Company Law Board
Deepak Jain vs Vijaya Leasing Ltd. on 5 September, 2002
ORDER
K.K. Balu, Member
1. The debenture holders in Vijaya Leasing Limited ('VLL') and M/s. Vijaya Commercial Credit Limited ('VCCL') (collectively referred to as 'the Companies') have filed these applications under Section 117C of the Companies Act, 1956 ("the Act") submitting that the Companies have failed to repay the debenture amount aggregating Rs. 3,94,000 together with interest as per details given in Annexure forming part of this order. 'VLL' and 'VCCL' belong to the same group of companies and all the applications relate to non-payment of debenture amount by the Companies. Therefore, these applications have been heard together and disposed of by this common order.
2. According to Shri S. Srinivasan, Practising Company Secretary and Authorised Representative of the Companies, Section 117C has been inserted by the Companies (Amendment) Act, 2000 with effect from 13-12-2000. Prior to the Amendment Act, 2000 there has been no such provision for creating debenture redemption reserve to safeguard the interests of debenture-holders. He pointed out that Sub-section (1) of Section 117C stipulates the following:--
(i) Create a debenture redemption reserve for the redemption of debentures issued by the Company after the commencement of the provisions of Section 117C.
(ii) Redemption reserve should be created from out of the Company's profits of every year.
(iii) The reserve so created should be credited with adequate amount.
(iv) The reserve so created should remain until such debentures are redeemed.
Where a company fails to redeem debentures issued on or after the commencement of the Companies (Amendment) Act, 2000 against which debenture redemption reserve is created, the provisions of Sub-section (4) are attracted. The term "debentures" used in Sub-section (4) effectively means those debentures referred to under Sub-section (1). Shri Srinivasan referred to a Press release dated 26-4-2001 issued by the Press Information Bureau and a Circular No. 9/2002 dated 18-4-2002 issued by Department of Companies Affairs in the matter of creation of debenture redemption reserve as contemplated under Section 117C. According to the Press release publishing the statement made in the Lok Sabha by the Minister of Law, Justice and Company Affairs, Shri Srinivasan pointed out that Section 117C takes effect only from the date of commencement of the Companies (Amendment) Act, 2000. He further pointed out that the clarification issued by Department of Company Affairs in its circular dated 18-4-2002 to the effect that Section 117C will apply to debentures issued and pending to be redeemed and as such debenture redemption reserve is required to be created for debentures issued prior to 13-12-2000 and pending redemption, is not in supersession of the Government of India Press release dated 26-4-2001. In the circumstances, Section 117C has only a prospective application. Consequently, the debentures covered by these applications do not fall within the ambit of Section 117C. Therefore, the applicants should approach a competent court of law and not the Company Law Board. Shri Srinivasan further pointed out that Section 117C creates a new liability to the company to create security and debenture redemption reserve and provides for relief to the debenture holder, opening a new avenue to seek repayment of the matured debenture amount by making an application to the CLB. This provision will be applicable to such debentures issued after commencement of the Amendment Act, 2000 and cannot operate retrospectively. Section 117C will have prospective application as in the case of other provisions like 17A, 58AA, 68B, 205(1A), 207, 224(8), 274(1)(g) and 292A. According to him, Section 117C is analogous to the first proviso to Section 67, which is applicable prospcctively. In regard to the rule of interpretation, Shri Srinivasan urged that if there are two possible constructions, the normal rule of interpretation would be to apply it prospectively. In this connection, he relied on Govinddas v. ITO AIR 1977 SC 552 to show that if an enactment is expressed in a language which is fairly capable of either interpretation, it ought to be construed prospectively. A Statute cannot be given retrospective operation, so as to impair an existing right or create new obligation or impose a new liability in support of which he relied on Mithilesh Kumari v. Prem Behari Khare AIR 1989 SC 1247 and R. Rajagopal Reddy v. Padmmi Chandrasekharan AIR 1966 SC 239. Shri Srinivasan further urged that Statutes which are merely declaratory or which relate to matters of procedure or of evidence they may have retrospective effect. It is a fundamental rule of law that no Statute should be construed to apply retrospectively unless it is expressly or by necessary implication made to have retrospective operation, in support of which he relied on State of Madhya Pradesh v. Rameshwar Rathod AIR 1990 SC 1849. He further referred to Garikapati Veeraya v. N. Subbiah Choudhary AIR 1957 SC 540 to show that "the golden rule of construction is that, in the absence of anything in the enactment to show that it is to have retrospective operation, it cannot be so construed as to have the effect of altering the law applicable to a claim in litigation at the time when the Act was passed". For these reasons, Shri Srinivasan sought for dismissal of the applications.
