1. This is an application filed by the Director-General of Investigation and Registration praying for issue of ex parte ad interim injunction against Bharat Overseas Finances and Industrial Investment Corporation, Madras, and its partners restraining them from carrying on unfair trade practices as spelt out in the application.
2. The Director-General has also separately filed a preliminary investigation report in compliance with the Commission's orders under regulation 10(2)(c) of the Monopolies and Restrictive Trade Practices Regulations, 1974, and on a perusal of this report and, after hearing the Joint Director-General and Shri O. P. Dua, Advocate for the Director-General, we have directed issuance of notice of enquiry against the respondent.
3. Bharat Overseas Finances and Industrial Investment Corporation is a partnership concern engaged in the business of construction, hire-purchase and leasing. To obtain finances, it invites and accepts deposits from the general public. According to the information collected by the Director-General, the respondent-firm consists of the following three partners : 4. In this application, the Director-General has taken exception to the claims made and information given in advertisements which the respondents have been inserting in newspapers soliciting deposits from the public. A copy of one of the advertisements which appeared in the Deccan Chronicle, dated January 1, 1986, is enclosed with the application. The advertisement offers "extra 3% interest from January 1 to January 31, 1986". According to the advertisement, the following rates of interest on various types of deposits were offered : 5. The advertisement also offers other tempting schemes, namely, "Trebling Scheme for 5 years (Rs. 1,000 becomes Rs. 3,000), Recurring Deposit 17% Scheme and Saving Scheme-10% and Nationalised Bank's Cash Certificate Scheme-5 years 20%, 7 years 24% and 10 years 27%". The respondents have indicated in the advertisement that although they have a registered office in Madras, they have also branches in Madras, Hyderabad, Madurai and Vishakhapatnam. A very alluring part of the advertisement is the offer of "higher interest, promptness, liquidity, trust, security".
6. According to the Director-General, the above-mentioned offers and claims are misleading as the respondent did not give any worthwhile information in support thereof. In response to the Director-General's letter dated August 18, 1986, respondent No. 1 sent a reply only on November 19, 1986, and even in the reply so sent, the required information was not given. The respondent admitted having accepted deposits ''from a small number of persons" but as it could not carry out its plan of lending money to the film industry at a high rate of interest, it "decided to close down the business and return the deposit to the depositors." But when asked by the Director-General to give an undertaking duly certified by a chartered accountant that the deposits of all the persons have been refunded with interest thereon, the respondent assumed sullen silence. The respondent did send a letter dated February 13, 1987, which was produced at the time of hearing of the petition but it did not give the undertaking, on the ground that "due to dispute among partners, the accounts are not properly maintained and it is not possible to produce accounts and to pay any chartered accountant and get a certificate." Thus, the veil of secrecy on the respondent's business affairs remains unlifted.
7. In the absence of adequate and relevant information, the Director- General has rightly come to the conclusion that the tempting schemes were only paper schemes and the offer of "higher interest, promptness, liquidity, trust and security" were hollow.
8. We have carefully gone through the Director-General's application and preliminary investigation report and we have aiso heard the arguments of Shri Dua. We feel that whatever information the respondents have volunteered in response to the Director-General's probing enquiries renders the claims made in the advertisement incredible. We do not know how many persons were lured into parting with their hard-earned money in the fond hope of earning high rates of interest as falsely held out by the respondent in the advertisements.
The loss or injury to such investors is patent. It is very doubtful if they have even received back the money deposited by them with the respondent. In this context, therefore, prima facie the respondents have indulged in the unfair trade practices in the form of misleading and spurious claims within Section 36A of the MRTP Act.
9. The Director-General has also argued that the unfair trade practices indulged in by the respondents are detrimental to public interest. In this connection, the Director-General has stated that the "non-banking financial companies under the Reserve Bank of India Directions and non-banking non-financial companies under Section 58A of the Companies Act, 1956, are statutorily required to publish an advertisement containing prescribed particulars such as financial position, composition of management, amount of outstanding deposits and a declaration that the deposits are unsecured and rank pari passu with other unsecured liabilities and also that the repayment of deposits is not guaranteed by the Central Government." As the respondents have not furnished these particulars in their advertisement while inviting deposits from public, they are clearly guilty of non-compliance with the relevant legal provisions. Further, the Director-General has also referred to the ceiling on the rates of interest payable on deposits for varying periods as prescribed by the Reserve Bank of India and the Companies (Acceptance of Deposits) Rules, 1978. The interest rates offered by the respondents are much higher than the prescribed ceilings.
10. That such finance companies as the respondent are doing a positive disservice to the intending depositors can be seen from the following observations of the Supreme Court in the case of Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663, 695 : "We would also like to query what action the Reserve Bank of India and the Union of India are taking or proposing to take against the mushroom growth of 'finance and investment companies' offering staggeringly high rates of interest to depositors leading us to suspect whether these companies are not speculative ventures floated to attract unwary and credulous investors and capture their savings.
One has only to look at the morning's newspapers to be greeted by advertisements inviting deposits and offering interest at astronomical rates . . . Another advertiser offered interest ranging between 30% and 33% for periods ranging between six months and five years. Almost all the advertisers offered extra interest ranging from 3% to 6% if deposits were made during the Christmas and Pongal seasons. Several of them offered gifts and prizes. If the Reserve Bank of India considers the Peerless Company with eight hundred crores invested in Government securities, fixed deposits with nationalised banks, etc, unsafe for depositors, one wonders what they have to say about the mushroom non-banking companies which are accepting deposits, promising most unlikely returns and what action is proposed to be taken to protect the investors. It does not require much imagination to realise the adventurous and precarious character of these businesses. Urgent action appears to be called for to protect the public. While, on the one hand, these schemes encourage two vices affecting public economy, the desire to make quick and easy money and the habit of excessive and wasteful consumer spending, on the other hand, the investors who generally belong to the gullible and less affluent classes have no security whatsoever. Action appears imperative." 11. In view of what has been stated by the Director-General in his application under Section 12A, it is obvious that the unfair trade practices indulged in by the respondents in making high-sounding and alluring claims about the deposit-receiving activities are prejudicial to public interest. In this view of the matter, the case falls squarely within the ambit of Section 12A of the MRTP Act.
12. We are also of the opinion that besides there being a prima facie case, the balance of convenience is against the respondent. In implementing an Act which has the interest of consumers at heart, it is the convenience of the consumers that has to be kept uppermost in mind.
Their interest heavily tilts the balance of convenience against the respondents.
13. We also accept the Director-General's plea that an ex parte injunction is called for as delay would defeat the very purpose for which the injunction is sought. We, therefore, in exercise of the powers under Section 12A(1) and (2), issue ex parte interim injunction restraining the respondent from indulging in the unfair trade practices spelt out in the Director-General's application and discussed in this order.
14. In view of Rule 3 of Order XXXIX, Civil Procedure Code, a copy of this injunction order and a copy of the application for issue of an injunction shall be sent by registered post by the Director-General of Investigation and Registration by tomorrow to the respondent and an affidavit of doing so shall be filed. A notice of the application for issue of injunction as well as injunction order should be communicated to the respondent by the office of the Commission itself.
15. We would like to clarify that what has been stated in this order will not prejudice the merits of the respondent's case in the main unfair trade practices enquiry.