Delhi High Court: An appeal was filed by suspended directors of ECL (appellants) seeking to set aside the impugned judgement dated 23-10-2024 passed by the Single Judge and dismiss the said writ petition for being nonmaintainable and mala-fide and a gross abuse of process of law. A Division Bench of Chandra Dhari Singh and Anoop Kumar Mendiratta, JJ., upheld the impugned order dated 23-10-2024 as it was based on clear findings of the RBI that there have indeed been violations of mandatory regulations by the ECL.
Exclusive Capital Limited (ECL), originally incorporated as UT Leasing Limited in 1994 under the Companies Act, 1956, is a Non-Systematically Important Non-Deposit Taking Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India (RBI). The appellants are suspended directors of ECL, while respondent 1 is a holder of Compulsorily Convertible Preference Shares (CCPS) worth INR 175 crores in the company. Between October 2021 and March 2022, Teesta Retail Private Limited, which later merged with Siddhant Commercials Private Limited, invested INR 315 crores in ECL through Optionally Convertible Debentures (OCDs). However, concerns over ECL’s leverage ratio led to the conversion of these OCDs into CCPS through a resolution passed in an Extraordinary General Meeting on 27-09-2022. Aggrieved by this conversion and alleging oppression and mismanagement by the Board of Directors, a minority shareholder with a 5% stake, filed a company petition before the National Company Law Tribunal (NCLT). The NCLT, by order dated 15-05-2024, found that the conversion was not bona fide and resulted in oppression of minority shareholders, appointing Justice R.K. Gauba (Retd.) as the Administrator of ECL.
Subsequently, both the minority shareholder and respondent 1 filed complaints before the RBI, alleging siphoning and mismanagement of funds by the directors of ECL, including the appellant. The NCLT’s order was challenged before the National Company Law Appellate Tribunal (NCLAT), which initially maintained the status quo but later, by order dated 31-05-2024, modified it by appointing Justice Gauba as an Observer while suspending the Board of Directors. Thereafter, respondent 1 filed a writ petition before the Single Judge of the High Court under Article 226 seeking a mandamus against the RBI to act upon the complaints and regulate ECL’s management. ECL challenged the maintainability of this writ petition, but the Single Judge, vide order dated 23-10-2024, rejected the challenge and directed the RBI to intervene. Aggrieved by this impugned order, the present appeal was filed by the appellant, seeking its reversal.
The Court noted that the appellants have assailed the impugned order primarily on the ground that the Single Judge passed an order on merits whereas the hearing was limited to the question of maintainability of the writ petition. The Court also noted that the status report filed by the RBI revealed that the management of the ECL has in fact breached mandatory regulations issued by the RBI.
The Court also took note of the fact that an email dated 24-05-2024 issued by the RBI to ECL noted the violations committed by the ECL, however, despite taking note of all the irregularities committed by the ECL, the RBI has not taken any action against ECL till date. The Court remarked that “it is an elementary principle that when a public authority is vested with specific powers, it is duty bound to act accordingly. Therefore, any failure to exercise statutory powers gives rise to a cause of action to secure performance of such duty by way of issuance of writ of mandamus under Article 226 of the Constitution of India.”
Placing reliance on CAG v. K. S. Jagannathan, (1986) 2 SCC 679, the Court observed that a duty is implied by the vesting of statutory power upon a public authority. Further, the performance of such duty can be secured by proceedings under Article 226. The Court stated that respondent 1 has sought the interference of the Single Judge considering the failure of RBI to act in exercise of its power under Chapter-III-B and more particularly Section 45-IE and Section 45MA of the RBI Act. Such reliefs claimed are, therefore, clearly maintainable in proceedings under Article 226.
The Court remarked that despite repeated reminders, the management of ECL has not shared several details regarding the nature of organizational structure of ECL, list of secretarial records, statutory compliances, detailed particulars of all the managerial personnel (current and former), scope of their respective roles/responsibilities along with the details of their remuneration/perks and benefits. It is also observed that non-compliance of another direction of the learned Observer in the light of the order of NCLAT, and such non-compliance assumes significance that the affairs of the ECL are not being managed rightly by the present management.
The Court concluded that the representations dated 20-06-2024 and 21-06-2024 made by the respondent 1 to RBI which clearly states the instances of siphoning of funds and rampant irregularities in the affairs of ECL. The NCLT, vide order dated 15-05-2024 set out detailed findings of siphoning of funds by the appellants from ECL. Thus, the impugned order dated 23-10-2024, was passed by the Single Judge on the basis of clear findings of the RBI that there have indeed been violations of mandatory regulations by the ECL. These findings recorded by RBI certainly warrant issuance of protective ad-interim orders.
[Johnson KA v. Evaan Holdings Pvt Ltd, 2025 SCC OnLine Del 782, decided on 12-02-2025]
[Satya Prakash Bagla v. Evaan Holdings Pvt Ltd, 2025 SCC OnLine Del 783, decided on 12-02-2025]
[Exclusive Capital Limited v. Evaan Holdings Pvt Ltd, 2025 SCC OnLine Del 784, decided on 12-02-2025]
Advocates who appeared in this case:
In LPA 1080/2024
Mr. Harish Malhotra, Sr. Advocate and Mr. Ravi Gupta, Sr. Advocate with Mr. Manav Goyal, Mr. Zinnea Mehta, Ms. Ritika Gusain, Mr. Abhishek Jaiswal, Ms. Shriya Agarwal, Ms. Tanushvi Singh, Ms. Muskaan Mehra, Ms. Jahnvi Gupta and Mr. Shrey Sharma, Advocates for appellants
Mr. Rajiv Nayyar, Sr. Advocate with Ms. Devika Mohan, Ms. Manya Chandok, Mr. Prabhav Bhaguna and Mr. Saurabh Seth, Advocates for R-1 Mr. Ramesh Babu and Ms. Nisha Sharma, Advocates for R-2/RBI
In LPA 1081/2024
Mr. Harish Malhotra, Sr. Advocate and Mr. Ravi Gupta, Sr. Advocate with Mr. Manav Goyal, Mr. Zinnea Mehta, Ms. Ritika Gusain, Mr. Abhishek Jaiswal, Ms. Shriya Agarwal, Ms. Tanushvi Singh, Ms. Muskaan Mehra, Ms. Jahnvi Gupta and Mr. Shrey Sharma, Advocates for appellant
Mr. Rajiv Nayyar, Sr. Advocate with Ms. Devika Mohan, Ms. Manya Chandok, Mr. Prabhav Bhaguna and Mr. Saurabh Seth, Advocates for R-1 Mr. Ramesh Babu and Ms. Nisha Sharma, Advocates for R-2/RBI
In LPA 1083/2024
Ms. Ranjeeta Rohtagi, Mr. Avishkar Singhvi, Mr. Keshav Sehgal, Mr. Shivam Gaur, Mr. Kshitiz Joshi, Mr. Aryan Kumar and Ms. Nandita Kumar, Advocates for appellant
Mr. Rajiv Nayyar, Sr. Advocate with Ms. Devika Mohan, Ms. Manya Chandok, Mr. Prabhav Bhaguna and Mr. Saurabh Seth, Advocates for R-1 Mr. Ramesh Babu and Ms. Nisha Sharma, Advocates for R-2/RBI
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