2014 (7) TMI 59 - Board - Companies Law

Application under Section 117C - Debenture redemption reserve - Company s liability to create such reserve - Option to convert debentures - Held that - the provisions of Section 117C(4) are applicable to all debentures whether issued prior or after the introduction of the Amendment Act, 2000, i.e., 13.12.2000 and pending redemption - provisions of Section 117C(4) being analogous to Section 58A(9) and 45QA(2) are beneficial provisions intended to protect the interest of debentureholders. Such a provision, in my view, should be exercised in favour of aggrieved investors. The above view taken by CLB cannot be lost sight of and the interest of the aggrieved debentureholders deserves to be protected by invoking the provisions of Section 117C(4) of the Act. Respondent company is hel-bent on refusing the right of the applicants to get relief under Section 117C of the Act on frivolous grounds either by resorting to limitation act or faulty application affirmed by one of the applicants or non-eligibility of the application for redemption of impugned debentures under the provisions of Section 117C of the Act. - application filed by the applicants under section 117C of the Act is considered to be maintainable and according the respondent company is hereby directed to redeem the debentures covered by this application by payment of the principal amount and interest due thereon as per the terms and and conditions of issue of such debentures within 3(three) months of issue of such order - Decided in favour of appellant.

Issues Involved:
1. Maintainability of the application.
2. Joint affirmation of the application.
3. Allegation of mala fide, vexatious, and malicious intent.
4. Jurisdiction of the Company Law Board.
5. Limitation period for the claim.
6. Applicability of Companies (Acceptance of Deposits) Rules, 1975.
7. Redemption and interest payment on debentures.

Issue-Wise Detailed Analysis:

1. Maintainability of the Application:
The respondent argued that the application was not maintainable and barred by limitation, claiming it fell beyond the jurisdiction of the Company Law Board (CLB). However, the CLB found the application maintainable under Section 117C of the Companies Act, 1956, as the applicants had duly lodged their claim within the period of limitation by sending multiple requests for redemption and reminders.

2. Joint Affirmation of the Application:
The respondent contended that the application should be dismissed as it was affirmed by only one of the joint holders. The CLB rejected this argument, noting that the application was signed by both debenture holders and that Section 117C(4) allows any or all holders of debentures to make the application.

3. Allegation of Mala Fide, Vexatious, and Malicious Intent:
The respondent claimed the application was mala fide, vexatious, and malicious. The CLB dismissed these allegations, finding no merit in the respondent's assertions and emphasizing the applicants' consistent efforts to seek redemption of their debentures.

4. Jurisdiction of the Company Law Board:
The respondent argued that the matter was beyond the jurisdiction of the CLB, as the debentures were allegedly governed by the Companies (Acceptance of Deposits) Rules, 1975. The CLB held that Section 117C(4) applies to all debentures, whether issued before or after the Amendment Act of 2000, and pending redemption, thus asserting its jurisdiction over the matter.

5. Limitation Period for the Claim:
The respondent argued that the claim was barred by the Limitation Act, 1963, as the last acknowledgment of debt was in 1999. The CLB found that the applicants had lodged their claim within the period of limitation by sending requests for redemption and reminders. The CLB also noted that the respondent's failure to act on the applicants' claim did not absolve it from its obligations.

6. Applicability of Companies (Acceptance of Deposits) Rules, 1975:
The respondent claimed that the debentures were governed by the Companies (Acceptance of Deposits) Rules, 1975. The CLB found no substantiation for this claim and reiterated that Section 117C(4) applies to all debentures pending redemption, thus rejecting the respondent's argument.

7. Redemption and Interest Payment on Debentures:
The applicants requested the redemption of 1,000 Convertible Debentures along with interest at 14% per annum. The CLB found that the respondent company had neither notified the date of conversion nor redeemed the debentures, despite multiple requests and reminders from the applicants. The CLB directed the respondent company to redeem the debentures by paying the principal amount and interest due within three months of the order.

Conclusion:
The CLB concluded that the application under Section 117C of the Companies Act, 1956, was maintainable. The respondent company was directed to redeem the debentures by paying the principal amount and interest due thereon as per the terms and conditions of the issue within three months of the order. No order as to costs was made.

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