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TMI Blog2007 (5) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... that the outstanding position of the fixed deposits as on 31-3-2003 was Rs. 16,183.76 lakhs and this amount was owned by the Company to 85,921 depositors. 3. The CLB took cognizance of the matter under section 58A(9) of the Indian Companies Act ( the Act ). The Company was asked to furnish the reasons for its default and the plan of action to clear all the matured deposits and the deposits which would mature in the future. Various options were placed before the CLB by the Company for discharging its liabilities. The CLB passed the following order after hearing the parties on 8-8-2003 : "( i )The interest payable will be the contracted rate up to the date of maturity and at 7 per cent per annum after the date of maturity; ( ii )All deposits up to Rs. 5,000 payment will be made within one year from the date of maturity; ( iii )All deposits of Rs. 5,001 to Rs. 20,000 shall be paid within 4 years from the date of maturity at 20 per cent in the first year, 20 per cent in the second year, 20 per cent in the third year and balance 40 per cent in the fourth year. The interest for both pre and post maturity period will be paid along with the last instalment. ( iv )All deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged that the Company had without giving any logical reasoning made a provision for Rs. 126 crores in regard to outstanding debtors and had written off this amount whereas in the previous year the amount under this head was only Rs. 84 lakhs. Various other violations made by the Company were pointed out with a view to show that the Company was not being run in a proper manner and that the accounts of the Company were not being properly maintained. The Company contested this application. The CLB noticed that despite specific directions given from time to time the Company avoided to give the complete reply in regard to the status of the repayment of the deposits. The CLB after considering the entire case partly allowed the application filed by the Central Government and ordered that two Government Directors be appointed to monitor and assist the Company for a period of 3 years. 6. Aggrieved by the aforesaid orders the Company filed Appeal No. 3 of 2005 and it is the contention of the Company that no case is made out for appointment of Government Directors. The Union of India has filed Company Appeal No. 6 of 2003 and according to the Central Government its prayer for appointment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absolutely dismal. According to him the Company has failed to fulfil its obligations under the orders of the CLB. It is also contended that the Company has miserably failed to pay off the public depositors who are poor persons and it is alleged that the funds of the Company are being siphoned off and as such the Company should be permitted to appoint six Directors so that it has majority say in the running of the Company. 10. Before considering the factual aspect of the matter reference may be made to section 408(1) of the Act which reads as follows : "408. Powers of Government to prevent oppression or mismanagement (1) Notwithstanding anything contained in this Act, the Central Government may appoint such number of persons as the Company Law Board may, by order in writing, specify as being necessary to effectively safeguard the interests of the company, or its shareholders or the public interests to hold office as directors thereof for such period, not exceeding three years on anyone occasion, as it may think fit, if the Company Law Board on a reference made to it by the Central Government or on an application of not less than one hundred members of the company or of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi High Court passed in Sakthi Trading Co. (P.) Ltd. v. Union of India [1985] 57 Comp. Cas. 789 . 14. In the present case the admitted facts are that the Company has been unable to comply with the orders of the CLB and pay off the public depositors. The explanation of the Company that it could not comply with the orders of the CLB due to the fact that its produce Loratadine could not be sold in the US market and that the global deposit receipts could not be utilized cannot be accepted. Both these circumstances were already in existence when the order dated 8-8-2003 was passed by the CLB. At that time the Company itself had given various options to the CLB to pay off all the depositors. The CLB passed directions. This order of the CLB has attained finality and in our considered opinion the Company should have cleared the public debt in accordance with the orders of the CLB. The Company in fact had not fulfilled its obligations and instead has diverted the funds to various other parties. We cannot lose sight of the fact that thousands of pensioners, widows and other members of the public have invested their funds in the Company. The Company s accounts should be above board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l institutions/banks for restructuring of debt under Corporate Debt Restructuring (CDR) mechanism, the company has not provided for interest amounting to Rs. 7,230.29 lakhs of financial institutions and banks as a result the figures of loss for the period, secured loans and unsecured loans are understated by Rs. 7,230.29 lakhs, Rs. 6,236.02 lakhs and Rs. 994.27 lakhs respectively. ( ii )Note No. 11.2 of I regarding balances shown under loans and advances are subject to reconciliation/settlement and pending its consequential adjustments, if any." 18. The argument made on behalf of the Company that section 58 of the Act is a complete code in itself and therefore, non-compliance of the orders passed under section 58, cannot be a ground for appointment of Government Directors is an argument of despair and has been made only to be rejected. No doubt in case there is non-compliance to the orders passed by the CLB under section 58, the Directors of the Company can be prosecuted. However, the Company cannot be heard to say that though it may have mis-managed its affairs to the prejudice of the public, provisions of section 408 should not be invoked. Both the penal provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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