Madras High Court
The Administrator vs R.Ramachandran on 31 July, 2025
Author: Anita Sumanth
Bench: Anita Sumanth
2025:MHC:1844
O.S.A.Nos.56 & 59 of 2025
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 03.07.2025
PRONOUNCED ON : 31.07.2025
CORAM :
THE HONOURABLE DR.JUSTICE ANITA SUMANTH
and
THE HONOURABLE MR.JUSTICE N.SENTHILKUMAR
O.S.A.Nos.56 & 59 of 2025
and
C.M.P.Nos.10915, 4056, 14170, 14172 & 3952 of 2025
OSA.No.56 of 2025
1.The Administrator,
(as appointed by this Hon’ble Court)
M/s.Zylog Systems Limited
No.155 Thiruvalluvar Salai,
Kumaran Nagar, Sholinganallur,
Chennai-600 119.
2.M/s.Zylog Systems Limited
Having its registered office at
No.155 Thiruvalluvar Salai,
Kumaran Nagar, Sholinganallur,
Chennai-600 119. ... Appellants
vs
1.R.Ramachandran
2.The Official Liquidator
High Court of Madras,
As the Liquidator of M/s.Zylog Systems (India) Ltd,
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O.S.A.Nos.56 & 59 of 2025
(In Liquidation)
3.IFIN Securities Finance Limited
(Formerly Incorporated as Narayanan
Sriram Investments Pvt. Ltd)
A Company incorporated under
The Companies Act 1956
Having its registered office at
“Continental Chamber” III Floor,
142, Mahatma Gandhi Road,
Nungambakkam, Chennai-600 034
Represented by its Asst. Vice President
Mr.K.Ramanathan ... Respondents
Prayer in O.S.A.No.56 of 2025 : Appeal filed under Clause 15 of Letters
Patent and Order XXXVI Rule 9 of the Madras High Court Original Side
Rules against the Judgment and decree of this Court dated 18.10.2024 in
Comp.A.No.128 of 2019 in C.P.No.372 of 2013 on the Company
Jurisdiction of this Court.
AND
OSA.No.59 of 2025
1.The Administrator,
(as appointed by this Hon’ble Court)
M/s.Zylog Systems Limited
No.155 Thiruvalluvar Salai,
Kumaran Nagar, Sholinganallur,
Chennai-600 119.
2.M/s.Zylog Systems Limited
Having its registered office at
No.155 Thiruvalluvar Salai,
Kumaran Nagar, Sholinganallur,
Chennai-600 119. ... Appellants
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O.S.A.Nos.56 & 59 of 2025
vs
1.Vilasrao Manikra Ghorpade
2.The Official Liquidator
High Court of Madras,
As the Liquidator of M/s.Zylog Systems (India) Ltd,
(In Liquidation)
3.IFIN Securities Finance Limited
(Formerly Incorporated as Narayanan
Sriram Investments Pvt. Ltd)
A Company incorporated under
The Companies Act 1956
Having its registered office at
“Continental Chamber” III Floor,
142, Mahatma Gandhi Road,
Nungambakkam, Chennai-600 034
Represented by its Asst. Vice President
Mr.K.Ramanathan ... Respondents
Prayer in O.S.A.No.59 of 2025 : Appeal filed under Clause 15 of Letters
Patent and Order XXXVI Rule 9 of the Madras High Court Original Side
Rules against the Judgment and decree of this Court dated 18.10.2024 in
Comp.A.No.365 of 2019 in C.P.No.372 of 2013 on the Company
Jurisdiction of this Court.
(In both OSAs)
For Appellants : Mr.Nithyaesh Natraj
For Mr.Anirudh A Sriram
For Respondents : Mr.T.Mohan, Senior Counsel
For Mr.T.D.Selvan Babu (for R1)
Mr.Pola Raghunath (for R2)
Official Liquidator
R3 – Not ready in Notice
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O.S.A.Nos.56 & 59 of 2025
COMMON JUDGMENT
Dr. ANITA SUMANTH.,J These Original Side Appeals (OSAs) have been filed by the Administrator appointed by the Hon’ble Court on 20.11.2015 to administer Zylog Systems Limited (in short ‘Company’).
2.The learned Administrator is aggrieved by an order passed by the Company Court on 18.10.2024 in Comp.A.No.128 of 2019 in C.P.No.372 of 2013 filed by R1, a third party to the Company Petition and a shareholder in the company.
