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TMI Blog2019 (4) TMI 1450X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant Case, admittedly, the Company and its Directors have violated several sections of the Companies Act, 1956. Apart from Criminal offences, so far as the instant case is concerned the Tribunal is having jurisdiction to take cognizance of the issue and pass suitable orders on the issue. And the petition is filed in accordance with law and the contentions/allegations made contrary in this regard by the Respondents are not tenable and baseless. The Contention of the Respondents that if Directors are replaced by the Union of India, it would prejudicially affect the cases filed against them is not tenable. Evidence to be adduced in Criminal is different from evidence to be adduced in Civil Case. The criminal case has to be defended by an Individual person in his personal capacity and the Company being a Separate legal entity is bound by its Memorandum and Articles of Association. When the Respondents are facing misappropriation for huge of amount of money which are substantiated, it is necessary to replace the existing the management of R-1 Company with independent Directors to be appointed by Union of India. After considering the contentions made the Principal Bench, CLB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER Per : Rajeswara Rao Vittanala, Member. (J) C.P. No.02 of 2014 (T.P. No.300 of 2017) is filed by Union of India (Petitioner) 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), CGO Complex, Lodhi Road, New Delhi, under Section 401/397/398 r/w Section 408 of the Companies Act, 1956 seeking relief u/s. 388-B of the Act, 1956, moved on behalf of Central Government for the appointment of the Government Nominated Directors and the control of the affairs and management of the Company 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essful member was assured to get a site as per terms and conditions signed by the members with the Company, starting from 1994-95 to 2001-02, 9600 members applied for sites (plots under the two schemes launched by the MDBL. (5) The MDBL, through its directors and relatives purchased the lands from farmers in nine villages and then they shall get the conversion of its land use from agricultural lands into for residential purpose after taking approval from the competent authorities and then the said land be handed-over back to MDBL, for the purposes of purchasing lands the Directors were given loans and advances of ₹ 10 crores.The Company on the date of offer to the investors/public were neither 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 ₹ 6,00,000/- and were on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence to various violations, illegalities, frauds, inconsistencies etc. (11) The Office of SFIO conducted the investigation submitted final report by pointing out various inconsistencies, frauds were detected; the affairs of the Company was managed with various violations, illegalities, frauds, inconsistencies and the affairs are conducted adverse to the interests of its creditors, investors, consumers and against the public. (12) The following were found to be the falsification of accounts and mismanagement owing to the personal interests of the members of the Directors and against the interests of the public, its investors, customers and the general public. i. During the investigation, it has been observed that MDBL is a closely held company, the paid-up capital of the Company was only ₹ 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 ₹ 199 lakhs and regarding this amount MD of the MDBL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L were dated 01.09.1994, the said project was launched towards August/September of the year 1994 (i.e. much before 23.12.1995) mentioned in the conversion order. v. The Company purchased the land for a consideration of ₹ 46,72,500/- registered in the name of MDBL during the year 2005-06 the Company has falsified its Balance Sheet as at 31.03.2006 by not including land registered in the name of the Company during the year 2005-06 in its stock of land. vi. The Company has falsified its Balance Sheet as on 31.03.2006 by not including Mahindra Scorpio vehicle in its Fixed Assets. The said vehicle was purchased in the name of MD, pursuant to the Board of Directors Resolution meeting dated 19.04.2005. vii. The investigation also revealed that the withdrawal of ₹ 3.60 crores by the MD of MDBL Shri C.P. Yogeshwara from the Company accounts, no documentary evidence for spending 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 ₹ 5 lakhs and ₹ 84 lakhs respectively. The S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces suggesting one or more of instances indicated in Section 388B (a) to (d). (3) There are no specific allegations made against any of the Directors for their removal. The entire gamut of the Petition is founded on the fact that the Vajragiri Township Project' of Respondent No. 1 could not be completed on time due to litigation issues in which the project entangled. However, it is asserted that the entire Board of Directors has acted in the interest of Respondent No. 1 Company. (4) The present Petition is also not maintainable u/s. 388B of the Companies Act, 1956 since this Section stands deleted in the new Companies Act, 2013 and there is no corresponding provision in the new Companies Act, 2013. (5) It is stated that Respondent No.1 was initially incorporated as