JUDGMENT
Madan B. Lokur, J.
1. There are a very large number of substantive
petitions pertaining to M/s Rockland Leasing Ltd. (for
short Rockland) pending in this Court. The Registry of
this Court informs me that, additionally, there are
more than 500 applications pertaining to Rockland which
have been disposed of and another 500 applications
which need to be disposed of.
2. Considering the fact that a large number of
litigants were concerned with the disposal of these
matters pertaining to Rockland, I fixed the cases for
final disposal on a day to day basis with effect from
19th November, 2001 at 2.00 pm. Arguments were heard
in part on that day, and were concluded on 20th
November, 2001 when judgment was reserved.
3.
A large number of litigants were present in
Court on both the above days. However, no one apart
from Col. S.K. Singh wished to add anything to what
was lucidly submitted by learned counsel for the
parties.
4. Submissions were essentially made in two
cases. CP 93 of 2001 is a winding up petition filed by
the Reserve Bank of India under the provisions of
Section 45-MC of the Reserve Bank of India Act, 1934
(for short the RBI Act). The prayer is, quite
naturally, for winding up the affairs of Rockland.
5. The second case is Company Appeal No.4 (B) of
1998 filed by Rockland under the provisions of Section
10-F of the Companies Act, 1956 (for short the
Companies Act). The prayer of Rockland in this case is
for setting aside the order dated 26th June, 1998
passed by the Company Law Board in F.No.15/14/97. This
order was passed under the provisions of Section 45-QA
of the RBI Act. Certain directions for repayment of
deposits were given by the Company Law Board (for short
CLB) which were obviously not acceptable to Rockland,
hence the appeal.
6. All the other petitions were for various
reliefs against Rockland, including its winding up.
7.
It stands to reason, and all learned counsel
agreed that if the winding up petition filed by the RBI
succeeds, then the appeal filed by Rockland and all
other petitions and applications are really
infructuous. It is on this basis that I have
proceeded, making it necessary to first deal with the
petition filed by the RBI.
8.
Rockland was incorporated in March, 1984 with
its registered office in Delhi. Its objects were,
inter alia, to “undertake the business of finance, hire
purchase, leasing and to finance lease operations of
all kinds…”
9. According to the RBI, Rockland was carrying on
the business of a non-banking financial company (or
NBFC) as defined in Section 45-I(f) of Chapter III-B of
the RBI Act. This reads as follows:-
“45-I. Definitions
In this chapter, unless the context otherwise
requires –
(a) and (b) xxx xxx xxx
(c) “financial institution” means any non-banking
institution which carries on as its business or
part of its business any of the following
activities, namely:
(i) the financing, whether by way of making
loans or advances or otherwise, of any
activity other than its own;
(ii) the acquisition of shares, stock, bonds,
debentures or securities issued by a
government or local authority or other
marketable securities of a like nature;
(iii) letting or delivering of any goods to a
hirer under a hire-purchase agreement as
defined in clause (c) of section 2 of the
Hire-Purchase Act, 1972 (26 of 1972);
(iv) the carrying on of any class of insurance
business;
(v) managing, conducting or supervising, as
foreman, agent or in any other capacity, of
chits or kuries as defined in any law which
is for the time being in force in any State,
or any business, which is similar thereto;
(vi) collecting, for any purpose or under any
scheme or arrangement by whatever name
called, monies in lump sum or otherwise, by
way of subscriptions or by sale of units, or
other instruments or in any other manner and
awarding prizes or gifts, whether in cash or
kind, or disbursing monies in any other way,
to persons from whom monies are collected or
to any other person,
but does not include any institution, which
carries on as its principal business, –
(a) agricultural operations; or
(aa) industrial activity; or
(b) the purchase or sale of any goods (other
than securities) or the providing of any
services; or
(c) the purchase, construction or sale of
immovable property, so, however, that no
portion of the income of the institution is
derived from the financing of purchases,
constructions or sales of immovable property
by other persons;
Explanation: For the purposes of this clause,
“industrial activity” means any activity specified
in sub-clause (i) to (xviii) of clause (c) of
section 2 of the Industrial Development Bank of
India Act, 1964 (18 of 1964).
(d) and (e) xxx xxx xxx
(f) “non-banking financial company” means –
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company
and which has as its principal business the
receiving of deposits, under any scheme or
arrangement or in any other manner,or lending
in any manner;
(iii) such other non-banking institution or class
of such institutions, as the bank may, with
the previous approval of the Central
Government and by notification in the
Official Gazette, specify.”
10. The definition abovementioned was incorporated in
the RBI Act by the Reserve Bank of India (Amendment) Act,
1997 with effect from 9th January, 1997. Consequently,
Rockland was governed and bound by the existing directions
of the RBI including the Non-Banking Financial Companies
(Reserve Bank) Directions, 1977 as amended.
11. These directions included, among other things, the
definition of an “equipment leasing company” and an NBFC.
Direction 2 defined these terms as follows:-
“(dd) “equipment leasing company” means any
company which is a financial institution carrying
on as its principal business, the activity of
leasing of equipment or the financing of such
activity; (with effect from 22nd August, 1984)
(l) “non-banking financial company” means any
hire-purchase finance, investment, loan or mutual
benefit financial company and an equipment leasing
company but does not include an insurance company
or a stock exchange or stock broking company;”
(with effect from 26th June, 1989)
12. Sometime in 1993, Rockland claims to have got
itself registered as a Category I Merchant Banker with the
Securities & Exchange Board of India (or SEBI) for a period
of three years, that is, till 16th October, 1996. This
period was extended for another three years till 16th
October, 1999. According to Rockland, its business of
“equipment leasing’ was actually an “industrial concern” as
defined in Section 2(c) of the Industrial Development Bank
of India Act, 1964 (for short the IDBI Act). The relevant
portion of the definition reads as follows:-
“2. Definitions – In this Act, unless the context otherwise requires, –
(a) & (b) xxx xxx xxx
(c) “Industrial concern” means any concern engaged
or to be engaged in, –
(i) to (xv) xxx xxx xxx
(xvi) leasing, sub-leasing or giving on hire or
hire-purchase of industrial plants,
equipments, machinery or other assets
including vehicles, ships and aircraft;”
13. The view sought to be canvassed by Rockland was
that as a result of the above, it ceased to be a “financial
institution” as defined in Section 45-I(c) of the RBI Act
since in terms of Clause (vi)(aa) thereof it carried on an
industrial activity. Moreover, since it was not a
“financial institution”, it could not be an NBFC as per
Section 45-I(f) of the RBI Act.
14. The consequence of this contention of Rockland was
that since it was not an NBFC, no petition for winding up
its affairs was maintainable under the RBI Act. This
contention will, of course, be dealt with at the appropriate
place.
15. Furthermore, according to Rockland, SEBI issued
Notification S.O.837(E) dated 9th December, 1997 directing
all merchant bankers to cease to be an NBFC. This direction
was complied with and Rockland ceased to be an NBFC. This
was another ground set up by Rockland for questioning the
maintainability of the winding up petition filed by the RBI.
16. Be that as it may, the audited balance sheet of
Rockland as on 31st March, 1997 (as revealed in Co.A.(B)
No.4/1998) shows that its paid up capital was Rs.7.12
crores and its reserves and surplus were Rs.9.07 crores.
The net worth of Rockland was Rs.16 crores, while its public
deposits were Rs.20.96 crores.
