TaxTMI 
TaxTMI 
2025 (9) TMI 137
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....ated to have been incorporated in 1983 by the petitioner's late husband, was engaged in the manufacture of CDs, DVDs, and other optical media. In 2012, MBIL sought relief under the Corporate Debt Restructuring ("CDR") Scheme of the Reserve Bank of India. Pursuant thereto, the Corporate Debt Restructuring Empowered Group ("CDR-EG"), comprising a consortium of lender banks, commissioned a Stock Audit and a Techno-Economic Viability ("TEV") study. Based on the findings of the Stock Audit report dated 16.06.2012 prepared by M/s RRCA & Associates and the TEV Report dated 09.06.2012 prepared by M/s Ernst & Young, MBIL was classified as a "Class B" borrower and formally admitted into the CDR framework. Notably, MBIL was not categorized as "Class C" or "Class D," which are typically assigned to entities suspected of fraud, misfeasance, or other financial irregularities. 3. In 2017, MBIL was admitted into insolvency proceedings before the National Company Law Tribunal, New Delhi. Subsequently, the Interim Resolution Professional ("IRP"), acting at the instance of the Committee of Creditors ("CoC"), commissioned a Forensic/Special Purpose Audit of MBIL, covering the financial years 20....
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....ely, in 2016, the State Bank of India ("SBI") had issued a Show Cause Notice under the 'Wilful Defaulter Master Circular'. The declaration was challenged in W.P. (C) No. 2336/2023 titled Ratul Puri vs. State Bank of India & Anr. (hereinafter "SBI judgement"). As recorded in the SBI judgment dated 20.03.2023, SBI undertook not to act upon the Review Committee's findings, and the wilful defaulter proceedings stood dropped. No appeal was filed against the said judgment, which has attained finality. 10. The grievance of the petitioner is that despite the aforementioned judicial findings, including the binding decision in BOB judgement, the impugned order dated 05.09.2024 has been issued by the respondent, relying upon the same forensic audit reports. The petitioner, being an ex/suspended director, emphasizes that the impugned investigation may prejudice her rights and interests. SUBMISSIONS ON BEHALF OF THE PETITIONER 11. In the above conspectus, learned senior counsel for the petitioner has contended as under: (i) Relying upon the judgment of the Division Bench of Bombay High Court in Parmeshwar Das Agarwal & Ors. vs. The Additional Director (Investigatio....
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....t dated 20.03.2023, similarly bears directly on the validity and rationale of the impugned order. It is submitted that in light of the reasons and circumstances detailed in the BOB and SBI judgments, any direction by the Central Government to initiate an investigation under Section 212(1)(c) of the Companies Act, 2013 is untenable. 12. Lastly, it is submitted that confronted with the infirmities in the impugned order, the counter-affidavit filed on behalf of the respondent seeks to furnish certain additional reasons in justification thereof. It is submitted that these additional reasons, are liable to be disregarded in view of the legal position laid down by the Supreme Court in Mohinder Singh Gill & Another vs. The Chief Election Commissioner, New Delhi & Ors., 1978 1 SCC 405, Opto Circuit India Ltd. vs. Axis Bank & Ors. 2021 6 SCC 707 and Ritesh Tiwari & Anr. vs. State of Uttar Pradesh & Ors., 2010 10 SCC 677. Without prejudice, learned senior counsel for the petitioner submits that even the purported additional grounds sought to be relied upon are squarely covered and precluded by the findings in the BOB Judgment. 13. For the above reasons, it is submitted that the present....
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....ndent clearly affirm this position in the following words : "A query was raised by this Court regarding the basis of the finding mentioned in Point 2(a) to (g) of the impugned order (Page 27-28 of the petition). The said findings are based on the Sikdar Report (page 30 onwards in the petition) and GSA Report (page 195 of the petition). The relevant page number with respect to the said findings are as follows: Finding at Relevant page no. in the petition and para Para 2 (a) 42 (internal page no.13) at Para VI A. Para 2 (b) 44 (internal page no. 15) at Para d Para 2 (c) 45 (internal page no. 16) at Para C Para 2 (d) 46 (internal page no. 17) at Para D Para 2 (e) 47 (internal page no. 19) at Para G Para 2 (f) 48 (internal page no. 20) at Para H Para 2 (g) 49 (internal page no. 20) at Para J 18. Finally, it is contended that no prejudice will be caused to the petitioner if a comprehensive investigation is undertaken into the affairs of MBIL. REASONING AND FINDINGS: 19. Having considered the rival contentions of the parties, this Court finds that there is merit in the petitioner's contention that the impugned order ca....
