Nivedita Sharma v. Industrial Credit & Investment Corporation of India 

Citation - W.P. (C) No. 10517 of 2009
Estimated Reading Time: 11 minutes

Introduction 

The Companies Act 1956 introduced a limitation period for unclaimed and unpaid amounts which cannot be later claimed by the creditor or depositor under Section 205 C of the Companies Amendment Act 1999. The present case deals with the issue of the validity of the limitation period introduced under section 205 C (2) of the Companies Act and whether retrospective effect should be given to Section 205 A and Section 205 C in this case. The writ petition was primarily filed with the intention that these two provisions are infringing Article 14 of the Constitution. Section 205 C mentions about the creation of the Investor Education and Protection Fund wherein the unclaimed and unpaid amounts are deposited by the bank after the expiry of its limitation period of 7 years. The Court has later explained that Section 205 C is valid and preventive in nature rather than being curative. It further mentions that the rule of limitation is added on the grounds of public policy and to prevent stale claims before the Court. 

Statement of Facts 

The brief facts of the case are stated as follows- 

The petitioner (Nivedita Sharma) is an aggrieved party who invested Rs 26,000/- in ICICI Bonds in the year 1996 and was issued 5 bonds of the face value of Rs 2,00,000/- with the maturity date of 15th July 2021, but the bonds had the option of early redemption, on part of the bondholder as well as the Company. There were specified dates and face value amounts mentioned for enforcing the option of early redemption.

The petitioner on 2nd March 2009, wrote to the ICICI Bonds for early redemption of her bonds but her application was refused and Respondent no. 1 refused to make the payment stating that they had already made a call for early redemption in 2001 and as per the rules and procedures mentioned. There were multiple notices sent to the petitioner’s last known address, but as the redeemed amount was not claimed by the petitioner even after 7 years, the amount was transferred to Investor’s Education and Protection Fund created under Section 205C. The petitioner has challenged the constitutional validity of Section 205A and 205C and stated that these provisions violate Article 14 of the constitution. Further, the petitioner has mentioned that these provisions cannot be given retrospective effect as they were introduced in 1998 and the bonds were issued in 1996.

Issues of the case 

Looking into the facts of the case, the major issues dealt within this case are as follows- 

  • Whether Section 205A and 205C of the Companies (Amendment) Act 1999 are unconstitutional or violate Article 14 of the Constitution? 
  • Whether these provisions have a retrospective effect or not on the unclaimed bonds and deposits?

These are the two main issues that are being argued upon by both parties. 

Contentions/ Arguments from both the sides 

As per the facts mentioned above, it is understood that the petitioner was unable to claim its early redemption amount from the Respondents in 2009 as the respondents have already made calls for early redemption in 2001 and as the original bond was neither submitted nor the reminder letters were responded by the petitioner within 7 years from the date of early redemption call. The redeemable amount was transferred by the Respondent to the Investor Education and Protection Fund. 

Thus, Writ Petition (civil) was filed in the Delhi High Court by the petitioner to claim her bond amount from the Company and the Union of India. The contentions made by the petitioner were that transfer of such maturity proceeds have affected her rights and it was further contended that Section 205A and 205C of the Companies Act were introduced in the amendment with effect from 31st October 1998 and the bonds were issued in 1996, thus retrospective effect couldn’t be given to these bonds. Further, it was argued that Section 205C doesn’t apply to promissory notes and Section 205A and 205C are arbitrary in nature and even violate Article 14 of the Constitution. The petitioner also questions the utilization of funds transferred into the Investor Education and Protection Fund.  During the course of the hearing, the petitioner questioned that early encashment didn’t come under the purview of Section 205C of the Companies Act. 

To this contention, the Court clarified that Section 205(2)(c) states the term “mature deposits” and it shall include all those deposits which are due for payment and thus the bonds for early redemption shall be included under the term of “matured deposits”. 

