Judgment:
1. This order shall dispose of an enquiry instituted under Sections 36A, 36B(c) and 36D of the Monopolies and Restrictive Trade Practices Act, 1969, read with regulation 58 of the Monopolies and Restrictive Trade Practices Commission Regulations.
2. IOFIC Leasing Ltd. (hereinafter referred to as "the respondent") is a company incorporated under the Companies Act with its registered office at 5, Osian Building, 12 Nehru Place, New Delhi-19. The respondent was incorporated on December 6, 1984, with the main object of carrying on the business of leasing and hire purchase, etc., of vehicles, buildings, machinery, etc. One of the ancillary objects of the respondent is "subject to Section 58A of the Companies Act and regulations made thereunder and the directions issued by the Reserve Bank of India to receive money, deposits on interest or otherwise and to lend money, and negotiate loans with or without security to such companies, firms or persons and, on such terms as may seem expedient, and to guarantee the performance of contracts by any person, companies or firms, provided that the company shall not do any banking business under the Banking Regulation Act, 1949." 3. Purporting to act in pursuance of the aforesaid objectives, the respondent introduced a scheme under the name "pact gold bond scheme" with effect from January, 1985. However, the advertisements came in the various newspapers later. Two of the latest advertisements were in the Hindustan Times, dated 23rd September, 1986, and 12th December, 1986, copies of which have been attached to the application under Section 36B(c) of the Monopolies and Restrictive Trade Practices Act. The scheme mainly aims at getting funds from the public. Under the scheme, the respondent has floated "pact gold bond" of Rs. 10,000 each which any one can purchase provided he is enrolled as a life member of pack gold bond scheme by paying Rs. 100. Under that scheme, the respondent has guaranteed that every bond of Rs. 10,000 will have the value of Rs. 20,000 after 54 months which, instead of cash, can be taken in the shape of gold from the authorised commercial members who are jewellers and licence holders under the Gold (Control) Act, 1968. It has been made known by respondent that the money so received will be utilised for his business of leasing, etc., and that, on account of profits, it will be able to give Rs. 20,000 in lieu of Rs. 10,000 after expiry of 54 months.
4. The Director-General carried out investigations. During the investigation, he obtained copies of brochures containing details of the scheme. He also found out that already the respondent had enrolled 7 jewellery shops in Delhi as its authorised pact gold bond scheme commercial members.
5. The Director-General, in his application, says that the aforesaid scheme introduced by the respondent is misleading in the following manner : "(i) In its advertisement in the Hindustan Times, dated September 23, 1986, the respondent has claimed that the investment is secured by a nationalised bank guarantee. During the course of investigation, it has been found that the respondent has opened accounts for "pact gold bond scheme" with two banks, viz., (a) Punjab and Sind Bank, Nehru Place, New Delhi, and (b) Canara Bank, Nehru Place, New Delhi. Canara Bank, Nehru Place, New Delhi, has stated in its letter dated December 12, 1986 (annexure VIII to the application) that it has not issued any guarantee on behalf of the respondent regarding the payment of deposits made by depositors in respect of "pact gold bond scheme". Punjab and Sind Bank has informed (annexure IX to the application) that it has only given five bank guarantees amounting to Rs. 45,000 on behalf of the respondent. These guarantees have been issued by the Punjab and Sind Bank on 100% cash margin in the shape of FDR, i.e., fixed deposits amounting to Rs. 45,000. As per accounts, this bank has stated that the respondent has taken an overdraft of Rs. 15,95,151-77 in its current account. According to the information collected by the applicant during the course of investigation, the chairman and the managing director of the respondent informed that 39 persons have so far deposited money with the respondent under its "pact gold bond scheme". It would thus be seen that the claim of the respondent that there is a nationalised bank guarantee is false inasmuch as out of the deposits by 39 investors, the respondent has been able to provide bank guarantee only in 5 cases. A copy of the performance bank guarantee issued by the Punjab and Sind Bank is annexure XI to the application. Under the bank guarantee, the bank has promised to pay a sum not exceeding Rs. 10,000 on expiry of 54 months with 30 days' grace period, if the respondent fails to perform/ execute the forward order of gold jewellery of prepaid value of Rs. 10,000.
