The Hindu Business Line : HC asks NBFC to go to appellate authority for justice

The Bench said that there was no dispute in the fact that the cancellation of the certificate of registration was done in public interest, and therefore, the proviso was not mandatory.

Chennai , Jan. 10

THE Madras High Court has held that the aggrieved non-banking financial company following the cancellation by the Reserve Bank of India of the registration certificate issued in its favour would be well advised to seek justice from the appellate authority as provided under sub-section (7) of Section 45-IA of the Reserve Bank of India Act, 1934.

Setting aside the order dated September 14, 2005, of the single judge who dismissed the petition of the Chennai-based Viswapriya Financial Service & Securities Ltd against the order of the single judge, a Division Bench comprising Mr Justice M. Karpagavinayagam and Mr Justice S.R. Singaravelu said that when the single judge had taken a position to direct the petitioner to go to the appellate authority to raise all the points before it, the single judge (who heard the petition) need not have gone into the question whether the issue would fall under the section.

But the finding had been given by the single judge, the Division Bench, which heard the writ appeal by the company, noted. On the face of it, the Bench said it was not able to accept the finding given by the single judge that the case would fall under clauses (iv) and (v) of the section alone. On the other hand, this would fall not only under clauses (ii) and (iii) but also under clauses (iv) and (v), which did not attract the first proviso.

The finding given by the single judge foreclosing the question of law raised by the appellant was wrong, the Bench said. These questions were to be left open to the appellate authority.

The company obtained the certificate of registration from the RBI in 1998, which was cancelled in August 2005. Questioning the RBI's decision, the company filed the writ petition, which was dismissed by the single judge. According to the petitioner, when a certificate of registration was cancelled, prior opportunity ought to have been given by serving a rectification notice. No such opportunity had been given in this case.

According to the RBI, Mumbai, the company had accepted public deposits in violation of law. The company was having non-banking financial business without having net owned funds of Rs 25 lakh, which was mandatory under clause (6) of sub-section (1) of Section 45-IA of the Act.

The single judge had held that provisions relating to rectification notice would not apply in this case. As such, it could not be said that natural justice had been violated, which would entitle the petitioner to approach this Court under Article 226 of the Constitution.

The respondent (RBI) contended that the petitioner could not approach the High Court under Article 226 without availing himself of the remedy available under the Act.

The Bench said that there was no dispute in the fact that the cancellation of the certificate of registration was done in public interest, and therefore, the proviso was not mandatory. But the finding given by the single judge foreclosing the question of law raised by the appellant was wrong. These questions were to be left open to the appellate authority to decide.

While allowing the writ appeal, the Bench asked the appellant to approach the appellate authority under the provisions of the Act.

The authority might entertain the appeal taking into account the period of limitation and give opportunity to both the parties to urge their respective points uninfluenced by any of the observations made either by the single judge or by this Division Bench, preferably within two months from the date of receipt of the copy of the order.