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TMI Blog2022 (4) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Appeal (AT) (CH) No.17 of 2022 as an 'affected person' being dissatisfied with the 'Impugned Order' dated 17.11.2021, passed by the National Company Law Tribunal, Division Bench-II, Chennai in CP/46(CHE)/2021. 2. The National Company Law Tribunal, Division Bench-II, Chennai while passing the Impugned Order dated 17.11.2021 in CP/46(CHE)/2021 (filed by the 'Appellant'/'Applicant'/'Petitioner' inter alia at Paragraph 10 to 22 had observed the following: 10. "It was submitted that the petitioner herein is a legal heir and grandson of the owner of 12.53 acres of land in S.No.76/2 & 77 and the 1st Respondent Club had admittedly entered into a lease agreement with the late grandfather of the Petitioner with respect to the said property on 27.07.1927 and further extended the term up to 26.10.1936. It was submitted that the 1st Respondent is still in possession of the said property and has refused to pay lease rentals. Apart from the said 12.53 acres of land, the 1st Respondent is in possession and occupation of 160 acres of Government land whose market value is 11500 Crores and Government value is 5000 Crores, for which also, the lease rentals have not been paid. It is averred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same to M/s. Madras School of Equitation and is deriving an income from the same. The said act of refusing to pay lease rentals to the actual owners of the properties and simultaneously sub-leasing/ leasing the said property to drive income, is contrary to the rule of law and public property. 14. It was further submitted that the modus operandi of the 1st Respondent is to alienate the lands over which they possess only lease hold rights and by creating and forging documents and fraudulently profiting from such alienation and that, they have actively involved in land grabbing from the Government of Tamil Nadu and private parties by fabricating title documents and colluding with private parties and multination corporations. 15. The petitioner alleges that, the 1st Respondent is a habitual tax evader and has evaded service tax and GST from the year 1994 and 2017 respectively, on lease rentals payable, to the tune of Rs. 250 crores apart from income tax claims amounting to the tune of Rs. 75 Crores. It is further averred that, the 1st Respondent has evaded Service Tax and GST from 2006 as they had leased/sub-leased a land parcel to DLF where, DLF has been remitting periodically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are capital; or (ii) not less than one-fifth of the persons on the company's register of members, in the case of a company having no share capital, and supported by such evidence as may be necessary for the purpose of showing that the applicants have god reasons for seeking an order for conducting an investigation into the affairs of the company; or (b) On an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that-- (i) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its member or that the company was formed for any fraudulent or unlawful purpose; (ii) persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or (iii) the members of the company have not been given all the information with respect to its affairs which they might reasonable expect, including information relating to the calculation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the affairs of the 1st Respondent Company have been conducted in a fraudulent manner or unlawful purpose and on the said count itself this Petition is liable to be dismissed. 21. It is pertinent to note here that the trigger for the Petitioner filing the present Petition is with respect to the findings given by the Hon'ble Apex Court in the matter of Dr. K.R. Lakshmanan (supra) whereby, the Hon'ble Apex Court held that there are no materials on record to show that any inquiry or investigation had been conducted by the State Government prior to passing of the 1986 Act and that even if it were to be accepted that the 1st Respondent Club was being mismanaged, since it is company registered under the Companies Act, 1956, the said Act provides elaborate machinery and well-established procedural safeguards for dealing with mismanagement in Companies registered under the Act. 22.The above said Judgment was passed by the Hon'ble Supreme Court in the year 1996 and the Petitioner now in the year of 2021 has filed the present Petition seeking thereof to initiate the Investigation into the affairs of the 1st Respondent Company. As already stated in the preceding paragraphs the Petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a 'Summary Fashion' without the detailed Hearing, thereby negating the 'Principles of Natural Justice'. 6. The Learned Counsel for the 'Appellant' puts forward a plea that the 'Tribunal' had committed an error in failing to appreciate and consider that 'Fraud' vitiates everything, (including the 'Timeline' and 'Limitation'). 7. According to the Learned Counsel for the 'Appellant' that the 'Impugned Order' was passed by the 'Tribunal' without issuing 'Notice' to the 'Respondents' or permitted them to file their 'Reply'. 