TaxTMI 
TaxTMI 
2026 (1) TMI 1358
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....the same Judgment, we propose to adjudicate them by way of the present consolidated Judgment. PROLOGUE: 2. The present Appeals have been filed under Section 483 of the Companies Act, 1956 [Companies Act], assailing Judgement dated 01.09.2025 [Impugned Judgement] passed by the learned Single Judge of this Court in CO. APP. Nos. 420/2022, 351/2023, 546/2023, 37/2024, 39/2024, 203/2024, 204/2024, 506/2024, 403/2025, and 404/2025, arising out of CO. PET. No. 379/2009 titled 'Securities Exchange Board of India (Trust Petition No. 3/1997) v. CRB Capital Markets Ltd.'. By the Impugned Judgment, the learned Single Judge adjudicated the aforesaid applications and issued various directions to the parties. 3. The Appellants in CO. APP. No. 9/2025, namely, Mr. S.K. Tandon and Mr. S.C. Das, are former members of the Special Committee constituted pursuant to an order dated 29.05.2013 passed by the learned Single Judge, which was subsequently reconstituted vide Order dated 12.09.2023. Appellant No. 1 was the erstwhile Chairman of the Special Committee, while Appellant No. 2 was one of its members and is an Ex-Executive Director of SEBI. It is relevant to note that another member of the S....
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.... Appellants", and the Respondents in both Appeals shall be collectively referred to as "the Respondents". BRIEF FACTS: 9. The present proceedings arise out of a long and chequered history. However, eschewing unnecessary detail, the facts material to the institution of the present Appeals may be succinctly set out as follows: a) CRB Mutual Fund was established in 1993 by CCML for undertaking mutual fund activities. For managing the said mutual fund, CCML proposed to set up: (i) an Asset Management Company under the name CRB Asset Management Company Limited; and (ii) a Trust under the name CRB Trustees Limited. b) Accordingly, a Trust Deed dated 15.12.1993 was duly executed between CCML, as the Settlor, and CRB Trustees Limited, as the Trustee. CRB Asset Management Company Limited was also incorporated in 1994 in terms of Regulation 19 of the SEBI (Mutual Fund) Regulations, 1993, which were subsequently replaced by the SEBI (Mutual Fund) Regulations, 1996 [1996 Regulations]. c) In August 1994, CRB Mutual Fund launched a close-ended scheme titled Arihant Mangal Growth Scheme [the Scheme], scheduled to mature in September 1999. ....
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....009 seeking directions regarding the distribution of funds to unit holders holding up to one lakh units under the second scheme of repayment. Although pleadings were completed, the PA unfortunately expired on 24.02.2012. l) On 29.05.2013, the learned Single Judge disposed of the main petition along with several connected applications. By the said Order, a Special Committee with a tenure of one year was constituted, comprising: (i) Mr. S.K. Tandon, retired Additional District Judge, as Chairperson, (ii) Mr. S.C. Das, former Executive Director of SEBI, and (iii) Mr. M.D. Kanther, nominee of the Ex-Management. Upon the demise of Mr. Kanther on 29.05.2014, he was replaced by Mr. A.A. Sisodia. The Special Committee was entrusted with the task of winding up the Scheme in accordance with the 1996 Regulations, and for this purpose, several directions were issued by the learned Single Judge. m) The Committee was authorised to dematerialise and liquidate the securities of the Scheme, engage intermediaries, compute the Net Asset Value [NAV], and disburse amounts to unit holders, subject to statutory liabilities and expenses. Over ....
