JUDGMENT
N.G. Nandi, J.
1. Heard Ms. Soparkar with Mr. S. N. Soparkar learned counsel for the petitioner, Mr. A.C. Gandhi, learned counsel for Indus Bank, and Mr. Sudhir M. Mehta learned counsel for the respondent-company.
2. Ms. Soparkar learned counsel for the petitioner has placed on record the letter dated September 19, 2001 addressed to the petitioner by Dena Bank, one of the secured creditors of the respondent-company stating that the dues of the bank are to the tune of Rs. 2,40,48,436.98 and the bank has filed the suit , against the respondent-company in the Debt Recovery Tribunal at Ahmeda-bad. The said letter is kept on record.
3. This is the petition filed by the Reserve Bank of India under Sections 433 and 434 of the Companies Act, 1956, invoking Section 45IA of the Reserve Bank of India Act, 1934 (for short “the Act”) for winding up of the respondent-company on the contention that the conditions required under Section 45IA of the Act have not been fulfilled and the respondent-company has exposed itself to the winding up. The say of the petitioner is that the petitioner is a body corporate established under the provisions of the Act, having its central office at Shahid Bhagat Marg, Mumbai and having its regional office at various places including Ahmedabad. That in exercise of the powers conferred by Sections 45J, 45K and 45L of Chapter III of the Act, the petitioner issued the Non-banking Financial Companies Directions, 1997, the Non-banking Financial Companies Acceptance of Public Deposits (RB) Directions, 1998, and the NBFC Prudential Norms (RB) Directions, 1998, to regulate the acceptance of deposits by companies carrying on the business of non-banking financial institutions.
4. That the respondent-company is a non-banking financial institution and bound by the provisions of the directions issued from time to time. That the respondent-company in the name and style of Lalbhai Finance and Trading Ltd. has been registered with the Registrar of Companies, Ahmedabad, and subsequently, changed to Lalbhai Finance Ltd. and, therefore, the certificate of incorporation consequent to the change of the name was issued by the Registrar of Companies, Gujarat. That the respondent-company is conducting the business of non-banking financial institution as an invest company.
5. That the respondent-company submitted the application for certificate of registration under Section 45IA of the Act on July 5, 1997. That the respondent-company was inspected by the bank under Section 45N of the Act with reference to its financial position as on March 31, 1998. That the said inspection revealed that the company had contravened various provisions of the Non-banking Financial Companies Directions, 1997, and other directions issued by the petitioner-bank.
6. The contraventions by the respondent-company are :
(i) the company did not maintain the requisite liquid assets from December, 1996 ;
(ii) the net owned fund of the company was observed to be negative at Rs. (-) 911.75 lakhs as on March 31, 1998 ;
(iii) the percentage of non-performing assets to total credit exposure was 80.04 as on March 31, 1998 ;
(iv) there was short provisioning to the extent of Rs. 1,460.14 lakhs as on March 31, 1998 ;
(v) the company was not being managed efficiently and has incurred huge losses in 1996-97 and 1997-98. The entire bills discounting portfolio amounted to Rs. 745.31 lakhs as on March 31, 1998 has become loss assets as they were overdue clean bills ;
(vi) the credit exposure norms were not observed by the company.
