Writ Seeking Directions to RBI to Take Action Against Respondent Company Was to Be Allowed Due to Alleged Misappropriation of Funds | HC

Case Details: Evaan Holdings (P.) Ltd. v. Reserve Bank of India - [2024] 168 taxmann.com 202 (Delhi)

Judiciary and Counsel Details

• Dharmesh Sharma, J.
• Parag Tripathi, Sr. Adv., Anirudh Sharma, Srinivasan Ramaswamy, Ms Harshita Choubey, Ms Sonali Sharma & Ms Vridhi Kashyap, Advs., for the Petitioner.
• Avishkar Singhvi, Keshav Sehgal, Shivam Gaur, Kshitij Joshi, Aryan Kumar, Advs., Sidharth Luthra, Sr. Adv., Dhruv Chawla, Yoganshi Singh, Ayush Agarwal, for the Respondent.

Facts of the Case

In the instant case, the petitioner company had substantial shareholding in respondent NBFC company. The petitioner company highlighted certain alleged aspects of mismanagement and financial improprieties including misappropriation and siphoning off funds by respondent company through its Board of Directors.

The petitioner company lodged complaints with RBI but no action had been taken so far. Petitioner thus, filed instant writ petition seeking directions to RBI to initiate action against respondent company in terms of provisions contained in Chapter IIIB of RBI Act.

Further, it was noted that supervisory role of RBI is continuous; it commences from the date of registration of the NBFCs and remains till time of its commercial death by way of winding up. Further, Status Report indicated that company accepted OCDs without permission of RBI, thereby breaching leveraged ratio of the company beyond the acceptable level.

Also, it was also noted that management of respondent company had been withholding relevant documents from RBI and, thus, it was necessary to arrest any further misappropriation and pilfering of funds of respondent company, since any further delay might be too late to protect interests of stakeholders.

High Court Held

The High Court observed that RBI had failed to exercise its supervisory powers and, thus, it became imperative that certain directions be issued to RBI to intervene in matter and to ensure enforcement of binding regulations provided under RBI Act.

Therefore, considering necessity to safeguard interest of investors of respondent company besides other stakeholders including creditors, the High Cort held that instant writ petition be was to be allowed.

Also, it was held that the writ proceedings under Article 226 of the Constitution of India can be instituted against an instrumentality of State, such as RBI, when it is demonstrated that it is failing to exercise the power vested in it.

List of Cases Reviewed

• Nedum Pillai Finance Company Limited (2022) 7 SCC 394 [Para 18]; followed
• Hoichoi Technologies Private Limited v. Reserve Bank of India 2024 SCC OnLine Cal 3569 [Para 33]; distinguished

List of Cases Referred to

• Nedum Pillai Finance Company Limited v. State of Kerala (2022) 7 SCC 394 (para 5),
• Dr. Subramanian Swamy v. Union of India 2024 SCC OnLine Del 5706 (para 14),
• Hoichoi Technologies Private Limited v. Reserve Bank of India 2024 SCC OnLine Cal 3569 (para 14)
• Hari Krishna Mandir Trust v. State of Maharashtra 2020 9 SCC 326 (para 25).