The Respondent made their arguments clear from their counter affidavit where it was stated that the Company had followed all the procedures for an early redemption given under the terms for bonds of publishing a notice in one English and one regional language newspaper that was published from Mumbai, Madras, Calcutta, Delhi, Bangalore and Baroda. The advertisements regarding early redemption were made on 12th January 2001 and the bondholders were required to surrender their original bonds for claiming their payments. Respondent no. 1 even issued reminder letters to all those bondholders who had failed to submit their original bonds on 12th October 2001, 26th February 2002, 21st November 2003, 11th May 2006, and 15th May 2008 via ordinary post except for the last one (15th May 2008) which was sent via registered post. 

All these letters were sent to the last known address of the bondholders and the petitioner’s address at the time of application was C-742, New Friends Colony, New Delhi-110065. But she later changed her address to A-30/9, DLF, Phase I, Gurgaon, Haryana. But there is no record or letter written to the Company by the petitioner regarding her change of address. Thus, there is no factual or procedural fault on part of the Company.  

The entire case revolves around one main contention whether the limitation period provided under Section 205C is valid or not. As per Section 205C, the Central government shall create a Fund named Investors Education and Protection Fund. Section 205C (2) states that unpaid dividend or unpaid application money which has become refundable and mature including the matured deposits of the company shall be transferred to this Fund, if the amount remains unclaimed for a period of 7 years from the date, they become due for payment. The sub-section (2) is further explained that no claim shall lie against the Fund or the Company regarding the individual amounts which have been unclaimed for a period of 7 years from the due date and no payment shall be made with respect to such claims. Thus, the limitation period for such claims is provided i.e. 7 years and it is sought to be valid. 

After looking into the contentions presented by the petitioner and pieces of evidence provided by the Respondent, the Court made an observation that challenging the validity of a particular statute requires a precise and detailed set of evidence and pleadings, which the petitioner has failed to do so. Merely questioning the validity of the statute on the basis of fundamental rights cannot be applied. 

The court referred to certain judgments in support of this observation. They are- 

  • In the case of State of Uttar Pradesh v. Kartaar Singh, AIR 1964 SC 1135, it dealt with the constitutional validity of Rule 5 of the Food Adulteration Rules 1955 and it was noted that “In order to strike down a particular rule as unreasonable or discriminatory, a certain amount of materials have to present before the court and mere reasoning is not enough to strike down the Rule. So, the party invoking the protection of Article 14 has to sustain its plea by providing sufficient evidence to establish the allegation or unreasonableness of the Rule. The burden of proof to impeach the validity of a rule by the Competent Authority is on the grounds that it infringes Article 14 is on the person pleading for such impeachment.”
  • In the case of State of Andhra Pradesh and Anr v. K Jayaraman and Ors, AIR 1975 SC 633, it was held that “if there is an averment on behalf of the petitioners that any particular rule or law is invalid as it violates Article 14 and 16 of the Constitution, then the relevant facts and evidence have to be shown for the discriminatory aspects of that rule of law.”
  • In the case of State of Haryana v. the State of Punjab, 2004 12 SCC 673, the 2 Judge Bench of the Supreme Court noted that “It is well established that constitutional invalidity of any statutory provision can be made either on the basis of legislative incompetence or if the statute violates the provisions of the Constitution. The reason for particular enactment or the fact that the reason for enactment has been dismissed shall not hold the statute unconstitutional or justify the striking down of such legislation.” Further, it also states that merely saying that a provision is legislatively incompetent will not be enough and there shall be at least prima facie acceptable grounds for supporting the impugned legislation. In case, there is an absence of such evidence or prima facie material, such pleading is liable to be rejected.

The ratio decidendi of the Bench lays the principle that petitioner was aggrieved because of her own fault, that she failed to claim her refund within the span of 7 years and she also didn’t inform the company about her change of address, due to which the company was not able to communicate to her about the early redemption of the bonds. The Court also stated that there are no sufficient grounds mentioned by the petitioner’s side to strike down Section 205C as unreasonable. Rules of limitation are essential and formed in the interest of the public, they are basically preventive in nature rather than being curative. The main aim is to keep the litigants aware of their rights regarding seeking their remedies from the Court within a reasonable period of time. In the present case, there is no fault on part of the Company or the provisions given under the Company Act, and the petitioner is found negligent on their own part. 

