Raymond
Synthetics Ltd. & Ors Vs. Union of India
& Ors [1992] INSC 39 (4 February 1992)
Thommen,
T.K. (J) Thommen, T.K. (J) Mohan, S. (J)
CITATION:
1992 AIR 847 1992 SCR (1) 481 1992 SCC (2) 255 JT 1992 (1) 463 1992 SCALE
(1)264
ACT:
Companies
Act, 1956-Section 73-Public Limited company- Listing shares on stock
exchange-Procedure-When allotment of shares becomes void-When liability to
repay application money and interest arises-Permission-When deemed to be
refused or granted.
Securities
Contracts (Regulation) Act, 1956-Section 22- Appeal-When lies-Pending
appeal-Effect.
Companies
Act, 1956-Section 73, (1A) (2), (2A), (2B), 2(31), 5-Interest-Payment
of-Company's liabilities- Circumstances-Situation in pre and post Companies
(Amendment) Act, 1974 - Liability of Directors-Scope of-"An Officer in
default"-Construction.
Companies
Act, 1956-Section 73(2)-"Forthwith"- Construction of-Legislative
intention.
Companies
Act, 1956-Section 73(1) (2) (3)-Application money-Company's right or obligation
to credit bank accounts-Effect-Purposes for usages of such money.
Companies
Act, 1956-Section 73(2)-Interest-Assessment period-Calculation-Starting
point-Construction-Legislation intention.
Companies
Act, 1956-Section 73-Ambiguous section- Construction-Method.
Interpretation
of Statut-Ambiguous section-Construction (Section73, Companies Act, 1956)
Companies Act, 1956-Section 73 (2A)-When applicable-
"Due"-Construction-"Due" and "payable" not same-
"Penal" not penalty-Administrative inconveniences cannot be pleaded.
HEAD NOTE:
The
appellant-company was registered under the Companies Act, 1956. It obtained the
consent of the Government of India to 482 issue 7,20,00,000 equity shares of Rs.
10 each at par and 33, 90, 000 fourteen per cent secured redeemable non- convertible
debentures of Rs. 100 each at per.
One of
the conditions attached to the consent order was "The company shall
scrupulously adhere to the time limit of 10 weeks from the date of closure of
the subscription list for allotment of all securities and despatch of allotment
letters/certificates and refund orders." On 12.7.1990 the company issued
prospectus for the issue of the shares and debentures, stating therein that the
company had sought the permission of the stock exchanges at Indore, Ahmedabad,
Bombay, Calcutta and Delhi for dealing in equity shares and debentures in terms
of the prospects; that interest at the rate of 15 % per annum on the excess
application money would be paid to the applicants as per the guidelines issued
by the Ministry of Finance on July 21, 1983 and September 27, 1985; that the
public issue would open on August 20, 1990 and close on August 23, 1990; and
that it would not be extended beyond August 31, 1990.
The
issue opened on August
20, 1990. The company
received 26,32,894 applications for equity shares together with an aggregate
sum of Rs. 225,25,51,247 in respect of a public issue of Rs. 25 crores.
The
shares issue was close on 23rd August 1990.
On October 15,1990 the Board of Directors of the
company approved the allotment of shares. Prior to 1.11.1990, it secured the
requisite permissions of the stock exchanges at Indore, Ahmedabad, Bombay Calcutta and Delhi to deal in the shares offered in
the prospects.
The
company had to despatch 25,50,604 refund order, which were printed in Bombay and they were meant to be despatched
from Delhi. The company despatched 8,55,226
refund orders from New
Delhi at the rate of
approx. 1,00,000 refund orders per day.
On 26th October, 1990 a consignment of 6,69,999 refund
orders were despatched from Bombay to Delhi. As a result of a fire that broke
out on the way, many refund orders were destroyed and about 50 % of the
consignment was missing after the accident.
In
consultation with the Madhya Pradesh Stock Exchange and the Company's Bank,
instructions were issued by the Company to 483 stop payment of all refund
orders with a view to avoiding any possible fraud or misuse. As a result of the
countermanding of all the refund orders and the printing of new refund orders,
delay occurred in the despatch of newly printed orders.
For
issuing the refund orders, at the request of the company, the Madhya Pradesh
Stock Exchange granted extension of time till November 30,1990 and further extended till 19th December, 1990.
The
Bombay Stock Exchange refusing the grant extension of time informed the company
that it was bound to pay interest by reason of the delay in the despatch of
refund orders.
The
refund orders were not despatched until 12th November, 1990. The Government of India and the
Securities and Exchanges Board of India-Respondents Nos. 1 and 2 respectively,
insisted that the company should pay interest to the investors for the period
of the delay in making the refund in accordance with the provisions of section
73 of the Companies Act from 1st November (the expiry date of the period of 10
weeks from the date of the closure of the subscription lists) till the date of
posting of the refund orders.
The
company filed a writ petition in the High Court apprehending that the
Government might direct the stock exchanges to delist the shares of the company
by reason of its failure to pay interest and also initiate actions against it.
In the
High Court, the respondent No. 1 submitted that the liability to pay the excess
amount arose on the expiry of 10 weeks from the date of closure of the
subscription lists.
The
respondent No. 2 contended that the liability arose on the date of allotment.
The
company-the appellant contended that on the facts of the case, the liability
arose on at the end of the period as extended by the Stock Exchanges at Indore in terms of the prospectus.
The
High Court dismissed the writ petition, holding that the company was liable to
pay interest at the prescribed rates for the period of delay and the liability
for same arose on the expiry of 8 days from the date of allotment of the
shares, and not from the date of expiry of 10 weeks, where allotment was made
earlier to that date.
484
This appeal was filed by the Company against the High Court's judgment by
special leave, on the question, whether the High Court was right in discarding,
for computation of interest, the time limit of 10 weeks running from the date
of closure of the subscription lists, notwithstanding that the allotment had
been made prior to the date of expiry of 10 weeks.
The
appellant contended that the company was entitled to retain the excess amount
for the period mentioned in the prospectus and consequently no liability to pay
interest could arise until the expiry of that period; that as the Madhya
Pradesh Stock Exchange had extended time for refund till 19th December, 1990,
the liability of the company to repay the excess amount did not arise until
then; that the interest became payable only after 8 days from the expiry of the
period as extended by the Madhya Pradesh Stock Exchange;
and
that the interest was payable as a penalty and therefore a reasonable and
rational construction of the statute to be made in regard to the commencement
of the liability of the company to repay the excess amount by taking into
account of the relevant circumstances which caused the delay.
The
respondents submitted that the liability to repay the excess amount arose on
the date of allotment of the shares, that the liability arose forthwith and any
delay beyond the period of 8 days from the day on which the liability arose
attracted interest that the expression `forwith' had to be understood as an
immediate liability ascertainable with reference to the date of allotment, but
subject to a period of grace of 8 days.
Allowing
the appeal, this Court,
HELD :
1.01
As per Dr. Justice T.K. Thommen :- A public limited company has no obligation
to have its shares listed on a recognised stock exchange. But if the company
intend to offer its shares or debentures to the public for subscription by the
issue of a prospectus, it must, before issuing such prospectus, apply to one or
more recognised stock exchanges for permission to have the shares or debentures
intended to be so offered to the public to be dealt with in each such stock
exchange in terms of section 73. [496 G]
1.02
Sub-section (1) of section 73, as amended by the 485 Companies (Amendment) Act,
1988 has application only to a company intending to offer shares or debentures
to the public for subscription by the issue of a prospectus. Until this sub-section
was inserted, listing of public issues was not compulsory. [497 B-C]
1.03.
Sub-section (1A) of Section 73 as amended by the Companies (Amendment) Act,
1988 makes it necessary for the company to state in its prospectus the name of
each of the recognised stock exchanges whose permission for listing has been
sought by the company. [497 G]
1.04.
Any allotment of shares will become void if permission is not granted by the
stock exchange or each such stock exchange, as the case may be, before the expiry
of 10 weeks from the date of the closing of the subscription lists. The
validity of the allotment is made dependent on securing the requisite
permission of each stock exchanges whose permission has been sought. [497 G-498
A]
1.05.
The liability to repay the application money arises only upon refusal of the
stock exchange to grant the permission sought by the company before the expiry
of 10 weeks from the date of closing of the subscription lists. [498 A]
1.06
There is a deemed refusal if permission is not granted by the stock exchange
before the expiry of 10 weeks from the date of closing of the subscription
lists, and upon the expiry of that date, any allotment of shares made by the
company becomes void. [498B]
1.07.
Sub-section (1A) postulates that any allotment made becomes void at the end of
10 weeks from the date of the closing of the subscription lists if by that time
the requisite permission of the stock exchange has not been obtained. But this
consequence is postponed till the dismissal of any appeal preferred under
section 22 of the Securities Contracts (Regulation) Act, 1956. Nevertheless,
the permission, if not obtained with 10 weeks, is deemed not to have been
granted. [504 F-G]
1.08.
It is the legislative intent to delay the result postulated under sub-section
(1A) i.e., rendering the allotment void, until the period of 10 weeks has
expired or until the dismissal of the appeal.
1.09.
The liability to repay the excess money in the present case arose on 1.11.1990
which was admittedly the date of expiry of 10 weeks from the date of the
closing of the subscription lists, and consequently the liability to pay
interest at the rate specified in sub- 486 section (2A) arose on the expiry of
8 days from 1.11.1990. [498 C-D]
2.01.
From the decision of the stock exchange refusing permission, an appeal will lie
under section 22 of the Securities Contracts (Regulation)Act, 1956. [498 C]
2.02.
Pending the decision in appeal, the allotment made would not be void, and the
decision of the concerned stock exchange is made dependent on the result of the
appeal. [498 C]
2.03.
The fact that an appeal is pending does not postpone the result contemplated in
sub-section (2) in regard to the liability to repay the amounts and the
interest accruing thereon if the amounts are not repaid within 8 days after the
liability arose. [505 A]
3.01
Sub-section (1A) of Section 73 postulates two circumstances in which interest
becomes payable, namely, where the permission has not been applied for before
issuing the prospects and the company has thus acted in violation of the law or
where permission, though applied for, has not been granted. In the former case,
apart from the other consequences which may flow from the company's
disobedience of the law, the liability to pay interest arises as from the date
of receipt of the amounts, for the company ought not to have received any such
amount in response to the prospectus issued by the company in disobedience of
the requirements of subsection (1). In the latter case, the liability to pay
interest does not arise until the expiry of 8 days after the company became
liable to repay the amounts received by reason of its failure to obtain the
necessary permission as referred to in sub-section (1A). [499 C-D]
3.02.
Section 73, as it stood prior to 1975, contained no specific provision
compelling the company or its directors to repay the amounts received in excess
of the aggregate of the application money relating to the shares or debentures
in respect of which allotments have been made.
Sub-section
(2A) was inserted by the Companies (Amendment)Act, 1974 inserted to cover cases
where permission of the stock exchange has been obtained, but the shares or
debentures have been over-subscribed and the company is consequently in
possession of excess amounts.
The
amended sub-section made the company liable to repay the excess amounts
forthwith, but did not made the company liable to pay interest on such excess
amounts. But a liability was cast on the directors. If the excess amount was
not repaid within 8 days from the day the company became liable to 487 repay
it, the directors were made jointly and severally liable to repay such amount
with interest. The proviso to sub-section (2A), which like the proviso to
sub-section (2), as they stood prior to 1988, provided that a director was not
liable to repay the money with interest if he proved that the default in
payment of the money was not on account of any misconduct or negligence on his
part. [500 C-E]
3.03.
Owing to the absence of a specific provision imposing liability on the company
to pay interest on the over-subscribed amounts, and also owing to the absence
of any provision to exempt directors who were not directly in charge of the
administration of the company and the need to make listing of public issues
compulsory, further amendments to the section became necessary. Accordingly the
Amendment Act of 1988 introduced several amendments to section 73, one of them
being the substitution of a part of sub-section (2A) making the company and
every director of the company who is `an officer in default' jointly and
severally liable to repay the excess money with interest. [500 F-H]
3.04.
