9911796707
TMI Blog2019 (4) TMI 1450X X X X Extracts X X X X X X X X Extracts X X X X ..... pany Megaciry Bangalore Developers & Builders Limited; seeking to invoke provisions of Section 388B r/w Section 406 of the Companies Act, 1956; to remove the entire Board of Directors of MBDL in view of the various fraudulent acts of the omission and commission in the affairs of MBDL; to issue appropriate directions for attachment of properties/assets (both movable/immovable) of the Respondent No.2-5 in public interests and in the interests of the Company, its Creditors and Customers/Members and pass other appropriate orders in terms of Section 402 and declare that aforesaid Respondents shall be personally responsible without any limitation of liability for all the debts and other liabilities including losses suffered by Public/Customers/Creditors etc. in terms of Section 406 r/w Schedule XI to the Act, 1956, etc. 2. Brief facts of the case, as mentioned in the Company Petition, are as follows: (1) The Union of India, the petitioner herein, has filed the present Petition through Ministry of Corporate Affairs, New Delhi and Shri S.K. Nanda S/o. Late Shri Narayan Nanda working as Assistant Director, Serious Fraud Investigation Office (SFIO), at 2nd Floor, Paryavaran Bhawan, CGO Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her having sufficient lands nor the approval from the competent authority for its conversion. And accordingly the said Vajragiri Project stalled when the Karnataka Industrial Area Development Board (KIADB) issued notification in the Karnataka State Gazette u/s. 6 of the Land Acquisition Act, 1894 and the intention to acquire the land around 130 acres falling in the Vajragiri project area. (6) The paid-up Capital of the Company was Rs. 6,00,000/- and were only seven shareholders mainly Shri C.P. Yogeshwara, MD of MBDL and his family members. The Company had taken no loan during the period 1994-2006.Total approx.9300 persons enrolled themselves as member for the Vajragiri Township and paid initial membership fees but out of these approx.9300 members, only 3100 members paid full amount for the plot in the said township project as agreed by the members and MDBL by signing the Agreement. The remaining 6200 members paid only 2-40 instalments. (7) During the period between 1995-1998, Directors/Relatives acquired around 200 acres lands and incurred capital expenditure of Rs. 13 crores in the form of advertisement, layout, sanitation, roads and electric poles etc., as the layout of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any was only Rs. 6 lakhs and there were only seven shareholders mainly Shri C.P. Yogeshwara, MD of MDBL and his family members, there was no bank loan taken by the Company during the period 1994-2006. The Share Application money brought in by way of cash by Shri C.P. Yogeshwara and his family members was Rs. 199 lakhs and regarding this amount MD of the MDBL could not give any authenticated evidence to the investigating agency. Therefore, all the business conducted by the Company was from the Vajragiri Township Members money only. ii. The Balance Sheet for the year 2005-06 of the MDBL shows Sundry Debtors balance of Rs. 37 crores outstanding as on 31.03.2006 and which was written off in the subsequent years i.e. 2006-07, the MD of MDBL explained that Rs. 37 crores are the balance represent land advances paid to 450 farmers, however, no agreement to sell was produced, and it was alleged that the Income-tax department has taken away with it during the raid. However, from out of total 450, only 62 copies could be seized by the Income-tax department which were taken from them and the said documents were found to be forged. The agreements were shown to have been executed with the pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding the said amount was produced before the investigating team. viii. The Share Capital and Share Application money of Megacity (Bangalore) Developers & Builders Ltd. as on 31.03.1997 stood at Rs. 5 lakhs and Rs. 84 lakhs respectively. The Shareholders and Directors of MDBL has withdrawn Rs. 4.49 crores as Loans and Advances. This meant that Shareholder had taken fund from the Company to the extent of Rs. 4.49 crores - (Rs. 5 Lakhs + Rs. 84 lakhs) i.e. Rs. 3.60 crores, which is much more than the Capital they had actually invested in the Company. In other words, the shareholders did not really put any capital into the Company and on the other hand swindle Company's fund much more than that, the amount infused by them. (13) Therefore, Union of India has inter alia urged the Tribunal to debar the present Directors from managing the affairs of the Company and to permit it to nominate five Directors to the Company to manage affairs of the Company while several Civil and criminal cases are pending against the Company and its Directors in the interest of justice. 3. The Company Petition is opposed by the Respondent Nos. 1 and 2 by filing a reply dated 17.10.2014 by inter alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nged to Megacity (Bangalore) Developers and Builders Ltd. (hereinafter referred to as "MDBL"). The Registered Office of the Respondent No.l Company is in Mega Tower, 120, Kengal Hanumanthaiah Road, Bangalore-560027. (6) It is stated that one Shri Raveendra Belyur and others have filed complaints before District Consumer Redressal Forum, Bangalore by inter alia seeking a relief of execution of the sale deeds. However, those cases were rejected. Appeals preferred against those orders are also rejected by Karnataka State Consumer Disputes Redressal Commission and National Consumer Disputes Redressal Commission. Aggrieved by that, SLPs are filed before the Hon'ble Supreme Court, which are pending. It is further stated that the subject matter of the present Petition is also a subject matter of several criminal proceedings and the Hon'ble High Court of Karnataka has also granted stay in those matters. (7) MCA, on the basis of the report of the Registrar of Companies, Karnataka, has