http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 37

PETITIONER:

RAYMOND SYNTHETICS LTD. AND ORS.

Vs.

RESPONDENT:

UNION OF INDIA AND ORS.

DATE OF JUDGMENT04/02/1992

BENCH:

THOMMEN, T.K. (J)

BENCH:

THOMMEN, T.K. (J)

MOHAN, S. (J)

CITATION:

1992 AIR 847 1992 SCR (1) 481

1992 SCC (2) 255 JT 1992 (1) 463

1992 SCALE (1)264

ACT:

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 arises-Permission-When deemed to be

refused or granted.

Securities Contracts (Regulation) Act, 1956-Section 22-

Appeal-When lies-Pending appeal-Effect.

Companies Act, 1956-Section 73, (1A) (2), (2A), (2B),

2(31), 5-Interest-Payment of-Company's liabilities-

Circumstances-Situation in pre and post Companies

(Amendment) Act, 1974 - Liability of Directors-Scope of-"An

Officer in default"-Construction.

Companies Act, 1956-Section 73(2)-"Forthwith"-

Construction of-Legislative intention.

Companies Act, 1956-Section 73(1) (2) (3)-Application

money-Company's right or obligation to credit bank

accounts-Effect-Purposes for usages of such money.

Companies Act, 1956-Section 73(2)-Interest-Assessment

period-Calculation-Starting point-Construction-Legislation

intention.

Companies Act, 1956-Section 73-Ambiguous section-

Construction-Method.

Interpretation of Statut-Ambiguous section-Construction

(Section73, Companies Act, 1956)

Companies Act, 1956-Section 73 (2A)-When applicable-

"Due"-Construction-"Due" and "payable" not same- "Penal" not

penalty-Administrative inconveniences cannot be pleaded.

HEADNOTE:

The appellant-company was registered under the

Companies Act, 1956. It obtained the consent of the

Government of India to

482

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 per.

One of the conditions attached to the consent order was

"The company shall scrupulously adhere to the time limit of

10 weeks from the date of closure of the subscription list

for allotment of all securities and despatch of allotment

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 37

letters/certificates and refund orders."

On 12.7.1990 the company issued prospectus for the

issue of the shares and debentures, stating therein 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 prospects; 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 on August 20, 1990 and close on August 23, 1990; and

that it would not be extended beyond August 31, 1990.

The issue opened on August 20, 1990. 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.

The shares issue was close on 23rd August 1990. On

October 15,1990 the Board of Directors of the company

approved the allotment of shares. Prior to 1.11.1990, it

secured the requisite permissions of the stock exchanges at

Indore, Ahmedabad, Bombay Calcutta and Delhi to deal in the

shares offered in the prospects.

The company had to despatch 25,50,604 refund order,

which were printed in Bombay and they were meant to be

despatched from Delhi. The company despatched 8,55,226

refund orders from 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 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 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

483

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 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 November 30,1990 and further extended till 19th

December, 1990.

The Bombay Stock Exchange refusing the 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 Exchanges Board of India-Respondents Nos. 1 and 2

respectively, 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 of

the Companies Act from 1st November (the expiry date of the

period of 10 weeks from the date of the closure of the

subscription lists) till the date of posting of the refund

orders.

The company filed a writ petition in the High Court

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.

In the High Court, the respondent No. 1 submitted that

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 37

the liability to pay the excess amount 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 on at the end of the period

as extended by the Stock Exchanges at Indore in terms of the

prospectus.

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 the expiry of 8 days from the date of

allotment of the shares, and not from the date of expiry of

10 weeks, where allotment was made earlier to that date.

484

This appeal was filed by the Company against the High

Court's judgment by special leave, on the question, 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 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 the expiry of that period; that as the

Madhya Pradesh Stock Exchange had extended time for refund

till 19th December, 1990, the liability 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 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 from the day on which the

liability arose attracted interest that the expression

`forwith' had to be understood as an immediate liability

ascertainable with reference to the date of allotment, but

subject to a period of grace of 8 days.

Allowing the appeal, this Court,

HELD : 1.01 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 intend 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 G]

1.02 Sub-section (1) of section 73, as amended by the

485

Companies (Amendment) Act, 1988 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. [497 B-C]

1.03. Sub-section (1A) of Section 73 as amended by the

Companies (Amendment) Act, 1988 makes it necessary for the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 37

company to state in its prospectus the name of each of the

recognised stock exchanges whose permission for listing has

been sought by the company. [497 G]

1.04. Any allotment of shares will become void if

permission is not granted by the stock exchange or each such

stock exchange, 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 exchanges

whose permission has been sought. [497 G-498 A]

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 the expiry of 10

weeks from the date of closing of the subscription lists.

[498 A]

1.06 There is a deemed refusal if permission is not

granted by the stock exchange before the expiry of 10 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. [498B]

1.07. Sub-section (1A) postulates that any allotment

made becomes void at the end of 10 weeks from 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 postponed 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 under sub-section (1A) i.e., rendering the

allotment void, until the period of 10 weeks has 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 consequently the liability to

pay interest at the rate specified in sub-

486

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, 1956. [498 C]

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. [498 C]

2.03. The fact that an appeal is pending does not

postpone the result contemplated in sub-section (2) in

regard to the liability to repay the amounts and the

interest accruing thereon if the amounts are not repaid

within 8 days after the liability arose. [505 A]

3.01 Sub-section (1A) of Section 73 postulates two

circumstances in which interest becomes payable, namely,

where the permission has not been applied for before issuing

the prospects and 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 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

subsection (1). In the latter case, the liability to pay

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 37

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 (1A). [499 C-D]

3.02. Section 73, as it stood prior to 1975, contained

no specific provision compelling 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, but 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 made the company

liable to pay interest on such excess amounts. But a

liability was cast on the directors. If the excess amount

was not repaid within 8 days from the day the company became

liable to

487

repay it, the directors were made jointly and severally

liable to repay such amount with interest. The proviso to

sub-section (2A), which like the proviso to 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-E]

3.03. Owing to the absence of a specific provision

imposing liability on the company to 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 to

make listing of public issues compulsory, further 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]

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 director or the whole

time director of a company. [500 H-501 A]

3.05. The liability imposed under sub-section (2A) on a

director of the company falls only upon a director who is

`an officer in default', as defined under section 2 (31)

read with section 5(a) (b), and not upon any other director.

The nominees of the Government of financial institutions on

the board of directors of the company, but not directly in

charge of its administration as full time directors, are

exempted from personal liability. [501 A-B]

3.06. Sub-section (2A) provides for the accrual of

interest and the rates thereof. Unlike sub-section (2B)

providing for punishment 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 is of no relevance to the liability of the

company of its directors to pay interest in terms of sub-

section (2A). [503 E]

488

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 37

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 repay 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). [503 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 (1A). Subsection (3) has to be

so understood to be in harmony with the other provisions of

section 73. [506 C]

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 been 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 insub-

section (1A). [505B]

4.01. The expression `forthwith' does not necessarily

and always mean instantaneous. The expression has to be

understood in the context of the statue. 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]

489

Keshav Nilkanth Joglekar v. The Commissioner of Police,

Greater Bombay, [1956] SCR 653 and Salim v. State of West

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 permission is expressly or

impliedly refused, the 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 sub-section (3)

in the event of default of compliance with the requirement

of that sub-section. [505 H-506 B]

5.02. The money credited to the separate bank account

can be utilised for only two purposes: (1) 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 37

keep it longer than permitted by the section. [506 G-H]

Palmer's Company Law, 24th ed. para 24.31; 1955(1) WLR

1080, 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 permission 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-C]

6.02. Companies generally make allotments as soon as

practicable after the necessary application has been made to

the recognised stock exchange for permission for listing.

