Holding

Rounding up of interest rates under Section 26C is illegal; banks may only pass on the statutory tax burden without increasing the contractual rate of interest.

Summary

The Supreme Court examined whether banks could round up the rate of interest on loans to the next 0.25% under Section 26C of the Interest Tax Act, 1974, thereby increasing the tax burden on borrowers. The Court held that Section 26C is merely an enabling provision to allow banks to recover the tax on chargeable interest and does not permit them to increase the contractual rate of interest. Consequently, the practice of grossing up and rounding up interest was declared illegal and beyond the banks' jurisdiction. The Court also rejected the banks' reliance on RBI directions, ruled that the doctrine of de minimis does not apply to the large sums involved, and affirmed the locus standi of the petitioner in the public interest litigation. The appeals by the banks were dismissed and a fund was ordered to be created for the benefit of the affected borrowers.

Issues considered

Whether Section 26C of the Interest Tax Act, 1974 authorises banks to increase the contractual rate of interest by rounding up to the next 0.25%.
Whether the Reserve Bank of India can, by direction, validate such rounding up of interest rates.
Whether the doctrine of de minimis is applicable to the excess interest collected from borrowers.
Whether the petitioner has locus standi to maintain a public interest litigation challenging the rounding up of interest.
Whether the excess interest collected must be refunded to borrowers or deposited with the Union of India.

Legislation cited

Banking Regulation Act, 1949s. 35A
Constitution of Indias. Article 12, s. Article 226, s. Article 265, s. Article 32, s. Article 366(28)
Interest Tax Act, 1974s. 2(5), s. 26C, s. 2(7), s. 4, s. 5

Subjects

Interest Tax ActSection 26CRounding up of interestPublic interest litigationLocus standiDe minimis doctrineUnjust enrichmentReserve Bank of India directionsBanking Regulation ActTax burden on borrowers

Judgment

INDIAN BANKS' ASSOCIATION, BOMBAY AND ORS. A
v.
MIS. DEVKALA CONSULTANCY SERVICE AND ORS.

APRIL 16, 2004

[V.N. KHARE, CJ. AND S.B. SINHA, J.] B

Interest Tax Act, 1974 :

Sections 2(5), 2(7), 4, 5 and 26C-Imposition of tax on total amount of
interest received by Scheduled Banks/Credit Institutions on loans and C '
advances-Grossing up and rounding the interest rate to 0.25% by banks by
applying section 26C-legality of-Held: increase in rate of interest in terms
of Section 26C, has a direct nexus with the statutory impost which must be
definite-Hence, the purported demand from the borrower for a higher amount
of tax .and consequently a higher amount of interest by way of rounding up D
was wholly illegal and without jurisdiction-Banking Regulation Act, 1949-
Section 35-A~onstitution of India, 1950-Article 265 read with Article
366(28)-Interpretation of Statutes.

Section 26C-Grossing up and rounding the rate of interest by banks-
Borrowers deprived of huge amounts-Banks unjustly enriched themselves- E
Principle· of de minimis-App/icability <?f-Held: When unjust enrichment
takes place, doctrine of de minimis should not be applied in equity or
otherwise-Doctrines.

Public interest litigation :
F
Locus standi to maintain-Rule of-Discussed-On facts, grossing up
and rounding the rate of interest by banks and as such borrowers had to pay
higher amount of interest-Writ petition by firm of Chartered Accountant-
Locus of-Held: Petitioner had locus to maintain public interest litigation--
Constitution of India, I950-Artic/es 32 and 226.
G
Interest tax was imposed on the total amount of interest received
by Scheduled Banks/Credit Institutions on loans and advances. Reserve
Bank of India (RBI) directed all Scheduled Commercial Banks that the
incidence of interest tax should pro-rata be passed on· to the borrowers.
225 H
226 SUPREME COURT REPORTS [2004) SUPP. 1 S.C.R.

A Thereafter, the first appellant-Indian Banks' Association proposed that
the rate of interest be loaded with interest tax of 3% and rounded up to
the next higher 0.25% and RBI approved the same. Respondent-firm of
Chartered Accountants representing association of borrowers filed a public
interest litigation challenging the rounding up of interest rate as it
B increased the tax element, hence was illegal and without jurisdiction. High
Court held that rounding up of interest rate to the next higher 0.25% is
illegal and directed RBI to calculate the excess interest collected by banks
and deposit it with the Union of India. Hence the present appeals.

First appellant - Indian Banks' Association, State Bank of India,
C Punjab Nationa.JBank and Canara Bank inter alia contended that having
regard to the provisions contained in Sections 4 and 5 of the Interest Tax
Act read with Section 26C thereof, as interest tax was payable on the total .
chargeable interest which was enhanced on the loan in terms of Section
26C, a great deal of difficulties had arisen; that calculations in several steps
was necessary with a view to ensure the retaining of interest at the
D contractual rate; that since the calculation would come to an impossible
fraction, the revised rate had to be rounded up for easy calculation in
collection; that the appellants had realised in.terest in terms of Section 26C
which was authorised by RBI; that as the appellants have merely collected
a higher rate of interest to which they were entitled to in terms of the loan
E agreements, as the RBI only fixes minimum rate, the same had no nexus
with collection of tax within the meaning of Article 265 of the Constitution;
and that the increase in the rate of interest being of not much significance,
the doctrine of de minimus is applicable. .

Reserve Bank of India contended that rounding up of interest was
F permitted having regard to the practical difficulties faced by the banks
but the same has been withdrawn since 1997; and that keeping in view
the fact that there are five crores borrowers throughout India, it may not
be feasible to comply with the directions issued by High Court.

Union of India contended that the appellants had not only paid to
G the Government interest tax on the gross interest, which is, rounded off
cum tax interest rate collected by them but also ret~ined some parts
thereof; and that as the amount belongs to the ultimate borrowers, it
should be returned to them and if it is not feasible, it should be paid over
to the Government.

H Respondent No. I contended that Section 26C of the Act, if properly
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE 227

read, would only mean that the enabling provisions had been made so as A
to enable the appellant-banks to recover the amount of tax from the
borrowers under the Act and nothing more.

Dismissing the appeals, the Court

HELD: 1.1. Section 26C of the Interest Tax Act, 1974 was enacted B
so as to enable the bankers to realize the amount of tax which they were
liable to pay on the chargeable interest. The action of taking recourse to
Section 26C would arise only when the chargeable interest has been
calculated whereupon only the incidence of tax under the said Act is
required to be passed on to the borrowers by way of additfonal interest.
Concededly, in terms of the loan agreement, appellants were not entitled C
to charge interest at a higher rate than the agreed one. Appellants have
proceeded on the basis that having regard to definition of 'chargeable
interest' as contained in Section 2(5) of the Act, the additional interest will
also have to be calculated for the said purpose and the rate of tax must
be calculated thereupon which, resulted in adding of interest for the
purpose of calculation of tax ad infinitum. The entire approach of the D
appellants was based on a wrong premise. (240-A-C-D)

1.2. A taxing statute must be construed reasonably. Interest Tax Act
must, therefore, receive purposive construction so as to give effect to the
purport and object it seeks to achieve. Union of India under the Act cannot
direct or permit the bankers or the financial institutions to raise interest. E
(241-E)

1.3. A statutory impost must be definite. Having regard to Article
265 read with Article 366(28) of the Constitution nothing is realizable as
a tax or by way of recovery of tax or any action akin thereto which is not F
permitted by law. Further, Section 26C being an enabling provision, has
to be so construed, having regard to the term 'lawful' used therein.
Increase in rate of interest in terms of Section 26C of the Act, has a direct
nexus with the statutory impost. Therefore, the action on the part of the
appellants in rounding up of the interest was wholly unjustified. Once it
is held that increase in interest in a justifiable manner pertains to passing G
of the burden of tax, the submission that the same had been done by the
bank in exercise of its contractual power must be rejected. The executive
cannot levy tax. It cannot even take recourse to the process of
interpretation of a statute. (240-H; 241-A-B; D-EJ

Mohan Kumar Singhania and Ors. v. Union of India and Ors., AIR H
228 SUPREME COURT REPORTS [2004] SUPP. I S.C.R.

