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Judgment
M.S. Ramachandra Rao, CJ
This appeal has been preferred by M/s Himachal Gramin Sanchayka Limited (in short “the Company”) and its Principal Promoter, Managing Director & Share Holder under Section 483 read with Section 391(7) of the Companies Act, 1956 (in short “the Act”), against the composite judgment/order dt. 11.07.2003 passed by a learned Single Judge of this High Court, whereby, appellant no.1/Company has been ordered to be wound up in Company Petition no.6 of 2001 and the application preferred by the appellants under Section 391 of the said Act, seeking convening of a meeting of equity share holders and creditors, was rejected in CMP no.6 of 2003.
Background facts
2) The appellant no.1-Company was incorporated on 03.01.1992 under the Companies Act, 1956 with its registered office at Sanchayaka Bhawan, Chakkar, Shimla, H.P.
3) The objects of the said Company, inter-alia, are as under:-
“To issue on commission subscribe for purchase, take, acquire and hold, sell, exchange and dealing shares, stock, bounds debentures, obligations or securities of any Government, local authority or other interest in any other company.
To acquire for the purpose of the company by purchase, lease, exchange or otherwise any estates, lands, buildings and property of any nature of description and or interest therein, and any rights over or connected with land and to turn the same to account as may seem expedient in connection with the business of the company.”
4) According to the appellants, the said Company was mainly engaged in activities of hire purchase and business dealings in connection with bonds, debentures, other negotiable instruments and securities as well as real estates.
5) In 1991, the said Company invited memberships in terms of a scheme and several persons filed applications for membership and deposited amounts with it, which it invested in immovable properties.
6) According to the appellants, the members of the Company sought for immediate returns of the amounts deposited in view of the recession in the market, which affected the valuation of the movable properties, but the Company was not in a position to return the amounts deposited except in terms of its original scheme and it had sought deferred payment to its members.
Application dt.2.7.1997 made by the Company for certificate Registration under Section 45-IA of the Act
7) The Company submitted an application on 02.07.1997 for issuance of a certificate of registration under Section 45-IA of the Reserve Bank of India Act,1934 since it would come within the definition of a “Non-Banking Financial Company” (in short “the NBFC”) and to permit it to carry on business of a Non-Banking Financial Institution.
8) It appears that officials of Reserve Bank of India (in short “the RBI or the Bank”) inspected the Books of the Company from 25.04.1998 to 27.04.1998 with reference to its financial position as on 31.03.1997 through M/s Mittal & Company Chartered Accountants in order to consider its application for grant of Certification of Registration.
9) The said Firm of Chartered Accountant had submitted a report pointing out that the Company had violated the various provisions of the Non-Banking Financial Company Acceptance of Public Deposits ( Reserve Bank) Directions, 1998.
10) On 09.08.1998, the Reserve Bank of India also got conducted a scrutiny of Books of the Company by deputing its inspecting authority, which scrutiny revealed that the Company had renewed deposits even though it was not entitled to renew deposits.
The show cause notice dt.24.9.1999 issued by RBI
11) On 24.09.1999, the RBI issued a Show Cause Notice to the Company, pointing out various violations of the directions issued by it and calling upon it to show cause as to why its application for grant of Certificate of Registration should not be rejected.
12) According to the appellants, on 26.10.1999, the Company requested the RBI to give time up to December, 1999 to submit a reply to the Show Cause Notice as to why the Certificate of Registration should not be granted. However, no reply was given by it by end of December, 1999.