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....ssary to investigate into the affairs of a company (a) on the receipt of a report or the Registrar or inspector under section 208; (b) on intimation of a special resolution passed by a company that the affairs of the company ought to be investigated; or (c) in public interest it may order an investigation into the affairs of the company. (2) Where an order is passed by a court or the Tribunal in any proceedings before it then the affairs of a company ought to be investigated, the Central Government shall order the investigation into the affairs of that company. (3) For the purposes of this section, the Central Government may appoint one or more persons as inspectors to investigate into the affairs of the company and to report thereon in such manner as the Central Government may direct." 42. Therefore, a perusal of this section would indicate that the Central Government must form an opinion, that opinion must be that it is necessary to investigate into the affairs of a company. The Central Government can act on the receipt of a report of the Registrar or Inspector under section 208 or on intimation of a special resolution passed ....
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....for and on behalf of the Central Government. Sd/- (UK Sahoo) Joint Director" XXX XXX XXX 47. Section 210 falling in the same Chapter XIV titled Inspection, Inquiry and Investigation contains these two sections. Section 210 confers a discretion in the Central Government to order an investigation into the affairs of the company and that power has to be exercised if there is an order passed by a Court or a Tribunal in any proceedings before it to the effect that the affairs of a company ought to be investigated. Thus sub- section (1) of section 210 confers a discretion while sub-section (2) is mandatory in terms. By sub-section (3) and when the Central Government orders an investigation into the affairs of the company, it may appoint one or more persons as Inspectors so as to carry out this task and to report thereon in such manner as the Central Government may direct. By section 212 the seventeen sub-sections thereof enable investigation into the affairs of a company by Serious Fraud Investigation Office. This power is without prejudice to the provisions of section 210. This power is to be exercised if the Central Government is of the opinion that it is necessary....
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....ations have to be assigned to the SFIO. 48. We do not think that there were materials in the present case and which can be termed as enough to warrant the exercise of power by the Central Government by resorting to section 212(1) of the Act of 2013. The Central Government, in the order under challenge, did not spell out any circumstances, except outlining its power under the above sections to order investigation into the affairs of a company in public Interest. None disputes that power or its existence. In para 2 of the impugned order, however, a reference is made to the report of the Registrar of Companies, West Bengal, dated 13th January, 2016. We have already held that the findings in this report are not enough for the Central Government to exercise the drastic power. Something more was required and to be established as circumstances or material enough for exercise of the power. That is clearly lacking in this case. 49. This is the only basis, namely, the report of the Registrar of Companies, West Bengal, or its contents which has enabled the Central Government to exercise its powers under section 212(1)(c). It is, therefore, apparent that it has not necessaril....
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....IV of the Act, 2013. In terms thereof, in the first instance, power is conferred under Section 206 to conduct inspection/inquiry (Section 206(4) of the Companies Act, 2013). Section 208 specifically contemplates that the registrar or inspector shall, after inspection of books of accounts or inquiry under Section 206, submit a report in writing to the Central Government, along with such documents, if any, and the report may also include or recommend further investigation into the affairs of the company, if necessary. (iii) Section 210 contemplates investigation into the affairs of a company: (a) on the receipt of a report of the Registrar or inspector under Section 208; (b) on intimation of a special resolution passed by a company that the affairs of the company ought to be investigated; or (c) in public interest. (iv) Where a report under Section 208 does not find any occasion to conduct a further investigation, the same has a bearing on the exercise of power under Section 212(1)(c) of the Act, 2013 (as in the facts of the case before the Bombay High Court). (v) Where recourse is sought to be taken to Section 212(1)(c) of the Ac....
