TaxTMI 
TaxTMI 
2019 (12) TMI 859
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.... the properties purchased by Aeren R. Mallz Pvt. Ltd., Aeren R. Township Pvt. Ltd., Yashraj Buildcon Pvt. Ltd., Yashvardhan Infrastructure Developers Pvt. Ltd., Aeren R Buildcon Pvt. Ltd. and PMC Entertainment Pvt. Ltd. (name changed to Fortune R Buildco Developers Pvt. ltd.) in village Bonkar Dogran, Ludhiana, have been vacated. 2. The common terms used hereinafter are being defined as under: a) "Related Party Companies" refers to the six land owning companies i.e. Aeren R. Mallz Private Limited; Aeren R. Township Private Limited; Yashraj Buildcon Private Limited; Yashvardhan Infrastructure Developers Private Limited; Aeren R. Buildcon Private Limited; and PMC Entertainment Private Limited; b) "Intermediate Companies" refers to the two companies i.e., A.R. Developers Private Limited and Aeren R. Enterprises Private Limited, through which the funds are alleged to have been diverted to the Related Party Companies; c) "subject land" refers to the 11 parcels of lands purchased by different Companies belonging to Dr. Rajesh Aeren, details of which have been reproduced at paragraph 12 of the impugned judgment (reproduced at paragraph 6 hereinafter); ....
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....th the aforesaid direction, vide order dated 18.03.2016, the company went into liquidation. Appellants state that there were several other investors which had been victims of Respondent No.1/ Dr. Rajesh Aeren, and various complaints were filed before the Economic Offence Wing (EOW). On 07.01.2015, one such complaint was registered as FIR No. 6/2015 and all the existing FIRs were tagged along. The investigation in the said FIR culminated into a chargesheet filed by the police on 02.12.2016. On a perusal of the charge-sheet, it becomes evident that huge sums of monies have been diverted, defalcated and siphoned off from the corpus of Respondent No. 1 which had to be utilized for construction of the "Project Mall‟. On enquiry, Appellants also became conscious that w.e.f. 31.03.2009, no balance sheet or financial records of Respondent No. 1 were filed with the Ministry of Corporate Affairs (MCA). It is further submitted that as per the records available on the website of MCA, Respondent No.1 last filed its annual records for the year ending on 31.12.2009, and since then it has failed to file its Annual Returns, Balance Sheets and other financial records and is in contravention of....
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...., and this money has been utilized in purchasing the subject land, by different Companies belonging to Dr. Rajesh Aeren. Impugned order of the Learned Single Judge 6. On an application [C.A. 788/2017] filed by the Appellant under section 339, 340, 342 and 447 of the Companies Act, 2013 read with Rule 9 of the Companies (Court) Rules 1959, the learned Company Court on perusing the charge-sheet filed by the police, vide order dated 11.07.2018 restrained Related Party Companies from transferring, selling or alienating the properties in village Bonkar, Dogra, Ludhiana. On 16.08.2018, on another application [C.A. No. 910/2018], Court ordered that the company Aeren R. Mallz Private Limited and Yashraj Buildcon Private Limited shall also be covered by the interim order dated 11.07.2018. Subsequently, Respondent No.2, intervener in the said Winding Up Petition, filed applications [C.A. Nos. 1277/2018, 1278/2018 and 1279/2018] inter-alia, seeking vacation of the Order(s), dated 11.07.2018 and 16.08.2018. On hearing the parties, on 11.12.2018 learned Single Judge directed the applicant to file an affidavit with details of the development agreement dated 31.05.2014 and all consequential....
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....ourt on 11.07.2018 read with order dated 16.08.2018. 5. I have heard learned counsel for the parties. 6. Learned senior counsel appearing for the applicant in C.A. No.1277/2018 has submitted that a perusal of the charge-sheet would show that there is no allegation whatsoever of any funds having been diverted from the respondent company to the sister concerns for the purchase of the properties in question. It is pleaded that these properties were purchased way back in 2008. Subsequently, on 31.05.2014, the applicant entered into a Development Management Agreement with the said companies to develop the lands in question. An investment of above Rs. 50crores has been made by the said applicant for the development of the properties. 7. On 11.12.2018 this court had while hearing this application directed the applicant to file an affidavit with details of the development agreement dated 31.05.2014 and all consequential steps taken. The applicant has filed the necessary affidavit. 8. In the said affidavit, the applicant states that the applicant entered into a Development Management Agreement dated 31.05.2014 and Supplement Agreements dated 30.1....
