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Companies Law - Case Laws
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2024 (1) TMI 95 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , CHENNAI
Requirement of prior permission before filing of the joint application under Section 213, 241 and 242 of the Companies Act, 2013 - HELD THAT:- The impugned order is required to be affirmed. Moreover on bare examination of Section 244 of the Companies Act, 2013, it is found that there is no error in the impugned order. Accordingly the objection raised by the appellants appears to be misconceived and as such there is no reason to interfere with the impugned order.
Appeals dismissed.
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2024 (1) TMI 94 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI
Maintainability of appeal - Condonation of delay in filing appeal - sufficient reasons for filing appeal not given - making incorrect statement in the condonation of delay application.
HELD THAT:- The appeal was not ripe for hearing in view of the fact that the main appeal was filed after the expiry of 45 days of limitation and in the appeal an Interlocutory Application was filed for condonation of delay
In para 3 the appellant has stated that the certified copy of the impugned order was applied for on 31.10.2022 and thereafter the certified copy of the impugned order was made available on 2.11.2022. The reasons for delay in filing the appeal has been explained as if the appellant was travelling and was out of station from 24th October, 2022 to 18.11.2022, whereas the impugned order reflects that the certified copy was applied for on 02.11.2022 and it was made available to the appellant on 03.11.2022. Meaning thereby that the facts disclosed in condonation of delay application is erroneous and contrary to the record. Moreover the reason assigned that the appellant was travelling and was out of station is also not a sufficient reason to persuades to act upon such reason in condoning the delay in filing the appeal.
Normally if delay is occurred in filing an appeal it is expected that the appellant may explain the delay on day to day basis. However, in the present case neither specific reason has been assigned nor correct statement has been made. In such situation as well as in the absence of showing any plausible reason which prevented the appellant to file appeal within time, there are no option but to reject the application for condonation of delay.
The condonation of delay application stands dismissed not only on the ground of delay in filing the appeal but also for making incorrect statement in the condonation of delay application.
Application for condonation of delay as well as appeal dismissed.
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2024 (1) TMI 48 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI
Procedure for filing an appeal - failure to submit certified copy of order of NCLT - Seeking permission to argue on the merit of the appeal - Appellant argued on interlocutory application which was filed for condonation of delay in re-filing - HELD THAT:- The order impugned was passed on 13.06.2023 and thereafter the appeal was preferred on 26.07.2023. In normal course it was expected that the appellant would have obtained the certified copy of the order and filed the same without any further delay. An application for exemption in filing certified copy is to be filed where there is no time in filing appeal. Once an appeal is filed, it is expected that immediately thereafter certified copy will be filed - However, in the present case till date certified copy of the impugned order has not been brought on record.
The fact remains that appeal has been preferred under Section 421 of the Companies Act, 2013 against an order dated 13.06.2023 passed by National Company Law Tribunal, New Delhi (herein after referred to as NCLT) whereby an application filed by the Appellant on the point of maintainability was rejected. The order further reflects that company petition was ripe up for hearing and in the case reply was also filed however belatedly maintainability point was raised by filing an application which has been rejected by the order impugned.
The present appeal not entertained due to the latches on the part of the appellant, particularly in view of the fact that even after expiry of several months the appellant has not brought on record the certified copy of the order and also the fact that on instruction of the appellant on last date, i.e. on 18.09.2023 an advocate got the appeal adjourned for filing fresh Vakalatnama, whereas today it was intimated that the Counsel who had filed Vakalatnama along with Memo of Appeal has been again asked to appear - appeal dismissed.
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2023 (12) TMI 1256 - ALLAHABAD HIGH COURT
Direction for investigation into the affairs of the company - reference the matter of SFIO on the request of the official liquidator - Application filed by an Ex-Director of the Company in liquidation to recall the order passed by this Court - Money Laundering - diversion of funds - HELD THAT:- It is not denied by the Official Liquidator that it has a panel of Chartered Accountants through whom the inspection and inquiries may be ordered. The sole purpose for which the Official Liquidator has sought for referring the matter to the SFIO was for detection of diversion of assets/funds of the company in liquidation. It is not denied by the Official Liquidator that the balance sheet, other books of account and documents are in possession of the official liquidator as well as the statement of affairs filed by the ex-Director on behalf of the company in liquidation.
Learned counsel for the applicant is right in saying that there was no material in the Official Liquidator’s report to demonstrate that there was any intention of the Ex-Director to defraud the creditors, members or any other person or that the management of the company was guilty of fraud and misfeasance or other misconduct towards the company or towards any of its members and, therefore, referring the matter to the SFIO is uncalled for.
As a matter of fact, the allegation against the company in liquidation by the Official Liquidator regarding a web of intrigue employed by the company and other groups of companies for defrauding the investors and creditors and diversion of funds of the company, could have been substantiated by the specific references to the entries made in the balance sheet and other books of account of the company in liquidation, which has not been done. To insinuate that the office of the Official Liquidator does not have the capacity or ability to detect diversion of funds of the company in liquidation, is not acceptable given the fact that a panel of Chartered Accounts is admittedly available to assist the Official Liquidator in discharge of its duties.
The provisions of the Act, 1956 and the Act, 2013 though, do not prohibit investigation to be initiated where the company has passed a special resolution for voluntary winding up or where other proceeding for winding of a company are pending before the Tribunal, however, the same may not applicable in the case of the company in liquidation, inasmuch as the winding up order of the company in liquidation was passed by the Court much prior to the report of the Official Liquidator filed before this Court seeking investigation by the SFIO.
It is not the case of the Official Liquidator that the powers conferred on it by virtue of the aforesaid provisions are inadequate for purpose of detection of the irregularities like the allegation of diversion of funds, etc. that caused it to move this Court for referring the matter to the SFIO. It should not appear to the Court that the Official Liquidator seeks referral of the matter to the SFIO for the reason that it finds itself inadequate to exercise the powers conferred on the Official Liquidator by the aforesaid sections of the Act.
The order dated 13.12.2019 is recalled and the Recall Application No.235 of 2020 is hereby allowed.
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2023 (12) TMI 1251 - SC ORDER
Interim measure to deposit an amount of Rs. 3.22 crores with the Registrar of Company, Delhi towards fees for delay in filing Form SH-7 - HELD THAT:- This amount has not been deposited. The petitioner has also not taken out any application seeking condonation of delay in making such deposit or permitting him to deposit in instalments.
