Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding
  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2003 (7) TMI 488

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... und of the Company was (-) Rs. 886.66 lakhs on March 31, 1997 but the public deposits held by the Company were to the extent of (+) Rs. 737 lakhs as on March 31, 1999. The Capital to Risk Weighted Assets Ratio (CRAR) was assessed to be nil . The outside liabilities of the company were rupees 1167.99 lakhs. In the circumstances, the RBI was of the opinion that Company was not solvent. It is the case of the RBI that the Company failed to maintain liquid assets as provided by section 45-IB of the RBI Act. The company also violated concentration norms and had high level of Non Performing Assets (NFA). The Company was found to have invested amounts in the immovable property. The RBI discovered that the respondent company had advanced huge sum to Himachal Grameen Sanchayaka (a partnership firm), Sanchayaka Mail, (a proprietary concern) and Sanchayaka India Ltd., in which the Directors of the Company were interested. Audit report disclosed that the Company had violated the various provisions of the Non-banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. The RBI scrutinized the books of the Company on August 9, 1998, which disclosed flagrant violat .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... perties with necessary detailed particulars held by your company as on that day alongwith your plan of action for repayment of entire deposits liabilities with fund flow and repayment schedule of deposits. The said information should reach this office within a period of thirty days from the date of receipt of this direction". RBI on January 18, 2000 passed an order under sub-section (1) of section 45MB of the RBI Act. In the order, noticing the circumstances, RBI observed that it was satisfied that it was imperative to take immediate action to protect the interests of the Depositors in public interest, as any delay would result in irreparable damage to the depositors. The Company was prohibited from accepting any deposit (s) from any person (s) in any form by way of renewal or otherwise. The Company was directed to comply with the order passed by the RBI by taking appropriate steps. On the same day, by a separate order, under sub-section (2) of section 45MB of the RBI Act, the RBI directed the Company not to sell, transfer, create charge, mortgage or deal with, in any manner, its properties and assets without a prior written permission of the RBI until further orders. 5. The .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... property, assets, books of account and other relevant papers and documents. 8. An appeal was carried by the Company (Company Appeal No. 3 of 2001), which was dismissed by a Division Bench of this Court on December 13, 2001. 9. The RBI, by this petition, prays for winding up of the Company on the grounds that the Company is unable to pay its depositors and the continuance of the respondent Company is detrimental to the public interest and interest of the depositors of the Company. Section 45 of the RBI Act provides for winding up of Non-Banking Financial Companies at the instance of the RBI. Section 45MC of the RBI Act reads: " Power of bank to file winding up petition . (1) The bank on being satisfied that a non-banking financial company. ( a )is unable to pay its debt; or ( b )has by virtue of the provisions of section 45-IA become disqualified to carry on the business of a non-banking financial institutions; or ( c )has been prohibited by the bank from receiving deposit by an order and such order has been in force for a period of not less than three months; or ( d )the continuance of the non-banking financial company is detrimental to the public interest or to .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... leaving the depositors high and dry and without any forwarding address. This had panic reaction. The staff of the field offices of the Company ceased to work and left employment. It was in these circumstances that the reply to the show-cause notice could not be given to the RBI. The rejection of the application, for the grant of certificate of registration, in the circumstances, was bad and not legal. The contention is misplaced. The Company does not deny the allegations of the RBI about the net owned fund of the Company to be in minus on March 31, 1997 itself. Public deposits held by the Company far exceeded which were more than rupees 797 lakh as on March 31, 1999. It is also non-specifically denied that CRAR of the Company was nil and outside liabilities of the Company amounted to rupees 1167.99 lakh against the nil worth of the Company. There is also no answer about the high level of non-performing assets. The fact remains that the Company failed to satisfy the statutory conditions for the grant of registration as stipulated under section 41-IA of the RBI Act. 12. Sub-clause ( b ) of section 45-IA (1) provides that non-banking financial institution cannot carry on th .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... the application of the respondent company for the grant of certificate by the RBI under section 45-IA, the company became disqualified to carry on the business of non-banking financial institution and, therefore, the Reserve Bank is justified in praying for the winding up of the company under clause ( b ) of section 45 MC of the Act. The RBI, as noticed earlier, prohibited the Company from accepting deposit(s) from any person and alienation of assets or otherwise under section 45MB(1) of the Act. 16. All the events noticed above point out that continuance of the company is detrimental to the interests of the depositors of the Company as also public interest and the mischief would also fall under clause ( d ) of sub-section (1) of section 45MC. 17. The only contention raised by Mr. Y. Paul, learned counsel for the respondent Company, during the hearing, was that his application, under section 391(1) of the Companies Act, for convening the meeting of equity shareholders, secured and un-secured creditors may be allowed and the Company may be permitted to dispose of its assets after the realization of the amount, same will be utilized for repayment of debts, liabilities and re .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... r and contributories of the company : Provided that no order sanctioning or compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor s report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251 and like. (3) An order made by the Court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. (4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued to the instrument constituting or defining the construction of the company. (5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable wit .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates