TaxTMI 
TaxTMI 
2021 (9) TMI 521
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....No.11206/21 was listed before this Court on 6.7.2021 and during the hearing of the said petition for bail, it was fairly conceded by the learned senior counsel appearing for the respective petitioners as well as the intervenors that the bail petition is intrinsically connected with the quash petitions in Crl. O.P. Nos.3730, 4095 and 4227/21 and, therefore, the said petitions may be tagged together and listed for hearing so as to give a quietus to the issue. It was also informed on behalf of the intervenor that W.P. No.1397/2021 has been filed for a mandamus praying for certain directions and the said petition, too, being connected with the issue on hand, Registry was directed to place the matter before the Hon'ble Chief Justice as to the listing of the bail petitions, the quash petitions and the writ petition and upon orders of the Hon'ble Chief Justice, the petitions are listed before this Court for hearing. 2. Learned senior counsel appearing on either side fairly submitted that the quash petition may be taken up by this Court as the case that would fall out from the said quash petition, on a prima facie nature, would have a bearing in the disposal of the bail petition....
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....ectors in the said group for the default in payment of interest, which led to the registration of the above crime against ITNL, IL & FS and also various other Directors of the IL & FS, ITNL and other group companies. Aggrieved by the said registration of the case against the petitioners, who are no longer Directors of the said group companies, the present criminal original petitions have been filed on the ground that the invocation of the provisions of TNPID Act would not stand attracted to the debentures floated by ITNL as the said debentures are not "deposit" and ITNL is not a "financial establishment" as defined u/s 2 (2) and 2 (3) of the TNPID Act. 6. It is the case of the petitioners that ITNL, which is a group company under the umbrella of IL&FS is involved in the infrastructural activities and not into finance and banking activities. ITNL had floated non-convertible debentures, to a select few, on which interest was to be paid. The petitioners were, till 21.01.2019 were paying interest on the said debentures, but in view of the moratorium issued by NCLAT, ITNL was not able to pay the interest, which default led to the registration of the complaint by the intervenors under....
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....ulcted with any responsibility for the lapse committed by the company. It is the submission of the learned senior counsel that in view of non-fulfilment of the circumstance enumerated in Section 149 (12) of the Companies Act, the said provision would not stand attracted to the case of the petitioner. 11. It is the further submission of the learned senior counsel that A-7, being a non-executive director, permission of the Ministry of Corporate Affairs is necessary for launching any prosecution against him in view of the circular of the Ministry of Corporate Affairs dated 2.3.2020, wherein criminal or civil proceedings stood barred against non-executive directors and independent directors, when the decisions are attributable to the Board or the Committees constituted by the Board. 12. Learned senior counsel appearing for A-7 further submitted that investigation of the issue has already been entrusted with SFIO u/s 212 of the Companies Act and once the investigation is entrusted with SFIO, the jurisdiction on the other investigating agencies stand ousted in view of the bar u/s 212 (2) and (3) of the Companies Act. It is the further submission of the learned senior counsel that b....
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....bout the issue and no money was collected from the public. 16. It is the further submission of the learned senior counsel for A-7 that Entry 46 of the Union List pertains to Bills of exchange, cheques, promissory notes and other like instruments and the present case, the instrument, which is put in issue is the debentures issued by ITNL, which would squarely stand covered under Entry 46 of the Union List and, therefore, the jurisdiction vests with SFIO to continue with the investigation and insofar as the said instrument, viz., debentures is concerned, no other agency is vested with the power to investigate. 17. Mr. M.K.Kabir, learned senior counsel appearing for A-6, while adopting the arguments of Mr.B.Kumar, learned senior counsel appearing for A-7, further submitted that A-6 is also identically placed as A-7, in that A-6 was not only a non-executive director, but had also resigned from the company/Board on 1.10.18, much prior to the FIR dated 28.9.20. A-6 being a non-executive director and not a key managerial personnel, as prescribed under the Companies Act, cannot be fastened with any vicarious liability and, therefore, the complaint against A-6 cannot be allowed to sur....
