TMI Blog2008 (3) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... d the reason for the same is stated to be the misappropriation of the funds collected by the company on the representation, by its Directors, particularly the Managing Director Sh. Sunil Shakt and his wife Mrs. Shilpi shakt. HELD THAT:- When the fraudulent conduct is undertaken by the Directors of a company, sitting in their own office, with a view to defraud the creditors/investors who, though the victim of the fraud, are not involved in the transactions which constitute such conduct, and may have no personal knowledge of the same. In K. T. Dharanendrah v. R. T. Authority [ 1987 (2) TMI 521 - SUPREME COURT] the Supreme Court, while dealing with a case under the Customs Act, 1962 observed that an economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the Community. A disregard for the interest of the Community can be manifested only at the cost of forfeiting the trust and faith of the Community in the system to administer justice in an even handed manner without fear of criticism from the quarters which view white collar crimes with a permissive eye unmindful of the damage done to the Nationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... official liquidator shall file the affidavit after obtaining the copies within nine weeks. Mr. Shakt may respond to the evidence produced by the applicants and the official liquidator by filing an affidavit by way of evidence within four weeks, thereafter. It shall be open to Mrs. Shilpi Shakt as well to lead her evidence, in case she so desires. Considering the fact that the applicant is an investor in the company in liquidation and, prima facie, it appears that the ex-Directors of the company have siphoned off the funds of the company, I am inclined to allow these applications. The applicant is, therefore, permitted to continue with the legal proceedings filed against the company as well as the ex-Directors, in view of the orders passed in this case today, this application does not survive. Dismissed. - Hon'ble Mr. Justice Vipin Sanghi For the Appellant : Mr. Rajiv Shakdher, Sr. Advocate with Mr. Darpan Wadhwa, Amicus Curiae.Mr. C.S. Rathour, Advocate for Applicant Mr. Rajiv Kr. Gupta. For the Respondent : Through: Mr. Arun Srivastava, Advocate for respondent Sunil Shakt. Mr. S.K. Luthra, Advocate for official liquidator. ORDER VIPIN SANGHI, J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who had invested their entire life savings in the respondent company directed the Central Bureau of Investigation (CBI) to enquire into the matter and submit an enquiry report as early as possible. The CBI carried out its investigations and from time to time has filed various reports, which are made a part of this application. 3. Learned Amicus Curiae has taken me through these reports. It is revealed that the respondent company collected nearly Rs.5 Crores from about 750 investors, on the assurance of giving them a fixed return of 3% per month which translates to 36% p.a. on various schemes. The third report filed by the CBI on 15.05.2000 has particularly been relied upon by the Amicus Curiae. From this report, it appears that the aforesaid Directors and their friends incorporated various business entities apart from the company in liquidation. It appears that these entities were merely a front to carry on what, prima facie, appear to be clandestine activities of siphoning off the funds that were being collected by the respondent company and its Directors. The relevant extract from this report reads as follows: - 3. Developments: - ................................. .... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No. date Names of the Director at present 1. M/s KLP Finance Ltd. (Now Fintra Capital Services Ltd.) 55-13912 Dtd. 23.06.82 (a) (b) (c) Girdhari Lal Chopra Sunil Jain K.L. Mittal (d) Prithi Raj Kaushik (e) Teja Singh (f) Anil Jain (g) Mrs. Shilpy Shakt (h) Harendra Singhal (i) Mrs. Madhu Agarwal (j) Vipin Jain (k) P.K. Garg 2. M/s Fintra Systems Pvt. Ltd. (Now Fintra Systems Ltd.) 55-40486 Dtd. 2.7.90 (a) (b) (c) Sunil Shakt Wg. Cdr. R.N. Jain Harendra Singhal Sr. No. Name of the company Regn. No. date Names of the Director at present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04/1996 (a) Naresh Tyagi, Prop. All the above noted persons companies hold various accounts with a number of different bankers as per the Anenxure-1 attached herewith. However, current A/c No.120189 with Bank of America has been closed on 30.11.96. Consequently upon enquiries it is revealed that M/s Fintra System Ltd., M/s Fintra Centre, M/s Fintra Times M/s KLP Finance Ltd. got published advts. in the Hindustan Times during 1995- 96 through Mrs. Shilpy Shakt of M/s AD-NSTYLE M/s Shristhi International Pvt. Ltd. to get investment of money with the assurance of earning interest @ 30% 36% per annum. The fee for all such advts. was paid to M/s AD-N-STYLE by Sunil Shakt out of the accounts of M/s Fintra Systems Ltd. in Bank of America and Canara Bank, New Delhi. In this manner, M/s AD-N-STYLE received a total sum of Rs.3,45,000/- by means of cheques and Rs.1,20,000/- in cash on account of avts. during the period from