1. The two petitioners are the promoters of a proposed Urban Co-operative Bank. They have challenged the refusal of the banking licence by Reserve Bank of India. They had applied for such licence by their application of 12th Sept. 1980 (Ann. D to the petition). Therein they have mentioned that Chaklashi town (in which the proposed Urban Co operative Bank was to be established) was having population of about 30,000 and as per the census of 1971 the population was 20900. A case was sought to be made out for the necessity and feasibility of the proposed co-operative Bank by citing various needs of different kinds of business, industries, etc. On that application, the Reserve Bank by its letter dt. 27th Sept. 1980 (Ann. E) asked the assistant District Registrar of Co-operative Societies, Nadiad, to conduct a preliminary survey of the area of operation of the proposed Bank with the assistance of its promoters and their state/district central co-operative bank to identify the potentials for the growth of the proposed bank i.e. potential for deposit mobilisation as well as lending, particularly lending to small scale and cottage industries. In pursuance thereof a Joint Report prepared by the Assistant District Registrar and the Manager of Kaira District Central Coop. Bank Ltd. was sent by the letter dt. 21st Oct 1980 (Ann. F).
2. However, by the letter dt. 3rd March 1982 (Ann. G) the Reserve Bank refused the licence after considering the preliminary survey report and the Joint Survey Report and observed that the area of operation of the proposed bank was limited to Nagar Panchayat, Chaklashi and the inclusion of non-urban area was not permissible in the area of operation of a Urban Co-operative Bank and it was further observed that Chaklashi was reported to have the population of 9000 (urban population) and was served by two commercial banks and therefore there was existing adequate banking facility. It was also observed that the Chaklashi and the surrounding villages were predominantly agricultural in character and the preliminary and Joint studies showed that there was little scope for industrial advances and therefore a need for organising a new primary (Urban) cooperative bank was not established and, therefore, the Reserve Bank refused the licence and refused the registering authority to proceed with the registration of the co-operative bank.
3. A further representation was made by the promoters by letter dt. 22nd March 1982 (Ann. H) and thereby an attempt was made to rebut the points made by the Reserve Bank for refusing the licence. It appears that on 10th April 1982 there was a meeting and some further discussion in pursuance thereof the promoters had written a letter dt. 13th May 1982 (Ann. I) reminding about fresh decision. It appears that there was some further discussion on 8th June 1982 and in pursuance of that discussion the promoters by their letter dt. 21st June 1982 (Ann. J) forwarded more details and facts justifying the grant of the licence.
4. Taking into consideration the various representations, the Reserve Bank by its letter dt. 4th May 1983 (Ann. K.) took a decision wherein it is observed that the area of operation of the proposed bank was predominantly agricultural in character and was adequately served by the existing banking structure and that the area did not have adequate nonagricultural business potential so as to sustain another new urban bank as a viable unit.
5. However, the petitioners were not satisfied and they made further representation by letters dt. 15th July 1983 (Ann. L) and 1st Aug. 1983 and therein it is complained that even though the petitioners were refused licence on the ground that the area was predominantly agricultural and was served by existing banking facilities and did not have adequate nonagricultural business potential, yet another Urban Co-operative Bank, namely, Natpur Coop. Bank Ltd. Nadiad was allowed to open a branch at Chaklashi by the Reserve Bank; and therefore the refusal to the petitioners seem to be unjustified. This was replied by the Reserve Bank by its letter dt. 11th August 1983 (Ann. M.) and it was pointed out that opening of a new bank and a new branch of an existing bank were altogether different things and that an area which could not sustain a new Co-op. Bank and can sustain a new branch of an existing Co-op. bank and they stood entirely on different footing. It was also pointed out that the matter of the petitioners was considered on merits and studies were conducted and the results showed that there were no special and adequate factors in justification of a new urban Bank in Chaklashi functioning as a viable unit.
6. The petitioners have therefore approached this court. At the time of admission an interim order was passed in respect of the licence granted to the third respondent Natpur Co-operative Bank Ltd. and it was directed that the operation, if any, carried on by the respondent No. 3 in the area shall not be taken into account by the Reserve Bank for reconsidering the petitioners' case, if ultimately the Reserve Bank was directed to reconsider the case.
7. The learned counsel for the petitioners has submitted that the Reserve Bank has decided the matter on extraneous and non germane considerations and acted ultra vires S. 22(3) of the Banking Regulation Act, 1949 (as applicable to Co-operative Societies) (hereinafter referred to as 'the Act'). S. 22 in so far as it is material for our purpose reads as under: -
'22. Licensing of co-operative banks: -
(1) Save as hereinafter provided, no cooperative society shall carry on banking business in India unless; -
(a) it is a primary credit society, or
(b) it is a co-operative bank and holds a licence issued in that behalf by the Reserve Bank, subject to such conditions, if any, as the Reserve Bank may deem fit to impose;
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(3) Before granting any licence under this section, the Reserve Bank may require to be satisfied by an inspection of the books of the co-operative bank or otherwise that all or any of the following conditions are fulfilled, namely: -
(a) that the co-operative bank is or will be in a position to pay its present or future depositors in full as their claims accrue;
(b) that the affairs of the co-operative bank are not being, or are not likely to be conducted in a manner detrimental to the interests of its present or future depositors.'
The learned counsel for the petitioners has submitted that the Reserve Bank is duty bound to issue licence once the conditions in S. 22(3)(a) and (b) are satisfied and the Reserve Bank has no discretion to refuse the licence.
