Delhi High Court
Hindon Mercantile Limited vs The Government Of India And Another on 11 July, 2024
Author: Sudhir Kumar Jain
Bench: Sudhir Kumar Jain
$~45
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: July 11, 2024
+ W.P.(C) 1804/2021 & CM APPL. 5195/2021
HINDON MERCANTILE LIMITED .....Petitioner
Through: Mr. Kamal Kumar Baid,
Mr. Rahul Baid,
Mr. Sukumar, Mr. Ronak
Baid, Mr. Nirbhay Tiwari
and Mr. Rajeev Kumar
Trivedi, Advocates
V
THE GOVERNMENT OF INDIA
AND ANOTHER .....Respondents
Through: Mr. Vineet Dhonda, CGSC
with Mr. Abhishrut Singh
and Mr. Abhijit Singh
Kadyan, Advocates for UOI
Ms. Nisha Sharma,
Ms. Manisha Singh and
Mr. Rohan Srivastava,
Advocates for R-2
CORAM:
HON'BLE DR. JUSTICE SUDHIR KUMAR JAIN
J U D G M E N T (oral)
1. The present petition is filed under Articles 226 and 227 of the
Constitution for issuance of directions to the respondents for
restoration of the Certificate of Registration (CoR) issued by the
Signing Date:16.07.2024 W.P.(C) 1804/2021 Page 1
respondent no.2 under Section 45-IA of the Reserve Bank of India
Act, 1934 (hereinafter referred to as the 'RBI Act'). The petitioner
has made the following prayers.
(i) by issue of writ of certiorari or any appropriate of like
nature, the Hon'ble Court may be pleased to quash and set
aside the order of Cancellation of Registration dated
25.04.2018 and also Order of the Appellate Authority dated
13.04.2020 passed· in File No.25/279/2019/BOA-II;
(ii) by issue of writ of mandamus or any appropriate writ of
like nature, the Hon'ble Court may be pleased to direct the
Respondents, particularly Respondent No.2 to restore the
Registration of the Petitioner Company, in the interest of
justice; and/or
(iii) pass such other and further order(s) as this Hon'ble
Court may deem fit and proper, in the facts and
circumstances of the present case.
2. The petitioner was granted CoR to carry on the business of
non-banking financial institution (NBFI) without accepting the public
deposit subject to the conditions as mentioned in the CoR which was
issued on 20.04.1998.
3. The respondent no.2/ Reserve Bank of India (RBI) vide
notification bearing no. DNBS(PD) No. CC.10/02.59/98-99 dated
20.04.1999 prescribed the minimum Net-Owned Fund (NOF) for the
existing as well as new NBFIs at Rs.200 Lakhs. A subsequent
notification dated 27.03.2015 issued by the respondent no. 2/RBI also
Signing Date:16.07.2024 W.P.(C) 1804/2021 Page 2
prescribed NOF requirement which was stipulated at Rs.200 lakhs to
be achieved as per the following schedule.
Rs.100 Lakhs by the end of the March 2016
Rs.200 Lakhs by the end of March 2017
4. The petitioner could achieve the minimum requirement of
Rs.200 lakhs only by 04.05.2018.
5. The respondent no.2/ RBI issued a show-cause notice dated
25.04.2018, whereby the petitioner was asked to show-cause as to
why CoR issued to them should not be cancelled as per Section
45IA(6) of the RBI Act. The relevant portion of the show cause
notice dated 25.04.2018 is reproduced as under:
4. As such your company has acted in violation of the
aforementioned directions issued by the Reserve Bank in
exercise of its powers under Chapter III B of the RBI Act
while conducting its business as a non-banking financial
institution. You are, therefore, called upon to show cause
within 15 days of the receipt of this order as to why the
Certificate of Registration issued to your Company should
not be cancelled under Section 45-IA (6) of RBI Act and
penal action be not initiated against the company for the
offences punishable under Section 58 B of the RBI Act. In
case, you fail to show cause against the proposed action on
or before the said date, it shall be presumed that you have
no cause to show against the proposed action and the
Reserve Bank will be constrained to proceed accordingly
against your company as per law.
