TaxTMI 
TaxTMI 
2024 (10) TMI 1468
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....rve Bank of India Act, 1934 ["RBI Act"]. 2. It should be noted that respondent No. 3 served as an independent director, while respondent No. 4 was an additional Director of respondent No. 2 company, and the latter ceasing to continue w.e.f. 30.09.2023. The respondent No. 5 was the Business Head, and respondent No. 6 was the Company Secretary of respondent No. 2 company. Additionally, it is stated that respondent No. 2 was earlier known as UT Leasing Ltd., which was taken over by new promoters in September 2021. It commenced its operations as a registered NBFC [Non-Banking Financial Company] from 16.12.2021, and by its certificate it was prohibited from accepting any public deposits. Pursuant to a Resolution dated 21.09.2021, 31,50,00,000 CCPS were issued to Teesta Retail Pvt. Ltd. by respondent No. 2 company at face value of Rs. Ten each, along with 8% non-cumulative coupons per annum on each of the CCPS [Compulsorily Convertible Preference Shares] by way of dividend from respondent No. 2. Furthermore, it is stated that Teesta amalgamated with Siddhant Commercials Pvt. Ltd. and on 21.05.2024 the petitioner company purchased the aforesaid number of CCPS from Siddhant. 3. Shorn....
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....tion till the time of their commercial death i.e. on being wound up. 6. Mr Tripathi, learned Senior Counsel for the petitioner company has urged that all the activities of the NBFCs automatically come under the scanner of the RBI and the aforesaid provisions are complete code in itself, which are not controlled by any other provision of law including the Companies Act, 2013. Insofar as proceedings before the NCLT [National Company Law Tribunal], as well as NCLAT [National Company Law Appellate Tribunal], learned Senior Counsel invited attention of this Court to the Status Report filed by the respondent No. 1/RBI, wherein the supervisory concern of the RBI in the functioning of the respondent No. 2 company are brought to the fore, upon which we shall delve into later on this order. 7. Further, it is pertinent to point out that learned counsel for the respondent No. 1/RBI urged that statutory auditors have been appointed only recently and the financial accounts of the respondent No. 2 company are likely to be finalized by 30.09.2024, and it is only thereafter that the RBI shall decide on action, if any, under Chapter III B. 8. It was urged by the learned Senior Counsel for t....
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....ctors. 11. Per contra, Mr. Avishkar Singhvi, learned counsel for the respondent No. 2 company, urged that the present petitioner has not approached the Court with clean hands inasmuch as the entire subject matter of the present writ petition is under consideration before the NCLT/NCLAT, and the Directors/management of the respondent No. 2 company are not even made a party. It was pointed out that M/s. Teesta Retail Private Limited invested about Rs. 315 crores in lieu of issuance of optionally convertible debentures, which company merged with Siddhant Commercials, and since such transaction disturbed the leverage ratio of the respondent no. 2 company, which was required to be rectified. In the meanwhile, Ms. Kanta Aggarwal, who is the petitioner before the NCLT proceedings, along with one Suresh Aggarwal purchased 117325 equity shares from Mr. Sanjeev Kumar to become shareholders in respondent No. 2 company and in order to restore the leverage ratios, the said OCDs [Optionally Convertible Debentures] were converted into CCPS vide resolution duly approved by General Body Meeting of the respondent No. 2 company. 12. It is was vehemently urged that the in order to disturb the sm....
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.... denied that conversion of OCD to CCPS is any where contrary to the guidelines of the RBI. Learned counsel for the respondent No. 2 company relied on decisions in Dr. Subramanian Swamy v. Union of India 2024 SCC OnLine Del 5706 and decision by High Court of Gujarat at Ahemdabad in the case of Krishan Krupa Owners Association v. RBI 11 Special Leave Application 233/2013 dated 09.12.2013 and lastly on the decision in the case of Hoichoi Technologies Private Limited v. Reserve Bank of India 2024 SCC OnLine Cal 3569. ANALYSIS AND DECISION: 15. I have given my anxious consideration to the submissions advanced by the learned counsels for the parties at the Bar. I have gone through the relevant record of this case as also the written submissions besides the case law placed on the record. 16. First things first, Chapter-III-B of the RBI Act provides a detailed mechanism that outlines the supervisory role for the RBI in overseeing the functioning of the NBFCs. As rightly pointed out by learned Senior Counsel for the petitioner, this supervisory role is continuous; it commences from the date of registration of the NBFCs and remains till the time of its commercial death by way of win....