A `director of a company who is an officer in default' appearing in sub-section
(2A) must be understood with reference to the definition of `an officer who is
in default' contained in section 2 (31) read with section 5.
This
definition includes the managing director or the whole time director of a
company. [500 H-501 A]
3.05.
The liability imposed under sub-section (2A) on a director of the company falls
only upon a director who is `an officer in default', as defined under section 2
(31) read with section 5(a) (b), and not upon any other director.
The
nominees of the Government of financial institutions on the board of directors
of the company, but not directly in charge of its administration as full time directors,
are exempted from personal liability. [501 A-B]
3.06.
Sub-section (2A) provides for the accrual of interest and the rates thereof.
Unlike sub-section (2B) providing for punishment by imposition of fine or
imprisonment, sub-section (2A) speaks only of interest which is in
contra-distinction to punishment and is not penal in character. It merely
provides a mode of calculation of the amounts payable. Any consideration with
reference to a penal provision is of no relevance to the liability of the
company of its directors to pay interest in terms of sub- section (2A). [503 E]
488
3.07.
Sub-section (2B) concerns solely with default of compliance with the requirement
of sub-section (2A) namely, repayment of excess money. Failure to repay the
excess money as required by sub-section (2A) visits the company and every
officer of the company who is in default (as defined under section 5) with the
stipulated punishment. This is, of course, in addition to the payment of
interest prescribed under sub-section (2A). [503 H-504 A]
3.08.
The interest provided under sub-section (2) is payable to the applicants in
terms of that sub-section unless the money is returned to them within the
specified time, notwithstanding the pendency of an appeal mentioned in the
proviso to sub-section (1A). Subsection (3) has to be so understood to be in
harmony with the other provisions of section 73. [506 C]
3.09.
If the permission for listing sought under sub- section (1) is not granted, the
interest payable under sub- section (2) is attracted. Sub-section (2) says that
the liability to repay the money received from applicants arises forthwith
either where the permission has not been sought or, having been sought, it has
not been granted. [504 H-505 A]
3.10.
The accrual of interest under sub-section (2) is not dependent or consequent on
the nullity postulated insub- section (1A). [505B]
4.01.
The expression `forthwith' does not necessarily and always mean instantaneous.
The expression has to be understood in the context of the statue. Where,
however, the statute prescribes the payment of money and the accrual of
interest thereon at certain points of time, the expression `forthwith' must
necessarily be understood to be immediate or instantaneous, so as to avoid any
ambiguity or uncertainty. The right accrues or liability arises exactly as
prescribed by the statute. [502 H-503 A]
4.02.
When `forthwith' is used for determining the time and mode of payment of the
principal and interest, a liberal or reasonable construction not to be adopted.
The legislature intended the expression `forthwith' to refer to a particular
day on which the liability to repay the principal amount arose and that is the
day from which the period of 8 days has to be computed, and on the expiry of
that period, interest begins to accrue. [503 B-C] 489 Keshav Nilkanth Joglekar
v. The Commissioner of Police, Greater Bombay, [1956] SCR 653 and Salim v.
State of West Bengal, [1975] 3 SCR 394, distinguished.
5.01.
The right or obligation of the company to keep the money in the bank is only
for the period preceding the decision of the stock exchange on the company's
request for permission to list. Once the permission is expressly or impliedly
refused, the money has to be returned to the applicants, notwithstanding the pendency
of the company's appeal. The earlier part of the sub-section about depositing
the money in the bank is controlled by the latter provision in the sub-section
for return of the money as required by sub-section (2). This is particularly so
by reason of the penalty specially provided in sub-section (3) in the event of
default of compliance with the requirement of that sub-section. [505 H-506 B]
5.02.
The money credited to the separate bank account can be utilised for only two
purposes: (1) for adjustment against allotment of shares where listing is
permitted; or (2) for repayment where listing is not permitted or the company
is otherwise unable to allot shares. The company has no right to deal with the
money in any other manner or keep it longer than permitted by the section. [506
G-H] Palmer's Company Law, 24th ed. para 24.31; 1955(1) WLR 1080, referred to.
6.01.
Interest does not begin to run under sub-section (2) until 8 days have elapsed
from the date of expiry of the period of 10 weeks commencing on the date of
closure of the subscription lists. The fact that the legislature has so
provided in cases where permission has been refused expressly or by reason of
the deeming provision is sufficient indication of the legislative intent to
give the company reasonable time to repay the money. [507 B-C]
6.02.
Companies generally make allotments as soon as practicable after the necessary
application has been made to the recognised stock exchange for permission for
listing.
Upon
the issue of the prospectus after making such application, amounts are received
from the public in consideration of which allotments are made in anticipation
of the requisite permission. Greater the reputation of the company, larger are
the amounts likely to be received. If permission is not granted, the entire
amounts received from the public 490 have to be forthwith repaid. On the other
hand, if permission is obtained, but the amounts received from the public are
in excess of the aggregate of the application money relating to the allotted
shares or debentures. Such excess amounts are forthwith repayable. Whether or
not permission will be obtained cannot be ascertained until the period
prescribed for the purpose has expired, namely, 10 weeks from the date of
closing of the subscription lists.
Until
the expiry of those 10 weeks, neither the subscribing public nor the company
will be in a position to decide whether or not the allotments made are valid.
This is a period of uncertainty and it is for that reason that the legislature
has, been is a case of refusal to grant permission, provided that the liability
to repay the application money arises upon the expiry of 10 weeks. [507 D-G]
6.03.
The possibility of an appeal being allowed is, not a ground to delay repayment.
It should make no difference whether it is as a result of the permission having
been refused, or permission having been granted and excess amounts are received
by reason of over subscription, that repayment of money has to be made by the
company. It either event, the liability to repay the amounts arises forth-with
on the expiry of 10 weeks from the date of closure of the subscription lists,
and the interest will begin to accrue thereon on the expiry of 8 days there from.
This
construction is, just and reasonable from the point of view of both the
investor and the company, and has the advantage of certainty, uniformity and
easy application. [507 G-508 A]
7. The
section 73 is not free from ambiguities and doubts. Having been amended in
several respects, it has not finally emerged with the clarity that admits of
easy construction. But the contemporaneous construction placed upon an
ambiguous section by the administrators entrusted with the task of executing
the statute is extremely significant. This construction is, perfectly
consistent with the language and the object of the statute. It is a practical
and reasonable construction, particularly because it affords the company
reasonably sufficient time to complete the formalities for despatch of the
refund orders.
And
the investor who has responded to the invitation contained in the prospectus is
not unduly kept waiting for the return of the excess amounts due to him. [508
E-G] Desh Bandu Gupta & Co. & ors. v. Delhi Stock Exchange Association
Ltd., [1979] 4 SCC 565 and K.P. Varghese v. Income Tax Officer, Ernakulam &
Anr., [1981] 4 SCC 173, referred to.
491
Crawford's Interpretation of Laws, 1989 Ed. -referred to.
As per
Mr. Justics S. Mohan (Concurring) 1.01. Sub-section (2A) of Section 73 of the
Companies Act comes into operation only where permission has been granted by
the recognised stock exchange or exchanges. The words, "where permission
has been granted" are of great significance. Therefore, the contention
that on the date of allotment the liability to pay interest arises may not be
correct. Nor again, it would be correct to contend that the mechanics of refund
liability to pay arises on the date of allotment since there is a failure of consideration
in respect of shares not allotted. [519 B-C]
1.02.
The liability of the company to repay the excess amount under Section 73 (2A)
will arise only on the expiry of 10 weeks from the date of the closure of
subscription lists. The interest begins to accrue thereupon at the end of 8
days. [526 A]
2.01.
The word "due" in the section 73 has been substituted for the word
"payable" in order to make it clear that a mortgagor cannot redeem
within the term of the mortgage. The right of redemption arises when the
principal money secured by the mortgage has become due and may be exercised at
any time thereafter, subject of course to the law of limitation. [520 C-D]
2.02.
"Due", means payable immediately or a debt contracted but payable at
a future time. "A debt is said to be `due'the instant that it has
existence as a debt; it may be payable at a future time" it cannot be
contended on the strength of Section 530 `due' and `payable' is one and the
same even under S. 732 (a). [522 E-F] Black's Legal Dictionary, (5th Edition
488), Venkataramiah's Law Lexicon and Legal Maxims Vol. I, 713- 714; Wharton's
Law Lexicon, 14th Edition; Buckley on the Companies Acts, 14th Edition, Volume
I, referred to.
Bhaktawar
Begum v. Husaini Khanam, (1914)36 All. 195; 41 I.A. 84; 23 I.C. 355; Bir
Mohammad V. Nagoor, [1914] 27 Mad. L.J. 483;
25 I.C. 576 (which over-ruled Rose Ammal v. Rajarathnam, (1900) 23 Mad. 23);
Baroda Board & Paper Mills Ltd. v. Income Tax Officer, Circle I, Ward E, Ahmedabad
and others, 1976 (46) company cases 492 25; Union of India v. Air Foam
Industries (P) Ltd., AIR 1974 S.C. 1265 & 1271 (Para 7) referred to.
3.
"Forthwith' is not susceptible of a fixed time definition, and the
surrounding facts and circumstances must be taken into consideration in
determining the question, and forthwith may be minutes, hours, days or even
weeks. It cannot be said that "forthwith" means E.O. instanti. [526
E-F] Dickerman v. Trust Co., 176 U.S. 193, 20 Sup., Ct. 311, 44 L.Ed. 423, 4 Tyrwh.
837; Edwards v. Ins. Co., 75 Pa 378; Seammon v. Ins. Co., 101, III 621; 11 H.L.
Cas. 337; Bennect v. Ins 67 N.Y. 274; Pennsylvanis R.Co. v. Reichert, 58 Md. 261; Meriden Silver Plate Co. v. Flory 44 Ohio St. 437, 7 N.E.
753. 7 Dowl. 789" 193, Soutern Reporter, 339 and 16 Soutern Reporter 33 @
35 Col. I., Laws 1035, Ex Secs C. 10, referred to.
Bouvier's
Law Dictionary-Referred to.
4. It
cannot but be held that the payment of interest is only compensatory and not
penal. Merely because clause 10 uses the word "penal" it cannot be
amount to penalty.
[526
F] Mahalaxmi Sugar Mills Co. Ltd v. Commissioner of Income Tax, Delhi, New
Delhi, [1980] 3 SCR 421, referred to.
5. In
view of the clear terms of the statute the administrative inconvenience cannot
be pleaded. [528 B-C] Sanjeev Coke Manufacturing Co v. Bharat Cooking Coal Ltd.
& Another, [1983] 1 SCR 1000 1029, referred to.
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 3498 of 1991.
From
the Judgment dated 17/18.7.1991 of the Bombay High Court in writ petition No.
2038 of 1991.
G. Ramaswamy,
Attorney General, V.R. Reddy, Addl. Solicitor General, Anil B. Divan, K.S.
Cooper and T.R. Andyaranjina, R.F. Nariman, S.A. Divan, B.R. Agrawala, Vinod B.
Agarwala, P.N. Kapadia, Pramod B. Agarwala, S. Krishnachandani, Dr. Sumat Bhardwaj,
Ms. Sandhaya Mehta for M/s Gagret & Co., Ms. Sushma Suri, A.M. Khanwilkar,
M.P. Bharucha, R. Karanjawala, Mrs. M. Karanjawala, Mrs. V.S. Rekha, A.R. Amin,
K.J. John, Dr. A.M. Singhvi and Ajit Pudussery for the appearing parities.
493
The Judgment of the court was delivered by THOMMEN, J. The question which aries
in this appeal from the judgment of the Bombay High Court in writ petition No.