Thus, even in cases where the nationalised bank guarantee has been provided by the respondent, only the principal amount of Rs. 10,000 is secured and the investors will have to bear the loss of the remaining Rs. 10,000 if the respondent fails to perform. Thus, there is no safety/security of the interest which would accrue to the investors on the principal amount of the deposits.
(ii) The main object of the respondent is to carry on the business of leasing and hire-purchase and/or hire-purchase financing. In its advertisement (annexure II to the application), the respondent has claimed itself as a leading leasing company. In its brochure at annexure XII to the application, the respondent has, inter alia, claimed that "IOFIC" is the only company to invest your money in a proper and secured way of leasing business. This claim of the respondent is false as it is a new company in the leasing business having been incorporated in December, 1984, only. During the course of investigation, the respondent failed to show any good leasing business done by it.
(iii) The respondent has claimed that, in its leasing business, it would be able to earn 39 per cent. per annum and, therefore, it would be able to double the investments made by the depositors in 4 1/2 years, it is, however, seen that the respondent is able to provide nationalised bank guarantee to the depositors only when it deposits the entire amount with the nationalised bank. It is thus not possible for the respondent to withdraw the amount so deposited in the bank and invest the same in the leasing business. The "pact gold bonds scheme" introduced by the respondent does not seem to be a viable scheme and it is doubtful if the respondent will be able to refund the stipulated amount to the investors after the stipulated period.
(iv) Under the provisions of Section 58A of the Companies Act, 1956, and the rules framed thereunder as also under the directions issued by the Reserve Bank of India, a public limited company can accept deposits from the public by issue of an advertisement containing prescribed particulars. Such particulars broadly relate to the composition of the board of directors, the profit and financial position of the company and limits on the nature of deposits. Under these provisions, a public limited company cannot accept deposits for a term exceeding three years and pay interest of more than 15 per cent. per annum. Thus, the rules prescribe the limits, the period and the conditions subject to which deposits can be accepted by a public limited company. However, under the guise of the "pact gold bond scheme"; the respondent has accepted deposits from investors for a period of more than three years, i.e., 54 months with a promise to double the prepaid amounts, thus at a rate of more than 20 per cent. interest. The return is being made by the respondent in the form of gold jewellery simply to circumvent the aforesaid provisions of the Companies Act, 1956.
(v) The respondent has indicated the denominations of 106 gms., 50 gms. and 25 gms. on the gold bonds (annexure XIII to the application). It creates a misleading impression on the prospective investors that, on the expiry of the stipulated period, they will get the gold jewellery of the said weight, while, in reality, the respondent shall return only Rs. 20,000 in the form of gold jewellery for the prepaid value of Rs. 10,000. In case the rate of jewellery goes up within a period of 54 months, the quantity of gold jewellery will obviously become less. Thus, the assertions of gold bonds of 100 gms., 50 gms. and 25 gms. denominations on the gold bonds are misleading and amounts to unfair trade practice.
(vi) In its brochure at annexure X to the application, the respondent has stated "never before in the history of mankind, gold was ever offered/ sold at just half of the rate of gold in the current market whereas IOFIC Leasing Ltd. makes it practical." The respondent has informed that it has started booking gold jewellery orders from January 1, 1985, under its pact gold bond(s) scheme on 50 per cent. discount with bank guarantee for the prepaid value for delivery of the gold jewellery at the time of expiry of 54 months with one month grace period. It is further stated that pact gold bonds never expire or become invalid if no claimant comes forward.
Bonds are renewed for further terms with bank guarantee. The assertion that the gold or gold jewellery is offered by the respondent at 50 per cent. discount is totally false and misleading.
The term "discount" always signifies immediate relief with reference to the current prevailing price. The investors should get jewellery worth Rs. 20,000 for Rs. 10,000 immediately, if the respondent allows 50 per cent. discount as claimed. But there is no such intention here. Under its scheme, the respondent claims that it will pay to the prospective investors double the amount of the prepaid investment after 54 months. The jewellery will be sold after 54 months at the rates prevailing at that time. It is a further false claim when the respondent, at page 24 of the application under Section 36B(c), says that gold jewellery of choice is sold at 50 per cent. discount immediately. Thus, the representation that the gold jewellery is being sold at 50 per cent. discount is false and misleading. In fact, the scheme of pact gold bond is itself misleading as it allures gullible investors to deposit large amounts with the respondent.
