Delhi District Court
Rbi vs J.V.G. Securities Ltd on 24 May, 2024
IN THE COURT OF MS. RICHA SHARMA,
ACMM-01 (CENTRAL) TIS HAZARI COURTS, DELHI
THE RESERVE BANK OF INDIA
Represented by Authorized Officer
Sh. G. Srinivasan, General Manager,
Department of Non-Banking Supervision,
Reserve Bank of India,
Regional Office:- 6, Sansad Marg,
New Delhi.
VS.
(1) JVG SECURITIES LTD.
Having its Registered Office at
1, Ashoka Park Main,
New Rohtak Road, New Delhi.
(2) SH. V.K. SHARMA,
Director, JVG Securities Ltd.
36, Sainik Farms, New Delhi-110062.
(3) Dr. SUKHBIR SINGH,
Chairman,
C/315, Vikaspuri, Near Adarsh Public School,
Delhi.
(Since PO)
(4) SMT. VEENA SHARMA,
Director, JVG Securities Ltd.
36, Sainik Farms, New Delhi- 110062.
(Since PO)
(5) COL. T.S. BHAN (Retd.),
Director, JVG Securities Ltd.,
551, Sector 37D, NOIDA,
Uttar Pradesh.
(Since PO)
(6) SH. DINESH PRASHAR,
Director, JVG Securities Ltd.
939, Housing Board Colony,
Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 1/63
PS DBG Road
Saraswati Vihar, Gurgoan.
(Since PO)
(7) SH. SANJAY SHARMA,
Director, JVG Securities Ltd.
37-D, B-12A, Dhawalgiri Apartments,
Sector 34, NOIDA, Uttar Pradesh.
(Since PO)
(8) SH. BHANWAR SINGH,
Director, JVG Securities Ltd.
C-315, Vikaspuri, Near Adarsh Public School,
Delhi.
(Since PO)
(9) SH. SURYA THAPAR,
Director, JVG Securities Ltd.
H.No. 33, DG II, Vikaspuri, New Delhi.
(Since PO)
(10) SH. VINAY KUMAR SHARMA,
Director, JVG Securities Ltd.
S/o- Sh. Prem Prakash Sharma,
F-1/A, Radhey Puri, Delhi-110051.
(Since PO)
(11) SH. SURAJ PRAKASH SHARMA,
Director, JVG Securities Ltd.
36, Sainik Farms, New Delhi- 110062.
(Since PO)
JUDGMENT
Date of Institution of case: 30.05.1998 Date of Judgment reserved: 30.04.2024 Date on which Judgment pronounced: 24.05.2024 1. Ct. Case No : 536942/2016
2. Date of commission of : 26 & 27 September, 1997 offence Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 2/63 PS DBG Road
3. Offence complained of : U/s 58B(4)(A)/ 58B(5)/ or proved 58B(6)/58C of RBI Act.
4. Plea of accused : Pleaded not guilty
5. Final order : CONVICTION FACTS
1. The complainant is a statutory Corporation, established by the Reserve Bank of India Act, 1934, having its central office at Mumbai. The present complaint has been filed on behalf of the Reserve Bank of India by Sh. G. Srinivasan, General Manager, Department of Non-Banking Supervision, Reserve Bank of India, Regional Office 6, Sansad Marg, New Delhi-110001, who had been duly authorized under the provisions of sub-Regulation (1) of Regulation 17 of the Reserve Bank of India General Regulations 1949 read with the provisions of sub-Section (1) of Section 58E(1) of the Reserve Bank of India Act, 1934.
2. That accused No. 1 is a Non-Banking Financial Company, conducting the business of a Non-Banking Financial Institution as a loan Company. Accused No. 2 is the Chairman of the accused No. 1 Company and accused No. 3 to 11 are the Directors of accused No. 1 Company. Hence, accused No. 2 to 11, were having active involvements in the commission of the offences as they were incharge and were responsible to the accused No. 1 Company for the conduct of its business, at the time of the contravention/ default under Section 58C of the RBI Act, 1934, as per which Chairman and Directors are liable to be Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 3/63 PS DBG Road proceeded and punished jointly.
3. That the Reserve Bank of India, in exercise of the powers conferred by section 45J, 45K, 45L and 45IB of Chapter IIIB of the Reserve Bank of India Act, 1934 and all the powers enabling it in this behalf, had issued direction by Notifications No. DNBC. 38/DG vide (H)-77 dated 20.06.1977 and No. DFC(COC) 107ED (JRP)/ 97-98 dated 30.04.1997 to all the Non-Banking Financial Companies (hereinafter referred to as "Directions").
4. That upon an inspection of accused No. 1 Company, carried out by the complainant U/s 45N of the RBI Act on 26.11.1997 and 27.11.1997, it was revealed, that the Company had contravened various provisions of the Non-Banking Financial Companies (Reserve Bank) Directions, 1997 which are as under:
(i). The accused No. 1 had NOF (Net Owned Fund) of Rs.
11.33 lacs as on 31.03.1997 and the company had received Inter Corporate Deposits (ICDs) of Rs. 151.00 lakhs, which was much more than the permissible limit (2 times of NOF) for acceptance of deposits as specified in para 5(2)(B) of the said Directions.
(ii). The Company had not maintained liquid assets as required by Section 45IB of the RBI Act, 1934.
(iii). The Company accepted public deposits through JVG Leasing Ltd and credited to the account of JVG Finance Ltd. The Company facilitated collection of further deposits by JVG Finance Ltd, a Company which had already accepted public deposits beyond the limits permissible to it, and was advised by Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 4/63 PS DBG Road RBI not to accept any further deposits. This act of the Company was in violation of para 5(2)(B) of the Directions.
(iv). No satisfactory documentary evidence was available with the Company to show, that these amounts were received as part of the consideration for sale/ purchase of lands as claimed. The books of accounts and other documents available with the company indicated, that the amounts were received as deposits within the meaning of Section 45 I(bb) of RBI Act. The Company therefore, violated the provisions of para 5(2)(B) of the Directions, by accepting deposits, to the tune of Rs. 1089.28 lakhs as on 31.08.1997, which was in excess of the limits permissible to it, namely 25% of its NOF.
5. It is alleged by the complainant, that the accused No. 1 Company being prohibited from accepting deposits by order dated 10.10.1997, had contravened the Directions under the Provisions of Section 58B(5) of the Reserve Bank of India Act, 1934. Further, U/s 58C of the RBI Act, accused No. 2 to 11 being the incharge and were responsible to the accused No. 1 Company for the conduct of its business at the time of contravention and defaults, have jointly and severally contravened the provisions of the Directions contained in the two Notifications issued by the Bank under Chapter III B of the Reserve Bank of India Act, 1934. It is also contended, that the complainant Bank had not imposed any penalty on the accused U/s 58G of the RBI Act for the aforesaid violations/ defaults/ contraventions.
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6. Cognizance of the offence was taken vide order dated 17.07.1999 and all the accused persons were summoned for the offences as per the complaint. Since all the accused persons failed to put their appearance before the Court, they were declared proclaimed offenders, by the Ld Predecessor vide order dated 11.02.2010. Thereafter, upon production warrants, presence of accused Vijay Kumar Sharma was secured and vide order dated 15.04.2017, he was admitted to bail on furnishing personal bond.
PRE-SUMMONING EVIDENCE
7. During pre-summoning evidence, complainant Bank had examined three witnesses namely:-
1.) CW1 G. Sriniwasan (General Manager of Department of Non-Banking Supervision, RBI),
2.) CW2 Gunveer Singh (Manager) and
3.) CW3 P.C. Chugh (Assistant Manager) All the witnesses had deposed the facts as alleged in the complaint as under:-
(a) CW1/G. Srinivasan deposed, that he had been duly authorized under the provisions of Sub Regulation (1) of Regulation 17 of the Reserve Bank of India general regulations 1949 read with the provisions of sub-section (1) of Section 58E (1) of the Reserve Bank of India Act 1934 by the Executive Director of the Reserve bank of India vide a letter authority dated 26.05.1998, Ex.
CW1/1. He further deposed, that accused no. 1 is a non-banking financial company and had engaged in the business of a non- banking financial institution as a loan company. Accused no. 2 is Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 6/63 PS DBG Road the chairman of the accused no. 1 company. Accused no. 3 to 11 are Directors of the accused company. All the accused no. 2 to 11 were actively involved in the commission of the offences under the RBI Act 1934 and the non-banking financial companies (Reserve Bank) Direction, 1997 and all the accused were liable to be punished by virtue of the provisions r/w 58C of the RBI Act, 1934. The accused no. 2 to 11 were incharge of and were responsible to the accused no. 1 company for the conduct of its business at the time of the contravention/default and were guilty of the offence under the RBI Act and directions were liable to be proceeded against and punished accordingly, jointly and severaly.
He further deposed, that Reserve Bank of India issued direction dated 20.06.1997 to all the non-banking financial companies. The Reserve Bank of India carried out inspection of the accused no. 1. On the report of the inspection it was revealed, that the accused no. 1 company had contravened various provisions of the non-banking financial companies (Reserve Bank) Direction, 1997. It was found, that the accused no. 1 had Net Owned Fund of Rs. 11.33 lacs as on 31.03.1997. The accused no. 1 had received inter-corporate deposits (ICDs) of Rs. 151.00 lacs which was much more than the permissible limit of two times of Net Owned Funds for acceptance of deposits as specified in para 5 (2) (B) of the RBI Directions. It was also found, that the accused no.1 had not maintained liquid assets as required by Section 45IB of the RBI Act, 1934.
He further deposed, that accused no. 1 had also accepted public deposits through JVG Leasing Ltd and credited to the account of JVG Finance Ltd. The accused facilitated collection of Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 7/63 PS DBG Road further deposits by JVG Finance Ltd, a company which had already accepted public deposits beyond the limits permissible to it and was advised by the RBI not to accept any further deposits. This act of the accused no. 1 is in violation of para 5 (2) (B) of the RBI Directions. The accused no. 1 could not give any satisfactory documentary evidence to show, that these amounts were received as part of the consideration for sale/purchase of lands as claimed by the accused no. 1.
