RBI didn’t act beyond its jurisdiction in superseding the board of defaulting NBFC and appointing a new administrator

Case Details: Adisri Commercial (P.) Ltd. v. Reserve Bank of India - [2021] 133 taxmann.com 181 (Bombay)

Judiciary and Counsel Details

• • Ujjal Bhuyan and Madhav J. Jamdar, JJ.
  • Janak Dwarkadas, Sr. Adv., Ameet Naik, Chirag Kamdar, Abhishek Kale and Deepak Deshmukh for the Petitioner. 
  • Ravi Kadam, Venkatesh Dhond, Sr. Advs., Rohan Kadam, Prasad Shenoy, Ms. Aditi Phatak, Nilang Desai, Vivek Sheth, Nishant Upadhyay, Ms. Meraja Balkrishnan and Dhaval Vora for the Respondent.

Facts of the Case

In the instant case, SIFL was an NBFC governed by the RBI Act, 1934. SIFL had defaulted in its payment obligations regarding bank borrowings and market borrowings, which revealed serious concerns about the conduct of the company’s affair.

Accordingly, by the impugned order, RBI, in the exercise of powers conferred by section 45-IE, superseded Board of Directors as it was satisfied that in the public interest or to prevent the affairs of an NBFC being conducted in a manner detrimental to the interest of the depositors or creditors or for securing the proper management of such company or for financial stability. So, they appointed an administrator.

Petitioner shareholder of SIFL submitted that the statutory inspection was carried by RBI as far back on 31-3-2020. Therefore, there was no proximate cause for taking such a drastic step as the supersession of the Board of Directors and appointment of an administrator.

High Court Held

On the contrary, the High Court indicated that despite the opportunity granted to rectify governance issues and improve the financial condition, nothing was done. It cannot be said that RBI has acted without jurisdiction or in violation of the principles of natural justice. These are financial, economic, and corporate decision-making matters to handle which statutory bodies like RBI are fully empowered and competent. Accordingly, the High Court dismissed the writ petition.

List of Cases Referred to

• • Peerless General Finance & Investment Co. Ltd. v. Reserve Bank of India [1992] 2 SCC 343 (para 7.1).