Guidance Note to NBFCs for nomination of counsel in Delhi High Court

By Richa Saraf, (legal@vinodkothari.com)

BACKGROUND:

1. In exercise of its powers under sub clause (iv) of clause (m) of sub section (1) of section 2 read with section 31A of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( “SARFAESI Act”), the Central Government issued a notification[1] dated August 5, 2016 notifying 196 Non- Banking Financial Companies (“Notified NBFCs”) as “Financial Institutions”, registered with the Reserve Bank of India (RBI) and having asset of Rs. 500 crore and above as per their last audited balance sheet, on which the SARFAESI Act is applicable.
2. Now, in compliance of the Delhi High Court (“High Court”) order dated July 21, 2017[2], RBI has issued a circular DNBR (PD) CC.No.088/03.10.001/2017-18[3] dated August 14, 2017 (“Circular”), to all such Notified NBFCs for appointment of their respective nominated counsels in the High Court.
3. The above order was passed in pursuance of a recent case M/s J K Jewellers and Ors. v. Capri Global Capital Limited [W.P.(C) 1088/2017] before the High Court, wherein an advance copy of the writ petition was not furnished to the respondent or its nominated counsel and the petitioners contended that the respondent has not appointed a nominated counsel and therefore, no advance copy could be furnished.
4. The counsel for the RBI was called upon to inform the High Court as to whether any steps have been taken by the RBI to direct all the Notified NBFCs to invoke Section 13/14 of the SARFAESI Act, to appoint nominated counsels in the High Court.
5. The counsel for the RBI contended that he shall have to obtain instructions in this regard and he was, therefore, directed to contact the concerned department of the RBI and ensure that a circular is circulated amongst all the Notified NBFCs for them to appoint their respective nominated counsels in the High Court so that henceforth, when a party files a petition in the High Court for seeking interim orders/ directions against any Notified NBFC, advance copies of petitions can be served directly on the said counsel(s) and they are ready with instructions at the stage of admission itself.

RBI DIRECTION:

1. Applicability: The Circular is applicable to all the 196 Notified NBFCs.
2. What is to be done? Pursuant to the Circular, all Notified NBFCs, empowered to invoke Section 13/ 14 of the SARFAESI Act, are required to appoint nominated counsels in the High Court and convey their names to the Central Registry of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (“Registry”), within 4 (Four) weeks from the date of receipt of the Circular, i.e. within September 11, 2017.

WHY APPOINT A NOMINATED COUNSEL?

A counsel may be nominated so that in case of any future litigation against the Notified NBFCs in the High Court, advance copies of petitions can be served directly on the said counsel(s).

WHO CAN BE THE NOMINATED COUNSEL?

The counsel may be any person enrolled as an Advocate with the High Court, to be nominated by the Notified NBFCs for the purposes of arguing cases before the High Court, on behalf of such nominating NBFC.

IMPLICATIONS OF NOT HAVING A NOMINATED COUNSEL:

1. If a counsel is not nominated, there is a possibility that in case of any future litigation against the Notified NBFCs, within the jurisdiction of the High Court, an advance copy of the petition might not be served on the said NBFC, which might cause an ex-parte order to be passed against it.
2. However, looking at the language and spirit of the Circular, it is also understood that the Circular will apply only on such Notified NBFCs which is conducting business in Delhi or which has a probability of facing litigation in Delhi and others may not be required to comply with the Circular.

HOW TO COMPLY WITH THE CIRCULAR?

Based on the above understanding, we have jotted down the actionable on the part of the Notified NBFCs. The same are as follows:

a. If the Notified NBFC(s) has business in Delhi or there is a possibility of facing a litigation in Delhi, then it may consider nominating a legal counsel. Meanwhile the following reply may be sent to the RBI-

The Company is in the process of the identifying and nominating a legal counsel, as soon as the nomination completed, the same shall be notified to the Registry.

b. If the Notified NBFC(s) does not have any customer base in Delhi, it will be very unreasonable to contend that the Notified NBFC(s) will still have to nominate a legal counsel in Delhi. The following may be stated by such NBFC in the reply to the RBI-

Currently, the Company neither has business operations in Delhi nor it feels there is a possibility of any litigation against the Company under the jurisdiction of Delhi High Court, therefore, the Company is considering whether it should appoint a counsel. However, the Company does undertake to nominate a legal counsel, as and when necessary, and intimate the same to the Registry.​

 c. Whether an intimation is required to be sent to the RBI?

No. The Circular states that an intimation is to be provided only to the Registry and hence, there is no need to intimate the RBI.

[1] http://egazette.nic.in/WriteReadData/2016/171157.pdf

[2] http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=132073&yr=2017; and http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=30001&yr=2017

[3] https://rbidocs.rbi.org.in/rdocs/Notification/PDFs/NT44FB7E022FEFAA4049ABF28D347B2D65C4.PDF