Icd Defaulters To Be Barred From Raising Fresh Deposits
Besides, it has decided to provide for nomination facility in the case of fixed deposits, whereby the nominees will be able to claim the amount due to them without having to go through elaborate procedures.
The DCA move to debar ICD defaulters from inviting fresh deposits comes at a time when a fresh round of defaults is expected on the ICD market on account of an emerging tightness in the liquidity position.
A similar situation was witnessed late last year when a sustained liquidity crunch had driven interest rates up and forced a large number of ICD players to roll over repayments at exorbitant rates of interest. Subsequently, some of them also defaulted on repayments.
The new provisions will be incorporated through amendments to Section 58 A of the Companies Act, 1956, which the department proposes to move in the current session of Parliament to provide for the Budget announcements made by finance minister P Chidambaram.
Section 58 A lays down the norms for raising deposits by companies. It does not, however, differentiate between fixed or inter-corporate deposits. From the legal point of view, the term "deposits" means any deposit of money, including any amount borrowed by the company, except such categories or amounts which may be prescribed by the Central government in consultation with the RBI from time to time.
The existing Act provides for an appeal to CLB, which is empowered to impose a fine twice the amount of the default, and a fine and a prison term upto five years to every officer who is responsible for non-payment.
The minister has already announced the government's decision to debar defaulting companies from inviting fresh fixed deposits as part of his Budget 1996-97 announcements.
Apart from the amendments required by the budget announcements, all other amendments to Company Law will be effected only after the submission of the redrafted Companies Bill by the working group recently set up by the government, source in the department of company affairs said.
The decision to immediately debar such defaulting companies from raising fresh deposits was taken since it was felt that the existing penalties were not a strong enough deterrent against default, it was stated.
A case in point is the Modi group where the Union government faced several problems in forcing the company to repay investors, despite a Company Law Board (CLB) direction to this effect.