Reserve Bank Of India vs Rockland Leasing Ltd.
2001 Latest Caselaw 1883 Del

JUDGMENT

Madan B. Lokur, J.

1. There are a very large number of substantive petitions pertaining to M/s Rockland Leasing Ltd. (for short Rockland) pending in this Court. The Registry of this Court informs me that, additionally, there are more than 500 applications pertaining to Rockland which have been disposed of and another 500 applications which need to be disposed of.

2. Considering the fact that a large number of litigants were concerned with the disposal of these matters pertaining to Rockland, I fixed the cases for final disposal on a day to day basis with effect from 19th November, 2001 at 2.00 pm. Arguments were heard in part on that day, and were concluded on 20th November, 2001 when judgment was reserved.

3. A large number of litigants were present in Court on both the above days. However, no one apart from Col. S.K. Singh wished to add anything to what was lucidly submitted by learned counsel for the parties.

4. Submissions were essentially made in two cases. CP 93 of 2001 is a winding up petition filed by the Reserve Bank of India under the provisions of Section 45-MC of the Reserve Bank of India Act, 1934 (for short the RBI Act). The prayer is, quite naturally, for winding up the affairs of Rockland.

5. The second case is Company Appeal No.4 (B) of 1998 filed by Rockland under the provisions of Section 10-F of the Companies Act, 1956 (for short the Companies Act). The prayer of Rockland in this case is for setting aside the order dated 26th June, 1998 passed by the Company Law Board in F.No.15/14/97. This order was passed under the provisions of Section 45-QA of the RBI Act. Certain directions for repayment of deposits were given by the Company Law Board (for short CLB) which were obviously not acceptable to Rockland, hence the appeal.

6. All the other petitions were for various reliefs against Rockland, including its winding up.

7. It stands to reason, and all learned counsel agreed that if the winding up petition filed by the RBI succeeds, then the appeal filed by Rockland and all other petitions and applications are really infructuous. It is on this basis that I have proceeded, making it necessary to first deal with the petition filed by the RBI.

8. Rockland was incorporated in March, 1984 with its registered office in Delhi. Its objects were, inter alia, to "undertake the business of finance, hire purchase, leasing and to finance lease operations of all kinds..."

9. According to the RBI, Rockland was carrying on the business of a non-banking financial company (or NBFC) as defined in Section 45-I(f) of Chapter III-B of the RBI Act. This reads as follows:-

"45-I. Definitions

In this chapter, unless the context otherwise requires -

(a) and (b) xxx xxx xxx

(c) "financial institution" means any non-banking institution 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 or advances or otherwise, of any activity other than its own;

(ii) the acquisition of shares, stock, bonds, debentures or securities issued by a government or local authority or other marketable securities of a like nature;

(iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire-Purchase Act, 1972 (26 of 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 in force in any State, or any business, which is similar thereto;

(vi) collecting, for any purpose or under any scheme or 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 prizes 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; or

(aa) industrial activity; 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 institution is derived from the financing of purchases, constructions or sales of immovable property by other persons;

Explanation: For the purposes of this clause, "industrial activity" means any activity specified in sub-clause (i) to (xviii) of clause (c) of section 2 of the Industrial Development Bank of India Act, 1964 (18 of 1964).

(d) and (e) xxx xxx xxx

(f) "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 deposits, 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 institutions, as the bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify."

10. The definition abovementioned was incorporated in the RBI Act by the Reserve Bank of India (Amendment) Act, 1997 with effect from 9th January, 1997. Consequently, Rockland was governed and bound by the existing directions of the RBI including the Non-Banking Financial Companies (Reserve Bank) Directions, 1977 as amended.

11. These directions included, among other things, the definition of an "equipment leasing company" and an NBFC. Direction 2 defined these terms as follows:-

"(dd) "equipment leasing company" means any company which is a financial institution carrying on as its principal business, the activity of leasing of equipment or the financing of such activity; (with effect from 22nd August, 1984)

(l) "non-banking financial company" means any hire-purchase finance, investment, loan or mutual benefit financial company and an equipment leasing company but does not include an insurance company or a stock exchange or stock broking company;" (with effect from 26th June, 1989)

12. Sometime in 1993, Rockland claims to have got itself registered as a Category I Merchant Banker with the Securities & Exchange Board of India (or SEBI) for a period of three years, that is, till 16th October, 1996. This period was extended for another three years till 16th October, 1999. According to Rockland, its business of "equipment leasing' was actually an "industrial concern" as defined in Section 2(c) of the Industrial Development Bank of India Act, 1964 (for short the IDBI Act). The relevant portion of the definition reads as follows:-

"2. Definitions - In this Act, unless the context otherwise requires, -

(a) & (b) xxx xxx xxx

(c) "Industrial concern" means any concern engaged or to be engaged in, -

(i) to (xv) xxx xxx xxx

(xvi) leasing, sub-leasing or giving on hire or hire-purchase of industrial plants, equipments, machinery or other assets including vehicles, ships and aircraft;"

13. The view sought to be canvassed by Rockland was that as a result of the above, it ceased to be a "financial institution" as defined in Section 45-I(c) of the RBI Act since in terms of Clause (vi)(aa) thereof it carried on an industrial activity. Moreover, since it was not a "financial institution", it could not be an NBFC as per Section 45-I(f) of the RBI Act.

14. The consequence of this contention of Rockland was that since it was not an NBFC, no petition for winding up its affairs was maintainable under the RBI Act. This contention will, of course, be dealt with at the appropriate place.

15. Furthermore, according to Rockland, SEBI issued Notification S.O.837(E) dated 9th December, 1997 directing all merchant bankers to cease to be an NBFC. This direction was complied with and Rockland ceased to be an NBFC. This was another ground set up by Rockland for questioning the maintainability of the winding up petition filed by the RBI.

16. Be that as it may, the audited balance sheet of Rockland as on 31st March, 1997 (as revealed in Co.A.(B) No.4/1998) shows that its paid up capital was Rs.7.12 crores and its reserves and surplus were Rs.9.07 crores. The net worth of Rockland was Rs.16 crores, while its public deposits were Rs.20.96 crores.

17. Notwithstanding these figures and the contentions referred to above, Rockland applied to the RBI on 3rd July, 1997 for a Certificate of Registration under the provisions of Section 45-IA(2) of the RBI Act as an NBFC. The RBI had, quite naturally, to satisfy itself by an inspection of its books that Rockland fulfills the conditions for the purposes of considering its application for registration. This is the requirement of Section 45-IA(4), which reads as follows:-

"45-IA. Requirement of registration and net owned fund

(1) xxx xxx xxx

(2) Every non-banking financial company shall make an application for registration to the bank in such form as the bank may specify:

PROVIDED that a non-banking financial company in existence on the commencement of the Reserve Bank of India (Amendment) Act, 1997 shall make an application for registration to the bank before the expiry of six months from such commencement and notwithstanding anything contained in sub-section (1) may continue to carry on the business of a non-banking financial institution until a certificate of registration is issued to it or rejection of application for registration is communicated to it.

