1. This is an appeal by the plaintiff from the judgment of a learned Judge of this Court. The suit was originally instituted in the Munsiff's Court. Kottayam; but it was withdrawn to his Court under Article 228 of the Constitution, as it involved a question regarding the Constitutional validity of Sub-section (10) of Section 45 of the Banking Companies Act, 1949.
2. The plaintiff was a subscriber in a chitty conducted by the Kottayam Orient Bank Ltd. The conduct of the chitty was governed by the Travancore Chitties Act, 1120, under which the foreman has to register a 'Variola' which is the articles of agreement between him and the subscribers. Ext P-1 is the Variola in this case. This chitty was started on 10-9-1960, with 50 tickets of Ra 400/- each, and monthly Instalments falling on the 10th of each English month. The prize for each instalment was to be determined by auction held on the previous instalment. The plaintiff auctioned its ticket on 10-12-1960 for Rs. 12,000/-: and according to the terms of Ext P-1, the prize amount was payable on 10-1-1961 on furnishing security for payment of the future instalments. In the meanwhile the Central Government in exercise of the powers conferred by Sub-section (2) of Section 45 of the Banking Companies Act made an order of moratorium in respect of the Kottayam Orient Bank Ltd., (the foreman of the Chitty), for the period from 18th December 1960 to 18th March 1961. Ext. D-1 dated 17-12-1960 is that order. The period of moratorium was further extended by the Central Government as per orders Ext D-2 dated 17-3-1961, and Ext D-4 dated 9-5-1961 up to and including 16th June 1961.
The chitty was not conducted by the foreman during this period. Therefore, by virtue of Section 39 (2) of the Travancore Chitties Act read with Section 30 (2) thereof, the chitty shall be deemed to have terminated on 10-1-1961; and under clause 14 of Ext. P-1 and also Section 41 of the Travancore Chitties Act, every non-prized subscriber became entitled to get back his contributions without any deduction for 'veethapalisa' on the said termination. The plaintiff was a non-prized subscriber; and accordingly it was entitled to get back from the foreman Rupees 1,600/- which it had subscribed for four instalments.
3. On 16-8-1961, the Central Government acting under Section 45 (7) of the Banking Companies Act, sanctioned a scheme, Ext. P-2, for the amalgamation of the Kottayam Orient Bank Ltd., with the State Bank of Travancore, by which, all the assets and liabilities of the former bank were transferred to the latter with effect from 17-64961. Regarding the Chitties conducted by the Kottayam Orient Bank Ltd., the scheme stated as follows:
'If the transferor bank was acting Immediately before the prescribed date as a foreman in respect of any kuri or chitty as defined in the Travancore Chitties Act (XXVI of 1120) or the Cochin Kuries Regulation (VII of 1107) the rights, duties and obligations in relation to the kuri or chitty shall be regulated in accordance with the following provisions, namely,
(i) the transferee bank shall become the foreman of the kuri or chitty and shall continue to exercise all powers and to do all such acts and things as would have been exercised or done by the transferor bank, in so far as they are not inconsistent with this scheme.
(ii) the funds, If any, of the Kuri or chitty lent to or deposited with the transferor bank, or otherwise due from that bank to the kuri or chitty shall be transferred to the transferee bank, and the liabilities corresponding to such funds shall also be payable by the transferee bank in accordance with the other provisions of this scheme;
(iii) if on the prescribed date the transferor bank in its capacity as the foreman of any kuri or chitty has deposited any security for the due performance of its duties and obligations in relation to the said kuri or chitty, the said security shall continue to be available for the purposes for which it is intended, but shall if and to the extent that it is subsequently re-leased be transferred to and vest in the transferee bank provided that the said security or as the case may be, the surplus, if any, after providing for the discharge of the duties or obligations in respect of the kuri or chitty shall be valued and utilised for the purposes of this scheme.'
