An Institution that is not registered under the Reserve Bank of India Act cannot be regulated through provisions of SEBI Act, 1992: Jharkhand High Court

IN THE HIGH COURT OF JHARKHAND AT RANCHI W.P.(C) No. 12113 1. Green Ray International Limited a Public Limited Company having its Registered Office at Green Ray Multiplex Deuli Panchghanta Jaleshwar Balasore State Orissa Represented by its General Manager Sk. Nurul Hossain S o Sk Abdul Gani Resident of Village Takatpur P.S. Baripada Distt Mayurbhanj State Orissa. 2. Sk. Nurul Hossain S o Sk Abdul Gani presently being the General manager of Green Ray International Limited having his Residence at Resident of Village Takatpur P.S. Baripada Distt Mayurbhanj State Orissa. … … Petitioners 1. The State of Jharkhand 2. The Deputy Commissioner Sahibganj P.O. + P.S. & District 3. The Sub Divisional Officer Sahibganj P.O. + P.S. & District 4. Union of India through Secretary Ministry of corporate Affairs New Delhi P.O. + P.S. New Delhi. 5. Registrar of Company Affairs cum Official Liquidator Bihar & Jharkhand Ranchi. 6. Reserve Bank of India Zonal Office Patna 5th Floor Bank of Baroda Building 16 Samsad Marg New Delhi 110001. CORAM : HON’BLE MR. JUSTICE SUJIT NARAYAN PRASAD … … Respondents Mr. Mahesh Tewari Advocate For the Petitioners For the Respondent No.6 : Mr. Pandey Neeraj Rai Advocate For the Respondent No.7 : Mr. Anil Kumar Sinha Sr. Advocate Mr. Rohit Ranjan Sinha Advocate Order No. 11 : Dated 16th March 2021 The matter has been heard through video conferencing with the consent of the learned counsel for the parties. They have no complaint about any audio and visual connectivity. 2. Heard learned counsel for the parties. 3. The prayers made in this writ petition are for direction in the nature of writ of mandamus to allow the petitioners to continue its lawful business from the concerned office and not to interfere with in any manner in continuing the lawful business from the office of the petitioners which had been sealed by the concerned authority without serving any proper notice and without giving any opportunity to the representative of the petitioners to place their defence. 4. The brief facts of the case as per the pleading made in the writ petitions are required to be enumerated herein which reads hereunder as: The petitioner company herein namely Green Ray International Limited is a registered company under the Companies Act as a Public Company Limited by shares. The petitioner company deals in gold and silver coins and having its many offices throughout the country and particularly having its offices and works in the State of Jharkhand. The petitioners after getting necessary permissions from the competent authorities for carrying out the business in pursuance to the Memorandum and Articles of Associations have started the business but without any complaint whatsoever and without providing opportunity of hearing to the petitioners the authorities have taken restrainment measures by sealing the office and restraining the petitioners’ units in carrying out their business and therefore the writ petition has been filed. It has been contended by the learned counsel appearing for the petitioners that in absence of any complaint from any quarter the action which has been taken by sealing the office is not proper and such decision has been taken without providing any opportunity of hearing to the petitioners hence the action of the respondents being arbitrary therefore direction may be passed for allowing the writ petitioners to carry out their 6. The State of Jharkhand has filed affidavit wherein inter alia stand has been taken by making reference about the letter of Reserve Bank of India dated 30.03.2012 addressed to the Joint Secretary Finance Department Jharkhand whereby and whereunder request has been made to take steps upon multi level marketing scheme works and that the State Government has jurisdiction to take action against multi level marketing scheme company firm within their State as per Prize Chits and Money Circular Scheme Act 1978. It was also requested vide aforesaid letter to furnish the list of such type of company firm which are functional in the State of Jharkhand. It has further been stated that the Superintendent of Police Sahibganj has written a letter dated 03.02.2013 to Deputy Commissioner Sahibganj for deputation of Magistrate for enquiry raid upon the non banking activities which are being conducted violating the guidelines of the Reserve Bank of India and in this connection Deputy Commissioner Sahibganj vide order dated 07.02.2013 constituted a team for Sahibganj and Rajmahal Sub Division under Sub Divisional Officer Sahibganj and Sub Divisional Officer Rajmahal for enquiry and raid upon non banking activities with Deputy Superintendent of Police Sub Divisional Police Officers and Forces. The aforesaid team has initiated an inquiry and asked the petitioner company to produce the documents relating to money transaction but no such documents have been provided and even the trade licence was not produced by the company. Further stand has been taken that the petitioner company is illegally doing its business without NBFC of Reserve Bank of India so the offices were sealed and thereafter FIR was lodged against the company. The respondent Securities and Exchange Board of India S.E.B.I) has filed affidavit in pursuance to the direction of this Court passed in I.A. No.67713 whereby and whereunder it has been stated that SEBI has passed an order on 03.02.2014 under Section 11 and 11B of the SEBI Act 1992 directing the petitioner company not to collect any money from investors or launch or carry out any scheme which has been identified as a collective investment scheme in the order. It has further been Directors Promoters shall wind up the existing collective investment scheme and refund the money collected by the said company under the schemes with returns which are due to its investors within a period of three months and submit a winding up and repayment report to SEBI failing which SEBI would initiate prosecution proceedings under the SEBI Act. The respondent Reserve Bank of India has filed affidavit stating inter alia therein that the exact nature of business of the petitioner company is not clear and the operations of the company need to be verified. It has further been stated that since the petitioner company is not registered with Reserve Bank of India the RBI could not conduct scrutiny of the books of accounts of the company under Section 45N of the RBI Act 1934. Further the petitioner company is not registered with Reserve Bank of India as NBFC. 7. This Court has heard the learned counsel for the parties at length and after appreciating their arguments found the fact which is admitted to the extent that though the petitioners’ are claiming that they are doing the business of gold and silver coins but from the counter affidavits filed by the respondents it appears that they are also involved in non banking activities like collecting money from the customers without NBFC of Reserve Bank of India. It requires to refer herein the objects and intents of the Reserve Bank of India Act 1934 which is an Act to constitute a Reserve Bank of India to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in and generally to operate the currency and credit system of the country to its advantage. The amendment Act has come in the year 1997 being Amendment Act 297 keeping the objects and reasons to regulate the activities of the non banking institutions and unincorporated bodies receiving deposits are regulated in terms of the provisions of Chapters III B and III C of the Reserve Bank of India Act 1934 respectively. 