A (1992) SC 1; Murlidhar Meghraj Loya v. State of Maharashtra, (1976) 3 SCC
684; Superintendent and Remembrancer of Legal Affairs to Govt. of .West
Bengal v. Abani Maity, (1979] 4 SCC 85; Khet Singh v. Union ofIndia, [2002)
4 SCC 380; High Court of Gujarat and Anr. v. Gujarat Kishan Mazdoor
Panchayat and Ors., JT (2003) 3 SC 50; Indian Handicrafts Emporium and
B Ors. v. Union of India and Ors:, JT (2003) 7 SC 446; Ashok Leyland Ltd v.
State of T.N. and Anr., [2004) 3 SCC 1; High Court of Gujarat and Anr. v.
Gujarat Kishan Mazdoor Panchayat and Ors., JT (2003) 3 SC 50;
Commissioner ofCentral Excise, Lucknow, UP. v. Mis Chhata Sugar Co. Ltd.,
(2004) 3 SCALE 6 and Mathuram Aggarwal v. State of Madhya Pradesh
(1999] 8 sec 667, referred to.
c BBC Enterprises v. Hi-Tech Xtravision Ltd., (1990) (2) All ER 118,
referred to.

1.4. The amount of.tax must be calculated having regard to the
contractual rate of interest as thence obtaining and not upon addition of
D the purported interest by way of tax or otherwise. Once Section 26C is
read in a meaningful way, no difficulty arises in giving effect to sub-section
(2) of Section 4 and Sections 5 and 6 of the Act. Appellants cannot submit
that they h~ve exercised the power to claim a higher rate of interest only.
They may have a power to claim a higher rate of interest under the
agret:ment but they did not exercise the said jurisdiction. They invoked
E the enabling provisions contained in Section 26C of the Act and/or raised
rate of interest so as to pass on the burden of tax upon the borrowers.
They, while purporting to exercise their jurisdiction under a statute were
required to act in terms thereof and not in derogation thereto. It is well-
settled that when a procedure has been laid down the statutory authority
F must exercise its power in the manner prescribed or not at all. Appellants
sought to achieve the same object indirectly which they could not do
directly. Therefore, Section 26C must be held to have wrongly been applied
and consequently the action taken by the appellants in grossing up and
rounding the rate of interest is illegal. [242-E-H; 243-A-B)

G 2.1. Section 35A of the Banking Regulation Act empowers the
Reserve Bank of India to issue directions in relation to matters specified
under Section 35A and not for any other purpose. The submission of the
appellants that rate of interest had been _enhanced by them pursuant to
the directions issued by RBI must be held to be self-contradictory as
according to them RBI fixes only the minimum rate of interest leaving a
H determination thereof in a case of each individual borrower upon the bank

(
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE 229
concerned. If the matter relating to increase in the rate of the interest was A
within power of appellants, there was no reason to approach RBI.
(246-D-F)

2.2. Appellants could not have suo motu taken recourse to rounding
up of interest for the purpose of obtaining a higher amount of interest or
otherwise. The purported practical difficulty sought to have been put forth B
by the appellants is a self created one. It cannot be understood as to why
in this modern electronics age, this difficulty would be encountered while
calculating the exact amount of tax. Further, if such practical difficulty
existed there was apparently no reason as to why RBI refused to grant
such approval since 1997. The directions of RBI are not even in the nature C
of executive construction under the said Act. It was not binding on the
banks, far less on the borrowers. In any event by reason of a misplaced
and misapplied construction of statute, a third party cannot suffer.
{246-F-G-H; 247-A)

2.3. Having regard to the provisions contained in Article 265 of the D
Constitution read with Article 366(28) thereof the purported demand from
the borrower for a higher amount of tax and consequently a higher amount
of interest by way of rounding up was wholly illegal and without
jurisdiction. RBI could not have interpreted the provisions of the Interest
Tax Act nor thereby could have empowered the banks to charge something
more from the borrowers by the process of rounding up of interest. E
Appellants and RBI in the guise of exercise of their contractual powers
vis-a-vis Banking Regulation Act exceeded their jurisdiction in recovering
the tax imposed on them by way of interest under the Parliamentary Act.

Dhanyalakshmi Rice Mills and Ors. etc. etc. v. The Commissioner ofCivil
F,
Supplies and Anr. etc. etc., (1976) 4 SCC 723 and B.0.1. Finance ltd v.
Custodian and Ors., (1997) 10 SCC 488, distinguished.

ABl International ltd. and Anr., v. Export Credit Guarantee
Corporation of India ltd., JT (2003) 10 SCC 300 and Central Bank of India
v. Ravindra and Ors., (2002) 1 SCC 367, referred to. G
3. In the instant case, not only a public interest litigation was filed
but SLP was also. filed by the association of borrowers. The amount
collected from the borrowers may be negligible for the appellant banks
but the amount they have realised from five crores of borrowers is not a
small one. By reason of a self~created confusion, misconception as regard H
230 SUPREME COURT REPORTS (2004] SUPP. I S.C.R.

A application of a statute and misapplication and misconstruction thereof
by the appellants resulted in an illegal action as a result of which the
borrowers have been deprived ofa huge amount. Consequently, Union of
India and appellants have unjustly enriched themselves. When such an
unjust enrichment takes place, the doctrine of de minimis, should not be
B applied in equity or otherwise. [243-D-FI
Black's Law Dictionary, referred to•.

4.1. While entertaining a public interest litigation, this Court in
exercise of its jurisdiction under Article 32 of the Constitution and High
Courts under Article 226 thereof are entitled to entertain a petition moved
C by a person having knowledge in the sr.1bject matter of lis and, thus, having
an interest therein as contradistinguished from a busy body, is the welfare
of the people. The rule of locus has been relaxed by the courts for such
purposes with a view to enable a citizen of India to approach the courts
to vindicate legal injury or legal wrong caused to a section of people by
D way of violation of any statutory or constitutional right. (244-A-B)
4.2. Even where a writ petition has been held to be not entertainable
on the ground or otherwise of lack of locus, the court in larger public
interest has entertained a writ petition. Also .a private interest case can
also be treated as public interest case. [245-E-G)
E
4.3. In the instant case, the writ petitioner before High Court was a
firm of Chartered Accountants. As an expert in accountancy and auditing,
it must have come across several cases where its client had to pay a higher
amount of interest to the banks pursuant to the action of the appellants
as also RBI for no fault on their part. The same had been recovered from
F them without any authority of law. Therefore, it cannot be· said that the.
respondent had no locus to maintain the public interest litigation or the
writ petition filed by him pro bono publico before the High Court was not
maintainable. [245-G-H)

Guruvayur Devaswom Managing Committee and Anr. v. C.K. Rajan and
G Ors., JT (2003) 7 SC 312, referred to.
Shivajirao Nilangekar Patil v. Mahesh Madhav Gosavi, AIR (1987) SC
294, relied on.

