RAYMOND SYNTHETICS LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) 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 liable to pay interest under Section 73 (2A) of the Companies Act, 1956 (the "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 applicants for shares or debentures in excess of the aggregate of the application money relating to the allotted shares or debentures. If such excess application money is not repaid within eight days from the day on which the company becomes liable to pay it, 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 10 weeks from the date of closing of the subscription list referred to in sub-sec. (1A) of Section 73, or, as contended by the company, on the expiry of the period mentioned in the prospectus Whichever is the correct date, interest becomes payable by the company and its 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 question.

(2.) We shall presently examine the relevant provisions of the section, but before we do so, it may be of interest to refer briefly to the circumstances in which the alleged liability of the appellant company has arisen.

(3.) The appellant is a company registered under the provisions of the Companies Act, 1956. The company obtained the consent of the Government 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. secured redeemable non-convertible debentures of Rs.100/- each at par. This Order was made by the Government in exercise of its power under the Capital Issues (Control) Act, 1947. One of the conditions attached to the order reads: