Holding

Paragraph 4A of the 1987 Directions is within the RBI's statutory power under Section 45K(3) and is not violative of Articles 14 or 19(1)(g).

Summary

The Supreme Court examined whether the Reserve Bank of India (RBI) could, under Section 45K(3) of the Reserve Bank of India Act, issue Paragraph 4A of the 1987 Directions prohibiting residuary non‑banking companies from levying processing or maintenance charges on depositors. Peerless General Finance & Investment Co. Ltd. challenged the amendment as ultra vires and violative of Articles 14 and 19(1)(g) of the Constitution. The Court held that the power conferred by Section 45K(3) is wide enough to cover matters "relating to or connected with" the receipt of deposits, including the prohibition of such charges, and that Paragraph 4A is a valid exercise of that power. The direction was found to have a rational nexus to the objective of protecting depositors and therefore did not infringe equality or freedom of trade rights. The appeal by the RBI was allowed and the High Court’s decision striking down Paragraph 4A was set aside.

Issues considered

The scope of the RBI's power under Section 45K(3) of the Reserve Bank of India Act to issue directions like Paragraph 4A.
Whether processing/maintenance charges can be treated as deposits within the meaning of the Act.
Whether Paragraph 4A violates Article 14 of the Constitution by treating unequal persons equally.
Whether Paragraph 4A violates Article 19(1)(g) of the Constitution by imposing unreasonable restrictions on trade.

Legislation cited

Companies Act, 1956s. 217
Companies (Amendment) Act, 1974s. 58-A, s. 58-B
Prize Chits and Money Circulation Schemes (Banning) Act, 1978
Reserve Bank of India Act, 1934s. 45I, s. 45J, s. 45K(3), s. 45L

Subjects

Reserve Bank of Indianon‑banking financial companiesSection 45Kprocessing chargesmaintenance chargesArticle 14Article 19(1)(g)constitutional validitydirectionsdeposit regulation

Judgment

A RESERVE BANK OF INDIA AND ORS.
v. ,.
PEERLESS GENERAL FINANCE AND INVESTMENT
COMPANY LTD. AND ANR.

JANUARY 19, 1996
B
[S.C. AGRAWAL AND G.B. PATTANAJK,, JJ.]

Reserve Bank of India Act, 1934-Sectwn 45;K (3)-Pnwer of Reserve
Bank to issue directions-Scope of-The Section confers a wide power 011 the
Bank to issue directions and the said power is not restricted to or limited to the
c receipt of deposits only-The Section is an ·eiiabling Provision-Held, ena-
bling provision n1ust be so construed as to subserve the purpose for which it
has been enacted.

Residuary Non-Banking Companies (Reserve Bank) Directions
I987-Para 4A (as inserted by Notification dated I9.4.I993)-Enacted to
D
prevent evasion of directions contained in Paras 6 & 12 o_f 1987 DireLtions-
Held, Directions fall within the power conferred on the Bank to issue
directions--R.esiduary Non-Banking Companies (Res,erve Bank) Directions
I987-Paras 6 to I2.

E Suggestio'tzs to U. 0.1...:.._To create separate instrumentality to supervise
and enforce the provisions regulating the' fUnctioning1 of the
companies._,__iVhether ex.iSting p'rovisions needed further 'strengthening so as
to give greater protection IQ depositors-Whether the prov~sions, similar to
the provisions for Deposi(Protecrion Scheme in the Banking Act, 1987 of
England can be introduced in India-l?.equirement for introduction in India. ;.....
F
Constitution of India, I950 Art. 14-Non-Banking Companies (Reserve
Bank) Directions, I987-Para 4A (as inserted by Notification dated
I9.4.I993-Fixing of Rs. 10 as uniform amount by Bank for expenses .for
brochure/Application forms & servicing deposit or account-Held, not violative
n,f Article 14-Equal treatment ofIAnequal objects, transaction or persons, not
G liable to be._ struck down as discri1ninatory unless there is simultaneously
absence of a rationattelation lo the object intended to be achieved by the law. ),.

The 1987 Direction~~applicable to non·banking cornpanies and not to
co1nmercial banks-Held siinilarity not proved-Hence not discriminatory.

H Art. I9( I)( g)-Non-banking Companies prohibited from recovering any
58
RBI v. PEERLESS GENL. FINANCE 59
an1oullf us processing/nulintenance Gharge-Para 4A-Whether violative of A
Article 19( I )(g)-Held, not violative-SEBI (Mutual Funds) Re11ulation, 1993.

!11terpretation of Stalutes--Construction of enablillf? provisio11-To be
construed as to subserve the pu17HJse o.f lVhich it ivas enacted.

Words & Phrases :-"lncluding"--Meaning of B

In order to regularise the non-hanking financial· companies, the
Reserve Bank of India Act, 1934 was amended by Act No. 55 of 1963 and
Chapter III-B (Section 45(H) to 45 (Q) was inserted. Section 45-K enables
the Reserve Bank of India, to collect information from non-banking
institutions as to deposits and to give directions to such institutions.
c
After insertion of Chapter - 10-B the Reserve Bank issued Misc. Non-
Banking Companies (Reserve Bank) Directions, 1973 to regulate accept-
ance of deposits by non-banking companies. Respondent Company, a non-
banking financial company, sought exemption from complying with the D
above directions.· Exemption was granted only from para 4 of the Direc-
tions.

In 1977, Non-Banking Financial Companies (Reserve Bank) Direc-
tions, 1977 were issued wherein a ceiling was fixed in respect of the period
for which deposits could be accepted. E

The Respondent Company applied for the exemption from the said
provision of the 1977 Directions. During the pendency of the exemption
"" application, Prize Chits and Money Circulation Schemes (Banking) Act
1978 was enacted by Parliament. The Reserve hank took the view that the
F
schemes of the Respondent Bank were covered by the Act. 1978, and
directed the Respondent Company to wind up its business and cancelled the
exemption which was granted already.

The Respondent Company filed Writ Petition in the Calcutta High
Court with the plea that the 1978 Act did not apply to them. The writ G
Petition was allowed and the Reserve Bank filed appeal to the Supreme
Court. Supreme Court dismissed the appeal of the Reserve Bank with the
observation that the Bank should regulate such schemes to prevent exploi-
tation of ignorant subscribers. (Peerless· I*)

In view of the observation made by the Supreme Court in (Peerless- H
60 SUPREME COURT REPORTS [1996] 1 S.C.R.
A 1), the Reserve Bank issued Residuary Non-Banking Companies (Reserve
Bank) Directions, 1987. •
After issuance of the 1987 Directions, Timex General Finance and
Investment Ltd. filed writ petition in High Court challenging the validity
of the said Directions. The High Court directed the Reserve Bank to
'
B modify the 1987 Directions. After the decision, the Respondent Company '
got itself implcaded as respondent and obtained further directions from the
Court.

The Reserve Bank filed an appeal to the supreme Court & the
Respondent Company filed Writ Petition under Article 32, challenging the
c validity of the 1987 Directions. It was urged that the 1987 directions were
ultra vires the powers conferred on the bank and that Paragraphs 6 to 12 ••
of the 1987 Directions were violative of the Rights guaranteed under
Article 19(1)(g). It was further contended that if Paragraphs 6 & 12 were
not struck down, the company would face closure and the 14 lakhs field
D officers would lose employment. The court upheld the validity of Para-
graphs 6 & 12 and held that the Reserve Bank had power to issue
directions nnder Section 45-K (3) and further observed that working
capital is not needed every year,. it could not be mopped up out of
depositor's money and the company should make arrangement from its
own resources. (Peerless-II)*
E
The Respondent Company, in order to avoitl compliance with the
requirements of Paragraph 6 & 12 of the 1987 Directions, resorted to the
conrse of splitting up the amounts received in respect of the first two
instalments : i.e. in yearly instalments of Rs. 100 for 10 years for
endowment sum of Rs. 1400 Rs. 30 of the first instalment and Rs. 30 of the
F
Second instalment was credited as processing charges and maintenance
charges respectively.

The Reserve Bank vide Notification dated April 19, 1993, amended
the 1987 Directions and inserted Paragraph 4A prohibiting the residuary
G non-banking companies from obtaining processing or maintenance charges
from the depositors/subscribers and further permitting to charge one time
initial sum, not exceeding Rs. 10 towards cost or expenses for issuing
brochnre/application forms, servicing of depositor's account etc.

