Calcutta High Court
Namaste Management Pvt. Ltd. & Anr vs Reserve Bank Of India & Anr on 10 April, 2019
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Original Side
W.P. No. 489 of 2018
Namaste Management Pvt. Ltd. & Anr.
Vs.
Reserve Bank of India & Anr.
For the Petitioners : Mr. S.N.Mukherjee, Sr. Advocate
Mr. N. Chowdhury, Advocate
Mrs. Anuradha Poddar, Advocate
For the Respondents : Mr. L.K. Gupta, Sr. Advocate
Mr. Dilip Kr. Kundu, Advocate Hearing concluded on : April 4, 2019 Judgment on : April 10, 2019 DEBANGSU BASAK, J.:-
The petitioners have assailed an order dated August 9, 2018 issued by the Regional Director of Reserve Bank of India (RBI) exercising powers under Section 45-IA of Reserve Bank of India Act, 1934.
Learned Senior Advocate appearing for the petitioners has submitted that, the impugned order is vitiated by breach of principles of natural justice. He has submitted that, the second proviso to Section 45- IA(6) of the Act of 1934 provides for an opportunity of hearing to be granted to the persons suffering the show-cause notice. In the present case, the petitioners received a show-cause notice dated May 10, 2018.
The petitioners replied to such notice. It was alleged in the show-cause notice that, the first petitioner acted in violation of the Revised Regulatory Framework for Non-Banking Financial Companies (NBFC)(RBI/2014-2015/520 DNBR (PD) CC. No.024/03.10.001/2014-
15 read with Notification No. DNBR 007/CGM (CDS)-2015 dated March 27, 2015. He has submitted that, the notification dated March 27, 2015 required a NBFC to have Rs. 200 Lakhs as the Net Owned Fund (NOF) on or before April 1, 2017. The first petitioner could not generate the required NOF within the stipulated time. The petitioners prayed for condonation of such delay. The authorities did not afford the petitioners any hearing on the prayer for condonation. The authorities proceeded to cancel the Certificate of Registration issued in favour of the first petitioner for carrying on the business of non-banking financial institution under Section 45-IA of the Act of 1934. He has relied upon an unreported judgment and order dated January 29, 2019 passed by the High Court of Judicature of Madras in W.P. Nos. 18225, 21092, 21993 and 25143 of 2018, W.M.P. Nos. 21531, 24753, 25786, 29213 and 29214 of 2018 (M/s. Nahar Finance and Leasing Ltd. & Ors. v. The Regional Director, Reserve Bank of India & Ors.) and submitted that, the second proviso to Section 45-IA(6) of the Act of 1934 requires an oral hearing to be granted to the person suffering the show- cause notice. He has also relied upon the provisions of Section 45-IA(6) of the Act of 1934.
Learned Senior Advocate appearing for the petitioners has submitted that, the impugned order is non-speaking so far as the prayer for condonation of delay in compliance with the requirements prescribed under the notification dated March 27, 2015 is concerned. Such impugned order being non-speaking on such aspect, the same is in breach of the principles of natural justice as, the principles of natural justice requires a decision taken by an authority to be informed with reasons. According to him, the impugned order should be quashed.
Learned Senior Advocate appearing for the respondents has submitted that, in the facts of the present case, the authorities adhered to the principles of natural justice in arriving at the impugned decision. He has drawn the attention of the Court to the show-cause notice and the reply given thereto. He has submitted that, the charge of violation of the notification dated March 27, 2015 as made in the show-cause notice stands admitted in the reply. Once, the person suffering the show-cause notice admits the charges, he need not be afforded a personal hearing. In support of such contentions, he has relied upon All India Reporter 1972 Supreme Court page 32 (Channabasappa Basappa Happali v. The State of Mysore), 2005 Volume 5 Supreme Court Cases page 337 (Viveka Nand Sethi v. Chairman, J&K Bank Ltd. & Ors.), 2006 Volume 2 Supreme Court Cases page 315 (Mohd. Sartaj & Anr. v. State of U.P. & Ors.).
