The case arose from a dispute over the authority to round up existing interest rates to 0.25%, which was challenged by borrowers in Karnataka. The Association of Bankers and Borrowers ...
No Acts & Articles mentioned in this case
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CASE NO.:
Appeal (civil) 4655 of 2000
PETITIONER:
Indian Banks' Association, Bombay & Ors.
RESPONDENT:
M/s Devkala Consultancy Service & Ors.
DATE OF JUDGMENT: 16/04/2004
BENCH:
CJI & S.B. Sinha.
JUDGMENT:
J U D G M E N T
WITH
CIVIL APPEAL NO.5218 OF 2000
S.B. SINHA, J :
The authority of the bankers to round up the existing
interest rates to 0.25% is in question in these appeals
which arise out of a judgment and order dated 18.12.1994
passed by the High Court of Karnataka in Writ Petition
No.3927 of 1994. Civil Appeal No. 5218 of 2000 has been
filed by the Association of Borrowers of Karnataka upon
getting itself impleaded as a party in the connected appeal.
Appellant No.1 herein is an Association of Bankers.
Appellant Nos.2 to 28 are banks which were created under
respective Parliamentary Acts or nationalized in terms of
provisions of the Banking Companies (Acquisition & Transfer
of Undertakings) Act, 1970 and the Banking Companies
(Acquisition & Transfer of Undertakings) Act, 1980.
FACTUAL MATRIX :
Interest Tax Act was enacted by the Parliament w.e.f
1.8.1974 with an object of imposing tax on the total amount
of interest received by Scheduled Banks/Credit Institutions
on loans and advances. It, however, was withdrawn in the
year 1978, but reintroduced in the year 1980; whereafter it
was again withdrawn in the year 1985. The said tax,
however, was reintroduced w.e.f. 1.10.1991 by reason of
Finance Act, 1991. The Reserve Bank of India by its
Circular letter dated 2.9.1991 advised all the Scheduled
Commercial Banks that the incidence of interest tax should
pro rata be passed on to the borrowers wherefor a uniform
practice should be followed in consultation with the First
Appellant herein.
The first appellant purported to be acting pursuant to
or in furtherance of the said circular as also with a view
to formulate a structure of uniform interest rate chargeable
after including the interest tax payable, which was passed
on to the borrowers by the concerned banks, advised them
that the rate of interest be loaded with interest tax of 3%
and rounded up to the next higher 0.25%. Such rounding up
was allegedly found necessary allegedly on account of
grossing up involved in calculating the incidence of tax.
The Reserve Bank of India purportedly gave its approval to
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the proposal of the first appellant in terms of its letter
dated 22.4.1993. Other appellants herein followed the said
purported policy.
The aforementioned action on the part of the appellants
herein came to be questioned by the respondents in a public
interest litigation filed before the Karnataka High Court,
inter alia, on the ground that such purported rounding up is
illegal and without jurisdiction as thereby the tax element
came to be increased and as a result thereof the banks
collected additional sums of Rs.723.79 crores annually by
way of resorting to rounding up on the basis thereof.
HIGH COURT JUDGMENT:
The appellants herein inter alia contended that such
rounding up of interest was done by way of enhancement of
the rate of interest which is permissible. Such a matter,
the appellants, contended, being contractual in nature, the
writ petition was not maintainable.
The High Court of Karnataka by reason of its impugned
judgment dated 18.12.1998 rejected the said contention and
found the action on the part of the appellants herein
illegal and consequently issued the following directions :
"...The Writ Petition is allowed. Rule
issued is made absolute. The action of
the Respondents-Banks in rounding up
interest rates to the next higher 0.25%
is held illegal, arbitrary and
untenable. A command is issued to all
the Banks to submit an account of the
excess interest collected by them from
the borrowers and deposit the same with
the Reserve Bank of India to be debited
in the account of the Union of India.
The Reserve Bank of India-Respondent
No.2 is directed to take immediate
effective steps for implementation of
our directions by calculating the excess
interest collected by the Banks and
ensuring the same to be deposited in the
funds of the Union of India."
The appellants herein are before us questioning the
said judgment.
SUBMISSIONS:
Mr. Dushyant A. Dave, Senior Counsel appearing on
behalf of the first appellant, Mr. P. Chidambaram, Senior
Counsel appearing for State Bank of India, Mr. Gopal
Subramanium, Senior Counsel appearing for Punjab National
Bank and Mr. Altaf Ahmed, Additional Solicitor General
appearing on behalf of Canara Bank, would submit that :
(a) having regard to the provisions contained in
Sections 4 and 5 of the Interest Tax Act read with
Section 26C thereof, as interest tax was payable on
the total chargeable interest which was enhanced on
the loan in terms of Section 26C as also in terms of
contractual provisions of other term loans, a great
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deal of difficulties had arisen as calculations
therefor were required to be made in several steps.
