BEFORE THE COMPANY LAW BOARD, NORTHERN BENCH 

Appearances : Premjit Singh Kashyap, R. K. Sharma & Vikas Pahwa for the Company. 

ORDER 

1. Kuber Mutual Benefits Ltd. (hereinafter referred to as 'the company') was incorporated on 30th September, 1991 under the provisions of the Companies Act, 1956 and was declared as a nidhi company under section 620A of the Companies Act by the Department of Company Affairs in the Ministry of Finance vide its notification No. GSR 163 dated 18th March, 1993. The company as a nidhi company under its various schemes of deposits accepted deposits amounting to crores of rupees from members repayable on maturity after a certain fixed period. The company started defaulting in the repayment of its deposits from October/ November 1998 due to several factors, viz., orders dated 13th August, 1998 of the hon'ble High Court of Delhi restraining the company from alienating its assets except in the normal course of business, sudden mass movement by huge number of depositors for withdrawal of their deposits, economic depression in the country, imbalance of inflow and recoverable, etc., and out flow. 

2. The Department of Company Affairs, on the basis of information available before it, being satisfied that the company does not function in the spirit of a nidhi company vide its notification No. GSR 226(E) dated 26th March, 1999 rescinded the declaration granted to the company as nidhi company. Consequently, the status of the company automatically changed to that of a loan company (non-banking financial company) and the deposits accepted by it from its members have become 'public deposits' within the meaning of clause (bb) of section 45-I of the Reserve Bank of India Act, 1934 ('the Act') and as per the extant direction of Reserve Bank of India an unregistered company with no credit rating cannot accept deposits or renew the existing deposits vide para 5A.1(B) of Reserve Bank of India Circular No. DNBS.CC.07/0201/98-99 dated 18th December, 1998. In these circumstances, the Reserve Bank of India, Lucknow vide its directions contained in its letter No. LK.DNBS No. 1665/25.5.4.3554/ 98-99 dated 5th April, 1999 prohibited the company from accepting or renewing deposits from any persons; directed the company not to sell, transfer, create, charge or mortgage or deal in any manner with its property and assets without its prior written permission. 

3. By virtue of powers conferred on the Company Law Board by section 45QA of the Act to direct defaulting non-banking financial companies to effect repayment, aggrieved depositors started sending applications to the Company Law Board for giving suitable directions to the company. There has been a regular inflow of such applications. 

4. The company placed on record that it was having more than 400 branches spread all over India. After the publication of the news regarding court cases against the company in Delhi High Court there was a virtual run on all the branches of the company. At some places violent man-handling of staff members took place and in spite of the best efforts of the management to restore normalcy one by one the branch managers closed the offices and since September 1998 majority of branches have been closed. The management did not receive reports as to repayment made by them or recoveries of loans and advances by each branch. The company was maintaining deposit register in each branch. After the sudden closure of the office/branches, the details as to the deposits are not readily available. However, according to them the total deposits liability is estimated to be Rs. 100 crore (approximate). It was also stated that the main liquid assets of the company are in the form of FDRs with banks which have been seized by the Income-tax Department. For release of the FDRs the company has moved the hon'ble High Court. The other assets are in the form of real estate, loans and advances. 

5.1 Hearings were held on 16th March, 1999, 2nd June, 1999, 20th July, 1999, 16th September, 1999, 2nd November, 1999, 16th November, 1999 and 21st December, 1999. At these hearings the representatives of the company and large number of investors/depositors were present. 

5.2 The company made prayers to this Board vide its representation dated 26th April, 1999 that the company may be granted time for repayment of the amounts due to its depositors in accordance with a schedule for repayment to be submitted by the company. The company thereupon on 19th July, 1999 submitted that it may be allowed to pay/settle the claim of depositors within a period of 5 years from the date of application and pay an interest at 6 per cent per annum from the date of maturity till the date of repayment and the repayment will be on first matured first paid basis. 

5.3 The company was thereupon in the hearing held on 20th July, 1999 directed to furnish the scheme, as to how the payments will be effected. 