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....er, and also in counter-affidavit filed on behalf of the respondent, as to whether such inspection was ever conducted, and if so, the outcome thereof. The abandonment of the statutory course recommended under Section 206(4), without any explanation therefor, exacerbates the legal lacuna, as noticed hereinabove. 28. It is noticed that in Rohtas Industries (supra), it was observed by the Supreme Court that the concerned Department of the Central Government which deals with Companies is "presumed to be an expert body in Company Law Matters^1". The same position has been reiterated by the Bombay High Court in Parmeshwar Das Agarwal (supra). 29. It is incomprehensible as to why the Central Government was remiss in conducting an independent inspection despite the same having been ordered pursuant to an inquiry under Section 206(4) of the Companies Act, 2013, as far back as in 2018. 30. It is notable that that in Parmeshwar Das Agarwal (supra), the Bombay High Court found that where a report under Section 208 does not find any occasion to conduct a further investigation, the same has a bearing on the exercise of power under Section 212(1)(c) of the Act, 2013. In the present case,....
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....reference, if- a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and b) the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53. (3) For the purposes of sub-section (2), a preference shall not include the following transfers- a) transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee; b) any transfer creating a. security interest in property acquired by the corporate debtor to the extent that- (i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest and was used by corporate debtor to acquire such property: and (ii) such transfer was registered with an information utili....
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....he shall make an application to the Adjudicating Authority to declare such transactions as void and reverse the effect of such transaction in accordance with this Chapter. (2) A transaction shall be considered undervalued where the corporate debtor- a) makes a gift to a person; or b) enters into a transaction with a person which involves the transfer of one or more assets by the corporate debtor for a consideration the value of which is significantly less than the value of the consideration provided by the corporate debtor, and such transaction has not taken place in the ordinary course of business of the corporate debtor. Our understanding of the Section 45(2) of the Insolvency and Bankruptcy Code,2016 means that an undervalued transaction is one where corporate debtor makes a gift or transfers one or more assets for insignificant consideration, provided that such transaction has not taken place in the ordinary course of business of the corporate debtor. For transaction made with a related party the relevant period is two years preceding the insolvency commencement dale and for transactions made with any other person this period is one year prec....
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....ue and without notice of the relevant circumstances, or affect any interest deriving from such an interest, and b) shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction. As stated in our report on Section 45 of Insolvency and Bankruptcy Code, 2016 we have not come across any undervalued transactions during the period under review, Section 49 of the Insolvency and Bankruptcy Code 2016 is not applicable. IV. REPORT U/S 50 OF INSOLVENCY AND BANKRUPTCY CODE, 2016 Section 50 of the IBC, 2016 stipulates as under- (1) Where the corporate debtor has been a party to an extortionate credit transaction involving the receipt of financial or operational debt during the period within two years preceding the insolvency commencement date, the liquidator or the resolution professional as the case may be, may make an application for avoidance of such transaction to the Adjudicating Authority if the terms of such transaction required exorbitant payments to be made by the corporate debtor. (2) The Board may sp....
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....nd b) such director or partner did not exercise due diligence in minimizing the potential loss to the creditors of the corporate debtor. Explanation .- For the purposes of this section a director or partner of the corporate debtor, as the case may be, shall be deemed to have exercised due diligence if such diligence was reasonably expected of a person carrying out the same functions as are carried out by such director or partner, as the case may be, in relation to the corporate debtor. We understand that, as per Section 66 of the IBC, 2016, the business should be carried out with the intention to defraud the creditors or for any fraudulent purpose. During the course of our special audit, we have not come across any such transaction." 35. Thus, the existence of any PUFE transactions was expressly negated by the Sikdar Report. 36. Likewise, in the GSA Report, it has been concluded as under: "i. The period of our review did not present an opportunity for any diversion of funds. Imbalance in the capital structure indicates diversion of short term funds for long term uses arising out of investments/ advances credit afforded to associate companie....