An example in respect thereof has been placed before us
which is as under:
Step 1:
* Cum Tax Interest to be earned in an
attempt to retain Rs.10 post
Interest Tax
10.30
* Interest Tax payable on Rs.10.30
(since whole of the amount collected
is assessable to Interest Tax)
0.309
Step II :
* Cum Tax Interest to be earned in an
attempt to retain Rs.10 post
Interest Tax
10.309
* Interest Tax payable on Rs.10.309
(since whole of the amount
collected is assessable to Interest
Tax)
0.30427
Step III :
* Cum Tax Interest to be earned in an
attempt to retain Rs.10 post
Interest Tax
10.30427
* Interest Tax payable on Rs.10.30427
(since whole of the amount
collected is assessable to Interest
Tax)
0.3092781
Step IV :
* Cum Tax Interest to be earned in an
attempt to retain Rs.10 post
Interest Tax
10.3092781
* Interest Tax payable on
Rs.10.3092781 (since whole of the
amount collected is assessable to
Interest Tax)
0.309278343
Step V :
* Cum Tax Interest to be earned in an
attempt to retain Rs.10 post
Interest Tax
10.309278342
* Interest Tax payable on
Rs.10.309278343 (since whole of the
amount collected is assessable to
Interest Tax)
0.30927835026
(b) Such action was necessary with a view to ensure the
retaining of interest at the contractual rate;
(c) At or after Step V; as the amount of post tax interest
earned by banks prior to imposition of interest tax
would not be enough, if banks raised rate of interest
only exactly by 3%, they necessarily had to increase
the rate of interest by 0.30927835026 so as to continue
to earn pre tax interest @ 10%, the impugned decision
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had been taken;
(d) Since the calculation would come to an impossible
fraction, the revised rate had to be rounded up for
easy calculation in collection; (e) The appellants,
therefore, had not realised any tax de'hors the
provisions of the Act but had realised interest in
terms of Section 26C which was authorised by the
Reserve Bank of India;
(f) In any event, increase in the rate of interest being of
not much significance, the doctrine of de minimus
should be applied;
(g) As the appellants have merely collected a higher rate
of interest to which they were entitled to in terms of
the loan agreements, as the Reserve Bank of India only
fixes minimum rate, the same had no nexus with
collection of tax within the meaning of Article 265 of
the Constitution of India and, thus, the finding of the
High Court to the effect that the appellants have
collected excess amount of tax must be held to be bad
in law;
(h) In any view of the matter, as pursuant to or in
furtherance of the circular letter issued by the
Reserve Bank of India, the borrowers had been given
notice and the terms of the loan agreement having been
altered, no writ application was maintainable;
(i) The writ petition suffered from gross delay and laches
on the part of the writ petitioner and, thus, the same
should not have been entertained.
Reliance in support of the aforementioned contentions
has been placed on Dhanyalakshmi Rice Mills and Others etc.
etc. vs. The Commissioner of Civil Supplies and Another etc.
etc. [(1976) 4 SCC 723]; B.O.I. Finance Ltd. vs. Custodian
and Others [(1997) 10 SCC 488] and Central Bank of India vs.
Ravindra and Others [(2002) 1 SCC 367].
Mr. K.N. Bhat, learned senior counsel appearing on
behalf of the Reserve Bank of India, would submit that his
client permitted rounding up of interest having regard to
the practical difficulties faced by the banks; but the same
has since been withdrawn in the year 1997. Keeping in view
the fact that there are five crores borrowers throughout
India, it may not be feasible to comply with the directions
issued by the High Court.
Mr. L. Nageswara Rao, the learned Additional Solicitor
General, appearing on behalf of the Union of India, however,
would point out that the gross interest rate charged to the
borrowers by the banks being made up of three elements,
namely, (a) interest rate; (b) interest tax on the interest
rate; and (c) element of rounding up interest rate to higher
25 paise; the appellants had not only paid to the Government
interest tax on the gross interest, that is, rounded off cum
tax interest rate collected by them (which would be in
excess of the amount of tax under the Act) but also retained
some parts thereof. Supporting the judgment of the High
Court, Mr. Nageswara Rao would contend that as the amount
belongs to the ultimate borrowers, it should be returned to
them wherever feasible but in the event the same is not
feasible it should be paid over to the Government.
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As Respondent No.1, writ petitioner, did not appear, we
requested Mr. T.L. Viswanatha Iyer, Senior Advocate, to
assist the Court. The learned counsel (Amicus Curiae) would
contend that the appellants have construed Section 26C
wrongly and, thus, acted under a confusion. Mr. Iyer would
submit that Section 26C of the Act, if properly read, would
only mean that the enabling provisions had been made so as
to enable the appellant-banks to recover the amount of tax
from the borrowers under the Act and nothing more.
STATUTORY PROVISIONS :
The relevant provisions of the Interest Tax Act, 1974
read as under :
"2(5)"chargeable interest" means the
total amount of interest referred to in
section 5, computed in the manner laid
down in section 6;
2(7) "interest" means interest on loans
and advances made in India and includes
-
(a) commitment charges on unutilized
portion of any credit sanctioned
for being availed of in India; and
(b) discount on promissory notes and
bills of exchange drawn or made in
India,
but does not include -
(i) interest referred to in sub-section
(1B) of section 42 of the Reserve
Bank of India Act, 1934 (2 of
1934);
(ii) discount on treasury bills;
"Charges of tax.
4(1) Subject to the provisions of this
Act, there shall be charged on every
scheduled bank for every assessment year
commencing on or after the 1st day of
April, 1975, a tax in this Act referred
to as interest-tax in respect of its
chargeable interest of the previous year
at the rate of seven per cent of such
chargeable interest
Provided that the rate at which
interest-tax shall be charged in respect
of any chargeable interest accruing or
arising after the 31st day of March,
1983 shall be three and a half per cent
of such chargeable interest.
