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2024 (10) TMI 1468 - HC - Companies LawOppression and Mismanagement - Maintainability of the present writ petition preferred by the petitioner company invoking Article 226 of the Constitution of India, 1950 - seeking issuance of directions to respondent No. 1/RBI to initiate action against respondent No. 2 company i.e. Exclusive Capital Limited in terms of the provisions contained in Chapter IIIB of the Reserve Bank of India Act, 1934 - HELD THAT - It is well ordained in law that a writ of mandamus lies where there is shown a failure to exercise the powers vested in statutory authorities and delay in exercise of its powers might bring about irreparable injuries to statutory rights. Despite repeated reminders, the present management of respondent No. 2 company has not shared several details in the nature of organizational structure of the respondent No. 2 company, list of secretarial records, statutory compliances, detailed particulars of all the managerial personnel (current and former) scope of their respective roles/responsibilities along with the details of their remuneration/perks and benefits, in particular the copies of the audited and unaudited financials of the company with schedule and trial balances besides the list of list of receivables and payables besides list of secured and unsecured creditors, and such non-compliances assumes significance that all is not well in running the affairs of respondent no. 2 company by the present management. It would be expedient to point out that the respondent No. 2 company in its reply-cum-affidavit through Mr. Achal Kumar Jindal dated 25.09.2024, filed in response to the Status report filed by the respondent No. 1/RBI dated 13.08.2024, has simply made bald denial with regard to the issues and concerns which have been raised by the respondent No. 1/RBI. It is stated that in order to restore the leverage ratio, the OCDs were converted into the CCPS vide the resolution dated 27.09.2022. As regards the OCDs of Rs. 315 crores, having been received without permission, it is sought to be canvassed that it neither qualifies to be a public fund nor Regulation 61 of 2016 of the RBI Master Directions are applicable. The decision in the case of Krishnakrupa Owners Association v. Reserve Bank of India was rendered in the context of decision taken by the RBI under Section 39A of the Banking Regulation Act, 1949, whereby certain conditions had been imposed on the petitioner including the restrictions, which restrained the respondent No. 3 from paying more than Rs. 10,000/- to its depositors. The High Court refused to exercise its jurisdiction and interfere in the banking affairs of the respondent No. 3 since it was held that the RBI, which was an expert body, was already seized of the matter. Thus, finding no legally sustainable challenge to the maintainability of present writ petition, and given that it is evident that respondent No. 1/RBI has thus far failed to exercise its supervisory powers, it becomes imperative that certain directions be issued to respondent No. 1/RBI to intervene in the matter and to ensure the enforcement of binding regulations provided under the RBI Act. There are cogent and ample material on the record that warrant full and thorough inquiry into the affairs of the respondent No. 2 company. It is hereby directed that the Board of Directors of respondent no. 2 company shall remain suspended with immediate effect till further orders - Re-notify for compliance on 02.12.2024.
Issues Involved:
1. Maintainability of the writ petition under Article 226 of the Constitution of India. 2. Alleged mismanagement and financial improprieties by the respondent No. 2 company. 3. The role and supervisory powers of the Reserve Bank of India (RBI) under Chapter IIIB of the RBI Act, 1934. 4. The legality of financial transactions and compliance with RBI regulations. 5. The necessity of judicial intervention and issuance of mandamus. Issue-wise Detailed Analysis: 1. Maintainability of the Writ Petition: The primary issue addressed was the maintainability of the writ petition filed under Article 226 of the Constitution of India. The petitioner company sought directions for the RBI to take action against respondent No. 2 company, alleging mismanagement and financial improprieties. The court noted the supervisory role of the RBI as outlined in Chapter IIIB of the RBI Act, emphasizing that the RBI's oversight extends from the registration of an NBFC to its winding up. The court found that the petitioner had a legitimate expectation that its investment would not be mismanaged, thus justifying the maintainability of the writ petition. 2. Alleged Mismanagement and Financial Improprieties: The petitioner alleged significant mismanagement by respondent No. 2 company, including siphoning off funds and non-compliance with financial duties. The court observed that the company had failed to submit essential financial documents to the RBI and had engaged in transactions without necessary approvals, such as converting optionally convertible debentures (OCDs) into compulsorily convertible preference shares (CCPS) without RBI's permission. The court noted that these actions breached the leverage ratio and other regulatory requirements, raising concerns about the company's financial governance. 3. Role and Supervisory Powers of RBI: The court extensively discussed the RBI's supervisory powers under Chapter IIIB of the RBI Act, which provides a comprehensive framework for regulating NBFCs. It highlighted the RBI's authority to oversee NBFC activities from inception to winding up, as affirmed by the Supreme Court in the case of Nedum Pillai Finance Company Limited. The court emphasized that the RBI's role is crucial in ensuring compliance with financial regulations and protecting the interests of stakeholders. 4. Legality of Financial Transactions and Compliance with RBI Regulations: The court scrutinized the legality of financial transactions conducted by respondent No. 2 company, particularly the issuance and conversion of financial instruments without RBI approval. The court found that these transactions violated RBI regulations, including the upper ceiling of the leverage ratio. The failure to submit financial returns and the presence of allegations against the company's management further underscored the need for regulatory scrutiny. 5. Necessity of Judicial Intervention and Issuance of Mandamus: The court considered the necessity of judicial intervention to compel the RBI to exercise its supervisory powers. Citing precedents, the court asserted that a writ of mandamus is warranted when a statutory authority fails to fulfill its duties, potentially causing irreparable harm. The court directed the RBI to intervene and ensure compliance with its regulations, appointing an Interim Committee of Administrators to oversee the respondent No. 2 company's affairs and prevent further financial mismanagement. Conclusion and Directions: The court concluded that the writ petition was maintainable and warranted intervention due to the significant concerns regarding financial mismanagement by respondent No. 2 company. The court issued several directions, including the suspension of the company's Board of Directors, appointment of an Interim Committee of Administrators, and a special audit of the company's financials. The RBI was instructed to take necessary actions to safeguard the interests of stakeholders and ensure compliance with its regulations. The court emphasized that these measures were essential to prevent further misappropriation of funds and protect the petitioner's investment.
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