Every now and then, we come across cases involving public limited companies failing in their obligation to repay the deposits taken from investors. Presently, well-known companies like Helios & Matheson, Jaypee Associates and several others have badly let down thousands of small investors spread across the length and breadth of the country as they have failed to return the deposits due for repayment. Many of these companies have even failed to pay the interest due on those amounts.
A common question that is being raised by all the depositors is as to what are the options available to them for seeking relief against the defaulting companies so as to recover the amount due to them. They also want to know how to bring to book such companies and their directors who have virtually committed a fraud on investors, particularly as most of the depositors are small investors and don’t have the wherewithal to fight these large companies.
At the outset, it may be stated that in principle the Central Government treats the issue relating to acceptance and repayment of deposits very seriously and this is evident from the provisions in the Companies Act, 1956 (old Act) and 2013 (new Act). In fact, the new Act has imposed several conditions for acceptance or renewal of deposits including rating, creation of charge and providing insurance.
The provisions relating to acceptance and repayment of deposits under the new Act came in to force with effect from 1 April 2014. There have been significant changes effected in the new Act and the rules applicable to deposits. Companies that are unable to comply with these changes have no option but to refund the amount to the depositors as per the original terms and conditions subject to which the deposits were accepted by the company.
The issue on hand concerns few companies who had accepted deposits under the old Act and have now failed to repay the deposits in accordance with the terms of acceptance. In other words, all those companies who have committed default and are liable for action. Therefore, the question that needs consideration is as to what are the options available to an aggrieved depositor.
There are multiple options available to depositors who have to recover their amounts from the defaulting company. Under the Companies Act, 2013 a depositor is free to file an application under sub-section (4) of section 73 of the said Act, with the Company Law Board if the company fails to make repayment of deposits accepted by it.
In fact, the said sub-section (4) clearly stipulates that when a company fails to repay the deposit or even a part of the deposit or any interest on such a deposit, the depositor concerned has a right to apply to the Tribunal (Company Law Board for the time being) seeking an order directing the company to pay the sum due to the depositor. He can also seek any loss or damage incurred by him as a result of such non-payment.
A depositor can also approach the District Forum or State Consumer Commission seeking redressal of his grievance. There has been a debate as to whether a person who gives money by way of deposit to a company under the Companies Act can be treated as a ‘consumer’ in terms of the provisions of the Consumer Protection Act. There have been contrary views and at one time, even the National Consumer Disputes Redressal Commission (National Commission) was of the view that a depositor who gives deposit to a company is not a consumer.
However, the above issue now stands more or less settled with the National Commission upholding the right of a person to seek redressal as consumer under the Consumer Protection Act against the defaulting company to whom he had given a deposit.
In M/s. Sunita Jain v/s Modern Threads (India) Ltd, decided on 16 January 2014, the decision of the National Commission rendered earlier in Mahesh Chandra Sharma Vs. M/s. Modern Threads (India) Ltd, decided on 10 October 2007 was quoted. Therein it was held that deposits made with the Company cannot be termed as loan and complaints were maintainable before the Consumer Fora.
Therefore, in view of the foregoing it would be possible to approach the Consumer Fora for seeking redressal against the defaulting companies. Though there is every possibility of the companies contending that a depositor is not a consumer under the Consumer Protection Act, but that argument will have to be rebutted effectively.
Aggrieved depositors can approach the Company Law Board seeking an order directing the company to repay the deposit and interest payable thereon for which the Board may draw up a schedule.
So far as criminal prosecution is concerned, unfortunately the relevant provisions in sections 74, 75 & 76A have not been made operational as the Tribunal is yet to be constituted by the Government.
However, prosecution may also be launched under the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999 which has some stringent provisions. Though this Act refers to ‘Financial Establishment’ which has been defined as any person accepting deposit under any scheme or arrangement or in any other manner; it excludes a corporation, a co-operative society owned or controlled by any State Government or the Central Government and a banking company. In the past action has been taken under the said Act by the State Government against companies defaulting in repayment of deposits.
The tragedy of our country is that invariably, the victims are made to suffer, while the culprits go almost scot-free. It is going to be a long haul for depositors to bring these companies to book and recover their monies from the defaulting companies.
(
Dr SD Israni is a corporate lawyer and a qualified company secretary has over three decades of experience in corporate, commercial and securities laws. He was a member of the Naresh Chandra Committee for simplification of company law and has been on SEBI’s committee on disclosures and the one on buy-back of shares.)
Now 3 months back we depositors about 2000 of us invested in The Madras Pursawalkam Hindu Janopakara Saswatha Nidhi in Vellala Street, Pursawalkam for about Rs.103 Crores not getting interest nor matured deposits. This Nidhi which is over 123 years old is trusted and most are senior citizens and was well run till 1998-99 when due to staff strike and some irregularities in loans was closed and opened with Administrator Mr. Saravanan Ramalingam and he has been acting since then till he brought the losses from profit of Rs.15 lakhs to present loss of Rs.53 Crores as per available balance sheet of 31.3.2020. He appointed one Mr. Ilamurugan as assistant and myself a Chartered Accountant observe serious irregularities like no Bank A/C for Rs.2.83 Crores said to have been deposited but no such account and Interest receivable on loans debited to Interest paid on deposits etc., Please show a way for recovery and EOW with whom we approached number of times is delaying for over 5 months for various complaints filed and no response from RBI. Presently one Mr.Sudanthiram a retired judge is appointed and taken charge a fortnight ago says there is only mismanagement and no misappropriation. Now it appears he says he will try for one more month and if no improvement he will surrender the keys to Court. All are of middleclass and mostly senior citizens. Kindly advice as to how to approach for the remedy. The present Commissioner Mr.Sudandiram is getting the repayment of Jewel Loan which may be enough for his salary and other staff who have joined him
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