# j, RAYMOND SYNTHETICS LTD. AND ORS v. UNION OF INDIA AND ORS

- **Citation:** [1992] 1 S.C.R. 481
- **Court:** Supreme Court of India
- **Decided:** 1992-02-04
- **Bench:** Dr. T.K. Thommen Ands. Mohan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/j-raymond-synthetics-ltd-and-ors-v-union-of-india-and-ors-11429
- **Pages:** 49

## Headnote

Companies Act, 1956--Section 73--Public Limited company-Listing
shares on stock exchange-Procedure-When allotment of shares becomes
void-When liability to repay application money and interest arisesPermission-When deemed to be refused or granted.
Securities Contracts (Regulation) Act, 1956--Section 22-AppealWhen lies,-Pending appeal-Effect.
Co11ipanies Act. 1956--Section 73. (JA) (2), (2A), (2B}, 2 (31), 5Interest---Payment of--£.'ompany 's lia bi/ ities--D rcwnstances--Si fllation
A
B
c
in pre and pbst Companies (Amendment) Act, 1974-Liability of D
Directors~5cope of-"An Officer in default"~onstruction.
Companies Act, 1956--Section 73(2)-"Forthwith "~onstruction
o.f-Legislative intention.
Companies Act, 19-56--Section 73(1) (2) (3)-Application moneyE
Company's right or obligation to credit bank accounts-E{fect-Pwposes
for usages ~(such money.
Companies A ct, 195 6~S'ection 7 3 (2)--lnterest-Assessment period
~alculation~5tarting point~onstmction--J,egislative intention.
Companies Ac( /95~5ection 73-Ambigiw11s section~onst111cn·on
--Method.
Inte1pretation of Stat11te-A111big11011s section~onstmction (Section 73, Companies Act, 1956)
Companies Act, 1956---.'iection 73 (2A)-When applicable,-
"Due"~onstruction-"Due" and "payable" not same-"Penal" not
penalty--Adn1inistrative inconveniences cannot be pleaded.
F
G
The appellant-company was registered under the Companies
Act, 1956. It obtained the consent of the Government of India to
H
481
482
SUPREME COURT REPORTS
[1992] 1 S.C.R.
A
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.
One of the conditions attached to the consent order was "The
company shall scrupulously adhere to the time limit of 10 weeks
B
from the date of closure of the subscription list for allotment of all
securities and despatch of allotment lettcrs/ccrtific~tes and refund
orders."
On 12.7.1990 Jhe company issued prospectus for the issue of
the shares and debentures, stating therein that the company had
C
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 would be paid to the applicants as per the guidelines issued by the Ministry of Finance on July
21, 1983 and September 27, 1985; that the public issue would open
D
on August 20,1990 and close on August 23, 1990; and that it would
not be extended beyond August 31,1990.
E
F
The issue opened on August 20, 1990. The company received
.l ;
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.'
The share issue was closed on 23rd August 1990. On October
15, 1990 the Board of Directors of the company approved the ~llot
ment of shares. Prior to.1.11.1990, it secured the requisite permissions
of the stock exchanges at Indore, Ahmedabad, Bombay Caluctta and
Delhi to deal in the shares offered in the prospectus.
The company had to despatch 25,50,604 refund orders, which
were printed in Bombay and they were meant to be despatched
from Delhi. The company despatched K,55,226 refund orders from
New Delhi at the rate of approx. 1,00,000 refund orders per day.
G
On 26th bctober, 1990 a consignment of 6,69,999 refund orders were despatched from Bombay to Delhi. As a result of a fire
that broke out on the way, many refund orders were destroyed and
about 50% of the consignment w~s missing after the accident.
In consultation with the Madhya Pradesh Stock Exchange and
H
the Company's Bank, instructions. were issued by the Company to
RAYMOND SYNTHETICS v. u.o.I.
483
•
_...
stop payment of all refund orders with a view to avoiding any possiA
hie fraud or misuse. As a result of the countermanding of all the
refund orders and the printing of new refund orders, delay occurred in the despatch of newly printed ord

## Text

_Characters 0–39,634 of 129,643. This is a partial read: ask again with offset=39634 for what follows._

j,
RAYMOND SYNTHETICS LTD. AND ORS.
v.
