National Peroxide Ltd vs Nipul S Trivedi
2021 Latest Caselaw 2481 Bom

                  IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                        ORDINARY ORIGINAL CIVIL JURISDICTION


                INTERIM APPLICATION (LODGING) NO.3992 OF 2020
                                           IN
                             SUIT (LODGING) NO.3989 OF 2020

National Peroxide Ltd., Mumbai                         ...Applicant-Plaintiff
             V/s.
Nipul S. Trivedi and Ors.                              ...Defendants


Mr. Navroz Seervai, Sr. Advocate, with Mr. Ashish Kamat, Mr.Akshay Puranik,
Mr. Sachin Mandlik and Mr. Nikhil Kapoor, i/by Mr. Abhishek Adke, for the
Applicant-Original Plaintiff.
Ms. Trupti Bharadi for Defendant No.1.
Mr. Sameer Pandit, with Ms. Krina Gandhi, i/by Wadia Ghandy & Co., for
Defendant No.2.
Mr. Rajesh Patil, with Ms. Shahen Pradhan, i/by Argus Partners, for Defendant
Nos.3 and 4.
Mr. Raj Patel, with Mr. Ashish Bhakta and Ms. Krusha Maheshwari, i/by ANB
Legal, for Defendant No.5.
Mr. Zal Andhyarujina, Sr. Advocate, with Mr. Aditya Bhat, Mr. Dhirajkumar
Totala and Mr. Parth Jain, i/by AZB & Partners, for Defendant Nos.6, 7 8 and
9.
Mr. Anirudh Hariani, with Mr. Nooruddin Dhilla and Mr. Ankit Kothari, i/by
Hariani and Co., for Defendant Nos.12, 18 and 19.


                                                  CORAM : A. K. MENON, J.

DATED : 8TH FEBRUARY, 2021.

P.C. :

1. The plaintiff, a public limited company, seeks to recover amounts

allegedly siphoned off by some ex-employees jointly and severally from all the

defendants. There are a large number of defendants. Of these, only defendant

1-SL-3989-2020 & IA-3992-2020.doc Dixit nos.1 to 5 are ex-employees of the plaintiff. Defendant no.6 is believed to

have been the Statutory Auditor at the material time when the fraud allegedly

took place. Defendant nos.7 to 9 are partners of defendant no.6. Defendant

nos.10, 12, 14, 16 and 18 are believed to be the Internal Auditors of the

plaintiff at the material time. Defendant nos.11, 13, 15, 17 and 19 are

believed to be the partners/persons-in-charge of the aforesaid internal

auditors. The relief sought against those defendants primarily pertain to

retention of records of the company that came into the hands of the aforesaid

defendants by virtue of their being internal auditors and statutory auditors. By

a separate order dated 5th January 2021, this IA has been disposed as against

defendant nos.6 to 9, 13 to 19. As regards defendant nos.10 and 11, the

allegations in the plaint are similar to those against the other internal

auditors. The defendant nos.10 and 11 not having controverted any of these

statements, they will be bound to maintain records in terms of the order

already passed in respect of defendant nos.6 to 9. That leaves me to consider

the reliefs as against defendant nos.1 to 5 and 12. As far as defendant no.12 is

concerned, there is an application that he be dropped from the proceedings.

That can be considered separately.

2. In the suit, the plaintiff seeks damages / compensation in a sum of

Rs.72,42,67,140/- and a further sum of Rs.320 crores towards loss of

plaintiff's reputation allegedly caused on account of the fraudulent acts of

defendant nos.1 to 5 and alleged failure of defendant nos.6 to 19 to perform

their duties as auditors. In the IA, the prayers that now survive seek an order

1-SL-3989-2020 & IA-3992-2020.doc Dixit directing defendant nos.1 to 5 and their immediate family members jointly

and severally to disclose on affidavit particulars of all their dealings with the

plaintiff's funds forming part of the suit claim and particulars of properties

and assets held by them. Upon such disclosure, the plaintiff seeks an order for

tracing such assets, which may have been acquired through proceeds of fraud

and, in the meantime, an injunction is sought to restrain the defendant nos.1

to 5 and their family members from dealing with, alienating or parting with

possession of assets and properties in which they have beneficial interest.

