J U D G M E N T
(25th January, 2023) Justice Anant Bijay Singh;
The instant Appeal was heard together with Company Appeal (AT) Nos. 106, 115, 116, 117, 202 and 203 of 2020.
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2. Company Appeal (AT) No. 105 of 2020, in this Appeal, the Appellant has challenged the legality of the impugned order dated 18.12.2019 passed by the National Company Law Tribunal, New Delhi Bench in CP No. 286/271- 272/ND/2018 whereby the winding up petition filed against the Respondent company was dismissed with following orders:
" Ld. Sr. Counsel for the respondent company has placed on record the decision dated 4th December, 2019 of the Hon'ble NCLAT in a connected matter viz. Registrar of Companies Vs. Apoorva Leasing Finance And Investment Company Ltd. dismissing the appeal filed by the RoC.
The facts of this case are identical to the aforesaid case which was dismissed by this Bench vide order dated 18.01.2019 and is now upheld by the Hon'ble NCLAT. Since the facts of the present case are identical, there is no reason for this Bench to come to any other conclusion but to dismiss the present case. Accordingly, this petition is also dismissed on both grounds of lack of sanction as well as on merit.
Ld. Sr. Panel Counsel for the RoC has apprised this Bench that the decision of the Hon'ble NCLAT is being impugned before the Hon'ble Apex Court. Needless to say that the RoC shall be entitled to seek restoration of this petition subject to the outcome of the proceedings before the Hon'ble Supreme Court."
3. The facts giving rise to this Appeal are as follows:
i) The Appellant filed a winding up petition being CP No. 286/271- 272/ND/2018 against M/s Ad Fin Capital Services India Private Limited
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(Respondent herein) before the NCLT, New Delhi on the basis of the SFIO Report dated 31.03.2016 after fulfilling all the legal requirements and with the permissions of the Central Govt. and prayed for the winding up of the Respondent Company by invoking the provisions contained in Sections 271 and 272 of the Companies Act, 2013. The Ministry of Corporate Affairs, Govt. of India had ordered investigation into the affairs M/s NKS Holdings and its 10 others group companies by SFIO. During the investigation by SFIO, it was found that there were 49 companies including the Respondent Company which were being controlled by S.K. Jain and Virendra Jain (referred as 'Jain Brothers' in SFIO Report) and they were involved in money laundering activities by subscribing to the share capital of many beneficiaries during 2009-10.
ii) Further case is that a joint petition bearing CP No. 127/2012 had been filed in the Hon'ble High Court of Delhi on 29.02.2012 under Sections 391/394 of the Companies Act, 1956 for a scheme of amalgamation of NKS Holdings Private Limited, a private company and Shri Niwas Leasing & Finance Limited (SNLFL), a public listed company listed with the Delhi Stock Exchange.
iii) The Registrar of Companies (RoC), Delhi objected to the scheme of amalgamation inter alia on the grounds:-
a. That NKS, the transferor company had received subscription to its share of face value of Rs. 10/- per share at a premium of Rs. 90/- per share from 3 companies and against the total subscription of Rs. 1028 crore, one crore shares were allotted to 3 companies on 26.03.2011, just five days before the end of financial year;
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b. That the entire share subscription received by NKS was further invested immediately in the following companies-
LIPL Rs. 287.19 crore
MDPL Rs. 366.41 crore
USPL Rs. 336.70 crore
c. NKS had not done any significant activity barring the share capital infusion and consequent investment. NKS does not have any fixed assets as per the balance sheet for the period ending on 31.03.2011 and has recorded a loss to the tune of Rs. 8.41 lakhs but still commanding huge share premium.
d. There appears to be circular flow of money to the tune of Rs. 1000 crore each amongst the following set of companies:-
• Sital Holdings Private Limited (earlier known as Quality Cyber Tech Private Limited) (SHPL).
