RAYMOND SYNTHETICS LTD. AND ORS. v. UNION OF INDIA AND ORS.

The Judgment of the Court was delivered by A TH OMMEN, J, The question which arises "in this appeal from the judgment of the Bombay High Court in.writ petition No. 2038 of 1991 is, when does a company become fi;Wle"to pay interest under section 73(2A) of the Companies Act, 1956-{!lie "Act"). The answer to it depends on the answer to the more fundamental and far more difficult question, i.e., when does a company become liable to repay the money received from appli- cants for shares or debentures in excess ofthe·aggregate of the application money relating to the allotted shares or debentures. If such excess applica' · tion money is not repaid· within eight days from the day on which the company and every director 'who is an officer in default' is liable to pay interest at the specified rates. The period of eight days has to be reckoned in accordance with section 74. But it is not clear when exactly does the liability to repay .the ·excess money arise. Does it arise on the date of the allotment, as found by the High Court, or on the expiry of l 0 weeks from the date of closing of the subscription lists, referred to in sub-section (1 A) of section 73, or, as contended by the company, on the expiry of the period mentioned in the prospectus? Whichever is the correct date, inter- D est becomes payable by the company and it.s directors .'in default', if the excess money is not repaid within the period of grace of eight days from the date on which the company becomes liable to pay it. When does that liability arise is the crucial que~tion.

We .shall presently examine the relevant provisions of the section, E but before we do so, it may be of interest to refer IJriefly to the circum-· stances ii\. which the alleged liability of the appellant company has arisen .

. The appellant is :i company registered under the provisions of the ·Companies Act, 1956". The company obtained the consent of the Govern- ment of India vide its Order dated May 31, 1990 to issue 7,20,00.,000 equity shares of Rs. 10 each at par and 33,90,000 fourteen per cent se- F cured redeemable non•convertibfe debentures of Rs. 100 each at par. This Order was, made by the Goveiiiinent in exercise of its power under the Capital Issues (Control) :Act, _!947: Pile of the conditions attached to the order~s: _

"The company shall scrupulously adhere to the time limit of G 10 weeks from the date· of closure of the subscription list. for allotment of all sec.urities and despatch of allotment letters/ certificates and refund orders."

---· A prospectus was issued by the company on 12ih July, 1990 for the issue of the aforesaid shares and debentures. The prospectus stated, amongst H

494 SUPREME C¹)URT REPORTS (1992) I S.C.R.

A other things, that the company had sought the permission of the stock exchanges at Indore, Ahmedabad, Bombay, Calcutta and Delhi' for dealing. in equity shares and debentures in terms of the prospectus; .that interest at the rate of .15% per annum on the excess application money will be paid io the applicants as per the guidelines issued by the Ministry of Finance on July 21, 1983 and September 27, 1985; that the public issue will open on August 20, 1990 and close on August 23, 1990; and that _it would not be extended beyond August 31, 1990. When the issue thus opened on August 20, 1990, it received overwhelming response as a result of which it was about 40 times over-subscribed. The company received 26,32,894 applications for equity shares together with an aggregate sum of Rs. 225,25,51,247 in respect of a public issue of Rs. 25 crores. In view of this public response, the share issue was ciosed on 23rd August, 1990. On October 15, 1990 the board of directors of the company approved the allotment of shares. Shortly thereafter, it secured the requisite permissions of the stock exchanges at Indore, Ahmedabad, Bombay, Calcutta and Delhi to deal in the shares offered in the prospectus. These permissions were obtained prior to November I, 1990. The company had to despatch an D 25,50,604 refund orders of aggregate value of well over Rs. 200 crores. These orders which were printed in Bombay were meant to be despatched from Delhi. The company despatched 8,55,226 refund orders from the Sarojini ·Nagar Post Office, New Delhi at the rate of approx. 1,00,000 J. refund orders per day. On 26th October, 1990 a consignment of 6,69,999 refund orders bad been despatched from Bombay ·to Delhi in a brake van oftbe Paschim Express. A fire broke out on the way in the brake van as a result of which many refund orders were destroyed. Almost 50% of the consignment was missing after the accident. In consultation with the Madhya Pradesh Stock Exchange and the Company's Bank, instructions were is- sued by the Company to stop payment of all refund orders with a view to avoiding any possible fraud or misuse. As a result of the countermanding of all the multi-coloured refund orders and the printing of new refund orders with distinctive colours etc., delay occurred in the despatch of newly printed orders. At the request of the company, the Madhya Pradesh Stock Exchange granted it extension of time till November 30, 1990 for issuing the refund orders. Time for this .purpose was further extended by that stock exchange till 19th December, 1990. The Bombay Stock Ex- G change, however, refused to grant extension of time. It further informed the company that it was bound to pay interest by reason of the delay in the despatch of refund orders. The Securities and Exchange Board of India, the second respondent, called upon the company by its letter dated March 13, 1991 to pay interest to the investors at varying rates for the period from lst November (which is when the period of 10 weeks from the date H of the closure of the subscription lists expired) till the date of posting of

RAYMOND SYNTHETICS v. U.0.¹. [THOMMEN, J.] 495

the refund orders. The refund orders were not despatched until 12th No- A vember, 1990. The Government of India and the Securities artd Exchange Board of India insisted that the company should pay interest to the inves- tors for the period of the delay in making the refund in accordance with the provisions of section 73. Apprehending that the Government might direct the stock exchanges to delist the shares of the company by reason of its failure to pay interest, and also initiate actions against it, the B company filed a petition in the High Court under Article 226 of the Constitution, but it was dismissed by the impugned judgment.

The Bombay Stock Exchange seems to have understood that the liability of the company arose on the expiry of I0 weeks after the date of closure of the subscription lists. Paragraph 23.2 of its publication of March C 1991 quotes the condition mentioned in the Order of the Government of India dated 31.5. L990 (which we have extracted above) to the effect that the liability of the company for despatch of refund orders arose only at the end of I 0 weeks from the date of closure of the subscription lists.

Jn the High Court, the Union of India and the Securities and Ex- D change. Board of India appeared to have taken a divergent stand on the question. While the Government of India submitted (as disclosed in its affidavit, and as referred to by the High Court in the impugned judgment) that the liability to pay the excess amounts arose on the expiry of 10 weeks from the date of closure of the subscription lists, the Securities and · Exchange Board of India contended that the liability ar~se on the date of E allotment. In the present appeal, however, the Union of India supports the stand of the Securities and Exchange Board of India. On tlie other hand, the company contended that, on the facts of this case, the liability arose only at the end of the period as extended by the Stock Exchange at Indore in terms of the prospectus. The High Court. held:- F 11 •• .In our· judgment, there is no difficulty in fixing the date from which the liability of the Company to make repayment arises. In a case where the allotment is completed before ex- piry of the I 0 weeks, then from the date of allotment and in case where the allotment is not completed till the expiry often weeks from the date of closure of the subscription list, then G from the date of expiry often weeks ... " The reason stated by the High Court for coming to this conclusion is that the company knew what the excess amount was on the date of allot- ment and there was no reason why the comp'lllY should delay payment till ->-:... the end of I 0 weeks in case the allotment was made earlier. The High H Court says -

496 SUPREME COURT REPORTS [1992] I S.C.R.

A " .. .In cases where the allotment is completed before expiry of ten weeks, then the Company very well knows the excess amount,· which is to be repaid and consequently the liability accrues forthwith to repay the said amount. In case the Company fails to repay the amount within the gra~ period of eight days, then the Company would be liable io pay interest to the investor B inspite of the fact that period of ten weeks from the date of closure of the subscription list is not over... ". The High Court thus held that the comp"lmy was liable to pay interest at the prescribed rates for the period of delay and the liability for the same arose on the expiry of 8 days from the date of allotment of the shares, and not from the date of expiry of I 0 weeks, where allotment was made earlier c to that date. The High Court did not accept the contention of the company that the time having been extended _by the Madhya Pradesh Stock Ex- change till 19th December, 1990 in accordance with the relevant provi- sions of the prospectus, the company had no liability to pay interest.

D The question for consideration, therefore, is whether the High Court was right .in discarding, for computation of interest, the time limit of 10 weeks running from the date of closure of the subscription lists, notwith- standing that the allotment had been made, as in the present case, prior to . the date of expiry of I 0 weeks.

E 'Listing means the admission of the securities of a company to trading privileges on a Stock Exchange. The principal objectives of listing are to provide ready marketability and inipart liquidity .and free negoti- ability to stocks and shares; ensure proper supervision and .control of dealings therein; and protect the interests of shareholders and of the gen- eral investing public'. (See para LI of the 'Stock Exchange Listing', F publication of Bombay Stock Exchange of March, 1991 ).

A public limited company has no obligation to have its shares listed on a recognised stock exchange. But if the company intends to offer its shares or debentures to the public for subscription by the issue of a pro- spectus, it must, before issuing such prospectus, apply to one or more ·G recognised stock exchanges for permission to have the shares or deben- tures intended to be so offered to the public to be dealt with in each such stock exchange in terms of section 73. We·shall now read the provisions of section 73 insofar as they are material:-

Sub-section (I) of section 73 reads: H

RAYMOND SYNTHETICS v. U.0.¹. [THOMMEN, l.] 497

"S. 73(1). Every company intending to offer shares or deben- A tures to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or ;more recognised stock exchanges for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange." B This sub-section was inserted by the Companies (Amendment) Act, 19a8 with effect from 15.6.1988. It has application only to a company intending to offer shares or debentures to the public for subscription by the issue of a prospectus. Until this sub-section was inserted, listing of public issues was not compulsory.

