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TMI Blog2025 (3) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - 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. In the case of CAG vs. K. S. Jagannathan & Anr. [1986 (4) TMI 344 - SUPREME COURT], the Hon'ble Supreme Court held that a writ of mandamus can be issued where there is a failure to exercise power vested with a public authority. Thus, it is crystal clear that a duty is implied by the vesting of statutory power upon a public authority. Further, the performance of such duty can be secured by proceedings under Article 226 of the Constitution of India. The respondent no. 1 has sought for the interference of the learned Single Judge considering the failure of RBI to act in exercise of its power under Chapter-III-B and more particularly Section 45-IE and Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA For the Appellant : Mr. Harish Malhotra, Sr. Advocate and Mr. Ravi Gupta, Sr. Advocate with Mr. Manav Goyal, Mr. Zinnea Mehta, Ms. Ritika Gusain, Mr. Abhishek Jaiswal, Ms. Shriya Agarwal, Ms. Tanushvi Singh, Ms. Muskaan Mehra, Ms. Jahnvi Gupta and Mr. Shrey Sharma, Advocates. For the Respondent : Mr. Rajiv Nayyar, Sr. Advocate with Ms. Devika Mohan, Ms. Manya Chandok, Mr. Prabhav Bhaguna and Mr. Saurabh Seth, Advocates for R-1 Mr. Ramesh Babu and Ms. Nisha Sharma, Advocates for R-2/RBI JUDGMENT CHANDRA DHARI SINGH, J. 1. The instant appeal under Clause X of the Letters Patent has been filed on behalf of the appellants seeking the following reliefs: "a) Allow the present Appeal and set aside the Impugned Judgement dated 23.10.2024 passed by the Learned Single Judge in Writ Petition bearing W.P. (C) No. 9877 of 2024 titled as "Evaan Holdings Pvt. Ltd. v. Reserve Bank of India & Ors." and dismiss the said Writ Petition for being non- maintainable and mala-fide and a gross abuse of process of law; and/ or b) Pass such other and further order(s) as this Hon‟ble Court may deem fit and proper in the facts and circumstances of the present case." FACTUAL MATRIX 2. The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e minority shareholders. Ms. Kantha Aggarwal (hereinafter as the "NCLT petitioner") is a minority shareholder with 5% shareholding in the ECL. 9. Vide the same order, the learned NCLT has appointed a former Judge of this Court, Justice Mr. R.K. Gauba (Retd.), as the Administrator of the ECL. 10. On 21st May, 2024, respondent no. 1 purchased the said CCPS in the ECL from M/s Siddhant Commercials Private Limited for a sum of Rs. 175 Crores. 11. Later, the NCLT petitioner filed a representation before the RBI on 24th May, 2024, alleging the siphoning and misappropriation of funds by the directors of the ECL, including the Appellant herein. Thereafter, the respondent no. 1 also filed a representation before the RBI on 21st June, 2024 regarding the conduct of the directors of the ECL and siphoning of funds thereof. 12. The order dated 15th May, 2024 passed by the learned NCLT was challenged before the learned National Company Law Appellate Tribunal (hereinafter as the "NCLAT") and vide order dated 22nd May, 2024, the learned NCLAT preserved the status quo of the order dated 15th May, 2024. However, the said order dated 22nd May, 2024 was modified vide order dated 31st May, 2024, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judge has, proceeded to issue a series of directions as contained in paragraph no.34 of the said order, few of which directions are overlapping with the issues which are already pending consideration before the National Company Law Tribunal/The National Company Law Appellate Tribunal. Learned Senior Counsel for the appellants have urged that directions issued by the learned Single Judge were beyond the reliefs sought in the writ petition. 13. In these circumstances, it is directed that till the next date, the operation of the impugned directions issued in the impugned order will remain stayed. This will, however, not preclude the Reserve Bank of India, respondent no.2 or the NCLT/NCLAT to proceed with the matter and take appropriate action as per law after examining complaints made by the writ petitioner." SUBMISSIONS (on behalf of the Appellant) 19. Mr. Harish Malhotra and Mr. Ravi Gupta, learned senior counsel appearing on behalf of the appellant submitted that the application bearing CM APPL. No. 46471/2024 was filed by ECL to decide the maintainability of the writ petition. Therefore, it is submitted that the said application pertained to the limited aspect of the maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to the Appellant to make requisite submissions on the merits of the case, and yet, passed directions impacting the merits of the case. Therefore, the same amounts to a violation of the principles of natural justice. 28. In view of the foregoing submissions, it is crystal clear that the impugned order, wherein the final reliefs have been granted while deciding the preliminary issue of maintainability cannot be sustained in the eyes of law and therefore, the same is liable to be set aside and the said writ petition ought to be dismissed for being non-maintainable. (on behalf of the respondent no. 1) 29. Mr. Rajiv Nayyar, learned senior counsel appearing on behalf of the respondent no. 1 vehemently opposed the instant LPA submitting to the effect that there is no illegality or error in the impugned order passed by the learned Single Judge and rightly held that the writ petition is maintainable. 