Full Judgment Text
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CASE NO.:
Appeal (civil) 4446 of 2000
PETITIONER:
ASSOCIATED TIMBER INDUSTRIES AND ORS.
RESPONDENT:
CENTRAL BANK OF INDIA AND ANR.
DATE OF JUDGMENT: 09/08/2000
BENCH:
D.P. MOHAPATRA & SHIVRAJ V. PATIL
JUDGMENT:
JUDGMENT
2000 Supp(2) SCR 310
The Judgment of the Court was delivered by D.P. MOHAPATRA, J. Leave
granted.
The question that arises for determination in this case is whether the
Central Bank of India is a ’money-lender’ under the Assam Money Lenders
Act, 1934 (Assam Act IV of 1934) (hereinafter referred to as "the Assam
Act") and, therefore, is required to take a licence under the said Act to
carry on its activities? The question having been answered in the negative
by a Division Bench of the Gauhati High Court, the defendants have tiled
this appeal assail-ing the judgment.
The factual backdrop of the case relevant for determination of the ques-
tion may be stated thus :
The Central Bank of India, respondent herein, filed the suit for realisa-
tion of certain amount from the Associated Timber Industries, Chabua and
others, appellants herein, being the amount due to the Bank towards sums
advanced to the defendants. The defendants raised an objection against
maintainability of the suit on the ground of non-compliance with the
provisions of the Assam Act, particularly Section 7-D. To be more specific
me objection was that the Bank being a ’money-lender’ has not been
registered under the Assam Act; in the absence of a registration
certificate, the suit is not maintain-able and, therefore, cannot be
proceeded with. The Additional District Judge, Dibrugarh, framed an issue -
whether the -suit is maintainable? The said issue was laken up as a
preliminary issue. By the order dated 26th June, 1989 the learned trial
judge dismissed the suit as not maintainable. The plaintiff challenged the
Judgment of the trial court before the High Court in First .Appeal No. 78
of 1989, wherein a Division Bench by the judgment dated 29th July, 1998 set
aside the judgment of the trial court and directed disposal of the suit on
merits in accordance with law. The said judg-ment is under challenge in
this appeal.
Shri Bhaskar P. Gupta, learned senior counsel appearing for the appel-lants
strenuously urged that the High Court is not right in holding that the
provisions of the Assam Act are not applicable to the respondent-Bank, Elu-
cidating his contention. Shri Gupta submitted that advancement of loan by
the respondent-Bank to the appellants makes the transaction between the
parties a ’loan’ as defined in Section 2(3) of the Assam Act and the Bank a
’money lender’ as defined in Section 2(1) of the Assam Act. It was the
further submis-sion of Shri Gupta that in the absence of a notification by
the State Government declaring the respondent to be a notified Bank for the
purpose of the Assam Act. the exclusionary provision in Section 2(3) is not
attracted. The resultant position, contended Shri Gupta, is that in the
absence of a registration certifi-cate the suil filed by the respondent-
Bunk is not maintainable and the trial court rightly held so; she High
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Court fell into error in holding in favour of maintainability of Ihc .suit.
Shri R.N. Trivedi. learned Additional Solicitor General, supporting the
impugned judgment contended that She respondent is engaged in "banking
activity", which is different from mere money lending activity, and
therefore, the provisions of the Assam Act are not applicable in case of
a Bank, like the respondent. The activities of banks are governed under the
Banking Regulation .Act. 1949 which is a Parliamentary enactment. The banks
registered under the .said Act are under the regulatory control and
supervision of the- Reserve Bank of India, Shri Trivedi -further contended
thai lending money to customers is not the only activity of the respondent;
it is one of multifarious activities under-taken by it. According to Shri
Trivedi the expression ’money-lender" as defined in Section 2(1) of the Act
should be .so interpreted as to include a person whose sole activity is
lending money to others charging interest; considered on that basis the
respondent does not come within the scope of .the definition of the term,
’money-lender’, which is the sine qua non for application of the statute.
