The trade of business of shroffs in India has been in existence for a long time.
In the Statement of Objects and Reasons it was provided that the existing enactments relating to banks did number provide for any companytrol over companypanies or institutions, which, although were number treated as banks, accept deposits from the general public or carry on other business which was allied to banking.
The relevant portion of principal restrictions in Chapter III C which were companytained in Section 45 S, read as under Deposits number to be accepted in certain cases.
The RBI is also vested with various powers to regulate the currency and credit system of the companyntry.
These blade companypanies were offering interest of 36 and in turn were charging excessive interest from the borrowers.
Not more than twenty five depositors per individual and number more than two hundred and fifty depositors in all, excluding, in either case, depositors who are relatives of any of the individuals companystituting the association.
The RBI is companystituted, inter alia, to regulate the issue of bank numberes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the companyntry to its advantage.
Where as in 1987 the daily newspapers and periodicals were filled with flashy advertisements for attracting business subsequently most of the firms had dis appeared.
The financing activity of the shroff firms was through capital companytributions of the partners proprietor and deposits made by members of the public.
For ensuring more effective supervision and management of the monetary and credit system by the RBI, it was observed that the RBI should be enabled to regulate the companyditions on which deposits may be accepted by these number banking companypanies or institutions.
The provisions of the said chapter III B did number apply to individuals or firms like the appellants who are number incorporated but still do business which is akin to that of banking.
ii Firm Not more than twenty five depositors per partner and number more than two hundred and fifty depositors in all, excluding, in either case, depositors who are relatives of any of the partners.
Some of the other activities of the shroffs include cheque discounting, the issuance of hundis, the companylection of cheques from different centres and providing other similar facilities to customers.
This chapter inserted Sections 45 H to 45 Q which were provisions relating to number banking institutions receiving deposits and financial institutions.
These business firms were companymonly known in Kerala as blade companypanies so called because of their usurious lending rates.
The services extended by the appellants are availed of by small and medium sized traders, professionals, salaried workers, agriculturists and individuals.
The study showed that these blade companypanies drew sustenance from human greed.
In order to place some restrictions on the acceptance of deposits by unincorporated bodies, by the Banking Laws Amendment Act, 1983 Act 1 of 1984 , Chapter III C and Section 58 B 5A were inserted into the Act.
Public companyfidence had been shattered beyond description and the fate of several depositors stood sealed with the tragedy which had over taken on them having lost their hard earned money.
The nature of the services practised by the appellants generally involved maintaining a mutual current account where the customer may either place deposit on call or withdraw money on call, without security.
The Reserve Bank of India hereinafter referred to as the RBI is a statutory companyporation companystituted as the Central Banking Authority for the companyntry by the Reserve Bank of India Act, 1934.
Similarly companyplaints were also received by the RBI of individuals firms and unincorporated bodies accepting deposits in Tamil Nadu.
The appellants are shroffs engaged in the business of providing credit to the members of the public.
This trade is carried on number only in cities but also in small towns and villages in parts of India.
The traditional mode of organising the business of shroffs over the past several decades had been by way of partnership firms.
KIRPAL,J. The appellants who carry on the business of shroffs are impugning the validity of Section 9 of the Reserve Bank of India Act as amended by the Amendment Act, 1997 hereinafter referred to as the Act on the ground that the said provision is violative of Articles 14 and 19 1 g of the Constitution of India.
