2003 (7) TMI 574 - HC - Companies Law

Summary

Issues Involved:
1. Application for winding up under section 45-MC of the Reserve Bank of India Act, 1934.
2. Rejection of the company's registration application under section 45-IA of the RBI Act.
3. Company's opposition to the winding-up petition.
4. Applicability of sections 45-MC and 45-IA of the RBI Act.
5. Company's ability to carry on other business activities.
6. Impact of winding-up on repayment of deposits.

Issue-wise Detailed Analysis:

1. Application for Winding Up Under Section 45-MC of the Reserve Bank of India Act, 1934:
The Reserve Bank of India (RBI) filed a winding-up petition under section 45-MC of the Reserve Bank of India Act, 1934, seeking the winding up of Prudential Capital Markets Ltd. The company was incorporated in 1987 and became a public limited company in 1991. The main objects of the company included carrying on the business of an investment trust company, acting as financial consultants, and managing investment pools, among others.

2. Rejection of the Company's Registration Application Under Section 45-IA of the RBI Act:
As a non-banking financial company, the company was required to obtain a license from the RBI under section 45-IA of the RBI Act. Upon inspection, the RBI found that the company had violated various provisions of the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. Consequently, the RBI issued a show-cause notice and later rejected the company's application for a certificate of registration. The company's appeal against this rejection was dismissed by the appellate authority.

3. Company's Opposition to the Winding-Up Petition:
The company opposed the winding-up petition on several grounds:
- The court should wait until the disposal of the appeal against the rejection of the registration application.
- The company could carry on other business activities in terms of its Memorandum of Association, even if it ceased to be a non-banking financial company.
- Winding up would disrupt the repayment process of deposits as directed by the Company Law Board.

4. Applicability of Sections 45-MC and 45-IA of the RBI Act:
Section 45-IA of the RBI Act mandates that no non-banking financial company shall commence or carry on business without obtaining a certificate of registration and having a net owned fund of a specified amount. Section 45-MC empowers the RBI to file a winding-up petition if a non-banking financial company:
- Is unable to pay its debts.
- Becomes disqualified to carry on the business.
- Is prohibited from receiving deposits for a specified period.
- Is detrimental to public interest or the interest of depositors.

5. Company's Ability to Carry on Other Business Activities:
The court found that the main objects of the company, as per its Memorandum and Articles of Association, indicated that it was essentially an investment company. The principal business involved borrowing money from the public and investing in shares and other forms, which fell within the ambit of section 45-IA. Therefore, once the company was disqualified from carrying on non-banking financial business, no other business activities were left for it to pursue.

6. Impact of Winding-Up on Repayment of Deposits:
The company argued that winding up would disrupt the repayment process of deposits as per the Company Law Board's order. However, the court held that once the company is wound up under section 45-MC, the general provisions of the Companies Act, 1956, relating to winding up would apply. These provisions adequately address the repayment of liabilities, making the company's argument untenable.

Conclusion:
The court concluded that the company was disqualified from carrying on non-banking financial business and that its existence was contrary to public interest. The winding-up petition was granted, and the company was ordered to be wound up under section 45-MC of the RBI Act, 1934, read with the Companies Act, 1956. The Official Liquidator was directed to take charge of the company's assets, and the RBI was instructed to assist in this process. The interim application was disposed of without any order, and no costs were awarded.