Judgment

THOMMEN, J.:- The question which arises in this appeal from the judgment of the Bombay High Court in Writ Petition No. 2038 of 1991 is, when does a company become liable to pay interest under Section 73 (2A) of the Companies Act, 1956 (the "Act"). The answer to it depends on the answer to the more fundamental and far more difficult question, i.e., when does a company become liable to repay the money received from applicants for shares or debentures in excess of the aggregate of the application money relating to the allotted shares or debentures. If such excess application money is not repaid within eight days from the day on which the company becomes liable to pay it, the company and every director who is an officer in default is liable to pay interest at the specified rates. The period of eight days has to be reckoned in accordance with Section 74. But it is not clear when exactly does the liability to repay the excess money arise. Does it arise on the date of the allotment, as found by the High Court, or on the expiry of 10 weeks from the date of closing of the subscription list referred to in sub-sec. (1A) of Section 73, or, as contended by the company, on the expiry of the period mentioned in the prospectus? Whichever is the correct date, interest becomes payable by the company and its directors in default, if the excess money is not repaid within the period of grace of eight days from the date on which the company becomes liable to pay it. When does that liability arise is the crucial question.

2. We shall presently examine the relevant provisions of the section, but before we do so, it may be of interest to refer briefly to the circumstances in which the alleged liability of the appellant company has arisen.

3. The appellant is a company registered under the provisions of the Companies Act, 1956. The company obtained the consent of the Government of India vide its Order dated May 31, 1990 to issue 7,20,00,000 equity shares of Rs. 10/- each at par and 33,90,000 fourteen per cent. secured redeemable non-convertible debentures of Rs.100/- each at par. This Order was made by the Government in exercise of its power under the Capital Issues (Control) Act, 1947. One of the conditions attached to the order reads:

"The company shall scrupulously adhere to the time limit of 10 weeks from the date of closure of the subscription list for allotment of all securities and despatch of allotment letters/ certificates and refund orders."

4. A prospectus was issued by the company on 12th July, 1990 for the issue of the aforesaid shares and debentures. The prospectus stated, amongst other things, that the company had sought the permission of the stock exchanges at Indore, Ahmedabad, Bombay, Calcutta and Delhi for dealing in equity shares and debentures in terms of the prospectus; that interest at the rate of 15 per annum on the excess application money will be paid to the applicants as per the guidelines issued by the Ministry of Finance on July 21, 1983 and September 27, 1985; that the public issue will open on August 20, 1990 and close on August 23, 1990; and that it would not be extended beyond August 31, 1990. When the issue thus opened on August 20, 1990, it received overwhelming response as a result of which it was about 40 times over-subscribed. The company received 26,32,894 applications for equity shares together with an aggregate sum of Rs. 225,25,51,247 in respect of a public issue of Rs. 25 crores. In view of this public response, the share issue was closed on 23rd August, 1990. On October 15, 1990 the board of directors of the company approved the allotment of shares. Shortly thereafter, it secured the requisite petmissions of the stock exchanges at Indore, Ahmedabad, Bombay, Calcutta and Delhi to deal in the shares offered in the prospectus. These permissions were obtained prior to November 1, 1990. The company had to despatch 25,50,604 refund orders of an aggregate value of well over Rs. 200 crores. These orders which w