Bombay High Court
National Peroxide Ltd vs Nipul S Trivedi on 8 February, 2021
Author: A. K. Menon
Bench: A. K. Menon
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION (LODGING) NO.3992 OF 2020
IN
SUIT (LODGING) NO.3989 OF 2020
National Peroxide Ltd., Mumbai ...Applicant-Plaintiff
V/s.
Nipul S. Trivedi and Ors. ...Defendants
Mr. Navroz Seervai, Sr. Advocate, with Mr. Ashish Kamat, Mr.Akshay Puranik,
Mr. Sachin Mandlik and Mr. Nikhil Kapoor, i/by Mr. Abhishek Adke, for the
Applicant-Original Plaintiff.
Ms. Trupti Bharadi for Defendant No.1.
Mr. Sameer Pandit, with Ms. Krina Gandhi, i/by Wadia Ghandy & Co., for
Defendant No.2.
Mr. Rajesh Patil, with Ms. Shahen Pradhan, i/by Argus Partners, for Defendant
Nos.3 and 4.
Mr. Raj Patel, with Mr. Ashish Bhakta and Ms. Krusha Maheshwari, i/by ANB
Legal, for Defendant No.5.
Mr. Zal Andhyarujina, Sr. Advocate, with Mr. Aditya Bhat, Mr. Dhirajkumar
Totala and Mr. Parth Jain, i/by AZB & Partners, for Defendant Nos.6, 7 8 and
9.
Mr. Anirudh Hariani, with Mr. Nooruddin Dhilla and Mr. Ankit Kothari, i/by
Hariani and Co., for Defendant Nos.12, 18 and 19.
CORAM : A. K. MENON, J.
DATED : 8TH FEBRUARY, 2021.
P.C. :
1. The plaintiff, a public limited company, seeks to recover amounts allegedly siphoned off by some ex-employees jointly and severally from all the defendants. There are a large number of defendants. Of these, only defendant 1/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit nos.1 to 5 are ex-employees of the plaintiff. Defendant no.6 is believed to have been the Statutory Auditor at the material time when the fraud allegedly took place. Defendant nos.7 to 9 are partners of defendant no.6. Defendant nos.10, 12, 14, 16 and 18 are believed to be the Internal Auditors of the plaintiff at the material time. Defendant nos.11, 13, 15, 17 and 19 are believed to be the partners/persons-in-charge of the aforesaid internal auditors. The relief sought against those defendants primarily pertain to retention of records of the company that came into the hands of the aforesaid defendants by virtue of their being internal auditors and statutory auditors. By a separate order dated 5th January 2021, this IA has been disposed as against defendant nos.6 to 9, 13 to 19. As regards defendant nos.10 and 11, the allegations in the plaint are similar to those against the other internal auditors. The defendant nos.10 and 11 not having controverted any of these statements, they will be bound to maintain records in terms of the order already passed in respect of defendant nos.6 to 9. That leaves me to consider the reliefs as against defendant nos.1 to 5 and 12. As far as defendant no.12 is concerned, there is an application that he be dropped from the proceedings.
That can be considered separately.
2. In the suit, the plaintiff seeks damages / compensation in a sum of Rs.72,42,67,140/- and a further sum of Rs.320 crores towards loss of plaintiff's reputation allegedly caused on account of the fraudulent acts of defendant nos.1 to 5 and alleged failure of defendant nos.6 to 19 to perform their duties as auditors. In the IA, the prayers that now survive seek an order 2/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit directing defendant nos.1 to 5 and their immediate family members jointly and severally to disclose on affidavit particulars of all their dealings with the plaintiff's funds forming part of the suit claim and particulars of properties and assets held by them. Upon such disclosure, the plaintiff seeks an order for tracing such assets, which may have been acquired through proceeds of fraud and, in the meantime, an injunction is sought to restrain the defendant nos.1 to 5 and their family members from dealing with, alienating or parting with possession of assets and properties in which they have beneficial interest.
3. At the hearing of this IA, Mr. Seervai, who led the arguments on behalf of the plaintiff, has restricted relief of disclosure to the defendant nos.1 to 5. In other words, no relief has been sought at this stage against the family members as such. It will be appropriate to briefly refer to the capacity in which the defendant nos.1 to 5 served the plaintiff-company.
The 1st defendant joined as a Junior Clerk in September, 1985 and effective from July 2000, he was authorized to issue cheques on behalf of the plaintiff. In April, 2016, he was promoted as Manager (Accounts). He was handling banking work, attending to VAT and sales tax payments.
Defendant no.2 was appointed as whole time director of the plaintiff in May, 1998 and later came to be designated as Managing Director with effect from November, 2004.
3/421-SL-3989-2020 & IA-3992-2020.doc Dixit The defendant no.3 was appointed as Sales Manager in January, 1995. Later, he became Vice President (Marketing) in July, 2012.
Defendant no.4 was appointed in July, 2013 as Vice
President (Operations).
Defendant no.5 joined as Accounts Executive in August
1988 and designated as Chief Financial Officer of the plaintiff in May 2014. Although he resigned in June, 2015, the company reportedly continued to engage his services as a Consultant till May, 2016, apparently on the advice of the 2nd defendant.
4. The case of the plaintiff in a nut shell is that these defendants embezzled the funds with the plaintiff under the guise of making payments towards local sales tax, VAT etc. Mr. Seervai appearing in support of the application submitted that total 1160 bearer cheques have been signed and dealt with by the defendants 1 to 5 and which were utilized for siphoning the plaintiff-company's funds, thereby committing a huge fraud. The plaintiff has since collected the copies of these cheques from their bankers - Canara Bank and State Bank of India and have found that the defendant no.1 has signed 966 bearer cheques of an aggregate value of Rs.28.82 crores. The plaintiff, having secured copies of 974 cheques out of the total 1160 cheques, found that defendant no.2 had co-signed 289 cheques of an aggregate value of Rs.8.76 crores. Defendant no.3, who was the then Sales Manager at the 4/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit material time, was found to have co-signed 247 cheques of an aggregate value of Rs.7.42 crores. Defendant no.4 as Vice President (Operations) had signed 156 cheques valued at Rs.4.67 crores. Defendant no.5 had co-signed 279 cheques aggregating to Rs.8.34 crores in value.
5. Mr. Seervai submitted that these persons betrayed the plaintiff's trust and colluded in perpetrating the fraud, thereby embezzling in Rs.37.02 crores, of which Rs.36.24 crores were embezzled from the account of Canara Bank and Rs.0.79 crores from the account of State Bank of India. Rs.30.47 crores are believed to have been embezzled during 2013 to 2017 and the defendants are alleged to have recorded the payments in the plaintiff's books of accounts towards payments for VAT and CST, but, in fact, VAT and CST paid during the relevant time as per Sales Tax Returns is Rs.4.83 crores; whereas in the books of accounts, the defendants had shown payment of Rs.41.86 crores. Discrepancy was therefore of Rs.37.03 crores, which amount, Mr. Seervai submitted, the defendants are bound to pay to the plaintiff. According to Mr. Seervai, the defendant no.5 - the then CFO had also signed financial statements of the company during the material time and would have known that the figures towards VAT and CST were not genuine.
