Point of Law: Cancelling registration on ground of illegal/irregular acceptance of deposits - Appellate Authority is bound to consider whether discretion has been exercised properly and fairly by the RBI in the matter of rejection of road map given by the petitioner for statutory compliances.

JUDGMENT :

The petitioner, a Non-Banking Financial Company, is aggrieved by the cancellation of registration granted to the petitioner by the Reserve Bank of India.

2. The petitioner states that the petitioner-Company was incorporated in the year 1990 and it has been running chit fund business from the date of incorporation. The petitioner was granted Certificate of Registration on 19.02.2001 by the Reserve Bank of India under Section 45-1A of the Reserve Bank of India Act, 1934. The Company was engaged in non-banking activities and chit business since 2001. The Central Chit Fund Act, 1982 was enforced in Kerala on 30.04.2012. Thereafter, the petitioner did not start new chits and continued only with Non-Banking Financial Activities.

3. The petitioner-Company was served with Ext.P1 show-cause notice dated 06.04.2018 of the Deputy General Manager, RBI, alleging that the Company has received inter-corporate loans from M/s.Ponallur Gold Trading Firm (LLP) amounting to Rs. 7.75 Crores, that the Company sought five years' time to repay the inter-corporate loan and the said proposal was not acceptable to the RBI. It was further alleged that the Company was continuing with three chits and an amount of Rs. 6.45 Crores has been received as Kuri Security Deposit (KSD) in the nature of public deposit. The proposal of the Company to treat them as exempted deposits is unacceptable and the Company has not given any road map to refund all deposits in six months.

4. The petitioner-Company attended the hearing and submitted Ext.P3 explanation in which the Company argued that advances received from M/s.Ponallur Gold Trading Firm are related party loans and not inter-corporate loans. The Company undertook to repay the related party loans within two years. A detailed plan was submitted. As regards Kuri Security Deposits, the petitioner stated that those receipts are from Chit subscribers and are security receipts and are future receivables and should not be treated as public deposits.

5. Subsequently, on 05.12.2018, the Company received a mail seeking clarification as to whether the repayment of amount received from the LLP and KSD will be achieved from existing chit business or through NBFC activities. The petitioner submitted Ext.P4 reply stating that the Company had already issued debentures and existing liability of Kuri Security Deposit is reduced to Rs.1.65 Crore. The petitioner also provided a road map for clearing all the liabilities.

6. However, the General Manager of the RBI issued Ext.P5 order informing cancellation of Certificate of Registration as per Ext.P6. The petitioner preferred an appeal against Ext.P6, invoking Section 45-1A(7) of the Reserve Bank of India Act. The Appellate Authority, without appreciating the facts of the case, dismissed the appeal on 08.11.2019, as per Ext.P10, contended the petitioner.

7. The learned counsel for the petitioner argued that in Ext.P10, the Appellate Authority has simply accepted the version of the RBI. There is no proper independent adjudication. The Appellate Authority ignored the fact that the liabilities of the petitioner-Company were drastically reduced. The Appellate Authority omitted to note that the amount received by the petitioner-Company from the LLP is not inter-corporate loan. The Appellate Authority further omitted to note that after the implementation of the Chit Funds Act, 1982 in Kerala, the petitioner has not started any new chits and has only continued with chits already commenced before the implementation of the Chit Funds Act.

8. The learned counsel for the petitioner submitted that implementation of Exts.P5, P6 and P10 orders will cause huge loss and irreparable injury to the petitioner and it will be detrimental to the interest of the general public at large. Huge amounts are due from chit subscribers. The petitioner-Company is running a business. Therefore, if the Certificate of Registration is cancelled, it will affect the petitioner-Company as well as public at large.

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