3.The prayer in Comp.A.No.128 of 2019 is as follows:
‘This Company Application praying that this Hon’ble Court be pleased to permit the learned Official Liquidator to take over the affairs of the company only after such audit by the independent auditor is over and the real status of the company is ascertained and to relieve the directors of their responsibilities, only thereafter, should be passed by this Hon’ble Court.’
4.The application has been kept pending before the learned Judge and under the impugned order, the matter has been referred to the Serious Fraud Investigating Office (SFIO) under the Ministry of Corporate Affairs, for detailed and in-depth enquiry.
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5.The Official Liquidator has been directed to place the complete papers, including reports filed by the learned Administrator before the SFIO within a period of three (3) weeks from that order and SFIO directed to file a written report within a period of four (4) weeks thereafter.
6.The present OSAs have been filed with a delay that was condoned on 07.02.2025. By an order dated 24.02.2025, the parties were heard and it has been recorded that both, the learned Senior Counsel for counsel on record for R1, as well as the Deputy Official Liquidator, had acceded to the position that a forensic auditor may be appointed to investigate the transactions of the company including its subsidiaries.
7.Thus, suggestions were called as to a suitable forensic auditor in order that the appointment of suitable forensic auditor may be made. In light of the fact that the parties had agreed to the appointment of forensic auditor, status quo had been ordered qua the directions in paragraphs 6 and 7 of impugned order dated 18.10.2024 directing the SFIO to conduct investigation.
8.When the matter came up on 29.04.2025, two names were suggested by the appellant and none by R1. One of those Chartered 5/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 Accountants was appointed as a Forensic Auditor. A joint meeting was directed to be conducted by the Official Liquidator, learned Administrator and R1, or their representatives, and a date and time stipulated. Since the request for appointment of auditor had been by R1, he was asked to meet the expenses of the audit.
9.R1 had, in the company application, alleged diversion of funds of the company to subsidiaries situated abroad. He also alleged mis and malfeasances in regard to the functioning of the Company and the company Court has recorded at paragraph Nos.4 to 6 of the impugned order the following:
‘4. There is no dispute that there has been various proceedings initiated against the Company, its subsidiaries and the promoters by the SEBI, CBI, EOW and the Enforcement Directorate which has been indicated in the Report of the learned Administrator as extracted supra. That apart, various applications have been filed by the promoters/ directors alleging various misfeasance and malfeasance in the functioning of the Company and its subsidiaries and the manner in which they are being managed by the very same individuals even after their shares have been sold to the third parties. According to those individuals, the sale of such shares are only sham and nominal.
5. The earlier Reports of the learned Administrator had indicated that the Company could be revived as a going concern. But, however, within a short span of one year by considering the present status of the subsidiaries, the learned Administrator himself had indicated that the 6/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 Company could not be revived. The said Report also indicates that the subsidiaries have not been managed very well. Looking at the applications filed by the promoters/ directors alleging misfeasance and malfeasance, I am of the view that the entire functioning of the Company from the period before these winding up petitions came to be filed before this Court till this date would have to be undertaken.
Considering the fact that certain of the subsidiaries are functioning outside India and also considering the fact that various Investigating Agencies namely the SEBI, CBI, EOW and ED had also filed cases against the Company, subsidiaries and also the promoters. Such an audit of the Company, in my view cannot be considered in a normal course by appointing an independent auditor or a Forensic Auditor for that purpose. The reason for coming to such a conclusion is that they may not be able to accesses the files or records that had been collected by the Investigating Agencies pursuant to the complaints that it had received including the complaints from the banking companies. This Court takes judicial notice of the fact of an establishment namely the Serious Fraud Investigating Office which has been established by the Ministry of Corporate Affairs, Union of India. It is also to be noted that the SFIO had experts in law, accountancy, forensic Committee, information technology and taxation and that they co- ordinate with other agencies for effectively investigating the serious frauds that had been committed.
6. In this case also serious frauds have been indicated by the learned Administrator himself on the then promoters of the Company and applications are also pending alleging fraud committed by certain of the subsidiaries. In such view of the matter, I am of the opinion that the allegations have to be investigated by an independent agency and for the reasons indicated above, I am of the view that such investigation can be handed over to the SFIO under the aegis of Ministry of Corporate Affairs which had been incorporated for the investigation of such frauds of serious nature which affects the root of 7/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 economy of this country.’
10.The main argument of the appellant is that there is no statutory provision under which the Company Court could have made a reference to the SFIO. They point out that Section 212 of the Companies Act, 2013 (in short 'Act') envisages a reference only by the Government and hence the Company Court erred in law in directing such reference.
