In case of default there are three remedies available to an investor. One, you can mount a civil suit. But this method is time-consuming, and the complainant has to make a payment as stamp fee. This fee amounts to roughly 10 percent of the total cost of the case. The other disadvantage is the money spent on lawyers fees. For someone whos lost a small sum, say, Rs 25,000, it doesnt make sense to sue, says an industry source, He might end up spending more money fighting the case.
The other option is to make a winding-up petition under the Companys Act, which every depositor is entitled to do. But this process is lengthy as well.
The simplest remedy, says Kumar, in case of default, is to go to the Company Law Board (CLB) and file an application that repayment be made. It requires an initial fee of Rs 50.
On receipt of the application the CLB sends a notice to the company, which is expected to make its reply. The investor does not need a counsel. The CLB is now responsible for prosecuting his case. On an average it takes between 3-6 months to settle a case, says Bharat Nanda, Security Investments.
Generally, the settlement between the investor and the company, if the formers case has been proved, tends to be in the nature of a compromise. The company may be given slightly easier terms of payment. However, in most cases, the investors interest is protected.
Once the compromise has been effected, the CLB may choose to make it valid for all FD investors. Thus, for example, the original petition may have been filed by one investor, but the settlement holds for all. Also, under Section 58 a(10) of the Companies Act, if the CLB passes an order and it isnt complied with, the directors of the company concerned will be liable to imprisonment up to 10 years, and a fine of not less than
Rs 50 per day for the period of non-compliance. The company can appeal against the CLBs decision in the High Court only if a question of law is involved and not on the terms of the settlement.
However, even when the CLB delivers its judgment in a few months, the actual recovery may take longer. In the Modern Groups case, for example, the CLB has effected a settlement that extends over four and a half years. Even so, investors have been assured of return of the principal, and regular interest payments over this time. Other, commonly cited examples of successful CLB cases are Uniplas and Thapar Agro.
Of course, there is a caveat, namely that the company may fail to adhere to a new scheme, pleading a further inability to make payments. And, in some cases, repayment may not take place at all despite the CLBs interventions. If a promoter never had any intention of repaying, shrugs Kumar, then nothing in the world is going to make him.