Learned Senior Advocate appearing for the respondents has submitted that, in any event, the requirement of hearing under the principles of natural justice does not mean that, an oral hearing is a must in all cases. In support of such contention, he has relied upon a judgment and order dated March 3, 2017 passed in W.P. No. 11089(W) of 2012 (The Peerless General Finance & Investment Co. Ltd. & Ors. v. Reserve Bank of India & Ors.) and All India Reporter 1966 Supreme Court page 671 (Madhya Pradesh Industries Ltd. v. Union of India & Ors.).
Learned Senior Advocate appearing for the respondents has questioned the maintainability of the writ petition. He has submitted that, the impugned order is appealable under Section 45-IA(7) of the Act of 1934. When there exists a statutory alternative remedy available, the Courts must be slow in entertaining a writ petition. In the facts of the present case, it cannot be said that, the impugned order is without jurisdiction. The authority passing the impugned order did have the jurisdiction to do so. It cannot be alleged that, there was absence of jurisdiction when the authority passed the impugned order. Moreover, the petitioner is guilty of allowing the statutory period prescribed for the purpose of preferring an appeal to lapse and then file the writ petition. When a person is guilty in such aspect, the writ petition should not be entertained. In support of such contention, he has relied upon All India Reporter 1961 Supreme Court page 1506 (A.V. Venkateswaran, Collector of Customs, Bombay v. Ramchand Sobhraj Wadhwani & Anr.).
In reply, learned Senior Advocate appearing for the petitioner has submitted that, the petitioner filed the writ petition within the prescribed period of statutory appeal. He has drawn the attention of the Court to the fact that, the impugned order is dated August 9, 2018. The same was issued to the petitioners under cover of a writing dated August 27, 2018 which was received by the petitioner on September 14, 2018. Section 45-IA(7) prescribes a limitation of 30 days from the date of receipt of the impugned order. The writ petition being affirmed and filed on September 28, 2018, the same is within the prescribed period of limitation of preferring an appeal from the impugned order in terms of Section 45-IA(7) of the Act of 1934.
Referring to the authorities cited on behalf of the respondents, learned Senior Advocate appearing for the petitioners has submitted that the ratio laid down thereon are not applicable to the facts of the present case. Relying upon 1989 Volume 2 Supreme Court Cases page 505 (State of U.P. & Ors. v. Maharaja Dharmander Prasad Singh & Ors.) learned Senior Advocate appearing for the petitioners has submitted that, oral hearing is needed in the facts of the present case. Relying upon 1998 Volume 8 Supreme Court Cases page 1 (Whirlpool Corporation v. Registrar of Trade Marks, Mumbai) he has submitted that, existence of statutory alternative remedy is not an absolute bar to the maintainability of a writ petition. According to him, in the facts of the present case, the impugned order being non-speaking is a nullity and therefore is required to be quashed.
The first petitioner claims itself to be a company incorporated under the provisions of the Companies Act, 1956. It was carrying on business as a non-banking financial institution pursuant to a Certificate of Registration dated October 12, 2001 issued by RBI. The first petitioner suffered a show-cause notice dated March 14, 2018 under Section 45-IA(6) of the Act of 1934. It was alleged in such notice that, the first petitioner failed to communicate the name, designation and address of the principal officer to the Financial Institution Intelligence Unit - India. There are other allegations as against the first petitioner in such show-cause notice. The first petitioner replied to such show-cause notice by its letter dated April 18, 2018. The first petitioner suffered a second show-cause notice dated May 10, 2018 under Section 45-IA(6) read with Section 48B of the Act of 1934. It was alleged as against the petitioner that, the first petitioner did not comply with the requirements specified under the notification dated March 27, 2015. The notification dated March 27, 2015 required a non-banking financial company to have Rs. 200 Lakhs as NOF. The first petitioner replied to the second show-cause notice on June 22, 2018. The first petitioner received a third show-cause notice dated May 25, 2018 alleging non-compliance of various directions of the Master Circulars and earlier directions contained in the letters dated May 18, 2017 and February 28, 2018. It was alleged that the first petitioner was included in the list of high-risk financial institution for non-compliance of the provisions of the specified notifications and that, the first petitioner failed to submit mandatory returns. It was also alleged that, the first petitioner was guilty of violation of various directions of RBI including the Non-Banking Financial Company Returns (Reserve Bank) Directions, 2016 dated September 29, 2016. The first petitioner replied to the third show-cause notice through its letter dated July 3, 2018. In the reply, amongst others, the first petitioner claimed that, it did not receive the letters dated May 18, 2017 and February 28, 2018. The first petitioner thereafter received the impugned order under cover of a letter dated August 27, 2018 issued by the respondent no. 2. The impugned order was received by the petitioner on September 14, 2018. The writ petition was affirmed and filed on September 28, 2018.
