1994 (5) TMI 165 - Commission - Companies Law

Court rules misleading investment ad unfair trade practice; orders 'cease and desist' + Rs. 2,500 costs

Tatia Finance & Leasing Ltd., In re.

The court found that the respondent's advertisement promising a 129% annual yield on investments was misleading and constituted an unfair trade practice. ... Unfair trade practice Issues Involved:1. Whether the respondent has indulged in unfair trade practice as made out in the Notice of Enquiry.2. Whether the trade practice in question is prejudicial to public interest within the meaning of section 36D(1) of the Act.3. Relief.Issue-wise Detailed Analysis:Issue 1: Whether the respondent has indulged in unfair trade practice as made out in the Notice of EnquiryThe case centers around an advertisement issued by the respondent-company promising an unrealistic financial yield. The advertisement claimed, 'Incredible But True, Earn 129 per cent yield per annum of your investment in our Balvikas Scheme. A mere sum of Rs. 10,000 becomes a magical Rs. 3,34,357 within 25 years.' This was flagged as misleading and incredible because, under RBI Guidelines, the respondent could not accept deposits for more than three years at a time, and the maximum interest rate allowed was 15 per cent. The claim of 129 per cent yield per annum was deemed ex facie misleading and false.The respondent argued that as per the Government Notification No. DFC (COC) 56/DG(O)-89, dated 28-3-1989, hire-purchase finance companies could accept deposits for up to five years and pay interest at a rate of 15 per cent per annum at quarterly rests, which could effectively yield 15.87 per cent per annum. They claimed that compounded daily, this could mean an annualized return of 129 per cent per annum if the deposit was kept for 25 years. They contended there was no misleading representation or falsity in the advertisement.Issue 2: Whether the trade practice in question is prejudicial to public interest within the meaning of section 36D(1) of the ActThe Director General's investigation revealed that the respondent was not entitled to keep the deposit for a continuous period of 25 years, and there was no dependable arrangement to ensure repayment of the amount due after 25 years. The scheme did not assure any payment to the depositor or their dependents for the first 20 years, with payments starting only from the 21st year onward. The lack of any guarantee or assurance about the refund of the deposited amount along with interest made the scheme dubious. The advertisement was found to be highly incredible and misleading, constituting an unfair trade practice under clause (iv) of section 36A(1) of the Monopolies & Restrictive Trade Practices Act, 1969.The judgment referenced a similar case, Indian Rayon Corpn. Ltd. [UTPE No. 5 of 1987], where an advertisement promising more than 80 per cent per annum returns on fully convertible debentures was held to be an unfair trade practice with the potential to cause loss or injury to investors. The respondent in that case was directed to desist from making such representations and was imposed with the costs of the proceedings.Issue 3: ReliefThe judgment concluded that the respondent's advertisement was misleading and constituted an unfair trade practice. Consequently, a 'cease and desist' order was passed, directing the respondent to stop making any such or similar misleading representations through advertisements or otherwise. The respondent was also ordered to file an affidavit of compliance with an undertaking not to issue such advertisements in the future. Additionally, the respondent was directed to pay Rs. 2,500 as the cost of the proceedings to the Director General.Pronounced.