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....lly came to be disposed of vide the Impugned Judgement. s) Upon consideration of the rival submissions and allegations, the learned Single Judge, by Order dated 17.08.2023, directed the Special Committee to transfer the entire fund lying with it, approximately Rs. 120 crores, to the Registrar General of this Court within two weeks. The Special Committee was permitted to retain Rs. 1 crore for day-to-day expenses. The Chairperson was further directed to file a detailed report before the Court. t) By Order dated 12.09.2023, the learned Single Judge reconstituted the Special Committee by retaining only Mr. S.K. Tandon and Mr. S.C. Das, and removed Mr. A.A. Sisodia. The learned counsel for Rommel and SEBI were permitted to inspect the data submitted by the Special Committee, with a restriction on sharing their findings. It is noteworthy that this order was challenged by Mr. C.R. Bhansali in CO.APP. No. 25/2023, which was dismissed by Order dated 05.10.2023, observing that no direction prejudicial to Mr. Bhansali had been passed. u) Upon inspection of the data, Rommel submitted a preliminary report dated 30.10.2023 alleging serious irregularities, including th....
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.... was reconstituted vide order dated 12.09.2023), assailing the findings and directions concerning its functioning; and (ii) By Mr. CR Bhansali and the CRB Group Companies, challenging, inter alia, the observations and directions relating to disbursements made to CRB Group unit holders and the consequential directions for further scrutiny and recovery. CONTENTIONS OF THE APPELLANTS: 10. On behalf of the Appellants, the submissions advanced may be summarised as follows: I. The core mandate under the Order dated 29.05.2013 was the realisation of the assets of the Scheme and distribution of the proceeds to "all the unit holders". Consequently, disbursements made to the entities that were lawful unitholders of the Scheme, even if affiliated with the CRB Group, were in strict compliance with the express judicial directions. There was no embargo in the said order excluding CRB Group entities from receiving payments. II. The inclusion of a nominee of the Ex-Management in the Special Committee was neither clandestine nor irregular. It was expressly authorised by the learned Single Judge in the Order dated 29.05.2013. Further, the composition of the Special C....
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....s. The detailed transactional data relating to disbursements made to unitholders could not be annexed with the reports owing to their voluminous nature. It has been emphasised that neither the Court nor SEBI had ever called upon the Special Committee to furnish such granular details. In any event, SEBI was never precluded from seeking these particulars. VIII. The direction to conduct a forensic audit was assailed as wholly unwarranted and disproportionate. No material was placed on record to indicate that disbursements were made to persons other than those disclosed by the Committee, or that there existed any irregularity, misstatement, or suppression in the accounts. The accounts of the Special Committee were periodically audited by independent statutory auditors, and the reports placed before the Court were accepted and acted upon for several years without objection. Further, during the hearings culminating in the Impugned Judgment, no specific instance of financial impropriety, misappropriation, or falsification of records was either pleaded or demonstrated. IX. The learned Single Judge erred in drawing adverse inferences from the fact that the Special....
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....XVI. The constitution of the Special Cell of SEBI has been assailed as being contrary to the 1996 Regulations, and therefore, illegal. Further, there is no provision in the said Regulations permitting SEBI employees to assume the role or functions of trustees. XVII. The learned Single Judge misread and misunderstood the purport of the SEBI Circulars dated 24.11.2000 and 25.02.2016 concerning the transfer of unclaimed redemption amounts to the 'Investor Protection and Education Fund'. CONTENTIONS OF THE RESPONDENTS: 11. Per contra, on behalf of the Respondents, the submissions advanced may be summarised as follows: I. The Special Committee lacks locus standi to maintain the present Appeals. The Special Committee was constituted by the Court for a limited, specific, and time-bound purpose. Upon its dissolution by the Impugned Judgment, it ceased to exist in the eyes of the law. Further, no adverse directions have been issued against the members of the Special Committee in their personal capacities. A direction for conducting a forensic audit of records, by itself, does not give rise to any personal or enforceable cause of action so as to confer a right of appe....
