Union Of India. Through Serious Fraud ... vs Duane Park Pvt. Ltd. & Anr

For Respondents : Mr. Sri Harsha Peechara and Mr. Ashish Tiwari, Advocates Mr. Anup Kumar, Advocate for 1st Respondent

WITH Company Appeal (AT) (Insolvency) No. 965 of 2019

IN THE MATTER OF: Union of India, Through Serious Fraud Investigation Office (SFIO) ...Appellant

Versus

Duane Park Pvt. Ltd. & Anr. ...Respondents

Present: For Appellant : Mr. Ashim Sood, CGSC with Ms. Payal Chandna, Advocate

For Respondents : Mr. Vivek Sharma, Mr. A.K. D. Sayare and Mr. S. N. Gautam, Advocates Mr. Rishabh Jain, Advocate for Liquidator 2

ORDER

02.12.2019 These appeals have been preferred by 'Union of India' against

the orders dated 24th July, 2019 and 26th July, 2019 passed by the Adjudicating

Authority, Principal Bench, New Delhi in two different applications filed by the

'Resolution Professional' (now 'Liquidator') in respect of investigation into the

affairs of the 'Luxury Train Pvt. Ltd.' and 'Zynke Exports Pvt. Ltd.' (Corporate

Debtors and its Directors and officers etc.). The Adjudicating Authority directed

'Serious Fraud Investigation Office' (for short, 'the SFIO'), an investigation

agency of the Central Government, for investigation about siphoning of funds in

respect of public money which was noticed by the Adjudicating Authority by its

earlier orders.

2. The only question arises for consideration in these appeals is whether the

Adjudicating Authority has jurisdiction to direct the SFIO to investigate about

the fraud or siphoning of funds, if any, committed by the Company (Corporate

Debtor).

3. Learned counsel for the 'Union of India' submitted that the Adjudicating

Authority has no jurisdiction to direct investigation into the affairs of the

company or its Directors or employees as the power is vested with the Central

Government under Section 212 of the Companies Act, 2013.

4. Mr. Rishabh Jain, learned counsel appearing on behalf of the 'Liquidator'

(who was the Resolution Professional) submitted that after the 'corporate

insolvency resolution process' of both the companies including the Directors etc.

had not disclosed all the details and had not delivered the assets of the

'Corporate Debtor(s)' and, therefore, they are punishable under Section 70 of the

'I&B Code'.

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 3

5. Mr. Anup Kumar, learned counsel appearing on behalf of 'Financial

Creditors', is a Pro-forma party, but heard him on the question of law. Section

70 relates to punishment for misconduct in course of the 'corporate insolvency

resolution process' and attracts punishment punishable with imprisonment for

a term which shall not be less than three years but which may extend to five

years, with or without fine which reads as follows:

"70. Punishment for misconduct in course of corporate insolvency resolution process.─

(1) On or after the insolvency commencement date,

where an officer of the corporate debtor--

(a) does not disclose to the resolution

professional all the details of property of the

corporate debtor, and details of transactions

thereof, or any such other information as the

resolution professional may require; or

(b) does not deliver to the resolution

professional all or part of the property of the

corporate debtor in his control or custody and

which he is required to deliver; or

(c) does not deliver to the resolution

professional all books and papers in his control

or custody belonging to the corporate debtor and

which he is required to deliver; or

(d) fails to inform the resolution professional

the information in his knowledge that a debt has

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 4

been falsely proved by any person during the

corporate insolvency resolution process; or

(e) prevents the production of any book or

paper affecting or relating to the property or

affairs of the corporate debtor; or

(f) accounts for any part of the property of the

corporate debtor by fictitious losses or expenses,

or if he has so attempted at any meeting of the

creditors of the corporate debtor within the

twelve months immediately preceding the

insolvency commencement date, he shall be

punishable with imprisonment for a term which

shall not be less than three years, but which may

extend to five years, or with fine, which shall not

be less than one lakh rupees, but may extend to

one crore rupees, or with both:

Provided that nothing in this section shall render

a person liable to any punishment under this

section if he proves that he had no intent to do so

in relation to the state of affairs of the corporate

debtor.

