TaxTMI 
TaxTMI 
TaxTMI 
2024 (4) TMI 1280
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.... with Section 628 of the Companies Act, 1956, are challenged in these petitions. Hence, they are collectively addressed and resolved through this common order. 2. The Serious Fraud Investigation Officer (SFIO) filed a complaint under Section 439 read with Section 212 of the Act, 2013, and under Section 621 read with Sections 235 and 624 of the Act, 1956, along with Section 193 of the Criminal Procedure Code. 3. The prosecution's case is as follows: a) The Ministry of Corporate Affairs, based on the Registrar of Companies' report dated 27.05.2015 highlighting irregularities by Kingfisher Airlines Limited, assigned the investigation to SFIO under Section 212(1)(c) of the Act, 2013. SFIO submitted a report dated 30.08.2017 under Section 212(12) of the Act, 2013. b) Kingfisher Airlines Limited (KFAL) was established in 2004 under the Companies Act, 1956, under the control of accused No. 5 (Mr. Vijay Mallya), primarily engaged in domestic civil aviation. The Government of India introduced the 5/20 Rules, requiring Airlines Companies to have five years of domestic commercial operation and a fleet of 20 aircraft to fly overseas. c) KFAL, not meeting the requirements, ....
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....harge No. 3 is being undertaken and the SFIO is in the process of submitting a supplementary investigation report. iv) Concealment of material facts and inducing the then existing shareholders of DAL to agree for demerger of Airline Division of DAL with that of erstwhile KFAL and acquiring the control of KFAL, liable to be prosecuted U/S. 68 of the Companies Act, 1956. v) Fraudulent inducement of banks to convert part of the debt into preference shares by deceptive projections and non-existing collateral securities by concealment of material facts, liable to be prosecuted U/S. 68 of the Companies Act, 1956. vi) Misrepresentation in filing of returns with ROC., Bengaluru regarding allotment of equity shares to promoter VJM in erstwhile KFAL liable to be prosecuted US. 628 read with Section 75 of the Companies Act, 1956. vii) Failure to show a true and fair view of profit and loss account and balance sheet and non-compliance/non-disclosure as required under accounting standard for the year 2006-07 in respect of DAL - liable to be prosecuted U/S. 628 read with Section 211 and 211(3(C) of the Companies Act, 1956 and U/S. 477A of the Indian Penal code, 1860. The Central G....
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....ircular transaction(round-robin).] Page 147-156 are relevant pages. v) Accused No. 3 is one of the petitioners in WP No. 3642/2018. The Accused No. 3 is represented by Captain G R Gopinath(Accused No. 10) in this writ petition. 5.4 Accused No. 4: United Breweries (Holding) Ltd., United Breweries (Holding) Ltd., represented by its Director Mr. Vijay Mallya, is the holding/promoter company of Accused No. 1 & 2 which played a major role in movement of funds to Accused No. 2 and gave corporate guarantee in favour Accused No. 2. 5.5 Accused No. 5: Mr. Vijay Mallya Mr. Vijay Mallya, Chairman of Accused No. 1 entity until merger and thereafter Chairman of Accused No. 2 entity has conspired with the other accused in creating fraudulent documents and non-existing divisions for the demerger process with DAL. He conspired with other accused in borrowing additional finances from banks using the falsely valued brand as collateral security and conversion of part of existing loan from banks into shares in DRP. He conspired with A-6 and 8 to conceal the payments made by Accused No. 1 and 2 entities to Force India Formula One Team ....