17. Notwithstanding these figures and the contentions
referred to above, Rockland applied to the RBI on 3rd July,
1997 for a Certificate of Registration under the provisions
of Section 45-IA(2) of the RBI Act as an NBFC. The RBI had,
quite naturally, to satisfy itself by an inspection of its
books that Rockland fulfills the conditions for the purposes
of considering its application for registration. This is
the requirement of Section 45-IA(4), which reads as
follows:-
“45-IA. Requirement of registration and net owned
fund
(1) xxx xxx xxx
(2) Every non-banking financial company shall make
an application for registration to the bank in
such form as the bank may specify:
PROVIDED that a non-banking financial company in
existence on the commencement of the Reserve Bank
of India (Amendment) Act, 1997 shall make an
application for registration to the bank before
the expiry of six months from such commencement
and notwithstanding anything contained in
sub-section (1) may continue to carry on the
business of a non-banking financial institution
until a certificate of registration is issued to
it or rejection of application for registration is
communicated to it.
(3) xxx xxx xxx
(4) The bank may, for the purpose of considering
the application for registration, require to be
satisfied by an inspection of the books of the
non-banking financial company or otherwise that
the following conditions are fulfillled:-
(a) that the non-banking financial company is or
shall be in a position to pay its present or
future depositors in full as and when their
claims accrue;
(b) that the affairs of the non-banking
financial company are not being or are not
likely to be conducted in a manner
detrimental to the interests of its present
or future depositors;
(c) that the general character of the management
or the proposed management of the
non-banking financial company shall not be
prejudicial to the public interest or the
interests of its depositors;
(d) that the non-banking financial company has
adequate capital structure and earning
prospects;
(e) that the public interest shall be served by
the grant of certificate of registration to
the non-banking financial company to
commence or to carry on the business in
India;
(f) that the grant of certificate of
registration shall not be prejudicial to the
operation and consolidation of the financial
sector consistent with monetary stability
and economic growth considering such other
relevant factors which the bank may, by
notification in the Official Gazette,
specify; and
(g) any other condition, fulfillment or which in
the opinion of the bank, shall be necessary
to ensure that the commencement of or
carrying on of the business in India by a
non-banking financial company shall not be
prejudicial to the public interest or in the
interest of the depositors.”
18. For carrying out its duties under the RBI Act, an
inspection of Rockland was undertaken by the RBI between
12th and 22nd September, 1997 under the provisions of
Section 45-N of the Act. This reads as follows:-
“45-N. Inspection
(1) The bank may, at any time, cause an inspection to be made by one or more of its officers or
employees or other persons (hereinafter in this
section referred to as the inspecting authority) –
(i) of any non-banking institution, including a
financial institution, for the purposes of
verifying the correctness or completeness of
any statement, information or particulars
furnished to the bank or for the purpose of
obtaining any information or particulars
which the non-banking institution has failed
to furnish on being called upon to do so;
or
(ii) of any non-banking institution being a
financial institution, if the bank considers
it necessary or expedient to inspect that
institution.
(2) It shall be the duty of every director or
member of any committee or other body for the time
being vested with the management of the affairs of
the non-banking institution or other officer or
employee thereof to produce to the inspecting
authority all such books, accounts and other
documents in his custody or power and to furnish
that authority with any statements and information
relating to the business of the institution as
that authority may required of him, within such
time as may be specified by that authority.
(3) The inspecting authority may examine on oath
any director or member of any committee or body
for the time being vested with the management of
the affairs of the non-banking institution or
other officer or employee thereof, in relation to
its business and may administer an oath
accordingly.”
19. Additionally, in exercise of powers conferred by
Section 45-MA(3) of the RBI Act, M/s Dewan & Gulati,
Chartered Accountants were appointed by the RBI to conduct a
special audit of the accounts of Rockland with reference to
its financial position as on 31st March, 1997 and to submit
a report to it. The broad parameters of the special audit
were indicated in the letter dated 31st December, 1997
appointing M/s Dewan & Gulati.
20. Section 45-MA(3) of the RBI Act reads as follows:-
“45-MA. Powers and duties of auditors
(1) & (2) xxx xxx xxx
(3) Where the bank is of the opinion that it is
necessary so to do in the public interest or in
the interest of the non-banking financial company,
or in the interest of depositors of such company
it may at any time by order direct that a special
audit of the accounts of the non-banking financial
company in relation to any such transaction or
class of transactions or for such period or
periods, as may be specified in the order, shall
be conducted and the bank may appoint an auditor
or auditors to conduct such special audit and
direct the auditor or the auditors to submit the
report to it.”
21. Soon thereafter, the RBI issued two directions
being No.DFC.114/DG(SPT)-98 dated 2nd January, 1998 and
No.DFC.115/DG(SPT)-98 of the same date. Only a passing
reference has been made to these two Notifications in the
pleadings, but it appears that the RBI prohibited all NBFCs
from accepting deposits if they did not possess a credit
rating of minimum ‘A’ from any approved credit rating
agency. Perhaps, because of this, Rockland wrote a letter
dated 8th January, 1998 to the RBI stating that it had
decided “in favor of retaining the fee based activities of
Merchant Banking and discontinue financing operations. From
now on, the Company has stopped all fund based operations as
a NBFC.” This was preceded by an appropriate resolution of
the Board of Directors of Rockland on 6th January, 1998.
22. Rockland also wrote to the RBI on 14th January,
1998 expressing its unhappiness over the recent events but
proposed to “discharge our liabilities of Public Deposits
within a period of three years starting from January, 1998
for repayment in the ratios of 40:30:30 corresponding to
this period.”
23. Notwithstanding these events, the RBI decided to go
ahead with its special audit by M/s Dewan & Gulati. This,
however, met with little or no success because Rockland did
not co-operate with the Chartered Accountants. This was so
intimated to the RBI by letters dated 15th January, 1998 and
12th May, 1998. In fact, in the letter dated 12th May,
1998, M/s Dewan & Gulati have gone so far as to say:-
“This all action on the part of Company shows that
Company is not interested in getting the special
audit done and for this they adopted strategy to
waste time in correspondence, so that time limit
provided to us for audit is expired and they can
be exempted from the special audit. In our
opinion the Company does not want their accounts
to be checked, as the Company seems to be indulge
in defrauding depositors.”
24. The say of Rockland in this context is that
although it was ready and willing to repay all its
depositors in three years time (as per the letter dated 14th
January, 1998), it was not permitted to do so because of two
subsequent Notifications dated 31st January, 1998
superceding the earlier directions of 2nd January, 1998.
These Notifications are described as the NBFC Acceptance of
Public Deposits (Reserve Bank) Directions, 1998 and the NBFC
Prudential Norms (Reserve Bank) Directions, 1998. In any
case, according to Rockland, these Notifications were not
applicable to it since it had withdrawn as an NBFC on 8th
January, 1998.
25. Whatever be the position, on 10th February, 1998,
the RBI sent a detailed notice to Rockland stating that in
view of various factors (of which nine were outlined), its
application for the grant of a Certificate of Registration
under Section 45-IA(2) of the RBI Act to carry on the
business of an NBFC could not be granted. Rockland was
given time to represent against the letter dated 10th
February, 1998.
26. Rockland did send a detailed representation dated
19th February, 1998 setting out its case and concluded by
withdrawing its application dated 3rd July, 1997 for the
grant of a Certificate of Registration.
27. The letter dated 19th February, 1998 sent by
Rockland met with a rather stern response from the RBI,
which stated in its letter dated 16th April, 1998 as
follows:-
“In this connection, we advise that till such time
the entire outstanding public deposits held by
your company as on date are repaid in terms of the
instructions contained in Notification
No.DFC.118/DG(SPT)/98 dated 31st January, 1998,
your company will continue to fall within the
ambit of our regulations and cannot be allowed to
withdraw its registration application at this
stage. Further, you are also advised to furnish
us with the position of repayment of existing
deposits held by the company.”
