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TMI Blog2023 (6) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... as such, Chapter IIIB governs the functioning of the petitioner s company as well - Chapter IIIB operates in particular spheres. Whereas a variety of functioning of NBFCs is covered by the directions contemplated in Chapter IIIB, very few of the same are pertinent in the present context. As for example, Section 45 IA pertains primarily to requirement of registration and net owned fund, Section 45 IB to maintenance of percentage of assets and 45 IC to reserve fund. Section 45 ID deals with the power of the bank to remove directors from office and Section 45 IE with supersession of Board of Directors of NBFCs other than Government Companies. Section 45 J pertains to regulation or prohibition of issue of prospectus of advertisement soliciting deposits of money. It is relevant to mention here that the Escrow Account was created in terms of the order of Court and specifically to deposit the amount which was the subject-matter of the present lis. Hence, the said deposits were sub judice and it was de hors the authority of the RBI to dictate the fate of the same. Moreover, as discussed above, nothing in Chapter IIIB pertains to interest on Escrow Accounts in cases such as the present o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , J:- 1. The writ petitioners had originally challenged the liability of the petitioners to deposit to the Investor Education Protection Fund (IEPF) under Section 125 of the Companies Act, 2013 (hereinafter referred to as, the 2013 Act ), the amount which was kept deposited with the petitioner no. 1-Company after the statutory period of seven years. Orders were passed on June 12, 2019, July 10, 2019 and September 23, 2019, by virtue of which the principal amount of matured deposits lying in the Escrow Account opened with the United Bank of India (UBI) with accrued interest thereon was transferred to the IEPF. The limited question which subsists now is whether the petitioner no. 1-Company is liable to transfer the interest earned on the aggregate escrowed amount (including the principal and the accrued interest thereon) also to the IEPF. 2. Learned senior counsel for the petitioners contends that the petitioner is governed by chapter IIIB of the Reserve Bank of India Act, 1934 (for short, the RBI Act ), including Section 45H to Section 45Q which contains provisions relating to acceptance of deposits by Non-Banking Financial Companies (NBFCs). Chapter IIIB was introduced wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 205C of the Companies Act, 1956, no claim is to lie against the IEPF in respect of deposits transferred to it and lying unclaimed and unpaid for seven years. The same is inconsistent with the provisions of Section 45QA of the RBI Act to frame suo motu a scheme for repayment of such deposits in the interest of the depositors. 7. As held in Nedumpilli Finance Company Ltd. Vs. State of Kerala and others, reported at (2022) 7 SCC 394 , it is argued, after the 1997 amendment, Chapter IIIB has become a complete code in respect of NBFCs and governs those from the cradle to the grave. 8. The RBI, vide letter dated October 31, 2014 issued under Section 45N of the RBI Act, had advised the petitioner no. 1 to escrow the aggregate deposit liability not later than three months therefrom. The same is required to be treated as a direction of the RBI under Chapter IIIB since it was to be placed by the petitioner no. 1 before its Board of Directors and furnish a compliance report to the RBI within 30 days, with a Board Resolution. 9. The RBI issued a clarificatory letter on February 3, 2015. By a subsequent letter dated June 29, 2015, the RBI advised the petitioner that it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zak Memon Vs. State of Maharashtra, reported at (2013) 13 SCC 1. 14. The RBI Act being a special legislation, Chapter IIIB and directions thereunder prevail over the general provisions of the Companies Acts of 1956 and 2013. In support of the said argument, learned senior counsel for the petitioners cites Damji Valji Shah and another Vs. LIC and others, reported at AIR 1966 SC 135. 15. Furthermore, neither of the Companies Acts contains a non obstante clause. 16. In any event, it is argued that the petitioner no. 1 is entitled to utilize the interest earned on the fixed deposits and the investments made in the Escrow Account because the petitioner no. 1 has not been using the amounts deposited therein from the deposit of the unclaimed amount to the Escrow Account and is therefore not doing any business by using such sums and as such, the petitioner cannot be denied the interest accruing on the aggregate escrowed amount, since the petitioners did not have the benefit of using such sums. 17. Moreover, the petitioner no. 1 has been assessed for Income Tax on the interest accrued on the aggregate escrowed amount and has utilized the same for defraying wages, staff sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, in the garb of the pending challenge to the provisions of the Act, have enjoyed the interest on the amount which was not due to it. The amount in the Escrow Account which was unclaimed and unpaid for more than seven years was not the property of the Company as it was due to the IEPF. Had the amount been transferred in time to the IEPF, the Company would not have any occasion earn any interest and hence, the Company enjoyed undue gains at the cost of the public exchequer. 