TMI Blog2023 (12) TMI 1256X X X X Extracts X X X X X X X X Extracts X X X X ..... ial in the Official Liquidator s report to demonstrate that there was any intention of the Ex-Director to defraud the creditors, members or any other person or that the management of the company was guilty of fraud and misfeasance or other misconduct towards the company or towards any of its members and, therefore, referring the matter to the SFIO is uncalled for. As a matter of fact, the allegation against the company in liquidation by the Official Liquidator regarding a web of intrigue employed by the company and other groups of companies for defrauding the investors and creditors and diversion of funds of the company, could have been substantiated by the specific references to the entries made in the balance sheet and other books of account of the company in liquidation, which has not been done. To insinuate that the office of the Official Liquidator does not have the capacity or ability to detect diversion of funds of the company in liquidation, is not acceptable given the fact that a panel of Chartered Accounts is admittedly available to assist the Official Liquidator in discharge of its duties. The provisions of the Act, 1956 and the Act, 2013 though, do not prohibit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndhyan, Shambhu Chopra, Smt. Shikha Singh, Sri Narayan Mishra, Syed Fahim Ahmad, U.K. Dixit, V.K. Pandey, V.K. Shukla, Vijay Dixit, Yogendra Pati Tripathi ORDER HON'BLE JAYANT BANERJI, J. CIVIL MISC. RECALL APPLICATION NO. 235 OF 2020 1 . The aforesaid application has been filed by an Ex-Director of the Company in liquidation to recall the order dated 13.12.2019 passed by this Court, whereby, this Court had directed the Special Frauds Investigating Office, Ministry of Corporate Affairs, to recommence the investigation into the affairs of the company in liquidation that was started pursuant to an order dated 18.7.2008 passed by this Court in the aforesaid company petition. As reflected in the order dated 13.12.2019, the learned counsel for the Official Liquidator had referred to the Official Liquidator's Report No. Judicial/187 of 2018 in which it was urged that the original sale deeds of the properties of the company in liquidation should be directed to be produced. He had further submitted that assets of the company in liquidation had been transferred to other companies in a clandestine manner and therefore, it was a fit case to be referred to the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in liquidation with the claims committee or even appoint a fresh committee consisting of a retired judge or other members. The order further records that the ex-directors were permitted to file objections against the report proposed to be submitted by the Official Liquidator regarding settlement of the claims. The ex-directors were permitted to submit a comprehensive scheme for the payment/settlement of all claims. 3 . It is, therefore, contended by the learned counsel that consideration of the application for referring the matter to the SFIO was consciously deferred by this Court in view of the facts and circumstances of the case, which revealed that full cooperation was being extended by the ex-directors to the Official Liquidator to settle the claims of the creditors. Learned counsel has referred to the Official Liquidator s Report No. Judicial/42 of 2018 and has placed various paragraphs of the aforesaid report to contend that the report of the Official Liquidator was filed for placing the details of the assets of the company in liquidation. By the O.L.R. Report No. 173 of 2006, the details of the properties mentioned in the Statement of Affairs filed by the ex-director wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gated by an Inspector appointed by the Central Government, the Central Government is required to appoint competent persons as Inspector/s to investigate the affairs of the company and to report thereon in such manner as the Central Government may direct. It is stated that under clause (d) of sub-section 241 of the Act 1956, the Central Government would furnish a copy of the report to the court where the Inspectors are appointed under Section 237 of the Act, 1956, pursuant to an order of the Court. The contention is that investigation by SFIO cannot be ordered as a matter of course. But it has to be demonstrated before the Court on the basis of cogent and relevant material on record, as opposed to vague and baseless averments, that conditions exist meriting a direction for investigation under the provisions of Section 237 of the Act 1956. It has been stated that nothing has been placed by the Official Liquidator before the Court that there is a diversion of funds of the company in liquidation. In support of his contention, the learned counsel has relied upon a judgment in the case of In re: New Monkhooshi Tea Co. Ltd. and others (AIR 1967 Calcutta 406) and also referred to a jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Rowena Sharma, an ex-director of the company in liquidation. The Allegation Table , a copy of which had been handed over to the counsel for the Official Liquidator, was taken on record. 