Delhi High Court
Malanpur Steel Ltd. vs Crb Capital Markets Ltd. on 21 November, 2012
Author: Badar Durrez Ahmed
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 21.11.2012
+ CO.APP. 8/2006
RESERVE BANK OF INDIA ..... Appellant
versus
CRB CAPITAL MARKETS LTD. .... Respondent
Advocates who appeared in this case:
For the Appellant Mr Parag Tripathi, ASG with Mr Ramesh Babu,
Ms Manisha Nair, Mr Srinjoy Banerjee, Ms Swati Setia and
Mr Anuj Bhandari, Advocates for RBI.
Mr Bhavanishankar V. Gadnis, Adv. for Madgaun Urban
Co-operative Bank Ltd. in CM Nos. 12452-12453/2009.
Mr Sanjeev Rajpal, Adv. for I.T. Department in CM No.
8021/2011.
Ms Meenakshi Ogra with Mr Rajpal Singh and Ms Kanika
Sharma for Applicant in CM No. 10739/2011.
Mr Vijay Kumar for Karur Vysya Bank.
For the Respondent Mr Sudhanshu Batra, Sr. Advocate with Mr Bhuvan
Gugnani, Adv. for CRB Capital Markets Ltd.
Mr Rajiv Bahl, for Official Liquidator
AND
+ CO.APP. 9/2006
MALANPUR STEEL LTD. ..... Appellant
versus
CRB CAPITAL MARKETS LTD. ..... Respondent
C.A. Nos. 8/06, 9/06, 15/06, & 18/06 Page 1 of 77
Advocates who appeared in this case:
For the Appellant Mr Diwakar Maheshwari, Adv. with
Ms Abhisaar Bawagi
For the Respondent Mr Sudhanshu Batra, Sr. Advocate with Mr Bhuvan
Gugnani, Adv. for CRB Capital Markets Ltd.
Mr Rajiv Bahl, for Official Liquidator
AND
+ CO.APP. 15/2006
SECURITIES & EXCHANGE BOARD OF INDIA ..... Appellant
versus
CRB CAPITAL MARKET LTD. ..... Respondent
Advocates who appeared in this case:
For the Appellant Mr Neeraj Malhotra, Adv. with
Mr Shourjya Mukherjee, Adv.
For the Respondent Mr Sudhanshu Batra, Sr. Advocate with Mr Bhuvan
Gugnani, Adv. for CRB Capital Markets Ltd.
Mr Rajiv Bahl, for Official Liquidator
AND
+ CO.APP. 18/2006
GUJARAT INDUST.INVEST.CORPN.LTD ..... Appellant
versus
CRB CAPITAL MARKETS LTD. ..... Respondent
C.A. Nos. 8/06, 9/06, 15/06, & 18/06 Page 2 of 77
Advocates who appeared in this case:
For the Appellant Mr R.P. Bhatt, Sr. Adv. with Mr Ishaan Madaan and
Mr Chirag M. Shroff, Adv.
For the Respondent Mr Sudhanshu Batra, Sr. Advocate with Mr Bhuvan
Gugnani, Adv. for CRB Capital Markets Ltd.
Mr Rajiv Bahl, for Official Liquidator
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MS JUSTICE VEENA BIRBAL
JUDGMENT
BADAR DURREZ AHMED, J
1. In all these appeals the judgment dated 24.01.2006 delivered by the
learned company Judge is under challenge. The appellants are aggrieved by
the fact that the learned company Judge allowed the company petition No.
251/2002 filed on behalf of CRB Capital Markets Limited (the common
respondent in all these appeals). CRB Capital Markets Limited (hereinafter
referred to as 'CRB Capital') had filed the said company petition No.
251/2002 seeking sanction of a scheme under sections 391/392 of the
Companies Act, 1956. That scheme of compromise and arrangement as put
forth in the said company petition No. 251/2002 has been sanctioned by the
learned company Judge, subject to certain modifications. In view of the fact
that the scheme had been sanctioned, the winding up petition filed by the
Reserve Bank of India (RBI) being C.P. No. 191/1997 under section
45MC(1)(d) of the Reserve Bank of India Act, 1934 (hereinafter referred to
as the 'RBI Act') was, along with all other pending applications, 'disposed
of'. However, the learned company Judge directed that in case the
Administrator reports that the scheme cannot be successfully implemented
then the winding up petition filed by RBI would get revived and the
company (CRB Capital) would be liable to be wound up.
2. The appellants in these four appeals are the Reserve Bank of India
(RBI), the Securities and Exchange Board of India (SEBI), Gujarat Industrial
Investment Corporation Limited (GIIC) and Malanpur Steel Limited (earlier
known as Hindustan Development Corporation Limited). All the appellants,
including the Official Liquidator, had objected to the scheme. However, the
learned company Judge sanctioned the scheme with certain modifications
primarily because the learned company Judge felt that the public interest
would be met inasmuch as the small depositors would be paid. However, the
appellants feel that the scheme as propounded and sanctioned is contrary to
public interest as also contrary to statutory provisions and is opposed to
public policy. In fact, the learned counsel for the RBI had submitted that
during the pendency of a winding up petition filed by the RBI under section
45MC(1)(d) of the RBI Act no scheme under sections 391/392 of the
Companies Act could, at all, have been entertained by the company court.
Background facts:
3. We shall examine the submissions of the parties but, before we do
that, it would be necessary to set out the sequence of events. According to
the RBI, CRB capital was originally incorporated on 16.05.1985 as CRB
Consultancy Private Limited which got converted into a public limited
company on 04.03.1991 and the name was changed to its present form (CRB
Capital Markets Limited) on 18.11.1991. CRB capital is a Non-Banking
Financial Company (NBFC). Consequently, it would be, inter alia, governed
by the provisions set out in Chapter IIIB of the RBI Act. The chapter
heading itself reads as under:-
"Provisions relating to Non-Banking Institutions receiving
deposits and Financial Institutions."
CRB Capital was provisionally classified as a loan company on 04.05.1993
and the classification status was changed to that of Equipment Leasing
Company on 16.06.1993.
4. It is pointed out by the RBI that on 12.04.1993, based on the Shah
Committee recommendations on the role of NBFCs a circular was issued to
all the NBFCs advising them to get themselves registered with RBI if their
net owned funds were more than Rs. 50 Lakhs. It is alleged that CRB
Capital, although it had net owned funds of more than Rs. 50 Lakhs, did not
apply for registration till the year 1996. CRB Capital made an application
to RBI for registration only on 24.10.1996 and on receipt of the application
RBI decided to inspect the company before registration. Inspections were
carried out between November 13, 1996 and November 18, 1996 with
reference to CRB Capital's financial position as on 31.03.1996. However,
the inspection extended to the Mumbai office of CRB Capital and therefore
the inspection was completed in its entirety only in January 1997.
5. During the inspection, according to RBI, several illegalities and
irregularities came to light. RBI had also received complaints from the
Tourism Finance Corporation of India Limited regarding non-payment of
deposits. Consequently, a show cause notice was issued by RBI to CRB
Capital on 24.02.1997 as to why CRB Capital should not be prohibited from
accepting deposits. A reply was submitted by CRB Capital. But, according
to the RBI, the same was not found to be satisfactory. RBI also received
information that CRB Capital was trying to mobilize further deposits by
offering incentives etc. Consequently, RBI issued a prohibitory order under
Section 45K read with Section 45MB(1) and 45MB(2) of the RBI Act and
served the same in the corporate office of CRB Capital on 09.04.1997. By
virtue of the said order, RBI prohibited CRB Capital from accepting deposits
with immediate effect and CRB Capital was also precluded from accepting
deposits from any person in any form whether by way of fresh deposits or
renewal or otherwise. Furthermore, RBI directed CRB Capital not to sell,
transfer, create charge or mortgage or deal in any manner with its property
and assets without prior written permission of RBI for a period of six months
from the date of the order. Attention of CRB Capital was also drawn to the
provisions of Section 58B(5) read with Section 58C of the RBI Act with
regard to the liability of penalty in case there was any contravention of the
order passed by the RBI.
6. It is also the case of RBI that it had received information from State
Bank of India (SBI) through its letter dated 09.04.1997 regarding the alleged
large scale misuse of the 'at par' discounting facility by CRB Capital. A
complaint had been lodged by SBI with the Central Bureau of Investigation
(CBI). A civil suit for recovery of an amount of Rs. 60 crore had also been
filed. The CBI, after investigation had filed the charge-sheet in the
competent court of law at Mumbai and the case is pending trial.
7. It is further the case of RBI that CRB Capital made a representation
for the lifting of the prohibitory order. RBI, however, decided not to rescind
the order passed under Section 45MB(1) and advised CRB Capital to
propose a plan delineating the maturity profile of the existing deposits and
proposed source of funds to re-pay the same. RBI also sent a letter dated
26.04.1997 requiring CRB Capital to submit a schedule of assets which
could be used for discharging its obligations and liabilities. According to
RBI, the reply submitted by CRB Capital made no mention of its assets and
only spoke of its liability.
8. According to RBI, CRB Capital was also advised to prepare a plan
indicating the month-wise maturity pattern of public deposits, month-wise
cash flow as also sale of assets (if any) for the purpose of re-payment of
deposits by virtue of a letter dated 15.05.1997. CRB Capital did not respond
to the said letter. It is also alleged that the efforts of the RBI to contact the
Managing Director / Directors and Officers of CRB Capital were in vain.
And that, all the offices of CRB Capital remained closed since 1997. It is
further alleged that the Chairman of CRB Capital (C.R. Bansali) was not
traceable and no other official of the company was available. Two of the
Directors had informed RBI that they had resigned from the board of
directors of the company with effect from 06.03.1997. In the meanwhile,
RBI had also allegedly received a complaint from the Government of
Gujarat informing it that a number of co-operative banks in the State of
Gujarat had placed funds aggregating Rs. 50 crores with CRB Capital and
they had received a severe jolt because of the non-payment of those deposits.
That complaint was contained in a letter dated 09.05.1997.
9. It is alleged that in these circumstances, RBI was satisfied that the
continuance of CRB Capital, a Non-Banking Financial Company, was
detrimental to public interest and also detrimental to the interest of
depositors of the company. Consequently, RBI decided to apply for winding
up of CRB Capital by invoking the provisions of Section 45MC(1)(d) of the
RBI Act. Accordingly, company petition No. 191/1997 was filed before the
learned company Judge in this court.
10. On 22.05.1997 when the said company petition No. 191/1997 came up
for hearing before the learned company Judge, notice was issued to the
respondent to show cause as to why the petition be not admitted. In C.A.
No. 552/1997, which was filed along with the said company petition, the
learned company Judge noted that he was satisfied that there were sufficient
grounds for the appointment of a Provisional Liquidator and consequently
the Official Liquidator attached to the company court was appointed as a
Provisional Liquidator and he was directed to take charge of all the assets
and properties of the company along with books of accounts and other
records of the company. It was also directed that till the next date, CRB
Capital, its directors, servants and agents be restrained from disposing of,
alienating and/or parting with possession of any of the assets of the CRB
Capital.
