NBFC revival schemes cannot override RBI winding-up action, and courts may reject unworkable reconstruction proposals.

An NBFC proceeded against under section 45MC of the Reserve Bank of India Act, 1934 cannot ordinarily avoid winding up by using sections 391(1) and 393 of the Companies Act, 1956 to shift into a different business line, because that would defeat the regulatory object of Chapter III-B and permit indirectly what the statute forbids directly. The only possible narrow exception noted is where the sole ground is inability to pay debts and a genuinely protective scheme is shown. The court must also be satisfied prima facie that any proposed reconstruction or amalgamation is bona fide, complete and workable before directing meetings of shareholders and creditors; an incomplete, uncertain or commercially unrealistic scheme need not be allowed to proceed.

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Issues: (i) Whether a non-banking financial company against which the Reserve Bank of India has acted under section 45MC of the Reserve Bank of India Act, 1934, can seek revival by proposing a scheme under sections 391(1) and 393 of the Companies Act, 1956 so as to diversify into a business other than non-banking finance; (ii) Whether the proposed scheme of reconstruction, arrangement and amalgamation was bona fide, feasible and workable so as to justify convening meetings of shareholders and creditors.

Issue (i): Whether a non-banking financial company against which the Reserve Bank of India has acted under section 45MC of the Reserve Bank of India Act, 1934, can seek revival by proposing a scheme under sections 391(1) and 393 of the Companies Act, 1956 so as to diversify into a business other than non-banking finance.

Analysis: The statutory scheme of Chapter III-B of the Reserve Bank of India Act, 1934 was intended to regulate the acceptance of deposits by non-banking financial companies and protect depositors. Section 45MC specifically empowers the Reserve Bank to seek winding up where the company is unable to pay its debts, has become disqualified under section 45-IA, is under a deposit prohibition order for the prescribed period, or its continuance is detrimental to public interest or to depositors. Where winding up is sought on such grounds, the legislative intent is that the company has no right to continue as an NBFC in violation of the regulatory framework. Permitting the same entity to avoid winding up by diverting its assets and business into another line of activity would defeat the object of the statute and indirectly allow what cannot be done directly. The availability of sections 391 to 394 of the Companies Act, 1956 in a winding up proceeding does not extend to cases where the winding up is founded on the serious grounds specified in section 45MC, except possibly in a narrow case where the sole ground is inability to pay debts and a genuinely protective scheme is otherwise shown.

Conclusion: The proposed use of sections 391(1) and 393 of the Companies Act, 1956 was not available to displace the winding up consequence under section 45MC of the Reserve Bank of India Act, 1934 in the facts of the case.

Issue (ii): Whether the proposed scheme of reconstruction, arrangement and amalgamation was bona fide, feasible and workable so as to justify convening meetings of shareholders and creditors.

Analysis: The scheme was found to be incomplete and commercially unrealistic. The proposed housing project lacked adequate particulars, the funding arrangement was uncertain, the availability of land itself was disputed, the financial disclosures were incomplete, the companies had been defunct for years, and the proposal merely postponed repayment to creditors for several years without demonstrating a credible source of funds. The court emphasised that, even at the stage of first motion, it is not bound to mechanically direct meetings if the scheme is not genuinely workable. A court must be satisfied prima facie about the genuineness, completeness and viability of the arrangement before allowing it to move forward.

Conclusion: The scheme was neither bona fide nor viable and did not warrant convening meetings of shareholders or creditors.

Final Conclusion: The petition was held to be misconceived and without merit, and the request to advance the revival scheme was refused; the winding up consequence remained undisturbed.

Ratio Decidendi: A company proceeded against under section 45MC of the Reserve Bank of India Act, 1934 for serious regulatory defaults cannot, as a general rule, evade winding up by proposing a scheme to shift into a different business, and a court may refuse to convene meetings where the proposed scheme is not prima facie bona fide, complete and workable.

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