Upon the issue of the prospectus after making such

application, amounts are received from the public in

consideration of which allotments are made in anticipation

of the requisite permission. Greater the reputation of the

company, larger are the amounts likely to be received. If

permission is not granted, the entire amounts received from

the public

490

have to be forthwith repaid. On the 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 or 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 from the date of closing of the subscription lists.

Until the expiry of those 10 weeks, neither 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 uncertainty and it is for that reason that the

legislature has, been is a case of refusal to grant

permission, provided that the liability to repay the

application money arises upon the expiry of 10 weeks. [507

D-G]

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 over subscription,

that repayment of money has to be made by the company. It

either event, the liability to repay the amounts arises

forth-with on the expiry of 10 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, just and reasonable from the point of

view of both the investor and the company, and has the

advantage of certainty, uniformity and easy application.

[507 G-508 A]

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 extremely

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 37

the return of the excess amounts due to him. [508 E-G]

Desh Bandu Gupta & Co. & ors. v. Delhi Stock Exchange

Association Ltd., [1979] 4 SCC 565 and K.P. Varghese v.

Income Tax Officer, Ernakulam & Anr., [1981] 4 SCC 173,

referred to.

491

Crawford's Interpretation of Laws, 1989 Ed. -referred

to.

As per Mr. Justics 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 the recognised stock exchange or exchanges. The

words, "where permission 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 of shares not allotted. [519 B-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. [526 A]

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-D]

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]

Black's Legal Dictionary, (5th Edition 488),

Venkataramiah's Law Lexicon and Legal Maxims Vol. I, 713-

714; Wharton's Law Lexicon, 14th Edition; Buckley on the

Companies Acts, 14th Edition, Volume I, referred to.

Bhaktawar Begum v. Husaini Khanam, (1914)36 All. 195;

41 I.A. 84; 23 I.C. 355; Bir Mohammad V. Nagoor, [1914] 27

Mad. L.J. 483; 25 I.C. 576 (which over-ruled Rose Ammal v.

Rajarathnam, (1900) 23 Mad. 23); Baroda Board & Paper Mills

Ltd. v. Income Tax Officer, Circle I, Ward E, Ahmedabad and

others, 1976 (46) company cases

492

25; Union of India v. Air Foam Industries (P) Ltd., AIR

1974 S.C. 1265 & 1271 (Para 7) referred to.

3. "Forthwith' is 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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 37

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, 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 Cooking Coal

Ltd. & Another, [1983] 1 SCR 1000 1029, referred to.

JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3498 of

1991.

From the Judgment dated 17/18.7.1991 of the Bombay High

Court in writ petition No. 2038 of 1991.

G. Ramaswamy, Attorney General, V.R. Reddy, Addl.

Solicitor General, Anil B. Divan, K.S. Cooper and T.R.

Andyaranjina, R.F. Nariman, S.A. Divan, B.R. Agrawala, Vinod

B. Agarwala, P.N. Kapadia, Pramod B. Agarwala, S.

Krishnachandani, Dr. Sumat Bhardwaj, Ms. Sandhaya Mehta for

M/s Gagret & Co., Ms. Sushma Suri, A.M. Khanwilkar, M.P.

Bharucha, R. Karanjawala, Mrs. M. Karanjawala, Mrs. V.S.

Rekha, A.R. Amin, K.J. John, Dr. A.M. Singhvi and Ajit

Pudussery for the appearing parities.

493

The Judgment of the court was delivered by

THOMMEN, J. The question which aries 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 days on which

the company and every director `who is an officer in

default' is liable to pay insterest 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 lists, referred to in sub-section (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.

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.

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 37

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:

"The company shall scrupulously adhere to the time

limit of 10 weeks from the date of closure of the

subscription list for allotment of all securities

and despatch of allotment letters/certificates and

refund orders."

A prospectus was issued by the company on 12th July,

1990 for the issue of the aforesaid shares and debentures.

The prospectus stated, amongst

494

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 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 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 close 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 1, 1990. The company had to despatch

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 had been despatched from Bombay to

Delhi in a brake van of the 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 of all

the multi-colored 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 Exchange, 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 1st November (which is

when the period of 10 weeks from the date of the closure of

the subscription lists expired) till the date of posting of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 37

495

the refund orders. The refund orders were not despatched

until 12th November, 1990. The Government of India and the

Securities and 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 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 10 weeks

after the date of closure of the subscription lists.

Paragraph 23.2 of its publication of March 1991 quotes the

condition mentioned in the Order of the Government of India

dated 31.5.1990(which we have extracted above)to the effect

that the liability of the company for despatch for refund

orders arose only at the end of 10 weeks from the date of

closure of the subscription lists.

In 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

Exchange Board of India contended that the liability arose

on the date of allotment. In the present appeal, however,

the Union of India support the stand of the Securities and

Exchange Board of India. On the 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 prospects. The High

Court held:-

"...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 10

weeks, then from the date of allotment and in case

where the allotment is not completed till the

expiry of ten weeks from the date of closure of the

subscription list, then from the date of expiry of

ten weeks..."

The reason stated by the High Court for coming to this

conclusion is that the company knew that the excess amount

was on the date of allotment and there was no reason why the

company should delay payment till the end of 10 weeks in

case the allotment was made earlier. The High Court says-

496

"...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 grace period of

eight days, then the Company would be liable to 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 company 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 37

from the date of allotment of the shares, and not from the

date of expiry of 10 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 10 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 impart 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 1.1. 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

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 (1) of section 73 read:

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, 1988 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.

This original sub-section (1) was substituted by the

Companies (Amendment) Act, 1974 with effect from 1.2.1975,

and substituted again and renumbered as the present sub-

section (1A) with effect from 15.6.1988 by the Companies

(Amendment) Act, 1988. Sub-section (1A) reads:

"73(1A). Where a prospectus, whether issued

generally or not, 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 prospectus 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, whenever

made, be void if the permission has not been

granted by the stock exchange or each such stock

exchange, as the case may be, before the expiry of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 37

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 or debentures to be dealt

in on that stock exchange has been preferred under

section 22 of the Securities Contracts (Regulation)

Act, 1956 (42 of 1956), such allotment shall not be

void until the dismissal of the appeal."

This provision makes it necessary for the company to

state in its 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 exchange or each such

stock exchange, 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 thus made dependent

on securing the requisite

498

permission of each stock exchange whose permission has been

sought. The liability to repay the application money arises

only upon refusal of the stock exchange to grant the

permission sought by the company before the expiry of 10

weeks from the date of closing of the subscription lists.

This is clear from sub-section (1A) read with sub-section

(5). There is a deemed refusal if permission is not granted

by the stock exchange before the expiry of 10 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 permission, an appeal will lie under section 22 of

the Securities Contracts (Regulation) Act, 1956. 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. 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 10

weeks has expired or until the dismissal of the appeal.

Sub-section (2), as amended in 1988, reads:

"S. 73(2). Where the permission has not been

applied under sub-section (I) 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 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."

