Full Text
HIGH COURT OF DELHI
Date of Decision: 24th July, 2024
EVAAN HOLDINGS PRIVATE LIMITED .....Petitioner
Through: Mr.Parag Tripathi, Sr. Adv.
Sharma and Ms.Devika Mohan, Advocates.
Through: Mr. Raj Shekhar Rao, Sr. Adv.
Mr.Aryan Kumar, Advs. Mr. Sidharth Luthra, Sr. Adv.
Rustomkhan, Mr.Suhail Ahmed and Ms.Yuganshi Singh, Advocate for R 3-4.
JUDGMENT
1. On the last date of hearing i.e., 22.07.2024, arguments had been addressed by Mr. Parag Tripathi, learned Senior Counsel for the petitioner/Evaan Holdings Private Limited and part arguments were addressed by Mr. Raj Shekhar Rao, learned Senior Counsel for respondent No.2/Exclusive Capital Limited on 22.07.2024. Since none appeared for respondent No.1/RBI[1] on that date, notice was ordered to be issued to the learned Standing Counsel for respondent No.1 and today, Mr. Ramesh Babu, learned Standing Counsel is present.
2. Having heard the learned Senior Counsels for the parties present and on perusal of the record, briefly stated, the petitioner claims that he has substantial shareholding of Rs. 17,50,00,000/preference shares in respondent No.2 company, having an aggregate face value of INR 175 crores, which is a Non-Banking Financial Company [“NBFC”] registered with the respondent No.1. It is the grievance of the petitioner that on 24.05.2024 and thereafter, on 21.06.2024, he sent detailed complaints to respondent No.1/RBI highlighting various aspects of mismanagement and financial improprieties including misappropriation & siphoning off of the funds by respondent No.2 through its Board of Directors comprising of Mr. Satya Prakash Bagla, Mr. Achal Jindal and Mr. Johnson Kallarachal Abraham, but no action has been taken so far by respondent No.1/RBI.
3. Hence, the petitioner invokes the extraordinary jurisdiction of this Court under Article 226 of the Constitution of India, 1950 seeking the following reliefs: “(a) Issue a writ of Mandamus or any other appropriate writ directing Respondent No. 1 to enquire into the affairs of Respondent No. 2 and inspect all its records in accordance with the powers vested in Respondent No. 1 under the RBI Act; Reserve Bank of India (b) Issue a writ of mandamus of any other appropriate writ directing Respondent No. 1 to exercise powers under Section 45MA of the RBI Act to conduct a special audit of the financial transactions of the Respondent No. 2 from October 2021 onwards, particularly to verify the allegations of siphoning raised against Respondent No. 2;
(c) Issue a writ of Mandamus or any other appropriate writ directing Respondent No. 1 to exercise powers under Section 45ID of the RBI Act to remove from the office of Respondent No. 2 its Board, in particular, Satya Prakash Bagla, Achal Jindal and Johnson Kallarachal Abraham;
(d) Issue a writ of Mandamus or any other appropriate writ directing Respondent No. 1 to take appropriate measures and exercise powers under Section 45-IE of the RBI Act to prevent the affairs of Respondent No. 2 from being conducted in a detrimental manner; (e) Issue a writ of mandamus or any other appropriate writ directing Respondent No. 1 to take appropriate action against Respondent No. 2 under Section 45MB including prohibiting Respondent No. 2 from accepting any deposit and also restrain Respondent No. 2 from selling or in any manner encumbering its property(ies) or asset(s); Pass any other/ further order(s) which this Hon'ble Court may deem fit and proper in the facts and circumstances of the case.”
4. At the outset, it may be stated that two of the shareholders of respondent No.2 are already up in arms against the respondent No.2/Exclusive Capital Limited and the aforesaid three Directors and the issues concerning the operation and mismanagement in the affairs of the company, has been agitated in CO. PET. 48/(ND)/2024 before the National Company Law Tribunal [“NCLT”], in which, respondents No. 3 to 6 are also parties and vide order dated 15.05.2024, the NCLT passed the following directions:
(i) all assets and liabilities of whatever nature;
(ii) all books of account, registers, maps, plans, records, documents of title and all other documents of whatever nature; (b) a list of shareholders and a list of creditors showing separately in the list of creditors, the secured creditors and unsecured creditors; ……. (e) proforma accounts of the company, where no up-to-date audited accounts are available; and (f) a list of workmen of the company and their dues referred to in subsection (3) of section 325.
