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TMI Blog2018 (9) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Sumesh Dhawan and Ms. Tannya Baranwal, Advocates, Mr. Mudir Jain, Advocate, Mr. Vijay Aggarwal, Advocate, Mr. Ashul Agarwal, Advocate, Ms. Tannya Mehta, Advocate, Mr. Abhimanyu Bhandari, Advocate And Mr. Sumesh Dhawan and Ms. Tannya Baranwal, Advocates For The Respondents : Mr. Arpan Behl and Mr. Priyank Mangal, Advocates for R-35 & R-38. Mr. Upinder Singh and Mr. Ramanjit Singh, Advocate for R-42. Mr. Arunubh Chowdhary, Mr. Abhay Jadeja and Mr. Vaibhav Tomer, Advocates for R-43 Mr. Dheeraj Nair, Mr. Mohit Bakshi and Mr. Kumar Kislay, Advocates for R-44, 51 & 53. Ms. Charu Sharma, Advocate for R-64. Mr. Vijay Aggarwal and Mr. Akhil Agarwal, Advocates JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. In all these appeals as common question of law is involved and common orders are under challenge, they were heard together and disposed of by this common judgment. 2. The Union of India, Ministry of Corporate Affairs, filed an application under Sections 221, 222, 241, 242, 246 read with Section 339 of the Companies Act, 2013, being Company Petition No. 277 of 2018 against 'Geetanjali Gems Ltd. & Ors. ', including the Companies and partnership firms and individual Directors and all emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to identify and disclose all details of immoveable properties owned/held by the Respondents. j) That the Petitioner be permitted to take possession, after due inventory, of all moveable and immoveable properties of the Respondents that have been attached as per the orders of this Hon'ble Tribunal, though Official Liquidators. k) The Petitioner seeks the leave of the Hon'ble Tribunal to enlarge the scope of the reliefs sought and prayers made in this petition by filing any other documents or applications in view of the extraordinary nature of the circumstances pertaining to the present petition. l) That the Petitioner may be permitted to file copies of the interim and/or final investigation reports of the Serious Fraud Investigation Office (SFIO), as and when the same are submitted by the concerned inspectors to the Central Government, in order to supplement/enlarge/amend/modify the present petition, based on the findings of the interim/final report, including addition to the array of Respondents, as per the NCLT Rules. 3. The cause of action for filing this case by the Union of India was that the Union of India has identified a group of companies, LLPs, Trusts and individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kdrop of the factual scenario, it has become imperative upon this Bench to pass restraint orders before going into the technicalities and the procedural aspects in respect to the Company Petition, because the fact of the matter is, fraud has taken place, money of the bank has gone out. It was pleaded that if the Tribunal waits for details of each and every transaction, the liquid assets and other assets lying with these entities will be frittered away. Once that happened, the whole exercise of passing orders will become redundant. 5. The Petition were based on the events, which were noticed by the Tribunal, as quoted below: - "on the events surrounding certain First Information Reports (FIR) filed by the Punjab National Bank (PNB), a public sector nationalized bank. FIR No. RCBSM2018E0001 dated 31/01//2018 filed with CBI, BS&FC, Mumbai, inter alia, states that Mr. Nirav Modi (Respondent No. 11), Mr. Nishal Modi (Respondent No. 12), Mrs. Ami Nirav Modi (Respondent No. 13), Mr. Mehul Chinubhai Choksi (Respondent No. 14), all partners of M/s Diamond R US (Respondent No. 6), M/s Solar Exports (Respondent No. 4) and M/s Stellar Diamonds (Respondent No. 5) in conspiracy with Mr. Gokul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Modi (Promoter) Mr. Haresh Vrajlal Shah, Professional Mr. Suresh Chandra Senapaty, Professional Mr. Gautam Mukkavilli, Professional Mr. Sanjay Rishi, Professional Mrs. Angelina Nguyen, Professional Firestar Diamond International (P. ) Ltd. Mr. Nirav Deepak Modi (Promoter) Mr. Haresh Vrajlal Shah, Professional Mr. Suresh Chandra Senapaty, Professional Firestar Diamond FZE (Dealing with DIFC Dubai) Mr. Nirav Deepak Modi (Ultimate Beneficiary Owner) Mr. Bankim Mehta, Professional Director Firestar Diamond Ltd. (Dealing with BO : Hong Kong) Mr. Bankim Mehta, Professional Director ii) Nirav Modi Group/ Associates/ Subsidiaries/firms where suspected fraud has taken place: Name Partners M/s. Stellar Diamonds Nirav Family Trust* Nirav Modi Family Trust* M/s. Solar Exports Nirav Family Trust* Nirav Modi Family Trust* M/s. Diamond R US Sh. Nirav Deepak Modi M/s. NDM Enterprises Pvt. Ltd. # M/s. ANM Enterprises Pvt. Ltd. # *Details