TaxTMI 
TaxTMI 
2014 (6) TMI 120
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....e assets of the company, without the written permission of the respondent. The said order was passed in terms of Section 45-MB (2) of the Reserve Bank of India Act, 1934. 4. By a further communication dated 28.6.2005, the respondent permitted the petitioner to dispose of the Statutory Liquidity Ratio Investments, in excess of the requirement computed on the level of deposits, as at the end of the second preceding month. The permission so granted was subject to various conditions including the condition that the sale proceeds will be kept in an Escrow Account with a Scheduled Commercial Bank and that those funds will be utilised only for payment of matured deposits. The company should also speed up the process of realisation of dues to repay the deposits and to submit a monthly return of realisation of assets. 5. Thereafter, the petitioner approached this Court by way of a petition in C.P.No.160 of 2005 under Section 391 of the Companies Act, 1956, proposing a Scheme of Compromise with the deposit and bond holders. The Scheme was approved by the Company Court by an order dated 19.8.2006. But the said order was reversed by the Division Bench by an order dated 30.4.2008 in O.S.A....
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.... Bank. After notice was served in the said writ petition, the respondent passed an order dated 8.5.2013, rejecting the request for liquidating one SLR security. In view of the order of rejection, the Writ of Mandamus in W.P.No.13185 of 2013 became infructuous. Therefore, the petitioner withdrew the said writ petition and came up with the above writ petition, challenging the order of the respondent dated 8.5.2013. 12. The request of the writ petitioner for availing one SLR security for payment of dues to 5 secured creditor Banks under the OTS, has been rejected by the impugned order for the following reasons:- (i) that under Section 45-IB of the Reserve Bank of India Act, 1934, every Non-Banking Financial Company is obliged to invest and continue to invest in unencumbered approved securities, an amount not less than 5% or such higher percentage not exceeding 25% as prescribed on the deposits outstanding at the close of business on the last working day of the second preceding quarter; (ii) that in terms of para (1)(iii) of notification dated 31.1.1998, issued by Reserve Bank of India, every Non-Banking Financial Company should invest in unencumbered....
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....nce factual justification for the prayer of the petitioner, in my opinion, is more important than the legal basis on which they have come up with the above writ petition and also since the petitioner has a primary responsibility to satisfy me about the genuineness of the proposal, I shall first take up for consideration the factual details. 16. The only reason as to why the petitioner wants to liquidate and take the SLR investments, is to avail the benefit of One Time Settlement Proposals granted by the Consortium of Banks, some of whom have now assigned the debts to the Asset Reconstruction Company. In the affidavit in support of the writ petition, the petitioner has stated that 5 Banks viz., United Bank of India, State Bank of Patiala, Indian Overseas Bank, State Bank of Saurashtra and Catholic Syrian Bank have assigned the debts in favour of ARCIL and that the amounts repayable to those 5 Banks as on March 2013 was about Rs.43.55 crores and that ARCIL has agreed to take under the One Time Settlement Proposal, a sum of Rs.1,28,02,000/-. Though this fact is not denied by the respondent, the respondent has stated in paragraph 10 of the additional counter affidavit that there are....
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....4,46,75,071.48 9,99,93,291.17 26.84 lakhs 4. United Bank of India 5 crores 10,84,91,903.65 13,78,06,563.58 33.55 lakhs 5. Catholic Syrian Bank 3 crores - 6,52,82,075.04 20.13 lakhs Sub Total 19.08 crores 37,53,84,488.32 45,93,96,610.55 1.2802 crores SBT Consortium 6. State Bank of Travancore (informally accepted -formal letter awaited) 19.92 crores 79,35,00,261.85 44,72,18,348.92 1.33 crores 7. State Bank of Mysore (OTS accepted vide letter dated 5.2.2014) 4.30 crores 18,82,62,671.07 9,91,97,525.23 28.85 lakhs 8. Karur Vysya Bank 80 lakhs 5,52,43,661.33 2,21,03,144.45 5.36 lakhs 9. Federal Bank 5 crores 27,05,20,343.47 12,66,53,478.09 66.80 lakhs 10. State Bank of Bikaner & Jaipur 3 crores 13,28,44,237.63 8,13,43,955.81 20.13 lakhs Sub Total 33.02 144,03,71,175.35 77,65,16,452.50 3.0238 crores Total 52.1 crores 200,19,38,004.67 128,59,13,063.05 4.304 crores 19. Having considered the contentions raised by the respondent in paragraphs 10 to 13 of their additional count....