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 has issued a prospectus without

seeking permission for listing, it has clearly acted in

violation of the mandatory provisions of the Act, and the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 37

company has no right to receive or retain any amount by way

of subscription in pursuance of its prospectus. On the

499

other hand, where permission has been sought, but has not

been obtained within 10 weeks from the date of closing of

the subscription lists, thereby rendering void any allotment

made, the company is bound to repay all such money

forthwith, but without interest. In the event of such money

not being repaid within 8 days after the liability to repay

arose, the company 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 from the date of expiry of the said 8 days. The

interest is payable at the prescribed rates varying from 4%

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 payable, namely,

where the permission has not been applied for before issuing

the prospectus and the company had 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 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 (IA).

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 on the amounts repayable by

it in terms thereof, but only the directors were liable for

payment of such interest, apart from the principal amounts.

The proviso to the sub-section as it stood prior to 1988

exempted a director 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 the

Amendment Act of 1988, the company and every director of the

company `who is an officer in default' are made jointly and

severally liable for payment of the principal amount as well

as interest.

We shall now read the crucial provision which is sub-

section (2A):-

"S.73 (2A). Where permission 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

application moneys relating to the shares or

debentures in respect of which

500

allotments have been made, the company shall repay

the moneys to the extent of such excess forthwith

without interest, and if such money is not repaid

within eight days, from the date 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,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 37

as may be prescribed having regard to the length of

the period of delay in making the repayment of such

money".

Sub-section (2A) was inserted by the Companies

(Amendment) Act, 1974 which came into force w.e.f. 1.2.1975.

Section 73, as it stood prior to 1975, contained no

specific provision compelling 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 to cover cases where permission of

the stock exchange has been obtained, but the shares or

debentures have been over-subscribed and the company is

consequently in possession of excess amounts. The sub-

section, as inserted in 1975, 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 excess amount

was not repaid within 8 days from the day the company became

liable to repay it, the directors were made jointly and

severally liable to repay such amount with interest. The

proviso to sub-section (2A), which like the proviso to 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.

Owing to the absence of a specific provision imposing

liability on the company to 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 to

make listing of public issues compulsory, further 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. A `director of a company who is an

officer in default' appearing in sub-section (2A) must be

understood with reference to

501

the definition of `an officer who is in default' contained

in section 2(31) read with section 5. This definition

includes the managing director or the wholetime director of

a company. So understood, the liability imposed under sub-

section (2A) on a director of the company falls only upon a

director who is `an officer in default', as defined under

section 2(31) read with section 5(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

directors, are exempted from personal liability. The rate

of interest payable under sub-section (2A) is, an seen

above, not less than 4 per cent and not more than 15 per

cent.

The sub-section requires the company to repay the over

subscribed amounts. These amounts are paid by persons who

have responded to the prospectus which was issued by the

company after making an application for permission in

accordance with sub-section (1). But when the subscription

lists are closed, the excess money is ascertained with

reference to the actual allotments made and so it becomes

repayable as the company has no right to retain it. The

question is, for the purpose of computing interest, did it

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 37

become repayable upon the date of allotment, as found by the

High Court and as contended by the respondents, or on some

other day.

The Additional Solicitor General, appearing for the

Union of India, Mr. K.S. Cooper, for the Securities &

Exchange Board of India, Mr. T.R. Andhyarujina, for the

Bombay Stock Exchange and Dr. A.M. Singhvi, for one of the

interveners, submit that the liability to repay the excess

amount arises on the date of allotment of the shares, for

the statute says that the liability arises forthwith and any

delay beyond the period of 8 days from the day on which the

liability arose attracts interest. The expression

`forthwith' has to be understood as an immediate liability

ascertainable with reference to the date of allotment, but

subject to a period of grace of 8 days.

Mr. Anil B. Dewan, appearing for the company, on the

other hand, contends that the company is entitled to retain

the excess amount for the period mentioned in the prospectus

and consequently no liability to pay interest can arise

until the expiry of that period. Prospectus is an

instrument registered under section 60 of the Act and all

statements contained in it are matters permitted to be

inserted by the statue. The terms of the prospectus are

binding not only upon the company but also upon persons who

deal with the company in pursuance of the prospectus. One

of those terms concerns the repayment of excess money. It

reads:-

"...In case an application is rejected in full, the

whole of the

502

application money received will be refunded and

where an application is rejected in part, the

balance, if any, after adjusting money due in the

manner provided earlier in this Prospectus 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 within such further time

as may be allowed by the Stock Exchange 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, 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 contrary to the

provisions contained in sub-section (4) of section 73 of the

Act which reads:_

"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".

In 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 agreement can defeat or circumvent a

mandatory 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 memorandum or articles of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 37

association of the company or any agreement executed or

resolution passed by it. The statute requires the company

to pay interest in terms of sub-section (2A). That

provision says that the company should pay excess money

forthwith, failing which interest becomes payable at the end

of 8 days therefrom. Any inconsistent provision in the

prospectus is unenforceable and it can be of no avail to the

company.

It is true that 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

503

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.

Decisions such as Keshave Nilkanth Joglekar v. The

Commissioner of Police, Greater Bombay, [1975] SCR 653, and

Salim v. State of West Bengal, [1975] 3 SCR 394, deal with

the expression `forthwith' in the context of preventive

detention demanding a liberal or reasonable construction.

But that is not the construction which has to be adopted

when `forthwith' is used for determining the time and mode

of payment of the principal and interest. 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.

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 commencement of the liability

of the company to repay the excess amount. Relevant

circumstances which caused the delay must 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) provides for punishment by imposition of

fine or imprisonment, sub-section (2A) speaks only of

interest which is in contradiction 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 is of no relevance to the

liability of the company or its directors to pay interest in

terms of sub-section (2A).

Sub-section (2B) on the other hand provides for

punishment. It reads:-

"S.73(2B). If 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 may extend to

five 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

may extend to one 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

504

defined under section 5) with the stipulated punishment.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 37

This is, of course, in addition to the payment of interest

prescribed under sub-section (2A).

Sub-section (5), as it stood prior to 1.2.1975, read:

"S. 73(5). For the purpose of this section

permission shall not be deemed to be refused if it

is intimated that the application for permission

though not at present granted, will be given

further consideration".

This sub-section was substituted by the Companies

(Amendment) Act, 1974 with effect from 1.2.1975 reading as

follows:-

"S.73(5). For the purposes of this section, it

shall be deemed that permission has not been

granted if the application for permission, where

made, has not been disposed of within the time

specified in sub-section (1)."

Sub-section (1) referred to in sub-section (5), as

substituted on 1.2.1975, is in fact the present sub-section

(1A), for, as stated earlier, the original sub-section (1)

was amended and renumbered as sub-section (1A) when the

present sub-section (1) was inserted by the Companies

(Amendment) Act, 1988 w.e.f. 15.6.1988. Consequently, the

words `the time specified in sub-section (1)' appearing in

sub-section (5), as inserted w.e.f. 1.2.1975, denote the

period of 10 weeks mentioned in the present sub-section

(1A). This means that the permission for listing is deemed

not to have been granted, i.e., impliedly refused, if the

application for permission filed by the company has not been

disposed of before the expiry of 10 weeks from the date of

the closing of the subscription lists, as mentioned under

sub-section (1A).

Sub-section (1A) postulates that any allotment made

becomes void at the end of 10 weeks from 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 postponed till the

dismissal of any appeal preferred under section 22 of the

Securities Contracts (Regulation) Act, 1956 (see the proviso

to sub-section (1A) of section 73 of the Act).