A petition under Article 136 of the Constitution of India has a discretionary element for this Court to consider. Because of the petitioner’s conduct, we do not think such discretion ought to be exercised in favour of the petitioner. Otherwise also, we are also not satisfied with the petitioner’s case on merit.
Petition dismissed.
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2023 (12) TMI 1250 - NATIONAL FINANCIAL REPORTING AUTHORITY
Professional misconduct - Auditor's conflict of interest with the auditee company - Acting as statutory auditor of SKNL while holding or controlling shares of SKNL in violation of section 141 of the Companies Act 2013 & section 226(3)(e) of the Companies Act 1956 resulting in failure to maintain independence of auditor - Non-compliance with para 7 to 9 of Standard on Auditing (SA) 705 - penalties and sanctions - HELD THAT:- It is clear that CA Shyam Malpani had violated the Companies Act 1956, the Companies Act 2013, SQC1, SA 220 and SA 705 by performing this audit despite having serious conflict of interest and in not giving appropriate audit opinions. It is therefore concluded that CA Shyam Malpani has committed Professional Misconduct as defined under Section 132 (4) of the Companies Act 2013 in terms of section 22 of the Chartered Accountants Act 1949 (CA Act). As per the clause 7 of Part I of the Second Schedule of the CA Act, an EP is guilty of professional misconduct if he "did not exercise due diligence and was grossly negligent in the conduct of his professional duties" - Since the EP compromised his independence and failed to recognize and report the pervasiveness of the deficiencies of the financial statements, his conduct undoubtedly falls into the category of lack of due diligence and gross negligence. Therefore, the charge of professional misconduct on the part of the EP on this account is proved.
Internationally also, similar cases of Auditor's conflict of interest with the auditee company has been viewed seriously.
In this case the audit done by the EP related to SKNL which was a large public listed company and involved interest of large number of shareholders and other stake holders such as banks, creditors etc. It is critical that the auditor and the EP performed their job with due diligence to give assurance to the investors and stakeholders on true and fairness of the financial statements and thereby protect public interest. Any default on this account impacts and jeopardizes the larger public interest which needs to be considered while determining the quantum of punishment.
Considering the nature and seriousness of violations and principles of proportionality, in the exercise of powers under Section 132 (4) (c) of the Companies Act, 2013, the sanctions ordered - a monetary penalty of Rupees Five Lakh imposed upon CA Shyam Malpani. In addition, CA Shyam Malpani is debarred for a period of Five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
Application disposed off.
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2023 (12) TMI 1220 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , CHENNAI
Sanction of the Scheme of Amalgamation - NCLT fixed the Appointed Date to 01.10.2022, while allowing the Chennai Second Motion Petition and sanctioning the Scheme, when the NCLT – Mumbai, had sanctioned the Scheme filed by the Transferee Company with the Appointed Date of 01.10.2020.
It is argued that since NCLT, Mumbai, had by way of an Order dated 06.06.2022, already sanctioned the Scheme with the Appointed Date as 01.10.2020, the impugned order by changing the Appointed Date to 01.10.2022, has made the Scheme unworkable.
HELD THAT:- It is not in dispute that the NCLT, Mumbai had already sanctioned the Scheme with the Appointed Date of 01.10.2020, vide Order dated 06.06.2022. In the IA filed on 31.03.2023, the Appellants had sought for rectification of the Appointed Date to 01.10.2020, which was dismissed on the ground that NCLT did not have the power to review its own order. It is seen from the record that the Appointed Date as per the Scheme is 01.10.2020 ‘and the same is within a period of one year from the date of filing of the Application for Approval of the Scheme with NCLT i.e., 29.09.2021’.
It is relevant to rely on the Judgment of this Tribunal, in which matter, this Tribunal placed reliance on the Judgment of the Hon’ble Apex Court in Miheer H. Mafatlal v. Mafatlal Industries Limited., [1996 (9) TMI 488 - SUPREME COURT], in which case, the Court had laid down the broad contours of the jurisdiction of the Company Court in granting a sanction to the Scheme holding that jurisdiction of the Company Court while sanctioning the Scheme is supervisory only, i.e., to observe that the procedure set out in the Act is met and complied with and that the proposed scheme of compromise or arrangement is not violative of any provision of law, unconscionable or contrary to public policy. The Court is not to exercise the appellate jurisdiction and examine the commercial wisdom of the compromise or arrangement arrived at between the parties.
It is held by this Tribunal in the Accelyst Solutions Private Limited [2021 (3) TMI 1009 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH NEW DELHI], that the ‘settled legal position, while exercising its power in sanctioning a Scheme of Amalgamation, the Courts / Tribunal has to examine as to whether, the Provision of Statute has been complied with’. The Courts / Tribunal would have no further jurisdiction to sit in Appeal over the ‘Commercial Wisdom of the Shareholders of the Company’.
In the instant case, apart from the fact that NCLT – Mumbai, had already fixed the Appointed Date of the Scheme as 01.10.2020, the date of filing of the Application for Approval of the Scheme with NCLT – Chennai is 29.09.2021 and therefore is within a period of one year, and hence, attracts Clause 6(c) of the MCA General Circular No. 09/2019 dated 21.08.2019 - Additionally, NCLT has the discretion to fix the Appointed Date which could be beneficial to the interests of the Company, which in the instant case ought to have been fixed at 01.10.2020 as having two different Appointed Dates, would render the Scheme unworkable. The NCLT has powers under Rule 11 of the NCLT Rules, 2016, to fix the Appointed Date, which would be beneficial to the Scheme of Amalgamation.
Appeal allowed.
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2023 (12) TMI 1177 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI
Oppression and Mismanagement - shareholding slightly less than the threshold of 10% shareholding required for filing Petition under Sections 241 & 242 as per provisions of Section 244 of the Act - HELD THAT:- It is apparent that each branch of the family is represented in the Company and for resolution of any dispute, it will be better that each branch of the family is represented in the proceeding and is heard. We feel no prejudice shall be caused to anyone if the impleadment application is allowed. Wherever the Court is of the opinion that by adding any party, it would be in a better position to effectually and completely adjudicate upon the controversy, it is proper to exercise judicial discretion in impleading the said party. The Appellants herein are daughters of late Mr. Tarsem Singh and sister of Respondent No. 3, against whom allegations of Oppression and Mismanagement have been made. The Appellants have a defined subsisting, direct and substantive interest in resolution of the controversy and are necessary and expedient to be impleaded in the said Petition.