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.... is subjective, but the existence of circumstance/s forming the basis of such opinion must be 'demonstrable'. The legal position in this regard has been expounded by the Supreme Court in the landmark cases of Barium Chemicals Limited vs. Company Law Board (supra), Rohtas Industries vs. SD Aggarwal (supra) and Rampur Distillery vs. Company Law Board, (supra). The same has also been reiterated by the Division Bench of Bombay High Court in Parmeshwar Das Agarwal (supra). As held therein, the legal position expounded by the Supreme Court [in Barium Chemicals, Rohtas Industries and Rampur Distillery (supra)] for the purpose of judicial review of the "opinion" under Section 237 and 326 of the 1956 Act, is also applicable, and relevant for the purpose of testing the "formation of opinion" under Section 212 of the Act, 2013. 43. In Barium Chemicals Limited vs. Company Law Board (supra) M. Hidayatullah, J and J.M. Shelat, J, while considering the provisions of Section 237(b) of the Companies Act, 1956 (which also contemplates the formation of "opinion") came to the conclusion that though the power under Section 237(b) is a discretionary power (as in the case of Section 212(1)(c) ....
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....e must exist circumstances from which the Authority forms an opinion that they are suggestive of the crucial matters set out in the three sub-clauses. It is hard to contemplate that the legislature could have left to the subjective process both the formation of opinion and also the existence of circumstances on which it is to be founded. It is also not reasonable to say that the clause permitted the Authority to say that it has formed the opinion on circumstances which in its opinion exist and which in its opinion suggest an intent to defraud or a fraudulent or unlawful purpose. It is equally unreasonable to think that the legislature could have abandoned even the small safeguard of requiring the opinion to be founded on existent circumstances which suggest the things for which an investigation can be ordered and left the opinion and even the existence of circumstances from which it is to be formed to a subjective process. This analysis finds support in Gower's Modern Company Law (2nd Edn.), p. 547 where the learned author, while dealing with Section 165(b) of the English Act observes that "the Board of Trade will always exercise its discretionary power in the light of specifie....
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....er Section 237(b) is not the standard required of an ordinary citizen but that of an expert. The learned Attorney did not dispute the position that if we come to the conclusion that no reasonable authority would have passed the impugned order on the material before it, then the same is liable to be struck down. This position is also clear from the decision of this Court in Barium Chemicals v. Company Law Board. It was urged by Mr Setalvad, learned counsel for the appellant, that clause (b) of Section 237 prescribes two requirements i.e. (1) the requisite opinion of the Central Government and (2) the existence of circumstances suggesting that the company's business was being conducted as laid down in sub-clause (1) or that the persons mentioned in sub-clause (2) were guilty of fraud, misfeasance or misconduct towards the company or any of its members. According to him though the opinion to be formed by the Central Government is subjective, the existence of circumstances set out in clause (b) is a condition precedent to the formation of such an opinion and therefore the fact that the impugned order contains recitals of the existence of those circumstances, does not precl....
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....tive process and such an opinion cannot be challenged in a the enumerated kind will not be valid; is subjective but the existence of the the formation of the opinion circumstances relevant to the court on the ground of propriety, reasonableness or sufficiency, the authority concerned is nevertheless required to arrive at such an opinion from circumstances suggesting the conclusion set out in sub-clauses (i), (ii) and (iii) of Section 237(b) and the expression "circumstances suggesting" cannot support the construction that even the existence of circumstances is a matter of subjective opinion. Shelat, J., further observed that it is hard to contemplate that the legislature could have left to the subjective process both the formation of opinion and also the existence of circumstances on which it is to be founded; it is also not reasonable to say that the clause permitted the authority to say that it has formed the opinion on circumstances which in its opinion exist and which in its opinion suggest an intent to defraud or a fraudulent or unlawful purpose." 46. It was further held as under: "11. Coming back to Section 237(b), in finding out its true scope we have to bear in ....
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....uiry before the Court, therefore, is whether the Central Government was satisfied as to the existence of the conditions. The existence of the satisfaction cannot be challenged except probably on the ground that the authority acted mala fide. But if in reaching its satisfaction the Central Government misapprehended the nature of the conditions, or proceeded upon irrelevant materials, or ignores relevant materials, the jurisdiction of the Courts to examine the satisfaction is not excluded. XXX XXX XXX 17. We are, therefore, unable to agree that because the exercise of the power depends upon satisfaction, its exercise cannot be subjected to judicial review the Government being the final arbiter of the conditions in which the power may be exercised. 18. But in dealing with a petition against an order made by the Board under Section 326 of the Companies Act, 1956, the High Court is not constituted a Court of Appeal over the judgment of the Board. The Court has merely to consider whether in arriving at its decision the Board has restricted itself to the enquiry contemplated to be made and has taken into consideration all the relevant circumstances and that its ....
