BEFORE THE COMPANY LAW BOARD
SOUTHERN REGION BENCH
PRESENT : SHRI K.K. BALU, Member
IN THE MATTER OF THE COMPANIES ACT, 1956 UNDER SECTION 58A(9) READ WITH SECTION 45QA OF THE RESERVE BANK OF INDIA ACT, 1934
IN THE MATTER OF
M/S MANIPAL FINANCE CORPORATION LIMITED
M/S MANIPAL SOWBHAGYA NIDHI LIMITED
M/S Manipal Finance Corporation Limited … Applicant.
O R D E R
1. These applications are filed under Section 58A(9) of the Companies Act, 1956 (“the Act, 1956”) read with Section 45QA of the Reserve Bank of India Act, 1934 (“the Act, 1934”) by (i) M/s Manipal Finance Corporation Limited (“MFCL”) and (ii) M/S Manipal Sowbhagya Nidhi Limited (“MSNL”) seeking sanction of the Company Law Board for a scheme to make repayment of all deposits matured and yet to mature over a period of 12-48 months and 16-54 months respectively. “MFCL” and “MSNL” are, hereinafter, referred to as “the Companies”.
2. Shri T.K.Seshadri, Advocate appearing on behalf of the Companies, while mentioning the applications on 3.07.2002, has submitted that “MFCL” was incorporated in March, 1984 with the main objects of carrying on the business of hire purchase finance, leasing of industrial and commercial goods, vehicles, plant and machinery etc. “MFCL” has been accepting deposits from the public to meet the growing needs of the business. As on 30.06.2002, “MFCL” has 5,932 deposits with an aggregate deposit amount of Rs.10.16 crores. “MSNL” was incorporated in October, 1987 and is recognized as Nidhi or Mutual benefit Society under Section 620A of the Act, 1956. As on 30.06.2002, “MSNL” has 1,01,523 deposits with a total amount of Rs.92.71 crores.
3. According to Shri Seshadri, the Companies have repaid deposits which are matured and claimed upto 30.06.2002 and thereafter, “MFCL” and “MSNL” are not in a position to meet the demand of the depositors forthwith on account of the recessionary trend in the economy, severe competition among non-banking companies, depressed market conditions and failure of M/s Maharashtra Apex Corporation Ltd., a local non-banking finance company, resulting in losses suffered by “MFCL” since the year 1998. “MSNL” is constrained to commit default in repayment of deposits on account of liquidity crunch and the unprecedented situation and reasons beyond its control.
4. Shri Seshadri further submitted that the Companies have initiated the following measures to meet the demand of the depositors:-
(a) “MFCL” has taken the initiative for drastic reduction of cost on account of telephone, postage, rent, wages, salary etc. and also operational costs.
(b) Interest rates on public deposits and subordinated debts are drastically reduced.
(c) “MFCL” has recalled high cost funds to minimize the cost of borrowing.
(d) “MFCL” is planning to diversify its activity in order to recoup the losses suffered by it.
(e) “MFCL” has been taking efforts to reduce the non-performing assets.
(f) “MFCL” and “MSNL” have repaid the deposits which are matured and claimed up to 30.06.2002.
(g) ‘MFCL” and ‘MSNL” are arranging to realize their assets and advances.
5. According to Shri Seshadri, the Companies have to meet the claim of the depositors, debenture holders and clear other liabilities out of the hire purchase, lease receivables, sale proceeds of fixed assets investments in various securities, refund of direct taxes and recoveries from loans and advances. Though the Companies have honoured their commitments upto 30.06.2002, they are unable to repay the matured deposits since 1st July, 2002. “MFCL” & “MSNL” are keen to repay all deposits which are matured and yet to mature without interest from the date of maturity over a period of 12-48 and 16-54 months respectively. Hence these applications.
