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2006 DIGILAW 775 (KAR)

ELECTREX (INDIA) LIMITED v. USHA D. ROHRA

2006-09-22

JAWAD RAHIM, R.GURURAJAN

body2006
R. GURURAJAN, J. ( 1 ) THIS appeal is by M/s. Electrex (India) Limited aggrieved by a common order dated 31-7-2000 passed in C. A. Nos. l-202/58 (9)/srb/2000/srb/98 on the file of the Company Law Board, Southern region Bench, Chennai. ( 2 ) THE appellant is a Company registered under the provisions of the Companies Act, 1956. Its office is at Peenya Industrial, Bangalore. Respondents are depositors having made 1-3 year deposits with the Appellant company to more than 26 lakhs. The said deposits have been received by the Appellant company as borrowings utilised towards the working capital requirements of the appellant. Due to foreign competition and demand recession, the appellant became sick and was forced to make a reference to the Board of industrial and Financial Reconstruction (for short, 'bifr') under Section 15 of the Sick industrial Companies (Special Provisions)Act, 1985 ('the Act' for short) during January 2000. BIFR registered the aaid reference as Case No. 49/2000. Enquiry was ordered in the matter. IFCI was appointed as Operating agency to prepare comprehensive report in the matter. ( 3 ) RESPONDENTS made applications under section 58a (9) of the Companies Act, 1956 before the Company Law Boand for a direction to the appellant to repay the said deposits. Matter was heard. After hearing, Company law Board has chosen to pass an order ordering repayment of the deposits together with up-to-date interest in the following manner : "all deposits up to Rs. 5,000/- by 15-9-2000 all deposits above Rs. 5,000/- and up to Rs. 25,000/- in two installments by 30-9-2000 and 30-11-2000; and all deposits above Rs. 25,000/- in three installments by 30-9-2000, 30-11-2000 and 31-1-2001. " ( 4 ) HEARD Sri Adarsh Gangal, learned counsel for the appellant and also the learned counsel appearing for the respondents. ( 5 ) THIS Court declined to stay the impugned order in terms of the order dated 10-10-2002. This Court reserved liberty to the respondents to file a complaint before the concerned police with the assistance of the State public Prosecutor in the matter. We are told at the time of hearing that the Company has settled payments in so far as those who filed police complaints in terms of the order of this court. ( 6 ) LEARNED counsel or the appellant essentially argues that Section 22 (of the Act bars for recovery in the case on hand. We are told at the time of hearing that the Company has settled payments in so far as those who filed police complaints in terms of the order of this court. ( 6 ) LEARNED counsel or the appellant essentially argues that Section 22 (of the Act bars for recovery in the case on hand. He would argue that in the light of reference and in the light of enquiry, the Company Law Board ought not to have entertained the applications and ought to have stayed the proceedings in the light of Section 22 of the Act. Several case laws are relied on by the learned counsel for the appellant. Per contra, learned counsel for the respondent would support the order in question. ( 7 ) AFTER hearing, we have seen the order passed by the Company Law Board. In fact, the appellant raised this very plea before the company Law Board and the Company Law board has chosen to reject the same in the light of the order of this Court in W. A. No. 9750 of 1996 dated 5-1-2000. Let us see as to whether the appellant's argument can be accepted in the given circumstances. ( 8 ) SECTION 22 of the Act reads as under : "s. 22. Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration of a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies act, 1956 (1 of 1956) or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loan or advance granted to the industrial company shall lie or shall be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. " A reading of the said section would show that under some circumstances proceedings are to be stayed in terms of the statute. ( 9 ) APPELLANT relies on (2004) 8 SCC 498 : ( AIR 2005 SC 29 ) Anumati v. Punjab National bank for the purpose of an order in his favour. We have seen the said judgment. That was a case in which the Court was considering with regard to deposits made in a nationalised bank. That case arose under the Consumers Protection Act. The said judgment would not be applicable to the facts of this case. (1993) 2 scc 144 : (1993 AIR SCW 991) Maharashtra tubes Limited v. State Industrial and investment Corporation of Maharashtra and another refers to Section 22 of the Act. The Apex court ruled that the expression 'proceedings' in Section 22 (1) must be widely construed; and that it cannot be confined to legal proceedings understood in the narrow sense of proceedings in a Court of law or a legal tribunal for attachment and sale of debtor's property, notwithstanding the use of that expression in the marginal note. (1997) 6 SCC 669 : ( AIR 1998 SC 2928 )- Tata Davy Limited v. State of Orissa and others - is a case dealing with Section 22 of the Act. The Court in that case ruled that the State cannot recover arrears of tax without seeking consent of the board in this regard. (1990)2 SCC 440 : ( AIR 1990 SC 1017 ) - Gram Panchayat and Others v. Shree Vallabh Glass Works Limited and others - is a judgment of the Supreme Court in which the Court held that the Gram panchayat is not to recover the property tax in the light of pending proceedings. (2000)5 scc 515 : ( AIR 2000 SC 1583 ) - Rishabh agro Industries Limited v. PNB Capital Services Limited is a case dealing with the suspension of proceedings under Section 22 of the Act. ( 10 ) WE are fully aware that Section 22 would be a bar in certain circumstances. Let us see as to whether Section 22 can be made applicable in the present proceedings with regard to repayment to be made to the depositors in terms of the. material available on record in the, case on hand. ( 10 ) WE are fully aware that Section 22 would be a bar in certain circumstances. Let us see as to whether Section 22 can be made applicable in the present proceedings with regard to repayment to be made to the depositors in terms of the. material available on record in the, case on hand. ( 11 ) A Division Bench of this Court in Indian plywod Manufacturing Company Limited, dharwad v. The Commissioner of Labour in Karnataka, Bangalore and others, reported in 1998 (6) KLJ 280 : (1999 Lab IC 1157) (DB) has