2038 of 1991 is, when does a company become liable to pay interest under
section 73 (2A) of the Companies Act, 1956 (the "Act"). The answer to
it depends on the answer to the more fundamental and far more difficult
question, i.e.
when
does a company become liable to repay the money received from applicants for
shares or debentures in excess of the aggregate of the application money relating
to the allotted shares or debentures. If such excess application money is not
repaid within eight days from the days on which the company and every director
`who is an officer in default' is liable to pay insterest at the specified
rates.
The
period of eight days has to be reckoned in accordance with section 74. But it
is not clear when exactly does the liability to repay the excess money arise.
Does it arise on the date of the allotment, as found by the High Court, or on
the expiry of 10 weeks from the date of closing of the subscription lists,
referred to in sub-section (1A) of section 73, or, as contended by the company,
on the expiry of the period mentioned in the prospectus? Whichever is the
correct date, interest becomes payable by the company and its directors `in
default', if the excess money is not repaid within the period of grace of eight
days from the date on which the company becomes liable to pay it. When does
that liability arise is the crucial question.
We
shall presently examine the relevant provisions of the section, but before we
do so, it may be of interest to refer briefly to the circumstances in which the
alleged liability of the appellant company has arisen.
The
appellant is a company registered under the provisions of the Companies Act,
1956. The company obtained the consent of the Government of India vide its
Order dated May 31, 1990 to issue 7,20,00,000 equity shares of Rs. 10 each at
par and 33, 90,000 fourteen per cent secured redeemable non-convertible
debentures of Rs. 100 each at par. This Order was, made by the Government in
exercise of its power under the Capital Issues (Control) Act, 1947. One of the
conditions attached to the order reads:
"The
company shall scrupulously adhere to the time limit of 10 weeks from the date
of closure of the subscription list for allotment of all securities and despatch
of allotment letters/certificates and refund orders." A prospectus was
issued by the company on 12th
July, 1990 for the
issue of the aforesaid shares and debentures.
The prospectus
stated, amongst 494 other things, that the company had sought the permission of
the stock exchanges at Indore, Ahmedabad, Bombay, Calcutta and Delhi for
dealing in equity shares and debentures in terms of the prospectus; that
interest at the rate of 15 % per annum on the excess application money will be
paid to the applicants as per the guidelines issued by the Ministry of Finance
on July 21, 1983 and September 27, 1985; that the public issue will open on
August 20, 1990 and close on August 23, 1990; and that it would not be extended
beyond August 31, 1990. When the issue thus opened on August 20, 1990, it received overwhelming response
as a result of which it was about 40 times over-subscribed. The company
received 26,32,894 applications for equity shares together with an aggregate
sum of Rs. 225,25,51,247 in respect of a public issue of Rs. 25 crores. In view
of this public response, the share issue was close on 23rd August, 1990. On October 15, 1990 the board of directors of the company approved the
allotment of shares. Shortly thereafter, it secured the requisite permissions
of the stock exchanges at Indore, Ahmedabad,
Bombay, Calcutta and Delhi to deal in the shares offered in
the prospectus. These permissions were obtained prior to November 1, 1990. The company had to despatch 25,50,604
refund orders of an aggregate value of well over Rs. 200 crores. These orders
which were printed in Bombay were meant to be despatched from Delhi. The company despatched 8,55,226
refund orders from the Sarojini Nagar Post Office , New Delhi at the rate of
approx. 1,00,000 refund orders per day. On 26th October, 1990 a consignment of 6,69,999 refund
orders had been despatched from Bombay to Delhi in a brake van of the Paschim
Express. A fire broke out on the way in the brake van as a result of which many
refund orders were destroyed. Almost 50 % of the consignment was missing after
the accident. In consultation with the Madhya Pradesh Stock Exchange and the
Company's Bank,instructions were issued by the Company to stop payment of all
refund orders with a view to avoiding any possible fraud or misuse. As a result
of the countermanding of all the multi-colored refund orders and the printing
of new refund orders with distinctive colours etc., delay occurred in the despatch
of newly printed orders. At the request of the company, the Madhya Pradesh
Stock Exchange granted it extension of time till November 30,1990 for issuing the refund orders. Time for this purpose was
further extended by that stock exchange till 19th December, 1990. The Bombay Stock Exchange, however, refused to
grant extension of time. It further informed the company that it was bound to
pay interest by reason of the delay in the despatch of refund orders. The
Securities and Exchange Board of India, the second respondent, called upon the
company by its letter dated March 13,1991 to pay interest to the investors at
varying rates for the period from 1st November (which is when the period of 10
weeks from the date of the closure of the subscription lists expired) till the
date of posting of 495 the refund orders. The refund orders were not despatched
until 12th November,
1990. The Government
of India and the Securities and Exchange Board of India insisted that the
company should pay interest to the investors for the period of the delay in
making the refund in accordance with the provisions of section 73. Apprehending
that the Government might direct the stock exchanges to delist the shares of
the company by reason of its failure to pay interest, and also initiate actions
against it, the company filed a petition in the High Court under Article 226 of
the Constitution, but it was dismissed by the impugned judgment.
The
Bombay Stock Exchange seems to have understood that the liability of the
company arose on the expiry of 10 weeks after the date of closure of the
subscription lists.
Paragraph
23.2 of its publication of March 1991 quotes the condition mentioned in the
Order of the Government of India dated 31.5.1990(which we have extracted
above)to the effect that the liability of the company for despatch for refund
orders arose only at the end of 10 weeks from the date of closure of the
subscription lists.
In the
High Court, the Union of India and the Securities and Exchange Board of India
appeared to have taken a divergent stand on the question. While the Government
of India submitted (as disclosed in its affidavit, and as referred to by the
High Court in the impugned judgment) that the liability to pay the excess
amounts arose on the expiry of 10 weeks from the date of closure of the
subscription lists, the Securities and Exchange Board of India contended that
the liability arose on the date of allotment. In the present appeal, however,
the Union of India support the stand of the Securities and Exchange Board of
India. On the other hand, the company contended that, on the facts of this
case, the liability arose only at the end of the period as extended by the
Stock Exchange at Indore in terms of the prospects. The High
Court held:- "...In our judgment, there is no difficulty in fixing the
date from which the liability of the company to make repayment arises. In a
case where the allotment is completed before expiry of the 10 weeks, then from
the date of allotment and in case where the allotment is not completed till the
expiry of ten weeks from the date of closure of the subscription list, then
from the date of expiry of ten weeks..." The reason stated by the High
Court for coming to this conclusion is that the company knew that the excess
amount was on the date of allotment and there was no reason why the company
should delay payment till the end of 10 weeks in case the allotment was made
earlier. The High Court says- 496 "...In cases where the allotment is
completed before expiry of ten weeks, then the Company very well knows the
excess amount, which is to be repaid and consequently the liability accrues
forthwith to repay the said amount. In case the Company fails to repay the
amount within the grace period of eight days, then the Company would be liable
to pay interest to the investor inspite of the fact that period of ten weeks
from the date of closure of the subscription list is not over..." The High
Court thus held that the company was liable to pay interest at the prescribed
rates for the period of delay and the liability for the same arose on the
expiry of 8 days from the date of allotment of the shares, and not from the
date of expiry of 10 weeks, where allotment was made earlier to that date. The
High Court did not accept the contention of the company that the time having
been extended by the Madhya Pradesh Stock Exchange till 19th December, 1990 in accordance with the relevant
provisions of the prospectus, the company had no liability to pay interest.
The
question for consideration, therefore, is whether the High Court was right in
discarding, for computation of interest, the time limit of 10 weeks running
from the date of closure of the subscription lists, notwithstanding that the
allotment had been made, as in the present case, prior to the date of expiry of
10 weeks.
`Listing
means the admission of the securities of a company to trading privileges on a
Stock Exchange. The principal objectives of listing are to provide ready
marketability and impart liquidity and free negotiability to stocks and shares;
ensure proper supervision and control of dealings therein; and protect the
interests of shareholders and of the general investing public. (See para 1.1.
of the `Stock Exchange Listing', publication of Bombay Stock Exchange of March,
1991).
A
public limited company has no obligation to have its shares listed on a recognised
stock exchange. But if the company intends to offer its shares or debentures to
the public for subscription by the issue of a prospectus, it must, before
issuing such prospectus, apply to one or more recognised stock exchanges for
permission to have the shares or debentures intended to be so offered to the
public to be dealt with in each such stock exchange in terms of section
73. We
shall now read the provisions of section 73 insofar as they are material:-
Sub-section (1) of section 73 read:
497
"S. 73 (1). Every company intending to offer shares or debentures to the
public for subscription by the issue of a prospectus shall, before such issue,
make an application to one or more recognised stock exchanges for permission
for the shares or debentures intending to be so offered to be dealt with in the
stock exchange or each such stock exchange." This sub-section was inserted
by the Companies (Amendment) Act, 1988 with effect from 15.6.1988. It has
application only to a company intending to offer shares or debentures to the
public for subscription by the issue of a prospectus. Until this sub-section
was inserted, listing of public issues was not compulsory.
This
original sub-section (1) was substituted by the Companies (Amendment) Act, 1974
with effect from 1.2.1975, and substituted again and renumbered as the present
sub- section (1A) with effect from 15.6.1988 by the Companies (Amendment) Act,
1988. Sub-section (1A) reads:
"73(1A).
Where a prospectus, whether issued generally or not, states that an application
under sub-section (1) has been made for permission for the shares or debentures
offered thereby to be dealt in one or more recognised stock exchanges, such
prospectus shall state the name of the stock exchange or, as the case may be,
each such stock exchange, and any allotment made on an application in pursuance
of such prospectus shall, whenever made, be void if the permission has not been
granted by the stock exchange or each such stock exchange, as the case may be,
before the expiry of ten weeks from the date of the closing of the subscription
lists:
Provided
that where an appeal against the decision of any recognised stock exchange
refusing permission for the shares or debentures to be dealt in on that stock
exchange has been preferred under section 22 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956), such allotment shall not be void until the
dismissal of the appeal." This provision makes it necessary for the company
to state in its prospectus the name of each of the recognised stock exchanges
whose permission for listing has been sought by the company. Any allotment of
shares will become void if permission is not granted by the stock exchange or
each such stock exchange, as the case may be, before the expiry of 10 weeks
from the date of the closing of the subscription lists. The validity of the
allotment is thus made dependent on securing the requisite 498 permission of
each stock exchange whose permission has been sought. The liability to repay
the application money arises only upon refusal of the stock exchange to grant
the permission sought by the company before the expiry of 10 weeks from the
date of closing of the subscription lists.
This
is clear from sub-section (1A) read with sub-section (5). There is a deemed
refusal if permission is not granted by the stock exchange before the expiry of
10 weeks from the date of closing of the subscription lists, and upon the
expiry of that date, any allotment of shares made by the company becomes void.
However
, from the decision of the stock exchange refusing permission, an appeal will
lie under section 22 of the Securities Contracts (Regulation) Act, 1956.
Pending the decision in appeal, the allotment made would not be void, and the
decision of the concerned stock exchange is made dependent on the result of the
appeal. What is significant is that it is the legislative intent to delay the
result postulated under sub-section (IA), i.e., rendering the allotment void,
until the said period of 10 weeks has expired or until the dismissal of the
appeal.
Sub-section
(2), as amended in 1988, reads:
"S.
