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RESERVE BANK OF INDIA versus KRISHI EXPORT COM.CORPN.LTD.

High Court of Judicature at Allahabad

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Reserve Bank Of India v. Krishi Export Com.Corpn.Ltd. - COMPANY PETITION No. 88 of 1999 [2006] RD-AH 6962 (30 March 2006)

 

This is an UNCERTIFIED copy for information/reference. For authentic copy please refer to certified copy only. In case of any mistake, please bring it to the notice of Joint Registrar(Copying).

HIGH COURT OF JUDICATURE OF ALLAHABAD

Court No. 9.

Company Petition No. 88 of 1999.

Reserve Bank of India                              ...           Petitioner

                                 Versus

Krishi Export Com. Corp. Ltd.                ...            Respondents.

Hon. Sunil Ambwani, J.

1. This matter initiated on the application of Reserve Bank of India ( In Short RBI) under section 45 MC of the Reserve Bank of India Act, 1934, to wind up Krishi Export Com. Corporation Ltd. ( the respondent company) having its Registered Office at Krishi Export Plaza, Sigra, Varanasi, brings on record strange circumstances in which the investors who had deposited more than Rs. 54 crores of rupees, have been deprived of their deposits, due  to negligence and carelessness of the Reserve Bank of India, the petitioner in the company petition, and the ex directors obtained interim order from this Court.

2. The speaking order dated 17.9.1998 passed by the Reserve Bank of India rejecting the company application for certificate of registration to carry on business of non banking financial institutions as contemplated under section 45 IA of the Act, stated in para 3 as follows:

"3.   For the purpose of considering the Application of the Company, the information furnished by the company along with its said Application and the findings of the Inspection Report conducted with reference to its financial position as on March 31, 1998 have been taken into account which have revealed the following :

i)The NOF of the company was assessed to be negative at (-)Rs.682.62 lakhsas on March 31, 1998.

ii)Realisable  value of assets of the company at Rs. 5889.51 lakhs as on March 31, 1998 were far less than its outside liabilities at Rs.6151.11 lakhs.  Not

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only the owned funds, even the deposits have been eroded to the extent of Rs. 163.21 lakhs.  Thus, the company is not deemed to be solvent.

iii)The Management of the company did not have any scheme of delegation of powers and the policy decisions were taken by only one person i.e. the Managing Director.

iv)The Company had violated the following provisions of RNBC Directions contained in notification No. DFC.55/DG(O)-87 dated May 15, 1987 as detailed below:

a)The company had not invested in assets in accordance with the provisions of para 6 of the Directions, ibid.

b)Director's Report did not include information regarding compliance with RBI Directions and unclaimed deposits, thus contravening provisions of para 11 of the notification, ibid.

c)Audited balance sheet together with auditor's and Director's Report for three years ended 31.3.1997 were not submitted to the Reserve Bank thus contravening provisions of para 13 of the notification, ibid.

d)Periodical returns were not submitted prior to March 1998 by the company as required in para 14 of the notification, ibid.

e)Statements in lieu of advertisement (SILA) were not submitted by the company for 1997-98 thus contravening the provisions of para 16 of the notification, ibid.

This indicates that the affairs of the Company are likely to be conducted in a manner detrimental to the interest of its depositors."

3. Prior to filing of this petition the investors had approached the Company Law Board, ( In short CLB) after some Public Interest Litigations were filed. The CBL by its order dated 15.9.1999, after taking into account the assets of the company as on 30.9.1998 reported to be Rs. 54.60 crores and the liabilities towards the deposit of interest amount to the tune

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of Rs. 54 crores as on 30.9.1998  proceed to pass orders under Section 45 QA(2) of the Reserve Bank of India Act, 1934, and formulated a scheme of repayment to all the depositors within a period of three years from the date of maturity.

4. The RBI significantly neither offered any comments on the scheme to the CLB nor the representative of  RBI was present at the time of hearing on 15.9.1999.  The operative portion of the order of the CLB is reproduced as below:

"10. A further hearing was held on 24th August, 1999 and Bench Officer was directed to forward company's proposal for payment of its deposits in phased manner to Reserve Bank of India along with cash flow projections for their comments and to intimate them the next date of hearing.  A letter was accordingly written to this effect by the Bench Officer to General Manager, Reserve Bank of India, Sahkari Kisan Bhawan, M.G. Marg, Lucknow to offer their comments before 15th September, 1999 and also to depute the representative at the time of hearing if so desire, failing which matter would be decided on merit.

11. Neither the representative of Reserve Bank of India was present at the hearing held on 15th September, 1999 nor they have offered any comments on the scheme proposed by the company.  Mr. U.P. Mathur, Advocate appearing on behalf of the company urged that the scheme published by the company may be appeared being equitable and in the interest of the depositors of the company.

