In Re: Thapar Agro Mills Ltd. - Court Judgment

Excerpt:
1. the northern region bench of the company law board has received a number of complaints of non-repayment of fixed deposits by thapar agro mills ltd. (hereinafter called "the company") having its registered office at w-50, greater kailash ii, new delhi. over a period of time the total number of petitions received under section 58a(9) of the companies act, 1956 (hereinafter called "the act"), has swelled to 1029 in respect of fixed deposits amounting to roughly rs. 1.50 crores.thus, a large number of the investing public have been inconvenienced by the failure of the company to repay the public deposits in accordance with the terms and conditions of such deposits. the jurisdiction of the company law board has, therefore, been invoked under section 58a(9) of the act by the aggrieved depositors.2. immediately after the receipt of applications at the first instance, the bench office forwarded copies of such applications to the company and also called for various particulars regarding deposits. the bench did not receive any information from the company either with regard to the repayment or with regard to the other particulars called for. the first hearing in this case was fixed for april 15, 1996, at which none appeared from the company. thereupon, the bench directed the office to collect the addresses of directors and serve notice on them to be present at the time of next hearing. accordingly, notice was issued to the directors of the company to appear before the bench on june 13, 1996. on this date none of the directors summoned was present. there was no written representation either from the company in reply to the applications. the advocate representing the company was told that the directors should be present at the next hearing on august 22, 1996, and should also produce a concrete plan for repayment of the deposits. on august 22, 1996, the chairman of the company, shri satish thapar, was personally present but'could not produce any information called for including the scheme for repayment of the deposits. another 15 days' time was granted to the company to file the relevant information as well as particulars of deposits already paid off as contended by the chairman of the company. thereafter, on september 18, 1996, all the directors were again reminded of the information to be furnished by the company since no information was received. in reply to this communication the company provided on october 9, 1996, a part of the information, namely, the balance-sheet as on june 30, 1995, and a list of depositors who have been repaid. in addition the company also stated in their communication that it wishes to make a monthly payment of rs. 1,50,000 on a first-come first-served basis. the matter was again fixed for hearing on november 27, 1996, on which date none appeared from the company. however, a letter dated november 26, 1996, was received seeking adjournment of the matter on account of a consortium meeting with the bankers and a pollution control case at a ludhiana court, both scheduled for the same day. on this date an order was passed by this bench affording a final opportunity to the company and its directors.the company was also directed to file proceedings of the consortium meeting and cash flow projections for the next three years in order to decide this matter. thereafter, on december 12, 1996, the chairman of the company, shri satish thapar, was present and he again sought time to file the information called for * which was granted. he was also directed to file an affidavit containing proposals for repayment. the matter was adjourned to february 3, 1997. on this date none of the directors or officers of the company was present and a practising company secretary represented the company. he, however, had no briefing with regard to the plans of repayment of the deposits. he could only pass on an unaudited and unsigned balance-sheet of the company as on june 30, 1996. the company was still provided a further one week's time on february 3, 1997, to file an affidavit containing particulars called for. an affidavit has now been received from the company though no particulars as called for were given. the bench proceeded to decide the matter on the merits based on earlier submissions, records and information available before it.3. thapar agro mills ltd. was incorporated on october 28, 1985, and is presently a listed company. the company is engaged in the manufacture/ sale/export of rice, rice bran oil, de-oiled cakes, industrial hard oil, oxygen, fatty acid, stearic acid, glycerin, laundry soap, vanaspati ghee and refined oil. the authorised' capital of the company is rs. 24 crores consisting of rs. 23.95 crores in equity shares of rs. 10 each and rs. 0.05 crores in 11 per cent. redeemable cumulative preference shares of rs. 100 each. the paid-up capital of the company amounts to rs. 10,39,11,100 consisting of 10,39,10,500 in equity and rs. 600 in preference capital. the board as on date consists of four directors, all being members of one family, namely, shri satish thapar, shri prakash thapar, shri arun thapar and shri prem thapar, all residents of ludhiana, punjab. the company was showing profits up to june 30, 1994, and had also declared a dividend of 10 per cent. in respect of the period ended june 30, 1994 (15 months period). as on june 30, 1995, the total fixed deposits actually held by the company amounted to rs. 3,16,61,234. the company did not file any annual return with regard to deposits as required under the provisions of the act and the rules. strangely, taking this as an excuse the. auditor of the company also did not make any comments with regard to the compliance with section 58a of the act in his report on the accounts for the year ended june 30, 1995. this kind of plea is very unusual and unjustified.it also appears that the accounts for the year ended june 30, 1995, were finalised only by the end of february, 1996, and according to the letter dated october 8, 1996, received from the company no annual general meeting was held till october, 1996.4. a study of the audited balance-sheets as on june 30, 1995, brings out prominently the following irregularities in the company : (i) the