Holding

The RBI must provide Sahara an opportunity of hearing before enforcing the restraint, and the order dated 4 June 2008 shall be stayed pending a fresh decision.

Summary

The Reserve Bank of India (RBI) issued a show‑cause notice to Sahara India Financial Corp. Ltd. (Sahara) on 9 May 2008, restraining it from accepting deposits from existing and new depositors, and passed an order on 4 June 2008 effecting the restraint. Sahara filed a writ petition before the Allahabad High Court, claiming it was denied a fair hearing before the RBI’s action, and the High Court granted interim protection to Sahara, staying the RBI order. The Supreme Court examined whether the RBI had complied with the principles of natural justice by providing an opportunity of hearing before imposing the restraint. While acknowledging that the RBI had generally observed natural‑justice requirements, the Court held that, given the peculiar facts and the nature of the proceedings, the RBI must afford Sahara a hearing to present its case. Consequently, the Court directed that Sahara appear before the designated RBI authority on 12 June 2008, that the RBI’s 4 June order be stayed pending a fresh decision, and that the High Court’s interim protection also be rendered inoperative. The appeal was disposed without expressing any view on the merits of the case.

Issues considered

Whether the RBI’s order restraining Sahara from accepting deposits without a prior hearing violates the principles of natural justice.
Whether the High Court’s interim protection to Sahara is valid in view of the RBI’s order.
Whether the RBI is required to provide an opportunity of hearing to Sahara before enforcing the restraint.

Subjects

natural justiceopportunity of hearingReserve Bank of Indiainterim orderadministrative lawdeposit restrictionsbanking regulation

Judgment

[2008] 9 S.C.R. 1110

A RESERVE BANK OF INDIA . 1
v.
SAHARA INDIA FINANCIAL CORP. LTD. & ORS.
'
(Civil Appeal No. 4193 of 2008)

JUNE 9, 2008
B
[DR. ARIJIT PASAYAT AND P.P. NAOLEKAR, JJ]

FINANCIAL CORPORATION - Serious infirmities al-
leged against - Show Cause Notice issued by Reserve Bank
-I
-
c of India -- After considering the reply order passed by RBI re-
straining the Corporation from accepting deposits from exist-
ing and fresh depositors - High Court granting interim protec-
tion to Corporation - HELD: Although principles of natural jus-
tice have been followed, yet, in view of the nature of proceed-
ings and peculiar facts involved in the instant case, it would
0
be appropriate for RBI to give an opportunity of hearing to the
~
Corporation - Ordered accordingly - Order not to be treated
~
as precedent - Till matter is disposed of afresh, order dated
4.6.2008 passed by RBI shall not be given effect to -At the
same time interim protection given by High Court to Corpora-
E tion shall not be operative - Entire matter disposed of - Ad-
ministrative Law - Principles of natural justice - Opportunity
of hearing - Interim order.
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 4193
F of 2008 ~

From the Interim Order dated 5.6.2008 of the High Court
'
of Judicature at Allahabad, Lucknow Bench, Lucknow in C.W.P.
No. 5059 (MB) of 2008
T.R. Andhyarujina, Ramesh Babu M.R., Manisha, Srinjoy
G
Banerjee and Swati Setia for the Appellant.
Mukul Rohtagi, Prashant Chandra, Ranjit Kumar, Uday U.
Lalit, K.K. Lahiri, Satish Kishanchani, Gaurav Kejriwal and M. ?

Keshav Mohan for the Respondents.
H 1110
..... RESERVE BANK OF INDIA v. SAHARA INDIA 1111
r FINANCIAL CORP. LTD. [DR. ARIJIT PASAYAT, J.]
.
The Judgment Order of the Court was delivered by A
DR.ARIJIT PASAYAT,J. Leave granted.
Heard the learned counsel for the parties.

The challenge in this appeal is to the order passed by the
Division Bench of the Allahabad High Court, Lucknow Bench B
~

r
granting interim protection to Respondent No.1.

