All India Bank Officers ... vs State Bank Of India on 13 October, 2010

Madhya Pradesh High Court

HIGH COURT OF MADHYA PRADESH : JABALPUR.

Writ Petition No.10789/2009

All India Bank Officers' Association and others

-Versus-

State Bank of India and others.

PRESENT :

Hon'ble Shri Justice S.R.Alam, Chief Justice.

Hon'ble Shri Justice Alok Aradhe, Judge.

Shri Ashok Lalwani, Advocate for the petitioners.

Shri R.N. Singh, Senior Advocate along with

Shri Ashish Shroti, Advocate for the respondent No.1.

Shri Rohit Arya and Shri S.K. Rao, Senior Advocates along with Shri Sanjay Lal and Shri Sanjeev

Chaturvedi, Advocates for the respondent No.2.

ORDER

( 13.10.2010)

PER : S.R. ALAM, CHIEF JUSTICE :

By means of this petition filed as public interest litigation the petitioners have challenged the action of the respondents No.1, 3 and 4 acquiring the business of the respondent No.2 under Section 35 of the State Bank of India Act, 1955 [hereinafter referred to as `the 1955 Act'] after declaring Sub-Section (13) of Section 35 of the 1955 Act as partially ultra vires and further have prayed for staying the proceedings pertaining to acquisition of the State Bank of Indore by the State Bank of India under the aforesaid provision vide letter dated 20-6-2009, Annexure-P/1.

2. Admitted facts for adjudication of the issues involved in this petition which lie in a narrow compass, are that the respondent No.2 2

which initially was Bank of Indore Limited was subsequently under the provisions contained in the State Bank of India (Subsidiary Banks) Act, 1959 [for brevity `the 1959 Act'] which came into force with effect from 10-9-1959, was constituted as a new bank, i.e., State Bank of Indore under Section 3 of the 1959 Act. The Board of Directors of the respondent No.2 in its meeting dated 19-6-2009 resolved to approach the State Bank of India for initiating necessary formalities to acquire the State Bank of Indore by the State Bank of India. The aforesaid resolution was considered by the State Bank of India in its meeting held on 19-6-2009. Thereafter, the Central Board of State Bank of India considered the matter and approved the aforesaid proposal and resolved to acquire the State Bank of Indore in exercise of power under Section 35 of the 1955 Act subject to the approval of the Scheme framed by the Reserve Bank of India. The Central Government also accorded its sanction for entering into negotiation for acquisition of business, assets and liabilities of the State Bank of Indore, respondent No.2, vide order dated 8-2-2009. Thereafter negotiations between the two, i.e., State Bank of India and State Bank of Indore were held and the proposed scheme of acquisition was framed and approved by the Board of Directors of both the banks on 31-10-2009.

3. The petitioner No.1 claims to be All India Bank Officers' Association, whereas the petitioner No.2 is the office bearer of the respondent No.2. Petitioner No.3 claims to be the shareholder of the State Bank of Indore and the petitioner No.4 claims to be a social organisation of citizens of Indore established in the year 1959. Petitioner No.5 claims to be the Director (Workmen) of the State Bank of Indore, respondent No.2. The petitioners being aggrieved by the aforesaid action for amalgamation of the respondent No.2 with the respondent No.1, have filed the instant writ petition seeking the aforesaid reliefs. 3

4. As per pleadings, the case of the petitioners is that Section 35 of the 1955 Act does not empower the respondent No.1 to acquire the business of the respondent No.2. It has further been asserted in the writ petition that Section 35(13) of the 1955 Act which defines the expression `banking institution' does not include the subsidiary banks. It is further averred in the writ petition that the action of respondent No.1 in acquiring the business of the respondent No.2 is in violation of Article 14 of the Constitution of India, as it has applied the method of pick and choose and other similarly placed banks constituted under Section 3 of the 1959 Act have been left untouched.

5. On the other hand, the respondent No.1 in its return, inter alia, contended that the Central Government has yet to issue an order as contemplated under Section 35(2) of the 1955 Act. It has further been pointed out that writ petition filed by the petitioners No.3 and 5 before the Indore Bench of this Court has already been dismissed. The order passed by the learned Single Judge of Indore Bench has been upheld in appeal by a Division Bench. There is no concluded cause of action available to the petitioners for filing of the instant writ petition. It has further been averred that none of the petitioners has locus to file the instant petition before this Court. It has also been stated that in the writ petition no factual or legal ground has been pleaded for declaring Section 35(13) of the 1955 Act as ultra vires.