28. This was followed by a prohibitory order dated 9th
June, 1998 issued by the RBI to Rockland. In paragraph 3 of
this prohibitory order, it was noted that it had come to the
notice of the RBI that Rockland had solicited deposits from
the public in February, 1998 by advertising that its fixed
deposits are secured by way of first charge on its assets by
a trust called Investors Trust of India. The RBI stated
that it had received complaints from the depositors that the
so-called Trust is nothing but an extension of Rockland,
apparently created to mislead the public. As far as the RBI
was concerned, this clearly indicated that Rockland had been
accepting deposits despite its prohibitions and the
Resolution of the Board of Directors of Rockland dated 6th
January, 1998.
29. Consequently, in paragraph 5 of the letter dated
9th June, 1998 the RBI expressed its satisfaction that it
would not be in public interest to allow Rockland to accept
further deposits from the public. Therefore:-
(1) In exercise of powers conferred by Section 45-K read
with Section 45-MB(1) of the RBI Act, Rockland was
prohibited from accepting deposits with immediate
effect. Rockland was also prohibited from accepting
deposits from any person in any form whether by way of
fresh deposits or renewal deposits or otherwise.
(2) In accordance with the provisions of Section 45-MB(2)
of the RBI Act, Rockland was prohibited from selling,
transferring, creating a charge or mortgage or dealing
in any manner with its property and assets except for
the purpose of repayment of deposits held by it,
without the prior permission of the RBI for a period
of six months.
30. After having considered all these facts,
circumstances and various features, the RBI was of the view
that Rockland had failed to fulfilll the conditions
enumerated under Section 45-IA(4) of the RBI Act.
Consequently, its application for a Certificate of
Registration to carry on the business of an NBFC was
rejected by a letter dated 9th June, 1998.
31. Feeling aggrieved by the order dated 9th June,
1998, Rockland resorted to two remedies. Firstly, it filed
an appeal under the provisions of Section 45-IA(7) of the
RBI Act. Rockland neither appeared at the hearing of the
appeal, nor did it ask for an adjournment. Accordingly, the
appeal was dismissed on 17th January, 2001. Secondly,
Rockland filed CW No.3433/1998 in this Court for quashing
the order dated 9th June, 1998. Again, it took no interest
in this case, which had apparently become infructuous. In
any event, it came to be dismissed in default on 1st
November, 2000.
32. In the meanwhile, some depositors appear to have
complained to the Company Law Board (CLB) regarding
non-payment of its deposits. Rockland was heard on 9th
June, 1998. It also filed a reply dated 18th June, 1998
contending, inter alia, that in view of the mismatch in its
cash flow resulting from the RBI guidelines of 31st January,
1998, Rockland was repaying the deposits in accordance with
those guidelines.
33. On a consideration of the facts of the case, the
CLB passed an order dated 26th June, 1998 under the
provisions of Section 45-QA(2) of the RBI Act wherein the
following schedule of repayment was ordered:-
“(a) All deposits up to Rs.10,000/- to be repaid
in full by 31st December, 1998;
(b) All deposits exceeding Rs.10,000/- up to
Rs.50,000/- to be repaid in two Installments
namely 50% by 31st December, 1998 and 50% by
31st December, 1999;
(c) All deposits above Rs.50,000/- to be repaid
as under:-
30% by 31st December, 1998
30% by 31st December, 1999
40% by 31st December, 2000
(d) All requests for repayment on compassionate
grounds shall be repaid within one month of
the request in case the company is satisfied
with regard to the grounds namely, serious
illness, old age, marriage in the family and
other pressing commitments;
(e) Interest of the deposits shall be continued
to be repaid regularly as per the existing
terms and conditions of deposits;”
34. This order of the CLB dated 26th June, 1998 was
challenged by Rockland in Co.A.(B) 4/1998 filed in this
Court on or about 20th July, 1998 under the provisions of
Section 10F of the Companies Act, 1956. This reads as
follows:-
“10F. Appeals against the orders of the Company
Law Board. –
Any person aggrieved by any decision or order of
the Company Law Board may file an appeal to the
High Court within sixty days from the date of
communication of the decision or order of the
Company Law Board to him on any question of law
arising out of such order:
Provided that the High Court may, if it is
satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the
said period, allow it to be filed within a further
period not exceeding sixty days.”
35. On 12th August, 1998, learned counsel for Rockland
agreed to abide by the directions given by the CLB in
sub-paragraphs (a), (d) and (e). Rockland was, however,
directed by this Court to go on paying interest on deposits
to all the depositors irrespective of their amount deposited
till repayment. On compliance, the directions given in
sub-paragraphs (b) and (c) were stayed.
36. On 18th December, 1998, this Court passed an order
clarifying that any complaint filed by any depositor either
with the police or before a Magistrate or a Civil Court,
will not be entertained without the permission of this
Court.
37. On 25th January, 1999, this Court passed the
following order:-
“It is submitted by some counsel appearing for the
depositors that while staying the operation of
directions contained in the order dated 26 June
1998 of the Company Law Board, this Court had
issued certain directions to the petitioner, one
of them being that the appellant company will go
on paying interest on deposits to all the
depositors irrespective of their amount deposited
till repayments, but the appellant company has not
complied with these directions. Needless to say
that the stay of operation of the aforenoted two
sub-paras was subject to the appellant company
complying with the directions contained in the
order dated 12 August 1998 and if these have not
been complied with, it cannot be said that the
operation of even the two aforenoted sub-paras
remains stayed.”
38. The orders passed by this Court apparently had no
effect on Rockland. Consequently, on 28th April, 1999, this
Court vacated all interim orders in the following words:-
“However, on a pointed query by this Court, it is
submitted by learned counsel for the appellant
that against a sum of Rs.9,17 crores, due to be
paid to various depositors by the appellant
company as on 31 December 1998 in terms of the
impugned order, only a sum of Rs.7.70 crores was
paid. Thus, admittedly the appellant company has
not even complied with the order passed by the
Company Law Board, which it seeks to challenge in
this appeal. Under the circumstances, while
clarifying that in the present appeal there is no
stay of operation of the impugned order dated 26
June 1998, the protection granted to the appellant
in terms of order dated 18 December 1998 is also
withdrawn.”
39.Apparently to avoid any further adverse orders,
Rockland moved CM 6041/1999 in CW 3433/1998 on 1st May, 1999
contending that the prohibition in the order dated 9th June,
1998 passed by the RBI was valid only for six months (which
period had elapsed) and, therefore, the writ petition had
become infructuous.
40. This application was opposed by the RBI which
replied that the prohibition contained in the letter dated
9th June, 1998 had been extended for a further period of six
months by an order dated 4th May, 1999. This order was
sought to be served on Rockland, but had come back
undelivered.
41. As mentioned above, since Rockland took no further
interest in the writ petition, it came to be dismissed on
1st November, 2000.
42. It seems that the RBI also received a large number
of complaints from various sources and also obtained
information that the order of the CLB dated 26th June, 1998
was not being complied with by Rockland. In fact, on 6th
May, 1999 an officer of the RBI was sent to the registered
office of Rockland to ascertain the position regarding
repayment to the depositors, but it was found locked.
Accordingly, in view of Section 54-B(4AAA) of the RBI Act,
by a show cause notice dated 15th June, 1999, Rockland was
asked to show cause why penal action be not taken against
it. The show cause notice came back undelivered with the
remarks “intentionally avoided to take delivery”. The
notice sent to the Directors of Rockland came back
undelivered with the remarks “left”. The CLB also,
independently, intimated the RBI by a letter dated 17th
August, 1999 that after the passing of the order of the CLB,
Rockland had not filed any affidavit.
43. In view of these facts, RBI filed a Criminal
Complaint No.753/1999 in the Court of the learned Additional
Chief Metropolitan Magistrate (ACMM), New Delhi. This
complaint was filed on 21st August, 1999 against Rockland
and its Directors under the provisions of Section 51-E(1)
read with Sections 45-QA, 58-B, 58-C and 58-B(4AAA) of the
RBI Act. The learned ACMM took cognizance of the offence on
9th September, 2000 and summoned all the accused.
