TMI Blog2014 (6) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... , at least on facts, for seeking payment of at least the interest accumulated on the SLR reserves. My conviction is further fortified by the offer made by the learned Senior Counsel for the petitioner that the respondent need not even pay any amount to the petitioner or to the Administrator appointed by this Court - if all the secured creditor Banks issue letters of acceptance of OTS Proposals, the respondent cannot have any objection at least to release the amounts claimed by those creditor Banks, most of which are Nationalised Banks and some of them are Scheduled Banks, directly to them. The total amount required for payment to all the 10 Banks under both the Consortiums, works out to only Rs.4,30,40,000/-. Once this amount is paid, the debts to the total tune of about Rs.128,59,13,063/- will get wiped out. The respondent need not even have any suspicion about the motives of the petitioner, since the petitioner is willing to allow the respondent to make payments directly to those Banks. The Reserve Bank of India itself has understood the definition of the word "deposit" to include the interest accrued thereon. If a Statute confers certain special powers upon a Regulatory Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff. The petitioner-company is now not in the hands of its promoters but in the hands of an Administrator appointed by this Court in a company petition for winding up. The Court is actually monitoring the recovery and payment. Therefore, I am of the view that directing the Reserve Bank to release the interest accumulated on the SLR, for the purpose of payment to the 10 secured creditor-banks under the One Time Settlement Proposals, will serve the ends of justice - Decided in favour of appellant. - W.P.No.17317 of 2013 - - - Dated:- 13-2-2014 - MR. V.RAMASUBRAMANIAN, J. Mr. Arvind P.Datar, Senior Counsel for Mr. V.P. Raman for the Petitioner T. Poornam for the Respondent ORDER 1. The petitioner challenges in this writ petition, an order passed by the respondent, rejecting the request of the petitioner for using the interest accumulated on the SLR amount, for making payment to the secured creditors under a One Time Settlement Proposal. 2. I have heard Mr.Arvind P.Datar, learned Senior Counsel for the petitioner and Mr.T.Poornam, learned counsel for the respondent. 3. The petitioner was established as a Non-Banking Finance Company incorporated under the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the petitioner company as well as its immovable properties were attached in terms of the provisions of the Tamil Nadu Protection of Interests of Depositors Act, 1997. Challenging the said order, the petitioner filed a writ petition in W.P.No.13030 of 2013. The writ petition was admitted and an interim stay was granted. 9. In the meantime, some of the creditor banks of the petitioner assigned their debts to the Asset Reconstruction Company of India Limited (ARCIL). The Banks that assigned their debt in favour of ARCIL were the United Bank of India, the State Bank of Patiala, the Indian Overseas Bank, the State Bank of Saurashtra and Catholic Syrian Bank. 10. ARCIL accepted a One Time Settlement Proposal from the petitioner, by a letter dated 4.3.2013. Under the said proposal, ARCIL was prepared to accept an amount of Rs.1,28,02,000/-, in discharge of the liabilities due to those 5 Banks to the tune of Rs.43.55 crores. The acceptance of the OTS was subject to two conditions, namely, (i) that the petitioner should make upfront payment of 25% and (ii) should pay the balance amount, on or before 15.4.2013. 11. Therefore, the petitioner made a request again to the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 13. The respondent has also filed a counter to the same effect. In short, the stand taken by the respondent is that the amounts lying in SLR securities and the interest accrued thereon, are intended to be securities for the due repayment of the amounts due to the depositors and that those securities cannot be liquidated with a view to discharge even the obligations to the secured creditor Banks. 14. Before proceeding to consider the rival submissions, certain developments that had taken place in the past two years in respect of the petitioner- company, also deserve to be noted. They are: ( i ) A petition for winding up the petitioner-company, was filed in C.P.No.172 of 2013 by one of the creditors, namely, Federal Bank Limited under Section 433 of the Companies Act. In Company Application Nos.804, 826 and 827 of 2013 in the said company petition, a retired Officer of the Indian Administrative Service, who is now practising as an Advocate, was appointed as an Administrator, for the purpose of recovering all amounts due to the petitioner from its own debtors and for discharging the obligations to the creditors, workmen as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir debts in the lurch. 