Tirath Singh Thakur, J.@mdashNearly sixty thousand depositors, most of them senior citizens, have waited endlessly for the repayment of the deposits made by them with Kirloskar Investments and Finance Limited, a Non-Banking Financial Institution. Demands for repayment of the deposits having failed to evoke any response from the Company, over one thousand applications were moved before the Company Law Board seeking its intervention in terms of Section 45QA of the Reserve Bank of India Act, 1934. The said provision inter alia empowers the Company Law Board to direct repayment of any deposit or part thereof in accordance with the terms and conditions of such deposit if it is satisfied that it is necessary so to do to safeguard the interest of the Company, the depositors or the public in general. Upon consideration of the applications received by the Board, it has in terms of an order dated 21st of March, 2000, issued directions to the Company for repayment of the deposits in accordance with the guidelines and the scheme formulated by it. Aggrieved by the said directions, United Western Bank Limited, a secured creditor of the Company, has filed M.F.A. No. 1530 of 2000 while the Company has preferred M.F.A. No. 2030 of 2000 challenging the said order on a variety of grounds. O.S.A. No. 2 of 2000 filed by the Reserve Bank of India, in turn assails the correctness of an order dated 14th of June, 2000 made by the Company Judge, in Company Petition No. 2 of 2000 and Company Application Nos. 3 and 307 of 2000, whereby proceedings in Company Petition No. 2 of 2000 filed by the RBI for winding up of Kirloskar Investments and Finance Limited (''KIF Limited'' for short) have been stayed and Company Application No. 3 for appointment of a Provisional Liquidator and Company Application No. 307 of 2000 seeking stay of the proceedings in the company petition disposed of.
2. Appearing for the appellant in M.F.A. No. 1530 of 2000, Mr. G.K.V. Murthy argued that the order made by the Company Law Board directing repayment of the deposits was illegal inasmuch as the same does not take into consideration the interest of the appellant-Bank or nine other Banks constituting a consortium for granting various facilities to the Company. He submitted that the direction issued by the Company Law Board if allowed to continue and be implemented will adversely affect the interest of the appellant-Bank and other members of the consortium inasmuch as the same would authorise the Company to utilise the available funds over which the Banks have the first charge as secured creditors. He argued that although the appellant-Bank had initiated proceedings for recovery of the amount payable by the Company before the Debt Recovery Tribunal, yet unless the order made by the Company Law Board was suitably altered to protect the interest of the Bank, the pendency of the proceedings before the Tribunal will prove insufficient to safeguard the interest of the Bank.
3. Mr. Naik, Counsel appearing for the Reserve Bank of India and M/s. S.G. Bhat, K.G. Raghavan, R.V. Shinde, S.V. Belagali, K.V. Shivangi, K. Sriram, T.S. Prabhu, B. Manjunath, S.N. Rajendra, Smt. Jaylakshmi, S.V. Shastry, T.S. Chandraprabha, M. Raghavendra Achar, M.R. Krishnamurthy, appearing for the depositors on the other hand, contended that the apprehension expressed by the appellant-Bank was wholly unfounded having regard to the fact that the Company Law Board had considered the submissions made before it by the Banks and in specific terms reserved liberty for them to enforce their claims before the competent Court of law. They urged that Section 45QA invoked by the depositors was not available to either the appellant-Bank or other members of the consortium for any direction regarding the liquidation of any outstanding liability qua such Banks. The said provision was meant only to protect the interest of the depositors and had been rightly invoked by the Board to issue the impugned directions. Section Reserve Bank of In of the Reserve Bank of India Act runs thus,--
"Power of Company Law Board to order repayment of deposit.--(1) Every deposit accepted by a Non-Banking Financial Company, unless renewed, shall be repaid in accordance with the terms and conditions of such deposit.