a private limited Company under the name Megacity (Bangalore) Developers and Builders Private Ltd. on 11.08.1994. On 12.08.1998 Megacity (Bangalore) Developers and Builders Private Ltd. became a public limited Company and its name was changed to Megacity (Bangalore) Developers and Builders Ltd. (hereinafter referred to as MDBL ). The Registered Office of the Respondent No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing matters by SFIO, New Delhi: i. The alleged serious complaints/allegations against the affairs of the Company. ii. The alleged various finance irregularities with regard to non-allotment of plots to persons from whom collection of instalments worth ₹ 52.08 crores from the members towards allotment of plots. iii. The alleged failure on the part of the Company to make allotment of shares to the extent of ₹ 1.99 crores and alleged disclosing the same under the head Share Application Money. iv. Alleged non-filing of statutory returns for the year 2006-07 and consequently, the alleged depriving of the legitimate rights of the members about the state of affairs of the Company and keeping the shareholders in dark about the affairs of the Company. The SFIO team, in view of the above said order, was required to examine the records within the parameters of the order dated 17.04.2009. However, SFIO team, while submitting its report, has investigated the matter beyond its scope of authority or jurisdiction vested by the order of ld. MCA. The SFIO team has gone to look into the affairs of Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if the present Directors are debarred from managing the affairs of the Respondent No.1 Company and new nominee directors are put in their place, it will adversely impact the functioning of the Respondent No.l Company and the outcome of various civil and criminal litigations. It is crucial that all the litigations reach their logical conclusion at the earliest so that the plot of various allottees can be handedover to them at the earliest and those seeking refund are repaid at the earliest. The complex sequence of events and the nature of litigation is best understood by the present Directors and their removal and replacement by new Directors will only delay the process of handingover the land to the allottees and repayment to those falling in that bracket. 5. The Respondents also filed Additional Affidavit dated 20.02.2016 by inter alia contending as follows: (1) That the Respondents herein seeks liberty to bring on record the changed circumstances supported by regulatory filings, statutory compliances and Orders of the CLB compounding purported offences of the Respondent No. 1 which shows that the facts and circumstances of the present Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes before the Tribunal, prior to taking up the case for final hearing. When nobody represent for the Union of India, the Tribunal ordered notice to the Union of India on 29.01.2019, to ensure its representative be present on the next date of hearing on 05.02.2019. However, none appears for the Union of India. Therefore we are deciding the case basing on the material available on record and after hearing the learning counsel for the Respondents. 7. Shri A. Murali, learned Counsel for the Respondent, while pointing out various averments made in the replies already filed in the case, has further filed a Memo dated 07.03.2019, by inter alia contending as follows: (1) The offence alleged against the Respondent No.1 by the Petitioners under Sections 266C, 159, 166 and 210 of the Companies Act, 1956 have been compounded by the Hon'ble Company Law Board, Chennai Bench vide order dated 22.05.2015 in Company Application No.287-291/621A/CB/2014. Therefore, the respondents cannot be put on trial for the same set of offence. (2) The claims of the complainants have been settled in disputes initiated by the complainants at various different forums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal) with a request that the (Tribunal) may inquire into the case and (record a decision) as to whether or not such person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any Company. (2) Every case under sub-section (1) shall be stated in the form of an application which shall be presented to the (Tribunal) or such officer thereof as it may appoint in this behalf. 9. We have carefully perused the pleadings of both the parties and also Investigation Report of SFIO filed along with petition. The relevant paragraphs of SFIO are extracted below : a. MBDL was promoted by Shri C.P Yogeswara, Managing Director and his wife Manju Kumari and Shri Charantimath and his wife Sujatha Charantimath in the year 1994 with a capital of ₹ 5 lacs. After a gap of 1 year Shri Charantimath and Sujatha Charantimath submitted resignations and the brother of Shri C.P. Yogeshwara, Shri C.P. Gangadhareswara was inducted as Director in 1997. The Company became public limited Company in 1998 and the paid-up Capital was raised to ₹ 6 lakhs and more family members of Shri C.P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uphold the refund the deposited amount along with interest @ 18p.a, but reduced the compensation from ₹ 4 lac to ₹ 1 lac to the complainant, along with cost pf ₹ 10,000/- not satisfied with the relief given by the State Commission, 88 complainants filed revision petition before the National Consumer Disputes Re dressal Commission (NCDRC), New Delhi. The Hon'ble NCDRC upheld the order of the State Commission