Company Law Board
Ifci Ltd. vs Usha (India) Ltd. And Ors., Shri Vinay ... on 22 March, 2004
Equivalent citations: [2006]129COMPCAS534(CLB), [2005]63SCL602(CLB)
ORDER
K.C. Ganjwal, Member
1. M/s Industrial Finance Corporation of India (IFCI) Ltd. having Regd. Office at Nehru Place, New Delhi has filed three petitions under Section 237(b) of the Companies Act, 1956 against following companies :-
M/s Usha India Ltd. Sultan Puri (UP) M/s. Koshika Telecom Ltd., New Delhi and M/s. Mlavika Steels Ltd., Sultan Puri (UP) and Ors.
2. The petitions filed in all the three cases are for similar relief praying for to Order investigation by the Central Govt. into the affairs of the respondent companies and their promoter directors, respondent N0.2 and 3 for fraudulently and unlawfully making wrongful gain and having been committed misfeasance thereby causing pecuniary losses to the petitioner. As the petitions are similar in nature with same allegations, I am disposing of all the three petitions by this order.
3. The learned counsel for petitioner submitted that the respondents were granted loans by the petitioner as under;-
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Total lean given by all FIs including IFCI =Rs. 45 billion
IFCI's stake in the above is =Rs. 17 billion
Loans given to Usha(India) Ltd =Rs. 680 million(Sanctioned)
=Rs. 677 million (disbursed)
Loans given to Malvika Steels Ltd =Rs. 6743 million/disbursed)
Loans given to Kashika Telecom Ltd. =Rs. 2225.89 million(sanctioned)
=1823.48 million (disbursed)
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4. The learned counsel for petitioner further submitted that the respondents have siphoned off loan amounts in fraudulent manner through 250 front companies. The investigation under the provisions of Section 237(b) will allow access into and procure relevant documents , records and vouchers from the custody of the respondent companies and their promoter for having committed fraud, forgery, breach of trust, misappropriation, cheating and various other offences under the Indian Penal Code. IFCI has taken proceedings against respondents before Debts Recovery Tribunal and the BIFR has rejected the reference filed before it by the respondents. Huge amount of public monies are involved arc the petitioner has no power or excess, search or seizure into the records of the respondents unless investigation is carried out by the Inspector appointed under Section 237(b) of the Companies Act, 1956. The CBI has already registered FIR against respondents for criminal conspiracy and cheating during the period 1997 to 2000 and the charge sheet has already been filed before Special Judge, CBI, Delhi The learned counsel for petitioner submitted that CBI is investigating and trying the accused persons for criminal conspiracy and cheating as criminal offences. Independent of the CBI and without conflict with the CBI, an investigation under Section 237(b) can be directed in a fit case like the present one. Without investigation under Section 237(b) it is not possible to discover true and correct facts and the modus-operandi adopted by the respondents in cheating the petitioner and siphoning of public funds. The nominee directors of IFCI on respondent companies Board came after 1997-2000 when the siphoning had already been carried out. In any event it is not humanly possible for nominee directors to detect any wrong doing, fraud or siphoning of funds by respondents from the Agenda papers which are reported at the Board Meeting. It is particularly true when the facts and actions are calculatedly hidden from being detected. The specific legislative intent behind Section 237(b), which empowers this Board to recommend investigation needs to be carried forward in an extra ordinary case of siphoning of public money of financial institutions is national interest. The opposition by the respondent to this investigation speaks volumes of their conduct and malafide.
