TaxTMI 
TaxTMI 
2023 (12) TMI 1256
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....K. Rai, D.S. Pandey, Deepti Srivastava, Dharmendra Kumar Gupta, Govind Krishna, J.S. Tomar, Kalpana Sinha, Kashi Nath Shukla, Krishna Mohan, M.A. Khan, M.K. Rajvanshi, Mahipal Singh, Neeraj Agarwal, O.L. M.K. Bagri, O.L. O.P. Sharma, O.P.Misra, P.C. Srivastava, Raj Nath N. Shukla, Rajesh Singh, Rajiv Trivedi, S.M. Fazal, S.N. Singh, S.P. Pandey, Satish Mandhyan, Shambhu Chopra, Smt. Shikha Singh, Sri Narayan Mishra, Syed Fahim Ahmad, U.K. Dixit, V.K. Pandey, V.K. Shukla, Vijay Dixit, Yogendra Pati Tripathi ORDER HON'BLE JAYANT BANERJI, J. CIVIL MISC. RECALL APPLICATION NO. 235 OF 2020 1. The aforesaid application has been filed by an Ex-Director of the Company in liquidation to recall the order dated 13.12.2019 passed by this Court, whereby, this Court had directed the Special Frauds Investigating Office, Ministry of Corporate Affairs, to recommence the investigation into the affairs of the company in liquidation that was started pursuant to an order dated 18.7.2008 passed by this Court in the aforesaid company petition. As reflected in the order dated 13.12.2019, the learned counsel for the Official Liquidator had referred to the Official Liquidator's Report No....
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....djudicated the claims that were received and examined and verified and a report was to be filed in a month. The Court was of the opinion that since all claims received by the Official Liquidator had already been examined by the chartered accountant and had been settled, there was no purpose in associating the ex-directors of the company in liquidation with the claims committee or even appoint a fresh committee consisting of a retired judge or other members. The order further records that the ex-directors were permitted to file objections against the report proposed to be submitted by the Official Liquidator regarding settlement of the claims. The ex-directors were permitted to submit a comprehensive scheme for the payment/settlement of all claims. 3. It is, therefore, contended by the learned counsel that consideration of the application for referring the matter to the SFIO was consciously deferred by this Court in view of the facts and circumstances of the case, which revealed that full cooperation was being extended by the ex-directors to the Official Liquidator to settle the claims of the creditors. Learned counsel has referred to the Official Liquidator's Report No. Judicial....
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....O and its report is to be submitted to the Central Government and if the Central Government is of the opinion that any person, in relation to the company has been guilty of any offence for which he may be criminally liable, such person can be prosecuted. On an order by the Court declaring the affairs of the company to be investigated by an Inspector appointed by the Central Government, the Central Government is required to appoint competent persons as Inspector/s to investigate the affairs of the company and to report thereon in such manner as the Central Government may direct. It is stated that under clause (d) of sub-section 241 of the Act 1956, the Central Government would furnish a copy of the report to the court where the Inspectors are appointed under Section 237 of the Act, 1956, pursuant to an order of the Court. The contention is that investigation by SFIO cannot be ordered as a matter of course. But it has to be demonstrated before the Court on the basis of cogent and relevant material on record, as opposed to vague and baseless averments, that conditions exist meriting a direction for investigation under the provisions of Section 237 of the Act 1956. It has been stated t....
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....s properties in tabulated form bearing a heading "Allegations Table" stating details of the properties belonging to the companies in liquidation and other group companies as well as other individuals and persons, which properties find reference in various documents as well as in the affidavit dated 12.12.2019 sworn by Rowena Sharma, an ex-director of the company in liquidation. The 'Allegation Table', a copy of which had been handed over to the counsel for the Official Liquidator, was taken on record. 6. Shri Subham Agrawal, learned counsel appearing for the Official Liquidator has stated that winding up of the order in liquidation was passed on 24.3.2002. It has been it is stated that as per mandate of subsection (1) of section 456 of the Companies Act, all the properties of the company in liquidation have to be taken over by the Official Liquidator and it is the duty of the company in liquidation to ensure all cooperation in this regard. Learned counsel has referred to the Official Liquidator's Report No. 9 of 2008 to contend that it is reflected therein the web of intrigue employed by the company and other group companies in defrauding the investors and diversion of funds of ....
