JUDGMENT
K.M. Mehta, J.
1. The petitioner Reserve Bank of India (hereinafterreferred to as `the RBI’) is a body Corporate,established by the Reserve Bank of India Act, 1934(hereinafter referred to as `the Act’). The petitionerhas filed this petition under Section 45MC of the Act(Power of Bank to file winding up petition) for windingup of M/s.Piramal Financial Services Limited.(hereinafter referred to as `the respondent Company’) andis also non-Banking Financial Institution (N.B.F.C.) andalso for appointment of an Official Liquidator of thesaid Company and also for appointment of a ProvisionalLiquidator of the said Company pending winding uppetition.
FACTS:
2. In the present petition the petitioner hasaverred in this petition that the petitioner is aregulatory authority for non-banking financial companies(NBFCs) and as such it has power under Chapter III-A i.e.collection and furnishing credit information as amendedby Reserve Bank of India (Amendment) Act, 1997 whichinclude issuing of certificate of registration to NBFCs,prescribing prudential norms, issuing directions,prohibiting NBFCs from accepting deposits, filing ofwinding up petitions etc. It is further stated that inexercise of powers conferred by Sections 45J, 45K and 45L of Chapter IIIB of the Act, Reserve Bank of India hadissued Non-Banking Financial Companies (Reserve Bank)Directions, 1977. Non-Banking Financial CompaniesAcceptance of Public Deposits (RB) Directions, 1998 andNBFC Prudential Norms (RB) Directions 1998 to regulateacceptance of deposits by companies carrying on thebusiness of non-banking financial institutions.
2.1 It was further stated that Piramal FinancialServices Limited, the Company, was incorporated on8.10.1992. The Reserve Bank of India had issued acertificate under Section 45I(f) of the Act that it was anon-banking financial Company and the respondent wasbound by the directions by Reserve Bank of India asamended from time to time. It was also averred thatReserve Bank of India had also issued certificate ofregistration dated 31.3.1998 pursuant to its applicationfor the same.
2.2 It was further stated that Reserve Bank of Indiahas conducted scrutiny of the books of account of theCompany between August 23 and 27, 1999 and the scrutinyrevealed a number of unhealthy features in the working ofthe Company and its financial position. It was furtherrevealed that the bank could not honour its commitment onthe ground of exceeds arrangement and during the aboveperiod 110 cheques issued by the Company for an aggregateamount of Rs. 816.01 lakhs were dishonoured. It wasfurther stated that the Company was facing seriousliquidity crisis and failed to honour its commitments.It was further stated that it was revealed in thescrutiny that the financial position of the Company isvery precarious. It was further stated that the Companysuffered net loss of Rs. 197.89 lakhs for the year ended31.3.1999. It was further stated that loss for the yearended on 31.3.1999 was Rs. 717.72 lakhs as per thereport of the auditors and ultimately the financialposition as per the year ended on 31.3.1999 and31.12.1999 is as under:-
Particulars Rs. in lakhs (provisional)
31.03.1999 31.12.1999
—————————————————————
Capital 983.40 983.40 Reserves & Surplus 95.00 95.00 Total (Owned fund) 1078.60 1078.40 Accumulated loss 184.75 287.57 Owned funds (net) 893.65 790.83 Total assets 3666.25 3424.17 Total outside liabilities 2581.50 2442.12 Pre-tax Profit/(loss) 187.89 102.82 ----------------------------------------------------------------
2.3 It was further stated that the Reserve Bank ofIndia had issued show cause notice dated 6.9.1999 to theCompany as to why the certificate of registration issuedto the Company under Section 45IA should not becancelled. The respondent Company replied to the saidshow cause notice. By its order dated 29.12.1999 theReserve Bank of India cancelled certificate ofregistration issued to the Company. The said order isproduced in the petition at page 49. It was furtherstated that Reserve Bank of India had received a numberof complaints from the depositors and unsecured(Optionally Fully Convertible Debenture Holder) OFDCholders complaining about the non-payment of their duesby the respondent Company. It was further stated thatsome proceedings were initiated against the Companybefore the Company Law Board by some of the depositorsthat the company could not make payment and the CompanyLaw Board issued directions which also the respondentCompany failed to comply with.
2.4 It was also further averred that the managementof the Company has undergone frequent changes, namely,one on April 13, 1999 and the other on September 18,1999. It was further stated that several other creditorshave filed winding up petition. It was further statedthat all the four grounds mentioned in 45MC of the RBIAct are satisfied in this case and therefore the presentwinding up petition is filed on 9.5.2000.
2.5 The matter reached hearing on 10.5.2000 beforethis Court and in paragraphs 3 and 4 this court passedorder as follows:
Para 3 – In view of the submissions made particularly in paras 19 to 26, I have proceeded to take up the present petition for consideration. It has been stated by the learned advocate for the petitioner that the respondent Company has failed and neglect to carry out the orders issued by the Company Law Board and the respondent Company is neglected to pay its its debts, and therefore, the petitioner has forced to approach this Court.
Para 4 – In view of the submissions made in paras 19 to 26 of the petition and having heard learned advocate for the petitioner, I am satisfied that there are sufficient grounds for appointment of Provisional Liquidator. The Official Liquidator attached to this Court is hereby appointed as Provisional Liquidator in this case. I further pass an ex-parte ad-interim injunction restraining the respondents, their agents from encumbering, transferring, alienating and dispossessing of any of the assets of the respondent company.
2.6 Being aggrieved and dissatisfied with theaforesaid order the respondent Company preferred O.J.appeal before this Court. A Division Bench of this Court(Coram: R.K. Abichandani and A.R. Dave, JJ) afterhearing the appeal, by its order dated 12.6.2000 waspleased to dismiss the appeal. In paras 10 and 11 of theorder the Division Bench has observed as under:-
“Para 10 – The matter is pending only at a notice stage before the learned Company Judge and only ad-interim relief has been granted. All the contentions which have been raised here could have been raised by the appellant before the learned single Judge and it was not necessary for the appellant to rush to this Court particularly when the notice was made returnable on 18th May, 2000. However, the learned counsel for the appellant insisted that the contentions which he is raising should be decided and that is why we have rendered this order.
Para – 11 For the reasons given above, the appeal is summarily dismissed. It is made clear that nothing said in this order in connection with the ad-interim relief and appointment of provisional Liquidator should be taken to be conclusive by the learned single Judge while deciding the matter on merits in light of the contentions that may be raised by the appellant.”
2.7 In view of the same, I am hearing this petitionat the admission stage. However, I allow the petitionerand respondent to argue all the points of facts and law.