9. The reference of the Securities and Exchange Board of India Act 1992 is also required to be made herein which has been enacted in order to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market and for matters connected therewith or incidental The legislation has been made by way of amendment being Amendment Act 59 of 2002 with the objects and reasons for establishment of a Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market and for matters connected therewith or incidental thereto. 10. This Court therefore is of the view after going through the objects and intents of the Reserve Bank of India Act 1934 which stipulates about the operation of the non banking institutions and unincorporated bodies receiving deposits are regulated in terms of the provisions of Chapters III B and III C while on the other hand the objects and intents of the Securities and Exchange Board of India Act 1992 is to protect the interests of investors in securities and to promote the development of and to regulate the securities market and for matters connected therewith or incidental thereto meaning thereby if any non banking financial companies has been created that must be within the scope of the Reserve Bank of India Act 1934 and only after its creation in terms of the provision of Reserve Bank of India Act 1934 the question of protecting the interests of the investors in securities and to promote the development will come into play. 11. This Court on the basis of the aforesaid legal position has proceeded to examine the factual aspects in order to come to the conclusion about the legality and propriety of the impugned decision of the authorities therefore this Court is of the opinion to first look into the creation of the petitioner company as to whether the same have been created in pursuance to the provision of Reserve Bank of India Act 1934 or not 12. It would be evident from the counter affidavit filed on behalf of the respondent Reserve Bank of India that the certificate of registration has not been obtained under the provision as contained under Section 45 IA of the Reserve Bank of India Act 1934 rather the company has been registered under the Society Registration Act and therefore this Court is of the considered view that in absence of any certificate of registration(CoR) under the Reserve Bank of India Act 1934 the institution cannot be allowed to run the activities by accepting the deposits etc. 13. Mr. Anil Kumar Sinha learned senior counsel appearing for the respondent S.E.B.I. has submitted that since the petitioner company is not running in pursuance to the provision of Reserve Bank of India Act 1934 therefore keeping the objects and intents of the Securities and Exchange Board of India Act 1992 even if any inquiry would be conducted the factual scenario pertaining to non registration under the Reserve Bank of India Act 1934 will not be changed. 14. This Court after considering the aforesaid submission is in agreement thereto as because so long as the institution is not registered under the provision of Reserve Bank of India Act 1934 there cannot be any meaning of regulating by virtue of S.E.B.I. Act 1992. The reason being that when the constitution of the company itself dehors the rule there is no question of regulating it under the S.E.B.I. Act 1992. It has also been informed that with respect to the affairs of this company FIR has been instituted and now the matter is being looked into by the Central Bureau of Investigation. 15. This court in view of the entirety of the facts and circumstances and as per the discussion made hereinabove is of the considered view that the prohibitory order passed by the authority in pursuance to the raid enquiry conducted by the concerned authority and if such decision has been taken the 16. In view of such finding this Court is not inclined to pass same cannot be faulted with. any positive direction. 17. Accordingly the instant writ petition fails and is dismissed. 18. Consequently I.A. No. 5458 of 2017 also stands disposed of. Birendra 

Summary: As the institution is not registered under the provision of the Reserve Bank of India Act 1934, there cannot be any meaning of regulating by S.E.B.I. Act, 1992. The explanation for this is that if the company’s constitution opposes the law, there is no way to regulate it under the S.E.B.I. Act of 1992. The judgement was passed by the High Court of Jharkhand in the case of Green Ray International Limited vs The State of Jharkhand [W.P.(C) No. 1211 of 2013] by Single Bench consisting of Hon’ble Justice Sujit Narayan Prasad. The facts of the case are The petitioner company is a registered company under the Companies Act as a Public Company Limited by shares, carrying out the business in pursuance to the MAAs have started the business but without any complaint whatsoever and without providing an opportunity of hearing to the petitioners, the authorities have taken restrainment measures by sealing the office and restraining the petitioner’s units in carrying out their business and therefore, the writ petition has been filed. Learned counsel for the petitioners contended that in absence of any complaint from any quarter, the action which has been taken by sealing the office, is not proper and such decision has been taken without providing any opportunity of hearing to the petitioners, hence, the action of the respondents being arbitrary, therefore, a direction may be passed for allowing the writ petitioners to carry out their business. Learned counsel for the respondent has submitted that since the petitioner company is not running in pursuance to the provision of Reserve Bank of India Act, 1934, therefore, keeping the objects and intents of the Securities and Exchange Board of India Act, 1992, even if any inquiry would be conducted the factual scenario of non-registration under the Reserve Bank of India Act, 1934, will not be changed. The Learned Court observed that “though the petitioners’ are claiming that they are doing the business of gold and silver coins from the counter-affidavits filed by the respondents it appears that they are also involved in non-banking activities like collecting money from the customers without NBFC of Reserve Bank of India.”