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Case Number
Attorney(S)
  • For the Petitioner :- Mr. R.K. Chhibar
  • Sr. Advocate
  • and Mr. Anand Chhibar
  • Advocate. For the Respondents :- Mr. Anil Sharma and Ms. Kanchan Sehgal
  • Mr. B. Uma Kanta and Ms. Gagan Deep Kaur
  • Advocates.
Judges
  • Hemant Gupta
Acts
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • For the Petitioner :- Mr. R.K. Chhibar
  • Sr. Advocate
  • and Mr. Anand Chhibar
  • Advocate. For the Respondents :- Mr. Anil Sharma and Ms. Kanchan Sehgal
  • Mr. B. Uma Kanta and Ms. Gagan Deep Kaur
  • Advocates.
Judges
  • Hemant Gupta
Acts
See more information ...
Smart Summary

Structured Summary of the Opinion concerning M/s Golden Forests (India) Ltd.

Factual and Procedural Background

M/s Golden Forests (India) Limited ("the company") was incorporated on 23.2.1987 under the Companies Act, 1956 and was given a certificate for commencement of business under Section 149(3) of the Act. The company promoted deposit schemes promising high returns and amassed a very large investor base. By the end of the 7th financial year (1994) its turnover was Rs. 154 crores and by the end of 1997 the company claimed turnover of Rs. 1,000 crores. During the hearings, the company admitted that there were 24,65,231 investors who had invested Rs. 980.14 crores (principal) excluding returns.

The National Investors Forum (petitioner), representing investors, filed a petition for winding up on the ground of the company's alleged inability to pay admitted debts. When the petition was objected to by the company, the petitioner registered as a society under the Societies Registration Act. It was alleged in the petition that the company had collected large sums (allegedly more than Rs. 3,000 crores) through false promises and had not repaid investors despite notices and published demand.

Directors of the company were arrested on 24.12.2000 in connection with several FIRs. The company filed a detailed written statement asserting that it had adequate assets and resources to repay debts, and pointed to parallel proceedings before the Mumbai High Court where a private receiver had been appointed for certain properties. The company sought to avoid liquidation and proposed a consolidated repayment scheme, but later withdrew a petition (C.P. No. 237 of 2001 under Section 391(1) of the Act) after indicating inability to give the required publicity.

This Court restrained the company from alienating property (order dated 17.8.2001) and called for comments from the Permanent Lok Adalat (October 12, 2001) when some assets appeared to have been alienated despite the restraint. The winding up petition was admitted on 2.5.2002 and the fact of admission was ordered to be published. Several objections were filed by investor associations contending that the advertisement of admission was inadequate given the nationwide investor base and raising other concerns including calls for sale of property and investigation by the CBI.

Legal Issues Presented

  1. Whether, once a winding up petition is admitted, the company court has no discretion but must pass a winding up order and appoint an official liquidator (i.e., whether admission mandates winding up ex debito justitiae).
  2. Whether the company is insolvent for purposes of a winding up order, given the company's assertion of assets exceeding liabilities and practical inability to sell assets due to restraint and custody of its directors.
  3. Whether, instead of immediate winding up, the court should appoint a provisional liquidator with powers to take custody, manage and sell properties to protect the interests of a very large class of creditors/investors.
  4. Whether the affairs of the company should be independently investigated (including by auditors or an investigative agency) in view of allegations of deceptive practices and accounting deficiencies.

Arguments of the Parties

Petitioner (National Investors Forum) — submissions by Shri R.K. Chhibbar, Senior Advocate

  • Once the petition for winding up is admitted, the court has no discretion and must pass the order of winding up and appoint an official liquidator.
  • The company's proposed arrangement had been withdrawn and therefore admission of the petition should naturally lead to winding up.
  • Relied upon authorities (Advent Corporation Pvt. Ltd.; Seksaria Cotton Mills Ltd.; Focus Advertising Pvt. Ltd.) to support the proposition that the court must wind up where the company neglects to pay sums demanded.