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....ai. In view of the fact that all the transactions having taken place within the jurisdiction of Mumbai and also the entities involved in the transactions are having offices at Mumbai and that the trading has been done at the Mumbai Stock Exchange, no jurisdiction vests at Chennai and, therefore, invocation of jurisdiction at Chennai is not maintainable. 21. It is the further submission of the learned senior counsel that clause 9.14 of the Information Memorandum prescribes the entities, who could apply for the private placement debentures, which clearly prescribes that the said entities could be investors, only when specifically approached and they could apply for the purchase of the private placement debentures. However, the 2^nd respondent is not one such entity, which was approached by ITNL, but the 2nd respondent had purchased the non-convertible debentures from open market from Trust Capital and, therefore, it cannot lay claim that ITNL has cheated the 2nd respondent. In this regard, it is the submission of the learned senior counsel for A-6 that even where there arises any default in payment of monies, accruing due on the respective date, default interest has been provided,....
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....submitted by the learned senior counsel that the 2nd respondent herein had filed two sets of petitions for registration of the case, which was ordered by this Court. However, the 2nd respondent has not stated in the second petition that the first petition on which the complaint has been registered, was also at his instance, which shows that the 2nd respondent has not spoken in entirety about the issue even while the complaint was sought to be registered. 25. It is the further submission of the learned senior counsel for A-6 that the 2nd respondent had, even before the filing of the complaint, had approached the NCLAT by filing necessary application for securing the repayment on the debentures, pursuant to the grant of moratorium by NCLAT. However, the 2nd respondent, for reasons best known, omitted to mention about its knowledge and filing of the application before the NCLAT for securing its repayment, which has already been verified and admitted by the Auditors Grant Thornton. However, the said facts have not been brought to the notice of this Court, which is clear suppression on the part of the 2nd respondent. 26. Mr.Manishankar, learned senior counsel appearing for A-3, in....
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....es, at whose instance the complaint has been registered, has no locus to prosecute the case, as the 2nd respondent is a purchaser of the non-convertible debentures, which was issued on private placement basis, from Trust Capital. It is for the 2nd respondent to have satisfied itself by reading all the information provided in the information memorandum before proceeding to purchase the non-convertible debentures. 30. It is the further submission of the learned senior counsel for A-3 that the invocation of Section 420 IPC against the Directors of ITNL is wholly misconceived, as there is no intent shown on the part of ITNL to defraud the 2nd respondent. There is no element of cheating by ITNL and the default, as borne out by records is on account of the moratorium granted by NCLAT. It is the further submission of the learned senior counsel for A-3 that the ingredients of Section 420 IPC does not get satisfied in any way, as it is categorically evident from the provision that there should be a dishonest inducement to deceive the person, which is not established by the 2nd respondent. It is the submission of the learned senior counsel that the private placement of debentures were not....
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....ble to the money collected by ITNL, as the said collection could in no way be termed to be 'deposits' as defined u/s 2 (2) of the TNPID Act. It is the further submission of the learned senior counsel for A-3 that the prescription made under sub-sections (2), (7) and (8) of Section 42 have been duly complied with by ITNL and, therefore, the issue could in no way be said to be a deposit raised from the public. 35. It is the further submission of the learned senior counsel for A-3 that G.O. Ms. No.1697, Home (Courts IIA) Dept., dated 24.12.1999, constituting EOWII specifically for the purpose of securing the money collected as deposits from public, on which defaults have been committed in repayment after maturity by non-banking financial companies and unincorporated financial institutions. The Government Order has clearly specified that the special wing is specifically constituted for the above purpose. However, ITNL, not being a non-banking financial company or a financial institution, which had collected money from the public, case cannot be investigated by the EOW-II, constituted for the aforesaid purpose. 36. Learned senior counsel appearing for A-3 drew the attentio....
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.... the adverse notice of the Union Government leading to the filing of a petition before the National Company Law Tribunal, Mumbai. Learned senior counsel drew the particular attention of this Court to the various allegations raised by the Union Government against the entire IL & FS Group and submitted that only on account of the fact that all was not well with the conduct of the affairs of the group company, petition was moved by the Union Government before NCLT, in the interest of all the stakeholders in the group company, which necessitated in NCLT passing orders and pursuant to the said orders, the Board of the group was reconstituted with the appointment of members by the Union Government. 40. It is the further submission of the learned senior counsel that a specific averment is in the complaint filed by the Union of India pertaining to the affairs of the group companies under the IL & FS umbrella, whrein it has been stated that the suspended Directors constituted a Committee of Directors which was empowered to take decisions pertaining to the operations of the said companies, which clearly shows that the nomenclature in which the petitioners have been shown as non-executive ....
