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TMI Blog2024 (10) TMI 1468X X X X Extracts X X X X X X X X Extracts X X X X ..... rent and former) scope of their respective roles/responsibilities along with the details of their remuneration/perks and benefits, in particular the copies of the audited and unaudited financials of the company with schedule and trial balances besides the list of list of receivables and payables besides list of secured and unsecured creditors, and such non-compliances assumes significance that all is not well in running the affairs of respondent no. 2 company by the present management. It would be expedient to point out that the respondent No. 2 company in its reply-cum-affidavit through Mr. Achal Kumar Jindal dated 25.09.2024, filed in response to the Status report filed by the respondent No. 1/RBI dated 13.08.2024, has simply made bald denial with regard to the issues and concerns which have been raised by the respondent No. 1/RBI. It is stated that in order to restore the leverage ratio, the OCDs were converted into the CCPS vide the resolution dated 27.09.2022. As regards the OCDs of Rs. 315 crores, having been received without permission, it is sought to be canvassed that it neither qualifies to be a public fund nor Regulation 61 of 2016 of the RBI Master Directions are applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the latter ceasing to continue w.e.f. 30.09.2023. The respondent No. 5 was the Business Head, and respondent No. 6 was the Company Secretary of respondent No. 2 company. Additionally, it is stated that respondent No. 2 was earlier known as UT Leasing Ltd., which was taken over by new promoters in September 2021. It commenced its operations as a registered NBFC [Non-Banking Financial Company] from 16.12.2021, and by its certificate it was prohibited from accepting any public deposits. Pursuant to a Resolution dated 21.09.2021, 31,50,00,000 CCPS were issued to Teesta Retail Pvt. Ltd. by respondent No. 2 company at face value of Rs. Ten each, along with 8% non-cumulative coupons per annum on each of the CCPS [Compulsorily Convertible Preference Shares] by way of dividend from respondent No. 2. Furthermore, it is stated that Teesta amalgamated with Siddhant Commercials Pvt. Ltd. and on 21.05.2024 the petitioner company purchased the aforesaid number of CCPS from Siddhant. 3. Shorn of unnecessary details, the petitioner company states that it has substantial shareholding of Rs. 17,50,00,000/- in the nature of preference shares with respondent No. 2 company, which is an NBFC having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions are complete code in itself, which are not controlled by any other provision of law including the Companies Act, 2013. Insofar as proceedings before the NCLT [National Company Law Tribunal] , as well as NCLAT [National Company Law Appellate Tribunal] , learned Senior Counsel invited attention of this Court to the Status Report filed by the respondent No. 1/RBI, wherein the supervisory concern of the RBI in the functioning of the respondent No. 2 company are brought to the fore, upon which we shall delve into later on this order. 7. Further, it is pertinent to point out that learned counsel for the respondent No. 1/RBI urged that statutory auditors have been appointed only recently and the financial accounts of the respondent No. 2 company are likely to be finalized by 30.09.2024, and it is only thereafter that the RBI shall decide on action, if any, under Chapter III B. 8. It was urged by the learned Senior Counsel for the petitioner company that the aforesaid breaches committed by the Board of Directors of respondent No. 2 company are yet to be rectified and even after directions by the NCLT dated 15.05.02024, as well as the order of the NCLAT dated 31.05.2024, the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion before the NCLT/NCLAT, and the Directors/management of the respondent No. 2 company are not even made a party. It was pointed out that M/s. Teesta Retail Private Limited invested about Rs. 315 crores in lieu of issuance of optionally convertible debentures, which company merged with Siddhant Commercials, and since such transaction disturbed the leverage ratio of the respondent no. 2 company, which was required to be rectified. In the meanwhile, Ms. Kanta Aggarwal, who is the petitioner before the NCLT proceedings, along with one Suresh Aggarwal purchased 117325 equity shares from Mr. Sanjeev Kumar to become shareholders in respondent No. 2 company and in order to restore the leverage ratios, the said OCDs [Optionally Convertible Debentures] were converted into CCPS vide resolution duly approved by General Body Meeting of the respondent No. 2 company. 12. It is was vehemently urged that the in order to disturb the smooth functioning of the respondent No. 2 company, the NCLT petitioner, who is a director in the petitioner company before this Court has launched ill motivated proceedings before the NCLT. Reference was made to the order passed by the NCLT dated 15.05.2024, and orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mdabad in the case of Krishan Krupa Owners Association v. RBI 11 Special Leave Application 233/2013 dated 09.12.2013 and lastly on the decision in the case of Hoichoi Technologies Private Limited v. Reserve Bank of India 2024 SCC OnLine Cal 3569. ANALYSIS AND DECISION: 15. I have given my anxious consideration to the submissions advanced by the learned counsels for the parties at the Bar. I have gone through the relevant record of this case as also the written submissions besides the case law placed on the record. 