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2010 (3) TMI 681

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..... mar, N. Naga Raja Kapoor, V.S. Raju, Ramesh Sagar and E. Manohar for the Appearing Parties. JUDGMENT B. Prakash Rao, J. - The main appeal being C.A. No. 15 of 2003 has come up before us on a reference made by the learned single judge vide his order, dated 18-11-2003. Thereupon, we have taken up the main appeal along with connected batch cases, which have been posted. 2. Heard Sri M. Anil Kumar, learned counsel appearing for the appellant and Sri Ch. Ramesh Babu, Sri B. Kantha Rao, learned senior counsel, Sri V.S. Raju, Sri P. Prabhakar Rao, Sri C. Ramesh Sagar, Sri Deepak Bhattacharjee, Sri S. Ravi, learned senior counsel appearing on behalf of Sri C.V. Narasimham, and Sri E. Manohar, learned senior counsel. 3. C.A. No. 15 of 2003 has been filed by M/s. Nagarjuna Finance Ltd. (for brevity, it will be referred as "NFL company") against order, dated 23-6-2003, passed in C.P. No. 27 of 2003 by the Company Law Board. 4. The NFL company has filed C.P. No. 27 of 2003 before the Company Law Board for rescheduling the repayment of matured deposits collected by the said company. The Company Law Board by its order dated 26-6-2003, dismissed the said application. Th .....

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..... ase finance company by the Reserve Bank of India (RBI) Guidelines. The company has accepted the deposits and conducted business in hire purchase finance. The company has conducted the business till 1996 and 1997. Due to change of regulations by the RBI regarding limits of acceptance of deposits by non-banking finance companies, the company could not accept any further deposits and consequently the company was forced to refund the deposits already collected. 6. It appears, the company has faced lot of financial crunch from 1998 and it was not able to repay the deposits in time. Hence, the company has filed C.P. No. 35 of 2000 for rescheduling of repayment of the matured deposits by extending the time ranging from 12 to 48 months. The Company Law Board by exercising suo motu powers under section 58A(9) of the Act, passed order, dated 29-2-2000, rescheduling the payment schedule by extending the time by 12 to 36 months depending upon the amounts to be refunded. After passing the said order, the Company Law Board has reviewed the meeting from time to time regarding compliance with the order of Company Law Board. 7. It appears that the Nagarjuna Holding (P.) Ltd. (NHPL), which .....

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..... depositors in NFL company. It is alleged that the petitioners have deposited certain amounts with NFL company and in spite of repeated demands, the NFL company has failed to repay the deposited amounts. It is alleged that the erstwhile directors of the NFL company have advertised the NFL company to be 2,000 crores Nargarjuna group company and solicited for deposit of the amounts. It is further alleged that the funds of the company were diverted to other companies and on such allegations, the petitioners sought for investigation into the company affairs including the change of directors. 10. C.P. No. 80 of 2004 is filed by the Reserve Bank of India for winding up of the NFL company under section 45MC of the 1934 Act. 11. C.P. No. 55 of 2002 and batch are filed by various depositors of the NFL company. It is alleged that the petitioners therein have deposited certain amounts in the NFL company and the period of the deposits has also matured. In spite of repeated demands, the NFL company is not repaying the deposited amounts. 12. The facts involved in all these matters are relating to the affairs of the NFL company. In all these matters, the main issue is with regard to th .....

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..... on 13-9-2000 and as per the said memorandum of understanding, the shares of NHPL have been transferred to the nominees of MFSL and all the erstwhile directors have resigned from the board and MFSL has nominated its directors to the board of NFL company. Learned counsel for the proposed respondents has submitted that in view of the transfer of shares and equity and resignation of the directors, the promoter and erstwhile directors have nothing to do with the affairs of the company after such transfer and the new management is only responsible for the affairs of the company. It has been much emphasised by learned counsel for the appellant that the promoter and erstwhile directors are only responsible for payment of the amounts. In view of the serious contentions regarding the liability of the promoter and erstwhile directors, it is necessary to consider whether the erstwhile promoter and erstwhile directors are liable for the affairs of the company. 15. It is not in dispute about the execution of the memorandum of under-standing between NHPL and MFSL on 13-9-2000. It is mentioned in the said memorandum of understanding that the NHPL has to transfer all its shares and equity perta .....

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..... MFSL. It is brought to our notice that Mr. N. Selva Raju as the president of NFL company (under new management) has filed counter affidavit in C.A. No. 7 of 2000 stating that K.S. Raju, the promoter is not personally liable for payment of the amount and it is only the NFL company liable for the payment. In the said counter affidavit, it is not denied that there was a change of management. Further, Sri Muthu Swamy has also filed affidavit in C.A. No. 7 of 2001 to the effect that he representing MFSL joined as new promoter of NFL company and offered to give security relating to the property of MFSL worth Rs. 18 crores. 16. It is clear from the abovementioned documents that the NHPL has transferred its shares and equity and the promoter and erstwhile directors have resigned from the respective posts and the MFSL company has assumed the management of NFL company along with its own nominee directors. The entries in the records of the Registrar of Companies, Andhra Pradesh, which are mentioned by the public office, go to show that the promoter and erstwhile directors have resigned and new directors assumed the charge. The new management has filed affidavits in different proceedings a .....

