2021 (9) TMI 521 - HC - Companies Law

Court quashes Crime No.13 of 2020 against ITNL & petitioners, clarifies TNPID Act non-applicability to debentures.

Ravi Parthasarathy, Hari Sankaran, Ramchand Karunakaran Versus State rep. By Deputy Superintendent of Police Economic Offences Wing-II Chennai, Mr. John Dheepak rep. By its Authorised Signatory 63 Moons Technologies Ltd. Government of Tamil Nadu, Economic Offences Wing-II (Financial Institutions)

The court quashed Crime No.13 of 2020 against ITNL and the petitioners, holding that the TNPID Act does not apply to the debentures issued by ITNL on a ... Entrustment of Investigation under the Companies Act by Serious Fraud Investigation Office - Section 212 of the Companies Act - Bar on jurisdiction of other investigating agencies to proceed with investigation into any matter concerning the affairs of the company - default committed by ITNL on account of non-payment of interest - moratorium granted by NCLAT could be held against ITNL and the petitioners - liability for penal prosecution under the TNPID Act - amounts received by ITNL could be held to be “deposits” within the meaning of Section 2 (2) - ITNL is a financial establishment or not - private placement basis u/s 42 of the Companies Act. Whether entrustment of investigation to SFIO by the Central Government u/s 212 of the Companies Act bars the jurisdiction of other investigating agencies to proceed with investigation into any matter concerning the affairs of the company? - HELD THAT:- It clearly transpires that the jurisdiction of SFIO is vast, in that, in addition to the assignment of investigation under the Companies Act by the Central Government, the SFIO could investigate the issue relating to any other law; however, the other investigating agencies are barred from investigating any matter which is already seized of by SFIO under the Companies Act; rather, the other investigating agencies could only investigate matters which are not within the realm of the Companies Act. To that extent the powers of the SFIO is multifold to that of the other investigating agencies - there exists a complete bar for other investigating agencies to investigate into the matter under the Companies Act once it is assigned to SFIO by the Central Government. Whether the default committed by ITNL on account of non-payment of interest in view of the moratorium granted by NCLAT could be held against ITNL and the petitioners, thereby making them liable for penal prosecution under the TNPID Act? - HELD THAT:- Though the default has occurred, it can safely be concluded, at the present point of time, as being due to the moratorium granted by NCLAT and the culpability of the petitioners in the complex web of the economic offence, which is the subject matter of investigation by SFIO, will entangle itself only after full fledged investigation by SFIO - this Court, at this point of time is not inclined to give a finding one way or the other as to the culpability of the petitioners in the default committed in payment of interest. Whether the amounts received by ITNL could be held to be “deposits” within the meaning of Section 2 (2) and whether ITNL could be held to be a “financial establishment” as defined u/s 2 (3) of the TNPID Act? - HELD THAT:- Once this Court has come to the conclusion that neither ITNL could be termed to be “financial establishment” and the amount collected by it through private placement by issuance of debentures could be termed to be “deposit” with the meaning of Sections 2 (3) and 2 (2) of the TNPID Act, necessarily it has to follow that the provisions of TNPID Act cannot be made applicable to the case of ITNL in the facts of the present case, as the acts of ITNL are in no way within the parameters codified under the TNPID Act - this Court is of the firm and clear opinion that TNPID Act is not applicable to the present case and the act of ITNL relating to issuance of debentures under the private placement scheme cannot be termed to be receipt of deposit from public and, therefore, the consequential registration of the case for investigation by the 1st respondent against ITNL and the petitioners herein is beyond its legal dominion and, necessarily the crime registered against the petitioners and ITNL deserves to be quashed. Whether the provisions of the TNPID Act could be enforced against ITNL for the debentures issued by it on private placement basis u/s 42 of the Companies Act - HELD THAT:- Once this Court has held that the registration of crime under theTNPID Act against the petitioners and ITNL is not sustainable for the foregoing discussions, the consequential relief prayed by the intervenor/petitioner in the writ petition for an ad-interim order of