(2) Notwithstanding anything contained
in sub-section (1) but subject to the
other provisions of this Act, there
shall be charged on every credit
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institution for every assessment year
commencing on and from the 1st day of
April, 1992, interest-tax in respect of
its chargeable interest of the previous
year at the rate of three per cent of
such chargeable interest :
Provided that the rate at which
interest-tax shall be charged in respect
of any chargeable interest accruing or
arising after the 31st day of March,
1997 shall be two per cent of such
chargeable interest.
Scope of chargeable interest.
5. Subject to the provisions of this
Act, the chargeable interest of any
previous year of a credit institution
shall be the total amount of interest
(other than interest on loans and
advances made to other credit
institutions or to any cooperative
society engaged in carrying on the
business of banking, accruing or arising
to the credit institution in that
previous year :
Provided that any interest in relation
to categories of bad or doubtful debts
referred to in section 43D of the
Income-tax Act shall be deemed to accrue
or arise to the credit institution in
the previous year in which it is
credited by the credit institution to
its profit and loss account for that
year or, as the case may be, in which it
is actually received by the credit
institution, whichever is earlier.
Computation of chargeable interest.
6(1) Subject to the provisions of sub-
section (2), in computing the chargeable
interest of a previous year, there shall
be allowed from the total amount of
interest (other than interest on loans
and advances made to credit institution
accruing or arising to the assessee in
the previous year, a deduction in
respect of the amount of interest which
is established to have become a bad debt
during the previous year :
Provided that such interest has been
taken into account in computing the
chargeable interest of the assessee of
an earlier previous year and the amount
has been written off as irrecoverable in
the accounts of the assessee for the
previous year during which it is
established to have become a bad debt.
Explanation - For the removal of doubts,
it is hereby declared that in computing
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the chargeable interest of a previous
year, no deduction, other than the
deduction specified in this sub-section
shall be allowed from the total amount
of interest accruing or arising to the
assessee.
(2) In computing the chargeable interest
of a previous year, the amount of
interest which accrues or arises to the
assessee before the 1st day of March,
1978, and ending with the 30th day of
June, 1980, or during the period
commencing on the 1st day of April,
1985 and ending with the 30th day of
September, 1991 shall not be taken into
account.
Power of credit institutions to vary
certain agreements.
26C. Notwithstanding anything contained
in any agreement under which any term
loan has been sanctioned by the credit
institution before the 1st day of
October, 1991, it shall be lawful for
the credit institution to vary the
agreement so as to increase the rate of
interest stipulated therein to the
extent to which such institution is
liable to pay the interest-tax under
this Act in relation to the amount of
interest on the terms loan which is due
to the credit institution.
Explanation.-For the purposes of this
section, "term loan" means a loan which
is not repayable on demand."
The relevant provisions of the Banking Regulations Act,
1949 are as under : -
"35A. Power of the Reserve Bank to give
directions.- (1) Where the Reserve Bank
is satisfied that -
(a) in the public interest; or
(aa) in the interest of banking policy;
or
(b) to prevent the affairs of any
banking company being conducted in
a manner detrimental to the
interests of the depositors or in a
manner prejudicial to the interests
of the banking company; or
(c) to secure the proper management of
any banking company generally;
it is necessary to issue directions to
banking companies, generally or to any
banking company in particular, it may,
from time to time, issue such directions
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as it deem fit, and the banking
companies or the banking company, as the
case may be, shall be bound to comply
with such directions.
(2) The Reserve Bank may, on
representation made to it or on its own
motion, modify or cancel any direction
issued under sub-section (1), and in so
modifying or canceling any direction may
impose such conditions as it thinks fit,
subject to which the modification or
cancellation shall have effect.
The Reserve Bank is entitled to
give directions to bankers under Section
20(3) of the Foreign Exchange Regulation
Act, 1947 blocking certain accounts.
Section 20(3) does not contemplates the
issue of a prior notice before taking
such action under that section. Mohamed
Ayisha Nachiyar vs. Deputy Director,
Enforcement, (1976) 46 Com Cas 653 (Mad)
Directions by Reserve Bank cannot
prevent payment of higher bonus in terms
of the agreement. American Express
International Banking Corp. v. S.
Sundaram, (1978) 1 SCC 101 : 1978 SCC
(L&S) 34."
SECTION 26C OF THE ACT:
The Parliament by reason of the said Act imposed a tax
on the banks and other financial institutions. By reason of
the said Act, the appellants were not statutorily empowered
to pass the burden thereof to the borrowers or realise the
same on behalf of the Union of India. Concededly, in terms
of the agreement of the term loan, the appellants were not
entitled to charge interest at a higher rate than the agreed
one. Section 26C was, therefore, enacted so as to enable
the bankers to realise the amount of tax which they were
liable to recover on the chargeable interest. The
appellants have proceeded on the basis that having regard to
definition of 'chargeable interest' as contained in Section
2(5) of the Act, the additional interest will have also to
be calculated for the said purpose and the rate of tax must
be calculated thereupon which, as noticed hereinbefore,
resulted in adding of interest for the purpose of
calculation of tax ad infinitum.
