Your Fixed Deposits in a company are now safe

Now day’s people invest their money in shares, fixed deposits of the companies. But if the company declares itself sick after taking money from the investors then the investor will be in a dilemma. At times you get such rude shocks if you have invested your hard earned money in the Fixed Deposits of a company and the company declares itself bankrupt then there are little chances of getting your money back.

In some cases, the company would be deliberately declared sick so as to defraud the investors of their money. Once the company is granted protection by the BIFR (Board of Industrial & Financial Reconstruction), the company has protection to claims made against it by its investors. Even to initiate legal action against the company so as to get your money back, you would have to get the permission of the board

This has changed; there was a judgment by the Karnataka High Court that deposits to the company were not in the nature of money lent, but money held in trust; as a result, the company could not use the legal protection for claims for recovery of this money. In a recent case, a litigant made the National Consumer Commission aware of this ruling by the Karnataka High Court and the instance was adopted by the National Consumer Commission.

The people who have invested in fixed deposits (FD) offered by a company — and discovered much later that the company has gone down under and that it has no plan of making good on its promise because it has been declared sick — feel easy. A 2001 judgment made by the Karnataka high court came to the forefront earlier this month in a case filed against Modern Threads (India).

A divisional bench in its judgment held that a deposit in a sick company is not a sum lent to the company, but a sum held in trust by the company till the time of maturity. Hence, a claim made for the return of a deposit cannot be termed as a suit for recovery of money, and so, the protection under SICA would not be available to the company.

Now that there is awareness of this past ruling and that too at the level of the National Consumer Commission, this will be a blessing to a number of people who have taken Fixed Deposits issued by companies and then left holding onto their emotions as their money has seemingly been mis-appropriated by the company and with almost zero chance of getting their money back. Now, they can use this case as an instance and approach the Consumer Courts to get their money back.

Sometimes, legal decisions have the potential to positively impact a large number of consumers all at once.