SADANAND SUNDAR RAO MAHAJAN vs MANIPAL FINANCE CORPORATION LTD

-FA No. 453 of 2004 and FA No. 454 of 2004 emanate from the same order dated 28th July, 2004 in Complaint Nos. 9 and 8 of 2003 of the State Commission, Goa, Panaji. FA No. 453 of 2004 is filed by Shri Sadanand Sundar Rao Mahajan and other 56 members, whereas FA No. 454 of 2004 is filed by Mrs. Vasanti K Khanwte and other 211 members. Both the groups of appellants are represented through "all Goa Manipal Finance Group of Companies Creditors Association". As the issues are similar and the representatives of the appellants and the respondents are the same in both the matters, we have heard these matters together and propose to pass a common order. Facts:

THE factual matrix of the case in brief is that most of the complainants are senior citizens, retired and sick persons who are entirely dependent on the interest accrued on the deposits made by them with the respondent Corporation. It is the case of the appellants that through various Press statements and public gimmicks the respondents introduced deposit schemes and invited applications from the public. In response thereto, the complainants deposited their hard-earned money in different schemes, i. e. Shreyus, which are in the nature of promissory notes fixed deposits debenture certificates, and application form for redeemable subordinated debt, contain various terms and conditions. One such condition stipulated therein is that in case of any deficiency in service the depositor can approach the forums set up under the Consumer Protection Act for relief. Thereafter the respondent-Company closed down its business in Goa without any reasonable cause and refused to refund the deposits to the depositors. The appellants came to know through reliable sources that the company has disposed of its office premises and other immovable properties in Goa. The appellants issued a letter to the respondent - Company on 28th November, 2002, inter alia calling upon it to return their deposits without further delay which did not elicit any response. Hence, they filed complaints before the State Commission, Goa, praying for refund of the deposits made with the respondents with interest and costs. The respondent-Company contested the case before the State Commission contending that the appellants were not consumers under the Consumer Protection Act. It is further submitted that the Registered Office of the respondent was at Manipal and, hence, the Commission at Goa had no territorial jurisdiction. Further, it was contended that the subject-matter of the complaint was similar to the Company Petition which was pending before the Karnataka High Court. The State Commission after hearing the parties and going through the records of the case held that different groups of consumers have preferred separate complaints whose value is within the pecuniary jurisdiction of that Commission. Insofar as territorial jurisdiction is concerned, the deposits were made through various branches of the respondent - Company, situated at Goa and, hence, the Goa State Commission had pecuniary and territorial jurisdiction. The State Commission examined the issue regarding redemption of debentures and held that debentures are in the nature of loan requirement of a Company i. e. met by several lenders for issue of several units. The debentures issued by the respondent to the appellants were secured against the assets of the Company and they are not payable on demand as claimed by the appellants and are redeemable only on the expiry of the redemption period. The State Commission further held that as the debentures were in the nature of loan taken by the respondents from the individual investors, there is no element of service involved ''in the issue'' and ''servicing of debentures'', and, hence, they were not entitled for premature redemption of debentures. With regard to ''shreyus certificates'' the State Commission held that they are redeemable Subordinated debt in the nature of promissory notes, as per the description given in the certificates itself. Further, under NBFC Acceptance of Public Deposits (Reserve Bank) Directions, 1998, Subordinated debts are excluded from the category of public deposits. The period of investments of Shreyus certificates is sixty months and one day. Hence, the certificates cannot be termed as fixed deposits. Thereefrore, the amount invested in Snreyus certificates cannot be claimed prematurely by the complainant. In the case of fixed deposits and Jayalaxmi Cash Certificates, the State Commission held that the terms and conditions clearly provide for premature closure after a specified period and the rates of interest payable on such premature withdrawal is also specified. It is seen that the appellants have given notice for premature withdrawal and their requests were not complied with by the respondent on one pretext or the other and failed to pay the principal amount along with the specified interest, albeit prematurely, amounts to gross deficiency in service. Accordingly, the State Commission held that the complainants are entitled for the refund of the fixed deposits/ cash certificates along with interest at the rate specified in the terms and conditions of such deposits and directed the opposite party- Company to pay jointly and severally the deposited sums along with interest at the rate specified in the terms and conditions within 30 days of the date of the order along with costs of Rs. 10,000. As, the State Commission did not consider the prayer of the complainants for refund of the money invested in non-convertible debentures and Shreyus certificates, aggrieved and dissatisfied, the complainants have filed these two appeals before us. Findings: I. Whether the depositors are''consumers''? 1. During the hearing learned Counsel for the respondent submitted that the appellants are not consumers. But it is not in dispute that the complainants are senior citizens, retired employees and widows who had deposited their hard earned money with the Manipal Finance Corporation lured by their advertisements expecting that they would get a fair return on the money deposited with the respondents - whether in the name of Ahreyus certificates, or fixed deposits or debenture certificates. None of these instruments can be categorized as equity as they are not convertible as shares of the respondent company. According to Section 2 (1) (d) (2) of the Consumer Protection Act ''consumer'' means in person who (hires or avails of) any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who (hires or avails of) the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person (but does not include a person who avails of such services for any commercial purpose ). Similarly, Section 2 (1) (o) reads as follows: "service" means service of any description which is made available to potential (users and includes, but not limited to, the provision of) facilities in connection with banking, financing insurance, transport, processing, supply of electrical or other energy, board or lodging or both, (housing construction), entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service. (Emphasis supplied)"in this case it is fruitful to look into the directions relating to functions and norms of Nidhi/mutual Benefit Societies as per the Government notification dated 26. 7. 2001. " clause B (ii) reads as follows: "in case of any deficiency of the Nidhi or Mutual Benefit Society in servicing its deposits, the depositor may approach the National Consumer Disputes Redressal Forum, the State Level Consumer Disputes Redressal Forum or District Level Consumer Disputes Redressal Forum for relief. This makes it very crystal clear that the consumer Fora are the appropriate authorities before whom consumers can agitate their grievances. " in view of the above quoted provisions of Law and also the notification we have no doubt in our mind that the appellants are the consumers. The liability of the respondents to refund the amount deposited by the appellants with the respondent company under different nomenclature like share certificates, fixed deposits and debenture certificates have to be refunded along with interest. Some of these points have been elaborated in subsequent paragraphs.

