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Companies Law - Case Laws
Showing 61 to 80 of 15082 Records
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2025 (3) TMI 205
Illegal share transfer - Maintainability of petition - present petition is barred by delay and latches or not - suppression of material facts and continuance of the present petition would tantamount to an abuse of process of law or not - issues raised in the present petition are barred by Res Judicata or not.
Whether or not the present petition is barred by delay and latches? - HELD THAT:- The substratum of the dispute relates to illegal share transfer and the same has been litigated and reagitated time and again and no useful purpose will be served in oppressing the opposite parties herein. The only addition in the present petition is to create a “cause of action” seems to be that certain RTI applications have been made by various parties and no suitable response has been received with regard to them which seems to be more like an afterthought which has been introduced to create a fresh cause of action in order to make the present petition maintainable.
Even otherwise the present petition raises disputed question of facts thus a Writ Court not the appropriate remedy, especially given the fact that the Companies Act is a self-contained Code and in relation to matters therein, there is a specific bar from other Courts entertaining pleas which are the subject matter of the said Act. However, in the present scenario this Court deems it fit to go into other issues as well and does not incline to reject the present petition on the ground of maintainability alone.
Whether or not the present petitioners are guilty of suppression of material facts and continuance of the present petition would tantamount to an abuse of process of law? - HELD THAT:- This Court cannot ignore the fact the Petitioners might be in cahoots with other setup unscrupulous persons who have earlier agitated the self-same issue guised as “public interest petitions”. Although a party is never precluded from raising genuine claims in collusion with others are indulging in blatant forum-shopping and are taking recourse to multiple parallel proceedings for the same subject matter. It is well-settled that re-litigation of the same matter itself amounts to an abuse of the process of law and ought to be nipped at the bud.
This Court in the given factual backdrop is constrained to hold that not only has there been a suppression of material facts but, in fact, there are persons who seem to be relentless in their pursuit to oppress Opposite Party No. 8 company for reasons best known to them. Such a fact cannot be lost sight of and is a matter of grave concern and needs to be dealt with sternly.
In the case of Prestige Lights Ltd. v. SBI [2007 (8) TMI 446 - SUPREME COURT] it was held that in exercising power under Article 226 of the Constitution of India the High Court is not just a court of law, but is also a court of equity and a person who invokes the High Court's jurisdiction under Article 226 of the Constitution is duty-bound to place all the facts before the Court without any reservation. If there is suppression of material facts or twisted facts have been placed before the High Court then it will be fully justified in refusing to entertain a petition filed under Article 226 of the Constitution.
The Petitioners have dishonestly not disclosed the above material facts in the present writ petition. The Petitioners have abused the process of law by suppressing the aforesaid litigations. It is well-settled that writ remedy is an equitable remedy and since the Petitioners have not approached the court with clean hands it is appropriate that their challenge deserves to be rejected.
Whether the issues raised in the present petition are barred by Res Judicata? - HELD THAT:- . The Hon’ble Supreme Court recently in the case of Celir LLP Vs Sumati Prasad Bafna & Ors. [2024 (12) TMI 879 - SUPREME COURT] has exhaustively dealt with the principle of Res Judciata/ Constructive Res Judicata and has propounded the “Henderson principle” as a corollary of Constructive Res-Judicata. It is therein been recognized that the is intrinsically tied to “issue estoppel” and “cause of action estoppel”.
The Supreme Court in the case of Devilal Modi v. Sales Tax Officer, Ratlam [1964 (10) TMI 43 - SUPREME COURT], clarified and highlighted the need to extend rule of constructive res judicata to writ proceedings. It was held that it would not be open to the party to take one proceeding after another and urge new grounds every time, and would be inconsistent with considerations of public policy.
The Petitioner No. 2 herein who had petitioned this Court earlier could have and ought to have relied upon the grounds with relation to the applications made to the registrar of companies (between 2013 to 2015) at the time of filing of that Writ Petition. After having not being done it would be impermissible to allow the same petitioners to urge the said facts which were otherwise had occurred at that point in time when that prior Writ Petition had been filed. That being the case, the instant case is squarely covered by the discussion here in above. The subsequent/ successive petition i.e. the present petition would be barred by the principles of constructive res judicata by applying the “Hendersen principle”.
Conclusion - This Court arrives at a clear and unequivocal conclusion that the present Writ Petition is not only liable to be dismissed at the very threshold on account of the principles discussed and issues framed hereinabove. But also, on account of the fact that the Petitioners have approached this court with unclean hands and the conduct of the petitioners herein leaves much to be desired. This Court can only express hope that the petitioners will be well advised not to indulge in such unbecoming practice of abusing the process of law in the future.
Petition dismissed.
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2025 (3) TMI 131
Interpretation of Section 212(15) and sub-section (5) of Section 223 - Legality of investigation Report submitted by the Serious Fraud Investigation Office (SFIO) under Section 212(12) of the Companies Act, 2013 - admissible as legal evidence or not, as SFIO Report have been equated as report prepared under Section 173 of the Code of Criminal Procedure (CrPC) 1973 - relevance of 2nd SFIO Report and the Compilation of Documents filed by the Respondent on 07.02.2024 before the NCLT - no sufficient pleadings in the Company Petition/ Miscellaneous Application filed by the Respondent with respect to the SFIO Report and documents and Compilation of the Documents.
HELD THAT:- Section 212 provides for investigation into affairs of Company by Serious Fraud Investigation Office and contains detailed provisions pertaining to investigation to be carried out by the SFIO. Section 212(1) provides that where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company by the Serious Fraud Investigation Office by order, assign the investigation into the affairs of the said company to the Serious Fraud Investigation Office.
On looking into the scheme of Section 212, it is clear that after investigation report is received under sub-section (11) or sub-section (12) of Section 212, Central Government may direct the SFIO to initiate prosecution against the company and its officers or its employees. Sub-section (15) is in reference to the SFIO Report which provided that investigation report filed with the Special Court for framing of charges shall be deemed to be a report filed by the police officer under Section 173. Thus, investigation report submitted by the SFIO and filed in the Special Court has to be deemed to be a report filed by the police officer under Section 173 of the CrPC. It is on the basis of the report submitted by police officer under Section 173 of the CrPC charges are framed by Special Court in offences alleged in the charge-sheet. When SFIO Report is deemed to be a report filed by police officer (for framing of charges) sub-section (15) begins with notwithstanding clause and deeming fiction is created to treat the report as report submitted under Section 173 of the CrPC so that charges may be framed in the prosecution which has been directed by the Central Government under sub-section (14) after receipt of the investigation report.
There can be no quarrel to the proposition that the police report is not legal evidence. The present is a case it is required to examine the purpose and object of Section 212 and whether the statutory scheme indicate that the SFIO Report which is submitted after the investigation as directed by the Central Government is not to be looked into in any material or evidence for any purpose as contemplated under the Act apart from framing of charges and legal fiction under sub-section (15) of Section 212 was engrafted for the purpose that SFIO Report be not treated as legal evidence.