6. It has also been asserted in the return that the resolution for acquisition of the State Bank of Indore by the State Bank of India was also accepted and approved by the Board of Directors of the State Bank of India on 31-102009 in exercise of power conferred under Section 35 of the 1955 Act. The proposed scheme provides for a grievance redressal procedure. As many as 25 objections were received out of which 21 objections were lodged by the shareholders of the respondent No.1, State Bank of India whereas only four objections were duly examined by the 4

expert committee and they were rejected. The report of the expert committee was approved by the Board of Directors of both the banks and thereafter the scheme was sent to the Reserve Bank of India on 21-12-2009. The Reserve Bank of India suggested some modifications which were duly carried out and revised scheme of acquisition was approved by the Board of both the banks on 19-02-2010 which was again sent to the Reserve Bank of India and the same was approved by the Reserve Bank of India and thereafter the scheme was sent for approval of the Central Government. It has further been averred that contention of the petitioners that expression `banking institution' defined under Section 35(13) of the 1955 Act would not include subsidiary banks is unfounded.

7. Shri Ashok Lalwani, learned counsel appearing for the petitioners vehemently contended that since the respondent No.2 is altogether a new bank constituted under Section 3 of the 1959 Act, therefore, it being a subsidiary bank is not covered within the meaning of `banking institution' as defined under Section 35(13) of the 1955 Act and hence, its business cannot be acquired by the respondent No.1, State Bank of India. His contention is that merger of the respondent No.2 with the respondent No.1 can only be done after amending the 1955 Act. It was argued that the proposal for acquisition of respondent No.2 ought to have been initiated by the respondent No.1 whereas in the instant case the respondent No.2 approached the respondent No.1 for acquisition of its business. However, during course of arguments a query was put to the learned counsel for the petitioner with regard to challenge to vires of Section 35(13) of the 1955 Act, he fairly submitted that the writ petition has not been drafted by him and, therefore, there is no effective pleading to that effect in the writ petition. However, he stated that his submission would be confined only to proper interpretation of Section 35(13) of the 1955 Act. He further submitted that the petitioners have locus to challenge the acquisition of business of the respondent No.2 by the respondent No.1.

It was also submitted by the learned counsel for the petitioners that burden was on the respondents to produce the documents which are in their possession to satisfy that acquisition of business of the respondent No.2 by the respondent No.1 has taken place in accordance with Section 35 of the 1955 Act. In support of his submissions, learned counsel for the petitioners has placed reliance on the decisions of the Supreme Court rendered in S.P. Gupta vs. President of India and others, AIR 1982 SC 149; M.S. Jayaraj vs. Commissioner of Excise, Kerala and others, (2007) 7 SCC 552; Raghunathi vs. Raju Ramappa Shetty, AIR 1991 SC 1040; and Gopal Krishnaji Ketkar vs. Mohamed Haji Latif, AIR 1968 SC 1413.

8. On the other hand, Shri R.N. Singh, learned Senior Counsel for the respondent No.1 while opposing the submissions made on behalf of the petitioners submitted that except the question with regard to validity of Section 35(13) of the 1955 Act, all the reliefs were subject-matter of writ petition which was filed before the Indore Bench of this Court and it was dismissed by the learned Single Judge. The aforesaid order has been upheld by the Division Bench in appeal. It has further been submitted by the learned Senior Counsel that the petitioners have failed to challenge the Notification, dated 28-72010 issued under Section 35(2) of the 1955 Act and, therefore, the same has attained the finality. No ground with regard to challenge validity of Section 35(13) of the 1955 Act has been pleaded in the writ petition. It has further been contended that the respondent No.1 holds 98.05% shares with the respondent No.2 and the petitioners have failed to show that any element of public interest is involved in the instant writ petition. Learned Senior Counsel has drawn our attention to various provisions of the 1955 Act as well as 1959 Act and contended that Section 65 of the 1959 Act cannot prevail over Section 3 of the 1955 Act. In support of his submissions, learned Senior Counsel has placed reliance on the decisions rendered in Grand Kakatiya Sheraton Hotel & Towers Employees & Workers Union vs. Srinivasa 6

Resorts Ltd., (2009) 5 SCC 342; State of Maharashtra vs. Bharat Shantilal Shah and others, (2008) 13 SCC 5; Mardia Chemicals Ltd. and others vs. Union of India and others, (2004) 4 SCC 311 and Seth Nand Lal and another vs. State of Haryana and others, 1980 Suppl. SCC 574.

