AI Drafter 
TaxTMI 
TaxTMI 
2019 (12) TMI 1466
X X X X Extracts X X X X
X X X X Extracts X X X X
....et up a mutual fund known as CRB Mutual Fund. As per rules, CRB Asset Management Company Limited was incorporated to manage and supervise various operations of CRB Mutual Fund. In terms of Regulations a Trust called CRB Trustee Limited was also constituted. Thereafter the said company CRB Capital Markets Limited was authorised by SEBI to set up and establish the mutual fund known as CRB Mutual Fund. The said CRB Mutual Fund floated a close ended scheme known as Arihant Mangal (Growth) Scheme. The scheme opened for subscription on 19.8.1994 and closed on 5.9.1994. The scheme collected Rs. 299.28 crores and was subscribed by 19,396 investors. 3. RBI subsequently in exercise of its powers under the RBI Act, 1934 read with section 433/434 of the Companies Act, 1956 instituted a winding up petition against CRB Capitals Markets Limited. This Court appointed a Provisional Liquidator who was directed to take into custody all the properties, books of accounts etc. 4. To safeguard the interest of the investors of Arihant Mangal Scheme SEBI instituted a Trust Petition on 3.6.1997 against CRB Capital Markets Ltd. and others including CRB Trustee Limited and CRB Asset Management Company L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat Rommel failed to carry out the task assigned to it. It transpired that Rommel sold 1,02,000 shares out of 1,10,000 share of Reliance Industries Limited. A complaint was filed by the said Rommel with the National Stock Exchange of India Limited on 10.6.1997 and 11.6.1997 about non-receipt of sale consideration of the said shares of Reliance Industries Ltd. 6. It is the grievance of the Committee that the said Rommel has without any authority sold the said 1,02,000 shares of RIL standing in the name of CRB Mutual Fund in open market transaction without making any payment thereof to the Mutual Fund. Out of the sale proceeds Rommel has bought 60,400 more shares of RIL. These 60,400 shares were sold for Rs. 1.80 crores. Again part of this amount was used to purchase 1 lac shares of RIL. A balance amount of Rs. 43.75 lacs was invested in a fixed deposit by NSEIL. Hence, it is claimed that 1,02,000 shares belonging to CRB Trustee Limited a/c CRB Mutual Fund have been sold by Rommel. Subsequently, from the sale proceeds another 1 lac share of RIL have been purchased and balance amount is lying in Fixed Deposit. It is pleaded that CRB Mutual Fund is entitled to receive the said 1 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sold through Triumph and is entitled to the sale proceeds. Based on the above, it is prayed that this application may be dismissed. 10. The facts as stated above show that the evidence of both sides is a bit sketchy. At one side the Special Committee relies upon communication dated 10.6.1996 sent to Rommel mentioning that Rommel will negotiate sale of 1,10,000 share of RIL held by CRB Trustee Limited a/c CRB Mutual Fund. It is pleaded that this was followed by subsequent communication including a communication dated 10.10.1996 to IIT Corporate Services to withdraw the shares and keep them ready to be handed over to Rommel. Thereafter on 28.3.1997 a reminder was sent to Rommel regarding the status of the matter. It is pleaded that the 1,10,000 shares have been sold by Rommel without prior consent of CRB Mutual Fund. It is their case that this 1,10,000 shares of RIL were given to Rommel vide Folio No.75915497 held by the CRB Mutual Fund. No sale consideration was received by CRB Trustee Ltd. 11. Rommel, however, claims that the present 1 lac shares of RIL relate back to Agreements entered into with CRB Capital Markets Limited dated 22.11.1995 and 24.4.1996 whereby 1,02,000/- s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eration for 60,400 shares of Reliance Industries Ltd is held by NSCCL in the form of 1,00,000 shares of Reliance and fixed deposit receipts of Rs. 43.75 lakhs. Of the 1,00,000 shares, 97,355 shares are held in trust by NSCCL in demat mode and the balance 2,645 shares have been returned under objection, which are in physical form. After retaining 13,200 shares (1,02,600 Reliance shares delivered by Rommel in 1996 less 89,400 shares whose sale consideration has been reported to have been received by CRB Mutual Fund) and dividend amount of Rs. 3,23,576/- on these 13,200 shares plus interest accrued thereon, we intend to release to Rommel Investments P Ltd. the following on or after October 25, 2004. .............." 