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....ssion of several properties of the company in liquidation was taken by the Official Liquidator, however, it is alleged by the counsel for the OL that possession of other properties of the company in liquidation was not taken over. In the "Allegations Table" that was taken on record, 24 properties have been described which are referred to, as per the headings, either in (i) the Official Liquidator's Report No. 42 of 2018, (ii) reply on behalf of company in liquidation dated 28-07-2018 (The date is wrongly mentioned in the heading as 27.7.2018.), (iii) Official Liquidator's Report No. 187 of 2018, and (iv) personal affidavit of the Ex-Director Mrs. Rowena Sharma dated 12-12-2019. 8. It is evident from perusal of the Official Liquidator's Report No. (JUDL)/42/2018 (OLR No. 42) that it was filed for placing the details of the assets of the company in liquidation as per information provided by the Ex- Directors of the company as well as records available with the office of the Official Liquidator. It is stated therein that by OLR No. 173 of 2006, details of the properties mentioned in the Statement of Affairs filed by the Ex-Directors was also submitted. Initially, the St....
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....re capital, an application has been received from not less than two hundred members or from members holding not less than one-tenth of the total voting power therein, and (b) in the case of a company having no share capital, an application has been received from not less than one-fifth of the persons on the company's register of members, the Tribunal may, after giving the parties an opportunity of being heard, by order, declare that the affairs of the company ought to be investigated by an inspector or inspectors, and on such a declaration being made, the Central Government shall appoint one or more competent persons as inspectors to investigate the affairs of the company and to report thereon in such manner as the Central Government may direct. 237. Investigation of company's affairs in other cases. - Without prejudice to its powers under section 235, the Central Government - (a) shall appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if - (i) the company, by special resolution ; or (ii) the Cour....
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....has at any relevant time been the company's managing director or manager, the inspector shall, subject to the provisions of sub-section (2), have power so to do and shall report on the affairs of the other body corporate or of the managing director, or manager, so far as he thinks that the results of his investigation thereof are relevant to the investigation of the affairs of the first-mentioned company. (2) In the case of any body corporate or person referred to in clause (b)(ii), (b)(iii), (c) or (d) of sub-section (1), the inspector shall not exercise his power of investigating into, and reporting on, its or his affairs without first having obtained the prior approval of the Central Government thereto: Provided that before according approval under this subsection, the Central Government shall give the body corporate or person a reasonable opportunity to show cause why such approval should not be accorded. 240. Production of documents and evidence. - (1) It shall be the duty of all officers and other employees and agents of the company, and where the affairs of any other body corporate are investigated by virtue of section 239, of all officers and ....
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.... under sub-section (1A) to furnish ; or (c) to appear before the inspector personally when required to do so under sub-section (2) or to answer any question which is put to him by the inspector in pursuance of that sub-section ; or (d) to sign the notes of any examination referred to in subsection (5), he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to twenty thousand rupees, or with both, and also with a further fine which may extend to two thousand rupees for every day after the first during which the failure or refusal continues. (4) [Omitted by the Companies (Amendment) Act, 1965, with effect from 15-10-1965.] (5) Notes of any examination under sub-section (2) shall be taken down in writing and shall be read over to or by, and signed by, the person examined and may thereafter be used in evidence against him. (6) In this section - (a) the expression "officers", in relation to any company or body corporate, includes any trustee for the debenture holders of such company or body corporate ; (b) the expression "agent", in relation to any company, ....
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....ectors' report.- (1) The inspectors may, and if so directed by the Central Government shall, make interim reports to that Government, and on the conclusion of the investigation, shall make a final report to the Central Government. Any such report shall be written or printed, as the Central Government may direct. (2) The Central Government - (a) shall forward a copy of any report (other than an interim report) made by the inspectors to the company at its registered office, and also to any body corporate dealt with in the report by virtue of section 239 ; (b) may, if it thinks fit, furnish a copy thereof, on request and on payment of the prescribed fee, to any person - (i) who is a member of the company or other body corporate deal with in the report by virtue of section 239 ;. (ii) ........... (iii) whose interests as a creditor of the company, other body corporate aforesaid appear to the Central Government to be affected ; (c) shall, where the inspectors are appointed in pursuance of the provisions of sub-section (2) of section 235, furnish, at the request of the applicants for the investigation, a copy of ....
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.... have been investigated in pursuance of clause (a), (b) or (c) of section 239, - (a) for the recovery of damages in respect of any fraud, misfeasance or other misconduct in connection with the promotion or formation, or the management of the affairs, of such company or body corporate ; or (b) for the recovery of any property of such company, or body corporate, which has been misapplied or wrongfully retained ; the Central Government may itself bring proceedings for that purpose in the name of such company or body corporate. (2) The Central Government shall indemnify such company or body corporate against any costs or expenses incurred by it in, or in connection with any proceedings brought by virtue of subsection (1). 246. Inspectors' report to be evidence. - A copy of any report of any inspector or inspectors appointed under section 235 or 237 authenticated in such manner, of any, as may be prescribed, shall be admissible in any legal proceeding as evidence of the opinion of the inspector or inspectors in relation to any matter contained in the report. 247. Investigation of ownership of company. - (1) Where it appears to th....