The Appellants are Shareholders of the Respondent No. 1 Company and are family members of the other Shareholders. They are concerned with the affairs of the Company and their arraignment as party to the proceedings would facilitate an effective, efficacious, just and fair adjudication of the case. It is held that they are proper and necessary party and their impleadment will assist in arriving at the correct decision in C.P. No. 129/ND/2019 pending with NCLT.
Appeal allowed.
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2023 (12) TMI 1153 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , CHENNAI BENCH
Oppression and Mismanagement - Regarding implementation of the Resolution Plan is pending for adjudication - Sections 388B, 397, 398, 401, 402 and 408 of the Companies Act, 1956 - HELD THAT:- There is no dispute that the Appellant has filed the application no. 03 of 2014 for seeking various reliefs which is already mentioned herein before but this is also not in dispute that while the application was pending, an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by the Canara Bank as the financial creditor against M/s Deccan Chronicle Holdings Limited (Corporate Debtor therein) which was assigned CP No. 41/7/HDB/2017 has been admitted vide order dated 05.07.2017 and the Adjudicating Authority has initiated the CIRP proceedings. It is also not in dispute that the said CIRP proceedings have reached to the stage of consideration of Resolution Plan.
In such circumstance, once the Company against which the aforesaid application has been filed by the appellant on the allegation that there is mismanagement in the company and fraud has been played by the persons in control of the company, has gone into CIRP and, moratorium is imposed on Section 14 and the reins of the Companies are handed over to the IRP, the present application by itself does not survive as no relief be granted in the said application.
Thus, no error has been made by the Ld. Tribunal in dismissing the application as such. The appeal is thus found to be without merit and is hereby dismissed.
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2023 (12) TMI 1152 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI
Restoration of the name of the Company in the Register maintained by the Registrar of Companies - HELD THAT:- Since the Company Agerson Telecommunications Pvt. Ltd. is having substantial assets and liabilities, it cannot be said that the Company is not carrying on any business for operations - In spite of present Order, the RoC shall be free to take any other steps, punitive or otherwise, under the Act for non-filing/late filing of statutory returns/documents against the Company and Directors.
The Impugned Order dated 24.09.2021, passed by the National Company Law Tribunal, New Delhi, Bench – V is set aside - The name of the Appellant Company is restored to the Register of Companies subject to the compliances imposed - appeal allowed.
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2023 (12) TMI 1151 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , CHENNAI
Locus to maintain the appeal - Board of Directors of LITL illegally reconstituted in the absence of IDBI having attended the meeting - Appellants not heard before passing the Impugned directions - undergoing change in the management, pursuant to the approval of the Acquisition Plan - HELD THAT:- In the instant case LITL in whose name the Shares still stood, is a `person aggrieved’ as the admitted fact is that second tranche of consideration for the transfer of Shares remained unpaid. There are no hesitation to hold that the Appellant’s legal rights have been affected and hence, falls within the ambit of the definition of `person injured or damaged in a legal sense’. Therefore, it is observed that the Appellants Appeal is maintainable, specifically having regard to the fact that the Second Appellant M/s. KRS Erectors has purchased the First Appellant Company as a `Going Concern’ on an `as is where is basis’ and is a `person aggrieved’ as its `pecuniary interest’ is directly affected.
Appellants are aggrieved parties as the title of the CCPS still stands in their name and not hearing the Appellants and giving such directions would construe violation of Principles of Natural Justice. Needless to add, the Second Appellant/M/s. KRS Erectors Private Limited, which is the Company having acquired the First Appellant Company as a `going concern’ is an ‘aggrieved party’ and it has the locus to file this Appeal.
It is the main case of the Respondent that the subject 42,00,00,000 CCPS falls outside the scope of the approved Acquisition Plan. It is the case of the Appellants that Clause 5.10 of the Acquisition Plan makes it clear that unearned receivables pertaining to the period prior to the initiation of the CIRP other than those specified which are realised after the approval of the Resolution Plan shall be shared equally between the First Appellant and the stakeholder - It is not in dispute that in the Register of Members of the Sixth Respondent Company shows that 42,00,00,000 CCPS were held in the name of the First Appellant. The case of the Respondent that the second tranche of consideration was not paid as contemplated under the SPA dated 30.03.2012 only because the Appellant had failed to obtain the approval of the lenders and the payment was conditional to the approval, cannot be sustained as a ground for the said directions as the fact remains that the said Agreement was admittedly amended from time to time on account of non-approval of the lenders and the balance consideration for the said 42,00,00,000 CCPS was not paid and hence, the question of the contract having been concluded and the Shares thereafter being held in trust by LITL does not arise. If the terms of the Agreement have been adhered to, then the question of the Shares being held in trust by LITL would come into the picture.
The sum and substance of Clause 3.2(ii)(c) of the SPA is that LITL shall arrange the necessary approvals from the Lenders in whose favour such shares are pledged or Non-Disposal Undertaking is created; REPL shall accede under the terms of the financing documents as may be required by the Lenders and that LITL shall get dematerialisation of these shares, until such time, the said shares would be held in trust by LITL for REPL, however, in the books of the Company, the name of LITL shall continue as holder of these shares.
It is seen from the record that the subject CCPS do not form part of the Assets of the `Process Document’ and neither fall in the exclusions list and when the Shares are still in the name of the First Appellant Company which were required to be transferred to REPL subject to the amount received and receipt of approvals from the lenders of Lanco Anpara, we are of the view that the subject CCPS could not have been transferred without the payment being received and also without the consent of the Monitoring Committee of the Second Appellant Company - The conduct of the Respondents in transferring the shares during the pendency of the Appeal specifically when the matter was being heard at length due to the chequered history and the fact that the Impugned Order did not reflect the factual matrix, is not appreciated.
Though initially, it was opined that this matter be sent back to the Adjudicating Authority for hearing afresh, keeping in view that substantial time has been spent before this Tribunal in understanding the factual matrix of the matter and the matter was heard at length over a considerable period of time, and having regard to the fact that IBC is a time bound process, it is held that the Appeal itself be decided.
The Impugned Order passed by the Adjudicating Authority is set aside and any actions taken by the Respondents during the pendency of the Appeal are rendered otiose - appeal allowed.
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2023 (12) TMI 1019 - DELHI HIGH COURT
Power of the SFIO to Investigate Offences under the IPC - Powers of SFIO restricted to investigate offences under the Companies Act only - Further Investigation by the SFIO.