44. Thereafter on 4th October, 1999, J.M.Chawla, the
Chairman-cum-Managing Director of Rockland appeared in this
Court in the Company Appeal and stated that if necessary
protection is granted to him, and he is allowed to operate
his offices, he would be able to deposit at least Rs.1.5
crores with the Registrar of this Court. He undertook to
deposit Rs.5 lakhs within three days with the Registrar of
this Court to be distributed to some of the depositors who
are in urgent need of money. Orders which had earlier been
passed restraining the arrest of J.M.Chawla were, therefore,
continued.
45. Pursuant to the order passed on 4th October, 1999,
J.M.Chawla did deposit Rs.5 lakhs in this Court, which was
distributed to various depositors. On 5th November, 1999,
J.M.Chawla undertook to deposit a further amount of Rs.15
lakhs by 15th November, 1999 and Rs.95 lakhs on or before
4th December, 1999.
46. On 6th November, 1999, J.M.Chawla stated that he
would deposit Rs.20 lakhs on or before 31st December, 1999
and Rs.75 lakhs on or before 31st January, 2000. This was
not done. Consequently, on 21st February, 2000, this Court
observed, inter alia, as follows:-
“Despite repeated orders of this Court, the
appellants have failed to deposit the
cheques/demand drafts for Rs.20 lakhs and the
balance amount of Rs.75 lakhs. The conduct of the
appellants is reprehensible.”
47. It appears that subsequently Rockland deposited two
cheques of Rs.10 lakhs each in this Court but both were
returned with the remarks “insufficient funds”.
Consequently, on 16th March, 2000 the protection against the
arrest of the Appellants was withdrawn forthwith.
48. Notwithstanding all this, the Court thought it
appropriate to give another opportunity to the parties to
sit together and negotiate and suggest the best way of
protecting the interest of the depositors, and enabling
Rockland to repay the debts. A meeting was held for this
purpose in the chamber of Mr.Anoop Bagai, Advocate on 23rd
September, 2000. The Minutes recorded at that meeting read
as follows:-
“MINUTES OF THE MEETING HELD ON 23.9.2000 AS
PER ORDERS PASSED BY THIS HON’BLE COURT ON
18.9.2000
1. No direct payments to be made by company/
directors to depositors but only through
Court.
2. Rs.40 lakhs to be transferred immediately to
this Hon’ble Court out of Rs.60 lakhs
deposited by the purchaser in Suit Nos.
470/2000, 471/2000 and 472/2000 pending in
this Court.
3. For the present in Phase-I 25% of the
Principal amount shall be deposited by the
company in this Hon’ble Court by 31.1.2001
which includes Rs.40 lakhs aforesaid. The
principal amount constitutes the total
amount of depositors who are already
appearing in this Court in person or through
counsels. Rest of the depositors initiating
the proceeding later, would be dealt in
Phase-II. Question as to payment of
interest will be decided later on.
Remaining amount to be paid as under:
i) 25% by 31.3.2001.
ii) 25% by 31.8.2001
iii) 25% by 31.12.2001
4. Protection to all Directors/staff, subject
to continuing to comply the aforesaid
deposit schedule.
5. Criminal cases filed by depositors appearing
in this Court shall get the same adjourned.
6. List of depositors as stated in para 3 above
to be filed in Court by 29.9.2000 by 4 P.M.
with copies to the petitioner and Mr. Anoop
Bagai.
7. Petitioner shall obtain 34-A within 6 weeks
regarding property No. E-346, Greater
Kailash-I, Delhi, after paying the dues of
Income Tax and House Tax etc. which shall
be paid out of Rs.60 lakhs deposited by the
purchasers in Court as setout in para to (2)
above.”
49. Soon thereafter, on 28th September, 2000 it was
stated by learned counsel for Rockland that his client is
prepared to abide by the decision taken in the meeting held
on 23rd September, 2000. The Court directed the Appellant
(probably J.M.Chawla) to “file an affidavit on or before
9.10.2000 conveying his willingness to abide by the said
decision and undertaking to this Court that he would make
payment to the depositors as suggested in the meeting held
on 23.9.2000.” This affidavit of undertaking was filed by
J.M.Chawla.
It seems that Rockland or at least the Directors of
Rockland owned property bearing No.E-346, Greater Kailash,
Part-I, New Delhi. It was agreed by all concerned that this
property be sold and Rs.40 lakhs be made available to this
Court from the sale proceeds of the property for being
disbursed to the depositors. This amount of Rs.40 lakhs was
eventually transferred to the Company Court for distribution
among the creditors. This is so recorded in the order dated
13th December, 2000 passed in the Company Appeal.
50. In the meeting held on 23rd September, 2000, it was
also agreed that:-
“…the appellant company shall deposit 25% of the
principal amount in this Court by 31.1.2001.
(This amount includes the sum of Rs.40 lakhs which
stands transferred to this Court). Another 25% of
the principal amount shall be deposited by the
appellant company by 31.3.2001 and another 25% by
31.8.2001 and the remaining 25% by 31.12.2001. As
per the agreement the question as to payment of
interest will be decided later on. Mr. Anoop
Bagai points out that as per the consolidated list
filed by him, the total principal amount is around
Rs.6,80,00,000/-. It means that the appellant
will have to deposit in this Court a sum of
Rs.1,30,00,000/- (after adjusting the sum of
Rs.40,00,000/-) by 31.1.2001 and the appellant
will have to deposit Rs.1,70,00,000/- each by
31.3.2001, 31.8.2001 and 31.12.2001.”
51. The payments to be made by J.M.Chawla, as mentioned
above, were not made. Therefore, by an order dated 26th
April, 2001 he was asked to explain through an affidavit why
he has not complied with this Court’s order dated 13th
December, 2000 and why action should not be taken against
him for disobeying the order of the Court. J.M.Chawla has
since filed his affidavit dated 22nd May, 2001.
52. It may be mentioned, en passant, that by the order
dated 13th December, 2000 it was directed that the Directors
of Rockland, that is, J.M.Chawla, Arun Chawla, Tarun chawla
and Ms.Indu Chawla shall not be arrested in connection with
or pursuant to any complaint filed by any depositor till the
next date (that is, 16th February, 2001). The next date has
come and gone. The interim order effectively continues till
date.
53.Additionally, in the Company Appeal filed by
Rockland, it was directed on 30th October, 2001 that till
the disposal of the Company Appeal, J.M.Chawla shall not be
arrested in connection with or in pursuance of any complaint
filed by any of the depositors.
54. On or about 13th March, 2001, the Reserve Bank of
India filed C.P.No.93/2001 praying, inter alia, for winding
up the affairs of Rockland and to take charge of its
properties, assets, books of account, etc. This CP was
filed under the provisions of Section 45-MC of the RBI Act.
This reads as follows:-
“45-MC. Power of bank to file winding up petition
(1) The bank, on being satisfied that a
non-banking financial company –
(a) is unable to pay its debt; or
(b) has by virtue of the provisions of section
45-IA become disqualified to carry on the
business of a non-banking financial
institution; or
(c) has been prohibited by the bank from
receiving deposit by an order and such order
has been in force for a period of not less
than three months; or
(d) the continuance of the non-banking financial
company is detrimental to the public interest
or to the interest of depositors of the
company,
may file an application for winding up of such
non-banking financial company under the Companies
Act, 1956 (1 of 1956).
(2) A non-banking financial company shall be
deemed to be unable to pay its debt if it has
refused or has failed to meet within five working
days any lawful demand made at any of its offices
or branches and the bank certifies in writing that
such company is unable to pay its debt.
