Pradeep Puri vs Union Of India Through Regional ...

[Arising out of order dated 16.02.2024 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in I.A. No. 176/2022 in C.A. 3428/2018 in C.P. (IB) No. 3638/MB/2018]

IN THE MATTER OF: Mr. Pradeep Puri Having Address at: A-30, Westend, New Delhi- 110021 Email: puri.pradeep@gmail.com ...Appellant

Versus

Union of India Through Regional Director (Western Region) Having Office at: Everest, 5th Floor, 100, Marine Drive, Mumbai- 400 002 Email: rd.west@mca.gov.in ...Respondent

Present: For Appellant : Mr. Abhijeet Sinha, Sr. Advocate, Ms. Sumiti Yadava, Mr. Shashwat Shah, Ms. Hima Kochar, Advocates. For Respondents : Mr. Aditya Sikka, Advocate for UOI.

WITH

Company Appeal (AT) No. 182 of 2024 [Arising out of order dated 10.04.2024 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I,) in C.A. No. 233/2021 in C.P. (IB) No. 3638/MB/2018]

IN THE MATTER OF: Mr. Pradeep Puri Having Address at: A-30, Westend, New Delhi- 110021 Email: puri.pradeep@gmail.com ...Appellant Versus

Union of India Through Regional Director (Western Region) Having Office at: Everest, 5th Floor, 100, Marine Drive, Mumbai- 400 002 Email: rd.west@mca.gov.in ...Respondent

Present: For Appellant : Mr. Abhijeet Sinha, Sr. Advocate, Ms. Sumiti Yadava, Mr. Shashwat Shah, Ms. Hima Kochar, Advocates. For Respondents : Mr. Aditya Sikka, Advocate for UOI.

JUDGMENT

(Hybrid Mode)

Per: Barun Mitra, Member (Technical)

The present two appeals filed under Section 421 of Companies Act, 2013

by the Appellant arises out of the Orders dated 16.02.2024 & 10.04.2024

(hereinafter referred to as 'Impugned Order') passed by the National Company

Law Tribunal, Mumbai Bench-I in I.A. No.176 of 2022 in CA No.3428 of 2018

and C.A. No. 233 of 2021 in CP (IB) No. 3638 of 2018 respectively. By the

impugned order dated 16.02.2024, NCLT dismissed I.A. No.176 of 2022 and by

the impugned order dated 10.04.2024 it dismissed C.A. No. 233 of 2021.

Aggrieved by the impugned orders, the present appeals have been preferred by

the Appellant.

2. The factual matrix of both the appeals primarily stems out of CP (IB) No.

3638 of 2018, the salient points of which are as outlined below:-

Comp. App. (AT) Nos. 102 & 182 of 2024 2 of 23  The Respondent-Union of India (UOI) had filed C.P. No 3638 of 2018

under Sections 241 & 242 of the Companies Act, 2013 against IL&FS

and group companies alleging mismanagement in the company leading

to indebtedness of IL&FS.

 The Serious Fraud Investigation Office ('SFIO' in short) in its Interim

Investigation Report dated 30.11.2018 identified the coterie of

individuals constituting the 'will and mind' of the IL&FS and its Group

Companies whose fraudulent conduct led to a debt burden of IL&FS

group in excess of Rs 99,000 cr. According to the SFIO Interim Report,

the Appellant was a part of this coterie.

 On an application filed by the UOI, basis the SFIO Interim Report, the

NCLT in C.P. No. 3638 of 2018 vide order dated 03.12.2018 had inter-

alia directed impleadment of the present Appellant-Shri Pradeep Puri as

Respondent No.316. Vide the same orders, the NCLT had also restrained

the Appellant from mortgaging or alienating movable and immovable

properties owned by him including dealing with the securities in any

Company.

 Following the passing of order dated 03.12.2018, the Appellant had

moved I.A. No. 3138 of 2019 seeking permission to withdraw an amount

of Rs 5 lakhs as one-time measure which was allowed on 27.09.2019.

 The Appellant vide a subsequent Application No. 3428 of 2019 sought

modification of the order dated 27.09.2019 seeking permission for

withdrawal of Rs 5 lakhs per month.

Comp. App. (AT) Nos. 102 & 182 of 2024 3 of 23  On 18.12.2020, the NCLT allowed C.A. No. 3428 of 2019 filed by the

present Appellant as Respondent No.316 permitting him to withdraw Rs.

3 lakh only per month w.e.f. December, 2020.

 SFIO in the meantime submitted its Final Report on IFIN and ITNL on

28.05.2019 which report did not include the name of the Appellant as a

part of the coterie of individuals controlling the 'will and mind' of IL&FS

and its Group Companies.

