TaxTMI 
TaxTMI 
2022 (4) TMI 81
X X X X Extracts X X X X
X X X X Extracts X X X X
....titioner'/'Applicant' has preferred the instant Company Appeal (AT) (CH) No.17 of 2022 as an 'affected person' being dissatisfied with the 'Impugned Order' dated 17.11.2021, passed by the National Company Law Tribunal, Division Bench-II, Chennai in CP/46(CHE)/2021. 2. The National Company Law Tribunal, Division Bench-II, Chennai while passing the Impugned Order dated 17.11.2021 in CP/46(CHE)/2021 (filed by the 'Appellant'/'Applicant'/'Petitioner' inter alia at Paragraph 10 to 22 had observed the following: 10. "It was submitted that the petitioner herein is a legal heir and grandson of the owner of 12.53 acres of land in S.No.76/2 & 77 and the 1st Respondent Club had admittedly entered into a lease agreement with the late grandfather of the Petitioner with respect to the said property on 27.07.1927 and further extended the term up to 26.10.1936. It was submitted that the 1st Respondent is still in possession of the said property and has refused to pay lease rentals. Apart from the said 12.53 acres of land, the 1st Respondent is in possession and occupation of 160 acres of Government land whose market value is 11500 Crores and Government value is 5000 Crores, for which a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rein the 1st Respondent appears to have unlawfully sub-leased and / or leased the same to M/s. Madras School of Equitation and is deriving an income from the same. The said act of refusing to pay lease rentals to the actual owners of the properties and simultaneously sub-leasing/ leasing the said property to drive income, is contrary to the rule of law and public property. 14. It was further submitted that the modus operandi of the 1st Respondent is to alienate the lands over which they possess only lease hold rights and by creating and forging documents and fraudulently profiting from such alienation and that, they have actively involved in land grabbing from the Government of Tamil Nadu and private parties by fabricating title documents and colluding with private parties and multination corporations. 15. The petitioner alleges that, the 1st Respondent is a habitual tax evader and has evaded service tax and GST from the year 1994 and 2017 respectively, on lease rentals payable, to the tune of Rs. 250 crores apart from income tax claims amounting to the tune of Rs. 75 Crores. It is further averred that, the 1st Respondent has evaded Service Tax and GST from 2006 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nto Company's Affairs in other cases The Tribunal may, -- (a) On an application made by- (i) not less than one hundred members or members holding not less than one-tenth of the total voting power, in the case of a company having a share capital; or (ii) not less than one-fifth of the persons on the company's register of members, in the case of a company having no share capital, and supported by such evidence as may be necessary for the purpose of showing that the applicants have god reasons for seeking an order for conducting an investigation into the affairs of the company; or (b) On an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that-- (i) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its member or that the company was formed for any fraudulent or unlawful purpose; (ii) persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the said documents filed along with the Petition would show that the allegations made by the Petitioner are not corroborated with the documents filed therewith. Prima facie, the Petitioner has miserably failed to make out a case under Section 213(b) of the Companies Act, 2013 and ahs also failed to satisfy this Tribunal that the affairs of the 1st Respondent Company have been conducted in a fraudulent manner or unlawful purpose and on the said count itself this Petition is liable to be dismissed. 21. It is pertinent to note here that the trigger for the Petitioner filing the present Petition is with respect to the findings given by the Hon'ble Apex Court in the matter of Dr. K.R. Lakshmanan (supra) whereby, the Hon'ble Apex Court held that there are no materials on record to show that any inquiry or investigation had been conducted by the State Government prior to passing of the 1986 Act and that even if it were to be accepted that the 1st Respondent Club was being mismanaged, since it is company registered under the Companies Act, 1956, the said Act provides elaborate machinery and well-established procedural safeguards for dealing with mismanagement in Companies regi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ellant' by virtue of being the 'Legal Heir' of the Owner/Lessor is approximately a sum of Rs. 55 Crores. 5. The Learned Counsel for the 'Appellant' contends that the 'Impugned Order' passed by the 'National Company Law Tribunal, Division Bench-II, Chennai in CP/46/CHE/2021 is an incorrect and invalid one because of the fact that the same was passed in a 'Summary Fashion' without the detailed Hearing, thereby negating the 'Principles of Natural Justice'. 