2021 (8) TMI 1240 - Tri - Companies Law

Tribunal Grants Interim Relief for Asset Freeze & Disclosure to Protect Public Interest

Union of India Versus Videocon Industries Limited and Ors.

Union of India Versus Videocon Industries Limited and Ors. - TMI Issues Involved:1. Mismanagement of company funds and revenues.2. Disclosure and freezing of assets.3. Preferential and fraudulent transactions.4. Applicability of Section 241(2) and Section 242(2)(m) of the Companies Act, 2013.5. Continuation of proceedings under Section 14 and 238 of the Insolvency and Bankruptcy Code (IBC), 2016.6. Interim reliefs and public interest protection.Issue-wise Detailed Analysis:1. Mismanagement of Company Funds and Revenues:The Tribunal examined the financial statements of the flagship company, Videocon Industries Ltd., and noted a significant decline in reserves and surplus from Rs. 10,028.09 crores in 2014 to Rs.(-)2,972.73 crores in 2019. Similarly, secured loans increased from Rs. 20,149.23 crores in 2014 to Rs. 28,586.87 crores in 2019. Investments rose from Rs. 5,626.93 crores to Rs. 9,635.75 crores, which were deemed imprudent, leading to a depletion of the company's net worth. The operating income also plummeted from Rs. 18,967.60 crores in 2014 to Rs. 906.60 crores in 2019. The Tribunal highlighted that promoters held 40.59% of the company's share capital, with 98.16% pledged to financial institutions, indicating minimal financial interest left in the company.2. Disclosure and Freezing of Assets:The Tribunal directed the respondents to disclose their movable and immovable assets, including bank accounts, within India and globally, on affidavit. It also ordered the freezing of securities owned by the respondents through Central Depository Services Ltd. (CDSL) and National Securities Depository Ltd. (NSDL), and the disclosure of assets by the Central Board of Direct Taxes (CBDT). The Indian Banks Association (IBA) was instructed to facilitate the disclosure and freezing of bank accounts and lockers owned by the respondents. The State Governments and Union Territories were also directed to identify and disclose details of immovable properties held by the respondents.3. Preferential and Fraudulent Transactions:The Tribunal reviewed the transaction audit conducted during the Corporate Insolvency Resolution Process (CIRP), which revealed serious acts of mismanagement by the erstwhile management and promoters. The audit identified preferential transactions amounting to Rs. 1,209.25 crores, which benefitted certain creditor entities connected to the respondent company. The auditor noted that these transactions lacked proper authorization and were not conducted in the ordinary course of business, leading to the classification of these transactions under Section 43 of the IBC as preferential.4. Applicability of Section 241(2) and Section 242(2)(m) of the Companies Act, 2013:The Tribunal emphasized that Section 241(2) allows the Central Government to apply to the Tribunal if it believes the affairs of the company are being conducted in a manner prejudicial to public interest. The Tribunal clarified that the phrase 'are being conducted' includes past, present, and future acts of mismanagement. The Tribunal rejected the respondents' argument that Section 241(2) does not apply post-CIRP initiation, stating that the provision has a wide import and is independent, as evidenced by previous judgments.5. Continuation of Proceedings under Section 14 and 238 of the IBC, 2016:The Tribunal addressed the respondents' contention that proceedings cannot continue under the moratorium imposed by Section 14 of the IBC. It clarified that the current proceedings are not adversarial but aim to secure and restore assets to the victims of fraud. The Tribunal highlighted that the resolution plan approved earlier had been stayed, and the CIRP process was ongoing, necessitating interim orders to prevent further asset depletion and protect public interest.6. Interim Reliefs and Public Interest Protection:The Tribunal granted interim reliefs to the petitioner, allowing service of notice through various means, directing disclosure and freezing of assets, and permitting communication with state authorities to identify immovable properties. The Tribunal stressed the importance of these measures to prevent irreparable loss to stakeholders and protect public interest. It also directed the Serious Fraud Investigation Office (SFIO) to thoroughly investigate the affairs of the companies involved.Conclusion:The Tribunal concluded that the Union of India had established a prima facie case for interim reliefs, emphasizing the need to protect public interest and prevent asset depletion. The Tribunal directed comprehensive disclosure and freezing of assets, highlighting the ongoing investigation by the SFIO to uncover the full extent of the fraud. The matter was listed for further proceedings on 22.09.2021.