(3) A copy of every application made by the bank
under sub-section (1) shall be sent to the
Registrar of Companies.
(4) All the provisions of the Companies Act, 1956
(1 of 1956) relating to winding up of a company
shall apply to a winding up proceeding initiated
on the application made by the bank under this
provision.”
55. It does not need any scholarly study to realize
that on the basis of the facts narrated above, the winding
up of Rockland will be covered by all the above clauses of
Section 45-MC of the RBI Act.
56. The audited balance sheet of Rockland for the year
ending 31st March, 1997 shows that its net worth is less
than its liabilities. The CLB in its order dated 26th June,
1998 passed under Section 45-QA of the RBI Act had
nevertheless directed Rockland to repay all deposits up to
Rs.10,000/- in full by 31st December, 1998. The rest of the
amounts could be paid later. But, this was not done.
Rockland was also directed to repay on compassionate grounds
within one month of the request in case the company
(Rockland) is satisfied with regard to the grounds, namely,
serious illness, old age, marriage and other pressing
commitments. I was told by some of the depositors who spoke
out of turn or interjected during the hearing of the cases
that this was also not adhered to in several cases.
Finally, Rockland was directed to continue to pay interest
on the deposits on the existing terms and conditions of the
deposits. Even this was not done.
57. On 12th August, 1998, learned counsel for Rockland
agreed to abide by the above directions of the CLB, but to
no effect. It is hard to believe that under these
circumstances, it can ever be imagined that Rockland was in
a real position to pay its debts.
58. To make matters worse, M/s Dewan & Gulati,
Chartered Accountants were appointed to conduct a special
audit of the accounts of Rockland. Not only were the
Chartered Accountants not allowed to carry out the special
audit but their time was wasted by Rockland giving them the
impression that Rockland does not want its accounts to be
audited, since it seems to “indulge in defrauding
depositors”. Therefore, in the absence of all necessary and
relevant material, one doesn’t even know the extent to which
Rockland has “defrauded” or milched its depositors.
59. On 14th January, 1998, Rockland informed RBI that
it proposes to discharge its liabilities within a period of
three years starting from January, 1998 onwards. Almost
four years have gone by, but the depositors have still not
received their principal investment, let alone the interest
thereon.
60. The Board of Directors of Rockland had, apparently
resolved in January, 1998 not to solicit deposits from the
public. This was later on discovered by the RBI to be a
camouflage since Rockland continued to solicit deposits by
advertising that its fixed deposits are secured by way of
first charge on its assets by a trust called Investors Trust
of India.
61. Rockland did, of course, take steps to secure its
interests by filing a Company Appeal in this Court. This
met with little or no success. But, Rockland chose not to
challenge any order which could be construed as “adverse” to
it. On the contrary, during 1999 more than sufficient
indulgence was given to Rockland to make deposits in this
Court. While some deposits were made, other cheques issued
by Rockland bounced and a major deposit of Rs.95 lakhs
(later reduced to Rs.75 lakhs) was never made. In fact, on
21st February, 2000, this Court described the conduct of the
Appellants as “reprehensible”.
62. Time and again this Court had been indulgent to
J.M.Chawla, Arun chawla, Tarun Chawla and Ms.Indu Chawla
whose arrest had been stayed for considerable periods of
time. Even this had no effect on the Appellants because
when they were summoned to Court, either by the issuance of
a bailable warrant or a non-bailable warrant, the same could
not be executed. These persons appeared in Court only when
it suited them to do so.
63. The Appellants had represented to this Court that
they had immoveable property in Mumbai and Goa which could
be sold off to pay the depositors. On 29th May, 2001, this
Court appointed two advocates as joint Commissioners to sell
these properties.
64. As regards the property in Goa, the Commissioners
reported on 8th August, 2001 that they received no offers
for the sale of the said property. It was further stated in
paragraphs 4 to 6 of their Report as follows:-
“4. That, however, on inspection of the property
in question it was observed by the undersigned
Commissioners that the said property belonging to
the appellant company is located on the IInd floor
of a building, in which all the flats/offices were
lying vacant and were not being used by their
owners/occupants since many months/years. It was
also observed that there was no electricity on the
said floor of the building and it seemed that the
building was not being maintained by the
occupants/owners of the said building, except for
the ground floor of the building where Indian
Overseas Bank was running its activities.
5. Thus as per the observations of the
undersigned Commissioner’s, the property in
question is not in a condition in which many
buyers are expected to be interested, looking at
its maintenance and the business prospects of the
area in which the building is situated and its
depleted condition.
6. That nevertheless the undersigned
Commissioners, with a view to get the property in
question valuated, approached one of the
Government Valuers, Sh.S.N.Bhobe. The said Govt.
Valuer, Shri S.N. Bhobe finalised his report on
5.6.2001 and handed over the same to
Commissioner’s, according to which the fair market
value of the property in question si Rs.4,96,000/-
only.”
65. As regards the Mumbai property, the position seems
to have been worse. The Commissioners visited the property
on two consecutive days for about 3-4 hours but did not
receive any offer. On the other hand, the office of the
society in which the property was situated, informed the
Commissioners that up to June 2001, the Appellants owed the
Society Rs.1,82,564/- towards maintenance and other service
charges. The Commissioners even approached the Official
Liquidator attached to the Bombay High Court for providing a
Government approved valuer for preparing a Valuation Report
regarding the fair market price of the property in question.
However, the Commissioners have received no Valuation Report
as yet pertaining to the Mumbai property.
66. In paragraph 13 of their Report, the Commissioners
categorically stated that till date they have received no
concrete offers for the sale of the properties in Mumbai or
Goa. Rockland had, however, received some offers earlier.
The authenticity of these offers can only be a matter of
conjecture. It may be mentioned that on 29th May, 2001 J.M.
Chawla had agreed to accompany the Commissioners to Goa and
Mumbai provided he is given protection from arrest. This
protection was granted by this Court but J.M. Chawla did
not accompany the Commissioners “as he was stated to be
unwell during that time.”
67. An effort was also made by this Court to resolve
all problems between the parties and a meeting for this
purpose was also held between all of them on 23rd September,
2000 in the Chamber of Mr. Anoop Bagai, Advocate. Certain
decisions were taken at this meeting and J.M. Chawla also
filed an affidavit agreeing to abide by the decisions taken
in the meeting, but all this was to no effect.
68. Learned counsel for Rockland time and again sought
the indulgence of this Court to allow his clients an
opportunity to run their offices and to recover amounts
allegedly due to them from their lessees to repay the debts
to all the depositors. He squarely blamed the various
directions of the RBI for this state of affairs. On 18th
September, 2000, an opportunity was given to Rockland
despite the objections of the depositors. (This had
resulted in the meeting held on 23rd September, 2000). The
acceptance of the request, however, had no positive effect
on the outcome of the proceedings. Further similar
entreaties made by learned counsel for Rockland during the
course of hearing had, quite naturally, to be rejected.
69. In the context of these submissions of learned
counsel for Rockland, it must be remembered that the Supreme
Court has said in General Finance and Investment Co. Ltd.
Vs. Reserve Bank of India, (1992) 2 SCC 344 that the
reasonableness of directions given by the RBI have to be
looked at from the point of view of the depositors, for
whose safeguard they have been issued. The reasonableness
of the directions has not to be looked at from the point of
view of the Company to whom such restrictions will be
irksome and may, therefore, be regarded as unreasonable.
(Paragraphs 19 and 20 of the Report).
70. On a consideration of the various aspects of the
case, I have no hesitation in concluding that Rockland is
unable to pay its debts and its continuance is detrimental
to the public interest or to the interest of the depositors
of the Company. The provisions of Clauses (a) and (d) of
Section 45-MC(1) of the RBI Act have been violated as
contended by learned counsel for the RBI.
