Sanket Bipin Shah vs Union Of India, Ministry Of Corporate ...

(Arising out of Order dated 2nd April, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in MA 180/2018, 182/2018, 183/2018, 184/2014, 217/2018, 218/2018 and 219/2018 In C.P. No. 277/241-242/NCLT/MB/MAH/2018)

IN THE MATTER OF:

Union of India, Ministry of Corporate Affairs ...Appellant

Vs

Gitanjali Gems Ltd. & Ors. ....Respondents

Present: For Appellant: Mr. Sandeep Sethi, ASGI assisted by Mr. Shivam Goel, Advocate Mr. Sanjay Shorey, JD(L), MCA, Mr. Rakesh Tiwari, JD, RD(WR), and Mr. Meghav Gupta, CP, MCA. For Respondents: Mr. Arpan Behl and Mr. Priyank Mangal, Advocates for R-1 & 2. Mr. Arunabh Chowdhary, Mr. Abhay Jadeja, Mr. K. Dorjee and Mr. Vaibhav Tomer, Advocates for R-3. Mr. Ashish Prasad and Mr. Mehfooz Nazki, Advocates for R-5, 6 & 7. Mr. Raghav Gupta, Advocate for Respondent No. 8.

With Company Appeal (AT) No. 119 of 2018

(Arising out of Order dated 23rd February, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 277/2018)

IN THE MATTER OF:

Union of India, Ministry of Corporate Affairs ...Appellant

Vs

Gitanjali Gems Ltd. & Ors. ....Respondents

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 2

Present: For Appellant: Mr. Sandeep Sethi, ASGI assisted by Mr. Shivam Goel, Advocate Mr. Sanjay Shorey, JD(L), MCA, Mr. Rakesh Tiwari, JD, RD(WR), and Mr. Meghav Gupta, CP, MCA. For Respondents: Mr. Arpan Behl and Mr. Priyank Mangal, Advocates for R-35 & R-38. Mr. Upinder Singh and Mr. Ramanjit Singh, Advocate for R-42. Mr. Arunubh Chowdhary, Mr. Abhay Jadeja and Mr. Vaibhav Tomer, Advocates for R-43 Mr. Dheeraj Nair, Mr. Mohit Bakshi and Mr. Kumar Kislay, Advocates for R-44, 51 & 53. Ms. Charu Sharma, Advocate for R-64. Mr. Vijay Aggarwal and Mr. Akhil Agarwal, Advocates for R-27, 33, 36, 48, 50, 57, 60, 64, 66 & 67.

With

Company Appeal (AT) No. 124 of 2018

(Arising out of Order dated 23rd February, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 277/2018)

IN THE MATTER OF:

Suresh Kumar Bhutani ...Appellant

Vs

Union of India, Ministry of Corporate Affairs ...Respondent

Present: For Appellant: Mr. Sumesh Dhawan and Ms. Tannya Baranwal, Advocates.

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 3

With

Company Appeal (AT) No. 125 of 2018

(Arising out of Order dated 23rd February, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 277/2018)

IN THE MATTER OF:

Paresh Pravibhai Rathod ...Appellant

Vs

Union of India, Ministry of Corporate Affairs ...Respondent

Present: For Appellant: Mr. Mudir Jain, Advocate

With

Company Appeal (AT) No. 126 of 2018

(Arising out of Order dated 23rd February, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 277/2018)

IN THE MATTER OF:

Haresh V. Rajlal Shah ...Appellant

Vs

Union of India, Ministry of Corporate Affairs ...Respondent

Present: For Appellant: Mr. Vijay Aggarwal, Advocate.

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 4

With

Company Appeal (AT) No. 127 of 2018

(Arising out of Order dated 23rd February, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 277/2018)

IN THE MATTER OF:

Ketan Chandrakant Solanki ...Appellant

Vs

Union of India, Ministry of Corporate Affairs ...Respondent

Present: For Appellant: Mr. Vijay Aggarwal, Advocate.

With

Company Appeal (AT) No. 128 of 2018

(Arising out of Order dated 23rd February, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 277/2018)

IN THE MATTER OF:

Manish Lalit Dani ...Appellant

Vs

Union of India, Ministry of Corporate Affairs ...Respondent

Present: For Appellant: Mr. Vijay Aggarwal, Advocate.

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 5

With

Company Appeal (AT) No. 129 of 2018

(Arising out of Order dated 23rd February, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 277/2018)

IN THE MATTER OF:

Sanket Bipin Shah ...Appellant

Vs

Union of India, Ministry of Corporate Affairs ...Respondent

Present: For Appellant: Mr. Vijay Aggarwal, Advocate.

With

Company Appeal (AT) No. 130 of 2018 (Arising out of Order dated 23rd February, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 277/2018)

IN THE MATTER OF:

Himanshu Pravinchandra Trivedi ...Appellant

Vs

Union of India, Ministry of Corporate Affairs ...Respondent

Present: For Appellant: Mr. Ashul Agarwal, Advocate.

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 6

With

Company Appeal (AT) No. 131 of 2018

(Arising out of Order dated 23rd February, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 277/2018)

IN THE MATTER OF:

Jyoti B Vora ...Appellant

Vs

Union of India, Ministry of Corporate Affairs ...Respondent

Present: For Appellant: Ms. Tannya Mehta, Advocate.

With

Company Appeal (AT) No. 132 of 2018

(Arising out of Order dated 23rd February, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 277/2018)

IN THE MATTER OF:

Sudhir Ambalal Mehta ...Appellant

Vs

Union of India, Ministry of Corporate Affairs ...Respondent

Present: For Appellant: Mr. Abhimanyu Bhandari, Advocate.

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 7

With

Company Appeal (AT) No. 133 of 2018 (Arising out of Order dated 23rd February, 2018 passed by the National Company Law Tribunal, Mumbai Bench, Mumbai in C.P. No. 277/2018)

IN THE MATTER OF:

Chandrakant Kanu Karkare ...Appellant

Vs

Union of India, Ministry of Corporate Affairs ...Respondent

Present: For Appellant: Mr. Sumesh Dhawan and Ms. Tannya Baranwal, Advocates

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

In all these appeals as common question of law is involved and

common orders are under challenge, they were heard together and disposed

of by this common judgment.

2. The Union of India, Ministry of Corporate Affairs, filed an application

under Sections 221, 222, 241, 242, 246 read with Section 339 of the

Companies Act, 2013, being Company Petition No. 277 of 2018 against

'Geetanjali Gems Ltd. & Ors.', including the Companies and partnership

firms and individual Directors and all employees on the ground that the

affairs of the 1st Respondent Company ('Geetanjali Gems Ltd.'), its group

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 8

companies and LLPs have been/being conducted prejudicial to the public

interest and on the ground that the Union of India, being custodian of the

subjects of the country, sought the interim reliefs as follows:

a) That the Petitioner be permitted to serve the Respondents

through post, publication in newspapers, email, WhatsApp

messaging, wherever required, in order to ensure due service of

notice to all Respondents, present in India or overseas.

b) That the Respondents be directed to disclose their moveable and

immovable properties/assets, including bank accounts, owned

by them in India or anywhere in the world.

c) That the Respondents be restrained from mortgaging or creating

charge or lien or third-party interest or in any way alienating,

the movable or immovable properties owned by them and

further, direct attachment of the all said properties and hand

them over to the Petitioner. Petitioner be allowed to execute

such orders through the Indian Missions, stationed overseas,

for the immoveable and moveable properties in existence

abroad.