company has not paid the pf and esi dues regularly and at the close of the year an aggregate of rs. 3,79,997 was still due on this account. (ii) the company owed rs. 10,66,193 towards sales tax which has not been paid. (iii) the company did not pay the dividend declared for the year 1993-94 aggregating to rs. 1,22,83,578 and has not also remitted the unpaid amount in a separate account as per section 205a(1) of the act. the company was also liable to deduct income-tax at source from such dividend as per the income-tax act, 1961, and has failed to deposit the same with the tax authorities, (iv) the company was liable to repay rs. 3 crores of 14 per cent. non-convertible debentures which has not been paid as per the terms of issue and the interest on these debentures has also become accrued and due. (v) the company obtained an advance licence to import certain items for manufacture and was liable to export soap in specified proportions and accordingly no customs duty on import was paid. however, up to june 30, 1995, the comply could export just 10 per cent. of its export obligations and hence is liable to pay the import duty at the rate of 65 per cent. of the import value namely, rs. 4.2 crores, (vi) there is need to strengthen the internal audit system and enlarge its scope. (vii) the company has not complied with the requirements of law with regard to maintenance of cost accounting records.5. the company's, turnover and profit before taxation and net worth for the last three years are as follows : 6. the outstandings from sundry debtors has increased from rs. 25.07 crores in 1994 to rs. 36.51 crores in 1995 and further to rs. 41.68 crores in 1996. thus, there had been an increase of rs. 16 crores in book debts over the last two years which are all, however, considered good. the company has investments to the extent of rs. 15,17,000 which includes rs. 5,09,000 on account of the deposits as required under the deposit rules, besides other investments. the company's turnover and working results have received serious setbacks during the last three years, yet the net worth is still positive and the company is not a sick company.7. in these proceedings, it is not possible to know about the financial position of the other group companies or of the promoter-directors.though the group strength is normally projected prominently while inviting funds from the public, it gets into oblivion while the question of repayment of public deposits is, raised. as such, conclusions could be drawn based on the company's own financial position in isolation.8. section 58a was introduced in the companies act in 1974, as a measure of protecting the interest of the public depositors. the provisions, as introduced in 1974, were more oriented towards regulating the acceptance of public deposits. there were only two clauses to provide for repayment of deposits which were accepted prior to 1974, failure in respect of which attracted stringent penalties. the high powered committee on the companies and mrtp acts in 1978, specifically commented on the absence of a penal provision in general for non-repayment of deposits on maturity. the committee observed that "it is a glaring and serious lacuna and recommended suitable provision to take care of such a situation". thereafter, the companies (amendment) act, 1988, introduced sub-section (3a) to provide that "every deposit accepted by a company after the commencement of the companies (amendment) act, 1988, shall unless renewed be repaid in accordance with the terms and conditions of such deposits". however, this clause was not followed by a specific penal clause. consequently, the penalty shall be the general penalty as prescribed under section 629a of the act.9. in addition to sub-section (3a), the amendment act, 1988 , also introduced sub-sections (9) and (10) to empower the company law board to take cognizance of any case of non-repayment of deposits on maturity and to direct the company to make repayment of such deposits within such time and subject to such conditions as may be specified in the order. non-compliance with the order of the company law board would attract penalty by way of imprisonment which may extend to three years and a fine of not less than rs. 50 for every day till such non-compliance continues. while deciding this matter, it is necessary to keep the objective behind these provisions, viz., the need to safeguard the interests of the investing public as expressed by the high powered committee and the penal provisions . in the act. (i) every deposit accepted by a company shall be repaid in accordance with the terms and conditions of such deposit. this being a statutory obligation, any failure to comply with this requirement shall attract a penalty with fine which may extend to rs. 500 and when the contravention is a continuing one with a further fine which may extend to rs, 50 for every day. this penalty is required to be reckoned with regard to each and every deposit as per sub-section (3a). (ii) in case of failure to repay, the company law board may on the application of depositors or suo motu by order direct the company to make repayment of such deposits or part thereof forthwith or within such time and subject to such conditions as may be specified in the order. the company law board shall give a reasonable opportunity to the company and the depositors before passing the order. (iii) whoever fails to comply with the order of the company law board shall be punishable with imprisonment which may extend to three years and shall also be liable to a fine of not less than rs. 50 for every day during which such non-compliance continues.11. in terms of the above provisions since undoubtedly the company has committed a default under sub-section (3a) inasmuch as the deposits have not been repaid in accordance with the terms and conditions of such deposits, based on the directors' report in this regard, the registrar of companies ought to have launched prosecution against the company and every officer of the company who is in default under section 629a of the act. in public interest, a copy of this order shall now be sent to the registrar of companies so that he can initiate action under the relevant provisions of the act without any