AHMEDABAD MFG AND CALICO PTG COMPANY LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) This group of petitions raise common questions of law. The facts which have led to the emergence of the controversy are as follows. In 1974 the Parliament amended the Companies Act 1956 and inserted sec. 58A. Sec. 58A read with sec. 642 empowered the Central Government to make rules in relation to the deposits which a company might receive from its shareholders or the public. Sec. 58A came into force on 1/02/1975. On 3rd February 1975 the Cenentral Government made Rules which are known as the Companies (Accep- tance of Deposits) Rules 1975 They were amended from time to time. However on 30/03/1978 Rule 3A was inserted and it came into force on 1/04/1978. Under this rule a company is required to deposit or invest a sum which shall not be less than ten per cent of the amounts of its deposits maturing during the year ending on the 31st March next year. The modes of deposits or investment have been specified in that rule. Several companies which have filed these petitions felt aggrieved by this rule because a part of the deposits which they might accept from their members or the public would not be available for being ploughed into business.

(2.) The averments made in Special Civil Application No. 1138 of 1978 bring out clearly the result which follows from the implementation of rule 3-A. Prior to 31/03/1978 Arvind Mills Limited-the petiti- oner in Special Civil Application No. 1138 of 1978-accepted deposits amounting to Rs. 1 9 69 402 which would mature during the year commencing on 1/03/1978 and ending on 31/03/1979. Accor- ding to the petitioner it was required to deposit or invest under rule 3 a sum of Rs. 10 96 940 on or before 30/06/1978. The grieva- nce which the petitioners are making is that the rule-making authority can make rules prescribing the limit upto which the manner in which and the conditions subject to which the deposits may be invited or acce- pted by a company. However in the name of prescribing conditions subject to which deposits may be invited or accepted by a company the rule-making authority cannot lay down a restrictive and onerous condition such as one incorporated in rule 3A which either wholly or partly depri- ves a company of the benefit of a part of the deposits already accepted by it. The petitioners therefore contend that it is beyond the power of the rule-making authority to make rule 3A which forces or compels a company to invest or deposit in any one of the three kinds of securities specified in rule 3A a part of the deposits accepted by it. The purpose of accepting the deposits is defeated when a company which accept deposits is required to part with what it has legitimately received from the public or its members. Principally upon this grievance all these petitions have been founded.

(3.) There are certain petitions not all - in which the constitutional validity of sec. 58A has been challenged. However in all the petitions rule 3-A has been challenged on the ground that it is ultra vires sec. 58A of the Companies Act 1956 and Art. 14 of the Constitution.