24. As far as refund due to the claimant is concerned, Section 125(3) of the 2013 Act provides for refund in respect of the unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon, which takes care of the refund of unclaimed deposits to the claimant (depositor) from IEPF. 25. According to Rule 3(4) of IEPF (Accounting, Audit, Transfer and Refund) Rules, 2016, all the amount under IEPF is maintained in a non interest-bearing public account maintained under the Consolidated Fund of India. Hence, notwithstanding the rights of the claimant, the undue gain earned by the Company is at the cost of the Consolidated Fund of India held under the Uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued at a point of time when an interim order was operative in WP 1558 (W) of 2007 and no direction was given by this Court regarding transfer of any interest component. 32. The plea of Peerless on the said letter is one of estoppel. However, it is settled law that there cannot be any estoppel against the statute. In such context, learned senior counsel for the RBI places reliance on (2022) 6 SCC 626 [Augustan Textile Colours Limited (Now Augustan Textile Coulours Private Limited) Vs. Director of Industries and another], and 2022 SCC OnLine DEL (DB) 1617 [Delhi and District Cricket Association Vs. Assistant Commissioner of Central Tax]. 33. No plea of waiver is also available against RBI as the right to claim such interest is not a right of the RBI, but a right of the IEPF, which is a fund constituted by the Government of India. It is well-settled that one can only waive one s own right. Reliance is placed in this context on AIR 1979 SC 621 [Motilal Padampat Sugar Mills Co. Ltd. Vs. State of Uttar Pradesh and others]. 34. Peerless is governed by Chapter IIIB of the RBI Act, which is a complete Code in respect of the business of NBFCs. The RBI Act is a Parliamentar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e RBI cites (1977) 1 SCC 340 [State of Haryana and another Vs. Chanan Mal and others]. 39. In view of the specific provisions of sub-sections (2)(i) and (1)(k) of Section 125 of the 2013 Act, the petitioners contention to the contrary is liable to be rejected and the interim order passed in WP No. 1558 (W) of 2007 (which is subsisting) passed before the 2013 Act came into effect, is liable to be vacated. 40. The consequence of such interim order being vacated is that the Peerless has no right to retain the unclaimed deposits and interest accrued on such deposit. It has enjoyed the benefits of retaining such deposits with interest earned thereon by virtue of the interim order passed in WP No. 1558(W) of 2007. If the said writ petition is dismissed because of the reasons indicated above and the subsisting interim order is vacated, it is argued by the RBI that the Peerless is to be directed to transfer to IEPF the whole amount of unclaimed deposit together with interest accrued on it as required under Section 125(2)(i) and (k) of the 2013 Act. 41. Learned senior counsel for the RBI, in such context, places reliance on (2011) 12 SCC 518 [State of Rajasthan and another V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eported at (1979) 4 SCC 565, it is argued, cannot help the petitioner s case, which should be evident from the passages quoted by the Supreme Court in paragraph 9 itself, which make it clear that the courts are not bound by administrative instructions, though administrative authorities are. 48. It is argued by the RBI that the reliance on the principle laid down in Central Coal Fields Limited and another Vs. SLL-SML (Joint Venture Consortium) and others, reported at (2016) 8 SCC 622 is misplaced in the present case. There is statutory compulsion in sub-section (2)(c) and (e) of Section 205C of the 1956 Act and Section 125 of the 2013 Act regarding transfer of unclaimed deposits and interest to the IEPF. The present case is not one of tender or any administrative dealing, it is pointed out. 49. Hence, the respondents argue that the writ petition ought to be dismissed on merits. 50. The dispute, at present, has boiled down to the entitlement regarding the interest on the deposits made by the petitioner in the Escrow Account, pursuant to the order of this Court. The liability to pay the principal dues with regard to the unclaimed accounts, accumulated after the expiry o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r IIIB of the RBI Act pertains to certain provisions specifically relating to non-banking institutions receiving deposits and to financial institutions, insofar as such disputes are concerned. 