II. Whether the complaints filed by the depositors can be maintainable under the Consumer Protection Act? 2. The National Commission in Revision Petition No. 1352/02 in M/s. Allianz Capital and Management Services Ltd. v. N. P. Grover and Ors. , decided on 30. 1. 2003, has held that: "it is thus clear that if the complainant has not filed any application before the Company Law Board under Section 45qa of the RBI Act or has not received any notice from the Company Law Board in the proceedings initiated by any other depositor or has not participated in the proceedings before Company Law Board, he will be entitled to file a complaint before the Consumer Forum under the Consumer Act. We would, therefore, do not find that the revision petitions filed by the Llyods Ltd. are fit cases for us to exercise our jurisdiction under Clause (b) of Section 21 of the Consumer Protection Act. These petitions are dismissed with costs of Rs. 5,000 to each of the respondents-complainants. " in the above appeals the complainants have neither filed any application before the Company Law Board nor have they received any notice from the Company Law Board.

III. Whether the depositor shall wait for refund, till the maturity of the deposits?

When the Company itself had issued an advertisement in the newspaper with the following words, the depositors/creditors would naturally be worried: "kind attention of our customers we wish to inform the customers that sudden rush of depositors at our Goa Branches and consequent law and order problem, made it inevitable for us to close the branches temporarily in order to protect the property and avoid risk to lives of staff. Once we are in a position to carry our business on usual lines after restoration of normalcy, the branches will be re-opened. We wish to make it clear that temporary closure of the branches is in the interest of customers as it will help in protecting property and assets. We request the customers to maintain peace. All out efforts will be made to safeguard the interest of depositors. "

Management manipal, Finance Group of Companies Manipal. The learned Counsel for the appellants submitted that though respondents have mentioned it as a temporary closure, they have permanently closed their office and ran away from the place by swindling crores of rupees received by way of deposits from the hapless depositors.