How the Parliament thought of the matter is the
question. The Union of India does not agree with the
contentions of the Appellants, nor do we. The action on the
part of the appellants suggests that they had put the cart
before the horse. The action of taking recourse to Section
26C would arise only when the chargeable interest is
calculated whereupon only the incidence of tax under the
said Act is required to be passed on to the borrowers by way
of additional interest. The entire approach of the
appellants was based on a wrong premise. The said Act is a
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taxing statute. The Union of India under the said Act
cannot direct or permit the bankers or the financial
institutions to raise interest. The Act must, therefore,
receive purposive construction so as to give effect to the
purport and object it seeks to achieve. [See BBC Enterprises
vs. Hi-Tech Xtravision Ltd. (1990) 2 All ER 118 at 122-3;
Mohan Kumar Singhania and Others vs. Union of India and
Others, AIR 1992 SC 1, Murlidhar Meghraj Loya vs. State of
Maharashtra, (1976) 3 SCC 684, Superintendent and
Remembrancer of Legal Affairs to Govt. of West Bengal vs.
Abani Maity, (1979) 4 SCC 85, Khet Singh vs. Union of India
(2002) 4 SCC 380 and High Court of Gujarat & Anr. Vs.
Gujarat Kishan Mazdoor Panchayat & Ors., JT 2003 (3) SC 50],
Indian Handicrafts Emporium & Ors. V. Union of India & Ors.
[ JT 2003 (7) SC 446], Ashok Leyland Ltd V. State of T.N.
and Anr. [2004 (3) SCC 1 ] and High Court of Gujarat & Anr.
Vs. Gujarat Kishan Mazdoor Panchayat & Ors. [JT 2003 (3) SC
50].
In the event, the contention of the appellants is
accepted, the same would give rise to incongruous results.
Such an interpretation, as is well-known, must be avoided,
if avoidable. Furthermore, a statutory impost must be
definite. Having regard to Article 265 read with Article
366(28) of the Constitution of India nothing is realizable
as a tax or by way of recovery of tax or any action akin
thereto which is not permitted by law.
It is neither in doubt nor in dispute that Section 26C
is an enabling provision. It has to be so construed, having
regard to the term 'lawful' used therein.
It merely prevails over an agreement under which any
term loan has been sanctioned by the credit institution
before the 1st day of October, 1991. It was 'lawful' for
the credit institution to vary the agreement as regard rate
of interest only for the purpose of recovering the amount of
tax which was payable by the Appellants and a fortiori -
nothing over and above the same. Such increase in rate of
interest would be (a) to the extent to which such
institution is liable to pay the interest tax; (b) in
relation to the amount of interest on the term loan; and (c)
which is due to the credit institution.
Increase in rate of interest in terms of Section 26C of
the Act, thus, has a direct nexus with the statutory impost.
The action on the part of the appellants in rounding up of
the interest, thus, was wholly unjustified. Once it is held
that increase in interest in a justifiable manner pertains
to passing of the burden of tax, the contention that the
same had been done by the bank in exercise of its
contractual power must be rejected. A taxing statute must
be construed reasonably. Nothing can be realised by way of
tax or akin thereto which has not been authroised by the
Parliament.
The Executive cannot levy tax. It, for the said
purpose, therefore, cannot even take recourse to the process
of interpretation of a statute.
In Commissioner of Central Excise, Lucknow, U.P. Vs.
M/s Chhata Sugar Co. Ltd. reported in 2004 (3) SCALE 6,
administrative charges levied under U.P. Sheera Niyantran
Adhiniyam, 1964 has been held to be a tax.
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In Mathuram Agrawal vs. State of Madhya Pradesh [(1999)
8 SCC 667], the law is stated in the following terms :
"...The intention of the legislature in
a taxation statute is to be gathered
from the language of the provisions
particularly where the language is plain
and unambiguous. In a taxing Act it is
not possible to assume any intention or
governing purpose of the statute more
than what is stated in the plain
language. It is not the economic
results sought to be obtained by making
the provision which is relevant in
interpreting a fiscal statute. Equally
impermissible is an interpretation which
does not follow from the plain,
unambiguous language of the statute.
Words cannot be added to or substituted
so as to give a meaning to the statute
which will serve the spirit and
intention of the legislature. The
statute should clearly and unambiguously
convey the three components of the tax
law i.e. the subject of the tax, the
person who is liable to pay the tax and
the rate at which the tax is to be paid.
If there is any ambiguity regarding any
of these ingredients in a taxation
statute then there is no tax in law.
Then it is for the legislature to do the
needful in the matter."
(Emphasis Supplied)
If a statute was ambiguous the contemporaneous
construction placed thereon by the officers charged with its
enforcement and administration might be required to be
considered and given due weight but therefor the First
Respondent or the Reserve Bank of India were not competent.
In this case, the stand of the Union of India also runs
counter to the contentions of the Appellants.
A plain reading of Section 26C of the Act leaves no
manner of doubt that the same was enacted only for a
limited purpose, namely, to pass on the burden of tax to the
borrowers. The amount of tax must be calculated having
regard to the contractual rate of interest as thence
obtaining and not upon in addition of the purported interest
by way of tax or otherwise. Once Section 26C is read in a
meaningful way, no difficulty arises in giving effect to
sub-section (2) of Section 4 and Section 5 and 6 of the Act.
If the provisions of the Act are read in a manner in which
we have made an endeavour, for an amount of Rs.100/- charged
and the rate of interest charged by the bank being 10%, the
interest thereon having been earned would come to Rs.10,
and, thus, the borrower would be bound to pay only Rs.10.30
and not Rs.10.50, which is said to be the effect of
calculation at various steps as referred to by the
appellants. The appellants are, thus, not correct to contend
that they have exercised the power to claim a higher rate of
interest only. They may have a power to claim a higher rate
of interest under the agreement but they did not exercise
the said jurisdiction. They invoked the enabling provisions
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contained in Section 26C of the Act and/or raised rate of
interest so as to pass on the burden of tax upon the
borrowers. They, while purporting to exercise their
jurisdiction under a statute were required to act in terms
thereof and not in derogation thereto. The appellants
sought to achieve the same object indirectly which they
could not do directly.
