Case: Raymond Synthetics Limited and Others Vs. Union of India and Others

and these two circumstances can never be imagined to be unforeseen circumstances. We need not examine the claim as to whether the two circumstances were unforeseen circumstances which prevented the Company from completing the process of refund of money. We will assume that the Company was prevented from completing the process of refund within the stipulated period and then examine as to whether doctrine of impossibility of performance can be invoked in the facts and circumstances of the case. Shri Nariman referred to the passage in Brooms Maxims to the following effect :"The law itself and the administration of it, said Sir W. Scott, with reference to an alleged infraction of the revenue laws, must yield to that to which everything must bend, to necessity; the law, in its most positive and peremptory injunctions, is understood to disclaim, as it does in its general aphorisms, all intention of compelling to impossibilities, and the administration of laws must adopt that general exception in the consideration of all particular cases..... It is, then, a general rule which admits of ample practical illustration, that impotentia excusat legem; where the law creates a duty or charge, and the party is disabled to preform it, without any default in him, and has no remedy over, that the law will in general excuse him; and though impossibility of performance is in general no excuse for not performing an obligation which a party has expressly undertaken by contract, yet when the obligation is one implied by law, impossibility of performance is a good excuse."Shri Nariman submitted that the Company was impossible to perform the obligation to refund the excess amount within the stipulated period and therefore, should be relieved of the liability to pay interest as prescribed under sub-section (2-A) of section 73 of the Companies Act. We are unable to find any merit in the submission. We are not sure whether the Company was prevented from performing the obligation for two excuses set up by the Company, but even assuming that these two reasons are sufficient to lead to the conclusion that the Company was unable to perform the obligation to refund the excess amount for reason beyond their control, still the doctrine of impossibility of performance is not attracted to the facts of the present case. In our judgment, the Court should invoke the doctrine only in cases where the absolute nature of obligation leads to the harshness or adversely affects the party who has to carry out obligation and further leads to injustice. On the facts of the present case we have no hesitation in concluding that the obligation to pay interest costs no hardship whatsoever to the Company, but permitting the Company to retain the excess amount beyond the stipulated period without payment of interest would certainly cause serious prejudice to the interest of the investor. Shri Nariman submitted that sub-section (3) of section 73 requires the Company to keep all the moneys received in pursuance of prospectus in a separate bank account and sub-section (3-A) does not permit utilisation of that money for any purpose other than adjustment against allotment of shares or repayment of moneys. The learned Counsel urged that as the Company had not earned any interest on the excess amount which was required to be repaid within the stipulated period, the obligation to pay interest caused hardship. The submission is not correct. It is not necessary for the Company to keep the amount locked up in the account in pursuances of provisions of sub-section (3) of section 73. The Reserve Bank of India had issued circular dated July 13, 1990 to all scheduled commercial Banks in regard to the application moneys for issued of shares, debentures etc. and utilisation thereof. The circular recites that earlier the Banks were advised that Company should not be permitted to utilise the subscription moneys for any purpose other than those specifically mentioned in section 73(3-A) of the Companies Act. The circular then recites that it is permissible for the Banks to invest on request of the Company the application moneys received in interest bearing short term deposits. The short-term deposits are to be allowed interest at the rates prescribed in the directives of the Reserve Bank on interest rates for the relevant periods. This circular makes it extremely clear that it is open for the Company to request the bankers to invest the amount received from the investor in interest bearing short term deposits and the Company will certainly earn interest. It is therefore futile to suggest that the amount which is required to be refunded to the investor lies locked up in the account and would not confer any benefit upon the Company. The Company would certainly enjoy the benefit of earning interest by keeping the amount in the interest bearing short term deposits. Shri Bhabha submitted that the amount of interest which the Company is required to pay to the investor is about Rs. 4 crores. The Company after securing a large amount from the investor cannot be permitted to enjoy that amount by investing in interest bearing short term deposits and then plead that the investor should be deprived of the right to earn interest conferred by sub-section (2-A) of section 73 of the Companies Act. In these circumstances we decline in exercise of our writ jurisdiction under Article 226 of the Constitution of India to invoke the doctrine of impossibility of performance. In our judgment, the petitioners are not entitled to any relief and the petition is nothing but an attempt to deprive the investor of the advantage of payment of interest in respect of repayment of excess money beyond the stipulated period. The Company by filing the present petition desires to enjoy the interest on a large amount which is really due to the investing public.We wish to record that though the petition raises several issues and several reliefs were asked for, Shri Nariman did not agitate any contentions save and except those referred to in the judgment.