Power of the SFIO to Investigate Offences under the IPC - HELD THAT:- The heading of Section 219 of the Act reflects that the said provision relates to role of certain ‘related’ companies, which has surfaced during the course of investigation being conducted under Section 212 or other provisions of the Act and therefore, approval would be required in terms of Sections 219(a), (b) and (c) of the Act. The provision of Section 219(d) of the Act has to be construed by applying the rule of ejusdem generis - In the present case, it is reasonable to construe the aforesaid clauses (a), (b) and (c) of Section 219 of the Act as constituting a distinct category or class, i.e., ‘related companies’. The language and the object behind the aforesaid clauses is with respect to investigation of affairs of a company other than the company for which investigation has been ordered under Section 212 of the Act. In that context, clause (d) of Section 219 of the Act will apply to a ‘Managing Director’ or ‘Manager’ or ‘Employee’ of the company referred to in clauses (a), (b) and (c) of the said Section.
Section 219(a), (b) or (c), comes across role of Managing Director, Manager or employee of the said ‘related’ companies, then no prior approval for investigation would be required. In other words, protection has been given only to the Managing Director or Manager or employee of the company being investigated under Section 212 of the Act and not for the Managing Director or Manager or Employee of the companies being investigated under Section 219 (a), (b) or (c) of the Act. The aforesaid position is not acceptable - In the considered opinion of this Court, once an approval has been given under Section 212 of Act to investigate into the affairs of a company, the same would also relate to a Managing Director or Manager or Employee of the said company. The pre-condition of a prior approval under Section 219 of the Act applies to related companies and their Managing Director, Manager or employees as provided for in the said Section.
It is an admitted case that petitioner no. 3 was mentioned in the original order dated 03.05.2016 issued by the MCA under Section 212 of the Act. So far as petitioner no. 2 is concerned, it is the case of the SFIO that since the affairs of the company were not being investigated, therefore, no approval was required in terms of Section 219(a) of the Act - It is a matter of record that subsequent sanction has been obtained from the Central Government before filing the complaint by the SFIO in terms of Section 212(14) of the Act. Petitioner no. 2 is being prosecuted for a single transaction, as explained above. It is always open for petitioner no. 2, during the course of trial, to demonstrate that prejudice leading to a miscarriage of justice has been caused on account of not obtaining approval under Section 219(c) of the Act.
Powers of SFIO restricted to investigate offences under the Companies Act only - HELD THAT:- It is pertinent to note that Section 4(2) of the CrPC provides that investigation into offences under other statutes, like the present Act, shall be done in accordance with the CrPC unless the statute provides for otherwise. Section 212(15) of the Act provides that an investigation report filed before the learned Special Court shall be treated as a report filed by a police officer under Section 173 of the CrPC - the investigation report within the scheme of the Act will be treated as a police report, therefore, the officer filing the said report shall also be considered an officer in charge of a police station, although not specifically provided for in the said Act. The said position is further fortified by the fact that if power has been given to the learned Special Court under Section 436(2) of the Act to try offences other than those under the Act, then the power of the SFIO to investigate into such offences cannot be restricted. If during course of investigation under the present Act, the concerned Investigating Officer comes across commission of offences punishable under the IPC or any other law relating to the transactions being investigated, then the same cannot give rise to distinct proceedings. Such investigation can be carried out under Section 4(1) of the CrPC. If the report which is subsequently filed is to be treated as a police report under Section 173(2) of the CrPC, then the officer is to be considered to be vested with powers of an ‘officer in charge of a police station’.
From a conjoint and harmonious reading of the aforesaid provisions of the CrPC and the present Act, it cannot be said that the SFIO is barred from investigating an offence under the IPC.
Further Investigation by the SFIO - HELD THAT:- It is further pertinent to note that this Court has perused the record and does not find any document to show that after the learned Special Court has taken cognizance on 20.09.2022, the petitioners herein have been asked to join any further investigation by the SFIO.
The present petition is dismissed.
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2023 (12) TMI 1013 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , CHENNAI
Oppression and mismanagement - Application for continuation of interim stay dismissed - appointment of a Chief Operating Officer - Article 69 of the Articles of Association of the Respondent No. 1 Company requiring unanimous consent of all directors - appointment of more than 1 (one) director on the board of Respondent No. 1 Company - Appointing an independent director on the board - Removing Respondent Nos. 4 to 6 from the Board of Directors of the Respondent No.1 Company and directing Respondent No. 2 Company to nominate 1 (one) person after providing and obtaining approvals of the credentials of such person - restraint from interfering with the day-to-day functioning and management of the affairs of the Respondent No. 1 Company - ensuring clear separation between the persons nominated on the board of the Respondent No. 1 Company or any other person having access to Respondent No. 1 Company and its information - Restraining Respondent Nos. 2 to 9, their principals/directors, their promoters, managers, assigns, successors-in-interest, licensees, franchisees, sister concerns, representatives, servants, distributors, agents, etc. and/or any person or entity acting for them from entering into any contract of supply/ services or otherwise with the Respondent No.1 Company - Section 241 & 242 of the Companies Act, 2013.
HELD THAT:- It is needless to mention that the main petition filed under Section 241 and 242 of the Act is pending for hearing on 01.02.2024. It is also borne out from the record that initially when stay was granted on 04.09.2023 it was observed that if the board of directors takes a decision to appoint Shri MSM Mujeebur Rahuman as COO, the said decision shall be kept in abeyance till 12.09.2023 and then the Appellant chose to file the application bearing I.A. No. 263 of 2023 in which the only prayer made is for extension of the order dated 04.09.2023. It is pertinent to mention that this order was extended by the Tribunal up to 28.11.2023 but by that time the appeal was filed not only the order became inoperative but also the Respondents appointed Dr. MSM Mujeebur Rahuman as COO who is working as such and no application has been filed until now about his act and conduct.
It is also a matter of fact that the Tribunal fixed the case for hearing on 05.12.2023 i.e one after the order dated 28.11.2023 was passed for the purposes of hearing the main petition in terms of the observation made in para 49 which is mentioned hereinabove, however, instead of arguing the case on merit itself on 05.12.2023 the Appellant got the main petition adjourned for 01.02.2024 on the pretext that the appeal has been filed which was only against an interim order.