71. Rockland had applied for a Certificate of
Registration on 3rd July, 1997 under the provisions of
Section 45-IA(2) of the RBI Act. This application was
rejected by the RBI on 9th June, 1998. An appeal preferred
by Rockland against this order was dismissed on 17th
January, 2001 and CW No.3433/98 preferred in this Court was
dismissed in default on 1st November, 2000. The order dated
9th June, 1998 has, therefore, attained finality. In terms
of Section 45-MC(1)(b) of the RBI Act, Rockland is
disqualified from carrying on the business of an NBFC.
72. Finally, by the same order dated 9th June, 1998,
Rockland was prohibited from receiving deposits for a period
of not less than three months. The prohibition was, in
fact, for six months and was later extended by an order
dated 4th May, 1999 by another six months. Whether the
extension could have been granted or not, as contended by
learned counsel for Rockland, is really of no consequence.
The fact is that there was a prohibition against Rockland
from receiving deposits for a period of not less than three
months.
73. Consequently, RBI had more than enough material to
conclude that Rockland has not satisfied the provisions of
Clauses (b) and (c) of Section 45-MC(1) of the RBI Act.
74. Looked at, therefore, from any point of view, there
is no option but to order the winding up of the affairs of
Rockland in terms of Section 45-MC of the RBI Act.
75. Consequently, Co.A(B) 4/98 filed by Rockland does
not survive and is dismissed as such. It may be mentioned
that learned counsel for the RBI did contend that the appeal
was not maintainable under the provisions of Section 10F of
the Companies Act, 1956 but it is now not necessary to deal
with this contention.
76. Learned counsel for the RBI relied upon a certified
copy of Writ Petition No.32498 of 1998 decided by a learned
Single Judge of the Andhra Pradesh High Court on 13th
December, 1999 (Dr.Pinna N.R. Vs. The Commissioner of
Police, Hyderabad & Ors.). This decision really does not
render much assistance on the merits of the case simply
because the prayer therein was for an order or direction to
the Respondents therein to make an enquiry before
registering any crime against the Petitioners therein as and
when any complaint or information is placed before the
officials about any alleged complaint.
77. That case also concerned the taking of deposits
from various individuals and the business of financing by
hire purchase. The company had 12,000 depositors and about
3000 debtors. The depositors association had naturally
evinced keen interest in the case and had provided valuable
information to the Court and the authorities from time to
time.
78. Despite this, the Court expressed its helplessness
in coming to the aid of the gullible depositors. The Court
said:-
“The Reserve Bank has only power either to
prosecute under Chapter V of the Act or to
recommend for winding up under Section 45-MC of
the Act. Even the complaints made by the
depositors are only registered under Section 420
of I.P.C. But the most important question is fate
of the depositors who had made savings by
sacrificing their essential need and to utilise
the same during post retirement life. They
deposited with the petitioners under a fond hope
that they got reasonable returns on their hard
earned money. That proved to be a myth and
misery. The depositors are more than 11,000, and
they are virtually on the streets as on the date,
as the first petitioner is now stating that he is
not in a position to repay any amount. Even if
the first petitioner – Managing Director,
including those connected with the offences viz.,
past directors and promoters are sent to the
prison, the question still remains that whether
the court has done any justice to the depositors.
Sentencing the offenders and committing them to
the prison is one thing than ensuring the return
of deposits to the poor depositors who made
deposits from every nook and corner of this
country. This court also takes judicial notice of
the present trend that number of the non-banking
financial companies have received huge deposits
from the people of this country by mesmarising
(sic) them with heavenly pleasures and these
companies have lifted their boards itself in a
very short time. In Andhra Pradesh itself, there
are many such instances which are being reported
in the press every day. What is the solution that
has to be carved to arrest the situation? Can the
State be a mute spectator when huge amounts
running into crores of innocent public is being
mis-used and misappropriated by the financial
institutions. The Provisions of the R.B.I. Act
have only regulated the conduct of Non-Banking
Financial Institutions after the issuance of
registration certificates. But, the institutions
which have already collected deposits as on the
date of coming into force the amended provisions
in 1997 and which were refused certificate of
registration by Reserve Bank of India and failed
to refund the deposits, no provisions has been
made to deal with such companies. The fate of
these depositors with such companies is hanging in
fire. Therefore, a grave situation arisen wherein
the State is required to deal with it with stern
hands.”
79. I am afraid that this Court is in no better
position to help the depositors in this case. We all know
that the answer to the problem is blowin’ in the wind, but
somebody with vision has to recognise it.
80. Similarly, in Reserve Bank of India Vs. Krishi
Export Com.Corpn. Ltd., 2001 CLC 150, winding up of the
Respondent was sought in the Allahabad High Court on the
ground that (i) it is unable to pay its debts, (ii) it has
become disqualified to carry on the business because of
rejection of its application for issuance of certificate of
registration and (iii) continuance of business by it is
detrimental to the public interest and to that of the
depositors. (Paragraph 3 of the Report).
81. Referring to the inability of the Company to pay
its debts, the Court held in paragraphs 38 and 39 of the
Report that:-
“38. …The company started defaulting in payment
from September 1998 onwards. It was the own case
of the respondent company that it had accepted
total deposits to the tune of Rs.54 Crores under
various schemes as on 30.9.1998; that it had
stopped accepting deposits with effect from
September, 1998. It was also its case that there
had been unavoidable delay in honouring the
commitments towards repayment of deposits back so
of mismatch of cash inflow and outflow. The
admission of the company is there that a large
number of deposits are outstanding for repayment
on maturity. It was also the case of respondent
company before the CLB that due to change in the
policy of the Reserve Bank of India relating to
non-banking financial companies and also the
sluggish economy of the country and the financial
unsatisfactory working of some of the major
players in this field, the faith of the public was
shattered and all the depositors had started
demanding repayments which was highly impossible
for the company to repay. The admission of the
company was that despite its best efforts, it
could not make any payment to the depositors since
September, 1998. Even its working came to
standstill and all the offices had to be shut
down. However, it contended that aggregate amount
of its asset as on 30.9.1998 was around Rs.54.60
Crores. According to the company, its liabilities
towards deposits and interest were to the tune of
Rs.54 Crores. It appears that such assertion of
the respondent company swayed the CLB to approve a
scheme for repayment. The discussion that I
intend to make a shortwhile later would show that
actually the liability of the respondent company
was far in excess of its assets which has to be
taken to mean that it is unable to pay its debts.
39. In any view of the matter, the admissions of
the respondent company before the CLB referred to
above leaves not the slightest doubt that its
office had shut down, it had stopped making
payments since September, 1998 and the primary
reason was that fresh deposits were not coming to
it after September, 1998. It gives a clear
inkling that the trick or hidden secret of its
operation over the years was that out of the fresh
deposits, it was making the payments of earlier
deposits but there was a sizeable gap between its
liabilities and assets, the former being for in
excess than the latter. It could pay its debts
only by accepting fresh deposits. Indeed, there
could be no end to it as it was to be an unending
cycle and at any given time, the last set or group
of depositors was to be the sufferer. The reality
that in spite of the introduction of Chapter III-B
in the Reserve Bank of India Act, the Reserve Bank
was also not very conscious about the discharge of
its duties by effectively controlling the
non-banking financial institutions. But when the
grip came to be tightened with the amending Act of
1997 introducing the requirement of registration
of non-banking financial companies with the
Reserve Bank, the loophole came to surface on
inspection made by the Reserve Bank to decide the
application of the respondent company for the
issuance of certificate of registration.”
82. It was then concluded in paragraph 42 of the Report
that it was “crystal clear” that the company was unable to
pay its debts.