Persons and skilled professionals to assist him in managing the affairs of the company (Respondent No.1) and to ensure that the provisions of Non-Banking Financial Company-Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 as also the letter dated 30.05.2023 issued by RBI are complied with and no defiance thereof persist.
I. An appropriate application for approval of the scheme/plan to be evolved by Ld. Administrator (as above) shall be filed before this Tribunal by way of an IA, before expiry of 180 days. Nevertheless, if circumstances warrant, an application for extension of time may be filed by the Ld. Administrator. During this period, the Ld. Administrator will file a report at the end of every month apprising this Bench of the development during the month.
5. It is also brought out that the aforesaid order was challenged by Mr. Satya Prakash Bagla and others before the National Company Law Appellate Tribunal [“NCLAT”] wherein, vide order dated 31.05.2024, the aforesaid order has been modified as follows: “5. The appellants have substantially argued the matter and the Respondents shall be arguing on the next date. At this stage, we modify the interim relief of grant of status quo in respect of the impugned order vide our order dated 22.05.2024, to the extent that, we hereby direct let Hon‟ble Justice Mr. R.K. Gauba to act as an Observor, and he shall preside over the Board of Directors‟ Meetings and no major policy decision be taken by the Board and let there be no alienation of assets of R3(Exclusive Capital Ltd) till the next date of hearing. The Ld. Observor in the meantime may prepare a complete inventory of all assets of R[3] and also a list of shareholders and a list of secured and unsecured creditors. The Observor shall verify the allegation qua the financial transactions, including those of related party qua siphoning of funds. All the parties to cooperate with the Ld. Observor and to make available to him all documents/information as requisitioned by the Ld. Observor.”
6. Learned Senior Counsel Mr. Parag Tripathi, on being asked by this Court as to how come the present petition is maintainable, has invited the attention of this Court to the provisions contained in Chapter-III B of the Reserve Bank of India Act, 1934, as amended upto date, [“RBI Act”] and has taken this Court through the provisions of Section 45H read with Section 45Q and has referred to a decision in the case of Nedum Pillai Finance Company Limited v. State of Kerala[2] decided by the Supreme Court, in which, it was inter alia held that the role of RBI under the Scheme of Chapter III B of the RBI Act is to oversee the functioning of the NBFCs from the time of their birth (by way of registration) till the time of their commercial death (by way of winding up), and all the activities of NBFCs automatically come under the scanner of RBI. Therefore, it was urged that the provisions of Chapter III B of the RBI Act are complete Code in itself and the same are not controlled by any other provisions of law.
7. Learned Senior Counsel for the petitioner, taking this Court through the provisions of Section 45-ID and 45MA of the RBI Act, urged that it is a stark case where respondent No.2, which is an NBFC, instead of engaging in the business of finance and lending, are carrying out its affairs in such a manner where the present management is using the precious funds of the company for their own benefit, thereby indulging in gross financial irregularities by siphoning off the funds to related parties and companies and in the process, fabricating and forgoing the accounts of respondent No.2. It was vehemently urged that there is no Managing Director of respondent No.2 and alluding to its complaints dated 24.05.2024 and 21.06.2024, it was pointed out that the present management, headed by Mr. Satya Prakash Bagla, has been involved in purchase of luxury cars to the tune of more than Rs. 25.36 crores and purportedly, taking loans from different parties including the banks and instead, showing repayment to the related companies, which are exclusively controlled by him (Annexure P-11 at pages 636-637 of the PDF).
8. Mr. Tripahti, learned Senior Counsel for the petitioner vehemently urged that the present management of respondent No.2 is not even cooperating with the Observer appointed by the NCLT and to that effect, the report dated 01.07.2024 has already been filed by the Observer which is pending consideration and, in this regard, learned Senior Counsel for the petitioner referred to the Tabular depiction of non-compliances by the present management, as detailed in paragraph (24) of the Observer report.