UNION OF INDIA AND ORS.
FEBRUARY 4, 1992
[DR. T.K. THOMMEN ANDS. MOHAN, JJ.]
Companies Act, 1956--Section 73--Public Limited company-Listing
shares on stock exchange-Procedure-When allotment of shares becomes
void-When liability to repay application money and interest arisesPermission-When deemed to be refused or granted.
Securities Contracts (Regulation) Act, 1956--Section 22-AppealWhen lies,-Pending appeal-Effect.
Co11ipanies Act. 1956--Section 73. (JA) (2), (2A), (2B}, 2 (31), 5Interest---Payment of--£.'ompany 's lia bi/ ities--D rcwnstances--Si fllation
A
B
c
in pre and pbst Companies (Amendment) Act, 1974-Liability of D
Directors~5cope of-"An Officer in default"~onstruction.
Companies Act, 1956--Section 73(2)-"Forthwith "~onstruction
o.f-Legislative intention.
Companies Act, 19-56--Section 73(1) (2) (3)-Application moneyE
Company's right or obligation to credit bank accounts-E{fect-Pwposes
for usages ~(such money.
Companies A ct, 195 6~S'ection 7 3 (2)--lnterest-Assessment period
~alculation~5tarting point~onstmction--J,egislative intention.
Companies Ac( /95~5ection 73-Ambigiw11s section~onst111cn·on
--Method.
Inte1pretation of Stat11te-A111big11011s section~onstmction (Section 73, Companies Act, 1956)
Companies Act, 1956---.'iection 73 (2A)-When applicable,-
"Due"~onstruction-"Due" and "payable" not same-"Penal" not
penalty--Adn1inistrative inconveniences cannot be pleaded.
F
G
The appellant-company was registered under the Companies
Act, 1956. It obtained the consent of the Government of India to
H
481
482
SUPREME COURT REPORTS
[1992] 1 S.C.R.
A
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.
One of the conditions attached to the consent order was "The
company shall scrupulously adhere to the time limit of 10 weeks
B
from the date of closure of the subscription list for allotment of all
securities and despatch of allotment lettcrs/ccrtific~tes and refund
orders."
On 12.7.1990 Jhe company issued prospectus for the issue of
the shares and debentures, stating therein that the company had
C
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 would be paid to the applicants as per the guidelines issued by the Ministry of Finance on July
21, 1983 and September 27, 1985; that the public issue would open
D
on August 20,1990 and close on August 23, 1990; and that it would
not be extended beyond August 31,1990.
E
F
The issue opened on August 20, 1990. The company received
.l ;
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.'
The share issue was closed on 23rd August 1990. On October
15, 1990 the Board of Directors of the company approved the ~llot
ment of shares. Prior to.1.11.1990, it secured the requisite permissions
of the stock exchanges at Indore, Ahmedabad, Bombay Caluctta and
Delhi to deal in the shares offered in the prospectus.
The company had to despatch 25,50,604 refund orders, which
were printed in Bombay and they were meant to be despatched
from Delhi. The company despatched K,55,226 refund orders from
New Delhi at the rate of approx. 1,00,000 refund orders per day.
G
On 26th bctober, 1990 a consignment of 6,69,999 refund orders were despatched from Bombay to Delhi. As a result of a fire
that broke out on the way, many refund orders were destroyed and
about 50% of the consignment w~s missing after the accident.
In consultation with the Madhya Pradesh Stock Exchange and
H
the Company's Bank, instructions. were issued by the Company to
RAYMOND SYNTHETICS v. u.o.I.
483
•
_...
stop payment of all refund orders with a view to avoiding any possiA
hie fraud or misuse. As a result of the countermanding of all the
refund orders and the printing of new refund orders, delay occurred in the despatch of newly printed orders.
For issuing the refund orders, at the request of the company,
the Madhya Pradesh Stock Exchange granted extension of time till
B
November 30,1990 and further extended till 19th December, 1990.
I
The Bombay Stock Exchange refusing to grant extension of
time informed the company that it was bound to pay interest by
reason of the delay in the despatch of refund orders.
