9911796707
TMI Blog2020 (10) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Karnataka bank, Chandra Layout Branch Bangalore in A/C No. 9072000100027501 so as to prevent any withdrawals, transfer, disposal/diversion of funds or closure of the said accounts; to direct to disclose moveable and immovable properties/assets, including bank accounts, owned by the Company in India or anywhere in the world, to restrain the Respondents from accepting further deposits/money from existing members or fresh deposits/money from the Public etc. 3. C.P. No. 203 of 2019 is filed by the Registrar of Companies, Karnataka, against Super Royal Holidays India pvt. Ltd, Under Sections 272(1) R/w 272(3), 271(C) & 273(1) of Companies Act, 2013, by interalia seeking to wind up the Company; to appoint Official Liquidator to take charge of affairs of Company etc. 4. Brief facts of the case, as mentioned in both Company Petitions, which are relevant to the issue in question, are as follows: (1) M/s. Super Royal Holidays India Private Limited (hereinafter referred to as 'Company/R1 Company') was incorporated as a Private Limited Company on 02.01.2012 with CIN No. U6304KA2012PTCS061929 in the State of Karnataka. The Registered office is situated at No. 556, 9th Main Roa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry that the R1 Company is maintaining account with Axis Bank, the Inspector has issued a letter dated 27.11.2017 to the Chairmen and Managing Director of Axis Bank, Mumbai requesting to furnish KYC details and the Bank Statements of the Company from the opening of account to till date. Further during the investigation, it was ascertained that the Company was conducting its banking transactions through Axis Bank (A/C No. 912020045477922), -HDFC Bank (A/C No. 03122320000888), Karnataka Bank (A/c No. 9072000100027501) and Yes Bank (A/c No. 073863700000034) and the account maintained with the Yes Bank was closed on 17.08.2017. (4) It is stated that the Financial Statements and Auditor's Report were examined to ascertain the disclosures made regarding the Specified Bank notes and Cash deposits of the Company. It is noticed that during the period of demonetisation i.e., 08.11.2016 to 30.12.2016 in the Axis Bank account and HDFC Account the Company had deposits of Rs. 10.32 crores in the aforesaid accounts and also shown withdrawal of Rs. 9.66 crore during the relevant period. Further the business operations of the Company consist of various scheme floated by the Company. The salien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dhukar assured to submit the information and consequently a letter was also issued on 25.01.2018 to the R1 Company calling for the information immediately. But no details/information was submitted either by the R1 Company or by its Directors. Further, a reminder was sent on 14.02.2018 to the Company stating that failure of submission of details would lead to freezing of the accounts of the company. Inspite of sending letter/email, no information was furnished by the Company. Moreover, the letter issued to the Respondent No. 2 returned undelivered with remarks left. The R1 Company and its Directors, have, therefore, no co-operated in the investigation process and thus violated the provisions of Section 217 of the Companies Act, 2013. (7) It is stated that the Inspector for the purpose of finding details about the commission's paid/business model had summoned certain members/commission against namely, Mr. Rajender Shetty, Mohammed Rafi, Rajehs G.L., Venktappa, K. Mohd. Shareef, Pradeep D.J., Anil Maben, K.R. Sundari, Mohd. Nisar Yermal, Naveen M., Sakshath Kumar, Yashodhara Jain, Rajesh G., Jagadish. C. Hugar, Akshath to appear before the Inspectors on 04.01.2018. However no on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of, for the purposes of, the business of the company as an advance for the provisions of services accounted for in any manner whatsoever provided that such advance is appropriated against provision of services within a period of three hundred and sixty five days from the date of acceptance of such advance. Therefore, in respect of each membership/client, the Company has violated Rule 2(c) (xii)(a) of the Companies (Acceptance of Deposits) Rules, 2014. Further, as per Section 73 r/w 76 of the Companies Act, 2013 the Company being a Private Limited Company is not eligible for collecting deposits from the persons other than shareholders of the R1 Company. Therefore the R1 Company and its directors are liable for penal action under Section 76A of the companies Act, 2013 for violating Section 73 r/w 74 of the companies Act, 2013. A separate action is being initiated for the said violating as per the provisions of the Companies Act, 2013 by the Petitioner. (9) It is further stated that the Inspectors noticed that the Company was deducting huge sum under the head 'service charges' from the commission paid to the agents. During the year 2016-17 the Company has deducte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng or transferring into some other accounts the amount lying in the following bank accounts of the R1 company (i) A/c No. 912020045477922 maintained by Axis Bank (ii) A/C No. 03122320000888 maintained in HDFC Bank, Vijayanagar Branch and A/C No 9072000100027501 maintained by Karnataka Bank. If the Directors of the R1 Company are successful in doing so, then it will prejudicial