5. The learned counsel for respondent submitted in reply that the petition filed under Section 237 (b) of the Companies Act 1956 is not maintainable as no case has been made out by the petitioner against the respondent The petition is also not maintainable on the sole ground that the respondents are not managing the day to day affairs of the respondent No. l company . The respondent No. 2 namely, Shri Vinay Roy resigned from the post of Chairman on 27.7.2001 and thereafter from the directorship on 25.10.2001. The respondent No. 3 i.e. Shri Anil Roy resigned from the post of director in July, 2001. The management of the company has been taken over by the petitioner and they have appointed following persons of their choice:-
Dr. S. K. Gupta (Chairman) Dr. Bhaskar Dutta, Managing Director:
6. The learned counsel for respondent further submitted that that petitioner had filed a complaint before the Magistrate, New Delhi and the same was quashed by the Delhi High Court vide Order dated 19.4.2004. The petitioner cannot use this Board as a means or tool to create evidence in support of is complaint especially since the same has been quashed. Presently there is no complaint and there is no basis of filing the present petition under Section 237(b). The CBI had already investigated the matter against respondent No. 1-3 and after conducting investigation for about 2 and half years, the charge sheet has been filed before the Special Magistrate, CBI Delhi. It is pertinent to mention that the official of the petitioner have also been implicated in the charge sheet. It is a settled position in law that civil matters cannot be investigated by different agencies and the present petition is liable to be rejected on this score only. It is denied that the petitioner is unable to have access to relevant documents or records as all the documents are in the custody and possession of CBI and this is within the knowledge of the petitioner. The petitioners have nominated its directors on the Board of respondent company who are all along witnessing the functioning of the company. The nominee directors have never made any compliant regarding the alleged fraud or diversion of funds at any point of time. The Board of Directors of the respondent company consists of prominent people from different field and no body ever made any complaint. The allegation in the present petition are an after thought with sole intention to generate evidence in support of the complaint before the learned magistrate which as on date does not exist against the respondent. The petition is not maintainable under Section 237(b) of the Companies Act as the object of an investigation under this Section to discover something, which is not visible to the naked eyes. Where a petition discloses merely facts which are apparent from the balance sheet of the company, an investigation will not be ordered, the prima-facie evidence should exist concerning circumstances which would lead to conclusion that investigation was necessary. The learned counsel relied on the judgment in the case of Delhi Flour Mills Co. Ltd. (1975, 1945), Comp Cases 33(Tel). The court has also to satisfy itself that the petitioner has come to the court bonafide. The learned counsel further relying on the case of Rohtas Industries Ltd. v. S.D. Agarwal (1969) 39 Comp. Cases 781 Supreme Court wherein the Hon'ble Supreme Court has held that the scheme of these sections 235 as well as 237 (b) makes it clear that unless proper grounds exist for investigation of the affairs of a company, such investigation will not be lightly taken which means that there is no prior investigation. However the respondents are already being investigated by CBI. As such the petition, is not maintainable. In the case of Malvika Steels Ltd. the petitioner has concealed material facts. The respondents were made to resign from the Board of Company in a meeting held on 27.7.2001 and the petitioner appointed Chairman and Director of their own choice which has already been stated. In other words, the petitioner is running the company since then. The petitioner had restructured the respondent company financially as well, and a copy of the 13th annual directors report duly signed by Dr. S. K. Gupta, Chairman has already been placed on record. As a result of this the petitioner had taken step to convert 40% of the then existing shareholding into 0.0001% cumulative redeemable preference shares (CRPS) to be redeemed in five equal annual installments from 2016. The petitioner have also converted institutional loans to the extent of Rs. 2800 million into equal shares of Rs. 10/- each. The respondents/promoters wee made to transfer their shareholding 100% in favour of the petitioner. Thus the petitioner not only acquired in majority shareholding approximately 53% also secured Rs. 164 crores, an amount equivalent to the loans granted, by converting into (CRPS). The loans converted into shares would have generated revenue in the coming years. The respondent No. 2 and 3 have no concern with the affairs of the company since their ouster and the petitioner has running the respondent company which tentamounts to asking for investigation into its own affairs..