8. The Learned Counsel for the 'Appellant' proceeds to point out that the 'Mismanagement' and 'Fraud' in the conduct of business of the 1st Respondent is in 'die in diem' and 'continuous in nature'. 9. The other submission of the Learned Counsel for the 'Appellant' is that the 'Appellant' had approached the 'Tribunal' as soon as he had attained knowledge of numerous 'Fraudulent' and 'Unlawful Activities' committed by the 1st Respondent/Company. 10. It is the version of the 'Appellant' that the 'Tribunal' failed to consider that the 1st Respondent/Club had grossly misused the 'Lands' that purportedly in their capacity as 'Lessees', is in possession of and occu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of three years and later another 'Memorandum of Understanding' for Leas Rentals' by which the 1st Respondent/Club had collected Lease Rentals' to the tune of Rs. 200 Crores for which Stamp Duty was not paid to the 'Government'. Therefore, a contention is projected on the side of the 'Appellant' that the 'fraudulent' nature of the 'Business' of the 1st Respondent/Club is quite apparent. 18. It is the emphatic plea of the 'Appellant' that the 'Tribunal' had failed to consider that the 1st Respondent/Club had illegally alienated 3.82 Acres of Land valued at Rs. 300 Crores in S. No.76/2, T.S. No.24/2, Block-16 without putting the 'Land Owners' on 'Notice' and without following the 'Due Process of Law'. CONTENTIONS OF RESPONDENTS NO.1 AND 2 19. The Learned Counsel for the Respondents No.1 and 2 submits that the 'Appellant', alleges that he is the grandson and 'Legal Heir' of the owner of 12.53 Acres of 'Land' has not produced any documentary evidence to identify the 'Owner' or establish the claim to ownership of the said 12.53 Acres of 'Land'. 20. The Learned Counsel for the Respondents No.1 and 2 takes a stand that 'a person having no manner of interest or concern in the 'Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the affairs of the 'Club'. 25. In regard to the issue of 'Mangolia Park' is concerned, the 1st Respondent/Club has no nexus with the said transaction whatsoever, and this cannot form the basis for seeking an 'Investigation' into the 1st Respondent/Club's Affairs. 26. In so far as the allegations of sub lease to the 'Madras School of Equitation' is concerned, it is the stand of the Respondents No.1 to 2 that M/s. Madras School of Equitation is part and parcel of the 1st Respondent/Club and hence, the question of any 'Sub Lease' does not arise. Moreover, no income is obtained from the said School, by the 1st Respondent/Club. 27. The Learned Counsel for the Respondents No.1 and 2 takes a plea that the 1st Respondent/Club till date has not received any 'Notice' from the 'Income Tax Department' in this 'Dispute Resolution Scheme' in the year 2019 and in reality, 'Notices' from the 'Department' seeking documents for the 'Service Tax Payable' for the period between 2012-2013 and 2017-2018 were duly responded to and further process is awaited as on date. Continuing further, in regard to 'GST Dues', documents relating to payment of GST on 'Lease Rentals' were filed with the 'Government' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an intent to defraud, a fraudulent or unlawful purpose, fraud or misconduct of the withholding of information of a particular kind." 29. The Learned Counsel for the Respondents No.1 and 2 contends that the 'Investigation Of Companies' in 'Law' means that the 'Existence Of Circumstances' relevant to the inference must be of a 'Sine qua non' for the exercise of jurisdiction. Besides these, the observations made by the Hon'ble Supreme Court in the decision Dr. K.R. Lakshmanan v State of Tamil Nadu and Anr. reported in (1996) 2 SCC Page 226 pertain to the statutory 'Provisions' forming part of the framework of the Companies Act, 1956 and cannot in any manner be read as conferring a right to the 'Appellant' to construe the same as a 'cause of action' to file the 'instant Petition'. 30. It is the contention of the Learned Counsel for the Respondents No.1 and 2 that the 'whole proceedings' before the 'National Company Law Tribunal, Chennai Bench' and the proceedings before this 'Tribunal' in 'Appeal' are nothing but a 'Misguided Attempt' to tarnish and taint the reputation of the 1st Respondent/'Club'. APPRAISAL: 31. Before the 'National Company Law Tribunal', Chennai in CP/46/(CHE)/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the Hon'ble Supreme Court had struck down the 1986 Act. 36. The 'Appellant'/'Petitioner' in the main Company Petition in CP/46(CHE)/2021 had prayed for the relief of (i) appointing one or more competent persons as Inspectors to investigate the affairs of the 1st Respondent/Company thoroughly report thereon in such manner prescribed under Law and to punish the persons 'guilty of fraud' in accordance with law. Further, the 'Appellant'/Petitioner had prayed for issuance of a direction in directing the 1st Respondent/Club to reimburse and compensate him, other losses all other affected persons for the pecuniary loss incurred or suffered on account of failure to pay 'Lease Rentals'. 