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TMI Blog2019 (12) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 layer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perties purchased by Aeren R. Mallz Pvt. Ltd., Aeren R. Township Pvt. Ltd., Yashraj Buildcon Pvt. Ltd., Yashvardhan Infrastructure Developers Pvt. Ltd., Aeren R Buildcon Pvt. Ltd. and PMC Entertainment Pvt. Ltd. (name changed to Fortune R Buildco Developers Pvt. ltd.) in village Bonkar Dogran, Ludhiana, have been vacated. 2. The common terms used hereinafter are being defined as under: a) Related Party Companies refers to the six land owning companies i.e. Aeren R. Mallz Private Limited; Aeren R. Township Private Limited; Yashraj Buildcon Private Limited; Yashvardhan Infrastructure Developers Private Limited; Aeren R. Buildcon Private Limited; and PMC Entertainment Private Limited; b) Intermediate Companies refers to the two companies i.e., A.R. Developers Private Limited and Aeren R. Enterprises Private Limited, through which the funds are alleged to have been diverted to the Related Party Companies; c) subject land refers to the 11 parcels of lands purchased by different Companies belonging to Dr. Rajesh Aeren, details of which have been reproduced at paragraph 12 of the impugned judgment (reproduced at paragraph 6 hereinafter); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondent No. 1 failed to comply with the aforesaid direction, vide order dated 18.03.2016, the company went into liquidation. Appellants state that there were several other investors which had been victims of Respondent No.1/ Dr. Rajesh Aeren, and various complaints were filed before the Economic Offence Wing (EOW). On 07.01.2015, one such complaint was registered as FIR No. 6/2015 and all the existing FIRs were tagged along. The investigation in the said FIR culminated into a chargesheet filed by the police on 02.12.2016. On a perusal of the charge-sheet, it becomes evident that huge sums of monies have been diverted, defalcated and siphoned off from the corpus of Respondent No. 1 which had to be utilized for construction of the Project Mall‟. On enquiry, Appellants also became conscious that w.e.f. 31.03.2009, no balance sheet or financial records of Respondent No. 1 were filed with the Ministry of Corporate Affairs (MCA). It is further submitted that as per the records available on the website of MCA, Respondent No.1 last filed its annual records for the year ending on 31.12.2009, and since then it has failed to file its Annual Returns, Balance Sheets and other financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No.1 was declared as Non-Performing Asset (NPA). The beneficiaries of the Respondent No.1 have also floated various other companies, including - but not limited to, A.R. Developers Private Limited, Everest Buildwell Private Limited etc. Dr. Rajesh Aeren is Promoter/Director and/or related with 44 (forty four) Companies. The beneficiaries in all the Related Party Companies at the time of siphoning off - i.e., in the year 2007-2008/ were Respondent No. 1 and Dr. Rajesh Aeren, and this money has been utilized in purchasing the subject land, by different Companies belonging to Dr. Rajesh Aeren. Impugned order of the Learned Single Judge 6. On an application [C.A. 788/2017] filed by the Appellant under section 339, 340, 342 and 447 of the Companies Act, 2013 read with Rule 9 of the Companies (Court) Rules 1959, the learned Company Court on perusing the charge-sheet filed by the police, vide order dated 11.07.2018 restrained Related Party Companies from transferring, selling or alienating the properties in village Bonkar, Dogra, Ludhiana. On 16.08.2018, on another application [C.A. No. 910/2018], Court ordered that the company Aeren R. Mallz Private Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R. Mallz Private Limited and (vi) Yashraj Buildcon Private Limited. 3. Based on the above allegation, this court on 11.07.2018 had passed an interim order restraining the aforenoted companies from transferring, selling or alienating the properties in question till further orders. On 16.08.2018, a typographical error in the description of the companies was also corrected. 4. Pursuant to the above order, the two applications have been filed seeking vacation of the interim orders passed by this court on 11.07.2018 read with order dated 16.08.2018. 5. I have heard learned counsel for the parties. 