LexDELHI CLOTH AND GENERAL MILLS ETC. versus UNION OF INDIA ETC.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
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438
DELHI CLOTH AND GENERAL MILLS, ETC.
v.
UNION OF INDIA, ETC.
July 21, 1983
(D. A. DESAI, V. BAl.AKRISHNA BRAD! AND R. B. MISRA JJ.J
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·..._ . Companies Act, 1956-S. 58A-Companies (Acceptance of De1Josit) Ri.les,
1975-R 3A-Imposition of obligation on Companies inviting/accepting deposits
froni public to deposit or invest 10 per cent of dePosits maturing during the year
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with q Scheduled bank or in governmeiit securities, etc.
Constitutiona{ validity of.
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Section SSA of the Companies Act, 1956 confers power on thC Central
Government to prescribe inter alia the condi'tions subject to which deposits
ma'.y be invited or accepted by a company either from public or from its
members. Sub-rule (1) of r. 3A of the Companies (Acceptance cf Deposits)
Rules, 1975 obligates a company inviting deposits to deposit of'in•rest, before
the 30th day of April of each year, a sum which shall not be less than 10 pyr
cent of the amount of its deposits m·aturing during the year ending on the 31st
day of March next following, a·ccording to any one or more of the n1ethods
set out in that sub-rlile. Sub-rule (2) of r. 3A Jays down that the amount so
deposited or invested shall not be used for any purpose other than for repay-
ment of deposits maturing during the year referred to in sub-r. (1).
The petitioners{appellants challenged the conStitutional validity of both
s. 5~A and r. 3A mainly on the ground that the, obligation impose·:! by r. 3A
contravened the rights guaranteed under Arts. 14 and 19(1) (g).
The respondents raised a preliminary objection to the maintainability of
the writ petitions on the ground that an incorporated company, being not a
citizen, could.not complain of denial or deprivation_ of the fundamental right
guaranteed by Art. 19.(1) (g) and that the situation was not improved by joining
either a shareholder or a director as co-petitioner.
Dismissing the petitions and appeals,
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HELD: I. (a) Rule 3A which makes it obligatory to keep 10 percent
of the deposits maturing in a year provides one of the conditions liUbject to
which deposits can be invited- or accepted and, indi~putably, s. 5811. confers
power on the- Central' Government to prescribe by rules the
c·Jnditions
subject to which deposits can be invited· or accepted by companies. This
provision of 10 per cent deposit
ensures. repay1nent of deposits maturing
in the year and in ·order to enable the companyto meet its obligation,
a provision is made in sub-r. (2) of r. 3A itself that the amount de-
posited or invested under sub-r. (1) shall not be utilised for.any purpose
qtber than for reparn1ent of deposits maturing during the year referred
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DELHI CLOTH MILLS v. UNION (Desai, J.)
439
to in sub~r. (1). This necessarily implies that the
10 per cent depOsit
can be utilised for refunding the deposits maturing in a year and that in 'order
to provide th~ company with liquid finance to meet its obligation, the provision-
of compulsory depo,it is introduced. The contention that the protection afford-
ed to the depositors by rule 3A.is neither adequate _nor su~cient and there-
fore of doubtful utility and accordingly must be rejected as arbitrary cannot
be accepted. It is true that the provision is not .so effective as to ensure every
depositor whose deposit is maturing in the year to be fully paid· out of the
deposit amount. But no regulatory or protective measure can be rejected as
arbitrary on the short ground that it fails to fully protect the person for whose
benefit it is enacted. Nor can the contention that ·having regard to the .
numerous in-built safeguards ins. 58A, the in1position of 10 .per cent compul-.
sory deposit under r. 3A is in excess of requiren1ents of protection to depositors
and is therefore unnecessary be accepted. No legal step can be said to be
-final or unnecessary because social control has inevitably to follow to defuse
abuses of economic power. Undoubtedly, depositors with a company, unless
otherwise indicated, would be unsecured creditors and in the event of winding
up of the co1npany, secured creditors and preferential creditors would score a
march over the1n in the distribution of the assets of the company. But every
measure cannot be viewed ·or interpreted in the event of a catastrophy over-
taking the company.. One has to view the immediate object in view to achieve
which the prpvision is made and not its remote consequences.
[459 F-460 A; 460 DJ
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