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....release them from the rigours of criminal prosecution. 44. It is the further submission of the learned senior counsel that in view of the non obstante clause found in Section 14 of TNPID Act, the operation of all the other Acts would be driven to a backseat and, therefore, merely because investigation is being carried out by other agencies would not be a bar for the 1st respondent to continue with the investigation. 45. It is the further submission of the learned senior counsel that NCLT has made a specific observation in its order, where it is observed that the present Board is neither the promoters nor hold any equity. They are merely feasting on the public funds, which they have misutilised by drawing hefty packages for themselves. It is therefore the submission of the learned senior counsel that from the above observation of NCLT, it is categorically clear that the petitioners, under the garb of being the directors of the company, were enjoying the comforts on the public money, to the detriment of the public, which has invited the interference by the Government. It is therefore the submission of the learned senior counsel that the acts of the petitioners in acting in detr....
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....will not put a freeze on any parallel proceeding, as SFIO investigation being conducted, any other investigation, in line with the SFIO investigation, for any other offence, attractable to any other provision of the Act would be equally proceedable, as trying to freeze the said investigation would, in effect, frustrate the said enactment. 49. Mr. Abdukumar Rajaratnam, learned counsel appearing for one another intervenor submitted that the definition of "deposit" u/s 2 (2) of the TNPID Act takes within its fold all the money deposited either in one lumpsum or by instalments with the Financial Establishment for a fixed period for interest or for return in any kind and it does not speak about the entity depositing the amount, be it in debentures or otherwise. Further, "Financial Establishment", as defined u/s 2 (3) of the TNPID Act clearly prescribes that any company, registered under the Companies Act, carrying on business of receiving deposits under any scheme or arrangement and, therefore, the mere fact that the deposit collected by ITNL being by way of debentures would in no way absolve ITNL of criminal culpability when the deposits have been collected by the company under the ....
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....e SFIO had implicated the petitioners for many wrongful acts in the running of the company and its affairs, including decision making. 54. It is the further submission of the learned counsel that NCLT had categorically held that the affairs of the company were held in total contravention of public interest and the Directors of the Company had hid and avoided possible defaults resulting in increasing indebtedness of the group companies. 55. It is the further submission of the learned counsel that even the credit rating companies had acted hand in glove with IL & FS and its subsidiary companies in inflating the credit worthiness of the group companies, which had resulted in SEBI taking penal action against the said credit rating companies. It is the submission of the learned counsel that only on account of the inflated credit worthiness, projected by the credit rating companies, at the instance of the petitioner and the group companies, the complainant was deceived to deposit in the group by purchasing the debentures and, therefore, the invocation of the provisions of the TNPID Act cannot be held to be bad. 56. Learned counsel drew the attention of this Court to the complain....
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.... vi) Puran - Vs - Rambilas (2001 (6) SCC 338) vii) Y.S.Jagan Mohan Reddy - Vs - CBI (2013 (7) SCC 439) viii) Nimmagadda Prasad - Vs - CBI (2013 (7) SCC 466) ix) State of Bihar - Vs - Amit Kumar (2017 (13) SCC 751) x) P.Chidambaram - Vs - Directorate of Enforcement (2019 (9) SCC 24) xi) SFIO - Vs - Nittin Johari (2019 (9) SCC 165) xii) Helios & Matheson IT Ltd. - Vs - The State (2015 SCC OnLine Mad 7398) xiii) K.K.Baskaran - Vs - State (2011 (3) SCC 739) xiv) Viswapriya (India ) Ltd. - Vs - govt. of Tamil Nadu (W.P. No.14229/15 - Dated 5.8.15) 60. This Court paid its undiminished attention to the eloquent and elaborate submissions advanced by the respective learned senior counsel and the other learned counsel appearing for the parties and also paid its concerted attention to the materials referred to with regard to the said submissions and also the various decisions brought to the notice of this Court by the learned counsel in support of their vociferous and passionate submissions. 61. On a holistic and conscious consideration of the submissions put forth by the learned counsel on either side, the follo....
