Shri S. Srinivasan Vs. S.R.P. Tools Limited - Court Judgment

Excerpt:
1. the depositor in m/s s.r.p. tools limited ("the company") has made this application under section 58a(9) of the companies act, 1956 ("the act") submitting that the company has not paid interest amount as per the terms and conditions of the deposits. the application came up for hearing and disposal before this bench on 28.08.2003 and finally on 15.09.2003.2. during the hearing shri s. srinivasan, applicant submitted that he had on 04.12.2001 kept two deposits with the company covered by fdrs no. 15283 and 15284 of rs. 22,000/- each carrying interest @ 10.5 per cent p.a. for three years which are to mature on 04.12.2004. the above deposits were pre-closed by the company on 20.02.2003 without consent of the depositor. while pre-closing the deposits, the company paid interest at the rate of 8 per cent as against the agreed rate of 10.50 per cent which was declined by the applicant. hence, this application.3. according to shri a.k. mylsamy, counsel for the respondent company, the company has accepted deposits from the public in accordance with the companies (acceptance of deposits) rules, 1975 (hereinafter referred to as 'the rules 1975"). accordingly, the company has framed the rules and regulations, which from part of the deposit application forms. clause 11 of the rules and regulations of the company provides that "the company has the right to repay the deposit on its own direction at any time prior to the date of maturity". clause 14 stipulates that in the event of repayment of the deposit before maturity by the company, the rate of interest payable on the deposit will be governed by the provisions of companies (acceptance of deposits) rules, 1975 as applicable from time to time. excess interest paid if any will be recovered from the principal at the time of repayment. as per rule 8 of the rules, 1975 where a company makes repayment of a deposit after the expiry of a period of six months from the date of such deposit but before the expiry of the period for which such deposit was accepted by the company, the rate of interest payable by the company on such deposit shall be reduced by one percent from the rate which the rate which the company would have paid had the deposit been accepted for the period for which such deposit had run and the company shall not pay interest at any rate higher than the rate as so reduced. shri mylsamy pointed out that as a matter of policy the company ahs repaid all the deposits aggregating to rs. 1.82 crores, in support of which he produced a copy of the balance sheet of the company for the year ended 31.3.2003. consequently, the company in the present case repaid the deposit amount to suit its convenience and not at the request of the depositors. the applicant has no reason to complain, as he was aware of the terms and conditions even at the time of making the deposits. according to the company, clause 4 applies even in cases where the company decides on its own to repay the deposits before the date of maturity. as the deposits were for a duration of 1 year and 78 days at the time of foreclosure, the applicant is entitled to only 8 per cent (9 per cent minus 1 per cent) interest. for these reasons, shri mylsamy sought for dismissal of the application with exemplary costs.4. the applicant in his reply submitted that clause 11 of the rules and regulations of the company does not mention anything about the rate of interest to be applied in case of premature repayment. clause 14 can be invoked only when there is a prior request from the depositor seeking premature repayment of his deposit, in absence of which there is no scope for the company to agree for the premature repayment of the deposit. by virtue of, clause 14 the company cannot on its own repay the deposits before the maturity date. the company has repaid the amount even though the applicant has not surrendered the fixed deposit receipts. the company has acted in violation of the rules and gained undue advantage. he therefore, prayed for the contracted rate of interest as claimed in the application.5. i have considered the pleadings and submissions made on behalf of the applicant and company. the facts not in dispute are that the company has been accepting deposits from the deposits from the public as per the companies (acceptance of deposits) rules, 1975. accordingly, the company has prescribed the deposit application from, which contains, inter-alia the rules and regulations governing deposits. the relevant rules and regulations of the company, which are applicable in relation to the contentious issue are as under:- clause 11: notwithstanding the period of deposit, the company has the right to repay the deposit on its own discretion at any time prior to the date of maturity. clause 14: in the event of the company agreeing to repay a deposit before the date of maturity, the rate of interest payable on the deposit will be governed by the provisions of the companies (acceptance of deposits) rules 1975, as applicable from time to time. excess interest paid if any, will be recovered from the principal at the time of repayment. clause 19: the regulations made from time to time by the government of india will govern the deposits and will be binding on the depositors as well as on the company. clause 11 of the rules and regulations empowers the company to repay the deposit on its own discretion at any time prior to the date of maturity. this does not envisage willingness or consent of depositors, while the company exercising its discretion to repay deposits before maturity. the company while repaying deposits before maturity shall necessarily ensure compliance with the rule 8 of the rules 1975, according to which the interest payable by the company on such deposits shall be reduced by one percent from the rate which the company would have paid had the deposits been accepted for the period for which such deposits had run and the company shall not pay interest at any rate hither than the rate as so reduced. for the purpose of this rule, where the period for which the deposit had run contains any part of a year, then, if such part is less than six months, it shall be excluded and if such part is six months or more, it shall be reckoned as one year. this rule 8 would be applicable in the event of repayment of deposits before maturity, irrespective of the fact whether such repayment is made by the company on its own discretion or at the request of depositors. if depositors seek repayment before maturity, clause 14 of the rules and regulations of the company would be attracted. accordingly, the company has to agree to repay deposits before maturity in the event of any request made by depositors for such repayment of deposits. in other words the company has every right to exercise its discretion under clause 14 either to repay or not to repay deposits before maturity sought by depositors. thus, while under clause 11 consent of depositors is not found to be necessary, but under clause 14 of the rules and regulations consent of the company is absolutely required, before repaying deposits prior to the date of maturity. in the present case, depositors have been repaid before maturity by the company on its own discretion, for which in my view consent of depositors is not required. in regard to payment of interest, though the deposits were for a duration of 1 year and 78 days at the time of foreclosure by the company, the period of 78 days shall be excluded by virtue of the explanation to rule 8. the rate of interest on deposits offered by the company for one year period was 9.50 per cent. though the deposits, in the instant case, had run for a period of 1 year and 78 days, yet the company is justified to reduce the rate of interest, pursuant to the explanation to rule 8 to by one percent from 9.00 per cent. this action of the company is in accordance with rule 8 of the rules, 1975. in view of this, the claim of the applicant for the interest at the rate of 10.30 per cent not being in line with rule 8 is rejected.