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....o the legal basis on which the petitioner seeks the above relief. 23. According to the statement furnished by the petitioner, the petitioner has a SLR account with the Federal Bank. The amount lying there is Rs.7,95,00,000/-as on 31.10.2013. The interest that has accumulated there is Rs.2,25,25,565.27 as on the same date. The principal amount of money payable to all the depositors is Rs.25.88 crores, on which, interest to the tune of Rs.8.30 crores, has accumulated upto the date of maturity in the year 2005. Therefore, the total amount due to the depositors is Rs.34.18 crores. Since the petitioner is obliged to maintain 15% of the total amount of deposits, in SLR, the amount required to be maintained in SLR, according to the petitioner, is only Rs.3.88 crores. Therefore, the petitioner originally wanted the entire portion of the interest accumulated on SLR and one portion of the SLR, to be utilised for paying off all the 10 secured creditor Banks. 24. But, today, the petitioner is prepared to to confine the relief sought only to the extent of utilising the interest on SLR viz., Rs.2,25,25,565.27. The petitioner appears to have 8 fixed deposits in the State Bank of India on wh....
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....erms of paragraph (1)(iii) of Notification No.DFC/121/EO(G)-98 dated 31.1.1998, every Non-Banking Financial Company shall invest in any unencumbered approved securities, an amount not less than 15% of the public deposits of outstanding at the close of business on the last working day of the second preceding quarter. 30. Therefore, the first question is whether this 15% is to be calculated only on the principal amount of deposits received by the Non-Banking Financial Companies or on the principal amount taken together with the interest accrued thereon. If the requirement to maintain 15% as investments in SLR, is only on the principal amount of deposit, the investment once made will not get altered except with the receipt of every new deposit. If on the contrary, the requirement of 15% to be maintained in investments is on both the principal and the interest accumulated on deposits, the amount to be maintained in SLR will keep varying from time to time. Keeping this in mind, let us now examine the provisions of the Reserve Bank of India Act, 1934 and the notifications issued thereunder. 31. The Reserve Bank of India Act, 1934 is actually a colonial legislation. After independen....
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....40 of 1982). Explanation II. - Any credit given by a seller to a buyer on the sale of any property (whether movable or immovable) shall not be deemed to be deposit for the purposes of this clause;' The above definition was inserted only by Amendment Act 1 of 1984 with effect from 15.2.1984. 33. Section 45-IB contains various conditions relating to maintenance of percentage of assets by every Non-Banking Financial Company. Sub-section (1) of Section 45-IB is of relevance and hence it is extracted as follows:- "45-IB. Maintenance of percentage of assets.- (1) Every non-banking financial company shall invest and continue to invest in India in unencumbered approved securities, valued at a price not exceeding the current market price of such securities, an amount which, at the close of business on any day, shall not be less than five per cent, or such higher percentage not exceeding twenty-five per cent, as the Bank may, from time to time and by notification in the Official Gazette, specify, of the deposits outstanding at the close of business on the last working day of the second ....
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....mission of the Bank, for a period not exceeding six months. This Section 45-MB was inserted only by Amendment Act 23 of 1997 with effect from 9.1.1997. 38. Section 45-MC, also inserted by Amendment Act 23 of 1997, enables the Reserve Bank itself to file a petition for the winding up of a Non-Banking Financial Company, if the conditions stipulated in clauses (a) to (d) of sub-section (1) thereof are satisfied. One of the conditions stipulated is that the Non-Banking Financial Company had become "unable to pay its debts". But the inability of a NBFC to pay its debt, as contemplated in Section 45-MC(1)(a) stands on a different footing from the presumption of inability to pay the debt raised in Section 433(e) of the Companies Act, 1956. This is seen from sub-section (2) of Section 45-MC, which states that a NBFC shall be deemed to be unable to pay its debt if it has refused or has failed to meet, within 5 working days, any lawful demand made at any of the Offices of the NBFC and the Reserve Bank certifies in writing that the NBFC is unable to pay its debt. Therefore, Section 45-MC(2) overrides Section 434(1)(a) of the Companies Act, 1956. 39. But once the Reserve Bank files a pet....
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....ceived by them, is to be calculated on the face value of the deposits or on the aggregate of the principal amount and interest taken together. 45. As seen from Section 45-IB(1), which I have extracted above, the Section uses two phrases viz., (i) shall invest and (ii) continue to invest. The amount to be invested, is to be calculated at a fixed percentage as prescribed by the Reserve Bank, on the value of "the deposits outstanding as at the close of business on the last working day of the second preceding quarter". 46. The word "deposit" is defined in Section 45-I(bb) to include any receipt of money by way of deposit or loan or in any other form. Interestingly, it is an inclusive definition which also lists out a lot of exclusions. Therefore, it is clear that the Statute has left the definition of the word "deposit", to the imagination of Courts, after merely indicating what is included and what is excluded. Consequently, one has to understand the meaning of the expression in common and commercial parlance. 47. The Reserve Bank of India itself has understood the definition of the word "deposit" to include the interest accrued thereon. If a Statute confers certain special p....
