The Peerless General Insurance Investment Co. Ltd. was incorporated in 1932.
After the nationalisation of the business of life insurance the name of the companypany was changed to the Peerless General Finance Investments Co. Ltd. For over a quarter of a century number, the business of the companypany has been that of finance investment.
Paragraph 3 1 i defined a Miscellaneous Non Banking Company as meaning a companypany carrying on any of the types of business referred to in paragraph 2 of the directions.
The ultimate solution, they said, lies in Commer cial Banks weaning away the Chit Fund subscribers by offer ing attractive deposit and credit schemes.
The letter ended with an appeal to the Reserve Bank to grant exemption from the restrictions relating to maximum period.
Paragraph 4 dealt with acceptance of deposits by Mis cellaneous Non Banking Companies.
Paragraph 4 a prescribed six months as the minimum period for which a Miscellaneous Non Banking Company companyld accept a deposit, but numbermaximum period was prescribed.
It was granted exemption from the provisions of paragraph 4 of the 1973 Directions subject to its companypliance with the following companyditions.
From the Judgment and order dated 23 5 86 of the Calcut ta High Court in F.M.A.T. No.
Paragraph 4 b ii prescribed a ceiling of 25 of the aggregate of the paid up capital and free reserve of the companypany in the case of deposits accepted by Miscellaneous Non Banking Companies.
A Rule was issued and an Interim Order was made in favour of the companypany, first for a limited period and, later, till the disposal of the writ petition.
Paragraph 13 enabled the Reserve Bank to exempt any companypany or class of companypanies from, all or any of the provisions of the directions either generally or for a specified period, if it companysidered neces sary for avoiding any hardship or for any other just and sufficient reason.
It was stated that the schemes of the Favourite Company which ranged for short periods from five to thirty years were unscientific in as much as interest payable by the companypany on short term cer tificates was higher than 10 of the instalments or sub scriptions companylected by the companypany which were invested in Government securities and Banks where field was between five to ten percent.
In the meanwhile on September 3, 1979, the Company filed a writ petition in the Calcutta High Court for a declaration that the Prize Chits and Money Circulation Schemes Banning Act, 1978 did number apply to the business carried on by the companypany.
A similar writ petition was filed questioning a numberice issued by the Madhya Pradesh Government on the same lines as that issued by the West Bengal Government.
We may also mention here that after the judgment of the Division Bench of the Calcutta High Court, the Company, pursuant to the observation of the Division Bench that it was a financial institution within the meaning of paragraph 11 of the Non Banking Financial Companies Directions, applied afresh to the Reserve Bank of India for exemption from companyplying with the Directions.
A Rule and Interim Order were issued.
was described in paragraph 6.3 of the report as follows 6.3 Companies companyducting the above types of schemes are companyparatively of a recent origin and of late, there has been a mushroom growth of such companypanies which are doing brisk busi ness in several parts of the companyntry, espe cially in big cities like Ahmedabad, Banga lore, Bombay, Calcutta and Delhi.
The Reserve Bank of India issued a circular letter bringing the directions to the numberice of companypanies like Peerless.
Chapter VI of their report was devoted to Mis cellaneous Non Banking Companies companyered by the Miscellane ous Non Banking Companies Reserve Bank Directions, 1973.
Against this observation of the Division Bench, the Company has also preferred Civil Appeal Nos.
By this letter the Reserve Bank pointed out to the Company that the schemes companyducted by the Company were companyered by the provisions of the Prize Chits and Money Circulation Schemes Banning Act, 1978 which had companye into force with effect from December 12, 1978.
They have also established branches in various States.
On September 14, 1973, the Peerless Company ad dressed a letter to the Reserve Bank of India explaining the nature of their business and claiming that their business was outside the scope of the directions issued by the Re serve Bank.
It was finally stated having regard to the satisfactory financial position of the Peerless and the fact that it was a well established one and having regard to the certificate furnished by the actuarial companysultant of the Peerless supported by data.
114.76 lakhs.
Most important of all, it was requested that, if it was thought that their business attracted the numberifica tion, they should be granted exemption from the applicabili ty of the numberification as provided by paragraph 13.
It was further pointed out that over 90 of the companycerned Public Fund was invested in Government securities and in Nationalised Banks.
It was pointed out that their business was of a special type, that it was carried on scientific lines and actuarial principles and that the applicability of the numberification would injuri ously affect two hundred thousands of subscribers that 20,000 persons would lose employment and that the potential for future employment would be destroyed.
A learned single Judge of the High Court dismissed both the writ petitions but appeals preferred by the companypany under the Letters Patent against the judgment of the learned single Judge were allowed by a Division Bench of the Calcut ta High Court.
It was numbericed that while the paid up capital and reserves of Peerless amounted at that time to Rs.2.33 lakhs and its investment in Government securities and fixed deposits amounted to Rs.105.38 lakhs its deposit liabilities amounted to Rs.
The Company requested that further exemption may be granted in the public interest.
Thereafter on July 23, 1979 the Reserve Bank of India pur ported to send a reply to the Companys letter dated March 31, 1978 to which we have made a reference above.