3. According to Shri B. Ravi, Practising Company Secretary and Authorised Representative of the applicants (CA Nos. VLL1 and 2/2002), Section 117C is intended to protect the interests of debenture holders and applicable in respect of all debentures, whether issued prior or after the introduction of the Amendment Act, 2000. In this connection, he referred to the Notes on Clauses, viz. Clause 161 of the Companies Bill, 1993 and Clause 105 of the Companies Bill, 1997 to show that the intention of the framers of law and purpose of introducing Section 117C. The Notes on Clauses do not indicate that the CLB can be moved only in case of debentures issued after 13-12-2000. Shri Ravi pointed out that Section 117C starts with the words "where a company issues debentures after the commencement of this Act", i.e., the Companies Act, 1956, in which case this provision is applicable to all debentures issued after the commencement of the Act, 1956 and not in respect of debentures issued after the commencement of the Amendment Act, 2000. In this connection, Shri Ravi distinguished the provisions of Section 117C from Sections 276, 277 and 43A(2A), which are applicable after the commencement of the Companies (Amendment) Act, 2000. He further referred to the circular dated 18-4-2002 issued by Department of Company Affairs to show that Section 117C will apply for debentures issued prior to 13-12-2000. By virtue of Sub-section (4) of Section 117C, the CLB is empowered to entertain applications from debenture-holders in the event of a company fails on the date of maturity to redeem debentures whether issued prior or after the Amendment Act, 2000. Shri Ravi pointed out that Section 117C has been introduced to rescue debenture-holders on account of the default made by the Company, in which case the provisions should be construed retrospectively, in support of which he relied on The State of Bombay v. Vishnu Ramchandra AIR 1961 SC 307 to show that "scores of Acts are retrospective, and may without express words be taken to be retrospective, since they are passed to supply a cure to an existing evil". He referred to the decision in State of West Bengal v. Subodh Gopal Base AIR 1954 SC 92 to show that the statement of objects and reasons can be referred to for the purpose ascertaining the extent and urgency of the evil to be remedied by a Statute. According to him, it is well settled that when the words used in the provision are clear and unambiguous heading or sub-heading prefixed to Sections need not be referred to as an aid in construing the provisions, as has been held in Frick India Ltd, v. Union of India AIR 1990 SC 689. He further pointed out that the Court should look into the purpose and history of the legislation and also the background and circumstances, which lead to the passing of an enactment before coming to conclusion whether any Statute is retrospective in operation. In this connection, he relied on Sanghvi Jeevraj Ghewar Chand v. Secretary, Madras Chillies, Grains and Kirana Merchants Workers Union AIR 1969 SC 530, Shri Ravi, therefore, emphasised that Section 117C operates retrospectively, that the application is maintainable in respect of the subject debentures which remain unpaid and that the Company may be directed to redeem the same forthwith.
4. I have considered the pleadings and submissions, both oral and written, made on behalf of the Companies as well as the applicants. The issue that arises for my consideration is whether Sub-section (4) of Section 117C empowers the CLB to entertain applications from debenture holders in the event of a company fails on the date of maturity to redeem debentures issued prior to the Companies (Amendment) Act, 2000.
5. The facts not in dispute are that the debentures covered by the application in CA No. VLL 1/2002 were allotted on 21 -2-2000, debentures covered by the applications in CA No. VLL 2/2002 on 28-9-1998, debentures covered by the applications in CA Nos. 3 & 4/2002 were issued on 30-6-1998. These debentures were to be redeemed after a period of 18 months from the date of allotment. "VLL" has not redeemed them. The debentures covered by the applications in CA Nos. VCC 1 to 3/2002 were allotted on 20-6-1998. These debentures should be redeemed at par in full at the end of the fifth year from the date of allotment. However, the debenture-holders have the right to get the debentures redeemed before maturity any time after completion of six months from the date of allotment. The applicants have exercised the put option claiming the debenture amount in accordance with the terms and conditions of the debenture certificate. "VCCL" has partly redeemed the debenture covered by the application in C.A. No. VCC 3/2002. While the Companies contend that the applicants cannot invoke the provisions of Section 117C(4), it is opposed by the applicants. I shall now proceed to consider the claim and counter claim of the parties.
