AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (6) TMI 1086
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.... "the 2013 Act"), the amount which was kept deposited with the petitioner no. 1-Company after the statutory period of seven years. Orders were passed on June 12, 2019, July 10, 2019 and September 23, 2019, by virtue of which the principal amount of matured deposits lying in the Escrow Account opened with the United Bank of India (UBI) with accrued interest thereon was transferred to the IEPF. The limited question which subsists now is whether the petitioner no. 1-Company is liable to transfer the interest earned on the aggregate escrowed amount (including the principal and the accrued interest thereon) also to the IEPF. 2. Learned senior counsel for the petitioners contends that the petitioner is governed by chapter IIIB of the Reserve Bank of India Act, 1934 (for short, "the RBI Act"), including Section 45H to Section 45Q which contains provisions relating to acceptance of deposits by Non-Banking Financial Companies (NBFCs). Chapter IIIB was introduced with effect from February 1, 1964, that is, after the enactment of the Companies Act, 1956. The statutory scheme of the said Chapter, it is argued, contemplates exclusive jurisdiction of the Reserve Bank of India (RBI) insofar as t....
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....BI Act to frame suo motu a scheme for repayment of such deposits in the interest of the depositors. 7. As held in Nedumpilli Finance Company Ltd. Vs. State of Kerala and others, reported at (2022) 7 SCC 394, it is argued, after the 1997 amendment, Chapter IIIB has become a complete code in respect of NBFCs and governs those from the cradle to the grave. 8. The RBI, vide letter dated October 31, 2014 issued under Section 45N of the RBI Act, had advised the petitioner no. 1 to escrow the aggregate deposit liability not later than three months therefrom. The same is required to be treated as a direction of the RBI under Chapter IIIB since it was to be placed by the petitioner no. 1 before its Board of Directors and furnish a compliance report to the RBI within 30 days, with a Board Resolution. 9. The RBI issued a clarificatory letter on February 3, 2015. By a subsequent letter dated June 29, 2015, the RBI advised the petitioner that it was permitted to receive interests on investments in fixed deposits/government securities/other securities/bonds, subject to maintaining the amount in the Escrow Account till the date of transfer of the same to the IEPF, in respect of which the petit....
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....nior counsel for the petitioners cites Damji Valji Shah and another Vs. LIC and others, reported at AIR 1966 SC 135. 15. Furthermore, neither of the Companies Acts contains a non obstante clause. 16. In any event, it is argued that the petitioner no. 1 is entitled to utilize the interest earned on the fixed deposits and the investments made in the Escrow Account because the petitioner no. 1 has not been using the amounts deposited therein from the deposit of the unclaimed amount to the Escrow Account and is therefore not doing any business by using such sums and as such, the petitioner cannot be denied the interest accruing on the aggregate escrowed amount, since the petitioners did not have the benefit of using such sums. 17. Moreover, the petitioner no. 1 has been assessed for Income Tax on the interest accrued on the aggregate escrowed amount and has utilized the same for defraying wages, staff salaries and managerial expenses, therefore, now the RBI cannot be permitted to claim that the said interest should also be deposited with the IEPF as the petitioner no. 1 has acted in accordance with law by complying with the directions of the RBI having the force of law. There cannot....
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....Had the amount been transferred in time to the IEPF, the Company would not have any occasion earn any interest and hence, the Company enjoyed undue gains at the cost of the public exchequer. 24. As far as refund due to the claimant is concerned, Section 125(3) of the 2013 Act provides for refund in respect of the unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon, which takes care of the refund of unclaimed deposits to the claimant (depositor) from IEPF. 25. According to Rule 3(4) of IEPF (Accounting, Audit, Transfer and Refund) Rules, 2016, all the amount under IEPF is maintained in a non interest-bearing public account maintained under the Consolidated Fund of India. Hence, notwithstanding the rights of the claimant, the undue gain earned by the Company is at the cost of the Consolidated Fund of India held under the Union of India. 26. The RBI, it is argued, has no jurisdiction to give any clarification or instructions under the Companies Acts, 1956 or 2013, which has been accepted by the RBI Central Officer in its letter date April 23, 2013 (Annexure R10, Page 40 of the affidavit-in-opposition of RBI). The purp....
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....atute. In such context, learned senior counsel for the RBI places reliance on (2022) 6 SCC 626 [Augustan Textile Colours Limited (Now Augustan Textile Coulours Private Limited) Vs. Director of Industries and another], and 2022 SCC OnLine DEL (DB) 1617 [Delhi and District Cricket Association Vs. Assistant Commissioner of Central Tax]. 33. No plea of waiver is also available against RBI as the right to claim such interest is not a right of the RBI, but a right of the IEPF, which is a fund constituted by the Government of India. It is well-settled that one can only waive one's own right. Reliance is placed in this context on AIR 1979 SC 621 [Motilal Padampat Sugar Mills Co. Ltd. Vs. State of Uttar Pradesh and others]. 34. Peerless is governed by Chapter IIIB of the RBI Act, which is a complete Code in respect of the business of NBFCs. The RBI Act is a Parliamentary law on the Field of Legislation provided in Entries 38, 43 and 45 of List I of the Seventh Schedule to the Constitution of India and Chapter IIIB is in the nature of special statutory provision. There can be no State legislation on those heads of entries. However, there is no constitutional bar to another Parliamentary ge....