37. Apart from the above, the 'Appellant'/'Petitioner' in the main Company Petition, had prayed for the relief of appointing an 'Administrator' in respect of the affairs of the 1st Respondent/Club and also sought a relief of the appointment of a 'Receiver' for the 1st Respondent/Club. As an 'Interim Relief' before the 'Tribunal' the Appellant had prayed for an 'Interim Injunction' restraining the 1st Respondent, their men, agents, servants, etc. from in any manner, whatsoever, further alienating, encumb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brushed aside that the 'Delay' and 'Latches' will come into operative play and commence from the date of knowledge as per decision Nirmla Thakkar (Dr. Mrs.) v Bluebird Enterprises, reported in 2012 72 Company Cases Page 28 (CLB). The plea of Limitation is a mixed question of Law and fact. Equitable Consideration: 44. The 'Doctrine of Latches' is rested upon the 'equitable consideration' and depends on the general principles of 'Justice And Fair Play'. The aspect of 'Latches' is to be gone into by the 'Tribunal' at its subjective discretion, as opined by this 'Tribunal'. 45. It is within the discretion of a 'Tribunal' to entertain a Petition or to grant relief pertaining to the conduct of the 'Company' affairs in which the Petitioner had taken part without protest before filing the 'Petition'. As a matter of fact, 'equitable' is defined as marked by a due consideration for what is fair, unbiased and impartial, in tune with the principles of 'Natural Justice', untrammeled by technical nuances and niceties of 'Law'. EXERCISE OF DISCRETIONARY POWER: 46. The 'Discretionary Power' under Section 213 of the Companies Act, 2013 is to be exercised honestly and not for corrupt or ulterio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation' by 'SFIO'. 53. Section 212(1) of the Companies Act, 2013 refers to the opinion being formed that it is necessary to investigate into the affairs of the 'Company' by 'Serious Fraud Investigation Office', as per decision of the Hon'ble High Court of Andhra Pradesh in 'The Medak Diocese of Church of South Indian Trust Association v The Union of India dated 16.11.2017'. SERIOUS FRAUD: 54. The Companies Act, 2013 does not define the expression 'Serious Fraud'. The Companies Act, 2013 contains provisions relating to 'Corporate Frauds' in the Companies Act, 2013. At this juncture, this 'Tribunal' points out that the explanation under Section 447 of the Companies Act, provides for punishment for 'Fraud'. The offences under Sections 7(5), 7(6), 34, 36, 38(1), 46(5), 56(7), 66(10), 140(5), 206(4), 213, 229, 251(1), 339(3) and 448 which attract the punishment for 'Fraud' in Section 447 of the Companies Act, 2013 shall be cognizable and the 'Court' shall take cognizance based on a written Complaint by the 'Director SIFO' or an 'Officer' of the Central Government. In fact, the explanation to Section 447 'Punishment for fraud' (Chapter XXIX Miscellaneous reads as under: Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act, 2013 mean only a 'person' who has suffered a legal grievance. APPELLATE TRIBUNAL'S ORDER: 60. Be it noted, that in the 'Order' of this 'Tribunal' dated 02.12.2019 (National Company Law Appellate Tribunal, New Delhi) in the matter of Union of India, through Serious Fraud Investigation Office (SFIO) v Maharashtra Tourism Development Corporation and Anr. (vide Company Appeal (AT) (INS) 964 of 2019 with Company Appeal (AT) (INS) 965 of 2019 it is inter alia at Paragraph No. 6, it is observed as under: 6. Similar issue fell for consideration before this Appellate Tribunal in 'Company Appeal (AT) (Insolvency) No. 574/2019 - "Mr. Lagadapati Ramesh Vs. Mrs. Ramanathan Bhuvaneshwari' wherein this Appellate Tribunal by its judgment dated 20th September, 2019 observed and held as follows: "27. The 'offences and penalties' as prescribed and dealt with in Chapter VII and appropriate order of punishment can be passed only by way of trial of offences by a Special Court in terms of Section 236 of the 'I&B Code'. However, no such Court can take cognizance of any offence punishable under the Act, save on a complaint made by the 'Insolvency and Bankruptcy Board of India' (IBBI) or the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company by the 'Serious Fraud Investigation Office', as detailed below: "212. Investigation into affairs of Company by Serious Fraud Investigation Office.- (1) Without prejudice to the provisions of section 210, where the Central Government is of the opinion, that it is necessary to investigate into the affairs of a company by the Serious Fraud Investigation Office- (a) on receipt of a report of the Registrar or inspector under section 208; (b) on intimation of a special resolution passed by a company that its affairs are required to be investigated; (c) in the public interest; or (d) on request from any Department of the Central Government or a State Government, the Central Government may, by order, assign the investigation into the affairs of the said company to the Serious Fraud Investigation Office and its Director, may designate such number of inspectors, as he may consider necessary for the purpose of such investigation. (2) Where any case has been assigned by the Central Government to the Serious Fraud Investigation Office for investigation under this Act, no other investigating agency of Central Government or any State Government shall proceed with investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of 1974) or any other law for the time being in force on granting of bail. (8) If