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....;5 and 10 with respect to payment of noncompete fee. 5.14 Accused No. 14: Mr. Rishabh Mishra (WP 11889/2018) Mr. Rishabh Mishra, Chartered Accountant in Accused No. 11 company who carried out activities connected with fraudulent demerger process of KFAL with DAL. 5.15 Accused No. 15: Rajesh C Jain (WP 4671/2018) Rajesh C Jain, valuer in KPMG India Ltd who carried out the valuation process in fraudulent demerger without reviewing the historical financials and market data along with the projections given. He was also privy to the share allotment in Accused No. 1 at nominal rate of Rs. 30 per share just before the demerger. 5.16 Accused No. 16:Mr. Sujal A Shah (WP 6074/2018) Mr. Sujal A Shah, valuer in Dalal & Shah who carried out the valuation process in fraudulent demerger without reviewing the historical financials and market data along with the projections given. He was also privy to the share allotment in Accused No. 1 at nominal rate of Rs. 30 per share just before the demerger. 5.17 Accused No. 17: Ms. Srividya C G (WP 4380/2018) Ms. Srividya C G, partner in Grand Thornton who valued the brand at superficial value of Rs. 340....
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....offered by it for placing the orders for purchase of aircrafts. The remittance, if had come in the normal course, would have gone for reduction in purchase price of the aircraft or accounted as miscellaneous income in the books of erstwhile KFAL. Knowing fully well about the nature of remittances, Accused No. 5 utilized the amount as his equity contribution and the officials of UB Group/erstwhile KFA i.e., Accused No. 6 and 8 also accounted the same as the equity contribution. They filed form 2 on 07.07.2006 for the equity shares allotted, knowing fully well that they were filing the return containing materially false particulars. 7. Submissions of Sri C V Nagesh, learned Senior Counsel representing the petitioner's counsel in WP Nos. 3684, 3625, 3632 11889 of 2018 are as hereunder: a) The Special Court constituted under Section 435 of Act, 2013 lacked jurisdiction to take cognizance of the offence alleged to have been committed and made penal under the provisions of Act, 1956, since the Special Court constituted can try an offender, who is said to have committed an offence, which is made penal under the provisions of Act, 2013. In support, the decision of the....
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....e State Government under Section 9(1) of the Cr.PC, and the Special court under Section 435 of the Act, 2013 to establish by the Central Government for providing speedy trial of the offences under this Act. Therefore, the contention of the SFIO irrespective of the quantum of punishment, the Court of sessions had the jurisdiction under Section 2(29) of the Act, 2013 is without any substance. f) The allegations against the petitioners - accused No. 13 in a nutshell is that the methodology adopted by him as a professional cost accountant for the purpose of preparation of his report is not correct and that he ought to have adopted a popular method. The statute that governs the preparation of the report by a chartered/cost account does not prescribe a particular method that ought to be adopted for and in connection with the preparation of the report, and also does not prescribe to adopt a popular method. Therefore, the allegation does not satisfy the essential element to constitute the commission of offence alleged against him. 8. Submissions by Sri Amit K Desai, learned Senior Counsel representing the petitioner in W.P. No. 3625/2018 are as below: a) The alleged offense ....
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....rmines the prosecution's case, even in relation to charge No. 4. g) The provisions regarding the scheme of arrangement are contained in Sections 391 to 394 of the Companies Act, 1956. Therefore, Section 68 of the Act, 1956, is not applicable. h) The allegations against the petitioners are the same as objections raised by the Regional Director before this Court during the sanction of the scheme, which were not pressed. Therefore, the Special Court cannot reconsider issues previously raised before this Court and not pursued. If the SFIO alleges that the order was obtained by fraud, the proper recourse is to challenge the scheme sanction order before this Court, not to file a complaint before the Special Court. i) Cognizance of an offence under Section 68 of the Companies Act, 1956, is only upon a written complaint as enumerated in Sub-Section (1) or by the Securities and Exchange Board of India (SEBI) as stated under the second proviso. As the offense under Section 68 relates to the issuance of shares by DAL under the scheme, the power to administer Section 68 lies with SEBI, barring a Court from taking cognizance of a complaint not authorized by SEBI. j) Accused No.....
