Winding up of disqualified non-banking finance company sustained despite memorandum clauses and repayment arrangements.

Refusal of registration under the non-banking financial company framework, followed by dismissal of the statutory appeal, left the company disqualified to carry on that business, so the Reserve Bank could seek winding up under section 45-MC. The company could not rely on its memorandum of association to continue where its real business depended on public deposits and was no longer legally permissible, and residual objects did not prevent liquidation. A separate repayment arrangement under Company Law Board directions also did not bar winding up, because the liquidation scheme would take over once winding up was ordered.

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Issues: (i) Whether, after rejection of registration and dismissal of the statutory appeal, the Reserve Bank of India could seek winding up of the company under the Reserve Bank of India Act, 1934; (ii) whether the company could continue other activities under its memorandum after losing authority to carry on non-banking financial business; (iii) whether winding up should be deferred because the company was allegedly repaying deposits under directions of the Company Law Board.

Issue (i): Whether, after rejection of registration and dismissal of the statutory appeal, the Reserve Bank of India could seek winding up of the company under the Reserve Bank of India Act, 1934

Analysis: Section 45-MC authorises the Bank to apply for winding up where a non-banking financial company becomes disqualified under section 45-IA to carry on business. The company's registration had been refused, its appeal had been dismissed, and no further challenge was pursued. On that footing, the company remained disqualified to continue as a non-banking financial institution.

Conclusion: Yes. The winding up petition was maintainable and the disqualification was sufficient to invoke section 45-MC.

Issue (ii): Whether the company could continue other activities under its memorandum after losing authority to carry on non-banking financial business

Analysis: The stated objects were examined as a whole and the company was found to be, in substance, an investment company whose principal activity depended on acceptance and deployment of public deposits. Once the non-banking financial business became impermissible, no meaningful residual commercial activity remained that could save the company from winding up. Its continued existence was also viewed as contrary to public interest in light of non-payment complaints from depositors.

Conclusion: No. The company could not rely on the memorandum to continue a business that in substance fell within the mischief of section 45-IA.

Issue (iii): Whether winding up should be deferred because the company was allegedly repaying deposits under directions of the Company Law Board

Analysis: The Court held that once winding up is ordered, the statutory scheme governing liquidation under the Companies Act, 1956 takes over. The existence of a repayment process under other directions did not provide a reason to refuse winding up, and the pendency of any appellate matter had also not been shown to bar disposal of the petition.

Conclusion: No. The repayment arrangement did not prevent the Court from ordering winding up.

Final Conclusion: The company was held unfit to continue as a non-banking financial entity, and the statutory conditions for winding up were satisfied, leading to liquidation under the Reserve Bank of India Act, 1934 and the Companies Act, 1956.

Ratio Decidendi: Once a non-banking financial company is refused registration and thereby becomes disqualified under section 45-IA, the Reserve Bank of India may seek its winding up under section 45-MC, and the company cannot defeat that consequence by invoking its memorandum of association or collateral repayment arrangements.

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