TaxTMI 
TaxTMI 
2025 (3) TMI 671
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.... 9877 of 2024 titled as "Evaan Holdings Pvt. Ltd. v. Reserve Bank of India & Ors." and dismiss the said Writ Petition for being non- maintainable and mala-fide and a gross abuse of process of law; and/ or b) Pass such other and further order(s) as this Hon‟ble Court may deem fit and proper in the facts and circumstances of the present case." FACTUAL MATRIX 2. The Company namely M/s Exclusive Capital Limited (hereinafter as the "ECL") was incorporated on 18th April, 1994 under the provisions of the Companies Act, 1956 and the appellant herein is the suspended Managing Director of the Company. 3. The respondent no. 1 herein, i.e., the petitioner before the learned Single Judge, is a holder of Compulsorily Convertible Preference Shares i.e., CCPS in ECL, which are worth INR 175 crores. 4. The ECL is a Non-Systematically Important Non Deposit taking Non-Banking Financial Company (hereinafter as the "NBFC") registered with the Reserve Bank of India (hereinafter as the "RBI") i.e., respondent no. 2 herein, and has been carrying on business as NBFC-Investment and Credit Company since 13th October, 2021. 5. The ECL, formerly named as M/s UT Leasing Limited, an....
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....nd siphoning of funds thereof. 12. The order dated 15th May, 2024 passed by the learned NCLT was challenged before the learned National Company Law Appellate Tribunal (hereinafter as the "NCLAT") and vide order dated 22nd May, 2024, the learned NCLAT preserved the status quo of the order dated 15th May, 2024. However, the said order dated 22nd May, 2024 was modified vide order dated 31st May, 2024, wherein Justice Mr. Gauba (Retd.) was appointed as an Observer of the ECL and the Board of Directors was suspended. 13. On 20th June, 2024, the NCLT Petitioner made another representation before the learned Observer seeking enquiry into the alleged siphoning of funds and misappropriation in the ECL. 14. Thereafter, the respondent no. 1 filed a writ petition bearing no. 9877/2024 under Article 226 of the Constitution of India before the Single Judge of this Court seeking a direction in the form of mandamus against RBI to act on various complaints and representations made by it against the appellants and their management of ECL. The grievance of the respondent no. 1 is essentially that the management of ECL is violating the regulations issued by the RBI and there are several insta....
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....er examining complaints made by the writ petitioner." SUBMISSIONS (on behalf of the Appellant) 19. Mr. Harish Malhotra and Mr. Ravi Gupta, learned senior counsel appearing on behalf of the appellant submitted that the application bearing CM APPL. No. 46471/2024 was filed by ECL to decide the maintainability of the writ petition. Therefore, it is submitted that the said application pertained to the limited aspect of the maintainability of the writ petition and not for adjudication of said writ on merits. It is vehemently submitted that the impugned order, wherein the Board of Directors are suspended, has been passed without giving the opportunity of hearing the Directors of the Company. 20. It is submitted that while holding the maintainability of the writ petition, the learned Single Judge has travelled beyond the ambit and scope of application bearing CM APPL. 46471/2024 by adjudicating the merits of the matter and issuing directions in the nature of final relief. 21. It is submitted that the learned Single Judge failed to appreciate that the respondent no. 1 has not approached the Court with clean hands as the fact pertaining to the purchase of CCPS from M/s Siddha....
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....mitting to the effect that there is no illegality or error in the impugned order passed by the learned Single Judge and rightly held that the writ petition is maintainable. 30. It is submitted that the principal grounds raised in the appeal are firstly, the writ petition itself was not maintainable; secondly, issues raised in the writ petition are already pending adjudication before the NCLT and NCLAT; and, thirdly, the impugned order was passed in violation of the principle of natural justice, since it has passed final relief without hearing the parties on merits. 31. It is submitted that upon plain reading of the writ petition, the reliefs sought in the said petition, cannot be granted by the NCLT and NCLAT. It is further submitted that the RBI has the duty to exercise its power vested under the RBI Act. It is further submitted that RBI has found ECL to be in violation of its regulations but failed to exercise its power. 32. Mr. Nayyar, learned senior counsel submitted that there is no force in the arguments of learned senior counsel for the appellant pertaining to the violation of natural justice since the parties were heard on the issue of maintainability as well as on....