(3) xxx xxx xxx

(4) The bank may, for the purpose of considering the application for registration, require to be satisfied by an inspection of the books of the non-banking financial company or otherwise that the following conditions are fulfillled:-

(a) that the non-banking financial company is or shall be in a position to pay its present or future depositors in full as and when their claims accrue;

(b) that the affairs of the non-banking financial company are not being or are not likely to be conducted in a manner detrimental to the interests of its present or future depositors;

(c) that the general character of the management or the proposed management of the non-banking financial company shall not be prejudicial to the public interest or the interests of its depositors;

(d) that the non-banking financial company has adequate capital structure and earning prospects;

(e) that the public interest shall be served by the grant of certificate of registration to the non-banking financial company to commence or to carry on the business in India;

(f) that the grant of certificate of registration shall not be prejudicial to the operation and consolidation of the financial sector consistent with monetary stability and economic growth considering such other relevant factors which the bank may, by notification in the Official Gazette, specify; and

(g) any other condition, fulfillment or which in the opinion of the bank, shall be necessary to ensure that the commencement of or carrying on of the business in India by a non-banking financial company shall not be prejudicial to the public interest or in the interest of the depositors."

18. For carrying out its duties under the RBI Act, an inspection of Rockland was undertaken by the RBI between 12th and 22nd September, 1997 under the provisions of Section 45-N of the Act. This reads as follows:-

"45-N. Inspection

(1) The bank may, at any time, cause an inspection to be made by one or more of its officers or employees or other persons (hereinafter in this section referred to as the inspecting authority) -

(i) of any non-banking institution, including a financial institution, for the purposes of verifying the correctness or completeness of any statement, information or particulars furnished to the bank or for the purpose of obtaining any information or particulars which the non-banking institution has failed to furnish on being called upon to do so; or

(ii) of any non-banking institution being a financial institution, if the bank considers it necessary or expedient to inspect that institution.

(2) It shall be the duty of every director or member of any committee or other body for the time being vested with the management of the affairs of the non-banking institution or other officer or employee thereof to produce to the inspecting authority all such books, accounts and other documents in his custody or power and to furnish that authority with any statements and information relating to the business of the institution as that authority may required of him, within such time as may be specified by that authority.

(3) The inspecting authority may examine on oath any director or member of any committee or body for the time being vested with the management of the affairs of the non-banking institution or other officer or employee thereof, in relation to its business and may administer an oath accordingly."

19. Additionally, in exercise of powers conferred by Section 45-MA(3) of the RBI Act, M/s Dewan & Gulati, Chartered Accountants were appointed by the RBI to conduct a special audit of the accounts of Rockland with reference to its financial position as on 31st March, 1997 and to submit a report to it. The broad parameters of the special audit were indicated in the letter dated 31st December, 1997 appointing M/s Dewan & Gulati.

20. Section 45-MA(3) of the RBI Act reads as follows:-

"45-MA. Powers and duties of auditors

(1) & (2) xxx xxx xxx

(3) Where the bank is of the opinion that it is necessary so to do in the public interest or in the interest of the non-banking financial company, or in the interest of depositors of such company it may at any time by order direct that a special audit of the accounts of the non-banking financial company in relation to any such transaction or class of transactions or for such period or periods, as may be specified in the order, shall be conducted and the bank may appoint an auditor or auditors to conduct such special audit and direct the auditor or the auditors to submit the report to it."

21. Soon thereafter, the RBI issued two directions being No.DFC.114/DG(SPT)-98 dated 2nd January, 1998 and No.DFC.115/DG(SPT)-98 of the same date. Only a passing reference has been made to these two Notifications in the pleadings, but it appears that the RBI prohibited all NBFCs from accepting deposits if they did not possess a credit rating of minimum 'A' from any approved credit rating agency. Perhaps, because of this, Rockland wrote a letter dated 8th January, 1998 to the RBI stating that it had decided "in favor of retaining the fee based activities of Merchant Banking and discontinue financing operations. From now on, the Company has stopped all fund based operations as a NBFC." This was preceded by an appropriate resolution of the Board of Directors of Rockland on 6th January, 1998.

22. Rockland also wrote to the RBI on 14th January, 1998 expressing its unhappiness over the recent events but proposed to "discharge our liabilities of Public Deposits within a period of three years starting from January, 1998 for repayment in the ratios of 40:30:30 corresponding to this period."

23. Notwithstanding these events, the RBI decided to go ahead with its special audit by M/s Dewan & Gulati. This, however, met with little or no success because Rockland did not co-operate with the Chartered Accountants. This was so intimated to the RBI by letters dated 15th January, 1998 and 12th May, 1998. In fact, in the letter dated 12th May, 1998, M/s Dewan & Gulati have gone so far as to say:-

"This all action on the part of Company shows that Company is not interested in getting the special audit done and for this they adopted strategy to waste time in correspondence, so that time limit provided to us for audit is expired and they can be exempted from the special audit. In our opinion the Company does not want their accounts to be checked, as the Company seems to be indulge in defrauding depositors."

24. The say of Rockland in this context is that although it was ready and willing to repay all its depositors in three years time (as per the letter dated 14th January, 1998), it was not permitted to do so because of two subsequent Notifications dated 31st January, 1998 superceding the earlier directions of 2nd January, 1998. These Notifications are described as the NBFC Acceptance of Public Deposits (Reserve Bank) Directions, 1998 and the NBFC Prudential Norms (Reserve Bank) Directions, 1998. In any case, according to Rockland, these Notifications were not applicable to it since it had withdrawn as an NBFC on 8th January, 1998.

25. Whatever be the position, on 10th February, 1998, the RBI sent a detailed notice to Rockland stating that in view of various factors (of which nine were outlined), its application for the grant of a Certificate of Registration under Section 45-IA(2) of the RBI Act to carry on the business of an NBFC could not be granted. Rockland was given time to represent against the letter dated 10th February, 1998.

26. Rockland did send a detailed representation dated 19th February, 1998 setting out its case and concluded by withdrawing its application dated 3rd July, 1997 for the grant of a Certificate of Registration.

27. The letter dated 19th February, 1998 sent by Rockland met with a rather stern response from the RBI, which stated in its letter dated 16th April, 1998 as follows:-

"In this connection, we advise that till such time the entire outstanding public deposits held by your company as on date are repaid in terms of the instructions contained in Notification No.DFC.118/DG(SPT)/98 dated 31st January, 1998, your company will continue to fall within the ambit of our regulations and cannot be allowed to withdraw its registration application at this stage. Further, you are also advised to furnish us with the position of repayment of existing deposits held by the company."

28. This was followed by a prohibitory order dated 9th June, 1998 issued by the RBI to Rockland. In paragraph 3 of this prohibitory order, it was noted that it had come to the notice of the RBI that Rockland had solicited deposits from the public in February, 1998 by advertising that its fixed deposits are secured by way of first charge on its assets by a trust called Investors Trust of India. The RBI stated that it had received complaints from the depositors that the so-called Trust is nothing but an extension of Rockland, apparently created to mislead the public. As far as the RBI was concerned, this clearly indicated that Rockland had been accepting deposits despite its prohibitions and the Resolution of the Board of Directors of Rockland dated 6th January, 1998.