Analysis of the Case 

The High Court of Delhi has rightly given the judgment in favor of the Company and dismissed the petition as there was no sufficient ground presented by the petitioner to hold that the Company was liable for the unclaimed amount of refund. There was negligence on part of the petitioner which resulted in her grievance. The Court also observed that Section 205C is a valid provision under the Companies Act 1956. The main reason behind the enactment of this provision was to ensure that companies don’t unduly enrich themselves with the unclaimed amounts of public, which has become due for more than a period of 7 years. As per the Court period of 7 years is substantially long for making a claim. So, if a claim is made by the person within 7 years, Section 205C shall not be applicable and the amount shall be redeemed to its rightful owner. 

The Court has given appropriate reasoning with the help of many reference judgments that Section 205C of the Companies Act is not invalid and there shall be substantial evidence or prima facie proof given to establish that it is unconstitutional or violates Article 14 of the Constitution. There is no reason to hold that Section 205A and 205C are found to violate Article 14 of the Constitution. This decision will make a significant impact on the Rule of Limitation especially that is mentioned under Section 205C for claiming funds within a stipulated time of 7 years. In case, there is an unclaimed deposit or dividend for a period of 7 years from the date of due payment then such amount shall be transferred to Investors Education and Protection Fund and neither the company nor the creditor shall have the right to claim their individual amount from this Fund. 

There was no omission of issue or arguments on part of the Court. Sufficient reasoning is provided by the bench regarding the judgment. Both the parties were heard before making the final decision. The contentions presented by the petitioner were well answered by the Court and the evidence provided by the Company regarding their procedures followed for early redemption were taken into account. All the provisions involved in the case were given primary importance and the Bench even cited a few judgments with respect to show that concrete proof and evidence has to be presented in order to challenge the legality of a particular statute/provision/ legislation. Mere contention that it violates the fundamental right of a person is not enough to strike down a particular provision. 

There is one main implication of the given judgment, that rule of limitation is found on the basis of public policy and thus there is need for a limitation period for every law or else, people will not be diligent enough to seek their remedies within time. Limitation rules help in avoiding stale claims and provide clarity to the existing laws and period within which the aggrieved can claim its remedy before the Court. There can be no alternative approach to the Limitation Rule, as this is intrinsic for every legislation to operate. As per my opinion, the judgment passed by the Court was rational and apt for this case, as there was no evidence available from the petitioner’s side and the Company had proven its diligence by presenting all the relevant evidence regarding the reminder letter, a notice of call for early redemption etc. The other contentions made by the petitioner regarding the legitimacy of Section 205A and 205C were baseless and frivolous. Even the retrospective effect of Section 205C had no merit as the bonds became due in 2001 which was after the enactment of this Amendment. 

The Court has aptly pointed out that the Companies Act directs every Company to transfer such unclaimed and unpaid amounts of dividend and deposits in the Investors Education and Protection Fund established under Section 205C of the Act 1956 so that such companies don’t unduly enrich themselves with the funds of the public. The fund created under this provision utilizes this unclaimed fund for the promotion and protection of all investors. Hence, this judgment can be used as a reference for cases where there is a dispute regarding unclaimed deposit and dividend due for a period of more than 7 years and transferred to Investors Fund. 

Conclusion 

It can be determined from the above judgment, that rule of limitation is vital for exercising remedies of any aggrieved party and the main reason behind a limitation period is to reduce the burden of court and make the aggrieved seek their remedies as soon as possible. For instance, in the above case, if the petitioner had informed her about her change of address or communicated to the Company within 7 years of the due date of redemption, she could have easily claimed her funds, but as she didn’t inform the company within the stipulated time, she lost her money as it was past the limitation period and there was no reasonable ground presented by the petitioner to showcase her reasons for being unable to claim the funds within 7 years. Thus, the Rule of limitation is an important ground to contend upon, and the petitioner should have valid reasons to condone such delay which in our case the petitioner was unavailable to provide for. Thus, this judgment shall have an impact on the aspects of limitation rules. 

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