Corporate Updates 26 July 2014

Whether Section 117C of the Act empowers CLB to entertain applications from any debenture holder to redeem debentures ???

Application under (Section 117C- Liability of company to create security and debenture redemption reserve) Company Law Board Held that – The provisions of Section 117C(4) are applicable to all debentures whether issued prior or after the introduction of the Amendment Act, 2000, i.e., 13.12.2000 and pending redemption – provisions of Section 117C(4) being analogous to Section 58A(9) and 45QA(2) are beneficial provisions intended to protect the interest of debenture holders. (Ref: COMPANY LAW BOARD KOLKATA BENCH C. P. No. 423(117C)/KB/2011 Shri Vijay Kumar Jalan &Anr. (Applicants) V/s M/s. Bharat Hydropower Corporation Limited (Respondent).

FACTS OF THE CASE

  • The application under Section 117C of the Companies Act, 1956 (the Act), filed by Shri Vijay Kumar Jalan and Smt. Kavita Devi Jalan (Joint holders)(herein Applicants) holding 1,000 Convertible Debentures in M/s. Bharat Hydro Power Corporation Limited (here in Respondents)
  • On 03.04.1995, the company issued 1,000 Convertible Debentures of Rs 200/- each to the applicants, carrying interest @ 14% per annum from the date of allotment till the date of repayment.
  • The debentures shall at the option of the debenture holder be convertible into equity shares of the company for which the Board shall intimate the date fixed by it for such conversion of debenture and shall notify such date at least 15 days in advance by way of written notes addressed to the debenture holder within 2 years from the date of allotment.
  • The debenture holder shall have the right to seek redemption thereafter at any time and in that case, interest as stipulated in the covenants and conditions, shall be payable.
  • The respondent company neither notified the date of conversion  of debentures to equity shares nor to the debenture holder nor redeemed the debentures of the applicants.
  • The applicants made necessary application for redemption of such debentures along with interest @ 14% per annum by sending the original Debenture Certificate No.0112 alone with the application which was duly acknowledged to have been received on 11.03 1996.
  • The applicants had issued another letter dated 21.04.1997 to the company requesting for redemption of the debentures along with interest thereon and incidentally, such request was made after 2 years from the date of allotment, i.e., beyond the lock in-period for such redemption without any response from the company.
  • The applicants further issued reminder letters dated 09.09 1998, 06.04.1999 and 18.05.2010 to the company, but the company did not respond to such letters nor did make any payments to the applicants on account of redemption of such debentures.
  • The applicants had received three TDS certificates in Form No.164 from the company for the financial year ending 31.03 1997, 11.03 1998 and 31.03.1999 declaring amount paid/credited on account to interest on debentures of Rs 28,000/- each for the above years and 10% TDS amounting to a 2,800/ was deducted on such interest paid of a 28,000/- for each year and deposited to Central government.
  • The respondent company has acknowledged the due on account of debenture holder till 31.03.1999 against which interest has been shown to have been paid to such debenture holders, but in reality, the applicants have not received any interest on such debentures till date as per the averments made in the application by both of them.
  • The applicants, through their Advocate, issued a letter dated 19.07.2010 to the company requesting redemption of 1000 Convertible Debentures of Rs 200/ each along with interest @ 14% per annum.
  • In spite of receipt of such letter the company had neither given any reply to the said letter nor made any payment to the applicants on account of redemption of debentures held by them
  • The applicants have moved this application under 5ection 117C (4) of the Companies Act, 1956, praying for direction to the respondent company to make repayment of the aforesaid deposits with interest.
  • Finally, the respondent company has challenged the application on the ground that it has been affirmed only by applicant No 1 and not by applicant No.2 even though the applicants are joint debenture holders.
  • The respondent company has also challenged the claim of applicant being barred by Limitation Act, 1963 since there 15 no correspondence on their behalf after 04/06/1999, being the date of last IDS certificate for the period ending 31/03/1999 wherein the debt of the appellants has been last acknowledged.
  • The respondent company has also contended that section 117C of the Act applies to debentures which are not governed by Companies (Acceptance of Deposits) Rules, 1975 and the present application is beyond the scope of jurisdiction of this Bench.

JUDGMENT

CLB after considering pleadings and submissions, both oral and written made on behalf of the company gave the following judgment on 20/03/2014.

  • That it appears that the respondent company is hell bent on refusing the right of the applicants to get relief under section 117C of the Act on frivolous grounds either by resorting to Limitation act or faulty application affirmed by one of the applicants or on eligibly of the application for redemption of impugned debentures.
  • That as per section 117(4) of the Act, CLB may, on the application made in Form 4 of the Company Law Board Regulations, 1991 of any or all the holders of debentures shall after hearing the parties concerned direct by order, the company to redeem the debentures forthwith by principal and interest due thereon. Thus, any of the holders of such debentures is entitled to make the application and therefore the contention of the respondent in this regard is not tenable and rejected.
  • The respondent company has also challenged the claim of applicant being barred by Limitation Act, 1963. However on the basis of  fact the applicants had claimed for redemption of debentures  after expiry of 2 years lock-in-period from the date of allotment being 03.04.1995 in the applicants vide letter dated 21.04.1997 requested the respondent company to redeem the debentures along with interest according to terms and conditions of issue of such debentures subsequently, reminder letters dated 09/09/199, 06/04/1999 and 18/05/2010 were issued to the company but the respondent company has not acted on the said claim. Thus, the contention of the respondent company that the case of the applicants is barred by limitation is not tenable and hence rejected.
  • That finally as regard the issue as to whether Section 117C of the Act empowers CLB to entertain applications from any debenture holder to redeem debentures, it has been held that the provisions of section 117C(4) are applicable to all debentures whether issued prior or after the introduction of the Amendment Act, 2000, i.e., 13.12.2000 and pending redemption in this regard clause (d) of Circular No.9/2002-No.6/3/2001 CL.V dated 18.04.2002 of Department of Company Affairs.
  • Further, it has been held in the said direction of CLB that the provisions of section 117C(4) being analogous to section 58A(9) and 45QA(2) are beneficial provisions intended to protect the interest of debenture holders. Such a provision, in CLB view, should be exercised in favor of aggrieved investors. The above view taken by CLB cannot be lost sight of and the interest of the aggrieved debenture holders deserves to be protected by invoking the provisions of Section 117C(4).

The above application filed by the applicants under 117 of the Act was considered and the respondent company was directed to redeem the debentures covered by the application by payment of the principle amount along with the interest within 3 months of the issue of this order.

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