2022 (1) TMI 269 - HC - Companies Law

Scope of 'deposits - advances received towards sale consideration of immovable property - alleged violation of Section 73 of the Act read with Companies (Acceptance of Deposits) Rules, 2014 - HELD THAT - Basing on the complaints lodged by one Guruzala Venkateswara Rao on various dates alleging that the 1st petitioner company has been collecting deposits through various schemes and has defaulted in refund of matured amounts to the depositors, the 1st respondent ordered inspection of the 1st petitioner Company - there are considerable force in the contention of the petitioners that the said Guruzala Venkateswara Rao foisted many false complaints against the 1st petitioner company in order to settle his personal scores with the 1st petitioner and the other group of companies. Further, the said Guruzala Venkateswara Rao is neither allottee nor he is in any way directly involved or linked with the business transactions of the petitioners. Whether the amounts collected by the petitioners for sale of immovable property as advance would come under the purview of deposits or would exempt from the purview of deposits by virtue of Rule 2(1) (c) (xii) (b) of the Companies (Acceptance of Deposits) Rules, 2014? - HELD THAT - Admittedly, the 1st petitioner company had purchased the agricultural land and after obtaining the permission from the competent authorities for conversion of agricultural land into non-agricultural land, the 1st petitioner also obtained permission for development of the land into layout of plots for residential/commercial housing. To unlock the funds invested in development of the lay outs etc., the 1st petitioner company had offered to sell the land in its possession and for this purpose entered into written agreement/arrangement. By virtue of proviso to Rule 2 (1) (c) (xii) (b) of the Companies (Acceptance of Deposits) Rules, 2014, the advances received by the 1st petitioner for sale of immovable property are exempted from the purview of the deposits. In view of the proviso to Rule 2 (1) (c) (xii) (b) of the Companies (Acceptance of Deposits) Rules, 2014, continuation of proceedings against the petitioners/A-1 to A-4 would amount to abuse of process of the Court - Criminal Petition is allowed.

Issues Involved:
1. Whether the amounts collected by the petitioners for the sale of immovable property as advance would come under the purview of 'deposits' or would be exempt from the purview of 'deposits' by virtue of Rule 2(1)(c)(xii)(b) of the Companies (Acceptance of Deposits) Rules, 2014.

Detailed Analysis:

Background:
The petitioners, A-1 to A-4, filed a Criminal Petition under Section 482 of Cr.P.C. to quash the proceedings in C.C.No.23 of 2020. The 1st respondent filed a complaint under Section 76-A of the Companies Act, 2013 for violation of Section 73 of the Act read with Companies (Acceptance of Deposits) Rules, 2014.

Petitioners' Contentions:
- The amounts accepted by the 1st petitioner do not qualify as 'deposits' as they are related to immovable property transactions.
- Rule 2(1)(c)(xii)(b) of the Companies (Acceptance of Deposits) Rules, 2014 excludes advances received towards the sale consideration of immovable property from the purview of 'deposits,' provided such advances are adjusted against the property as per the terms of the agreement.
- The 1st petitioner entered into agreements/M.O.U.s upon receipt of such advances and refunded the advance sale consideration only to those who did not pay the entire sale consideration.
- The complaint lacks cogent facts or evidence to prove the allegations, and the 1st respondent acted on whimsical complaints by one Guruzala Venkateswara Rao, who has a history of filing numerous complaints and writ petitions against the 1st petitioner.

Respondent's Contentions:
- The 1st petitioner collected money as advance for the sale of property, paid interest on such advances, and refunded money without the actual sale of such properties.
- Rule 2(1)(c)(xii)(b) is attracted, terming such advance money collected as 'Deposits' since the advance was not adjusted against the property as per the terms of the agreement.
- The 1st petitioner never intended to adjust such collected money for the sale of immovable property, which is evident from their Balance Sheets.

Court's Observations:
- The complaints by Guruzala Venkateswara Rao were noted to be part of a series of numerous complaints and writ petitions filed against the petitioners, often dismissed by the courts as attempts to settle personal scores.
- The short point for consideration was whether the amounts collected as advance for the sale of immovable property fall under the purview of 'deposits' or are exempt by virtue of Rule 2(1)(c)(xii)(b).

Legal Provisions:
- Rule 2(1)(c)(xii)(b) of the Companies (Acceptance of Deposits) Rules, 2014: Excludes any amount received as advance for the sale of property from the purview of 'deposits,' provided the advance is adjusted against the property as per the agreement.
- Proviso to Rule 2(1)(c)(xii)(b): Specifies that if the amount becomes refundable due to the company not having necessary permission or approval, it shall be deemed a deposit.

Conclusion:
- The 1st petitioner had necessary permissions for converting agricultural land to non-agricultural land and developing it into layouts for residential/commercial housing.
- The advances received by the 1st petitioner for the sale of immovable property are exempted from the purview of deposits by virtue of Rule 2(1)(c)(xii)(b).
- Continuation of proceedings against the petitioners would amount to abuse of the process of the Court.

Judgment:
The Criminal Petition is allowed, and the proceedings in C.C.No.23 of 2020 against the petitioners/A-1 to A-4 are quashed. Miscellaneous Petitions, if any, pending in this Criminal Petition shall stand closed.

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