(2) If an insolvency professional deliberately

contravenes the provisions of this Part the shall

be punishable with imprisonment for a term

which 20 Company Appeal (AT) (Insolvency) Nos.

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 5

574 & 592 of 2019 may extend to six months, or

with fine which shall not be less than one lakh

rupees, but may extend to five lakhs rupees, or

with both."

6. Similar issue fell for consideration before this Appellate Tribunal in

'Company Appeal (AT) (Insolvency) No. 574/2019 - "Mr. Lagadapati Ramesh

Vs. Mrs. Ramanathan Bhuvaneshwari' wherein this Appellate Tribunal by

its judgment dated 20th September, 2019 observed and held as follows:

"27. The 'offences and penalties' as prescribed and

dealt with in Chapter VII and appropriate order

of punishment can be passed only by way of trial

of offences by a Special Court in terms of Section

236 of the 'I&B Code'. However, no such Court

can take cognizance of any offence punishable

under the Act, save on a complaint made by the

'Insolvency and Bankruptcy Board of India'

(IBBI) or the Central Government or any person

authorised by the Central Government in this

behalf. This will be apparent from the relevant

provisions of Section 236 as quoted below:

"236. Trial of offences by Special

Court.─ (1) Notwithstanding anything in

the Code of Criminal Procedure, 1973,

offences under this Code shall be tried by

the Special Court established under

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 6 Chapter XXVIII of the Companies Act,

2013.

(2) No Court shall take cognizance of any

offence punishable under this Act, save on

a complaint made by the Board or the

Central Government or any person

authorised by the Central Government in

this behalf.

(3) The provisions of the Code of Criminal

Procedure, 1973 shall apply to the

proceedings before a Special Court and for

the purposes of the said provisions, the

Special Court shall be deemed to be a

Court of Session and the person

conducting a prosecution before a Special

Court shall be deemed to be a Public

Prosecutor.

(4) Notwithstanding anything contained in

the Code of Criminal Procedure, 1973, in

case of a complaint under sub-section (2),

the presence of the person authorised by

the Central Government or the Board

before the Court trying the offences shall

not be necessary unless the Court requires

his personal attendance at the trial."

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 7

28. Normally, the 'IBBI' or the 'Central Government'

are not party to a 'Corporate Insolvency

Resolution Process'. Even if the matter is referred

to 'IBBI', it cannot file straightaway a compliant

before the Special Court without any

investigation and only if a prima facie case is

made out. Therefore, the question arises as to

how in such cases the matter can be referred to

by the 'Adjudicating Authority' to the 'IBBI' or the

'Central Government' for trial of offences by

Special Court under Section 236 of the 'I&B

Code'.

29. In terms of sub-section (1) of Section 60, the

'National Company Law Tribunal' is the

'Adjudicating Authority' for the purpose of 'I&B

Code'. It is having concurrent jurisdiction as the

'National Company Law Tribunal' under the

Companies Act, as also as the Adjudicating

Authority under the 'I&B Code'.

30. Section 212 of the Companies Act, 2013 though

relates to 'investigation into the affairs of

company by Serious Fraud Investigation Office'

and such investigation can be made only if the

Central Government is of the opinion that it is

necessary to investigate into the affairs of a

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 8

company by the 'Serious Fraud Investigation

Office', as detailed below:

"212. Investigation into affairs of Company

by Serious Fraud Investigation Office.-- (1)

Without prejudice to the provisions of section

210, where the Central Government is of the

opinion, that it is necessary to investigate into the

affairs of a company by the Serious Fraud

Investigation Office--

(a) on receipt of a report of the Registrar or

inspector under section 208;

(b) on intimation of a special resolution passed by

a company that its affairs are required to be

investigated;

(c) in the public interest; or

(d) on request from any Department of the Central

Government or a State Government,

the Central Government may, by order, assign

the investigation into the affairs of the said

company to the Serious Fraud Investigation

Office and its Director, may designate such

number of inspectors, as he may consider

necessary for the purpose of such investigation.

(2) Where any case has been assigned by the

Central Government to the Serious Fraud

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 9

Investigation Office for investigation under this

Act, no other investigating agency of Central

Government or any State Government shall

proceed with investigation in such case in respect

of any offence under this Act and in case any

such investigation has already been initiated, it

shall not be proceeded further with and the

concerned agency shall transfer the relevant

documents and records in respect of such

offences under this Act to Serious Fraud

Investigation Office.

