2021 (12) TMI 388 - HC - Companies Law

Inability to recover the debts due to banks and financial institutions, particularly of the nationalised bodies - Sections 337 to 341 or Section 212(1)(c) of the Companies Act, 2013 - HELD THAT - The concern expressed by the petitioners here pertains to the vanishing money from the Indian economy and the next to nothing that is realised in course of insolvency proceedings or even bank claims in respect of non-performing assets. While the courts were blamed in the several reports that emanated in the late 1980s and early 1990s to park bank claims with a specialised body, first with an Ordinance and then with the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 being enacted, the realisation of the debts due did not pick up and in less than a decade there were further committee reports before the NPA Act the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 came in force. The petitioners seek a rather tall order on somewhat vague and over-generalised principles and submission. If the law exists, the court need not reinvent the wheel and ask the Union to act in accordance therewith, when the Union is already obliged to act in such manner. An omnibus order to reform the system cannot be sought at this level and given the current trend of the diminution of authority of the High Courts, it may not even be taken seriously - the petitioners and larger public interest may be better served if the petitioners focussed on any particular entity and presented cogent grounds to the Central Government to excite the Central Government to exercise its statutory authority in such regard, whether under Sections 337 to 341 or Section 212(1)(c) of the Companies Act, 2013. It may even be possible for the petitioners to seek an investigation under Section 213 of the Act of 2013. Petition disposed off.

Summary

Issues involved:
Petitioners' concerns regarding debt recovery from corporate entities, lack of investigation by Central Government, problems with statutory watchdogs, vanishing money from the economy, inefficiencies in investigating agencies, need for judicial intervention in law enforcement, and the role of Central Government in addressing financial irregularities.

Analysis:
1. The petitions highlight the challenge of recovering debts owed to banks and financial institutions, particularly nationalized bodies, due to insolvency proceedings resulting in significant write-offs. The petitioners emphasize the Companies Act, 2013 provisions empowering the Central Government to investigate corporate affairs, expressing disappointment in the limited utilization of these provisions.

2. Specific focus is placed on five companies, three in liquidation, where creditors, including nationalized banks, have suffered substantial losses. The petitioners criticize the lack of effort by the Central Government in tracking the vanished funds or identifying those responsible for siphoning off the money, raising concerns about the effectiveness of existing regulatory mechanisms.

3. The petitions address systemic issues within statutory watchdogs, noting potential interference compromising their functionality. Moreover, broader issues such as election reforms and funding are highlighted, underscoring the interconnected nature of financial irregularities and governance challenges that extend beyond immediate concerns.

4. The judgment acknowledges the presence of credible investigating agencies like the Serious Fraud Investigation Office but suggests that constraints on their operational effectiveness may hinder robust enforcement actions. The court points out policy issues that require attention but recognizes its limitations in directly addressing or resolving them.

5. Despite past directives to separate the police's investigation wing from law enforcement, little progress has been made, indicating a lack of adherence to Supreme Court mandates. The court underscores the need for authorities to comply with established legal principles to enhance accountability and efficiency in addressing financial improprieties.

6. The petitioners express dismay over the persisting issue of vanishing funds from the economy, citing historical legislative measures like the NPA Act and the Insolvency and Bankruptcy Code. While these laws aimed to expedite debt recovery processes, the actual outcomes have fallen short, resulting in significant economic losses over the years.

7. The judgment cautions against seeking broad systemic reforms through omnibus orders, suggesting a more targeted approach focusing on specific entities to prompt the Central Government to exercise its statutory powers effectively. It emphasizes the importance of presenting cogent grounds for investigation under relevant sections of the Companies Act, 2013 to compel action from regulatory authorities.

8. The Union's reference to a previous judgment highlights concerns about excessive interference in private entities based on unsubstantiated suspicions. While acknowledging the need for vigilance to prevent scams, the court stresses the importance of balancing proactive enforcement with due process to avoid undue disruptions in private operations.

9. Ultimately, the court dismisses the petitions without delving into the specific issues raised, encouraging petitioners to pursue individual representations targeting particular entities for Central Government intervention. By emphasizing the role of focused submissions in prompting regulatory action, the judgment underscores the importance of engaging with authorities on a case-by-case basis to address financial irregularities effectively.