TaxTMI 
TaxTMI 
2018 (12) TMI 1675
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....2, the Enforcement Directorate filed an appeal in W.A. No. 133 of 2013. A Division Bench of this Court dismissed the writ appeal by an order dated 31-12-2014. 4. Thereafter, the Bank of Baroda came up with an application in WAMP. No. 155 of 2016 in the disposed of writ appeal seeking a clarification as to whether the fixed deposits lying with them to the tune of Rs. 255 crores should be released to the writ petitioner, in view of the interim suspension granted by the learned single Judge in the writ petition, which was also confirmed in the writ appeal. 5. Actually, the main writ petition was before a learned single Judge and the Miscellaneous Petition filed by the Bank of Baroda in the disposed of writ appeal, came up before us for hearing. When the Miscellaneous Petition was heard, the learned senior counsel for the writ petitioner and the learned Additional Solicitor General submitted that it would be better to take up the writ petition for disposal rather than dealing with the Miscellaneous Petition in the disposed of writ appeal. Thereafter, orders were passed by the Hon'ble the Acting Chief Justice, posting the writ petition along with Miscellaneous Petition in the ....
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....was filed by the Union of India, the Company Law Board passed an interim order in C.P. 001/2009 suspending the Board of Directors with immediate effect, authorizing the Central Government to constitute a fresh Board of Directors with not more than 10 persons of eminence, with one of them being designated as Chairman and directing the newly constituted Board to meet within 7 days of the constitution and to submit periodical reports to the Central Government. (f) Accordingly, the Central Government appointed, for the time being, six eminent persons as Directors. The Directors met for the first time on 17-01-2009 and then on January, 22 and 23, 2009. (g) The newly nominated Board of Directors found that the company was in "acute liquidity crisis" and that there was shortage of funds even to meet day-to-day operations like payment of salaries. Therefore, the Board of Directors passed a resolution on 22-01-2009 to obtain loans from banks to the extent of Rs. 600 crores. (h) The loans secured by the newly appointed Board were found sufficient only to meet short-term requirements. Therefore, the Board resolved to seek the permission of the Company Law Board for ....
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....llotment of 30,27,64,327 equity shares of Rs. 10/- each at a premium of Rs. 48/- per share. (o) It must be pointed out that the order of the Company Law Board dated 16-04-2009 began with an interesting observation that the appropriate title that could be given to the order would be "Adoption of Orphan Satyam" or "Orphan Satyam Adopted". In paragraph 4 of its order dated 16-04-2009, the Company Law Board expressed hope that the strategic partner would adopt and nurture the ailing company and help the company to regain its glory, by adopting the best Corporate governance practices. (p) Pursuant to the order of the Company Law Board, the strategic partner deposited Rs. 1,756 crores and also infused additional funds to the tune of Rs. 1152 crores, through open offer. In total, the strategic partner infused a sum of Rs. 2908 crores. (q) In the meantime, the Government of India ordered an investigation by the Serious Fraud Investigation Office. They filed reports on 13-04-2009, 23-10-2009 and 24-12-2009. The reports indicated that the company itself was a victim of fraud and crime perpetrated by the former Chairman and Managing Director and that the former CMD ....
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....31-12-2014. Therefore, now the writ petition has come up for final disposal. Basis of the provisional attachment order: 11. The provisional attachment order dated 18-10-2012 proceeds primarily on the basis of the charge-sheets filed by the CBI in the Special Court. According to the provisional attachment order, the charge-sheets filed by the CBI before the designated Court revealed the following: (i) That B. Ramalinga Raju and others along with their relatives and associates floated 327 companies under the guise of carrying out agricultural and other allied activities, with the hidden object of investing the funds derived from the pledge or sale of inflated shares of Satyam Computers in real estate; (ii) That out of these 327 companies, some were known as loan companies and some were known as investment companies; (iii) That the shares held in the name of B. Ramalinga Raju and others in Satyam Computers, were transferred by them to another company by name S.R.S.R. Holdings Private Limited, floated by Ramalinga Raju's son and others; (iv) That the said company S.R.S.R. Holdings Pvt. Ltd. secured loans from non-banking finance companies, ....