On 4-12-1961, the Central Government made an order. Ext. P-3, under Section 45 (10) of the Banking Companies Act. The purport of this order was to revive the chitties, which the Kottayam Orient Bank Ltd. was conducting, and to enable the State Bank of Travancore to continue the conduct of the said chitties, as if they were not terminated. It provided that notwithstanding anything contained in the Travancore Chitties Act, failure of the foreman to conduct the chitty during the period from 18th December 1960 to 31st December 1961 or any part thereof shall not be deemed to have terminated the chitty, that the period fixed for the duration of the chitty shall be deemed to have been extended by the above-said period, and that the State Bank shall continue the chitty, as if the provisions of the said Act relating to the continuance of the chitty have been complied with. On 16-1-1962, the Central Government issued another order. Ext. P-4, under Section 45 (10) of the Banking Companies Act modifying the order Ext. P-3 by substituting the words '31st December 1962' for the words '31st December 1961', The purport of this amendment was to extend the period of suspension of the chitties till 31st December 1962.
4. On 6-12-1961, the plaintiff instituted the present suit against the State Bank of Travancore for the amount subscribed by the plaintiff for the first four instalments of the chitty on the allegation that it became entitled to get that amount, as the foreman defaulted the chitty after the fourth instalment The plaint is dated 5-12-1961; and most probably, the plaintiff was not aware of the order Ext. P-3 which was issued at New Delhi on 4-12-1961, when it instituted the suit The defendant contested the suit stating that the conduct of the chitty was defaulted on account of circumstances beyond the control of the foreman, the making of the order of moratorium by the Government of India; that by virtue of the orders, Exts. P-3 and P-4, the conduct of the chitty should be deemed to have been suspended by special resolution of the subscribers for the period from 18th December 1960 to 31st December 1962; that the defendant was proposing to conduct the 5th instalment of the chitty on 10th March 1962; that the plaintiff would accordingly be entitled to get the prize amount after the above date on its furnishing security for payment of future instalments; and that, under the above circumstances, the chitty cannot be deemed to have been terminated, and the suit was not therefore maintainable.
The plaintiff filed a replication contending that Exts. P-3 and P-4 were beyond the powers of the Central Government under Section 45 (10) of the Banking Companies Act, and that, if Section 45 (10) conferred on the Central Government such power as to issue orders like Exts. P-3 and P-4, it amounted to excessive delegation of legislative powers, and the said provision was unconstitutional.
5. A number of issues were raised for trial in the Munsiff's Court. But in the light of the undisputed facts of the case and the contentions raised by the parties, the only questions that arise for determination are-
(i) Whether Exts. P-3 and P-4 fall within the scope of Sub-section (10) of Section 45 of the Banking Companies Act; and
(ii) Whether Section 45 (10) of the Banking Companies Act is unconstitutional.
These two questions alone were raised by the parties before the learned trial Judge, who decided both questions against the plaintiff and dismissed the suit it may here be mentioned that he did not specifically consider the validity of Ext. P-4. The plaintiff has raised the same questions before us.
6. I shall now consider the first question. There is no dispute that the chitty was not conducted by the foreman with effect from the fifth instalment, and that, under the provisions of the Travancore Chitties Act and the terms of the variola, the foreman would become liable to pay to the plaintiff on the fifth instalment, namely 10-1-1961, the amount of Rs. 1,600/-which it had subscribed to the chitty. The only defence is that the default took place on account of the order of moratorium made by the Central Government, and that by virtue of Exts. P-3 and P-4, the period during which the chitty was not conducted should be treated as a period of suspension of the chitty. The effect of the moratorium was to stay commencement or continuance of all actions and proceedings against the foreman from 18th December 1960 till 16th June 1961, and to direct that the foreman shall not make any payment to any depositors or discharge any liabilities or obligations to any other creditors during the above period, except as otherwise provided by the order of moratorium. Discharge of chitty liabilities was not one of the payments permitted by the order of moratorium.
The order of moratorium does not and could not condone the default of the chitty by the foreman. But by virtue of that order, the foreman was not permitted to discharge the plaintiff's liability till 16th June 1961, and the plaintiff was debarred from instituting any action for the amount of subscription which it became entitled to get on account of the termination of the kuri till the above date. In the meanwhile, the scheme was sanctioned by the Central Government for the amalgamation of the foreman bank with the defendant bank. It has made provision regarding the chitties conducted by the foreman bank; and I have already extracted that provision.
