2005 (11) TMI 264 - HC - Companies Law

Issues Involved:
1. Compliance with RBI Act provisions by the respondent-company.
2. Irregularities in the respondent-company's operations.
3. Inability of the respondent-company to pay its depositors.
4. Appointment and role of the provisional liquidator.
5. Settlement of claims by the respondent-company.
6. Public interest considerations for winding up the company.

Detailed Analysis:

1. Compliance with RBI Act Provisions by the Respondent-Company:
The Reserve Bank of India (RBI) filed a winding-up petition against the respondent-company under section 45MC of the RBI Act, 1934. The company, a non-banking financial company (NBFC), was required to obtain a certificate of registration under section 45-IA of the RBI Act, which was initially rejected by the RBI. After an appeal, the RBI re-inspected the company and found significant irregularities, leading to the rejection of the registration application again. Consequently, the RBI issued prohibitory orders under section 45MB(1) and section 45MB(2) of the RBI Act, preventing the company from accepting deposits and dealing with its assets without RBI's permission.

2. Irregularities in the Respondent-Company's Operations:
The RBI's inspections revealed serious irregularities, including the intermingling of assets and liabilities among group companies, unauthorized conversion of deposits into shares, bouncing of cheques, and diversion of funds to group concerns. These irregularities were against the interest of the depositors and formed a basis for the RBI's actions against the company.

3. Inability of the Respondent-Company to Pay Its Depositors:
The company had accepted deposits from numerous depositors but failed to repay them, leading to the RBI's petition for winding up on the grounds of the company's inability to pay its debts. The company did not challenge the RBI's order rejecting its registration application, and several directors were arrested by the Economic Offence Wing of the Crime Branch, Delhi Police.

4. Appointment and Role of the Provisional Liquidator:
On 20-7-2000, the court appointed an Official Liquidator as the provisional liquidator to take charge of the company's properties and assets to protect the investors' interests. Restraint orders were also passed, prohibiting the company from encumbering or disposing of its properties and assets. The provisional liquidator's role was to oversee the company's assets and ensure that the interests of the depositors and creditors were safeguarded.

5. Settlement of Claims by the Respondent-Company:
The ex-directors of the respondent-company proposed a repayment plan to settle all claims. The court recorded the proposal and granted time for filing a comprehensive application. The respondent-company submitted that substantial payments were made to settle claims, including a sum of Rs. 2.76 crores received through an agreement with Al-Falah Developers Ltd. and Al-Falah Investment Ltd. The court directed the respondent to file a detailed affidavit listing all settled and unsettled claims and the current status of proceedings before the Metropolitan Magistrate.

6. Public Interest Considerations for Winding Up the Company:
The RBI argued that the company's affairs were conducted irregularly and illegally, and numerous criminal complaints were filed against the company. The RBI contended that it would be in the public interest to wind up the company. The court noted that although all depositors/claimants had been paid, the grounds under clauses (b) and (c) of sub-section (1) of section 45MC still remained. The court emphasized that the winding-up petition was primarily based on these grounds, and the respondent-company's compliance with the RBI Act and the satisfaction of these grounds would determine the final decision.

Conclusion:
The court concluded that the application for recalling the appointment of the provisional liquidator could not be granted at this stage. The main ground for recall was the settlement with depositors/claimants, but the petition was also based on other grounds under section 45MC. The court would consider these aspects after hearing detailed arguments from both parties. The application was dismissed, and the case was scheduled for further arguments.

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