referred to the alleged non-filing of statutory returns for the years 2006-07 and consequently alleged depriving the legitimate rights of the members. It is stated that there are only seven members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Respondent No.l beyond 2007. Therefore, the investigation carried out by SFIO team is without jurisdiction and is thus non-est, void in law. (9) It is stated that SFIO team has alleged that Respondent No.2, Managing Director of Respondent No.l has violated Section 266(c) r/w Section 628 of the Companies Act, 1956. The MD was allotted three DINs in his name i.e. 01743266, 02233500 and 01637527. These three DIN applications, which were filed at three different times as MD's ID and address proof have different initials and names in different documents. This has happened due to inadvertence and not intentional. The MD has already applied for cancellation of two DINs namely 02233500 and 01637527 and filed an application for compounding the said violation. 4. The Respondent Nos.3 to 5 have filed a reply dated 20.10.2014, by inter alia contending as follows: (1) Any reliance to Section 212(16) of the Companies Act, 2013 is misplaced since the investigation process by the SFIO has already been carried over and investigation report was filed way back in the year 2011. Since the investigation was completed by the SFIO in 2011, by the Petitioners own admission, the saving clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-maintainable. (2) It is stated that the present reference under Section 388B of the erstwhile Companies Act, 1956 is not maintainable after the coming into force of the Companies Act, 2013. Further, none of the shareholders of the Company have complained of any acts of the Company prejudicial to the interests of its members. Insofar as the allottees of the land under the Vajragiri scheme is concerned, over 1600 plots have been registered in favour of allottees. In accordance with the NCRDC order affirmed by the Supreme Court, the Company has proceeded to refund all booking amounts to the members of the Vajragiri scheme. (3) A review of the Application further show that all the circumstances on the basis of which the provisions of Section 388B invoked are no longer exists. Further, there is no new material as of date which would indicate that any of the sub-sections of section 388B would be satisfied. It is in view of these facts that the parallel proceedings launched by the SFIO in Bangalore have been stayed and many of the offences compounded by the CLB, Chennai. Further, the Respondent Company has honoured the orders of the National Commission/State Commission had have ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttled and there exists no disputes between the parties. (3) The SFIO has initiated criminal complaints as against Directors of the Respondent herein for the very allegations made in this Petition. The same has been challenged by the Directors before the Hon'ble High Court of Karnataka, at Bengaluru in Criminal Petition No.206,670-676, 772 of 2017, wherein the Hon'ble High Court was pleased to grant an order of stay of all further proceedings as against the Directors of the Respondent. (4) The Respondent further submits that the Board of Directors of the Respondent have been reconstituted by a new Board consisting of Respondent Nos.3 to 5 as the new Directors of the Respondent No.1. The Respondent No.2 on whom all allegations are in this Petition made has resigned as Managing Director w.e.f. 13.10.2014. 8. The instant Company Petition is filed by seeking for direction under Section 388B of the Companies Act, 1956, which reads as under: (1) Where in the opinion of the Central Government there are circumstances suggesting a. That any person concerned in the conduct and management of the affairs of a Company is or has been in connection therewith guilty of fraud, misfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total approx. 9300 persons enrolled themselves as member for the Varjragiri Township and paid initial membership fees. But out of the, approx 9300 only approx, 3100 members paid full amount for the plot in the said township project as agreed by the members and MDBL by signing the agreement. The remaining 6200 members paid only 2-40 instalments. During the investigation it was found that maximum default of instalment was during 1998-99 and 1999-2000. This was mainly because KIADB issued notification of acquiring (intention) the land in three villages comprising from the Vajragiri Township Project. c. The members of the Vajragiri Township Project started demanding their money back since 1999 but the Company MDBL informed that as per terms & conditions if any member has defaulted instalments then the money will be returned back by the option of the MDBGL. During the period between 1995-1998, Directors/relatives acquired around 200 acres lands and incurred capital expenditure of Rs. 13 crores in the form of Advts. layout, sanitation, roads & electric poles etc. as the layout of the acquired land was not finally approved by the competent authority therefore, the land could not be tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Shri C.P. Yogeshwara and his family members was Rs. 199 lacs and for this amount Shri C.P. Yogeshwara, MD of MDBL could not give any authenticated evidence to the investigation agency. Therefore, all the business conducted by the Company was from the Vajragiri Township members money only. f. 62 Letters were sent to the farmers of nine villages with the address mentioned in the agreement of sale. Out of 62, only 2 farmers replied and 30 letters returned back undelivered. The investigation team then went to the nine villages along with the local person made available by the RoC, Karnataka for on the spot clarification. After a lot of persuasion statement of 3 farmers were recorded on oath. All of them denied to have received any money as mentioned in the agreement of sale. Then the copies of the agreement along with