7. The plaintiffs contention is that, under the scheme, all the assets and liabilities of the Kottayam Orient Bank Ltd., stood transferred to the defendant as from the prescribed date; that In relation to the chitties, the defendant became the foreman, and it 'shall continue to exercise all powers and to do all such acts and things as would have been exercised or done by the transferor bank in so far as they are not inconsistent with this scheme'; that accordingly the defendant became liable to discharge the liability of the original foreman and to pay the amount subscribed by the plaintiff to the chitty on the expiry of the period of moratorium; that Exts. P-3 and P-4, in so far as they wipe off the said liability by treating the period during which the chitty was not conducted as a period of suspension by a special resolution of the subscribers, was something inconsistent with the provisions of the scheme; that no difficulty arose for giving effect to the provisions of the scheme: that in effect Exts. P-3 and P-4 contain an amendment of the scheme; and that they are, there fore, beyond the scope of Sub-section (10) of Section 45 of the Banking Companies Act Dealing with the above contention, the learned trial Judge stated:
'The object of the scheme was that the defendant bank should take over and conduct the business of the Kottayam Orient Bank Ltd., and, so far as the chit ties run by the latter were concerned, the object was that these chitties should be run to a successful conclusion by the defendant bank. But the scheme lost sight of the fact that the chitties had already terminated under the provisions of Sub-section (2) of Section 39 read with Sub-section (2) of Section 38 of the Chitties Act by reason of the failure to conduct it at the monthly instalments which fell due during the period of the moratorium and that, for continuing the chitty, it would be necessary to suspend it for the period of the moratorium and prolong it by that period which, both under Sub-section (1) (iv) of Section 13 of the Chit ties Act and clause 29 of the variola, could be done by a special resolution of the subscribers to the chitty. It was therefore necessary to provide for the prolongation of the chitty and for its continuance as if it had not terminated if the object of the scheme were to be fulfilled, and it is precisely to remove the difficulty which stood in the way of the object being fulfilled that the impugned order was made. It is no use saving that the defendant bank could have had no difficulty in accepting that the chitty had terminated and paying off the unprized subscribers. For, that would not be to work the scheme which clearly contemplates that the defendant bank should run the chitties to a successful conclusion. The difficulty that stood in the way of this being done was certainly a difficulty in giving effect to the provisions of the scheme.'
With the greatest respect I am unable to agree with the learned Judge. The scheme Was for the amalgamation of the Kottayam Orient Bank Ltd., with the defendant bank; and it was effected by making a statutory transfer of all the assets and liabilities of the former bank in favour of the latter. So far as the Chitties are concerned, I can find nothing in the scheme, and particularly in the provision therein relating to chitties, to show that the object was to run them 'to a successful conclusion'. The Reserve Bank and the Central Government were at the time of making the scheme admittedly aware of the fact that the Kottayam Orient Bank Ltd. were running chitties. It is an obvious fact that during the period of the moratorium, the conduct of the chitties would be defaulted; and there is no warranty for assuming that they were not aware of that fact or of the liability of a defaulting foreman of the chitties. Conduct of chitties is not a normal banking business; and ordinarily the Reserve Bank would not allow a bank like the State Bank of Travancore to take up chitty business for conducting the dafaulted chitties run by the Kottayam Orient Bank Ltd.
It is all the more so; because it was not possible to run these chitties unless they were revived; and if in spite of that, the Reserve Bank and the Central Government wanted the State Bank of Travancore to run these defaulted chitties 'to a successful conclusion', necessary provision would have been certainly made in the scheme itself. The absence of any such provision shows that they did not, at the time of making the scheme, want the defendant to conduct these chitties, Whatever that may be, there is nothing in the scheme to show the contrary, namely the object of the scheme, so far as the chitties were concerned, was that the defendant should continue to conduct them, in spite of the fact that they had been terminated.
8. I shall now quote Sub-section (10) of Section 45 of the Banking Companies Act:
'If any difficulty arises in giving effect to the provisions of the scheme, the Central Government may by order do anything not inconsistent with such provisions which appear to it necessary or expedient for the purpose of removing the difficulty.'
