9911796707
TMI Blog1999 (12) TMI 769X X X X Extracts X X X X X X X X Extracts X X X X ..... the year 1980. The principal business of the company is to accept the deposits from various individuals and companies and to advance the same to other companies. It has its Registered Office at 105 -C, Mittal Tower, Nariman Point, Mumbai and Head Office at Begumpet, Hyderabad. It has number of branches all over the country. It has been carrying on the business of financing by way of hire purchase. But, however, on account of revised guidelines issued by the Reserve Bank of India in 1997, the company started running into heavy losses. It has around 12,000 depositors and 3,000 debtors. Since the deposits made by various depositors matured and on account of loss sustained by the company, it could not repay the deposits to the subscribers. Number of complaints were made against the company, and it is also the case of the petitioners that some depositors started harassing and manhandling the Managing Director and some civil and criminal cases were also filed at various places. Since the first petitioner is a respectable person, frequent visits of police has demoralizing effect on the status of the Managing Director and that the company would certainly collect the amounts receivable fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tually defrauded and deceived them and the depositors are on the starvation point and they lost heavy amounts and not in a position to recover any portion of their deposits. It was also stated that the company is having number of assets which would meet more than the depositors' requirement and that it was only feigning financial incapacity temporarily. However, keeping in view these submissions and in order to safeguard the interest of depositors, the Court passed the following interim orders on 8-2-1999 : (a)The deposits in respect of 1996 which are already matured covering 233 depositors shall be paid from 1-5-1999 to 31-5-1999, and the interest shall be calculated up to 30-4-1999. (b)Similarly, in respect of the 1999 deposits (total depositors 1,256), the payment shall be made from 1-10-1999 to 31-10-1999 duly calculating the interest up to 30-9-1999. (c)In respect of 1998 deposits there are 6,428 depositors to whom the amount has to be refunded. Out of this, the deposits in respect of 1,428 depositors shall be refunded from 1-1-2000 to 31-1-2000 duly calculating interest up to 31 -12-1999. In respect of next 2,500 depos itors, the amounts shall be refunded from 1-4-2000 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure account of 2nd petitioner-company every month. (k)In respect of deposits which would mature in 1999 the same shall be paid within three months from the date of maturity duly calculating the interest. The said amount shall be deposited by the petitioners to the aforesaid depositors account giving the details and addresses of the depositors. The Advocate-Commissioners shall on such deposit issue cheques to the respective depositors under proper documentation. (l)The 1st petitioner shall not leave the country without the specific permission of this Court and he shall intimate this to the Passport Officer giving necessary details of his passport, to ensure that he will not leave the country without permission of this Court. A copy of the orders shall be sent to the Passport Officer, Hyderabad for necessary action. The 1st petitioner is permitted to travel within the country. However, he shall intimate the same to the Commissioner of Police, Hyderabad. (m)The Commissioner of Police, Hyderabad shall continue to provide two gunmen at the cost of the petitioners, as per the rules until further orders. (n)The investigations in respect of the complaints filed against the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of movable and immovable properties and balance sheet to the Advocate-Commissioners, therefore, they filed a report stating that the petitioners did not comply with the directions of this Court. By letter dated 24-3-1999, the petitioners informed the Advocate-Commissioners that no banks are coming for ward to furnish bank guarantee and expressed their inability to furnish bank guarantee and submitted the assets of the company as follows: Fixed Assets of Dr. Pinnaa N.R. Rs. 1.Agriculture land at Malkapur village Chettuppal Mandalam, Dist. Nalgonda to an extent of about 9.00 Acres) 3,50,000 2.UTI units 4000 @ Rs. 14 per unit 56,000 3.Shares in different companies 5,00,000 Total 9,06,000 8. The petitioners filed another affidavit on 29-12-1998 giving the revised schedule of proposed payments as under : SI. No. Number of Depositors Principal amount Date of payments Rs. 1. 613 87,86,925 31-7-1999 2. 614 87,86,925 31-10-1999 3. 614 87,86,925 31-1-2000 4. 614 87,86,925 31-4-2000 5. 614 87,86,925 31-7-2000 6. 614 87,86,925 31-10-2000 7. 614 87,86,925 31-1-2001 8. 