6. Learned senior counsel appearing for the applicant in C.A. No.1277/2018 has submitted that a perusal of the charge-sheet would show that there is no allegation whatsoever of any funds having been diverted from the respondent company to the sister concerns for the purchase of the properties in question. It is pleaded that these properties were purchased way back in 2008. Subsequently, on 31.05.2014, the applicant entered into a Development Management Agreement with the said companies to develop the lands in question. An investment of abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar application being CA No. 1277/2018 is also filed by Developer Group India Pvt. Ltd. 12. A perusal of the charge-sheet would show that the only allegation therein is as follows:- During the course of investigation the certified copies of the sale deed of the land. Purchased by different companies of Rajesh Aeren were collected and it was revealed that around ₹ 70 crores approximate was spent (as per circle rate) to purchase these properties from 15.02.2008 to 31.03.2008 and at the same time the alleged company received around ₹ 175 crores from Mondon Investment Ltd. The details of the properties are as under:- S. No Area of land Place Consideration Party Name Date of Purchase 1 131 Karnal 17 marla/16.48 acres Vill. Bonkar, Dogra, Ludhiana ₹ 8,24,06,275 Yashvardan Infrastructure Developers Pvt. Ltd. (Citi Bank A/c No. 0342546005) 22.02.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed to transfer, sale, mortgage etc. 13. Clearly, other than the allegation that the properties have been purchased by different companies who perhaps were the sister concerns of the respondent, there is no other allegation in the charge-sheet which states that the funds have flown from the respondent Company for the purchase of the said properties. 14. Learned counsel for the OL has clarified that presently, no Chartered Account has looked into the accounts of the respondent company and this aspect has to be gone into at a later stage. 15. Keeping in view the above, it is clear that there are no allegations stated by the police who has filed the necessary charge-sheet against the accused Dr.Rajesh Aeren and Ms.Sapna Aeren about flow of funds of the respondent company to the sister concern/companies for purchase of the land in question. 16. In view of the above, in my opinion, the interim order passed by this court dated 11.07.2018 read with the order dated 16.08.2018 cannot continue any further. I vacate the said interim order. However, the OL will carry out audit of the accounts of the respondent company to look into the allegati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind of the entire conspiracy was Dr. Rajesh Aeren, who has absconded to Dubai without informing the Investigating Authority-EOW. In contravention of the terms of the bank loan, Dr. Rajesh Aeren provided inter-corporate deposits and loans and advances to his sister concerns to siphon off the funds from Respondent No. 1. Then, during the year 2009, Respondent No. 1 has written off ₹ 63,19,79,816/-, as reflected in the cash flow statement for the year ending 31.12.2009. The amount written off has been shown to be as under: S.No. Inter-Corporate Deposits written off Amount (In Rs.) As on 31.12.2009 1. A.R. Developers Private Limited 13,39,00,000/- 2. Canvas Buildcon Private Limited 2,40,77,270/- 3. Perfection Buildtech Private Limited 2,58,00,000/- 4. Pivot Buildcon Private Limited 4,40,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopers Private Limited and Aeren R. Enterprises Private Limited) to Related Party Companies by showing that the balance sheets of Related Party Companies for the period when the said land was purchased, reflect that the intermediate companies made the following advances to related party companies, and such companies purchased the lands after receiving the diverted money from intermediate companies. This is explained by the following tabulation: A.R. Developers Private Limited S.No. Name of the Companies Deposited in the Year Amount (in Rs.) 1 Aeren R Mallz Private Limited 31.03.2008 8,78,00,000/- 2 Aeren R. Township Private Limited 31.03.2008 31.03.2009 10,08,36,000/- 3 Yashraj Buildcon Private Limited 31.03.2008 8,55,50,000/- 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avings in the Project Mall‟ of Respondent No. 1. Submissions of the Respondents 14. Mr. Akhil Sibal, learned senior counsel on behalf of Respondent No. 2, has strongly contested the submissions of the appellants on several grounds. Mr. Sibal contended that Respondent No. 2 is a bona fide developer/investor against whom there are no allegations either by the Appellants, or in the charge-sheet on which the Appellant has placed reliance. Respondent No. 2 is a 100 percent Foreign Direct Investment Company in the business of construction, development and project management services related to construction companies. It has entered into a Development Management Agreement dated 31.05.2014 with Related Party Companies for Exclusive Development Rights, inter alia in respect of the residential project to be developed on the subject land and, consequently, came into possession of the said land in 2014. The 11 (eleven) properties that are the subject matter in dispute were purchased in 2008, whereas Respondent No. 2 was incorporated in 2012. 