Judgment:
1. The depositor in M/s S.R.P. Tools Limited ("the Company") has made this application under Section 58A(9) of the Companies Act, 1956 ("the Act") submitting that the Company has not paid interest amount as per the terms and conditions of the deposits. The application came up for hearing and disposal before this Bench on 28.08.2003 and finally on 15.09.2003.

2. During the hearing Shri S. Srinivasan, applicant submitted that he had on 04.12.2001 kept two deposits with the Company covered by FDRs No. 15283 and 15284 of Rs. 22,000/- each carrying interest @ 10.5 per cent p.a. for three years which are to mature on 04.12.2004. The above deposits were pre-closed by the Company on 20.02.2003 without consent of the depositor. While pre-closing the deposits, the Company paid interest at the rate of 8 per cent as against the agreed rate of 10.50 per cent which was declined by the applicant. Hence, this application.

3. According to Shri A.K. Mylsamy, Counsel for the Respondent Company, the Company has accepted deposits from the public in accordance with the Companies (Acceptance of deposits) Rules, 1975 (hereinafter referred to as 'the Rules 1975"). Accordingly, the Company has framed the Rules and Regulations, which from part of the deposit application forms. Clause 11 of the Rules and Regulations of the company provides that "the Company has the right to repay the deposit on its own direction at any time prior to the date of maturity". Clause 14 stipulates that in the event of repayment of the deposit before maturity by the Company, the rate of interest payable on the deposit will be governed by the provisions of Companies (Acceptance of deposits) Rules, 1975 as applicable from time to time. Excess interest paid if any will be recovered from the principal at the time of repayment. As per Rule 8 of the Rules, 1975 where a company makes repayment of a deposit after the expiry of a period of six months from the date of such deposit but before the expiry of the period for which such deposit was accepted by the Company, the rate of interest payable by the Company on such deposit shall be reduced by one percent from the rate which the rate which the Company would have paid had the deposit been accepted for the period for which such deposit had run and the Company shall not pay interest at any rate higher than the rate as so reduced. Shri Mylsamy pointed out that as a matter of policy the Company ahs repaid all the deposits aggregating to Rs. 1.82 crores, in support of which he produced a copy of the Balance Sheet of the Company for the year ended 31.3.2003. Consequently, the Company in the present case repaid the deposit amount to suit its convenience and not at the request of the depositors. The applicant has no reason to complain, as he was aware of the terms and conditions even at the time of making the deposits. According to the Company, Clause 4 applies even in cases where the Company decides on its own to repay the deposits before the date of maturity. As the deposits were for a duration of 1 year and 78 days at the time of foreclosure, the applicant is entitled to only 8 per cent (9 per cent minus 1 per cent) interest. For these reasons, Shri Mylsamy sought for dismissal of the application with exemplary costs.