The purported difficulties faced by the appellants were
their own creations. The borrowers cannot suffer on account
of wrong interpretation of law by the appellants or by the
Reserve Bank of India. Section 26C of the Act, therefore,
must be held to have wrongly been applied and consequently
the action taken by the appellants herein in grossing up and
rounding the rate of interest must be held to be illegal.
It is well-settled that when a procedure has been laid
down the statutory authority, it must exercise its power in
the manner prescribed or not at all.
DE MINIMIS:
The principle of de minimis, as contended by Mr.
Chidambaram, has no application in the instant case.
In Black's Law Dictionary 'De minimus' has been defined
as follows:
"The law does not care for, or take
notice of, very small or trifling
matters. The law does not concern
itself about trifles."
It is not a matter which would not receive the
attention of anybody. Not only a public interest litigation
was filed but also the association of borrowers of Karnataka
has also filed a Special Leave Petition. The amount
collected from the borrowers may be negligible for the
appellant banks but the amount they have realised from five
crores of borrowers is not a small one. By reason of a
self-created confusion, misconception as regard application
of a statute and misapplication and misconstruction thereof
by the appellants herein had resulted in an illegal action;
as a result whereof the borrowers have been deprived of a
huge amount. Consequently the Union of India and the
appellants have unjustly enriched themselves. When such an
unjust enrichment takes place, the doctrine of de minimis,
in our view, should not be applied in equity or otherwise.
LOCUS OF THE RESPONDENT:
The writ petitioner before the High Court was a firm of
the Chartered Accountant. As an expert in accountancy and
auditing, it must have come across several cases where its
client had to pay a higher amount of interest to the banks
pursuant to or in furtherance of the impugned action of the
appellants. By reason of such an action on the part of the
appellants as also the Reserve Bank of India, as noticed
hereinbefore, the citizens of India had to pay a higher
amount of tax as also a higher amount of interest for no
fault on their part. The same had been recovered from them
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without any authority of law. While entertaining a public
interest litigation, this Court in exercise of its
jurisdiction under Article 32 of the Constitution of India
and the High Courts under Article 226 thereof are entitled
to entertain a petition moved by a person having knowledge
in the subject matter of lis and, thus, having an interest
therein as contradistinguished from a busy body, is the
welfare of the people. The rule of locus has been relaxed
by the courts for such purposes with a view to enable a
citizen of India to approach the courts to vindicate legal
injury or legal wrong caused to a section of people by way
of violation of any statutory or constitutional right.
In fact the Courts had even been treating a letter or
telegram sent to them as a public interest litigation by
relaxing the procedural laws especially the law relating to
pleadings. We need not dilate further on this subject as a
Bench of this Court in Guruvayur Devaswom Managing Committee
& Anr. Vs. C.K. Rajan & Others [JT 2003 (7) SC 312]
observed:
"The Courts exercising their power of
judicial review found to its dismay that
the poorest of the poor, depraved, the
illiterate, the urban and rural
unorganized labour sector, women,
children, handicapped by 'ignorance,
indigence and illiteracy' and other down
trodden have either no access to justice
or had been denied justice. A new
branch of proceedings known as 'Social
Interest Litigation' or 'Public Interest
Litigation' was evolved with a view to
render complete justice to the
aforementioned classes of persons. It
expanded its wings in course of time.
The Courts in pro bono publico granted
relief to the inmates of the prisons,
provided legal aid, directed speedy
trial, maintenance of human dignity and
covered several other areas.
Representative actions, pro bono publico
and test litigations were entertained in
keeping with the current accent on
justice to the common man and a
necessary disincentive to those who wish
to by pass the real issues on the merits
by suspect reliance on peripheral
procedural shortcomings. (See Mumbai
Kamgar Sabha, Bombay Vs. M/s. Abdulbhai
Faizullabhai & Others (1976) 3 SCR 591).
The Court in pro bono publico
proceedings intervened when there had
been callous neglect as a policy of
State, a lack of probity in public life,
abuse of power in control and
destruction of environment. It also
protected the inmates of prisons and
homes. It sought to restrain
exploitation of labour practices.
The court expanded the meaning of
life and liberty as envisaged in Article
21 of the Constitution of India. It
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jealously enforced Article 23 of the
Constitution. Statutes were interpreted
with human rights angle in view.
Statutes were interpreted in the light
of international treatises, protocols
and conventions. Justice was made
available having regard to the concept
of human right even in cases where the
State was not otherwise apparently
liable. (See Kapila Hingorani Vs. State
of Bihar reported in JT 2003 (5) SC 1)
The people of India have turned to
courts more and more for justice
whenever there had been a legitimate
grievance against the States statutory
authorities and other public
organizations. People come to courts as
the final resort, to protect their
rights and to secure probity in public
life.
Pro bono publico constituted a
significant state in the present day
judicial system. They, however,
provided the dockets with much greater
responsibility for rendering the concept
of justice available to the
disadvantaged sections of the society.
Public interest litigation has come to
stay and its necessity cannot be
overemphasized. The courts evolved a
jurisprudence of compassion. Procedural
propriety was to move over giving place
to substantive concerns of the
deprivation of rights. The rule of
locus standi was diluted. The Court in
place of disinterested and dispassionate
adjudicator became active participant in
the dispensation of justice."
