TMI Blog2019 (9) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. In other words the order for investigation into the affairs of the company can only be made on the satisfactory grounds, which are available on the record of the case file. In the case on hand the 1st Respondent Company during the year 2010-2011, had availed secured loans of ₹ 37.81 Crores as per the cash flow statement from banks in addition to public issue proceeds of ₹ 73.60 Crores. The fact that the 1st Respondent Company has negative cash flow of ₹ 40.87 Crores under cash flow from operations clearly proves that the 1st Respondent Company has not utilized these IPO proceeds and loans from banks for the 1st Respondent Company but only diverted the same to its group companies - there are financial mis-management of funds of the 1st Respondent Company covertly disbursed to group entities for their own use and benefit through one of its group entity, RPPL, since the same could not have been done directly through the 1st Respondent Company. Thus, the 1st Petitioner and the respondents have allegedly diverted the funds of the 1st Respondent Company to their associates and companies and matters are pending before the different judicial forums. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors to run the operations and affairs of the Company; (c) To restrain the Company permanently from sanctioning and disbursing any loans, advances or investments to the Respondent Nos. 2 to 9 or any of their group or body corporate or other entities; (d) To restrain the Company permanently from issuing any securities of the Company either to Respondent Nos. 2 to 9 or their associates or any of the related parties of Respondent Nos. 2 to 9 either on preferential basis or on the rights basis; (e) To direct the Respondent Nos. 2 to 9 and their group, associates and related parties to sell their shares in the company to other investors and to direct the independent Board of Directors to ascertain and identify such investors in the interests of the Company and its shareholders; (f) To direct the Serious Frauds Investigation Office of the Ministry of Corporate Affairs to investigate the affairs of the Company and to submit a detailed report on the functioning of the Company including the diversion/siphoning-off of the funds of the Company received through public issue or bank/financial institutions borrowings or sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rketing of Indian Made Foreign Liquor (IMFL). 5. The 2nd Respondent viz., Mr. Ravi Kumar, is the Managing Director of 1st Respondent Company, and is associated with the said Company since its incorporation and is responsible for the operations and management of the same. The Respondent Nos. 3 and 4 are the whole-time Directors of 1st Respondent Company. The Respondent Nos. 5 to 9 are ordinary Directors of 1st Respondent Company. 6. The petitioners state that Respondent Nos. 10 to 13 viz., M/s. Ravikumar Properties Private Limited, M/s. Brahmar Cellulose Products Private Limited, M/s. Craze (India) Private Limited, and M/s. Ravikumar Resorts Hotels Private Limited respectively are the Companies in which the Respondent No. 2 holds substantial stakes and controls the same. 7. The Petitioners state that the 1st Respondent Company came out with its Initial Public Offering (IPO) in the year 2010, with an issue of 1,15,00,000 Equity Shares of ₹ 10/-. each and issue constituted 47.92% of the fully diluted post issue share capital which means that post the IPO, 47.92% of its equity shares would be held by the public. After the public issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total outstanding amount of ₹ 41.99 Crores paid as advances to suppliers and as other advances and has shown an amount of ₹ 30.32 Crores as still recoverable. 10. It is stated by the Petitioners that in terms of Clause 49(IV)(D) of the Listing Agreement, under the head Utilization of the Proceeds of Public Issue, the issuer company shall disclose uses/application of funds by major category on a quarterly basis as part of their quarterly declaration of financial results and such disclosure shall be made only till such time that the full money raised through the issue has been spent. This has been stipulated by the SEBI so that it would make investors and others to monitor the application of funds. The 1st Respondent Company has made advances to the Respondent No. 10 and thereafter, it has brought it back to the 1st Respondent Company as narrated in by way of refund of capital advances during 2011-2012 so that it would escape monitoring by the investors and others. 