29. Consequently, in paragraph 5 of the letter dated 9th June, 1998 the RBI expressed its satisfaction that it would not be in public interest to allow Rockland to accept further deposits from the public. Therefore:-

(1) In exercise of powers conferred by Section 45-K read with Section 45-MB(1) of the RBI Act, Rockland was prohibited from accepting deposits with immediate effect. Rockland was also prohibited from accepting deposits from any person in any form whether by way of fresh deposits or renewal deposits or otherwise.

(2) In accordance with the provisions of Section 45-MB(2) of the RBI Act, Rockland was prohibited from selling, transferring, creating a charge or mortgage or dealing in any manner with its property and assets except for the purpose of repayment of deposits held by it, without the prior permission of the RBI for a period of six months.

30. After having considered all these facts, circumstances and various features, the RBI was of the view that Rockland had failed to fulfilll the conditions enumerated under Section 45-IA(4) of the RBI Act. Consequently, its application for a Certificate of Registration to carry on the business of an NBFC was rejected by a letter dated 9th June, 1998.

31. Feeling aggrieved by the order dated 9th June, 1998, Rockland resorted to two remedies. Firstly, it filed an appeal under the provisions of Section 45-IA(7) of the RBI Act. Rockland neither appeared at the hearing of the appeal, nor did it ask for an adjournment. Accordingly, the appeal was dismissed on 17th January, 2001. Secondly, Rockland filed CW No.3433/1998 in this Court for quashing the order dated 9th June, 1998. Again, it took no interest in this case, which had apparently become infructuous. In any event, it came to be dismissed in default on 1st November, 2000.

32. In the meanwhile, some depositors appear to have complained to the Company Law Board (CLB) regarding non-payment of its deposits. Rockland was heard on 9th June, 1998. It also filed a reply dated 18th June, 1998 contending, inter alia, that in view of the mismatch in its cash flow resulting from the RBI guidelines of 31st January, 1998, Rockland was repaying the deposits in accordance with those guidelines.

33. On a consideration of the facts of the case, the CLB passed an order dated 26th June, 1998 under the provisions of Section 45-QA(2) of the RBI Act wherein the following schedule of repayment was ordered:-

"(a) All deposits up to Rs.10,000/- to be repaid in full by 31st December, 1998;

(b) All deposits exceeding Rs.10,000/- up to Rs.50,000/- to be repaid in two Installments namely 50% by 31st December, 1998 and 50% by 31st December, 1999;

(c) All deposits above Rs.50,000/- to be repaid as under:-

30% by 31st December, 1998

30% by 31st December, 1999

40% by 31st December, 2000

(d) All requests for repayment on compassionate grounds shall be repaid within one month of the request in case the company is satisfied with regard to the grounds namely, serious illness, old age, marriage in the family and other pressing commitments;

(e) Interest of the deposits shall be continued to be repaid regularly as per the existing terms and conditions of deposits;"

34. This order of the CLB dated 26th June, 1998 was challenged by Rockland in Co.A.(B) 4/1998 filed in this Court on or about 20th July, 1998 under the provisions of Section 10F of the Companies Act, 1956. This reads as follows:-

"10F. Appeals against the orders of the Company Law Board. -

Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order:

Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days."

35. On 12th August, 1998, learned counsel for Rockland agreed to abide by the directions given by the CLB in sub-paragraphs (a), (d) and (e). Rockland was, however, directed by this Court to go on paying interest on deposits to all the depositors irrespective of their amount deposited till repayment. On compliance, the directions given in sub-paragraphs (b) and (c) were stayed.

36. On 18th December, 1998, this Court passed an order clarifying that any complaint filed by any depositor either with the police or before a Magistrate or a Civil Court, will not be entertained without the permission of this Court.

37. On 25th January, 1999, this Court passed the following order:-

"It is submitted by some counsel appearing for the depositors that while staying the operation of directions contained in the order dated 26 June 1998 of the Company Law Board, this Court had issued certain directions to the petitioner, one of them being that the appellant company will go on paying interest on deposits to all the depositors irrespective of their amount deposited till repayments, but the appellant company has not complied with these directions. Needless to say that the stay of operation of the aforenoted two sub-paras was subject to the appellant company complying with the directions contained in the order dated 12 August 1998 and if these have not been complied with, it cannot be said that the operation of even the two aforenoted sub-paras remains stayed."

38. The orders passed by this Court apparently had no effect on Rockland. Consequently, on 28th April, 1999, this Court vacated all interim orders in the following words:-

"However, on a pointed query by this Court, it is submitted by learned counsel for the appellant that against a sum of Rs.9,17 crores, due to be paid to various depositors by the appellant company as on 31 December 1998 in terms of the impugned order, only a sum of Rs.7.70 crores was paid. Thus, admittedly the appellant company has not even complied with the order passed by the Company Law Board, which it seeks to challenge in this appeal. Under the circumstances, while clarifying that in the present appeal there is no stay of operation of the impugned order dated 26 June 1998, the protection granted to the appellant in terms of order dated 18 December 1998 is also withdrawn."

39.Apparently to avoid any further adverse orders, Rockland moved CM 6041/1999 in CW 3433/1998 on 1st May, 1999 contending that the prohibition in the order dated 9th June, 1998 passed by the RBI was valid only for six months (which period had elapsed) and, therefore, the writ petition had become infructuous.

40. This application was opposed by the RBI which replied that the prohibition contained in the letter dated 9th June, 1998 had been extended for a further period of six months by an order dated 4th May, 1999. This order was sought to be served on Rockland, but had come back undelivered.

41. As mentioned above, since Rockland took no further interest in the writ petition, it came to be dismissed on 1st November, 2000.

42. It seems that the RBI also received a large number of complaints from various sources and also obtained information that the order of the CLB dated 26th June, 1998 was not being complied with by Rockland. In fact, on 6th May, 1999 an officer of the RBI was sent to the registered office of Rockland to ascertain the position regarding repayment to the depositors, but it was found locked. Accordingly, in view of Section 54-B(4AAA) of the RBI Act, by a show cause notice dated 15th June, 1999, Rockland was asked to show cause why penal action be not taken against it. The show cause notice came back undelivered with the remarks "intentionally avoided to take delivery". The notice sent to the Directors of Rockland came back undelivered with the remarks "left". The CLB also, independently, intimated the RBI by a letter dated 17th August, 1999 that after the passing of the order of the CLB, Rockland had not filed any affidavit.

43. In view of these facts, RBI filed a Criminal Complaint No.753/1999 in the Court of the learned Additional Chief Metropolitan Magistrate (ACMM), New Delhi. This complaint was filed on 21st August, 1999 against Rockland and its Directors under the provisions of Section 51-E(1) read with Sections 45-QA, 58-B, 58-C and 58-B(4AAA) of the RBI Act. The learned ACMM took cognizance of the offence on 9th September, 2000 and summoned all the accused.

44. Thereafter on 4th October, 1999, J.M.Chawla, the Chairman-cum-Managing Director of Rockland appeared in this Court in the Company Appeal and stated that if necessary protection is granted to him, and he is allowed to operate his offices, he would be able to deposit at least Rs.1.5 crores with the Registrar of this Court. He undertook to deposit Rs.5 lakhs within three days with the Registrar of this Court to be distributed to some of the depositors who are in urgent need of money. Orders which had earlier been passed restraining the arrest of J.M.Chawla were, therefore, continued.