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....panies Act must be exercised honestly and not for corrupt or ulterior purposes. The authority must form the requisite opinion honestly and after applying its mind to the relevant material before it. In exercising the discretion, the authority must have regard only to circumstances suggesting one or more of the matters specified in sub clauses (i), (ii) and (iii) of Section 237(b) of the Companies Act. It must act reasonably and not capriciously or arbitrarily. It will be an absurd exercise of discretion, if, for example, the authority forms the requisite opinion on the ground the the director in charge of the company is a member of a particular community. Within these narrow limits, the opinion is not conclusive and can be challenged in a court of law. (refer paragraph-45 of Rohtas Industries Ltd.'s case AIR 1969 SC 707). The Supreme Court has also observed in the above case at paragraph-46 that "If it is established that there were no materials upon which the authority could form the requisite opinion, the court may infer that the authority did not apply its mind to the relevant facts. The requisite opinion is then lacking and the condition precedent to the exercise of the pow....
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....e existence of these circumstances have to be proved at least prima facie." 50. It necessarily follows that all the relevant circumstance/s must be taken into account, and the existence of the same must be "demonstrable", for the purpose of forming an opinion under Section 212(1)(c) of the Act, 2013. The impugned order in the present case, falls short of these requirements on account of the false attribution/mis-statement in paragraph 2 thereof. The same demonstrates that in material respect/s, the impugned order/formation of opinion for the purpose of Section 212(1)(c), is based on "non-existent" circumstances. 51. In addition to the above, there are other difficulties as well, which seriously afflict the impugned order and render the same unsustainable. The same are enumerated below. 52. A perusal of the impugned order reveals that the paragraphs 2(a), 2(b), 2(c), 2(d), 2(e), 2(f) and 2(g), have been bodily lifted (cut and pasted) from certain selected portions of the Sikdar Report. The following table is illustrative of the same. Impugned order dated 05.09.2024 Sikdar Report (a) MBIL has sold finished goods to its subsidiary Moser Bear Entertainment Limited (MB....
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....estments. VI C. Moser Baer India Limited had invested in Equity/ Preference shares as well as Debentures of related parties and Rs. 653.09 crores has been provided against the same for diminution in value of investments in last four years. However the provisions made in last two years are as under; (d) MBIL has made Provisions against doubtful loans and advances given to related parties and their interest for Rs 23.53 crores has been made. VI D. Provisions against doubtful Loans and advances given to related parties and there interest for 23.53 crores has been made in last two years. (e) MBIL has leased total land from GNIDA admeasuring 381418 sq. mt. Documents provided to the auditor does not give any information about the portion of land admeasuring 44131 sq. mt. VI G. Moser Baer India Limited, by way of three lease deeds dates 26.06.2001, 22.03.2002 and 5.09.2002 owns land from Greater Noida Industrial Development Authority at Plot No.66, Udyog Vihar Phase-11, GNIDA, Gautam Budha Nagar, UP admeasuring 381418.230 sq. ml. xxx XXX XXX The documents provided to us does not give any information about balance portion of land i.e. 44131.07 sq, mt. (f) MBIL has m....
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.... the judgment rendered by a Coordinate Bench of this Court in W.P.(C) 4181/2023, it was categorically held that the reliance placed by the respondent on the GSA Forensic Audit Report, was misconceived inasmuch as report itself repels the contention of diversion or siphoning of funds from the concerned company. 56. It is the strenuous contention on behalf of the petitioner that the said judgement elaborately deals with the alleged objectionable dealings between MBIL and its subsidiary/ies, which are also cited in the impugned order. The said judgement also copiously deals with the concerned Forensic Audit Report/s, and the observations made therein. 57. It is submitted that the findings rendered in the aforesaid judgment preclude the requirement of any investigation or order under Section 212(1)(c) of the Act, 2013. 58. In the present proceedings, while this Court is not required to go to the extent of adjudicating whether the petitioner's inference as regards the judgment dated 29.02.2024 in W.P.(C) 4181/2023, is justified, it is apparent that the said judgment, which deals with allegations regarding siphoning of funds / alleged 'PUFE' transactions, was in the ....