11. It is submitted on behalf of RBI that in terms of the orders passed by
the company court, the Provisional Liquidator had sealed all the premises of
CRB Capital and had taken possession of the available assets and that the
Provisional Liquidator had so far been able to recover an amount of Rs.
17.58 crore as on 30.09.2002 which was lying deposited with the Provisional
Liquidator.
12. We may also point out that, in the meanwhile, an application had been
filed by RBI before the company court seeking permission to file a criminal
complaint against CRB Capital and its Board of Directors. The company
court granted the permission and thereafter RBI filed a criminal complaint
case No. 288/1/2000 on 02.06.2000 under Section 58E(1) read with Section
58B(5) and 58C of RBI Act. The said criminal case is pending before the
Metropolitan Magistrate, New Delhi.
13. While proceedings in the winding up petition (company petition No.
191/1997) filed by RBI, were going on, CRB Capital filed an application
being C.A. No. 1416/1998 in the said company petition seeking approval for
the scheme of re-arrangement formulated by them. By an order dated
23.02.2002, the company court directed the consideration of the scheme
propounded by CRB Capital by the creditors of the company. Pending
consideration of the scheme, the company court had also directed that no
further step including publication be taken pursuant to the admission of the
company petition No. 191/1997. The company court also directed the
scheme to be considered by the secured creditors, unsecured creditors and
shareholders of CRB Capital and, accordingly, meetings were held. A
modified scheme of compromise and an arrangement was filed by CRB
Capital for approval of the company court. On 01.07.2002 a meeting of the
secured creditors was held. It was attended by 28 secured creditors. On
02.07.2002 a meeting of unsecured creditors was held at Talkatora Stadium
and out of the 1,34,000 depositors, 14,461 attended the meeting either
personally or through proxy.
14. Thereafter, CRB Capital filed the modified scheme, approved in the
meetings, before the company court and sought sanction of the same. The
same was numbered as company petition No. 251/2002. RBI filed detailed
objections to the scheme. The scheme was also objected to by the Official
Liquidator, CBI, SEBI as also Malanpur Steel Limited and GIIC. We feel
that it would be appropriate at this juncture itself to set out the relevant
provisions of the said modified scheme. With regard to unsecured creditors
the scheme entailed as under:-
"(A) DEPOSIT & BOND HOLDERS
i) DEPOSIT/BOND HOLDERS UPTO `.
5,000/-
Payment equivalent to 100% of the deposit to
deposit holders/Bond holders who have
invested upto `. 5,000/- and to widows/retired
Govt. servants/disabled/persons above 65
years not exceeding `. 10 crores, in aggregate,
shall be made within one year from the date of
sanctioning of the scheme of
Arrangement/Compromise.
ii) DEPOSITORS & BOND HOLDERS
ABOVE `. 5,000/-
a) The Payment equivalent to 50% of the
principal amount deposited/invested shall
be made in 5 equal yearly instalments
commencing immediately upon expiry of
twelve months from the date of
sanctioning of the scheme by the Hon'ble
Delhi High Court.
b) Payment equivalent to balance 50% of
the principal amount deposited/invested
shall be discharged in the form of
allotment of shares of CRB Capital
Markets Ltd of `. 10/- each at par
immediately upon receipt of approval
from the competent authority.
Considering the fact that the depositors
of the various Co-Operative Banks are
small and needy, payment to the Co-
Operative Banks shall be made as
follows:
i) Payment equivalent to 25% of the
principal amount shall be made within
3 months form (sic) the date of
sanctioning of the scheme of
Arrangemnet/Compromise by the
Hon'ble Delhi High Court.
ii) Payment of balance 75% of the
principal amount shall be made in 16
equal quarterly instalments
commencing from the month
following the expiry of six months
from the date of sanction of the
scheme of Arrangemnt/Compromise
by the Hon'ble Delhi High Court.
iii) In view of the fact that two of the Co-
Operative Banks namely The Gozaria
Nagrik Sahkari Bank Ltd. and Boriavi
Peoples Co-Operative Bank Ltd. who
have been declared as "weak Banks"
by their Apex Body, payment shall be
made to the said Banks as follows:
a) Payment equivalent to 25% of the
principal amount shall be made
within 3 month from the date of
sanctioning of the scheme by the
Hon'ble Delhi High Court.
b) Payment of balance 75% of the
principal amount shall be made in
eight equal quarterly instalment
commencing from the month
following the expiry of six months
from the date of sanctioning of the
scheme of Arrangement /
Compromise by Hon'ble Delhi
High Court.
STATE BANK OF INDIA (Unsecured Creditor)
Since the charge over the securities held by State Bank of
India have not been registered with the Register of
Companies, State Bank of India is considered as an
unsecured creditor. All the assets whether moveable or
immovable held by the State Bank of India except asset
owned by CRB Corporation Ltd. shall be liquidated by
the Bank in private negotiations in consultation with the
propounder of the scheme for recovery of the principal
amount.
Any shortfall and/or deficiency in discharge of the dues
of the Bank against recovery from the various assets held
by SBI, the same shall be paid and/or discharged by the
company at par in terms of the payment of schedule as
applicable to other unsecured creditors. No interest,
however, shall be payable to the Bank on the principal
amount determined.
OTHER UNSECURED CREDITORS
i) Payment equivalent to 50% of the principal
amount shall be made in 5 equal yearly
instalments commencing immediately upon
expiry of 12 months from the date of Sanction
of the scheme by the Hon'ble Delhi High
Court.
ii) Payment equivalent to balance 50% of the
principal amount shall be discharged in the
form of allotment of shares of CRB Capital
Markets Ltd. at the rate of `. 10/- each at par
immediately upon receipt of approval from
the competent authority.
FURTHER RESOLVED THAT upon sanction of the
scheme of Arangement by the Hon'ble High Court as
modified in terms contained herein above, all cases
whether civil or criminal pending before any
Court/Tribunnal/Authority shall be kept in abeyance and
shall be withdrawn simultaneously upon receipt of last
instalment of the dues by the Creditors in terms of the
above schedule of payment.
FURTHER RESOLVED THAT the original scheme filed
by the propounder of the scheme shall be suitably
modified to the extent indicated above."
Importantly, for a "fair and proper" implementation of the modified scheme
of compromise or arrangement, the propounder of the scheme sought certain
concessions and reliefs for approval by the company court. The reliefs and
concessions which were sought were set out in part Chapter IV of the
modified scheme. The same were as under:-
"PART IV
RELIEF AND CONCESSIONS SOUGHT BY THE
PROPOUNDER OF THE SCHEME FOR REVIVAL OF
THE COMPANY
For a fair and proper implementation of the modified
scheme of Compromise and or Arrangements as passed
by the Secured Creditors, Unsecured Creditors and
Shareholders of the company, the Propounder of the
scheme has sought certain concessions and relief for
approval by this Hon'ble Court having regard to the fact
that the Company has been out of business for a period of
about 5 years and for the reason of the business activities
of not only the Company but all its Group Companies
came to a grinding halt on account of prohibitory order
issued by the Reserve Bank of India on 9/4/1997 and the
appointed of Official Liquidator as Provisional
Liquidator of the Company.
RELIEF AND CONCESSIONS SOUGHT
1. The orders passed by this Hon'ble Court
restraining the Company as well as other Group
Companies from disposing of their assets and
properties particularly the order passed on 4/11/97
in CA No. 1536/97 in C.P. No. 191/97 and for
freezing the Bank accounts of these Companies be
vacated.
2. The Official Liquidator be directed to hand over
the Books of Accounts, records documents, assets
& properties of the Company as well as the other
Group Companies including the Cash balance
lying with him and / or deposited in any Bank to
the Propounder of the Scheme.
3. SEBI & Stock Exchanges
(a) The Registrations and Licences, granted by
Securities and Exchange Board of India
(SEBI) for carrying out different activities by
the Company and other Group Companies,
which were suspended as a consequence to
the appointment of Provisional Liquidator by
this Hon'ble Court be restored and SEBI and
the Stock exchanges where the shares of the
Company as well its Group Companies were
listed be directed to revoke its various orders
passed u/s 11B of Securities and Exchange
Board of India Act (SEBI Act) and or any
other provisions of SEBI Act and other Laws,
Regulations, & bye-laws of SEBI and Stock
Exchanges.
The details of such Registrations and Licences given to
the Company and its Group Companies are as under:-
i) Category-I Merchant Banking Registration
granted by SEBI to the Company.
ii) Registration Certificate granted to the
Company by SEBI for setting up Mutual
Fund.
iii) Registration Certificate granted by SEBI to
CRB Shares Custodian Services Ltd to act
as Registrar and Share Transfer Agent and
as Debenture Trustee.
iv) Registration Certificate granted by SEBI to
CRB Share Broking Ltd to act as Corporate
Member of Mumbai Stock Exchange and
OTCEI.
v) Revocation of suspension orders for trading
in shares of the Company as well as its other
Group Companies in all Stock Exchange.
vi) Revocation of suspension order passed by
SEBI and other Stock Exchanges
suspending their membership rights of the
ex-Directors of the Company and to allowed
them to resume security treading business at
Stock Exchanges.
vii) Stock Exchanges to hand over the share
certificates along with Transter Deeds which
have been received by them as "bad
delivery" with the directions to resubmit
these Shares Certificates along with rectified
Transfer Deeds.
b) SEBI & Stock Exchanges be directed to give
its approval for issue of fresh shares to the
unsecured Creditors (including Deposit
holders) by way of preferential allotment as
envisaged in the scheme under its relevant
guidelines and such shares be listed at
various Exchanges.
4. The Companies which have withheld shares
lodged for transfer by the Company and its Group
Companies be directed to register the transfer of
such shares in favour of the Company and its
Group Companies as the case may be and deliver
the same to them.
RESERVE BANK OF INDIA
(i) All the Bank accounts of the Company as
well as its Group Companies and its ex-
Directors & Officers which have been
freezed be defreezed and Reserve Bank of
India be directed to give necessary
instructions to the Banks for making such
accounts operative.
(ii) Reserve Bank of India be directed to revoke
its prohibitory orders passed u/s 45K(4)
read with section 45MB(1) of RBI Act 1934.
(iii) Reserve Bank of India be directed to accept
the Application for Registration as NBFC
u/s 45(1A) of Reserve Bank of India Act,
1934 on being filed by the Company.
(iv) Reserve Bank of India be directed to restore
its suspension order against "in principal
approval" for setting up CRB Global Bank
Ltd.
(v) Reserve Bank of India be directed to restore
the Licences granted to the Company to act
as authorized dealer in foreign exchange.
5. Trust petition No.3 filed by SEBI before the
Hon'ble Mumbai High Court be transferred to this
Hon'ble Court and after such transfer the assets,
books of accounts, records etc of CRB Asset
Management Company Ltd, CRB Trustee Limited
and CRB Mutual Fund Ltd. be handed over to the
Propounder of the Scheme.