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....2.32%, had been disbursed by the Special Committee to Mr. C.R. Bhansali, his family members, and entities forming part of the CRB Group. Such disbursements were in direct violation of the embargo imposed by the Bombay High Court's Order dated 25.01.1999 and are therefore liable to be recovered. In view of the gravity of the allegations and the magnitude of the disbursements, a forensic audit of the records and actions of the Special Committee was stated to be imperative. VIII. Several attendant circumstances demonstrate the impermissible influence of Mr. C.R. Bhansali over the functioning of the Special Committee. These include the operation of the Special Committee from premises associated with the CRB Group, use of staff connected with the said Group, appointment of counsel who had previously represented CRB Group entities, induction of nominees associated with the CRB Group into the Special Committee, and the persistent failure to disclose beneficiary-wise details in the interim reports. IX. Paragraph 18(xxii) of the Order dated 29.05.2013 expressly mandated that upon completion of the winding up, the Special Committee shall submit to SEBI and the unit holders ....
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...., A-One Granites v. State of U.P. [(2001) 3 SCC 537 : 2001 AIR SCW 848] and Bhavnagar University v. Palitana Sugar Mill (P) Ltd. [(2003) 2 SCC 111] ] 146. Although decisions are galore on this point, we may refer to a recent one in State of Gujarat v. Akhil Gujarat Pravasi V.S. Mahamandal [(2004) 5 SCC 155: AIR 2004 SC 3894] wherein this Court held: (SCC p. 172, para 19) "It is trite that any observation made during the course of reasoning in a judgment should not be read divorced from the context in which it was used." 147. It is further well settled that a decision is not an authority for the proposition which did not fall for its consideration." 14. Similarly, in Goan Real Estate & Construction Ltd. v. Union of India (2010) 5 SCC 388, the Hon'ble Supreme Court reiterated and elaborated upon the principles governing the interpretation of judicial orders, observing as under: "31. It is well settled that an order of a court must be construed having regard to the text and context in which the same was passed. For the said purpose, the judgment of this Court is required to be read in its entirety. A judgment, it is well settled, cannot be read a....
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....NAV), which is to be ascertained by the committee after following the prescribed procedure in terms of provisions of the aforesaid SEBI (Mutual Funds) Regulations, 1996. 15. Consequently, a Committee is now constituted, consisting of Sh. S.C. Das, Ex Executive Director, SEBI (suggested by counsel for the petitioner); Sh. M.D. Kanther, (suggested by counsel for the respondent No. 1); and Sh. S.K. Tandon, retired Additional District Judge, Delhi, who shall be the Chairman of the Committee. Since this Committee is being put in place to carry out the work of the trustees, it is noteworthy that its composition also meets the requirements of Regulation 16(5) of the SEBI Regulations prescribing the composition of the Trustees. Regulation 16(5) states as follows: "Two-thirds of the trustees shall be independent persons and shall not be associated with the sponsors or be associated with them in manner whatsoever" 16. During the course of hearing, and after examining the question of premises for the Committee at length, all parties agreed that the Committee would require some premises measuring about 1000-1500 sq. ft. The ex management of respondent No. 1 has agree....
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.... (ix) Appoint Statutory Auditors of M/s CRB Asset Management Company Limited and M/s CRB Trustee Limited as required under Section 224 of the Companies Act, 1956. (x) The proceeds realized from the sale of assets of the scheme be first utilized towards discharge of such liabilities as are due and payable under the scheme including the making of appropriate provision for meeting the expenses connected with its winding up. The balance shall thereafter be paid to the unit holders in proportion to their respective interest in the assets of the scheme. In this context, counsel for SEBI submits that his client's decision to move the Court was, inter alia, predicated on the abandonment of their duties by all the trustees of the trust company, namely, CRB Trustees Ltd., respondent No. 2 herein, which ultimately led to the appointment of the Provisional Administrator; and which also obliged his clients, i.e. SEBI, to provide funds to the tune of Rs. 10 Lacs for establishment and administrative expenses. Under the circumstances, the sum of Rs. 10 Lacs, which is stated by counsel for SEBI to have been paid by SEBI to the Provisional Administrator appointed by the Bombay High ....
