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TMI Blog2025 (2) TMI 637X X X X Extracts X X X X X X X X Extracts X X X X ..... aintainable in proceedings under Article 226 of the Constitution of India. Another plea raised by the appellant, which was not taken up during the final arguments before the learned Single Judge, is that the NCLT and NCLAT are seized of the matter and the bar of Section 430 of the Companies Act, 2013 applies. This Court does not find any force in this argument as the appellant has assailed the learned NCLT's decision dated 15th May, 2024 in relation to ECL on the basis that the RBI is looking into the matter and the learned NCLT ought not to have exercised its jurisdiction. 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. The respondent no. 1 (writ petitioner) cannot be left out remediless and therefore, the learned Single Judge, while exercising the jurisdiction under Article 226 of the Constitution, held that the writ is maintainable and passed sev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference Shares i.e., CCPS in ECL, which are worth INR 175 crores. 4. The ECL is a Non-Systematically Important Non Deposit taking Non-Banking Financial Company (hereinafter as the "NBFC") registered with the Reserve Bank of India (hereinafter as the "RBI") i.e., respondent no. 2 herein, and has been carrying on business as NBFC-Investment and Credit Company since 13th October, 2021. 5. The ECL, formerly named as M/s UT Leasing Limited, and the same was amended to its existing name on 16th October, 2021 vide an amended incorporation certificate issued by the Ministry of Corporate Affairs and the respondent no. 2 granted registration to carry on business as an NBFC without accepting public deposit. 6. M/s Teesta Retail Private Limited, which later merged with M/s Siddhant Commercials Private Limited, invested an amount of Rs. 315 Crores in ECL against the issuance of Optionally Convertible Debentures (hereinafter as the "OCD") and the said investment was done between October, 2021 and March, 2022. 7. However, a written opinion was obtained wherein it was observed that the infusion of OCDs were likely to disturb the leverage ratio of the ECL and hence, requires to be rectified b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing no. 9877/2024 under Article 226 of the Constitution of India before the Single Judge of this Court seeking a direction in the form of mandamus against RBI to act on various complaints and representations made by it against the appellants and their management of ECL. The grievance of the respondent no. 1 is essentially that the management of ECL is violating the regulations issued by the RBI and there are several instances of siphoning, using related parties of the appellants. Accordingly, the respondent no. 1 prayed for a direction to the RBI to exercise the powers under the Reserve Bank of India Act, 1935 (hereinafter as the "RBI Act") in inquiring into the affairs of ECL, which is an NBFC. 15. In the aforesaid writ, an application bearing CM APPL. No. 46471/2024 was filed on behalf of the ECL to decide the preliminary issue of maintainability of the said writ petition, i.e., W.P.(C) No. 9877/2024. 16. While adjudicating the said application, the learned Single Judge vide order dated 23rd October, 2024 (hereinafter as the "impugned order") held that there is no legally sustainable ground available to the applicant for challenging the maintainability of the present writ pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cope of application bearing CM APPL. 46471/2024 by adjudicating the merits of the matter and issuing directions in the nature of final relief. 21. It is submitted that the learned Single Judge failed to appreciate that the respondent no. 1 has not approached the Court with clean hands as the fact pertaining to the purchase of CCPS from M/s Siddhant Private Limited for a sum of Rs. 175 Crores after the passing of the order dated 15th May, 2024 by the learned NCLT was suppressed. 22. It is submitted that the learned Single Judge failed to appreciate that the respondent no. 1 has no locus in the said Writ Petition as all the transactions complained of are prior to its purchase of CCPS on 21st May, 2024 i.e., after the passing of the order dated 15th May, 2024. 23. It is submitted that the learned Single Judge failed to consider that the respondent no. 1 despite being aware that the conversion of OCDs to CCPS is under challenge before the learned NCLT, purchased the same, which only indicates its intention to harass the management and Company in unnecessary litigation. 24. It is submitted that the learned Single Judge failed to realize that the similar reliefs sought in the said wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be in violation of its regulations but failed to exercise its power. 32. Mr. Nayyar, learned senior counsel submitted that there is no force in the arguments of learned counsel for the appellant pertaining to the violation of natural justice since the parties were heard on the issue of maintainability as well as on merits. 33. It is submitted that allegations made in the writ petition of continuous siphoning and non-compliance have been confirmed by the learned Observer of ECL. 34. It is submitted that the writ petition filed under Article 226 of the Constitution of India by the respondent seeking issuance of writ of mandamus against the RBI to take appropriate action against ECL in accordance with the RBI Act, particularly under Chapter-III-B, Section 45Q of the RBI Act wherein it stipulates that the provisions of Chapter IIIB of the Act shall have an overriding effect over any other laws in force and the same includes the Companies Act, 2013. It is further submitted that the NCLT and NCLAT are tribunals constituted under the Companies Act, 2013 and can exclusively exercise powers vested thereunder. Therefore, NCLT or NCLAT cannot exercise powers under the RBI Act and issue an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintain public interest and interest of depositors like the answering respondent. Indisputably, the power of RBI is coupled with a duty to act and take protective measures. 40. It is submitted that it is trite law that a writ of mandamus ought to be issued to public authorities upon their failure to exercise power coupled with the duty to act. It is also settled law that the High Court in exercise of its plenary powers under Article 226 of the Constitution of India, may pass an order or give directions to the Government or the public authorities to act in accordance with law. 41. It is submitted that vide order dated 28th October, 2024 passed in these proceedings, the Predecessor Bench of this Court permitted the RBI to take appropriate action against ECL but till date RBI has not taken any action or exercise any power under the RBI Act against the ECL. It is further submitted that there is no violation of principle of natural justice as alleged by learned counsel appearing on behalf of the appellant. 42. It is submitted that the learned Single Judge while exercising its writ jurisdiction can adjudicate issues both pertaining to facts as well as law. Moreover, the RBI has cate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so contended that the appellant, who is one of the Directors of ECL, ought to have been heard by the learned Single Judge before passing the impugned order. 