83. As regards the absence of any Certificate of
Registration, the Allahabad High Court dealt with the
problem in the following manner in paragraphs 23 and 24 of
the Report:-
“23. …The respondent submitted an application
for registration to the Bank under Section 45-I(2) of the Act. The said application of the
respondent was rejected by the Bank on 17.9.1998.
The contention of the learned counsel for the
respondent is that the said order of rejection
passed by the Bank declining registration to the
respondent is not final. Attention of the Court
has been invited to sub-section (7) of Section
45-IA of Reserve Bank of India Act, which runs as
under: –
“45-IA. Requirement of registration and net owned
fund. –
(7) A company aggrieved by the order of rejection
of application for registration or cancellation of
certificate of registration may prefer an appeal,
within a period of thirty days from the date on
which such order of rejection or cancellation is
communicated to it, to the Central Government and
the decision of the Central Government where an
appeal has been preferred to it, or of the Bank
where no appeal has been preferred, shall be
final:
Provided that before making any order of rejection
of appeal, such company shall be given a
reasonable opportunity of being heard.”
24. It is not disputed by the petitioner that the
respondent has preferred an appeal against the
order of the Bank dated 17.9.1998 before the
Central Government and the same is pending. The
submission from the side of respondent is that
since its appeal is pending before the Central
Government, the order of rejection passed by the
Bank declining registration of it (respondent) is
not final and as such the Bank cannot rely on
ground (b) of sub-section (1) of Section 45-MC of
the Act to back its winding up petition. On the
other hand, the argument of learned counsel for
the petitioner is that no stay order has been
passed by the Central Government staying the
Bank’s order dated 17.9.1998. This Court is of
the opinion that no stay order is required to be
passed by the Central Government to put a brake to
the operation of rejection order during the
pendency of the appeal. Sub-section (7) of the
Section 45I-A is couched in clear and unambiguous
terms that where an appeal is preferred against
the rejection of application for registration to
the Central Government, the decision of the
Central Government shall be final. The order of
the Bank rejecting the application for
registration shall be final only when no appeal
has been preferred. Therefore, stay of the
operation of rejection order passed by the Bank is
automatic on the filing of the appeal by the
aggrieved party, as respondent in the present case
has done. So, to come to the point, ground (b) of
sub-section (1) of Section 45-MC of the Act cannot
be relied upon by the petitioner to support this
winding-up petition.”
84. I am afraid, it is not possible for me to agree
with the view of the Allahabad High Court. Firstly because
it does not seem to be correct, with respect, that “The
order of the Bank rejecting the application for registration
shall be final only when no appeal has been preferred”.
What if no appeal is filed – is the order of rejection a
dead letter?
85. Moreover, a “final” order in a case such as this
refers only to an order against which no appeal is provided.
There is no bar to recourse to a writ of certiorari. In
fact, this remedy was resorted to by Rockland by filing CW
No.3433/1998 in this Court.
86. In Regina v. Medical Appeal Tribunal Ex parte
Gilmore, (1957) QB 574 CA, it was said on page 583 of the
Report:-
“The second point is the effect of section 36(3)
of the Act of 1946 which provides that “any
decision of a claim or question “…shall be
final.” Do those words preclude the Court of
Queen’s Bench from issuing a certiorari to bring
up the decision?
This is a question which we did not discuss in Rex
v. Northumberland Compensation Appeal Tribunal,
Ex parte Shaw, because it did not there arise. It
does arise here, and on looking again into the old
books I find it very well settled that the remedy
by certiorari is never to be taken away by any
statute except by the most clear and explicit
words. The word “final” is not enough. That only
means “without appeal.” It does not mean “without
recourse to certiorari.” It makes the decision
final on the facts, but not final on the law.
Notwithstanding that the decision is by a statute
made “final,” certiorari can still issue for
excess of jurisdiction or for error of law on the
face of the record.”
87. Similarly, on page 585 of the Report, it was said:
“In my opinion, therefore, notwithstanding the
fact that the statute says that the decision of
the medical appeal tribunal is to be final, it is
open to this court to issue a certiorari to quash
it for error of law on the face of the record.”
88.
In Pyx Granite Co. Ltd. v. Ministry of Housing
and Local Government and Others, (1960) AC 260 HL, it was
stated on page 285-286 of the Report:-
“I come now to the second question which must be
decided. It was submitted by the respondents that
the court had no jurisdiction to entertain the
action. It was urged that section 17 of the Act
supplied the only procedure by which the subject
could ascertain whether permission is necessary
for the development of his land. That section
enacts that if any person who proposes to carry
out “any operations on land … wishes to have it
determined … whether an application for
permission in respect thereof is required under
this Part of this Act having regard to the
provisions of the development order, he may …
apply to the local planning authority to determine
that question.” This matter is somewhat
complicated by the fact that under other sections
of the Act the Minister may “call in” the
application for his own determination. But
nothing turns on this, for, whether the
application is heard in the first place by the
local planning authority and then on appeal by the
Minister or is heard in the first place upon a
“call in” by the Minister, his determination is
expressed to be final. The question is whether
the statutory remedy is the only remedy and the
right of the subject to have recourse to the
courts of law is excluded. Obviously it cannot
altogether be excluded; for, as Lord Denning has
pointed out, if the subject does what he has not
permission to do and so-called enforcement
proceedings are taken against him, he can apply to
the court of summary jurisdiction under section 23
of the Act and ask for the enforcement notice to
be quashed, and he can thence go to the High Court
upon case stated. But I agree with Lord Denning
and Morris L.J. in thinking that this circuity is
not necessary. It is a principle not by any means
to be whittled down that the subject’s recourse to
Her Majesty’s courts for the determination of his
rights is not to be excluded except by clear
words.”
89. It was further held on page 304 of the Report
that:-
“I can find no sufficient ground for holding that
section 17 provides an exclusive method of
determining questions of the kind to which it
relates, and deprives the courts of the
jurisdiction which they ordinarily possess of
determining by declaration questions of that
description.
Clear words would be necessary to produce this
result, and paying due regard to the terms of
section 17, and to the argument that it must be
read in conjunction with sections 15 and 16, I
cannot find any sufficient indication that it was
intended to oust the jurisdiction of the court on
any question which might have been made the
subject of an application under section 17.”
90. Pyx Granite was referred to by the Constitution
Bench in Dhulabhai v. State of Madhya Pradesh, . After discussing the entire case law, the Supreme Court
stated the legal position in paragraph 32 of the Report.
This conclusively shows that the decision in Krishi Export
Com. Corpn. Ltd. to this extent is not, with respect,
correct.
91. One needs hardly add that a writ of certiorari in
our country is a constitutional remedy which cannot be
whittled down by a statute.
92. In so far as the third ground is concerned, the
Allahabad High Court had this to say in paragraphs 49, 50,
54 and 55 of the Report:-
“49. I would now address myself to another ground
taken in the winding up petition, viz., the
continuance of non-banking financial business by
the respondent company is detrimental to the
public interest or to the interest of the
depositors of the company which is ground (d) of
sub-section (1) of Section 45-MC of the Act.
50. Coming to grips on this question, it is to be
noted that the interest of the depositors is of
paramount importance. On the fair assessment of
the facts and material on record, it is apparent
that the director(s) of the company have conducted
the operations of the company in such a way as to
jeopardize the interest of large number of
depositors whose hard earned money has been
exposed to great risk. By not making investment
out of the collected deposits as prescribed by the
Bank in its directions, the respondent company has
failed to protect the interest of the depositors
and has rather jeopardized their interest. As
such the continuance of the non-banking financial
business by the respondent company is detrimental
to the interest of the depositors as also to the
public interest.
