2020 (3) TMI 1441 - HC - Indian Laws

Court denies attachment of properties in fund siphoning case, emphasizes SFIO role in audit request

The court declined to order the attachment of properties of the group companies and personal properties of respondents, citing a lack of legal framework ... Forensic audit - investigation by SFIO - inter-agency inquiries - orders for attachment of properties - mala fide petitions under the Insolvency and Bankruptcy Code - protective steps to safeguard interests where flight is apprehended - scope of Supreme Court directions in W.P.(Crl.) 142/2018Forensic audit - investigation by SFIO - Whether SFIO should undertake or direct a forensic audit of the Ireo Group companies and what procedures must be followed. - HELD THAT: - The Court found that serious allegations of siphoning of funds require SFIO to consider whether a forensic audit is necessary. SFIO is directed to examine the need for a forensic audit into the affairs of the Ireo Group of Companies and, if the concerned officer concludes such an audit is required, to forthwith take steps to conduct it. If the officer concludes that no forensic audit is necessary, the reasons for that conclusion must be recorded. The Court refrained from issuing a direct command to undertake a forensic audit, leaving the investigative assessment and exercise of discretion to SFIO while requiring reasoned action. [Paras 12]SFIO to examine and decide on the necessity of a forensic audit and either initiate such an audit forthwith or record reasons for not doing so.Mala fide petitions under the Insolvency and Bankruptcy Code - inter-agency inquiries - Whether the Court should interfere with ongoing proceedings before the National Company Law Tribunal alleging mala fides in IBC petitions. - HELD THAT: - The Court observed that allegations that petitions filed under the IBC are mala fide are matters for the appropriate authority or tribunal dealing with those proceedings. Petitioners are at liberty to pursue their grievances before the concerned authority/tribunal in accordance with law. The High Court declined to intervene in the NCLT proceedings by way of directions in the present petition. [Paras 13]Petitioners must approach the appropriate authority/tribunal in respect of alleged mala fides in IBC petitions; the High Court will not pass orders affecting NCLT proceedings in this petition.Protective steps to safeguard interests where flight is apprehended - investigation by SFIO - Whether SFIO should be directed to examine apprehensions that directors/promoters may flee and to take steps to protect interests. - HELD THAT: - The Court directed SFIO to examine the petitioners' apprehension that directors and promoters may flee the country and, if necessary, take steps to protect the interests of concerned persons in accordance with law. This places an obligation on SFIO to assess flight risk and consider protective measures within its statutory and investigative competence. [Paras 14]SFIO to examine the apprehension of flight and, if warranted, take lawful steps to protect stakeholders' interests.Orders for attachment of properties - scope of Supreme Court directions in W.P.(Crl.) 142/2018 - Whether the High Court should order attachment of properties of the Ireo Group companies or their promoters in the present petition. - HELD THAT: - The Court declined to order attachment of properties for two reasons. First, the petitioners failed to identify the legal framework under which such attachment orders should be made. Second, a Coordinate Bench had already passed an interim order in W.P. (C) 10337/2018 restraining certain companies from creating interests in or parting with possession of immovable properties; the petitioners in the present petition are also parties to that writ, and the Court noted that they cannot seek the same relief in multiple forums. The Court therefore considered it not apposite to grant the prayer for attachment in these proceedings. [Paras 15]Prayer for attachment of properties refused; petitioners cannot seek the same relief in multiple forums and no legal basis for attachment was shown in this petition.Final Conclusion: The petition is disposed of with directions that SFIO examine and decide on the need for a forensic audit and assess apprehensions of flight, with liberty to petitioners to seek redress before the appropriate authority regarding IBC petitions; prayer for attachment of properties is refused for lack of legal basis and due to related interim orders in other proceedings. Issues:1. Direction to attach assets of group companies and personal properties of respondents.2. Allegations of siphoning off funds by directors of a development project.3. Delay in completion of investigations by authorities.4. Request for forensic audit of companies.5. Concerns regarding petitions filed under the Insolvency and Bankruptcy Code.6. Apprehension of directors fleeing the country.7. Prayer for attachment of properties of the group companies.Analysis:1. The petitioners sought directions to attach assets of group companies and personal properties of respondents until investigations by authorities are completed, based on a Supreme Court order in a related case. The petitioners claimed to have invested in a project where funds were allegedly siphoned off by the directors, leading to petitions under the Insolvency and Bankruptcy Code.2. Serious allegations of fund siphoning by directors were raised, prompting the need for a forensic audit of the companies involved. The court emphasized that SFIO should assess the necessity of a forensic audit and take appropriate steps for effective investigation, considering the gravity of the allegations.3. Concerns were raised about delays in investigations and the possibility of preferential payments being made by the directors. SFIO assured that necessary actions would be taken in accordance with the law, emphasizing the ongoing inquiries by multiple agencies into the company's affairs.4. The court clarified that the Supreme Court had directed agencies to conduct inquiries and take action based on their findings, without expressing any opinion on the allegations. It was emphasized that SFIO should address concerns of directors fleeing the country and take necessary legal steps to protect the interests of all involved parties.5. Regarding petitions filed under the Insolvency and Bankruptcy Code, the court advised the petitioners to address their grievances through the appropriate legal channels and refrained from intervening in proceedings pending before the National Company Law Tribunal.6. The court declined to order the attachment of properties of the group companies, citing a lack of legal framework provided by the petitioners and an existing interim order from a Coordinate Bench. The petition was disposed of with the observations made during the proceedings.