6. Section 117C, containing five Sub-Sections, has been inserted by the Amendment Act, 2000 with effect from 13-12-2000. Sub-section (1) provides that where a company issues debentures after commencement of this Act, it is required to create, out of its profits, every year, debenture redemption reserve, equal to the value of debentures issues until such debentures are redeemed. According to Sub-section (2) the reserve, so created, is required to be utilized only for the repayment of debentures on their maturity and it cannot be utilized for any other purpose. Sub-section (3) stipulates that the debentures must be redeemed in accordance with the terms and conditions of the issue. Sub-section (4) provides that in case of default in redeeming the debentures on the date of maturity, the CLB may, on an application made by debenture-holders, after hearing the Company and debenture-holder by an order may direct the Company to redeem the debentures forthwith by payment of the principal amount and interest due thereon. By virtue of Sub-section (5) any default for non-compliance of the orders of the CLB attracts punishment with imprisonment up to three years and fine of not less than five hundred rupees for each day of default. A plain reading of Section 117C shows that Sub-section (4) is an independent one and will cover debentures which remain unredeemed by a company, as on the date of insertion of Section 117C, i.e., 13-12-2000 and debenture-holders can now approach the CLB in case of default by the company in payment of interest or principal amount. Section 117C(4) does not make any distinction in regard to relief against non-payment of principal amount of debenture or interest due after due date by the company, whether issued prior or after insertion of Section 117C. In my view, there cannot be two classes of debenture-holders, one class claiming relief before the CLB and the other before the civil courts. It will not be out of context to refer to Clause (d) of the Circular No. 9/2002 dated 18-4-2002 of Department of Company Affairs relied by both sides, which reads as under:--
"d. Section 117C will apply to debentures issued and pending to be redeemed and as such DRR is required to be created for debentures issued prior to 13-12-2000 and pending redemption subject to clarifications issued herein."
It is, therefore, clear that debenture redemption reserve is required to be created for debentures issued prior to 13-12-2000 and pending redemption, in which case, the CLB will have jurisdiction in respect of such debentures also. The plea of Shri Srinivasan that the circular dated 18-4-2002 of Department of Company Affairs has not superseded the Press release dated 26-4-2001 and consequently Section 117C has only a prospective application does not merit any consideration. Section 117C is free from any ambiguity and needs no comparison with other provisions of the Act. The language of the provisions of Section 117C is plain and unambiguous leaving no scope for two possible constructions, as to whether the provisions are applicable prospectively or retrospectively. This does not also create new obligation or impose a new liability upon a company. The liability arises, when debentures are issued. Moreover, the Act provides relief to debenture-holders in case of default by a company in payment of interest or principal amount, after due date. Therefore, the decisions cited by Shri Srinivasan are not applicable in the facts and circumstances of the present case. It is relevant to look into Sub-section (9) of Section 58A of the Act. Sub-section (9) inserted by the Companies (Amendment) Act, 1988 with effect from 1-9-1989 gives powers to the CLB to act suo motu, or on the application of any depositor or depositors, in case of delay in repayment of deposits after the date of maturity. The clarification issued by the Department of Company Affairs in relation to Sub-section (9) of Section 58A assumes importance, relevant portions of which reads as under;--
"...In order to protect the interests of the depositors, Section 58A of the Companies Act, 1956 has been amended by the Companies (Amendment) Act, 1988. The provisions of Sub-section (9) of this Section empower the Company Law Board to direct a company to make repayment of deposits within such time and subject to such conditions, as may be specified in the order, after giving a reasonable opportunity of hearing to the Company and the other persons interested in the matter. The amended provisions have come into force with effect from September 1, 1989. The aggrieved depositors, whose deposits had matured before of after September 1, 1989, and who have not been repaid, may make an application (in triplicate) through the Company Law Board Bench..."
Section 45QA of the Reserve Bank of India Act, 1934 also throws light in determining the issue in question. The CLB has been empowered by the insertion of Section 45QA in the RBI Act, 1934 by the RBI Amendment Act, 1997, which came into effect from 9-1-1997 to order repayment of deposits. The CLB in exercise of its powers under Section 45QA(2) has directed the companies in a large number of cases for repayment of deposits accepted prior to the amendment but matured before or after 9-1-1997. The CLB has further exercised its suo motu powers in such cases. Moreover, the provisions of Section 117C(4) being analogous to Sections 58A(9) and 45QA(2), are beneficial provisions intended to protect the interests of debenture holders. Such a provision, in my view, should be exercised in favour of such aggrieved investors. Therefore, the plea of the Companies must fail.
7. Taking into account the facts and circumstances of the case, submissions of the authorized representatives of both sides and the legal position stated supra, I am of the considered view that the provisions of Section 117C(4) are applicable to all debentures whether issued prior or after the introduction of the Amendment Act, 2000, i.e., 13-12-2000 and pending redemption. In view of this, the Companies are directed to redeem the debentures covered by these applications by payment of the principal amount and interest due thereon not later than 30-9-2002.
8. No order as to costs.