11.They rely on:-
1.Order of this Court in OSA.No.19 of 2016, dated 21.04.2023
2.Coastal Projects Limited & anr v IFCI Limited & Anr [LPA.No.641 of 2016, dated 29,12,2917] [2018:DHC:8061-DB]
3.Order of this Court in C.P.Nos.143 to 145 of 2015, dated 21.02.2016
4.Order of this Court in O.A.Nos.360 & 361 of 2024 and A.Nos.2602, 2623 to 2625 of 2024 in C.S.No.111 of 2024, dated 03.07.2024.
12.Under Section 210 of the Companies Act, 2013, the Central Government, where it has received a report from the Registrar or 8/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 Inspector under Section 208 of the Act or an intimation of a special resolution passed by a Company that it is necessary to investigate the company affairs, may so order the investigation.
13.Section 110(2) states that where an order has been passed by a Court or the Tribunal in any proceedings before it that the affairs of the company ought to be investigated, the Central Government shall so order such investigation.
14.The agency for the investigation has been stipulated under Section 211 of the Act, which provides for the establishment of the SFIO to investigate frauds relating to the company. Section 211(2) sets out the composition of the SFIO with which we are not really concerned with in this appeal.
15.Section 212 provides for the investigation into the affairs of Company by the SFIO and states as follows:
'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 9/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 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.
............'
16.In Vijay Pal Garg and Others v. Pooja Bahry (Liquidator in the matter of Gee Ispat Private Limited [2020 SCC OnLine NCLAT 163], the National Company Law Appellate Tribunal (NCLAT) had ordered an investigation into the affairs of the corporate debtor under Section 210(2) of the Companies Act, 2013, by the SFIO.
17.The conclusion of the Tribunal was that such a reference by the NCLAT was impermissible and at best, the Tribunal was empowered to refer the matter to the Central Government for investigation by the Inspectors and upon such investigation, if the Central Government opines that the Company is required to be investigated, in accordance with law then it is on the Central Government’s opinion that the investigation would proceed.
18.As far as the decisions of the Madras High Court and the Delhi 10/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 High Courts are concerned, in all cases, the Court has clarified that it is the satisfaction of the Central Government that is primary for directing investigation into the affairs of the company by the SFIO. Thus, an order of the Company Court wherein the SFIO had been directed to commence investigation had been modified to state that that order shall be communicated to the Central Government, which upon examination of the relevant records, may decide whether investigation is to be conducted in terms of Section 211 of the Act.
19.The National Company Law Appellate Tribunal (NCLAT) in Union of India Through Serious Fraud Investigation Office (SFIO) v. Maharashtra Tourism Development Corporation & Another [Company Appeal (AT)(Insolvency)No.964 of 2019 dated 02.12.2019] referring to earlier decisions of the Appellate Tribunal had referred the matter to the Secretary, Ministry of Corporate Affairs for investigation following the procedure set out under Section 213 of the Companies Act, 2013 read with various other provisions of the Court.
20.A reading of Sections 210 to 213 of the Companies Act, 2013 makes it clear that it is the Central Government, which is the primary agency to direct investigation into the affairs of the company by SFIO. 11/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 The sources by which the Central Government may come to know about Companies requiring investigation may be, a report of the Registrar or Inspector under Section 208, a special resolution passed by that very company, suo motu by the Central Government itself, or on a request from any Department of the Central Government or State Government.
21.Section 210(2) however makes a departure in that where an order has been passed by a Court or a Tribunal requiring that the affairs of the company require investigation, then such investigation shall be ordered by the Central Government. The word used is 'shall' and hence the order of the Court in this regard is binding upon the Central Government, apart from other avenues enumerated under Sections 210 and 212 of the Act.
22.Under Section 2(29), the Court is defined to be the High Court having jurisdiction in relation to the place at which the registered office of the company is situated and hence the direction passed by the Company Court in this case can be taken to be a direction under Section 210(2), which binds the Central Government as well.
23.We are thus of the categoric view that there is no infirmity in the order of the Company Court in directing investigation into the affairs 12/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 of the Company. Since we have confirmed that direction, we see no necessity to advert to the other instances or allegations of misfeasance and malfeasance, as no doubt, they will all be looked into by the SFIO.
24.As the hearing of these appeals was drawing to a close, the Official Liquidator has circulated a copy of order dated 18.06.2025, where the Central Government has directed investigation into the affairs of the company and the SFIO has, consequently, commenced such investigation. A copy of that letter and connected documents were directed to be served upon the appellant as well, and both parties have been heard yet again in the light of the aforesaid development.