The legislature is well aware about the provisions of law and when sub-section (14A) was added in Companies Act by Act 22 of 2019 legislature was well aware about existing provisions of Section 212(15). When legislature specifically provides SFIO Report to take a proceeding against any director, key managerial personnel and other officers of the company, obviously the said report is to be relied for the said purpose and in event, the submission of the Appellant is accepted that the said report cannot be looked into it not being the legal evidence, the purpose and object of sub-section (14A) becomes meaningless and otiose - The statutory interpretation on legal fiction as noticed above has repeatedly laid down that deeming fiction should not be extended beyond language of the section and must be limited to the context it was introduced. Deeming fiction was introduced to make the SFIO Report as a Report of police officer under Section 173 of the CrPC for framing the charges. Thus, object of legal fiction was to make the SFIO Report as report within the meaning of Section 173. Legal fiction was not for the purpose that SFIO Report be treated as inadmissible for the purposes of Companies Act, 2013.
Section 212 also contain a provision where any person concerned by making an application may obtain a report. Thus, sub-sections (1), (2) and (3) are already reflected in provisions of Section 212. Thus, when we come to sub-section (5) which says that nothing in this section shall apply to the report referred to in Section 212, the said sub-section obviously is relating to sub-section (4) where authentication is required for inspector’s report to be admissible in a legal proceeding - Section 223 which provision dealt with the inspector’s report there was no occasion to include any provision which is contrary to the scheme of Section 212. We, thus, are of the view that sub-section (5) of Section 223 in no manner has effect on the admissibility of the SFIO Report in proceeding under sub-section (14A) and the interpretation which was put by the Appellant under Section 223(5) cannot be accepted.
The ground which was raised by the Appellant for rejecting the compilation of documents and SFIO Report submitted by the SFIO cannot be accepted at this stage to throw out the compilation of documents and the SFIO Report. The issue as to what has been pleaded in the application or the petition and what is the material or evidence on the record are issues which are to be examined when applications are decided on merits. Thus, on the submission that there are no pleadings with regard to compilation of documents cannot be a reason to accept the prayers made in CA No.65 of 2024.
Conclusion - The SFIO Report is admissible in proceedings under Section 212(14A), and the NCLT did not err in considering the report and associated documents.
No grounds have been made out to interfere with the impugned order. All the appeals are dismissed.
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2025 (2) TMI 1118
Levy of penalty u/s 454 (3) of the Companies Act, 2013 read with Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014 amended by the Companies (Adjudication of Penalties) Rules, 2019 - non compliance of the provision of Section 203 (4) of the Companies Act, 2013 read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 - whether the authority could have applied its discretion while adjudicating the default on the part of the petitioners?
HELD THAT:- In Apex Traders [2024 (5) TMI 1525 - CALCUTTA HIGH COURT] the Court interpreted the expression ‘liability’ used in Section 203 (5) of the Companies Act, 2013. The Court was of the opinion that the language of Section 203 (5) confirms discretion on the Registrar of Companies to impose penalty. Such discretion also includes the converse, that is, the discretion not to impose penalty or to impose lesser penalty. The liability has been found to be subject to adjudication by the Registrar of Companies. Such discretion associates with it, responsibility of the adjudicating authority to consider any mitigating or alleviating circumstances which might have visited the Company for not adhering to the statutory provision.
The Hon’ble Supreme Court in the matter of Chairman, SEBI [2006 (5) TMI 191 - SUPREME COURT] interpreted the words ‘shall be liable’ under the SEBI Act and the regulations framed thereunder and held the same as mandatory provision for imposition of monetary penalties for breaches or non-compliance with the provisions of the Act and the regulations - The Court clearly laid down that penalty is attracted as soon as the contravention of the statutory obligation contemplated by the Act and the regulations are established and intention of the parties committing such violation becomes wholly irrelevant. Once contravention is established, the penalty is to follow.
The Court was of the view that the power to impose penalty would be severely curtailed if the presence of mens rea is to be considered. The same would set the stage for various market players to violate statutory regulations with impunity and subsequently claim ignorance of law or lack of mens rea to escape imposition of penalty. Imputing mens rea against the plain language of the statute would frustrate the entire purpose and the object of the Act to secure strict compliance of the statutory provisions.
Whether the authority could have exercised discretion in fixing the quantum of penalty and whether the quantum of penalty imposed is proper or not? - HELD THAT:- Section 203(5) of the Companies Act, 2013 lays down that if the Company contravenes the provisions of the Section, the Company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. Every Director in default shall be punishable with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.
In the instant case, the contravention continued for years together. The adjudicating authority gave benefit to the Company for the COVID period and calculated the fine. The authority exercised its discretion in doing so. Such exercise of discretion does not appear to be illegal, erroneous or arbitrary, requiring interference. Hence, the Court is not inclined to interfere with the same.
Petition dismissed.
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2025 (2) TMI 964
Violation of Section 197 (3), 197 (9) of Companies Act and Rule 7 (2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 - effect of amendment to Section 197 (15) of the Companies Act, 2013, which substituted the expression "punishable with fine" with "penalty," - retrospective effect to offenses allegedly committed before the amendment came into force or not - HELD THAT:- The provisions contained in Section 197 (15) was amended vide Companies (Amendment) Act, 2019 by Central Act No. 22/2019. A bare perusal of the amendment Act is sufficient to come to the conclusion that Section 197 (15) has been substituted by the amended provisions. In this context, in the absence of anything to the contrary in the amendment the substitution of Section 197 (15) vide amendment w.e.f. 02.11.2018 would relate back to the date of original provision of the year 2013 and in the light of the undisputed fact that the alleged offences are said to have been committed in the year 2016, it is opined that the amended provision of Section 197 (15) would not apply even in relation to the offences said to have been committed in the year 2016.
Under these circumstances, having regard to the amendment to Section 197 (15) vide amended Act, 2019, Central Act No. 22/2019 w.e.f 02.11.2018, the impugned proceedings as against the petitioner clearly are not maintainable and same deserves to be quashed.
Conclusion - The amendment to Section 197 (15) of the Companies Act, 2013, applies retrospectively, thereby affecting the maintainability of proceedings initiated under the pre-amendment provisions.
The complaint and order of cognizance against the petitioner on the file of the Special Court for Economic Offences, Bengaluru are hereby quashed - Petition allowed.
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2025 (2) TMI 906
Public Interest Litigation or not - alleged role, irregularities, and misconduct on the part of the IRP - Siphoning of funds by the ex-promoters and directors of Three C Shelters Pvt. Ltd. - whether the submissions on the part of the learned counsels for the parties should at all be considered by this Court sitting in writ jurisdiction under section 226 of the Constitution of India, 1950? - HELD THAT:- Unhesitatingly, this Court finds no ground to recall the order dated 02.02.2024. The issues relating to the genuineness of the IRP report dated 09.08.2023, which has been espoused on behalf of the petitioner, respondent No. 11/Orris and respondent No. 4/Greenopolis Welfare Confederation on one side, and contested by applicants/respondents No. 12 and 13, along with respondent No. 5/Greenopolis Welfare Association on the other side, are complex set of facts which need to be addressed by the NCLT in view of the directions of the Supreme Court.
There is no gainsaying that the NCLT is seized of the matter with regard to the CIRP proceedings pertaining to respondent No. 3/TCSPL, which will invariably delve into all the relevant aspects of the matter. At the cost of repetition, a Monitoring Committee has already been constituted by the NCLT, which will naturally examine the complex factual issues and facts raised by the parties, including the successive reports by the three IRPs appointed including the present one, besides the revival of respondent No. 3/ TCSPL so as to provide some relief to the petitioner and homebuyers.
