2014 (6) TMI 120 - HC - Companies Law

Use of interest accumulated on the SLR amount - Company under winding up proceedings - Payment to the secured creditors under a One Time Settlement Proposal - whether the petitioner can be permitted to take the interest accumulated on the SLR, for the purpose of discharging their liabilities to creditors other than the depositors - Held that - The only reason as to why the petitioner wants to liquidate and take the SLR investments, is to avail the benefit of One Time Settlement Proposals granted by the Consortium of Banks, some of whom have now assigned the debts to the Asset Reconstruction Company. In the affidavit in support of the writ petition, the petitioner has stated that 5 Banks viz., United Bank of India, State Bank of Patiala, Indian Overseas Bank, State Bank of Saurashtra and Catholic Syrian Bank have assigned the debts in favour of ARCIL and that the amounts repayable to those 5 Banks as on March 2013 was about Rs.43.55 crores and that ARCIL has agreed to take under the One Time Settlement Proposal, a sum of Rs.1,28,02,000. Petitioner has enough justification, at least on facts, for seeking payment of at least the interest accumulated on the SLR reserves. My conviction is further fortified by the offer made by the learned Senior Counsel for the petitioner that the respondent need not even pay any amount to the petitioner or to the Administrator appointed by this Court - if all the secured creditor Banks issue letters of acceptance of OTS Proposals, the respondent cannot have any objection at least to release the amounts claimed by those creditor Banks, most of which are Nationalised Banks and some of them are Scheduled Banks, directly to them. The total amount required for payment to all the 10 Banks under both the Consortiums, works out to only Rs.4,30,40,000/-. Once this amount is paid, the debts to the total tune of about Rs.128,59,13,063/- will get wiped out. The respondent need not even have any suspicion about the motives of the petitioner, since the petitioner is willing to allow the respondent to make payments directly to those Banks. The Reserve Bank of India itself has understood the definition of the word deposit to include the interest accrued thereon. If a Statute confers certain special powers upon a Regulatory Authority to issue directions that have a binding force and also confers powers of exemption upon the same authority, then the way in which such an authority had understood a word contained in the Statute, has to be given weightage. It appears that the Reserve Bank had understood the expression deposit to include the interest accrued thereon. This is borne out by the columns contained in a printed Form of Return to be submitted by every Non-Banking Financial Company at the end of every quarter. Object and purpose of Chapter III-B is to protect innocent depositors. Therefore, the Court is duty bound to adopt that interpretation which will advance the cause for which Chapter III-B was inserted. However hard the case of the writ petitioner may be, it should not lead me to a slippery slope, where other Non-Banking Financial Companies will have an easy escape route. Therefore, I hold on the first question that the amount of investments (SLR) to be maintained by a Non-Banking Financial Company is to be calculated on the aggregate of the principal amount of deposits together with the interests accrued thereon. Non-Banking Financial Company cannot ask for liquidation of either the principal amount lying in SLR or the interest accumulated thereon, for the purpose of paying off anyone other than the depositors - once the dues of the writ petitioner to the ten secured creditor-banks are discharged under a One Time Settlement, all the other assets including the realisables, will become available for the benefit of the entire body of creditors including the depositors. Such a course of action will only enure to the benefit of the depositors, whose interest alone the respondent is seeking to protect under the impugned orders. Therefore, the respondent has enormous powers, to grant general or special exemption or even to permit the petitioner to substitute securities. It is no doubt a discretionary power vested in them, to be exercised in appropriate cases. But I am of the view that in cases of this nature, where the Company Court is monitoring both the recovery of dues to the writ petitioner-company and the payment of dues to the creditors of the petitioner-company, the respondent is obliged to exercise the discretionary power, so that the sufferings of the depositors are also alleviated. The respondent cannot today suspect that the SLR amount may get siphoned off. The petitioner-company is now not in the hands of its promoters but in the hands of an Administrator appointed by this Court in a company petition for winding up. The Court is actually monitoring the recovery and payment. Therefore, I am of the view that directing the Reserve Bank to release the interest accumulated on the SLR, for the purpose of payment to the 10 secured creditor-banks under the One Time Settlement Proposals, will serve the ends of justice - Decided in favour of appellant.

Summary

Issues Involved:
1. Legality of using interest accumulated on Statutory Liquidity Ratio (SLR) amounts for One Time Settlement (OTS) payments.
2. Obligation of Non-Banking Financial Companies (NBFCs) to maintain SLR on principal deposits or on the aggregate of principal and interest.
3. Whether interest accumulated on SLR forms part of the SLR.
4. Discretionary powers of the Reserve Bank of India (RBI) under Sections 45-IB and 45-NC of the RBI Act, 1934.
5. Practical implications and holistic resolution for depositors and creditors.

Detailed Analysis:

1. Legality of Using Interest Accumulated on SLR for OTS Payments:
The petitioner challenged the respondent's order rejecting the request to use interest accumulated on the SLR amount for payment to secured creditors under an OTS proposal. The respondent argued that the SLR and its interest are intended for depositors' security and cannot be used to pay off banks. The court noted that the petitioner has factual justification for seeking the release of interest on the SLR reserves to benefit from the OTS proposals, which would turn the company's net-worth positive and free assets for depositors' benefit.

2. Obligation of NBFCs to Maintain SLR on Principal Deposits or Aggregate of Principal and Interest:
The court examined whether the obligation to maintain SLR is on the principal amount of deposits alone or on the aggregate of principal and interest. It concluded that the total amount of investment to be made in SLR by an NBFC has to be calculated by taking together the principal amount and the interest accrued on the deposits. This interpretation aligns with the RBI's understanding as reflected in the forms and directions issued under the RBI Act.

3. Whether Interest Accumulated on SLR Forms Part of the SLR:
The court discussed whether the interest accumulated on SLR investments forms part of the SLR. It concluded that the market value of a deposit in SLR includes both the principal and the interest accrued thereon. Therefore, the interest accumulated on SLR investments is part of the SLR and cannot be liquidated separately for purposes other than repayment to depositors.

4. Discretionary Powers of the RBI under Sections 45-IB and 45-NC:
The court highlighted the discretionary powers vested in the RBI under Section 45-IB(5) to condone non-compliance with SLR requirements and under Section 45-NC to exempt NBFCs from the provisions of Chapter III-B. It emphasized that the RBI has the authority to grant general or special exemptions or permit substitution of securities in appropriate cases, particularly when the company court is monitoring the recovery and payment process.

5. Practical Implications and Holistic Resolution for Depositors and Creditors:
The court noted that a holistic view is necessary to resolve the problems of depositors, secured and unsecured creditors, and workmen. It recognized that maintaining the SLR without addressing the secured creditors' claims could lead to the company's collapse and eventual winding up, which would not benefit the depositors. Therefore, the court directed the RBI to release the interest accumulated on the SLR for payment to secured creditors under the OTS proposals, ensuring that the depositors' interests are ultimately protected.

Conclusion:
The court allowed the petition, permitting the petitioner to get Letters of Acceptance of OTS proposals from creditor banks and forward them through the court-appointed Administrator to the respondent. The RBI was directed to issue necessary permission to withdraw funds from the interest accumulated on the SLR amounts for payment to the banks, ensuring the total amount does not exceed the interest accumulated. The court emphasized a balanced approach to protect the interests of both depositors and secured creditors.