Nevertheless, the permission, if not obtained within 10

weeks, is deemed not to have been granted.

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 been sought or, having

been

505

sought, it has not been granted. The fact that an appeal is

pending does not postpone the result contemplated in sub-

section (2) in regard to the liability to repay the amounts

and the interest accruing thereon if the amounts are not

repaid within 8 days after the liability arose. The accrual

of interest under sub-section (2) is not dependent or

consequent on the nullity postulated in sub-section (1A).

In this connection, reference may be made to sub-

section (3) which reads:-

"S.73(3). All moneys received as aforesaid shall

be kept in a separate bank account maintained with

a Scheduled bank until the permission has been

granted, or where an appeal has been preferred

against the refusal to grant such permission, until

the disposal of the appeal, and the money standing

in such separate account shall, where the

permission has not been applied for as aforesaid or

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 37

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 company, and every officer of the company who

is in default, shall be punishable with fine which

may extend to five thousand rupees."

(emphasis supplied)

This sub-section refers to the obligation of the

company to keep all amounts received from the subscribers in

a separate bank account maintained with a Scheduled bank.

Such money must so remain in the bank until the permission

has been granted by the stock exchange or until the disposal

of an appeal preferred against refusal to grant permission.

Where the permission has not been sought, the company has,

as seen above, acted in disobedience of the law, and the

amounts received from the investors must be credited to the

separate bank account and immediately returned to them

together with the interest which accrued for the period.

But where permission has been sought, but not granted, the

amounts so kept in the bank have to be repaid within the

time specified in sub-section (2). Default of compliance

with this requirement will make the company and every

officer in default (as defined under section 5) liable to be

punished with fine. This will, of course, be in addition to

the liability for payment of interest in terms of sub-

section (2).

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 permission is

506

expressly or impliedly refused, the 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 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 with the requirement

of that sub-section.

Sub-section (3) may at the first blush appear to be

contradictory, but it is really not so, considering the

legislative intent to protect the legitimate 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 terms of that sub-section, unless the money is

returned to them within the specified time, not withstanding

the pendency of an appeal mentioned in the proviso to sub-

section (1A). Sub-section (3) 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 exchange specified in the prospectus;

or

(b) repayment of moneys received from applicants in

pursuance of the prospectus, where shares have not been

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 37

permitted to the 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 of share".

The money credited to the separate bank account can be

utilised for only two purposes: (1) 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 permitted by the section.

507

The money so kept in the separate bank account is held

by the company for and on behalf of the subscribers in a

fiduciary capacity. Such amount do not form 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

`bailers and bailee and not of creditors and debtor'. See

Palmer's Company Law, 24th ed. para 24.31; 1955 (1) WLR,

1080,1085.

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 permission 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.

Companies generally make allotments as soon as

practicable after the necessary application has been made to

the recognised stock exchange for permission for listing.

Upon the issue of the prospectus after making such

application, amounts are received from the public in

consideration of which allotments are made in anticipation

of the requisite permission. Greater the reputation of the

company, larger are the amounts likely to be received. If

permission is not granted, the entire amounts received from

the public have to be forthwith repaid. On the 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 or 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 from the date of closing of the subscription lists.

Until the expiry of those 10 weeks, neither 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 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 the expiry of 10 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 permission having been refused, or

permission 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 10 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 37

508

the company, and has the advantage of certainty, uniformity

and easy application.

The condition attached to the Order of the Government

of India dated 31st May, 1990, which we have extracted

above, indicates that the time limit of 10 weeks from the

date of closure of the subscription lists applied to refund

orders as well as to allotment of all securities and

despatch of allotment letters/certificates. The Government

of India thus understood that the liability of the company

to repay the amounts in terms of section 73 arose only at

the end of 10 weeks from the date of closure of the

subscription lists. This condition presumably applies to

repayment under sub-section (2) as well as under sub-section

(2A) of section 73. This is fully borne out by the

averments contained in the affidavit filed in the High Court

on behalf of the Union of India as well as by the oral

submissions on its behalf before the High Court on the

point. Similar appears to be the stand of the Bombay Stock

Exchange, as seen from its publication of March 1991 (para

23.2). The letter dated March 13, 1991 sent by the

Securities and Exchange Board of India, the 2nd respondent,

to the appellant company stating that interest was payable

from 1st November, 1990, which is the date of expiry of the

period of 10 weeks from the date of closure of the

subscription lists, roughly indicates how the 2nd respondent

construed the provision shortly before the proceedings

commenced in the High Court.

The section is not free from ambiguities and doubts.

Having been amended in several respect, 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 extremely significant.

This construction is, in our view, 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. See Desh

Bandhu Gupta & Co. & Ors. v. Delhi Stock Exchange

Association Ltd., [1979] 4 SCC 565 and K.P. Varghese v.

Income Tax Officer, Ernakulam & Anr., [1981] 4 SCC 173. See

also Crawford's Interpretation of Laws, 1989 Ed.

Neither the date of allotment, as found by the High

Court, nor the date specified in the prospectus, as

contended by the company, is relevant to the commencement of

liability for payment of interest on the excess money.

509

The liability of a company to repay the excess money

under section 73(2A) of the Act arises on the expiry of 10

weeks from the date of the closing of the subscription

lists, and the interest begins to accrue thereon at the end

of 8 days therefrom.

Accordingly 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 consequently the liability to

pay interest at the rate specified in sub-section (2A) arose

on the expiry of 8 days from 1.11.1990.

MOHAN, J. I had the advantage of perusing the draft

judgment of my learned brother. I concur with him.

However, some important points require to be amplified. The

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 37

points that arises for determination are:

(i) the scope of liability under Section 73 (2A) of the

Companies Act.

(ii) Meaning of the word "forthwith"

(iii) Whether the payment of interest is penal in

nature?

(iv) Whether administrative inconvenience could be

pleaded to avoid the statutory liability?

Section 73 occurs under Para III of the Companies Act 1956

(Central Act of 1/1956 hereinafter referred to as the Act).

This section deals with the allotment of shares

and debenturs. It has undergone important amendments in

1975 and 1988. Prior to amendment in 1975, Section 73 read

as under :_

"Allotment of shares and debentures to be dealt in

on stock exchanges. (1) Where a prospectus,

whether issued generally or not states that

application has been or will be made for permission

for the shares or debentures offered thereby to be

dealt in on a recognised stock exchange, any

allotment made on an application in pursuance of

the prospectus shall, whenever made, be void, if

the permission has not been applied for before the

tenth day after the first issue of the prospectus

or, if the permission has not been granted before

the expiry of (four weeks) be notified to the

applicant for permission by or on behalf of the

stock exchange.

(2) Where the permission has not been applied for

as aforesaid, or has not been granted as aforesaid,

the company shall forthwith repay without interest

all moneys received from ap-

510

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 of the eighth day:

Provided that a director shall not be liable if he

proves that the default in the repayment 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 separate bank account maintained with a

Scheduled Bank so long 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 permission has not been granted) if

it is intimated that the application for permission

though not at present granted, will be given

further consideration.

(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,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 37

therefor in pursuance of the prospectus; 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 allotment;

(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 company's

liability under that sub-section shall be

construed accordingly; and

(iii) for the reference in sub-section (3) to

the company and every officer of the company

who is in default, there

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 that the shares or

debentures offered thereby to be dealt in on any

stock exchange, unless it is a recognised stock

exchange".

