Karnataka High Court
Reserve Bank Of India vs Tulunadu Finance & Developments Ltd on 16 April, 2010
Author: Mohan Shantanagoudar
Bench: Mohan Shantanagoudar
IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS me 16*" DAY or APRIL 2.0,i§':- A. 3 BEFORE : THE HON'BLE MRJUSTICE MOHVAN sHAM:TA_,i,iA'*g=oi)bAR't'-, QQMPAQY genngn Noam 1 2:30; ggw. QQMPAQY PEVT;n;_VgN 1539 (23,; g":;2g Q ;§_.,-__, ggmpang Pggigign NQ.1g_§[;QQ;_--_--_-; '' Bggwggn : - Reserve Bank of India F ' A Statutory Corp'or,a,tion:=estat'2~f'ished = Under the Rese-rve";jB_a_nk of L13-n_dia..: . Act, 1934, , . Having its%Centra5 'Qffice,_at_ " Central O'ffi'cer,,£$uild'i"ng, _ Shaheect Bagat Sin-gh'VMarg,'vV..__ ~ - Mumbai-400,001, ' And branches inter=al"i'a' . At No.10/3/8;» _ V. A" Nrupathunga Ro'a.¢:1,' " - B_an._gfai'ore:56_0 O01,' ---------- ~ " By«i.ts'Genera'I"Manager 't-K'.R,Ananda'.t _ .. Petitioner ( Syéri Jasraratnw, Sr. Counsei for M/"s-..Kfr.tg 8-Patridge ) A Finance & Devefopments Ltd., - -«A Company incorporated under the ' :1' Companies Act, 1956, Sri D.B.Rajanna, CGC for ROC, M/s. King & Patridge, Advocates for RBI ) This Company Petition is filed under Sections"'391.. 393sread with Section 394--A of the Companies._Act;-1956._" praying to sanction the scheme of com'p'i*o.rnise~~., and__ arrangement, Ann.B thereto by this :Hon"iJ4!e« Court, so as-to be binding on the petitioner cornpia-ny?, =its-. 'erg'-;.:_it3i:Vst sharehoiders, the creditors viz., deben_ture holders «and». its " deposit holders and etc., These Company Petitions hayin-g beerriheayéid and reserved for orders on 8"? March.~201*O§;jpronounced the same on 16"' April 2010: " I V 3 Company' filed by Reserve Bank of as ' the RB:r for short) under Sectizon44'5Vof "Bank of India Act, 1934 read with SectionA.433 vtheA.'Cornpanies Act, 1956, praying for Finance & Deveiopments i_td., Corn Dia.ny; .. .3' j A - . .AComzpa«ny Petition No.215/2oo3 is fiied by Tulunadu Finiance. Deveiopments i_td., (hereinafter referred to as th.e_..éompany' for short) undrefiections 391 to 393 r/w. Section 394A of the Companies Act, 1956, praying for sanctioning of the scheme of compromise and arrangerreent Q . so as to be binding on the Company, its creditors viz., debenture holders an_d...i.ts_deposit"boi»dé'rs_'.}A, 2. Tulunadu Finance'V._v'&_VDev'eiopme'nts'5._;'I;td».,' (the? Company) was incorporated on_._,;2V*f'*..February"1.985,.i§under the provisions of Companies'--..Act,'A'.1_9i~}SB."""§fh'e'Company filed an appiication undertSection"'Zit'3%.IAv.otft.h.e..VReserve Bank of India Act, 1934 RBI Act' for short) dated of Registration from RBI to :':run._ aItn'o.riv.b'an>k'ing"'-financial Corporation (in short 'NBFC'). iisisped Certificate of Registration No.o2._:fooo.12 und~e_.t,VSeci:ion 45--IA of RBI Act on 1o.2.1993. conducted scrutiny of Books of Accounts uR'ridé'Cr.__Secti'o~n_ of RBI Act. The scrutiny revealed that I I the firianciial 'position of the Company was unsatisfactory and «i.t,_ had defauited in re-payment of deposits and also :3/ioi.ate'd certain provisions of RBI Act and the directions I --:'.,:V'is'sued by RBI. By its order dated 11.5.2000, the RBI V' filed by R81 under Section 45-MC of RBI Act read with Section 433 of Companies Act, 1956, for winding the company on 19.6.2002. 3. The company fiiedjMmComVpa_ny'_*V:_.:App.ii:ca,t_io'.n No.776/2003 for reviving b.u_nderW.S'ectlon,!'..39V'13'oféithewacy Companies Act, on 5.8.2003L"t«,.:"lThis Cou'r*t:.'-iadiirnitted the Company Application.."l3yé_ fii_i'n'Q'_"t:hejsaid aippiication, the company sought for an to convene separate meetlngspf eo_uity.:..sharieho~lde_rTs, secured creditors (i.e., bankers secured creditors (i.e., debenture ._ creditors (i.e., deposit hoiders), the."purp:o"_s»e' of approval of scheme of arrangement an'q..._gVovVmpromise in respect of repayment of the this Court ordered to convene the me.et.ings"«ao_f__'secured creditors, shareholders, company A C' .bankers, "debenture holders, deposit holders separately. The .31,"'---¢n:jeeti.ngsVV'were held in the registered office of the company '.'_jon'-20.10.2003. The report of the meetings was furnished by A ~:'..:th'e Chairman, who had chaired the meetings held on W 19.s,;.?.005. 20.10.2003 to this Court on 4.11.2003. On the very day, i.e., on 4.11.2003, Company Petition No.215/2003 is,-filed by the company praying for sanctioning of compromise and arrangement under Section's.._V3€:}1~..V'to% 39:30' read with Section 394--A of the Cornpaniesy_ A.ct,.;«1.