TaxTMI 
TaxTMI 
2014 (6) TMI 120
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....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.No.308 of 2006. The petitioner filed Special Lea....
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.... 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 approved securities, an amount not less than 15% of the public deposits ou....
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....asis 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 several other Banks who are also secured creditors and that a OTS proposal for some of the Banks in preference....
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.... 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 counter affidavit and the information furnished by the petitioner in the form of two tabular statements extracted as above, I am of the view that the petitioner has enough justification, at least on facts, for seeking payment of at least the interest accumulated on the SLR reserves. My conviction is further fortified by the offer made by the learne....
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....y 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 which interest has accumulated and the total amount available there is about Rs.112 lakhs. Therefore, the petitioner confined his prayer only to the release of the interest alone that has accumulated on the SLR, for discharging the liabilities to all the Banks under the OTS. 25. Therefore, the question that legally arises for consideration is whether the p....
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....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 independence, the Reserve Bank of India Act, 1934 was amended by several enactments such as Act 32 of 1951, Act 54 of 1953, Act 19 of 1957, Act 14 of 1959, Act 14 of 1960, Act 35 of 1962, Act 55 of 1963, Act 44 of 1973, Act 51 of 1974, Act 24 of 1978, Act 81 of 1985, Act 8 of 1991, Act 9 of 1991, Act 23 of 1997 and Act 26 of 2006. Chapter III-A containing Sections 45-A to 45-G was....
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....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 preceding quarter: Provided that the Bank may specify different percentages of investment in respect of different classes of non-banking financial companies." 34. Sub-sections (2) to (5) of section 45-IB prescribes:- (i) that the Reserve Bank may require every Non-Banking Financial Company to furnish periodical returns for ensuring compliance with the provisions of sub-section (1); (ii) that whenever the amount invested....
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....y 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 petition for winding up under Section Section 45-MC(1), then the provisions of the Companies Act, will automatically apply by virtue of sub-section (4). Therefore, it appears that the moment Reserve Bank files a petition for winding up, the provisions of the Companies Act, 1956 alone will prevail thereafter. 40. Section 45-Q makes the provisions of Chapter III-B to have overriding effect upon any other law for the time being in force or any other instrument having effect by virtue of any ....
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.... 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 powers upon a Regulatory Authority to issue directions that have a binding force and also confers powers of exemption upon the same authority, then the way in which such an authority had understood a word contained in the Statute, has to be given weightage. It appears that the Reserve Bank had understood the expression "deposit" to include the interest accrued thereon. This is borne out by the columns contained in a printed Form of Return to be submitted by every Non-Banking Financial Company at the end....
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....ises 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 the Non-Banking Financial Company with another institution for an advance or any other arrangement to the extent to which such securities have not been drawn against or availed of or encumbered in any manner". 52. In exercise of the powers conferred by Sections 45-J, 45-K, 45-L and 45-MA of the Reserve Bank of India Act, 1934, the Reserve Bank had issued a set of directions known as "Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions 1998", which came into force with effect....
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....uary 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 of India from time to time, in a CSGL Account with a Scheduled Commercial Bank and the same shall not be touched without the prior approval of the Reserve Bank of India. Under the proviso to sub-paragraph (2), the Non-Banking Financial Company has a right to withdraw a portion of such securities in proportion to the reduction of its public deposits. Similarly, the Non-Banking Financial Company is also entitled to substitute the securities kept in physical form, by entrusting securities of equal value. 55. Proviso (iii) under sub-par....
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....6 (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 value of the security". As pointed out earlier, the market value of a deposit would naturally include the principal amount of deposit as well as the interest accrued thereon. Therefore, my answer to the second question would be that the amount lying in SLR would include the interest accrued thereon. 59. In view of my answer to both questions, that have arisen for consideration, it follows as a corollary that a Non-Banking Financial Company cannot ask for liquidation of either the principal amount lying in SLR or the interest accumulated thereon....
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....w 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 of action will only enure to the benefit of the depositors, whose interest alone the respondent is seeking to protect under the impugned orders. 65. As rightly contended by Mr.Arvind P.Datar, learned Senior Counsel for the writ petitioner, the choice today is only between the devil and the deep sea. If the SLR is not touched, the interests of the depositors will stand protected. But this protection will only be for a limited period and to a limited extent and it may eventually turn out to be only illusory. If no settlement is reached in terms of the O....
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....king 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 appropriate cases. But I am of the view that in cases of this nature, where the Company Court is monitoring both the recovery of dues to the writ petitioner-company and the payment of dues to the creditors of the petitioner-company, the respondent is obliged to exercise the discretionary power, so that the sufferings of the depositors are also alleviated. 69. In Maharashtra Apex Corpn. Ltd., In re, [2005] 57 SC 305, the Company Court of Karnataka was concered with a petition under Sections 391 to 393 of the Companies Act, 1956 for the sanction of a Scheme of Compromise....