It was also found from the books of account and other documents available with the accused no. 1 that the amounts were received as deposits within the meaning of Section 45I (bb) of the RBI Act which was violative of provisions of para 5 (2) (B) of the RBI Directions. The accused no. 1 had accepted deposits which was in excess of the limits i.e. 25 per cent of its NOF. He further deposed, that accused no. 1 was prohibited from accepting deposits by the RBI vide its order bearing number DOS (FC) ND. No. 1018/P.O./97-98 dated 10.10.1997, the copy of the order dated 10.10.97 is Ex. CW1/2. A copy of the deposit application form of accused no. 1 is Ex. CW1/3.
The accused no. 2 to 11 were incharge of and were responsible to accused no. 1 company for the conduct of its business at the time of contraventions and defaults of the RBI Act and directions. All the accused had jointly and severally contravened the provisions of the RBI directions contained in the notifications issued by the RBI under Chapter IIIB of the Reserve Bank of India Act 1934 and were guilty of the offences punishable under the said Act and were liable to be prosecuted and punished. He further deposed, that Reserve Bank of India Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 8/63 PS DBG Road had not imposed any penalty on the accused persons under Section 58G of the RBI Act, for their violations/defaults stated herein above. The accused no. 1 had its registered office within the jurisdiction of this Court. The offences stated herein above had also been committed within the jurisdiction of this Court and he prayed for accused persons to be summoned.
(b) CW2/Gunveer Singh deposed, that he was directed by the Reserve Bank of India to inspect accused no. 1 and to assess whether the accused no. 1 was complying with the prohibitory order issued by the RBI on 10.10.1997, Ex. CW1/2. During the period from 25.09.1997 to 26.06.1997 inspection had been made of the accused no. 1 in which it was found, that the accused no. 1 was accepting inter-corporate deposits more than the permissible limit which was two times the Net Owned Funds of the company. It was also found, that the accused no. 1 had not maintained liquid assets as required by Section 45IB of the RBI Act, 1934. During the said inspection, it had also been found, that the accused no. 1 had accepted deposits from public beyond the limits permissible under the law and had violated the provisions of para 5 (2) of the RBI Directions.
During his subsequent Inspection from 08.12.1997 to 15.01.1998 the finding of the earlier inspection was found to be correct and he found that the accused no. 1 had not corrected and rectified its mistake and had not brought itself within the permissible limits of the RBI directions. Inspection Report dated 06.03.1998, Ex. CW2/1 and the relevant extract from the earlier inspection report was marked as Mark A. Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 9/63 PS DBG Road
(c) CW3/Sh. P.C. Chugh deposed, that a letter dated 26.06.1998 by Sh. Sudharshan Lal, Deputy General Manager RBI for delivering to the ROC NCT of Delhi and Haryana at Delhi which he delivered on 29.06.1998. Later on, he collected a letter dated 03.07.1998 written by the ROC to Sh. Sudershan Lal alongwith annual return made upto 25.09.1997, Form No 32 dated 28.05.1996 and Form No. 18 dated 30.12.1997 pertaining to JVG Securities Ltd besides other papers on 03.07.1998. A copy of the letter dated 26.06.1998, Ex. CW3/A and the letter dated 03.07.1998 written by the ROC alongwith the documents, Ex. CW3/B. The RBI had received the memorandum and articles of association of JVG Securities Ltd, Ex. CW3/C. The RBI has filed a winding up petition in the High Court of Delhi bearing company petition no. 267 of 1998. In the said petition the RBI had filed an application bearing no. 1598 u/s 446 (1) of the Companies Act, marked as Mark X. PRE-CHARGE EVIDENCE
8. Thereafter, the matter was listed for pre-charge evidence. During pre-charge evidence, complainant Bank examined three witnesses namely as under:-
1.) CW1 Rajbir Singh Chikara, Assistant Manager, RBI,
2.) CW2 Sh. Gunveer Singh Inspecting Officer and
3.) CW3 Sh. Sudershan Lal
(a) CW1/Sh. Rajbir Singh Chikara deposed, that he was dealing with the files of JVG Securities Ltd and was aware about the facts of the case. He was also authorized by the Executive Director, RBI to give evidence in this case. His authority letter Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 10/63 PS DBG Road was on record, and the same was Ex. CW1/1. The accused company is a non-banking financial company coming under the direct control of RBI as per Chapter-III B of the RBI Act. The other accused were the directors of accused No. 1 company at the relevant point of time and were responsible for the conduct of the affairs of the company. The accused no.1 company had committed defaults as per the provisions of the RBI Act and the general regulations 1977 as amended upto 1997 issued by RBI under the RBI Act.
RBI conducts routine inspection of the accounts books of all NBFC. RBI conducted inspection of the books of accounts of accused No.1 company on 26th and 27th September, 1997. RBI found out various defaults committed by the company in that inspection. The Net owned fund (NOF) of the company was found to be less then the requirement. The company had raised the deposits through its group companies. The extract of the inspection report is already on record and the same is Ex. CW1/B. The defaults committed by the company constitutes an offence under section 58 of the RBI Act. The accused No. 2 to 11 were the Directors of the accused No. 1 company and Mr. Sukhbir Singh, one of the directors was the Chairman of the company. Copy of Form No. 29 filed before the ROC is on record and the same is Ex. CW1/3. Form 32 was also on record and the same is Ex. CWI/4.
The company's balance sheet as on 31.03.1997 and final accounts was on record and the same is Ex. CW1/5. Form 32 and Form No. 29 were obtained from the Registrar of Companies. Copy of the letter from the ROC forwarding those forms is on Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 11/63 PS DBG Road record and the same is Ex. CW1/6. Mr. G. Srinivasan, who was the then General Manager of RBI filed the present complaint case and the complaint is Ex. CW1/7. He could identify the signature of Mr. G. Srinivasan as he had seen him writing and signing during the course of his duty. The letter of authority authorizing Mr. G. Srinivasan to file the complaint is Ex. CW1/8. He had been substituted as the authorized officer in place of Mr. G. Srinivasan.
The accused No. 1 company had also committed default in repayment of depositors. The company had also failed to maintain liquidity as per RBI Act. The RBI had filed winding up petition before the Hon'ble High Court of Delhi and winding up had been ordered against the company. Because of the aforesaid violations, the accused No. 1 company and its directors, accused no. 2 to 11 were liable to be punished under section 58 of RBI Act. From the balance sheet of the company it was revealed that the company had accepted deposit in excess of the permissible limit compared to the NOF. Copy of the annual returned filed by the company for the year 1997 was on record which is Ex. CW1/9.
RBI had issued a prohibitory order to the company on 10.10.1997. Copy of the prohibitory order was on record and the same is Ex.CW1/10. The company had acknowledged receipt of the prohibitory order but failed to comply with the requirements. The company had applied for registration as NBFC but failed to obtain registration due to non-compliance of the requirements. RBI filed the application before the High Court for continuance of the criminal proceedings which was allowed. The complaint is Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 12/63 PS DBG Road a statutory complaint based on documents and records of the company. The accused have committed offence punishable under Section 58 of the RBI Act. Accused No. 2 to 11 are liable for the offences punishable under section 58C of the RBI Act. This witness was cross-examined by the Ld. Defence Counsel in pre-charge evidence.
(b) CW2/Sh. Gunveer Singh, deposed that he had inspected the company i.e. accused no. 1 on 26/27.09.1997 and the extract of the inspection report was marked as CW1/B. Another inspection was also carried out by him from 15.12.1997 to 08.01.1998 which also forms part of Ex. CW1/D1.
This witness was cross-examined by the Ld. Defence Counsel in pre-charge evidence.
(c) CW3/Sh. Sudershan Lal deposed, that he was familiar with the facts of the present case as he had dealt with this file at the relevant time but now he had faded memory on minutest details of the case. A prohibitory order dated 10.10.1997 was issued under his signature against the company and was communicated to the Company and its Directors including Mr. Sharma (Accused No. 3). Mr. Gunveer Singh, who was then AGM at that time had inspected the books and accounts of the company and on the basis of the findings of the Inspecting Officer which was put before him and sent to Central Office, Mumbai, wherein certain violations were found, prohibitory order was issued on behalf of the Bank.
Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 13/63PS DBG Road Mr. G. Srinivasan was the General Manager at the relevant time and the complaint had been signed and filed by him on behalf of the Bank. The accused had violated various provisions, guidelines and prudential norms of the Reserve Bank and therefore were liable to be prosecuted under Section 58 (E) (1) read with Section 58B & 58C of the RBI Act.
This witness was not cross-examined by the Ld. Defence Counsel in pre-charge evidence despite given opportunity.
9. It is pertinent to mention, that during trial, accused No. 1 i.e JVG Securities was under liquidation and was represented by the Official Liquidator, namely, Sh. Neeraj Kumar.
CHARGE
10. Arguments on charge were heard. Vide order dated 28.07.2020, accused No. 1 i.e JVG Securities and accused V.K. Sharma were charged for the offence U/s 58B(4)(A)/58B (5)/ 58B(6)/58C of RBI Act, 1934. Formal charge for the said offences were framed on 25.07.2023 upon accused No. 1 through Official Liquidator Sh. Neeraj Kumar and accused V.K. Sharma.
POST-CHARGE EVIDENCE
11. Complainant bank examined three witnesses namely CW1- Rajbir Singh, CW2- Gunveer Singh and CW3- Sudershan Lal. All the three witnesses adopted and relied upon the documents exhibited during their pre-charge evidence, in the post charge evidence and were cross-examined by the Ld. Defence Counsel for accused V.K. Sharma and Sh. Neeraj Kumar, Ld. Counsel for Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 14/63 PS DBG Road Official Liquidator for accused no. 1 company.
STATEMENT OF THE ACCUSED UNDER SECTION 313 OF THE CODE OF CRIMINAL PROCEDURE CODE, 1973.
12. After completion of evidence, the entire incriminating evidence was put to accused in terms of Section 313 Cr.P.C.
Accused No. 1 through Sh. Neeraj Kumar, Ld. Counsel for Official Liquidator, tendered explanation that the ex-directors of the accused No. 1 and its management, at the relevant point of time, might have had knowledge about the alleged commission of the offence.