Objectors (represented by Shri B. Uma Kanta, Advocate)

  • Opposed winding up on the ground that it would not protect interests of a large number of investors; expressed concerns that winding up could be detrimental to investors.
  • Alleged clandestine and organized siphoning of funds and urged investigation by the Central Bureau of Investigation (CBI).
  • Urged caution to avoid making orders that would conflict with orders of the Mumbai High Court or interfere with related proceedings (including public interest litigation by SEBI).

Respondent Company (represented by Shri Anil Sharma and other counsel)

  • Admitted liability but asserted that the company is solvent with assets substantially exceeding liabilities — figures were put on record (claims of assets in excess of liabilities; valuations before Mumbai High Court were referenced).
  • Explained practical inability to realize assets because (i) directors were in custody, and (ii) restraint orders and other proceedings impeded sale; noted the Mumbai High Court had appointed a private receiver whose sale attempts had not succeeded.
  • Contended appointment of a liquidator would be against investor interests because distress sale could produce lower proceeds; sought court-supervised consolidated scheme for repayment instead of winding up.
  • Objected to a CBI investigation but accepted court-appointed investigation under Section 237 of the Companies Act; the company had not cooperated with a committee appointed by the Mumbai High Court.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Advent Corporation Pvt. Ltd. ((1969) 39 Company Cases 463) Cited by petitioner for the proposition that a court has no discretion to refuse winding up once liability is shown (i.e., the court must order winding up ex debito justitiae where the company neglects to pay). The Court noted the authority but found it distinguishable on facts. The Court rejected the absolute proposition that admission mandates winding up in every case, explaining the purpose of publication of admission and the need to consider wider interests.
Seksaria Cotton Mills Ltd. ((1969) 39 Company Cases 475) Relied upon by the petitioner to support the submission that winding up must follow admission where the company neglects to pay. The Court observed the case but treated the principle as not applicable on the facts before it and declined to accept that the company court has no discretion after admission.
Focus Advertising Pvt. Ltd. ((1974) 44 Company Cases 567) Also relied upon to support the no-discretion rule after admission. The Court held the authority was distinguishable and therefore not determinative of the present situation where the company asserted solvency and practical obstacles to realization of assets existed.
Ambala Bus Syndicate P. Ltd. v. Bala Financiers P. Ltd. ((1986) 59 Company Cases 838) Quoted by this Court for the proposition (with approval of the Calcutta Division Bench) that the basis for winding up on inability to pay is insolvency — winding up is appropriate where a company has ceased to be commercially solvent. The Court applied the principle to conclude it was not possible at that stage to hold that the company was insolvent; therefore immediate winding up was not justified merely because the petition had been admitted.
Bengal Luxmi Cotton Mills Ltd. v. Mahaluxmi Cotton Mills Ltd. (A.I.R. 1955 Cal. 273) Authority for the proposition that the basis of a winding up order for inability to pay is insolvency and that the court should consider whether the company has ceased to be commercially solvent. Quoted with approval (through Ambala Bus Syndicate). The Court relied on this line of authority to emphasize insolvency as the proper basis for winding up and used it to justify scrutiny before ordering winding up.

Court's Reasoning and Analysis

The Court proceeded through the following analytical steps, applying legal principles to the facts before it:

