)'PREl\lE COURT RE;E'ORTS [1962] SUPP. I96 Z s1;dr;J;;;rd M tnU}aeturing Co v. "G'obind v,;;:;~J; This being the only'poin~ on whioh the labour court had & Ors.

Judgment

J.-Sr.ction 3H of llanki1,g Cornpanies Act, 1949, \Vas an unreasonable restriction on the right of a hanking company to carry on its business and was, impugned thcre£ore, unconstitutional. pro,·ision Jay in (a) the power \'este<l in the R~scrvc Rank to apply to the 1-Iigh Court for an order \Vin<ling up a bank cxerci!able solely on its subjccti\'e satisfaction as to the exis the sccti·Jn, and (b) the tence of conditions prescribed by ohfigation irnpo~ed by la\v upo11 the High Court to n1ak~ the ordrr of winding up \vithout at any ti111r. enquiring \\'hcthcr the conditions on which the application \\·as founded did in the in1position truth exist. A proYision of la\\" providing for fnndamcntal right pursu;int of restriction!\ on a citizen's to rhc subjccti\'c satisfaction of the Reserv~ Rank even is an expr.rc ho<ly, as to the existence of a statt: of though it affairs. and thereby permanently depriving the citizen of his right Or property, i~ "·holly unreasonahlc.

A. K. Go7J/Jlan v. Sia.le, (1950) S.C.R. ll8, Stale of ~fadras y. V.G. Rao, (1952) S.C.R. 597, The Commi•sioner of Hind'! 3 S.C.R. SUPREME COURT REPORTS 635 Religious Endowment•, Madras v. Sri Lakshmindra Tirtha Swamiar of Sri Shirur Muth, (1954) S.C.R. 1005, · Mahant Sri Jagannath Ramanuj Das v. State of Orissa, (1954) S.C.R. 1046 and Virendra v. State of Punjab, (1958) S.C.R. 308, considered. CIVIL APPELLATE JURISDICTION: Civil Appeal 1962 Joseph Kuruvilla Vellukunnel v The Rererve Bank of India No. 487 of 1961. Appeal by special leave from the judgment and order dated December 5, 1960. of the Kerala High Court in Baking Companies Petition No. 11 of 1960. WITH Petition No. 167 of 1961 Petition under Art. 32 of the Constitution of India for the enforcement of Fundamental Rights.

M.K. Namhiyar, J.B. Dadachanji, 0.0. Mathur the appellant and the and Ravinder Narain, for petitioner. M.O. Set.alvad, Attorney-General of lndia, H.N. Sanyal, Additional 8olicitor-General of India, R. Ganapathy Iyer and R. H, Dhebar, for respondents No. 1 in C.A. No. 487of1961. G. S. Pathak and K. R. Ohoudhuri, for res pondents Nos. 4-6 in C. A. No. 487 of 1961. M. 0. Setalvad, Attorney-General for India, H.N. Sanyal, Additional Solicitor-General of India, R. Gana pathy Iyer, R. If. Dhebar and T. M. Sen for respon dents Nos. 2 and 3 in Petition No. 167 ofl961. 19G2, March 7. The Judgmer,t of B. P. Sinha, C.J., M. Hidayatulh1h and J.R. Mudholkar, JJ., was delivered. by Hidayatullah, J. The Judgment of J.L. Kapur and J. C. Shah, JJ., was delivered by Kapur, J.

HIDAYATULLAH, J.-On August 8, 1960, the Reserve Bank of India made an application in the High Court of Kerala under s. 38 of the Bank- ing Companies Act, 1949 (IO of 19'19) read with the Companies Act, 1956 (1 of 1956), for the wind- (having jts irig up of the Palai Central Bank, Ltd. • Hidayatullah J, lft6! .louph Kurur.illa V rl/1,Kutm.tl '· Tht Rtstttt Bank of lruiia Hidayatullah J. 636 SUPREME OOURT REPORTS [1962] SUPP. registered office at Palai in the State of Kerala), for the appointment of the Official Liquidator of the High Court as the J.iquidator with all tho po wers under the eaid Acts and for the appointment of the Official Liquidator as the Provisional Liqui the pendcnoy of the application. dator during This application \\·as allowt,d on Decem her 5, 1960, and the present appeal with special Ieavo, has boen filed against the order.

The Palai Centml Bank, Ltd. (herein referred to as the Palai Ba.nk or tho Bank) was incorporated in January, I !l27 under the Trava11core Companies Hegulations. Till Hl36, it was known as "The Central Bank, Ltd.", when the name was changed. Jn March l!l37, the Pala! .Bank was included in tho Second Schedule to the Res•:rvo Bank of India Act, J!)3± (2 of 1934). According to the balance sheet of the Pahi Bank for the year ending December 31, the paid-up capital was Rs. 24,8ll,ti39.5:3. 195LI, The nominal ca pi t:il tJf the Palai Bank was Rs. 40 lakhs divided i11to l,6P,000 equity shares of Hs.2G/. to have greatly each. The Palai Bank seems extended its business a~ time passed. Jn 1921', tho deposits were a mere IIs ..

77,000/-, hut by I ~160, they had become almost Rs. JO crorcs. It had, the yeare, 1.ieeornn the foremo•t Bank in during Kenda State, and its place was I !ith in the whole of It had :!ii brancheR in :incl outsiclo the India. State of Kerala. When Kerala became a Part B State, the RcservP Bank of India Act was extended to that area, and th<' Palai Bank came under the super in exercise of vision of the Rcsnve Bank, which, the powers vested in it by the Ranking Compani<.'s Act as wt>II as the R<.'serve Bank of India Act, prriodically inspected the Palai Bank. These ins P"ctionH were ruade in J!li)J, July l!l53, February )1arch ]!)56, Mar<"h 1958 and January-February, l 9(i0. Every time, the Reserve Bank found itre.

196! /oseph Kuruvilla Vellukunnel v. The Reserve Bank of India Hidavatu/lah J 3 S.C.R. SUPREME COURT REPORTci. 637

gularities which were pointed out to the Bank, and special directions were iHsued. The· main defects were that the advances made by the Palai Bank were not sound that the bulk of the advances were either irrecoverable or "sticky" (which means, not easily recoverable), that the income taken into account represented to a great extent unrealised interest on these advances, that large advances were made to the Directors, their relations and Companies, in which they were interested, on · no security or inadequate security, and that the Bank was declaring dividends on the basis of profits which were computed without making provision for bad and doubtful debt and by using up the reserves at an alarming rate, while the deposits were going down. In the beginning, the Reserve Bank contended itself, by prohibiting fur ther advances to Directors, their relations and individuals, firms or companies, in which the Direc tors were interested, advising the Palai Bank to reduce clean advances and to regularise others, warning the Bank that the Reserve Bank consi dered that the business of the Bank was being conducted in the manner detrimental to the inter ests of its depositors, and that if the directions were not carried out, action under the first proviso to sub-s. (2) of s. 22 of the Banking Companies Act would be ta.ken by issuing a notice that a licence could not be granted to the Bank. From theoorrespondence which has been filed in this case, it does appear that the l{eserve Bank was not satisfied at each following inspection that . the position had improved; rather it apprehended that it h'1d worsened, and that the directions had not been carried out. This was denied on behalf of the Bank, but nothing depends upon who is right and who is wrong, because no charge of nwla fide conduct is now made against the Reserve .Bank. As a result of the inspection in February March, 1956, the Reserve Bank avers, it was found J962 J oseplr J{'u1ut1lla VeJlukWU1rl v. Tht! Resen-t Bank of India H kl ayatuU oh J. fi38 SUPREME COURT REPORTs [1962] SUPi>. that on December 31, 1955, the .advances stood at Ha, 355·02 lakha, of which llti. 171 ·"27 lakha were irrncoverable, and that the deposits of tho Bank had been lakhs. The impairer:! by Rs. l:)!J·I3 Roservo Bank also avers that the Bank did not satisfy the requirements of the Banking Companies Act, particularly s. 11, about the minimum paid up capital and reserve6, and ss. 22(3) (a) and (b) about the ability of tho Bank to pay its depositors, present and future, in full or conducting its affair in a manner not detrimental to tho interesta of the d"positors, and did not satisfy the require· ment<i of ss. 42(6)(a) (i) aud (ii) of the Reserve Bank of India Act. The Reserve Bank at this stage deputed an observer, and issued further directions and thrPaten~d to remove the name of the Palai Bank from the Second Schedule to the Reaerve Bank of India Act, if the directions were not faithfully and punctually carried out. All this requiring time, In Palai Bank to submit statements and returns. the inspection which was made in !1-farch-May, 1958, the position as on February 28, l 95S, was found to be even worse. Though the d1~posits had gone up, the advances had raisen to &. 421.56 lakhs, of which Rs. 208·05 lakhs were said to be irrecover able, and in the opinion of tho lWl!erve Bank, after writing off tho paid-up capital, reserves etc. of the· value of l~s. 41·l7 lakhs, deposits to the extent of &. 177·24 lakhs were impaired. More direotiona in the aamo key followed, and the .Bank was warned that it was conducting its affairs in a way which was detrimental to the interests of the depositors. In the scmtiny in January-February, 1960, the position as on December 31, 1959, was said to be that out of the advances of Rs. 529 lakha, Rs. 218·51 lakhs were irrecoverable, Rs. 17·71 lakha were doubtful, and Rs. ll l ·57 lakbs were frozen or sticky. thti Reserve Bank was 1962 HidaJatul! 3 S.C.R. SUPREME COURt REPORTS 639 On July 2,1, 1960, the Reserve Bank issued a letter containing the warnings to which the Palai Bank appeared to have become indurated, and further ga.ve the Bank 12 month's time to improve matters and 30 days to reply to the inspection report. An Officer of the t:ltate Bank of India (Mr. Sivaraman) had already been deputed as the General Manager of the Palai Bank, and had taken _charge on July 1, 1960. On June 23, 1960, the balance sheet of the Bank was published showing the position as on December 31, 1959. The balance sheet showed a loss of Rs. 14-1/2 lakhs. The Reserve Bank alleges that even in previous years In June 1960, there were losses, but were hidden. there was a run on several branches of the Palai Bank. Whether this was due to the publication of the balanoe sheet showing a loss, or whether it was due to the appointment of Mr. Sivaraman, it is hardly possible now to say. Betweon June 24, 1960 (deposits, Rs. 9'82 crores) and July 22, 1960 (deposits, Rs. 9·32 crores) there was a withdrawal of Rs. 50 lakhs. By August 3, 1960 (deposits, 8'50 crores) there was a withdrawal of Rs. 82 lakhs in 12 days. To meet this run, the Bank had to borrow against Government securities with the result that all its Government securities except those worth Rs. 25 lakhs were pledged. The deposits, (Rs. 8·50 crores) consisted of Rs. 4 crores in fixed deposits, Rs. 2•25 crores in current accounts and Rs. 2·25 crores in savings deposits. Against these, the l{eserve Bank found that the Palai Bank had cash to the extent of Rs. 50 lakhs and a capacity to borrow Rs. 1 crore against its securities. The appeHant, however, urged before us that in the report of the General Manager dated November 8, 1960, the cash in hand was shown to be Rs. 42·18 lakhs and at Banks, Rs. 83·68 lakhs, the marketable securities, Rs. 22·98 lakhs and the estimated surplus from assets speoifically pledged, Rs. 142•63 lakhs. These figures do not, of course, show that all this 1962 Joseph Kuru1.Ji/(a Vcl/uJ;unn11l 640 SUPREME COURT REPORTS [1962] SuPP. money would have been available immediately to stem the run. It is thus evident that if the run continu<:d longer them was a likelihood that these d"positors who were able to withdraw their money would obtain payment in foll, leaving the others with nothing or next to nothing. The Bank alleges in its a!Rdavits in reply that the run was Rubsiding, while the Reserve B'tnk maintains that it was going on unabated. Whether it was abating or continu ing, the reputation and security of tho Bank had been considerably shaken. The learned Company Judge, in his judgment under appeal, estimated that Rs. lii8 lakhs (about one-sixth of the deposits) represented the sudden wit.hdrawals. The Directors of the Palai Bank sent Mr. Sivamman on August 3, 1960, to Bombay for urgent consultations, and Mr. Si varaman on his return, announced on the 8th that an application for the winding up of the Bank had Leen marle that day. and a provisional Liqui dator had been appointed. He accordingly, issued orders to the Branches to stop business and close the doors. The Hesnrve Bank was of the opinion that the Palai Bank was not in a position to pay its dopoi; itors in full, and that the continuance of the Bank was prejudicial to the interests of the deposit-Ors. The application, as already stated, was made It was heard by l~aman Kayar, on August 8, I !J60. J. He dispensed "·ith notice under s. 450\2) of the Coznpanie11 Act before passing the order appointing tho provisi011al Liquidator. He, however, _issued notice of the main application, and heard the H.e~erve Bank, the Palai Bank, the creditors sup porting the petition and the creditors opposing it, and read several affidavits filed by the parties. On December 5, 1960, he accepted tho application of the Reserve Bank, and ordered that the Palai Bank be wc.und 11p. He was moved for a certificate unucr Art. 13c( I) of the Constitution by the present appellant (Mr. Joseph Kuruvilla Vellukunnei), a i '1 ;jlj 1!6! .• '7.k~"" ~..:~-~' Joseph· Pruv1ll• VellukuMel ' ."!1;• .,.,, ;._ The Retef'vt Btink. of lnditi, Hidayatu//ah J, 3 S.C.R. - ,'. 1 •,. ' _, SUPREME COURT REPORTS 64i former Director of the Palai Bank and also a contri butory, but he declined to certify the case. The appellant then obtained special leave of this Court, and filed this appeal. Some others applied to inter vene in the appeal. and were allowed to be heard. One Mr. D. Chacko Kappon (a contributory and also a depositor) filed a petition under Art. 32 of the Constitution. That petition was heard along with this appeal. This judgment will dispose of the appeal as well as the writ petition. In the High Court, the application of the Reserve Bank was opposed on two grounds. The first was that the action of the Reserve Bank in making the appl.ication for the winding up· of the Palai Bank was mala fide. This ground appears to have been given up in the High Court itself, and has not been raised before us. The second ground was thats. 38(3)(b)(iii) of the Banking Companies Act, 1949, was void, inasmuch as it offends against Arts. 14 and 19 of the Constitution.· In the hearing· before us; Art. 301 was also invoked. The deoision of the High Court was against the Bank and other answering respondents, and this ground alone has been urged before us. Though the facts cease to play an important part in the decision of the question of law which survives, those narrated above were referred to by the learned Attorney-General as showing the back ground of the action taken by the Reserve Bank. The appellant, in his reply, referred to some other facts in explanation to avoid a p0ssible prejudice to his case, if the facts as presented by the Reserve Bank only wer<' considered. While we are not required to express any opinion upon the correct ness or otherwise of the allegations and counter allegations, we think it necessary to set out in brief some of the facts, to which our attention was drawn by the appellant, to show that we have borne in 4 ' 1962 J•uj}a Kuruuilla Y1llui-1 •• 1111 RtstrN B11nl.: of India HiU.)<lu/loh , . 642 SUPREME COURT REPORTs [1962] SUPP. mind the rival contentions in determining validity of tho section. The appellant contended that enquiries by the 1 • efierve Bank in the past wcr.o not thorough; but in the application for winding up, the Reserve Bank had given specific details of the advances and their In this connectiou, we were referred realisability. to a reply made by the Reserve Bauk in answer to four schemes of compromise betwetn the Bank and In that its creditors suggest€d by the Palai .Bank. reply, the Reserve Bank said that no definite opinion could be expressed on the schemes except "after a detailed examination of the Bank's books of account with a view to assessing tho realisability of its assets and the probable pace. of recovery of the realisable assets." This, in our opinion, was a proper attitude to take, because by then, the con dition of the Bank had mat{'rially altered, and all the past data had become out of date. Tho reply did not show that the R·eserve Bank's inspection was not thorough. N'ext., it was argued that the Reserve Bank's estimate of cash and realisable assets W!lS wrong, if one. reads tho report of the Provisional Liquidator and the General Manager, dated November 8, 1960. We have already referred in an earlier part of this judgment to the amounts which, in their opinion, constitute<l the available assets, and have also shown why the Reserve Bank cannot be said to have made mistake. It was then contended that the run was under control, and our attention was drawn to certain statements in which the withdrawals during the months of July and August are shown in a tabular form. The run on the Bank did not follow a uniform course. Some times, it was more, an<l sometimes it was less, but continue, it <lid; and that is the main point of the matter. It was >Jaid that tho Reserve Bank itself thought well of the Palai Bank, because in tho year 19!i4, it allowed the opening of a new Branch at Madurai, and evc·n in itH last letter of July 21, 1960, -"' 3 s.c.R. SUPREME COuRT REPORTS 643 it gave the Palai Bank one yea.r to improve matters, and 30 days to show cause against the inspection reports, but took a hasty action before even the 30 days had expired. The action of the Reserve Bank was undoubtedly taken during the period of grace; but after July 21, the situation had altered so radically that delay might have defeated the very purpose of the law, under which action was taken. · 1962 . J osejh KwuvUlo ~..,, _.,. V ellutunnel . ·· '· The Reserve Bank oj India Hitiayatu/lall J. Finally, it was contended that the Palai Bank began by being a rural Bank, which was making advances on the security of land, and such security, though "sticky" was capable of realised. Reference was made Report of the Travancore Cochin Banking Enquiry Commission, which was appointed in 1956, where, in making a survey of banking in Travancore-Cochin it was pointed out that the Banks were State, "spread out into the rural interior of the State", and the main business of these banks was "to finance the rural people engaged in a small business-crop rais ing, produce processing, transporting, vending, etc." It was argued that to a rural Bank of this kind the standards of a commercial bank could not be applied and that the Reserve Bank should have made allowances in respect of the realisability of the advances, the worse of which belonged to a period prior to the extension of the Reserve Bank of India Act to this area. These advances given time, could have been cleared, and an attempt was, in fact, be ing earnestly made with the assistance of Mr. J. A. Frost, a retired senior grade Officer of the Imperial Bank of India, who was appointed an adviser. It was pointed out that 3 accounts were closed, 26 were sued upon, and in 13, substantial remittances were received. All this. may be true; but it is useless for us to speculate as to_ what would have take a depositors happened run; and the a?tion of the Reserve Bank was precipitated in the affairs by making a did not if the '