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....d in the success or failure, or the apparent success or failure, of the company, or of any other body corporate whose membership or constitution is investigated with that of the company ; or (ii) able to control or materially to influence the policy of such company, body corporate, ; as they apply in relation to officers and other employees and agents of the company, of the other body corporate, as the case may be : Provided further that the Central Government shall not be bound to furnish the company or any other person with a copy of any report by an inspector appointed under this section or with a complete copy thereof, if it is of opinion that there is good reason for not divulging the contents of the report or of parts thereof ; but in such a case, the Central Government shall cause to be kept by the Registrar a copy of any such report or, as the case may be, of the parts thereof, as respects which it is not of that opinion. (6) The expenses of any investigation under this section shall be defrayed by the Central Government out of moneys provided by Parliament, unless the Central Government directs that the expenses or any part thereof shoul....
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....onducted with intent to defraud its creditors, members or any other persons, or otherwise for fraudulent or for unlawful purpose, or in a manner oppressive to any of its members; where the persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance and other misconduct towards the company or towards any of its members; or, that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect. 13. The powers of the inspector to investigate into an affair of the referred companies is provided under Section 239 of the Act 1956. Under Section 240, it is the duty of all officers and other employees and agents of the company, where its affairs are being investigated by virtue of Section 239 to preserve and produce all papers and documents and render all assistance. Section 240A empowers the inspector to seize books and papers relating to any company where he has reasonable grounds to believe that they may be destroyed to the mutilated, altered, falsified or secreted to seize such books and papers. 14. Under Section 241, the inspector....
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....fied in the order. Sub-section (5) enables the Central Government also to direct inspection of books and papers of a company by an inspector appointed by it for the purpose. The penalty for non-compliance is also prescribed. 19. Section 207 enables the Registrar or the inspector to conduct inspection and inquiry and they are vested with all powers of the civil court under the Code of Civil Procedure, while trying a suit in respect of; (a) the discovery and production of books of account; (b) summoning and enforcing the attendance of persons and examining them on oath; (c) inspection of any books, registers and other documents of the company at any place. 20. The Registrar or inspector is mandated to submit a report in writing to the Central Government pursuant to an inquiry either under Section 206 or 207, which may include a recommendation and further investigation into the affairs of the company is necessary alongwith reason. 21. The power to search and seizure is provided under Section 209. Section 210 of the Act, 2013 empowers the Central Government, where it forms an opinion that it is necessary to investigate into the affairs of a company e....
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....payable to a managing or other director, or the manager, of the company, order, after giving a reasonable opportunity of being heard 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....
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....company's subsidiary company or holding company, or a subsidiary company of its holding company; (b) any other body corporate which is, or has at any relevant time been managed by any person as managing director or as manager, who is, or was, at the relevant time, the managing director or the manager of the company; (c) any other body corporate whose Board of Directors comprises nominees of the company or is accustomed to act in accordance with the directions or instructions of the company or any of its directors; or (d) any person who is or has at any relevant time been the company's managing director or manager or employee; he shall, subject to the prior approval of the Central Government, investigate into and report on the affairs of the other body corporate or of the managing director or manager, in so far as he considers that the results of his investigation are relevant to the investigation of the affairs of the company for which he is appointed. 223. Inspector's report.- (1) An inspector appointed under this Chapter may, and if so directed by the Central Government shall, submit interim reports to that Government, and on the concl....
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....c) both. (3) If from any such report as aforesaid, it appears to the Central Government that proceedings ought, in the public interest, to be brought by the company or any body corporate whose affairs have been investigated under this Chapter- (a) for the recovery of damages in respect of any fraud, misfeasance or other misconduct in connection with the promotion or formation, or the management of the affairs, of such company or body corporate; or (b) for the recovery of any property of such company or body corporate which has been misapplied or wrongfully retained, the Central Government may itself bring proceedings for winding up in the name of such company or body corporate. (4) The Central Government, shall be indemnified by such company or body corporate against any costs or expenses incurred by it in, or in connection with, any proceedings brought by virtue of sub-section (3). (5) Where the report made by an inspector states that fraud has taken place in a company and due to such fraud any director, key managerial personnel, other officer of the company or any other person or entity, has taken undue advantage or benefit, whether in....