6. The Learned Counsel for the 'Appellant' puts forward a plea that the 'Tribunal' had committed an error in failing to appreciate and consider that 'Fraud' vitiates everything, (including the 'Timeline' and 'Limitation'). 7. According to the Learned Counsel for the 'Appellant' that the 'Impugned Order' was passed by the 'Tribunal' without issuing 'Notice' to the 'Respondents' or permitted them to file their 'Reply'. 8. The Learned Counsel for the 'Appellant' proceeds to point out that the 'Mismanagement' and 'Fraud' in the conduct of business of the 1st Respondent is in 'die in diem' and 'continuous in nature'. 9. The other submission of the Learned Counsel for the 'Appellant' is that the 'Appellant' had approached t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of Land was grabbed by the 1st Respondent/Club and kept under lock illegally by the 1st Respondent/Club without any Documentation or Legal Right over the said property. 17. The Learned Counsel for the 'Appellant' advances an Argument that the 'Tribunal' had failed to consider that there was a 'Lease Deed' between the 1st Respondent/Club and DLF Retail Pvt. Ltd. for a period of three years and later another 'Memorandum of Understanding' for Leas Rentals' by which the 1st Respondent/Club had collected Lease Rentals' to the tune of Rs. 200 Crores for which Stamp Duty was not paid to the 'Government'. Therefore, a contention is projected on the side of the 'Appellant' that the 'fraudulent' nature of the 'Business' of the 1st Respondent/Club is quite apparent. 18. It is the emphatic plea of the 'Appellant' that the 'Tribunal' had failed to consider that the 1st Respondent/Club had illegally alienated 3.82 Acres of Land valued at Rs. 300 Crores in S. No.76/2, T.S. No.24/2, Block-16 without putting the 'Land Owners' on 'Notice' and without following the 'Due Process of Law'. CONTENTIONS OF RESPONDENTS NO.1 AND 2 19. The Learned Counsel for the Respondents No.1 and 2 submits ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Heir' as it claims to be, would have had knowledge of and being made a 'Party' to. In respect of the 'Land Conveyance' made in favour of 'DLF' is concerned, the same is a Private transaction between the 'Club' and another entity, carried out in accordance with law and it is not known as to on what basis it was alleged by the 'Appellant' that the same warrants an enquiry into the conduct of the affairs of the 'Club'. 25. In regard to the issue of 'Mangolia Park' is concerned, the 1st Respondent/Club has no nexus with the said transaction whatsoever, and this cannot form the basis for seeking an 'Investigation' into the 1st Respondent/Club's Affairs. 26. In so far as the allegations of sub lease to the 'Madras School of Equitation' is concerned, it is the stand of the Respondents No.1 to 2 that M/s. Madras School of Equitation is part and parcel of the 1st Respondent/Club and hence, the question of any 'Sub Lease' does not arise. Moreover, no income is obtained from the said School, by the 1st Respondent/Club. 27. The Learned Counsel for the Respondents No.1 and 2 takes a plea that the 1st Respondent/Club till date has not received any 'Notice' from the 'Income Tax Departme....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (ii) for an unlawful purpose; (c) ... (d) ... Since the existence of "circumstances" is a condition fundamental to the making of an opinion, the existence of the circumstances, if questioned, has to be proved at least prima facie. It is not sufficient to assert that the circumstances exist and give no clue to what they are because the circumstances must be such as to lead the conclusions of certain definiteness. The conclusions must relate to an intent to defraud, a fraudulent or unlawful purpose, fraud or misconduct of the withholding of information of a particular kind." 29. The Learned Counsel for the Respondents No.1 and 2 contends that the 'Investigation Of Companies' in 'Law' means that the 'Existence Of Circumstances' relevant to the inference must be of a 'Sine qua non' for the exercise of jurisdiction. Besides these, the observations made by the Hon'ble Supreme Court in the decision Dr. K.R. Lakshmanan v State of Tamil Nadu and Anr. reported in (1996) 2 SCC Page 226 pertain to the statutory 'Provisions' forming part of the framework of the Companies Act, 1956 and cannot in any manner be read as conferring a right to the 'Appellant' to co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....overnment Exchequer' and the general public. 35. The stand of the 'Appellant'/'Petitioner' in the main Company Petition before the 'Tribunal is that the 'Government of Tamil Nadu' had formed a prima facie opinion of the various illegalities and mismanagement of the 1st Respondent/Club as early as in the year 1986. Further, it is the version of the 'Appellant' that just because an 'Investigation' was not conducted and the procedure established under the Companies Act, 1956 was not followed, the Hon'ble Supreme Court had struck down the 1986 Act. 36. The 'Appellant'/'Petitioner' in the main Company Petition in CP/46(CHE)/2021 had prayed for the relief of (i) appointing one or more competent persons as Inspectors to investigate the affairs of the 1st Respondent/Company thoroughly report thereon in such manner prescribed under Law and to punish the persons 'guilty of fraud' in accordance with law. Further, the 'Appellant'/Petitioner had prayed for issuance of a direction in directing the 1st Respondent/Club to reimburse and compensate him, other losses all other affected persons for the pecuniary loss incurred or suffered on account of failure to pay 'Lease Rentals'. 