Nivedita Sharma vs The Industrial Credit & ...
2011 Latest Caselaw 3165 Del

                                        REPORTABLE
*          IN THE HIGH COURT OF DELHI AT NEW DELHI

+          WRIT PETITION (CIVIL) NO.10517 OF 2009

                                            Reserved on : 29th March, 2011
%                                          Date of Decision: 7th July, 2011

NIVEDITA SHARMA                                        ....Petitioner
                             Through            In person.

                 VERSUS

THE INDUSTRIAL CREDIT & INVESTMENT CORPORATION OF
INDIA & ORS.                            ....Respondents

Through Mr. R.S. Suri, Sr. Advocate with Mr. Rahul Malhotra, Advocate for the respondent No.1.

Mr. A.S. Chandhiok, ASG with Ms. Reeta Kaul, Mr. Sandeep Bajaj and Ms. Riya Kaul, Advocates for UOI.

CORAM:

HON'BLE MR. JUSTICE DIPAK MISRA, THE CHIEF JUSTICE HON'BLE MR. JUSTICE SANJIV KHANNA

1. Whether Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not ? Yes.

3. Whether the judgment should be reported in the Digest ? Yes.

SANJIV KHANNA, J.:

The petitioner-Nivedita Sharma had invested Rs.26,000/- in

ICICI Bonds, 1996. She was issued five bonds of face value of

Rs.2,00,000/- each with maturity date 15th July, 2021, but with an

option for premature redemption. The bonds were in nature of deep

discount. The relevant clause relating to premature option for early

redemption reads as follows:-

"(2) Early Redemption.

The holder(s) of the Bond(s)/the Company shall have the option of Early Redemption of the Bond only at the date and at the Deemed Face Value mentioned below:

a) On July 15, 2001 for Rs.11,000

b) On July 15, 2006 for Rs.24,000

c) On July 15, 2011 for Rs. 50,000

d) On July 15, 2016 for Rs. 1,00,000 (3) Procedure for Redemption/Early Redemption by Bondholders.

The Bond Certificates, duly discharged by the Sole/all the joint-holders (signed on the reverse of the Bond Certificate) to be surrendered for Redemption on maturity or on Early Redemption should be sent by the Bondholder(s) by Registered Post with Acknowledgement Due or by hand delivery to the office of the Registrars/the Company or to such persons at such addresses as may be notified by the Company from time to time. Bondholders desirous of exercising the option for Early Redemption on any of the above dates should submit their requests in writing to the Company/Registrars or to such persons at such addresses as may be notified by the Company from time to time, along with the Bond Certificate

(s) duly discharged by Sole/all the joint-holders by signing on the reverse of the Bond Certificates not more than six months and not less than three months prior to the relevant date. The Bond holder will be entitled to receive the applicable Deemed Face Value only if the request is received in writing within the specified time. Upon the Bondholder(s) receiving the said amount on Redemption/Early Redemption, the liability of the Company hereunder shall stand extinguished.

(4) Procedure for Early Redemption by the Company In case the Company decides for an Early Redemption of Bonds. It will announce its intention to do so at least six months prior to the relevant date by giving a notice in the manner stated in (5) below.

(5) Notice All notices to the Bondholder(s) required to be given by the Company or the Trustees shall be deemed to have been given if published in one English and one regional language daily newspaper in Mumbai, Madras, Delhi, Calcutta Bangalore and Baroda and may, at the sole discretion of the Company or the Trustees, but without any obligation, be sent by ordinary post to the original sole/first allottee of the Bonds. Individual notices to Bondholders will not be given."

2. The petitioner on 2nd March, 2009 wrote to the Industrial Credit

and Investment Corporation of India for redemption of their bonds.

Correspondence was followed, but the respondent No.1 refused to

make the payment and informed the petitioner that they had exercised

the call option for early redemption in 2001. In the counter affidavit, it

is stated that they had published a notice exercising their early

redemption option in one English and one regional language

newspaper published from Mumbai, Madras, Delhi, Calcutta,

Bangalore and Baroda. Advertisements were published on 12th

January, 2001 in terms of the bond and the prospectus. The

bondholders were required to submit/tender the original bonds on or

before 31st March, 2001. As the petitioner had not submitted the bonds

for payment, reminder letters dated 12th October, 2001, 26th February,

2002, 21st November, 2003 11th May, 2006 and 15th May, 2008 were

sent to the petitioner and other bondholders, who had not surrendered

the bonds. These letters were sent at the last known address available

with the respondent No.1. The aforesaid letters, except the letter dated

15th May, 2008, were sent by ordinary post, but the letter dated 15th

May, 2008 was sent by the registered post. The petitioner at the time

when she had applied and allotted bonds was residing at C-742, New

Friends Colony, New Delhi-110065. She, however, changed her

address and shifted to A-30/9, DLF, Phase-I, Gurgaon, Haryana. The

petitioner has not placed on record any document or letter to show and

establish that she had written or informed the respondent No.1 about

the change of her address. There is nothing on record to doubt or

disbelieve the contention of the respondent No.1 that they had written

letters to all the bondholders, who had not surrendered the duly

discharged certificates/bonds for encashment.

