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2021 (9) TMI 670 - HC - Companies LawJurisdiction - Initiation of prosecution - Investigation into affairs of Company by Serious Fraud Investigation Office - freezing and disgorgement of assets of 157 companies - retrospective effect of penal provisions - power of the respondent to initiate proceedings before NCLT - HELD THAT - It is a settled law the challenge to the jurisdiction of NCLT ought to have been raised before NCLT itself. Once the proceedings have been initiated before NCLT and if the NCLT is seized with the company petition, all contentions including power of the respondent to initiate such proceedings before NCLT must be raised before such forum and be determined in those proceedings - Since the petition has already been filed under Section 241, 242 of the Companies Act; notice having been issued; the contention raised before this Court on the point of jurisdiction of NCLT can very well be raised before the NCLT. Companies Act is a complete code hence statutory mechanism under it cannot be bypassed. Section 430 of the Act provides the jurisdiction of all Civil Courts is barred in respect of the matter which the NCLT or the NCLAT is empowered to determine by or under Act. This Court does not have territorial jurisdiction to entertain this Writ Petition as the company petition is filed before the NCLT at Allahabad and in respect of the companies having its registered office in the State of Uttar Pradesh that is beyond the jurisdiction of this Court - This Court does not exercise supervisory jurisdiction under Article 227 over NCLT at Allahabad and such jurisdiction vests solely with High Court of Judicature at Allahabad. The Hon ble Supreme Court in various judgments have held Section 430 of the Companies Act has to be construed strictly and the NCLT has been given inherent powers to decide the matters of the companies and should not be interfered with lightly - reliance can be placed in the case of SAS HOSPITALITY PVT LTD ANR. VERSUS SURYA CONSTRUCTIONS PVT LTD ORS. 2018 (12) TMI 1123 - DELHI HIGH COURT . Power of Central Government to file application before NCLT u/s 212(14) - Disgorgement occurring in Section 212 (14A) cannot be read in blissful isolation whereas, the length and breadth of the Act, chapter and verse bespeaks of such properties/ shares/ debentures, to be frozen/ liquidated/disposal/ sold for utilization in furtherance of public interest by way of sale, recovery of undue gains to alleviate the wrong done to persons/ financial institutions - the contention that no charges have been framed as yet does not hold a ground since filing of company petition under Section 241(2) is not dependent on filing of the chargesheet in the complaint. There is no merit in the petition(s) and both the petition(s) are accordingly dismissed.
Issues Involved:
1. Jurisdiction of NCLT. 2. Validity of the impugned letter and corrigendum. 3. Retrospective application of Section 212(14A) of the Companies Act. 4. Powers of the Central Government under Sections 241, 242, 246, and 339 of the Companies Act. 5. Disgorgement and freezing of assets. Issue-wise Detailed Analysis: 1. Jurisdiction of NCLT: The court examined whether the jurisdiction of the National Company Law Tribunal (NCLT) could be challenged in the High Court. It was held that challenges to the jurisdiction of NCLT must be raised before the NCLT itself. The petitioner sought to quash the letter dated 29.06.2019, effectively challenging the NCLT's jurisdiction. The court emphasized that the Companies Act is a complete code, and Section 430 bars civil courts from entertaining matters that NCLT or NCLAT is empowered to determine. The court cited several judgments, including *Raj Kumar Shivhare v. Directorate of Enforcement* and *State Bank of Travancore vs. Mathew K.C.*, reinforcing the principle that writ petitions should not be entertained when alternative statutory remedies exist. The court concluded that it does not have territorial jurisdiction as the company petition was filed before the NCLT at Allahabad, concerning companies with registered offices in Uttar Pradesh. 2. Validity of the Impugned Letter and Corrigendum: The petitioners challenged the letter dated 29.06.2019 and the corrigendum dated 29.11.2019, which directed the filing of a complaint against the petitioners and the initiation of proceedings under Sections 241/242/246 read with Section 339 of the Companies Act. The court noted that the Central Government's decision to file the petition was based on the Serious Fraud Investigation Office (SFIO) report, but the Act does not restrict the government from forming an opinion based on other material. The court highlighted that the power under Section 241 is to protect public interest, and the Central Government can apply to the Tribunal if it believes the company's affairs are conducted prejudicially. 3. Retrospective Application of Section 212(14A) of the Companies Act: The petitioners argued that the order for disgorgement was issued prematurely as Section 212(14A) came into effect on 15.08.2019, after the impugned order dated 29.06.2019. The court referred to judgments such as *Commissioner of Income Tax (Central)-I, New Delhi vs. Vatika Township Private Limited* and *Hitendra Vishnu Thakur & Ors. Vs. State of Maharashtra & Ors.*, which clarified that substantive rights are presumed to be prospective unless explicitly stated otherwise. The court found that the reliefs for disgorgement could be sought under Sections 241 and 242(1)(l)(m) independently of Section 212(14A). 4. Powers of the Central Government under Sections 241, 242, 246, and 339 of the Companies Act: The court clarified that the Central Government has broad powers under Sections 241 and 242 to protect public interest and can initiate proceedings based on any material, not necessarily awaiting an SFIO report. The court emphasized that these sections allow the government to seek reliefs such as freezing assets and disgorgement of property, which are civil actions in nature. The court cited *Karvy Stock Broking Ltd. v. Securities and Exchange Board of India* and *Shadilal Chopra v. SEBI* to explain that disgorgement is an equitable remedy designed to prevent unjust enrichment. 5. Disgorgement and Freezing of Assets: The court discussed that disgorgement is a remedy to prevent wrongdoers from profiting from illegal conduct and is not a punishment. It is a civil action aimed at recovering ill-gotten gains. The court noted that the impugned letter and corrigendum were executive orders flowing from the statutory scheme of the Companies Act and not judicial orders. The court concluded that the filing of a company petition under Section 241(2) is not dependent on the filing of a chargesheet. Conclusion: The court dismissed the petitions, holding that the petitioners should raise their objections before the NCLT. The court found no merit in the petitioners' arguments regarding jurisdiction, the retrospective application of Section 212(14A), and the validity of the impugned orders. The court emphasized the broad powers of the Central Government under the Companies Act to protect public interest and seek equitable remedies like disgorgement. Pending applications were also disposed of.
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