73(2). Where the permission has not been applied under sub-section (I) or, such
permission having been applied for, has not been granted as aforesaid, the
company shall forthwith repay without interest all moneys received from
applicants in pursuance of the prospectus, and, if any such money is not repaid
within eight days after the company becomes liable to repay it, the company and
every director of the company who is an officer in default shall, on and from
the expiry of the eighth day, be jointly and severally liable to repay that
money with interest at such rate, not less than four per cent and not more than
fifteen per cent, as may be prescribed, having regard to the length of the
period of delay in making the repayment of such money." This sub-section
requires the company to repay `forthwith' all money received from applicants in
response to the company's prospectus either where the company has not applied
for permission of the recognised stock exchange for listing or where permission
has been applied for but not granted. If the company has issued a prospectus
without seeking permission for listing, it has clearly acted in violation of the
mandatory provisions of the Act, and the company has no right to receive or
retain any amount by way of subscription in pursuance of its prospectus. On the
499 other hand, where permission has been sought, but has not been obtained
within 10 weeks from the date of closing of the subscription lists, thereby
rendering void any allotment made, the company is bound to repay all such money
forthwith, but without interest. In the event of such money not being repaid
within 8 days after the liability to repay arose, the company and every
director of the company who is `an officer in default' are made jointly and
severally liable to pay the principal amount as well as interest thereon from
the date of expiry of the said 8 days. The interest is payable at the prescribed
rates varying from 4% to 15%, dependent on the length of the period of delay in
making such repayment. This sub-section thus postulates two circumstances in
which interest becomes payable, namely, where the permission has not been
applied for before issuing the prospectus and the company had thus acted in
violation of the law or where permission, though applied for, has not been
granted. In the former case, apart from the other consequences which may flow
from the company's disobedience of the law, the liability to pay interest
arises as from the date of receipt of the amounts, for the company ought not to
have received any such amount in response to the prospectus issued by the
company in disobedience of the requirements of sub-section (I). In the latter
case, the liability to pay interest does not arise until the expiry of 8 days
after the company became liable to repay the amounts received by reason of its
failure to obtain the necessary permission as referred to in sub-section (IA).
It may
be mentioned in this connection that, prior to the amendment of 1988,
sub-section (2) did not make the company liable to pay interest on the amounts
repayable by it in terms thereof, but only the directors were liable for
payment of such interest, apart from the principal amounts.
The
proviso to the sub-section as it stood prior to 1988 exempted a director from
such liability if the default was not caused by his misconduct or negligence.
As a result of substitution of a proviso of the sub-section by the Amendment
Act of 1988, the company and every director of the company `who is an officer
in default' are made jointly and severally liable for payment of the principal
amount as well as interest.
We
shall now read the crucial provision which is sub- section (2A):- "S.73
(2A). Where permission has been granted by the recognised stock exchange or
stock exchanges for dealing in any shares or debentures in such stock exchange
or each such stock exchange and the moneys received from applicants for shares
or debentures are in excess of the aggregate of the application moneys relating
to the shares or debentures in respect of which 500 allotments have been made,
the company shall repay the moneys to the extent of such excess forthwith
without interest, and if such money is not repaid within eight days, from the
date the company becomes liable to pay it, the company and every director of
the company who is an officer in default shall, on and from the expiry of the
eighth day, be jointly and severally liable to repay that money with interest
at such rate, not less than four per cent and not more than fifteen per cent,
as may be prescribed having regard to the length of the period of delay in
making the repayment of such money".
Sub-section
(2A) was inserted by the Companies (Amendment) Act, 1974 which came into force w.e.f.
1.2.1975.
Section
73, as it stood prior to 1975, contained no specific provision compelling the
company or its directors to repay the amounts received in excess of the
aggregate of the application money relating to the shares or debentures in
respect of which allotments have been made. Sub- section(2A) was inserted to
cover cases where permission of the stock exchange has been obtained, but the
shares or debentures have been over-subscribed and the company is consequently
in possession of excess amounts. The sub- section, as inserted in 1975, made
the company liable to repay the excess amounts forthwith, but did not make the
company liable to pay interest on such excess amounts. But a liability was cast
on the directors. If the excess amount was not repaid within 8 days from the
day the company became liable to repay it, the directors were made jointly and
severally liable to repay such amount with interest. The proviso to sub-section
(2A), which like the proviso to sub- section (2), as they stood prior to 1988,
provided that a director was not liable to repay the money with interest if he
proved that the default in payment of the money was not on account of any
misconduct or negligence on his part.
Owing
to the absence of a specific provision imposing liability on the company to pay
interest on the over- subscribed amounts, and also owing to the absence of any
provision to exempt directors who were not directly in charge of the
administration of the company and the need to make listing of public issues
compulsory, further amendments to the section became necessary.
Accordingly
the Amendment Act of 1988 introduced several amendments to section 73, one of
them being the substitution of a part of sub-section (2A) making the company
and every director of the company who is `an officer in default' jointly and
severally liable to repay the excess money with interest. A `director of a
company who is an officer in default' appearing in sub-section (2A) must be
understood with reference to 501 the definition of `an officer who is in
default' contained in section 2(31) read with section 5. This definition
includes the managing director or the whole time director of a company. So
understood, the liability imposed under sub- section (2A) on a director of the
company falls only upon a director who is `an officer in default', as defined
under section 2(31) read with section 5(a) (b), and not upon any other
director. The nominees of the Government or financial institutions on the board
of directors of the company, but not directly in charge of its administration
as full time directors, are exempted from personal liability. The rate of
interest payable under sub-section (2A) is, an seen above, not less than 4 per
cent and not more than 15 per cent.
The
sub-section requires the company to repay the over subscribed amounts. These
amounts are paid by persons who have responded to the prospectus which was
issued by the company after making an application for permission in accordance
with sub-section (1). But when the subscription lists are closed, the excess
money is ascertained with reference to the actual allotments made and so it
becomes repayable as the company has no right to retain it. The question is,
for the purpose of computing interest, did it become repayable upon the date of
allotment, as found by the High Court and as contended by the respondents, or
on some other day.
The
Additional Solicitor General, appearing for the Union of India, Mr. K.S.
Cooper, for the Securities & Exchange Board of India, Mr. T.R. Andhyarujina,
for the Bombay Stock Exchange and Dr. A.M. Singhvi, for one of the interveners,
submit that the liability to repay the excess amount arises on the date of
allotment of the shares, for the statute says that the liability arises
forthwith and any delay beyond the period of 8 days from the day on which the
liability arose attracts interest. The expression `forthwith' has to be
understood as an immediate liability ascertainable with reference to the date
of allotment, but subject to a period of grace of 8 days.
Mr.
Anil B. Dewan, appearing for the company, on the other hand, contends that the
company is entitled to retain the excess amount for the period mentioned in the
prospectus and consequently no liability to pay interest can arise until the
expiry of that period. Prospectus is an instrument registered under section 60
of the Act and all statements contained in it are matters permitted to be
inserted by the statue. The terms of the prospectus are binding not only upon
the company but also upon persons who deal with the company in pursuance of the
prospectus. One of those terms concerns the repayment of excess money. It
reads:- "...In case an application is rejected in full, the whole of the
502 application money received will be refunded and where an application is
rejected in part, the balance, if any, after adjusting money due in the manner
provided earlier in this Prospectus on Equity Shares/Debentures allotted will
be refunded to the applicants within ten weeks of the date of closing of the
Subscription List or in the event of unforeseen circumstances within such
further time as may be allowed by the Stock Exchange at Indore" (emphasis
supplied) In the present case, counsel points out, time for refund had been
extended by the Madhya Pradesh Stock Exchange till 19th December, 1990.
Accordingly the liability of the company to repay the excess amount did not
arise until then. In the circumstances, interest became payable only after 8
days from the expiry of the period as extended by the Madhya Pradesh Stock
Exchange.
If Mr.
Dewan's argument were to be accepted, the company would have incurred no
liability to pay interest, for time had been extended by the Madhya Pradesh
Stock Exchange. But this argument is clearly contrary to the provisions
contained in sub-section (4) of section 73 of the Act which reads:_ "S.
73(4). Any condition purporting to require or bind any applicant for shares or
debentures to waive compliance with any of the requirements of this section
shall be void".
In the
teeth of that sub-section, Mr. Dewan's argument on the point is totally without
merit. Even if sub-section (4) had not been inserted in section 73, Mr. Dewan's
argument in this respect would have been equally unsustainable, for no
agreement can defeat or circumvent a mandatory requirement of the statute. This
is all the more so in view of section 9 which specifically provides that the
provisions of the Act override the memorandum or articles of association of the
company or any agreement executed or resolution passed by it. The statute
requires the company to pay interest in terms of sub-section (2A). That
provision says that the company should pay excess money forthwith, failing
which interest becomes payable at the end of 8 days therefrom. Any inconsistent
provision in the prospectus is unenforceable and it can be of no avail to the
company.
It is
true that the expression `forthwith' does not necessarily and always mean
instantaneous. The expression has to be understood in the context of the
statute. Where, however, the statute prescribes the payment 503 of money and
the accrual of interest thereon at certain points of time, the expression
`forthwith' must necessarily be understood to be immediate or instantaneous, so
as to avoid any ambiguity or uncertainty. The right accrues or liability arises
exactly as prescribed by the statute.
Decisions
such as Keshave Nilkanth Joglekar v. The Commissioner of Police, Greater
Bombay, [1975] SCR 653, and Salim v. State of West Bengal, [1975] 3 SCR 394,
deal with the expression `forthwith' in the context of preventive detention
demanding a liberal or reasonable construction.
But
that is not the construction which has to be adopted when `forthwith' is used
for determining the time and mode of payment of the principal and interest. The
legislature intended the expression `forthwith' to refer to a particular day on
which the liability to repay the principal amount arose, and that is the day
from which the period of 8 days has to be computed, and on the expiry of that
period, interest begins to accrue.
It is
further contended on behalf of the company that in any view interest is payable
as a penalty and, therefore, a reasonable and rational construction has to be
placed upon the statute in regard to the commencement of the liability of the
company to repay the excess amount. Relevant circumstances which caused the
delay must be taken into account in this regard. There is no substance in this
contention. As stated earlier, sub-section (2A) provides for the accrual of
interest and the rates thereof. Unlike sub-section (2B) provides for punishment
by imposition of fine or imprisonment, sub-section (2A) speaks only of interest
which is in contradiction to punishment and is not penal in character. It merely
provides a mode of calculation of the amounts payable. Any consideration with
reference to a penal provision is of no relevance to the liability of the
company or its directors to pay interest in terms of sub-section (2A).
Sub-section
(2B) on the other hand provides for punishment. It reads:- "S.73(2B). If
default is made in complying with the provisions of sub-section (2A), the
company and every officer of the company who is in default shall be punishable
with fine which may extend to five thousand rupees, and where repayment is not
made within six months from the expiry of the eighth day, also with
imprisonment for a term which may extend to one year".
This
sub-section concerns solely with default of compliance with the requirement of
sub-section (2A) namely, repayment of excess money. Failure to repay the excess
money as required by sub-section (2A) visits the company and every officer of
the company who is in default (as 504 defined under section 5) with the
stipulated punishment.
This
is, of course, in addition to the payment of interest prescribed under
sub-section (2A).
Sub-section
(5), as it stood prior to 1.2.1975, read:
"S.
73(5). For the purpose of this section permission shall not be deemed to be
refused if it is intimated that the application for permission though not at
present granted, will be given further consideration".
This
sub-section was substituted by the Companies (Amendment) Act, 1974 with effect
from 1.2.1975 reading as follows:- "S.73(5). For the purposes of this
section, it shall be deemed that permission has not been granted if the
application for permission, where made, has not been disposed of within the
time specified in sub-section (1)." Sub-section (1) referred to in
sub-section (5), as substituted on 1.2.1975, is in fact the present sub-section
(1A), for, as stated earlier, the original sub-section (1) was amended and
renumbered as sub-section (1A) when the present sub-section (1) was inserted by
the Companies (Amendment) Act, 1988 w.e.f. 15.6.1988. Consequently, the words
`the time specified in sub-section (1)' appearing in sub-section (5), as
inserted w.e.f. 1.2.1975, denote the period of 10 weeks mentioned in the
present sub-section (1A). This means that the permission for listing is deemed
not to have been granted, i.e., impliedly refused, if the application for
permission filed by the company has not been disposed of before the expiry of
10 weeks from the date of the closing of the subscription lists, as mentioned
under sub-section (1A).