PRELIMINARY CONTENTION:
3. Mr. Bharat Pandya, learned advocate for therespondent, has raised preliminary contention in thiscase. He has also stated that as per the provisions ofthe Companies Act and Company (Court) Rules, 1959, thepresent petition is filed for winding up of the Companyas well as appointment of provisional liquidator andtherefore a separate judge’s summons must be taken. Hehas relied on the provisions of the Companies Act andalso Company (Court) Rules, particularly, Rule 11 of theCompany Court Rules, 1959. According to him Rule 11(15)provides applications under Section 439 for the windingup of a company or under Section 583 for the winding ofan unregistered company or under Section 584 for thewinding up of a foreign company that can be filedstraightway but as per Rule 11(b) which provides forjudge’s summons which provide all other applicationsunder the Act or under these rules shall be made by ajudge’s summons, returnable to the Judge sitting in Courtor in Chambers as hereinafter provided. The learnedcounsel for the respondent stated that when theapplication is filed for appointment of provisionalliquidator under Section 450 of the Act and no judge’ssummons have been taken, the present application is notmaintainable under law. For that purpose he has reliedon Rule 95 of the Company Court Rule also. He alsorelied on Rule 106 which provides for appointment ofprovisional liquidator.
3.1 Learned counsel for the petitioner stated that inthis case winding up petition has been filed not underthe provisions of Companies Act but under the provisionsof R.B.I. Act and therefore these provisions will notstrictly apply in the present case also. According tothem this petition has been filed mainly under Section 45MC of the R.B.I. Act which I will refer at theappropriate stage. However, according to the learnedcounsel for the petition that mention of the CompaniesAct is only incidental but the main grounds which arecontained under the provisions of the R.B.I. Act andtherefore the provisions of Company (Court) Rules cannotapply in this case. The learned counsel for thepetitioner submitted that Rule 6 provides practice andprocedure of the Court and provisions of the Code toapply. Rule 9 of the Company Court Rules providesinherent powers of Court. A conjoint reading of Rules 6and 9 of the Company (Court) Rules, 1959, indicates thatthe inherent power of the Court could be exercised in themanner provided under Section 151 of the Code of CivilProcedure. The learned counsel for the petitioner alsorelied on Rule 361 of the Company Court Rules whichprovides saving of Rules under Special Acts. It meansthat nothing in these rules shall affect the operation ofany rules framed under the Banking Companies Act, 1949 orthe Insurance Act, 1938, or other Special Acts relatingto any class of companies and these Rules shall apply tosuch Companies subject to the Rules, if any, made underthe special Acts.
3.2 The learned counsel submitted that Company(Court) Rules provide a procedure to be applied forfiling of winding up petition as well as for appointmentof provisional liquidator. According to the learnedcounsel, the procedure means the manner, method or formof enforcing law (See: Wharton’s Law Lexicon). Theprocedure is but the machinery of the law after all thechannel and means whereby law is administered and justicereached. The function of adjective law is to facilitatejustice and further its ends. The rules of procedure areintended to be handmaid to the administration of justiceand they must, therefore, be construed liberally and insuch manner as to render the enforcement of substantiverights effective. A “hypertechnical view” should not beadopted by the court in interpreting procedural laws. Aparty cannot be refused just relief merely because ofsome mistake, negligence, inadvertence or even infractionof the rules of procedure. Rules of pleadings areintended as aids for a fair trial and for reaching a justdecision.
3.3 He has further submitted that in any view of thematter, the Company Court Rules provide for a procedureto be applied for filing of the winding up proceedings.In this connection, he hs relied on the decision of theHon’ble Supreme Court in the case of Sangram Singh SinghVs. Election Tribunal reported in AIR 1955 SC 425 whereVivian Bose, J, rightly observed as under:
“(A) code of procedure must be regarded as such. It is `procedure’ something designed to facilitate justice and further its ends; not a penal enactment for punishment and penalties; not a thing designed to trip people up. Too technical a construction of sections that leaves no room for reasonable elasticity of interpretation should therefore be guarded against (provided always that justice is done to `both’ sides) lest the very means designed for the furtherance of justice be used to frustrate it.”
3.3(a) Reliance is also placed on the decision of theHon’ble Supreme Court in the case of Shreenath Vs.Rajesh reported in AIR 1998 SC 1827. In para 3 (at page1828) of the judgement the Hon’ble Supreme Court has heldas follows:
“In interpreting any procedural law, where more than one interpretation is possible, the one which curtails the procedure without eluding the justice is to be adopted. The procedural law is always subservient to and is in aid to justice. Any interpretation which eludes or frustrates the recipient of justice is not to be followed.”
3.4 It may further be stated that over and above inthe petition the entire grounds have been set out and therespondent has filed affidavit and further affidavits.Merely because the procedure is not followed, there is noprejudice to the respondents in this behalf. Therespondents were aware about all the contentions raisedby the petitioner and therefore merely because a separatejudge’s summons have not been taken out and there is onlya slight deviation from the procedure that does notaffect the merits of the matter and to that extent thepetition cannot be dismissed on the sole ground when onmerits of the matter the petitioner has shownconsiderable facts in this behalf.
3.5 In my view, therefore, the preliminary contentionof the respondent ought to have been rejected on theground that the present petition is filed under theprovisions of the Reserve Bank of India Act and thereforethe provisions of the Company Court Rules strictly do notapply in this case. In my view even if the provisions ofthe Company Court Rules apply in this case then then thesame is a procedural aspect and that cannot defeat themain contention raised by the petitioner in connectionwith the provisions of the Reserve Bank of India Act.When the petitioner has relied on various provisions ofthe Reserve Bank of India Act and various facts whichclearly satisfy the grounds stated in the Reserve Bank ofIndia Act, the procedural section cannot defeat the mainpurpose of this petition.
CONTENTION ON MERITS:
4. The petitioner has also filed furtheraffidavits dated 18.5.2000 as well as 22.5.2000 andreiterated its stand taken in winding up petition. Theyhave denied the contentions raised by the respondentCompany in the affidavit-in-reply. It was also statedthat the Company lost its substratum and for that theyhave given three reasons on page 134.
“(a) The Credit Rating Information Services of India Ltd. (CRISIL) in its Press Release dated 31.3.1999 downgraded the fixed deposit programme of the company from `FB’ to `FD’ indicating that the instrument is either in default or is expected to default on maturity.
(b) The auditors of the Company themselves gave a report dated 14.10.1999 to the petitioner that the Company is unable to pay its depositors.
(c) After the order dated 29.12.1999 was passed by the petitioner cancelling registration of the Company, the petitioner wrote a letter dated 22.1.2000 inter alia requiring the company to keep all the proceeds/recoveries in an Escrow Account or in FDRs of one of the Scheduled Commercial Banks and that such deposits can be withdrawn only for repayment of public deposits. In response thereto, the company gave a reply dated 28.1.2000 asking for certain clarifications and also enclosing the list of deposits and the statement of administrative expenses for an estimate of Rs. 6.60 lacs per month. It was thereafter revealed that the recoveries were much higher than the administrative expenses that the company was required to incur.”