Accused No. 2 tendered explanation, that he had no knowledge as he was not the director at the relevant point of time. That RBI had conducted inspections in relation to the companies namely JVG Finance Ltd and JVG Leasing Ltd and denied that accused No. 1 had accepted deposits through JVG Leasing and JVG Finance. That accused No. 1 was never an NBFC as well as there is no document to show that accused No. 1 was an NBFC and ICDs do not fall under the deposits as required under RBI Act. Accused opted to lead defence evidence. However, no evidence was lead and vide order dated 14.09.2023, DE was closed.
Thereafter, matter was listed on final arguments and detailed arguments were advanced on behalf of both the parties.
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13. It has been argued on behalf of the complainant bank that in the complaint case, the charge is only framed when the evidence is of such quality that if un-rebutted, same would lead to conviction. The charge has been framed against accused no. 1 alongwith accused no. 2, being the director of the company i.e. JVG. Securities U/s 58(B) (4) of RBI Act, 1934, U/s 58 (B) (5) of RBI Act, 1934, U/s 58 (B) (6) of RBI Act, 1934 and U/s 58 ( C) of RBI Act, 1934. It is submitted, that to re-but the evidence of complainant the accused have not examined any witness in their defence.
It is further argued, that the entire case of the complainant is based on documentary evidence primarily i.e. the inspection report and that a documentary evidence stands on a higher pedestal then any oral evidence and in this case neither the defence had put forth any oral evidence nor any documentary evidence. It is argued, that as per the provision of Section 58 ( C )
(i) the burden was upon accused no. 1 and 2 to prove that the contravention by the accused company as stated in the inspection report i.e. Ex. CW1/B, were committed without their knowledge or they had exercised all due diligence to prevent the said contravention or default, however, no evidence is led on behalf of them to re-but the charge that they were not having knowledge about the financial transaction of the company.
It is further argued, that no evidence is led on behalf of accused no. 2 company to re-but the evidence on contravention by the said company. Therefore, it is prayed, that accused no. 1 i.e. JVG. Securities alongwith accused no. 2 i.e. V.K. Sharma, Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 16/63 PS DBG Road being the Director of the company JVG. Securities Ltd be convicted for the charges framed against them.
14. On the other hand, it is argued on behalf of the accused, that the company of the accused i.e. JVG Securities Ltd does not fall within the category of non-banking financial company in the first place and therefore, the charges framed upon the accused does not validate their attraction upon the accused. It is further argued, that the RBI itself has used different terminologies while addressing the accused even in its inspection report, as at certain places accused company is addressed as a loan company and at certain other places it has been referred to as an NBFC and therefore it is averred, that, the RBI itself is not clear as to whether the accused company i.e. JVG Securities falls within the category of NBFC or a loan company.
It is again argued, that no evidence has been brought forth on record to substantiate the allegations that accused no.1 company accepted public deposit through JVG Leasing Ltd and credited to the account of JVG Finance Ltd or violated 5 (2) (B) of the directions.
Apart from the above, another line of arguments harped upon by the Ld. Counsel for accused is, that Sh. DK Kapoor is not made an accused in the present case and has been exonerated by the complainant, despite being an authorized signatory to operate the bank account of the company.
It is further argued, that G. Srinivasan who had filed the complaint in the capacity of the complainant in the present case is not examined by the complainant and in his place Sh. Rajbir Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 17/63 PS DBG Road Singh Chikara has been examined and it is averred, that in the absence of the examination of the complainant in the first place, the entire case of the complainant stands unproved.
Another, line of arguments adopted by the accused is to the effect, that the inspection report relied upon by the complainant is not exhibited on record completely and only those portions of the report are place on record, that are coming handy to the case of the complainant.
EXAMINATION OF THE MATERIAL AVAILABLE ON RECORD INCLUDING EVIDENCE/ BRIEF REASONS FOR DECISION.
15. Before adverting to the facts of the case in hand, this Court deems it fit to first address the arguments of the Ld. Counsel for accused on the basis of the material and the evidences available on record.
16. That RBI has been constituted U/s 3 of the Reserve Bank of India Act, 1934 (RBI Act) with the prime responsibility to take over the management of the currency and for carrying out the business of banking in accordance with the provisions of the said act as well as to regulate the credit system of the country to its advantage. The RBI is also responsible for administering the provisions of banking regulation Act, 1949 being the Apex Bank in the country. It is a matter of record, that the business of banking is regulated, controlled and supervised by the RBI in the country. To regulate the business of NBFCs receiving deposit from the public and the financial institutions, RBI Act was Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 18/63 PS DBG Road amended in the year 1963 and a new Chapter III-B was inserted originally containing sections 45-H, 45-I, 45-J, 45-K, 45-M, 45- N, 45-O, 45-P and 45-Q.
17. As per Section 45-I (a), the business of a non-banking financial institutions means carrying on the business of a financial institutions referred to in clause (c) and includes business of a non-banking financial company referred to in clause (f). As per clause (c) of section 45-I, the financial institutions means any non-banking institutions which carries on as its business or part of its business any of the following activities, namely:-
(i) The financing, whether by way of making loans and advances or otherwise, of any activity other than its own;
(ii) The acquisition of shares, stocks, bonds, debentures or securities issued by a government or local authority or any other marketable securities of a like nature;
(iii) Letting or a delivering of any goods to a hirer under a higher purchase agreement as defined in clause (c) of Section 2 of Higher Purchase Act, 1972;
(iv) The carrying on of any class of insurance business;
(v) Managing, conducting or supervising, as foreman, agent or in any other capacity of chits or kuries as defined in any law which is for the time being enforce in any state or any business which is similar thereto;
(vi) Collecting, for any purpose or under any scheme or Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 19/63 PS DBG Road arrangement by whatever name called, monies in lump sum or otherwise, by way of subscriptions or by sale of units or other instruments or in any other manner and awarding prices or gifts whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, But does not include any institution, which carries on as its principal business:-
(a) Agricultural operations (aa) Industrial activities; or
(b) the purchase or sale of any goods (other than securities) or the providing of any services; or
(c) the purchase, construction or sale of immovable property, so, however, that no portion of the income of the institutions is deprived from the financing of purchases, construction or sales of immovable property by the other person;
Under Clause (f) of Section 45-I a non-banking financial company means:-
(i) A financial institution which is a company
(ii) A non-banking institution which is a company and which has as its principal business the receiving of deposit under any scheme or arrangement or in any other manner, or lending in any manner;
(iii) Such other non-banking institution or class of such institution as the bank may, with the previous approval of the Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 20/63 PS DBG Road central government and by notification of official gazette specify.
Under Clause (e) a non-banking institution means a company, cooperation, or cooperative society.
Under Clause (bb) the term deposit includes shall be deemed always to have include any receipt of money by way of deposit or loan or in any other form.
18. By virtue of Section 45-J, 45-K and 45-L of the RBI Act any company, cooperation or cooperative society conducting the business of non-banking financial institution as per the definition, automatically comes under the supervisory and regulatory control of RBI. For controlling and regulating the business of non- banking financial institution, the RBI issues various guidelines directions and regulations which carries the force of statue. In this regard, the Court deems it fit to place reliance upon the judgment of Hon'ble Supreme Court in Peerless General Finance and Investment Company Ltd Vs. Reserve Bank of India, reported in (1992) 2SCC 343 and the companies conducting such business ought to mandatorily adhere to the guidelines as such the non-compliance and violation of such guidelines by the NBFC leads to imposition of penalty as per Section 58 (B) of RBI Act which was inserted to the RBI Act by way of an amendment in the year 1974.
Prior to amendment 1997, (which introduces Section 45-I (A) in Chapter III (B) of RBI Act) any company conducting the business and coming under the definition of Section 45-I (a) r/w 45-I (c) 45-I (f) fell under supervisory and regulatory control of Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 21/63 PS DBG Road RBI. With insertion of 45-I (A), the position under law is that for conducting, commencing or carrying on the business of a non- banking financial institution, it is incumbent upon the company to obtain certificate of registration from the RBI.
19. Therefore, in view of the activities of accused no.1, it is clear that the company was conducting the business of a non- banking financial institution since it was accepting deposit as observed by the inspecting officer Sh. Gunveer Singh in inspection report exhibited as Ex. CW1/B. The relevant excerpts from the inspection report are as under:-
"6. DEPOSIT PORTFOLIO OF THE COMPANY The company had not accepted any deposit other than ICDs as on 31.03.1997. In May, 1997, it launched two "self financing housing schemes", namely, "Green Valley and Apna Ghar, under which it promised to offer plots in lieu of money received against the payment plans specified as under:-
GREEN VALLEY PAYMENT PLAN-A Area Rate Total Discount @ 10 Down Amount per cent payment 360 Sq. Rs. 25/- Rs. 9000/- Rs. 900/- Rs. 8100/-
ft. per sq. ft.
Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 22/63
PS DBG Road
PAYMENT PLAN-B (DAILY/MONTHLY FOR 3 YEARS) Area Rate Total Discount @ Down Amount 10 per cent Payment 360 Sq. ft. Rs. 25/- per Rs. 9000/- Monthly or Balance sq. ft. daily payment at Installment the time of Registratio n.
Rs. 100/-
monthly or Rs. 5/-
daily
APNA GHAR
Area Rate Total Discount @ Down
Amount 10 per cent Payment
900 Sq. ft. Rs. 40/- per Rs. 36000/- Rs. 36000/- Rs. 32400/-
sq. ft.
