TaxTMI 
TaxTMI 
2001 (12) TMI 814
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....ll powers as provisional liquidator of the company with a direction to immediately take charge of the company's property, assets, books of account and other relevant papers and documents. 2. It was the case of the RBI that the appellant-company is non-banking financial company as defined in clause (f) of section 45-IA of the RBI Act. The company submitted an application in July, 1997, for issuance of certificate of registration for carrying of business for non-banking financial institution under the RBI Act. Inspection was carried out regarding financial position of the company by the RBI as on 31-3-1997. On inspection, it was found that whereas the net owned fund of the company was (-) Rs. 886.66 lakhs as on 31-3-1997, the public deposits held by the company were (+) Rs. 737 lakhs as on 31-3-1999. The capital to risk weighted assets ratio (CRAR) was assessed as 'Nil'. The outside liabilities of the company were Rs. 1,167.99 lakhs as on 31-3-1997, as against assets of the company of Rs. 742.50 lakhs. In the opinion of the RBI, therefore, the company was not solvent. According to the RBI, the company failed to maintain liquid assets as contemplated by section 45-IB of the RBI Act....
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.... In view of the above, you are hereby directed, in exercise of the powers confered under section 45K of Reserve Bank of India Act, 1934, to furnish the exact amount of deposit liabilities including the accrued interest thereon as on the date of the said order rejecting your application for issue of certificate of registration. You are also further directed to furnish the complete information about the assets and properties with necessary detailed particulars held by your company as on that day along with your plan of action for repayment of entire deposit liabilities with fund flow and repayment schedule of deposits. The said information should reach this office within a period of thirty days from the date of receipt of this direction." 4.2 The resultant effect of the order was that the company was held disqualified under 45-IA to carry on business of a non-banking institution. 5. For completion of facts, it may be stated that on 18-1-2000, an order was passed by the RBI under sub-section (1) of section 45MB of the RBI Act stating therein that in the circumstances mentioned in the order, the RBI was satisfied that it was absolutely necessary to take immediate action to pro....
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....-9-2000, to enable us to come out from the crisis." 10. It further appears that depositors have approached the RBI and complaints were made that even though the date of maturity had passed, the amount had not been re-paid to them. A communication was addressed to the RBI by the Registrar of H.P. State Consumer Disputes Redressal Commission, Shimla, on 27-11-2000, stating therein regarding awards passed by the commission and amounts due. Proceedings were also initiated by depositors before the Consumer Forums for getting the orders passed by the Commissions executed. 11. In the aforesaid state of circumstances, the RBI filed Company Application No. 10 of 2001 in Company Petition No. 6 of 2001 under section 450 of the Act read with rule 9 of the Companies (Court) Rules, 1959, for appointment of provisional liquidator. 11.1 In paragraph 5, it was stated : "That the conduct of the respondent as evident from the facts stated in the main company petition is that it is unable to pay debts and that many awards/attachment orders have been passed against it by various Consumer Redressal Forums. Execution of the said awards by only some of the depositors would be detrimental to th....
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.... Himachal Grameen Sanchayka Ltd., a non-banking financial company, was detrimental to public interest, and also detrimental to the interest of the depositors of the company. 11.4 In paragraph 11, the RBI stated : "That the conduct of the respondent as evident from the facts stated in the main company petition is that it is unable to pay debts and that many awards/attachment orders have been passed against it by various Consumer Redressal Forums. Execution of the said awards by only some of the depositors would be detrimental to the interest of the entire class of depositors of the company as a whole more particularly, the poorer and the less informed depositors who could not afford to approach such forums. It is necessary in the interest of justice that all the properties and books of the company are vested in the provisional liquidator immediately so that the company is prevented from alienating its assets. Any notice of the application would completely jeopardise the present winding-up petition which has been filed by the petitioner as the apex bank in public interest and interest of the financial system of the country. An ex parte order for appointment of provisional liqui....
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....r. Kuldip Singh, Senior Advocate, instructed by the Mr. Rajiv Sharma, Advocate, for the RBI. 14. Mr. Singh, the learned senior counsel for the appellant, raised many objections. He contended that the order passed by the learned company judge is improper, illegal and unlawful. The counsel submitted that it was incumbent on the learned company judge to issue notice to the company as required by sub-section (2) of section 450 of the Act and to afford opportunity of hearing. Since it was not done, the order is inconsistent with and violative of statutory provisions and is liable to be set aside. According to the learned counsel, the provisions of sub-section (2) of section 450 have also not been complied with and no 'special reasons' have been recorded in writing as to why the Company Court thought it fit to dispense with the notice. It is also urged that irrespective of the statutory provisions of section 450(2) of the Act, principals of natural justice and fair play also required issuance of notice and affording of opportunity of hearing. Since it was not done, the order deserves to be quashed and set aside being violative of fair play in action. The counsel contended that the rel....