d) That the Bombay Stock Exchange (BSE), National Stock

Exchange (NSE) and Securities and Exchange Board of India

(SEBI) be directed to restrain the trading of securities of

Respondent No.1.

e) That the Respondent Nos. 2, 3, 7, 8, 9, 22 and 23 be restrained

from mortgaging or creating charge or lien or third-party

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 9

interest or in any way alienating the securities issued by the

said Respondents.

f) That Central Depository Services Ltd. (CDSL) and National

Securities Depository Ltd. (NSDL) be directed that securities

owned/held by the respondents in any company be freezed and

details thereof be shared with the Petitioner.

g) That the Central Board of Direct Taxes (CBDT) and the Central

Board of Excise and Customs (CBEC) may be directed to

disclose information about all assets of the Respondents, in

their knowledge or possession, for the purpose of attachment

and restraint on alienation of such assets.

h) That the Reserve Bank of India (RBI) and the Indian Banks

Association (IBA) be directed to facilitate disclosure of the

details of bank accounts, lockers owned by the Respondents

and attach the same on behalf of the Petitioner.

i) That the State Governments and Administrators or Union

Territories be directed to identify and disclose all details of

immoveable properties owned/held by the Respondents.

j) That the Petitioner be permitted to take possession, after due

inventory, of all moveable and immoveable properties of the

Respondents that have been attached as per the orders of this

Hon'ble Tribunal, though Official Liquidators.

k) The Petitioner seeks the leave of the Hon'ble Tribunal to enlarge

the scope of the reliefs sought and prayers made in this petition

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 10

by filing any other documents or applications in view of the

extraordinary nature of the circumstances pertaining to the

present petition.

l) That the Petitioner may be permitted to file copies of the interim

and/or final investigation reports of the Serious Fraud

Investigation Office (SFIO), as and when the same are submitted

by the concerned inspectors to the Central Government, in

order to supplement/enlarge/amend/modify the present

petition, based on the findings of the interim/final report,

including addition to the array of Respondents, as per the NCLT

Rules.

3. The cause of action for filing this case by the Union of India was that

the Union of India has identified a group of companies, LLPs, Trusts and

individuals that prima facie appeared to be involved in financial fraud of

approximately Rs. 11,400 crores that has been perpetuated on Punjab

National Bank (PNB) by one Mr. Nirav Modi (Respondent No.11 before

Tribunal), Mr. Nishal Modi (Respondent No. 12), Mrs. Ami Nirav Modi

(Respondent No.13) and Mr. Mehul Chinubhai Choksi (Respondent No. 14)

through various companies and LLPs directly or indirectly maintained by

them. It is shown as most of the companies are primarily engaged in the

business of diamond trading, but whereas by seeing the Petition it appears

that these Respondents and their group companies in the name of diamond

business, according to the Union of India, committed mega fraud by

conniving with some of the Officers of PNB routing money of a public sector

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 11

Bank through issuance of letter of undertakings to their benefit without

making any entries in the trade finance module of the Banks, i.e. Core

Banking Service (CBS) system to avoid detection. The Union of India

submits that the funds received under Buyer's credit from overseas banks

were credited to Nostro Account of the Bank and subsequently utilized as

per direction given by the conniving officer to repay imports/earlier Buyer's

credit used by the firms. For issuance of fraudulent LCs, the conniving

officer issued LCs by entering a small amount in trade module of Core

Banking Service (CBS) system and generated the reference number and

SWIFT messages were sent for the amount. Subsequently, without making

any change in Trade Finance Module of CBS system, the conniving officer

sent modified SWIFT message for the same reference to the beneficiary bank

for enhanced amount unauthorizedly. By sending modified SWIFT message

with the reference given for smaller amount, this enhancement would not

come to the notice of CBS system. By doing so, according to the Union of

India, the Respondents committed fraud of Rs. 11,400 crores against PNB.

4. The case of the Appellant- Union of India was that since the

Respondent Companies and their directors having caused wrongful loss of

rupees above Rs. 11,400 crores by fraudulent means and there being FIRs

against many of the Respondents detailing how fraud has been committed,

at least to realize the monies to the extent possible, it is essential to obtain

restraint orders against the assets lying with various companies, LLPs,

Trusts and individuals, in the backdrop of the factual scenario, it has

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 12

become imperative upon this Bench to pass restraint orders before going

into the technicalities and the procedural aspects in respect to the Company

Petition, because the fact of the matter is, fraud has taken place, money of

the bank has gone out. It was pleaded that if the Tribunal waits for details of

each and every transaction, the liquid assets and other assets lying with

these entities will be frittered away. Once that happened, the whole exercise

of passing orders will become redundant.

5. The Petition were based on the events, which were noticed by the

Tribunal, as quoted below: -

"on the events surrounding certain First Information

Reports (FIR) filed by the Punjab National Bank (PNB), a

public sector nationalized bank. FIR No.

RCBSM2018E0001 dated 31/01//2018 filed with CBI,

BS&FC, Mumbai, inter alia, states that Mr. Nirav Modi

(Respondent No. 11), Mr. Nishal Modi (Respondent No.

12), Mrs. Ami Nirav Modi (Respondent No. 13), Mr.

Mehul Chinubhai Choksi (Respondent No. 14), all

partners of M/s Diamond R US (Respondent No. 6), M/s

Solar Exports (Respondent No.4) and M/s Stellar

Diamonds (Respondent No.5) in conspiracy with Mr.

Gokulnath Shetty (Respondent No.15), Deputy Manager

(retd), PNB, Mr. Manoj Hanumant Kharat (Respondent

No. 16), SWO PNB and other unknown persons

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 13

committed the offence of cheating against PNB to cause

a wrongful loss of Rs. 280.70 Crores to PNB and

pecuniary advantage to M/s Diamond R US

(Respondent No.6), M/s Solar Exports (Respondent No.

4) and M/s Stellar Diamonds (Respondent- 5). Further

FIR No. RCO2(E) /2018/CBI/BS&FC/Mum, dated

15/02/2018, filed with CBI, BS&FC, Mumbai, inter alia,

states that the accused bank officials Mr. Gokulnath

Shetty (Respondent No.15), Deputy Manager (retd.),

PNB, Mr. Manoj Hanumant Kharat (Respondent No. 16),

SWO PNB in connivance with the accused companies

represented by its Directors and unknown others during

2017-18 defrauded PNB to the tune of an aggregate

amount of USD 754.92 Million (equivalent to Rs.

4886.72 Crores @ Rs. 64.00 per USD) in the matter of

issuance of unauthorised and fraudulent Letters of

Undertaking in favour of Foreign Branches of different

Indian-based Banks and purported Foreign Branches of

different Indian-based Banks and purported Foreign

Letters of Credits (FLCs) in favour of foreign suppliers of

the accused companies. The FIR dated 15/02/2018

states that the accused companies. The FIR dated

15/02/2018 states that the accused include the

companies belonging to the Gitanjali Group promoted by

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 14

Mr. Mehul Choksi (Respondent No.14). A copy of the

FIRs dated 31/01/2018 and 15/02/2018 as shown in

Annexure P-2 (collectively) filed by the petitioner."

