CHAPTER 5

CASE STUDIES

A J K FERNANDEZ VS. SECRETARY FINANCE RESERVE BANK OF INDIA

LAWS(MAD)-2010-12-61
HIGH COURT OF MADRAS
Decided on December 02, 2010
A.J.K. FernandezAppellant
VERSUS
Secretary Finance, Reserve Bank Of IndiaRespondents

JUDGEMENT
-

( 1. ) THE petitioner, claiming to be the Chairman of one St. Mary Forex Bureau Pvt. Ltd.,
having its office at London (U.K.), has come forward to file the present writ petition seeking for
the issuance of a writ in the nature of mandamus forbearing the second and third respondents
from refusing/rejecting the application of the petitioner company under the Payment and
Settlement Systems and also the second respondent from refusing/rejecting the issuance of the
Full-fledged Money Changer License on the ground of pendency of the criminal prosecution
against the petitioner in his individual capacity and to pass an appropriate order.

( 2. ) THE writ petition was admitted on 13.8.2010. Pending the writ petition, this Court granted
an interim injunction restraining the second and third respondents from implementing the order of
the third respondent, dated 5.7.2010 and also to extend the Full-fledged Money Changer License
pending disposal of either writ petitioner or the appeal lying with the Secretary, Ministry of
Finance, Government of India, New Delhi or on reaching a finality in the Supreme Court.
It was noted by this Court while granting an interim injunction that the Reserve Bank had granted
an authorization for setting up payment system on installment basis. While considering the fact
that a criminal case has been launched against the petitioner on a private complaint filed by a
person hailing from Delhi, they have forgotten the reality that a case has been launched against
the petitioner only in his individual capacity. Thereafter, this Court went on to make the following
findings for the purpose of grant of interim injunction, dated 13.8.2010, which are as follows:
"4. It is submitted that the disputed signatures found in the documents seized in the criminal case
were sent for expert opinion and the expert has opined that the disputed signatures found in those
documents tallied with the signatures of the complainant and not with the signatures of the
petitioner herein. Based on the said revelation, the petitioner, in fact, moved a petition before the
Supreme Court of India and got the entire criminal case pending against the petitioner stayed.
Though the petitioner has given an undertaking that he will see to it that the case pending before
the Supreme Court is terminated by September, 2010, as rightly pointed out by the learned
counsel for the petitioner, termination of the case before the Supreme Court is not definitely in
the hands of the petitioner. 5. At any rate, the Reserve Bank of India has given weightage to the
criminal case, which was already stayed by the Supreme Court of India while giving
authorisation for setting up of payment system by the petitioner company. I find that there is
merit in the contention that the criminal case which has been launched against the petitioner in
his individual capacity and was stayed by the Supreme Court should not have been considered by
the Reserve Bank of India."

Aggrieved by the interim order, the second and third respondents have filed a vacate interim
injunction application in M.P. (MD) No. 2 of 2010 together with a supporting counter affidavit,
dated 28.9.2010. The petitioner has also filed a reply affidavit, dated 24.10.2010. When the
vacate stay application came up, with the consent of both sides, the main writ petition was
directed to be posted. Accordingly, the matter was taken up for final hearing.

( 3. ) HEARD the arguments of Mr. Kalyanasundaram, learned senior counsel leading Mr. N.
Sundareshan, learned counsel appearing for the petitioner, Mr. AR. L. Sundaresan, learned senior
counsel leading for Mr. K. Ramamoorthy, learned counsel appearing for second and third
respondents and Mr. K.K. Senthilvelan, learned Assistant Solicitor General appearing for the first
respondent.
Before proceeding to deal with the rival contentions, it is necessary to refer to the provisions of
the Act in question. The Parliament has enacted the Payment and Settlement Systems Act, 2007
(Central Act 51 of 2007) (for short PASSA). The said Act was brought into force with effect from
12.8.2008. The object of the Act is to provide for the regulation and supervision of payment
systems in India and to designate the Reserve Bank of India as the authority for that purpose and
for matters connected therewith or incidental thereto.

HIGH COURT OF JUDICATURE OF ALLAHABAD

Court No. 9.
Company Petition No. 88 of 1999.
Reserve Bank of India

...

Petitioner

...

Respondents.

Versus
Krishi Export Com. Corp. Ltd.
Hon. Sunil Ambwani, J.
1. This matter initiated on the application of Reserve Bank of India ( In Short RBI) under section
45 MC of the Reserve Bank of India Act, 1934, to wind up Krishi Export Com. Corporation Ltd.
( the respondent company) having its Registered Office at Krishi Export Plaza, Sigra, Varanasi,
brings on record strange circumstances in which the investors who had deposited more than Rs.
54 crores of rupees, have been deprived of their deposits, due to negligence and carelessness of
the Reserve Bank of India, the petitioner in the company petition, and the ex directors obtained
interim order from this Court.
2. The speaking order dated 17.9.1998 passed by the Reserve Bank of India rejecting the
company application for certificate of registration to carry on business of non banking financial
institutions as contemplated under section 45 IA of the Act, stated in para 3 as follows:
"3. For the purpose of considering the Application of the Company, the information furnished by
the company along with its said Application and the findings of the Inspection Report conducted
with reference to its financial position as on March 31, 1998 have been taken into account which
have revealed the following :
i)The NOF of the company was assessed to be negative at (-)Rs.682.62 lakhsas on March 31,
1998.