(2) Where a Non-Banking Financial Company has failed to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board constituted u/s 10E of the Companies Act, 1956 (1 of 1956), may if it is satisfied, either on its own motion or on an application of the depositor, that it is necessary so to do to safeguard the interests of the Company, the depositors or in the public interest, direct, by order, the Non-Banking Financial Company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order:
Provided that the Company Law Board may, before making any order under this sub-section, give a reasonable opportunity of being heard to the Non-Banking Financial Company and the other persons interested in the matter".
4. A plain reading of the above would show that the same enjoins a duty upon every Non-Banking Financial Company to repay every deposit accepted by it in accordance with the terms and conditions of such deposit. In the event of the failure of a Non-Banking Financial Company to discharge that obligation, the Company Law Board is in terms of sub-section (2) empowered to issue appropriate directions for repayment of such deposits or part thereof forthwith or within such time and subject to such conditions as may be specified in the order. The provision it is obvious does not envisage any directions by the Board for liquidation of any liability that a Non-Banking Financial Company may owe to a Bank or other Institution. That is because the amounts payable to such Banks do not constitute deposits within the meaning of Section 45QA. The term "deposit" has been defined in Section 45I of the Reserve Bank of India Act to include all receipts of money by way of deposit or loan excluding among others amounts received from a Schedule Bank or a Co-operative Bank or any other Banking Company as defined in clause (c) of Section 5 of the Banking (Regulation) Act, 1949. Amounts received from the Development Bank, the State Financial Corporation or any Financial Institution referred to in clause (4) of Section 45I(bb) are also excluded from the definition of the term ''deposit''. The amounts advanced by the appellant-Bank and other members of the consortium do not therefore qualify as deposits within the meaning of Section 45-I(bb) read with Section 45QA of the Act. The question of directing repayment of any such amounts to the appellant- Bank or to other members of the consortium therefore did not arise.
5. The next question is whether the direction issued by the Board in any way jeopardises the interest of the Banks as secured creditors of the Company. The grievance of the appellant that it does, appear to be wholly untenable. We say so because, the Company Law Board has while directing repayment of the deposits noticed the submissions made before it by the Banks and observed that the Banks being secured creditors, are entitled to claim appropriate relief before the competent Court of law. The fact that the appellant-Bank has already instituted proceedings for the recovery of the outstanding amount before the DRT not being in dispute, the rights of the Bank qua the securities furnished to it can be adequately protected in the said proceedings. There is no gainsaid that the Bank will be at liberty to seek such redress as may be legally permissible in this regard before the Tribunal to safeguard its rights and interests. The apprehension of Mr. Murthy that the Tribunal may not in the light of the order made by the Company Law Board issue any interim or final directions for the protection of the Bank''s interest appears to us to be premature, for the Tribunal has not expressed any final opinion on the subject so far. Needless to say that in case the Tribunal declines to exercise its powers, it shall be open to the appellant-Bank to seek appropriate remedy against the same in appropriate proceedings and before the appropriate forum. M.F.A. No. 1530 of 2000 is in the light of the above, without any merit and shall have to be dismissed.
6. In M.F.A. No. 2030 of 2000, the Company has assailed the order made by the Board on several grounds and prayed for modification of the said order to the extent indicated in para 18 of the memo of appeal. A preliminary objection to the maintainability of this appeal was raised on behalf of the respondents. It was argued that an appeal u/s 10F of the Companies Act was maintainable only on a question of law arising out of the order under challenge and not otherwise. No question of law, argued Counsel for the respondents, arose from out of the impugned order so as to warrant interference by this Court.
Section 10F of the Companies Act reads as under.--
"Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order:
Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days".