6. Mr. Seervai further submitted that the fraud came to the light on appointment of the new Chief Financial Officer in November, 2016. While finalizing the accounts, he noticed large debit balances in the ledger account under the head of "local sales tax payable", "central sales tax payable", "deposit 5/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit sales tax", "advance sales tax payable", "VAT clearing" and "VAT on purchase accounts". Having noticed these entries, the CFO caused a forensic audit to be conducted in October 2017, when it was discovered that during the material period, the aforesaid funds of Rs.37.02 crores have been misappropriated. The services of defendant nos.1 to 5 were then terminated. A second forensic audit report was provided to the plaintiff in February, 2018 and accordingly the suit has been filed after collecting necessary data, which took some time. In any event, the case of the plaintiff is that the suit is filed within time. Meanwhile, in November, 2017, a complaint was filed with the Economic Offences Wing, Mumbai. The defendant nos.1 to 5 were later arrested on different dates during January 2019 and February 2020 and were released on bail between May 2019 to July 2020.
7. The fraudulently drawn cheques were reportedly endorsed using cheque discounting agents to encash the cheques through accounts of the beneficiaries unknown to the plaintiff, with whom the plaintiff had no business relations. Mr. Seervai highlighted the fact that no supporting vouchers or challans are available to support the expenditure. The First Information Report filed with the economic offences wing resulted in a charge sheet against defendant nos.2 to 5 who are responsible for management, had been negligent while discharging their duties in particular by signing bearer cheques for alleged payments of VAT and CST for several years. They did not question the need to issue bearer cheques. He submitted that the cheques drawn in favour of "RBI" were signed and later altered so as 6/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit to make the cheque payable to "RBIM Sales". Mr. Seervai further submitted that while discounting the cheques, the agents were unaware of the source of the cheque or the destination of the funds.
8. According to the plaintiff, the monies were handed over by the discounting agents to defendant no.1, who was particular about receiving cash on the same day. Defendant nos.2, 3 and 4 had confirmed that the cheques were signed without reference to any supporting vouchers or computations. Although defendant no.5 had resigned with effect from 30 th June 2015, he had access to the company's Canara Bank account via net banking. The higher value cheques were required to be signed by two persons and hence the cheques were co-signed by one or the other parties. Considerable stress was laid on the forensic reports issued by Price Waterhouse Coopers ("PWC Report"). Mr. Seervai submitted that the report records that at least two defendants have disproportionate assets and the plaintiffs believe these to be funded by embezzled funds. He submitted that the disclosure is crucial and therefore seeks reliefs. Mr. Seervai submitted that the fraud gave rise to a cause of action and that this came to be known to the plaintiff only upon the PWC Report being made available. Mr. Seervai and Mr. Kamat have made several references to the PWC Reports, copies of which appear at Exhibits "I" and "I-1" to the plaint.
9. Mr. Seervai also relied upon the fact that during the investigation, defendant no.2, who was Managing Director, had deleted the WhatsApp 7/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit application on his phone and related data from his phone prior to handing over the phone for analysis. He resisted efforts to retrieve data and chats, even those on the cloud storage, contending that the password is not accessible, the search conducted at the office of the 2 nd defendant revealed that he had purchased a flat in a residential complex of the Lodha Group worth Rs.7.25 crores. The reasons for seeking reliefs were therefore genuine.
10. As regards defendant no.5, the learned counsel for the plaintiff has submitted that there has been a large increase in the value of the investment made by defendant no.5. His initial investment of Rs.2.37 crores in 2009 has been increased to Rs.10.67 crores as on June, 2014. Of this investment of Rs.10.67 crores, investment in the name of the 5 th defendant's mother-in-law amounted to Rs.8.05 crores. Further investments were made in the name of his spouse, son and daughter aggregating to Rs.2.61 crores. The choice of co- signatories, Mr. Seervai submitted, was deliberate and according to him, there were value limitation for cheques to be signed and 1,153 cheques were for the values of Rs.30,000/- to Rs.9,87,472/-; of which, 1,128 cheques were below Rs.5 lakhs and only 25 cheques were in excess of Rs.5 lakhs.
11. In the course of investigation, it appears that search in the house of defendant no.1 revealed that counterfeit VAT challans were stored. This finds clearly indicative of the complicity of these persons. During 2008-17, bogus challans in the name of RBIM Sales were prepared. Tax challans were forged. The five defendants were all in important positions and had ignored their 8/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit duties and embezzled funds. Defendant no.2 is alleged to be the mastermind of the fraud, which could not have taken place without the 2 nd defendant's active participation. Mr. Seervai therefore submitted that the reliefs prayed for must be granted.
12. The learned Advocate for defendant no.1 has filed written submissions relying upon an affidavit-in-reply dated 16 th October, 2020. In that affidavit, he stated that he worked for the company for 32 years and rendered services honestly and sincerely. He denies having committed any fraud. He has been falsely implicated in criminal and other cases.
13. On behalf of the 2nd defendant, Mr. Pandit contended that his client had joined in 1997 as Vice President (Technical) and was later appointed as a Whole-time Director of the plaintiff in 1998 and became Managing Director in 2004. The 1st defendant has appointed as Manager (Accounts) right from September 1985 and continued as such till December 2017. In 2009, the Board of Directors of the plaintiff required all cheques to be signed by the two signatories and defendant no.2 was retained as a Group-A authorized signatory. It is during October 2008 to March 2017 that defendant no.1 alleged to have embezzled the funds of the plaintiff by issuing 1,160 cheques. He prepared cheques in the name of "RBI", presented the same to the authorized signatories for signature and after obtaining the signatures, the bearer's name was changed to "RBIM Sales". Cheques were then endorsed in favour of third parties and deposited the cheques in their accounts. To 9/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit conceal these payments, defendant no.1 entered these payments in the plaintiff's books of accounts as being made towards VAT and CST. Forged challans were also generated. Mr. Pandit submitted that defendant no.2 was not involved in any of these acts and was not liable for the alleged losses and damages.
14. Mr. Pandit further submitted that in March 2016, defendant no.1 sent one forged MVAT challan to the plaintiff's auditors and that is the reason that the plaintiff has come before this court. Mr. Pandit further submitted that out of 1,160 cheques, defendant no.2 has signed only 289 cheques valued @ Rs.8.76 crores over the period of 10 years and out of these cheques, 287 cheques were signed by the 2 nd defendant as a co-signatory. Only two cheques were signed by the 2 nd defendant as sole signatory prior to the change in policy requiring all cheques to be signed by at-least two signatories. The other 871 cheques of a value of Rs.28.27 crores have been signed by the other signatories and not by defendant no.2. According to him, between 2007 and 2017, the internal auditors had audited accounts. The audit committee of the plaintiff approved the financial statements and none of them detected the fraud committed by defendant no.1.
