Gujarat High Court
Kandla Finance Limited vs Reserve Bank Of India on 23 September, 2022
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 16918 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
==========================================================
1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
==========================================================
KANDLA FINANCE LIMITED
Versus
RESERVE BANK OF INDIA
==========================================================
Appearance:
MR AS VAKIL(962) for the Petitioner(s) No. 1
MR AMAR N BHATT(160) for the Respondent(s) No. 1
MR DEVANG VYAS(2794), ADDITIONAL SOLICITOR GENERAL with MR
SIDDHARTH DAVE for the Respondent(s) No. 2
==========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 23/09/2022
CAV JUDGMENT
1. Heard learned advocate Mr. A.S. Vakil for the Page 1 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 petitioner, learned advocate Mr. Amar Bhatt for the respondent no.1 and learned Additional Solicitor General Mr. Devang Vyas with learned advocate Mr. Siddharth Dave for respondent no.2.
2. Rule. Learned advocate Mr. Amar Bhatt waives service of notice of rule on behalf of respondent no.1 and learned Advocate Mr. Siddharth Dave waives service of notice of rule on behalf of respondent no.2.
3. By this petition under Article 226 of the Constitution of India, the petitioner has prayed for the following reliefs:
"7. The Petitioner-Company therefore prays that this Hon'ble Court be pleased to issue a writ of certiorari/mandamus or a writ in the nature of certiorari/mandamus or any other appropriate writ, order or direction and be pleased:
(A) to quash and set aside the impugned original order dated 10.09.2018 (Annexure-1) passed by Page 2 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 the Respondent No.1-RBI and the impugned Appellate Order dated 03.02.2020 (Annexure-2) passed by the Respondent No.2-Appellate Authority and be pleased to restore the Certificate of Registration dated 23.12.1998 to the Petitioner-
Company;
(B) To stay, pending the hearing and final disposal of the present Special Civil Application, the operation and implementation of the original order dated 10.09.2018 (Annexure-1) passed by the Respondent No.1-RBI and the Appellate Order dated 03.02.2020 (Annexure-2) passed by the Respondent No.2-Appellate Authority and thereby permit the Petitioner- Company to carry on business as a non banking financial company; (C) To pass such other and further orders as this Hon'ble Court deems fit and proper in the facts and circumstances of the case;
D) To provide for the costs of the present Special Civil Application;"
4. Brief facts of the case are as under:
4.1) The petitioner company - Kandla Finance Limited was incorporated on 11.11.1991 under the provisions of the Page 3 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 Companies Act, 1956 and is a closely held non-deposit taking, non-systematically, non-
banking financial company (for short "NBFC"). 4.2) Upon incorporation of sections 45- IA, 45-IB and 45-IC in the Reserve Bank of India Act, 1934 (For short "the RBI Act") by the Act No. 23 of 1997, which provided for requirement of registration and Net Owned Fund (For short "NOF") and further provided that NBFC shall not commence or carry on the business of a Non-Banking Financial Institution (For short "NBFI") without obtaining a Certificate of Registration (for short "CoR") issued under Chapter IIIB of the RBI Act, the petitioner company made an application dated 5.07.1997 under section 45- IA(2) of the RBI Act to carry on business as a NBFC. Respondent no.1-RBI accordingly, issued CoR bearing No. 01.00284 dated 23.12.1998 to the petitioner company on Page 4 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 various terms and conditions attached therewith.
4.3) It is the case of the petitioner that the petitioner-company thereafter carried on the business as a NBFC from 1998 and adhered to the statutory compliances required under the RBI Act and the Rules/Regulations in connection therewith. 4.4) The respondent no.1- Reserve Bank of India (For short "RBI") issued a notification dated 27.03.2015 amending the NOF requirement of NBFCs, whereby in exercise of the powers under clause(b) of sub-section (1) of section 45-IA of the RBI Act, RBI specified Two Hundred Lakh Rupees as the NOF required for NBFCs to commence or carry on the business of NBFI provided that NBFC is holding a CoR and is having a NOF of less than 200 Lakh Rupees may continue to carry on the business of Page 5 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 NBFC, if such company achieves NOF of One Hundred Lakh Rupees before April 1, 2016 and Two Hundred Lakh Rupees before April 1, 2017. 4.5) It is the case of the petitioner company that as on 31.03.2017, NOF of the petitioner company was Rs.72 Lakh/Rs.0.72 Crore as against the requirement of Rs. 200 Lakh/Rs.2 Crore as per the Certificate dated 2.05.2017 of the Chartered Accountant for the year 2016-2017.
4.6) Respondent no.1-RBI issued a show cause notice dated 16.03.2018 to the petitioner company referring to the CoR and alleged certain violations and non- compliances in the functioning of the petitioner company.
4.7) The petitioner company submitted its reply dated 28.03.2018 and enclosed various Page 6 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 documents therewith including a Certificate dated 20.03.2018 of the Chartered Accountant/ Statutory Auditor certifying that NOF of the petitioner company as on 31.03.2017 is Rs.72 Lakh/Rs.0.72 Crore and also raised various other contentions. The petitioner also produced Certificate date 27.03.2018 of the Chartered Accountant/Statutory Auditor certifying that NOF of the petitioner company as on 27.03.2018 was Rs. 240 Lakh/2.40 Crore. 4.8) Respondent no.1-RBI however issued the show cause notice dated 27.04.2018 for cancellation of the CoR dated 23.12.1998 issued to the petitioner company alleging that as per the records available with the RBI, the petitioner company has failed to achieve the NOF of Rs. 200 Lakh before April 1, 2017.
4.9) The petitioner company gave its Page 7 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 reply dated 7.05.2018 inter-alia stating that the petitioner company could not achieve the NOF of Rs.2 crore before April 01,2017 because of non-availability of further capital with the shareholders and it was prayed that in the interest of the business of the petitioner company and in the interest of its employees, to accept the NOF of Rs.200 Lakh as on 27.03.2018.
4.10) It is the case of the petitioner that without affording any opportunity of hearing to the petitioner company, the respondent no.1-RBI by its communication dated 10.09.2018 forwarded the original order dated 10.09.2018 cancelling the CoR of the petitioner company dated 23.12.1998. 4.11) Being aggrieved, the petitioner company preferred an appeal on 29.10.2018 under section 45-IA (7) of the RBI Act before Page 8 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 the respondent no.2-Appellate Authority and also authorised one Tulip Fincare to represent the petitioner company before respondent no.2-Appellate Authority. 4.12) Respondent no.1-RBI vide letter dated 14.12.2018 submitted its reply to respondent no.2-Appellate Authority. 4.13) The petitioner company thereafter gave its reply dated 21.06.2019 and Tulip Fincare also submitted letter dated 27.06.2019 to the respondent no.2. 4.14) The petitioner company was thereafter heard by respondent no.2-Appellate Authority on 30.07.2019. Respondent no.2 thereafter, dismissed the appeal preferred by the petitioner company vide impugned order dated 03.02.2020 which was forwarded to the petitioner company vide letter dated Page 9 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 04.02.2020.
4.15) The petitioner company also addressed a letter dated 13.08.2021 to respondent no.1-RBI and respondent no.2- Appellate Authority raising its grievances and to reconsider the cancellation of CoR order in view of reconsideration by the Appellate Authority and RBI in similar cases. 4.16) Being aggrieved by the impugned original order dated 10.09.2018 passed by respondent no.1-RBI and impugned appellate order dated 03.02.2020 passed by respondent no.2- Appellate Authority, the petitioner has preferred the present petition.