further delay as the default has already occurred," 12. as regards the proceedings before the company law board, the petitions started coming over a period of time. as a matter of course they were referred to the company to provide opportunity to react.since there was no reaction from the company after some correspondence the matter was scheduled for hearing in april, 1996. the company was also directed to provide full details regarding deposits accepted, repaid, unpaid, etc. the company did not respond to these communications as well. the matter was again posted for hearing in june, 1996, at which the directors of the company were specifically summoned to be present. none of the directors was present despite notice and at subsequent hearings also the company and the directors went on taking time for further consideration of the matter regarding repayment. ultimately, in october, 1996, the company expressed its desire to make a monthly payment of rs. 1,50,000 to the depositors.thus, a commitment was obtained after prolonged follow up from the bench office and a number of hearings before the bench.13. while passing an order in proceedings of this sort a court normally should take into account the conduct of the parties on both the sides.in this case, the conduct of the company needs a special mention. the glaring instances in this regard are as follows : (i) the company's registered office is at new delhi whereas according to the complaints lodged by the depositors no one is available at the registered office to respond to the depositors. the registrar of companies has also reported on inspection that the premises in question were found locked and no sign board in the name of the company was affixed. it is also reported that the office of the company has been closed for more than six months whereas the deposits were accepted at the delhi office earlier. (ii) having come to know that the directors are located in ludhiana, service of notice personally through the registrar of companies at jallandhar was attempted by the bench officer. here again the registrar of companies has reported total helplessness as none was available at the addresses of the directors on record. thus, the directors avoided personal service of notices. (iii) the company and its directors have been avoiding compliance with the directions of this bench from time to time with regard to the deposits. (iv) when specific directions were given to directors to personally appear before the bench, the response of the directors has been generally evasive. (v) one of the promoter directors appears to have even signed the vakalatnama in the name of a non-existent director.14. having accepted huge amounts of deposits from the public, the above conduct of the company and its* directors in neglecting the investors indicates a total lack of responsibility.15. from the audited balance-sheet of the company for the year ended june 30, 1995, it is now established that the company is in serious financial difficulties and has committed already a number of defaults with regard to payment of pf of employees, dividends declared on shares, sales tax, interest on loans from financial institutions, banks, etc. all these liabilities fall under different categories and these creditors may have their own courses of action and may have also covered themselves with some or the other assets of the company. all these liabilities generally are in the nature of contractual obligations. on the other hand, the money due to the depositors, though also a contractual obligation, has a further statutory backing by virtue of the provisions of section 58a(3a) of the act. this obligation keeping in view the spirit behind the provisions of the act have to be fulfilled and at least the assets of the company which are not speci fically charged have to be used for redeeming these liabilities. on examining the balance-sheet of the company as on june 30, 1995, it is found that there are certain assets which are not specifically charged to any liabilities, namely: (i) investments in indira vikas patra amounting to rs. 5,90,000 are specifically kept to comply with the provisions of rule 3a of the companies (acceptance of deposits) rules, 1975. the rest of the investments to the extent of rs. 10,08,000 are also not specifically charged against any lia bility. (ii) cash and bank balances of the company as per the unaudited balance-sheet as on june 30, 1996, amounted to rs. 1,72,99,381. (iii) loans and advances recoverable in cash or in kind rs. 1,25,25,154 as on june 30, 1996, as per the audited balance-sheet.16. in addition to the above the bo6k debts which are all considered to be good and are certified to be recoverable in the normal course of business amounted to rs. 41,67,75,053. the realisation of investments, cash and bank balances and loans and advances certainly cannot be claimed exclusively by any other creditor as a going concern as they are not specifically charged, against any liabilities. in addition it should also be noted that the company has already expressed a desire to pay a sum of rs. 1,50,000 every month. it may not be appropriate to expect the company in the present serious financial position to use up the normal cash flow for payment of the deposits nor can the other assets which are specifically charged to the other liabilities be directed to be paid to the depositors. keeping also in view that the cash and bank balance as on june 30, 1996, may not fully remain as of today and that the loans and advances may not be fully realisable, it may be safely said that the company has adequate resources to at least immediately take care of the interest accrued on the deposits up to december 31, 1996.17. from the balance-sheet of 1995-96, it appears that approximately about two and half years' interest on these deposits would have accrued as on december 31, 1996. the total figure of interest accrued and due on the entire unsecured loan as on june 30, 1996 (as per the unaudited balance-sheet), including the previous years amounts to rs. 38.75 lakhs against the total principal amount of all unsecured loans of rs. 12.55 crores. the fixed deposits constitute hardly 25 per cent. of the total unsecured loan and as such proportionately the