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..... basis for this court to decide any question of law arising out of the facts already on record in the appeal filed under section 10F of the Act. No new facts can be looked into. In the instant case, certain material has been placed before the Company Law Board and the Company Law Board has passed the impugned order. Except the appellant, no other party has participated in the proceedings before the Company Law Board. This court has to decide the matter based on the material in the appeal under section 10F of the Act. If third parties are impleaded, consequent new material has to be placed in the appeal for consideration for determining the issues after impleading the third parties. But, the appeal under section 10F has to be confined to the question of law. In other words, section 10F prohibits the consideration of facts much less new facts. Hence, there is no scope for introduction of either new facts or new parties in the appeal. If new parties are allowed to come on record, it would enlarge the scope of the appeal by accepting new facts and evidence, which is against the scope and spirit of section 10F of the Act. Hence, we are of the view that the appeal under section 10F of th .....

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..... t investigation into the affairs of the company including the misdeeds of past directors and penalties thereof. Learned counsel has submitted that the persons appointed under the Act are more competent to go into the affairs of the company instead of an outside agency, which is not well versed with the intricacies of working of companies. Learned counsel further submitted that there is no material on record to show that the promoter and erstwhile directors have committed irregularities and it is only to put pressure on them, the present management and depositors are seeking for investigation through the CBI. In the background of the above rival contentions, whether this court can exercise the power under the Act or order investigation through independent agency. In the course of arguments, it is suggested by Sri Anil Kumar and Sri M.V. Durga Prasad that a High Power Committee may be appointed to look into the affairs of the company but Sri S. Ravi, learned senior counsel did not accept the said proposal. 22. The Act is a self-contained code containing relevant and adequate provisions right from incorporating the company till winding up of the company and payment of amounts to t .....

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..... into the affairs of the company either by the Central Government or by the Registrar of Companies or at the instance of the members of the company. Section 235 provides for investigation by the Central Government regarding the affairs of the company and the Central Government is entitled to appoint inspectors to investigate into the affairs of the company on the report of the Registrar. Section 237 provides for investigation on the recommendation of the Company Law Board. Sections 239 to 240 provide for the powers and procedure for investigation and under section 241, the inspector has to submit the report. The Government is entitled to prosecute the persons responsible for the offences under section 242 and section 244 provides for recovery of damages. These provisions would safeguard the interests of the members of the company. Apart from the said provisions, the members of the company can file a winding up petition under the Act in case the management is not acting in the interest of the company. 26. The abovementioned provisions clearly show the safeguards provided under the Act. The depositor is entitled to approach under sections 58A and 58AA of the Act and execute the sa .....

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..... by an independent agency like the CBI or any other agency and on the other hand, the remedies can be worked out within the framework of the Act. Whether failure of the company to repay the deposited amounts to the deposit-holders, can be challenged, as a matter of public interest in an appeal under section 10F of the Act filed against an order of the Company Law Board ? 28. Section 10F of the Act provides for appeal against the order of the Company Law Board on a question of law. The said provision was already mentioned while answering question No. 1. Section 10F gives limited right of appeal on the question of law and the facts cannot be looked into. The depositor, whose money is not paid by the company is entitled to file an application under sections 58A and 58AA of the Act and if the order for payment is made by the Company Law Board, the said order can be executed under section 634A of the Act. Sections 58A and 58AA and 634A provide sufficient safeguards to the depositors. The said sections provide individual rights to the depositors for recovery of the amount. Since the recovery is a matter of individual right, it is for the individual to exercise the right and recov .....

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..... A(10) of the Act as illegal and violative of article 14 of the Constitution of India. The entire gamut of approach and the attack is virtually on the same lines as being made by various petitioners in these very proceedings. Having regard to the observations and the findings, which have been given above, nothing remains to be considered afresh or independently in regard to the very same inaction on the part of the Registrar of Companies. Hence, nothing survives and the writ petition is dismissed. 33. C.P. No. 80 of 2004 : This company petition is filed by the Reserve Bank of India under section 45MC of the 1934 Act for winding up of the NFL company. It is alleged that the NFL company has applied to the RBI on 27-6-1997, for registration of the company under section 45-IA of the 1934 Act to function as non-banking financial company (NBFC). After verification, the bank has issued a show-cause notice to the company pointing out several irregularities. The company has sought for more time for giving reply to the show-cause notice, but no reply was submitted. Ultimately, the NFL company wrote a letter on 22-11-2000, requesting the bank to permit the NFL company to withdraw the appli .....

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..... ts due to the company and not made attempts to pay the amounts. Learned counsel for the applicant-company has not denied that there were other directors of MFSL in NFL company but has only contended that the new directors were acting at the behest of Sri K.S. Raju and the erstwhile directors. It is clear that MFSL is in the control of NFL company having acquired equity shares from NHPL and their nominee directors Sri Selva Raj and others were in charge of the company since September, 2000. Since the NFL company has not paid the amounts due to the depositors, there is no option except to order winding up of the company and appoint the official liquidator to manage the NFL company. 36. In the result, all the petitions filed by the RBI and the depositors seeking winding up of the company, are allowed and the NFL company is ordered to be wound up and the Official Liquidator is appointed to take charge of the company. 37. In spite of the directions issued by this court, the statement of affairs of the NFL company has not been filed. However, it has been pointed out that such statement has already been filed. These are all matters to be considered by the learned single judge incl .....

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