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....8; (x) that out of the said amount, Rs. 194.60 Crores was repaid leaving a balance of Rs. 1,230.40 Crores remaining with Satyam Computers; (xi) that the trail of funds in respect of the above-mentioned amount of Rs. 1,425/- Crores transferred to Satyam Computers revealed that an amount of Rs. 822/- Crores constituted a part of Rs. 2,171.45 Crores derived by pledging inflated shares of Satyam Computers; (xii) that the aforesaid amount of Rs. 822/- Crores was routed through 34 front companies to Satyam Computers; (xiii) that the said amount of Rs. 822/- Crores has been layered and finally parked with Satyam Computers by 34 front companies; (xiv) that these funds were later used by Satyam Computers for meeting their day-to-day expenses like payment of salaries; (xv) that therefore this amount constituted proceeds of crime which mingled with the other legitimate sources of income; (xvi) that had this mingling not taken place, the books of accounts of Satyam Computers would have shown negative balance; and (xvii) that since Satyam Computers had fixed deposits to the tune of Rs. 822/- Crores, the same became liable t....
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....re at Hyderabad in C.P. No. 123 of 2013 by order dated 11-6-2013; (vi) that by virtue of the order of amalgamation, the transferee became liable under Section 394 of the Companies Act, 1956; (vii) that since the Enforcement Directorate is an independent agency, it is not bound by the outcome of the investigation by the CBI or SEBI or SFIO; (viii) that the investigation by the CBI related only to the offences committed by individuals and not by company; (ix) that the CBI never made the company as an accused and hence the company cannot now take refuge under the findings of the Special Court; (x) that even as per some portions of the charge-sheet filed by the CBI, the company was engaged in criminal activities; and (xi) that since the strategic investor was aware of the prosecutions and investigations pending against the company, when they participated in the transparent process of bidding, they are now estopped from questioning the outcome of such investigation. 15. We have carefully considered the above submissions. 16. Since the very maintainability of the writ petition is questioned, we shall first take up the same, befo....
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....2, but also invited our attention to various decisions of the Supreme Court on the question of maintainability of the writ petition in cases where different layers of procedure are stipulated in the Act itself. 21. In response, it is contended by Mr. S. Ravi, learned Senior Counsel appearing for the petitioner- (i) that once the writ petition has been admitted and rule is issued, the availability of alternative remedy may not be a bar; (ii) that when a condition precedent for the exercise of jurisdiction is not fulfilled, a writ petition is maintainable despite the availability of alternative remedy; (iii) that the alternative remedy of going before the Adjudicating Authority is not an effective alternative remedy, since the scope and jurisdiction of the Adjudicating Authority is very narrow, as it is confined only to a limited question whether the properties are involved in money laundering or not; (iv) that prior to the amendment to Section 8(5), under the 2013 amendment, an order of attachment will cease to have effect, the moment the accused is acquitted; (v) that since the petitioner company was not one of the accused and the Spe....
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....er affidavit, then the Adjudicating Authority cannot go back on the contents of the counter affidavit. 24. Realising this folly, the Enforcement Directorate has come up with an application in I.A. No. 8 of 2018 seeking amendment of the counter affidavit by deleting the word "Respondent No. 3/Adjudicating Authority" from the counter affidavit. It is stated in the affidavit in support of this application that due to a typographical mistake, it was stated in the counter affidavit as though the same was filed on behalf of the Adjudicating Authority also. It is also claimed in the affidavit in support of this application that in the entire counter, there was no mention that it was filed by the Adjudicating Authority. Therefore, it is claimed that what was stated in the caption was a clerical error. 25. But there are two difficulties in accepting the stand taken by the Enforcement Directorate in I.A. No. 8 of 2018. The first is that the affidavit in support of I.A. No. 8 of 2018 is sworn to by one Mr. Raja Sekhar Reddy, Assistant Director, whereas the original counter affidavit was sworn to by one Mr. T. Samuel, Assistant Director. It would have been better if the very same person ....