interest outstanding should be only in the region of rs. 10 lakhs even taking the rate of interest as uniform for all unsecured loans. added to this is the interest for a further period of six months from july, 1996, to december 31, 1996, on a reasonable estimation. the interest accrued and due on the public deposits should, therefore, be only around rs. 15 to 20 lakhs as on december 31, 1996. even if there is any underestimation of the liability still the items of assets referred to already should take care of such liabilities. with the disposable investment available with the company and other realisable assets as already stated, and further rs. 1.5 lakhs per month which the company on its own volition is wishing to pay, it should be possible for the company to pay off at least the accrued interest on all the fixed deposits up to december 31, 1996.18. as regards the principal amount of the fixed deposits which have matured, keeping in view the precarious financial position of the company it may not be appropriate to force the company to make an immediate payment. however, since the company has stated that a revival programme is being worked out and consortium meetings are taking place with bankers to provide additional working capital and keeping in view that about rs. 41 crores of book debts are considered good and realisable, it is appropriate to extend the deposits which have already matured by a period of another two years. all the deposits in respect of which applications are submitted to the company law board will be extended by a further period of two years and immediately on the expiry of two years from the date of maturity, they shall be repaid in the order of maturity. in order to compensate these depositors for having waited for additional period of two years the contracted rate of interest shall be increased by another 2 per cent. thus, the company shall pay the contracted rate plus 2 per cent. on the deposits from the date of maturity for a further period of two years and the prinicipal as well as the interest as per the enhanced rate due shall be paid on the expiry of the extended period. the repayment of the deposit after the extended period shall be a condition precedent to the extension of time for repayment. while coming to the above conclusion the apprehension which exists is that there is every possibility of the company becoming a sick company and is approaching the board for industrial and financial reconstruction (bifr) for a declaration to that effect. by this process an attempt could be made to seek immunity under section 22 of the sick industrial companies (special provisions) act, 1985. in such an event the objective of this order in line with section 58a is bound to receive a setback. if and when a reference is made to the bifr, the company shall draw the specific attention of the authority to this order. the depositors are also at liberty to bring this order to the knowledge of the bifr in their own interest at that time.19. after going through the material available on record and after hearing the company's representatives and depositors and keeping in view the financial position of the company, it is hereby ordered that : (i) the company and its directors shall work out the interest accrued up to december 31, 1996, as per the contracted rate in respect of all the deposits including the applicant depositors. (ii) the company arid its directors shall be responsible to send the cheques towards payment of accrued interest up to december 31, 1996, to all the depositors by march 31, 1997, by registered post at the depositors' address and they shall file an affidavit of compliance by april 15, 1997. (iii) the tenure of deposits of applicant depositors which have already matured for payment is extended by a further period of two years from the date of maturity. (iv) the interest on the additional tenure of two years in respect of all applicant depositors shall be 2 per cent. more than the contracted rate of interest. (v) the company and its directors shall repay the deposits of the applicant depositors in order of maturity after the expiry of the extended period of two years along with interest up to the date of repayment calculated at the enhanced rate within one week of the expiry of the extended period in each case by means of cheque sent through registered post to the depositors' address. (vi) the company, shri satish thapar, chairman, managing director, shri ramesh thapar, shri arun thapar and shri prem thapar, directors of the company are jointly and severally responsible for compliance of the above orders. the company and its directors referred to above shall file affidavits of compliance in this regard on a quarterly basis commencing from december 31, 1997, and shall continue to file these affidavits in respect of deposits repaid in each quarter for a period of eight quarters from the first quarter of 1998. (vii) any failure to comply with the above orders on the part of any of the above parties will attract the penal provisions under section 58a(10) of the act. accordingly, the registrar of companies shall initiate prosecution proceedings immediately on non-compliance, if any, of this order. for this purpose, a copy of this order shall be sent to the registrar of companies, nct of delhi and haryana and the bench officer shall inform the registrar of companies with regard to the receipt or non-receipt of the affidavit of compliance immediately after the expiry of the date fixed for filing the affidavit. (viii) a number of representations were received from depositors for immediate repayment in view of indigent circumstances like marriage, old age, hospitalisation, death, etc. the company and its directors shall give special sympathetic consideration in such circumstances for early repayment. (ix) the above operative portion of this order shall be extracted and sent, by the bench officer to all applicant depositors for their information, (x) a copy of this order shall also be served on the company by registered post both at the registered office as well as at the works and shall also be served on the directors by registered post at their residential addresses as well as personally through the registrar of companies, jallandhar.