6. INCOME TAX AUTHORITIES
The Income-tax Department be directed to stay the
demands and vacate the ex-parte orders and to
allow the Company to file Appeal/s. Revision
Applications and any other proceedings b efore the
appropriate authorities and or Court and any delay
in filing such proceedings be condoned and
interest & penalties be waived.
7. CIVIL/CRIMINAL CASES
All the cases, civil as well as criminal, filed against
the Company, its ex-Directors & Officers,
particularly the following cases filed against the
Company and its Directors be vacated or stayed
sine-die. Details of such cases, inter-alia, are as
under:
a) All the Complaint cases filed u/s 138 of
Negotiable Instruments Act against the
Company and its Directors and/or its Officers.
b) Case No. 42/97 filed by CBI in Session Court
at Mumbai on the Complaint of State Bank of
India against the Directors and Officers of the
Company.
c) Case No. 1/98 filed by CBI in Session Court
at Mumbai on complaint of Bank of Baroda
against the Directors and Officers of the
Company.
d) Complaint case No. 37/97 registered by
G.B.C.B. CID Mumbai in the Court of
Metropolitan Magistrate, Esplanade Court at
the Mumbai on complaint of Depositors.
e) Complaint case No. 253/97 registered by CID
Pune on the complaint of Govind Warran
Paranjape and other depositors.
f) Complaint case No. 6/97 filed by CID,
Gandhinagar, Ahmedabad on Complaint of
Jaitaram Hathi Bhai Choudhary on behalf of
Mansa Cooperative Bank and others before
the Metropolitan Magistrate Court,
Ahmedabad.
g) Complaint Case No. 1-82/97registered by
Sangamner Sahar Police Station Sangamner
on the complaint of Dr Rajendra Kedarnath
Malpani and pending before Court at
Sangamner.
h) Complaint case No. 288/1/2000 filed by
Reserve Bank of India in the Colurt of
Metropolitan Magistrate, New Delhi against
the Company and its Directors.
i) All other cases civl or criminal filed by any
depositor or any other institution or person
against the company and/or its Directors and
pending before any Court in India.
j) All the cases filed by Provident Fund, Sales
Tax, ESI and any other authorities against the
Company and its Directors be stayed.
k) Any other proceedings filed in any Court in
India by any persom, Company and or
Institutions including Public Interest
Litigation, cases filed by GHC Ahmedabad
etc. be vacated or stayed sine-die.
8. All the cases filed by the Company in various
Courts for recovery of dues including Complaint
cases against Debtors filed u/s 138 of Negotiable
Instruments Act before the appointment of
Provisional Liquidator by the Hon'ble Court be
transferred to the jurisdiction of this Hon'ble Court
and the various Courts where such cases are
pending be directed to restore such cases before
transfer in the event any such cases have been
dismissed for any reasons including for non-
appearance by the Provisional Liquidator.
9. CBI
(i) Necessary directions be given to CBI
to release the passports of Propounder
of the Scheme and ex-Directors of the
Company so as to enable the
Company to resume dialogue with the
Joint Venture collaborators in Mutual
Fund and Security trading business
and re-establish these collaborations.
(ii) Necessary directions be given to CBI
to hand over all the records and
documents of the Company as well as
its Group companies including
records of Fixed Deposits etc.
10. All the cases filed by the Official Liquidator before
this Hon'ble Court for recovery of dues from the
debtors and other parties be decided and decrees
passed.
11. The liabilities in respect of employees of the
Company as well as its Group Companies be
limited to their dues upto 21.5.97 and the services
of the employees be treated as terminated on
payment of their terminal benefits and arrears or
dues if any upto the said date.
12. The following companies with whom the
Company had entered into bought out deals be
directed to pay the amounts due from them along
with accrued interest till the date of payment-
Rs. in crores
1. ELIN Electronics Limited 7.20
2. Garware Petrochem Ltd. 2.55
3. Stickwel Fashions Ltd. 2.94
4. RRB Aurolite Ltd. 0.62
5. Sakumbari Sugar Mills Ltd. 1.92
6. United Machinery Works Ltd. 0.35
7. North India Cement Limited 0.30
------
15.88
-------
The Hon'ble Justice Dalbir Bhandari was pleased
to appoint Official Liquidator on the Board of
Directors of the above mentioned companies.
13. State Bank of India be directed to hand over
various assets and properties in respect of which
charge has not been created in ROC.
14. The Leased premises held by the Company prior to
the Order dated 22/5/97 passed in CP No.191/97
be permitted to be released to the respective
Landlords after paying the rent due to them till
22/5/97 subject to the Landlords depositing the
security amount, if any deposited with them by the
Company at the inception of tenancy. The rent for
the period subsequent to 22/5/97 may kindly be
waived.
15. The Propounder of the Scheme / Company be
permitted to diversify the activities of the
Company in other fields such as Infotech, Media,
Biotech and any other activities and the Registrar
of the Companies be directed to register alterations
in the main object clause of the Memorandum of
Association after filing of such resolutions passed
by the Shareholders of the Company.
16. The Propounder of the scheme be permitted to
raise his share of contribution to the modified
scheme of Arrangement / Compromise by utilizing
the funds which were lying in any Bank accounts
in the account of the Propounder of the scheme, his
family members and by liquidating the shares,
securities or any other assets and necessary
directions be given to the Banks allowing
operation of the accounts to the Companies,
allowing transfer of shares, securities etc. and to
the Stock Exchanges for accepting such shares,
securities etc. and the proceeds from such sales be
permitted to use as Propounder's contribution to
the scheme.
17. All the personal guarantees executed by the
Directors of the Company to the Banks,
Institutions and other parties be discharged.
18. The Bank accounts of various companies / firms
which had dealings with the Company in the
ordinary course of business be defreezed."
Before the learned company Judge, RBI, SEBI, the Official Liquidator,
Malanpur Steel Limited and GIIC had objected to the scheme, the main
objector being the RBI. The RBI had contended that once an application
under section 45MC(1)(d) of the RBI Act had been admitted it is only in
extraordinary circumstances that an order of winding up ought not to be
passed. And, that no such circumstances have been shown to exist by CRB
Capital. It was also contended that during the pendency of a winding up
petition under section 45MC(1)(d) of the RBI Act no scheme under sections
391/392 of the Companies Act could be propounded or considered. It was
urged that CRB Capital had lost its substratum and deserved to be wound up
and that winding up would be in the interest of depositors as also in general
public interest. It was also urged by RBI that the scheme was contrary to
statutory provisions and as such approval ought not to be granted as that
would be opposed to law as also public policy. A similar set of objections
was made by the other objectors.
15. On behalf of CRB Capital it was submitted before the learned
company Judge that the secured creditors, unsecured creditors and
shareholders had accepted the modified scheme by an overwhelming 3/4ths
majority in value as well as by simple majority. It was submitted that
winding up of a company is a step which results in the civil death of the
company and would be contrary to public interest as lakhs of depositors and
shareholders all over the country would find that their funds and investments
have dissipated. It was contended that RBI, while balancing the general
public interest, has also to take into account the interest of the Bank and
financial institutions as well as secured and unsecured creditors and that
revival of a financial company ought not to be objected to merely because of
certain alleged irregularities inasmuch as the implication of closure of a
company not only has an impact on the financial institution and its
customers but also on the future of the financial services in that region. It
was also contended that section 45MC(1)(d) of RBI Act is akin to section
433(1)(f) of the Companies Act and therefore the winding up of a company
should be ordered only in the rarest of rare case as it amounts to the civil
death of a financial company and that the filing of a petition for winding up
should not be resorted to as a matter of right.
16. RBI had also urged that the resolution of creditors of a scheme of
arrangement could not annul statutory provisions nor could it take away the
statutory powers of RBI under the RBI Act and therefore the scheme ought
not to be accepted/sanctioned by the court. It was also urged that the scheme
contained multiple reliefs and concessions which had been sought, the effect
of which would be the taking away of statutory powers not only of RBI but
also of other statutory bodies. That would be contrary to law.
17. From the impugned judgment dated 24.01.2006, we find that the
learned company Judge was of the view that public interest inherent in the
scheme was evident from the fact that it seeks to benefit 1,34,000 deposit
holders and about 36 co-operative banks and that many of the deposit
holders were retired government personnel and senior citizens including
widows and several other similarly situated deposit holders who were needy
and depending on recurring income from the deposits made with CRB
Capital. According to the learned company Judge the scheme contemplated
a recovery plan for recovering arrears of dues, hire-purchase installments,
loans and advances, re-organisation of share capital of the company by
issuing shares of Rs. 10/- each at par with discharge of the dues of unsecured
creditors including deposit holders and bond holders and engagement in
non-fund based business activity The scheme also contemplated
diversification of company business in areas such as information and
technology, bio-tech and the growing market of media. The learned
company Judge also noted that the scheme involved induction of funds by
the propounders of the scheme to the extent of Rs. 10 crore. Although the
scheme as propounded contemplated payment of 100% of the deposit to the
deposit holders who had invested up to Rs. 5000/-, there was a cap put on it
to the extent of Rs. 10 crore to be paid within the year. The learned
company Judge, however, felt that the upper limit of Rs. 10 crore for such
depositors was not in public interest. Consequently, he directed that the
limit of Rs. 10 crore to the payment of deposits up to Rs. 5000/- be removed
and the scheme was modified to that extent. It was also modified by
directing that widows, disabled persons, retired government servants and
persons above 55 years of age would get the entire deposit re-paid without
any limit within one year after the sanction of the scheme. Insofar as the
other unsecured creditors were concerned such as the deposit holders and
bond holders above the value of Rs. 5000/-, they were to be paid an amount
equivalent to 50% of the principal amount in five annual installments
commencing from the date of sanctioning of the scheme and the balance
50% of the principal amount was to be discharged in the form of allotment
of shares of CRB Capital of Rs. 10/- each at par as soon as the approvals
from the competent authority (SEBI) were received.
18. Finally, the learned company Judge felt that there was inherent public
interest in the scheme and sanctioned the same as under:-
"49. I am, therefore, of the view that the following
factors indicate the public interest inherent in the sanction
of the scheme:-
(a) The payment to small depositors under the scheme
upto Rs. 5,000/- in toto within 9 months as per the
modified period of one year to 9 months by this Court.
(b) Payments in full to the weaker sections of society
such as widows, government servants, disabled and senior
citizens within one year of the sanctioning of the scheme.
(c) 50% cash payment of the principal to even the
unsecured creditors in 4 yearly instalments as per the
scheme modified by this Court and the securing of balance
by allotment of shares in their favour.
(d) The approval of the scheme of the shareholders,
creditors (secured) and unsecured, by the majority
stipulated in Section 391 of the Act.
(e) The benefit which is to accrue to 1,34,000 small
deposit holders.
(f) The benefit accruing to 36 co-operative Banks.
