Monopolies and Restrictive Trade Practices Commission
Director-General Of Investigation And ... vs Travancore Finance And Exchange ... on 3 April, 1987
Equivalent citations: [1989]65COMPCAS518(NULL)
ORDER
S.D. Manchanda, Member
1. This is an application filed by the Director-General of Investigation and Registration praying for issue of ex parte ad interim injunction against M/s. Travancore Finance and Exchange Company, Bombay, restraining them from carrying on unfair trade practices as spelt out in the application.
2. The Director-General has also filed an application under Section 36B(c) of the Monopolies and Restrictive Trade Practices Act, 1969, against the same respondent seeking initiation of proceedings under Section 36D of the aforesaid Act and we have directed issuance of notice of enquiry against the respondent.
3. The respondent is a partnership firm engaged in financing business and is operating from Bombay, Pune, Ahmedabad, Hyderabad, Madras, Ernakulam, Trivandrum, Trichur, Chengannoor and Muvattupuzha. The main object of the respondent, as expressed in its letter dated January 7, 1987, addressed to the Director-General, is to receive deposits from members of the public and re-invest the amount in more profitable business ventures. For the purpose of its business, the respondent has been issuing advertisements in various newspapers. Three such advertisements, which are the subject-matter of the Director-General's application under Section 12A, have been annexed with his application under Section 36B(c) as annexures I, II and III. The Director-General's allegation is that these advertisements contain misleading statements and promises which constitute unfair trade practices within the meaning of Section 36A.
4. We have gone through the Director-General's application and we find that for the reasons recorded hereinafter, the following claims made in the three aforesaid advertisements are misleading :
(i) The rates of interest offered on deposits are beyond the realm of possibilities and the respondent has furnished no evidence to the Director-General to prove that it has been giving such high rates of interest.
(ii) There is no basis for asserting that the respondent ensures " bank-secured deposits at special rate of interest ".
(iii) The exhortation appearing in the advertisement at armexure I, i.e., "save and secure your life with Travancore " and a more or less similar exhortation in the advertisement in annexure III, i.e., " save and secure your future with Travancore ", are too high-sounding and are not supported by the financial standing and backing of the respondent.
5. The respondent has been offering interest on fixed deposits at the following rates as will be seen from the advertisement in annexure III.
6 months 16% 1 year 24% 2 years 26% 3 years 27% 4 years 28% 5 years 30% Besides, the respondent has been offering extra interest at 3% to 4% on " all new deposits as a new year or festive season offer. It has also offered at least on one occasion " attractive gifts ", vide advertisement in annexure II. The respondent did not supply any worthwhile information to show its capacity to pay such high rates of interest, when the normal rate of interest on debentures and fixed deposits offered by public sector undertakings and public limited companies does not exceed 15%.
Following three specific questions on this particular point were addressed to the respondent by the Director-General in his letter dated February 24, 1987:
" (i) How are you able to pay such high rates of interest ?
(ii) Where do you invest your money to pay high rates of interest ?
(iii) assets and capital of the firm ? "
6. The respondent shied away from direct and pointed replies and gave what could be considered an evasive reply, in the following words in its letter dated March 2, 1987 :
"In this connection I may mention, with due respect, that the firm's accounts are being audited and it is expected to be over by the end of this month. Immediately on completion of the same, we shall furnish you with a copy of our annual accounts and balance-sheet along with the other details called for ".
7. In the context of this evasive reply, the Director-General has rightly concluded that respondent has no worthwhile information to furnish and its offer of high rates is incredible. The creditworthiness of the respondent is patently dubious and the rates of interest advertised are obviously intended as an attractive bait to lure the prospective investors.
8. We also find that there is no substance in the respondent's claim about " bank-secured deposits at special rates of interest ". This is seen from the following observations of the respondent made in its letter dated January 7, 1987, in response to a specific query on the point:
" No banks have agreed to furnish guarantee for the deposits received by us. In order to provide guarantee for repayment of certain types of deposits made with us, we do purchase cash certificates from banks for the full amount of such deposits and hand over such certificates to our depositors. "
9. These observations have to be read in the context of the well-known fact that the rates offered by the bank on deposits are rather low. The cash certificates which the respondent purchases may provide full guarantee for deposits but the rate of interest in the case of such deposits is bound to be as low as the rate offered by the banks on such cash certificates. The statement in regard to bank-secured deposit and special rate of interest thereon is only partially true and is likely to give a false sense of security.
10. We are also of the view that the respondent has failed to furnish any satisfactory basis for its exhortation to the intending investors in the following words :
" Save and secure your life with Travancore."
"Save and secure your future with Travancore. "
11. The respondent has kept the Director-General in the dark about the quantum of share capital introduced by the partners, its financial backing and the type of businesses in which moneys have been invested. In these circumstances, it is a highly misleading claim that the life or future of an investor is secure with the respondent. He is being lulled into complacency about the risk involved in parting with his savings and placing the same at the disposal of the respondent.
12. Having found the claims made by the respondent patently misleading and based on shaky promises, we are inclined to the view that loss or injury to those who deposit money with the respondent is equally patent. In all probability, they will not get interest at the promised rates and their hopes of getting back deposits on maturity are bound to be dashed. In this context, therefore, we hold that prima facie the respondent has indulged in unfair trade practices in the form of the three aforementioned misleading claims made in the advertisements within the meaning of Section 36A of the Monopolies and Restrictive Trade Practices Act.
