In an important ruling, the Bombay High Court has held that inter-corporate loan given by one company to another registered under the Companies Act, would not amount to a "deposit" within the meaning and for the purpose of the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999.
A division bench of Justice Ranjit More and Justice NJ Jamadar was hearing a writ petition filed by one Ashish Mahendrakar, who was arraigned as an accused in a FIR lodged under sections 409, 420, 477(A), 120(B) of Indian Penal Code, 1860 and section 3 of MPID Act.
Birla Power Solutions Ltd. is a public listed company, registered under the Companies Act, 1956. During the period 2009 to 2013, the company had accepted the deposits; including a deposit of Rs.1 crore from Shri Hajarimal Somani Memorial Trust, on March 9, 2012 to be repaid along with interest at 10.75 % per annum. The date of maturity was March 8, 2013.
However, the Company committed a default in repayment of the said amount along with interest. According to the complainant, Company had accepted deposits from thousands of investors. Hence, Bhagwan Suryakant Seth lodged a first information report against the Company and its Chairman Managing Director and other Directors.
The petitioner was an authorised signatory in the said Financial Establishments namely Birla Power Solutions Ltd., Birla Shloka Edutech Ltd., Zenith Birla (India) Ltd., and Birla Cotsyn (India) Ltd. and has executed important documents of those companies in the said capacity. Thus, he was arraigned as accused in the case.
The investigation came to be transferred to Economic Offences Wing, Unit 4 and the crime was registered. After completion of investigation, the chargesheet came to be lodged on March 29, 2014.
Senior Advocate Kevic Setalvad appeared for the petitioner and submitted that stated object of the MPID Act was to address the mischief of swindling the deposits collected from public, mostly middleclass and poor people, on the promise of unprecedented higher rates of interest or rewards. It was never intended to govern the intercorporate debts or transactions, which form a class apart by themselves.
Secondly, it was submitted that the said area of intercorporate transactions has not been left unregulated. There are efficacious and adequate provisions in the Companies Act, 2013. For example, Chapter V of the Act, 2013 subsumes provisions to regulate the acceptance of deposits from public under the title "acceptance of deposits by Companies". Even provisions for damages for fraud and punishment for contravention of the regulatory provisions have been made therein.
Thirdly, it was submitted that the provisions of the MPID Act cannot be so construed as to override the provisions of the Companies Act, Rules framed thereunder, and other Central legislations, in view of the object with which the MPID Act was enacted by the State Legislature.
After examining the Companies Act, Court observed-
"Under the Companies (Acceptance of Deposits) Rules, 2014, also like the Rules 1975, 'deposit' does not include, interalia, any amount received by a Company from any other company. Thus, under the Old Companies Act as well as the Companies Act, 2013 and the Rules framed thereunder, the amounts received by one company from any other company were excluded from the term 'deposit' for the purpose of regulation of acceptance thereof."
The bench referred to the Supreme Court's decision in Horizon Sugar Mills Limited Vs. Government of Pondicherry through Additional Secretary & Anr wherein the validity of wherein Pondicherry Protection of Interests of Depositors in Financial Establishments Act, 2004 was challenged.
In the said judgment, Supreme Court observed that the object of the three enactments in the states of Maharashtra, Pondicherry and Tamil Nadu were identical, namely, to protect the interests of small depositors from fraud perpetrated on unsuspecting investors, who entrusted their life's savings to unscrupulous and fraudulent persons. It was further observed that those enactments were framed to safeguard the interests of the common citizens against exploitation by unscrupulous financial establishments mushrooming all over the country.
Court then determined whether MPID Act equally professes to protect the interest of corporate depositors –
"With key personnel, like directors and professional managers, a company is not expected to be easily lured by a mere promise of a higher percentage of return on investments, unlike an unsuspecting small time depositor….
To put it in other words, in our view, the persuasive compulsion of an irresistible offer does not lead to a blindfold investment by one company in another company. Nor a company is afflicted by the same degree of lack of information which an individual depositor may have to suffer. The company, which operates in a fiercely competitive financial market, is supposed to be equipped to make a prudent business decision."
Thus, Court held that the intercorporate deposit/loan, i.e., a loan advanced/ deposit made by a company with another company registered under the provisions of the Companies Act would not amount to a "deposit" within the meaning and for the purpose of the MPID Act.
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