 On 03.02.2021, the Appellant filed CA No. 233 of 2021 in CP No. 3638 of

2018 before the NCLT seeking modifications to its order dated

18.12.2020 and take on record certain facts referred to therein.

 Following the submission of SFIO Final Report dated 28.05.2019, the

Appellant filed I.A. No. 1041 of 2020 seeking that the Appellant be

discharged and removed from being Respondent No.316 in C.P. No. 3638

of 2018 and also in other proceedings pending before the NCLT on the

grounds that he was no longer identified as a member of the coterie that

controlled the decision making in the IL&FS and its Group Companies.

 On 24.12.2021, the Respondent submitted three status notes of SFIO

dated 22.05.2020, 23.09.2020 & 06.10.2020 to NCLT which Reports

indicated that SFIO investigation was still underway.

 The NCLT on hearing I.A. No. 1041 of 2020 privately perused the three

Status Notes of SFIO which indicated that investigation was still

underway. The NCLT in its orders dated 24.12.2021 did not allow the

prayer for discharge of the Appellant from C.P. No. 3638 of 2018. The

NCLT however observed that three years had already elapsed and that

investigations could not continue endlessly. SFIO was directed by the Comp. App. (AT) Nos. 102 & 182 of 2024 4 of 23 NCLT to complete the investigations expeditiously in four months' time.

The NCLT in the same order allowed the bank account of the Appellant

to be de-frozen by Rs. 8 lakhs every month w.e.f. 05.08.2020.

 On 09.11.2022, the Appellant filed I.A. No. 176 of 2022 in CA No. 3428

of 2018 in C.P. No. 3638 of 2018 before NCLT The prayers contained in

I.A. 176 of 2022 reads as under:

"a. Discharge the Applicant-Respondent as a respondent in the present proceedings of Company Application 3638 of 2018 before this Hon'ble Tribunal;

b. Pass any other order(s) as deemed fit and proper under the circumstances by the Hon'ble Tribunal."

On 16.02.2024, the NCLT dismissed I.A. No. 176 of 2022 as premature.

 CA No. 233 of 2021 in CP No. 3638 of 2018 filed by the Appellant on

03.02.2021 was also dismissed on 10.04.2024. The prayers contained in

C.A. 233 of 2021 are as extracted below:

i. That it be taken on record that the Applicant was only a non-

executive director of ITNL and the said order dated 18.12.2020 be deemed to stand modified accordingly to include reference to the said fact.

ii. That it be taken on record that the Applicant was not a member of the Board of Director or in any manner the management of IL&FS and the said Order dated 18.12.2020 be deemed to stand modified accordingly to include reference to the said fact. iii. That it be taken on record that the SFIO Final Report on IFIN dated 28.05.2019 does not name the Applicant as a member of the alleged "coterie" that controlled that affairs of IL&FS and its group companies and the said order dated 18.12.2020 be deemed to stand modified accordingly to include reference to the said fact.

iv. That it be taken on record that the SFIO Charge Sheet filed before the designated special court pursuant to the SFIO Final Report on IFIN dated May 28, 2019 does not name the Applicant as an accused and no prosecution proceedings have been initiated against the Applicant and the said order dated 18.12.2020 be

Comp. App. (AT) Nos. 102 & 182 of 2024 5 of 23 deemed to stand modified accordingly to include reference to the said fact.

v. That the second sentence of Para 8 be deleted from Order dated 18.12.2020 and Para 8 of the said Order stand modified accordingly;

vi. That the third sentence of Para 8 be deleted from Order dated 18.12.2020 and Para 8 of said order stand modified accordingly; vii. That in light of the fact that SFIO Final Report on IFIN dated 28.05.2019 does not name the Applicant as part of the alleged coterie that controlled IL&FS and in light of the fact that no prosecution has been initiated by SFIO against the Applicant, the restraints against the movable properties of the Applicant (i.e. bank accounts, mutual funds, fixed deposits etc.) be removed.

viii. Pass any other order(s) as deemed fit and proper under the circumstances by the Hon'ble Tribunal."

 Aggrieved by the impugned orders dated 16.02.2024 and 10.04.2024, the

Appellant has preferred Company Appeal(AT)(Ins) No. 102 of 2024 and

Company Appeal(AT)(Ins) No. 182 of 2024 respectively.

3. We have heard Shri Abhijeet Sinha, Ld. Sr. Counsel for the Appellant and

Shri Aditya Sikka, Ld. Counsel representing Respondent.

