MANU/DE/2463/2022

Equivalent/Neutral Citation: [2023]239C ompC as852(Delhi), 2022:DHC :3455, [2022]173SC L593(Delhi)

IN THE HIGH COURT OF DELHI

W.P. (Crl.) 559/2020
Decided On: 15.07.2022
Nitin Rekhan Vs. Union of India and Ors.
Hon'ble Judges/Coram:
Chandra Dhari Singh, J.
Counsels:
For Appellant/Petitioner/Plaintiff: Manish Kaushik and Mishal Johari, Advocates
For Respondents/Defendant: Bharathi Raju, Senior Panel Counsel
JUDGMENT
Chandra Dhari Singh, J.
1. The instant Criminal Writ Petition has been filed under Article 226 of the Constitution
of India read with Section 482 of Code of Criminal Procedure, 1973 (hereinafter referred
to as the "Code") inter alia praying for passing appropriate orders and directions to the
Respondent No. 2 to perform their duty in accordance with law and to prosecute
Respondents No. 3 to 7 under Sections 73 and 76A of the Companies Act, 2013 and to
take appropriate action on the complaint filed by the petitioner.
FACTUAL MATRIX
2. The matter has arisen out of the facts as detailed hereunder:
a. The Petitioner is a businessman by profession whereas the Respondent No. 3
is a private limited company engaged in the business of Real Estate.
b. The Petitioner had paid Rs. 40,00,000/- (hereinafter referred to as the
"amount in question") to the Directors of Respondent No. 3 Company for
issuance of shares in the said company on 27th December 2010 by depositing
the share application money in A/C No. 5582000100022401 maintained with
Karnataka Bank Limited, Karol Bagh.
c. The Respondent No. 3 Company failed to allot the shares as promised to the
Petitioner and returned the money on 9th February 2018 through RTGS. It is
alleged that however, the said Company failed to repay the interest accrued on
the amount in question as per Companies (Acceptance of Deposits) Rules, 2014
and Rule 17 of the Companies (Acceptance of Deposits) Rules, 2014.
d. The Petitioner approached the Registrar of Companies (Respondent No. 2) by
filing an online complaint on 11th December 2018 for non-compliance of the
Companies (Acceptance of Deposit) Rules, 2014 by Respondent No. 3 Company
and for the recovery of the Interest Amount. The Deputy Registrar of
Companies, Delhi issued a Show Cause Notice dated 14th May 2019 to the

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 Respondent No. 3 Company.
e. Despite the issuance of Show Cause Notice, it is alleged that no action was
taken by the Respondent Company on the complaint filed by the Petitioner. The
status of the same is currently reflected as "under examination" on the website
of the Ministry of Corporate Affairs.
f. The Petitioner has also preferred a private complaint under Section 200 of the
Code before the Special Judge, Dwarka Courts, Delhi against Respondent No. 3
and others including the Respondents No. 1 and 2 for not having taken any
action against Respondents No. 3 to 7 as per the law under Section 73 and 76A
of the Companies Act, 2013.
g. By way of the instant writ petition, the Petitioner has prayed for passing
appropriate orders and direction to the respondent No. 2 to do their duty in
accordance with law and to prosecute Respondents No. 3 to 7 under Section 73
and 76A of the Companies Act, 2013 and to take appropriate action on the
complaint filed by the petitioner.
SUBMISSIONS
3 . Learned counsel appearing on behalf of the Petitioner submitted that the Petitioner
had paid amount in question to the Directors of Respondent No. 3 Company for
issuance of shares in the said company on 27th December 2010 by depositing the share
application money in A/C No. 5582000100022401 maintained with Karnataka Bank
Limited, Karol Bagh. It is submitted that the petitioner has filed a copy of the Bank
Statement of February 2018 and that the Petitioner was further issued an Income Tax
Notice dated 24th September 2018 thereby confirming the deposit of the said amount as
share application money. It is further submitted that despite this, the shares were never
allotted.
4 . It is further submitted that the Respondent No. 7 M/s. PVRN & Co., the auditors of
Respondent No. 3 Company acting in connivance with the Respondent No. 3 Company
and other key managerial persons have been involved in a well-calculated fraud
carrying activities in violation of the provisions of the Companies Act, 2013. It is stated
that as an illustration and specimen of the fraudulent practices of the Respondent No. 3
Company, the Petitioner has annexed the Balance Sheet of the year 2016-17 of the
Respondent No. 3 Company to show the acceptance of unsecured deposit of Rs.
60,00,000/- from one Jakesh Kumar Sagar.
