2021 (3) TMI 396 - Tri - Companies Law

Demand of return of deposit alongwith interest - Granting of appropriate rate of Interest for the delayed period - negligence of the Board of the Respondent- Company either in making the payment or giving any reply at all to the demand of the Petitioner - HELD THAT - Deposits can be accepted by the Companies under Section 73 to Section 76 of the Companies Act, 2013 read with Companies (Acceptance of Deposits) Rules, 2014 as amended time to time. For invoking the jurisdiction of the Tribunal as per Section 74(2) under the Companies Act, 2013, even a partial failure by the Company to repay the deposit was sufficient. In fact, Section 2 (31) of the Companies Act speaks of the meaning of deposit. The Tribunal is having vide discretionary powers regarding the repayment of Deposit (s) but it must exercise its discretion objectively taking into consideration all the relevant aspects in a conspectus judicial manner. In reality, the distinction between deposit and loan may not be a relevant factor for interpreting the term Deposit . To put it succinctly, under the new Companies Act, 2013, the definition of the term Deposit is of wider amplitude. In the present case, this Tribunal could not find any evidence the Company filed application before the Registrar of Companies regarding any statement of the deposits accepted by the company and sums remaining unpaid on such amount with the interest payable thereon along with the arrangements made for such repayment. It is evident from the receipt No. 140 issued by the Respondent No.1 Company to the petitioner on 23.05.2012 that the petitioner issued a cheque (No. 118356) of ₹ 2,45,000 towards deposit/Loan. The Respondent did not submit any evidence of Board Resolution with regard to the collection of money - As far as the natural justice is concerned, it is true that the Company retained the Deposit amounts for its business purposes which was otherwise to be paid to the depositors on the due date of maturity (in the present petition no due date or interest payable is referred by both the parties) or in other words, the Company has used the money of the public for number of years for its business purposes. Therefore, it is an accepted commercial principle to pay Interest to a person whose money is used by the Borrower for its business advantage. Granting of appropriate rate of Interest for the delayed period - HELD THAT - The Legislature is very much convinced of the fact that if the Share Application money is used by the Company without allotment of Shares of Securities, then such Share Application money shall be treated as if it is a deposit with the Company on which 12% Interest can be earned. The present case also falls within the same category, which is in favour of the Depositor. If this principle is followed, then it is judicially correct to order the grant of Interest @ 12% per annum for the delayed period. Since the instant petition remained pending for quite some time, a direction is issued to the Respondent company to repay the amounts due and payable to the petitioner with 12% interest for which the company has defaulted and shall file an unconditional affidavit stating strict compliance, with the Registrar of Companies, Kerala by 01.05.2021 - Petition disposed off.

Issues Involved:
1. Non-allotment of shares and treatment of payment as unsecured loan.
2. Non-repayment of the deposit and interest.
3. Compliance with Companies Act and Companies (Acceptance of Deposits) Rules.
4. Liability of the company’s directors and management.
5. Interest and penal interest on overdue deposits.

Issue-wise Detailed Analysis:

1. Non-allotment of shares and treatment of payment as unsecured loan:
The Petitioner, a shareholder of the Respondent company, paid ?2,50,000 for 25,000 equity shares but was only allotted 500 shares for ?5,000. The remaining ?2,45,000 was treated as a deposit/loan by the Respondents without issuing shares. The Petitioner claimed this was done unilaterally by the Respondent's Managing Director, who issued a receipt instead of shares.

2. Non-repayment of the deposit and interest:
The Petitioner demanded the return of the deposit with 12% interest, quarterly compounded, via notice dated 01.03.2017, but received no response. The Petitioner argued that the Respondent company failed to repay the deposit or respond to the demand, leading to the filing of this petition.

3. Compliance with Companies Act and Companies (Acceptance of Deposits) Rules:
The Petitioner alleged that the Respondent company violated Clauses 50 & 51 of its Articles of Association and failed to comply with the Companies Act and Companies (Acceptance of Deposits) Rules. The Petitioner highlighted that the amount was treated as an unsecured loan without proper declaration and was not disclosed in the financial statements as required by Circular No. 5/2015.

4. Liability of the company’s directors and management:
The Petitioner contended that all directors, including the Managing Director, were liable for unauthorized collection of money without a Board Resolution. The Respondent's defense was that the previous Managing Director collected the unsecured loans and that the current management was unaware of these actions. The Tribunal found no evidence of a Board Resolution authorizing the collection of money and held the Board liable for failing to act per the Articles of Association.

5. Interest and penal interest on overdue deposits:
The Tribunal emphasized that companies must pay interest on overdue deposits and referred to the Companies (Acceptance of Deposits) Rules, 2014, which prescribe a penal rate of interest of 18% per annum for overdue deposits. The Tribunal decided to grant interest at 12% per annum for the delayed period, aligning with Section 42(6) of the Companies Act, 2013, which treats unallotted share application money as a deposit with 12% interest.

Findings and Orders:
The Tribunal found that the Respondent company failed to comply with Section 74(1)(b) of the Companies Act, 2013, by not repaying the deposits. The Tribunal ordered the Respondent company to repay the Petitioner ?2,50,000 with 12% interest and file an affidavit of compliance with the Registrar of Companies, Kerala, by 01.05.2021. The Registrar was directed to initiate prosecution if the company failed to comply and to send a compliance report to the Tribunal.

Conclusion:
The Tribunal disposed of C.P No. 07/KOB/2020 with the above directions, emphasizing the company's obligation to repay deposits with interest and the liability of the company's directors for unauthorized actions.

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