12.  Taking into consideration submissions made by the Advocate appearing for the company, the interest of the company, the interest of the depositors and also public interest at large, pursuant to the provisions of Sub Section (2) of Section 45 QA of Reserve Bank of India Act, 1934, the company is directed as follows:

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To pay all deposits within a period of three years from the date of maturity @ 30% during 1st year, 30% during 2nd years and balance 40 % during 3rd year.  The interest  for pre and post maturity period to be paid along with the last installment.

The interest will be at contracted rate up to the date of maturity and @ 12.5 % per annum after the date of maturity of deposit.  

The above scheme will be applicable to all depositors, whether over due or yet to mature, and whether any application has been filed before the  Company Law Board or not and the company is bound to abide by the terms of this order.

13. The company will adhere to the following guidelines in implementing the scheme:-

1. While repaying the deposits as per the scheme above, all individual deposits will be treated as Hsuch and shall not be clubbed if any depositor holds more than one deposit for the purpose of arriving at the amount as fixed in the scheme.

1.The need of the depositors in hard ship case like medical requirements, old age, marriage etc. shall be considered sympathetically by the company notwithstanding the aforesaid scheme.  For this purpose company shall keep separately a sum of Rs. 10.00 lakhs per quarter over and above the payment is required to be made as per scheme indicated earlier.  

2.The payment shall be made in the order of date of maturity i.e. deposits which have matured earlier shall be paid before deposits maturing at a later date.

3.The repayment should be spread over all the months in each year.

4.Notwithstanding the aforesaid scheme, the company will be at liberty to make repayment of deposits along with the interest thereon before the stipulated time, if funds are available.

5.The company shall make repayment of deposit and

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interest according to he above scheme by cheques wherever it has got arrangement with bank for payment by local cheque otherwise demand draft which shall be sent by registered post/courier to he respective depositors.

6.The company will file an affidavit every half    yearly on the state of repayment deposits, the first on by 31st March , 2000 with the Reserve Bank of India with copy to the Head Office of this Bench.

14. To ensure that this payment schedule is kept up, Mr. Mr. K.K. Gupta, Managing Director of the company who have filed various affidavits before this Bench shall file an affidavit of undertaking that the above scheme shall be implemented without fail, with a copy of Reserve Bank of India, Department of Supervision (Financial Companies) Lucknow within ten days from the receipt of this order.

15. Mr. K.K. Gupta, Managing Director of the Company shall also file an affidavit of undertaking that no assets of the company will be alienated without the written permission of Reserve Bank of India except for the purpose of repayment of matured deposit and interest thereon.

16. Any failure to comply with this order shall attract penal provisions contained in Section 58B (4AAA) of Reserve Bankof India Act, 1934 as amended bReserve Bank of India (Amendment) Act, 1907.

17. A copy of this order shall be sent by the Bench Officer to General Manager, Reserve Bank of India, Department of Supervision (Non-banking Financial Companies) Lucknow and in case of non-compliance of this order, the officer authorized by Reserve Bank of India under section 58 B of the Reserve Bank of India Act shall take appropriate action.

18.    The Company shall within three weeks, of release of this order send a copy of the operative portion of this order to all the depositions and at its discretion may also

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publish the same in leading newspapers.

19. A copy of this order be sent to the Secretary, Department of Company Affairs, New Delhi and Registrar of Companies, Uttar

Pradesh, Kanpur.

                                               C.R. Mehta,

                                                 Member."

5. The Reserve Bank of India filed this petition to wind up the respondent company without disclosing to the court, the proceedings and order of CLB dated 15.9.1999,  and obtained an interim order on 27.10.1999 restraining the respondent company from transferring, alienating and disposing of  any of the assets of the respondent company in any manner or encumbering its property. The RBI, thus trusted the statutory order of CLB and the chance given to the investors to recover the deposits.

6. The company filed a counter affidavit  on 9.2.2000 enclosing therewith the order of the Company Law Board and its commitment to make payment to the investors.  Sri K.K. Verma, Director and Secretary of the respondent company stated in paragraphs 6 and 7 that the Reserve Bank of India has wrongly interpreted Section 45-IA of the Act which provide that non banking financial company having a net owned fund of less than twenty-five lacs rupees can carry out the business of non banking financial  institution for a period of three years.  It was conted that the respondent company have kept its own fund at less than twenty five lacs hence it was entitled to continue its business for three years without obtaining any registration certificate from BIFR.  It was further stated in the counter affidavit that under the orders of the Company Law Board, the Company proposes to make payment and that if the respondent

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company is wound up the interest of the depositors will suffer immensely, since their deposits which are payable to them under the scheme of repayment approved by the Company Law Board will be in jeopardy and that the company cannot be deemed to be unable to pay its dues.