5 . The learned counsel for Petitioner submitted that the petitioner is aggrieved due to
inaction on behalf of the Respondent No. 2 in dealing with the complaint of the
Petitioner seeking enquiry into the financial irregularities, serious economic offences
and illegal conduct of Respondent No. 3 Company in accepting the deposits in
contravention of provisions of Companies Act, 2013 and for repayment of the interest as
per the provisions of law.
6 . The learned counsel for the Petitioner has contended that Respondent No. 2 has
failed to register the case against the Respondent No. 3 and to carry out their statutory
duty, which is in blatant violation of provisions of the Companies Act, 2013 and
Companies (Acceptance of Deposits) Rules, 2014. It is submitted that the delay in
enquiry and investigation on part of the Respondent No. 2 is acting as a shield for the
Respondent No. 3 Company.

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7 . Learned counsel for the Petitioner further submitted that the Section 2(31) of the
Companies Act, 2013 defines the term "deposit" as including any receipt of money by
way of deposit or loan or in any other form by a company. Further, it is submitted that
Rule 2(1)(c) of Companies (Acceptance of Deposit) Rules, 2014, defines the term
"deposit" and excludes various amounts received by a Company from the ambit of
Deposit which shall not be considered as deposits.
8 . It is also submitted that as per the provisions of Rule 2(1)(c)(vii) of Companies
(Acceptance of Deposit) Rules, 2014, it is clear that the money paid towards the share
application for allotment shall be treated as deposits if the said money is not refunded
within 60 days from acceptance. Accordingly, it is submitted that the money paid by the
petitioner to the Respondent No. 3 was hence qualified to be treated as deposits since
no shares were allotted to him.
9. The learned counsel for Petitioner has further submitted that as per Section 74(1) of
the Companies Act, 2013, the companies accepting deposits prior to the commencement
of the Companies Act, 2013 are obliged to file statement with the Registrar of
Companies, if the amount of such deposit or any interest due thereon, remained unpaid
on the commencement of the Act. The Respondent No. 3 Company has failed to comply
with the said provision and hence is liable for punishment in violation of provisions of
the Companies Act, 2013.
1 0 . Furthermore, it is submitted that the Respondent No. 3 Company contravened
Section 73 of the Companies Act, 2013 wherein the private companies are prohibited
from accepting deposits from the public. However, Respondent No. 2 has failed to
consider the same.
11. It is submitted that the Respondent No. 3 Company has been accepting deposits
from Public/Individuals beyond its objective specified in Memorandum of Association
and without taking requisite permission and certification from the RBI and concerned
government departments. It is submitted that the Respondent No. 3 Company has
contravened the requirements mandated under Section 73(2) of the Companies Act,
2013 as it accepted deposits from the Petitioner, who is not a member of the
Respondent No. 3 Company without passing of resolution on general meeting and as
per rules prescribed in consultation with RBI subject to conditions in Section 73(2) of
the Companies Act.
12. It is further submitted that Section 76A of the Companies Act, 2013 further makes
every officer of the company, who is in default of contravening the provisions as
mentioned in Section 73 of the Companies Act, 2013, punishable with imprisonment
which may extend to seven years and with fine which shall not be less than twenty-five
lakh rupees, but which may extend to two crore rupees.
1 3 . The learned counsel for petitioner has contended that the M/s. PVRN & Co.,
Respondent No. 7, the auditor of Respondent No. 3, in collusion and connivance with
each other have participated in the wrongdoing and committed the misdeeds of
accepting deposits from public despite the same being outrightly barred by law and
Respondent No. 7 has further failed to report the factum of acceptance of deposits by
the Respondent No. 3 Company from the public. It is also submitted that the
Respondent No. 7, M/s. PVRN & Co. has failed to carry out the duty of auditing in
accordance with the accounting standards.
1 4 . Furthermore, it is submitted that the Respondent No. 3 Company has failed to
return the statutory interest payable to the petitioner as per the Rule 17 of the
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Companies (Acceptance of Deposits) Rules, 2014 which imposes a penal interest of
18% per annum on the deposits accepted by a private company from the public. It is
submitted that the current status of the complaint filed by petitioner is still being shown
as "Under Examination", despite the passage of a considerable amount of time, due to
inaction on the said complaint by Respondent No. 2.
15. It is submitted that the Respondent No. 2 has not considered the activities of the
Respondent No. 3 which are in clear contravention of Section 73 of the Companies Act,
2013 which has created an explicit bar on acceptance of deposits by Public to a Private
Company punishable under Section 76A of the Companies Act, 2013.