5. More than five crores of borrowers are involved. A huge sum of
H money is to be recov~red from Union of India as also a large number of
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE [SINHA, J.] 231

banks. Since it is difficult for the Court to effectively monitor such A
recovery, a fund should be created for the benefit of the disadvantaged
people with the amount at the hands of Union of India, appellants and
other concerned Banks, which may be managed by Comptroller and
Auditor General of India. The corpus so created may be invested in such
a manner so as to enable the trustees to apply the same for the purpose B
of giving effect to the provisions of the Persons with Disabilities (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995.
(249-F-H; 250-A-B)

National Federation for the Blind v. Union Public Service Commission,
[1993) 2 SCC 411; Javed Abidi v. Union of India, (1999) 1 SCC 467 and C
Kuna/ Singh v. Union of India, (2003) 4 SCC 524, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4655 of2000.

From the Judgment and Order dated 18.12.98 of the Karnataka High
Court in W.P. No. 3927 of 1994. D
WITH
C.A. No. 5218 of 2000.

Altaf Ahmed, L. Nageswara Rao, Additional Solicitor Generals,
Dushyant A. Dave, P. Chidambaram, Gopal Subramanium, K.N. Bhat, T.L. E
... Vishwanatha Iyer, (AC), Ms. Arpita Mahajan, Ms. Nina Gupta, Sukhjinder
Singh, Anish Verma, Ms. Poonam Das, Ms. Bina Gupta, P.R. Ramasesh, H.S .
Parihar, Kuldeep Parihar, Ms. V. Mohana, Nikhil Sakharadande, Ms. Sushma
Suri and B.V. Bairam Das for the appearing parties.

The Judgment of the Court was delivered by
F
S.B. SINHA, J. The authority of the bankers to round up the existing
interest rates to 0.25% is in question in these appeals which arise out of a
judgment and order dated 18.12.1994 passed by the High Court of Karnataka
in Writ Petition No.3927 of 1994. Civil Appeal No. 5218 of 2000 has been
filed by the Association of Borrowers of Karnataka upon getting itself G
impleaded as a party in the connected appeal.

Appellant No. I herein is an Association of Bankers. Appellant Nos. 2
to 28 are banks which were created under respective Parliamentary Acts or
nationalized in terms of provisions of the Banking Companies (Acquisition
& Transfer of Undertakings) Act, 1970 and the Banking Companies H
232 SUPREME COURT REPORTS [2004] SUPP. 1 S.C.~.

A (Acquisition & Transfer of.Undertakings) Act, 1980.
FACTUAL MATRIX:

Interest Tax Act was enacted by the Parliament w.e.f 1.8.1974 with an
object of imposing tax on the total amount of interest received by Scheduled
B Banks/Credit Institutions on loans and advances. It, however, was withdrawn
in the year 1978, but reintroduced in the year 1980; whereafter it was again
withdrawn in the year 1985. The said tax, however, was reintroduced w.e.f.
1.10.1991 by reason of Finance Act, 1991. The Reserve Bank oflndia by its
Circular letter dated 2.9.1991 advised all the Scheduled Commercial Banks
that the. incidence of interest tax should pro rata be passed on to the borrowers
C wherefor a uniform practice should be followed in consultation with the First
Appellant herein.

The first appellant purported to be acting pursuant to or in furtherance
of the said circular as also with a view to formulate a structure of uniform
D interest rate chargeable after including the interest tax payable, which was
passed on to the borrowers by the concerned banks, advised them that the
rate of interest be loaded with interest tax of 3% and rounded up to the next
higher 0.25%. Such rounding up was allegedly found necessary allegedly on
account of grossing up involved in calculating the incidence ef tax. The
Reserve Bank of India purportedly gave its approval tO the proposal of the
E first appellant in terms of its letter dated 22.4.1993. Other appellants herein
followed the said purported policy.

The aforementioned action on the part of the appellants herein came to
be questioned by the respondents in· a public interest litigation filed before
the Kamataka High Court, inter alia, on the ground that such purported
F rounding up is illegal and without jurisdiction as thereby the tax element
came to be increased and as a result thereof the banks collected additional
sums ofRs.723.79 crores annually by way of resorting to rounding up on the
basis thereof.

G HIGH COURT JUDGMENT :

The appellants herein inter alia contended that such rounding up of
interest was done by way of enhancement of the rate of interest which is
permissible. Such a matter, the appella!lts, contended, being contractual in
nature, the writ petition was not maintainable.
H
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE [SINHA, J.] 233

The High Court of Kamataka by reason of its impugned j1:1dgment A
dated 18.12.1998 rejected the said contention and found the action on the
part of the appellants herein illegal and consequently issued the following
directions :

" ... The Writ Petition is allowed. Rule issued is made absolute. The
action of the Respondents-Banks in rounding up interest rates to the B,
next higher 0.25% is held illegal, arbitrary and untenable. A command
is issued to all the Banks to submit an account of the excess interest
collected by them from the borrowers and deposit the same with the
Reserve Bank of India to be debited in the account of the Union of
India. The Reserve Bank of India-Respondent No.2 is directed to take C
immediate effective steps for implementation of our directions by
calculating the excess interest collected by the Banks and ensuring
the same to be deposited in the funds of the Union of India."

The appellants herein are before us questioning the said judgment.

SUBMISSIONS :
D

Mr. Dushyant A. Dave, Senior Counsel appearing on behalf of the first
appellant, Mr. P. Chidambaram, Senior Counsel appearing for State Bank of
India, Mr. Gopal Subramanium, Senior Counsel appearing for Punjab National
Bank and Mr. Altaf Ahmed, Additional Solicitor General appearing on behalf E
of Canara Bank, would submit that :

(a) having regard to the provisions contained in Sections 4 and 5 of
the Interest Tax Act read with Section 26C thereof, as interest
tax was payable on the total chargeable interest which was
enhanced on the loan in terms of Section 26C as also in terms p
of contractual provisions of other term loans, a great deal of
difficulties had arisen as calculations therefor were required to
be made in several steps.

An example in respect thereof has been placed before us which is as
under:
G

H
I
234 SUPREME COURT REPORTS [2004] SUPP. I S.C.R.

A St~p I:
* Cum Tax Interest to be earned in an attempt to 10.30
retain Rs. I 0 post Interest Tax

* Interest Tax payable on Rs.10.30 (since whole
of the amount collected is assessable to
B Interest Tax) 0.309

Step II :
* Cum Tax Interest to be earned in an attempt 10.309
to retain Rs. I 0 post Interest Tax

c * Interest Tax payable on Rs. I 0.309 (since whole 0.30427
of the amount collected is assessable to
Interest Tax)

Step III :
* Cum Tax Interest to be earned in an attempt I0.30427
D to retain Rs.I 0 post Interest Tax

* Interest Tax payable on Rs. 10.30427 (since
whole of the amount collected is assessable
to Interest Tax) 0.309278I

E Step IV :
* Cum Tax Interest to be earned in an attempt
to retain Rs. J0 post Interest Tax
. 10.309278I

* Interest Tax payable on Rs. I 0.3092781 0.309278343
(since whole of the amount collected is
F assessable to Interest Tax)

Step V :
* Cum Tax Interest to be earned in an attempt I0.309278342
to retain Rs. 10 post Interest _Tax
..
G * Interest Tax payable on Rs. I0.309278343 0.30927835026
(since whole of the amount collected
is assessable to Interest Tax)

(b) Such action was necessary with a view to ensure the retaining of
interest at the contractual rate;
H
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE [SINHA, J.] 235
(c) At or after Step V; as the amount of post tax interest earned by A
banks prior to imposition of interest tax would not be enough, if
banks raised rate of interest only exactly by 3%, they necessarily
had to increase the rate of interest by 0.30927835026 so as to
continue to earn pre tax interest @ 10%, the impugned decision
had been taken;
B
(d) Since the calculation would come to an impossible fraction, the
revised rate had to be rounded up for easy calculation in
collection;
(e) The appellants, therefore, had not realised any tax de'hors the
provisions of the Act but had realised interest in terms of Section C
26C which was authorised by the Reserve Bank of Inrlia;
(f) In any event, increase in the rate of interest being of not much
significance, the doctrine of de minimus should be applied;
(g) As the appellants have merely collected a higher rate of interest
to which they were entitled to in terms of the loan agreements, D
as the Reserve Bank of India only fixes minimum rate, the same
had no nexus with collection of tax within the meaning of Article
265 of the Constitution of India and, thus, the finding of the
High Court to the effect that the appellants have collected excess
amount of tax must be held to be bad in law; E
- (h) In any view of the matter, as pursuant to or in furtherance of the
circular letter issued by the Reserve Bank of India, the borrowers
had been given notice and the terms of the loan agreement having
been altered, no writ application was maintainable;

(i) The writ petition suffered from gross delay and laches on the F
part of the writ petitioner and, thus, the same should not have
been entertained.