4. Before we proceed to enter into the rival submissions of the two parties,

we need to take notice of the prayers contained in Company Appeal(AT)(Ins) No.

102 of 2024 and Company Appeal(AT)(Ins) No. 182 of 2024 which are as

extracted hereunder:

CA (AT)(Ins) No. 102 of 2024

(a) That the Impugned Order dated 16.02.2024 of the Hon'ble National Company Law Tribunal, Mumbai in I.A. No. 176/2022 in C.A. 3428/2018 be set aside;

(b) That the Appellant be removed as Respondent No. 316 in CA 3638/2018;

(c) That all restraints on the Appellant dealing with his movable and immovable properties be removed;

(d) That the Appellant in the present facts cannot be considered to be part of any "cabal" or "coterie" that governed the "will and mind" of IL&FS

Comp. App. (AT) Nos. 102 & 182 of 2024 6 of 23 and its group of companies as the Appellant was not a director of IL&FS and was only a non-executive director in ITNL, the only major subsidiary holding company for vertical identified by SFIO in its 2018 Interim Report and had ceased to be a non-executive director of ITNL on 20.11.2017 itself;

(e) Pass such other and/or further orders against the Respondent and in favour of the Appellant as this Hon'ble Appellate Tribunal deems fit in the facts and circumstances of the present case.

CA (AT)(Ins) No. 182 of 2024

(a) That the Impugned Order dated 10.04.2024 of the Hon'ble National Company Law Tribunal, Mumbai in C.A. No. 233/2021 in C.P. No. 3638/MB/2018 be set aside and prayers sought in the said application C.A. No. 233/2021 before Hon'ble National Company Law Tribunal, Mumbai be allowed; and

(b)That all restraints on the Appellant regarding dealing with his movable and immovable properties be removed; or

(c)Pass such other and/or further orders against the Respondent and in favour of the Appellant as this Hon'ble Appellate Tribunal deems fit in the facts and circumstances of the present case.

5. Making his submissions, the Ld. Sr. Counsel for the Appellant submitted

that the order passed by the NCLT in CA No. 3428 of 2019 dated 18.12.2020

was fraught with factual inaccuracies which were proving prejudicial to the

interest of the Appellant. Hence, the Appellant had sought modification of the

NCLT order dated 18.12.2020 besides seeking removal of restraint against

movable properties of the Appellant and for this purpose filed C.A. 233 of 2021

in CP No. 3638 of 2018 which has now been erroneously dismissed by the

NCLT. It was vociferously contended that the NCLT order of 18.12.2020 had

wrongly implicated the Appellant based on the SFIO Interim Report. The

impleadment had been wrongly done on the erroneous basis by holding the

Appellant to be a "Director and COD Member of ITNL" as per the SFIO Interim

Comp. App. (AT) Nos. 102 & 182 of 2024 7 of 23 Report and treating him as a member of the coterie controlling the "will and

mind" of IL&FS group.

6. It was also contended that after the submission of SFIO Final Report, the

SFIO had filed criminal complaint/chargesheet against 30 persons on

30.05.2019 in which the name of the present Appellant did not figure. It was

also vehemently contended that when there are no adverse findings against the

Appellant for over five years and the SFIOs Final Report had excluded the

Appellant from the coterie which represented the 'will and mind' of IL&FS and

its Group Companies, there was no justification for impleadment in

C.P.No.3638 of 2018 and for continuing the restraint order against the

Appellant. Making further submissions it was submitted that imposition of

restraints on Appellant was discriminatory when no restraints were placed on

23 out of 30 Respondents against whom charge-sheet had been filed on

30.05.2019. It was therefore asserted that the Appellant should be permitted

to deal with and manage his properties. When the very foundation for the

Appellant's impleadment as party Respondent in CP 3638 of 2018 contained in

the SFIO Interim Report had already been replaced by SFIO Final Report where

the Appellant is not named as an accused, it was wrong on the part of the NCLT

to continue with the freeze of the assets of the Appellant.

7. It was further submitted that the very basis of impleadment of the

Appellant as Respondent No.316 in CP No. 3638 of 2018 had already been

negated by the SFIO Final Report of 28.05.2019 which had dropped the

Appellant from being considered as part of the controlling coterie. It was also

contended that the patently wrong submission made by the present

Comp. App. (AT) Nos. 102 & 182 of 2024 8 of 23 Respondent that SFIO had initiated prosecution against the Appellant in a

designated Special Court following the SFIO Final Report is recorded in the

NCLT order of 18.12.2020. The SFIO Final Report and the subsequent charge-

sheet related to ITNL did not contain any adverse finding against the Appellant.