11. It is stated in the Petition that the Utilization Statement given in Q2 results of the Financial Year, 2011-2012 ended September, 2011 showing an amount of ₹ 48.00 Cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the director of leading company, which is an instance of oppression and mis-management on the part of the Respondents. 14. It is also stated in the Petition that Section 372A (1) of the Companies Act, 1956 provides that no company shall directly or indirectly (a) make any loans to any other body corporate or (b) give any guarantee or provide security in connection with a loan made by any other person to, or to any other person by anybody corporate, exceeding 60% of its paid-up capital and free reserves or 100% of free reserves, whichever is more. Sub-Section (3) of the Section 372A provides that no loan to anybody corporate shall be made at a rate of interest lower than the prevailing bank rate, being the standard rate made public under Section 49 of the RBI Act, 1934. The 1st Respondent Company under the directions and instructions of the Respondent No. 2 has advanced monies in the Financial Year, 2010-2011 in the form of interest free loans to Respondent No.2 and his related entities viz., RPPL, which is an apparent non-compliance of the provisions laid down under the Section 372A of the Companies Act, 1956. 15. It is submitted by the Petitioners t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng company is operating as a finance company since its IPO and using the IPO proceeds for the benefit of related entities of the Respondent No.2, which is inconsistent and not in compliance with the main objects of the 1st Respondent Company as stated under its Memorandum of Association (MoA). The 1st Respondent Company is now burdened with high debt and interest costs whereas the Respondent No.2 and his entities are enjoying interest free unsecured loans totally at the expense and financial well-being of the 1st Respondent Company. 19. Having stated as above, the Petitioners alleged that the 1st Respondent Company being the public listed company is being used for private purposes post the IPO. It is alleged that the Management had a long drawn plan or modus operandi of defrauding investors which is being strategically implemented initially by, getting investors to invest in the IPO and then using the same funds covertly for their personal benefits and thereby playing a fraud on the investors. The Petitioners state that the current management is totally oppressive and mis-managing the 1st Respondent Company only to serve their own vested interests. The acts of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er (BRLM) for the IPO issue of RKDL. 23. The Respondents submit that Mr. Anil Agrawal, who is the Managing Director and Director for Comfort Group of Companies in the process of preparation of documents for the IPO issue had asked the Respondent No.2 to sign blank letter heads, blank printed forms and blank cheques and that the 2nd Respondent, though in the liquor business for more than 35 years, is not well educated and had been successfully doing liquor business only on the experience that he had acquired. To further coerce the 2nd Respondent into signing the documents and the Cheques, Mr. Anil Agrawal had made a payment of ₹ 2.20 Crores into the account of RKDL allegedly to show his bona fide, but the fact remains that the intent of the said Mr. Anil Agrawal from the beginning is to hatch a plan to deceive the 2nd Respondent and 1st Respondent Company. 24. The Respondents further submit that reposing faith and confidence in Mr. Anil Agrawal, the Respondent No.2, signed all the blank cheques, blank forms and blank letter heads and handed over the same to Mr. Anil Agrawal on trust and subsequently the Respondent No.2 realized that the said payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he signature of Respondent No. 2 viz. Shri. R.V. Ravi Kumar and his wife and also on behalf of the 10th Respondent had obtained the instruction slip. 28. The Respondents submit that after enacting a fabricated pledge, Mr. Anil Agrawal sent an alleged demand notice for ₹ 7,49,08,025/- on 16.12.2011 wherein he demanded the said amount payable by 17.12.2011 and the lock-in period, pursuant to the IPO, in respect of the 31.77% shares held by the Respondent Nos. 2 and 10 expired on 18.12.2011 and immediately thereafter the said Mr. Anil Agrawal invoked the purported pledge of the shares of Respondent No.2 and there was no need for RKDL to ask for any loan to its BRLM and the Company never asked for the loan and the 2nd Respondent never signed the purported pledge documents. Further, even purported demand notice was never received by RKDL. The said sanction and the demand notice dated 16.12.2011 were created only for the purpose of transferring the entire shares of Respondent Nos. 2 and 10 in favour of M/s. Comfort