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....ud Investigation Office * * * * * * * * (2) Where any case has been assigned by the Central Government to the Serious Fraud Investigation Office for investigation under this Act, no other investigating agency of Central Government or any State Government shall proceed with investigation in such case in respect of any offence under this Act and in case any such investigation has already been initiated, it shall not be proceeded further with and the concerned agency shall transfer the relevant documents and records in respect of such offences under this Act to Serious Fraud Investigation Office. * * * * * * * * (17) (a) In case Serious Fraud Investigation Office has been investigating any offence under this Act, any other investigating agency, State Government, police authority, income-tax authorities having any information or documents in respect of such offence shall provide all such information or documents available with it to the Serious Fraud Investigation Office; (b) The Serious Fraud Investigation Office shall share any information or documents available with it, with any investigating agency, State Government, police authority or ....
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....f Central Government or State Government which was transferred to SFIO, must then be re-transferred to said Investigating Agencies. But the Statute does not contemplate that. The transfer is irrevocable and cannot be recalled in any manner. Once assigned, SFIO continues to have the power to conduct and complete investigation2. If that be so, can such power stand curtailed or diminished if the investigation is not completed within a particular period. The Statute has not prescribed any period for completion of investigation. The prescription in the instant case came in the order of 20.06.2018. Whether such prescription in the Order could be taken as curtailing the powers of SFIO is the issue." 66. It is to be pointed out that Chapter XXVII of the Companies Act, 2013, provides for establishment of Special Courts and offence triable by said Courts u/s 435 and 436 of the Companies Act. It is not in dispute that the complex nature of the economic transactions, due to digital explosion has led to financial ramifications, and any fraud or mala fide act committed by an entity, would have a cascading effect not only on the interest of the different types of investors, but also on the eco....
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....he group companies under the umbrella of IL & FS, the Central Government, invoking the provisions of the Companies Act had filed necessary petitions before the NCLT, Mumbai for suspension of certain Directors and for appointment of new nominee Directors and for other relief, which was acceded to by NCLT. 72. Thereafter, invoking the power vested u/s 210 of the Companies Act, with a view to investigate into the affairs of the company, the Central Government had set in motion investigation by assigning the case to the SFIO. In pursuance thereof, the Ministry of Corporate Affairs, has issued order in No.03/679/2018-CL.II (WR) dated 30.9.2018 in exercise of powers conferred u/s 212 (1) (a) and (c) of the Companies Act by assigning investigation to SFIO into the affairs of IL & FS and its subsidiary companies to be carried out by the officers of the Serious Fraud Investigation Office and vested on the persons to be assigned by the Director, SFIO, all powers to investigate into the affairs of the above mentioned company. From the above sequence of events, it is abundantly clear that the investigative mechanism has been mooted out under the Companies Act and other penal provisions and ....
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....for the other investigating agencies to proceed with investigation under the Companies Act and not insofar as it relates to any other offences under any other law for which investigation is being carried out by any other agency under the aegis of the Central Government or the State Government. However, SFIO could investigate the matter not only on assignment by the Central Government under the Companies Act, but even under any other law, be it enacted by the State or the Central Government. Therefore, it is clear that the power of SFIO in the matter of investigation is inclusive of all enactments in addition to the Companies Act, whereas the power of the other investigating agencies to investigate the matter is in exclusion to any issue under the Companies Act. Therefore, there exists a complete bar for other investigating agencies to investigate into the matter under the Companies Act once it is assigned to SFIO by the Central Government. Issue No.1 is answered accordingly. ISSUE NO.2 Whether the default committed by ITNL on account of non-payment of interest in view of the moratorium granted by NCLAT could be held against ITNL and the petitioners, thereby making....
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.... issued by it on the private placement basis u/s 42 of the Companies Act. 78. As issues 3 and 4 go hand in hand, they are taken up together for the purpose of convenience and being answered. 79. The criminal law has been set in motion by the 2nd respondent and certain other intervenors by filing petitions before the 1st respondent under the provisions of the TNPID Act, which has, in turn, culminated in the registration of Crime No.13 of 2020. 80. Though the case has been registered and the 1st respondent has taken up investigation, the petitions for quashment of the said complaint have been filed on the ground that the provisions of the TNPID Act would not stand attracted to the case of ITNL and consequently no criminal liability can be fastened on the petitioners, as ITNL is not a "financial establishment" as defined u/s 2 (3) of the TNPID Act and the amounts received by way of debentures under the private placement scheme would not partake the character of "deposits" as defined u/s 2 (2) of the TNPID Act. 81. To address the above issues, it is necessary to have a careful perusal of the definition of "deposit" and "financial establishment" as defined u/s 2 (2) and 2....