The NCLT had, therefore, wrongly failed to vacate the order of restraint against

the Appellant by taking a misplaced view that the Appellant has not been

discharged so far in the matter by the criminal court at a time when the

Appellant had not been charge-sheeted. It has also been pointed out that NCLT

erroneously took a view while adjudicating in IA No. 176 of 2022 in CP No. 3638

of 2018 that the Appellant had made withdrawal of lookout circular against

him as the basis of discharge while in fact several other convincing and

persuasive grounds had been raised for discharge.

8. Refuting the submissions made by the Appellant, the Ld Counsel for the

Respondent contended that the impleadment of the Appellant as party

Respondent in C.P. No. 3638 of 2018 had been ordered by the NCLT as early

as on 03.12.2018. The Appellant did not challenge the said order of 03.12.2018

and the same had attained finality. The Appellant therefore continues to remain

a necessary and proper party in C.P. No. 3638 of 2018. It was further submitted

that the NCLT had again considered the prayer of the Appellant in C.A. No.

3428 of 2018 to delete/discharge the Appellant from the array of parties.

However, the NCLT had disposed of C.A. No. 3428 of 2018 on 18.12.2020 by

disallowing the plea of the Appellant for deletion/discharge. The NCLT again

disallowed the Appellant's plea for deletion/discharge while disposing of I.A.

No. 1041 of 2020 on 24.12.2021. Yet the Appellant is once again seeking

deletion/discharge from the array of Respondents in I.A. No. 176 of 2022 Comp. App. (AT) Nos. 102 & 182 of 2024 9 of 23 though this matter has become final. Since the issue of impleadment of the

Appellant as a necessary and proper party had been decided by NCLT way back

on 03.12.2018 and there is no change in the circumstance or fresh facts since

then, prayers contained in I.A. No. 176 of 2022 stood barred on the principles

of res judicata.

9. It has been contended by the Respondent that the suspended Board of

Directors of IL&FS and its key subsidiaries which included the Appellant had

abused their powers and increased the debt burden across IL&FS group

besides unjustly enriching themselves by giving themselves unreasonably high

remunerations. The SFIO Interim Report had highlighted the illegalities and

fraudulent conduct of business by the IL&FS entities and in para 12 already

named the Appellant as part of the coterie controlling the "mind and will" of the

company which perpetrated the fraud. Since the Appellant was a Director on

the Board of various key subsidiaries of IL&FS group which were under

investigation, the impleadment of the Appellant in C.P. No. 3638 of 2018 was

in order.

10. While admitting that the SFIO Final Report in respect of IFIN or ITNL did

not name the Appellant as a member of the coterie, it was submitted that simply

because the Appellant was not charged in respect of ITNL and IFIN, the

proceedings against the Appellant cannot be dropped since he was a Director

on the Board of six other companies in the IL&FS group during different time-

periods. It was also contended that it is settled law that dismissal of a

proceeding or deletion of defendant from a proceeding amounts to a

decree/final order. Thus, while investigation is on-going and there are findings

Comp. App. (AT) Nos. 102 & 182 of 2024 10 of 23 on record against the Appellant before the NCLT, discharge/dismissal of the

Appellant would tantamount to exoneration of the Appellant from the liability.

11. It was also stated that the majority part of the investigation into the

affairs of IL&FS Ltd. and its subsidiaries have been completed by SFIO and that

the process of filing prosecution has been initiated and likely to be completed

soon. Moreover, since the restraint order on the Appellant had been passed to

protect public interest and that of the creditors, the same needs to continue.

Hence, the NCLT by refraining from discharging the Appellant did not commit

any error.

12. It has been further contended that in the guise of alleged factual

inaccuracies, the Appellant in CA 233 of 2021 has tried to introduce new facts.

It is the case of the Respondent that the Adjudicating Authority has correctly

dismissed the prayers of the Appellant in CA No. 233 of 2021 since through

this application the Appellant has essentially sought NCLT to exercise the

power of review which is beyond its powers. It was submitted that though

Section 420(2) of the Companies Act, 2013 empowers the NCLT to amend or

modify its orders, it permits the same only for the purpose of rectifying any

mistake apparent from the face of record. Furthermore, Rule 11 of the NCLT

Rules confers inherent powers and Rule 154 confers powers to rectify clerical

or arithmetical mistakes. However, the modifications/rectifications which were

sought in CA 233 of 2021 were not merely clerical or arithmetical in nature.

