2022 (1) TMI 913 - HC - Companies Law

Scope of deposits - collection of deposits through various schemes and has defaulted in refund of matured amounts to the depositors - 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 - In the complaint itself the 1st respondent has stated that the 1st petitioner has been intentionally collecting money as advance for sale of property, entering into M.O.U. and paying interest on such advances received without the actual sale of property. Further, none of the persons, who have paid the advance amount for sale of immovable property, have not made any complaint against the petitioners - The proviso to Rule 2 (1) (c) (xii) (b) makes it very clear that only when the amount becomes refundable (with or without interest) due to the reasons that the company accepting the money does not have necessary permission or approval wherever required, to deal in the goods or properties or services for which the money is taken, then the amount received shall be deemed to be a deposit under the respective rules. 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-5 would amount to abuse of process of the Court - petition allowed.

Summary

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 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:

Issue 1: Definition and Scope of 'Deposits' under the Companies Act and Rules
The primary issue revolves around whether the advances collected by the petitioners for the sale of immovable property qualify as 'deposits' under Section 73 of the Companies Act, 2013, read with Rule 2(1)(c)(xii)(b) of the Companies (Acceptance of Deposits) Rules, 2014.

The petitioners argued that the amounts accepted were purely in the nature of an immovable property transaction and hence do not fall under the purview of 'deposits.' They referred to Rule 2(1)(c)(xii)(b) which excludes advances received towards the sale consideration of immovable property, provided such advances are adjusted against the property as per the agreement terms. The petitioners emphasized that they had entered into agreements/MOUs with customers and refunded the advance sale consideration only to those who did not complete the payment, thus adhering to the rule.

The respondent countered that the petitioners were collecting money as advance for property sales, paying interest on such advances, and refunding money without actual sales, thus attracting the definition of 'deposits' under the said rules. They argued that the petitioners' actions did not align with the exemptions provided in Rule 2(1)(c)(xii)(b) since the advances were not adjusted against the property as per the agreement terms, evidenced by the company's balance sheets showing amounts accepted, refunded, and interest paid.

Court’s Observations and Findings:
The court noted that the complaint against the petitioners was based on allegations by a particular individual who had a history of filing numerous complaints and writ petitions against the petitioners, which were dismissed by the court. The court found considerable force in the petitioners' contention that the complaints were motivated by personal vendettas and were not backed by any direct involvement or complaints from the actual customers who paid the advances.

The court referred to Rule 2(1)(c)(xii)(b) which excludes amounts received as advances for property sales from the definition of 'deposits,' provided such advances are adjusted against the property per the agreement terms. The court observed that the petitioners had complied with the necessary permissions for converting agricultural land to non-agricultural land and developing it into residential/commercial plots. The advances were collected and agreements were made for selling these plots, thus falling within the exemption provided by the rule.

Conclusion:
The court concluded that the continuation of proceedings against the petitioners would amount to an abuse of the court's process. The advances collected by the petitioners for the sale of immovable property were exempt from the purview of 'deposits' under Rule 2(1)(c)(xii)(b) of the Companies (Acceptance of Deposits) Rules, 2014. Consequently, the criminal petition was allowed, and the proceedings in C.C.No.28 of 2020 on the file of the Special Judge for Economic Offences at Hyderabad were quashed.