54. The reply dated 12.5.1998 submitted by the
respondent to the show cause notice of the Bank
says that without going into the details of
calculation arrived at by the Reserve Bank, they
could only say that if they had repaid their
liabilities in past 26 years, why they would not
be able to repay the same in future. The fact is
that the only secret of the operation of the
respondent company over the years has been to
repay the previous depositors out of fresh
deposits, at the same time squandering and eroding
part of the deposits and making investments in
contravention of the statutory directions issued
by the Bank. But it stands exposed that at a
given time viz., on 31.3.1997 its liabilities for
exceeded its assets. It would be recalled that
there has been simultaneous stoppage of inflow of
fresh deposits and repayment of the earlier
depositors’ money.
55. So, the above discussion is indicative of the
fact that the financial position of the respondent
company is far below the level prescribed under
the Act and continuance of non-banking financial
business by it is detrimental to the public
interest as also to the interest of the
depositors. At the given time, it is not in a
position to repay its depositors and simply wants
to carry on business on the strength of getting
fresh deposits. It would be an unending vicious
circle as whenever the things are required or
desired to be squared, the last set of the
depositors would be the losers. Operation of the
non-banking financial company in such a way is
necessarily detrimental to the interest of the
public at large including those of the depositors.
93. No doubt the High Court discussed in great detail
the reply given by the Company to show cause notice, but the
facts of the case before me are so obvious that I do not
think it necessary to get into such an exercise.
94. I have deliberately quoted extensively from the
decisions of the Andhra Pradesh and Allahabad High Courts.
The reason is to bring home the point that the kind of
problem that I am dealing with is not isolated – it is
widespread; it affects a large number of people and runs
into crores of Rupees. It is time, therefore, for the
concerned people to wake up and not keep their eyes wide
shut.
95. It was contended by learned counsel for Rockland
that his client was not an NBFC in view of the provisions of
Section 45-I of the RBI Act. This argument needs to be
summarily rejected. There is nothing to suggest that
Rockland was not carrying on any business of financing or
that it was not a financial institution. On the contrary,
these facts are not doubted. Furthermore, it was discovered
by the RBI that even after the Board of Directors of
Rockland had resolved in January, 1998 not to accept fresh
deposits, Rockland continued to do so. The fact that
Rockland was a Merchant Banker recognised by the SEBI at the
relevant time also, does not detract from the conclusions
arrived at. It is possible that as a Merchant Banker,
Rockland was not entitled to function as an NBFC – but that
it unabashedly chose to do so, cannot be used by it to its
advantage. Similarly, the contention of learned counsel for
Rockland that due to the provisions of Section 2(c) (xvi) of
the Industrial Development Bank of India Act, 1964, his
client cannot be classified as a “financial institution” or
an NBFC has only to be stated for outright rejection. There
can, therefore, be no doubt that the writ petition filed by
the RBI against Rockland is maintainable.
96. Reference was made, on occasion, to CA 556/2001 in
the Company Appeal. This application was filed on 7th
April, 2001 by Rockland, which briefly summarizes its
grievance, namely, that the order of the CLB was contrary to
the directions of the RBI which allowed time to all NBFCs to
repay in three years time, reducing its liability by 1/3rd
every year and that the schedule of payments was highly
onerous as it envisaged 70% of the payment in the first year
itself. The application then sets out the various
proceedings and steps taken by Rockland to liquidate its
debts. Eventually, in paragraph 24 of the application,
Rockland asks for rescheduling the payments to the
depositors on certain lines.
97. Given the conduct of Rockland and its Directors,
there is nothing to suggest that the application was made
bona fide – it appears to have been a last ditch attempt to
further buy time. Rockland took no concrete steps during
the pendency of the application to show that it really meant
to fulfilll its “commitments.” The application does not
deserve to be entertained and is rejected. It is so
ordered.
98. What is eventually the relief to be granted? No
doubt, the RBI has made out a case for winding up Rockland.
The consequences of Section 45-MC(4) of the RBI Act must
follow. Rockland is ordered to be wound up and all its
properties, assets, books, etc. should be expeditiously
taken over by the Official Liquidator attached to this
Court. Since the task for the Official Liquidator will be
enormous (he is already busy in the affairs of liquidation
of several companies), he is entitled to, and should, take
the assistance of the Official Liquidator attached to the
Mumbai High Court especially with regard to the immoveable
properties in Mumbai and Goa. From the orders passed by
this Court, it appears that the Economic Offences Wing of
the Crime Branch is already associated in the investigation
of the affairs of Rockland. It is directed to continue to
do so, along with the Official Liquidator.
99. Since it is the RBI which has sought the winding up
of Rockland, the Governor of the RBI should spare the
services of one (or more) officer to assist in getting to
the bottom of the affairs of Rockland.
100. I have no doubt about the enormity of the task, but
it is surely not insurmountable.
101. All the concerned officers will, of course, be
entitled to take the assistance of the Income-tax
authorities and I am sure the concerned Chief Commissioners
will render all help, both logistical and otherwise.
102. All officers will, however, appreciate that the
interests of the depositors is of primary concern.
103. It is directed that subject to any further orders
that may become necessary, all assets and properties of
Rockland presently in this Court will be handed over to the
Official Liquidator by the Registry of this Court on or
before 31st January, 2002.
104. All interim orders or injunctions passed by this
Court, including those staying the arrest of J.M.Chawla,
Arun Chawla, Tarun Chawla and Ms.Indu Chawla are hereby
vacated. Cases proceeding in various fora against them or
Rockland should continue, if not already concluded. If any
arrests are required to be made for executing or enforcing
any order, the various fora (including the Courts) may do
so. The period of incarceration will, of course, be decided
by the concerned forum which may also decide if the period
of incarceration is to run concurrently or consecutively.
105. A word about the depositors. They have shown
considerable restraint – there is no doubt about it.
However, like many hundreds, if not thousands of others, it
cannot be said if they will ever get back their deposits,
let alone the interest thereon. The cases that I have
extensively quoted (the Andhra Pradesh and Allahabad High
Court cases) show that the law is essentially a paper tiger.
It needs to be repeated that someone in authority should
look into this, so that future depositors are not
financially ruined. In fact, paragraph 6 of the Statement
of Objects and Reasons for the 1997 Amendment to the RBI Act
notices this situation, but provides no remedy and then
there is the sound of silence. This paragraph reads as
follows:-
“There are reports of several finance companies
and unincorporated bodies having failed to repay
the deposits collected from unsuspecting
depositors who have been tempted by the attractive
returns and incentives offered. Concern has been
expressed in several quarters on the need to take
urgent steps to regulate the activities of such
companies and unincorporated bodies.”
106. As a result of this discussion, CP 93/2001 is
allowed and Rockland is ordered to be wound up. Co.A.(B)
4/1998 is dismissed. All the connected company petitions
and applications are disposed of in view of the above. The
officers who have been directed or authorised to look into
the affairs of Rockland will work out their own procedures
and modalities to carry out their task. They will, no
doubt, sympathetically look into any grievance made to them
by any depositor, who is, of course, free to lodge his or
her claim with the Official Liquidator.
107. By the order dated 26th April, 2001, J.M.Chawla was
required to file an affidavit explaining why he has not
complied with this Court’s order dated 13th December, 2000
and why action should not be taken against him for
disobeying the order of the Court. J.M.Chawla has since
filed his affidavit in this regard.
108. Prima facie, it appears that J.M.Chawla has
committed contempt of Court.
109. The Registry will register a case for suo motu
civil contempt of Court alleged to have been committed by
J.M.Chawla. After registration, the contempt petition be
then listed before the appropriate Bench along with copies
of the orders dated 13th December, 2000 and 26th April, 2001
and the affidavit dated 22nd May, 2001 filed by J.M.Chawla.
110. While costs ought to be imposed on Rockland, I have
my doubts if they can ever be recovered. Therefore, I do
not make any order for payment of costs.