Case: Ashish Mahendrakar Vs. The State of Maharashtra and Others

2. The aforesaid question crops up for consideration in the backdrop of the following facts and the challenge raised in the petition :¬(a) Birla Power Solutions Ltd. is a public listed company, registered under the Companies Act, 1956. It was initially registered as Birla Yamaha Ltd.. During the period 2009 to 2013, the company had accepted the deposits; including a deposit of Rs.1 crore from Shri Hajarimal Somani Memorial Trust, on 9th March 2012 to be repaid along with interest @ 10.75 % per annum. The date of maturity was 8th March 2013. The Company committed default in repayment of the said amount along with interest. It is alleged that the Company had accepted deposits from thousands of investors, including the companies. Hence, Shri Bhagwan Suryakant Seth lodged a first information report against the Company and its Chairman, Managing Director and other Directors for the offences punishable under sections 409, 420, 477(A), 120(B) of Indian Penal Code, 1860 and section 3 of MPID Act. The petitioner is arraigned as accused No.11 therein. The investigation came to be transferred to Economic Offences Wing, Unit 4 and the crime was registered as C.R. No.168 of 2013. After completion of investigation, the charge-sheet came to be lodged on 29th March 2014, followed by a supplementary charge¬sheet on 21st December 2016. MPID Special Case No.4 of 2014 is pending before the Special Court(b) In the meanwhile, two attachment orders dated 19th March 2016 and 24th November 2016 have been issued by the State in exercise of the powers under sections 4, 8 and 12 of the MPID Act and various properties of the said company and other related and unrelated companies have been attached. Pursuant to the orders of the Court, forensic audit in relation to money and/or amount accepted by the said company has been conducted. The forensic audit report came to be submitted on 14th December 2017. The said report, inter¬alia, contains the executive summary of the outstanding dues of the said company as under :¬(c) In the light of the aforesaid facts, the petitioner asserts that the inter-corporate deposit/loan, indicated above, do not fall within the scope and ambit of MPID Act. The said challenge rests on the premise that inter¬corporate deposits or loans are essentially loans procured by the one corporate entity from another corporate entity registered under the Companies Act in the nature of short¬term finance(d) The petitioner contends that the inter¬corporate deposits are governed by and regulated under the provisions of the Companies Act and the Rules framed thereunder. On the one hand, the definition of deposit under section 2(c) of the MPID Act, if properly construed, in the light of the avowed object of the MPID Act excludes from its purview the intercorporate deposits. On the other hand, the definition of deposit provided in Rule 2(1)(c)(vi) of the Companies (Acceptance of Deposits) Rules, 2014 explicitly excludes any amount received by the Company from any other Company from the term deposit. As the inter¬corporate deposits are specifically excluded from the term deposit under the provisions of the Companies Act and Rules framed thereunder, the provisions of MPID Act cannot be made applicable to such deposits. The petitioner asserts that the inclusion of the intercorporate deposits in the outstanding amount and the consequent issuance of the attachment orders in respect of various properties, by taking into account the said outstanding amount, is legally impermissible. Thus, the petitioner seeks a declaration that the inter-corporate deposits do not come under the purview of the definition of deposit under section 2(c) of the MPID Act and a consequential direction to delete and/or quash the names of the inter¬corporate deposit holders/lenders from the list of the depositors in MPID Case No.4 of 2014.

Court's reasoning:
6. We have given our anxious consideration to the rival submissions canvassed across the bar. To begin with, we are not persuaded to throw the challenge overboard on the count of locus of the petitioner, raised by the learned Special P.P. Indisputably, the petitioner has been arraigned as an accused in Special MPID case No.4 of 20147. In the charge¬sheet, copy of which is annexed to the petition, it is alleged that the petitioner Ashish Mahendrakar was an authorized signatory, in the accused Financial Establishments namely Birla Power Solutions Ltd., Birla Shloka Edutech Ltd., Zenith Birla (India) Ltd., and Birla Cotsyn (India) Ltd. and has executed important documents of those companies in the said capacity. In this view of the matter, the locus of the petitioner to assail a part of indictment related to the offence punishable under section 3 of the MPID Act cannot be questioned. Even otherwise a legal issue of material significance has been raised in the instant petition10. It is nobodys case that the above¬named four companies do not fall within the definition of Financial Establishment. The controversy revolves around the question as to whether the money accepted by the aforesaid companies in the form of inter¬corporate deposits falls within the dragnet of deposit, within the meaning of MPID Act. The learned Special P.P. was within his rights in advancing the submission that, in the facts of the instant case, the inter-corporate deposit do not fall within any of the subclauses (i) to (vii) of clause (c) so as to exclude them from the ambit of the definition of deposit. However, the petitioner has asserted that the fact that the definition of deposit under section 2(c) does not specifically exclude inter-corporate deposits from its purview does not conclusively determine the issue20. In the backdrop of the aforesaid fasciculus of provisions, the submission on behalf of the petitioner, based on the object of the MPID Act is required to be appreciated. As indicated above, an endevour was made on behalf of the petitioner to drive home the point that in view of the aforesaid provisions contained in the Companies Act, 2013 and the Rules therein, the field so far as the inter¬corporate deposits can be said to be occupied by the Central Legislation and the resort to the provisions of MPID Act, the object of which was to protect the interest of the small depositors, cannot be said to legally sustainable21. It is trite that though the statement of objects and reasons