Subroto Roy?s para-banking company, Sahara India Financial Corporation Limited (SIFCL), on Thursday obtained a stay against the Reserve Bank of India?s (RBI) directive prohibiting the non-banking financial company from accepting public deposits from investors.
A vacation bench of the Allahabad High Court in Lucknow, comprising Justices UK Dhaon and Sabir-ul-Hasan, granted the stay on a petition filed by Sahara India Financial Corp?s executive director OP Srivastava.
Sahara?s counsel Prashant Chandra pleaded that on June 2 the company had replied to the RBI show-cause notice on May 9. Chandra also said the company, in a meeting with RBI officials on May 20, had given the assurance that it would wind up its activities by 2010 and would not accept any new investments from now on.
?After the reply to the show-cause notice, there was no need to issue a fresh directive,? said Chandra.
SIFCL has Rs 4.5 crore accounts from around Rs 2.5 crore investors.
Earlier, on June 4, RBI had prohibited SIFCL from accepting deposits from investors in whatsoever manner, including installments under any running daily deposit or other deposits.
The Sahara counsel also submitted that a similar action by RBI earlier had forced some other companies to run away, leaving innocent investors to suffer. However, RBI would wait for more time to respond to the high court?s stay order.
Meanwhile, the Uttar Pradesh government late on Wednesday night, came out in support of the Sahara group and sought clarification from RBI on the issue. Stating that it feared that an RBI ban on the city-based group?s para banking company could trigger a law and order problem, the Uttar Pradesh government has asked the central bank to immediately explain what steps it has taken to protect the depositors? interests.
?If the depositors panic, which appears almost a certainty, it is certain to create a law and order situation,? UP chief secretary Atul Kumar Gupta wrote in a letter to RBI executive director G Gopal Krishnan.
?SIFCL has a very large depositors base and a large network of branches in UP,? he said in the letter. Gupta requested RBI to ?immediately issue a press release explaining to the depositors the steps being taken by it to ensure protection of their interests.? He also pointed out that the state government should have been taken into confidence ?sufficiently in advance to prepare for proper law and order arrangements.?
Gupta said RBI order puts certain restrictions and obligations on SIFCL, but as far as depositors? interests are concerned, the only direction was to repay the deposits at maturity and it does not even prohibit SIFCL from alienating its assets, which RBI is empowered to. ?In the absence of such a prohibition, depositors will have serious apprehensions about possible alienation of the assets, jeopardising the security of their deposits. It appears, therefore, that even though the RBI order has been passed to protect the interests of depositors, it is not doing enough.?
The RBI had also directed this residuary non-banking financial company to repay all the existing deposits on maturity. However, the RBI had permitted the company to carry on with its other business activities as per the law.