15. Mr. Sibal contended that the Appellants have filed the application seeking restraint in respect of the project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t land is entirely speculative and misconceived. Appellants have referred to an amount of ₹ 39 crores which is stated to have been written off as a debt not recoverable by Respondent No. 1 from Global Distributors Ltd., under a scheme of reorganization duly approved by this Court. No money is stated to have travelled directly from Global Distributors Ltd. to any of the land owning companies. Writing off a debt as not recoverable only reflects that money was advanced at some point in the past and it is not apparent when the said money was advanced to Global Distributors Ltd. or when the said amount was written off. Appellants have misinterpreted the concept of written off debt- as not recoverable with infusion of funds into the company. He submitted that the alleged writing off was in the year 2009, whereas the subject land was purchased in 2008 and in any event, a write off does not result in money becoming available to the company in favour of which the amount is written off. He also referred to the flow chart forming part of the charge-sheet to argue that the same does not seem to suggest that the money received by AR Developers Pvt. Ltd. was utilized for purchase of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pers Pvt. Ltd and M/s Everest Buildwell Pvt. Ltd. Under the said agreement, it was agreed that the project land would vest with Respondent No.1 either by way of transfer or by way of merger between Respondent No.1 and M/s AVM Land Developers Pvt. Ltd. Post merger, the amount of ₹ 73.25 crores paid by Respondent No.1 to M/s AVM Land Developers Pvt. Ltd was reflected in the balance sheet of Respondent No.1 and, hence, an amount of ₹ 63,19,79,816/- was written off and had the merger not taken place, the said amount would have reflected in the books of M/s AVM Land Developers Pvt. Ltd. 18. It was further urged that if the relief as sought for by the Appellant were to be granted, it would cause impediment in the development of the project undertaken by Respondent No. 3 and shall also further jeopardize the rights of third parties, bona fide customers and stakeholders of the project. This would result in gross miscarriage of justice and cause irreparable loss to Respondent No. 3 and its collaborating companies in terms of money and reputation. Scope of the present appeal 19. We have deliberated upon the submissions advanced by the learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-routed by Respondent No. 1 and its sister concerns has been reflected in the chargesheet as under: 21. In the chargesheet, it has been revealed that Respondent No. 1 had advanced money to several companies and written off debts as not recoverable, and the ultimate beneficiary in all such cases is Dr. Rajesh Aeren Group. The relevant portion of the charge-sheet dealing with the said aspect is as under: During the course of investigation a sham company in the name of Global Distributors- Ltd. was also identified in which ₹ 39 crores were write off by the accused company. It was revealed that in actual this company was controlled by accused Rajesh J Aeren. Further the Account Opening Form as well as bank account statement of global Distributors from Oriental Bank of Commerce, branch Safdarjung Enclave was obtained. The scrutiny of the Account No. 03691010005950 of Global Distributor Ltd revealed that there is no actual work done in the company and the money is coming from one company belonging to Rajesh Aeren Group and going to another company of Rajesh Aeren. In this manner the sham liability is created which is ultimately shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 23. The learned Single Judge has concluded that there are no allegations in the chargesheet against Dr. Rajesh Aeren and Ms. Sapna Aeren about flow of funds of Respondent No. 1 to the sister concerns and Related Party Companies for purchase of the subject land. This assumption has weighed with the learned Single Judge to vacate the interim order(s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge sheet is of a foreign investor, who is not before the Court, and has also tried to find support from two certificates of Foreign Inward Remittance issued by Citi Bank, which reflect a cumulative amount of about ₹ 66 crores received by AR Developers, on 10.01.2008 and 11.02.2008, from Mondon Investments Ltd., towards purchase of equity. He submits that the aforesaid amounts received by AR Developers Pvt. Ltd. in 2008, did not, in any manner belong to Respondent No. 1 and in the same year, subsequent to the receipt of these monies, AR Developers Pvt. Ltd. transferred an amount of ₹ 51.6 crores in favour of Related Party Companies and, thus, there is money trail linking to the Related Party Companies, who in turn purchased the subject land all in 2008. 