5. When the matter was heard by this Court on 18.01.2022, it was submitted by learned advocate Mr. Amar Bhatt for respondent no.1- RBI that the application made by the Page 10 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 petitioner on 13.08.2021 is pending for consideration before the Appellate Authority and respondent no.1-RBI has filed reply to such application. Therefore, the matter was adjourned. Thereafter on 28.02.2022, learned Additional Solicitor General Mr. Devang Vyas under instructions submitted that the application made by the petitioner on 13.08.2021 shall be considered by the Appellate Authority within a period of three weeks and appropriate order shall be passed.
6. The petitioner thereafter filed an additional affidavit along with order dated 23.03.2022 passed by respondent no.2 - Appellate Authority rejecting the application of the petitioner in view of the provisions of section 45-IA(7) of the RBI Act. While rejecting the application of the petitioner, the Appellate Authority observed as under: Page 11 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022
C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 "6. In the instant case, the appellant company filed an appeal dated 31st October, 2018 (which was received in Department of Financial Services on 12th November, 2018) under Section 45-1A (7) of the RBI Act, 1934 with Appellate authority against the order dated September 10, 2018, passed by the RBI cancelling CoR of the appellant. On the issues raised in company's appeal, para-
wise comments were sought from RBI, a copy of which was also supplied to the appellant company to prepare its submissions before hearing. Further, a reasonable opportunity of being heard was given to the appellant company by scheduling a hearing on 30th July, 2019 which was attended by the representatives of Appellant company and RBI. Further, all the material facts and contentions, raised by the appellant in its appeal were duly considered by the Appellate Authority while passing the order dated February 03, 2020 including the order dated 22.04.2019 of Hon'ble Madras High Court Division Bench, as quoted in the application dated 13.08.2021 made by the Appellant. As such, M/s Kandla Finance Limited has already exhausted the statutory appeal remedy against the RBI's order dated September 10, 2018, provided under Section 45-IA (7) of RBI Act. Further, there is no provision under the RBI Act to again approach Appellate Authority with application after the Company has exhausted its Statutory appeal remedy under Section 45-1A (7). Evidently, the appellant company is also aware of the above fact and accordingly the Special Civil Application has been preferred Page 12 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 before the Hon'ble High Court of Gujarat on 22.10.2021.
7. Due to the reasons as above, during hearing, no arguments were heard from either parties on the earlier decision of the Appellate Authority. The appellant company and RBI were apprised about the above rule position and factual position as mentioned in para-5 & 6 above.
8. In view of the rule position quoted above, it is obvious that the Appellate Authority has not been vested with any power of considering further application seeking relief under RBI Act, 1934, hence, the application dated 13.08.2021 submitted by M/s Kand a Finance Limited is returned to the appellant company with an advice to raise their contentions through appropriate platform as per RBI Act, 1934.
9. It is for the information of all concerned that this special hearing to the appellant company was granted only due to the order dated 28th February, 2022 of Hon'ble High Court of Gujarat. The Hon'ble High Court of Gujarat may be appraised of the position as above by the parties involved in the Special Civil Application No. 16918 of 2021."
7. This Court, therefore, passed order dated 06.04.2022 directing the Appellate Authority Page 13 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 to show cause as to why the proceedings under the provisions of the Contempt of Courts Act, 1971 read with Article 215 of the Constitution of India should not be initiated in view of the above observations made in the order dated 23.03.2022.
8. Learned Additional Solicitor General Mr. Devang Vyas filed affidavit of respondent no.2 pursuant to the order dated 06.04.2022 as under:
"1. That the Respondent No.2, ie., the Appellate Authority under Section 45- IA(7) of the Reserve Bank of India Act, 1934 has the highest regard for the orders passed by the Courts including this Hon'ble Court and has never ever thought to disrespect or disobey any orders of this Hon'ble Court, and is filing this Affidavit pursuant to order dated 06.04.2022 of this Hon'ble Court to explain the circumstances in which the application dated 13.08.2021 of the petitioner came to be decided by the answering respondent vide order dated 23.03.2022. The said order of Hon'ble Court was received by Department on 25.04.2022.Page 14 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022
C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022
2. That it is respectfully submitted that the deponent has been designated by the Government of India in the Ministry of Finance, Department of Financial Services, vide notification dated 05.10.2020 as the Appellate Authority, to decide the appeals preferred by non banking financial companies under the said provisions of sub-section (7) of section 45-IA of the Reserve Bank of India Act, 1934.
3. That this Hon'ble Court by an order dated 06.04.2022 directed the Respondent no. 2 to submit a reply within 2 weeks from the date of receipt of this order to explain as to why proceedings under the provisions of the Contempt of Courts Act, 1971 read with Article 215 of the Constitution of India be not initiated against Respondent no.2 for its act to pass order dated 23.03.2022.
4. That brief chronology of the case is as under:
a. RBI had vide order dated 10.09.2018, cancelled the certificate of registration (COR) of the petitioner stating that the company had failed to comply with the statutory requirements of having a minimum net owned funds (NoF) of Rs 200 lakh before 1.4.2017, as per section 45 -IA(1)(b) of the Reserve Bank of India Act, 1934.
b. The Petitioner preferred an Appeal against the said order dated 10.09.2018 of the RBI. Sufficient opportunity was given to the petitioner to represent Page 15 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 itself, and a hearing was held on 30.07.2019. After considering all the material facts, the Appellant Authority had vide a well reasoned order dated 03.02.2020 upheld RBI's order cancelling CoR of the petitioner.
c. Thereafter, the petitioner filed the present petition before this Hon'ble Court challenging the order dated 10.09.2018 of RBI and Order dated 03.02.2020 of the Respondent no. 2. d. This Hon'ble Court had, vide order dated 28.02.2022 in the present Writ Petition, inter alia, observed as under:
"Learned Additional Solicitor General Mr. Devang Vyas, under instructions, submitted that the application made by the petitioner on 13th August, 2021 shall be considered by the Appellate Authority within a period of three weeks from today and appropriate order shall be passed in accordance with law."
5. It is humbly submitted that the application dated 13.08.2021 was not an appeal but it was representation against the already decided appeal dated 31.10.2018. It is further pertinent to mention here that all the representations received in the Department of Financial Services (DFS), Government of India are not marked to the Appellate Authority to pass order. In this case, since the order of Appellate Authority was conclusive, the Page 16 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 said application dated 13.08.2021 was not listed for hearing.
6. It is pertinent to mention here that it is through the order dated 28.02.2022 of this Hon'ble Court that the Appellate Authority came to know of the representation dated 13.08.2021 of the Petitioner.
7. On receipt of the Hon'ble Court's order referred to above, the Appellate Authority decided the said application dated 13.08.2021 vide order dated 23.03.2022. It is submitted that since the order was passed pursuant to the present proceedings and considering the fact that proceedings are pending. The paragraph no. 9 of order dated 23.03.2022 was to clarify the context as detailed above. The only reason for the inclusion of said Para was to apprise this Hon'ble Court about the compliance of the orders of this Hon'ble Court and deponent /Authorities never intended to annoy/displease this Hon'ble Court.
8. It is humbly submitted that the Appellate Authority has the highest regard and utmost respect for this Hon'ble Court and there is no intention to commit any contempt of any orders of this Hon'ble Court either deliberately or wilfully against this Hon'ble Court.