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....175 crores from Mondon Investment Ltd. The details of the properties are as under:- S. No Area of land Place Consideration Party Name Date of Purchase 1 131 Karnal 17 marla/16.48 acres Vill. Bonkar, Dogra, Ludhiana Rs. 8,24,06,275 Yashvardan Infrastructure Developers Pvt. Ltd. (Citi Bank A/c No. 0342546005) 22.02.2008 2 126 Kanals (15.75 acre) -do- Rs. 7,87,50,000 Aeren R Buildcon Pvt. Ltd. 22.02.2008 3 48 kanals -do- Rs. 3,00,00,000 Aeren R Township Pvt. (Citi Bank A/c No. 034171001 22.02.2008 4 85 Kanals 10 Marlas (16.68 acre) Rs. 5,34,37,530 5 50 Kanals -do- Rs. 3,17,50,000 PMC Entertainment Pvt. Ltd. 08.02.2008 6 16 Marlas (15.775 acre) 75 Karnals 8 Marlas Rs. 4,71,25,065 08.02.2008 7 117 Kanals 15 Marlas (14 Acres) -do- Rs. 7,35,93,750 Aeren R Mallz Pvt. Ltd. 09.04.2008 8 16 Kanals (2 acre) -do- Rs. 1,00,00,000 09.04.2008 9 12 Kanals (1 acre 4 Kanals) -do- Rs. 75,00,000 Yashraj Buildcon Pvt. Ltd. 1.12.2008 10 9 Acre 6 Kanals -do- ---- -do- 09.04.2008 ....
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...., term loan agreements and share acquisition agreements placed on record. Mr. Kohli has further sought to demonstrate that there has been diversion of funds from Respondent No. 1 to AR Developers in three streams: a) Global Distributors- Rs. 39 crores paid by Respondent No. 1 and written off, of which Rs. 18.42 crores was paid to AR Developers b) Everest Buildwell - Rs. 33.60 crores was paid by Respondent No. 1 to Everest Buildwell Pvt. Ltd. (sister company), and the entire amount was paid by it to AR Developers. c) Direct Write Off - Rs. 13.39 crores paid by Respondent No. 1 to AR Developers and written off. 9. The diversion of Rs. 14.99 crores to Aeren R. Enterprise has been derived by referring to the balance sheet of Respondent No. 1 for the year ending 31.12.2009, and particulars, by referring to loans and advances recoverable mentioned therein. It has been further urged that monies have been transferred from AR Developers and Aeren R. Enterprise to Related Party Companies, who proceeded to buy the subject land in Ludhiana. This has been explained by referring again, to the balance sheets for the year ending 31.03.2009 of all the concerned entitie....
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....prise Pvt. Ltd. as inter-corporate deposit in the period 01.04.2008 to 31.12.2008. Additionally, a sum of Rs. 14,99,25,000/- (Rupees Fourteen Crores Ninety Nine Lacs and Twenty Five Thousand) was advanced to Aeren R. Enterprises Pvt. Ltd. under the head "loans and advances recoverable". Another amount of Rs. 1,71,52,500 (Rupees One Crore Seventy One Lakhs Fifty Two Thousand and Five Hundred) was diverted by Respondent No. 1 under the head of inter-corporate deposits, given to AR Developers Pvt. Ltd. in the period 01.01.2009 to 31.12.2009. 12. Mr. Kohli has further sought to establish the trail of diverted money from the Intermediate Companies (A.R. Developers Private Limited and Aeren R. Enterprises Private Limited) to Related Party Companies by showing that the balance sheets of Related Party Companies for the period when the said land was purchased, reflect that the intermediate companies made the following advances to related party companies, and such companies purchased the lands after receiving the diverted money from intermediate companies. This is explained by the following tabulation: A.R. Developers Private Limited S.No. Name of the Companies Deposited in th....
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....nt services related to construction companies. It has entered into a Development Management Agreement dated 31.05.2014 with Related Party Companies for Exclusive Development Rights, inter alia in respect of the residential project to be developed on the subject land and, consequently, came into possession of the said land in 2014. The 11 (eleven) properties that are the subject matter in dispute were purchased in 2008, whereas Respondent No. 2 was incorporated in 2012. 15. Mr. Sibal contended that the Appellants have filed the application seeking restraint in respect of the project on the subject land, after a lapse of 9 years since the purchase of the subject land, and 8 years since the filing of the company petition. In this period, substantial investments had been made in the subject land that was preceded by due diligence by issuing public notices and also by registering charges with the concerned authorities. Respondent No. 2 is now finally in a position to carry forward the approved project and, at this critical juncture, the Appellants have sought to restrain them. He urged that it is extremely essential that there should not be any restraint, as it would result into unav....
