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2003 Supreme(Cal) 342
High Court Of Calcutta
Ashim Kumar Banerjee
PRUDENTIAL CAPITAL MARKETS LTD - Appellant
Versus
RESERVE BANK OF INDIA - Respondent
C. P. 342 Of 2002
Decided On : 07/11/2003
SOUMEN SEN
A company disqualified from carrying on Non-Banking Financial Business due to the rejection of its registration by RBI and the subsequent dismissal of its appeal cannot carry on any other activities, as its main business activities fall within the mischief of section 45-IA of the Reserve Bank of India Act, 1934.
Headnote:
PRUDENTIAL CAPITAL MARKETS LTD. - WINDING UP - SECTION 45 MC OF THE RESERVE BANK OF INDIA ACT, 1934 - RBI's petition for winding up of the company granted - Company disqualified from carrying on Non-Banking Financial Business - Existence of the company detrimental to public interest.
Fact of the Case:
Reserve Bank of India (RBI) filed a winding-up petition under section 45 MC of the Reserve Bank of India Act, 1934, seeking to wind up Prudential Capital Markets Ltd. (the company) for violating the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. The company's application for a certificate and registration under section 45-IA of the Act was rejected by RBI, and an appeal against the rejection was dismissed by the Appellate Authority.
Finding of the Court:
The court found that the company was disqualified from carrying on Non-Banking Financial Business due to the rejection of its registration by RBI and the subsequent dismissal of its appeal. The court also held that the company's main business activities, which involved borrowing money from the public by accepting public deposits and investing the same in shares and other forms, fell within the mischief of section 45-IA of the Act. The court further opined that the existence of the company in the commercial world would be contrary to public interest, considering the complaints made by various depositors regarding the non-payment of public deposits.
Issues: 1. Whether the company could carry on other activities despite being disqualified from carrying on Non-Banking Financial Business. 2. Whether the winding-up order would disturb the regular process of repayment of deposits as per the order of the Company Law Board. 3. Whether the court should wait for the disposal of the appeal pending before the appellate authority before disposing of the winding-up petition.
Ratio Decidendi: 1. The court held that once the company became disqualified from carrying on Non-Banking Financial Business, there was no other activity left open to the company to carry on, as its main business activities fell within the scope of section 45-IA of the Act. 2. The court opined that once the company is wound up under section 45mc of the Act, the general provisions relating to winding up provided in the Companies Act, 1956 would come into operation, and repayment of the company's liabilities after winding up has already been provided for in the said Act of 1956. 3. The court held that the ground that the court should not dispose of the matter till the disposal of the appeal pending before the appellate authority was not tenable, as the order of the appellate authority was not brought in by the parties despite repeated adjournments.
Final Decision: The court allowed RBI's petition and ordered the winding up of Prudential Capital Markets Limited under section 45 MC of the Reserve Bank of India Act, 1934, read with the provisions of the Companies Act, 1956. The Official Liquidator attached to the court was directed to take charge of the company's assets forthwith.
( 1 ) THIS winding up petition was filed by Reserve Bank of India (hereinafter referred to as ?rbi?) under section 45 MC of the Reserve Bank of India Act, 1934 (hereinafter referred to as the ?said Act?) inter alia, praying for winding up of Prudential Capital Markets Ltd. (hereinafter referred to as the ?said company? ). The said company was incorporated in March, 1987 and became a public limited company in January, 1991. The main objects of the said company of the said company are as follows: -1. To carry on the business of an investment trust company and to underwrite, sub-underwrite, to invest in and acquire and hold, sell, buy or otherwise deal in shares, debentures, debenture-stocks, bonds, units, obligations and securities, issued or guaranteed by Indian or foreign Governments, State, Dominions, Sovereigns, Municipalities or Public Authorities or Bodies and shares, stocks, debentures, debenture-stocks, bonds, obligations and securities issued and guaranteed by any company, Corporation, firm or person whether incorporated or established in India or elsewhere.
( 2 ) TO act as financial, consultants, management consultants and provide, advice services, consultancy in various fields, general administrative secretarial, commercial, financial, legal, economic, labour, industrial, public relations, scientific, technical, direct and indirect taxation and other levies, statistical, accountancy, quality control and data processing.
( 3 ) TO take part in the formation, supervision or control of the business of operations of any Company or undertaking and for that purpose to act as an issue House, Registrars and Share Transfer Agents, Secretaries, Financial Advisers or Technical Consultants or in any other capacity and to appoint and remunerate any directors, administrators or accountants or other experts or agents.
( 4 ) TO receive money on deposits at interest or otherwise for fixed periods, and to lend money on any terms that may be thought fit and particularly to customers or other persons or corporations having dealings with the Company. The Company shall not carry on any business of banking as defined by the Banking Regulation Act, 1949, or any statutory modification thereof.
( 5 ) TO manage investment pools, mutual funds, syndicates in shares, stocks, securities, finance and real estate. ?2. As the said company was a non banking financial company it was to obtain necessary licence from RBI under section 45ia of the said Act. The company applied for licence from RBI for carrying out its business activities as a non-banking financial company. 3. On an inspection caused by RBI it was found that it had violated the various provisions of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 as on 31st March, 1996. RBI issued show cause notice on 14th July, 1998. RBI, by a letter dated 30th October, 1998 rejected the application of the company for a certificate and registration under section 45-IA of the said Act, 1934. The said order was communicated to the company by a letter RBI dated November 6, 1998. 4. Being aggrieved by the said order of RBI an appeal was preferred by the said company to the Appellate Authority under the said Act. The appellate authority by its order dated 25th May, 2001 dismissed the appeal as appears from the xerox copy of the order filed in Court by the petitioner in course of hearing. 5. Since the company was not having any licence to carry out its commercial activity under section 45mc of the said Act the present application was made by RBI inter alia praying for winding up of the company.
( 6 ) THE company in its Affidavit-in-Opposition filed on 30th January, 2003 opposed the said prayer for winding up. The principal contentions of the company were as follows: - (I) Since the application for registration was rejected by RBI and an appeal was pending from the said order of rejection this Court should wait till the disposal of the appeal