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]In our judgment, the submission of Shri Nariman that the expression "forthwith" does not require payment at once of immediately but such payment is permissible within a reasonable time if circumstances so warrant, cannot be accepted in the facts and circumstances of the present case. The expression "forthwith" will have a different meaning according to the act which is to be performed. There are certain ministerial acts where the requirement of immediate performance can be construed as performance within the reasonable time, but there are other acts which demand performance forthwith without exception and in such cases it is not permissible to allow performance with the reasonableLegislature had in contemplation that though the expression "forthwith" is used, it may require some reasonable time to make payment and therefore permitted grace period of eight days before liability to repay with interest arises. In other words the Legislature was fully conscious that the expression "forthwith", as claimed by Shri Nariman," may be construed as within a reasonable time and not at once. The Legislature in its wisdom therefore permitted grace period of eight days before requiring the Company and the directors to repay the amount with interest. Once it is obvious that Legislature had in contemplation that there may be delay for unforeseen circumstances in making repayment forthwith and therefore some grance period is required, then it is not permissible for the courts to find out whether still further time can be granted for repayment by resort to the unforeseen circumstances. In our judgment, the provisions of) of section 73of the CompaniesAct are absolute in nature and once the Company fails to repay the excess amount within the grace period of eight days as contemplated by the section, then there is no escape from payment of interest irrespective of the circumstances which the Company mayare unable to find any merit in this submission for more than one reason. In the first instance Shri. Nariman was unable to point out any source of power in the Stock Exchange to grant such extension. Our repeated enquires with Shri Dwarkadas, who appeared on behalf of Madhya Pradesh Stock Exchange, did not elicit any material to indicate that the Stock Exchange has power to entertain application for extension of stipulated period. Apart from the fact that provisions of) of section 73of the CompaniesAct are absolute in nature, the section does not refer to any authority, including the Government of India, who could extend the stipulated period for refund of the excess amount. We are also unable to gather any material from the Company or the Madhya Pradesh Stock Exchange to conclude that the Stock Exchange can extend that period for unforeseenis not possible to accede to the submission of the learned Counsel for several reasons. In the first instance the provisions of) of section 73of the CompaniesAct are absolute in nature and do not leave any scope for any authority to extend the period on accrual of liability to refund or to pay interest. The liability to refund the excess amount arises forthwith on allotment of shares and the liability to pay interest accrues on expiry of eight grace days. Neither the Stock Exchange nor the Government have any authority to extend the stipulated period of ten weeks from the date of closure of the subscriptions list mentioned in the prospectus for refund of the amount and even though the Stock Exchange informs the Company that the time is extended for making refund, that would not wipe out the liability to pay interest at the expiry of the gracealso enquired as to whether there is any agreement between the Company and the Stock Exchange conferring authority on the Stock Exchange to extend the period for unforeseen circumstances, and the answer was in the negative.Thirdly, the contention that the authority flows from the prospectus is entirely unsustainable because the mere recital in the prospectus authorising stock exchange to permit Company to refund the excess amount beyond the period of ten weeks from the closure of the subscription list in the event of unforeseen circumstances does not confer such authority on the Stock Exchange, nor can take away the substantial right conferred by) of section 73upon the investing public. The submission of Shri Nariman that as the prospectus amounts to contract between the investor and the Company, the investor cannot challenge the authority conferred on the Stock Exchange is required to be turned down in view of provisions of) of section 73of the Companiesn (4) prescribes that any condition requiring or binding any applicant for shares or debentures to waive compliance with requirements of section 73 shall be void. It is therefore obvious that even assuming that the investor had bound himself to waive compliance with) of sectionsuch condition cannot bind the investor, the condition being void. In our judgment, it is not open for the Company to urge with reference to the contents of the prospectus that it is permissible for the Company to travel beyond the stipulated period for refund of excess amount on the Stock Exchange being satisfied that refund cannot be made within the stipulated period. It is also not possible to accede to the submission that the liability to pay interest contemplated under) of sectionof the CompaniesAct is suspended or wiped out when Stock Exchange is satisfied that refund of excess amount cannot be completed within the stipulated period. In our judgment, the Legislature, with a view to protect the interest of the investor, provided that the refund of excess amount should be made forthwith and granted a grace period of eight days, but on expiry of that period the liability to pay interest is absolute and is not subject to satisfaction of the Stock Exchange about the unforeseen circumstances. It is also not possible to spell out power of extension in favour of the Stock Exchange merely because the Stock Exchange have exercised such power in some instances and have approved the prospectus containing averments to thatNariman submitted that the proviso to) prior to its election clearly indicates that the Legislature did not wish to impose liability on the directors unless the liability has accrued due to any misconduct or negligence on the part of the directors. It was urged that this is acircumstance to indicate that though the Legislature used the expression "forthwith" in) of sectionthe liability to pay is not absolute but is subject to any unforeseen circumstances, and in case the repayment is not done forthwith, still liability to pay interest by directors would not arise if it is established that the failure to repay was not due to any misconduct of the directors. The submission is controverted by Shri Cooper and Shri Andhyarujina by pointing out that the proviso to) was embodied by the Legislature with a view to making the requirement of) very rigorous. The Legislature felt that it is