Calcutta High Court
Mangalam Agro Products Ltd vs Unknown on 10 June, 2014
Author: Patherya
Bench: Patherya
ORDER SHEET
CA 304/2014
CA 30/2014
IN THE HIGH COURT AT CALCUTTA
Original Jurisdiction
ORIGINAL SIDE
IN THE MATTER OF : MANGALAM AGRO PRODUCTS LTD.
BEFORE:
The Hon'ble JUSTICE PATHERYA
Date : 10th June, 2014.
Ms. M. Bhutoria, Adv., with Mr. A. Ghosal, Adv., Ms. U. Chakraborty, Adv., and Mr. P. Chakraborty, Adv., appear for debenture holders.
Mr. D.K. Kundu, Adv., with Mr. A.Basu, Adv., for RBI.
Md. A. Ali, Adv., for CBI.
Mr. P.K.Dutt, Adv., with Mr. S.K. Dutt, Adv., And Mr. S. Das, Adv., for SEBI.
Mr. V. Adhikary, Adv., for debenture holders.
Mr. M. Bhargava, Adv., for ROC.
Mr. D. Acharya, Adv., for Debenture holders.
Mr. T. Talukdar, Adv. appears with Mr. S. Chakraborty, Adv. and Mr. A.K. Das, Adv.
Mr. A. Ray, Adv., with Mr. A.K. Chatterjee, Adv., and Ms. N. Jalan, Adv., appear. The Court : This application has been filed by the applicant under sections 391(1) and 391(6) of the 1956 Act seeking to convene a meeting of its creditors to approve a scheme of arrangement.
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The scheme of arrangement postulates payment to the debenture holders and persons from whom loans have been taken. The only reason for seeking a meeting of the creditors is to pay such creditors their dues within the time specified in the payment schedule and for better functioning of the applicant company.
The said application is opposed by a number of debenture holders on the ground that upon publication of advertisements, copies of application, though sought, have not been given; no inspection has also been allowed. The names of many of the debenture holders have also not been included in the payment schedule. This is nothing but an intention of the applicant company to defraud a large number of debenture holders so also the bond holders and recurring deposit holders. The scheme is not a scheme as known in law. It is in the form of a payment schedule which has been certified by the chartered accountant of the company who has vouched for the management's capability to pay off its liabilities to its investors. The payment schedule deals with debentures and loans. The loans are to carry interest which finds no mention in the balance sheet of 2012-13. In the balance sheet of 2012-13, the chartered accountant has categorically stated in his report that the company has neither granted nor taken any loans, secured or unsecured. But the balance sheet proves otherwise. Short term borrowings so also long term borrowings are reflected in the balance sheet dated September 2, 2013. While Form 20B has been filed in respect of non-convertible debentures of Rs.100/-, aggregating to Rs.11 crores in value, there is no mention of the debentures of Rs.10/-. A sum of Rs.53 crores has been taken as interest free loan from associates and was to be repaid in one year's time. Vis-a-vis this, loans have also been given by the company to concerns in which the directors have significant influence. These loans are also interest free. Therefore the payment of interest postulated against loans in the repayment schedule is contrary to the disclosures made in the balance sheet. In view of the incorrect disclosure so also violation of the Debenture 3 Trustees Regulations, an independent agency, preferably CBI, be appointed to investigate into the affairs of the applicant company. There has been violation of section 67 of the 1956 Act which postulates that in case of offer to the public of debentures above 50 in number, an application for listing ought to be filed under section 73 of the 1956 Act and in case of default within the time stipulated in section 73(2) of the 1956 Act, monies be refunded, if necessary with interest. It is in the financial year 2012-13 that Rs.11 crore has been realised by the applicant company from the public at large. The number of debenture holders aggregates to about 80,000/- while the number that finds mention in the payment schedule is only 8227. Admittedly, the number is beyond fifty. Therefore it required compliance with section 73 of the 1956 Act. Although an application was made by the Reserve Bank of India to SEBI in June 2013, all that SEBI has done till May 30, 2013 is to come to a prima facie finding which is prospective in nature and contains no direction upon the company to repay sums. From time to time, records were filed before the ROC, but no proper scrutiny was made as no step has been taken in accordance with law. As the properties of the applicant company are spread in States of Jharkhand, West Bengal, Orissa and Assam, an independent agency like CBI ought to be appointed to trail the money of the applicant company. In the petition filed by the applicant company, the circumstances which necessitate the scheme of arrangement have been set out. The scheme of arrangement is a proposal to pay the creditors. The creditors who find mention are the debenture holders and persons who have given loans. There is no mention of the bond holders or the recurring deposit holders. Therefore, as held in (2013) 1 SCC 1, CBI as an investigating agency be appointed or SFIO be appointed as directed in 179 Company Cases 166. Investigation has been supported in 177 Company Cases 1. Section 235 and section 237 of the 1956 Act permit investigation into the affairs of a company by the Central Government. Therefore, an investigation is 4 necessary in the instant case in view of the aforesaid and an independent agency be appointed.