7. It is evident from a bare reading of the above that an Appeal against any decision or order of the Company Law Board is maintainable only on a question of law arising out of such order. As to what would constitute a question of law has been examined in various judicial pronouncements. In Nafar Chandra Pal v Shukur, the Privy Council observed that question of law and of fact are sometimes difficult to disentangle. The proper legal effect of a proved fact is necessarily a question of law, so also the question of admissibility of evidence and the question whether any evidence has been offered on one side or the other; but the question whether a fact has been proved, when evidence for and against has been properly admitted, is necessarily a pure question of fact. A finding of fact, which is recorded without any evidence to support it or which is otherwise perverse would constitute a question of law. So also a decision as to the legal effect of a finding of fact is a question of law. The interpretation of a statute or a document too is a question of law. A finding of fact based on proven facts is not however a question of law nor is the mere possibility of the High Court coming into a different conclusion on the facts a ground for the interference in cases where an appeal lies only on a question of law. See Deity Pattabhiramaswamy v S. Hanymayya and Others,
8. In the instant case, the challenge to the order made by the Board does not involve the interpretation of any provision of law or document. It is also not a case, where the order can be said to be vitiated by perversity or irrationality of any kind. The challenge is not based even on the ground that the order is without any evidence or material in support of the same. The substance of the grievance against the order as is evident from a leading of the grounds urged in the memo of appeal is that the Scheme formulated by the Board for repayment of the deposits is unrealistic and incapable of implementation. The appellant''s case appears to be that while it is genuinely interested in repaying the deposits it is incapable of doing so on account of its limitations, arising from adverse business conditions and the losses suffered by it generally due to a slump in the real estate market and a general industrial recession. This ground, we are afraid cannot possibly be construed as giving rise to a question of law so as to entitle the appellant-Company to maintain the appeal or justify interference with the repayment schedule as drawn up by the Board. Whether or not the cash flow anticipated by the Company would suffice for repayment of the deposits and whether or not the Company''s financial position justified a direction for repayment within the time frame stipulated by the Board, are matters, which were considered by the Board. Any fresh look on the same would necessarily involve an appreciation of the facts and the financial implications arising out of the same. The Board having considered all the attendant circumstances including the Company''s resources the direction issued by it for repayment cannot be said to be either perverse or irrational. Even assuming that this Court was upon a fresh evaluation of the relevant factors and, material to come to a conclusion different from the one arrived at by the Board, the same would not in itself constitute either a question of law or justify substitution of the view taken by the Board by the conclusion that the Court may arrive at. It follows that the time frame fixed by the Board for repayment of the deposits, the rate of interest stipulated by it, the priorities determined in the matter of refund of the deposits, the classifications made between different category of deposits, cannot be interfered with only because according to the appellant-Company, the same are unrealistic or unworkable having regard to the financial conditions of the Company or the difficulties which it is facing. So also the argument that the Board should not have directed refunds to be made by way of Bank Drafts to be sent by post only because the said mode of repayment would involve certain additional expenditure towards Bank and postal charges cannot be a sound much less a compelling reason for this Court to intervene. The said direction was in our opinion justified to ensure that the depositors, who have already waited for a sufficiently long period do not have to face the prospects of the cheques issued by the Company getting dishonoured or delivered to persons other than the depositors. It is also noteworthy that the depositors have not made any grievance against the repayment schedule drawn up by the Board, the rate of interest stipulated by it or the mode or the manner of payment thereof. In the absence of any complaint from the depositors against any discrimination vis-a-vis other depositors falling in one or the other category, it will not be open to the Company to urge that the classification made or the mode of payment directed by the Board does not protect the interest of any class or category of the depositors. Suffice it to say that the order made by the Board does not in our opinion suffer from any error of jurisdiction, law or other infirmity so as to warrant interference with the same. Consequently, M.F.A. No. 2030 of 2000 also has to fail and be dismissed accordingly.