1 6 . Per Contra, Ms. Bharathi Raju, learned CGSC for Respondents No. 1 & 2 has
submitted that the amount in question, that was given as share application money by
the Petitioner on 27th December 2010, was returned without any interest by the
Respondent No. 3 Company on 9th February 2018 to the Petitioner. Therefore, the
amount in question is not at all due with the company and the dispute between the
Petitioner and the Respondent No. 3 Company is only limited to the extent of
adjudicating whether there is any entitlement of interest on the amount in question
available to the Petitioner.
17. The learned counsel for Respondents No. 1 & 2 has contended that Petitioner had
given the amount in question for allocation of shares in the year 2010 which falls under
the operation of Companies Act, 1956 read with Companies (Acceptance of Deposits)
Rules, 1975 and not under the the Companies Act, 2013 and Companies (Acceptance of
Deposits) Rules, 2014.
18. It is further submitted that as per Rule 2(b)(vii) of the Companies (Acceptance of
Deposits) Rules, 1975, irrespective of the period for which shares are not allotted, any
amount by way of subscriptions to any shares, pending the allotment of the said shares,
shall remain excluded from the purview of "deposit".
1 9 . It is further submitted that according to the General Circular no. 05/2015 :
MANU/DCAF/0020/2015 issued by the Ministry of Corporate Affairs dated 30th March
2015 and the clarification by RBI, the amount received by a private company prior to
1st April 2014 shall be governed by the Companies Act, 1956 read with Companies
(Acceptance of Deposits) Rules, 1975 and shall not be treated as deposit under the
Companies Act, 2013 and Companies (Acceptance of Deposits) Rules, 2014 subject to
the condition that relevant private company shall disclose, in the notes to its financial
statement for the financial year commencing on or after 1st April, 2014 the figure of
such amounts and the accounting head in which such amounts have been shown in the
financial statement.
20. It is, therefore, submitted that as per Rule 2(b)(vii) of Companies (Acceptance of
Deposits) Rules, 1975 read with General Circular No. 15/2015, the share application
money given by the Petitioner for allotment of shares is not a deposit after the
commencement of Companies Act, 2013 with effect from 1st April 2014.
21. Furthermore, it is submitted that with regard to the investor complaint filed by the
Petitioner, two letters dated 11th December 2018 and 31st October 2019 had been sent
to the company, however, no response has been received. It is averred that the letters
were sent as a matter of practice even though the office cannot enforce the matter
sought by the complainant as the same is outside the jurisdiction of Respondents No. 1
& 2 as the said transaction of amount in question does not fall under the definition of
deposit under Companies Act, 1956 read with Rule 2(b)(vii) of Companies (Acceptance
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of Deposits) Rules, 1975.
22. In light of the aforesaid, it is submitted that the instant petition is devoid of merits
and this Court may be pleased to dismiss the same.
23. Heard learned counsels appearing on behalf of parties at length and perused the
record.
QUESTION FOR ADJUDICATION
24. A mere perusal of the petition makes it evident that the crux of the entire matter
lies in adjudicating whether the penal interest as being claimed by the petitioner is
applicable on the amount in question paid to the Respondent No. 3 Company. This can
be decided by answering the following questions:
a. Whether the Companies Act 2013 and the Companies (Acceptance of Deposit)
Rules, 2014 is applicable on the amount in question?
b. Whether the amount in question can be treated as "deposit"?
2 5 . Both these questions are interlinked and shall be answered sumptuously and
comprehensively in the following paragraphs.
ANALYSIS
26. For a better appreciation of the case at hand, it is pertinent to peruse and analyse
the provisions of law invoked in the instant petition before delving deeper into the facts
of the case; and even before their analysis it is crucial to test the applicability of these
provisions to the case at hand.
27. It is pertinent to note that the provisions of Companies Act 2013 did not come into
force on a single date, rather they have come into operation in phases. In the first
phase, the Ministry of Corporate Affairs vide its notification dated 12th September 2013
notified 12th September 2013 as the date on which certain provisions of the Companies
Act, 2013 would come into force. It was followed up by a notification dated 27th
February 2014, notifying Section 135 of the Companies Act, 2013 and Schedule VII, to
be effective from 1st April 2014. Subsequently, in the third phase, by notification dated
26th March 2014, the Ministry notified 1st April 2014 as the date on which certain
provisions and all remaining schedules of the Companies Act, 2013 would come into
force.
28. Section 2(31) of the Companies Act, 2013 that defines "deposit", came into force
from 1st April 2014 and as such, it cannot be applied retrospectively for the share-
purchase agreement between the Company and Petitioner that was entered into between
the parties back in the year 2010, way back in time before the commencement of the
2013 Act and its provisions.
29. Furthermore, the Companies (Acceptance of Deposits) Rules, 2014 as notified by
MCA vide notification No. G.S.R. 256(E) dated 31st March 2014 came into force on 1st
April 2014. Therefore, the said Rules of 2014 can also not be applied on the amount in
question.