6. The Union of India had given description of various companies to

which money has gone through modus operandi described above, and from

these companies, those monies being shown as gone to their Partners and

Trusts maintained by Mr. Nirav Modi. It was pleaded that the Appellant-

Union of India deserved orders to be passed under Section 221 of the

Companies Act, 2013 so as not to let the assets of any of these companies,

other entities mentioned in the petition frittered away, including the details

of the Companies, LLPs, Trust, individuals and assets showing in the record

of PNB, which are as follows:

"Nirav Modi Group (Firestar)

Companies prima facie beneficiary of fraud:

i) Nirav Modi Group/ Associates/ Subsidiaries/ firms having exposure with PNB:

Name Directors/ Partners/ Trustees/ Beneficiaries Firestar International Mr. Nirav Deepak Modi (Promoter) Ltd. Mr. Haresh Vrajlal Shah, Professional Mr. Suresh Chandra Senapaty, Professional Mr. Gautam Mukkavilli, Professional Mr. Sanjay Rishi, Professional Mrs. Angelina Nguyen, Professional Firestar Diamond Mr. Nirav Deepak Modi (Promoter)

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 15

International P Ltd Mr. Haresh Vrajlal Shah, Professional Mr. Suresh Chandra Senapaty, Professional Firestar Diamond FZE Mr. Nirav Deepak Modi (Ultimate (Dealing with DIFC Beneficiary Owner) Dubai) Mr. Bankim Mehta, Professional Director Firestar Diamond Ltd. Mr. Bankim Mehta, Professional (Dealing with BO : Hong Director Kong)

ii) Nirav Modi Group/ Associates/ Subsidiaries/firms where suspected fraud has taken place:

Name Partners M/s Stellar Diamonds Nirav Family Trust* Nirav Modi Family Trust* M/s Solar Exports Nirav Family Trust* Nirav Modi Family Trust* M/s Diamond R US Sh Nirav Deepak Modi M/s NDM Enterprises Pvt. Ltd. # M/s. ANM Enterprises Pvt. Ltd. #

*Details of Trustees are as under:

Nirav Family Trust Nirav Modi Family Trust Settler Purvi Mayank Mehta Deepak Keshavlal Modi Trustees - Nirav Deepak - Nirav Deepak Modi Modi - Ami Nirav Modi - Ami Nirav Modi - Neeshal - Neeshal - Deepak Modi - Deepak Modi Beneficiaries - Deepak Keshavlal - Purvi Mayank Modi Mehta - Ami Nirav Modi - Ami Nirav Modi - Neeshal Deepak - Neeshal Deepak Modi Modi - Nehal Deepak - Nehal Deepak Modi Modi

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 16

- Rohin Nirav Modi - Rohin Nirav Modi

- Ananya Nirav - Ananya Nirav Modi Modi

- Apasha Nirav - Apasha Nirav Modi Modi

# Directors (as per ROC search dated 08.12.17) are as under:

M/s NDM Enterprises Pvt. M/s ANM Enterprises Pvt. Ltd. Ltd.

- Hemant Dahyalal Bhatt - Ramesh Madhavdas Assar

- Ramesh Madhavdas Assar - Ketan Chandrakant Solanki

iii) Other Group/Associates/Subsidiaries/firms, where PNB has no exposure A. Companies/ LLP in which Nirav Modi is Director

Name of Company/ Firm Directors/ Partners Radashir Jewelry Mr. Nirav Deepak Modi Company Private Ltd. Mr. HemantDahyalal Bhat Jewelry Solutions Mr. Nirav Deepak Modi International Private Mr. HemantDahyalal Bhat Ltd. (Amalgamated) Firestar Diamond Pvt. Mr. Nirav Deepak Modi Ltd. Mr. HemantDahyalal Bhat Neeshal Enterprises LLP Mr. Nirav Deepak Modi Mr. HemantDahyalal Bhat Paragon Jewellery LLP Mr. Nirav Deepak Modi Mr. HemantDahyalal Bhat Paragon Merchandising Mr. Nirav Deepak Modi LLP Mr. HemantDahyalal Bhat Panchajanya Diamonds Mr. Nirav Deepak Modi LLp Mr. HemantDahyalal Bhat

B. Corporate guarantors in the M/s Firestar International Ltd. and also enterprises owned or significantly influenced/ controlled by key management personnel or their relative:

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 17

Name of Company/ Firm Directors/ Partners Firestone Trading Pvt. Mr. HemantDahyalal Bhat Ltd. Mr. PareshPravinbhaiRathod Neeshal Trading (P) Ltd. Mr. HemantDahyalal Bhat Mr. Ramesh Madhavdas Assar Firestar Diamond Mr. Nirav Deepak Modi (Promoter) International P Ltd. Mr. HareshVrajlal Shah, Professional Mr. Suresh Chandra Senapty, Professional Bently Properties P. Ltd. Mr. Ramesh Madhavdas Assar Mr. KetanChandrakant Solanki MAk Business Mr. Ramesh Madhavdas Assar Enterprises Pvt. Ltd. Mr. Manish Lalit Dani Mr. PareshPravinbhaiRathod Paundra Enterprises Mr. Ramesh Madhavdas Assar Private Limited Mr. Manish Lalit Dani (Formerly Knoen as Mr. PareshPravinbhaiRathod Aimeka Developers Pvt.

Ltd.) ANM Enterprises P. Ltd. Mr. Ramesh Madhavdas Assar Mr. KetanChandrakant Solanki NDM Enterprises P. Ltd. Hemant Dahyalal Bhat Ramesh Madhavdas Assar

Details of guarantors in the account Firestar Diamond International P Ltd. (FDIPL) Name of Guarantor Relationship with borrower Nirav Modi Promoter Director Firestar International Group Company Ltd.

Details of guarantors in the account Firestar Diamond FZE, Dubai:

Name of Guarantor Relation-ship with borrower M/s. Firestar Holdings Holding Co. Ltd. (formerly Firestone Holding Ltd) M/s. Firestar Holding Co. International Pvt. Ltd. Mr. Nirav Modi Group Prmoter

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 18

Firestar Diamond Ltd, Honkong:

Name of Guarantor Relationship with borrower Nirav Modi Promoter Director Firestar Diamond Group Company International Pvt. Ltd.

C. Related parties of Firestar International ltd. Subsidiaries companies - Firestar Group Inc, USA - Firestar Holding Limited, Hongkong Step down Subsidiaries Company: - - Firestar Group Inc, USA - Firestar Holding Limited, Hong Kong - Firestar Diamond Inc., USA

- Firestar Diamond International Inc., USA

- Firestar Jewelry Limited, Hong Kong

- Firestar Diamond BVBA, Belgium

- Firestar Diamond LLC, Armenia

- FS Diamond Ply Ltd, South Africa

- Fantasy INC, USA

- Firestar Jewelry INC, USA

- Nirav Modi Jewels BVBA, Belgium

- Nirav Modi Limited, Hongkong

- Nirav Modi Limited, London

- Nirav Modi Limited, Russia

- Nirav Modi Limited, Macau

- Nirav Modi Limited, France

- Firestar Diamond PTE Limited, Singapore

- Firestar Diamond and Jewelry FZCO, UAE

- Firestar Diamond Ltd, Russia

- Synergies Corporation

- Camelot Enterprises Private Limited

- Rohin Trust

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 19

- A Jaffe INC., USA

- Nipur BVBA

- Islington International Holdings PTE Ltd.

