S.2(31) Companies Act 2013 Which Defines 'Deposit' Does Not Operate Retrospectively: Delhi High Court

The Delhi High Court has held that there cannot be retrospective application of Section 2(31) of the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014.A single judge bench of Justice Chandra Dhari Singh held that for issues that had arisen with respect to a share purchase agreement in 2010, the Companies Act, 1956 and the Rules of 1975 shall be applicable.Briefly, the facts of the case are that the Petitioner paid Rs. 40,00,000/- to the Directors of Respondent Company for issuance of shares in the said company. The Respondent failed to allot the shares as promised and returned the money to the Petitioners. It is alleged that the Respondent Company failed to repay the interest accrued on the amount in question as per Rule 17 of the Companies (Acceptance of Deposits) Rules, 2014, which imposes a penal interest of 18% per annum on the deposits accepted by a private company from the public. Thereafter, the Petitioner approached the Registrar of Companies by filing an online complaint for non-compliance of the Rules and the recovery of the Interest amount. The petitioner alleged that despite the issuance of Show Cause Notice, no action was taken by the Respondent Company on the complaint filed by the Petitioner. Through the petition, the Petitioner prayed for directing the Registrar of Companies to prosecute the Respondent under Section 73 and 76A of the Act. The counsel for petitioner stated that the definition of the term "deposit" as per Section 2(31) of the Act and submitted that the term "deposit" included any receipt of money by way of deposit or loan or in any other form by a company. He added that Rule 2(1)(c) of the 2014 Rules defines the term "deposit" and excludes various amounts received by a Company from the ambit of Deposit which shall not be considered as deposits. He stated that, as per the provisions of Rule 2(1)(c)(vii) of the 2014 Rules, the money paid towards the share application for allotment was to be treated as deposits if the said money was not refunded within 60 days from acceptance. Accordingly, it was submitted that the money paid by the petitioner to the Respondent Company was hence qualified to be treated as deposits since no shares were allotted to him. Additionally, the petitioner submitted that the Respondent Company contravened Section 73 of the Act as per which private companies are prohibited from accepting deposits from the public. However, the Respondent Company had been accepting deposits from Public/Individuals beyond its objective specified in Memorandum of Association and without taking requisite permission and certification from the RBI and concerned government departments. The same, as per the petitioner, was not considered by the Registrar of Companies. Per Contra, the counsel for the Registrar of Companies submitted that the amount in question, given as share application money by the Petitioner, was returned without any interest by the to the Petitioner. Therefore, the amount in question was not due with the company and the dispute between the Petitioner and the Respondent Company was only limited to the extent of adjudicating whether there is any entitlement of interest on the amount in question available to the Petitioner. He further contended that Petitioner had given the amount in question for allocation of shares in the year 2010 which falls under the operation of Companies Act, 1956 read with Companies (Acceptance of Deposits) Rules,1975 and not under the the Companies Act, 2013 and Companies (Acceptance of Deposits) Rules, 2014. Thus, as per Rule 2(b)(vii) of the 1975 Rules, irrespective of the period for which shares are not allotted, any amount by way of subscriptions to any shares, pending the allotment of the said shares, shall remain excluded from the purview of "deposit".The respondents also highlighted a General Circular issued by the Ministry of Corporate Affairs on 30th March 2015, which stated that the amount received by a private company prior to 1st April 2014 shall be governed by the 1956 Act read with 1975 Rules and not under the 2013 Act and 2014 Rules subject to the condition that relevant private company shall disclose, in the notes to its financial statement for the financial year commencing on or after 1st April, 2014 the figure of such amounts and the accounting head in which such amounts have been shown in the financial statement.In this case, the court framed two questions that required determination- a) First, whether the Companies Act 2013 and the Companies (Acceptance of Deposit) Rules, 2014 were applicable on the amount in question and; b) whether the amount in question could be treated as "deposit".Here, the court opined that Section 2(31) of the Companies Act, 2013 that defines "deposit", came into force from 1st April 2014 and as such, could not be applied retrospectively for the share-purchase agreement between the Company and Petitioner that was entered into between the parties back in the year 2010. 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S.2(31) Companies Act 2013 Which Defines 'Deposit' Does Not Operate Retrospectively: Delhi High Court

Padmakshi Sharma

Companies (Acceptance of Deposits) Rules, 2014 also not applicable retrospectively.

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