TMI Blog2007 (6) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... s, manufacturers and dealers in chemicals, aerated and material waters and other drinks. To deal in and erect factories for the refinement, preservation, dehydration, canning and bottling of vegetable products, milk powder, jams, pickles, ghee, fat cream, ham, pork, poultry and all kinds of meat and vegetables, fruit and cereal products, squashes, syrups, health foods and drinks and cognac of every description whether intoxicating or not. The authorised share capital was ₹ 1,20,00,000 and the paid up capital was ₹ 20,29,09,000. The petitioners held 150,00,00,000 divided into 15,00,00,000 @ ₹ 10 each. 3. The Rajasthan Breweries Limited (hereinafter referred to as RBL ) was incorporated on 31-12-1973. On 10-10-1994, The Bank of Rajasthan Ltd. (hereinafter referred to as the Bank ) extended working capital facilities by sanctioning limits under cash credit and L.C. etc. in favour of RBL. As per the loan documents dated 20-1-2005, apart from stocks, the plant and machinery mentioned in Schedule A to the Petition was hypothecated in favour of the Bank. Accordingly, Forms- 8 and 13 under section 125 of the Companies Act was filed with the Registrar of Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rges inter alia stating that the Bank had no charge over the Beer Plant. 4. The CLB vide order dated 15-2-2001 directed rectification of changes; upon confirming itself to the position as it obtained on 20-1-1995. Aggrieved by the CLB order dated 15-2-2001, the Bank filed an appeal being Company Petition No. 1 of 2001 in the Hon ble High Court of Rajasthan. On 4-5-2001 in the said Company Petition No. 1 of 2001 in the Hon ble High Court of Rajasthan passed an interim order restraining RBL from alienating and/or transferring its assets. In the meanwhile, between the date of recall Notice in May-June, 2000 till 30-3-2001, RBL had sold various fixed assets as is evident from the balance sheet of RBL, for the relevant period. In order to keep the creditors at bay, RBI, filed a reference with the Hon ble BIFR under SICA on 11-6-2001. Having got its reference registered under SICA, immediately thereof RBL moved an application in the DRT on 9-8-2001 seeking a stay of O.A. No. 353 of 2000. The DRT however, stayed the proceedings only with respect of principal debtor i.e. RBL but continued proceedings against the indemnifiers. Aggrieved by the same, RBL preferred an appeal to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Bank a copy of the reference filed with the BIFR. By an order of 14-3-2002, the Rajasthan High Court in the said writ petition directed RBL to supply a copy of the reference within seven days. RBL realizing that by virtue of order of the Hon ble Division Bench dated 23-5-2002, the bank will be entitled to sell the assets; it once again attempted to stall the sale of assets by filing a suit through its related company i.e. Texas Brewery Co. Ltd. in the Hon ble High Court of Delhi. The suit was registered as 1082 of 2002. By an order dated 19-6-2002, the Hon ble High Court of Delhi passed an ex parte order in the said suit even without giving notice to the bank permitted the bank to proceed with the auction of plant and machinery which was mortgaged and/or over which the bank had a charge. RBL realizing that this had made matters worse, moved an application under Rule 9 of the Company Court Rules in the pending Company Appeal No. 1 of 2001 filed by the bank before the Hon ble High Court of Rajasthan, for injuncting the bank from accepting bids for sale of the plant. The said application was disposed of by the Hon ble Single Judge vide order dated 20-6-2002 after recording the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again, shown as a creditor in the books of RBL. The consideration for the sale of beer plant evidently was adjusted against the said credit. However, at page No. 22 (2nd paragraph) BIFR noted that no valuation was carried out before it was sold and no permission of the DRT was taken even though restraint order was operating against RBL. The BIFR noted at page 22 the statement of the representative that this was an omission in the following words :- The representative of the company had admitted in the hearing that there was an omission on the part of the company not to have gone back to Hon ble DRT, when Hon ble CLB had allowed them to sell the Beer Plant to IIFL . On 20-9-2002, the DRT Jaipur in O.A. No. 353 of 2000 passed a final judgment and order. 