Paragraph 4 was also amend<:d by Notification dated April 10, 1993
H reducing the maximum period for deposits from 120 months to 84 months.
RBI v. PEERLESS GENL. FINANCE 61
Aggrieved by the 1993 amendments the Respondent Company filed A
Writ Petition before the High Court challenging the validity of the
amendment. The High Court held that the Notification dated April 19,
1993, was ultra vires the power conferred on the Bank and the bank was
not competent to isrne the notification under Sections 45-J, 45-K or 45-L
of the Act.
B
In appeal to the Supreme Court. by the Reserve Bank it was con-
tended by the Respondent Company that the processing/maintenance
charges, being non-refundable in nature are not deposits, thus Paras 6 &
12of1987 would not apply on them; that Paragraph 4A is violative of the
right to equality guaranteed under Article 14, treating the unequals as C
equals by fixing uniform maximum ceiling of Rs. JO towards costs &
expenses; and treating the equals unequally by not exercising the control
on the similarly situated commercial banks : that the directions in para
4A are also violative of the rights guaranteed under Article 19(l)(g); that
the powers conferred on the bank under Section 45-K (3) is limited, as the D
words "relating to or connected with the receipt of deposits" in section 45-
K (3) are to be used in the restricted sense, in view of the words following
it. Further it was contended that in the scheme started by the Respondent
Company after Peerless fl, processing/maintenance charges was slightly
more than 4 % of the whole amount and in the new scheme the same is less
than 3% of the endowment snm; setting apart of the amount towards E
processing and maintenance charges did not prejudicially affect the de-
positor because on maturity he was being paid the total amount paid by
him including the processing and maintenance charges, without causing
any loss to the depositor : and that the processing/maintenance charges,
are less than 6% of the endowment sum payable on maturity as per F
Regulation SO of SEBI (Mutual Funds) Regulations 1993.

The Reserve Bank, on the other hand contended that the Bank was
competent lo issue directions contained in Para 4A; that the directions
contained in Para 4A were designed to prevent the evasion of the direc-
tions contained in Paras 6 & 12 of 1987 Directions, which were upheld G
in Peerless-II* and the power to issue directions contained in paras 6 &
12 would necessarily encompass the power to issue directions to ensure
that they are not avoided by contrivances or devices; and that powers
under section 45-K (3) are of very vide amplitude and the words "in
respect of any matter or connected with the receipt of deposits" occurring H
62 SUPREME COURT REPORTS [1996] 1 S.C.R.
A in the section arc not restricted by the words which follow these words.

Allowing the appeal, this court

HELD : 1.1. It is within the competence of the Bank to issue directions
in the n.ature contained in Paragraph 4A of the Residuary Non-Banking
B Companies (Reserve Bank) Directions 1987. The Bank has been given power
. to issue directions in respect of any matter relating to or connected with the
•
· receipt of deposits. The words " in respect of any matters relating to or
connected with the receipt of deposits" in section 45K(3), confer a wide power
on the Bank to issue directions and the said power is not restricted to or
limited to the receipt of deposits only. The amplitude of this power cannot
c be curtailed by the words "including the rates of interest payable on such
deposits and the periods for which the deposits may be received" in section
45-K(3). Though the word "including" is generally used in extensive sense
to bring within the ambit of the provision, matters referred to in the inclusive
clause which normally would have been covered by the provisions, but that
D is not always so. Many times the legislature uses an inclusive phrase to
specifically include a matter by way of abundant caution. Having regard to
the object and purpose underlying the enactment of section 45K, the words
"including the rate of interest payable on such deposits and the period for
which the deposits may be received" do not seem to be restricting the ambit
of the words "in respect of any matters relating to or connected with the
E receipt of deposits". Which must, therefore be given their natural
meaning. [81-B-D)

*Peerless General Finance & Investment Company Ltd. v. Reservee
Bank qf India, [1992) 2 SCC 343, relied on.
F Madhav Rao Jivaji Scindia v. VO!, [1971] 1 SCC, 85, distinguished.

1.2. Section 45 K (3) of the Reserve Bank of India Act is an enabling
provision enacted to empower the Bank to regulate the conditions on
which the deposits may be accepted by non-banking companies or institu-
tions and to prevent malpractices in the matter of acceptance of such
G deposits. Such an enabling provision must be so construed as to subserve
the purpose for which it has been enacted. In the matter of construction of
enabling statutes, the principle applicable is that if the legislature enables
something to be done, it gives power at the same time, by necessary
implication, to do everything which is indispensable for the purpose of
H carrying out the purpose in view. The power to make a law with respect
RBI v. PEERLESS GENL. FINANCE 63
to any subject, carries with it all the ancillary and incidental powers to A
' prevent evasion. [79-C, 82-C]

*Sodhi Transport Company v. State of U.P., [1986] 1 SCR, 939,
referred to.

Francis Bennion, on statutory Interpretation-2nd Edition, Crais on B
Statutes, 7th Edition, referred to.

1.3. Paragraph 4A which has been inserted by notification dated
April 19, 1993, in the 1987 Directions, falls within the power conferred
on the bank to issue directions under Section 45 K(3) of Reserve Bank of
India Act, 1934. The processing/maintenance charges or other similar
c
charges received by a non-banking company from the subscriber to the
schemes are received with the avowed purpose of processing the mainte-
nance of the deposits by the subscriber under the scheme. These amounts
are received as part of the instalments paid by the subscriber. They are
undoubtedly related to or connected with the receipt of deposits and it is D
not possible to say that the said charges are not matters related to or
connected with the receipt of deposits. The directions contained in para-
graph 4A, seeks to prevent evasion of the directions contained in Para-
graphs 6 & 12 of 1987 Directions. If the bank is competent to give the
directions contained in Paragraphs 6 & 12 of the 1987 Directions, it stands
E
to reason that the bank should be competent to give directions which could
prevent evasion of those directions and secure their effective implementa-
tion. [82-A, B, DI

* Peerless General Finance & Investment Company Ltd. v. Reserve
Bank of India, [1992] SCC 343, referred to. F
2.1. The fixation of uniform amount of Rs. 10 as per Paragraph 4A
inserted in the 1987 Directions, does not mean that Paragraph 4A, suffers
from the vice of discrimination on the ground that unequals are being
treated equally. The equal treatment of unequal objects, transaction or
persons, is not liable to be struck down as discriminatory unless there is G
simultaneously absence of a rational relation to the object intended to be
achieved by the law. The uniform amount of Rs. 10, prescribed in Para-
graph 4A, is for the expenses for brochure/application form and for
servicing the depositors account, which would be incurred by the residuary
non-banking companies, in respect of their schemes. The said charges H
64 SUPREME COURT REPORTS [ 1996] 1 S.C.R.
A would not vary from person to person and would normally be the same
in all the cases. [83-C, DJ ·'

Jalan Trading Co. (Pvt.) Ltd. v. Mill Mazdoor Union, [1967] 1SCR15,
referred to.

B 2.2. Paragraph 4A cannot be held to be violative of Article 14 of the
Constitution on the ground of discrimination based on the non-banking
companies being treated differently from commercial banks in the matter
of service charges, in view of the fact that levying of servke charges in
respect of recurring deposit scheme similar to that operated by the
respondent, is not proved in respect of Commercial Banks. [l!3-F]
c
3.1. Paragraph 4A, introduced in the 1987 Directions by way of
notification dated April 19, 1993, is not violative of the rights guaranteed
nuder Article 19(1)(g) of the constitution. The fact that processing charges
and maintenance charges raised by Peerless are less than 6% of the
D endowment snm payable on maturity, cannot be the basis for holding that
Paragraph 4A, imposes unreasonable restrictions on the right guaranteed
under Article 19(1)(g) of the Constitution. The Working of Peerless and
residuary non-banking companies, cannot be equated with that of mutual
funds governed by SEBI (Mutual Funds) Regulation, 1993. The Schemes
operated by Peerless are also not comparable with those of Mutual Funds.
E
Though under the previous scheme, Peerless was receiving by way of
processing/maintenance charges 30% of the first two instalments and in
the latter scheme 18% of the first instalment, bnt it is not disputed that a
number of schemes are discontinued after the payment of one or two
instalments and the subscriber gets only the amount of deposit excluding .'-
F the processing charges and maintenance charges. [87-F, G; 86-C-F]

3.2. The observations made by this court in the context of Para-
graphs 6 & 12 of the 1987 Directions, are equally applicable in respect of
the directions contained in Paragraph 4A introduced in the 1987 Direc-
G tions, whereby the residuary non-banking companies are prohibited from
recovering any amount by-way of processing/maintenance charges or any
such charge from the depositor and are required to arrange for the
working capital from their own resources. [86-B-C]

Peerless General Finance & Investment Co. Ltd. v. Reserve Bank of
H India, [1992] 2 SCC 343, relied on.
RBI v. PEERLESS GENL. FINANCE [AGRAWAL, J.] 65
4, Union of India may consider whether it would be advisable to A
1
create a separate instrumentality which may be entrusted with the task of
supervision and enforcement of the provisions regulating the functioning
of these companies, The Union Government may also consider whether the
existing provisions need to be further strengthened so as to give greater
protection to the interests of the depositors. In England the Banking Act,
B
1987 contains provisions for Deposit Protection Scheme for the protection
of the depositors. It may be considered whether provisions on similar lines
could be introduced here. (88-E-G]

*Reserve Bank of India v. Peerless General Finance & Investment Co.
Ltd., (1987] 2 SCR 1, referred to. C
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 37 of 1996.