25.Learned counsel for the appellant would reiterate the submissions made earlier pointing out that a status quo had been ordered by the learned Single Judge and hence in light of the same, the SFIO could not have taken the matter up for investigation. Secondly, they would harp on the position that the Forensic Auditor had been appointed only at the request of R1 and this had been noted in the previous order of the Court as well.
26.Additionally, they would point out that the Official Liquidator had been in receipt of the complaint from the aggrieved shareholders’ 13/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 forum and after consideration of those complaints, the Official Liquidator & the Regional Director, Southern Region, Chennai had closed the complaint under communication dated 18.10.2019.
27.Mr.Mohan, for his part would yet again reiterate the legal scheme under Sections 210 to 213 of the Companies Act, also pointing out that there is no infirmity in the commencement of investigation by SFIO. He would also specifically submit that it was not appropriate for the learned Administrator to raise an issue in this regard as the investigation would only bring to light the truth. If at all the allegations of stripping of assets of the company were found to be correct, then the Administrator should be in full support of the fact finding rather than stand in the way of such an investigation.
28.The appellant would also point out that R1 and the other persons, who had made allegation are shareholders who hold only a miniscule and negligible shareholding in the company and hence should not be encouraged.
29.Having heard both learned counsel in painstaking detail, we need only to refer to the text of the proceedings in CL-II-17/47/2024-O/o DGCOA-MCA, dated 18.10.2025 issued by the Director General of 14/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 Corporate Affairs, that reads as follows:
Government of India Ministry of Corporate Affairs Office of Director General of Corporate Affairs Kota House Annexe, 1, Shahjahan Road, New Delhi-110011 CL-II-17/47/2024-0/o DGCOA-MCA Date: 18.06.2025 Subject - Investigation u/s.212(1)(c) of the Companies Act, 2013 into the affairs of ZYLOG SYSTEMS LIMITED (In Liquidation) – reg.
1. Whereas the Central Government is empowered under section 212(1)(c) of the Companies Act, 2013 to order an investigation into the affairs of a company by the Serious Fraud Investigation Office in the Public Interest.
2. Whereas SFIO's Eoffice File No.SFIO/INV-6/0023/2024-OTR (Computer No.265963) and OL, Chennai's letter dated 4.12.2024 forwarding order dated 18.10.2024 passed by High Court of Madras in C.P. No. 372/2013 received against the company. As per the said order, the Ofticial Liquidator was directed to place all the papers including the reports filed by the Ld. Administrator before the SFIO and on receipt of the complaint, SFIO shall file an interim report in the matter. As per the directions of High Court of Madras and on examination, an opinion was formed that it is necessary to investigate the company and its subsidiaries, in the public interest.
3. Now, therefore in exercise of powers u/s 212(1)(c) of the Companies Act 2013, the Central Government hereby orders the investigation into the affairs ZYLOG SYSTEMS LIMITED U30006TN1995PLC031651 (under liquidation) and its Subsidiaries, in the public interest, by the Serious Fraud Investigation Office.
4. And whereas the scope of the investigation shall be:-
i) to investigate the observations made High Court of Madras order and the reports of the Official Liquidator and the Administrator;15/30
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ii) to investigate the alleged misfeasance and malfeasance in the functioning of the company and its subsidiaries
iii) to investigate and unearth the fraud that had been committed;
iv) to investigate money trail of transactions amongst the companies, RPTs, Loans and advances, investments for diversion/siphon off, if any.
v) to investigate any other contraventions. violations, non- compliances under the Companies Act and other laws:
vi) any other aspects noticed during the course of investigation.
5. The Director, SFIO in exercise of the powers vested under section 212(4) of the Companies Act, 2013, shall appoint one or more Inspector(s) to investigate the company mentioned above. The Inspector(s) so appointed shall exercise all powers available with them including section 219 of the Act, with the prior approval of the Central Government, wherever required.
6. The Inspector(s) shall complete the investigation on priority and the report shall be submitted to the Central Government within 1(one) year.
This order is issued for and on behalf of the Central Government.
Assistant Director
30.Order dated 23.06.2025 of the SFIO bearing No.SFIO/ADMN- 1/0050/2019-ADMN (3401)/1/31237/2025(8) reads thus:
Serious Fraud Investigation Office Government of India B-3 Wing, 2nd Floor Pt. Deendayal Antyodaya Bhawan CGO Complex, Lodhi Road New Delhi-110003 16/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 No.SFIO/ADMN-1/0050/2019-ADMN (3401)/1/31237/2025(8) Date: -23.06.25 ORDER The Central Government has ordered Investigation u/s 212(1)(c) of the Companies Act, 2013, vide order dated 18.06,2025 into the affairs of Zylog Systems Limited (under liquidation) and its subsidiaries, and has assigned the same to Serious Fraud Investigation Office.