After amendment in 1975, Section 73 read as follows:-

"Allotment of shares and debentures to be dealt in

on stock exchanges. (1) Where a prospectus whether

issued generally or not states that an application

has been, or will be, made for permission for the

shares or debentures offered thereby to be dealt in

on one or more recognised stock exchanges, such

prospectus 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 permission has not been

applied for before the 10th 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

exchange or each such stock exchange, as the case

may be, before the expiry of 10 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 share or debentures to be dealt

in on that stock exchange has been preferred under

section 22 of the Securities Contracts (Regulation)

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

as aforesaid, substituted for "or has not been

granted as aforesaid" by the Companies (Amendment)

Act, 1974, w.e.f. 1.2.1975 substituted for "five

per cent" ibid.

(2A) Where permission 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 or debentures

512

in respect of which allotment has been made,

the company shall repay the moneys to the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 37

extent of such excess forthwith without

interest, and if such money is not repaid

within eight days, from the day the company

becomes liable to pay it, the Directors of the

Company shall be jointly and severally liable

to repay the money with interest at the rate

of twelve per cent per annum from the expiry

of the said eighth day :

Provided that a Director shall not be liable

if he proves the the default in the payment of the

money was not due to any misconduct or negligence on

his part.

(2B) If default is made in complying with the

provisions of sub-section (2A), the company

and every officer of the company who is in

default he shall be punishable with fine which

may extend to five thousand rupees, and where

repayment is not made within six months from

th expiry of the eighth day, also with

imprisonment for a term which may extend to

one year.

(3) All moneys received as aforesaid shall be kept

in a separate bank account maintained with a

Scheduled Bank (until the permission has been

granted, or where an appeal has been preferred

against the refusal to grant such permission, until

the disposal of the appeal, and the money standing

in such separate account shall, where the

permission 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

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.

(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 exchange

specified in the prospectus; or

(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

513

exchange 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.

(4) Any condition purporting to require or bind

applicant for shares or debentures, to waive

compliance with any of the requirement of the

section shall be void.

(5) For the purpose of this section it shall be

deemed that permission has not been granted if the

application for permission, where made, has not

been imposed of within the time specified in sub-

section (1).

(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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 37

therefor in pursuance of the prospectus; and

(b) In relation to a prospectus offering shares

for sale, with the following modifications namely-

(i) References to sale shall be substituted

for references to allotment;

(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

construed 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 stock

exchange."

After amendment in 1988, Section 73 reads as under:-

"Allotment of shares and debenture to be dealt in

on stock exchange. (1). Every company, intending

to offer shares or debentures to the public for

subscription by the issue of a

514

prospectus shall before such issue, make an

application to one or more recognised stock

exchanges for permission for the shares or

debentures intending to the so offered to be dealt

with in the stock exchange or each such stock

exchange.

(1A) Where a prospectus, whether is issued

generally or not, 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 exchange,

such prospectus shall state the name of the stock

exchange and any allotment made on an application

in pursuance of such prospectus shall, whenever

made, be void if the permission has not been

granted by the stock exchange 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 or debentures to be dealt

in on that stock exchange has been preferred under

section 22 of the Securities Contracts

(Regulations) 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 become liable to repay it, the company

and every director of the company who is an officer

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 26 of 37

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

pr cent, as may be prescribed, having regard to the

length of the period of delay in making the

repayment of such money.

(2A) Where permission 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 application

moneys relating to the shares or debentures in

respect of which allotments have been made, the

company shall repay the moneys to the extent of

such excess forthwith without interest, and if

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 company who is in default

shall be punishable with fine which may extend to

five thousand rupees, and where repayments is not

made within six months from the expiry of the

eighth day, also with imprisonment for a term which

may extend to one year.

(3) All moneys received as aforesaid shall be kept

in a separate bank account maintained with a

Scheduled Bank until the permission has been

granted, or where an appeal has been preferred

against the refusal to grant such permission, until

the disposal of the appeal, and the money standing

in such separate account shall, where the

permission 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 company 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

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 exchange specified

in the prospectus ; or

(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 exchange 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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 27 of 37

(4) Any condition purporting to require or bind any

applicant

516

for shares or debentures to waive compliance with

any of the requirement of this section shall be

void.

(5) For the purposes of this section, it shall be

deemed that permission has not been granted if the

application for permission, where made, has not

been disposed of within the time specified in sub-

section (1).

(6) This section shall have effect -

(a) in relation to any shares or debentures agreed

to be taken by a person under writing an offer

thereof by a prospectus, as if he had applied

therefore in pursuance of the prospectus; and

(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;

(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

construed 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 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 prospectus, to make an application

for listing the security in one or more recognised stock

exchanges. Should the stock exchange not grant the

permission for listing, before the expiry of 10 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 repay the application money or the excess

application money along with interest.

517

Notes on clauses read as under :-

"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

provisions only the directors are liable for

failure to repay the application money or the

excess application money within the specified time,

if the 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% depending upon

the period of delay with a view to ensuring that

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 28 of 37

ordinary directors like nominee of govt. financial

institutions 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 provision to sub-section (1), an appeal may be

preferred under section 22 of the Stock Securities Contracts

(Regulations) Act, 1956. Such an appeal may be -

(i) against the decision of stock exchange refusing

permission ; and

(ii) if the stock exchange fails to dispose of the

application for permission within 10 weeks from the

date of closing of the subscription lists. This 10

weeks become important because of the deemed rejection

under sub-section (5).

Sub-section (1A) mentions the date of closing of the

subscription lists. Thus, it is a crucial date for

determining the expiry of 10 weeks for the grant of

permission by stock exchange. Equally that becomes the

crucial date for calculating the time for preferring an

appeal under section 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 for subscription. In fact, sub-section 5 of the said

section states categorically as follows :-

"If the conditions aforesaid have not been complied

with on the expiry of one hundred and twenty days

after the first issue of the prospectus, all moneys

received from applicants for shares shall be

forthwith repaid to them without interest; and if

518

any such money is not so repaid within one hundred

and thirty days after the issue of the prospectus,

the directors of the company shall be jointly and

severally liable to repay that money with interest

at the rate of six per cent per annum from the

expiry of the one hundred and thirtieth day :

Provided that a director shall not be so liable if

he proves that the default in the repayment of the

money was not due to any misconduct or negligence

on his part".

One thing that is striking as far as the sub-section is

concerned is, the repayment without interest before the

expiry of 150 days after the first issue of the prospectus

and the repayment with interest within 130 days after the

issue of the prospectus or specific in their terms unlike

Section 73. It cannot be gain said that the prospectus of

the company is an important document provided for under the

statute.

Section 2(36) defines "prospectus" as follows :-

"prospectus" means any document described or issued

as a prospectus and includes any notice, circular,

advertisement or other document inviting deposits

from the public or inviting offers from the public

for the subscription or purchases of any shares in,

or debentures of, a body corporate".

SEction 60 deals with registration of prospectus.

Under sub-section (3) it is provided that the Registrar

shall not register a prospectus unless the requirements of

sections 55, 56, 57 and 58 and sub-sections (1) and (2) have

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 29 of 37

been complied with. Section 62 deals with civil liability

for misstatements in prospectus, while section 63 deals with

criminal liability for misstatement in prospectus. In the

background of the legal provisions section 73 will have to

be analysed with regard to the liability to pay interest.

The date of allotment, according to Mr. Andhyarujina

and Mr. Cooper is the relevant date. Therefore, according

to the learned counsel, the crucial issue is the allotment.