  1. The Court accepted that admission of a winding up petition is prima facie evidence of liability, and that publication of admission is designed to elicit objections and relevant information from interested persons. Therefore, an automatic rule that admission mandates immediate winding up would defeat that purpose.
  2. The Court examined the legal authorities relied upon by the petitioner which suggest that where a company neglects to pay a demanded sum, winding up may be mandatory. The Court found those authorities distinguishable on the facts before it and unsuitable to displace the need for judicial discretion where other relevant considerations arise.
  3. The Court emphasized the established legal principle (as reflected in Ambala Bus Syndicate and the Calcutta High Court authority) that the fundamental basis for making a winding up order on the ground of inability to pay is insolvency — i.e., that the company has ceased to be commercially solvent. The Court held that insolvency is the key threshold and must be demonstrated or be apparent on the material before the company court.
  4. On the facts, the company had filed an affidavit asserting assets exceeding liabilities (various valuations and figures were placed on record, and prior valuations before the Mumbai High Court were referenced). It was also on record that directors were in custody and restraints arising from other proceedings (including actions by the Mumbai High Court and vigilance authorities) had impeded the company's ability to realize assets.
  5. Given the company's asserted solvency, and the practical impediments to realization of assets (including the failure of a private receiver to sell property), the Court concluded that immediate liquidation might be unfair and that the investors' interests could be better protected by appointing a provisional liquidator charged with managing, protecting and realizing assets for the benefit of creditors and investors.
  6. The Court further considered the results and findings of a committee (appointed by the Mumbai High Court with representatives of RBI and SEBI). That committee's report raised serious concerns: schemes were open-ended and reliant on continuous induction of new investors; mobilization of funds by promises of unrealistic returns; misleading accounting entries and nomenclatures; significant unexplained expenses; negligible farm income relative to amounts paid to investors; and other indications that the schemes were not being run in the best interests of investors.
  7. In light of these prima facie deficiencies and the serious allegations of deceptive or fraudulent conduct, the Court concluded that independent, detailed investigation of the company's affairs was required (by auditors/investigators exercising powers akin to those in Section 227 of the Companies Act). The Court clarified that investigation should proceed independently of the sale of properties by the provisional liquidator — the latter was not to be delayed pending completion of investigations.
  8. The Court also reasoned that the Official Liquidator attached to the Court would likely lack the dedicated resources and infrastructure to manage the complex and extensive task of administering the company's affairs and selling assets for the benefit of over 25 lakh investors; accordingly the Court decided to entrust provisional liquidation to a person of standing capable of giving whole-time attention.

Holding and Implications

Core Ruling: The Court declined to order the immediate winding up of the company despite admission of the petition. Instead it directed that a provisional liquidator be appointed and that the affairs of the company be investigated by independent auditors. The Court issued specific directions to protect the interests of the large number of investors and other stakeholders.

Directives / Immediate Consequences Ordered by the Court

  1. The provisional liquidator shall be appointed and shall take into custody or under control all property, effects or actionable claims of the company. From the date of the order, all property and effects of the company shall be deemed to be in the custody of the Court.
  2. The provisional liquidator shall have the power to sell movable and immovable property and actionable claims by public auction or otherwise, subject to the approval of the Court, and shall have all powers of a liquidator under the Companies Act.
  3. All properties of the company shall be managed and controlled by the provisional liquidator, who may appoint personnel (including chartered accountants and administrative staff) with the Court's approval to carry out his duties.
  4. The provisional liquidator shall prepare an inventory of all properties of the company, its subsidiaries and associates, including properties alienated by sale or delivery of possession pursuant to Lok Adalat orders.
  5. The company is restrained from selling, leasing, mortgaging or otherwise alienating or encumbering any property without Court permission, except for funds required for normal functioning as permitted by the provisional liquidator with Court approval; the respondent company is also directed not to transfer funds to sister concerns, associates, directors or other persons.
  6. Directors and administrative staff of the company are directed to provide full assistance to the provisional liquidator without delay.
  7. The provisional liquidator shall prepare a scheme for settlement of investors' claims with priority attention to the interests of small investors.
  8. The provisional liquidator shall submit a preliminary report to the Court and parties may seek further directions or clarifications from the Court as needed.
  9. The affairs of the company shall be thoroughly investigated by auditors nominated by the Court to investigate valuation and marketability of land and other issues; such investigation shall be comprehensive and separate from the sale process.

Implications: The direct effect on the parties is that the company will not be wound up immediately; instead, a provisional liquidator with specified powers will assume control to manage and realise assets for the benefit of investors, and formal investigations into the company's affairs will proceed. The Court's order focuses on protective, supervisory steps tailored to safeguard the interests of a very large creditor/investor class rather than creating an immediate precedent mandating winding up upon admission; the opinion does not purport to lay down a new general rule displacing the established principle that insolvency (cessation of commercial solvency) is the basis for winding up on inability to pay.