Judgment:
1. The Northern Region Bench of the Company Law Board has received a number of complaints of non-repayment of fixed deposits by Thapar Agro Mills Ltd. (hereinafter called "the company") having its registered office at W-50, Greater Kailash II, New Delhi. Over a period of time the total number of petitions received under Section 58A(9) of the Companies Act, 1956 (hereinafter called "the Act"), has swelled to 1029 in respect of fixed deposits amounting to roughly Rs. 1.50 crores.

Thus, a large number of the investing public have been inconvenienced by the failure of the company to repay the public deposits in accordance with the terms and conditions of such deposits. The jurisdiction of the Company Law Board has, therefore, been invoked under Section 58A(9) of the Act by the aggrieved depositors.

2. Immediately after the receipt of applications at the first instance, the Bench office forwarded copies of such applications to the company and also called for various particulars regarding deposits. The Bench did not receive any information from the company either with regard to the repayment or with regard to the other particulars called for. The first hearing in this case was fixed for April 15, 1996, at which none appeared from the company. Thereupon, the Bench directed the office to collect the addresses of directors and serve notice on them to be present at the time of next hearing. Accordingly, notice was issued to the directors of the company to appear before the Bench on June 13, 1996. On this date none of the directors summoned was present. There was no written representation either from the company in reply to the applications. The advocate representing the company was told that the directors should be present at the next hearing on August 22, 1996, and should also produce a concrete plan for repayment of the deposits. On August 22, 1996, the chairman of the company, Shri Satish Thapar, was personally present but'could not produce any information called for including the scheme for repayment of the deposits. Another 15 days' time was granted to the company to file the relevant information as well as particulars of deposits already paid off as contended by the chairman of the company. Thereafter, on September 18, 1996, all the directors were again reminded of the information to be furnished by the company since no information was received. In reply to this communication the company provided on October 9, 1996, a part of the information, namely, the balance-sheet as on June 30, 1995, and a list of depositors who have been repaid. In addition the company also stated in their communication that it wishes to make a monthly payment of Rs. 1,50,000 on a first-come first-served basis. The matter was again fixed for hearing on November 27, 1996, on which date none appeared from the company. However, a letter dated November 26, 1996, was received seeking adjournment of the matter on account of a consortium meeting with the bankers and a pollution control case at a Ludhiana court, both scheduled for the same day. On this date an order was passed by this Bench affording a final opportunity to the company and its directors.

The company was also directed to file proceedings of the consortium meeting and cash flow projections for the next three years in order to decide this matter. Thereafter, on December 12, 1996, the chairman of the company, Shri Satish Thapar, was present and he again sought time to file the information called for * which was granted. He was also directed to file an affidavit containing proposals for repayment. The matter was adjourned to February 3, 1997. On this date none of the directors or officers of the company was present and a practising company secretary represented the company. He, however, had no briefing with regard to the plans of repayment of the deposits. He could only pass on an unaudited and unsigned balance-sheet of the company as on June 30, 1996. The company was still provided a further one week's time on February 3, 1997, to file an affidavit containing particulars called for. An affidavit has now been received from the company though no particulars as called for were given. The Bench proceeded to decide the matter on the merits based on earlier submissions, records and information available before it.

3. Thapar Agro Mills Ltd. was incorporated on October 28, 1985, and is presently a listed company. The company is engaged in the manufacture/ sale/export of rice, rice bran oil, de-oiled cakes, industrial hard oil, oxygen, fatty acid, stearic acid, glycerin, laundry soap, vanaspati ghee and refined oil. The authorised' capital of the company is Rs. 24 crores consisting of Rs. 23.95 crores in equity shares of Rs. 10 each and Rs. 0.05 crores in 11 per cent. redeemable cumulative preference shares of Rs. 100 each. The paid-up capital of the company amounts to Rs. 10,39,11,100 consisting of 10,39,10,500 in equity and Rs. 600 in preference capital. The board as on date consists of four directors, all being members of one family, namely, Shri Satish Thapar, Shri Prakash Thapar, Shri Arun Thapar and Shri Prem Thapar, all residents of Ludhiana, Punjab. The company was showing profits up to June 30, 1994, and had also declared a dividend of 10 per cent. in respect of the period ended June 30, 1994 (15 months period). As on June 30, 1995, the total fixed deposits actually held by the company amounted to Rs. 3,16,61,234. The company did not file any annual return with regard to deposits as required under the provisions of the Act and the Rules. Strangely, taking this as an excuse the. auditor of the company also did not make any comments with regard to the compliance with Section 58A of the Act in his report on the accounts for the year ended June 30, 1995. This kind of plea is very unusual and unjustified.

It also appears that the accounts for the year ended June 30, 1995, were finalised only by the end of February, 1996, and according to the letter dated October 8, 1996, received from the company no annual general meeting was held till October, 1996.

4. A study of the audited balance-sheets as on June 30, 1995, brings out prominently the following irregularities in the company : (i) The company has not paid the PF and ESI dues regularly and at the close of the year an aggregate of Rs. 3,79,997 was still due on this account.