PAYMENT PLAN-B (DAILY/MONTHLY FOR 7 YEARS) Area Rate Total Discount @ Down Amount 10 per cent Payment 900 Sq. ft. Rs. 40/- per Rs. 36000/- Rs. 10/- At the time sq. ft. daily or Rs. of 230/- registration.
monthly
20. The company has stated in its brochure-cum-application form that in case the applicant does not desire to settle, it agrees to return the principal amount alongwith interest at 15 per cent per Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 23/63 PS DBG Road annum as per clause 4 (development charge of Rs. 15 per square feet likely to be deducted) of the terms and conditions. The company claims to run "Open Ended Scheme" whereby closure date has not been decided. It has stated in the brochure that it has identified land in Mussoori under Green Valley Scheme. It has stated that in three years and seven years schemes it will start land acquisition process one year and five years respectively after booking closure date. If layout plan not proved it agrees to refund money at 15 per cent per annum. The company treats it as exempted deposit as covered U/s 45-I (bb) (v) (d) of RBI Act, 1934. However, as explained below, we may treated as regulated deposit because these are not covered under the above mentioned provisions.
(i) there is nothing on record to show that the company is engaged in business of sale and purchase of land. As per memorandum of association, its principal business is stock broking investment, etc. As per trial balance of its head office as on 24.09.1997, the company has been carrying on investment business and it has not invested any amount in land. When company does not carry on business of sale of plots, it cannot receive advances for such business.
(ii) Installments received from parties are not strictly in the nature of advances because option is given to the supplier of property to back out from commitment and applicant to withdraw money alongwith interest without any failure on part of supplier.
(iii) "Transactions do not conform to the usual business practice Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 24/63 PS DBG Road as prevalent in the real estate industry. No company insist for 100 per cent advances without land in possession. No company collect advance on daily and monthly basis over a period of 3 years and 7 years by employing agents. When 'advances' do not conform to the usual business practice, the instalments received thereunder are not 'advances' but deposit.
(iv) In records of the company (Register of Deposits maintained at branches, receipt issued to parties, etc) instalments are received towards. 'Recurring Deposit', as mentioned therein. In trial balances of Regional Offices, funds under schemes are shown as Daily Instalment/Monthly instalments and 'Green Valley' and 'Apna Ghar' schems are not mentioned. It is also suspected that the company has been issuing post dated cheques to the parties but the company denied it. It also did not show the accounts of Syndicate Bank, New Delhi, on which cheques are suspected to be drawn.
(v) At one of its branches, installments had been received in September, 1009 through application form for 'JVG Monthly Margin Money 'Deposit Scheme'. It showed that types of form used did matter what mattered was that whether they were 'Daily Instalments' or 'Monthly Instalments'. As per the Trial balance of the company as on 30.06.1997, out of total collections of Rs. 545.46 lacs (it stands at Rs. 1089.28 lacs as on 31.08.1997) JVG Finance Ltd deducts around Rs. 400.00 lacs (73 %) towards services charges, salary and other expenses. It is inconceivable that a company which is engaged in real estate business will spend 73 per cent of its funds collected towards Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 25/63 PS DBG Road collection charges." Therefore, advance may be treated as deposits.
7. DIVERSION OF FUNDS TO JVG FINANCE LTD As explained above, a company with squander 73 per cent of its funds on collection charges, will not be in a position to allot plots to the applicants or re-pay money at the time of maturity. It is feared that JVG Finance Ltd is collecting funds on behalf of JVG Securities Ltd and in the name of salary, service charges, etc, it is appropriating such funds for its own purpose including payment of salary of its staff. It is serious matter because funds are being diverted in non-recoverable form of expenses and not in the form of loans transactions also raised all the issues relating to use of capital funds for revenue expenditure.
21. Also, the fact the accused company was conducting business of non-banking financial institution is an admitted fact in as much as, post amendment of 1997 in RBI Act which introduced Section 45-I (A) the accused no.1 company itself applied for a certificate of registration on 23.06.1997 in accordance with Section 45-I (A) of the RBI Act. The said fact is also duly recorded in the inspection report exhibited as Ex. CW1/B. The relevant excerpts of the inspection report are as under:-
"The company had applied to RBI on 23.06.1997 for its registration. As mentioned earlier, the companies NOF are below threshold of Rs. 25 lacs. Apart from this, a host of irregularities were mentioned in the inspection report of JVG Finance Ltd and JVG Leasing Ltd and the management of the group has been Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 26/63 PS DBG Road shown to be in extremely poor light. It was also mentioned that the group companies concentrated mainly on the collection of money, large group considering the above mentioned fact, the application for the company should be rejected."
However, owing to the grave irregularities of various directions and regulations by accused no. 1 the said application was then rejected by the RBI. It is further a matter of record, that the complainant had also filed a petition bearing Co.Pet.No. 268- 1998 before the Hon'ble High Court of Delhi U/s 45-MC of RBI Act r/w Section 433 of Companies Act, 1966, against accused no.1 company seeking its winding up. It is submitted U/s 45-MC, that RBI is empowers to file a petition seeking winding up any NBFC. The said company petition is stated to be still pending, however, the Hon'ble High Court of Delhi vide order dated 05.06.1998 had appointed a provisional official liquidator to take charge of the asset of the accused no. 1 company and restrained the company and accused no. 3 from disposing off / alienating or parting with the possession of any of the asset of the company. Vide order dated 29.08.2003, a direction for final winding up of the accused no.1 company was passed by the Hon'ble High Court of Delhi. Therefore, it can be safely deduced, that accused no. 1 company was conducting the business of NBFC and therefore was bound to follow and adhere to the guidelines and the regulations issued by the complainant/RBI. The Ld. Counsel for complainant has placed on record the copy of the orders of the Hon'ble High Court of Delhi dated 05.06.1998 and further the copy of the order dated 29.08.2003, in support of the above contention.
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22. As far as the secondary leg of argument concerning the accused no. 1 company being addressed as loan company is concerned, this Court deems it fit to state, that the loan company is a company which finances by way of making loans and advances and is included in the definition of NBFC as per Section 45-I (A) r/w Section Clause (c) and (f). Therefore, the argument of the Ld. Defence Counsel with regard to the accused no.1 company not being an NBFC or being addressed as a loan company in light of the above observations and findings holds no water.
23. Another argument of the Ld. Defence Counsel is pertaining to the fact, that there is no evidence to substantiate the allegations, that accused no.1 company accepted public deposit through J.V.G. Leasing Ltd and credited to the account of J.V.G. Finance Ltd or violating 5 (2) (B) of the directions.
In this regard, it is pertinent to note, that the main allegations against the accused company and its directors is, that the public deposit were received by the accused company to maintain Rs. 1089.28 lakhs as on 31.08.1997, which is in excess of the permissible limit of 25 per cent of net owned funds (NOF). The inspection conducted by CW2 Sh. Gunveer Singh and as recorded in the inspection report at para 6 under the heading, "Deposit Portfolio of the Company", it is clear, that the accused company was accepting deposit from the public in the guise of receiving advances towards housing schemes. Further, as stated in para 6 (4) of inspection report, accused company itself was Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 28/63 PS DBG Road recording such deposits as installments received towards "Recurring Deposits". The relevant excerpts of the inspection report is be produced as under:-
"In records of company (register of deposit maintained at branches, receipt issued to parties, etc) installments are received towards recurring deposits as mentioned therein. In trial balances of regional balances funds under schemes are shown as daily installment / monthly installment and green valley and Apan Ghar Scheme are not mentioned. It is also suspected that the company has been issuing a post dated cheques to the parties but the company denied it. It also did not show the account of Syndicate Bank, New Delhi on which cheques are suspected to be drawn."
24. It is further observed under the heading diversion of fund to JVG Finance Ltd under the inspection report, that "A company which squanders 73 per cent of its fund on collection charges, will not be in a position to allot plots to the applicants or re-pay money at the time of maturity. It is feared that JVG Finance Ltd is collecting funds on behalf of JVG Securities Ltd and in the name of salary, service charge, etc, it is appropriating such fund for its own purpose including payment of salary of its staff. It is a serious matter because funds are being diverted in the non- recoverable form of expenses and not in the form of loan. Transactions also raised all the issues relating to use of capital funds for revenue expenditure."
Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 29/63PS DBG Road
25. Therefore, on the basis of discrepancy regarding the collection being done on behalf of JVG Securities Ltd by JVG Finance Ltd being highlighted in the inspection report, this argument of the accused is meritless.
26. The third contention of the Ld. Defence Counsel was with regard to Sh. D.K. Kapoor not being made an accused in the present complaint and being exonerated by the complainant. To this contention, this Court deems it fit to hold, that though Sh. D.K. Kapoor happens to be statutory auditor and consultant to JVG Finance Ltd and is one of the authorized signatories to operate the bank account of the company but Sh. D.K. Kapoor was neither the director nor the chairman of the accused company in the records of Registrar of company (ROC). It is evident from the records of the accused company as maintained with the ROC and filed on record by way of additional document. Even if, for the sake of argument it is for a moment accepted, that Sh. D.K. Kapoor ought to have been arrayed as an accused, this per se does not vitiate the proceedings against other accused persons.
27. It is further not out of place to mention, that complainant had filed criminal complaints bearing Ct Case No. 465134/16 and 465856/26 (both re-numbered) against JVG Finance Ltd and JVG Leasing Ltd as well as its directors (including accused no. 2 herein i.e. Sh. V.K. Sharma and Sh. D.K. Kapoor respectively). In the records of JVG Finance Ltd as well as JVG Leasing Ltd as Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 30/63 PS DBG Road maintained with ROC, Sh. D.K. Kapoor was appointed as Executive Direction (Finance) of both the company. Thus, on the basis of the observations and findings of this point as above, the Court deems it fit to hold, that the said line of argument adopted by the Ld. Defence Counsel does not inspire the confidence of this Court.