REESPONDENT’S CONTENTIONS:
5. It may be stated that the respondent has filedaffidavit-in-reply dated 17.5.2000 wherein they havemostly denied the contentions raised by the petitioner inthis behalf. It was stated that in year 1998-99 the newbusiness had considerably shrunk; the recoveries ratherslowed down. overdues started bulgeoning, good accountsstarted turning into doubtful ones; inflow of funds byway of deposits/loans started receding and the percentageof renewal of existing deposits started diminishing,leading to increase of outflows on account of repaymentof deposits. They had admitted change of management inthis behalf. Respondent also stated that new managementalso tried to contribute some money in this behalf. Itwas stated that because of myopic view taken by theregulating authority the respondent has been restrainedfrom carrying on any business activities as an NBFC. Itwas also stated that for the period 1.2.1999 to31.8.1999, 1787 number of instruments were issued ofwhich 110 instruments have been allegedly dishonouredaggregating to Rs. 816.01 lacs. It was also stated thatthe respondent Company was facing serious liquiditycrunch and it continued. Regarding complaints withrespect to the Company Law Board regarding OFCD, therespondent Company approached Company Law Board for arepayment scheme which was subsequently rejected underthe pretext that OFCD does not come under Public DepositScheme. It was also admitted that because of liquiditycrunch, the respondent Company could not pay the amountwithin the stipulated time. It was averred that all theassets of the Company as on 31.3.2000 is approximatelyRs. 3400.19 lacs as against the total liability of Rs.2644.28 lacs. However, except stating that, no otherfacts were stated by the respondent Company.
6. The respondent had thereafter filed an additionalaffidavit dated 20.7.000 in which provisional balancesheet as on 31.3.2000 and provisional profit and lossaccount for the year ended 31.3.2000 have been produced.It was also stated that the Company is desirous of makingpayment to the creditors and the petitioner has wronglyfiled winding up petition. However, the provisionalbalance-sheet (unaudited dated 31.3.2000) shows a loss ofRs. 2,99,68,155/- as against Rs. 1,87,89,206/- whichwas for the year ended on 31.3.1989. Along with the saidaffidavit action plan for reviving the respondent Companywas also submitted and stated that the Company desires topay the creditors in this behalf.
STATUTORY BACKGROUND OF RESERVE BANK OF INDIA:
7. Before I consider the rival contentions, I quoteout statutory provisions of RBI Act in this behalf.
7.1 Reserve Bank of India Act, 1934 (Act 2 of 1934)has been enacted to constitute Reserve Bank of India.Section 2 provides definition. Chapter II provides forincorporation, capital, management and business. ChapterIII provides for central banking functions. Chapter IIIA provides for collection and furnishing of creditinformation. Chapter III B provides for provisionsrelating to bon-banking institutions receiving depositsand financial institutions. Section 45IA provides forrequirement of registration and net owned fund. Section 45IB provides for maintenance of percentage of assets.Section 45IC provides for reserve fund. 45J provides forpower of Bank to regulate or prohibit issue of prospectusor advertisement soliciting deposits of money, Section 45JA provides for power of Bank to determine policy andissue directions, Section 45K provides for power of Bankto collect information from bon-banking institutions asto deposits and to give directions, Section 45L providesfor power of bank to call for information from financialinstitutions and to give directions, Section 45M providesduty of non-banking institutions to furnish statements,etc. required by bank), Section 45MA (power and dutiesof auditors, Section 45MB provides for power of Bank toprohibit acceptance of deposit and alienation of assets,Section 45MC provides for power of Bank to file windingup petition. This section reads thus:-
“Sec. 45MC(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 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 Companies.
(4) All the provisions of the Companies Act, 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.”
7.2 Section 45N provides for inspection, Section 45NA provides for deposits not to be solicited by unauthorisedpersons, Section 45B provides for disclosure ofinformation, Section 45NC provides for power of bank toexempt, Section 45Q provides Chapter HB to override otherlaws, Section 45QA provides for power of Company LawBoard to order repayment of deposit, Section 45QB provides for nomination by depositors, etc.
7.3. Mr. Amar Bhatt, learned advocate for thepetitioner, has stated that in this case the petition hasbeen filed by the Reserve Bank of India which is bodyCorporate constituted under the provisions of the ReserveBank of India Act. He has stated that in this case theReserve Bank of India has initiated proceedings underChapter IIIB provisions relating to non-bankinginstitutions receiving deposits and financialinstitutions. He has stated that before the provisionswere enacted, the Reserve Bank of India had with a reportof the Working Group of Financial Companies. He hasrelied on paras 5.6 and 5.7 of the said report (underChapter V relating to Evolution of Regulations andExisting Statutory Framework) which read as under:-
Para 5.6 – In 1987, the Supreme Court held that the business of companies carrying on certain types of `prize-chit’ Schemes, were not hit by the Banning Act. The Court had ruled (AIR 1987 SC page 661) that since March 31, 1978, when the residuary clause was introduced by inserting paragraph 19 in the Directions of 1977, the Reserve Bank has been vested with enough powers to control or regulate any business of the kind run by such companies even if such business is not the business of `prize-chits’ as defined by the Banning Act or as specified in paragraph 2(i) of NBFC Directions. Instead of regulating these types of companies under NBFC Directions, which were not suitable to regulate this type of business, RBI considered issuing a separate set of Directions in 1987. Accordingly, RBI issued RNBC Directions, as the third set of Directions governing the NBFCs. These Directions were effective from May 15, 1987, and govern all the RNBCs which are not administered by either the NBFC Directions or the MNBC Directions.
5.7 In 1987, the Parliament enacted the NHB Act (provision whereof came into force on different dates from July, 1988 onwards) and established the NHB to operate as principal agency to promote HFIs both at local and regional levels and to provide financial and other support to such FIs. Thereafter, on June 26, 1989, the NHB issued HFC Directions to regulate the deposit acceptance activities of HFCs as defined in Section 2(d) of the NHB Act. Simultaneously, the RBI amended its NBFC Directions and excluded from its purview the HFCs since covered by the HFC Directions.
7.4 The learned counsel has also relied on theprovisions under Chapter VI – Proposed Regulatoryframework for Non-banking Financial Companiesparticularly paras 6.6 and 6.7, under the heading`Uniform Regulation’ para 6.11, definition of Non-bankingFinancial Companies contained in para 6.13 and provisionsof supervisory authority in para 6.33 and also to contendthat Reserve Bank of India has considered all theseaspects and has initiated action in this behalf.