7. The petitioner-bank vide its order dated October 7, 1998, rejected the application submitted by the respondent-company under Section 45IA of the Act. Hence, the company by virtue of Section 45IA of the Act became disqualified to carry on the business of non-banking financial institutions and hence, the requirement contemplated under Section 45MC(1)(b) of the Act is satisfied in the case of the company. That the petitioner-bank also prohibited the respondent-company from accepting the deposits in exercise of powers under Section 54MB(1) of the Act and directed the respondent-company not to sell, transfer, create charge or mortgage or deal in any manner with its properties and assets without written permission of the bank for a period not exceeding one month and the requirement contemplated under Section 45MC(1)(c) of the Act is also satisfied. That a number of depositors of the respondent-company have filed applications before the Company Law Board, Western Region Bench (CLB) seeking directions under Section 45QA of the Act to repay the matured deposit lying with the company. The Company Law Board by various orders directed the company to repay the deposits on the terms and conditions contained- therein. The petitioner has referred to the application numbers and the date of order passed by the Company Law Board, wherein the respondent-company has been directed to repay the deposit amount. The Company Law Board has also passed the orders directing the respondent-company to repay the deposit amount with interest on the terms and conditions and in some of the orders, the Company Law Board also directed the depositors to approach the manager of the petitioner-bank in the event of default by the respondent-company in the repayment of the deposit amount. That the respondent-company has not fully complied with the orders passed by the Company Law Board inasmuch as the respondent-company is stated to have complied with the first order dated June 8, 1998 passed in Company Applications Nos. 1035 to 1040/58A(9)/CLB/1998 partly to the extent of repayment of the deposit to some of the applicants leaving other applicants unpaid. That under section
45MC of the Act, the petitioner-bank is entitled to file the present petition for winding up of the respondent-company since the respondent-company is unable to pay its debts and has become disqualified to carry on its business of non-banking financial institution under Section 45IA of the Act and as the respondent-company was prohibited by the petitioner-bank from receiving deposits by an order and such orders are in force for a period of not less than three months. Besides continuance of the respondent-company is detrimental to the public interest and/or interest of depositors at large.
8. That in the instant case, all the requirements of Section 45MC of the Act have been satisfied. On this submission, the petitioner-bank prays for a relief of winding up of the respondent-company and the appointment of the official liquidator with all powers under the provisions of the Companies Act, 1956.
9. This court vide order dated March 22, 2000 has appointed the official liquidator attached to the High Court to be the provisional liquidator and accordingly, the provisional liquidator was appointed with a direction to attach and take charge of the assets and properties of the respondent-company along with books of account and other accounts of the respondent-company, and also issued ex parte ad interim injunction restraining the respondent-company from encumbering, transferring, alienating or disposing of any of the assets of the respondent-company.
Resumed November 5, 2001 :
In response to the notice before admission and public advertisement, the respondent appeared, but did not file affidavit in reply at that stage. That vide order dated August 29, 2001, the petition was admitted and was ordered to be advertised in the newspaper. That the petition was advertised in the Gujarat Samachar and Times of India both in Ahmedabad edition on September 15, 2001.
10. The respondent-company after the publication of the advertisement appeared and filed affidavit in reply, inter alia, contending that it is neither just and proper to direct winding up of the respondent-company denying that the respondent-company is unable to pay its debts. That the petition is beyond the scope and purview of Section 45MC of the Act and that the petition is liable to be dismissed as not maintainable. That the company has paid part amount to the depositors in compliance with the orders passed by the Company Law Board. That the company is ready and willing to pay the remaining amount as and when sufficient amount is generated for payment to the remaining depositors. That the respondent-company is likely to come out of its financial difficulties in the near future. That the authorised capital of the company is Rs. 15 crores and there is no reason to wind up the respondent-company.
11. It is not in dispute that the respondent-company applied for registration to the Reserve Bank of India which registration was refused to the company as the company is doing the business of non-banking financial institution as
investment company and submitted the application for certificate of registration under Section 45IA of the Act on July 5, 1997, whereupon the Reserve Bank of India conducted certain inspection under Section 45N of the Act with reference to the financial position of the respondent-company and according to the petitioner, inspection revealed that the respondent-company had contravened various provisions of the Non-banking Financial Companies (RBI) Directions. This resulted into refusal of certificates of registration in favour of the respondent-company.
12. That a number of applications came to be submitted by the depositors before the Company Law Board requesting for refund of their deposits lying with the respondent-company. All such applications submitted by the depositors came to be allowed by the Company Law Board requiring the respondent-company to refund the deposit amount. That pages Nos. 72 to 109 of the paper book are the copies of the orders passed by the Company Law Board in the applications of the depositors requiring the respondent-company to refund the amount of the deposit to the concerned depositor.