Some of the properties movable including immovable properties details available with us:-

Firestar international Ltd :-

A. Movable:

First pari-passu charge by way of hypothecation of stocks lying at factory premises as well as outside on job-order basis, Receivables and other current assets (present and future of the Company) and receivable with other consortium banks.

B. Immovable: (Mortgaged to the Consortium on pari -

passu basis)

S Security Description Area in Sq M Ownership N or Sq Ft 1 1110, 11th floor, 630 Sq. ft Firestar Prasad Chambers, Carpet Area international Opera House, Mumbai Pvt. Ltd. 04 2 1111, 11th Floor, 715 Sq. Ft Firestar Prasad Chambers, Carpet Area international Opera House, Mumbai Pvt. Ltd. 04 3 No.8 & 15 Nagindas 1966 sq. ft. Firestar Mansion CHSL, Carpet Area international J.S.S. Rd., Opera Pvt. Ltd. House, Mumbai 04 4 No. 16, 4th Flr, 846 Sq/ Ft. Firestar Nagindas Mansion Carpet Area international CHSL, Pvt. Ltd. J.S.S. Rd., Opera House, Mumbai 04 5 Flat No.4, 2nd Flr, 2590 Sq. Ft. Mr. Nirav Grosvenor House, Carpet Area Modi

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 20

Peddar Rd., Mumbai-

26 6 Unit No.518, 520, 522, 2861 Sq. Ft Firestar 524, 526, 528 at 5th Carpet Area international Floor, Belgium Towers, Pvt. Ltd. Surat 7 6th floor, 238, Block-III, 15645 Sq. Ft. Firestar Mafatlal Centre, international Nariman Point, Pvt. Ltd. Mumbai 400 021 8. Unit No.2001 & 2002, Unit No.2001 : MAK 20th Floor, Tower 15,071 Sq. Ft. Business 'B' Peninsula Business Unit No.2002: Enterprises Park, 15,387 Sq. Ft. Pvt. Ltd. C.S. No.243 Of Lower Parel Attached with Division, Car Parking Ganpatrao kadam Unit No.2001: Marg, Lower Parel, 14 Nos. Mumbai - 400 013 Unit No.2002: 15 Nos. 9 HCL House Documented Paundra Basement + Ground + Plot Enterprises 4 upper floors of the Area : 30,127 Private Building along with Sq. Ft. Limited Land bearing C.S. No. (Formerly 360 of Vile Parle Buildup Area of known as Division, Village Marol, Building : Aimeka Opp. Sugun Hospital, 33,400 Sq. Ft. Developers Old Military Road, Pvt. Ltd.). Andheri (East), Mumbai 400 059 10 L&B at Plot No.18, 19, 4000 Sq. mtr. Firestar 20 & 67 survey No.336 Diamond & 395 at Sachin, SEZ, International Surat 11 Plant & Machinery - Firestar FIPL International Pvt. Ltd.

Exclusive Security with the PNB : S Security Description Area in Sq M or Ownership N Sq Ft 1 Office Premises 2058 sq. ft. Firestar

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 21

No.AE4050 on 4th floor International at Bharat Diamond Pvt. Ltd.

Bourse Complex, C-28, G Block, Bandra Kurla Complex, Bandra East, Mumbai-400051 2 Land and building at 1000 sq. m. Firestar Plot No.26 located in land and International SURSEZ, Sachin, dist, 12900 sq. ft. Pvt. Ltd.

Surat-26 building

Firestar diamond International Pvt. Ltd. (FDIPL) :-

A. Movable:

First pari-passu charge by way of hypothecation of stocks lying at factory premises as well as outside on job-order basis, Receivables and other current assets (present and future of the Company) and receivable with other consortium banks.

B. Immovable: (Mortgaged to the Consortium on pari -

passu basis)

Security Description Area in SqM Ownership or Sq Ft Unit No.23, 3 floor, B 15133.7 rd Firestar wing, Tower No.2, Diamond Kohinoor City mall along International with 10 covered car Pvt. Ltd. spaces bearing No.61, (FDIPL) 62, 63, 64, 64A, 65, 65A, 66, 66A and 67 in the lowest basement of Kohinoor City, Opp. Don Bosco School, Kirol Road, Off. LBS Marg, Kurla (W), Mumbai - 70 Unit No.24, 4th floor, B 15133.7 Firestar Wing, Tower No.2, Diamond Kohinoor City mall along International with 10 covered car Pvt. Ltd. spaces bearing No.67A, (FDIPL)

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 22

71, 71A, 72, 73, 74, 75, 76, 77 and 78 in the lowest basement of Kohinoor City, Opp. Don Bosco School, Kirol Road, Off. LBS Marg, Kurla (W), Mumbai-70

Factory/ Works address:

Firestar Diamond International Private Limited

1. Surat - Plot No. 18, 19, 20 & 67, SEZ, Sachin, Surat - 394221

2. Kurla - Unit No.23 & 24, Tower II, Wing B, Kohinoor City, Kirol Road, Off: LBS Marg, Kurla West, Mumbai - 400070.

3. Mumbai Store : ITTS House, Saibaba Road, Kalaghoda, Fort, Mumbai - 400001.

4. Delhi Store : D-33, Varun Marg, Shiniwas Puri, Block D, Defence Colony, New Delhi - 110024.

5. Andheri : Army Navy Press Bldg., Plot No.118, Road 18, MIDC, Andheri East, Mumbai 400093, India.

6. Unit No.26, Ground Floor, Tower No.2, Kohinoor City Mall, Kirol Road, Off : LBS Marg, Kurla West, Mumbai - 400070

Firestar International Limited 1 518-522, 5th floor, Belgium Tower, Opp : Linear Bus Stand, Ring Road, Surat 395003, India

2. G-1-181, SEZ-II, Sitapura Indl. Area, Jaipur - 302022

3. 2nd Floor, Trade Point Building Kamala Mills Compound, Lower Parel (West), Mumbai - 400093.

4. Army Navy Press Building, Plot No.118, Road No.18, MIDC, Andheri (East), Mumbai - 400093.

5. Plot no.26, Road 13, Surat SEZ Sachin, Surat, Gujarat 394230

6. Bharat Diamond Bourse, Tower A (East) - 4050, BKC, Bandra East, Mumbai - 400 051.

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 23

7. Kurla - Unit No.23 & 24, Tower II, Wing B, Kohinoor City, Kirol Road, Off : LBS Marg, Kurla West, Mumbai - 400070.

In addition to above, covered under insurance are listed below:

8. 2nd Floor, Trade Point Building, Kamala Mills Compound, Lower Parel (West), Mumbai - 400013 (bound warehouse).

9. 1110, Prasad Chambers, Opera House, Mumbai - 400004

10. 8,5, & 16, 15-B Nagindas Mansion, 61, JS Road, Opera House, Mumbai 400004.

11. 15/A 4th floor, Bansilal Building, C/o Sangeeta Kala Bhawan, J S S Road, Mumbai - 400004.

12. AE-4042, B Tower, Bharat Diamond Bourse, G Block, Bandra Kurla Complex, Bandra East, Mumbai - 400051.

13. PBW, Part B, Unit No.24, 4th floor, Tower II, Wing B, Kohinoor City Mall, Kirol Road, Opp. LBS Marg (West), Mumbai - 400070 (bound warehouse)."