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....tee at their meetings and of the minutes of the meetings. (xxii) On the completion of the winding up, it shall forward to the SEBI and the unit holders a report on the winding up containing particulars such as circumstances leading to the winding up, the steps taken for disposal of assets of the fund before winding up, expenses of the fund for winding up, net assets available for distribution to the unit holders and a certificate from the auditors of the fund. 19. As regards CRB Asset Management Company Ltd., which was arrayed as respondent No. 3 in the petition moved by SEBI before the Bombay High Court, the said respondent was appointed as an Asset Management Company in terms regulations 20, 21 and 22 of the SEBI (Mutual Fund) Regulations, 1996. As required under regulation 20(2) thereof, SEBI had granted approval to the said company in terms of regulation 21(2) which was subject to the terms and conditions mentioned in Regulation 22 thereof. Regulations 20(2) and 20(3) provide that the appointment of an Asset Management Company, such as respondent No. 3, can be terminated either by majority of the trustees or by 75% of the unitholders of the scheme and further,....
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.... penalties or sanctions for non-compliance with any statutory obligations during the period the matter has been sub judice and the affairs of mutual fund have been under the control and supervision of the Administrator and the court exclusively. Under the circumstances, therefore, a general direction is issued to the Income Tax Authority, Registrar of Companies; or any other statutory authority to the effect that all the sanctions or adverse orders passed against any of these respondent companies or their employees, directors etc. shall stand withdrawn. 21. It is, however, made clear that as regards any claim in respect of respondent No.2 and 3, of any statutory authority, or any liabilities with regard to the period before the appointment of the Provisional Administrator; it would be open to the authorities to proceed as per law, whilst at the same time, it would be open to the respondent Nos.2 and 3, their directors and officials to take the defence on facts that they were either unable or prevented from compliance due to intervening orders of the court. Such a plea, if taken, will be duly considered. 22. Securities pertaining to the Arihant Mangal Sche....
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..... While laying down a certification procedure, the Committee shall also keep in mind the procedure laid down by the Bombay High Court. The Committee is fully empowered in this behalf to seek information, summon records and seek verification of facts, on affidavits or otherwise, as it may think fit, from any person or Authority. Keeping in mind the relevant circumstances, the Committee is at liberty to seek transfer of all funds that were deposited by Reliance Infrastructure Ltd. which have been mentioned in the separate orders passed by this Court disposing off Co. Appl. No. 1145/2009 and 1941/2010; which funds are now lying with the Registrar of this Court along with all accrued interest; to a Bank Account to be opened by the Committee for this purpose. It would be open to the Committee to direct disbursement of the same to the party found entitled to the same after completion of the certification process, along with any further amounts that may have been deposited or accrued by way of interest thereon. Since the committee is being empowered to carry out the aforesaid certification procedure with a view to satisfying the object of the interim orders passed by the Bombay H....
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.... 42 of the 1996 Regulations. The Committee was vested with full trustee-like powers, including the authority to sell all securities of the Scheme and to distribute the sale proceeds to the unitholders at the NAV determined in accordance with law. (iii) The learned Single Judge observed that the composition of the Special Committee satisfies the requirement of Regulation 16(5) of the SEBI Regulations, inasmuch as two-thirds of its members are independent persons and not associated with the sponsor. (iv) Recognising the practical requirements for effective functioning, the learned Single Judge put in place a complete mechanism for infrastructure, staffing, premises, and transfer of records. Adequate office space, supporting staff, equipment, and logistical support were directed to be made available, and all records of the erstwhile PA were ordered to be transferred to the Special Committee to enable it to discharge its functions efficiently and without impediment. (v) The Special Committee was conferred extensive and wide-ranging powers to ensure an effective winding up of the Scheme. These powers include the authority to transfer and take custody of all re....
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....nctions passed by statutory authorities for the said duration shall stand withdrawn. (xi) At the same time, the learned Single Judge clarified that liabilities pertaining to the period prior to the appointment of the PA were not wiped out, and statutory authorities were at liberty to proceed in accordance with law in respect of such prior liabilities. (xii) To ensure effective discharge of its mandate, the Special Committee was authorised to engage advocates, auditors, and other experts as may be necessary. (xiii) It was further provided that the Special Committee would have the liberty to approach the learned Single Judge from time to time for clarification, modification, or further directions. (xiv) Finally, the learned Single Judge expressed the expectation that the entire exercise would be completed within a period of one year, provided a clear mechanism for remuneration of the Chairman and members of the Committee, and directed that quarterly interim reports shall be filed before the learned Single Judge to monitor progress. 17. Thus, from the entire Order dated 29.05.2013, it emerges that the matter had been pending before the Court for ....