13. It is submitted by Ms. Soparkar learned counsel for the petitioner that the applicant in Company Applications Nos. 1035 to 1040 i.e., six applications before the Company Law Board have been partly complied with since the order dated June 8, 1998 in this application by the Company Law Board, the respondent has made part payment and even the six applicants have not been refunded their deposit amount fully. Mr. Mehta learned counsel for the respondent has fairly stated that Company Applications Nos. 1035 to 1040 at page 7 of the paper book and the orders in rest of the applications have not been complied with by the respondent. It can hardly be said that on refusal of the respondent’s application for registration certificate vide order dated October 7, 1998 which was obligatory upon the respondent-company to refund the amount to the depositors. Despite the orders passed by the Company Law Board from time to time, as pointed out at page 7 of the paper book, the respondent-company has admittedly not complied with the orders passed by the Company Law Board requiring the respondent-company to refund the deposit amount to its depositors and the compliance has been only in part with regard to Company Applications Nos. 1035 to 1040 by which six applicants were directed to refund the deposit amount vide order dated June 8, 1998 passed by the Company Law Board. In any way, the respondent-company could not have refused or failed to comply with the order passed by the Company Law Board.
14. Section 45MC of the Act empowers the petitioner-bank to file a winding up petition. The said provisions read as under ;
“Section 45MC.–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 debts ; or
(b) has by virtue of the provisions of Section 45IA 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 the 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.”
15. It can be seen from the above that the respondent-company is unable to pay its debts inasmuch as the order passed by the Company Law Board as referred to above has not been complied with by the respondent-company refunding the amount to the concerned depositor and the respondent-company has become disqualified to carry on its business of non-banking financial institution.
16. In paragraph No. 5 of the petition, it has been stated that the petitioner-bank by its order No. DNBS(AH) No. 4084/R. 433/98-99, dated April 24, 1999 in exercise of its powers under Section 45MB(1) of the Act prohibited the respondent-company from accepting the deposits.
17. As pointed out above, Clause (a) of Section 45MC namely inability to pay the debt by the respondent-company suggests non-compliance of the orders passed by the Company Law Board from time to time and the refusal to grant registration certificate disqualified the respondent-company to carry on the business of non-banking financial institution in view of Section 45IA of the Act. By virtue of the order dated April 24, 1993 issued by the petitioner-bank prohibiting the respondent-company from accepting the deposits, the provisions contained in Clause (c) of Section 45MC is also attracted.
18. In view of the above, the continuance of the respondent-company as non-banking financial institution shall be detrimental to public interest and/or interest of the depositors in general. In the present case, Clauses (a) to (d) of Section 45MC of the Act are attracted in view of the facts revealed from the petition and the same have not been denied in affidavit in reply filed by the respondent-company.
19. The petitioner-bank has filed the affidavit sworn in on September 26, 2001. This affidavit besides the publication of the advertisement in the local daily newspapers, also placed on record. The letter/applications received from the depositors/creditors desirous of getting the amount due and payable to them from the respondent-company. The xerox copy of some cheques attached with the applications received from depositors/creditors suggest that some of the cheques were issued from the account which was closed and instruction written with endorsement “account closed” whereas some of the cheques were written with endorsement, “insufficient funds”.
20. The above discussion would reveal that the petitioner-bank is entitled to file the petition in view of Section 45MC of the Act and the respondent-company is established to have committed default attracting the operation of Clauses (a) to (d) of Section 45MC of the Act and the same would be detrimental to the interest of the depositors/creditors in general.
21. In view of the above, I am inclined to direct the winding up of the respondent-company as the same is necessitated in view of the facts revealed from the record. In the result, the petition is allowed. The respondent-company Lalbhai Finance Ltd., having its registered office at first floor, Motilal Centre, Near Dinesh Hall, Ashram Road, Ahmedabad-380 009 is hereby ordered to be wound up.
22. The official liquidator attached to this court is appointed as liquidator with all the powers under the Companies Act, 1956.
23. Company petition is accordingly disposed of.