#1961. ... Thi -R•Jer11 Bak Of lndiJ' I 64! SUPREME COUHT REPORTS [1962] SUPP. hy the exigencies of the situation, which had arisen. Those who wade a run for their money, were not going to wait till the Bank acquired sufficient funds to pay them afLer recovcrin~ its advance. Those advances, as conceded, could not so easily be reali sed as tho advance made by a commercial bank on security other than that of land. If this rural bank began to arrange its business like a commercial bank it must necessarily be judged by the same standard, and the affairs of the Palai Bank, in our opinion, had long left behind the rural character, and had emerged into those of a modern commercial bank. What we have said above is sufficient to show that then.> was not e110ugh material on which the action of the Heservc Bank could strictly be charac tcri8tld as mc1lu fide. Indeed, the forbearance with which the Reservo Bank acted (and it proved unwise) has completely demonstrated the futility of granting time, and we are not surprised that the answering respondents in the High Court and tho appellant in this Court have not chosen to raise any iBBue about the honesty of the action. We are thus concerned with the contention that ss. 38(1) and (:i)(b)(iii) arc void, being a breach of Arts. 14 and 19 of the Constitution, and uUra vires being in conflict with Art. 30 I. Tho arguments anent Arts. 14 and 19 are based on tho same reasoning, but that under Art. 19 takes a few more facts into account. Shortly stated, the argument is that ss.38 (l) and (3)(b)(iii) make the Reserve Bank the sole judge to decide whether the affairs or a banking. company are being so conducted as to be prejudicial · to the interests of the depositors, and the Court has no option but to pass an order winding up the . banking company, when the application is ma.de Section 38 lays down : . "38(1 ), Xot.withsta.nding anything contained in sectfon 391, section '192, section 433 1md section .. • 'c"«1/16B Juaep~ Irunwilla · VetlUkunn.1 v~ The Ri'Urff Bani: of_ltitfia 3 S.C.R. SUPREME COUR'r REPOl\TS 645 583 of the Companies Act, 1956, but without prejudice to its powers under sub-section(l) of section 37 of this Act, the High Court shall order the 'Yinding up of a banking company-- ( a) if the banking company is unable to pay its debts ; or (b) if an application for its winding up has been made by the Reserve Bank under section 37 or this section. (2) The Reserve Bank shall make an application under tbis section for the winding up of a banking company if it is directed so to do by an order under clause (b) of sub-section · ( 4) of section 35. (3) The Reserve Bank may make an application under this section for the winding up pf a banking company- if in the opinion of the Reserve * * (b) Bank- * * * (iii) the continuance of the banking company is prejudicial to the interests of its depositors. It is said that the word "shall" in the first sub-sec tion is mandatory, and compels the High Court to pass an order winding up a banking company when to make an application. It is further pointed out that these powers exclude the operation of s. 433 of the Com panies Act, under which companies are wound up. the Reserve Bank chooses The power conferred ou the Reserve Bank by .".rt. 14, because the section is said to be bad under it enables a discrimination between a banking com pany and any other company by prescribing diffe . ; . rent laws for their respective winding up, and is . 196t ' ./~stph Kruuvilla Vt//ukunnel •• 'Tiu ReJtrDt Bank ·Of lndia Hkl•Jalul/:th ./, 646 SUPREME COURT REPORTS [ 1962] SUPP. right of appeal against the•· bad under Arts. 19(1 )(f} and (g} aa amounting to an unreasonable restriction on the holding of-property and the right to carry on business ns a banking com pany. To amplify the first, it is_argued thats. 4:~a of the CompaniPs Act, when an application is made to wind up a company, the High Court has to be satisfied after n fair trial that an order to wind up the company is called for, and tho ,Tuduc, who is indcpcnde:•t of executive control, is completely free to rPach a decision after the Company has shown cause, and there is a derision, if adverse to tho company. But under the procedure laid down in s. :is of the Banking Com panies Act, the banking company proceeded against has no opportunity to show cause either before or the winding up order, the Reserve Bank records no rea~ons in writing or communicates them, there is no access to Court aud no hearing b"fore the Court to dct<-nnino whether the proposed action is justified, and 110 rrdress if a mistake wero made. Under the exercise oi that power, it is said, any hanking company can be supprc"sed by thn Hcscrve lfank or by the Central Government and the Courts are powerless, since the opinion of the Hcserve Bank and/or the central Government is not justiciable and there is no appeal against tho deci sion of thn Rcsen•e Bank or of the Court acting on the application oft he Reserve Bank. It. is said that the umeasonablenel!s of the law arises further from the fact that t.he Reser\'o Bank is not an independent or impartial judg<>, the mem bers of the .Central and Local Boards whereof, being all nominees of Govnnment with no security of tenure, such as is enjoyed by the High Court Judges. The Res••rve Bank is subject to directions from tho Central Government, and even if the Reserve Bank be of a contrary opinion, it has to filo an application (or the winding up of a banking company, if directed to do so bv the Central Government. It is further argued that. this drastic power under a law which is 3 S.C.R. SUPREME COURT REPORTS 647 J96f J .. eph Kumill• · V1ttukrumt1 characterised as 'Draoonic' is 'uncanalised', 'uncon trolled' and 'despotic', and in its exercise, every prin- ciple of natural justice is set at nought, and the very fundamental conception of it, namely, resort to Court The Re.;:;., 8 .. 11: is completely absent. Such a law, it is said, is so ' patently, unreasonable as to be a gross violation of Hidayatu/lah J. all fundamental rights. Lastly, it is contended that in giving the Reserve Bank the power to elect to pro· ceed under the Companies Act or under the Banking Companies Act, there is fort.her room for discrimina- tion. It is thus contended thats. 38(1) of the Bank ing Companies Act cannot be upheld as a valid law on any principle. of lntlia . ., The learned Attorney-General appearing for the answering respondents contends that the action of the Reserve Bank was fully supported and justi fied by the facts. According to him, the Palai Bank was inspected frequently for ten . years and the reports of the inspecting officers were made availa ble to the Palai Bank not only for information but also for explanation and compliance. The action, says he, drastic though ·it may seem, was taken after numerous opportunities to the Palai -'Bank to mend matters, that even as late as 1960 the Reserve Bank gave a year's time for improvement, but immediate action had to be taken in view of the loss of confidence a.mong the depositors, a large number of whom made a run for their money. The learned Attorney-General thus says that there were many person who were of the opinion that the Reserve Bank should have acted earlier and that perhaps the Reserve Bank could be blamed for delaying the action but not for taking a precipitat(; action. He urgues that the Reserve Bank and not the Court was in a position to take prompt action bc- 9ause the Reserve Bank already possessed all the necessary information. He contends that the position of the Reserve Bank and its statue as a responsible body make it the proper authority to make such an . '. important decision requiring immediate action an<l . ( - • 196t J ostf'li K unniJJo Vtltukunntl ,-:-:... .' 1'. Tlk IUU'CI Bonk .•f India ,,-.,--- • 648 SUPREME COURT REPORTS [1962] SUPP that unloss tho Re>crv~ Ba.nk could be charged with dbhonest.v (which is n')t the case) the aotion of tho Reserve Bank not only eannot he questionod, hut should not bo open to doulit. Accordincr to him, banking companies are in a class by th~m­ selve8, and special law dealing with their winding up cannot be descrihod as discriminatory. He con tends !.hat the law is noithor discriminatory nor un reasonable, and that a prior judicial determination of :in issue of this kind is not a condition precedent to the making of a winding up order against a hank. He therefore, says that the appeal and the petition should be dismiSBed. Before we consider the arguments of the two sides in detail, we wish to say a fow words about the po~ition of tho lkserve Bank in the financial affairs· of India and also about its place in the scheme of tho law. The Reserve Bank of India was establibhed on April I, 1935, by the Reserve Bank of India Act, UJ34. Even before the estab lishment of the Reserve Bank, suggestions were made that there should be a cent.ral bank in India, and the Royal Commission on Indian Currency and Fi1iance had recommended in 1926 that the eurrcncy and credit of ~he country could only be put on a firm foundation, if a contra! bank was ostablished. The first Bill introduerd in Hl27 by Sir Basil Blaekett was dropped. The Indian Cen tral Banking Inquiiy Committee, however, reported in rn:n that thcro was a need for a contra.I banking institution in India "for s<.>curing the de1•elopment of tho Indian banking and credit system on a sound and proper basis." The Committeo pointed out that Homo of the Provincial Committoes had also RUl!gested the eRtahlishmcnt of the Rernrve Hank. The Committ<'e ended by saying : "Wri accordingly consider it to be a p1<1tt,,r of supreme importance from the point /962 J o~P'f. ~~uuilla '"·Villul<tm"'I ,' v. The R,,,,.. Ballk •\iflril!N 'HidtlllatwUah J. 3 S.C.R. SUPREME COURT B.EPORTS _649 of view of the development of banking facili ties in India, and of her economic advance ment generally, that a Central or Heserve Bank should be created at the earliest possi, ble date. The establishment of such a bai1k would by mobilization of the banking and currency reserves of India in one hand tend to increase the volume of eredit available for trade, industry and agriculture and to miti gate the evils of fluctuating and high charges for the use of such credit caused by seasonal (Vol. I, Part I. Chap. XXII, stringency." · para, 605) The White Paper on Indian Constitutional Reforms the establishment of a Reserve also recommended Bank 'free from political influence'. As a result of these findings, when a fresh Bill was introduced by Sit' George Schuster on September 8, 1933, it was ac:i::pted and received the assent of the Governor Gewral on March 6, 1934. The functions of the Reserve Ba.nk were gene rally indicated in the preamble as the regulation of the issue of the Bank notes and the keeping the re3erl'es with a view to securing monetary stability in India and generally to operate 'the currency and credit systf'm of the country to its nd vantage. But to enable the Reserve Bank to function in this manner, it had to be given other powers, so that it may function effectively as .a C3utrnl bank. To this end, the Reserve Bank balances of important comm<rcial banks, a right to in India which was transgct Government business nlso its obligation, and to enter into agreements with State Governments to transact their business. In addition to these, th.e Reserve Bank could re quire all Banks included in the Second Schedule to the Act to maintain with the Resorvo Bank a bala nce not less then 5 per cent, of their demand liabili ~ies and 2 per cent. of their time liabilities. T~e 1962 Jouplt Kr11nd//a Vtll11kunrul ·. "· 1"' Ru"ot Bank of lndia BU/oyatulld J. 650 SUPREME COURT REPORTS (1962] SUPP. Reserve Bank also performed tlrn normal functions of a central bank as well as an ordinary bank, though the latter functions arc not as <letai led as those of un ordinary bank. But the most imp.)rtant funct.ion of the Re3erve Bank is to regulate the banking systr-m generally. The Reserve Bank has been described as a Bankern' Bank. Under the RcsPrve Bank of India Act, tho scheduled banks m1iintain certain balances and the Reserve Bank can lend assistance to those banks "a1 a lender of the last resort". The l:cserve Bank has also beon given certain advisory and n•gulatory fnnctiollB. But its position as a central b:1nk, acts as an agency for collecting financial informa tion and statiAtics. It advises Government and ot.her banks on financial and banking matters, and for this purpose, it keeps itself informed of the activities and monetary position of scheduled and other hanks and inspects the hcolrn and accounts of scheduled bank and advises Government after inspection whether a particular bank should he in· eluded in the Second Schedule <•I' 11ot. Every 'cbe duled bank is required to send to t.hc Resen;, Bank and to the Central Government a weekly return of its position in :i. form, which is prcseribcd. Some time, however, the Ht•sorve Bank allows 11 particular bank to send its returns once a month instc·11d of every week. From thesi. returns, the Reserve Bank prepares and publishes consolidated statements showing thn monetary pooition in the country. The inclusion of a bank in the Second Schedule is the function of the Reserve Bank, ancl under ss. 12(!i)(a) (iii) and (b)(ii) it satisfies itfelf int;;r alill that tht> affairs of thH particular bank am not being conducted in a manner detrimental to the int.,rests of its depo sitors. The Reserve Bank has further the power to prohibit any scheduled bank from rec:civing, after ~ week, any fresh deposits. 1962 Joseph Kuruvilla V ellukurinel , .v. The R""" B•k of In4io Hidaya/u/1"11 J. 3 S.C.R. SUPREME COURT REPORTS 651 The above analysis of some of the provisions of the Reserve Bank of India Act show that the Reserve Bank of India has been created as a cen· tral bank with powers of supervision, ad vice and inspection, over banks, particularly those desiring that they be included in the Second Schedule or those scheduled already. The Reserve Bank thus safoguards the economy aud the financial stability of the country. No doubt, the Board is composed of nominated members ; but from the nature of things, it could not be otherwise. Neither election nor competitive examinations can effectively take the place of nominations, if the Board is to be com· posed of men of proved worth and standing, and there is no other method which can even be contem plated. No doubt, the members of the Board are subject to removal, but neither integrity nor efficie· ncy is secured only by such guarantee, and we have no reason to think that the Reserve Bank acted in this case, or acts in other cases under pressnre or from oblique motives. As was pointed out in another connection by this Court in All lnflia Bmik Employee.<' Association v. National Industrial Tribu· nal ('). "If it was not the Reserve Bank of India, the only other authorit.} that could be entrus ted with the function would be the Finance Ministry of the Government of India and that department would necessarily be guided by the Reserve Bank having regard to the in timate knowledge which .the Reserve Bank has of the banking structure of the count! y as a whole and of the affairs of each ba, nk in particular." The position of the Reserve Bank being such as we have stated from the Reserve Bank of India Act, the next thing to enqnire is its powers under (1) [1962] 3 S.C.R. 269, 299, 196B J os•Ph K111ul!ill• · ~vtu u trvtn, / ' . v Tit, Bean~r Bank ... ..; ..• ! lridi• ··~ 652 SUPREME COURT REPORTS [1962] SUPP. oursel vos the Banking Companies Act. The Banking Com panies Act, in its present form, is the product of many legislative enactrnents. The Banks' Liquida tion Proceedings Committee ( l\Jfl:!) correctly descri bed it as "m:J.dc up of shred• and patche~." We wore taken through the entire evolutionary process by th~ le.i.rnd Att.irney. GinDr.i.I; but we d'J not consider it necessary to trace the various st<ips. We reference con tent Indian Com to the salient landmarks. panies Act, 1913, there was no special procedure for banking comp:rnies, particularly rolating their winding up. Special provisions wore introdu ced in that Act by tho Indian Companies (Amend ment) Act, 1936. Part X-A, which was then introduced, merely oi1aoted certain regulatory ,pro visions, but of winding up of banking companies, it said nothing. The amendment hardly met the pur pose and the Reserve Bank of India framed a draft bill as far back as !039 .from which has been fashion ed the present Banking Companies Act. with a During the War years, tbe Indian Companies Act was amended several times to meet some special exigencies, with which we are not concerned. But by ,July, 1946, it was rc1ilised that i:ert.ain undesira ble features in banking had come to exist. Banks were then getting control of non-banking companies and by the interlocking of shares, t.he banking com the finances at panies were able to manipulate their disposal. The main foature8 were "the. grant of Joans to persons connected with the management of banks without .security cxten~ive adequate window-dressing at t.he time of preparing balancc shects, and, in gcnPral, a tendency to utilise the bank'~ fnnrlR to the cletriment of the int<:>rests of the depositors." It must not he forgotten that the Indian Companies Act, 1913, was concerned pri marily with safeguarding the interes!s of the stoC'k hoMers, whereas in a hanking company, thr· in- 1;erests of the depositors are invariably many times 1982 Joseph KurU;iua Velluk~nmri.;- · \'. ·, The Beservi _Bank of indi4·' · Hid•.Y~tu/lah J, 3 s.c.R. SUPREME COURT REPORTS • '1 653 those of the stockholders, if those interests can be represented by the monies invested said tu be respectively. In 1946, an Ordinance was promul gated consisting of only six: sections, of which the operative sections were the last four. Section 3 to direct the enabled the Central Government Reserve Bank to cause an inspection to be made of any banking company and its books and ac counts and to make a report to the Central Govern ment; Section 4 provided the machinery and the procedure to implements. 