614 87,86,925 31-4-2001 Total 4,911 7,02,95,402 9. The Advocate-Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs is protected. The Depositors' Association also filed details of various properties held by the petitioners. The Govern- ment Pleader furnished the information with regard to the cases pending against the petitioners in Andhra Pradesh. Following are the details of cases registered against Pinna, Nageswara Rao of Midwest Finance Ltd.in the State of A.P. SI. Police Crime Amount No. Station Number involved Rs. 1.Rajahmundry II-Town P.S. 136/98 24,60,630 2.Kakinada III Town P.S. 90/98 5,44,921 3.Begumpet, P.S. Hyderabad 1. 206/98 16,00,000 2. 207/98 5,00,000 3. 239/98 69,007 12. This Court on 13-7-1999 passed the following interim orders : (a)That the petitioner-company shall furnish the details of receivables from various borrowers and the action taken in respect of each transaction and the status report as on 30-6-1999 to the Advocate- Commissioners within a period of two weeks. On furnishing such details, the Advocate-Commissioners shall prepare the report and suggest to this Court as to the method and manner of proceeding with the recovery of the amounts from the borrowers. (b)The petitioner-company shall not make any payment to the third parties except wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the sister companies acquired much extent of assets the Association furnished the following details : Sl. No. The person in whose name the property is acquired Particulars of the property 1 2 3 1. Midwest Hire Purchase Ltd. (a) Land admeasuring Ac. 5-00, situated at Puppalaguda village, Rajendranagar Mandal, R.R. Distt. ( b)House in Plot No. 9, Flat No. 102, Aurora Colony, Banjara Hills, Hyderabad. 2.Midwest Growth Limited Land admeasuring Ac. 4-16 G situated at Puppalaguda village, Rajendranagar Mandal, R. R. Distt. 3.Midwest Growth Limited Flat in Plot No. 9. Aurora Colony, Banjara Hills, Hyderabad. 4.Midwest Wooltex Limited Land admeasuring Ac. 23.39 G in Malkapur village, Chowtuppal Mandal, Nalgonda District. 5.First Respondent House situated in Eluru Town. 6.First Respondent House in Plot No. 8, Aurora Colony, Banjara Hills, Hyderabad. 7.First Respondent House Plot admeasuring 800 sq. yards in Sy. No. 62 of Madapur. 8.First Respondent Land admeasuring 2 acres in Survey No. 62, situated at Madapur village Serilingampally Mandal, Rangareddy District. 9. First Respondent Land admeasuring Ac. 1-25 G in Survey Nos. 105 and 106 of Khajaguda village, Rajend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irected to ensure that no encroachment takes place on the above land and they shall render necessary assistance to the Advocate-Commissioners as and when required by them in this regard. Implead the Collector, Rangareddy District, S.P., Rangareddy District and also Mandal Revenue Officer, Serilingampally and the Sub-Registrars of Serilingampally and Madapur. The Sub-Registrars are directed not to entertain any instruments in respect of the properties mentioned above, pending further orders. The Advocate-Commissioners shall draw a sum of Rs. 5,000 each towards their part remuneration, pending further orders." 14. In pursuance of the orders of this Court, the Advocate Commissioners visited the spot on 30-9-1999 and identified the lands in Sy. No. 62 of Madapur having an extent of Ac. 2-00 and at Khajagudain Sy. Nos. 105 and 106 having an extent of Ac. 1-20 guntar with the assistance of Mandal Revenue Officer, Revenue Inspector and Village Administrative Officer concerned and took possession of the land. On a further complaint by the Depositors Association, this Court passed order on 5-10-1999 as follows : "In the counter filed by the fourth respondent K. Nanjundappa, the Presid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company as the registration was refused. 16. This is the scenario of this company. The company was promoted by the family members of the first petitioner including himself and started receiving heavy deposits. The depositors were given necessary deposit certificates, but, however, did not return any amount to the depositors whose fixed deposits were matured. This gave hue and cry among the depositors. In the meanwhile, in the name of Midwest Group of Companies, five more companies were registered as detailed above. Number of assets were acquired by this company and also the other companies which were registered subsequent to the registration of Midwest India Industries Ltd. The entire effort of this court was to protect the interest of the depositors and for this purpose, personal protection was given to the petitioners by directing the police authorities to arrange two gunmen at their cost, so that the property and person can be protected, so as to enable them to make payments to the depositors. But the petitioners obviously enjoyed the protection granted by this court and grossly violated the directions. They did not bother to make even a single deposit towards the depositors a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orms and did not return the deposits