DHANALAKSHMI CONSOLIDATES INDUSTRIES LTD. vs C.S.MENON

WE intend to dispose of all the above titled appeals by a common order as the facts involved in all these appeals are practically similar.

WE may first take up the facts of First Appeal No. 157 in detail. The respondent of this appeal Shri C.S. Menon had made some fixed deposits with the Appellant Dhanalakshmi Consolidates Industries Limited (for short the Company) during the period he was working as frill time Director of the Company. These deposits were to carry interest at the rate of 14% per annum. Interest was paid to the Respondent-Complainant for some period and thereafter the Company defaulted in the payment. In spite of repeatd demands the Company did not pay the amount due to the complainant. Thereupon the complainant filed complaint before the State Consumer Disputes Redressal Commission, Tamil Nadu at Madras alleging that the Company carries on business of hire purchase and as financiars to invest in industrial projects, promote industry, to transact business as investors, promotors, financiers, guarantors and monetory agents. The Company is also authorised to receive deposits from and to lend money to any person association etc. and thus it is carrying on the business as financiers. For the purpose of their service, the Company periodically invited deposits from the public. On account of negligence on the part of the Managing Director of the Company and diversion of its funds, the Company has not been able to meet its commitments to its shareholders and also has not been able to settle its due to depositors and share-holders. According to the Complainant, he had availed the financial services of the Opp. Party. When the Complainant made request to the Opp. Party to refund the deposits with interest the Company asked the Complainant to submit the full statement of all deposits and accounts held by the Complainant and his relatives (who are Complainant-respondents in First Appeal Nos. 175,176,177,178,179,180 and 181)to enable the Company to compile the details. The Company also asked him to furnish details of the amounts received during the period January, 1989 till the end of January, 1992 against the said deposits. The Complainant submitted the details asked. Thereafter there was no response from the Company. The Complainant, therefore, prayed that the Company be directed to pay the sum (specified in the appeal) representing all capital deposits made by the Complainant with the Company, interest on the deposits and compensation for mental agony and harassment. The complaint of Shri C.S. Menon was contested by the Company. It admitted its activities. It was, however, further pleaded that the Complainant was not a consumer as no ''service, as contemplated underthe Consumer Protection Act, 1986 (for short the Act) was rendered towards him by the Company and there was no consideration for the ''service,. It was alleged that the Complainant was misusing his position a whole time Director and as signatory of the Company had drawn several amounts from the Company''s Account in Allahabad Bank, Madras Branch, City Union Bank, Madras Branch and the record show that the drawing amount to about Rs. 1,10,566.61 from the City Union Bank and over Rs. 1.5 lacs from Allahabad Bank. Other amounts have also been drawn by the complainant from other Banks and other ad hoc payments have been paid to the complainant and the members of his family. The complainant also sold and disposed of many parts of commercial vehicles of the Company during 1989 and 1990 and has taken the amount in cash and not accounted for the Company. Therefore, all withdrawals and sales have been treated as payments towards his deposits and that of his family members. It is estimated that the Complainant would be accountable and liable for over Rs. 10.00 lacs after adjusting the deposits. Some technical objections were also taken to the effect that in a civil suit the Company has been restrained from paying its depositors until statutory dues of the shareholders were paid and further that the winding up proceedings in C.P. No. 138 of 1988 was pending in the Madras High Court and therefore, the complainant had no right to make complaint before the State Commission. In the other appeals titled above, the complainants are relations of Shri C.S. Menon. They had also made fixed deposits with the Company which have not been paid. Therefore, they also filed separate complaints for the refund of the deposits alongwith interest and compensation on the same grounds as stated by Shri C.S. Menon in his complaint. Those cases were also defended by the Company practically on the same grounds as have been taken in the complaint filed by Shri C.S. Menon.

ALL these cases were separately disposed of by the State Commission. The Company was ordered to refund the amount of deposits along with interest and along with varying amount of compensation and costs.

FEELING aggrieved of those orders, the Company has filed appeals in all these cases whose titles have been given above. The first point argued on behalf of the appellant was that the Complainants in these cases cannot be termed as ''consumers, as the Company is not rendering any service towards them by merely accepting the deposits for fixed periods. This point has been dealt in detail by the State Commission in each case. It is not necessary to tread the same grounds at length as this order is of confirmation of the order of State Commission. The State Commission has held that the Company is rendering financial services. It also receives deposits from customers and pays interest thereon. The consideration for the hiring of the ''service, is the payment of the deposit fora fixed term so as to enable the Company to invest or utilise the money for earning profits. It was, therefore, held that the Complainant of each case was consumer within the meaning of Section 2(1)(d) of the Act. We are in full agreement with the observations made by the State Commission.