14. Hence, as per the National Stock Exchange of India Limited some shares belonging to CRB Trustee Limited A/c CRB Mutual Fund has been sold by Rommel in 1996. According to the above communication sale proceeds of 89,400 shares were directly received into the fund. Hence, National Stock Exchange of India Limited has proposed that out of the unsold shares, namely, 13,200/- shares alongwith accrued dividend may be released to the applicants and the balan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to CRB Trustee Limited a/c CRB Mutual Fund. CRB Capital Markets Limited did not own the shares and could not hypothecate the same. 19. Further, it is not clear as to why CRB Capital Market Limited would pledge shares in return for the Arihant Mangal scheme as is being claimed by Rommel. As per information made available by the Committee the Arihant Mangal Scheme was a success. The scheme generated Rs. 299.28 crores which was subscribed by 19,396 investors. Given this background it is not clear as to why CRB Capital Markets Limited would enter into an Agreement with Rommel whereby a guarantee/security of shares is given for refund of money within six months. 20. Further the best evidence for this alleged transaction would be available with Rommel. This evidence has not been placed before the Court. I may note that this court on 17.4.2018 passed the following directions to Rommel:- "Let Rommel Investment Pvt. Ltd. file an affidavit giving details of the shares including numbers, folio numbers, etc. along with documentary evidence to show that these shares belong to CRB Capital Market Ltd. which were subject matter of the four agreement as stated by Rommel. The affid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arties and by deciding whether any document/evidence, withheld, has any relevance at all or omission of its production would directly establish the case of the other side. The court cannot lose sight of the fact that burden of proof is on the party which makes a factual averment. The court has to consider further as to whether the other side could file interrogatories or apply for inspection and production of the documents, etc. as is required under Order 11 CPC. Conduct and diligence of the other party is also of paramount importance. Presumption of adverse inference for non-production of evidence is always optional and a relevant factor to be considered in the background of facts involved in the case. Existence of some other circumstances may justify non-production of such documents on some reasonable grounds. In case one party has asked the court to direct the other side to produce the document and the other side failed to comply with the court's order, the court may be justified in drawing the adverse inference. All the pros and cons must be examined before the adverse inference is drawn. Such presumption is permissible, if other larger evidence is shown to the contrary." ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is undertaken by the Directors of a company, sitting in their own office, with a view to defraud the creditors/investors who, though the victim of the fraud, are not involved in the transactions which constitute such conduct, and may have no personal knowledge of the same. In K.T. Dharanendrah v. R.T. Authority AIR 1987 SC 1321 the Supreme Court, while dealing with a case under the Customs Act, 1962 observed that "An economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the Community. A disregard for the interest of the Community can be manifested only at the cost of forfeiting the trust and faith of the Community in the system to administer justice in an even handed manner without fear of criticism from the quarters which view white collar crimes with a permissive eye unmindful of the damage done to the National Economy and National Interest. 11. I also find merit in the submission of Mr. Shakdher that it is not necessary that each transaction/instance of funds being siphoned or fraudulent conduct needs to be established from the beginning to the end to invoke Section 542 of the Act. That ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs and creditors and the Courts, and seek to protect themselves behind the veil of the Corporate Entity. The law is not toothless, but empowers the Courts with authority to deal with such situations." 26. The Supreme Court in Official Liquidator vs. Parthasarathi Sinha and Others, (1983) 1 SCC 538 held as follows:- "18. The liability arising under the misfeasance proceedings is founded on the principle that a person who has caused loss to the company by an act amounting to breach of trust should make good of the loss. Section 543 of the Act does not really create any new liability. It only provides for a summary remedy for determining the amount payable by such person on proof of the necessary ingredients. The section authorises the court to direct such persons chargeable under it to pay a sum of money to the company by way of compensation. This is not a provision intended to punish a man who has been found guilty of misfeasance but for compensating the company in respect of the loss occasioned by his misfeasance. Whenever there is a relationship based on contract, quasi-contract, some fiduciary relation or a failure to perform a duty, there is no abatement of the liabi....