' --(
The refund orders were not despatched until 12th November,
·1990. The Government of India and the Securities and Exchange
Board of Jndia--Respondents· Nos. 1 and 2 respectively, insisted
that the company shoul.d pay interest to the investors for the period
of the delay in making the refund in accordance with the provisions
c
of section 73 of the Companies Act from 1st November (the expiry D
date of th£ period of 10 weeks from the date of the closure of the
subscription lists) till the date of posting of the refund orders .
.l
The company filed a writ petition in the High Court appreI
hending that the Government might direct the stock exchanges to.
delist the shares of the company by reason of its failure to pay
E
interest, and also initiate actions against it.
In the High Court, the respondent No. 1 submitted 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 respondent No. 2 contended that the liability arose on the
date of allotment.
The company-the appellant contended that on the facts of the
case, the liability arose only at the end of the period as extended by
F
the Stock Exchange at Indore in terms of the prospectus.
G
The High Court dismissed the writ petition, holding that the
company was liable to pay interest at the prescribed rates for the
period of delay and the liability for same arose on ~he 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 to that
date.
H
484
SUPREME COURT REPORTS
[1992] 1 S.C.R.
A
This appeal was filed by the Company against the High Court's
;:..._
•
judgment by special leave, on the question, whether the High Court
B
was right in discarding, for computation of interest, the time limit
of 10 weeks running from the date of closure of the subscription
lists, notwithstanding that the allotment had been made prior to the
date of expiry of 10 weeks.
The appellant contended that the company was entitled to retain the excess amount for the period mentioned in the prospectus
and consequently no liability to pay interest could arise until ihe
expiry of that period; that as the Madhya Pradesh Stock Exchange
had extended time for refund till 19th December, 1990, the liability
C
of the company to repay the excess amount did not arise until then;
that the interest became payable only after 8 days from the expiry
of the period as extended by the Madhya Pradesh Stock Exchange;
and that the interest was payable as a penalty and therefore a reasonable and rational construction of the statute to be made in regard to the commencement of the liability of the company to repay
D
the excess amount by taking into account of the relevant circumstances which caused the delay.
The respondents submitted that the liability to repay the excess amount arose on the date of allotment of the shares, that the
liability arose forthwith and any delay beyond the period of 8 days
E
from the day on which the liability arose attracted interest that the
expression 'forthwith' had to be understood as an immediate liability ascertainable with reference to the date of allotment, but subjeci
to a period of grace of 8 days.
F
G
H
Allowing the appeal, this Court,
HELD : I.OJ. As per Dr. Justice T.K. Thommen:-
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 prospectus, it must, before issuing such prospectus, apply
to one or more recognised stock exchanges for permission to have
the shares or debentures intended to be so offered to the public to
be. dealt with in each such stock· exchange in terms of section 73.
[496 GI
t.02.
Sub-section (1) of section 73, as amended by the Com-
.....
j
RAYMOND SYNTHETICS v. U.O.l.
485
panies (Amendment) Act, 1988 has application only to a company
A
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. (497 B-C]
1.03.
Sub-section (lA) of Section 73 as amended by the Companies (Amendment) Act, 1988 makes it necessary for the company
B
to state in its prospectus the name of each of the recognised stock
exchanges whose permission for listing has been sought by the company. [497G)
1.04.
Any allotment of shares will become void if permission
is not granted by the stock exchange or each such stock exchange, C
as the case may be, before the expiry of 10 weeks from the date of
the closing of the. subscription lists. The validity of the allotment is
made dependent on securing the requisite permission of each stock
.exchange whose permission has been sought. [497 G-498 AJ
1.05.
The liability to repay the application money arises only
upon refusal of the stock exchange to grant the permission sought
by the company before ihe expiry of 10 weeks from the date of
closing of the subscription lists. [498A]
·
, . 1.06
Tbe~e ls a deemed refusal if permission is not granted
b)' the stock exchange .before the expiry of 10 weeks from the date
D·
of closing of the subscription lists, and upon the expiry of that date,
E
any allotment of shares made by the company becomes void. [498B] .
1.07.
Sub-section (lA) postulates that any allotment made becomes void at the end of 10 weeks fr6m the date of the closing of the
subscription lists if by that time the requisite permission of the
stock exchange has not been obtained. But this consequence is postF
poned till the dismissal of any appeal preferred under .section 22 of
the Securities Contracts (Regulation) Act, 1956. Nevertheless, the
permission, if not obtained with 10 weeks, is deemed not to have
been granted. [504 F-G]
1.08.
