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TMI Blog2019 (11) TMI 1492X X X X Extracts X X X X X X X X Extracts X X X X ..... taka, Shri M. Jayakumar, Official Liquidator, by the Central Government, in pursuance to the directions passed by the Tribunal vide orders dated 14th March, 2019 in C.P. No. 02 of 2014 (T.P. No. 300 of 2017) run the affairs of the Respondent No. 1 Company from initiating Civil and Criminal actions against them by various aggrieved people for the actions taken by the erstwhile Directors of the Company etc. 2. Brief facts of the case, as mentioned in the Application, and facts and findings as recorded by the Tribunal vide its dated 14th March, 2019 passed in the case, which are relevant to the issue in question, are as follows: (1) Initially, C.P. No. 02 of 2014 (T.P. No. 300 of 2017) is filed by Union of India (Petitioner) through Ministry of Corporate Affairs, New Delhi and Shri S.K. Nanda S/o. Late Shri Narayan Nanda working as Assistant Director, Serious Fraud Investigation Office (SFIO), CGO Complex, Lodhi Road, New Delhi, under Section 401/397/398 R/w Section 408 of the Companies Act, 1956 seeking relief U/s. 388-B of the Act, 1956, moved on behalf of Central Government for the appointment of the Government Nominated Directors and the control of the affairs and management of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from farmers in nine villages and then they shall get the conversion of its land use from agricultural lands into residential purpose after taking approval from the competent authorities and then said land be handed over back to MDBL, for the purposes of purchasing lands the Directors were given loans and advances of Rs. 10 Crores. The Company on the date of offer to the investors/public were neither having sufficient lands nor the approval from the competent authority for its conversion. And accordingly the said Vajragiri Project stalled when the Karnataka Industrial Area Development Board (KIADB) issued notification in the Karnataka State Gazette U/s 6 of the Land Acquisition Act, 1894 and the intention to acquire the land around 130 acres falling in the Vajragiri project area. (4) The Paid-up Capital of the Company was Rs. 6,00,000/- and there were only seven shareholders mainly Shri C.P. Yogeshwara, MD of MBDL and his family members. The Company had taken no loan during the period 1994-2006. Total approx.9300 persons enrolled themselves as member for the Vajragiri Township and paid initial membership fees but out of these approx.9300 members, only 3100 members paid full amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case so as to interfere in the Affairs of the Company with suitable orders so to protect the property of the Company; to protect the interest of stakeholders of Company and to see the Company follow statutory compliances etc. We are also of considered opinion that the exiting management should not be continued, and it should be replaced by the New Directors to be appointed by the Union of India as per law. ii. We hereby declared that the Respondent Nos. 2 to 5 are hereby ceased to be the Directors of the R-1 Company and they are debarred from taking/involving any action with regard to the affairs of Company with immediate effect. Consequently, Union of India is permitted to appoint Directors to R-1 Company M/s. Megacity Bangalore Developers & Builders Limited as expeditiously as possible. No order as to costs. (7) Pursuant to the above order, the Government of India, Ministry of Corporate Affairs has addressed a letter No. F. No. Legal-23/15/2019 dated 18th April, 2019, to the Registrar of Companied Bengaluru, by inter-alia communicating that the Central Government has appointed Shri Anup K Pujari, IAS (Retd.), Shri C.V. Sajeevan, Registrar of Companies, Karnataka and Shri J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve also addressed a letter dated 21st August, 2019 to the Nominated Directors, by inter-alia stating that the present nominated Directors have to actively participate in the day to day court matters in the interest of justice and equity including engaging advocates to defend the cases and that they should take appropriate actions to pursue the cases before various courts as per the attached list and had also warned that if the Government appointed Directors failed to pursue the matters, and any adverse orders are passed in the court proceedings, then they would take responsibility for future consequence and request them to attend the above cases without showing any negligence. (10) In addition, nine summons were received by the Company, from the Court of LXXXI Addl. City Civil and Session Judge at Bengaluru (CCH 82) in Spl. CC No. 280, 281, 282, 283, 284 of 2018 and Spl. CC No. 377, 378, 379 and 380/2018 for the hearing dated 11.10.2019 to answer the charge under section 266G Read with Section 628 of the Companies Act, 1956. In the absence of any funds in the account of the Respondent No. 1 Company, the existing