Judgment : S.J. Mukhopadhaya, J. 1. The Writ Petition was preferred by the petitioner for declaration that the action of the 2nd respondent, Indian Bank in closing the 3rd respondent- branch, i.e., Indian Bank, Maduranthakanallur Branch, as illegal, arbitrary and opposed to the Reserve Bank of India guidelines and against public interest. 2. According to the petitioner, he is a resident of Maduranthakanallur village, which is about 12 Kms. from Chidambaram and 15 Kms. from Sethiathope in the State of Tamil Nadu. There are about 1500 families residing in his village. The 2nd respondent, Indian Bank, established a branch fifteen years ago, which is the only commercial bank in the village. His account number is 2677 and there is no other nationalized bank or primary co-opeartive bank functioning in his village. The villagers of adjoining nine villages have their account with the 3rd respondent-branch, but the 2nd respondent proposed to close the only branch, which was available for nine villages, namely, (i) Maduranthakanallur, (ii) Odakanallur, (iii) Poonthotam, (iv) Devangudi, (v) Palayanserthangudi, (vi) Vakkur, (vii) Kizhanatham, (viii) Tharasur, and (ix) Sedhiyur and to merge it with their other branch at Sethiathope, which is 15 Kms. away. The action, according to the petitioner, is not only opposed to the policty of the Reserve Bank of India (hereinafter after referred to as ‘RBI’), but also against the public interest, as it will leave the villagers of the nine villages without any bank in a closed locality. Further case of the petitioner is that there are about 5000 account holders in the 3rd respondent-Branch and if all the account holders are to travel all the way to Sethiathope, which is 15 Kms. away, they will be put to great hardship as also risk of carrying cash and jewels. The women in the villages, who have formed self-help scheme and deposited their money in the Branch, will also feel difficulty if they are asked to go a long way of 15 Kms. for depositing the amounts. 3. Respondents 2 and 3, while stated that distance is not 15 Kms., but only 10 Kms., have taken a plea that a notice was given to all the constituent of the branch and the bank did not receive resistance or objection from the public or the constituents prior to or at the time of merger and merger has been effected smoothly. According to the 2nd respondent, Indian Bank, closure of branch in rural centres are guided by circulars of RBI. As per Circular No.BL.BC.23/22.01.001/2000-01 dated 12th September, 2000, under exceptional or unforeseen circumstances, the concerned bank may approach the RBI, Central Office, Mumbai, for prior permission after taking the prior approval of the District Consultative Committee and routing a proposal through the Directorate of Institutional Finance of the State Government. In order to comply with the directive of RBI, the 2nd respondent got the approval of the Cuddalore District Consultative Committee for merger at its meeting held on 26th September, 2001. By letter dated 5th November, 2001, the District Collector, Cuddalore, forwarded the approval of the Cuddalore Consultative Committee to the Deputy Secretary, Government of Tamil Nadu (Institutional Finance Department) for necessary action at their end. On 7th December, 2001, the Under Secretary, Government of Tamil Nadu (Finance Department) forwarded the merger proposal to RBI, Mumbai, for necessary action. Thereafter, on 30th May, 2002, the RBI, Mumbai, has permitted the merger of the branches. Further, according to Indian Bank, a Primary Agricultural Co-operative Bank is operating in one of the village, viz ., Vakkoor and another in a nearby village, viz. Orathur, located at a distance of 4 Kms. and 2 Kms. Respectively from Maduranthakanallur village. 4. According to the 4th respondent, RBI, the Branch in question was incurring loss for consequtive three years, i.e., 2000-01, 2001-02 and 2002-03. As per guideline, Indian Bank approached RBI for prior permission for shifting/merging of the bank, in exceptional/unforeseen circumstances. In the budgetary proposal for the year 2000-01, the Government of India announced that recapitalization assistance to the banks would be considered to enable them to achieve the prescribed capital adequacy norms, provided a viable restructuring programme, acceptable to the Government as the owner and the RBI as the regulator is made available by the concerned bank. In view of recurring loss incurred during three years and as the plan envisaged restructuring period of such three years involving comprehensive, organizational, operational and financial restructuring after which it is expected that the bank would be able to make sustained operating and net profits and maintain capital adequacy, the measures for closure/merger of loss making branches was taken. 5. The reason advanced by Indian Bank for proposed merger has been enclosed by 4th respondent at page-21 of the typed set filed by the 4th respondent. 5. The reason advanced by Indian Bank for proposed merger has been enclosed by 4th respondent at page-21 of the typed set filed by the 4th respondent. Therein, though business position of past four years has been shown, including loss to the tune of 0.43 lakhs, 2.32 lakhs and 3.02 lakhs for the year 1998-99, 1999-2000 and 2000-01, no specific exceptional or unforeseen circumstances has been shown therein for closure of the branch in question. 