BEFORE THE COMPANY LAW BOARD
SOUTHERN REGION
BENCH
PRESENT : SHRI K.K. BALU, Member
IN THE MATTER OF THE COMPANIES ACT, 1956
SECTION 117C
AND
IN THE MATTER OF
M/S VIJAYA LEASING LIMITED
M/S VIJAYA COMMERCIAL CREDIT LIMITED
Vs.
M/s Vijaya Leasing
Limited …
RESPONDENT
Vs.
M/s Vijaya Commercial
Credit Limited …
RESPONDENT
O R D E R
The debenture holders in M/s Vijaya
Leasing Limited (“VLL”) and M/s Vijaya Commercial Credit Limited (“VCCL”)
(collectively referred to as “the Companies”) have filed these applications
under Section 117C of the Companies Act, 1956 (“the Act”) submitting that the
Companies have failed to repay the debenture amount aggregating Rs.3,94,000/-
together with interest as per details given in Annexure forming part of this
order. ‘VLL’ and ‘VCCL’ belong to the
same group of companies and all the applications relate to non-payment of
debenture amount by the Companies.
Therefore, these applications have been heard together and disposed of
by this common order.
2.
According to Shri
S.Srinivasan, Practicing Company Secretary and Authorised Representative of the
Companies, Section 117C has been inserted by the Companies (Amendment) Act,
2000 with effect from 13.12.2000. Prior
to the Amendment Act, 2000 there has been no such provision for creating
debenture redemption reserve to safeguard the interests of debenture
holders. He pointed out that
sub-section (1) of section 117C stipulates the following: -
(i)
Create a debenture redemption
reserve for the redemption of debentures issued by the Company after the
commencement of the provisions of section 117C.
(ii)
Redemption reserve
should be created from out of the Company’s profits of every year.
(iii)
The reserve so created
should be credited with adequate amount.
(iv)
The reserve so created
should remain until such debentures are redeemed.
Where a
company fails to redeem debentures issued on or after the commencement of the
Companies (Amendment) Act, 2000 against which debenture redemption reserve is
created, the provisions of sub-section (4) are attracted. The term “debentures” used in
sub-section(4) effectively means those debentures referred to under sub-section
(1). Shri Srinivasan referred to a
Press release dated 26.04.2001 issued by the Press Information Bureau and a
circular No.9/2002 dated 18.04.2002 issued by Department of Companies Affairs
in the matter of creation of debenture redemption reserve as contemplated under
Section 117C. According to the Press release publishing the statement made in the
Lok Sabha by the Minister of Law, Justice and Company Affairs, Shri Srinivasan
pointed out that Section 117C takes effect only from the date of commencement
of the Companies (Amendment) Act, 2000.
He further pointed out that the clarification issued by Department of
Company Affairs in its circular dated 18.04.2002 to the effect that Section
117C will apply to debentures issued and pending to be redeemed and as such
debenture redemption reserve is required to be created for debentures issued
prior to 13.12.2000 and pending redemption, is not in supersession of the
Government of India Press release dated 26.04.2001. In the circumstances, Section 117C has only a prospective
application. Consequently, the
debentures covered by these applications do not fall within the ambit of
Section 117C. Therefore, the
applicants should approach a competent court of law and not the Company Law
Board. Shri Srinivasan further pointed
out that Section 117C creates a new liability to the Company to create security
and debenture redemption reserve and provides for relief to the debenture
holder, opening a new avenue to seek repayment of the matured debenture amount
by making an application to the CLB.
This provision will be applicable to such debentures issued after commencement
of the Amendment Act, 2000 and cannot operate retrospectively. Section 117C will have prospective
application as in the case of other provisions like 17A, 58AA, 68B, 205(1A),
207, 224(8), 274(1)(g) and 292A.
According to him, Section 117C is analogous to the first proviso to
Section 67, which is applicable prospectively.