4. The applicant in his reply submitted that Clause 11 of the Rules and Regulations of the Company does not mention anything about the rate of interest to be applied in case of premature repayment. Clause 14 can be invoked only when there is a prior request from the depositor seeking premature repayment of his deposit, in absence of which there is no scope for the Company to agree for the premature repayment of the deposit. By virtue of, Clause 14 the Company cannot on its own repay the deposits before the maturity date. The Company has repaid the amount even though the applicant has not surrendered the Fixed Deposit Receipts. The Company has acted in violation of the rules and gained undue advantage. He therefore, prayed for the contracted rate of interest as claimed in the application.

5. I have considered the pleadings and submissions made on behalf of the applicant and Company. The facts not in dispute are that the Company has been accepting deposits from the deposits from the public as per the Companies (Acceptance of Deposits) Rules, 1975. Accordingly, the Company has prescribed the deposit application from, which contains, inter-alia the Rules and Regulations governing deposits. The relevant rules and regulations of the Company, which are applicable in relation to the contentious issue are as under:- Clause 11: Notwithstanding the period of deposit, the Company has the right to repay the deposit on its own discretion at any time prior to the date of maturity.

Clause 14: In the event of the Company agreeing to repay a deposit before the date of maturity, the rate of interest payable on the deposit will be governed by the provisions of the Companies (Acceptance of Deposits) Rules 1975, as applicable from time to time. Excess interest paid if any, will be recovered from the principal at the time of repayment.

Clause 19: The regulations made from time to time by the Government of India will govern the deposits and will be binding on the Depositors as well as on the Company.

Clause 11 of the Rules and Regulations empowers the Company to repay the deposit on its own discretion at any time prior to the date of maturity. This does not envisage willingness or consent of depositors, while the Company exercising its discretion to repay deposits before maturity. The Company while repaying deposits before maturity shall necessarily ensure compliance with the Rule 8 of the Rules 1975, according to which the interest payable by the Company on such deposits shall be reduced by one percent from the rate which the Company would have paid had the deposits been accepted for the period for which such deposits had run and the Company shall not pay interest at any rate hither than the rate as so reduced. For the purpose of this rule, where the period for which the deposit had run contains any part of a year, then, if such part is less than six months, it shall be excluded and if such part is six months or more, it shall be reckoned as one year. This Rule 8 would be applicable in the event of repayment of deposits before maturity, irrespective of the fact whether such repayment is made by the Company on its own discretion or at the request of depositors. If depositors seek repayment before maturity, Clause 14 of the Rules and Regulations of the Company would be attracted. Accordingly, the Company has to agree to repay deposits before maturity in the event of any request made by depositors for such repayment of deposits. In other words the Company has every right to exercise its discretion under Clause 14 either to repay or not to repay deposits before maturity sought by depositors. Thus, while under Clause 11 consent of depositors is not found to be necessary, but under Clause 14 of the Rules and Regulations consent of the Company is absolutely required, before repaying deposits prior to the date of maturity. In the present case, depositors have been repaid before maturity by the Company on its own discretion, for which in my view consent of depositors is not required. In regard to payment of interest, though the deposits were for a duration of 1 year and 78 days at the time of foreclosure by the Company, the period of 78 days shall be excluded by virtue of the explanation to Rule 8. The rate of interest on deposits offered by the Company for one year period was 9.50 per cent. Though the deposits, in the instant case, had run for a period of 1 year and 78 days, yet the Company is justified to reduce the rate of interest, pursuant to the explanation to Rule 8 to by one percent from 9.00 per cent. This action of the Company is in accordance with Rule 8 of the Rules, 1975. In view of this, the claim of the applicant for the interest at the rate of 10.30 per cent not being in line with Rule 8 is rejected.