Judgment:
1. The applicant-depositor in Kiran Overseas Exports Limited (hereinafter referred to as the "company") has made this application under Section 58A(9) of the Companies Act, 1956 (hereinafter referred to as the "Act") submitting that the company failed to repay the deposit in full together with interest thereon. The said application came up for hearing and disposal before this Bench from time to time on June 1, 1998, June 29, 1998, July 30, 1998, and finally on August 11, 1998.
2. During the final hearing, Commander N.N.S. Manian, project director, and representative of the company submitted that the applicant is a welfare organisation serving Air Force and Naval personnel on no profit and no loss basis. The applicant endeavours to meet housing needs of the retired Air Force and Naval personnel and widows of the deceased Air Force and Naval personnel. The contribution made by the members has been invested with the company and the income from such investment is utilised for the welfare of the members. Accordingly, the applicant has made a deposit of Rs. 50 lakhs with the company for six months repayable on or after May 27, 1997. The company has repaid an aggregate sum of Rs. 20 lakhs on various dates and failed to repay the balance of Rs. 32 lakhs due to the applicant. Consequently, the applicant is not in a position to meet its obligations towards its members, who are adversely affected. In the circumstances, Commander Manian submitted that the company may be directed to repay the entire outstanding amount due to the applicant by September 30, 1998.
3. Shri J. Murugan, advocate appearing for the company, reiterated the averments made in counter-statement as hereunder : (a) Section 58A(9) applies to deposits accepted by a company either "from the public or from its members". The applicant neither being a member of the public nor of the company, the applicant cannot invoke the provisions of Section 58A(9).
(b) The applicant being an "institutional investor" is at liberty to file a civil suit for recovery of the balance of the outstanding deposit amount.
(c) The applicant accepted an aggregate sum of Rs. 20 lakhs in instalments on various dates towards repayment of the deposit from the company and, therefore, there has been an implied contract to accept repayment of the deposit in instalments after the due date taking into account the mutual convenience of the parties and also the cash-flow position of the company.
(d) The company is not in a position to meet the demand of the applicant due to heavy losses incurred and adverse liquidity position. There has been accumulated loss of Rs. 20.99 crores as on June 30, 1997.
4. The company is affected by the economic recession and sluggish market conditions in India and abroad. The company is taking all steps to increase the sales and ease out the liquidity problems and approached Wellbred Asset Management (Bahamas) Limited, Miami, USA. The negotiations are under progress with the said company in the USA and the company is hopeful of improving the financial position in the years to come and the market conditions are expected to change for the better. In the circumstances, counsel for the company has sought for repayment holiday of one year and three years time to repay the balance of the deposit in six half-yearly instalments. In this connection, he relied upon Pure Drinks (New Delhi) Limited, In re [1995] 83 Comp Cas 174 (CLB) and Nuchem Limited, In re [1997] 3 Comp LJ 338.
5. After considering the pleadings and arguments of both the applicant and counsel for the company, the following issues arise for consideration: (i) Whether the application is maintainable under Section 58A(9) of the Act ; (ii) If so, whether the company be granted a period of four years to repay the deposit amount to the applicant in the facts and circumstances of the case.
6. The facts not in dispute are that the applicant is a society registered under the Societies Registration Act XXI of 1860. The main objects of the applicant are, to meet the needs of serving and retired air force personnel. It is a non-profit organisation. The applicant deposited with the company Rs. 50 lakhs for six months from November 28, 1996, refundable on or after May 27, 1997, and carries interest at 15 per cent, per annum. The company has repaid an aggregate sum of Rs. 20 lakhs on various dates to the applicant and balance of the deposit amount together with interest remains outstanding. The contentious issue is whether the deposit accepted from the applicant comes within the purview of Section 58A of the Act. As a measure of protecting the interest of depositors of non-banking non-financial companies, the Companies Act, 1956, has been amended inserting Section 58A with effect from February 1, 1975. Section 58A prescribes the conditions subject to which deposits may be accepted by a company either from the public or from its members. By virtue of Section 58A(9), the Company Law Board may order a non-banking non-financial company to repay any deposit for failure on its part in repaying such deposit in accordance with the agreed terms and conditions. Non-compliance with the orders of the Company Law Board would attract penalty as provided in Sub-section (10) of Section 58A. In this connection, the Explanation to Section 58A assumes importance, which runs as under : "Explanation.--For the purposes of this section, 'deposit' means any deposit of money with, and includes any amount borrowed by, a company but shall not include such categories or amount as may be prescribed in consultation with the Reserve Bank of India." 7. A careful scrutiny of the Explanation to Section 58A goes to show that the term "deposit" means any deposit of money with and includes any amount borrowed by a company but shall not include such categories or amount as may be prescribed in consultation with the Reserve Bank of India. Rule 2(b) of the Companies (Acceptance of Deposits) Rules, 1975 (the Rules, 1975) excludes the following money from the term "deposit" : (i) Money received from the Central or State Government(s) or money received from others, the repayment of which is guaranteed by the Central or State Government(s) or money received from a local authority or a foreign Government or any other foreign citizen, authority or person., (v) Money received from employees of the company by way of security deposit.
