The Registrar Of Companies vs M/S Euro Asia Mercantile Pvt Ltd

[Arising out of order dated 18.12.2019 passed by the National Company Law Tribunal, New Delhi Bench in CP No. 308/271-272/ND/2018]

IN THE MATTER OF: The Registrar of Companies, NCT of Delhi & Haryana, 4th Floor, IFCI Tower, 61, Nehru Place, New Delhi-110019 ...... Appellant. Versus

M/s Euro Asia Mercantile Pvt. Ltd. 3198/15, Gali No. 1, 4th Floor, Sangtrashan, Paharganj, Delhi-110055, India. Through its Chairman Cum Managing Director ....... Respondent.

Present: For Appellant: Mr. Kamal Kant Jha, Senior Panel Counsel, G.O.I. for ROC, Mr. Avinash Singh, Ms. Priyanka, Advocates. For Respondent: Mr. Abhishek Kr. Rao, Mr. Shailesh Suman, Mr. Rishabh Sachdeva, Advocates. Mr. Abhishek Nahta, PCA.

JUDGMENT

(25th January, 2023)

Justice Anant Bijay Singh;

The instant Appeal was heard together with Company Appeal (AT) Nos.

105, 106, 115, 117, 202 and 203 of 2020.

2

2. Company Appeal (AT) No. 116 of 2020, in this Appeal, the Appellant has

challenged the legality of the impugned order dated 18.12.2019 passed by the

National Company Law Tribunal, New Delhi Bench in CP No. 308/271-

272/ND/2018 whereby the winding up petition filed against the Respondent

company was dismissed with following orders:

" Ld. Sr. Counsel for the respondent company has placed on record the decision dated 4th December, 2019 of the Hon'ble NCLAT in a connected matter viz. Registrar of Companies Vs. Apoorva Leasing Finance And Investment Company Ltd. dismissing the appeal filed by the RoC.

The facts of this case are identical to the aforesaid case which was dismissed by this Bench vide order dated 18.01.2019 and is now upheld by the Hon'ble NCLAT.

Since the facts of the present case are identical, there is no reason for this Bench to come to any other conclusion but to dismiss the present case. Accordingly, this petition is also dismissed on both grounds of lack of sanction as well as on merit.

Ld. Sr. Panel Counsel for the RoC has apprised this Bench that the decision of the Hon'ble NCLAT is being impugned before the Hon'ble Apex Court. Needless to say that the RoC shall be entitled to seek restoration of this petition subject to the outcome of the proceedings before the Hon'ble Supreme Court."

3. The facts giving rise to this Appeal are as follows:

i) The Appellant filed a winding up petition being CP No. 308/271-

272/ND/2018 against M/s Euro Asia Mercantile Pvt. Ltd. (Respondent herein)

Company Appeal (AT) No. 116 of 2020 3

before the NCLT, New Delhi on the basis of the SFIO Report dated 31.03.2016

after fulfilling all the legal requirements and with the permissions of the Central

Govt. and prayed for the winding up of the Respondent Company by invoking

the provisions contained in Sections 271 and 272 of the Companies Act, 2013.

The Ministry of Corporate Affairs, Govt. of India had ordered investigation into

the affairs M/s NKS Holdings and its 10 others group companies by SFIO. During

the investigation by SFIO, it was found that there were 49 companies including

the Respondent Company which were being controlled by S.K. Jain and Virendra

Jain (referred as 'Jain Brothers' in SFIO Report) and they were involved in money

laundering activities by subscribing to the share capital of many beneficiaries

during 2009-10.

ii) Further case is that a joint petition bearing CP No. 127/2012 had been

filed in the Hon'ble High Court of Delhi on 29.02.2012 under Sections 391/394

of the Companies Act, 1956 for a scheme of amalgamation of NKS Holdings

Private Limited, a private company and Shri Niwas Leasing & Finance Limited

(SNLFL), a public listed company listed with the Delhi Stock Exchange.

iii) The Registrar of Companies (RoC), Delhi objected to the scheme of

amalgamation inter alia on the grounds:-

a. That NKS, the transferor company had received subscription to its share

of face value of Rs. 10/- per share at a premium of Rs. 90/- per share from

3 companies and against the total subscription of Rs. 1028 crore, one crore

shares were allotted to 3 companies on 26.03.2011, just five days before

the end of financial year;