The bottom line is that the petitioner is espousing her personal cause and, in doing so, has also espoused the cause of the similarly placed investors/claimants/homebuyers, who form a distinct class and whose long-promised dream of owning residential flats remains unfulfilled, as construction has been stalled for over thirteen years now - The modus operandi adopted by them in defrauding the homebuyers has been exposed even in the above referred directions by the Allahabad High Court, the foot prints of which are evidently visible in the instant matter too.
This Court is not by-passing the jurisdiction of the NCLT to determine the fate of the respondent no. 3/TCSPL, which is involved in CIRP, nor is it usurping any power under Section 63 of the IBC. However, it is undeniable that the investigation by respondents No. 1 and 2 is progressing at a snail's pace qua respondent No. 3/TCSPL and its ex-promoters & directors, marked by tardiness and a lack of urgency, which is unacceptable in law and prejudicial to the interests of the homebuyers.
Section 212(3) of the Companies Act, 2013 provides that the Central Government has the power to order investigation in respect of any company which it deems necessary and also to order special investigations in respect of other concerns related to corporate law. The Central Government may appoint any authority, officer or agency to conduct the investigations and to report its findings to the Central Government with the primary objective of investigating frauds and offences relating to a company under section 447 of the Act. The entire setting of the present matter, compels this Court to direct the Central Government to entrust the investigation to the SFIO as regards the role of the ex-promoters and directors of respondent no. 3/TCSPL is concerned - in the instant matter, the entire facts and circumstances presented go beyond mere assumptions, surmises or conjectures. The stark fact is that the Greenopolis project has been abandoned by the respondent Nos. 6-10/ex-promoters and directors after siphoning of funds generated directly through respondent no. 3/TCSPL and the petitioner as well as those who are similarly placed investors/claimants/homebuyers are the victims at their hands, which is an undisputed proposition.
Conclusion - i) The investigation into the affairs of TCSPL and its ex-promoters is necessary to protect the interests of the homebuyers and ascertain the extent of the fraudulent activities. ii) The ACE Group is not to be investigated by the SFIO, but the Registrar of Companies will continue to examine their transactions with TCSPL. iii) The interim order remains in effect, with modifications to exclude certain parties from the SFIO investigation. iv) The NCLT will continue to handle the CIRP, with the Monitoring Committee overseeing the process.
Application disposed off.
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2025 (2) TMI 855
Seeking enlargement of bail - Siphoning of public money - active and managerial role in the offences by making misrepresentation to the banks in obtaining loans and siphoning the funds using puppet companies and by writing off the stocks and inventories - offence punishable under Section 447 of the Companies Act - HELD THAT:- This court feels that the present petition being one seeking personal liberty during the trial, it would be suffice to restrict the consideration of such materials to decide the question whether the petitioner is entitled to grant of bail.
A perusal of the materials would disclose that the present petition is the fifth one and on rejection of earlier three petitions, the petitioner appears to have approached the Apex Court, however, could not succeed in obtaining bail and the subsequent bail petition moved by him before the Apex Court was withdrawn seeking liberty to move the trial Court. Such application moved by the petitioner before the Trial Court also stood dismissed and thereupon, the present petition has been filed by the petitioner.
It is not a simple case where the petitioner was charged only for nonrecovery of certain outstanding amounts from the debtors, but, the petitioner is alleged to have indulged into cheating of Banks and siphoning off the public money using puppet Companies, writing off the stocks, inventories and receivables and thereby, he is facing serious economic offences and fraud of a great magnitude.
Though investigation has been completed in the case, the presence of the petitioner is very much required at the stage of framing of charges and the evidence like statements given by witnesses to the SFIO and the communication addressed by the petitioner to the Banks would clinchingly establish the role played by the petitioner and the control he has over the witnesses and thus the petitioner has not complied with the twin conditions stipulated under Section 212(6) of the Companies Act, 2013 and in the event of grant of bail to the petitioner, there is every possibility for the evidence being tampered and the witnesses being influenced by him.
On the aspect of long incarceration and application of the decision in V. Senthil Balaji vs. The Deputy Director, Directorate of Enforcement [2024 (9) TMI 1497 - SUPREME COURT], it has been brought to the notice of this court that the Apex Court has granted bail in that case considering the long incarceration of the petitioner therein coupled with the aspect that the trial in that case could be delayed due to the fact that existence of proceeds of crime under Section 3 of PMLA can be proved only if the scheduled offence is established and even if the trial of the case under PMLA proceeds is concluded, it cannot be finally decided, unless the trial of scheduled offences concludes and the dictum laid down in Senthil Balaji's case is not applicable to the present case as the trial in the present case, being one for offences under Companies Act, is not dependent on proving offences under any other Act and thereby the concept of long incarceration alone cannot be a ground for grant of bail.
Grounds of parity - HELD THAT:- So far as the question of parity in consideration, the petitioner pleads that a co-accused viz., A30-Devarajan has been granted bail by this court. However, it has been brought to the notice of this court by the respondent that such order has been under challenge before the Apex Court in SLP (Crl.) Diary No.21112 of 2023 and the same is pending. This court has also been apprised by the respondent that other co-accused viz., A4-Dineshchand Surana and A5-Vijayraj Surana, who failed before this court in their consecutive bail applications, had moved the Apex Court and their petitions in SLP (Crl.) No.15535 of 2024 and SLP (Crl.) No.17007 of 2024 respectively are pending as on date and thus, the Apex Court has seized of the matter.
Conclusion - The petitioner is alleged to have indulged into cheating of Banks and siphoning off the public money using puppet Companies, writing off the stocks, inventories and receivables and thereby, he is facing serious economic offenses and fraud of a great magnitude. This court finds that the present petition seeking bail cannot be entertained in the circumstances of the case.
Petition dismissed.
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2025 (2) TMI 690
Maintainability of writ petition filed by respondent no. 1 under Article 226 of the Constitution - directions issued by the learned Single Judge were beyond the scope of the writ petition - main grievance of the respondent no. 1 (writ petitioner) is that there is a failure to exercise the power by the RBI in relation to the affairs of ECL - HELD THAT:- It is an elementary principle that when a public authority is vested with specific powers, it is duty bound to act accordingly. Therefore, any failure to exercise statutory powers gives rise to a cause of action to secure performance of such duty by way of issuance of writ of mandamus under Article 226 of the Constitution of India.
In the case of CAG vs. K. S. Jagannathan & Anr. [1986 (4) TMI 344 - SUPREME COURT], the Hon’ble Supreme Court held that a writ of mandamus can be issued where there is a failure to exercise power vested with a public authority.
A duty is implied by the vesting of statutory power upon a public authority. Further, the performance of such duty can be secured by proceedings under Article 226 of the Constitution of India.
The respondent no. 1 has sought for the interference of the learned Single Judge considering the failure of RBI to act in exercise of its power under Chapter-III-B and more particularly Section 45-IE and Section 45MA of the RBI Act. Such reliefs claimed are, therefore, clearly maintainable in proceedings under Article 226 of the Constitution of India.
The learned NCLT has no jurisdiction to issue prerogative writs to RBI to exercise such powers under the RBI Act. Therefore, this fact has no bearing on the merits of the dispute or such that is determinative of the outcome of these proceedings since the existence of the NCLT proceedings is duly disclosed and considered by the learned Single Judge while passing the impugned order - The impugned order dated 23rd October, 2024, has been passed by the learned Single Judge on the basis of clear findings of the RBI that there have indeed been violations of mandatory regulations by the ECL. These findings recorded by an apex expert body like the RBI, certainly warrant for issuance of protective ad-interim orders.