From the Judgment and Order dated 3.5.95 of the Calcutta High Court
in C.O. No. Nil of 1993.

H.N. Salve, H.S. Parihar, Kuldeep S. Parihar, and Ch. Mukund Murty for
D
the appellants.

Somnath Chatterjee, R.F. Nariman, B. Lahiri, A. Chaterjee and S.
Sukumaran for Mis. JBD & Co. for the Respondent No. I

N.N. Gooptu, West Bengal, Ms. Radha Rangaswamy for Peerless Officers E
Association.

Ashok Desai, S. Sukumaran and Ramesh Babu M.R. for the Respondents.

Praveen Kumar for the Intervenor.
F
The Judgment of the Court was delivered by

S.C. AGRAWAL, J. Special Leave granted.

This appeal directed against the judgment of the Calcutta High Court
dated May 3, 1995, is in the third round of the litigation between the Peerless G
General Finance & Investment Company Ltd. (hereinafter referred to as 'Peer-
less') and the Reserve Bank of India (hereinafter referred to as 'the Bank').

Peerless was incorporated in 1932 as a limited company under the
provisions of the Indian Companies Act, 1913 with the name Peerless General
Insurance and Investment Company Ltd. It was carrying on life insurance lI
66 SUPREME COURT REPORTS [1996] 1 S.C.R.
A business. After the enactment of the life Insurance Corporation Act, 1956
Peerless could not carry on life insurance business and if changed its. name
to 'Peerless General Finance and Investment Co. Ltd.' and is now carrying
on finance and investment business. It offers small saving schemes to the
public at large wherein the subscribers are required to pay a fixed amount as
subscription on yearly, half-yearly or quarterly basis for a fixed number of
B
years and oh the expiry of the said period, the subscriber is paid a sum of
money called Endowment sum, which is the face value of the certificate, and
certain additional amounts by way of bonus. The said scheme offered by
peerless are some what similar to Recurring Deposit schemes run by commer-
cial banks.
c
The business transacted by the banking companies is regulated by the
banking Regulation Act, 1949. Since non-banking companies started receiv-
ing deposits from general public on a large scale, it became necessary to
make suitable provisions for regulating the sani"e. The Reserve Bank of India
Act, 1934 (hereinafter referred to as 'the Act') was amended by Act No. 55 of
D 1963 and chapter III-B (Sections 45 (H) to 45(Q) which contains provisions
relating to non-banking institutions receiving deposits and finanCial i?-stitu-
tions was inserted in the Act. In Section 45-I various expressions, viz.,
'Company\ 'Corporation', 'Deposit', 'Financial institution', 'firm' and 'non-
banking institution' have been defined Section 45-J empowers the Bank to
E regulate or prohibit the issue of prospectus or advertisement by a non-
banking institution soliciting deposits of money from the public. 45-K ena-
bles the Bank to collect information from non-banking institutions as to
deposits and to give directions to such institutions. Section 45-L empowers
the Bank to call for information from financial institution and to give direc-
tions to such institutions. Section 45-Q provides that the provisions of Chap-
F ter - III B shall have effect not-witl1standing anything inconsistent therewith
contained in any other law for the time being in force or any instrument
having effect by virtue of any such law. After the insertion of Chapter III-B in
the Act, the Bank issued three sets of directions to regulate acceptance of
deposits by non-banking companies, categorising them into financial, non-
G financial and miscellaneous companies. Non-Banking Financial Companies
(Reserve Bank) Directions, 1966 related to companies (other than an insur-
t-
ance company, or stock exchange or stock broking company) engaged in
hire-purchase finance, housing finance, investments, loan equipment leasing,
mutual benefit business etc. Non-Banking Non-Financial Companies (Re-
serve Bank) Directions, 1966 related to a company which was not a banking
H
RBI v. PEERLESS GENL. FINANCE [AGRAWAL, J.] 67
company nor a financial company refeITed lo above. Miscellaneous Non- A
• Banking Companies (Reserve Banking) Directions, 1973 related to a com-
pany engaged in the business of collecting moneys in one lunipsum or
otherwise by sale of units, certificates or other instruments and utilising the
moneys so collected for giving to a specified number of subscribers by lot or
draw, prizes or gifts etc. and refunding the money with or without interes\ to
B
those who have not won any prize etc., or conducting any other form of chit
or kuri or any other similar business. It was found that a vast majority of the
non-banking companies accepting deposits were non-financial companies
and in order to more effectively regulate the deposit accepting activities of
these companies, the Companies (Amendment) Act, 1974 was enacted and
Sections 58-A and 58-B were inserted 10 the c
Companies Act, 1956. Section 58-A makes provisions for regulating the
acceptance of deposits by such non-banking non-financial companies and
vests the said power in the Central Government. In Delhi Cloth and general
Mills Etc. v. Union of India Etc., [1983] 3 <SCR 438 this Court has upheld the
validity of Section 58-A and has rejected the contention that it was violative D
of the rights guaranteed under Articles 14 and 19(1)(g) of the Constitution.

After the issuance of the Miscellaneous Non-banking Companies (Re-
serve Bank) Directions, 1973, Peerless sought exemption from complying
with the said directions and such exemption was granted to it by the Banking
from the provisions of Paragraph 4 of the said directions in so far as those E
provisions restricted the acceptance of subscriptions under the schemes ·Upto
25% of the paid-up capital and free reserve fund. While granting this
exemption certain conditions were, however, imposed. In 1974, a study group
headed by Dr. J.S. Raj was appointed by the Bank to examine the existing
statutory provisions with a view to assessing their adequacy in regulating the
F
conduct of business by non-banking companies in the context of the
monetary and credit policy laid down by the Bank from time to time and to
suggest measures for further tightening up the provisions as to ensure that the
activities of such companies, in so far as they pertained to the acceptance of
deposits, investments, lending operations etc. sub.served the national interest
and served more effectively as adjuncts to the regulation of the monetary and G
credit policies of the country besides affording the degree or protection to
the depositors' moneys. Having regard to the recommendations of the Raj
Committee, the Bank, in 1977 issued the Miscellaneous Non-Banking Com-
panies (Reserve Bank) Directions, 1977 and the non-Banking Financial
Companies (Reserve Bank) Directions, 1977. In the Miscellaneous Non:
H
68 SUPREME COURT REPORTS (1996] 1 S.C.R.
A Banking Companies (Reserve Bank) Directions , 1977, there was departure
from the earlier directions of 1973 in the sense that for the first time a ceiling •
was fixed in respect oi the period for which deposits could be accepted and
that the said period could not be more than thirty six months. Peerless
applied to the Bank for being granted exemption from the provisions of the
said Directions of 1977. While the said matter was pending, the Prize Chits
B and Money Circulation Schemes (Banning) Act, 1978 was enacted by
Parliament and it came into force with effect from December 12, 1978. The
Bank took the view that the schemes conducted by Peerless were covered
by the provisions of the said Act and as Peerless, was prohibited from doing
fresh business it was required to wind up its existing business under the Act.
c The Bank was of the view that there was no question of granting any
exemption to Peerless from the provisions of the Directions of 1977. The
Bank, however, considered the claim of Peerless for exemption on merits and
four.d that it was necessary to cancel the exemption already granted. There-
upon Peerless filed a writ petition in the Calcutta High Court for a declaration
that the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 did
D
not apply lo the business carried on by it. The said writ petition of Peerless
was allowed by a Division Bench of the Calcutta High Court and it was >
declared that the business carried on by Peerless did not fall within the
mischief of the Prize Chits and Money Circulation Schemes (Banning) Act,
1978. The said view of the Division Bench of the High Court was affirmed
E by this Court in Reserve Bank of India v. Peerless General Finance &
Investment Co. Ltd., (1987] 2 SCR l, (hereinafter referred to as 'Peerless!').
The Coert, after examining the various schemes offered by Peerless, held that
the said schemes were not covered by the expression 'prize chits' as defined
in Section 2(e) of the said Act. While upholding the decision of the Calcutta
F High Court in that regard, it was, however, observed :
"The appeals filed by the Reserve Bank of India, the Union of India
and the Slate of West Bengal are accordingly dismissed. It is open
to them to take such steps as are open to them in Jaw to regulate
schemes such as those run by the Peerless Company to prevent
G exploitation of ignorant subscribers. Care must also be taken to
protect the thousands of employees."

