A Supreme Court bench comprising Justice Subhash Reddy and Justice Hrishikesh Roy, while pronouncing the judgment pertaining to a case of delayed payments of principal amount and interest accrued on bonds issued by SIDBI stated,
“RBI has wide supervisory powers over financial institutions like SIDBI, in furtherance of which, any direction issued by the RBI, deriving power from the RBI Act or the Banking Regulation Act is statutorily binding”.
Factual Background
The appellant issued number of bonds by the appellant to M/s. CRB Captial Markets Ltd. then sold them to Mr Shankar Lal Saraf in and he further sold those to the respondent in 1998. CRB Capital thereafter went through winding up proceedings at the behest of RBI.
Case of the Respondent
The respondent claimed payment on the bonds but the appellant refused to do citing CRB Capital’s involuntary liquidation at the behest of RBI. The respondent approached the company court and also requested Mr Shankar Lal Saraf to file an interlocutory application in the company court claiming that the bond payment transaction be treated as outside the purview of liquidation proceedings under the Companies Act 1956. Company Court then adjudged that the subject bonds were beyond the purview of the liquidation proceedings, following which appellant made the payment of principal amount together with interest.
Later, at the time of audit the respondent detected a delayed payment of interest and demanded the same from the appellant. The appellant denied the same, stating that the RBI had issued a facsimile directing defendant not to affect any transfer or otherwise deal with any security invested by CRB Capital and its group companies without prior permission of the official liquidator appointed by the Company Court at Delhi. Aggrieved by this refusal, the respondent then filed a civil suit claiming delayed redemption of the aforesaid bonds.
Observation of the Apex Court
The Apex Court considered the question that whether the facsimile issued by RBI to the appellant was a directive or suggestion. The bench looked at Section 35 A of the Banking Regulation 1949, which talks about RBI’s power to give directions to banking companies and
stated,
“it is not necessary for RBI to mention a specific provision before issuing directions for it to have statutory consequences. All that is required is the authority under the law, to issue such a direction. Hence, it is undisputed that any direction by the RBU is compelling and enforceable similarity like the provisions of the RBI Act by its very nature”.
Thus, the bench concluded that the RBI’s communication in question was a direction with appropriate statutory taking into consideration Section 45MB of the RBI Act and Section 35A of the Banking Regulation Act.
In the words of the Court,
“The appellant was justified in withholding payment as they were under RBI’s direction to do so; the defendant has not derived any undue benefit by their act and thirdly, due payment was promptly made to the plaintiffs upon settlement of rights by the court”.
Case Details
Before: Supreme Court
Case Title: Small Industries Development Bank of India v. M/s Sibco Investment Pvt. Ltd.
Coram: Hon’ble Mr. Justice Subhash Reddy and Justice Hrishikesh Roy
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