In such a situation, where the court has to thoroughly scan voluminous record and also interpret various articles of the AoA, it would be just and expedient if the main petition itself is heard and decided, as proposed by the Tribunal who has rightly not made any observation about the interpretation of Article 69 which is the main plank of the argument of the Appellant in the interim application and the main petition, therefore, this appeal is disposed off with liberty to the Appellant to file an appropriate application before the Tribunal for preponement of the hearing from 01.02.2024 to an early date by making reference to Para 49 of the impugned order and in case any such application is filed, the Tribunal shall consider the said request and prepone the date of hearing and decide the main petition filed by the Appellant as early as possible.
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2023 (12) TMI 790 - DELHI HIGH COURT
Seeking permanent prohibitory injunctions restraining the defendant (including his attorneys, assigns, successors-in-interest, agents, authorized persons or anyone acting for and/or on his behalf) from alienating, transferring, selling, creating any encumbrance, third-party rights or any other interest of any kind - Order XXXIX Rule 1 and 2 of the Code of Civil Procedure, 1908.
Documentation issued in respect of the transfer of shares to the Defendant - delivery of the shares and the subsequent conduct of the parties - HELD THAT:- Any entry in the register of shareholders of a company is statutorily required to be authenticated in the manner prescribed in the aforesaid rule. There is a statutory presumption that such authentication was carried out in the present case, during which process, there is no plea of any doubt being expressed or any objection being raised by the plaintiff or any other person as to the inclusion of the defendant in the register of members of the concerned company - the transfer of shares in favour of the defendant and the subsequent inclusion of the defendant in the register of members of the plaintiff was pursuant to a statutorily recognised process. For the purpose of the present application, there can be no presumption against the validity of the transfer in favour of the defendant pursuant to a statutorily mandated process, especially when the execution of “Form SH-4” by the plaintiff is admitted and it is not the case of the either of the parties that the concerned company has not adhered to the provisions of under the Companies (Management and Administration) Rules, 2014 and the Companies (Share Capital and Debentures) Rules, 2014.
In MANECKJI PESTONJI BHARUCHA AND OTHERS VERSUS WADILAL SARABHAI AND COMPANY AND OTHERS [1926 (3) TMI 1 - MADRAS HIGH COURT], the Privy Council was concerned with a situation where blank transfer Forms had been executed by the registered holders of shares of a company.
Admittedly, in all these agreements, to which both the plaintiff and the defendant were parties, the defendant was represented to be as a shareholder of the concerned company. It is completely untenable for the plaintiff to suggest that the defendant was wrongly portrayed as a shareholder in all these agreements or that the plaintiff was “induced” to sign these agreements.
There is no merit in the contention of the plaintiff that the contract for sale of shares did not fructify in the sense contemplated under the Sale of Goods Act, 1930, and/or that title therein did not pass to the defendant.
This Court is not inclined to grant an interim injunction in favour of the plaintiff/applicant, as prayed for. However, considering that the shares of the defendant in question are subject matter of the present suit and considering that the plaintiff has also made an alternative prayer seeking damages, it is directed that in case, the defendant proposes to transfer/deal with/alienate the shares in question, prior intimation with regard to any such proposed transaction(s) together with details thereof, shall be provided to the Court.
Application disposed off.
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2023 (12) TMI 789 - CALCUTTA HIGH COURT
Execution of mutual will revoking earlier mutual wills - refusal to grant injunction against BCL as being the third party to the testamentary suit - The core of the dispute is the will executed by PDB which has given rise to a spate of litigation before this court and even after the lapse of more than 18 years after the demise of PDB, the litigation has not seen the end of the day.
Powers of Probate Court under Section 247, Succession Act - Question of title - HELD THAT:- It is well-settled that a Probate Court or a Letters of Administration Court cannot finally adjudicate issues of title. It is purely within the domain of a competent Civil Courts to decide such issues. However, in order to decide an application under Section 247, Succession Act, the Probate Court may very well decide, prima facie, the extent of the Estate of the deceased. For such purpose, the Probate Court can definitely decide, although tentatively, as to the extent of the property of the deceased. Such adjudication on the Estate of the deceased, however, does not tantamount to a final adjudication of the title over the property.
In KANWARJIT SINGH DHILLON VERSUS HARDYAL SINGH DHILLON AND ORS. [2007 (10) TMI 675 - SUPREME COURT] the Hon’ble Supreme Court held that it is well settled law that the functions of a probate court are to see that the will executed by the testator was actually executed by him in a sound disposing state of mind without cohersion or undue influence and the same was duly attested. It was therefore not competent for the probate court to determine whether the person had or had not the authority to dispose of the suit properties which he purported to have bequeathed by his will. The probate court is also not competent to determine the question of title to the suit properties nor will it go into the question whether the suit properties bequeathed by the will were joint ancestor’s properties or acquired properties of the testator.
Powers of Probate Court under Section 247, Succession Act - Third party injunction - HELD THAT:- This sub issue relates to third party injunctions which can be further sub-divided and the power of the court to grant injunction is also required to be considered. In Nirod Barani Debi Versus Chamatkarini Debi [1914 (1) TMI 1 - CALCUTTA HIGH COURT], the Hon’ble Division Bench held that it is essential for application of Order 39 Rule 1 CPC that the property dispute in the suit is in danger of being wasted, damaged or alienated by a party of wrongfully suit in execution of a decree. Consequently, the application for injunction must satisfy the court that the proceedings is a suit in which there is property in dispute and the property is in danger of being wasted, damaged or alienated. It was further held that the question, consequently, arises whether the proceedings for the probate of a will or for letters of administration may rightly be held to be a suit in which property is in dispute. In the opinion of the court, the answer was in the negative.
While considering whether the companies can be joined as the party defendant, the court held that the noticee companies can neither be joined as a party defendant nor can any order of restrain be passed against such companies who is not a party to the proceedings. Further the court held that it cannot extend its jurisdiction to a person who is not a party to the present proceedings. Further the probate court cannot extend the jurisdiction over a person or entity who is not a party to the proceedings. Further it was held that since the noticee company being not the party to the proceedings no order can be passed against it.
Extent of PDB Estate - Only shares or ‘controlling interest’ - HELD THAT:- To decide the extent of the Estate of the deceased, the court has to ascertain the powers which could be exercised by the deceased testatrix herself. The powers of the probate court while appointing an administrator pendent lite (APL) are co-extensive with the powers of the testator/testatrix. As a necessary corollary, the powers of an APL formed by the probate court cannot exceed such limits - With regard to the shares in several companies, PDB’s powers were restricted to her ownership of the particular shares in different companies as mentioned in the affidavit-of-assets. In such context, the expression ‘controlling interest’ should not be confused with ‘personal influence’ of the testatrix. Whatever might have been the “personal influence” of the deceased testatrix, the same was intangible and restricted to herself. The charisma or personal influence of the deceased might have helped her in carrying out her will in the affairs of the companies, but do not comprise of tangible incidents of her property or Estate - it cannot be said that her personal influence is, in any manner, a part of the Estate.
