Only NCLT Can Decide Premature Loan Repayment Disputes Under RBI Act: Allahabad High Court

The Allahabad High Court on 31 March held that under Section 45QA of the Reserve Bank of India Act, 1934 read with Section 430 of the Companies Act, 2013, only the National Company Law Tribunal (NCLT) has the jurisdiction to decide disputes regarding premature repayment of a loan.

A Single-Judge Bench of Justice Sandeep Jain dismissed the appeal filed by Shivam Traders And Hire Purchase Pvt. Ltd. against Madhusudan Vehicles Pvt. Ltd., holding that the civil court had no jurisdiction over the dispute between the two NBFCs. It noted:

“ It is clear that under Section 45 QA of the Act only the NCLT had the jurisdiction to decide the dispute of premature repayment of the loan taken by plaintiff from the defendant, hence, the civil court had no jurisdiction in this matter.”

Shivam Traders And Hire Purchase Pvt. Ltd., is a non-banking financial company (NBFC) that took a long-term loan of Rs. 19.25 crore in 2019 from Madhusudan Vehicles Pvt. Ltd., also an NBFC. It was argued that repayment of loan could not be demanded before 9 years from the date of disbursement. However, after one year, the defendant allegedly began harassing the plaintiff for repayment of the loan and interest.

The defendant also approached the Reserve Bank of India seeking directions for repayment. Fearing RBI action, the plaintiff filed a civil suit seeking a declaration and protection from infringement of its rights. The defendant then filed an application under Order VII Rule 11 CPC to reject the plaint, arguing that the civil suit was barred under the Companies Act.

The Trial Court applied Section 430 of the Companies Act and rejected the plaint, holding that the civil court had no jurisdiction where the NCLT had authority. The Court observed that the dispute, involving two NBFCs, could only be adjudicated by the NCLT. The plaintiff then approached the High Court.

The High Court framed the following questions of law:

1. Whether the plaintiff had any cause of action to file the instant suit?
2. Whether the suit was filed to pre-empt any action being taken by the NCLT or RBI in the proceedings initiated by the defendant for recovery of the loan?
3. Whether the dispute regarding premature recovery of the loan could only be determined by the NCLT?
4. Whether the suit was barred under Section 45QA of the RBI Act read with Section 430 of the Companies Act, 2013?

The Court noted that the plaintiff had approached the civil court seeking an injunction due to fear of RBI action. It observed that the defendant had allegedly misrepresented facts and concealed the delayed repayment agreement when approaching the RBI.

Holding that disputes under Section 45QA are cognizable only before the NCLT, the Court stated:

“It is also apparent that under Section 45 QA of the RBI Act, the Company Law Board, now National Company Law Tribunal (NCLT), is the only judicial authority which can decide this dispute as to whether the depositors are entitled to claim back their deposit/loan from the NBFC, whether the NBFC has committed any default in repaying the loan or the deposit, the manner in which the money is to be refunded, how to safeguard the interests of the company or the depositors, etc.”

The Court further noted that the plaintiff had not disclosed the proceedings pending in the NCLT and had approached the High Court with unclean hands. It held that the question of whether the defendant was liable to repay the loan could only be decided by the NCLT, and filing a civil suit to restrain such action was barred under the Specific Relief Act. It observed:

“It is apparent from the above analysis that under Section 45 QA of the RBI Act, the matter was only cognizable by the NCLT, as such, the civil court had no jurisdiction to restrain the defendant from prematurely recovering the loan amount of Rs. 20,52,02,295/- or the interest accrued on it or any part of such loan amount or interest from the plaintiff in violation of the terms of the agreement dated 4.4.2019 before the expiry of nine years from the dates of disbursement of such loan, as claimed by the plaintiff in its plaint.”

Though the civil court had erred in recording the application number under Order VII Rule 11 CPC, the High Court held this to be an inadvertent error and not a ground for relief.

Accordingly, it dismissed the appeal with costs.