3. i:iection 5 empowered to prohibit a bank from receiving Government fresh deposits or to direct the Reserve Bank not to include a particular bank in the Second Schedule, or to exclude it_, if already included. Sub-section (2) provided for certain penalties, and s. 6 au thorised the Central Government to publish, after banking company' reasonable concerned, any report or parts thereof. This was an attempt to ensure the depositors a certain mea sure of safety in regard to their money. notice (XXV of 194~). This Ordinance was followed by the .Banking Companies (Restriction of Branches) Act, 1946, which, as its name shows, put, a curb on the indis criminate opening of branches by some banks. The 'evil of indiscriminate advances and loans was then sought to be met by an Ordinance promul gated in 1948 intituled "The Banking Companies Control Ordinance" Ordinance, it was provided that the Court shall appoint the Reserve Bank as the Official Liqui dator of a banking company on the application of the Reserve Bank in that behalf. The Reserv"l Bank of India Act was also amended to enable the 'Reserve Bank to give a loan or loans to a banking company with a first charge on the assets, if wound up. A large number of banking com panies had failed during the years, 1947, 1.948 and 1949.' Between 1926 and 1937, 23 Banks had suspended payment. In 1938 and 1939, 46 Banks': In • 1962 Jost!J~ KutWil/a V1t1ukunntl •• Thi R tstr~ BW •! l•dio Bid•Jolulleh J. 654 SUPREME COURT REPORTS (1962) SUPP. In followed, many unsat.isfactory failed, from 1940 to 1946, 93 B1mks were involved. But, in 194 7, lll48 and l!l49 there were as many as 123 failures involving outside liabilities of Rs. 82 crorcB ! The largest number was in Calcutta. with 83 Ranks. up proceeding the winding features were notioed. It was noticed that the realisations insignificant, while the costs were great, and enormous expenditure of time took place. The winding up of any company, be it a banking company or any other, requir&s an investigation of the affairs, the recovery and realisation of assets and distribution of what is realised. While these mattors can, of course, bt> carried on without undue hurry, the decision whether there should be a winding up or not, cannot be unduly deferred in the case of a banking company, if the interests to be safeguarded. To of tho depositors are achieve solidarity in banking operations and also to preserve the rights of the depositors while a bank continues and more so when it cannot, the Banking Companies Act was the logical, and in deed, the only answers. We have seen that the Heserve Bank was already functioning as a central bank with a cer tain me~ure of control over the other banks, aoheduled or unscheduled. This control was tightened in the Hanking Companies Act by mak ing provisions which were intended to protect the interests of the depositors. Differences notices hie between the Banking Companies Act, on the one hand and tho Companies Act, on the other, which have been characterised as discriminatory, are thus explainable on the basis of the object to be achieved. We aha.II soon illustrate this by a re ference to the sections them6elves. For the present we only wish to emphasise that banking compan iea cannot be compared with other companies. The ordinary companies deal with the money of in the assets, the stockholders, who own a share 1961 Jos.ph K.,..;111 Vtllukurwl .,v •. The Reser1J1 Bani: of Indi4 . Hii1y1tull•h J, 3 s.c.k. suP:REME cotJR± REPokrs 655 who appoint their own Directors, for better or for worse, and whose liability is also limited. The banking companies are in an entirely different class, as they deal with the money of the deposi tors, who have no security except the solvency of the banking company and its sound dealings with their money. Ex facie, the bankinir companies must he regulated somewhat differentls, and the .interests of the depositors must be paramount and the winding up of such companies depends upon other considerations, chief among which is the de sire to pay off the creditors as far as possible in full or at least equitably. The action is thus dictated not from any abrstract consideration of a long-range view of the future ability of a bank to pay its creditors but its ability to pay them at any given time. In this connection, the Reserve Bank has been given by the Banking Companies Act the power and inves~ed with the duty of watching the affairs of every banking company with a view to ensuring the safety of the deposi tors' money. There is thus, at the very start, a is also a very reasonable classification, which just, and practical classification, to achieve avowed purpose. It is hardly necessary to examine each and every provision of the Banking Companies Act. When the Banking Companies Act was originally enacted, the main objects were to prescrible mini mum capital standards, to prohibits the non-bank ing companies to accept deposits repayable on demand and to limit dividends payable. But in cluded in the Act was a comprehensive scheme fur licensing of banks and a conferral on the Reserve Bank of power to call for periodical returns and balance sheets and to inspect books and accounts of banking companies. · The Act also empowered the Central Government to take action ·against banks conducting their affairs in a manner detri interests of the depositors, a.nd mental to the 1962 --··- J •f'.,~!n""':f'" ,"1 v. The Rtserui JJ ... of rrldto ' • Hid1JG1idlolz J. fJ5tl SUPREME COURT REPORTS [1962] 8rP provided for a quicker procedure for winding up banking companies. the bank has When the Banking Companies Act was pas~e<l in 194\J, it was explained in the note on cl. 37, whieh corresponded to s. ;{8, that the provi~ions of the Indian Companies Act in respect of liquidation of companies did not seem to be suitable for banking companies, that a bank ·s business being of an to meet over-the-counter kind, immediately its liability and a provi~ion for wind ing up of the banking company when it refuses to meet a lawful demand within a stated time, WlJ-S neces~ary. It was also stated that the Reserve Bank was given authority to apply for the liqui dation of the hanking company, if its affairs were oonductcd tu the dotriment of the interests of the the Banking examination of depobitm·s. An Companies Act reveals two things prominently. The first is that the wnole intend and purpose of that Act is to secure tho interests of the depositors. The second is that the Reserve Bank is the instru mentality by which this intend is to be achieved. The Act, at every turn, makes tho Reserve Bank the authority to sanction, permits, certify, in8pect, report, advise, control, direct, license and prohibit. There is hardly any provision where the Reserve final vis·a-vis a Bank's judgment is not made banking company except raroly where an appeal to the Central Government can lie. No useful purpose will be served in referring to these sec tions in detail. Nor do the powers of the Reserve Rank end there. The Reserve Bank not only ha.s powers over banking companies while they am function ing, but it has al8o powers when tho banking companies wish or a.re forced to cease to funr.tion. If a banking company wants to suspend its busi ness a.nd applies to the High Court for a mora torium, the applioa.tion is not ma.intaina.ble, unleBB .. 3 S.C.R. .. SUPREME COURT REPORTS . . ' ' 657 1962 Joseph Kat:u.~illa Velluk"!"'el Oi The Reserve. Bartk of lnd~a · Hidtryatullah J. it is accompanied by a report of the Reserve Bank indicating that in the opinion of the Reserve Bank the banking company will be able to pay its debts. When the High Court grants the . relief without such report, it has to c<J.11 for a report from the Reserve Bank. The High Court is also required to have regard to the interests of the depositors, and even during the period of moratorium granted by the High Court, the Reserve Bank can apply for the winding up of the banking company. Sec tions 39 and 41-A give special powers to the Reserve Bank in winding up proceedings. Even in voluntary winding up of a banking company, the Reserve Bank has to certify. that the banking company is able to pay in full all its debts to its In amalgamation of creditors,\ as they accrue. banking companies, the scheme has to be approved by the Reserve Bank. Similarly, in compromises or arrangements between the banking company and its creditors, the Reserve Bank has to be satisfied. these matters, the satisfaction inter alia, In all must be as to the interests of the depositors. In reconstruction of banking company after an appli cation by the Reserve Bank for an order mora torium, the Reserve Bank has to satisfy itself and prepare a scheme, which, inter alia, must be in the interests of the depositors. This brief survey of some of the other pro visions of the Banking Companies Act, in addition to the general provisions earlier noticed, makes it plain that the legislature considers that consistent with its position as a central bank and more so with its duties and obligations, the Reserve Bank must have a decisive voice in certain matters. It is in this context and setting that the provisions of ss. 38(1} and (3}(b}(iii} of the Banking Companies Act must be viewed. It must not be overlooked that the legislature, in view of the sad experiences of the past, was anxious to devise a machinery for the supervision, inspeotion and effective functioning I9G! •. Jos.ph Kiuuvil/a Y1Udunntl T/t, llmri., Batik of India Hi<f4Jolulla1' J. I U5S SUPRE!IIE COUltT REPORTS [l962j SUPP. harmful which were of banking companies in the country. Associated with this was the ~peer;y closure of banking companies, interests of the depositors. The legislature achieved both theso objectives through the Reserve Bank, which, because of its special powers and advantages, was in a position to act promptly and effectively. To aid the Reserve Bank, the Courts were required by law to be guided in certain mi1tters by the opinion and judgment of the Reserve Bank, and in the matter of their disposal of winding up cases relating to banking companies, a special prooedure was enacted in Part IIIA of the Banking Companies Act. We are now in a position to deal with the argument that ss. :~8(1) and (3)(b)(iii) or'the Bank ing Companies· Act are void ·-firstly because they permit discrimination between banking companies on the one hand, and non-banking companies on the other, and also between banking companies inter se, and secondly because they create an unrea sonable restriction upon the right to carry 011 banking, and lastly, because the who!<~ procedure is a denial of the principles of natural justice, chiefly by denying an access to Courts. Though the arguments in this appeal have for their imme diate object the dec!iLration that ss. 38( 1) and (3)(b) (iii) of the Banking Companies Act are void, they have ranged over a very wide fiold. In support of the first limb of the argument, Art. 14 is invoked, and in support of tho second and third, Arts. 19(l)(f) and (g); and the argument proceeds along lines so well-known now as to need hardly any further amplification. There being no direct ruling either of this Court or of ~ny High Court, assistance is 80ught to be deri\'Cd from observations previous decisions of this Court relating to other Jaws. In reply, tho learned Attorney-General ha<1 rdied upon th" provisions of certain banking law~ in America and Japan and decisions of 1962 J.o'sef; IJ .Kuruvilla · P 1//uJ;unn1/ . v. ' TM 'Reserve Bonk of Indio Hidayatullah J, 3 S.C.R. SUPREME COURT REPORTS 659 American Courts, where such American laws were tested under the 'due process' clause. We shall refer to those laws and briefly rulings in the sequel. As regards the first point, viz., discrimination between banking companies and non-bankin{l: companies, we have already sufficiently indicated the wide difference· that exists between these two types and the need for special laws dealing with banking companies. We have also pointed out, the mischief that was sought to be remedied and how the present law has be(ln evolved after considerable deliberation. A special Cornmittee called Banks' Liquidation Proceeding Committee was appointed in J 952, ·and the findings and recommen· dations of the Committee were implemented, amending the Banking Companies Act and incor· porating changes, of which the impugned section in its present form is one. There being a very clear-cut and valid classification, the different procedure cannot be said to be discriminatory, because it is based on differences which are related to the end sought to be achieved. Further, we do not think that the possibility that the procedure under ss. 38(1) and (3)(b)(iii) may be invoked in some cases and the procedure of the Companies Act in others, makes any difference, because the different to suit defferent procedures will be invoked cannot situations, the Reserve Bank would arbitrarily from case to case. . The Reserve Bank, apart from its being a reasonable body, is answerable to the the public opinion is Central . Government, and certainly strong and vocal enough for it to heed. If the Reserve Bank were to act mala fide, Central Government and in the .last resort, In our judg · Courts, will be there to intervene. ment, the provisions of ss. 38(1) and (3 )(b)(iii) cannot be said to be a breach of Art. 14 of the Constitution. 1162 Jo,q,h _ l(u,t1tilla Vellukunnd . • Yo TM&ww Ronk of /nJ;a Hi,U pluiloh .I. 660 SuPRE:ME COURT REPORTs [1962] SUPP. That leaves over the second and third argu ments, which proceed upon the same materials. In this connection, tho main grounds of attack have already been set out in this judgment. Before we deal with the central point, we shall deal· with certain others which proceed, so to speak, from the side lines. The objection that the Reserve Bank gives no hearing, records no reasons in writing and does not communicate them is met at least in this case by the admitted facts. The numerous inspec tion reports and directions issued by the Reserve Bank over a period of nearly nine yea.rs, together with the application filed in this case, prove amply that there was enough hearing of and enough communication of the grounds of action to, the Pa.lai Bank. The Bank had also sufficient time and opportunity to establish its own point of view before the Reserve Bank. It \\'as impossible that the Reserve Bank, with the run on the Bank, woulcl sit down to decide after bearing whethE>r to take action or not, while withdrawals were being made at the rate of Iis. 7 lakhs per day. The emergency of the situations which may arise, is itself the justification for the procedure open under the Act In our opinion, these and taken in this case. grounds cannot be entertained. It is difficult to imagine that the Reserve Bank would a.ct differently in another case. The ma.in ground of attack is the way ss. 38( I ) and (3)(b)(iii) make it mand"tory for the High Court to pass <\D ordar winding up a banking company whenever the· Reserve Bank under its powers or under an order of the Central Govern ment makes an application for ihc winding up of a banking company. It is argued that suoh a power to the Reserve Bank is an uncontrolled and despotic power and to crown all, access to Courts is not poRSible because the Court itself must pass an order without deciding whether the affairs of the banking 1962 -Joseph Euruiiilla Vi //rllr.u,...I · v. The Re1'r~ Bank of /ndfa H iday•lul/ph J. ·, 3 S.C.R. SUPREME COURT REPORTS 661 company are being conducted in a manner detrimen tal to the interests of the depositors-a fact capable of being proved like any other fact. It is argued as a matter of principle that any law which bars a decision by the Court is itself unreasonable without more. Mr. Pathak, in supplementing the above contentions of Mr. Nambiar, also contends that by the law in question a judicial process has been converted into an executive action, and subjective determination has taken the place of judicial deter mination. He also contends that the Reserve Bank accuses a banking company, and then tries the issue to the complete exclusion of Courts. It must not be overlooked that the winding up of a banking company takes place before the High Court and under the process of law. The judicial process is excluded only in respect of the momentous decision whether a winding up order should be made or not. This opinion is left to the .Reserve Bank, and the Court merely passes an order according to the Reserve Bank's opinion, and then proceeds to wind up the banking company according to law. The narrow question is whether in leaving this decision to the Reserve Bank the law offends the principles of natural justice, and becomes so unreasonable, viewed in the light of Art. l~, as to become void. This is the point on which the respective parties joined issue and had much to say, and this is the crucial point in this case. In support of this contention, reliance on be half of the appellant is placed upon certain cases of this Court, anci we shall begin by noticing them in brief. The first case relied upon is A. K. Gopa/,an In that case, the validity of ss. 3, v. The State('). 7, !0-14 of the Preventive Detention Act, 1950, was challenged on a petition under Art. 32 of the Constitution for a writ of habeas corpns. Certain observations of Kania, C.J., and Faz! Ali, J., were (IJ ' [1950J s.c.R. aa. .. 196! .latt/J~ Kurur; illo -: i·,aukwmel v. 1e Rt'"°' Ba~ of~ 1nii• 662 SUPREME COURT REPORTS [1962] SUPP. '.rbc learned Judge referred relied upon to show that the right to be heard and tried is tho very basis of tho rule of law. :Paz! Ali,J., observed that there is a fundn, montal principle that a person whose rights are affected must be heard. to several cases in which the maxim, rw<li ri/IR.ram parlR.m, has beenlinvoked and applied particularly the obser vations of Lord .'