The Probate Court can direct the APL, personally or through its appointees, to register itself or its agents as members of the companies in the capacity of owners of the shares actually owned by PDB in such companies. Upon such registration, the APL and/or its nominees would function as shareholders in such companies and have all the incidental rights and controlling power which PDB would have had by virtue of such shareholdings, including voting rights, participation rights in decision-making processes and meetings, etc. However, the Probate Court cannot go an inch further than that in interfering with the business of the companies.
If the promoter hold majority shares then they are several remedies prescribed under the Companies Act to enforce the decision which by not approving the decision of the Board of Directors and they may also initiate process of removal of the Directors and appointment of the Directors of their choice in the place of the main directors. But no such step can be taken without following provisions of the Companies Act. That the court in a probate proceeding cannot pass any directions encroaching upon the jurisdiction of the Board of Directors or taking over of the manufacturing units by purchasing its shares. Further the court categorically held that the APL should be made agree so that the APL can exercise its power of control over the management of BCL by following provisions prescribed under the Companies Act and in case APL fails to discharge its duties, probate court can pass necessary directions upon APL for taking steps in accordance with law. Further the probate court at best can pass necessary directions upon APL to initiate appropriate proceedings before the appropriate forum for seeking appropriate reliefs and in accordance with law and it is only that appropriate forum which can pass appropriate order after adjudicating the rights of the parties including that of a stranger. Thus, it is clear that it is extent of the shareholding which enables the shareholders to control the company and any other interpretation will fall foul of the definition of control as defined under Section 2(27) of the Act.
Extent of PDB Estate - ‘Controlling interest’ meaning - HELD THAT:- Controlling interest in the present context, can only mean the incidental rights, including voting rights, rights of participation in shareholders’ meetings and other decision-making processes which PDB would have had by virtue of her shareholdings in the respective companies.
Extent of PDB Estate - Whether the issue of extent of Estate barred by res judicata and/or barred by estoppel against HVL - HELD THAT:- An adjudication in a probate proceeding or a letters of administration proceeding cannot be viewed through the myopic lens of res judicata between the parties. Even if an issue is decided finally between HVL and Birla faction, the same does not operate against a Probate Court while adjudicating issues, since the final judgment of a Probate Court would not be restricted to the parties but would operate against the world at large - Hence, the Probate Court’s decisions cannot be decided from the limited perspective of res judicata or estoppel between the parties. Thus, the Probate/Letters of Administration Court has an additional responsibility to independently weigh evidence and adjudicate carefully on all issues before it, prima facie or final. Viewing from such perspective, the question of res judicata or estoppel between the parties cannot restrain the Probate Court from independently assessing the question of extent of Estate of the deceased testatrix.
None of the previous adjudications pertained to a final decision on the application under Section 247 of the Succession Act. Since this Court is sitting in appeal over a final decision by the learned Single Judge on the application under Section 247 of the Succession Act, by operation of the principles of Order XLI of the Code of Civil Procedure, the Appellate Court has equivalent powers of finally deciding the said application, co-equal with the learned Single Judge which was deciding the same. Hence, while finally deciding the application for appointment of Administrator Pendente Lite, this Court is not fettered by previous observations by different interlocutory courts at different points of time.
APL (Administrator Pendente Lite) powers - How far APL can interfere in Company affairs - HELD THAT:- The charter of the APL under Section 247 of the Indian Succession Act is to protect and preserve the interest of the estate and can deal with the same, short of distributing the same - the testamentary court, in the present case, can and should clothe the APL with the powers to enlist themselves as members of the companies where the testatrix PDB held shares, in the capacity of shareholder, and also exercise each and every power, including voting rights, associated with shareholding.
APL (Administrator Pendente Lite) powers - Whether APL decisions have to be unanimous or majority view prevails - HELD THAT:- The theory of referring to the court each and every day-to-day decision in the functioning of the APL as a shareholder/member of the companies is not workable. Conflict is a foregone conclusion in the present composition of the APL, since there has not been a single meeting of the APL in recent past where there has been unanimity among all three members. Of course, major decisions (to be decided by the third member) are to be referred to the testamentary court for formal orders/decisions - In any event, since the APL is not an adjudicatory authority and cannot act so, there does not arise any question of the testamentary court delegating its powers to it. The APL shall strictly act in accordance with the observations above, limited to its role as shareholder with ancillary functions including voting rights, which are to be used judiciously to protect and preserve the interest of the estate during pendency of the Letters of Administration suit.
The order of the learned Single Judge is modified to the above extent. Liberty is given to the APL and the parties to approach the testamentary court taking up the letters of administration suit if need be and where there are serious doubts - Application disposed off.
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2023 (12) TMI 788 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI
Oppression & mismanagement - removal of Petitioner No. 1 from the directorship of the Respondent No. 1 Company - Section 241 & 242 of the Companies Act, 2013 - HELD THAT:- The Impugned Order was passed by the Tribunal on 13.10.2020, whereas later in 2021 the landmark Judgment on oppression & mismanagement covering several issues including quasi-partnership aspects was passed by the Hon’ble Supreme Court of India in case of Tata Consultancy [2021 (3) TMI 1181 - SUPREME COURT] and obviously the Tribunal did not have the benefit of clear rulings given in the Tata Consultancy.
It was held in the said case that The architecture of Sections 241 and 242 does not permit the Tribunal to read into the sections, a power to make an order (for reinstatement) which is barred by law vide Section 14 of the Specific Relief Act, 1963 with or without the amendment in 2018. Tribunal cannot make an order enforcing a contract which is dependent on personal qualifications such as those mentioned in Section 149(6) of the Companies Act, 2013 - Tata Consultancy Judgement has given clear rulings which are required to be followed by all the Courts/ Tribunals.
It is already noted that the judgment of Tata Consultancy came after passing the Impugned Order by the Tribunal as such the Tribunal interpreted the facts and law in the original application without wisdom of Tata Consultancy judgment.
The Tribunal will have to re-examine the original petition in light of the judgement of Hon’ble Supreme Court of India in case of Tata Consultancy as prima-facie, the Tribunal has taken stand not in accordance with the Tata Consultancy judgments which dealt with various issues as in present case like what are instance of oppression & mismanagement, removal and subsequent reinstatement of Director, quasi-partnership character of the Company etc.