• Avil Financial Services Limited (AFSL)
• Carewell Exim Private Limited (CEPL)
• Solomon Holdings Private Limited (SOHPL)
• Legend Infoways Private Limited (LIPL)
• Microland Developers Private Limited (MDPL)
• Utsav Securities Private Limited (USPL)
• Aquarius Fincap & Credits Private Limited (AFCPL)
• Shalini Holdings Limited (SHOL)
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e. Identities of the persons who are behind the whole trail of investments/web of cross investments in various companies could not be found out.
f. All the companies and persons involved appear to be working in concert to create share capital, share application money, share premium and reserves and surplus in these companies just by creating accounting entries and circular transactions. Accounting entries thus created, are sought to be wrapped/adjusted by way of scheme of amalgamation. g. The allotment of large number of shares on a hefty premium without any justifiable business seems to be deliberate attempt to avoid payment of fees to the govt. exchequer under schedule X on increase in paid up share capital and authorized share capital.
h. The transferee company is a listed company and out of the total 720 shareholders, 83% are individuals and the remaining 17% are body corporates. The scheme of amalgamation would result in drastic fall in individual shareholding and adversely affect the vital public interest.
iv) The Ministry of Corporate Affairs, Govt. of India vide order F. No. 04/181/2013-CL.II(NR) dated 28.10.2013 in exercise of its powers under Section 235 of the Companies Act, 1956, ordered an investigation into the affairs of the NKS Holding Private Limited and its 10 others related companies by Serious Fraud Investigation Office (SFIO), based on the recommendation of the Registrar of Companies, NCT of Delhi and Haryana under Section 234(6) of the Companies Act, 1956.
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v) On the basis of the order of MCA and technical security/RoC report under Section 234(6), the following issues were identified for detailed investigation while looking into the affairs of the companies under investigations:-
a. To ascertain the nature of business of the companies under investigation and their modus operandi;
b. To examine the nature of the web of transactions between a set of companies resulting in creation of credits in bank account and use of such credits to subscribes the share capital, reserve and surplus and consequent investment worth Rs. 1000 crore in each of these companies.
c. To analyze the scheme of amalgamation by NKS and SNLFL and examine the scheme is prejudicial in the interest of its member or the public interest.
vi) The SFIO started investigation with the collection of reports from the RoC. The relevant documents such as MOA, AOA, Form 2, Form 20B, Form 32, Annual returns, Form 23 AC, Form 23 ACA maintained in MCA 21 portal, pertaining to SNLFL and NKS and other 9 companies under investigation were downloaded and analyzed. The SFIO team visited the registered office of the most of the companies and collected the documents. During investigation into the affairs of the companies, SFIO team learnt that RBI had conducted inspection in some of the Company under Investigation (CUI) and observed that most of these companies including the respondent company were carrying on Non-bank Financial Institution (NBFI) kind of activities without obtaining valid Certificate
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of Registration. SFIO also learnt that the Income Tax Department had conducted search and seizure operations at the business premises of some of the companies under investigation including the residential premises of S.K. Jain & Virendra Jain (Jain Brothers). Numerous incriminating documents were seized by the ITD and assessment proceedings have since been completed on the basis of these documents and post search investigations. ITD has recorded findings that Jain Brothers had been functioning as accommodation entry operators with/through 49 companies/entities under their control. The Investigation revealed that Jain Brothers were the 'Directing mind and will' behind the functioning of all 49 companies including the Respondent herein.
vii) Based on these other averments, the Appellant preferred petition being CP No. 286/271-272/ND/2018 before the NCLT with following reliefs:-
a. Issue/pass necessary directions/orders for winding up of M/s Ad Fin Capital Services India Private Limited in the public interest. b. Appoint Liquidator for taking over the assets of the Respondent company. c. Issue directions to the directors of the Respondent Companies to file statement of affairs showing the assets and liabilities with the Liquidator appointed by the Hon'ble Tribunal.
d. Direct the respondents to maintain status quo in respect of the properties of the company and the respondent company be prohibited from dealing with the funds of the company except with the prior permission of this Hon'ble Tribunal.
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e. Restrain the respondent company from dealing and transacting in any manner, whatsoever with the movable and/or immovable assets of the company and its Bank Accounts.
After hearing the parties, the Tribunal dismissed the aforesaid winding up petition and passed orders (supra). Hence this Appeal.
