TMI Blog2002 (9) TMI 769X X X X Extracts X X X X X X X X Extracts X X X X ..... purportedly involving interest of a large number of investors in some of the non-banking financial companies has been filed by way of public interest litigation in this court. The petitioners claim to be investors in one company or the other arrayed as respondents. Besides individuals, petitioner No. 3 has been styled as Public Action Forum which does not appear to be a registered body. Since various companies having diverse facts have been arrayed as respondents, the Court felt that it was difficult to proceed with the petition. The facts involving each company or group of companies are different and the investors are also by and large different. Therefore, putting all of them together and combining them in on petition has led to practical difficulties in proceeding with the case. The court had put this difficulty to the learned counsel for the parties and accordingly it was decided to hear the counsel separately with respect to each company or each group of companies on the question of being retained as a respondent in this petition. Accordingly, we have heard the learned counsel for the parties with respect to respondents 30 to 34 who are Sahara Group of Companies. This order de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies of Kuber Group. ( b )This group has also floated yet another company and is publishing daily newspaper in the name of Kuber Times under this company. This newspaper and other several such ventures of this group have been incurring losses to the tune of crores of rupees. These losses are being met from the money generated through the hard-earned savings and the investments made by innocent investors who have been investing in various finance companies of this group. ( c )As per the provisions of the Mutual Benefits Act, such companies are not allowed to invest the money generated through their investors, only into certain specified activities, such as providing loan against security of jewellery etc. that too only to its members. However, Kuber Mutual Benefits Ltd. has diverted and siphoned off investment made in its Mutual Benefit company into different ventures and has violated the provisions of RBI directions in this regard. The Income-tax Department had conducted raids on the premises of this group and had reportedly found several incriminatory documents and evidence in regard to gross violation of serious nature. However, for certain reasons best known to the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments in the leading newspapers about this writ petition and their subsequent apology. In support of this submission, affidavit of Ms. Kaushalya Devi who was working as agent of Kuber Group and collected Rs. 12 lacs for this group has been filed who deposited the amount under the names/heads of different companies in this group s branch office at Faridabad. This affidavit gives the detail in regard to the investments collected by her and some of the incriminating documents pertaining to the different companies of this Group are annexed with the writ petition. She has paid Rs. 5 lacs from her resources by taking loan against GPF, selling her property etc. One Ms. Sumitra Devi had invested in the fixed deposit scheme of one of the company/firm viz. Kuber Builders of Kuber Group. Photocopies of the affidavit of Ms. Sumitra Devi and the documents of her investment as well as cheque of Rs. 875 as interest and banker s limitation in regard to dishonour of the cheque are annexed with the petition. His further submission is that willingness shown by this Group to return the money of the investors was also fuss and the representation to this effect did not match the action. In any case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uber Group had also been seized although the said FDRs were clearly shown in the balance sheet of the company and also in the books of account for income-tax return purpose. On 13th August, 1998 the court restrained all the respondents and also principal company of the respondent No. 44 from selling their assets except in the normal course of business. On 14th August, 1998 wide publicity was given to the order of this court which created a panic situation and as a result the depositors started demanding the return of their deposits, apprehending that perhaps the company had failed and is incapable of returning the deposit to the investors. As a matter of fact, media publicity commencing from this order heralded the beginning of an embarrassing situation for the respondent companies. On 31st August, 1998 on the submission made by the Kuber Group that the Kuber Group is a solvent group and is in a position to pay back to its investors, this court directed the RBI to file the status report of the financial condition of Kuber Group. The RBI after conducting a comprehensive investigation into the affairs of the company filed the status report of the Kuber Mutual Benefit Company Ltd. as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alienating/transferring or mortgaging the properties of the company except for selling the properties for the purpose of repayment of deposits held by the company, without prior permission of the RBI. 9. In these circumstances, the company filed CM No. 10632/99 in this writ petition seeking permission to sell the aforesaid two properties which permission was granted vide order dated 3rd November, 1999 and appointed Sh. Dalip Singh, a retired District Sessions Judge as a court commissioner with directions to him to sell the properties and deposit the sale proceeds in the court. However, the properties could not be sold. According to this reply affidavit, as per the provisional balance sheet for the period ending 31st March, 2000, value of the assets is still more than the liabilities but stalemate is created because of the writ petition and the orders passed herein as well as directions given by the RBI because of which credibility of the company got eroded in one stroke. The company is not receiving any deposits after 13th August, 1998. Accordingly, inflow of money stopped and outflow increased drastically on much higher side. The picture is painted in paras 8 to 12 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assets of the petitioners are more than the liabilities. Para 12 : The applicant states that the Kuber Group is still in a position to make all the demands of the investors in good esteem, as the assets of the company are spread all over the country and want to make the payment to all the investors. Since it is the liability of the company and company has never refused to discharge its liability, hence company should be given a free hand to meet out its liability in any manner and in the given situation the court may monitor periodically the progress made in the reduction of the company liabilities in so far as repayment of the investors money are concerned." 