the Director, Additional Director or Assistant Director of Serious Fraud Investigation Office authorised in this behalf by the Central Government by general or special order, has on the basis of material in his possession reason to believe (the reason for such belief to be recorded in writing) that any person has been guilty of any offence punishable under sections referred to in sub-section (6), he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest. (9) The Director, Additional Director or Assistant Director of Serious Fraud Investigation Office shall, immediately after arrest of such person under subsection (8), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Serious Fraud Investigation Office in a sealed envelope, in such manner as may be prescribed and the Serious Fraud Investigation Office shall keep such order and material for such period as may be prescribed. (10) Every person arrested under sub-section (8) shall within twenty-four hours, be taken to a Judicial Magistrate or a Met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, police authority or income-tax authorities in respect of any offence or matter being investigated or examined by it under any other law." 31. From bare perusal of Section 212 of the Companies Act, 2013, it will be evident that such investigation into affairs of company can be made only on receipt of a report of the Registrar or Inspector under Section 208 of the Companies Act, 2013 or on intimation of a special resolution passed by a company that its affairs are required to be investigated; or in the public interest; or on request from any Department of the Central Government or a State Government. 32. Section 212 does not empower the National Company Law Tribunal or the Adjudicating Authority to refer the matter to the Central Government for investigation by the 'Serious Fraud Investigation Office' even if it notices the affairs of the Company of defrauding the creditors and others. 33. However, investigation into affairs of company at the instance of the Tribunal has been prescribed under Section 213 and reads as follows: "213. Investigation into company's affairs in other cases.- The Tribunal may,- (a) on an application made by- (i) not less than one hundred me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in section 447." 34. In terms of clause (b) of Section 213, on an application made to it by any other person ('Resolution Professional') or otherwise (suo motu), if the National Company Law Tribunal is satisfied that there are circumstances suggesting that (i) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose as alleged by the 'Resolution Professional' in the present case and or by; (ii) persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members etc., (which is also the allegation made by the 'Resolution Professional'), in such case, the Tribunal after giving a "reasonable opportunity" of being heard to the parties concerned, that the affairs of the company ought to be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file complaint. 38. The National Company Law Tribunal is the Adjudicating Authority under Part-II of the 'I&B Code' in terms of sub-section (1) of Section 60, which reads as follows: "60. Adjudicating Authority for corporate persons.─ (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located......." 39. The Civil Procedure Code is not applicable for any proceeding before the Tribunal and in terms of Section 424, the Tribunal is guided by principle of natural justice and subject to other provisions under the Companies Act, 2013 or the 'I&B Code' or any Rule made thereunder. The Tribunal and the Adjudicating Authority have also been empowered to regulate their own procedure. 40. In view of the aforesaid position of law also, the procedure laid down under Section 213 of the Companies Act, 2013 can be exercised by the Tribunal/ Adjudicating Authority, as held above. 41. Further, after the investigation by the Ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1st Respondent/Club and the issue of Sub-Lease may not arise. 63. In regard to the 'Income Tax' dues and the 'GST' dues are concerned, the 'Appellant'/'Petitioner' being an alien under stranger to the 1st Respondent/Club has no 'Locus Standi' to question the same. And in this regard, the 'Income Tax' and 'GST' Authorities are to take such action as they deem fit and proper, in the considered opinion of this 'Tribunal'. By no stretch of imagination, these 'dues' cannot be prudently considered as a basis praying for an 'Investigation', as per the ingredients of Section 213 of the Companies Act, 2013. 64. A cursory perusal of the relevant Provisions of the Companies Act, 2013 point out that there are prescribed procedures to deal with a contingency like 'Mismanagement' of a 'Affairs of Company'. 65. There is no two opinion of a premodial fact that a person whose name is not on the 'Register of Members' is not entitled to prefer a 'Petition' before a 'Tribunal'. It is for the concerned person to establish that he is a 'Member of a Company' on the date of filing of a Petition/Application under the Companies Act, 2013. When a person is not a 'Member of the Company', he cannot even ..... X X X X Extracts X X X X X X X X Extracts X X X X
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