6. The petitioner vide reply dated 08.05.2018 replied the show
Signing Date:16.07.2024 W.P.(C) 1804/2021 Page 3
cause notice dated 25.04.2018. The relevant portion of the reply
dated 08.05.2018 is reproduced as under:
1. The Company has increased the paid up capital of the
company by Rs.1,02,00,000/- (Rupees One Crore Two lac
only) on 4th May, 2018 and complied with the provisions of
the Companies Act, 2013, thereby increasing the NOF to
the level of Rs.200 lacs as required by regulatory
framework for NBFCs (RBI/2014-15/520 DNBR (PD) CC
No.24/03.10.001/2014-15) read with Notification
No.DNBR.007/CGM (CDS)-2015 dated March 27, 2015.
As replied to you earlier, there has been delay in
increasing the NOF due to the company being exclusively
listed on Ludhiana Stock Exchange and has opted for the
exit option. Now the company got delisted and hence the
paid up capital of the company is increased.
You are hereby requested to take into account the
genuine reason due to which there was delay in increasing
the NOF of the company and not to take any penal action
against the company.
Hoping you will find all the documents and reply in
order. If you require any further information or
clarification, we are ready to provide the same.
7. The respondent no.2/ RBI vide order dated 02.07.2018
cancelled the CoR. The petitioner being aggrieved filed an appeal
under section 45-IA(7) of the RBI Act which was ordered to be
dismissed vide order dated 13.04.2020. The relevant portion of the
impugned order dated 13.04.2020 is reproduced as under:
Signing Date:16.07.2024 W.P.(C) 1804/2021 Page 4
6. After going through the records and hearing the
arguments put before me, it is observed that RBI vide
Circular dated 10th November, 2014 read with notification
dated 2ih March, 2015 has clearly prescribed an NOF of
Rs.200.00 lakhs to be achieved before 1st April, 2017 for
NBFCs to commence or carry on the business of an NBFI.
It was also stated in the circular NBFCs failing to achieve
the prescribed ceiling within the stipulated time period
shall not be eligible to hold the CoR as NBFCs and RBI will
initiate the process for cancellation of CoR against such
NBFCs. During the hearing, RBI informed that the NOF of
the appellant company stood at Rs.107.33 lakhs as on 31st
March, 2016 and Rs.106.55 lakhs as on 31st March, 2017.
Thus, it is clear that the appellant company had failed to
achieve the prescribed NOF of Rs.200.00 lakhs before 1st
April, 2017 which is a statutory requirement for an NBDC
to carry on the business of an NBFI. The Respondent has
also submitted that the appellant infused additional capital
during 2016 but did not inform its inability to achieve the
minimum prescribed NOF of Rs.200.00 lakhs and reasons
thereof before 31st March, 2017. As regards, the contention
of the Appellant Company that it was not granted
opportunity to take necessary steps to fulfill the condition
under Section 45-IA(6) of the Act. RBI has contended that
the cancellation of the CoR of the appellant company is
under Section 45-IA(6) which includes sub-section (iv)
amongst other provisions i.e. failing to comply with any
direction. It is observed that RBI has followed due process
of law in the matter.
7. Having heard both the parties and keeping in view the
facts and circumstances of the case, I have no reason to
disagree with the views of RBI in cancelling the CoR of the
Appellant M/s. Hindon Mercantile Limited. The appeal
being devoid of merit, hereby rejected with no order as to
costs.