of Trustees are as under: Nirav Family Trust Nirav Modi Family Trust Settler Purvi Mayank Mehta Deepak Keshavlal Modi Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madhavdas Assar (Formerly Knoen as Aimeka Developers Pvt. Ltd. ) Mr. Manish Lalit Dani Mr. PareshPravinbhaiRathod ANM Enterprises P. Ltd. Mr. Ramesh Madhavdas Assar Mr. KetanChandrakant Solanki NDM Enterprises P. Ltd. Hemant Dahyalal Bhat Ramesh Madhavdas Assar Details of guarantors in the account Firestar Diamond International P Ltd. (FDIPL) Name of Guarantor Relationship with borrower Nirav Modi Promoter Director Firestar International Ltd. Group Company Details of guarantors in the account Firestar Diamond FZE, Dubai: Name of Guarantor Relation-ship with borrower M/s. Firestar Holdings Ltd. (formerly Firestone Holding Ltd. ) Holding Co. M/s. Firestar International Pvt. Ltd. Holding Co. Mr. Nirav Modi Group Prmoter Firestar Diamond Ltd, Honkong Name of Guarantor Relationship with borrower Nirav Modi Promoter Director Firestar Diamond International Pvt. Ltd. Group Company C. Related parties of Firestar International ltd. Subsidiaries companies - Firestar Group Inc, USA - Firestar Holding Limited, Hongkong Step down Subsidiaries Company: - - Firestar Group Inc, USA - Firestar Holding Limited, Hong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... q. Ft. Unit No. 2002: 15, 387 Sq. Ft. Attached with Car Parking Unit No. 2001: 14 Nos. Unit No. 2002: 15 Nos. MAK Business Enterprises Pvt. Ltd. 9 HCL House Basement + Ground + 4 upper floors of the Building along with Land bearing C. S. No. 360 of Vile Parle Division, Village Marol, Opp. Sugun Hospital, Old Military Road, Andheri (East), Mumbai 400 059 Documented Plot Area : 30, 127 Sq. Ft. Buildup Area of Building : 33, 400 Sq. Ft. Paundra Enterprises Private Limited (Formerly known as Aimeka Developers Pvt. Ltd. ). 10 L&B at Plot Nos. 18, 19, 20 & 67 survey Nos. 336 & 395 at Sachin, SEZ, Surat 4000 Sq. mtr. Firestar Diamond International 11 Plant & Machinery - FIPL Firestar International Pvt. Ltd. Exclusive Security with the PNB : S. N. Security Description Area in Sq. M. or Sq. Ft. Ownership 1 Office Premises No. AE4050 on 4th floor at Bharat Diamond Bourse Complex, C-28, G Block, Bandra Kurla Complex, Bandra East, Mumbai-400051 2058 sq. ft. Firestar International Pvt. Ltd. 2 Land and building at Plot No. 26 located in SURSEZ, Sachin, dist, Surat-26 1000 sq. m. land and 12900 sq. ft. building Firestar International Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff : LBS Marg, Kurla West, Mumbai - 400070. In addition to above, covered under insurance are listed below: 8. 2nd Floor, Trade Point Building, Kamala Mills Compound, Lower Parel (West), Mumbai - 400013 (bound warehouse). 9. 1110, Prasad Chambers, Opera House, Mumbai - 400004 10. 8, 5, & 16, 15-B Nagindas Mansion, 61, JS Road, Opera House, Mumbai 400004. 11. 15/A 4th floor, Bansilal Building, C/o Sangeeta Kala Bhawan, J S S Road, Mumbai - 400004. 12. AE-4042, B Tower, Bharat Diamond Bourse, G Block, Bandra Kurla Complex, Bandra East, Mumbai - 400051. 13. PBW, Part B, Unit No. 24, 4th floor, Tower II, Wing B, Kohinoor City Mall, Kirol Road, Opp. LBS Marg (West), Mumbai - 400070 (bound warehouse). " 7. The Tribunal while allowing the Union of India to file additional affidavit supporting the case mentioned in the Company Petition, passed the following orders on 23rd February, 2018: "6. In the list given above, though Trusts and individuals are not being covered either u/s 221 of the Companies Act, 2013 or Section 43 of LLP Act, 2008, since there is a categorical statement from Union of India that funds were routed to those individuals and Trusts through the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2018. 10. Some of the contesting Respondents to the Company Petition, including individuals against whom the interim order was passed on 23rd February, 2018, preferred different Miscellaneous Applications to vacate the interim order passed on 23rd February, 2018. Those Miscellaneous Applications were taken up by the Tribunal and on hearing the other common impugned order dated 2nd April, 2018 was passed. By the said order, interim order of stay passed against following persons, namely- Mr. Sujal Shah (Respondent No. 43); Mr. Gopal Krishnan Nair (Respondent No. 44); Mr. Suresh Senapathy (Respondent No. 51); Mr. Gautam Mukkavilli (Respondent No. 52) and Mr. Sanjay Rishi (Respondent No. 53) were vacated. 