7. The Tribunal while allowing the Union of India to file additional

affidavit supporting the case mentioned in the Company Petition, passed the

following orders on 23rd February, 2018:

"6. In the list given above, though Trusts and

individuals are not being covered either u/s 221 of the

Companies Act, 2013 or Section 43 of LLP Act, 2008,

since there is a categorical statement from Union of India

that funds were routed to those individuals and Trusts

through the companies mentioned above, to make

investigations meaningful to crack this fraud, restraint

order is very much necessary against the assets lying

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 24

with the individual and Trusts in addition to the

companies and LLPs mentioned above. Since the

Petitioner having said that the funds of the Bank have

been routed through the companies and LLPs to the

Trusts and individuals as well, investigation against

other entities being incidental to the investigation ordered

against the companies and LLPs, the whole exercise of

investigation and passing orders by this Bench will

become futile unless restraint order is passed against

these individuals and Trusts thereof.

8. The Petitioner has candidly said that if notice has

been given to the parties prior to hearing then there is

every possibility of consuming time for effecting service in

view of the exigency involved in this case, the Petitioner

in view of the public interest has sought for ex-parte

orders, for this Bench having noticed that the Petitioner

has established prima facie case for asking ex-parte

orders, this Bench has passed this ex-parte order.

9. In view of the same, this Bench, by invoking

section 221 of the Companies Act, 2013 and section 43 of

LLP Act, 2008, hereby injunct the Respondents and other

companies, LLPs, Trusts and individuals mentioned

above from removal, transfer or disposal of funds, assets

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 25

and properties of the entities and individuals mentioned

above until further orders.

10. As to other reliefs and for appearance of the

Respondents, list this matter for hearing on 26.03.2018

with a direction to the Petitioner to serve notice to all

Respondents within 15 days of this order."

8. The order dated 23rd February, 2018 is under challenge in Company

Appeal (AT) No. 119 of 2018 and other appeals except Company Appeal (AT)

No. 103 of 2018.

9. The appeal preferred by Union of India (Company Appeal (AT) No. 119

of 2018) against order dated 23rd February, 2018 having been filed after

delay of seven days, a petition for condonation of delay has been filed, which

was opposed by the Respondents. However, taking into consideration the

facts that the same order dated 23rd February, 2018 is under challenge in

other analogous appeals and the Union of India has explained the ground

for condonation of delay and being satisfied, we condone the delay of seven

days in preferring Company Appeal (AT) No. 119 of 2018.

10. Some of the contesting Respondents to the Company Petition,

including individuals against whom the interim order was passed on 23rd

February, 2018, preferred different Miscellaneous Applications to vacate the

interim order passed on 23rd February, 2018. Those Miscellaneous

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 26

Applications were taken up by the Tribunal and on hearing the other

common impugned order dated 2nd April, 2018 was passed. By the said

order, interim order of stay passed against following persons, namely-- Mr.

Sujal Shah (Respondent No. 43); Mr. Gopal Krishnan Nair (Respondent No.

44); Mr. Suresh Senapathy (Respondent No. 51); Mr. Gautam Mukkavilli

(Respondent No. 52) and Mr. Sanjay Rishi (Respondent No. 53) were

vacated.

11. The following reason was shown to pass restraint order:

"24. But at the same time, it is the duty of this Court

to see that innocent people are not burdened by this

restraint order therefore as and when any innocent

comes before this Bench saying that he has no

involvement in the fraud spiralling from day to day, this

Bench has to diligently respond to the reliefs sought by

such people. Of course, it is true that this Bench cannot

decide who is innocent and who is culprit, but to the

extent order passed by this Bench, it should not become

helpless to vacate that order if no material is found

against whom this order is in force. In view of the same,

for there being neither an averment nor any

incriminating material placed against this applicant, this

applicant deserves vacation of the restraint order in

force against him, accordingly this MA is disposed of

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 27

vacating the restraint order dated 23.02.2018 against

this applicant."

12. In so far as the Respondents- Mrs. Nazura Yash Ajaney (Respondent

No. 38) and Mr. Anil Haldipur (Respondent No. 35) are concerned, the order

of restraint passed on 23rd February, 2018 was modified with following

observations:

"41. In a scenario like this, relying on the discussion

made in MA 182/2018, we hereby modify the order

dated 23.2.2018 permitting this Respondent to the

extent of withdrawing ₹ 1,00,000 per month from her

Bank Accounts as to other assets are concerned it need

not be reiterated that she is restrained from removal,

transfer or disposal of funds, assets and properties of

the entities and individuals until further orders.

Accordingly, this application is hereby disposed of.

xxx xxx xxx

45. For this Respondent being suspected to be

involved in this fraud, this Bench is of the view that

modification of order to the extent that is required is be-

fitting relief in the light of the discussion made in other

applications. Henceforth, the restraint order dated

23.02.2018 is hereby modified permitting this applicant

to withdraw ₹ 2,00,000 per month from his Bank

accounts, as to other assets of this Respondent is

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 28

concerned, the order dated 23.2.2018 except to the

extent of exemption given above, will continue as before

until further orders. Accordingly, his application is

hereby disposed of."

13. The Union of India has challenged the order dated 2nd April, 2018 in

Company Appeal (AT) No. 103 of 2018.

14. Learned counsel appearing on behalf of the Union of India submitted

that the Tribunal failed to appreciate that it was dealing with an application

for vacating interim order and was not the final order. Therefore, the

Tribunal was not competent to pass order which is final in nature so far it

relates to Respondents-- Mr. Sujal Shah (Respondent No. 43); Mr. Gopal

Krishnan Nair (Respondent No. 44); Mr. Suresh Senapathy (Respondent No.

51); Mr. Gautam Mukkavilli (Respondent No. 52) and Mr. Sanjay Rishi

(Respondent No. 53).

15. The petition relates to FIR and complaints lodged by the PNB with the

CBI alleging financial fraud by various Companies and Firms forming part of

the 'Nirav Modi Group' & 'Choksi Group'; the value of the fraud exceeds Rs.

14,000 Crores. The promoters of the two Groups have already absconded

from the Country and have not joined investigation either before the CBI or

the Enforcement Directorate in proceedings under PMLA.

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 29

16. It appears that the Central Government has already ordered SFIO to

investigate under Section 212 read with Section 216 of the Companies Act,

2013. The promoters of both Groups have not joined investigation before

the SFIO. The PNB has complained to the Department of Company Affairs

that the Respondents are diverting their assets. It is in these circumstances

that injunctive Orders were sought inter alia for restraining Respondents

from diverting, transferring or alienating assets.

17. Learned counsel appearing on behalf of Mr. Gopal Krishna

Karunakaran Nair (Respondent No.44 before the Tribunal) submitted that

the said Respondent was a Director of 'Gili India Pvt. Ltd.' (Respondent No. 2

before the Tribunal) and resigned from the Board of Directors as back as in

the year 2009, now he has no association with the said Company. The

Union of India has falsely stated that the said Respondent was a Key

Managerial Person/Director of 'Gili India Pvt. Ltd.' when the alleged financial

fraud was committed. Since the Respondent had resigned from the Board of

Directors in the year 2009 itself and did not have any association with the

said company, the Respondent has been wrongly arrayed as a Respondent

in the Company Petition. The Tribunal taking into consideration the relevant

fact held that the said Respondent is nowhere connected to Gitanjali Group

Companies and thereby vacated the order of restraint dated 23rd February,

2018 against the said Respondent.

