Madras High Court
Smh Finance (P) Ltd., Shylendran ... vs The Secretary To Govt., Home Department ... on 24 October, 2002
JUDGMENT E. Padmanabhan, J.
1. Writ petition No.13765 of 2002 has been filed by SMH Finance Private Limited and five other Private Limited Companies praying for the issue of writ of certiorari to call for the records of the first respondent pertaining to G.O.Ms.NO.182, Home(Court IIA) Department, dated 6.3.2002 and quash the same.
2. Writ Petition No:34455 of 2002 has been filed by the same six petitioners to cal for and quash G.O.Ms.No.363, Home (Courts II A) Department, dated 29.4.2002 and quash the same.
3. The grievance and the contentions being identical, both the writ petitions were ordered to be consolidated when the stay petitions came up for hearing. The learned senior counsel appearing for the writ petitioner as well as the learned Public Prosecutor appearing for the respondents 1 and 3 jointly requested that the writ petitions may be taken up for final disposal. As the contentions are one and the same, accordingly, both the writ petitions were taken up for hearing.
4. Heard Mr. R. Krishnamurthy, senior counsel for Mr. Srinath Sridevan, appearing for the writ petitioners in both the writ petitions, Mr. I. Subramanian, Public Prosecutor, appearing for respondents 1 to 4 and Mr. S. Sundar, learned counsel appearing for the 5th respondent-Association which was impleaded pending the writ petitions.
5. After conclusion of the arguments at the request of MR. R. Krishnamurthy, the writ petitions were listed on three different occasions as it was suggested that the petitioners in both the writ petitions will be in a position to bring in substantial funds, that this court may frame a scheme with respect to the affairs of the companies and that the claim of all the depositors could be settled. This resisted by the respondents as it is not bona fide and That to show their bona fide the petitioners should bring in substantial amount. It is pointed out that on the earlier occasion the petitioners represented that it will bring Ten crores of rupees, so that all substantial claims could be settled very easily and there is no necessity to proceed against the assets of the petitioners under the Tamil Nadu Protection of Interest of Depositors (in Financial Esttablishments) Act, 1987 (Tamil Nadu Act XXXXIV of 1997). This court while pointed out that in the nature of relief prayed for it will not be proper for this court to examine the said position. However, Mr. R. Krishnamurthy with his usual sweetness persuaded his court to explore the possibility. However, on hearing both sides this court suggested that if the petitioners deposits Rs.5 crores in the light of the total liabilities already assessed as well as the total assets available as reported by the Investigating Agency, the court may consider framing of a scheme, provided if appropriate writ petition is moved.
6. After taking three adjournments, the learned senior counsel expressed that it is not possible for the petitioners to come forward with any payment or any part thereof, but only submitted a letter written by the Diocese Bishop of Kumbakonam offering to purchase the property located at Door No.2, Park Street, Thuraiyur Town, Trichy District, comprised in S.F.No.65/3, 65/4 measuring 6.58 acres for a consideration of Rs.1,43,31,240/=. The learned senior counsel persuaded this court to grant permission to sell the said property so that the sum of Rs.1,47,31,240/= will come to the hands of this court and like this other properties could be disposed of. While expressing apprehension such schemes have not worked effectively and ultimately the object with which such schemes have been framed is not proved to be successful, this court expressed apprehensions and conveyed to the petitioners that unless substantial sum namely Five crores of rupees is brought, there is no chance of this court examining the possibility of framing of a scheme. Ultimately it was represented by the learned Senior Counsel that the petitioners are not in a position to bring money and that they may try to get the purchasers. There being no positive action and the petitioners having gone back from their earlier representation this court made it clear to the counsel on either side that the contentions advanced in the writ petitions will be examined on merits and orders will be passed on merits.
7. The six private limited companies have come before this court challenging (i) G.O.Ms.No.182, dated 6.3.2002 and (ii) G.O.Ms.No.363, Home (Courts-IIA) Department, dated 29.4.2002 by which orders the State Government in exercise of powers conferred under Section 3 of The Tamil Nadu Protection of Interest of Depositors (in Financial Establishments) Act, 1997, ordered interim attachment of cash and other properties of M/s. Sowdambika and its sister concerns namely Shylendran Finance (P) Ld., Manjai finance (P) Ltd., Coimbatore Raj Shylendran (P) Ltd., Coimbatore JHM Finance(P) Ltd., T.S.S. Investments (P) Ltd., carried on business at No.66, Oppanakkara Street, Coimbatore, as detailed in the schedule in both the G. Os and also ordered transferring the control over the scheduled items with the Commissioner of Land Administration, Chennai-5 which is appended under the Act for the purpose. In the schedule the name of the owners, the details of the properties, their survey numbers, location, extent have been set out, besides the current accounts in the Banks standing in the name of six firms. IN the schedule annexed to the G. Os the details of immovable properties have been set out and and various particulars to identify the properties. The said G. Os are being challenged by the six petitioner-private companies contending that no action could be taken against the petitioners, which are private limited companies and there could be no action against the petitioners under the provisions of the Tamil Nadu Protection of Interest of Depositors (In financial establishments) Act, 1997.
