2025 (3) TMI 671 - HC - Indian Laws

Maintainability of writ petition filed under Article 226 of the Constitution of India against the Reserve Bank of India (RBI) for failing to exercise its powers under the RBI Act - alleged siphoning of funds and misappropriation in the ECL - HELD THAT - The Coordinate Bench of this Court vide order dated 9th August 2024 2024 (8) TMI 1466 - DELHI HIGH COURT found the abovementioned appeal to be premature as the order assailed was only with regards to the issuance of notice and held that the matter requires examination. It was also observed by the Coordinate Bench of this Court that the parties may take all their arguments on the maintainability as well as merits of the writ petition before the learned Single Judge. The respondent no. 1 in the writ petition has sought for a direction to the RBI to exercise its power under Chapter IIIB of the RBI Act governing NBFCs. It has been contended therein that the RBI has the power under Section 45IE of the RBI Act to supersede the Board of Directors of an NBFC and to conduct a special audit under Section 45MA of the RBI Act. The main grievance of the respondent no. 1 (writ petitioner) is that there is a failure to exercise the power by the RBI in relation to the affairs of ECL - This Court has taken notice of an email dated 24th May 2024 issued by the RBI to ECL noting the violations committed by the ECL. Despite taking note of all the irregularities committed by the ECL the RBI has not taken any action against ECL till date. In the case of CAG vs. K. S. Jagannathan Anr. 1986 (4) TMI 344 - SUPREME COURT the Hon ble Supreme Court held that a writ of mandamus can be issued where there is a failure to exercise power vested with a public authority. Thus it is crystal clear that a duty is implied by the vesting of statutory power upon a public authority. Further the performance of such duty can be secured by proceedings under Article 226 of the Constitution of India. The respondent no. 1 has sought for the interference of the learned Single Judge considering the failure of RBI to act in exercise of its power under Chapter-III-B and more particularly Section 45-IE and Section 45MA of the RBI Act. Such reliefs claimed are therefore clearly maintainable in proceedings under Article 226 of the Constitution of India. Issuance of writ of mandamus to the RBI to exercise its jurisdiction is not and could not have been the subject matter of the NCLT proceedings - HELD THAT - The learned NCLT has no jurisdiction to issue prerogative writs to RBI to exercise such powers under the RBI Act. Therefore this fact has no bearing on the merits of the dispute or such that is determinative of the outcome of these proceedings since the existence of the NCLT proceedings is duly disclosed and considered by the learned Single Judge while passing the impugned order. This Court has also taken note of the report of the learned Observer in which it has been clearly observed that despite repeated reminders the management of ECL has not shared several details regarding the nature of organizational structure of ECL 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. It is also observed that non-compliance of another direction of the learned Observer in the light of the order of learned NCLAT and such non-compliances assumes significance that the affairs of the ECL are not being managed rightly by the present management. Conclusion - i) A writ of mandamus can be issued to compel a public authority to exercise its statutory powers when there is a failure to act. ii) The RBI as a regulatory authority has a duty to act upon discovering regulatory breaches by an entity under its supervision. Failure to do so can warrant judicial intervention under Article 226. iii) The existence of proceedings before specialized tribunals like the NCLT and NCLAT does not preclude the High Court s jurisdiction to issue writs of mandamus when the relief sought pertains to the exercise of statutory powers by a regulatory authority. iv) The principles of natural justice are upheld when parties are given a fair opportunity to present their case and the Court found that such opportunity was provided in this instance. The instant letters patent appeal is dismissed being devoid of any merits.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

1. Whether the writ petition filed under Article 226 of the Constitution of India was maintainable against the Reserve Bank of India (RBI) for failing to exercise its powers under the RBI Act.

2. Whether the learned Single Judge exceeded the scope of jurisdiction by issuing directions that were beyond the reliefs sought in the writ petition.

3. Whether the principles of natural justice were violated by the learned Single Judge by not allowing the appellants to be heard on the merits of the case.

4. Whether the writ petition was maintainable despite the pendency of proceedings before the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT).

ISSUE-WISE DETAILED ANALYSIS

1. Maintainability of the Writ Petition

The relevant legal framework involved Article 226 of the Constitution, which allows High Courts to issue directions to any person or authority for the enforcement of rights. The Court considered whether the RBI's inaction constituted a failure to exercise its statutory powers under the RBI Act, thereby justifying the issuance of a writ of mandamus. The Court noted that the RBI had supervisory concerns regarding the management of ECL, including breaches of the leverage ratio and unauthorized issuance of debentures. The Court held that the writ petition was maintainable as the RBI had failed to act on these concerns, which warranted judicial intervention.

2. Scope of Jurisdiction and Directions Issued

The appellants argued that the learned Single Judge had exceeded the jurisdiction by issuing directions beyond the reliefs sought in the writ petition. The Court examined whether the directions issued were within the ambit of the writ petition. It was found that the directions were aimed at ensuring compliance with the RBI's regulatory framework and protecting the interests of stakeholders, which were within the scope of the writ petition.

3. Principles of Natural Justice

The appellants contended that they were not given an opportunity to be heard on the merits of the case, violating the principles of natural justice. The Court reviewed the proceedings and found that the parties had been given ample opportunity to present their arguments on both the maintainability and merits of the case. Therefore, the Court concluded that there was no violation of natural justice.

4. Pendency of Proceedings Before NCLT and NCLAT

The appellants argued that the writ petition was not maintainable due to ongoing proceedings before the NCLT and NCLAT. The Court considered whether the reliefs sought in the writ petition could be addressed by these tribunals. It was determined that the NCLT and NCLAT did not have the jurisdiction to issue writs of mandamus to the RBI, and thus, the writ petition was maintainable. The Court also noted that the RBI's regulatory role was distinct from the issues being adjudicated by the NCLT and NCLAT.

SIGNIFICANT HOLDINGS

The Court established several core principles:

1. A writ of mandamus can be issued to compel a public authority to exercise its statutory powers when there is a failure to act, as highlighted in the case of CAG vs. K. S. Jagannathan & Anr.

2. The RBI, as a regulatory authority, has a duty to act upon discovering regulatory breaches by an entity under its supervision. Failure to do so can warrant judicial intervention under Article 226.

3. The existence of proceedings before specialized tribunals like the NCLT and NCLAT does not preclude the High Court's jurisdiction to issue writs of mandamus when the relief sought pertains to the exercise of statutory powers by a regulatory authority.

4. The principles of natural justice are upheld when parties are given a fair opportunity to present their case, and the Court found that such opportunity was provided in this instance.

The Court upheld the findings of the learned Single Judge regarding the maintainability of the writ petition and dismissed the appeal, affirming that the RBI's inaction warranted judicial scrutiny and intervention.