45. Pursuant to the order passed on 4th October, 1999, J.M.Chawla did deposit Rs.5 lakhs in this Court, which was distributed to various depositors. On 5th November, 1999, J.M.Chawla undertook to deposit a further amount of Rs.15 lakhs by 15th November, 1999 and Rs.95 lakhs on or before 4th December, 1999.

46. On 6th November, 1999, J.M.Chawla stated that he would deposit Rs.20 lakhs on or before 31st December, 1999 and Rs.75 lakhs on or before 31st January, 2000. This was not done. Consequently, on 21st February, 2000, this Court observed, inter alia, as follows:-

"Despite repeated orders of this Court, the appellants have failed to deposit the cheques/demand drafts for Rs.20 lakhs and the balance amount of Rs.75 lakhs. The conduct of the appellants is reprehensible."

47. It appears that subsequently Rockland deposited two cheques of Rs.10 lakhs each in this Court but both were returned with the remarks "insufficient funds". Consequently, on 16th March, 2000 the protection against the arrest of the Appellants was withdrawn forthwith.

48. Notwithstanding all this, the Court thought it appropriate to give another opportunity to the parties to sit together and negotiate and suggest the best way of protecting the interest of the depositors, and enabling Rockland to repay the debts. A meeting was held for this purpose in the chamber of Mr.Anoop Bagai, Advocate on 23rd September, 2000. The Minutes recorded at that meeting read as follows:-

"MINUTES OF THE MEETING HELD ON 23.9.2000 AS

PER ORDERS PASSED BY THIS HON'BLE COURT ON 18.9.2000

1. No direct payments to be made by company/ directors to depositors but only through Court.

2. Rs.40 lakhs to be transferred immediately to this Hon'ble Court out of Rs.60 lakhs deposited by the purchaser in Suit Nos. 470/2000, 471/2000 and 472/2000 pending in this Court.

3. For the present in Phase-I 25% of the Principal amount shall be deposited by the company in this Hon'ble Court by 31.1.2001 which includes Rs.40 lakhs aforesaid. The principal amount constitutes the total amount of depositors who are already appearing in this Court in person or through counsels. Rest of the depositors initiating the proceeding later, would be dealt in Phase-II. Question as to payment of interest will be decided later on.

Remaining amount to be paid as under:

i) 25% by 31.3.2001.

ii) 25% by 31.8.2001

iii) 25% by 31.12.2001

4. Protection to all Directors/staff, subject to continuing to comply the aforesaid deposit schedule.

5. Criminal cases filed by depositors appearing in this Court shall get the same adjourned.

6. List of depositors as stated in para 3 above to be filed in Court by 29.9.2000 by 4 P.M. with copies to the petitioner and Mr. Anoop Bagai.

7. Petitioner shall obtain 34-A within 6 weeks regarding property No. E-346, Greater Kailash-I, Delhi, after paying the dues of Income Tax and House Tax etc. which shall be paid out of Rs.60 lakhs deposited by the purchasers in Court as setout in para to (2) above."

49. Soon thereafter, on 28th September, 2000 it was stated by learned counsel for Rockland that his client is prepared to abide by the decision taken in the meeting held on 23rd September, 2000. The Court directed the Appellant (probably J.M.Chawla) to "file an affidavit on or before 9.10.2000 conveying his willingness to abide by the said decision and undertaking to this Court that he would make payment to the depositors as suggested in the meeting held on 23.9.2000." This affidavit of undertaking was filed by J.M.Chawla.

It seems that Rockland or at least the Directors of Rockland owned property bearing No.E-346, Greater Kailash, Part-I, New Delhi. It was agreed by all concerned that this property be sold and Rs.40 lakhs be made available to this Court from the sale proceeds of the property for being disbursed to the depositors. This amount of Rs.40 lakhs was eventually transferred to the Company Court for distribution among the creditors. This is so recorded in the order dated 13th December, 2000 passed in the Company Appeal.

50. In the meeting held on 23rd September, 2000, it was also agreed that:-

"...the appellant company shall deposit 25% of the principal amount in this Court by 31.1.2001. (This amount includes the sum of Rs.40 lakhs which stands transferred to this Court). Another 25% of the principal amount shall be deposited by the appellant company by 31.3.2001 and another 25% by 31.8.2001 and the remaining 25% by 31.12.2001. As per the agreement the question as to payment of interest will be decided later on. Mr. Anoop Bagai points out that as per the consolidated list filed by him, the total principal amount is around Rs.6,80,00,000/-. It means that the appellant will have to deposit in this Court a sum of Rs.1,30,00,000/- (after adjusting the sum of Rs.40,00,000/-) by 31.1.2001 and the appellant will have to deposit Rs.1,70,00,000/- each by 31.3.2001, 31.8.2001 and 31.12.2001."

51. The payments to be made by J.M.Chawla, as mentioned above, were not made. Therefore, by an order dated 26th April, 2001 he was asked to explain through an affidavit why he has not complied with this Court's order dated 13th December, 2000 and why action should not be taken against him for disobeying the order of the Court. J.M.Chawla has since filed his affidavit dated 22nd May, 2001.

52. It may be mentioned, en passant, that by the order dated 13th December, 2000 it was directed that the Directors of Rockland, that is, J.M.Chawla, Arun Chawla, Tarun chawla and Ms.Indu Chawla shall not be arrested in connection with or pursuant to any complaint filed by any depositor till the next date (that is, 16th February, 2001). The next date has come and gone. The interim order effectively continues till date.

53.Additionally, in the Company Appeal filed by Rockland, it was directed on 30th October, 2001 that till the disposal of the Company Appeal, J.M.Chawla shall not be arrested in connection with or in pursuance of any complaint filed by any of the depositors.

54. On or about 13th March, 2001, the Reserve Bank of India filed C.P.No.93/2001 praying, inter alia, for winding up the affairs of Rockland and to take charge of its properties, assets, books of account, etc. This CP was filed under the provisions of Section 45-MC of the RBI Act. This reads as follows:-

"45-MC. Power of bank to file winding up petition

(1) The bank, on being satisfied that a non-banking financial company -

(a) is unable to pay its debt; or

(b) has by virtue of the provisions of section 45-IA become disqualified to carry on the business of a non-banking financial institution; or

(c) has been prohibited by the bank from receiving deposit by an order and such order has been in force for a period of not less than three months; or

(d) the continuance of the non-banking financial company is detrimental to the public interest or to the interest of depositors of the company,

may file an application for winding up of such non-banking financial company under the Companies Act, 1956 (1 of 1956).

(2) A non-banking financial company shall be deemed to be unable to pay its debt if it has refused or has failed to meet within five working days any lawful demand made at any of its offices or branches and the bank certifies in writing that such company is unable to pay its debt.

(3) A copy of every application made by the bank under sub-section (1) shall be sent to the Registrar of Companies.

(4) All the provisions of the Companies Act, 1956 (1 of 1956) relating to winding up of a company shall apply to a winding up proceeding initiated on the application made by the bank under this provision."

55. It does not need any scholarly study to realize that on the basis of the facts narrated above, the winding up of Rockland will be covered by all the above clauses of Section 45-MC of the RBI Act.