11. The following reason was shown to pass restraint order: "24. But at the same time, it is the duty of this Court to see that innocent people are not burdened by this restraint order therefore as and when any innocent comes before this Bench saying that he has no involvement in the fraud spiralling from day to day, this Bench has to diligently respond to the reliefs sought by such people. Of course, it is true that this Bench cannot decide who is innocent and who is culprit, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, his application is hereby disposed of. " 13. The Union of India has challenged the order dated 2nd April, 2018 in Company Appeal (AT) No. 103 of 2018. 14. Learned counsel appearing on behalf of the Union of India submitted that the Tribunal failed to appreciate that it was dealing with an application for vacating interim order and was not the final order. Therefore, the Tribunal was not competent to pass order which is final in nature so far it relates to Respondents- Mr. Sujal Shah (Respondent No. 43); Mr. Gopal Krishnan Nair (Respondent No. 44); Mr. Suresh Senapathy (Respondent No. 51); Mr. Gautam Mukkavilli (Respondent No. 52) and Mr. Sanjay Rishi (Respondent No. 53). 15. The petition relates to FIR and complaints lodged by the PNB with the CBI alleging financial fraud by various Companies and Firms forming part of the 'Nirav Modi Group' & 'Choksi Group'; the value of the fraud exceeds Rs. 14, 000 Crores. The promoters of the two Groups have already absconded from the Country and have not joined investigation either before the CBI or the Enforcement Directorate in proceedings under PMLA. 16. It appears that the Central Government has already ordered SFIO to invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. As such, as on date there is no basis either for the Central Government to file an application under Section 241 of the Companies Act, 2013 or for Tribunal to pass orders under Section 242(4), for want of material to form opinion. 21. Further, according to learned counsel, an Interim Order could be passed only under Section 242(4) for regulating the conduct of a company's affairs. Therefore, it is imperative that an interim order is to be restricted only to the persons responsible for conducting company's affairs and not any other individuals, who were not even associated with the Company during the period of alleged fraud. 22. It was further submitted that the said Section 221 does not vest the Tribunal with jurisdiction to freeze the personal assets of individuals. Under Section 221, the assets of the company can be frozen and not of an individual. 23. It was further submitted that Section 339 of the Companies Act, 2013 is not applicable in the present case as the Central Government has failed to bring to the notice of the Tribunal any facts constituting knowledge of the alleged fraud and not given any declaration under Section 339. 24. According to learned counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investigation". Section 210 empowers the Central Government to investigate into the affairs of a Company/ (Companies), if it is of the opinion that such investigation is necessary for the reasons mentioned therein, including public interest. For the purpose of the said provision, the Central Government may appoint one or more persons as inspectors to investigate into the affairs of the Company and to report thereon in such manner as the Central Government may direct. The SFIO has been established under Section 211 of the Companies Act, 2013, which has jurisdiction to investigate into the Company/ (Companies), where the Central Government is of the opinion that it is necessary to investigate into the affairs of a Company by the SFIO for different reasons, including the public interest. Where any case has been assigned by the Central Government to the SFIO for investigation under the Act, no other investigating agency of the Central Government or any State Government can proceed with investigation in such case in respect of any offence under the Companies Act and other cases before such agency are required to transfer the relevant documents and records in respect of such offences un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company, order, after giving a reasonable opportunity of being heard to the parties concerned, that the affairs of the company ought to be investigated by an inspector or inspectors appointed by the Central Government and where such an order is passed, the Central Government shall appoint one or more competent persons as inspectors to investigate into the affairs of the company in respect of such matters and to report thereupon to it in such manner as the Central Government may direct: Provided that if after investigation it is proved that- (i) the business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose; or (ii) any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer, removal or disposal of funds, assets, or properties of the company shall not take place during such period not exceeding three years'. In case of any removal, transfer or disposal of funds, assets, or properties of the company in contravention of the order of the Tribunal under sub-section (1) of Section 221, the company is punishable with fine and imprisonment as prescribed under sub-section (2) of Section 221 of the Companies Act, 2013. 