Sub-section
(1A) postulates that any allotment made becomes void at the end of 10 weeks
from the date of the closing of the subscription lists if by that time the
requisite permission of the stock exchange has not been obtained. But this
consequence is postponed till the dismissal of any appeal preferred under
section 22 of the Securities Contracts (Regulation) Act, 1956 (see the proviso
to sub-section (1A) of section 73 of the Act).
Nevertheless,
the permission, if not obtained within 10 weeks, is deemed not to have been
granted.
If the
permission for listing sought under sub-section (1) is not granted, the
interest payable under sub-section (2) is attracted. Sub-section (2) says that
the liability to repay the money received from applicants arises forthwith
either where the permission has not been sought or, having been 505 sought, it
has not been granted. The fact that an appeal is pending does not postpone the
result contemplated in sub- section (2) in regard to the liability to repay the
amounts and the interest accruing thereon if the amounts are not repaid within
8 days after the liability arose. The accrual of interest under sub-section (2)
is not dependent or consequent on the nullity postulated in sub-section (1A).
In
this connection, reference may be made to sub- section (3) which reads:-
"S.73(3). All moneys received as aforesaid shall be kept in a separate
bank account maintained with a Scheduled bank until the permission has been
granted, or where an appeal has been preferred against the refusal to grant
such permission, until the disposal of the appeal, and the money standing in
such separate account shall, where the permission has not been applied for as
aforesaid or has not been granted, be repaid within the time and in the manner
specified in sub-section (2), and if default is made in complying with this
sub-section, the company, and every officer of the company who is in default,
shall be punishable with fine which may extend to five thousand rupees." (emphasis
supplied) This sub-section refers to the obligation of the company to keep all
amounts received from the subscribers in a separate bank account maintained
with a Scheduled bank.
Such
money must so remain in the bank until the permission has been granted by the
stock exchange or until the disposal of an appeal preferred against refusal to
grant permission.
Where
the permission has not been sought, the company has, as seen above, acted in
disobedience of the law, and the amounts received from the investors must be
credited to the separate bank account and immediately returned to them together
with the interest which accrued for the period.
But
where permission has been sought, but not granted, the amounts so kept in the
bank have to be repaid within the time specified in sub-section (2). Default of
compliance with this requirement will make the company and every officer in
default (as defined under section 5) liable to be punished with fine. This
will, of course, be in addition to the liability for payment of interest in
terms of sub- section (2).
The
right or obligation of the company to keep the money in the bank is only for
the period preceding the decision of the stock exchange on the company's
request for permission to list. Once the permission is 506 expressly or
impliedly refused, the money has to be returned to the applicants,
notwithstanding the pendency of the company's appeal. The earlier part of the
sub-section about depositing the money in the bank is controlled by the latter
provision in the sub-section for returns of the money as required by sub-section
(2). This is particularly so by reason of the penalty specially provided in
sub-section (3) in the event of default of compliance with the requirement of
that sub-section.
Sub-section
(3) may at the first blush appear to be contradictory, but it is really not so,
considering the legislative intent to protect the legitimate claim of the
applicants for interest on the money paid by them. The interest provided under
sub-section (2) is payable to the applicants in terms of that sub-section,
unless the money is returned to them within the specified time, not
withstanding the pendency of an appeal mentioned in the proviso to sub- section
(1A). Sub-section (3) has to be so understood to be in harmony with the other
provisions of section 73. This is all the more explicit from sub-section (3A).
Sub-section
(3A) says that the company shall not utilise the amounts held in the separate
bank account for any purpose other than what is permitted by sub-section (3A).
Sub-section
(3A) provides:- "S.73(3A). Moneys standing to the credit of the separate
bank account referred to in sub-section (3) shall not be utilised for any
purpose other than the following purposes, namely:- (a) adjustment against
allotment of shares, where the shares have been permitted to be dealt in on the
stock exchange or each stock exchange specified in the prospectus;
or (b)
repayment of moneys received from applicants in pursuance of the prospectus,
where shares have not been permitted to the dealt in on the stock exchange or
each stock exchange specified in the prospectus, as the case may be, or, where
the company is for any other reason unable to make the allotment of
share".
The
money credited to the separate bank account can be utilised for only two
purposes: (1) for adjustment against allotment of shares where listing is
permitted; or (2) for repayment where listing is not permitted or the company
is otherwise unable to allot shares. The company has no right to deal with the
money in any other manner or keep it longer than permitted by the section.
507
The money so kept in the separate bank account is held by the company for and
on behalf of the subscribers in a fiduciary capacity. Such amount do not form
part of the general assets of the company. The relationship between the
applicants and the company in respect of the application money so held in
accordance with sub-section (3) is that of `bailers and bailee and not of
creditors and debtor'. See Palmer's Company Law, 24th ed. para 24.31; 1955 (1)
WLR, 1080,1085.
Interest
does not begin to run under sub-section (2) until 8 days have elapsed from the date of expiry of the period of 10 weeks
commencing on the date of closure of the subscription lists. The fact that the
legislature has so provided in cases where permission has been refused expressly
or by reason of the deeming provision is sufficient indication of the
legislative intent to give the company reasonable time to repay the money.
Companies
generally make allotments as soon as practicable after the necessary
application has been made to the recognised stock exchange for permission for
listing.
Upon
the issue of the prospectus after making such application, amounts are received
from the public in consideration of which allotments are made in anticipation
of the requisite permission. Greater the reputation of the company, larger are
the amounts likely to be received. If permission is not granted, the entire
amounts received from the public have to be forthwith repaid. On the other
hand, if permission is obtained, but the amounts received from the public are
in excess of the aggregate of the application money relating to the allotted
shares or debentures, such excess amounts are forthwith repayable. Whether or
not permission will be obtained cannot be ascertained until the period prescribed
for the purpose has expired namely, 10 weeks from the date of closing of the
subscription lists.
Until
the expiry of those 10 weeks, neither the subscribing public nor the company
will be in a position to decide whether or not the allotments made are valid.
This is a period of uncertainty and it is for that reason that the legislature
has, in a case of refusal to grant permission, provided that the liability to
repay the application money arises upon the expiry of 10 weeks. The possibility
of an appeal being allowed is, as stated above, not a ground to delay
repayment. It should make no difference whether it is as a result of the
permission having been refused, or permission having been granted and excess
amounts are received by reason of over-subscription, that repayment of money
has to be made by the company. In either event, the liability to repay the
amounts arises forthwith on the expiry of 10 weeks from the date of closure of
the subscription lists, and the interest will begin to accrue thereon on the
expiry of 8 days there from. This construction is, in our view, just and
reasonable from the point of view of both the investor and 508 the company, and
has the advantage of certainty, uniformity and easy application.
The
condition attached to the Order of the Government of India dated 31st May, 1990, which we have extracted above,
indicates that the time limit of 10 weeks from the date of closure of the
subscription lists applied to refund orders as well as to allotment of all
securities and despatch of allotment letters/certificates. The Government of
India thus understood that the liability of the company to repay the amounts in
terms of section 73 arose only at the end of 10 weeks from the date of closure
of the subscription lists. This condition presumably applies to repayment under
sub-section (2) as well as under sub-section (2A) of section 73. This is fully
borne out by the averments contained in the affidavit filed in the High Court
on behalf of the Union of India as well as by the oral submissions on its
behalf before the High Court on the point. Similar appears to be the stand of
the Bombay Stock Exchange, as seen from its publication of March 1991 (para
23.2). The letter dated March 13, 1991 sent by the Securities and Exchange
Board of India, the 2nd respondent, to the appellant company stating that
interest was payable from 1st November, 1990, which is the date of expiry of
the period of 10 weeks from the date of closure of the subscription lists,
roughly indicates how the 2nd respondent construed the provision shortly before
the proceedings commenced in the High Court.
The
section is not free from ambiguities and doubts.
Having
been amended in several respect, it has not finally emerged with the clarity
that admits of easy construction.
But the
contemporaneous construction placed upon an ambiguous section by the
administrators entrusted with the task of executing the statute is extremely
significant.
This
construction is, in our view, perfectly consistent with the language and the
object of the statute. It is a practical and reasonable construction,
particularly because it affords the company reasonably sufficient time to
complete the formalities for despatch of the refund orders.
And
the investor who has responded to the invitation contained in the prospectus is
not unduly kept waiting for the return of the excess amounts due to him. See Desh
Bandhu Gupta & Co. & Ors. v. Delhi Stock Exchange Association Ltd.,
[1979] 4 SCC 565 and K.P. Varghese v. Income Tax Officer, Ernakulam & Anr.,
[1981] 4 SCC 173. See also Crawford's Interpretation of Laws, 1989 Ed.
Neither
the date of allotment, as found by the High Court, nor the date specified in
the prospectus, as contended by the company, is relevant to the commencement of
liability for payment of interest on the excess money.
509
The liability of a company to repay the excess money under section 73(2A) of
the Act arises on the expiry of 10 weeks from the date of the closing of the
subscription lists, and the interest begins to accrue thereon at the end of 8
days therefrom.
Accordingly
the liability to repay the excess money in the present case arose on 1.11.1990
which was admittedly the date of expiry of 10 weeks from the date of the
closing of the subscription lists, and consequently the liability to pay
interest at the rate specified in sub-section (2A) arose on the expiry of 8
days from 1.11.1990.
MOHAN,
J. I had the advantage of perusing the draft judgment of my learned brother. I
concur with him.
However,
some important points require to be amplified. The points that arises for
determination are:
(i) the
scope of liability under Section 73 (2A) of the Companies Act.
(ii)
Meaning of the word "forthwith"
(iii)
Whether the payment of interest is penal in nature?
(iv)
Whether administrative inconvenience could be pleaded to avoid the statutory
liability? Section 73 occurs under Para III of the Companies Act 1956 (Central
Act of 1/1956 hereinafter referred to as the Act).
This
section deals with the allotment of shares and debenturs. It has undergone
important amendments in 1975 and 1988. Prior to amendment in 1975, Section 73
read as under :_ "Allotment of shares and debentures to be dealt in on
stock exchanges. (1) Where a prospectus, whether issued generally or not states
that application has been or will be made for permission for the shares or
debentures offered thereby to be dealt in on a recognised stock exchange, any
allotment made on an application in pursuance of the prospectus shall, whenever
made, be void, if the permission has not been applied for before the tenth day
after the first issue of the prospectus or, if the permission has not been
granted before the expiry of (four weeks) be notified to the applicant for
permission by or on behalf of the stock exchange.
(2)
Where the permission has not been applied for as aforesaid, or has not been
granted as aforesaid, the company shall forthwith repay without interest all
moneys received from ap- 510 plicants in pursuance of the prospectus, and, if
any such money is not repaid within eight days after the company becomes liable
to repay it, the directors of the company shall be jointly and severally liable
to repay that money with interest at the rate of five per cent per annum from
the expiry of the eighth day:
Provided
that a director shall not be liable if he proves that the default in the
repayment of the money was not due to any misconduct or negligence on his part.
(3)
All moneys received as aforesaid shall be kept in a separate bank account
maintained with a Scheduled Bank so long as the company may become liable to
repay it under sub-section (2) ; and if default is made in complying with this
sub-section, the company, and every officer of the company who is in default,
shall be punishable with fine which may extend to five thousand rupees.
(4)
Any condition purporting to require or bind any applicant for shares or
debentures to waive compliance with any of the requirements of this section
shall be void.
(5)
For the purpose of this section (it shall not be deemed that permission has not
been granted) if it is intimated that the application for permission though not
at present granted, will be given further consideration.
(6)
This section shall have effect :
(a) in
relation to any shares or debentures agreed to be taken by a person underwriting
an offer thereof by a prospectus, as if he had applied, therefor in pursuance
of the prospectus; and (b) in relation to a prospectus offering shares for
sale, with the following modifications namely - (i) reference to sale shall be
substituted reference to allotment;
(ii)
the persons by whom the offer is made, and not the company, shall be liable
under sub-section (2) to repay money received from applicants, and reference to
the company's liability under that sub-section shall be construed accordingly;
and (iii) for the reference in sub-section (3) to the company and every officer
of the company who is in default, there 511 shall be substituted a reference to
any person by or through whom the offer is made and who is knowingly guilty of,
or wilfully authorises or permits, the default.