§5s. 4. on 3.8.2005, Compa'ny"'~iPetitvio'n._Vi\io.-.10VS;{42V002 filed' by RBI praying for winding up"'i's"a'§inj\'itted and" the RBI was directed to cause advertisementdof th0e.A/_p.e'ti_tion in the news papers i.e., §T'\.'ij;ai_va ffinjeisi', Edition and in 'Udayavanii "dfaiiy --paper), on or before 24.8.2005,-_ fi)V<ViVn'g.ft.h'e-'hearing as 16.9.2005. The pubiicatioins_were"carried:-out in both the news papers on ~. :§ri.._J'a'yaram, learned Senior Counsei appearing on V .V behaéii' of--':t.h'e':RBI and Sri Mahesh, Eearnec! counsel appearing riaehaif of the company and other iearned advocates on recotrdj have taken me through the records of both the matters and submitted their arguments. rt' _ 10 _ According to the RBI, the scheme as put forth by the company is made oniy to escape from the prosecution and that therefore, the scheme of arrangement and comp'ro.mi»S'evv may not be sanctioned. _ it It is further argued on behalf of RBI that__tV_he. primary object of the company is to do business; since the primary object ofwthe cornpa'gny" itselfi V cannot be carried out in view of cancellation' ~of"*C-ertificalte of Registration by RBI, the ' encilia§%y_ shail "not be ailowed to be carried out 'Atha__t.'«~the company cannot app_rob.ate Valndr-..repr'owbaite,' inasmuch as, the company cannot go be'hi__nd_its' _."subm'i_ssions made before this Court that it no objection for winding up of the company in 'view of ;he_ipiess:situation. It is further submitted that the allowed to contend that it should be given alhéichantze' of revivai to carry on the ancillary objects of Vth:e».,corin.pany. F" -13- itself without giving an opportunity to the company to convert itself into non--banking non~financial company. Other appiicants before the Court who are the debenture ..h'o.:ld«elr's_ aiso argued opposing the winding up petition. 9. It is relevant to note that on4e--.of--..the g<':tedi'torvli.acli 0' fiied Company Petition No.115/20'0i"'l» for windlimg-I the company and this Court h':ady_ orriereld-iliorlv2'winding_'"u'p of the company and appointed the the order dated 23.7.2002."'«;The an appeal in O.S.A.No.S2/'2'0'02}.V_wh:i7i;'h to lhbellrejected by the Division Bench of »order dated 13.11.2002, reserving_1iberty" to piace'*.thAe" subsequent events before the ,f'g"éa.med'._.Coi11.pany Judgeand to seek recalling of the said or'der';V'_..the company fiied an application for . .,,_,_,«».recaiiingfthe. dated 23.7.2002 on the ground that the "-«3.j'jv»-cor'npany commerciaily soivent. Simultaneousiy, the credyitor.{p'etitioner who filed the petition for winding up in Company Petition No.11S/2001, fiied Company lxe -14- Appiication No.271/2003 praying for withdrawal of the said Company Petition No.115/2001. After due consideratio{i"eof the matter, this Court by the order dated _ its order of winding up dated 23.7.2002. 10. The authorised share' «:_apita'ii.V_of Rs.3 crores, divided into Rs.3O iai<'vh2svfiequVity of'1Vf:Rs.10/-- each. The share capitai Acoiiipa2'ni',4__'i»sA"Rs>.1,30,Ei0,000/--, divided into Rs.13,8_6,0oo/-..-eq.uity_ eha'res:~10..¢i?'Rs.10/~ each (fuiiy paid up)._ subscribed and paid up share on 315' March 2002 are set ._ ' and 7 of the Company Petition No.21-5/2o_o3. .""i:'he::"'t"_}a4lance sheet and the Profit & 'Loss Actjotiiit for"'th.e: year ending 31" March 2003, with Vlicorhparativveifigtires of the previous year ending 315' March 2002. i's--..V5Aet' Paragraph 9 of the Company Petition N.e.215P/2003. 'V {V2 11. Before proceeding further, it is reievant to note the main objects of the company as contained in Memoranduf-n_lofv Association of the Company, which read thus : (A) THE MAIN OBEECTS TO BE :PER:S.4LlEiDu'--EN',Ti<I.E'=5:W COMPANY on ITS INCQVRPORAT__ICJ!.\i ' ' 1.
To do the businesvskof .h_ire§purchase;:
finance an':ci~~..é_lea_sVin'g'VA flaii. duraibie, industrial fg-o'ods and vehéicies of"""allf:: motor trawlerslwl lajunchelsfplant and i.mach.i'n.ei'y, toois and .... _o{%§--i'l'V: descriptions, V -. 'refrige-ratorsi;.i.:a"i'r--conditioners, washing "~.._L4'machi.nes" a'r'i--dV""other equipments of aperisonal useior otherwise or television .iu_andAAa'iivty--pes of electronic devices and V' '«.p*.eo~ui_pment and all types of "=.,..:'coV.rm'herciai, residential and industrial .'_l§--uildings and to buy, sell, piedge, pawn, mortgage or otherwise deal with them.
N/3 _ 17 _ other commerciai industrial, residentiai and all other types of buildings.