13. The Director-General has also rightly urged that the unfair trade practices indulged in by the respondent are detrimental to public interest. He has relied on a letter dated January 21, 1987, received by the Director-General from the Reserve Bank of India. It refers to Section 45-S of Chapter III-C of the Reserve Bank of India Act, 1934, under which unincorporated bodies such as firms, individuals and unincorporated associations and individuals shall not from February 15, 1984, receive deposits from more than the number of depositors specified therein. The Reserve Bank of India also refers to the legal battle in which it has been locked with the unincorporated finance companies. Our attention has been particularly drawn to para. 4 of this letter which is reproduced below :
" On the basis of information about these four firms as available with us at New Delhi, we advise that M/s. Oriental Finance and Exchange Co. Madras, had obtained a stay order from the Madras High Court against the operation of the provisions of Chapter III-C of the Reserve Bank of India Act, 1934. Subsequently, the Reserve Bank got this order amended on the lines of the one passed by the Supreme Court on March 4, 1986, in the case of Kanta Mehta v. Union of India. In terms of the amended order of the Madras High Court, the said firm has been restrained from accepting further deposits and the Reserve Bank restrained from initiating penal measures including search and seizure of records and documents. Incidentally, there is another firm having a similar name, viz., M/s. Oriental Finance and Exchange Co., Madras, under the same management as that of M/s; Oriental Finance and Exchange Co., Madras. This firm, viz., M/s. Oriental Finance and Exchange Co., Madras, as also M/s. Travancore Finance and Exchange Co., Bombay, and M/s. Shalimar Financiers, Bangalore (along with several others), had filed writ petitions in the High . Court of Delhi but the same were dismissed by the said court. Of these, only M/s. Travancore Finance and Exchange Co., Bombay, has filed a special leave petition in the Supreme Court of India against the said judgment of the High Court of Delhi. Orders passed by the Supreme Court on Marclf 4, 1986, in the case referred to above, hold good in this case also. However, this firm has been frequently issuing advertisements in the leading newspapers soliciting deposits from the public. Our Central Office Cell, Bombay, in its letter dated January 6, 1987 (copy enclosed), has advised the firm that since it had gone against the orders of the Supreme Court, it was open to the Reserve Bank to initiate action against it under the provisions of Chapter III-C of the Reserve Bank of India Act, 1934. "
14. That such finance companies as the respondent are doing a positive disservice to the intending depositors can be seen from the following observations of the Supreme Court in the case of Reserve Bank oj India v. Peerless General Financed Investment Co. Ltd. [1987] 61 Comp Cas 663, 695 (SC):
" We would also like to query what action the Reserve Bank of India and the Union of India are taking or proposing to take against themush-room growth of finance and investment companies offering staggeringly high rates of interest to depositors leading us to suspect whether these companies are not speculative ventures floated to attract unwary and credulous investors and capture their savings. One has only to look at the morning's newspapers to be greeted by advertisements inviting deposits and offering interest at astronomical rates.....
Another advertiser offered interest ranging between 30% to 38% for periods ranging between six months to five years. Almost all the advertisers offered extra interest ranging from 3% to 6% if deposits were made during the Christmas or Pongal season. Several of them offered gifts and prizes. If the Reserve Bank of India Considers the Peerless Company with eight hundred crores invested in Government securities, fixed deposits with nationalised banks, etc., unsafe for depositors, one wonders what they have to say about the mushroom non-banking companies which are accepting deposits, promising most unlikely returns and what action is proposed to be taken to protect the investors. It does not require much imagination to realise the adventurous and precarious character of these businesses. Urgent action appears to be called for to protect the public. While on the one hand these schemes encourage two vices affecting public economy, the desire to make quick and easy money and the habit of excessive and wasteful consumer spending, on the other hand, the investors who generally belong to the gullible and less affluent classes have no security whatsoever. Action appears imperative. "
15. In view of what has been stated by the Director-General in its application under Section 12A, it is obvious that the unfair trade practices indulged in by the respondents in making high sounding and alluring claims about the deposit-receiving activities are prejudical to public interest. In this view of the matter, the case falls squarely within the ambit of Section 12A of the Monopolies and Restrictive Trade Practices Act.
16. We are also of the opinion that besides there being a prima facie case, the balance of convenience is against the respondent. In implementing an Act which has the interest of consumers at its heart, it is the convenience of the consumers that has to be kept uppermost in mind. "Their interest heavily tilts the balance of convenience against the respondents.
17. We also accept the Director-General's plea that an ex parte injunction is called for as delay would defeat the very purpose for which the injunction is sought. We, therefore, in exercise of the powers under section 12A( 1) and (2), issue ex parte interim injunction restraining the respondent from indulging in the unfair trade practices spelt out in the Director-General's application and discussed in this order.
18. In view of Rule 3 of Order XXXIX, Civil Procedure Code, a copy of this injunction order and a copy of the application for issue of injunction, shall be sent by registered post by the Director-General (Investigation and Registration) by tomorrow to the respondent and an affidavit of doing so shall be filed. A notice of the application for issue of injunction as well as injunction order should be communicated to the respondent by the office of the Commission itself.
19. We would like to clarify that what has been stated in this order will not prejudice the merits of the respondent's case in the main UTP Enquiry.
20. This matter will be taken up on April 21, 1987.