56. The audited balance sheet of Rockland for the year ending 31st March, 1997 shows that its net worth is less than its liabilities. The CLB in its order dated 26th June, 1998 passed under Section 45-QA of the RBI Act had nevertheless directed Rockland to repay all deposits up to Rs.10,000/- in full by 31st December, 1998. The rest of the amounts could be paid later. But, this was not done. Rockland was also directed to repay on compassionate grounds within one month of the request in case the company (Rockland) is satisfied with regard to the grounds, namely, serious illness, old age, marriage and other pressing commitments. I was told by some of the depositors who spoke out of turn or interjected during the hearing of the cases that this was also not adhered to in several cases. Finally, Rockland was directed to continue to pay interest on the deposits on the existing terms and conditions of the deposits. Even this was not done.

57. On 12th August, 1998, learned counsel for Rockland agreed to abide by the above directions of the CLB, but to no effect. It is hard to believe that under these circumstances, it can ever be imagined that Rockland was in a real position to pay its debts.

58. To make matters worse, M/s Dewan & Gulati, Chartered Accountants were appointed to conduct a special audit of the accounts of Rockland. Not only were the Chartered Accountants not allowed to carry out the special audit but their time was wasted by Rockland giving them the impression that Rockland does not want its accounts to be audited, since it seems to "indulge in defrauding depositors". Therefore, in the absence of all necessary and relevant material, one doesn't even know the extent to which Rockland has "defrauded" or milched its depositors.

59. On 14th January, 1998, Rockland informed RBI that it proposes to discharge its liabilities within a period of three years starting from January, 1998 onwards. Almost four years have gone by, but the depositors have still not received their principal investment, let alone the interest thereon.

60. The Board of Directors of Rockland had, apparently resolved in January, 1998 not to solicit deposits from the public. This was later on discovered by the RBI to be a camouflage since Rockland continued to solicit deposits by advertising that its fixed deposits are secured by way of first charge on its assets by a trust called Investors Trust of India.

61. Rockland did, of course, take steps to secure its interests by filing a Company Appeal in this Court. This met with little or no success. But, Rockland chose not to challenge any order which could be construed as "adverse" to it. On the contrary, during 1999 more than sufficient indulgence was given to Rockland to make deposits in this Court. While some deposits were made, other cheques issued by Rockland bounced and a major deposit of Rs.95 lakhs (later reduced to Rs.75 lakhs) was never made. In fact, on 21st February, 2000, this Court described the conduct of the Appellants as "reprehensible".

62. Time and again this Court had been indulgent to J.M.Chawla, Arun chawla, Tarun Chawla and Ms.Indu Chawla whose arrest had been stayed for considerable periods of time. Even this had no effect on the Appellants because when they were summoned to Court, either by the issuance of a bailable warrant or a non-bailable warrant, the same could not be executed. These persons appeared in Court only when it suited them to do so.

63. The Appellants had represented to this Court that they had immoveable property in Mumbai and Goa which could be sold off to pay the depositors. On 29th May, 2001, this Court appointed two advocates as joint Commissioners to sell these properties.

64. As regards the property in Goa, the Commissioners reported on 8th August, 2001 that they received no offers for the sale of the said property. It was further stated in paragraphs 4 to 6 of their Report as follows:-

"4. That, however, on inspection of the property in question it was observed by the undersigned Commissioners that the said property belonging to the appellant company is located on the IInd floor of a building, in which all the flats/offices were lying vacant and were not being used by their owners/occupants since many months/years. It was also observed that there was no electricity on the said floor of the building and it seemed that the building was not being maintained by the occupants/owners of the said building, except for the ground floor of the building where Indian Overseas Bank was running its activities.

5. Thus as per the observations of the undersigned Commissioner's, the property in question is not in a condition in which many buyers are expected to be interested, looking at its maintenance and the business prospects of the area in which the building is situated and its depleted condition.

6. That nevertheless the undersigned Commissioners, with a view to get the property in question valuated, approached one of the Government Valuers, Sh.S.N.Bhobe. The said Govt. Valuer, Shri S.N. Bhobe finalised his report on 5.6.2001 and handed over the same to Commissioner's, according to which the fair market value of the property in question si Rs.4,96,000/- only."

65. As regards the Mumbai property, the position seems to have been worse. The Commissioners visited the property on two consecutive days for about 3-4 hours but did not receive any offer. On the other hand, the office of the society in which the property was situated, informed the Commissioners that up to June 2001, the Appellants owed the Society Rs.1,82,564/- towards maintenance and other service charges. The Commissioners even approached the Official Liquidator attached to the Bombay High Court for providing a Government approved valuer for preparing a Valuation Report regarding the fair market price of the property in question. However, the Commissioners have received no Valuation Report as yet pertaining to the Mumbai property.

66. In paragraph 13 of their Report, the Commissioners categorically stated that till date they have received no concrete offers for the sale of the properties in Mumbai or Goa. Rockland had, however, received some offers earlier. The authenticity of these offers can only be a matter of conjecture. It may be mentioned that on 29th May, 2001 J.M. Chawla had agreed to accompany the Commissioners to Goa and Mumbai provided he is given protection from arrest. This protection was granted by this Court but J.M. Chawla did not accompany the Commissioners "as he was stated to be unwell during that time."

67. An effort was also made by this Court to resolve all problems between the parties and a meeting for this purpose was also held between all of them on 23rd September, 2000 in the Chamber of Mr. Anoop Bagai, Advocate. Certain decisions were taken at this meeting and J.M. Chawla also filed an affidavit agreeing to abide by the decisions taken in the meeting, but all this was to no effect.

68. Learned counsel for Rockland time and again sought the indulgence of this Court to allow his clients an opportunity to run their offices and to recover amounts allegedly due to them from their lessees to repay the debts to all the depositors. He squarely blamed the various directions of the RBI for this state of affairs. On 18th September, 2000, an opportunity was given to Rockland despite the objections of the depositors. (This had resulted in the meeting held on 23rd September, 2000). The acceptance of the request, however, had no positive effect on the outcome of the proceedings. Further similar entreaties made by learned counsel for Rockland during the course of hearing had, quite naturally, to be rejected.

69. In the context of these submissions of learned counsel for Rockland, it must be remembered that the Supreme Court has said in General Finance and Investment Co. Ltd. Vs. Reserve Bank of India, (1992) 2 SCC 344 that the reasonableness of directions given by the RBI have to be looked at from the point of view of the depositors, for whose safeguard they have been issued. The reasonableness of the directions has not to be looked at from the point of view of the Company to whom such restrictions will be irksome and may, therefore, be regarded as unreasonable. (Paragraphs 19 and 20 of the Report).

70. On a consideration of the various aspects of the case, I have no hesitation in concluding that Rockland is unable to pay its debts and its continuance is detrimental to the public interest or to the interest of the depositors of the Company. The provisions of Clauses (a) and (d) of Section 45-MC(1) of the RBI Act have been violated as contended by learned counsel for the RBI.

71. Rockland had applied for a Certificate of Registration on 3rd July, 1997 under the provisions of Section 45-IA(2) of the RBI Act. This application was rejected by the RBI on 9th June, 1998. An appeal preferred by Rockland against this order was dismissed on 17th January, 2001 and CW No.3433/98 preferred in this Court was dismissed in default on 1st November, 2000. The order dated 9th June, 1998 has, therefore, attained finality. In terms of Section 45-MC(1)(b) of the RBI Act, Rockland is disqualified from carrying on the business of an NBFC.