6. The proceedings of the District Consultative Committee held in its meeting on 29th September, 2001, as circulated by Indian Bank, Circle Office, Cuddalore, vide letter dated 6th October, 2001. From the said proceeding, it will be evident that the District Consultative Committee approved the proposal for merger of the four branches with other branches, including the branch in question, but no exceptional or unforeseen circumstances has been shown or discussed, but merely giving reference of the agenda papers approval was granted. The District Collector, Cuddalore, by its letter dated 5th November, 2001, while mentioned that the rational for the merger was presented in the second District Consultative Committee Meeting held on 26th September, 2001, has discussed the potentiality of decrease in deposits and advances in view of remote location, no exceptional or unforeseen circumstances have been mentioned or discussed by the District Collector, while made recommendation to the Deputy Secretary, Finance Department (Institutional Finance), Government of Tamil Nadu, Chennai, for further action. The Secretary, Finance Department, Government of Tamil Nadu, by its letter dated 7th December, 2001, while merely forwarded the proposal to RBI, has not discussed the question whether there was any exceptional or unforeseen circumstances for closure of the branch in question and its merger with another branch. The RBI, in its turn, issued the impugned order dated 30th May, 2002, approving the merger without discussing the aforesaid issue, i.e. whether there was any exceptional or unforeseen circumstances for closure of the branch in question and its merger with other branch, which is more than 10 Kms. away. 7. It is not in dispute that Indian Bank is a Nationalized Commercial Bank and is guided by the Banking Regulation Act, 1949 (hereinafter referred to as ‘Act 1949’). They are also guided by the instructions, if any, issued by the RBI, Mumbai. away. 7. It is not in dispute that Indian Bank is a Nationalized Commercial Bank and is guided by the Banking Regulation Act, 1949 (hereinafter referred to as ‘Act 1949’). They are also guided by the instructions, if any, issued by the RBI, Mumbai. Under Section 23, restrictions have been imposed on opening of new and transfer of existing places of business without obtaining prior permission of the RBI. Under sub-section (2) to Section 23 of Act, 1949, before granting any permission under the said Section, the RBI is required to be satisfied by an inspection under Section 35 or otherwise as to the financial condition and the history of the bank, general character of its management, the adequacy of its capital structure and earning prospects and whether public interest will be served by opening or change of location or place of business. In the present case, there is nothing on record to suggest that before granting permission to change place of business by merging the branch in question with another branch, any inspection under Section 35 or otherwise has been made by RBI so as to find out the financial condition and history of the bank, including general character of its management and the adequacy of its capital structure. It appears that without following the procedure laid down under sub-section (2) to Section 23, the impugned order was passed on 30th May, 2002. 8. RBI issued a guideline contained in BL. BC.74/22.01.001/98 dated 29th July, 1998, under Section 23 of the Act, 1949. From the said circular, it appears that an earlier Circular No.DBOD No. BL. BC.132/22.01.001/92 dated 20th May 1992, was issued and in terms of para-3(I) thereof, the banks are free to shift their branches to rural/semi-urban centres without obtaining prior approval of the RBI, subject to the condition that the existing and proposed centres are within the same block and service area and the relocated branch would be able to cater adequately to the banking needs of the villagers located in the scheme of service area approach. The banks were informed that the shifting of rural branch outside the block/service area is allowed on the basis of approval of such proposal by the District Consultative Committee and the State Government (Directorate of Institutional Finance). The banks were informed that the shifting of rural branch outside the block/service area is allowed on the basis of approval of such proposal by the District Consultative Committee and the State Government (Directorate of Institutional Finance). Having reviewed the matter, RBI decided that shifting of rural branches outside the block/service area may be allowed by RBI without insisting on the approval of DCC and the State Government only in the following circumstances: “(i) Branches which are in existence for five years or more and are incurring losses continuously for the last three years. (ii) Branches located at centres suffering from problems beyond control of the banks, such as prone to floods, land slides or likely to be submerged in waters due to construction of dams or having underground fires, etc. (iii) Shifting is necessitated on account of law and order problem or terrorists’ activities