9. Per contra, Mr. Raj Shekhar Rao, learned Senior Counsel for respondent No.2 has vehemently urged that the present petition is grossly misconceived and not maintainable inasmuch as the petitioner is attempting to overreach the pending proceedings before the NCLAT on the same allegations. It was pointed out that the shareholding has been bought by the petitioner on 21.05.2024 despite the fact that the NCLT vide order dated 15.05.2024 vide Clause (C) has given a finding that the Optionally Convertible Debentures (OCDs)/Compulsorily Convertible Preference Shares (CCPs) issued by M/s. Exclusive Capital Limited (respondent No.2 in the present petition) shall stand cancelled and the money shall be returned to the respective holders.
10. Continuing his arguments today, learned counsel for respondent No.2 vehemently urged that the petition is not maintainable as Mr. Satya Prakash Bagla, Mr. Achal Jindal and Mr. Johnson Kallarachal Abraham have not been joined as a party. Referring to the provisions of Section 45MA of the RBI Act and alluding to the documents which are placed on the record today viz., R-2/1 to R-2/8, it is vehemently urged that respondent No.2 has been constantly engaged with respondent No.1 and has been supplying the relevant documents. It is further urged that the relief in the nature of Mandamus, as claimed by the petitioner, cannot be sought unless and until gross perversity is shown on the part of the RBI in conducting its inquiries under Chapter III B of the RBI Act. Mr. Rao, learned Senior Counsel vehemently urged that the petitioner has not come to the Court with clean hands and no foundational facts have been laid down so as to consider granting any relief in the present matter and the Writ Petition be dismissed out-rightly. It has been urged that the scope of judicial review is very limited and this Court cannot venture into the technical issues particularly when the same are in the domain of economic or financial matters and the matter should be left to the experts. Reliance is placed on decisions in Prestige Lights Ltd. v. State Bank of India[3]; Raghav Buildcon Private Limited v. UOI[4]; Akshay N. Patel v. Reserve Bank of India[5]; and Vishal Tiwari v. Union of India[6].
11. Mr. Sidharth Luthra, learned Senior Counsel for respondents No. 3 to 6 was mercifully brief. He alluded to the averments filed by respondent No.4 in the reply in the proceedings before the NCLT, whereby instances of gross mismanagement and arbitrary decisions on the part of the present management had been brought to the fore and in essence, substantiating the alleged aspects of financial irregularities and arbitrary sacking of the Managing Director & others at the hands of the present management inter alia pointing out that as per the NBFC guidelines, the present management is not even qualified to run its affairs.
ANALYSIS & DECISION:
12. Having heard the learned Senior Counsels for the parties and on perusal of the record, a strong inference is invited that although respondent No.2 is an NBFC, its present management has lot to answer with regard to the manner in which it is conducting its affairs. Though Mr. Rao has forcefully argued that several notices issued by respondent No.2 have been dutifully replied and they are engaging with them in right earnest, however, it is prima facie evident that respondent No.1/RBI is allowing themselves to be taken for a ride inasmuch as repeated notices sent by respondent No.1 are being circumvented in the sense that relevant documents are not being submitted and corrective steps have not been taken by respondent No.2.
13. All said and done, while the issues flagged by the learned counsels for the parties require deeper examination, the same could only be answered after considering the reply which is to be filed by respondent No. 1/RBI.
14. Hence, issue notice.
15. Notice is accepted by learned counsel for respondent No. 2. Rest of the respondents are pro forma parties and they would be allowed to address arguments.
16. Respondent No.1 is directed to file an updated “Status Report” as to the outcome of the proceedings conducted so far and the specify action(s), if any, proposed to be taken to streamline the running of the affairs of respondent No.2. As requested by learned Counsel for respondent No.1, two weeks‟ time is granted to file an updated Status Report.
17. Nothing contained herein shall tantamount to an expression of opinion on the merits of the matter pending before the NCLT/ NCLAT.
18. Re-notify on 13.08.2024. The matter be kept at the „Top of the Board‟ in the advance list in „part-heard‟ category.
DHARMESH SHARMA, J. JULY 24, 2024