(ii) The company owed Rs. 10,66,193 towards sales tax which has not been paid.

(iii) The company did not pay the dividend declared for the year 1993-94 aggregating to Rs. 1,22,83,578 and has not also remitted the unpaid amount in a separate account as per Section 205A(1) of the Act. The company was also liable to deduct income-tax at source from such dividend as per the Income-tax Act, 1961, and has failed to deposit the same with the tax authorities, (iv) The company was liable to repay Rs. 3 crores of 14 per cent.

non-convertible debentures which has not been paid as per the terms of issue and the interest on these debentures has also become accrued and due.

(v) The company obtained an advance licence to import certain items for manufacture and was liable to export soap in specified proportions and accordingly no customs duty on import was paid.

However, up to June 30, 1995, the comply could export just 10 per cent. of its export obligations and hence is liable to pay the import duty at the rate of 65 per cent. of the import value namely, Rs. 4.2 crores, (vi) There is need to strengthen the internal audit system and enlarge its scope.

(vii) The company has not complied with the requirements of law with regard to maintenance of cost accounting records.

5. The company's, turnover and profit before taxation and net worth for the last three years are as follows : 6. The outstandings from sundry debtors has increased from Rs. 25.07 crores in 1994 to Rs. 36.51 crores in 1995 and further to Rs. 41.68 crores in 1996. Thus, there had been an increase of Rs. 16 crores in book debts over the last two years which are all, however, considered good. The company has investments to the extent of Rs. 15,17,000 which includes Rs. 5,09,000 on account of the deposits as required under the Deposit Rules, besides other investments. The company's turnover and working results have received serious setbacks during the last three years, yet the net worth is still positive and the company is not a sick company.

7. In these proceedings, it is not possible to know about the financial position of the other group companies or of the promoter-directors.

Though the group strength is normally projected prominently while inviting funds from the public, it gets into oblivion while the question of repayment of public deposits is, raised. As such, conclusions could be drawn based on the company's own financial position in isolation.

8. Section 58A was introduced in the Companies Act in 1974, as a measure of protecting the interest of the public depositors. The provisions, as introduced in 1974, were more oriented towards regulating the acceptance of public deposits. There were only two clauses to provide for repayment of deposits which were accepted prior to 1974, failure in respect of which attracted stringent penalties. The High Powered Committee on the Companies and MRTP Acts in 1978, specifically commented on the absence of a penal provision in general for non-repayment of deposits on maturity. The committee observed that "it is a glaring and serious lacuna and recommended suitable provision to take care of such a situation". Thereafter, the Companies (Amendment) Act, 1988, introduced Sub-section (3A) to provide that "every deposit accepted by a company after the commencement of the Companies (Amendment) Act, 1988, shall unless renewed be repaid in accordance with the terms and conditions of such deposits". However, this clause was not followed by a specific penal clause. Consequently, the penalty shall be the general penalty as prescribed under Section 629A of the Act.

9. In addition to Sub-section (3A), the Amendment Act, 1988 , also introduced Sub-sections (9) and (10) to empower the Company Law Board to take cognizance of any case of non-repayment of deposits on maturity and to direct the company to make repayment of such deposits within such time and subject to such conditions as may be specified in the order. Non-compliance with the order of the Company Law Board would attract penalty by way of imprisonment which may extend to three years and a fine of not less than Rs. 50 for every day till such non-compliance continues. While deciding this matter, it is necessary to keep the objective behind these provisions, viz., the need to safeguard the interests of the investing public as expressed by the High Powered Committee and the penal provisions . in the Act.

(i) Every deposit accepted by a company shall be repaid in accordance with the terms and conditions of such deposit. This being a statutory obligation, any failure to comply with this requirement shall attract a penalty with fine which may extend to Rs. 500 and when the contravention is a continuing one with a further fine which may extend to Rs, 50 for every day. This penalty is required to be reckoned with regard to each and every deposit as per Sub-section (3A).

(ii) In case of failure to repay, the Company Law Board may on the application of depositors or suo motu by order direct the company to make repayment of such deposits or part thereof forthwith or within such time and subject to such conditions as may be specified in the order. The Company Law Board shall give a reasonable opportunity to the company and the depositors before passing the order.

(iii) Whoever fails to comply with the order of the Company Law Board shall be punishable with imprisonment which may extend to three years and shall also be liable to a fine of not less than Rs. 50 for every day during which such non-compliance continues.

11. In terms of the above provisions since undoubtedly the company has committed a default under Sub-section (3A) inasmuch as the deposits have not been repaid in accordance with the terms and conditions of such deposits, based on the directors' report in this regard, the Registrar of Companies ought to have launched prosecution against the company and every officer of the company who is in default under Section 629A of the Act. In public interest, a copy of this order shall now be sent to the Registrar of Companies so that he can initiate action under the relevant provisions of the Act without any further delay as the default has already occurred," 12. As regards the proceedings before the Company Law Board, the petitions started coming over a period of time. As a matter of course they were referred to the company to provide opportunity to react.