The order dt.7.1.2000 passed by RBI rejecting the Company’s request for issuance of certificate of registration under Section 45-IA
13) On 07.01.2000, the RBI passed an order rejecting the Company’s application for issuance of Certificate of Registration under Section 45-IA of the Act. Inter alia, in the said order, it was observed as under:-
“a) Special audit of the Company conducted with reference to its financial position as on 31.03.1997 by M/s P.L. Mittal & Company Chartered Accountants revealed that the Company had violated various provisions of the NBFC Acceptance of Public Deposits (Reserve Bank) Directions, 1998;
b) The Company had brought to the notice of the Bank that its Board of Directors had passed a resolution dt. 16.06.1998 for merger/take over of M/s Himachal Gramin Sanchayaka Limited, a partnership firm, by the Company and the Company had claimed that the merger would show healthy results, but nothing further was heard from the Company about the materialization of the proposal. The Company had also not submitted any combined balance-sheet consequent to such merger/take over, if any;
c) The Managing Director of the Company, who had called at the Chandigarh Office of the RBI on 09.10.1999, did not report the progress, if any, made in this regard and had reacted very vaguely;
d) The Bank conducted a scrutiny of the Books of the Company on 09.08.1998, which revealed that the Company had renewed deposits till 31.07.1998 in violation of Para-4(6) of the Directions;
e) In view of the observations of the Auditors of the Company regarding non-submission of information and other details by the Company, the figures mentioned in the balance-sheet as on 31.03.1998, was not considered reliable and the Bank was, therefore, constrained to act on the basis of the financial position of the Company as on 31.03.1997;
f) The Special Audit conducted by the Auditors, the scrutiny conducted by the Bank and other facts & circumstances, indicated that the Company was not fulfilling the conditions contained in Sub-section (4) of Section 45-IA of the Act;
g) A Show Cause Notice dt. 24.09.1999 was issued calling upon the Company to show why its application should not be rejected, mentioning specifically:
i. that the Net Owned Fund (NOF) of the Company was assessed at Rupees (-) 886.66 lacs as on 31.03.1997 on account of short provisioning against NPA, over recognition of income, excess investments in group companies and unaccounted liability;
ii. The Company did not maintain liquid assets at specified percentage from 01.04.1997 onwards, violating Section 45-IB(1) of the Act; and it was not eligible to hold any public deposits under the NBFC (Reserve Bank) Directons,1977 as it’s NOF was negative;
iii. A large number of complaints were received from depositors relating to non-payment of matured deposits, indicating that the Company violated Section 45-QA(1) of the Act;
iv. Outside liabilities of the Company at Rs.1167.94 lacs far exceeded the realizable value of assets at Rs.742.50 lacs and so the Company cannot be deemed to be solvent;
v. the NPAs of the Company were as high as Rs.534.92 lacs;
vi. Company violated Credit Concentration Norms and its liquidity ratio was unsatisfactory at 0.50:1;
vii. The Company had invested huge amounts in immovable property violating directions contained in a Notification issued on 18.12.1998 by the RBI regarding restrictions on investment in land and buildings and unquoted shares and it had not submitted the SLR Returns from June 1997 onwards, First Schedule for the years 1998-99 and Balance Sheet as on 31.03.1999, and thus, violated certain provisions of a Circulars dt. 31.01.1998, issued by the RBI;
h) The Company did not submit its reply to the Show Cause Notice; & The Managing Director of the Company had discussions with the officials of the Bank’s Regional Office at Chandigarh, during which, he expressed the Company’s inability to pay the SLR penalty and to make investments in Government securities at the prescribed percentage to the extent of Rs.63.75 lacs and Rs.112 lacs, respectively.”
14) Therefore, considering these circumstances, since the Company failed to satisfy statutory conditions contained under sub-Section (iv) of Section 45-IA of the Act, and such conditions had to be fulfilled before it could exercise its power to grant a Certificate of Registration, the RBI held that the Company was not entitled for Certificate of Registration and its application was, therefore, rejected.
15) The order also further directed that in exercise of powers conferred under Section 45-K of the Act, the Company has to furnish exact amount of deposit liabilities including accrued interest thereon as on the date of the said order rejecting its application for issue of Certificate of Registration.
16) It was also directed that the Company should furnish complete information about assets and properties with necessary detailed particulars held by it as on that day alongwith its plan of action for repayment of entire deposit liabilities with fund flow and repayment schedule of deposits. Such information was directed to be furnished within 30 days.