to the interest of the Company, its schedule members, creditors which will be also against the public interest and they will all suffer irreparable losses and damages. Further the various proceedings suggested to be taken against the R1 Company and its directors for various other offences detailed in the report may not fructify or be fruitful. The affairs of the said Company have been and are being conducted in a manner highly prejudicial to public interest, prejudicial to its own interest since such scheme cannot sustain itself for long and also against the interest of the various members how have invested in the said Company. (11) On examination of the reply dated 15.07.2019, the Petitioner has filed Complaint before the Special Court, under Section 447 of Companies Act, 2013, which is pending. The Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for the recruitment/enrolment of new participants. b) It does not require a participant to purchase goods or services: i. For an amount that exceeds an amount for which such goods or services can be expected to be sold or resold to consumers; ii. For a quantity of goods or services that exceeds an amount that can be expected to be consumed by, or sold or resold to consumers; c) It does not require a participant to pay any entry/registration fee, cost of sales demonstration equipment and materials or other fees relating to participation; d) It provides a participant with a written contract describing the "material terms" of participation; e) It allows or provides for a participant a reasonable cooling-off period to participate or cancel participation in the scheme and receive a refund of any consideration given to participate in the operations; f) It allows or provides for a buy-back or repurchase policy for "currently marketable" goods or services sold to the participant at the request of the participant at reasonable terms; g) It establishes a grievance redressal mechanism for consumers, more particularly described in Clause 7 herein. (12) The above guidelines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as the fate of more than 3.5 Lacs investors, who have invested their hard earned money is involved. It is noticed during the investigation and also from the subsequent developments from the Financial statement of the Company that the Directors/Shareholders of the Company have already diverted/misappropriated substantial amounts towards managerial remuneration and huge dividend declared from the profits earned, which is nothing but the subscription amounts collected form the general public, as the Company has no other source of revenue. If the company is allowed to wipe out the entire leftover funds, the investors will lose their investment and the same may result in huge uproar form the public considering the huge number of investors of the Company. Therefore, it is just and necessary to wind up the Respondent Company and there is no double jeopardy, as both the actions are separate on different cause of actions. It is a misnomer of the Company stating that Section 271(1)(c) r/w 272 (1) & (3) of Companies Act, 2013 is not applicable as the Company has not substantiated their argument and a plain reading of the above sections show that the same can be invoked for an order for wind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as Director on 02.01.2012 and he resigned from the Company on 04.01.2018. (17) The name of the Company was struck off for non-filing of financial statements and Annual Returns of the years 2014-2015 and 2015-2016 under Section 248 of the Companies Act, 2013, after following due process of law, vide official Gazette notification was issued on 29.07.2017. Aggrieved by the striking off name of Company, Mr. Madhukara, of one two Directors of the Company (Respondent No. 2 in CP No. 47 of 2019 herein), has filed CP No. 124/BB/17 before the Tribunal, under Section 252(3) of the Companies Act, 2013 by interalia seeking to restore the name of Company, and it was disposed by the Tribunal, vide its order dated 08.11.2017 by directing to restore the name of Company to the Register of Registrar of Companies. Therefore, the status of the Company has been changed by the Petitioner from 'strike off to Active' thereafter. (18) Further, as the matter is very serious, and lakhs of investors' money is at stake, the Petitioner has also referred the matter to the Chief Secretary, Government of Karnataka, vide its letter dated 25.06.2019. The Petitioner intimated to the State Level Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, the Ministry of Corporate Affairs vide instructions letter dated 21.05.2018 on the investigation report had also directed the Registrar of Companies to file prosecution under Section 447 of the Companies Act, 2013 in connection with fraudulent business activities of the Company. Accordingly, the Petitioner has filed the prosecution u/s. 447 against the Respondent Company and its directors before the Special Court, Bengaluru which is pending. (21) In the above circumstances, and basing on the instructions of the Ministry of Corporate Affairs, vide letter dated 28.08.2019, notice dated 04.09.2019 was issued, under Section 271 of the Companies Act, 2013 to the Company and its past and present Directors for initiation of winding up proceedings against the Company. However, the Company and its Directors have failed to respond to