3. At the hearing of this IA, Mr. Seervai, who led the arguments on behalf

of the plaintiff, has restricted relief of disclosure to the defendant nos.1 to 5.

In other words, no relief has been sought at this stage against the family

members as such. It will be appropriate to briefly refer to the capacity in

which the defendant nos.1 to 5 served the plaintiff-company.

 The 1st defendant joined as a Junior Clerk in September,

1985 and effective from July 2000, he was authorized

to issue cheques on behalf of the plaintiff. In April,

2016, he was promoted as Manager (Accounts). He was

handling banking work, attending to VAT and sales tax

payments.

 Defendant no.2 was appointed as whole time director

of the plaintiff in May, 1998 and later came to be

designated as Managing Director with effect from

November, 2004.

1-SL-3989-2020 & IA-3992-2020.doc Dixit  The defendant no.3 was appointed as Sales Manager in

January, 1995. Later, he became Vice President

(Marketing) in July, 2012.

                  Defendant no.4 was appointed in July, 2013 as Vice

                   President (Operations).

                  Defendant no.5 joined as Accounts Executive in August

1988 and designated as Chief Financial Officer of the

plaintiff in May 2014. Although he resigned in June,

2015, the company reportedly continued to engage his

services as a Consultant till May, 2016, apparently on

the advice of the 2nd defendant.

4. The case of the plaintiff in a nut shell is that these defendants

embezzled the funds with the plaintiff under the guise of making payments

towards local sales tax, VAT etc. Mr. Seervai appearing in support of the

application submitted that total 1160 bearer cheques have been signed and

dealt with by the defendants 1 to 5 and which were utilized for siphoning the

plaintiff-company's funds, thereby committing a huge fraud. The plaintiff has

since collected the copies of these cheques from their bankers - Canara Bank

and State Bank of India and have found that the defendant no.1 has signed

966 bearer cheques of an aggregate value of Rs.28.82 crores. The plaintiff,

having secured copies of 974 cheques out of the total 1160 cheques, found

that defendant no.2 had co-signed 289 cheques of an aggregate value of

Rs.8.76 crores. Defendant no.3, who was the then Sales Manager at the

1-SL-3989-2020 & IA-3992-2020.doc Dixit material time, was found to have co-signed 247 cheques of an aggregate

value of Rs.7.42 crores. Defendant no.4 as Vice President (Operations) had

signed 156 cheques valued at Rs.4.67 crores. Defendant no.5 had co-signed

279 cheques aggregating to Rs.8.34 crores in value.

5. Mr. Seervai submitted that these persons betrayed the plaintiff's trust

and colluded in perpetrating the fraud, thereby embezzling in Rs.37.02

crores, of which Rs.36.24 crores were embezzled from the account of Canara

Bank and Rs.0.79 crores from the account of State Bank of India. Rs.30.47

crores are believed to have been embezzled during 2013 to 2017 and the

defendants are alleged to have recorded the payments in the plaintiff's books

of accounts towards payments for VAT and CST, but, in fact, VAT and CST

paid during the relevant time as per Sales Tax Returns is Rs.4.83 crores;

whereas in the books of accounts, the defendants had shown payment of

Rs.41.86 crores. Discrepancy was therefore of Rs.37.03 crores, which amount,

Mr. Seervai submitted, the defendants are bound to pay to the plaintiff.

According to Mr. Seervai, the defendant no.5 - the then CFO had also signed

financial statements of the company during the material time and would have

known that the figures towards VAT and CST were not genuine.

6. Mr. Seervai further submitted that the fraud came to the light on

appointment of the new Chief Financial Officer in November, 2016. While

finalizing the accounts, he noticed large debit balances in the ledger account

under the head of "local sales tax payable", "central sales tax payable", "deposit

1-SL-3989-2020 & IA-3992-2020.doc Dixit sales tax", "advance sales tax payable", "VAT clearing" and "VAT on purchase

accounts". Having noticed these entries, the CFO caused a forensic audit to be

conducted in October 2017, when it was discovered that during the material

period, the aforesaid funds of Rs.37.02 crores have been misappropriated.

