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Informist, Wednesday, Nov. 13, 2024

 

NEW DELHI – Rejecting a petition to cancel bonds issued by Power Finance Corp. Ltd., the Delhi High Court observed that it was beyond its scope to modify or rewrite the conditions stipulated for allocation of the paper. The court said allowing premature redemption through judicial intervention would not only be against the contractual terms, but would also contravene the statutory intent of encouraging long-term investment.

 

"Upon issuance of the bonds to the petitioner, the rights and obligations of both parties are governed by the specific terms of the financial instrument," the court said. "Neither party can alter the same unilaterally. Any attempt would not only contravene the contractual terms, but would also be against the statutory purpose underlying the bond scheme."

 

The court noted that the petitioner's claim for cancellation appeared to stem from an alleged mistake of fact and reliance on misguided financial advice. "Such grounds, in the opinion of the court, do not create any enforceable right and cannot be adjudicated under Article 226 of the Constitution," it said.

 

The petitioner, Rakesh Kumar Saini, a practising advocate, had sold his residential property in Jangpura, Delhi. He said he was advised to invest the proceeds in bonds issued by Power Finance Corp. to avail the benefit of capital gains tax exemption under Section 54EC of the Income Tax Act, 1961. Saini invested INR 4.8 million in bonds issued by Power Finance Corp. and was issued a certificate by the company in June for the bonds, which have a lock-in period of five years.

 

Saini had also booked a residential flat in Noida, Uttar Pradesh, and wanted to make a payment for the final instalment. He sought financial advice in the matter and learnt that he would have been eligible for a capital gains tax exemption had he used the proceeds from the Delhi property sale to purchase the property in Noida.

 

Accordingly, within a month of the bond certificates being issued, Saini, through communication dated Jul. 13, requested Power Finance Corp. to cancel the bonds and refund the invested amount, intending to use the funds to pay the final instalment for the flat in Noida. Saini said his sole purpose in investing in the bonds was to obtain a capital gains tax exemption, a benefit he could still secure by using the capital gains to purchase the Noida property.

 

Saini said his investment in Power Finance Corp. bonds had been made under a mistaken impression, resulting from incorrect financial advice, which he now sought to rectify by redirecting the funds toward the Noida property purchase. The lawyer contended that no loss was being caused to Power Finance Corp. by cancellation of the bonds since he was seeking a refund at the initial stage.

 

On Jul. 16, Power Finance Corp. replied that there was no procedure in place to allow redemption of the investment before maturity of the bonds. Power Finance Corp. emphasised that, under the terms governing the bonds, Saini could only redeem the invested funds upon the bonds reaching maturity. Aggrieved, Saini then moved the high court seeking a direction to the company to cancel the bonds and refund the invested amount after deducting secretarial or administrative expenses incurred.

 

On Wednesday, shares of Power Finance Corp. ended 1.2% lower at INR 461.45 rupees on the National Stock Exchange.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

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