2025 (2) TMI 690 - HC - Companies Law

RBI must exercise regulatory powers when violations found, mandamus available despite parallel NCLT proceedings under Article 226

Johnson KA Versus Evaan Holdings Pvt Ltd & Ors.

Delhi HC dismissed appeal challenging writ petition maintainability under Article 226. Court held that when statutory authority like RBI fails to exercise ... Maintainability of writ petition filed by respondent no. 1 under Article 226 of the Constitution - directions issued by the learned Single Judge were beyond the scope of the writ petition - 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:- It is an elementary principle that when a public authority is vested with specific powers, it is duty bound to act accordingly. Therefore, any failure to exercise statutory powers gives rise to a cause of action to secure performance of such duty by way of issuance of writ of mandamus under Article 226 of the Constitution of India. In the case of CAG vs. K. S. Jagannathan & Anr. [1986 (4) TMI 344 - SUPREME COURT], the Hon’ble Supreme Court held that a writ of mandamus can be issued where there is a failure to exercise power vested with a public authority. 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. 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 impugned order dated 23rd October, 2024, has been passed by the learned Single Judge on the basis of clear findings of the RBI that there have indeed been violations of mandatory regulations by the ECL. These findings recorded by an apex expert body like the RBI, certainly warrant for issuance of protective ad-interim orders. Conclusion - i) The High Court has the power to issue a writ of mandamus when a statutory authority fails to exercise its powers. ii) Proceedings before the NCLT and NCLAT do not preclude the High Court's jurisdiction under Article 226 to address issues related to the RBI's statutory duties. iii) The principles of natural justice are upheld when parties are given the opportunity to argue on both maintainability and merits. Appeal dismissed. 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 is maintainable.Whether the directions issued by the learned Single Judge were beyond the scope of the writ petition and if they were issued without a hearing on the merits.Whether the Reserve Bank of India (RBI) has failed to exercise its supervisory powers under the Reserve Bank of India Act, 1935, particularly in relation to the affairs of Exclusive Capital Limited (ECL).Whether the pendency of proceedings before the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) affects the maintainability of the writ petition.Whether the principles of natural justice were violated by not affording the appellant an opportunity to be heard on the merits before the directions were issued.ISSUE-WISE DETAILED ANALYSIS1. Maintainability of the Writ Petition under Article 226The Court considered whether the writ petition under Article 226 was maintainable. The relevant legal framework involves the powers of the High Court under Article 226 to issue directions, orders, or writs for the enforcement of fundamental rights or for any other purpose. The Court found that the writ petition is maintainable as the RBI, being a statutory authority, is subject to the jurisdiction of the High Court under Article 226. The Court emphasized that the RBI's failure to exercise its statutory powers could be challenged via a writ of mandamus.2. Directions Issued by the Learned Single JudgeThe appellants argued that the directions issued by the learned Single Judge were beyond the scope of the writ petition and were issued without a hearing on the merits. The Court noted that the learned Single Judge had the authority to issue interim directions while adjudicating the maintainability of the writ petition. The Court found that the parties had the opportunity to argue both on maintainability and merits, thus there was no violation of natural justice.3. RBI's Supervisory Powers and InactionThe Court examined whether the RBI failed to exercise its supervisory powers under the RBI Act. The RBI's status report revealed breaches of mandatory regulations by ECL, including issues related to leverage ratio and unauthorized conversion of financial instruments. The Court noted that the RBI's inaction despite these findings constituted a failure to exercise statutory powers, justifying the issuance of a writ of mandamus.4. Impact of NCLT and NCLAT ProceedingsThe Court considered whether the ongoing proceedings before the NCLT and NCLAT affected the maintainability of the writ petition. The Court concluded that the reliefs sought in the writ petition, specifically the issuance of a writ of mandamus to the RBI, could not have been addressed by the NCLT or NCLAT. Therefore, the pendency of those proceedings did not oust the jurisdiction of the High Court under Article 226.5. Principles of Natural JusticeThe appellants contended that they were not given an opportunity to be heard on the merits, violating natural justice principles. The Court found that the parties had been given ample opportunity to present their arguments on both maintainability and merits, and thus, there was no breach of natural justice.SIGNIFICANT HOLDINGSThe Court upheld the maintainability of the writ petition under Article 226, affirming that the RBI's failure to exercise its statutory powers could be challenged through a writ of mandamus. The Court found no merit in the appellants' arguments regarding the violation of natural justice or the impact of NCLT and NCLAT proceedings on the writ petition's maintainability.Core principles established include:The High Court has the power to issue a writ of mandamus when a statutory authority fails to exercise its powers.Proceedings before the NCLT and NCLAT do not preclude the High Court's jurisdiction under Article 226 to address issues related to the RBI's statutory duties.The principles of natural justice are upheld when parties are given the opportunity to argue on both maintainability and merits.The Court dismissed the letters patent appeal, affirming the learned Single Judge's order and allowing parties to pursue their arguments in the main writ petition regarding the interim directions issued.