The National Company Law Appellate Tribunal has clarified that a company’s statutory obligation to repay matured deposits under Section 74 of the Companies Act, 2013, is not suspended by pending succession disputes. This ruling ensures that depositors’ funds remain protected regardless of unresolved testamentary proceedings.
Background & Facts
The Dispute
The dispute arises from a deposit of Rs. 66.32 crores made by Late Dr. M.A.M. Ramaswamy Chettiar with M/s Chettinad Coal Washeries Private Limited (Respondent No.1). The deposit, accepted prior to the commencement of the Companies Act, 2013, was originally structured as a short-term borrowing but unilaterally extended by the company to a 10-year term, maturing in March 2023. The company failed to repay the amount upon maturity, despite clear obligations under Section 74(1) of the Companies Act, 2013.
Key Facts
- The deposit was recorded in Respondent No.1’s balance sheet as of 31.03.2013 under ‘current liabilities’ as a repayable amount within 12 months.
- The company unilaterally converted the deposit into a 10-year term without the depositor’s consent.
- Late Dr. M.A.M. Ramaswamy Chettiar passed away on 02.12.2015.
- Two competing claims to succeed him emerged: (i) Mr. M.A.M.R. Muthiah (Respondent No.2), claiming through a registered adoption deed dated 09.02.2006; and (ii) Dr. M.A.M. Ramaswamy Chettiar of Chettinad Charitable Trust (Appellant), claiming through a registered will dated 18.02.2015.
- The Appellant filed an application to include the deposit in the affidavit of assets for probate proceedings (TOS No.27/2021), which was allowed by the Madras High Court on 12.06.2023 and confirmed on appeal on 20.01.2024.
- The deposit remains unpaid as of the date of judgment.
Procedural History
- 28.10.2014: Original petition filed under Section 73(4) read with Section 74(1) before Company Law Board (CA No.1/2014).
- 02.12.2015: Death of original petitioner, Dr. M.A.M. Ramaswamy Chettiar.
- 29.02.2016: Substitution application filed by Mr. M.A.M.R. Muthiah (CA No.69/2016).
- 24.03.2016: Substitution application filed by the Chettinad Charitable Trust (TCA No.1/2016).
- 26.05.2022: NCLT allowed Trust’s substitution and rejected Muthiah’s application.
- 06.09.2022: NCLAT set aside the 26.05.2022 order, holding that substitution must await outcome of probate proceedings (TOS No.27/2021).
- 19.12.2022: NCLT adjourned TCP No.1/2016 sine die pending probate resolution.
- 09.01.2023: Appellant filed Applications 1534 & 1536 of 2023 in TOS No.27/2021 to include deposit in probate assets.
- 27.11.2024: NCLT declined to act on IA(CA)/93(CHE)/2024, directing Appellant to approach NCLAT.
- 02.04.2026: NCLAT delivers judgment on Company Appeal (AT) (CH) No.20/2025.
Relief Sought
The Appellant sought:
- Direction to Respondent No.1 to deposit Rs. 66.32 crores, along with 18% interest from the date of filing of TCP No.1/2016, into the credit of the probate proceedings pending before the Madras High Court.
- Safeguarding of the deposit from dissipation by Respondent No.1, given that Respondent No.2 and his wife control 99% of the company’s shares.
The Legal Issue
Can a company be directed to repay a matured deposit under Section 74 of the Companies Act, 2013, even while succession to the depositor’s estate remains undecided in probate proceedings?
Arguments Presented
For the Appellant
The Appellant, represented by Mr. S. Ravi, Senior Advocate, argued that:
- Section 74(1) imposes a mandatory obligation on companies to repay deposits accepted before 1.4.2014 within three years of commencement of the Act or upon expiry of the deposit term, whichever is earlier.
- The deposit matured in March 2023, and its continued retention constitutes a statutory violation.
- The Madras High Court has already recognized the deposit as part of the estate in probate proceedings, and the NCLAT’s 2022 order did not bar proceedings on the repayment aspect.
- The Binapani Kar Chowdhury v. Sri Satyabrata Basu precedent permits beneficiaries to protect estate assets even before probate is granted.
- The risk of dissipation by Respondent No.2, who controls the company, necessitates immediate deposit of funds into court custody.
For the Respondent
No appearance was made by Respondent No.1 or Respondent No.2.
The Court's Analysis
The NCLAT emphasized that the 2022 judgment only addressed the issue of substitution in the company petition and did not extinguish the company’s independent statutory duty to repay the deposit. The Tribunal held:
"The question of who will replace or who will be substituted for late Dr. M.A.M. Ramaswamy Chettiar in the T.C.P. No.1 of 2016... can be decided only after conclusion of the probate proceedings... However, in the application IA No.93/2024 it has been prayed that the Respondent No.1 company to be directed to refund the deposit... in view of the fact that the said deposit is being held by Respondent No.1 company in contravention of Section 73(4) and Section 74(1) of the Companies Act, 2013..."
The Tribunal distinguished between the procedural issue of substitution and the substantive obligation of repayment. It held that the NCLT has exclusive jurisdiction to adjudicate compliance with the Companies Act, 2013, and cannot defer repayment merely because succession is pending before the High Court.
The Court relied on Binapani Kar Chowdhury v. Sri Satyabrata Basu & Anr. to affirm that beneficiaries may institute proceedings to protect estate assets even before probate. The NCLAT further noted that the deposit’s retention by a company controlled by one of the claimants creates a real risk of dissipation, warranting immediate protective action.
The Tribunal rejected the NCLT’s reasoning that the Appellant must return to NCLAT for directions, observing that the NCLT had the authority and duty to act on the interlocutory application without waiting for probate conclusion.
The Verdict
The Company Appeal is allowed. The NCLAT sets aside the NCLT’s order dated 27.11.2024 and directs the NCLT to decide IA(CA)/93(CHE)/2024 on its merits. The NCLT shall direct Respondent No.1 to deposit Rs. 66.32 crores, along with interest at 18% per annum from the date of filing of TCP No.1/2016, into the custody of the Madras High Court pending final adjudication of TOS No.27/2021. The NCLT shall complete this process within 12 weeks. Costs of Rs. 50,000 are awarded to the Appellant.
What This Means For Similar Cases
Repayment Obligation Is Absolute Under Section 74
- Practitioners must assert that failure to repay matured deposits under Section 74 is a statutory violation, irrespective of succession disputes.
- Companies cannot delay repayment by invoking pending probate or inheritance proceedings.
Interim Custody of Assets Is Permissible
- Courts may direct deposit of disputed assets into court custody when there is a credible risk of dissipation by controlling parties.
- This applies even where the ultimate beneficiary is not yet determined.
Beneficiaries May Act to Protect Estate Assets
- Under Binapani Kar Chowdhury, any claimant to an estate may initiate proceedings to preserve assets before probate is granted.
- This empowers trusts, charities, or heirs to seek injunctive relief in corporate forums without waiting for succession orders.
NCLT’s Jurisdiction Is Not Subordinate to Probate Courts
- Corporate tribunals retain authority to enforce compliance with the Companies Act even when civil courts are adjudicating succession.
- Parallel proceedings are permissible; one does not stay the other.