17) Significantly, this order rejecting the Company’s application for the grant of Certification of Registration under Section 45-IA of the Act, passed on 07.01.2000 by the RBI, was not challenged in any forum, such as the High Court by the Company, though a review appears to have been sought , for which there was no power under the Act.
18) As a consequence of this order dt. 07.01.2000 rejecting the Company’s application for grant of Certificate of Registration to the Company, RBI issued further orders on the same day(a) under Section 45-MB(1) of the Act prohibiting the Company from accepting deposits from any person by way of renewal or otherwise and (b) under Section 45-MB(2) of the Act prohibiting the Company from selling, transferring, creating charge or mortgage or dealing in any manner with the property/assets without the written permission of the RBI.
19) On 07.03.2000, the RBI issued a letter to the Company calling for its response to certain irregularities observed in its books during visit of officers of RBI on 28.02.2000, set-out therein.
20) On 17.05.2000, the Company wrote to the RBI providing list of its properties and, inter-alia, stating that the Chairman-cum-Managing Director of the Company has been impleaded in thousands of Court cases filed by the investors in District Consumer Forum(s) at Shimla, Solan, Nalagarh, Bilaspur, Mandi, Dharamshala & Una; that the balance-sheet for the year ending 31.03.1999, could not be finalized, as none of it’s offices out of 44 offices of the Company in the State of Himachal Pradesh is functioning, and all offices are locked by the abandoned staff members or landlords and investors; and that all the members of the staff and Board of Directors were busy in attending to more than 3000 cases filed by investors in the various District Consumer Forums mentioned above as well as the State Consumer Redressal Commission.
21) It was stated that the Company was consolidating its position and is planning to procure record from all its 44 Branches, that it would compile the same, and only after that it would be in a position to submit to the RBI the First schedule, half yearly statement on prudential norms and quarterly returns as on 31.03.1999 onwards on or before 30th September, 2000.
Repayment schedule of maturity was also indicated therein alongwith list of the properties of the Company.
The filing of C.P.No.6 of 2001 under Section 45 MC of the Act by RBI for winding up the Company
22) The Reserve Bank then filed on 17.04.2001 a Company Petition under Section 45-MC of the Act to wind up the Company and for consequential directions regarding appointment of Official Liquidator etc.
23) It also sought appointment of a provisional Liquidator for the Company pending the hearing and final disposal of the petition.
24) In the said application, it contended that the Company is a “Non-Banking Financial Company” as defined under Section 45-I(f) of the Act and it was bound by directions such as the Non-Banking Financial Companies (Reserve Bank Directions, 1977) and the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank Directions, 1998), as also NBFC Prudential Norms (Reserve Bank Directions, 1998 ), issued under Section 45-JA of the Act.
25) It was pointed out that in terms of Section 45-IA of the Act, no Non-Banking Financial Company shall commence or carry on business of a Non-Banking Financial Company without, inter-alia, obtaining a Certificate of Registration issued by the RBI; and though such application was filed on 02.07.1997 by the Company to the RBI for issuance of a Certificate of Registration, the same came to be rejected on 07.01.2000 for the reasons contained in the said order.
26) It then referred to the admission of the Company in its letter dt. 17.05.2000 that there are more than 3000 complaints pending against it; and that its balance-sheet for the year ending 31.03.1999 had not been finalized, and no office out of its 44 office in the State of Himachal Pradesh is functioning and they are all locked up; and that members of the staff and Board of Directors were busy attending cases filed by investors in various Consumer Disputes Redressal Forums.
27) It therefore contended that it is satisfied that the Company is unable to pay its debts; that immovable properties of the Company were also attached by various Consumer Disputes Redressal Forums in the State of Himachal Pradesh; and some of them have also been sold under the supervision of the State Consumer Disputes Redressal Commission, Himachal Pradesh, and sale proceeds have been deposited before the said Commission and portions of it were also released in favour of certain parties/depositors.