the said notice till date. However, a Reply dated 25.09.2019 was received, on the letter head of the Company, as reply to the notice dated 04.09.2019, whereas the said letter was not even signed by any of the Directors of the Company but was signed by one Ms. Kavitha, Administrator. Thus, it goes to prove that the Company and its Directors are willfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Directors are playing on the investors/deposit holders at large. (23) That, the way in which the Directors are utilizing the investors' money firstly by charging the same to profit and loss account as turnover/revenue and utilizing almost entire amount by way of paying commission to the agents for canvassing new investors and taking remaining amounts as dividend and remuneration by the two Directors is nothing but fraud/impending fraud as the Respondent Company cannot sustain for long as per the said 'business model'. (24) In view of the above, the Central Government has formed an opinion that the affairs of the Company have been conducted in a fraudulent manner or the Company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith, and it is proper that the Company be would up to protect the interest of the investors, who have invested their hard earned monies into the Company and to prevent the Company from accepting new deposit/enrolling new Members. Therefore, the Petitioner prayed to allow the Petitions as prayed for. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of the Company was in the range of Rs. 17.65 lakhs. During the period of demonetisation, that is from date of demonetisation till the last date permitted for bringing demonetised Specified Bank Notes into the banking channels, the average daily cash deposit rose to Rs. 18.44 lakhs, which is a marginal increase of less than 1.7 %. This is ignorable in as much as during the post demonetisation period, the average daily cash deposit has increased to Rs. 27.53 lakhs, which only indicates normal growth of business and not any illegality. 3) It is stated that the foundational basis for the entire action initiated against the Company is a misapprehension on the part of the petitioner that the Company is operating a 'Ponzi Scheme'. The Company is not operating any 'Ponzi Scheme' and is not doing anything objectionable. 'Ponzi' scheme, means scheme in which investors are paid off by using capital from the investments of later investors. It is stated that the Company collects Membership fee at the rate specified, which is not refundable. The fee as is well known is a charge for services rendered. The service rendered is admission to the Membership of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Members and the Company has made related expenses towards Commissions, Salaries and other aspects. However no deposits have been accepted from any person other than the Member, who opted for 5) It is true that on 06.12.2017, notice was issued to the Respondent by the Deputy Director to furnish certain documents and on 15.12.2017. Accordingly, the Respondent has appeared before the Investigators, took oath and statement was recording in presence of Inspectors Mr. V Santhoshi Jagirdar and Mr. S.N. Tiwari, and submitted the document, which is acknowledged by the Investigator Sri S N Tiwari. The Respondents have furnished complete details of the information sought by the Petitioner. The Respondent No. 2 has changed the address and it was intimated to ROC. Despite knowing correct address, the letter was sent to the address, where the Respondent was not residing as the Respondent has changed the address and this was informed to the ROC. Therefore, the allegation that the Respondents have not co-operated with the Investigation is not correct. It is not a Pyramid business as alleged in this paragraph nor is it Multi-Level Marketing to collapse, because every service provided after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may, in consultation with the Reserve Bank of India, prescribe: All the above provisions speaks about deposits. A receipt can be called as deposit only when there is an assurance to repay the same after specific duration or adjust the same on future transaction. There is no such assurance in the case of the Respondent. It is collected as membership fee. There is no assurance to repay it in future or it is not adjustable to any future transactions. The future business has no connection with membership fee. The member will get discount for having become the member. Therefore, there is no violation of Rule 73 and 76 of the companies Act or The Acceptance of Deposit Rules. Rule 2(C)(xii)(a) of the Acceptance and deposit Rules clearly states that the money received in advanced for the supply of goods or provision of service shall be adjusted within 365 days. In the case of the Respondent, the membership fee is not the advance for supply of goods or service, it is not adjustable with any future payment and hence question of treating it as deposit does not arise. 7) The Company has paid service charges wherever it applies and the documents are produced in this regard before the Enqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ponzi scheme. Further the Respondent No. 3 states that the averments which are not specifically traversed hereby and the Petitioner is put to strict proof of the same. 7. Shri K.S. Harish, the learned Counsel for Respondent, has filed Memo dated 28.02.20 by seeking leave of the Tribunal to adopt the statement of Common Objections filed in CP No. 47/BB/2019, as reply in CP No. 203/BB/2019. 