8. The counsel for the petitioner argued that the petitioner had
Signing Date:16.07.2024 W.P.(C) 1804/2021 Page 5
achieved the target of Rs. 200 lakhs before the passing of the
cancellation order by the respondent no. 2 and the respondent no. 2
in similarly placed cases, has condoned the delay in achieving the
target of Rs. 200 lakhs. He placed reliance upon the following
judgments:
i. Judgement dated 23.09.2022 passed by the Gujarat High
Court in R/Special Civil Application No. 16918 of 2021
titled 'Kandla Finance Limited V Reserve Bank of
India.'
ii. Order dated 29.01.2021 passed by the Division Bench of
this Court in W.P.(C) 2384/2020 titled 'Shubh Lakshmi
Capital Limited V Reserve Bank of India and Anr.'
iii. Judgment dated 23.10.2019 passed by the Division Bench
of this Court in W.P.(C) 9702/2019 titled 'M/s Juhie
(India) Private Limited V Reserve Bank of India and
Anr.'
9. The counsel for the respondent no.2/ RBI after referring to the
judgment dated 08.11.2023 passed by another Coordinate Bench of
this Court in W. P. (C) 11016/2022 titled as 'Premier Capital and
Securities Private Limited V Union of India and Anr.', and
judgment dated 01.02.2024 passed by this Court in W.P. (C)
6391/2020 titled as Zeel Fincap Services Private Limited V The
Signing Date:16.07.2024 W.P.(C) 1804/2021 Page 6
Secretary to Government of India Ministry of Finance Appellate
Authority for Registration & Anr. stated that as the petitioner
achieved a target of Rs. 200 lakhs before passing of cancellation
order by the respondent no. 2, as such the case can be remanded back
to the respondent no.2/ RBI for reconsideration of restoration of CoR
but in accordance with the existing regulation and including
amendments subject to placing formal proof that the petitioner had
achieved the target of Rs. 200 lakhs before passing of the
cancellation order by the respondent no. 2.
10. The counsel for the petitioner stated that he does not have any
objection if the present case of the petitioner for restoration of CoR is
remanded back for reconsideration by respondent no.2/ RBI as per
the existing guidelines including subsequent amendments and also
after placing the necessary proof of achieving the target of Rs. 200
lakhs before passing of the cancellation order by the respondent no.2.
However, he has further stated that the respondent no.2/ RBI be
directed to decide the claim of the petitioner within a time bound
manner preferably within a period of two months, which may be
extended by another one month.
Signing Date:16.07.2024 W.P.(C) 1804/2021 Page 7
11. After considering all the facts and circumstances related to the
present petition, the present petition is accordingly disposed of with
the following directions:
i. The order dated 02.07.2018 cancelling the CoR passed by
the respondent no.2/RBI and the order dated 13.04.2020 passed
by the Appellate Authority i.e respondent no.1 are set aside.
ii. The matter is remanded back to the respondent no.2/ RBI
for afresh consideration and the respondent no.2 is directed to
take fresh decision on the basis of pleas and contentions as
mentioned in the present petition which may be treated as
representation with liberty to the petitioner to file additional
representation/ document in support of its claim within 15 days
from today.
iii. The respondent no.2 is directed to decide afresh the issue
pertaining to the restoration of CoR to the petitioner preferably
within a period of two months after the receipt of
representation which may be extended, depending upon the
facts and circumstances, for another one month. The
respondent no.2/ RBI is also directed to communicate the final
outcome to the petitioner preferably within two weeks
thereafter.
iv. The respondent no.2/ RBI is also directed to decide the
issue of restoration of CoR to the petitioner as per the existing
guidelines including the amendments subsequent to the
cancellation of CoR.
Signing Date:16.07.2024 W.P.(C) 1804/2021 Page 8
v. The respondent no.2/ RBI shall also be at liberty to give
personal hearing to the petitioner, if required, before arriving at
the final conclusion.
12. The present order is passed without prejudice to the rights and
contentions of the parties.
13. The present petition stands disposed of.
14. The copy of this order be given dasti to the petitioner as well
as to the respondent no. 2/ RBI for necessary compliance.
DR. SUDHIR KUMAR JAIN
(JUDGE)
JULY 11, 2024
N/AM
Signing Date:16.07.2024 W.P.(C) 1804/2021 Page 9