Conclusion - i) The High Court has the power to issue a writ of mandamus when a statutory authority fails to exercise its powers. ii) Proceedings before the NCLT and NCLAT do not preclude the High Court's jurisdiction under Article 226 to address issues related to the RBI's statutory duties. iii) The principles of natural justice are upheld when parties are given the opportunity to argue on both maintainability and merits.
Appeal dismissed.
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2025 (2) TMI 689
Seeking winding up of company - Sections 433(e)/434(1)(a)/439 of the Companies Act, 1956 - HELD THAT:- Upon an examination of the record, it is evident that the present winding-up petition is a non-starter. The proceedings remain at a preliminary stage, with neither a provisional liquidator nor an official liquidator having been appointed to assume control over the assets and affairs of the respondent company. Consequently, no substantive orders have been passed in this petition for seven years.
Hon’ble Apex Court in the case of Action Ispat and Power P. Ltd. v. Shyam Metalics and Energy Ltd. [2020 (12) TMI 535 - SUPREME COURT] held that those winding up proceedings pending before the High Courts, which have not progressed to an advanced stage, ought to be transferred to the NCLT.
In the present case, the respondent has submitted written submissions explicitly requesting the transfer of the winding-up petition to the NCLT. In view of the respondent’s express request for transfer and the legal precedents affirming that a formal application is not indispensable, this Court finds no impediment in treating the written submissions as an application for transfer of the present petition to the NCLT. The Court is not bound to insist on a separate application when the intent of the party seeking transfer is evident from the record.
Considering the express request by the respondent, the fact that no substantive proceedings have been undertaken towards winding up of the company, the present petition cannot be allowed to be continued before this Court. Hence, the instant petition is transferred to the NCLT, Delhi Bench, for further proceedings.
Conclusion - The petition should be transferred based on the respondent's request and the lack of substantive progress towards liquidation.
List before the NCLT on 10.03.2025 - Petition disposed off.
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2025 (2) TMI 638
Seeking quashing of the investigation report submitted by the Serious Fraud Investigation Office (SFIO) to the Ministry of Corporate Affairs (MCA), on the grounds of the impugned report being unreasonable, unjustified, perverse and arbitrary - Petitioners contend that the report is arbitrary, perverse, and suffers from non-application of mind, having been prepared with a pre-conceived notion, without due consideration of the factual matrix - violation of principles of natural justice - HELD THAT:- The Court prima facie examined the impugned report and came to the conclusion that the affairs of the Petitioner company had been conducted in a manner prejudicial to public interest. Thus, in light of the findings of the SFIO, the Court was satisfied that the recommendations of the MCA in directing an investigation into the affairs of the Petitioner company was valid and the recommendations in the impugned report warranted prosecution for the offences under the relevant provisions of the Companies Act and Indian Penal Code, 1860 (IPC).
The impugned SFIO report has already been subjected to judicial scrutiny and has been upheld. The present writ petition, which seeks to relitigate the same issues under the garb of a fresh challenge, is therefore misconceived and an abuse of process of law.
The grounds for quashing the investigation report are in the nature of defences to the compliant case pending against them. The Petitioners will have every opportunity to challenge the report’s findings during trial, where their contentions regarding the alleged misappreciation of facts can be duly tested. At this stage, however, the invocation of writ jurisdiction to pre-emptively quash the SFIO’s findings is both legally untenable and premature. Moreover, the impugned report does not stand in isolation.
Conclusion - i) The SFIO's investigation and report upheld, finding substantial evidence of financial misconduct and fraudulent activities. ii) The Petitioners' arguments could be tested during trial, but the current petition to quash the report was premature and legally untenable.
Petition dismissed.
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2025 (2) TMI 637
Maintainability of writ petition filed by respondent no. 1 under Article 226 of the Constitution - siphoning and misappropriation of funds by the directors of the ECL - main grievance of the respondent no. 1 (writ petitioner) is that there is a failure to exercise the power by the RBI in relation to the affairs of ECL - HELD THAT:- A duty is implied by the vesting of statutory power upon a public authority. Further, the performance of such duty can be secured by proceedings under Article 226 of the Constitution of India - the respondent no. 1 has sought for the interference of the learned Single Judge considering the failure of RBI to act in exercise of its power under Chapter-III-B and more particularly Section 45-IE and Section 45MA of the RBI Act. Such reliefs claimed are, therefore, clearly maintainable in proceedings under Article 226 of the Constitution of India.
Another plea raised by the appellant, which was not taken up during the final arguments before the learned Single Judge, is that the NCLT and NCLAT are seized of the matter and the bar of Section 430 of the Companies Act, 2013 applies. This Court does not find any force in this argument as the appellant has assailed the learned NCLT’s decision dated 15th May, 2024 in relation to ECL on the basis that the RBI is looking into the matter and the learned NCLT ought not to have exercised its jurisdiction.
The learned NCLT has no jurisdiction to issue prerogative writs to RBI to exercise such powers under the RBI Act. Therefore, this fact has no bearing on the merits of the dispute or such that is determinative of the outcome of these proceedings since the existence of the NCLT proceedings is duly disclosed and considered by the learned Single Judge while passing the impugned order.
The respondent no. 1 (writ petitioner) cannot be left out remediless and therefore, the learned Single Judge, while exercising the jurisdiction under Article 226 of the Constitution, held that the writ is maintainable and passed several directions in paragraph no. 34 of the impugned order.
Conclusion - i) The maintainability of the writ petition upheld. ii) The writ jurisdiction under Article 226 can compel public authorities to exercise statutory duties, particularly when regulatory bodies fail to act.
Petition dismissed.
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2025 (2) TMI 595
Doctrine of forum convinens - forum shopping - jurisdiction of High Court to entertain the petition filed by the petitioners seeking to quash the order passed by the Committee of the ICICI Bank - Classification of Petitioner’s account as fraud - HELD THAT:- Admittedly, the Petitioners and the branch of the Respondent No. 1-Bank transacting with the Petitioners is in New-Delhi. The OTS Proposals are also being exchanged with the New-Delhi Branch of the ICICI Bank. All the correspondence and the communication between the parties are exchanged with the New-Delhi Branch. Hence, the Petitioners rightly approached the Delhi High Court by way of its earlier W. P. No. 11886 of 2021. The integral part of the cause of action even going by the Petitioners own averment in paragraph 29 of its Petition before the Delhi High Court arose within the territorial limits of Delhi High Court. Thus, applying the settled legal position to the facts in the present matter, it is clear that the cause of action must be addressed to the Delhi High Court.
The Petitioners have assailed the act of the Committee of the Bank in classifying its accounts as ‘fraud’, even though the Master Circular is not assailed, perhaps since its validity was already tested before the Supreme Court. Nevertheless, the integral part of the cause of action is similar in both the Petitions. Even the averment in the present Petition regarding cause of action relating to the corporate office of the Respondents being within the territorial jurisdiction of this Court is identical to the averment made in the Petition before the Delhi High Court. It is failed to see as to how the Petitioners could have averred the same pleading in both these Petitions based on the corporate office of the Respondents, to selectively choose a forum of their choice.
Invoking the jurisdiction of this Court in the second round of litigation involving the same issue is nothing but Forum-Shopping on the part of the Petitioners. The forum convinens is undoubtedly the Delhi High Court and not this Court.
Conclusion - The petitioners engaged in forum shopping and should have filed the petition before the Delhi High Court.