72. Finally, by the same order dated 9th June, 1998, Rockland was prohibited from receiving deposits for a period of not less than three months. The prohibition was, in fact, for six months and was later extended by an order dated 4th May, 1999 by another six months. Whether the extension could have been granted or not, as contended by learned counsel for Rockland, is really of no consequence. The fact is that there was a prohibition against Rockland from receiving deposits for a period of not less than three months.

73. Consequently, RBI had more than enough material to conclude that Rockland has not satisfied the provisions of Clauses (b) and (c) of Section 45-MC(1) of the RBI Act.

74. Looked at, therefore, from any point of view, there is no option but to order the winding up of the affairs of Rockland in terms of Section 45-MC of the RBI Act.

75. Consequently, Co.A(B) 4/98 filed by Rockland does not survive and is dismissed as such. It may be mentioned that learned counsel for the RBI did contend that the appeal was not maintainable under the provisions of Section 10F of the Companies Act, 1956 but it is now not necessary to deal with this contention.

76. Learned counsel for the RBI relied upon a certified copy of Writ Petition No.32498 of 1998 decided by a learned Single Judge of the Andhra Pradesh High Court on 13th December, 1999 (Dr.Pinna N.R. Vs. The Commissioner of Police, Hyderabad & Ors.). This decision really does not render much assistance on the merits of the case simply because the prayer therein was for an order or direction to the Respondents therein to make an enquiry before registering any crime against the Petitioners therein as and when any complaint or information is placed before the officials about any alleged complaint.

77. That case also concerned the taking of deposits from various individuals and the business of financing by hire purchase. The company had 12,000 depositors and about 3000 debtors. The depositors association had naturally evinced keen interest in the case and had provided valuable information to the Court and the authorities from time to time.

78. Despite this, the Court expressed its helplessness in coming to the aid of the gullible depositors. The Court said:-

"The Reserve Bank has only power either to prosecute under Chapter V of the Act or to recommend for winding up under Section 45-MC of the Act. Even the complaints made by the depositors are only registered under Section 420 of I.P.C. But the most important question is fate of the depositors who had made savings by sacrificing their essential need and to utilise the same during post retirement life. They deposited with the petitioners under a fond hope that they got reasonable returns on their hard earned money. That proved to be a myth and misery. The depositors are more than 11,000, and they are virtually on the streets as on the date, as the first petitioner is now stating that he is not in a position to repay any amount. Even if the first petitioner - Managing Director, including those connected with the offences viz., past directors and promoters are sent to the prison, the question still remains that whether the court has done any justice to the depositors. Sentencing the offenders and committing them to the prison is one thing than ensuring the return of deposits to the poor depositors who made deposits from every nook and corner of this country. This court also takes judicial notice of the present trend that number of the non-banking financial companies have received huge deposits from the people of this country by mesmarising (sic) them with heavenly pleasures and these companies have lifted their boards itself in a very short time. In Andhra Pradesh itself, there are many such instances which are being reported in the press every day. What is the solution that has to be carved to arrest the situation? Can the State be a mute spectator when huge amounts running into crores of innocent public is being mis-used and misappropriated by the financial institutions. The Provisions of the R.B.I. Act have only regulated the conduct of Non-Banking Financial Institutions after the issuance of registration certificates. But, the institutions which have already collected deposits as on the date of coming into force the amended provisions in 1997 and which were refused certificate of registration by Reserve Bank of India and failed to refund the deposits, no provisions has been made to deal with such companies. The fate of these depositors with such companies is hanging in fire. Therefore, a grave situation arisen wherein the State is required to deal with it with stern hands."

79. I am afraid that this Court is in no better position to help the depositors in this case. We all know that the answer to the problem is blowin' in the wind, but somebody with vision has to recognise it.

80. Similarly, in Reserve Bank of India Vs. Krishi Export Com.Corpn. Ltd., 2001 CLC 150, winding up of the Respondent was sought in the Allahabad High Court on the ground that (i) it is unable to pay its debts, (ii) it has become disqualified to carry on the business because of rejection of its application for issuance of certificate of registration and (iii) continuance of business by it is detrimental to the public interest and to that of the depositors. (Paragraph 3 of the Report).

81. Referring to the inability of the Company to pay its debts, the Court held in paragraphs 38 and 39 of the Report that:-

"38. ...The company started defaulting in payment from September 1998 onwards. It was the own case of the respondent company that it had accepted total deposits to the tune of Rs.54 Crores under various schemes as on 30.9.1998; that it had stopped accepting deposits with effect from September, 1998. It was also its case that there had been unavoidable delay in honouring the commitments towards repayment of deposits back so of mismatch of cash inflow and outflow. The admission of the company is there that a large number of deposits are outstanding for repayment on maturity. It was also the case of respondent company before the CLB that due to change in the policy of the Reserve Bank of India relating to non-banking financial companies and also the sluggish economy of the country and the financial unsatisfactory working of some of the major players in this field, the faith of the public was shattered and all the depositors had started demanding repayments which was highly impossible for the company to repay. The admission of the company was that despite its best efforts, it could not make any payment to the depositors since September, 1998. Even its working came to standstill and all the offices had to be shut down. However, it contended that aggregate amount of its asset as on 30.9.1998 was around Rs.54.60 Crores. According to the company, its liabilities towards deposits and interest were to the tune of Rs.54 Crores. It appears that such assertion of the respondent company swayed the CLB to approve a scheme for repayment. The discussion that I intend to make a shortwhile later would show that actually the liability of the respondent company was far in excess of its assets which has to be taken to mean that it is unable to pay its debts.

39. In any view of the matter, the admissions of the respondent company before the CLB referred to above leaves not the slightest doubt that its office had shut down, it had stopped making payments since September, 1998 and the primary reason was that fresh deposits were not coming to it after September, 1998. It gives a clear inkling that the trick or hidden secret of its operation over the years was that out of the fresh deposits, it was making the payments of earlier deposits but there was a sizeable gap between its liabilities and assets, the former being for in excess than the latter. It could pay its debts only by accepting fresh deposits. Indeed, there could be no end to it as it was to be an unending cycle and at any given time, the last set or group of depositors was to be the sufferer. The reality that in spite of the introduction of Chapter III-B in the Reserve Bank of India Act, the Reserve Bank was also not very conscious about the discharge of its duties by effectively controlling the non-banking financial institutions. But when the grip came to be tightened with the amending Act of 1997 introducing the requirement of registration of non-banking financial companies with the Reserve Bank, the loophole came to surface on inspection made by the Reserve Bank to decide the application of the respondent company for the issuance of certificate of registration."

82. It was then concluded in paragraph 42 of the Report that it was "crystal clear" that the company was unable to pay its debts.