9. That brings us to O.S.A. No. 2 of 2000 filed by the RBI against an order made by the learned Company Judge in Company Petition No. 2 of 2000 and C.A. Nos. 3 and 307 of 2000. The said appeals arise in the following circumstances.--
Consequent upon the amendment of the Reserve Bank of India (Amendment) Act, 1997, KIF Limited made an application for the grant of a certificate of registration as required u/s 45IA of the Act. While the said application was pending consideration the Bank passed an order dated 13th of August, 1999, u/s 45-MB(1) of the Act, prohibiting the Company from accepting fresh deposits and from alienating its assets. The Bank also in terms of another order dated 1st of September, 1999, appointed a Special Officer to oversee the activities of the Company and ensure compliance with the statutory provisions. The application moved by the Company for registration was eventually rejected by the Bank by an order dated 21st of September, 1999, which was assailed by the Company in an Appeal before the prescribed Appellate Authority. Shortly thereafter, the Bank filed Company Petition No, 2 of 2000 before this Court for winding up of the Company u/s 45-MC(1) of the Reserve Bank of India Act and moved C.A. No. 3 of 2000 for appointment of a Provisional Liquidator. The Company Judge in terms of his order dated 14th of January, 2000 has stayed the proceedings in Company Petition No. 2 of 2000 and disposed of C.A. No. 3 of 2000. Aggrieved by the said order, O.S.A. No. 2 of 2000 has been preferred by the Bank as already noticed earlier.
10. Section 46-MC of the Reserve Bank of India Act, 1934, under which Company Petition No. 2 of 2000 was filed by the Reserve Bank of India reads as under.--
"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 45IA 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".
11. The Bank had after setting out the relevant facts, stated thus in para 16 of the petition.--
"16. It is also submitted that on the facts and in the circumstances of the case, the petitioner is satisfied that the conditions in clauses (a), (b) and (d) of Section 45-MC(1) are satisfied in the instant case. It is also submitted that in view of the prohibition imposed by the petitioner on the respondent-Company from accepting deposits from the public and the said prohibiting order being in force for more than 3 months, clause (c) of Section 45-MC(1) is also satisfied, Therefore, the petitioner has decided to apply for winding up of the respondent-Company in exercise of the powers conferred on it u/s 45-MC(1) of the Act. It is respectfully submitted that under the circumstances mentioned above, it is just, proper, equitable, in public interest and in the interest of justice that the respondent-Company be wound up by this Hon''ble Court",
12. The learned Company Judge was of the view that since the order passed by the Bank rejecting the Company''s application for grant of registration had been challenged before the Appellate Authority, the said order could not be said to have attained finality. The Company Court felt that if the appeal was allowed by the Appellate Authority, none of the grounds raised by the Bank for winding up of the Company would be available to it. It was of the opinion that since proceedings u/s 45QA of the Reserve Bank of India Act were, also pending before the Company Law Board, in which no final orders had been passed by the Board, it was not in the interest of the parties or the public to proceed further with the company petition. Proceedings in C.P. No, 2 of 2000 were accordingly stayed pending final disposal of the proceedings before the Appellate Authority and the Company Law Board. Liberty was however given to the parties to file a memo for resumption of the proceedings after the Appellate Authority and the Company Law Board disposed of the matters pending before them.
13. Mr. Naik, Counsel appearing for the appellant-Bank submitted that both the contingencies envisaged by the impugned order for resumption of the winding up proceedings had been satisfied. He urged that the Company Law Board had already passed a final order u/s 45QA of the RBI Act and that the appeal preferred by the Company before the Appellate Authority declining registration to the Company u/s 45IA had also been dismissed. There was therefore as on date no impediment for the resumption of the proceedings in Company Petition No. 2 of 2000. Alternatively, he submitted that even if the contingencies referred to above had not occurred, the order passed by the learned Company Judge staying the proceedings would not be justified in the facts and circumstances of the case. He urged that the winding up of the Company was sought not only on the ground that the Company had been disqualified to carry on business as a Non-Banking Financial Institution but also on the ground that it was unable to pay its debts and its continuance was detrimental to the public interest or the interest of the depositors of the Company.