IT was next argued on behalf of the appellant that Shri C.S. Menon, while he was full time Director of the Company had withdrawn certain amounts from the accounts of the Company and also misappropriated and disposed of parts of commercial vehicles of the Company. As remarked by the State Commission no proper evidence has been led upon these points. The Company has not produced entries from its account-books to show the withdrawals made by Shri C.S. Menon nor there is any evidence to show that those withdrawals were made against the deposits made by him and his family members (who were complainants in other cases). Therefore, the allegation of the Company that Shri C.S. Menon has taken away lacs of rupees of the Company and those amounts should be taken as payments against his deposits and that of his family members does not stand proved. This point has also been discussed in detail by the State Commission and we affirm its finding.

IT was next argued on behalf of the appellant that in the civil suit the Company has been restrained from making payments towards the depositors till the statutory dues of the shareholders were paid. The Complainants of these various cases are not bound by that order as they are not parties to that suit which can be a collusive suit. In these cases the Company is being ordered to make payments under legal orders passed by a forum constituted under the Act. Lastly, it was argued that winding up proceedings are pending against the Company. The mere pendency of such a petition for winding up is no bar to the entertainment and disposal of these complaints. Such a bar will only come into play after a provisional order of winding up of the Company is passed by the competent Court. Admittedly, no such order has been passed. For the reasons given above, we do not find any force in all these appeals and accordingly we dismiss each of them with costs which we assess at Rs. 1,000/- A copy of this order be placed on the files of other appeals. Appeals dismissed.

ORDER Mr. Y. Krishan, Member"The State Commission in its order of 22nd April, 1992 had observed that Opp. Party is a financial institution which receives deposits from customers and pays interest thereon. This is one of the well-known services rendered by any bank or financial institutions. The consideration for the service is the profit earned by the institution from out of these deposits .....This Commission has held so in several decisions that the receiving of deposits and paying interest thereon is a service rendered by the Bank or any financial institutions for consideration........"

The important question for consideration is whether payment of interest by a financial institution to depositors is a service? 3. This takes us to the question of nature of interest. In Economics, there are different theories about interest. According to the Classical Theory of Interest, it is a return on capital: it is analogous to rent for land. Another theory is the Abstinence Theory of Interest: Interest is a reward for abstaining from consumption. In ordinary parlance interest is the price paid for use of funds; it is payment for use of funds. It is a compensation to those who save, hi the Dictionary of Economics (ed. Graham Bannock, R.E. Baxter and Evan Davis, The Economist Books, London, 1989) Interest has been defined thus: "It is the price a borrower has to pay to enjoy the use of cash which he does not own, and the return a lender enjoys for deferring consumption or parting with liquidity."

The nature of interest is more clearly brought out by the factors which regulate the structure of rates of interest in an economy. 5. Essentially, rates of interest are determined by the interaction between the forces of demand ("investment") and of supply (''savings") of funds; interest rates very with the element of risk; they also vary with the maturity period, that is the relative liquidity of funds" whether the loan or deposit is short-term, medium-term, long-term, the credit-worthiness of the borrower, the security offered. Again interest may be simple or compound. Interest rates were also to be affected by the Bank Rate as also by the policies of Government providing credit on soft-terms to agriculture, cottage and small scale industries or industries in backward areas etc. 6. The rates of interest indicate that interest is not in the nature of service but a consideration for promoting savings, for raising funds for investment, for providing finance to trade and industry.

Again interest is not only paid by financing companies but also by trading concerns, commercial undertakings, manufacturing industries etc. They pay interest on the loans and debentures. Often many industries meet their requirement of funds by obtaining small deposits from large number of individuals. This enables them to give interest at rates which the small depositors may find attractive as they may not get the same interest from banks or financial institutions. At the same time the industry or undertaking can raise funds for their requirements a much lower rate of interest than they have to pay to the banks or financial institutions on loans. They also avoid having to offer securities and elaborate documentation for loans from banks and financial institutions.

Consequently, the question arises: is payment of interest a service in relation to various forms of interests yielding investmetns: fixed deposits, bank deposits, debentures, loans etc.? 9. Another way of looking at the problem would: is the depositor, investor in debentures, bond holderetc. a consumer as defined under the Consumer Protection Act and if so what service be gets as a depositor or investor etc?

THE relationship between a depositor and a depositary is that of a lender and a borrower, a creditor and a debtor and not of a hirer and a hiree.

THE observation of the State Commission that the consideration for the service to the depositor who gets interest on his deposits is the profit earned by the institution from out of these deposits appears to erroneous. It is not the profit of the depositary or of the borrower concerned which is a consideration for the deposits, it is the interest per se which is the consideration. In other words, there is no nexus between the profit earned by the financing institution receiving deposits and the interest paid to its depositors. Therefore, the question whether interest is a service in relation to the various forms of interest -yielding investments has to be considered in all its comprehensiveness and the answer is in the negative. Interest is a debt obligation, a compensation to the lender or depositor and not a service. The depositors in the appellant firm Dhanalakshmi Consolidates Industries Ltd. are not consumers as defined under the Consumer Protection Act and interest received by them on their deposits is not service as defined in the same Act. The appeal succeeds and the order of the State Commission is set aside. There is no order as to costs.