16. First things first, Chapter-III-B of the RBI Act provides a detailed mechanism that outlines the supervisory role for the RBI in overseeing the functioning of the NBFCs. As rightly pointed out by learned Senior Counsel for the petitioner, this supervisory role is continuous; it commences from the date of registration of the NBFCs and remains till the time of its commercial death by way of winding up. This aspect of the law has been clearly elucidated by the Supreme Court in the case of Nedum Pillai Finance Company Limited (supra), wherein it was held that all activities of the NBFCs automatically come under the scanner of RBI and that the continuation of an NBFC in bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to regulate or prohibit the issue of prospectus or advertisement soliciting deposits of money. Section 45-JA (i) In public interest or for the regulation of the financial system of the country to its advantage or to prevent the affairs of any NBFC being conducted in a manner prejudicial to the interest of the depositors or prejudicial to the interest of the NBFC, RBI may determine the policy and give directions. Section 45-K (i) RBI may demand every non-banking institution to furnish such statements of information or particulars relating to or connected with the deposits received by the NBFCs. Section 45-L (i) RBI will have the power to require financial institutions to furnish such statements, information or particulars relating to the business of such financial institutions and to give such directions. Section 45-M (i) It shall be the duty of every NBFC to furnish the statements, information or particulars called for and to comply with any direction issued by RBI. Section 45-MA RBI will have the power to issue directions to the auditors of NBFCs relating to balance sheet, profit and loss account, disclosure of liabilities in the books of accounts or any other matter. Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the learned counsel for respondent No. 2 company that the petitioner company has not come to this Court with clean hands does not cut much ice, since the petitioner company has made a clean breast of the proceedings pending before the NCLT, as well as NCLAT and it is pointed out that an application bearing IA No. 3852/2024 is already pending for consideration for its impleadment. Indeed, the proceedings before the NCLT have been initiated by the shareholders of respondent No. 2 company, who, in another capacity, are also the Directors in the petitioner company, but it needs to be appreciated that they have two distinct legal status: one as the shareholders, and thus, airing grievances against the oppression and mismanagement in the running of affairs by respondent No. 2 company, for which the NCLAT is seized of the matter; and secondly, such shareholders are the Directors in the petitioner company, they have a different legal status but then it is the company which owns 17,50,000 CCPS issued by respondent No. 2, having aggregate face value of INR 175 crores. 21. The bottom line is that it cannot be overlooked that the petitioner company, as a juristic person, has a legitimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I regulations, shall stand cancelled and money, thereof, shall be returned to respective holders and necessary formalities in this regard would be completed ... Ld. NCLAT, however, vide order dated 22.05.2024 has granted status quo with respect to the order dated 15.05.2024 of Ld. NCLT, New Delhi. 3. Non-submission of essential returns/documents to RBI: The company has not submitted essential returns/documents such as Balance Sheet, Profit Loss account and Statutory Auditor Certificate for the financial year 2023-24 and Statutory Auditor Certificate for the financial year 2022-23. 4. Complaint against the Managing Director: There is a complaint against Mr Satya Prakash Bagla alleging that there are cases against Managing Director, Mr. Satya Prakash Bagla who has criminal antecedents and is subject to investigations by various authorities viz., the ORI, CBI, ED, BOW and other regulatory agencies. These allegations are yet to be verified. The answering Respondent has sent an email dated 09.08.2024 to the company asking for their comments on these as well as other allegations made in the complaint dated 07.08.2024 received from Shri Anuj Goenka, Director of Evaan Holdings Private Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer vested in it. Reference can be made to the decision by the Supreme Court in the case of Destruction of Public and Private Properties v State of AP 2009 5 SCC 212 wherein it was observed as under:- 19. The situations in which a positive mandamus (sic may be issued) to do a particular act in a particular way, may be broadly classified in the following manner. First are the broad mandamus cases where this Court has held that the Court may issue a positive mandamus to enforce the law. Thus in Vineet Narain case detailed orders were passed for the investigation of the Hawala transaction cases. It is laid down that positive directions can be issued where there is a power coupled with a duty. The situations under which this can happen are numerous. 20. In Commr. of Police v. Gordhandas Bhanji AIR at p. 27 , quoting from Julius v. Lord Bishop of Oxford where the Court said : (Julius case, All ER p. 47 I) there may be something in the nature of the thing empowered to be done, something in the object for which it is to be done, something in the conditions under which it is to be done, something in the title of the person or persons for whose benefit the power is to be exercised, which ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, the High Court would have been entitled in law to do so for even the courts in England could have issued a writ of mandamus giving such directions. Almost a hundred and thirty years ago, Martin, B., in Mayor of Rochester v. R. said : (ER p. 794) But, were there no authority upon the subject, we should be prepared, upon principle, to affirm the judgment of the Court of Queen's Bench. That