9. In view of the above, it is most humbly and respectfully prayed that this Hon'ble Court may be pleased not to initiate the contempt proceedings against me in the interest of justice." Page 17 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022
9. In view of above explanation and the affidavit tendered by respondent no.2 expressing highest regard for the proceedings before this Court, no further orders are passed regarding initiation of contempt proceedings. Therefore, this matter is now decided on merits.
10. Learned advocate Mr. Vakil appearing for he petitioner submitted that section 45-IA (6) of the RBI Act confers powers upon respondent no.1 to cancel the CoR for the reasons enumerated in clauses (i) to (v) of sub-section (6) of section 45-IA of the RBI Act.
11. It was submitted that in terms of the first proviso to section 45-IA(6) of the RBI Act, if a NBFC has failed to comply with the provisions of clauses (ii) or (iii) of the Page 18 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 said section, an opportunity has to be given to such company/NBFC on such terms as RBI may specify for taking necessary steps to comply with the provision or for fulfillment of such condition.
12. It was submitted that after 31.03.2017, respondent no.1 ought to have given an opportunity to the petitioner for taking necessary steps to comply with the provisions of section 45-IA to achieve the NOF of Rs. 200 Lakh. However, no such opportunity was given to the petitioner.
13. It was submitted that the opinion contemplated under section 45-IA(6) of the RBI Act that the delay in cancelling the CoR shall be prejudicial to the public interest or the interest of the depositors or the NBFC is required to be formed in writing and is required to be communicated to the petitioner after providing an opportunity for taking Page 19 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 necessary steps. It was submitted that respondent no.1 has neither provided an opportunity nor formed an opinion in facts of the case of the petitioner, which is a closely held non-deposit taking, non- systematic, NBFC.
14. Learned advocate Mr. Vakil submitted that as the petitioner company is a non- deposit taking, non-systematic NBFC, no prejudice to public interest or interest of depositors in the event there was delay in cancelling the CoR would arise and therefore, there was no question of forming any opinion for not giving any opportunity for taking necessary steps to comply with the provisions or fulfillment of conditions with regard to NOF requirement.
15. It was submitted that respondent no.1 instead of issuing show cause notice dated Page 20 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 27.04.2018 for cancellation of CoR ought to have given an opportunity to the petitioner to comply with the condition. It was therefore, submitted that show cause notice dated 27.04.2018 was itself defective and not in accordance with the provisions of section 45-IA(6) of the RBI Act.
16. It was submitted that the petitioner company has already fulfilled the requirement of NOF as on 27.03.2018 which was informed to respondent no.1-RBI vide letter dated 28.03.2018 and as such original order dated 10.09.2018 and impugned appellate order dated 03.02.2020 are required to be quashed and set aside.
17. It was further submitted that without prejudice to the aforesaid submissions and without admitting that respondent no.1-RBI has formed an opinion as contemplated under Page 21 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 the first proviso and without admitting that show notice dated 27.04.2018 can be considered as an opportunity to the petitioner company to take necessary steps to comply with the provisions to fulfill NOF requirement, respondent no.1 - RBI after receiving reply dated 7.05.2018 filed by the petitioner was required to give reasonable opportunity of being heard to the petitioner company before passing the original order of cancellation of CoR . However, no opportunity of hearing was given to the petitioner company before passing the original order dated 10.09.2018 thereby cancelling the CoR . It was submitted that the observations made in paragraph no.5 of the order dated 10.09.2018 to the effect that reasonable opportunity of making submission was given to the petitioner company and the Director is completely incorrect as the only opportunity given was the show cause notice dated Page 22 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 27.04.2018. It was therefore, submitted that the original order dated 10.09.2018 is required to be quashed and set aside only on this ground.
18. Learned advocate Mr. Vakil further submitted that providing an opportunity of hearing at the appellate stage would not cure the deficiency of lack of opportunity of hearing at the show cause notice stage and purported fair hearing of appeal is not a substitute for an unfair trial.
19. It was submitted that the use of word "may" in sub-section (6) of section 45-IA contemplates that it is not mandatory for respondent no.1 to cancel the CoR even if any of the conditions enumerated in clauses (i) to (v) are satisfied without providing an opportunity to the petitioner company for taking necessary steps to fulfill the Page 23 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 condition of NOF of Rs. 200 Lakh. It was submitted that the time to give such opportunity can mature only after 31.03.2017 and before such opportunity could be given to the petitioner company, condition of NOF of Rs. 200 Lakh stood fulfilled which was also made known to RBI vide letter dated 28.03.2018 of the petitioner company in response to the earlier notice dated 16.03.2018.
20. Learned advocate Mr. Vakil therefore, submitted that the proceedings pursuant to the show cause notice dated 27.04.2018 itself could not have been initiated by respondent no.1-RBI as such proceedings would be without jurisdiction.
21. Learned advocate Mr. Vakil submitted that the appellate order dated 03.02.2020 is also without giving any cogent reason Page 24 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 inasmuch as the Appellate Authority did not consider and deal with all the submissions of the petitioner company while arriving at the findings in paragraph nos. 6, 7 and 8 of the said order.
22. It was submitted that the Appellate Authority committed an error by observing that reasonable opportunity of being heard does not necessarily mean an opportunity of hearing which is contrary to the second proviso to sub-section (6) of section 45-IA of the RBI Act.
23. It was further submitted that the observations made by the Appellate Authority in order dated 03.02.2020 are in fact, perverse and make second proviso to section 45-IA(6) redundant inasmuch as the Appellate Authority has committed a grave error in observing in paragraph no.8 of the said order that respondent no.1-RBI has followed Page 25 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 due procedure of law in the matter.
24. It was submitted that the Appellate Authority ought to have remanded the matter to respondent no.1 with a direction to review its earlier order as the Appellate Authority in case of Tarujyot Investment Limited in similar facts passed the order to remand the matter to respondent no.1-RBI and upon review of its earlier order, respondent no.1-RBI has withdrawn the cancellation order of CoR of said Tarujyot Investment Limited. It was submitted that the Appellate Authority has adopted inconsistent approach/attitude which is arbitrary and discriminatory.
25. It was submitted that application dated 13.08.2021 made by the petitioner before the Appellate Authority is also rejected during the pendency of this petition on the ground that the Appellate Authority has no power to Page 26 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 consider such application after the order dated 03.02.2020 was passed by the Appellate Authority under section 45-IA(7) of the RBI Act.
26. It was submitted that considering that there was liquidity crunch in the market at the relevant time and that the assets of the petitioner company in terms of loans and advances had certain lock-in period which denied leverage to make withdrawal from it promptly to make up for increase of NOF and there were difficulties in raising the NOF by way of other means which would have adversely impacted profitability of the petitioner company on account of higher interest burden and the fact that one of the senior Directors of the petitioner company had passed away which had also adversely impacted the operations of the petitioner company and considering the fact that the petitioner has Page 27 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 since 28.03.2018 achieved the requirement of NOF, the impugned orders passed by respondent no.1- RBI and respondent no.2-Appellate Authority are liable to be set aside.
27. On the other hand, learned advocate Mr. Amar Bhatt for respondent no.1 submitted that there is no violation of principles of natural justice inasmuch as it is not in dispute that NOF of Rs. 200 Lakh was not achieved as on 31.03.2017 by the petitioner because as per the Certificate issued by the Chartered Accountant of the petitioner company, NOF was only Rs. 72 Lakh as on 31.03.2017. It was pointed out that the time limit was extended by RBI to fulfill the condition of NOF of Rs. 200 Lakh upto 31.03.2017 and there is an admission by the petitioner in his reply dated 7.05.2018 pursuant to the notice dated 27.04.2018 that petitioner could not achieve NOF of Rs. 200 Page 28 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 Lakh before 1.04.2017 and such requirement was fulfilled only on 28.03.2018.
