2022 (7) TMI 722 - HC - Companies Law

Scope of the term Deposit - it is alleged that the Respondent No.3 Company has been accepting deposits from Public/Individuals beyond its objective specified in Memorandum of Association and without taking requisite permission and certification from the RBI and concerned government departments - Applicability of Companies Act 2013 and the Companies (Acceptance of Deposit) Rules, 2014 - the amount in question can be treated as deposit or not - HELD THAT - Section 2(31) of the Companies Act, 2013 that defines deposit , came into force from 1st April 2014 and as such, it cannot be applied retrospectively for the share-purchase agreement between the Company and Petitioner that was entered into between the parties back in the year 2010, way back in time before the commencement of the 2013 Act and its provisions - Furthermore, the Companies (Acceptance of Deposits) Rules, 2014 as notified by MCA vide notification No. G.S.R 256(E) dated 31st March 2014 came into force on 1st April 2014. Therefore, the said Rules of 2014 can also not be applied on the amount in question. This Court has come to the conclusion that the amount in question cannot be treated as deposit and as such does not attract the penal interest that would have otherwise applied, for the following reasons a. firstly, the money was given by the Petitioner in the year 2010, and was returned by the Respondent Company to the Petitioner in the year 2018, and hence the same shall be governed by the provisions of The Companies Act, 1956 read with Companies (Acceptance of Deposits) Rules, 1975; b. secondly, as per the General Circular No. 05/2015 dated 20th March 2015 released by the Ministry of Corporate Affairs in consultation with RBI, the amount received by the private companies prior to 1st April 2014 shall not be treated as deposits under the Companies Act, 2013 and Companies (Acceptance of Deposits) Rules, 2014 provided that the same was disclosed by in financial statement for the financial year commencing on or after 1st April, 2014; and c. thirdly, as rightly contended by the learned counsel for the Respondents No. 1 2, the inaction of the Office on the said letters dated 11th December 2018 and 31st October 2019 was by virtue of the fact that the prayers contained therein were outside the purview of jurisdiction of Respondents No. 1 2. There are no cogent reasons to entertain the petition and allow the prayers sought therein - petition dismissed.

Summary

Issues Involved:
1. Applicability of the Companies Act, 2013 and Companies (Acceptance of Deposits) Rules, 2014 on the amount in question.
2. Whether the amount in question can be treated as a "deposit".

Issue-wise Detailed Analysis:

1. Applicability of the Companies Act, 2013 and Companies (Acceptance of Deposits) Rules, 2014:

The core question for adjudication was whether the penal interest claimed by the petitioner is applicable on the amount in question, which hinges on the applicability of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014.

The court noted that the provisions of the Companies Act, 2013, did not come into force on a single date but in phases. Specifically, Section 2(31) of the Companies Act, 2013, which defines "deposit," came into force on April 1, 2014. Similarly, the Companies (Acceptance of Deposits) Rules, 2014, also came into effect from April 1, 2014. Since the share-purchase agreement between the petitioner and the respondent company was entered into in 2010, before the commencement of the 2013 Act and its provisions, the Companies Act, 2013, and the Companies (Acceptance of Deposits) Rules, 2014, do not apply retrospectively to this case.

2. Whether the Amount in Question Can Be Treated as a "Deposit":

The court analyzed Rule 2(b)(vii) of the Companies (Acceptance of Deposits) Rules, 1975, which was applicable at the time of the transaction. This rule states that any amount received by way of subscriptions to shares, pending the allotment of the said shares, shall remain excluded from the purview of "deposit." The court also referenced General Circular No. 05/2015 issued by the Ministry of Corporate Affairs, clarifying that amounts received by private companies prior to April 1, 2014, shall not be treated as "deposits" under the Companies Act, 2013, and Companies (Acceptance of Deposits) Rules, 2014, provided the amounts were disclosed in the financial statements for the financial year commencing on or after April 1, 2014.

Given that the amount in question was given in 2010 and returned in 2018, the court concluded that it is governed by the Companies Act, 1956, and the Companies (Acceptance of Deposits) Rules, 1975. Therefore, the amount cannot be treated as a "deposit," and the question of penal interest does not arise.

Conclusion:

The court concluded that the amount in question cannot be treated as a "deposit" under the applicable laws at the time of the transaction. Consequently, the penal interest claimed by the petitioner is not applicable. The court also noted that the contractual relations or other obligations between the petitioner and the respondent company are outside the scope of the writ petition and suggested that the petitioner explore other legal remedies for recovery of interest or any dues.

Judgment:

The instant petition was dismissed, with the court stating that no case for exercise of writ jurisdiction is made out and no cause of action has arisen against the Ministry of Corporate Affairs and Registrar of Companies. The court made it clear that any observations made shall have no bearing on the merits of the case in any other proceedings.