3. As the petitioner did not submit the bond certificates even after

seven years of redemption, the respondent No.1 transferred the

maturity proceeds/redemption amounts under Section 205 C of the

Companies Act, 1956 (Act, for short) to the Ministry of Corporate

Affairs. The respondent No.1 has placed on record copy of the challan

dated 14th August, 2008 whereby they had transferred the total

unclaimed amount of Rs.14,37,32,595/-. The said amount becomes part

of the corpus of the Investors Education and Protection Fund. The

petitioner has challenged the constitutional vires of the said section

along with Section 205 A of the Act. The two provisions read as

under:-

"205A. Unpaid dividend to be transferred to special dividend account.--

(1) Where, after the commencement of the Companies (Amendment) Act, 1974, a dividend has been declared by a company but has not been paid or claimed within 3[thirty days] from the date of the declaration, to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid 4[or unclaimed] within the said period of thirty days, to a special account to be opened by the company in that behalf in any scheduled bank, to be called "Unpaid Dividend Account of ............ Company Limited/Company (Private) Limited".

[Explanation.--In this sub-section, the expression "dividend which remains unpaid" means any dividend the warrant in respect thereof has not been encashed or which has otherwise not been paid or claimed.]

(2) Where the whole or any part of any dividend, declared by a company before the commencement of the Companies (Amendment) Act, 1974, remains unpaid at such commencement, the

company shall, within a period of six months from such commencement, transfer such unpaid amount to the account referred to in sub-section (1).

(3) Where, owing to inadequacy or absence of profits in any year, any company proposes to declare dividend out of the accumulated profits earned by the company in previous years and transferred by it to the reserves, such declaration of dividend shall not be made except in accordance with such rules as may be made by the Central Government in this behalf, and, where any such declaration is not in accordance with such rules, such declaration shall not be made except with the previous approval of the Central Government.

(4) If default is made in transferring the total amount referred to in sub-section (1) or any part thereof to the unpaid dividend account of the concerned company, the company shall pay, from the date of such default interest on so much of the amount as has not been transferred to the said account, at the rate of twelve per cent per annum and the interest accruing on such amount shall ensure to the benefit of the members of the company in proportion to the amount remaining unpaid to them.

(5) Any money transferred to the unpaid dividend account of a company in pursuance of this section which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be transferred by the company to the Fund established under sub-section (1) of section 205C.

(6) The company shall, when making any transfer under sub-section (5) to the Fund established under section 205C any unpaid or unclaimed dividend, furnish to such authority or committee as the Central Government may appoint in this behalf a statement in the prescribed form setting forth in respect of all sum included in such

transfer, the nature of the sums, the names and last known addresses of the person entitled to receive the sum, the amount to which each person is entitled and the nature of his claim thereto and such other particulars as may be prescribed.

(7) The company shall be entitled to a receipt from the authority or committee under sub-section (4) of section 205C for any money transferred by it to the Fund and such a receipt shall be an effectual discharge of the company in respect thereof.

(8) If a company fails to comply with any of the requirements of this section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees for every day during which the failure continues.

205C. Establishment of Investor Education and Protection Fund.--

(1) The Central Government shall establish a fund to be called the Investor Education and Protection Fund (hereafter in this section referred to as the "Fund").

(2) There shall be credited to the Fund the following amounts, namely:--

(a) amounts in the unpaid dividend accounts of companies;

(b) the application moneys received by companies for allotment of any securities and due for refund;

(c) matured deposits with companies;

(d) matured debentures with companies;

(e) the interest accrued on the amounts referred to in clauses (a) to (d);

(f) grants and donations given to the Fund by the Central Government, State Governments, companies or any other institutions for the purposes of the Fund; and

(g) the interest or other income received out of the investments made from the Fund:

Provided that no such amounts referred to in clauses (a) to (d) shall form part of the Fund unless such amounts have remained unclaimed and unpaid for a period of seven years from the date they became due for payment.

Explanation.--For the removal of doubts, it is hereby declared that no claims shall lie against the Fund or the company in respect of individual amounts which were unclaimed and unpaid for a period of seven years from the dates that they first became due for payment and no payment shall be made in respect of any such claims.

(3) The Fund shall be utilised for promotion of investors' awareness and protection of the interests of investors in accordance with such rules as may be prescribed.