28. It was submitted that as per the provisions of section 45-IA(6), oral or personal hearing is not a sine qua non of principles of natural justice and therefore, the petitioner is not entitled to personal hearing once it is admitted by the petitioner that NOF of Rs. 200 Lakh was not achieved before 1.04.2017. It was further pointed out from the reply to the show cause notice that the petitioner also did not seek personal hearing.
29. In support of his submissions, reliance was placed on the following decisions to show that lack of personal hearing would not violate the principles of natural justice:
1) SBI v. Jah Developers reported in (2019) Page 29 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 6 SCC 787, wherein Apex Court held as under:
"(13.) The next question that arises is whether an oral hearing is required under the Revised Circular dated 01.07.2015. We have already seen that the said Circular makes a departure from the earlier Master Circular in that an oral hearing may only be given by the First Committee at the first stage if it is so found necessary. Given the scheme of the Revised Circular, it is difficult to state that oral hearing is mandatory. It is even more difficult to state that in all cases oral hearings must be given, or else the principles of natural justice are breached. A number of judgments have held that natural justice is a flexible tool that is used in order that a person or authority arrive at a just result. Such result can be arrived at in many cases without oral hearing but on written representations given by parties, after considering which, a decision is then arrived at. Indeed, in a recent judgment in Gorkha Security Services v. Govt. (NCT of Delhi) and Ors., (2014) 9 SCC 105, this Court has held, in a blacklisting case, that where serious consequences ensue, once a show cause notice is issued and opportunity to reply is afforded, natural justice is satisfied and it is not necessary to give oral hearing in such cases."Page 30 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022
C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022
2) The Regional Director, Reserve Bank of India and Ors. v. Nahar Finance & Leasing Limited and others (Judgment dated 22.04.2019 passed in Writ Appeal No. 940/2019 and allied matters), wherein the Madras High Court held as under:
"33.The next aspect to be considered is whether an opportunity of personal hearing ought to have been granted to the respondents before the order impugned in the writ petitions were passed. Admittedly, the respondents have not sought for any personal hearing and had they done so, in all probabilities, personal hearing would have been offered, in the light of the stand taken by the respondents in the counter affidavit in paragraph 33. However, we are to examine the statutory framework as to whether the statute mandates an opportunity of personal hearing. The second proviso in sub-Section (6) of Section 45-IA of the RBI Act states that before making any order of cancellation of CoR, such company shall be given a reasonable opportunity of being heard. This expression has been subject matter of interpretation in several http:// www.judis.nic.in decisions, since the principles of natural justice is not a straight jacket formula as Page 31 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 held by the Hon'ble Supreme Court in N.K.Prasada vs. Government of India reported in (2004) 6 SCC 299 and Union of India vs. Tulsiram Patel reported in (1985) 3 SCC 398.
34.Principles of natural justice requires to be applied depending upon the facts and circumstances of each case. Therefore, a common yardstick cannot be made applicable to all cases and whenever a statute provides for a reasonable opportunity of being heard, will not necessarily mean an opportunity of personal hearing. Therefore, to that extent, we are not in agreement with the finding rendered by the learned Single Bench.
35.Be that as it may, the respondents/writ petitioners did not seek for any opportunity of personal hearing and have not stated as to how they were prejudiced in not being heard in person when admittedly in the reply to the show cause notice, they have candidly admitted that they have not fulfilled the NOF requirement before the cut of date April 1, 2017. Thus, in our considered view, no useful purpose would have been served, if the respondents/writ petitioners had been granted an opportunity of personal hearing, as nothing more could not have been pleaded by them having accepted their failure to comply with the requirements under the notification dated 27.03.2015.Page 32 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022
C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 Therefore, the appellants were justified in stating that it would be an empty formality to provide an opportunity of personal hearing. If it had been a case where technical issues were involved on account of Court orders or any other circumstances or vis majeur or force majeur conditions prevailed, then probably, such persons would be in a position to explain better the factual matrix in a personal hearing. The cases before us cannot be placed in the said pedestal, since the respondents/writ petitioners have admitted non- compliance. The respondents should bear in mind that they are engaged in the business of financing.
Therefore, it would be not
acceptable for such a finance
company to plead that they are unable to achieve the NOF. It may be a different matter, if the line of business was something other than financing. Thus, the very right of the respondents/writ petitions to operate is based on a licence issued under Section 45-IA of the Act. The licence comes with conditions. In terms of Section 45-IA of the RBI Act, it is the duty of the respondents to furnish the statements, information or particulars called for and to comply with any direction given to it under the provisions of Chapter III- B of the RBI Act. Therefore, there is no escape from the statutory requirement. The respondents can claim no vested right to carry on Page 33 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 business without complying with the condition of licence or the directions issued by RBI."
3) Jeewan Holdings Private Limited & Anr. v. Union of India & Anr. (Judgment dated 01.09.2021 passed in LPA No. 299/2021) wherein Delhi High Court held as under :
"15. We do not find any merit in this submission of the petitioner. It is clear on a reading of Sub- Section (3) of Section 45-IA, that the said Sub- Section deals only with the situation as it arose upon enactment of Act 23 of 1997, whereby Section 45-IA was introduced for the first time. Sub-Section (3) of Section 45-IA has, therefore, exhausted itself out and it cannot be invoked in respect of subsequent enhancement of NOF requirement in terms of the Section 45-IA(1)(b). The notification in question was issued by the RBI after 18 years of the enactment of Act 23 of 1997, (whereby Section 45- IA was inserted in the RBI Act). By then, Sub- Section (3) had already worked itself out. The petitioners have not brought to our notice any provision in the Act which stipulates the minimum time period that the RBI was obliged to grant to non-banking financial companies to achieve the enhanced NOF. In the absence of any Page 34 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 statutorily prescribed period, the RBI could grant any reasonable time for attainment of the NFO of Rs. 200 Lakh.
16. As noticed above, the RBI adopted a graded plan for achievement of NOF of Rs.200 Lakh by 01.04.2017, by stipulating that such companies should attain NOF of Rs.100 Lakh before 01.04.2016; and, Rs.200 Lakh before 01.04.2017. Even if the submission of learned counsel for the petitioners that this notification dated 27.03.2015 became effective only upon it being gazetted on 11.03.2016 were to be accepted, the fact remains that the petitioners had nearly a near to attain the NOF of Rs.200 Lakh. Unfortunately, the petitioners, admittedly, did not attain the NOF of Rs.200 Lakh on or before 01.04.2017, and even according to the petitioner, they had attained the said NOF only on 28.03.2018, i.e. a year after the deadline.
17. The respondent/ RBI was, therefore, empowered to cancel the Certificate of Registration of the petitioners under Sub-Section (6) of Section 45-IA.
18. The grievance of the petitioners that the petitioners were not granted a reasonable opportunity of being heard before the petitioners were visited with the cancellation Page 35 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 order, is also meritless. The respondent issued a show- cause notice to the petitioners calling upon the petitioners to show-cause as to why its registration should not be cancelled, since it had not achieved the NOF of Rs.200 Lakh by 01.04.2017. This show-cause notice was issued on 02.05.2018. This show- cause notice was replied to by the petitioners, and only after consideration thereof, the petitioners were visited with the impugned order of cancellation of the petitioners' registration as a non- banking financial company by the RBI.