5.4 The company in the hearing held on 16th September, 1999 proposed a scheme for the repayment of its deposits. The scheme envisaged repayment in, a maximum period of 72 months. The company was directed to file an affidavit in support of the scheme duly sworn by a director and furnish information regarding the details of the deposits accepted by it under its various schemes and the number of depositors under each category, its state of accounts, list of assets as on 31st August, 1999, cash flow statements/projections for the next three years duly certified by a chartered accountant/auditors, date of freezing of bank account/FDRs and the details as to under whose orders the same was frozen/seized, efforts made for getting them released and the details of cases pending before the various courts. 

5.5 The part information furnished by the company pursuant to directions given in the hearing held on 16th September; 1999 was considered alongwith the scheme of repayment, in the hearing held on 2nd November, 1999, the company was, however, directed to prepare another scheme envisaging the repayment of all deposits within a period of 3 years from the date of maturity duly supported by cash flows duly certified by chartered accountant. The representative of the company also submitted that another case is coming up before the High Court on 3rd November, 1999, thereupon the Board directed it to inform the outcome on the next date of hearing, i.e., 16th November, 1999. 

5.6 In the hearing held on 16th November, 1999, the representatives of the company filed another scheme for the repayment of deposits in three years, however, the same was not supported by documents and cash flow statements which according to it was not possible since its branches have not submitted the latest records, this was refuted by the depositors. Thereupon, the company was directed to file the list of branches who have furnished the records as also the list of those branches who have not furnished the records. The company was also directed to consider moving the High Court for the approval of scheme of repayment and its implementation as the High Court would be supervising the sale of two properties and disbursement of the money so realised. The company was also directed to file the details of the various cases pending before the various courts with the copies of applications/petitions/replies in these cases. 

5.7 It is noted that photocopy of the writ petition and other cases pending has been furnished but the same were not found on record. The company has not furnished the list of branches who have furnished the records as also the list of branches who have not furnished the records. It has merely submitted that presently there is hardly any employee left with the company. The company has also submitted that the High Court has given the permission to sell the properties and that the sale proceeds of the same will be deposited in the court and the disbursement of the same will be made as per the directions of the court. The company has also submitted that there is no provision under which company can move the court for seeking extension of time for repayment of its deposits. 

6.1 I have also heard a large number of depositors present at the time of last hearing who have submitted that their deposits have matured long back and, therefore, urged that necessary directions may be given to the company for payment of their deposits as there is failure on the part of the company to pay the same as per the terms and conditions of the acceptance. 

6.2 I have also heard the submission made by Vikas Pahwa, advocate appearing on behalf of the respondent-company on the last hearing who has explained in detail the various cases pending in the court and explained that a Writ Petition No. 3944 has been filed as public interest litigation against several financial companies including the respondent-company and the court has directed that none of the property of the company can be sold without prior approval of the court. He further explained that the company has moved Civil Application No. 10632 of 1999 in the Writ Petition No. 3944 for selling of the two properties wherein the court has given necessary orders that said property be sold and sale proceed will be subject to further order passed by the court regarding their disbursement. He submitted that Company Law Board is the appropriate authority to sanction such scheme pursuance to the provisions of the section 45QA(2) for payment to the company's depositors and urged that scheme filed by the company may be considered and appropriate order passed. He further submitted that the Reserve Bank of India had carried out the inspection of the company in past and as per their inspector's report it was found that the company assets are more than its liabilities thus company is capable for meeting its commitments. 

7. I have considered various averments made by the respondent-company's advocate and submission made by the depositors. In the absence of any supporting documents like projected cash flow statements, balance sheet and profit and loss account for the year ending 31st March, 1999 it is not possible for me to form any opinion on the scheme proposed by the company and, therefore, the same is rejected. 