5. To carry on the business of real estate T _ agents for gurchase, sale. lease or hire:
of land. buiidinos. structures. i" office spaces or other buildir1gs_..'.'~... (Emphasis supjfiliecl)' s « From the aforementioned main objects of thleicompasnyr as contained in Memorandum of }5is.s_ociation,~..it' clear that one of the main object of4_'t~he «ion_ibVanj,!,.VVVl'(fifth object) is to carry on the business of real saie, iease or hire of'!_anrj; bu'i:rifi-njgs-,s'"structures, flats, office spaces or other buildings,_._' " The main objects relate to non- e
4.banking4§;firia~nciai of the company. Whereas, the fifth jrnain to carry on the business of real estate agelnryhiforVvbarchasvey sale, lease or hire of land, buiiding etc., Thus, it44"carinsot"be said that non-banking finance business is oniya niain object of the company. Apart from non--
"finance business of the company, the object of the ' "company is to carry on the business of rea! estate also. V' -13-
12. The Court is conscious of the fact that RBI.--i"t-seif has approached the Court by filing the petition V. up of the company in exercise of its power under"$§_ectio.nVl'4Si§if C MC of RBI Act read with Section 433 cIfCo'rn«paa"nies Supreme Court of India has recognisedtand i:ieAcla»red"
special status statutorily assigned~~.ii'to~--,Res.erve" uindia. In the case of JOSEPH" ~.§(tIRti'V1Lli;J§ fli'fEl'.L£Ii<'UNN1£:'L -vs- RESERVE BANK or INDIACCC }4No 1962 sc
137)1, it is obsg.r.re:q-.thatmitlis between the Court and the" rniovrnentous decision to wind up tottleliifirfiwlifir Company in the interests ol'--.t'he reasonably be left to the Reserve AVBank.l4"'*l"he ~ApeX*.Co'urt further observes that, if the :_f'Co*urt i.vere,.y'-icalvied upoh""to take immediate action, it would aVi'n1'_osts'_aiv.ra'ys: b4eiiidlJ_j.ided by the opinion of the Reserve Bank. In t:1e'1~case of PEERLESS GENERAL FINANCI AND INi?lESTli§ENT co. 1.70., -vs-~ TIMEX FINACNE 3. C ~JrNvES'r:MENr co. LTD., AND omens ( AIR 1992 Sr: 1033), V3 _ 21 _ objects of the company is to do reai estate business. The company has pieaded that frequent changes brought over by the RBI in conducting of non-banking finance business-.._ha.s seriously affected the company's position in mobiiisation of reserves. Recession inmthe in_d'ri'stri:E;i, sec'tor,__v "
coupied with slow down of economy, ajaiso has a'dy'ei?'s.eI'y1.i_:
affected the process of recover_y'----..,of amount 3i.j;_)a.n,,with% interest.
15. According to,=ti1e-- :ft:ornp»a_ny,i_ on date, the company has _vai-=..iabigieassjetsi,__inciuding iiofaned assets, hire purchase fvassets,Vetc,'ihei'n§iv*--..n1ore or iess equal to the iiabilities to repayment of all the debts _of the atnsecured of the company. However, due to the defauitsi.%in:"'th_e repayment by certain borrowers, the compamr Vhafdg.to§;;."'resort to filing suits, complaints, which obviouséiyz resuixted in reduction with the infiow of funds, the company may not be in a position to meet its commitments of repayment of interest and matured amounts if ' "to its creditors on its contractual terms.
W' 33 .23.
17. In order to settle the claims of all the creditors of the company, the newiy formed Board of Directo"rs'j'«.ot"--,Vthe company at a meeting held on 7"' August total review of the recovery possi_bi.i,ities enii'ries;;ect 't.he7_ outstandings vis~a-vis the amountsAthé_itt~'may-. 'be:"VpaVy:a:'blei:viby the company to its creditors,""-iiavinvgVfeit is need for re-scheduiing[re~structuA'r*ing~.._thehdehts 'outstanding and after analysing the option for seeking deferment of rgrp'ayrn§:nt ifoirmed a bona fide opinion that rcornpany was required to be reVe_stru'ctt::;:'ied;,:' regard to repayment of debts. ,"vthie:'v*--.company, the proceeds of the rea!isation"--o__fiisale _o'f..ass'ets, investments and recovery of financyiaivi assets"coui_d be utilised for repayment of creditor's H"Iagglnéipursuance to the directions issued by this Court Ctoympany Petition No.2:15/2003, the company convened
--.iy'.-sepairate meetings of equity shareholders, secured creditors (banker's of the company), secured creditors (debenture -25- scheme with 98.66%. However, the secured creditors (bankers) have not approved the scheme in the meeting, inasmuch as, the voting in respect of bankers "against?-..._ti:e scheme exceeded the voting "for" the scheme. It»i.§"?€iVE5V-3.hFii*C-.-it ~ to note that, subsequentiy all the_s,ix_ barii<"ei's:'j(.secu'red..:4 creditors) were repaid fuily. The said fast Thus, it is clear that, equity shareholders, tdehen,ture.--h.o,|d3ers and depositors have whole heartejdifi.isupvpoitrted_tVheJs;cheme. The bankers wiii have ho~..zV:gri,e'i1,arice""a'r::ir:'p"more about the scheme in question'-sinceIthe.ComV'p.a'n_y'.éhasi"r9epaid the entire of the
19. that the factum of canceiiation'«o!f" CVe'i'ti_Fic}ite:"of"'i'é'e'gistration and the factum of restraining thec'orra'par'iy Frorra..meddlihg with the assets of the I-'._co'inpa"ri-yd iii 'ir~:hatsoeVer manner is suppressed in the m_e--et'in_gVs; be accepted. The scheme of t"varrangement/coinpromise and expianatory statement is ""t.--Ti.",'Ase'rved ai'oh§j with the notices on the secured creditors, "u,hseCa.re'd creditors etc., The same ciearly reveais that the {°\,?> -26- company has not suppressed anything before equity shareholders, secured creditors (bankers of the company), secured creditors (debenture hoiciers) and creditors (deposit hoiders). In Ciause-22 of the Statement under Section 393 of the_JCi0gFi1parii'e's" "
forms part of the scheme cieariy V'reve'ar:s:' that".
company could not fulfiii all the'V_no_rmsV"set: by -the RBI vide its letter dated the company from acceptingvof"V:"fres.h v;)'u'hi"i'*Ca:':iiéiD.Qsits, renewing existing deposits on'-njaturi'tyv:.oTr': a!'ie_ii,ati3ngVany'.assets of the company then, the company deposits nor renewed the same and has__i:aeen" repiayiing the deposits in chronoiogicai order o,f_i{mat.urity.V" 'rInfl(Ziause--26, it is mentioned that the RBI llhasi ca..nVceli:edy Certificate of Registration of non--banking ' finarzcialyi'co'rnVp_a_nyr;;'viiith effect from 31.1.2002 and in view of this, the cornp'a.ny could not do any NBFC business and the process has not proved the expected results. It is cl'ea'r*{y"'stated in Clause»-28 about the winding up order "passed in Company Petition No.11S/2001, and subsequent F/\.