37. Apart....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ins that the Provisions of the Limitation Act, 1963 shall as far as may be apply to the 'Proceedings' or 'Appeals' before the 'Tribunal' or 'Appellate Tribunal' as the case may be. The words occurring in Section 433 of the Companies Act, 2013 'as far as may be' means to the extent applicable in the proceedings under the Act. LATCHES: 43. The term 'Latches' in law means a failure to do something at the proper time. Further, it points out an undue delay in asserting a 'Legal Rights' or 'privilege'. It cannot be brushed aside that the 'Delay' and 'Latches' will come into operative play and commence from the date of knowledge as per decision Nirmla Thakkar (Dr. Mrs.) v Bluebird Enterprises, reported in 2012 72 Company Cases Page 28 (CLB). The plea of Limitation is a mixed question of Law and fact. Equitable Consideration: 44. The 'Doctrine of Latches' is rested upon the 'equitable consideration' and depends on the general principles of 'Justice And Fair Play'. The aspect of 'Latches' is to be gone into by the 'Tribunal' at its subjective discretion, as opined by this 'Tribunal'. 45. It is within the discretion of a 'Tribunal' to entertain a Petition or to grant relief pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any' by the 'Serious Fraud Investigation Office'. The words 'employed' in Section 210(2) of the Companies Act, 2013 'Shall Order' connotes that when an Order is passed by a 'Court'/'Tribunal', it is mandatory for the Central Government to order an 'Investigation'. 52. Section 212 of the Act 2013 concerns with a different situation than the situations caused by Section 210 of the Act. In the case of an 'Investigation' by the 'Serious Fraud Investigation Office' the Central Government forms an opinion that it is necessary to order an 'Investigation' by 'SFIO'. 53. Section 212(1) of the Companies Act, 2013 refers to the opinion being formed that it is necessary to investigate into the affairs of the 'Company' by 'Serious Fraud Investigation Office', as per decision of the Hon'ble High Court of Andhra Pradesh in 'The Medak Diocese of Church of South Indian Trust Association v The Union of India dated 16.11.2017'. SERIOUS FRAUD: 54. The Companies Act, 2013 does not define the expression 'Serious Fraud'. The Companies Act, 2013 contains provisions relating to 'Corporate Frauds' in the Companies Act, 2013. At this juncture, this 'Tribunal' points out that the explanation under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....estigation' under Section 210 of the Companies Act is not an 'investigation' in respect of a 'Criminal Case'. The aim of 'investigation' under the Companies Act, 2013 is only to streamline the working of a 'Company'. SECTION 213 OF THE COMPANIES ACT 'Investigation into Companies Affairs in other cases' 58. It is to be borne in mind that materials are to be placed before the 'Tribunal' to arrive at a subjective satisfaction that a deeper probe into the 'affairs of a Company' is desirable in the Company itself. ANY PERSON AGGRIEVED: 59. The words seen in Section 421(1) of the Companies Act, 2013 mean only a 'person' who has suffered a legal grievance. APPELLATE TRIBUNAL'S ORDER: 60. Be it noted, that in the 'Order' of this 'Tribunal' dated 02.12.2019 (National Company Law Appellate Tribunal, New Delhi) in the matter of Union of India, through Serious Fraud Investigation Office (SFIO) v Maharashtra Tourism Development Corporation and Anr. (vide Company Appeal (AT) (INS) 964 of 2019 with Company Appeal (AT) (INS) 965 of 2019 it is inter alia at Paragraph No. 6, it is observed as under: 6. Similar issue fell for consideration before this Appellate Tribunal in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces by Special Court under Section 236 of the 'I&B Code'. 29. In terms of sub-section (1) of Section 60, the 'National Company Law Tribunal' is the 'Adjudicating Authority' for the purpose of 'I&B Code'. It is having concurrent jurisdiction as the 'National Company Law Tribunal' under the Companies Act, as also as the Adjudicating Authority under the 'I&B Code'. 30. Section 212 of the Companies Act, 2013 though relates to 'investigation into the affairs of company by Serious Fraud Investigation Office' and such investigation can be made only if the Central Government is of the opinion that it is necessary to investigate into the affairs of a company by the 'Serious Fraud Investigation Office', as detailed below: "212. Investigation into affairs of Company by Serious Fraud Investigation Office.