It is also submitted that when permission is granted, it is

only a categorisation. It has already been seen that under

section 69(5), specific dates have been mentioned as 120 and

130 respectively. Sub-section 2(A) of Section 73 does not

mention any specific day. It also requires to be noticed

under sub-section 1(A) of this very section "10 weeks from

the date of closing of the subscription lists" is mentioned.

Both under sub-section (2) and 2(A), no such time has been

prescribed. Prior to 1988, sub-section (1) contemplated two

situations - (i) application to stock exchange being made

after issue within 10 days of issue or (ii)

519

application made before the issue and 10 weeks for stock

exchange to grant the application. Of course, if the

application is not granted within 10 weeks, there will be

deemed rejection under sub-section (5). But, unfortunately,

after the amendment of sub-section (1) and 1(A), sub-section

(2) has not been amended with reference to these amended

provisions. As the law stands at present, the question of

issue of prospectus without an application to stock exchange

cannot arise at all.

As careful reading of sub-section 2(A) will clearly

disclose that the said section comes into operation only

where permission has been granted by the recognised stock

exchange or exchanges. These words "where permission 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 of shares not allotted.

On allotment, the money may become due. Thereafter the

money is held in a fiduciary capacity. But the more

important question is does it become payable? We will, now,

refer to Black's Legal Dictionary as to the meaning of the

word "due" and "payable" (5th Ed. 448) are as under :-

"Due" - Just; proper; regular; lawful; sufficient;

reasonable, as in the phrases "due care", "due

process of owing; payable; justly owed. That

which one contracts to pay or perform to another;

that which law or justice requires to be paid or

done. Owed, or owing, as distinguished from

payable. A debt is often said to be due from a

person where he is the party owing it, or primarily

bound to pay, whether the time for payment has or

has not primarily bound to pay, whether the time

for payment has or has not arrived. The same thing

is true of the phrase "due and owing". Payable. A

bill or note is commonly said to be due when the

time for payment of it has arrived. The word "due"

always imports a fixed and settled obligation or

liability, but with reference to the time for its

payment there is considerable ambiguity in the use

of the term, the precise signification being

determined in each case from the context. It may

mean that the debt or claim in question is now

(presently or immediately) matured and enforceable,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 30 of 37

or that it matured at some time in the past and yet

remains unsatisfied, or that it is fixed and

certain but the day appointed for its payment has

not yet arrived. But commonly, and in the absence

of any qualifying expressions, the word "due" is

re-

520

stricted to the first of these meanings, the second

being expressed by the term "overdue" and the third

by the word "payable".

"Payable" -Capable of being paid; suitable to be

paid; admitting or demanding payment; justly due

legally enforceable. A sum of money is said to be

payable when a person is under an obligation to pay

it. Payable may therefore signify an obligation to

pay at a future time, but, when used without

qualification, term normally means that the debt is

payable at once, as opposed to "owing".

As a matter of fact, these words assumed great

significance under section 60 of Transfer of Property Act.

The section was amended by Act 20 of 1929. The word "due"

in the section has been substituted for the word "payable"

in order to make it clear that a mortgagor cannot redeem

within the term of the mortgage". "When the right of

redemption arises- the right of redemption arises when the

principal money secured by the mortgage that has become due

and may be exercised at any time thereafter, subject of

course to the law of limitation. In English law, the

mortgagor cannot redeem before the time fixed for payment.

Nevertheless there were a considerable number of Indian

cases in which it was held that the time fixed in the deed

was fixed for the convenience of the mortgagor and that he

could redeem before that time unless there was an express

stipulation to the contrary. These cases are bad law, for

th view taken in other case that the mortgagor cannot redeem

before the time fixed for payment is confirmed by the

decision of Judicial Committee in Bhaktawar Begam v. Husaini

Khanam, [1914] 36 All. 195. 41 I.A. 84, 23 I.C. 355 followed

in Bir Mohammad v. Nagoor, [1914] 27 Mad. L.J. 483, 25 I.C.

576 which treats Rose Ammal v. Rajarathnam, [1900] 23 Mad.

23 as overruled".

In 1976 (46) Company Cases 25 in Baroda Board & Paper

Mills Ltd. v. Income-Tax Officer. Circle I, Warde-E,

Ahmedabad and others, it is held as under :-

"Mr. A.L. Shah who appears for the liquidator in

O.J. Appeal No. 2 of 1975 has urged before us that

the legislature has used in the context of the

priority of debts two distinct sets of words "debt

due" and "due and payable" and proper meaning

should be given to these sets of words, namely,

"debt due" and "due and payable" and distinction

must be made when the legislature has used two

different terminologies, namely, "due" in the

beginning of the clause and "due and payable" at

the end of the clause. He also wants us to

dissect the phrase "due and

521

payable" and he wants to emphasize that the debt

must have become due in the narrower sense of the

word of having come into existence and having been

payable with reference to enforceability of payment

and, in this sense, relying upon the decision of

D.A. Desai J., he has urged before us that the debt

must be existing at the relevant date and the event

which brought the debt into existence must have

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 31 of 37

occurred within the twelve months preceding the

relevant date and it must also have become payable,

meaning thereby that its payment could have been

enforced against the company, within the twelve

months before the relevant date. In view of the

decisions that we have already referred to,

particularly the passage from People v. Arguello as

approved by the Supreme Court in Kesoram

Industries' case and in Raman Iron Foundry's case,

it is not possible for us to accept this contention

of Mr. Shah. In our opinion, the only meaning that

could be attached to the word "due" occurring in

section 530 is that it must be presently due and

the words "due and payable" mean the same thing,

namely , that it must be presently payable.

Therefore, so far as section 530(1) (a) is

concerned, the revenue, taxess or rate, due from

the company to the Central or State Government or

to a local authority must be presently payable,

that is, that the liability could be enforced as at

the relevant date and, secondly, it must have so

become presently payable within the twelve months

immediately preceding the relevant date".

In this connection we may refer to the case in Union of

India v. Air Foam Industries (P) Ltd., A.I.R. 1974 S.C. 1265

& 1271 (para 7), which reads as follows :-

"The first thing that strikes one on looking at

Clause 18 is its heading which reads; "Recovery of

Sums Due". It is true that a heading cannot

control the interpretation of a clause if its

meaning is otherwise plain and unambiguous, but it

can certainly be referred to as indicating the

general drift of the clause and affording a key to

a better understanding of its meaning. The heading

of Clause 18 clearly suggests that this clause is

intended to deal with the subject of recovery of

sums due. Now a sum would be due to the purchaser

when there is an existing obligation to pay it in

present. It would be profitable in this connection

to refer to the concept of a `debt' for a sum due

is to be found in Webb v. Stenton, [1883] 11 QBD

518 where Lindley. L. J., "...a debt is a sum of

money which is now payable or will become payable

in the future by reason of a

522

present obligation". There must be debitum in

presenti; solvendum may be in presenti or in

future - that is immaterial. There must be an

existing obligation to pay a sum of money now or in

future. The following passage from the judgment of

the Supreme Court of California in People v.

Arguello, [1869] 37 Calif 524, which was apporoved

by this Court in Kesoram Industies v. Commr. of

Wealth Tax, [1966] 2 SCR 688 (AIR 1966 SC 1370),

clearly brings out the essential characteristics of

a debt.