(3) Where the investigation into the affairs of a

company has been assigned by the Central

Government to Serious Fraud Investigation

Office, it shall conduct the investigation in the

manner and follow the procedure provided in this

Chapter; and submit its report to the Central

Government within such period as may be

specified in the order.

(4) The Director, Serious Fraud Investigation

Office shall cause the affairs of the company to

be investigated by an Investigating Officer who

shall have the power of the inspector under

section 217.

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 10

(5) The company and its officers and employees,

who are or have been in employment of the

company shall be responsible to provide all

information, explanation, documents and

assistance to the Investigating Officer as he may

require for conduct of the investigation.

(6) Notwithstanding anything contained in the

Code of Criminal Procedure, 1973 (2 of 1974),

[offence covered under section 447] of this Act

shall be cognizable and no person accused of any

offence under those sections shall be released on

bail or on his own bond unless--

(i) the Public Prosecutor has been given an

opportunity to oppose the application for such

release; and

(ii) where the Public Prosecutor opposes the

application, the court is satisfied that there are

reasonable grounds for believing that he is not

guilty of such offence and that he is not likely to

commit any offence while on bail:

Provided that a person, who, is under the age of

sixteen years or is a woman or is sick or infirm,

may be released on bail, if the Special Court so

directs:

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 11

Provided further that the Special Court shall not

take cognizance of any offence referred to this

subsection except upon a complaint in writing

made by--

(i) the Director, Serious Fraud Investigation

Office; or

(ii) (ii) any officer of the Central Government

authorised, by a general or special order in

writing in this behalf by that Government.

(7) The limitation on granting of bail specified in

subsection (6) is in addition to the limitations

under the Code of Criminal Procedure, 1973 (2 of

1974) or any other law for the time being in force

on granting of bail.

(8) If the Director, Additional Director or Assistant

Director of Serious Fraud Investigation Office

authorised in this behalf by the Central

Government by general or special order, has on

the basis of material in his possession reason to

believe (the reason for such belief to be recorded

in writing) that any person has been guilty of any

offence punishable under sections referred to in

sub-section (6), he may arrest such person and

shall, as soon as may be, inform him of the

grounds for such arrest.

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 12

(9) The Director, Additional Director or Assistant

Director of Serious Fraud Investigation Office

shall, immediately after arrest of such person

under subsection (8), forward a copy of the order,

along with the material in his possession,

referred to in that sub-section, to the Serious

Fraud Investigation Office in a sealed envelope,

in such manner as may be prescribed and the

Serious Fraud Investigation Office shall keep

such order and material for such period as may

be prescribed.

(10) Every person arrested under sub-section (8)

shall within twenty-four hours, be taken to a

Judicial Magistrate or a Metropolitan Magistrate,

as the case may be, having jurisdiction: Provided

that the period of twenty-four hours shall exclude

the time necessary for the journey from the place

of arrest to the Magistrate's court.

(11) The Central Government if so directs, the

Serious Fraud Investigation Office shall submit

an interim report to the Central Government.

(12) On completion of the investigation, the

Serious Fraud Investigation Office shall submit

the investigation report to the Central

Government.

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 13

(13) Notwithstanding anything contained in this

Act or in any other law for the time being in force,

a copy of the investigation report may be

obtained by any person concerned by making an

application in this regard to the court.

(14) On receipt of the investigation report, the

Central Government may, after examination of

the report (and after taking such legal advice, as

it may think fit), direct the Serious Fraud

Investigation Office to initiate prosecution

against the company and its officers or

employees, who are or have been in employment

of the company or any other person directly or

indirectly connected with the affairs of the

company.

(15) Notwithstanding anything contained in this

Act or in any other law for the time being in force,

the investigation report filed with the Special

Court for framing of charges shall be deemed to

be a report filed by a police officer under section

173 of the Code of Criminal Procedure, 1973 (2 of

1974).

(16) Notwithstanding anything contained in this

Act, any investigation or other action taken or

initiated by Serious Fraud Investigation Office

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 14

under the provisions of the Companies Act, 1956

(1 of 1956) shall continue to be proceeded with

under that Act as if this Act had not been passed.