not desirable that the Company should retain the excess amount beyond the stipulated period and after expiry of the grace days earn advantage and deprive the investor of the use of the money. The submission is correct and deserves acceptance. The deletion of the proviso is indicative of the fact that the Legislature desired that the investor should earn interest on the excess amount after the stipulated period and that right to earn interest for deprival of the amount has nothing to do with any circumstance in which the Company is placed. It is possible that there may be unforeseen circumstances for inability of the Company to refund the amount within the stipulated period, but the end result is that the amount was retained by the Company and the investor was deprived of the enjoyment of this amount. It is therefore obvious that the omission of the proviso to) is one of the circumstance to hold that) of sectionis absolute in nature and does not permit any relaxation in respect of payment ofare not impressed by the submission. Payment of interest is not penal but is merely compensatory in the facts and circumstances of the case. The Company is required to pay interest because the excess amount was retained beyond the stipulated period and the investor is deprived of the use of the said amount. To compensate the investor for the loss of the amount beyond the stipulated period the Company is directed to pay interest and that in our judgement, is clearly compensatory in nature and not penal. The penal provision for default in compliance with the provisions of) is set out in) of sectionupon use of the expression "penal provisions" Shir Nariman submitted that the Legislature accepted that the provision for payment of interest is penal in character. We are not prepared to accede to the submission. The use of the expression "penal provisions" in the Note to the Amendment Bill cannot determine the nature or character of the liability. In our judgment the liability to pay interest is purely compensatory in nature and the Company cannot avoid the liability on any countneed not examine the claim as to whether the two circumstances were unforeseen circumstances which prevented the Company from completing the process of refund of money. We will assume that the Company was prevented from completing the process of refund within the stipulated period and then examine as to whether doctrine of impossibility of performance can be invoked in the facts and circumstances of theare unable to find any merit in the submission. We are not sure whether the Company was prevented from performing the obligation for two excuses set up by the Company, but even assuming that these two reasons are sufficient to lead to the conclusion that the Company was unable to perform the obligation to refund the excess amount for reason beyond their control, still the doctrine of impossibility of performance is not attracted to the facts of the present case. In our judgment, the Court should invoke the doctrine only in cases where the absolute nature of obligation leads to the harshness or adversely affects the party who has to carry out obligation and further leads to injustice. On the facts of the present case we have no hesitation in concluding that the obligation to pay interest costs no hardship whatsoever to the Company, but permitting the Company to retain the excess amount beyond the stipulated period without payment of interest would certainly cause serious prejudice to the interest of the investor. Shri Nariman submitted that) of sectionrequires the Company to keep all the moneys received in pursuance of prospectus in a separate bank account and) does not permit utilisation of that money for any purpose other than adjustment against allotment of shares or repayment of moneys. The learned Counsel urged that as the Company had not earned any interest on the excess amount which was required to be repaid within the stipulated period, the obligation to pay interest caused hardship. The submission is not correct. It is not necessary for the Company to keep the amount locked up in the account in pursuances of provisions of) of sectionThe Reserve Bank of India had issued circular dated July 13, 1990 to all scheduled commercial Banks in regard to the application moneys for issued of shares, debentures etc. and utilisation thereof. The circular recites that earlier the Banks were advised that Company should not be permitted to utilise the subscription moneys for any purpose other than those specifically mentioned in sectionof the CompaniesAct. The circular then recites that it is permissible for the Banks to invest on request of the Company the application moneys received in interest bearing short term deposits. Thedeposits are to be allowed interest at the rates prescribed in the directives of the Reserve Bank on interest rates for the relevant periods. This circular makes it extremely clear that it is open for the Company to request the bankers to invest the amount received from the investor in interest bearing short term deposits and the Company will certainly earn interest. It is therefore futile to suggest that the amount which is required to be refunded to the investor lies locked up in the account and would not confer any benefit upon the Company. The Company would certainly enjoy the benefit of earning interest by keeping the amount in the interest bearing short term deposits. Shri Bhabha submitted that the amount of interest which the Company is required to pay to the investor is about Rs. 4 crores. The Company after securing a large amount from the investor cannot be permitted to enjoy that amount by investing in interest bearing short term deposits and then plead that the investor should be deprived of the right to earn interest conferred by) of sectionof the CompaniesIn these circumstances we decline in exercise of our writ jurisdiction under Article 226 of the Constitution of India to invoke the doctrine of impossibility of performance. In our judgment, the petitioners are not entitled to any relief and the petition is nothing but an attempt to deprive the investor of the advantage of payment of interest in respect of repayment of excess money beyond the stipulated period. The Company by filing the present petition desires to enjoy the interest on a large amount which is really due to the investing public.We wish to record that though the petition raises several issues and several reliefs were asked for, Shri Nariman did not agitate any contentions save and except those referred to in the judgment.