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....he affairs of an NBFC being conducted in a manner detrimental to the interest of the depositors or creditors or financial stability or for securing the proper management of such company. Section 45-IE (i) RBI will have the power of supersession of the Board of Directors of an NBFC in public interest, etc. Section 45-J (i) RBI will have the power to regulate or prohibit the issue of prospectus or advertisement soliciting deposits of money. Section 45-JA (i) In public interest or for the regulation of the financial system of the country to its advantage or to prevent the affairs of any NBFC being conducted in a manner prejudicial to the interest of the depositors or prejudicial to the interest of the NBFC, RBI may determine the policy and give directions. Section 45-K (i) RBI may demand every non-banking institution to furnish such statements of information or particulars relating to or connected with the deposits received by the NBFCs. Section 45-L (i) RBI will have the power to require financial institutions to furnish such statements, information or particulars relating to the business of such financial institutions and to give such directions. Sec....
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....t No. 2 company. The petitioner company has placed heavy reliance on two representations made to the respondent No. 1/RBI dated 24.05.2024 and 21.06.2024 besides third one by the erstwhile independent Directors making a representation dated 15.03.2024 citing various allegations of violation of regulations by respondent No. 2 which incidentally are highlighted in the Status Report of the RBI dated 12.08.2024. 20. The challenge mounted by the learned counsel for respondent No. 2 company that the petitioner company has not come to this Court with clean hands does not cut much ice, since the petitioner company has made a clean breast of the proceedings pending before the NCLT, as well as NCLAT and it is pointed out that an application bearing IA No. 3852/2024 is already pending for consideration for its impleadment. Indeed, the proceedings before the NCLT have been initiated by the shareholders of respondent No. 2 company, who, in another capacity, are also the Directors in the petitioner company, but it needs to be appreciated that they have two distinct legal status: one as the shareholders, and thus, airing grievances against the oppression and mismanagement in the running of aff....
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.... shares within a period not exceeding 20 years from the date of conversion. As currently, maximum tenure of these CCPS is 20 years which is more than five years, these CCPS fall under the category of Public Fund in terms of para 5.1.27 of Master Directions, 2023 and will be reckoned for arriving at Leverage Ratio. Nonetheless, Ld. NCLT, New Delhi vide order dated 15.05.2024 has observed that "The OCDs/CCPS issued by the Respondent No. 1, in violation of the RBI regulations, shall stand cancelled and money, thereof, shall be returned to respective holders and necessary formalities in this regard would be completed ... " Ld. NCLAT, however, vide order dated 22.05.2024 has granted status quo with respect to the order dated 15.05.2024 of Ld. NCLT, New Delhi. 3. Non-submission of essential returns/documents to RBI: The company has not submitted essential returns/documents such as Balance Sheet, Profit & Loss account and Statutory Auditor Certificate for the financial year 2023-24 and Statutory Auditor Certificate for the financial year 2022-23. 4. Complaint against the Managing Director: There is a complaint against Mr Satya Prakash Bagla alleging tha....
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....ds. 24. A fortiori, the aforesaid irregularities and the omissions which have been pointed out in the Status Report cannot be brushed aside and respondent No. 1/RBI is competent to inquire into such matters and take appropriate action in accordance with the law. There is no gain saying that the writ proceedings under Article 226 of the Constitution of India, 1950, can be instituted against an instrumentality of State, such as respondent No. 1/RBI, when it is demonstrated that it is failing to exercise the power vested in it. Reference can be made to the decision by the Supreme Court in the case of Destruction of Public and Private Properties v State of AP 2009 5 SCC 212 wherein it was observed as under:- "19. The situations in which a positive mandamus (sic may be issued) to do a particular act in a particular way, may be broadly classified in the following manner. First are the broad mandamus cases where this Court has held that the Court may issue a positive mandamus to enforce the law. Thus in Vineet Narain case detailed orders were passed for the investigation of the Hawala transaction cases. It is laid down that positive directions can be issued where there is a po....