15. In May, 2017, the then CFO of the plaintiff one Shailesh Chauhan had discovered the fraud and sought an explanation from the defendant no.1. In October 2017, when the defendant no.1 was confronted, he confessed that he was responsible for the fraud and that the monies that have been generated 10/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit from the fraud were lost in gambling. The plaintiff thereafter issued a disclosure letter to the Bombay Stock Exchange Ltd. In November, 2017, when the plaintiff filed its complaint against defendant no.1, no allegations were made against defendant no.2. The PWC Report records that the defendant no.1 was the kingpin of this scam. Meanwhile, in December, 2017, the plaintiff terminated the 2 nd defendant's services only on the ground of negligence and not fraud. The 1st defendant's services were terminated for embezzlement of funds and manipulating books of accounts of the plaintiff. Mr. Pandit has submitted that the plaintiff has unreasonably held back amounts due to defendant no.2, including sums due towards the provident fund dues, and that the 2 nd defendant had filed a suit in this respect. The PWC Report, Mr. Pandit submitted, did not contain any finding that the 2 nd defendant embezzled funds. Meanwhile, his gratuity and other amounts due towards his superannuation benefits have been unlawfully retained by the plaintiff.
16. Mr. Pandit submitted that in a notice issued by the plaintiff calling upon the defendant no.2 to show cause as to why his provident fund dues should not be forfeited, there were no allegations of fraud but only that the defendant no.2 was negligent. The defendant no.2 had shown cause against such forfeiture and that in any event, the law does not permit a complete forfeiture of provident fund dues. That apart, Mr. Pandit submitted that the plaintiff did not act on the show cause notice or passed any order thereon. The present suit is filed three years after the transactions complained of and 11/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit after the 2nd defendant filed a suit for recovery of more than Rs.8 crores. An ad-interim application was made and the relief was pressed only against defendant nos.6 to 9 and not against defendant no.2. Despite having sought inspection of documents, on which the plaint proceeds, no inspection has been given. Thereafter, an order has been passed on the IA filed by the defendant no.2, whereby the plaintiff has been directed to disclose the amounts of gratuity, provident fund and other emoluments, which were due to the 2nd defendant, and it is this disclosure that reveals that Rs.8,66,96,000/- stands to the credit of the 2 nd defendant as on December 2017 and considering that these amounts would earn interest, the total would be much higher.
17. Mr. Pandit also submitted that the plaintiff had suppressed material fact of having withheld more than Rs.8 crores and is now seeking further security in the form of an injunction; more so, when the suit itself is barred by limitation since the cheques in question were issued between October, 2008 and March 2017. In March 2016 and between March 2017 and June 2017, the plaintiff's statutory auditor - defendant no.6 drew attention of the plaintiff to the discrepancies by email, but it appears that no action was taken by the plaintiff.
18. In view of the aforesaid facts, Mr. Pandit submitted that there is no question of prima facie case being made out. Effectively, what is sought is an attachment before judgment, for which there is no supporting evidence. The 12/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit plaintiff appears to be making a fishing enquiry in relation to the flat that has been agreed to be purchased by the 2 nd defendant. Even the forensic audit report records that the agency Price Waterhouse Coopers was unable to ascertain the source of funds for investment in the flat. Therefore, there is nothing to indicate that the funds of the plaintiff were siphoned off by defendant no.2 and utilized for purchasing the flat. Considering these factual aspects, Mr. Pandit submitted that no case is made out for grant of reliefs in the IA, not of disclosure much less attachment or injunction.
19. Mr. Pandit has relied upon the following judgments in support of his case :-
1. Mukesh Hans & Anr. Vs. Smt. Uma Bhasin & Ors. 1
2. Oswal Agro Mills Ltd. Vs. The Custodian & Ors. 2
3. Remedial Resolutions Advisors Pvt. Ltd. & Ors. Vs. Capri UK Investments Ltd. & Ors.3
4. Zenit Metaplast Pvt. Ltd. Vs. State of Maharashtra and Ors.4
5. Swan Mills Ltd. Vs. Dhirajlal and Ors.5
20. On behalf of defendant no.3, Mr. Patil submitted that his client joined the plaintiff in January, 1995 and worked for about 20 years. Initially, he was a Sales Manager and thereafter was promoted as Vice President (Marketing). He submitted that defendant no.3 was engaged in the marketing department 1 2010 SCC OnLine Delhi 2776 2 2003 SCC OnLine Bom 1306 3 2014 SCC OnLine Bom 358 4 (2009) 10 SCC 388 5 (2012) 2 BCR 20 13/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit and not concerned with the finance department. He was authorized to sign the cheques as the second signatory with defendant no.1 who would prepare the cheques. The management of the plaintiff had no proper procedure for issuing such cheques and that the forensic audit report had recorded that internal controls were either non-existent or not effectively implemented and the 1st defendant had probably taken advantage of this lack of control and embezzled the funds. Mr. Patil submitted that the forensic audit report did not contain any allegation or suggestion that the 3 rd defendant had committed any fraud. The services of defendant no.3 was also terminated on the ground of negligence and but not for fraud. Mr. Patil has reiterated that the 1 st defendant was responsible for embezzlement of funds as the cheques were prepared and signed by the 1st defendant and thereafter brought to the 3 rd defendant. When the cheques were brought to the 3 rd defendant, they were in favour of "RBI" and the 3rd defendant had no reason to suspect that the 1 st defendant was committing a fraud. He admits to have signed the cheques in good faith. Manipulation by the 1st defendant adding the letter "M" and the word "Sales" took place after the signature of the 3 rd defendant. Mr. Patil has relied upon the termination letter dated 15 th December 2017 addressed to his client, whereby services of the 3 rd defendant were terminated for negligence. Whereas, the termination letter of the 1 st defendant specifically mentioned embezzlement of funds by him. Mr. Patil has also relied upon an order of this court in Appeal from Order No.336 of 2018 6, wherein the court had 6 Ranjit Arjan Hira Vs. Kavita Vijay Mehta, dt. 17th September 2018. 14/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit occasion to observe that to obtain an injunction under Order XXXIX Rule 1(b) of CPC, a plaintiff would have to prima facie establish that there was intention to defraud. A bare averment is of no consequence.
21. On behalf of defendant no.4, Mr. Patil submitted that defendant no.4 was appointed as Vice President (Operation) effective from 17 th July 2013. He worked for 4 to 5 years till his services were terminated on 15 th December 2017. He was not concerned with the finance department at all, but was authorized to sign the cheques as a second signatory along with defendant no.1. He along with defendant nos.2, 3 and 5 were authorized to sign the cheques as 2nd signatory along with the defendant no.1.
22. On behalf of defendant no.5 Mr. Raj Patel submits that the 5 th defendant was engaged in 1988 as Accounts Executive. He held multiple posts before being appointed as CFO. He has an impeccable service record and has been regularly promoted as a result of appraisals. The plaintiff's contention that the 2nd defendant was responsible for the 5 th defendant's promotion has been denied. Mr. Patel submitted that the 5 th defendant has a meritorious record with the company and was appointed as CFO only pursuant to a board resolution. One person cannot appoint a CFO of his own accord. In recognition of his services, even after his retirement, the 5 th defendant has been continued to assist the plaintiff-company as a Consultant to ensure smooth transition. He was appointed in the finance department only in July, 15/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit 2009. The perpetration of fraud has already apparently commenced at the hands of defendant no.1. He submitted that his client has been sought to be singled out and that during his tenure, the cheques were presented to him by defendant no.1. He states that the aspect of taxation, including sales tax, was looked after by one Uday Barkur and the defendant no.5 had no role to play. It is only after the fraud has been discovered, that the 5 th defendant came to realize its extent. Meanwhile, he had resigned on 30 th June 2015 before the discovery of the fraud. Upon retirement, he was asked to train the new CFO, which he agreed to do and therefore he was appointed as a Consultant. He shared his responsibilities as the CFO. Consequently, the new CFO was appointed and the defendant no.5 had assisted him. The new CFO had not commenced using net banking facility, which he had been requested to continue to do. The FIR was registered on 27 th March, 2018 and on the very next day, his residence was raided. His salary account was also frozen. Despite FIR being registered and despite the charge sheet being filed, for more than two years since then, no material has been presented implicating him in the alleged fraud. The allegations in the plaint are vague in nature. In the absence of any cogent material or money trail connecting him or any of his family members, Mr. Patel submitted that there is no case made out for granting relief against defendant no.5. It is the board of directors and the auditors, who should have noticed it. All the debit balances were reflected in the accounts of the plaintiff-company; however, even the auditors never questioned. The financial health of the plaintiff-company ought to have been monitored by 16/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit the directors, which does not appear to have been done. No evidence having been found against him, defendant no.5 has denied all the allegations.