7.5 He has also relied on the objects and reasons forenacting the said Amendment in the said Act.
STATUTORY PROVISIONS OF COMPANIES ACT:
7.6 As regards provisions of the Companies Act, PartVII Chapter II provides for winding up by the Court.Section 433 prescribes the circumstances in which thecompany may be wound up by Court. Under Section 433(e) the company may be wound up by court if the company isunable to pay its debts. Section 433(f) provides forwinding up of the Company if the Court is of opinion thatit is just and equitable that the company should be woundup. Section 434 provides for the company when deemedunable to pay its debts. Section 439 provides forprovisions as to applications for winding up. Section 447 provides for effect of winding up order. Section 448 provides for appointment of Official Liquidator. Section 450 provides for appointment and powers of provisionalLiquidator.
“S. 450 – Appointment and powers of provisional liquidator – (1) At any time after the presentation of a winding up petition and before the making of a winding up order, the Court may appoint the Official Liquidator to be liquidator provisionally.
(2) Before appointing a provisional liquidator, the Court shall give notice to the Company and give a reasonable opportunity to it to make its representations, if any, unless for special reasons to be recorded in writing, the Court thinks fit to dispense with such notice.
(3) Where a provisional liquidator is appointed by the Court, the Court may limit and restrict his powers by the order appointing him or by a subsequent order; but otherwise he shall have the same powers as a liquidator.
(4) The Official Liquidator shall cease to hold office as provisional liquidator, and shall become the liquidator, of the company, on a winding up order being made.”
Section 451 provides for general provisions as toliquidators. Section 454 provides for statement ofaffairs to be made to Official Liquidator. Section 455 provides for report by Official Liquidator. Section 456 provides for custody of company’s property. Section 457 provides for powers of Liquidator.
CONTENTIONS OF LEARNED ADVOCATES MR. AMAR BHATT, for thepetitioner and MR. ASHWIN L. SHAH AND MR. S.N.SOPARKAR for the interveners learned counsel for thepetitioner:
8. Learned counsel for the petitioner contended thatthe petitioner (Reserve Bank of India) can file presentwinding up petition under the provisions of the ReserveBank of India Act. Act. He contended that Reserve Bankof India knows intimately the affairs of bankingcompanies and has had access to their books and accountsand once receiver is appointed to take decision, normallythe decision should not be interfered with by the Court.In that connection, the learned counsel for thepetitioner has relied on the decision in the case ofJOSEPH KURUVILLA VELLUKUNNEL VS. RESERVE BANK OF INDIAreported in AIR 1962 SC 1371. In paragraph 45 of thesaid judgement it is quoted thus:-
“In the present case, in view of the history of the establishment of the Reserve Bank as central bank for India, its position as a Bankers’ Bank, its control over banking companies and banking in India, its position as the issuing bank, its power to license banking companies and cancel their licences and the numerous other powers, it is unanswerable that between the Court and the Reserve Bank, the momentous decision to wind up a tottering or unsafe banking company in the interest of the depositors, may reasonably be left to the Reserve Bank. No doubt, the Court can also give the time, perform this task. But the decision has to be taken without delay, and the Reserve Bank already knows intimately the affairs of banking companies and has had access to their books and accounts. If the Court were called upon to take immediate action, it would almost always be guided by the opinion of the Reserve Bank. It would be impossible for the Court to reach a conclusion unguided by the Reserve Bank if immediate action was demanded.”
8.1 He has also relied on the decision of the SupremeCourt in the case of DELHI CLOTH AND GENERAL MILLS CO.LTD. VS. UNION OF INDIA AND OTHERS reported in AIR 1983SC 937 which was in relation to Section 58A of theCompanies Act which prescribed the limit, the manner inwhich the deposits may be invited or accepted bynon-banking companies. Speaking for the Court, Mr.Justice D.A. Desai, J has observed in para 28 of thejudgement thus:-
“The power conferred by Section 58A on the Central Government to prescribe the limits upto which the manner in which and the conditions subject to which deposits may be invited or accepted by non-banking companies had a definite object, namely, to check the abuse by the corporate sector and to protect the depositors/investors. Mischief was known and the regulatory measure was introduced to remedy the mischief. The conditions which can be prescribed to effectuate this purpose must be a fortiori, to be valid, fairly and reasonably, relate to checkmate the abuse of juggling with the depositors/investors’ hard earned money by the corporate sector and to confer upon them a measure of protection namely availability of liquid assets to meet the obligation of repayment of deposit which is implicit in acceptance of deposit.”
8.2 He has also relied on the judgement in the caseof RESERVE BANK OF INDIA VS. PEERLESS GENERAL FINANCEAND INVESTMENT CO. LTD. reported in AIR 1987 SC 1023.In paragraph 37 the Supreme Court observed thus:-
“We would also like to query what action the Reserve Bank of India and the Union of India are taking or proposing to take against the mushroom growth of `finance and investment companies’ offering staggeringly high rates of interest to depositors leading us to suspect whether these companies are not speculative ventures floated to attract unwary and credulous investors and capture their savings. One has only to look at the morning’s newspaper to be greeted by advertisements inviting deposits and offering interest at astronomic rates. On January 1, 1987 one of the national newspapers published from Hyderabad where one of us happened to be spending the vacation, carried as may as ten advertisements with `banner head lines’ covering the whole of the last page, a quarter of the first page and conspicuous spaces in other pages offering fabulous rates of interest.”
8.3 He has also relied on the decision of the SupremeCourt in the case of PEERLESS GENERAL FINANCE ANDINVESTMENT CO. LTD. VS. RESERVE BANK OF INDIA reportedin AIR 1992 SC 1033. In this case the Supreme Courtafter considering the decision in DELHI CLOTH AND GENERALMILLS VS. UNION OF INDIA reported in AIR 1983 SC 937 hasobserved in para 32 as under:-
“The function of the Court is to see that lawful authority is not abused but not to attain itself the task entrusted to that authority. It is well settled that a public body invested with statutory powers must take care not to exceed or abuse its power. It must keep within the limits of the authority committed to it. It must act in good faith and it must act reasonably. Courts are not to interfere with economic policy which is the function of experts. It is not the function of the Courts to sit in judgement over matters of economic policy and it must necessarily be left to the expert bodies. In such matters even experts can seriously and doubtlessly differ. Courts cannot be expected to decide them without even the aid of experts.”
8.4 Mr. Bhatt has also relied on the judgement ofthe Supreme Court in the case of T. VELAYUDHAN ACHARIAND ANOTHER VS. UNION OF INDIA reported in (1993) 2 SCC582 where the Court considered provisions of Section 45-S(1) as introduced by Banking Laws (Amendment) Act,1983. In para 30 of the judgement, the Supreme Courtobserved as under:-
“No doubt, the impugned legislation places restrictions on the right of the appellants to carry on business, but what is essential is to safeguard the rights of various depositors and to see that they are not preyed upon. From the earlier narration, it would be clear that the Reserve Bank of India, right from 1966, has been monitoring and following the functioning of non-banking financial institutions which invite deposits and then utilise those deposits either for trade or for other various industries. A ceiling for acceptance of deposits and to require maintenance of certain liquidity of funds as well as not to exceed borrowings beyond a particular percentage of the net owned funds have been provided in the corporate sector. But for these requirements, the depositors would be left high and dry without any remedy.”
