P.T. Raman Nayar, J.@mdashThis suit, instituted in the Munisiff''s Court, Kottayam has been withdrawn to this Court under Art. 228 of the
Constitution because the constitutionality of sub-section (10) of Section 45 of the Banking Companies Act is questioned. The plaintiff was a
subscriber to a fifty month, 20,000 rupee, monthly chitty run by a banking Company known as the Kottayam Orient Bank, Ltd. as foreman. The
conduct of the chitty was governed by the agreement, Ext. P. 1, variyola as it is called, entered into between the foreman bank and each individual
subscriber, and by the provisions of the Travancore Chitties Act, the Chittics Act for short. The plaintiff prized the chitty for Rs. 11,075 at the fifth
auction held on 10th December 1960--he had by then paid four installments of Rs. 400/- each. (The plaintiff is a company but it is more
convenient to use the pronoun, ""he"" than ""it""). But, before he could be paid the money, the Central Government granted the bank a moratorium u/s
45(2) of the Banking Companies Act on terms and conditions which made it impossible for it to pay the plaintiff or continue the chitty. This
moratorium was in force up to 16th June 1961 and for this period, therefore, the conduct of the chitty had necessarily to be suspended. This, u/s
39(2) of the Chitties Act, amounted to a termination of the chitty and, both by reason of clause 14 of the variyola and Section 41 of the Act, the
failure to conduct the chitty cast on the foreman bank the obligation to pay every non-prized subscriber the contributions made by him. By Ext. P.
2, dated 16th May 1961 the Central Government, acting u/s 45(7) of the Banking Companies Act, sanctioned a scheme for the amalgamation of
the Kottayam Orient Bank with the State Bank of Travancore, the defendant herein, by which all the assets and liabilities of the former bank were
transferred to the latter with effect from 17th June 1961. This scheme provided in relation to chitties that:
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 (XXIV 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:
(1) 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;
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By reason of this clause therefore the defendant bank was to continue the chitties that were being conducted by the Kottayan Orient Bank Ltd.,
but, there arose the difficulty that by reason of their suspension during the moratorium, the chitties had terminated so that what the defendant bank
was left with was the obligation to pay the non-prized subscribers the contributions made by them. To remove this difficulty, the Central
Government made the order, Ext. P. 3 dated 4th December 1961--called the Kottayam Orient Bank Ltd. (Amalgamation with the State Bank of
Travancore) (Removal of Difficulties) Order, 1961-- u/s 45(10) of the Banking Companies Act by which (as amended by the order Ext, P. 4
dated 15th January 1962), notwithstanding anything contained in the Chitties Act, the suspension of any chitty for the period from 18th December
1960 to 31st March 1962 or any part thereof, and the consequent prolongation of the chitty was to have effect as though the articles in the variyola
were altered for that purpose by special resolution of the subscribers and as though the relevant provisions of the Chitties Act were complied with.
And, notwithstanding anything contained in the Chitties Act, failure of the foreman bank to conduct the chitty during the said period was not have
the effect of having terminated the chitty. Notwithstanding anything contained in the variola, the period of the chitty was to be deemed to have been
extended by the period aforementioned, and the defendant bank was, notwithstanding anything contained in the Chitties Act, to continue the chitty
as if the provisions of the Act relating to the continuance of the chitty had been complied with.
2. It will be noticed that, but for the order, Ext. P. 3, the defendant bank would have had to return to the plaintiff the contributions made by him;
and the suit is for the recovery of these contributions totalling Rs. 1,600/- with interest thereon amounting to Rs. 94.66 from 10th December 1960,
the date of default. The defendant bank, is of course, willing to continue the chitty and pay the plaintiff the prize amount due to him on his furnishing
security for future subscriptions as required by the variola, but, to this course, the plaintiff is not agreeable. He insists that the chitty has terminated,
and, while he would take advantage of the scheme of shouldering the defendant bank with the liability to pay him the contributions made by him, he
impugns Ext. P. 3 as ultra vires sub-section (101 of Section 45 of the Banking Companies Act and the sub-section itself as bad for the vice of
excessive delegation.