A reading of the above provision shows that an order thereunder can be made only for the purpose of removing any difficulty that arises in giving effect to the provisions of the scheme, and that the said order should not be inconsistent with the provisions of the scheme. Under the Travancore Chitties Act and the provisions of the Variola, the foreman became liable to the plaintiff to pay the amount of subscription contributed by it on the termination of the chitty, namely 10-1-1961. There is nothing in the scheme which has modified or otherwise affected that liability. The scheme made the defendant liable to pay the said amount to the plaintiff. There is no difficulty, in paying the amount. The difficulty is only for not paying it; and what was achieved by Exts. P-3 and P-4 was the creation of that difficulty. What Ext. P-3 provides is that the period during which the chitty was not conducted would be treated as a period of suspension of the chitty by a special resolution of the subscribers. The result of that provision was that the right of the plaintiff to get from the defendant the amount subscribed to the chitty was taken away and substituted with a liability to draw the prize amount on furnishing security for payment of future instalments. This is a provision which is clearly inconsistent with the provisions of the scheme. Exts. P-3 and P-4 are, therefore, in my view beyond the scope of the power conferred on the Central Government under Sub-section (10) of Section 45 of the Banking Companies Act.
9. As held by the learned trial Judge, if the object of the scheme in respect of the chitties was that the defendant bank should continue them in spite of the fact that they were terminated, I would still hold that Exts. P-3 and P-4 are beyond the scope of the above statutory provision. In my opinion, it does not empower the Central Government to pass any order which would materially affect the rights and liabilities of persons as under the scheme. Sub-sections (4) and (5) of Section 45 provides that the Reserve Bank may prepare a scheme containing the necessary provisions. Sub-section (6) provides that a scheme for amalgamation shall be sent in draft to all banking companies concerned in the amalgamation, and that the Reserve Bank may make such modifications in the draft as it may consider necessary in the light of suggestions and objections received from the said banking companies and from any members, depositors or other creditors of those companies. Sub-section (7) provides that the scheme shall, thereafter, be placed before the Central Government, and that it may sanction the scheme without any modification or with such modifications as it may consider necessary.
A provision that the period during which the chitty was not conducted should be treated as a period of suspension and: that the chitty should be revived and continued after the said period is of far reaching consequence to the non-prized: subscribers. The present case is illustrative. The plaintiff auctioned the chitty on 10-12-1960 for Rs. 12,000/- reducing a; sum of Ra 8,000/- from the chitty amount, on the basis that it would get the prize amount on 10-1-1961 on furnishing security for the future instalments. In all probability, the chitty might have been auctioned at such a reduced amount for meeting an urgent need. As the chitty was defaulted by the foreman, the plaintiff did not get the prize amount: but it became entitled to get the subscribed amount. By Exts. P-3 and P-4, the period from 18th December 1960 till 31st December 1962 was treated as a period of suspension of the chitty, with the result the plaintiff can only claim to get the prize amount of Rs. 12,000 on 10-1-1963 on its furnishing security for payment of Rupees 18,000/- in 45 future instalments. It may not at that time require this amount; or even it required the amount, it may not be in a position to furnish the security and draw the amount. Still, the plaintiff has to pay the future instalments amounting to Rs. 18,000/-, against which it would get credit only for the prize amount of Rs. 12,000/-.
Thus the right of the plaintiff to get the subscribed amount was converted into a liability by virtue of the orders Exts. P-3 and P-4. If such a provision was included in the scheme prepared by the Reserve Bank, I cannot postulate that persons like the plaintiff would not have objected to that provision, and that even after considering such an objection, the Reserve Bank would have still retained this provision or the Central Government would not have made the necessary modification therein. Therefore, in my opinion these are matters which should come in the scheme, when it is prepared by the Reserve Bank. The order that can be passed under Sub-section (10) of Section 45 can only be one for the very limited purpose mentioned therein. It does not provide for any objection being raised by any interested person before the order is made. Therefore, it must be of such a nature as not to give room for any person for raising any substantial objection thereto. In other words, the order under Sub-section (10) can only be one for removing difficulties, if any, in giving effect to the provisions of the scheme, and it cannot amend, alter or add to the provisions contained in the scheme, in such a way as to affect the rights and liabilities of persons thereunder. In my view, Exts. P-3 and P-4 amount to such an amendment or addition to the scheme, and they are beyond the scope of Sub-section (10).