35. Section 337 of the Companies Act, 2013 deals with "Penalty for frauds by officers", which reads as follows: "Penalty for frauds by officers. 337. If any person, being at the time of the commission of the alleged offence an officer of a company which is subsequently ordered to be wound up by the Tribunal. ─ (a) has, by false pretences or by means of any other fraud, induced any person to give credit to the company; (b) with intent to defraud creditors of the company or any other person, has made or caused to be made any gift or transfer of, or charge on, or has caused or connived at the levying of any execution against, the property of the company; or (c) with intent to defraud creditors of the company, has concealed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n who was knowingly a party to the carrying on of the business in the manner aforesaid, shall be liable for action under section 447. (4) This section shall apply, notwithstanding that the person concerned may be punishable under any other law for the time being in force in respect of the matters on the ground of which the declaration is to be made. Explanation. -For the purposes of this section, - (a) the expression "assignee" includes any person to whom or in whose favour, by the directions of the person liable, the debt, obligation, mortgage or charge was created, issued or transferred or the interest was created, but does not include an assignee for valuable consideration, not including consideration by way of marriage, given in good faith and without notice of any of the matters on the ground of which the declaration is made; (b) the expression "officer" includes any person in accordance with whose directions or instructions the directors of the company have been accustomed to act. " 37. In the present case, the Central Government by letter dated 17th February, 2018 has directed the SFIO to investigate into the affairs of the Respondent Company, among other 114 enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 242 empowers the Tribunal, on the application of any party to the proceeding to make any interim order which it thinks fit for regulating the conduct of the company's affairs upon such terms and conditions as appears to it to be just and equitable. 45. From the aforesaid provisions, it is clear that on an application made by the Central Government alleging affairs of the Company are being conducted in a manner prejudicial to public interest, the Tribunal can pass any order in terms of Chapter XVI, which includes Section 242 and other provisions under the said Chapter. 46. Section 246 is part of Chapter XVI, the provisions mentioned therein will be also covered by sub-section (2) of Section 241. Therefore, in an application made by the Central Government alleging conduct of the Company in a manner prejudicial to public interest, the provisions of Sections 337 to 341 will be also applicable mutatis mutandis to an application made to the Tribunal under Section 241 or Section 245. 47. We have noticed that Section 337 deals with "Penalty for frauds by officers" whereas Section 338 relates to "Liability where proper accounts not kept". On the other hand, Section 339 relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier order dated 23rd February, 2018, practically exonerated Mr. Sujal Shah (Respondent No. 43); Mr. Gopal Krishnan Nair (Respondent No. 44); Mr. Suresh Senapathy (Respondent No. 51); Mr. Gautam Mukkavilli (Respondent No. 52) and Mr. Sanjay Rishi (Respondent No. 53) by holding that those Respondents had no complicity in the matter and they had no role to play in the financial fraud in question. 54. The Tribunal failed to appreciate that it was dealing with the question of vacating the interim order passed under sub-section (4) of Section 242 read with Sections 221, 241(2), 339 and 340 of the Companies Act, 2013. While considering the question of modification or vacating the interim order, it was not open to the Tribunal to pass an order which is final in nature, amounting to exonerating one or other Respondent particularly, when the allegation of fraud of this nature is pending investigation by the SFIO. 55. Though it was brought to the notice of the Tribunal that the Respondent Companies, individuals including existing and erstwhile Directors, partners, trustees, beneficiaries and their associates or subsidiaries and firms had exposure with the PNB and are prima facie found to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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