8. Heard Shri Kumar M.N., Central Government Standing counsel for the Petitioner, and Shri Vikram Chandra, with K.S. Harish & S.K. Ravi Learned Counsels for the Respondents We have carefully perused the pleadings of both the Parties and the extant provisions of the Companies Act, 2013, and the Rules made thereunder and the Law on the issue. 9. Shri Kumar M.N., Central Government Standing counsel for the Petitioner, while reiterating various contentions raised in both the Petitions as mentioned supra, has further filed written submissions dated 28th February, 2020 by interalia contending as follows: 1) As on date of freezing bank Accounts i.e. on 06.03.2019, there were two Directors in the Company Viz Madhukara and Prashanth Badhirappan. Subsequently on 17.09.2019, a Key Directors Badhirapp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that during the preceding demonetisation the average daily cash deposit into the Bank Account of the company was in the range of Rs. 17.65 lakh. During the period of demonetisation, the average daily cash deposit rose to Rs. 18.44 lakh which is a marginal increase of less than 1.7%. This is ignorable in as much as during the post demonetisation period the average daily cash deposit has increase to Rs. 27.53 lakhs which only indicates normal growth of business and not any illegality. 3) It is contended that the Company is not operating Ponzi scheme as alleged by the Petitioner. Further the Company collects membership fee at the rate specified, which is not refundable and the fee is a well-known charge for services renders. The services rendered is admission to the membership of the Company which gives the members a preferential treatment in the matter of tours organised by the company and no free service is provided for this membership fee. A Member, who obtained membership will be entitled for only a concessional rate of travelling. Therefore, the membership fee received is neither an advance nor it is deposit as the same is not adjusted to the future services rendered/business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his section, 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. Whereas Section 216 reads as under: 216. (1) Where it appears to the Central Government that there is a reason so to do, it may appoint one or more inspectors to investigate and report on matters relating to the company, and its membership for the purpose of determining the true persons-- (a) who are or have been financially interested in the success or failure, whether real or apparent, of the company; or (b) who are or have been able to control or to materially influence the policy of the 1[company; or] 2[(c) who have or had beneficial interest in shares of a company or who are or have been beneficial owners or significant beneficial owner of a company.] *(2) Without prejudice to its powers under sub-section (1), the Central Government shall appoint one or more inspectors under that sub-section, if the Tribunal, in the course of any proceeding before it, directs by an order that the affairs of the company ought to be investigated as regards the membership of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lia stated that as on 30.11.2017, the Company has enrolled 1,98,410 Members. He avoided to answer to material question with reference to multiple fake Membership and agreed that there might be some entries in the Members list, which might not be proper. He says that there are about 12,000 Commission Agents, and he agreed that though Sign Board of Company was displaced but Address of Registered office was not mentioned. With reference to Question No. 2, he has answered that complete deposits during a year is Rs. 45,49 Cr i.e. from April 2016 to March, 2017, and post demonetization period, the deposits may be about Rs. 26 Cr and withdrawal is around Rs. 22 Cr. approx. However, the Directors have not furnished full list of Members enrolled to examine them. From the List of Members available, the Inspectors have issued summons, even dated 26.12.2016 to Fifteen (15) Agent/Members for examination and recording of their statements. Md. Nisar Yermal, one of such Member/Agent has given Statement on 16th January, 2018 by interalia stating that he was Executive in the Company, he used to earn around Rs. 50,000 to One Lakh towards Commission, per month, after deducting 5 % TDS and 8 % service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain correct details of its Members, and even the Directors, in their deposition, could not furnish correct details about their Members. It is also relevant to point out here that Badirappan has also stated similar operating business stated on 12.06.19 under the name and style of Royal Dream Private Limited in the state of Karnataka with an intention to divert funds of R 1 Company to other Company. So it is justified to freeze all the Accounts of Company in order to prevent misused of funds of the Company. 