TaxTMI 
TaxTMI 
1999 (12) TMI 769
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....ies Ltd. It was registered in the year 1980. The principal business of the company is to accept the deposits from various individuals and companies and to advance the same to other companies. It has its Registered Office at 105 -C, Mittal Tower, Nariman Point, Mumbai and Head Office at Begumpet, Hyderabad. It has number of branches all over the country. It has been carrying on the business of financing by way of hire purchase. But, however, on account of revised guidelines issued by the Reserve Bank of India in 1997, the company started running into heavy losses. It has around 12,000 depositors and 3,000 debtors. Since the deposits made by various depositors matured and on account of loss sustained by the company, it could not repay the deposits to the subscribers. Number of complaints were made against the company, and it is also the case of the petitioners that some depositors started harassing and manhandling the Managing Director and some civil and criminal cases were also filed at various places. Since the first petitioner is a respectable person, frequent visits of police has demoralizing effect on the status of the Managing Director and that the company would certainly co....
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....a fond hope of getting reasonable returns and that the company has virtually defrauded and deceived them and the depositors are on the starvation point and they lost heavy amounts and not in a position to recover any portion of their deposits. It was also stated that the company is having number of assets which would meet more than the depositors' requirement and that it was only feigning financial incapacity temporarily. However, keeping in view these submissions and in order to safeguard the interest of depositors, the Court passed the following interim orders on 8-2-1999 : (a)The deposits in respect of 1996 which are already matured covering 233 depositors shall be paid from 1-5-1999 to 31-5-1999, and the interest shall be calculated up to 30-4-1999. (b)Similarly, in respect of the 1999 deposits (total depositors 1,256), the payment shall be made from 1-10-1999 to 31-10-1999 duly calculating the interest up to 30-9-1999. (c)In respect of 1998 deposits there are 6,428 depositors to whom the amount has to be refunded. Out of this, the deposits in respect of 1,428 depositors shall be refunded from 1-1-2000 to 31-1-2000 duly calculating interest up to 31 -12-1999. In respec....
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....ard. (j)The petitioners shall furnish to the Advocate-Commissioners remaining income and expenditure account of 2nd petitioner-company every month. (k)In respect of deposits which would mature in 1999 the same shall be paid within three months from the date of maturity duly calculating the interest. The said amount shall be deposited by the petitioners to the aforesaid depositors account giving the details and addresses of the depositors. The Advocate-Commissioners shall on such deposit issue cheques to the respective depositors under proper documentation. (l)The 1st petitioner shall not leave the country without the specific permission of this Court and he shall intimate this to the Passport Officer giving necessary details of his passport, to ensure that he will not leave the country without permission of this Court. A copy of the orders shall be sent to the Passport Officer, Hyderabad for necessary action. The 1st petitioner is permitted to travel within the country. However, he shall intimate the same to the Commissioner of Police, Hyderabad. (m)The Commissioner of Police, Hyderabad shall continue to provide two gunmen at the cost of the petitioners, as per the rule....
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....d not furnish the bank guarantee for Rs. 10 lakhs as directed by this Court. The petitioners also did not furnish the details of movable and immovable properties and balance sheet to the Advocate-Commissioners, therefore, they filed a report stating that the petitioners did not comply with the directions of this Court. By letter dated 24-3-1999, the petitioners informed the Advocate-Commissioners that no banks are coming for ward to furnish bank guarantee and expressed their inability to furnish bank guarantee and submitted the assets of the company as follows: Fixed Assets of Dr. Pinnaa N.R. Rs. 1.Agriculture land at Malkapur village Chettuppal Mandalam, Dist. Nalgonda to an extent of about 9.00 Acres) 3,50,000 2.UTI units 4000 @ Rs. 14 per unit 56,000 3.Shares in different companies 5,00,000 Total 9,06,000 8. The petitioners filed another affidavit on 29-12-1998 giving the revised schedule of proposed payments as under : SI. No. Number of Depositors Principal amount Date of payments Rs. 1. 613 87,86,925 31-7-1999 2. 614 87,86,925 31-10-1999 3. 614 87,86,925 31-1-2000 ....
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....ogress was made with regard to deposit of the amounts, and that the company only furnished the statement of receivables. Fifth report was filed by the Advocate-Commissioners on 19-8-1999 submitting the receivables from various third parties including the Court cases. 11.This Court passed various orders from time to time in order to see that the interest of depositors is protected. The Depositors' Association also filed details of various properties held by the petitioners. The Govern- ment Pleader furnished the information with regard to the cases pending against the petitioners in Andhra Pradesh. Following are the details of cases registered against Pinna, Nageswara Rao of Midwest Finance Ltd.in the State of A.P. SI. Police Crime Amount No. Station Number involved Rs. 1.Rajahmundry II-Town P.S. 136/98 24,60,630 2.Kakinada III Town P.S. 90/98 5,44,921 3.Begumpet, P.S. Hyderabad 1. 206/98 16,00,000 2. 207/98 5,00,000 3. 239/98 69,007 12. This Court on 13-7-1999 passed the following interim orders : (a)That the petitioner-company shall furnish the details of receivables from var....