The impugned order refers to the show-cause notice dated May 10, 2018. By the show-cause notice dated May 10, 2018, RBI referred to the notification dated March 27, 2015 requiring a non-banking financial company to have Rs. 200 Lakhs as NOF and the failure of the first petitioner to achieve the prescribed NOF before April 1, 2017. The reply to such show-cause notice is dated June 22, 2018. In the reply dated June 22, 2018, the first petitioner accepted its non-compliance with regard to NOF, as alleged by RBI. It stated that, the delay in compliance was due to various inconceivable and unavoidable factors. It however did not specify the factors which prevented the first petitioner from complying with the requirement. No ground exists in the reply justifying the non compliance. The reply contains a prayer that the first petitioner may be excused for the non-compliance.
The impugned order dated August 9, 2018 has noted the contents of the show-cause notice dated May 10, 2018, the change of failure of the first petitioner to comply with the notification dated March 27, 2015 and the contents of the reply of the petitioners dated June 22, 2018. After discussing the same, the impugned order has held the first petitioner not to be eligible to continue to carry on the business of non- banking financial company on account of its failure to comply with the directions of RBI as regards achievement of the specified NOF.
The show-cause notice dated May 10, 2018 and the impugned order dated August 9, 2018 are under Section 45-IA of the Act of 1934. Section 45-IA of the Act of 1934 deals with the requirement of registration and net owned fund. Relevant provisions for the purpose of the instant writ petition are sub-Sections 6 and 7 of Section 45-IA which are as follows:-
"(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 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 give an opportunity to such company on such terms as the Bank may specify for taking necessary steps to comply with such provisions 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.
(7) A company aggrieved by the order of rejection of application for registration or cancellation of certificate of registyration 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,- (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 hire-purchase 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 (1 of 1956)."
The issue of maintainability of the writ petition as raised by the respondents requires consideration. Whirlpool Corporation (supra) has dealt with the powers to issue prerogative writs under Article 226 of the Constitution and held as follows:-
"14. The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for "any other purpose".
15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. There is a plethora of case-law on this point but to cut down this circle of forensic whirlpool, we would rely on some old decisions of the evolutionary era of the constitutional law as they still hold the field."
Whirlpool Corporation (supra) has held that, existence of alternative remedy is not a complete bar for maintaining a writ petition. Notwithstanding the existence of alternative remedy, a writ petition has been held to be maintainable for the enforcement of any fundamental right or where there has been a violation of principles of natural justice or where the order of proceedings are wholly without jurisdiction or the vires of an Act is challenged.
In the present case, there is a statutory alternative remedy under Section 45-IA(7). However, as noted in Whirlpool Corporation (supra) a writ petition is maintainable, notwithstanding the availability of statutory appeal where, if there is a breach of principles of natural justice. In the present case, the petitioners claim that the impugned order is vitiated by breach of principles of natural justice. When a writ petitioner alleges violation of the principles of natural justice in the decision making process vitiating the decision itself, then such a writ petition cannot be said to be not maintainable. The allegation of breach of principles of natural justice can be gone into by the writ Court. The present writ petition therefore cannot be said to be non maintainable merely because a statutory alternative remedy of appeal exists.
There is another aspect to the maintainability as has been contended on behalf of the respondents. A.V. Venkateswaran, Collector of Customs, Bombay (supra) has held that, if a petitioner has disabled himself from availing the statutory remedy by his own fault in not doing so within the prescribed time, he cannot be permitted to urge that as a ground for the Court dealing with his petition under Article 226 of the Constitution to exercise its discretion in his favour. In the facts of the present case, the petitioner approached the writ Court within the prescribed statutory period of filing an appeal. The impugned order was passed on August 9, 2018 and was sought to be served upon the first petitioner by a letter dated August 27, 2018. The petitioners claim to have received the communication on September 14, 2018 and the writ petition was affirmed and filed on September 28, 2010. Therefore, the writ petitioners approached the writ Court within the prescribed statutory period of limitation. On such aspect also, the writ petition cannot be said to be not maintainable. In the facts of the present case, therefore, the allegation of breach of principles of natural justice requires consideration.