Show full summary ...

    National Investors Forum v. Golden Forests (India) Ltd.

    1. M/s Golden Forests (India) Limited is a company incorporated under the Companies Act, 1956 (for short the Act) on 23.2.1987. The company was given certificate for commencement of business under Section 149(3) of the Act.

    2. The company announced some beneficial deposit schemes ensuring highest returns to its investors, creditors or consumers. The company thus attracted large number of investors and creditors. By the end of close of 7th Financial Year i.e. 1994, the turnover was Rs. 154 crores and by the end of 1997, it achieved the business target of Rs. 1,000 crores. During the course of hearing of the present case, it is admitted by the company that it has 24,65,231 investors who have invested sum of Rs. 980.14 crores as principal excluding returns thereon.

    3. Petitioner is National Investors Forum who has sought the winding up of the company on account of its inability to pay admitted debts. Members of the petitioner forum are the investors. When the petition was filed, the petitioner was not a registered society. However, on an objection being raised by the company, the petitioners, have got themselves registered as a society under the provisions of Societies Registration Act. It has been alleged that the respondent has collected more than 3,000 crores of rupees from investors, creditors and consumers by making false promises in the name of social justice, economic freedom for all. It has been alleged that the company got deposited the savings of millions of people which they have saved out of income of blood and sweat. The company have assured to repay the money of investors but in spite of such assurances, it has not made the payments. It is alleged that a legal notice was issued to return the money within 3 weeks and this notice was published in the Hindi Daily Bhaskar on 14.3.2001 as service by registered post was not possible. It may be stated that the Directors of the company were arrested on 24.12.2000 in respect of allegations contained in six different FIRs lodged by the Vigilance Department, Government of Punjab. In spite of such notice, the company failed to settle the claim of the petitioners, therefore, the present petition for winging up was filed.

    4. In response to such petition, company has filed a detailed written statement wherein it has been stated that the company has adequate assets and resources to pay back all its debts. It is further stated that the company has moved an application before Hon'ble Mumbai High Court to remove the receiver and permit the company to hasten the process of repayment of the investors under the supervision of court. It has been stated that the company would welcome the intervention of the Chandigarh High Court in whose supervision the investors may be repaid to prevent any further loss of prestige to the company which is financially viable and investor friendly. It has been mentioned that there was a restraint order from Chief Judicial Magistrate restraining the respondents from operating their lockers, bank accounts till the investigation is over by the Vigilance Department. However, the permanent Lok Adalat at Chandigarh was pleased to order on 20th August, 2001 that there is no bar to operate on the accounts of the respondent's company. It was stated that since the matter is subjudice before the Mumbai High Court therefore, it cannot be said that the respondent has failed or neglected to pay its creditors or is unable to pay its debts. It is further stated that the problems of the company are transitory in nature. On merits, the company showed its readiness and willingness to pay the amount and dues payable to the investors. However, it is stated that the appointment of liquidator is against the interests of the investors as distress sale of the assets which constitute the security of the investors would yield much lower proceeds. The company sought a consolidated scheme to be filed on repayment to the satisfaction of the court.

    5. This court on 17.8.2001 restrained the company not to alienate the property. On October 12, 2001, the comments of permanent Lok Adalat at Chandigarh are called as in spite of restraint order, some assets of the company have been alienated. On 23.11.2001, respondents sought time to place on record a comprehensive proposal in support of the plea that the company is in a position to off-set its liabilities and is otherwise sound. On 2.5.2002, the petition for winding up was admitted and factum of admission was ordered to be published in the newspapers and official gazette of U.T. Chandigarh.