The original sub-section (I) was substituted by the Companies (Amend- c ment).·Act, 1974 with effect from 1.2.1975, and substituted again and renumbered as the present sub-section (IA) with effect from 15.6.1988 by the Companies (Amendment) Act, 1988. Sub-section (IA) reads:

"73(1A). Where a prospectus, whether issued generally or not, D states that an application. under sub-section (1) has been made for permission for the shares or debentures offered thereby to be dealt in one or more recognised stock exchanges, such pro- spectus shall state the name of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, · E whenever made, be void if the permission has not been granted by the stock ex'change or each such stock exchange, as the case may be, before the expiry of ten weeks from the date of the closing of the subscription lists: Provided that where an appeal against the decision of any recognised stock exchange refusing permission for the shares F or debentures to be dealt in on that stock exchange has been · preferred under section 22 of the Securities Contracts (Regula- tion) Act, 1956 (42of1956), such allotment shall not be void until the dismissal.of the appeal." · This provision makes it necessary for the company to state in its G . prospectus the' name of each of the recognised stock exchanges whose permission for listing has been sought by the company. Any allotment of shares will become void if permission is not granted by the stock ex- change or each such stock exchange, as the case may be, before the expiry of 10 weeks from ihe date of the closing of the subscription lists. The validity of the allotment is thus made dependent on securing the requisite H

498 SUPREME COURT REPORTS [1992] I S.C.R.

A pennission of each stock excl\ange whose pennission has been sought. The liability to repay the application money arises only upon refusal of the stock exchange to grant the pennission sought by the company before the expiry of I 0 weeks from the date of closing of the subscription lists. This is clear from sub-section (IA) read with sub-section (5). There is a deemed refusal if pennission is not granted by the stock exchange before B the expiry of I 0 weeks from the date of closing of the subscription lists, and upon the expiry of that date, any allotment of shares made by the company becomes void.

However, from the decision of the stock exchange refusing permis- sion, an appeal will lie under section 22 of the Securites Contracts (Regu- C lation) Act, 1956. Pending the decision in appeal, the allotment made would not be yoid, and the decision of the concerned stock exchange is made dependent on the result of the appeal. What is significant is that it is the legislative intent to delay the result postulated under sub-section (IA), i.e., rendering the allotment void, until the said period of I 0 weeks has expired or until the dismissal of the appeal. D Sub-section (2), as amended in 1988, reads:

"S. 73(2). Where the permission has not been applied under sub-section (I) or, such pennission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company ,who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such· rate, not less than four per cent and not more than fifteen per cent, as may be prescribed, having re- gard to the length of the period of delay in making the repay- ment of such money."

This sub-section requires the company to repay 'forthwith' all money received from applicants in response to the company's prospectus either where the company has not applied for permission of the recognised stock exchange for listing or .where permission has been applied for but not granted. If the company· !las issued a prospectus without seeking pennis- sion for listing, it has clearly acted in violation of the mandatory provi- sions of the Act, and the company has no right to receive or retain any amount by ·vay of subscription in pursuance of its prospectus. On the

-I RAYMOND SYNTHETICS v. U.O.l. [THOMMEN, J.] 499 • ~ other hand, where permission has been sought, but has not been obtained within IO weeks from the date of closing of the subscription lists, thereby ·~ renderi:ig void any allotment made, the company is bound to repay all such money forthwith, but without interest. Jn the event of such money not being repaid within 8 days after the liability to repay arose, the com- pany and every director of the company who is 'an officer in default' are made jointly and severally liable to pay the principal amount as well as interest thereon as from the date of expiry of the said 8 days. The interest is payable at the prescribed rates varying from4% to 15%, dependent on the length of the period of delay in making such repayment. This sub- section thus postulates two circumstances in which interest becomes pay- able, namely, where the permission has not been applied for before issu- ing the prospectus and the company 'had thus acted in violation of the law c or where permission, thought applied for, has not been granted. In the former case, apart from the other consequences which may flow from the company's disobedience of the law, the liability to pay interest arises as from the date of receipt of the amounts, for the company ought not to have received any such amount in response to the prospectus issued by the company in disobedience of the requirements of sub-section (I). In the latter case, the liability to pay interest does not arise until the expiry of 8 days after the company became liable to repay the amounts received by reason of its failure to obtain the necessary permission as referred to in sub-section (1 A).

It may be mentioned in this connection that, prior to the amendment of 1988, sub-section (2) did not make the company liable to pay interest oti the amounts repayable by it in terms thereof, but only the directors were liable for payment of such interest, apart from the principal amounts. TJ1e proviso to the sub-section as it stood prior to 1988 exempted a direc- tor from such liability if the default was not caused by his misconduct or negligence. As a result of substitution of a proviso of the sub-section by F ~ the Amendment Act of 1988, the company atid every director of the "' company 'who is an officer in default' are made Jomtly and severally liable for payn1ent of the principal a1nount as well as inten~:st.

We shall now read the crucial provision which is sub-section (2A):- G "S. 73 (2A). Where permission has been granted by the recog- nised stock exchange or stock exchanges for dealing in any shares or debentures in such stock exchange or each such stock exchange and the n1oneys ·received from applicants for shares or debentures are in excess of the aggregate of the application ---~ ... moneys relating to the shares or debentures in respect of which H

500 SlJPREME COURT REPORTS (1992] 1 S.C.R.

A allotments have been made, the company shall repay the mon'' · eys to the exient ofsuch excess forthwith •without interest, arid · if"such riioney is riot rep~id·witbin eighftlays, from the date.:,1 the eom'pany bec<imes liable to pay it, the company and every . director of the: company ·who is· an officer:-in -Oefault shall,. on and from the expiry of the eighth day~ be jointly and severally . B · 1iable to repay !hilt mbney with 'interest at such rate,. not lesser than four per· cent and not mon; than fifteen• per cent,· as may , . be prescribed having regard to the length of the perit>d of ·delay in making the repayment of such money". · ' ,... ·I · · l0 I' "' · ; .· : - '·' ·_ , Sub-secti<?n (2A) ~as inse~cd by. the Comp1111ie~ (AIJ!endment) Ac\, 1974 which came into force w.e.f. 1.2, 1975. S~ction 73, as it stoO<j prior : c to 1975, cont~ned n9 spllcific pro~isi'o~ ~oinpeying the coripany or _i,is.' directors to repay th.e am.ou9ts rece,ived in e~cess of the a~regate· of \he application .money · relating I· to the · - · shares '· or . debentures •'' in respect -. -, , , •, of· ivhich 1" allotments· have been. made. Sub-section(2A),was inserted, to cover cases· where permission of the stock exchange has l)een obtai~ed, l)ut the s.har~s or debent~res h.ave been over,subscri)led and the cpmpan_y is qon5equenily . D in possession .9f excess .iimomi\s. i1ie. sub~section.: as i~serted 'i1iJn~. , made the company liable .to repay.Hie, excess am,oun\s fortnwi~\1, but. d.id ·. not make the company liable to pay. interes.~ 01) ~'!ch ~x.c~f,S amouws., .But .. a liability was cast on the directors. If the excess amount }Vas .t\ot repa\d .. within 8 days from the day the company became liable to repay It. the E direct.ors were. made jointly and severally liable to. re(Yo\y such aii:iount with interest. '.fhe proviso to s.ub-s~ction (~A). wh\oh 'tike:the,piovl~o)o sub-section (2), as they stood .prior to. 1988, prov.ided that a. d,ire.c.tor was· not Ii.able to repay the money with interest if he proveci that the default in .. payment of the money w:is not on account of ·any mjsctmduct or 'iieg!F. gence on bis part. · · , · ·' · · ·· ·' '.fl) i< • L :: :.':·- ,;,

F · ·1 . • ' , ! •' · · _ • . , , ·· · •r< Owing to the .absenee . of a . specific pro~isio11 imposing liability on.' .· ,.. . . -·l• the company, to pay mtere~t on the. ove.r-subs.cribe.d ~mounts, an~. als<;> owing to the absence of any.provision to exempt directors wh,o _were not , . • . .. - .• .. . : j (, _, .. ,,, .... ' ' _,

directly in charge of the administration of the company and the need to make listing ·Of public issues SO')lPUISO!y, furU1er_ awendl)l.entf}o the sec- G' tion beca1ne necessary. · ' '' . , :_· · I · "'I , · ,. . . . . ·- ! ; ' . Accordingly the A)nepdmen,t.Act pf J98,8 introduced several amend- ments to secti~n 7J, one of them, being the.,sul;>~tituilon of~yart of sub- section (4Al ll)a~in~,th~ compan~ and e~~ry ,dir,ect!]r of1!1e,,company who is 'an, offi,cer ,i11 default' jointly.a,od ~everally liabl~ to repay ,the excess H money with interest. A,'pir~ctor of a_,company iyh,o. is .~n <?f~cer in de- .. ·" fault' appearing in sub-section (2A) must be understood with reference to