9. Shri Rohit Arya, learned Senior Counsel for the respondent No.2 has drawn our attention to various provisions of the 1955 Act as well as provisions of the 1959 Act and submitted that Section 2(h) of the 1955 Act which defines the expression `subsidiary bank' was incorporated in the 1955 Act by way of an amendment which came into force on 10-9-1959. It has further been contended that the respondent No.2 falls within the definition of `banking institution' as defined under Section 35(13) of the 1955 Act. In order to ascertain whether an institution would be a banking institution within the meaning of Section 35(13) of the 1955 Act the test which is to be applied is whether the institution is carrying on the business of banking or not. Respondent No.2 is admittedly carrying on business of banking and merely because it is a subsidiary bank does not cease to be a banking institution. In support of his submissions learned Senior Counsel has placed reliance on the decision rendered in Hindustan Lever Employees' Union vs. Hindustan Lever Ltd., AIR 1995 SC 470 and has contended that while examining the cases of merger the only yardstick which is to be applied is whether or not the merger or acquisition has taken place in accordance with law.

10. Shri S.K. Rao, learned Senior Counsel appearing for the respondent No.2 has supported the submissions made by Shri Rohit Arya, learned Senior Counsel and contended that in the matters of policy no interference should be made by the Court. In support of his submissions the learned Senior Counsel has placed reliance on the decisions rendered in Kansing Kalusing Thakore and others vs. Rabari Maganbhai Vashrambhai and others, (2006) 12 SCC 360; Balco 7

Employees' Union (Regd.) vs. Union of India and others, (2002) 2 SCC 333; K.A. Nagamani vs. Indian Airlines, (2009) 5 SCC 515; Indian Airlines Officers' Association vs. Indian Airlines Ltd. and others, (2007) 10 SCC 684; and Raunaq International Ltd. vs. I.V.R. Construction Ltd. and others, AIR 1999 SC 393.

11. We have considered the submissions advanced on both sides. Before adverting to the submissions it would be apt to have a glance of the relevant provisions of both the Acts, i.e., 1955 Act and 1959 Act. The State Bank of India Act, 1955 is an Act to constitute a State Bank of India to transfer to it the undertaking of the Imperial Bank of India and to provide for other matters connected therewith or incidental thereto, Whereas the 1959 Act was enacted to provide for the formation of certain Government or Government associated banks as subsidiaries of the State Bank of India and for the constitution, management and control of the subsidiary banks so formed, and for matters connected therewith, or incidental thereto. Section 2(h) of the 1955 Act defines expression 'subsidiary bank' to mean a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959. Section 35 (1) of the 1955 Act provides that the State Bank may, with the sanction of the Central Government, and shall, if so directed by the Central Government in consultation with the Reserve Bank of India, enter into negotiations for acquiring the business, including the assets and liabilities, of any banking institution. Sub-section (2) of Section 35 provides for the terms and conditions relating to such acquisition, if agreed upon by the Central Board of the State Bank and the directorate or management of the banking institution concerned, and if the same is approved by the Reserve Bank of India, the same shall be submitted to the Central Government for its sanction which may, by order in writing, accord its sanction thereto. Section 35 (1) of the 1955 Act reads as under:

"35. State Bank may acquire the business of

other banks. -

(1) The State Bank may, with the sanction of the Central Government, and shall, if so directed by the Central Government in consultation with the

Reserve Bank, enter into negotiations for acquiring the business, including the assets and liabilities, of any banking institution."