It is the legislative intent to delay the result postulated G
under sub-section (IA) i.e., rendering the allotment void, until the
period of 10 weeks bas expired or until the dismissal of the appeal.
1.09.
The liability to repay the excess money in the present
case arose on 1.11.1990.which was admittedly the date of expiry of
->
10 weeks from the date of the closing of the.subscription lists, and
H
consequently the liability to pay interest at the rate specified in sub-
486
SUPREME COURT REPORTS
[1992) I S.C.R.
A
section (2A) arose on the expiry of 8 days from 1.11.1990. [498 C-D)
2.01.
From the decision of the stock exchange refusing permission, an appeal will lie under section 22 of the Securities Contracts (Regulation) Act, 19S6. [498C)
-
B
2.02.
Pending the decision in appeal, the allotment made would
not be void, and the decision of the concerned stock exchange is
made dependent on the result of the appeal. (498C)
2.03.
The fact that an appeal is pending does not postpone
the result contemplated in sub-section (2) in regard to the liability
C to repay the amounts and the interest accruing thereon if the amounts
Y
are not repaid within 8 days after the liability arose. (SOSA)
3.01.
Sub-section (lA) of Section 73 postulates two circumstances in which interest becomes payable, namely, where the permission has not been applied for before issuing the prospectus and
D
the company has thus acted in violation of the law or where permission, though 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 interes~ 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
E
issued by the company in disobedience of the requirements of subsection (1). In the latter case, the liability to pay interest does not
arise u.ntil 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 (lA). (499 C-D)
F
G
H
3.02.
Section 73, as i't stood prior to 197S, contained no specific provision comrelling the company or its directors to repay the
amounts received in excess of the aggregate of the application money
relating to the shares or debentures in respect of which allotments
have been made. Sub-section (2A) was inserted by the Companies
(Amendment) Act; 1974 inserted to cover cases where permission of
the stock exchange has been obtained, hut the shares or debentures
have been over-subscribed and the company is consequently in possession of excess amounts. The amended sub-section made the company liable to repay the excess amounts forthwith, but did not make
the company liable to pay interest on such excess amounts. But a
liability was cast on the directors. If the <!xcess amount was not
repaid within 8 ~ays from the day the company became liable to
-
RAYMOND SYNTHETICS v. U.O.l.
487
repay it, the directors were made jointly and severally liable to
A
repay such amount with interest. The proviso lo sub-section (2A),
·which like the proviso <O Sub-section (2), as they stood prior to 1988,
provided that a director was not liable to repay the money with
interest if he proved that the default in payment of the money was
not on account of any misconduct or negligence on his part.
[500 C-El
.
B
3.03:
Owing to the absence of a specific provision imposing
liability on the company lo pay interest on the over-subscribed amounts,
and also owing to the absence of any provision to exempt directors
who were not directly in charge of the administration of the company and the need lo make listing of public issues compulsory, fur· C
ther amendments to the section became necessary. Accordingly the
Amendment Act of 1988 introduced several amendments to section
73,. one of them being the substitution of a part of sub-section (2A)
making the company and every director of the company who is 'an
officer in default' jointly and severally liable to repay the excess
money with interest. [500 F-H]
D
. 3.04.
A 'director of a company who is an officer in default'
appearing in sub-section (2A) must be understood with reference to
the definition of 'an officer who is in default' contained in section
2(31) read with section 5. This definition includes the managing
E
director or the whole time director of a company. [500 H-501 Al
3.05.
The liability imposed under sub-section (2A) on a director of the company falls only upon a directo.r who is 'an officer
in default', as defined under section 2(31) read with section S(a) (b),
and not upon any other director. The nominees of the Government
·or financial institutions .on the board of directors of the company,
but not directly in charge of its administration as full time direc·
tors, are exempted from personal liability. (501 A-BJ
3.06.
Sub-section (2A) provides for the accruai of interest
F
and the rates thereof. Unlike sub-section (2B) providing for punish·
G
ment by imposition of fine or imprisonment, sub-section (2A) speaks
only of interest which is in contra-distinction to punishment and is
not penal in character. It merely provides a mode of calculation of
the amounts payable. Any consideration with reference to a penal
provision 1s of no relevance lo the liability of the company or its
directors to pay interest in terms of sub-section (2A). [503EJ
H
A
B
c
D
E
F
G
H
488
SUPREME COURT REPORTS
[1992] 1 S.C.R.