Instead, the Appellant had indirectly sought to interpret the SFIO Interim

Report to suit its own interest in a manner which tantamount to deemed

Comp. App. (AT) Nos. 102 & 182 of 2024 11 of 23 inclusion of new facts. Hence, it was asserted that the NCLT had correctly

refrained from modifying its order of 18.12.2020.

13. We have duly considered the rival contentions advanced by the Learned

Counsel for both the parties and perused the records carefully.

14. The moot question before us requiring our consideration is whether there

is sufficient justification for deletion of the Appellant as party Respondent in

C.P. 3638 of 2018 and for removal of restraints on him with respect to his

moveable and immoveable property.

15. Before we dwell on the moot issue outlined in paragraph 14 above, we

would like to address the issue raised by the Appellant that certain correct facts

ought to have been taken on record since NCLT had issued restraint order basis

certain inaccurate facts. The Respondent has contended that the Appellant is

introducing new facts/documents and arguments at the appellate stage which

is impermissible as it goes beyond the pleaded case before NCLT. Repelling this

argument, it has been contended by the Appellant that the rectification sought

was permissible under NCLT Rules since it was in respect of mistakes which

were self-evident and apparent which did not require any further examination

to be established. Moreover, such mistakes if not corrected were leading to

miscarriage of justice.

16. We have no doubts in our mind that the power of the NCLT to rectify its

own order is set out in Section 420 of the Companies Act and in Rules 11 and

154 of the NCLT Rules, 2016. Without feeling the need of reproducing the

relevant statutory provision of the Companies Act, 2013 and the NCLT rule

position, we are cognisant that NCLT has limited jurisdiction in this regard

which is restricted to correction of mistakes or errors arising out of accidental Comp. App. (AT) Nos. 102 & 182 of 2024 12 of 23 slip or omission. The NCLT can at best only recall its order but does not have

the power of review as no such power has been conferred expressly by the

statutes. When we look at the impugned order of 10.04.2024, we find that the

NCLT without accepting or discounting the facts referred to by the Appellant

has merely observed at para 22 therein that "the facts as pleaded are matter of

record and can always be pleaded in subsequent proceeding with preciseness."

Given the fact that SFIO investigations are still underway, we find that no

infirmity has been committed by NCLT in refraining from adjudicating on the

correctness or validity of the facts put forth by the Appellant in CA 233 of 2021

and leaving it open for pleading in subsequent proceedings.

17. It is the case of the Appellant that para 9 of the SFIO Interim Report

identified the Executive Directors of IL&FS and its main subsidiaries. However,

the Appellant did not hold any position in the Board of Directors of IL&FS. It

has also been contended that the Appellant was only a non-executive Director

of IL&FS Transport Networks Ltd (ITNL). The SFIO Interim Report, therefore,

created a wrong impression that the Appellant could have been an Executive

Director basis which NCLT order of 18.12.2020 had wrongly implicated the

Appellant causing severe prejudice to his interests.

18. It is further their case that there are no findings against the Appellant in

the SFIO Final Report. The Appellant is not an accused in the SFIO Final

Report. It is also their contention that para 1.10 of the SFIO Final Report for

IFIN specifically identified the coterie of individuals who were controlling the

affairs and decision making in the IL&FS group which clearly excluded the

Appellant. Moreover, in the charge-sheet filed in pursuance of the SFIO Final

Report, the Appellant has not been identified as an accused. Till date no charge Comp. App. (AT) Nos. 102 & 182 of 2024 13 of 23 of fraud or any other wrongful act has been brought out against the Appellant.

The Respondent has also failed to disclose the details of any prosecution

initiated against the Appellant. Yet a wrong impression has been created by the

Respondent that the Appellant has been charge-sheeted and would be

prosecuted shortly. It was also contended that though investigation is ongoing

in some subsidiaries, these are not identified as major subsidiaries. Hence,

when the Appellant was clearly not part of the controlling 'will and mind' of

IL&FS and there are no specific imputations of wrong doing or illegality on the

part of the Appellant, there was no basis to continue having the Appellant as

party Respondent No. 316. There was no basis either for freezing the assets of

the Appellant who is a senior citizen or continuing with the restraint order

against the Appellant.

19. Per contra it is the contention of the Respondent that the SFIO Interim

Report had found the present Appellant to be one of the Directors and a

Member of the Committee of Directors of ITNL which was a wholly owned

subsidiary of IL&FS. According to the SFIO Interim Report, the Appellant was

a part of this coterie which controlled the 'will and mind' of the IL&FS and group

companies which were responsible for decision-making which had led to

mammoth fraud and debt-burdening. Basis the SFIO Interim Report, the NCLT

in C.P. No. 3638 of 2018 vide order dated 03.12.2018 had, inter-alia, directed

impleadment of the present Appellant.