28) It was therefore contended that the Reserve Bank was satisfied that the Company was unable to pay its debt deposits and the continuance of the Company was detrimental to public interest and the interest of the depositors of the Company; realizable assets of Company were less than its total assets as per inspection conducted by it; all conditions stated in Section 45-MC of the Act have thus been fulfilled and so the Company has to be ordered to be wound up under Section 45 MC of the Act.
The appointment of Provisional Liquidator
29) Admittedly, a provisional Liquidator had been appointed on 03.09.2001 by the High Court. This was challenged in an Appeal by the Company, i.e., Company Appeal no.3 of 2001 which was dismissed. Thereafter an SLP was preferred against it which was withdrawn with liberty to file an application for scheme of restructuring/Arrangement.
Reply of the Company
30) The Company filed its reply opposing grant of relief to the RBI.
31) It denied knowledge that any inspection was carried out by RBI about its financial position on 31.03.1997 by M/s P.L. Mittal and Company, Chartered Accountants and claimed that it was never associated, either before or after the so called inspection, and it was not afforded any opportunity to present its case either by the Chartered Accountants or by the RBI, and report of inspection is denied in toto.
32) It was also contended that the report of the Chartered Accountant was never made available and it is not admitted and it cannot offer any comments on the said report.
33) It denied that it was violating any provisions of the NBFC Acceptance of Public Deposits (Reserve Bank Directions, 1998).
34) It did not admit that the Bank had conducted any scrutiny of the Books of Account of the Company on 09.08.1998 and claimed that it was not associated with the so-called scrutiny of the books.
35) It was however admitted that the Bank had issued a show cause notice, and that the contents of the show cause notice were a perfunctory formality, and there was no foundation or bases for that show cause notice.
36) It was stated that the show cause notice issued to the respondent was based upon allegations which were required to be verified from the Field Offices of the Company, which could not be done as 44 offices of the Company were closed, as the staff employed in those offices had ceased to work.
37) It was stated that certain other NBFCs operating in Himachal Pradesh, which had origin outside Himachal Pradesh, had cheated the depositors and had left without any address, and this had created a panic effect, which affected the Company, resulting in the Field Offices of the Company getting closed and the staff ceasing to work.
38) It was stated that for the above reason no information could be gathered, and it had requested the Bank to grant some time, and the Bank, without applying its mind, passed the order on 07.01.2000, rejecting the Company’s application for issuance of Certificate of Registration.
39) It is contended that it was the Bank which was in default and the Company was not at fault, and if the Bank had given more time to file a comprehensive reply, it would have helped the cause of justice.
40) It is alleged that by issuing rejection order of the application for the issuance of Certificate of Registration, the Bank has done irreparable harm not only to the depositors but also to the general public, making it difficult for the depositors to get their deposits.
41) It is contended that the facts on which the Company was prohibited from doing business are wrong, that the rejection of application of the Company was in violation of natural justice, and the said order was a nullity, which did not have any existence in law.
42) It was further stated that the Company did file a Review Application before the RBI, but the fate of the same was not known.
43) It is stated that it is irrelevant as to how many complaints were pending against the Company and filing of applications before the Consumer Fora, would have no bearing and would be irrelevant.
44) It was denied that issuance of Certification to the Company would be detrimental to the public or that the Company is unable to pay its debts. It was also stated that the Company cannot be wound up either under Section 45 MC of the Act or under Section 434 of the Companies Act or any other provisions of law.
45) It was stated that after issuance of the directions from the RBI not to accept any deposits, even a single paisa was not received, but certain deposits in crores were refunded to the claimants which showed the bonafide intention of the Company.
46) It was claimed that the assets of the Company were to the tune of Rs.9 crores and included both movable & immovable assets, whereas, its liabilities were only around Rs.6 crores.
Other events.
47) On 12.12.2002, an application was filed on behalf of investors under Section 557 of the Companies Act, 1956, with a prayer that possibility regarding functioning of the Company be explored by this Court instead of winding up order in the interest of investors.