posing threats to bank property/staff members. (iv) Cases where the branch premises are in a dilapidated condition or burnt/destroyed and no suitable premises are available at the centre/block/service area.” It was further mentioned that in terms of circular No.BL.BC. 162/22.0.001/93 dated 24th August 1993, closure of loss making branches at rural centres is not permissible if there is a single commercial bank branch (excluding RRBs) at the centre. (emphasis added). However, at rural centres served by two or more commercial bank branches (excluding RRBs), decision for closure of one of the branches could be taken by the concerned bank by mutual consultation and the same is allowed by RBI, subject to approval of the proposal by the District Consultative Committee and routing of the same through the concerned State Government. It was decided by RBI to allow closure of loss making rural branches without involving the State Government, but verifying the aforesaid facts and following the procedures. The said circular was subsequently clarified vide circular No.BL.BC.23/22.01.001/2000-01 dated 12th September, 2000, issued by RBI under Section 23 of Act, 1949. At para2, while drawing attention to the 1998 circular, the following guideline was issued: Your attention is also invited to the contents of our circular DBOD. BL.BC.74/22.01.001/98 dated July 29, 1998 in terms of which shifting of rural branches outside the block/service area may be permitted by Reserve Bank of India without insisting on the approval of DCC and State Government subject to certain conditions specified therein. BL.BC.74/22.01.001/98 dated July 29, 1998 in terms of which shifting of rural branches outside the block/service area may be permitted by Reserve Bank of India without insisting on the approval of DCC and State Government subject to certain conditions specified therein. In this connection, it may be clarified that shifting/closing/merger of branches in rural areas is applicable only at centres served by more than one commercial bank branch (excluding RRBs). Hence, a branch which is the only bank branch functioning at a rural centre should not be shifted/closed/merged outside the service area under any of the reasons specified in the circular dated 29 July, 1998, as this would render the relative area unb anked. However, under exceptional/unforeseen circumstances, banks may approach Reserve Bank of India for prior permission after taking the approval of DCC/DIF in the matter.” (Emphasis added). From the aforesaid guideline it will be evident that except in exceptional or unforeseen circumstances, the branch, which is the only bank branch functioning at a rural centre, cannot be closed or merged outside the service area under any of the reasons, including loss, if incurred, during three or more years. Under Section 35-A of the Banking Regulation Act, 1949, the RBI issues directions/circulars from time to time, which have statutory force. (Refer Supreme Court decision in Central Bank of India v. Ravindra, 2002 (1) SCC 367 ). The guideline issued by RBI being statutory, it is binding on all the banks and also required to be followed by RBI. 9. In the present case, it has not been disputed that Maduranthakanallur branch was in loss during three financial years, i.e ., 1998-99, 1999-2000 and 2000-2001. The respondents have not disputed that it is the only commercial bank branch functioning at the rural centre and catering the need of nine villages, namely, (i) Maduranthakanallur, (ii) Odakanallur, (iii) Poonthotam, (iv) Devangudi, (v) Palayanserthangudi, (vi) Vakkur, (vii) Kizhanatham, (viii) Tharasur, and (ix) Sedhiyur. In this background, as per guideline issued by RBI under Section 23 of Act, 1949, dated 29th July, 1998 and 12th September, 2000 shifting or closure or merger of such singular commercial bank branch functioning at rural centre was not permissible, even if it was running in loss. It is only in exceptional or unforeseen circumstances, Indian Bank could have approached RBI and RBI could have granted such permission. 10. It is only in exceptional or unforeseen circumstances, Indian Bank could have approached RBI and RBI could have granted such permission. 10. It has already been pointed out that Indian Bank failed to give any exceptional or unforeseen circumstances. Neither the District Consultative Committee nor the District Collector or the Finance Department of the State Government or the Reserve Bank of India has recorded any exceptional or unforeseen circumstances while giving approval of merger. In fact, no discussion has been made by any of the Authority on the question whether any other branch of commercial bank is functioning at the rural centre in question and, thereby, whether it is desirable to close the branch and merge with another branch. No exceptional or unforeseen circumstances have been brought to the notice of the Court for deviating from the general guideline. In the circumstances the decision of merger taken vide letter dated 30th May, 2002, cannot be upheld. Such decisions and orders granting approval byone or other authority are, accordingly, set aside. The merger made vide letter dated 30th May, 2002, is declared illegal. The Writ Petition is allowed. However, there shall be no order as to costs.