TMI Blog1999 (12) TMI 769X X X X Extracts X X X X X X X X Extracts X X X X ..... is to accept the deposits from various individuals and companies and to advance the same to other companies. It has its Registered Office at 105 -C, Mittal Tower, Nariman Point, Mumbai and Head Office at Begumpet, Hyderabad. It has number of branches all over the country. It has been carrying on the business of financing by way of hire purchase. But, however, on account of revised guidelines issued by the Reserve Bank of India in 1997, the company started running into heavy losses. It has around 12,000 depositors and 3,000 debtors. Since the deposits made by various depositors matured and on account of loss sustained by the company, it could not repay the deposits to the subscribers. Number of complaints were made against the company, and it is also the case of the petitioners that some depositors started harassing and manhandling the Managing Director and some civil and criminal cases were also filed at various places. Since the first petitioner is a respectable person, frequent visits of police has demoralizing effect on the status of the Managing Director and that the company would certainly collect the amounts receivable from others and pay the same to the depositors. But, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of getting reasonable returns and that the company has virtually defrauded and deceived them and the depositors are on the starvation point and they lost heavy amounts and not in a position to recover any portion of their deposits. It was also stated that the company is having number of assets which would meet more than the depositors' requirement and that it was only feigning financial incapacity temporarily. However, keeping in view these submissions and in order to safeguard the interest of depositors, the Court passed the following interim orders on 8-2-1999 : ( a )The deposits in respect of 1996 which are already matured covering 233 depositors shall be paid from 1-5-1999 to 31-5-1999, and the interest shall be calculated up to 30-4-1999. ( b )Similarly, in respect of the 1999 deposits (total depositors 1,256), the payment shall be made from 1-10-1999 to 31-10-1999 duly calculating the interest up to 30-9-1999. ( c )In respect of 1998 deposits there are 6,428 depositors to whom the amount has to be refunded. Out of this, the deposits in respect of 1,428 depositors shall be refunded from 1-1-2000 to 31-1-2000 duly calculating interest up to 31 -12-1999. In respect of ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard. ( j )The petitioners shall furnish to the Advocate-Commissioners remaining income and expenditure account of 2nd petitioner-company every month. ( k )In respect of deposits which would mature in 1999 the same shall be paid within three months from the date of maturity duly calculating the interest. The said amount shall be deposited by the petitioners to the aforesaid depositors account giving the details and addresses of the depositors. The Advocate-Commissioners shall on such deposit issue cheques to the respective depositors under proper documentation. ( l )The 1st petitioner shall not leave the country without the specific permission of this Court and he shall intimate this to the Passport Officer giving necessary details of his passport, to ensure that he will not leave the country without permission of this Court. A copy of the orders shall be sent to the Passport Officer, Hyderabad for necessary action. The 1st petitioner is permitted to travel within the country. However, he shall intimate the same to the Commissioner of Police, Hyderabad. ( m )The Commissioner of Police, Hyderabad shall continue to provide two gunmen at the cost of the petitioners, as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners also did not furnish the bank guarantee for Rs. 10 lakhs as directed by this Court. The petitioners also did not furnish the details of movable and immovable properties and balance sheet to the Advocate-Commissioners, therefore, they filed a report stating that the petitioners did not comply with the directions of this Court. By letter dated 24-3-1999, the petitioners informed the Advocate-Commissioners that no banks are coming for ward to furnish bank guarantee and expressed their inability to furnish bank guarantee and submitted the assets of the company as follows: Fixed Assets of Dr. Pinnaa N.R. Rs. 1.Agriculture land at Malkapur village Chettuppal Mandalam, Dist. Nalgonda to an extent of about 9.00 Acres) 3,50,000 2.UTI units 4000 @ Rs. 14 per unit 56,000 3.Shares in different companies 5,00,000 Total 9,06,000 8. The petitioners filed another affidavit on 29-12-1998 giving the revised schedule of proposed payments as under : SI. No. Number of Depositors Principal amount Date of payments Rs. 1. 