20. It was further submitted by the Ld Counsel for the Respondent that SFIO

is still conducting an investigation into the affairs of IL&FS and its subsidiaries

which includes a number of companies and covers a number of complex

Comp. App. (AT) Nos. 102 & 182 of 2024 14 of 23 transactions. It was also pointed out that the Appellant was a Director on the

Board of a number of subsidiaries of IL&FS. The SFIO Interim Report had

highlighted the illegalities and fraudulent conduct of business by the IL&FS

entities and in para 12 of the Report already named the Appellant as part of

the coterie controlling the "mind and will" of the company which perpetrated

the fraud. Given the Appellant's position in the company, the removal of his

name from the list of party Respondents at this stage, pending completion of

SFIO investigation, would tantamount to exonerating the Appellant. Objecting

to the removal of his name in a summary manner in spite of being a relevant

party, it was vehemently contended that any such action would cause grave

harm and prejudice to larger public interest and therefore would not be in

order. While investigation is ongoing and findings in respect of the Appellant

are contained in the SFIO Report, there is sufficient reason for the Appellant to

continue to remain as Respondent No. 316. It was also denied that the

Appellant has been subjected to burdensome restraints or any hardship since

he has been allowed to draw Rs 8 lakhs per month.

21. When we look at the sequence of events, we find that the present

Respondent had filed C.P. No 3638 of 2018 under Sections 241 & 242 of the

Companies Act, 2013 against IL&FS and group companies. The Respondent

had also ordered investigation into the affairs of IL&FS and group companies

by SFIO. Subsequently, SFIO in its Interim Investigation Report dated

30.11.2018 identified a coterie of individuals constituting the 'will and mind' of

the IL&FS and its Group Companies who were responsible for fraudulent

conduct and found the Appellant to be a part of this coterie. In the background

of this Interim Report, on an application filed by the Respondent, the NCLT in Comp. App. (AT) Nos. 102 & 182 of 2024 15 of 23 C.P. No. 3638 of 2018 vide order dated 03.12.2018 had inter-alia directed

impleadment of the present Appellant as Respondent No.316 and imposed

restraint on the Appellant in dealing with properties owned by him including

dealing with the securities in any company. However, in the subsequent SFIO

Final Report on IFIN dated 28.05.2019 and consequential SFIO criminal

complaint before the Special Court dated 30.05.2019, the Appellant was no

longer identified as a member of the coterie that controlled the decision making

in IL&FS and group companies. Herein lies the bone of contention between the

two parties. While the Appellant contends that in the light of the findings of the

SFIO Final Report, he deserves to be discharged and removed from the list of

Respondents in C.P. No. 3638 of 2018, it is the case of the Respondent that the

SFIO Report dated 28.05.2019 cannot be viewed to have absolved the Appellant

of his liability since this Report pertained to only one subsidiary of IL&FS and

did not cover IL&FS and the entire Group of companies.

22. It is an undisputed fact that the SFIO Final Report had removed the

Appellant from the list of persons who constituted the coterie governing IL&FS

and its Group Companies. It is also undisputed that the Appellant is not named

as an accused therein. Apart from there being no generic findings against the

Appellant in the SFIO Final Report, there are no specific imputations either of

wrong-doing or illegality on the part of the Appellant. There is also no dispute

that in pursuance of the Final Report, charge-sheet was filed and prosecution

proceedings commenced thereafter. However, no charge of fraud or any other

wrongful act has been brought out against the Appellant. Clearly the Appellant

had not been identified as an accused in the same charge-sheet.

Comp. App. (AT) Nos. 102 & 182 of 2024 16 of 23

23. We also notice that the Respondent has failed to disclose the details of

any prosecution initiated against the Appellant. We also find that it has been

rightly contended by the Appellant that the Respondent in their reply to C.A.

No. 233 of 2021 at para 7 had admitted that no prosecution has been initiated

against the Appellant. The relevant para is as reproduced below:

7. Keeping the above in mind, with regard to the third sentence of paragraph 8 of the December 18 Order, it is submitted that the SFIO has not initiated prosecution against the Applicant in the matter of investigation report dated 28.05.2019 of IL&FS Financial Services Limited which is matter of record.

24. Given this backdrop, we hold that the NCLT clearly committed an error

in observing at para 23 of the impugned order dated 10.04.2024 that the

Appellant "has not been discharged so far from the matter by the criminal court

also." Since it is a matter of fact and record that there are no criminal

proceedings pending against the Appellant, there was no question arising of

discharge from such non-existing proceedings.