Since the Assam Act has no application lo the respondent the question of
gelling itself registered under me said Act does not arise. it was the
further contention of Shri Trivedi that accepting the contentions raised by
the appellants will lead to serious consequences inasmuch as the entire
lending activity carried on by the respondent will be taken as illegal and
the sums advanced will not be realisable. Such a drastic consequence should
be avoided by reading down the provision in Section 2(1) to mean that a
’money-lender’ means ’a person who solely carries on the business of
advancing money on condition of the repayment with interest’,
On the case of the parties and the contentions raised by the learned
counsel appearing for them, the point formulated earlier arises for
determination.
In P. Ramanatha Aiyer’s Law Lexicon the term "Banking business" is stated
to be the business of banking, as defined by law and custom, consists in
the Issue of notes intended to circulate as money where the banks are banks
of issue; in receiving deposits payable on demand; in discounting
commercial paper; making loans of money on collateral security; buying and
selling bills of exchange, negotiating loans, and dealing in negotiable
securities issued by the Government, State and national municipal and other
corporations.
We shall next consider some relevant provisions of the Statutes which
control and regulate the activities of banks and those of money-lenders.
The Banking Regulation Act 1949 has been enacted by the Parliament to
consolidate and amend the law relating to banking. In section 2 of the said
Act it is declared that the provisions of the Act shall be in addition to,
and not, save as expressly provided, in derogation of the Companies Act,
1956 and any other law for the tune being in force.
Under Section 3
(a) a primary agricultural credit society;
(b) a co-operative land mortgage bank; and
(c) any other co-operative society, except in the manner aad to the extent
specified in Part V. are excluded from the purview of the Act.
Section 5 of the Act which is the interpretation provision, provides in
clause (b) that ’banking’ means the accepting, for the purpose of lending
or investment of deposits of money from the public, repayable on demand or
otherwise and withdrawable by cheque, draft, order or otherwise. Under
clause (c) of section 5 ’banking company’ means any company which transacts
the business of banking in India. In the explanation to the clause it is
provided that any company which is engaged in the manufacture of goods or
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carries on any trade and which accepts deposits of money from the pubic
merely for the purpose of financing its business as such manufacturer or
trader shall not be deemed to transact the business of banking within the
meaning of this clause,
The provisions clearly indicate the broad spectrum of activities to be
undertaken by a Bank like borrowing, raising, or taking up of money; the
Sending or advancing of money either upon or without security; the drawing
making, accepting, discounting, selling, collecting and dealing in bills of
ex-change, hoondees, promissory notes, coupons, drafts, bills of lading,
railway receipts, etc. negotiating loans and advances; the receiving of all
kinds of bonds, scrips or valuables on deposits or for safe custody or
otherwise; the providing of safe deposit vaults; the collecting and
transmitting of money and securities.
Section 6 deals with the forms of business in which banking companies may
engage. Under sub-sections l(a) to (o) of the said section are enumerated
different forms of business in any one or more of which a banking company
may be engaged. In section 6(1)(n) it is provided that a banking company
may be engaged in doing all such other things as are incidental or
conducive to the promotion or advancement of the business of the company.
In clause (o) it is laid down that the banking company may engage in any
other form of business which the Central Government may, by notification in
the Official Gazette, specify as a form of business in which it is lawful
for a banking company to engage.
In sub-section (2) of section 6 it is expressly provided that no banking
company shall engage in any form of business other than those referred to
in ’sub-section (1).
Under section 21 of the Act control over advances by banking companies is
vested in the Reserve Bank of lndia. In sub-section (1) thereof it is laid
down that where the Reserve Bank is satisfied that it is necessary or
expedient in public interest or in the interest.of the depositors or
banking policy, so to do, it may determine she policy in relation to
advances to be followed by banking companies generally or by any banking
company in particular, and when the policy has been so determined, all
banking companies or the banking company concerned, as the case may be,
shall be bound to follow the policy as so determined.
In sub-section (2) of section 21 provision is made that without prejudice
to the generality of the power vested in the Reserve Bank under sub-section
(1) enabling the Reserve Bank to give directions to banking companies
regard-ing certain particular matters like (a) the purpose for which
advance may or may not be made (b) the margins to be maintained in respect
of secured advances, .....(e) the rate of interest and other terms and
conditions on which advances or other financial accommodation shall be
bound to comply with any directions given to it under this section.
Section 21-A is a provision ousting the jurisdiction of Courts from re-
opening any transaction between the banking company and its debtor on the
ground that the rate of interest charged by the banking company in respect
of such transaction is excessive. In section 22 are contained the
provisions for licensing of banking companies.
