2025 (2) TMI 637 - HC - Companies Law

RBI's failure to exercise statutory powers against fund misappropriation by directors subject to Article 226 writ jurisdiction

Delhi HC upheld maintainability of writ petition under Article 226 against RBI's failure to exercise statutory powers regarding fund misappropriation by ... Maintainability of writ petition filed by respondent no. 1 under Article 226 of the Constitution - siphoning and misappropriation of funds by the directors of the ECL - main grievance of the respondent no. 1 (writ petitioner) is that there is a failure to exercise the power by the RBI in relation to the affairs of ECL - HELD THAT:- A duty is implied by the vesting of statutory power upon a public authority. Further, the performance of such duty can be secured by proceedings under Article 226 of the Constitution of India - the respondent no. 1 has sought for the interference of the learned Single Judge considering the failure of RBI to act in exercise of its power under Chapter-III-B and more particularly Section 45-IE and Section 45MA of the RBI Act. Such reliefs claimed are, therefore, clearly maintainable in proceedings under Article 226 of the Constitution of India. Another plea raised by the appellant, which was not taken up during the final arguments before the learned Single Judge, is that the NCLT and NCLAT are seized of the matter and the bar of Section 430 of the Companies Act, 2013 applies. This Court does not find any force in this argument as the appellant has assailed the learned NCLT’s decision dated 15th May, 2024 in relation to ECL on the basis that the RBI is looking into the matter and the learned NCLT ought not to have exercised its jurisdiction. The learned NCLT has no jurisdiction to issue prerogative writs to RBI to exercise such powers under the RBI Act. Therefore, this fact has no bearing on the merits of the dispute or such that is determinative of the outcome of these proceedings since the existence of the NCLT proceedings is duly disclosed and considered by the learned Single Judge while passing the impugned order. The respondent no. 1 (writ petitioner) cannot be left out remediless and therefore, the learned Single Judge, while exercising the jurisdiction under Article 226 of the Constitution, held that the writ is maintainable and passed several directions in paragraph no. 34 of the impugned order. Conclusion - i) The maintainability of the writ petition upheld. ii) The writ jurisdiction under Article 226 can compel public authorities to exercise statutory duties, particularly when regulatory bodies fail to act. Petition dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the writ petition filed by respondent no. 1 under Article 226 of the Constitution was maintainable, particularly in light of ongoing proceedings before the NCLT and NCLAT.Whether the learned Single Judge exceeded the scope of adjudicating the maintainability of the writ petition by issuing directions on merits.Whether the RBI failed to exercise its statutory powers under the RBI Act concerning the affairs of ECL, and if such failure warranted judicial intervention via mandamus.Whether the principles of natural justice were violated by not providing the appellant an opportunity to be heard on the merits.2. ISSUE-WISE DETAILED ANALYSISMaintainability of the Writ Petition:Legal Framework and Precedents: The writ petition was filed under Article 226 of the Constitution, seeking a mandamus against the RBI to act on complaints against ECL. The appellant argued that the writ was not maintainable due to parallel proceedings in NCLT and NCLAT, citing Section 430 of the Companies Act, 2013.Court's Interpretation and Reasoning: The Court noted that the reliefs sought in the writ petition could not be granted by NCLT or NCLAT, as these bodies lack jurisdiction to issue prerogative writs or direct RBI under the RBI Act.Key Evidence and Findings: The RBI's status report indicated violations by ECL, supporting the need for judicial intervention.Application of Law to Facts: The Court held that the writ petition was maintainable since the relief sought was beyond the scope of NCLT/NCLAT's jurisdiction.Conclusions: The writ petition was deemed maintainable, allowing the Court to issue directions to the RBI.Scope of Directions Issued by the Learned Single Judge:Legal Framework and Precedents: The appellant contested that the Single Judge's directions exceeded the writ's maintainability scope, arguing a violation of natural justice.Court's Interpretation and Reasoning: The Court found that the Single Judge was within its rights to issue interim directions while adjudicating the maintainability issue, as the RBI's inaction warranted protective orders.Key Evidence and Findings: The RBI's acknowledgment of ECL's regulatory breaches justified the interim directions.Conclusions: The Single Judge's actions were upheld, with the Court affirming the necessity of interim measures.Failure of RBI to Exercise Statutory Powers:Legal Framework and Precedents: The RBI Act empowers the RBI to regulate NBFCs and take action against violations. The respondent no. 1 argued that RBI's inaction necessitated judicial intervention.Court's Interpretation and Reasoning: The Court emphasized that public authorities must exercise statutory powers, and failure to do so can be addressed via mandamus.Key Evidence and Findings: The RBI's status report and the Observer's findings confirmed regulatory breaches by ECL.Application of Law to Facts: The Court found RBI's inaction unjustified, warranting judicial directions.Conclusions: The Court upheld the issuance of mandamus to compel RBI action.Principles of Natural Justice:Legal Framework and Precedents: The appellant claimed a lack of opportunity to be heard, violating natural justice.Court's Interpretation and Reasoning: The Court found that parties had the opportunity to argue on both maintainability and merits, dismissing the appellant's claim.Conclusions: The Court concluded there was no violation of natural justice.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'It is crystal clear that a duty is implied by the vesting of statutory power upon a public authority. Further, the performance of such duty can be secured by proceedings under Article 226 of the Constitution of India.'Core Principles Established: The judgment reinforced that writ jurisdiction under Article 226 can compel public authorities to exercise statutory duties, particularly when regulatory bodies fail to act.Final Determinations on Each Issue: The Court upheld the maintainability of the writ petition, validated the interim directions issued by the Single Judge, and confirmed the necessity of RBI's regulatory intervention.