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TMI Blog2020 (11) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... f it is rejected, the Petitioner can challenge the rejection. The petitioner contends that the writ petition be entertained and merely because there is a fraud by IF LS group the Court should not proceed on the basis that the Petitioner is guilty. It is contended that there is nothing against the Petitioner as on date and the assertion of the Petitioner that the Petitioner was innocent third party needs to be accepted and direction to grant moratorium should be given - Though the Petitioner has urged that the Petitioner is not seeking clean chit from the Court, indirectly, the Petitioner is doing the same. The mismanagement of IL FS group is looked into by NCLT and NCLAT. SFIO is conducting its own investigation. The proceedings before us do not arise from the investigation carried out by SFIO nor from the orders passed by NCLAT. We do not have the inputs from the investigating agency. Based on the documents placed before us, the Petitioner wants us to uphold it s innocence. The new Board of Directors on 28 January 2019 appointed External Auditors to examine the loan given by the superseded Board. The interim report by the Forensic Auditor on 20 February 2019 has indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2013 in the National Company Law Tribunal, Mumbai, the NCLT stating that the directors were mismanaging the functioning of IL FS group and there was a large scale fraud. The NCLT, by order dated 1 October 2018 superseded the Board of Directors and appointed a new Board of Directors. The Union of India filed Application No.1173/2020 seeking comprehensive moratorium regarding IL FS group companies. NCLT rejected this application by order dated 12 October 2018. The Union of India filed Company Appeal (AT) No.346/2018 in the National Company Law Appellate Tribunal. The NCLAT by order dated 15 October 2018 placed an embargo to institute and continue proceedings against IL FS Limited and its group companies and issued various other directions. 3. The Loan Facility no. III became due on 28 September 2018, and IFIN issued demand notice to the Petitioner on 2 November 2018 demanding repayment of ₹ 100 crores in respect of loan transaction No. III. Under the Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 as amended, an account is declared as NPA after ninety day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Petitioner has approached this Court challenging the letters dated 23 June 2020 and 5 August 2020 issued by IFIN. 7. The Petitioner has sought a writ to IFIN to grant moratorium to the Petitioner regarding term loan agreement No. I and II and also challenged the letter dated 7 May 2019 declaring the account of the Petitioner regarding Loan transaction No.III as NPA. Respondents have filed reply affidavits, and the Petitioner has filed a rejoinder. 8. We have heard Mr. Navroz Seervai with Mr. Amit Sibal Senior Advocates for the Petitioner and Dr. Birendra Saraf, Senior Advocate for Respondent No.1and Mr. Vaibhav Bhure i/b Rahul Singh for Respondent No.2. 9. The Petitioner s contentions, in brief, are: The IFIN has refused to extend the benefit of a moratorium to the Petitioner in respect of loan transaction Nos. I and II. There were back to back loan agreements whereby Respondent No.1 transferred an amount of ₹ 100 Crores to the Petitioner by sanction letter dated 23 March 2018. This Term Loan Facility-III was in turn transferred by the Petitioner to Respondent No.2 under a Loan Agreement executed between the Petitioner and Respondent No.2. The loan transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the writ is not maintainable against Respondent Nos.1 to 3 as they cannot be considered as state instrumentalities. The Board of Directors is not appointed by this Government but by the NCLT under its power to rectify the mismanagement. 11. As regards the preliminary objection on the maintainability of the writ petition, the Petitioner contends that government officers are appointed on the Board of directors. It is contended that the instrumentalities of the Central Government substantially hold the shareholding of IL FS. Central Government is promoting IL FS by awarding major infrastructure contracts. There is a deep, pervasive and effective control. Learned counsel for the Respondents, however, agree that merits of the matter can be considered first and in case the Court rejects the petition on merits, the arguments of maintainability be kept open to be urged in other cases. On this basis, we have proceeded to consider the petition. 12. The Petitioner has raised a dispute regarding Loan transaction No. III. The dispute is also not that loan was not received. It is also not the case of the Petitioner that the Petitioner has repaid the loan. The case is that it was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the back-to-back transaction placing good faith and on the assurance of senior leadership of IL FS group that the Back-to-Back transaction was bona-fide and permissible. The Petitioner Company learned of the malpractices through reports of Serious Fraud Investigation Officer. IL FS duped the Petitioner into believing that transaction was bona fide and permissible. To grant relief to the Petitioner in the Writ Petition, we will have to accept this version of the Petitioner. The moot question is, can we do so. 14. On the charge of the Respondents that there is a delay in challenging the classification of the account as Non-Performing Asset, the Petitioner contends that the Petitioner applied before NCLT and NCLAT and bonafide believed that, that aspect would be decided. In these circumstances, since the NCLAT refused to lift the embargo, the Petitioner has approached the Court. This cannot be a satisfactory explanation. If the Petitioner is of the opinion that the NCLAT would give the very same relief, then the application of the Petitioner is still pending. The petitioner could have approached the writ jurisdiction much earlier. It was only when IFIN refused to extend the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner is unfair and is in breach of Article 14 of the Constitution of India. 