ii)Realisable value of assets of the company at Rs. 5889.51 lakhs as on March 31, 1998 were far
less than its outside liabilities at Rs.6151.11 lakhs. Not only the owned funds, even the deposits
have been eroded to the extent of Rs. 163.21 lakhs. Thus, the company is not deemed to be
solvent.
iii)The Management of the company did not have any scheme of delegation of powers and the
policy decisions were taken by only one person i.e. the Managing Director.
iv)The Company had violated the following provisions of RNBC Directions contained in
notification No. DFC.55/DG(O)-87 dated May 15, 1987 as detailed below:
a)The company had not invested in assets in accordance with the provisions of para 6 of the
Directions.
b)Director's Report did not include information regarding compliance with RBI Directions and
unclaimed deposits, thus contravening provisions of para 11 of the notification, ibid.
c)Audited balance sheet together with auditor's and Director's Report for three years ended
31.3.1997 were not submitted to the Reserve Bank thus contravening provisions of para 13 of the
notification, ibid.
d)Periodical returns were not submitted prior to March 1998 by the company as required in para
14 of the notification, ibid.
e)Statements in lieu of advertisement (SILA) were not submitted by the company for 1997-98
thus contravening the provisions of para 16 of the notification.
This indicates that the affairs of the Company are likely to be conducted in a manner detrimental
to the interest of its depositors."

3. Prior to filing of this petition the investors had approached the Company Law Board, ( In short
CLB) after some Public Interest Litigations were filed. The CBL by its order dated 15.9.1999,
after taking into account the assets of the company as on 30.9.1998 reported to be Rs. 54.60
crores and the liabilities towards the deposit of interest amount to the tune of Rs. 54 crores as on
30.9.1998 proceed to pass orders under Section 45 QA(2) of the Reserve Bank of India Act,
1934, and formulated a scheme of repayment to all the depositors within a period of three years
from the date of maturity.
4. The RBI significantly neither offered any comments on the scheme to the CLB nor the
representative of RBI was present at the time of hearing on 15.9.1999. The operative portion of
the order of the CLB is reproduced as below:
"10. A further hearing was held on 24th August, 1999 and Bench Officer was directed to forward
company's proposal for payment of its deposits in phased manner to Reserve Bank of India along
with cash flow projections for their comments and to intimate them the next date of hearing. A
letter was accordingly written to this effect by the Bench Officer to General Manager, Reserve
Bank of India, Sahkari Kisan Bhawan, M.G. Marg, Lucknow to offer their comments before 15th
September, 1999 and also to depute the representative at the time of hearing if so desire, failing
which matter would be decided on merit.
11. Neither the representative of Reserve Bank of India was present at the hearing held on 15th
September, 1999 nor they have offered any comments on the scheme proposed by the company.
Mr. U.P. Mathur, Advocate appearing on behalf of the company urged that the scheme published
by the company may be appeared being equitable and in the interest of the depositors of the
company.
12. Taking into consideration submissions made by the Advocate appearing for the company, the
interest of the company, the interest of the depositors and also public interest at large, pursuant to
the provisions of Sub Section (2) of Section 45 QA of Reserve Bank of India Act, 1934, the
company is directed as follows:

To pay all deposits within a period of three years from the date of maturity @ 30% during 1st
year, 30% during 2nd years and balance 40 % during 3rd year. The interest for pre and post
maturity period to be paid along with the last installment.
The interest will be at contracted rate up to the date of maturity and @ 12.5 % per annum after
the date of maturity of deposit.
The above scheme will be applicable to all depositors, whether over due or yet to mature, and
whether any application has been filed before the Company Law Board or not and the company
is bound to abide by the terms of this order.
13. The company will adhere to the following guidelines in implementing the scheme:1. While repaying the deposits as per the scheme above, all individual deposits will be treated as
Hsuch and shall not be clubbed if any depositor holds more than one deposit for the purpose of
arriving at the amount as fixed in the scheme.
1.The need of the depositors in hard ship case like medical requirements, old age, marriage etc.
shall be considered sympathetically by the company notwithstanding the aforesaid scheme. For
this purpose company shall keep separately a sum of Rs. 10.00 lakhs per quarter over and above
the payment is required to be made as per scheme indicated earlier.
2.The payment shall be made in the order of date of maturity i.e. deposits which have matured
earlier shall be paid before deposits maturing at a later date.
3.The repayment should be spread over all the months in each year.
4.Notwithstanding the aforesaid scheme, the company will be at liberty to make repayment of
deposits along with the interest thereon before the stipulated time, if funds are available.