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TMI Blog2010 (12) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... ence shares. These petitions are filed under section 433(e) and (f) read with section 434 of the Companies Act for winding up of respondent-company. 4. Depositors claim that they had deposited an amount of Rs. 1,00,000 on 10-6-1998 and the said amount is not refunded even after its maturity. Depositors had issued statutory notice on 8-7-1999, which was received by the Company on 27-7-1999, despite the receipt of notice, the Company has not made the payment, it has become incapable of paying the deposited amount whereas the holders of Redeemable Cumulative Preference shares (RCPS) claim that, they are holding 2000, 8000 and 2500 such shares respectively, neither the dividend nor the amount has been paid. Their holding up of shares is nothing but a deposit of money with the Company. Though notice was issued to the Company, however no amount has been paid, as such, the Company has become incapable of paying the amount along with dividend from 1997. The Company replied to the statutory notice stating therein that, Reserve Bank of India has filed a Company Petition for winding up and this Court has appointed a Committee consisting of Justice K.A. Swami, the then Chief Justice of Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been complied with. Between 25-5-1999 to 1-7-1999, the officials of the RBI conducted the inspection. During the course of inspection, it is revealed that the financial position of the respondent-company was very poor, it had defaulted in repayment of matured deposits and had accepted the deposits in violation of the Acceptance of Public Deposit Directions issued by the RBI. In view of the findings recorded during the inspection, RBI issued a show-cause notice dated 9-8-1999 calling upon the respondent-company to show cause as to why its application for certificate of registration should not be rejected. 9. The RBI alleged that, the Company has not maintained the liquid assets in the form of unencumbered approved securities at the specified percentage of its outstanding deposits during the period between April 1998 and March 1999 and the said act of the Company is violative of section 45-IB(1) of the Act. By 31-3-1999, the public deposits aggregating Rs. 374.46 lakhs had matured for repayment including aggregate deposit of Rs. 128.15 lakhs in 578 deposit accounts, which were claimed for repayment but had not been repaid. It increased to Rs. 972.94 lakhs as against the deposit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idance Note issued by the Institute of Chartered Accountants of India, which is violative of paragraph 5 of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 (for short "Prudential Norms Directions". 16. Respondent-company has not provided for depreciation in investment to the extent of Rs. 276.94 lakhs and has thereby violated the provisions of paragraph 6 sub-para (2) of the Prudential Norms Directions. 17. Respondent-company did not classify certain leased assets in accordance with the norms stipulated for classification of Non-Performing Assets. The respondent-company has thereby violated the provisions of paragraph 7 sub-para (1) of the Prudential Norms Directions. 18. The amount of provisions made by the respondent against Non-Performing Assets was found to be less than the provisions required to be made. The shortfall in provisioning was to the tune of Rs. 3,274.11 lakhs, which is violative of paragraph 8 of the Prudential Norms Directions. 19. The realizable value of assets of the respondent-company at Rs. 11,853.12 lakhs was less than its outside liabilities at Rs. 17,404.21 lakhs, as such, the respondent-company cannot be deemed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not maintain liquid assets during the period from April 1998 to March 1999, though it was directed to comply with the same. Respondent-company holds Indira Vikas Patras (IVPs). Respondent-company had reckoned accrued interest on IVPs towards compliance of the requirement of maintaining liquid assets however, IVPs are not quoted securities nor they have any prefixed surrender value before maturity. Respondent-company has defaulted in making the repayments of deposits on its maturity, the liquidity is totally mismatched. In the reply, the respondent Company admitted, the default in repaying of deposits on the date of maturity and several depositors have also approached the Company Law Board. The resolution of the company to mobilize fresh deposits is in violation of the RBI directions, not paying the interest between the date of maturity and payment, etc., were all considered by the R.B.I. and found that the reply given is not satisfactory. 22. The amount of provisions made by the respondent-company against Non Performing Assets was found to be less than the provisions required to be made. The shortfall in provisioning was Rs. 3,274.11 lakhs. Respondent-company has understated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to directions found that the Company is required to be wound up in the larger interest of the public and in particular, the interest of the depositors, bankers and creditors. Accordingly, sought for winding up of the Company. 24. Similarly, some of the depositors, shareholders have also filed company petitions, as the Company did not repay the deposit amount on its maturity and also the amount due to them. 25. On service of summons of the Company Petition, the respondent-company filed the statement of objections inter alia stating that, two legal proceedings, one before the Company Law Board under section 45QA of the Act and another before the Appellate Authority for NBFCs are pending. Therefore, winding up petition filed now has no bona fide as it would result in the said two legal proceedings becoming infructuous. Respondent-company has filed an appeal CA 128/1999 against the order of rejection of grant of certificate of registration. Therefore, the said order cannot be treated as having become final. Company has also filed an application CA 307/2000 for staying the winding up proceedings. Apart from this, it also stated that, Company is worth of more than Rs. 100 crores. Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent. The new Directors of the Company inducted on 27-7-1999 are striving hard to revive the Company and RBI has been kept informed of the progress and RBI has been informed of the difficulty faced. The Chief Executive, Chief General Manager and two General Managers are all experienced persons. In order to revive the Company, various officers were examined. Meetings of the shareholders have been conducted. If the winding up is to be ordered now, all the efforts made become close chapter and to meet the ends of justice, court should not allow the winding up petition. On these and various other contentions, the respondent-company opposed the company petition for winding up. 26. This Court by order dated 6-1-2000 directed the petitioner to serve copy of the petition along with Annexure and also copy of the application on the respondent. By order dated 14-1-2000, this Court, disposed of Company Application Nos. 3/2000 and 307/2000 filed in Company Petition No. 2/2000, wherein, appointment of provisional liquidator under section 45-O of the Act was sought and also for stay of company proceedings, as an appeal is pending before the Appellate Authority for non-banking financial company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff at their disposal. The Company was directed to handover the movables of the Company to the committee. The first task of the committee was to make the payment of all the depositors on pro rata basis. Out of SLR amount, RBI agreed to give such permissions, the officers of the Company also undertook to give full co-operation to the committee. Committee was requested to submit its report once in three months. In pursuance of this order, the committee took charge of the company and from time to time it has submitted its report, nearly more than 33 reports have been submitted in the matter of affairs of the company and the action taken by the committee and all are accepted by this Court. In the Company Petition, an application No. 312/2002 under Rule 9 of the Company Court Rules, 1959 was filed for approval of the arrangement made between the committee of the management and the landowners. The said application was filed by the committee. This Court after hearing, by its order dated 29-5-2003 has accepted the offer of the owners for return the lands to the owners with all the liabilities and responsibilities accepted by company and salvage what is possible and minimize returns with min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Understanding entered into between the Committee of Management and land owners, the joint development agreement entered into by the Company and the Developers stood cancelled. The Company Petitions were heard from time to time and during the pendency of the Company Petition committee of management also filed its report as directed and several company applications were filed and were disposed of. This Court also granted an opportunity to the respondent Company to explore the possibility of reviving the Company and in this regard the Company also had filed revival scheme. Another Company Application No. 1024/2005 by the land owners was filed for approval inter alia seeking approval of the MOU dated 6-5-2002 as ordered in Company Application No. 312/2002. The said application was allowed by this Court by order dated 31-3-2008. This Court after considering the earlier applications and orders passed thereon and OSA No. 13/2003 against the order on Company Application No. 312/2002 recorded the submission of the counsel for the Company that, it has no objection to accept the MOU subject to enhance the consideration of Rs. 4 crores. This Court found that, there are 20 landowners on Sy. Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany has accepted the deposits. In this regard, show-cause notice was issued to the Company as to why its application for registration should not be rejected. In the show-cause notice, RBI has stated the ground of the failure of the Company in its purpose and acting in contravention of the provisions of the Act. The RBI after considering the reply by the Company, has rejected the application for grant of Certificate of Registration to carry on business. The Company has admitted that, it has not repaid the amount to the depositors on the maturity. It is also admitted that, no interest is paid for depositors for delayed payment. It is also not in dispute that, the net worth of the assets of the company is less than the outside liability. Further, the joint development agreement to develop the properties between the Company and the developers has been cancelled. Landowners have taken over the lands for the development and the same has been accepted by this Court. Without there being Certificate of Registration, the company has accepted the deposits. The assets of the Company is worth of Rs. 37 crores and Rs. 7 crores, whereas, Rs. 60 crores is the outstanding liability. These facts w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, even from showing of the Company, it is clear that, it is not in a position to revive, even the proposed scheme would not ensure profit, but it may result in loss and the main object with which the Company was incorporated is no more in existence. Therefore, when the main object of the Company cannot be fulfilled, the question of Company continuing also does not arise. 