Supreme Court affirms High Court ruling on non-compliant scheme under RBI Act

The Supreme Court upheld the High Court's decision, ruling that the scheme proposed by the appellant was non-compliant with Section 45QA of the RBI Act and that the non-disclosure of the RBI's prohibitory order constituted a material omission, rendering the scheme invalid. The appeals were dismissed, affirming the High Court's judgment.

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Issues Involved:
1. Whether the non-obstante clause in Section 45Q of the RBI Act, 1934 prohibits the High Court from sanctioning any scheme for the deposit holders of a Non-Banking Finance Company (NBFC).
2. Whether the petitioner failed to disclose the RBI letter dated 18th January, 2005 before the learned Company Judge as per the provisions of Section 391(1) of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Non-Obstante Clause in Section 45Q of the RBI Act:
The primary issue was whether Section 45QA of the RBI Act bars the sanctioning of a scheme under Sections 391-394 of the Companies Act for NBFCs. The court held that Chapter IIIB of the RBI Act, which includes Section 45QA, is a complete code and has an overriding effect over the Companies Act due to the non-obstante clause in Section 45Q. This clause ensures that the provisions of Chapter IIIB prevail over any other law, including the Companies Act. The court concluded that the scheme proposed by the appellant, which sought to convert deposits into secured convertible debentures, was contrary to the mandatory requirement under Section 45QA(1) that "every deposit accepted by a NBFC, unless renewed, shall be repaid in accordance with the terms and conditions of such deposit." The court emphasized that the RBI Act and the Companies Act operate in distinct fields, and the former's regulatory provisions must be adhered to, especially when it comes to protecting the interests of depositors. Therefore, the scheme could not be sanctioned as it did not comply with Section 45QA of the RBI Act.

2. Non-Disclosure of RBI Letter:
The second issue was whether the non-disclosure of the RBI letter dated 18th January, 2005 violated Sections 391(2) and 393 of the Companies Act. The court found that the appellant failed to disclose material facts, including the RBI's prohibitory order, which was crucial for the creditors and shareholders to make an informed decision. The court noted that the notice from the RBI, which prohibited the company from accepting further deposits and required prior permission for dealing with its properties, was a critical piece of information that should have been disclosed. The non-disclosure of such material facts reflected a lack of bonafides on the part of the company in proposing the scheme. The court held that the Company Court is not a rubber stamp and must ensure that all relevant information is disclosed to assess the fairness and reasonableness of the proposed scheme. Consequently, the non-disclosure amounted to a violation of Sections 391(1) and 393(1) of the Companies Act, justifying the High Court's decision to set aside the scheme.

Conclusion:
The Supreme Court upheld the High Court's decision, concluding that the scheme proposed by the appellant was not in compliance with the mandatory provisions of Section 45QA of the RBI Act and that the non-disclosure of the RBI's prohibitory order was a material omission that invalidated the scheme. The appeals were dismissed, affirming the High Court's judgment.

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