GANESH BANK KURUNDWAD LTD. AND ORS. versus THE UNION OF INDIA AND ORS.

Citation: [2006] SUPP. 5 S.C.R. 437 · Decided: 28-08-2006 · Supreme Court of India · Bench: ARIJIT PASAYAT · Disposal: Dismissed

Judgment (excerpt)

GANESH BANK. KURUNDWAD LTD. AND ORS. 
A 
v. 
THE UNION OF INDIA AND ORS. 
AUGUST 28. 2006 
(ARIJIT PASA YAT AND C.K. THAKKER, JJ.] 
B 
Banking Regulation Act, 1950-Sections 45 (/) and 36 (AB)-Bank 
incurring huge losses-Imposition of moratorium in respect of Bank by RBI 
and order of amalgamation of bank with private sector commercial bank, 
within one month of order of moratorium-Correctness of-Held Moratorium C 
imposed justified and in terms with public interest under sec/ion 45(/)-
Action of RBI based on negative net worth, risk weighted assets ratio, high 
level non-performing assets of the bank and its inability to infi1se fresh 
capital-Federal Bank being a strong bank, amalgamation of the bank with 
it in interest of depositors and no malafide involved-A/so RBI has necessaiy D 
powers to appoint Directors on the Board of the Bank-Thus, order of High 
Court not inte1fering with the decision of RBI correct and calls for no 
interference-Administrative law. 
Administrative law-Judicial inte1ference in administrative mallers-
Scope of-Held: There should be judicial restraint-Where irrelevant aspects E 
have been eschewed from consideration, no relevant aspects have been 
ignored and administrative decisions have nexus with the facts on record, 
there is no scope for inte1ference-ln case of illegality, irrationality, and 
procedural impropriety administrative action is subject to control by judicial 
review-Test is whether there is any infirmity in the decision making process 
and not in the decision itself 
F 
Appellant bank incurred huge losses for the first time in the year 2004-
2005. On 7.01.2006, RBI imposed moratorium in respect of appellant-bank 
for three months and duly advertised its decision to take further steps. It 
appointed two directors of its own on the Board of Directors of the appellant 
bank. RBI then notified the proposed scheme of amalgamating appellant bank G 
with Federal Bank, another private sector commercial bank on 9.01.2006 and 
the appellant bank filed objections, however, on 24.1.2006, RBI and the Central 
Government sanctioned amalgamation of appellant Bank with the Federal 
Bank. Appellant Bank filed writ petitions on the ground that the order 
437 
H 
438 
SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R. 
A imposing moratorium and appointing two Directors was ma/a.fide, ultra vires 
the power of RBI and Central Government and as such bad in law, illegal and 
void; and also the framing of scheme of amalgamation and the decision to 
sanction the amalgamation was motivated and pre-planned for the benefit of 
the Federal Bank; and that there were no good reasons to impose moratorium 
B and the decision to amalgamate was arrived at without considering the 
proposals of other banks which were bet!er placed and had made better offers. 
High Court dismissed the writ petitions holding that the inference drawn by 
RBI was positive and cannot be termed to be perverse; that RBI was warning 
the bank for last three years as such it was not possible for High Court to 
substitute its judgment for that of RBI, therefore, the decision of the RBI to 
C impose the moratorium was neither unjustified nor against the provisions of 
section 45(1) of the Banking Regulation Act, 1949. However, it held that the 
allegation of malafides was not substantiated. Hence the present appeal. 
Dismissing the appeal, the Court 
D 
HELD: I.I. The phrase "good reasons" in sub-section (1) of section 45 
E 
of the Banking Regulation Act, 1950 is a term of wide amplitude and it will 
not be correct to restrict it only to the actions mentioned under sub-section 
(2) of section 45 of the Act. The provision is concerned with preparing a 
scheme of reconstruction or amalgamation which would become necessary 
where the RBI is satisfied about the existence of any of the four grounds 
mentioned in section 45(4)-public interest; interest of the banking system; 
necessary action in the interest of the depositors or with a view to secure 
proper management of the bank. Precursor to the framing of the scheme is 
the imposition of the moratorium which is provided in sub-sections (1) and 
(2) of section 45. Existence of court proceedings, mentiqned in section 45(2), 
F would certainly be one of the good reasons to impose moratorium, but that 
certainly cannot be the only one. Considering that object of the Act is 
protection of the interest of the depositors, such an interpretation of the 
concept of "good reasons" will have to be adopte

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