2. And whereas the officers are required to be designated as Inspectors to carry out the investigation u/s 212(1) and Investigating Officer u/s 212(4) of the Companies Act, 2013.
3. Now, therefore, in exercise of powers conferred under Section 212(1) of the Companies Act, 2013, the following officers are designated as Inspectors to carry out investigation into the affairs of the above- mentioned company/companies and shall exercise all the powers available to them under the Companies Act, 2013:-
i. Sh. VDSS Nagarjun Grandhi, Jt. Dir.
ii. Sh. T.Yashwanth Rao, DD
iii. Sh. Paramveer Bhati, Sr. AD
iv. Sh. MV Saikumar, Sr. AD
v. Ms. Anika Agrawal, AD
vi. Sh. Dushyant Kumar, AD
4. And further, in exercise of powers conferred u/s 212(4) of the Companies Act, 2013 Sh. MV Saikumar, Senior Assistant Director, is appointed as Investigating Officer to carry out investigation into the affairs of above-mentioned company/companies.
5. The Inspectors and Investigating Officer shall complete the investigation and submit their report to the Central Government within a period of one year.
(Samir Vakil) Director
31.We specifically note that the commencement of investigation is both on receipt of the order of the Company Court as well as ‘on examination’ of the matter by the Central Government, made clear by the 17/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 aforesaid expressions by the Government in proceedings dated 18.06.2025.
32. As far as the abortive attempt for Forensic Audit is concerned, that did not come to be, owing to the inability of R1 to remit the costs of such Audit. We leave this matter at that. The earlier complaint which has been closed has been considered by the Regional Director of the Southern Region and hence cannot equal the forensic depth of the investigation to be undertaken by the SFIO. In our view, this will not come in the way of the investigation to be undertaken.
33. Our conclusions on the necessity for an investigation are fully supported by the observations and recommendations in the final report of the Administrator on the status of affairs of Zylog Systems Limited, Chennai as on 30.06.2019. Learned Administrator refers at page 15 to his interim status report bringing to the notice of the Court, the fraudulent activities of the two promoters of Zylog.
34.At paragraph 16, he refers to (at clause g of point 1) to the investigations by the Central Bureau of Investigation into complaints filed by the Dena Bank, Andhra Bank and Union Bank of India in regard to allegations of bank fraud. The learned Administrator had himself 18/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 ordered for a forensic audit in regard to the financial operations in August 2016 noticing that there had been high value transfers of funds between India to ZSL Inc USA ‘the utilisation of which is still a mystery and there are no proper information or documents to trace the destination of this money’.
35.He notices that the two individuals Mr.Ramanujam and Mr.Sudharsan, were the Managing Director and President of ZSL Inc USA at the relevant point in time. In the interests of clarity that portion of the Report is extracted in full:
‘Initiation of Forensic Audit in the books of ZSL Inc, USA:
10. When there was no clarity emerging from Mr.Ramanujam or Mr.Sudarshan on the various queries raised in the 8th March 2016 notices, I ordered for a Forensic Audit in USA Financial operations in August 2016 as there had been high value transfer of funds from India to ZSL Inc, USA, the utilization of which is still a mystery and there are no proper information or documents to trace the destination of this money. Mr.Ramanujam was also the then Managing Director of ZSL Inc, USA and Mr.Sudarshan, the then President of ZSL Inc, USA.
11. From then on, the promoters of ZSL's only motive was to ensure that ZSL gets wound-up and the two independent directors appointed to help me, Mr. P. Srikanth and Mr. S.P. Srihari gets out of ZSL for their personal safety so that it will not create problems for them in future. Till such time the Promoters of ZSL did not have any issues with Mr.P. Srikanth and Mr .S.P. Srihari. The promoters of ZSL were 19/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 having issues / fights only between themselves as is evident from the various complaints filed by Mr.Sudarshan through his brother Mr. V. Sridharan and through his Father/Brother-in-Law viz. Mr.. V. Jayaraman against Mr. Ramanujam filed with Official Liquidator office. These various complaints till March 2016 were all against Mr. Ramanujam only.
