JUDGMENT : The petitioner, a Non-Banking Financial Company, is aggrieved by the cancellation of registration granted to the petitioner by the Reserve Bank of India. 2. The petitioner states that the petitioner-Company was incorporated in the year 1990 and it has been running chit fund business from the date of incorporation. The petitioner was granted Certificate of Registration on 19.02.2001 by the Reserve Bank of India under Section 45-1A of the Reserve Bank of India Act, 1934. The Company was engaged in non-banking activities and chit business since 2001. The Central Chit Fund Act, 1982 was enforced in Kerala on 30.04.2012. Thereafter, the petitioner did not start new chits and continued only with Non-Banking Financial Activities. 3. The petitioner-Company was served with Ext.P1 show-cause notice dated 06.04.2018 of the Deputy General Manager, RBI, alleging that the Company has received inter-corporate loans from M/s.Ponallur Gold Trading Firm (LLP) amounting to Rs. 7.75 Crores, that the Company sought five years' time to repay the inter-corporate loan and the said proposal was not acceptable to the RBI. It was further alleged that the Company was continuing with three chits and an amount of Rs. 6.45 Crores has been received as Kuri Security Deposit (KSD) in the nature of public deposit. The proposal of the Company to treat them as exempted deposits is unacceptable and the Company has not given any road map to refund all deposits in six months. 4. The petitioner-Company attended the hearing and submitted Ext.P3 explanation in which the Company argued that advances received from M/s.Ponallur Gold Trading Firm are related party loans and not inter-corporate loans. The Company undertook to repay the related party loans within two years. A detailed plan was submitted. As regards Kuri Security Deposits, the petitioner stated that those receipts are from Chit subscribers and are security receipts and are future receivables and should not be treated as public deposits. 5. Subsequently, on 05.12.2018, the Company received a mail seeking clarification as to whether the repayment of amount received from the LLP and KSD will be achieved from existing chit business or through NBFC activities. The petitioner submitted Ext.P4 reply stating that the Company had already issued debentures and existing liability of Kuri Security Deposit is reduced to Rs.1.65 Crore. The petitioner also provided a road map for clearing all the liabilities. 6. The petitioner submitted Ext.P4 reply stating that the Company had already issued debentures and existing liability of Kuri Security Deposit is reduced to Rs.1.65 Crore. The petitioner also provided a road map for clearing all the liabilities. 6. However, the General Manager of the RBI issued Ext.P5 order informing cancellation of Certificate of Registration as per Ext.P6. The petitioner preferred an appeal against Ext.P6, invoking Section 45-1A(7) of the Reserve Bank of India Act. The Appellate Authority, without appreciating the facts of the case, dismissed the appeal on 08.11.2019, as per Ext.P10, contended the petitioner. 7. The learned counsel for the petitioner argued that in Ext.P10, the Appellate Authority has simply accepted the version of the RBI. There is no proper independent adjudication. The Appellate Authority ignored the fact that the liabilities of the petitioner-Company were drastically reduced. The Appellate Authority omitted to note that the amount received by the petitioner-Company from the LLP is not inter-corporate loan. The Appellate Authority further omitted to note that after the implementation of the Chit Funds Act, 1982 in Kerala, the petitioner has not started any new chits and has only continued with chits already commenced before the implementation of the Chit Funds Act. 8. The learned counsel for the petitioner submitted that implementation of Exts.P5, P6 and P10 orders will cause huge loss and irreparable injury to the petitioner and it will be detrimental to the interest of the general public at large. Huge amounts are due from chit subscribers. The petitioner-Company is running a business. Therefore, if the Certificate of Registration is cancelled, it will affect the petitioner-Company as well as public at large. 9. The learned counsel for the petitioner further argued that Section 45-IA (6) will not attract in the petitioner's case. The RBI has not given reasonable opportunity to the petitioner to take corrective measures. The Company is in a position to pay its liabilities in full. The Company is strictly ensuring compliance of the Rules, Regulations and Guidelines of the RBI. In the facts of the case, the petitioner-Company should be permitted to continue its business. 10. The Standing Counsel for respondents 3 to 5 opposed the prayers in the writ petition. The Standing Counsel submitted that the impugned orders have been passed after following due process stipulated under Section 45-IA (6) of the RBI Act. In the facts of the case, the petitioner-Company should be permitted to continue its business. 10. The Standing Counsel for respondents 3 to 5 opposed the prayers in the writ petition. The Standing Counsel submitted that the impugned orders have been passed after following due process stipulated under Section 45-IA (6) of the RBI Act. The learned Standing Counsel pointed out that KSDs are not subscriptions to chits, but public deposits. The petitioner is a non-deposit taking Company. The petitioner was required to give a clear road map/business plan for refund of the deposits within six months. The petitioner, however, sought five years' time, which was not acceptable to the RBI. As regards Kuri Security Deposits accepted by the Company, the Company required the RBI to treat those deposits as exempted deposits. The petitioner did not provide any plan to repay it. 11. The petitioner-Company has admitted that it has accepted deposits from M/s. Ponallur Gold Trading Firm (LLP). The petitioner, though a non-deposit taking Company, is paying interest to the depositors. This is impermissible. It was due to the violation of statutory provisions that the Certificate of Registration of the petitioner-Company was cancelled as per Ext.P6 order. Exts.P5, P6 and P10 orders are without any legal infirmities. The writ petition is devoid of any merit and it should be dismissed, contended the learned Standing Counsel for the RBI. 12. I have heard the learned counsel for the petitioner and the learned Standing Counsel for the RBI. I have also heard the learned Central Government Counsel appearing in the case. 13. The reasons for cancelling the CoR issued under the Reserve Bank of India Act to the petitioner, are:- 1. The Company has an LLP under the same group named M/s.Ponallur Gold Trading Firm and the Company has accepted inter-corporate loan of Rs. 7.5 Crores as on 31.05.2017. The road map of five years given by the Company for repayment of the said amount is unacceptable to the RBI. 2. As per audited balance sheet for 2015-16 an amount of Rs.6.45 Crores is seen under the head “Kuri Security Deposit” which is said to be caution deposits against default in case chit winners are unable to provide sufficient security. Interest is paid on these amounts and they are akin to public deposits, which the Company is not legally competent to accept. Interest is paid on these amounts and they are akin to public deposits, which the Company is not legally competent to accept. The Company was required to provide repayment schedule in respect of these deposits, which was not provided. 