10. There is also another aspect of this question, which does not appear to have been presented before the learned trial Judge. The effect of Ext. P-3 was to treat the period from 18th December 1960 till 31st December 1961 or any part of that period as a period of suspension of the chitty as if by a special resolution of the subscribers. Assuming that Ext P-3 is valid, the result is that the chitty would be revived, and it has to be conducted by the foreman after the expiry of the above period in accordance with the terms and conditions of the variola with effect from the next instalment. This, I suppose, would remove the so-called difficulty in giving effect to the provisions of the scheme for running the chitties. Accordingly, the defendant had to conduct the chitty in this case on the instalment which falls on 10-1-1962. Admittedly the defendant did not conduct it either on the above or on the next instalment. All that is stated in the written statement is that the defendant was proposing to revive the chitty and continue the same with effect from 10th March 1962. Therefore, by virtue of the defendant's default to conduct the chitty on 10-1-1962, it has to be deemed to have terminated on the above date. Ext. P-4 was passed to extend the period of suspension created by Ext P-3. In other words, Ext. P-4 provides that the period from 31-12-1961 till 31-12-1962, which is a period after the revival of the chitty by Ext. P-3, would also be treated as a period of suspension of the chitty by a special resolution of the subscribers.
In any view of the matter, this is not a provision for removing any difficulties for giving effect to the scheme for the conduct of the chitties, the difficulties having been already removed by Ext P-3. Ext P-4 is also inconsistent with the provisions of the scheme read with Ext. P-3. Ext. P-4, is, therefore, certainly beyond the scope of Sub-section (10) of Section 45 of the Banking Companies Act; and this is sufficient to entitle the plaintiff to claim payment of amount subscribed by it in the chitty.
11. I shall now proceed to consider the question relating to the constitutional validity of Section 45 (10) of the Banking Companies Act. This provision is attacked on the ground that it is in excess of permissive delegation, and it amounts to an abdication of the legislative power. Article 245 of the Constitution provides that subject to the provisions of the Constitution the power to make laws for the whole of India is vested in Parliament, and the power to make laws for the State is vested in the Legislature of the State. Broadly speaking, the authority must remain where it is located; and it cannot be delegated. At the same time, it is well established that the essential legislative function consists in the determination or choosing of the legislative policy and of formally enacting that policy into a binding rule of conduct, and that it is permissible for the Legislature to confer upon administrative authorities powers to make subordinate legislation for the purpose of implementing the provisions of the Statute. What exactly constitutes the essential feature of a Statute, whether a legislative power conferred on an administrative authority transgresses the permissible limits of delegation, and whether the exercise of the power is beyond the said limits would depend on a number of circumstances and the facts of each case.
This question has been the subject-matter of consideration in many decisions of the Supreme Court. In many modern Statutes, there is a provision like Sub-section (10) of Section 45 of the Banking Companies Act empowering the Government to issue necessary orders for removing any difficulty which may arise in giving effect to the provisions of the Statute. Section 12 of the Finance Act 1950 contains such a provision. The validity of an order issued under that Section came up for consideration before the Supreme Court in Commissioner of Income-tax v. Ram Gopal Mills Ltd., AIR 1961 SC 338. But the constitutionality of the Section was not questioned in the above case. Section 37 of the Payment of Bonus Act, 1965 contains such a provision. It reads as follows:
'If any difficulty or doubt arises in giving effect to the provisions of this Act, the Central Government may, by order published in the Official Gazette, make such provision, not inconsistent with the purposes of this Act as appears to it to be necessary or expedient for the removal of the difficulty or doubt; and the order of the Central Government, in such cases, shall be final.'