Furthermore, even where a writ petition has been held
to be not entertainable on the ground or otherwise of lack
of locus, the court in larger public interest has
entertained a writ petition. In an appropriate case, where
the petitioner might have moved a Court in his private
interest and for redressal of the personal grievance, the
Court in furtherance of public interest may treat it a
necessity to enquire into the state of affairs of the
subject of litigation in the interest of justice. Thus, a
private interest case can also be treated as public interest
case. (See Shivajirao Nilangekar Patil v. Mahesh Madhav
Gosavi AIR 1987 SC 294)
We, therefore, do not agree with the submissions of the
learned counsel of the appellants that the respondent had no
locus to maintain the public interest litigation or the writ
petition filed by him pro bono publico before the High Court
was not maintainable.
AUTHORITY OF THE APPELLANTS AND THE RESERVE BANK OF INDIA:
The appellants have filed additional documents before
us to show that the borrowers had been given due notice but
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such notice/information had been given by applying wrong
legal principles. The appellants are State within the
meaning of Article 12 of the Constitution of India. They,
as noticed hereinbefore, acted in an arbitrary and whimsical
manner.
The submission of the learned counsel for the
appellants to the effect that they had been permitted to
enhance the rate of interest by the Reserve Bank of India is
equally misconceived. The Reserve Bank of India apparently
proceeded on the basis that the mode of calculation of rate
of interest vis-`-vis the tax under the Act, as contended by
the Appellant No. 1, was correct. The Reserve Bank of India
was not an authority for construction of a statute. Its
functions are confined only to the provisions of the Reserve
Bank India Act and the Banking Regulation Act and not any
other statute.
Section 35A of the Banking Regulation Act empowers the
Reserve Bank of India to issue directions in relation to
matters specified under Section 35A and not for any other
purpose. The contention of the appellants to the effect
that rate of interest had been enhanced by them pursuant to
or in furtherance of the directions issued by the Reserve
Bank of India must be held to be self-contradictory inasmuch
as according to them the Reserve Bank of India fixes only
the minimum rate of interest leaving a determination thereof
in a case of each individual borrower upon the bank
concerned. If the matter relating to increase in the rate
of the interest was within power of the appellants, we fail
to understand as to why the Reserve Bank of India was
approached at all. The same being not permissible under the
Act, any approval given by the Reserve Bank of India for the
satisfaction of the members of the first appellant herein
was futile.
It is not in dispute that action on the part of the
appellants in grossing up of interest was not at all
relevant. The appellants could not have suo motu taken
recourse to rounding up of interest for the purpose of
obtaining a higher amount of interest or otherwise. The
purported practical difficulty sought to have been put forth
by the appellants is a self created one. If such practical
difficulty existed there was apparently no reason as to why
the Reserve Bank of India refused to grant such approval
since 1997.
In any view of the matter, the purported directions
contained in the letter dated 2.9.1991 of the Reserve Bank
of India are not even in the nature of executive
construction under the said Act. It was not binding on the
banks, far less on the borrowers. In any event by reason of
a misplaced and misapplied construction of statute, a third
party cannot suffer.
Furthermore, having regard to the provisions contained
in Article 265 of the Constitution of India read with
Article 366(28) thereof the purported demand from the
borrower for a higher amount of tax and consequently a
higher amount of interest by way of rounding up was wholly
illegal and without jurisdiction. We also fail to
understand as to why in this modern electronics age, this
difficulty would be encountered while calculating the exact
amount of tax.
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We, therefore, are of the opinion that the purported
approval granted by the Reserve Bank of India was wholly
without jurisdiction and ultra vires the provisions of the
said Act.
CASE LAWS:
In Dhanyalakshmi Rice Mills (supra), this Court merely
held that in triable issues of limitation, disputed
questions of fact may not be gone into by the High Court in
exercise of its writ jurisdiction. Therein the appellants
had been claiming refund in terms of Section 72 of the
Indian Contract Act. Under the export scheme involved
therein the payment made was voluntary in nature. The
appellant did not enter into any contract under mistake of
law or under coercion. In the fact situation obtaining
therein, this Court held that the remedy under Article 226
was not appropriate in the said cases, stating :
"...First, several petitioners have
joined. Each petitioner has individual
and independent cause of action. A suit
by such a combination of plaintiffs
would be open to misjoinder. Second,
there are triable issues like
limitation, estoppel and questions of
fact in ascertaining the expenses
incurred by the Government for
administrative surcharges of the scheme
and allocating the expenses with regard
to quality as well as quantity of rice
covered by the permits."
The aforesaid decision is not applicable in the instant
case.
However, we may notice that in ABL International Ltd. &
Anr. Vs. Export Credit Guarantee Corporation of India Ltd.
[JT 2003 (10) SCC 300], this Court recently observed:
"Merely because the first respondent
wants to dispute this fact, in our
opinion, it does not become a disputed
fact. If such objection as to disputed
questions or interpretations are raised
in a writ petition, in our opinion, the
courts can very well go into the same
and decide that objection if facts
permit the same as in this case."
In B.O.I. Finance Ltd. (supra), the question which
arose for consideration was as to whether the transaction
arising out of agreement to do an illegal act could be
enforced. In that case certain circulars were issued by the
Reserve Bank of India in terms of 36(1) of the Banking
Regulation Act which had not been published. It was held :
"It was then submitted that even if
it is held that the said circulars were
binding they could only bind the banks
and not the third parties. The
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submission was that by contravening the
direction contained in the said
circulars, the contracts which were
entered into between the banks and the
third parties could not be invalidated
and the only result of such
contravention would be the levy of
penalty under Section 46 of the said
Act."