(g) The fact that already Rs.17 crores have been realized
and deposited in the accounts of the company in a
nationalized bank during the pendency of this petition in
this Court and realization of substantial interest on such
Fixed Deposits of Rs.17 crores.
xxxx xxxx xxxx xxxx
52. Accordingly, while approving the scheme it is
necessary to given the following directions for supervision
and modification of the scheme:-
(I) The condition with regard to the Deposit/Bond
holders upto Rs. 5,000/- is modified and the term for
repayment is thus reduced from the period of one year to a
period of 9 months. Further the words "not exceeding Rs.10
crores in aggregate" is deleted as such a limit may hurt the
small depositors. Furthermore, the scheme is modified and
widows, retired government servants, disabled persons and
senior citizens above 65 years shall be paid their entire
principal amount deposited within one year from the date of
sanctioning of the scheme.
(II) With regard to the unsecured creditors including
deposit and bond holders above Rs. 5000/-, (except the
categories of widows, retired government servants and
persons above 65 years) whose period of repayment as per
the scheme is 5 annual equal instalments commencing from
12 months from the date of sanction of the scheme is
modified and now reduced to 4 annual equal instalments
constituting 50% of the principal amount beginning from the
expiry of 12 months from the date of sanction of the scheme.
(III) With regard to the relief and concession sought in
part IV of the scheme under the heading Reserve Bank of
India i.e. (i) to (v) from the Reserve Bank of India the
petitioners have during the course of hearing given up the
reliefs / concessions sought in clauses (ii) to (v) under the
heading Reserve Bank of India and are not been pressed and
accordingly the said clauses (ii) to (v) shall stand deleted
from the Scheme. In so far as relief (i) is concerned
directions have already been given in para 37 above.
(IV) As regard para 5 of part IV of the scheme which
related to the Trust Petition filed by SEBI before the
Bombay High Court it is contended by the parties that Trust
Petition No.3 filed by SEBI before the Hon'ble Mumbai
High Court is presently pending before the Supreme Court
of India for transferring the same and accordingly the said
para 5 shall stand deleted from the scheme.
xxxx xxxx xxxx xxx
(VI) That the propounder of this scheme shall within 15
days from the date of sanction of the scheme file an affidavit
in the Court accepting the modifications made to the scheme
in this order and undertaking to be bound by the same.
(VII) The propounder shall also file the projected balance
sheet for five years from the cut-off date annexure-A and the
projected fund for statement 5 years from the cut-off date
Annexure-B in view of the modifications made in this
judgment."
The learned company Judge ordered as under:-
"a. The company petition No.251 of 2002 along with
Company application No.1416 of 1998 is allowed
subject to the terms and conditions mentioned above.
b. The scheme of compromise and arrangement as put
forth in company petition No.251 of 2002 along with
Company application No.1416 of 1998 is sanctioned
subject to the above modifications / orders so as to be
binding on the petitioner / company and its members
creditors.
c. In view of the fact that the scheme has been
sanctioned subject to the above modifications / orders
as above, the winding up petition No.
C.P.No.191/1997 filed by RBI against the company
along with all other pending application shall stand
disposed of accordingly. However, if the
administrator reports that the scheme cannot be
successfully implemented, then the winding up
petition shall revive and the company would be liable
to be wound up.
d. The petitioner shall file a certified copy of this order
with the Registrar of Companies, Delhi Punjab &
Haryana within 30 days of the date of the receipt of
the order.
e. The office is directed to draw up the order in the
prescribed form by incorporating the modifications
postulated as per this judgment."
19. Initially these appeals were heard by a Division Bench of this Court
and the same were disposed of by a judgment and/or order dated 29.02.2008.
The Division Bench set aside the impugned judgment dated 24.01.2006 and
remanded the matter to the company court for a fresh disposal in the
following manner:-
"We accordingly set aside the impugned order passed by the
Company Court and remit the matter back for a fresh
disposal in accordance with law after addressing in
particular following, among other, issues if any raised before
it.
i) Whether a scheme under Section 391-392 of the
Companies Act is maintainable in a winding up
petition filed by the RBI under Section 45 MC(1) of
the RBI Act?
ii) Whether a scheme under Sections 391-392 of the
Companies Act could set aside quasi judicial orders
passed by a statutory authority like the SEBI
constituted under the Securities and Exchange Board
of India Act, 1992?
iii) Whether criminal and income tax proceedings
pending against the company and its Directors could
be stayed by the Company Court while sanctioning a
scheme under Section 391-392 of the Companies
Act?
iv) Depending upon the answers of questions 1 to 4
above whether the scheme formulated in the instant
case is bonafide, feasible and fair?
v) Whether grounds for winding up of the company
under Section 45 MC (1) of the RBI as made out in
the winding up petition exist. If so, to what effect?"
20. Being aggrieved by the said order dated 29.02.2008 passed by the said
Division Bench in the said appeals, CRB Capital preferred Special Leave
Petitions before the Supreme Court which got converted into Civil Appeal
Nos. 2733-2736/2009 (CRB Capital Markets Limited v. Reserve Bank of
India & Ors.). Those civil appeals were disposed of by the Supreme Court
by an order dated 22.04.2009 in the following manner:-
"23. We are, accordingly, of the view that since the
Division Bench has not considered on merits the
findings of the Company Judge, it would be in the
fitness of things for the Division Bench itself to
consider all the points, including those which had
not been considered by the Company Judge, as
raised at the time of hearing of the Appeals, and
decide the same.
24. We, accordingly, allow the Appeals and set
aside the order of the Division Bench impugned
therein and direct the Division Bench of the Delhi
High Court to rehear the Appeals, out of which the
order impugned in these appeals arise, on all
questions which had been raised before the
Company Judge and the Division Bench and also as
formulated by the Division Bench, in accordance
with law within six months from the date of
communication of this Order. During the pendency
of the appeals, the order of the learned Single Judge
dated 24th January, 2008, shall remain stayed."
21. That is how the matter is once again before a Division Bench of this
court.
Q.1 Whether a scheme under Section 391-392 of the
Companies Act is maintainable in a winding up petition
filed by the Reserve Bank of India under Section 45MC(1)
of the Reserve Bank of India Act, 1934?
The first question which we have to examine is whether an application for
sanctioning a scheme under sections 391/392 of the Companies Act is
maintainable in a winding up petition filed by Reserve Bank of India under
section 45 MC(1) of the RBI Act. Mr Parag Tripathi, appearing on behalf of
the RBI submitted that CRB Capital was a defaulting NBFC and as a
consequence was liable to be wound up under Section 45MC of the RBI Act.
He further submitted that Chapter III B of the RBI Act was specially
introduced to control NBFCs and to deal with defaulting NBFCs when they
committed defaults or violations. It was also contended that by virtue of
Section 45Q, the provisions of Chapter III B would override all other laws
including the Companies Act. It was, therefore, contended that when RBI
had filed the winding up petition alleging serious defaults on the part of
CRB Capital, the company Judge ought to have considered the winding up
petition on merits and that sanctioning of a scheme without considering the
winding up petition on merits was unsustainable. It was also submitted that
the scheme propounded by CRB Capital and sanctioned by the learned
company Judge with certain modifications is contrary to the provisions of
Chapter III B of the RBI Act and therefore the same cannot be sustained in
law. It was also submitted that the learned company Judge was only
impressed by the fact that the majority of creditors (secured and unsecured)
and shareholders had passed the scheme and therefore the same ought to be
sanctioned. The learned counsel referred to the decision of the Supreme
Court in the case of Miheer H Mafatlal v. Mafatlal Industries Limited:
(1997) 1 SCC 579, wherein, according to the learned counsel, the Supreme
Court held that a scheme could not be sanctioned if it violated any law.
According to the learned counsel, the Supreme Court also held that the court
sanctioning a scheme had to consider the pros and cons of the scheme with a
view to finding out whether it was fair, just and reasonable and was not
contrary to any provisions of law and did not violate any public policy. It
was also contended that the concessions sought by CRB Capital were
contrary to the statutory provisions and could not be granted in law. It was
submitted that in the absence of such concessions the scheme was not
workable. Importantly, the learned counsel for RBI drew our attention to the
fact that the proposal to discharge part of the liability towards the depositors
by issuance of shares of the very same company in liquidation was un-
acceptable.
22. The learned counsel also sought to distinguish the decision of the
Karnataka High Court in the case of In Re: Maharashtra Apex Corporation
Limited: (2005) 124 Company Cases 637 (Karnataka) by submitting that
in that case no winding up petition had been filed by RBI under Section
45MC and the question of non-application of section 391 of the Companies
Act in a winding up petition under section 45MC of the RBI Act did not at
all arise. Therefore, the reliance placed by the company Judge on the said
decision of Karnataka High Court was misplaced. It was submitted that in
any event the Supreme Court decision in Miheer H Mafatlal (supra) made it
clear that a scheme cannot be sanctioned if it violated any law. Mr Tripathi
submitted that Section 45QA(1) provided that every deposit accepted by the
NBFC shall be re-paid in accordance with the terms and conditions of the
deposits. Thus, there was an absolute requirement of re-payment of the
entire deposits in accordance with the terms and conditions of the deposits.
It is only the Company Law Board, under section 45QA(2), which had
jurisdiction to frame a scheme of re-payment in case an NBFC made a
default in re-payment. He submitted that section 58B(4)(AAA) provided for
penalty in case of non-compliance of an order made by the Company Law
Board under Section 45QA and this clearly implies that the provisions of
section 45QA were mandatory and not directory. It was contended that a
conjoint reading of Section 45QA(1), 45QA(2) and 58B4(AAA) made it
incumbent upon an NBFC to re-pay the entire amount and these provisions
make it clear that the liability is not merely a contractual liability but a
statutory liability and therefore CRB Capital cannot be heard to submit that
they had settled with the depositors for part-payment.
23. It was also submitted that any scheme under Section 391 of the
Companies Act has to be in compliance with the provisions of Chapter III B
which includes section 45QA of the RBI Act and a petition for winding up
under Section 45MC(1)(d) of the RBI Act cannot be defeated by allowing a
scheme under Section 391 of the Companies Act which is in violation of the
statutory provision contained in Section 45QA of the RBI Act.
24. Mr Sudhanshu Batra appearing on behalf of CRB Capital submitted
that there is no prohibition on considering a scheme under Sections 391/392
of the companies Act during the pendency of a winding up petition filed by
RBI under Section 45MC of the RBI Act. In fact, according to him, Section
45MC(4) makes all the provisions of the Companies Act, 1956 "relating to
winding up of a company" applicable to a winding-up proceeding initiated
on the application made by RBI under Section 45MC of the RBI Act. He
then submitted that Part VII of the Companies Act dealt with winding up.