25. Now that we have satisfied ourselves that the Appellant has not been

charge-sheeted so far nor any prosecution against him been initiated, we

proceed to consider whether there is sufficient basis to continue with arraying

of the Appellant as party Respondent No. 316 and subject him to restraint order

freezing his assets.

26. At this stage, we may turn to the impugned orders dated 16.02.2024 and

10.04.2024 to see how it has treated the issues of deletion of the impleadment

of the Appellant as party Respondent No.316 and vacating the restraint order

on the Appellant with regard to his assets. The relevant extracts of the

impugned orders are as follows:

Comp. App. (AT) Nos. 102 & 182 of 2024 17 of 23 Impugned order dated 16.02.2024

"4.1. On perusal of the Application, it is noted that the Applicant has made the withdrawal of lookout circular as the basis of discharge stating that after filing the investigation report in the ITNL, the said withdrawal was ordered. However, it is the case of Union that prosecution is still under Trial stage. Besides, the Applicant is Director under 6 other companies of IL&FS group and remains so far a period ranging from 1 to 3 years.

4.2. We also find the Union has already informed this Tribunal that after adoption of the SFIO report in ITNL case, the Respondents who are not found guilty of involvement in the investigation report shall be discharged by filing suitable application in so far as their involvement in affairs of ITNL is concerned. It is undisputed fact that a mammoth financial fraud had take place in the affairs of IL&FS and group companies and the Union of India had filed a Petition against the Directors of IL&FS and its group companies as well as persons having key role in the management of affairs of IL&FS group.

4.3. This Bench is of considered view that withdrawal of lookout circular is based on the cooperative conduct of the applicant in so far as the investigation is concerned and the decision to withdraw cannot be equated or tantamount to discharge from the allegations which are still under investigation."

Impugned order dated 10.04.2024

"23. Since the restraint order was passed to protect the interest of the Creditors and public at large, and the applicant has not been discharged so far from the matter by the criminal court also, we do not find any merit in prayer for vacating the restraint order in place."

27. It is the contention of the Ld. Sr. Counsel for the Appellant that the NCLT

had erroneously denied discharge on ground that the Appellant had made

withdrawal of lookout circular as the only basis of his discharge. Assailing the

impugned order, it is contended by the Ld. Sr. Counsel for the Appellant that

there were several other substantive grounds which justified the deletion of the

Appellant as party Respondent No.316 in CP3638 of 2018 which the NCLT did

not take due cognisance of. These grounds include the absence of any findings

Comp. App. (AT) Nos. 102 & 182 of 2024 18 of 23 in SFIO Final Report against the Appellant besides no chargesheet having been

framed or criminal proceedings initiated against him. Withdrawal of lookout

circular was only one other additional demonstrable proof that the Appellant

was no longer a material or relevant party for impleadment. Attention was also

adverted to decision of the Hon'ble Supreme Court in Neera Saggi Vs UOI

2021 SCC Online SC 239 wherein it was held that there should be due

application of mind while impleading Independent Directors in IL&FS

proceedings before the NCLT. Following this judgement, the NCLT had

discharged and deleted two erstwhile Independent Directors who were wrongly

impleaded as Respondents in CP No. 3638 of 2018. In the present case too for

the aforesaid reasons, it was asserted that the name of the Appellant ought to

be deleted from the list of party Respondent and restraint on the assets be

lifted.

28. It is the case of the Appellant that it was therefore erroneous for the NCLT

to continue the restraints against the Appellant on the ground that the

Appellant has not been discharged so far from the matter by the criminal court

at a time when the Appellant has not been charged with any criminal

proceedings. It was also stated that no explanation has been given as to why

and how the Appellant, a senior citizen, could be restrained from dealing with

his assets while those who were actually charge-sheeted and accused in

criminal proceedings have no such restraints against them.

29. We have given thoughtful consideration to the entire matter while

balancing public interest as canvassed by the Respondent with the rights of the

Appellant. We are of the considered view that the very purpose of any

Comp. App. (AT) Nos. 102 & 182 of 2024 19 of 23 investigation is to collect evidence/incriminating material. Therefore, mere

ground of delay in conduct of any investigation by itself cannot constitute

sufficient ground for any investigation to be brought to an abrupt end. The

investigation process is nevertheless expected to proceed with reasonable and

optimal dispatch and should not be inordinately stretched and prolonged at the

cost of fair play in action. In the interest of justice and equity, it is imperative

to ensure that the delay does not violate or infringe the right of any party to be

treated fairly, justly and reasonably.