accompanying a statute cannot be used to determine the true meaning and effect of the substantive provisions of a statute, but it is permissible to make a gainful reference to the statements of objects and reasons for the purpose of understanding the background of the legislation, the state of affairs that preceded the enactment, the attendant and surrounding circumstances in relation to the statute and the mischief which the statute sought to curb28. The position which, thus, emerges is that the MPID Act and the enactments passed by the other State Legislatures were with the avowed object of protecting the interest of the depositors. The Legislatures had noticed a pattern of collecting money or deposits from unsuspecting investors after painting a rosy picture of return. The Legislature, thus, provided a special mechanism of attachment of properties and unearthing the money which was swindled so as to ensure that the investors are not left in the lurch by such unscrupulous persons and financial establishments32. For an answer, in our view, the legislative prescription, needs to be carefully appreciated in the backdrop of the object of the MPID Act. Indubitably, the MPID Act does not make a distinction between the corporate and ordinary deposit. In fact, the MPID Act only defines deposit. It does not define depositor. Albiet, section 4 of the Act provides for issuance of an order of attachment of the properties on default in return of deposits upon complaints received from the depositors or otherwise. It would be contextually relevant to note that clause (d) of Rule 2(1) of the Companies (Acceptance and Deposits) Rules, 2014 defines a depositor to mean (i) any member of the company who has made the deposit with the company in accordance with the provisions of sub¬section (3) of the Act; or (ii) any person who has made a deposit with the public company in accordance with the provisions of section 76 of the Act. It bears repetition to record that under the Rules 1975 framed under the Act, 1956 and Rules 2014 framed under the Companies Act, any money received by one company from another company is specifically excluded from the term deposit33. A conjoint reading of the provisions of the Companies Act, and the Rules framed thereunder leads to a legitimate inference that the Parliament did not deem it necessary to regulate the aspect of receipt of any amount by a company from another company, by classifying as a deposit, for the acceptance of which the specific provisions were made under the Companies Act, 1956 and are made in the Companies Act, 2013. The receipt of a money by one company from other company is, however, clubbed with the items of exclusions provided in the Rules, which define deposit36. To put it in other words, in our view, the persuasive compulsion of an irresistible offer does not lead to a blindfold investment by one company in another company. Nor a company is afflicted by the same degree of lack of information which an individual depositor may have to suffer. The company, which operates in a fiercely competitive financial market, is supposed to be equipped to make a prudent business decision. Viewed through this prism, and in the backdrop of the object of the enactments, including the MPID Act, to which we have extensively referred above, it does not appear that the object of the MPID Act was to protect the interest of the corporate depositors with the same zeal as that of the common citizens, unsuspecting investors and small depositors37. We are mindful of the fact that the constitutional validity of the MPID Act has been upheld, including the legislative competence of the State legislature to enact MPID Act. We are also conscious of the fact that it is neither permissible, nor do we propose, to delve into the said aspect of the matter. However, we deem it apposite to note that in the case of New Horizon Sugar Mills Limited (Supra), the Supreme Court has, in terms, observed that the power to enact the Pondicherry Act, the Tamil Nadu Act and the Maharashtra Act is relatable to Entries 1, 30 and 32 of the State List, which involves the business of unincorporated trading and moneylending which falls within the ambit of Entries 1, 30 and 32 of the State List. In our view, the intendment of the State legislature was not to regulate the business transactions between the two companies, even when the transaction has the flavour of deposit38. The matter can be looked at from another angle. The clubbing of the corporate depositors with the other depositors and investors as depositors, for the purpose of prosecution and proceedings under the MPID Act, may, in a given situation, work to the detriment of the small time depositors. If a corporate depositor has made a huge and bulk deposit with a financial establishment, which commits a fraudulent default in repayment of the said deposit, along with the deposits of other small depositors, and the properties of such financial establishment are attached and ultimately disposed of for realization of those deposits, in that event, if the corporate depositor competes with the small depositors and claims pari passu distribution, then the small depositors would be deprived of realization of their money to full potential39. In our considered opinion, obliterating the distinction between the corporate depositor and ordinary depositor would render the provisions of the other enactments, like Companies Act, redundant, which provide various remedies for the enforcement of the rights of the corporate depositors, ranging from a petition for winding up to a suit for recovery of the amount, and the corporate depositor may not be required to exhaust the remedies provided in the other enactments. The summary remedy provided in the MPID Act does not seem to have been conceived by the State legislature as the remedy for enforcement of the rights of one corporate entity against another. A corporate entity cannot claim to suffer from the vagaries which a small time depositor would encounter in realising the amount, in an ordinary manner, and for whom the summary remedy is provided40. In the aforesaid view of the matter, we are impelled to hold that the the inter-corporate deposit/loan, i.e., a loan advanced / deposit made by a company with another company registered under the provisions of the Companies Act would not amount to a deposit within the meaning and for the purpose of the MPID Act.