.lfacnaghten in La.pointe v. L' Asso· ( 1 }, who condemned a · ciation etc., de requirer! no bearing as being procedure which "contrary to rules of society and above all contra~y to the elementary principles of justiP,e." Jfontrr'tl It cannot reasonably he said tha. t there would he no hearing in cases of this type. While we agreo · that it is obnoxious to the rule of law as it exists among civilized nations, that a person should hr condemned, unheard, we cannot say that in this case the Palai Rank wn,s not heard, and this case is really typical of those casc8 in which such a powff would be invoked. The karncd Attorney in saying that there was General was justified plenty of hearing before the appli<:~tion wos filed. The gist. of the objection must thus be taken to ho that the P~ lai Rank was not beard in the High Court before the making of the impugned order. If a valid law could he made leaving to the deter mination of the Resr, rvc Bank whether a banking company should he wound up and the Court to then this petition must implement t.hat decision, fail ; hut if it cannot be made, then it must succeed. We have thus to sec whether there is any inviol able rule that every determination must always he made by the Court and by no other authority. In dealing with the rulings of this Court cited to us, of which wo have already mentioned one, we shall enquire whet.her such a widn pro position can he said to have been established (1) [1906] A.C. 535, IU61 J 01eph KrrruvilJo Vel lukunnel v. The Reserve .Btmk of . Indio H idayatul/a/i J, 3 3.C.R. SUPREME l.JOURT REPORTS 663 before. In A. K. Gopalan's case(l), s.14 of the Preven tive Detention Act was held void as contravening Art. 22(5) of the Constitution in so far as it pro hibited a person who was detained from disclosing even to the Court the grounds of his detention and the representation made by him. It was said that the right to move an appropriate Court for a writ the de of habeas corpus and therein to show that tention was improper, was undeniable and it was held that s. 14, which stood in the way of this right, was void .. No general proposition that the Court must decide whether the person should be detained or not was laid down in that case. The law which allowed a subjective determination of the executive was in fact, upheld, and there are passages in the judgments of the majority to show that a judicial trial in cases of preventive detention was not considered necessary. In State of Madras v. V. G. Row (2 ), ss. 15(2) (b} and 16 of the Indian Criminal Law Amendment Act, 1908' [as amended by the Indian Criminal Law Amendment (Madras) Act, 1950], were called in question, inter alia, on the ground that thE:y em· powered the State to declare associations illegal by a notification without a provision for judicial enquiry. It was held by this Court that the con ferral of authority on the executive Government to impose restrictions on the right of association with out allowing the grounds of such imposition both in their factual and fogal a8pects to be duly tested in a judicial enquiry was a strong element to be taken into account in judging the reasonableness of the restriction. It was also added : 'f'fhe formula of subje'ctive satisfaction of the Government or of its officers, with an review the Advi8ory Board thrown materials on which the Government seeks to override a basic freedom guaranteed to tht: (I) [I950J s.c.R. as. c21 f1952J s.c.R .. \97. J.JJtPh Ii uru'l'iJla v,.uukrmntl v. Tiu R,s•oe, Bank of l114i4 66'1 SUPREME COURT REPORTS (1962] SUPP. citizen, mn.y br; i·iewed as reasonn.ble only m very exceptional, circumstances ...... ". Earlier, in the ~amc judgment it was said : in V. G. Row r,ase (1 " ... the te~t of reasonableness, wherever prescribed, should be applied to each indivi· dual statute impugned, 1ind no abstract stan dard, or general pattern, of reasonableness can be laid down as applicable to all cases." V. G. Row·s case (l) shows that laws allowing sub jective determination by the executive are not to be struck down out of hand, but that their reason ableness must be judged according to the standards It may, how appropriat-0 to the circumstances. e\·er, be meutioned that ) a distinction was mado between a law requiring J.nticipatory action particularly on grounds of suspicion, and a law which authority action based on the fai:tual exi8tence of curtain grounds. A. K. Gopalan's rase 1') and Dr. N. B. Khare v. The Stat.c of Ddhi (') wt, re distinguished on this narrow ground which appears to havu bt, en conceded then learned Attorney General. The factual existence of grounds-amenable to an objcetivo de termination by the Court in the present case, namely prcj11dice to t.he interests of the depositors was said to place thi8 case within the rule in V. G. Row's crtse (I). But cases of dntentinu and associations declared unlawful are not in the same class as a banking company on which then· is a run by the depositors and whose affairs, on inspf•ction, aro found to be mismanaged and conducted in such a way that it is unable to pay all lawful demands upon it. Tim factlml background will not be one of suspicion, and action will be basl·d on concrete facts, which will normally be checked and re checked before the final decision, and, in our opinion, it iR impossible to equate such a case with either A. K. r:opalan\ case(') or V. G. Row's mse('). (I) [19521 SCR. 597. (2) [1950) S.C.R.118. (3) i 19501 S.C.R. 5l'l. 3 S.C.R. SUPREME COURT REPORTS 665 1962 J4se{lh. KuruviU. Velluk; nml' · v. The Rtse'vt.SCl!k •J India- ' The next case to which reference was made is Tkakur RagkulJir Singh v. The Cm;,rt of wards, .4jrnb ('). In that case, s. 112 of the Agra Ten ancy and Land Records Act (42 of 1950) was declared void. That section .allowed the Court of Wards to take over the property of a landlord under the Ajmer Government Wards Reg11lation (l of 1888) if the landlord habitually infringed the rights of tenants. Such a landlord was under s. 112 deemed to be "disqualified to manage his property." The reason for striking down the sec tion was that it completely negatived the funda right under Art. 19(l)(f)by making the mental enjoyment of the· right to depend .on the mere discretion of the executive. The absence of any provision which would enable the landlord held to be a habitual infringer of the rights of his tenants, to have recourse to a Civil Court to test the correr.tness of the determination against him was held to oreate the invalidity. It is t-0 be noticed the learned Attorney-General in that case Mnceded the point, but the refl.son behind the rule appears to be that the law there prescribed a punishment or penalt,y for the bad behaviour of the landlord, and no person should be punished without having an opportunity to show cause. The question, therefore, is, can the ruling be made applicable ? It does not Jay down . any general princiJlle applicable to all cases beyond the one we have m;intioned. The action to wind up a banking company cannot be S!bid to be a punishment for mismanagement but action designed to presence the rights of the depositors, and the two situations are hardly similar. The next two cases relied upon were The . Commissioner, Hiru/,1t Religiaus Endowments, Madras v. Sri Lakshmindra Ttrtha Swamiar of Sri Shirur Mutt(') and Mahant Sri .Tagannath Ramanuj Das v. TlUl Smte of OriBSa ('). Tn it was (I) (1953] s.a.R. 1049. ' · {al [19MJ s.c.a. 1046. these case, (2) [1954] S.C.R. HlO~- , 666 SUPREME COURT REPORTS [1962] SUPP. · · ' JD6Z .Toreph K•ro~illo Vrl/ukun"l. /•d.. Hi<laJalu//ah J, · conceded by the counsel for the State that certain . sections of the .Madras Religious and Charitable Endowments Act ( xrx of 195 l) and of the Orissa Tia, Rm;~,,B.,,k of, Hindu Religious En<lowm0nts Act, 1939 (as amen- <led in 1952), were ultm 1~ires Art<1. l!l(l)(f), 25 and 26 of the Constitution. This Court also found in the former caso that the provisions were extremely drastio in their character and the worst feature was that there was no access to Courts. The Act in question was considered dra; itic because under it a religious institution could he notified and taken over and ve~ted in an executive officer merely by stating that the Hoare] "was satisfied that in the interests of proper nd!llinistration of the Math and its endowments, the settlement of a scheme was In the latter r~'lse, it was observed necessary.'' as follows : "Sections 38 and 39 relate to the framing of a scheme. A scheme can certainly be settled to ensure due administration of the endowed property but the objection seems to be that the Act provides for the framing of a scheme not by a civil court or under its supervision but by a Commissioner who is a more administrative or executive officer. There is also no provision for a.ppeal againsts his order to the court." Aftor commenting upon the amendment of stth·s. (4) of s. 39, which took away the right of suit and made the order of the Commissioner final and con clusive, this Court concluded : "We think that t,bc settling of a scheme in regard to a religiolli! insti~ution by an executive officer without the mtorvent1011 of to an un any judicial tribunal amounts reasonable restriction upon the right of pro perty of the superior of. the. reli~ious ins~itu­ ~jon whioh is blendeq with his off1oe. Seot1o~s 3S.c.R. SUPREME COURT REPORTS 667 38 and 39 of the Act must, be held to be invalid." therefore, 1962 Josep/1 Kuruvilla Ve/Jukunnel . v. The Reserv1 Bank of India Hiday.i1ul1Qh J. These words would seem to show that the 'interven tion' of a 'judicial tribunal' is the sine qua non of reason able determination of any issue. But these cases must be read with the case reported iu Sri Sadasib Prakash Brahmachari v. The St,ate of Orissa (1). After the judgment of this Court in the case froin Orissa, the Orissa Legislature passed Orissa Act XVII of 1954 purporting to amend not the Act of 1939 but Orissa Act II of 1952 which had been passed but not brought into force. The Orissa Act XVIII of 19.54. on receiving the· assent of the President came into force at once, and Act II of 1952 became amended and modified. The 1952 Act was then brought into force from January l, 1955, by a notification. By the new Act, which provided for the same subject-matter as the Act of 1939, the right of snit still remained taken away, but a right of appeal direct to the High Court was provided. It was con tended again that the Act continued to be bad for the reasons given in the earlier case of 1954. This Court then observed : against in any case a direct the High Court "It is further urged that the initial decision in a scheme-proceeding is still on the basis of an executive enquiry by an executive officer appeal . Commissioner's order cannot ·be as adequate a safeguard regarding the .rights of Mahants, as a suit and a right of' appeal therefrom in the ordinary course to the higher courts would be. It is undoubtedly true that from a gant's point of view an appeal to the High Court from the Commissioner's order is not the saine as, an independent right of suit and an appeal to the higher courts from the reHult of that suit. But in order to jud~e (l) [I956J s.c.R. 43. lSU _, __ ... Joseph Kururilla Vtiluk111111el Tk Rest'"' Bank of l Mia 668 SUPREME COURT REPORTS [1962] SUPP. whether the provisions in the present Act opo rate by way of unreasonable restriction for constitutional purposes wh; it is to he seen is whether the pnrson affected getH a reasonable chance of presenting his <'ntir" case bPfore the tribunal which has to determine original judicially the questions raised and whether he has a regular appeal to the ordinarily consti tuted t'Durt or courts to correct the errors, if any, of the tribunal of first instance. For that purpose it is relevant. to m'tice that in the present Act, the Commissioner of Endowments has, hy virtue of section 4 thereof. to be a member of the Judicial Service (of the State) not being below the rank of a ~ubordinate ,Judge, while undor section 7 of Act IV of 1939, Commissioner of Endowment.s could be a person of either the judicial or the executive servico and that <'ven whBre a member of the judicial service is appointee! he may be 1i person below the ra11k of a Subordinate Judge. An other important difference has also to be noticeu, viz., that while under section 38 of the previous Act the enquiry has to be co11duc ted •in such manner as may bo prescribed' which means as preseribl'd by the Provinl'ial Government bv rules made under the Act and hence changea.ble by the Go\·crnment., under the pres<mt Act, section ~ :2( 1 )lb) specifically enjoins that the 'Commissioner ohall hold an enquiry in the manner prescribed and·so far as may be in accordauce with the provisions of the Code of Civil Prnccclure rebting to the trial of suits", This Court, therefore, held that the scheme framed was not unrensonab le. At p. fi!l of the l{eport, a summary of the· four steps which mado for rea 0 011- l'blcness was given as follows :- "( 1) The scheme is to be framed b;' ii s.C.R. sbi>ii:EM:E COURT REPORTS 669 a Commissioner, .who is, by appointment a judicial officer. (2) The· procedure is, as far as may be, the same as that in the trial of suits. llfJZ Joseph ¥ uruttilla Volinkuitn.t •• The Reserve Bank of India ( il) There is a preliminary enquiry HidoyatuZlah J, by the Assistant Commissioner. (4) There is an appeal to the High Court." · . This was a departure·from the insistence on the intervention of a judicial tribunal. It was con sidered enough if the person was a judicial officer and the procedure was that of the trial of suits, as laid down in the Civil Procedure Code. The Court still went further when it dealt with the earlier schemes which might have been framed by (a) an executive officer and (b) in pursuance of procedure prescribed by the Executive Government. The Court said that "this was merely a theoretical possibility". The absence of a preliminary enquiry in No. (3) was not considered a serious point. The order of the executive officer in No. (1) was held.not of impor tance, as the. Commissioner was a Subordinate Judge of the Orissa Judicial Service. The question of procedure (No: 2) was also not considered impor tant, because the procedure prescribed by rules resembled that of trial of suits. As regards the right of appeal, s. 79A gave a right in all decided cases, and that was considered enough; but whether it was invoked or not in all cases does not appear to have been ascertained. · It would appear from the'se three decisions that the gist of reasonableness was held to be not so much in the label of the officer as in a judicial approach to the question to be decided according to a procedure which gave an adequate hearing. That the Commissioner was a judicial officer of the rank of 19/HI J oie/JA Kwutoilla Villu.!wvu I •• of Indio · .:- The Rt11rve Bank Hiioy1llvllah J. 670 SUPRElIE COURT REPORTS [1962) SiJi>P. a Subordinate Judge was considered enough for up· holding his adion as reasonable. That every deci sion should be by the Court was thus not the proposi tion laid down. In fact, the case showH that it is not the sine qw1 n<m so long as a person trained to the task of deciding controversies does it according to a procedure in which parties can be said to have been heard fully. We need not consider in detail the case of Ebrahim Vazir ilfavat v. 'l'he State of Bombay ('1, in which s. 7 of the Influx from Pakistan (Control) Act, 1949, was held void. Section 7 authorised the Central Government to remove from India, any person "who has committed or against whom· a reasonable suspicion exists that he has committed, an offence under this Act •.. " In dealing with the section, this Court said ; " .. : ... section 7 imposes the penalty of removal uot only upon a conviction under sectiC1n ii but goes further and brings about the same result even where there is a reason able suspicion entertained by the Central Government that such an offence has been committed. 'fhe question whether an offence has been committed is left l'ntirely to the eub jective determination of Government." 'fhis Court pointed out that there was no opportu nity to the offender to clear his conduct, and hold that this was "uothiI!g short of a travesty of the right of citizenship". The case is explainable on the ground that au Indian citizen has a funda mental right to stay in India and if h" is to be re moved for eommitting an offence or under suspicion that he has committed an offence, the removal is a penalty which cannot be inflicted without an oppor tunity to the offonder to clear his conduct. Aij poin ted out by llll already, while dealing with Thalcur Raghuhir Singh's case('), there is no question of a [l9S3J S,C.R. 1049. [1954) S.C.R. 933. (I) (2) ' Ii>62 Joieph'/Curuoil/o · Vellukunnel v. Tlie•Reserve. Bank India · 1 Hid/Jyalultah J. 3 s.d.R. · SuPREME COURT REPORTS 6~1 punishment here, and there is, in fact, a hearing, though not before a Court. There is nothing in the Influx from Pakistan (Control) Act to show that the opportunity to clear his conduct of the alleged offence must be by resort to the Court. The appellant also relied upon K. T. Moopil Nair v. State of Kerala (1), where a taxing statute was struck down on the ground that it provided no procedure for assessment of the tax, Abdul Hakim v. State of Bihar'(') and State of Madhya Pradesh v. Baldeo Prasad ('), but they do not deal with the point now raised, and were decided on facts which were entirely different. It will thus be seen that the wide proposition; that every determination affecting liberty, rights or property must always be made by . a judicial tribunal and none else, does not find support from the cases above considered. It is en ough to say that the Reserve Bank in its dealings with banking companies does not act on suspicion but on proved facts. These facts are statutorily required to be submitted to the Reserve Bank, and the Reserve Bank further inspects the banking companies. It licenses such banking companies· as conduct their affairs in the interests of the deposi tors, and can withdraw the licence if they do not. With such a statutory access to the affairs of a banking company, there is sufficient guidance in the words 'detrimental to the interests of the depositors' to show to the Reserve Bank when and how the power is to be exercised. Indeed, in this case itself, the Reserve Bank has given an easily understand· able view of the monetary position of the Palai Bank. By comparing the total demand and time liabilities of the Palai Bank with the liquid assets, borrowing power aud realisable advances, the Re serve Bank has shown the inability of the Palai Bank to meet lawful demands, and a state of affairs is disclosed, which is certainly not beneficial to the (2) [1961] 2 S.C.R, 610. [1961] 3 S.C.R. 77. (I) . (3) [196111s.c.R.1910. 1962 J o,.plt K """1illa VdlaNlnrl •• Tli1·R•s1tf11·Bo11k. of liidi• lribyolwlloh J. ' I 672 SUPREME COURT REPORTS (1962] SUPP. interest of those unfortunate depositors, whose money is still involved. Tho Ueserv-e Bank has not y•it told ns all that it has found. It will all ho found in the winding up proceedings. But this seems certain that the action would not be taken without scrutinising all the evidence and checking and rechecking all the findings. impossible to say that observations in tho cases discussod above ean apply to the facts here. It is The learned Attorney.-General, on the other side, drew our attention to Virendra v. 1'he State of Pm1jab (1), where it has boon pointed out that in judiring the reasonableness of any· particular law "the surrounding circumstances in which the impug ned law came to be enacted, tlw underlying purpose of the enactment and the extent and urgenoy of tho evil sought to be remedied" must also be consider r.d. That case concerned the freedom of speech and its alleged curtailment by the Punjab Special In judging the reasona Powers (Press) Act, 1956. bleness of the law from the angle o°f the exclusion of Courts, this Court observed: "Legislature had to ask itself the ques tion : who will be the appropriate authority to determine at any given point of time as to whether the prevailing circumstances roquire some restriction to be placed on the right to freedom of speech and expression and the right to cany on any occupation, trade or bussiness and to what extent ? The answer waa obvious, namely, that as the State Govern ment was oharged with the preservation of in the State, as it alone was in law an order possession of all material facts it would be the best authority to investigate the circumstances and a88088 the urgency of the situation that might arise and to make up its mind whether any and, if so, what anticipatory action must (I) [1958] S.C.R. 308. 