Reliance in support of the aforementioned contentions has been placed
on Dhanyalakshmi Rice Mills and Ors. etc. etc. v. The Commissioner a/Civil
sec
Supplies and Anr..etc. etc., [1976] 4 723; B.O.L Finance Ltd v. Custodian G I

and Ors., [1997] IO SCC 488 and Central Bank of India v. Ravindra and
.Ors., [2002] I SCC 367.

Mr. N. Bhat, learned senior counsel appearing on behalf of the Reserve
Bank of India, would submit that his client permitted rounding up of interest
H
236 SUPREME COURT REPORTS [2004) SUPP. I S.C.R.

A having regard to the practical difficulties faced by the banks; but the same
has since been withdrawn in the year 1997. Keeping in view the fact that
there are five crores borrowers throughout India, it may not be feasible to
comply with the directions issued by the High Court.

Mr. L. Nageswara Rao, the learned Additional Solicitor General,
B appearing on behalf of the Union of India, however, would point out that the
gross interest rate charged to the borrowers by the banks being made up of
three elements, namely, (a) interest rate; (b) interest tax on the interest rate;
and (c) element of rounding up interest rate to higher 25 paise; the appellants
had not only paid to the Government interest tax on the gross interest, that
C is, rounded off cum tax interest rate collected by them (which would be in
excess of the amount of tax under the Act) but also retained some ·parts
thereof. S,upporting the judgment of the High Court, Mr. Nageswara Rao
would contend that as the amount belongs to the ultimate borrowers, it should
be returned to them wherever feasible but in the event the same is not feasible
it should be paid over to the Government.
D
As Respondent No.I, writ petitioner, did not appear, we requested Mr.
T.L. Viswanatha Iyer, Senior Advocate, to assist the Court. The learned
counsel (Amicus Curiae) would contend that the appellants have construed
Section 26C wrongly and, thus, acted under a confusion. Mr. Iyer would
submit that Section 26C of the Act, if properly read, would only mean that
E the enabling provisions had been made so as to enable the appellant-banks
to recover the amount of tax from the borrowers under the Act and nothing
more.

STATUTORY PROVISIONS :

F The relevant provisions of the Interest Tax Act, 1974 read as under :

"2(5) "chargeable interest" means the total amount of interest referred
to in section 5, computed ir. the manner laid down in section 6;

2(7) "interest" means interest on loans and advances made in India
G and includes -
(a) commitment charges on unutilized portion of any credit sanctioned
for being availed of in India; and
(b) discount on promissory notes and bills of exchange drawn or
made in India,
H
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE [SINHA, J.) 237
but does not include - A
(i) · interest referred to in sub-section (JB) of.section 42 of the Reserve
Bank of India Act, 1934 (2 of 1934 );
(ii) discount on treasury bills;

"Charges of tax. B
4(1) Subject to the provisions of this Act, there shall be charged on
every scheduled bank for every assessment year commencing on or
· after the lst day of April, 1975, a tax in this Act referred to as
interest-tax in respect of its chargeable interest of the previous year
at the rate of seven per cent of such chargeable interest C
Provided that the rate at which interest-tax shall be charged in respect
of any chargeable interest accruing or arising after the 31st day of
March, 1983 shall be three and a half per cent of such chargeable
interest.
D
(2) Notwithstanding anything contained in sub-section (1) but subject
to the other provisions of this Act, there shall be charged on every
credit institution for every assessment year commencing on and from
the lst day of April, 1992, interest-tax in respect of its chargeable
interest of the previous year at the rate of three per cent of such E
chargeable interest :

Provided that the rate at which interest-tax shall be charged in respect
of any chargeable interest accruing or arising after the 31st day of
March, 1997 shall be two per cent of such chargeable interest.

Scope of chargeable interest. F
5. Subject to the provisions of this Act, the chargeable interest of any
previous year of a credit institution shall be the total amount of interest
(other than interest on loans and advances made to other credit
institutions or to any cooperative society engaged in carrying on the
business of banking, accruing or arising to the credit institution in G
that previous year :

Provided that any interest in relation to categories of bad or doubtful
debts referred to in section 430 of the Income-tax Act shall be deemed
to accrue or arise to the credit institution in the previous year in
which it is credited by the credit institution to its profit and loss H
238 SUPREME COURT REPORTS [2004] SUPP. 1 S.C.R.

A account for that year or, as the case may be, in which it is actually
received by the credit institution, whichever is earlier.

Computation of chargeable interest.

6(1) Subject to the provisions of sub-section (2), in computing the
chargeable interest of a previous year, there shall be allowed from the
B
total amount of interest (other than .interest on loans and advances
made to credit institution accruing or arising to the assessee in the
previous year, a deduction in respect of the amount of interest which
is established to have become a bad debt during the previous year :

C Provided that s~ch interest has been taken into account in computing
the chargeable interest of the assessee of an earlier previous year and
the amount has been written off as irrecoverable in the accounts of
the assessee for .the previous year during which it is established to
have become ' bad debt. L
D Explanation - For the removal of doubts, it is hereby declared that in
computing the chargeable interest of a previous year, no deduction,
other than the deduction specified in this sub-section shall be allowed
from the total amoun~. of interest accruing or arising to the assessee. >--
'
J

(2) In computing the chargeable interest of a previous year, the amount
E of interest which accrues or arises to the assessee before the lst day
of March, 1978, ai:id ending with the 30th day of June, 1980, or
during the period commencing on the 1st day of.April, 1985 and
ending with the 30th day of'September, 1991 shall not be taken into .
account.

F Power of credit institutions to vary certain agreements.

26C. Notwithstanding anything contained in any agreement under
which any term loan has been sanctioned by the credit institution
before the I st day of October, 1991, it shall be lawful for the credit
institution to vary the agreement so as to increase the rate of interest
G stipulated therein to the extent to which such institution is liable to
pay the interest-tax under this Act in relation to the amount of interest
on the terms loan which is due to the credit institution.

Explanation.- For the purposes of this section, "term loan" means a
loan which is not repayable on demand."
H
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE [SINHA, J.] 239

The relevant provisions of the Banking Regulations Act, 1949 are as A
under: -

"35A. Power of the Reserve Bank to give directions.- ( 1) Where the
Reserve Bank is satisfied that -

(a) in the public interest; or
B
(aa) in the interest of banking policy; or

(b) to prevent the affairs of any banking company being conducted
in a manner detrimental to the interests of the depositors or. in a
manner prejudicial to the interests of the banking company; or

(c) to secure the proper management of any banking company
c
generally;

it is necessary to issue directions to banking companies, generally or
to any banking company in particular, it may, from time to time,
issue such directions as it deem fit, and the banking companies or the D
banking company, as the case may be, shall be bound to comply with
such directions.