Company Appeal (AT) No. 116 of 2020 4

b. That the entire share subscription received by NKS was further invested

immediately in the following companies-

LIPL Rs. 287.19 crore

MDPL Rs. 366.41 crore

USPL Rs. 336.70 crore

c. NKS had not done any significant activity barring the share capital

infusion and consequent investment. NKS does not have any fixed assets

as per the balance sheet for the period ending on 31.03.2011 and has

recorded a loss to the tune of Rs. 8.41 lakhs but still commanding huge

share premium.

d. There appears to be circular flow of money to the tune of Rs. 1000 crore

each amongst the following set of companies:-

• Sital Holdings Private Limited (earlier known as Quality Cyber Tech

Private Limited) (SHPL).

• Avil Financial Services Limited (AFSL)

• Carewell Exim Private Limited (CEPL)

• Solomon Holdings Private Limited (SOHPL)

• Legend Infoways Private Limited (LIPL)

• Microland Developers Private Limited (MDPL)

• Utsav Securities Private Limited (USPL)

• Aquarius Fincap & Credits Private Limited (AFCPL)

• Shalini Holdings Limited (SHOL)

Company Appeal (AT) No. 116 of 2020 5

e. Identities of the persons who are behind the whole trail of

investments/web of cross investments in various companies could not be

found out.

f. All the companies and persons involved appear to be working in concert to

create share capital, share application money, share premium and

reserves and surplus in these companies just by creating accounting

entries and circular transactions. Accounting entries thus created, are

sought to be wrapped/adjusted by way of scheme of amalgamation.

g. The allotment of large number of shares on a hefty premium without any

justifiable business seems to be deliberate attempt to avoid payment of

fees to the govt. exchequer under schedule X on increase in paid up share

capital and authorized share capital.

h. The transferee company is a listed company and out of the total 720

shareholders, 83% are individuals and the remaining 17% are body

corporates. The scheme of amalgamation would result in drastic fall in

individual shareholding and adversely affect the vital public interest.

iv) The Ministry of Corporate Affairs, Govt. of India vide order F. No.

04/181/2013-CL. II (NR) dated 28.10.2013 in exercise of its powers under

Section 235 of the Companies Act, 1956, ordered an investigation into the affairs

of the NKS Holding Private Limited and its 10 others related companies by

Serious Fraud Investigation Office (SFIO), based on the recommendation of the

Registrar of Companies, NCT of Delhi and Haryana under Section 234(6) of the

Companies Act, 1956.

Company Appeal (AT) No. 116 of 2020 6

v) On the basis of the order of MCA and technical security/RoC report under

Section 234(6), the following issues were identified for detailed investigation

while looking into the affairs of the companies under investigations:-

a. To ascertain the nature of business of the companies under

investigation and their modus operandi;

b. To examine the nature of the web of transactions between a set of

companies resulting in creation of credits in bank account and use of

such credits to subscribes the share capital, reserve and surplus and

consequent investment worth Rs. 1000 crore in each of these

companies.

c. To analyze the scheme of amalgamation by NKS and SNLFL and

examine the scheme is prejudicial in the interest of its member or the

public interest.

vi) The SFIO started investigation with the collection of reports from the RoC.

The relevant documents such as MOA, AOA, Form 2, Form 20B, Form 32,

Annual returns, Form 23 AC, Form 23 ACA maintained in MCA 21 portal,

pertaining to SNLFL and NKS and other 9 companies under investigation were

downloaded and analyzed. The SFIO team visited the registered office of the most

of the companies and collected the documents. During investigation into the

affairs of the companies, SFIO team learnt that RBI had conducted inspection in

some of the Company under Investigation (CUI) and observed that most of these

companies including the Respondent company were carrying on Non-bank

Financial Institution (NBFI) kind of activities without obtaining valid Certificate