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....behalf of the RBI, on the other hand, supported the order passed by the learned company judge. According to him, action was taken by the RBI in consonance with law after observing principles of natural justice and fair play. He stated that notice was issued to the company on 24-9-1999, and the company was called upon to show cause as to why application should not be rejected. The company was to submit such explanation on or before 9-10-1999. Neither was explanation offered nor was extension sought before that period. It was only on 26-10-1999, that time was sought upto 15-12-1999. The company did not care to enquire whether the application was granted and time was extended. The RBI was constrained to pass an order on 7-1-2000. The counsel stated that even upto the date of order, no explanation was submitted by the company. Thus, there was sufficient time for the company. The action was taken on 7-1-2000. It was also submitted on behalf of the RBI that the company was intimated about the irregularities committed by it. The depositors also made grievance to the RBI that they had not been repaid the amount, to which they were entitled. According to the counsel, from the record it was ....
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....the court, the court may limit and restrict his powers by the order appointing him or by a subsequent order; but otherwise, he shall have the same powers as liquidator. (4) The official liquidator shall cease to hold office as provisional liquidator, and shall become the liquidator of the company, on a winding up order being made. 21.1 A bare reading of the above section makes it obligatory on the company judge to issue notice and afford opportunity to the company to make representation before appointment of provisional liquidator 'unless' for special reasons to be recorded in writing, the court thinks fit to dispense with such notice'. The question, therefore, is not whether the Court has power to dispense with the notice and order appointment of provisional liquidator, but whether special reasons have been recorded by the company judge in writing. [emphasis supplied by the court]^1 22. The counsel for the company placing reliance on the decisions in Punjab Pictures Ltd., Karnal v. Jhabar Mal Gangadhar Chokhani AIR 1949 EP 139; State of Orissa v. Dr. (Miss) Binapani Dei AIR 1967 SC 1269; Smt. Maneka Gandhi v. Union of India AIR 1978 SC 597; Swadeshi Cotton Mills v. Union ....
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....company to protect and preserve the assets of the company pending the orders of winding up in larger public interest, particularly, in the interest of majority of the depositors of the respondent-company and also for the reasons that the assets of the respondent-company are not transferred, alienated or otherwise dealt with save and except in the interest of the depositors." 23.2 The above order makes it clear that the learned company judge before passing the order and before exercising powers of section 450 of the Act, took into consideration 'the entirety of the circumstances', as detailed in the petition and the application on the affidavit of Shri Sardana Singh, General Manger, Department of Non-Banking Supervision, Reserve Bank of India, Chandigarh. He also noted that the bank had satisfied itself that the respondent-company was 'unable to pay its debts and had prohibited the company from receiving deposits', etc. The learned company judge was conscious of the fact that the certificate of registration was declined to the company and taking into account all attenuating [extenuating?] circumstances, in his view, the RBI was prima facie entitled to ask for winding up of the co....
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....ecting the application made by the company. Notice was issued and the company was called upon to offer explanation, if any, within the stipulated period. It was the company who defaulted in submitting reply. Within the stipulated period, neither was the reply submitted nor was extension sought. Even, thereafter when the extension was sought, it did not care to enquire from the RBI whether extension was granted or not. In any case even during that time, i.e., 15-12-1999, no explanation was offered. The RBI in the light of the allegations levelled and circumstances mentioned, passed an order on 7-1-2000. On 18-1-2000, two orders were passed under section 45MB(1) as well as [45MB](2) of the RBI Act. Even thereafter, the company continued its activities with impunity ignoring the directions issued by the RBI. Certain awards were passed by the Consumer Commission and some depositors were able to recover the amount, properties of the company were sought to be attached and auctioned and with a view to protect interests of large number of depositors, the RBI came forward and applied to the court for appointment of provisional liquidator, and narrated the circumstances, which compelled the ....
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....in paragraphs extracted hereinabove by us, there was application of mind by the learned company judge, who had taken into account relevant facts and circumstances as mentioned in the petition as well as application made by the RBI and various orders passed by the RBI. The learned company judge was also aware that the RBI, taking into account the larger interest of majority of depositors, vis-a-vis assets of the company, exercised power, which was in conformity with law. 32. As observed by the Supreme Court in Joseph Kuruvilla Vellukunnel v. Reserve Bank of India AIR 1962 SC 1371, the Reserve Bank is 'a banker's bank, and lender of the last resort'. Its objective is to ensure monetary stability in India and to operate and regulate the credit system of the country. It has, therefore, to perform a delicate balance between the need to preserve and maintain the credit structure of the country by strengthening the rule as well as apparent creditworthiness of the banks operating in the country, and the interest of the depositors. The RBI thus, according to Apex Court, occupies a place of 'pre-eminence' to ensure the monetary discipline and to regulate the economy or the credit system o....