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....f Money Laundering Act, 2002. Therefore, we overrule the objections of the Enforcement Directorate to the maintainability of the writ petition. Contentions of merits: 29. The first ground on which the impugned provisional order of attachment is assailed by Mr. S. Ravi, learned senior counsel for the petitioner is that, after all the statutory regulatory agencies like the Company Law Board, the Central Bureau of Investigation and the Serious Fraud Investigation Office (SFIO) have described the company Satyam Computers as a victim of fraud, it is not open to the Enforcement Directorate to treat the petitioner as an accused or as a beneficiary of the proceeds of crime. In support of this contention, Mr. S. Ravi, learned senior counsel for the petitioner, drew our attention (1) to the second final report of the CBI dated 22-11-2009 and the judgment of the Designated Court, wherein it was recorded that the dividends were paid by the company during the financial years 2007-08, 2008-09, though the company was actually making losses, thereby causing wrongful loss to the company to the tune of Rs. 302.57 crores; (2) to the report of the Serious Fraud Investigation Office, dated 13-04-....
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....t of the Special Court, to which our attention was drawn, clearly show (i) that there was an illegal outflow of funds from out of the company to the tune of more than Rs. 1000 crores; (ii) that the beneficiaries of such illegal outflow of funds included the shareholders, who got dividends on nonexistent income, the Income Tax Department, which received tax, on fictitious income, the employees, who received incentives on imaginary performance, the Board of Directors, who received commission probably for making losses, the statutory auditors, who received remuneration for exhibiting excellence in falsification of accounts and suppliers, who received payments for supplies never made. 31. In fact, even the Enforcement Directorate does not dispute the fact that there was falsification of accounts and that a company, which was making losses, was shown to be making huge profits for the purpose of inflating the value of the shares held by the promoters. The balance sheet of the company to which our attention was drawn shows that the dividends were paid to the share holders to the tune of Rs. 94.36 crores in the year 2002-03, Rs. 126.72 crores in the year 2003-04, Rs. 159.63 crores in th....
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....tachment is assailed is that after inducing and enticing a strategic investor through an open, fair and transparent competitive bidding process supervised by a retired Chief Justice of India to infuse funds to the tune of Rs. 2908 crores, it was not fair on the part of one of the Government agencies to take away the asset of the company, that formed part of the whole deal. 36. While providing the background facts, we have narrated as to how the Government of India intervened with lightening speed to safeguard the interests of more than about 3 lakhs shareholders and 53,000 employees. The D-day on which sathyam (truth) got truly revealed was 07-01-2009, when the Chairman and Managing Director of the company wrote a letter to the Board of Directors, admitting serious irregularities. He claimed that the books of accounts of the company were manipulated to reveal fictitious cash and bank balances to the tune of Rs. 5040 crores and an understated liability of Rs. 1230 crores. Within 48 hours, the Government of India through the Ministry of Corporate Affairs moved a petition in C.P. 001/2009 on the file of Company Law Board, Principal Bench, New Delhi under Sections 388B, 397, 398 and....
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.... was actually on the basis of the data available during the relevant period. 40. A few dates are of importance. As per para 10 of the impugned provisional order of attachment, the complaint under the PMLA was registered in ECIR No. 1 of 2009 on 23-01-2009. The Board of Directors nominated by the Central Government moved an application in C.A. 84 of 2009 before the Company Law Board seeking permission to devise a plan for the induction of strategic partners, in the second week of February 2009. The application was heard on 18-02-2009 and an order was passed on 19-02-2009 by the Company Law Board, permitting the Board of Directors to increase the authorised equity share capital and to devise a plan to induct a strategic investor through an open, fair and transparent competitive price bid auction. The Request for Proposal was made by the Board of Directors on 13-03-2009 and access to the data room was provided during the period from 24-03-2009 to 04-04-2009. The bids were submitted on 12-04-2009 and they were opened on 13-04-2009. The Company Law Board approved the entire process by an order dated 16-04-2009. 41. Therefore, if the Enforcement Directorate had issued a provisional....
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....f being pure borrowed money. 45. There is no denial of the fact that but for the strategic investor namely Tech Mahendra Limited coming into the picture, the noble intentions of the Ministry of Corporate Affairs of the Government of India of rehabilitating and saving more than 3 lakhs shareholders and 53,000 employees could not have been achieved. The Enforcement Directorate should have kept this mind, before choosing to order the provisional attachment of the fixed deposits. 46. It is too late in the day to question whether the duty to act fairly, is ingrained in every activity of the State or not. As pointed out by the Supreme Court in Tata Iron and Coal India Limited v. Union of India, the doctrine of fairness and the duty to act fairly was developed in the administrative law field to ensure the rule of law and to prevent failure of justice. It is a principle of good conscience and equity. As pointed out by the Supreme Court, unreasonableness is opposed to fairness. 47. Two things ought to have been done by the Enforcement Directorate immediately upon the registration of a complaint in ECIR 1 of 2009 dated 23-01-2009. They should have either attached all the properties ....