(7) No
prospectus shall state that application has been made for permission that the
shares or debentures offered thereby to be dealt in on any stock exchange,
unless it is a recognised stock exchange".
After
amendment in 1975, Section 73 read as follows:- "Allotment of shares and
debentures to be dealt in on stock exchanges. (1) Where a prospectus whether
issued generally or not states that an application has been, or will be, made
for permission for the shares or debentures offered thereby to be dealt in on
one or more recognised stock exchanges, such prospectus shall state the name or
the stock exchange or, as the case may be, each such stock exchange, and any
allotment made on an application in pursuance of such prospectus shall,
whenever made, be void if the permission has not been applied for before the
10th day after the first issue of the prospectus, or, whether such permission
has been applied for before that day, if the permission has not been granted by
the stock exchange or each such stock exchange, as the case may be, before the
expiry of 10 weeks from the date of the closing of the subscription lists :
Provided
that where an appeal against the decision of any recognised stock exchange
refusing permission for the share or debentures to be dealt in on that stock
exchange has been preferred under section 22 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956), such allotment shall not be void until the
dismissal of the appeal.
(2)
Where the permission has not been applied for as aforesaid, substituted for
"or has not been granted as aforesaid" by the Companies (Amendment)
Act, 1974, w.e.f. 1.2.1975 substituted for "five per cent" ibid.
(2A)
Where permission has been granted by the recognised stock exchange or stock
exchanges for dealing in any shares or debentures in such stock exchange or
each such stock exchange and the moneys received from applicants for shares or
debentures are in excess of the aggregate of the applicant moneys relating to the
shares or debentures 512 in respect of which allotment has been made, the
company shall repay the moneys to the extent of such excess forthwith without
interest, and if such money is not repaid within eight days, from the day the
company becomes liable to pay it, the Directors of the Company shall be jointly
and severally liable to repay the money with interest at the rate of twelve per
cent per annum from the expiry of the said eighth day :
Provided
that a Director shall not be liable if he proves the the default in the payment
of the money was not due to any misconduct or negligence on his part.
(2B)
If default is made in complying with the provisions of sub-section (2A), the
company and every officer of the company who is in default he shall be punishable
with fine which may extend to five thousand rupees, and where repayment is not
made within six months from th expiry of the eighth day, also with imprisonment
for a term which may extend to one year.
(3)
All moneys received as aforesaid shall be kept in a separate bank account
maintained with a Scheduled Bank (until the permission has been granted, or
where an appeal has been preferred against the refusal to grant such
permission, until the disposal of the appeal, and the money standing in such
separate account shall, where the permission has not been applied for as
aforesaid or has not been granted, be repaid within the time and in the manner
specified in sub-section (2); and default is made in complying with this
sub-section, the company, and every officer of the company who is in default,
shall be punishable with fine which may extend to five thousand rupees.
(3A)
Moneys standing to the credit of the separate bank account referred to in
sub-section (3) shall not be utilised for any purpose other than the following
purposes, namely:- (a) Adjustment against allotment of shares, where the shares
have been permitted to be dealt in on the stock exchange or each stock exchange
specified in the prospectus; or (b) Repayment of moneys received from applicants
in pursuance of the prospectus, where shares have not been permitted to be
dealt in on the stock exchange or each stock 513 exchange specified in the
prospectus, as the case may be, or, where the company is for any other reason
unable to make the allotment of share.
(4)
Any condition purporting to require or bind applicant for shares or debentures,
to waive compliance with any of the requirement of the section shall be void.
(5)
For the purpose of this section it shall be deemed that permission has not been
granted if the application for permission, where made, has not been imposed of
within the time specified in sub- section (1).
(6)
This section shall have effect - (a) In relation to any shares or debentures
agreed to be taken by a person underwriting an offer thereof by a prospectus,
as if he had applied therefor in pursuance of the prospectus; and (b) In
relation to a prospectus offering shares for sale, with the following
modifications namely- (i) References to sale shall be substituted for
references to allotment;
(ii)
The persons by whom the offer is made, and not the company, shall be liable
under sub-section (2) to repay money received from applicants, and references
to the company's liability under that sub-section shall be construed
accordingly; and (iii) For the reference in sub-section (3) to the company and
every officer of the company who is in default, there shall be substituted a
reference to any person by or through whom the offer is made and who is
knowingly guilty of or wilfully authorises or permits, the default.
(7) No
prospectus shall state that application has been made for permission for the
shares or debentures offered thereby to be dealt in on any stock exchange,
unless it is a recognised stock exchange." After amendment in 1988, Section
73 reads as under:- "Allotment of shares and debenture to be dealt in on
stock exchange. (1). Every company, intending to offer shares or debentures to
the public for subscription by the issue of a 514 prospectus shall before such
issue, make an application to one or more recognised stock exchanges for
permission for the shares or debentures intending to the so offered to be dealt
with in the stock exchange or each such stock exchange.
(1A)
Where a prospectus, whether is issued generally or not, states that an
application under sub-section (1) has been made for permission for the shares
or debentures offered thereby to be dealt in one or more recognised stock
exchange, such prospectus shall state the name of the stock exchange and any
allotment made on an application in pursuance of such prospectus shall,
whenever made, be void if the permission has not been granted by the stock
exchange or each such stock exchange, as the case may be, before the expiry of
ten weeks from the date of the closing of the subscription lists :
Provided
that where an appeal against the decision of any recognised stock exchange
refusing permission for the shares or debentures to be dealt in on that stock
exchange has been preferred under section 22 of the Securities Contracts
(Regulations) Act, 1956 (42 of 1956), such allotment shall not be void until
the dismissal of the appeal.
(2)
Where the permission has not been applied for under sub-section (1) or, such
permission having been applied for, has not been granted as aforesaid, the
company shall forthwith repay without interest all moneys received from
applicants in pursuance of the prospectus, and, if any such money is not repaid
within eight days after the company become liable to repay it, the company and
every director of the company who is an officer in default shall, on and from
the expiry of the eighth day, be jointly and severally liable to repay that
money with interest at such rate, not less than four per cent and not more than
fifteen pr cent, as may be prescribed, having regard to the length of the
period of delay in making the repayment of such money.
(2A)
Where permission has been granted by the recognised stock exchange or stock
exchanges for dealing in any shares or debentures in such stock exchange or
each such stock exchange and the moneys received from applicants for shares or
debentures are in excess of the aggregate of the application moneys relating to
the shares or debentures in respect of which allotments have been made, the
company shall repay the moneys to the extent of such excess forthwith without
interest, and if 515 such money is not repaid within eight days, from the day
the company becomes liable to pay it, the company and every director of the
company who is an officer in default shall, on and from the expiry of the
eighth day, be jointly and severally liable to repay that money with interest
at such rate, not less than four per cent and not more than fifteen per cent,
as may be prescribed, having regard to the length of the period of delay in making
the repayment of such money.
(2B)
If default is made in complying with the provisions of sub-section 2(A), the
company and every officer of the company who is in default shall be punishable
with fine which may extend to five thousand rupees, and where repayments is not
made within six months from the expiry of the eighth day, also with
imprisonment for a term which may extend to one year.
(3)
All moneys received as aforesaid shall be kept in a separate bank account
maintained with a Scheduled Bank until the permission has been granted, or
where an appeal has been preferred against the refusal to grant such
permission, until the disposal of the appeal, and the money standing in such
separate account shall, where the permission has not been applied for as
aforesaid or has not been granted, be repaid within the time and in the manner
specified in sub-section (2) and if default is made in complying with this
sub-section, the company and every officer of the company who is in default,
shall be punishable with fine which may extend to five thousand rupees.
(3A)
Moneys standing to the credit of the separate bank account referred to in
sub-section (3) shall not be utilised for any purpose other than the following
purposes, namely :- (a) adjustment against allotment of shares, where the
shares have been permitted to be dealt in on the stock exchange or each stock
exchange specified in the prospectus ; or (b) repayment of moneys received from
applicants in pursuance of the prospectus where shares have not been permitted
to be dealt in on the stock exchange or each stock exchange specified in the
prospectus, as the case may be, or, where the company is for any other reason
unable to make the allotment of share.
(4)
Any condition purporting to require or bind any applicant 516 for shares or
debentures to waive compliance with any of the requirement of this section
shall be void.
(5)
For the purposes of this section, it shall be deemed that permission has not
been granted if the application for permission, where made, has not been
disposed of within the time specified in sub- section (1).
(6)
This section shall have effect - (a) in relation to any shares or debentures
agreed to be taken by a person under writing an offer thereof by a prospectus,
as if he had applied therefore in pursuance of the prospectus; and (b) in
relation to a prospectus offering shares for sale, with the following
modifications, namely - (i) reference to sale shall be substituted for
references to allotment;
(ii)
the persons by whom the offer is made, and not the company, shall be liable
under sub-section (2) to repay money received from applicants, and references
to the company's liability under that sub-section shall be construed
accordingly; and (iii) for the reference in sub-section (3) to the company and
every officer of the company who is in default, there shall be substituted a
reference to any person by or through whom the offer is made and who is
knowingly guilty of, or wilfully authorises or permits, the default.
(7) No
prospectus shall state that application has been made for permission for the
shares or debentures offered thereby to be dealt in on any stock exchange,
unless it is a recognised stock exchange".
As the
section reads now, every company is required while it offers for public
subscription issues of shares or debentures by means of a prospectus, to make
an application for listing the security in one or more recognised stock
exchanges. Should the stock exchange not grant the permission for listing,
before the expiry of 10 weeks from the date of closing the subscription lists,
no allotment could be made. In other words, the stock exchange has a say in the
matter of listing. It also requires to be stated that the company, besides the
Director, is made liable for failure to repay the application money or the
excess application money along with interest.
517
Notes on clauses read as under :- "Clause 10 provides for compulsory
listing of all public issues with recognised stock exchanges.
Presently,
listing of public issues is not compulsory. Further , as per the existing
provisions only the directors are liable for failure to repay the application
money or the excess application money within the specified time, if the company
fails to pay". "It is proposed to make the company in addition to the
directors who commit the default liable to repay the application money or
excess application money alongwith interest at a rate between 4% to 15%
depending upon the period of delay with a view to ensuring that ordinary
directors like nominee of govt. financial institutions do not attract penal
provisions, it is further proposed that only the directors who is an officer in
default should be liable for prosecution".
As per
provision to sub-section (1), an appeal may be preferred under section 22 of
the Stock Securities Contracts (Regulations) Act, 1956. Such an appeal may be -
(i) against the decision of stock exchange refusing permission ; and (ii) if
the stock exchange fails to dispose of the application for permission within 10
weeks from the date of closing of the subscription lists. This 10 weeks become
important because of the deemed rejection under sub-section (5).
Sub-section
(1A) mentions the date of closing of the subscription lists. Thus, it is a
crucial date for determining the expiry of 10 weeks for the grant of permission
by stock exchange. Equally that becomes the crucial date for calculating the
time for preferring an appeal under section 22 of the Securities Contract
(Regulations) Act, 1956, as aforesaid against the refusal of permission. No
doubt, neither in this section nor elsewhere it is stated as to when the
company is required to close subscription lists. Of course, that will depend
upon the facts of each case. Section 69 of the Act states that unless minimum
subscription is received, no allotment shall be made of any share capital of
the company offered to the public for subscription. In fact, sub-section 5 of
the said section states categorically as follows :- "If the conditions
aforesaid have not been complied with on the expiry of one hundred and twenty
days after the first issue of the prospectus, all moneys received from
applicants for shares shall be forthwith repaid to them without interest; and
if 518 any such money is not so repaid within one hundred and thirty days after
the issue of the prospectus, the directors of the company shall be jointly and
severally liable to repay that money with interest at the rate of six per cent
per annum from the expiry of the one hundred and thirtieth day :
Provided
that a director shall not be so liable if he proves that the default in the
repayment of the money was not due to any misconduct or negligence on his
part".
