Re: Legal Opinion regarding change in the Rate of Interest on Debenture issued to Company 1.
We refer to your letter dated March 5, 2007 on the above subject.
From perusal of your letter and the documents forwarded to us, it appears that Company 1 (“COMPANY 1”) entered into a Debenture Subscription Agreement dated 6 August, 2006 (“the Agreement”) with COMPANY 2 (“COMPANY 2”). According to this COMPANY 2 subscribed to 8 (eight) debentures of Tk. 50,00,000.00 (fifty lac) only each amounting to Tk. 4,00,00,000.00 (four crore) only and COMPANY 1 were paying half yearly interest @13% since June 5, 2005, as per schedule.
On February 22, 2007, COMPANY 2 issued a letter No. …………. quoting clause 17 of the Agreement and informed COMPANY 1 that the Board of Directors of COMPANY 2 vide a resolution dated 16.02.2007 has increased the rate of interest against Debenture Loan from 13% to 13.50% with effect from March 1, 2006 and requested COMPANY 1 to pay the increased amount since then.
In these circumstances, you have sought our legal opinion as to whether COMPANY 2 can change/amend arbitrarily the rate of interest which was mentioned in the Agreement.
Clauses 2 and 3 of the Agreement states as follows:
“02. the company shall pay interest @ 13% (thirteen percent) to COMPANY 2 from the date of disbursement of Tk. Tk. 4,00,00,000.00 (four crore) only or part thereof.
03. Interest on the debentures shall be paid to COMPANY 2 on half-yearly basis commencing from the date of disbursement …..”
Moreover, Clause (Kha) of the sanction letter No. …………. dated 13.04.2003 (Sanction Letter), issued by COMPANY 2 and duly accepted by COMPANY 1 and which forms part of the Agreement according to Clause 20, states as follows:
“(Kha) The Term of the purchased Debentures shall be 5 years and the interest shall be payable half yearly @13% and the principle amount shall be repayable after five years, at a time.”
The Board of Directors of COMPANY 2 vide a resolution dated 16.02.2007, by quoting clause 17 of the Agreement, has ‘apparently’ increased the rate of interest against Debenture Loan from 13% to 13.50% with effect from March 1, 2006 and requested COMPANY 1 to pay the increased amount since then.
Clause 17 of the Agreement states as follows:
“17. COMPANY 2 hereby reserves the right to stipulate any other conditions in addition to the conditions specified above in order to protect the interest of the of the itself”
By this clause COMPANY 2 has reserved the right to stipulate any other conditions in addition to the conditions specified in the Agreement. Increasing interest from 13% to 13.5% is not an addition of a new clause but an amendment of the existing clause No. 2 of the Agreement which requires the agreement of both the parties to the Agreement for the same to be legally effective and enforceable against the parties thereto.
In the premises stated above, if COMPANY 2 wants to revise the interest rate then COMPANY 2 shall have to mutually agree upon a suitable interest rate with COMPANY 1. After mutual agreement between COMPANY 2 and COMPANY 1, an amendment to the Agreement may be executed between the parties incorporating the revised interest rate.
If you have any further query, please do not hesitate to contact the undersigned.
For: “The Lawyers & Jurists”