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M/S Integrated Finance Co. Ltd v. Reserve Bank of India (2015) 13 SCC 772

M/S Integrated Finance Co. Ltd v. Reserve Bank of India (2015) 13 SCC 772

FACTS-

  • The appellant company, a Non-Banking Finance Company (NBFC), filed a petition seeking approval for a scheme of arrangement/compromise with its creditors, deposit holders, and bond holders.
  • The Reserve Bank of India (RBI) issued circulars during 1997-2003 regulating NBFCs' activities and imposed restrictions.
  • In 2005, RBI inspected the appellant company's accounts and found violations of the RBI Act, leading to a circular prohibiting the company from accepting deposits.
  • Despite facing operational problems due to decreased profitability, the appellant proposed a scheme of compromise with its creditors, which was approved by the Board of Directors in May 2005.
  • The scheme involved converting deposit holders and bond holders into secured convertible debentures.
  • The learned Single Judge, vide order dated 19th August, 2006, was pleased to sanction the said scheme, albeit with some conditions. This order was challenged in the High Court by way of four original side appeals, which were allowed by the Division Bench vide the order dated 30th April 2008 which has been challenged in this Court.

 

ISSUE- 

  • Whether the scheme proposed by the appellant company, which did not comply with RBI regulations and provisions of the RBI Act, could be sanctioned under Sections 391-394 of the Companies Act.

RULE-

  • The court must ensure that all legal requirements are complied with when approving a scheme under Sections 391-394 of the Companies Act.
  • Section 45QA of the RBI Act requires that every deposit accepted by an NBFC should be repaid in accordance with the terms and conditions of the deposit. Chapter IIIB of the RBI Act, inserted to regulate NBFCs, prevails over the Companies Act. Hence , Scheme proposed against the RBI regulation will not be sanctioned under Sections 391-394 of the Companies Act.

HELD-

  • The court noted the significant regulatory framework established by Chapter IIIB of the RBI Act to protect depositors' interests and ensure NBFCs' viability.
  • The court found that the scheme proposed by the appellant company did not comply with the mandatory requirements of Section 45QA of the RBI Act.
  • The court observed that the scheme was introduced to avoid repayment to small depositors and was against public policy.
  • Non-disclosure of material facts, including RBI's actions against the company, reflected a lack of bona fide on the part of the appellant.
  • The court rejected the appellant's argument that the scheme could be approved despite non-compliance with RBI regulations.
  • The court affirmed that Chapter IIIB of the RBI Act prevails over the Companies Act, rendering the scheme unacceptable.
  • The court dismissed the appeals and upheld the judgment of the High Court.