The Impugned Order is set aside and case remanded back to the Tribunal to have a fresh look on the merit after hearing both the Parties in view of the judgment of the Hon’ble Supreme Court of India given in Tata Consultancy - matter on remand.
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2023 (12) TMI 753 - CALCUTTA HIGH COURT
Constitutional Validity of Clause (d) of the proviso to Rule 5 of the West Bengal Excise (Change in Management) Rules, 2009 - Intelligible differentia - Changes in the Board of Directors - change in management or not - petitioners argue that clauses (d) and (e) of the proviso to Rule 5(1) of the 2009 Rules violates Article 14 of the Constitution of India since a separate mechanism has been provided for a private limited company for exemption from payment of license fees under Rule 5(1).
Whether death of a Director and consequent appointment of another director to the Board would amount to a “change in management” under The West Bengal Excise (Change in Management) Rules, 2009? - HELD THAT:- Apointment of new directors either by reason of death of an existing director or in the usual course of business, without any impact to the shareholding pattern or membership of the Company, does not amount to any “change in management” since there is no transfer or movement of the shares in the company. Induction of a new director into the Board would also not fall within the meaning of the expression “transferee”. In other words, a “change in management” of a Company should be of a nature so as to determine the ordinary Excise License in terms of Rule 4(2) and result in a “proposed transferee” in terms of Rule 4(3). The usual fitness and eligibility criteria for holding an excise license would come with consideration only after there is a structural change in the company.
The classification made under Clause (d) and (e) of the proviso to Rule 5(1) is not founded on intelligible differentia and does not have a rational nexus to the object of the 2009 Rules.
Whether clause (d) to the proviso to Rule 5 of the 2009 Rules is discriminatory and offends the right of the petitioner no. 1 to equal treatment under Article 14 of the Constitution of India? - HELD THAT:- There is also no rationale disclosed for making two separate groups from the (hitherto) general head of “company” in clauses (d) and (e) of the proviso to Rule 5(1). The offending proviso has carved out different provisions for levy of fees and exemption from payment of license fees pursuant to change in management for private and public limited companies - Creating two distinct groups and bestowing a larger zone of exemption for one of the two groups must be supported by intelligible differentia in the creation of the two groups. The 2009 Rules does not satisfy this test.
What is intelligible differentia? - HELD THAT:- The test of intelligible differentia is vital to the constitutional charter of equality since creating groups is antithetical to equality. The distinguishing markers is the differentiator which justifies classification with or without those markers. It is of utmost importance that groups or classifications promote equality by way of intervention and do not undermine the same - The State’s power to take the vision of Article 14 forward cannot be done through random classifications where persons inside the class do not have homogeneous or defining features which distinguishes them from those who are outside the classification. The word “intelligible differentia” underscores classification which is based on comprehensible differences as opposed to arbitrary groupings without comprehensible differences.
What is rational nexus to the object? - HELD THAT:- The larger zone of exemption for a Public Limited Company from payment of license fee pursuant to change of management should have had a comprehensible connection to the object of the 2009 Rules in terms of determination of the earlier Excise License and grant of a new Excise License to the “proposed transferee”. The disparity in the scope of exemption for a Private and a Public Limited Company or, in other words, reducing the area of exemption for a Private Limited Company does not preserve the object of the 2009 Rules. The link between the classifications created under clauses (d) and (e) of the proviso to Rule 5(1) thus snaps and is broken in the attempt to connect it to the object of the 2009 Rules - the differentia made for classifying Private and Public Limited Companies under two separate groups under clauses (d) and (e) of the proviso to Rule 5(1) does not have an intelligible basis. The differentia for the classification do not also have a rational nexus to the object of the 2009 Rules.
Article 14 prohibits unequal treatment of equals – and vice-versa - HELD THAT:- The proposition that Article 14 prohibits unequal treatment of persons similarly-situated is too well-settled to merit a detailed discussion. The 2009 Rules clearly indicates that private limited companies and public limited companies are similarly-situated and have been treated as such in Rule 4(2). Therefore, clauses (d) and (e) of the proviso to Rule 5(1) violates the constitutional guarantee of equality by creating two separate groups/classifications for the purpose of exemption from payment of license fees.
STATE OF ANDHRA PRADESH & ORS. VERSUS NALLAMILLI RAMI REDDI & ORS. [2001 (8) TMI 1396 - SUPREME COURT] spoke of permissible classification where the law will not be viewed as discriminatory if there is uniformity in each group. The Supreme Court made room for fortuitous circumstances arising out of peculiar situations where some persons included in a class may get an advantage over the others and a classification would thus be justified unless it is arbitrary. In the present case, of private limited and public limited companies within the context of change in management and the consequent exemption from payment of license fees is undoubtedly an instance where the differentia is neither real nor substantial and the rational nexus thereof to the object of the Rules is wholly absent.
The absence of Intelligible Differentia and a Rational Nexus to the object of the 2009 Rules Impacts the Constitutional Validity of clause (d) of the Proviso to Rule 5(1) of the 2009 Rules.
The inevitable conclusion must be that clause (d) of the proviso to Rule 5(1) of the 2009 Rules offends Article 14 of the Constitution in terms of equal treatment of a Private Limited Company when compared to the right conferred to a Public Limited Company. The petitioners have made out a case for a declaration that clause (d) of the proviso to Rule 5(1) of the 2009 Rules is ultra vires to the Constitution of India.
Application disposed off.
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2023 (12) TMI 487 - NATIONAL FINANCIAL REPORTING AUTHORITY
Professional Misconduct - failure to disclose material facts known to him, which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement, where he is concerned with that financial statement in a professional capacity - failure to report material misstatements known to him to appear in a financial statement with which the EP is concerned in a professional capacity - failure to exercise due diligence, and being grossly negligent in the conduct of professional duties - failure to obtain sufficient information which is necessary for the expression of an opinion, or its exceptions are sufficiently material to negate the expressions of an opinion - failure to invite attention to any material departure from the generally accepted procedures to audit applicable to the circumstances - penalties and sanctions.