(17) (a) In case Serious Fraud Investigation

Office has been investigating any

offence under this Act, any other

investigating agency, State

Government, police authority,

income-tax authorities having any

information or documents in respect

of such offence shall provide all such

information or documents available

with it to the Serious Fraud

Investigation Office;

(b) The Serious Fraud Investigation

Office shall share any information or

documents available with it, with

any investigating agency, State

Government, police authority or

income-tax authorities, which may

be relevant or useful for such

investigating agency, State

Government, police authority or

income-tax authorities in respect of

any offence or matter being

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 15

investigated or examined by it under

any other law."

31. From bare perusal of Section 212 of the

Companies Act, 2013, it will be evident that such

investigation into affairs of company can be

made only on receipt of a report of the Registrar

or Inspector under Section 208 of the Companies

Act, 2013 or on intimation of a special resolution

passed by a company that its affairs are required

to be investigated; or in the public interest; or on

request from any Department of the Central

Government or a State Government.

32. Section 212 does not empower the National

Company Law Tribunal or the Adjudicating

Authority to refer the matter to the Central

Government for investigation by the 'Serious

Fraud Investigation Office' even if it notices the

affairs of the Company of defrauding the

creditors and others.

33. However, investigation into affairs of company at

the instance of the Tribunal has been prescribed

under Section 213 and reads as follows:

"213. Investigation into company's

affairs in other cases.-- The Tribunal

may,--

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 16

(a) on an application made by--

(i) not less than one hundred members or

members holding not less than one-tenth of

the total voting power, in the case of a

company having a share capital; or

(ii) not less than one-fifth of the persons on

the company's register of members, in the

case of a company having no share capital,

and supported by such evidence as may

be necessary for the purpose of showing

that the applicants have good reasons for

seeking an order for conducting an

investigation into the affairs of the

company; or

(b) on an application made to it by any

other person or otherwise, if it is satisfied

that there are circumstances suggesting

that--

(i) the business of the company is being

conducted with intent to defraud its

creditors, members or any other person or

otherwise for a fraudulent or unlawful

purpose, or in a manner oppressive to any

of its members or that the company was

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 17

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 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

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 18

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."

34. In terms of clause (b) of Section 213, on an

application made to it by any other person

('Resolution Professional') or otherwise (suo

motu), if the National Company Law Tribunal is

satisfied that there are circumstances suggesting

that (i) the business of the company is being

conducted with intent to defraud its creditors,

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 19

members or any other person or otherwise for a

fraudulent or unlawful purpose, or in a manner

oppressive to any of its members or that the

company was formed for any fraudulent or

unlawful purpose as alleged by the 'Resolution

Professional' in the present case and or by; (ii)

persons concerned in the formation of the

company or the management of its affairs have

in connection therewith been guilty of fraud,

misfeasance or other misconduct towards the

company or towards any of its members etc.,

(which is also the allegation made by the

'Resolution Professional'), in such case, the

Tribunal after giving a "reasonable opportunity"

of being heard to the parties concerned, that the

affairs of the company ought to be investigated

by an 'Inspector' or 'Inspectors' appointed by the

Central Government and where such an order is

passed, in such case, the Central Government is

bound to 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.

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 20

35. 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.

36. For punishment of fraud in a manner as

prescribed in Section 447 of the Companies Act,

2013, the matter is required to be tried by a

Special Court as established under Section 435

which requires speedy trial for offences under

the Companies Act, 2013. The same Court i.e.

Special Court established under Section 435 is

the Court empowered under Section 236 of the

'I&B Code' for trial of such offence under the 'I&B

Code' also.

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 21

37. In view of the aforesaid position of law, we hold

that the Tribunal/ Adjudicating Authority, on

receipt of application/complaint of alleged

violation of the aforesaid provisions and on such

consideration and being satisfied that there are

circumstances suggesting that defraud etc. has

been committed, may refer the matter to the

Central Government for investigation by an

Inspector or Inspectors as may be appointed by

the Central Government. On such investigation, if

the investigating authority reports that a person

has committed any offence punishable under

Section 213 read with Section 447 of the

Companies Act, 2013 or Sections 68, 69, 70, 71,

72 and 73 of the 'I&B Code', in such case, the

Central Government is competent to refer the

matter to the Special Court itself or may ask the

Insolvency and Bankruptcy Board of India or

may authorise any person in terms of sub-section

(2) of Section 236 of the 'I&B Code' to file

complaint.