14. We find considerable merit in both these submissions. The learned Single Judge had stayed the proceedings in Company Petition No. 2 of 2000 only on account of the pendency of the proceedings before the Appellate Authority and the Company Law Board. Those proceedings have admittedly attained finality as pointed out by Mr. Naik. Consequently, there is no impediment as on date for resumption of the proceedings in Company Petition No. 2 of 2000. Even otherwise, the stay of the proceedings in Company Petition No. 2 of 2000 may not have been justified having regard to the fact that the petition was filed not only on the ground that the Company had become disqualified to carry on its business on account of rejection of its application for registration, but also on the ground that it was unable to pay its debts. The continuance of the Company was also in the opinion of the Reserve Bank detrimental to the public interest and interest of the depositors having regard to the Company''s financial position and its capacity to carry on its business in a satisfactory manner. Such being the position, the proceedings in Company Petition No. 2 of 2000 would not be stayed only because of pendency of the appeal against refusal of registration or the pendency of the proceedings before the Company Law Board u/s 45QA. The appellant-Bank having considered the relevant factors and come to the conclusion that the Company is unable to pay its debts and had been prohibited from receiving deposits for a period of not less than 3 months was entitled to maintain a petition for winding up of the Company and take the same to its logical conclusion. We have, therefore, no hesitation in holding that the order of stay of the proceedings passed by the learned Company Judge was even on merits unsustainable. We however find no reason to interfere with the order under challenge to the extent the same declined the appointment of a Provisional Liquidator, for in the words of the learned Company Judge no case was made out for appointment of a Provisional Liquidator "at this stage".
15. Mr. Naik next argued that it was necessary to issue certain consequential directions regarding the alienation of property and disbursement of amounts by the Company from out of the available deposits and resources. He submitted that this Court had in the connected M.F.A. No. 1530 of 2000 passed an order on 13th of April, 2000 restraining the Company from making any payment other than payments towards salaries and establishment expenses without obtaining the prior written permission of the Special Officer appointed by the RBI. He submitted that with the disposal of the appeals, the said order shall stand vacated, thereby giving to the Company an opportunity to indulge in diversion and malversation of funds and property held by it to the grave detriment of the depositors, who have been waiting for the refund of their money. He also drew our attention to a preliminary report submitted by the Committee appointed by this Court in terms of order dated 22nd of February, 2001 comprising Justice S. Venkataraman, former Judge of this Court, according to which the available funds with the Company could be utilised towards payment of l/5th of principal amount due to the depositors while disbursing to the secured creditors a sum of Rs. 5,00,000/-. We do not think that, having regard to the number of depositors and the order made by the Company Law Board fixing the mode of repayment, it is necessary for this Court or for that matter the Committee aforementioned to monitor the disbursement of the amounts available with the Company to the depositors either in full or part. We however see considerable merit in the submission made by Mr. Naik that the interim directions to the effect that the Company shall not make any payment without prior written permission from the Special Officer from the RBI except for payment of salary and other establishment expenses deserve to be continued till such time the learned Company Judge considers and finally disposes of an application which the RBI proposes to make for issue of similar relief before him.
16. In the result, M.F.A. Nos. 1530 and 2030 of 2000 fail and are hereby dismissed. O.S.A. No. 2 of 2000 however succeeds and order dated 14-1-2000 made by the learned Company Judge to the extent the same stays the proceedings in Company Petition No. 2 of 2000 is set aside. Consequently, Company Petition No. 2 of 2000 shall be proceeded with in accordance with law. We further direct that pending disposal of an application which the RBI may move before the Company Judge within the next four weeks for interim directions, the Company shall not pay any amount without obtaining the prior written permission from the Special Officer of the RBI except payment of salaries and other establishment expenses. A report regarding expenditure incurred on salaries and establishment expenses shall also be submitted to the said officer on a weekly basis. The Company shall within four weeks from today pay a sum of Rs. 9,000/- to Justice S. Venkataraman, former Judge of this Court, towards fee for the services rendered pursuant to the order of this Court dated 22nd of February, 2001. No costs.