28. Apart from the above, another principle arguments raised by the defence is with regard to the complainant i.e. Sh. G. Srinivasan not being examined as a complainant. It is apposite to note, that the present complaint has been filed by the complainant i.e. RBI through its authorized officer, namely, Sh. G. Srinivasan, the then General Manager department of non-banking supervision, Reserve Bank of India, who was duly authorized by way of an authority letter dated 26.05.1998, issued under the provisions of regulation 17 (1) of Reserve Bank of India General Regulations, 1949 r/w Section 58 (E) (1) of Reserve Bank of India Act, 1934. It is a matter of record, that duration of efflux of time, the said G. Srinivasan was transferred from the department of non-banking supervision and thereafter had ultimately retired and owing to this reason, the complainant had substituted Sh. Rajbir Singh Chikara, Assistant Manager, Department of non- banking supervision as its authorized representative and a letter of authority was duly issued in his favour and he stepped into the shoes of Sh. G. Srinivasan as authorized representative of the complainant and under that capacity Sh. Rajbir Singh Chikara was examined as CW1 who duly testified to be aware about the facts of the present case and as such he dealt with the file of Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 31/63 PS DBG Road accused no. 1 and went on to prove the contents of the complaint. The testimony of CW1 went un-rebutted and therefore, the factum of non-examination of Sh. G. Srinivasan is non- consequential and non-significant. Apart from G. Srinivasan, complainant had examined other witnesses who had personal knowledge regarding the facts of the present case, including Sh. Gunveer Singh (concerned officer who inspected the records of the accused company) and Sh. Sudharshan Lal (concerned officer who issued the prohibitory order dated 10.10.1997 against accused no. 1)
29. Further, Reserve Bank of India is a corporation constituted by Section 3 of Reserve Bank of India Act, 1934 and hence it is a de-jure complainant, and the authorized representative of the complainant is a de-facto complainant to represent to former i.e. Reserve Bank of India in the present proceedings. The complainant has the right to substitute its authorized representative on account of transfer of the original authorized representative and no Court can insist that a particular person alone should continue to represent the company till the end of the proceedings. The contentions of accused no. 2, that Sh. G. Srinivasan was not examined bears no relevance whatsoever on the merits of the subject proceedings as such the said plea besides being merely technical, if at all, also ignores the fact that the contents of the complaint duly stands proved by CW1.
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30. At this stage, Court deems it fit to place reliance upon the judgment of Hon'ble Supreme Court in Bhupesh Rathore Vs. Daya Shankar Prasad & Anr (2022) 2 SCC 355, wherein in para 19 it has been held as under:-
"In the conspectus of aforesaid principle we have to deal with the plea of respondent that the complaint was not filed by the competent complainant as it is the case that the loan was advanced by the company. As to what would be the governing the principles in respect of a corporate entity which seeks to file the complaint, an elucidation can be found in the judgment of this Court in Associated Cement Company Ltd. Vs. Keshavanand. If a complaint was made in the name of the company, it is necessary that a a natural person represents such juristic person in the Court and the Court looks upon the natural person for all practical purposes. It is in this context, that observations were made that the body corporate is a de-jure complainant while the human being is a de-facto complainant to represent the former in the Court proceedings. Thus, no Magistrate could insist that the particular person whose statement was taken on oath alone can continue to represent company till the end of the proceedings. Not only that, even if there was initially no authority the company can at any stage rectify that defect by sending a competent person. The aforesaid judgment was also taken note of in a subsequent judgment of this Court in M.M.T.C. Ltd. Vs. Medchl Chemicals and Pharma".Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 33/63
PS DBG Road
31. Lastly, it is argued by the Ld. Defence Counsel that the entire copy of the inspection report is not filed alongwith the complaint and to this, this Court deems it apposite to state, that RBI being a statutory regulator is empowered to conduct an inspection of NBFC U/s 45-N of the RBI Act, 1934 and the reports prepared by the RBI relating to the inspection are confidential in terms of Section 45-NB of the RBI Act. The Inspection Report, apart from scrutiny of record of such NBFC also includes certain other confidential information however, the relevant excerpts of the inspection report combined with the testimony of CW2 i.e. Sh. Gunveer Singh (the officer who inspected the record of accused no. 1) are sufficient to establish the violation committed.
Pursuant to addressing of the arguments raised by the Ld. Defence Counsel, this Court deems it fit to firstly reproduce the sections under which the accused has been charged. The same are as under:-
Section 58B (4) (A) of RBI Act, 1934 reads as under:-
"If any person contravenes the provisions of sub-section (1) of section 45-IA, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to five years and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees".
Section 58B (5) of RBI Act, 1934 reads as under:-
"If any person (other than an auditor)
(a) receives any deposit in contravention of any direction given or order made under Chapter III B; or (aa) fails to comply with any direction given or order made by the Bank under any of the provisions of Chapter III B; or Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 34/63 PS DBG Road
(b) issues any prospectus or advertisement otherwise than in accordance with section 45NA or any order made under section 45J, as the case may be, he shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine which may extend
(i) in the case of a contravention falling under clause (a), to twice the amount of the deposit received";
Section 58B (6) of RBI Act, 1934 reads as under:-
"If any other provision of this Act is contravened of if any default is made in complying with any other requirement of this Act or of any order, regulation or direction made or given or condition imposed thereunder, any person guilty of such contravention or default shall be punishable with fine which may extend to two thousand rupees and where a contravention or default is a continuing one, with further fine which may extend to one hundred rupees for every day, after the first, during which the contravention or default continues".
Section 58C of RBI Act, 1934 reads as under:-
(1) "Where a person committing a contravention or default referred to in section 58B is a company, every person who at the time the contravention or default was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention or default and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 35/63 PS DBG Road any such person liable to punishment if he proves that the contravention or default was committed without his knowledge or that he had exercised all due diligence to prevent the contravention or default".
32. In the backdrop of the above legal provision, the present complaint U/s 58(E) (1) r/w Section 58 (B) and Section 58 ( C ) of the Reserve Bank of India Act, 1934 (hereinafter "Act") has been filed against accused company and its directors and officers responsible for the functioning of accused no. 1 company. The complainant is the Reserve Bank of India (hereinafter "The Bank") and on behalf of the bank, the complaint was filed by Sh. G. Srinivasan who was duly authorized by the complainant bank in exercise of its powers under regulation 17 (1) of RBI General Regulation, 1949.
33. At this stage, Court deems it fit to halt and appreciate document Ex. CW1/8. Bare perusal of the same shows, that it is an authority letter duly signed by the Executive Director, RBI, Central Office, Mumbai, namely, S. Gurumurthy, whereby the executive director especially authorized Sh. G. Srinivasan, GM, Department of non-banking supervision of RBI, New Delhi to make a complaint in writing pursuant to section 58 (b) r/w 58 ( C) of the RBI Act, 1934 against JVG Securities Ltd and its directors.
34. The accused no. 1 is the company and accused no. 2 to 11 were the directors and/or responsible officers of accused no. 1 Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 36/63 PS DBG Road company and were incharge of affairs of the company at relevant time. The complainant bank examined three witnesses during the pre-charge evidence, who were duly cross-examined by the Ld. Counsel for accused. The three witnesses as under:-
(a) CW1/Sh. Rajbir Singh Chikara deposed, that he was dealing with the files of JVG Securities Ltd and was aware about the facts of the case. He was also authorized by the Executive Director, RBI to give evidence in this case. His authority letter was on record, and the same was Ex. CW1/1. The accused company is a non-banking financial company coming under the direct control of RBI as per Chapter-III B of the RBI Act. The other accused were the directors of accused No. 1 company at the relevant point of time and were responsible for the conduct of the affairs of the company.
The accused no.1 company had committed defaults as per the provisions of the RBI Act and the general regulations 1977 as amended upto 1997 issued by RBI under the RBI Act. RBI conducts routine inspection of the accounts books of all NBFC. RBI conducted inspection of the books of accounts of accused No.1 company on 26th and 27th September, 1997. RBI found out various defaults committed by the company in that inspection. The Net owned fund (NOF) of the company was found to be less then the requirement. The company had raised the deposits through its group companies. The extract of the inspection report is already on record and the same is Ex. CW1/B. The defaults committed by the company constitutes an offence under section 58 of the RBI Act.
Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 37/63PS DBG Road The accused No. 2 to 11 were the Directors of the accused No. 1 company and Mr. Sukhbir Singh, one of the directors was the Chairman of the company. Copy of Form No. 29 filed before the ROC is on record and the same is Ex. CW1/3. Form 32 was also on record and the same is Ex. CWI/4. The company's balance sheet as on 31.03.1997 and final accounts was on record and the same is Ex. CW1/5. Form 32 and Form No. 29 were obtained from the Registrar of Companies. Copy of the letter from the ROC forwarding those forms is on record and the same is Ex. CW1/6.
Mr. G. Srinivasan, who was the then General Manager of RBI filed the present complaint case and the complaint is Ex. CW1/7. He could identify the signature of Mr. G. Srinivasan as he had seen him writing and signing during the course of his duty. The letter of authority authorizing Mr. G. Srinivasan to file the complaint is Ex. CW1/8. He had been substituted as the authorized officer in place of Mr. G. Srinivasan. The accused No. 1 company had also committed default in repayment of depositors. The company had also failed to maintain liquidity as per RBI Act. The RBI had filed winding up petition before the Hon'ble High Court of Delhi and winding up had been ordered against the company. Because of the aforesaid violations, the accused No. 1 company and its directors, accused no. 2 to 11 were liable to be punished under section 58 of RBI Act. From the balance sheet of the company it was revealed that the company had accepted deposit in excess of the permissible limit compared to the NOF. Copy of the annual returned filed by the company for the year 1997 was on record which is Ex. CW1/9.
Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 38/63PS DBG Road RBI had issued a prohibitory order to the company on 10.10.1997. Copy of the prohibitory order was on record and the same is Ex.CW1/10. The company had acknowledged receipt of the prohibitory order but failed to comply with the requirements. The company had applied for registration as NBFC but failed to obtain registration due to non-compliance of the requirements. RBI filed the application before the High Court for continuance of the criminal proceedings which was allowed. The complaint is a statutory complaint based on documents and records of the company. The accused have committed offence punishable under Section 58 of the RBI Act. Accused No. 2 to 11 are liable for the offences punishable under section 58C of the RBI Act. This witness was cross-examined by the Ld. Defence Counsel in pre-charge evidence.
(b) CW2/Sh. Gunveer Singh deposed, that he had inspected the company i.e. accused no. 1 on 26/27.09.1997 and the extract of the inspection report was marked as CW1/B. Another inspection was also carried out by him from 15.12.1997 to 08.01.1998 which also forms part of Ex. CW1/D1.
This witness was cross-examined by the Ld. Defence Counsel in pre-charge evidence.