with the modification that the Petitioner/complainant shall be entitled to refund of money along with interest @18p.a from the respective date of deposits along with compensation of ₹ 1 lac payable to each of the Petitioners/complainants. The Respondent/Opposite party (MDBL) was directed to make the payment in the above terms within a period of three months from the date of pronouncement of this order, failing which the Petitioner/complainants was at liberty to proceed against them under Section 25/27 of the Consumer Protection Act, 1986. Sixty members out of 88 who were not satisfied with the order of NCDRC filed SLP with the Hon'ble Supreme Court of India. The SLP was admitted on 10.07.2009. The matter has not been disposed of and is still pend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. The charge of forgery (making false document i.e. Direct Identification Number (DIN) by Shri C.P. Yogeshwara Under section 177 IPC, 416, 419 and 420 of IPC have been recommended. i. The charge of Misappropriation of ₹ 3.60 crores by Shri C.P. Yogeshwara MD of MDBL under Sections 403, 405, 406 409 of IPC have been recommended. j. The charge of dishonest misappropriation of ₹ 25,000/- p.m. from the funds of MDBL by Shri C.P. Yogeshwara under sections 403 and 409 of IPC have been recommended. k. The charge of cheating with the members of ₹ 44 lakhs under the scheme of Vajraigiri Township Project by Promoter/Directors of MDBL under section 415, 420, 403, 405, 406, 120A read with 120B have recommended. l. The Charge of Dishonest Misappropriation of funds (Approx ₹ 25 crores), Criminal Breach of Trust and Criminal Conspiracy by Directors/Promoters of MDBL under Sections 403, 405, 409, 120A r/w 120B have been recommended. m. The charges of non-cooperation under Section 240 of the Companies Act, against Shri C.P Yogeshwara, MD and MDBL, Shri C.P Gangadharesawara, Executive Director, MDB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Obtained: Provisional DIN No. : 01743266 Name : Channapatana Puttamadegowda Yogeeshwara Date of approval : 15.01.2008 Detail of 3rd DIN No Obtained: Provisional DIN No. : 02233500 Name : Yogeeshwara Chakkerepura Madegowda Date of approval : 24.06.2008 p. Therefore, from the above it is clear that Managing Director of the Company Mr. C.P. Yogeshwara has obtained multiple DINs and therefore, violated the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, commits criminal breach of trust . Section 406- Punishment of Criminal Breach of trust- Whoever, commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both r. The Prosecution proposed against the Company of Megacity (Bangalore) Developers Builders Ltd. its Directors/Officers and others in default as discussed in Chapter - IV, V VII are summarised in the following table:- Finding No. Details of Findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the investor public Under Section 415, 420, 120A 120B of IPC 12 Forgery (making false document i.e. DIN by Shri C.P. Yogeshwara, MD of M/s MDBL Under Section 177, 416, 419 420 of IPC 13 Misappropriation of ₹ 3.60 crores by Shri C.P. Yogeshwara, MD of M/s. MDBL Under Section 403, 405, 406 409 of IPC 14 Dishonest Misappropriation of ₹ 25,000/- p.m from the funds of Megacity (Bangalore) 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 Professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, have earlier filed I.A No. 139/C-1/2014 in C.P No. 02 of 2014 (T.P No. 300 of 2017) before the then CLB, Principal Bench, by inter alia contending as follows: a. At the outset it is submitted that the present petition/reference under Section 388-B of the Companies Act, 1956 is not maintainable since the matter of this Petition/reference is also the subject matter of several criminal proceedings, on the set of charges, initiated by the Union of India, against the Respondents and few others, and as such two parallel proceedings relating to the same subject matter cannot proceed at the same time. The Respondents may be seriously prejudiced if they are made to disclose their defence in the present proceedings to the selfsame charges before the commencement of the trial in the criminal proceedings and the same is not tenable under law. b. The petition is not maintainable as being barred by laches limitation as the Petitioner/Union 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. From the allegations in the Petition. It is clearly evident that no specific allegation has been made against any of the directors for an order against them in terms of Section 388B. The entire petition is founded on the fact that the Vajragiri Township Project of the Answering Respondent No. 1 could not be completed on time due to the litigation issues in which the said Project got entangled. It is asserted that the entire Board of Directors of the Company has acted in the interest of the Company and not acted against its interest, as alleged by the Central Government. Therefore, the Petition not only being of devoid of merits but also not maintainable, should be dismissed. 14. After considering the contentions made in the above CA No. 139 of 2014, the Principal Bench, CLB , New Delhi , dismissed it by an order dated 10th August, 2015 by inter alia holding that the matter was investigated by Serious Fraud Investigation Office. Investigation report was submitted in September, 2009. Investigation under 239 was 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 wit ..... 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