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....ssociates". Thus, the whole basis for issuance of show cause notice to the petitioner is the Forensic Audit Report dated 3.6.2019. 148. As discussed above, Clauses 2.1.3(b) and (c) read with Clauses 2.2.1 and 2.2.2 of the Master Circular, "diversion" and siphoning" can be triggered by a bank only in respect of the borrowed funds. The respondent- Bank has tried to justify its show cause notice and orders passed by the Identification Committee and Review Committee on the basis of the Forensic Audit Report. 149. However, a perusal of the Forensic Audit Report, specially Clause D(iv), reveals that the said Report has clarified that the source of funds of investments made in subsidiaries was not verified in the Forensic Audit Report as the same were made prior to the period of review. The relevant portion of Forensic Audit Report is reproduced as under:- "iv. Please further note that source of funds of the investments made by the company in its subsidiaries, associates and joint ventures were not verified by us as these investments were made before our period of review". 150. Thus, the Forensic Audit Report did not verify the source of funds which wer....
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....ote that MBIL had accumulated cash accruals of 4304 crores as recorded in its balance sheets, the veracity of which has not been disputed by BOB. 44. We, like the learned Single Judge, are, therefore, not satisfied that MBIL, or the respondent, can be characterised as a "wilful defaulter", within the meaning of the Master Circular. Indeed, that seems to have been the view of all concerned, including the lenders, the Banks and the CDR- EG, till the FAR of GSA Associates. This is why, quite obviously, the Minutes of Meeting dated 24 February 2020 of the BOB cited the FAR, and the FAR alone, as the basis for the decision to issue show cause notice to the respondent. The FAR itself, as we have already observed, does not commend itself to credibility. 62. Further, it has been observed as under: 111 .......... We are constrained, moreover, to enter this comment as we find, in these appeals, that the financial auditor, in the FAR, has acknowledged that all details, or facts, were not available with it. Unless the financial auditor is in possession of all facts and details, it cannot return even a tentative opinion on whether there has been diversion or siphoning of fu....
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....o para 2(a) to (g) of the impugned order. Notably, allegation 1 and the findings in that regard by the Review Committee have been set aside on merits by this Court in the BOB Judgment. 68. It is not necessary in these proceedings to conclusively pronounce upon the aforesaid contention of the petitioner. Suffice it to say, that prior to issuance of the impugned order, the scope, import and consequences flowing from the judgment dated 29.02.2024 in W.P.(C) 4181/2023 ought to have been taken into consideration. 69. For all the above reasons, the impugned order fails to withstand legal scrutiny. 70. An order under Section 212(1)(c) of the Act, 2013 directing investigation by the SFIO is not a routine administrative measure. It is in the nature of an extremely serious statutory action having grave consequences and repercussions for the subject entities and individuals. It is therefore, imperative that such an order must be issued only after due application of mind, after examining all relevant circumstances. 71. The existence of "relevant circumstances" is sine qua non as for the purpose of formation of opinion under Section 212(1)(c) of the Act, 2013. As held by the Supreme....
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....ciplinary authorities to find out misutilisation of bank finances and other violations of law. The respondents ought to be aware that there is a difference in the language of the two relevant sections, namely, section 210 and section 212. 3. 4. LIMITATIONS OF OUR AUDIT The procedures performed are not an audit. or a compilation of the Company's financial statements or any part thereof, nor an examination of management's assertions concerning the effectiveness of the Company's internal control systems and detection of fraud, nor an examination of compliance with laws. regulations, or other matters. Accordingly, our performance of the procedures will not result in the expression of an opinion or any other form of assurance on the Company's financial statements or any part thereof. nor an opinion or any other form of assurance on the Company's internal control systems or its compliance with laws, regulations, or other matters. The report is meant for Insolvency Professional of the company who has assigned us the job to carry out the Special Purpose Audit in respect of scope of audit mentioned in the report. The Report is furnished solely for the information o....