One
thing that is striking as far as the sub-section is concerned is, the repayment
without interest before the expiry of 150 days after the first issue of the
prospectus and the repayment with interest within 130 days after the issue of
the prospectus or specific in their terms unlike Section 73. It cannot be gain
said that the prospectus of the company is an important document provided for
under the statute.
Section
2(36) defines "prospectus" as follows :- "prospectus" means
any document described or issued as a prospectus and includes any notice,
circular, advertisement or other document inviting deposits from the public or
inviting offers from the public for the subscription or purchases of any shares
in, or debentures of, a body corporate".
Section
60 deals with registration of prospectus.
Under
sub-section (3) it is provided that the Registrar shall not register a
prospectus unless the requirements of sections 55, 56, 57 and 58 and
sub-sections (1) and (2) have been complied with. Section 62 deals with civil
liability for misstatements in prospectus, while section 63 deals with criminal
liability for misstatement in prospectus. In the background of the legal
provisions section 73 will have to be analysed with regard to the liability to
pay interest.
The
date of allotment, according to Mr. Andhyarujina and Mr. Cooper is the relevant
date. Therefore, according to the learned counsel, the crucial issue is the
allotment.
It is
also submitted that when permission is granted, it is only a categorisation. It
has already been seen that under section 69(5), specific dates have been
mentioned as 120 and 130 respectively. Sub-section 2(A) of Section 73 does not
mention any specific day. It also requires to be noticed under sub-section 1(A)
of this very section "10 weeks from the date of closing of the
subscription lists" is mentioned.
Both
under sub-section (2) and 2(A), no such time has been prescribed. Prior to
1988, sub-section (1) contemplated two situations - (i) application to stock
exchange being made after issue within 10 days of issue or (ii) 519 application
made before the issue and 10 weeks for stock exchange to grant the application.
Of course, if the application is not granted within 10 weeks, there will be
deemed rejection under sub-section (5). But, unfortunately, after the amendment
of sub-section (1) and 1(A), sub-section (2) has not been amended with reference
to these amended provisions. As the law stands at present, the question of
issue of prospectus without an application to stock exchange cannot arise at
all.
As
careful reading of sub-section 2(A) will clearly disclose that the said section
comes into operation only where permission has been granted by the recognised
stock exchange or exchanges. These words "where permission has been
granted" are of great significance. Therefore, the contention that on the
date of allotment the liability to pay interest arises may not be correct. Nor
again, it would be correct to contend that the mechanics of refund liability to
pay arises on the date of allotment since there is a failure of consideration
in respect of shares not allotted.
On
allotment, the money may become due. Thereafter the money is held in a
fiduciary capacity. But the more important question is does it become payable?
We will, now, refer to Black's Legal Dictionary as to the meaning of the word
"due" and "payable" (5th Ed. 448) are as under :- "Due"
- Just; proper; regular; lawful; sufficient;
reasonable,
as in the phrases "due care", "due process of owing; payable;
justly owed. That which one contracts to pay or perform to another;
that
which law or justice requires to be paid or done. Owed, or owing, as
distinguished from payable. A debt is often said to be due from a person where
he is the party owing it, or primarily bound to pay, whether the time for
payment has or has not primarily bound to pay, whether the time for payment has
or has not arrived. The same thing is true of the phrase "due and
owing". Payable. A bill or note is commonly said to be due when the time
for payment of it has arrived. The word "due" always imports a fixed
and settled obligation or liability, but with reference to the time for its
payment there is considerable ambiguity in the use of the term, the precise
signification being determined in each case from the context. It may mean that
the debt or claim in question is now (presently or immediately) matured and
enforceable, or that it matured at some time in the past and yet remains
unsatisfied, or that it is fixed and certain but the day appointed for its
payment has not yet arrived. But commonly, and in the absence of any qualifying
expressions, the word "due" is re- 520 stricted to the first of these
meanings, the second being expressed by the term "overdue" and the
third by the word "payable".
"Payable"
-Capable of being paid; suitable to be paid; admitting or demanding payment;
justly due legally enforceable. A sum of money is said to be payable when a
person is under an obligation to pay it. Payable may therefore signify an
obligation to pay at a future time, but, when used without qualification, term
normally means that the debt is payable at once, as opposed to "owing".
As a
matter of fact, these words assumed great significance under section 60 of
Transfer of Property Act.
The
section was amended by Act 20 of 1929. The word "due" in the section
has been substituted for the word "payable" in order to make it clear
that a mortgagor cannot redeem within the term of the mortgage".
"When the right of redemption arises- the right of redemption arises when
the principal money secured by the mortgage that has become due and may be
exercised at any time thereafter, subject of course to the law of limitation.
In English law, the mortgagor cannot redeem before the time fixed for payment.
Nevertheless
there were a considerable number of Indian cases in which it was held that the
time fixed in the deed was fixed for the convenience of the mortgagor and that
he could redeem before that time unless there was an express stipulation to the
contrary. These cases are bad law, for th view taken in other case that the
mortgagor cannot redeem before the time fixed for payment is confirmed by the
decision of Judicial Committee in Bhaktawar Begam v. Husaini Khanam, [1914] 36
All. 195. 41 I.A. 84, 23 I.C. 355 followed in Bir Mohammad v. Nagoor, [1914] 27
Mad. L.J. 483, 25 I.C.
576
which treats Rose Ammal v. Rajarathnam, [1900] 23 Mad.
23 as
overruled".
In
1976 (46) Company Cases 25 in Baroda Board
& Paper Mills Ltd. v. Income-Tax Officer. Circle I, Warde-E, Ahmedabad and
others, it is held as under :- "Mr. A.L. Shah who appears for the
liquidator in O.J. Appeal No. 2 of 1975 has urged before us that the
legislature has used in the context of the priority of debts two distinct sets
of words "debt due" and "due and payable" and proper
meaning should be given to these sets of words, namely, "debt due"
and "due and payable" and distinction must be made when the
legislature has used two different terminologies, namely, "due" in
the beginning of the clause and "due and payable" at the end of the
clause. He also wants us to dissect the phrase "due and 521 payable"
and he wants to emphasize that the debt must have become due in the narrower
sense of the word of having come into existence and having been payable with
reference to enforceability of payment and, in this sense, relying upon the
decision of D.A. Desai J., he has urged before us that the debt must be
existing at the relevant date and the event which brought the debt into
existence must have occurred within the twelve months preceding the relevant
date and it must also have become payable, meaning thereby that its payment
could have been enforced against the company, within the twelve months before
the relevant date. In view of the decisions that we have already referred to,
particularly the passage from People v. Arguello as approved by the Supreme
Court in Kesoram Industries' case and in Raman Iron Foundry's case, it is not
possible for us to accept this contention of Mr. Shah. In our opinion, the only
meaning that could be attached to the word "due" occurring in section
530 is that it must be presently due and the words "due and payable"
mean the same thing, namely , that it must be presently payable.
Therefore,
so far as section 530(1) (a) is concerned, the revenue, taxess or rate, due
from the company to the Central or State Government or to a local authority
must be presently payable, that is, that the liability could be enforced as at
the relevant date and, secondly, it must have so become presently payable
within the twelve months immediately preceding the relevant date".
In
this connection we may refer to the case in Union of India v. Air Foam
Industries (P) Ltd., A.I.R. 1974 S.C. 1265 & 1271 (para 7), which reads as
follows :- "The first thing that strikes one on looking at Clause 18 is
its heading which reads; "Recovery of Sums Due". It is true that a
heading cannot control the interpretation of a clause if its meaning is
otherwise plain and unambiguous, but it can certainly be referred to as
indicating the general drift of the clause and affording a key to a better
understanding of its meaning. The heading of Clause 18 clearly suggests that
this clause is intended to deal with the subject of recovery of sums due. Now a
sum would be due to the purchaser when there is an existing obligation to pay
it in present. It would be profitable in this connection to refer to the
concept of a `debt' for a sum due is to be found in Webb v. Stenton, [1883] 11
QBD 518 where Lindley. L. J., "...a debt is a sum of money which is now
payable or will become payable in the future by reason of a 522 present
obligation". There must be debitum in presenti; solvendum may be in presenti
or in future - that is immaterial. There must be an existing obligation to pay
a sum of money now or in future. The following passage from the judgment of the
Supreme Court of California in People v. Arguello, [1869] 37 Calif 524, which was apporoved by this
Court in Kesoram Industies v. Commr. of Wealth Tax, [1966] 2 SCR 688 (AIR 1966
SC 1370), clearly brings out the essential characteristics of a debt.
"Standing
alone, the word `debt' is as applicable to a sum of money which has been
promised at a future day as to a sum now due and payable. If we wish to
distinguish between the two, we say of the former that it is a debt owing, and
of the latter that it is a debt due".
This
passage indicates that when there is an obligation to pay a sum of money at a
future date, it is a debt owing but when the obligation is to pay a sum of
money in praesenti it is a debt due.
A sum
due would, therefore, mean a sum for which there is an existing obligation to
pay in presenti, or in other words, which is presently payable. Recovery of
such sums is the subject- matter of Clause 18 according to the heading, That is
the dominant idea running through the entire Clause 18".
We
will now refer to Venkataramiya's Law Lexicon and Legal Maxims Vol, I, 713,
714. "Due" - means payable immediately or a debt contracted but
payable at a future time. In Wharton's Law Lexicon, 14th Edn., it s meaning is
stated to be "anything owing. That which one contracts to pay or perform
to another; that which law or justice requires to be paid or done. It should be
observed that a debt is said to be `due' the instant that it has existence as a
debt; it may be payable at a future time". Therefore, it cannot be
contended on the strength of Section 530 `due' and `payable' is one and the
same even under S.732 (A).
However,
as contended, if the liability to pay interest arises from the date of
allotment and the grace period after eight days, what is to happen in cases
where permission is refused by the stock exchange? For the grant of such
permission 10 weeks are available. Therefore, a company making allotment prior
to the grant of permission cannot be mulcted with the liability when the
section itself comes into play upon the grant of permission. Therefore, some
definite date is required. It cannot be lost sight of that where permission is
refused in the first instance there is also the right of appeal under Section
22 of the Securities Contracts (Regulations) Act, 1956. This too, has got an
important bearing. It cannot be held that after allotment the mechanics 523 of
refund would come into play and again after rejection of permission, the money
on all applications should be refunded once over again.
Equally,
the contention of Mr. Anil Divan that the stock exchange will have power to
extend the time cannot be accepted. It may be a practice to do so. But it does
not mean the stock exchange can act contrary to clear wording to this section.
More so, when Sub-section (4) is clear in its terms. Merely because the
intending applicants agree to abide by the prospectus that cannot be binding in
the teeth of this Sub-section.
For
the sake of competition, reference may be made to the corresponding provision
of English Law. Buckley on the Companies Acts, 14th Ed. Vol.I, while dealing
with Section 51 which is the corresponding provision state as follows :-
"The Act does not require the prospectus to fix any time for closing the
subscription lists and, unless and until an issue is fully subscribed, there is
nothing in law to require the company to close the lists. It is the common
practice, however, at any rate in the case of prospectuses issued generally, to
state in the prospectus that the lists will be closed on or before a particular
date. In any case to which this section applies the company will, by reason of
sub-s(3), be unable to employ any money received from shareholders until either
permission to be listed has been obtained, or the lists have been closed and
the period indicated in sub-section (1) has expired without the permission having
been refused. Note that the sub-section does not say, 'if the permission has
not been granted before the expiration of three weeks etc.' Presumable in
practice the stock exchange, when it has an application for permission to be
listed under consideration and has not either granted or refused permission
within the three weeks period indicated above, will notify the applicant under
sub-section (1) of an extension of the period.