48) Much later, on 06.03.2003, application CMP.No.6 of 2003 under Section 391 of the Act was filed by the Company, proposing a scheme for rehabilitations/payments to investors.
Common Order dt.11.7.2003 of the learned Single Judge in CP.No.6 of 2001 and CMP.No.6 of 2003 .
49) By a common order passed on 11.07.2003, Company Petition no.6 of 2001 filed under Section 45-MC of the Act was allowed by the learned Single Judge and the application CMP no.6 of 2003 was dismissed.
50) The learned Single Judge took into account the background facts about issuance of notice by RBI to the Company on 24.09.1999, calling upon the Company to show cause as to why application for grant of Certificate of Registration be not rejected, and the fact that the Company did not offer any explanation, or care to reply to the notice except requesting extension of time through a letter dt. 26.10.1999 up to 15.12.1999; and held that the RBI had rejected the application for issuance of Certificate of Registration on 07.01.2000 by taking into consideration the relevant facts, affairs of the Company and failure of the Company to comply with the statutory provisions of the Act and the directions issued by it; and thus, the Company became disqualified under Section 45-IA of the Act to carry on business as a Non-Banking Institution.
51) He also adverted to the order passed under Section 45 MB(1) and Section 45 MB(2) of the RBI Act on 18.01.2000.
52) He took note of the fact that several depositors had approached the RBI regarding non-payment of the deposits by the Company and complaints were filed with the RBI to the effect that in spite of maturity, due amounts of the deposits were not being repaid.
53) He also referred to communication dt. 27.11.2000, addressed by the Registrar of the H.P. State Consumer Disputes Redressal Commission, Shimla, bringing to the notice of the RBI orders passed by the Commission and amounts due, apart from details of execution of orders passed by the Commission and observed that that was why the RBI had to file petition under Section 45 MC of the Act.
54) He also noted that the order appointing provisional Liquidator had been challenged in Company Appeal no.3 of 2001 by the Company, which was dismissed on 13.12.2001.
55) He then referred to Section 45 MC of the Act and held that the Company did not deny the allegations of the RBI about the Net Owned Fund of the Company to be negative as on 31.03.1997 itself or the fact that public deposits held by it far exceeded its assets and were more than Rs. 797 lacs as on 31.03.1999. He also noted that the Company did not specifically deny that CRAR of the Company was nil, and outside liabilities of the Company amounted to Rs.1167.99 lacs against the nil worth of the Company, and there was no answer about high level of non-performing assets.
56) He then recorded that the Company had failed to satisfy the statutory conditions for grant of registration as an NBFC under Section 45-IA of the Act, and the fact that more than 3000 claims were pending before various Consumer Fora for recovery of maturity amounts of the deposits, and, therefore, the RBI was right in opining that affairs of the Company were conducted in a manner detrimental to the interests of its present and future depositors.
57) The learned Single Judge also rejected the contention of the Company that there was violation of principles of natural justice by holding that show cause notice was admittedly issued to it and it was given an opportunity to explain its position, but it had failed to do so.
58) He held that in the instant case, there is no scope for disputing that the Company failed to repay the depositors their deposits on maturity, and so it should be deemed to be unable to pay its debts within the meaning of sub-Clause(a) of sub-Section (1) of Section 45 MC of the Act; in view of the rejection of the application of the Company for grant of certificate by the RBI under Section 45-IA of the Act, the Company became disqualified to carry on the business of NBFC; and the RBI was justified in praying for winding up of the Company under Clause (b) of Section 45 MC of the Act.
59) Most importantly, he also recorded that the Counsel appearing for the Company during the hearing did not say anything on the merits of the winding up of the Company, but only pleaded that the application under Section 391(1) of the Companies Act, 1956, be considered for convening meeting of equity share-holders, and the Company be permitted to dispose of its assets after realization of the amount and utilize it for repayment of debts, liabilities and rehabilitation of the Company.