chosen to uphold the issue of recovery notice in the said case. The Court has ruled that issue of recovery certificate does not amount to institution of a suit for recovery of money or to distress proceedings prohibited under Section 22 (1) of the Act. Another Division bench of this Court has considered an identical issue in the case of M/s. Deepak Insulated cable Corporation Limited v. Union of India and others (WA No. 9750 of 1996 disposed of on 5-1-2000): ( (2001) 104 Company Cases 401 ). That was a case in which similar application was filed by the depositors under section 58a (9) of the Companies act. Applications were accepted. Same was challenged toy way of a writ petition. In the light of rejection of the writ petition, writ appeal was filed. Section 22 of the Act was pressed into) service. The Division Bench frames a qusstion in para-4 of its order reading as follows: "4. The question for our consideration is whether the S. 22 of the Act extends to and attracts a proceedings under Sec. 58a (9) of the Comparies Act, 1956?" the Division Bench after noticing Section 22 of the Act has ruled in paragraphs 6 and 7 of its judgment reading as under : "6. The term 'deposit' has been defined by explanation to Sec. 58a as a deposit of money with a company including an amount borrowed by it but excluding such categories of amount as may be prescribed in consultation with the Reserve Bank of India. The learned Single Judge has considered this question in detail. He has placed reliance on the decision of Supreme Court in Vijay Mills Co. Ltd. and others v. State of Gujarat and others (1990 Com Cases 68) 597 : ( AIR 1991 SC 656 ). The learned Single Judge has considered this question in detail. He has placed reliance on the decision of Supreme Court in Vijay Mills Co. Ltd. and others v. State of Gujarat and others (1990 Com Cases 68) 597 : ( AIR 1991 SC 656 ). The Apex Court had occasion in that case to decide the question whether the provisions condained in S. 22 (1) of the Act extended to criminal prosecution of the company for its failure to pay the amount of sales tax recovered by it on behalf of the Government from the customers. The Apex Court held that the amount recovered from the customers by the company does not belong to it but it is held in trust to be passed over to the Government and in that view of the matter held that sec. 22 (1) of the Act would not extend to the criminal prosecution for failure to pay the sales-tax as t;he same does not come under the ambit of sec22 (1) of the Act. 7. A deposit by the depositors is not a sum lent to the company but is a sum deposited with the company to be held in trust by the company till the time of maturity. It is not a loan in the strict sense of the term. Therefore any claim made for return of a deposit made with the company cannot be termed as a suit for recovery of money due. Section 22 (1) prohibiting as it does taking up of certain proceedings against the company, without the consent of the Board, which proceedings in the natural course of things can be resorted to against the company without any reservation whatsoever by the person or persons interested, it goes without saying that the prohibitions contained in sec. 22 (1) do not lend themselves to any liberal interpretation. The said provisions must be interpreted in a limited sense and cannot be said to caver situations where there really no element of execution, distress or the like against any property owned by the industrial company. Interpreting the term 'no suit for recovery of money', thus, we find that it certainly would not cover a simple claim made by depositors for the return of their deposits after maturity. Interpreting the term 'no suit for recovery of money', thus, we find that it certainly would not cover a simple claim made by depositors for the return of their deposits after maturity. As held by the Apex Court in the decision, supra, it is a sum kept with the company by the depositors in trust for return after maturity. The learned Single Judge has on proper and detailed appreciation of the matter has come to the correct conclusions. The reasons assigned by the learned Single Judge for arriving at the said conclusion are well-founded and do not call for any interference. " ( 12 ) THE said judgment squanely applies to the facts of this case. Facts are similar. Defence is similar. After noticing similar defence, this Court has rejected the defence in terms of the said judgment. In the circumstances, we have no hesitation in rejecting the defence of Section 22 of the Act on the facts of this case. ( 13 ) THIS Court in terms of its order with regard to few depositors directed the depositors to file criminal cases and immediately their payment is settled by the appellant after police cases. In the light of this settlement, it is un-understandable to us as to why the Company is feeling shy to settle the claims of other depositors in similar circumstances. Moreover, the depositors are fairly old and have invested their hard earnings. Payment is also not in one stretch, and it is by way of installments in terms of this order. Deposits have been made long ago and repayments were made in terms of the deposits. ( 14 ) THIS Court expresses its concern in the matter of non-settlement of deposits to poorer section of people at the hands of this company. This Court cannot but notice that of late several finance companies obtain large sums of money by way of deposits and thereafter deposits are not honoured causing misery, hardship and difficulty to innocent depositors. These depositors are mostly from poorer section of the people. We are sure that the authorities in power would take serious view of the plight of this hapless depositors in their not getting their refund in these matters. Quick remedical measure is an urgent need to wipe out tears of this poorer section of the people that too at their old age. We are sure that the authorities in power would take serious view of the plight of this hapless depositors in their not getting their refund in these matters. Quick remedical measure is an urgent need to wipe out tears of this poorer section of the people that too at their old age. ( 15 ) WITH these observations, this appeal stands rejected. Orders under appeal are confirmed. Amounts are to be positively settled within three months, failing which they are entitled for interest for delayed payment at the rate of 10 per cent from the day of default till payment. Appeal dismissed.