8. According to the petitioners action has been initiated and attachment orders have been passed on the sole premise that the petitioners are firms while factually the petitioners are private limited companies. It is contended that the action of the first respondent is arbitrary and without jurisdiction. It is further contended that the petitioners being companies which are governed by the Indian companies Act, Section 2 of the Tamil Nadu Act 44 of 1997 will have no application either with respect to the petitioner companies or the petitioner-private limited companies or the properties owned by them. It is claimed that the partnership firms have been converted into private limited companies, therefore the respondents have neither the authority nor the jurisdiction to pass the impugned proceedings. This s the sum and substance of contention in both the writ petitions.
9. In the counter affidavit filed by the respondent No.4, it is stated that the old Firms are continuing their business activities even as of present and with the same nomenclature or style. Mr. S. Monohar has received a number of fixed deposits from various customers in the firm's name and issued signed deposit receipts. This has been admitted by the said Manohar before the Competent Authority as seen from the statement dated 11.6.2002. T.S. Sambamurthy has been carrying on business for over four decades. Sowdambika Finance Corporation was started during the year 1972.T.s.Sambamurthy Firm, Sow Finance and Samundeeshwari Finance were started during 1986, Sowdeswari Finance was started in 1987, Saraswathi Investments was started in 1989 and Jayashree Investments was started during 1990. All those firms have defaulted in the repayment of fixed deposits to the customers during 1990 and the averments to the contra are incorrect. The six writ petitioner companies were incorporated on 30th March 2000 and certificate of incorporation were issued during the year 2000 by the Registrar of Companies. This would show that the six companies were incorporated under the Companies Act on 31.3.2000 as new companies and not as reconstitution or conversion of the old firms into new companies under the Companies Act. The proceedings of the Company Law Board relates to six of the new companies and they have no connection with the finance firms against whom the G. Os impugned have been passed. The investigation by the Coimbatore Economic Offences Wing-II Crime Nos.7,8,9,10 and 11 of 2001 and 10 of 2002 under Section 409, 420 IPC and 5 of TNPID Act relate only to the defaults committed by the six firms. The Registrar of Firms also has issued a certificate to the effect that the six are only firms registered under the Indian Partnership Act and they continue to be partnership firms even as on date. The allegation that the respondents 2 and 3 are giving trouble to the petitioners are denied as false. The third respondent has never visited the office of the petitioner and the 4th respondent visited the office of the petitioners only after registration of crimes. The claim that the petitioners have repaid the depositors has to be proved by the petitioners. It is incorrect to contend that the petitioners have repaid Rs.17 crores out of the outstanding deposits of Rs.22 crores and such a claim is false. There is material to prove that the petitioners have repaid a total sum of Rs.34,14,000/= only and the outstanding balance to be refunded is to the tune of Rs.13,35,01,665/=. The contention that the respondents have registered a case under wrong impression or mistaken impression is not correct and five criminal cases were registered against Sambamurthy Firm, Sowdeswari Finance, Sow Finance, Jayashree Investments and Saraswathi Investments in Crime Nos.7/2001, 8/2001, 9/2001, 10/2001 and 11/2001 respectively under the TNPID Act and under Section 409 and 420 IPC as there is prima facie case as seen from materials available in this respect. Even before the alleged conversion of the firms into companies those firms have committed defaults in the return of matured deposits and that they could be very well proceeded under the Tamil Nadu Act. The partnership firms are yet to be dissolved and the partnership firms and their partners are still carrying business. The 4th respondent has issued no objection for sale of some of the properties to settle the liabilities of the petitioners. There is a direction by the Company Law Board to the petitioners to repay the amounts due to the depositors on or before 30th September 2000 and the petitioners were also permitted to sell the immoveable properties for return of the deposits which the petitioners failed to avail. Only thereafter the crimes were registered and investigated. As number of depositors and defaulted deposits amounts are alarming, Section 3 of the TNPID Act was invoked and the impugned G. Os have been passed as the modus operandi of the petitioners was to cheat the general public and their deposits.
