2010 (12) TMI 1063 - HC - Companies Law

Company Winding-Up Order: Financial Insolvency, Regulatory Violations, Official Liquidator Appointed

Reserve Bank of India Versus Kirloskar Investments and Finance Ltd.

The court ordered the winding up of the company under section 45MC of the Reserve Bank of India Act, 1934 and related sections of the Companies Act due to ... Non-banking financial companies - Winding up of - Respondent-company was constituted as a non-banking financial company Issues Involved:1. Winding up of the company under section 45MC of the Reserve Bank of India Act, 1934 and related sections of the Companies Act.2. Appointment of Official Liquidator.3. Non-payment of deposits and dividends.4. Violation of regulatory norms and prudential standards.5. Financial insolvency and negative net worth.6. Pending legal proceedings and appeals.7. Revival schemes and their viability.8. Public interest and depositor protection.Detailed Analysis:1. Winding up of the company under section 45MC of the Reserve Bank of India Act, 1934 and related sections of the Companies Act:The Reserve Bank of India (RBI) filed Company Petition No. 2/2000 seeking the winding up of the company under section 45MC of the Reserve Bank of India Act, 1934, stating that the respondent-company had become unable to pay its debts and was disqualified to carry on the business of a non-banking financial institution. Several depositors also filed petitions under section 439 read with section 433(e) and (f) and section 434 of the Companies Act for winding up the company due to non-payment of deposits.2. Appointment of Official Liquidator:The RBI sought the appointment of an Official Liquidator to manage the winding-up process. The court appointed a Committee consisting of eminent persons to oversee the company's affairs and ensure the repayment of depositors on a pro-rata basis. The Committee submitted multiple reports, indicating the company's inability to revive and recommending winding up.3. Non-payment of deposits and dividends:Depositors claimed non-repayment of their deposits even after maturity, and holders of Redeemable Cumulative Preference Shares (RCPS) claimed non-payment of dividends since 1997. Despite statutory notices, the company failed to make payments, indicating its incapability to repay.4. Violation of regulatory norms and prudential standards:The RBI's inspection revealed several violations, including non-maintenance of liquid assets, acceptance of deposits beyond permissible limits, non-payment of interest on deposits, and failure to adhere to Accounting Standards and Prudential Norms Directions. The company also failed to provide for depreciation in investments and classify leased assets as per norms, leading to significant financial discrepancies.5. Financial insolvency and negative net worth:The company's financial position was dire, with realizable assets valued at Rs. 11,853.12 lakhs against liabilities of Rs. 17,404.21 lakhs, indicating insolvency. The company's net worth was negative, and it failed to maintain the minimum capital adequacy standards.6. Pending legal proceedings and appeals:The company argued that legal proceedings before the Company Law Board and the Appellate Authority for NBFCs were pending, and the winding-up petition would render these proceedings infructuous. However, the court found that the company's financial condition and regulatory violations justified the winding-up petition.7. Revival schemes and their viability:The company proposed a revival scheme, but the court found it lacked bona fide, did not ensure a source of income, and deviated from the main business. The Committee of Management and the Special Officer appointed by the RBI both opined that revival was not possible, and the company's attempts to revive would cause more loss than profit.8. Public interest and depositor protection:The court emphasized the need to protect the public interest and depositors' interests. Given the company's inability to repay deposits, regulatory violations, and financial insolvency, the court found it just and equitable to wind up the company.Conclusion:The court ordered the winding up of the company, appointed an Official Liquidator, directed the petitioner to serve a copy of the order to the Registrar of Companies, and mandated advertisements in newspapers. The Committee of Management was dissolved, and all connected company petitions were disposed of in view of the winding-up order. The court's decision aimed to protect the interests of depositors, creditors, and the public, given the company's financial and regulatory failures.