2017 (11) TMI 662 - HC - Companies Law

Validity of Cash down land purchase scheme and scheme of land purchase by instalments - SEBI had initiated action against the company for violation of Sections 11-AA and 12(1-B) of the SEBI Act as the company had not obtained a certificate of registration as required under Section 12(1-B) of the SEBI Act - Held that - Having regard to the number of depositors and the huge stakes involved, it would be a mammoth task to identify the investors, identify the lands that have been purchased, value the land and realize the actual value by way of sale of properties. Learned Amicus Curiae have suggested that it would be appropriate if a committee is constituted consisting inter-alia of Competent Authority under TNPID Act, representatives from the Revenue Department, representatives from the legal fraternity, representatives from the Economic Offences Wing, representatives of SEBI and a team of Chartered Accountants to carry out the task of identifying the investors, identifying the lands that have been purchased, getting the land valued and raising funds for settlement of dues of investors / depositors by actual sale of landed properties. This Court deems it appropriate to constitute a Committee headed by Hon ble Mr.Justice N.Paul Vasanthakumar, Retired Chief Justice of the Jammu and Kashmir High Court. The Committee shall consist of two senior members of the legal fraternity, namely, Mr.B.Kumar, Mr.M.S.Krishnan, who have been assisting this Court as Amicus Curiae and also Mr.C.Manishankar, Senior Advocate and Additional Advocate General. In addition, the Committee shall include the Competent Authority under TNPID Act, namely, Additional Commissioner of Land Administration or a person nominated by the Additional Commissioner of Land Administration not below the rank of the Joint Secretary to the State Government, two nominees of the Revenue Secretary to the State of Tamil Nadu of the rank of Revenue Divisional Officer, a nominee of the Additional Director General of Police, Economic Offences Wing, not below the rank of Superintendent of Police and a nominee of the Regional Director, SEBI not below the rank of Deputy General Manager. All depositors / investors of the Company should apply to the Committee with details of their investments and documents in support of their claims within the time stipulated in the advertisement. The claims shall be processed by the Committee and the list of depositors and their respective claims shall be finalised. Bogus claims can obviously be rejected. The Committee shall take necessary steps to identify the properties of the Company, its sister concerns, Directors and transferees, to ascertain the location, marketability and title thereto and thereafter proceed to sell the properties. The committee may obtain the assistance of a team of experts of the Revenue Department and a competent legal team to perform the acts mentioned above. The committee may also constitute an Accounting team to look into the bank accounts and other financial documents of the company, its Directors, its sister concerns, etc. and to ascertain whether there has been secretion of funds of the Company. The amounts realized from out of the sale of the properties shall be deposited in a special account opened for this purpose, which may jointly be operated by any two members of the committee nominated by the Chairperson. The Company and each of its Directors shall make an initial deposit of ₹ 10,00,000/- (Rupees ten lakhs only) each for the expenses required for implementation of this order. The Company, its Directors, its sister concerns shall also provide the Committee a befitting office space and infrastructure in Chennai to carry out this order. The office space shall be provided by the Company either at its office in Masilamani Street, T.Nagar, Chennai or at Old Door No.59/1, New No.119, Canal Bank Road, CIT Nagar, Chennai-600 035. In case the amounts realized are not sufficient to settle the claims of all depositors / investors in full, the depositors / investors shall be paid on pro rata basis in proportion with the amounts deposited by them in the Company as substantiated by cogent documents. The FIR shall, however, be kept alive as the prosecution may have to continue if the amounts realized are not sufficient to pay the amounts due to all depositors / investors.

Summary

Issues involved:
1. Settlement of dues of investors in a company involved in land purchase schemes.
2. SEBI's action against the company for violations.
3. Criminal proceedings under the TNPID Act.
4. Appointment of Amicus Curiae to assist the court.
5. Formation of a Committee to address the settlement of dues.
6. Procedures under the TNPID Act for attachment of properties.
7. Compounding of offences under the TNPID Act.
8. Equitable distribution of funds among investors.
9. Identification and sale of company properties for settlement.
10. Role and responsibilities of the Committee.
11. Restraining the company from transferring assets.
12. Reporting obligations of the Committee to the Court.

Analysis:

1. Settlement of Dues of Investors:
The case involved a company that collected significant amounts from investors through land purchase schemes. A public interest petition was filed to settle the dues of investors, leading to the appointment of a Commissioner by the court. The company submitted a settlement scheme, revealing the amounts collected and settled, with a substantial number of investors still awaiting settlement.

2. SEBI's Action:
SEBI took action against the company for violations of the SEBI Act, directing refund of amounts collected under the schemes and prohibiting asset transfers. The company appealed before the Securities Appellate Tribunal, which granted an extension to implement SEBI's order.

3. Criminal Proceedings under TNPID Act:
Criminal proceedings under the TNPID Act were initiated against the company, leading to complexities in settling investor dues. The company sought permission to settle dues by selling properties, while a party argued against bypassing the TNPID Act provisions post-FIR registration.

4. Appointment of Amicus Curiae:
Considering the case's complexities, the court appointed Amicus Curiae to devise a mechanism for expeditious payment of investors' dues in compliance with the TNPID Act and other laws, without hindering legal proceedings against the company.

5. Formation of a Committee:
To address the settlement of dues and property identification for sale, a Committee was constituted under the leadership of a retired Chief Justice. The Committee included legal experts, government officials, and SEBI representatives, with responsibilities to identify investors, properties, and manage the sale process.

6. Procedures under TNPID Act:
The TNPID Act provisions regarding property attachment and trial of financial establishments were highlighted, emphasizing the role of the Competent Authority and the Special Court in dealing with such cases.

7. Compounding of Offences:
The possibility of compounding offences under the TNPID Act was discussed, emphasizing the need for returning payable amounts to potentially resolve the offences and settle the issue.

8. Equitable Distribution of Funds:
The Special Court was empowered to issue directions for equitable distribution of funds among investors, emphasizing the importance of fair allocation based on the properties sold.

9. Identification and Sale of Properties:
The Committee was tasked with identifying and selling company properties to settle investor dues, with provisions for engaging experts and professionals for valuation and financial analysis.

10. Role and Responsibilities of the Committee:
The Committee was designated as the Administrator of the Company, responsible for managing the settlement process, collecting funds, and ensuring cooperation from the company and related parties.

11. Restraining Asset Transfers:
The company and its associates were prohibited from transferring assets except through the Committee, ensuring proper control and utilization of funds for settlement.

12. Reporting Obligations:
The Committee was directed to provide periodic reports to the Court, ensuring transparency and accountability in the settlement process. Past Directors of the Company were also directed to be impleaded as respondents in the case.