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....reliefs to meet the peculiar and complicated requirements of this country'. In Hochtief Gammon v. State of Orissa this Court held that the powers of the courts in England as regards the control which the judiciary has over the executive indicate the minimum limit to which the courts in this country would be prepared to go in considering the validity of orders passed by the Government or its officers. (emphasis in original) 19. Even had the Division Bench issued a writ of mandamus giving the directions which it did, if circumstances of the case justified such directions, the High Court would have been entitled in law to do so for even the courts in England could have issued a writ of mandamus giving such directions. Almost a hundred and thirty years ago, Martin, B., in Mayor of Rochester v. R. said : (ER p. 794) '... But, were there no authority upon the subject, we should be prepared, upon principle, to affirm the judgment of the Court of Queen's Bench. That Court has power, by the prerogative writ of mandamus, to amend all errors which tend to the oppression of the subject or other misgovernment, and ought to be used when the law has provided no specific reme....
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....s no doubt that the High Courts in India exercising their jurisdiction under Article 226 have the power to issue a writ of mandamus or a writ in the nature of mandamus or to pass orders and give necessary directions where the Government or a public authority has failed to exercise or has wrongly exercised the discretion conferred upon it by a statute or a rule or a policy decision of the Government or has exercised such discretion mala fide or on irrelevant considerations or by ignoring the relevant considerations and materials or in such a manner as to frustrate the object of conferring such discretion or the policy for implementing which such discretion has been conferred. In all such cases and in any other fit and proper case a High Court can, in the exercise of its jurisdiction under Article 226, issue a writ of mandamus or a writ in the nature of mandamus or pass orders and give directions to compel the performance in a proper and lawful manner of the discretion conferred upon the Government or a public authority, and in a proper case, in order to prevent injustice resulting to the parties concerned, the court may itself pass an order or give directions which the Government or....
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....ticular thing therein specified which appertains to his or their office and is in the nature of a public duty. A mandamus is available against any public authority including administrative and local bodies, and it would lie to any person who is under a duty imposed by a statute or by the common law to do a particular act. In order to obtain a writ or order in the nature of mandamus, the applicant has to satisfy that he has a legal right to the performance of a legal duty by the party against whom the mandamus is sought and such right must be subsisting on the date of the petition (see Kalyan Singh v. State of U.P.). The duty that may be enjoined by mandamus may be one imposed by the Constitution, a statute, common law or by rules or orders having the force of law." (emphasis in original) 103. The Court is duty-bound to issue a writ of mandamus for enforcement of a public duty. There can be no doubt that an important requisite for issue of mandamus is that mandamus lies to enforce a legal duty. This duty must be shown to exist towards the applicant. A statutory duty must exist before it can be enforced through mandamus. Unless a statutory duty or right can be read in the pr....
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....e bald denial with regard to the issues and concerns which have been raised by the respondent No. 1/RBI. It is stated that in order to restore the leverage ratio, the OCDs were converted into the CCPS vide the resolution dated 27.09.2022. As regards the OCDs of Rs. 315 crores, having been received without permission, it is sought to be canvassed that it neither qualifies to be a 'public fund' nor Regulation 61 of 2016 of the RBI Master Directions are applicable. 29. Reference is invited to the Rule XIII(c)(2) of the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016, which excludes any amount received from another. This interpretation, however, is not accurate, as the term 'amount received' is entirely distinct from the concept of debentures under corporate law. As regards the conversion of OCDs into the CCPS, it is submitted that ex post facto permission was sought vide application dated 17.09.2024 from the respondent No. 1/RBI. 30. Adverting to the issue of non-submission of audited balance sheets for the financial year 2023-24, an excuse is taken that the statutory Auditor M/s V. V. Kale has not deliberately filed the same and had....
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....ed in an altogether different context inasmuch as it was pertaining to certain supervisory role of the RBI under the Payment and Settlement Systems Act, 2007, and the RBI being the regulatory and supervisory body, has been designated to regulate and supervise the payment systems to an entity based abroad under the aforesaid Act. The issue was whether a Google group of companies are operating as payment aggregator without being accredited/registered to do so on Indian soil. It is in the said context that it was decided that it should not interfere in the matter and it would be open to the parties including the RBI and the Competition Commission of India to adjudicate upon the issues involved on its own merits. 34. Therefore, finding no legally sustainable challenge to the maintainability of present writ petition, and given that it is evident that respondent No. 1/RBI has thus far failed to exercise its supervisory powers, it becomes imperative that certain directions be issued to respondent No. 1/RBI to intervene in the matter and to ensure the enforcement of binding regulations provided under the RBI Act. There are cogent and ample material on the record that warrant full and th....