(4) The Central Government shall, by notification in the Official Gazette, specify an authority or committee, with such members as the Central Government may appoint, to administer the Fund, and maintain separate accounts and other relevant records in relation to the Fund in such form as may be prescribed in consultation with the Comptroller and Auditor-General of India.

(5) It shall be competent for the authority or committee appointed under sub-section (4) to spend moneys out of the Fund for carrying out the objects for which the Fund has been established."

4. The contention of the petitioner is that transfer of the maturity

proceeds adversely affected the right of the petitioner and others. The

amendment was made in Section 205 A and 205 C of the Act with

effect from 31st October, 1998 which is after the said bonds were

issued in 1996 and, therefore, cannot be given retrospective effect. It is

also contended that Section 205 C of the Act does not apply to

promissory notes, which are not covered by the said Section. It is

contended that the provisions of Section 205 A and 205 C are arbitrary

and violate Article 14 of the Constitution. In the rejoinder affidavit the

petitioner has contended that a huge corpus is accumulated in the

Investors Education and Protection Fund, but no steps are being taken

to utilize the said corpus.

5. We have examined the contentions raised by the petitioner. At

the very outset, it may be noticed that a challenge to vires of a statute

requires specific pleadings. This is missing in the present case. The

pleadings at best are vague and do not meet the prescribed standard

and legal requirements. Reference in this regard can be made to the

decision dated 30th July, 2010 in W.P.(C) No.8663/2008, Sunita

Bugga Vs. Director of Education and Ors., wherein it has been held:-

10. It is well settled in law that a person who assails the constitutional validity of an Act or a notification must specifically set forth the grounds

for such challenge. In this context, we may refer with profit to certain decisions in the field.

11. In State of Uttar Pradesh v. Kartaar Singh, AIR 1964 SC 1135, while dealing with the constitutional validity of Rule 5 of the Food Adulteration Rules, 1955, their Lordships opined as follows:-

"(15).....if the rule has to be struck down as imposing unreasonable or discriminatory standards, it could not be done merely on any a priori reasoning but only as a result of materials placed before the Court by way of scientific analysis. It is obvious that this can be done only when the party invoking the protection of Art. 14 makes averments with details to sustain such a plea and leads evidence to establish his allegations. That where a party seeks to impeach the validity of a rule made by a competent authority on the ground that the rules offend Art. 14 the burden is on him to plead and prove the infirmity is too well established to need elaboration."

12. In State of Andhra Pradesh and another v. K. Jayaraman and others, AIR 1975 SC 633, it has been stated thus:-

"3. It is clear that, if there had been an averment, on behalf of the petitioners, that the rule was invalid for violating Articles 14 and 16 of the Constitution, relevant facts showing how it was discriminatory ought to have been set out."

13. In Union of India v. E.I.D. Parry (India) Ltd., AIR 2000 SC 831, a two Judge Bench of the Apex Court has expressed thus:- "There was no pleading that the Rule upon which the reliance was placed by the respondent was ultra vires the Railways Act, 1890. In the absence of the pleading to that effect, the trial Court did not frame any issue on that question. The High Court of its own proceeded to consider the validity of the Rule and ultimately held that it was not in consonance with the relevant provisions of the Railways Act, 1890

and consequently held that it was ultra vires. This view is contrary to the settled law..."

14. In State of Haryana v. State of Punjab & another, (2004) 12 SCC 673, a two Judge Bench of the Apex Court has expressed thus:- "82..... It is well established that constitutional invalidity (presumably that is what Punjab means when it uses the word "unsustainable") of a statutory provision can be made either on the basis of legislative incompetence or because the statute is otherwise violative of the provisions of the Constitution. Neither the reason for the particular enactment nor the fact that the reason for the legislation has become redundant, would justify the striking down of the legislation or for holding that a statute or statutory provision is ultra vires. Yet these are the grounds pleaded in sub- paragraphs (i), (iv), (v), (vi) and (vii) to declare Section 14 invalid. Furthermore, merely saying that a particular provision is legislatively incompetent [ground (ii)] or discriminatory [ground (iii)] will not do. At least prima facie acceptable grounds in support have to be pleaded to sustain the challenge. In the absence of any such pleading the challenge to the constitutional validity of a statute or statutory provision is liable to be rejected in limine."

6. Section 205 C stipulates that the Central Government shall

create a fund called Investors Education and Protection Fund. Sub-

Section 2 stipulates what money/amount shall be credited to the said

fund. This includes unpaid dividend or unpaid application money,

which have become refundable, maturity proceeds of debentures as

well as matured deposits with company and interest accrued thereon.