7. The counsel for the petitioners reiterated that - (a)RBL has been managing its affairs in a manner to defraud its creditors and in executing its nefarious design it has been taking the aid and assistance of its interconnected and/or related companies which are impleaded as Respondents in the petition; (b)Mr. Sanjay Jain who continued to be the director of RBL as is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the correct facts before the Hon ble Board. The petitioner has not filed agreement dated 20-1-1995 before this Hon ble Board. It was pointed out that the said agreement was entered into between the petitioner and respondent No. 1 and the canning line of the R-1 company was mortgaged/hypothecated to the bank. The bank with mala fide intentions got the entire plant and machinery of the respondent No. 1 charged in their favour. When the respondent No. 1 came to know about such deeds of the bank, the R-1 challenged the same before this Hon ble Board. This Hon ble Board vide order dated 13-5-2001 has held that only canning line was charged with the bank and not the entire plant and machinery. The order of the Company Law Board has been appealed by the bank but there is no stay of the operation of the order passed by Company Law Board. The Hon ble High Court of Judicature of Jaipur had only restrained the R-1 from transferring or alienating its assets. It was further directed that the respondent No. 1 would file the revised Form Nos. 8 and 13 for the original charges created on 20-1-1995 and the same has been complied with. The highhandedness of the bank is apparent from this. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djusted in the rent account. This position has been repeatedly clarified yet the petitioner bank has been misrepresenting and twisting the facts with mala fide and mischievous intent. It was pointed out that the respondent company did not make any dishonest depiction of goods allegedly purchased against L/C as stock available for hypothecation against C/C for availing release of additional funds much less as alleged. In fact as on 31-12-1997 none of the L/C was outstanding and, therefore, the allegation is prima facie misplaced and mischievous. The value of the stock in transit was not inflated the value of stock in transit as on 31-12-1997 was ₹ 32.47 lakhs and not ₹ 4 lakhs as falsely alleged. The petitioner bank has repeatedly been told that the goods lying in the custom bounded warehouse and the chemicals/malt/lids lying at Mumbai depot may be verified to ascertain the truth. However, it was pointed out that the petitioner has been malafidely harping upon the misrepresentations in order to somehow show the answering respondent company in poor light. Further, it was pointed out that the goods dispatched to the depots were not shown wrongly as alleged. The goods dispa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner bank s wrongful withholding of the credit facility to the respondent company. It was further pointed out that the petitioner bank has deliberately not filed the report of M/s. Shyamlal Aggarwal dated 4-2-1998, the queries raised by the bank and the reply to the said queries, as the same would have exposed the hollowness of the allegations of irregularities against the respondent company. 12. Shri C.S. Yadav, Counsel for the respondents further argued that the petitioner has placed wrong facts before this Hon ble Board regarding the orders passed by DRT. It was pointed out, DRT in this interim as well as final order has directed that the hypothecated assets of the respondent No. 1 be sold in order to realise the outstanding amount. The hypothecated assets as per the CLB s order is only canning line and no other portion of the plant and machinery. 13. It was further argued that the position of directors of the company as shown by the petitioner is absolutely wrong. Smt. Nisha Jain wife of Shri Sanjay Jain was a director in M/s. IIFL 15 years back and that too only for a month. Smt. Nisha Jain was never a director in M/s. ACIL. Shri Sanjay Jain was neve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T has already been decreed and recovery proceedings are on. In the meanwhile the bank has also taken steps under Securitization Act. As per the bank s own showing the bank has taken the entire plant and machinery and land of respondent No. 1 in their possession since 3-6-2002 and have deployed there own private course at the factory site. It was argued that in these circumstances, the question as per the bank s own showing their interest as a secured creditor is protected. It was reiterated that the bank is heavily relying upon the order passed by BIFR. The bank is not at all relying upon the order passed by CLB and the inspection conducted on the orders of Ministry of Company Affairs, Union of India, wherein except for the alleged failure to make provision for tax and interest liability, no other discrepancy has been pointed out. It was pointed out that an inspection under section 209A and section 