Case: Raymond Synthetics Ltd. And Ors Vs. Union Of India And Ors

The appellant is a company registered under the provisions of the Companies Act, 1956. The company obtained the consent of the Government of India vide its Order dated May 31, 1990 to issue 7,20,00,000 equity shares of Rs. 10 each at par and 33, 90,000 fourteen per cent secured redeemable non-convertible debentures of Rs. 100 each at par. This Order was, made by the Government in exercise of its power under the Capital Issues (Control) Act, 1947. One of the conditions attached to the order reads:"The company shall scrupulously adhere to the time limit of 10 weeks from the date of closure of the subscription list for allotment of all securities and despatch of allotment letters/certificates and refundprospectus was issued by the company on 12th July, 1990 for the issue of the aforesaid shares and debentures. The prospectus stated, amongst other things, that the company had sought the permission of the stock exchanges at Indore, Ahmedabad, Bombay, Calcutta and Delhi for dealing in equity shares and debentures in terms of the prospectus; that interest at the rate of 15 % per annum on the excess application money will be paid to the applicants as per the guidelines issued by the Ministry of Finance on July 21, 1983 and September 27, 1985; that the public issue will open on August 20, 1990 and close on August 23, 1990; and that it would not be extended beyond August 31, 1990. When the issue thus opened on August 20, 1990, it received overwhelming response as a result of which it was about 40 times over-subscribed. The company received 26,32,894 applications for equity shares together with an aggregate sum of Rs. 225,25,51,247 in respect of a public issue of Rs. 25 crores. In view of this public response, the share issue was close on 23rd August, 1990. On October 15, 1990 the board of directors of the company approved the allotment of shares. Shortly thereafter, it secured the requisite permissions of the stock exchanges at Indore, Ahmedabad, Bombay, Calcutta and Delhi to deal in the shares offered in the prospectus. These permissions were obtained prior to November 1, 1990. The company had to despatch 25,50,604 refund orders of an aggregate value of well over Rs. 200 crores. These orders which were printed in Bombay were meant to be despatched from Delhi. The company despatched 8,55,226 refund orders from the Sarojini Nagar Post Office , New Delhi at the rate of approx. 1,00,000 refund orders per day. On 26th October, 1990 a consignment of 6,69,999 refund orders had been despatched from Bombay to Delhi in a brake van of the Paschim Express. A fire broke out on the way in the brake van as a result of which many refund orders were destroyed. Almost 50 % of the consignment was missing after the accident. In consultation with the Madhya Pradesh Stock Exchange and the Companys Bank, instructions were issued by the Company to stop payment of all refund orders with a view to avoiding any possible fraud or misuse. As a result of the countermanding of all the multi-colored refund orders and the printing of new refund orders with distinctive colours etc., delay occurred in the despatch of newly printed orders. At the request of the company, the Madhya Pradesh Stock Exchange granted it extension of time till November 30,1990 for issuing the refund orders. Time for this purpose was further extended by that stock exchange till 19th December, 1990. The Bombay Stock Exchange, however, refused to grant extension of time. It further informed the company that it was bound to pay interest by reason of the delay in the despatch of refund orders. The Securities and Exchange Board of India, the second respondent, called upon the company by its letter dated March 13,1991 to pay interest to the investors at varying rates for the period from 1st November (which is when the period of 10 weeks from the date of the closure of the subscription lists expired) till the date of posting of the refund orders. The refund orders were not despatched until 12th November, 1990. The Government of India and the Securities and Exchange Board of India insisted that the company should pay interest to the investors for the period of the delay in making the refund in accordance with the provisions of section 73. Apprehending that the Government might direct the stock exchanges to delist the shares of the company by reason of its failure to pay interest, and also initiate actions against it, the company filed a petition in the High Court under Article 226 of the Constitution, but it was dismissed by the impugnedBombay Stock Exchange seems to have understood that the liability of the company arose on the expiry of 10 weeks after the date of closure of the subscription lists. Paragraph 23.2 of its publication of March 1991 quotes the condition mentioned in the Order of the Government of India datedwe have extractedthe effect that the liability of the company for despatch for refund orders arose only at the end of 10 weeks from the date of closure of the subscriptionthe High Court, the Union of India and the Securities and Exchange Board of India appeared to have taken a divergent stand on the question. While the Government of India submitted (as disclosed in its affidavit, and as referred to by the High