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.... CBI and Serious Fraud Investigation Office were actually targeted against the promoters. Actually, what could devolve upon the transferee company are the rights and obligations of the transferor company and not its Directors or Promoters. 52. In fact, the order of provisional attachment impugned in this writ petition is dated 18-10-2012. It was suspended by this Court on 11-12-2012. The order of the learned Judge dated 11-12-2012 was confirmed by the Division Bench of this Court in W.A. No. 133 of 2013 by order dated 31-12-2014. 53. But the order of amalgamation was passed on 11-06-2013 when the order of suspension of the provisional attachment order was in force. Therefore, the strategic investor Tech Mahendra Limited cannot be said to have waived their right to continue the writ petition filed in the year 2012 challenging the order of provisional attachment. If the order of amalgamation had to be understood to mean a withdrawal of the claim in the above writ petition, then no further enquiry is necessary. But the clause contained in the order of amalgamation cannot be taken to have extinguished the rights of the petitioner in the writ petition filed much earlier. 54. Th....
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....re, the learned Senior Counsel for the petitioner is right in contending that there was utter confusion in the impugned order as to what came in and what went out and where the money was. 63. In the second part of paragraph-16 of the impugned order, there is yet another statement which reads as follows: "This amount has mingled with the other legitimate sources of incomes of M/s. S.C.S.L. and has been put into day-to-day use of M/s. S.C.S.L. But for this amount, an equal amount of negative balance would have existed in the books of account of M/s. S.C.S.L. Hence, an equivalent amount of Rs. 822/- Crores with M/s. S.C.S.L. constitutes property involved in money laundering ... ... ..." 64. The above statement in paragraph-16 of the impugned order shows that what is sought to be attached is neither the proceeds of crime nor the property into which the proceeds of crime got converted. What is sought to be attached is a money equivalent of what has allegedly disappeared from the company. 65. The definition of the expression "proceeds of crime" under Section 2(1)(u) shows that what is meant by the expression is the property derived or obtained directly or indirectly by ....
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....ering or not. 70. The contention of Mr. S. Ravi, learned senior counsel for the petitioner is that the petitioner company was not even implicated as an accused in the criminal case. All the accused, who were individuals and who were at the helm of affairs of the petitioner company, were prosecuted and they were convicted by the Special Court by a judgment dated 09-04-2015. Since the charge sheets were filed prior to the amendment and since the petitioner was not one of the accused, the amendment to Section 8(5) will not apply to the case of the petitioner. That vested rights cannot be taken away by retrospective application of the law (especially quasi criminal) is too well settled. A useful reference may be made in this regard to the judgments of the Supreme Court in STO v. Oriental Coal Corporation 1988 (Suppl) SCC 308 and in K.S. Paripoornan v. State of Kerala (1994) 5 SCC 593. In Oriental Coal Corporation the Supreme Court pointed out that where there is no hint of retrospectivity, in the statute itself, it is not possible to read retrospectivity. Similarly, in K.S. Paripoornan, the Supreme Court indicated the distinction between a statute dealing with substantive rights and....
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....s, much was sought to be made out of a letter dated 10-04-2009 sent by the Enforcement Directorate to the CEO of Satyam Computers asking them not to return Rs. 1230 crores and the reply given on 06-06-2012 to the effect that the amount is reflected in the balance sheet and that the company has sufficient cash reserves to meet any obligations. 76. But the above contention loses sight of the timeline of events. To recapitulate, the Board of Directors nominated by the Government of India filed an application on 17-02-2009 before the Company Law Board seeking permission to induct a strategic investor. Permission was granted by order dated 19-02-2009. A Request for Proposal was made on 13-03-2009 and the prospective bidders were given access to the data room from 24-03-2009 to 04-04-2009. The letter of the Enforcement Directorate was dated 10-04-2009 and was received on 11-04-2009. All bidders, without being aware of the said letter, submitted their financial bids on 12-04-2009. The bids were opened on 13-04-2009 and there were three participants. None of them was informed of the letter dated 10-04-2009 issued by the Enforcement Directorate. If the company was obliged, on account of ....