18. There is no merit in this contention. The replies draw a clear distinction between the erstwhile Board of Directors separate from the entity. The Respondent contends that the erstwhile Board of Directors committed fraud, and these were not the genuine transaction on behalf of the legal entity. Respondent Nos.1 to 3 have explained that they represent the Board of Directors appointed by NCLT because of the mismanagement by the earlier directors and they have a different role to perform. Therefore there is no unfairness in Respondent Nos.1 to 3 going by the records and not supporting the actions of the displaced Board of directors. The stand taken by the Respondents is to be understood in this context. There is no case of forgery by the Respondents. 19. Petitioner submits there are bank statements and documents which evidence that ₹ 100 crores received by ITNL from the Petitioner and were transferred to ILFS Airports Ltd. subsidiary company of IFIN. The Petitioner contends there is nothing against the Petitioner in the SFIO report, and therefore there is no impediment in issuing the dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is that the Division Bench of this Court in the case of N. Sampath Ganesh Vs. Union of India Ors. has observed that SFIO report is the final report. The Respondent contends this report is not final and the investigation is going on, and the Division Bench of this Court has not observed that the report is final. 22. In the case of N. Sampath Ganesh Vs. Union of India Ors, the auditors of IL FS, had challenged the directions and the prosecution against them under section 212(14) of the Companies Act 2013. One of the question before the Division Bench was whether the SFIO Report was an interim report. This question arose before the Division Bench in the context of the Petitioners therein that is the auditors. Division Bench observed report pertaining to IL FS only and the transaction with third parties had not been looked into. It also observed that this report is not a standalone and further investigation into affairs would affect findings in the report. Therefore merely based on the observations rendered in the context of petitioners before the Division Bench, it cannot be held there is nothing to be investigated further. There is no categorical finding by the Divisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FS management was suppressing information about its financial solvency. There were various cases of commission and omissions. There was widespread mismanagement of funds not only by the management of IL FS but throughout IL FS group and in unscrupulous manner public money was being mismanaged. 26. We note that the Petitioner has filed an interim intervention application before NCLAT. The Petitioner sought a declaration that the Petitioner does not owe the ₹ 100 crores as claimed by the Respondent to them. The prayers are to modify the order of embargo, to refrain IFIN from taking any steps regarding Loan Agreement No.III, discharge the Petitioner from loan agreement No.III. In this application, the Petitioner has narrated the history, and the same assertion is made that the Petitioner placed full trust and confidence in the senior management of IL FS. It is asserted that the facility sanctioned in favour of the Petitioner by IFIN was at the request of IFIN, and it was availed for a private loan to ITNL. Several parties are appearing before NCLAT and NCLT. Application filed by other entities for lifting the grant of the moratorium was rejected by the NCLAT by de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Petitioner wants us to uphold it s innocence. The new Board of Directors on 28 January 2019 appointed External Auditors to examine the loan given by the superseded Board. The interim report by the Forensic Auditor on 20 February 2019 has indicated that loans of approximately ₹ 2270 Crores were routed to the group companies with third parties like the Petitioner. There are various other companies with a similar role like the Petitioner. The exact role of all the parties is still unclear. The finding sought by the Petitioner will be relied upon by such other similarly situated companies to contend that they all were innocent third parties. Any finding given by us accepting the involvement of the petitioner as innocent will have ramifications on the pending proceedings. 30. A prerogative writ is not granted as a matter of course. The Writ Court intervenes where justice, equity, and good conscience require its intervention. Considering the totality of the circumstances, the simplistic foundation of the Petitioner's case cannot be accepted. We are not convinced of the bonafides of the petitioner, as asserted in the petition. That being so, we refuse to exercise our eq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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