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....al & Ors. -vs- G Mukhopadhyay (2009) SCC OnLine Cal 2391; Bhupinder Kaur Singh -vs- Registrar of Companies (2007) SCC OnLine Del 252; Wartsila India Limited -vs- Janak Mathuradas (2010 SCC OnLine Bom. 1715)Central Bureau of Investigation, Hyderabad -vsK Narayana Rao (2012) 9 SCC 512; Mohamed Arif -vs- State of Madhya Pradesh (2016 SCC OnLine MP 1736); Kishan Singh -vs- Gurpal Singh (2010) 8 SCC 775; Manoj Kumar Sharma -vs- State of Chhattisgarh (2016) 9 SCC 1; State of Punjab -vs- Kailash Nath (1989) 1 SCC 321; Barai -vs- Henry AH Hoe and Anr. (1983) 1 SCC 177; Nemi Chand -vs- State of Rajasthan (2016 SCC OnLine SC 1715); Nikesh Tarachand Shah -vs- Union of India (2018) 11 SCC 1; 10. Submissions of Sri Satish Maneshinde, learned Senior Counsel representing in WP No. 3829/2018: a) The allegation against accused No. 19 is that he is the Executive Vice-President of SBI Capitals Market Limited and approved the information memorandum (referred to as 'IM') which contained false projections of the future profitability of the company. This paved the way for obtaining additional bank borrowing and conversion of part of executing loans into shares of accused No. 2 e....
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....y be attributed to the principal accused. Therefore, the petitioners - accused do not fall under the ambit of the said definition. In the absence of any provision in the Act, 1956, in pari-materia with provisions similar to Sections 34, 129B, 109, and 114 of the Indian Penal Code (IPC), the petitioners cannot be held constructively liable for the act allegedly committed by the principal accused. The same has been held in: 1) Shiv Kumar Jatia vs State of NCT of Delhi, (2019) 17 SCC 193. 2) Sunil Bharti Mittal vs. Central Bureau of Investigation(2015) 4 Supreme Court Cases 609: 3) M/S. Pepsi Foods Ltd. &Anr vs Special Judicial Magistrate & Ors; (1998) 5 SCC 128 4) Sushil Sethi vs The State of Arunachal Pradesh, (2020) 3 SCC 240 b) The learned Judge of the Special Court has erred by not complying with the procedure under Section 202 of the Cr.PC and failing to apply his judicial mind before the issuance of the process. The report filed by the SFIO can be deemed to be a report filed by a Police officer under Section 173 only for framing of charges, as stated under Section 212(15) of the Act, 2013. However, this does not dispense with the compliance of Section 202 of the Cr.PC....
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.... Court of sessions has jurisdiction under Section 2(29) of Act, 2013. e) The Special Court established under Section 435 of the new Act is vested with the jurisdiction to try offences with imprisonment of two years or more, and the offence under Section 68 of the Act, 1956, is punishable with imprisonment for more than two years. Although under the old Act, the Magistrate had the jurisdiction to try the said offence, the change of forum after the enactment of the new Act being procedural, the amendment of the forum would operate retrospectively. Section 435 of the new Act has impliedly repealed Section 62 of the new Act. A combined reading of Sections 2(29), 435, as well as amended Section 435 of the new Act, clearly suggests that the Sessions Court has jurisdiction to try the offences under the previous Companies Law, i.e., repealed Act (Gajula Rajaih -vs- State of A.P. and others (AIR 2001 13 SCC 1), and Securities and Exchange Board of India -vs- Classic Credit Limited (2018) 13 SCC 1). f) The restrictions contained in Section 202 of Cr.PC will not be applicable to the present case, since the SFIO, which is a statutory investigation authority under the provisions of the new ....
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....st money, and states that any person who, either by knowingly or recklessly making any statement, promise, or forecast which is false, deceptive, or misleading, or by any dishonest concealment of material facts, induces or attempts to induce another person to enter into, or to offer to enter into (a) any agreement for or with a view to acquiring, disposing of, subscribing for, or underwriting shares or debentures (b) any agreement, the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of shares or by reference to fluctuations in the value of shares or debentures shall be punishable with imprisonment for a term which extends to five years. 19. Section 621 states that the offence against this Act to be cognizable only on a complaint by Registrar, shareholder, or government, the cognizance of which can be taken only upon a complaint in writing of the Registrar, shareholder of a company, or by a person duly authorized by the Central Government. 20. Section 622 states that no court inferior to that of a magistrate of first class shall try an offence against this Act and Section 624 states that every offence against this Act shall be deeme....