    6. The respondent company filed C.P. No. 237 of 2001 under Section 391(1) of the Act seeking permission to enter into an agreement and making arrangement with the class of investors. On 20th December, 2001, company was directed to give wide publicity to the proposed arrangement to enable any interested person to file objections. However, the counsel for the company stated on August 1, 2002 that the company is unable to comply with the directions issued to give wide publicity and therefore, the company petition No. 237 of 2001 filed by the company seeking permission to enter into agreement was dismissed as withdrawn.

    7. In response to the publication of Admission Notice, three sets of objections have been filed - one by the Golden Group Investors Welfare Association, Delhi through its General Secretary, Shri Chet Ram Sharma vide C.A. No. 929 of 2002, second by the Golden Forest India Limited from Orissa vide C.A. No. 935 of 202 and third by the Investors and Marketing Members Welfare Society (Regd.), Calcutta through its General Secretary vide C.A. No. 819 of 2002. The winding up has been opposed on the identical grounds that the present winding up petition has not been properly advertised. There are 25 lac. investors/creditors all over India and the publication of the factum of admission in Indian Express, Chandigarh edition, Dainik Tribune and Official Gazette of U.T. Chandigarh is not sufficient, as such publication reaches hardly 1 to 2 per cent of the total number of investors. The company has been publishing advertisements in various newspapers all over India that the investors of the company will receive their payments since the receiver appointed by the Mumbai High Court is likely to commence the sale of the assets of the company to generate liquidity to pay to all the investors of the company. It was further contended that this Court should not pass any order which may go contrary to the order passed by the Mumbai High Court, in public interest litigation initiated by the Securities & Exchange Board of India. It was also argued that the property of the company should be put to sale so that investors realise their dues. Still further, an argument was raised that the Central Bureau of Investigation should be directed to investigate into the affairs of the Company.

    8. I have heard Shri R.K. Chhibbar, Senior Advocate for the petitioner and also Shri B. Uma Kanta, Advocate for the objectors as well as Shri Anil Sharma, Advocate for the company at great length.

    9. Shri Chhibar has vehemently submitted that once the petition is admitted, there is no discretion with the court but to pass the order of winding up and appoint official liquidator as liquidator of the company. It was argued that the arrangement proposed by the company has been withdrawn by the company and the petition has been ordered to be admitted. In these circumstances, the order of winding up is a natural consequence. The reliance was placed upon the cases reported as Advent Corporation Pvt. Ltd., (1969)39 Company Cases 463, Seksaria Cotton Mills Ltd., (1969)39 Company Cases 475 and Focus Advertising Pvt. Ltd., (1974)44 Company Cases 567. However, I am unable to accept such a wide proposition. Admission of a petition for winding up of the company is prima facie proof of the admitted liability. The object of publication of admission in the newspapers is to invite objections from the persons interested, for and against the order of the winding up of the company. If there is no discretion with the court at that stage but to pass the order of winding up, the very purpose of publication of the admission is rendered nugatory. The company court is required to examine whether the winding up of the company is in the interest of shareholders, secured and unsecured creditors, workers as well as in public interest. It is natural consequence of admission of petition. Thus, I am unable to accept the argument raised by Shri Chhibbar that the company court has no discretion after the admission of the petition but to pass the order of winding up. The judgments relied upon by the petitioner, no doubt, have taken a view that the Court has no discretion to refuse to make a winding up order ex debito justitiae if the company neglects to pay the sum demanded. However, the said judgments are distinguishable and not applicable to the facts of the present case. Here the company has stated on an affidavit that it has assets more than the due amount. The management of the company is not able to sell the property because of its physical disability being in custody, in an FIR lodged by Vigilance Bureau, Punjab. Keeping in view the projected solvency of the company, it will not be fair and reasonable to pass an order of winding up but the interest of the creditors is required to be watched which will be best served by appointing a provisional liquidator for effecting sale of the property of the company. A Division Bench of this Court in Ambala Bus Syndicate P. Ltd. v. Bala Financiers P. Ltd., (1986)59 Company Cases 838, has quoted with approval the view of Division Bench of Calcutta High Court reported in Bengal Luxmi Cotton Mills Ltd. v. Mahaluxmi Cotton Mills Ltd., A.I.R. 1955 Cal. 273 wherein it has been held that the basis of making an order of winding up against a company is that it has ceased to be commercially solvent and accordingly it is fit and proper in the interest of creditors and shareholders not to allow it to function further as a company. The basis of winding up order on the ground of company's inability to pay its debts is always insolvency. In view of the above, it is not possible, at this stage, to hold that the company is insolvent so as to discharge its liability towards the creditors.