When a company prematurely closed down the office naturally, the creditors, whether they have deposited the money in the form of Fixed Deposits, hybrid subordinated Shreyus certificates or debentures, they will get panicky and knock at the doors of the Consumer Fora. Further, if Shreyus certificates were equity then the market value would either increase appreciably or become zero depending upon the market fluctuations. In this case it has not happened like that. In fact, the terms and conditions indicate that the debt holders will not be entitled to any of the rights and privileges available to Share holder (s ). Further, it is also stated that the face value of debts will be redeemed at par at the expiry of 60 months from the date of allotment unless these are called off at the option of the company, which has not happened. It is also noted that as of today, the maturity date of this Shreyus certificates and debentures have expired and to a query from us, we were informed by the learned Counsel for the respondent that neither they have made the payment nor they are willing to deposit even 50% of the amount payable to the appellants with this Commission within a period of four weeks. This shows that, they are not interested in repaying their creditors.

FURTHER, according to Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, dated 22nd February, 2007 "hybrid debt" means capital instrument which possesses certain characteristics of equity as well as of debt. In Shreyus certificates it is nowhere mentioned that it is hybrid debt either in the certificate or in the terms and conditions of the debt. It only shows Redeemable, Subordinated Debts Series III. As they did not want to pay back the consumer, they re-christened it as hybrid debt. The Shreyus Certificates are called as Redeemable, Subordinated Debts Series III, which reads as follows: "for value received, Manipal Finance Corporation Ltd. , having its Registered Office at Manipal House, Manipal - 576119 promises to pay the person (s) within named as holder (s) or order, the sum of Rs. (Rupees only) upon presentation and discharging of this Debt certificate on the date of redemption as mentioned above and interest compounded on yearly rest payable on monthly/ quarterly/half yearly/yearly or on maturity on the principal amount of the Debt certificate at the rate specified above (subject to deduction of tax at source at the rates, prevailing from time-to-time under the provisions of the Income Tax, Act, 1961 or any statutory modification or re-enactment thereof ). The debts are issued subject to and with the benefit of the conditions endorsed hereon which shall be binding on the Company and Debt-holder (s) and all persons claiming by, through or under any of them. On redemption of this Debt certificate, the liability of the Company shall fully stand extinguished. "

The terms of Debt issue are as under: 1. The Debt certificate will constitute direct, unsecured and subordinated obligations of the Company, subordinated to the claims of all other creditors and also depositors of the company present and future as regards payments of principal and interest by the Company, out of its own funds.

The Debt certificate are negotiable instruments transferable by endorsement and delivery, in the denomination of Rs. 1000 each. If the Debt certificates are held by more than one person, endorsement shall be made by all the holders. Debt certificates can be held by individuals, not exceeding three joint holders.

The endorsement must be clear and distinct and shall be made on the Debt certificate at the place indicated thereon. If the endorsement is in a language other than in English, it shall be translated into English immediately below the endorsement.

The Debt certificate shall carry a fixed rate of interest on Subordinated debts at 10. 0% compounded on yearly rest (subject to tax deduction at source at rates prevailing from time-to-time, under the provisions of the Income Tax Act ). The interest on the debt (s) will cease to accrue from the due date of redemption in all events.

The face value of Debts will be redeemed at par at the expiry of 60 months from the date of allotment unless these are called off at the option of the Company.

The Debt holders will not be entitled to any of the rights and privileges available to Share-holder (s),"