-27- withdrawal of the Company Petition No.115/20_Q_1 and consequent recalling of the order of winding up byjtvhis--._C--o'urt dated 23.7.2002. It is also mentioned in Explanatory Statement that num_be.r__of and complaints/recovery suits have i'jee'n filed .,ag,ai'vn's«t,f'the company by the secured creditors and-the.sal'me"':a're"pending V consideration before the 'as vveliaas before the Consumer Courts. 'is clear that the company has not__ su;;p're.ss;ed_:' the meetings convened the scheme. In spite ofvgvalylg ynentiioned supra, 980/o -- 990/e of 'C debenture hoiders, and unsecured '*--screditors'(deposit holders) have given their approjvayl for thee._.Vsche&r:ne. As aforementioned, only the b'a'n«kers_g(secu'red creditors) who were six in number did not a"ppro_veV"thev»-schevme. However, subsequently, the claims of V . all have been satisfied by the company. They Karnataka Bank Ltd., Lord Krishna Bank Ltd., Syndicate .'_,i,'_.Ba'«.ni<',lijvijaya Bank, Corporation Bank, Shamrao Vittai Co- C "'..:'olp'erative Bank. It is relevant to note that these are the only ix/5 -30-
23. Due to the defaults committed by the botrovyers, the petitioner---company initiated legal pro_ceed'iVn.g:s'1';_.Afor recovery of the said amounts and their satisfactory. Because of the mismaltchflof th'e>assets'Vreuco»gery versus repayment commitment, 'difference57lbetv\}eei;1 projected cash in flow and tl*i"e,V:"project"ed tpay out for the commitments of the Cornpany"on_ existing resulted in the company making cergtailn'V'ldVefa.ijl'tAsj'\'.:;,j_'_. the repayment rescheduling;ZrVes.f:*ru'ctu.ringffgthwe outstanding by drawing up a s§:he'm'eu?ovf al}.rang'ernent.la'nd compromise with the creditors]. Hayingyy"reg.ard.;_:'to"the totality of the facts and circumstances,' _:the..* company analysed various options, i..Athe"i-optionvforvseeking deferment for meeting the debts of the secured and unsecured creditors andjfor making out a suitable programme of bl'-..«.i_'restructure7and rearrangement of the outstanding debts. l'/' -31-
24. As aforementioned, it is argued on behal_f__of the RBI that since the main object of the company--'fbe.fn.g""the non-banking financial business, it cannot be a.'.--f':'wed:'to"ica_iry'» 4_ on any other business after cancelligngilthe"i.~Registi'atVionuV Certificate and it has got no rightlto :e_Axi'svt. the company whose substratum:"'h.as disappearejdffisiioujld not i be allowed to exist and Jgthereforelshould wound up. This argument seems to hayéubeen-vrylberhalf of the RBI on the assumption that the"'main:: company is non- banking finan--cial__ Aslatolrementioned, one of the main._0.bj_ect:::'oli'1«:the' do real estate business also.
Lelamed'Vcvouin-sefsappearing on behalf of the RBI "VV'relyir§§€'up'on the jufldgmelnt of the Delhi High Court in the case G§fj"»..r;E.és:lirG (sscunrrrss & FINANCE) r.rp., 3. OTREQS Comp.L.J. 242 (Del), argued that it would be permissible for such company to take a detour by fcolniiingjiiout with the plea that it is ready to do some business . than non-banking finance business and that therefore V'
-32, the company should not be permitted to do so and consequently under such a piea, the company shai,l"'~not be permitted to file a scheme of arrangement.The sa.i_¢i- may not be applicable to the facts of this case',-sinajsmuch the company in the said matterwwas ._e~ssentiaii.y._a':7no'n-- 7 banking finance company, inasmuch as,' thenfaain '~obj'e'ctv'of, the company was to do the"noii+ban.kin.d_"financeMbusinessV and it had to suffer winding u.p"'ord.erE'i:.e,caué'seV'it 'violated the financial discipline proylided Thus, it was concluded that, liBFC and it has to be wound 'thjes,"in__afl;te:{_on hand, the company's object not onlviyf-tjol dot'-,n'o--n4banking finance business, but also the réa,_i lesta'te.'4'busir:iess. It is no doubt true that the compainvysin question___which was having registration certificate doing non-banking financial business has yioifatggfliffi:n'ancifa'i"..discipiine provided under RBI Act. Thus, it V . has no r'i«'gcht'"to exist as NBFC. But, it has right to exist as if .non:~banl'<'ing non-finance company. iwb -33-
26. Section 45~MC of RBI Act lists the circumstances under which RBI can file a petiton. Aparlj",-{from
(a) the ground of inability to pay the debts, are peculiar to non-banking finansciaiép .4_:fiTh'ie'.5eVf g rou nds relate to mal-fu nctioningiv of ' as virtue of provisions of Sectionl._:45_--IA becomelsv-.Zdiscmaclitied to' ' carry on the business of a non~.banki'ng fina'nci.alinstitution,
(c) has been prohibitedreceiving deposits by an order andsuch for a period of not less continuance of the non~banl<in,gV_'i'in:anVt:ial_'c-orn.plan3,...i.s._detrimental to the public interest:*._0r~. "depositors of the company. Sub--section'~.(_1l) empowers the bank to file petiton; on any Vofv--..t,he__g.rounds mentioned above, on being "'~.,flsati::_fi'ed _s:tiA1.a7t,:'one of such grounds in the case of NBFC e$<i~sts..,in"'rny,--conVsvidered opinion, the NBFC may be wound up V in case. the"'same falls with one of the aforementioned "V"44"'catego,ries'. If the only object of the company was to do the ..flbu:s--in'esAs of non~banking finance, it has no right to exist. It i "~:ha'S'lto be wound up under the facts and circumstances. {\,A. -34- But, in the matter on hand, as the company is..__having the object of doing the real estate business also, i~t"ha's._ri.ght to survive even if the Certificate of Registration':issn§d7.b'y..tiie'; RBI is cancelled. Added to it,,as...,afo.rern1eiri--ti'oned;, the' Reserve Bank of India has m'ade?'_'_Afcerta'in_:"--chan'g:es, regulations on 1.1.2002 for"fl\_l:i3E_C's,A"w,hos_e:iv-Ce'rti'fi'cates of'? Registration are cancelled, as....isV.,"'clear' fror"n--vt.he.~ficlocument Annexure-'G' filed by the-lathe compilation fiied along with the acl_diti_onai'staiternen.t=oVf of-bjections.