(vii) Further, the respondent offers three-fold guarantee for purity; resale value and buy back (quick encashment) in respect of the gold jewellery sold to the investors under the pact gold bond(s) scheme. Thus, in case the investors do not wish to retain the gold jewellery, they can sell the same to the respondent and get double the amount of their prepaid investment of Rs. 10,000 after 54 months. The acceptance of the investment of Rs. 10,000 beyond the period of three years at the rate of more than 15 per cent. interest per annum is in contravention of the provisions of the Companies Act, 1956, as stated earlier.
(viii) The respondent has claimed in its scheme that the pact gold bond(s) scheme helps the parents to honour social responsibilities towards dowry and other problems at the time of marriage of their daughters, sons, etc. While under the Dowry Prohibition Act, 1961, the evil practice of giving and taking of dowry is prohibited, the scheme of the respondent encourages parents to collect wealth in the form, of jewellery so as to give dowry to their daughters. It is further claimed that the pact gold bond(s) scheme is the latest largest profit-yielding technology, the first of its kind in the history of mankind under the 20-Point Economic Programme (annexure V to the application). The respondent has stated that, under the pact gold bond(s) scheme, it has planned, to help our popular Government in the implementation of its 20-Point Programme for eradication of poverty of the masses while providing imperishable wealth to the weaker sex of the weaker section of the society. It is ironical that, on the one hand, the respondent is encouraging people to give and take dowry, which is prohibited and on the other hand, it is claiming to help the Government to eradicate poverty under its 20 point programme. The respondent is rather making the poor people more poor by abetting them to indulge in the prohibited evil practice of giving and taking dowry. The respondent is thus misleading the gullible public about the 20-point Economic Programme of the Government and causing injury to the interest of the public.
(ix) In its advertisement, the respondent has claimed that the pact gold bond scheme is the "largest profit-yielding system, of the times". As per calculations, the respondent is only paying double the amount of investment in 54 months, of course, in gold jewellery.
The rate of interest or yield comes to around 22 per cent. only while there are many other investment/financial companies who pay an interest of more than 30 per cent. to investors. This claim of the respondent is, therefore, totally misleading.
(x) In the advertisement, the respondent has stated that the investors can also take loans of 75 per cent. of the amount deposited at a nominal rate of interest. During the course of investigation, the managing director of the respondent stated that the nominal rate of interest meant a rate of interest of 18 per cent. charged by banks. Thus, the rate of interest of 18 per cent.
is not a nominal rate of interest but it is the commercial rate of interest. This assertion also of the respondent in the advertisement is false and misleading.
(xi) Under the scheme, all pact gold bond holders are eligible to participate in a lucky draw to be held every month to enable the winners to get instant benefit on the maturity period of the pact gold bond. Thus, under this lucky draw, the lucky winners will get 100 gms. denomination pact gold bond worth of Rs. 20,000 encashable within one month of the draw, the full value in the form of gold/jewellery/cash or any other durables as per his/her choice. The investigation has, however, revealed that so far no lucky draw has been organised since the inception of the scheme in January, 1985.
The assertion in the brouchure (at annexure X to the application) about the holding of lucky draw is, therefore, false and amounts to an unfair trade practice." 6. In an enclosure to annexure V of the application (page 24) under Section 36B(c) of the Monopolies and Restrictive Trade Practices Act, under the heading "any other information", it is mentioned by the respondent, "full proof systems of payments through nationalised banks : No cash dealings". It appears that the phrase meant was "fool proof system" instead of "full proof system". Shri O.P. Dua, learned counsel for the Director-General of Investigation and Registration, urges that, in fact, the respondent had devised a foot proof system with the intention of befooling the public at large and, therefore, very urgent action is necessary by way of issuing an ex parte injunction or otherwise any delay will mean that many persons will be befooled and subjected to fleecing.
7. The Director General also moved an application under Section 12A of the Monopolies and Restrictive Trade Practices Act and the Commission granted an ex parte injunction restraining the respondent from carrying on the unfair trade practice within the meaning of Section 36A of the Monopolies and Restrictive Trade Practices Act giving false and misleading statements in the advertisement and brochure to allure the general public/ investors to make deposits with the respondents till further order.