23. Before reaching a conclusion, it is appropriate that I consider the averments in the plaint, which form the basis of the IA. The material averments relating to the claim against defendant nos.1 to 5 are to be found from paragraph 3.1 onwards. Specific allegations are to be found in the plaint from paragraph 3.10 onwards. The gist of the plaintiff's case, as set out in the plaint, is that defendant nos.1 to 5 have perpetrated and elaborated commercial fraud by siphoning off and misappropriating Rs.37.03 crores of the plaintiff's funds and that they are liable to compensate the plaintiff, as claimed in the plaint. Termination of services of the 1 st defendant was effected by letter dated 27th December 2017. The letter records that the 1 st defendant has not attended office from 6th October 2017 without any intimation. It also recorded that investigations revealed that the 1 st defendant had signed 1,153 cheques from the company's Canara Bank and State Bank of India accounts during October, 2008 to March, 2017 and about Rs.30.47 crores had been embezzled during 2013 to 2017. In doing so and in order to conceal the embezzlement, the defendant no.1, acting on behalf of defendant nos.2 to 5, concocted and recorded entries, describing them as payments for VAT / CST, local sales tax, central sales tax, depository sales tax, advance sales tax, VAT clearing account and VAT on purchase account. A scrutiny of the account reveals that there was a steady increase in the balances in VAT/CST, which were found to be unusual and suspicious. He has relied upon a table in 17/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit paragraph 4.3 of the plaint. These amounts are said to be so large that it would have alarmed the auditors, but has been ignored by them. The averments in paragraph 4.4 onwards of the plaint, with the exception of paragraphs 11, 12, 23, 24, 27 to 30 and 32, both inclusive, pertain to the failure of auditors, both internal and external, to detect these transactions. Of these, only paragraphs 1 to 25 are said to be true to the knowledge of these signatory to the plaint. Paragraphs 26 to 40 are sought to be verified on the basis of the information received. The affidavits-in-rejoinder are also filed by the said authorized signatory. Though the CFO could detect the fraud, he did not.
24. The plaintiff's authorized representative in his rejoinder to the affidavit-in-reply of defendant no.1 repeats the allegations that defendant nos.1 to 5 have embezzled and defalcated funds as narrated in the plaint. The new CFO has noticed huge debit balances in May 2017, which led to the forensic audit report, which revealed that the 1 st defendant had signed at- least 966 bearer cheques in favour of "RBIM Sales" and other entities. These were encashed in external beneficiaries' accounts. There is no contemporaneous document to support this contention. Plaintiff has filed a complaint on 10th November 2017 and an addendum to complaint on 8 th February 2018 with the Economic Offences Wing (EOW). The FIR was filed in March, 2018 by the EOW. It is contended that in the bail application filed by defendant no.1, he has confessed he discounted cheques and handed over cash to the defendant nos.2 to 5 who would have passed on proceeds of crime 18/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit to immediate family members or have passed few assets in their names. A disclosure is therefore sought in respect of these defendants. I had occasion to peruse the bail application filed by defendant no.1, in which he contends that he was thoroughly interrogated for six days and that he was working with the plaintiff-company since 1985. He was victim of circumstances since after discounting the cheques, cash was handed over to superior officers. His house has been searched long ago in 2018 and nothing was found. He has no antecedents. He claims to have been falsely implicated.
25. It is the case of the defendant no.2 that the present suit is filed as a counter-blast to the suit filed by him in this court for recovery of statutory dues. In his affidavit-in-reply, defendant no.2 has contended that the plaintiff has suppressed the fact that they have withheld about Rs.8 crores due towards statutory dues and emoluments, which had accrued prior to his termination of services. The suit is barred by limitation since the cheques were said to be issued between 2008 to 2017. The plaintiff was made aware of the fact that there were suspicious payments in favour of RBIM Sales by defendant no.6 on 10th March 2016 and in May, 2017, the plaintiff's CFO detected huge debit balances. The cheques being separate causes of action, the suit has been filed beyond time, the first cheque being issued in 2008. On account of delays, he has submitted that no interim relief can be granted as the plaintiff has not been vigilant or diligent. The delay has not been satisfactorily explained. The plaintiff filed its complaint with the EOW on 10 th November 2017; yet, the plaint, as I see, is lodged only on 24 th September 2020. True, a forensic audit 19/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit was carried out and the plaintiff contended that it is only upon receipt of the report that they were in a position to assess the extent of embezzlement of funds and take appropriate action.
26. The PWC Report is dated 15 th December 2017. Defendant no.2, in his additional affidavit dated 2nd January 2021, has relied upon the plaint in the suit filed by him. The suit is filed against (1) the plaintiff, (2) Trustees of the Bombay Dyeing Superannuation & Group Insurance Scheme, (3) Life Insurance Corporation of India and, (4) Trustees of the National Peroxide Limited Employees Provident Fund. The suit seeks (i) a decree in a sum of Rs.24.50 crores; (ii) a declaration that the termination of services vide notice dated 15th December 2017 was wrongful and; (iii) for payment of compensation amounts accrued on superannuation viz. pension (Rs.2.56 crores), provident fund (Rs.1.20 crores), leave encashment (Rs.72 lakhs) and gratuity (Rs.1.80 crores). That suit is pending.
27. The defendant no.2 has questioned the manner in which defendant nos.1 to 5 are sought to be bracketed together. No allegations had been made against defendant nos.1 to 5. The author of the forensic audit report has made report in 2017 and another one in 2018. Nothing has been found in the said reports against the 2nd defendant. Even in respect of the allegation of the plaintiff that defendant no.2 had acquired assets disproportionate to his sources of income, the forensic audit report records that defendant no.2 had purchased a 3 BHK flat that he was earning compensation to the tune of Rs.1 20/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit crore to Rs.2.5 crores over eight years, aggregating to Rs.17 crores. Thus, buying a 3 BHK flat is not so difficult with that income. The forensic audit report concludes that in the absence of evidence, they are unable to trace out the source of funds for investment in the flat by the 2 nd defendant. The rejoinder filed on behalf of the plaintiff repeats that financial fraud and embezzlement was committed by defendant nos.1 to 5. That defendant no.2 was one of the beneficiaries of the fraud being guilty of gross negligence and misconduct. Having signed 289 bearer cheques to the tune of Rs.8,576 crores drawn in favour of RBIM Sales sets out the various stages in the tenure of the defendant no.2 during his employment with the plaintiff. That in internal enquiries and in the meeting of the board of directions, the defendants could not offer satisfactory explanation for the losses and damages. Reliance is placed on the true copy of the board resolution and the 2 nd defendant's admission that he has signed over 300 bearer cheques and that he should have been more diligent.
