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Gopal K. Maheswari v/s Hawk Multimedia (P.) Ltd.

    Company Application No. HMP 1/58A(9)/SRB OF 2004

    Decided On, 12 October 2004

    At, Company Law Board Southern Region Bench Chennai

    By, K.K. BALU
    By, MEMBER

    K. Ramaswamy and Soy Joseph for the Respondent.



Judgment Text

1. The applicant has filed this application under section 58A(9) of the Companies Act, 1956 (?the Act?), seeking the following reliefs:


(i) to direct M/s. Hawk Multimedia Private Limited (?the Company?) and its directors to issue deposit receipts acknowledging the deposits accepted from the applicant;


(ii) to direct the respondents to repay the principal amount of the deposits together with the interest; and


(iii) to award cost and other expenses connected with filing of the application.


2. The facts, in brief, as set out in the application are that the Company engaged in multimedia activities has been promoted by the respondents 2 to 4. The second respondent is son of the applicant. The Company could not carry on its business with its existing share capital, compelling the directors to approach among others the applicant for financial assistance by way of fixed deposit, repayable with interest at 18 per cent per annum within a period of two years. Accordingly, the applicant had remitted an aggregate sum of Rs. 1,70,000 in three instalments, viz., Rs. 1,00,000 on 3-12-2001 and Rs. 35,000 on 25-6-2002 by way of cheques. Though these cheques were realized, the Company neither issued any fixed deposit receipts nor repaid the deposit amount, in spite of repeated demands made by the applicant. Hence, this application.


3. According to Shri K. Ramaswamy, Counsel appearing for the respondents 1, 3 & 4 the Company never accepted any deposit from the applicant and did not enter into any agreement with him for receipt of any money towards the deposit or to pay any interest or to issue any receipt for payment of the money. As the Company never took any loan from the applicant, his name nowhere appears in the annual accounts either as a creditor or depositor. The Company neither issued any receipt in accordance with the Companies (Acceptance of Deposits) Rules, 1975. Moreover, the Company never invited any deposit by way of advertisement from the public and neither received any deposit from the public, as borne out by the auditors report appended to the balance sheet of the Company for the year ended 31-3-2002 and 31-3-2003. The Company never accepted any money nor offered 18 per cent interest in favour of the applicant. The rules do not permit the acceptance of deposits carrying interest of 18 per cent per annum. The second respondent being one of the promoters of the Company and taking active participation in the affairs of the Company did not bring any money on his own, but contributed a sum of Rs. 1,35,000 through the applicant towards his share of the capital and unsecured loan of the Company. As the second respondent maintained the books of account of the Company, he accounted the receipt of Rs. 1,35,000 from his father towards the unsecured loan. The second respondent is no more a director of the Company. The Board of directors after adjusting the withdrawals made by the second respondent arrived at the amount of Rs. 33,411 payable as on 31-3-2003 in his favour of which a sum of Rs. 15,000 has already been paid on 9-8-2003. As on date, the Company has to pay only a sum of Rs. 18,411 to the second respondent and, therefore, no amount is payable to the applicant. The amount claimed by the applicant would at the most be unsecured loan for recovery of which the remedy is only before a civil court and cannot move the CLB invoking the provisions of section 58A. Shri Ramaswamy, learned Counsel, therefore, sought for dismissal of the application with exemplary costs.


4. The applicant in his rejoinder submitted that the Company repaid a sum of Rs. 15,000 by way of cheque representing interest and the Company is bound to repay the balance of principal amount together with interest as agreed. The documents produced by the Company are fabricated documents. The books of account were maintained only by the respondents 3 & 4. The balance sheets were not drawn in accordance with the provisions of the Act and contained several defects and, therefore, the documents produced by the Company must be ignored. In these circumstances, the Company shall repay the outstanding deposit amount with up-to-date interest at the contracted rate and costs.