38. The National Company Law Tribunal is the

Adjudicating Authority under Part-II of the 'I&B

Code' in terms of sub-section (1) of Section 60,

which reads as follows:

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 22

"60. Adjudicating Authority for corporate

persons.─ (1) The Adjudicating Authority, in

relation to insolvency resolution and liquidation

for corporate persons including corporate debtors

and personal guarantors thereof shall be the

National Company Law Tribunal having

territorial jurisdiction over the place where the

registered office of the corporate person is

located......."

39. The Civil Procedure Code is not applicable for any

proceeding before the Tribunal and in terms of

Section 424, the Tribunal is guided by principle

of natural justice and subject to other provisions

under the Companies Act, 2013 or the 'I&B Code'

or any Rule made thereunder. The Tribunal and

the Adjudicating Authority have also been

empowered to regulate their own procedure.

40. In view of the aforesaid position of law also, the

procedure laid down under Section 213 of the

Companies Act, 2013 can be exercised by the

Tribunal/ Adjudicating Authority, as held above.

41. Further, after the investigation by the Inspector,

if case is made out and the Central Government

feels that the matter also requires investigation

by the 'Serious Fraud Investigation Office' under

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 23 Section 212 of the Companies Act, 2013, it is

open to the Central Government to decide

whether in such case the matter may be referred

to the 'Serious Fraud Investigation Office' or not.

This will depend on the gravity of charges as

may be found during the investigation by the

Inspector.

42. In view of the aforesaid position of law, we are of

the view that the Adjudicating Authority was not

competent to straight away direct any

investigation to be conducted by the 'Serious

Fraud Investigation Office'. However, the

Adjudicating Authority (Tribunal) being

competent to pass order under Section 213 of the

Companies Act, 2013, it was always open to the

Adjudicating Authority/Tribunal to give a notice

with regard to the aforesaid charges to the

Promoters and others, including the Appellants

herein and after following the procedure as laid

down in Section 213, if prima facie case was

made out, it could refer the matter to the Central

Government for investigation by the Inspector or

Inspectors and on such investigation, if any,

actionable material is made out and if the Central

Government feels that the matter requires

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 24

investigation through the 'Serious Fraud

Investigation', it can proceed in accordance with

the provisions as discussed above. Impugned

order shows parties have been heard on the

charges claimed by the 'Resolution Professional'.

43. We, accordingly, modify the impugned order

dated 16th April, 2019 and refer the matter to the

Central Government for investigation through

any Inspector or Inspectors."

7. As both the matters are covered by this Appellate Tribunal's decision in

'Mr. Lagadapati Ramesh' (Supra), we modify the impugned orders dated 24th

July, 2019 and 26th July, 2019 passed in relation to the 'Luxury Train Pvt. Ltd.'

and 'Zynke Exports Pvt. Ltd.' (Corporate Debtors) and refer the matter to the

Central Government for investigation through 'Inspector' or 'Inspectors' to find

out whether one or other promoter or officer or employee or any other person

related to the company or companies in question have violated the provisions of

Section 70 of the 'I&B Code'. The matter is referred to the Secretary, Ministry of

Corporate Affairs to get the matter investigated by 'Inspector' or 'Inspectors'

following the procedure in terms of Section 213 of the Companies Act, 2013 read

with Section 70 of the 'I&B Code' and Section 447 of the Companies Act, 2013

or any other offence punishable under Chapter VII of the 'I&B Code'. The

Appellant being the 'Union of India' represented by the Ministry of Corporate

Affairs will inform the Secretary of the Ministry of Corporate Affairs.

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019 25

Both the appeal(s) stand disposed of with aforesaid observations and

directions. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

[Justice Venugopal M.] Member (Judicial)

/ns/gc

Company Appeal (AT) (Insolvency) Nos. 964 & 965 of 2019