17. In a tabular column, the respondent has furnished in paragraph 10 of their additional counter affidavit, the following information: Sl. No. Particulars Amount (Rs. in crore) Security 1 Public deposits including interest accrued thereon 34.21 Unsecured 2 Secured Redeemable Debentures/Bonds including interest (subscribed mainly be individuals) 102.91 Investments in unquoted equity shares, stock on hire not hypothecated / pledged to banks, receivables on loans and advances. 3 Borrowings from Banks including interest 108.16 Stock on hire, receivables on loans and advances 4 Inter-corporate deposits/loans 2.23 Total 247.51 18. In response to the above information furnished by the respondent in their additional cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank 80 lakhs 5,52,43,661.33 2,21,03,144.45 5.36 lakhs 9. Federal Bank 5 crores 27,05,20,343.47 12,66,53,478.09 66.80 lakhs 10. State Bank of Bikaner Jaipur 3 crores 13,28,44,237.63 8,13,43,955.81 20.13 lakhs Sub Total 33.02 144,03,71,175.35 77,65,16,452.50 3.0238 crores Total 52.1 crores 200,19,38,004.67 128,59,13,063.05 4.304 crores 19. Having considered the contentions raised by the respondent in paragraphs 10 to 13 of their additional counter affidavit and the information furnished by the petitioner in the form of two tabular statements extracted as above, I am of the view that the petitioner has enough justification, at least on facts, for seeking payment of at least the interest accumulated on the SLR reserves. My conviction is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,25,565.27 as on the same date. The principal amount of money payable to all the depositors is Rs.25.88 crores, on which, interest to the tune of Rs.8.30 crores, has accumulated upto the date of maturity in the year 2005. Therefore, the total amount due to the depositors is Rs.34.18 crores. Since the petitioner is obliged to maintain 15% of the total amount of deposits, in SLR, the amount required to be maintained in SLR, according to the petitioner, is only Rs.3.88 crores. Therefore, the petitioner originally wanted the entire portion of the interest accumulated on SLR and one portion of the SLR, to be utilised for paying off all the 10 secured creditor Banks. 24. But, today, the petitioner is prepared to to confine the relief sought only to the extent of utilising the interest on SLR viz., Rs.2,25,25,565.27. The petitioner appears to have 8 fixed deposits in the State Bank of India on which interest has accumulated and the total amount available there is about Rs.112 lakhs. Therefore, the petitioner confined his prayer only to the release of the interest alone that has accumulated on the SLR, for discharging the liabilities to all the Banks under the OTS. 25. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second preceding quarter. 30. Therefore, the first question is whether this 15% is to be calculated only on the principal amount of deposits received by the Non-Banking Financial Companies or on the principal amount taken together with the interest accrued thereon. If the requirement to maintain 15% as investments in SLR, is only on the principal amount of deposit, the investment once made will not get altered except with the receipt of every new deposit. If on the contrary, the requirement of 15% to be maintained in investments is on both the principal and the interest accumulated on deposits, the amount to be maintained in SLR will keep varying from time to time. Keeping this in mind, let us now examine the provisions of the Reserve Bank of India Act, 1934 and the notifications issued thereunder. 31. The Reserve Bank of India Act, 1934 is actually a colonial legislation. After independence, the Reserve Bank of India Act, 1934 was amended by several enactments such as Act 32 of 1951, Act 54 of 1953, Act 19 of 1957, Act 14 of 1959, Act 14 of 1960, Act 35 of 1962, Act 55 of 1963, Act 44 of 1973, Act 51 of 1974, Act 24 of 1978, Act 81 of 1985, Act 8 of 1991, Act 9 of 1991, Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iptions in respect of a chit. Explanation I. Chit has the meaning assigned to it in clause (b) of section 2 of the Chit Funds Act, 1982 (40 of 1982). Explanation II. Any credit given by a seller to a buyer on the sale of any property (whether movable or immovable) shall not be deemed to be deposit for the purposes of this clause;' The above definition was inserted only by Amendment Act 1 of 1984 with effect from 15.2.1984. 