The services of defendant nos.1 to 5 were then terminated. A second forensic

audit report was provided to the plaintiff in February, 2018 and accordingly

the suit has been filed after collecting necessary data, which took some time.

In any event, the case of the plaintiff is that the suit is filed within time.

Meanwhile, in November, 2017, a complaint was filed with the Economic

Offences Wing, Mumbai. The defendant nos.1 to 5 were later arrested on

different dates during January 2019 and February 2020 and were released on

bail between May 2019 to July 2020.

7. The fraudulently drawn cheques were reportedly endorsed using

cheque discounting agents to encash the cheques through accounts of the

beneficiaries unknown to the plaintiff, with whom the plaintiff had no

business relations. Mr. Seervai highlighted the fact that no supporting

vouchers or challans are available to support the expenditure. The First

Information Report filed with the economic offences wing resulted in a

charge sheet against defendant nos.2 to 5 who are responsible for

management, had been negligent while discharging their duties in particular

by signing bearer cheques for alleged payments of VAT and CST for several

years. They did not question the need to issue bearer cheques. He submitted

that the cheques drawn in favour of "RBI" were signed and later altered so as

1-SL-3989-2020 & IA-3992-2020.doc Dixit to make the cheque payable to "RBIM Sales". Mr. Seervai further submitted

that while discounting the cheques, the agents were unaware of the source of

the cheque or the destination of the funds.

8. According to the plaintiff, the monies were handed over by the

discounting agents to defendant no.1, who was particular about receiving

cash on the same day. Defendant nos.2, 3 and 4 had confirmed that the

cheques were signed without reference to any supporting vouchers or

computations. Although defendant no.5 had resigned with effect from 30 th

June 2015, he had access to the company's Canara Bank account via net

banking. The higher value cheques were required to be signed by two persons

and hence the cheques were co-signed by one or the other parties.

Considerable stress was laid on the forensic reports issued by Price

Waterhouse Coopers ("PWC Report"). Mr. Seervai submitted that the report

records that at least two defendants have disproportionate assets and the

plaintiffs believe these to be funded by embezzled funds. He submitted that

the disclosure is crucial and therefore seeks reliefs. Mr. Seervai submitted that

the fraud gave rise to a cause of action and that this came to be known to the

plaintiff only upon the PWC Report being made available. Mr. Seervai and

Mr. Kamat have made several references to the PWC Reports, copies of which

appear at Exhibits "I" and "I-1" to the plaint.

9. Mr. Seervai also relied upon the fact that during the investigation,

defendant no.2, who was Managing Director, had deleted the WhatsApp

1-SL-3989-2020 & IA-3992-2020.doc Dixit application on his phone and related data from his phone prior to handing

over the phone for analysis. He resisted efforts to retrieve data and chats, even

those on the cloud storage, contending that the password is not accessible, the

search conducted at the office of the 2 nd defendant revealed that he had

purchased a flat in a residential complex of the Lodha Group worth Rs.7.25

crores. The reasons for seeking reliefs were therefore genuine.

10. As regards defendant no.5, the learned counsel for the plaintiff has

submitted that there has been a large increase in the value of the investment

made by defendant no.5. His initial investment of Rs.2.37 crores in 2009 has

been increased to Rs.10.67 crores as on June, 2014. Of this investment of

Rs.10.67 crores, investment in the name of the 5 th defendant's mother-in-law

amounted to Rs.8.05 crores. Further investments were made in the name of

his spouse, son and daughter aggregating to Rs.2.61 crores. The choice of co-

signatories, Mr. Seervai submitted, was deliberate and according to him, there

were value limitation for cheques to be signed and 1,153 cheques were for

the values of Rs.30,000/- to Rs.9,87,472/-; of which, 1,128 cheques were

below Rs.5 lakhs and only 25 cheques were in excess of Rs.5 lakhs.

11. In the course of investigation, it appears that search in the house of

defendant no.1 revealed that counterfeit VAT challans were stored. This finds

clearly indicative of the complicity of these persons. During 2008-17, bogus

challans in the name of RBIM Sales were prepared. Tax challans were forged.