(2) The Reserve Bank may, on representation made to it or on its own
motion, modify or cancel any direction issued under sub-section (1),
and in so modifying or canceling any direction may impose such E
conditions as it thinks fit, subject to which the modification or
cancellation shall have effect.

The Reserve Bank is entitled to give directions to bankers under
Section 20(3) of the Foreign Exchange Regulation Act, 1947 blocking
certain accounts. Section 20(3) does not contemplates the issue of a F
prior notice before taking such action under that section. Mohamed
Ayisha Nachiyar v. Deputy Director, Enforcement, (1976) 46 Com
Cas 653 (Mad)

. Directions by Reserve Bank cannot prevent payment of higher
bonus in terms of the agreement. American Express lnternatio~al G
Banking Corp. v. S. Sundaram, (1978) l SCC 101 : 1978 SCC (L&S)
34."

SECTION 26C OF THE ACT :

T~e Parliament by reason of the said Act imposed a tax on the banks H
240 SUPREME COURT REPORTS [2004] SUPP. I S.C.R.

A and other financial institutions. By reason of the said Act, the appellants were
statutorily empowered to pass the burden thereof to the borrowers or realise
the same on behalf of the Union of India. Concededly, in terms of the
agreement of the term Joan, the appellants were not entitled to charge interest
at a higher rate than the agreed one. Section 26C was, therefore, enacted so
B as to enable the bankers to realise the amount of tax which they were liable
to pay on the chargeable interest. The appellants have proceeded on the basis
that having regard to definition of 'chargeable interest' as contained in Section
2(5) of the Act, the additional interest will have also to be calculated for the
said purpose and the rate of tax must be calculcded thereupon which, as
noticed hereinbefore, resulted in adding of interest for the purpose of
C calculation of tax ad infinitum.

How the Parliament thought of the matter is the question. The Union
of India does not agree with the contentions of the Appellants, nor do we.
The action on the part of the appellants suggests that they had put the cart
before the horse. The action of taking r~course to Section 26C would arise
D only when the chargeable interest has been calculated whereupon only the
incidence of tax under the said Act is required to be passed on to the borrowers
by way of additional interest. The entire approach of the appellants was
based on a wrong premise. The said Act is a taxing statute. The Union of
India under the said Act cannot direct or permit the bankers or the financial
E institutions to raise interest. The Act must, therefore, receive purposive
construction so as to give effect to the purport and object it seeks to achieve.
[See BBC Enterprises v. Hi-Tech Xtravision Ltd., [1990] 2 All ER 118 at
122-3; Mohan Kumar Singhania and Ors. v. ·Union of India and Ors., AIR
(1992) SC I, Murlidhar Meghraj Loya v. State of Maharashtra, [1976] 3
SCC 684, Superintendent and Remembrancer of Legal Affairs to Govt. of
F West Bengal v. A bani Maitj, [ 1979] 4 SCC 85, Khet Singh v. Union of India,
[2002] 4 SCC 380 and High Court of Gujarat and Anr. v. Gujarat Kishan
Mazdoor Panchayat and Ors., JT (2003) 3 SC 50, Indian Handicrafts
Emporium and Ors. v. Union of India and Ors., JT (2003) 7 SC 446, Ashok
Leyland Ltd. v. State of T.N. .and Anr., [2004] 3 SCC I and High Court of
G Gujarat and Anr. v. GujaratKishan Mazdoor Panchayat and Ors., JT (2003)
3 SC 50.

In the event, the contention of the appellants is accepted, the same
would give rise to incongruous results. Such an interpretation, as is well·
known, must be avoided, if avoidable. Furthermore, a statutory impost must
H be definite. Having regard to Article 265 read with Article 366(28) of the
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE [SINHA, J.) 241

Constitution of India nothing is realizable as a tax or by way of recovery of A
tax or any action akin thereto which is not permitted by law.

It is neither in doubt nor in dispute that Section 26C is an enabling
provision. It has to be so construed, having regard to the term 'lawful' used
therein.
B
It merely prevails over an agreement under which any term loan has
been sanctioned by the credit institution before the l st day of October, 1991.
It was 'lawful' for the credit institution to vary the agreement as regard rate
of interest only for the purpose of recovering the amount of tax which was
payable by the Appellants and a fortiori - nothing over and above the same. C
Such increase in rate of interest would be (a) to the extent to which such
institution is liable to pay the interest tax; (b) in relation to the amount of
interest on the term loan; and (c) which is due to the credit institution.

Increase in rate of interest in terms of Section 26C of the Act, thus, has
a direct nexus with the statutory impost. The action on the part of the appellants D
in rounding up of the interest, thus, was wholly unjustified. Once it is held
that increase in interest in a justifiable manner pertains to passing of the
burden of tax, the contention that the same had been done by the bank in
exercise of its contractual power must be rejected. A taxing statute must be
construed reasonably. Nothing can be realised by way of tax or akin thereto
which has not been authroised by the Parliament. E
The Executive cannot levy tax. It, for the said purpose, therefore, cannot
even take recourse to the process of interpretation of a statute.

In Commissioner ofCentral Excise, Lucknow, U.P. v. Mis Chhata Sugar
Co. Ltd, reported in (2004) 3 SCALE 6, administrative charges levied under F
U.P. Sheera Niyantran Adhiniyam, 1964 has been held to be a tax.

In Mathuram Agrawal v. State of Madhya Pradesh, (1999] 8 SCC 667,
the law is stated in the following terms :

" ... The intention of the legislature in a taxation statute is to be gathered G
from the language of the provisions particularly where the language
is plain and unambiguous. In a taxing Act it is not possible to assume
any intention or governing purpose of the statute more than what is
stated in the plain language. It is not the economic results sought to
be obtained by making the provision which is relevant in interpreting H
242 SUPREME COURT REPORTS [2004] SUPP. I S.C.R.

A a fiscal statute. Equally impermissible is an interpretation which dQes
not follow from the plain, unambiguous language of the statute. Words
cannot be added to or substituted so as to give a meaning to the
statute which will serve the spirit and intention of the legislature. The
statute should clearly and unambiguously convey the three components
of the tax law i.e. the subject of the tax, the person who is liable to
B pay the tax and the rate at which the tax is to be paid. If there is any
ambiguity regarding any of these ingredients in a taxation statute
then there .is no tax in law. Then it is for the legislature to do the
needful in the matter. "

.(Emphasis Supplied)
c
If a statute was ambiguous the contemporaneous C<?nstruction placed
thereon by the officers charged with its enforcement and administration might
be required to be considered and given due weight but therefor the First
Appellant or the Reserve Bank of India were not competent. In this case, the
D stand of the Union of India also runs counter to the contentions of the
Appellants.