Counsel for some of the debenture holders submits that the objection raised by some of the debenture holders is premature. All that is being sought to be done by the company is to convene a meeting of the creditors and none is aware of the result of such meeting. 80% of the debenture holders are being represented by him and to direct an independent agency to investigate at this stage will be prejudicial to the interest of the company which is proposing payment under a scheme of arrangement. Therefore the objection be overruled and orders be passed as sought by the applicant company.
Counsel for the writ petitioner in W.P. 14003(W) of 2014 submits that four debenture holders have filed a writ petition wherein an investigation by the Enforcement Directorate is sought. This is based on sale effected by the applicant company of a property in Orissa when all the branch offices thereat are lying closed. This therefore evidences the fraudulent intent of the applicant company.
Having considered the submissions of the parties no order can be passed on this application as the applicant company seeks to convene a meeting of its creditors on the basis of the scheme of arrangement. The scheme of arrangement when looked into is a repayment schedule which has been certified by the company's chartered accountant vis-à-vis the ability of the management to pay its liabilities under a repayment schedule. On a perusal of a repayment schedule what transpires is that the only class of creditors which has been considered for repayment, are the debenture holders and persons from whom loans have been taken by the company. This may be individuals, corporates or associates of the applicant company. While the pleading in the petition relates to creditors, the creditors have been described in the repayment schedule. Persons from whom loans have been taken by the applicant company cannot be termed as creditors, more so when the balance sheet of the company for the year 5 2012-13 has specifically disclosed that interest free short term borrowing had been made by the company so also short term loan and advance had been given by the company without interest. Both of these borrowings and advance despite being interest free, in the repayment schedule surprisingly the element of interest on loan taken by the company finds mention. This is contrary to the disclosure made in the balance sheet annexed to the petition. Another surprising factor to note is that the applicant company while making a borrowing of Rs. 53 crores has made advances of Rs. 14 crores and that too without interest. It is not only the debenture holders to whom payment will have to be made by the applicant company but payments will also have to be made to the bond holders and the recurring deposit holders who find no mention in the repayment schedule. In fact many of the debenture holders who have come to Court through Mr. Abhijit Ghosal find no mention in annexure 'G' which is the list of the debenture holders numbering 8227. It is quite possible that the applicant company at this stage seeks to only convene a meeting of the debenture holders but then that should have been categorically mentioned in the application filed. The interest of the bond holders so also the recurring deposit holders should have also been protected but the bond holders and the recurring deposit holders find no mention and this somewhat gives the Court the feeling that the applicant company has suppressed material facts. This feeling arises out of various acts of the applicant company. The first being mention of only the debenture holders at Rs. 100/- in Form 20B and non mention of the debenture holders at Rs. 10/-. Second the representation made with regard to the debenture trustees which in fact is contrary to the debenture trustees regulation of SEBI. On behalf of the applicant company it has been contended that the debentures were offered privately and not to the public at large, therefore the provisions of Sections 67 and 73 of the Companies Act will not come into play but SEBI's findings in its report of 30th May, 2014 is otherwise. SEBI has prima facie held that the applicant company was prima facie engaged in mobilising fund from the public by 6 offering non-convertible debenture. It is also held that there has been violation of the Companies Act and Debts Securities Regulation. Therefore the contention of the applicant company that debentures were offered only to its associates cannot be accepted as the said report of SEBI remains unchallenged till date. As the debentures offered is above 50 necessary listing permission was required to be taken by the applicant company and for not complying with the relevant provisions Section 73(2) would come into play. Therefore the application filed is nothing but an attempt by the applicant company to defraud its creditors and more particularly the debenture holders which is the class identified. Even after notice was published and a request was made to furnish copies it has been contended by some of the debenture holders that no inspection was given nor copies served. Therefore this application cannot be entertained and ought to be rejected.
