Company Law Board

Edpuganti Bapanaiah vs Nagarjuna Finance Ltd. on 21 August, 2001

Equivalent citations: 2002 111 CompCas 496 CLB
ORDER
1. This is an application filed under Section 634A of the Companies Act, 1956 ('the Act')
to enforce the order dated 29-2-2000 of the CLB directing Nagarjuna Finance Ltd, ('the
company') to repay the deposits together with interest within the repayment schedule
specified therein. The application came up for hearing from time to time and finally on
26-7-2001.
2. Shri B. Kanta Rao, advocate appearing on behalf of the applicant reiterating the
averments made in the application has submitted that the applicant had kept eight
deposits of each Rs. 5 lakhs on 28-7-1997 for a period of 45 months. Though the
deposits were matured on 28-4-2001, the company failed to pay the interest and repay
the principal amount in terms of the order dated 29-2-2000. Shri Kanta Rao pointed out
that the company ought to have paid interest at the contracted rate upto the date of
maturity and thereafter overdue interest at 14.50 per cent per annum. The deposits being
above Rs. 50,000 are payable within 36 months from the date of maturity at 30 per cent
of the principal amount with interest thereon during the first year, 35 per cent of the
principal amount with interest thereon during the second year and balance 35 per cent of
the principal amount with interest thereon during the third year. The payments should be
made in monthly instalments in the order of date of maturity of deposits. Though the
order of the CLB is specific, the company failed to make any payment in accordance
with the order dated 29-2-2000. The company and every officer including the directors
of the company are jointly and severally responsible for due compliance of the order,
failure of which attracts the penal provisions contained in Sub-section (10) of Section
58A of the Act. The company deliberately violated the order of CLB and the Registrar of
Companies (RoC) may be ordered to proceed against the company for non-compliance
of the order. Though the company deducted tax at source under TDS and remitted tax to
the Government of India on behalf of the applicant, it failed to pay balance of the
amount. In view of the default on the part of the company, a decree should be passed
against the company as well as Shri K.S. Raju, Promoter director for the outstanding
deposit amount. Though the company is taken over by a third party and Shri K.S. Raju
as well as Shri L.V.V. Iyer had resigned from the Board, their liability do not cease till
repayment of the deposits. Shri Kanta Rao urged that every Bench constituted under
Section 10E of the Act is a civil as well as criminal court and every order made by a
Bench in exercise of its powers shall be deemed to be its order, enforceable under
Section 634A by the Board. Every Bench shall have powers which are vested in a Court
under the Code of Civil Procedure, 1908. Accordingly, every Bench shallbe deemed to
be civil court and every proceeding before the Bench shall be deemed to be judicial
proceedings. Moreover, by virtue of Regulations 44 and 47 of the Company Law Board