10. According to the investigation Rs.13,35,01,665/= is the amount to be repaid to the depositors. Mr. S. Manohar, the Managing Director of the six petitioner companies admitted in his statement before the competent authority that an amount of Rs.9.056 crores and interest was due to be repaid to the depositors. This necessitated for the passing of the two impugned G. Os.
11. It is contended that the first respondent passed the two impugned G. Os on the report submitted by the third respondent based upon the materials collected during the investigation by the 4th respondent. Innumerable number of depositors have given complaints. The six firms have committed the offences punishable under the Tamil Nadu Act as they have defaulted to return the matured deposits. Substantial number of deposits have been secured by the partnership firms and they continued to carry on the business. It is not the case of the petitioners that they are non banking institutions which have secured the necessary licence or permission of RBI under the RBI Act. It is submitted by the respondents that no case has been made out for interference in these writ petitions and the contention advanced is untenable, based on factual misconception, besides devoid of merits.
12. The only point that arises for consideration is:
Whether two G. Os impugned in the writ petitions are liable to be quashed?
13. It is admitted that six partnership firms still continue, they carry business and it is the assets of the said six partnership firms which have been ordered to be attached by the two impugned G. Os. Though it is contended that the six partnership firms have been converted into private limited companies, no material has been placed to substantiate the same, except registration of the companies under The Companies Act, 1956. It is not a re-conversion and it is not as if partnership firms have been converted into private limited companies by following the procedure prescribed. No action has been taken by the respondents in respect of the six companies. The action that has been taken is against the six partnership firms and their partners as well as their assets. It is not as if the properties of the six companies are being proceeded under the Act. A perusal of the impugned G. Os would show that action has been taken in respect of the six firms alone whose registration still holds good under Indian Partnership Act and in respect of the assets of the particulars firms or the individual partners as the case may be.
14. Reserve Bank Of India by its letter dated July 2000 addressed the Managing Director of Coimbatore JHM Finance Private Limited and apprised the said company that the company has not made any application for grant of certificate of registration either as an existing company or as a new company to carry on the business as a non banking financial institution. Therefore it is clear that till date of the G.O. The six companies are not licenced and they could not carry on non banking financial business.
15. The 5th respondent which has been impleaded also has filed a detailed counter affidavit opposing the writ petitions while setting out the conduct on the part of the partnership firms and their partners. The 5th respondent asserted that though the petitioners herein claim that they were converted into private limited companies in or about 2000, but they continued to receive deposits and transact business only as partnership firms as seen from the typed set of papers. The six firms alone have made a declaration before the public that they are alone carrying on business and not the companies.
16. The petitioners obviously do not want to be governed by the provisions of the RBI and they have also not secured a certificate of registration as prescribed under Section 45-1A of the RBI Act, 1934 The petitioners have come before this court with unclean hands and the interpretation placed by the petitioners on the provisions of the Tamil Nadu Act 44 of 1997 is a misconception and cannot be sustained. The petitioners have made false representations before the various statutory authorities and public and they are also taking inconsistent stand with an intention to prevent the authorities from taking effective steps under the TNPID Act.
17. The copy of the statement made by Mr. Manohar, S/o. Sambamurthi would make it abundantly clear that it is only the partnership firms which collected the deposits from the public which collection being used for running the chit business, besides acquisition of various complexes, and properties are worth five crores of rupees. It is further admitted by Mr. Manohar that even after the registration of the six limited companies the partnership firms continued to accept the deposits to the tune of Rs.4 to 5 lakhs. Therefore it is clear that it is the partnership firms which carried on business by accepting the deposits from public and they have committed default in repayment of the matured deposits, which necessitated to pass the impugned G. Os in the writ petitions.
18. Mr. Sundar, learned counsel appearing for the 5th respondent referred to the judgement of the Supreme Court in Delhi Development Authority Vs. Skipper Construction Co (P) Ltd., and another , and contended that this court could lift the veil and hold that it is only the partnership firms which continue to carry on the business with its individual partners. Mr. Sundar also relied upon the decision in Commissioner of Income-tax Madras Vs. Sri Meenakshi Mills Ltd., Madurai and others, as well as the pronouncement of the Supreme Court in Juggilal Vs. I.T. Commissioner, U.P. Reported in where it has been held that the court is entitled to lift the veil of corporate entity if it is used for tax evasion or to circumvent tax obligation or to forfeit fraud.