Dec., 1995 to Oct., 1996 in her C. A/c No.10249 with the Fetual Bank Ltd. M/s Shrishti International Pvt. Ltd. managed by Sunil Shakt Shilpy Shakt as its directors, also received Rs.4.50 lacs out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,600 68,115/- 3. Flex Industries 500 Illegible 4. Mahadev Agro Illegible 5,40,480 5. Illegible 800 Illegible 6. Reliance Industries 1,800 3,94,607/- 7. Mahadev Agro 2,000 28,930/- 8. GEEKAY Textiles 7,500 1,13,210/- 9. Flex Industries 500 90,380/- 10. Gurdarshan Leathers Ltd. 100,000 4,50,000/- Total 1,24,31,931/- But there is no bank account transactions by means of cheques as per the accounts of Fintra Systems Ltd. with M/s Hylex Consultants for above shares but huge amount of cash were withdrawn from the account of Fintra Systems Ltd. by Sunil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said companies. Accused persons have also held large quantity of shares of sick companies namely, Premier Polyfilm Ltd., Fintra Capital Services Ltd. and Gurdarshan Leather Ltd. in their possession for giving these shares as security to the investors. So far Smt. Shilpi Shakt is concerned, it is learnt that she was proprietor of M/s AD-NSTYLE and a Director with her husband Sunil Shakt in M/s Shristhi International Pvt. Ltd. to publish misleading advts. in the Hindustan Times during 1995-96 and other transactions for and on behalf of M/s KLP Finance Ltd. Fintra Systems Ltd. She is maintaining following bank accounts: - (i) SB A/c No.34000 with SBI, Lajpat Nagar, New Delhi. (ii) SB A/c No.6140 with SBI, Masjid Moth, Ph-II, GK, New Delhi. (iii) Current A/c No.10249 in the name of AD-N-STYLE with the Federal Bank Ltd., Greater Kailash-I, New Delhi. (iv) Current A/c No.10329 in the name of Shrishti Intll. Pvt. Ltd. with the Federal Bank Ltd., Alaknanda Br., New Delhi of Smt. Shilpi Shakt and her husband, Sunil Shakt as Directors. It is further revealed that during the enquiry that during 1995-96, the aforesaid M/s ADN- STYLE had received a sum of Rs.5,78,467/- fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Naresh Tyagi on behalf of Fintra Systems Ltd. although he claimed to have left this company in Sept., 1991 but these cheques and receipts were issued during subsequent year. Shilpi Shakt, who maintained personal bank account No.34000 with the SBI, Lajpat Nagar, New Delhi, whereupon scrutiny of the said account opening form indicates the occupation of Shilpi Shakt as house wife but she recovered the total sum of Rs.11,34,232/- and the huge sums were, lateron, withdrawn in cash and this bank account No.34000 shows credit balance of Rs.9,557/- only at the moment. Besides above, Smt. Shilpi Shakt was having a proprietorship firm namely M/s AD-N-STYLE, which maintained a/c No.10248 with the Federal Bank Ltd. G.K.-II, New Delhi. Also during the period 1996-97, Shilpi Shakt received a total sum of Rs.5,73,367/- in her bank a/c No.10248 which has been withdrawn on different dates and presently only a sum of Rs.6536 is lying credited in her a/c No.10248 with the Federal Bank Ltd., Alaknand Br. GK, New Delhi. Further enquiry has revealed that M/s AD-N-STYLE had only one source of income i.e. Fintra Systems Ltd. for which it was acting as an advertising agency and was designing to mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. R.N. Jain all the former and present directors of M/s Fintra Systems Ltd. are shown below: - Sl. No. Name and address of the holder Area Authority under which held Cast value paid source of funds (Rs.) 1. Sunil Shakt S/o late R.C. Saxena, S-185, GK-II, New Delhi 830 sq. ft. Sale deed dt. 26.5.95 by J.S. Suri and Pardeep Kaur 1,40,000/- out of the a/c No.1087 of Fintra Systems Ltd. 2. Shilpi Shakt W/o Sunil Shakt, R/o S-185, G.K.II, New Delhi. -do- Sale deed dt. 26.5.95 1,60,000/- out of her personal SB a/c No.34000 3. -do- Terrace of 2 nd floor area not shown Sale deed dtd. 24.5.96 1,00,000/- out of the personal SB a/c No.34000 It may not be out of place to mention here that through the advts. Published in The Hindustan Times during the year 1995-96, M/s Fintra Systems Ltd. and M/s Centre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Fintra Financial Services Ltd. and M/s. Srishti International Pvt. Ltd. Mrs. Shilpi Shakt was also a Director of M/s. Fintra Capital Services Ltd. subsequently known as M/s. KLP Finance Ltd. She was also the proprietor of M/s. AD-N-STYLE. Fintra Times was a proprietary of Mr. Sunil Shakt and Fintra Centre was the proprietary of Mr. Naresh Tyagi. Mr. Sunil Shakt and Mrs. Shilpi Shakt were the Directors of M/s Srishti International Pvt. Ltd. iii) Fintra Systems Ltd and Fintra Capital Services Ltd., its sister concern collected sum in excess of Rs.5.27 crores from over 750 unsuspecting investors and it made payment to only a few investors during 1995-96 but most of these funds were misappropriated by Mr. Sunil Shakt and his wife Mrs. Shilpi Shakt. iv) The aforesaid entities invited investment from the public on assurance of unusually high returns of 30% and 36% per annum. v) All the advertisements to attract investments by M/s Fintra Systems Ltd. were issued through M/s. AD-N-STYLE proprietary of Mrs. Shilpi Shakt and all the payment to AD-NSTYLE were made from the account of M/s. Fintra Systems Ltd., amounting to Rs.3.45 lacs by cheque and Rs.1.25 lakhs in cash between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Systems Ltd. were siphoned of to promote the business of their sister concerns and also to dole out huge amount of commission in the name of the proprietary concern of M/s. Shilpi Shakt wife of Shri Sunil Shakt. 