In regard to the rule of interpretation, Shri Srinivasan urged that if
there are two possible constructions, the normal rule of interpretation would
be to apply it prospectively. In this
connection, he relied on Govind Das V. Income Tax Officer – AIR (1977) SC
552 to show that if an enactment is expressed in a language which is
fairly capable of either interpretation, it ought to be construed
prospectively. A Statute cannot be given
retrospective operation, so as to impair an existing right or create new
obligation or impose a new liability in support of which he relied on Mithilesh
Kumari V. Prem Behari Khare – AIR 1989 SC 1247 and R. Rajagopal
Reddy V. Padmini Chandrasekharan – AIR 1966 SC 239. Shri Srinivasan
further urged that Statutes which are merely declaratory or which relate to
matters of procedure or of evidence, they may have retrospective effect. It is a fundamental rule of law that no
Statute should be construed to apply retrospectively unless it is expressly or
by necessary implication made to have retrospective operation, in support of
which he relied on State of Madhya Pradesh Vs. Rameshwar Rathod – AIR
1990 SC 1849. He further
referred to Garikapati V. N.Subbiah Choudhary – AIR 1957 SC 540 to
show that “the golden rule of construction is that, in the absence of anything
in the enactment to show that it is to have retrospective operation, it cannot
be so construed as to have the effect of altering the law applicable to a claim
in litigation at the time when the Act was passed”. For these reasons, Shri Srinivasan sought for dismissal of the
applications.
3.
According to Shri B.Ravi,
Practising Company Secretary and Authorised Representative of the applicant (CA
No.VLL 1/2002), Section 117C is intended to protect the interests of debenture
holders and applicable in respect of all debentures, whether issued prior or
after the introduction of the Amendment Act, 2000. In this connection, he referred to the Notes on Clauses, viz.
clause 161 of the Companies Bill, 1993 and clause 105 of the Companies Bill,
1997 to show that the intention of the framers of law and purpose of
introducing Section 117C. The Notes on
Clauses do not indicate that the CLB can be moved only in case of debentures
issued after 13.12.2000. Shri Ravi
pointed out that Section 117C starts with the words “where a company issues
debentures after the commencement of this Act”, i.e., the Companies Act, 1956,
in which case this provision is applicable to all debentures issued after the
commencement of the Act, 1956 and not in respect of debentures issued after the
commencement of the Amendment Act, 2000.
In this connection, Shri Ravi distinguished the provisions of section
117C from sections 276, 277 and 43A(2A), which are applicable after the
commencement of the Companies (Amendment) Act, 2000. He further referred to the circular dated 18.04.2002 issued by
Department of Company Affairs to show that Section 117C will apply for
debentures issued prior to 13.12.2000.
By virtue of sub-section (4) of section 117C, the CLB is empowered to
entertain applications from debenture holders in the event of a company fails
on the date of maturity to redeem debentures whether issued prior or after the
amended Act, 2000. Shri Ravi pointed
out that Section 117C has been introduced to rescue debenture-holders on
account of the default made by the Company, in which case the provisions should
be construed retrospectively, in support of which he relied on AIR 1961
Supreme Court 307- The State of Bombay V. Vishnu Ramchandra to show
that “scores of Acts are retrospective, and may without express words be taken
to be retrospective, since they are passed to supply a cure to an existing
evil.” He referred to the decision in State
of West Bengal Vs. Subodh Gopal – AIR 1954 SC 92 to show
that the statement of objects and reasons can be referred to for the purpose
ascertaining the extent and urgency of the evil to be remedied by a
Statute. According to him, it is well
settled that when the words used in the provision are clear and unambiguous
heading or sub-heading prefixed to sections need not be referred to as an aid
in construing the provisions, as has been held in AIR 1990 Supreme Court
689 – M/s Frick India Ltd. V. Union of India.
He further pointed out that the Court should look into the
purpose and history of the legislation and also the background and
circumstances, which lead to the passing of an enactment before coming to
conclusion whether any Statute is retrospective in operation. In this connection, he relied on AIR
1969 Supreme Court 530 M/s Sanghvi Jeevraj Ghewar Chand V. Secretary, Madras
Chillies, Grains and Kirana Merchants Workers Union. Shri Ravi, therefore, emphasised that
section 117C operates retrospectively, that the application is maintainable in
respect of the subject debentures which remain unpaid and that the Company may
be directed to redeem the same forthwith.
