Non-verification and communication of information about fund transfer to depositor company by NBFC held to be a breach of its obligations under RBI Act

Case Name: M/s. Majestic Buildcon Pvt. Ltd. vs. M/s. BKR Capital Pvt. Ltd. & Ors.

Court: District Judge (Commercial Court)-04, Central, Tis Hazari Courts, Delhi

Judgment Date: April 26, 2025

Suit: Recovery of Rs. 66,94,587/- with interest

Parties:

Plaintiff: M/s. Majestic Buildcon Pvt. Ltd., a construction and real estate company, represented by Director Amit Gupta.

Defendants:

1. M/s. BKR Capital Pvt. Ltd. (NBFC)

  2–5. Directors of BKR Capital 

6. Former Director of Plaintiff company. 

Introduction:

The judgment in M/s. Majestic Buildcon Pvt. Ltd. vs. M/s. BKR Capital Pvt. Ltd. & Ors. was pronounced on April 26, 2025, by the Ld. District Judge (Commercial Court)-04, Central, Tis Hazari Courts, Delhi which marks a pivotal development in the jurisprudence governing Non-Banking Financial Companies (NBFCs) and depositor rights in India. This case addresses a critical issue of unauthorized financial transaction that took place between Defendant No.1 Company and Defendant No.6. This dispute also spotlights the obligations of NBFCs under the Reserve Bank of India (RBI) Act and the liability of individuals involved in such breaches. The plaintiff, a depositor company sought recovery of Rs. 66,94,587 from Defendant No.1 Company which is a NBFC. The crux of the dispute is that the Defendant No.1 Company through its Directors, in connivance with Defendant No.6, transferred the Deposits belonging to the Plaintiff Company in the personal account of Defendant No.6, who was a former director of the Plaintiff Company. It is to be noted that such wrongful transfer of Rs. 46,55,992 to Defendant No.6 personal ledger was done without verifying any board resolution in the favour of Defendant No.6. The court’s ruling not only reinforces the statutory protections for depositors but also clarifies the boundaries of corporate and personal liability, offering valuable insights into NBFC governance and the sanctity of corporate structures. 

Reliance has been placed on the landmark judgements in United Bank of India Vs. Naresh Kumar & Ors. (MANU/SC/0002/1997), Sheth Builders Pvt. Ltd. Vs. Michael Gabrial and Ors (MANU/MH/2494/2020), MTNL Vs. Suman Sharma (2011 (1) AD Del 331), Mukesh Hans and Anr. Vs. Usha Bhasin and Ors. (2010 SCC OnLine Del 2776). 

Background:

Plaintiff company i.e. Majestic Buildcon Pvt. Ltd. had deposited Rs. 13,90,000 in the year 2014 and Rs. 30,00,000 in 2015 with Defendant No. 1 Company which is an NBFC as deposits, expecting interest between 9–18% p.a. Subsequently, Defendant No. 1 transferred Rs. 46,55,992 (including interest) to Defendant No. 6’s personal ledger in 2016, without Plaintiff’s authorization. Defendant No. 6 kept on withdrawing the amount without informing the Plaintiff about the transfer of money to his account. Therefore, the Plaintiff sought recovery of Rs. 66,94,587, including principal and 18% interest, claiming unauthorized transfer and non-payment.

Legal provisions:

Section 65-B of Indian Evidence Act, 1872– Governs the admissibility of electronic records as evidence in court proceedings.

Section 174 (1) of the Companies Act, 2013– Specifies the minimum number of members required to constitute a valid quorum for a general meeting of a company.

Section 45QB (4) of RBI Act– Regulates the repayment of deposits by Non-Banking Financial Companies (NBFCs) to protect depositors.

Section 34 of the Code of Civil Procedure– Empowers courts to award interest on monetary decrees to ensure fair compensation.

Issues framed by the Court:

• Whether the suit has not been instituted by duly authorized person and the Board Resolution dated 15.09.2018 is a forged and fabricated document? 

• Whether the suit is bad for mis-joinder of defendant nos. 2 to 5?

• Whether Sh. Amit Gupta AR and director of the plaintiff company had the knowledge and agreed for the transfer of money deposited with the defendant no.1 company to the personal account of defendant no.6?

• Whether defendant no.1 company stands discharge of its liability to pay any amount to the plaintiff in view of the payments made by to defendant no.1, its director of plaintiff company?

• Whether the corporate veil of plaintiff company is liable to be lifted?

• Whether the plaintiff is entitled for recovery of Rs.66,94,587/- as prayed for?

• Whether the plaintiff is entitled for the interest on the aforesaid amount, if so, at what rate and for which period?

