JUDGMENT
Kuldip Chand Sood, J.
1. This petition, under Section 45MC of the Reserve Bank of India Act (“RBI Act” for short) is laid by the Reserve Bank of India for winding up of “Himachal Gramin Sanchayaka Ltd.”, (‘Company’ for short).
2. The respondent Company is a non-banking Financial Company within the meaning of Clause (f) of Section 45-IA of the RBI Act. The Company submitted an application in July 1997 for the issuance of a Certificate of Registration for carrying the business of non-banking Financial Institutions under the RBI Act. To ascertain the financial position of the Company, RBI carried out inspection of the Company on March 31, 1997 through M/s. P.L. Mittal and Company Chartered Accountants. On inspection, it was found that the Net Owned Fund of the Company was (-) Rs. 886.66 lakhs on March 31, 1997 but the public deposits held by the Company were to the extent of (+) Rs. 737 lakhs as on March 31, 1999. The Capital to Risk Weighted Assets Ratio (CRAR) was assessed to be nit. The outside liabilities of the company were rupees 1167.99 lakhs. In the circumstances, the RBI was of the opinion that Company was not solvent. It is the case of the RBI that the Company failed to maintain liquid assets as provided by Section 45-IB of the RBI Act. The company also violated concentration norms and had high level of Non Performing Assets (NFA). The Company was found to have invested amounts in the immovable property. The RBI discovered that the respondent company had advanced huge sum to Himachal Grameen Sanchayaka (a partnership firm), Sanchayaka Mail, (a proprietary concern) and Sanchayaka India Ltd., in which the Directors of the Company were interested. Audit report disclosed that the Company had violated the various provisions of the Non-banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. The RBI scrutinized the books of the Company on August 9, 1998, which disclosed flagrant violation of the directions issued by the RBI.
3. In this background, a notice was issued by the RBI to the company on September 24, 1999 calling upon it to show-cause on or before October 9, 1999 as to why the application for the grant of Certificate of Registration be not rejected. The Company neither offered any explanation nor cared to reply to the notice. However, by its letter dated October 26, 1999, the Company requested the RBI to extend the time upto December 15, 1999 (Annexure-VII).
4. The RBI, taking into consideration the relevant facts, affairs of the Company and failure of the Company to comply with the statutory provisions of the RBI Act and directions issued by it, rejected the application of the respondent Company for issuance of the Certificate of Registration by its orders dated January 7, 2000. The Company was disqualified under Section 45-IA of the Act to carry on the business of Non-banking Institution. The relevant paras 7 and 8 of the order reads:
“7. Considering all the relevant facts, developments and the affairs of the applicant company, and taking into consideration the failure of the Company to comply with the statutory provisions laid down in Reserve Bank of India Act, 1934 and the Directions issued thereunder, the company failed to satisfy the statutory conditions contained under Sub-section (4) of Section 45-IA of the Act, 1934. Since it is mandatory on the part of the Bank to be satisfied that the conditions contained under Sub-section (4) of Section 45-IA of the Act are fulfilled before exercising its power to grant a Certificate of Registration and the Bank is not so satisfied for the reasons stated above, the applicant Company is not entitled for a Certificate of Registration to carry on the business of a non-banking financial institution as contemplated under Section 45-IA of the Act. Hence, the application of the Company deserves to be rejected and accordingly, the said application is hereby rejected.
8. In view of the above, you are hereby directed, in exercise of the powers conferred under Section 45K of Reserve Bank of India Act, 1934 to furnish the exact amount of deposit liabilities including the accrued interest thereon as on the date of the said order rejecting your application for issue of Certificate of Registration. You are also further directed to furnish the complete information about the assets and properties with necessary detailed particulars held by your company as on that day alongwith your plan of action for repayment of entire deposits liabilities with fund flow and repayment schedule of deposits. The said information should reach this office within a period of thirty days from the date of receipt of this direction”.
RBI on January 18, 2000 passed an order under Sub-section (1) of Section 45MB of the RBI Act. In the order, noticing the circumstances, RBI observed that it was satisfied that it was imperative to take immediate action to protect the interests of the Depositors in public interest, as any delay would result in irreparable damage to the depositors. The Company was prohibited from accepting any deposit (s) from any person (s) in any form by way of renewal or otherwise. The Company was directed to comply with the order passed by the RBI by taking appropriate steps. On the same day, by a separate order, under Sub-section (2) of Section 45MB of the RBI Act, the RBI directed the Company not to sell, transfer, create charge, mortgage or deal with, in any manner, its properties and assets without a prior written permission of the RBI until further orders.