Petition disposed off.
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2025 (2) TMI 379
Professional Misconduct - Constitutional validity of Section 132 (4) of the Companies Act, 2013 - power of NFRA to initiate disciplinary proceedings not just against individual partners and CAs’ but also auditing firms in respect of any audit - validity of Rules 3, 8, 10 and 11 of the National Financial Reporting Authority Rules, 2018 - seeking an appropriate declaration to the effect that Section 132 (4) of the Companies Act as well as Rules 3, 8 10 and 11 of the NFRA Rules be held not to apply to any audit completed before 01 October 2018 - applicability of provisions to audits that may have been completed prior to the introduction of Section 132 in the Companies Act and thus avoid a declaration of invalidity being rendered.
Appointment and engagement of an auditor - Vicarious liability of pertners of the firm - HELD THAT:- An individual, a partnership firm or an LLP can be appointed as an auditor of a company. The appointment, prescriptions and the nature of services which could be rendered by it are further prescribed and regulated by Section 144 of the Companies Act. The Explanation to Section 144 proceeds to explain and provide a definition to the expression “directly or indirectly” as appearing therein - It will be wholly incorrect to hold that Section 132 creates a liability which is foreign to or uncontemplated by the various other provisions forming part of that statute. The Companies Act clearly contemplates a firm suffering a liability as a consequence of the action of its Engagement Partners and constituents who may be involved in the conduct of the audit. Thus, both the audit firm as well as its individual partners would be exposed to a statutory liability if Sections 139 to 146 were found to have been violated.
The appointment of the firm as an auditor naturally encompasses the actions of its members. The engagement of members in the conduct of an audit is not an independent or isolated act but is inherently derivative of the firm's appointment as the auditor. The firm acts as the central organ, and its members function as its limbs, carrying out its obligations and responsibilities. The firm’s designation as the auditor inherently extends to its members, who act on its behalf.
The relationship between a firm and its members while delivering auditing services is one of complete integration, where roles and responsibilities overlap to ensure the highest levels of professional service. The nature of such services does not permit a firm to distance itself from the actions of its partners, especially when those actions are performed in furtherance of the firm’s obligations. Therefore, liability, whether incurred by the firm or its members, cannot operate in silos but is instead a shared and unified responsibility that reflects the cohesive nature of their engagement. Such an arrangement is neither supported by the provisions contemplated within the LLP Act as well as the Companies Act.
There are no merit in the contention that Section 132 of the Companies Act is liable to be held as unconstitutional basis the audit firm or its individual partners and members becoming vicariously liable. In light of the above, the challenge to the constitutionality of Section 132 on the grounds of vicarious liability is without merit - Section 132 is neither an overreach nor can it be said to be arbitrary; it is a necessary mechanism to enforce professional accountability.
The expression “engagement team” is defined by the SQC to mean all persons contracted and engaged by the firm in connection with that engagement. The argument of Section 132 thus creating a vicarious liability which is otherwise not contemplated or envisaged is thoroughly misconceived.
Section 132 and its Retroactive Operation - HELD THAT:- The challenge to Section 132 (4) and its retrospective application too would thus have to be appreciated on the assertion of certain rights, procedural or substantive, which could be said to have become absolute and fixed. The petitioners had essentially contended that the creation of penalties as well as the shifting of the adjudicatory function from the Council to the NFRA in respect of audits conducted prior to October 2018 would lead one to necessarily come to the irresistible conclusion that the statute impacts rights retrospectively.
Vested rights were explained to mean those which would remain unimpacted by any future change in the legal position. Regard must be had to the fact that if the right hinges on an unsecured or contingent foundation, susceptible to modification by a change in the legislative scheme, then such a right was never truly vested, as it lacked the essential characteristics of being absolute, fixed, or immune to future alteration.
While delving on the subject of retrospectivity of a legislation the Supreme Court had pertinently observed that while it is true that an enactment would not be construed as having retrospective operation unless such be the position which could be countenanced either on account of an express provision or by implication, merely because the statute takes into consideration a past act or event, that would not necessarily lead one to conclude that it be said to operates retrospectively.
The argument of retrospectivity is unmerited is the facet of professional misconduct having remained unaltered and only the manner and ambit of the inquiry having been amended for a particular class of audits. The argument of retrospectivity is liable to be rejected also because it does not introduce new categories of misconduct or liabilities. Instead, it relies on the pre-existing definition of "professional or other misconduct" under Section 22 of the CA Act. Since the legal characterization of misconduct remains unchanged, the only discernible difference is the manner and scope of the inquiry under Section 132.
On a consideration of the legislative history preceding the introduction of Section 132 clearly suggests a pre-existing regulatory deficiency or gap was sought to be addressed through the introduction of Section 132 aligning with the broader objective of strengthening oversight mechanisms and enhancing the quality of professional services rendered by audit firms. This measure was implemented not to create new liabilities but to bridge an existing gap in enforcement, ensuring that standards of professional conduct and accountability evolve in tandem with global best practices.
The present case does not fall within the ambit of Article 20 (1) as it neither involves the creation of a new offence nor the imposition of a criminal penalty with retrospective effect. The disciplinary consequences for professional misconduct had always existed under the CA Act and Section 132 merely reinforces and formalizes the enforcement framework without altering the substantive nature of misconduct. Since Article 20 (1) applies exclusively to criminal offences and punishments, and the present case pertains to civil and regulatory disciplinary proceedings, its invocation is clearly misconceived. Moreover, professional misconduct was always subject to scrutiny and Section 132 does not introduce an unprecedented liability but only refines the mechanism for inquiry and enforcement. Thus, the challenge based on Article 20 (1) is without merit.
While it is true that the monetary penalties that are imposed by Section 132 (4) could exceed those which were prescribed under the CA Act, the challenge so raised in any case remains of little significance that no monetary penalties exceeding INR 5 Lakhs would be imposed in respect of any audit conducted prior to 2018.
Lack of procedural safeguards - HELD THAT:- The validity of Section 132 (4) as well as the procedure adopted by the NFRA was then assailed on the ground of the latter having deprived the petitioners of various significant rights and procedural safeguards which were otherwise provisioned for under the CA Act and the subordinate rules governing the conduct of disciplinary proceedings. It was submitted that the Act as well as the NFRA Rules merely provide for that authority evolving such procedure as may be considered expedient in the facts of a particular case. The statute, the petitioners argued, neither lays in place a codified procedure for the conduct of disciplinary proceedings nor do its provisions provide any guidance to the NFRA to adhere to a procedure which would be commensurate with the constitutional imperatives of fairness and natural justice.
Rule 11 of the NFRA Rules, it becomes apparent that the statute clearly commands that authority to ensure that the disciplinary proceedings are undertaken in accordance with the principles of natural justice including where deemed necessary and appropriate by providing an opportunity of hearing to the charged entity in person. By virtue of Rule 11(5), the division of the NFRA is obliged to pass an order after considering all submissions made and taking into account the material on record as well as all other relevant facts and circumstances. The NFRA Rules, however, do not speak of or appear to envisage oral testimony being recorded in the course of proceedings that may ensue.