8.5 He has also relied on the judgement of theSupreme Court in the case of BHAVESH D. PARISH & OTHERSVS. UNION OF INDIA in Writ Petition No. 168 of 1997decided on May 12, 2000 since reported in 2000(5) SCC471. The Bench of the Supreme Court (Coram: B.N.Kirpal and M.B. Shah, JJ) was considering the validityof Section 9 of the Reserve Bank of India Act as amendedby the Amendment Act, 1997 which prohibited carrying ofbusiness of shroffs. In that case the Supreme Courtconsidered various provisions of the Committee report andvarious decisions of the Court and also the affidavit ofReserve Bank of India and in para 26 (page 486) it isobserved thus:-
“The services rendered by certain informal sectors of the Indian economy could not be belittled. However, in the path of economic progress, if the informal system was sought to be replaced by a more organised system, capable of better regulation and discipline, then this was an economic philosophy reflected by the legislation in question. Such a philosophy might have its merits and demerits. But these were matters of economic policy. The are best left to the wisdom of the legislature and in policy matters the accepted principle is that the courts should not interfere. Moreover, in the context of the changed economic scenario the expertise of people dealing with the subject should not be lightly interfered with. The consequences of such interdiction can have large scale ramifications and can put the clock back for a number of years. The process of rationalisation of the infirmities in the country can be put in serious jeopardy and therefore it is necessary that while dealing with economic legislations, this Court while not jettisoning its jurisdiction to curb arbitrary action or unconstitutional legislation, should interfere only in those few cases where the view reflected in the legislation is not possible to be taken at all.”
8.6 The learned counsel for the petitioner statedthat in this petition a new problem has arisen regardingwinding up of the Company by the Reserve Bank of Indiaunder the provisions of the Reserve Bank of India Act andtherefore new solution will have to be found out by thecourt. For that purpose has has relied on the judgementof the Supreme Court in the case of R.K. GARG VS. UNIONOF INDIA reported in AIR 1981 SC 2138 popularly known asbearer bond cases. In para 8 of the judgement, the Courtobserved as under:-
“The Court must always remember that `legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that may problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry’ that exact wisdom and nice adaption of remedy are not always possible and that `judgement is largely a prophecy based on meagre and uninterpreted experience’. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The Courts cannot, as pointed by the United States Supreme Court in Secy.of Agriculture Vs. Central Roig. Refining Co. (1950) 94 L ed 381, be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience distortion and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. that is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues.”
9. Learned counsel for the petitioner further statedthat in this case the Court must consider the fact thatthe petition has been filed by the Reserve Bank of Indiaand therefore due weight must be given to it than anordinary winding up petition filed by ordinary secured orunsecured creditor. He has stated that in the petitionseveral grounds for appointment of provisional liquidatorand this court should also appoint provisional liquidatorin this behalf. In this connection, the learned counselfor the petitioner has relied on the judgement of EnglishCourt reported in (1972) 1 All England Law Reports 1105reported in Re Union Accident Insurance Co. Ltd. Inthis case on page 1110 the Court has observed as under:-
“There are two matters though, which seem to be relevant for me to consider. The first is whether the department has made out a good prima facie case for a winding up at the hearing of the petition. Any views I express about the matter now are of course provisional only because I am not trying the petition at the present time. If the department has not made out a good prima facie case for a winding up order then clearly I think it would not be right to appoint a provisional liquidator. On the other hand, if the department has made out a good prima facie case for a winding up order then the second matter for my consideration arises, namely, whether in the circumstances of this case it is right that a provisional liquidator should have been appointed. So far as the first matter is concerned, in my judgement the department has made out a good prima facie case, both under s. 35 of the 1967 Act and under s. 13 of the 1958 Act. So far as s 35 is concerned, all the matters set out in para 9 of the petition, which I have already read, are in my judgement supported by the evidence at least to the extent of a good prima facie case, and I only want to add a word about the fourth of those matters, namely, that there are circumstances suggesting that the company has been seriously underestimating outstanding claims.”
9.1 He has also relied on decision in the case of InRe LUBIN, ROSEN AND ASSOCIATES LTD. 1975(1) The WeeklyLaw Reports page 122 (The Weekly Law Reports, January 24,1975). At page 127 the Court observed thus:-
“It seems to me that the very fact that the Secretary of State has reached such a conclusion is a factor which, without being in any way decisive, ought to be given appropriate weight by the court. Mr. Morritt also referred me to Palmer’s Company Law, 21st ed. (1968) where at p. 742, it is said:
`The court is invested with a wide jurisdiction in the interests of commercial morality; and if the facts disclose a strong prima facie case for investigation into the formation or promotion of the company, or the issue of debentures by it, the Court will make a compulsory order irrespective of creditors’ opposition.”
9.2 He has also relied on the decision in ReHIGHFIELD COMMODITIES LTD. reported in (1984) 3 AllEngland Law Reports 884. At page 890 the Court observedas under:-
“I do not think that this can be right. Even if the present case does not fall within literal meaning of what was said in the Hoffmann case, and even if Sec. 35 was not in the minds of anyone concerned in that case, the launching and prosecution of a petition under S. 35 seems to me to fall squarely on the same side of the line as the proceedings in the Hoffmann case so far as they related to the enforcement of the law and not the pursuit of the Crown’s proprietary rights. The Secretary of State is acting selflessly on the basis of information and documents obtained by his officers; and when from this material it appears to him to be expedient in the public interest that the company should be wound up, and he petitions accordingly, he seems to me to be carrying out what can fairly be described as a process of law enforcement. The mischief of a fraudulent company is likely to be more effectively dealt with by winding up the company than by leaving it in existence and relying on prosecuting those who have taken part in any criminal activity; and the Secretary of State ought not to be dissuaded from exercising his statutory powers in this behalf by being required to give any undertaking in damages. Even if I am wrong in regarding a petition by the Secretary of State under the Companies Act, 1967, s. 35 as a form of enforcing the law, I would reach the same conclusion as regards the undertaking in damages, on the footing that the Hoffmann principle is wide enough to cover the selfless performance of a public duty by the Crown, at all events if it is imposed directly or impliedly by statute. I should add that I have been quite unable to see that HCL has established any special circumstances in the case that would justify requiring the Secretary of State to give any undertaking in damages.”
9.3 The learned counsel for the petitioner has alsorelied on Halsbury’s Law of England, 4th Edition, Volume7, Companies (on page 624) para No. 1045 it is statedthus:-
“1045. Provisional Liquidator before winding up order – The court may appoint a provisional liquidator to take possession of and protect the company’s assets at any time after the presentation of a winding up petition and before the making of a winding up order. The occasion for the appointment is not limited to special circumstances; other factors, such as the public interest, may be taken into account. Either the official receiver or any other fit person may be appointed. A person other than the official receiver is occasionally appointed, but the almost invariable rule is to appoint the official receiver.