In this context, Chinnappa Reddy J. (who delivered the main judg-
ment) has referred to the mushroom growth of financial and investment
H companies offering staggeringly high rates of interest to depositors leading
RBI v. PEERLESS GENL. FINANCE [AGRAWAL, J.] 69
the court to suspect whether these companies are not speculativ~ ventures A
floated to attract unwary and credulous investors and capture their savings
and had said :

"It does not require much imagination to realise the adventurous and
precarious character of these businesses. Urgent action appears to be
called for to protect the public. While on the one hand these B
schemes encourage- two vices affecting public econo1ny, the desire
to make quick and easy money and the habit of excessive and
wasteful consumer spending, on the other hand the investors who
generally belong to the gullible' and less affluent classes have no
security whatsoever. Action appears imperative." (p.46) c
. Khalid, J, in his concurring Judgement, has expressed the same senti-
ments when he said :

"I share my brother's concern about the mushroom growth of
financial companies all over the country. Such companies have D
proliferated. The victims of the schemes, that are attractively put
forward in public media, are mostly middle class and lower middle
class people. Instances are legion where such needy people have
been reduced penniless because of the fraud played by such financial
vultures. It is necessary for the authorities to evolve fool-proof
schemes to see that fraud is not allowed to be played upon persons E
who are not conversant with the practice of such financial enterprises
who pose themselves as benefactors of people." (P. 12)

Keeping in view the observations of this Court in peerless I, the Bank
issued Residuary Non-Banking Companies (Reserve Bank) Directions, 1987
F
(hereinafter referred to as the '1987 Directions') vide notification dated May
15, 1987. The said directions are stated to have been issued in exercise of
the powers conferred by Sections 45-J and 45-K of the Act. Paragraph 2 of
the 1987 Directions prescribes that the Directions are applicable to every
residuary non-banking institution, being a company, which receives any
deposit under any scheme or arrangement by whatever name called, in one G
lumpsum or in instalments by way of contributions of subscriptions or by sale
of the units or certificates or other instruments, or in any other manner and
which, according to the definitions contained in Non-Banking Financial
Companies (Reserve Bank) Directions, 1977 or, as the case may be, the
Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977, is H
70 SUPREME COURT REPORTS [ 1996] 1 S.C.R.
A not an equipment leasing co1npany, a hire purchase finance company, a
housing finance company, an insurance company, an investment company, a
loan company. a mutual benefit financial company and a miscellaneous non-
banking company. Paragraph 4 initially provided that on and from 15th May,
1987, no residuary non-banking company shall receive any deposit repay-
able on demand or on notice or after a period of less than 12 months or more
B than 120 months from the date of receipt of such deposit, or renew any
deposit received by it whether before or after that date, unless such deposit,
on renewal, is repayable not earlier than 12 months and not later than 120
months from the date of such renewal. Paragraph 5 prescribes that the
minimum rate of return, shall not be less than the amount calculated at the
C <ate of 10% per annum (to be compounded annually) on the amount
deposited. By way of security for depositors. Paragraph 6 made provision
regarding investment of the amounts which are received by a residuary non-
banking company in the following terms : '

"6. On and from 15th May, 1987.
D
(1) every residuary non-banking company shall deposit and
keep deposited the fixed deposits with public sector banks or invest
and keep invested in unericumbered approved securities (such
securities being valued at their market value for the time being), or
in other investments, which in the opinion of the company are safe,
E
a sum which shall not, at the close of business on 31st December
1987 and thereafter at the end of each half year that is 30th June 31st
December be less than the aggregate amounts of the liabilities to the
depositors whether or not such amounts have become payable;

F Provided that of the sum so deposited or invested.

(a) not less than 10 per cent shall be in fixed deposits with any of
the public sector banks;

(b) not less than 70 per cent shall be in approved securities;
G (c) not more than 20 per cent or ten times the net owned funds of
the company, whichever amount is less, shall be in other investments.

Provided that such investments shall be with the approval of the
Board of Directors of the Company.
H
RBI v. PEERLESS GENL. FINANCE [AGRAWAL, J.] 71
x x x x x x x x" A

Jn Paragraph 7 provision is made for abolition of forfeiture and it is
directed that on and from 15th May, 1987 no residuary non-banking com-
pany shall forfeit any amount deposited by a depositor, or any interest,
premium bonus or olher advantage accrued thereon. Paragraph 8 prescribes
the particulars to be specified in an application form soliciting deposits. B
Paragraph 9 requires that every residuary non-banking company shall furnish
\
to every depositor a receipt for every amount which has been or which may
be received by the company by way of deposit before or after the commence-
ment of the 1987 Directions. Paragraph 10 makes provision for keeping
register/registers of deposits and particulars to be entered therein. Paragraph C
11 prescribes information which must be included in the report of the Board
of Directors that is laid before the company in general meeting. Paragraph 12
provides as under :

"Every residuary non-banking company shall disclose as liabilities
in its books of accounts and balance sheets, the total amount of D
deposits received together with interest, bonus, premium or othe1
advantage, accrued or payable to the depositors."

Paragraph 13 prescribes that copies of the audited balance sheet and
the profit and loss account together with a copy of the report of Board of
Directors should be furnished to the Bank within 15 days of the meeting of E
the company under Section 217(1) of the Companies Act, 1956. Paragraph
14 requires a residuary non-banking company to submit to the Bank returns
furnishing information on matters specified in the Schedule to the Directions.
Paragraph 16 makes provision regarding advertisments and statements in lieu
of advertisement which are issued by a residuary non-banking company. F
Paragraph 19 empowers the Bank, if it considers it necessary for avoiding any
hardship or any other just and sufficient reason, to grant extensions of time
to comply with or exempt any company or class of companies, from all or
any of the provisions of the Directions either generally or for any specified
period subject to such conditions as the Bank may impose. Paragraph 20 lays
down that nothing contained in Paragraph 19 of the Non-Banking Financial
G
Companies (Reserve Bank) Directions, 1977 shall apply to the residuary non-
banking companies.

After the issuance of the 1987 Directions, Timex General Finance &
Investment Co. Ltd. filed a writ petition challeging the validity of the said H
72 SUPREME COURT REPORTS [1996] l S.C.R.
A directions before tl1e C1!cutta High Court. The said writ petition was dis-
posed of by a Division Bench of the Calcutta High Court whereby certain '
directions were given to the Bank to modify the 1987 Directions and make
them reasonable and workable to safeguard the interest of depositors and
protect the employees. After the said decision, Peerless got itself impleaded
as a party-respondent in the said writ petition and obtained further directions
B
from the High Court. The said orders of the High Court were challenged by
the Bank before this Court. Peerless also filed a writ petition under Article I
32 of the Constitution challenging the validity of the 1987 Directions. The
appeals of the Bank as well as the writ petition filed by Peerless were
disposed of by this Court by its judgment in Peerless General Finwice and
c Investment Co. Ltd. & Anr. v. Reserve Bank ~f India, (1992] 1 SCR 406,
(hereinafter referred to a 'peerless II').

In Peerless II the main controversy centred round Paragraphs 6 and 12
of the 1987 Directions. It was urgerl that the 1987 Directions were ultra vires
D the power conferred on the Bank by Sections 45-J and 45-K of .the Act
inasmuch as none of these sections authorises the Bank to frame any
directions prescribing the manner of investment of deposits received of the
method of accountancy to be followed or the manner in which its balance
sheets and business of accounts are to be drawn up. The said contention was
negatived by this Court. Kasliwal J. has held that the Bank was competent
E
and authorised to issue the 1987 Directions in exercise of powers conferred
under Section 45-K(3) of the Act which confers a wide power on the Bank
to give any direction in respect of any matter relating to or connected with
the receipt of deposits and that under the said provision the Bank is entitled
to give directions with regard to the manner in which the deposits are to be
F invested and also the manner in which such deposits are to be disclosed in
the balance sheets or books of accounts of the company. Ramaswamy J., in
his concurring judgment, while agreeing with the view of Kasliwal J. that the
directions could be upheld under Section 45-K(3), has further held that the
directions could also be upheld under Section 45-L of the Act.
G
As regards the challenge to the validity of the provisions contained in
paragraphs 6 and 12 of the 1987 Directions, on the ground of being violative
of the right guaranteed under Article l9(1)(g) of the Constitution, it may be
stated that Peerless was following the actuarial method which is adopted by
H insurance companies and was treating a certain percentage of the amount
RBI v. PEERLESS GENL. FINANCE [AGRAWAL, J.] 73
collected by way of each instalment under the certificates of deposits as part A
of the income and it was retained and taken to the profit and loss account
and it was utilised for payment of commission to the agents and for incurring
other expenses. Since such a course was impermissible under Paragraphs 6
and 12 of the 1987 Directions, the validity of the said directions was
challenged on the ground that the same were violative of the right guaranteed B
under Article 19(l)(g) of the Constitution. On behalf of Peerless it was
submitted that it is inherent in the business carried ·on by Pe~rless and other
residuary non-banking companies that Lhe working capital is generated out
of the subscriptions received from the certificate holders and such business
comprises in collecting subscriptions from depositors either in lumpsum or
in instalments and such deposits are paid back with the guaranteed accre-
c
tions, bonus, interest, etc. in terms of the contract at the end of the stipulated
term and through business such companies have rendered great and com-
mendable service to the nation in 1nobilising small savings and giving a
boost to the movement of capital formation in the country. Ir was submitted
that though interest of depositors is an important consideration but the said D
interest is not impaired in any manner whatsoever by the method of account-
ancy that was being followed by Peerless and by all similar companies
namely, appropriation of a part of the subscription to the profit and loss
account and meeting the working capital requirements out of the same.
Arguments were also advanced on behalf of All India Field Officers Associa- E
tion which claimed to represent 14 lac field officers engaged by Peerless on