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....or shall inform the Tribunal about the pendency of investigation proceedings before him and the Tribunal shall pass such order as it may deem fit. 28. Once the provisions of Part VII of the Act, 1956 or Chapter XX of the Act, 2013 are brought into play, then the companies become subject to provisions of winding up and orders passed by the Tribunal. 29. The Official Liquidator under the Act, 1956 and the Company Liquidator under the Act, 2013 are empowered to take into custody the company's properties and are vested with wide powers in that regard. 30. As correctly stated by the learned counsel for the applicant, wide ranging powers have been given to the liquidator for taking custody of the company's property under Section 456 of the Act, 1956. All the properties and effects of the companies are deemed to be in custody of the court/Tribunal from the date of the order for winding up of the company. 31. Similar powers are vested in the liquidator in section 283 of the Act, 2013, which provision also creates a legal fiction with regard to the custody of the properties and effects of the company being deemed to be with the Tribunal from the date of the order for winding up ....
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....bmission made on behalf of the Kuber Group of the companies, the Delhi High Court noted the stand taken by the Government functionaries involved, namely, Reserve Bank of India, Security Exchange Board of India and the Income Tax Department etc. and noted that the averments made in the counter affidavit reflect that there were certain procedural irregularities of trivial nature committed by this company and it had removed even those irregularities after show cause was issued against it by the Reserve Bank of India. The court observed that as far as financial health of the company was concerned, as per the RBI, the deficit of assets over the liabilities of the company was brought down substantially in the year 1998, and which improved its net owned fund from negative position to positive position and that notwithstanding the deficit, even as per the RBI, the company had not defaulted in repayment of its fixed deposit and no complaint in this regard was made to it. However, the instances of certain large advances granted to staff members had come to the knowledge of the RBI which had been conveyed to the department of Company Law Affairs for necessary action. In its affidavit before t....
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....members or any other person or that the management of the company was guilty of fraud and misfeasance or other misconduct towards the company or towards any of its members and, therefore, referring the matter to the SFIO is uncalled for. 37. As a matter of fact, the allegation against the company in liquidation by the Official Liquidator regarding a web of intrigue employed by the company and other groups of companies for defrauding the investors and creditors and diversion of funds of the company, could have been substantiated by the specific references to the entries made in the balance sheet and other books of account of the company in liquidation, which has not been done. To insinuate that the office of the Official Liquidator does not have the capacity or ability to detect diversion of funds of the company in liquidation, is not acceptable given the fact that a panel of Chartered Accounts is admittedly available to assist the Official Liquidator in discharge of its duties. 38. The provisions of the Act, 1956 and the Act, 2013 though, do not prohibit investigation to be initiated where the company has passed a special resolution for voluntary winding up or where other pro....
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.... "33. .......With better materials and stronger evidence I might have been inclined to direct an inquiry; but to my mind it would be unfair to proceed on evidence produced by the petitioner in this application and to make an order under Section 237(a)(ii). The powers of the Court under this section should be exercised with caution and the Court ought to require far more convincing proof of the alienations the petitioner has made." 42. In the case of V.J. Thomas Vettom and Ors. (supra), a Division Bench of the Kerala High Court examined the scope of a report under Section 237 of the Act, 1956. Paragraphs 16 and 17 of the aforesaid judgment are quoted below:- "16. We will examine the scope of the report under Section 237 presently. Section 237 enables the Central Government or the court to appoint one or more competent persons as inspectors to investigate into the affairs of a company. The court exercises its powers under Section 237 when it finds that the affairs of the company ought to be investigated by an inspector appointed by the Central Government, on being satisfied that such investigation is necessary though the evidence on record is not sufficient to give....
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.... stage to displace the order of the original court would be to set at naught the effect of the various provisions enabling the Central Government to act on the report. To do so would be to violate the various sections quoted above." 43. Sections 397 and 398 fall under Chapter VI of the Companies Act, 1956 which provide the power of the tribunal for prevention of oppression and mismanagement. These provisions enable any member of a company, who complains that affairs of a company are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members, to apply to the Tribunal for an order under the Sections. 44. Therefore, taking further the observation of the Kerala High Court, that a direction by a Court to appoint an Inspector for investigation into the affairs of the company is necessitated only when the court finds it difficult to pass an effective order in an application under Section 397 or Section 398 of the Act, 1956, the import of Section 226 of the Act, 2013 in matter pertaining to an investigation where clause (a) and (b) of Section 226 are not applicable, but, where clause (c) thereof is applicable, would be that only ....