Since there was no reaction from the company after some correspondence the matter was scheduled for hearing in April, 1996. The company was also directed to provide full details regarding deposits accepted, repaid, unpaid, etc. The company did not respond to these communications as well. The matter was again posted for hearing in June, 1996, at which the directors of the company were specifically summoned to be present. None of the directors was present despite notice and at subsequent hearings also the company and the directors went on taking time for further consideration of the matter regarding repayment. Ultimately, in October, 1996, the company expressed its desire to make a monthly payment of Rs. 1,50,000 to the depositors.

Thus, a commitment was obtained after prolonged follow up from the Bench office and a number of hearings before the Bench.

13. While passing an order in proceedings of this sort a court normally should take into account the conduct of the parties on both the sides.

In this case, the conduct of the company needs a special mention. The glaring instances in this regard are as follows : (i) The company's registered office is at New Delhi whereas according to the complaints lodged by the depositors no one is available at the registered office to respond to the depositors. The Registrar of Companies has also reported on inspection that the premises in question were found locked and no sign board in the name of the company was affixed. It is also reported that the office of the company has been closed for more than six months whereas the deposits were accepted at the Delhi office earlier.

(ii) Having come to know that the directors are located in Ludhiana, service of notice personally through the Registrar of Companies at Jallandhar was attempted by the Bench officer. Here again the Registrar of Companies has reported total helplessness as none was available at the addresses of the directors on record. Thus, the directors avoided personal service of notices.

(iii) The company and its directors have been avoiding compliance with the directions of this Bench from time to time with regard to the deposits.

(iv) When specific directions were given to directors to personally appear before the Bench, the response of the directors has been generally evasive.

(v) One of the promoter directors appears to have even signed the vakalatnama in the name of a non-existent director.

14. Having accepted huge amounts of deposits from the public, the above conduct of the company and its* directors in neglecting the investors indicates a total lack of responsibility.

15. From the audited balance-sheet of the company for the year ended June 30, 1995, it is now established that the company is in serious financial difficulties and has committed already a number of defaults with regard to payment of PF of employees, dividends declared on shares, sales tax, interest on loans from financial institutions, banks, etc. All these liabilities fall under different categories and these creditors may have their own courses of action and may have also covered themselves with some or the other assets of the company. All these liabilities generally are in the nature of contractual obligations. On the other hand, the money due to the depositors, though also a contractual obligation, has a further statutory backing by virtue of the provisions of Section 58A(3A) of the Act. This obligation keeping in view the spirit behind the provisions of the Act have to be fulfilled and at least the assets of the company which are not speci fically charged have to be used for redeeming these liabilities. On examining the balance-sheet of the company as on June 30, 1995, it is found that there are certain assets which are not specifically charged to any liabilities, namely: (i) Investments in Indira Vikas Patra amounting to Rs. 5,90,000 are specifically kept to comply with the provisions of Rule 3A of the Companies (Acceptance of Deposits) Rules, 1975. The rest of the investments to the extent of Rs. 10,08,000 are also not specifically charged against any lia bility.

(ii) Cash and bank balances of the company as per the unaudited balance-sheet as on June 30, 1996, amounted to Rs. 1,72,99,381.

(iii) Loans and advances recoverable in cash or in kind Rs. 1,25,25,154 as on June 30, 1996, as per the audited balance-sheet.

16. In addition to the above the bo6k debts which are all considered to be good and are certified to be recoverable in the normal course of business amounted to Rs. 41,67,75,053. The realisation of investments, cash and bank balances and loans and advances certainly cannot be claimed exclusively by any other creditor as a going concern as they are not specifically charged, against any liabilities. In addition it should also be noted that the company has already expressed a desire to pay a sum of Rs. 1,50,000 every month. It may not be appropriate to expect the company in the present serious financial position to use up the normal cash flow for payment of the deposits nor can the other assets which are specifically charged to the other liabilities be directed to be paid to the depositors. Keeping also in view that the cash and bank balance as on June 30, 1996, may not fully remain as of today and that the loans and advances may not be fully realisable, it may be safely said that the company has adequate resources to at least immediately take care of the interest accrued on the deposits up to December 31, 1996.