28. Defendant no.3 was appointed as Sales Manager in January 1995. After promotions, he was Vice President (Marketing). He has deposed that there was no system put in by the management for issuance of cheques. He has placed reliance upon the observations in the forensic audit report that it is management's responsibility to ensure adequacy of design and implementation of internal controls, which were either non-existent or not said to be effectively implemented. He claims that defendant no.1 took advantage of the system. He claims that the PWC Report is silent as to his 21/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit involvement in committing the alleged fraud and embezzlement of funds. Defendant no.3's services were terminated in December 2017 for misusing his position and only on account of alleged negligence. On the other hand, defendant no.1 is specifically found to have embezzled the funds and his services were terminated for such embezzlement. As Vice-president (marketing), there was no occasion for defendant no.3 to deal with financial matters, although he was a signatory to the cheques in question. He has narrated an incident of October, 2017, which is also stated to be to the personal knowledge of the first informant one Shailesh Chauhan. After defendant no.1 stopped attending office he is said to have, met the 3 rd defendant and Chauhan at a restaurant, whereat defendant no.1 confessed that he has committed the fraud and had lost money in cricket betting. The FIR does not mention this incident. It is contended that the cheques were signed in good faith and later it appears to be manipulated by defendant no.1. According to the 3rd defendant, the finance department did not carry out monthly bank statement reconciliation.
29. In a rejoinder, while dealing with the affidavit-in-reply of defendant no.3, defendant no.3 is said to have co-signed 247 cheques, which were used for embezzling funds. He is sought to be held liable since he did not question the rationale for signing of bearer cheques in favour of RBI. Multiple cheques were signed purportedly for VAT/CST payments. Defendant no.3 has failed to set out the purpose for which the cheques were issued in the name of RBI. There was no justification in signing 247 cheques in the name of RBI, without 22/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit knowing the purpose. It is alleged that there were no supporting documents available for signing these cheques and thus attributes negligence and active participation in committing fraud. The six cheques signed were issued in the name of fictitious companies. Some cheques were issued to entities whose names were similar to some Wadia group companies. Defendant no.1 had signed one of these cheques. He should have known that the name of the company was incorrect. Defendant no.3 was arrested on 16 th February 2020 and the charge-sheet has been filed. In the rejoinder, there is nothing to suggest that the defendant no.3 was responsible for maintaining accounts, for authorizing, for drawing of cheques and for making these entries in the accounts of the company. Clearly, it appears that the defendant no.3 was in- charge of his assigned task, namely, that of sales and marketing. No additional charge of finance is seen to have given to him. No doubt, in some of the cheques, the signature of defendant no.3 appears first; however, nothing specific has been set out as to whether defendant no.3 signed the cheques first and then it was signed by defendant no.1. On the other hand, there is nothing to suggest in the plaint or in the rejoinder affidavit that defendant no.3 has initiated the fraud by signing the concerned cheques first. The Process and Accounting Manual at Exhibit-C to the rejoinder also does not provide for steps to be taken by a co-signatory.
30. As far as defendant no.4 is concerned, his reply is on similar lines to that of defendant no.3. Some of the paragraphs are verbatim reproductions of the affidavit filed by defendant no.3; however, the difference to be noted is 23/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit that defendant no.4 joined only on 17 th July 2013; as against this, defendant no.3 was joined in 1995. Defendant no.5 joined in 1988. Defendant no.4 was appointed as Vice President (Operations). Defendant no.4 worked for 4 years and 5 months till his services terminated on 15 th December 2017. He has contended that he was not involved in the financial matters. He attributes embezzlement to defendant nos.1, 2 and 5. His services were terminated only for negligence and not for committing fraud. He complains that his dues have not been paid and recalls certain incidents including one wherein he had questioned defendant no.1 as to why multiple cheques were prepared when all payments were required to be made to RBI. He was told that these cheques are to be shown in different accounts. He claims that defendant no.1 had even earlier forged the signature of the then CFO Subodh Desai and withdrawn a sum of Rs.10,000/- which was later returned. Therefore, no action was taken. He recalls that while in the office of the then company secretary, defendant no.1 required him to sign some cheques urgently and he had reprimanded defendant no.1 for making him sign on multiple cheques at the last minute. He had signed cheques in good faith after they were signed by defendant no.1, who was responsible to prepare the cheques and attending to financial affairs, and therefore he had not suspected defendant no.1. He has taken up all the contentions taken by defendant no.3 including the contention that suit was barred by the law of limitation. He has also relied upon the fact that his services were terminated on account of gross negligence attributed to him; whereas, defendant no.1 was held liable for the embezzlement of funds. 24/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit
31. In a rejoinder affidavit, Conrad Fernandes, the authorized representative of the plaintiff-company contends that defendant no.4 and other ex-employees committed the fraud are are beneficiaries of proceeds of fraud. No particulars are given as to how defendant no.4 or others committed the fraud. I find that knowledge of the fraud and participation in its perpetration is attributed to defendant no.4, apparently because he did not question the rationale in issuing bearer cheques to RBI, though multiple cheques have been signed by him during his tenure i.e. on the same ground as in the case of defendant no.3. The rest of the affidavit proceeds on the same basis as in the case of defendant no.3.
32. The defendant no.5 was the oldest employee from amongst defendant nos.1 to 5. He had joined in 1988, held various positions and resigned in June 2015 as CFO and before the alleged fraud was discovered. He admits to have signed 279 bearer cheques in which he was the second signatory and those cheques were signed by defendant no.1. These cheques were brought to his notice by the defendant no.1. The amount was small in comparison to the daily business of the company. The cheques were signed over five years period. He contended that if he was part of the embezzlement, he would not have resigned in 2015. Even after his retirement, he was requested by the management to train the new CFO in view of the long standing relations and some other employees also sought his help since he had access to online banking facilities of the company. I may mention here that it is not the case of 25/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit the plaintiff that the online banking facilities were misused by defendant no.5, but it does appear that at-least on one occasion, the sales manager of the company requested defendant no.5 to help in downloading certain bank statements. He avers that although his residence was raided after the FIR was filed, nothing incriminating has been found. The charge-sheet came to be filed belatedly and there is no material to link him to the alleged embezzlement of funds. Even the forensic audit report does not reveal his involvement in the alleged fraud. After arrest when he was granted bail, the order records that a house search had been carried out but nothing incriminating had been found. In this manner, he has denied liability and therefore he has opposed grant of ad-interim reliefs.