50. The learned Single Judge, vide order dated 24th July, 2024, issued notice in the writ petition filed by the respondent no. 1. The order of issuance of notice i.e., 24th July, 2024 was also challenged by the ECL before the Division Bench of this Court in LPA bearing No. 742/2024 on the ground of maintainability of the writ petition. 51. The Coordinate Bench of this Court vide order dated 9th August, 2024 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. 52. Subsequently, the appellant filed application bearing no. CM APPL. 46471/2024, in the aforesaid writ petition, thereby, challenging the maintainability of the writ petition. While deciding the maintainability of the writ petition, the learned Single Judge has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h decisions as routine business transactions. However, they later objected to several decisions made by the Board of Directors that were prejudicial and not in the best interest of the company. Emails dated 12.10.2023, 24.01.2024, 05.02.2024 and 06.02.2024, were written by the independent directors regarding these concerns, but no explanation were provided for the various acts, omissions and transactions by the respondent No. 2 company, the shareholders, or even the Statutory Auditors. It was urged that the present management of the respondent No. 2 company has been consistently breaching their financial duties as directors." 54. In paragraph no. 4 of the impugned order, the submissions on merits have also been duly recorded by the learned Single Judge on behalf of the ECL, where the appellant was a director. Paragraph no. 4 of the impugned order is reproduced hereinbelow: "4. Learned counsel appearing for respondent No. 2 has urged that the maintainability of the present writ petition was earlier addressed but the said issue was not decided by this Court while passing the earlier order dated 24.07.2024, and aggrieved thereof, they filed LPA4 742/2024 dated 09.08.2024, in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... URE R-10. 2. Issue of OCDs of Rs. 315 crore without permission of RBI and conversion of OCDs to CCPS' without prior approval of RBL: The company accepted optionally convertible debentures (OCDs) without the permission of RBI, which were classified as public funds under Para 3(xxvi) of Reserve Bank of India Master Direction Non-Banking Financial Company - Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 dated September 01, 2016 (applicable at that time) breaching the upper ceiling of Leverage Ratio. Further, the said OCDs were converted into Compulsorily Convertible Preference Shares (CCPS), again in contravention of Para 61 of Reserve Bank of India Master Direction-Non Banking Financial Company Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 dated September 01, 2016 (applicable at that time) which requires all applicable NBFCs to seek prior written permission from RBI for acquisition transfer of control. These CCPS are non-cumulative and are convertible into equity shares within a period not exceeding 20 years from the date of issuance, based on the is 20 years which is more than valuation of the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of this Hon'ble Court, It is submitted accordingly." 56. The aforesaid paragraphs of the status report filed by the RBI reveal that the management of the ECL has in fact breached mandatory regulations issued by the RBI. 57. 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. 58. 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. 59. It is an elementary principle that when a public authority is vested with specific powers, it is duty bound to act accordingly. Therefore, any failure to exercise statutory powers gives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment or its officers. 19. Even had the Division Bench issued a writ of mandamus giving the directions which it did, if circumstances of the case justified such directions, 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. Regina [1858 EB & E 1024, 1032, 1034] said: "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: Comyn'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 construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or has wrongly exercised the discretion conferred upon it by a statute or a rule or a policy decision of the government or has exercised such discretion mala fide or on irrelevant considerations or by ignoring the relevant considerations and materials or in such a manner as to frustrate the object of conferring such discretion or the policy for implementing 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 concerned parties, 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." 61. In view of the above position of law as discussed, it is crystal clear that a duty is implied by the vesting of statutory power upon a public authority. Further, the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own, who was appointed as an Administrator by the NCLT vide order dated 15.05.2024 and later has been made as an Observer by the NCLAT vide order dated 31.05.2024. The report would also go to suggest that despite directions of the NCLT/NCLAT, major policy decisions were taken without consulting him. It is revealed in the report that, although no major policy decisions were made during the meeting held on 20.06.2024, the reply filed by respondent no. 2 company in this case shockingly states that Shri Sunil Kumar Sobti was appointed as an Additional Director, and M/s K. S. Oberoi & Co. was appointed as the Statutory Auditor of the respondent No. 2 company. It is also brought to the fore that despite repeated reminders, the present management of respondent No. 2 company has not shared several details in the nature of organizational structure of the respondent No. 2 company, 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, in particular the copies of the audited and unaudited financials of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntainability, the learned Single Judge was well within its power to give interim directions. Moreover, it is made clear that the issue before this Court is not pertaining to the merits or veracity of the interim directions passed by the learned Single Judge or the vacation thereof. 74. At this juncture, it is also pertinent for this Court to mention the contention raised by the appellant that they were not given an opportunity to be heard by the learned Single Judge on merits of the case, thereby violating the principles of natural justice. However, upon perusal of the impugned order, it is clear that the parties therein have elaborately argued both on maintainability as well as the merits of the case. Hence, there is no validity in the said contention of the appellant. 75. Taking into consideration the aforesaid discussions, this Court upholds the findings of the learned Single Judge on the maintainability of the writ petition. In view of the same, the impugned order dated 23rd October, 2024, passed by the learned Single Judge in CM APPL. 46471/2024 in WP (C) No. 9877/2024, is, hereby, upheld. 76. Accordingly, the instant letters patent appeal is dismissed being devoid of any m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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