·• the basis of individual contracts of engagements. It was submitted that they
earn their livelihood solely by Collecting business for Peerless and for
collecting such business Peerless pays them commission at a contractual
agreed percentage on the value of business collected and that the said field F
officers have to meet all expenses for procuring such business such as
travelling expenses, boarding, lodging, office and administrative expenses
etc. out of such commission and they have to under take Jong tours and have
to travel into remote villages to reach the small depositors. It was submitted
that if the 1987 Directions were upheld, the undertaking of Peerless will face G
inevitable closure and almost 14 lac field officers will lose their only source
of livelihood and will be virtually thrown on the streets and thus any
restriction which would be prohibitive or which would result in closure of
the undertaking of Peerless would be against public interest. The said
contentions were rejected by the Court. It was held :
H
74 SUPREME COURT REPORTS [1996] 1 S.C.R.
A KASLIWAL, J.

"Jn our view the Reserve Bank is right in taking the stand that if
these companies want to do their business, they should invest their
own working capital and find such resources elsewhere with which
the Reserve Bank has no concern". (P. 445)
B
"We cannot ignore the possibility of persons having no stake of their
own starting such business and after collecting huge deposits from
the investors belonging to the poor and weaker sections of the
society residing in rural areas, and to stop such business after a few
years and thus devouring the hard earned money of the small
c investors. It cannot be lost sight that in such kind of business, the
agents always take interest in finding new depositors because they
get a high rate of commission out of the first instalment, but they
do not have same enthusiasm in respect of deposit of subsequent
instalments. In these circumstances, if the Reserve Bank has issued
D the Directions of 1987 to safeguard the larger interest of the public
and small depositors it cannot be said that the directions are so
unreasonable as to be declared constitutionally invalid". (pp. 447-
448)

RAMASWAMY,J.
E
"No-one can have fundamental right to do any unregulated business
with the subscribers/depositor' money. Even the banks or the financial
companies are regulated by ceiling on public deposits fixing nexus
between deposits and net-worth of the company at the ratio of 3 :
F 1, i.e. 25% of the capital net-worth. No ·one would legitimately be
expected to get immediate profits or dividend without capital
investment. The concept of profit or interest pre-supposes capital
investment." (P.461)

The Court rejected the contention that in case the impugned directions
G are not struck down, peerless will have to close down its business and several
thousands of employees and their families and several lakhs of field agents
would be thrown on the streets and left with no employment. It was observed
by Kasliwal, J. :

H "We are not impressed with the argument of Mr. Somnath Chatterjee,
RBI v. PEERLESS GENL. FINANCE [AGRAWAL, J.] 75
Learned Senior Advocate for the Peerless that after some years the A
Peerless will have to close down its business if directions contained
in paragraphs 6 and 12 are to be followed. The working capital is
not needed every year as it can be rotated after having invested
once. If the entire amount of the subscribers is deposited or invested
in the proportion of 10% in public sector banks, 70% in approved
B
securities and 20% in other investments, such amounts will also start
earning interest which can be added and adjusted while depositing

.· or investing the subsequent years of deposits of the subscribers." (p .
448)

"Paragraph 5 of the directions relates to the minimum rate of return C
fixed at 10% per annum for a deposit with a maturity of 10 years.
It is a matter of common Knowledge that in the present times even
the public sector corporations and banks and other financial and
non-financial companies pay interest at much more higher rates
ranging from 14 to 18%. Thus according to the above scheme the
respondent companies and the others doing such business can easily D
earn a profit of 4 to 5% on their investments." (p. 444)

Similarly, Ramaswamy J. has said :

"The mechanism evolved in the directions is fool-proof, as directed
by this Court in first Peerless case, to secure the interest of the E
depositors, as well is capable to monitor Lhe business management
, of every R.N.B.C. It also, thereby, protects interest of the employees/
field staff/commission agents etc. as on permanent basis overcoming
initial conclusions. It was intended, in the best possible manner, to
subserve the interest of all without putting any prohibition in the F
ability of a company to raise the deposit, even in the absence of any
adequate paid up capital or reserve fund or such pre-commitment of
the owner, to secure such deposits." (p.462)

After the said decision in Peerless II upholding Paragraphs 6 and 12 of
the 1987 Directions, Peerless has resorted to the course of splitting up the G
amounts received in respect of the first two instalments in the scheme. By
way of illustration we would refer to their scheme in Table 23. ·Under this
Scheme endowment amount was Rs. 1400 payable on maturity after 10 years
and the yearly instalment was Rs. 100. Out of the sum of Rs. JOO received
by way of first and second instalments, Rs. 70 was treated as deposit in each H
I

76 SUPREME COURT REPORTS [1996] I S.C.R.
A of the two years. The balance amount of Rs. 30 out of the first instalment was
credited as processing charges and the balance amount of Rs. 30 out of the
second instalment was credited as maintenance charges. On maturity the
subscriber was entitled to be paid Rs. 1400 as endowment sum and an
additional amount of Rs. 353 as bonus. The case of Peerless is that the two
amounts of Rs. 30 each which were retained by way of processing charges
B
and maintenance charges were not part of deposit and it was not necessary
for Peerless to comply with the directions contained in paragraphs 6 and 12
of the 1987 Directions in respect of the said s.ums. In order to cover up this
mode of avoiding compliance with the requirements of Paragraphs 6 and 12
of the 1987 Directions, the Bank, by notification dated April 19, 1993,
c amended the 1987 Directions and inserted Paragraph 4A which contains the
following provision :

"4A. No residuary non-banking company shall take from any deposi-
tor/subscriber to any schemes run by the company, with or without
his consent, any amounts towards processing or maintenance charges
D or any such charges, by whatever natne called, for meeting its
revenue expenditure.

Provided that a company may charge to a new depositor a one
time initial sum not exceeding Rs. 10 towards cost or expenses for
issuing brochures/application form, servicing the depositors' account,
E
etc."

. By notification dated April 10, 1993, Paragraph 4 was also amended
and on and from April 12, 1993 the maximum period for deposits was
reduced from 120 months to 84 months.
F
Feeling aggrieved by the said amendments introduced in the 1987
Directions, Peerless filed a writ petition, being C.O. No. 21038(W) of 1993,
in the Calcutta High Court to assail the validity of the said amendments. The
said writ petition has been partly allowed by the learned Single Judge of the
High Court by the impugned judgment dated May 3, 1995. The High Court
G has upheld the validity of the notification dated April 10, 1993 whereby the
maximum period of deposits was reduced from 120 months to 84 months and
it has been held that the Bank was competent to make the said amendment "'I
in view of the powers conferred on it under Section 45-K(3) of the Act. The
High Court has, however, held that the notification dated April 19, 1993 I
whereby Paragraph 4A was introduced in the 1987 Directions was ultra vires
H
RBI E PEERLESS GENL. FINANCE [AGRAWAL, J.] 77
the powers conferred on the Bank and that the Bank was not competent· to A
issue such a notification under Sections 45-J, 45-K or 45-L of the Act. Hence
this. appeal.

The firsl question which requires consideration is whether in exercise

-- of the powers conferred on it by the Act the Bank is competent to issue the
notification dated April I 9, I 993 inserting Paragraph 4A in the I 987 B
Directions. Shri Harish N. Salve, the learned senior counsel appearing for the
Bank, has submitted that. the direction contained in Paragraph 4A could be
given by the Bank in exercise of the power conferred on it under sub-section
(3) of Section 45-K and, in the alternative, Shri Salve has urged that, insofar
as Peerless is concerned, since it is a financial institution as defined in clause C
(c) of Section 45-1 of the Act, the directions contained in Paragraph 4A could
be given in exercise of the power conferred on the Bank under Section 45-
L of the Act. We will first examine the provisions of Section 45-K(3) of the
Act which reads as under :

'45-K(3). The Bank may, if it considers necessary in the public D
\ interest so to do, give directions to non-banking institutions either
generally or to any non-banking institution or group of non-banking
institutions in particular, in respect of any matters relating to or
connected with the receipt of deposits, including the rates of interest
payable on such deposits, and the periods for which deposits may E
be received."