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....is submitted that the RBI is the primary regulator of NBFCs and is the competent authority to ensure compliance with its regulations and take action against violations by NBFCs. For this purpose, RBI is armed with powers which include (i) removal of directors under Section 45-ID of the RBI Act, (ii) collection of information and documents under Sections 45K and 45L of the RBI Act, (iii) restrain acceptance of any deposit or restrain alienation of any assets by the NBFC under Section 45 MB of the RBI Act; (iv) conduct inspection under Section 45N of the RBI Act; (v) prevent business of the NBFC to be conducted in a manner detrimental to any depositors of the NBFC under Section 45 NB of the RBI Act; (vi) conduct a special audit of the NBFC under Section 45MA of the RBI Act. 39. It is submitted that the power vested with the RBI is not discretionary, however, it is to maintain public interest and interest of depositors like the answering respondent. Indisputably, the power of RBI is coupled with a duty to act and take protective measures. 40. It is submitted that it is trite law that a writ of mandamus ought to be issued to public authorities upon their failure to exercise power....
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....addition to the siphoning transactions, the observer, in this report as well as its previous report, has also noted that the appellant and other directors of ECL have violated the restraining orders of NCLAT by taking unilateral decisions without the approval of the learned Observer and the said facts have also been taken into consideration by the learned Single Judge. 47. Therefore, in view of the foregoing submissions, it is prayed that the instant appeal, being devoid of any merits, may be dismissed. ANALYISIS AND FINDINGS 48. Heard learned senior counsel for the parties and perused the record as well as the written submissions filed by the respective parties. 49. The appellant has assailed the impugned order primarily on the ground that the learned Single Judge has passed an order on merits whereas the hearing was limited to the question of maintainability of the writ petition. It is also contended that the appellant, who is one of the Directors of ECL, ought to have been heard by the learned Single Judge before passing the impugned order. 50. The learned Single Judge, vide order dated 24th July, 2024, issued notice in the writ petition filed by the respondent no....
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....om the fact that independent directors having vast experience of working with NBFCs have been removed and the control has been vested in inexperienced directors. It was pointed out that independent directors have been removed during the pendency of the petition before the NCLT despite operation of the restrain order, which fortifies the petitioner company's apprehension that the Board of Directors may take steps to prejudice and jeopardize the investment of the petitioner company, and therefore, appropriate measures are required to be taken by the respondent No.1/RBI under Section 45 (i) (e) of the RBI Act. 10. Learned Senior Counsel for respondents No. 3 to 6 also urged that the answering respondents were often informed of the transactions undertaken by the respondent No. 2 company only after these transactions had already been given effect to. Initially the answering respondents did not raise any alarm and passed such decisions as routine business transactions. However, they later objected to several decisions made by the Board of Directors that were prejudicial and not in the best interest of the company. Emails dated 12.10.2023, 24.0....
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.... be conducted. The company was advised to finalize its accounts and get the statutory Audit of the same done without any further delay. The Company was again advised for the same by emails dated 08.08.2024. A true copy of the email dated 08.08.2024 is annexed herewith as ANNEXURE R-9. Supervisory concerns of RBI in ECL i.e., Respondent No. 2: It is submitted that the answering Respondent, after having examined the various replies, documents and after conducting an onsite scrutiny of records of the Respondent No. 2, has observed following supervisory concerns:- 1. Breach of leverage ratio: RBI has defined leverage ratio as Total Outside Liabilities divided by Owned Funds and prescribed a limit of 7 as the upper ceiling for Base Layer NBFCs us per para 1 of Master Direction of RBI dated October 19, 2023 and para 6 of Master Direction DNBR.PD.007/03.10.119/2016-17 dated September 01, 2016. However, the leverage ratio of the company was 117.77 as of March 31, 2022. A copy of the Master Directions dated September 01, 2016 is enclosed herewith as ANNEXURE R-10. 2. Issue of OCDs of Rs 315 crore without permission of RBI and conversion of OCDs to CCPS' w....