30. When we see the facts of the present case through this prism, we notice

that the investigation has been a rather longish, protracted affair. When the

order of impleadment of the Appellant as party Respondent No. 316 was passed

on 03.12.2018, it was passed with the intent to protect public interest in view

of the mammoth nature of fraud which had been unearthed in IL&FS. It was

not intended for investigation to go on indefinitely or to impose a prohibition

on the Appellant for all times to come in seeking redressal.

31. Infact the NCLT on 24.12.2021 had itself taken adverse notice that three

years had elapsed since the investigation had commenced and that the

investigation cannot continue endlessly. It would be relevant to reproduce the

observations made by the NCLT on 24.12.2021 which reads as below:

"This state of affairs cannot continue endlessly. Already over 3 years have elapsed and the report is still awaited and status report cannot form the basis to continue freezer endlessly looking at the age and hardships being faced by the applicant. Therefore SFIO is directed to complete the investigation of IL&FS expeditiously, especially the investigation of ITNL be completed in next four months."

32. The NCLT after noting the inordinate delay had directed the investigation

to be completed expeditiously within four months. It is an undisputed fact that

Comp. App. (AT) Nos. 102 & 182 of 2024 20 of 23 the investigation is yet to reach its logical end. It has been nearly three years

since then and the investigations have not yet been concluded. It is nearly 4

years since the last of the SFIO status note dated 06.10.2020 was placed before

the NCLT in sealed envelope. It is going to be 6 years since the submission of

SFIO Interim Report and more than 5 years since submission of SFIO Final

Report. We are compelled in the given circumstances to take the view that

sufficient time has elapsed in spite of which the investigations are still

underway and yet to reach its logical conclusion. The latitude of time given to

the Respondent to complete the investigations cannot continue endlessly, an

observation which was made by the NCLT itself more than two years back.

Further, prima-facie, there is force in the contention of the Appellant that such

inordinately delayed investigation and consequential freeze of assets has

prejudicially affected the rights and interests of the Appellant causing agony to

a senior citizen, more so, when no adverse findings specifically against the

Appellant has come on record so far.

33. Pertinently, except for stating that majority part of the investigation has

been completed and the process of filing prosecutions has been initiated, no

explanation or grounds have been put forth by the Respondent to explain the

delay. Be that as it may, the Respondent has not placed any further material

on record or any supervening developments following the investigation exercise

which particularises the culpability of the Appellant or implicates the Appellant

in any manner. Neither any chargesheet has been framed against the Appellant

from which the discharge is pending nor has any prosecution been initiated

against the Appellant. From the corpus of available facts, we are also convinced

that the Appellant cannot be blamed to have obstructed or delayed or hampered

Comp. App. (AT) Nos. 102 & 182 of 2024 21 of 23 the investigation in any manner and no such allegation has been raised by the

Respondent. Yet we find that the Appellant continues to remain arrayed as

Respondent No. 16 in CP No.3638 of 2018 and restraint order on the Appellant

with regard to handling of assets by him continues to subsist though no

incriminating evidence is found on record so far.

34. Having heard the Ld. Counsels for both the parties for a considerable

length of time and after taking into consideration all the attendant

circumstances and material on record placed before us, this Bench is of the

considered view that to meet the ends of justice, while the enquiry may

continue, the name of the Appellant from the list of party Respondents in CP

3638 of 2018 could be removed and restraint/freeze of assets also be vacated.

In result, we allow the two appeals in the following manner:

(i) The prayer (b) contained in Company Appeal (AT)(Ins) No. 182 of 2024

seeking removal of restraints imposed on the Appellant regarding dealing with

his movable and immovable properties is allowed and the impugned order dated

10.04.2024 in CA No.233 of 2021 is set aside to that extent.

(ii) The prayers (b) and (c) contained in Company Appeal (AT)(Ins) No. 102 of

2024 seeking removal of the Appellant as Respondent No. 316 in CP No. 3638

of 2018 and for removal of restraints placed on the Appellant regarding dealing

with his movable and immovable properties are allowed and the impugned

order dated 16.02.2024 in IA 176 of 2022 is set aside to that extent.

(iii) In the event it is found on conclusion of the ongoing inquiry, that there

is substantial evidence for charge-sheeting the Appellant, it shall remain open

to the Respondent to frame appropriate charges and launch prosecution

Comp. App. (AT) Nos. 102 & 182 of 2024 22 of 23 against the Appellant including freeze of assets and take other appropriate

steps in accordance with law.

(iv) Parties to bear their own costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

Place: New Delhi/

Date: 30.08.2024

Abdul/Harleen

Comp. App. (AT) Nos. 102 & 182 of 2024 23 of 23