Chapter I thereof contained preliminary provisions dealing with modes of
winding up and contributories. Chapter II of Part VII dealt with the cases of
winding up by the Court/Tribunal. Section 433 which stipulated the
circumstances in which a company could be wound up fell within this
chapter. And, so did Section 446, which provided for stay of suit on the
passing of a winding up order. Section 446(2)(c), according to Mr Batra,
empowered the Court/Tribunal, notwithstanding anything contained in any
other law for the time being in force, to have jurisdiction to entertain or
dispose of any application made under Section 391 by or in respect of the
company. Therefore, according to Mr Batra, a scheme under Section 391 of
the Companies Act can be entertained even in the case of a winding up
proceeding under section 45MC of the RBI Act. He referred to the decision
of the Supreme Court in the case of M/s Doypack Systems Pvt. Ltd. v.
Union of India: (1988) 2 SCC 299, in order to explain the meaning of the
expression "in relation to". According to him, the Supreme Court held that
the said expression was one of expansion and not of contraction. He
submitted that even in T.N. Kalyana Mandapam Assocation v. Union of
India: (2004) 5 SCC 632, the Supreme Court had recognized that the
expression "in relation to" ought to be given an expansive or wide meaning
and should not be construed narrowly. Consequently, Mr Batra, submitted
that a scheme under Sections 391/392 could very well be considered by the
company court even in a case of winding up under Section 45MC of the RBI
Act inasmuch as Section 45MC(4) of the RBI Act itself makes it clear that
all the provisions of the Companies Act "relating to" winding up of a
company shall apply to a winding up proceeding initiated on the application
made by RBI under Section 45MC of the RBI Act. With regard to the
alternative arguments raised by Mr Parag Tripathi that even if it is assumed
that a scheme under Section 391 can be maintained in the backdrop of a
winding petition under Section 45MC of the RBI Act, such a scheme would
not be maintainable if it was contrary to the provisions of Chapter III B of
the RBI Act, the learned counsel for CRB Capital submitted that the scheme
sanctioned by the learned company Judge was not contrary to the provisions
of Chapter III B of the RBI Act.
25. It was also contended on behalf of CRB Capital that disbursements
have been made to the depositors and other investors under the scheme and
in terms of an order dated 15.12.2010 passed by this court in these appeals,
as a result of which, unsecured creditors have been given priority over the
dues of the secured creditors as provided under section 529A and 530 of the
Companies Act, 1956. It was, therefore, contended that the clock cannot be
put back when a large number of unsecured creditors have already been paid.
26. Reliance was placed by the learned counsel for CRB Capital on a
decision of a learned single Judge of the Karnataka High Court in the case of
Maharashtra Apex Corporation Limited (supra). On the basis of the said
decision it was contended that a scheme under Section 391 of the Companies
Act could be sanctioned by the company court even if it were contrary to the
statutory provisions.
27. In essence, insofar as the first question is concerned, the learned
counsel for the CRB Capital submitted that a scheme under Section 391/392
of the Companies Act, 1956 was maintainable even in a winding up petition
filed by RBI under Section 45MC(1) of the RBI Act. It was also submitted
that a scheme could be sanctioned even if it were contrary to the provisions
of the RBI Act.
28. The learned counsel appearing on behalf of SEBI, adopted the
arguments of Mr Parag Tripathi. He submitted that a scheme could not be
contrary to statutory provisions and, in any event, could not contain any
terms or conditions which trenched upon the power of SEBI under the
Securities & Exchange Board of India Act, 1992 (hereinafter referred to as
the SEBI Act). The other submissions of the learned counsel for SEBI were
essentially centred on the next question and we shall refer to them when we
deal with that question.
29. The learned counsel appearing on behalf of the Official Liquidator
submitted that a scheme under Section 391 of the Companies Act could be
filed at any stage. He submitted that sanction for a scheme under Section
391 could be applied for even if there was no winding up petition against the
company. It can be filed during the pendency of a winding up petition as
well as after winding up orders have been made by the company court. It
was contended that this is apparent from Section 391(1) of the Companies
Act which clearly mentions that the application could be made by the
company or any creditor or member of the company or in the case of a
company which is being wound up, by the liquidator. Thus, it was
submitted, that there is no bar under the Companies Act that an application
for sanction of a scheme under Section 391 of the Companies Act cannot be
filed if a winding up petition is pending under the Companies Act, 1956. It
was submitted that such an application would be maintainable before a
company is dissolved under Section 481 of the Companies Act, 1956. The
learned counsel for the Official Liquidator, further submitted that there is no
provision under the RBI Act which prohibited the filing of any application
seeking sanction of a scheme under Section 391 of the Companies Act, 1956,
even where an order has been passed by the RBI under Section 45 MB or
where a winding up petition has been filed by the RBI under Section 45MC
of the RBI Act. It was also contended that where a winding up order is made
against a company under Section 433 of the Companies Act, 1956 or on a
petition of RBI under Section 45 MC of RBI Act, an application for sanction
of a scheme can still be filed till such time the company in question is
directed to be dissolved under Section 481 of the Companies Act.
Consequently, according to the learned counsel, an application for
sanctioning of a scheme under Section 391 of the Companies Act, 1956 is
maintainable even when RBI has filed a winding up petition under Section
45MC of the RBI Act read with Section 433 of the Companies Act, 1956.
However, the learned counsel submitted that no scheme under Section 391 of
the Companies Act, 1956 can be allowed contrary to the statutory provisions
including Section 45QA of the RBI Act, as otherwise, such a scheme would
be against the law of the land and that would be against public policy. It was
contended that a scheme under Section 391 of the Companies Act, 1956
could be approved by the company court only when an NBFC complies with
the provisions of Section 45QA of the RBI Act and re-pays the entire
amount due to the depositors as per terms of the deposits. It was also
contended that in case the NBFC in question does not comply with the
requirement of section 45QA of the RBI Act such a company would be
liable to be wound up and dissolved.
30. The learned counsel for the Official Liquidator then sought to draw a
distinction between a secured and unsecured creditor. It was submitted that
depositors are not secured creditors. It was contended that under the
provisions of Section 529 of the Companies Act, after the passing of a
winding-up order, the security of every secured creditor is deemed to be
subject to a pari passu charge in favour of the workmen to the extent of the
workmen's portion. Furthermore, under Section 421 of the Companies Act,
1956, notwithstanding anything contained in any other provision of the said
Act or any other law for the time being in the winding up of a company, dues
of workmen and debts due to secured creditors are to be paid in priority to all
other debts. Section 530 of the Companies Act also speaks of payment of
dues of preferential creditors which includes statutory dues like taxes etc. It
was, therefore, submitted that a depositor cannot be treated as a secured
creditor under the Companies Act, 1956 and particularly so after the passing
of a winding-up order. It was, therefore, submitted that the provisions of
Section 45Q and 45 MC of the RBI Act should be read with the provisions
of Sections 430, 529, 529A of the Companies Act, 1956.
Section 45 MC of the RBI Act reads as under:-
"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."
It is apparent that the RBI has been given the power to file an application for
winding-up of a Non-Banking Financial Company under the Companies Act,
1956 on being satisfied that any one or more of the four eventualities
specified in Section 45 MC of the RBI Act exist(s). In these appeals we are
concerned with Section 45MC(1)(d). Thus, if RBI is satisfied that
continuance of an NBFC is detrimental to the public interest or to the interest
of the depositors of the company, it may file an application for winding up of
such a NBFC under the Companies Act, 1956. Sub-section (4) of 45MC
makes it clear that all the provisions of the Companies Act, 1956 relating to
winding up of a company shall apply to a winding-up proceeding initiated on
the application, made by RBI under Section 45MC of the RBI Act. At the
same time we must also notice Section 45Q of the RBI which reads as
under:-
"The provisions of this Chapter shall have effect
notwithstanding anything inconsistent therewith contained in
any other law for the time being in force or any instrument
having effect by virtue of any such law."
This provision makes it abundantly clear that the provisions of Chapter III-B
shall take effect notwithstanding anything inconsistent therewith contained
in any other law for the time being in force or any instrument having effect
by virtue of any such law. The argument of the learned counsel for the RBI
was that because of Section 45Q, the provisions of Chapter III-B of the RBI
Act had precedence over the provisions of the Companies Act and therefore
during the pendency of a winding-up petition under Section 45MC no
application for sanctioning of a scheme under Section 391/392 of the
Companies Act, could be entertained by the company court. We are unable
to read-in such a prohibition or restraint in the powers of the company court
under Sections 391/392 of the Companies Act, 1956. All that Section 45Q
says is that the provisions of Chapter III-B of the RBI Act shall have effect
notwithstanding anything "inconsistent therewith" contained in any other
law for the time being in force. There is nothing inconsistent in the
provision of Section 391 of the Companies Act with the provisions of
Chapter III-B of the RBI Act and therefore it cannot be said that in a
winding-up petition under Section 45MC of the RBI Act an application
under Section 391 of the Companies Act, 1956 for sanctioning a scheme
cannot be made to and entertained by the company court. It is another
matter that while considering the scheme the company court has to ensure
that no statutory provisions including the provisions of Chapter III-B of the
RBI Act are contravened. The reliance placed by the learned company
Judge and the learned counsel for CRB Capital on a single Bench decision of
the Karnataka High court in the case of Maharashtra Apex Corporation
Limited (supra) is entirely misplaced. We may point out that Maharashtra
Apex Corporation Limited (supra) is, first of all, not binding on us.
Secondly, the said decision as would be clear shortly, is contrary to the
Supreme Court decision in the case of Miheer H. Mafatlal (supra).
31. In Maharashtra Apex Corporation Limited (supra) a learned single
Judge of the Karnataka High Court was, inter alia, considering an argument
that if the scheme entailed violation of statutory provisions contained in the
RBI Act, it could not be sanctioned under Section 391 of the Companies Act.
Repelling this contention, the learned single Judge in Maharashtra Apex
Corporation Limited (supra) held as under:-
"Therefore, in the aforesaid provisions there is no specific
provision which prohibits the court from according sanction if
the terms of the scheme is contrary to any of the statutory
provisions contained in the Companies Act or Reserve Bank of
India Act or any other law which is applicable to the company.
In the absence of a specific provision if the terms of the scheme
runs counter to the statutory provisions or would have the effect
of violating those statutory provisions can the court accord
sanction?"
xxxx xxxx xxxx xxxx
"50. From the aforesaid provisions and the Judgments relied
on, it is clear that the powers of the court under sections 391 to
394 of the Companies Act is unhindered by any of those
provisions. The only two circumstances under which the
company court is prevented from according sanction is
contained in proviso to sections 391 and 394 where the official
liquidator or the Registrar of Companies files a report stating
that the affairs of the company is conducted in a manner
prejudicial to the members of the company and the company.
Insofar as the power of the court to accord sanction, proviso to
section 392 is concerned, once the conditions are fulfilled, there
is no impediment for the court to accord sanction. Once these
statutory requirements are complied with, though the provisions
of the scheme contravene the legislative mandate, it is
permissible to make provisions in the scheme contrary to the
other statutory provisions. The order of the company court,
according sanction, will have the affect of overriding those
other statutory provisions."