Under the provisions in Sections 26 and 27 every banking company is
required to submit a return in the prescribed form to the Reserve Bank.
Under section 47-A power is vested in the Reserve Bank to impose penalty on
a banking company in case of contravention or default of the nature
referred to in sub-section (3) or sub-section (4) of section 46,
Coming to the Assam Money-Lenders Act, 1934, in the preamble of the Act it
is stated "whereas it is expedient to make better provision for the control
of money-lending and to give additional powers to Courts to deal with money
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lenders in Assam; And whereas the previous sanction of the Governor General
has been obtained under sub-Section.(3) of S.80-A of the Government of
India Act It is hereby enacted as follows....."
In section 2(1) of the Act ’Money-Lender’ is defined to mean a person who
in the regular course of business advances a loan as defined in this Act
and shall include, subject to the provisions of s.6, the legal
representatives and the successors-in-interest whether by inheritance,
assignment or otherwise of the person who advanced the loan and money-
lending shall be construed accordingly.
(Emphasis supplied)
In sub-section (3) ’loan’ means an advance, whether of money or in kind,
made on condition of repayment with interest and incudes any bond bearing
interest executed in respect of past liabilities and any transaction which
is in substance a loan, but does not include -
(a) a loan to or by, or a deposit with, any society or association
registered under the Societies Registration Act, 1960 or under any other
law relating to public religious or charitable objects;
(b) a loan advanced before or after the commencement of this Act-by a Bank
which has been declared to be a notified Bank under
S.2-A whether or not such bank was declared to be a Bank at the time the
loan was advanced. a loan advanced by Life Insurance Corporation of India,
Financial Corporation of India or any other corporate body.
Section 2-A provides that the State Government may, by notification in the
official Gazette, declare any bank to be a notified bank for the purpose of
this Act,
Under section 4 any contract made before or after the commencement of this
Act for the loan of money by a money-lender shall be illegal in so far as
it provides directly or indirectly for the payment of compound interest or
for the rate or amount of interest being increased by reason of any default
in the payment of sums due under the contract.
Section 6 provides that every money lender shall regularly maintain an
Account for each borrower separately of all transactions with dates and
places of such transaction in respect of any loan advanced to that borrower
and furnish such borrower every year with an eligible statement of accounts
in the pre-scribed manner signed by the money-lender or his authorised
agent.
In section 6-A provision is made that every money-lender, who received
repayment, from his borrower on account of any loan advanced to him or
.payment of any interest therein shall forthwith give a receipt therefor.
In section 7-B it is laid down that every person who carries on or intends
to carry on the business of money-lending shall get himself registered by
an application made to the Registrar in prescribed form and prescribed fees
and, for such registration, the Registrar shall grant a registration
certificate to him in such form as may be prescribed. In Section 7-C it is
provided that no person shall carry on the business of money-leading unless
he holds a valid registration certificate in this behalf.
Under sub-section (2) contravention of the provisions of sub-section (1) is
made punishable with simple imprisonment and fine.
Section 7-D on the basis of which the defendant raised the objection
regarding maintainability of the suit reads :
"7-D Suits to proceed without registration certificate, etc. No suit for
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the recovery of a loan advanced by a money-lender shall proceed in a civil
court until the court is satisfied that he holds a valid registration
certificate or that he is not required to have a registration certificate
by reason of the fact that he does not carry on the business of money-
leading."
Front the provisions in the two enactments, one Central and the other
State, bring forth the wide difference in the fields of operation of banks
and activities of money-lenders. While ’banks’ are financial institutions
which are engaged in improving the flow of trade, movement of commerce and
expansion of business and thereby improving the socio-economic condition of
the people; ’money-lenders’ are engaged in making personal profits; while
the former are guided by policies and decisions of the Central Government
and the wide spectrum of activities in which they are engaged are all
controlled or regulated by the Reserve Bank of India; there is no such
regulatory policy in the case of the latter.