3 ·S.C.lt. ,. . ' SUPREME COURT REPORTS ' _' ., ) ~\ . ·' 673 1962 JOseph Kuffl'l'illa VellukuiiMI v. The ReserVe Ba•k of India Hidayatullah J. exercise of b~ taken for the prevention of the threatened or anticipated breach of the peace. The•court is wholly unsuited to gauge the seriousness of the situation, for it cannot be in possession of materiafa which are available· only to executive Government. Therefore, the deter mination of the time when and· the extent to which restrictions should be imposed on the Press· must of necessity be left to the· judg-' ment and discretion of the State Government and that is exactly what the legislature did by passing the statute ... ; ..... Quick decision and swift and effective action must be· of the essence of these powers and the exercise of it must, therefore, be left to the subjective satisfaction the Government ...... To powers justiciable and subject to the judicial scruti; ny will defeat the very purpose of the enact ment.'.' These observations lay down clearly that there may be occasions and situations in which the legis lature may, with reason, think that the determina tion of an issue may be left to an expert executive like the Reserve Bank ratheu than to Courts without incurring the penalty of having the law declared void. The law thus made is justified on the ground. of expediency arising from the respective opportu nities for action. Of course, the exclusion of Courts is not lightly to be inferred nor lightly to be con ceded. The reasonableness of such a law in the total circumstances will, if challenged, have to be made out to the ultimate satisfaction of this Court, and it is only when this Court considers that it is reasonable in the individual circumstance that the law will be upheld. In the present case, in view of the history of the establishment of the Reserve Bank as a central b~nk ~or; India, it~ position as a Banker's Bank, its 1962 Jo#pla Kllf'tmU/a YelMrmnel v. T/i, R,,....,. Bank of IN/ia Hldq, at•llah J. • .. 674 SUPREME COuRT HEPORTS (1962] SUPP. control over banking companies and banking in India., its position as the issuing bank, its power to license ba.nking companies and cancel their licences and the numerous other powers, it is unanswerable that between the Court and the Reserve Bank, the momentous decision to wind up a tottering or un· safe banking cow pa.ny in the inti)rests of the deposi · tors, may reasonably be left to the Reserve Bank. No doubt, the Court can a)so, given the time, perform this task. But the decision haA to be taken with out delay, 11nd the Reserve Bank already knows intimately the affairs of banking companies and has had access to their books and accounts. If the Court wore oallod upon to take immediate action, it would almo~t always be guided by the opinion of tho Reserve Bank. It would be impossible for the Court to reach a conclusion unguided by the Re· eerve Bank if immediate action was demanded. But the law which gives the same position to the opinion of the l~eeerve Bank is challenj?ed as In our opinion, such a challenge unreasonable. has no force. The situation that a.rose in this case is typical of the occasions on which this extraordi· nary power would normally be exercised, and, aA we have said alrea.dy, if the power is abused by tho Reserve Bank, what will ho struck down would be the action of the Heserve Bank but not the law. An appeal against the Reserve Bank's action or a. provision for an ex post facw finding by the Court is hardly necessary. An appeal to the Central Govern· mcnt will be only an a.ppeid from Caesar to Caesar, because th'e Reserve Bank would hardly act without the concu.rrence of the Central Government and the finding by the Court would mean, to borrow the macabre phrase of Raman Nayar, J., a. post mortem examination of the corpse of the banking company. It io a matter of not a little interest that a. procedure for winding up other banks and institu· tions to the exclusion of the Companies Act is to be ' ' 3 s.c.R. ~75 1962 Jostph KUruvil/a Vellufr.uunet v. The Reserve Bank of India Hida_J·r,tullah J. found in other statutes. The co-operative Socie ties, the State Financial Corporations, the State Bank of lndia, the Industrial Finance Corporation, the Life Insurance Corporation and finally, the Reserve Bank itself are to be liquidated under special laws to the excl~sion of the Companies Act, under the statutes creatmg them. In view of what we have said above, it is not necessary to refer to American and Japanese prece dents. However, if these laws are examined, they show that even in the United States of America and Japan, the closure of bai; iks an~ also their liqui dation proceed_ from executive action. Under the Banking Law of Japan( Law No. 21, March 30,1929), Arts. 22, 23, 24 and 27 provide that the competent Minister would decide such issues. Article 22 mey be read in this connection : "If the competent Minister finds it neces Ba!iJ}'. so to do in view of the affairs of a bank or the conditions of its property, he may order it to suspend business, deposit property with official depository, or issue any such order as may be necessary." (Japanese Laws Rela· ting to Banks·Eibun-Horei-Sha, Inc. Tokyo Japan, p. VI (BA 4). It is also interesting to note that Arts. 22 and 29 of the Japanese Constitution guarantee to the people the freedom to own property and choose occupa· tions, much as has been done under our Constitu tion. In the United States of America, Banks are regarded as proper subject of legislative regulation under the police power (Corpus Juris Secundum, Vol. IX. paras 4 and 5, p. 32), and this power is not subject to the limitations arising from the Four teenth Amendment, except that it must be reasol).a bly exercised. The Ba11-ks in the United States being 1962 Jouph Xutuflillo Vellnkutmtl •• 'I1I< Rmne Bank of India HiUJoJullaA J. :fi'!' 676 SUPREME CoURT REPoRTs [1962] SUPP . • either National or State Banks, different laws have been framed to deal with· the winding up of insol In almost all the States statutes vent Banks. provide spacial proceedings 'affairs of insolvent State Banks, and the National Bank Act · also makes special provision in respect of National Banks. The closing of the doors of a National Bank by the Comptroller of Currency on account of its insolvency and the appointment of a receiver do not amount to a breach of the due process clause. As stated in Corpus Juris Secundum, Vol. IX, para 419, p. 835 : • · "The courts have generally upheld the validity of statutes providing for the liquida ti'ltn of state banks, including tho control and administration .of the assets by state officials or by receivers or liquidators appoin ted by them, the determination of the bank's solvency, claims against the bank ... ". The power is thus conferred on the Compt roller of Currency by the l'iational Bank Act and by the State law upon the superintendents of Bauks. Under somo statutes of the States, banking officials have no power to liquidate iusolvent Banks inde pendently of the judiciary. But in others, this power is specifically conferred. These propositions were cited to us from American Jurisprudence Vol. 7, Vols. IX, XIII and XVIA of Corpus Juris Socundum and from tho Law Reports, particularly Title Guaranty and S·urety Co. v. Idaho Ex Rel. Allen ('), Bushnell v. Leland (), Ex parte. Chet wood (') and some others. Mr. Nambiar, however, joined issue on the ueo of the American precedents on the grounds that banking in Amcr~ca is. by gra?o. of legisl~ture, and is either a francb1so or a pr1v1legc, which has no place in our Constitution. He added that the . (l)(l!ll6l240)'C.S.130:60L. cd.!'166. (2) (1697 16' U.S. 684, 41L.ed.598. (3) (1897) lfS U.S.443,41L. ed. 782. ' 1962 . J .. eph Kld'uvill• Vellukunne/ •• The Reseroe Bank of India Hid a ya tu/lab I. a s.c.R. SUPREME COURT REPORTS - 677 carrying on of business is not one of the provisions of the American Bill of Rights, nor a fundamental right, as we understand it, though by judicial con struction the individual right has been brought within the Fourteenth Amendment. He, therefore, contended that American cases and American laws should not be used. In our opinion, no useful purpose will be served by trying to establish the similarities or discrepancies between the American Constitution and b:tnking laws, on the one hand, and our Constitution and our banking laws, on the other, and we do not wish to rest our decision on the American and Japanese analogies. We do not also agree that the impugned sec tion amounts to an encroachment on the judi cial power by the legislature. The statute book is full of instances in which the Courts of Civil Judicature guide themselves by the decision of an outside agency .. The Arbikation Act itself affords a readily available instance. Under that Act the Court passes its.decree on an award of almost any one the parties may choose. Nor is the posibility ofa mistake by the Reserve Bank of such vital consequence. If the Reserve Bank acts in good fa.ith and with circumspection, there is as· 'much or as little chance of error as before a Court of law. • Lastly, we do not think that this was a case in whi~h some lesser acti?n like moratorium or amalga mat10n or reconstruct10n would have been feasible The difficulty of the Palai Bank was the nature of it~ advances, which were either not recoverable or not easily recoverable. A moratorium v. ith the limitation of ~ime involved in it would not have been an adequ ate mPasure, and amalgamation and reconstruction were out of question at the stage which had been reached. We thus satisfied that ss. 38(1) and (3)(b )(iii) of the Banking Companies Act are neither ' - - . . . 1962 Joseph Kur""iUa Vtllukunnel v. Tiit R1sttVt Bank of Indio Hido)"aJull o/a J. Kt1pur .!. 678 SUPREME COURT REPORTS [1962] SUPP. discriminatory nor unreasonable, and cannot be declared void und11r Arts. 14 and 19 of the Con stitution. Since the provisions are manifestly in the public interest, they cannot also be declared ultra vires under Art. 30 I, because they are protec. ted by Art. 30l of the Constitution. The appeal and the petition thus fail, and arc dismissed with costs one set only. KAruR, J.-Thc facts of this•case have been set. out in the judgment of our learned brother Hidaya tullah, J., and to restate them. is not necessary The main question for decision is whether the provisions of s. 38(3)(b)(iii) of the Banking Com panies Act (Act X of 1948) are 1dtm vires of the restriction Constitution as being unreasonable which infringe the petitioners' right under Art. 14 and Art. 19 ( l)(f) and (g) of the Constitution. Under s. 38(3)(b)(iii) of the Banking Companies Act the winding up petition was filed •by the Reserve Bank of India against the Palai Bank Ltd., in the Kerala High Court on August 8, 1960. On the same day an application for the appointment of a Provisional Liquidator was also made and a Provisional Liqui dator was appointed. On behalf of the Directors an objection was taken in the High Court that s. 38(3) (b) (iii) was invalid and unconstitutio1ml because it contravenes Arts. 14 and 19 of the Cons titution and that the petition was mala fide. After the appointment of the liquidator four scheme of arrangement under s. 44B of the .Bank ing Companies Act were presented to the Court. On October 6, 1960, the Court ordered the Reserve Bank to examine the work ability and effinaey of l'he Reservo Bank of India filed its the schemes. report on October 22, l!lGO, to the effect that prim.£1 f acie the schemes wer<i not workable. Th" order 1962 Joseph Kurnvilla Velluktmnel •• The Reserve Bank of India Kapur J, 3 S.C.R. SUPREME COURT REPORTS 679 impugned provision then passed on December 5, of winding up was 1960. The plea of mala fides was not pressed and the High Court held that there was no infringement of the petitioners' right under Arts. 14 and 19. The Court also held that although according to the language used in the Reserve Bank of India need not have disclosed the material on which it arrived at the conclusion that the continuance of the Palai Bank was prejudicial to the interest of the depositors, it had chosen to place all the materials before the Court which showed that ever since 1952 the Reserve Bank of India was drawing the attention of the Palai Bank to the grave defects in its working and had given it opportunities to explain the defects or to remedy to do neither and them. The Palai Bank chose "the Reserve Bank far from having acted without material or in a hasty and ill-considered manner, had, doubtless alive to grave responsibility placed upon it to preserve the banking structure of the country, acted with a degree of care and circumspec tion which has drawn to it adverse criticism from those who do not share its responsibility. Faced with the run it would.have failed in its duty by the depositors had it not acted as it did." The history of the Banking Companies Act and how it came to be enacted is this. The Govern ment of India appointed the Indian Central Bank ing Enquiry Committee which made its report on June 2, 1931. In para. 674 it. pointed out the principal causes of failures of Banks. By Act 2 of 1936 Part XA was the Indian Companies Act of 1913 and that part dealt with B1tnking Companies but no separate and special provision was made for the winding up of banking co.mpanies. ' In 1934 the Reserve Bank of India Act (Act JI of 1934) was enacted. There were minor amendments in the Indian Companies Act in regard to Banking Companies by Acts 2l introduced . - 1962 J osqh Eur..,illa Vrlluk.,,,,,I •• Th~ Rtse•vt Btmk oj . l•dia Kapur J. 680 SUPREME OOURT REPORTS [196~] SUPP. ?f 1942 and 4 of 1944. On January I 5, 194.6 Bank· mg Companies Ordinance (4 of l!J46) was promul gated which enabled the Central Government to direct the lfoservo Bank to cause inspection to be made of any hanking company and its books and accounts. It empowered the Central. Govern ment, on the receipt of a report that the affairs of a banking comp11ny were being conducted· to the detriment of the interest of the depositors, to prohibit the banking company from receiving fresh deposits or to refuse it to be placed in the schedule of the Reserve Bank of India Act or to de-schedule it. On March IO, 1949, tho Banking Companies Act (Act X of Hl49) was passed. On December 31, 1952, the Banks' Liquidation Proceedings Com mittee of 1952 mado its report. According to that report the number of bank which. suspended pay ments during the year l!l26 to 1952 was 351. The total liabilitieR of these banks wi:re Hs. 96·86 lakhs. Of these banks 12:~ were in Travancore-Cochin which were the most numerous. Then it was stated how many banks. failed during different periods and it was pointed out that the slow progress of liquidation proceedings was due to the facts that the advances w~ro mostly unsecured and recovery involved litigation, so much so that thore were logal proceedings ; not enough ·funds many claims were barred by limitation : contri but-0ries could not be traced and the unpaid capit&l could not be recovered. In cases of small 'banks advances were small and legal expenses for realisa tion were ont of proportion to the amounts invol therefore to be given ved and the claims had up and the Directors invariably delayed the sub mission of their statements under s. 177 A of tho · Companies Act and this hampered the progress of the liquidation proceedings. The Ba.nking C?m panies Act wa<i then amended from time to time and b~' s. 26 of Act ~3 of 195!) the present s. 38 1962 Joseph Kuruvilla Vel/ukunrul v. The Reserve Bank of·,l~~ia Kopur J. 3 S.C.R. SUPREME COURtT :kEPORTS 681 providing for winding up was substituted in·place of the old. s. 38. In order to determine the constitutionality of the impugned provision it will be helpful to examine the scheme of the Reserve Bank of India Act and of the Banking Companies Act. The preamble of ·the Reserve Bank of India Act is that it has been constituted with a view to ensure monetary stability in India and to operate the currency and. credit system of the country. By s.3 'the Reserve Bank has been established for the purpose of taking over the management of the currency from the Central Government and of carrying on the business of banking in accordance with the provisions of the Reserve Bank Act. Section 7 deals with manage ment and it gives to the Central Government, the power to give such directions to the Bank after· con sultation with the Governor of the Bank which are considered necessary in the public interest. The Central Board. of the Bank is constituted under s. 8 and it consists of the Governor four Directors nominated by the Central Government from amon gst the local Boards, six Directors nominated by the Central Government and one Government offi cial to be nominated by the Central Government. In other words all the Directors are nominees of the Central Government. By s. 11 the Central Government has the power of removing the Gover· nor or any Director and casual vacancies are also. to be filled by the Central Government under s. 1!. Section 17 de'lls with the business which the. bank may transact and Chapter III relates to Central banking functions. Under s. 30 the Central Go.vern. ment has the power to supersede the Central Board ·and to entrust it to such agency as it may determine. It will thus be seen that the Reserve Bank is an institution established for the purpose of carrying 011 central banking functions and its management is entirely in the hands of the Central Government · · · · or·itsonominees;· /962 J o~tpla /( 111uvilla V1llukunntl v. 7'/ie lltstrt11 Banlc India IropurJ, 682 SUPREME COURT REPORTS [1962] SUPP. Section 5 is the Section 2 of the Banking Companies Act pro vides that the provisions of that Act are in addition to and not, unless expressly so prodded, in deroga tion of the Companies Act., Hi5tl, and any other law for the time being in force. Section 4 gives the Central Government the power to suspend the operation of the Act on the representation of tho Reserve Bank. iuterpretation clause. Part H deals with '·Business of the Bank ing Companies". Section 11 in that Pa7t deals with requirement as tu minimum paid up Capital and reserve of banking companies. Section 22 empowers the Reserve Bank to give licences to banking com panies, and prohibits the carrying on of hanking b1JSiuess without a licence issued by thu H~sorve BAnk which may be issued subject to &uch conditions thP Reserve Bank thinks fit. Every hanking company in existence at the commencement of this Act had to upply for surh 11 licence .within six months of the c·ommcncement of the Act and every other company had to apply before commencing hanking business but com panics which were existence could continue t.heir hanking business until the licence was granted or it was rc61serl. Hut it could not be refused before the expiry of threo ye1us refcrn~d to in sub-s. (I) of"· 11 Sub-section (:l) of that section entitles th(l Hesen-o Bank to inspect hooks of the Banking company to satisfy itself in regard to matters contained in that sub-section. Undor sub:s. · (4) the Reserve Bank can c~ncel :i licence granted to a banking company provided that before cancelling the licence it gives an opportunity to tho Banking Company to show cause why its licence should not ho cancelled. U!Hlor sub-s. (ii) auy banking company av.urieved by the order of I.be Reserve Bauk cancelling its lic·mr.u can appen.l to the CenLrnl Government whnsc de,,i,ion is final. Cnder s. 24 every banking company bas to maintain a percentage of its asi; ets iu cash, gold or 3 S.C.R. SUPREME COURT REPORTS 683 unencumbered approved securities and an amount which is not less than 20% of the total of its time and demand liabilities and return to that has to be furnished periodically to the Re$erve Bank. Section 25 deals with assets of every banking company in India, s.27 with the making of monthly returns by the banking companies to the Reserve Bank and s. 30 with audit. The Reserve Bank under s. 35 may at any time and on being directed by the Cen tral Government shall cause an inspection to be made of any banking company. Sub-section (4) of that seetion reads:- 1962 · Joseph K uruvill" Ve/Julcunnel v. The Re1erve Bank o · India Kapur .J. "The Reserve Bank shall, if it has been directed by the Central Government to cause inspection to be made, and may, in any other case report to the Central Government on any inspection made under this section, and the Central Government, if it is of opinion after considering report that the affairs banking Company are being conducted interests of its depositors may, after giving such opportunity to the banking company to make a representation in connection with the report as, in the opinion of the Central Government, seems reasonable by order in writing. detriment of (a) prohibit the banking company from receiving fresh deposits; (b) direct the Reserve Bank to apply under section 38 for the winding up of the banking company: Provided that the Central Government may defer, for such period as it may think fit, the passing of an order under this sub-section, or cancel or modify any such order, upon think fit such terms and conditions as it may ' to impose." 