613 87,86,925 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey No. 277 situated at Malkapur village, Chottuppal Mandal, Nalgonda District. 10. The Advocate-Commissioners filed third report dated 12-7-1999 stating that they have received claims from various depositors, but the company has not deposited any amounts. On 2-8-1999 fourth report was filed by the Advocate-Commissioners stating that no progress was made with regard to deposit of the amounts, and that the company only furnished the statement of receivables. Fifth report was filed by the Advocate-Commissioners on 19-8-1999 submitting the receivables from various third parties including the Court cases. 11. This Court passed various orders from time to time in order to see that the interest of depositors is protected. The Depositors' Association also filed details of various properties held by the petitioners. The Govern- ment Pleader furnished the information with regard to the cases pending against the petitioners in Andhra Pradesh. Following are the details of cases registered against Pinna, Nageswara Rao of Midwest Finance Ltd.in the State of A.P. SI. Police Crime Amount No. Station Number involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . They have furnished valuable information from time to time. It is stated that the managing director and other family members have acquired a lot of assets with the monies of the depositors, and the following five companies were established : 1.Midwest Hire Purchase Ltd. 2.Midwest Growth Ltd. 3.Midwest Mutual Fund Ltd. 4.Midwest Iron Steel Ltd. 5.Midwest Wooltex Ltd. Midwest India Industries Ltd. is promoted by none else than the members of the family as can be seen from the registration certificate of the company before the Registrar. The following are the promoters : Sl. No. Name of the member Relationship with the 1st petitioner 1. Nageshwar Rao Pinna 1st petitioner 2. Geetha Rao Pinna Wife 3. Suryanarayana Pinna Father (since died) 4. Venkateswara Rao Pinna Brother 5. Tirupatamma Pinna Mother 6. Rama Rao Pinna Brother 7. Jalaja Pinna Sister It is and also stated that the sister companies acquired much extent of assets the Association furnished the following details : Sl . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under registered documents bearing Nos. 8881, 8882, 8916 and 8917 of 1997 on the file of the Sub-Registrar, Rangareddy District. The Association also stated that the copies of wealth-tax and income-tax returns disclose that the following properties are in the name of the company : SI. No. Description Value as per returns Rs. 1. U.T.I, units 4,000 at Rs. 14 per unit 56,000 2. Shares in different Indian companies. 5,00,000 3. Gold Ornaments 400 grams at Rs. 473 per gram. 1,89,200 4. Fixed deposit with companies 18,91,500 5. Registered Office Building in Bombay 4,85,00,000 On 23-8-1999 this Court passed further interim orders to the following effect: "Pending further orders, the Advocate-Commissioners shall take physical possession of the land situate in Sy. No. 62, Madapur, Rangareddy District having an extent of Ac. 2-00 and another piece of land situate in Sy. Nos. 105 and 106 of Khajaguda having an extent of Ac. 1-20 guntas forthwith. The petitioner shall identify the land and hand over the physical possession as directe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fidavit on 8-11 -1999 giving comprehensive details from the inception. 15. The Reserve Bank of India filed counter stating that by virtue of amendment, all Non-Banking Financial Institutions are prohibited from accepting the deposits, except with the permission of Reserve Bank of India and for this purpose, they have to obtain registration. This amend ment came into effect in 1997. The petitioners submitted an application on 19-6-1997 for grant of certificate of registration under section 45-IA of the Reserve Bank of India Act, 1934 ('the Act'). The Reserve Bank has noticed a number of defaults and also received complaints for non-refund of the deposits already collected by them. In order to consider the application for grant of registration certificate, a special audit of the company was order by D.V. Ramana Rao Co. and the special audit revealed that the company had outstanding public deposit liability of Rs. 1453.34 lakhs as on 31-3-1997 and Rs. 1672.81 lakhs as on 31-3-1998 and it had several overdue matured deposits of Rs. 74.86 lakhs as on 31-3-1998. The realisable value of the assets of the company was at Rs. 1224.09 lakhs which was far less than the outstanding liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rections not to arrest only with a view to see that the petitioner should utilise the opportunity to pay the amounts to the depositors but this has no effect at all on the petitioners. 