27.,.._Eromr'the,_a_m«e'rsd:ed" reg,i_i.!iation dated 1.1.2002, it is clearfithaiz' ..has:_""i<eceived requests form various NBFC's andcthevirxVasso'ci'at:i'ons for review of some of the reguiatiilons in o'rder____to,.obviate the operational difficulties, .A"._W.ltl'iOl:lt __manner compromising the principles of plrotAeict.i'on' "o.f'»,--int,erests of the depositors of the NBFCs. The V -requests iiafvefbeen examined by RBI in consultation with the Hi'-finiformal lflidvisory Group on NBFCS, and thereafter, it was .'.fcie'c--i:d'ed: to effect certain changes in the regulations. One of change is as under :
it -35- \\ (1) Rejected NBFCs -- Requirement of conyeirsion to Non-financial activities and disposal of financiaiassets V4?-_»_. 4
(i) xxxx xxx xxx
(ii) In this connection, reiferevntle to paragraph 90 ithe M'i'cv£_--v_iA.A"i"»ern1n it Review of Moiievfa.ry and _CreVdiv-ti for the year anhc-encedyfi by out goveiriior 2i)A0"1 in terms of wihich heen_'.~Vde'cided that .<;_Q_iv::_anies"' .~_:«}:i'icv>_"se':»vi,_ v_ aimiiiiciation for forV.Reois_trati:ori (COR) have ' .cron*ipanies whose CoR .... _u:fi5a'v.e:iifzeen-.Vcancel'i'ed"should continue to i on due dates and 4' financial assets within i4""'i:hree'.'--vears"":from date of reiection / cancei!..ai:ion or convert into non~ sbankina non~financiaI companies within Eh-e--"'§amg Qeriod. The Regional Offices the Department will advise the V rejected NBFCS separately."
(Emphasis supplied) ix/> .. 37 ..
called as non--banking finance company any more. However, it can convert itself into non--banking non--financial company within the period of three years from 1" JanuaryvV.,:2'0f)2... Thus, it was open for the company to convert itself3V_:int'o"V.'ifionif . banking non--financiaf company within_1§'Janu_a'ry~'2(){l5';'~: vBut,g,:' "
unfortunately in the meanwhile the RBI petition on 4"' November 20G'3'v"*--i.,.e., V"wit:hin_ ..'3for winding up of the company contrary-to own subsequent policy. The RVISE-Rco.ul'dg.'ri:.ot'. h'afve>"fi.led the winding up petition within 1.1..g00S.'" for winding up, the RBI has. alinenldedllllregulations/policy as found in compilation filed along with the statementofovbjectinlnsifiled by the company. In view of ._;3endenc}y of. the winclilng up petition, the company could not have co_nve'rted.4:itself into non--banking non--financial company witlhinfthie period of three years. At this stage, it is relevant to note the salient ~ f.j'j;j'fea-tures ofcompromise/arrangement are as under :
V
(a)
(b) (C) -38- The appointed date has been fixed on 1.4.2002.
The full amount of interest accrueo:'*on.égor:'"' after 15' April 2000 till the appoi'ntv'e.'dfdate'*.V and all clalms thereon;Iare::_'ca;n'cei|ig'd...:
interest shall accrue or"«t_ol:'--b_e pa.ya'b'le the outstanding on or _VVa'lf-tei4._;"t'he appointed date.
All paymentsof--de~poVisll.s/de:be:n'tures made on orgfrom well as the 'p'a.y)%nen=ts interestvmade on and T moo to. the debenture Vho~ldVers;fldeposit::'holders.twill be construed asA're.payrnent._of..principle and outstanding debentures/d'e.posi'ts value shall be arrived at..acvcord_lng.iy"a'fter adjustment of the total paym'ent____made upto May 2003 by the Cvompany in this regard.
" . . (d) V A fl-;1'j_.'_lV.and final settlement of the outstanding debentures/deposits of Rs.2,000 and z "below will be paid the entire amount on or before 90 days of the effective date. ll"
(e) .39.
Full and final settlement of the outstanding debentures/deposits exceeding Rs.2,000/}Hg but not exceeding Rs.5,000/- will be only up to 90% of debenture/deposit value respe_cti-'.'.ely.. such payments will "2_gsix'A T installments and first .
installments will"l__"'--be made._withi"nj'"'si.x"
months of the approval of by the membeirs and _'creditors and the subsequent five' inst'a;l'lm_eln.t';:..within 12"', 24*",;*3§t". :'z'lV"$tk1::v@h'fl'4».v:\6_¢thVV. of the eff_é:ct§};e'_.dat«e respe¢t:vea;2l. ' Full5»Vand3:'§.lFJi'r'ia:l'settlement of the outstanding "dels-entijre/idepoisigt and interest thereon, exceeding..o'u.t:s.tanding value of Rs.5,000/-- as onithle effective value, will be paid only up it A the to of outstanding V"ld'e:b'enture/deposit value respectively and payment will be paid in six equal '-installments and the first of the said installment will be made within six months of the approval of the Scheme by the the subsequent five installment within 12"', N Members and Creditors and (9) -40- 24*", 36*" 48"", 50" month of the effective date respectiveiy.