It was held by the learned single Judge of the Karnataka High Court that it
was permissible to make provisions in the scheme contrary to statutory
provisions other than those contained in Sections 391/392 of the Companies
Act. Thus, according to the said decision, a scheme could contain provisions
which were violative of, inter alia, the RBI Act, the SEBI Act, etc and such a
scheme could still be validly sanctioned by the company court. This view is
in direct conflict with what has been stated by the Supreme Court Miheer H
Mafatlal (supra). In that case the Supreme Court observed as under:-
"In view of the aforesaid settled legal position, therefore, the
scope and ambit of the jurisdiction of the Company Court has
clearly got earmarked. The following broad contours of such
jurisdiction have emerged:
1. The sanctioning court has to see to it that all the requisite
statutory procedure for supporting such a scheme has
been complied with and that the requisite meetings as
contemplated by Section 391(1)(a) have been held.
2. That the scheme put up for sanction of the Court is
backed up by the requisite majority vote as required by
Section 391 sub-section (2).
3. That the meetings concerned of the creditors or members
or any class of them had the relevant material to enable
the voters to arrive at an informed decision for approving
the scheme in question. That the majority decision of the
concerned class of voters is just and fair to the class as a
whole so as to legitimately bind even the dissenting
members of that class.
4. That all necessary material indicated by Section 393(1)(a)
is placed before the voters at the meetings concerned as
contemplated by Section 391 sub-section (1).
5. That all the requisite material contemplated by the
proviso of sub-section (2) of Section 391 of the Act is
placed before the Court by the applicant concerned
seeking sanction for such a scheme and the Court gets
satisfied about the same.
6. That the proposed scheme of compromise and
arrangement is not found to be violative of any
provision of law and is not contrary to public policy.
For ascertaining the real purpose underlying the scheme
with a view to be satisfied on this aspect, the Court, if
necessary, can pierce the veil of apparent corporate
purpose underlying the scheme and can judiciously X-ray
the same.
7. That the Company Court has also to satisfy itself that
members or class of members or creditors or class of
creditors, as the case may be, were acting bona fide and
in good faith and were not coercing the minority in order
to promote any interest adverse to that of the latter
comprising the same class whom they purported to
represent.
8. That the scheme as a whole is also found to be just, fair
and reasonable from the point of view of prudent men of
business taking a commercial decision beneficial to the
class represented by them for whom the scheme is meant.
9. Once the aforesaid broad parameters about the
requirements of a scheme for getting sanction of the
Court are found to have been met, the Court will have no
further jurisdiction to sit in appeal over the commercial
wisdom of the majority of the class of persons who with
their open eyes have given their approval to the scheme
even if in the view of the Court there would be a better
scheme for the company and its members or creditors for
whom the scheme is framed. The Court cannot refuse to
sanction such a scheme on that ground as it would
otherwise amount to the Court exercising appellate
jurisdiction over the scheme rather than its supervisory
jurisdiction.
The aforesaid parameters of the scope and ambit of the
jurisdiction of the Company Court which is called upon to
sanction a scheme of compromise and arrangement are not
exhaustive but only broadly illustrative of the contours of the
Court's jurisdiction."
(underlining added)
It is clear that the Supreme Court had categorically held that the proposed
scheme of compromise/ arrangement should not be found to be violative of
any provision of law nor should it be contrary to public policy. Therefore,
the reliance placed by the learned company Judge as also by the learned
counsel for CRB Capital on the decision in the case of Maharashtra Apex
Corporation Limited (supra) is clearly misplaced. The law declared by the
Supreme Court would obviously hold the field and that is that the proposed
scheme of compromise/arrangement should not be violative of any provision
of law nor should it be contrary to public policy.
32. This makes it clear that although an application for sanction of a
scheme could be made under Section 391 of the Companies Act, 1956 even
during the pendency of a winding up petition filed by the RBI under Section
45MC of the RBI Act, the terms of the scheme cannot violate or contravene
any of the provisions of law including the provisions of Chapter III-B of the
RBI Act, and, if the scheme contains any term or condition which is in
derogation of any statutory provision, the same cannot be sanctioned.
Furthermore, it is a part of public policy itself that statutory provisions are to
be followed and are not to be disregarded or contravened. Therefore, a
scheme which ignores or side-steps statutory provisions would clearly be
opposed to public policy.
33. Therefore, the answer to the first question is that while a scheme under
Sections 391/392 of the Companies Act could be considered by the company
court even during the pendency of the winding up petition filed by RBI
under Section 45MMC of the RBI Act, such a scheme cannot be sanctioned
if it is in violation of any of the statutory provisions including the provisions
of Chapter III-B of RBI Act.
Q.2 Whether a scheme under Sections 391-392 of the
Companies Act could set aside quasi judicial orders passed
by a statutory authority like SEBI constituted under the
Securities and Exchange Board of India Act, 1992?
Q.3 Whether the criminal and income tax proceedings
pending against the company and its directors could be
stayed by the company court while sanctioning a scheme
under Sections 391-392 of the Companies Act, 1956?
34. These questions have overlapping considerations and, therefore, are
being dealt with together. It was contended by Mr Parag Tripathi, on behalf
of the RBI, that the scheme could not be sanctioned as the concessions
sought were beyond the scope of Section 391 of the Companies Act. First of
all, the scheme envisaged a direction to the Income Tax Department to stay
its demands and vacate ex-parte orders. The scheme also envisaged that the
company be permitted to file appropriate petitions before the appropriate
Court and get any delay in filing the same condoned. It was contended that
income tax proceedings could not be the subject matter of a scheme under
Section 391 of the Companies Act. Reliance was placed on the Supreme
Court decision in the case of S.V. Kandeakar v. V.M. Deshpande: (1972) 1
SCC 438. Insofar as the criminal cases were concerned, it was contended
that the scheme envisaged that all civil and criminal cases be "vacated or
stayed sine die". It was contended that the learned company Judge erred in
law in sanctioning this part of the scheme. It was submitted that a Division
Bench of this court in D.K. Kapur v. R.B.I.: 2001 (105) Company Cases
643 (Delhi), had clearly held that the expression "suit or other legal
proceedings" used in Section 446(1) of the Companies Act and the
expression "suit or proceeding" used in Section 446(2) of the Companies
Act, 1956 did not include criminal proceedings and therefore the company
Judge could not have sanctioned the scheme as it required the 'vacation or
stay sine die' of the criminal cases against CRB Capital. This was clearly
beyond the jurisdiction of the company court under Section 391/392 of the
Companies Act, 1956. It was further contended that the acts committed by
CRB Capital or its directors were allegedly in violation of the law and
guidelines laid down in various Acts including the RBI Act, SEBI Act and
Income Tax Act. It was, therefore, submitted that by moving an application
for sanction of a scheme of re-payment/compromise under Section 391 of
the Companies Act 1956, CRB Capital could not, in law, ask for the
concessions / reliefs or vacation / stay of the proceedings for such violation
allegedly committed. The scheme could not take away the right of the
prosecuting agency of going after the persons who were in clear
contravention of the statutory provisions. It was contended that the intention
/ object behind Section 391 of the Companies Act is to provide a mechanism
for re-structuring or for a financial re-arrangement but it could not be used as
an instrument for getting away from the penal consequence of violation of a
law. As such it was contended that a scheme under Section 391/392 of the
Companies Act could not set aside or quash quasi-judicial orders passed by
statutory authorities like SEBI, Income Tax Department or the RBI in
exercise of the powers conferred on them by the relevant statute. It was also
contended that criminal and income tax proceedings pending against CRB
Capital and/ or its directors could not be stayed by the company court while
sanctioning a scheme under Sections 391/392 of the Companies Act, 1956.
35. Insofar as SEBI was concerned, the learned counsel appearing on its
behalf submitted that SEBI has been entrusted by the SEBI Act with the duty
of regulating the entire security market. The SEBI Act is a special Act
whereas the Companies Act is a general Act. Moreover, the SEBI Act is a
later Act and the Companies Act is a prior Act. It was, therefore, submitted
that, being a special Act, the SEBI Act would override the provisions of the
Companies Act, which is a general Act, to the extent there is inconsistency
between the provisions of two Acts. It was submitted that the reliefs and
concessions sought by CRB Capital under the scheme required the
revocation of various suspensions and cancellations granted against CRB
Capital and also the revocation and setting aside of various orders passed by
SEBI which cannot be allowed under the provisions of Section 391 of the
Companies Act inasmuch as the SEBI Act is a complete code and a complete
procedure is prescribed thereunder for challenging and assailing the orders
passed by SEBI under the said Act. A reference was made to Section 15-T
and Section 20 of the SEBI Act which read as under:-
"15-T. Appeal to the Securities Appellate Tribunal.--
(1) Save as provided in sub-section (2), any person
aggrieved--
(a) by an order of the Board made, on and after
the commencement of the Securities Laws
(Second Amendment) Act, 1999, under this
Act, or the rules or regulations made
thereunder; or
(b) by an order made by an adjudicating officer
under this Act,
may prefer an appeal to a Securities
Appellate Tribunal having jurisdiction in the
matter.
(2) No appeal shall lie to the Securities Appellate
Tribunal from an order made--
(a) by the Board on and after the
commencement of the Securities Laws
(Second Amendment) Act, 1999;
(b) by an adjudicating officer, with the consent
of the parties.
(3) Every appeal under sub-section (1) shall be filed
within a period of forty-five days from the date on
which a copy of the order made by 3 [the Board or
the Adjudicating Officer, as the case may be,] is
received by him and it shall be in such form and be
accompanied by such fee as may be prescribed:
Provided that the Securities Appellate Tribunal may
entertain an appeal after the expiry of the said period of
forty-five days if it is satisfied that there was sufficient cause
for not filing it within that period.
(4) On receipt of an appeal under sub-section (1), the
Securities Appellate Tribunal may, after giving the parties to
the appeal an opportunity of being heard, pass such orders
thereon as it thinks fit, confirming, modifying or setting
aside the order appealed against.
(5) The Securities Appellate Tribunal shall send a
copy of every order made by it to4 [the Board,] the parties to
the appeal and to the Adjudicating Officer concerned.
(6) The appeal filed before the Securities Appellate
Tribunal under sub-section (1) shall be dealt with by it as
expeditiously as possible and endeavour shall be made by it
to dispose of the appeal finally within six months from the
date of receipt of the appeal.
xxxx xxxx xxxx xxxx xxxx
20. Appeals.--(1) Any person aggrieved by an order
of the Board made, before the commencement of the
Securities Laws (Second Amendment) Act, 1999, under this
Act, or the rules or regulations made thereunder, may prefer
an appeal to the Central Government within such time as
may be prescribed.
(2) No appeal shall be admitted if it is preferred after
the expiry of the period prescribed therefor:
Provided that an appeal may be admitted after the expiry
of the period prescribed therefor if the appellant satisfies the
Central Government that he had sufficient cause for not
preferring the appeal within the prescribed period.
(3) Every appeal made under this section shall be
made in such form and shall be accompanied by a copy of
the order appealed against and by such fees as may be
prescribed.