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....the fact that the writ petitioner does not want to liquidate the SLR investment. The writ petitioner is praying only for taking away the interest accumulated on the SLR investment, claiming that the interest accumulated on the investment, does not form part of the SLR investment. 50. To find an answer to the above question, we may have to go back again to the provisions of Chapter III-B of the Act. As I have pointed out earlier, the requirement to maintain a deposit in unencumbered approved securities, arises out of the provisions of Section 45-IB(1) of the Act. Section 45-IB does not talk about the deposit. It speaks only about an investment to be made by a Non-Banking Financial Company in unencumbered approved securities. The expression approved securities is defined in Explanation (i) under Section 45-IB to mean "securities of any State Government or Central Government and such bonds, both the principal whereof and the interest whereon shall have been fully and unconditionally guaranteed by any such Government". 51. Similarly, the expression "unencumbered approved securities" is defined in Explanation (ii) under Section 45-IB to include "the approved securities lodged by t....
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.... portion of such securities in proportion to the reduction of its public deposits duly certified to that effect by its auditor; (ii) where the non-banking financial company intends to substitute such securities kept in physical form, it may do so by entrusting securities of equal value to the designated bank or SHCIL before such withdrawal; and (iii) the market value of these securities shall, at no point of time, be less than the percentage of public deposits as specified in Notification No.DFC.121/ED(G)-98 dated January 31, 1998; (3) Where the non-banking financial company intends to trade, either by entering into ready forward contracts, including reverse ready forward contracts, or otherwise, in the government securities that are held in excess of the requirement under Section 45-IB of the Act and Notification No.DFC.121/ED(G)-98 dated January 31, 1998, the same may be undertaken by opening a separate CSGL or dematerialised account for keeping such excess government securities." 54. A careful reading of paragraph 6 of the 1998 Directions, would show that the obligation of the Non-Banking Financial Company is to keep an amount as prescribed by the Reserve Bank ....
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....d to the Reserve Bank of India, for the purpose of safeguarding the economy and financial stability of the country. In paragraph 53, the Court emphasised the place of pre-eminence occupied by the Reserve Bank of India to ensure monetary discipline and held that the Directions issued under Chapter III-B of the Act, are in the nature of Statutory Regulations. The Directions issued by the Reserve Bank of India were held to be part of the Statute itself. 58. Again in Reserve Bank of India v. Peerless General Finance & Investment Co. Ltd. {1996 (Vol.85) CC 920}, the Supreme Court emphasised that an enabling provision empowering the Reserve Bank of India to regulate the functioning of Non-Banking Financial Companies, must be so construed as to subserve the purpose for which it has been enacted. Therefore, the Directions of the year 1998, issued by the Reserve Bank of India have statutory force and these Directions make it clear that the "investment to be made at a particular percentage, is determined by the market value of the securities". A deposit in SLR account, would naturally include the interest accumulated thereon, so as to come within the purview of the expression "market valu....
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....87,61,22,063/- as on 31.8.2013. The petitioner-company has filed about 629 civil suits for recovery of a total amount of Rs.184,96,53,980.97 from its borrowers, in various Courts in Tamil Nadu, Karnataka and Kerala. The amounts realisable by the petitioner-company, represent monies lent by the petitioner on hire purchasing, lease financing and factoring. Out of those 629 suits, 559 suits for recovery of Rs.63,43,81,949.41 have already been decreed. As on date, 60 suits for recovery of Rs.115,96,94,024.03 are pending. Out of these 60 suits which are now pending, only 3 suits are pending in the City Civil Court and the remaining 57 suits are pending on the file of the Original Side of this High Court itself. Therefore, it is possible to deal with all those suits through the Company Court itself, by passing necessary orders and by invoking Section 446 of the Companies Act, 1956. 64. From the above, it appears that once the dues of the writ petitioner to the ten secured creditor-banks are discharged under a One Time Settlement, all the other assets including the realisables, will become available for the benefit of the entire body of creditors including the depositors. Such a course....
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.... unencumbered approved securities, is imposed under Section 45-IB(1). But sub-section (5) confers powers upon the Reserve Bank of India to condone the failure of a Non-Banking Financial Company to comply with the provisions of sub-section (1). 67. De hors Section 45-IB(5), the Reserve Bank has the general power of exemption under Section 45-NC, to declare by notification in the Official Gazette that any or all of the provisions of Chapter III-B shall not apply to a Non-Banking Financial Institution. Even the proviso (i) under paragraph 6 (2) of the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions 1998, enables a Non-Banking Financial Company to withdraw a portion of the securities in proportion to the reduction of its public deposits. Proviso (ii) under paragraph 6 (2) of the very same Directions, 1998, enables a Non-Banking Financial Company to substitute such securities by entrusting securities of equal value. 68. Therefore, the respondent has enormous powers, to grant general or special exemption or even to permit the petitioner to substitute securities. It is no doubt a discretionary power vested in them, to be exercised in appropria....