The amount of ioan and/or advance. :ita.+.sr;ti J avaiied of or granted to any holders or deposit hoigie'rs',"iar:ci.é rembaini_n:g"--7 in outstanding together with interes't. on such ioan/advance shai_i'"beV adjusted and accordirigiy the~.o'utstanding debts payable by;i't'rient_fcoi*e.pany 'shail be ' ioan/advance--uamountgg 'with the reduced . said outstanding interesgt:i1"due._ thereon' appointed = becoming effective, the it Board"=of"*bireetors of the Company shail, vsrithyin' v1.v80."da§r.s of effective date, appoint Q truste--e----~for the deposit hoiders and A '«.tacc'ordingly the said appointee shail act as it for the unsecured creditors ~:('cl.eposit hoiders) in respect of the outstanding deposits payabie to them and shail be the said deposits pursuant to scheme, the become secured debts and shail F' consequently, The V' -41- secured by the first charge on company's financial assets (i.e., claims on customers, amounts receivable purchase/loan agreements and negot_i_ab,l:e:f;~ instruments), books receivables. The company sha_i'i"h0tify.ltiieigy said creditors of the claim :a.mjou'n>t':p_ayabl'e___ f to them along' with each *t'he2.'"--~ installments/payrraejhtsy made_ p1iArsvua'ht'V"'t*0 the scheme._ Upon_§__tuhe_'o.uvtstahd«ingA payabie to' ur.ipai.dV"czredAi'toyrs becoming the . . .
deben:tu.re/ci'ep'os_i~;i: V be: deemed to nil, res pecawe _.~.._:lVce'rtficates of hyaye 5-Veen..cance!led, ifwithiolult any further actf'Vdee:%.l4V'or4th.i_ng._ « eforementi«oned features are accepted by r_overy\i3'he3ltniny_g maj'oi*«ity'of the equity shareholders, debenture holders.
29L";.It is by now well settled that the Court maynot A '*:e'xerci"s_.e jurisdiction as an Appellate Authority to minutely V..._""'scnutinise the scheme to arrive at a conclusion as to [VA under lease/hwirelty debts-if' -42- whether the scheme shouid be permitted or hot. _.(_)_n this aspect, the nature of compromise or arrangement"--between the company and the creditors and shareholders etc.' 4_ be kept in mind. It is the commerciai..wiscl'om'1"otI,the pjartivesu ' ~ to the scheme who have taken an,in:formed'--dieeivsior:l_:'a.bo'ut the usefulness and propriety"of"'the schemeby: su'p'pVorting it' C with the requisite majoripty votle..uth:at"'h.as be...l<:ept in mind by the Court. The act as a Court of appeal and sit injudgment:::o\r_er..t'vsth'e.VV-intormed view of the parties concerried the same would be in the cflffioifiitélaindlcommercial wisdom of the parties has neither the expertise nor has the jiJiii4sdicti'on"V'ito'dwell deep into the commercial '_.V.wlsdoi§he><ercise'd.by__the creditors and members of the A'=__VcorrrpaVriy:'Awho"=h_ave ratified the scheme by the requisite 'Consevtjuently, the Company Court's jurisdiction to that exterit is peripheral and supervisory and not appeliate. it 'hasubeen held by the Apex Court in the case of MIHEER H. ._iii'MA§A7rLAL --vs- MAFATLAL mousmrss 110., ( (1997) 1 C 'flsupreme Court Cases 5?9), the Court acts like an umpire in Va -45- as contemplated by Section 391 sub- section (1).
5. That all the requisite contemplated by the provisofof A section (2) of Section 391 is, if placed before the co:m_ applicant concerned<_ seekingi_'saA'ruvction4\f"~ if for such a schggne and the.,,Co:urt"gets:
satisfied about th'e..s_ame.
That the_:- a;i'sc:heme of compromise. jjand._"arra'ngérnent is not to-.i;;e{.viola_tiyVe"'o'f--any provision of "and i'sijno'twc§;ntrary to public poiicy. 1"1"For,_7as'certa_ip.ing the real purpose V scheme with a view to i vbeV'satisfie,c'l~'i'on this aspect, the Court, if "necessa:i'y, can pierce the veil of apparent corporate purpose underiying ..:Vt'b"e scheme and can judiciously X--ray fthe same.
That the Company Court has also to satisfy itself that members or class of members or creditors or ciass of creditors, as the case may be, were F/>
-47, scheme is framed. The Court cannot refuse to sanction such a scheme 'on' that ground as it would other_wiQs_'e.;"'*.v' amount to the Court appellate jurisdiction over rather than its supehfisoiry' j"urisdiActio_ng5'~' The aforesaid param_eters*of" the ambit of the jurisdiction'V"'ol_"the Company Court which is called upon to""'sa'Vnctibo_ a scheme of compromise and a'rraen.g'err}ierlt4a're ot. exhaustive but only broadly ii_£.ust.rative_o_f_ the Vc"on't'ours of the In theitArréatt.e:r'rlon.,:hancE,.' 98% - 99% of the equity sharehoide~rs',~i secu'rei;€.4flgreditors (debenture holders), unsecured cred'i»t.o_r's"(depositors) have approved the scheme. «Hence, :iC'o.urt will not sit in appeal over the commercial ~o'f--«..thel'_'concerned. This Court also does not find _ anyAt'i'i.ing,__*i'n.lathe scheme proposed, which contradicts the " v'irt,eVrests"of creditors and shareholders. fiN;§ -43-
30. Though the Court has power under Section 391 and 394 of the Companies Act to accord sanctiohgpfor a scheme, the Court has to see before granting as to whether such a scheme contravenes..V:anfy.of'the*--..
provisions of iaw. According to ttieWVRB'I«,rcs-i.nc-e 7 has contravened the provisions of Acpt;_i_:the' cannot be sanctioned.