Maharaja Dharmander Prasad Singh & Ors. (supra) in the facts of that case found the show-cause notice to be an impalpable congeries of suspicions and fears, of relevant and irrelevant matter and to include some trivia. In the facts of that case, necessity to afford oral hearing was found.
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. (supra) 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.
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. (supra) 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 (supra) 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 (supra) 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."
Mohd. Sartaj & Anr. (supra) has held that, mere violation of natural justice is not sufficient. A petitioner has to establish defacto prejudice other than non-issuance of notice to succeed on an issue of breach of principles of natural justice. Madhya Pradesh Industries Ltd. (supra) has construed Rule 55 of the Mineral Concessions Rules, 1960 and held that, principles of natural justice require a quasi judicial Tribunal to take a decision adverse to the party after giving an effective opportunity to such party to meet any relevant allegations against him. Such opportunity need not necessarily be by personal hearing. It can be by written representation. Whether the opportunity should be by written representation or by personal hearing depends upon the facts of each case and ordinarily it is at discretion of the Tribunal. In the facts of that case, it found that, the written representation made by the affected party effectively met the requirement of principles of natural justice. In the facts of the present case, the first petitioner admitted the charges levelled against it by the show-cause notice dated May 10, 2018. The petitioners have not been able to substantiate any prejudice being caused by the impugned order by non-grant of an oral hearing. Oral hearing in all circumstances is not mandatory. Section 45-IA(6) of the Act of 1934 does not mandate an oral hearing. Allowing the noticee to make a representation and considering such the show-cause notice and the representation made thereto in an unbiased fair and transparent manner and by passing a reasoned order, the requirement of hearing under Section 45-IA(6) would stand complied with. In a given case, if a request for oral hearing is made and the authority considers such request as reasonable or where the authority suo motu calls for an oral hearing, then oral hearing can be given. Non grant of oral hearing will not automatically translate itself as a breach of the principles of natural justice. In this case, the petitioners did not request oral hearing. When a petitioner approaches a Court under Article 226 on the ground of breach of principles of natural justice, it is not sufficient for that petitioner to succeed on such ground, merely by showing that an opportunity of oral hearing was not granted or that there was a breach of principles of natural justice. A petitioner is required to establish active prejudice other than non-issuance of notice for the petitioner to succeed. In the facts of this case, RBI exercising powers under Section 45-IA(6) of the Act of 1934 is entitled to cancel the Certificate of Registration as done by the impugned order. The impugned order contains reasons as to why such a decision has been taken. The parties have not raised the issue of proportionality of the punishment awarded. Therefore, question of delving into the provisions of Section 53B and 53G of the Act of 1934 to appreciate whether the quantum of punishment imposed by the impugned order was proportionate to the charges does not arise.
The petitioners have contended that, the request for condonation has not been considered by the impugned order. An order need not contain elaborate reasons. It is sufficient that, the order is speaking on the points raised. The charge against the first petitioner is failure of compliance with the requirements under the notification dated March 27, 2015. Such a charge, if proved, can result in the withdrawal of the Certificate of Registration as done in this case. The petitioners were well aware of the charge. They had accepted such charge in their reply dated June 22, 2018. Their reply has been considered by the impugned order. While considering such reply, the authority passing the impugned order did not find merit in the defence taken. The question therefore of non consideration of the prayer for condonation as made by the first petitioner in the reply dated June 22, 2018 does not arise. Such a prayer is deemed to have been rejected from the tenor of the impugned order. In the facts of the present case, it cannot be said that, the impugned order is non-speaking with regard to the aspect of non consideration of the prayer for condonation made as by the first petitioner or that the impugned order suffers from the breach of principles of natural justice.
W.P. No. 489 of 2018 is dismissed. No order as to costs.
[DEBANGSU BASAK, J.]