33. The rejoinder to the reply filed by the defendant no.5 proceeds on similar lines as that of defendant no.4. In fact, several portions are identical. It is however contended that the promotions of defendant no.5 were based on the recommendations of defendant no.2 and therefore the promotions are not relevant. The fact that defendant no.5 did not question the rationale for issuance of bearer cheques is not something in his favour since he has carelessly signed 279 bearer cheques. Some basic verification would have made him realize this. The majority of the cheques signed did not have supporting vouchers or challans. The challans if at all were included would be forged. The bank statements contained debit entries mentioning "RBIM Sales" were in his possession and with some application of mind, he could have realized that something was amiss. He was the CFO and being the CFO, it 26/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit was his duty to look into this and a basic inspection of the cheques would have alerted him. The plaintiff is unaware as to the extent to which defendant no.5 may have unjustly enriched himself and for that reason, it is contended that his assets must be disclosed. He was appointed as Consultant once again at the recommendation of the defendant no.2 and he continued to have access to Canara Bank account, from which monies were embezzled. Defendant no.5 was required to review and manage financial statements, supervise the MIS for review by the management and monitor cash flows.
34. The PWC Report sets out the background and scope of work wherein defendant no.1 is identified as the person who is alleged to have misappropriated funds in excess of Rs.25 crores by misrepresenting them as payments towards VAT/CST. The scope of work was to understand the methodology of embezzlement committed by defendant no.1 and identifying potential involvement of others. After setting out in the Executive Summary, the forensic auditors noted that it was the management's responsibility to ensure adequacy of design and implementation of internal controls, which were either non-existent or not effectively implemented. The signing of cheques was resorted to without proper diligence and there were no maker - checker controls. There was lack of segregation of duties. For instance, the defendant no.1 was able to prepare, sign cheques and record accounting entries and prepare bank reconciliation statements. Process and Accounting Manual were not followed and there was no review and reconciliation procedures in place. The rise in balances were not flagged by the auditors. 27/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit
35. The plaintiff-company has based its claim in the suit to a great extent by relying upon the PWC Reports dated 15 th December 2017 and 6th February 2018. It is therefore necessary to peruse these reports. The background and scope of work in both these reports is slightly different and as reproduced below ;
Background and Scope of Work in PWC Report dated 15 th December 2017 :
Mr. Nipul S. Trivedi ("Mr. Trivedi"), Manager, Finance and Accounts had been alleged to have misappropriated funds in excess of INR 25 crores by misrepresenting disbursements as related to payments for VAT/CST. Mr. Trivedi prepared manual bearer cheques in the name of "RBI" and had the authorised co-signatories sign these cheques. We understand that Mr. Trivedi verbally accepted committing the fraud and admitted to have lost the entire amount in gambling. NPL is interested in understanding methodology of the embezzlement committed by Mr. Trivedi as well as in identifying the potential involvement of others, if any.
In this context, National Peroxide Limited ("NPL") has appointed Price Water House Coopers Private Limited ("PWC") to conduct a fact finding investigation in ascertaining the methodology and aggregate quantum of fraud committed by Mr. Trivedi. The detailed scope of work of this investigation is stated in our engagement letter dated October 26, 2017.
Background and Scope of Work in PWC Report dated 6 th February 2018 :
We are given to understand that the Company's funds in excess of INR 25 crores were embezzled by misrepresenting disbursements as related to payments for VAT/CST. National Peroxide Limited ("NPL") is interested in understanding the methodology of the embezzlement 28/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit committed as well as in identifying the potential involvement of others, if any.
In this context, the Audit Committee of National Peroxide Limited in its meeting dated October 18, 2017 appointed Price Water House Coopers Private Limited ("PWC") to conduct a fact finding investigation in ascertaining the methodology and aggregate quantum of fraud. The detailed scope of work of this investigation is stated in our engagement letter dated October 26, 2017 and our addendum to the engagement letter dated January 3, 2018.
36. Thus, it is evident that while the first report focused on defendant no.1- Trivedi and the potential involvement of others based on the engagement letter of 26th October 2017, the second report is pursuant to an engagement letter and an addendum to engagement letter dated January, 2003. The court does not have the benefit of the engagement letters. Both the reports contain Executive Summaries, which list out the factors that the auditors identified that may have potentially aided defendant no.1 in embezzlement. The focus in the first report is more oriented towards defendant no.1; whereas, the second report appears more broad based. Both the reports refer to modus operandi believed to have been followed for embezzlement of funds. There are references to the documents, reviews, forensic technology procedures, market intelligence procedures adopted by the auditors in the first report. The second report contains an additional finding pertaining to Lohokare - defendant no.2 and Arun Naik - defendant no.5. The plaintiff-company has extracted the relevant data from these reports in the plaint. The reports are fairly detailed with year-wise summaries, but eventually covered by the standard 29/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit disclaimers. In a nutshell, the reports contain suggestions alluding to defendant no.2 and defendant no.5 having acquired property and assets, which were disproportionate. The reports do refer to such assets as "potential disproportionate assets". In the case of defendant no.5-Arun Naik, what stands out is that investments in the name of his mother-in-law were higher, had gone up from 2009 to 2014 from Rs.124.90 lakhs to Rs.805.52 lakhs. The reports specify that and seek to conclude that the investments of Naik family increased from Rs.237.02 lakhs to Rs.1,066.68 lakhs and this was largely due to increase in mother-in-law's income at Rs.805.52 lakhs. The property owned by him is also disclosed in the reports and the reports proceed on the basis that in the absence of evidence relating to source of funds for investments made by Mr. Naik's in-laws, no link could be established. In the present IA, the plaintiff had restricted its prayers to the defendants although the prayers include family members.
37. The reports also delve into the assets and lifestyle of defendant no.1- Trivedi which is found largely unexceptional. His lifestyle is said to be average and not flamboyant. As regards defendant no.2, the main contention is that he had booked a flat in the Lodha Group at Lower Parel at the cost of Rs.7.25 crores, of which he has paid Rs.6.05 crores. The defence is to the effect that he was managing director of the plaintiff-company and it has been is case that it is not so difficult to acquire a flat to that price given to his emoluments over the years. The reports do not identify the source of funds for want of evidence. It must be remembered here that the plaintiff has withheld more than Rs.8 30/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit crores admittedly owing to defendant no.2, in respect of which the suit has already been filed. One of the aspects being sought to be held against defendant no.2 is that he has deleted his WhatsApp messages while handing over his phone to the plaintiff-company, That is sought to be portrayed as an attempt to delete evidence. His response on the other hand is that private messages and his WhatsApp chats were not required to be handed over to the plaintiff while phone was being returned.
38. It is material to note that none of the defendant nos.1 to 5 have disputed that funds have been taken out of the company without legitimate justification or for the reasons unknown by numerous bearer cheques, but which were not utilized for the payment of taxes. The whole factual matrix is quite shocking and the fact that senior officers of the company had not questioned repetitive issuance of bearer cheques. In this behalf, the factors with potentially aided embezzlement had been identified by the first report and they are as follows :-
"Failure of senior management to exercise due diligence, weak internal control environment, non-implementation of NPLs process and accounting management, absence of review and reconciliation procedures, accounts raising suspicious on two individuals."
39. This leads me to consider identity of the persons named in the report and in this behalf, the first report in Section 3(c) reads as follows :-
"Our procedures have identified actions of two individuals leading to aroused suspicion i.e. Mr. Arun Naik and Mr. 31/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit Paresh Jayade, were either involved and/or had knowledge of the embezzlement of funds by Mr. Trivedi".