5. The Company was directed by the RBI, to submit to it, within fifteen days, from the receipt of the order, a resolution passed by the Board of Directors of the Company that it would not alienate any assets of the Company without prior permission of the RBI except for the purpose of repayment of matured deposits and payment of interest on such deposits. On March 7, 2000, the RBI by a communication informed the Company that in spite of rejection of the Certificate of Registration to carry on the business, certain irregularities were committed by the Company. The Company was directed by the RBI, under Section 45K of the RBI Act, to furnish the exact amount of liabilities including the accrued interest thereon, on the date of the order of rejection of the application of the Company, i.e., January 7, 2000 and to furnish complete information about the assets and properties of the Company with necessary detailed particulars alongwith plan of action for repayment of the entire deposit liabilities with fund flow and repayment schedule of deposits. The company submitted its reply to the RBI only on May 17, 2000. It enclosed repayment schedule of matured amounts and properties said to have been attached in certain Consumer Cases. Company made a request for the grant of sufficient time to consolidate its position and to come out from the legal battle with its investors as well as employees.
6. In the meanwhile, the depositors approached the RBI regarding nonpayment of their deposits by the Company. Complaints Piled with the RBI to the effect that in spite of the maturity of deposits with the Company, the due amounts are not being repaid to them. On November 27, 2000. Registrar of the H.P. State Consumer Disputes Redressal Commission, Shimla, addressed a communication to the Company bringing it to the notice of the Company the awards passed by the Commission and amounts due. Proceedings were also initiated by the depositors before the various Consumer Fora for the execution of the orders passed by the Commission.
It is in this background that the RBI has filed this petition for the winding up of the Company.
7. In Company Application No. 29 of 2001, Official Liquidator, attached to this Court, was appointed as Provisional Liquidator for the Company with all the powers of the Liquidator of the Company, with the direction to immediately take charge of the Company’s property, assets, books of account and other relevant papers and documents.
8. An appeal was carried by the Company (Company Appeal No. 3 of 2001), which was dismissed by a Division Bench of this Court on December 13, 2001.
9. The RBI, by this petition, prays for winding up of the Company on the grounds that the Company is unable to pay its depositors and the continuance of the respondent Company is detrimental to the public interest and interest of the depositors of the Company, Section 45 of the RBI Act provides for winding up of Non-Banking Financial Companies at the instance of the RBI. Section 45MC of the RBI Act reads:
“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 institutions; 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 the depositors of the company,
may file an application for winding up of such non-banking financial company under the Companies Act, 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 the companies.
(4) All the provisions of the Companies Act, 1956 relating to winding up of a company shall apply to a winding up proceedings initiated on the application made by the Bank under this provision.”
The RBI prays for winding up order of the Company on the grounds that the Company:
(a) is unable to pay its debts;
(b) is not entitled to carry on the business of the Non Banking Financial Institution in view of the provisions of Section 45-IA of the RBI Act;
(c) is prohibited by the RBI from receiving deposits by an order as noticed earlier;
(d) the continuance of the Company is detrimental to the interest of depositors of the Company and to the public interest.
10. It is not in dispute that the RBI received large number of complaints regarding the non-payment of the deposits by the Company. More than 3000 complaints are pending before the various Consumer Fora under the Consumer Protection Act in addition to the award made by the Consumer Commission in favour of few of the depositors which relate to the non-payment of the deposits, on maturity, by the company. The realizable assets of the Company were less than its total assets as per the inspections conducted by the bank and therefore, the satisfaction of the RBI that Company is unable to pay its debts cannot be said to be irrational or against the provisions of Section 45MC of the RBI Act.
11. It is the case of the Company, as spelled out in its reply, that the Company was not given an opportunity to present its case nor they were afforded an opportunity by the RBI to controvert the allegations. According to the Company, all similar Companies, which engaged in similar activities, left the Pradesh. These companies escaped as they had their Head Offices outside the State of Himachal Pradesh. They left their operations in Himachal Pradesh leaving the depositors high and dry and without any forwarding address. This had panic reaction. The staff of the field offices of the Company ceased to work and left employment. It was in these circumstances that the reply to the show-cause notice could not be given to the RBI. The rejection of the application, for the grant of certificate of registration, in the circumstances, was bad and not legal. The contention is misplaced. The Company does not deny the allegations of the RBI about the net owned fund of the Company to be in minus on March 31, 1997 itself. Public deposits held by the Company far exceeded which were more than rupees 797 lakh as on March 31, 1999. It is also non-specifically denied that RAR of the Company was nil and outside liabilities of the Company amounted to rupees 1167.99 lakh against the nil worth of the Company. There is also no answer about the high level of non-performing assets. The fact remains that the Company failed to satisfy the statutory conditions for the grant of registration as stipulated under Section 41-IA of the RBI Act.
12. Sub-clause (b) of Section 45-IA (1) provides that non-banking financial institution cannot carry on the business unless it has minimum net owned fund of twenty-five lakh rupees or such other amount, not exceeding two hundred lakh rupees, as the RBI may by notification in the Official Gazette specify. In the present case, on inspection by the RBI, it was found that the Net Owned Fund of the Company was (-) 886.66 lakh as on 31-3-1997 after the application for the grant of registration was made by the Company. The condition of Sub-clause (a) of Sub-section (4) of Section 45-IA that the non-banking financial company should be in a position to pay its present or future depositors in full as and when their claim accrue was not fulfilled inasmuch as admittedly, more than three thousand claims before the various Consumer Fora were pending regarding the non-payment of the due deposits of the depositors. Some of the depositors had obtained awards against the company. It was the considered opinion of the RBI that the affairs of the Company were conducted in a manner, which were detrimental to the interests of its present and future depositors. All this led to the rejection of the application of the company and rightly so for the grant of registration.