"Standing alone, the word `debt' is as applicable

to a sum of money which has been promised at a

future day as to a sum now due and payable. If we

wish to distinguish between the two, we say of the

former that it is a debt owing, and of the latter

that it is a debt due".

This passage indicates that when there is an

obligation to pay a sum of money at a future date,

it is a debt owing but when the obligation is to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 32 of 37

pay a sum of money in praesenti it is a debt due.

A sum due would, therefore, mean a sum for which

there is an existing obligation to pay in

presenti, or in other words, which is presently

payable. Recovery of such sums is the subject-

matter of Clause 18 according to the heading, That

is the dominant idea running through the entire

Clause 18".

We will now refer to Venkataramiya's Law Lexicon and

Legal Maxims Vol, I, 713, 714. "Due" - means payable

immediately or a debt contracted but payable at a future

time. In Wharton's Law Lexicon, 14th Edn., it s meaning is

stated to be "anything owing. That which one contracts to

pay or perform to another; that which law or justice

requires to be paid or done. It should be observed that a

debt is said to be `due' the instant that it has existence

as a debt; it may be payable at a future time". Therefore,

it cannot be contended on the strength of Section 530 `due'

and `payable' is one and the same even under S.732 (A).

However, as contended, if the liability to pay interest

arises from the date of allotment and the grace period after

eight days, what is to happen in cases where permission is

refused by the stock exchange? For the grant of such

permission 10 weeks are available. Therefore, a company

making allotment prior to the grant of permission cannot be

mulcted with the liability when the section itself comes

into play upon the grant of permission. Therefore, some

definite date is required. It cannot be lost sight of that

where permission is refused in the first instance there is

also the right of appeal under Section 22 of the Securities

Contracts (Regulations) Act, 1956. This too, has got an

important bearing. It cannot be held that after allotment

the mechanics

523

of refund would come into play and again after rejection of

permission, the money on all applications should be refunded

once over again.

Equally, the contention of Mr. Anil Divan that the

stock exchange will have power to extend the time cannot be

accepted. It may be a practice to do so. But it does not

mean the stock exchange can act contrary to clear wording to

this section. More so, when Sub-section (4) is clear in its

terms. Merely because the intending applicants agree to

abide by the prospectus that cannot be binding in the teeth

of this Sub-section.

For the sake of competition, reference may be made to

the corresponding provision of English Law. Buckley on the

Companies Acts, 14th Ed. Vol.I, while dealing with Section

51 which is the corresponding provision state as follows :-

"The Act does not require the prospectus to fix any

time for closing the subscription lists and, unless

and until an issue is fully subscribed, there is

nothing in law to require the company to close the

lists. It is the common practice, however, at any

rate in the case of prospectuses issued generally,

to state in the prospectus that the lists will be

closed on or before a particular date. In any case

to which this section applies the company will, by

reason of sub-s(3), be unable to employ any money

received from shareholders until either permission

to be listed has been obtained, or the lists have

been closed and the period indicated in sub-section

(1) has expired without the permission having been

refused. Note that the sub-section does not say,

'if the permission has not been granted before the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 33 of 37

expiration of three weeks etc.' Presumable in

practice the stock exchange, when it has an

application for permission to be listed under

consideration and has not either granted or refused

permission within the three weeks period indicated

above, will notify the applicant under sub-section

(1) of an extension of the period.

An allotment within this section is void, not

voidable as in an allotment in breach of Section

47" sub-section (3) in Re Nanwa Gold Mines,

Ballantyne v. Nanwa Gold Mines Ltd. applications to

subscribe for shares were invited on the footing

that, if a resolution for reduction of capital was

not passed or not confirmed by the court, the

application moneys would be refunded and meanwhile

would be retained in a separate account. The

moneys were in fact put in a separate account in

the names of the company and its registrars. The

conditions

524

were not fulfilled and shortly afterwards a

receiver was appointed in a debenture-holders'

action. Harman J. held that the moneys in the

separate account were repayable to the subscribers

in full, basing his decision on the terms of the

invitation and not on the provisions of this sub-

section; but he expressed the view that the payment

into a separate account in compliance with the sub-

section would probably have the same effect".

Palmer's Company Law, 1982, Vol I, 264 states as

follows:-

"Refusal of Application to Deal - Where a

prospectus states that application has been or will

be made for the shares or debentures to be dealt

with on the stock exchange, any allotment made on

an application under the prospectus shall be void.

(1) if permission has not been applied for before

the third day after the first issue of the

prospectus; or

(2) if permission is refused before the expiration

of three weeks (subject to the extension by the

stock exchange to six weeks from the date of the

closing of the subscription lists (Sec. 51 (1).

It should be noted that under case (2) above, the

allotment is not void if the stock exchange merely defers

the decision on permission to deal, or does not arrive at a

decision within the stated time.

During the periods stated in cases (1) and (2) above,

the application money received by the company from

shareholders who applied for shares has to be kept on

separate account (Sec. 51 (3) ; "that appears", as Harman J.

observed in Re Nanwa Gold Mines Ltd, "to be an attempt to

erect, so to speak, by statute a kind of trust for

applicant", consequently, the application money thus kept on

separate account does not form part of the general assets of

the company which are charged by a debenture secured by a

floating charge. The relationship between the applicants

and the company which holds the application moneys on

separate account is that if bailers and bailee, and not of

creditors and debtor".

Now, we will refer to the case in Nanwa Gold Mines Ltd.

Ballantyne v. Nanwa Gold Mines Ltd., [1955] I W.L.R. 1080 @

1085.

"Sub-section (3) provides that where money is sent

in on a provisional application: "All money

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 34 of 37

received as "aforesaid shall

525

be kept in a separate bank account so long as the

company may become liable to repay it under the

last foregoing sub-section; 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 liable to a fine not exceeding five

hundred pounds". That appears to be an attempt to

erect so to speak, by statute a kind of trust for

applicants in a case of this sort. It is

irrelevant here, because in this case the directors

promised to do this very thing; No doubt that was

only a compliance with the statute; but they did

promise to do so and I think that their promise is

of contractual effect, so I need not consider

whether, if there was no promise but only the

statutory obligation, the position would be the

same. I incline to think it would be so, and that

the object of section 51(3) was to provide

protection for persons who pay money on the faith

of promises of this kind".

As to the present position with regard to the liability

to refund under Sec. 73 2(A) it is important to bear in mind

that two notifications have come to be issued in exercise of

powers conferred under Section 642.

Notification No. GSR 614 (E) dated 3rd October, 1991,

called the Companies (Central Government's) General Rules

and Forms (Second Amendment), 1991, which came into force on

1st November, 1991. In the above notification it is stated

as under:-

"If the company does not receive application money

for at least 90% of the issued amount, the entire

subscription will be refunded to the applicants

within ninety days from the date of closure of the

issue. If there is delay in the refund of

application money by more than 8 days after the

company becomes liable to pay the excess amount,

the company will pay interest for the delayed

period, at prescribed rates in sub-section (2) and

(2A) of Section 73. No statement made in this Form

shall contravene any of the provisions of the

Companies Act, 1956, and the rules made

thereunder".

"Signature of Directors"

Again, notification No. S.O. 666(E) dated October 3,

1991 issued under sub-section (1) of Section 641 with

amendments in Schedule II to the said Act, under Part I

General Information, stated as under:-

"(f) Declaration about the issue of allotment

letters/refunds within a period of 10 weeks and

interest in case of any delay

526

in refund at the prescribed rate under Section

73(2)/2A"

Thus, 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.