When a provisional liquidator is appointed, the court may limit and restrict his powers by the order appointing him. His appointment does not completely oust the powers of the board; it may still cause the company to oppose the winding up petition or to apply to discharge the provisional liquidator.”
9.4 He has also relied on Palmer’s Company Law, 24thEdition, 1987 in which at paragraph 88.18 (page 1380)after referring to In Re Lubin, Rosen and Associates andalso referring to Re Highfield Commodities Ltd. thelearned authors stated thus:-
“The Secretary of State has power under S. 440 of the Companies Act to petition the court for a winding up order if it appears to him –
(a) from an inspector’s report made under Section 437 of the Act; or
(b) from information or a document obtained as the result of the inspection of the company’s books or papers under Sections 447 to 451 inclusive of the Act; or
(c) from 1information or a document obtained under section 18 or 19 of the Protection of Depositors Act, 1963;
that it is in the public interest that the body should be wound up. If the court thinks it just and equitable for the company to be wound up, it will make a winding up order.”
9.5 He has also relied on Buckley on the CompaniesAct, 14th Edition, Part-V on page 587 it is observed asunder:-
“The early cases (which can be better understood if the changes effected by the 1890 Act mentioned below are borne in mind) contain some expression of opinion as to the circumstances in which an appointment can be made, but the section in fact confers an unfettered discretion on the court and in a recent case Plowman J. rejected the company’s contention that the appointment should be made, if opposed by the company, only if there are special circumstances, such as danger to the assets or obvious insolvency, or the company has admitted that it has no defence to the petition. The section confers quite general powers on the court and, depending on the circumstances of each case, there may be other matters which may be relevant, such as the public interest. In that case, he refused to discharge the appointment of the official receiver as provisional liquidator made by the registrar on the ex-parte application of the Department of Trade and Industry on the day on which it had presented a petition to wind up an insurance company carrying on motor insurance business against which the Department had made a direction under s. 68 of 1967 Act precluding it from entering into or varying contracts of motor insurance. He found that the Department had made out a good prima facie case for winding up, both under S. 35 of 1967 Act and under s. 13 of the Insurance Companies Act, 1958, and that particularly having regard to the S. 68 direction and to the requirement in the public interest that an insurance company should either maintain its statutory margin of solvency or be wound up before its liabilities exceeded its assets, in the particular circumstances of the case it was right that a provisional liquidator should have been appointed to protect the assets pending the hearing of the petition.”
9.6 He has also relied on Boyle & Sykes Gore Browneon Companies, 43rd Edition. In para 31-20 it is held thus:-
“If it appears to the Department of Trade from any inspector’s report made under section 168 that it is expedient in the public interest that a company should be wound up, the Department may present a winding up petition. The court can order winding up on such a petition if it thinks it just and equitable for the company to be wound up. The Department may, in addition to or instead of, presenting a winding up petition, present a petition for an order under section 210. It appears that although such petitions cannot be presented against a company which is already in compulsory liquidation, a petition for compulsory liquidation can be presented by the Department against a company in voluntary liquidation.
A petition can be presented in the name of the Secretary of State for Trade acting through one of his officers and does not require the personal attention of the Secretary of State for Trade.
Where the relevant officer of the Secretary of State swears an affidavit verifying the petition, being an affidavit exhibiting the relevant inspector’s report, that report can be relied upon as indicating the validity of matters stated in the petition, even though the report is strictly hearsay. If the report is challenged by persons with knowledge of the facts the report is nevertheless to be treated as prima facie evidence by the court.”
Again he has relied on para 31-30 which reads thus:-
“Provisional Liquidator – After the presentation of a petition, if the property of the company is in danger, or it is alleged that those in control are misappropriating or wasting the assets or any other good cause exists, an application may be made by any creditor or contributory or by the company for the appointment of a provisional liquidator, and the court in a proper case, after being satisfied of the facts by affidavit, will in England make the appointment at any time before the making of a winding up order, or in Scotland at any time fore the firs appointment of liquidators.”
9.7 Pennington’s Company Law, 5th Edition, (1985) 14, Chapter 23 Winding up bythe Court at page 867.
PROVISIONAL LIQUIDATOR:
“At any time after the presentation of a winding up petition the Court may appoint the official receiver or any other fit person to be provisional liquidator of the company. The purpose of making the appointment is to preserve the company’s assets and to prevent the directors from dissipating them before a winding up order can be made. It has been said that a provisional liquidator will only be appointed if the company is the petitioner or if it consents to the appointment or if the company is clearly insolvent or if it is obvious to the court that a winding up order will be made. These dicta show the court’s reluctance to pre-judge the issue between the petitioner and the company by appointing a provisional liquidator before the hearing of the petition, but it has also been held that the court’s power to appoint a provisional liquidator is not limited to such cases, and may be exercised if there is an interest of the public to be protected, for example, when the company is an insurance company on whose continued solvency the effectiveness of policies issued by it depends or where the petition is presented by the Secretary of State for Trade and Industry who makes out a strong prima facie case that the company’s business activities have throughout been designed to mislead the public into making hazardous speculations on vague terms which have resulted in excessive charges being made by the Company for its services.”
9.8 The learned counsel for the petitioner has alsorelied on the judgement of this court in the case ofNAVJIVAN TRADING FINANCE P. LTD. In re reported in 48Company Cases 402. The judgement was delivered by Mr.Justice M.P. Thakkar (as he then was). In that case thepetition has been instituted by the Registrar ofCompanies before the High Court. In this case theRegistrar of Companies has instituted a winding uppetition under Section 433(e) of the Companies Actpraying for winding up of NAVJIVAN TRADING FINANCE P.LTD (supra) on the ground that the Company is unable topay its debts and under Section 433(f) on the ground thatit is just and equitable that the Company should be woundup. The learned Judge after examining the facts of thecase and relevant decisions of this court and afterconsidering section 433(e) and Section 434 of the Actobserved at page 416 thus:-
“But in a case like the present, where the company is not producing or manufacturing any goods and is not rendering any service useful to the society, where the whole purpose of its existence appears to be to provide the directors with an opportunity to enrich themselves at the cost of petty subscribers who in the hope of getting some prizes or rewards and better returns on their hard earned savings (sometimes they may even resort to borrowing in the hope of getting rich quickly) become contributories to various schemes, floated by the company the matter stands on a different footing. In a case like the present where the main activity of the company consists in tempting and roping in innocent persons in the scheme by publishing tantalizing advertisements, greater harm would ensue by refusing to pass an order of winding up than by passing an order of winding up. In fact, to wind up such company would be an act of social service, for, thereby, several innocent persons would be saved from being trapped by a company of this nature. Alas, as discussed earlier, the time taken in affording reasonable opportunity to the company in obeisance to the principles of natural justice has been utilised by the company to collect lakhs of rupees from the innocent subscribers merely in order to enrich the directors in an unjust fashion. Under the circumstances, there is no scope for hesitation or reluctance in winding up the company which the court ordinarily feels when dealing with some manufacturing unit.
