Piramal Financial Services Ltd. vs Reserve Bank of India

R.K. Abichandani, J.—The appellant-company challenges the order dated May 10, 2000, made by the learned company judge in Company

Petition No. 147 of 2000 appointing the official liquidator as provisional liquidator and issuing an ad interim injunction restraining the appellant

(original respondent), its agents, etc., from encumbering, transferring, alienating and disposing of any of the assets of the appellant-company.

Notice was issued by the learned judge on the appellant making it returnable on May 18, 2000.

It is stated that after the impugned order was made, the official liquidator has started functioning as the provisional liquidator.

Learned counsel appearing for the appellant submitted that the impugned order made by the learned single judge contravenes the provisions of

the Companies Act, 1956, inasmuch as no such provisional liquidator could have been appointed before issuing a notice on the appellant as

contemplated by section 450 of the said Act. It is also argued that no special reasons have been recorded by the learned single judge for

dispensing with such notice. Learned counsel pointed out that no judge''s summons was taken out as required by rule 11(b) of the Companies

(Court) Rules, 1959 (hereinafter referred to as ""the rules"") for appointment of the provisional liquidator. It was contended that all applications other

than those which were enumerated in rule 11(a) were required to be made by taking out a judge''s summons, while in the present case, the order

appointing the provisional liquidator was made on the main petition itself and, therefore, the impugned order was illegal. It was further argued that

the petition for winding up which was required to be in Form No. 45 read with rule 95 of the said rules was signed by the advocate for the bank

and not by a person authorised to sign such petition, though an affidavit in support of the petition was filed. It was also submitted that the form of

the petition for winding up contemplated a prayer for winding up of the company and not any prayer for appointment of a provisional liquidator for

which a judge''s summons was required to be taken out under rule 11(b) of the rules.

Section 450(2) of the Companies Act empowers the court, for special reasons to be recorded in writing, to dispense with the notice, which is

required to be given for providing a reasonable opportunity to make a representation before appointing a provisional liquidator. Thus, ordinarily,

before a provisional liquidator is appointed, the court is required to give a notice in the absence of any special reasons being recorded by the court.

This is why it was argued by learned counsel that since no special reasons were recorded in the impugned order, the appointment of the provisional

liquidator was invalid. The copy of the impugned order, which is annexed in this appeal memo, is incomplete so far as paragraph 3 thereof is

concerned. From the certified copy of the impugned order which is placed on record by the caveator, we find that it reads as under :

In view of the submissions made particularly in paras. 19 to 26, I have proceeded to take up the present petition for consideration. It has been

stated by the learned advocate for the petitioner that the respondent-company has failed and neglected to carry out the orders issued by the

Company Law Board and the respondent-company has neglected to pay its debts and, therefore, the petitioner was forced to approach this

court.

The learned company judge, taking note of the averments which were made in paragraphs 19 to 26 of the petition, and after hearing the learned

advocate, was satisfied that there were sufficient grounds for appointment of a provisional liquidator, as stated in paragraph 4 of the impugned

order. On a close reading of the impugned order, it cannot be said that the learned company judge has not recorded reasons for appointing the

provisional liquidator without issuing a notice as contemplated u/s 450(2) of the Companies Act. Reference to the contentions raised in paragraphs

19 to 26 was not an empty formality. If we go to these paragraphs of the winding up petition, which has been filed by the Reserve Bank of India

u/s 4MC of the Reserve Bank of India Act, 1934 (hereinafter referred to as ""the RBI Act""), it transpires that the financial position of the company

was very precarious and the scrutiny conducted by the Reserve Bank of India revealed this aspect as mentioned in paragraph 10 of the petition. A

notice was issued to the company to show cause as to why the certificate of registration issued to it u/s 45-IA of the Reserve Bank of India Act

should not be cancelled. Thereafter, the bank, in exercise of its powers under sub-section (6) of section 45-IA of the Reserve Bank of India Act,

cancelled the certificate of registration issued to the company after considering the reply made by the company and other relevant facts and

circumstances of the case as pointed out in paragraph 12 of the petition. The bank directed the company u/s 45MB(2) of the Reserve Bank of