1&111 .lostph Knnwillo Y1Jlulcun111l Y. -ht BtstTOt BaU of lrtJia Kapur J, 684· SUPhEME COURT REPORTS (!962] SUPP. Under s. 35A power is given to the Reserve Bank to give directions. When quoted it reads: S. 3:iA( I) "Where the Hoserve Bank is ~atisfied that- (a) in tha public interest; or (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the inkrests of the depositors or in a manner prejudicial to the interests of tho banking company; (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 com pany in particular, it may, from time to time issue such din·ctiom as it deems fit., and the banking companirs or tho banking company, as tho case may be, shall be bound to comply with such directions. (2) The RcHerve Hank m>iy on representa tion nmde to it or on its own motion, modify or cancel any direction issm'd under sub section(!) and in so modifying or cancelling any direction may imposo such conditions as it thinks fit,.subj.,ct to which th" modification or canccllntion shall ha\'C offec·t." Section 36 defines further powern and functions of the Reservo Ua.nk. It has power t.o caution or to prohibit a banking company from entering into any particular transact, ion or class of tran8aetions, to assist any proposal for amalgllmation of compani<lS, to give loans to banking companies, to requirn bank ing companies ~o <'all a meeting of the directors for the purpose bf considering a.ny mat tcr re la ting to or arising out of tho affairs ot the banking company . ' 3 s.c.R. sbi>REME cotJRT REPORTS .685. to depute one or more of its officers, to watch pro ceedings at any meeting of the board of directors, to appoint one or more of its officers to observe the manner in which the affairs of the banking company are conducted or to require the banking company to make such changes in the management as Reserve bank may consider necessary. 1962 J01eph KuYuvilla. Vel/ukwmel ' v. The Reserve Bank of India KapurJ. Part III deals with suspension of business and winding up of banking companies. Section 37 pro vides that on the application of a banking company the High Court may stay commencement or con tinuance of all actions against a banking company and may impose a moratorium; but the application is not maintainable unless it is accompanied by a report of the Reserve Bank indicating that in the opinion of tbe Reserve Bank the banking com pany will be able to pay its debts if the application is granted, provided that the High Court may for sufficient reason grant relief under this section even if the application is not accompanied by such report. In that case the High Court shall call for a report from t~ Reserve Bank on the affairs of the banking company and pass such order as may be proper in the circumstances. Under sub-section 3 the High Court can appoint a special offi\ler to take into custody or control all assets, boo)l:s and documents of the banking company and shall exercise such other powers as it thinks fit having regard to the interests of the depositors of the banking company. Under sub-s. 4 if the Reserve Bank is satisfied respect of which an order has been so made conducts its affairs in a manner detrimental to the interests of its depositors it can make an application to the High Court for the winding up of the com pany and where such an application is made the High Court shall not make" any order extending the that a banking company Ii 1962 Jost~h KuruVilla Yellukunntl · v. •e !l,snce Bank of Indio Kapw J. 686 SUPREME COURT REPoRTS [1962] SUPP. period. The impugned provision of section 38 which deals with winding up reads : - S. 38 (l) "Notwithstanding anything contained in section 391, section 392, Rection 433 and section 583 of tho Companies Act, 1956 but without prejudice tu its powers under sub· sect ion ( l) of section 3i of this Act the High Court shall order the winding up of a banking company - (a) if the banking company is unable to pay its debts ; or (b) if an application for its winding up has been made by the Reserve Rank under section 37 or this section. (2) The Heserve Rank shall make an application under this section for tho winding up of a banking company if it is directed so to do by an order under clause (b) of sub· sec. tion (4) of section 35. (3) The Reserve Bank may ~ke an application under this section for the winding up of a banking company - (a) if the banking company - (i) has failed to comply with the requirC>ments specified in section 11 ; or (ii) has by reason of the provi sions of section 22 become disenti tled tt> carry on banking business "in India; or (iii) has been prohibited from receiving fresh deposits by an order under clause (1) of sub-section (4) of section 35 or under clause (b) of sub-section :l(A) of section 42 of the Heserve Bank of India Aot, I 934 or; 1902 .. Jos'e/ih K'U1'Uvilla Vellukunrul The Reserve Bank ·' of lndfr; Kapur J, 3 S.C.R. SUPRME COURT REPJRTS failed (iv) having to comply with any requirement of this Act other than the requirements laid down in section 11, has continued such failure, or having contravened any provision of this Act has continued such contravention beyond such period or periods as may be specified in that behalf by the Reserve Bank from time to time after notice in writing of such failure or contravention has been con· veyed to the banking company ; or (b) if in the opinion of the Reserve Bank- ( i) a compromise or arrange· ment sanctioned by a Court in res· pect of the banking company cannot be worked satisfactorily with or with· out modifications ;or the returns, statements or . information furnished to it under or in pursuance of the provisions of this Act disclose that the banking com· pany is unable. to pay its debts ; or (ii) (iii) the continuance of banking company is prejudicial to the interests of its depositors. ( 4) Without prejudice to the provisions contained in section 434 of the Companies Act 1956, a banking company shall be deemed to be unable to pay its debts if it has refused to meet any lawful demand made at any of its offices or branches within two working days if such demand is made at a place where there is an office, branch or agency of the Reserve Bank or within five working days, if such demand is made elsewhere, and if the Reserve •• • ~ , , 688 SUPREME COURT REPORTS (1962] SGPP. ' . 1961 Jouph Kurutilla·. V tllu.lww I v. Tiu R~,,lit Bank:. nj India Bank certifies in writing that the banking company is unable to pay its debts. (5) A copy of every application made by the Reserve Bank under su b-suotion (l) shall be sent by the Iteserve Bank to the registrar." Section 44A lays down the procedure for amalga mation of banking com panics and s. 44 B for res triction on tho powers of the High Court to sanction compromise or arrangement between a banking company and its creditors unless compromise or arrangement is certified by the H.escrve Bank as being capable of being worked as not being detri mental to the interest of tho depositors. Section 45 giv1~s to the Reserve Bank the power to apply to the Central Government for an order of moratorium in respect of banking company which the Central Government may order and it also gives to the Reserve Bank the power to· prepare a scheme for reconstitution or amalgamation. Sub-section (I) and (2) of s. 45 are as follows :- S. 45( I) "Notwithstauding anything con tained in the forngoing provisions of this Part or in any other law or any agreement or other instrument for the time being in force, where it apprars to the Hcserve Bank that there is good reason so to do the Reserve Bank may apply to the Central Government for an order of moratorium in respect of a banking com· pany. (2) The Central Government, after consi der~ng tho application made by tho Reserve Bank under sub-section (I) may make an order of moiatorium staying the commencement or eontinuance of all action and proceedings against the company., for a fixed period of time on such terms and conditions as it think fit and proper' and may from .time to time 1962 Joseph Kuruvilla VellukUnn•I The Reserve Battle Of india •• !fopur J. 3 S.C.R. sbPR~ME COURT REPORTS 6s9 extend the period so however that the total period of moratorium shall not exceed six months." It will thus be seen that the Banking Companies Act gives very extensive powers to the Reserve Bank in regard to hanking companies. It gives to the Reserve Bank the power to license existing banking companies or the banking companies, which want to commence business, and for that purpose it can inspect the books of the banking company in order to determine whether it is or will be able to p11.y its depositors. It can cancel a licence in cer tain circumstances but after giving to the hanking company, an opportunity to be heard. A banking companies is required to keep a portion of its assets in a liquid form the Reserve Bank can order inspec tion of any banking company at any time it thinks proper and Central Government can order Reserve Bank to make an inspection of any banking company and on that report drastic steps against the <:>ompany may follow. The Reserve Bank can give directions as to how the business of a banking company shall be conducted. It can appoint observers and give directions to the directors of a banking company as to what they should do or should not do. Moratorium can be imposed by the High Court at the instance of a banking company but the Reserve Bank may have that order varied and set aside if the order is not in the interest of the depositors and if the Reserve Bank thinks that the continuance of a banking company is not in the interest of the depositors it may apply to the High Court for winding up of the banking company. In to amalgamation of banking companies regard through scheme of compromise and arrangement the Reserve Bank has a great deal of control and power. The Reserve Bank may apply to Government to impose a moratorium on any bank ing company and if an application is so made the 19~2 Jos1ph Kurouil a V ellulrunntl •• Tiu H1sert>e Bartk o/ l•tUa Ka/I"' J. 690 SUPREMR CotJRT REroRTs [1962] SUPP. the Government can direct Covernment may make such an order. But who. it comes to winding up prnvisions tho Reserve Ban'. has pre·cmptory powers, in that if it applies fm· the winding up of a banking company the Court is bound to order winding up because the words used are "the High Court shall" order the winding up. Moreover Reserve Bank to make such an application so that the Executive Government can take any banking com pany into liquidation. The power given in su'b-s. (3}(b}(iii) of s. 38 is still more drastic because if the Heserve Bank is of the opinion that the continuance of a banking company is prejudicial to the interest of tho depositors it may apply for winding· up; in other words on its subjective may apply and if it docs so the High Court has no option but to order the winding up it is t.his provision to which strong objection has been taken by the appellant and is assailed by him. satisfaction This provision was sought to be supported on behalf of the Iteserve Bank by tho learned Attor ney-General· who first drew our attention to the facts of the present case and to the various opportuni ties which were given to the Palai Bank since 1952 to carry out certain directions and on different occa sions the Palai Bank had made representations an<l its Directors ha<l interviewed the officers of the Reserve Bank and had given explanations till ultimately on July 21, UJ60, the Roserve Bank called upon carry out certain directions which were onclosc<l with the letter. The Reserve Bank there wrote as follows : thl• Palai Bank "The bank should therefore, in the inte rest of its depositors remedy within a period of 12 months the features observed in its working." It was also stated therein that if the l'alai Bank desired to make any ropre~entfltion in r1,gard to contents of the iuspection report it could 1aake its 1962 Joseph ·Kuruvilla Vellukunnel v. The R eseroe Bank of India ---· Kapur J. 3 s.c.:k. SUPREME COURT REPoRTS G9i representation within 30 days of the receipt of the letter and the complaint of the appellant is that before these thirty days were over winding up appli cation was made on August 8. 1960, which the Re. serve Bank submits was for very good reasons, the protection of the interest of the depositors. The test of reasonableness has to be applied to each individual statute and no abstract standard or general pattern can be laid down which will be applicable to all cases: l'atanjali Sastri, C.J., in State of Madras v. V. G. Row (I) observed: "The formula of subjective satisfactfon of the Government or of its officers, which an advisory Board thrown in to rev, iew the mate rials on which the Government seeks to over ride a basic freedom guaranteed to the citizen, may be viewed as reasonable only in very exceptional circumstances and within the nar rowest limits, and cannot receive judicial app roval as a general pattern of reasonable res trictions on fundamental rights." See also Abdul Hakim v. State of Bihar (') Although the legislature is the best judge of what is good for the community ; State of Bihar v. Kameshwar Singh(') for determining responsibility the validity of the law must. rest with the Court and the Court must not shirk that final duty cast on it by the Constitution. Abdul Halcim's case (2 ultimate ). 1 It was submitted by the learned Attorney-Gen eral that ( 1) reasonableness of the impugned legisla tion has to be judged in its own setting and not on any abstract test and (2) that the absence of judi cial scrutiny is not an inviolable rule. It can be dispensed within certain circumstances as being unsuitable or defeating the purpose for which an In support of the former he relied .1\ ct is passed. upon the observations of Patanjali Sastri, C. J., in (!) [1952) S.C.R. 597,607,603. <2) [1961) 2 S.C.R. 610. (3) [1952) S.C.R. 88~. J9GJ Joseph K utUViUa Vtll1J;•mtttl v. Tht Rt.J1"" Bont •! l•dia KapurJ. g92 SUPREME OOURT REPORTs [1962] SUPP. SfAJIR, of Madras v. V. G. Row (1 Chief Justice observed : ) where the learned '•The nature of the right alleged to havo been infringed, the underlying purpose of the res trictions imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevail ing conditions at the time, should all enter into the judicial verdict." and also to the following observation at p. 608 : "As pointed out by Kania, C. J., at quoting Lord Finlay in Re:.c v. p. 121 Halliday (1917) A. C. 260, 269. the court was the least appropriate tribunal to investigate into circumstances of suspicion on which such anticipatory action must be largely based." But in that very case tho learned Chief Justice pointed out that the formula of subjective satisfac tion of the Government with an Advisory Board thrown in to review the materials on which the Government seeks to override a basic guaranteed freedom can be viewed as reasonable only in vory exceptional circumstances and within the narrowest limits and cannot receive judicial approval as a general pattern of reaaonablo restriction. In that caae the court did not find any reasonableness in the claim of the Government to shut out judicial enquiry into the underlying facts. In support of the second submission reference was made to V irendra v. 'l'he Slaw of Punjab (') the constitutional validity of a Puujab Act which prohibited the publication by Editor and Printer of any matter relatin11 to tho 'The ques "Save Hindi" agitation was challenged. tion raisod there was, are the restrictions imposed ilJ [1952J s.c.R .• 597, G07, b08. (2) [1958] S.C.R. 308. 1968 Joseph .Eunroilla V.flukunnel •• The Reserve Bank of India KapurJ. 