4. I have considered the pleadings and
submissions, both oral and written, made on behalf of the Companies as well as
the applicants. The issue that arises
for my consideration is whether sub-section (4) of Section 117C empowers the
CLB to entertain applications from debenture holders in the event of a company
fails on the date of maturity to redeem debentures issued prior to the amended
Act, 2000.
5. The
facts not in dispute are that the debentures covered by the application in CA
No.VLL 1/2002 were allotted on 21.02.2000, debentures covered by the
applications in CA No.VLL 2/2002 on 28.09.1998, debentures covered by the
applications in CA No. 3 & 4/2002 were issued on 30.06.2002. These debentures were to be redeemed after a
period of 18 months from the date of allotment, which the Company failed. The debentures covered by the applications
in CA No. VCC 1 to 3/2002 were allotted on 20.06.1998. These debentures should be redeemed at par
in full at the end of the fifth year from the date of allotment, if put option
has not been exercised by the debenture holders. The debenture holders have the right to get the debentures
redeemed before maturity any time after completion of six months from the date
of allotment. The applicants have
exercised the put option claiming the debenture amount in terms of the terms
and conditions of the debenture certificates.
“VCC” has partly redeemed the debenture covered by the application in CA
No.VCC 3/2002. While the Companies
contend that the applicants cannot invoke the provisions of Section 117C(4), it
is denied by the applicants. Section 117C, containing five sub-sections, has
been inserted by the Companies (Amendment) Act, 2000 with effect from
13.12.2000. Sub-section (1) provides
that where a company issues debentures after commencement of this Act, it is
required to create, out of its profits, every year, debenture redemption
reserve, equal to the value of debentures issues until such debentures are
redeemed. According to sub-section (2)
the reserve, so created, is required to be utilized only for the repayment of
debentures on their maturity and it cannot be utilized for any other
purpose. Sub-section (3) stipulates
that the debentures must be redeemed in accordance with the terms and
conditions of the issue. Sub-section (4)
provides that in case of default in redeeming the debentures on the date of maturity,
the CLB may, on an application made by debenture holders, after hearing the
Company and debenture holder by an order may direct the Company to redeem the
debentures forthwith by payment of the principal amount and interest due
thereon. By virtue of sub-section (5)
any default for non-compliance of the orders of the CLB attracts punishment
with imprisonment upto three years and fine of not less than five hundred
rupees for each day of default. A plain
reading of Section 117C shows that sub-section (4) is an independent one and
will cover debentures which remain unredeemed by a company, as on the date of
insertion of section 117C, i.e., 13.12.2000 and debenture holders can now
approach the CLB in case of default by the company in payment of interest or
principal amount. Section 117C(4) does
not make any distinction in regard to relief against non-payment of principal
amount of debenture or interest due after due date by the company, whether
issued prior or after insertion of Section 117C. In my view, there cannot be two classes of debenture holders, one
class claiming relief before the CLB and the other before the civil
courts. It will not be out of context
to refer to clause (d) of the circular No.9/2002 dated 18.04.2002 of Department
of Company Affairs relied by both sides, which reads as under: -
“d. Section
117C will apply to debentures issued and pending to be redeemed and as such DRR
is required to be created for debentures issued prior to 13.12.2000 and pending
redemption subject to clarifications issued herein.”
It is,
therefore, clear that debenture redemption reserve is required to be created
for debentures issued prior to 13.12.2000 and pending redemption, in which
case, the CLB will have jurisdiction in respect of such debentures also. The plea of Shri Srinivasan that the
circular dated 18.04.2002 of Department of Company Affairs has not superseded
the Press release dated 26.04.2001 and consequently Section 117C has only a
prospective application does not merit any consideration. Section 117C is free
from any ambiguity and needs no comparison with other provisions of the
Act. The language of the provisions of
Section 117C is plain and unambiguous leaving no scope for two possible
constructions, as to whether the provisions are applicable prospectively or
retrospectively. This does not also
create new obligation or impose a new liability upon a company. The liability arises, when debentures are
issued. Moreover, the Act provides
relief to debenture-holders in case of default by a company in payment of
interest or principal amount, after due date.
