TaxTMI 
TaxTMI 
2023 (9) TMI 634
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..... Ltd. (hereafter "RHC Holding") and Ranchem Pvt. Ltd. (hereafter "Ranchem"), to secure short-term loans. 3. Subsequently, on 23.9.2019, RFL lodged a criminal complaint asserting that officials of LVB had conspired with RHC Holding and Ranchem. This led to the registration of FIR FIR No. 189/2019 by the Economic Offences Wing under Sections 409 and 120B of the Indian Penal Code, 1860 (IPC) (registered as Crime No. 1534/2020). The contents of the FIR alleged that RFL had placed four FDs with a combined value of Rs.750 Crores as security for short-term loans. LVB extended loans to RHC Holding and Ranchem, utilizing these FDs as security. When RHC Holding and Ranchem defaulted on their loan payments, LVB debited an amount of Rs.723.71 crores from RFL's current account without obtaining proper authorization or prior notice. 4. Meanwhile, due to high net levels of Non-Performing Assets, inadequate Capital to Risk (Weighted) Average Ratio and Common Equity Tier-I Capital, two years of negative Return on Assets, and high leverage, the Reserve Bank of India (hereafter "RBI") placed LVB under "Prompt Corrective Action" Prompt Corrective Action (PCA) Framework is to enable Supervisory ....
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.... to the allegation that LVB facilitated the diversion of funds for the promoter's personal gain. 8. In this way, LVB revoked the FDs worth Rs.729 Crores and also benefited by earning Rs.115 crores, in interest. It was alleged that the parties involved acted in connivance with each other and committed acts of commission and omission in furtherance of the conspiracy to cheat the complainant company. 9. Summons were issued to DBS (identified as accused No. 12) on 16.2.2021. Aggrieved, DBS filed a Criminal Miscellaneous Case Crl. M. C. No. 3173/2021 before the Delhi High Court, seeking to quash the supplementary chargesheet dated 12.2.2021 and summoning order dated 16.2.2021 Arising out FIR No. 189/2019, contending inter alia that LVB had ceased to exist due to the non-voluntary amalgamation scheme and that DBS should not face prosecution for the acts and omissions of the entity which it merged with, as directed by the Government of India and the RBI. Additionally, Clause 3(3) of the Amalgamation scheme provides for the institution of criminal proceedings against officials of LVB and therefore, liability should not be attributed to the rescuer bank. 10. The High Court, by its impugn....
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....ed by or against the transferee bank. The proviso to sub clause 3 appears to be only qua Director, Secretary, Manager, officer or other employee of the transferee bank who has actually committed criminal offence." 13. RFL argued that criminal proceedings do not automatically abate upon the amalgamation of a company. LVB gained from the illegal transaction, and DBS is benefited from the assets of LVB, which included misappropriated funds obtained from RFL's fixed deposits. Moreover, Clause 3(3) of the scheme incorporates the notion of criminal accountability, and there is no such bar on transferring criminal liability onto the transferee bank. The High Court's decision essentially denies the petitioner the chance to pursue the case on merits, and instead, it necessitates involving an external body to interpret the amalgamation scheme. Lastly, as the trial is in its early stages, an indefinite stay will further delay the trial process. Contentions of DBS 14. Mr. Mukul Rohatgi and Mr. Jayant Bhushan, learned senior counsel, argued that the acts outlined in the chargesheet occurred well before the appointed date of the amalgamation, i.e., 27.11.2020. LVB was not implicated....
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....9 SCC 606 to submit that even in the case of a natural person where upon the demise of an accused person, criminal proceedings do not pass on to legal heirs or successors. 17. It was further submitted that the High Court was wrong to rely on foreign cases to observe that a transferee company can entail criminal liability as those judgments were rendered by considering legal interpretations distinct from those in India. 18. It was submitted that while one arm of the Government, namely the RBI and the Central Government, took proactive measures by formulating the Scheme under Section 45(7) of the Banking Act to safeguard the interests of LVB's depositors, employees, and others, another arm of the Government, represented by Respondent No. 1, cannot vitiate the process by imposing criminal liability against DBS for the past actions of LVB. 19. Furthermore, DBS highlighted that RFL itself argued before the High Court that an interpretation from the RBI was necessary and that the Court should not make a determination on this matter. RFL presented in its Reply dated 09.01.2022 before the High Court, the following: "21. Without prejudice to the submissions made herein, as per the ....
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....sions of this Part or in any other law or [any agreement or other instrument], for the time being in force, where it appears to the Reserve Bank that there is good reason so to do, the Reserve Bank may apply to the Central Government for an order of moratorium in respect of [a banking company]. (2) to (4) xxx (5) The scheme aforesaid may contain provisions for all or any of the following matters, namely:- (e) subject to the provisions of the scheme, the continuation by or against the banking company on its reconstruction or, as the case may be, the transferee bank, of any actions or proceedings pending against the banking company immediately before the [reconstruction or amalgamation]" Clause 13 of the Amalgamation scheme in the present case, i.e., relating to interpretation by RBI in the case of disputes, is as follows: "13. Interpretation of provisions of this Scheme. - If any doubt arises in the interpretation of the provisions of this Scheme, the matter shall be referred to the Reserve Bank and its views on the issue shall be final and binding on all concerned." 22. As is apparent from the factual narrative and the above discussion, the issue which this court is ....