The constitutional validity of the above provision was successfully attacked before the Supreme Court in Jalan Trading Co. Private Ltd. v. Mill Mazdoor Sabha, AIR 1967 SC 691. Delivering the majority judgment, Shah J. stated as follows:
'Condition of the applicability of Section 37 is the arising of the doubt or difficulty in giving effect to the provisions of the Act. By providing that the order made must not be inconsistent with the purposes of the Act, Section 37 is not saved from the vice of delegation of legislative authority. The section authorises the Government to determine for itself what the purposes of the Act are and to make provisions for removal of doubts or difficulties. If in giving effect to the provisions of the Act any doubt or difficulty arises, normally it is for the Legislature to remove that doubt or difficulty. Power to remove the doubt or difficulty by altering the provisions of the Act would In substance amount to exercise of legislative authority and that cannot be delegated to an executive authority. Sub-section (2) of Section 37 which purports to make the order of the Central Government in such cases final accentuates the vice in Sub-section (1), since by enacting that provision the Government is made the sole judge whether difficulty or doubt had arisen in giving effect to the provisions of the Act, whether it is necessary or expedient to remove the doubt or difficulty, and whether the provision enacted is not inconsistent with the purposes of the Act.'
Hidayatullah J., with whom Ramaswami J. agreed, dissented from the above view. Dealing with the contention that the above provision amounted to delegation of legislative power, his Lordship stated:
'The functions so exercised are not legislative functions at all but are intended to advance the purpose which the Legislature has in mind. The power to pass an order of this character cannot be used to add to or deduct from that which the Act provides. . . .
Parliament has not attempted to set up another legislature. It has stated all that it wished on the subject of bonus in the Act Apprehending, however, that in the application of the new Act doubts and difficulties might arise and not leaving their solution to the Courts with the attendant delays and expense. Parliament has chosen to give power to the Central Government to remove doubts and difficulties by a suitable order. The order, of course, would be passed within the four corners of the Parliamentary legislation and would only apply the Act to concrete cases as the Courts do when they consider the application of an Act. The order of the Central Government is made final for the reason that it is hardly practical to give power to the Central Government and yet to leave the matter to be litigated further. The fact that in the Government of India Act, 1935 and in the Constitution such power was and is contemplated and it has been conferred in diverse Acts without a challenge before, shows amply that the argument that the section amounts to conference of legislative powers on the Central Government is erroneous. All other cognate provisions have never been challenged on the ground that they amount to delegation of legislative power. We accordingly hold Section 37 to be validly enacted.'
The learned counsel for the plaintiff placed great reliance on the above decision, and submitted that Sub-section (10) of Section 45 of the Banking Companies Act should be held to be unconstitutional for the same reasons as stated in the majority judgment. It appears to me, and it is clear from what I have quoted above from the majority judgment, that the reason for holding that Section 37 of the Payment of Bonus Act amounts to delegation of legislative power is that the said provision authorises the Government to determine for itself what the purposes of the Act are and to make provisions for removal of doubts and difficulties, and that the power to remove the doubt or difficulty by altering the provisions of the Act would in substance amount to exercise of legislative authority, which cannot be delegated to an executive authority. The position is entirely different in the case of Sub-section (10) of Section 45 of the Banking Companies Act. I have already considered the scope and amplitude of this sub-section, and held that they are very limited. It does not give any power to the Government to determine the purposes of the Act, or to add to or amend any provisions thereof for any purpose. It only empowers the Government to make necessary orders for removing any difficulty that may arise for giving effect to the provisions of the scheme sanctioned under Section 45 of the Banking Companies Act. The working of the scheme is an executive function; and the conference of power to remove difficulties, if any, for working it is corollary to the above function. Conference of such a power on the Central Government does not in my opinion amount to delegation or abdication of the legislative power. I, therefore, hold that Sub-section (10) of Section 45 of the Banking Companies Act is valid.
12. In the result. I allow the appeal and decree the suit; directing the defendant to pay to the plaintiff a sum of Rs. 1,600/- together with interest thereon at 6% per annum from 10-1-1961 till date of realisation. The plaintiff-appellant will also get its costs in the suit and also in this appeal.
Narayana Pillai, J.
13. I agree.