12. During the forensic audit process, it was revealed that a couple of employees of ZSL Inc, USA were also involved in various financial irregularities of the Company and accordingly I had ordered for the removal of these employees (Mr. Shivkumar Kandasamy, ("Shivkumar") Executive Vice President and Mr. Sirish Rastogi, ("Sirish") Vice President and Head - Finance. Post their removal, the forensic audit process became a bit easier as these two were blocking the same fearing action if their mistakes are exposed. The Forensic auditor had submitted his initial/interim report on the various financial irregularities like siphoning of funds through promoters / employees controlled vendor/client companies in the USA.
13. I have dealt with the major findings of the Forensic Audit exercise and regarding case filed by Mr. Shivkumar claiming an amount of USD 950,000 from ZSL Inc, USA, under separate sections in this report.
14. I have submitted three Interim Reports, explaining all the above developments, to the Company Court and to the Office of the Official Liquidator on different dates with the latest being dated 7th January 2019, highlighting all the above and the steps taken and proposed with respect to issues and litigations with the Secured Creditors.
Sl No Particulars Report Date
1 Interim Report of 17th Nov 2016
Administrator of ZSL for
the period as at 14th
November 2016
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2 Interim Report of 02nd March 2018
Administrator of ZSL for
the period 1st November
2016 to 31st December
2017
3 Interim Report of 07th January
Administrator of ZSL for 2019
the period 1st January
2018 to 31st December
2018
36.In part IV of the report dealing with the events subsequent to the last interim status report, the learned Administrator highlights the ‘gross misuse of power and authority by the promoter Directors of ZSL Mr.Sudharsan and Mr.Ramanujam’. He also alleged that the then Auditors of ZSL also had a role in the matter.
37.At paragraphs 1 and 2, he refers to the bank debts and the criminal cases and at paragraph 3, he explains why the Annual General Meetings of Zylog Systems Limited were not called for, for several years, which he states was on account of the cost involved.
38.From paragraphs 4 to 6, he sets out the status of settlement discussions with Union Bank of India and Syndicate Bank, at paragraphs 7 to 9, he refers to investigations by the Directorate of Enforcement, Chennai Zone and from paragraphs 10 to 12, the material impact of the investigations by the Enforcement Directorate and the provisional 21/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 attachment order issued by the Enforcement Directorate.
39.Part V of the report gives the status of various immovable assets of Zylog Systems Limited as well as its subsidiaries located in New Jersey, USA. In part VI dealing with status of movable assets of Zylog Systems Limited and its subsidiaries, learned Administrator refers to three other entities Zylog Systems (Canada) Limited, Zylog Systems BV Limited, British Virgin islands and Zylog Systems Asia Pacific Pte Limited, Singapore as subsidiaries of Zylog Systems Limited, Chennai.
40.In part VIII of the report captioned ‘negative campaign against ZSL and its subsidiaries’ he refers to the campaign by R.Ramachandran, the respondent before us, as being solely responsible for the losses suffered by ZSL and its subsidiaries.
41.Part VIII deals with litigation initiated by an ex-employee of ZSL incorporated New Jersey, USA, in the course of which, learned Administrator refers to an interim report on the forensic audit of financial transactions of ZSL incorporated USA. He says that the forensic report revealed numerous unsubstantiated financial transactions carried out by ZSL, Inc USA with other companies owned and controlled by the various individuals associated by Zylog Systems Limited, Chennai.22/30
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42.He also makes reference in that part of the report to Zylog Systems AG, Switzerland, a 100% subsidiary of Zylog Europe. The interim report on forensic audit tabled by the auditor contains a few disturbing findings which are extracted below:
‘a) USD 17.61 Million (Rs. 105 Crore) is net amount due to ZSL Inc, USA out of various unsubstantiated financial transactions done by ZSL Inc, USA during the period 2006 to 2013 with companies owned by the promoters of ZSL / relatives of promoters of ZSL / employees of ZSL Inc, USA including Mr. Shivkumar.
b) USD 3.95 Million (Rs.24 Crores) has been transferred by ZSL to "Innova Systems and Solutions Inc", USA, ("Innova") under the guise of purchase of software by ZSL out of loans proceeds taken from Dena Bank in India. As per the records in the USA, Innova Company is owned by Mr.Shivkumar.