But the affairs of the applicant company is startling. It is unbelievable that while the auditor's report will reflect that no loan has been granted or taken by or from the applicant company the balance sheet will reflect otherwise. The balance sheet of 2012-13 reflects non-convertible debentures worth Rs. 11 crore as follows :
Rs. 50 lakh debentures at Rs. 10/-
Rs. 6 lakh debentures at Rs. 100/-
The company has sought to comply with the statutory provisions by filing form 20B but the said form does not reflect the correct picture. While the worth of the debenture has been stated, the nature of the debentures find no mention and in particular Rs. 50 lakh debenture of Rs. 10/- each. Admittedly in the balance sheet of 2011-12 the debentures find no mention. From the list of debenture holders which is annexure 'G' to the application it appears that some of the debentures were issued in December, 2009, September, 2010, November, 2010 December, 2010 so also January, February, March, 2010. This therefore makes the state of affairs of the applicant company questionable. 7
Counsel for the writ petitioner in W.P. 14003(W) of 2014 has sought to intervene in this proceeding along with some of the debenture holders who have filed their vakalatnamas through A.K. Chatterjee & Co. and Mr. Abhijit Ghoshal and one striking submission made on behalf of such writ petitioner is that inspite of the branch offices in Orissa lying closed a valuable property has been sold by the applicant company in 2013. If this be the affairs of the company, it is not only alarming but makes one fear the plight of the debenture holders, recurring deposit holders and bond holders who have invested their savings by placing confidence in the applicant company and it is only to protect the confidence of the investors from being shaken and shattered that an investigation must be directed. Section 235 of the Companies Act permits the Central Government on the basis of a report made by the Registrar to direct an inspector to investigate into the affairs of the company. In the instant case there is no such report. Therefore Section 237 of the Companies Act must be taken recourse to which deals with investigation into the affairs of the company in other cases. This is one such case and accordingly the Central Government is directed to appoint an agency and preferably the Serious Fraud Investigation Office (SFIO) which functions under the Ministry of Corporate Affairs to investigate into the affairs of the company. This direction has been given as it appears that the company was conducting its business with an intent to defraud its creditors.
By order dated 6th May, 2014 a Special Officer was appointed to take possession of the assets, properties and bank account of the applicant company. Such Special Officer on appointment of the SFIO by the Central Government shall stand discharged. The Central Government on appointment of SFIO is directed to intimate such appointment to the Special Officer and the parties.
The order of injunction passed shall also remain operative till the appointment of SFIO. It is made clear that the reliefs sought by the applicant 8 company stands rejected, and it is only for the ends of justice that investigation has been directed.
SEBI, in its report dated May 30, 2014, has formed a prima facie opinion and called for replies from the applicant company, its directors and its debenture trustees. Let steps be taken pursuant to the report dated May 30, 2014 by SEBI so also the applicant company, if so advised.
On the prayer of counsel for the Central Government, the Central Government is directed to appoint the SFIO within three weeks from the date of receipt of this order.
It is made clear that upon appointment of the agency mentioned above, the assets and properties of which possession has been taken by the Special Officer shall be handed over to such agency by him including the bank accounts.
Urgent certified photocopy of this order, if applied for, be supplied to the parties subject to their compliance with all the requisite formalities.
(PATHERYA, J.) Tk/TR