3 S.C.R. SUPREME COURT REPORTS 693 reasonable in view of all the surrounding circums tances. In other words were they reasonably neces sary in the interest of public order under Art. 19(2) or in the interest of general public under Art. 19(6). Das, C.J., there observed that the legislature had to ask itself the question as to who would be the proper authority to determine at any given time as to whether the prevailing circumstances required some restrictions on the right to freedom of speech and expression and the answer was obvious that the State Government was charged with the preser vation of law and order ; it alone had in possession all the material facts and it would be the best authority, to investigate the circumstances and assess the urgency of the situation and make up its minde as to what anticipatory action must be threatened or antici taken for prevention of the pated breach of peace : "The court is wholly unsuited to gauge the seriousness of the situation, for it cannot be in possession of material which are avai lable only to the executive Government. There fore, the determination of the time when and the extent to which restrictions should be imposed on the Press must of necessity be left to the judgment and discretion of the State Government and that is exactly what the Legislature did by passing the statute." This passage from the judgment of Das, C.J., and the passa~e fron the judgment of Patanjali Sastri, C.J., in State of Madras v. V.G. Row (1) where refer ence was made to the observations of Kania, C.J .. were strongly relied upon by the Attorney-General in support of his contention that the power given to the Reserve Bank in regard to winding up and the mandatory provision for the order for winding up by the court were reasonable restrictions; because the judge of the urgency and of the measures to meet the urgency could be the Reserve Bank or t~e ooilrti 11) (19521 s.c.R. 597~ 607~ ~oa. 1962 Joseph K u,,1oilla V tl lukunnel v. :r .i, Rejt''' Bank of lndii Ka/iur .f. 694 SUPREME COURT REPORTS [1962] SUPP. and the legislature had rightly given the power to the Jteserve Bank, because it was in possession of all the materi11.I facts and was the best authority to invest.igate the circumotances and assess the urgen· cy of the situation. The analogy between Virendm's case(') and the present case is, in our oi; inion, wholly In Virendra's case(') there was an agitation in apt. by a section of the Punjab public which Wfll! likely to have serious consequences on the public order and the tranquility of the state. It required quick measures to rontrol it. The order wa.s to meet an em ergency, the order could at the most remain appliea Me for two months and tli ere was a provision for In making a reprosontation to the Government. the ca.so of a banking company, assuming that an urgency like that which exi"ted in Virendra's case(') arioes and a propor caso is made out tho Court will act with promptitude make such interim orders as the facts of the case may require e.g. the appoint ment of a provisional liquidator. Thoro is omi esHential difforence between V. G. Row's ca.!€{') and Virendm's case (')and the one before us. In the former two cases executive action of State Govern ment \vas challenged. The Court there had not to in accordance with the give a judicial vordict opinions of the exeeutivo but had to determine tho constitutionality of action already t.1.kcn. It did not pass an order, judgment or decrco in acc:ordanco with the subjective determination of the Executive but expressed the opinion that in the circumstances there was no infringement of constitutional rights. In the presont case the Court is debarred from deciding the adequacy of tho actb of mismanage men't and the parlous state of it8 finances alleged against the Palai Hank. Besides tho complaint before us is not that tho Reserve Bank should not have filed an application hut that tho court could not order liquidation till after it had heard the Palai (I) t19l8] s.c.R. JOS. (2) [l9l2:S.CR. 597, 607,GOB. ~ S.C.R. SUPREME UOURT REPORTS 695 Bank in its defenoe and had afforded it an opportu nity of meeting the allegations in the winding up petition. In other words a law which authorises a banking company to be condemned unheard merely on the subjective satisfaction of one of the suitors even though it was the Reserve Bank is unconsti. tutional. 1961 Joseph Kuruvill4 VeUukunnel v. The Res11ve Bank of India Kapur J. It was next contended that the provision of s.38 of the Banking Companies Act were not so unusual and that in other countries in similar cir cumstances much wider powers had been given in regard to the winding up of banking companies. Reference was made to the National Bank Act in. the United States Code, s.191 of which deals with general grounds for appointment of receivers. It provides inter alia that whenever the Comptroller snail be satisfied of the insolvency of a national . banking association, he may, after due examination of its affairs appoint a receiver who shall proceed to close up suoh association and enforce the personal liability of the shareholder. It also empowers the Comptrol~er to appoint insolvent national banks and to make rateable assessments upon the stookholders but do not vest judicial power in him in violation.of the Constitution. The power ·of the Comptroller is exolusive and not subject to review of all matters properly within his discretion. A national bank in America is a banking corpora tion organised by private persons and operated for private gain, the power and duties of which are defin. ed and limited by Acts of Congress, providing for creation and liquidation of such institutions and be ing established to aid or promote governmental pur pose and to provio0 national cul'rency they are often regarded as public or quasi-public institutions. receivers Reference was next made to 92 American L.R, (Annotated), pp.1257-58, which deals with the constitutionalit,Y of the power given under tqe 1962 Josep1; K"wu11illa YtlJukunMl v. Th• Ruerre Bank ' of lndia K"'PUT J. 696 SUPREME OOURT REPOR~ [1962] SUPP· statute conferring authority upon the Ba.nk Com missioner to wind up the affairs of the Bank. It is there stated that the fact of insolvency having been discovered t.he statute directs the Bank Com missioner's course and the designation by him of a person to wind up the affairs of tho Bank which is no more a judicial a.ct than his ord'3r to the Board of Directors to remove a dishonest cashier. "His powers are purely administrative, and in no way infringe upon the ancient authority of courts doter mine ri!lhts of porson a.nd property in specific con troversies pending before them." Hoference was also made to Corpus Juris Secundum, Vol. IX, p.844, para 425, whore it is stated tha.t under some statutes banking officials liquidating a Bank are not subject to the directions of a court. Again reference was made to Corpus Juris l6A, pp.1219-1220, para. 711, Seeundum, Vol. where similar statement is made in regard to the same statutes. But the following passage from that paragraph is significant: •'Legislation is in contravention of the guaranty where it takes away one's property and leaves him no remedy whatever by which he can regain it or obtain redress.'' In Corpus Juris Secundum, Vol. 16, p.506, para. I 17, it is stated that appointment of a receiY.er, in certain instances, does not porforce violate constitutional provisions with. regard to separation of legislative and judicial powers. So the appointment of a receivor hv the legislature to settle the affairs of an insolvent bank has been held not to be a judicial act but where the came is pro perly before a court the appointment of a receiver const.itut~s a judicial function witho-qt the scope of legislative control. · 1962 Joseph K'uruDil/a Vel/t1kunn v. Th,. Re.'trve Bank of Inditt K,zpur J . 3 S.C.R. SUPREME COURT REPORTS 697 It was then submitted that in America closing the doors of a bank without awaiting court's orders is not. a violation of due process of law. See Title Guaranty & Surety Company of Scranwn v. State of Idaho(') where it was held that the State's power to put upon a Bank Commissioner the duty of closing the doors of State Bank if, on examination, it is found to be in sol vent without a waiting judicial pro ceedings is not a violation of the due process of law, but it appears that the proposition that such a power was a violation of the 14th Amendment had not been 1trgued in the State Court. The following observations of Mr. Chief Justice White at p.569 are significant. "We say this because, in its opinion, the court observed that if that was the conten tion, it was irrelevant, as the statute did not authorise liquidation except as a result of judicial proceedings although they did impose upon the bank commissioner the duty, after he found a bank to be insolvent, to close its doors and prevent the further transaction of business until, in the orderly course of pro· cedure, a judicial liquidation might be acco mplished." The only question there was whether the State could empower the Commissioner to close the doors of a bank It was not a case where the statute authorised any liquidation except as a result of judicial proceedings. Therefore it was not a case of liquidation being ordered by an authority other than a court. Another case relied upon was Bushnell v. Leland(') where the aseessment made upon stock holder of a national bank by the Comptroller of Currency was held to be .evidence in an action brought by the receiver of a bank against a stock holder to enforce payment of double liability imposed (I) (1916) 240 U.S. 136. 60 L. Ed. 566. (2) (1897) 164 U.S. 684. 41 L. Ed 598. 1962 .I oStph Km UDillo Vrllul; unnel " 1 he Restrl;6 Bank of JndU. Kapur J. 698 SUPREME COU.RT REPORTS [1962] SUPP· by law. It was also hold that the giving of autho rity to tho Comptroller etnp:)1ve:ing him to make a rate:ible call upon stockholder was not t:mtamount to vesting that officer with judicial powc~r. In Bx parte J o!un Chelwood (1) it was held that the recei V(Jr of a national bank appointed by the Comptrol ler of Currency is not an officer of any court but agent and officer of the United States. The aid of Amerimn concopts, laws a11d pre cedcnU! in thl' interpretation of our laws is not always without its dangers and they have tlwrefore to Le rnlied upon with some caution if not with hesitation beca1rnc of the difference in the naturo of those hws :tnd of the institutions t.o which they apply. Mr. Nambiyar rolied upon these different concepts and submitted that in U.S.A. the right to carry on business is not a fundamental right but is a "franchise", though, it has hy legal intcrprctntion, been brought within the fourteenth amendment and the doctrine of "franchise" has no place in the Indian Constitution : C.S.S. Motor Ser•.•ice v. State of Madm.s (') approved in Sarthfr Ahmad v. Sfitte of U.P. ('). Similarly the right to form a corporation is in C.S.A. a "franc:hise" or a "privilege" which can be withdrawn. To apply the analogy of Banks in U.S.A. to thoso in Inclia or the mode of exercise by and extent of the powers of a Coritrollcr of Currency or some similar authority will moro likely than not lead to erroneous conclusions. To support the submission that this procedure for winding up in t:ho case of bankin~ companies was not unreasonable, it was fmbmittPd that there arc many other corporations and socict ics which arc not wouncl uncfor the Companies Ac·t but under a clitTnent procedure- ·by the orders of the Central Governrncnt-e.g. the Life Insurance Corporation, the ~tat<' Finanee Corporation, the State Bank of (II (1897) 165\..:.S.4·13 41 L.Ed.7112 (2) J.L.R. [1953] Mad. 304. (3) (1955] 1 s.c.R, 707, 718, W6Z Joseph K ;.iruvil/o Vellukunnel v. The Reserve Bank of India Kapur J, 3 S.C.R. SUPREME COURT REPORTS 699 India and some others. They are all owned by the Central Government and ave therefore not com parable with the respondent company. Besides merely because some other corporations or societ ies of a different kind can be wound up in a different manner or under a special procedure is hardly a ground for holding in favour of the constitutionality of the imi:mgned provision. To further support the reasonableness of the impugned provision it was argued that because of the special knowledge of financial matters possessed by the Reserve Bank and to protect financial structure of the country special powers have been conferred on the Reserve Bank and the learned Attorney-General relied on the observations of Rajagopala Ayyangar, J., All India Bank Employees' Association v. National Industrial Tribunal (I) : "From what we have stated earlier as the genesis of the legislation now impugned it would b.e apparent that Government bad to effect a reconciliation between two conflict ing interests ; one was the need to preserve and maintain the delicate fabric of the credit. structure of the country by strengthening the real as well as the apparent credit-worthiness of banks operating in the country." But that was in a different context. That was a matter in regard to the provisions s.34A of the Banking Companies Act, sub-s. (1) of which gives immunity under certain circumstances to books and accounts of a banking company against in a proceeding inspection production the Industrial Tribunal· and sub-section ( 2) before of which provides that in any proceed ings in relation to any company other than the Reserve Bank any question arises whether the amount of reserves should be taken into account by the authority before which snob proceeding is pending the authority may refer the questio~ to (I) [1962] 3 $.C.R. 269, 298. 1162 J or1pli KllfZlVilla l'11lu!urwl v. Tlrt RoJerot Bank •f 1.m. KopurJ. 700 SUPREME COURT REPORTS (1962] SUPP. the Resorvo Bank and the Reserve Bank shall, after taking into account. the principle of sound bank ing and other circumstances furnish to tho authority a certificate, Mtating th>J.t tbo authority shall not take into account any amount as such reserve and such certificate shall be final. All that this case laid down was that such a provisi"On balanced t.he inter ests of the parties and the delicate fabric of the that pro credit structure of the country. RC8ides vision relates to production and inspection of docu ments and relates to what facts can be taken into consideration by an Industrial Tribunal or whether a eertifir.at.e by the bank is proof of a particular fact or not. Again what is applicable to a quasi judioial authority like an Industrial Tribunal adjudicating upon industrial disputes seeking to do . soci~l justice may be inapplicable to Courts of law adjudicating upon the rights of a citizen to carry on his trade and avocation or not. Next case cited was Sajjan Rank v. Reserve Bank (1). That was a case whero the· validity of s. 22 of the Banking Compani11s Act was chall('nged on the ground of Art. 19( I) of the Constitution and it was held not to be 11/tra m'.res on the ground that power of licensing is not vested with a mere officer of the bank and the standard for exercise of power ha8 been laid down in the section itself and the power granted to the Reserve Bank is not an arbitrary one. The vital question for decision is whether a law which requires th6 High Court to ordnr winding the Reserve Rank is of th" opinion up because that a banking company should be wound up is In other words can a st'.1tute which constitutional. to pro takes away ceed in a normal judicial manner t.o determine a question submitt<.>d to it for its deeision on tho the power of tho Court (I} [1959] 2 M L . .I. 455. 1962 Joseph Kuruvilla Vellukunnel v. 'The R eseT'!Je Bank of lnriia Kapur J. 3 s.o.R. SUPREME COURT REPORTS 7oi materials proved before it anrl requires it to decide it merely in accordance with the subjective satisfac tion of one party to the dispute and without giving the other party the right to be heard at any stage of the proceeding 11-nd prove its defence be called a reasonable restriction under Art. 19( 1 )(f) and (g) of the Constitution. Will the law which excludes the . application of the judicial process, and compels the Court to merely carry out the behests of one of the :r;iarties by giving effect to that party's subjec tive satisfaction and thus to abdicate its judgment to the opii:J.ion of a suitor be valid. Dealing with emergence of judicial power Griffith, C. J., Waterside Workers' Federation of Australia v. J. W. Alexander Ltd. (1) said that as soon as man emerged from the savage state and formed settled commu- • nities it became necessary to have rules to regulate conduct for the enforcement of which provision was made and this power vested in some person or authority the community. Hence arose law givers and Judges and as civilisation advanced distinction began to be drawn between the diverse functions of the community and these functions were called "the judicial power" as distin guished from the legislative and executive powers. The lea.rped Chief Justice then defined what "Judi cial power" is. He said : representing "Without attempting an exhaustive definition of the term "judicial power," may be said that it includes the power to compel the appearance of person before the tribunal in which it is vested, to adjudicate between adverse parties as to legal claims, rights, and obligations whether their origin, and to order right to be done in the matter." Lord Macnaghten in Lapointe v. L' Association de Bienfaisance et de Retraite de la Police de Montrial (') condemned functions, than, performing case of persons, judges judicial (2) (1906) A.C. 535, 539. (1) (1918) 25 C.L.R. 434, 442. .. 1962 J ostph Kuruvilla Vrllukwmtl v. The Rtstrvt Bonk of India Kapur J. '702 SUPRE~IE COURT REPORTs [1962] SUP!'. following a procedure "contrary to t.he rules of the society and ,iiwv(' all contrary "to the clcmenta.ry principles of justices," The importance of tlw judicial proCl'AlB was emphasised bv Patanjali SaRtri,.C. ,J. in Rmn Pra.m<l Narain 8ahi v. The Stat.e of Bihar (I), a case where th<' dispute was between tho i:ltate of Hihar and a private individual about the settlement of lands belonging to Rottiah Raj : rights after "This is purely a dispute between -private parties <md a matter for determination by duly constituted courts to which is entrusted, in every free and civilistid society, the impor tant function of adjudicating on disputed the well procedural safeguards wh icb established include the rights to be heard, the to produce witness and so forth. This is the protection which the law guarantees equally to all pcrsons, and our Constitutiou prohibits by Article 14 every State from denying such protection to anyone." observing No doubt there the question was raised uncler Art. 14 ; but it iF the importance of the judicial process in disputns between the State and a private individual that waH emphasised. At p. 1133 the learned Chief Justiel' point.ed out the dangers inherent in special enaetmcntH in a syst<·m of Government by political parties depriving particu lar named persons of their liberty or property. .fagannalh Ramanuj Das v. Jfahanl Sri Ia 'l'he Stat.e of Ori.,sa to certain provisions Religious Endowments Aet which related to the framing of a sch<,me. Under those provisions a scheme could be settled to ensure due administra tion of the endowed properties but the objection ('j, objection was the Orissa (l) ~1955] S.C.R. 1129, 1134. (2) [1954] s.c.R. 1046, 1052. 