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....ge used in the order itself." Orders are not like old wine becoming better as they grow older. 7. 12. The action sought to be sustained should be with reference to the contents of the impugned order/communication and the same cannot be justified by improving the same through the contention raised in the objection statement or affidavit filed before the Court. This has been succinctly laid down by this Court in Mohinder Singh Gill v. Chief Election Commr. [Mohinder Singh Gill v. Chief Election Commr., (1978) 1 SCC 405] as follows : (SCC p. 417, para 8) "8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, gets validated by additional grounds later brought out. We may here draw attention to the observations of Bose, J. in Gordhandas Bhanji [Commr. of Police v. Gordhandas Bhanji, 1951 SCC 1088] : (SCC p. 1095, para 9) '9. ... public orders, publicly made, in e....
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....nvested __ heavily in subsidiaries ... " 2. 4(20) " ... company has taken loans from Banks .. These loans have been diverted to subsidiary ... 3 4 (iii) " ... fund raised by the company by way of loans and bonds have been diverted as Investment group companies. 4 4(iv) position investment in some of the subsidiaries .. with unt of provisions for diminution in value 5. 4(vi) ' ... Company has. lease rent receivables .. "The investments in the subsidiaries were made by MBIL from 2006 onwards till 2010. The audited financial statements duly reflected the investments in the subsidiaries. It is, therefore, difficult to accept that the respondent-Bank became aware of the investments in subsidiaries, which now according to them, them, is an act of diversion of funds, only in 2019 after it obtained a copy of the Forensic Audit Report. It is equally difficult to accept that the respondent-Bank did not review the financial statements of MBIL " ... " ... the Flash Report of 2012 clearly recorded the factum of investments of MBIL in its subsidiaries" .. "97 ... a meeting of all the lender banks had taken place on 20.7.2012. The Minutes ... records that MBIL had made invest....
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....tion ... " in the FRS, despite noting investments by MBIL in the subsidiaries, the lender banks consciously did not categorise them as "adverse flow of funds." advances given to related parties ... 13 7(e) "MBIL has leased total land ... ' "128 ... CDR-EG in its meeting held on 24.2.2012 had categorised MBIL in Class-B as ss-B as per the CDR Master Circular. The Class-B is for "Corporate/promoters affected by external factors and also having weak resources, inadequate vision, and not having support of professional management." 14 7(f) "MBIL has made provision ... " 15 7(g) "MBIL has made provision ... 16 7(h) " ... no Class-C applies to - "Over-ambitious promoters; and borrower-corporate which diverted funds to related/unrelated fields with/without lenders' permission." records .... company regulates its purchases and sales with its related entities. 17 7(1) " ... company had also extended corporate guarantees amounting ... in respect of subsidiary companies ... If the lender banks, while doing the CDR, had found the investments in subsidiaries as "diversion of funds", then it ought to have placed MBIL in Class-C and not in Class- B ... "The l....
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.... or siphoning either during finalization of the CDR scheme or after its failure." [Para 95-100, 121, 128, 130, 132, 135, 137, 139, 140, 156] (pg. 254@ 311-315/328/333-339/344 - 345 of WP) ALLEGATION OF IMPAIRMENT AND ACCUMULATION OF LOSSES IN MBIL 19 Para 3 (i) " ... Company ... recorded an impairment loss ... " .... MBIL flourished as the business of CDs and DVDs was a lucrative business ... emergence of newer platforms of storage, CDs and DVDs sustain 20 Para 3(iii) " ... Company has incurred a net loss ... " started becoming obsolete and could not the growth trajectory ... MBIL entered into other forays and formed two subsidiaries ... to manufacture solar cell modules ... solar business 21 Para 15 " ... Investigation order has been passed under Section 212(1) (c) of the Companies Act, 2013 is view of the fact that Company's accumulated losses ... " ... was valued at more than USD 1 billion ... several investors invested ... USD 193.50 million ... like IDFC, Nomura, Morgan Stanley, GIC, CDC etc ... global financial crisis in ... 2007 and the dumping of solar panels by Chinese companies severely impacted the business of MBIL and its subsidiaries ... Directorate of....