A plain reading of Section 26C ofthe Act leaves no manner of doubt
that the same was enacted only for a limited purpose, namely, to pass on the
burden of tax to the borrowers. The amount of tax must be calculated having
E regard to the contractual rate of interest as thence obtaining and not upon
addition of the purported interest by way of tax or otherwise. Once Section
26C is read in a meaningful way, no difficulty arises in giving effect to sub-
section (2) of Section 4 and Section 5 and 6 of the Act. If the provisions of
the Act are read in a manner in which we have made an endeavour, for an
amount of Rs.JOO lent and the rate of interest charged by the .bank being
F 10%, the interest thereon having been earned would come to Rs.IO, and,
thus, the borrower would be bound to pay only Rs. I 0.30 and not Rs. I0.50,
which is said to be the effect of calculation at various steps as referred to by
the appellants. The appellants are, thus, not correct to contend that they have
exercised the power to claim a higher rate of interest only. They may have
G a power to claim a higher rate of interest under the agreement but they did
not exercise the said jurisdiction. They invoked the enabling provisions
contained in Section 26C of the Act and/or raised rate of interest so as to pass
on the burden of tax upon the borrowers. They, while purporting to exercise
their jurisdiction under a statute were required to act in terms thereof and not
in derogation thereto. The appellants sought to achieve the same object
H indirectly which they could not do directly.
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE [SINHA, J.] 243

The purported difficulties faced by the appellants were their own A
creations. The borrowers cannot suffer on account of wrong interpretation of
law by the appellants or by the Reserve Bank of India. Section 26C of the
Act, therefore, must be held to have wrongly been applied and consequently
the action taken by the appellants herein in grossing up and rounding the rate
of interest must be held to be illegal.
B
It is well-settled that when a procedure has been laid down the statutory
authority, it must exercise its power in the manner prescribed or not at all.

DE MINIMIS:

The principle of de minimis, as contended by Mr. Chidambaram, has no C
application in the instant case.

In Black's Law Dictionary 'De minimus' has been defined as follows:

"The law does not care for, or take notice of, very small or trifling
matters. The law does not concern itself about trifles." D
It is not a matter which would not receive the attention of anybody. Not
only a public interest litigation was filed but also the association of borrowers
of Kamataka has also filed a Special Leave Petition. The amount collected
from the borrowers may be negligible for the appellant banks but the amount
they have realised from five crores of borrowers is not a small one. By reason E
of a self-created confusion, misconception as regard application of a statute
and misapplication and misconstruction thereof by the appellants herein had
resulted in an illegal action; as a result whereof the borrowers have been
deprived cf a huge amount. Consequently the Union of India and the appe!'. 1nts
have unjustly enriched themselves. When such an unjust enrichment takes F
place, the doctrine of de minimis, in our view, should not be applied in equity
or otherwise.

LOCUS OF THE RESPONDENT:

The writ petitioner before the High Court was a firm of the Chartered G
Accountant. As an expert in accountancy and auditing, it must have come
across several cases where its client had to pay a higher amount of interest
to the banks pursuant to or in furtherance of the impugned action of the
appellants. By reason of such an action on the part of the appellants as also
the Reserve Bank of India, as noticed hereinbefore, the citizens of India had
to pay a higher amount of tax as also a higher amount of interest for no fault H
244 SUPREME COURT REPORTS [2004] SUPP. 1 S.C.R.

A on their part The same had been recovered from them without any authority
of law. While entertaining a public interest litigation, this Court in exercise
_,__ of its jurisdiction under Article 32 of the Constitution of India and the High
Courts under Article 226 thereof are entitled to entertain a petition moved by
a person having knowledge in the subject matter of tis and, thus, having an
B interest therein as contradistinguished from a busy body, is the welfare of the
people. The rule of locus has been relaxed by the courts for such purposes
.with a view to enable a citizen of India to approach the courts to vindicate
legal injury or legal wrong caused to a section of people by way of violation
of any statutory or constitutional right.

c them asIn afactpublic
the Courts had even been treating a letter or telegram sent to
interest litigation by relaxing the procedural laws especially
the law relating to pleadings. We need not dilate further on this subject as a
Bench of this Court in Guruvayur Devaswom Managing Committee and Anr.
v. C.K. Rajan and Ors., JT (2003) 7 SC 3 J2·observed:

D "The Courts exercising their power of judicial review found to its
dismay that the poorest of the poor, depraved, the illiterate, the urban
and rural unorganized labour sector, women, children, handicapped
by 'ignorance, indigence and illiterar:y' and other down trodden have
either no access to justice or had been denied justice. A new branch
of proceedings known as 'Social Interest Litigation' or 'Public Interest
E Litigation' was evolved with a view to render complete justice to the
aforementioned classes of persons. It expanded its wings in course of
time. The Courts in pro bona publico granted relief to the inmates of
the prisons, provided legal aid, directed speedy trial, maintenance of
human dignity and covered several other areas. Representative actions,
pro bona public'! and test litigations were entertained in keeping with
F
the current accent on justice to the common inan and a necessary
disincentive to those who wish to by pass the real issues on the merits
by suspect reliance on peripheral .procedural shortcomings. (See
Mumbai Kamgar Sabha, Bombay v. Mis. Abdulbhai Faizullabhai and
Ors., [1976] 3 SCR 591).
G
The Court in pro bona publico proceedings intervened when there
had been callous neglect as a policy of State, a lack of probity in
public life, abuse of power in control and destruction of environment.
It also protected the inmates of prisons and homes. It sought to restrain
exploitation of labour practices.
H
INDIAN BANKS' ASSON. v. DEVKALA CONSUL TAN CY SERVICE (SINHA, J .] 245

The court expanded the meaning of life and liberty as envisaged in A
Article 21 of the Constitution of India. It jealously enforced Article
23 of the Constitution. Statutes were interpreted with human rights
angle in view. Statutes were interpreted in the light of international
treatises, protocols and conventions. Justice was made available having
regard to the concept of human right even in cases where the State
was not otherwise apparently liable. [See Kapila Hingorani v. State B.
of Bihar, reported in JT (2003) 5 SC l ).

The people of India have turned to courts more and more for
justice whenever there had been a legitimate grievance against the
States statutory authorities and other public organizations. People come C
to courts as the final resort, to protect their rights and to secure
probity in public life.

Pro bono publico constituted a significant state in the present day
judicial system. They, however, provided the dockets with much
greater responsibility for rendering the concept of justice available to D
the disadvantaged sections of the society. Public interest litigation
has come to stay and its necessity cannot be overemphasized. The
courts evolved a jurisprudence of compassion. Procedural propriety
was to move over giving place to substantive concerns of the
deprivation of rights. The rule of locus standi was diluted. The Court
in place of disinterested and dispassionate adjudicator became active E
participant in the dispensation of justice."

Furthermore, even where a writ petition has been held to be not
entertainable on the ground or otherwise of lack of locus, the court in larger
public interest has entertained a writ petition. In an appropriate case, .vhere
the petitioner might have moved a Court in his private interest and for redressal F
of the personal grievance, the Court in furtherance of public interest may
treat it a necessity to enquire into the state of affairs of the subject of litigation
in the interest of justice. Thus, a private interest case can also be treated as
public interest case. [See Shivajirao Nilangekar Patil v. Mahesh Madhav
Gosavi, AIR (1987) SC 294].
G
We, therefore, do not agree with the submissions of the learned counsel
of the appellants that the respondent had no locus to maintain the public
interest litigation or the writ petition filed by him pro bono publico before the
High Court was not maintainable.
H
246 SUPREME COURT REPORTS [2004) SUPP. I S.C.R.

A AUTHORITY OF THE APPELLANTS AND THE RESERVE BANK
OF INDIA:

The appellants have filed additional documents before us to .show that
the borrowers had been .given due notice but such notice/infonnation had
been given by applying wrong legal principles. The appellants are State
B within the meaning of Article 12 of the Constitution of India. They, as noticed
hereinbefore, acted in an arbitrary and whimsical manner.

