TaxTMI 
TaxTMI 
2024 (4) TMI 1280
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....Companies Act, 2013, and Section 68 read 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 ....
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....ction 211 and 211(3C) of the Companies Act, 1956 and U/S. 477A of the Indian penal Code, 1860. The further investigation in respect of charge 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 ....
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.... matrix of Accused No. 1 (till merger) and 2 (post merger). Para 4.30, page No. 147 speaks about slump sale consideration. Para 4.30.3 speaks about payment of slump sale consideration. Diagram provided at page 150 provides a circular 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 us....
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.... the merger process in a fraudulent way. 5.13 Accused No. 13: Mr. Vinod Wadhwani (WP 3632/2018) Mr. Vinod Wadhwani, Director of Accused No. 11, who suggested the demerger of KFAL by creating non-existing business divisions and coordinated with Accused No. 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....
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.... related entity of Accused No. 2 KFAL. 6.3 Section 628 r/w 75 of the Companies Act, 1956: Accused No. 5 received the remittance of Airbus SAS into his account and invested the same as his equity contribution in the erstwhile KFAL. The remittance from Airbus SAS was on account of credits/incentives 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, 2....
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....5) Lalankumar Singh and others -vs- State of Maharashtra : 2022 (7) Supreme 899. e) Section 2(29)(iii) of the Companies, 2013 inter alia states that the `Court' means the Court of Sessions having jurisdiction to try any offence under this Court or under any previous Companies law. Therefore, the court of sessions as stated in Section 2(29)(iii) means a Court established by the 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....
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....nses under the Act, 1956. The scheme of the Companies Act, 1956, and the Companies Act, 2013, differs significantly. The essential elements to constitute offenses under these Acts are distinct, as are the provisions for prosecution. f) The charge No. 10, along with other charges, has been dropped, yet the petitioner continues to be charged under charge No. 4 for the same act. Therefore, dropping various charges undermines 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) Cogni....
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....e merger sanctioned by the High Court cannot be sought to be reopened through criminal proceedings. c) (Dilip S. Dahanukar -vs- Pradam Kumar Khaitan, 1995 SCC OnLine Raj 222 at paras - 23, 26, 29 at Judgments Compilation pages 34-35). Deccan Charters Limited -vs- Nil (CoP No. 45/2018);Dilip S Dahanukar -vs- Padam Kumar Khaitan (1995 SCC OnLine Raj 222);Pepsi Foods Limited -vs- Special Judicial Magistrate (1998) 5 SCC 749; Inder Mohan Goswami -vs- State of UP (2007) 12 SCC 1 Sunil Kumar Agarwal & 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; ....
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....) The provisions of the Companies Act, 2013, are prospective. Therefore, the Special Judge has no jurisdiction to take cognizance of the offences under Section 36 and 448 of the Act, 2013. 13. Submissions of Sri Sanjog Parab, learned Senior Counsel representing for the petitioner in WP No. 11889/2018 are as below: a) When a violation of Section 68 of the Act, 1956, is alleged, it can only be alleged against officers in default as defined under Section 5 of the Act, 1956. The Act which results in the violation of Section 68 can only 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 Spec....
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....tent to present the complaint under Section 439(2) of the new Act, as the repeal provision, i.e., Section 455(2) of the new Act, states that all the actions taken under the old Act are deemed to have been done or taken under the corresponding provisions under the new Act, i.e., authorization issued under Section 621 of the old Act is deemed to have been done under Section 439(2) of the new Act. d) Section 2(29) of the Act, 2013, is very clear that the court of sessions has jurisdiction to try any offence under this Act or under any previous Companies law, and irrespective of the quantum of punishment prescribed under the Act, the 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 retrospect....
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.... a complaint before the Special Court? iv) Whether the allegations against Accused herein constitutes an offence under Section 68 of Act, 1956? ON POINT (i): 16. Before addressing this point, it is pertinent to cite the relevant provisions of the Act, 1956, Act, 2013, and also the provisions contained in Cr.PC, and the legal principles established by the Hon'ble Supreme Court with reference to the points raised for consideration. 17. Section 2(11) of the Act, 1956, defines the term "Court" and means, with respect to any offence under this Act, the Court of a Magistrate of First Class having jurisdiction to try such an offence. 18. Section 68 of the Act, 2013, deals with the penalty for fraudulently inducing persons to invest 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....
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.... 27. Proviso states that all other offences shall be tried as the case may be by a metropolitan magistrate or a judicial magistrate of the first class having jurisdiction to try any other offence under this Act or under any previous companies' law. 28. Sub-Section (2) states that a Special Court shall consist of a single judge who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working. 29. Section 436 enumerates the offences triable by the Special Court. 30. Section 439 of the Act, 2013 states that every offence under this Act except the offences referred to in sub-section (6) of Section 212 shall be deemed to be non-cognizable within the meaning 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) stat....