3.07.
Sub-section (2B) concerns solely with default of compliance with the requirement of sub-section (2A) namely, repayment of
excess money. Failure to r~pay the excess money as required by
sub-section (2A) visits the company and every officer of the company who is in default (as defined under section 5) with the stipulated punishment. This is, of course, in addition to the payment of
interest prescribed under sub-section (2A). [5U3 H-504 A]
3.08.
The interest provided under sub-section (2) is payable
to the applicants in 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 (lA). Subsection (3) has to be so understood to be in harmony with the other
provisions of s~ction 73. [506C]
3.09. If the permission for listing sought under sub-section
(1) is not granted, the interest payable under sub-section (2) is attracted. Sub-section (2) says that the liability to repay the money
received from applicants arises forthwith either where the permission has not Ileen sought or, having been sought, it has not been
granted. [504 H-505 A]
3.10.
The accrual of interest under sub-section (2) is not dependent or consequent on the nullity postulated in·sub-section (lA).
[505B]
.
4.01.
The expression 'forthwith' does not necessarily and always mean instantaneous. The expression has to be understood in
the context of the statute. Where, however, the statute prescribes
the payment of money and the accrual of interest thereon at certain
points of time, the 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. [502 H-503 A]
4.02.
When 'forthwith' is used for determining the time and
mode of payment of the principal and interest, a liberal or reasonable construction not to be adopted. The legislature intended the
expression 'forthwith' to refer to a particular 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. [503 B-C]
·
-
....-----·
RA YMONDS SYNTHETICS v. U.0.1.
489
Keshav Nilkanth Joglekar v. The Commissioner of Police, Greater
A
Bombay, (1956) SCR 653 and Salim v. State of Wes/ Bengal, [1975) 3
SCR 394, distinguished.
5.01.
The right or obligation of the company to keep the money
in the bank is only for the period preceding the decision. of the stock
exchange on the company's request for permission to list. Once the
B
permission is expressly or impliedly refused.' ilhe money has to be
returned to the applicants, notwithstanding the·pendency of the company's appeal. The earlier··part of the sub-section about depositing
the money in the bank is controlled by the latter provision in the
sub-section for return of the money as required by sub-section (2).
This is particularly so by reason of the penalty specially provided in
C
sub-section (3) in the event of default of compliance with the requirement of that sub-section. [505 H-506 BJ
$.02.
The money credited to the separate bank account can
be utilised for only two purposes:(l) for adjustment against allotment of shares where listing is permitted; or (2) for repayment
D
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 permitted by the section.
[506 G-H)
.
Palmer's Company Law, 24th ed. para 24.31; 1955(1) WLR 1080,
E
referred to.
6.01.
Interest does not begin to run under sub-section (2)
until 8 days have elapsed from the date of expiry of the period of 10
weeks commencing on the date of closure of the subscription lists.
The fact that the legislature has so provided in cases where permisF
sion has been refused expressly or by reason of the deeming provision is sufficient indication of the legislative intent to give the company reasonable time to repay the money. [507 B-q
6.02.
Companies generally make allot~ents as soon as practicable after the necessary application has been made to the -recogG
nised stock exchange for permission for ·listing. Upon ihe issue of
the prospectus after making such application, amounts. are received
from the public in. consideration of which allotments are made in
ant_icipation of the requisite permission. Greater the reputation of
the company, larger are the amounts likely to be r.eceived. If permission is not granted, the entire amounts received froin the public
H
490
SUPREME COURT REPORTS
[1992] 1 S.C.R.
A
have to be forthwith repaid. On th( other hand, if permission is
obtained, but the amounts received from the public are in excess of
the aggregate of the application money relating to the allotted shares
ot debentures, such excess amounts are forthwith repayable. Whether
or not permission will be obtained cannot be ascertained until the
period prescribed for the purpose has expired, namely, 10 weeks
B
from the dale of closing of the subscription lists. Until the expiry of
those lO weeks, neither the subscribing public qor the company will
be in a position to decide whether or not the.allotments made are
valid. This is a period of uncertainty and it is for that reason that
the legislature has, in a case of refusal to grant permission, provided that the liability to repay the application money arises upon
C the expiry of 10 weeks. [507 D-GJ
6.03.