3. It is not necessary to set out at any length the averments in the plaint, written statement and replication, for, before me, the parties have agreed
to go to trial on the question of the validity of Ext. P. 3, and of sub-section (10) of Section 45 of the Banking Companies Act under which it was
made, although the issue settled by the learned Munsiff cover other controversies as well. These issues are:
1. Whether the suit is not maintainable?
2. Whether there is a demand for the amount claimed in the plaint?
3. Whether the plaintiff offered security for the chitty amount?
4. Whether the chitty collapsed due to the default of the foreman?
5. Whether the alleged moratorium prevented the foreman from conducting or continuing the chitty?
6. Whether the Kottayam Orient Bank Ltd., (Amalgamation with the State Bank of Travancore) (Removal of Difficulties) Order 1961 relied in
para 5 of the written statement is void illegal and ultra vires of the powers of the Central Government?
7. Whether the conduct of the chitty is ''Banking'' within the meaning of the Banking Companies Act?
8. Whether the scheme of amalgamation which authoreises to continue the chitty is void and ultra vires of the provisions of the Banking Companies
Act ?
9. Whether the Order of 1961 is outside the scope of Section 45(10) of the Banking Companies Act?
10. Whether the chitty terminated under the provisions of the Chitties Act of 1120 can be revived by this Order of 1961 relied on in para 5 of the
written statement?
11. Whether clauses 2 to 4 of the Order of 1961 are in excess of the powers contained in Section 45(10) of the Banking Companies Act?
12. Whether the plaintiff is not entitled to sue for the paid up subscriptions?
13. Whether the plaintiff is not entitled to claim veethapalisa or interest?
14. Reliefs and costs?
Additional Issue 15. Whether the Section 45(10) of the Banking Companies Act is ultra vires for the reasons given in paragraph 8 of the
replication filed by the plaintiff?
As I have indicated The parties have gone to trial on issues 6, 9, 10, 11 and 15 and have given up the contentions embodied in the remaining
issues.
4. Issues 6 9, 10 and 11 mean much the same thing. The question is whether the impugned order, Ext. P. 3, falls within the scope of sub-section
(10) of Section 45 of the Banking Companies Act. On a plain reading of the sub-section I have no doubt that it does.
5. What the impugned order docs has already been staled by me and it is hardly necessary to set out and consider its individual clauses. Now,
what sub-section 10 of Section 45 of the Banking Companies Act says L this:
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 appears to it necessary or expedient for the purpose of removing the difficulty.
The requirements of the sub-section arc:
(1) That a difficulty should arise in giving effect to the provisions of the scheme;
(2) That the order to be made must be such as appears to the Central Government to be necessary or expedient for the purpose of removing the
difficulty; and
(3) That the order must not be inconsistent with any of the provisions of the scheme.
These requirements seem to me amply satisfied in this case. With regard to the first and the second, the impugned order stales that, by reason of
the order of moratorium in respect of the Kottayam Orient Bank Ltd., for the period from the 18th December 1960 to the 16th June 1961, that
bank was unable to conduct, during that period, the chitties which it was previously conducting as foreman, and that since under the scheme
framed, the rights, duties and obligations of the Kottayam Orient Bank Ltd. had been transferred to the defendant bank, difficulty would arise in
giving effect to the scheme unless some suitable arrangement was made for the continuance and the conduct of the chitties. It is clear from the
language of the sub-section that what has to be done for the purpose of removing any difficulty is what appears to the Central Government to be
necessary or expedient for the purpose and it would appear from the decisions in I. T. Commissioner v Ramgopal Mills Ltd., (A. T. R. 1961 S.C.
338) and Mahalakshmi Mills Ltd. v C. L T. Bombay North ((1964) 1 S.C. J. 23), that whether there is any difficulty or not is primarily a matter
for the authority concerned (in this case the Central Government) to decide-- its decision, it would seem, is open to challenge only on the ground of
mala fides. But, however that might be, it is obvious that in the present case a difficulty did arise in giving effect to the provision of the scheme in so
far as the conduct of the chitties for which the Kottayam Orient Bank Ltd., was acting as foreman was concerned. 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 chitties 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 installments 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 Chitties 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 L no use saying 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.
6. Turning now to the third requirement, there is nothing in the impugned order which is inconsistent with the provisions of the scheme. On the
contrary as we have already seen, the impugned order only furthers the object of the scheme. The scheme provides that the defendant bank shall
become the foreman of the chitties conducted by the Kottayam Orient Bank Ltd. and shall -continue to exercise all powers and do all such acts
and things in respect of the chitties as would have been exercised by the latter bank. It is said that the chitty having terminated, the Kottayam
Orient Bank Ltd. would have been obliged, both under the terms of the variola and the provisions of the Chitties Act, to return to the unprized
subscribers the contributions made by them and that since the impugned order, of set purpose, dees, away with this obligation it is necessarily
inconsistent with the provisions of the scheme. But this argument forgets that the Kottayam Orient Bank Ltd. could have continued the chitty as if it
had not terminated by securing a prolongation of the chitty, either by obtaining the consent of all the subscribers or by the special resolution
contemplated by Section 13 of the Chitties Act and clause 29 of the variola. It is this prolongation that the impugned order secures and the object
of the scheme being, as I have already said, to continue the chitties, a prolongation of the chitty to achieve that object cannot be regarded as
inconsistent with the provisions of the scheme.
7. It is next contended that wide though the language of the sub-section might be, it should not, in the absence of express provision in that behalf,
be read as authorising interference with legal rights much less as authorising interference with the provisions of a statute. Although this might not be
a material consideration on this aspect of the case, I might observe at the outset, with reference to this contention, that notwithstanding the non-
obstante clauses in the impugned order in respect of the Chitties Act, the order does not really affect that statute although it does alter the
contractual rights of the subscribers as embodied in the variola. As clauses (2) and (14) of Section 3 of the Chitties Act indicate, a chitty comprises
several similar contracts entered into between the foreman on the one hand and each individual subscriber on the other. It is open to the contracting
parties, namely, the foreman and the subscriber, to vary the contract, but, of course, the rights of others who are not parties to the variation, will
not be affected there by. And, so long as all the subscribers agree, it is open to the foreman, to suspend or prolong a chitty for a period. There is
nothing in the Chitties Act which prevents this, and Section 13 of that Act like, for example, Section 391 of the Companies Act, is only an enabling
provision by which a variation of the variola, effected by a resolution passed by the requisite majority of the subscribers, is made binding on all the
subscribers, even on those who are not parties to the variation. Therefore, the position is that while the impugned order has made a variation of the
variola it has, in truth made no alteration to the statute.
8. If express provision for making a variation of a contract or a statute were necessary, that I think is to be found in sub-section (14) of Section 45
of the Banking Companies Act. That sub-section says:
The provisions of this section and of any scheme made under it shall have effect notwithstanding anything to the contrary contained in any other
provisions of this Act or in any other law or any agreement, award or other instrument for the time being in force.
It is true that this sub-section does not say that an order under sub-section (10) shall have effect notwithstanding anything to the contrary contained
in any other law or agreement while it says that of a scheme made under the section, but then it does say that the provisions of the section shall
have effect notwithstanding anything to the contrary contained in any other provisions of the Act or in any other law or any agreement. Sub-section
(10) of the section is part of the section and if sub-sections (10) and (14) are read together the effect would be as if sub-section (10) had said:
If any difficulty arises in giving effect to the provisions of the scheme, the Central Government may, notwithstanding anything to the contrary
contained in any other provisions of this Act or in any other law or any agreement, award or other instrument for the lime being in force, by order
do anything not inconsistent with such provisions (namely, the provisions of the scheme) which appears to it necessary or expedient for the purpose
of removing the difficulty.
Therefore sub-section (10) read with sub-section (14) expressly authorises the Central Government to make an order for removing the difficulty
notwithstanding anything contained in any other law or agreement. It necessarily follows that the provisions of the order must prevail over any other
law or agreement.
9. I find these issues in favour of the defendant-bank and hold that the impugned order Ext. P. 3, is within the competence of the Central
Government under sub-section (10) of Section 45 of the Banking Companies Act. Further, that unless that sub-section is bad, the order is valid
and binding on the plaintiff. It will be noticed in this connection that, by reason of sub-section (8) of the section, the constitutionality of which is not
challenged, a scheme framed thereunder is binding not merely on the banking companies that are amalgamated but also on all persons, of any
description whatsoever, having any right or liability in relation to any of the amalgamated companies.
