Delhi HC rejects SMS Textiles' property possession claim, finds shell company diverted Rs 78.45 crores from liquidation

Delhi HC dismissed applications by SMS Textiles Limited seeking vacant possession of property from Official Liquidator and Rs. 5 lacs monthly compensation. Court found applicant was a shell company linked to mastermind who diverted Rs. 78.45 crores from company in liquidation. Applicant failed to provide certified copies of sale deed dated 14.03.2005 and proper authorization. Sale deed was executed after Provisional Liquidator's appointment. Court concluded applicant did not approach with clean hands, dismissing all reliefs claimed.

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Issues Involved:
1. Request for directions against the Official Liquidator to handover vacant possession of the property.
2. Request for compensation for the period of possession.
3. Legitimacy and maintainability of the application.
4. Allegations of fund diversion by the ex-management of the company in liquidation.
5. Compliance with court orders and legal procedures.

Issue-wise Detailed Analysis:

1. Request for directions against the Official Liquidator to handover vacant possession of the property:
The applicant, SMS Textiles Limited, sought directions under Section 446 of the Companies Act, 1956, for the Official Liquidator to handover vacant possession of a property. The property was purchased from M/s. Jasai Exports Private Limited through a registered Sale Deed dated 14.03.2005. However, the property was occupied by Data Access (India) Ltd. (DAIL), a company in liquidation, under a lease/license deed dated 02.06.1999. The Official Liquidator took possession of the property following the winding-up order against DAIL.

2. Request for compensation for the period of possession:
In CO.APPL. 3176/2016, SMS Textiles Limited also sought compensation of Rs. 5 lacs per month from the date of possession. The Official Liquidator contested this, stating that the averments could not be substantiated without original documents and denied liability for any compensation or rent.

3. Legitimacy and maintainability of the application:
Canara Bank, a secured creditor of DAIL, argued that the application was not maintainable due to lack of supporting documents and the lease/license deed not being registered. The Bank also contended that the applicant lacked locus standi as they were not the original owner of the property and suggested that the applicant should file a civil suit for possession after obtaining court permission under Section 446 of the Companies Act, 1956.

4. Allegations of fund diversion by the ex-management of the company in liquidation:
The court observed significant fund diversion by DAIL's ex-management. The company wrongfully received Rs. 78.45 Crores from its foreign subsidiary, Data Access America, without informing Canara Bank. These funds were diverted to M/s. Cheran Holding Pvt. Ltd. and other sister concerns. The court noted that the applicant company, SMS Textiles Limited, was potentially a shell company linked to the mastermind behind the fund diversion, Mr. K.C. Palanisamy.

5. Compliance with court orders and legal procedures:
The court highlighted non-compliance with its previous orders, including the failure to provide affidavits detailing bank accounts, assets, and directors of the related companies. The court also noted discrepancies in the applicant's documents, including the absence of a certified sale deed and the questionable financial capacity of the applicant company.

Conclusion:
The court found sufficient grounds to infer that SMS Textiles Limited was a shell company associated with the company in liquidation and its mastermind. The applicant did not come to the court with clean hands, and thus, the reliefs claimed were denied. The applications moved by SMS Textiles Limited were dismissed. The court set a subsequent hearing date for the ongoing winding-up proceedings.

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