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....s written off. Appellants have misinterpreted the concept of "written off debt- as not recoverable" with "infusion of funds" into the company. He submitted that the alleged writing off was in the year 2009, whereas the subject land was purchased in 2008 and in any event, a write off does not result in money becoming available to the company in favour of which the amount is written off. He also referred to the flow chart forming part of the charge-sheet to argue that the same does not seem to suggest that the money received by AR Developers Pvt. Ltd. was utilized for purchase of the subject land. Mr. Sibal also laid considerable emphasis on the point that the above stated flow chart does not relate to the specific money/funds invested by the alleged victims who filed complaint before EOW. The money inflow is from a foreign investor who is not before this Court. No part of the monies invested by the alleged victims including the Appellants has been utilized for purchase of the subject land as per the chargesheet. 16. Respondent No. 3 also strongly objected to the present appeal, controverting all the allegations regarding the siphoning off and misutilization of the monies received....
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....relief as sought for by the Appellant were to be granted, it would cause impediment in the development of the project undertaken by Respondent No. 3 and shall also further jeopardize the rights of third parties, bona fide customers and stakeholders of the project. This would result in gross miscarriage of justice and cause irreparable loss to Respondent No. 3 and its collaborating companies in terms of money and reputation. Scope of the present appeal 19. We have deliberated upon the submissions advanced by the learned counsels for the parties and have also perused the documents that form part of the record of the Company Court. The learned Single Judge has ordered audit of the accounts of the Respondent No.1 and we are informed that the same is under progress. Therefore, at this stage, we refrain ourselves from giving any conclusive and definite findings with respect to the allegations levelled by the Appellants regarding diversion and siphoning off of funds. However, since the interim orders in the nature of preserving the subject land have been vacated, we have to examine whether such a course was proper and justified, in light of the serious allegations of fraud and diver....
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.... Further the Account Opening Form as well as bank account statement of global Distributors from Oriental Bank of Commerce, branch Safdarjung Enclave was obtained. The scrutiny of the Account No. 03691010005950 of Global Distributor Ltd revealed that there is no actual work done in the company and the money is coming from one company belonging to Rajesh Aeren Group and going to another company of Rajesh Aeren. In this manner the sham liability is created which is ultimately shown as write off to the tune of Rs. 39 crores approximately. There are no documents in support of the write off done by different companies of Rajesh Aeren Group. The perusal of the statement revealed as :- S.N. Date Credited Amount Name of Company Debited Amount Name of Company 1. 31.07.07 6,00,00,000 AVM 6,00,00,000 AR Developers 2. 07.08.07 4,00,00,000 AVM 4,00,00,000 AR Developers 3. 20.08.07 1,50,00,000 AVM 1,50,00,000 AR Developers 4. 03.09.07 5,20,000 AVM 5,20,000 AR Developers 5. 03.09.07 5,00,00,000 AVM 5,00,00,000 AR Developers 6. 20.09.07 1,86,80,000 AVM 1,86,80,000 A....
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....ng Director of Respondent No. 1. The learned Single Judge has rightly ordered an audit into the accounts of Respondent No. 1, which we feel is a step in the right direction, as it would unearth, in greater detail, the trail of money and this would then assist the Court to take necessary measures. Nonetheless, pending the audit, the learned Single Judge ought not to have vacated the interim orders. Even if one were to apply the basic principles governing the grant of injunction, we feel that in the instant case, since the Appellants have established a prima facie case in their favour, the balance of convenience lies in preservation of the subject land. It is essential to maintain status quo qua the subject land, pending the audit by the Chartered Accountant appointed by the learned Single Judge. 24. We are not impressed with the arguments advanced by Mr. Sibal that since Respondent No. 2 has made substantial investments, it should now be permitted to continue with the project, failing which there would be delay and other complications. If the siphoning off/defalcation/diversion of funds from Respondent No. 1 to the Related Party Companies is conclusively established on the basis ....