- (1) Without prejudice to the provisions of section 210, where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company by the Serious Fraud Investigation Office- (a) on receipt of a report of the Registrar or inspector under section 208; (b) on intimation of a special resolution passed by a compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat he is not guilty of such offence and that he is not likely to commit any offence while on bail: Provided that a person, who, is under the age of sixteen years or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs: Provided further that the Special Court shall not take cognizance of any offence referred to this subsection except upon a complaint in writing made by- (i) the Director, Serious Fraud Investigation Office; or (ii) (ii) any officer of the Central Government authorised, by a general or special order in writing in this behalf by that Government. (7) The limitation on granting of bail specified in subsection (6) is in addition to the limitations under the Code of Criminal Procedure, 1973 (2 of 1974) or any other law for the time being in force on granting of bail. (8) If the Director, Additional Director or Assistant Director of Serious Fraud Investigation Office authorised in this behalf by the Central Government by general or special order, has on the basis of material in his possession reason to believe (the reason for such belief to be recorded in writing) that any person has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her action taken or initiated by Serious Fraud Investigation Office under the provisions of the Companies Act, 1956 (1 of 1956) shall continue to be proceeded with under that Act as if this Act had not been passed. (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 income-tax authorities, which may be relevant or useful for such investigating agency, State Government, police authority or income-tax authorities in respect of any offence or matter being investigated or examined by it under any other law." 31. From bare perusal of Section 212 of the Companies Act, 2013, it will be evident that such investigation into affairs of company can be made only on receipt of a report of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ard to the parties concerned, that the affairs of the company ought to be investigated by an inspector or inspectors appointed by the Central Government and where such an order is passed, the Central Government shall appoint one or more competent persons as inspectors to investigate into the affairs of the company in respect of such matters and to report thereupon to it in such manner as the Central Government may direct: Provided that if after investigation it is proved that- (i) the business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose; or (ii) any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, then, every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in section 447." 34. In terms of clause (b) of Section 213, on an application made to it by any other person ('Res....
X X X X Extracts X X X X
X X X X Extracts X X X X
....offence under the 'I&B Code' also. 37. In view of the aforesaid position of law, we hold that the Tribunal/ Adjudicating Authority, on receipt of application/complaint of alleged violation of the aforesaid provisions and on such consideration and being satisfied that there are circumstances suggesting that defraud etc. has been committed, may refer the matter to the Central Government for investigation by an Inspector or Inspectors as may be appointed by the Central Government. On such investigation, if the investigating authority reports that a person has committed any offence punishable under Section 213 read with Section 447 of the Companies Act, 2013 or Sections 68, 69, 70, 71, 72 and 73 of the 'I&B Code', in such case, the Central Government is competent to refer the matter to the Special Court itself or may ask the Insolvency and Bankruptcy Board of India or may authorise any person in terms of sub-section (2) of Section 236 of the 'I&B Code' to file complaint. 38. The National Company Law Tribunal is the Adjudicating Authority under Part-II of the 'I&B Code' in terms of sub-section (1) of Section 60, which reads as follows: "60. Adjudicating Author....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovisions as discussed above. Impugned order shows parties have been heard on the charges claimed by the 'Resolution Professional'. 43. We, accordingly, modify the impugned order dated 16th April, 2019 and refer the matter to the Central Government for investigation through any Inspector or Inspectors." EVALUATION: 61. As far as the present case is concerned, the 'Appellant'/'Applicant' is not a 'shareholder' or a 'Creditor' or a 'person' related in any manner to the '1st Respondent'/'Club'. As regards, the 'Title', in respect of the lands measuring 12.53 'Acres' is concerned, the same is a subject matter of 'litigation' with numerous legal proceedings before the City Civil Court, Chennai. 62. In respect of the 'conveyance' to and in favor of 'DLF' is concerned, the same, according to the 1st Respondent/Club is a private transaction between the 'Club' and another entity. As far as 'Madras School of Equitation' is concerned, it is the stand of the 1st Respondent/Club that it is a part and parcel of the 1st Respondent/Club and the issue of Sub-Lease may not arise. 63. In regard to the 'Income Tax' dues and the 'GST' dues are concerned, the 'Appellant'/'Petitioner'....