40. The reports then records findings. It deals with Mr. Naik's (defendant no.5) access to the plaintiff's banks and investment accounts after he had resigned in 2015. There were no board resolutions to authorize his continued association with the plaintiff-company. He was allowed to retain his laptop upto June, 2017. Apparently, this was approved by the IT team of the plaintiff-company and a note has been referred to by the auditors in the reports. They have expressed surprise as to why Naik's cell numbers were retained as the point of contact with SBI and Canara Bank and also plaintiff's investment accounts post his resignation. When Naik was asked why this was so, according to the reports, he stated that on multiple occasions, he had requested defendant no.1-Trivedi to inform the bankers, but the change was never made. This is an aspect that is perplexing. Furthermore, none of the marketing team members or others had raised any concerns about bank statements being received from former employees and his access was disabled only in November, 2017, by which time, the first report was well underway since they were engaged in October, 2017. Thus, even after the investigation has progressed, defendant no.5-Arun Naik was permitted to access the bank statements. His version is that the new CFO required help in taking charge and that he was requested to discharge this function as well as a consultant; however, the fact remains that there has been no formal appointment of defendant no.5-Naik for this purpose.
32/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit
41. The plaintiff would submit that this was authorized by defendant no.2- Lohokare, who was the then managing director. But, the first forensic report does not specifically deal with this aspect. The second individual mentioned in the report is one Paresh Jayade. The auditors interacted with him and he contended that his role was limited to compiling data during VAT audits. According to his version, the net position at the plaintiff's organization would have been that proceeds of VAT/CST would be higher than VAT/CST collected by the company. The auditors found Jayade knowledgeable about sales tax rates, although he was not involved in sales tax matters and claims he never seen local sales tax payable or central sales tax payable accounts. These were managed by one Trivedi - defendant no.1. However, one interesting fact that the report records is that the auditors' electronic discovery procedures employed on Trivedi's desktop found five emails exchanged with Jayade, all of which were identical in language except for change in the amount. These are part of the first report, copies of these emails have been set out at Section 1.8 in the first report. According to the auditors, the emails exchanged requests Trivedi to make payments of VAT and the amounts in the emails are identical to amounts that were withdrawn as "RBIM Sales" a few days after the date of the emails. In this respect, it is also observed that Trivedi appears to have forwarded an email received from Jayade requesting for VAT payment back to Jayade and in these two instances, within a span of a few minutes, Jayade sent a fresh email to Trivedi requesting VAT payments. The auditors thus indicate the potential involvement or knowledge of Jayade in the embezzlement of 33/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit funds. The report also sets out at page 208 the chronology of dates and amounts of the cheques, juxtaposed with the emails exchanged with Jayade and Trivedi, three of which are seem to have been marked in copy to defendant no.5-Naik. Thus, at-least three of these cheques for amounts of Rs.8,81,443/-, Rs.8,76,987/- and Rs.8,76,419/- were issued in response to the emails referred to above. Thus, it is improbable that defendant no.5 was unaware of these developments, if indeed he was co-signatory to these cheques. The reports contain detailed analysis of the cheques in the names of various past signatories of the cheques. In this respect, discussions held with Naik by PWC auditors and forming part of the reports revealed that according to Naik, plaintiff-company always paid their direct taxes through the SBI account, but since Trivedi never informed him that since VAT and CST department accept only cheques, they were paying it manually and not through net-banking. Naik also explained that the cheques for payments of VAT and CST were prepared by Trivedi, but were unsupported by payment vouchers and calculations and that was not the practice followed in the plaintiff's organization. He admitted to have signed cheques sent by Trivedi on the basis of availability of the second signatory. At times, cheques were also sent to Naik's residence and apparently Naik did not question Trivedi as to why cheques were being issued for payment of government dues such as VAT and CST.
42. It does strike one as odd that in the absence of any formal appointment by the plaintiff-company, defendant no.5-Naik continued to access the bank 34/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit account, download statements and provide to those still in the employer- company. Naik also observed that after having read the SEBI complaint filed by the plaintiff-company about the fraud committed by Trivedi, defendant no.5 felt that Trivedi was incapable to perpetrate a fraud of this magnitude and believed that someone would have internally and / or externally supported him, but Naik did not give any names or reasons. The whole affair thus is rather bizarre. The plaintiff-company does not appear to have proceeded against Jayade at all. The report records discussions held with Jayade as well. Section 1.8 of the first report reproduces the emails from Jayade and one was addressed to Trivedi and Naik. Although a further reference is made in paragraph 2.4.2 of the report to the fact that defendant no.5 was the sole approver for 73 RTGS transfers, some others were by defendant nos.2, 3 and 4, who were the first approvers, with the assistance of Trivedi, who was the maker / initiators of 102 out of 128 RTGS transfers. One Saravia initiated 24 transfers and Jayade initiated 2 transfers. While Jayade's name appears in the tabulated form, the name of Saravia does not. Although the reports are the basis on which the suit is filed and the time was taken for analysis of which is one of the reasons given for delay in approaching this court the plaint contains no reference to the role if any played by Jayade. The auditors appear to have focused on the assets of Trivedi, Naik and Lohokare and not much emphasis is laid on the assets of the defendant nos.3 and 4, although defendant nos.3 and 4 who have also counter-signed the bearer cheques and Jayade who was party to the email exchange. 35/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit
43. Naik's reliance on the order granting him bail and as set out in paragraph 15 of his affidavit-in-reply is rather misleading inasmuch as paragraph 15 suggests that the bail order observed that "the defendant no.5 had shown evidence that all money investigated (*sic) is his hard-earned money"; however, the order does not say so. It merely records defendant no.5's averment in his bail application to the effect that "he has produced the documents to show that all the money investigated (*sic) is his hard-earned money". Thus, the reasons in the bail order do not certify Naik's investments are a result of hard-earned money. Thus, we have a set of allegations in the plaint, which seek reliance on the PWC Reports. The PWC Reports themselves seek to analyze the modus operandi and in its detailed findings after observing that the persons the company suspected to be involved were defendant nos.1 to 5, goes on to analyze assets of only defendant nos.1, 2 and 5 (see pages 210 and 212). Section 4 (defendant no.5) and Section 5 (defendant no.1) analyzes the time line of Trivedi's association with the plaintiff and an illustrative email from defendant no.5 providing bank statements of Canara Bank to Trivedi (Exhibit 1.6) and the identical language of emails exchanged between Paresh Jayade and Trivedi and Naik.
44. The second report provides additional findings on defendant nos.2 and 5 and a brief reference to Trivedi's whereabouts and assets, classifying it inter alia as hear-say. The result of enquiries indicated that Trivedi's lifestyle was average and not as stated above. There is no detailed study of assets or 36/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit increase in assets of defendant no.3 or defendant no.4. The plaintiff provides no explanation or the basis of their suit seeking identical reliefs against these two defendants. This must be read with the fact that their letters of termination alleged negligence but not embezzlement. The allegation of embezzlement is only against Trivedi. The allegation against defendant no.2 is also of negligence, resulting in prompt termination of his services. Defendant no.5 had meanwhile resigned in 2015.