    10. Shri B. Uma Kanta, Advocate opposed the winding up and argued that the winding up order will not be able to protect the interest of large number of investors who have invested their hard earned money. It is pointed out that the affairs of the respondent company have been carried out in a calendestine manner so as to deprive the investors of their returns. It is argued that the affairs were conducted in an organised manner to syphon off the funds of the company and the matter is required to be investigated by Central Bureau of Investigation. The winding up order would be detrimental to the interests of the shareholders. The court may not pass any order which may be contradictory to the order passed by the Mumbai High Court keeping in view the possibility of transfer of all cases to Supreme Court in view of the transfer application filed by SEBI.

    11. A perusal of the written statement filed by the company shows that the liability is not disputed. Rather, it has sought intervention of this Court in whose supervision the investors may be repaid to prevent further loss of prestige to the company. It has been stated that the company has assets worth Rs. 1500 crores as against liability of only Rs. 761 crores and this company is very much in a position to pay its dues. It is stated that the company was set up in 1987 and till 1988, there has been no default in repayment of any maturity amounts and refunds of investors. The company disclosed that in 1998, SEBI filed writ petition No. 344 of 1998 before Mumbai High Court seeking, inter-alia, that the company may be prevented from conducting its business. Such writ petition was opposed on the ground that the petition was not maintainable as an instrumentality of a state without any statutory power, was not entitled to seek any relief against the private party. The respondent company was called upon to satisfy the Mumbai High Court in the interest of investors with regard to its workability. The company got their assets valued which were assessed at Rs. 1071.55 crores in addition to Rs. 33880 crores on account of moveable assets and bank balance as on 31.12.1997 against the total liability of 761 crores as on 31.12.1997. It is further stated in the written statement that the company invited offers for the sale of its certain properties but none of the buyers had shown any interest in view of the restraint imposed by Mumbai High Court dated 30th September, 1999. Ultimately, Mumbai High Court has appointed Mr. Justice M.L. Pendse (retd.) as private receiver for sale of 19 properties as set out in the schedule vide order dated 31.1.2000.

    12. In view of the above, it is apparent that there is no dispute about the liability of the company towards the investors. It is the stand of the company that it has assets more than Rs. 1,000 crores which are sufficient to discharge the liability of the investors. It has come on record that the Directors of the company are in custody since December, 2000 and the company has not been able to dispose of any of the property for payment of the investors. It is also on record that the private receiver appointed by Mumbai High Court has also not been able to sell any property so far. Thus, a mechanism is required to be drawn so as to facilitate the sale of the property of the company at the earliest with a view to ensure payment to the investors without any further delay. The interest of such large number of creditors is required to be watched by the company court and the management of the company cannot be permitted to take such investors for a ride. The scheme which the company has earlier proposed, has been withdrawn from the court. A large number of cases have been filed before this Court by the investors as well as different courts throughout the country.

    13. Therefore, with a view to protect the interests of the large number of creditors, shareholders and the company, it is just and appropriate to appoint provisional Liquidator for control, management and sale of the movable and immovable property so as to fetch maximum price thereof with a view to satisfy the claim of 25 lac investors in a proper manner. However, I am of the opinion that the Official Liquidator attached to this Court may not be able to take over the responsibility of management and sale of the property of the company keeping in view the meager resources at his command and inadequate infrastructure available. The official liquidator attached to this court is managing the affairs of over 177 companies. The additional responsibility of this company will require whole time attention to facilitate sale of property and to deal with the investors spread over the entice country. Therefore, instead of appointing official liquidator, it is necessary to entrust the responsibility of the provisional Liquidator to such a person who commands respect and is able to discharge the onerous responsibility in a fair manner. Such provisional liquidator may have to look after the affairs of the company in eluding its property and take steps for sale thereof. All such affairs should be supervised by a person who can discharge the duties of the provisional liquidator fairly and inspire confidence amongst the creditors as well as with the shareholders of the company.