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There is no scope for resurrecting the company by evolving any scheme for running the company from the standpoint of the business in which it is presently engaged. The consideration which usually deter the court from passing a winding up order are of no avail in the case of a company of the present nature.
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The curtain cannot be dropped without expressing a word or two of anxiety – anxiety that the moral of this episode is not lost on the authorities who have miserably failed to protect the poor from being robbed even after the deplorable state of affairs pertaining to this company came to light. Could the misfortune not have been averted? What should be done to ensure that what has happened in the past is not re-enacted in the future.? Could the sanction to institute the petition not have been granted earlier? Could a provisional liquidator not have been appointed? Could the financial position of the company not have been exposed to the eyes of the poor public in order to warn them of the booby trap? And to foreclose a repeat performance of a Robinhood drama in reverse (here the poor are robbed to pay the rich) can it not be ensured that no company which has not obtained a certificate of solvency (to be procured within 3 or 6 months of the close of every accounting year) from the company law authorities or the Reserve Bank authorities is permitted to issue advertisements inviting the public to join the scheme and from collecting subscriptions, contributions or deposits? The exercise is worth undertaking if the endeavour to protect the common man (if not to improve his lot) is not to be drowned in the tears shed for the miseries of the rich.”
9.8A The learned counsel Shri A.L. Shah who appearedand also in turn relied on the judgement of this court inthe case of FICOM ORGANICS LIMITED VS. LAFFANSPETROCHEMICALS LIMITED reported in (1998) 5 Company LawJournal 24 (Guj.) wherein the learned Judge (Coram: M.S.Shah, J) has decided that when a winding up order is tobe passed. In para 16 the court has held as follows:-
“It is thus clear that there is nothing in principle or precedent which would prevent the court from admitting the winding up petition for enforcing payment of a just debt. Merely because the winding up order is not a normal alternative in the case of a company to the ordinary procedure for realisation of the debts, it does not dilute the power of the court to admit a winding up petition where the facts and circumstances of the case show that it would be a form of equitable execution. In such cases, the court would, therefore, ordinarily admit the petition after the company fails to avail of the opportunity given to it to pay up the debt in respect of which the Company Court had already given a finding that the dispute raised by the company was not bona fide, or the court may even conditionally admit the petition while granting the company opportunity to pay the debt to the petitioner. It would, however, be for the court to consider while exercising its judicial discretion as to whether in the facts and circumstances of a given case, the court would simply grant to the the company to pay the amount to the petitioner or whether the court should conditionally admit the petition and defer the order for advertisement or whether the court should not admit the petition, because even though the defence may not be substantial, the debt is also not found to be a just one.”
9.9 The learned counsel has also relied on thejudgement in the case of ANDHRA PAPER MILLS CO. LTD. InRe reported in 18 Company Cases 8 at page 11, Madras HighCourt and the judgement of the Kerala High Court in thecase of BRUNTON AND COMPANY ENGINEERS LTD. In Re (Ker.)reported in 63 Company Cases 299. Both these decisionslay down the principle for appointment of provisionalliquidator.
9.10 In the case of BHARTI TELECOM LTD. VS. ALTOSINDIA LTD. (NO. 2) reported in 94 Company Cases 929(Punjab and Haryana High Court) the court observed onpage 939 as under:-
“In view of the above detailed discussion contention IV is also answered against the company as the company was admittedly not carrying on any business. It had no workers but had a skeleton administrative and accountancy staff only. Seeing this in contrast to the interest of the public undertakings, financial institutions, secured and unsecured creditors, landlords and the other afore-referred petitions, it would be averse to public interest if the provisional liquidator is not permitted to continue to take stock of the defaulted record and assets of the company.
On page 240 the court further observed as follows:-
“While declining to review the order dated June 11, 1998 or recalling the said order or cancelling the appointment of the provisional liquidator, I would issue the following directions to the provisional liquidator for compliance forthwith:
(a) The official liquidator shall associate three members from the secured creditors (banks to whom the properties of the company has been charged, hypothecated) one representative from the respondent company for carrying out these directions. The officers shall not be below the rank of senior manager/managing director/official liquidator.
(b) at the outset the official liquidator shall prepare an inventory of all movable and immovable properties belonging to the respondent company and/or lying in the premises rented or belonging to the respondent-company.
(c) He shall prepare complete inventories of the record of the company.
(d) if any records are requested for by the respondent-company, copies thereof shall be given by the official liquidator to enable the company to pursue its matters before the competent forum including BIFR.
10. Mr. Bharat Pandya, learned advocate for therespondent, has raised the following contentions. He hasalso relied on the judgement of the Kerala High Court inBRUNTON AND COMPANY ENGINEERS LTD. (supra) and 49Company Cases 532 and stated that appointment ofprovisional liquidator is drastic action and no cogentand convincing ground has been stated by the petitionerfor the same and therefore this High Court ought not tohave considered appointment of provisional liquidator.He also stated that judgement of the Supreme Court inVELLUKUNNEL VS. RESERVE BANK OF INDIA (supra) is notapplicable in this case because in that case the SupremeCourt was considering the Banking Companies Act and theprovisions of the said Act and the provisions of theReserve Bank of India Act are quite different.
10.1 The learned counsel for the respondent has alsorelied on the decision of the Kerala High Court in thecase of Brunton and Company Engineers Ltd. (supra) andhas stated that appointment of provisional liquidator isdrastic action and no cogent and convincing ground hasbeen stated by the petitioner for the same and thereforethis High Court ought not to have been consideredappointment of provisional liquidator. He also statedthat the judgement of the Supreme Court in VellukunnelVs. Reserve Bank of India (supra) is also not applicablein this case because in that case the Supreme Court wasconsidering the Banking Companies Act and the provisionsof the said Act and the provisions of the Reserve Bank ofIndia Act are quite different. He has also relied on thejudgement of the Kerala High Court in the case of Bruntonand Company Engineers Ltd. (supra). He has also statedthat the petitioner has not given cogent and convincingreasons for appointment of provisional liquidator.
CONCLUSION:
11. In view of the facts as disclosed in the windingup petition as well as in additional affidavit, I am ofthe view that this a clear case in which winding uppetition should be admitted as all the four groundsmentioned in Section 45MC of the Reserve Bank of IndiaAct are satisfied and therefore I have no hesitation inadmitting the winding up petition. It may be stated thatrespondent has not been able to properly set out reasonsas to why the petition should not be admitted in thiscase. Affidavit-in-reply filed in this case earlier andrecently do not inspire any confidence in the court andthe averment made by the respondent are not trustworthyas to when they will be able to repay the debts to thecreditors. Only a bald statement has been made that ifthe Company is given a chance , the Company will be ableto make the payment but about as to how they will be ableto make and when they will be able to make repayment ofdebts, the Company is totally silent on this count.
