BEFORE THE COMPANY LAW BOARD
SOUTHERN REGION
BENCH
C.A.Nos.152&153/SRB/2002
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
AND
IN THE MATTER OF
M/S MANIPAL FINANCE CORPORATION LIMITED
AND
M/S MANIPAL SOWBHAGYA NIDHI LIMITED
M/S Manipal Finance Corporation
Limited … Applicant.
C.A.No.153/SRB/2002 :
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.
(K.K. BALU)
Member
Dated this the 8th day of July, 2002