\ >f.'1 ': ! !:RAYMOND S\1Nll'HJ:iTIC:s,,11, U.O.LfiTHQMMEN,J.] 50}::r

thei:definition·rof !a1h.offioer,,whb ,.is m,default:.,cqntaineq,:ill 1s,eption 2(3 I) · Aj. read• ,;/itlnsectiom;5.> 1T,his definitio\I in~ludes ;t,h~ m~nagil1& ~,r11,9tor or the - wholetimll ;director·,ofra :company .. ,$0. u11c!erstood,. t~e,. li1'!1ility imposed under.·.sub•sectidnl'(2A¹) .on1l!< director ,of;t~~,,cqmpany.Jal)s OJl,IY upon a dire'cfor whcl'.is/an officerdn·:default'; as de.fined under sectio!! 2(31) read with¹;section• 5(a)< {b), and: not upon any .other jlire<;tor;. Jhe ,nQminees of the'.GovemmentrOf\financial,,instituti 0ns .on \he., l:lo.ard qf dirn<;tors of the 8 1 ' company, but. not directly in charge of its aqministq~tion, as full time ditectOr~;1ar.i;;eX:e;mpted from personal liability. The rate.of interest pay- able under sub-section (2A) is, as seen above, not less than 4 per cent and not1mbte;than11r5;per";·cent.i:i .11<i:1 J.;:1r1q. ;,~,.n.11.,·; :-.;~~~ Ji:·,;,:;"q. ,,.,1 !d .::::J•.iff1'J'.;'."Ji rlt0j ii~! :";~~f!t:.flJX,l ·))(i)!'; f\.'-,.~fJf:!\1 ·i>,r1ibgf~'] c,:!)I ·rJ ;·r;bfl-'·di;'1 ~ 111 •1cTbe1subfsection~l'IJQuires :th~:;eompan¥ to ,repay,\!Je,pxets\lbfc.ribed ; C·: amounts; These:amounts. are.,paid,by,,~rsol'ls¹ who ,h~y,e1re$poq<!~\l !9)~% prosjieCttis . whicl:i,was ,Issued :by lh\' ·company,;af_ter,,ma~iµg aJI .appli<;a,ti,ql] , for permission in accordance with sul>-section-(1): B!!l•Wh~11 th,ct~ubsc,i:iP.n tion lists are closed, the excess money is ascertained.with reference to the actual1aHotments mader and so: it, becomJls repayabl~ as .the ,company has no<tight to rJetain,it" IT:he question is, ,for,the: P\ITPO~,of:computj¹,1g int~re,st,,, Q did cit bticome repayable upon, the date.of;allotmen¹ 1 as:found 1by 1 t~e l:li@1• Court and as contended,,by:.the.respondents, 1pr. Qn· some. o.~he.f.AAY· '" ,,, .,,,, .•

The Additional Solicitor General, appearing for the Union of India, Mr11K\STCooper11fonthe S_ecorities:.&r Exchange 1Board;<;>frJn<lja, Mr. T.R. Aiidhyarujirlivrfor the' Bombay, siock Exchange and, pr."t\;\\ll•rSinghvi, for E; one of the iritecveners.,submit:thatitheliabilityJo1r;epay,~he ,exqess amount arises on the date of allotment of the shares, for the statute ·says that the li~b'W1Y''~ri~~s'.';~f\~*lth'a~\l·'ati~.~biafh~yoiid 1 'i!ilperl&!'Of¹ 8 ila'ys 1from. th,q 1~Y. ·R~l¹ ~illqtj: t~gH~b~)'!tY, 1#~ ~ttl:aciS'lnte~Jst'. 1 7 1 Th~ ·~xP~WSJ8tt '~0#4~th': 1

h~~· ~~~&e. µn~a~fS,tO~ 1 "~s~:al¹ .-l'i\'.i,~i~iJt~ 11i~b11it~· 1 1 iStert~Irtta.bjH 1 ·'with¹ reter2 1

e1'tC~' ~~~tfi~~4at.~ hf'alibtM~~t'.; ~ut ~.il1Jjg8r .tb ~'.~'fibi(o fgnl~ ofi':iiitSlS.J_,, fllJ Fi 1 1 1 1 r:D!1.,_,.·, ~._,, ,:~ir rl! o;:: Jl•J;f! 'Jf'1 Iii; ~.¹ :?:Hi i '.1iun~lc 'J'f! ~() !n~rn:(!HJP'il 1 ~- di :W. XriH:If, 1 D~&iilii, t;p~~ltHHg i8Pthr~·:·bom1~an' 1 ~!o·frlthJ 0t~er 6ana;·; 1

c~iit~~ld'S~tllat ~ i1Juc6/~~fil~Y-::1s. ght itled· :tb! rjef~ih tile'.·e~6~SS ·:ronaUhi 'f'Or'the'' 11 1

~.ri~d'.~~(~ntloW¥d~.~~ 1 1 1 1 1 ! t~'i· pfg~p~CtU~ iand tSn~t]h ~DtlY :;.;0 ~1tabillt~ ''td; pay)

i·llt~ ~~·t ~all:'al;iS~ Uhifi ·fue r.~Xpiff ·6f tH~l')periH~. PfO~Ctu~ 1 is1(aH'·'iHSttil~r¹ 1 1

m~~ )i~g1~¥Jrb¹ 1d .i U~'Ct~i.¹ k~SiioHJ¹ 166~1lbif¹ ihb ~JX'6t11aiid1·a1i. staretft~fit'S¹ "cdrit3irie1d J G.¹ i~\H~ h~~ 'fh~t lgfi~:n~~iht'J~_\to' 6~' iil~~H~d~l}y 11ie' ~tiiH1tg'..t the"'ifMtnl~i Of tile') pff3~15e2fl..1s :~r~ 1 b'i'Ndi~:g 1 Hot1001~l~j JpJ"' 1th~'<bb'tnPMiY';hhf·hIS¹ ·upbtr 1pers8n~ 1 who deal with the company in pursuance of the prospectus. One of th'oifo¹ t~f111S GOJl.Cell)S ~he,repaYl)lenl. of excess money. It re(!ds:- . . vllh (ll¹.'.~(:J;lbh !vn ;::~-.uu !Iii _1.{fj)!f)t (i(.lJ~J~'~;qz l :Jfii rj;f!! /lfli <:'.i !/ 1 :'.:i.' rn-..i.~o:~:~·~.:\~'·~~~ .-1.Jffl(t,,! ::i•1, .-:.J,_J1tJ~':J1q ':H:Ri.1>::: 1 - ~tt ~gi1!Cait,iJ;~ ~\$ ')rt!)~~te6' 1 ':.!f!J .i:1t·J·111;1! .'..i1Jd i~:rfuii~ct11:e 1 WtiQi~ I/ .:.-iluf1>k ~;rlJ 1o 6fithe 1

i1··}iitd'). H;

I 502 SUPREME COURT REPORTS [19921 1 S.C.R.

A application money received will be refunded and where an application is rejected in part, the balance, if any, after adjust- ing money due in the manner provided earlier in this Prospec- tus on Equity Shares/Debentures allotted will be refunded to the applicants within ten weeks of the date of closing of the Subscription List or in the event of unforeseen circumstances B within such .fitrther time as may be allowed by the Stock Ex- e/range at Indore" (emphasis supplied)

In the present case, counsel points out, time for refund had been extended by the Madhya Pradesh Stock Exchange till 19th December, -y

C 1990. Accordingly the liability of the company to repay the excess amount did not arise until then. In the circumstances, interest became payable only after 8 days from the expiry of the period as extended by the Madhya Pradesh Stock Exchange.

If Mr. Dewan's argument were to be accepted, the company would have incurred no liability to pay interest. for time had been extended by the Madhya Pradesh Stock Exchange. But this argument is clearly con- trary to the provisions contained in su.b-section (4) ofsection 73 of the· Act which reads:- ..l.

"S. 73(4). Any condition purporting to require or bind any applicant for shares or debentures to waive compliance with any of the requirements of this section shall be void". ln the teeth of that sub-section, Mr. Dewan's argument on the point is totally without merit. Even if sub-section (4) had not been inserted in section 73. Mr. Dewan's argument in this respect would have been equally unsustainable. for no agree1nent can defeat or circun1vent a rnandatory requirement of the statute. This is all the· more so in view of section 9 which specifically provides that the provisions of the Act override the 111e1norandun¹ or articles of association of the con1pany or any agreen1ent executed or resolution passed by it. The statute requires the co1npany to pay interest in terms of sub-section (2A). That provision says that the company should pay excess money forthwith, failing which interest be- con1es payable at the end of 8 days therefro1n. Any inconsistent provision in the prospectus is unenforceable and it can be of no avail to the co1n- pany.

It is true that the expression 'forthwith' does not necessarily and always 111ean instantaneous. The expression haS to be understood in the . . _ . ....__ context of the statute. Where. however, the statute prescribes the payment

RAYMOND SYNTHETICS v. 110.¹. [THOMMEN, J.J 503 • of ritoney and the accrual of interest thereon at certain points of time, tue expression 'forthwith' must necessarily be understood to be immediate or instantaneous, so as to avoid any ambiguity or uncertainty. The right accrues or liability arises exactly as prescribed by the statute. Decisions such as Keshave Ni/kanth .Toglekar v. The Co111111issioner of Po/ice, Grearer Bo111hay, [1975] SCR 653, and Salim v. Stare of West flengal, [1975] 3 SCR 394, deal with the expression 'forthwith' in the context of preventive detention demanding a liberal or reasonable construction. Bu.t that is not the construction which has to be adopted when 'forthwith' is used for detennining the time and mode of payment of the principal and interest. The legislature intended the expression 'forthwith' to refer to a particular

-·c day on which the liability to repay the principal amount arose, and that is the day from which the period of 8 days has to be computed, and on the expiry of that period, interest begins to accrue.

It is further contended on behalf of the company that in any view interest is payable as a penalty and, therefore, a reasonable and rational construction has to be placed upon the statute in regard to the commence- ment of the liability of the company to repay the excess amount. Relevant D circu1nstances which caused the delay 1nust be taken into account in this regard. There is no. substance in this contention. As stated earlier, sub- section (2A) provides for the accrual of interest and the rates thereof. Unlike sub-section (2B) providing for punishment by imposition of fii1e or imprisonment, sub-section (2A) speaks only of interest which is in contra- distinction to punishn1ent and is not penal ·in character. It 1nerely provides E a mode of calculation of the amounts payable. Any consideration with reference to a penal provision is of no relevance to the liability of !he company or its director> to pay interest in tenns of sub-section (2A).

Sub-section (2B) on the other hand provides for punishment. It reads:- F "S.73(28). lf default is made in complying with the provisions of sub-section (2A), the company and every officer of the company who is in default shall be punishable with fine which inay extend to five thousand rupees, and where repay1nent is not made within six months from the expiry of the eighth day, also with imprisonment for a term which may extend to one G year'' .