5. The learned Amicus Curiae submits that the assets of the Directors, including, the property situated at second floor, and the terrace above the second floor at S-185, Greater Kailash-II, New Delhi, clearly appears to have been bought by Sh. Sunil Shakt and his wife Smt. Shilpi Shakt from the funds siphoned off by them, and the same should be directed to be sold and the proceeds distributed amongst the investors. He argues that under Section 542 of the Companies Act, all that is required is that it should appear to the Court in the course of the winding up proceedings, that the business of the company has been carried out by the Directors with the intent of defrauding the creditors of the company. If this condition is satisfied, the Court could, on an application of the official liquidator, or the liquidator or any creditor or contributory of the company declare that any persons, who were knowingly parties to the carrying on of the business in the manner aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest, and, as a matter of fact, Mr. Arun Srivastava has, during the course of his arguments, represented the cause of Smt. Shilpi Shakt as well. Therefore, I proceed to consider this application. 8. The submission of Mr. Srivastava is that the reports of the CBI have been controverted by way of reply filed to the application. He further submits that some of the applicants have, in fact, been paid off the amounts due to them, while in respect of some others, they were given shares of the company as security, and merely because the share values have in the meantime gone down, the applicants cannot raise a claim for return of their investments. The further submission of Mr. Srivastava is that there is already a restraint order passed by this Court in respect of the aforesaid immovable property of Mr. Sunil Shakt and his wife and no further orders are called for at this stage. He further submits that no evidence has been led in terms of Section 542 to arrive at a finding, or make a declaration that his client, and his wife have defrauded the creditors of the company. 9. Mr. S.K. Luthra, who appears for the official liquidator, has suggested a middle path. He submits that the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oke Section 542 of the Act. That is because it would be reasonable to assume, that directors/managers who are shown to have indulged in even a single act of fraud in the discharge of their duties towards the company, its shareholders and creditors, would have generally resorted to such conduct. Traits of greed and dishonesty amongst men are known to manifest whenever the opportunity presents itself. This is even more true, when such conduct is displayed by the relatively affluent members of society, as their conduct is not driven by their need or undertaken in desperation. The pattern that emerges from the conduct of Mr. Mrs. Shakt shows that their actions were focused on collecting funds in the company from the public by promising huge returns, and then siphoning them out in one way or another. That seems to have been the true business activity of the promoter Directors and managers of the company. No other business appears to have been conducted by the company with a view to earn profits for the company, its shareholders and creditors. In the aforesaid process, the entity of the company has been misused and exploited. 12. From the aforesaid reports of the CBI, prima facie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken for the purpose of running the business of the company to generate income for the company sufficient to meet its expenses and fulfill its undertaken obligations towards the investors/creditors. In A Company Re (No.001418 of 1988), 1991 BCLC 197(Ch.D) as reported in Guide to the Companies Act, by A.Ramaiya, 16th Edition 2004, A Director found to have been a knowing party to the carrying on of the company s business with the intent of defrauding creditors was ordered to pay 156,428 for its debts and liabilities. The company had exceeded its overdraft limits and had fallen behind with paying tax dues and trade creditors but continued to pay huge sums as remuneration to its managing director who was majority shareholder. The company went into liquidation. The liquidator sought to hold the director liable for fraudulent trading. It was held that the managing director was knowingly a party to the carrying on of the company s business with intent to defraud its creditors and there was real moral blame in procuring the company s continued trading when there was no reason for thinking that it could pay its debts as they fell due. The amount decreed represented the extent to w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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