The five defendants were all in important positions and had ignored their

1-SL-3989-2020 & IA-3992-2020.doc Dixit duties and embezzled funds. Defendant no.2 is alleged to be the mastermind

of the fraud, which could not have taken place without the 2 nd defendant's

active participation. Mr. Seervai therefore submitted that the reliefs prayed for

must be granted.

12. The learned Advocate for defendant no.1 has filed written submissions

relying upon an affidavit-in-reply dated 16 th October, 2020. In that affidavit,

he stated that he worked for the company for 32 years and rendered services

honestly and sincerely. He denies having committed any fraud. He has been

falsely implicated in criminal and other cases.

13. On behalf of the 2nd defendant, Mr. Pandit contended that his client

had joined in 1997 as Vice President (Technical) and was later appointed as a

Whole-time Director of the plaintiff in 1998 and became Managing Director

in 2004. The 1st defendant has appointed as Manager (Accounts) right from

September 1985 and continued as such till December 2017. In 2009, the

Board of Directors of the plaintiff required all cheques to be signed by the two

signatories and defendant no.2 was retained as a Group-A authorized

signatory. It is during October 2008 to March 2017 that defendant no.1

alleged to have embezzled the funds of the plaintiff by issuing 1,160 cheques.

He prepared cheques in the name of "RBI", presented the same to the

authorized signatories for signature and after obtaining the signatures, the

bearer's name was changed to "RBIM Sales". Cheques were then endorsed in

favour of third parties and deposited the cheques in their accounts. To

1-SL-3989-2020 & IA-3992-2020.doc Dixit conceal these payments, defendant no.1 entered these payments in the

plaintiff's books of accounts as being made towards VAT and CST. Forged

challans were also generated. Mr. Pandit submitted that defendant no.2 was

not involved in any of these acts and was not liable for the alleged losses and

damages.

14. Mr. Pandit further submitted that in March 2016, defendant no.1 sent

one forged MVAT challan to the plaintiff's auditors and that is the reason that

the plaintiff has come before this court. Mr. Pandit further submitted that out

of 1,160 cheques, defendant no.2 has signed only 289 cheques valued @

Rs.8.76 crores over the period of 10 years and out of these cheques, 287

cheques were signed by the 2 nd defendant as a co-signatory. Only two

cheques were signed by the 2 nd defendant as sole signatory prior to the

change in policy requiring all cheques to be signed by at-least two

signatories. The other 871 cheques of a value of Rs.28.27 crores have been

signed by the other signatories and not by defendant no.2. According to him,

between 2007 and 2017, the internal auditors had audited accounts. The

audit committee of the plaintiff approved the financial statements and none of

them detected the fraud committed by defendant no.1.

15. In May, 2017, the then CFO of the plaintiff one Shailesh Chauhan had

discovered the fraud and sought an explanation from the defendant no.1. In

October 2017, when the defendant no.1 was confronted, he confessed that he

was responsible for the fraud and that the monies that have been generated

1-SL-3989-2020 & IA-3992-2020.doc Dixit from the fraud were lost in gambling. The plaintiff thereafter issued a

disclosure letter to the Bombay Stock Exchange Ltd. In November, 2017, when

the plaintiff filed its complaint against defendant no.1, no allegations were

made against defendant no.2. The PWC Report records that the defendant

no.1 was the kingpin of this scam. Meanwhile, in December, 2017, the

plaintiff terminated the 2 nd defendant's services only on the ground of

negligence and not fraud. The 1st defendant's services were terminated for

embezzlement of funds and manipulating books of accounts of the plaintiff.

Mr. Pandit has submitted that the plaintiff has unreasonably held back

amounts due to defendant no.2, including sums due towards the provident

fund dues, and that the 2 nd defendant had filed a suit in this respect. The PWC

Report, Mr. Pandit submitted, did not contain any finding that the 2 nd

defendant embezzled funds. Meanwhile, his gratuity and other amounts due

towards his superannuation benefits have been unlawfully retained by the

plaintiff.

16. Mr. Pandit submitted that in a notice issued by the plaintiff calling

upon the defendant no.2 to show cause as to why his provident fund dues

should not be forfeited, there were no allegations of fraud but only that the

defendant no.2 was negligent. The defendant no.2 had shown cause against

such forfeiture and that in any event, the law does not permit a complete

forfeiture of provident fund dues. That apart, Mr. Pandit submitted that the

plaintiff did not act on the show cause notice or passed any order thereon.