The submission of the learned counsel for the appellants to the effect
that they had been pennitted to enhance the rate of interest by the Reserve
Bank of India is equally misconceived. The Reserve Bank of India apparently
C proceeded on the basis that the mode"bf calculation of rate of interest vis-a-
vis the tax under the Act, as contended by the Appellant No. I, was correct.
The Reserve Bank of India was not an authority for construction of a statute.
Its functions are confined only to the provisions of the Reserve Bank India
Act and the Banking Regulation A¢t and not any other statute.
D
Section 35A of the Banking Regulation Act empowers the Reserve
Bank of India to issue directions in r~lation to matters specified under Section
35A and not for any other purpose. The contention of the appellants to the
effect that rate of interest had been enhanced by them pursuant to or in
furtherance of the directions issued by the Reserve Bank of India must be
E held to be self-contradictory inasmuch as according to them the Reserve
Bank of India fixes only the minimum rate of interest leaving a determination
thereof in a case of each individual borrower upon the bank concerned. Ifthe
matter relating to increase in the rate of the interest was within power of the
appellants, we fail to understand as to why the Reserve Bank of India was
F approached at all. The same being not pennissible under the Act, any approval
given by the Reserve Bank of India for the satisfaction of the members of the
first appellant herein was futile.

It is not in dispute that action on the part of the appellants in grossing
up of interest was not at all relevant. The appellants could not have suo motu
G taken recourse to rounding up of intere.st for the purpose of obtaining a
higher amount of interest or otherwise. The purported practical difficulty
sought to have been put forth by the appellants is a self created one. If such
practical difficulty existed there was apparently no reason as to why the
Reserve Barik of India refused to grant such approval since 1997

H In any view of the matter; the purported directions contained in the
INDIAN BANKS' ASSON. v. DEVKALACONSULTANCYSERVICE [SINHA, J.] 247

letter dated 2. 9 .1991 of the Reserve Bank of India are not even in the nature A
of executive construction under the said Act. It was not binding on the banks,
far less on the borrowers. In any event by reason of a misplaced and misapplied
construction of statute, a third party cannot suffer.

Furthermore, having regard to the provisions contained in Article 265
of the Constitution of India read with Article 366(28) thereof the purported B
demand from the borrower for a higher amount of tax and consequently a
higher amount of interest by way of rounding up was wholly illegal and
without jurisdiction. We also fail to understand as to why in this modem
electronics age, this difficulty would be encountered while calculating the
exact amount of tax. C
We, therefore, are of the opinion that the purported approval granted by
the Reserve Bank of India was wholly without jurisdiction and ultra vires the
provisions of the said Act.

CASE LAWS: D
In Dhanyalakshmi Rice Mills (supra), this Court merely held that in
triable issues of limitation, disputed questions of fact may not be gone into
by the High Court in exercise of its writ jurisdiction. Therein the appellants
had been claiming refund in terms of Section 72 of the Indian Contract Act.
Under the export scheme involved therein the payment made was voluntary E
,. in nature. The appellant did not enter into any contract under mistake of law
or under coercion. In the fact situation obtaining therein, this Court held that
the remedy under Article 226 was not appropriate in the said cases, stating:

" ... First, several petitioners have joined. Each petitioner has individual
and independent cause of action. A suit by such a combination of F
plaintiffs would be open to misjoinder. Second, there are triable issues
like limitation, estoppel and questions of fact in ascertaining the
expenses incurred by the Government for administrative surcharges
of the scheme and allocating the expenses with regard to quality as
well as quantit)' of rice covered by the permits."
G
The aforesaid decision is not applicable in the instant case.

However, we may notice that in ABl International ltd. and Anr. v.
Export Credit Guarantee Corporation of India ltd., JT [2003] 10 SCC 300,
this Court recently observed:
H
248 SUPREME COURT REPORTS [2004] SUPP. 1 S.C.R.

A "Merely because the frrst respondent wants to dispute this fact, in
our opinion, it does not become a disputed fact. If such objection as
to disputed questions or interpretations are raised in a writ petition,
in our opinion, the courts can very well go into the same and decide
that objection if facts permit the same as in this case."

B In B.0.1. Finance Ltd (supra), the question which arose for consideration
.was as to whether the transaction arising out of agreement to do an illegal act
could be enforced. In that case certain circulars were issued by the Reserve
Bank oflndia in terms of 36(1) of the Banking Regulation Act which had not
been published. It was held :
c "It was then submitted that even if it is held that the said circulars
were binding they could only bind the banks and not the third parties.
The submission was that by contravening the direction contained in
the said circulars, the contracts which were entered into between the
banks and the third parties could not be invalidated and the only
D result of such contravention would be the levy of penalty under Section
46 of the said Act."

The question which arose for consideration therein does not arise in the
instant case.

E In Central Bank ofIndia {supra), this Court, inter a/ia, held that Sections
21 and 35-A of the Banking Regulation Act confers a power coupled with
duty to act. The question which arose for consideration rel.ated to many
phrases, namely, "The principal su!D adjusted", "such principal sum" and
"such" occurring in Section 34 of the Code of Civil Procedure. This Court
held that a long-established banking practice of charging interest at reasonable
F rates on periodical rests and capitalizing the same on remaining unpaid should
not be found fault with and in that context the circular letter issued by the
Reserve Bank of India under Sections 21 and 35A was commented upon :

" ... The Reserve Bank of India is the prime banking institution of the
country entrusted with a supervisory role over banking and conferred
G with the authority of issuing binding directions, having statutory force,
in the interest of the public in general and preventing banking affairs
from deterioration and prejudice as also to secure the proper
management of any banking company generally. The Reserve Bank
of India is one of the watchdogs of finance and economy of the
nation. It is, and it ought to be, aware of all relevant factors, including
H
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE [SINHA, J.] 249

credit conditions as prevailing, which would invite its policy decisions. A
RBI has been issuing directions/circulars from time to time which,
inter a/ia, deal with the rate of interest which can be charged and the
periods at the end of which rests can be struck down, interest calculated
thereon and charged and capitalized. It should continue to issue such
directives. Its circulars shall bind those who fall within the net of B
such directives. For such transaction which are not squarely governed
by such circulars, the RBI directives may be treated as standards for
the purpose of deciding whether the intere~t charged is excessive,
usurious or opposed to public policy."

We have noticed hereinbefore that the Reserve Bank oflndia could not C
have interpreted the provisions of the said Act nor thereby could have
empowered the banks to charge something more from the borrowers by the
process of rounding up of interest. The appellants and the Reserve Bank of
India with a view to touching the end of their own shadows in the guise of
exercise of their contractual powers vis-a-vis Banking Regulation Act exceeded
their jurisdiction in recovering the tax imposed on them by way of interest
under the Parliamentary Act.

CONCLUSION:

For the reasons aforementioned, we are of the opinion that the impugned
judgment cannot be faulted with. However, the matter do.es not end there. E
The question which looms large is what effective order can be passed by this
Court. More than five crores of borrowers are involved. A huge sum of
money is to be recovered from Union of India as also a large number of
banks. Directions may be issued for refund of the amount to the borrowers,
but implementation thereof would take a long time. The court may not be F
able to effectively monitor such recovery.

The Union of India, as noticed hereinbefore, had proposed that the
banks concerned be directed to deposit the excess recovered by it, if no
direction is issued by us that the same be returned to the borrowers.
Interestingly, the Union of India has not volunteered, whicb as 'a State' it G
should have done, to suo motu undertake the exercise of identifying the
borrowers and refund the excess amount recovered, a part whereof hiid been
deposited by way of interest tax by the concerned banks. Furthermore, directing
the Union of India to refund the excess amount collected through the banks
and consequently ask the banks to refund the same to the borrowers whether
H
250 SUPREME COURT REPORTS [2004] SUPP. l s~c.R.

A with the amount retained by them by way of rounding up of interest invariably
would take a long time.