Therefore, the decisions cited by Shri Srinivasan are not applicable in
the facts and circumstances of the present case. It is relevant to look into sub-section (9) of Section 58A of the
Act. Sub-section (9) inserted by the
Companies (Amendment) Act, 1988 with effect from 01.09.1989 gives powers to the
CLB to act suo-motto, or on the application of any depositor or depositors, in
case of delay in repayment of deposits after the date of maturity. The clarification issued by the Department
of Company Affairs in relation to sub-section (9) of Section 58A assumes
importance, relevant portions of which reads as under: -
“… In
order to protect the interests of the depositors, Section 58A of the Companies
Act, 1956 has been amended by the Companies (Amendment) Act, 1988. The provisions of sub-section (9) of this
Section empower the Company Law Board to direct a company to make repayment of
deposits within such time and subject to such conditions, as may be specified
in the order, after giving a reasonable opportunity of hearing to the Company
and the other persons interested in the matter. The amended provisions have come into force with effect from
September 1, 1989. The aggrieved
depositors, whose deposits had matured before or after September 1, 1989, and
who have not been repaid, may make an application (in triplicate) through the
Company Law Board Bench…”
Section
45QA of the Reserve Bank of India Act, 1934 also throws light in determining the
issue in question. The CLB has been
empowered by the insertion of Section 45QA in the RBI Act, 1934 by the RBI Amendment Act, 1997, which came into effect from
09.01.1997 to order repayment of deposits.
The CLB in exercise of its powers under Section 45QA(2) has directed the
companies in a large number of cases for repayment of deposits accepted prior
to the amendment but matured before or after 09.01.1997. The CLB has further exercised its suo-motto
powers in such cases. Moreover, the
provisions of Section 117C(4) being analogous to Section 58A(9) and 45QA(2),
are beneficial provisions intended to protect the interests of debenture
holders. Such a provision, in my view,
should be exercised in favour of such aggrieved investors. Therefore, the plea of the Companies must
fail.
6. Taking
into account the facts and circumstances of the case, submissions of the
authorized representatives of both sides and the legal position stated supra, I
am of the considered view that the provisions of Section 117C(4) are applicable
to all debentures whether issued prior or after the introduction of the
Amendment Act, 2000, (i.e.) 13.12.2000 and pending redemption. In view of this, the Companies are directed
to redeem the debentures covered by these applications by payment of the
principal amount and interest due thereon not later than 30.09.2002.
No
order as to costs.
(K.K. BALU)
Dated this the 3rd day
of September, 2002
ANNEXURE
VIJAYA LEASING LIMITED
------------------------------------------------------------------------------------------------------------
C.A.No. Name Debenture Date of Amount
Certificate No. Debenture
------------------------------------------------------------------------------------------------------------
VLL.1/2002 Dr. Deepak Jain 1590 21.02.2000 15,000
-------do------ ---- do ---- 1611 --- do --- 15,000
-------do------ ---- do ---- 1647 --- do --- 15,000
-------do------ ---- do ---- 1587 --- do --- 15,000
-------do------ ---- do ---- 1594 ---
do --- 15,000
-------do------ ---- do ---- 1610 --- do --- 15,000
VLL.2/2002 Dr. Deepak Jain 1161 28.09.1998 1,20,000
VLL.3/2002 V.M. Lakkimar 0073 30.06.1998 26,000
-------do------ ---- do ---- 0074 --- do --- 26,000
VLL.4/2002 Unakal P.S. 0081 30.06.1998 36,000
-----------------------------------------------------------------------------------------------------------
2,98,000
-----------------------------------------------------------------------------------------------------------
ANNEXURE
VIJAYA COMMERCIAL CREDIT LIMITED
------------------------------------------------------------------------------------------------------------
C.A.No. Name Debenture
Date of Amount
Certificate
No. Debenture
-------------------------------------------------------------------------------------------------------------
VCC.1/2002 V.M. Lakkimar 0075 20.06.1998 23,000
-------do------ ---- do ---- 0076 --- do --- 23,000
VCC.2/2002 Krishna C.H. 907 20.06.1998 15,000
VCC.3/2002 Yashoda C. 908 20.06.1998 35,000
------------------------------------------------------------------------------------------------------------
96,000
------------------------------------------------------------------------------------------------------------