19. A reading of Section 45-IA(6) prescribes that "before making any order of cancellation of certificate of registration, such company shall be given a reasonable opportunity of being heard.". This reasonable opportunity of being heard need not necessarily be by way of an oral hearing. Since the petitioners were given a show-cause notice, and were called upon to respond to it - which they did, in our view, the petitioner stood afforded the reasonable opportunity of being heard, as contemplated under Section 45-IA(6) of the RBI Act.
20. Moreover, the petitioners have also availed of the appellate remedy before the Central Government and, there again, after considering the petitioners' appeal, the same has Page 36 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 been dismissed.
21. For the aforesaid reasons, we do not find any error in the impugned judgment calling for our interference. The appeal is, accordingly, dismissed."
30. With regard to the contention of the petitioner to provide an opportunity for taking necessary steps to comply with the provisions of section 45-IA(6)(ii) read with first proviso thereto, it was submitted by learned advocate Mr. Bhatt that order under section 45-IA (6)(iv)(a) is passed by the respondent no.1 pursuant to the RBI directives dated 10.11.2014 and 27.03.2015 and more than two years were given to all NBFCs for achieving the NOF of Rs. 200 Lakh, and therefore, the question of granting any further time would not arise, otherwise every company not achieving NOF would be required to be granted time for compliance and very purpose of implementation of the Circulars/ Page 37 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 Directions of the RBI would not be fulfilled. Reliance was placed on the following averments made in the affidavit in reply filed on behalf of respondent no.1:
"4.8. In view of the above, RBI issued a revised Regulatory Framework for NBFC vide RBI circular DNBR (PD) CC.No.002/03.10.001/2014-15 dated November 10, 2014 wherein timelines have been prescribed for all existing NBFCs, as under, to achieve NOF of Rupees Two Hundred Lakh. They were advised to achieve the NOF of:
(i) Rs. 100 Lakh by the end of March 2016;
(ii) Rs. 200 Lakh by the end of March 2017.
The attainment of the NOF is one of the mandatory preconditions for commencement or carrying on the business of a non- banking financial institution, in terms of sub clause (b) of sub section (1) of section 45-IA of RBI Act.
4.9 The rationale behind increasing this NOF to Rupees Two Hundred Lakh were based on certain important recommendations made by the working group on Issues and concerns in NBFC Sector chaired by Smt. Usha Thorat, Deputy Governor and the Committee on comprehensive financial services for Page 38 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 small businesses and low-income household by Chairman Dr. Nachiket Mor based on which these notifications dated November 10, 2014 and March 27, 2015 have been issued. RBI craves to refer to and rely upon the said report during the course of hearing if required. The RBI circular dated November 10, 2014 and the Notification dated March 27, 2015 increasing the NOF to the limit of Rupees Two Hundred Lakh were issued in accordance with the policy framed by RBI based on sound, fiscal and monetary principles and all NBFCs are directed to comply with the same. By this notification, the existing NBFCs were given sufficient time to achieve the NOF of Rupees Two Hundred Lakh i.e. Rupees One Hundred Lakh by March 2016 and Rupees Two Hundred Lakh by March 2017. The time schedule given in both Circular and notification to increase the NOF has not been complied with by the Petitioner, and since the Petitioner Company had failed to achieve the said mandatory NOF, its COR was liable to be cancelled.
4.10 Under the provisions of the RBI Act, the Bank has been vested with power under Section 45-1A (6) to cancel a certificate of registration granted to the NBFC, subject to proviso, if such company-
(1) Ceases to carry on the business of a non-banking financial institution in India; or
(ii) has failed to comply with any condition subject to which the Page 39 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 certificate of registration had been issued to it, or
(iii) at any time failed to fulfill any of the conditions referred to in clauses
(d) to (g) of sub-section (4); or
(iv) fails
(a) to comply with any direction issued by the Bank under the provisions of this chapter, or
(b) to maintain accounts in accordance with the requirements of any law or any direction or Order issued by the Bank under the provisions of this Chapter, or
(c) fails to submit or offer for inspection its book of accounts and other relevant documents when so demanded by any inspecting authority of the Bank, or
(v) has been prohibited from accepting deposit by an Order made by the Bank under the provisions of this Chapter and such Order has been in force for a period of not less than three months. 4.11 The petitioner was a non-deposit taking non-banking financial company which was incorporated on November 11, 1991 under the Companies Act, 1956. The petitioner had submitted an application dated July 05, 1997 to the Bank for COR under the provisions of Section 45-IA of the RBI Act to carry on the business of non-banking financial institution. The said application was duly considered by the Bank and the CoR bearing No. Page 40 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 01.00284 dated December 23, 1998 was issued to the Petitioner subject to its fulfilling the requirements under Chapter IIIB of the RBI Act and complying with the directions, regulations, including prudential norms issued by the Bank from time-to-time. 4.12. The Petitioner was holding CoR issued by the Bank on the date of issuance of the aforementioned directions. The Petitioner failed to achieve the required NOF of 200.00 lakh before April 1, 2017, as was required under the notification dated March 27, 2015. The NOF of the petitioner as on March 31, 2017, stood at Rs.72.00 lakh. Thus, the petitioner failed to achieve the specified NOF of Rs.200.00 lakh, thereby not complying with the provisions of Section 45-IA(1)(b) of the RBI Act and the same amounted to violation of directions issued by the Bank in exercise of its power under chapter III B of the RBI Act. It is relevant to bring to the notice of this Hon'ble Court that as per the provisions of Section 45-IA, a company cannot carry on NBFI business without the stipulated NOF along with the CoR issued by the Reserve Bank. The Petitioner was called upon vide Bank's letter DNBS (AH) No.1571/01.05.002/ 2017-18 dated April 27, 2018 to show cause within 15 days of the receipt of the said notice as to why the COR issued to it should not be cancelled under Section 45-IA (6) of the RBI Act and penal action be not initiated against the petitioner for the offences punishable under Section 58B of the RBI Act. I submit that the the reply Page 41 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 dated May 07, 2018, provided by the Petitioner to the Show Cause Notice (hereinafter referred to as the SCN) was found to be not satisfactory. Therefore, after considering the response of the Petitioner and providing required opportunity to the Petitioner to substantiate its stand in the matter, the Bank vide its order dated September 10, 2018, cancelled the CoR issued to the petitioner in exercise of its power conferred under Section 45 IA(6) of the RBI Act. I submit that the said order was passed after complying with the principles of natural justice, due process of law and considering all the documents/ information provided by the Petitioner. The contents of the order were communicated to the Petitioner vide letter Ref. DNBS (AH) No.231/01.10.245/2018-19 dated September 10, 2018."
31. It was submitted that respondent no.1- RBI cannot condone delay and restore CoR by accepting the contention of the petitioner that NOF was achieved belatedly as same would amount to amending the statute and notification dated 27.03.2015 by giving privilege to the defaulting NBFCs.