The possibility of an appeal being allowed is, not a ground
to delay repayment. It should make no difference whether it is as a
result of the permission having been refused, or permission having
been granted and excess amounts are received by reason of overD
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 10 weeks from the date of closure of the
subscription lists, and the interest will begin to accrue thereon on
.1
the expiry of 8 days therefrom. This construction is, just and reasonable from the point of view of both the investor and the comE
pany, and has the advantage of certainty, uniformity and easy application. [507 G-508 A) .
·
F
G
H
7. The section 73 is not free from ambiguities and doubts.
Having been amended in several respects, it has not finally emerged
with the clarity that admits of easy construction. But the contemporaneous construction placed upon an ambiguous section by the administrators entrusted with the task" of executing the statute is ex_,,. ~
tremely significant. This construction is, perfectly consistent with·
the language and the object of the statute. It is a practical and
reasonable construction, particularly because it affords the company reasonably sufficient time to complete the formalities for despatch of the refund orders. And the investor who has responded to
the invitation contained in the prospectus is not unduly kept waiting
for the return of the excess amounts due to him. [508 E-GJ
Desh Bandhu Cup/a & Co. & Ors. v. Delhi Stock Exchange Assa-·
ciation Ltd., [1979) 4 SCC 565 and K.P. Varghese v. :ncome Tax
Officer, Ernalm/am & Anr., (1981) .4 SCC 173, referred to.
•
.l
-
·~
· RAYMOND SYNTHETICS v. U.O.L
491
Crawford's Interpretation of Laws, 1989 Ed. -referred to.
As per Mr. Justice S. Mohan (Concurring)
1.01.
Sub-section (2A) of Section 73 of the Companies Act
comes into operation only where permission has been. granted by
A
the reco'gnised stock exchange or exchanges. The words, "where
B
pCrmission has been granted" are of great significance. Therefore,
the contention that on the date of allotment the liability to pay
interest arises may not be correct. Nor again, it would be correct to
contend. that the mechanics of refund liability to pay arises on the
date of allotment since there is a failure of consideration in respect
!)f shares not allotted. (519 B-C]
C
1.02. The liability of the company to repay the excess amount
under Section 73(2A) will arise only on the expiry of 10 weeks from
the date of the closure of subscription lists. The interest begins to
accrue thereupon at the end of 8 days. [526A)
2.01.
The word "due" in the section 73 has been substituted
for the word "payable" in order to make it clear that a mortgagor
cannot redeem within the term of the mortgage. The right of redemption arises when the principal money .secured by the mortgage
has become due and may be exercised at any time thereafter, subject of course to the law of limitation. [520 C-DJ
2.02.
"Due", means payable immediately or a debt contracted
but payable at a future time. "A debt is said to be 'due' the instant
that it has existence as a debt; it may be 'payable at a future time"
It cannot be contended on the strength of Section 530 'due' and
'payable' is one and the same even under S.732(a). [522 E-F)
Rlack's L~gal Diction01y. (Sth Edition 448), Venkatramiah's Luw
Lexicon and Legal Maxims Vol. I, 713-714; Wharton's Law Lexicon.
14th Edition; Buckley on the Companies Acts. 14th Edition, Volume
D
E
F
I, referred to.
·
G
. Bhaktawar Begum v. Husaini Khanam. (1914)36 All. 195;41 I.A.
· 84; 23 l.C. 355; Bir Mohammad v. Nagonr. [1914) 27 Mad. L.J. 483;
25 J.C. 576 (which over-ruled Rose Ammal v. Rajarathnam. (1900) 23
Mad. 23); Baroda Hoard & Paper Mills Ltd. v. Income Tax Officer.
Circle I. Ward E. Ahmedabad a~d others. 1976 (46) Company Cases
H
A
B
c
D
E
F
G
H
492
SUPREME COURT REPORTS
I J 992] 1 s.c.R.
25; Union of India v. Air Foam Industries (P) Ltd .. AIR 1974 S.C.