30. It is submitted that the principal grounds raised in the appeal are firstly, the writ petition itself was not maintainable; secondly, issues raised in the writ petition are already pending adjudication before the NCLT and NCLAT; and, thirdly, the impugned order was passed in violatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation. Consequently, violations of the NBFC Directions can only be adjudicated by the RBI, the regulator of NBFCs. 36. It is submitted that the RBI is a statutory authority and therefore subject to the jurisdiction of this Court under Article 226 of the Constitution of India. Accordingly, the writ petition is maintainable against the RBI for failing to exercise its powers under the RBI Act. 37. It is submitted that even otherwise, neither RBI nor the answering respondents are party before the proceedings in NCLT or NCLAT. Therefore, the proceedings before the learned NCLT or NCLAT cannot be a ground to oust the answering respondent or object to the directions passed against the RBI in writ petition. 38. It is submitted that the RBI is the primary regulator of NBFCs and is the competent authority to ensure compliance with its regulations and take action against violations by NBFCs. For this purpose, RBI is armed with powers which include (i) removal of directors under Section 45-ID of the RBI Act, (ii) collection of information and documents under Sections 45K and 45L of the RBI Act, (iii) restrain acceptance of any deposit or restrain alienation of any assets by the NBFC under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the RBI is the prime regulator of the ECL and that as per Section 45IA of the RBI Act empowers the respondent no. 2 to maintain public interest and ensure inter alia that the affairs of the NBFCs should not be conducted in a manner detrimental to the interest of its present or future depositors. It is further submitted that the non-compliance with these conditions by any NBFC, empowers RBI to cancel registration of such NBFC. 45. It is submitted that there is no violation of principles of natural justice as the learned Single Judge has passed the impugned order pertaining to the issue of maintainability and has not touched upon the merits of the case. 46. It is submitted that in addition to the siphoning transactions, the observer, in this report as well as its previous report, has also noted that the appellant and other directors of ECL have violated the restraining orders of NCLAT by taking unilateral decisions without the approval of the learned Observer and the said facts have also been taken into consideration by the learned Single Judge. 47. Therefore, in view of the foregoing submissions, it is prayed that the instant appeal, being devoid of any merits, may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unction under the supervision of the Administration, so as to ensure that its precious funds are not pilfered and/or wasted for personal consumption by its Board of Directors." 53. While passing the impugned order, the learned Single Judge also noted that the respondents no. 3 and 4, who are former independent Directors in ECL, also expressed grave concern regarding the functioning of the ECL at the hands of appellant. The relevant portion of the impugned order is reproduced hereinbelow: "9. Mr. Sidharth Luthra, learned Senior Counsel for respondents No. 3 and 6 urged that the fact that the affairs of the respondent No.2 company are being mismanaged is evident from the fact that independent directors having vast experience of working with NBFCs have been removed and the control has been vested in inexperienced directors. It was pointed out that independent directors have been removed during the pendency of the petition before the NCLT despite operation of the restrain order, which fortifies the petitioner company's apprehension that the Board of Directors may take steps to prejudice and jeopardize the investment of the petitioner company, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 024 before the learned Single Judge. The relevant portion of the said status report is reproduced hereinbelow: "10. Thereafter, a team of two officers from the New Delhi Office of RBI New Delhi went to ECL to conduct a scrutiny, on 01.08.2024. However, the company could not provide the Balance Sheet, Profit & Loss account and Statutory Auditor's Certificate for the Financial Year ended 31.03.2024. Documents such as valuation of Security Receipts/Assignment of Loans at the time of purchase or background papers for the same could also not be provided by the company. Hence, the scrutiny of the company could not be conducted. The company was advised to finalize its accounts and get the statutory Audit of the same done without any further delay. The Company was again advised for the same by emails dated 08.08.2024. A