c) USD 9.97 Million (Rs.63 Crores) has been transferred by Union Bank Hong Kong Branch to JP Morgan Chase account of ZSL Inc, USA on 7th January 2010 as purchase consideration for acquiring a company called "Matrix Primus Partners, Inc" in USA ("Matrix"). Matrix further borrowed USD 7 Million (Rs.36 Cr) as Term Loan and USD 4 Million (Rs.24 Cr) as working capital. ZSL does not have any records regarding the end use of these funds invested in Matrix and the funds borrowed by Matrix as above. It was also learnt that Matrix was not conducting any business activity. It is pertinent to Matrix was shown in the balance sheet of ZSL as 100% owned by ZSL but forensic audit revealed that Mr. Shivkumar is the owner of Matrix. In September 2015, the entire investment of ZSL in Matrix was written off in full in the books of ZSL by erstwhile managing director of ZSL, Mr. Ramanujam.’ 23/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025
43.Learned Administrator also refers to the trajectory of the litigation initiated by Shivkumar, the ex-employee in the courts in USA and paragraphs 22 to 30 are extracted below:
‘22. Zylog Systems AG, Switzerland ("Zylog Switzerland") is a 100% subsidiary of Zylog Europe. It is revealed from the records filed by Zylog Europe with Companies House UK that the entire shareholdings of Zylog Switzerland have been has been transferred to M/s Techno Marketing Group LLC, USA, ("Techno") a company 100% owned by promoters of ZSL, Mr.Ramanujam and Mr. Sudarshan for a value of GBP 10,000/- (Rs.10 Lakhs). The Net worth of Zylog Switzerland was GBP 3.50 Million (Rs.30 Cr.) at the time of such transfer to Techno. The Board resolution giving effect to the transfer of shares of Zylog Switzerland to Techno is seen to be signed by Mr. Shivkumar as director of Zylog Europe.
23. ZSL Inc, USA attorneys, M/s Singh Law LLC while defending the claims made by Mr. Shivkumar in the USA Courts also made a counter claim on Mr. Shivkumar for the unsubstantiated financial transactions, he had committed along with the Promoters of ZSL. Copy of such filings by M/s. Sing Law LLC is enclosed as Annexure AC.
24. ZSL then filed a Criminal complaint in November 2018 in Judicial Magistrate Court, Alandur, Chennai against the Promoters of ZSL, Mr.Ramanujam and Mr.Sudarshan and 3 other employees including Mr. Shivkumar seeking for return of an amount of Rs 375 crores which they had transferred from the books of ZSL and ZSL Inc, USA. Copy of the criminal complaint is attached as Annexure AD.
In a recent hearing in this matter the Judicial Magistrate Court Alandur was pleased to pass a direction to DGP, Central Crime Branch Chennai to conduct an investigation in this matter and report to the Court. A Copy of the said Court order is enclosed as Annexure AE.
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25. Meanwhile the hearings in the case filed by Shivkumar were happening regularly in New Jersey Court. I instructed ZSL Legal Director Mr. Ashok Kumar Kohli ("Kohli") to be present in person at crucial hearings of this case. Mr. Kohli felt that the case was not being represented properly by M/s. Singh Law LLC. Mr.Kohli mentioned that as the money from banks in India were the source for these fraudulent financial transactions in the USA and also as a Criminal case in this regard has been filed in the Indian Courts by ZSL, the case filed by Shivkumar should get transferred to Indian Courts and there should not be a parallel proceeding. Mr. Kohli was of the view that Mr. Shivkumar has filed a case in USA to circumvent facing action in India. M/s. Singh Law LLC had a different view and insisted that ZSL Inc, USA needs to defend the case only on the facts brought out by Mr. Shivkumar. Post some internal deliberations with Mr. Kumarpal Chopra, Counsel of ZSL in India, it was suggested by Mr. Kohli that ZSL Inc, USA could appoint another attorney already handling another matter of ZSL Inc, USA and accordingly, M/s Archer and Greiner, PC represented by Mr. Patrick Papalia having its office at "Court Plaza South, West Wing, 21 Main Street, Suite 353, Jackensack, NJ 07601-7095 was appointed as ZSL Inc, USA attorneys to represent this case.
26. M/s Archer and Greiner, PC filed a motion on 7th December 2018 for an order to dismiss the pending lawsuit filed by Mr. Shivkumar or in the alternative to stay the lawsuit of the plaintiff Mr. Shivkumar. This Motion was dismissed on technical grounds on jurisdiction basis by the Superior Court of New Jersey. A copy of the order is enclosed as Annexure AF.
27. As the Motion was dismissed M/s Archer and Greiner, PC started presenting full facts of the case and how Mr. Shivkumar acted hand in glove with the promoters to divert Company funds. M/s Archer and Greiner also obtained "Subpoena Duces Tecum" to access Mr. Shivkumar personal Bank accounts in the USA.