HELD THAT:- The EP has made a series of serious departures from the Standards and the Law, in the conduct of the audit of DHFL for FY 2017-18. Based on the discussion, it is proved that EP had issued an unmodified opinion on the Financial Statements without any basis. The poor quality of the audit, incomplete documentation and attempt to mislead through baseless replies further compound the professional misconduct on the part of the EP. He demonstrated a lack of awareness and disregard for the mandatory provisions of the SAS and the law throughout the replies. Based on the discussion and analysis, it is concluded that the EP has committed Professional Misconduct as defined in the Act, as below:
a. CA Jignesh Mehta committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 5 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he "fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity".
This charge is proved as the EP failed to disclose in his report the material non-compliances of the Company regarding branch audits, consolidated financial statements and ICFR as explained in sections D. 1, D.2 and D.7 above.
b. CA Jignesh Mehta committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 6 of Part I of the Second Schedule of the Chartered Accountants Act) 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he "fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity".
This charge is proved as the EP failed to disclose in his report the material noncompliances of the Company regarding branch audits and consolidated financial statements as explained in sections D. 1 and D.2 above.
c. CA Jignesh Mehta committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 7 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he "does not exercise due diligence or is grossly negligent in the conduct of his professional duties".
This charge is proved as the EP, conducted the Audit of a Public Interest Entity in total disregard of his statutory duties, evidenced by multiple critical omissions and violations of the standards. The instances of failure to conduct the audit in accordance with the SAS and applicable regulations, and failure to report the material misstatements in the financial statements and non-compliances made by the Company are as explained in Paras D. 1 to D.8 above.
d. CA Jignesh Mehta committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 8 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he "fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion".
This charge is proved as the EP failed to conduct the audit in accordance with the SAS and applicable regulations as well as due to his total failure to report the material misstatements and non-compliances made by the Company in the financial statements as explained in Paras D. 1 to D.8 above.
e. CA Jignesh Mehta committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 9 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he "fails to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances".
This charge is proved since the EP failed to conduct the audit in accordance with the SAS as explained in Paras D. 1 , D.3, D.4, D.5 and D.8 above but falsely reported in his audit report that the audit was conducted as per SAS.
Thus, it is concluded that the charges of professional misconduct in the SCN, as detailed above, stand proved based on the evidence in the Audit File, the audit reports on the standalone financial statements and consolidated financial statements for the FY 2017-18 dated 30th April 2018, the submissions made by the EP, the audited financial statements of DHFL and other material on record.
Sanctions and penalties - HELD THAT:- The professional misconduct has been detailed and proven on various counts in the body of this Order. Considering the nature and seriousness of violations and principles of proportionality, sanctions ordered as follows:
a. Imposition of a monetary penalty of Rupees Five Lakh upon CA Jignesh Mehta.
b. In addition, CA Jignesh Mehta has been debarred for Ten years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2023 (12) TMI 322 - CALCUTTA HIGH COURT
Transfer of winding up proceedings - whether this court in exercise of its jurisdiction under the said proviso to Section 434(1)(c) of the Companies Act should transfer the winding up application to the NCLT? - HELD THAT:- The only conclusion that can be drawn is that there is no credible hope of revival of the company and that it would suit the interest of all stakeholders and of the public if its liquidation was speedily carried out. Thus the learned judge ought not to have passed the impugned order relegating this matter to the tribunal.
It is directed that the winding up proceedings to be conducted and concluded as early as possible - the impugned order set aside.
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2023 (12) TMI 321 - DELHI HIGH COURT
Validity of summons issued by the Serious Fraud Investigation Office [SFIO] - initiation of an investigation under Section 212 of the Companies Act, 2013 - appointment of an Investigating Officer.
The challenge is essentially based on the contention of the petitioners that since proceedings under the erstwhile Companies Act, 1956 (2013 Act) had been initiated prior to the enforcement of Section 212 of the 2013 Act, the respondents stand denuded of jurisdiction to initiate proceedings afresh under Section 212.
HELD THAT:- The powers conferred upon the Central Government to direct an investigation into the affairs of a company was predicated upon the submission of a report by the RoC in terms as contemplated under Section 234(6). On the receipt of such a report, the Union Government stood empowered to commence an investigation into the affairs of a company and to appoint Inspectors in connection therewith. The investigation under Section 212 of the 2013 Act, on the other hand, is not by the Union Government but by the SFIO. It becomes pertinent to note that the SFIO itself came to be constituted pursuant to the provisions contained in Section 211. In fact, even before the said provision came to be engrafted and enforced, the SFIO appears to have been constituted pursuant to the resolution of the Union Government dated 02 July 2003.
As is manifest from a conjoint reading of Sections 211 and 212, the power of investigation which was originally exercisable by the Union Government was ultimately and in terms of Sections 211 and 212 placed in the hands of the SFIO. The SFIO is envisaged to be a body duly constituted for the purposes of carrying out investigations into the affairs of companies. Regard must be had to the fact that while the erstwhile provisions empowered the Union to investigate into the affairs of a company through investigators, the new regime saw the constitution of the SFIO and an investigation being undertaken by it in accordance with Sections 212 and 213 of the 2013 Act - the SFIO as an investigating arm of the Union was not even envisaged or contemplated under the 1956 Act. The continuance of Sections 234 and 235 till their ultimate repeal would thus be liable to be viewed as regulating the investigating power of the Union Government through Investigators only.
The Union Government in terms of the 2013 Act is now empowered to commence an investigation into the affairs of a company either on the receipt of a report of a Registrar or on intimation of a special resolution passed by a company or in public interest. The SFIO is a specialized body which has come to be established for the purposes of investigating frauds relating to companies. SFIO as an independent investigating arm was not even contemplated under Sections 234 or 235 of the 1956 Act. As is evident from a reading of those provisions, the power to investigate as embodied in Section 235 was one liable to be exercised only by the Union Government itself albeit acting through Inspectors that it may have appointed - Since the SFIO itself came to be constituted only pursuant to the provisions of Section 211, the investigation by that body was in no manner trammelled or eclipsed by the continued existence of Sections 234 and 235 of the 1956 Act.
The investigation which commenced pursuant to the order of 14 December 2018 passed by the SFIO, was thereafter modified in terms of the corrigendum dated 06 November 2019, when AIRL was deleted from that investigation. The position which therefore emerges is that the investigation as envisaged under Section 235 had commenced only against AIRL and it is the said investigation alone which would fall within the safe harbour as constructed in terms of Section 212(16). 50. Since the investigation which commenced on 05 November 2012 cannot possibly be countenanced as extending to the other writ petitioners, the challenge as laid, cannot be sustained.
Petition dismissed.
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