2024 (9) TMI 8 - AT - Companies Law

Deletion of the Appellant as party - Whether there is sufficient justification for deletion of the Appellant as party Respondent in C.P. 3638 of 2018 and for removal of restraints on him with respect to his moveable and immoveable property? - HELD THAT - It is an undisputed fact that the SFIO Final Report had removed the Appellant from the list of persons who constituted the coterie governing IL FS and its Group Companies. It is also undisputed that the Appellant is not named as an accused therein. Apart from there being no generic findings against the Appellant in the SFIO Final Report, there are no specific imputations either of wrong-doing or illegality on the part of the Appellant. There is also no dispute that in pursuance of the Final Report, charge-sheet was filed and prosecution proceedings commenced thereafter. However, no charge of fraud or any other wrongful act has been brought out against the Appellant. Clearly the Appellant had not been identified as an accused in the same charge-sheet. The NCLT clearly committed an error in observing at para 23 of the impugned order dated 10.04.2024 that the Appellant has not been discharged so far from the matter by the criminal court also. Since it is a matter of fact and record that there are no criminal proceedings pending against the Appellant, there was no question arising of discharge from such non-existing proceedings. It is the contention of the Ld. Sr. Counsel for the Appellant that the NCLT had erroneously denied discharge on ground that the Appellant had made withdrawal of lookout circular as the only basis of his discharge - Withdrawal of lookout circular was only one other additional demonstrable proof that the Appellant was no longer a material or relevant party for impleadment. The mere ground of delay in conduct of any investigation by itself cannot constitute sufficient ground for any investigation to be brought to an abrupt end. The investigation process is nevertheless expected to proceed with reasonable and optimal dispatch and should not be inordinately stretched and prolonged at the cost of fair play in action. In the interest of justice and equity, it is imperative to ensure that the delay does not violate or infringe the right of any party to be treated fairly, justly and reasonably. The latitude of time given to the Respondent to complete the investigations cannot continue endlessly, an observation which was made by the NCLT itself more than two years back. Further, prima-facie, there is force in the contention of the Appellant that such inordinately delayed investigation and consequential freeze of assets has prejudicially affected the rights and interests of the Appellant causing agony to a senior citizen, more so, when no adverse findings specifically against the Appellant has come on record so far. This Bench is of the considered view that to meet the ends of justice, while the enquiry may continue, the name of the Appellant from the list of party Respondents in CP 3638 of 2018 could be removed and restraint/freeze of assets also be vacated - Appeal allowed.

Issues Involved:
1. Impleadment of the Appellant as Respondent No. 316 in CP No. 3638 of 2018
2. Restraint on the Appellant's movable and immovable properties
3. Modification of NCLT's order dated 18.12.2020
4. SFIO Final Report and its implications on the Appellant

Detailed Analysis:

1. Impleadment of the Appellant as Respondent No. 316 in CP No. 3638 of 2018
The Appellant was impleaded as Respondent No. 316 in CP No. 3638 of 2018 based on the SFIO Interim Report dated 30.11.2018, which identified him as part of the coterie controlling IL&FS and its Group Companies. The NCLT, in its order dated 03.12.2018, directed the impleadment and imposed restraints on the Appellant's properties.

The Appellant contended that the SFIO Final Report dated 28.05.2019 did not name him as part of the coterie, and no prosecution had been initiated against him. The Respondent argued that the Appellant's impleadment was necessary and proper, and the NCLT had already disallowed his plea for deletion/discharge multiple times. The Tribunal noted that the SFIO Final Report had removed the Appellant from the list of persons constituting the coterie and that no criminal proceedings were pending against him.

2. Restraint on the Appellant's Movable and Immovable Properties
The NCLT had imposed restraints on the Appellant's properties to protect public interest and the interests of creditors. The Appellant sought the removal of these restraints, arguing that he was not named in the SFIO Final Report and no chargesheet or prosecution had been initiated against him.

The Respondent maintained that the restraints were necessary due to the ongoing investigation into IL&FS and its subsidiaries. The Tribunal found that the investigation had been protracted and that the Appellant had not been implicated in any criminal proceedings. It was also noted that the NCLT had previously directed the SFIO to complete its investigation expeditiously, which had not been done.

3. Modification of NCLT's Order Dated 18.12.2020
The Appellant sought modification of the NCLT's order dated 18.12.2020, which had allowed him to withdraw Rs. 3 lakhs per month but had based its decision on certain factual inaccuracies. The Appellant argued that the order wrongly implicated him based on the SFIO Interim Report and that the SFIO Final Report had excluded him from the coterie.

The Respondent contended that the Appellant was introducing new facts and documents at the appellate stage, which was impermissible. The Tribunal observed that the NCLT had limited jurisdiction to rectify mistakes or errors arising out of accidental slips or omissions and found no infirmity in the NCLT's decision to leave the facts open for pleading in subsequent proceedings.

4. SFIO Final Report and Its Implications on the Appellant
The SFIO Final Report dated 28.05.2019 did not name the Appellant as part of the coterie controlling IL&FS and its Group Companies. The Appellant argued that this report, along with the absence of any chargesheet or prosecution, justified his discharge from the proceedings.

The Respondent admitted that the SFIO Final Report did not name the Appellant but argued that the investigation was still ongoing and that the Appellant's removal would exonerate him prematurely. The Tribunal noted that the SFIO Final Report and the subsequent chargesheet did not contain any adverse findings against the Appellant. It also found that the Respondent had failed to disclose any prosecution initiated against the Appellant.

Conclusion:
The Tribunal allowed the appeals, setting aside the impugned orders to the extent that they imposed restraints on the Appellant's properties and continued his impleadment as Respondent No. 316. It was held that the Appellant could be removed from the list of party Respondents in CP 3638 of 2018 and the restraints on his assets vacated, while leaving it open for the Respondent to frame charges and launch prosecution if substantial evidence was found in the ongoing inquiry.

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