12. Now let us have a look to the provisions contained in the 1959 Act. Section 3 of the 1959 Act deals with establishment of new bank. It provides that with effect from such date, as the Central Government may, by notification in the Official Gazette, specify in that behalf there shall be constituted new banks which are enumerated therein. State Bank of Indore has been mentioned as a new bank in Section 3 of the 1959 Act. Section 7 (2) of the 1959 Act provides that all shares in the issued capital of a new bank shall, on the appointed day stand allotted to the State Bank. Section 7(7) provides that no increase or reduction in the issued capital of a new bank shall be made in such a manner that the State Bank holds at any time less than fifty-one per cent of the issued capital consisting of equity shares of the new bank. Section 24 provides that State Bank may, from time to time, give directions and instructions to a subsidiary bank in regard to any of its affairs and business, and that bank shall be bound to comply with the directions and instructions so given. Section 36 of the Act provides that subsidiary bank shall, if so required by the State Bank, act as an agent of the State Bank at any place in India. Section 38 provides for acquisition of business of other banks. Sections 38 (1) and 38 (14) of the 1959 Act are pari materia to Sections 35(1) and 35(13) of the 1955 Act. Section 65 of the 1959 Act provides that nothing in this regard shall be deemed to affect the provisions of Section 35 of the 1955 Act.

13. It is well settled legal position that where a challenge is made to a statutory provision, allegations in the writ petition must be specific, clear and unambiguous, and there must be proper pleadings. This view of ours finds support from the observation of a three-judge Bench decision of the 9

apex Court rendered in Ashutosh Gupta vs. State of Rajasthan and others, (2002) 4 SCC 34 wherein their Lordships while considering the challenge of validity of Rule 25 of the Rajasthan Administrative Service (Emergency Recruitment) Rules, 1976 has held that where the challenge is made to a statutory provision being discriminatory, allegations in writ petition must be specific, clear and ambiguous. There must be proper pleadings and averments in the substantive petition before the question of denial of equal protection of infringement of fundamental right can be decided. There is always a presumption in favour of the constitutionality of enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles. From perusal of the averments made in the writ petition, we find that petitioners have neither pleaded any factual nor any legal ground to assail the validity of Section 35 (13) of the Act. Thus, in absence of any foundation in the pleadings with regard to challenge to Section 35 (13) of the 1955 Act, vires of the provision cannot be examined. The only contention which has been raised on behalf of the petitioners with regard to interpretation of Section 35(13) of the 1955 Act is that since the respondent No.2 is a subsidiary bank, it would not be a banking institution within the meaning of Section 35(13) of the 1955 Act. A close scrutiny of Section 35(13) of the 1955 Act reveals that definition of banking institution is inclusive and it includes any individual or any association of individual (whether incorporated or not, or whether a department of Government or a separate institution) carrying on the business of baking. Thus, if any individual or any association of individual, whether incorporated or not, is carrying on the business of banking the same shall fall within the purview of banking institution. Thus, in order to determine whether an institution is a banking institution within the meaning of Section 35 (13) of the 1955 Act, the test which is required to be applied is whether the institution is carrying on the business of banking or not. Undisputedly, respondent No.2 is carrying on the business of banking. Thus, it is a banking institution within the 10

meaning of Section 35 (13) of the Act. For the aforementioned reasons, the contention of the learned counsel for petitioners that Section 35 of the 1955 Act does not empower the respondent No.1 to acquire the business of a subsidiary bank, cannot be accepted.

14. Petitioner has also challenged acquisition of business of respondent No.2 by respondent No.1 on the ground that procedure prescribed under Section 35 of the 1955 Act has not been followed inasmuch as respondent No.2 approached the respondent No.1 for acquisition of its business whereas respondent No.1 was under an obligation to initiate the procedure for acquisition. From perusal of the provisions of Sections 35 (1) and 35(2) of the 1955 Act, we are unable to decipher any such requirement as has been contended on behalf of the petitioners. Requirement of acquisition of the business under Section 35(1) of the 1955 Act is that terms and conditions relating to acquisition should be agreed upon by the Central Board of both the Banks and should be approved by the Reserve Bank of India and has to be sanctioned by the Central Government. From averments made in paragraphs 9 to 12 of the return, we find that aforesaid procedure under Sections 35(1) and 35(2) has been followed. Therefore, the challenge to acquisition of the business of respondent No.2 by respondent No.1 on this ground must also fail. So far as the contention of learned counsel for the petitioners that until and unless the 1995 Act is amended the business of respondent No.2 cannot be acquired is concerned, the same cannot be accepted as Section 3-A of the 1959 Act provides for change of name of the subsidiary bank after acquisition of its business. We have been informed by learned counsel appearing for the respondents that necessary Notification under Section 3-A of the 1959 Act would be shortly issued. Thus, the aforesaid contention of the learned counsel for the petitioners can also not be accepted.