58. Non-banking Financial Company , as per Section 45I(f) of the RBI Act, includes a financial institution which is a company. On the other hand, a financial institution means any non-banking institution which carries on as its business financing, whether by way of making loans or advances or otherwise of any activity other than its own. 59. The Peerless, that is, the petitioner, is squarely covered under the said definition and, as such, Chapter IIIB governs the functioning of the petitioner s company as well. 60. However, Chapter IIIB operates in particular spheres. Whereas a variety of functioning of NBFCs is covered by the directions contemplated in Chapter IIIB, very few of the same are pertinent in the present context. As for example, Section 45 IA pertains primarily to requirement of registration and net owned fund, Section 45 IB to maintenance of percentage of assets and 45 IC to reserve fund. Section 45 ID deals with the power of the bank to remove directors from office a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osite reading of Chapter IIIB, none of the Sections thereunder are seen to deal with interest on the amounts deposited in Escrow Accounts or accounts of like nature, by an NBFC, the principle of which it is liable under law to pay to some other authority. 67. Looking from such perspective, the communications made by the RBI, which are relied on by the petitioner, are not directions within the contemplation of Chapter IIIB at all. Hence, there is no question of any applicability of the said provision in the instant case. 68. That apart, per se, there is no conflict or militancy between Chapter IIIB of the RBI Act and Section 125 of the 2013 Act as well as Section 205C of the 1956 Act. 69. Moreover, the communication dated February 3, 2015, which was indicated to be a part of the letter dated October 31, 2014, could not be on a higher footing than the communication dated October 31, 2014. 70. The said communication dated October 31, 2014 was in the context of an inspection held under Section 45 N of the RBI Act with reference to financial position as on March 31, 2014. In such background, an inspection under Section 45 N was carried out and certain shortcomings in the ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed October 31, 2004, merely contained answers to the queries of the petitioner-Company by the RBI and could not attain the character of directions under Chapter IIIB of the RBI Act. 76. In one of the clauses thereof, against the query as to whether the interest on FDRs in Escrow Account would be accrued to the Company or not, a clarification was given by the RBI to the effect that subject to the rider, any interest received by the Company on investments in FDs/government securities would be available to the Company. 77. However, it is relevant to mention here that the Escrow Account was created in terms of the order of Court and specifically to deposit the amount which was the subject-matter of the present lis. Hence, the said deposits were sub judice and it was de hors the authority of the RBI to dictate the fate of the same. Moreover, as discussed above, nothing in Chapter IIIB pertains to interest on Escrow Accounts in cases such as the present one. Even if the RBI advised the petitioner that any interest received by the Company on investment in FDs/government securities would be available to the company, the same pertained only to interest received by the company . How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in pursuing class action suits and any other purpose incidental thereto. Sub-section (4) of Section 125 provides that any person claiming to be entitled to the amount referred to in sub-section (2) may apply to the authority constituted under sub-section (5) for the payment of the money claimed. Sub-section (9) of Section 125 stipulates that it shall be competent for the authority constituted under sub-section (5) to spend money out of the fund for carrying out the object specified in sub-section (3). As such, the entire entitlement of the deposits in the Escrow Account, on which the interest was accrued, belongs to the IEPF. 82. The petitioner-Company did not lose anything due to the amount being parked in the said Account, since, in the first place, the petitioner was never entitled to the principal deposit in the Escrow Account. By the same logic, the interest accrued thereon, if repaid to the IEPF by the petitioner-Company in due time, would have accrued in favour of the IEPF and would be utilized for the specific purposes stipulated in Section 125 of the 2013 Act. Thus, there is no scope of the petitioner claiming any right to such interest in any manner whatsoever. In fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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