14. As regards inter-corporate loan from M/s.Ponallur Gold Trading Firm (LLP), the petitioner’s case is that the said firm is accepting deposits on the basis of a licence issued by the Commercial Taxes Department, Government of Kerala. As soon as notice was received, the Company started to repay the so-called inter-corporate loan. When notice from RBI was received in this behalf, the outstanding loan was Rs. 7.75 Crores as on 31.03.2017. This amount has been brought down to Rs. 5.30 Crores by 24.05.2018. During the hearing held on 24.05.2018, the Company sought two years' time to repay the related party loan. By 07.12.2018, the Company had brought down the figure to Rs. 1.65 Crore, as is evident from Ext.P4. It is when the Company was taking effective steps for statutory compliance that the RBI has cancelled the CoR on 18.03.2019. 15. It has to be noted that the LLP from which the loan was accepted is a related LLP. No complaints from public or depositors were received relating to the transaction in question. From the facts, it is evident that the Company has been taking earnest efforts to repay the loan and in fact had substantially reduced the loan burden from Rs.7.45 Crores to Rs. 1.65 Crore within 18 months. (By 31.03.2019, the liability was again brought down to Rs. 85 lakhs). The Company had sought only 24 months for compliance. Still, the request was declined and CoR was cancelled. 16. Section 45-IA(6) of the RBI Act,1934 provides that before cancelling registration on the ground of illegal/irregular acceptance of deposits, unless the RBI is of the opinion that the delay in cancelling the CoR shall be prejudicial to public interest or interest of depositors, an NBFC can be given an opportunity to comply with the provisions or fulfilment of such condition. It of course is a discretionary power which has to be exercised taking into account the facts and circumstances of each case. It of course is a discretionary power which has to be exercised taking into account the facts and circumstances of each case. In the present case, the RBI failed to note that the Company had successfully brought down the related loan/ inter-corporate loan liability substantially within a short span and would have been able to report full compliance, had the road map proposed by the Company was approved. This fact was omitted to be noted by the Appellate Authority, which has a duty, power and responsibility to ensure that the RBI exercises its discretion reasonably and prudently. 17. As regards the Kuri Deposit Receipts to the tune of Rs. 6.45 Crores, the RBI as well as the Appellate Authority relied on Section 12 of the Chit Funds Act, 1982 to find fault with the petitioner-Company. It is not in dispute that the Company has not started any new Chit after the implementation of the Chit Fund Act, 1982 in Kerala with effect from 30.04.2012 and the Company was continuing only the then existing chits. Section 85 of the Act, 1982 in unequivocal terms states that the Act will not apply to any chit started before the commencement of the Act. Therefore, reliance placed by the RBI and the Appellate Authority on the Chit Fund Act, 1982 is unsustainable. 18. The petitioner’s case is that what was collected from chit subscribers was Kuri Security. It is, in fact, advance Kuri instalments. But, the pleadings would show that the petitioner has been paying interest on these receipts. Therefore, legality of such payment of interest and nature of Receipts/Deposits, is to be decided. In view of Section 45-I (bb)(v)(a), amounts received in the ordinary course of business by way of security deposit, will not be 'deposit'. Under Section 45-I(bb)(vii), any amount received by way of subscriptions in respect of a chit will not be 'deposit'. If that be so, the Kuri Security Deposit received by the petitioner as security for payment of future chit subscriptions, whether would fall within the definition of 'deposit' is a matter which ought to have been considered by the Authorities. 19. Furthermore, the liability of the Company under Kuri Security Deposit/Receipt was Rs. 6.45 Crores as on 25.05.2018. At the time of hearing of appeal, the liability was brought down to Rs. 2.53 Crores and later, to Rs. 1.65 Crore. 19. Furthermore, the liability of the Company under Kuri Security Deposit/Receipt was Rs. 6.45 Crores as on 25.05.2018. At the time of hearing of appeal, the liability was brought down to Rs. 2.53 Crores and later, to Rs. 1.65 Crore. In this case also, deposits were made by chit subscribers and there is no complaint from any chit subscribers. 20. In such circumstances, considering the entire facts and circumstances of the case, this Court is of the considered opinion that the case of the petitioner-Company requires reconsideration at the hands of the statutory Appellate Authority. The Appellate Authority is bound to consider whether discretion has been exercised properly and fairly by the RBI in the matter of rejection of road map given by the petitioner for statutory compliances. The Appellate Authority may also consider whether the cancellation of CoR is justified in view of the peculiar facts of this case including steps taken by the petitioner for statutory compliance and also whether any punitive steps are warranted against the Directors of the Company, in the facts of the case. 21. To enable the 2nd respondent-Appellate Authority to consider the appeal afresh, Ext.P10 order is set aside. The Appellate Authority shall consider and pass orders on the appeal filed by the petitioner within a period of four months, in the light of the observations made hereinabove, after giving an opportunity of hearing to the petitioner. Writ petition is disposed of as above.