7. The learned counsel for respondent further submitted that on the request of the petitioner, Debt Recovery Tribunal (DRT) has already appointed a receiver to take possession of the factory premises/assets of Malvika Steel Ltd. and the sale of the same has also been ordered by the DRT but the petitioner has not carried out the orders of DRT to satisfy its loan. It is submitted that the respondent company Usha India Ltd has been referred to the BIFR as having suffered huge losses due to be bad market conditions which are pending with BIFR/AAIFR. The petitioner has concealed material facts from this Board that investigation has been done by the CBI and the matter is before the settlement commissioner and the DRT. As such the present petition is not maintainable and liable to be dismissed.
8. I have gone through the pleadings of both the parties as well as their written submissions. The pleadings are similar in all the three cases and CP No. 53,54 and 55 of 2003 are being disposed of through this common order.
9. The total loan given by the financial institutions is Rs. 45 billion and stake of the petitioner (IFCI) is Rs. 17 billion. The petitioners have stated that respondents. have siphoned of the loan amounts in fraudulent manner though 250 front companies as informed by Income Tax Authorities in March, 2001. The petitioner have also taken proceedings against respondents before Debts Recovery Tribunal. The BIFR has rejected the reference filed before it by the respondents. The petitioners relying on the letter of Income Tax Authorities submit that the circumstances exist showing that respondents conducted business to defraud their creditors, financial institutions and members. Since the huge amounts of public money are involved, the petitioner has no powers of access, search or seizure into the records of the respondent company and therefore they have filed a petition for investigation under Section 237(b). The petitioners have further submitted that CBI is investigating and trying the accused persons for criminal conspiracy and cheating as criminal offences for which charge sheet has already been filed by the CBI before Special Judge, Delhi. The petitioners submit that independent of CBI inquiry the investigation under Section 237(b) be ordered as it has no conflict with the CBI Investigation. The period of siphoning of operations is said to be between the years 1997-2000 and the nominee directors of the petitioner came on the Board of Director thereafter and nominee directors cannot be expected to go into all these details.
10. The respondents on the other side have submitted that apart from CBI investigations, the petitioners have already approached Debt Recovery Tribunal for recovery of loan where proceedings are at final stage. The petitioner is not interested in realization of its debts but in the investigations where CBI is already present. Moreover the Board of Directors has been changed and respondent No. 2 and 3 had resigned from the respondent company i.e. M/s Usha India Ltd from 16.8.2003 and since then they have no access to the records of the respondent company. The respondent company has suffered huge losses due to bad market conditions and a reference is pending before BIFR/AAIFR. Admittedly, the source of filing the present petitions is based on the information provided by the Additional Director of Income Tax(Investigation) The respondents have filed application for settlement of case under Section 245C(1) of IT Act 1961 before the Settlement Commissioner which is still pending. The petitioner has concealed the material fact from this Board as also the investigation done by the CBI and the matter pending before the settlement commission and the DRT. Accordingly, the petition is not maintainable and liable to be dismissed with heavy costs.
11. I have gone through the pleadings as well as written submissions filed by both parties. The petitioners have relied on the case of Delhi High Court in Delhi Flour Mills Co. Ltd. and submitted that the huge public money has been siphoned out by the respondents and this cannot be visible to the naked eye. Therefore, there are sufficient grounds to Order an investigation under Section 237(b) of the Companies Act. The siphoning of the huge amount by 250 front companies by fraudulent manner has been indicated by the Income Tax Authorities also. The investigation under Section 237(b) is not by itself, it is only a means to find out the full facts of the acts complained of. The petitioners have also submitted that the new management came much after the loan amounts has been siphoned out as the alleged allegations pertain to the period 1997-2000. The investigation conducted by the CBI is for trying the accused persons for criminal conspiracy and cheating as criminal offences. Without investigation under Section 237(b), it is not possible to discover true and correct facts and modus-operandi adopted by the respondents in cheating the petitioner and siphoning of the public money.
12. In view of the above discussions, I am inclined to allow the petition and Order enquiry under 237(b) of the Companies Act. The Central Govt. is directed to take appropriate steps to appoint inspectors for this enquiry and also take appropriate action on the enquiry report.
13. With the above directions, the petition is disposed of and there are no orders as to cost.