2018 (4) TMI 1589 - Tri - Companies Law

Fraud by Gitanjali group of companies - independent director seeking vacation of restraint order passed by this Bench not to remove, transfer or dispose funds, assets and properties of the entities and individuals until further orders on the ground that these respective respondents, who had filed these applications, have not indulged in the fraud said to have taken place in respect of the Gitanjali group of companies - Held that - It is the duty of this court to see that innocent people are not burdened by this restraint order therefore as and when any innocent comes before this Bench saying that he has no involvement in the fraud spiraling from the day-to-day, this Bench has to diligently respond to the reliefs sought by such people. Of course, it is true that this Bench cannot decide who is innocent and who is culprit, but to the extent order passed by this Bench, it should not become helpless to vacate that order if no material is found against whom this order is in force. In view of the same, for there being neither an averment nor any incriminating material placed against this applicant, this applicant deserves vacation of the restraint order in force against him, accordingly this MA is disposed of vacating the restraint order dated February 23, 2018 against this applicant.

Summary

Issues Involved:
1. Vacation of restraint order against various respondents.
2. Allegations of fraud involving the Gitanjali group of companies.
3. Legal liability of non-executive independent directors.
4. Incriminating material and evidence against respondents.
5. Application of Section 221 of the Companies Act, 2013.

Detailed Analysis:

Vacation of Restraint Order Against Various Respondents:
The judgment addresses multiple miscellaneous applications from respondents seeking to vacate a restraint order dated February 23, 2018. This order restrained the respondents from removing, transferring, or disposing of funds, assets, and properties. The respondents argued that they were not involved in the alleged fraud and faced undue hardship due to the order.

Allegations of Fraud Involving the Gitanjali Group of Companies:
The case revolves around a significant fraud involving the Gitanjali group of companies. The respondents claimed that they were not implicated in the fraud and had no role in the day-to-day management or suspicious activities of the companies involved. The fraud was primarily attributed to firms like Diamond RUS, Solar Exports, and Stellar Diamond in conspiracy with individuals such as Nirav Modi and Mehul Choksi.

Legal Liability of Non-Executive Independent Directors:
Several respondents were non-executive independent directors who argued that under Section 149(12) of the Companies Act, 2013, they should not be held liable unless there was prima facie proof of their involvement. They cited circulars from the Ministry of Corporate Affairs and the RBI, which state that independent directors should not be considered willful defaulters unless fraud is conclusively established with their connivance.

Incriminating Material and Evidence Against Respondents:
The judgment meticulously examines whether there was any incriminating material against each respondent. For instance, respondent No. 52 (Mr. Gautam Mukkavilli) and respondent No. 51 (Mr. Suresh Senapathy) were found to have no allegations or incriminating evidence against them, leading to the vacation of the restraint order. Similarly, respondent No. 44 (Mr. Gopal Krishnan Nair) had resigned from the companies in 2009 and had no connection with the fraud, resulting in the vacation of the order against him.

Application of Section 221 of the Companies Act, 2013:
The judgment discusses the application of Section 221, which allows restraint orders to aid investigations. The tribunal emphasized that such orders are temporary and preventive, aimed at ensuring that assets are not dissipated during the investigation. The tribunal also noted that while it does not possess magisterial powers, it can pass orders similar to those in criminal investigations if there are reasonable grounds to believe that assets may be dissipated.

Specific Judgments on Individual Applications:
1. M.A. No. 182 of 2018 (Mr. Gautam Mukkavilli): The restraint order was vacated due to the absence of any incriminating material or allegations against him.
2. M.A. No. 180 of 2018 (Mr. Suresh Senapathy): The restraint order was vacated as he was also an independent director with no allegations or evidence against him.
3. M.A. No. 183 of 2018 (Mr. Gopal Krishnan Nair): The restraint order was vacated as he had resigned from the companies in 2009 and had no involvement in the fraud.
4. M.A. No. 184 of 2018 (Mr. Sanjay Rishi): The restraint order was vacated as there was no incriminating material against him.
5. M.A. No. 217 of 2018 (Mr. Sujal Shah): The restraint order was vacated as he had ceased to be a director in 2013 and had no connection with the fraud.
6. M.A. No. 218 of 2018 (Mrs. Nazura Yash Ajaney): The restraint order was modified, allowing her to withdraw ?1,00,000 per month, as there was a prima facie case against her.
7. M.A. No. 219 of 2018 (Mr. Anil Haldipur): The restraint order was modified, allowing him to withdraw ?2,00,000 per month, as he was shown as an accused in the FIR.

Conclusion:
The tribunal vacated the restraint orders against respondents where no incriminating material was found and modified the orders for others, allowing limited financial withdrawals. The judgment underscores the importance of not burdening innocent individuals while aiding the investigation into the fraud.