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....g) passed before the 2013 Act came into effect, is liable to be vacated. 40. The consequence of such interim order being vacated is that the Peerless has no right to retain the unclaimed deposits and interest accrued on such deposit. It has enjoyed the benefits of retaining such deposits with interest earned thereon by virtue of the interim order passed in WP No. 1558(W) of 2007. If the said writ petition is dismissed because of the reasons indicated above and the subsisting interim order is vacated, it is argued by the RBI that the Peerless is to be directed to transfer to IEPF the whole amount of unclaimed deposit together with interest accrued on it as required under Section 125(2)(i) and (k) of the 2013 Act. 41. Learned senior counsel for the RBI, in such context, places reliance on (2011) 12 SCC 518 [State of Rajasthan and another Vs. J.K. Synthetics Limited and another]. 42. Learned senior counsel distinguishes Nedumpilli Finance Company Ltd. (supra) by arguing that in the case of Peerless, the question is one of applicability of a provision of the 1956 Act introduced in 1998, subsequent to insertion of Chapter IIIB in the RBI Act and even after its 1997 amendment bringing....
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....ral Coal Fields Limited and another Vs. SLL-SML (Joint Venture Consortium) and others, reported at (2016) 8 SCC 622 is misplaced in the present case. There is statutory compulsion in sub-section (2)(c) and (e) of Section 205C of the 1956 Act and Section 125 of the 2013 Act regarding transfer of unclaimed deposits and interest to the IEPF. The present case is not one of tender or any administrative dealing, it is pointed out. 49. Hence, the respondents argue that the writ petition ought to be dismissed on merits. 50. The dispute, at present, has boiled down to the entitlement regarding the interest on the deposits made by the petitioner in the Escrow Account, pursuant to the order of this Court. The liability to pay the principal dues with regard to the unclaimed accounts, accumulated after the expiry of seven years, is no longer disputed. 51. It has been contended by the petitioner that the directions given by the RBI by its letter to the petitioner are comprised of directions within the contemplation of Chapter IIIB of the RBI Act and, thus, are binding on the petitioner. Vide communication dated February 3, 2015, it was indicated by the RBI, inter alia, that any interest recei....
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....n which carries on as its business financing, whether by way of making loans or advances or otherwise of any activity other than its own. 59. The Peerless, that is, the petitioner, is squarely covered under the said definition and, as such, Chapter IIIB governs the functioning of the petitioner's company as well. 60. However, Chapter IIIB operates in particular spheres. Whereas a variety of functioning of NBFCs is covered by the directions contemplated in Chapter IIIB, very few of the same are pertinent in the present context. As for example, Section 45 IA pertains primarily to requirement of registration and net owned fund, Section 45 IB to maintenance of percentage of assets and 45 IC to reserve fund. Section 45 ID deals with the power of the bank to remove directors from office and Section 45 IE with supersession of Board of Directors of NBFCs other than Government Companies. Section 45 J pertains to regulation or prohibition of issue of prospectus of advertisement soliciting deposits of money. 61. Section 45 K merely relates to power of the bank to collect information from non-banking institutions as to deposit and to give directions. Under the said provision, the RBI may di....
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....pter IIIB at all. Hence, there is no question of any applicability of the said provision in the instant case. 68. That apart, per se, there is no conflict or militancy between Chapter IIIB of the RBI Act and Section 125 of the 2013 Act as well as Section 205C of the 1956 Act. 69. Moreover, the communication dated February 3, 2015, which was indicated to be a part of the letter dated October 31, 2014, could not be on a higher footing than the communication dated October 31, 2014. 70. The said communication dated October 31, 2014 was in the context of an inspection held under Section 45 N of the RBI Act with reference to financial position as on March 31, 2014. In such background, an inspection under Section 45 N was carried out and certain shortcomings in the operations and supervision of the company were detected by the RBI. Hence, the RBI required certain compliances by the petitioner-Company as furnished in Annexure I thereof. 71. Nothing is revealed from any of the items mentioned in Annexure I regarding the deposit made in the Escrow Account, let alone the interest accrued thereon. 72. The direction dated March 6, 2007 passed by a co-ordinate Bench directing the petitioner....
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....e Company" on investments in FDs/government securities would be available to the Company. 77. However, it is relevant to mention here that the Escrow Account was created in terms of the order of Court and specifically to deposit the amount which was the subject-matter of the present lis. Hence, the said deposits were sub judice and it was de hors the authority of the RBI to dictate the fate of the same. Moreover, as discussed above, nothing in Chapter IIIB pertains to interest on Escrow Accounts in cases such as the present one. Even if the RBI advised the petitioner that any interest received by the Company on investment in FDs/government securities would be available to the company, the same pertained only to interest "received by the company". However, the interest which accumulated on the deposits in the Escrow Account in the present case, under no stretch of imagination, could be said to be received by the Company. The said amounts were sub judice and were subject to the outcome of the present writ petition. Hence, the argument that the directives of the RBI prompted the petitioner to use such interest is neither here nor there. 78. In any event, the advice of the RBI, at be....
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....the fund for carrying out the object specified in sub-section (3). As such, the entire entitlement of the deposits in the Escrow Account, on which the interest was accrued, belongs to the IEPF. 82. The petitioner-Company did not lose anything due to the amount being parked in the said Account, since, in the first place, the petitioner was never entitled to the principal deposit in the Escrow Account. By the same logic, the interest accrued thereon, if repaid to the IEPF by the petitioner-Company in due time, would have accrued in favour of the IEPF and would be utilized for the specific purposes stipulated in Section 125 of the 2013 Act. Thus, there is no scope of the petitioner claiming any right to such interest in any manner whatsoever. In fact, if the petitioner is permitted to take the said interest, it would be allowing the petitioner to take advantage of its own wrong by withholding the amount from the IEPF. 83. The ratio laid down in Nedumpilli Finance Company Ltd. (supra) and other cases cited by the parties undoubtedly holds that NBFCs are governed by the RBI from cradle to the grave. 84. However, the interest accrued in the Escrow Account in the present case was not a....