. This sub-section concerns solely with default of compliance with the requirement of sub-section (2A) namely, repayment of excess money. Failure to repay the excess money as required by sub-section (2A) visits the company and every officer of the company who is in default (as H

-, 'SUPREME COURT REPOlffS ., <-' '-(19921 I S.C.R. • A defined'uhdersection 5)with·the stipulated punishment. 'lihis is, of,course,

- in addition to the_payment of intereSI prescribed-undehsub-Sl'etion:(ZAl. , _, ',1'r .• •n:'·i,·:_..:i·· ,.11. 1 :1:~, . , ,- ~;i( 1•_ ''.· ·.( ~-- ~ .•.-~ !;\j'!r~';· -,. · Sub-section (5), as it stood prior to _1-.2.1975, read;1;: ·. ·, " · . , . "J<'

· ·" · .""S.73(5). For the purpose ofthis·section, penjlission shaU.n()t B · • .·'1 'be deemed to be refused ifil'is-intimated that the: application "· , •fcir penn-ission though•not.. at preseiit granted; .will be¹.g;iven •·: ;)· ..·. -: furthercOnsider"atiOn" .. _j ~·' ~.: .s:rt. · 1 ~-,.. :·;•_•n.,.,;;.~·11,: ,,;·

' 'Thi~ !s~b'.sddtio~ ~as· s!l6siinlted 'by iii~ ,Gom'ilanies (..\lil~il~;hjerlh 1 '·. · ' '· · , ' - · '· '· • · • ?- ' , l'. ,. ' •1 ·. - · ·1 ·•'I r , ·1 '.• - ::1l ··r! _1 A91\ 1~71-vit~.~tfe~t from)-~: 1975 rea.~!~g ~~foJ,l~~~/ .,, 1 r! .; . · ,, :', 1, c . ; .·. . '.' ;.,_ ' .. . ', ... , .· 'n ' ·-· - i , "S.73(5). For the puqjoses of this section,' it sball' be tleenieil ., , ·\ 1 . . 1· .. I'' . ~ . : ~, 'i

that permission has· noi' been grani~H" if th~ 'kpi)ilcah&n "rcir ,, , , 1 {7;r~si~r¹.~1~~~U~-~:~h~~f( r~~i be~~'~,\S~SJ~~ ,9f Wi\\lin the ! . -··~,·- pe_ ; i _·,, .1'.! ,.. ~···. ). i --~ 1; ., ' ,i;-_'/;(_ ··! t-'~! 1,i :·, ;.

·,;, .. Sub-seciion{I) refemidto -in sub'-section'(5).cas substituted!On··li2, J975, ·D 1is.in •tact 1the -pre&ent sub-5ectiqn. f IA);' for:< as 1stated earlier', the original sub-section- (I)' was amended and renumbe~ed.. as. sub,section. ( l:A) ,,when the present·sub·section (I) was inserted by the Companies·(Amendment) Act, 1988 w.e:f. 15:6!1988. Consequently, the words 'the.time·specifiedin . _._ ·sub-section (I )'-·appearing- in sub'sectlon {5): as ;1iS'erted wceJ;nl.2,~97.5, denote the -period of I 0 weeks mentioned 1in 'the present ·sub-section'(1. A). E This· means- that ·the •pennission for: listing' is•deemed no\ <to1hlive1been ·granted, <i.e.',. impliedly refused;':if' the·o11pplication for pemlission ·filed¹ by tile company has not bee1rdisposed of.before the e~piry:of:IO weeks1from the date of•the closing of the· subscription lists, as· mentioned· unde~ .sub- ~ction (IA). ""; ... : ·\ ;i .:n•,;1,,- ., 'F Sub-section (IA) postulates that any allotment made becomes void -at the· endoHO weeks from the •date of the closing of the· subscription lists ·if.by that tllne tlie requisite· permission of•the stock exdiange·has not been ·Obtained-) But this ·consequence•.is.pbstjlo'ned tilHhe dismissal of any ap- peal--preferred ·under• section ;!22 lof:tbe ·SecUritiesl<!ontracts '(Regulation) . Act,iJ956 (S<\ii'the provis<i'tO'sab-section {IA) rot.section 131 of the Act). !.(J NevertheJtjgs; the- pennission, if.not'obtained.-wi(hin rlO,.weeks, is deemed not to have been g;ranted. ;. -,, 1 ihe !>liniilssioii rdr Ustin~ sou!!bl'i1hder suO-sectfon'( IfiS-.iot granted, " ' ''if . tile interest'JSarable'lirlli~r'sub-seCiiOn' (2fis :aifracied. 'Siiblsec'tion1t2)''saYs 'H ,that th~ :lialiiliiY'to'repay' the ·money recelvt~. rrom apjillcants arises'fb1'i11- Witli either' wliere the 'i)ermissiOI\ i haf not 'bl\en oougl\¥ br;. biivilig' lie'en . ....,- 4

.'·:.);.: 1 RAYMOND-SYJllTHETl(:S • j ' ! .·!·-'. !/l .. , ,_;!.' · '":~:!_ U.0.¹. [THOMMEN, J.] ..'.'. :. 1< 1 ! 505 .· ·'S</.ugl!t:; 1 it,1h~s 1 ngt be~n 1 gr~n.te.~;J,h,e .f,~ft~!~HW :~~~~I;.\~ 11endil)g_ ~<!es ,A ,. not pqstpon.e t,1\e, resq!t,s9,nte_r1wl_ate.d,.\9; ,~ub.-~~~t\?,? 1(.'.f), •r.r~gru,:d .t<,' the · - ,liability, t9»,r~p;1y¹ t~·e, aji19un_ts, ~d, )hcj\1\er~-~t ac,~ming fhereo!). if ihe ccamoµnts we !Wt ~eP.aid ;\".ith,i11 ~.da¥s a~~r We,!i!!!?i,l,ity ar,q~· }lle acciljal -,:ofri.n.!erest,µ114.er,~ub;~.Ct.!pn 1f~), i,s,.l)qt c!Fpend.e!J), or ;9<J~seguen_t ,?~ !he r•:.n!l_llj~y,pqs!11l;i,t~~:Y.. ~qb;;~ct.iO? 1(\A,)1 : ,,, .::c.:. """ , : hoh. ''"' 1 ,, , ,., ,!'· rJl)i?'.:';'!' ii;;:~ ~;;!·,i ),_, f,I! _;'J'··l;p'l';i '.:, ·\[-)' In this connection. reference may be made to· sub-sectfo1i (3) which 1!:'ffadSi.l·j'.J,1~Ti;-~1):; 'jj 0 1 ';·''.,;::.'ii:. d>.·irl fo:;ir; .,,1) iG '.ff.'",! t. v r<-·_,;:-t, ~"'. -'.:_1.'A':·!. ·_ ,r:·: t·J:.1_;_nq :;i :l~·-·-i;:!i ··; •;! ~!::.._J·:/ :s-'rft ;.:1·;-.._·~i:,~~·:r; .·\·: l1_,q ·"·1!1;11 ' !: ,,.; f rfl,:l; ·r~'S'•7'3(3}0<All '.llioneys¹ recei.ved: as:a:for~said,shall ~e. ke11!A¹ a rrJ. el;u-,i!qq;;separate hank1a~count maintajned;.witlr;;-i Schequl~d; b;u!k .u.n.til ,.-;1 ;1idir-1: m tnecpe·rmission:-has.cbeeo ,grante.d, -o~;\\lh.ere .a.n app,~_a\ch~~_,been . 1C •1i i>snoiH•c. npi:efer;redragain~t-thiuefusal t_o;grantsucl¹;pe,rni,i,s~i_o!);, until _the ' ot b .•l mr.i:i!!.disposall oLth! ·appeal,.,and: the' money-.s_\an<l,ing, i)l su9h, sepa- ;wm .,,;, '''" •rate acciiunt1shall ,l where the ;permissi()n has -npr,,l,>e~rr apn!iecl for as aforesaid or has not hee_mg¹;a111et/,_,ge: :rep~iJI. wifhi(l._the time and in the 111a1111er specf{ied in s11h-section (2), and if ''""' · "''' e.,,., 'de'taiilhs 'ina'de'.in"c6mply'ing''witl1!this,sitb,section';•the com- ( p c· · "~" '' .:•r.J• pariy~ana'ever'y bfficef-of·thecompany who •is:in:default. :Shall - be punishable ivith .fine which/nlay:--:extencf ltb \ft Ve: lhous311d rupees." . . . (emphasis supplied) ;.-!t•rd ~1L,ii~::t~i~ ·3f[! .Jo ·1ibci"1:~ ·:.fil 1_,r ~. ;dhn:;:<; · 2. I' ::tnil..J ,'r.J ,; ~·. ;;·- ''" i 00 ;ff!)is,su~,~eq\i~n ref~rs,1g,~he,?,b!ig~t.iop ,of.t~~t~S~P~Y to keep all , E amounJ~ . r:e.c~i y~.~·-tf~n? :~~-~ ,~_1:11'!~~r~P.r~~j; i9 .a, 1~7_p~r.~~,~ 1~,?nfi, ·*ccount main- tained with a Scheduled bank. Such money must so remain in the bank '' 'oritilctbe' :permission- has '.btie1i; gran1edcby.-. the: s10,k; i:xcl)ange. or, µntil the -' disposal cbf ;an ;app~al.preferted¹ agalos\.;refusal, t~. (!rant' permission. ,W,here the permission bas not been sotight,•.theicompany ·has, as,seen.a.l:Jove •.~cted in disobedience of the law. and the at110lll¹.fS received from tlie investors . , F ' 0 triu$ille''ffediteif'fo·lheiseplir~tJloaiik'~ccdilnf·atld immediately returned to . "' 1lliem' !Ol,ieihe'r\.vi'tti'"-t~e'' iiitfaest;·ivmcli' adrue'd •for the· peridd. •Bun wliere "rll><\fin\iisiiiii! 'liaS! figM·~bl:1~1ht ,'out '11'ot 1l\'rantiid;1 thi· runounts"so kepi: ·;n¹ the ''' blilik"iiav~·: fo'hil 0rMjiaill. witl?iri' the' fiiile'spetifiell •i"n s11b-sefoo1ir(2):1IDe- fau1t of compliance with this requiremenl":Will lriake·rttte ·company;:and .. everypfficer in defilult (as defined under section 5) liable to be punished;, G ~ ~itl¹ ·r.~~~-~:·rh'ts~ ~~ 11; 6f'":c_6tif~e;l~- iA-·t.dd~\16nr_tO :·t11e:·11abt1tty f6tipay1nent · ~ 1 1 1