60) The Single Judge held that assets of the Company, after passing of winding up order, would come under the control of the Liquidator, and the winding up order would operate in favour of all creditors of the Company.
61) He, therefore, allowed Company Petition no.6 of 2001 for the said reasons.
62) He then considered CMP no.6 of 2003 filed by the Company under Section 391(1) of the Companies Act and held that its application is not maintainable in the facts situation of the instant case; and that when Company is under winding up proceedings, then such an application can only be maintained by the Liquidator.
The instant Appeal
63) Challenging the same, this appeal is filed.
Events after filing of the Company Appeal
64) The Company Appeal was initially dismissed on 17.07.2013, but the order was later recalled on 03.09.2015 and the appeal was restored to its original number.
65) Thereafter on 26.06.2017, Company Application no.2 of 2017 was filed for sale of movable property and assets, which was permitted and the Company was asked to negotiate with the prospective buyers, but directed not to finalize the deal; later an order was passed on 27.02.2021 granting time to the Company to bring prospective purchaser for purchase of the properties of the Company.
66) Applications were filed by the prospective buyers in the Company Appeal for purchase of properties situated at Mohal Kasol, Tehsil Sadar, District Bilaspur, and certain other applications were also filed for purchase of property in Mauja Dhainda and for purchase of the Himachal Gramin Sanchayaka Bhawan at Chakkar during the pendency of the appeal.
Contentions of counsel for appellants
67) The principal contention of the counsel for the appellant/Company is that the learned Single Judge ought to have decided the application CMP no.6 of 2003 under Section 391(1) of the Companies Act, 1956 for framing a scheme of restructuring and arrangement, which would be in the interest of the Company, its share-holders, creditors & employees, instead of deciding CP no.6 of 2001 filed by the RBI for winding up of the Company.
68) It was contended that the Company was not barred from filing an application under Section 391(1) of the Act and that there were certain decisions rendered by the High Court of Delhi that such applications filed by the Company in liquidation, are maintainable.
69) It is, therefore, contended that the learned Single Judge erred in holding that an application under Section 391 of the Act, cannot be pursued by the Company or the share-holders and only the Official Liquidator may file it.
70) He also complained that the learned Single Judge had committed a grave error in not considering the application under Section 391 of the Act on merits and presuming that the Company was not in a position to restructure and get rehabilitated while passing order for its winding up.
71) According to him, the Company Judge should consider the effect of a winding up order on workers, employees, interest of share holders & creditors in general, and while considering an application under Section 391 of the Act as far as practicable, the Company Court should think of reviving the Company rather than closing it.
72) According to him, the impugned order directing the winding up of the Company is unsustainable, since the conditions precedent for winding up of the Company under Section 45 MC of the Act had not been complied with.
73) He also contended that the learned Single Judge did not take into consideration the plea raised in the reply of the Company that value of assets of the Company were about Rs.9 crores while its liability was only Rs.6 crores.
Contentions of counsel for RBI/respondent
74) Counsel for the Reserve Bank of India refuted the said contentions and supported the order passed by the learned Single Judge.
75) He stated that the appellants cannot complain of violation of the principles of natural justice because when the Show Cause Notice dt. 24.09.1991 was issued to them as to why the Company’s application for grant of Certificate of Registration should not be rejected, mentioning the material against the Company, the Company had not chosen to give its reply thereto.
76) He also contended that in the reply filed by the Company before the learned Single Judge, it had admitted that it was unable to file a reply to the show cause notice because all its 44 offices had been closed, that the staff had left, and in view of the further admission that about 3000 complaints being pending before the District Consumer Forums as well as the State Consumer Redressal Commission in the State of Himachal Pradesh, no fault can be found with the decision of the RBI to refuse the Certificate of Registration to the Company as of NBFC or to seek winding up of the Company.
77) He pointed out that when even the balance sheet of the Company as on 31.03.1998 was not available, and no other balance sheet for the subsequent period is also available, it would be highly unsafe to rely upon the plea of the Company that the value of its assets was Rs.9 crores and the value of its liabilities is only Rs.6 crores.
