National Company Law Appellate Tribunal
Dr. Joe Verghese Ors vs Omega Hospitals Pvt Ltd & Ors on 3 August, 2021
National Company Law Appellate Tribunal, New Delhi
Principal Bench
I.A. No. 2313 of 2020
in
COMPANY APPEAL (AT) No. 77 of 2019
IN THE MATTER OF:
1. Dr. Joe Verghese
S/o. C.P. Verghese
Near UBMC School, Kalpane Road, Balmatta,
Mangaluru City, D.K. District,
Karnataka, Mangalore - 575002 ...Appellant No. 1
2. Dr. R.L. Kamath
S/o. Lakshmana Kamath,
Sushil Planter's Lane, Kadri,
Mangaluru City, D.K. District,
Karnataka, Mangalore - 575003 ...Appellant No. 2
3. Dr. P. Subramanya Bhat,
S/o P. Mhalinga Bhat
Geethanjali, BareBail, Near Polytechnic, Kadri,
Mangaluru City, D.K. District,
Karnataka, Mangalore - 575004 ...Appellant No. 3
Versus
1. M/s. OMEGA Hospitals Pvt. Ltd.,
Rank of represented by its Managing Director
Mahaveera Circle, Bye Pass Road,
Mangaluru City, D.K. District,
Karnataka - 575002 ...Respondent No. 1
2. Dr. K. Mukund,
S/o. K. Manjunatha
Prateeksha, Vyasa Rao Road,
Mangaluru City, D.K. District,
Karnataka, Mangalore - 575003 ...Respondent No. 2
3. Dr. Suresh Surathkal,
S/o. Mr. Sanil,
Bhuvaneshwari, Iddya, Suratkal,
Mangaluru City, D.K. District,
Karnataka, Mangaluru - 575014 ...Respondent No. 3
-2-
4. Dr. Bhasker Bappal
Bappal Raod, Jeppu, Mangalore
Mangaluru City, D.K. District,
Karnataka, Mangaluru - 575002 ...Respondent No. 4
5. Dr. A.G. Jayakrishnan,
The Planet Near Karnataka Polytechnic,
Kadi, Mangaluru City, D.K. District,
Karnataka, Mangalore - 575004 ...Respondent No. 5
6. Dr. Mohanchandra Suvarna,
Sanjeevani, Westgate Pride, Falnir Road,
Mangaluru City, D.K. District,
Karnataka, Mangalore - 575002 ...Respondent No. 6
7. Mangalore Heart Scan Foundation,
Represented by its Chairman and
Managing Director,
Opposite to Colaco Hospital, Bendoor Road,
Mangaluru City, D.K. District,
Karnataka, Mangalore - 575002 ...Respondent No. 7
Appellants: Mr. Naveen R. Nath and Mr. Rahul Jain, Advocates.
Respondents: Mr. Krishnan Venugopal, Sr. Advocate alongwith Mr.
Abir Phukan, Mr. Surya Prakash, Mr. Shivendra Singh
and Mr. Ashkrit Tiwari, Advocates for R-5.
ORDER
[Per; Shreesha Merla, Member (T)] The Appellants/Applicants in I.A. 2313 of 2020, Dr. Joe Verghese, Dr. R. L. Kamath and Dr. P. Subramanya Bhat, seek the following reliefs:-
'(a) Wherefore this Hon'ble Tribunal may kindly be pleased to pass an Order directing a Forensic Audit caused in respect of the affairs and accounts of the 1st Respondent Company as well as the Respondent No. 7 and present a report to meet the ends of justice.
(b) Passes any other order, direction as it may deem fit and proper in the interest of justice and equity.' I.A. No. 2313of 2020 in Company Appeal (AT) No. 77 of 2019 -3-
2. Submissions on behalf of the Learned Counsel for the Applicants:-
(i) It is stated that the Hon'ble NCLT disposed off Company Petitions filed by the Applicants herein and by the Dr. K. Mukund Group/the contesting Respondents 2 and 3, allowing C.P. No. 64 of 2007 filed by the Mukund Group challenging the resolutions passed on 24.07.2007, thereby restoring the Board and disposed off C.P. No. 77 of 2010 filed by the Appellants (Applicants), without going into allegations of Oppression and Mismanagement.