33. Section 45-IB contains various conditions relating to maintenance of percentage of assets by every Non-Banking Financial Company. Sub-section (1) of Section 45-IB is of relevance and hence it is extracted as follows: 45-IB. Maintenance of percentage of assets. (1) Every non-banking financial company shall invest and continue to invest in India in unencumbered approved securities, valued at a price not exceeding the current market price of such securities, an amount which, at the close of business on any day, shall not be less than five per cent, or such higher percentage not exceeding twenty-five per cent, as the Bank may, from time to time and by notification in the Official Gazette, specify, of the deposits outsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Non-Banking Financial Company from accepting any deposit and (ii) to prohibit them from selling, transferring, creating a charge or mortgaging or dealing in any manner, with its properties and assets, without the prior written permission of the Bank, for a period not exceeding six months. This Section 45-MB was inserted only by Amendment Act 23 of 1997 with effect from 9.1.1997. 38. Section 45-MC, also inserted by Amendment Act 23 of 1997, enables the Reserve Bank itself to file a petition for the winding up of a Non-Banking Financial Company, if the conditions stipulated in clauses (a) to (d) of sub-section (1) thereof are satisfied. One of the conditions stipulated is that the Non-Banking Financial Company had become unable to pay its debts . But the inability of a NBFC to pay its debt, as contemplated in Section 45-MC(1)(a) stands on a different footing from the presumption of inability to pay the debt raised in Section 433(e) of the Companies Act, 1956. This is seen from sub-section (2) of Section 45-MC, which states that a NBFC shall be deemed to be unable to pay its debt if it has refused or has failed to meet, within 5 working days, any lawful demand made at any of the O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... III-B. 44. Keeping in mind, the Scheme of Chapter III-B, let me get back to the first question viz., as to whether the SLR to be maintained by a Non-Banking Financial Company at a particular percentage of the total deposits received by them, is to be calculated on the face value of the deposits or on the aggregate of the principal amount and interest taken together. 45. As seen from Section 45-IB(1), which I have extracted above, the Section uses two phrases viz., (i) shall invest and (ii) continue to invest. The amount to be invested, is to be calculated at a fixed percentage as prescribed by the Reserve Bank, on the value of the deposits outstanding as at the close of business on the last working day of the second preceding quarter . 46. The word deposit is defined in Section 45-I(bb) to include any receipt of money by way of deposit or loan or in any other form. Interestingly, it is an inclusive definition which also lists out a lot of exclusions. Therefore, it is clear that the Statute has left the definition of the word deposit , to the imagination of Courts, after merely indicating what is included and what is excluded. Consequently, one has to understand the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al amount of deposits together with the interests accrued thereon. 49. That takes me to the next question as to whether the SLR amount would include the interest accumulated thereon or not. This question has arisen, in view of the fact that the writ petitioner does not want to liquidate the SLR investment. The writ petitioner is praying only for taking away the interest accumulated on the SLR investment, claiming that the interest accumulated on the investment, does not form part of the SLR investment. 50. To find an answer to the above question, we may have to go back again to the provisions of Chapter III-B of the Act. As I have pointed out earlier, the requirement to maintain a deposit in unencumbered approved securities, arises out of the provisions of Section 45-IB(1) of the Act. Section 45-IB does not talk about the deposit. It speaks only about an investment to be made by a Non-Banking Financial Company in unencumbered approved securities. The expression approved securities is defined in Explanation (i) under Section 45-IB to mean securities of any State Government or Central Government and such bonds, both the principal whereof and the interest whereon shall have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ashed or otherwise dealt with by the non-banking financial company except for repayment to the depositors with the prior approval of Reserve Bank of India: Provided that, ( i ) a non-banking financial company may withdraw a portion of such securities in proportion to the reduction of its public deposits duly certified to that effect by its auditor; ( ii ) where the non-banking financial company intends to substitute such securities kept in physical form, it may do so by entrusting securities of equal value to the designated bank or SHCIL before such withdrawal; and ( iii ) the market value of these securities shall, at no point of time, be less than the percentage of public deposits as specified in Notification No.DFC.121/ED(G)-98 dated January 31, 1998; (3) Where the non-banking financial company intends to trade, either by entering into ready forward contracts, including reverse ready forward contracts, or otherwise, in the government securities that are held in