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....than the members of the family as can be seen from the registration certificate of the company before the Registrar. The following are the promoters : Sl. No. Name of the member Relationship with the 1st petitioner 1. Nageshwar Rao Pinna 1st petitioner 2. Geetha Rao Pinna Wife 3. Suryanarayana Pinna Father (since died) 4. Venkateswara Rao Pinna Brother 5. Tirupatamma Pinna Mother 6. Rama Rao Pinna Brother 7. Jalaja Pinna Sister It is and also stated that the sister companies acquired much extent of assets the Association furnished the following details : Sl. No. The person in whose name the property is acquired Particulars of the property 1 2 3 1. Midwest Hire Purchase Ltd. (a) Land admeasuring Ac. 5-00, situated at Puppalaguda village, Rajendranagar Mandal, R.R. Distt. ( b)House in Plot No. 9, Flat No. 102, Aurora Colony, Banjara Hills, Hyderabad. 2.Midwest Growth Limited Land admeasuring Ac. 4-16 G situated at Puppalaguda village, Rajendranagar Mandal, R. R. Distt. 3.Midwest Growth Limited Flat in Plot No. 9. Aurora Colony, Banjara Hills, Hyderabad....
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....: "Pending further orders, the Advocate-Commissioners shall take physical possession of the land situate in Sy. No. 62, Madapur, Rangareddy District having an extent of Ac. 2-00 and another piece of land situate in Sy. Nos. 105 and 106 of Khajaguda having an extent of Ac. 1-20 guntas forthwith. The petitioner shall identify the land and hand over the physical possession as directed above. The petitioner shall deposit the sale deeds in respect of the aforesaid lands with the Advocate-Commissioners. The Advocate-Commissioners shall, if necessary, appoint watchmen for the purpose of safeguarding the aforesaid property. The S.P. of R.R. District and the Mandal Revenue Officer concerned are directed to ensure that no encroachment takes place on the above land and they shall render necessary assistance to the Advocate-Commissioners as and when required by them in this regard. Implead the Collector, Rangareddy District, S.P., Rangareddy District and also Mandal Revenue Officer, Serilingampally and the Sub-Registrars of Serilingampally and Madapur. The Sub-Registrars are directed not to entertain any instruments in respect of the properties mentioned above, pending further orde....
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....er by D.V. Ramana Rao & Co. and the special audit revealed that the company had outstanding public deposit liability of Rs. 1453.34 lakhs as on 31-3-1997 and Rs. 1672.81 lakhs as on 31-3-1998 and it had several overdue matured deposits of Rs. 74.86 lakhs as on 31-3-1998. The realisable value of the assets of the company was at Rs. 1224.09 lakhs which was far less than the outstanding liability of Rs. 2340.71 lakhs. Apart from this, the company has grossly violated the provisions of Chapter HI-B of the Act. Even though the Bank has advised the company to repay the amounts to the depositors, it has never done so. Therefore, the bank has issued public notification warning the public not to make any deposits with the company as the registration was refused. 16. This is the scenario of this company. The company was promoted by the family members of the first petitioner including himself and started receiving heavy deposits. The depositors were given necessary deposit certificates, but, however, did not return any amount to the depositors whose fixed deposits were matured. This gave hue and cry among the depositors. In the meanwhile, in the name of Midwest Group of Companies, five mor....
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....tors have been diverted for purchase of various assets and they are misused by the petitioners, promoters and other directors who were holding office from time to time. In Chapter IH-B the definition of term 'non-banking financial company' was added by amendment Act 23 of 1997 with effect from 9-1-1997. Under section 45-IA which came into force with effect from 9-1-1997 prohibits non-banking financial company either to commence or carry on business without obtaining certificate of registration, failure of its compliance leads to prosecution. Admittedly, even the Reserve Bank refused to grant registration certificate for operating as Non-Banking Institution, as it found that the petitioners have grossly violated the norms and did not return the deposits after maturity. The rejection order became final. The Reserve Bank has only power either to prosecute under Chapter V of the Act or to recommend for winding up under section 45-MC of the Act. Even the complaints made by the depositors are only registered under section 420 of the Indian Penal Code, 1860. But the most important question is fate of the depositors who had made savings by sacrificing their essential need and to utilise th....
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....cally 'no'. Similar situation came to light before the Supreme Court in Delhi Development Authority v. Skipper Construction Co. (P.) Ltd. [1996] 4 SCC 622. The Supreme Court clarified that "imposition of punishment for contempt would not denude the Court of its power to issue directions to remedy by the wrong done by the contemner including those so as not to enable the contemner to retain the benefit derived by the contempt." The Supreme Court further clarified that "it is open for the Court to lift the corporate veil to see the real men behind the veil who are involved in defrauding others by corrupt and illegal means in deliberate defiance of Court's order." The Supreme Court further held that "the courts have power to reach the illegally obtained property even in the hands of relatives and associates and restore it to the victims of the fraud or corruption." In this case, it is clear that the corporate character was employed by the first petitioner for the purpose of committing illegality and defrauding the others. In such an event, this Court, piercing the corporate veil, can look at the reality behind the corporate veil so as to pass appropriate orders to do substantial justi....
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.... see that the companies do not defraud the innocent depositors, the writ petition is disposed of with the following directions : (a)The State Government shall constitute a separate cell in the office of the Director General of Police headed by an officer of the rank of Superintendent of Police and above for dealing with Non-Banking Financial Institutions who have already collected the amounts and failed to repay the deposits and which did not possess registration under the Reserve Bank of India Act. The cell shall cause discrete enquiries in respect of all such institutions and take immediate action to seize the properties of the company and also the assets of the persons involved in the formation or administration of the company and also the persons who obtained illegal benefit out of the transactions or assets of the company to ensure that the payments are made to the depositors either in full or in pro rata depending upon the circumstances of each case. The cell shall initiate prosecu tion under various laws against all the offenders who are either directly or indirectly involved. (b)In respect of the petitioner-company, the Government of Andhra Pradesh shall order immedia....