13. It is noticed that the order of rejection of the application of the
Company was not challenged by the Company. The reason given in the
reply is that the order having been passed without affording an opportunity to the company was nullity. The contention lacks foundation. Show-
cause notice admittedly was issued to the company and company was
given an opportunity to explain the position, which the company failed to
do.
14. A perusal of Section 45MC of the RBI Act, extracted above, shows that the RBI is entitled to ask for winding up of a non-banking financial company if such company is unable to pay its debt. A company, under Sub-section (2) of this provision is 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.
15. In the present case, there is no scope of dispute that the Company failed to repay the depositors their deposits on maturity and therefore, the Company would be deemed to be ‘unable to pay its debts within the meaning of Sub-clause (a) of Sub-section (1) of Section 45MC. Similarly, in view of the rejection of the application of the respondent company for the grant of certificate by the RBI under Section 45-IA, the company became disqualified to carry on the business of non-banking financial institution and, therefore, the Reserve Bank is justified in praying for the winding up of the company under Clause (b) of Section 45 MC of the Act. The RBI, as noticed earlier, prohibited the Company from accepting deposit(s) from any person and alienation of assets or otherwise under Section 45MB(1) of the Act.
16. All the events noticed above point out that continuance of the company is detrimental to the interests of the depositors of the Company as also public interest and the mischief would also fall under Clause (d) of Sub-section (1) of Section 45MC.
17. The only contention raised by Mr. Y. Paul, learned counsel for the respondent Company, during the hearing, was that his application, under Section 391(1) of the Companies Act, for convening the meeting of equity shareholders, secured and un-secured creditors may be allowed and the Company may be permitted to dispose of its assets after the realization of the amount, same will be utilized for repayment of debts, liabilities and rehabilitation of the Company. I shall advert to this application little later. However, it may be recorded that Mr. Paul did not say anything on the merits of the winding up of the Company.
18. So far as depositors of the company including depositors who had obtained either decrees from the civil Courts or awards from the various Consumer Fora or Consumer Commission are concerned, they shall have the right to have the assets realized and distributed to them pari passu alongwith all other creditors as per provisions of the Companies Act in terms of Section 447 of the Act. Needless to say that on the passing of winding up orders of the Company, the assets of the Company comes under the control of the liquidator and the winding up order shall operate in favour of all the creditors of the Company.
CMP No. 6 of 2003
19. This application has been filed by the Company under Section 391(1) of the Companies Act praying for directions to conduct the meeting of the equity shareholders, secured and unsecured creditors of the Company, Section 391 provides for the compromise or arrangements with creditors and members. Section 391 reads:
“391. Power to compromise or make arrangements with creditors and members :–
(1) Where a compromise or arrangement is proposed-
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them;
the Court may, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members as the case may be, to be called, held and conducted in such manner as the Court directs.
(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed under the rules made under Section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members, or all the members, of the class as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and contributories of the company :
Provided that no order sanctioning or compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under Sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor’s report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Sections 235 to 251 and like.
(3) An order made by the Court under Sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.
(4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued to the instrument constituting or defining the construction of the company.
(5) If default is made in complying with Sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine, which may extend to one hundred rupees for each copy in respect of which default is made.
(6) The Court may, at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceedings against the company on such terms as the Court thinks fit, until the application is finally disposed of.
(7) An appeal shall lie from any order made by a Court exercising original jurisdiction under this section to the Court empowered to hear appeals from the decisions of that Court, or if more than one Court is so empowered, to the Court of inferior jurisdiction.
The provisions of Sub-sections (3) to (6) shall apply in relation to the appellate order and the appeal as they apply in relation to the, original order and
A bare reading of Sub-section (1) of Section 391 shows that such an application is not maintainable by the Company or any creditor or member of the Company in facts situation of this case. When the company is under winding up proceedings, then such an application can only be maintained by the Liquidator alone. In the present case, the application was filed after filing of the winding up proceedings, therefore such an application was maintainable by the liquidator alone. For this reason alone, the application is not maintainable and is accordingly dismissed.
20. For the reasons recorded above, the petition deserves to be allowed. I direct the winding up of the Company. The winding up order shall be drawn by the Registrar General immediately after it is signed and sealed and two certified copies thereof, duly sealed, shall be sent to the Official Liquidator. The winding up order shall be advertised within 14 days in at least four Daily Newspapers two of which shall be in vernacular (Hindi) widely circulated in the State of Himachal Pradesh. The Official Liquidator, appointed as Provisional Liquidator, shall become liquidator of the Company and shall discharge his statutory duties under the Companies Act.
Company Application No. 24 of 2002
21. Winding up order of the Company has been made. Issue notice of this application to the respondents.