(c) CW3/Sh. Sudershan Lal deposed, that he was familiar with the facts of the present case as he had dealt with this file at the relevant time but now he had faded memory on minutest details of the case. A prohibitory order dated 10.10.1997 was issued under my signature against the company and was communicated Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 39/63 PS DBG Road to the Company and its Directors including Mr. Sharma (Accused No. 3). Mr. Gunveer Singh who was then AGM at that time had inspected the books and accounts of the company and on the basis of the findings of the Inspecting Officer which was put before me and sent to Central Office, Mumbai, wherein certain violations were found, prohibitory order was issued on behalf of the Bank. Mr. G. Srinivasan was the General Manager at the relevant time and the complaint had been signed and filed by him on behalf of the Bank. The accused had violated various provisions, guidelines and prudential norms of the Reserve Bank and therefore were liable to be prosecuted under Section 58 (E) (1) read with Section 58B & 58C of the RBI Act.
This witness was not cross-examined by the Ld. Defence Counsel in pre-charge evidence despite given opportunity.
35. At this stage, it is pertinent to mention, that it was observed by the Ld. Predecessor of this Court that since all other accused persons apart from accused no.1 being the company and accused no. 2 being one of the Directors i.e. V.K. Sharma all the other accused persons were already declared PO and therefore, proceedings against them were to be resumed in accordance with law as and when they are apprehended. Accordingly, charges U/s 58 (B) (4) (A), U/s 58 (B) (5), U/s 58 (B) (6) and U/s 58 C of RBI Act, 1934 were framed against accused no.1 and Sh. V.K. Sharma i.e. accused no. 2.
36. Pursuant to the stage of charge post charge evidence of the complainant bank witness are three witnesses were duly cross- examined by the Ld. Defence Counsel.
Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 40/63PS DBG Road Now, in the backdrop of above discussion, Court proceeds to further observes as under:-
37. Accused no. 1 was a non-banking financial company ("NBFC") and the said fact regarding accused no. 1 operating as NBFC already stands discussed above in detail. Accused no. 1 therefore was conducting the business of NBFC as defined U/s 45-I (c) (I) of RBI Act. All entities doing activities coming under the definition of NBFC, automatically come under the regulatory supervision and control of RBI under Chapter III-B of RBI Act, 1934. All the NBFC whether registered or not are bound by the regulation / directions / guidelines issued or framed under the act.
38. The Reserve Bank in exercise its power U/s 45-J, 45-K, 45-L and 45-IB of the RBI Act 1934 issued directions by notification no. DNBC38/DG vide (H)-77 dated 20.06.1997 and no. DFC (COC) 107ED (JRP)/97-98 dated 30.04.1997 (Annexure III and IV). The relevant excerpts of Annexure III is as under:-
"5. ACCEPTANCE OF DEPOSIT BY NON-BANKING FINANCIAL COMPANY
1. Period of deposit.
On and from July 25, 1996, No Non-banking financial company shall accept or revenue any deposit whether accepted before or after July 25, 1996, (i ) which is repayable on demand or on notice; or
(ii) Unless such deposit is repayable after period of 12 months but not later than 60 months from the date of acceptance or Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 41/63 PS DBG Road renewable of such deposits;
Provided that nothing contained in this clause shall apply to monies raised by the issue of debentures or bonds.
Provided further that a non-banking financial company may accept or renew any deposit which is repayable within a period not exceeding 12 months if,
(i) Such deposit is received from any other company not being a company incorporated out of India; and
(ii) Such deposit, in aggregate, shall not exceed, in the case of an equipment leasing company or higher purchase finance company or loan company or investment company,
(a) Twice its Net Owned Fund if such company is registered, and
(b) Equal to its Net Owned Fund if such company is not registered.
2. Restrictions on acceptance or renewal of deposit in excess of ceilings as stipulated and regularization of deposit accepted earlier and held in excess of the ceilings.
B. LOAN COMPANIES AND INVESTMENT COMPANIES On and from July 25, 1996,
(i) A Non-Banking financial company other than an equipment leasing company or a higher purchase finance company shall be eligible to receive or renew,-
(b) Any other deposit, if the aggregate amount of such deposit, together with the amount of such other deposits, not being Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 42/63 PS DBG Road deposits of kind referred to in sub-clause a of his clause received and outstanding in the books of the company as on date of acceptance or renewal of such deposits, does not exceed 25 per cent of its Net Owned Fund;
The relevant excerpts of Annexure IV are as under:-
"@ On and from January 1, 1998, the percentage of assets to be maintained by
(i) A non-banking financial company which is for the time being entitled to accept deposits in terms of the provisions of paragraph 5 (2) (B) (i) of the non-banking financial Companies (Reserve Bank) Directions, 1977"
(The said annexures though not exhibited but being the notifications whereby directions have been issued by the RBI under the RBI Act, 1934, the Court under its power takes judicial notice of the same) to all NBFCs, (hereinafter referred to as "Directions") These directions are applicable to all NBFCs across the country whether registered and unregistered.
39. Now, being an NBFC, accused no. 1 was required to follow the guidelines, directions, norms, etc issued by the RBI under the Act including provisions of Chapter III-B of the Act as well as NBFCs (Reserve Bank) Directions, 1977. The accused company applied for registration within 6 months of commencement of RBI (amendment) Act, 1977 but, the complainant / RBI rejected its application due to non-compliance of certain requirement under the act. In terms of Section 45-N of the Act, the complainant bank conducted and inspection of accused no. 1 company on September 26th and 27th 1997. Upon inspection the Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 43/63 PS DBG Road complainant found, that accused no. 1 has contravened various provisions of the directions with respect to receiving of inter- corporate deposits, public deposits, and various other provisions of act including 45-IB of the Act in relation to maintenance of liquid asset etc. The violations are detailed in the inspection report i.e. Ex. CW1/B and have been elaborated below:-
(i) Violation of Directions relating to NOF and inter-corporate deposits The inspection of accused no. 1 revealed, that the Net Owner Fund (NOF) of the company was Rs. 11.33 lacs, as on 31.03.1997. The company had received inter-corporate deposits of Rs. 151.00 lacs as against its NOF of Rs. 11.33 lacs, as on 31.03.19997. As per the directions laid down, under para 5 (2) (B) allowance is only with respect to acceptance of deposits that are not beyond two times of the NOF. The said amount of Rs.
151 lacs accepted as inter-corporate deposit is much higher than twice of NOF amount of Rs. 11.33 lacs of accused no. 1 and thereby violative of para 5 (2) (B) of the directions
(ii) Violation of Directions relating to public deposit
(a) The complainant on inspection found, that public deposits were being accepted by accused no. 1 therefore JVG Leasing Ltd and credited into the account of JVG Finance Ltd. As per Ex. CW1/B, i.e. Inspection Report it is revealed, that the installments received from parties, in furtherance to its housing schemes, were a nature of subscriptions, instead of advances where the supplier of property had the option of backing out and applicant of withdrawing money alongwith the interest, not confirming to the Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 44/63 PS DBG Road usual practice in real estate industry. No satisfactory documentary evidence was furnished by accused no. 1 to support its claim, that these amounts were received as part of consideration for sale for purchase of land. The relevant excerpts of the Inspection Report are reproduced as under:-
"Transactions do not conform to the usual business practice as prevalent in the real estate industry. No company insist for 100 per cent advances without land in possession. No company collect advance on daily and monthly basis over a period of 3 years and 7 years by employing agents. When 'advances' do not conform to the usual business practice, the instalments received thereunder are not 'advances' but deposit. In records of the company (Register of Deposits maintained at branches, receipt issued to parties, etc) instalments are received towards. 'Recurring Deposit', as mentioned therein. In trial balances of Regional Offices, funds under schemes are shown as Daily Instalment/Monthly instalments and 'Green Valley' and 'Apna Ghar' schemes are not mentioned. It is also suspected that the company has been issuing post dated cheques to the parties but the company denied it. It also did not show the accounts of Syndicate Bank, New Delhi, on which cheques are suspected to be drawn. At one of its branches, installments had been received in September, 1009 through application form for 'JVG Monthly Margin Money 'Deposit Scheme'. It showed that types of form used did matter what mattered was that whether they were 'Daily Instalments' or 'Monthly Instalments'. As per the Trial balance of the company as on 30.06.1997, out of total collections of Rs. 545.46 lacs (it stands at Rs. 1089.28 lacs as on Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 45/63 PS DBG Road 31.08.1997) JVG Finance Ltd deducts around Rs. 400.00 lacs (73 %) towards services charges, salary and other expenses. It is inconceivable that a company which is engaged in real estate business will spend 73 per cent of its funds collected towards collection charges."
(b) Further, inspection report revealed through books accounts another document of accused no. 1 that amounts were received as deposits defined under Section 45-I (bb) of RBI Act.
At this stage, Court deems it fit to discuss for a moment Annexure-V which is a brochure of JVG Securities Ltd, whereby JVG had sought deposits on a monthly margin money deposit scheme. The same duly specifies, "the company may disburse/loan/financial facilities upto a maximum of five times of the margin money deposited to subject to fulfillment of terms and conditions as stated and subject to conditions of monthly margin money deposited for a waiting period of 84 times by subscribing Rs. 230/- per month. 30 per cent of margin money deposited during the year will be disbursed each year. PLUS Rs. 42,000/- as compensation to the regular account holder in those cases where loan facilities could not be granted/availed by the depositor." Further, perusal of Annexure VI (Mark J) shows, that it is a provisional receipt with regard to receiving of deposits, thereby further testifying the activities of the accused company.
40. It is evident from the inspection report, that the amounts were directed to the accounts of JVG Finance Ltd within whose premises accused no. 1 was also conducting its business. The Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 46/63 PS DBG Road bank issued prohibitory order against JVG Finance Ltd, at the time of contravention and directed the company not to accept further deposits as it had accepted public deposits beyond permissible limit described by RBI. The diversion of fund by accused no.1 company to JVG Finance Ltd was in order to facilitate circumventing the prohibitory order issued against the latter company, to avail the benefits of public deposits.