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....routing of funds is central to the scheme of layering the tainted money, which is always a challenge for unearthing fraud and tracing the source and the trail. The volume of funds pushed into purchase and acquisition of properties in question can only be estimated at this stage with the existing information. It will, of course, require detailed scrutiny of accounts to reach to a definite conclusion. Looking at the complexity of transactions, the task appears to be formidable, and the way forward is the audit of the accounts that the Company Court has already ordered. At this stage, it is too early to conclude that the transactions relating to purchase of properties are beyond the realm of suspicion. 26. We cannot isolate the purchase of properties to the exclusive investments made by the Foreign investor- Mondon Investments Ltd. In matters relating to fraudulent activities, it is not necessary that the corpus of funds has a separate and distinct colour. The funds in the hands of Respondent No. 1, from whatever quarters it so receives, get inherently mixed up when it enters its books of account and lose its color and characteristics. 27. We may also observe that Respondent No.....
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...., J.) in M.R. Bhakshi vs. Fintra Systems Ltd. and Ors. 151 (2008) DLT 1. The relevant portion of the same has been extracted below: "10. Having considered the respective submissions I am, as at present advised, inclined to agree with the submissions of Mr. Rajiv Shakdher, Sr. Advocate the learned Amicus Curiae. Keeping in view the purpose for which Section 542 has been enacted, and the fact that timely action is of the essence, not only to prevent the presentation of a fiat accompli by the fraudulent Directors of the company, but also to provide relief to the victims of the fraud, it seems that the establishment of the fraudulent conduct for attracting the provision of Section 542 of the Companies Act does not require the same standard of proof as in a criminal trial and the rigours of the law of evidence as apply to a criminal trial would not apply to establish the commission of fraudulent acts and omissions by the Directors and managers of a company. It has also to be kept in mind that by its very nature, fraud is not easy to establish. This is even more so, when the fraudulent conduct is undertaken by the Directors of a company, sitting in their own office, with a view ....
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....liable, without any limitation of liability. Section 542 is an exception to the general rule that in a limited liability company, the liability of the shareholders and directors is limited. The purpose and object of Section 542 is to catch up with the fraudulent directors and other persons responsible for defrauding the creditors and shareholders of the company, who deliberately conduct the affairs of the company in a manner as to rob the company of its resources and allow it to bleed. Conduct, which does not appear to be bona fide or innocent, or a mere judgmental error, but which personally enriches the Directors/managers of the company directly or indirectly at the expense of the company, permits the Courts to take away the protective shield that the directors/manager enjoy under the law. The shield of corporate entity with limited liability of the shareholders/Directors, provided by the law is not meant to protect fraudsters. They cannot be permitted to defraud the shareholders and the public through the instrumentality of a corporate entity with limited liability, and then mock at their shareholders and creditors and the Courts, and seek to protect themselves behind the veil o....
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....sages that the Court would also have the power to issue further directions as it thinks proper for giving effect to the declaration. We are also not convinced with the arguments of Mr. Sibal that the scheme of Sections commencing from 339 to 342 do not envisage the relief of interim protection as has been sought by the Appellants. If in the course of winding up of a company, it appears that the business of the company was carried on with the intent to defraud the creditors of the company or any other persons or for any fraudulent purpose, the Courts would necessarily have the mandate to fix the responsibility. This becomes evident from the scheme of Sections 339-342 which empower the Courts to assess the damages against delinquent Directors etc. Where a declaration under Section 339 or an order under Section 340 is made in respect of a firm or a body corporate, the Court shall also have the power under Section 341 to make a declaration or pass orders in respect of any person who was, at the relevant time, a partner in that firm or a Director of that body corporate. Under Section 342, the Court can also direct the liquidator to prosecute the offender or to refer the matter to the Re....
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....elled themselves to be victims, though curiously they do not advance any submission to the detriment of the promoters of all the companies involved viz. the Aeren family. We cannot visualize the final outcome of the audit with absolute certainty, but since there is prima facie evidence to suggest that the trail of funds in the purchase of the subject land is linked to the fraudulent business affairs of Respondent No. 1, by its promoters, we feel that the balance of convenience lies in protecting the subject land. If a status quo is not maintained, the subject land will be embroiled in multiple title disputes which could frustrate the very purpose of Section 339, and irretrievably mar the interest of the Appellants and the other investors. 32. Thus, interim directions/orders are required to be passed under Section 339, since it is reasonable to assume on the basis of the facts shown to us that Dr. Rajesh Aeren had a direct nexus with the Related Party Companies which emerges from the pattern/trail of funds which has been discovered by the Investigating Agency, noted here. 33. Consequently, we set aside the impugned orders dated 21.02.2019 to the extent it vacates the interim o....