83. As regards the absence of any Certificate of Registration, the Allahabad High Court dealt with the problem in the following manner in paragraphs 23 and 24 of the Report:-

"23. ...The respondent submitted an application for registration to the Bank under Section 45-I(2) of the Act. The said application of the respondent was rejected by the Bank on 17.9.1998. The contention of the learned counsel for the respondent is that the said order of rejection passed by the Bank declining registration to the respondent is not final. Attention of the Court has been invited to sub-section (7) of Section 45-IA of Reserve Bank of India Act, which runs as under: -

"45-IA. Requirement of registration and net owned fund. -

(7) A company aggrieved by the order of rejection of application for registration or cancellation of certificate of registration may prefer an appeal, within a period of thirty days from the date on which such order of rejection or cancellation is communicated to it, to the Central Government and the decision of the Central Government where an appeal has been preferred to it, or of the Bank where no appeal has been preferred, shall be final:

Provided that before making any order of rejection of appeal, such company shall be given a reasonable opportunity of being heard."

24. It is not disputed by the petitioner that the respondent has preferred an appeal against the order of the Bank dated 17.9.1998 before the Central Government and the same is pending. The submission from the side of respondent is that since its appeal is pending before the Central Government, the order of rejection passed by the Bank declining registration of it (respondent) is not final and as such the Bank cannot rely on ground (b) of sub-section (1) of Section 45-MC of the Act to back its winding up petition. On the other hand, the argument of learned counsel for the petitioner is that no stay order has been passed by the Central Government staying the Bank's order dated 17.9.1998. This Court is of the opinion that no stay order is required to be passed by the Central Government to put a brake to the operation of rejection order during the pendency of the appeal. Sub-section (7) of the Section 45I-A is couched in clear and unambiguous terms that where an appeal is preferred against the rejection of application for registration to the Central Government, the decision of the Central Government shall be final. The order of the Bank rejecting the application for registration shall be final only when no appeal has been preferred. Therefore, stay of the operation of rejection order passed by the Bank is automatic on the filing of the appeal by the aggrieved party, as respondent in the present case has done. So, to come to the point, ground (b) of sub-section (1) of Section 45-MC of the Act cannot be relied upon by the petitioner to support this winding-up petition."

84. I am afraid, it is not possible for me to agree with the view of the Allahabad High Court. Firstly because it does not seem to be correct, with respect, that "The order of the Bank rejecting the application for registration shall be final only when no appeal has been preferred". What if no appeal is filed - is the order of rejection a dead letter?

85. Moreover, a "final" order in a case such as this refers only to an order against which no appeal is provided. There is no bar to recourse to a writ of certiorari. In fact, this remedy was resorted to by Rockland by filing CW No.3433/1998 in this Court.

86. In Regina v. Medical Appeal Tribunal Ex parte Gilmore, (1957) QB 574 CA, it was said on page 583 of the Report:-

"The second point is the effect of section 36(3) of the Act of 1946 which provides that "any decision of a claim or question "...shall be final." Do those words preclude the Court of Queen's Bench from issuing a certiorari to bring up the decision?

This is a question which we did not discuss in Rex v. Northumberland Compensation Appeal Tribunal, Ex parte Shaw, because it did not there arise. It does arise here, and on looking again into the old books I find it very well settled that the remedy by certiorari is never to be taken away by any statute except by the most clear and explicit words. The word "final" is not enough. That only means "without appeal." It does not mean "without recourse to certiorari." It makes the decision final on the facts, but not final on the law. Notwithstanding that the decision is by a statute made "final," certiorari can still issue for excess of jurisdiction or for error of law on the face of the record."

87. Similarly, on page 585 of the Report, it was said:

"In my opinion, therefore, notwithstanding the fact that the statute says that the decision of the medical appeal tribunal is to be final, it is open to this court to issue a certiorari to quash it for error of law on the face of the record."

88. In Pyx Granite Co. Ltd. v. Ministry of Housing and Local Government and Others, (1960) AC 260 HL, it was stated on page 285-286 of the Report:-

"I come now to the second question which must be decided. It was submitted by the respondents that the court had no jurisdiction to entertain the action. It was urged that section 17 of the Act supplied the only procedure by which the subject could ascertain whether permission is necessary for the development of his land. That section enacts that if any person who proposes to carry out "any operations on land ... wishes to have it determined ... whether an application for permission in respect thereof is required under this Part of this Act having regard to the provisions of the development order, he may ... apply to the local planning authority to determine that question." This matter is somewhat complicated by the fact that under other sections of the Act the Minister may "call in" the application for his own determination. But nothing turns on this, for, whether the application is heard in the first place by the local planning authority and then on appeal by the Minister or is heard in the first place upon a "call in" by the Minister, his determination is expressed to be final. The question is whether the statutory remedy is the only remedy and the right of the subject to have recourse to the courts of law is excluded. Obviously it cannot altogether be excluded; for, as Lord Denning has pointed out, if the subject does what he has not permission to do and so-called enforcement proceedings are taken against him, he can apply to the court of summary jurisdiction under section 23 of the Act and ask for the enforcement notice to be quashed, and he can thence go to the High Court upon case stated. But I agree with Lord Denning and Morris L.J. in thinking that this circuity is not necessary. It is a principle not by any means to be whittled down that the subject's recourse to Her Majesty's courts for the determination of his rights is not to be excluded except by clear words."

89. It was further held on page 304 of the Report that:-

"I can find no sufficient ground for holding that section 17 provides an exclusive method of determining questions of the kind to which it relates, and deprives the courts of the jurisdiction which they ordinarily possess of determining by declaration questions of that description.

Clear words would be necessary to produce this result, and paying due regard to the terms of section 17, and to the argument that it must be read in conjunction with sections 15 and 16, I cannot find any sufficient indication that it was intended to oust the jurisdiction of the court on any question which might have been made the subject of an application under section 17."

90. Pyx Granite was referred to by the Constitution Bench in Dhulabhai v. State of Madhya Pradesh, . After discussing the entire case law, the Supreme Court stated the legal position in paragraph 32 of the Report. This conclusively shows that the decision in Krishi Export Com. Corpn. Ltd. to this extent is not, with respect, correct.

91. One needs hardly add that a writ of certiorari in our country is a constitutional remedy which cannot be whittled down by a statute.

92. In so far as the third ground is concerned, the Allahabad High Court had this to say in paragraphs 49, 50, 54 and 55 of the Report:-

"49. I would now address myself to another ground taken in the winding up petition, viz., the continuance of non-banking financial business by the respondent company is detrimental to the public interest or to the interest of the depositors of the company which is ground (d) of sub-section (1) of Section 45-MC of the Act.

50. Coming to grips on this question, it is to be noted that the interest of the depositors is of paramount importance. On the fair assessment of the facts and material on record, it is apparent that the director(s) of the company have conducted the operations of the company in such a way as to jeopardize the interest of large number of depositors whose hard earned money has been exposed to great risk. By not making investment out of the collected deposits as prescribed by the Bank in its directions, the respondent company has failed to protect the interest of the depositors and has rather jeopardized their interest. As such the continuance of the non-banking financial business by the respondent company is detrimental to the interest of the depositors as also to the public interest.