CW2, Sh. Gunveer Singh, who had inspected the accounts and records of accused no. 1 at the time of contravention had deposed in the present complaint and has submitted as to how accused no. 1 was mobilising deposits from general public under the garb of seeking investment, which was not permitted by law. The relevant extract of the CW2 Gunveer Singh recorded as under:-
"During the said inspection it had also been found, that accused no. 1 had accepted deposit from public beyond the limits permissible under law, and had violated the provision of para 5 (2) (B) of the RBI Direction. During subsequent inspection on 08.12.1997 to 15.01.1998 the findings of the earlier inspection were found to be correct, and I found that accused no. 1 had not corrected and rectified its mistake and brought itself within the permissible limit of the RBI Direction."
Thereafter, again in the cross-examination of CW2 conducted at the stage of pre-charge evidence, he categorically deposed as under:-
"It was found that under the garb of seeking investment, the company was in fact mobilising deposit from general public Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 47/63 PS DBG Road which is not permissible. It is incorrect to suggest that the conduct of JVG Securities has not been mentioned in the inspection report. (Vol. There is a separate report in this regard). The said report, Ex. CW1/B and Ex. CW1/D1."
41. Further, the amount accepted by accused no. 1 as deposits was to the tune of Rs. 1089.28 lacs as on 31.08.1997. This amount was in excess of the permissible limited prescribed in para 5 (2) (B) (i), namely, 25 per cent of NOF. Therefore, accused no. 1 violated para 5 (2) (B) (i) of the direction.
(3) Violation of provision of RBI Act relating to maintenance of liquid asset The accused no. 1 was required to maintain liquid asset as per provision of Section 45-IB of the RBI Act. By failing to comply with the provisions, accused no. 1 violated the Section 45-IB of the RBI Act.
The Court by way of a table further has elaborated, the violations done by the accused company of the provision of RBI and how the same stands proved via documents placed on record.
Violations Provisions Documentary Relied upon Violation of Section 45IA (1) and its 1. Inspection/Scrutiny report requirement of Net contravention is punishable for the inspection conducted Owned Fund as per under Section 58B (4A) by RBI from 25.09.1997 to Section 45IA (1) 26.09.1997-Exhibit CW1/B Violation of Para 5 (2) (B) (ii) and its 1.Non-Banking Financial Directions relating contravention is punishable Companies (Reserve Bank) to Inter-corporate under Section 58B (5) Directions 1977-Annexure deposit III & IV Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 48/63 PS DBG Road
2. Copy of audited balance sheet as on 31.03.1997- Exhibit CW1/9
3. Inspection/Scrutiny report for the inspection conducted by RBI from 25.09.1997 to 26.09.1997-Exhibit CW1/B Maintenance of Section 45IB of RBI Act 1.Reserve Bank of India Act, Assets and its contravention is 1934-Annexure II punishable under Section 58B (6) 2.Notification dated 30.04.1997-Annexure IV.
Violation of Para 5 (2) (B) (i) (b) and its 1.Non-Banking Financial Directions relating contravention is punishable Companies (Reserve Bank) to public deposit under Section 58B (5) Directions 1977-Annexure III & IV
2.Extracts from scrutiny report conducted by RBI from 25.09.1997 to 26.09.1997-Exhibit CW1/B
3.Prohibitory Order-Exhibit CW1/10 As an extention to the above, Court further deems it fit to state, that the Complainant Bank issued a Prohibitory order dated October 10, 1997 (Exhibit CW1/10) under Section 45K and 45MB (1) of the Act, against Accused no. 1 restraining from accepting any further deposits. The said order also directed Accused no. 1 and its directors (including Accused no. 3, namely, Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 49/63 PS DBG Road Shri V.K. Sharma) not to default in repayment of matured deposits.
The relevant excerpts of Ex. CW1/10 are as under:-
"3. In the circumstances, the Reserve Bank of India is satisfied that it would not be desirable in the public interest to allow your company to accept further deposits from public/companies. The Bank, therefore, in exercise of the powers conferred under Section 45K read with section 45MB(1) of the Reserve Bank of India Act, 1934 prohibits your company from accepting deposits with immediate effect and the company is hereby prohibited from accepting deposits from any person in any form whether by way of fresh deposits or renewals of deposits or otherwise.
4. In this connection, your attention is invited to the provisions of Section 58B(5) read with section 58C of the Reserve Bank of India Act, 1934 in terms of which receiving any deposit in contravention of this order or alienation of any asset without written permission of RBI except for the purpose of repayment of deposits would render the company and every director liable to the penalties provided in the said provisions of the Act."
42. The company defaulted in repayment of deposits. It is a matter of record and being stated at the cost of brevity, that the Complainant bank had also filed a winding up petition bearing Co.Pet No. 267 of 1998 against the company before the Hon'ble High Court of Delhi and the company has already been ordered to be wound up. The Official Liquidator has been appointed as the liquidator of the company and winding up proceedings are Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 50/63 PS DBG Road going on. It will be highly relevant to mention here that in the said company Petition the accused no. 3 Shri V.K. Sharma has moved an application bearing Company Application (M) No. 1 of 2023 under Sections 391 to 394 of the Companies Act, 1956 seeking amalgamation, arrangement and reconstruction among the JVG Finance Ltd, and its group companies including the accused no. 1 company. The accused no. 2 Shri V.K. Sharma has categorically admitted the fact that he was chairman/Managing Director of the JVG Finance Ltd, as well as the accused company.
43. It is submitted, that the aforesaid contraventions/violations of the provisions of RBI Act and the Directions attract the provisions of Sections 58B and 58C of the RBI Act. The acts of the company are liable under Sections 58B(4A), 58B(5), 58B(6) and 58(C) of the RBI Act.
The accused no. 1 company and the accused no. 3 Shri V.K. Sharma being Chairman/Managing director as well as officers responsible for the functioning of the company are liable for the aforesaid offences. Section 58 ( C ) (1) proviso raises a presumption that when the company is the accused, all the directors and officers are also liable unless provided otherwise. Hence Accused no. 3 is also liable under the said Section for the contravention of the various provisions of the Act and hence punishable under Section 58B (4A), Section 58B(5) and Section 58 (6) of the Act.
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44. The complainant has placed on record Form 32 and Form 29 as filed before the Registrar of companies in relation to Accused no. 3 to establish that the accused person was running the affairs of the company and was the director of the company at the time when the contravention took place. The documents include:
(a) Particulars of Appointment of Directors in FORM NO. 32 dated 28.5.1996 (Exhibit CW1/4)
(b) Consent to act as Director in FORM No. 29 dated 20.6.1997 (Exhibit CW1/3)
45. Adverting to appreciation of evidence, that on behalf of complainant bank to prove to charge against accused no. 1 and 2, it is observed, that as reflected from the documentary as well as oral evidence and as also argued by Ld. Counsel for the complainant, the most crucial and fundamental document to prove the charge against accused no. 1 and 2 is the inspection report i.e. Ex. CW1/B. The evidential value of the said report is certainly not the matter of argument. Firstly, the said report has been duly proved by the author of the report himself, namely, Gunveer Singh the then Chief General Manager, RBI, Mumbai as CW2 and the same is further corroborated by CW1 Rajbir Singh Chikara, Assistant Manager, RBI, New Delhi. Even otherwise the correctness of the findings in the said inspection report have not been challenged by accused no. 1 and 2 in any manner. In cross- examination of either of the witness neither any question has been put to challenge the procedure adopted in preparation of the inspection report nor the correctness of the findings of the said Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 52/63 PS DBG Road report is questioned. The principal author of the inspection report being CW2 Gunveer Singh was subjected to the litmus test of cross-examination and we withstood the same. Nothing was put to him in cross-examination, to shake his credit or to question the authenticity the inspection report. In fact, CW2 categorically deposed in his cross-examination, that it was found " that JVG Securities was mobilising fund / deposit from general public" . Though, CW2 stated in his cross-examination, that he could not recollect whether any document had been filed to show the mobilization of fund by the company general public but this per se does not eschew the said fact, as the same stands established from the various annexures discussed as above. (Annexure V, Mark J, Ex. CW1/10). He further deposed, "that it was found that under the grab of seeking investment the company was in fact mobilising deposits from general public which is not permissible". In fact, "he refuted the suggestion by stating, that it is incorrect to suggest that conduct of JVG Securities is not mentioned in the inspection report. (Vol. There is separate report in this regard. The said report, Ex. CW1/B and Ex. CW1/D1)". Even otherwise as deposed by CW2, said inspection report was prepared after detailed inspection of accused company record and pursuant to this a prohibitory order was also issued to the company thereby asking them to refrain from doing the activities that do not fall within the guidelines of the RBI and thereafter again inspection was conducted from 08.12.1997 to 15.01.1999 with reference to their financial position as on 31.03.1997 and the said document is Ex. CW1/D1 and in the said document it was categorically stated in the last para as "apart from this, a host Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 53/63 PS DBG Road of irregularity were mentioned in the inspection reports of JVG Finance Ltd and JVG Leasing Ltd and the management of the group has been shown to be in extremely poor like".
46. At the cost of brevity and to avoid prolixity, the contraventions already discussed above with regard to accused company as per the inspection report, Ex. CW1/B, are not being reproduced but the report is exhaustive in itself, whereby para 5
(vi) (vii) (viii) (ix), deal in detail with the transactions that were illegally transpiring between JVG Finance Ltd for the purpose of collection of deposits by floating self financing housing scheme. Para 6, in detail deals with regarding deposit portfolio of the company where two housing schemes in the name of Green Valley and Apna Ghar were floated for the purpose acquiring deposit. Further, para 6 deals with the diversion of fund as JVG Finance Ltd is stated to be collecting fund on behalf of JVG Securities Ltd in the name of salary, service charges etc and it was observed that it is appropriating such funds for its own purpose including payment of salary of its staff.