India Act not to sell, transfer, create charge or mortgage or deal in any manner except for repayment of public deposits, with the properties and

assets of the company without the written permission of the bank for a period of six months from the date of that order. It is stated in paragraph 13

of the petition that the bank had received a number of complaints from the depositors and unsecured OFDC holders complaining about the

nonpayment of their dues by the company. Some of the complaints were annexed at annexure IV to the petition. It is pointed out in paragraph 14

of the petition that the Company Law Board (CLB) had issued certain orders u/s 45QA of the Reserve Bank of India Act on January 11, 2000 in

Company Applications Nos. 2001 to 2004 directing the company to pay its depositors before March 31, 2000, and had directed the managing

director of the company to file an affidavit of compliance with those directions by April 15, 2000, with the general manager of the petitioner-bank.

However, no such affidavit was filed of compliance with the directions of the Company Law Board. It is stated by the bank that it had reliable

information that the appellant had not complied with the directions of the Company Law Board to repay the deposits referred to in the order. It is

further pointed out by the Reserve Bank of India that the management of the company had undergone frequent changes as mentioned in paragraph

15 of the petition. It is averred that the petitioner-bank had learned that the ownership of the company had been transferred by its holding

company, namely, Electric Control Gear India Ltd., by an agreement dated February 7, 1999, to Radhey Developers Ltd. for a consideration of

Re. 1. The said Radhey Developers Ltd. owed a large amount of money to the company which was put in the NPA category. By another

agreement dated September 7, 1999, the ownership of the company had been again transferred to Valour Finstock Pvt. Ltd., for a total

consideration of Rs. 10 crores. It is then stated that the erstwhile shareholders of the company, who are named, had filed a complaint on

December 6, 1999, before the Superintendent of Police against Valour Finstock Pvt. Ltd. and others alleging that some amounts were due to them

towards balance sale consideration under the agreement dated September 7, 1999. It was alleged in the complaint that the functioning of the

company was severely hampered and that the recovery of the dues to the company were jeopardized. The Reserve Bank of India obtained from

the office of the Additional Director-General of Police, Economic Offences Cell, Ahmedabad, a copy of the said complaint as mentioned in

paragraph 16 of it. Civil Suit No. 1659 of 1999 has been filed by Electric Control Gear (India) Ltd. in the City Civil Court, Ahmedabad, against

the appellant-company, Radhey Developers (India) Ltd., Shri Ashish Patel and another for specific performance of the agreement dated February

7, 1999, which is still pending, as stated in paragraph, 17 of it. One Unnati Investment Ltd., a creditor of the company, has filed Company Petition

No. 296 of 1999 before the High Court for winding up of the company and an order has been issued on December 6, 1999, prohibiting the

company and its officers from disposing of its assets. In paragraph 19 of the petition the Reserve Bank of India has stated that it was satisfied that

all the conditions mentioned in section 45MC for filing a winding up petition were satisfied. It is then stated that the company had received a large

number of complaints from the members of the public stating that the company had failed to pay their dues and that the bank was satisfied that it

was unable to pay its debts. The Reserve Bank of India, by its order dated December 29, 1999, made u/s 45-IA(6) of the Reserve Bank of India

Act, cancelled the certificate of registration of the appellant-company and thereupon it became disqualified from carrying on business of a non-

banking financial institution and cannot legally accept deposits from the public as stated by the bank in paragraph 21 of the petition. According to

the bank in view of the frequent changes in the management of the company and the various disputes pending between the promoters of the

company, as pointed out by it in the earlier part of the petition, the continuance of the company was detrimental to public interest and to the interest

of the depositors of the company. In paragraph 25 of the petition it was stated that it is just, equitable, necessary and in the interest of justice that

the official liquidator or any other fit and proper person be appointed as liquidator of the company and that an injunction be issued prohibiting it

and its directors from disposing of their assets. In paragraph 26 of the petition it is stated that for the reasons given in the preceding part of the

petition it was proper that a provisional liquidator be appointed.