3 S.C.R. SUPREME COURT REPoRTS was .that the Act provided for the framing of a scheme not by the Civil Courts nor under provisionu of the Civil Procedure Code but by a Commissioner who was merely an administrative officer. There was no provision for appeal against his order. Mukherjea, J. (as he then was), said at p. 105:! as follows : 1962 Joseph 'K u1uvilla Vellukunuel v. The Rt$etr.;e Bunk of KapurJ. "We think tl).at the settling of .a scheme in regard to a religious institution by an executive officer without intervention of any judicial tribunal amounts to an unreasonable restriction upon the right of property of the superior of the religious institution which is blended with his office. Sections 38 and 39 of Act must, therefore, be held to be invalid." ' See also 'l'he Commissioner of Hindu Religious Endowments v. SriLakshmindra ('). In Sri Sadasib 'l'he State of Orissa (2) Prakash Brahmachari v. which was a decision in regard to the same Act after its amendment after ss. :18 and 39 had been declared to unconstitutional. Bv the amendment although the scheme was to be prepared by the Commissioner a right of appeal direct to the High Court was given against the determination of the Commissioner settling the scheme.· It was held that although from the litigant's point of view an appeal to the High Court from the Commissioner's order is not the same as an independent right of suit and an appeal to the higher court but in order . to judge whether the operation of the provision was or was not an unreasonable restriction what had to be seen was whether the person affected got a reasonable chance of presenting his entire case before the original tribunal which has to deter mine judicially the question raised and whether he the ordinary con· stitution court or courts to correct the errors if any of the tribunal of first instance. It was also . has a right to regular appeal to {I) [1954] S.C.R. 1005, 1037. (2) [I956J s.c.R. 43. 1961 •. I os.ph K ""'vii la V1u.bnnel TJ,. R.,.... Bank of llldh Kopur J. 704 SUPREME COURT REPORTs (1962] sUPP. emphasised in that case that the Commissioner had to be a member of the judicial service and the enquiry before the Commissioner was assimilated to and was governed by the provisions relating to the trial of suits by enjoining that as far as it might be it was to be in accordance with the provisions of the Code of Civil Procedure relating to trial of suits. The framing of a scheme in th\11 manner was held not to be an unreasonable restriction on the rights of the Mahant under Art. 19(l)(f). It is important to notico that there the right of appeal was in very wide and general terms both on facts and on law and it could relate not merely to the merits of the scheme but also to all basic matters the determination of which was implicit in the very framing of the scheme. I 'fhe importance of the judicial power was pointed out by the Priv:v Council in Attorne:y-General, for Austral, ia v. The Queen and the Boilermakers' Society (1) where it was held function of an industrial arbitrator is completely outside the realms of judicial power and is of a different order. At p. 315 Viscount Simonds observed as follows : - of Australia "On the other hand, in a federal system the absolute independence of the judiciary is tho bulwark of the constitution againRt en croachment whether by the legislature or by tho executive. To vest in the same body exe cutive and judicial power is to remove a vital constitutional safeguard". A great deal of emphasis was la.id by the learned Attorney-General on the fact that tho Reserve Bank is a body of expert bankerij which could more appro pl'iately determine as to when the continuance of a banking company is prejudicial to the interests o (1) (1957) A.C. 288. Joseph Kuruvilla Vellukunntl v. The ReserlJt Bank of lndia KopurJ. "I 3 S.C.R. strPREM:E oouRT REPoR±s 705 the depositors than a judicial tri~11nal., 1This .. argu ment is in our opinion fallacious because the liquida tion of banking companies in this country as of any other company is a judicial function and therefore within the jurisdiction of Courts and it has never been seriously suggested that the Courts have found or will in future find any difficulty in adjudicating on any technical matter dealing with the peculiar nature of banking companies. It cannot with any justification be argued that in dealing with such matters the exercise of jurisdiction by Courts is less desirable than any other matters which are litigat Indeed it would be a negation of ed before them. the rule of law if the citizen were to be denied to have his rights adjudicated by an independent tri bunal like a Court of law and it will not subserve the interests of the Rule of Law in a free democratic society, if adjudication of the question of the sol vency of banking houses was left to the subjective opinion of an executive body like the Reserve Bank even though it may be expert in banking. The following observations of Lord Morton of Henryton iu Baldwin & Francis LUl. v. Patents Appeal Trilninal (') which was a case relating to patents are very relevant : - "It would, indeed, be regrettable in pre· sent times, when certiorari lies to so many tribunals dealing with scientific matters, if the courts were precluded from considering whe ther there was an errors of law on the face of the record because they did not know the meaning of certain technical terms." In an American case Ohio Valley Water Company v. Ben Avon Borough ('), it was held that withholding from courts power to determine question of confisca tion according to their own independent judgment must be deemed to dflny due process of law. (1) [1959] A.C 663, 679. (2) (1920) 253 U.S. 287, 64 L Ed. 908. · 196Z Joseph Ku~l4uiJla Vellukunrul v. Tire ll-J1ru< Bank of !Mia Kapiu J. 706 SUPRE.\fE COURT REPORTS [1962J SUPP. In Halsbury'e Laws of England, Vol. 7, (Simonds Edition), Rt p. 198 it has been stated that it is the right of a subject to have any dispute affec· ting him brought before a judicial tribunal and tritd in accordance with the principles of natural justice and that no party ought to be condemned unheard or to have a decision given against him unless he has been given a reasonable opportunity of putting forward his <:asc. It was further submitted by the appellant that the Hescrve Bank is entirely an executive body, and therefore a mandatory provision like s. 38\1) and 38(:l) ( b )(iii) practically leaves the question of liquidation of banking companies in the hands of the Executive. By s. 7 of the Reserve Bank Act the Reserve Bank is required to act according to tho orders of the Govt'rnment. The directors of the Reserve Bank, according to s. 8 are all nominat ed by the Government. Under s. 38(2) the Reserve Bank is enjoined to apply for the liquidation of a bank if it is so directed by the Central Gu\·ernment and therefore any opinion formed by the Reserve Bank in regard to the insolvency or otherwise of <' bank must necel!Barily be the determination of an important branch of the Executive and when s.:~8(1) requires the court to order the winding up of a banking company if an application in that behalf is made by the Heserve Bank then it is the substitu tion of executive power in place of judicial determi nation and judicial decision is one of the main features of the rule of law. To quot-e from Stephen's Commentaries on the Laws of England, VuL III, p. 565: "The importance of the judicial element in our Constitution can hardly be exaggerated, for it rests with the Courts to ensure the con- formity of Government with law ................. . The 'Rulo of Law' which Dicey held to be a leading principle of our Constitution, does not t' .. 19a2 Joseph f(uruvilla Ve/lukunnel v. The Re.re1 ve Bank oj 1 ndia Kapur Jr 3 S.C.R. SUPREME COURT REPORTS involve the decision of every dispute by Courts of law. But it does imply that all authorities in the State act under the eye of the Courts, and are liable to have the legality of their conduct inquired into." , What thf'n is the position in the present case. It is claimed on behalf of the Reserve Bank that the position of the Palai Bank was very precarious and that its assets were not sufficient for the purpose . of the payment to its depositors in full or to me et its liabiliti 0 s. ·n was also alleged that on several occa sions directions had been given to the Palai Bank to conduct its affairs in the manner required by the Reserve Bank and that many opportunities had been given to it to give its explanation as to the defects and irregularities in its working and to carry out the directions of the Reserve Bank and it had failed to comply with them. The a!fegation that the bank was iu a precarious position, unable to meet its demands and it had no liquid assets to pay off its depositors, has been challenged by the appel lant. The High Court would have adjudicated upon that question if it had been competent to do into it. That is exactly what is required in a judicial deter mination and that is what the Palai Bank, has been deprived of and it is that which affects the constitu tionality of the impugned statute. The position under s. 38 of the Banking Companies Act is that if the Reserve Bank is of the opinion that the con tinuation of a banking company is deterimental to the interests of the depositors and it makes an application for winding up, the Court is bound to order winding up irrespective of whether the bank ing company has or has not a good defence. There fore the Court has to put its judicial seal on the opinion of another which is absolute negation of the exercise of the judicial process. It was argued that the Reserve Bank, before it takes action, inspects, gives instructions, takes explanations and hears the b&Bking company but it is not bound to .do so. 116~ J 1s1ph Ir w1.1uilla Vtlh,..;,,,,I y, The RUero1 Rank •f India KQ/#WJ. 7os SUPREME COURT REPOH.1~ (1962] SUPP. The vice of the impugned provision lies in (a) the power vested in the Reserve Bank to apply to the High Court for an order winding up a bank exercisable solely on its subjective satisfaction as to the existence of conditions prescrib(ld by s. 38, and (b) th~ obligation imposed by law upon the High Court to make the order of winding up without at any time enquiring whether the conditions on which the application is founded do in truth exist. In adjud ging the reas.:inableness of the restriotion impo~ed by a statute tho Court has to consider its purpose, tlte ovil it intends to remedy and it tries to strike a balanco between tho interest of tho aggrieved citizen and the larger public interest sought to be served by the sta tutc ; the Court in each casn considers whether the restriction imposed is appropriate, fair and roasonable. The Court will not uphold a res triction whicb. is not necessary for achieving tho purpose of ihe statute or is a arbitrary. Are tho circumstances 80 compelling in the present ease that w1less the provision requiring a Court to order winding up of a banking company because the l~eservo Bank feels Aa.tisfied that it should be wound up to protect the interests of tho depositors is up· held the interests of the public cannot be safeguar. dcd ? In considering this question it may be legiti· mate to enquire whether the High Court which nor mally exercises jurisdiction in the matter of ordering winding up of companies is incompetent or its proce. dure inadoquate to examine the charges againBt a banking company. The credit of a banking institu tion is undoubtedly very sensitive. It thrives upon tho confidence of thl.'I public in tho honcot.y of its management, and its reputation of solvency. There is however nothing peculiar in the business of a banking company that it must be ordered to be wound up on the subjoctivo satisfaction of the Reserve Bank. The Reserve Bank is undoubtedly an expert body with vast facilities for making enquiries into 1962 Joseph Kw•Villa· VelluA:unnel · '· .v~ The Reserve Bank of India · KapurJ. 3 S.C.R. SUPREME COuRT'REPORTS ' 709 the aft'airs of banking companiAs in India. But on that account it cannot be presumed that the view of the Reserve Bank that any bankinig institution should be liquidated must always be correct. It can not be said that' the Reserve Bank can never act mistakenly or even negligently. The Reserve .Bank may even be directed by the Central Goveenment for reasons of its own to apply for liquidation the Constitution the Courts of a Bank. Under are the custodians of the fundamental rights of citizens ; but by this extra-ordinary piece of legislation these very custodians are made the ins truments of the Reserve Bank for imposing an order which prima facie is destructive of a guaranteed fundamental freedom. Under our Constitution the legislative and executive actions are subject to judi cial review within certain well defined limits. But by s. 38(1 )(b) read with cl. (iii) the Court is not only deprived of its Constitutional func.tions but is commanded to lend its aid in defeating a funda mental freedom of banking companies. Theim pugned provision makes the Reserve Bank the complainant and Judge in its own cause ; it authori· ses the Reserve Bank on it subjective satisfac tion as to the existence of a state of affairs prescribed by the statute even without an enquiry if it deems fit, to demand that the High Court shall order liquidation of a banking company with out making any enquiry as to the sufficiency or even the existence of the material on which its satisfaction depends. The· provision making a litigant the Judge in his own cause is an absolute negation of the rule of law. It is the foundation of the edifice of our ju, dicial system that no one shall be . condemned unheard, however strong the circumstances against him may appear to be. He is entitled to be told, if the freedom of citizen is to have any reality, what he has done to merit punishment or penalty, he must be afforded an opportunity to deny the correctness of the char~e 1962 •• Jo•tph Kuruuil/u Vdlul:utvul Thi &aert1 Bank of India Kapur J. 710 SUPREME COURT REPORTS [1962] SUPP. set up his plea in denial or extenuation, a11d also be afforded an opportunity to persuade the authority imposing penalty or punishment that the appropriate order is not the one proposed against him. But by a stroke of the legislative pen all thrsc protections which arc th() foundation of the rule of law are destroyed and the satisfac tion of the Reserve Bank is marlo conclusive for entering a verdict for determination of the right of a banking company to continue to exist. In our view it would be a tragedy if by this and similar legislation citizens are to be convicted of offcncrs, penalties are to be imposed upon theni, their property sequestered, and their rights tram pled upon without enquiry by the courts by the simple e.xpedient of requiring the courts to lend their aid in imposing their authority an<l thereby to what is in truth creating a judicial facado exercise of purely executive authority. It is a matter of no moment thnt the executive a.uthority invested with the power to call upon the court to lend its nid, is an expert body which performs an important function directly or indirectly in the governance of tho State. Howevn august th(l body so set up may be, a provision of law providing for imposition of restrictions on a citizen's fundamen tal right pursuant to its subjective satisfaction as to the existnnqe of a state of affairs, and there by permanently depriving the citizen of his right or property is in our judgment wholly unreason able. Tbc plea of constitutionality of a statute infringing a funclamental right cannot be negatived the as~umption that the autocratic power of impoRini; penalty or punishment is entrusted to the executive authority which will exorcise it only in proper cases and there will bo no ab use of power. larger interest, onr ConRtitution makers In the have been averse to oonferml of auto cratic power 196! Joseph Kuruvilla V.IMunnel •• The 'Reserve Ban~ of India KapurJ, 3 S.C.R. SUPREME COURT REPORTS 711 · and have tried to protect the citizen against the exercise of snch power by guaranteeing him the fundamental freedoms and have also provided protection against infringement or those freedoms by legislative or executive action, We are prepared to assume, though counsel for the Palai Bank very vehemently challenged the truth of the case of the Reserve Bank, that the affairs of the Palai Bank were mismanaged and that there was a mounting run on the bank and it was practically · in an insolvent condition. The validity of a statute is not to be judged in the light of the propriety or otherwise of executivjl1 action, or its beneficient effects, in a given case':'"'. The in validity of this statute arises because of the exclusion of any opportunity of judicial investi gation into the fairness, propriety and rearnnable ness of executive action involving deprivation of a fundamental rights. It is unnecessary to consider the steps which it is claimed the Reserve Bank had taken from time to time to obtain information and to give advice and direction and also the 1 allegation the application to wind up was submitted because the condition of the Bank was deteriorating as each day passed. These are it must be observed, matters in dispute. Normally, it is the function of the judicial power to investi gate whether a banking company should continue to function or should be liquidated. By the im· pugned provision the exercise of that judicial power is excluded. That exclusion is, in our opinion, not based on any inappropriateness of exercise of . the judicial power, or existence of other com pelling circumstances in the public interest, and is invalid because the statute, examined in the light of its repercussion on the fundamental right of the citizen is unreasonable. As we have shown above, under t.he Consti tqtion the coqrts are t4e bqlwark.for the protection J96't' J ,.,,ii /f 1118"ill• 1'11/.t-1 •• The &sm>l'.lllM •f Intli<i K•~-,,; J. - 712 SUPREME COURT REPORTS [1962) SUPP. of tho right of the citizens and they are a check on the vagaries, negligence and mistakes of the execu tive or on the high.handedness of ono party before it a!!'ainst another. This Court has emphasised that the deprivation of the right to resort to court is an unreasonable true that in the present 0ase an appoal to this Court has not been taken away hut what is left is a wholly ineffective right of appeal because if tho law is constitution then all that a court can do is to act according to the opinion of tho Reserve Bank and abdicate its judicial function in favour of the opinion of an executive body. restriction. It is We are therefore of the opinion that s. 38 is an unreasonable restriction on the right of the ' Palai Bank to carry on its business and is there fore wiconstitutional. We need express no opinion on the question of hostile discrimination by the adoption of the proccduro prescribed but the statute, if it be found unreasonable, is liable to be invalid. For those reasons the appeal declared must be allowed and tho order of the High Court set aside. BY CouRT-In accordance with the opinion of the majority, the appeal and the writ petition fail ' and are dismissed with costs, one set only. Appeal and petition dism1$sed.