In the case of M/s. Fatehchand Himmatial v. State of Maharashtra, [1977] 2
SCC 670 the Constitution Bench of this Court considering the con-
stitutional validity of the Maharashtra Debt Relief Act, 1976 observed :
"A meaningful, yet minimal, analysis of the Debt Act, read in the light of
the times and circumstances which compelled its enactment, will bring out
the humane setting of the statute. The bulk of the benefici-aries are rural
indigents and the rest urban workers. These are weaker sections for whom
constitutional concern is shown because institu-tional credit
instrumentalities have ignored them. Money-lending may be ancillary to
commercial activity and benignant in its effects, but money-lending may
also be ghastly when it facilitates no flow of trade, no movement of
commerce, no promotion of intercourse, no servicing of business, but merely
stagnates rural economy, strangulates the borrowing community and turns
malignant in its repercussions. The former may surely be trade but the
latter - the law may well say - is not trade. In this view, we are more
inclined to the view that this narrow, deleterious pattern of money-lending
cannot be classed as ’trade’. No other question then arises, since the
petitioners and appel-lants cannot summon Article 301 to their service,"
The Division Bench of the Calcutta High Court in Mahaluxmi Bank Ltd. v.
Registrar of Companies, West Bengal, AIR (1961) Cal. 666 construing the
definition of the word "Banking" in Section 5( 1 )(b) of the Banking
Companies Act, 1949 observed inter alia (at p.669) :
"Now this definition makes it clear that receiving money on deposit from
customers and honouring their cheques is the essential character-istic of
banking. The money deposited by the customers can be utilised by the banker
for lending it cr for investing it but the bank also undertakes the
obligation to repay the deposit on demand or otherwise and the mode by
which the withdrawal of the deposit can be effected is by the issue of
cheques, drafts, orders or otherwise, that is, by like methods.
In Harts Law of Banking, a banker or bank is defined as one who, in the
ordinary course of his business receives money which he pays by honouring
the cheques of persons from or on whose account he receives it. Sir John
Paget in his book on Banking has pointed out that "no person or body
corporate or, otherwise can be a banker who does not (1) take deposit
accounts, (2) take current accounts. (3) issue and pay cheques, and (4)
collect cheques crossed and uncrossed for his customers." Sheldon in his
book on the Practice and Law of Banking, seventh edition at page 183.
formulates, the following definition of a banker.
"A person cannot claim to be carrying on the business of banking unless he
receives money or instruments representing money on current account,
honours cheques drawn thereon, and collects the proceeds of cheques which
his customers place into his hands for collection."
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In the case of Re Bottomgate Industrial Co-operative Society (1891) 65 LT
712 at p.714 Smith. J. defines the business of bankers thus :
"The principal part of the business of a banker is receiving money on
deposit, allowing the same to be drawn against as and when the depositor
desires and paying interest on the amounts standing on deposit."
Then Sec, 6(1) of the Banking Companies Act, 1949, provides, that in
addition to the business of banking, a banking company may engage in any
one or more of the different kinds of business specified in the various
sub-clauses of sub-sec. (1) of Sec. 6, This indicates that the main or real
business of a banking company is as stated in Sec. 5(1) of the Act but
banking companies usually carry on and are permitted to carry on other
kinds of business which are auxiliary or incidental to the main business.
Sub-section (2) of Sec. 6 days down that no banking company shall engage in
any form of business other than those referred to in sub-section (1). So
the banking company is ex-pressly prohibited from carrying on any kind of
incidental or allied business other man those enumerated in sub-clause (a)
to (o) of sub-section (1) of Sec, 6 of the Act. Thus it is abundantly clear
that the essence of banking is the relationship which is brought into
existence at the time of the deposit; that is the core of banking. It is
true that the business of banking covers every possible phase or
combination of deposit, custody, investment, loan, exchange, issue and
transmission of money, creation and transfer of credit and other kindred
activities but if the essential characteristic of banking namely the power
to receive deposits from the public which are repayable in the manner
indicated in Sec. 5(l)(b) of the Banking Companies Act is absent and merely
the power of granting loans is retained and exercised that, in my view does
not make the company a banking company. Lending of money may be one phase
of a banking business but it is not the main phase or the distinguishing
phase."
In the case of Reserve Bank of India v. Peerless General Finance and
Investment Co. Ltd. taut Others., [1987] 1 SCC 424 a Bench of learned two
Judges of this Court considered the validity of the provisions of Prize
Chits and Money Circulation Schemes (Banning) Act, 1978 made the following
obser-vations regarding interpretation of inclusive definition in statute.