~~ :0.f'.~µ~e~~f ~µ :tefriJ~ bJ\,~t.ti~~~ctig~ 1(.2).11 ~'.~ J"·'· ·:.:,: .¹:. 1 :_~~~·\;,j·;··(; ·- ;·:'; ',~ :,,.~ 1

:c.',.~:·~.·~'.'.:'.¹:._.,. ·.'·'..¹. -...[ ;_;f'i"' ··~·~ .:i:'.~1._···: . •:,-..... !tf'l J • •·ir:l ;:, '. ·n ·;r...:Ji'l!Offl'/.j ~i';..lf'l.lc::! ·".¹ 1 ·.'. "-Th~ Wgtji'i>? i:iil1\gaill>ll''of''tlie tdtli~ilry"t/i'ke~~'t'lie'ill'Bn'ey in !he ~ : ~ i~~'bniy·1 rJ'i tit~·· pen& 'P&ted1ii!!1;iite<dec·:iti6ii' 10l tW~ 11stbEk ~xt~ru1ge on the company's request for permission to list. On~~n\ile"petinissiOJi is i ; H

506 SUPREME COURT REPORTS (1992] I S.C.R.

A expressly or impliedly refused, the money has to be returned to the appli· cants, notwithstanding the penden_cy of the company's appeal. The earlier part of the sub-section about depositing the money in the b_ank is control- led by the latter provision in the sub-section for returns of the money as required by sub-section (2). This is particularly so by reason of the penalty - specially provided in sub-section (3) in the event of default of compliance B with the requirement of that sub-section.

Sub-section (3) may at the first blush appear to be contradictory, but itis really not so, considering the legislative intent to protect the legiti- mate claim of the applicants for interest on the money paid by them. The interest provided under sub-section (2) is payable to the applicants in c terms of that sub-section, unless the money is returned to them within the specified time, notwithstanding the pendency of an appeal mentioned in the proviso to sub-section (IA). Sub-section 13) has to be so understood to be in harmony with the other provisions of section 73. This is all the more explicit from sub-section (3A).

Sub-section (3A) says that the company shall not utilise the amounts held in the separate bank account for any purpose other than what is permitted by sub-section (3A).

Sub-section (3A) provides:-

"S.73(3A). Moneys standing to the credit of the separate bank account referred to in sub-section (3) shall not be utilised for any purpose other than the following purposes, namely:-

(a) adjustment against allotment of shares, where the shares have been permitted to be dealt in on the stock exchange or each stock ex- change specified in the prospectus; or F (b) repayment of moneys received from applicants in pursuance of the prospectus, where shares have not been permitted to be dealt in on the stock exchange or each stock ex.change specified in the prospectus, as the case may be, or, where the company is for any other reason unable to make the allotment of share". G The money credited to the separate bank account can be utilised for only two purposes: (I) for adjustment against allotment of shares where listing is permitted; or (2) for repayment where listing is not permitted or the company is otherwise unable to allot shares. The company has no right to deal with the money in any other manner or keep it longer than permit- ted by the section. H

RAYMOND SYNTHETICS v. U.O.L [THOMMEN, i.] 507

The money so kept in the separate bank ·account is held by the A company for and on behalfofthe subscribers in a fiduciary capacity. Such amounts do not fomi part of the general assets of the company. The .( relationship between the applicants and the company in respect of the application money so held in accordance with sub-section (3) is that of 'bailors and bailee and not of creditors and debtor'. See Palmer's Com- pany Law, 24th ed. para 24.31; 1955 (I) WLR 1080, 1085. B

Interest does not begin to run under sub-section (2) until 8 days have elapsed from the date of expiry of the period of I 0 weeks commencing on the date of closure of the subscription lists. The fact that the legislature --( has so provided in cases where pemiission has been refused expressly or . by reason of the deeming provision is sufficient indication of the legisla- C tive intent to give the company reasonable time to repay the money.

Companies generally make allotments as soon as practicable after the necessary application has been made to the recognised stock exchange for pemiission for listing. Upon the issue of the prospectus afte" making such application, amounts are received from the public in consideration of D which allotments are made in anticipation of the requisite pemiission. Greater the reputation of the company, larger are the amounts likely to be received. If pemiission is not granted, the entire amounts received from the public have to be forthwith repaid. On the other hand, if pemiission is ·, obtained, but the amounts received from the public are in excess of the aggregate of the application money relating to the allotted shares ,or de- E bentures, such excess amounts are forthwith repayable. Whether or not pennission will be obtained cannot be ascertained until the period pre- scribed for the purpose has expired, namely. 10 weeks from the date of closing of the subscription lists. Until the expiry of those I 0 weeks, nei- ther the subscribing public nor the company will be in a position to decide whether or not the allotments made are valid. This is a period of uncer, tainty and it is for that reason that tlie legislature has, in a case of refusal to grant pemiission, provided that the liability to repay the application money arises upon the expiry of IO weeks. The possibility of an appeal being allowed is, as stated above, not a ground to delay repayment. It should make no difference whether it is as a result of the pennission having been refused, or pennission having been granted and excess amounts are received by reason of over-subscription, that repayment of money has to be made by the company, In either event, the liability to repay the amounts arises forthwith on the expiry of I 0 weeks from the date of closure of the subscription lists. and the interest will begin to accrue thereon on the expiry of 8 days therefrom. This construction is, in our view, just and reasonable from the point of view of both the investor and H

'·508 1 1 'i .. ' , ; Sl!PJt.EME ,COl.JRT,REPORTS. . ,[1992] I S.C.R.

1.A . .the,cqmpany, ,and has ' .. - '' ... · ' • ~he, i •" advantage .•. ' ' - qf cef'\a\nty, l•ld· ,._.,. .: Ul\iformity : '·.- .and easy :'

n·RPPHG~~io~·-1 -. '!, ·.. -i·•r ., 111 _ . .: j ,:-. ~ ·,.,

. I -· 1'Jt , ·~' "i ·• •; l ' • J _. i i "! " J' ! ·~ . .-._ "'i I. .'I 'i :i :. · . . . ·. ·. "" The. coqditJon attach_ed t\) the,,p~de~.,oft~e Gov.emment of,lndia t ·, dated.31st .... - ' ·,May,. _, 1.990,.- which ·'- we .have. extracted ...·, ''·· .· '"" •- ab(lve, time, limit of IQ we~ks-from .lhe date..0f,closure o.f t.h.e.subs9npt1on , _ _ _ ·, ' indicates - ... ; t!iat the hsts ... :".~:

i'B applied to r~f!i~~ or~eis'~, ~ei¹;~s io allotme1it.of a1l sec,uri\ie~ and 1

despatch of allotment letters/certificates. The Government of India thus ·.· .~11der,stppq;tj1at t11e 1li,abil\ty19f th~,E?mpai1y. to repay the amoµnts in terms 0 • o~ $e~tipp,73 arqi;e pnly at thr, ~~d ,of I 0 ~~-~ks fro'!] the .\1flte of clo~~re of

. , t,11~ s~~scriptign, \is,\s .. ]his 8!?D~i.tio'\ ,Pfe§9m~~ly, appl\es, t.o re.pay~-~nt K•"ll~~(~pl?:~ect~on,(~)._\IS w~u.~~. Ul!de_r ~u.b~5ectio'\(41) ofs~Gti9n 1}. fi1is · ·1 C ,.is,Jully,·borne ' ·- '·:i ' · · ·· - ' outby · .. " the'· avemtents '· · - '.' . ' contaiiled . 1C:• in the . "· affidavit , · • . · i(, , "r _ filed 'ii\.-t:the High Coµrt 011 beb;ilf oft.he U~ion of India as well as by. the oral. submis- sions ;;n its b~half before 'tlie High Court on the point. Similar appe'ars' to , )?e the, stand, ,qr. \he B<)11J\>ay, ,~to.~~: Exghan~e., ~~. seen .fr<:>!r. iis p~blication . 1of; Mru:cJ¹ l?c9,l..(P\ll'a 2~ .2). Tp,;_le,tte~, dated ..1';f~~ch;12 1 ,199 i ~.nt .b~ 1 the ,,.s.!!:~uri1ie~, a"!I Exdiang~, BR_~rd ,of, hJ~i~'. t)1~. 211<\ ~e~JJ?nd~W: t~: th~ .aP,pe 1- G D 1)M!l£Ol1l!l\lf.IX. st_at~ig, \~l\tr!l\t~~\l5' w~ paya,ble. fr9~,J~',/"<?,v.~',"~r, 1~90, 'H'Y.!l•~!1 1s, th~ <j~t~ of,~~P•l')'._.\lfi:the,; p~n~d of I0 wee~s. f~oi,n !lie d~te. of ";c!9sur~!qftl\r.~P~sc.rpt11>n,1,~1s, ro~g\11~ 1nd•.9?\r,s h~~ ,\he 2nd}t;spol\~ent ' '.construed ··•-" ·· '•·'' t .the .provision ' •· shortly.' .before '"' · .the proceedings : i ,; _;,_., l' -_i : - commenced ,Y·J 'v'-.,, '' . i ·· ln the ·'J.

. - H~gh:~RYrf:): :;d!i-:' :(.t, c,,;1 •.i) 'j1","1 :1 J( ;1. ; ,-,r :Ji;;d -.. ~1.1~,(-l ':iL ''•j!