attachment of the scheduled mentioned properties of the entities/persons by the 1st and 2nd respondent in the writ petition does not arise - the Central Government having already assigned investigation with SFIO, which investigating agency, is vested with jurisdiction and wider powers of investigation to deal with infraction under any law in addition to its exclusive jurisdiction under the Companies Act, it is well open to the intervenors to approach SFIO and submit appropriate representation for the relief aforesaid in accordance with law. Petition allowed. Issues Involved:1. Whether entrustment of investigation to SFIO by the Central Government under Section 212 of the Companies Act bars the jurisdiction of other investigating agencies.2. Whether the default committed by ITNL on account of non-payment of interest due to the moratorium granted by NCLAT could be held against ITNL and the petitioners, thereby making them liable for penal prosecution under the TNPID Act.3. Whether the amounts received by ITNL could be held to be “deposits” within the meaning of Section 2(2) and whether ITNL could be held to be a “financial establishment” as defined under Section 2(3) of the TNPID Act.4. Whether the provisions of the TNPID Act could be enforced against ITNL for the debentures issued by it on a private placement basis under Section 42 of the Companies Act.Issue-wise Detailed Analysis:Issue No. 1:Whether entrustment of investigation to SFIO by the Central Government under Section 212 of the Companies Act bars the jurisdiction of other investigating agencies to proceed with an investigation into any matter concerning the affairs of the company.The court highlighted that once the Central Government assigns a case to the SFIO under Section 212(2) of the Companies Act, other investigating agencies are barred from proceeding with any investigation related to offences under the Companies Act. This is supported by the decision in *Serious Fraud Investigation Office vs. Rahul Modi & Anr.* (2019 (5) SCC 266), where the Supreme Court emphasized that the transfer of investigation to SFIO is irrevocable and exclusive. However, Section 212(17)(b) allows SFIO to share information with other agencies for investigations under different laws. Thus, the jurisdiction of SFIO is exclusive for offences under the Companies Act, but other agencies can investigate under other laws.Issue No. 2:Whether the default committed by ITNL on account of non-payment of interest due to the moratorium granted by NCLAT could be held against ITNL and the petitioners, thereby making them liable for penal prosecution under the TNPID Act.The court noted that the default in payment of interest was due to the moratorium granted by NCLAT, which stayed all payments. The culpability of the petitioners in the default is under investigation by SFIO, and at this stage, the court refrained from making a definitive finding on their culpability. Therefore, the default cannot be conclusively held against ITNL and the petitioners for penal prosecution under the TNPID Act at this point.Issue No. 3 & 4:Whether the amounts received by ITNL could be held to be “deposits” within the meaning of Section 2(2) and whether ITNL could be held to be a “financial establishment” as defined under Section 2(3) of the TNPID Act.Whether the provisions of the TNPID Act could be enforced against ITNL for the debentures issued by it on a private placement basis under Section 42 of the Companies Act.The court examined the definitions of “deposit” and “financial establishment” under Sections 2(2) and 2(3) of the TNPID Act. It was found that ITNL issued debentures through a private placement scheme under Section 42 of the Companies Act, which was not open to the public but targeted a select group of investors. The court concluded that these debentures do not qualify as “deposits” under the TNPID Act, and ITNL does not meet the definition of a “financial establishment” as it was not engaged in the business of receiving deposits from the public. Consequently, the provisions of the TNPID Act do not apply to ITNL, and the registration of the case against ITNL and the petitioners under the TNPID Act is unsustainable.Conclusion:The court quashed Crime No.13 of 2020 against ITNL and the petitioners, holding that the TNPID Act does not apply to the debentures issued by ITNL on a private placement basis. The court also granted liberty to the intervenors to approach SFIO with any relevant information for their ongoing investigation. The writ petition for interim attachment was disposed of accordingly. The court emphasized that this decision does not absolve the petitioners of other potential liabilities, particularly under the ongoing SFIO investigation.