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....llegations are yet to be verified. The answering Respondent has sent an email dated 09.08.2024 to the company asking for their comments on these as well as other allegations made in the complaint dated 07.08.2024 received Shri Anuj Goenka, Director of Evaan Holdings Private Limited, within three days. Proposed action by the RBI:- 1. ECL has been advised vide e-mail dated 08.08 2024 to prepare its balance sheet, profit & loss statement as on 31.03.2024 and get its statutory audit done. Thereafter, the scrutiny/inspection of the company would be conducted by the answering Respondent. If the respondent NBFC is found to have contravened any provision of RBI Act and/or the extant statutory directions issued by RBI, appropriate supervisory and regulatory action, will be taken against the company, in accordance with, law and procedure laid down for the same. 2. Thus, it is submitted that the answering Respondent is actively investigating into the affairs of the Respondent No. 2 on the basis of the complaints received by the answering Respondent. The present Status Report is submitted for the perusal and consideration of this Hon'ble Court, It is submitted ac....
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....nment, throughout the territories in relation to which it exercises jurisdiction, directions, orders, or writs including writs in the nature of habeas corpus, mandamus, quo warranto and certiorari or any of them, for the enforcement of the Fundamental Rights conferred by Part III of the Constitution or for any other purpose. In Dwarkanath v. ITO [AIR 1966 SC 81 : (1965) 3 SCR 536, 540] this Court pointed out that Article 226 is designedly couched in a wide language in order not to confine the power conferred by it only to the power to issue prerogative writs as understood in England, such wide language being used to enable the High Courts "to reach injustice wherever it is found" and "to mould the reliefs to meet the peculiar and complicated requirements of this country." In Hochtief Gammon v. State of Orissa [(1975) 2 SCC 649 : 1975 SCC (L&S) 362 : AIR 1975 SC 2226 : (1976) 1 SCR 667, 676] 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 validit....
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.... were to be determined by the construction of the Act which was a matter of law for the court and though there might be reasons which would justify the Minister in refusing to refer a complaint to a committee of investigation, the Minister's discretion was not unlimited and if it appeared that the effect of his refusal to appoint a committee of investigation was to frustrate the policy of the Act, the court was entitled to interfere by an order of mandamus. In Halsbury's Laws of England, 4th Edn., vol. I, para 89, it is stated that the purpose of an order of mandamus "is to remedy defects of justice; and accordingly it will issue, to the end that justice may be done, in all cases where there is a specific legal right and no specific legal remedy for enforcing that right; and it may issue in cases where, although there is an alternative legal remedy, yet that mode of redress is less convenient, beneficial and effectual." 20. There is thus 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 th....
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.... in the proceedings before the learned NCLT. 65. The reliefs prayed for in the writ petition i.e., issuance of writ of mandamus to the RBI to exercise its jurisdiction is not and could not have been the subject matter of the NCLT proceedings. 66. The learned NCLT has no jurisdiction to issue prerogative writs to RBI to exercise such powers under the RBI Act. Therefore, this fact has no bearing on the merits of the dispute or such that is determinative of the outcome of these proceedings since the existence of the NCLT proceedings is duly disclosed and considered by the learned Single Judge while passing the impugned order. 67. This Court has perused the representations dated 20th June, 2024 and 21st June, 2024 made by the respondent no. 1 to RBI which clearly states the instances of siphoning of funds and rampant irregularities in the affairs of ECL. 68. The learned NCLT, vide order dated 15th May, 2024, has set out detailed findings of siphoning of funds by the appellants from ECL. The facts mentioned before the learned NCLAT have been duly noted by the learned Single Judge in paragraph no. 27 which is reproduced hereinbelow: "During the course of arguments, a....
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....rved that despite repeated reminders, the management of ECL has not shared several details regarding the nature of organizational structure of ECL, list of secretarial records, statutory compliances, detailed particulars of all the managerial personnel (current and former), scope of their respective roles/responsibilities along with the details of their remuneration/perks and benefits. It is also observed that non-compliance of another direction of the learned Observer in the light of the order of learned NCLAT, and such non-compliances assumes significance that the affairs of the ECL are not being managed rightly by the present management. 72. In these circumstances, the respondent no. 1 (writ petitioner) cannot be left out remediless and therefore, the learned Single Judge, while exercising the jurisdiction under Article 226 of the Constitution, held that the writ is maintainable and passed several directions in paragraph no. 34 of the impugned order. 73. However, without going into the merits of the case and limiting itself only to the aforesaid issue of scope of power of the writ Court in issuing interim directions while exercising powers under Article 226 of the Constitu....