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....g of Cr.PC. Sub-Section 2 states that no court shall take cognizance of any offence of this Act alleged to have been committed by any company or any officer thereof except on the complaint in writing of the Registrar, a shareholder, or a person authorized by the Central Court on that behalf. 31. Section 465 of the Act, 2013 deals with the repeal of certain enactments and savings and clause (h) to Sub-Section (2) states that any prosecution instituted under the repealed enactment and pending immediately before the commencement of this Act before any Court shall, subject to the provisions of this Act, continue to be heard and disposed of by the said Court. 32. Chapter-II of Cr.PC deals with the constitution of criminal courts and offices. Section 9 states that the State Government shall establish a court of sessions for every sessions division and shall be presided over by a judge to be appointed by the High Court. 33. The Hon'ble Supreme Court, in the case of SEBI vs. Classic Credit Ltd. (supra), has ruled that procedural amendments are presumed to be retrospective in nature unless the amending statute expressly or impliedly provides otherwise. It also held that generally, a chan....
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.... the aforementioned decisions can be summarized as follows: i) Procedural amendments are generally presumed to be retrospective unless the amending statute expressly or impliedly provides otherwise. Changes in the forum for trial are typically considered procedural and are presumed to be retrospective unless specified otherwise by the amending statute. ii) If a new forum is made available only for causes of action arising after its creation, the retrospective operation of the law is taken away. However, if no such restriction is expressly stated, the general rule is to make it retrospective. iii) The competence of a Special Court constituted under a new Act to try offences under a repealed Act may be upheld if the new Act expressly allows for such continuity and if no conflicting intention appears in the repealing Act. iv) If a repealing Act does not make any changes to the procedure prescribed for prosecuting offences under the repealed Act and expressly saves offences committed under the repealed Act, the procedure prescribed under the repealed Act should continue to be followed. v) If the initial action is not in accordance with the law, all subsequent and consequentia....
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....it relates to the Sessions Court under Section 9 of Cr.PC, and with the Central Government insofar as it relates to the Special Court under Section 435 of the Act, 2013. 45. The Special Court established under Section 435 is vested with the jurisdiction to try the offences under this Act, i.e., Act, 2013, and the jurisdiction is not extended to the offences under the Act, 1956. The Special Court established is made available only to try the offences under the Act, 2013, and therefore, the jurisdiction of the Special Court cannot be extended retrospectively to try the offences under the Act, 1956, and the jurisdiction of the Special Court is restricted to the Companies Act, 2013, by deliberately omitting the usage of the expression 'previous Company Law' in Section 435(1), as opposed to the proviso to Section 435(1), which states that all other offences shall be tried, as the case may be, by the Magistrate to try any offence under this Act or under any previous Company Law. 46. The cognizance of the offence under Section 68 of the Act, 1956, can be taken only on a complaint in writing by the person/s as enumerated in Section 621 of the Act, 1956, and the jurisdiction to ta....
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....ion 202 of the CRPC stands vitiated is without any substance. 52. Section 212 clause 15 states that notwithstanding anything contained in this Act or in any other law for the time being in force, the investigation report filed with the Special Court for framing of charges shall be deemed to be a report filed by a police officer under section 173 of the Code of Criminal Procedure, 1973. The said provision clearly states that the investigation report submitted by the SFIO shall be deemed to be a report filed by a police officer under Section 173 of the CRPC, solely for the purpose of framing charges and not for the purpose of taking cognizance and issuing process thereafter. Therefore, it cannot be construed that the learned judge of this special court can dispense with forming an opinion before the issuing process. 53. The essence of forming an opinion before issuing a process under Section 204 of the Criminal Procedure Code is to ensure that there is sufficient basis or prima facie evidence to proceed against the accused. It entails a careful consideration of the available facts and evidence to determine whether there are reasonable grounds to believe that the accused has committ....
