Delhi High Court orders winding up of Paytm Payments Bank on RBI’s plea

The Delhi High Court recently ordered the winding up of Paytm Payments Bank Limited on a petition filed by the Reserve Bank of India (RBI) following the cancellation of Paytm's bank licence [Reserve Bank of India v. Paytm Payments Bank Limited].

Justice Anish Dayal on Tuesday also permitted RBI-nominated official liquidator Girikumar M Nair to appoint AZB & Partners as legal advisor for the winding-up process.

Counsel for Nair said that approval was required under Section 291 of the Companies Act, 2013, which permits a company liquidator to appoint professionals with the sanction of the tribunal.

The Court was told that the law firm would advise the liquidator on regulatory compliance and any legal proceedings that may have to be initiated during the winding up. Nair proposed retaining AZB & Partners since the firm had previously advised the RBI in relation to Paytm Payments Bank.

The Court allowed the application.

In April this year, RBI cancelled Paytm Payments Bank’s licence under Section 22(4) of the Banking Regulation Act, which empowers the regulator to revoke a banking licence if the bank no longer fulfils the statutory conditions for carrying on banking business.

The regulator said that the bank’s affairs had been conducted in a manner detrimental to the interests of the bank and its depositors. It also found that the general character of its management was prejudicial to depositors and public interest.

The RBI, however, clarified that Paytm Payments Bank had sufficient liquidity to repay its entire deposit liability upon winding up.

On April 25, the bank’s board approved voluntary winding up in principle. Its shareholders also passed a special resolution consenting to the winding up.

When the RBI’s petition first came before the High Court on May 29, the bank said it intended to submit a proposal to the regulator in the interests of depositors. The Court granted it eight weeks to do so.

However, the bank’s board subsequently resolved on June 14 not to make any proposal or representation to the RBI. This decision was communicated to the regulator on June 16, following which the Court took up and allowed the winding-up petition.

“The prayer of the RBI seeking winding up of the company under Section 38 read with Section 39 of the Banking Regulation Act, 1949 is, therefore, accepted,” the Court ordered on July 8.

The Court appointed Nair as the official liquidator after Paytm Payments Bank raised no objection to his appointment. He has been authorised to exercise the powers of the bank’s board and will be paid ₹5.5 lakh per month from the bank’s assets.

Nair has further been directed to submit a preliminary report to the Court within two months of the winding-up order.

Additional Solicitor General Raghav Shankar appeared for the RBI along with Advocates Vivek Shetty, Suharsh Sinha, Nishant Upadhyay, Dhaval Vora, Pallavi Mishra, Navneet R and Alankrita Sinha.

Senior Advocate Dayan Krishnan appeared for Paytm Payments Bank along with Advocates Karun Mehta, Carina Arora, Ambuj Sachan, Ashim Sood, Senu Nizar, Kartikeya Jaiswal and Shreedhar Kale.