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 30

18. Challenging the maintainability of the Petition filed by the Union of

India and restraint order passed on 23rd February, 2018, learned counsel

appearing on behalf of 4th Respondent submitted that no interim order can

be passed against the Respondent in a petition under Sections 241/242 of

the Companies Act, 2013.

19. According to learned counsel appearing on behalf of 4th Respondent,

Section 241(2) of the Companies Act, 2013 enables Central Government to

file a Petition, only if it is of the opinion that the affairs of the company are

conducted in a manner prejudicial to public interest. In the present case,

the Central Government has miserably failed to demonstrate any material

for it to form an opinion to trigger Section 241 of the Companies Act, 2013.

20. It was further submitted that the Central Government vide its letter

dated 17th February, 2018, directed SFIO to investigate into the affairs of

FDIPL and FIL, among other 114 entities. The investigation is currently

undergoing. As such, as on date there is no basis either for the Central

Government to file an application under Section 241 of the Companies Act,

2013 or for Tribunal to pass orders under Section 242(4), for want of

material to form opinion.

21. Further, according to learned counsel, an Interim Order could be

passed only under Section 242(4) for regulating the conduct of a company's

affairs. Therefore, it is imperative that an interim order is to be restricted

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 31

only to the persons responsible for conducting company's affairs and not

any other individuals, who were not even associated with the Company

during the period of alleged fraud.

22. It was further submitted that the said Section 221 does not vest the

Tribunal with jurisdiction to freeze the personal assets of individuals. Under

Section 221, the assets of the company can be frozen and not of an

individual.

23. It was further submitted that Section 339 of the Companies Act, 2013

is not applicable in the present case as the Central Government has failed to

bring to the notice of the Tribunal any facts constituting knowledge of the

alleged fraud and not given any declaration under Section 339.

24. According to learned counsel for the Respondents, Section 339 fixes

liability of such officers under whose direction a company is accustomed to

act. Therefore, no liability can be fixed upon the Respondent in question as

he ceased to have any association with 'Gilli India Pvt. Ltd.'.

25. It was submitted that once the investigation is initiated by the Central

Government, it was bound to await and rely upon the report of investigation

before proceeding under Sections 241 or 339 as the very purpose of an

investigation is to collect evidence/incriminating material. In the absence of

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 32

such report from SFIO, there is no material to proceed against the

Respondents.

26. It was further submitted that no restraint order can be passed against

the Respondent under the provisions of Chapter XIV of the Companies Act,

2013 and during the investigation by the SFIO. Therefore, simultaneous

proceedings/actions by the Union of India through Ministry of Corporate

Affairs under Sections 241, 213 and 212 of the Companies Act, 2013 are not

maintainable.

27. According to him, the allegation against the Respondents is based

upon conjectures and without any material to substantiate the allegation of

oppression or prejudice to public interest attributable to the Respondent

under Section 241 of the Companies Act, 2013.

28. Almost similar plea has been taken by the other contesting

Respondents, including the Appellants who have challenged the order dated

23rd February, 2018.

29. The questions arise for consideration are as follows:

i. Whether in a petition under Sections 221, 222, 241, 242, 246 &

339 of the Companies Act, 2013, the Tribunal has jurisdiction

to injunct the Respondents and other Companies, LLPs, Trusts

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 33

and individuals' from removal, transfer or disposal of funds,

assets and properties of the entities and individuals until

further orders, as has been ordered on 23rd February, 2018?

and;

ii. Whether the impugned order dated 2nd April, 2018 vacating the

order(s) of restraint dated 23rd February, 2018 in respect of Mr.

Sujal Shah (Respondent No. 43); Mr. Gopal Krishnan Nair

(Respondent No. 44); Mr. Suresh Senapathy (Respondent No.

51); Mr. Gautam Mukkavilli (Respondent No. 52) and Mr.

Sanjay Rishi (Respondent No. 53) on the ground that there is no

material to negate the statement made by the Respondents is

legal or not?

30. Chapter XIV of the Companies Act, 2013 relates to "Inspection,

Inquiry and Investigation".

Section 210 empowers the Central Government to investigate into the

affairs of a Company/ (Companies), if it is of the opinion that such

investigation is necessary for the reasons mentioned therein, including

public interest. For the purpose of the said provision, 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. The SFIO has been established under

Section 211 of the Companies Act, 2013, which has jurisdiction to

investigate into the Company/ (Companies), where the Central Government

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 34

is of the opinion that it is necessary to investigate into the affairs of a

Company by the SFIO for different reasons, including the public interest.

Where any case has been assigned by the Central Government to the SFIO

for investigation under the Act, no other investigating agency of the Central

Government or any State Government can proceed with investigation in

such case in respect of any offence under the Companies Act and other

cases before such agency are required to transfer the relevant documents

and records in respect of such offences under the Companies Act to the

SFIO. Sub-section (8) of Section 211 empowers certain Officers of the SFIO

to arrest any person, if on the basis of material in his possession there is

reason to believe, which is to be recorded in writing, that any person has

been guilty of any offence punishable under sub-section (6) of Section 212 of

the Companies Act, 2013.

31. Investigation into Company's affairs in other cases can also be done

under section 213 on an application made by the eligible members as

mentioned in clause (a) of Section 213 or on an application made by any

other person or otherwise, if it is satisfied that there are circumstances

suggesting that the business of the Company etc. has been conducted with

intent to defraud its creditors, members etc. as mentioned in clause (b) of

Section 213, relevant portion of which reads as follows:

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 35

"Investigation into company's affairs in other

cases.

213. xxx xxx xxx

(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 members 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 reasonably expect, including information relating to

the calculation of the commission payable to a managing

or other director, or the manager, of the company, order,

after giving a reasonable opportunity of being heard to

the parties concerned, that the affairs of the company

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 36

ought to be investigated by an inspector or inspectors

appointed by the Central Government and where such an

order is passed, the Central Government shall appoint

one or more competent persons as inspectors to

investigate into the affairs of the company in respect of

such matters and to report thereupon to it in such manner

as the Central Government may direct:

Provided that if after investigation it is proved that--

(i) the business of the company is being conducted with

intent to defraud its creditors, members or any other

persons or otherwise for a fraudulent or unlawful

purpose, or that the company was formed for any

fraudulent or unlawful purpose; or

(ii) any person concerned in the formation of the

company or the management of its affairs have in

connection therewith been guilty of fraud, then, every

officer of the company who is in default and the person

or persons concerned 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."

32. From the aforesaid provisions, it is clear that the Tribunal on an

application made to it or 'otherwise', if satisfied that there are circumstances

suggesting that the business of the Company is being conducted with intent

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 37

to defraud its creditors, members etc. as mentioned in clause (b) of Section

213, after giving a reasonable opportunity of being heard to the parties,

direct the Central Government to investigate.

33. Section 221 relates to "Freezing of assets of company on inquiry

and investigation", which reads as follows:

"221. Freezing of assets of company on inquiry

and investigation.─ (1) Where it appears to the

Tribunal, on a reference made to it by the Central

Government or in connection with any inquiry or

investigation into the affairs of a company under this

Chapter or on any complaint made by such number of

members as specified under sub-section (1) of section

244 or a creditor having one lakh amount outstanding

against the company or any other person having a

reasonable ground to believe that the removal, transfer

or disposal of funds, assets, properties of the company

is likely to take place in a manner that is prejudicial to

the interests of the company or its shareholders or

creditors or in public interest, it may by order direct that

such transfer, removal or disposal shall not take place

during such period not exceeding three years as may be

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 38

specified in the order or may take place subject to such

conditions and restrictions as the Tribunal may deem fit.