25. We cannot be bogged down into the quagmire of the transactions between the Related Party Companies and Intermediate Companies and Respondent No. 1. Merely because funds were received by the Intermediate Company, also from the foreign investor, one cannot differentiate the colour of money in the hands of Intermediate Companies, and transfer to Related Party Companies does not get legitimised. The transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, the Court comes to a conclusion that the business of the company has been carried on with the intention to defraud creditors of the company, or any other persons or for any fraudulent purpose the Court would be well within its power to declare that any person, who is or has been a director, manager, or officer of the company or any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Tribunal may direct. The wordings of Section 339 are wide enough to confer powers with the Court to issue declaration so as to make all such persons responsible for any of the debts or liabilities of the company whose creditors have been defrauded. 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 fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handed manner without fear of criticism from the quarters which view white collar crimes with a permissive eye unmindful of the damage done to the National Economy and National Interest. 11. I also find merit in the submission of Mr. Shakdher that it is not necessary that each transaction/instance of funds being siphoned or fraudulent conduct needs to be established from the beginning to the end to invoke Section 542 of the Act. That is because it would be reasonable to assume, that directors/managers who are shown to have indulged in even a single act of fraud in the discharge of their duties towards the company, its shareholders and creditors, would have generally resorted to such conduct. Traits of greed and dishonesty amongst men are known to manifest whenever the opportunity presents itself. This is even more true, when such conduct is displayed by the relatively affluent members of society, as their conduct is not driven by their need or undertaken in desperation. The pattern that emerges from the conduct of Mr. Mrs. Shakt shows that their actions were focused on collecting funds in the company from the public by promising huge returns, and then siphoning them ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e known that the withdrawal of the funds from the account of the company in liquidation, inter alia, for the benefit of the Directors will result in the creditors being denied not only the handsome returns on their investments as promised, but also put in jeopardy the principal amounts invested by them. From the CBI reports, it appears that the action of the Directors of the Company in liquidation cannot be said to have been undertaken for the purpose of running the business of the company to generate income for the company sufficient to meet its expenses and fulfill its undertaken obligations towards the investors/creditors. In A Company Re (No. 001418 of 1988), 1991 BCLC 197 as reported in Guide to the Companies Act, by A. Ramaiya, 16th Edition 2004, A Director found to have been a knowing party to the carrying on of the company's business with the intent of defrauding creditors was ordered to pay 156,428 for its debts and liabilities. The company had exceeded its overdraft limits and had fallen behind with paying tax dues and trade creditors but continued to pay huge sums as remuneration to its managing director who was majority shareholder. The company went into liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a company, in law, is a separate entity from those who subscribe to its memorandum of association i.e. its shareholders, as enunciated in Solomon v. A Solomon and Co. Ltd. [1897] AC 22 -HL has been well recognized and followed over the years. In spite of that, the Courts have in appropriate cases, resorted to lifting the veil, whenever the circumstances have so warranted. If the business of the company has been carried on with the intent to defraud creditors or for any other fraudulent purpose, the corporate veil has to be lifted. This principle of law - lifting of corporate veil‟ has been incorporated in the language of Section 339 and the succeeding sections. The fixing of responsibility or liability would follow the detailed investigation into the affairs of the corporate entity. Once the Court has all the relevant and requisite information before it, to come to a conclusion that a declaration as contemplated under Section 339 is merited, it would proceed further. The wording of Section 339 makes it evident that the said provision can be resorted to provide relief to the victims of fraud, so that they are not presented with a fait accompli by the fraudulent persons who ..... X X X X Extracts X X X X X X X X Extracts X X X X
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