6 . Shri Subham Agrawal, learned counsel appearing for the Official Liquidator has stated that winding up of the order in liquidation was passed on 24.3.2002. It has been it is stated that as per mandate of subsection (1) of section 456 of the Companies Act, all the properties of the company in liquidation have to be taken over by the Official Liquidator and it is the duty of the company in liquidation to ensure all cooperation in this regard. Learned counsel has referred to the Official Liquidator s Report No. 9 of 2008 to contend that it is reflected therein the web of intrigue employed by the company and other group companies in defrauding the investors and diversion of funds of the company. It is stated that the balance sheets and details of the group companies were not furnished by the ex-directors despite being asked to do so. It is stated that investigation is required into the diversion of the funds of the company in liquidation for which the expertise is not available with the Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n described which are referred to, as per the headings, either in (i) the Official Liquidator's Report No. 42 of 2018, (ii) reply on behalf of company in liquidation dated 28-07-2018 (The date is wrongly mentioned in the heading as 27.7.2018.) , (iii) Official Liquidator's Report No. 187 of 2018, and (iv) personal affidavit of the Ex-Director Mrs. Rowena Sharma dated 12-12-2019. 8 . It is evident from perusal of the Official Liquidator's Report No. (JUDL)/42/2018 (OLR No. 42) that it was filed for placing the details of the assets of the company in liquidation as per information provided by the Ex- Directors of the company as well as records available with the office of the Official Liquidator. It is stated therein that by OLR No. 173 of 2006, details of the properties mentioned in the Statement of Affairs filed by the Ex-Directors was also submitted. Initially, the Statement of Affairs was filed on 16.03.2006 and thereafter a revised Statement of Affairs was filed in Form-57 on 01.09.2008. In the statement of Shri P. K. Sharma, the Ex-Director, which was recorded on 06.06.2012, before the Official Liquidator, he had stated that there are various group com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company's register of members, the Tribunal may, after giving the parties an opportunity of being heard, by order, declare that the affairs of the company ought to be investigated by an inspector or inspectors, and on such a declaration being made, the Central Government shall appoint one or more competent persons as inspectors to investigate the affairs of the company and to report thereon in such manner as the Central Government may direct. 237. Investigation of company's affairs in other cases. - Without prejudice to its powers under section 235, the Central Government - (a) shall appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if - (i) the company, by special resolution ; or (ii) the Court, by order, declares that the affairs of the company ought to be investigated by an inspection appointed by the Central Government ; and (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of any body corporate or person referred to in clause (b)(ii), (b)(iii), (c) or (d) of sub-section (1), the inspector shall not exercise his power of investigating into, and reporting on, its or his affairs without first having obtained the prior approval of the Central Government thereto: Provided that before according approval under this subsection, the Central Government shall give the body corporate or person a reasonable opportunity to show cause why such approval should not be accorded. 240. Production of documents and evidence. - (1) It shall be the duty of all officers and other employees and agents of the company, and where the affairs of any other body corporate are investigated by virtue of section 239, of all officers and other employees and agents of such body corporate - (a) to preserve and to produce to an inspector or any person authorised by him in this behalf with the previous approval of the Central Government, all books and papers of, or relating to, the company or, as the case may be, or of relating to the other body corporate, which are in their custody or power ; and (b) otherwise to give to the inspector all assistance in connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thousand rupees for every day after the first during which the failure or refusal continues. (4) [Omitted by the Companies (Amendment) Act, 1965, with effect from 15-10-1965.] (5) Notes of any examination under sub-section (2) shall be taken down in writing and shall be read over to or by, and signed by, the person examined and may thereafter be used in evidence against him. (6) In this section - (a) the expression officers , in relation to any company or body corporate, includes any trustee for the debenture holders of such company or body corporate ; (b) the expression agent , in relation to any company, body corporate or person, means, any one acting or purporting to act for or on behalf of such company, body corporate or person, and includes the bankers and legal advisers of, and persons employed as auditors by, such company, body corporate or person ; and (c) any reference to officers and other employees, agents or partners shall be construed as a reference to past as well as present officers and other employees, agents or partners, as the case may be. 240A. Seizure of documents by inspector. - (1) Where in the course of investigation under section 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f, on request and on payment of the prescribed fee, to any person - (i) who is a member of the company or other body corporate deal with in the report by virtue of section 239 ;. (ii) ........ (iii) whose interests as a creditor of the company, other body corporate aforesaid appear to the Central Government to be affected ; (c) shall, where the inspectors are appointed in pursuance of the provisions of sub-section (2) of section 235, furnish, at the request of the applicants for the investigation, a copy of the report to them ; (d) shall, where the inspectors are appointed under section 237 in pursuance of an order of the Court, furnish a copy of the report to the Court ; (dd) shall, where the inspectors are appointed in pursuance of the provisions of sub-section (2) of section 235, furnish a copy of the report to the Tribunal; and. (e) may also cause report to be published. 242. Prosecution. - (1) If, from any report made under section 241, it appears to the Central Government that any person has, in relation to the company or in relation to any other body corporate whose affairs have been investigated by virtue of section 239, been guilty of any offence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (1). 246. Inspectors' report to be evidence. - A copy of any report of any inspector or inspectors appointed under section 235 or 237 authenticated in such manner, of any, as may be prescribed, shall be admissible in any legal proceeding as evidence of the opinion of the inspector or inspectors in relation to any matter contained in the report. 247. Investigation of ownership of company. - (1) Where it appears to the Central Government that there is good reason so to do, it may appoint one or more inspectors to investigate and report on the membership of any company and other matters relating to the company, for the purpose of determining the true persons - (a) who are or have been financially interested in the success or failure, whether real or apparent, of the company ; or (b) who are or have been able to control or materially to influence the policy of the company. (1A) Without prejudice to its powers under this section, the Central Government shall appoint one or more inspectors under sub-section (1), if the Tribunal, in the course of any proceedings before it, declares by an order that the affairs of the company ought to be investigated as regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Registrar a copy of any such report or, as the case may be, of the parts thereof, as respects which it is not of that opinion. (6) The expenses of any investigation under this section shall be defrayed by the Central Government out of moneys provided by Parliament, unless the Central Government directs that the expenses or any part thereof should be paid by the persons on whose application the investigation was ordered. 250A. Voluntary winding up of company, etc., not to stop investigation proceedings. - An investigation may be initiated under sections 235, 237, 239, or 247 notwithstanding that - (a) an application has been made for an order under section 397 or section 398 ; or (b) the company has passed a special resolution for voluntary winding up, and no investigation so initiated shall be stopped or suspended by reason only of the fact that an application referred to in clause (a) has been made or a special resolution referred to in clause (b) has been passed. 10 . It is pertinent to note that the aforequoted provisions fall under Chapter I titled 'General Provisions' in Part VI of the Act, 1956 that deal with management and administration and und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produce all papers and documents and render all assistance. Section 240A empowers the inspector to seize books and papers relating to any company where he has reasonable grounds to believe that they may be destroyed to the mutilated, altered, falsified or secreted to seize such books and papers. 14 . Under Section 241, the inspectors are required to make interim reports to the Central Government and on conclusion of the investigation to make final report to the Central Government. Section 242 provides for prosecution pursuant to a report furnished under Section 241. Section 243 provides for winding up of a company which enables the Central Government to cause to be presented to the tribunal by any authorised person, a petition for winding up of the company on the ground that it is just and equitable that it should be wound up or on an application for an order under Section 397 or 398, or both a petition and an application as aforesaid. 15 . Section 250A permits an investigation to be initiated under Sections 235, 237, 239 or 247 notwithstanding that an application has been made for an order under Section 397 or 398; or the company has passed a special resolution for volunta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a recommendation and further investigation into the affairs of the company is necessary alongwith reason. 