Company Appeal (AT) No. 116 of 2020 7

of Registration. SFIO also learnt that the Income Tax Department had conducted

search and seizure operations at the business premises of some of the companies

under investigation including the residential premises of S.K. Jain & Virendra

Jain (Jain Brothers). Numerous incriminating documents were seized by the ITD

and assessment proceedings have since been completed on the basis of these

documents and post search investigations. ITD has recorded findings that Jain

Brothers had been functioning as accommodation entry operators with/through

49 companies/entities under their control. The Investigation revealed that Jain

Brothers were the 'Directing mind and will' behind the functioning of all 49

companies including the Respondent herein. The observation made during the

investigation are summarized as under to substantiate the above statement:-

a) The primary records in the form of daily cash books and mediator ledgers

for the period from January 2005 to August 2010 seized by the ITD, have

been validated by the SFIO team through the bank statements of the

concerned companies. The meticulous record keeping reveals that cash

book were maintained by Jain brothers in a unified manner for all the

entities under their control. The opening/closing balances shown in the

cash books reflect joint opening/closing balance for the entire set of

entities. The unified record keeping system has also established the nature

of business conducted by Jain Brothers, which could be carried out only

with the combined efforts made thorough all the entities.

b) The consolidated account keeping revealed the fact that this particular

business cannot be conducted by separate entity independently but

Company Appeal (AT) No. 116 of 2020 8

requires the simultaneous assistance of a multiple entities working in

unison, to launder money through the process of placement of funds,

layering of transactions and the final integration of laundered money into

the banking channel camouflaged as legitimate transactions.

c) Cash/funds brought in by the mediators on behalf of the beneficiaries,

details of entries given to various entities through the mediators, running

accounts of the mediators the separate ledgers in their names, clearly

indicate the role played by the professionals as mediators. The real nature

of entries given.

d) The Investigating team examined one of the cases of money laundering to

find out how the Jain Brothers gave affect to the whole transaction.

Accordingly, the case of M/s. Jagat Project Limited was taken as the lead

and representative case to examine the modus operandi on the Jain

Brothers which had running account of Sh. Rajesh Aggarwal in the cash

of Jain Brothers along with the ledger account in his name pertaining to

Jagat Projects, reflects regular inflow of cash before entries of share

subscription made by USPL, SHL and SOHPL.

e) Record of calculation of commission on the basis of entries of share

subscription and receipt of the same by Jain Brothers, in the cash book

and ledger accounts maintained by them.

f) Reverse money trail preceding subscription of shares in Jagat Projects Ltd.

through banking channel by USPL, SHL and SOHPL clearly showed that

Company Appeal (AT) No. 116 of 2020 9

the three stages of money laundering: placement of cash, layering of

transactions and integration into the bank accounts of the beneficiary.

g) Money trail showed that cash was initially deposited with six entities Ram

Trading, Bee Dee Enterprises and four entities controlled by Jain Brothers:

Tirupati Fabrics, Erode Clothing Empire, Roshan Lal Lalit Kumar & Co

and Chhagan Lal Mukesh Kumar & Co. Subsquently funds were

transferred to Tulika Securities Pvt. Ltd. (TSPL) by cheque, which was

further transferred to SHL, USPL and SOHPL. From these three entities

controlled by Jain Brothers funds were transferred to Jagat Projects Ltd.

as share subscription.

h) Documents pertaining to the subscription of shares in Jagat Projects by

entities controlled by Jain Brothers were found from the residence of Sh.

Satisw Pawa, director, Jagat Projects Ltd. during search by the ITD.

i) Call records in the custody of ITD and reported in the assessment order of

Jian Brothers and Jagat Projects Ltd. show regular conversation between

Rajesh Aggarwal & S.K. Jain, Ravinder Goel & Rajesh Aggarwal and Sant

Lal Aggarwal & Rajesh Aggarwal, though these persons have denied to

have been in touch with each other.

j) Admission made by Rajesh Aggarwal during search at his residence by the

ITD on 18.01.2011 regarding role played by him in mediating transactions

between Jagat Projects Ltd. and Jain Brothers at the behest of Ravinder

Goel.