    14. Apart from vesting of the property with the provisional liquidator so as to facilitate the sale thereof to liquidate the claim of the investors, the affairs of the company are also required to be investigated by an independent agency. The company has avoided investigation by an agency appointed by Mumbai High Court on one pretext or the other. A committee appointed by Mumbai High Court consisting of representative of Reserve Bank of India and that of SEBI has found that the substantial amounts of money have been mobilised by alluring investors of promise of unrealistic returns through agents who have been paid hefty commission and other incentives. It has been found that the entries in the accounts books do not reveal their correct state of affairs, misleading nomenclatures which would generally promote probe hide more than they reveal, substantial expenses have been incurred other than those which are warranted, such expenses lead one to believe that the company is not pursuing objectives sought in its schemes and at the same time frittering away the investments mobilised from gullible investors. The committee concluded that the report has been prepared in the absence of audit and accounts of the company on account of its non cooperation. The report reads as under:-

    "On the basis of the documents and information available with the undersigned the detailed analysis of which is contained in the earlier part of this report, it is event that the schemes floated by M/s Golden Forest (I) Ltd. both in regard to performance and account keeping leave much to be desired.

    The analysis of scheme reveals that all schemes floated by the company are open ended and are inducting investors on-going basis. Substantial amounts of money have been mobilised by luring investors on promises of unrealistic returns through agents who have been paid hefty commissions and other incentives. Mobilising big amounts and even promises of heavy returns per se are not wrong provided it can be backed up by bona fide healthy practices and skillful management of affairs to generate returns to fulfil the promises made. This is where unfortunately the company has been found to be seriously wanting.

    In view of the varying figures of land owned by the company and its subsidiaries and in view of the fact that the area of land owned by the company and its subsidiaries has been shown to be substantially higher - 15,000 acres of land as deposed before the MRTPC and approximately 29,000 acres as stated to SEBI - than that shown to the undersigned (approx. 9000 acres), belies that the company has been trying to mislead the undersigned regarding the quantum of land owned by them. The reason for their refusal to co-operate with the independent appraising agency appointed by the undersigned may have been motivated by their desire to hide the exact figure of land owned by them and their subsidiaries.

    The security provided by creating lien on land is illusory since the issue of post dated cheques does not guarantee payment but only action in case of non payment and finally the assets created in the form of land does not indicate realisable value enough to meet the liability which the company has already undertaken. The analysis further reveals that the schemes have survived so far only on account of the induction of new subscribers, amounts received from whom have gone for the payment of the previous subscribers. The entire scheme which has very insignificant component of plantation activity is likely to run into serious problems if this chain of inducting new members comes to a halt. Also, it needs to be borne in mind that the amount of farm income generated by the company since its inception has been negligible (Rs. 58 lakhs) as compared to the total amount paid to the investors (Rs. 412 crores). In any case, such schemes by its very nature- new investors in the chain servicing old investors - are bound to break and cannot be sustained for indefinite period.

    Similarly for the accounts, the entries analysed do not reveal the correct state of affairs. Misleading nomenclatures which would generally pre-empt probe hide more than they reveal. Substantial expenses have been incurred on items other than those which warranted such expenses leading one to believe that the company is not pursuing the objectives stated in its schemes and at the same time frittering away the investments mobilised from gullible investors.

    In fact, the development receipts and expenditure account for the year ended 31.3.1997 shows a deficit of approximately Rs. 62 crores. Evidently, if the development expenditure - a major portion of which constitutes payment to be made to the investors - is higher than the development receipt and the return on the assets created by the company is negligible, then it may be surmised that the company may be on the brink of a liability mis-match problem, which with the passing of time would only get aggravated.