As the meaning of the word "forthwith", we will now

refer to Bouvier's Law Dictionary for the meaning of the

word "forthwith". "FORTHWITH. As soon as by reasonable

exertion, confined to the object, it may be accomplished.

(Approved in Dickerman v. Trust Co., 176 U.S. 193, 20 Sup,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 35 of 37

Ct. 311, 44 L.Ed. 423). This is the import of the term; it

varies, of course, with every particular cases; 4 Tyrwh.

837; Edwards v. Ins Co., 75 Pa. 378. See Seammon v. Ins.

Co., 101, III 621; 11 H.L. Cas. 337. Bannect 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. It

is not as promptly as immediately; in some cases it might

mean within a reasonable time; 7 Dowl. 789". We will also

refer to 193 Soutern Reporter, 339 and 16 Soutern Reporter

33 @ 35 Col I. "As regards compliance with statute

requiring petition for judicial review of an executive

committee's denial of primary election contest to be filled

"forthwith" the term "forthwith" is a relative one and means

within such time as to permit that which is to be done, to

be done lawfully and according to the practical and ordinary

course of things to be performed or accomplished, and it is

not to be used by way of a penalty when accidental

interventions of which party is not to be charged with

foresight have upset what otherwise would have been

reasonable calculations regarding available time. Laws

1035, Ex. Secs c. 10". "Forthwith" is 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". Therefore it cannot be said

that "forthwith" means E.O. instanti.

It cannot but be held that the payment of interest is

only compensatory and not penal. Merely because clause 10

to which a reference has already been made uses the word

"penal" it cannot be amount to penalty. As useful reference

can be made in Mahalaxmi Sugar Mills Co. Ltd. v.

Commissioner of Income Tax, Delhi, New Delhi, [1980] 3 SCR

421. "4. Penalties - if any person defaults in payment of

excess imposed under sub-section (1) of Sec. 3, or ,

contravenes any provision of any rule made under this Act,

he shall without prejudice to his liability therefore under

sub-section (5) of Sec. 3 be liable to imprisonment upto six

months or to a fine not exceeding rupees five thousand or

both and in the case of continuing contravention in to a

further fine not exceeding rupees five thousand or both and

in the case of continuing contraventio in to a further fine

not exceeding rupees one thousand

527

for each day during which the contravention continues". It

is apparent that section 3(2) requires the payment of cess

on the date prescribed under the rules. Rule 4 of the U.P.

Sugarcane Cess Rules, 1956 provides that the cess due on the

sugarcane entering into the premises during the first

fortnight to each calendar year must be deposited in the

government treasury by the twenty second day of that month

and the cess due for the remainder of the month must be

deposited before the seventh day of the next following

month. If the cess is not paid by the specified date, then

by virtue of s. 3(3) the arrear of cess will carry interest

at the rate of six per cent per annum from the specified

date to the date of payment. Section 3(5) is a very

different provision. It does not deal with the interest

paid on the arrears of cess but provides for an additional

sum recoverable by way of penalty from a person who default

in making payment of cess. It is a thing apart from an

arrear of cess and the interest due thereon.

Now, the interest payable on an arrear of cess under s.

3(3) is in reality part and parcel of the liability to pay

cess. It is an accretion to the cess. The arrear of cess

"carries" interest; if the cess is not paid within the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 36 of 37

prescribed period a larger sum will become payable as cess.

The enlargement of the cess liability is automatic under

section 3(3). No specific order is necessary in order that

the obligation to pay interest is as certain as the

liability to pay cess. As soon as the prescribed date is

crossed without payment of the cess, interest begins to

accrue. It is not a penalty for which provisions has been

separately made by s. 3(5). Nor is it a penalty within the

meaning of s. 4, which provides for a criminal liability and

a criminal prosecution. The penalty payable under s. 3(5)

lies in the discretion of the collecting officer or

authority. In the case of the penalty under s. 4, no

prosecution can be instituted unless, under s. 5(1), a

complaint is made by or under the authority of the Cane

Commissioner of the District Magistrate. There is another

consideration distinguishing the interest payable under s.

3(3) from the penalty imposed under s. 3(5). Section 3(6)

provides that the officer or authority empowered to collect

the cess may forward to the Collector a certificate under

his signature specifying the amount of arrears including

interest due from any person, and on receipt of such

certificate the Collector is required to proceed to recover

the amount specified from such person as if it were an

arrear of land revenue. The words used in s. 3(6) are

"specifying the amount of arrears including interest", that

is to say that the interest is part of the arrear of cess.

In the case of a penalty imposed under s. 3(5), a separate

provision for recovery has been made under s. 3(7).

Although the manner of recovery of a penalty provided by s.

3(7) is the same as the manner of recovery provided by s.

3(6) of the arrears of cess, the Legislature dealt with it

as something distinct from the recovery of the arrears of

cess including

528

interest. In truth, the interest provided for under s.3(3)

is in the nature of compensation paid to the Government for

delay in the payment of cess. It is not by way of penalty.

The provision for penalty as a civil liability has been made

under s. 3(5) and for penalty as a criminal offence under

s.4. The Delhi High Court proceeded entirely on the basis

that the interest bore the character of a penalty. It was

according to the learned Judges "penal interest". The

learned Judge failed to notice s. 3(5) and s.4 and the other

provisions of the Cess Act".

The last question will be that in view of the clear

terms of the statute whether the administrative

inconvenience could be pleaded. This could be decided with

reference to the case in Sanjeev Coke Manufacturing Co. v.

Bharat Coking Coal Ltd. & Another, [1983] 1 SCR 1000 @ 1029,

as follows:-

"...But in the ultimate analysis, we are not really

to concern ourselves with the hollowness or the

self-condemnatory nature of the statements made in

the affidavits filed by the respondents to justify

and sustain the legislation. The deponents of the

affidavits filed into Court may speak for the

parties on whose behalf they swear to the

statement. They do not speak for the Parliament.

No one may speak for the Parliament and Parliament

has said what it intends to say, only the Court may

say what it the Parliament meant to say. None

else. Once a statute leaves Parliament House, the

Court's is the only authentic voice which may echo

(interpret) the Parliament. This the court will do

with reference to the language of the statute and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 37 of 37

other permissible aids. The executive Government

may place before the court their understanding or

misunderstanding of what Parliament has said or

intended to say or what they think was Parliament's

object and all the facts and circumstances which in

their view led to the legislation. When they do

so, they do not speak for Parliament. No Act of

Parliament may be struck down because of the

understanding of Parliamentary intention by the

executive government or because their (the

Government's) spokesmen do not bring out relevant

circumstances but indulge in empty and self-

defeating affidavits. They do not and they cannot

bind Parliament. Validity of legislation is not to

be judged merely by affidavits filed on behalf of

the State, but by all the relevant circumstances

which the court may ultimately find and more

especially by what may be gathered from what the

legislature has itself said..."

529

Therefore, it has to be held that administrative

inconvenience can hardly be any ground.

Viewing the statutory provisions form the above

perspective, I agree with my learned brother that the

liability to repay the excess amount arose on November 1,

1990 and the liability to pay interest arose on the expiry

of eight days from November 1, 1990.

ORDER

For the reasons stated by us in our separate but

concurring judgments dated 4.2.1992, we allow the appeal to

the limited extent indicated by us and the judgment of the

High Court shall stand altered accordingly. In the

circumstances of this case, we make no order as to costs.

V.P.R. Appeal allowed.