Intech Limited, a Company which is also managed and controlled by Mr. Anil Agrawal. In this hasty process, Mr. Anil Agrawal has forged the documents of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at its Extraordinary General Meeting (EGM) on 05.02.2013. The Civil Court has passed an Interim Injunction restraining Mr. Anil Agrawal and his group from removing Respondent Nos. 2 and 6 from the Board of Directors in the said EGM and that RKDL has also filed a Petition under Section 111 A r/w 111(4) of the Act before this Bench in the matter of LIL and it is pending. The present Petition is only a counter-blast to the above proceedings initiated by RKDL. 32. After receipt of IPO proceeds, on 24.12.2010 the 1st Petitioner Company has withdrawn ₹ 12.88 Crores from the account of the 1st Respondent Company. However, despite repeated demands to return the balance amount out of ₹ 12.88 Crores, Mr. Anil Agrawal failed to return the sum. Further, Mr. Anil Agrawal transferred from the 1st Petitioner viz., M/s. Comfort Intech Limited an amount of ₹ 1,13,00,000/- on 08.07.2011, ₹ 30.00 Lakhs on 27.07.2011, ₹ 25.00 Lakhs on 06.08.2011 and ₹ 25.00 Lakhs on 10.08.2011 and immediately thereafter transferred these amounts to his associate companies. The said Mr. Anil Agrawal is guilty of playing a calculated fraud and in the process has enrich ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , towards payment of Bank Loan liability of old promoters - ₹ 7.03 Crores, settlement of creditors - ₹ 11.05 Crores, working capital of ₹ 4.97 Crores and acquiring of shares from old promoters - ₹ 4.97 Crores. * Loans Advances and shares of ₹ 24.11 Crores in M/s. Liquor India Limited. Nacharam, Hyderabad (As part of the objectives of IPO - the business expansion in adjoining states), by way of investment in shares of ₹ 7.61 Crores, settlement of SBI Loan availed by M/s. Liquors India Limited - ₹ 4.85 Crores, payment to M/s. Dhanuka Estates Investments P. Ltd. - ₹ 5.50 Crores towards getting back of RKDL shares, Excise license fees of ₹ 1.05 Crores, interest and operational expenses of Liquor India Limited - ₹ 5.10 Crores. * An amount of ₹ 5.50 Crores has been paid through M/s. Liquors India Limited to M/s. Dhanuka Real Estates and Investments Private Limited a group/associate company of Mr. Anil Agrawal and his associates and the ultimate beneficiary of this amount was Mr. Anil Agrawal, who against this amount of ₹ 5.50 Crores returned back part of RKDL s shares. Out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milnadu, based on the techno-feasibility study required more land, considering the Pollution Control Board norms, the company entered into an optional agreement on 17.01.2011 and paid additional advance for purchase of 44.050 acres of land and the new Government has decided not to issue fresh licenses and accordingly the companies which had applied for the licenses denied licenses by the Government of Tamilnadu and the Hon ble High Court has also directed the Government of Tamilnadu to consider the application of the 1st Respondent Company and the Division Bench of the Hon ble High Court has struck down a portion of the Order of the Single Judge that the policy decision of Government of Tamilnadu is discriminatory. It is further stated in the reply that ₹ 5.57 Crores is pending from Respondent No. 10 as on 31.03.2013 and once the Government of Tamilnadu issues a fresh license the land purchased from Respondent No.6 will be utilized for the purpose. It is also reiterated that the company is only going to be benefitted from RPPL which is controlled by Respondent No.2. 38. The answering Respondents state that the provisions of Section 372 A of the Act has been dul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re heard in detail on behalf of both the sides. However, the counsel for the Respondents pressed hard to treat the issue of maintainability of the petition as a preliminary issue, and based on the findings thereto, the rest of the issues be decided, if required. The counsel for the Respondents has submitted that Petitioner No.1 has acquired 23,66,000 equity shares constituting 9.86% of the equity share capital from the open market from February 2011 till August 2011. The 2nd Petitioner is a Company registered under the Companies Act 1956 and acquired 7,94,250 equity shares of 1st Respondent Company from the open market during the same time. The counsel for the Respondent further submitted that the 3rd Petitioner is an individual who had acquired 957 equity shares of ₹ 10/- each in the Initial Public Offer (IPO) made by the 1st Respondent Company through the Prospectus dated 14.12.2010 and 4th Petitioner is also an individual who has acquired 957 equity shares of ₹ 10/- each in response to the said IPO. The counsel for the Respondent has submitted that the 1st and 2nd Petitioners have become the shareholder of the 1st Respondent Company after the issuance of the IPO date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oking the Provisions of Section 237(b) of the Companies Act, 1956 (corresponding Provisions of Section 213 of the Companies Act, 2013)? 