; dt''·_; ;~.::;-J."~ f' f11 :.: __i!l~i .:f[I .'_.it b';·i·; . . . . •·,p\·1"1' 0 .j·1 '• 1« t''.:>!-'1d·. ::: E -·;I~ -1(, ~~Th.e;_~y};J~J?t};,~s J~9t(.fr~~ .fr.?.~~ ,~~.~~gu_iti~.~-.-~1~? ipo~~t~. :H1iV,i_1i~,J~en '<) am~n~~<!'. inf,sev,~~~1,,r~s11e.c!~,}.'•.lws- ~~1,n,11.~1.1r.; e1~7.~~~d·l~it.h.Jh~ ~'a~ty . t,~al)!d0jltS,;9f; erutY. C\J!JS1ruct1on., ~~\,,the ~'/!11~mporan1~?US ,c9nstr~Cl!On l PJ11q~d,,upo,11 mi a,mb,;gu(\US s~cl!::w by I~~ ad111ip¹,strNor,s entruste? WJ,t~ the -. ,,la~~ <>f e1<e.qutiryg !'W. stlf!~!~, i~, ex1r~ll}ely; sigi1jfif~n( ·r,!1is ~01~srr.\i,c,ti~ri, is, ":,•9 ,.p1rr1vie:t"'Prrf~pt_Iy, Cf1i1s1~f~!1[,,w1th J\ie ,1,~ng.u~~~ qr4, t~e ,'/~Ject of the 'I F .,.$1!!1,u\e,. M)s,~ praptiG~I- mi~ rea~1ia~~~ ..con~tl}lft!?"· .P.a?,1cul~ly q~9,~use 11)!1a,.ff?~d~- tl'.e 17?.l"Pa!tY, \~~S<?.'l~~,1)'..,su ~liRi~111 ~u~eJJ~?. Cf!~P!e/,e ,H1e fo~\11 i- . , 10 l!e§ J1Jf¹ ,de_~P,/ltCl\,qf t,~e rttfµnd, ord,rf~·i;/}/1dJ~t!J\Y,eS1?~.':\'~'/, h~s ;~fSJll'~~ed ,,,J?rM1~J,n~it~t.ip~, ~R"t~i~e~ i9 }\1e,p~9sp~pl~~ ·l~ ,~o,t, ,m~?plY ~ept.,w~t'im~, ,for . , 1 t1w .rn\u,~p, ot;:)he. e~ce,s~ ,i\111011,pts due,\? ~!m;, ~ee Desli, 1'andlm/•!IJll.'f< & - , .,Co...& {Jrs,,,v,, Delhi.Stock E~clumge,;lssr,ciatio11L/d., [1979) 4 SCC 565 i >G :'.,;ali~;:f<,..f!..:vq¹;iiJre;/_~,. Jn(oi~w· t'rµ. ,O.tJi~er. ,~~!alfAfa11~ ·~'A~/'..: '[i98lj 4 .,,,~\~ul?J,Se,~ aJso.Cr~-'f11rd,'.s i!1,1,~rpr!{tii(fon '!(IA'!'~: J989,~~·. ··.· ' ', : ·_;·ii '1!'(~_,,J (;' ni'irq:;I ·rP .ill ..i".''· ·,~.¹;·1··· q[ .':"f!E''.r"tl;" ,+!.,I c.,'~·".'H ·, . . • t '" ,id l'!eit~er_,\he,~~t~ ~f:al\c;>tme~!·.~:fou~.d,l!y..,W~ 1iJi~h,,Co~, ~()f,"lhe. ""!I.at.~ ~pe~i~~~ in,tlte prosp,ectu~. ru,;,contende~ ~~' th~;~ll)!lilnri is,,r~I.~,vant , H 11 .io,,the ,c~ml11~•,1s~mrn_~ ,o,f li:ibility,,f?r.~axme?.t o,~ 1 ir1~ri:~. o~. t,h,~. ex,\7ss 1! bri~pney'.'ci :11it fi;,_·.,i ·t·· .. - .. ·lo i•ti•.'·-l ,nt· n,,,.: ; 1 d;if!t1-~1;:J?" hflr. ·<1.H ...... ,.J · .....__---

Cl ;~ I !·'"" r ! RA YMONIJJSYN)fHFJTIC;S "'·,ll;Qij: fMOHAN, J.]

·,s11orn 1'heoli;ibilityl1lf:a;,comP,any,10,fuepay'.lthe1e~Qess. m!ine;i1rµnder 'section AA . . c:73(ZAJ o_f1th~'<Act aiises!'on ct~e.iexp!ry ofdl Q,,we¢k~xfrom tlie date of the ~ lllosing·io'f 1tHe ·subscripti@til tis ts; <and•itheJ illtete~t·1~egins,t<'liMcrue thereon · ·,it lhetend:of 8idays1therefrorri¹. 'ftqm 01. •;irj,-,f! .,_;:1;w;"'' br"; tflrh,ri'.¹ '31(t in "~1iqx·." ~;dt rno1l rrn1nni, l':HJ tti<:;·J 1•;q· '.:!'..11! ·'lo S11;1 Accordingly the liability to repay the excess money,j_n the present case arose on pLl99Q which \"as admittedly the date of expiry of JO nB '' 1WJ~~~ ?frp~rlii~· ~at1~dfjf iii~ 1 Gfb~th{i~ d? 1 fh~i~Jbi~~i;/Jiftlrt "(i·St~. and conse- 'i. 'q~efitl y" il1e "Ha~il'il/ i8 °~~y" 'if, 1~Veli' 1/{' ifig"i'ai~ 11sp'~c ifi~il "lh sub-section (2A) arose on the expiry'Jf'S'ciUyk'hb'i\\"l'.'IT:i'99b'.JJ,l,ciuoilfo -BqfJ? fi ni Hl':l.)j '.:KLllr;rl~ ~}ir::,:•J1(l1!, ?.G b~rii'.")51 :'.'{5fl•):·n l!f\ (fj 'W•i iieMOHJ\N;,,fol!:liM: tlie oady_antage:;of peru.si11g!l!ile1drnf! judgment of ·'iny 'leamedibr:c;>ther.rf concur wilh)himuBo\\'.e~~r,"s9me¹,<mportant points ')C -<:i:equir!e toibe:!lril!ilified; mhe'cp0ints thaliat1ises,for ,deJeriminaii.on are: z! orh:rxnr:qffrt..rJ ~,;il1o 1~~:Jit.to v:1~·1"J biu; .v~iH?.qffK;0 '.:lilt ,rirJit?!.12 o! bt<'.(i~o •!he¹ srope·1oti·1Jiability,1!Jildllt¹:Se~ti911 !;7ih (U.~10£, the Compa!lies Act. .r'."J:Jq_1r¹ hr~_1)(:L'C1f.!i ~i'l it ,.,, M . f h d "' -• 't'" J~u:;1ilq~1~ v-,~~1PJ-P ! .~1~Hr ,;t t.0 ~i'tf<°'Xf ,f!~r no~i~hno:i--\'. ;1/\ 1~ ). · (JD •,rfJ 1o(iji1}: Whethe£1ttte]payment,.:of interesti~..peilabin,natUreZit (iv) Whether adiiliriisttrttlVe'ih'C~i\Veili~lice cCiuldlitH(ileaded to avoid t:;d~ b~in-r:;·Jtl 1 ~t~t~t.~tRf;Yi~,i~9iJ.ii~YX¹:.i" ~ 1ril ·10 'J~c,q1uq -,fff ·io·--t {~.,i :>rH 1r.1!St!ctioo111'31 ooclirs:iunder.,Pa!ilrlilrP~1Jhez~mp@ies,J\ft 1956 (Cen- li•rallAot110{ 1/.¹:9561 hereinal'!~r1referreitto ins, the Act);:)lil)l&;section deals with the allotment of shares andidebenturesdtthas;.und~rgone important JE amedndmendts in 1975 and l~8~ft!;'~j~Ln!~ne,\~~m.;~t,mr1~715' Section 73 rea as un er :- . · · , · rc!;i¹;r '.Jd UI b'.i~:n:,ri: .,;s;1u1i;~d·;b 10 i.'nhf!2 '{flH ot :1oi11;f~/1 ni if;) .wiooqw10, n '(Mllotmeht1e~,shareprandrdebentur.esJ<!o; fie; dealt in on stock -<JC•q<mq odt ·exchangeH:(d }.W.hereoaip.l<'l&JlC;Glµ~c.:-Vhethei 1 jssued generally or . not states ihat application has been Of;iWJl.J.l;ie made for permis- ''I F . .sion f<;>r the shares or debentures offered therebx to be dealt in dJiw ·" n" "'b1i"r't~cb''\l;;J~ 's¥6tl<'lt'lt"h1fo"b."~h19, 1 fihSimtlli made on an 1 . applica110'1flli'Bilr&UflN61?lllifler'Ja~~i,'i&~ sli~n. whenever made, -In ot 'Jow•1eihe i.<ohl!iif~e :pelibiSliiohd1aJ! 1lol¹:l>~ll1a1N1lied for before the tenth day after the first issue of the,:p.tOS.P!J~tus or, if the per- r,iission has not been 1;1ranteit before the expiry of (four weeks) DG 11 "' ){Jll "" ·~'Wb1ifiJ& 18 iii~ £'/mYi%alir i"df'f;kfi\ii~Jldil'by or on behalf' of. 0 1 '(£;Q~.n ot CS} lh:rJll'J.5~-··Ju;;: 1.Db11u ~Jdnu -:id !i1ai(. _\'n_r.~11no:1 · · . ·. e stocli excnange. . . ·· -f!lO) ~flt O) ".:i'..li"i~"i'31::n·f)tJ!: ·.2HIRJl!QQ8 ff10"n: b'.i'/f''.:l'):l'X 'l'J{l(lffi b·,;r11wo·J od ~)1:Wberedhet1pennissidn1"1~:1ll<lt:been.capplied for as afore- said, or has not been granted:!llScllfoi:esaiddhe company shall · forthwith .repay without interest all moneys received from ap- , , H '(lii>(fl!IO') ~Ill qt \i'.) HOl¹:1:;1~-dJ1~ lH ::'J'.Jfi'.J"i<;it'.n 5r!J 1(ii (1l!j 1·, •;.:v:;:r!; ,!hH;-l:Jb ni 2i or!v; '(nr.qrno::i t1rl: ·ti) l'.1-Jifto '(!~·.;~ hriB