211(7) of the Companies Act, 1956 has been conducted on the order of the Ministry of Company Affairs, Union of India, wherein except for the alleged failure to make provision for tax and interest liability, no other discrepancy has been pointed out. Further, all the records are with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nother concern and the respondents but the entire assets were not charged with the petitioner. However, these facts are not of much relevance for deciding to order investigation under section 237(b) of the Act. Further, I find that the respondents have, in order to make out their case for non-investigation, placed reliance on the issues like the petitioner has not disclosed agreement dated 20-1-1995 (regarding charging of canning unit, etc.); and non-production of letter dated 29-12-1997 regarding increasing of C/C limit by the petitioner; the auditors report containing question answers not produced; misrepresentation and twisting of facts by the petitioner-wrong depiction of liabilities; value of stock in transit is not inflated, it is not sale but advance against goods, value was ₹ 32.47 lakhs and not ₹ 4 lakhs; the discrepancies and so-called mismanagement and siphoning off funds pointed out by the petitioner is explained; the petitioner has failed to establish that the respondent companies are connected with each other, some of the family members were directors in these companies but that was long ago; inspection under sections 209A and 211(7) of the Act have alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiating such action exist as would be clear from the following:- (a)Admittedly, as recorded in BIFR s order dated 16-7-2002 shares of ACIL were purchased at ₹ 12 crores and were sold at loss of ₹ 11.1 crores. The details of persons to whom the shares were sold and whether any Valuation report was generated before sale has not been disclosed till date; (b)As regards the sale of Beer Plant, RBL has admitted it had earned a profit of ₹ 23 crores. There are no details as to whether valuation was carried out and who were the unsecured creditors to whom money had been paid on generation of profit; (c)Admittedly, RBL has written off the secured creditors, including advances, which includes advances given to supplier to the extent of ₹ 7.93 crores. No details have been submitted as to the persons or entities against whom these debts were outstanding or, the particulars of the suppliers to whom advances had been given. Furthermore, nothing has been stated by RBL as to the steps it took for recovery of the debts. There is not even a reference to a legal notice which RBL could possibly have sent for seeking recovery of the debt; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondents and the persons concerned in the management of the company appears to be guilty of fraud, misfeasance and other misconduct towards the company. 21. As regards the respondents argument that since inspection under section 209A has already been ordered in the case of the respondent company and hence there is no justification for multiplicity of proceedings for the same action by way of investigation under section 237(b) of the Act, the scope of inspection and the scope of investigation is entirely different. Inspection does preclude investigation. Section 209A of the Act has been introduced in the place of sub-section (4), clauses (b), (c), (d ) of section 209 by Companies Amendment Act (XLI of 1974) with effect from 1-1-1975 to strengthen the law suitably. Inspection under this section could not be effective unless the inspector is given power to compel production of books, and to examine on oath, etc., as an Income-tax Officer has under section 131 of the Income-tax Act. The inspection under this section is not an investigation, though it may lead to one, in case there is anything wrong or objectionable or fraudulent. It is to ensure that there is nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration of this petition on merits, I find that this petition is maintainable on merits as well. The allegations made in the petition have been substantiated to enable this Board to be able to form a prima facie opinion to satisfy itself that the circumstances of the case fall under one or the other of the sub-clause (i), (ii) or (iii ) of section 237(b) of the Act given as under : (b)may do so if, in its opinion or in the opinion of the Tribunal, there are circumstances suggesting- (i)that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose; (ii)that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or (iii)that the members of the company have not been given all the information with respect to its affairs which they might reasonably ..... 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