Separation of functions - HELD THAT:- From section 132 of the Companies Act, there appears to be no doubt in mind that the provision did and always contemplated the NFRA performing and discharging its functions through such divisions as may be constituted. While it is true that Rule 2(g), while defining the word ‘division’ includes one headed by a Chairperson or a full time Member, the Executive Body cannot possibly be construed to be a division in itself. A conjoint reading of sub-sections (3)(a) and (3)(b) appearing in Section 132 alongside the NFRA Rules, leads us to the irresistible conclusion that the statute clearly contemplated the discharge of functions enumerated in Rules 7 and 8 being undertaken by independent units or divisions of the NFRA.
A body must not only be fair and impartial, but it should also not be burdened by a predisposition or a predetermined state of mind. This aspect assumes significance insofar as we are concerned in light of a common complement of persons having rendered findings of alleged professional misconduct and thereafter sitting upon that very opinion to consider commencement of disciplinary action. A person charged by such an authority could be reasonably said to apprehend a reasonable likelihood of the opinion so formed being tainted by the proscription of a reasonable likelihood of bias.
It is not intended to suggest that the NFRA was obliged to punctiliously follow or adopt an identical structure, what we seek to highlight is that regulatory bodies appear to have universally formulated and attempted to adhere to a procedure which would meet the test of due process, of a fair opportunity being afforded to the person charged and above all justice appearing to have been truly served. These are surely not principles foreign to our jurisprudence. They are above all the command of Article 14 itself. The proceedings impugned, however, clearly falter and fall when tested on the aforenoted basic postulates.
The scar of predetermination - HELD THAT:- It was the Executive Body which in the first instance came to record findings of guilt and violation of the SAs’. Those reports had come to conclude in no uncertain terms that the petitioners had violated the ethics standards required to be maintained and having acted in violation of the SAs’ which applied. That very body proceeded to take a decision to commence disciplinary action based not an independent review of the facts that obtained but solely on the strength of what had been found in the AQRR. The composition of the body which penned the AQRR and that which issued the SCN remained unaltered. The proceedings have thus come to be stigmatized beyond repair and cannot in law be salvaged or saved.
The Executive Body could not have discharged the dual role of rendering findings of guilt and violation of the SAs’ while authoring the SQARR/AQRR and thereafter don the mantle of the division which is contemplated under Rule 11. The assessment of whether circumstances warranted a disciplinary enquiry being initiated was statutorily liable to be undertaken by a unit of the NFRA separated from the one which drew up those reports - The doctrine of necessity has also been found to be inapplicable since it was open for the NFRA to have constituted separate units which could have discharged the functions statutorily envisaged. Since the body of persons which penned the reports and took a decision to initiate proceedings under Rule 11 was one and the same, the procedure is found to be in clear violation of the reasonable likelihood of bias test. An informed observer would be justified in alleging predisposition, predetermination and an inclination to affirm against that body.
Conclusion - The validity of Section 132 and the NFRA Rules upheld. There are no merit in the challenge based on the arguments of vicarious liability, retroactive operation and a violation of Article 20(1) of the Constitution.
Petition allowed.
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2025 (2) TMI 78
Classification of Appellant as a "related party" of Corporate Debtor - powers of RP to decide about the ‘related party’ - Appellant's removal from the Committee of Creditors (CoC) of Corporate Debtor (CD).
Powers of RP to decide about the ‘related party’ - HELD THAT:- It is clear from the language of the Section that IRP is responsible for constituting Committee of Creditors. As per the proviso of sub-Section 2 of Section 21 the related party of Corporate Debtor has no right of representation participation or voting in a meeting of Committee of Creditors. It is evident from that IRP has to decide about related party status of creditors of the CD for constituting the CoC as related parties cannot form part of CoC. After confirmation as RP appointment of IRP as RP the matters relating to CoC continue to be handled by RP as he chairs the CoC meetings - RP is empowered to decide on the related party status of a creditor.
Determination of appellant as related party of the CD in terms of various clauses of Section 5(24) of the Code - HELD THAT:- This network of shareholding establishes a clear connection between the Corporate Debtor and Hari Vitthal Mission, with both entities being subsidiaries or affiliates under the broader umbrella of Kanoria Foundation. Given this relationship, Hari Vitthal Mission is not only indirectly linked to the Corporate Debtor, but is effectively part of the same corporate group. Therefore, under Section 5(24)(i), Hari Vitthal Mission qualifies as a related party by virtue of its position as a subsidiary of Kanoria Foundation, the holding company/trust that controls the Corporate Debtor - Section 5(24)(j) defines a related party as any person or entity that controls more than 20% of the voting rights in the Corporate Debtor. As seen earlier the Kanoria Foundation holds 99.9% in the appellant which is the Financial Creditor. On the other side the Kanoria Foundation through a series of entities holds a 31% stake in CD. The control of Kanoria Foundation on CD is through several intermediary entities including Adisri, SIFL, TAIML, SAIT, SIPL and PCPL. This layered ownership has been clearly shown in the organogram and even though there may be intermediary entities between Kanoria Foundation and the Corporate Debtor the overall control through shareholding and appointment of Directors through the clauses of trust deed and investment agreement is real and substantial. Hari Vitthal Mission which is 99.9% owned by Kanoria Foundation is a subsidiary company of Kanoria Foundation. The holding entity Kanoria Foundation in this case holds more than 20% in both CD and appellant and appellant therefore squarely falls in the definition of related party of CD.
Conclusion - RP is empowered to decide about the status of a creditor as related party. The findings of RP and AA endorsed, wherein the appellant has been held as related party in terms of provisions of Section 5 (24) of the Code.
There are no infirmity in the order of AA - appeal dismissed.
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2025 (2) TMI 21
Execution and compliance with the exit formula devised by the Company Law Board (CLB) for foreign investors ORE Holdings and Nandakumar Athappan to exit from a joint venture with Indian company CEPL - HELD THAT:- It was very obvious from the strategy of KCP and his group of companies who have been litigating since CLB took cognizance of the controversy, that they were keen to knock off the money invested by ORE and Athappan, but when KCP strategies were halted by the CLB vide its Order dated 13.08.2008, he appeared to have entertained a belief that by reading the exit-formula the way he and his group of companies had since chosen to read, they could deflect the focus from their need to abide by the directions of the CLB and bypass the exit-route prescribed for the self- preservation of both. This perhaps might have been the reason why the team-petitioner have chosen not to challenge the Order prescribing the exit- route for the foreign investors of the CEPL to quit from the company.
The CLB contemplated on reduction in the share capital when it pronounced its set of directions. Does not KCP, the captain of team-petitioner know it? He does. He knew it. His team's think-tank knew it. But he came to the wicket not to play cricket, a game considered as synonymous with fairness associated with the gentlemen who played it. Did KCP shrewdly tried to manipulate an argument to equate the surrender of shares for achieving reduction of share capital as buy-back of shares? Indeed, the CLB in the operative portion of its Order dated 13.08.2008 has underscored that its direction to CEPL to pay ORE and Athappan in cash or in kind will be the consideration for reduction of share capital, and has not described it as consideration for the purchase of shares from its foreign investors.
If the present petition is keenly observed KCP finds himself on an unplayable and slippery wicket. He even struggles for a cause of action. Therefore, he has laid his hands on a clarificatory note of the RBI, dated 28.08.2020, which decides nothing but only affirms its earlier decision dated 08.06.2015, permitting sale of 17.15 acres of VML land to the nominee of ORE. And, when VML chose to withdraw petition which it had laid before the Delhi High Court, challenging the proceedings of the RBI dated 08.06.2015, this Order became final. And necessarily what has been done pursuant to it has also attained finality, thanks to the Order of the Supreme Court in the batch of SLP filed against the Order of this Court in C.A 5 to 10 of 2016. What remains to be done is the repatriation of sale proceeds from India, for which permission has been sought from the RBI.