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....te to complete the entire exercise within a period of one year and to submit quarterly interim reports before the learned Single Judge, thereby facilitating continuous judicial monitoring. In order to maintain fairness and ensure independence, the learned Single Judge further directed that two-thirds of the members of the Committee shall be independent persons having no association with the sponsor. 22. However, instead of completing the assigned task within one year, the Committee took more than a decade, repeatedly seeking extensions of time, thereby clearly frustrating the intent and spirit of the Order dated 29.05.2013. 23. In the said Order, the learned Single Judge issued several directions and clarifications, inter alia, that the termination of CRB Asset Management Company Ltd., as the Asset Management Company does not absolve it, or its directors or officers, from any liability arising out of acts of commission or omission during their tenure, in terms of Regulation 25(6) of the 1996 Regulations. The learned Single Judge further clarified that although no penalties or sanctions were to be imposed on the Ex-Management for statutory non-compliance during the pendency of....
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....rlying premise was that errant persons must not be allowed to benefit, while the interests of honest and bona fide unitholders must not be compromised at any cost. 29. In our considered opinion, once the Court consciously vested the Special Committee with the role of a trustee, the Special Committee stood placed in a fiduciary position and was required to strictly adhere to that role. In terms of the empowerment granted by the Order dated 29.05.2013, clarifications or modifications were required to be sought from the Court rather than proceeding on presumptions or assumptions, if there was any. 30. What further emerges is that although the Order dated 29.05.2013 formally disposed of the main petition along with the pending applications, it was never intended to close the matter once and for all. The express liberty for clarification and modification clearly indicates this. Further, since the Special Committee was constituted by the Court and functioned as an extension of the Court's mandate, it could never be concluded that mere disposal of the petition marked the end of judicial oversight. 31. The directions to submit periodic reports to the Court and a comprehensive fina....
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.... 33. Words and Phrases, Permanent Edn. (Vol. 16-A, p. 41) defines "fiducial relation" as under: "There is a technical distinction between a 'fiducial relation' which is more correctly applicable to legal relationships between parties, such as guardian and ward, administrator and heirs, and other similar relationships, and 'confidential relation' which includes the legal relationships, and also every other relationship wherein confidence is rightly reposed and is exercised. Generally, the term 'fiduciary' applies to any person who occupies a position of peculiar confidence towards another. It refers to integrity and fidelity. It contemplates fair dealing and good faith, rather than legal obligation, as the basis of the transaction. The term includes those informal relations which exist whenever one party trusts and relies upon another, as well as technical fiduciary relations." 34. Black's Law Dictionary (7th Edn., p. 640) defines "fiduciary relationship" thus: "Fiduciary relationship. - A relationship in which one person is under a duty to act for the benefit of the other on matters within the scope of the relationship. Fiduciary relat....
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.... refer to a recent decision of this Court in CBSE v. Aditya Bandopadhyay [(2011) 8 SCC 497], wherein Raveendran, J. speaking for the Court in that case explained the terms "fiduciary" and "fiduciary relationship" in the following words: (SCC pp. 524-25, para 39) "39. The term 'fiduciary' refers to a person having a duty to act for the benefit of another, showing good faith and candour, where such other person reposes trust and special confidence in the person owing or discharging the duty. The term 'fiduciary relationship' is used to describe a situation or transaction where one person (beneficiary) places complete confidence in another person (fiduciary) in regard to his affairs, business or transaction(s). The term also refers to a person who holds a thing in trust for another (beneficiary). The fiduciary is expected to act in confidence and for the benefit and advantage of the beneficiary, and use good faith and fairness in dealing with the beneficiary or the things belonging to the beneficiary. If the beneficiary has entrusted anything to the fiduciary, to hold the thing in trust or to execute certain acts in regard to or with reference to the entrusted thing, the fidu....
