1998 (11) TMI 495 - HC - Companies Law

Issues Involved:
1. Investigation into the affairs and accounts of AWARE.
2. Allegations of fraud, misappropriation, and falsification of accounts by AWARE.
3. Transfer and utilization of funds by AWARE.
4. Involvement of AWARE INDIA FOUNDATION (AIF) and diversion of funds.
5. Compliance with Foreign Contribution (Regulation) Act (FCRA) and Income-tax Act.
6. Request for independent investigation and audit.

Detailed Analysis:

1. Investigation into the affairs and accounts of AWARE
The petitioner, NOVIB, sought an investigation by a proper agency into the affairs of AWARE, particularly focusing on its accounts and the utilization of foreign and local grants over previous years. NOVIB alleged that AWARE had been maintaining two completely different sets of accounts, one submitted to the Government of India and another to NOVIB, indicating significant discrepancies in the reported figures.

2. Allegations of fraud, misappropriation, and falsification of accounts by AWARE
NOVIB accused AWARE of fraud, misappropriation of public funds, and falsification of accounts, claiming various offences under the IPC, FCRA, and Income-tax Act. NOVIB's investigation revealed that AWARE had accumulated foreign contributions of Rs. 20.7 crores but reported only Rs. 82 lakhs to the donors. AWARE employed two accountancy firms to produce different accounts, and there were significant discrepancies between the balance sheets audited by G. Ramakrishna & Associates and Natraja Iyer & Co.

3. Transfer and utilization of funds by AWARE
NOVIB alleged that AWARE had taken actions to withdraw/transfer huge sums of money to prevent NOVIB from recovering unutilized grants. It was found that AWARE transferred Rs. 13.76 crores in May 1994, with Rs. 9 crores transferred to accounts in the name of AWARE's Chairman. This was done to show the amounts as advance expenses, even though the funds had not been withdrawn from the bank.

4. Involvement of AWARE INDIA FOUNDATION (AIF) and diversion of funds
AWARE INDIA FOUNDATION (AIF) was impleaded as a respondent, with allegations that AWARE had diverted approximately Rs. 12.13 crores to AIF. The funds given by NOVIB to AWARE were shown as loans to Tribals and Harijans, with repayments placed in a "Revolving Fund." AIF, incorporated in November 1994, was not independent of AWARE and was controlled by it. Significant amounts were transferred from AWARE's revolving funds to AIF's accounts.

5. Compliance with Foreign Contribution (Regulation) Act (FCRA) and Income-tax Act
NOVIB argued that AWARE's registration under FCRA should be canceled, and an audit of AWARE's accounts should be ordered under section 15A of FCRA. NOVIB also sought action against AWARE under the Income-tax Act and IPC for various offences. AWARE contended that the discrepancies were due to mistakes and irregularities without any guilty intention, attributing some issues to an ex-employee and explaining the dual accounts as a means to secure further funding.

6. Request for independent investigation and audit
The court acknowledged the need for an independent, in-depth inquiry into AWARE's financial affairs. The court appointed S.R. Batliboi & Co., Chartered Accountants, to conduct the inquiry, considering the allegations and counter-allegations made by the parties. The court directed the Income-tax Authorities to expedite the special audit and reserved further directions pending the receipt of the report on the accounts.

Conclusion:
The court refrained from commenting on the merits of the allegations at this stage but recognized the necessity of a thorough independent investigation. The appointed Chartered Accountants were tasked with examining whether there had been any misappropriation or misutilization of funds by AWARE and AIF. The matter was set for further consideration upon receipt of the audit report.

← Previous Next →