(ii) It is submitted that irregularities took place during the Financial Year 2011 to 2013 and even in the subsequent years, but the Impugned Order dated 24.01.2019 is silent about these irregularities.
(iii) The Second and the Third Respondent are responsible for fudging of the accounts and for misappropriation leading to serious financial irregularities including 'fraud' within the meaning of Section 447; issuance of false statements under Section 448 of the Companies Act, 2013. Learned Counsel submitted that there are three main issues amounting to fraud committed by the persons belonging to Dr. K. Mukund group, CA K. Leeladhar, Finance Manager and younger brother of Dr. K. Mukund and Mr. S.L. Bhardwaj PRO of the Company. The three main grievances submitted by the Learned Counsel are that a) Many patients of Dr. K. Mukund are presented with a hefty discharge bill and the patient is given an inflated invoice, the amount is collected in cash I.A. No. 2313of 2020 in Company Appeal (AT) No. 77 of 2019 -4- and difference in the amounts collected from the patient and given to cashier is pocketedby Mr. Bhardwaj, thereby leading to many patients having two discharge bills and two receipts. It is stated that the supporting documents with the sworn affidavits have been filed before NCLT on 15.03.2018.b) That though several patients of Dr. K. Mukund have been discharged, the computer system does not raise any discharge bill and though these patients have undergone expensive procedures, the bill amount has not been credited to the Hospital account. c) that there is selective billing that is the Revenue going to the Cathlab account owned by Dr. K. Mukund is meticulously collected, whereas the revenue due to the Hospital is either reduced or omitted under the orders of Dr. K. Mukund or Mr. Bhardwaj.
(iv) Two different versions of audited Balance Sheet and Profit and Loss Account for the same accounting year 2017-18 were both signed by the Third Respondent and the Second Respondent and each was presented in different Board Meetings. Both the versions show different figures with respect to the Administrative Expenses, Loss and Trade Receivables.
(v) The Independent Auditor CA Rangannath Shenoy partner of A.K. Gopinath Shenoy & Co., are also the Auditors of Dr. Mukund personal accounts since several years and therefore the fraud committed was never informed to the concerned authority by the Independent Auditor.
I.A. No. 2313of 2020 in Company Appeal (AT) No. 77 of 2019 -5-
(vi) Only Forensic Audit ordered for the Financial Year 2017-18 and for the subsequent years, would bring to light the financial irregularities. It is stated that the management had earlier destroyed the computer data which is evident from the Report of the Internal Auditor given in respect of the period from October 2015 to March 2016. It is submitted that the Forensic Audit must also involve investigation into the affairs of Respondent No. 7 i.e. Mangalore Heart Scan Foundation which is the beneficiary of the diversion of the business from the First Respondent to the Company controlled by the Second Respondent.
(vii) Since, two years the daily cash collection has not been deposited in the Bank and Dr. A.G. Jayakrishnan as a Co-signatory refused to sign cheques and he was not satisfied with the financial Management of the Hospital.
(viii) Learned Counsel further submitted that conduction of the Forensic Audit alone would establish the financial irregularities committed to enrich the Seventh Respondent which is the conflicting business interest of Dr. Mukund; that the valuation of the shares of the First Respondent is not true and accurate as the valuation does not take into account the siphoning off the receipt of the business of the First Respondent; that the unaudited financial statement provided by the Management on which the valuation is based, show grossly different figures regarding Expenses, Trade Receivables and Losses when compared with the financial statements presented to the Board.