36. He further relied on the judgment reported in Nagavarapu Krishna Prasad v. Andhra Bank Ltd. [1983] 53 Comp. Cas. 73 (AP) and submitted that, it is not permissible to change the business of the Company for which it is incorporated when substratum of the Company has lost. If the Company has failed on various grounds of contravention of the provisions of the Act, failure by the Company to maintain the requisite liquid assets, its negative net owned fund, its high percentage of non-performing assets, short provisioning and failure to observe credit exposure norms. The continuance of Company as a non-banking financial institution would be detrimental to the public interest and to the interest of the depositors. In such circumstances, petition under section 45MC of the Reserve Bank of India Act, 1934 for winding u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997. The company has filed an appeal questioning the order of rejection of the application for registration. 41. Non-banking company can continued to act while its application is pending and till it is rejected there is no bar, the transactions of the company are bona fide transaction. 42. He relied on the order passed in OSA 13/2007 and submitted that, the direction by the Division Bench was to accept the better offer. The management had proposed to protect the interest of the depositors by increasing the bid amount to Rs. 4 crores. However, it is not taken into consideration in right spirit from the beginning of the constitution of the committee for management, Company has been supporting the interest of the depositors, it had never failed in its act. He relied on the revised revival scheme and submitted that, the management is ready to deposit Rs. 10 Crores subject to acceptance of the revised revival scheme. Now the market has improved and the Company is in position to revive its scheme and sought for acceptance of the revised revival scheme. He also submitted that, as against the claim of 26 crores as income-tax, the appeal is pending before the Appellate Tribunal. It is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny it is admitted that, on account of rescission of lack of recovery, the re-payment has not been made. In the connected petitions filed by the depositors and the redeemable cumulative preference shareholders it is stated that, the Company has not made the payment, it has not paid the dividend from 1997. The properties of the Company were also auctioned by the committee and the owners of the lands have purchased the same which is also accepted by this Court. The committee constituted by this court has submitted several reports and ultimately the members of the committee have requested the Court to relieve them from the management. Even the Special Officer of the Reserve Bank of India has also made a request to revive him from the management. The committee has opined that, there is no possibility of revival of the Company. All attempts made by them have failed and it is also not possible to re-pay the amount to the depositors, as the outstanding liability is more than the assets. As far as possible, the committee of management has disbursed the amount to the depositors. The revival scheme proposed by the company also do not ensure its source of income, does not show as to how the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is a reference to real estate business, it is not substantial business for which company is incorporated. 51. There is no prohibition for the Company Court to consider the Company Petition under section 45MC of the RBI Act even on the ground that, the application is pending before the Company Law Board. If the continuation of the respondent company as a non-banking financial institution would be detrimental to the public interest and to the interest of the depositors, a petition under section 45MC of the RBI Act is certainly maintainable. 52. From the material on record it cannot be disputed that, (i)Company carried on non-banking financial business without having certification of registration under section 45-IA of the RBI Act. (ii)Its attempt to revive is not substantially the same business, but it is some other business, which is not the main business of the company. (iii)The realisable assets of the Company is much less than the outstanding debt. It is totally disproportionate to the assets. (iv)The depositors' amounts have not been paid on maturity and in case whether they are paid, they are not paid with interest for the delayed payment. (v)Some of the assets have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qualified to carry on the business of a non-banking financial institution and, therefore, the Reserve Bank was justified in praying for the winding up of the company under clause (b) of section 45MC of the Act. The company had not challenged, the dental of grant of registration certificate. Admittedly, show-cause notice was issued to the company and the company was given an opportunity to explain the position which the company failed to do. Therefore, winding up of the company was to be ordered and advertised in four daily newspapers two of which would be in vernacular in the State." 54. Similarly as held in a decision in the matter of Kaithal Cotton & General Mills Co. Ltd.'s case (supra) at para 6, which reads as under: "The usual tests for determining whether the substratum of the company has disappeared are when (a) the subject-matter of the company is gone, or (b) the object for which it was incorporated has substantially failed, or (c) it is impossible to carry on the business of the company except at a loss which means that there is no reasonable hope that the object of the trading at a profit can be attained, or (d) the existing and probable assets are insufficient to mee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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