The question which arose for consideration therein does
not arise in the instant case.
In Central Bank of India (supra), this Court, inter
alia, held that Sections 21 and 35-A of the Banking
Regulation Act confers a power coupled with duty to act.
The question which arose for consideration related to many
phrases, namely, "The principal sum adjusted", "such
principal sum" and "such" occurring in Section 34 of the
Code of Civil Procedure. This Court held that a long-
established banking practice of charging interest at
reasonable rates on periodical rests and capitalizing the
same on remaining unpaid should not be found fault with and
in that context the circular letter issued by the Reserve
Bank of India under Sections 21 and 35A was commented upon :
"...The Reserve Bank of India is the
prime banking institution of the country
entrusted with a supervisory role over
banking and conferred with the authority
of issuing binding directions, having
statutory force, in the interest of the
public in general and preventing banking
affairs from deterioration and prejudice
as also to secure the proper management
of any banking company generally. The
Reserve Bank of India is one of the
watchdogs of finance and economy of the
nation. It is, and it ought to be,
aware of all relevant factors, including
credit conditions as prevailing, which
would invite its policy decisions. RBI
has been issuing directions/circulars
from time to time which, inter alia,
deal with the rate of interest which can
be charged and the periods at the end of
which rests can be struck down,
interest calculated thereon and charged
and capitalized. It should continue to
issue such directives. Its circulars
shall bind those who fall within the net
of such directives. For such
transaction which are not squarely
governed by such circulars, the RBI
directives may be treated as standards
for the purpose of deciding whether the
interest charged is excessive, usurious
or opposed to public policy."
We have noticed hereinbefore that the Reserve Bank of
India could not have interpreted the provisions of the said
Act nor thereby could have empowered the banks to charge
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something more from the borrowers by the process of rounding
up of interest. The appellants and the Reserve Bank of
India with a view to touching the end of their own shadows
in the guise of exercise of their contractual powers vis-a-
vis Banking Regulation Act exceeded their jurisdiction in
recovering the tax imposed on them by way of interest under
the Parliamentary Act.
CONCLUSION:
For the reasons aforementioned, we are of the opinion
that the impugned judgment cannot be faulted with. However,
the matter does not end there. The question which looms
large is what effective order can be passed by this Court.
More than five crores of borrowers are involved. A huge sum
of money is to be recovered from Union of India as also a
large number of banks. Directions may be issued for refund
of the amount to the borrowers, but implementation thereof
would take a long time. The court may not be able to
effectively monitor such recovery.
The Union of India, as noticed hereinbefore, had
proposed that the banks concerned be directed to deposit the
excess recovered by it, if no direction is issued by us that
the same be returned to the borrowers. Interestingly, the
Union of India has not volunteered, which as 'a State' it
should have done, to suo motu undertake the exercise of
identifying the borrowers and refund the excess amount
recovered, a part whereof had been deposited by way of
interest tax by the concerned banks. Furthermore, directing
the Union of India to refund the excess amount collected
through the banks and consequently ask the banks to refund
the same to the borrowers whether with the amount retained
by them by way of rounding up of interest invariably would
take a long time.
We, therefore, are of the opinion that a fund may be
created for the benefit of the disadvantaged people.
The Parliament has enacted "The Persons with
Disabilities (Equal Opportunities, Protection of Rights and
Full Participation) Act, 1995" (the 1995 Act). The Chapter
V of the 1995 Act deals with education. Section 28 provides
for research for designing and developing new assistive
devices, teaching aids, etc. for the disabled persons.
Section 29 mandates appropriate governments to set up
teachers' training institutions to develop trained man power
for schools for children with disabilities. Chapter IX of
the said Act provides for research and manpower development
which includes grant of financial incentives to universities
to enable them to undertake research. Chapter XI provides
for institution for persons with severe disabilities whereas
Chapter XIII provides for social security. It is no
gainsaying that despite the 1995 Act came into force on or
about 1st January, 1996 only a beginning has been made to
implement the beneficient provisions thereof but a lot lot
more is required to be done.
In India, the number of disabled people is around 100
million, and there are approximately 160 million victims,
direct and vicarious, of disablement. National as also
international efforts to combat this situation are on but
the task is a gigantic one. The General Assembly of the
United Nations has passed several Resolutions dealing with
the rights of the mentally and physically disabled
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emphasising that the disabled persons have the rights as
regard human dignity, civil and political rights,
entitlement to measures to ensure their self-reliance, the
right to treatment, education and rehabilitation, the right
to economic and social security, the right to live with
their families, the right to have their special needs taken
into account in economic and social planning and the right
against discrimination, abuse and exploitation, apart from
the fact that the disabled persons enjoy all rights
available to other human beings.
It may not be necessary for us to delve deep into the
non-implementation or part implementation of the provisions
of the 1995 Act at the hands of the State but we are not
oblivious of the fact that it may not be possible to achieve
the legislative target for the Central Government or State
Government alone.