DEALING with similar contention the National Commission in R P No. 774 of 2004, Manipal Finance Corporation Ltd. v. Karan Singh Poonaiah, III (2006) CPJ 438 (NC) held that: "strangely, there is no mention regarding the so-called Hybrid/subordinated Debt Shreyus Certificate and that the petitioner was restrained by the direction of RBI vide Circular No. DNBS (BG) No. 1529/cmdiii/mfcl - 2002/03 dated 7. 10. 2002. The complaint has been filed on 1. 8. 2002, appeal has been filed on 1. 10. 2003 along with an affidavit and none of them have brought out the issue that the petitioner was restrained from paying the said amount of the certificates. On our query as to whether the petitioner has communicated the RBI guidelines to the respondent at any time learned Counsel for the petitioner could not produce any such documents. In our view, petitioner cannot take this ground that they did not pay the same amount because respondent invested in their finance company not as a fixed deposit but as a debt and that RBI guidelines directed them not to pay the Subordinated debts before the maturity date. They cannot take this plea for the first time and improve their case after two Fora have gone into the entire record and directed them to refund the amount with interest. Taking different grounds at different stages of District Forum, State Commission and National Commission to improve their case is not a good practice. We do not find any reason for us to interfere with the well reasoned orders of the Fora below. In view, of the above discussion we dismiss the revision petition with further cost of Rs. 5,000. "

One of the consumers Shri Umesh Dinananth Rao has filed an affidavit to the effect that when he learnt about the financial instability of Manipal Finance Corporation from the market/newspapers in April 2002, he requested Mr. Sudheesh Nayak, the then Manager of the Corporation to refund his debenture deposit before its maturity and he obliged. If one of the consumers is favoured by repaying the amount which he had invested in their debenture scheme and not paying to the rest of the consumers, this amounts to blatant discrimination amongst the equally placed consumers. Some of these issues raised in this appeal have been examined by this Commission in FA Nos. 310 and 311 of 2004, Manipal Sowbhagya Nidhi Ltd. v. All Goa Manipal Finance Group of Companies Creditors Association, II (2006) CPJ 318 (NC), decided on 9. 5. 2006, held that: "the next issue to be decided is that when a case is pending in the High Court whether Consumer Protection Act can provide any protection. Firstly, no stay has been granted by the Hon''ble High Court of Karnataka at Bangalore on 5. 10. 2005 in Company Application No. 768 of 2004 in Company Petition No. 193 of 202, Manipal Sowbhagya Nidhi Ltd. v. The Respondents. In a petition filed by the petitioner company seeking permission of the High Court to sell the immovable properties belonging to it as detailed in Annexure ''a'' to enable them to disburse and sale consideration to the depositors in terms of the scheme of arrangement. The High Court has permitted such sales. Manipal Sowbhagya Nidhi Ltd. has not got any permanent injunction from the High Court/ Company Court against the repayment of amount due by them to their needy depositor. This is clear from the order of the Company Court dated 15. 4. 2004:

"the petitioner company is enjoying the protective order passed by this Court on 19. 9. 2003 only to enable it to show the bona fides in the context of the scheme and for examination of the merits of the scheme and for consideration of the rival version for such purpose. As the petitioner company has not been able to demonstrate its bona fides and at any rate have not been able to show its ability or the state of readiness to put into action even the first phase of the said scheme, I am of the view that there is absolutely no justification to continue the protection in favour of the petitioner Company. Accordingly, interim order of stay granted in favour of the petitioner company on 19. 9. 2003 is hereby vacated.

(Emphasis supplied)"

AGAINST this order of this Commission, M/s. Manipal Sowbhagya Nidhi Ltd. filed a Special Leave to Appeal (Civil) Nos. 11897 of 2006 before the Hon''ble Supreme Court of India. The matter came up for hearing on 18th January, 2008 wherein the Apex Court has passed the following orders: "heard the learned Counsel for the parties. We do not find any ground to interfere with the impugned order. The special leave petition is, accordingly, dismissed. "

In these cases also the respondents have not shown their willingness to repay the amount due to the consumers in a prescribed time frame. In all these cases, the debt instruments of the consumers have matured.

ACCORDINGLY, these appeals are allowed. The order passed by the State Commission is modified to the extent that the Manipal Finance Corporation Ltd. is directed to repay the maturity value of Shreyus certificate to the appellants with 9% interest from the date of maturity till the date of payment. Similarly, they are also directed to repay the maturity value of debentures with 9% interest from the date of maturity till the date of payment. The respondents shall also pay Rs. 2,000 (Rupees two thousand only) as costs to each one of the 269 appellants. Appeals allowed.