Company Appeal (AT) No. 116 of 2020 10

k) Within a short span of time, the share allotted to SHL, USPL & Sohpl were

bought back by relatives and associates of Directors of Jagat Projects Ltd.

at heavily discounted price, completing the full cycle of regaining control

over the company from outside entities.

l) Though the modus operandi is explained with these specific cases as per

the specific leads received form the income tax proceedings, the same are

also true for all other beneficiaries and mediators, the transaction details

of which are recorded in the primary records seized by the ITD.

vii) The Modus-Operandi of M/s NKS Holdings Limited have been detailed in

the investigation report of the SFIO from Para No. 4.1.20 to 4.1.30 explaining

how the Jain Brothers have been rotating the money through their shell

companies and were actively involved in money laundering. All the 49 companies

including the Respondent company were utilized for rotating money through

book entries without having any purposeful business. The contents of the

Modus-Operandi explained in the investigation report with regard to investment

made in the Jagat Projects Pvt. Ltd. are not repeated here for the sake on brevity.

The statement of Shri Surendra Kumar Jain recorded on 17.04.2014 during

investigation reveals that he has accepted the utilization of all the 49 companies

for rotation of money by providing accommodation entries to various parties. The

said statement clearly shows Shri Jain was mastermind behind all the

transaction carried out among all the 49 shell companies giving effect to his

object laundering of unaccounted cash to various business through placement

of funds, layering of transactions though many entities and then integration of

Company Appeal (AT) No. 116 of 2020 11

the same back into the business of the beneficiaries by way of subscriptions to

shares at huge premium.

viii) After investigation of the NKS Holdings Private Limited and other group

companies, SFIO arrived at the conclusion that 49 shell companies of Jain

Brothers including the Respondent company were involved in providing

accommodation entries to various beneficiaries and recommended for winding

up the said companies to prevent any further money laundering activities

committed by such companies and submitted its Report dated 31.03.2016. The

Ministry of Corporate Affairs obtained the opinion of the Ministry of Law &

Justice on the winding up of 49 shell companies. The Ministry of Law Justice

had opined that 49 shell companies controlled by Jain Brothers were involved in

providing accommodation entries to various beneficiary companies and it was

agreed that the administrative Ministry may file the petition for winding up of

shell companies before the NCLT.

ix) Based on these other averments, the Appellant preferred petition being CP

No. 308/271-272/ND/2018 before the NCLT with following reliefs:-

a. Issue/pass necessary directions/orders for winding up of M/s Euro Asia

Mercantile Pvt. Ltd. in the public interest.

b. Appoint Liquidator for taking over the assets of the Respondent company.

c. Issue directions to the directors of the Respondent Companies to file

statement of affairs showing the assets and liabilities with the Liquidator

appointed by the Hon'ble Tribunal.

Company Appeal (AT) No. 116 of 2020 12

d. Direct the respondents to maintain status quo in respect of the properties

of the company and the respondent company be prohibited from dealing

with the funds of the company except with the prior permission of this

Hon'ble Tribunal.

e. Restrain the respondent company from dealing and transacting in any

manner, whatsoever with the movable and/or immovable assets of the

company and its Bank Accounts.

After hearing the parties, the Tribunal dismissed the aforesaid winding up

petition and passed orders (supra). Hence this Appeal.

4. The Ld. Counsel for the Appellant during the course of argument relied on

the grounds mentioned in the memo of Appeal and also written submissions filed

in Company Appeal (AT) No. 105 of 2020 which has been adopted in this Appeal

and submitted that the impugned order dated 18.12.2019 passed by the

Tribunal is illegal, unreasonable and against the well settled principles of law.

The Tribunal has also failed to appreciate that a company which has a high

premium in its books of accounts brought in by the Jain Brothers which still

existed and carried forward is one of the traits of a shell company. The

Respondent company is having a very dark past and its involvement in money

laundering activity is above board. A bare perusal of the balance sheet of the

Respondent company reveals that during the period 2008-09, 2009-10, 2010-

11, the Respondent company was not having sufficient income to impress upon

the general public to purchase its shares at a high premium. A group of

companies controlled by Jain Brothers namely Shri S.K. Jain and Shri Virendra

Company Appeal (AT) No. 116 of 2020 13

Jain in connivance with one another hatched a criminal conspiracy and started

purchasing the shares of beneficiary companies at a high premium to enable

them to convert their black money into legitimate money for taking the

commission giving accommodation entries.

