PEERLESS GENERAL FINANCE AND INVESTMENT CO. LTD. AND ANR versus RESERVE BANK OF INDIA

Citation: [1992] 1 S.C.R. 406 · Decided: 30-01-1992 · Supreme Court of India · Bench: N.M. KASLIWAL · Disposal: Disposed off

Cited by 17 judgment(s) · cites 5 · see the full citation network in Lexace

Judgment (excerpt)

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PEERLESS GENERAL FINANCE AND INVESTMENT 
CO. LTD. AND ANR .. 
v. 
RESER VE BANK OF INDIA 
JANUARY 30, 1992 
[N.M. KASLIWAL AND K. RAMASWAMY, JJ.] 
Reserve Bank of India Act, I934: 
Sections 45K (3), 45J, 451 & 45L: Residuary Non-Banking 
Companies-Receiving deposits under the saving schemes-Directions is-
sued by Jieserve Bank-,)uch companies to deposit with public sector 
Banks or invest in unencumbered securities the aggregate amounts of 
liabilities to depositors-To disdose the same as liabilities in order to 
secure return of the "!Oney to depositors-,)uch directions whether statu-
tory in natllre-Whether ultra vires of Section 45K (3)-Whether violative 
of Artlt:les 14 and I 9 (I) (g) of the Constitution of India. 
Constitution of India, I950: 
Articles 14, I9 (I) (g), I9 (6): Directions issued by Reserve Bank of 
India to Residuary Non-Banking Companies under Sections 45 J and 45 K 
of the Reserve Bank of India Act, I934 safeguarding the interest of the 
depositor-Vires of- Whether directions in the nature of reasonable re-
· strictions. 
Articles I 3 (I) and (2): Constitutionality of a statute--Real effect of 
the statute to be seen by lifting the veil of form and appearance of 
legislation_:negree of encroachment on fondamental rights- Considera-
tion of-Tests of fairness and reasonableness-Applicability 
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of-Constitutionality of the statute-Presumption of-Balance between 
public interest and individual interest-Maintaining of 
Practice & Procedure: 
Function of Courts-Matters relating to financial and economic 
G . policies--Bodies like Reserve Bank of India fully competent-Court not 
to advise on such·matters. 
While pronouncing its Judgment in Reserve Bank of India v. 
Peerless General Finance and Investment Co. Ltd., [1987] 1 SCC 424, 
this Court ·observed that it would be open to the Reserve Bank of 
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India (RBI) to take such steps as were open to it in law to regulate 
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PEERLESS CO. v. R.B.I. 
407 
the savings schemes run by Residuary Non-Banking Companies (RNBCs) 
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to prevent exploitation of ignorant investors while at the same time 
taking care to protect the thousands of employees working in such 
companies. This Court also expressed grave concern at the mush-
room growth of financial ·investment companies offering staggering 
rates of interests to· depositors leading to suspicion whether these 
companies were speculative ventures floated to attract unwary and · B 
credulous investors and capture their hard-earned savings. 
Pursuant to the said observations of this Court and keeping in 
mind the public interest, the RBI in exercise of its powers under 
sections 45J and 45K of the Reserve Bank of India Act, 1934, and of 
all powers enabling it in that behalf, issued certain directions by C 
way of Notification No. DFC-55/DG (0)'87 dated 15.5.1987. 
A Writ Petition was filed before the High Court challenging 
the constitutional validity of the said directions issued by the RBI. A 
Single Judge of the High Court palsed certain interim orders. Being 
aggrieved against the interim orders, the RBI preferred an appeal 
before the Division Bench. The Division Bench disposed of the ap-· 
peal as well as the Writ Petition. It held that the RBI was empow-
ered to issue directions to the Residuary Non-Banking Companies in 
the interest of depositors; but to the extent such direct.ions were 
found to be prohibitory or unworkable and as such unreasonable, 
would be beyond the powers of RBI. 
Peerless which became a party-respondent, filed an applica-
tion for clarification of the judgment, as regards payment against 
discontinued certificates. The High Court clarified that in such cases 
the depositors be allowed to take loan against payments made till 
discontiunance 'On such terms and conditions as the company may 
stipulate. 
The present appeals were filed by RBI against the orders of 
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the High Court. A Writ Petition has been filed directly before this 
Court, challenging the directions as being ultra vires of sections 45J G 
and 45K of the.Reserve Bank of India Act, 1934 as also violative of 
the provisions of the constitution. 
On behalf of the Writ Petitioners it was contended that since 
the 1987 directions issued by RBI were in the nature of subordinate 
legislation, it was clear that RBI overstepped the bounds of the 
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SUPREME COURT REPORTS 
[1992] I S.C.R. 
A . parent statute; that the source of power for issuing the directions as 
being derived f

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