2015 (5) TMI 215 - Board - Companies Law

Repayment of deposits as on 31/03/2015 u/s 74(2) of the Companies Act, 2013 - Application for exemption from the requirement of maintaining liquid assets under Rule 3A of the Companies (Acceptance of Deposits) Rule, 1975/ Rule 13 of the Companies (Acceptance of Deposits) Rules, 2014 - Permission to repay the existing deposits as per original terms and tenure as accepted by deposit holders - Track record of being regular in servicing and repayment of deposits - Held that - On seeing the prayer for permission to repay the existing deposits in accordance with the original terms, it appears it is not possible to grant permission to the company to repay the existing deposits as and when deposits are matured after 31-3-2015. If such a relief is granted, it will become nothing but negating the intention of the legislation in Sec 74(1) of the Act, 2013. It might not be the intention of the legislation in providing discretion to the Company Law Board to grant time to the company to repay the deposits as when they are matured, perhaps it has been legislated to extend time enabling the company to pay it sooner than later. Despite the company has stopped receiving any deposits since 31.3.2014, it appears the company has been making bona fide efforts in making repayments to the depositors. The company has sanction letter on hand from the Bank for release of loan for an amount of about ₹ 1000/- Crores towards repayment of FDs. For the reasons stated above, this Bench grants six months since 31-3- 2015 to the company to comply with Section 74(1) of the Companies Act, 2013 in relation to FDs maturing after 31-3-2015. Notwithstanding the fact of date of maturity of FDs, this extension of six months is applicable to all premature deposits pending with the company, which have not been asked for repayment. In case any request comes within these six months of time for payment of any premature deposit pending, the company shall release the same within 30 days from the day any letter of request reached to the company. In case the company fails to make repayment as directed above, the order now passed will be deemed as vacated. Repayment of deposits as on 31/03/2015 - As to relief for extension of two months time for repayment of outstanding deposits by 31.3.2015, the company is given 30 days since 31-3-2015 to clear all deposits due for payment by 31.3.2015.As to relief (b) for exemption from maintaining liquid assets under Rule 3A of the Companies (Acceptance of Deposits) Rule, 1975, this Bench holds that the company shall not utilise the funds earmarked towards liquid assets under Rule 3A for repayment of deposits. - Decided partly in favour of appellant.

Issues:
1. Exemption from maintaining liquid assets under Rule 3A of the Companies (Acceptance of Deposits) Rule, 1975/Rule 13 of the Companies (Acceptance of Deposits) Rules, 2014.
2. Utilization of funds for repayment of outstanding deposits.
3. Repayment of existing deposits in accordance with original terms.
4. Time extension for clearing deposits due for repayment.
5. Difficulty in repayment due to financial constraints.
6. Company's efforts to repay deposits.
7. Extension of time for compliance with Section 74(1) of the Companies Act, 2013.
8. Constitution of a Hardship Committee to monitor the repayment process.
9. Exemption from maintaining liquid assets under Rule 3A of the Companies (Acceptance of Deposits) Rule, 1975.

Detailed Analysis:

1. The Applicant Company sought exemption from maintaining liquid assets under the Companies (Acceptance of Deposits) Rules and permission to utilize funds for repayment of outstanding deposits. They also requested permission to repay existing deposits as per original terms and sought an extension of time to clear all due deposits. The company faced challenges due to the cessation of accepting deposits post the Companies Act, 2013, affecting its financial liquidity.

2. The Company, a multi-activity entity with a substantial turnover, had been accepting deposits for years and maintained a good repayment record. However, the new Act's provisions necessitated the repayment of all deposits within a specified period, creating financial strain. Despite efforts to repay, the company faced difficulties due to the halt in accepting deposits, impacting its cash flow.

3. The Ministry of Corporate Affairs empowered the Company Law Board to address such applications under Section 74(2) of the Companies Act, 2013. The company's application highlighted the challenges in repaying deposits and the steps taken to address the situation, including divesting assets and seeking loans for repayment.

4. The Company requested a time extension to clear deposits, citing practical difficulties in repaying the entire amount by the specified deadline. The Board acknowledged the company's financial constraints and granted a six-month extension for complying with the Act's requirements regarding maturing fixed deposits.

5. The Board also constituted a Hardship Committee to oversee the repayment process, requiring progress reports at regular intervals. Failure to adhere to the repayment terms would prompt the Committee to report to the Board promptly.

6. The Board, while granting the time extension, emphasized the importance of adhering to the legislation's intent and directed the company to repay pending deposits promptly. Additionally, the company was not permitted to utilize earmarked liquid assets for deposit repayment, ensuring compliance with regulatory guidelines.

7. In conclusion, the Board disposed of the case, outlining the conditions for the company to fulfill regarding deposit repayment, time extensions, and monitoring mechanisms to ensure compliance with the Companies Act, 2013.

← Previous Next →