For an amount to be transferred, it should have remained unclaimed

and unpaid for a period of seven years from the date they became due

for payment. Explanation to sub-section (2) to Section 205 C mandates

and clarifies that no claim shall lie against the fund or the company in

respect of individual amounts which were unclaimed and unpaid for a

period of seven years from the date they became due for payment and

no payment shall be made in respect of any such claims. Thus a

limitation period is provided. The limitation period is reasonable.

7. During the course of hearing, a contention was raised that a

premature or early encashment/redemption should not be covered by

Section 205 C of the Act. It is not possible to accept the said contention

as the language of the said provision is lucid and clear. Section 205 C

(2)(c) refers to matured deposits with a company. The term "matured

deposits" will mean all deposits, which have become due for payment.

Deposits which were payable, but had remained unclaimed for seven

years and, therefore, unpaid amounts had to be transferred to the fund.

The maturity date cannot be counted from the date when the bond was

to mature without taking into account the early redemption date. The

investors or public when they deposit the amount must stake their

claim within seven years, when the amount became payable. In case

they fail to make any claim within seven years they lose their right.

Once a right is lost, it is lost forever in view of the proviso to Section

205 C (2) of the Act. The proviso to Section 205 C (2) itself

specifically has not been challenged and no specific ground has been

raised. Even otherwise, we do not see any reason to strike down the

proviso. Once the money is transferred, it has to be utilized for the

purpose of the fund. It ceases to be the money of the company or the

depositor/creditor. The depositor/creditor loses his right because of the

period of limitation during which he is required to make the claim.

8. Section 205 C is a salutary and virtuous provision. It has been

enacted to ensure that a company does not unjustifiably and unduly

enrich themselves, as the depositors have failed to stake claim and

have not been paid for a period of seven years from the date the

amount became due. The word "unclaimed" used in the proviso to

Section 205 C (2) clarifies that in case a claim is made within a period

of seven years from the date amount became due and payable; the

money shall not be transferred to the said fund. Thus, if a person makes

a claim within a period of seven years, Section 205 C will not apply.

Period of seven years is substantially long. A depositor or a person

dealing with a company, therefore, should make a claim within a

period of seven years. In case he makes a claim, provisions of Section

205 C of the Act are not applicable and money cannot be transferred to

the fund. We do not see any reason to hold that the said provisions are

unconstitutional or they violate Article 14 or any other provisions of

the Constitution. It cannot be said that the aforesaid provisions are

faulty and violate the fundamental rights guaranteed in the

Constitution.

9. To strike down Section 205 C will amount to negating and

striking down a worthy and meritorious legislation which is on the

whole beneficial and advantageous and in public interest. The

petitioner is aggrieved because she did not stake her claim for refund

within seven years. She did not inform change of address and,

therefore, could not be communicated and informed about the

premature redemption. The petitioner also did not bother to read the

terms and conditions of allotment including the early redemption

clause. These are serious lapses on the part of the petitioner. It is

because of these lapses that the petitioner is in the present infelicitous

situation. However, these cannot be a ground to strike down Section

205 C, which has been enacted in public interest and has a public

purpose. Another contention during the course of arguments raised was

that forfeiture clause should be struck down as unreasonable. It is not

possible to agree with the said contention. The investors or public

when they deposit the amount must make a claim within seven years

otherwise they will lose their right to make the claim. Rules of

limitation are founded on consideration of public policy. The law of

limitation affords a guarantee and ensures that cause of action is not

raised after a lapse of particular period. Limitation is preventive and

not curative and seeks to give quietus to claims which have not been

enforced. It ensures that litigants are diligent in seeking remedies in

court and prohibits stale claims. It ensures promptitude and assist

vigilant persons who do not sleep over their rights. Laws prescribing

reasonable period of limitation have been upheld, though whenever the

period prescribed expires a claimant suffers, but this invariably

happens as the said litigant has been grossly negligent and has failed to

take steps. This has happened in the present case.

10. It is also not possible to accept the contention of the petitioner

that the Companies Act cannot deal with the deposits or promissory

notes. There is no such limitation or prohibition in the Companies Act.

Companies Act itself is a principal enactment and not a delegated

legislation.

11. The contention of the petitioner that Section 205 C has been

given retrospective effect has no merit. The aforesaid Section was

introduced by Companies Amendment Act, 1999 with effect from 31 st

October, 1998. The call option was exercised by the respondent in

January, 2001 and the bonds became due and payable in July, 2001.

The contention of the petitioner that they were not aware of this

provision also does not merit acceptance.

12. In view of the aforesaid analysis, we do not find any merit in the

present writ petition and the same is dismissed without any order as to

costs.

-Sd-

(SANJIV KHANNA) JUDGE

-Sd-

(DIPAK MISRA) CHIEF JUSTICE JULY 7, 2011 NA