8.1 The depositors have deposited their hard earned money in the company and in view of the failure on the part of the company to meet its obligation more than 38,000 applications have been filed with the Company Law Board for issuance of necessary directions. They have also indicated the hardships faced by them on account of the failure on the part of the company to repay their deposits as per their terms and conditions of their acceptance. The company being non-banking financial company pursuant to the provisions of the section 45QA(2), Company Law Board may if it is satisfied, either on its own motion or on the application of the depositors, that it is necessary so to do to safeguard the interest of the company, depositors or in the public interest, direct, by order, the company to make repayment of such deposits forthwith or within such time and subject to such conditions as may be specified in order. Keeping in view interest of large number of depositors who have deposited substantial amount with company and having regard to the fact that company's business has come to standstill and it cannot sell its properties without the High Court orders, it is felt that the company would require some time to repay substantial amount of deposits in a phased manner. Accordingly, pursuant to the provisions of section 45QA(2), in exercise of suo motu powers vested in Company Law Board, respondent-company is directed to repay the deposits collected under different schemes and have already matured and the deposits which would be maturing in future in the following phased manner, subject to any modification being ordered by Delhi High Court in public interest litigation/company's applications pending in the said court in respect of this company. 

Categories of deposits Schedule of repayment of the deposits Upto Rs. 5,000 Within 3 months from the date of the maturity or the date of the order, whichever is later. 

Rs. 5001 to Rs. 10,000 In two equal six monthly instalments commencing from the date of maturity or date of the order, whichever is later. 

Rs. 10,001 to Rs. 15,000 In three equal six monthly instalments commencing  from the date of maturity or date of  the order, which ever is later. 

Rs. 15,001 and above In four equal six monthly instalments commencing  from the date of maturity or date of  the order, whichever is later. 

Further, the respondent-company is directed to pay interest at the contracted rate upto the date of maturity and, thereafter at 12.5 per cent till the date of actual payment. The interest is to be paid alongwith last instalment. 

9. In the case of recurring deposits and saving deposits or such other deposits their maturity would be reckoned from the last payment made by the depositors. 

10. The company will follow the following guidelines in implementing the above scheme : 

(1) While repaying the deposits as per above scheme, all individual deposits will be treated as such and shall not be clubbed, if any depositor holds more than one deposit for the purpose of arriving at the amount as fixed in the scheme. 

(2) The needs of the depositors in hardship cases like surgical requirements, marriage, etc., shall be considered sympathetically by the company notwithstanding the aforesaid scheme. 

(3) Notwithstanding the aforesaid scheme, the company will be at liberty to make repayment of deposits alongwith interest due thereon before the stipulated time frame, as indicated in the scheme, if funds are available. 

(4) The company shall make repayment of deposit and interest according to the above scheme by demand drafts only which shall be sent by registered post to the respective depositors. 

(5) To ensure that this repayment schedule is kept up the managing director and chairman and other directors of the company, R. K. Sharma, authorised signatory of the company, who has filed various affidavits before this Bench, shall file an affidavit of undertaking that the above scheme shall be implemented without fail, within 10 days from the receipt of this order with the General Manager, Reserve Bank of India, Department of Supervision, Financial Companies Wing, Lucknow, with a copy to the Bench Officer of this Bench. 

(6) The company and every officer including chairman and managing director and other directors of the company shall be jointly and severally responsible for due compliance of this order. 

11. Any failure to comply with this order shall attract penal provisions contained in sub-section (4AAA) of section 58B of the Act as amended by RBI (Amendment) Act, 1997. 

12. A copy of this order shall be sent by the Bench Officer to the General Manager, Reserve Bank of India, Department of Supervision (Finance Commission), Lucknow and in case of non-compliance of this order, the officer authorised by RBI under section 58E of the Act shall take appropriate action. 

13. The company shall within three weeks of release of this order send a copy of the operative portion of this order to all depositors and also publish the same in two leading newspapers one in Hindi and other in English having all India circulation. 

14. Since this order is being issued suo motu in exercise of the powers conferred on the Company Law Board by section 45QA(2), this order will be applicable in respect of all deposits and the company is bound by the terms of this order. 

15. A copy of this order be sent to the Secretary, Department of Company Affairs, New Delhi and Registrar of Companies, Kanpur.