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....in the procedure prescribed to prosecute for that offence. It expressly saved the offence committed under the repealed Sales Act. Therefore, the intention can be legitimately imputed to the legislature that the procedure prescribed under the repealing Sales Act should be followed, even in respect of the offences committed under the repealed Sales Act. 37. In the case of Kailash Nath (supra), it was ruled that if the initial action is not in consonance with the law, all subsequent and consequential proceedings would fall through because illegality strikes at the root of the complaint. Therefore, the entire complaint and all actions which followed it are liable to be quashed and set aside. 38. What is apparent from the legal principles established by the Hon'ble Supreme Court in 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 availab....
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....force, and the cognizance of the offence under Section 68 of the Act, 1956, could have been taken only by the Judicial Magistrate First Class, as stated under Section 622 of the Act, 1956. 43. Section 2(29) of the Act, 2013, which defines the word 'Court,' means including the Court of Sessions having jurisdiction to try any offence under this Act or under any previous Companies Law as stated under Sub-Clause (iii). 44. Court of Sessions, as defined under Section 9 of Cr.PC, means a Court established by the State Government and presided by a Judge to be appointed by the High Court. Therefore, the Special Court established under Section 435 cannot be equated with the Court established under Section 9 of Cr.PC, since the power to establish and appoint a Presiding Officer is vested with the State Government insofar as 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 offenc....
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....cused resides outside the territorial jurisdiction of such Magistrate, is to ensure that innocents are not harassed unnecessarily. By virtue of the proviso to Section 200 of Cr.PC, the Magistrate, while taking cognizance, did not record the statement of such public servant who has filed the complaint in discharge of his official duty. 51. In this instance, the central government authorized the officer to file a complaint before the special court. Therefore, since the complaint was filed by a public servant duly authorized by the central government, the requirement of recording the statement of the public servant and conducting an investigation as contemplated under Section 202, sub-clause 1, does not arise. Consequently, the submission of the petitioners that the order issuing process is not preceded by an inquiry as contemplated under Section 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 sectio....
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....s order dated 16.06.2008 while sanctioning the scheme of arrangement observed as follows: i) By Order dated 23, 2008 in CA No. 208/2008, this Court ordered the meeting of equity shareholders, secured and unsecured creditors to be convened. The meeting was advertised on 27-03-2008 in Asian Age and Vijaya Karnataka newspapers, with the meeting date set for 17-04-2008. Chaired by Dr. Vijay Mallya, the meeting witnessed 98 equity shareholders, holding 9, 21, 68, 755 equity shares of Rs. 10 each fully paid up, vote in favor of the scheme, while 2 shareholders, representing 58 equity shares of Rs. 10 each fully paid up, voted against it, with 6 votes being invalid. ii) The unsecured creditors approved the scheme by requisite majority. Subsequently, on 25-04-2008, Deccan Aviation Ltd. filed Company Petition No. 47/2008. The Regional Director, 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,....
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....e its being sanctioned. It has statutory force in that sense and therefore cannot be altered except with the sanction of the Court even if the shareholders and creditors acquiesce in such alteration. iii) In the case of Mihir H Mafatlal v. Mafatlal Industries Ltd. (1997) 1 SCC 579, the Apex Court, at para-29, held that the jurisdiction of the Company Court while sanctioning a scheme is peripheral and supervisory, and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their games according to the Rules and do not overstep the limits. iv) In the case of Hindustan Lever Employees Union v. Hindustan Lever Limited (1995 Supp. 1 SCC 499), the Apex Court, at para-3, ruled that the Company 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, and it is not 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 tha....
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....the complaint lodged by the complainant respondent therein under various Sections of the Companies Act and the Indian Penal Code regarding which cognizance has been taken only in Section 68 of the Companies Act, especially if the complainant therein suppressed the material facts at the time of the examination before the Magistrate. If the full facts had been disclosed, no order taking cognizance would have been passed at all even under Section 68 of the Companies Act. 58. The ratio enunciated in the aforementioned decisions are summarized as follows: i) Section 391 of the Companies Act, 1956, serves as a comprehensive code and facilitates a single window clearance for schemes of arrangement. ii) Schemes sanctioned under Section 391 are statutorily binding on creditors and shareholders, even if they dissent or oppose, and can only be altered with the court's sanction. iii) The jurisdiction of the Company Court in sanctioning 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 i....
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....-clause 1 of the Constitution of India, which safeguards against retrospective criminalization. 62. The learned Judge of the Special court while taking cognizance simultaneously issued an arrest warrant against the accused. The Hon'ble Supreme Court in the case of Inder Mohan Goswamy supra ruled that " as far as possible, the Court is of the opinion that a summon will suffice in getting the appearance of the accused in the Court, the summon or the bailable warrant should be preferred. The warrant either bailable or non-bailable should never be issued without proper scrutiny of facts and complete application of mind, due to the extremely serious consequences and ramifications which ensue on issuance of warrants. The Court must very carefully examine whether the complaint or FIR has not been filed with an oblique motive. The personal liberty is paramount and therefore the Courts at the first and second instance should refrain from issuing non-bailable warrants. 63. The present case, admittedly 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,....