Calcutta High Court Allows Payment to Large Depositors in NBFC Winding Up Case

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Case Name

Messers Global Finance Corporation Limited vs Reserve Bank of India (High Court of Calcutta)

APOT/62/2025 with CP/381/2005, IA NO: ACO/1/2025

Date:16th April 2025

Key Takeaways

• NBFCs must have proper licenses: The case highlights the importance of NBFCs operating with the required RBI license.
• Protection of small depositors: The court prioritized paying off small depositors (up to ₹25,000) first.
• Pro-rata payment to larger depositors: After small depositors were paid, the court allowed the remaining funds to be distributed to larger depositors on a pro-rata basis.
• Role of Special Officer: The Special Officer played a crucial role in managing and disbursing funds, and the court ensured continuity by appointing a joint Special Officer.
• Income Tax authorities’ rights restored: The court vacated earlier orders restraining tax authorities, allowing them to proceed as per law.

Issue

Should the remaining funds held by the Special Officer, after paying small depositors, be used to pay larger depositors (those with deposits above ₹25,000) in the winding up of an unlicensed NBFC?

Facts

• Parties: Messers Global Finance Corporation Limited (the appellant, an NBFC) and the Reserve Bank of India (the respondent).
• Background: The company raised money from many people across India but did not have the required RBI license. RBI initiated liquidation proceedings under Section 45(M)© of the Reserve Bank of India Act, 1934.
• Winding Up: The Company Court admitted the winding up petition. A Division Bench later stayed the winding up, with conditions:
• The company had to amend its Memorandum and Articles of Association to remove the NBFC business object.
• Under a Special Officer’s supervision, small depositors (up to ₹25,000) were to be paid first.
• Any leftover funds were to be invested until further orders.
• Current Situation: All small depositors who applied were paid. About 177 depositors with more than ₹25,000 each remained unpaid. The Special Officer still held about ₹56 lakhs.
• Appeal: The company appealed for permission to pay these larger depositors from the remaining funds.

Arguments

For the Appellant (Global Finance Corporation Ltd.)

• All small depositors have been paid.
• The remaining funds should be used to pay larger depositors on a pro-rata basis.
• The Special Officer is ready and able to make these payments.

For the Respondent (Reserve Bank of India)

• RBI had no objection to the remaining funds being used to pay the larger depositors.
• The process should comply with the court’s directions and all formalities.

Key Legal Precedents

• Section 45(M)© of the Reserve Bank of India Act, 1934: This section empowers RBI to initiate liquidation proceedings against unlicensed NBFCs.
• No specific case law names are cited in the judgment. The court’s directions are based on previous orders in the same matter, particularly the Division Bench’s order that prioritized small depositors and outlined the process for fund disbursement.

Judgement

• Court’s Decision: The court allowed the Special Officer to disburse ₹56 lakhs (or the available sum) to depositors with more than ₹25,000, on a pro-rata basis, after all formalities are completed.
• Remuneration: The Special Officer was permitted to take his remuneration from the funds.
• Timeline: Disbursements must be made within 8 months from the date of the order.
• Special Officer’s Role: The current Special Officer, due to his advanced age, was joined by Mr. Anirban Ghosh (Advocate for the appellant) as a joint Special Officer (without remuneration) to assist and eventually take over.
• Income Tax Proceedings: The earlier order restraining the Income Tax authorities was vacated, allowing them to proceed as per law.
• Case Disposed: The appeal and connected application were disposed of accordingly.

FAQs

Q1: Why were only small depositors paid first?

A: The court prioritized small depositors (up to ₹25,000) to protect the most vulnerable investors, as per the Division Bench’s earlier order.

Q2: What happens to the remaining depositors?

A: The court has now allowed the remaining funds to be distributed to depositors with more than ₹25,000, on a pro-rata basis.

Q3: Who manages the payments?

A: The Special Officer, now assisted by a joint Special Officer (Mr. Anirban Ghosh), is responsible for verifying claims and making payments.

Q4: Can the Income Tax Department take action against the company?

A: Yes, the court vacated its earlier restraint, so the Income Tax authorities are free to proceed as per law.

Q5: What is the significance of this judgment?

A: It clarifies the process for distributing funds in NBFC winding up cases, especially when there are leftover funds after paying small depositors, and ensures fair treatment for larger depositors.