5. It is further submitted that the Respondent Company is a body corporate

and it never dies with the change of the management. In the present case, it

appears that the management of the Respondent company got changed in the

year 2015-16 but the revenue and the surplus amount which reflects in the

balance sheet of company is outcome of the fraud and illegal activities. The SFIO

was appointed for investigation of some of the companies of Jain Brothers who

are mastermind of the all the organized crime of money laundering activities. In

the year 2012, an amalgamation petition was filed in the High Court of Delhi at

New Delhi and the objection of the Registrar of Companies was called for. The

Registrar of Companies submitted its objection and the involvement of those

companies in the money laundering activities came into the light. Resultantly,

SFIO was appointed for conducting the investigation. During the course of

investigation of certain companies, it revealed that the Respondent company was

also one of those companies which were being controlled by Jain Brothers for

committing the organized crime of money laundering. The SFIO submitted its

report on 31.03.2016 and gave its recommendation for initiating winding up

petition against all those 49 companies which were found involved in the crime.

6. It is further submitted that the letter dated 29.08.2017 is the letter of

sanction to the Registrar of Companies and it was issued after due discussion,

Company Appeal (AT) No. 116 of 2020 14

deliberation and application of minds. However, the letter has been addressed to

the Director, SFIO and a copy thereof has been sent to the petitioner but the

perusal of the letter dated 29.08.2017 reveals that the purpose of addressing the

Director, SFIO was only to request him to assist the ROC to file the winding up

petition be deputing the concerned IO who had conducted the investigation.

Further, there is no any prescribed format for granting sanction in a particular

manner. The word sanction means official permission. In the present case,

petitioner has not filed a winding up petition against the Respondent company

without the permission of the Central Govt. The letter dated 29.08.2017 which

is, in fact, a sanction letter has been issue dafter considering the notices and

replies from the Respondent company. Since there is nothing in the reply of the

Respondent except the request for the copy of the SFIO report, therefore, it was

not considered necessary to give personal hearing to the Respondent company.

7. It is further submitted that the winding up petition was dismissed without

examining and going into the details to know as to how Shri S.K. Jain entered

into the company and transferred the accommodation entries to the current

management. It is also an erroneous decision that Shri Surendra Jain was a

director for a short period of time. It is submitted that, to control a company, a

person need not be its director but it can be controlled as a shareholder holding

shares through corporate entities. As has been the modus operandi of Jain

brothers, 49 group companies including the Respondent company were being

controlled by Jain brothers. Presently as shown above, Jain brothers are

indirectly holding influence in the company. Further, the Tribunal failed to take

Company Appeal (AT) No. 116 of 2020 15

a holistic view of the facts presented before it regarding 5the money laundering

activity carried out by the group companies promoted by Jain brothers and its

adverse impact on the exchequer as well as on the economy. This order of the

Tribunal will embolden the accommodation entry operators and purchasers of

such accommodation entries like the present management in carrying out such

activities in further also. Based on above submissions the impugned order is fit

to be set aside and the Appeal be allowed.

8. The Ld. Counsel for the Respondent during the course of argument and in

his reply affidavit along with written submissions submitted that the Tribunal

vide order dated 18.12.2019 dismissed the petition on both grounds lack of

sanction as well as on merit. The Tribunal held that facts of this case are

identical to the case which was dismissed by this Bench vide order dated

18.01.2019 in the case of "Registrar of Companies Vs. Apoorva Leasing

Finance & Investment Company Limited" and is now upheld by this Appellate

Tribunal comprising of Hon'ble three Member Bench in Company Appeal (AT)

No. 88 of 2019 vide order dated 04.12.2019 which read hereunder:

"15. This sanction order does not contain what are the allegations against the Respondent No.1 company and to substantiate the allegations what documents were placed before him. It is also not mentioned that before according sanction the company has been given reasonable opportunity of making representations. It is also not mentioned that the sanctioning authority prima facie satisfied with the allegations against the Respondent No.1 company. In this regard it is useful to cite the judgement of Punjab & Haryana High Court in

Company Appeal (AT) No. 116 of 2020 16

the case of ROC Vs Suraj Bachat Yojna Pvt Ltd and Others 1973 (43) Comp Case 343. Though this case was under the old Act, 1956 but in substance the provisions of the new Act, 2013 are same.