Decision:

1. Authorization of Suit: The court found there is an implied ratification for filing and signing of the suit through Sh. Amit Gupta by the plaintiff company as the suit was filed in 2018 which has been pending adjudication since last almost six years and there has been no objection by the Plaintiff Company to the validity of Mr. Amit Gupta being the Authorised Representative for the institution of the present suit or its continuation. Though, it was also observed that even if the suit is originally filed by the company without a board resolution, the same is not fatal and it is certainly a curable defect. The reliance was placed on Sheth Builders Pvt. Ltd. Vs. Michael Gabriel & Ors. (This issue is decided in favour of Plaintiff Company)
2. Misjoinder of Defendant No. 2 to 5: Defendants 2–5 (directors of BKR Capital) were discharged and were not held personally liable, as there was no privity of contract with Plaintiff. Thus, the suit was dismissed against them. (This issue is decided in favour of Plaintiff Company
3. Discharge of Defendant No. 1’s Liability: Defendant No. 1 failed to discharge its liability by transferring the deposit to Defendant No. 6’s personal account without Plaintiff’s consent or proper authorization (e.g., Board Resolution). (Issue decided in favour of Plaintiff).
4. Knowledge/Consent of Amit Gupta: Defendants failed to substantiate that Amit Gupta knew or consented to the transfer of funds to Defendant No. 6’s account. (Issue decided in favour of Plaintiff).
5. Lifting Corporate Veil: Defendants failed to prove Plaintiff was a sham or used for fraudulent purposes. No grounds found to lift the corporate veil. (Issue decided in favour of Plaintiff).
6. Recovery of Rs. 66,94,587: Plaintiff was entitled to recover Rs. 46,55,992 (principal + 9% interest), as 18% interest was not agreed upon. (Issue partially decided in favour of Plaintiff).
7. Interest Entitlement: Plaintiff was entitled to 9% p.a. simple interest from the date of filing (December 1, 2018) until realization, based on prior deposit terms and judicial discretion.

Analysis of the Case: 

The judgment in the present case represents a significant ruling on the obligations of Non-Banking Financial Companies (NBFCs) and the liability of directors in unauthorized financial transactions. 

The court’s decision to hold BKR Capital and Defendant No. 6  jointly and severally liable for Rs. 46,55,992, with 9% interest from December 1, 2018, underscores the judiciary’s emphasis on protecting depositors’ rights under the Reserve Bank of India (RBI) Act. The court found that BKR Capital breached its statutory duty by transferring the plaintiff’s deposits without proper authorization, such as a Board Resolution, highlighting the NBFC’s failure to exercise due diligence. This aligns with Section 45 QB (4) of the RBI Act, which mandates that NBFCs repay deposits to the depositor’s account to discharge liability. The ruling reinforces that NBFCs cannot evade responsibility by relying on instructions from a single director, especially when such actions lack corporate sanction.

The dismissal of the suit against BKR Capital’s directors (Defendants 2–5) reflects a strict interpretation of corporate liability, emphasizing that directors are not personally liable for the company’s doing. This protects directors from undue personal exposure but places the onus on the NBFC as a legal entity, ensuring accountability at the institutional level.

The court’s rejection of the defendants’ attempt to lift the plaintiff’s corporate veil is noteworthy. Defendants argued that Majestic Buildcon operated as a quasi-partnership, and alleged fraudulent activities by its director Mr. Amit Gupta. However, Defendant No. 6’s  failure to place on record substantive evidence of fraud or mismanagement, coupled with prior dismissals of his claims by the NCLT and NCLAT, led the court to uphold the Plaintiff’s separate legal identity and dismissing frivolous claims against Mr. Amit Gupta. This decision reaffirms the principle that piercing the corporate veil requires compelling evidence of deliberate misuse, applied sparingly to prevent abuse of corporate structures.

The partial award of Rs. 46,55,992, excluding the claimed 18% interest, reflects judicial restraint. The court found no evidence of an agreed 18% interest rate, settling on 9% based on prior dealings and commercial lending norms, as guided by Central Bank of India vs. Ravindra & Ors. (2002). This balances restitutive justice with fairness, avoiding excessive penalties on defendants.

The ruling exposes vulnerabilities in NBFC operations, particularly in verifying instructions, and serves as a precedent for depositor protection. It also highlights the risks of internal corporate disputes spilling into external transactions, as seen in Defendant No. 6’s alleged collusion with M/s BKR Capital Pvt. Ltd. For future cases, this judgment emphasizes the need for robust governance in NBFCs and clear documentation in corporate financial dealings, ensuring that depositors are not prejudiced by unauthorized actions.

Relief Granted:

Decree Rs. 46,55,992 against Defendant No. 1 (BKR Capital) and Defendant No. 6  jointly and severally.

Interest: 9% p.a. simple interest from December 1, 2018, until realization.

Dismissal: Suit dismissed against Defendants 2–5.

Costs: Parties to bear their own costs.

Key Observations:

1. Defendant No. 1’s failure to verify Defendant No. 6’s authority or inform Plaintiff of the transfer was a breach of its obligations as an NBFC under the RBI Act.
2. Defendant No. 6’s claim that the funds were his “share” lacked evidence, and his actions appeared collusive with Defendant No. 1.
3. 9% interest per annum on deposits was deemed reasonable based on prior dealings.

Conclusion: 

The judgment in M/s. Majestic Buildcon Pvt. Ltd. vs. M/s. BKR Capital Pvt. Ltd. & Ors., stands as a robust affirmation of depositor protection and NBFC accountability under the Reserve Bank of India Act. By holding BKR Capital and Defendant No. 6 jointly or severally liable for the unauthorized transfer of Rs. 46,55,992, with 9% interest, the court underscored the importance of due diligence and proper authorization in financial transactions, as mandated by Section 45 QB (4). The dismissal of claims against BKR Capital’s directors and the refusal to lift the plaintiff’s corporate veil further clarify the boundaries of personal and corporate liability, reinforcing the integrity of corporate structures absent evidence of fraud. 

Represented the Plaintiff Company– Adv. Akhand Pratap Singh Chauhan (Partner), Adv. Shantanu Garg (Senior Associate), Adv. Namanveer Singh Sodhi (Associate)