21. The power to search and seizure is provided under Section 209. Section 210 of the Act, 2013 empowers the Central Government, where it forms an opinion that it is necessary to investigate into the affairs of a company either, (a) on the receipt of a report of the Registrar or inspector under Section 208; (b) on intimation of a special resolution passed by a company that the affairs of the company ought to be investigated; or (c) in public interest. Sub-section (2) thereof mandates the Central Government to order an investigation into the affairs of that company where an order is passed by a court or the Tribunal in any proceedings before it that affairs of a company ought to be investigated. 22 . The establishment of SFIO is provided in Section 211 of the Act, 2013, which also provides for its constitution by experts headed by a Director appointed by a notification by the Central Government. Section 212 provides for investigation into affairs of Company by SFIO. The procedure to be adopted by SFIO is also provided in this section. 23. Sections 213 and 216 read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company or the management of its affairs have in connection therewith been guilty of fraud, then, every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in section 447. 216. Investigation of ownership of company . (1) Where it appears to the Central Government that there is a reason so to do, it may appoint one or more inspectors to investigate and report on matters relating to the company, and its membership for the purpose of determining the true persons (a) who are or have been financially interested in the success or failure, whether real or apparent, of the company; or (b) who are or have been able to control or to materially influence the policy of the company; or (c) who have or had beneficial interest in shares of a company or who are or have been beneficial owners or significant beneficial owner of a company. (2) Without prejudice to its powers under sub-section (1), the Central Government shall appoint one or more inspectors under that sub-section, if the Tribunal, in the course of any proceeding before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted. 223. Inspector s report. (1) An inspector appointed under this Chapter may, and if so directed by the Central Government shall, submit interim reports to that Government, and on the conclusion of the investigation, shall submit a final report to the Central Government. (2) Every report made under sub-section (1) shall be in writing or printed as the Central Government may direct. (3) A copy of the report made under sub-section (1) may be obtained by members, creditors or any other person whose interest is likely to be affected by making an application in this regard to the Central Government. (4) The report of any inspector appointed under this Chapter shall be authenticated either (a) [by the seal, if any] of the company whose affairs have been investigated; or (b) by a certificate of a public officer having the custody of the report, as provided under section 76 of the Indian Evidence Act, 1872 (1 of 1872), and such report shall be admissible in any legal proceeding as evidence in relation to any matter contained in the report. (5) Nothing in this section shall apply to the report referred to in section 212. 224. Actions to be taken in pursu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer of the company or any other person or entity, has taken undue advantage or benefit, whether in the form of any asset, property or cash or in any other manner, the Central Government may file an application before the Tribunal for appropriate orders with regard to disgorgement of such asset, property, or cash, as the case may be, and also for holding such director, key managerial personnel, officer or other person liable personally without any limitation of liability. 226. Voluntary winding up of company, etc., not to stop investigation proceedings. An investigation under this Chapter may be initiated notwithstanding, and no such investigation shall be stopped or suspended by reason only of, the fact that (a) an application has been made under section 241; (b) the company has passed a special resolution for voluntary winding up; or (c) any other proceeding for the winding up of the company is pending before the Tribunal: Provided that where a winding up order is passed by the Tribunal in a proceeding referred to in clause (c), the inspector shall inform the Tribunal about the pendency of the investigation proceedings before him and the Tribunal shall pass su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be with the Tribunal from the date of the order for winding up of the company. Wide ranging powers are provided by the Act, 2013 to the Tribunal which orders winding up of the company. Therefore, the purpose of the first proviso to Section 226 of the Act, 2013 appears to be that since the Inspector would have taken into his custody the books and papers of the company or would have examined the various persons in exercise of his power under Section 217 of the Act, 2013, or he would require papers and books for purpose of investigation initiated, he would bring to the knowledge of the Tribunal the steps taken by him or required to be taken, to enable the Tribunal to pass such orders as it may deem fit. This is in view of the fact that under Section 283 of the Act, 2013 all the property of the company is deemed to be in the custody of the Tribunal. 