true copy of the email dated 08.08.2024 is annexed herewith as ANNEXURE R-9. Supervisory concerns of RBI in ECL i.e., Respondent No. 2: It is submitted that the answering Respondent, after having examined the various replies, documents and after conducting an onsite scrutiny of records of the Respondent No. 2, has observed following supervisory concerns:- 1. Bre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany 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 DRI, CBI, ED, EOW 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 Shri Anuj Goenka, Director of Evaan Holdings Private Limited, within three days. Proposed action by the RBI:- 1. ECL has been advised vide e-mail dated 08.08 2024 to prepare its balance sheet, profit & loss statement as on 31.03.2024 and get its statutory audit done. Thereafter, the scrutiny/inspection of the company would be conducted by the answering Respondent. If the respondent NBFC is found to have contraven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to the order of the Division Bench and the purpose and scope of the writ of mandamus. The High Court had not issued a writ of mandamus. A writ of mandamus was the relief prayed for by the respondents in their writ petition. What the Division Bench did was to issue directions to the appellants in the exercise of its jurisdiction under Article 226 of the Constitution. Under Article 226 of the Constitution, every High Court has the power to issue to any person or authority, including in appropriate cases, any government, throughout the territories in relation to which it exercises jurisdiction, directions, orders, or writs including writs in the nature of habeas corpus, mandamus, quo warranto and certiorari or any of them, for the enforcement of the Fundamental Rights conferred by Part III of the Constitution or for any other purpose. In Dwarkanath v. ITO [AIR 1966 SC 81 : (1965) 3 SCR 536, 540] this Court pointed out that Article 226 is designedly couched in a wide language in order not to confine the power conferred by it only to the power to issue prerogative writs as understood in England, such wide language being used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised on irrelevant considerations or on erroneous ground or mala fide, and in such a case a party would be entitled to move the High Court for a writ of mandamus. In Padfield v. Minister of Agriculture, Fisheries and Food [1968 AC 997] the House of Lords held that where Parliament had conferred a discretion on the Minister of Agriculture, Fisheries and Food, to appoint a committee of investigation so that it could be used to promote the policy and objects of the Agricultural Marketing Act, 1958, which were to be determined by the construction of the Act which was a matter of law for the court and though there might be reasons which would justify the Minister in refusing to refer a complaint to a committee of investigation, the Minister's discretion was not unlimited and if it appeared that the effect of his refusal to appoint a committee of investigation was to frustrate the policy of the Act, the court was entitled to interfere by an order of mandamus. In Halsbury's Laws of England, 4th Edn., vol. I, para 89, it is stated that the purpose of an order of mandamus "is to remedy defects of justice; and accordingly it will issue, to the end that justice may be done, in all c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LAT 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. 64. Therefore, the appellant, now, in these proceedings is estopped from taking the opposite position from what was taken in the proceedings before the learned NCLT. 65. The reliefs prayed for in the writ petition i.e., issuance of writ of mandamus to the RBI to exercise its jurisdiction is not and could not have been the subject matter of the NCLT proceedings. 66. 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. 67. This Court has perused the representations dated 20th June, 2024 and 21st June ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of protective ad-interim orders. 70. Moreover, once a regulatory authority finds a wrong doing on the part of an entity, it is duty bound to act and take corrective measures. However, the RBI, in the instant case, despite noting the wrongdoings of ECL, has chosen not to act, which appears to be a clear case of failure to exercise its public duty. 71. This Court has also taken note of the report of the learned Observer, in which it has been clearly observed that despite repeated reminders, the management of ECL has not shared several details regarding the nature of organizational structure of ECL, 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. It is also observed that non-compliance of another direction of the learned Observer in the light of the order of learned NCLAT, and such non-compliances assumes significance that the affairs of the ECL are not being managed rightly by the present management. 72. In these circumstances, the respondent no. 1 (writ petitioner) cannot be left out r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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