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2019 (12) TMI 859 - HC - Companies LawSiphoning/defalcation/diversion of funds - Vacation of restraint on related party to transfer, selling or alienating of the properties purchased - related party companies - intermediate companies - sister concern - HELD THAT - There has been siphoning off of funds from Respondent No.1. The balance sheet for the period ending 31.12.2009 also reflects that inter-corporate deposits have been written off by Respondent No. 1. Appellants, thus, have a good ground to say that the amounts invested by them were diverted by Respondent No. 1 to Intermediate Companies which were further diverted to Related Party Companies who have purchased the subject land. The Related Party Companies have a nexus with Dr. Rajesh Aeren, the Managing Director of Respondent No. 1. There is also material on record to prima facie show that in all Related Party Companies, AEZPL and Dr. Rajesh Aeren were the beneficiaries. In fact, the annual return of Aeren R. Enterprises Pvt. Ltd., reflects that Dr. Rajesh Aeren, his wife and his son and daughter are the shareholder and the ultimate beneficiaries. The Related Party Companies have entered into various transactions with Respondent No.1. Therefore, it cannot be ignored that there is a trail of money which ultimately results into the purchase of subject land by Dr. Rajesh Aeren through sister concerns of Respondent No. 1 in the names of the sister concerns. There is sufficient material on record which, prima facie, shows that there has been siphoning off of funds from Respondent No.1. The balance sheet for the period ending 31.12.2009 also reflects that inter-corporate deposits have been written off by Respondent No. 1. Appellants, thus, have a good ground to say that the amounts invested by them were diverted by Respondent No. 1 to Intermediate Companies which were further diverted to Related Party Companies who have purchased the subject land - The Related Party Companies have entered into various transactions with Respondent No.1. Therefore, it cannot be ignored that there is a trail of money which ultimately results into the purchase of subject land by Dr. Rajesh Aeren through sister concerns of Respondent No. 1 in the names of the sister concerns. The routing of funds is central to the scheme of layering the tainted money, which is always a challenge for unearthing fraud and tracing the source and the trail. The volume of funds pushed into purchase and acquisition of properties in question can only be estimated at this stage with the existing information. It will, of course, require detailed scrutiny of accounts to reach to a definite conclusion. The arms of the law are long enough to chase the fraudulently, ill gotten wealth, and to chase the fraudsters, even after they change their faces/identities by resorting to transfer of funds/layering. There seems to be no justification for Respondent No. 1 not utilizing the funds collected by it from different sources for the Project Mall‟, and for diversion of the funds into the Intermediate Companies. There is no basis for the writing off of the advances made. Clearly, the promoters/management of Respondent No. 1 acted fraudulently, and were charitable towards the Intermediate Companies at the expense of, inter alia, the investors, including, the Appellants. The interim directions/orders are required to be passed under Section 339, since it is reasonable to assume on the basis of the facts shown to us that Dr. Rajesh Aeren had a direct nexus with the Related Party Companies which emerges from the pattern/trail of funds which has been discovered by the Investigating Agency - appeal allowed.
Issues Involved:
1. Legitimacy of the diversion and siphoning off of funds by Respondent No. 1. 2. Validity of the interim orders restraining the transfer, sale, or alienation of properties. 3. Justification for the audit of Respondent No. 1's accounts. 4. Applicability of Sections 339, 340, 342, and 447 of the Companies Act, 2013. 5. The role and responsibility of Respondent No. 2 as a bona fide developer/investor. Detailed Analysis: 1. Legitimacy of the Diversion and Siphoning off of Funds by Respondent No. 1: The appellants alleged that Respondent No. 1, M/s Aerens Entertainment Zone Private Limited (AEZPL), diverted funds meant for the construction of "Project Mall" to various sister concerns and related party companies. This diversion was evidenced by the balance sheets and the charge-sheet, which showed significant amounts written off as inter-corporate deposits and loans. The funds were allegedly used to purchase properties in Ludhiana through related party companies controlled by Dr. Rajesh Aeren. The court found prima facie evidence of fund diversion, supporting the appellants' claims. 2. Validity of the Interim Orders Restraining the Transfer, Sale, or Alienation of Properties: The learned Single Judge initially issued interim orders on 11.07.2018 and 16.08.2018 restraining the transfer, sale, or alienation of properties purchased by the related party companies. However, these orders were vacated on 21.02.2019, based on the observation that the charge-sheet did not explicitly allege the flow of funds from Respondent No. 1 to the sister concerns for purchasing the properties. The court found this conclusion erroneous, given the substantial material indicating fund diversion. The court reinstated the interim orders, emphasizing the need to preserve the subject land pending the audit. 3. Justification for the Audit of Respondent No. 1's Accounts: The court ordered an audit of Respondent No. 1's accounts to investigate the alleged diversion of funds. The audit was deemed necessary to trace the money trail and determine the extent of fraudulent activities. The court appointed Ellahi Goel and Co., Chartered Accountants, to conduct the audit, with a fee fixed at ?1 lakh plus out-of-pocket expenses. The audit's findings would guide the court in taking appropriate measures to protect the interests of the investors. 4. Applicability of Sections 339, 340, 342, and 447 of the Companies Act, 2013: The court examined the applicability of Sections 339, 340, 342, and 447 of the Companies Act, 2013, which deal with fraudulent conduct and the personal liability of directors and officers. The court noted that these provisions empower it to issue declarations and orders to hold individuals personally responsible for the company's debts and liabilities if the business was conducted with fraudulent intent. The court emphasized the need to lift the corporate veil to chase the fraudulently obtained wealth and protect the investors' interests. 5. The Role and Responsibility of Respondent No. 2 as a Bona Fide Developer/Investor: Respondent No. 2, Developer Group India Private Limited, claimed to be a bona fide developer with no involvement in the alleged fraud. The court, however, found that Respondent No. 2's substantial investments and development agreements with related party companies did not distance it from the fraudulent activities of Respondent No. 1. The court expressed concerns that Respondent No. 2 could be a front for the fraudulent scheme, given its lack of efforts to safeguard the investors' interests. Conclusion: The court set aside the order vacating the interim restraints and directed the maintenance of the status quo concerning the subject land until the audit's completion. The audit would provide a detailed investigation into the financial affairs of Respondent No. 1, potentially leading to further legal actions under Sections 339, 340, and 342 of the Companies Act, 2013. The court emphasized the need to protect the investors' interests and prevent further complications arising from the sale or transfer of the disputed properties. The appeal was allowed, and all pending applications were disposed of accordingly.
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