Regulations, 1991, the Bench of the CLB constituted under Section 10E is given
inherent powers. The term 'any order' referred to in Section 634A is a word of wide
meaning and prima facie the use of 'any' excludes limitation or qualification. The order
under Section 58A by the CLB has been made in the interest of depositors and in the
public interest. The said order is a decree to be enforced and failure to comply attracts
Section 634A and empowers the CLB to transfer its order dated 29-2-2000 to City Civil
Court, Hyderabad, where the company is situated.
3. Shri C.R. Murali, Practising Chartered Accountant and authorised representative of
the company has submitted that the deposits to the applicant are payable together with
interest within 36 months from the date of maturity at the rate of 30 per cent of the
principal amount in the first year, 35 per cent in the second year and balance in the third
year. The first instalment has not become due as per the order of the CLB. Moreover, the
petitioner has not surrendered the fixed deposit receipts. The petitioner has neither made
any claim for considering his case under the hardship category. Shri Murali further
reiterated that the applicant cannot seek any remedy under Section 634A in the matter
relating to the alleged non-compliance of the order of the CLB passed under Section
58A(9). According to him, Section 58A is a self-contained one providing for all issues in
connection with public deposits and hence question of invoking Section 634A does not
arise. Shri Murali has, therefore, sought for dismissal of the application.
4.1 have considered the submissions both oral and written of the learned counsel for the
applicant and the authorised representative of the company. The facts not in dispute are
that the applicant had deposited eight deposits of each Rs. 5 lakhs with the company on
28-7-1997 which were matured on 28-4-2001. The company has not made payment to
the applicant. In view of the default committed by the company in favour of a large
number of depositors, the CLB in exercise of its powers under Section 58A(9) suo motu
ordered the company on 29-2-2000 to repay all the deposits over a period of five months
to 36 months. The relevant operative portion of the order is as under :
"11(a) The company shall pay interest at the contracted rate upto the date of maturity
and thereafter from the date of maturity till payment at 12.50% per annum. In the event
of failure by the Company to make repayment as per the Scheme approved by the CLB,
over due interest shall be payable at 14.50% per annum provided that it shall not exceed
the contracted rate of interest.
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(f) All deposits above Rs. 50,000 together with interest from the date of deposit till date
of payment shall be paid within 36 (thirty-six) months from the date of maturity or date
of the order of the CLB whichever is later at 30% of the principal amount with interest
thereon during the first year, 35% of the principal amount with interest thereon during
the second year and balance of 35% of the principal amount with interest thereon during
the third year.
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(h) The company shall pay periodical interest in respect of deposits under 'Noncumulative Scheme' till date of maturity and thereafter the principal amount in
accordance with the Scheme approved by the CLB.
12(i) All individual deposits shall be treated separately and not to be clubbed if
any depositor holds more than one deposit for the purpose of arriving at the amount
as fixed in the Scheme.
(ii) All payments shall be made in the order of date of maturity.
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(iv) The payments shall be spread over all the months in each year.
(vii) The company shall make repayment of deposits and interest in terms of the
Scheme by Demand Draft and shall be sent by Registered Post to the last known
address of the depositors.
13. The Managing Director of the company shall file an affidavit of
undertaking with this Bench to keep up the repayment schedule with a
copy to the Registrar of Companies, Andhra Pradesh, Hyderabad within
15 (fifteen) days from the date of receipt of this order.
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15. The company and every of ficer including the Directors of the company shall be
jointly and severally responsible for due compliance of this order.
16. Any failure to comply with this order on the part of the company, its Officers
and Directors shall attract the penal provision contained in Sub-section (10) of
Section 58A of the Act.
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19. The company shall send a copy of the operative portion of this order to the
depositors together with schedule of payment in accordance with the Scheme approved
by the CLB, within 5 (five) weeks from the date of receipt of this order and at its
discretion may also publish operative portion in leading newspapers for the immediate
knowledge of the depositors."
5. A perusal of the operative portion of the order reproduced hereabove will show that
the deposits of the applicant with the company ought to be repaid together with interest
within 36 months from the date of maturity, i.e., 28-4-2001 at 30 per cent of the
principal amount with interest thereon during the first year, ie., before 27-4-2002, 35 per
cent of the principal amount with interest during the second year before 27-4-2003 and
balance of the principal amount and interest before 27-4-2004. All pay-

ments should be in the order of date of maturity of deposits and should be spread over
all the months in each year during 2002, 2003 and 2004. The company shall not wait till
last date of the year. Accordingly, in the present case, the company cannot claim that the
first instalment becomes due only on 27-4-2002. The company ought to have sent to the
applicant schedule of payment in accordance with the scheme, which has not been
substantiated. In the circumstances, the plea of the company that the first instalment has
not become due is vague, and not supported by any document, especially when the
company has not furnished any details in regard to the deposits of above Rs. 50,000,
viz., date of maturity, schedule of payment as per the scheme including the deposits of
the applicant. Shri K.S. Raju, promoter director of the company and group holding
companies have filed affidavits ensuring due repayment of the deposits by the company
in accordance with the scheme. The managing director of the company has filed an
affidavit of undertaking to keep up the repayment schedule. The company and every
officer including the directors of the company are jointly and severally responsible for
due compliance of the order dated 29-2-2000 by the company.
6. In regard to the plea of Shri Murali that the provisions of Section 634A cannot be
invoked by the applicant, it may be observed that this section is explicit which runs as
follows :
"Enforcement of orders of Company Law Board--Any order made by the Company Law
Board may be enforced by that Board in the same manner as if it were a decree made by
a Court in a suit pending therein, and it shall be lawful for the Board to send, in the case
of its inability to execute such order, to the Court within the local limits of whose
jurisdiction,-(a) in the caseof an order against a company, the registered office of the company is
situated, or
(b) in the case of an order against any other person, the person concerned voluntarily
resides, or carries on business or personally works for gain."
Section 634A is clear that as in the case of a Court, the orders of the CLB can be
enforced by it in the same manner as if it were a decree made by a Court. This section
further permits the CLB, in case of its inability to execute the order, to seek the
assistance of the Court having competent jurisdiction for execution of its order. In view
of this there is no force in the argument of Shri Murali.
7. Taking into consideration the facts and circumstances of the case, the opportunity
afforded to the company and the legal position stated hereabove, I hereby order that the
company shall pay 30 per cent of the deposit amount together with interest at the
contracted rate upto the date of maturity and thereafter till the date of payment at the rate
of 14.5 per cent within 30 days of receipt of this order, failing which the applicant is at
liberty to move the Court, within whose jurisdiction the registered office of the company
is situated to execute the order of the CLB.