When KCP valued the shares of ORE and Athappan, it was not even 1% of the value which CEPL was under an obligation to pay them. KCP and his team's game-plan is very evident, to unravel which not even the IQ required to solve a beginners' sudoku is necessary. If he had gone to the CLB or the Court to seek clarification on the point, he knew what to expect. It is hence he tried to circumnavigate the CLB and the Court and approached RBI and even the PMO, faking a grievance where there is none, and avoided seeking clarification whether share-pricing could be telescoped into the clause in the Order of the CLB directing payment of money invested by ORE and Athappan.
Conclusion - The CLB's exit formula did not constitute a buy-back of shares, as it aimed to return the invested sums and reduce share capital. The legality of the sale of VML property to ORE's nominee affirmed, as it complied with FEMA regulations and was executed with necessary permissions.
Petition dismissed.
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2025 (2) TMI 20
Levy of penalty u/s 162 of the Companies Act, 1956 - failure to file the Board's Report for the financial years 2010-11 and 2013-14 - continuing offence or not - Compounding of offences under Section 441 of the Companies Act, 2013 for the offences made under Section 217 read with Section 220 of the Companies Act, 1956 - HELD THAT:- It is an admitted fact that the Appellants 1, 2 & 3 have failed to file Board Report with the financial statement for the financial years 2010-11 and 2013-14 respectively within the stipulated time and hence the offences have been committed. They have to be taken as a continuing offence. Penalty for Non-filing of Board Report for financial year ending on 31.03.2011 will be determined as per the provisions of Section 220 r/w Section 162 of the Companies Act, 1956 which is not disputed by either party.
The Appellant has contended that the mistake is inadvertent, that he himself has found out the mistake and has sought to rectify it by seeking composition of the offence, that he has failed to file the Board Report with ROC only, and that it has been circulated to shareholders within the due date, that the omission is not prejudicial to the interest of members, creditors, regulators or other stakeholders and that the content of the Board Reports was such that there is nothing to hide - In view of absence of any assertion to the contrary by the Respondent, the above contention is acceptable.
Conclusion - The offences were committed for the financial year 2010-11 and financial year 2013-14 under Section 220 of the Companies Act, 1956 only and that penalty levied for compounding appears excessive in view of orders issued by the same Ld. Tribunal and other Tribunals in similar cases and therefore penalty should be levied at the rate of Rs.50 per day for every day during which the default continued, both for the company and for the directors.
Appeal allowed.
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2025 (1) TMI 1455
Refund of excess amount of Additional Fees charged from the Petitioner Companies on account of delay in filing Financial Statements along with interest - HELD THAT:- It emerges that the AGM of a Company has to be held by the 30th September of the given year which can be extended maximum by three months by the ROC. It is a Statutory Provision and the date of holding of AGM cannot be modified or changed by any Office Order.
In the present case, the Petitioners in consonance with the provisions of the Companies Act, held their AGM on 29.10.2019 i.e. within the statutory period. Having so done and the financial statements having been approved in the AGM, they were bound to submit the said statements to the ROC within thirty days of the AGM as has been provided in Section 137 of the Companies Act. There is no circumstance in which Section 137 can be modified or the period of submitting the Financial Statements extended beyond the 30 days from the date of holding the AGM.
From this Section 403 also, it is evident that whatever are the timeframes provided under the Act for filing of the documents, statement etc., if not done within the given time, then the same shall be accepted on payment of the penalty as described therein i.e. not less than Rs.100/- per day. This Section also does not give any discretion to extend the time of taking the Statements u/s 92 or 137 of the Companies Act or of reducing/waiving the fines - From the bare perusal of Circular dated 29.10.2019, it is abundantly clear that it provided a window for filing the Financial Statements by the Companies latest by 30.11.2019. It was only to deal with the situation where any Company had failed to submit their Financial Statements within the prescribed time period, they permitted to be filed within the relaxation period extended vide Circular dated 29.10.2017, i.e. by 30.11.2019. This situation would have arisen for Companies which may have sought extension of time from ROC to conduct their AGM beyond 30th of September.
This Circular cannot be interpreted to read that the date of holding the AGM as provided under S. 97 or of consequent submission of Financial Statements within 30 days thereafter as provided under S. 137 of Companies Act, was modified or extended. To interpret the Circular as extending the time of filing the Financial Statements beyond 30 days of AGM, would tantamount to amendment of the Provisions of the Act, which no Administrative Circular can do - the Petitioners are not correct in their Claim that the Financial Statements could have been filed by 30.11.2019.
Conclusion - The Petitioners were liable to submit their Financial Statements by 29.10.2019 which they have failed to do in accordance with Section 137 of the Companies Act. Therefore, the penalty has been rightly imposed by the Respondents w.e.f. 30.10.2019.
Petition dismissed.
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2025 (1) TMI 1218
Winding up of Company - Section 466 of the Companies Act, 1956 - applicability of principles of res judicata apply to the second application under Section 466 of the Companies Act, given the dismissal of a similar earlier application - HELD THAT:- The Courts in NILKANTA KOLAY VERSUS THE OFFICIAL LIQUIDATOR [1995 (8) TMI 327 - CALCUTTA HIGH COURT] have held that bona fide must be established before a stay on winding up proceedings can be granted. Mere consent of the creditors or an offer of full payment to them is insufficient. The Court must consider the interests of commercial morality, not merely the wishes of the creditors or contributories. The jurisdiction to stay can be used to revive the company or its business and not merely for the benefit of its creditors. This jurisdiction certainly cannot be used to acquire immovable properties or assets of the company at some throwaway price or at a price that bears no proportion to the price that the liquidator could have obtained at a free, fair, transparent public auction.
The scope and import of Section 466 of the Companies Act and the principles on which the Company Court would exercise its powers to stay the proceedings in winding up either altogether or for a limited time on such terms and conditions as it thinks fit. The Appeal Court has held that Section 466(1) confers a discretion on the Court and not a mandate. The discretion must be exercised on the satisfaction that a stay of the proceedings in relation to winding up ought to be granted. The legislature has carefully used the expressions “on proof to the satisfaction” and “ought to be stayed”. Before the Court grants a stay, the statutory requirement is that there must be proof brought before the Court based on which it is satisfied that the proceedings ought to be stayed.
There is no question of this Court for the first time considering the materials on record and deciding whether the discretion should be exercised for grant of stay under Section 466 of the Companies Act. Perhaps, on the ground that there was no substantial change of circumstances or that no material was placed on record to displace the strong findings recorded regarding the motives of the first and third Respondents, we would have declined to exercise our discretion and stayed the proceedings under Section 466 of the Companies Act. But that is, to some extent, besides the point. The impugned orders deserve to be set aside for failure to consider vital material.
Conclusion - i) The principles governing the exercise of discretion under Section 466 of the Companies Act were not noticed and applied at either stage. ii) Mere settlement of the creditors or workers does not entitle any party to a stay of the winding up proceedings under Section 466 of the Companies Act.
The stay on the winding-up proceedings of the said company is dissolved - the impugned orders set aside - appeal allowed.