32. It was further submitted that the order Page 42 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 dated September 10, 2018 passed by respondent no.1 is not under section 45-IA(6)(ii) of the RBI Act and therefore, proviso (i) is not applicable and hence, no opportunity is required to be given to the petitioner. In support of his submission, reliance was placed on the following decisions:
1) The Regional Director, Reserve Bank of India and ors. v. Nahar Finance & Leasing Limited and ors. (judgment dated 22.04.2019 passed in Writ Appeal No.940/2019 and allied matters), wherein Madras High Court held as under:
"38. The learned counsel for the respondents argued that the first proviso under sub-Section (6) of Section 45-IA provides for granting time for complying or fulfilling certain conditions. The said first proviso will have no application to the cases on hand because, the said proviso applies only to the contingencies contemplated under Sections 45- IA(6)(ii) and (iii) alone. In the instant case, the cancellation of the registration is on account of failure to comply with Page 43 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 the directions issued by the Reserve Bank of India under the provisions of Chapter III-B and falls under Section 45-IA(6)(iv)(a). Therefore, the contention of the respondents in that regard does not merit consideration and is rejected."
2) Namaste Management Pvt. Ltd and ors. v. Reserve Bank of India and ors. (judgment dated 10.04.2019 passed in W.P. No. 489/2018), wherein Calcutta High Court held as under:
"(18)The second proviso to Section 45-IA(6) of the Act of 1934 requires a reasonable opportunity to be granted before any order of cancellation of Certificate of Registration being passed. This proviso has been interpreted by the Madras High Court in M/s. Nahar Finance and Leasing Ltd. & Ors.
(Judgement and order dated January 29,2019 in W.P.No.18225/2018 and allied matters) to mean that, such proviso requires an opportunity of personal hearing. There are two parts to the allegation of breach of principles of natural justice in this case. One part is the allegation that, Section 45-IA(6) requires an oral hearing to be given. The other part is that, the impugned order is non-speaking with regard to the prayer for condonation made by the petitioners.
Page 44 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 (19)The second proviso of Section 45-IA(6) of the Act of 1934 is not specific as to whether, the opportunity of hearing to be granted before cancellation of the Certificate of Registration being passed should be oral or that, a representation would suffice. The Peerless General Finance & Investment Co. Ltd. & Ors. (Judgment and order dated March 3,2017 in W.B No.11089/2012) has held that, principles of natural justice require a hearing to be granted to the persons likely to be affected by the decision taken. Right of hearing does not in all circumstances mean a right of oral hearing. Consideration of a written representation by the authorities concerned particularly when such consideration has been made with an open mind and a reasoned order has been passed therein, is recognised to be in compliance with the principles of natural justice and sufficient compliance of the right of hearing being extended to the person affected by the decision taken. Channabasappa Basappa Happali (1972 SC 32) has held that where a delinquent has admitted all the relevant facts on which the decision could be given against him it cannot be said that the enquiry was in breach of principles of natural justice or was unfair. In the present case, the first petitioner admitted the charges made against it. Viveka Nand Sethi (2005 (5) SCC Page 45 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022
337) has held as follows:-
"22. The principle of natural justice, it is trite, is no unruly horse. When facts are admitted, an enquiry would be an empty formality. Even the principle of estoppel will apply. [See Gurjeewan Garewal (Dr.) vs. Dr. Sumitra Dash. The principles of natural justice are required to be complied with having regard to the fact situation obtaining therein. It cannot be put in a straitjacket formula. It cannot be applied in a vacuum without reference to the relevant facts and circumstances of the case. [See State of Punjab vs. Jagir Singh (2004) and Karnataka SRTC vs. S.G. Koturappa."
3) Shakun Holdings Private Limited v. Union of India and others (Judgment dated 22.07.2020 passed in CWP No.1667/2020), wherein Himachal Pradesh High Court at Shimla held as under :
"4(ii). Learned Senior Counsel for the petitioner next contended that even if the NOF of the petitioner was determined as falling short of the limit prescribed by the RBI, Page 46 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 then, also under the following Section 45-IA(6) and proviso coming thereafter in the RBI Act, it should have been granted an opportunity to make good the deficiency:-
"(6) The Bank may cancel a certificate of registration granted to a non-banking financial company under this section if such company-
(i) ceases to carry on the business of a non-banking financial institution in India; or
(ii) has failed to comply with any condition subject to which the certificate of registration had been issued to it; or
(iii) at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of sub-section (4); or
(iv) fails-
(a) to comply with any direction issued by the Bank under the provisions of this Chapter; or
(b) to maintain accounts in accordance with the requirements of any law or any direction or order issued by the Bank under the provisions of this Chapter; or
(c) to submit or offer for inspection its books of account and other relevant documents when so demanded by an inspecting authority of the Bank; or
(v) has been prohibited from accepting deposit by an order made Page 47 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 by the Bank under the provisions of this Chapter and such order has been in force for a period of not less than three months:
Provided that before cancelling a certificate of registration on the ground that the non-banking financial company has failed to comply with the provisions of clause
(ii) or has failed to fulfil any of the conditions referred to in clause
(iii) the Bank, unless it is of the opinion that the delay in cancelling the certificate of registration shall be prejudicial to public interest or the interest of the depositors or the non-banking financial company, shall given an opportunity to such company on such terms as the Bank may specify for taking necessary steps to comply with such provision or fulfilment of such condition:
Provided further that before making any order of cancellation of certificate of registration, such company shall be given a reasonable opportunity of being heard."
xxx
5. What comes out from above discussion is that:-
(b). Since NOF of the petitioner-
NBFC determined under the applicable provisions of RBI Act fell short of minimum limit of Rs.200 Lakh prescribed by RBI for carrying on the business of NBFI, therefore, its Page 48 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 CoR was cancelled by RBI taking recourse to Section 45-IA(6)(iv) of the Act.
(c). The CoR of the petitioner was cancelled by RBI under the provisions of Section 45-IA(6)(iv) of the RBI Act, which does not entail providing any opportunity for complying with the provisions/ conditions violated by the petitioner. Otherwise also, sufficient opportunity had already been granted by the RBI in the notification dated 27.03.2015 to achieve prescribed NOF, i.e. to comply with its directions. In any case, shortfall in NOF in the Balance Sheet of the petitioner for the year 2016-17 cannot be rectified three years later in 2020."
33. It was submitted by learned advocate Mr. Bhatt that being policy decisions and economic issues, the scope of judicial review is very limited. It was submitted that condoning the delay and restoring the CoR by accepting the contention of the petitioner that NOF was achieved belatedly would amount to amending the statute and the Notification dated 27.03.2015 issued by RBI by the Court Page 49 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 in framing new policy regime which is a path on which the Court cannot tread.
34. It was submitted that the directions issued by RBI have statutory force as held by the Apex Court in case of Small Industries Development Bank of India v. SIBCO Investment Pvt. Ltd. reported in 2022 SC OnLine SC 5 wherein the Apex Court has held that when the legality of RBI notification is not under challenge, relief cannot be granted without determining its legality.
35. Learned advocate Mr. Bhatt further submitted that the Appellate Authority has now disposed of application dated 13.08.2021 filed by the petitioner observing that after passing order under section 45-IA(7) of the RBI Act, the Appellate Authority cannot entertain any application after passing the order on 03.02.2020.
Page 50 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022
36. Learned Additional Solicitor General Mr. Devang Vyas submitted that the Appellate Authority has filed an affidavit expressing highest regard for the Court and therefore, no further action be taken for observations made in the order dated 23.03.2022 considering the explanation given in the affidavit and it was submitted that the petition may be decided on merits.