"5.xxxxx The legislature enacted a safeguard for the companies not to be harassed by frivolous or doubtful-of- success petitions for its winding-up by the Registrar in Section 439(6) of the Act by enjoining on the Central Government not to accord its sanction to the Registrar u/s 439(5) unless an opportunity is afforded to the company of making representations, if any. The delegate of the Central Government while according sanction, has a solemn duty to perform of informing himself about the true position of the company in the light of the explanations made by it. The explanations have to be considered with a judicial mind and outlook and are not to be discarded off-hand unless considered to be flimsy, fallacious or frivolous. It is not a mere formality to receive the explanations from the company and dismiss them as unsatisfactory without getting the doubts cleared. Xxxxx"

16. It is apparent that without giving reasonable opportunity of representation to Respondent No.1 the sanction has been granted that too without applying the mind thus we find no ground to interfere in the order passed by the NCLT. The appeal is dismissed. No order as to cost."

9. It is further submitted that the aforesaid decision of the Hon'ble NCLAT

was challenged before the Hon'ble Supreme Court in "Civil Appeal vide Diary

No. 14952 of 2020 (Union of India Vs. Apoorva Leasing Finance and

Company Appeal (AT) No. 116 of 2020 17

Investment Co Ltd. and Another)" wherein the Hon'ble Supreme Court vide

order dated 29.01.2021 passed the following orders:

"1. The appeal under Section 423 of the Companies Act 2013 is filed with a delay of 166 days.

2. Under the provisions of Section 423, this Court is empowered to condone a delay (beyond the original period of limitation of 60 days) only to the extent of a further period of 60 days. Hence, since the appeal has been filed beyond the maximum period that can be condoned under the proviso to Section 423, the appeal cannot be entertained and is accordingly dismissed on the ground of limitation.

3. However, since we have not entered upon the merits of the controversy, it only needs to be clarified that the order of the NCLAT, which had come to the conclusion that there was a violation of the principles of natural justice in adhering to the provisions of Section 272(4) of the Companies Act 2013, will not come in the way of the appellant taking recourse to the remedies available in law after following due process.

4. Pending applications, if any, stand disposed of."

10. It is further submitted that in view of the fact that the Hon'ble three

Member Bench of this Appellate Tribunal have dismissed the Appeal i.e.

Company Appeal (AT) No. 88 of 2019 and the case of the Respondent is fully

covered by this Judgment which have attained finality as the Civil Appeal has

also been dismissed by the Hon'ble Supreme Court, therefore, there is no merit

in the Appeal, the instant Appeal may be dismissed.

Company Appeal (AT) No. 116 of 2020 18

11. After hearing the parties and going through the pleadings made on behalf

of the parties and also the Judgment passed by Hon'ble three Member Bench of

this Tribunal in the case of "Registrar of Companies Vs. Apoorva Leasing

Finance & Investment Company Limited [Company Appeal (AT) No. 88 of

2019] dated 04.12.2019" which has attained finality as the Civil Appeal has

also been dismissed by the Hon'ble Supreme Court in "Civil Appeal Diary No.

14952 of 2020 (Union of India Vs. Apoorva Leasing Finance and Investment

Co Ltd. and Another)", we find that facts of the instant Appeal are same and

identical to the case which was dismissed by this Appellate Tribunal vide order

dated 04.12.2019 in the case of "Registrar of Companies Vs. Apoorva Leasing

Finance & Investment Company Limited and Another". Therefore, we are of

the view that there is no merit in the Appeal, the instant Appeal is hereby

dismissed.

12. Registry to upload the Judgment on the website of this Appellate Tribunal

and send the copy of this Judgment to the National Company Law Tribunal, New

Delhi Bench, forthwith.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical)

New Delhi 25th January, 2023 R. Nath.

Company Appeal (AT) No. 116 of 2020