Recoveries from NBFCs can be claimed via CLB

Aseptuagenarian Nagpur resident has waited five years to recover the Rs 25,000 he deposited in a non-banking financial company (NBFC). He was lured by the promise of high interest rates. The company, however, went bust and is currently facing liquidation.

Like him, there are several others waiting for their dues from defaulting NBFCs and wondering whom to approach for redressal. Depositors will be disappointed to find that, unlike banks that have a structured ombudsman system, NBFCs have none. This, even as NBFCs are stringently regulated by the RBI.

An RBI official categorically says, “NBFC deposits (unlike in banks) are not insured. These are unsecured deposits. Since it’s a private contract between the depositor and the NBFC, we cannot enforce it.’’ Sanjeev Talwar of Delhibased National Consumer Helpline, a project supported by the ministry of consumer affairs, says it is this lack of regulatory mechanism that is at the root of the problem. Many though are not aware that a redressal option exists in the form of a website—investorhelpline.in—sponsored by the investor education and protection fund under the ministry of corporate affairs. Virendra Jain of Midas Touch Investors Association, which manages the site, says, “It provides a channel between the investor, the company and the regulator, free of charge.’’

Jain insists the site has been successful in recovering funds from NBFCs by pursuing companies, registrars of companies and the ministry of corporate affairs. “We try to take a grievance to its logical conclusion.’’

Jain cites instances such as Mumbai’s Lloyds Finance, which refunded 137 depositors of 468 grievances lodged with the site. “The rest of the cases are pending with the company, which is currently considering repayment of deposits of up to Rs 10,000.’’

Delhi’s Escorts Finance refunded 10 depositors out of 93 registered grievances, Chennai’s Sanmac Motor Finance resolved all 21 grievances with 40% of the amount invested being repaid, Kolkata’s CFL Capital Services (earlier known as Ceat Financial Services) refunded 11 depositors out of 37. “The repayment of deposits were made by the above companies, fully or partly, as per the schemes approved by the company law board (CLB) or high court or as per their liquidity position (in case of Escorts),’’ says Jain in a written statement to TOI. (If a company defaults on payment, the depositor can approach both CLB and file a civil suit for dues recovery. The CLB is a quasi-judicial body with benches in Delhi, Mumbai, Kolkata and Chennai. On the redressal time-frame, a bench official simply says, “It depends on the company’s response to the case.’’)

Kirti Bhatt of Ahmedabad’s Consumer Education and Research Centre, adds that in case an NBFC goes into liquidation, “First the money (to be repaid) goes to secured creditors, and lastly depositors whose rank is that of unsecured creditors.’’

The RBI website specifies that an official liquidator is appointed by court and it is the liquidator’s duty to realise the company’s assets and arrange to repay creditors according to the scheme approved by the court. The liquidator generally inserts advertisement in the newspaper inviting claims from depositors or investors.

The Times of India 18th April 2008 P. 24 Delhi
With thanks from The Time of India
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