2. Briefly stated factual scenario is as follows:

A show cause notice was issued by the appellant on
09 .05.2008 requiring the Respondent No.1 to show cause as c
to why certain actions proposed to be taken shall not be taken.
A detailed reply, according to Respondent No.1, was filed on
02.06.2008. Respondent No.1 before the High Court took the
~
stand that before the show cause reply was submitted discus-
,.. sions were held on 20.5.2008. By the final order dated D
04.06.2008 Respondent No.1-Company has been restrained
from accepting deposits from the existing depositors and fresh
depositors. These were the main directions in addition to the
other directions. In the writ petition filed before the High Court,
it was stated that the writ petitioner did not get a fair opportunity E
to present its case before the present appellant and, there-
fore, it has affected a large number of employees, agents, staffs
and the depositors. The High Court passed the impugned or-
, )>--
der on 05.06.2008 staying the operation and the enforcement
of the order dated 4.6.2008 impugned before it till further or- F
ders of the High Court. The High Court has also indicated that
since objection was taken to certain activities of Respondent
No.1, they were directed to complete all the requisite formali-
ties and follow the directions of the present appellant from ti.ne
to time. The writ petitioner was prevented from accepting any
G
new deposit whose maturity will be beyond June, 2010. The
~
matter was directed to be listed in the last week of July, 2008.
3. Mr. T.R. Andhyarujina, learned senior counsel appear-
ing for the Reserve Bank of India submitted that without even
granting any opportunity to the appellant to place its case, an H
1112 SUPREME COURT REPORTS [2008] 9 S.C.R.

~

A interim order was passed by virtually allowing the writ petition, ..
as by interim order in essence final relief sought for in the writ
petition was granted. It was his stand that ample opportunities
were granted to the writ petitioner and the various infirmities
committed by the writ petitioner were highlighted in the show
B cause notice and the impugned order before the High Court
which warranted the action taken by the appellant. With refer- '(
ence to the show cause notice dated 09/05/2008 and order
dated 04/06/2008 it is submitted that several illegalities have
been committed and there is total lack of transparency in the
c functioning of respondent No.1. Several serious infirmities have
been elaborately dealt with in the show cause notice and order
dated 04.06.2008.
4. Learned senior counsel appearing for Respondent No.1
on the other hand submitted that had an opportunity been
D granted to Respondent No.1 to place its case before the ap- ~

pellant before the order which was impugned before the High ~

Court was passed, after filing of the reply to the show cause on
02.06.2008 it would have been in a position to show that no
action as was contemplated in the show cause was required to
E be taken and/or permissible.
5. After hearing learned counsel for the parties, we are of
the view that in view of the peculiar facts involved, it would be
appropriate for the appellant Reserve Bank of ln.dia to give an
--1
opportunity of hearing to Respondent No.1 so that it can, if so <\
F advised, place materials to substantiate its stand taken in the
reply to the show cause notice. Learned counsel for the appel-
lant is right in his submission that the principles of natural jus-
tice have been followed in the present case. But an opportunity
of hearing would be appropriate, because of nature of proceed-
G· ings. It shall not be construed as if we have stated so to be
applicable in all cases. Because of the peculiar nature of the
case, we are directing to be so done. We, therefore, direct that ..,.
Respondent No.1 shall appear without any further notice be-
fore the designated authority of the Reserve Bank of India on
H 12.06.2008 when the matter shall be heard. It is open to Re-
RESERVE BANK OF INDIA v. SAHARA INDIA 1113
FINANCIAL CORP. LTD. [DR. ARIJIT PASAYAT, J.]

spondent No.1 to place such material on which it proposes to A
rely upon. Needless to say the authority shall consider all the
relevant aspects of the case and pass a fresh order. Till the
matter is disposed of afresh by the Reserve Bank of India, the
order dated 04.06.2008 shall not be given effect to. At the same

.. ..,.
time, the interim protection given by the High Court to Respon- B
dent No.1 shall also not be operative. Since the entire matter is
being disposed of in this appeal, there is no need for the High
Court to deal with the writ petition. We make it clear that we
have not expressed any opinion on merits.

6. The appeal is disposed of accordingly.

R.P. Appeal disposed by.

;