the covering letter were personally given to the Tahsildar, Bangalore South and Tahsildar, Ramnagara Taluka with a copy to D.M. Bangalore. The Both Tahsildars were requested to verify the agreements of sale with the farmers and send the status report by 25.06.2011. The status report of Tahsildar, Bangalore (South) has now been received in which 18 agreements to Sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extent to five hundred rupees for every day after the first during which the contravention continues". Section 628 speaks about penalty for false statements. The provisions of this section are as following: "if in any return, report, certificate, balance sheet, prospectus, statement or other document required by or for the purposes of any of the provisions of this Act, any person makes a statement- (a) Which is false in any material particular, knowing it to be false; or (b) Which omits any material fact knowing it to be material; He shall, save as otherwise expressly provided in this Act, be punishable with imprisonment for a term which may extend to two years, and shall also be liable to fine". o. Information was collected from the DIN cell of the Ministry of Corporate Affairs in this Regard. As per information provided by the DIN cell, it can be noticed that Managing Director of the Company Mr. CP Yogeshwara has obtained three DINs. The details of three DINs obtained are as following: - Detail of 1st DIN No Obtaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahadeviah, Director, (4) C.P. Gangadhareshwara and (5) Shri H.P. Ramesh, Director misappropriated the amount of Rs. 37 crores through forged Agreements to sell. The Directors were entrusted the amount of Rs. 37 crores which was out of the money deposited by the members of Vajragiri Township Project and as such Directors had dominion over the amount of Rs. 37 crores but the Directors dishonestly inappropriately and converted to their own use the above money and failed to discharge the contract and trust with the depositors and thereby committed the office of criminal breach of trust defined and punishable respectively under sections 405/406 of the IPC which runs as follows: Section 405- Criminal Breach of Trust "Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re) Developers & Builders Ltd. (MDBL) by Shri C.P. Yogeshwara, MD of MDBL Under section 403 and 409 of IPC 15 Cheating with the members under the scheme of Vajragiri Township project by Promoters/directors of M/s. Megacity (Bangalore) Developers & Builders Ltd., Bangalore Under section 415, 420, 403, 405, 406, 120A read with 120B of IPC 16 Professional misconduct under the Chartered Accountants Act, 1949 Under Chartered Accountants Act. 10. The above findings clearly established that the affairs of the Company are not being conducted by its Directors and officers and they are liable for action as per investigation report in question for various violations Civil and Criminal under Sections 159, 166, 210, 220, 266(c) r/w Section 628, 240(3) of the Companies Act, for misappropriation of Rs. 37 crores under 403, 404 of IPC of all the proceedings etc. 11. The detailed report submitted by the SFIO clearly established that there are serious violations and crimes committed by the Company and its Directors. Therefore, the Government of India has rightly ordered investigation into the Affairs of Company. Therefore, the evidence placed by the Union of India in support of the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of India has filed the instant petition after inordinate delay in making the reference relating to the charges alleged to have occurred long before filing this reference. All the allegations relating to which the charges were made arose during the period 1994-2007. Therefore, there is a delay of 6 years, which is beyond normal acceptable period of limitation of three years. c. It is noteworthy that while the SFIO had submitted its report on the alleged contraventions by the Answering Respondents on 30.11.2011, the instant reference/Petition has been filed only in July, 2014, which speaks volumes of the mala fide on the part of the Petitioner in making an inordinate delay in filing the instant Petition. d. It is further submitted that this Hon'ble Board being a quasi-judicial authority, it can always entertain the plea of delay and laches on the part of the Petitioner in initiating proceedings before this Hon'ble Tribunal. Therefore, in view of the fact that the instant proceedings have been filed in July 2014, there is gross and inordinate delay of over 6 years in making the reference and hence, the present Petition is liable to be dismissed at the outset. e. Assu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordered in April, 2009 and report by SFIO was submitted on 30.07.2011. The instant petition was first filed on 30.01.2013 and refiled on 09.07.2014 with an application seeking condonation of delay in refilling. Therefore, the Tribunal held the case was filed well within time and it does not suffer from undue delay and latches. Therefore, the above order became final and thus it is not necessary to advert it again with regard to laches and limitation as raised by the Respondents. 15. Subsequently, the case was transferred to this Bench by the Principal Bench by order dated 26.10.2017 with a direction to the parties to appear Bengaluru Bench of NCLT on 18.12.2017. Accordingly, the case is taken on record of this Bench and posted it on various dates viz:18.12.2017, 18.01.2018, 09.02.2018, 05.03.2018, 26.03.2018, 19.04.2018, 11.05.2018, 16.07.2018, 03.08.2018, 10.09.2018, 09.10.2018, 30.11.2018 31.12.2018, 21.01.2019, 29.01.2019, 05.02.2019, 05.03.2019 & 07.03.2019, and it is adjourned on those dates on various grounds as mentioned in docket orders of the Tribunal. 16. So far as contention of the Respondents that there is no analogous provisions contained in New Companies Act, 2013 w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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