31. The scheme'V%d_oes*-riot any of the provisions of the.:Co.mpaAn'ies_£§ct_:"«..fj;guafcase of scheme of compromise the company and its members the proviso to Section 391' (2) which has Vtou be co_rnp'i_ied:_".fiNith. Before the Court can accord sanctiipn "to suuch-~Bi.__._§0mpromise or arrangement foilowing condi_t£on_s«.havev to be fuifiiied as is ciear from the proviso to of the Companies Act véz., A T (a;ii'* The company shouid disciose to the Court by an affidavit or otherwise aii materiai facts reiating to the company.
-49-
(b) The company should produce the latest financial condition of the company showing._°~.V_ its financial position.
(c) The latest auditors rep,o»rt.on the'ac'eoun'ts'.'_j;. of the company.
(d) It should disclose-...V. the"
otherwise of any inylerstigationlproceedings in relation vtio"'ithe jcor:np'any_l'under Sections 235 and 251'an.d t'hei"like.wli'sé5.y"
32. It Vseyttiedll twhatswhere the company is unabie ittsvcontract, discharge its statutory obdlliixglatiponi;.yin«._a"-..c_ase of defauit, because of the circumstaiices. its control, it proposes a scheme" with it's__n1embers and creditors, whereunder it is Vs"ee'ki"ng'°fcon"cession, seeks enlargement of time for re.pa*y_'rne-nt*«..o_f deposits, seeks waiver of interest of a portion _ to see that -:'ii' the circumstances to what extent the interest of..the mendbers and creditors could be salvaged. Uitimately, ._it:_is*fo'r the members and the creditors of the company to it cornpromise with the company in these matters. Once a if/5
-50"
statutory majority of the members and the creditors of the company approve the scheme, then before it is irnpiemented, sanction by the Court is necessary, If after considerigng all the objections and the Eaw which govern the payrtliesi;jbnllyuif the Court is satisfied that the scheme is in members and creditors and the pu:b'lic'at« l_arge.;.i A7 not contravene any of the provisions._of*t_he stat_uAt'e, can accord sanction.
According to RBI" violated the provisions of :.Reserve while acting as NBFC. :?I_t is the company working as NBFC has contravenevd certain.:p'g=ovisions of the RBI Act and it has not ,fu::l'filled its Vobligations as NBFC. In view of the same, the libel,hasjrightiy«cancelled the Certificate of Registration issued corn"pari§y"vtor doing non-banking finance business. In A --g viewéiof tVhe"same, the company cannot any more perform as AllA'4Aigrtori--..bAanVl{ing finance company. Consequentfy, the provisions Act may not be applicable to the company any more. A "In fact, the Circular dated 1.1.2002 vide Annexure-'G' l"
- 52 -
34. The 23" Annual Report and Accounts for the year 2007-08 and 2008-09 are filed before the Court during the course of arguments by the company. Certain other m.at-e_ria_l is also placed before the Court by filing the memos:'fr'o'rn_'Vt--i.:rne_:_"' _ to time by the company. From the records, .§t"is.:clea*r t--hat_:" ''= 2 the company has as aforementionedA-reipaidi-all secured creditors (bankers) after"submissionof»'V:tV'h'e~.sche'm'e and ail the six secured creditorVs_l:""haveV_ ack'l1«ovyledged the receipt of amount towardsfull'and;:_fina'i=_'svettlement. Thus, it is clear that the company:_ii~s--v:not of its secured creditors (Bankers).
35. I0 "have the terms of the scheme which i,s_%.{a'pp~roved" statutory majority in the meeting held Vitrneiorder of the Court. The same reveals that the"du'e--s' the company as per the scheme as on that date, the depositors (totally numbering 3614) was lllakhs, and whereas, the dues payabie to holders (totally numbering 3714) was Rs.589.43 Thus, in all the company was due to pay a sum of % Iv"
-53., Rs.1013.36 Iakhs in all. Whereas, the assets of the company as is clear from the memo filed by the company on is Rs.628.11 iakhs. As aforementioned, subseqiientiyr'the; company has repaid all the dues of the Ba,nk.{=,'rs_.W',ha§._'a!s(ji,,' repaid certain of the dues of some "bond has satisfied the orders of Company..,LawA'Bo_ard,,: "/;\ccord'i'n'g to if the company, as per the ,..memo,,-fiied, the totiairdues of the company as on the year Assets are worth about i§s,:{52_8 dues is agreed to be paid in company has initiated legal, loans from its debtors. The total Zrecoverivefs by the company are worth about Rs.1,§48..'.,i§i<,hs'} if é .' 413.5,, company was performing smoothly in the" RBI introduced regulatory measures regulating,thehbusiness of non-«banking finance companies. period, through out the country, there were variocgsitscandais and the investors in the non-banking finawnce companies started taking back the amounts /V' _54_ deposited by them. There was recession in the industrial sector. The real estate business also was affected . Th-egre was delay in recovering the amounts due to the V. Because of panic situation, the depositors withdrawing the money and freshV"Mdepositors' .w'er_e_V"riotVl"".
comirig forward to invest the amountin cohj.paAny;~ on those circumstances when 'a._V_niis'nia'tJchWwith regard to the actual amo.u'n1:g_to _«b'e'_re:cyoy'er_ed actual payments to be made on found it difficult to repay':t.h;"e forward with the scheme in' pleaded their inability to pay the have received in one installment and isou'ght"forVsornVe more installments and also they hgaj-3'/he' pleaded-. inability to pay the interest. Under Vnithei th'e..vscherne, what has been agreed is that all the ~depolsit and creditors would get back the entire vprinciple arnount paid to the company, but in certain * iristallmfients.