• According to the High Court, Section 45-K(3) cannot be invoked for
two reasons, namely, (i) Paragraph 4A makes provisions regarding recovery
...., of processing charges or maintenance charges which cannot be regarded as
a 'deposit' as defined in clause (bb) of Section 45-1; and (ii) the words "in F
respect of any matters relating to or connected with" in Section 45-K(3) have
to be construed in a restricted sense in view of the words "including the rates
of interest payable on such deposits, and the periods for which deposits may
be received."

. Shri Salve has submitted that the object underlying the enactment of G
Section 45-K (which is part of Chapter III B) is to regulate the conditions on
which deposits may be accepted by non-banking companies or institutions
and to prevent malpractices and with that end in view very wide powers have
been conferred on the Bank to give directions under Section 45-K(3) of the
Act. The submission of Shri Salve is that in Peerless II this Court has upheld H
78 SUPREME COURT REPORTS [1996] I S.C.R.
A the directions contained in Paragraphs 6 and 12 of the 1987 Directions and
that the directions that arc contained in Paragraph 4A are designed to prevent
the evasion of the directions contained in Paragraphs 6 and 12 and to make
them effective and that the power Lo issue directions contained in Paragraphs
6 and 12 wou]d necessarily enco1npass the power to issue directions to ensure
that they are not avoided by contrivances or devices which essentially
B
involve a change in nomenclature. Shri Salve has further submitted that the
expression 'deposit' as defined in clause (bb). of Section 45-I has been
defined in very wide terms to include. receipt of money by way of deposit
or loan or in any other form and since the said definition is contained in an
enabling,statute, it would be inappositc to construe the words used in the said
C definition in a restrictive sense particularly, when there are provisions
expressly excluding a number of items which would otherwise fall within the
definition which clearly indicates that the legislature intended to use the
expression in its widest sense as including receipts which may be revenue in
nature. Shri Save has also contended that the words "in respect of any matters
D or connected with the receipt of deposits" in Section 45-K (3) are of very wide
amplitude and they cannot be restricted by the words which follow these
words.

Shri Somnath Chatterjee, the learned Senior counsel appearing for
Peerless, has, on the other hand, supported the judgment of the High .Court
E and has urged that deposit means a sum of money received with a correspond-
ing obligation to repay the same and that processing/maintenance charges
recovered by Peerless, being non- refundable in nature, cannot be deposits.
Shri Chatterjee has argued that the words "any other form" in the definition
of 'deposit' contained in Clause (bb) of Section 45-I has to be construed
ejusdem generis with words "deposits or)oan" which precede these words. In
F
the alternative. Shri Chatterjee has invoked the rule of Noscitur-a-Sodis and
that since the words "any other form" occur in the company of the words
"deposit or loan" they mean other forms of payment which are refundable. As
regards the words "relating to or connected with the receipt of deposits" in
Section 45-K (3) of the Act, the submission of Shri Chatterjee is that the
G words "including rates of interest payable on such deposits and the period
for which deposits have been received" which follow -these words indicate
that- the preceding words have been used in a restricted sense or otherwise
there was no need to use the other words which follow them.

While construing the ambit of the power conferred on the Bank under
H Section 45-K(3), We cannot lose sight of the object underlying the said
RBI v. PEERLESS GENL. FINANCE [AGRAWAL, J.] 79
provision. Section 45-K is part of Chapter III-B which was inserted in the Act A
by Act No. 55 of 1963. In the Statement of Objects and Reasons appended
to the Bill it was expressly mentioned that "it is desirable that the Reserve
Bank should be enabled to regulate the conditions on which deposits may
be accepted by these non-banking companies or institutions". In the State-

-· ment of Objects and Reasons, hope was expressed "that the Reserve Bank will
be able to prevent malpractices, if any, to stop unhealthy competition for
B
deposits, and to prescribe and enforce reasonable conditions including
realistic rates of interest, disclosure of any information or particulars in which
the depositors n1ay be interested, pn?vision for returning of money to them
.-J in certain contingencies and other relevant matters". It would thu~ appear that
Section 45-K(3) is an enabling provision enacted to empower the Bank to C
regulate the conditions on which deposits may be accepted by non-banking
companies or institutions and to prevent malpractices in the matter of
ace~ptance of such deposits. Such an enabling provision must be so con-
strued as to subserve the purpose for which it has been enacted. It is a well
accepted canon of statutory construction that "it is the duty of the court to D
' further Parliament's aim of providing a remedy for the mischief against which
the enactment is directed and the court should prefer a construction which
advances this object rather than one which attempts to find some way of
circumventing it. [See : Franl·is Bennion on statutory Interpretation, 2nd
Edn. p. 711)
E
This words "in respect of any matters relating to or connected with the
receipt of deposits" in Section 45-K(3) are of wide amplitude. Shri Chatterjee
• sought to cut down their amplitude by reference to the judgment of this
Court in Madhav Rao v. Union of India, [1971] 3 SCR. 9, wherein the
expression "provisions of this Constitution relating to" in Article 363 of the
Constitution has been construed to mean "provisions having a dominant and
F
immediate connection with" and "it does not mean merely having a reference
to". [p.96). We are unable to agree. The decision in Madhav Rao v. Union
of India (supra) was given in the context of the provisions of Article 363
which excludes the jurisdiction of the Court and it was observed that the
principle that a provision which purports to exclude the jurisdiction of the G
courts in certain matters and so deprives the aggrieved party of the normal
remedy will be strictly construed, "is a principle not be whittled down" (p.
95). In that case, the Court has emphasised :

"The meaning of a word or expression used in the Constitution often
is coloured by the context in which it occurs : the simpler and more H
-- .
80 SUPREME COURT REPORTS [1996] 1 S.C.R.
A common the word or expression, the more meanings and shades of
meanings it has. It is the duty of the Court to determine in what
particular meaning and particular shade of meaning the word or
expression was used by the Constitution makers, and in discharging
the duty the Court will take ·into account the context in which it
occurs, the object to serve which it was used, its collocation, the
B
general congruity with the concept or object it was intended to
articulate and a host of other considerations." (pp. 95-96)

Moreover, in Peerless II, this Court has construed the expression "in
respect of any matters relating to or connected with the receipt of deposits"
C in Section 45-K(3) of the Act and has held :

"It (Reserve Bank) can also give directions to non-banking institution
in respect of any matters relating to or connected with the receipt
of deposits, including rates of interest payable on such deposits; and
the periods for which deposits may be received. This latter power
D flows from sub-s. (3) of Sec. 45K of the Act. The Bank under this
provision can give directions in relpect of any matters relating to
or connected with the receipt ()f deposits (emphasis added). In our
vie\\' a very wide power is given to the Reserve Bank of India to
issue directions in respect of any matters relating to or conne~ted
with the receipt of depasits. It cannot be considered as a power
E
restricted or limited to receipt of deposits as sought to be argued on
behalf of the companies that under this power the Reserve Bank
would only be competent to stipulate that deposits cannot be
received beyond a certain limit or that the receipt of deposits may
be linked with the capital of the company. Such interpretation would
F be violating the language of Sec. 45-K(3) which furnishes a wide
pawer to the Reserve Bank to give any directions in respect of any
matters relating to or connected with the receipt of deposits. The
Reserve Bank under this provision is entitled to give directions
with regard to the manner in which the deposits are to be invested
G and also the manner in which such deposits are to be disclosed in
the balance-sheet or books of accounts of the company. The word
'any' qualifying matters relating to or connected with the receipt of
deposits in the above provision is of great significance and in our
view the impugned directions of 1987 are fully covered under Sec.
45-K(3) of the Act, which gives power to the reserve Bank to issue
H such directions. " (pp. 430-31)
RBI v. PEERLESS GENL. FINANCE [AGRAWAL, J.J 81
It is thus evident that the words "in respect of any matters relating to A
or connected with the receipt of deposits" in Section 45-K(3) confer a wide
power on the Bank to issue directions and the said power is not restricted or
limited to receipt of deposits only. The amplitude of this power cannot be
curtailed by the words "including the rates of interest payable on such
deposits and the periods for which deposits may be received" in Section 45-
B
K(3). 11 is no doubt true that the word "including" is generally used in
extensive sense to bring within the ambit of the provision matters referred to
in the inclusive clause which normally would not have been covered by the
provision. But that is not always so. Many times the Legislature uses an
inclusive phrase to specifically include a matter by way of abundant caution.
Having regard to the object and purpose underlying the enactment of Section C
45-K, we are unable to construe the words "including the rate of interest
payable on such deposits and the periods for which deposits may be
received" as restricting the ambit of the words "in respect of any matters
relating to or connected with the receipt of deposits", which, in our opinion,
therefore the words must be given their natural meaning as construed by this D
Court in Peerless II. This means that the Bank has been given the power to
issue directions in respect of any matter relating to or connected with the
receipt of deposits.