Court in the impugned judgment) that the liability to pay the excess amounts arose on the expiry of 10 weeks from the date of closure of the subscription lists, the Securities and Exchange Board of India contended that the liability arose on the date of allotment. In the present appeal, however, the Union of India support the stand of the Securities and Exchange Board of India. On the other hand, the company contended that, on the facts of this case, the liability arose only at the end of the period as extended by the Stock Exchange at Indore in terms of the prospects. The High Courtour judgment, there is no difficulty in fixing the date from which the liability of the company to make repayment arises. In a case where the allotment is completed before expiry of the 10 weeks, then from the date of allotment and in case where the allotment is not completed till the expiry of ten weeks from the date of closure of the subscription list, then from the date of expiry of tenreason stated by the High Court for coming to this conclusion is that the company knew that the excess amount was on the date of allotment and there was no reason why the company should delay payment till the end of 10 weeks in case the allotment was made earlier. The High Courtcases where the allotment is completed before expiry of ten weeks, then the Company very well knows the excess amount, which is to be repaid and consequently the liability accrues forthwith to repay the said amount. In case the Company fails to repay the amount within the grace period of eight days, then the Company would be liable to pay interest to the investor inspite of the fact that period of ten weeks from the date of closure of the subscription list is notHigh Court thus held that the company was liable to pay interest at the prescribed rates for the period of delay and the liability for the same arose on the expiry of 8 days from the date of allotment of the shares, and not from the date of expiry of 10 weeks, where allotment was made earlier to that date. The High Court did not accept the contention of the company that the time having been extended by the Madhya Pradesh Stock Exchange till 19th December, 1990 in accordance with the relevant provisions of the prospectus, the company had no liability to pay interest.

Court's reasoning:
In the present case, counsel points out, time for refund had been extended by the Madhya Pradesh Stock Exchange till 19th December, 1990. Accordingly the liability of the company to repay the excess amount did not arise until then. In the circumstances, interest became payable only after 8 days from the expiry of the period as extended by the Madhya Pradesh StockMr. Dewans argument were to be accepted, the company would have incurred no liability to pay interest, for time had been extended by the Madhya Pradesh Stock Exchange. But this argument is clearly contrary to the provisions contained in sub-section (4) of section 73 of the Act which reads:_ "S. 73(4). Any condition purporting to require or bind any applicant for shares or debentures to waive compliance with any of the requirements of this section shall be void".In the teeth of that sub-section, Mr. Dewans argument on the point is totally without merit. Even if sub-section (4) had not been inserted in section 73, Mr. Dewans argument in this respect would have been equally unsustainable, for no agreement can defeat or circumvent a mandatory requirement of the statute. This is all the more so in view of section 9 which specifically provides that the provisions of the Act override the memorandum or articles of association of the company or any agreement executed or resolution passed by it. The statute requires the company to pay interest in terms of sub-section (2A). That provision says that the company should pay excess money forthwith, failing which interest becomes payable at the end of 8 days therefrom. Any inconsistent provision in the prospectus is unenforceable and it can be of no avail to theis no substance in this contention. As stated earlier, sub-section (2A) provides for the accrual of interest and the rates thereof. Unlike sub-section (2B) provides for punishment by imposition of fine or imprisonment, sub-section (2A) speaks only of interest which is in contradiction to punishment and is not penal in character. It merely provides a mode of calculation of the amounts payable. Any consideration with reference to a penal provision is of no relevance to the liability of the company or its directors to pay interest in terms of sub-sectionthe date of allotment, as found by the High Court, nor the date specified in the prospectus, as contended by the company, is relevant to the commencement of liability for payment of interest on the excessliability of a company to repay the excess money under section 73(2A) of the Act arises on the expiry of 10 weeks from the date of the closing of the subscription lists, and the interest begins to accrue thereon at the end of 8 daysthe liability to repay the excess money in the present case arose on 1.11.1990 which was admittedly the date of expiry of 10 weeks from the date of the closing of the subscription lists, and consequently the liability to pay interest at the rate specified in sub-section (2A) arose on the expiry of 8 days from 1.11.1990.