19. The defaults by the partnership firms are not in dispute and such defaults was for a considerable period and the partnership firms failed to refund or return the matured deposits and the depositor have been taken for a ride. In respect of the partnership firms and its assets as well as the partners action could very well be maintainable under the Tamil Nadu Act. Apprehending action six companies have been registered as new companies and they are not conversion or reconstitution of the old partnership firms as admittedly the partnership firms still continue and they also carry on business and continue to carry on business till passing of the impugned orders. For the purpose of record they have been registered. In that context the petitioners sought to contend that no action could be taken under the TNPID Act. It is rightly pointed out by Mr. Sundar that such a registration has been made with a view to forestall the action that may be taken under the TNPID Act. There is force and substance in this contention.
20. A perusal of the impugned orders would show that action has been taken against the six firms, and its partners as well as various outstandings or bank accounts and not in respect of the private limited companies. There is nothing to show that the partnership firms have been reconstituted and they ceased to be partnership firms. The Registration of the six firms still continues and it has not been removed from the register of Firms.
21. The deposition of Mr. Manohar, Managing Director of the companies would definitely go to show that the partnership firms continue and carry on business even after formation of the six new companies and continue to accept the deposits. This would mean that the first respondent's action in issuing the impugned order is not liable to be interfered. There is no dispute that in respect of the partnership firms or the partners action could be taken under the Tamil Nadu Protection of Interests of Depositors (in financial establishments) Act, 1997. The contention to the contra cannot be sustained. The contention that TNPID Act is not applicable to companies and therefore the two impugned orders of attachment is invalid cannot be sustained. The impugned orders of attachment passed in both the cases relate to the partnership firms and its assets or the individual partners as those assets have neither been transferred or being possessed or been held by the six companies who came to be registered as individual companies. The bank accounts, the immoveable assets still sand in the name of the partnership firms or the individual partners. Therefore the first respondent is the competent authority who has passed the impugned orders.
22. It has been rightly pointed out by the respondents that deposits were received by the partnership firms or its partners and not by the six companies. The Reserve Bank of India has also pointed out that none of the six companies are authorised under the RBI Act to carry on non banking finance. Nor they have applied for such a authorisation or a licence. None of these writ petitioners have secured prescribed licence or authorisation from the RBI in time. Registration of the partnership firms have been renewed from time to time and they are currently in force as well. To avoid the stringent conditions imposed by the RBI, the six firms continued to carry on the business and the six companies who have not secured authorisation or licence have just come into being by virtue of their registration as new companies and they cannot come forward and contend that the properties belong to the companies or it is a business of the private limited companies. The orders impugned is not liable to be interfered and the sole contention advanced by the writ petitioners deserves to be rejected. No other contention has been advanced. The order has been passed by the competent authority assigning reasons and no interference is called for. The petitioners cannot successfully maintain the writ petitions.
23. Learned counsel for the 5th respondent has filed a typed set of papers which would show that all the partnership firms are still in existence, they continue to carry on business and it is not as if the partnership firms have been converted into private limited companies. A communication from the Registrar of Firms makes it clear that the six firms continue and they carry on business admittedly by receiving deposits even after the registration of the six new companies. There is overwhelming materials in this respect. Even as many as 48 fixed deposit receives have been issued by the partnership firms during the year 1999-2000 which would show that it is the partnership firms which are being continued to carry on the business and the fixed deposit receipts produced would show that they have been issued by the partnership firms and not by the private limited companies.
24. The first respondent who is the competent authority has passed the impugned orders and orders have been passed in respect of the assets owned by the partnership firms or its constituents and it cannot be stated that there is violation of the provisions of the Tamil Nadu Protection of Interests of Depositors (in financial establishments) Act, 1997. It is made clear that the respondents are entitled to proceed further under the Act.
25. Thus in any view of the matter, the sole contention advanced by the learned senior counsel fails and both the writ petitions are dismissed. Consequently, connected miscellaneous petitions are also dismissed. The parties shall bear their respective costs.
26. It is made clear that on any future date if by appropriate writ petition and if a viable proposal is placed before the court, the court may consider framing of a scheme with respect to the partnership firms or its assets or the partners as well as others connected with the assets so that the depositors may get a substantial portion of their investment with the six firms or their partners or the connected concerns. The writ petitions and WPMPs are dismissed with cost of one set. The counsel fee is fixed at Rs.6000/.