The processing/~intenance charges or other similar charge received
by a non-banking company from the sub-scriber to the schemes are received E
with the avowed purpose of processing and maintenance of the deposits by
the subscriber under the scheme, these amounts are received as part of the
instalments paid by the subscriber. Tliey are undoubtedly, related to and
connected with the receipt of deposits and it is not possible to say that the
said chargee are not matters related to or connected with the receipt of
deposits. Paragraph 4A which prohibits receipt by a non-banking company F
from any depositor/subscriber to any scheme run by the company, with or
without his consent, any amount by way of processing/maintenance charges
or any such charge, by whatever name called, for meeting its revenue
expenditure, is, therefore, a provision containing directions in respect of
matters relating to or connected with the receipt of deposits by a non- G
banking company.

In this context, it would also be relevant to mention that in Peerless
II this Court has upheld the directions contained in Paragraphs 6 and 12 of
the 1987 Directions. The directions which are contained in Paragraph 4A,
introduced by way of amendment by notification dated April 19, 1993, seek H
82 SUPREME COURT REPORTS [1996] l S.C.R.
A to plug the loopholes by which the directions contained in Paragraphs 6 and
12 were sought to be evaded and circumvented. Paragraph 4A thus seeks to
prevent evasion of the directions contained in Paragraphs 6· and 12 of the
directions. If the Bank is competent to give the directions contained in
Paragraphs 6 and 12 of the 1987 Directions, it stands to reason that the Bank
should be competent to give directions which would prevent evasiQ~·of those
B directions and secure their effective implementation. Section 45-K is in the
nature of an enabling provision. In the matter of construction of enabling
statutes the principle applicable is that if the Legislature enables something
to be done, it gives power at the same time, by necessary implication, to do
..
everything which is indispensable for the purpose of carrying out the purpose
C in view. [See : Craies on Statutes, 7th Edn. p. 258.] It has been held that
the power to make a law with respect to any subject carries with it all the
ancillary and incidental powers to make the law effective and workable and
to prevent evasion. [See : Sodhi Transport Company v. State of UP., [ 1986]
1 SCR 939 at pp. 947-48] ""
D It must, therefore, be concluded that Paragraph 4A, which has been
. inserted by notification dated April 19, 1993 in the 1987 Directions, falls
within the power conferred on the Bank to issue directions under Section 45-
K(3) of'ti\~ Act and the High Court was in error in holding that the said
provision is ultra vires the power conferred on the Bank by the Act. In that
E view of the matter, we do not consider it necessary to go into the question
whether the processing/maintenance charges received by Peerless from the
subscribers under the schemes can be regarded as ·deposit' as defined in
clause (bb) of Section 45-I of the Act. For the same reason it is not necessary
to go into the question whether the said direction could be sustained under
Section 45-L of the act.
F
We may now examine whether Paragraph 4A is violative of the
provisions of Articles 14 and 19(l)(g) of the Constitution.

Shri Chatterjee has urged that Paragraph 4A is violative of the right to
equality guaranteed under Article 14 for the reason that (i) it fixes a uniform
G maximum ceiling of Rs. 10 towards cost or expenses for issuing brochure/
application form, servicing the depositors account, etc., irrespective of the
volume of business transacted, quality of services rendered, the level of tech-
nology adopted in the matter of rendering services etc. and thereby unequals
are treated equally; and (ii) though stringent restrictions have been imposed on
H recovery of service charges by Peerless and other residuary non-banking com-
RBI v. PEERLESS GENL. FINANCE [AGRAWAL, J.] 83
panies, no similar control has been exercised by the Bank in respect of levy of A
service charges by others si1nilarly siluate, na1nely, comn1crcial banks. As
regards the first ground of challenge based on the principle lhat discri1nination
may result by unequals being treated equally, it may be stated that equal
treatment of unequal objects, transactions or persons is not liable to be struck
down as discri1ninatory unless there is si1nultaneously absence ?f a rational B
relation to the object intended to be achieved by the law. (See : Jalan Trading
Co. (P) Ltd. v. Mill Mazdoor Union, [1967] l SCR 15 at p. 36).

The uniform amount of Rs. 10 that has been prescribed in paragraph
4A is for the expenses for brochure/application form and for servicing the
depositors' account which would be incurred by the residuary non-banking C
companies in respect of their schemes. The said charges would not vary from
person to person and would normally be the same in all cases and therefore,
the fixation of a uniform amount of Rs. 10 which can bi;..charged by a
company does not mean that paragraph 4A inserted in the 1987 Directions
suffers from the vice of discrimination on the ground that unequals are being
treated equally. D

The other ground of discrimination based on non-banking companies
being treated differently from commercial banks in the matter of service
charges, is also without substance. Shri Chatterjee has invited our attentiOn
to the documents filed as Annexure - E (colly.) to the supplementary affidavit E
of Shri Patil Pavan Roy filed on behalf of the respondents which show that
certain foreign banks demand service charges for the services rendered by
them to the account holders. The said documents relate to current account
or savings bank accounts. No document has been brought to our notice
which may show that commercial bank levy service charges in respect of a
recurring deposit scheme similar to that operated by Peerless. Therefore, it F
cannot be said that there is discrimination between persons similarly situate
in the matter of receipt of service charges for the deposits and paragraph 4A
cannot be held to be violative of Article 14 of the Constitution on that
account.
G
... Assailing the constitutional validity of the directions contained in
Paragraph 4A on the ground that the same are violative of the right
guaranteed under Article 19( l )(g) of the Constitution, Shri chatterjee has
submitted that the processing charges and maintenance charges that are
received by Peerless from the depositors/subscribers in connection with the
schemes are for the purpose of meeting the expenses that are incurred by H
84 SUPREME COURT REPORTS (1996] l S.C.R.
A Peerless for operating the said schemes and to pay commission to the agents
who secure the deposits, and that if Peerless is deprived of these funds, it
would not be possible for it to carry on its business. Shri Chatterjee has
pointed that und~r the scheme in Table 23, that was being operated by
Peerless after the decision in Peerless II, the endowment sum was Rs. 1400
and yearly instalment of Rs. JOO W3' payable for JO years. A sum of Rs. 30
B was being set apart towards processing charges out of the amount of Rs. 100
received by way of first instalment and out of the amount of Rs. JOO received
by way of second instalment, a sum ~f Rs. 30. was set apart for maintenance
charges. The submission of Shri Chatterjee is that setting apart of this
amount towards processing charges and maintenance charges did not, in any
C way, prejudicially affect the depositor/subscriber because on maturity he was
being paid the total amount paid by him including the processing charges
and maintenance charges with interest at the rate of 10% on ·compound basis
on the whole amount paid and the fact that part of the amount raised in first
and second instalments was adjusted towards processing charges and main-
D !_enance charges did not cause any financial loss to the depositor. According
to Shri Chatterjee, the total amount of Rs. 60 that was received by way of
processing charges and maintenance charges against the endowment sum of
. Rs. 1400 was slightly more than 4% of the whole amount. Shri Chatterjee has
also stated that after the decision of the High Court and the interim order
passed by this Court on May 8, 1995, Peerless has started new scheme under
E Table 26 wherein endowment sum of Rs. 3500 is payable on maturity after
a period of 7 years and the yearly instalment is Rs. 500. Rs. 90 is received
along with the first instalment as processing charges which is not refundable.
On maturity the depositor/subscriber not only gets the aforesaid endowment
sum of Rs. 3500 but he also gets a guaranteed bonus of Rs. 1717.94, maturity
F bonus of Rs. 200 and a special bonus of Rs. 175.40, i.e., a total amount of
Rs. 5593.33. It is submitted that, on maturity, the depositor/subscriber is paid
the sum of Rs. 3500 in full as well as sum of Rs. 90 paid by him as processing
charges and he is also paid interest at the rate of I 0% on compound basis
per annum on the total sum of Rs. 3500 plus Rs. 90 paid by him and an
additional amount of Rs. 200 is paid as bonus which shows that the
G depositor/subscriber is, in no way, a loser in paying the processing charges
under the new scheme. The submission is that the said sum of Rs. 90 which
is paid as processing charges is Jess than 3% of the endowment sum of Rs.
3500, and that by charging processing fee of Rs. 90 on the scheme, Peerless
would be earning a net profit of Rs. 9.75 crores on the total business of Rs.
H 750 crores in a year but if Peerless is restricted to recovering Rs. JO, as per
RBI v. PEERLESS GENL. FINANCE [AGRAWAL, J.] 85
the proviso to Paragraph 4A, it would be suffering a loss of Rs. 87 .2 crores A
) in a year and that it would not be possible for Peerless to carry on its business
any more and it will have to close down its business resulting in unemploy-
ment of a large number of its employees as well as nearly 14 lac field officers.
In support of his submission Shri Chatterjee has placed strong reliance on the
observations of Chinnappa Reddy J. in Peerless I wherein, while permitting
B
the Bank to take such steps as are open to it in law to regulate the schemes
such as those run by Peerless to prevent exploitation of ignorant subscribers,
it was observed that "care must be taken to protect thousands of its employ-
ees" Shri Chatterjee has also invited our attention to Regulation 50 of the
SEBI (Mutual Funds) Regulations 1993, providing for limitation of expenses
which enables the Asset Management Company to charge the mutual fund C
with its agents' commission as part of the recurring expenses and prescribes
that "initial expenses in respect of any one scheme shall not exceed 6% of
the fund raised under that scheme". The submission of Shri Chatterjee is that
the amount that was being recovered by Peerless by way of processing
charges and maintenance charges under the earlier scheme in Table 23 and D
the processing charges that are being raised under the current scheme in Table
26 are much less than 6%.