I.A. No. 2313of 2020 in Company Appeal (AT) No. 77 of 2019 -6-
3. Learned Counsel appearing for the Applicants vehemently contended that for all the aforenoted reasons, their prayer for seeking a Forensic Audit, be allowed.
Submissions on behalf of Learned Counsel for the Respondents 1 & 3:
4. Learned Counsel appearing for Respondents 1 & 3 strenuously objected to the prayers sought for in this Application with respect to seeking a Forensic Audit of the Company on the following grounds:-
a. The Appellants herein had filed a Petition before CLB in the year 2012 for conducting an Independent Audit from 2006-07 to 2013- 14; that CLB Chennai was pleased to Order an Internal and Statutory Audit for 7 years under the supervision of Independent Chairman; that a group of Auditors Mr. Narasimha & Co. (Internal Auditors) and Mr. Thyagarajan & Co. (Statutory Auditors) have conducted the Audit and submitted their Report to CLB through the Independent Chairman; that another Application was filed before the CLB for supervision of Audit of Company and thereafter the Audit was conducted for three years by Gopinath Shenoy & Co. as per the CLB direction under the supervision of Independent Chairman E. Selvaraj who replaced Mr. Amirulla Millath and submitted the reports to CLB, Chennai.
b. All the Financial Statements of the Respondent Company are in public domain and are prepared, audited and filed by CLB appointed Independent Chairmen and Chartered Accountants.
I.A. No. 2313of 2020 in Company Appeal (AT) No. 77 of 2019 -7- c. NCLT, Bengaluru did not make any mention about the financial irregularities or siphoning of funds of the Company. All the allegations in this Application were part of the pleadings before the NCLT and as the Appeal is ripe for final hearing only to delay the matter, this Application has been filed.
d. The Fifth Respondent Dr. Jayakrishnan has changed sides and is now colluding with the Appellants and is not co-operating with the day to day affairs of the Company and is interfering with the smooth functioning of the First Respondent Company, while Dr. K. Mukund is contributing his entire time to the Hospital. The Appellants including the Fifth Respondent, are working in bigger institutions and in their own clinics. The main source of revenue is the hard work of the Second Respondent and the situation has been so, for the last 10 years.
e. The Forensic Audit will disturb the functions which would affect the reputation of the Hospital specially in this pandemic. The CLB appointed Chairman and Auditors have completed the Audit which attained the finality and therefore if this Application is allowed, the present Audit for the present Financial Year would be disturbed. f. The current Board has the support of majority shareholders and were appointed by following the due procedure of the Companies Act, 2013.The final Order of NCLT has retained the current Board and so far, the Applicants have not got a stay Order against the final Order of the NCLT, and prayed that this Application ought to be dismissed at the threshold.
I.A. No. 2313of 2020 in Company Appeal (AT) No. 77 of 2019 -8- Submissions on behalf of Learned Counsel for Respondents 2, 4, 6 & 7:
5. Learned Counsel appearing for Respondents 2, 4, 6 and 7 also objected to this Application on the same grounds submitted by Respondents 1 & 3 and therefore the same is not being repeated for the sake of brevity. Additionally, the Learned Counsel submitted that the Affidavits filed by the Appellants before NCLT are forged documents; the day to day accounts are maintained properly under the supervision of expert Auditors; that NCLT has valued the shares and declared the valuation as accurate as per the audited Balance Sheet and past years Audit Reports including the Company's asset which was agreed by both the parties before the Tribunal; a joint memo has also been filed before NCLT by both the parties; the current Management is having absolute majority in the Board and the same Management is capable of running the Company in an effective manner; that the Statutory and Internal Audit was done by the Auditors in great depth going through every transaction and that even the Report of the current Chairman also did not suggest any irregularities and the Learned Counsel strongly opposed the conduction of any Forensic Audit at this point of time. Submissions on behalf of the Learned Counsel for Respondent No. 5:
6. It is submitted that the Fifth Respondent is a Cardio Thoracic Surgeon holding 8.04% shares and states that 49.4% of the shareholders including him seek an Independent Forensic Audit on the following grounds:-
(i) The Annual Returns have not been filed by the Company for the last two Financial Years; that Mr. Gopinath Shenoy continuing as a Statutory Auditor is a misleading statement and in fact the brother I.A. No. 2313of 2020 in Company Appeal (AT) No. 77 of 2019 -9- of the Second Respondent is the Chief Financial Advisor of the Company.