78) He contended that there was no material placed by the Company even in the appeal to throw any doubt on the allegations levelled by the RBI against the Company regarding its financial position; and that in the facts & circumstances, the learned Single Judge was right in refusing to consider the application of the Company under Section 391(1) of the Companies Act, 1956 and had acted rightly in allowing CMP no.6 of 2001 filed under Section 45 MC of the Act.
Consideration by the Court
79) We have noted the contentions of the parties.
80) There is no dispute that the business being carried out by the Company was in the nature of a Non-Banking Financial Company and that Section 45-IA of the Act prohibits a Non-Banking Financial Company from commencing or carrying on business of a Non-Banking Financial Institution without obtaining a Certificate of Registration from the RBI.
81) When the Company made such an application on 02.07.1997 under Section 45-IA of the Act seeking Certificate of Registration to carry on business of NBFC, the Reserve Bank alleges that it got the books of the Company inspected between 25.04.1998 to 27.04.1999 with reference to financial position of the Company as on 31.03.1997 in order to consider the Company’s application for grant of Certificate of Registration. It even claimed to have got conducted a scrutiny of the Books of the Company on 09.08.1998.
82) These facts were specifically adverted to in the Show Cause Notice dt. 24.09.1999 issued by the RBI.
83) The Company did not dispute any of these contentions mentioned in the show cause notice and instead wrote a letter on 26.10.1999, seeking more time up to 15.12.1999 to reply to the show cause notice. However such a reply was never submitted by the Company leading to the passing of the order on 07.01.2000.
84) As rightly contended by counsel for the RBI, it is not open to the Company to now contend that it was not aware of the inspection of its books or scrutiny of its books by the officials of RBI, because at the first opportunity of replying to the show cause notice, these allegations made by the RBI should have been denied by the Company. By not doing so, the Company has accepted implicitly that such inspection and scrutiny had indeed occurred and it cannot be permitted to contend in the appeal filed against the order of winding up order that it did not get proper opportunity before the rejection of its application for issuance of a Certificate of Registration.
85) We may also point out that against the order passed on 07.01.2000 rejecting application of the Company for grant of Certificate of Registration, an appeal is provided to the Central Government under Section 45-IA(7) of the Act, within 30 days from the date of such order of rejection, but such a remedy was not availed of by the Company.
86) Instead it claims to have filed a Review Petition before the RBI, though there is no remedy of review provided in the RBI Act, 1934, for challenging an order or rejection of application for registration.
87) The order dt. 07.01.2000 of the RBI, itself mentions that the Net Owned Fund (NOF) of the Company was negative as on 31.03.1997; that it did not maintain liquid assets at specified percentage from 01.04.1997; that it was not eligible to hold any public deposits ; that a large number of complaints were received from the depositors by the RBI relating to non- payment of matured deposits; that outside liabilities of the Company were Rs.1167.94 lacs far exceeding the realizable value of assets at Rs.742.50 lacs etc. These circumstances were relied on by the learned Single Judge to justify the winding up of the Company.
88) Even in this appeal, no material to rebut the allegations of the RBI is placed on record to show that the assets of the Company as on date have higher realizable value as compared to its liabilities.
89) No valuation of the available properties owned by the Company has been placed before us to believe the plea of the Company that it can meet its liabilities if a Scheme of Arrangement under Section 391(1) of the Act, proposed by it, is allowed.
The decision of the Supreme Court in Nedumpalli Finance
90) The Supreme Court in Nedumpilli Finance Company Limited Vs. State of Kerala & Others[(2022) 7 SCC 394] considered the provisions of the RBI Act, 1937 and its powers regarding Regulation of Non-Banking Financial Companies in the context of certain statutes framed by the State of Kerala and the State of Gujarat.