30. It is evident that amount in question was given by the Petitioner in the year 2010
and was returned to him by the Respondent Company in the year 2018. Hence, the
same shall be governed by the provisions of the Companies Act, 1956 read with
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Companies (Acceptance of Deposits) Rules, 1975 and the Companies Act, 2013 and
Companies (Acceptance of Deposits) Rules, 2014 does not apply.
3 1 . Rule 2(b)(vii) of the Companies (Acceptance of Deposits) Rules, 1975 reads as
under:
"(b) "deposit" means any deposit of money with, and includes any amount
borrowed by, a company, but does not include-
(vii) any amount received by way of subscriptions to any shares, stock,
bonds or debentures such bonds or debentures as are covered by sub-
clause (x) pending the allotment of the said shares, stock, bonds or
debentures and any amount received by way of calls in advance on
shares, in accordance with the Articles of Association of the Company
so long as such amount is not repayable to the members under the
Articles of Association of the Company;"
32. It is clear that as per Rule 2(b)((vii), irrespective of the period for which shares are
not allotted, any amount by way of subscriptions to any shares, pending the allotment
of the said shares, shall remain excluded from the purview of "deposit".
33. As per the contents of the General Circular No. 05/2015 : MANU/DCAF/0020/2015,
dated 30th March, 2015 issued by the Ministry of Corporate Affairs, it has been clarified
as under:
"2. The matter has been examined in consultation with RBI and it is clarified
that such amounts received by private companies prior to 1st April, 2014 shall
not be treated as 'deposits' under the Companies Act, 2013 and Companies
(Acceptance of Deposits) Rules, 2014 subject to the condition that relevant
private company shall disclose, in the notes to its financial statement for the
financial year commencing on or after 1st April, 2014 at the figure of such
amounts and the accounting head in which such amounts have been shown in
the financial statement."
34. As per this circular, the amount received by the private companies prior to 1st April
2014 shall not be treated as "deposits" under the Companies Act, 2013 and Companies
(Acceptance of Deposits) Rules, 2014 provided that the same was disclosed in financial
statement for the financial year commencing on or after 1st April 2014.
35. Therefore, as per Rule 2(b)(vii) of Companies (Acceptance of Deposits) Rules, 1975
read with General Circular No. 15/2015, the share application money given by the
Petitioner for allotment of shares cannot be treated as "deposits". Therefore, as such,
the question of applicability of penal interest does not arise.
36. Having considered the entirety of facts and circumstances of this case, as well as
the provisions of law as applicable, this Court has come to the conclusion that the
amount in question cannot be treated as "deposit" and as such does not attract the
penal interest that would have otherwise applied, for the following reasons:
a. firstly, the money was given by the Petitioner in the year 2010, and was
returned by the Respondent Company to the Petitioner in the year 2018, and
hence the same shall be governed by the provisions of The Companies Act,
1956 read with Companies (Acceptance of Deposits) Rules, 1975;

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 b. secondly, as per the General Circular No. 05/2015 dated 20th March 2015
released by the Ministry of Corporate Affairs in consultation with RBI, the
amount received by the private companies prior to 1st April 2014 shall not be
treated as deposits under the Companies Act, 2013 and Companies (Acceptance
of Deposits) Rules, 2014 provided that the same was disclosed by in financial
statement for the financial year commencing on or after 1st April, 2014; and
c. thirdly, as rightly contended by the learned counsel for the Respondents No.
1 & 2, the inaction of the Office on the said letters dated 11th December 2018
and 31st October 2019 was by virtue of the fact that the prayers contained
therein were outside the purview of jurisdiction of Respondents No. 1 & 2.
37. Therefore, for the reasons as aforestated, this Court is of the opinion that no case
for exercise of writ jurisdiction is made out. In any case, the contractual relations or
other obligations arising therefrom between the Petitioner and the Respondent No. 3 are
outside the scope of the instant writ petition. It is open for the Petitioner to explore and
pursue other legal remedies for recovery of interest or any dues due to him on the part
of Respondent No. 3 Company. As such, no cause of action has arisen against the
Respondents No. 1 & 2, Ministry of Corporate Affairs and Registrar of Companies, for
adjudication between a matter pertaining to the private contract between two individual
parties.
3 8 . Hence, in light of the foregoing discussion and analysis, there are no cogent
reasons to entertain the petition and allow the prayers sought therein. In the aforesaid
terms, the instant petition stands dismissed.
3 9 . It is made clear that any observations made herein shall have no bearing
whatsoever on the merits of the case arising from the set of facts and circumstances of
this case, in the course of any proceedings before any other Court.
40. The judgment be uploaded on the website forthwith.
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