(ii) The Statutory Audit of the past years cannot be an answer as the Audit itself has thrown up more questions than answers. There is a fundamental difference between Statutory Audit and a Forensic Audit which is for the purpose of exposing fraud, misfeasance and malfeasance committed by an organization.
(iii) It is denied that the Fifth Respondent is colluding with the Appellants. The group of shareholders of the Company led by Dr. Mukund undermined the interest of the Company and indulged in gross mismanagement and the findings rendered in various Statutory and Internal Audits establish these allegations.
(iv) The submissions by Respondent Nos. 1, 3 and 2, 4, 6 & 7 that the ongoing Audit would be disturbed if a Forensic Audit is directed, reflects the indifference of the Respondents towards the Management of the Company. Learned Counsel submitted that the Forensic Audit would in fact help in confirming the fraud and malfeasance in the Management of the Company.
(v) A prima facie case was found by the NCLT for directing the RoC to take appropriate action against the Company. In fact, the action initiated by the RoC was the reason for NCLT for having refused to exercise its jurisdiction under Section 242 of the Companies Act, 2013. Further, till date no investigation has taken place.
(vi) Learned Counsel also contended that the Hospital accounts become an NPA on 30.04.2008; there are discrepancies with I.A. No. 2313of 2020 in Company Appeal (AT) No. 77 of 2019 -10- respect to bills, invoices, provisional charges, cash collections, etc., and therefore it is in the interest of the Company and the shareholders that a Forensic Audit be conducted to bring to light irregularities committed by the present Management.
Assessment:
7. This Tribunal vide Order dated 28.06.2021, taking into consideration, the submissions of all the parties concerned had appointed Mr. E. Selvaraj, retired Additional Secretary of Government of India and ex-Director, Ministry of Corporate Affairs to function as an Independent Chairman to manage the affairs of the subject Company/Hospital from 01.07.2021 till the disposal of the Appeal. Mr. E. Selvaraj was also given liberty to appoint an Accountant to assist him in the Management of the Company.
8. Without expressing any opinion in regard to the merits of the Appeal, keeping in view the facts and circumstances of the case and the serious allegations of irregularities alleged by the Appellants and also having regard to the fact that no Statutory Audit has been done for the years 2018-19 and 2019-20; the RoC letter detailed in the Impugned Order, that the Forensic Audit is being sought for by shareholders who own a substantial 49.4% of the shares, we are of the considered view that a Forensic Audit in respect of the affairs and accounts of the Company Account with effect from Financial Year 2017-18 is necessary in the larger interest of the Company. The Forensic Auditors Report will helpful to decide the veracity of the allegations of Oppression, Mismanagement and Financial irregularities.
I.A. No. 2313of 2020 in Company Appeal (AT) No. 77 of 2019 -11-
9. Therefore, we direct the Independent Chairperson Mr. E. Selvaraj to appoint a Forensic Accountant before 20th August, 2021 for conducting a Forensic Audit for the Financial Years 2017-18 to 2020-21, in respect of the affairs and accounts of the Respondent Company. The Forensic Accountant shall submit the Report in a sealed cover to the Appellate Tribunal, within a period of three months from the date of appointment. The fees of the Forensic Accountant shall be borne by the Company. I.A. No. 2313 of 2020 is allowed.
[Justice Jarat Kumar Jain] Member (Judicial) [Ms. Shreesha Merla] Member (Technical) NEW DELHI 03rd August, 2021 ha I.A. No. 2313of 2020 in Company Appeal (AT) No. 77 of 2019