We are unable to accept these contentions urged by Shri Chatterjee.
Similar submissions were advanced by Peerless before this Court in Peerless
II wherein it was submitted on behalf of Peerless that it was inherent in the E
business carried on by Peerless or other similar residuary non-banking
companies that the working capital is generated out of the subscription
received from the certificate holders and that certain portion of subscription
received by the company was transferred to the profit and loss account and
the same was used to defray working capital requirements of the company,
viz., payment of agent's commission, management expenses, staff salaries and F
other overheads. It was also urged that if Peerless was refrained from doing
so, all the agents, officers and employees of Peerless would lose their jobs
and their family members would be thrown on the streets. The said contention
was, however, rejected by this Court. It was observed that working capital
could not be mopped up out of depositors' money and that for the purpose
G
of entering this field of business a company should make arrangements on
its own resources for working capital and for meeting the expenses and it
cannot insist on utilising the money of the depositors/subscribers for this
purpose. In this context, the Court has mentioned that under Paragraph 5 of
the 1987 Directions the. minimum rate of interest that is fixed is 10% per
annum and that it is common knowledge that in present times even the public H
86 SUPREME COURT REPORTS [1996] l S.C.R.
A sector corporations and companies and other financial and non-financial
companies pay interest at much higher rates ranging from 14% to 18% and
that companies doing such business can easily earn a profit of 4% to 5% on
their investments. In the context of Peerless, which is already in th.e fieled,
the Court has observed that there is no possibility of its closing d~wn the
business because it has already large accumulated funds collected by making '
B
profits in the past several years and that it has enough working capital in
order to meet the expenses. These observations made in the context of
Paragraphs 6 and 12 of the 1987 Directions are equally applicable in respect
of the directions which are contained in Paragraph 4A introduced in the 1987
Directions by way of notification dated April 19, 1993, whereby the residuary
c non-banking companies are prohibited from recovering any amount by way
of processing charges/maintenance charges or any such· change from the
depositor and are required to arrange for the working cap)tal from their own
resources. The working of Peerless and other residuary non-banking compa-
nies cannot be equated with that of mutual funds governed by SEBI (Mutual
D Funds) Regulations, 1993. Moreover, the schemes operated by Peerless are
also not comparable with those of Mutual Funds. Even as regards the
expenses, it may be stated that under Table 23 Peerless was receiving by way
of processing charges and maintenance charges 30% of the first two
instalments and under Table 26 it is receiving 18% of the first instalment.
It is not disputed that a number of schemes are discontinued after the
E payment of one or two instalments and the subscriber gets only the amount
of deposit excluding the processing charges and maintenance charges. The
fact that processing charges and maintenance charges raised by Peerless are
less than 6% of the endowment sum payable on maturity cannot, therefore,
·be the basis for holding that Paragraph 4A whereby the residuary non-
F banking companies are prohibited from receiving any amount by way of
processing charges, maintenance charges or any similar charge imposes
)
unreasonable re.strictions on the right guaranteed under Article 19(l)(g) of the
Constitution.

Shri Chaterjee has next contended that the maximum amount of Rs. 10
G that has been prescribed in the proviso to Paragraph 4A is wholly arbitrary
and totally inadequate and has no nexus with the need of working expenses.
It has been urged that from Paragraph 4A itself it is evident that the said
amount of Rs. 10 has been fixed per depositor to meet the cost of brochure/
application form, servicing depositors' account, etc. and that servicing
H depositors' account means maintenance of the account of the depositor for
\-- ..

RBI v. PEERLESS GENL. FINANCE [AGRAWAL, lJ 87
a period of 7 years and taking the cost of the application form/brochure, at A
a low figure of Rs. 5 less than one rupee would be available per year for
servicing the depositors' account which would be insufficient to cover the
cost of postage and stationary, including the cost of ren1inder notices for
renewal _deposits, discharge vouchers, receipt, etc.

Shri Salve has, however, submitted that the said amount of Rs. IO as B
prescribed in the proviso to Paragraph 4A is meant to cover the cost of
brochure/application form, etc. and since the case of Peerless is that the same
'· cost Rs. 5 only, the said amount cannot be said to be inadequate. According
to Shri Salve, by prescribing the said amount, it is not the intention to allow
the residuary non banking companies to recover any sum for meeting the C ,
revenue expenditure of the residuary non-banking company including the
payment of commission to its agents. Shri Salve has also urged that no
material was placed by Peerless in their pleadings to show that the fixation
of the said amount is unreasonable or arbitrary. The question whether the
amount of Rs. IO that has been prescribed in the proviso to Paragraph 4A is
inadequate to meet the cost of brochure/application form, and expenses D
:
servicing charges for depositOrs' account cannot be gone into the absence of
the necessary pleadings and material in support thereof and, therefore, it is
not possible to say that the amount of Rs. 10 that has been prescribed in
the proviso to Paragraph 4A is arbitrary or unreasonable. Peerless can make
a representation to the Bank for the revision of the said amount in the light E
of the expenses that would be incurred by it on brochure/application form
and servicing depositors' account and, if such a representation is made, the
Bank shall give due consideration to the same and, if the amount prescribed
is found to be inadequate, the Bank should revise the same.

For the reasons aforementioned, we are unable to uphold the judgment F
of the High Court striking down Paragraph 4A introduced by notification
dated April 19, 1993. In our opinion, [it is within the competence of the Bank
to issue directions in the nature contained in Paragraph 4A and the said
provision is not violative of the rights guaranteed under Articles 14 and
19(l)(g) of the Constitution.] G

During the course of his submissions Shri Chaterjee laid emphasis on
the good record of performance of Peerless and has pointed out that this has
also been noticed by this Court in the earlier judgments in Peerless I and
Peerless IL Shri Chatterjee has submitted that having regard to the said
record, the Bank should grant exemption to Peerless from complying with the H
88 SUPREME COURT REPORTS [1996] 1 S.C.R.
A directions contained in Paragraph 4.A. Shri Salve has disputed the said claim
of Peerless about its performance and has invited our attention to the report
of Inspection conducted under Section 45-N of the Act with respect to the
financial position of the company as on March :ii, 1993, which refers to
violation of various provisions of 1987 Directions. Shri Chaterjee has,
however, disputed the correctness of the observations that have been made
B '
in the said report. We do not propose to go into this question. It is matter
which has to be examined by the banking in the light of the explanation that
is offered by Peerless for the violations referred to in the Inspection Report,
The question as to whether exemption should be granted to Peerless under
Paragraph 19 of the 1987 Directions, is a matter for the Bank to consider and
C we do not wish to say anything in that regard.

It cannot be denied that residuary non-banking companies, like Peer-
less, play a useful role in the economy by mobilising "savings by tapping that
section of the people which the commercial banks are not able to tap. But
at the same time, it cannot be ignored that there should be adequate
D protection for the funds entrusted to them by depositors and for that purpose \
it is necessary that the working of these companies should be closely
monitored and supervised and adequate provisions should be made for
enforcement of regulatory provisions that are made for the protections of the
interest of the depositors. Since the Bank is required to discharge multi-
E farious functions, it would not be in a position to devote the· requisite amount
of attention in the matter of monitoring and supervising the functions of
these companies. The Union Government may, therefore, consider whether it
would be advisable to create a separate instrumentality which may be
entrusted with the task of supervision and enforcement of the provisions -~
regulating the functioning of these companies. The Union Government may ·
F also consider whether the existing provisions need to be further strengthened
so as to give greater protection to the interests of the depositors. We find that
in England the Banking Act, 1987 contains provisions for Desposit protec-
tion Scheme for the Protection of the depositors. It may be considered
whether provisions on similar lines could be introduced here.
G
In the result, the appeal is allowed, the judgment of the Calcutta High
Court dated May 3, 1995 in C.O. No. 2!038(W) of 1993 is set aside and the
said writ petition filed by the respondents is dismissed. But, in the circum-
stances, there is no order as to costs.

K.K.T. Appeal Allowed