)4/i/5 _ 55 _
37. It is relevant to note that the company has made recoveries of Rs.119.94 lakhs from October 2003 to __l_\pril 2006. Apart from the same, certain of the borrowers _,ha_v-ev deposited in Udupi Court to the tune of .
disbursed in favour of the company. _,S.o__alsc-an' "
Rs.8.31 lakhs is deposited in Bangalore Reports and Accounts for the .reve"aAi«:._;th.at loss carried to schedule was iwhyervefas, the loans carried to schedule on 315* March 2009 is Rs.11,97,81,37?/,,;"' share as it stood on 31" the basic earning per 3'i..*V?WVl.a'l'ch 2009 was Rs.3.34. The total coilectionof dues.'uride:'r".,»ihire purchase, lease, ioans and
4.advance:fi§' and oth'er_.Vrece'i:'./ables was Rs.12.46 lakhs in the "year:20:08,TwheArea__s, it is Rs.13.80 lakhs in the year 2009. The co'im,pa'ny'_"_is receiving rent from the tenants to the tune R;*é,AV.1,15',000/~ every month, out of which, the efiipenses would be Rs.0.40 lakhs towards the saiary of.-staf?','Aelectricity, maintenance etc., Thus, the company is l» -56- saving the rental income also every month and the same has to be used for repaying the debts of unsecured creditors_.f,'.f'~i._ It is relevant to note that the company haysgsatisfifedfnéthe' orders of the Consumer Forum and:;.;othe'r' ..st'atutor_y'--.b.o:diVes during the pendency of the matter.
38. From the above~~..g:liscijssiVo«n4sDi't..is 'Qélearthat the company is recovering y«ear.I'V_'J»__f_i.~nancially and consequently, the cain:fidefi.ce:of':eq'ui:ty."'shareholders and the depositors and to be in favour of the compa'hriyifV aforementioned facts, the equityx'sha.reholVd'ers,_b'd.ig:pos.;tors and debenture holders must have appr'oved..t--he°.scheme by requisite majority. In y_vj'§iewA0f:c,_tAhe..,"abov'e, this"C'ovurt is of the opinion that no useful served in ordering for winding up of such ' V'~"icomp<an4y, particuflariy when the company is improving in ..if-v'fina.ncial a'sp_ect every year and as the assets of the company 'areV'_airno.st equal to the clues. So also, the company is "'recov3ering the debts through legal act&% Consequently, the -59-
40. In view of the same, I accord sanction o'f:.""the scheme subject to conditions and amendments hereunder :
(1) The company shall not carry1'_A_'on'V of non-banking finan'ce___ sincei' Cer'tifi'c7ate_VV of Registration is canc'e!i_ed by Fi'BI.::" * (2) The time stipui-aztedi 'é.V_for_v:epa3:ment of the loans as contained in sciaernev shall be adherecius'trictiy. Z, (3) Au ines:}:iepV.o's-5to:Es'1'.'iafi:d---bond 'holders of the com my £1 'fl: " A oieposits exceed :Vi.._ARs--..2,(i0'Cz'}j,::but"'d.o"'not exceed Rs.5,000/--
to._bei pai'dW.i'th_in'*----tyvo years from this day in tv.Io' vec§--ua'i~. ihstaiiments. On such Epaymentfsitatement shall be filed before _this.Cou_rt showing the payments.
company shall file a statement showing the payments made as per the a 'scheme within one month from the date prescribed for making such payments.
tr"
In view of the same, the foiiowing order is made:
(a)
(b) (C) V y . _ arrang'év:.i'f:'eyn't,_('revi*sed) as per Annexure--
,3' or the "CUi',fip.aV'n'y Petition No.215/2003
-6]-
recoveries of amounts realised once in a ._ year before this Court.
The Company Petition by the Reserve Bank*..Ao'f._ Ind,ia_:"is" dismissed.
The Compan'/J: 'Petition 'VNiI§,,12'ii'l5,{2o03'"flied by Tulunadu Financed'&.uDeve'io.p_rnents Ltd., is allowed, ,si1'bje:ct .terms and condi.tioi}isi' rr.en--tici:ae'd aébovef 'They; sc'h;eme..,'---.of ""'icornpromise and is ijiereby sanctioned, subject to E__fno_difical;io.n.s,/orders mentioned above, so asgt'o.__be binding on the company, its 1 and creditors.
(<5) ~ than criminai in view of the scheme being sanctioned, filed the company as well as the suits, execution cases against petitions and complaints/appeals before {Vb (8) O') -52- various forums shall stand abated and payments made in these proceeds shall be adjusted against the outstanding debts payable to the claimants.
The company shall file a .ce»rti.fied.'_''co'py'f.~bf 4' this order with the'.__ Companies, Karnatapkay wit'fiign"'thirty:foays1 from the date of receipt,0f the_Vceir_"t;ified copy of this order.
Office is directed f to in the prescrib_ed.__ fo;'na°'by incorporating the amendme:nt.s ..as_ {per _'th:i--s" order without insisyting';.for."stayn1}j'i'.duty since the scheme of cofrnIpVronfiise..Va'i1d arrangement is being "'s.ancti'oned~Ajgnfdefisection 391 of the Act, which visyfn-otA'.cove'red by Article 20(4) of V, by SchediJl'e..bI: toithe Karnataka Stamp Act, company applications are l._:ii's,nosed of by separate orders.
sd/if it JUDGE Regililzatrar' "of