10. Issue 15. A provision for the removal of difficulties similar to sub-section (10) of Section 45 has become a common feature of legislation and it
is not contended that such a provision is in itself bad. What is contended is that if the sub-section read with sub-section (14) is to be so construed
as to authorise interference with legal rights or the provisions of other laws, then it must be struck down as a delegation of the essential legislative
function which under Article 245 of the Constitution, is entrusted, to Parliament and the State Legislatures in their respective fields.
11. I think that the following extracts from two decisions of the Supreme Court are sufficient to repel this contention:
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. It is open to the legislature to formulate the policy as broadly and with as little or as much details as it thinks proper and it may
delegate the rest of the legislative work to a subordianate authority who will work out the details within the frame-work of that policy.
So long as a policy is I aid down and a standard established by statute, no constitutional delegation of legislative power is involved in leaving to
selected instrumentalities the making of subordinate rules within prescribed limits and the determination of facts to which the legislation to apply.
(Vide A. L. A. Schechter Poultry Corp. v United States, 295 U. S. 459)
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The decisions clearly lay down that the legislature cannot part with its essential legislative function which consists in declaring its policy and making
it a binding rule of conduct A surrender of this essential function would amount to abdication of legislative powers in the eye of law. The policy may
be particularised in as few or as many words as the legislature thinks proper and it is enough if an intelligent guidance is given to the subordinate
authority. The Court can interfere if no policy is discernible at all or the delegation is of such an indefinite character as to amount to abdication, but
as the discretion vests with the legislature, in determining whether there is necessity for delegation or not, the exercise of such discretion is not to be
disturbed by the Court except in clear cases of abuse.
Per Mukherjea, J. in In re Art. 143, Constitution of India, etc. (A. I. R. 1951, S. C 332 at p. 400, Paragraphs 243 and 246).
In our opinion, the majority view (in In re Art. 143, Constitution of India, etc., (A.I.R. 1951 S. C. 332) was that an executive authority can be
authorised to modify either existing or future laws but not in any essential feature. Exactly what constitutes an essential feature cannot be enunciated
in general terms, and there was some divergence of view about this in the former case, but this much is clear from the opinions set out above; it
cannot include a change of policy.
Per Bose J. in Rajnarain Singh v Chairman, P. A. Committee (A. I. R. 1954 S. C. 569).
12. I have already shown that the impugned order does not in truth modify any of the provisions of the Chitties Act, far less does it effect any
change in the policy of that statute. What it does do is to modify the contract between the foreman bank on the one hand and the subscribers on
the other; and the question whether if sub-section (10) of Section 45 of the Banking Companies Act were to be so construed as to authorise a
modification of any other law, that would amount to excessive delegation, does not really arise. But if it does, I would have little hesitation in
holding that the impugned sub-section comes within the bounds of permissible delegation.
13. For the rest, it is sufficient to point out that the essential legislative function of declaring the policy and making it a binding rule of conduct is
done by the section itself and is not surrendered under sub-section (10) to the Central Government. It is not as if the Central Government can
make any order it pleases under the sub-section and thereby alter contractual or other rights. The policy and the guiding principles are clearly laid
down, and only the details are left to the Central Government. The order to be made under the sub-section can only be for the purpose of
removing a difficulty that arises in giving effect to the provisions of the scheme and it must be necessary or expedient for that purpose. What the
scheme can do is laid down with great particularity in sub-section (5) of the section and among the many things it can do is a reduction or other
alteration of the interest and rights of the depositors and other creditors of the banking company concerned. The scheme can thus alter the contract
between the banking company and its creditors, and, under sub-section (8), the contract so altered is binding on both parties. It is only a difficulty
that arises in the working of the scheme in its many details that the Central Government is empowered to remove and as I have already observed it
does not seem to me that there is any abdication of the essential legislative function.
14. I answer this issue in the negative. In the result I dismiss the suit with costs.