IN THE SUPREME COURT OF INDIA
Chief Justice.V.N.Khare and Justice S.B.Sinha.
Indian Banks Association vs Devkala Consultancy Service
Reported in 2004 AIRSCW 2491.
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
2. 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.
3. 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 It, however, was withdrawn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withdrawn in the year 1985.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 the borrowers
wherefor a uniform practice should be followed in consultation with the First
4. 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 the proposal of the
first appellant in terms of its letter dated 22.4.1993. Other appellants
herein followed the said purported policy.
5. 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 round up on the basis thereof.
High Court JUDGMENT
6. 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.
7. 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
"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".
8. The appellants herein are before us questioning the said judgment.
9. 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
the 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 terms loans, a
great deal of difficulties had arisen as calculations therefor were required
to be made in several steps.
10. An example in respect thereof has been placed before us which is as under:
(b) Such section 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 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 noticed 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.
11. Reliance in support of the aforementioned contentions has been placed in
Dhanyalakshmi Rice Mills and others etc. etc. vs. The Commissioner of Civil
Supplies and Another etc. etc. (1976) 4 SCC 723); B.O.T. Finance Ltd. vs.
Custodian and others (1997) 10 SCC 488) and Central Bank of India vs. Ravindra
and others (2002) 1 SCC 367).
12. 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.
13. 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 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.
14. 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.
15. 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
(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 scheduled bank for 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 of 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
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 a 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 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".
16. The relevant provisions of the Banking Regulations Act, 1949 are as
"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;
(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 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, Mohammed Ayisha Nachiyar vs, Deputy Director,
Enforcement (1976) 46 Com Case 653 (Mad)
Directions to Reserve Bank cannot prevent payment of higher bonus in terms of
the agreement, American Express International Banking Corp. vs. S. Sundaram,
(1978), 1 SCC 101: 1978 SCC (L & S) 34,"
Section 26C of the Act:
17. 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 the behalf of the Union of India. Concededly, in terms of
the agreement of term loan the appellants were not entitled to charges
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.
18. How the Parliament though 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 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 and Anr. vs. Gujarat Kishan Mazdoor Panchayat and
others, JT 2003 (3) SC 50), Indian Handicrafts Emporium and others vs. Union
of India and others (JT 2003 (7) SC 446), Ashok Leyland Ltd. vs. State of T.N.
and Anr. (2004 (3) SCC 1) and High Court of Gujarat and Anr. vs. Gujarat
Kishan Mazdoor Panchayat and others (UT 2003 (3) SC 50).
19. 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.
20. 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
21. 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.
22. Increase in rate of interest in terms of Section 26C of the Act, the 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 authorised by the Parliament.
23. The Executive cannot levy tax. It, for the said purpose, therefore, cannot
even take recourse to the process of interpretation of a statute.
24. 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.
25. 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 taxis 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."
26. 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
27. 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 interested 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 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 de directly.
28. 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.
29. 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.
30. The principle of de minimis, as contended by Mr. Chidambaram, has no
application in the instant case.
31. 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."
32. 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 of otherwise.
LOCUS OF THE RESPONDENT:
33. 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 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, in 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.
34. 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 and
Anr. vs. C.K. Rajan and 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 and others (1976) 3 SCR
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
The court expanded the meaning of life and liberty as envisaged in Article 21
of the Constitution of India. It 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 disadvantage sections of
the society. Public interest litigation has come to stay and its necessity
cannot be overemphasized. The courts revolved a jurisprudence of compassion.
Procedural propriety was to move 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 adjudication became active
participant in the dispensation of justice."
35. 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
vs. Mahesh Madhav Gosavi (AIR 1987 SC 294).
36. 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:
37. The appellants have filed additional documents before us to show that the
borrowers had been given due notice but 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.
38. 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-a-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.
39. 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.
40. 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 to 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.
41. 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 the 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.
42. 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
43. 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.
44. In Dhanyalakshmi Rice Mills (Supra), this Court merely held that in
triable issues of limitation, disputed questions of fact may not be gone into
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
45. The aforesaid decision is not applicable in the instant case.
46. 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."
47. 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 cases 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
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
48. The question which arose for consideration therein does not arise in the
49. 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 principle sum adjusted", 'such principal sum'
and 'such' occurring in Section 34 of the Code of Civil Procedure. The 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
"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 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
50. 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 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.
51. 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.
52. 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.
53. We, therefore, are of the opinion that a fund may be created for the
benefit of the disadvantaged people.
54. 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 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.
55. 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 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
56. 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
57. 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
58. We are, furthermore aware the Ministry of Social Justice and Empowerment
had taken had taken the following actions to implement the provisions of the
(i) Notification of Central Co-ordination Committee as per Section 3 of the
(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, including
pre-school education; (d) Barrier free environment; (e) Women and children
(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 - the Viklang Bandhu has been formulated to provide training
to 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
(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, 1000 crores has been approved by the Cabinet.
59. This Court as also the High Courts have taken pro-active views in the
matter of implementation of the rights of the disabled.
60. In National Federation for the Blind vs. 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.
61. In Javed Abidi vs. 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.
62. Kunal Singh vs. 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
63. 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.
64. 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.
65. 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.
66. 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.
67. The Union of India, the Reserve Bank of India, the appellant Banks, other
scheduled banks and financial institutions are directed to render all
corporation and assistance to the trustees.
68. 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
69. 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.
70. The Central Government, however, with a view to implement the
aforementioned provisions may be 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.
71. These appeals are dismissed with the aforementioned terms. There shall be
no order as to costs.