47. It is further observed, that in a complaint case, charge is framed as per Section 245(1) Cr.PC only after being satisfied that the case against the accused persons have been made out which, if un-rebutted would warrant his conviction. Accordingly, at the final stage, the Court has to see if the evidence led on behalf of complainant in pre-charge evidence has been rebutted on behalf of the accused persons in any manner. Again, as mentioned, Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 54/63 PS DBG Road Section 58 (C ) (1) provides for drawing the presumption of conviction against the company as well as the proviso of said provision, the burden lies upon the accused only to rebut the presumption. However, no evidence is led to rebut the said charge by the accused company.
48. In view of the aforesaid discussion, I come to conclusion, that all the contraventions as mentioned in the complaint as well as in the proceeding paragraph committed by accused company stands proved by the complainant beyond reasonable doubt and consequently accused company is hereby convicted U/s 58B (4) (A) of RBI Act, 1934, U/s 58B (5) of RBI Act, 1934, U/s 58B (6) of RBI Act, 1934 and U/s 58C of RBI Act, 1934.
49. Now, the next question for determination is what evidence has been led on behalf of complainant to prove the charge against no. 2 and 3. Before proceeding further, it is again pertinent to mention that liability of accused no. 2 and 3 is fastened for contraventions committed by accused no. 1 company in purview of Section 58C (1) of RBI Act.
50. The scope of provision of Section 58C of RBI Act has been dealt with by Hon'ble Madras High Court in case of F. Dadabhoy vs The Reserve Bank of India on 26 th February, 2015. In this matter, proceedings were initiated under RBI Act against the company as well as against the Directors. The argument raised by Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 55/63 PS DBG Road Ld. Counsel for one of the directors was that a person cannot be made liable, unless it has been specifically stated in the complaint in what manner the Director has played role resulting in the violation of the orders passed by the Company Law Board or the provisions of the RBI Act and in the absence of providing such details, the petitioner/director cannot be vicariously held liable.
51. In this regard, it was observed by Hon'ble High Court that "Even though the Director were not parties to the proceedings initiated by the Company Law Board under Section 45QA of the RBI Act and orders were passed on various dates as referred to above, by virtue of the said orders, the Company as well as the Directors were directed to comply with the orders of the Company Law Board. If the petitioner is aggrieved by such orders, he ought to have challenged that orders. In other words, without challenging the orders passed by the Company Law Board, the petitioner cannot contend in this petition that he cannot be held responsible for non-compliance of the orders passed by the Company Law Board."
Hon'ble High Court also referred to decision of Hon'ble Apex Court in Mannalal Chamaria and another v. State of West Bengal and another [2014) 13 SCC 571], wherein it was held that it is necessary for the complainant to state in the complaint that the person accused was in-charge of and responsible for the conduct of the business of the company and though no particular form for making such allegation is prescribed, if a reading of the Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 56/63 PS DBG Road complaint discloses that substance of the accusation discloses that the accused person was in-charge of and responsible for the conduct of the business of the company at the relevant time, he can be prosecuted.
It was further observed as follows:
"As stated supra, in this case it has been stated in the complaint that the petitioner is one of the Directors and he along with order Directors were in-charge of and responsible for the conduct of first accused company at the time of default and the same was also mentioned in para 10 of the complaint. Admittedly, the petitioner was the Director of the first accused Company till August 1998 between 06.02.1998 and 24.08.1998 seven directions were issued by the Company Law Board and being the Director, the petitioner did not take any action to comply with the orders of the Company Law Board and therefore, the petitioner is liable to be prosecuted as per the provisions of Section 58B (4 AAA) and 58C of the RBI Act".
52. Though this judgment dealt with the violation under 45QA of RBI Act but the scope and ambit of Section 58C has been held in clear terms. Again, while dealing with the ambit of Section 58C of RBI Act in case of K. Thyagaraj vs. Reserve Bank of India 2000 (1) ALD Cri 759, Hon'ble Andhra High Court observed as follows:-
"It is true that it appears somewhat improbable that besides the managing director and chairman, a large number of such other directors could really be held to be in charge of and responsible Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 57/63 PS DBG Road to the company for the conduct of the business of the company. But, it certainly is a question of fact. In a given case, directors other than the managing director of executive director, etc., may, on the facts and circumstances of a case, be held to be liable by virtue of the provisions in Section 58C. In some cases, it may not be so. It may also be mentioned that in such cases, there appears to be a tendency to rope in as many directors as possible as accused. It is for the trial Court to decide about their liability on the basis of the material produced during the trial, and if a large number of directors not in charge of and not responsible to the company for the conduct of the business of the company are wantonly implicated in the alleged offence committed by the company, it is for the trial court to deal with such false complaints in the matter as provided in the CPC."
53. Here, it is further relevant to note, that as the proviso to Section 58C (1) of the RBI Act the presumption has to be drawn against accused V.K. Sharma for the violations/contraventions committed by accused no. 1 company, as discussed above. As per the proviso, it is for the respondents to make out that they are not responsible for the conduct of the business of the company or to show that in spite of due diligence and without their knowledge, the act of default was committed and in that event, if it is able to make out by them or any other person who is responsible that without their knowledge such default had occurred and they could not ascertain with all due diligence, to prevent the contravention or default.
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54. Accused No. 1 and accused V.K. Sharma are charged under Section 58B(4), 58B(5), 58B(6) read with Section 58C of the Reserve Bank of India Act, 1934. Under Section 58C(1) it is provided, that in case where a person committing a contravention or default referred to in Section 58B is a company, then every person who, at the time the contravention or default was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. Further under Section 58C(2) it is provided, that notwithstanding anything contained in 58C(1), where an offence under this Act is committed by company and it is proved that the same was committed with the consent or connivance or is attributable to any neglect on part of any director, manager, secretary or other officer then such director, manager, secretary or other officer shall be deemed to be guilty of offence and shall be liable to be proceeded and punished accordingly. Section 58C is reproduced hereinbelow:
58C - Offences by companies. -(1) Where a person committing a contravention or default referred to in Section 58B is a company, every person who, at the time the contravention or default was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention or default and shall be liable to be proceeded against and punished accordingly;Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 59/63
PS DBG Road Provided that nothing contained in this sub-Section shall render any such person liable to punishment if he proves that the contravention or default was committed without his knowledge or that he had exercised all due diligence to prevent the contravention or default.
(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the same was committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary, or other officer or employee of the company, such director, manager, secretary, other officer or employee shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
55. The Complainant in its Complaint at paras No. 2 and 8 has specifically mentioned, that the accused No. 2 to 11 were in- charge of and were responsible for the conduct of business of accused No. 1 at the time of contravention/ default as stated in the Complaint.
56. It is deposed by CW-1 in his evidence conducted on 03.01.2015, that the other accused persons apart from accused No. 1 were directors of accused No. 1 at the relevant point in time and were responsible for the conduct of the affairs of the company. The said witness also exhibited Form No. 32 (showing particulars of appointment of directors, managing agents of the accused No. 1 company) as Ex. CW1/4, wherein it can be seen Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 60/63 PS DBG Road that the accused No. 3 V.K. Sharma was appointed as additional director of the accused No. 1 company on 29.04.1996. Also Form No. 29 (consent to act as director of the accused No. 1 company) is exhibited as Ex. CW 1/3, wherein it can be seen that accused No. 3 V.K. Sharma consented to act as director of the accused No. 1 company.
Furthermore, the letter (dated 03.07.1998) from the ROC forwarding these records prevailing as on July 1998 of the accused No. 1 company is also exhibited as Ex. CW 1/6.
57. It is further to be noted, that on a specific question about any documents in support to say that V.K. Sharma was director of the accused company, in cross examination of CW-1 conducted on 06.07.2015 by Ld. Counsel for accused V.K. Sharma, the witness had stated, that Form No. 29 and 32 are on record. It is submitted, that those documents on record clearly show, that the accused V.K. Sharma, was appointed as one of the directors/ additional directors on 29.04.1996, of the accused No. I company. The witness had further deposed, that the accused was responsible for managing the affairs of the company at the time when contravention/ default was committed by the company i.e, during the financial year 1996-1997 and 1997-1998. Therefore, the presumption under Section 58C(1) as well as (2) can be safely invoked in the present case, since the accused V.K. Sharma was admittedly as an additional director with the accused No. 1 company during the contravention/ default and hence the onus shifted on the said accused V.K. Sharma to showcase as to how he was not responsible for the conduct of affairs of the accused Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 61/63 PS DBG Road No. I company or the contravention was committed without his knowledge or that he has exercised due diligence to prevent the contravention or default [as required by proviso to Section 58C(1)].
58. Further, with regard to the fact, that the accused V.K. Sharma is stated to be a director of the accused No. 1 company whereas in the Form No. 32 it is reflected that the said accused was appointed as an additional director of the accused No. 1 company is irrelevant so far it is proved on record, that at the time of the contravention, the accused V.K. Sharma was responsible for affairs of the accused company, which fact is duly proved by the CW1 and corroborated by the Form No 32 and 29. Therefore, the accused V.K. Sharma is liable to be punished.
59. Therefore, in view of aforesaid discussion, this Court is of the considered opinion, that the case of the complainant stands proved against accused no. 2 to the effect that he was aware of the contravention committed by accused no.1 company punishable U/s 58B (4) (A) of RBI Act, 1934, U/s 58B (5) of RBI Act, 1934, U/s 58B (6) of RBI Act, 1934 and U/s 58C of RBI Act, 1934 and that he was incharge as well as responsible for the conduct of the business of the company and accordingly he committed the same offence in purview of section 58C (1) of RBI Act. Accused no. 1 and accused no. 2 are accordingly convicted for offence U/s 58B (4) (A) of RBI Act, 1934, U/s 58B (5) of RBI Act, 1934, U/s 58B (6) of RBI Act, 1934 and U/s 58C Ct Case 536942/2016 RBI Vs. JVG Securities Ltd. Page 62/63 PS DBG Road of RBI Act, 1934 r/w 58C (1) of the Act.
60. Now, to come up for hearing on quantum of sentence.
Digitally signed by RICHA SHARMAAnnounced in the open Court RICHA Date:
SHARMA
on 24.05.2024 2024.05.24
16:39:30
+0530
(RICHA SHARMA)
ACMM-01 (CENTRAL)
TIS HAZARI COURTS, DELHI
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PS DBG Road