4. The Ld. Counsel for the Appellant during the course of argument and in his memo of Appeal along with written submissions submitted that the impugned order dated 18.12.2019 passed by the Tribunal is illegal, unreasonable and against the well settled principles of law. The Tribunal has failed to appreciate that a company which has a high premium in its books of accounts brought in by the Jain Brothers which still existed and carried forward is one of the traits of a shell company. The Respondent company is having a very dark past and its involvement in money laundering activity is above board. A bare perusal of the balance sheet of the Respondent company reveals that during the period 2008-09, 2009-10, 2010-11, the Respondent company was not having sufficient income to impress upon the general public to purchase its shares at a high premium. A group of companies controlled by Jain Brothers namely Shri S.K. Jain and Shri Virendra Jain in connivance with one another hatched a criminal conspiracy and started purchasing the shares of beneficiary companies at a high premium to enable them to convert their black money into legitimate money for taking the commission giving accommodation entries.
5. It is further submitted that the Respondent Company is a body corporate and it never dies with the change of the management. In the present case, it
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appears that the management of the Respondent company got changed in the year 2015-16 but the revenue and the surplus amount which reflects in the balance sheet of company is outcome of the fraud and illegal activities. The SFIO was appointed for investigation of some of the companies of Jain Brothers who are mastermind of the all the organized crime of money laundering activities. In the year 2012, an amalgamation petition was filed in the High Court of Delhi at New Delhi and the objection of the Registrar of Companies was called for. The Registrar of Companies submitted its objection and the involvement of those companies in the money laundering activities came into the light. Resultantly, SFIO was appointed for conducting the investigation. During the course of investigation of certain companies, it revealed that the Respondent company was also one of those companies which were being controlled by Jain Brothers for committing the organized crime of money laundering. The SFIO submitted its report on 31.03.2016 and gave its recommendation for initiating winding up petition against all those 49 companies which were found involved in the crime.
6. It is further submitted that the letter dated 29.08.2017 is the letter of sanction to the Registrar of Companies and it was issued after due discussion, deliberation and application of minds. However, the letter has been addressed to the Director, SFIO and a copy thereof has been sent to the petitioner but the perusal of the letter dated 29.08.2017 reveals that the purpose of addressing the Director, SFIO was only to request him to assist the ROC to file the winding up petition be deputing the concerned IO who had conducted the investigation. Further, there is no any prescribed format for granting sanction in a particular
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manner. The word sanction means official permission. In the present case, petitioner has not filed a winding up petition against the Respondent company without the permission of the Central Govt. The letter dated 29.08.2017 which is, in fact, a sanction letter has been issue dafter considering the notices and replies from the Respondent company. Since there is nothing in the reply of the Respondent except the request for the copy of the SFIO report, therefore, it was not considered necessary to give personal hearing to the Respondent company.
7. It is further submitted that the winding up petition was dismissed without examining and going into the details to know as to how Shri S.K. Jain entered into the company and transferred the accommodation entries to the current management. It is also an erroneous decision that Shri Surendra Jain was a director for a short period of time. It is submitted that, to control a company, a person need not be its director but it can be controlled as a shareholder holding shares through corporate entities. As has been the modus operandi of Jain brothers, 49 group companies including the Respondent company were being controlled by Jain brothers. Presently as shown above, Jain brothers are indirectly holding influence in the company. Further, the Tribunal failed to take a holistic view of the facts presented before it regarding the money laundering activity carried out by the group companies promoted by Jain brothers and its adverse impact on the exchequer as well as on the economy. This order of the Tribunal will embolden the accommodation entry operators and purchasers of such accommodation entries like the present management in carrying out such
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activities in further also. Based on above submissions the impugned order is fit to be set aside and the Appeal be allowed.
8. The Ld. Counsel for the Respondent during the course of argument and in his reply affidavit along with written submissions submitted that the Tribunal vide order dated 18.12.2019 dismissed the petition on both grounds lack of sanction as well as on merit. The Tribunal held that facts of this case are identical to the case which was dismissed by this Bench vide order dated 18.01.2019 in the case of "Registrar of Companies Vs. Apoorva Leasing Finance & Investment Company Limited" and is now upheld by this Appellate Tribunal comprising of Hon'ble three Member Bench in Company Appeal (AT) No. 88 of 2019 vide order dated 04.12.2019 which read hereunder:
"15. This sanction order does not contain what are the allegations against the Respondent No.1 company and to substantiate the allegations what documents were placed before him. It is also not mentioned that before according sanction the company has been given reasonable opportunity of making representations. It is also not mentioned that the sanctioning authority prima facie satisfied with the allegations against the Respondent No.1 company. In this regard it is useful to cite the judgement of Punjab & Haryana High Court in the case of ROC Vs Suraj Bachat Yojna Pvt Ltd and Others 1973
(43) Comp Case 343. Though this case was under the old Act, 1956 but in substance the provisions of the new Act, 2013 are same.