1265 & 1271 (Para 7) referred to.
3.
"Forthwith' i11. not susceptible of a fixed time definition,
and the surrounding facts and circumstances must be taken into
consideration in determining the question, and forthwith may be
minutes, hours, days or even weeks. It cannot be said that "forthwith" means E.O. instanti. (526 E-F)
Dickerman v. Trust Co., 176 U.S. 193, 20 Sup., Ct. 311, 44 L.Ed.
423, 4 Tyrwh. 837; Edwards v. Ins. Co .. 75 Pa. 378; Seammon v. Ins.
Co., 101, III 621; 11 H.L. Cas. 337; Bennect v. Ins. 67 N.Y. 274;
Pennsylvanis R. Co. v. Reichert, 58 Md. 261; Meriden Silver Plate Co.
v. Flory 44 Ohio St. 437, 7 N.E. 753. 7 Dowl. 789" 193, Soutern
Reporter, 339 and 16 Soutern Reporter 33@ 35 Col. I., Laws 1035,
Ex. Secs C. 10, referred to.
Bouvier's Law Dictionary- Referred to.
4. It cannot but be held that the payment of interest. is only
compensatory and not penal. Merely because clause 10 uses the
word "penal" it cannot be amount to penalty. (526 F)
Mahalaxmi Sugar Mills Co. Ltd. v. Commissioner of Income Tax.
1
Delhi. New Delhi, [1980) 3 SCR 421, referred to.
5. In view of the clear terms of the.statute the administrative
inconvenience cannot be pleaded. [528 B-C]
Sanjeev Coke Manufacturing Co. v. Bharat Coking Coal Ltd. &
Another, (1983) 1 SCR 1000 1029, referred to.
CIVIL APPELLATE nJRISDICTION: Civil Appeal No. 3498 of .
1991.
From the Judgment dated 17/18.7.1991 of the Bombay High Court
in Writ Petition No. 2038of1991.
G. Ramaswamy, Attorney General, V.R. Reddy, Addi. Solicitor General, Anil B. Divan, K.S. Cooper and T.R. Andyarajina, R.F. Nariman,
S.A. Divan, B.R. Agrawala, Vinod B. Agarwala, P.N. Kapadia, Pramod B.
Aganvala, S. Krishanchandani, Dr. Sumant Bhardwaj, Ms. Sanclhaya Mehta
for Mis Gagret & Co., Ms. Sushma Suri, A.M. Khanwilkar, M.P. Bharucha,
R. Karanjawala, Mrs. M. Karanjawaia, Mrs. V.S. Rekha, A.R. Amin, K.J.
John, Dr. A.M. Singh vi and Ajit Pudussery for the appearing parties.
---·
RAYMOND SYNTHETICS v. U.0.l. [THOMMEN, J.]
, 493
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
B
does a company become liable to repay the money received from applicants 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 C
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, interD
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 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•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:
_
F
"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
B
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
C
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
D
25,50,604 refund orders of an 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
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
E
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 issued 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
F 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 ExG
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
J.
->-: ...
RAYMOND SYNTHETICS v. U.0.1. [THOMMEN, J.]
495
the refund orders. The refund orders were not despatched until 12th NoA
vember, 1990. The Government of India and the Securities artd Exchange
Board of India insisted that the company should pay interest to the investors 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 I 0 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 Exchange. 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
D
· 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:-
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 expiry of the I 0 weeks, then from the date of allotment and in
F
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 allotment 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 -
A
B
c
D
E
F
496
SUPREME COURT REPORTS
[1992] I S.C.R.
" .. .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
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
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 Exchange till 19th December, 1990 in accordance with the relevant provisions of the prospectus, the company had no liability to pay interest.
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, notwithstanding that the allotment had been made, as in the present case, prior to .
the date of expiry of I 0 weeks.
'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 negotiability to stocks and shares; ensure proper supervision and . control of
dealings therein; and protect the interests of shareholders and of the general investing public'. (See para LI of the 'Stock Exchange Listing',
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 prospectus, it must, before issuing such prospectus, apply to one or more
· G
recognised stock exchanges for permission to have the shares or debentures 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 debentures 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."
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 (Amendment).·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:
A
B
c
"73(1A). Where a prospectus, whether issued generally or not,
D
states that an application.