excess of the requirement under Section 45-IB of the Act and Notification No.DFC.121/ED(G) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pointed out that a very wide power is given to the Reserve Bank of India to issue Directions in respect of any matters relating to or connected with the receipt of deposits. These Directions have binding effect upon all Banking Companies. In paragraph 31 of the same decision, the Supreme Court pointed out the importance of the role assigned to the Reserve Bank of India, for the purpose of safeguarding the economy and financial stability of the country. In paragraph 53, the Court emphasised the place of pre-eminence occupied by the Reserve Bank of India to ensure monetary discipline and held that the Directions issued under Chapter III-B of the Act, are in the nature of Statutory Regulations. The Directions issued by the Reserve Bank of India were held to be part of the Statute itself. 58. Again in Reserve Bank of India v. Peerless General Finance Investment Co. Ltd. {1996 (Vol.85) CC 920}, the Supreme Court emphasised that an enabling provision empowering the Reserve Bank of India to regulate the functioning of Non-Banking Financial Companies, must be so construed as to subserve the purpose for which it has been enacted. Therefore, the Directions of the year 1998, issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally acting almost like a Provisional Liquidator, to take care of the interest of the entire body of creditors. 63. The Administrator has filed a report into Court, giving details of the amounts realisable from the debtors of the company. As per the Report of the Administrator appointed by this Court, the Company has a total claim of Rs.487,61,22,063/- as on 31.8.2013. The petitioner-company has filed about 629 civil suits for recovery of a total amount of Rs.184,96,53,980.97 from its borrowers, in various Courts in Tamil Nadu, Karnataka and Kerala. The amounts realisable by the petitioner-company, represent monies lent by the petitioner on hire purchasing, lease financing and factoring. Out of those 629 suits, 559 suits for recovery of Rs.63,43,81,949.41 have already been decreed. As on date, 60 suits for recovery of Rs.115,96,94,024.03 are pending. Out of these 60 suits which are now pending, only 3 suits are pending in the City Civil Court and the remaining 57 suits are pending on the file of the Original Side of this High Court itself. Therefore, it is possible to deal with all those suits through the Company Court itself, by passing necessary orders and by invoking Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered the entire Scheme of Chapter III-B of the Reserve Bank of India Act, 1934 and the 1998 Directions issued by the Reserve Bank of India in exercise of powers conferred by Sections 45-J and 45-K, I am of the view that the problem on hand is not without a solution. I have already indicated that the requirement to maintain an investment in unencumbered approved securities, is imposed under Section 45-IB(1). But sub-section (5) confers powers upon the Reserve Bank of India to condone the failure of a Non-Banking Financial Company to comply with the provisions of sub-section (1). 67. De hors Section 45-IB(5), the Reserve Bank has the general power of exemption under Section 45-NC, to declare by notification in the Official Gazette that any or all of the provisions of Chapter III-B shall not apply to a Non-Banking Financial Institution. Even the proviso (i) under paragraph 6 (2) of the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions 1998, enables a Non-Banking Financial Company to withdraw a portion of the securities in proportion to the reduction of its public deposits. Proviso (ii) under paragraph 6 (2) of the very same Directions, 1998, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up. The Court is actually monitoring the recovery and payment. Therefore, I am of the view that directing the Reserve Bank to release the interest accumulated on the SLR, for the purpose of payment to the 10 secured creditor-banks under the One Time Settlement Proposals, will serve the ends of justice. 72. In view of the above, the writ petition is allowed to the following effect: ( i ) The petitioner is permitted to get Letters of Acceptance of OTS proposals from all the creditor-banks (both Scheduled and Nationalised) or their Assignees. ( ii ) Every Letter of Acceptance of OTS proposal shall be forwarded by the petitioner-company through the Administrator appointed by this Court, to the respondent then and there. ( iii ) Upon receipt of the Letters of Acceptance of OTS proposals through the Administrator, the respondent shall issue necessary permission to the Administrator to withdraw from the interest accumulated on the SLR amounts, necessary funds for payment to the banks. But the total amount for which permissio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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