We, therefore, are of the opinion that a fund may be created for the
benefit of the disadvantaged people.

B The Parliament has enac_ted "The Persons with Disabilities (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995" (the
1995 Act). The Chapter V of the 1995 Act deals with education. Section 28
provides for research for designing and developing new assistive devices,
teaching aids, etc. for the disabled persons. Section 29 mandates appropriate
governments to set up teachers' training institutions to develop trained man
C power for schools for children with disabilities. Chapter IX of the said Act
provides for research and manpower development which includes grant of
financial incentives to universities to enable them to undertake research.
Chapter XI provides for institution for persons with severe disabilities whereas
Chapter XIII provides for social security. It is no gainsaying that despite the
D 1995 Act came into force on or about lst January, 1996 only a beginning has
been made to implement the beneficient provisions thereof but a lot lot more
is required to be done.

In India, the number of disabled people is around 100 million, and
there are approximately 160 million victims, direct and vicarious, of
E disablement. National as also international efforts to combat this situation are
on but the task is a gigantic one. The General Assembly of the United Nations
has passed several Resolutions dealing with the rights of the mentally and
physically disabled emphasising that the disabled persons have the rights as
regard human dignity, civil and political rights, entitlement to measun:s to
F ensure their self-reliance, the right to treatment, education and rehabilitation,
the right to economic and social security, the right to live with their families,
the right to have their special needs taken into account in economic and
social planning and the right against, discrimination, abuse and exploitation,
apart from the fact that the disabled per'5ons enjoy all rights available to other
human beings.
G
It may not be necessary for.us to delve deep into the non-implementation
or part implementation of the provisions of the 1995 Act at the hands of the
State but we are not oblivious of the fact that it may not be possible to .
achieve the legislative target for the Central Government or State Government
alone.
H
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE [SINHA, J.] 251

We are also not oblivious that the Parliament enacted The National A
Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation
and Multiple Disabilities Act, 1999 providing for constitution of a National
Trust which would provide for maintenance allowance for persons with
disabilities; the object being to enable the disabled persons to live
independently with}n the community, to deal with problems of such persons B
who do not have family support, to facilitate the realisation of equal
opportunities; protection of rights, full participation of such persons; to evolve
a procedure for appointment of guardians or trustees for such persons requiring
protection.

We are, furthermcre, aware that the Ministry of Social Justice and C
Empowerment had taken the following actions to implement the provisions
of the aforementioned Acts:

(i) Notification of Central Co-ordination Committee as per Section
3 of the Act
(ii) Notification of Central Executive Committee as per Section 9 of D
the Act
(iii) Creation of post of Chief Commissioner, Deputy Chief
Commissioner, and Staff for Office of Chief Commissioner
(iv) Five core groups of experts and officials of relevant Ministries E
have been set up to make recommendations and formulate
schemes to give effect to various provisions of the Act. These
are {a) Group on Prevention, Early Detection and Intervention;
(b) Vocational training and employment; (c) Education; including
pre-school education; (d) Barrier free environment; (e) Women
and children with disabilities F
(v) National Fund for People with Disabilities set up on 11.08.1983
has been activated and assistance has been sanctioned to non-
govemment agencies. 17 projects have been sanctioned under
the scheme

(vi) A new scheme - the Viklang Bandhu has been formulated to G
provide training to disabled volunteers

(vii) A National Programme for Rehabilitation of Persons with
Disabilities has been submitted to the Planning Commission for
establishment of infrastructure for realizing the Act. The
H
252 SUPREME COURT REPORTS [2004] SUPP. t S.C.R.

A Programme contemplates the .establishment of a District Level
Rehabilitation Centre, two multi-purpose rehabilitation workers
at the Block/PHC level; two .community based rehabilitation
workers at the Gram Panchayat level
(viii) To support entrepreneurial activity by the disabled, the National
B Handicapped Finance and Development Corporation has been
operationalised with effect from 24.10.1997
(ix) The proposal for the National Trust for Welfare of Persons with
Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities with a corpus fund of Rs. I 00 crores has been
C approved by the Cabinet

This Court as also the High Courts have taken pro-active views in the
matter of implementation of the rights of the disabled.

In National Federation for the Blind v. Union Public Service
D Commission, [1993] 2 SCC 411, the Court directed the Government and the
UPSC to permit blind and partially blind eligible candidates to compete and
write the Civil Serv.ices Examination in Braille script or with the help of a
scribe. It also recommended to the Government to decide the question of
providing reservations to visually handicapped persons in Group 'A' and 'B'
posts in the Government and Public Sector Enterprises.
E
In Javed Abidi v. Union of India, (1999] 1 SCC 467, the Court directed
Indian Airlines to give concessions to orthopaedically handicapped persons
suffering from locomotor disability to the extent of 80% for traveling by air
in India. The Court was mindful of the financial position of Indian Airlines
and yet felt that this direction was in keeping with the objectives of the
F Disabilities Act and was in consonance with the concession already given by
Indian Airlines to visually disabled persons.

Kuna/ Singh v. Union of India, (2003] 4 SCC 524 saw the Court
interpreting the Disabilities Act in a manner so as to further its objective. The
G Court opined that Section 47 of the Act mandates that an employee who
acquires a disability during service must be protected. If such an employee
is not protected, he would not only suffer himself, but all his dependants
would also undergo suffering. Therefore, merely granting him pension would
not suffice, but there must also be an attempt to secure him alternative
employment.
H
INDIAN BANKS' ASSON. v. DEVKALA CONSULTANCY SERVICE [SINHA, J.] 253
Despite the progressive stance of the Court and the initiatives taken by A
the Government, the implementation of the Disabilities Act is far from
satisfactory. The disabled are victims of discrimination in spite of the beneficial
provisions of the Act.

We are, therefore, of the opinion that in a larger interest a fund for the
aforementioned purpose should be created with the amount at the hands of B
the Union of India and the Appellants and other concerned Banks, which
may be managed by the Comptroller and Auditor General of India.

We would request the Comptroller and Auditor.
General
I
of India to
effect recoveries of all the excess amount realised by the Union of India by C
'Yay of interest tax and interest by the banks and other financial institutions
anJ create the corpus of su-h fund therefrom. The appellant and other
concerned banks are also hereby directed to contribute to the extent of Rs.
50 lakhs each in the said fund.

The Comptroller and Auditor General of India would be the Chairman D
of the said Trust and the Finance Secretary and the Law Secretary of the
Union of India would be the ex-officio members thereof. The corpus so
created may be invested in such a manner so as to enable the trustees to apply
the same for the purpose of giving effect to the aforementioned provisions of
the 1995 Act.
E
The Union of India, the Reserve Bank of India, the appellant Banks,
other scheduled banks and financial institutions are directed to render all
cooperation and assistance to the trustees.

The Committee as also the Committees set up by the Central Government
should act in close cooperation with each other. The Committee may, if it F
thinks proper, invest any amount in the Trust set up by the Central Government
under the 1999 Act or any other scheme framed by the Central Government,
as noticed hereinbefore.

The trustees aforementioned with a view to give effect to this order
may frame an appropriate scheme. In case of any difficulty they may approach G
this Court for any other or further order/orders or direction/directions.

The Central Government, however, with a view to implement the
aforementioned provisions may by amending the 1995 Act provide for creation
of such a fund and in such an event, the statutory authority, if any, would be H
254 SUPREME COURT REPORTS [2004) SUPP. I S.C.R.

A entitled to take over the corpus of the fund but so long no legislative step is
taken in this behalf, this order shall remain in force.

These appeals are dismissed with the aforementioned terms. There shall
be no order as to costs.

B N.J. Appeals dismissed.

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