37. Considering the rival submissions made by learned advocates for the respective parties, relevant provisions of the RBI Act which are germane to adjudicate the controversy raised in this petition are as under :
"[45IA. Requirement of registration and net owned fund.
xxx (6) The Bank may cancel a certificate of registration granted to a non-banking Page 51 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 financial company under this section if such company-
(i) ceases to carry on the business of a non-banking financial institution in India; or
(ii) has failed to comply with any condition subject to which the certificate of registration had been issued to it; or
(iii) at any time fails to fulfil any of the conditions referred to in clauses
(a) to (g) of sub-section (4); or
(iv) fails-
(a) to comply with any direction issued by the Bank under the provisions of this chapter; or
(b) to maintain accounts in accordance with the requirements of any law or any direction or order issued by the Bank under the provisions of this Chapter; or
(c) to submit or offer for inspection its books of account and other relevant documents when so demanded by an inspecting authority of the Bank; or
(v) has been prohibited from accepting deposit by an order made by the Bank under the provisions of this Chapter and such order has been in force for a period of not less than three months:
Provided that before cancelling a certificate of registration on the ground that the non-banking financial company has failed to comply with the Page 52 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 provisions of clause (ii) or has failed to fulfil any of the conditions referred to in clause (iii) the Bank, unless it is of the opinion that the delay in cancelling the certificate of registration shall be prejudicial to public interest or the interest of the depositors or the non-banking financial company, shall give an opportunity to such company on such terms as the Bank may specify for taking necessary steps to comply with such provision or fulfillment of such condition;
Provided further that before making any order of cancellation of certificate of registration, such company shall be given a reasonable opportunity of being heard.
(7) A company aggrieved by the order of rejection of application for registration or cancellation of certificate of registration may prefer an appeal, within a period of thirty days from the date on which such order of rejection or cancellation is communicated to it, to the Central Government and the decision of the Central Government where an appeal has been preferred to it, or of the Bank where no appeal has been preferred, shall be final:
Provided that before making any order of rejection of appeal, such company shall be given a reasonable opportunity of being heard.
Explanation.- For the purposes of this section,-Page 53 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022
C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 (I) "net owned fund" means-
(a) the aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance-sheet of the company after deducting therefrom-
(i) accumulated balance of loss;
(ii) deferred revenue expenditure; and
(iii) other intangible assets; and
(b) further reduced by the amounts representing-
(1) investments of such company in shares of-
(i) its subsidiaries;
(ii) companies in the same group;
(iii) all other non-banking financial companies; and (2) the book value of debentures, bonds, outstanding loans and advances (including hirepurchase and lease finance) made to, and deposits with,-
(i) subsidiaries of such company; and
(ii) companies in the same group, to the extent such amount exceeds ten per cent of (a) above.
(II) "subsidiaries" and "companies in the same group" shall have the same meanings assigned to them in the Companies Act, 1956."Page 54 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022
C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022
38. RBI by notification dated 27.03.2015 specified Rs. 200 Lakh as the NOF required for NBFCs to commence or carry on the business of NBFI. All NBFCs holding CoR certificate issued by RBI and having NOF of less than Rs. 200 Lakh were permitted to carry on business of NBFI provided such company achieved NOF of Rs. 200 Lakh before April 1, 2017.
39. Admittedly, the petitioner company has failed to achieve NOF of Rs. 200 Lakh before April 1, 2017. Therefore, the question arises as to whether respondent no.1-RBI could have cancelled the CoR after the petitioner company has informed the RBI on 28.03.2018 that it has achieved NOF of Rs. 200 Lakh. It is also not in dispute that RBI has also not granted any opportunity to the petitioner before passing the impugned order dated September 10, 2018 as provided under section Page 55 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 45-IA(6) pursuant to the show cause notice dated 27.04.2018.
40. The Appellate Authority has also not taken into consideration the submissions made on behalf of the petitioner company for not providing an opportunity and achieving NOF of Rs. 200 Lakh on 28.03.2018.
41. It appears that the Appellate Authority has also taken a contradictory stand in similar facts of other NBFC Companies on which reliance is placed by the petitioner. In case of M/s. Veeraj Investment & Financial Consultancy Private Limited v. Reserve Bank of India, the Appellate Authority vide order dated 30.04.2020 remanded the matter back to the RBI to review its order cancelling the CoR though the said company failed to fulfill the statutory requirement of NOF of Rs. 200 Lakh before 01.04.2017 and has made efforts Page 56 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 and achieved NOF as on 31.03.2018 which was intimated to RBI against the reply of show cause notice. RBI thereafter, by order dated 7.09.2020 reconsidered the matter and it was observed that it was not considered necessary to cancel the CoR issued to the said company. The order of the Appellate Authority and the review order of RBI are placed on record by the petitioner at Annexure-21 (page nos.96 to
98). Relevant observations of the Appellate Authority are reproduced to point out that in similar facts, the Appellate Authority has taken a different view by remanding the matter back to RBI as under :
"6. After going through the records and hearing the arguments put before me, it is observed that RBI vide circular dated 10th November, 2014 read with notification dated 27 March, 2015 had clearly prescribed an NOF of Rs.200.00 lakh to be achieved before 1st April, 2017 for NBFCs to commence or carry or the business of and NBFI. It was also stated that in the circular that NBFCs failing to achieve the prescribed ceiling within the stipulated time Page 57 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 period shall not be eligible to hold the COR as NBFCs and RBI will initiate the process for cancellation of CoR against such NBFCs. During the hearing, RBI informed that the NOF the appellant company stood at Rs.1.39 crore as on 31st March, 2017. Thus, it is clear that the appellant company had failed to fulfill the statutory requirement NOF of st Rs.200.00 lakh before 31 March, 2017. The appellant has made efforts and achieved NOF as on 31st March, 2018 through allotment of shares, which was intimated to RBI against reply of the SCN. In respect of the contention of the appellant company that it was not granted opportunity under Section 45- IA(6) of the Act. RBI has contended that the cancellation of the CoR of the appellant company is under Section 45- IA(6) which includes sub-section (iv) amongst other provisions i.e. failing to comply with any direction. As regards contention of the appellant that grant of personal hearing is mandatory before cancellation of COR, it is observed that a reasonable opportunity of being heard does not necessarily mean an opportunity of personal hearing.
7. As regards the contention of the appellant for grant of 3/6 years under section 45-IA(3), it will be relevant to refer to the provisions of section 45 IA(3) as introduced by the RBI (Amendment) Act, 1997 (23 of 1997), which came into force with effect from 9th January, 1997, to deal with a particular situation prevalent at that relevant time whereby an NBFC in existence on the date of commencement of Page 58 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 the RBI (Amendment) Act, 1997 and having NOF below Rs.25.00 lakh, may for the purpose of enabling such NBFC to fulfil the NOF requirement, as per section 45- IA(1)(b), continue to carry on the business of NBFI for a period of three years from such commencement. However, Section 45-IA(3)(ii) enabled RBI to further extend beyond three years upto a maximum of six years, subject to recording the reasons for so doing. Thus, it is a standalone provision and the legislative intent is clear from the language of sub-section (3) of section 45-IA read with proviso to the said sub- section (3).
8. Having heard both the parties and keeping in view the facts of the case and circumstances of the case, I am of the view that RBI may review its order dated 27th December, 2016 cancelling the CoR of the appellant M/s. Veeraj Investment & Financial Consultancy Private Limited. The appeal stands disposed of accordingly with no order as to costs."
42. RBI in the review order dated 07.09.2020 observed as under :
"Veeraj Investment & Financial Consultancy Private Limited - Restoration: of Certificate of Registration No.B-14.02100 dated October 27, 2000 issued under section 45-IA of the Reserve Bank of India Act, 1934.
