The court upheld the maintainability of a writ petition against the RBI for failing to act on violations by a Non-Banking Financial Company, emphasizing the duty of regulatory authorities to exercise their powers.

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 Company namely M/s Exclusive Capital Limited (hereinafter as the “ECL”) was incorporated on 18^th April, 1994 under the provisions of the Companies Act, 1956 and the appellant herein is the suspended Director of the Company.

3. The respondent no. 1 herein, i.e., the petitioner before the learned Single Judge, is a holder of Compulsorily Convertible Preference 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 13^th October, 2021.

5. The ECL, formerly named as M/s UT Leasing Limited, and the same was amended to its existing name on 16^th 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 by converting the said OCDs to Compulsorily Convertible Preferential Shares (hereinafter as the “CCPS”). Accordingly, an Extraordinary General Meeting of the members of the ECL was called for on 17^th September, 2022 and vide resolution dated 27^th September, 2022, the OCDs were converted to CCPS in an attempt to restore the leverage ratio of the ECL.

8. Aggrieved by the resolution passed by the ECL as well as the state of its affairs, Ms. Kantha Aggarwal filed a company petition bearing no. 48/(ND)/2024 before the National Company Law Tribunal (hereinafter as the “NCLT”) alleging the oppression and mismanagement by the Board of Directors of the ECL. Vide order dated 15^th May, 2024, the learned NCLT observed that the conversion of the OCDs to CCPS was not done in a bona fide manner and the same has resulted in the oppression of the 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 appo