15. We have been informed at the Bar that the Central Government has already issued an order under Section 35 (2) of the 1955 Act on 28.7.2010, namely, Acquisition of State Bank of Indore Order, 2010. Aforesaid order shall come into force within a period of thirty days from the date of its publication in the gazette. The petitioners have not challenged the validity of the aforesaid order in the instant writ petition. For this reason also no relief can be granted to them.

16. From perusal of averments made in the writ petition, we find that petitioners have failed to disclose the element of public interest involved in the instant writ petition. The expression "public interest litigation" has been defined in Stroud's Judicial Dictionary, Vol.4, 4th Edition in the following terms:-

"Public interest.- (1) A matter of public or general interest does not mean that which is interesting as gratifying curiosity or a love of information or amusement; but that in which a class of the

community have a pecuniary interest, or some

interest by which their legal rights or liabilities are affected."

In Black's Law Dictionary, 6th Edition "public interest" is defined as follows:-

"Public interest.- Something in which the public, the community at large, has some pecuniary

interest, or some interest by which their legal

rights or liabilities are affected. It does not mean anything so narrow as mere curiosity, or as the

interests of the particular localities, which may be affected by the matters in question. Interest shared 12

by citizens generally in affairs of local, State or national Government."

17. In the case in hand from a careful reading of the averments made in the pleadings of the writ petition it is apparent that neither any fact has been pleaded nor any material has been brought in support thereof to show that any legal rights of public in general are being affected or any pecuniary loss or any loss is going to be caused to the public at large. Thus, the instant writ petition cannot be treated as public interest litigation.

18. On the contrary, it appears that before the Grievance Redressal Forum out of 25 objections 21 were lodged by shareholders of the respondent No.1 whereas only 4 objections were made on behalf of the shareholders of the respondent No.2. It can safely be inferred that the majority of the shareholders of respondent No.2 were not aggrieved in any manner with the merger of the respondent No.2 to the respondent No.1. Even, neither officers nor employees of the respondent No.2 have agitated any grievance before the Grievance Redressal Forum.

19. Therefore, the instant petition, in our considered view, cannot be said to be a genuine public interest litigation. That apart, admittedly, in respect of grievance made in this petition, a writ petition forming the subject-matter of W.P. No. 4233/2009 was filed before the Indore Bench of this Court which was dismissed by the learned Single Judge vide order dated 22-7-2009. The said order was also assailed in appeal vide Writ Appeal No.303/2009 which was dismissed by the Division Bench. It has rightly been contended on behalf of the respondents No.1 and 2 that the petitioners were aware about the dismissal of the aforesaid writ petition yet, they did not disclose the same in this petition and filed another public interest 13

litigation before the Principal Seat of this Court at Jabalpur. It is very difficult to hold that the petitioners were not aware of the aforesaid proceedings. We are also of the view that in absence of even an iota of public interest, the petitioners should not have ventured to file this petition as public interest litigation.

20. Recently, the apex Court has taken note of filing of frivolous public interest litigation has observed that minimum court can do is to impose exemplary costs. [See State of Uttaranchal vs. Balwant Singh Chaufal and others, (2010) 3 SCC 402.] . In the instant case also nothing has been shown from which even remotely, it could be said that issue raised by the petitioners is connected with public interest. Thus, filing of such petition in the garb of public interest litigation amounts to sheer abuse of process of this Court and to curb this practice it is necessary that the petition should be dismissed with exemplary costs, which we quantify at Rs.10,000/- (Rupees ten thousand) only.

21. Thus, from the aforementioned reasons we do not find any merit in the writ petition. The same deserves to and is hereby dismissed with the costs quantified as above.

(S.R. Alam) (Alok Aradhe) Chief Justice Judge

ks/ac.

HIGH COURT OF MADHYA PRADESH : JABALPUR.

Writ Petition No.10789/2009

All India Bank Officers' Association and others

-Versus-

State Bank of India and others.

ORDER FOR CONSIDERATION :

(S.R. Alam)

Chief Justice

12/10/2010

HON'BLE SHRI JUSTICE ALOK ARADHE :

(Alok Aradhe)

Judge

12/10/2010

ORDER POST FOR : 13-10-2010

(S.R. Alam)

Chief Justice

/10/2010