CASE LAW - CHAPTER 4 – DEBT CAPITAL

CHAPTER 4 – DEBT CAPITAL

28.01.2020

The Canning Industries Cochin Ltd. (CAICO) vs. SEBI

SAT

The present appeal has been filed against the order dated 18th March, 2019 passed by the

Whole Time Member (WTM), Securities and Exchange Board of India (hereinafter referred to

as ‘SEBI’) issuing various directions under section 11, 11(4), 11A, 11B and 19 of the Securities

and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’).

The contention of the appellant is, that Section 42 of the Companies Act is not applicable in

the instant case and that the issue of the share capital is under Section 62(3) of the Com-

panies Act, 2013 which has not been considered.

The contention of the learned senior counsel for SEBI is, that since the offer of FCDs was

for more than 200 persons, the said offer is a deemed public offer and therefore part one of

the Chapter 1 of the Companies Act is required to be followed.

Judgment:

The Tribunal held that, as per Section 71(5) of the Companies Act, 2013, no company shall

issue a prospectus or make an offer or invitation to the public or to its members exceeding

five hundred for the subscription of its debentures, unless the company has, before such is-

sue or offer, appointed one or more debenture trustees and the conditions governing the ap-

pointment of such trustees shall be such as may be prescribed.

A perusal of the aforesaid provision indicates that no offer can be made to its members ex-

ceeding 500 for the subscription of its dentures unless the Company, before such offer or

issue has appointed a trustee. Thus, the restriction is that debentures could be issued to only

500 persons if there is no trustee appointed by the Company.

However, the restriction of 500 persons is done away if a trustee was appointed by the Com-

pany. In the instant case, it is an admitted fact that a trustee was appointed. Thus there

was no restriction to the number of shareholders to whom the debentures would be issued.

In the light of the aforesaid, the impugned order passed by the Whole Time Member cannot

be sustained. The interim order as well as the impugned order and the directions so issued

are all quashed. The appeal is allowed.

19.09.2018

M/s Ind-Swift Limited (Appellant) vs. Registrar of Companies (Respondent)

NCLAT

Repayment of Deposits accepted before Commencement of the Companies Act, 2013

Facts of the case

Appellant is a Listed company, it had accepted deposits since 2002 and regularly paid back

till 28.02.2013. In 2013, it started facing liquidity problems and incurred losses. The Appel-

lant company filed application before CLB and obtained relief under Section 58AA read with

Section 58A (9) of the erstwhile Companies Act, 1956 and got instalments fixed to repay

deposits, Appellant again sought re-fixing of periods, instalments and rate of interest from

NCLT, New Delhi bench under Section 74 of the Companies Act, 2013. NCLT rejected the

application. This appeal is against rejection of the application/s.

Issues

Whether the Appellant company which has already got relaxation from CLB under Section

58AA read with Section 58A (9) of the erstwhile Companies Act, 1956 and got instalments

fixed to repay deposits, can again apply for re-fixing of periods, instalments and rate of in-

terest for repayment of deposits accepted before commencement of the Companies Act,

2013?

Judgement

The NCLAT observed that the NCLT considered that the Appellant had at the time of first

grant of time got relief of huge extension and that there was no reason to accept the plea

for further extension. The NCLT appears to have found that when big relief had already been

granted to the Company, further extension was not justified.

Section 76(2) read with Sections 73 and 74 would apply to acceptance of deposits from

public by eligible Companies but it saves the Company which had accepted or invited public

deposits under the relevant provisions of the old Act and Rules thereunder and has been re-

paying such deposits and interests thereon in accordance with such provisions, then the pro-

visions of Clause (b) of Sub-Section (1) of Section 74 of the new Companies Act, 2013 shall

be deemed to have been complied with. This is, however, subject to the fact that the Com-

pany complies with the requirements under the Act and the Rules and “continues to repay

such deposits and interest due thereon on due dates for the remaining period” as per the

terms and conditions.

Considering these provisions, it appears to us that Section 74(1)(b) was attracted and when

it appears from record that the Appellant defaulted, the penal provisions would get attracted.

Thus, when once a scheme had got settled, from CLB, default on the part of the Appellant

would attract penal provisions as the earlier scheme itself laid down. Hence, present appeal 

for further extension is dismissed.