2002 (9) TMI 768 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of RBI over the appellant.
2. Compliance with RBI and CLB directions.
3. Solvency of the appellant company.
4. Procedural compliance with Company Court Rules.
5. Justification for winding up order.

Detailed Analysis:

1. Jurisdiction of RBI over the appellant:
The appellant argued that it was neither a financial company nor a Non-Banking Financial Company (NBFC) and thus, the provisions of section 45-I(c) & (f) of the RBI Act were not applicable. Consequently, RBI had no jurisdiction over the appellant company to issue directions or file a company petition. The court rejected this argument, noting that the appellant was carrying on business as defined under section 45-I(f) and had voluntarily applied for registration under section 45-IA(2). The court emphasized that the company had been under RBI's jurisdiction since its inception and could not avoid legal obligations by withdrawing its application.

2. Compliance with RBI and CLB directions:
The appellant failed to comply with the directions issued by the Company Law Board (CLB) and the Reserve Bank of India (RBI). The CLB had directed a repayment schedule for deposits, which the appellant did not adhere to. The appellant's repeated promises to liquidate its debts and pay depositors were not fulfilled. The court noted multiple instances where the appellant back-tracked on its commitments, including proposals to sell immovable properties and assurances given by its directors. The RBI had received numerous complaints from depositors about non-payment, leading to further legal actions, including a criminal complaint.

3. Solvency of the appellant company:
The appellant claimed to be solvent, arguing that it had sufficient assets to repay its debts and highlighted efforts to recover money from leasing assets. However, the court found that the appellant's liabilities exceeded its assets, and it was unable to pay its debts. The court noted that the company's net worth was less than its liabilities as per audited balance sheets, and its properties in Mumbai and Goa were not sufficient to cover the debts. The court concluded that the appellant was unable to pay its debts, satisfying the requirement of section 45-MC of the RBI Act for winding up.

4. Procedural compliance with Company Court Rules:
The appellant contended that the winding up order was in violation of Rules 24 and 99 of the Company Court Rules, which require advertisement of the petition and hearing before passing such an order. The court found that the petition for winding up was heard in detail, and the appellant was given multiple opportunities to present its case and fulfill its commitments. The court cited precedents where similar procedural arguments were rejected, emphasizing that the order was passed following due process.

5. Justification for winding up order:
The court justified the winding up order by highlighting the appellant's failure to adhere to multiple directions and its inability to pay debts. The court referenced judgments from the Andhra Pradesh High Court and Allahabad High Court supporting the winding up of companies unable to meet their obligations. The court noted the appellant's lack of cooperation, vacated premises, and fleeing directors, which indicated no prospects for revival. The court concluded that the appellant's continuance was detrimental to public interest and the interest of depositors.

Conclusion:
The appeals were dismissed, affirming the winding up order. The court found that the appellant was an NBFC under RBI's jurisdiction, failed to comply with repayment directions, was insolvent, and the winding up order was procedurally sound and justified.