lawyer of the Company and sole staff of the Respondent No. 1 Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as appears to be just and equitable. Rule 11 of the National Company Law Tribunal Rules, 2016 further confer on this Tribunal with inherent powers to pass such orders as are required to meet the ends of justice. Therefore, in order to ensure effective implementation of the Order dated 14.03.2019, it is just, necessary, convenient and in the interest of justice that this Tribunal, may pass order(s) under Section 242 (4) of the Act read with Rule 11 of the Rules, as detailed below: i. Declaring that the past wrong, if any and their impact erstwhile or continued, or any person or entity ought not to be construed or attributed in any manner or form, directly or indirectly, as a continuing wrong and/or omission and/or commission under any law for the time being in force, by the said government appointed Directors, individually or collectively; ii. To declaring that the said government appointed Directors should not, in discharge of their collective or individual responsibilities, be made subject to any civil and/or criminal and/or punitive action, direct or vicarious, by the State or Central Government agencies whether in exercise of their statutory, quasi-judicial, or regulatory po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etailed supra, due to various allegations made against M/s. Megacity Bangalore Developers and Builders Limited (MBDL) (Company), Senior Fraud Investigation Office (SFIO) has investigated and filed its report, by inter-alia holding that the Company was being managed contrary to its objects and committed several Civil and Criminal offences against several of the customers. Therefore, the Union of India has filed the above case by seeking the relief as prayed for, in order to prevent the Directors to perpetuate further illegalities to be committed by the erstwhile Directors. Accordingly, the Tribunal has disposed of the main Company Petition with the directions as mentioned supra. Therefore, the responsibilities/duties of Nominated Directors would arise from the date they have assumed their respective charges. The investigation conducted by SFIO has indicted the erstwhile management of the Company, which ultimately led to their removal and appointing the Nominated Directors in question. Various Civil and Criminal cases filed by and against the Company would continue to progress in respective Courts. However, personal liability still would lie against the erstwhile Management which in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of the order of the Appellate Tribunal to him on any question of law arising out of such order: Provided that the Supreme Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days." Therefore, the order passed by the Tribunal in the main case became final being no appeal filed against it and the Union of India by implementing the order, has taken action by appointing Nominated Directors in question. And all the actions taken by a Company during the course of its business are amenable to Tribunal's Directions as per provisions of Companies, 2013. However, civil/Criminal action(s) would lie against the erstwhile management which include Directors of the Company before appropriate Civil/Criminal Courts and those cases have to be defended by themselves. However, the Nominee Directors can assist Courts by producing appropriate records of the Company in their possession, if they are called for. 6. As per the extant provisions of Companies Act, 2013, and the Insolvency Bankruptcy Code, 2016 (Code), anybody aggrieved by actions taken on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erstwhile Directors, the nominee Directors are not proper and necessary parties to be impleaded. Since the matter falls under jurisdiction of the Tribunal, no Civil Court including Consumer Court can normally entertain any Suit or Petition in respect of the affairs of the Company. However, aggrieved parties can proceed against the erstwhile management which includes removed Directors and the Staffs, who are responsible for the offences and mismanagement committed by them. In Criminal cases too, the erstwhile Directors are liable for action but not the Nominee Directors in question, for the reasons stated supra. 8. Therefore, it is necessary to clarify the legal preposition with regard to the cases filed against the Company as well as erstwhile Directors. As stated supra, nominee Directors only have to discharge their functions from the date of charge. Moreover, the nominee Directors consists of two officials appointed from Government of India and another Director is Retired IAS Officer. Therefore, they are not liable to be impleaded by their names in Civil/Criminal cases and they cannot be called to appear in person, as per law. However, they have to assist the Courts with availa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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