An
allotment within this section is void, not voidable as in an allotment in breach
of Section 47" sub-section (3) in Re Nanwa Gold Mines, Ballantyne v. Nanwa
Gold Mines Ltd. applications to subscribe for shares were invited on the
footing that, if a resolution for reduction of capital was not passed or not
confirmed by the court, the application moneys would be refunded and meanwhile
would be retained in a separate account. The moneys were in fact put in a
separate account in the names of the company and its registrars. The conditions
524 were not fulfilled and shortly afterwards a receiver was appointed in a
debenture-holders' action. Harman J. held that the moneys in the separate
account were repayable to the subscribers in full, basing his decision on the
terms of the invitation and not on the provisions of this sub- section; but he
expressed the view that the payment into a separate account in compliance with
the sub- section would probably have the same effect".
Palmer's
Company Law, 1982, Vol I, 264 states as follows:- "Refusal of Application
to Deal - Where a prospectus states that application has been or will be made
for the shares or debentures to be dealt with on the stock exchange, any
allotment made on an application under the prospectus shall be void.
(1) if
permission has not been applied for before the third day after the first issue
of the prospectus; or (2) if permission is refused before the expiration of
three weeks (subject to the extension by the stock exchange to six weeks from
the date of the closing of the subscription lists (Sec. 51 (1).
It
should be noted that under case (2) above, the allotment is not void if the
stock exchange merely defers the decision on permission to deal, or does not
arrive at a decision within the stated time.
During
the periods stated in cases (1) and (2) above, the application money received
by the company from shareholders who applied for shares has to be kept on
separate account (Sec. 51 (3) ; "that appears", as Harman J.
observed
in Re Nanwa Gold Mines Ltd, "to be an attempt to erect, so to speak, by
statute a kind of trust for applicant", consequently, the application
money thus kept on separate account does not form part of the general assets of
the company which are charged by a debenture secured by a floating charge. The
relationship between the applicants and the company which holds the application
moneys on separate account is that if bailers and bailee, and not of creditors
and debtor".
Now,
we will refer to the case in Nanwa Gold Mines Ltd. Ballantyne v. Nanwa Gold
Mines Ltd., [1955] I W.L.R. 1080 @ 1085.
"Sub-section
(3) provides that where money is sent in on a provisional application:
"All money received as "aforesaid shall 525 be kept in a separate
bank account so long as the company may become liable to repay it under the
last foregoing sub-section; and, if default is made in complying with this
sub-section, the company and every officer of the company who is in default
shall be liable to a fine not exceeding five hundred pounds". That appears
to be an attempt to erect so to speak, by statute a kind of trust for applicants
in a case of this sort. It is irrelevant here, because in this case the
directors promised to do this very thing; No doubt that was only a compliance
with the statute; but they did promise to do so and I think that their promise
is of contractual effect, so I need not consider whether, if there was no
promise but only the statutory obligation, the position would be the same. I
incline to think it would be so, and that the object of section 51(3) was to
provide protection for persons who pay money on the faith of promises of this
kind".
As to
the present position with regard to the liability to refund under Sec. 73 2(A)
it is important to bear in mind that two notifications have come to be issued
in exercise of powers conferred under Section 642.
Notification
No. GSR 614 (E) dated 3rd
October, 1991, called
the Companies (Central Government's) General Rules and Forms (Second
Amendment), 1991, which came into force on 1st November, 1991. In the above notification it is
stated as under:- "If the company does not receive application money for
at least 90% of the issued amount, the entire subscription will be refunded to
the applicants within ninety days from the date of closure of the issue. If
there is delay in the refund of application money by more than 8 days after the
company becomes liable to pay the excess amount, the company will pay interest
for the delayed period, at prescribed rates in sub-section (2) and (2A) of
Section 73. No statement made in this Form shall contravene any of the
provisions of the Companies Act, 1956, and the rules made there under".
"Signature
of Directors" Again, notification No. S.O. 666(E) dated October 3, 1991
issued under sub-section (1) of Section 641 with amendments in Schedule II to
the said Act, under Part I General Information, stated as under:- "(f)
Declaration about the issue of allotment letters/refunds within a period of 10
weeks and interest in case of any delay 526 in refund at the prescribed rate
under Section 73(2)/2A" Thus, the liability of the company to repay the
excess amount under section 73(2A) will arise only on the expiry of 10 weeks
from the date of the closure of subscription lists. The interest begins to
accrue thereupon at the end of 8 days.
As the
meaning of the word "forthwith", we will now refer to Bouvier's Law
Dictionary for the meaning of the word "forthwith". "FORTH WITH.
As soon as by reasonable
exertion, confined to the object, it may be accomplished.
(Approved
in Dickerman v. Trust Co., 176 U.S. 193, 20
Sup, Ct. 311, 44 L.Ed. 423). This is the
import of the term; it varies, of course, with every particular cases; 4 Tyrwh.
837;
Edwards v. Ins Co., 75 Pa. 378. See Seammon v. Ins. Co., 101,
III 621; 11 H.L. Cas. 337. Bannect v. Ins 67 N.Y. 274; Pennsylvanis R. Co. v.
Reichert, 58 Md. 261; Meriden Silver Plate Co. v. Flory 44 Ohio St. 437, 7 N.E.
753. It is not as promptly as immediately; in some cases it might mean within a
reasonable time; 7 Dowl. 789". We will also refer to 193 Soutern Reporter,
339 and 16 Soutern Reporter 33 @ 35 Col I. "As regards compliance with
statute requiring petition for judicial review of an executive committee's
denial of primary election contest to be filled "forthwith" the term
"forthwith" is a relative one and means within such time as to permit
that which is to be done, to be done lawfully and according to the practical
and ordinary course of things to be performed or accomplished, and it is not to
be used by way of a penalty when accidental interventions of which party is not
to be charged with foresight have upset what otherwise would have been
reasonable calculations regarding available time. Laws 1035, Ex. Secs c.
10". "Forthwith" is not susceptible of a fixed time definition,
and the surrounding facts and circumstances must be taken into consideration in
determining the question, and forthwith may be minutes, hours, days or even
weeks". Therefore it cannot be said that "forthwith" means E.O. instanti.
It
cannot but be held that the payment of interest is only compensatory and not
penal. Merely because clause 10 to which a reference has already been made uses
the word "penal" it cannot be amount to penalty. As useful reference
can be made in Mahalaxmi Sugar Mills Co. Ltd. v. Commissioner of Income Tax, Delhi, New Delhi, [1980] 3 SCR 421. "4. Penalties - if any person
defaults in payment of excess imposed under sub-section (1) of Sec. 3, or ,
contravenes any provision of any rule made under this Act, he shall without
prejudice to his liability therefore under sub-section (5) of Sec. 3 be liable
to imprisonment upto six months or to a fine not exceeding rupees five thousand
or both and in the case of continuing contravention in to a further fine not
exceeding rupees five thousand or both and in the case of continuing contraventio
in to a further fine not exceeding rupees one thousand 527 for each day during
which the contravention continues". It is apparent that section 3(2)
requires the payment of cess on the date prescribed under the rules. Rule 4 of
the U.P. Sugarcane Cess Rules, 1956 provides that the cess due on the sugarcane
entering into the premises during the first fortnight to each calendar year
must be deposited in the government treasury by the twenty second day of that
month and the cess due for the remainder of the month must be deposited before
the seventh day of the next following month. If the cess is not paid by the
specified date, then by virtue of s. 3(3) the arrear of cess will carry
interest at the rate of six per cent per annum from the specified date to the
date of payment. Section 3(5) is a very different provision. It does not deal
with the interest paid on the arrears of cess but provides for an additional
sum recoverable by way of penalty from a person who default in making payment
of cess. It is a thing apart from an arrear of cess and the interest due
thereon.
Now,
the interest payable on an arrear of cess under s. 3(3) is in reality part and
parcel of the liability to pay cess. It is an accretion to the cess. The arrear
of cess "carries" interest; if the cess is not paid within the prescribed
period a larger sum will become payable as cess.
The
enlargement of the cess liability is automatic under section 3(3). No specific
order is necessary in order that the obligation to pay interest is as certain
as the liability to pay cess. As soon as the prescribed date is crossed without
payment of the cess, interest begins to accrue. It is not a penalty for which
provisions has been separately made by s. 3(5). Nor is it a penalty within the
meaning of s. 4, which provides for a criminal liability and a criminal
prosecution. The penalty payable under s. 3(5) lies in the discretion of the
collecting officer or authority. In the case of the penalty under s. 4, no
prosecution can be instituted unless, under s. 5(1), a complaint is made by or
under the authority of the Cane Commissioner of the District Magistrate. There
is another consideration distinguishing the interest payable under s.
3(3)
from the penalty imposed under s. 3(5). Section 3(6) provides that the officer
or authority empowered to collect the cess may forward to the Collector a
certificate under his signature specifying the amount of arrears including
interest due from any person, and on receipt of such certificate the Collector
is required to proceed to recover the amount specified from such person as if
it were an arrear of land revenue. The words used in s. 3(6) are
"specifying the amount of arrears including interest", that is to say
that the interest is part of the arrear of cess.
In the
case of a penalty imposed under s. 3(5), a separate provision for recovery has
been made under s. 3(7).
Although
the manner of recovery of a penalty provided by s. 3(7) is the same as the
manner of recovery provided by s. 3(6) of the arrears of cess, the Legislature
dealt with it as something distinct from the recovery of the arrears of cess
including 528 interest. In truth, the interest provided for under s.3(3) is in
the nature of compensation paid to the Government for delay in the payment of cess.
It is not by way of penalty.
The
provision for penalty as a civil liability has been made under s. 3(5) and for
penalty as a criminal offence under s.4. The Delhi High Court proceeded
entirely on the basis that the interest bore the character of a penalty. It was
according to the learned Judges "penal interest". The learned Judge
failed to notice s. 3(5) and s.4 and the other provisions of the Cess
Act".
The
last question will be that in view of the clear terms of the statute whether
the administrative inconvenience could be pleaded. This could be decided with
reference to the case in Sanjeev Coke Manufacturing Co. v. Bharat Coking Coal
Ltd. & Another, [1983] 1 SCR 1000 @ 1029, as follows:- "...But in the
ultimate analysis, we are not really to concern ourselves with the hollowness
or the self-condemnatory nature of the statements made in the affidavits filed
by the respondents to justify and sustain the legislation. The deponents of the
affidavits filed into Court may speak for the parties on whose behalf they
swear to the statement. They do not speak for the Parliament.
No one
may speak for the Parliament and Parliament has said what it intends to say,
only the Court may say what it the Parliament meant to say. None else. Once a
statute leaves Parliament House, the Court's is the only authentic voice which
may echo (interpret) the Parliament. This the court will do with reference to
the language of the statute and other permissible aids. The executive
Government may place before the court their understanding or misunderstanding
of what Parliament has said or intended to say or what they think was
Parliament's object and all the facts and circumstances which in their view led
to the legislation. When they do so, they do not speak for Parliament. No Act
of Parliament may be struck down because of the understanding of Parliamentary
intention by the executive government or because their (the Government's)
spokesmen do not bring out relevant circumstances but indulge in empty and
self- defeating affidavits. They do not and they cannot bind Parliament.
Validity of legislation is not to be judged merely by affidavits filed on
behalf of the State, but by all the relevant circumstances which the court may
ultimately find and more especially by what may be gathered from what the
legislature has itself said..." 529 Therefore, it has to be held that
administrative inconvenience can hardly be any ground.
Viewing
the statutory provisions form the above perspective, I agree with my learned
brother that the liability to repay the excess amount arose on November 1, 1990
and the liability to pay interest arose on the expiry of eight days from
November 1, 1990.
ORDER
For
the reasons stated by us in our separate but concurring judgments dated
4.2.1992, we allow the appeal to the limited extent indicated by us and the
judgment of the High Court shall stand altered accordingly. In the
circumstances of this case, we make no order as to costs.
V.P.R.
Appeal allowed.
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