28. Sensing trouble Mr. Shivkumar's attorney approached M/s. Archer and Greiner, PC for a settlement and proposed 25/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 an agreement to drop the case and walk off without any claims on each other. This was not acceptable to me as it will take away the right to sue Mr. Shivkumar in the USA/India for any of his financial deeds along with the Promoters of ZSL. A copy of this settlement proposed by Mr. Shivkumar attorney is attached as Annexure AG.
29. M/s. Archer and Greiner, PC has advised ZSL Inc, USA that a more detailed forensic audit in compliance with USA local laws has to be conducted immediately by hiring a suitable USA based expert in forensic audit. Further they have mentioned that the approximate cost for the detailed exercise would be between USD 100,000/- to USD 150,000/-. As a matter of fact, ZSL Inc has already spent a considerable amount as legal fees in this case till date which is approximately USD 102,000/-, the breakup of which is given in Annexure AH.
30. I am of the view that if ZSL agrees for a settlement in the USA courts with Mr. Shivkumar it would go against ZSL in the Indian courts in the Criminal case filed against the Promoters of ZSL and few ex-employees including Mr. Shivkumar. Hence the settlement proposal offer of Mr. Shivkumar has to be rejected and a more elaborate forensic audit in compliance with USA Laws should be initiated forthwith to enable ZSL and SL Inc to recover an amount of Rs.375 crores siphoned away from its bank accounts by the promoters of ZSL, Mr. Ramanujam and Mr Sudarshan in collusion with Mr. Shivkumar and Mr. Sirish Rastogi.’
44.A reading of the above makes it clear that the learned Administrator had no doubt that monies and assets of Zylog Systems Limited and ZSL Inc were being systematically siphoned off by the promoters in collusion with others. In fact, he states as much in the report itself.
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45.Part IX captioned ‘Details of subsidiaries of Zylog Systems Limited and its current status’ contains the specific of various Zylog Group Companies. The learned Administrator has mentioned that since many of those companies do not come under the control of Zylog Systems Limited, the details of assets etc. are not available.
46.In our view, this is all the more a reason why investigation by SFIO is urgently called for. Parts XII, XIII and XIV of the report deal with the learned Administrator’s observations on final assessment on revival of Zylog Systems Limited, conclusion and recommendations and pending actions to be continued.
47.At part XIV, learned Administrator himself recommends a detailed forensic audit in compliance with USA laws qua the litigation pending in USA. The narration as aforesaid, we believe, buttresses our conclusions as well.
48.We however, do agree that the commencement of the proceedings in the face of an order of status quo is inappropriate. Having regard to the following considerations, (i) the serious allegations made that require investigation (ii) our conclusion that the reference to the SFIO by the Company Court was correct (iii) the fact that the 27/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 Government has, on examination, opined that investigation is required and (iv) investigation has been commenced as on date, we however, prefer to emphasize our conclusion on merits rather that precipitate the matter from the angle of violation of our order.
49.The office of the Official Liquidator will submit an explanation in this regard. List on 14.08.25 to receive the same, upon consideration of which further proceedings for contempt may be considered.
50.A few days before we proposed to list the matter for pronouncing judgement, learned counsel on record for the appellant brought to our notice that WP.No.27432 of 2025 had been filed by the learned Administrator challenging order dated 18.06.2025 of the Ministry of Corporate Affairs. A memo has also been filed to the effect that the writ Court has granted a stay of the aforesaid order on 24.07.2025.
51.As we did not have the benefit of the affidavit filed in support of the writ petition, we had called for the file and find that the main ground argued for the grant of interim orders is that a status quo had been granted by the Division Bench despite which the Government has proceeded to refer the matter to the SFIO. Though the matter had been 28/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 reserved for orders on 03.07.2025, that fact does not find place in the writ affidavit at all, which, in our view is a significant omission, and ought to have been disclosed.
52.Be that as it may, since we have answered the legal issues in the paragraphs supra, these Original Side Appeals are dismissed directing the SFIO to complete its preliminary investigation within a period of two months from date of uploading of a copy of this order and submit the same to the Company Court for continuation of hearings before that Court. No costs. Connected miscellaneous petitions are closed.
[A.S.M., J] [N.S., J] 31.07.2025 Index:Yes Speaking Order Neutral Citation:Yes vs 29/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm ) O.S.A.Nos.56 & 59 of 2025 DR. ANITA SUMANTH.,J.
and N.SENTHILKUMAR,J.
vs O.S.A.Nos.56 & 59 of 2025 and C.M.P.Nos.10915, 4056, 14170, 14172 & 3952 of 2025 31.07.2025 30/30 https://www.mhc.tn.gov.in/judis ( Uploaded on: 31/07/2025 05:49:35 pm )