"5.xxxxx The legislature enacted a safeguard for the companies not to be harassed by frivolous or doubtful-of- success petitions for its winding-up by the Registrar in
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Section 439(6) of the Act by enjoining on the Central Government not to accord its sanction to the Registrar u/s 439(5) unless an opportunity is afforded to the company of making representations, if any. The delegate of the Central Government while according sanction, has a solemn duty to perform of informing himself about the true position of the company in the light of the explanations made by it. The explanations have to be considered with a judicial mind and outlook and are not to be discarded off-hand unless considered to be flimsy, fallacious or frivolous. It is not a mere formality to receive the explanations from the company and dismiss them as unsatisfactory without getting the doubts cleared. Xxxxx"
16. It is apparent that without giving reasonable opportunity of representation to Respondent No.1 the sanction has been granted that too without applying the mind thus we find no ground to interfere in the order passed by the NCLT. The appeal is dismissed. No order as to cost."
9. It is further submitted that the aforesaid decision of the Hon'ble NCLAT was challenged before the Hon'ble Supreme Court in "Civil Appeal vide Diary No. 14952 of 2020 (Union of India Vs. Apoorva Leasing Finance and Investment Co Ltd. and Another)" wherein the Hon'ble Supreme Court vide order dated 29.01.2021 passed the following orders:
"1. The appeal under Section 423 of the Companies Act 2013 is filed with a delay of 166 days.
2. Under the provisions of Section 423, this Court is empowered to condone a delay (beyond the original period of limitation of 60 days) only to the extent of a further period of 60 days.
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Hence, since the appeal has been filed beyond the maximum period that can be condoned under the proviso to Section 423, the appeal cannot be entertained and is accordingly dismissed on the ground of limitation.
3. However, since we have not entered upon the merits of the controversy, it only needs to be clarified that the order of the NCLAT, which had come to the conclusion that there was a violation of the principles of natural justice in adhering to the provisions of Section 272(4) of the Companies Act 2013, will not come in the way of the appellant taking recourse to the remedies available in law after following due process.
4. Pending applications, if any, stand disposed of."
10. It is further submitted that in view of the fact that the Hon'ble three Member Bench of this Appellate Tribunal have dismissed the Appeal i.e. Company Appeal (AT) No. 88 of 2019 and the case of the Respondent is fully covered by this Judgment which have attained finality as the Civil Appeal has also been dismissed by the Hon'ble Supreme Court, therefore, there is no merit in the Appeal, the instant Appeal may be dismissed.
11. After hearing the parties and going through the pleadings made on behalf of the parties and also the Judgment passed by Hon'ble three Member Bench of this Tribunal in the case of "Registrar of Companies Vs. Apoorva Leasing Finance & Investment Company Limited [Company Appeal (AT) No. 88 of 2019] dated 04.12.2019" which has attained finality as the Civil Appeal has also been dismissed by the Hon'ble Supreme Court in "Civil Appeal vide Diary No. 14952 of 2020 (Union of India Vs. Apoorva Leasing Finance and
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Investment Co Ltd. and Another)", we find that facts of the instant Appeal are same and identical to the case which was dismissed by this Appellate Tribunal vide order dated 04.12.2019 in the case of "Registrar of Companies Vs. Apoorva Leasing Finance & Investment Company Limited and Another". Therefore, we are of the view that there is no merit in the Appeal, the instant Appeal is hereby dismissed.
12. Registry to upload the Judgment on the website of this Appellate Tribunal and send the copy of this Judgment to the National Company Law Tribunal, New Delhi Bench, forthwith.
[Justice Anant Bijay Singh] Member (Judicial)
[Ms. Shreesha Merla] Member (Technical)
New Delhi
25th January, 2023
R. Nath.