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....ctor, Ministry of Corporate Affairs, Southern Region, Chennai, filed objections via affidavit through the Registrar of Companies, Bengaluru, in all the petitions. Though the affidavit raised 6-7 objections, the Assistant Solicitor General of India, representing the Registrar of Companies, confined objections to only 3, focusing on the valuation details of Rs. 69 crore for the sale of Deccan's charter services operation to DCL. The Assistant Solicitor General also raised concerns about the confusion caused by the companies' names, suggesting compliance with Sections 21 and 23 of the Companies Act. Additionally, it was brought to attention that United Breweries Ltd. violated Section 108A of the Act by not seeking permission from the Central Government when acquiring shares. iii) A shareholder named M. R. Ravindranath, holding one share, filed an application seeking permission to oppose the scheme, raising concerns about wage disparity among Kingfisher and Deccan's workers. Mr. Grant Thornton, a leading accounting firm, valued Deccan's charter services operation at Rs. 69.10 crore, considering various relevant factors and employing methods such as cash flow....
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....required to interfere only because the figure arrived at by the valuer was not as better as it would have been if another method would have been adopted. v) In the case of Wartsila India Limited v. Janak Mathuradas (2010) SCC OnLine Bom 1715, the Bombay High Court ruled that Courts should not sit in judgment over the commercial wisdom of parties, which is a regularly acknowledged principle. If some other method of valuation could be resorted to, which would possibly be more favorable, that alone cannot militate against granting approval to the scheme propounded by the company. The Court's obligation is to be satisfied that the valuation was in accordance with the law and it was carried out by an independent body. Valuation is an art, not an exact science. Mathematical certainty is not demanded nor indeed if possible. vi) In the case of the Central Bureau of Investigation, Hyderabad v. K Narayanrao (2012) 9 SCC 512, it was held that a lawyer owes an unremitting loyalty to the interest of the client, and it is a lawyer's responsibility to act in a manner that would best advance the interest of the client. Merely because his opinion is not acceptable, it cannot be mulched with....
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....ing a scheme is supervisory, not appellate, ensuring compliance with legal provisions and preventing overstepping of limits. iv) The Company Court's role is to ensure that valuation is conducted by an independent body in accordance with the law, rather than intervening based solely on valuation discrepancies. v) Courts should refrain from questioning the commercial wisdom of parties involved in schemes unless there is a clear violation of legal principles. vii) When seeking to challenge a decision tainted by fraud, the proper recourse is to apply to the court that rendered the decision. viii) Matters already adjudicated upon in proceedings under the Companies Act cannot be reopened through criminal complaints unless there is evidence of suppression of material facts. 59. While sanctioning the scheme of arrangement, this court accepted the valuation of the business assessed by an independent body. Additionally, the shareholders and unsecured creditors approved the scheme by requisite majority. Therefore, the merger process alleged to have been obtained fraudulently cannot be reopened by launching criminal prosecution. If the merger process is indeed obtained fraudulentl....
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....ttedly is a complaint case, and the report submitted by the SFIO would be deemed to be a report filed by the Police under Section 173 Cr.P.C only for the purpose of framing of charge. Therefore, the learned Judge of the Special Court, contrary to the guidelines issued by the Apex Court, issued an arrest warrant without issuing summons at the first instance to secure the presence of the accused. 64. The offence u/s 68 of act, 1956 can be invoked against any person who meets the criteria outlined in the provision. It does not specifically limit the application of the provisions to directors or officers of the company. Any individual who knowingly or recklessly makes false statements, promises, or forecasts, or conceals material facts to induce others to invest in shares or debentures can be held liable under this section. Therefore, it applies to any person involved in such fraudulent activities, regardless of their position within the company, and it can be extended to persons rendering professional service to the company. The phrase "Any Person" cannot be restricted to "Officer who is in default" as defined in section 5 of the Act, 1956, and it extends to professionals serving the....