8. On behalf of the respondent-Reserve Bank affidavit in reply has been filed wherein it is pointed out that conditions (a) and (b) of section 22(3) are not fulfilled and as a result of studies and inquiries made it has been found that the Urban Co-operative Bank in Chaklashi would not be a financially viable unit. In the affidavit in reply it is stated that the Reserve Bank undertook a survey of the area and it was observed that the present banking structure functioning therein was taking care of both agricultural as well as business finance and that Chaklashi village of having (urban) population of 9000 did not require any new bank so as to sustain a new urban bank as viable unit. It was also pointed out that a population of 17446 was engaged in agricultural pursuits and they reside in the surrounding agricultural fields and not in Chaklashi village itself, and the banking requirement of agricultural community was taken care of by rural cooperative credit structure comprising of district central co-operative banks, primary agricultural credit societies, farmers service societies etc. and since the urban co-operative Banks are part of the co-operative credit structure, they are not allowed to enter rural area and thus come into competition with the rural co-operative credit structure. It is to be noted that the petitioners want to open a new Urban Co-operative Bank. There is no dispute about it. The reply affidavit further narrates the studies undertaken and ultimately the following conclusions were reached:
'The findings of the above survey revealed as follows:
(i) The industrial activity in Chaklashi village was in a miniature form and comprised 2 to 3 automobile workshops, 5 to 6 carpentry shops, 4 to 5 welding workshops, about 100 handloom weavers, 5 saw mills. Also, a few proposals for setting up some more industries such as ice factory, rice mill, industry for manufacturing of surgical cotton, etc. were proposed to be set up.
(ii) Industrial development was not likely to pick up to an appreciable extent in the near future;
(iii) Only Chaklashi village and Fatehpur village came under the influence zones of 'C' group and 'A' group industrial growth centres respectively. The existing commercial banks in Kanjari, Boravi and Nadiad could very well cater to the needs of the industries which might come up in the aforesaid growth centres, but some borrowers might prefer to deal with an urban co-operative bank.
(iv) None of the five additional villages proposed to be included in the proposed bank's area of operations, other than Fatehpur, were within the effective area of a growth centre. In the context of the above, it was concluded that the existing commercial banks' branches in Chaklashi village were quite capable of meeting the non-agricultural credit needs of the local community and that the industrial activity in the village was at a low ebb and was not likely to pick up to an appreciable extent in the near future.'
Thus the Reserve Bank has conducted a viability study to find out whether there were prospects of business potential so as to make the proposed Urban Co-operative Bank in the area a viable unit thereby enabling it to Properly deploy its resources and earn sizable income so that the interests of all its depositors are well protected and the proposed Urban bank would be able to pay not only its present but also its future depositors in full as and when their claims would accrue. On these materials and findings the Reserve Bank came to the conclusion that the proposed Urban Cooperative Bank in Chaklashi would not be a viable unit, and considering all these relevant factors decision has been taken not to grant the licence to the petitioners to open the proposed bank.
9. The decision of the Reserve Bank is based on relevant material and germane considerations and the High Court cannot sit in appeal over the judgment of the Reserve Bank unless it is shown that the decision of the Reserve bank is based on extraneous considerations or is perverse. In the present case, the Reserve Bank has clearly shown that on relevant material and on germane considerations it had come to a conclusion that the proposed Urban Bank in Chaklashi would not be a viable unit and, therefore, the licence has been refused. It is the discretion of the licensing authority to grant or refuse the licence and when such decision is based on relevant material and germane considerations the High Court cannot sit in appeal over the decision of the Reserve Bank. Thus the contentions of the petitioners fail.
10. It was also submitted that the permission to open a new branch of another co-operative bank in the same village Chaklashi in favour of respondent No. 3 Natpur Co-operative Bank Ltd. shows that the decision of the licensing authority to refuse the licence to the petitioner for the same area is ex facie illegal and perverse.
11. In the affidavit in reply as also in the correspondence the Reserve Bank had pointed out that the viability norms in case of a branch of an existing urban co-operative bank are much lower than what have been laid down in the case of new urban co-operative bank and the cost of operation of a new branch of a bank is comparatively lower than the cost of setting up a new bank and moreover it was Pointed out that a branch may not be a self balancing centre as in the case of a new Urban bank office in the sense that the deposits collected, by the branch may not invariably be in a proportion to its lending; whereas on the other hand a branch may be a more deposit mobilization centre and may have little scope for lending in the area; and the surplus funds raised at the branch may be gainfully deployed through its head office and /or other branches, where there is a larger potential for providing loans can draw on the pooled resources at the head office. All these opportunities will not be available in case of a new urban bank which has to rely on the mobilisation of its resources and proper and gainful deployment thereof in the area and quite a big contingent of staff is required for a new urban bank which being unitary office is required to control and operate a number of head office functions such as calling of board meetings, issue of shares, administration, scrutiny and sanction of loan application etc. Thus the economics and norms of the working of a branch vis-a-vis that of a new urban bank are always much lower and always on a different footing. Therefore granting of licence or permission for opening a new branch cannot take the case of the petitioners any further.
12. In view of the above discussion, the decision of the Reserve Bank refusing licence to the petitioners cannot be said to be vitiated and cannot be interfered with by the High Court.
13. In the result, the petition fails and is dismissed no order as to costs.
14. Petition dismissed.