(2) In case of any removal, transfer or disposal of funds,

assets, or properties of the company in contravention of

the order of the Tribunal under sub-section (1), the

company shall be punishable with fine which shall not

be less than one lakh rupees but which may extend to

twenty-five lakh rupees and every officer of the

company who is in default shall be punishable with

imprisonment for a term which may extend to three

years or with fine which shall not be less than fifty

thousand rupees but which may extend to five lakh

rupees, or with both."

34. From the aforesaid provision, it is clear that the Tribunal has power to

direct that the transfer, removal or disposal of funds, assets, or properties of

the company shall not take place during such period not exceeding three

years'. In case of any removal, transfer or disposal of funds, assets, or

properties of the company in contravention of the order of the Tribunal

under sub-section (1) of Section 221, the company is punishable with fine

and imprisonment as prescribed under sub-section (2) of Section 221 of the

Companies Act, 2013.

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 39

35. Section 337 of the Companies Act, 2013 deals with "Penalty for

frauds by officers", which reads as follows:

"Penalty for frauds by officers.

337. If any person, being at the time of the commission

of the alleged offence an officer of a company which is

subsequently ordered to be wound up by the Tribunal.─

(a) has, by false pretences or by means of any other

fraud, induced any person to give credit to the company;

(b) with intent to defraud creditors of the company or

any other person, has made or caused to be made any

gift or transfer of, or charge on, or has caused or

connived at the levying of any execution against,

the property of the company; or

(c) with intent to defraud creditors of the company, has

concealed or removed any part of the property of the

company since the date of any unsatisfied judgment or

order for payment of money obtained against the

company or within two months before that date, he shall

be punishable with imprisonment for a term which shall

not be less than one year but which may extend to three

years and with fine which shall not be less than one

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 40

lakh rupees but which may extend to three lakh

rupees."

36. "Liability for fraudulent conduct of business" is punishable under

Section 339 of the Companies Act, 2013, as quoted below:

"Liability for fraudulent conduct of business.

339. (1) If in the course of the winding up of a

company, it appears that any business of the company

has been carried on with intent to defraud creditors of

the company or any other persons or for any

fraudulent purpose, the Tribunal, on the application of

the Official Liquidator, or the Company Liquidator or

any creditor or contributory of the company, may, if it

thinks it proper so to do, declare that any person, who

is or has been a director, manager, or officer of the

company or any persons who were knowingly parties

to the carrying on of the business in the manner

aforesaid shall be personally responsible, without any

limitation of liability, for all or any of the debts or other

liabilities of the company as the Tribunal may direct:

Provided that on the hearing of an application under

this sub-section, the Official Liquidator or the Company

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 41

Liquidator, as the case may be, may himself give

evidence or call witnesses.

(2) Where the Tribunal makes any such declaration, it

may give such further directions as it thinks proper for

the purpose of giving effect to that declaration and, in

particular,--

(a) make provision for making the liability of any such

person under the declaration a charge on any debt or

obligation due from the company to him, or on any

mortgage or charge or any interest in any mortgage or

charge on any assets of the company held by or vested

in him, or any person on his behalf, or any person

claiming as assignee from or through the person liable

or any person acting on his behalf;

(b) make such further order as may be necessary for

the purpose of enforcing any charge imposed under

this sub-section.

(3) Where any business of a company is carried on

with such intent or for such purpose as is mentioned in

sub-section (1), every person who was knowingly a

party to the carrying on of the business in the manner

aforesaid, shall be liable for action under section 447.

(4) This section shall apply, notwithstanding that the

person concerned may be punishable under any other

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 42

law for the time being in force in respect of the matters

on the ground of which the declaration is to be made.

Explanation.--For the purposes of this section,--

(a) the expression "assignee" includes any

person to whom or in whose favour, by the

directions of the person liable, the debt,

obligation, mortgage or charge was created,

issued or transferred or the interest was

created, but does not include an assignee for

valuable consideration, not including

consideration by way of marriage, given in good

faith and without notice of any of the matters on

the ground of which the declaration is made;

(b) the expression "officer" includes any person

in accordance with whose directions or

instructions the directors of the company have

been accustomed to act."

37. In the present case, the Central Government by letter dated 17th

February, 2018 has directed the SFIO to investigate into the affairs of the

Respondent Company, among other 114 entities. The investigation is

currently undergoing and as such, as on date, being satisfied if so required,

it is always open to the Central Government to file application under

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 43 Sections 241(2) read with Section 242 of the Companies Act, 2013 before the

Tribunal.

38. In the interest of regulating the conduct of the Company's affairs the

interim order cannot be restrictive to any particular or individual person,

including the Company/companies, existing or erstwhile Officers and

employees of the Companies if investigation for alleged fraud is pending.

39. For the purpose of passing interim order the Tribunal cannot fix the

personal liability of delinquent Directors or Managers or Officers or other

employees in absence of any specific evidence. Therefore, during the process

of investigation and pendency of an application under Section 241(2) read

with Section 242 of the Companies Act, 2013 and in view of powers

conferred under Section 221, the Tribunal is not only empowered to pass

appropriate interim order against the Company but also against any person

or individual, including the order to desist.

40. Chapter XVI relates to "Prevention of Oppression and

Mismanagement". An application to the Tribunal for relief in cases of

oppression, etc. can be made by any eligible member(s) of the company

under sub-section (1) of Section 241 of the Companies Act, 2013, who

complains about the oppression and mismanagement as stipulated in clause

(a) & (b) of sub-section (1).

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 44

41. On the other hand, the Central Government, if it is of the opinion that

the affairs of the company are being conducted in a manner prejudicial to

public interest, it may itself apply to the Tribunal under sub-section (2) of

Section 241 for an order under Chapter XVI of the Companies Act, 2013.

42. The power of Tribunal is wide enough as is evident from sub-section

(1) of Section 242 in terms of which 'it may make such order as it thinks fit',

with a view to bringing to an end the matters complained of.

43. Sub-section (2) of Section 242 is inclusive power without prejudice to

the generality of the powers under sub-section (1), which includes regulation

of conduct of affairs of the company in future; the purchase of shares or

interests; restrictions on the transfer or allotment of the shares of the

company; termination, setting aside or modification, of any agreement etc.

44. Sub-section (4) of Section 242 empowers the Tribunal, on the

application of any party to the proceeding to make any interim order which it

thinks fit for regulating the conduct of the company's affairs upon such

terms and conditions as appears to it to be just and equitable.

45. From the aforesaid provisions, it is clear that on an application made

by the Central Government alleging affairs of the Company are being

conducted in a manner prejudicial to public interest, the Tribunal can pass

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 45

any order in terms of Chapter XVI, which includes Section 242 and other

provisions under the said Chapter.

46. Section 246 is part of Chapter XVI, the provisions mentioned therein

will be also covered by sub-section (2) of Section 241. Therefore, in an

application made by the Central Government alleging conduct of the

Company in a manner prejudicial to public interest, the provisions of

Sections 337 to 341 will be also applicable mutatis mutandis to an

application made to the Tribunal under Section 241 or Section 245.