We are also not oblivious that the Parliament enacted
the The National Trust for Welfare of Persons with Autism,
Cerebral Palsy, Mental Retardation and Multiple Disabilities
Act, 1999 providing for constitution of a National Trust
which would provide for maintenance allowance for persons
with disabilities; the object being to enable the disabled
persons to live independently within the community, to deal
with problems of such persons who do not have family
support, to facilitate the realisation of equal
opportunities; protection of rights, full participation of
such persons; to evolve a procedure for appointment of
guardians or trustees for such persons requiring protection.
We are, furthermore, aware that the Ministry of Social
Justice and Empowerment had taken the following actions to
implement the provisions of the aforementioned Acts:
(i) Notification of Central Co-ordination Committee as
per Section 3 of the Act
(ii) Notification of Central Executive Committee as per
Section 9 of the Act
(iii) Creation of post of Chief Commissioner, Deputy Chief
Commissioner, and Staff for Office of Chief
Commissioner
(iv) Five core groups of experts and officials of
relevant Ministries have been set up to make
recommendations and formulate schemes to give effect
to various provisions of the Act. These are (a)
Group on Prevention, Early Detection and
Intervention; (b) Vocational training and
employment; (c) Education, including pre-school
education; (d) Barrier free environment; (e) Women
and children with disabilities
(v) National Fund for People with Disabilities set up on
11/08/1983 has been activated and assistance has
been sanctioned to non-government agencies. 17
projects have been sanctioned under the scheme
(vi) A new scheme \026 the Viklang Bandhu has been
formulated to provide training t disabled volunteers
(vii) A National Programme for Rehabilitation of Persons
with Disabilities has been submitted to the Planning
Commission for establishment of infrastructure for
realizing the Act. The Programme contemplates the
establishment of a District Level Rehabilitation
Centre, two multi-purpose rehabilitation workers at
the Block/PHC level; two community based
rehabilitation workers at the Gram Panchayat level
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(viii) To support entrepreneurial activity by the disabled,
the National Handicapped Finance and Development
Corporation has been operationalised with effect
from 24/10/1997
(ix) The proposal for the National Trust for Welfare of
Persons with Autism, Cerebral Palsy, Mental
Retardation and Multiple Disabilities with a corpus
fund of Rs. 100 crores has been approved by the
Cabinet
This Court as also the High Courts have taken pro-
active views in the matter of implementation of the rights
of the disabled.
In National Federation for the Blind v. Union Public
Service Commission [(1993) 2 SCC 411], the Court directed
the Government and the UPSC to permit blind and partially
blind eligible candidates to compete and write the Civil
Services Examination in Braille script or with the help of a
scribe. It also recommended to the Government to decide the
question of providing reservations to visually handicapped
persons in Group 'A' and 'B' posts in the Government and
Public Sector Enterprises.
In Javed Abidi v. Union of India [(1999) 1 SCC 467],
the Court directed Indian Airlines to give concessions to
orthopaedically handicapped persons suffering from locomotor
disability to the extent of 80% for traveling by air in
India. The Court was mindful of the financial position of
Indian Airlines and yet felt that this direction was in
keeping with the objectives of the Disabilities Act and was
in consonance with the concession already given by Indian
Airlines to visually disabled persons.
Kunal Singh v. Union of India [(2003) 4 SCC 524] saw
the Court interpreting the Disabilities Act in a manner so
as to further its objective. The Court opined that Section
47 of the Act mandates that an employee who acquires a
disability during service must be protected. If such an
employee is not protected, he would not only suffer himself,
but all his dependants would also undergo suffering.
Therefore, merely granting him pension would not suffice,
but there must also be an attempt to secure him alternative
employment.
Despite the progressive stance of the Court and the
initiatives taken by the Government, the implementation of
the Disabilities Act is far from satisfactory. The disabled
are victims of discrimination in spite of the beneficial
provisions of the Act.
We are, therefore, of the opinion that in a larger
interest a fund for the aforementioned purpose should be
created with the amount at the hands of the Union of India
and the Appellants and other concerned Banks, which may be
managed by the Comptroller and Auditor General of India.
We would request the Comptroller and Auditor General of
India to effect recoveries of all the excess amount realised
by the Union of India by way of interest tax and interest by
the banks and other financial institutions and create the
corpus of such fund therefrom. The appellant and other
concerned banks are also hereby directed to contribute to
the extent of Rs. 50 lakhs each in the said fund.
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The Comptroller and Auditor General of India would be
the Chairman of the said Trust and the Finance Secretary and
the Law Secretary of the Union of India would be the ex-
officio members thereof. The corpus so created may be
invested in such a manner so as to enable the trustees to
apply the same for the purpose of giving effect to the
aforementioned provisions of the 1995 Act.
The Union of India, the Reserve Bank of India, the
appellant Banks, other scheduled banks and financial
institutions are directed to render all cooperation and
assistance to the trustees.
The Committee as also the Committees set up by the
Central Government should act in close cooperation with each
other. The Committee may, if it thinks proper, invest any
amount in the Trust set up by the Central Government under
the 1999 Act or any other scheme framed by the Central
Government, as noticed hereinbefore.
The trustees aforementioned with a view to give effect
to this order may frame an appropriate scheme. In case of
any difficulty they may approach this Court for any other or
further order/orders or direction/directions.
The Central Government, however, with a view to
implement the aforementioned provisions may by amending the
1995 Act provide for creation of such a fund and in such an
event, the statutory authority, if any, would be entitled to
take over the corpus of the fund but so long no legislative
step is taken in this behalf, this order shall remain in
force.
These appeals are dismissed with the aforementioned
terms. There shall be no order as to costs.
Legal Notes
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