8. A notice of enquiry was issued and Shri H.S. Wahi, managing director of the respondent-company, contended before the Commission that he wants to file an application under Section 36D(2) of the Monopolies and Restrictive Trade Practices Act. The application of the respondent under Section 36D(2) was disposed of by the order of the Commission dated October 29, 1987. By the aforesaid order, the application of the respondent under Section 36D(2) was dismissed and the respondent was directed to file replies to the notice of enquiry and also an application under Section 12A of the Monopolies and Restrictive Trade Practices Act on January 6, 1988. For this purpose, the matter was to come up before the Commission on January 6, 1988. On January 6, 1988, the respondent prayed for an adjournment which was granted and the enquiry was fixed for March 8, 1988. Replies were not filed even by March 8, 1988, and the Commission further extended time to file reply to May 19, 1988. On May 19, 1988, none was present on behalf of the respondent The Commission confirmed the injunction order issued ex parte on January 19, 1987, and in this way, the application of the Director-General under Section 12A of the Monopolies and Restrictive Trade Practices Act was disposed of. As none was present for the respondent, proceedings against the respondent were ordered ex parte and the Director-General was directed to produce ex parte evidence in the shape of affidavit to be filed by the Director-General on August 30, 1988. On August 30, 1988, the respondent filed an application for setting aside the ex parte proceedings. The Commission, vide its order dated November 1, 1988, set aside the ex parte proceedings subject to payment of Rs. 500 as cost and the respondent was directed to file replies to the notice of enquiry on December 8, 1988. On December 8, 1988, the respondent filed a reply to the notice of enquiry and also a fresh application under Section 36D(2) of the Monopolies and Restrictive Trade Practices Act was filed by the respondent. On February 23, 1989, the Director-General filed-an objection and opposed the application of the respondent under Section 36D(2) of the Monopolies and Restrictive Trade Practices Act. The application of the respondent under Section 36D(2) of the Monopolies and Restrictive Trade Practices Act was heard and dismissed and the case was posted for May 11, 1989. On May 11, 1989, the following issues were framed : 1. Did the respondent indulge in the unfair trade practice as alleged in the notice of enquiry and application of the Director-General 2. if issue No. 1 is decided against the respondent, is the unfair trade practice prejudicial to public interest or the interest of the consumers generally or any consumer 9. The case was posted for the evidence of the Director-General on July 11, 1989. The Director-General tendered documents exhibits A-1 to A-12 on July 11, 1989, and closed his evidence. The case was fixed for the evidence of the respondent to be recorded on October 31, 1989. The respondent again sought adjournment and the case was fixed for the evidence of the respondent for February 27, 1990. On February 27, 1990, the respondent made a statement that he does not want to produce any evidence ; he filed an application under Section 36D(2) of the Monopolies and Restrictive Trade Practices Act. The Director-General contended that this application is in no way different from the earlier application and this was deemed to be dismissed. The case was fixed for final argument to be heard on October 16, 1990, at 2.30 p. m. On October 16, 1990, the respondent again absented himself ; ex parte arguments were heard by the Commission.
10. I have gone through the complaint of the Director-General ; in the preliminary, investigation report and documents tendered by the Director-General in evidence, i.e., exhibits A-1 to A-12, there is absolutely no rebuttal of the evidence as adduced by the Director-General. There is enough evidence to come to the conclusion that the respondent has been indulging in unfair trade practices within the meaning of Section 36A(1)(i), (ii), (iv), (vi) and (viii) of the Monopolies and Restrictive Trade Practices Act. Having held so, I also hold that the aforesaid unfair trade practices are prejudicial to public interest, the interest of the consumers and consumers in general. I, therefore, pass a cease and desist order under Section 36D(1) of the Monopolies and Restrictive Trade Practices Act and direct him to discontinue the unfair trade practices as stated in the notice of enquiry and not to repeat them. The respondent is also directed to pay a sum of Rs. 5,000 as costs to the Director-General within four weeks from the receipt of this order. A copy of this order shall be sent to the respondent by registered post with acknowledgment due.