A Supreme Court bench comprising
Justice Subhash Reddy and Justice Hrishikesh Roy
, while presiding over a matter regarding delayed payments of principal amount and interest accrued on bonds issued by SIDBI, stated that “
RBI has wide supervisory powers over financial institutions like SIDBI, in furtherance of which, any direction issued by the RBI, deriving power from the RBI Act or the Banking Regulation Act is statutorily binding.
The facts of the case relate to the issuance of a number of bonds by the appellant (SIDBI) to M/s. CRB Capital Markets Ltd. (CRB Capital) then sold them to Mr Shankar Lal Saraf in and he further sold those to the respondent (SIBCO) in 1998. CRB Capital then went through winding up proceedings at the behest of RBI. The respondent then claimed payment on the bonds but the appellant refused to do so citing CRB Capital’s involuntary liquidation at the behest of RBI. The respondent approached the company court and also requested Mr Shankar Lal Saraf to file an interlocutory application in the company court claiming that the bond payment transaction be treated as outside the purview of liquidation proceedings under the Companies Act, 1956. Company Court then adjudged that the subject Bonds were beyond the purview of liquidation proceedings, following which appellant made the payment of principal amount together with interest.
Later, during an audit, the respondent detected a delayed payment of interest and demanded this payment from the appellant. The appellant refused to do so citing that RBI had issued a facsimile directing defendant not to affect any transfer or otherwise deal with any security invested by CRB Capital and its group Companies without prior permission of the official liquidator appointed by the Company Court at Delhi. Aggrieved by this refusal, the respondent then filed a civil suit claiming delayed redemption of aforesaid bonds. While the trial court treated RBI’s order as a directive and noted that there was a clear stipulation against affecting any transfer without the permission of official liquidator and dismissed the suit, the High Court of Calcutta reversed the order of the trial court and directed the appellant to pay interest amount from the date of accrual on the bonds. Thus, this appeal was preferred by the appellant-defendant who sought to set aside HC’s judgment in toto.
The Apex Court bench while looking into the question of whether the facsimile issued by RBI to the appellant (SIDBI) was a directive or a suggestion. The bench looked at S. 35A of Banking Regulation Act, 1949 which talks about RBI’s powers to give directions to banking companies and stated that “It is not necessary for RBI to mention a specific provision before issuing directions for it to have statutory consequences. All that is required is the authority under the law, to issue such a direction. Hence, it is undisputed that any direction by the RBI is compelling and enforceable similarly like the provisions of the RBI Act by its very nature.” Thus, the bench concluded that the RBI’s communication in question was a direction with appropriate statutory backing traceable to S. 45MB of the RBI Act and S. 35A of the Banking Regulation Act.
Regarding the respondent’s claim that the appellant derived undue benefit by intentionally withholding payment, the bench noted that since the amounts due on Bonds were in fact immediately transferred to the ‘Accrued Interest’ head and not used by appellants for themselves and thus any argument regarding mala fide intention behind withholding payment by the appellant is unacceptable.
Three concluding observations were made by the bench clearly stating that “Firstly, the appellant was justified in withholding payment as they were under RBI’s direction to do so; secondly, the defendant hasn’t derived any undue benefit by their act and; thirdly, due payment was promptly made to the plaintiffs upon settlement of rights by the court.”
Thus, the bench allowed the appellant’s appeal to restore the judgment of the trial court and no order to costs was directed.
Case Title : Small Industries Development Bank of India vs M/s Sibco Investment Pvt Ltd
Citation : 2022 LiveLaw (SC) 7