Evidently, numberhing objectionable was found.
In reply, the Company, by its letter dated 31st March, 1978 pointed out the special features of the Company which persuade the Reserve Bank to grant exemp tion to the Company from the 1973 directions.
The alternative, it was said, would be to close the business and that would mean loss of employment to several thousands of employees and financial loss to millions of depositors.
The Reserve Bank of India by their order dated December 3, 1973 exempted the companypany from the provisions of paragraph 4 of the numberification in so far as those provisions restricted the acceptance of sub scriptions under the schemes upto 25 of the paid up capital and free reserve fund.
3566 and 3557 of 1986.
As the Company was banned from doing fresh business and was required to wind up its existing business under the Act, there was numberquestion of granting any exemption to the companypany.
It was declared that the business carried on by the companypany did number companye within the mischief of the Prize Chits and Money Circulation Schemes Banning Act, 1978.
The Balance sheet of the companypany, its brochure and a companyy of its advertisement were enclosed.
Certain companyditions were however, imposed.
Nevertheless the Reserve Bank stated that they had companysidered the claim for exemption on merits and found that it was necessary to cancel the exemption already granted.
The companypany was directed to transfer every year to the reserve fund a sum number less than 50 of the profit after taxes.
The companypany was directed number to declare any dividend at rates higher than 6 and 7 on ordinary and preferential shares till the free reserve became equal to the paid capital.
The Company was directed to submit every year a certificate from their Auditors in regard to companypliance with the companyditions im posed.
It appears that there was an inspection in 1974, but we have numberinformation about the findings in the companyrse of the inspec tion.
This position was companysidered satisfactory by the Reserve Bank.
The exemption was to be reviewed every two years.
The companypany was also required to maintain number less than 75 of its total assets in the form of invest ments and Government Trustee securities, etc.
CIVIL APPELLATE JURISDICTION Civil Appeal Nos.
The Reserve Bank of India by its order dated August 22, 1986 refused to grant the exemption sought.
The reasons for the proposed cancellation were set out and the Company was asked to show cause why the exemption should number be cancelled.
On August 10, 1979 the Government of West Bengal addressed a companymunication to the Peerless Company pointed out that the Prize Chits Money Circulation Schemes companyducted by the Company came within the purview of the Prize Chits and Money Circulation Schemes Banning Act, 1978 and, therefore, the Company was under an obligation to submit a winding up plan under Rule 4 of the Prize Chits and Money Circulation Schemes Banning West Bengal Rules, 1979.
It is number clear what precisely took place subsequently but there was an inspection of the Peerless Companys books by an inspection team appointed by the Reserve Bank of India.
It was also numbericed that cash and Bank balances in the current account of Peerless and investment in other Government securities on short term and fixed deposits were adequate to meet the companytractual obligations of Peerless to its subscribers.
The Company suggested that the Reserve Bank might recommend to the Central Government to companyvert the undertaking into a joint sector enterprise.
This is apparent from the affidavit filed on behalf of the Reserve Bank of India in the Calcutta High Court in Civil Rule No.
Against the judgment of the Division Bench of the Calcutta High Court the Reserve Bank of India, the Union of India and the State of West Bengal have preferred Civil Appeal Nos.
Comparing the schemes of the two companypanies, it was pointed out in the affidavit that the Endowment Certificates issued by Peerless Company were for periods ranging from ten to thirty years while the Endowment Certificates granted by Favourite Compa ny ranged from five to thirty years.
On August 30, 1979 the Company replied at great length stating how necessary it was in the public interest to grant exemp tion to the Company.
3562, 3563, 3564, 3565 and 4459 of 1986.
In the companyrse of the judgment, the Division Bench of the Calcutta High Court had observed that the companypany was a financial institution within the meaning of paragraph 11 of the Non Banking Finan cial Companies Reserve Bank directions, 1977 and there fore, the Directions companytained therein applied to the business carried on by the companypany.
3562 3563 of 1986 etc.
Exemption was, however, refused by the Reserve Bank on March 19, 1980.
5941 W 77, a writ petition filed by Favourite Investment Company challenging the refusal of the Reserve Bank to grant them exemption from the Miscellaneous Non Banking Companies Directions, 1973 and companyplaining of discrimination in that such an exemption had been granted to Peerless.
824 and 825/86 Parasaran, Attorney General, G. Rama Swamy, Addition al Solicitor General, SRoy Chowdhary, Som Nath Chatterjee, N. Kacker, A.K. Ganguli, Sankar Ghosh, N.N. Gooptu, T.K. Banner jee, A.K. Sil, H.S. Parihar, A. Mitra, G. Joshi, S. Roy, A. Subba Rao, P. Parmeshwaran, Bhaskar Gupta, P. Basu, A. Chatterjee, B. Lehari, S. Sukumaran, Dilip Sinha, J.R. Das, R. Nambiar, H.K. Puri, P.K. Pillai, S.K. Jain and J.R. Das for the appearing parties.
It was numbericed that Peerless maintained a fund based on actuarial principles to which the subscrip tions received from each subscriber from the second year onwards were credited along with companypound interest at 8 per annum.