"Interpretation must depend on the text and the context. They are the bases
of interpretation. One may well say if the text is the texture, context is
what gives the colour. Neither can be ignored. Both are important. That
interpretation is best which makes the textual interpre-tation match the
contextual. A statute is best interpreted when we know why it was enacted.
With this knowledge, the statute must be read, first as a whole and then
section by section, clause by clause, phrase by phrase and word by word.
If a statute is looked at, in the context of its enactment, with the
glasses of the statute-maker, provided by such context, its scheme, the
sections, clause, phrases and words may take colour and appear different
than when the statute is looked at without the glasses provided by the
context. With these glasses we must look at the Act as a whole and discover
what each section, each clause, each phrase and each word is meant and
designed to say as to fit into the scheme of the entire Act. No part of a
statute and no word of a statute can be construed in isolation. Statutes
have to be construed so that every word has a place and everything is in
its place. It is by looking at the definition as a whole in the setting of
the entire Act and by reference to what preceded the enactment and the
reasons for it that the court construed the expression ’Prize Chit’ in
Srinivasa [1981] I SCR 801 and we find no reason to depart from the
court’s construction."
Here we may also take note of the definition of the expression ’money-
lenders’ in some other State Money-Lenders Acts,
In Bombay Money-Lenders Act, 1946 Section 2 clause (10) provided that
money-lender means (i) an individual, or (ii) an undivided Hindu family; Or
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(iii) a company or (iv) an unincorporated body of individuals, who or which
(a) carries on the business of money-lending in the State or (b) has his or
its principal place of such business in the State and includes a pawn-
broker but does not include - (i) Government (ii) a local authority (iii) a
bank (iv) the Agricultural Refinance Corporation constituted under the
Agricultural Refi-nance Corporation Act, 1963; or (v) any other banking
financial or any insti-tution which the State Government may, by
notification in the Official Gazette, specify in this behalf.
The expression "business of money-lending" is defined in section (2) to
#mean the business of advancing loans whether in cash or kind and whether
or not in connection with or in addition to any other business. In Tamil
Nadu Money-Lenders Act, 1957 the expression ’money lender’ is defined in
s.2(8) to mean a person whose main or subsidiary occupation is the business
of advancing and realizing loans, but excludes a bank or a co-operative
society. The explanation to the said section lays down that where a person
who carries on in the (State of Tamil Nadu) the business of advancing and
realizing loans is resident outside the State of Tamil Nadu, the agent of
such person resident in the State of Tamil Nadu shall be deemed to be the
money-lender in respect of that business for the purpose of the Act,
In the Bengal Money-Lenders Act, 1940 it is provided that loan means an
advance whether of money or in kind, made on condition of repayment with
interest and includes any transaction which is in substance a loan but does
not include ...,...,,.(d) a loan advanced before or after the commencement
of this Act (i) by a bank; or (ii) by a co-operative life insurance
society, co-operative society, insurance company, life assurance company
(Life Insurance Corpora-tion of India) mutual insurance company, provident
insurance society or provi-dent society or from a provident fund. The term
’money-lender’ is defined in section 2(13) of that Act to mean a person who
carries on the business of money-lending in West Bengal or who has a place
of such business in West Bengal and includes a pawnee as defined in section
172 of the Indian Contract Act, 1872,
From the provisions in the other State enactments also it is clear that the
legislatures have taken caution to exclude banks from the operations of the
statutes presumably with a view to avoid any conflict with the
Parliamentary enactment Unfortunately, the Assam Money-Lenders Act, 1934
does not in-corporate any such provision in it. It may be noted here that
’banking’ is covered under item No. 45 in List-I of the Union List of the
VII Schedule of the Constitution, while ’Money Lending and ’Money-Lenders’
: Relief of Agricultural indebtedness comes under item 30 of List II -
State List of the VIIth Schedule.
Adopting a purposive and meaningful interpretation of the provisions of the
statute we are persuaded to take the view that ’banks’ do not come under
the purview, of the Assam Money-Lenders Act. Therefore the High Court was
right in holding mat the suit filed by the respondent-bank is maintainable.
Accordingly, the appeal is dismissed with costs.