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....mpany Law Board for extension of time to repay the deposits?" 84. In the said case, the company, which was the appellant, had, on its own, admitted that they were accepting deposits from the public as well as the shareholders for over 10 yeas in terms of Section 58-A of the Companies Act, as is evident from para-4 of the said judgment. 85. Further, in the said case, due to non-repayment of the deposits to the depositors, and due to liquidity crunch, the company had filed winding up petitions and, thereafter, pending the winding up petition, invoking Section 74 (2) of the Companies Act, had filed petition before the Company Law Board seeking extension of time to repay. 86. On the above facts, which stood undisputed and borne out by record, the Division Bench, relying upon the ratio laid down by the Hon'ble Apex Court, held as under :- "58. Again, in paragraph 33, the Supreme Court held that while Section 58-A of the Companies Act prescribes the conditions under which deposits may be invited or accepted by the companies, the aim and object of the TNPID Act is totally different. The Court pointed out in paragraph 35 that the field occupied by the Companies Act wa....
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....randum and Articles of Association would itself be a question of fact to be decided on the basis of evidence. 62. To satisfy his conscience as to whether or not there was prima facie material to show that the appellant is carrying on the business of receiving deposits, the learned Judge has looked into the website and found out that they were also rendering banking and financial services. What is vertical and what is horizontal in a website information, cannot become the subject matter of a controversy, to be adjudicated in a writ petition under Article 226 for quashing a FIR. 63. Either during the course of investigation or at the worse during the trial, the appellant can always establish that they never carried on the business of receiving deposits under any Scheme or Arrangement or in any other manner, so as to come within the purview of the definition of the expression "financial establishment" under Section 2(3) of the TNPID Act, 1997. The FIR cannot be quashed on the basis of an assertion in an affidavit filed before the Court that the appellant is not carrying on the business of receiving deposits. The Investigating Officer has found at least prima facie (i....
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....rther, by way of private placement, the company had issued debentures to the select group, who had shown interest in investing in the said debentures. It is therefore the stand of the petitioners that mere acceptance of money from the select group of persons, and from whom the 2nd respondent had purchased the debentures, would not classify the said investment as a deposit as defined u/s 2 (2) of the Act. 91. For better appreciation as to whether the amounts received by ITNL could be said to be deposits within the definition of Section 2 (2) of the TNPID Act, Section 42 of the Companies Act by which provides for private placement and under which the private placement scheme was floated are extracted hereunder for better understanding and appreciation :- "42. Offer or invitation for subscription of securities on private placement.-(1) Without prejudice to the provisions of section 26, a company may, subject to the provisions of this section, make private placement through issue of a private placement offer letter. (2) Subject to sub-section (1), the offer of securities or invitation to subscribe securities, shall be made to such number of persons not exceeding fi....
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....wledging a debt to the Company. It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates. 95. Debenture includes debenture stock, bonds and any other securities of a company whether constituting a charge on the assets of a company or not as defined in the Companies Act. This is an inclusive definition and amounts to borrowing of monies from the holders of debentures on such terms and conditions subject to which the debentures have been issued. Basically it is a document or certificate signed by the authorized officers of a company acknowledging money lent and guaranteeing repayment with interest and creating security on the assets of the company for due performance of its obligation. 96. Monies have been borrowed by the company from a select few persons by issuance of debentures, which has ultimately landed on the lap of the 2nd respondent. There may have been manipulation of credit ratings by the petitioners and ITNL for gains, but those are under investigation by SFIO and this Court cannot give any affirmat....