12. I have gone through the submissions made by thelearned counsel petitioner as well as the submissionsmade by the learned counsel for the respondent on themerits of the matter and also considered variousauthorities which have been cited by both the sides. Ihave also gone through the pleadings filed by thepetitioner as well as by the respondent in this behalf.In my view the petitioner is able to prove a strong andprima facie case. The petitioner has successfullydemonstrated that all grounds stated under Section 45MC of the R.B.I. Act are satisfied in this case and forthat purpose the petitioner has relied on paragraphs 19to 26 of the petition and also further affidavits dated18.5.2000 and 20.5.2000 and the documents produced alongwith the affidavit. According to him, the respondent isunable to pay its debts to the creditors. The respondenthas by virtue of the provisions of Section 45IA becomedisqualified to carry on the business of Non-bankingFinancial Institution.Reserve Bank of India hasprohibited the respondent company from receiving depositby an order and such an order has been in force for aperiod of not less than three months and the Reserve Bankof India has demonstrated that continuance of non-bankingfinancial company (the respondent company) is detrimentalto the public interest or to the interest of depositorsof the Company. The respondent Company has not been ableto carry out the orders of the Company Law Board. TheReserve Bank of India by order dated 29.12.1999 alsocancelled the certificate of registration issued to therespondent Company under Section 45IA of the RBI Act andtherefore the respondent Company has become disqualifiedto carry on the business of non-banking financialinstitution. The Reserve Bank of India has also beenable to prove that upto February, 1999 the respondentCompany was managed under the chairmanship of Dr.Mohanlal Piramal. However, thereafter, the erstwhilepromoters ECGIL (Electric Control Gear India Ltd.)offered their shareholding in favour of Shri AshishPatel, Shri Dilip Trivedi and Radhe Developers (I) Ltd.at a token value. It appears that thereafter inSeptember, 1999 again the management of the Company hasbeen changed to Mr. S.K. Mani and his Associates. TheReserve Bank of India has stated that in view of thefrequent change in the management of the Company, thecontinuance of the respondent Company is detrimental tothe public interest and to the interest of the depositorsof the company and it has been stated that thecontinuation of the respondent Company is detrimental tothe public interest and the interest of its depositors.I am, therefore, satisfied that the provisions of Section 45MC have been complied with and the Company is liable tobe wound up read with the provisions of the CompaniesAct.
REGARDING BALANCE OF CONVENIENCE:
12.1 As regards balance of convenience is concerned,when the petition is filed by the Reserve Bank of Indiaand when RBI is custodian legis of the public, ReserveBank of India has stated that continuance of therespondent Company is detrimental not only to the publicinterest but also to the interest of the depositors whohave deposited money with the respondent Company. In theearlier paragraph, it has been demonstrated thatcontinuation of business by the respondent Company isdetrimental to the general public and thereforecontinuation of business by the respondent Company is notonly detrimental to the interest of general public butalso the depositors who have deposited money with therespondent Company. In my view the object of appointingprovisional liquidator is just, equitable, necessary, andfair distribution of the assets of the Company and theassets of the Company may not be wasted in this behalfand in view of public interest. The balance ofconvenience is in favour of the petitioner and againstthe respondent Company. If the respondent Company iscontinued to carry on business there is a possibility oflarge number of innocent persons depositing money andthat deposit may not be returned to them in future tothem and R.B.I. has pointed from the order of theCompany Law Board and therefore also provisionalliquidator has also been appointed. In my view it isjust, equitable and in the interest of justiceprovisional liquidator may be appointed to the Companywith all powers under the Companies Act, 1956 and furtherit is just, equitable and necessary in the interest ofjustice that an injunction may be issued to the Companyprohibiting the Company and its directors from disposingof any of the assets.
12.2 As regards provisional liquidator, I haveconsidered Section 450 of the Companies Act. I havealready passed an order dated 10.5.2000 and after that asdirected by the Division Bench I have heard learnedcounsel for the respondent Company and also consideredhis submission and after considering the submissions madeby the learned counsel Mr. Amar Bhatt, Shri A.L. Shah,learned counsel for the petitioner and intervener whohave stated that there are number of winding up petitionshave been filed and Shri S.N. Soparkar, learned counselfor the intervener, I am of the view that in this caseprovisional liquidator should also be appointed otherwisethe Company’s assets will be taken away and creditorswill not be in a position to realise any amount. It isnow stated that the Company has filed large number ofsuits as well as Criminal Complaint under Section 138 ofthe Negotiable Instruments Act but the provisionalliquidator with the help of an advocate can monitor thesame and can realise the amount in question and thereforein my view provisional liquidator is a right person whocan administer the assets of the Company in good spirit.
13. In view of the same, I am passing the followingorder:-
13.1 The petition should be admitted. Officialliquidator attached to this court should be appointed asprovisional liquidator as already ordered on 10.5.2000 beconfirmed.
13.2 While reviewing the order dated 10.5.2000 andwhile considering the submissions of the learned advocatefor the respondent Company that I should quash and vacatethe order, I may issue the following direction to theprovisional liquidator for compliance forthwith:
(a) the official liquidator shall associate two members from the Reserve Bank of India (bank will nominate two officers in this behalf). The Officer shall not be below the rank of senior Manager/ Deputy Manager.
(b) at the outset the official liquidator shall prepare an inventory of all the movable and immovable properties belonging to the respondent company and/or lying in the premises rented or belonging to respondent company.
(c) He shall prepare complete inventories of the record of the company.
(d) if any records are requested for by the respondent company, copies thereof shall be given by the official liquidator to enable the company to pursue its matters before the competent forum including BIFR.
(e) the committee of the aforesaid persons within four weeks from today shall place before the court a detailed report. The committee would suggest whether it is possible to consider and implement any viable or workable scheme by which the company could revive its business and provide modes of repayment of the secured and unsecured creditors of the company simultaneously.
13.3 In view of the above, the petition is to beadmitted and the provisional liquidator should beappointed forthwith.
14. In the result, the petition is admitted. Noorder as to costs.
After the pronouncement of the judgement, Mr.Bharat Pandya, learned advocate for the Company prayedthat the implementation of the aforesaid order be stayedfor some time. Mr. Amar Bhatt, learned advocate for thepetitioner, has strongly objected to the same. In theinterest of justice, the order is stayed upto 13.11.2000to enable the respondent to file appeal, if any. Mr.Bharat Pandya states that in the meanwhile the Companywill maintain status quo and at least the properties ofthe Company will be preserved and protected in thisbehalf. If there is any complaint about the same thenthe stay order will get vacated by this court.