7. The  balance sheet of the respondent company disclosed as on 31.2.2000 unsecured loans of  Rs. 33,306 lacs, current liability Rs. 63 lacs  fixed assets  at Rs.267 lacs and  current assets, loans and advances at Rs. 2458 lacs.

8. It is contended that as the respondent company was unable to get the stay vacated for implementing the order of the CLB and the number of prosecution were initiated by investors, an application was made to either vacate the stay order or to stay the prosecutions, on which this Court by its order dated 2.3.2001 stayed the prosecutions of the Ex Directors of the Company.  The order dated 2.3.2001 is reproduced as below:

" The Reserve Bank of India filed Company Petition No. 88 of 1999 under section 45 of the Reserve Bank of India Act to wind up the applicant/company ''Krishi Export Commercial Corporation Ltd. which is a financial company.  In the petition an interim order was passed restraining the applicant/company from alienating the assets of the company.  When that order was passed apparently it was not within the knowledge of the Reserve Bank of India and certainly not in the knowledge of this Court that the Company Law Board has already passed the order approving scheme for repayment of the deposits lying with the Company of Small Depositors.

Now in view of the stay order which is operating in this petition the applicant/company is not in a position to utilize any of its assets whether cash or other property for making repayment.  It has been stated on affidavit and details have been

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given in Annexure-1to the affidavit, that at least 12 cases are pending against the Company and its Directors by various investors.  Some are criminal cases and some are before the Consumer Forum regarding non repayment of the matured deposits., of the 12 cases mentioned in Annexure-1, the case

mentioned at serial no. 1 is merely an F.I.R.  The cases from Sl. No. 2 to 7 are complaint cases before the criminal court and cases from serial no. 8 to 12 are cases pending before the Consumer Forum.  By this application under section 442 of the Companies Act the applicant wants protection against harassment by way of these cases.  

After hearing Sri Sharad Verma, appearing for the Company, Sri R.P. Agarwal and Sri V. Singh appearing on behalf of certain persons who have applied for implement by way of impleadment application dated 6.112.2000, I am of the opinion that it would be most unjust for this Court to restrain repayment by one order and yet allow the applicant and its Director to be prosecuted for non repayment, therefore, it is directed that till further orders of this Court the cases mentioned from serial nos. 2 to 12 of Annexure-1 to the affidavit of Sri K.K. Verma, sworn on 7.12.2000 ( paper No. A-23) will remain stayed.  Since the case mentioned at Sl. No. 1 is merely an FIR which requires only investigation I am not inclined to pass any order in respect of that case.

Sri Sharad Verma prays for and is granted three weeks time to file reply to this application (A-23).  The  case will be listed in the second week of April, 2001.  In the meantime Sri R.P. Agarwal., appearing for the Company will prepare a written notice addressed  to all the counsel who appear for the large number of investors who have applied for impleadment in the Company Petition, after obtaining their names from the record, and will serve its copy upon all the counsel on or before the next date of listing informing them that when this case is listed next all impleadment applications may be disposed of and in case any  of the counsel  is not present his application will be dismissed for want of prosecution. "

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9. Looking the facts  discussed as above, I find that the Reserve Bank of India did not act carefullyu and instead of participating in proceedings of CLP, obtained an interim order dated 27.10.1989 from this Court without disclosing to this Court that a scheme of repayment has been formulated by the CLB under section 45 OA of the Reserve Bank of India Act, 1934.  

10. The Ex Directors of the Company not only enjoyed the protection of the interim order dated 27.10.1999 but also got their prosecutions stayed leaving the depositors high and dry, and without any remedy.

11. Now more than five years have passed.   The record do not show that either of the parties made any effort to get the interim order vacated.   This Court also cannot escape its  responsibility to have acted against the interest of the depositors.

12. In the facts and circumstances, before proceeding further in the matter, or to vacate the interim orders passed by this Court on 27.10.1999 and 2.3.2001 or to consider the appointment of Official Liquidator as provisional Liquidator, I call upon the Reserve Bank of India to show cause as to why the entire amount to be paid to the depositors be not paid by the RBI and thereafter to recover the same from the Directors of the Company.  The Court also calls upon the Ex Directors of the Company to give the correct and accurate account of deployment of the fixed assets, current assets, loans and advances and the amount deposited in the banks, which they wre not allowed to transfer, alienate or dispose off in pursuance of the interim order dated 27.10.1999.

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13 Let the matter  come up for hearing on 21.4.2006 on the top of the list as first case.

Dt. 30.3.2006.

BM/-


Copyright

Reproduced in accordance with s52(q) of the Copyright Act 1957 (India) from judis.nic.in, indiacode.nic.in and other Indian High Court Websites

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