5. The second respondent denying maintenance of accounts of the Company by him and questioning his removal from the office of director submitted that the amount received by the Company from the applicant falls within the meaning of deposit defined in the Companies (Acceptance of Deposits) Rules, 1975. The Company repaid a sum of Rs. 15,000 by way of cheque in favour of the applicant representing the interest payable by it. Therefore, the Company is liable to repay the entire principal amount and balance of interest at the rate of 18 per cent per annum. The second respondent further in his reply affidavit dated 21-8-2004 reiterated that he never maintained the books of account of the Company. The balance sheet of the Company signed by respondents 3 & 4 does not show him as director of the Company, even though he was one of the directors of the Company at the relevant point of time. Further, he pointed out several defects in the balance sheets produced before this Bench and contended that copy of the receipt given by the second respondent is a tampered one. According to the second respondent, the balance sheets of the Company are fabricated and they must be ignored by the CLB.


6. After considering the pleadings, oral submissions made on behalf of the Company and the written submissions and reply affidavits sworn by the applicant and the second respondent, the issue that arises for my consideration is whether the amounts taken by the Company from the applicant are ?deposits? within the purview of the provisions of section 58A. Section 58A containing 11 clauses deals with acceptance of deposits by a company from the public or its members. Sub-section (2) provides that no company shall invite, or allow any other person to invite or cause to be invited on its behalf any deposit unless such deposit is invited or is caused to be invited in accordance with the rules made under sub-section (1) of section 58A. The Companies (Acceptance of Deposits) Rules, 1975, have been framed in exercise of the powers conferred by section 58A read with section 642 of the Act. Sub-section (9) provides that where a company has failed to repay any deposit or part thereof in acceptance with the terms and conditions of such deposit, the Company Law Board, if it is satisfied, either on its own motion or on the application of the depositor may direct, by order, the company to make repayment of such deposit within such time and subject to such conditions as may be specified in the order. The Explanation at the end of section 58A as well as rule 2(b) of the Companies (Acceptance of Deposits) Rules, 1975 provide that ?deposit? means any deposit of money with, and includes any amount borrowed by a company but shall not include exempted categories of amount. The exempted categories are enumerated in the Companies (Acceptance of Deposits) Rules, 1975. The other clauses are not relevant for the purposes of these applications. Before proceeding further, it is relevant to consider the scope of section 58A. This section is limited to invitation and acceptance of deposits from the public or from the members of the company. The money received from the public or the members must be in the nature of ?deposit?. While, according to the applicant, the amounts accepted by the Company are deposits, it is contended by the Company that the amounts accepted by the Company are towards the share capital of the second respondent and unsecured loan. There is no material to show that the amounts were accepted by way of deposits to be repaid within two years together with interest at the rate of 18 per cent per annum. In order to attract section 58A, it is required to be seen whether the deposits are invited or accepted by the Company from the public or from its members in accordance with the Companies (Acceptance of Deposits) Rules, 1975. Rule 3(1)(c) prescribes payment of interest on any deposit not exceeding 15 per cent per annum. Every company intending to invite deposits from the public shall issue an advertisement in accordance with rule 4 or file a statement in lieu of advertisement as the case may be under rule 4(a). The auditors report forming part of the balance sheet for the years ended 31-3-2002 and 31-3-2003 unequivocally show that the Company did not accept any

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deposit from the public. By virtue of rule 5, no company shall accept, or renew any deposit, unless an application is made by the intending depositor for the acceptance of such deposit and such application shall contain a declaration by such depositor to the effect that the amount is not being deposited out of the funds acquired by him by borrowing or accepting deposits from any other persons. Every company should furnish to the depositor a receipt for the amount received by the Company in the manner prescribed under rule 6. None of these requirements is satisfied by the applicant as well as the Company, while accepting the money, which therefore, cannot amount to ?deposit? for the purposes of section 58A. The other contentions of the applicant and second respondent in regard to the Company?s affairs do not fall within the scope of section 58A. Accordingly, the application is dismissed. With these directions, the application stands disposed of.
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