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.... therefore builds upon the primary rules of attribution by using general rules of attribution which are equally available to natural persons, namely, the principles of agency. It will appoint servants and agents whose acts, by a combination of the general principles of agency and the company's primary rules of attribution, count as the acts of the company. And having done so, it will also make itself subject to the general rules by which liability for the acts of others can be attributed to natural persons, such as estoppel or ostensible authority in contract and vicarious liability or tort. It is worth pausing at this stage to make what may seem an obvious point. Any statement about what a company has or has not done, or can or cannot do, is necessarily a reference to the rules of attribution (primary and general) as they apply to that company. Judges sometimes say that a company 'as such' cannot do anything; it must act by servants or agents. This may seem an unexceptionable, even banal remark. And of course the meaning is usually perfectly clear. But a reference to a company 'as such' might suggest that there is something out there called the company of which one can meaningf....
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....s of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.' Lord Hoffmann, in his opinion stated that : ". . their Lordships would wish to guard themselves against being understood to mean that whenever a servant of a company has authority to do an act on its behalf, knowledge of that act will for all purposes be attributed to the company. It is a question of construction in each case as to whether the particular rule requires that the knowledge that an act has been done, or the state of mind with which it was done, should be attributed to the company. Sometimes, as in In re Supply of Ready Mixed Concrete (No. 2) [1995] 1 A.C. 456 and this case, it will be appropriate . . .. On the other hand, the fact that a company's employee is authorised to drive a lorry does not in itself lead to the conclusion that if he kills someone by reckless driving, the company will be guilty of manslaughter. There is no inconsistency. Each is an example of an attribution rule for a particular purpose, tailored as it always must be to the terms and policies of the substantive rule." 24. This court, considered the issue in Iridium India Teleco....
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.... of two or more concerns into one." It also states that "where there the companies concerned retain separate entities, [] there is no amalgamation". Black Black's Law Dictionary, Eleventh Edition defines amalgamation as the "act of combining or uniting; consolidation < amalgamation of two small companies to form a new corporation >..." The Companies Act, 2013 does not contain any express definition of amalgamation; it rather outlines and regulates the procedure for amalgamation and spells out its legal effect, which results in extinguishment of the corporate identity of the transferor company Section 233 of the Companies Act, 2013 outlines the result of acceptance of a scheme of amalgamation: "(8) The registration of the scheme under sub-section (3) or sub-section (7) shall be deemed to have the effect of dissolution of the transferor company without process of winding-up." [read, in this case, LVB]. In Walker's Settlement 1935 (1) Ch. D. 567, the term 'amalgamation' is defined as: "The word 'amalgamation' has no definite legal meaning. It contemplates a state of things under which 2 companies are so joined as to form a third entity or one company is absorbed into and blended wit....
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.... noncompliance in the requirement to remit or deposit EPF contributions). This court negatived its position by noticing that the takeover document clearly noted the liability and how it was to be treated as McLeod Russel's liability: "13. There is no gainsaying that criminal liability remains steadfastly fastened to the actual perpetrator and cannot be transferred by any compact between persons or even by statute. But this incontrovertible legal principle does not support or validate the contention of Mr. Jayant Bhushan, Learned Senior Advocate for the Appellants, that damages levied in terms of Section 14B of the EPF Act cannot be foisted onto his clients. Sections 14, 14A, 14AA, 14AB and 14AC of the EPF Act are the provisions postulating prosecution; in contradistinction Section 14B contemplates the power to "recover from the employer by way of penalty such damages, not exceeding the amount of arrears, as may be specified in the Scheme". It is true that it is not a river but a mere rivulet that segregates and distinguishes the legal concepts of damages or compensatory damages or exemplary damages or deterrent damages or punitive damages or retributory damages. We shall abjure f....
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.... action, suit, decrees, recovery certificates, appeals or other proceedings of whatever nature is pending by or against the transferor bank before any court or tribunal or any other authority (including for the avoidance of doubt, an arbitral tribunal), the same shall not abate, be discontinued or be ill any way prejudicially affected, but shall, subject to the other provisions of this Scheme, be prosecuted and enforced by or against the transferee bank: Provided that where a contravention of any of the provision of any statute or of any rule, regulation, direction or order made thereunder has been committed by or any proceeding for a criminal offence has been instituted against, a director or secretary, manager, officer or other employee of the transferor bank before the appointed date, such director, secretary, manager, officer or other employee shall, without prejudice to the application of section 6 of the General Clauses Act, 1897 (10 of 1897), be liable to be proceeded against under such law and punished accordingly, as if the transferor bank, being a banking company had not been dissolved." 32. Every scheme of amalgamation is statutory and sanctioned under the Banking A....
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....not completed and there is no satisfactory response of not following the manual in respect of deposit loan of their own bank and later on, when invoke the deposit they tried to shift the responsibility to each other. There is no document as per requirement of the bank itself is on record which established that these are the loans against the security/FDRS of RFL. It has emerged that the loan was required by the promoters of REL as well as RHC Holding Pvt. Limited to square off the liabilities/borrowing of RHC Holdings Limited and Ranchem Private Limited. The accused Malvinder Mohan Singh and Shivinder Mohan Singh cannot avail the loan in their 100% holding company against the FDs of REL as it requires approval of related party transaction committee from the board of REL. Therefore, this arrangement was done with the connivance of the bank officials who facilitated this transaction by passing the SOP of their own. Moreover, loans were extended from time to time and eventually the security has been invoked by the Lakshmi Vilas Bank thus causing wrongful loss to the complainant Company to the tune of Rs. 791 crores approximately. From the investigation conducted so far, the supplem....