It held that the RBI, as a Central Bank in an economy, has to manage the currency, the money supply & interest rates; that one of the objects of the RBI Act, 1934 as spelt out in its preamble is “to operate the currency and credit system of the country to its advantage”; that the RBI takes a holistic approach to the business of banking, money lending and operation of currency and credit system of the country; from time to time, amendments were made to the Act in view of the growing complexity in the business of banking & finance; and several directions were issued by it to regulate NBFCs ; and ultimately, the Reserve Bank of India Amendment Ordinance, 1997 was promulgated on 09.01.1997, which was succeeded by the RBI Amendment Act, 1997.
The Supreme Court held that the Amendment Act of 1997 completely revamped Chapter-IIIB by amending the definition provision in Section 45-I and inserting new provisions such as Sections 45-IA , 45-IB, 45-IC, 45-JA, 45-MB, 45-MC etc.
After referring to all these provisions, the Supreme Court held that the Scheme of Chapter-IIIB of the RBI Act shows that power of intervention is available for the RBI over NBFCs from cradle to the grave. In other words, no NBFC can carry on business without being registered under the Act and an NBFC which takes birth with the registration under the Act is liable to be wound up at the instance of the RBI.
The entire life of an NBFC from the womb to the tomb is also regulated and monitored by the RBI.
The Supreme Court also held that there is a long list of regulations/directions or master circulars issued by the RBI from 1977 onwards which showed that even before the 1997 Amendment to RBI Act, some kind of control was exercised by RBI over NBFCs. After the 1997 Amendment, every aspect of the business of NBFCs, including loans, is covered by Master Circulars/Directions issued by RBI. It held that these Regulations, Master Circulars & Directions issued by RBI are binding on NBFCs.
It held that the RBI Act which provides control and supervision of NBFCs is a complete code in itself because NBFCs play vital role in contributing to the financial health of the country and their operations get controlled by RBI with the avowed object of operating the currency and credit system of the of the country to its advantage.
91) We have no doubt in our mind that, in exercise of its mandate under the RBI Act, and with the avowed interest of protecting the interest of investors, depositors, and having come to the right conclusion that continuance of business of the Company, would no longer be in public interest and would be detrimental to the interest of the depositors, the RBI had moved the application CMP no.6 of 2001 for winding up of the Company.
92) Having regard to the factual data on the basis of which the RBI filed such application on 17.04.2001, which data was not controverted by the Company, and having regard to the fact that the application under Section 391(1) of the Act came to be filed long afterwards on 06.03.2003, we are of the opinion that the filing of the application under Section 391 of the Act by the Company proposing a scheme for rehabilitation of payment to investors is only after thought by the management of the Company to somehow evade the winding up of the Company.
93) We may take note of the fact that as per proviso to sub-Section (2) of Section 391 of the Companies Act,1956, for making such a proposal, the latest financial position of the Company, the latest auditors’ report on the accounts of the Company, have to be disclosed. These are pre-requisites for passing of any order under Section 391 of the Act and they cannot be treated as empty formalities as held in State of Best Bengal & Ors. Vs. Pronab Kumar Sur & Others[(2003) 9 SCC 490].
94) No such material is produced by appellants either before the learned single Judge or before us and therefore the application under Section 391 of the Act, filed by the Company, could not have been considered at all.
95) More importantly, we may point out that before the learned Single Judge the Counsel appearing for the Company had not disputed the merits of the winding up of the Company at all.
96) Though, we agree with the contention of the Company that the learned Single Judge may not be right in insisting that only Official Liquidator could have filed the application under Section 391(1) of the Act in view of the decisions in Re:Rajdhani Grains & Jaggery Fxchange Ltd (1983) Vol.54 Company Cases 166 and In Re: Vasant Investment Corporation ltd. (1982) Vol.52 Company Cases 139, his ultimate conclusion that such application cannot be allowed in the facts situation of the instant case, does not warrant any interference by us.
97) For all the aforesaid reasons, we find no merit in this appeal, and it is accordingly dismissed. No costs.
98) All pending applications shall also stand dismissed.