(vi) Money received by way of security or advance from purchasing, selling or other agents in the course of the company's business or advance received against orders for supply of goods or properties or for rendering of services.
(vii) Money received by way of subscriptions to any shares, stock bonds or secured debentures pending allotment or money received by way of calls in advance on shares in accordance with the articles of association of the company so long as such amount is not repayable to the shareholders under the articles of association of the company.
(ix) Money received from directors or money received from the shareholders by a private company or by a private company which has become a public company under Section 43A of the Act.
(x) Money received by issue of bonds or debentures secured by mortgage of immovable properties or convertible debentures.
(xi) Money brought in by the promoters by way of unsecured loans.
Admittedly, in the present case, the company has accepted a sum of Rs. 50 lakhs by way of deposit from the applicant, a society registered under the Societies Registration Act, 1860, which does not come under any of the exempted categories of the amount prescribed in Rule 2(b). Moreover, the amount of Rs. 50 lakhs accepted by the company is nothing but a loan from the applicant. By virtue of the Explanation to Section 58A, I am inclined to hold that the deposit of Rs. 50 lakhs accepted by the company from the applicant is "deposit" for the purpose of Section 58A. The applicant can, therefore, maintain an application under Section 58A(9). It is clear from the letter as well as spirit of Section 58A that it does not make a difference between small and large depositors. Section 58A protects the interests of all depositors. The Company Law Board in quite a few cases has granted relief to registered societies and larger depositors under Section 58A. There is no merit in the plea of the company. I therefore, answer this issue in the affirmative.
8. It is contended by the company that on account of severe recession in the industry, economic recession in the international leather market and financial problems faced by the company, the company is in need of a period of four years to repay balance of the deposit amount. It is also contended that the company is adopting appropriate strategies to increase the sales, in order to overcome the financial difficulties. It is negotiating with a foreign company for ECB of US 12 million dollars.
The negotiations are under progress. The company is hopeful of improving its financial position in the years to come. The company has neither chosen to substantiate its claim nor furnished its cash flow position. The company has not adequately made out its case for granting a period of four years to repay the remaining deposit amount. The cases cited by counsel for the company are not applicable in the facts and circumstances of this case, especially, when the order of the Company Law Board in Nuchem Limited's case [1997] 3 Comp LJ 338, is in respect of repayment of deposits aggregating to Rs. 1,031 lakhs in favour of 7,100 depositors and in Pure Drinks (New Delhi) Limited's case [1995] 83 Comp Cas 174 (CLB), and the total deposit amount amounts to Rs. 795 lakhs in respect of 9,941 depositors. In the present case, the application is in respect of only one deposit involving Rs. 50 lakhs out of which the outstanding balance comes to only Rs. 32 lakhs. In the circumstances, I do not see any justification to grant four years time in favour of the company for repayment of the balance of the deposit of Rs. 32 lakhs to the applicant. This issue is answered accordingly.
9. In the above circumstances and taking into consideration, the facts and circumstances of the case, the interest of the depositor, submissions of the applicant as well as counsel for the company, it is hereby directed that the company shall repay the balance of the deposit amount in respect of the application together with the contracted rate of interest calculated upto the date of payment and filing fee in three quarterly instalments commencing from October 1, 1998, and file an affidavit of compliance within a week thereafter.
10. The company, its directors and concerned officers shall ensure compliance with this order within the stipulated period.
11. A copy of this order may be sent to the Registrar of Companies, Tamil Nadu, Chennai, to ensure compliance and for taking appropriate legal action for non-compliance of this order, if any.