32. It is not denied by the Official Liquidator that it has a panel of Chartered Accountants through whom the inspection and inquiries may be ordered. The sole purpose for which the Official Liquidator has sought for referring the matter to the SFIO was for detection of diversion of assets/funds of the company in liquidation. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Company Law Affairs for necessary action. In its affidavit before the Delhi High Court, the RBI had stated that the petitioners should not be allowed to misuse the judicial forum of the court in the guise of alleged public interest. The petitioners averments were reckless, baseless and they appeared to have been made with malafide intention and also to mislead the court. 34. The Delhi High Court in its order noted the peculiar manner of functioning of non-banking financial institutions and their constitution and that the RBI had taken a stand that the company was a viable company. The Court noted that wide publicity to the court s order 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 had also issued prohibitory orders directing the company in liquidation not to accept the deposits from the public. Scores of FIRs were filed before the police authorities against the officials of the company. The Court noted that when a wrong cause is brought before the court against a company which was not otherwise insolvent or indulging in malpractices, an order of the nature may not only finish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany has passed a special resolution for voluntary winding up or where other proceeding for winding of a company are pending before the Tribunal, however, the same may not applicable in the case of the company in liquidation, inasmuch as the winding up order of the company in liquidation was passed by the Court much prior to the report of the Official Liquidator filed before this Court seeking investigation by the SFIO. 39. In re: New Monkhooshi Tea Co. Ltd. (supra), the Calcutta High Court while considering the provision of Section 237 of the Act, 1956 and, while relying upon the corresponding provision in the English Companies Act, 1948, observed as follows:- 10. . ............ In other words, a petitioner must adduce strong evidence in relation at least to matters referred to in sub-section (b) of section 237 to induce a Court to make an order for investigation under Section 237(a)(ii). There must be evidence either (1) that the business of the company is being conducted with intent to defraud (i) the creditors of the company or (ii) its members or (iii) any other person or (2) that the business is being conducted (i) for a fraudulent purpose or (ii) for an unlawful p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary though the evidence on record is not sufficient to give relief to the aggrieved party. Under Section 241, the inspectors have to submit a final report to the Central Government on the conclusion of the investigation. Where the inspectors are appointed under Section 237 in pursuance of an order of the court, a copy of the report has to be furnished to the court. While under Section 235 appointment of inspectors by the Central Government when circumstances mentioned in the said section exist is discretionary, the appointment under Section 237 is mandatory. Section 242 provides for initiating prosecution against persons for any offence disclosed from the report submitted by the inspector. Section 243 enables the Central Government to file a petition for the winding up of the company, or to file an application for an order under Section 397 or Section 398 or both, a petition for the winding up and an application under Section 397 or Section 398. It has to be noted that the use of the report obtained under Section 237 is restricted; it can only be by the Central Government and not by any other person, for example, a shareholder. But the Central Government can cause an application t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here clause (c) thereof is applicable, would be that only where proceeding for winding up is pending before the Court or Tribunal, an investigation by SFIO can be initiated. However, that would not be the case where a winding up order is passed by the Court or Tribunal, that is to say, where a winding up order has been passed by a Court or Tribunal, an investigation under Chapter XIV of the Act, 2013 may not be initiated. 45. As noticed above, Section 456 of the Act, 1956 gives wide powers to the Liquidator of the company in liquidation to take into his custody or under his control, any property, effects or actionable claims to which the company is or appears to be entitled enabling him to approach the Magistrate concerned within whose jurisdiction such property, effects or actionable claims or any book of accounts or other documents of the company may be found to take possession thereof and deliver possession thereof to the Liquidator. Further, the powers of the Liquidator under Section 457 of the Act, 1956 are also wide ranging. It is not the case of the Official Liquidator that the powers conferred on it by virtue of the aforesaid provisions are inadequate for purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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