(4) The procedure for disposing of an appeal shall be
such as may be prescribed:
Provided that before disposing of an appeal, the appellant
shall be given a reasonable opportunity of being heard."
36. It was contended that several reliefs and concessions were sought
under the scheme and one set of such reliefs and concessions entailed
directions being given to SEBI to revoke its various orders passed under
Section 11B of the SEBI Act. SEBI had passed orders, inter alia, suspending
the trading in shares of CRB Capital as well as its other group of companies
in all Stock Exchanges. A suspension order had also been passed by SEBI
and other Stock Exchanges suspending the membership rights of the Ex-
Directors of CRB Capital. It was, therefore, contended that the reliefs and
concessions sought by CRB Capital against SEBI were totally inconsistent
with the provisions of Section 15T and Section 20 of SEBI Act and thus the
said provisions would override the scheme propounded by CRB Capital to
the extent it sought the setting aside of the orders suspending and cancelling
various registrations etc. granted to CRB Capital. The learned counsel for
SEBI placed reliance on the Supreme Court decision in the case of Tata
Motors v. Pharmaceutical Products of India Limited & Anr: (2008) 7
SCC 619, for the proposition that the SEBI Act being a complete code in
itself, could not be interfered with under a scheme by the company court. Of
course, the case in Tata Motors (supra) was under the Sick Industrial
Companies (Special Provisions) Act, 1985, hereinafter referred to as the
SICA Act. However, the principles enunciated therein would, according to
the learned counsel, be applicable even insofar as the provisions under the
SEBI Act are concerned.
37. The learned counsel appearing on behalf of CRB Capital submitted
that the concessions granted in the sanctioned scheme were within the scope
of Section 391 of the Companies Act, 1956. Insofar as the concessions with
regard to the Income Tax liability were concerned it was submitted that an
ex-parte order passed by Income Tax Department had to be vacated so as to
bring CRB Capital to a position as it existed prior to 22.05.1997 i.e., the date
of passing of the order whereby the Provisional Liquidator had been
appointed in respect of CRB Capital. It was submitted that the ex-parte
orders which had been passed were subsequent to 22.05.1997 and CRB
Capital, which ought to have been represented by the Official Liquidator,
was not so represented. In this backdrop, it was submitted that the company
court was not wrong in allowing the concessions. It was also contended that
the decision of the Supreme Court in S.V. Kandeakar (supra) was
inapplicable to the facts of the present case. Insofar as the stay of civil and
criminal cases were concerned, it was contended that this was in exercise of
the power under Section 391(6) of the Companies Act, 1956. Furthermore,
it was contended that most of the criminal cases had been stayed on account
of the consent letters obtained from the complainants. Reliance was placed
once again on, inter alia, Maharashtra Apex Corporation Limited (supra).
It was contended that the company court had power to stay the criminal
proceedings if the complainants themselves had consented for the same.
Consequently, it was submitted that it was within the powers of the company
court under Section 391/392 of the Companies Act to set aside even quasi-
judicial orders passed by statutory authorities like SEBI, RBI and the Income
Tax Department. It was also contended that the criminal and income tax
proceedings could be stayed by the company court while sanctioning the
scheme under Sections 391/392 of the Companies Act, 1956.
Section 391 of the Companies Act reads as under:-
"391. Power to compromise or make arrangements with
creditors and members.--(1) Where a compromise or
arrangement is proposed--
(a) between a company and its creditors or any class of
them; or
(b) between a company and its members or any class
of them;
the Tribunal may, on the application of the company or of
any creditor or member of the company, or, in the case of
a company which is being wound up, of the liquidator,
order a meeting of the creditors or class of creditors, or of
the members or class of members, as the case may be, to
be called, held and conducted in such manner as the
Tribunal directs.
(2) If a majority in number representing three-fourths in
value of the creditors, or class of creditors, or members, or class
of members, as the case may be, present and voting either in
person or, where proxies are allowed under the rules made
under Section 643, by proxy, at the meeting, agree to any
compromise or arrangement, the compromise or arrangement
shall, if sanctioned by the Tribunal, be binding on all the
creditors, all the creditors of the class, all the members, or all
the members of the class, as the case may be, and also on the
company, or, in the case of a company which is being wound
up, on the liquidator and contributories of the company:
Provided that no order sanctioning any compromise or
arrangement shall be made by the Tribunal unless the Tribunal
is satisfied that the company or any other person by whom an
application has been made under sub-section (1) has disclosed
to the Tribunal, by affidavit or otherwise, all material facts
relating to the company, such as the latest financial position of
the company, the latest auditor's report on the accounts of the
company, the pendency of any investigation proceedings in
relation to the company under Sections 235 to 251, and the like.
(3) An order made by the Tribunal under sub-section (2)
shall have no effect until a certified copy of the order has been
filed with the Registrar.
(4) A copy of every such order shall be annexed to every
copy of the memorandum of the company issued after the
certified copy of the order has been filed as aforesaid, or in the
case of a company not having a memorandum, to every copy so
issued of the instrument constituting or defining the constitution
of the company.
(5) If default is made in complying with sub-section (4), the
company, and every officer of the company who is in default,
shall be punishable with fine which may extend to one hundred
rupees for each copy in respect of which default is made.
(6) The Tribunal may, at any time after an application has
been made to it under this section, stay the commencement or
continuation of any suit or proceeding against the company on
such terms as the Tribunal thinks fit, until the application is
finally disposed of."
Section 446 of the Companies Act reads as under:-
"446. Suits stayed on winding up order.--When a winding up
order has been made or the Official Liquidator has been
appointed as provisional liquidator, no suit or other legal
proceeding shall be commenced, or if pending at the date of the
winding up order, shall be proceeded with, against the
company, except by leave of the Tribunal and subject to such
terms as the Tribunal may impose.
(2) The Tribunal shall, notwithstanding anything contained
in any other law for the time being in force, have jurisdiction to
entertain, or dispose of--
(a) any suit or proceeding by or against the company;
(b) any claim made by or against the company
(including claims by or against any of its branches in
India);
(c) any application made under Section 391 by or in
respect of the company;
(d) any question of priorities or any other question
whatsoever, whether of law or fact, which may relate to
or rise in course of the winding up of the company,
whether such suit or proceeding has been instituted or is
instituted, or such claim or question has arisen or arises
or such application has been made or is made before or
after the order for the winding up of the company, or
before or after the commencement of the Companies
(Amendment) Act, 1960.
(3) xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx
(4) Nothing in sub-section (1) or sub-section (3) shall apply
to any proceeding pending in appeal before the Supreme Court
or a High Court."
38. It is clear that under Section 391(1), the company court could, at any
time after an application is made to it under Section 391, stay the
commencement or continuation of any "suit or proceeding" against the
company on such terms as it thinks fit until the application is finally
disposed of. In this provision, two things are to be noted. First of all, the
expression used is "suit or proceeding" and secondly, that the stay is only
until the application is finally disposed of. Therefore, whatever the stay that
may be granted under this provision, the same would apply only till the
application under Section 391 is finally disposed of. Such an application
gets finally disposed of when it is either rejected or when the scheme is
sanctioned. While sanctioning the scheme, there is no power to stay
proceedings any further, that is, after the application is disposed of. Insofar
as Section 446 is concerned, that falls under the heading consequences of
winding-up orders and relates to a situation where a winding-up order has
already been made. It also relates to a situation where the Official
Liquidator has been appointed as a Provisional Liquidator. It may be
remembered that in this case, the Official Liquidator had been appointed as a
Provisional Liquidator. Here again, the expression used in Section 446(1) is
"no suit or other legal proceeding". A similar expression ('suit or
proceeding') is used in Section 446(2). Therefore, the two kinds of
expressions used in 391(6) and 446 are "suit or other legal proceedings" and
"suit or proceeding".
39. In D.K. Kapur (supra) a Division Bench of this court while construing
these expressions in the context of Section 391(6) and 446 of the Companies
Act, 1956 clearly held :-
"The expression "other legal proceedings" must be read in
ejusdem generis with the expression "suit" in section 446 of the
Act. If so read it can only refer to any civil proceedings and
criminal proceedings have to be excluded. Therefore, no
permission was required to be taken from Company Court for
filing criminal complaint either against the company or against
its directors."
xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx
"As we have held that the expression "suit" or "other legal
proceedings" in section 446(1) and expression "suit or
proceedings" under section 446(2) of the Companies Act, 1956
do not include a "criminal proceedings". Therefore, we need not
address ourselves to the other question whether opportunity of
being heard under rule 117 of the Company Court Rules 1959
ought to have been given to the appellant or not."
Earlier, the Supreme Court in S.V. Kandeakar (supra) had examined the
above expressions and had observed as under:-
"17. Turning now to the Income Tax Act it is noteworthy that
Section 148 occurs in Chapter XIV which beginning with
Section 139 prescribes the procedure for assessment and
Section 147 provides for assessment or reassessment of income
escaping assessment. This section empowers the Income Tax
Officer concerned subject to the provisions of Sections 148 to
153 to assess or re-assess escaped income. While holding these
assessment proceedings the Income Tax Officer does not, in our
view, perform the functions of a Court as contemplated by
Section 446(2) of the Act. Looking at the legislatative history
and the scheme of the Indian Companies Act, particularly the
language of Section 446, read as a whole, it appears to us that
the expression "other legal proceeding" in sub-section (1) and
the expression "legal proceeding" in sub-section (2) convey the
same sense and the proceedings in both the sub-sections must
be such as can appropriately be dealt with by the winding up
court. The Income Tax Act is, in our opinion, a complete code
and it is particularly so with respect to the assessment and re-
assessment of income tax with which alone we are concerned in
the present case. The fact that after the amount of tax payable
by an assessee has been determined or quantified its realisation
from a company in liquidation is governed by the Act because
the income tax payable also being a debt has to rank pari passu
with other debts due from the company does not mean that the
assessment proceedings for computing the amount of tax must
be held to be such other legal proceedings as can only be started
or continued with the leave of the liquidation court under
Section 446 of the Act. The liquidation court, in our opinion,
cannot perform the functions of Income Tax Officers while
assessing the amount of tax payable by the assessees even if the
assessee be the company which is being wound up by the Court.
The orders made by the Income Tax Officer in the course of
assessment or re-assessment proceedings are subject to appeal
to the higher hierarchy under the Income Tax Act. There are
also provisions for reference to the High Court and for appeals
from the decisions of the High Court to the Supreme Court and
then there are provisions for revision by the Commissioner of
Income Tax. It would lead to anomalous consequences if the
winding up court were to be held empowered to transfer the
assessment proceedings to itself and assess the company to
income tax. The argument on behalf of the appellant by Shri
Desai is that the winding up court is empowered in its discretion
to decline to transfer the assessment proceedings in a given case
but the power on the plain language of Section 446 of the Act
must be held to vest in that court to be exercised only if
considered expedient. We are not impressed by this argument.