510 SUPREME COURT REPORTS [1992) I S.C.R.

A plicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the directors of the company shall be jointly and severally liable to repay that money with interest at the rate of five per cent per annum from the expiry or the eighth day: B Provided that a director shall not be liable if he proves that the default in the repay1nent of the money was not due to any misconduct or negligence on his part. (3) All moneys received as aforesaid shall be kept in a sepa- rate bank account maintained with a Scheduled Bank so long c as the company may become liable to repay it under sub- section (2) ; and if default is made in complying with this sub- section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees. (4) Any condition purporting to require or bind any applicant for shares or debentures to waive compliance with any of the requirements of this section shall be void. (5) For the purpose of this section (it shall not be deemed that pennission has not been granted) if it if intimated that the application for pem1ission though not at present granted, will be given further consideration. (6) This section shall have effect: (al in relation to any shares or debentures agreed to be taken by a person underwriting an offer thereof by a prospectus, as if he had applied, therefor in pursuance of the prospec- F tus; and (b) in relation to a prospectus offering shares for sale. with the following modifications namely - (i) reference to sale shall be substituted reference to al- lotment; G (ii) the persons by whom the offer is made, and not the company, shall be liable under sub-section (2) to repay money received from applicants, and reference to the com- pany's liability under that sub-section shall be construed accordingly; and H (iii) for the reference in sub-section (3) to the company and every officer of the company who is in default. there

RAYMOND SYNTHETICS '" U.0.¹. [MOHAN, J.[ 511

shall be substituted a reference to any person by or through whom the offer is made and who is knowingly guilty of, or wilfully authorises or permits, the default. (7) No prospectus shall state that application has been made for permission for the shares or debentures offered thereby to be dealt in on any stock exchange, unless it is a recognised stock exehange". After amendment in 1975, Section 73 .read as follows:-

"Allotment of shares and debentures to be dealt in on stock exchanges. (I) Where a prospectus whether issued generally or not, ~tates that an application has been, or will be, made for c permission for the shares or debentures offered thereby to be dealt in on one or ntore recognised stock exchanges, such pro- spectus Shall state the name or the stock exchange or, as the case may be, each such stock· exchange. and any allotment made on an application in pursuance of such prospectus shall, whenever made. be void if the· pennission has not been applied D for before the IOth day after the first issue of the prospectus, or, whether such permission has been applied for before that day, if the permission has not been granted by the stock ex" change or each such stock exchange, as the case 1nay be, be- fore the expiry of I 0 weeks from the date of the closing of the subscription lists : E Provided that where an appeal against the decision of any recognised stock exchange refusing permission for the share or debentures to be dealt in on that stock exchange has been preferred under section 22 of the Securities Contracts (Regula- tion) Act, 1956 (42 of 1956), such allotment shall not be void F until the dismissal of the appeal. (2) Where the pennission has not been applied for as afore- said, substituted for "or has not been granted as aforesaid" by the Companies (Amendment) Act, 1974. w.e.f. 1.2.1975 sub- stituted for "five per cent" ibid. G (2A) Where pennission has been granted by the recognised stock exchange or stock exchanges for dealing in any shares or debentures in such stock exchange or each such stock exchange and the moneys received from applicants for shares or debentures are in excess of the aggregate· of the applicant moneys relating to the shares of oebentures H

i ..¹ '··"SUJ>ItEME'COURTREPORTs .. ;~n· {1992) I S.C.R.

A/. in•respect·ofwhich•allotment•has,been,made, the com- : : ;;.-, '1 ., · • ·,:. " . ·· "' · pany•shalLrepay•the:moneys.to•the,extent;of such excess forthWithlwithciut1jnterest,1·and1ifsuch money is not re- paid wit~in eight days, ,from the day the company be- 'fumes liable ~o' pay'it; ihe'Diteciors Of the Company shall "" .• be'johitly 'aiid severatiy1iat\1e· to repay'the' money with i., ' ' , ' I lnleresfafihe rate ofh\ielve pef' cent i>er 1iiiilium from the expiry of the said eighth day : · ' ,,,.! " ' .' '' · ·· .· ':.r• .. 1: ! ;_,1 I' '· •i¹ ''J;,.¹ .¹.,i'i ..i 1i1~1·H~'H',.:r:. ·1;.•1 Provided that a Director shall not be liable if he proves ,tl)at the ~efaultjn the payment of the. money was not due .'·:' l•, ' ,, Oi ,,JJ :JI_< ; - .ll1I , ·,; if ... ·.'· ··· J .•' ·" . 1{11·:• -, , ··•1..: ., , !£,any tn.rssond~~t.~r ~~fl1gen~e;on 1 ~1s.P\1!1;r: ". c · ' '"'' (2B) 'If· default is made ill· ccimplying .with th~. provisions of "' ·' • .. ,. • sub-s'ection"{2A);'the· company:and. ewery officer of the en !' .. : · "compan~·who iS''io•default•he·shall .be punishable with . "· · .'"lin'e whiclrmay extemito fiwe thousand •rupees,:and where """ repayment'is not .made Within six months from· the expiry ·"" · "· of:the·eighth day, also with.imprisonment.for'a.term which ;)_., ~q:;. - 1d ·may extend to-on~'yeat.¹.1'.1· Jr! · .. ,.111 1··. ··~r·. ,,1 ,,. «~ ·1 1 ···1: r -;.- .... t ·'..;:tc ·.f'. , · . t ·.·u,,·.,; ~!.f ,, ·'' c.:.J (3) Al\;mpn~ys_recei.vll.d.µ,5af9re~id,s,ha\l1Je"~ept \n a sepa- ,._. _ rate bll!ll\ acco[\ntll\aintain~drwjt~ a.~ch~dul,ed, J:lanlc,(until the ._ permi~sion -has beep gran!~d, .or where .Jlll,,apperu ,has been , . ,,, preferrtld,against i\le Iefusal !\l,gfllnt,such permi5sio,n,, until the disposal of the appeal, and. the money 5t!lllding i11,_such sepa- rate account shall, where the permission has ·not been applied . ,.,, ]n 'for·as 1afoiesaid or has not btien' granted; be'ripald\vithin the '· ..... , tiine 'ail<f iri'tlte'imlihrier speCified' iti'su!JCsectl6ll'''(2); and i,f """.. · " def~uil iinriatle iri foniply'illg 'with this liub-sectitln! the com- '""· '·»1 · patiy,'and every officefdfthe company Who'is i1r'defau1t, shall F '' "& puJiis\labl~' i.vlth 'tine"wh'ith 'niay extend tb 'fiVe thousand 1 ' ·,,-_·-~ ;·,; ·., ,J. ;r {ir',~. '.H'f! ld!,I~ rupees. -·fl1·11 ·1· "<,; b;il ,.¹.r .. , -~ ,1·: .. ;;r! 'r'.,·i111· ·1 l-. ''tn! 1! .·· ! ... .¹. . (3 A,l lyfoneys ~tand_1ni; to .t~e credit ,of the 5epamte bank ac- '· .• ;- . _ ,·; 1''..' . c?~nt_' ~~_fe.r.~e~;·~?. 'ih::~~~;,S~~~~91) "(~~. '.~~~} ~J.1ib!~1ie utilised¹ for any purpose ot~\'l; tlli)~.t\1~ ~~11.~i1rt~ r~~?.'l~i~· namely'.- G ., :., ,, ·-~·:. :<pl ,ii A~~iu~~rry~~1t . :a~f!i:~;~t -~:1,~o!!~~~-1~.~ 1 ~f .~~1~~fJr~ 'fihe,!~- ~he shares '.i-.:. -,: , (,;i,,. 1 i?a~.~ b.;~~~1iR~~!tt~.~-.~? ~~ Q;~~~ 1.?:·,?.n_!f~~;~tock exchange

,.:~, 1 ~ d •r.': ·... ),~fu~~~?h st,p)9~('.e~~!~~~e'.~~~P;~fi~~1 n~:~h.~ ·~~pspectus; or » ""'"''"·(b)',,·Repayment•of.mone.yS' received• from applicants in pursu- :" ' ; . : _.; ah'ce of·the prospectus,:wtiere· sbares:11ave not been per- H" """<·;; •., .mitted to be• dealt.in:on.·the stoek exclmnge or each stock "

RAYMOND s'YNTHETic~ ' ». u.th (MOHAN. 1. J

i exchange i Specified in the prpspectus, as'tbe case may be, ~,. l. ~ '

A'" ,.,,, ' "'or; where ihe·¢ompany is for other reasot\ unable to any ·: ;, ' make tbe ~llotniento'fshlite. '. ' ''" ': '" ' ' .r::.•i. ' . '1 ' ; i ; ·: · · 1-., '.i'. ·~ ; -· ; :, ; : j I : :: (4) Any condition purporting to require or bind applicant for shiires or debenture~: to'' waive· con'ipliance witli" any of the requireJt!ents of the section'shall be void." •.. i'· · • , "1(, ' I rj<, , " ;, Ii ll \!: .t'! ';i~ . il