A reference is invited to the order Page 59 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 dated April 30, 2020 passed by the Appellate Authority (AA) constituted under sub-section (7) of the section 45- IA of the Reserve Bank of India Act, 1934.
2. In this connection, please be advised that the Reserve Bank of India has since reconsidered the matter and it is not considered necessary to cancel the certificate of registration (COR), issued to the company under section 45- IA of the Reserve Bank of India Act, 1934."
43. Similarly in case of M/s. Tarujyot Investment Limited v. Reserve Bank of India, the Appellate Authority took the same view as in case of M/s. Veeraj Investment & Financial Consultancy Private Limited vide order dated 04.03.2021 as under :
"8. After going through the records put before me and hearing both the parties, it is observed that RBI vide circular dated 10th November, 2014 read with notification dated 27th March, 2015 had clearly prescribed an NOF of Rs.200.00 lakh to be achieved before 1st April, 2017 for NBFCs to commence or carry on the business of and NBFI. It was also stated that in the circular that NBFCs failing to achieve the prescribed ceiling within the stipulated time period shall not be eligible to hold the Page 60 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 CoR as NBFCs and RBI will initiate the process for cancellation of CoR against such NBFCs. During the hearing, RBI intimated that the appellant company's NOF as on 31 March, 2016 stood at Rs.220.60 Lakh and on 31 March, 2017, it stood at Rs.194.40 Lakh i.e. below the specified NOF of Rs.200.00 lakh. Thus, it is clear that the appellant company had failed to achieve the stipulated NOF of Rs.200.00 lakh as on 31 March, 2017 which is a statutory requirement of any NBFC of Rs.200.00 Lakh as on 30.09.2018 as is evident from the SAC dated 03.03.2021 submitted to this authority. In respect of the contention of the appellant company that it was not granted opportunity under this first proviso to section 45-IA(6) of the Act, RBI has contended that the cancellation of the CoR of the appellant company is under Section 45-IA(6) which includes sub-section (iv) amongst other provisions i.e. failing to comply with any direction. As regards contention of the appellant that grant of personal hearing is mandatory before cancellation of COR, it is observed that a reasonable opportunity of being heard does not necessarily mean an opportunity of personal hearing. It is observed that RBI has followed due process of law in the matter.
9. As regards the contention of the appellant that for extension of time under section 45-IA(3), it will be relevant to refer to the provisions of section 45-IA(3) as introduced by the RBI (Amendment) Act, 1997 (23 of 1997), which came into force w.e.f. 9th Page 61 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 January, 1997, to deal with a particular situation prevalent at that relevant time whereby an NBFC in existence on the date of commencement of the RBI (Amendment) Act, 1997 and having NOF below Rs.25.00 lakh, may for the purpose of enabling such NBFC to fulfil the NOF requirement, as per section 45-IA(1)(b), continue to carry on the business of NBFI for a period of three years from such commencement. Section 45-IA(3)(ii) enabled RBI to further extend beyond three years upto a maximum of six years, subject to recording the reasons for doing so. Thus, it is a standalone provision and the legislative intent is clear from the language of sub-section (3) of section 45-1A read with proviso to the said sub-section (3).
10. Having heard both the parties through video conferencing and keeping in view the facts of the case, I am of the view that RBI may review its order dated 11th January, 2019 cancelling the CoR of the appellant M/s. Tarujyot Investment Limited. The appeal stands disposed of accordingly with no order as to costs."
44. Thus the Appellate Authority has taken a different view in case of the petitioner and the above-referred two orders which shows the contradictory approach adopted by the Appellate Authority while dealing with NBFCs who have failed to achieve NOF of Rs. 200 Page 62 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 Lakh as on 01.04.2017. The Appellate Authority therefore, ought to have considered the application dated 13.08.2021 filed by the petitioner to review its own order so as to have consistency of the approach adopted by the Appellate Authority in similar facts, failing which, it has resulted into discrimination qua the petitioner inasmuch as though the petitioner achieved NOF of Rs. 200 Lakh and intimated the same to the RBI in reply dated 07.05.2018 to show cause notice dated 27.04.2018, cancellation of the order of CoR of the petitioner is confirmed by the Appellate Authority without considering the submissions made by the petitioner.
45. The submissions made on behalf of the RBI are with regard to the fact of notification issued by RBI having statutory force and non-applicability of provisions of section 45-IA(6)(ii) of the RBI Act, however, Page 63 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 in the facts of the case, RBI cannot have a different approach for different NBFCs which has been successfully demonstrated by the petitioner as in case of M/s. Veeraj Investment & Financial Consultancy Private Limited and in case of Tarujyot Investment Limited, RBI has reconsidered its earlier decision by reviewing it and revoked the cancellation order of CoR .
46. Reliance placed on behalf of RBI upon various decisions about applicability of provisions of section 45-IA of the RBI Act and extension of time to comply with the requirement under the said section is concerned, the same would be applicable in the facts of the case, if the Appellate Authority and the RBI would have adopted consistent approach in similar cases of M/s. Veeraj Investment & Financial Consultancy Private Limited and Tarujyot Investment Page 64 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 Limited, (supra). As the petitioner has also achieved the requirement of NOF of Rs. 200 Lakh before the show cause notice was issued by RBI and as in similar facts, RBI has reconsidered and reviewed its own decision pursuant to the remand order passed by the Appellate Authority in case of M/s. Veeraj Investment & Financial Consultancy Private Limited as stated here in above, the case of petitioner is also required to be reconsidered. It is apparent that the RBI has adopted a selective approach for reviewing its own order when the matter is remanded back by the Appellate Authority to RBI.
47. The petitioner is also therefore, entitled to the same treatment as is given by the Appellate Authority as well as by RBI in similar cases which are relied upon by the petitioner.
Page 65 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022
48. In facts of the case, therefore, when the petitioner has achieved NOF of Rs. 200 Lakh before issuance of show cause notice, as per proviso to section 45-IA(6) of the RBI Act, an opportunity ought to have been given to the petitioner. It is also pertinent to note that the petitioner is a closely held non-deposit taking, non-systematic NBFC and hence there was no question of prejudice to the public interest or interest of the depositors in the event there was delay in complying with the condition of the CoR of Rs.200 Lakh by the petitioner company. Therefore, there was no question of forming an opinion and thereby not giving the petitioner company an opportunity for taking necessary steps to comply with the requirement of achieving NOF of Rs. 200 Lakh. The Appellate Authority has utterly ignored the facts of the case of the petitioner by only observing that the petitioner has failed Page 66 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 to achieve NOF of Rs. 200 Lakh as on 01.04.2017 and thereby mechanically rejected the appeal of the petitioner without considering submissions made by the petitioner.
49. Thus, the Appellate Authority has passed the impugned order dated 03.02.2020 without application of mind and therefore, the order dated 03.02.2020 is liable to be quashed and set aside.
50. In view of the foregoing reasons, the impugned order dated 03.02.2020 passed by the Appellate Authority and order dated September 10, 2018 passed by RBI are hereby quashed and set aside and the matter is remanded back to RBI to reconsider/review its decision cancelling the CoR of the petitioner company which is done by it in similarly situated case of M/s. Veeraj Investment & Financial Page 67 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022 C/SCA/16918/2021 CAV JUDGMENT DATED: 23/09/2022 Consultancy Private Limited. Such exercise shall be completed by RBI within a period of 12 weeks from the date of this order.
51. Rule is made absolute to the aforesaid extent. No order as to costs.
(BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 68 of 68 Downloaded on : Fri Sep 23 21:48:39 IST 2022