54. The reply dated 12.5.1998 submitted by the respondent to the show cause notice of the Bank says that without going into the details of calculation arrived at by the Reserve Bank, they could only say that if they had repaid their liabilities in past 26 years, why they would not be able to repay the same in future. The fact is that the only secret of the operation of the respondent company over the years has been to repay the previous depositors out of fresh deposits, at the same time squandering and eroding part of the deposits and making investments in contravention of the statutory directions issued by the Bank. But it stands exposed that at a given time viz., on 31.3.1997 its liabilities for exceeded its assets. It would be recalled that there has been simultaneous stoppage of inflow of fresh deposits and repayment of the earlier depositors' money.

55. So, the above discussion is indicative of the fact that the financial position of the respondent company is far below the level prescribed under the Act and continuance of non-banking financial business by it is detrimental to the public interest as also to the interest of the depositors. At the given time, it is not in a position to repay its depositors and simply wants to carry on business on the strength of getting fresh deposits. It would be an unending vicious circle as whenever the things are required or desired to be squared, the last set of the depositors would be the losers. Operation of the non-banking financial company in such a way is necessarily detrimental to the interest of the public at large including those of the depositors.

93. No doubt the High Court discussed in great detail the reply given by the Company to show cause notice, but the facts of the case before me are so obvious that I do not think it necessary to get into such an exercise.

94. I have deliberately quoted extensively from the decisions of the Andhra Pradesh and Allahabad High Courts. The reason is to bring home the point that the kind of problem that I am dealing with is not isolated - it is widespread; it affects a large number of people and runs into crores of Rupees. It is time, therefore, for the concerned people to wake up and not keep their eyes wide shut.

95. It was contended by learned counsel for Rockland that his client was not an NBFC in view of the provisions of Section 45-I of the RBI Act. This argument needs to be summarily rejected. There is nothing to suggest that Rockland was not carrying on any business of financing or that it was not a financial institution. On the contrary, these facts are not doubted. Furthermore, it was discovered by the RBI that even after the Board of Directors of Rockland had resolved in January, 1998 not to accept fresh deposits, Rockland continued to do so. The fact that Rockland was a Merchant Banker recognised by the SEBI at the relevant time also, does not detract from the conclusions arrived at. It is possible that as a Merchant Banker, Rockland was not entitled to function as an NBFC - but that it unabashedly chose to do so, cannot be used by it to its advantage. Similarly, the contention of learned counsel for Rockland that due to the provisions of Section 2(c) (xvi) of the Industrial Development Bank of India Act, 1964, his client cannot be classified as a "financial institution" or an NBFC has only to be stated for outright rejection. There can, therefore, be no doubt that the writ petition filed by the RBI against Rockland is maintainable.

96. Reference was made, on occasion, to CA 556/2001 in the Company Appeal. This application was filed on 7th April, 2001 by Rockland, which briefly summarizes its grievance, namely, that the order of the CLB was contrary to the directions of the RBI which allowed time to all NBFCs to repay in three years time, reducing its liability by 1/3rd every year and that the schedule of payments was highly onerous as it envisaged 70% of the payment in the first year itself. The application then sets out the various proceedings and steps taken by Rockland to liquidate its debts. Eventually, in paragraph 24 of the application, Rockland asks for rescheduling the payments to the depositors on certain lines.

97. Given the conduct of Rockland and its Directors, there is nothing to suggest that the application was made bona fide - it appears to have been a last ditch attempt to further buy time. Rockland took no concrete steps during the pendency of the application to show that it really meant to fulfilll its "commitments." The application does not deserve to be entertained and is rejected. It is so ordered.

98. What is eventually the relief to be granted? No doubt, the RBI has made out a case for winding up Rockland. The consequences of Section 45-MC(4) of the RBI Act must follow. Rockland is ordered to be wound up and all its properties, assets, books, etc. should be expeditiously taken over by the Official Liquidator attached to this Court. Since the task for the Official Liquidator will be enormous (he is already busy in the affairs of liquidation of several companies), he is entitled to, and should, take the assistance of the Official Liquidator attached to the Mumbai High Court especially with regard to the immoveable properties in Mumbai and Goa. From the orders passed by this Court, it appears that the Economic Offences Wing of the Crime Branch is already associated in the investigation of the affairs of Rockland. It is directed to continue to do so, along with the Official Liquidator.

99. Since it is the RBI which has sought the winding up of Rockland, the Governor of the RBI should spare the services of one (or more) officer to assist in getting to the bottom of the affairs of Rockland.

100. I have no doubt about the enormity of the task, but it is surely not insurmountable.

101. All the concerned officers will, of course, be entitled to take the assistance of the Income-tax authorities and I am sure the concerned Chief Commissioners will render all help, both logistical and otherwise.

102. All officers will, however, appreciate that the interests of the depositors is of primary concern.

103. It is directed that subject to any further orders that may become necessary, all assets and properties of Rockland presently in this Court will be handed over to the Official Liquidator by the Registry of this Court on or before 31st January, 2002.

104. All interim orders or injunctions passed by this Court, including those staying the arrest of J.M.Chawla, Arun Chawla, Tarun Chawla and Ms.Indu Chawla are hereby vacated. Cases proceeding in various fora against them or Rockland should continue, if not already concluded. If any arrests are required to be made for executing or enforcing any order, the various fora (including the Courts) may do so. The period of incarceration will, of course, be decided by the concerned forum which may also decide if the period of incarceration is to run concurrently or consecutively.

105. A word about the depositors. They have shown considerable restraint - there is no doubt about it. However, like many hundreds, if not thousands of others, it cannot be said if they will ever get back their deposits, let alone the interest thereon. The cases that I have extensively quoted (the Andhra Pradesh and Allahabad High Court cases) show that the law is essentially a paper tiger. It needs to be repeated that someone in authority should look into this, so that future depositors are not financially ruined. In fact, paragraph 6 of the Statement of Objects and Reasons for the 1997 Amendment to the RBI Act notices this situation, but provides no remedy and then there is the sound of silence. This paragraph reads as follows:-

"There are reports of several finance companies and unincorporated bodies having failed to repay the deposits collected from unsuspecting depositors who have been tempted by the attractive returns and incentives offered. Concern has been expressed in several quarters on the need to take urgent steps to regulate the activities of such companies and unincorporated bodies."

106. As a result of this discussion, CP 93/2001 is allowed and Rockland is ordered to be wound up. Co.A.(B) 4/1998 is dismissed. All the connected company petitions and applications are disposed of in view of the above. The officers who have been directed or authorised to look into the affairs of Rockland will work out their own procedures and modalities to carry out their task. They will, no doubt, sympathetically look into any grievance made to them by any depositor, who is, of course, free to lodge his or her claim with the Official Liquidator.

107. By the order dated 26th April, 2001, J.M.Chawla was required to file an affidavit explaining why he has not complied with this Court's order dated 13th December, 2000 and why action should not be taken against him for disobeying the order of the Court. J.M.Chawla has since filed his affidavit in this regard.

108. Prima facie, it appears that J.M.Chawla has committed contempt of Court.

109. The Registry will register a case for suo motu civil contempt of Court alleged to have been committed by J.M.Chawla. After registration, the contempt petition be then listed before the appropriate Bench along with copies of the orders dated 13th December, 2000 and 26th April, 2001 and the affidavit dated 22nd May, 2001 filed by J.M.Chawla.

110. While costs ought to be imposed on Rockland, I have my doubts if they can ever be recovered. Therefore, I do not make any order for payment of costs.