, ...(5) For the .:purpose,,of. this section, it ~hallr be ..de~med that , . :,.. , pefl!lission ,has. not been giapteq ·if the, app\i_ca\ion}qr pennis- , ..,,siop, w)wre.,n1a4e,,has. Qof;been iJt!P<l~d. oLwillJ.il! the time " specifie,d in sub-section,(!), , . .;:. '· 1 . . ''"·'I' ) " "(6jThiS secfiiiit Shall Ji\iye ef(ec('c' i: ' 1 ' '.; I"/, J ;I · . '- .' ', i ! . · · i,..;: ';;j ·.I ; It ~J • '_:; • '' '.'.l> . !~I: (,, ·.. • :· CJ (a) In relation. to aµy slJares or debenturn~ agre~4 t\) be taken by a person underwriting an offer thereof by a prospectus, , U.- as if 11e 'had applied therefor hi pursJimce; of tbe prospec- ' ,, tu s/and; . 1 ·h<; ··. ·i 1"-; :,; 1 ... i . _. :,- · ,., ...:. 1•·.•• ' ' . . (b) ·In.relation to a·prospectus ..offering shaies for sale, with ., D -· ~ : · i .:the following modifications, na,mely .- : . · , . ,

(i) References t~ Sale 'shaii' b~' substituted fotfeferences ·.. , .'. ··to·allptment; ·. · ,. •'"" :•L , ... ,, '· ' . ' . '·p · .• , •, ·, ·.: ... r! .•. ~·:· " . .'1; ··•. :: ',,. .~-, ( l' iJ' .. ~·.··;..·

'' " , .;(ii) The < "• persons , , • , '. 11 , _ • . •· • · by whom , ' the ..offer - , ,, , ._, is inade,.;md ' "p · , . I ,; -,. not the < ••

. , . "· ,, co•npany, shaB .l:>e 1.i\d>le under suf>.:se.ction (2) to repay E'I .'·!" ., . ' 'money received from appJiC;ln_ts, and refe~ences to the ! .. ', / ..• ' ... . '. , ., ·.• ·•· • '' ...... ·

i ., . , .compaf1y's.Jiab\lity,.HnderJhat. sµ!';S<(Sfi9n,, s.l/~P be con- ,,.. strued-·' . . ~· ac'cordjngly; . ' : • - '. and. · .. .' ..; ' • . ;!. . "... ' - ' .' " " ' ( l

,. ' · (iii)Fiir ·the i'eferen~e 'in 'sub"csliction' (3)' to 'the' company . ';, ·.. '' . and evet'fo'ffib'erofthb'compiliiy whOis in'Clefault, there F "' · · · "shall Be substituted a'niferenc£to 'any person by or through •1 '·c~hom'the'offer•is'maile and who'i~ khowingry guilty of " '" or·wilfully autliori'ses or permits: the' defmdt.I ' .,, '(- f:l; ~ '.' ·;,-i :'i'..':'' (7) No prospectus shall state that application has been made i. ·.II~'. ·for'pen\\isSiOh' for ihe Sh'arkor (lel)'eiifure~'o'ffered ·thereby 10 . ' '.' be''dealt Ii\' oli 'ai\y'Si0cli'ex'change 1,"unles~·it'is a recognised a·) , ':i j.-i;·_.1·;sidCk·exc~·aritfe." . ·.·d , .¹ ,1·., , i ·,i· :•1 :-_,·;, . ,., ·· .. 1· ii .. ;':. :i -.'.' n- !i,f ,,,·: ,'11: r.i, i ii·.o,· __.·_; -. .. .-.·1;!l .. :~-~ ·•!11·

. '.. "'"', AAer ame11dment in l9.88,,$ec\iop 7,3,[eads,a~,µnd,e,r ;- _,, ''" '· '· 1A1fotrirenr of shares ~nd·debennirek to'iie'deai(fn' on stock , . '" exchailge. (I): Every 'cofr1pii11y;"ii1tdililh\g Id' Off.ii" shares or Hfi "' · d~be1\'tules· td th~ j)Jblic for'subscrlpti&n "liYthe' Issue of a

514 SUPREME COURT REPORTS [1992] I S.C.R.

A prospectus shall before such issue, make an application to one or more recognised stock exchanges for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange. (I A) Where a prospectus, whether is issued generally or not, states that an application under sub-section (I) has been made B for permission for the shares or debentures l>ffered th2reby to be dealt in one or more recognised stock exchange, such pro- (;• spectus shall' state the name of the stock exchange and any ~ allotment made on an application in pursuance of such pro- spectus shall, whenever made, be void if the permission has not been granted by the stock exchange or each such stock ~· c exchange, as the case may be, before the expiry of ten weeks from the date of the closing oflhe subscription lists: Provided that where an appeal against the decision of any ,. recognised stock exchange refusing permission for the shares or debentures to be dealt in on that stock exchange has been preferred under section 22 of the Securities Contracts (Regula- tions) Act, 1956 (42 of 1956), such allotment shall not be void until the dismissal of the appeal. (2) Where the permission has not been applied for under sub- section (1) or, such permission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four percent and not more than fifteen per cent. as may be prescribed, having re- .,. gard to the length of the period of delay in making t.he repay- ment of such n1oney. (2A) Where permission bas been granted by the recognised stock exchange or stock exchanges for dealing in any shares or debentures in such stock exchange or each such stock exchange and the moneys received from applicants for shares or deben- lures are in excess of the aggregate of the application moneys relating to the shares or debentures in respect of which allot- ments have been made, the company shall repay the moneys to the extent of such excess forthwith without interest, and if ,....-

RAYMOND SYNTHETICS v. U.O.l. [MOHAN,J.] 515

such money is not repaid within eight days, from the day the company becomes liable to pay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than' four per cent and not more than fifteen per cent, as may be prescribed, having regard to the. length of the period of delay in making the repayment of such money. (2B) If default is made in complying with the provisions of sub-section 2(A), the company and every officer of the com- pany who is in default shall be punishable with fine which may extend to five thousand rupees, and where repayment is not made within six months from the expiry of the eighth day, c also with imprisonment for a term which may extend to one year. (3) All moneys received as. aforesaid shall be kept in a sepa- rate bank account maintained ~ith a Scheduled Bank until the permission has been granted. or where an appeal has been D preferred against the refusal to grant such permission, until the disposal of the appeal, and the money standing in such sepa- rate account shall, where the pennission has not been applied for as aforesaid or has not been -granted, be repaid within the time and in the manner specified in sub-section (2) and if default is made in complying with this sub-section, the com- E pany and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees. (3A) Moneys standing to the credit of the separate batik ac- cowit referred to in sub-section (3) shall not be utilised for any F purpose other than the following purposes, namely :- -: ~ (a) adjustment against allotment of shares. where the shares have been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus ; or (b) repayment of moneys received from applicants in pursu- G ance of the prospectus where shares have pot been per- • mitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus, as the case may be, or, where the company is for any other reason unable to make the allotment or share. - ... (4) Any condition purporting to requjre or bind any applicant H

516 SIJl'REME COURT REP<lRTS 11992J I S.C.R.

A for shares or debentures to waive compliance with any of the requirements of this se.ction shall be void. (5) For the purposes ~f this section, it shall be deemed tl1at permission has not been t,.'fanted if the application for permis- sion, where made, has not been disposed of within the time specified in sub-section (I). B (6) This section shall have effect - (a) in relation to any shares or debentures agreed to be taken by a person underwriting an offer thereof by a prospectus, as if he had applied therefor in pursuance of the prospec- c tus; and J ) (b) in relation to a prospectus offering shares for sale, with the following modifications. namely- ' (i) reference to sale shall be substituted for references to allotment; D (ii) the persons by whom the offer is made, and not the company, shall be liable under sub-section (2) to repay money received from applicants, and references to the company's liability under that sub-section shall be con- strued accordingly ; and (iii) for the reference in sub-section (3) to the company and· every· officer of the company who is in default, there shall be substituted a reference to any person by or through whom the offer is made and who is knowingly guilty of. or wilfully authorises or permits, the default. (7) No prospectus shall state that application has been made for permission for the shares or debentures offered thereby to be dealt in on any stock exchange, unless it is a recognised f stock exchange". As the section reads now, every company is required while it offers for public subscription issues of shares or debentures by means of a pro- G spectus, to make an application for listing the security in one or more recognised stock exchanges. Should the stock exchange not grant the per- mission for listing, before the expiry of I0 weeks from the date of closing the subscription lists, no allotment could be made. In other words, the stock exchange has a say in the matter of listing. It also requires to be stated that the company, besides the Director, is made liable for failure to H repay the application money or the excess application money alongwith interest.

RAYMOND SYNTHETICS v. U.0.¹. [MOHAN, J.] 517

Notes on clauses read as under :- A "Clause 10 provides for compulsory listing of all public issues with recognised stock exchanges. Presently, listing of public issues is not compulsory. Further, as per the existing provi- sions only the directors are liable for failure to repay the appli- cation money or the excess application money within the specified B time, ifthe company fails to pay". "It is proposed to make the company in addition to the directors who commit the default liable to repay the application money or excess application money alongwith interest at a rate between 4% to 15% de- pending upon the period of delay with a view to ensuring that ordinary directors like nominee of govt. financial institutions c do not attract penal provisions, it is further proposed that only the directors who is an officer in default should be liable for prosecution". As per provisions to sub-section (I), an appeal may be preferred under section 22 of the Stock Securities Contracts (Regulations) Act,

1956. Such an appeal may be - D

(i) against the decision of stock exchange refusing permission ; and

(ii) if the stock exchange fails to dispose of the application for per- mission within 10 weeks from the date of closing of the sub- scription lists. Thi~ 10 weeks become. important because of the E deemed rejection under sub-section (5).

Sub-section (IA) mentions the date of closing of the subscription . lists. Thus, it. is a crucial date for determining the expiry of I 0 weeks for the grrult of permission by stock exc_hange. Equally that becomes the crucial date for calculating the time for preferring an appeal under section F 22 of the Securities Contract (Regulations) Act, 1956, as aforesaid against the refusal of permission. No doubt, neither in this section nor elsewhere it is stated as to when the company is required to close subscription lists. Of course, that will depend upon the facts of each case. Section 69 of the Act states that unless minimum subscription is received, no allotment shall be made of any share capital of the company offered to the public G for subscription. In fact, sub-section 5 of the said section 5 of the said section states categorically as follows :-