2001 (6) TMI 767 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the CLB's order directing repayment of deposits.
2. Interest of secured creditors, particularly United Western Bank Ltd.
3. Maintainability of the company's appeal under section 10F of the Companies Act.
4. RBI's petition for winding up of the company.
5. Issuance of consequential directions regarding the alienation of property and disbursement of funds by the company.

Detailed Analysis:

1. Legality of the CLB's Order Directing Repayment of Deposits:
The Company Law Board (CLB) issued directions to Kirloskar Investments & Finance Ltd. for the repayment of deposits to nearly sixty thousand depositors, primarily senior citizens, under section 45QA of the Reserve Bank of India Act, 1934. The provision empowers the CLB to direct repayment of deposits if necessary to safeguard the interests of the company, depositors, or public interest. The CLB's order was challenged by United Western Bank Ltd., a secured creditor, and the company itself on various grounds.

2. Interest of Secured Creditors, Particularly United Western Bank Ltd.:
United Western Bank Ltd., in MFA No. 1530 of 2000, argued that the CLB's order did not consider the interests of the bank and other consortium members who had a first charge on the company's funds as secured creditors. The court held that section 45QA is meant only to protect depositors' interests and does not cover amounts owed to banks, which do not qualify as deposits under section 45-I(bb). The court found that the CLB had reserved liberty for the banks to enforce their claims before a competent court of law, and the bank's rights could be adequately protected in the proceedings before the Debt Recovery Tribunal (DRT). Thus, MFA No. 1530 of 2000 was dismissed.

3. Maintainability of the Company's Appeal Under Section 10F of the Companies Act:
In MFA No. 2030 of 2000, the company challenged the CLB's order on several grounds, arguing that the repayment scheme was unrealistic. The court noted that an appeal under section 10F of the Companies Act is maintainable only on a question of law. The court found that the company's challenge did not involve any interpretation of law or document, nor was the CLB's order perverse or irrational. The court held that the issues raised by the company were factual and did not constitute a question of law. Consequently, MFA No. 2030 of 2000 was dismissed.

4. RBI's Petition for Winding Up of the Company:
OSA No. 2 of 2000 was filed by the RBI against an order staying the proceedings in Company Petition No. 2 of 2000, which sought the winding up of the company. The court noted that the RBI had prohibited the company from accepting fresh deposits and had appointed a special officer. The company's application for registration under section 45-IA was rejected, and the RBI filed a winding-up petition under section 45MC(1). The company judge had stayed the proceedings pending the disposal of the company's appeal against the rejection of registration and the CLB's proceedings under section 45QA. The court found that both contingencies had been satisfied, as the CLB had passed a final order, and the company's appeal was dismissed. The court held that the stay of the proceedings was unjustified and set aside the order, directing that Company Petition No. 2 of 2000 proceed in accordance with the law.

5. Issuance of Consequential Directions Regarding the Alienation of Property and Disbursement of Funds by the Company:
The court noted the need for interim directions to prevent the company from making payments without prior written permission from the special officer, except for salaries and establishment expenses. The court directed that this interim measure continue until the company judge disposes of an application for similar relief by the RBI. Additionally, the company was directed to pay a sum of Rs. 9,000 to Justice S. Venkataraman for services rendered.

Conclusion:
The court dismissed MFA Nos. 1530 of 2000 and 2030 of 2000, finding no merit in the challenges to the CLB's order. OSA No. 2 of 2000 succeeded, and the stay on the winding-up proceedings was set aside. The court issued interim directions to ensure the proper disbursement of funds and prevent unauthorized payments by the company.