6. Shri Seshadri has urged that the CLB has jurisdiction under Section 58A(9) of the Act, 1956 read with Section 45QA of the Act, 1934. The CLB is empowered to exercise its suo motu powers on the application of the Companies, being aggrieved persons. He, therefore, urged that the Companies have locus standi to present these applications, on which the CLB may issue appropriate directions. He further pointed out that in terms of Section 58AA of the Act, 1956, the Companies are required to intimate to the CLB any default made by them in repayment of small deposits. In regard to the extent and purport of suo motu powers, he cited the decisions in:
(i) (1973) XXXI Sales Tax Cases 434 (SC) - The Board of Revenue, Madras Vs. Raj Brothers Agencies
(ii) (1973) XXXII Sales Tax Cases 208 – The Paper Products Limited Vs. Assistant Commissioner, Commercial Taxes, and others.
(iii) (1973) XXXII Sales Tax Cases 207 – Burmah Shell Oil Storage and Distributing Company of India Limited Vs. Commissioner for Commercial Taxes, Board of Revenue (C.T.), Madras-5 and Another.
(iv) (1972) XXX Sales Tax Cases 410 – Raj Brothers Agencies Vs. The Board of Revenue.
7. Before going into merits of the cases, I must consider whether the applications filed by the Companies are maintainable under Section 58A(9) of the Act, 1956/Section 45QA(2) of the Act, 1934.
8. Non-banking non-financial companies are governed by the provisions of Section 58A of the Act, 1956 and the rules framed thereunder, in regard to the acceptance of deposits. Section 58A(7) excludes non-banking financial companies from the purview of Section 58A save the provisions relating to advertisement for inviting deposits. Moreover, the activities of the non-banking fnancial companies accepting deposits from the public are regulated by the provisions of Chapter III-B of the Act, 1934 and the directions issued thereunder, by the RBI. Admittedly the Companies are non-banking financial companies, governed by the provisions of the Act, 1934 in regard to the acceptance of deposits. Therefore, the applications are being considered only under Section 45QA of the Act, 1934 and not under Section 58A(9) of the Act, 1956. By virtue of Section 45QA(2), where a non-banking financial company fails to repay any deposit in accordance with the terms and conditions of such deposit, the CLB may, if it is satisfied, either on its own motion or on an application of the depositor, that it is necessary so to do to safeguard the interests of the Company, the depositors or in the public interest, direct, by order, the non-banking financial company to make repayment of such deposit, after giving reasonable opportunity of being heard to the non-banking financial company and other persons interested in the matter within such time and subject to such conditions as may be specified in the order. Even though the provisions of Section 45QA(2) empower the CLB to pass order on its own motion, yet the right to apply to the CLB has been vested only in a depositor and not the Company. As far as the cases cited by Shri Seshadri are concerned, I find that in all these cases the suo motu powers of the Court were sought to be invoked by an aggrieved party. In the The paper Products Limited case, it was with reference to suo motu powers of revision under the Bengal Finance (Sales Tax) Act, 1941 read with the Bengal Sales Tax Rules, 1941, wherein the Calcutta High Court held that on an application by an assessee or the Revenue bringing out any error made by the subordinate authorities, the same can be considered by the appellate authority under suo motu powers. Similarly, in Board of Revenue case, the Supreme Court held that in terms of the suo motu powers conferred under the Madras General Sales Tax Act, 1959 the Board of Revenue could consider an application by an assessee or the Revenue when any error committed by subordinate authorities is brought to the notice of the Board. The similar is the position in cases of Raj Brothers Agencies and Burmah Shell Co. Ltd.. In all these cases, the suo motu powers were exercised on an application by an aggrieved party. In the present case, the Companies have not averred or have established that they are aggrieved parties. The Companies, in my view, cannot be deemed to be aggrieved parties on account of their inability to repay deposits on maturity and the decisions cited supra lend no assistance to the petitioners’ case. When the Statute has specifically conferred the right to apply to the CLB on depositors only, no such application under Section 45QA(2) can be made by a company, which has not repaid its deposits on the date(s) of maturity. In the result, the applications are not maintainable.
9. As far as Section 58AA of the Act, 1956 is concerned, even assuming that a non-banking financial company can invoke these provisions to apply to the CLB, it could be done only with reference to small deposits which have matured for repayment. In the present case, the Companies have framed Schemes in respect of all deposits – small or big - matured or yet to mature. The applicants are, however, at liberty to proceed according to law, if so advised.
10. Accordingly, these applications are dismissed.
Dated this the 8th day of July, 2002