45. It is in this background that I have considered the prayers in the IA. As stated earlier, the plaintiff had restricted the relief sought in prayers of the IA to defendant nos.1 to 5 for the time being and did not press for reliefs against the immediate family members. As far as defendant nos.6 to 19 are concerned, they are required to preserve all documents. Although defendant nos.10 and 11 have not appeared, they would be bound by identical directions. Thus, what remains to be considered is whether the plaintiff had made out a case for a direction against defendant nos.1 to 5 to disclose on affidavit particulars of all their dealings with the plaintiff's funds forming part of the suit claim and defendant nos.1 to 5's assets and properties and documents of ownership of such assets and properties including balance- sheet for financial year 2008-09 till date. Upon such disclosure, to attach such properties of defendant nos.1 to 5 and to issue a temporary injunction restraining and prohibiting defendant nos.1 to 5 from dealing with, alienating, parting with possession of these assets and properties. Taking an overall view of the factual aspects, as pleaded in the plaint, the plaint 37/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit attributes to defendant nos.1 to 5 for embezzlement of the funds of the plaintiff. Defendant no.2 had executed a charter of authority dated 1 st July 2015 retaining most of the approving authorities, but this charter of authority is seem to be prepared and reviewed not only by defendant no.4-Goyal but also by one Sunil Londhe, who was the plaintiff's CFO between July 2015 to August 2016. The plaintiff have no grievance against the said former CFO.
46. The Charter of Authority which the plaintiff considers as a fraud enabling measure structured by defendant no.2 is seen to have been prepared and reviewed by four individuals and approved by defendant no.2. I do not find this to be a good foundation for the plaintiff's allegations against defendant no.2, since there are several other people/numerous persons, who have been authorized by the Charter of Authority including the then CFO- Sunil Londhe, the company secretary. As far as defendant no.2-the Managing Director is concerned, his reporting authority is said to be the Chairman. The question whether this was without board approval has not been established. Since almost every department of the plaintiff is seen to be involved, this is effective from July, 2015, where the CFO's name has been included as an authorized person for signing cheques. The CFO at that time was S.B. Londhe and not the defendant no.5. Therefore the Charter of Authority would be of no avail. These are aspects that will be considered at the stage of trial and after the defendants file their written statements. At this interim stage, there are several aspects which plaintiff itself has not explained such as the role of Jayade if any. Despite the direct evidence being pointed out, one is left 38/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit wondering why the plaintiff has made no allegations against him at all. There appears more than meets the eye. The letter of termination of defendant no.1 records that a thorough investigation is carried out, which resulted in 1,153 bearer cheques being issued and the amount of about Rs.30.47 crores had been embezzled. The amounts of 1,153 bearer cheques do not found to be embezzled and he was first signatory to those cheques, which he altered from RBI to RBIM Sales. These cheques were then encashed and amounts were concealed in the books of accounts as being related to VAT and CST. Surely, at this stage, the company would have the benefit of the first PWC Report dated 15th December 2017 since it is on 27 th December 2017 that defendant no.1's services were terminated. On the same day, the services of defendant no.2 were terminated on account of gross negligence. The termination letters of defendant no.3-Jain and defendant no.4-Goyal are also dated 15 th December 2017, once again, for having acted in gross negligence. Defendant no.5 had resigned by then.
47. In support of the plaintiff's contention, the plaintiff has relied upon an observation of the Division Bench of this court in the case of Bashir Ahmed Chand Shaikh Vs. State of Maharashtra and Anr. 7, wherein reference was made to the fact that the Supreme Court has overlooked the delay and the Supreme Court had taken note of serious allegations of fraud although there was a delay of 13 years. Mr. Kamat seeks to draw a parallel by contending that in the present case also, merely because the fraud was committed over 7 [2010 (1) Mh.L.J. 500] 39/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit several years, it became actionable only after the PWC Report was made available. I am afraid that is of no avail in the facts at hand. Despite the fact that defendant no.6 had already informed the plaintiff of suspicious transactions having reference to the cheques issued in the name of "RBIM Sales" in March, 2016 and that in May, 2017, the plaintiff's CFO also detected these huge debit balances; yet, a suit is filed only after expiry of the period of limitation on 24th September 2020 and the ad-interim application has been moved belatedly.
48. Taking an overall view and considering the fact that the plaintiff was alerted of this way back in December, 2017 and had all relevant information provided under the PWC Reports as far back as in February 2018, I am of the view that the delay has not been satisfactorily explained. Although the amount involved is fairly large, the plaintiff's response does not demonstrate diligence that would have been expected after the PWC Reports were filed. There is no doubt that fraud must be pleaded meticulously and in detail. Bald assertions and vague allegations are not sufficient there can be no presumption of fraud as detailed in the judgments cited by Mr.Pandit. For that matter in Raman Tech & Process Engineering Co. and Anr. Vs. Solanki Traders the Supreme Court reiterates the court should be satisfied that there is a reasonable chance of a decree being passed in favour of the plaintiff. An order of attachment before judgment cannot be granted mechanically nor should an injunction be issued merely because a suit is filed against the defendants. In the facts at hand I find no justification in granting reliefs 40/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit sought. Given the delay in approaching court In my view, no case is made out for attaching property before judgment especially since dues of most of defendant nos.1 to 5 have been withheld.
49. The plaintiff's case is based on the fact that bearer cheques were repeatedly issued and that senior managers had failed to take notice of these instances, but one cannot lose sight of the fact that the PWC Reports have narrowed down the involvement of Defendant no.1, the said Jayade and defendant no.5, as referred above. In the face of a specific reference to the probable involvement of Jayade, plaintiff has not explained why it believed that he was not involved or that the mention of his name was erroneous. Read with the fact that the termination of services of the defendants, especially defendant nos.3 and 4 had occasioned based on the allegations of negligence and upon failure to prevent repeated issuance of bearer cheques, no case is made out for grant of reliefs in the IA against these persons as well. As far as the disclosures are concerned, the PWC Reports had collected information about certain properties of the defendants. The Plaintiff has however chosen not to act in relation to those properties. It will not be appropriate to make any observations on the merits of the plaintiff's case that the assets of the family members have shown a marked increase. Reliefs sought in the IA have been restricted against defendant nos.1 to 5. Prayer clause (a) inter alia seeks a direction to disclose particulars of the defendants' dealings with the plaintiff's funds forming part of the suit claim. Grant of relief would lead to a presumption that the defendants have been found to have misappropriated 41/42 1-SL-3989-2020 & IA-3992-2020.doc Dixit plaintiff's funds. That is clearly not warranted. The relief sought about details of extent and ownership of assets of defendant nos.1 to 5 and their balance sheets from financial year 2008-09 are extremely wide. The relief of attachment and injunction of the nature sought is also not justified since the main prayer of disclosure in the IA proceeds on the presumption of the defendants being beneficiaries. That having been said, I have observed that several persons have noticed these discrepancies in the accounts and they would be material witnesses. The signatory to the plaint does not appear to be personally aware of the on-goings at the material time. I am therefore of the view that the plaintiff has failed to make out a case for grant of interim relief. Considering the facts of the case and the age of some of the defendants, I find it appropriate that hearing of the suit should be expedited.
50. In the circumstances, I pass the following order :-
(i) IA is dismissed.
(ii) Suit is expedited.
(iii) No costs.
(A. K. MENON, J.)
Sneha Digitally signed
by Sneha A. Dixit
A. Dixit Date: 2021.02.09
16:22:37 +0530
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