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)

Ravi Parthasarathy, Hari Sankaran, Ramchand Karunakaran Versus State rep. By Deputy Superintendent of Police Economic Offences Wing-II Chennai, Mr. John ... 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.