Court has power, by the prerogative writ of mandamus, to amend all errors which tend to the oppression of the subject or other misgovernment, and ought to be used when the law has provided no specific remedy, and justice and good government require that there ought to be one for the execution of the common law or the provisions of a statute; Comyns's Digest, Mandamus (A). Instead of being astute to discover reasons for not applying this great constitutional remedy for error and misgovernment, we think it our duty to be vigilant to apply it in every case to which, by any reasonable construction, it can be made applicable. The principle enunciated in the above case was approved and followed in R. v. Revising Barrister for the Borough of Hanley. In Hochtief Gammon case this Court pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ementing which such discretion has been conferred. In all such cases and in any other fit and proper case a High Court can, in the exercise of its jurisdiction under Article 226, issue a writ of mandamus or a writ in the nature of mandamus or pass orders and give directions to compel the performance in a proper and lawful manner of the discretion conferred upon the Government or a public authority, and in a proper case, in order to prevent injustice resulting to the parties concerned, the court may itself pass an order or give directions which the Government or the public authority should have passed or given had it properly and lawfully exercised its discretion. {bold portions emphasized} 25. Avoiding a long academic discussion, it is well ordained in law that a writ of mandamus lies where there is shown a failure to exercise the powers vested in statutory authorities and delay in exercise of its powers might bring about irreparable injuries to statutory rights. Reference can be invited to Hari Krishna Mandir Trust v. State of Maharashtra 2020 9 SCC 326 , wherein it was held as under:- 100. The High Courts exercising their jurisdiction under Article 226 of the Constitution of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Constitution, a statute, common law or by rules or orders having the force of law. (emphasis in original) 103. The Court is duty-bound to issue a writ of mandamus for enforcement of a public duty. There can be no doubt that an important requisite for issue of mandamus is that mandamus lies to enforce a legal duty. This duty must be shown to exist towards the applicant. A statutory duty must exist before it can be enforced through mandamus. Unless a statutory duty or right can be read in the provision, mandamus cannot be issued to enforce the same. {bold portions emphasized} 26. In view of the foregoing discussion and for the reasons that the present management of the respondent No. 2 company has been withholding relevant documents from the respondent No. 1/RBI, it is but necessary to arrest any further misappropriation and pilfering of the funds of the respondent No. 2 company, since any further delay might be too late to protect the interests of the stakeholders. 27. During the course of arguments, a report dated 01.07.2024 of Hon'ble Mr. Justice R.K. Gauba (Retired) was shown, who was appointed as an Administrator by the NCLT vide order dated 15.05.2024 and later has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the term amount received is entirely distinct from the concept of debentures under corporate law. As regards the conversion of OCDs into the CCPS, it is submitted that ex post facto permission was sought vide application dated 17.09.2024 from the respondent No. 1/RBI. 30. Adverting to the issue of non-submission of audited balance sheets for the financial year 2023-24, an excuse is taken that the statutory Auditor M/s V. V. Kale has not deliberately filed the same and had been evading to carry out its statutory duties and eventually the said auditor has since resigned, after the order passed by the NCLAT dated 25.05.2024; and it is stated that thereafter M/s K. S. Oberoi Co. has been appointed as the Statutory Auditor of the respondent No. 2 company on 19.06.2024. That fact was refuted by the learned Senior Counsel for the petitioner stating that ,such auditor has not been appointed under the overall supervision of the administrator/observer. 31. Suffice to state that the issues and concerns which have been raised by the respondent No. 1/RBI in its report dated 13.08.2024, have not been addressed, and there appears to be an attempt to brush these alarming issues under the carpe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding no legally sustainable challenge to the maintainability of present writ petition, and given that it is evident that respondent No. 1/RBI has thus far failed to exercise its supervisory powers, it becomes imperative that certain directions be issued to respondent No. 1/RBI to intervene in the matter and to ensure the enforcement of binding regulations provided under the RBI Act. There are cogent and ample material on the record that warrant full and thorough inquiry into the affairs of the respondent No. 2 company. Therefore, considering the necessity to safeguard the interest of the investors of respondent No. 2 company besides other stakeholders including the creditors, the following directions are passed: (i) It is hereby directed that the Board of Directors of respondent no. 2 company shall remain suspended with immediate effect till further orders; (ii) As a consequence, an interim arrangement is made appointing an Interim Committee of Administrators headed by Hon'ble Mr. Justice R.K. Gauba (Retired) [Mobile No. 9650411919, email ID: [email protected]] in order to protect any further pilfering, siphoning or misappropriation of funds of the respondent No. 2 company, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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