46. Before examining the issue framed above, it is important to note the pre-requisites provided under Section 237(b) of the Companies Act, 1956 (Corresponding Section 213 (b) of the Companies Act, 2013) for ordering the investigation into the affairs of a Company. The pre-requisites as provided under Section 213(b) of the Companies Act 2013 are as follows: 213. Investigation into company s affairs in other cases. The Tribunal may,- (a)** (b) on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that- (i) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose; (ii) persons concerned in the formation of the company or the management of its affa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit through one of its group entity, RPPL, since the same could not have been done directly through the 1st Respondent Company. 50. Clause 41 of the Listing Agreement provides that there has been no increase in the Fixed Assets, as shown in the Schedule of Fixed Assets under the Balance Sheet of the 1st Respondent Company in both Financial Years 2010-2011 and 2011-2012 thereby reflecting that there was no expansion undertaken in the 1st Respondent Company though the amount was transferred to 10th Respondent as CWIP. As per the Balance Sheet for the Financial Year 2011-2012, the funds disbursed to 10th Respondent viz., RPPL have been partly returned to the tune of ₹ 27.08 Crores and the balance of ₹ 8.32 Crores has been reflected under Loans Advances under the Annual Report for the Financial Year, 2011-2012. The amount advanced to the 10th Respondent was refunded to the 1st Respondent Company, it has not undertaken any expansion of manufacturing unit and rather advanced the amount to related parties once again. Therefore, all representations, warranties and obligations set out by the Respondent No.2 to the investors under the IPO have been dishonoured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent Company to Mr. Anil Agrawal and had released the purported pledge details to the BSE and forged the signatures of Shri. R.V. Ravi Kumar and his wife and also on behalf of the 10th Respondent and obtained the instruction slip and sent demand notice for ₹ 7,49,08,025/- on 16.12.2011, wherein he demanded the said amount payable by 17.12.2011 and the lock-in period, pursuant to the IPO, in respect of the 31.77% shares held by the Respondent Nos. 2 and 10 expired on 18.12.2011 and immediately thereafter the said Mr. Anil Agrawal invoked the purported pledge of the shares of Respondent No.2. Mr. Anil Agrawal is stated to have forced the Respondent No.2 to enter into series of Memorandums of Understanding (MoU) by which the shares of Respondent Nos. 1 and 2 in M/s. Liquors India Limited were illegally transferred to Lemonade Shares Securities Pvt. Ltd, Mumbai, a company which is also under the control of Mr. Anil Agrawal. These alleged illegal transfers are stated to be subject matter of challenge in another C.P filed by the Respondent Nos. 1 and 2. Mr. Anil Agrawal appears to be the guilty of cheating and fraud for having breached the trust and diverted a sum of ₹ 29 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal also relied upon the judgments given in PTC Energy Ltd. v. R.S India Wind Energy Pvt. Ltd. [passed in C.P. No. 100 of 2015],, and Bank Of Rajasthan Ltd. v. Rajasthan Breweries Ltd. [2007] 79 SCL 395 (CLB). 57. Thus, this tribunal in exercise of the power conferred under Section 237(b) of the Companies Act, 1956 (Corresponding Section 213(b) of the Companies Act 2013) orders for conducting investigation into the affairs of the 1st Respondent Company for the purpose of bringing out the true picture about the diversion of the funds and the amount of the IPO of the 1st Respondent Company and to fix the responsibility of the person in management including others responsible for misfeasance of the funds and to bring them to books and to recover the amount siphoned off in order to do substantial justice to the investor/shareholders and creditors of the 1st Respondent Company. 58. Accordingly, the Central Government is hereby directed to appoint one or more competent persons as Inspectors to conduct investigation into the affairs of the 1st Respondent Company, as expeditiously as possible for filing report and on receiving the report, to follow the cours ..... 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