2019 (4) TMI 1450 - Tri - Companies Law

Misappropriation under 403, 404 of IPC of all the proceedings etc. affairs of the Company are not being conducted by its Directors and officers and they are liable for action as per investigation report in question for various violations Civil and Criminal under Sections 159, 166, 210, 220, 266(c) r/w Section 628, 240(3) - HELD THAT - The detailed report submitted by the SFIO clearly established that there are serious violations and crimes committed by the Company and its Directors. Therefore, the Government of India has rightly ordered investigation into the Affairs of Company. The evidence placed by the Union of India in support of the instant Case is fully justified. Moreover, the contention of the Petitioner that the other criminal cases are pending and obtained stay of those proceedings and they have also filed several cases seeking to compound the offences mentioned in the report have hardly any bearing on the instant case. In the instant Case, admittedly, the Company and its Directors have violated several sections of the Companies Act, 1956. Apart from Criminal offences, so far as the instant case is concerned the Tribunal is having jurisdiction to take cognizance of the issue and pass suitable orders on the issue. And the petition is filed in accordance with law and the contentions/allegations made contrary in this regard by the Respondents are not tenable and baseless. The Contention of the Respondents that if Directors are replaced by the Union of India, it would prejudicially affect the cases filed against them is not tenable. Evidence to be adduced in Criminal is different from evidence to be adduced in Civil Case. The criminal case has to be defended by an Individual person in his personal capacity and the Company being a Separate legal entity is bound by its Memorandum and Articles of Association. When the Respondents are facing misappropriation for huge of amount of money which are substantiated, it is necessary to replace the existing the management of R-1 Company with independent Directors to be appointed by Union of India. After considering the contentions made the Principal Bench, CLB , New Delhi , dismissed it by an order dated 10th August, 2015 by inter alia holding that the matter was investigated by Serious Fraud Investigation Office. Investigation report was submitted in September, 2009. Investigation under 239 was ordered in April, 2009 and report by SFIO was submitted on 30.07.2011. The instant petition was first filed on 30.01.2013 and refiled on 09.07.2014 with an application seeking condonation of delay in refilling. Therefore, the Tribunal held the case was filed well within time and it does not suffer from undue delay and latches. Therefore, the above order became final and thus it is not necessary to advert it again with regard to laches and limitation as raised by the Respondents. Subsequently, the case was transferred to this Bench by the Principal Bench by order dated 26.10.2017 with a direction to the parties to appear Bengaluru Bench of NCLT on 18.12.2017. Accordingly, the case is taken on record of this Bench and posted it on various dates and it is adjourned on those dates on various grounds as mentioned in docket orders of the Tribunal. So far as contention of the Respondents that there is no analogous provisions contained in New Companies Act, 2013 with regard to Section 388-B and other related sections of 1956 is concerned, it is to be mentioned here that there is exclusive Chapter XIV (Inspection, Inquiry and conduct inquiries) covering Sections 206-229 of Companies Act, 2013. In any case, the instant case is filed under the provisions of Companies Act, 1956 and the same is maintainable and it is filed in accordance with law. Therefore, we are of the considered opinion that the Petitioner make out a case so as to interfere in the Affairs of the Company with suitable orders so to protect the property of the Company; to protect the interest of stakeholders of Company and to see the Company follow statutory compliances etc. We are also of considered opinion that the existing management should not be continued, and it should be replaced by the New Directors to be appointed by the Union of India as per law.

Summary

Issues Involved:
1. Maintainability of the petition under Section 388B of the Companies Act, 1956.
2. Allegations of fraud, mismanagement, and financial irregularities by the directors of the company.
3. Validity of parallel criminal proceedings and civil cases.
4. Timeliness and procedural correctness of the petition.
5. Replacement of existing directors with government-nominated directors.

Issue-wise Detailed Analysis:

1. Maintainability of the Petition:
The Union of India filed the petition under Sections 401, 397, 398, and 408 of the Companies Act, 1956, seeking relief under Section 388B. The respondents contended that the petition was not maintainable due to the existence of parallel criminal proceedings on the same charges and the absence of a corresponding provision under the Companies Act, 2013. They also argued that the petition was barred by laches and limitation. However, the Tribunal held that the petition was maintainable under the Companies Act, 1956, and dismissed the respondents' arguments regarding procedural irregularities and delay.

2. Allegations of Fraud, Mismanagement, and Financial Irregularities:
The Serious Fraud Investigation Office (SFIO) conducted an investigation and found multiple instances of fraud, mismanagement, and financial irregularities by the directors of Megacity Bangalore Developers & Builders Limited (MDBL). The investigation revealed that the company, controlled by C.P. Yogeshwara and his family, misappropriated funds, falsified documents, and engaged in fraudulent activities. Specific findings included:
- Misappropriation of ?37 crores through forged agreements to sell.
- Falsification of balance sheets and non-accounting of assets.
- Misleading representations in brochures and pamphlets.
- Multiple DINs obtained by the Managing Director, violating Section 266C of the Companies Act, 1956.

3. Validity of Parallel Criminal Proceedings and Civil Cases:
The respondents argued that the petition should not proceed due to ongoing criminal proceedings and civil cases. However, the Tribunal noted that the evidence required in criminal cases differs from that in civil cases. The Tribunal emphasized that the company, as a separate legal entity, must adhere to its Memorandum and Articles of Association, and the criminal proceedings against individuals do not preclude the Tribunal from taking action to protect the company's interests.

4. Timeliness and Procedural Correctness of the Petition:
The respondents claimed that the petition was filed after an inordinate delay and did not follow the proper procedural requirements. The Tribunal, however, found that the petition was filed within an acceptable timeframe and complied with the necessary legal procedures. The Principal Bench of the Company Law Board had previously dismissed similar objections, and the Tribunal upheld this decision.

5. Replacement of Existing Directors with Government-Nominated Directors:
Given the serious violations and crimes committed by the company's directors, the Tribunal concluded that the existing management should be replaced. The Tribunal directed that the current directors (Respondent Nos. 2 to 5) be removed and debarred from managing the company's affairs. The Union of India was permitted to appoint new directors to ensure the company's compliance with statutory requirements and to protect the interests of stakeholders.

Conclusion:
The Tribunal found substantial evidence of fraud, mismanagement, and financial irregularities by the directors of MDBL. It upheld the maintainability of the petition under the Companies Act, 1956, and dismissed the respondents' objections regarding procedural issues and delay. The Tribunal ordered the removal of the existing directors and allowed the Union of India to appoint new directors to manage the company's affairs, thereby protecting the interests of stakeholders and ensuring statutory compliance.