In the prayer clause of the winding up petition the bank had prayed for winding up of the company, appointment of the official liquidator as the

liquidator of the company for such winding up and appointment of the official liquidator as a provisional liquidator of the company to take charge of

the company''s properties and assets, etc. Ad interim relief was also sought. The learned single judge was satisfied that there were sufficient

reasons for issuing an order for appointment of a provisional liquidator in view of the submissions made in paragraphs 19 to 26 of the petition

which included reference to the averments made in the earlier part of the petition. He took note of the fact that the company had failed and

neglected to carry out the orders issued by the Company Law Board and had neglected to pay its debts. The Reserve Bank of India was a

responsible body and the averments made in the petition warranted an order of the nature which has been passed by the learned single judge. The

reasons which are reflected in the order by reference to the contents of the petition and the contentions raised on that basis prompted the learned

single judge to issue the order of appointment of a provisional liquidator without issuing a notice u/s 450(2) of the Companies Act. The learned

judge, by giving reasons and making an order under the said provision, obviously found it fit to dispense with the notice which otherwise was

required to be given and in which event there would have been no need to record any special reasons. In our opinion, the learned single judge has,

having regard to the facts and circumstances of the case, rightly exercised his discretionary powers by making an appointment of a provisional

liquidator before issuing the notice. The reasons which he has mentioned are writ large in the averments made in the petition by the Reserve Bank

of India.

The contention that these reasons were not sufficient for appointing a provisional liquidator is wholly misconceived. The averments which are

made in the winding up petition, which has been filed u/s 45MC of the Reserve Bank of India Act, which provision requires the bank to be

satisfied about the existence of the grounds mentioned therein, and the facts as regards the dealing by the company, of its assets as also the

disputes inter se, warranted appointment of a provisional liquidator in this matter.

The contention that the impugned order is bad because it is made on the main petition u/s 450 of the Companies Act is wholly mis-conceived. A

provisional liquidator can be appointed by the court at any time after the presentation of a winding up petition and before the making of a winding

up order and this power is not made dependent on making of a separate application for taking out judge''s summons. There is no doubt that the

procedure prescribed for taking out judge''s summons is ordinarily required to be followed, but, including a prayer for appointment of a provisional

liquidator in the winding up petition itself made by the bank u/s 45MC of the Reserve Bank of India Act was sufficient for making an order on the

basis of the facts and circumstances which the learned single judge noticed. In any event, such procedural aspect of taking out a separate judge''s

summons cannot curtail the powers of the court u/s 450 of the said Act for appointing a provisional liquidator.

Even the contention that the petition was signed by the advocate of the bank and not by a bank official will not have the effect of nullifying the

order of the learned single judge. Admittedly, an affidavit in support of the petition has been filed. It is stated by learned counsel appearing for the

caveator that the affidavit below the petition has been duly sworn in by the concerned officer and that the said affidavit below the petition has been

signed. This technical aspect can be taken care of by the learned company judge before whom the matter is pending.

The matter is pending only at a notice stage before the learned company judge and only ad interim relief has been granted. All the contentions

which have been raised here could have been raised by the appellant before the learned single judge and it was not necessary for the appellant to

rush to this court particularly when the notice was made returnable on May 18, 2000. However, learned counsel for the appellant insisted that the

contentions which he is raising should be decided and that is why we have rendered this order.

For the reasons given above, the appeal is summarily dismissed. It is made clear that nothing said in this order in connection with the ad interim

relief land appointment of provisional liquidator should be taken to be conclusive by the learned single judge while deciding the matter on the merits

in the light of the contentions that may be raised by the appellant.