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.... case for the simple reason that in the said case, it is the admitted case, as already stated above, that the company was accepting deposits from the public. Though ancillary contention was raised that the company is not into banking and financial service and was involved only in information technology related services, and, therefore, it cannot be termed to be a financial establishment under the TNPID Act, however, the said contention was negatived on the ground that not only the company is involved in information technology related services, but was also involved in accepting deposits from public, as is evident from their own admission and also the details found in their website. The learned single Judge, adverting to materials found in the website of the appellant therein, has come to the conclusion that the company was involved in accepting deposits and would therefore squarely fall within the ambit of "financial establishment" and the amounts having been received from the public, the same would be "deposit" as defined under the TNPID Act. 100. However, in the case on hand, no material whatsoever is placed before this Court by the learned counsel for the intervenors to impre....
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.... whether ITNL could be held to be a "financial establishment" as defined u/s 2 (3) of the TNPID Act. 103. A perusal of the Information Memorandum, which has been circulated by ITNL pursuant to the floating of private placement scheme outlines the activities of ITNL, which shows that ITNL is a surface transportation company incorporated under the provisions of the Companies Act, 1956 by IL & FS for the purpose of consolidating their existing road infrastructure projects and to pursue various new project initiatives in the area of surface transportation infrastructure. The said aspect of the activities of ITNL is not disputed by the 2nd respondent. However, the stand of the 2nd respondent is that the debentures through which monies were mobilised by ITNL are not exclusively used by ITNL and that it has been spread over all the group companies and that it is not the case of the petitioners and ITNL that the group companies were/are not into finance and banking and, therefore, citing the information memorandum, which shows ITNL to be an infrastructural road project company and expanding into surface transportation is only a cloak with which ITNL is trying to cover its finance and ba....
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....e establishment is a "financial establishment", which is evident from Section 212 (2) of the Companies Act as also the decision of the Hon'ble Apex Court in Rahul Modi's case (supra). 107. It is further to be pointed out that the words "under any scheme or arrangement" would have a lien on the words preceding it, viz., "business of receiving deposits". In the case on hand, as aforesaid, the amounts realised by ITNL through private placement, by issuance of "debentures" have been held to be not "deposits" as defined under the TNPID Act. Such being the case, the act of the company issuing debentures for realising monies could in no way be termed to be business of receiving deposits from public as provided u/s 2 (3) of the TNPID Act and, therefore, ITNL cannot be said to be a company fulfilling the requirements of Section 2 (3) of the TNPID Act to be adjudged as a "financial establishment". 108. Further a perusal of the statement of objects and reasons leading to the enactment of the TNPID Act clearly delineates that due to the mushrooming growth of financial establishments not covered by the Reserve Bank of India Act, 1934 and with the sole object of grabbing money rece....
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....when the act of ITNL is not what has been codified under the Act for it to be labelled as a "financial establishment" or the investment received by it to be termed a "deposit" with the meaning of Section 2 (2) and 2 (3) of the TNPID Act. 110. Once this Court has come to the conclusion that neither ITNL could be termed to be "financial establishment" and the amount collected by it through private placement by issuance of debentures could be termed to be "deposit" with the meaning of Sections 2 (3) and 2 (2) of the TNPID Act, necessarily it has to follow that the provisions of TNPID Act cannot be made applicable to the case of ITNL in the facts of the present case, as the acts of ITNL are in no way within the parameters codified under the TNPID Act. Therefore, this Court is of the firm and clear opinion that TNPID Act is not applicable to the present case and the act of ITNL relating to issuance of debentures under the private placement scheme cannot be termed to be receipt of deposit from public and, therefore, the consequential registration of the case for investigation by the 1st respondent against ITNL and the petitioners herein is beyond its legal dominion and, necessarily th....
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....g liberty to the intervenors as aforesaid; iv) All the connected miscellaneous petitions for permitting the intervenors to intervene are allowed; and v) All other connected miscellaneous petitions are closed. 114. Before parting with the case, it is to be impressed upon that the economic offence committed by IL & FS and its group companies is to the whooping tune of Rs. 91,000 Crores and above, which has a spiraling and cascading effect on the economic growth of the country, which has resulted in the Central Government interfering in the administration of IL & FS and its group companies by filing petition before NCLT for reconstitution of the Board, which was been discussed above. The various orders passed by the Tribunal at the interference of the Central Government clearly show that all is not well with IL & FS and its group companies and also the persons, who were manning the said companies, of which the petitioners also formed a part then. Though the petitioners had come out of the post of Directors, it is not to be forgotten that the action by the Central Government in filing petition before the NCLT and ordering of investigation by SFIO clearly show the e....