10. The Kuber Group still maintains that it is in a position to repay to all the investors. In this respect, the learned counsel referred to the writ petition pending in Mumbai High Court and the orders passed therein which facilitates the Kuber Group to prepare a scheme for repayment of the depositors. It was pointed out that the Group had filed scheme for completing the unfinished projects in Mumbai within a time bound frame. There is an unfinished building in Mumbai called KUBER CITADEL which is 85% read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI, the deficit of assets over the liabilities of the company was brought down from Rs. 49.8 crores in the year 1997 to Rs. 7.12 crores in the year 1998 and improved its net owned fund from negative position to positive position of Rs. 1.24 crores. Notwithstanding this deficit, even as per the RBI this company had not defaulted in the repayment of its fixed deposit and no complaint in this regard was made to it. 14. It is further stated by the RBI that the policy relating to sanction of loans and advances by nidhi companies is regulated by the Department of Company Affairs and the RBI has not issued any directions in this regard. In view thereof, the RBI has refuted the allegations of violating the RBI directions by the Kuber Group of Companies as baseless. However, in respect of certain advances given by Kuber Mutual Benefits Ltd. to its employees, the RBI has found the irregularities of the following nature : "On random perusal of the secured loans granted by the company against mortgage of immovable property, it was observed that an amount of Rs. 52.45 crores were granted to 32 employee-members (except one who is only a member). In certain cases incomplete documentation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt of offer documents of these companies by SEBI it had examined the same and given certain observations including incorporation of risk factors in Board on the first page of the transcripts and issuance of certain directions from time to time. Since in the present writ petition we are not concerned with the issuance of the share capital of these companies but with acceptance of deposits by the companies from various depositors and repayment of these deposits with interest, it is not necessary to narrate the stand of the SEBI, as taken in the counter affidavit, in detail. 18. We have given our utmost consideration to various aspects of the matter as pointed out by the counsel for different parties appearing before us. 19. At the outset, it may be mentioned that insofar as business of financial institutions is concerned, much depend on the trust and faith of public in such financial institutions. These institutions thrive and progress on the confidence of the depositors and once such faith is shaken that may sound death knell of these institutions. For, these financial institutions generate the money from public who make deposits with the financial institutions. On the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, there appears to be some force in the submission of the Group that filing of the present writ petition and wide publicity to the court s order dated 13th August, 1999 created a panic like situation and the depositors started demanding the return of their money even when the due dates had not matured. The RBI also issued prohibitory orders directing the M/s. Kuber Mutual Benefits Ltd. not to accept the deposits from the public. The officials of the company were hounded when scores of FIRs were filed with the Police authorities. Naturally, it was bound to adverse effect on the functioning of this Group. 21. It may be mentioned at this stage that the function of the court, when such petitions are filed and the matter is brought up before the court for the first time, is very delicate. The court may be in dilemma. There are numerous institutions where bogus financial institutions or other companies, after collecting the huge money from depositors, have eloped. The depositors, most of whom are the persons belonging to the middle and salaried class, lose their hard earned life savings. Sometimes, an immediate order is required to salvage the situation and recovering whatever m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 12th May, 2000 this court directed deletion of those respondents finding that no case was made out against them. In the detailed order, the court made the following observations against the petitioners : "We also find merit in the submission made by Shri Gopal Subramanium, Senior Advocate about the bona fide or petitioners 2 and 4 in filing the present petition against the Sahara Group of Companies. The fact that petitioner No. 2 invested a small amount in one of the financial companies of Sahara Group only three days before the institution of the petition and made wild allegations against the said Group about financial irregularities shows that the conduct of petitioner No. 2 is not honest and bona fide. He has not come to court with clean hands. It must have taken time for preparing a lengthy petition of the present type containing various allegations against the Sahara Group of Companies and if petitioner No. 2 made his investment knowing all such irregularities in advance, why make a grievance of it? It cannot be said that the petitioner is acting bona fide. The entire purpose of making the small investment seems to be to gain locus standi to file the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the RBI in the instant case which is almost of similar nature. 27. However, what is discussed above is the position which was upto August, 1998 when the present writ petition was filed. No doubt, the petitioners have unnecessarily impleaded the Kuber Group of Companies and have done incalculable damage. However, the position as of today is totally different. Clock cannot be turned back. Confidence of depositors in M/s. Kuber Mutual Benefits Ltd. has eroded. It is difficult to instil this confidence in public again. It is a matter of record that hundreds and thousands of depositors are waiting to receive their money who have not been able to get it back even when the term of their deposits expired long ago. The company can survive provided it is able to pay back the money of the depositors. As already pointed out above in para 14 of the affidavit filed on behalf of the Kuber Group, it maintains that it can still repay all the investors but this assurance of the Group is based on certain conditions which are to the following effect : 1. The repayment can be made once the properties worth Rs. 18.11 crores are sold under the supervision of the Court Commissioner appointed by thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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