The language of Section 446 must be so construed as to
eliminate such startling consequences as investing the winding
up court with the powers of an Income Tax Officer conferred on
him by the Income Tax Act, because in our view the legislature
could not have intended such a result.
18. The argument that the proceedings for assessment or re-
assessment of a company which is being wound up can only be
started or continued with the leave of the liquidation court is
also, on the scheme both of the Act and of the Income Tax Act,
unacceptable. We have not been shown any principle on which
the liquidation court should be vested with the power to stop
assessment proceedings for determining the amount of tax
payable by the company which is being wound up. The
liquidation court would have full power to scrutinise the claim
of the revenue after income tax has been determined and its
payment demanded from the liquidator. It would be open to the
liquidation court then to decide how far under the law the
amount of income tax determined by the Department should be
accepted as a lawful liability on the funds of the company in
liquidation. At that stage the winding up court can fully
safeguard the interests of the company and its creditors under
the Act. Incidentally, it may be pointed out that at the Bar no
English decision was brought to our notice under which the
assessment proceedings were held to be controlled by the
winding up court. On the view that we have taken, the decisions
in the case of Seth Spinning Mills Ltd., (In Liquidation) and
the Mysore Spun Silk Mills Ltd., (In Liquidation) do not seem
to lay down the correct rule of law that the Income Tax Officers
must obtain leave of the winding up court for commencing or
continuing assessment or re-assessment proceedings.
(underlining added)
In a more recent decision of a Division Bench of this court in Krishna
Texport Industries Ltd. v. DCM Limited: [2008] 114 Company Cases 113
(Delhi), the Division Bench observed as under:-
"33. It can hardly be said that the object of Section 391(6) of the
said Act is to prevent action against the officers of the company
who may be involved in cheating, criminal breach of trust, mis-
appropriation, forgery and for that matter dishonour of cheque.
Again the provision cannot be used to bring to an end a
prosecution arising from Income Tax Act or Foreign Exchange
Control Act. The proceedings are clearly not of a pecuniary
nature involving recovery of money. Interestingly, even the
scheme stated to be approved at the behest of the respondent
company does not envisage bar to any criminal proceedings or
payment of any actual amount in the given facts of the case as
discussed at the inception of this judgment, but only seeks to
extinguish the liability of the appellant on the ground that the
respondent is liable to pay a lesser amount, the interest not
running, and the claim is alleged to have been extinguished by
payment to a third party at the behest of the appellant for which
there is no written document.
34. We are, thus, unequivocal of the view that Section 391(6) of
the said Act does not envisage either quashing or stay of
criminal cases against the company or its Directors and, thus,
the proceedings against the respondents Under Section 138 of
the NI Act instituted by the appellant could not have been
stayed."
(underlining added)
40. It is noteworthy that the Supreme Court in S.V. Kandeakar (supra)
observed that the Income Tax Act was a complete code and was particularly
so with respect to the assessment and re-assessment of income tax. The
Supreme Court also clearly observed that the liquidation court could not
perform the function of an Income Tax Officer while assessing the amount
of tax payable by the assessee, even if the assessee be the company which
was being wound up by the court. The orders made by the Income Tax
Officer in the course of assessment or re-assessment proceedings were
subject to appeal to the higher hierarchy under the Income Tax Act. The
Supreme Court held that it would lead to an anomalous consequence if the
winding-up court were to be held empowered to transfer the assessment to
itself and assess the company to income tax. By similar logic, the SEBI Act
as also the RBI Act were complete codes in respect of the subject matters
they dealt with. Therefore, orders passed under the SEBI Act by SEBI,
would have to be decided and determined in terms of that Act and cannot be
interfered with by the company court while sanctioning a scheme under
Section 391 or in the course of winding up under Section 446 of the
Companies Act, 1956. The same is the position with regard to the orders
that have been passed by RBI under the RBI Act.
41. As would be apparent from D.K. Kapur (supra) the expression "suit or
other legal proceeding" as appearing in Section 446(1) as also the expression
"suit or proceeding" under Section 446(2) of the Companies Act do not
include criminal proceedings. The same would be the position with regard to
the expression "suit or proceeding" as appearing in Section 391(6) of the
Companies Act. The consequence of this would be that a company court
while examining or sanctioning a scheme under Section 391/392 of the
Companies Act cannot stay any criminal proceedings as that is beyond the
scope of the powers and jurisdiction of the company court. In Krishna
Texport Industries Ltd (supra) a Division Bench of this court has taken the
unequivocal view that Section 391(6) of the Companies Act does not
envisage either quashing or stay of criminal cases against the company or its
Directors. Such criminal proceedings include those under Section 138 of the
Negotiable Instruments Act, 1881. From the foregoing discussion it is clear
that quasi-judicial orders passed by a statutory authority like SEBI or orders
passed by RBI and the Income Tax Authorities under special enactments
cannot be set aside while sanctioning a scheme under Section 391 of the
Companies Act. It is also clear that no stay of any criminal or income tax
proceedings can be ordered by the company court while considering an
application under Sections 391 / 392 of the Companies Act, 1956.
Therefore, the scheme which entails a direction to SEBI to revoke the orders
passed under Section 11B of the SEBI Act could not have been sanctioned in
law. Similarly, directions regarding "vacation or stay sine die" of all
criminal cases could not have been given by the company court.
Furthermore, we feel, that directions could not be given to the CBI to release
the passport of the propounders of the scheme as also of the Ex-Directors of
CRB Capital nor a direction could be given to CBI to hand over all records
and documents of CRB Capital including records of fixed deposits,
particularly, in view of the fact that the criminal cases were pending against
the said Directors/ Ex-Directors of CRB Capital. We may also refer to the
Supreme Court decision in the case of Tata Motors (supra) on which
reliance had been placed by the learned counsel for SEBI. It was held by the
Supreme Court that SICA was a specially constituted Act and that it was a
self contained code and therefore the jurisdiction of the company Judge in a
case where a reference has been made to BIFR would be subject to the
provisions of SICA. Similarly, the provisions of SEBI Act and RBI Act
being special and complete codes in themselves with regard to their
respective subject matters would over-ride the provisions of Companies Act
in case there is any inconsistency between the said provisions.
42. A reference to Section 20A of the SEBI Act would also be
appropriate. The said Section reads as under:-
"20-A. Bar of jurisdiction.--No order passed by the
Board or the Adjudicating Officer under this Act shall be
appealable except as provided in Section 15-T or Section 20 and
no civil court shall have jurisdiction in respect of any matter
which the Board or the adjudicating officer is empowered by,
or under, this Act to pass any order and no injunction shall be
granted by any court or other authority in respect of any action
taken or to be taken in pursuance of any order passed by the
Board or the adjudicating officer by, or under, this Act."
The above provision, inter alia, entails that no injunction shall be granted by
any court in respect of any action taken or to be taken in pursuance of any
order passed by SEBI or its adjudicating officer. This provision also
stipulates that no order passed by the SEBI or the Adjudicating Officer under
the SEBI Act shall be appealable except as provided under Section 15 or 20.
The latter provisions have already been set out above. Therefore, there
cannot be any interference with the provisions of SEBI Act while a scheme
is sanctioned under Section 391 of the Companies Act.
43. The two questions have, therefore, to be answered in the negative.
Q.4 Depending on to the answer to the questions above,
whether the scheme formulated in the instant case is
bonafide, feasible and fair?
44. We have already noticed the submission made by the learned counsel
for the parties. It is apparent that the reliefs and concessions as sought under
the scheme form an integral part of the scheme. If a majority of reliefs and
concessions sought in law cannot be granted, the scheme itself would be
unworkable. The learned counsel for CRB Capital, in the course of
arguments, submitted that he was willing to give up various parts of the
reliefs and concessions but, we fail to understand as to how that would
improve the position inasmuch as without the reliefs and concessions, the
scheme in itself would become unworkable. For example, one of the reliefs
sought is that a direction be given to SEBI to revoke its order passed under
Section 11B of the SEBI Act which includes the revocation of a suspension
order for trading in shares of CRB Capital as well as its further group of
companies in all stock exchanges. It also includes revocation of the
suspension of the order passed by SEBI suspending the membership rights of
the Ex-Directors of CRB Capital and to allow them to resume security
trading business at stock exchanges. A direction has also been sought that
SEBI be directed to give its approval for issuing fresh shares to the
unsecured creditors (including deposit holders) by way of preferential
allotments as envisaged in the scheme. It is obvious that the payment to
depositors having deposited in excess of Rs. 5000/- is to be made partly
(50%) by issuance of fresh shares of CRB Capital. That cannot happen
unless and until this concession and relief is given in the shape of a direction
to the SEBI to grant approval for issuance of fresh shares to unsecured
creditors. We have already seen that such a direction cannot be given.
There are several other such directions which cannot be given including the
direction in respect of criminal cases and stay of demands and vacation of
ex-parte orders insofar as income tax authorities are concerned. We also
find that the release of the passport of the propounders of the scheme would
probably be contrary to the direction given by the criminal court inasmuch as
that may have been a condition for grant of bail. Such a direction, once
again, may be contrary to law. We are, therefore, of the view that once the
reliefs and concessions are not there, the scheme itself becomes unworkable.
This is apart from the fact that there are other serious concerns with regard to
the paltry amount of funds proposed to be brought in by the propounders of
the scheme in the context of the overall fund requirement. This is also apart
from the fact that the scheme as propounded and as sanctioned by the
company court, in fact, contravenes the provisions of the RBI Act
particularly those of Section 45QA. We have already held that though a
scheme can be envisaged in the course of a winding up petition under
Section 45MC of the RBI Act it has to be in conformity with the provisions
of Chapter III-B of the RBI Act and not in contravention thereof. For all
these reasons we feel that the scheme as formulated in the present case is not
bonafide, feasible or fair.
Q.5 Whether grounds for winding up of the Company under
Section 45MC (1) of Reserve Bank of India Act, 1934 as
made out in the winding up petition exist. If so, to what
effect?
45. Insofar as this question is concerned it would be pertinent to note that
the impugned judgment itself notes that if the scheme cannot be successfully
implemented, then the winding-up petition C.P. No. 191/1997 filed by the
RBI in respect of CRB Capital would revive. It is obvious that the company
court has not examined the winding-up petition of RBI on merits. Since the
scheme cannot be sustained in law, the winding-up petition would,
automatically get revived.
46. Therefore, we set aside the impugned judgment as also the scheme and
remit the matter to the company court for consideration of the winding-up
petition (C.P. No. 191/1997) in accordance with law. We make it clear that
there is no bar on CRB Capital propounding another scheme during the
pendency of the said winding-up petition or even thereafter, in case winding-
up is ordered. However, only such a scheme may be propounded, which
does not contravene any of the statutory provisions contained in the
Companies Act, the RBI Act, the SEBI Act or the Income Tax Act or any
other statutory provision and which is in public interest and not opposed to
public policy.
47. The appeals are allowed to the aforesaid extent.
BADAR DURREZ AHMED, J
VEENA BIRBAL, J.
NOVEMBER 21 , 2012
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