47. We have noticed that Section 337 deals with "Penalty for frauds by

officers" whereas Section 338 relates to "Liability where proper accounts

not kept". On the other hand, Section 339 relates to the "Liability for

fraudulent conduct of business". As per sub-Section (2) of Section 339, if

any business of the company has been carried on with intent as mentioned

in sub-section (1), any person who is or were parties carrying on of the

business are also liable for action under Section 447 of the Companies Act,

2013.

48. Section 340 empowers the Tribunal to assess damages against

delinquent Directors or any other person who has taken part in the

promotion or formation of the company, or any person, who is or has been a

Director, Manager, Company Liquidator or officer of the Company and has

misapplied, or retained, or become liable or accountable for, any money or

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 46

property of the company if found to be guilty of any misfeasance or breach of

trust in relation to the company. The Tribunal, after inquiry into the conduct

of such person(s), Director(s), Manager(s) etc. can order him to repay or

restore the money or property or any part thereof.

49. The liability under Sections 339 and 340 also extend to partners or

directors of firms or other companies in terms of Section 341.

50. Therefore, on an application under sub-section (2) of Section 241, the

Tribunal can pass not only any order under Chapter XVI and if it is read

with Section 246, it will be evident that Sections 339, 340 and 341 being

applicable mutatis mutandis, in relation to an application made to the

Tribunal under Section 241, the Tribunal can pass order in terms of those

extended provisions.

51. This apart under Section 420, the Tribunal is empowered to pass such

orders as it thinks fit after giving the parties to any proceeding before it, a

reasonable opportunity of being heard. The Tribunal has also inherent

powers to make such orders as may be necessary for meeting the ends of

justice or to prevent abuse of the process of the Tribunal under Rule 11

of the NCLT Rules, 2016.

52. Therefore, if sub-section (4) of Section 242 is read with Sections 339 &

340 and Section 221, it is clear that apart from 'freezing of assets of

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 47

company on inquiry and investigation', it is also open to the Tribunal to

freeze the assets of any person, including other companies and individuals,

even during inquiry and investigation of fraud under Section 212 of the

Companies Act, 2013.

53. In so far as the order dated 2nd April, 2018 is concerned, we find that

by the said order the Tribunal, while modified its earlier order dated 23rd

February, 2018, practically exonerated Mr. Sujal Shah (Respondent No. 43);

Mr. Gopal Krishnan Nair (Respondent No. 44); Mr. Suresh Senapathy

(Respondent No. 51); Mr. Gautam Mukkavilli (Respondent No. 52) and Mr.

Sanjay Rishi (Respondent No. 53) by holding that those Respondents had no

complicity in the matter and they had no role to play in the financial fraud in

question.

54. The Tribunal failed to appreciate that it was dealing with the question

of vacating the interim order passed under sub-section (4) of Section 242

read with Sections 221, 241(2), 339 and 340 of the Companies Act, 2013.

While considering the question of modification or vacating the interim order,

it was not open to the Tribunal to pass an order which is final in nature,

amounting to exonerating one or other Respondent particularly, when the

allegation of fraud of this nature is pending investigation by the SFIO.

55. Though it was brought to the notice of the Tribunal that the

Respondent Companies, individuals including existing and erstwhile

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 48

Directors, partners, trustees, beneficiaries and their associates or

subsidiaries and firms had exposure with the PNB and are prima facie found

to be beneficiaries of the fraud, as noticed at paragraph no. 6 of this

Judgment, without waiting for the report of the SFIO it was not open to the

Tribunal to exonerate some of the Respondents from the charges.

56. For the reasons aforesaid, we set aside the impugned order dated 2nd

April, 2018, so far as it relates to Mr. Sujal Shah (Respondent No. 43); Mr.

Gopal Krishnan Nair (Respondent No. 44); Mr. Suresh Senapathy

(Respondent No. 51); Mr. Gautam Mukkavilli (Respondent No. 52) and Mr.

Sanjay Rishi (Respondent No. 53). In so far as Mr. Anil Umesh Haldipur

(Respondent No. 35) and Mrs. Nazura Yash Ajaney (Respondent no. 38) are

concerned, the Tribunal has already held that a prima facie case has been

made out against them but while giving such finding, the Tribunal has

modified the order dated 23rd February, 2018 permitting Mr. Anil Umesh

Haldipur (Respondent No. 35) to withdraw Rs. 2,00,000/- (Rupees Two

Lakhs only) per month and Mrs. Nazura Yash Ajaney (Respondent no. 38) to

withdraw an amount to the extent of Rs. 1,00,000/- (Rupees One Lakh only)

per month from their Bank accounts. Rest part of the order dated 23rd

February, 2018 restraining them and others from removal, transfer or

disposal of funds, assets and properties of the entities and individuals until

further orders is continuing.

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 49

57. As aforesaid persons are entitled to withdraw certain amounts for their

subsistence and of their families, we find no ground to interfere with the

impugned order of modification dated 2nd April, 2018, so far it relates to Mr.

Anil Umesh Haldipur (Respondent No. 35) and Mrs. Nazura Yash Ajaney

(Respondent No. 38).

58. In so far as Mr. Sujal Shah (Respondent No. 43); Mr. Gopal Krishnan

Nair (Respondent No. 44); Mr. Suresh Senapathy (Respondent No. 51); Mr.

Gautam Mukkavilli (Respondent No. 52); Mr. Sanjay Rishi (Respondent No.

53); Mr. Suresh Kumar Bhutani (Appellant in Company Appeal (AT) No. 124

of 2018), Mr. Paresh Pravinbhai Rathod (Appellant in Company Appeal (AT)

No. 125 of 2018), Mr. Haresh V. Rajlal Shah (Appellant in Company Appeal

(AT) No. 126 of 2018), Mr. Ketan Chandrakant Solanki (Appellant in

Company Appeal (AT) No. 127 of 2018), Mr. Manish Lalit Dani (Appellant in

Company Appeal (AT) No. 128 of 2018), Mr. Sanket Bipin Shah (Appellant in

Company Appeal (AT) No. 129 of 2018), Mr. Himanshu Pravinchandra

Trivedi (Appellant in Company Appeal (AT) No. 130 of 2018), Ms. Jyoti B

Vora (Appellant in Company Appeal (AT) No. 131 of 2018), Mr. Sudhir

Ambalal Mehta (Appellant in Company Appeal (AT) No. 132 of 2018) and Mr.

Chandrakant Kanu Karkare (Appellant in Company Appeal (AT) No. 133 of

2018) are concerned, we are of the view that they are also entitled to

withdraw certain amounts for their subsistence and of their families,

therefore, we allow each of the aforesaid Respondents/Appellants to

withdraw a sum of Rs. 1,00,000/- (Rupees One Lakh Only) per month from

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018 50

any of their accounts. Except to the extent above, the restraint order passed

by the Tribunal in regard to removal, transfer or disposal of funds, assets,

moveable and immoveable properties of the entities and individuals as

already ordered on 23rd February, 2018 shall continue until further orders.

59. Company Appeal (AT) Nos. 103 and 119 of 2018 are allowed; the

Company Appeals (AT) Nos. 124 to 133 of 2018 stand disposed of with

observations with directions. However, in the facts and circumstances of the

cases, there shall be no order as to cost.

(Justice Bansi Lal Bhat) (Justice S.J. Mukhopadhaya) Member (Judicial) Chairperson

NEW DELHI 12th July, 2018 AR

Company Appeal (AT) Nos. 103, 119, 124 to 133 of 2018