17. From the balance-sheet of 1995-96, it appears that approximately about two and half years' interest on these deposits would have accrued as on December 31, 1996. The total figure of interest accrued and due on the entire unsecured loan as on June 30, 1996 (as per the unaudited balance-sheet), including the previous years amounts to Rs. 38.75 lakhs against the total principal amount of all unsecured loans of Rs. 12.55 crores. The fixed deposits constitute hardly 25 per cent. of the total unsecured loan and as such proportionately the interest outstanding should be only in the region of Rs. 10 lakhs even taking the rate of interest as uniform for all unsecured loans. Added to this is the interest for a further period of six months from July, 1996, to December 31, 1996, on a reasonable estimation. The interest accrued and due on the public deposits should, therefore, be only around Rs. 15 to 20 lakhs as on December 31, 1996. Even if there is any underestimation of the liability still the items of assets referred to already should take care of such liabilities. With the disposable investment available with the company and other realisable assets as already stated, and further Rs. 1.5 lakhs per month which the company on its own volition is wishing to pay, it should be possible for the company to pay off at least the accrued interest on all the fixed deposits up to December 31, 1996.

18. As regards the principal amount of the fixed deposits which have matured, keeping in view the precarious financial position of the company it may not be appropriate to force the company to make an immediate payment. However, since the company has stated that a revival programme is being worked out and consortium meetings are taking place with bankers to provide additional working capital and keeping in view that about Rs. 41 crores of book debts are considered good and realisable, it is appropriate to extend the deposits which have already matured by a period of another two years. All the deposits in respect of which applications are submitted to the Company Law Board will be extended by a further period of two years and immediately on the expiry of two years from the date of maturity, they shall be repaid in the order of maturity. In order to compensate these depositors for having waited for additional period of two years the contracted rate of interest shall be increased by another 2 per cent. Thus, the company shall pay the contracted rate plus 2 per cent. on the deposits from the date of maturity for a further period of two years and the prinicipal as well as the interest as per the enhanced rate due shall be paid on the expiry of the extended period. The repayment of the deposit after the extended period shall be a condition precedent to the extension of time for repayment. While coming to the above conclusion the apprehension which exists is that there is every possibility of the company becoming a sick company and is approaching the Board for Industrial and Financial Reconstruction (BIFR) for a declaration to that effect. By this process an attempt could be made to seek immunity under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. In such an event the objective of this order in line with Section 58A is bound to receive a setback. If and when a reference is made to the BIFR, the company shall draw the specific attention of the authority to this order. The depositors are also at liberty to bring this order to the knowledge of the BIFR in their own interest at that time.

19. After going through the material available on record and after hearing the company's representatives and depositors and keeping in view the financial position of the company, it is hereby ordered that : (i) The company and its directors shall work out the interest accrued up to December 31, 1996, as per the contracted rate in respect of all the deposits including the applicant depositors.

(ii) The company arid its directors shall be responsible to send the cheques towards payment of accrued interest up to December 31, 1996, to all the depositors by March 31, 1997, by registered post at the depositors' address and they shall file an affidavit of compliance by April 15, 1997.

(iii) The tenure of deposits of applicant depositors which have already matured for payment is extended by a further period of two years from the date of maturity.

(iv) The interest on the additional tenure of two years in respect of all applicant depositors shall be 2 per cent. more than the contracted rate of interest.

(v) The company and its directors shall repay the deposits of the applicant depositors in order of maturity after the expiry of the extended period of two years along with interest up to the date of repayment calculated at the enhanced rate within one week of the expiry of the extended period in each case by means of cheque sent through registered post to the depositors' address.

(vi) The company, Shri Satish Thapar, chairman, managing director, Shri Ramesh Thapar, Shri Arun Thapar and Shri Prem Thapar, directors of the company are jointly and severally responsible for compliance of the above orders. The company and its directors referred to above shall file affidavits of compliance in this regard on a quarterly basis commencing from December 31, 1997, and shall continue to file these affidavits in respect of deposits repaid in each quarter for a period of eight quarters from the first quarter of 1998.

(vii) Any failure to comply with the above orders on the part of any of the above parties will attract the penal provisions under Section 58A(10) of the Act. Accordingly, the Registrar of Companies shall initiate prosecution proceedings immediately on non-compliance, if any, of this order. For this purpose, a copy of this order shall be sent to the Registrar of Companies, NCT of Delhi and Haryana and the Bench officer shall inform the Registrar of Companies with regard to the receipt or non-receipt of the affidavit of compliance immediately after the expiry of the date fixed for filing the affidavit.

(viii) A number of representations were received from depositors for immediate repayment in view of indigent circumstances like marriage, old age, hospitalisation, death, etc. The company and its directors shall give special sympathetic consideration in such circumstances for early repayment.

(ix) The above operative portion of this order shall be extracted and sent, by the Bench officer to all applicant depositors for their information, (x) A copy of this order shall also be served on the company by registered post both at the registered office as well as at the works and shall also be served on the directors by registered post at their residential addresses as well as personally through the Registrar of Companies, Jallandhar.