after maturity. The rejection order became final. The Reserve Bank has only power either to prosecute under Chapter V of the Act or to recommend for winding up under section 45-MC of the Act. Even the complaints made by the depositors are only registered under section 420 of the Indian Penal Code, 1860. But the most important question is fate of the depositors who had made savings by sacrificing their essential need and to utilise the same during post retirement life. They deposited with the petitioners under a fond hope that they get reasonable returns on their hard earned money. That proved to be a myth and misery. The depositors are more than 11,000, and they are virtually on the streets as on the date, as the first petitioner is now stating that he is not in a position to repay any amount. Even if the first petitioner-Managing Director, including those connected with the offences, viz., past directors and promoters are sent to the prison, the question still remains that whether the Court has done any justice to the depositors. Sentencing the offenders and committing them to the prison is one thing than ensuring the return of deposits to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reach the illegally obtained property even in the hands of relatives and associates and restore it to the victims of the fraud or corruption." In this case, it is clear that the corporate character was employed by the first petitioner for the purpose of committing illegality and defrauding the others. In such an event, this Court, piercing the corporate veil, can look at the reality behind the corporate veil so as to pass appropriate orders to do substantial justice to the victims. It is seen that the Managing Director not only incorporated Midwest India Industries Ltd., and subsequently other companies were brought into effect and that too by the persons who are none else than the close relations and promoters of the first company. The Supreme Court treated all such companies as one entity belonging to one and controlled by one family. The learned counsel for Reserve Bank of India also submits that the bank was taking steps to initiate prosecution proceedings and also for winding up of the company, as it was a confirmed case of non-refund of deposits. The submission of the learned counsel appears to be very appropriate. De hors this submission, this Court also gave number of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and also the persons who obtained illegal benefit out of the transactions or assets of the company to ensure that the payments are made to the depositors either in full or in pro rata depending upon the circumstances of each case. The cell shall initiate prosecu tion under various laws against all the offenders who are either directly or indirectly involved. (b)In respect of the petitioner-company, the Government of Andhra Pradesh shall order immediate investigation by the CBCID by an officer of the rank of Superintendent of Police and above into the irregularities traced out in this order apart from the complaints already made. The criminal prosecution shall be launched under the provisions of Indian Penal Code, R.B.I. Act and other laws against not only the Managing Director of Midwest India Industries Ltd., the first petitioner, but against all the promoters and also the past directors including other persons who are responsible for misuse of the funds of the company either directly or remotely. All the concerned governmental and non-governmental agencies shall extend co-operation to the investigating team. The Depositors Association also shall assist the investigating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04, 207 and 238 of 1998 of Begumpt P.S. stand cancelled. (h)The State Government shall also consider establishing a separate court to deal with the offences relating to the fraud played by the Non-Banking Financial Institutions, so as to avoid spread over of cases in various Courts. (i)The Depositors' Association has taken tremendous efforts to unearth the real facts and provided important information to enable the Court to pass appropriate order. Therefore, it is necessary that it should not only be appreciated but also properly remunerated. A sum of Rs. 15,000 from out of the amount lying to the credit of special account in State Bank of Hyderabad, High Court Branch shall be paid to the counsel appearing for the depositors. (j)Advocate-Commissioners who have been taking meticulous care for complying with the directions of this Court issued from time to time are permitted to draw a sum of Rs. 10,000 each from the above account. (k)The balance amount lying in the bank shall be under the supervision of the Registrar (Judicial) pending winding up proceedings. He shall operate the said special account on the directions of this Court or winding up Court as the case may be. 20. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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