Friday, November 23, 2007

Consumer Court grants protection to Company Fixed Deposit Holders

Consumer Court grants protection to Company Fixed Deposit Holders

If you had invested your hard earned money in the Fixed Deposits of a company, and then the company declared itself bankrupt, you would be a in for a rude shock. The company would be declared sick, and you have very little chance of getting your money back. Not a good situation to be at all. In some cases, the company would be deliberately declared sick so as to defraud the investors of their money. Once the company is granted protection by the BIFR (Board of Industrial & Financial Reconstruction), the company has immunity to claims made against it by its investors. Even to initiate legal action against the company so as to get your money back, you would have to get the permission of the board.

This has changed; there was a judgment by the Karnataka High Court that deposits to the company were not in the nature of money lent, but money held in trust; as a result, the company could not use the legal protection for claims for recovery of this money. In a recent case, a litigant made the National Consumer Commission aware of this ruling by the Karnataka High Court and the precedent was adopted by the National Consumer Commission.

If you're one of those people who had invested in fixed deposits (FD) offered by a company — and discovered much later that the company has gone down under and that it has no intention of making good on its promise because it has been declared sick — breathe easy. A 2001 judgement made by the Karnataka high court came to the fore earlier this month in a case filed against Modern Threads (India).

A divisional bench held that a deposit in a sick company is not a sum lent to the company, but a sum held in trust by the company till the time of maturity. Hence, a claim made for the return of a deposit cannot be termed as a suit for recovery of money, and so, the protection under SICA would not be available to the company.

Now that there is awareness of this past ruling and that too at the level of the National Consumer Commission, this will be a godsend to a number of people who have taken Fixed Deposits issued by companies and then left holding onto their emotions as their money has seemingly been mis-appropriated by the company and with almost zero chance of getting their money back. Now, they can use this case as a precedent and approach the Consumer Courts to get their money back.

Sometimes, legal decisions have the potential to positively impact a large number of consumers all at once.

Courtesy_
http://desicritics.org

http://ashisha.com

Also reported in Times of India as follows:

Courts offer relief to investors in sick cos

20 Nov 2007, 0045 hrs IST,

Jehangir B Gai, TNN

If you're one of those people who had invested in fixed deposits (FD) offered by a company — and discovered much later that the company has gone down under and that it has no intention of making good on its promise because it has been declared sick — breathe easy.

A 2001 judgement made by the Karnataka high court came to the fore earlier this month in a case filed against Modern Threads (India). The complainant, Mahesh Chandra Sharma, will now get back the money he had invested and the interest on it. The implications of this ruling will have a huge bearing on the lives of a few lakh investors.

To get a sense of how though, consider the background. Many investors in India have lost money in FDs offered by companies when the company runs into financial problems. Sometimes, the crisis is legitimate. But in many cases, there is a deliberate intent to defraud investors by luring them with promises of higher interest rates.

After accepting deposits, companies approach the Board of Industrial & Financial Reconstruction (BIFR), claiming its financial position is precarious and that it needs protection. The BIFR, on its part, grants them protection under Section 22 of the Sick Industrial Companies Act (SICA). This grants immunity to a company against claims made by creditors.

Any creditor who intends to take legal action to recover his money would require the Board's permission to do so.

The objective of such protection was to expedite the revival of potentially viable units so as to make investments in such units profitable.

Companies have exploited this law and misused the provision to avoid repaying fixed deposits. One such case of a company granted protection under SICA is that of Deepak Insulated Cable Corporation. The matter ultimately reached the Karnataka High Court.

A divisional bench held that a deposit in a sick company is not a sum lent to the company, but a sum held in trust by the company till the time of maturity. Hence, a claim made for the return of a deposit cannot be termed as a suit for recovery of money, and so, the protection under SICA would not be available to the company.

Yet, consumer fora, including the National Commission, being unaware of this landmark judgement, continued to dismiss such complaints for non re-payment of fixed deposits by sick companies.

When Mahesh Chandra Sharma filed a complaint against Modern Threads (India) for non re-payment of his FD, his complaint was dismissed by the Jaipur District Consumer Forum. He appealed to the Rajasthan State Commission.

Meanwhile, the company repaid the principal amount but refused to pay the interest. The state commission later dismissed the appeal. Sharma then filed a revision petition before the National Commission and relied on the above cited judgement of the Karnataka high court.

The National Commission held that in view of the interpretation of law by the Karnataka High Court, a consumer complaint for repayment of FD along with interest was maintainable before the consumer fora. Accordingly, the National Commission directed that interest of 14% per annum would also have to be paid by the company.

These landmark judgments will come to the rescue of lakhs of investors enabling them to approach the consumer courts to get back their money invested in fixed deposits in companies which have been declared to be sick.

The author has won the Govt of India's National Youth Award for Consumer Protection.

His e-mail is: jehangir_gai@indiatimes.com

Courtesy_

TIMES OF INDIA


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This Blog Spot is meant for publishing landmark judgments pronounced by the Court of law as we collected from the renowned Dailies, Magazines, etc., so as to create an awareness to the general public and also to keep it as a ready reckoner by them. As such the readers may extend their gratitude towards the Original Author as we quoted at the bottom of each Post under the title "Courtesy/Sources". Furthermore, the Blog Authors are no way responsible for the correctness of the materials published herein and the readers may verify the concerned valuable sources.



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