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....Judgment came to be passed by the learned Single Judge, as is evident from its perusal. While doing so, the learned Single Judge examined various aspects in detail and thereafter issued multiple directions. Among the others, directions were issued for a forensic audit to be conducted within three months under Sections 11 and 11B of the SEBI Act. A Special Cell of SEBI was also constituted to take over the functions of the Committee as Trustee, with a mandate to complete the winding up of the Scheme under Regulations 41 and 42 of the 1996 Regulations within one year. Further, payments to Mr. C.R. Bhansali and related entities were restrained pending completion of the forensic audit. It was also directed that unclaimed redemption amounts aggregating to approximately Rs. 95,40,51,044/-, corresponding to 7,22,34,100 units held by 9,860 unitholders, be transferred to the Investor Protection and Education Fund after one year, subject to SEBI's decision on extension of the claim period. 36. Before issuing these directions, the learned Single Judge also examined the propriety of the functioning of the Special Committee and objections relating to unclaimed redemption amounts. In doing so....
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....ng was recorded either against the members of the Special Committee or against the CRB Group companies and sister concerns. In particular, the learned Single Judge did not conclusively oust the CRB Group entities from their claims, pursuant to which the Special Committee is alleged to have made payments in disregard of the Order dated 25.01.1999. 40. This direction itself makes it clear that had there been a conclusive finding on this issue, the learned Single Judge would not have deferred the matter to be examined upon the completion of a forensic audit, nor would liberty have been granted to SEBI to proceed in accordance with law only if violations were identified. 41. Therefore, in our considered opinion, there is no substance in the apprehension of the Appellants, whether members of the Special Committee or the CRB Group, that the learned Single Judge has rendered any conclusive finding imputing manipulation or mala fide conduct in the entire winding-up mechanism. 42. In view thereof, we find no reason to examine the allegations and counter-allegations raised by the parties at this stage. We concur with the directions of the learned Single Judge, inter alia, directing ....
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....e winding up has continued to linger for over two and a half decades, thereby defeating the very purpose of judicial intervention. 48. It is undisputed that the Order dated 29.05.2013 was passed with the consent of the parties present before the Court. The Trust Petition filed by SEBI was intended to safeguard the interests of the unitholders; however, the situation might have been better addressed had SEBI not allowed the earlier Order dated 25.01.1999 to go unnoticed while the Order dated 29.05.2013 was being passed by the learned Single Judge, and had SEBI sought appropriate clarification at that stage or at least soon thereafter. SEBI, being the regulator as well as the Petitioner, was further expected to act with greater promptitude and vigilance, particularly when extensions were being granted repeatedly from 2014 till 2022 without any objection. 49. So far as the applicability of the doctrine of merger is concerned, as discussed hereinabove, having regard to the nature of the Order dated 29.05.2013, it cannot be said that the said order was final or co-terminus in nature. The order was clearly open-ended and itself contemplated multiple contingencies and further procee....
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....l actions of the Special Cell remain under the supervision of the Court and are always open to judicial scrutiny. 55. With respect to the argument relating to the failure of the learned Single Judge to conclusively determine the locus standi of Rommel, we find no merit in the same as well, as such a determination was not necessary for the adjudication of the present proceedings. The Impugned Order has been passed after considering various facets and is not founded solely on the actions of Rommel. Consequently, a definitive determination of locus standi was not required at this stage, and the prima facie satisfaction recorded by the learned Single Judge is sufficient, with which we are in agreement. 56. Coming to the order passed by the Special Committee on 29.11.2023 in relation to NCM International's claim, we find that during the pendency of the application seeking extension of the Committee's mandate, the passing of any such order by the Committee was clearly beyond its jurisdiction. The Committee was constituted pursuant to an order of the Court and was, therefore, bound to act strictly within the confines of the mandate granted by the Court. In the absence of any express....