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2025 (1) TMI 1217
Validity of amendment to the Trust Deed by Respondent No.3, which replaced the Appellant as Principal Trustee - legality of actions taken by Respondent No.3 in convening a Board Meeting and revoking the Appellant's managerial powers - HELD THAT:- There exist extreme hostilities between entire family members and the Ld. Tribunal has also noted about the disputes inter se and went on to say its earlier orders of dated 19th December, 2024 and dated 27.12.2024 have not been complied with by either of the parties and both groups are trying to protect their own interest by changing management at their own will.
The impugned interim order rather serves to maintain critical corporate stability. It preserves the legally constituted board, including independent directors, ensures uninterrupted banking relationships, and protects Respondent No.1 company’s record and assets. Most notably, it maintains the Appellant’s own position as a director of Respondent No.1. The interim order thus not only prevents an illegal takeover but also protects the interests of 2500 employees, banking relationships, and Respondent No.1 company’s operational stability.
The impugned order has been passed by the Ld. NCLT in exercise of its powers under Section 242(4) of the Act, whereby it is empowered to make any interim order it thinks fit for regulating the conduct of the company pending the final hearing of a petition filed under Section 241-242 of the Act.
Conclusion - The interim orders upheld, maintaining the status quo ante regarding the company's management and shareholding structure.
It is not required to interfere in the interim order of Ld. NCLT - The appeal is accordingly dismissed.
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2025 (1) TMI 994
Seeking Court's intervention to direct respondents to adopt a rational policy framework to prevent registration of illegal buildings and to verify the authenticity of documentation submitted for project registration - HELD THAT:- It is pertinent to note the legislative intent behind the Real Estate (Regulation and Development) Act, 2016. The RERA Act, introduced in 2013 and enacted in 2016, was born out of the need for regulatory measures in a sector that had seen substantial growth but lacked adequate consumer protections. As stated in the Act's Statement of Objects and Reasons of the Act, the primary objective is to safeguard home buyers and promote transparency in real estate transactions. This regulatory framework was envisioned to address consumer grievances by establishing accountability mechanisms for developers, minimizing fraud, and reducing delays. Section 3 of the RERA Act mandates prior registration of real estate projects with RERA, prohibiting any advertisement or sale without proper registration, thus reflecting the legislature’s intent to curtail unscrupulous practices in the real estate sector.
The legal position is well settled that, under Article 226 of the Constitution, courts should not engage in speculative or roving inquiries. In A. Hamsaveni & Ors. v. State of Tamil Nadu, [1994 (8) TMI 322 - SUPREME COURT] the Supreme Court held that a petitioner must independently establish a prima facie case, and that court proceedings should not be used as a means to conduct speculative investigations. Similarly, in N.K. Singh v. Union of India [1994 (8) TMI 315 - SUPREME COURT] the Court emphasized that a speculative inquiry is neither warranted nor justified under judicial review, particularly when private rights are at issue. The principle was reiterated in Ratan Chandra Sammanta v. Union of India, [1993 (5) TMI 202 - SUPREME COURT] where it was held that a writ should only be issued when the petitioner has an established right, and that speculative inquiries unsupported by evidence are impermissible.
Conclusion - The integration of local authority websites with MahaRERA's portal is directed within three months to enhance document verification. The commencement and occupation certificates be uploaded within 48 hours of issuance until full integration is achieved.
The PIL petition is hereby disposed of.
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2025 (1) TMI 958
Challenge to orders passed by the Respondent No. 1 declaring him as Wilful Defaulter on the basis of a Transaction Audit Report - procedural requirements under the Master Circular on Wilful Defaulters issued by the Reserve Bank of India (RBI) complied with or not - substantial opportunity of being heard not provided - documents on the basis of which a decision to declare him as Wilful Defaulter was taken, were not provided - violation of principles of natural justice - HELD THAT:- Clause 2.5 of the Master Circular provides for initiation of penal measures against the persons or entities declared as wilful defaulter under Clause 2.1.3 of the Master Circular, which includes non-grant of additional loan facility by any bank or financial institution in the future; debarring them from floating new venture for a period of five years from the date of removal of name as wilful defaulter; initiation of criminal proceedings; change of management of borrower unit; non-induction of the person in the Board of the company etc.
The object of the Master Circular is salutary. The Master Circular aims to protect the country’s banks and financial institutions from unscrupulous entities and individuals. It is intended to identify and punish those entities and individuals who have diverted or siphoned off borrowed funds for purposes other than for which the loan facility was availed leading to default in the repayment obligations. Such individuals and entities must be identified and their names be published in public domain so that they are barred from availing any further loan facility from any other bank. If such an exercise is not undertaken, the cycle of diversion/siphoning of borrowed funds; default and re-borrowing, leading to same situation may continue. Such a scenario may adversely affect the liquidity of the banking system and affect the overall financial health of the country. There is, thus, no doubt that the Master Circular aims to achieve a very laudable object. Notably, the scheme of the Master Circular indicates that it is both a punitive and preventive measure.
The Supreme Court in the case of Jah Developers [2019 (5) TMI 862 - SUPREME COURT], had an occasion to examine the consequences of a person being declared as wilful defaulter under the Master Circular. The Supreme Court held that a person declared as wilful defaulter affects the fundamental right of a person under Article 19 (1) (g) of the Constitution as it directly affects the right to do business and thus, the Master Circular must be construed reasonably.
The graver the consequences of such civil action, the higher is the degree of proof required. If this principle of law is tested on the anvil of the Master Circular, it is clear that the Master Circular entails not only grave civil, but also penal consequences. Considering the subject matter and grave civil and penal consequences, the validity of an order declaring as wilful defaulter would require a closer scrutiny as to whether such an order falls within the four corners of the procedural mechanism prescribed in Master Circular or is it otherwise.
It is thus safe to accept that the basis of issuance of the SCN was primarily the findings in the TAR, which were observed by the NCLT to be mere assumptions. Considering the grave consequences that follow a finding by the WDC, the degree of proof required and expected to have been relied upon by the WDC should be much higher and not simply based on a TAR which itself was unacceptable to the NCLT.
Principles of natural justice - HELD THAT:- It is not for the WDC to shrug away its responsibility under the pretext of such presumptions and assumptions. The statutory procedural mechanism laid down in the Master Circular, interpreted in various decisions of the Supreme Court must be followed by the Respondent No. 1 and its committees in letter and spirit. There are no hesitation in agreeing with the Petitioner that the personal hearing cannot be construed to be meaningful with the Petitioner having his hands tied behind in the context of the Respondent No. 1 withholding the necessary documents and expecting to offer his comments.
Maintainability of the present petition against the Respondent No. 1-Bank - HELD THAT:- The Supreme Court in the matter of Jah Developers [2019 (5) TMI 862 - SUPREME COURT] clearly expressed its view that Article 19 (1) (g) of the Constitution of India is attracted as the moment a person is declared as wilful defaulter there is a direct and immediate impact on his fundamental right to carry on business. It is settled law that a Fundamental right under Article 19 or 21 can be enforced even against persons other than State or its instrumentalities - there are no hesitation in holding the present petition to be maintainable against the present Respondent No. 1.
Conclusion - The statutory procedural mechanism laid down in the Master Circular, interpreted in various decisions of the Supreme Court must be followed by the Respondent No. 1 and its committees in letter and spirit. The necessity of adhering to procedural fairness and natural justice in proceedings that have severe consequences, such as being declared a wilful defaulter established. The SCN and related orders quashed due to procedural lapses and violations of natural justice, while affirming the maintainability of the Petition under Article 226.
Petition allowed.
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