16. The nature of business being conducted by Company, as detailed supra, comes under the definition of 'Ponzi Scheme' in which the investors of the Company are paid off by using the capital from the investments of the later investors is not acceptable as the Company does not have any other revenue other than the subscription amounts collected from the investors. Therefore, 'Ponzi Scheme', is likely to collapse at any time leaving number of investors in lurch. The business of Company do not come in under definition of Direct selling in terms of OM No. 21/18/2014-IT (VOL. 11) of Ministry of Consumer Affairs, Food and Public Distribution, New Delhi dated 09.09.2016, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cum shareholders etc. However, he did not mention the details of their alleged travel during period of notices and striking off the Company. The Registrar of Companies has issued STK I Notice dated 17.03.17 to the Company and other two Directors vide Notice even dated 31.03.17 as to why name of Company should not be removed for not carrying on any business or operation for a period of two immediately preceding financial years etc. Subsequently, Public Notice in Form No. STK-5A, published in Times of India, Bengaluru. Having failed to respondent to the said notices, the ROC has struck off removing the name of Companies from the Register of Companies and thus the Company was dissolved vide Form STK -7 Notice vide Notice dated 17th July, 2017. Therefore, the Directors of the Company pleads ignorance of the notices from 17th March, 2017 to 17th July, 2017 by not substantiating the alleged travelling for four months. It is also relevant to point out here that even though the Statutory Auditor was available during 2014-16, they have not filed Balance Sheet or Annual Returns leading to strike off name of Company. As stated supra, the statutory Auditor has resigned only during 2018-2019 ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interim orders by an order dated 09.07.2019 passed in CP No. 47 of 2019, the Respondent has filed Company Appeal (AT) No. 226/2019 before the Hon'ble NCLAT, which was ultimately dismissed as withdrawn by an order dated 12.02.2020. Again, the Respondent has filed another Interim Application by seeking to pass an order releasing amounts claimed towards service Tax liability payable under 'Sabka Vshwas(Legacy Dispute Resolution) Scheme, 2019. In this regard, it is relevant to point out here, as per Form No. SVLDRS-3 dated 22.01.2020, enclosed to the said Application, under the Remarks Colum it is mentioned as follows: "The quantified amount of Rs. 5.81 cr. was communicated by Anti Evasion during investigation on 25.06.2019. Further SCN dated 22.10.2019 was issued demanding tax of Rs. 5.476 plus inadmissible credit of Rs. 33.73 (total Rs. 5.81 Cores) In terms para 2(V) of SVLDRS Boards circular dated 12.12.2019, the eligibility is to be calculated w.r.t. relevant date i.e. 30.06.2019. Accordingly, SVLRDRS-3 is being issued" Therefore, though the Respondent Company suffered investigation wherein it got adverse finding during investigation vide Final report dated 28.02.2018, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2019 and 09.07.2019 so as to facilitate the Company to pay statutory payments such as GST, TDS, EPF, ESI and service Tax liabilities, failing which it leads to void prosecution for its violations; (2) The Investigation Report dated 28.02.2018 in question is inconclusive, self-contradictory, and it does not recommend any action by the Ministry of Company Affairs, and thus it cannot be relied upon to take action against the Company. Even the initiation of inquiry into the affairs of Company that there are large scale deposits and withdrawal during demonetization period, found to be baseless and not proved even as per findings recorded in the Report itself. (3) They are not operating Ponzi scheme as alleged by the Petitioner. The Membership fee in question is collected as charge for services to be rendered and the same is not refundable and no free service is provided for the Membership fee. Therefore, it cannot be called either advance or deposit. It is not carrying Pyramid business as alleged by the Petitioner. 22. With reference to above contentions, it is to be reiterated here that findings in Investigation Report in question, has clearly indicted the Directors of Company le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any itself was with unlawful and fraudulent objects, and its affairs are being conducted in total violations of extant provisions of Law as discussed supra. Therefore, it would be just and proper to order winding up the Respondent Company, without prejudice to the actions being initiated by other Statutory Authorities as detailed supra, by appointing Official Liquidator appointed by Govt. of India. 25. In the result, the Tribunal, by exercising powers conferred on it, under extant provisions which includes section 273 of Companies Act, 2013, both the Company Petitions bearing C.P. No. 47/BB/2019 & CP No. 203/BB/2019, are hereby disposed with the following directions: 1) It is hereby ordered that the Respondent Company namely, Super Royal Holidays India pvt. Ltd, be wound up in accordance with Chapter XX (Winding up) of Companies Act, 2013; 2) Hereby appointed Official Liquidator for the state of Karnataka appointed by the Govt. of India, as Liquidator with a direction to him to take charge of all affairs of the Company immediately, on receipt of copy of this order; 3) The interim orders passed in theses case merged in this final order. 4) The Directors and all the staff an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
