2010 (5) TMI 381 - HC - Companies Law

Whether the petitioners are entitled to amount of interest earned on the seized amount which was invested by the respondents in the fixed deposits with the bank? Held that - In the present case the respondents themselves have refunded the amounts seized from the petitioners which they had invested in the fixed deposits. The interest earned on the fixed deposits was nothing but accretion to the original amounts. The petitioners were therefore entitled to receive proceeds of the fixed deposits in its entirety on the date when the fixed deposits were encashed. Having said so the fixed deposits were encashed and seized amounts were refunded to the petitioners on 5-4-2002 and 23-5-2002 but without interest accrued thereon as such the respondents withheld the amount of accrued interest without any justification. In our considered view on the amount of accrued interest not paid to the petitioners the petitioners would be entitled to interest at the rate of 6 per cent per annum for the period for which they were deprived of the said amount of accrued interest on the seized amounts. W.P. allowed.

Summary

Issues Involved:
1. Entitlement to interest on the seized amount returned to the petitioners.
2. Application of the doctrine of accretion.
3. Discretionary powers of the court under Article 226 of the Constitution.
4. Provisions under Foreign Exchange Management (Encashment of Draft, Cheque, Instrument and Payment of Interest) Rules, 2000.

Issue-Wise Detailed Analysis:

1. Entitlement to Interest on the Seized Amount Returned to the Petitioners:
The petitioners sought interest on the amounts seized by the Enforcement Directorate, which were returned without interest. The amounts seized were Rs. 85 lakhs and Rs. 5,21,490, which were returned after three and a half years. The petitioners argued that the seized amounts were deposited in fixed deposits, earning substantial interest, and thus, they were entitled to the interest accrued. The court held that the petitioners were entitled to the accrued interest on the seized amounts as the amounts were retained without authority of law.

2. Application of the Doctrine of Accretion:
The court applied the doctrine of accretion, which states that any increase or profit from the bailed goods must be returned to the bailor. The court cited the Supreme Court judgment in Standard Chartered Bank v. Custodian, where it was held that accretions such as bonus shares and dividends form part of the pledged property. Similarly, the interest earned on the seized amounts was considered an accretion to the original investment. Therefore, the petitioners were entitled to the interest accrued on the fixed deposits.

3. Discretionary Powers of the Court under Article 226 of the Constitution:
The court exercised its discretionary powers under Article 226 to award interest, emphasizing that the petitioners were deprived of the use of their property for a significant period. The court noted that the respondents had refunded the principal amounts without the petitioners having to approach the court, but the interest accrued was still withheld without justification. The court held that awarding interest was necessary to bring about an equitable result.

4. Provisions under Foreign Exchange Management (Encashment of Draft, Cheque, Instrument and Payment of Interest) Rules, 2000:
The court referred to Rule 8 of the Foreign Exchange Management (Encashment of Draft, Cheque, Instrument and Payment of Interest) Rules, 2000, which mandates the payment of interest at 6% per annum on the seized amounts from the date of seizure till the date of payment if the amounts are not involved in any contravention. The court found that the petitioners' claim for interest was supported by these rules and awarded interest accordingly.

Order:
The court allowed the petition with costs of Rs. 10,000. The petitioners were entitled to the accrued interest on the seized amounts, quantified and admitted by the revenue. Petitioner No. 2 was entitled to Rs. 2,50,398 with further interest at 6% per annum from 5-4-2002 till full repayment. Petitioner No. 1 was entitled to Rs. 43,00,932 with further interest at 6% per annum from 23-5-2002 till full repayment. If the respondents failed to pay within three months, the interest rate would increase to 12% per annum. The rule was made absolute in terms of this order.