    The inspection of the Department of Company Affairs and also the report of the Income Tax Department consequent upon the search and seizure operation conducted in the case of the company have brought out some serious unethical lapses which further reinforce the apprehensions.

    It would, therefore, not be unreasonable to conclude that the scheme of M/s Golden Forests (I) Ltd. are not being run in the best interests of investors and there is a possibility of the investors getting hurt in case even a minor aberration develops in the scheme because prima facie there is no indication of 'any mechanism in place which could affirm the company's credibility in terms of meeting its commitments."

    15. Shri Anil Sharma, Advocate for the company, objected to the investigation into the affairs of the company by Central Bureau of Investigation but submitted that this court can appoint any person to investigate the affairs of the company in terms of Section 237 of the Act. It is apparent from the proceeding paragraph that the company has not cooperated with the committee appointed by Mumbai High Court to investigate the affairs of the company. However, I am of the opinion that the affairs of the company ought to be thoroughly investigated in view of the allegations that the business of the company is being conducted with intent to deceive its creditors and members with a fraudulent and unlawful purpose. Such systematic investigation into the affairs of the company will bring out the extent of land owned by the company, its legal and valid title, its marketability, valuation as well as to find out whether the company has siphoned off money to its Directors, associates, subsidiary companies, etc. Such investigations are required to be conducted by an auditor who shall exercise such powers and duties inclusive of those contained in Section 227 of the Companies Act.

    16. Thus, I am of the opinion that keeping in view the serious allegations against the management of the company and deficiencies prima facie found by the committee consisting of representatives of the Reserve Bank of India and SEBI, the affairs of the company are required to be investigated thoroughly. However, the sale of the property by the provisional liquidator is not dependent upon completion of the investigations. Investigation will proceed independent of the sale of the properties.

    17. In view of the above, I am of the opinion that instead of winding up of the company, the interest of creditors, shareholders and the company, would be served if the following directions are issued:-

    1. The provisional liquidator shall be appointed. Such liquidator will take into his custody or under his control, all property, effects or actionable claims to which the claim is or appears to be entitled. All the property and effects of the company shall be deemed to be in the custody of the court from the date of this order.

    2. Provisional liquidator shall have power to sell the movable and immovable property, actionable claims by public auction or otherwise subject to the approval of this Court and shall have all powers of a liquidator contemplated under the Act.

    3. All properties of the company shall be managed, controlled, regulated by the provisional liquidator to be appointed by the Court henceforth. The liquidator shal! be at liberty to appoint personnel with the approval of the Company Court including chartered accountants and other administrative staff and to do all acts and things necessary to carry out the directions to the provisional liquidator.

    4. The provisional liquidator shall prepare an inventory of all the properties of the company, its subsidiaries and associates created with the funds of the company including the property alienated either by way of sale or by delivery of possession in pursuance of the orders passed by the Lok Adalat.

    5. The company shall not sell, lease, mortgage, alienate or incur any encumbrance against any property, moveable or immovable, in the name of the company or its subsidiaries without the permission of this Court, except the funds required for normal functioning of the company as may be permitted by provisional liquidator with the approval of the Court. It is also directed that respondent company shall not withdraw any amount for the purpose of paying it to its sister concerns, associates and Directors or any other company or persons,

    6. The Directors and all administrative staff, officers of the company are directed to provide all assistance to the provisional liquidator to discharge his responsibility without any demur or delay.

    7. The provisional liquidator will prepare a scheme for settlement of the claims of the investors especially keeping in view the interest of small investors in the first instance.

    8. The provisional liquidator shall submit preliminary report to this court and the parties are at liberty to move this court in case any further directions or clarifications are required.

    9. The affairs of the respondent company shall be investigated by auditors to be nominated separately to investigate comprehensively into the affairs of the company including valuation of land purchased, marketability of the little and such other issues which may arise.

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    National Investors Forum v. Golden Forests (India) Ltd.
    (Jun 18, 2003)