17 . It is no doubt true that Midwest India Industries Ltd. was registered by their family members, viz., parents, brothers and sisters of the first petitioner. As on today, they are not the directors, but it cannot be disputed that they are the promoters. It is also revealed prima facie that much extent of assets were acquired by the family members and also by the first petitioner and some assets were also acquired by the companies which were registered subsequent to the registration of Midwest India Industries Ltd. It is thus prima facie establishes that the funds collected by the petitioners from various depositors have been diverted for purchase of various assets and they are misused by the petitioners, promoters and other directors who were holding office from time to time. In Chapter IH-B the definition of term 'non-banking financial company' was added by amendment Act 23 of 1997 with effect from 9-1-1997. Under section 45-IA which came into force with effect from 9-1-1997 prohibits no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates. But, the institutions which have already collected deposits as on the date of coming into force the amended provisions in 1997 and which were refused certificate of registration by Reserve Bank of India and failed to refund the deposits, no provision has been made to deal with such companies. The fate of these depositors with such companies is hanging in fire. Therefore, a grave situation arisen wherein the State is required to deal with it with stern hands. 18. The present case would not have come to light if the Court has not made elaborate enquiry into this aspect with regard to assets and details of promoters and the past directors etc., and also the companies established. Can the thirst of the depositors be wiped out if these offenders are prosecuted and sent to prisons. The answer is emphatically 'no'. Similar situation came to light before the Supreme Court in Delhi Development Authority v. Skipper Construction Co. (P.) Ltd. [1996] 4 SCC 622. The Supreme Court clarified that "imposition of punishment for contempt would not denude the Court of its power to issue directions to remedy by the wrong done by the contemner including those so as not to enable the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly prospective effect. But the emotions and feelings of parties have no place in judicial proceedings. This Court is required to salvage the situation in accordance with law keeping in view the mandate of the Constitution. It spreads its arms of justice to identify and reach the injustice, and thereby remedy the cause. The efforts of this Court to save the depositors yielded microscopic results. But at the same time, no offender should be allowed to gain an impression that Courts lean towards them. The petitioner failed to respond to the opportunities granted by this Court. The endoscopy of the matter leads to inevitable conclusion that physico-judicial therapy is not the cure, but the judicial surgery is only the solution. Under these circumstances, in the wake of the details referred to above and in order to see that the companies do not defraud the innocent depositors, the writ petition is disposed of with the following directions : ( a )The State Government shall constitute a separate cell in the office of the Director General of Police headed by an officer of the rank of Superintendent of Police and above for dealing with Non-Banking Financial Institutions who have alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alienate any of the properties either movable or immovable held by them as on the date, pending winding up proceedings before the Court. The CBCID shall seize office premises and records at Hyderabad and all other places including Mumbai wherever the company operated its offices for the purpose of investigation and further action as per law. ( f )The Inspector General of Stamps and Registrations, A.P., Hyderabad shall issue necessary instructions to the concerned Registrars in whose jurisdiction the properties of the company and the Managing Director are situate, not to register any instruments including sale deeds pending winding up proceedings. The two pieces of land situate in Madapur (in Sy. No. 62, having an extent of Ac.2-00) and Khajaguda (in Sy. Nos. 105 and 106 having an extent of Ac. 1-20 guntas) whose possession was takenover by the Advocate-Commissioners shall now continue in the possession of the Mandal Revenue Officer, Serilingampally pending winding up proceedings. He shall ensure that no encroachment takes place. He shall abide by further directions that may be issued by the winding up court. ( g )The facility of two gunmen granted by this Court to the first p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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