The Single Bench of the Delhi High Court in the case of Nitin Rekhan vs Union of India & Ors.consisting of JusticeChandra Dhari Singhopined that Section 2(31) of the Companies Act, 2013 that defines “deposit”, came into force from 1stApril 2014. So, it cannot be applied retrospectively for the share-purchase agreement between the Company and Petitioner in the year 2010 even before the commencement of the 2013 Act and its provisions.
Facts
The Petitioner is a businessman by profession whereas the Respondent No.3 is a private limited company engaged in the business of Real Estate.The Petitioner had paid Rs. 40,00,000/- (“amount in question”) to the Company’sDirectors for issuance of shares. The Respondent No.3 Company failed to allot the shares as promised and returned the money but failed to include the interest accrued on the amount in question as per Companies (Acceptance of Deposits) Rules, 2014 and Rule 17 of the Companies (Acceptance of Deposits) Rules, 2014.
Procedural History
The Petitioner filed a complaint before the Registrar of Companies (Respondent No.2) for non-compliance of the Companies (Acceptance of Deposit) Rules, 2014 by Respondent No.3 Company and for the recovery of the InterestAmount. The Deputy Registrar of Companies, Delhi issued a Show Cause Notice to the Respondent No.3 Company. Despite such issuance, no action was taken by the Respondent Company on the complaint. The Petitioner also preferred a private complaint u/s 200 of the Code against Respondent No.3 and others including the Respondents No.1 and 2 for not having taken any action against Respondents No. 3 to 7 as per the law u/s 73 and 76A of the Companies Act, 2013. Via this petition, the Petitioner prayed for passing appropriate orders and direction to the respondent No. 2 to do their duty as per law, to prosecute Respondents No.3 to 7 u/s 73 and 76A of the Companies Act, 2013 and to take appropriate action on the complaint filed by the petitioner.
Contentions Made
Petitioner: Respondent No.7 and the auditors of Respondent No. 3 Company acting in connivance with the Respondent No. 3 Company and other key managerial persons have been involved in fraudulent activities in violation of the provisions of the Companies Act, 2013. Delay in enquiry and investigation by the Respondent No. 2 is acting as a shield for the Respondent No. 3 Company.Section 2(31) of the Companies Act, 2013 defines the term “deposit” as including any receipt of money by way of deposit or loan or in any other form by a company. Reliance was also placed on Rule 2(1)(c) of Companies (Acceptance of Deposit) Rules, 2014. Respondent No. 3 Company has failed to return the statutory interest payable to the petitioner as per the Rule 17 of the Companies (Acceptance of Deposits) Rules, 2014 which imposes a penal interest of 18% per annum.
Respondent: 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, not under the Companies Act, 2013 and Companies (Acceptance of Deposits) Rules, 2014, as per which any amount by way of subscriptions to any shares, pending the allotment of the said shares, shall remain excluded from the purview of “deposit”.With regard to the investor complaint filed by the Petitioner, two letters had been sent to the company, however, no response has been received.The letters were sent as a matter of practice even though the office cannot enforce the matter sought by the complainant as the same is outside the jurisdiction of Respondents No. 1 & 2.
Observations of the Court
Regarding the issues that whether the Companies Act 2013 and the Companies (Acceptance of Deposit) Rules, 2014 was applicable on the amount in question and if the amount in question can be treated as “deposit”, the Bench noted that since Section 2(31) of the Companies Act, 2013 that defines “deposit”, came into force from 1stApril 2014, it cannot be applied retrospectively for the share-purchase agreement dated 2010 between the Company and Petitioner, even before the commencement of the 2013 Act. Also, the Companies (Acceptance of Deposits) Rules, 2014 came into force on 1stApril 2014. Therefore, the said Rules of 2014 can also not be applied on the amount in question. Moreover, it was noted that as per Rule 2(b)(vii) of Companies (Acceptance of Deposits) Rules, 1975 read with General Circular No. 15/2015, the share application money given by the Petitioner for allotment of shares cannot be treated as “deposits”. Therefore, as such, the question of applicability of penal interest does not arise.
It was also noted that the inaction of the Office on the said letters was due to the fact that the prayers contained therein were outside the jurisdiction of Respondents No. 1 & 2.
Judgment
The Bench concluded that no case for exercise of writ jurisdiction was made out. Hence, no cause of action arose against the Respondents No. 1 & 2, Ministry of Corporate Affairs and Registrar of Companies, for adjudication between a matter pertaining to the private contract between two individual parties.It was also held that the Petitioner was free to explore and pursue other legal remedies for recovery of interest or any dues due to him on the part of Respondent No. 3 Company. In such terms, the petition was dismissed.
Case:Nitin Rekhanvs Union of India&Ors.
Citation: W.P. (Crl.) 559/2020
Bench: Justice Chandra Dhari Singh
Decided on: 15th July 2022
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