The present suit is filed three years after the transactions complained of and

1-SL-3989-2020 & IA-3992-2020.doc Dixit after the 2nd defendant filed a suit for recovery of more than Rs.8 crores. An

ad-interim application was made and the relief was pressed only against

defendant nos.6 to 9 and not against defendant no.2. Despite having sought

inspection of documents, on which the plaint proceeds, no inspection has

been given. Thereafter, an order has been passed on the IA filed by the

defendant no.2, whereby the plaintiff has been directed to disclose the

amounts of gratuity, provident fund and other emoluments, which were due

to the 2nd defendant, and it is this disclosure that reveals that Rs.8,66,96,000/-

stands to the credit of the 2 nd defendant as on December 2017 and

considering that these amounts would earn interest, the total would be much

higher.

17. Mr. Pandit also submitted that the plaintiff had suppressed material

fact of having withheld more than Rs.8 crores and is now seeking further

security in the form of an injunction; more so, when the suit itself is barred by

limitation since the cheques in question were issued between October, 2008

and March 2017. In March 2016 and between March 2017 and June 2017,

the plaintiff's statutory auditor - defendant no.6 drew attention of the

plaintiff to the discrepancies by email, but it appears that no action was taken

by the plaintiff.

18. In view of the aforesaid facts, Mr. Pandit submitted that there is no

question of prima facie case being made out. Effectively, what is sought is an

attachment before judgment, for which there is no supporting evidence. The

1-SL-3989-2020 & IA-3992-2020.doc Dixit plaintiff appears to be making a fishing enquiry in relation to the flat that has

been agreed to be purchased by the 2 nd defendant. Even the forensic audit

report records that the agency Price Waterhouse Coopers was unable to

ascertain the source of funds for investment in the flat. Therefore, there is

nothing to indicate that the funds of the plaintiff were siphoned off by

defendant no.2 and utilized for purchasing the flat. Considering these factual

aspects, Mr. Pandit submitted that no case is made out for grant of reliefs in

the IA, not of disclosure much less attachment or injunction.

19. Mr. Pandit has relied upon the following judgments in support of his

case :-

1. Mukesh Hans & Anr. Vs. Smt. Uma Bhasin & Ors. 1

2. Oswal Agro Mills Ltd. Vs. The Custodian & Ors. 2

3. Remedial Resolutions Advisors Pvt. Ltd. & Ors. Vs. Capri UK Investments Ltd. & Ors.3

4. Zenit Metaplast Pvt. Ltd. Vs. State of Maharashtra and Ors.4

5. Swan Mills Ltd. Vs. Dhirajlal and Ors.5

20. On behalf of defendant no.3, Mr. Patil submitted that his client joined

the plaintiff in January, 1995 and worked for about 20 years. Initially, he was

a Sales Manager and thereafter was promoted as Vice President (Marketing).

He submitted that defendant no.3 was engaged in the marketing department

1 2010 SCC OnLine Delhi 2776 2 2003 SCC OnLine Bom 1306 3 2014 SCC OnLine Bom 358 4 (2009) 10 SCC 388 5 (2012) 2 BCR 20

1-SL-3989-2020 & IA-3992-2020.doc Dixit and not concerned with the finance department. He was authorized to sign

the cheques as the second signatory with defendant no.1 who would prepare

the cheques. The management of the plaintiff had no proper procedure for

issuing such cheques and that the forensic audit report had recorded that

internal controls were either non-existent or not effectively implemented and

the 1st defendant had probably taken advantage of this lack of control and

embezzled the funds. Mr. Patil submitted that the forensic audit report did not

contain any allegation or suggestion that the 3 rd defendant had committed any

fraud. The services of defendant no.3 was also terminated on the ground of

negligence and but not for fraud. Mr. Patil has reiterated that the 1 st

defendant was responsible for embezzlement of funds as the cheques were

prepared and signed by the 1st defendant and thereafter brought to the 3 rd

defendant. When the cheques were brought to the 3 rd defendant, they were in

favour of "RBI" and the 3rd defendant had no reason to suspect that the 1 st

defendant was committing a fraud. He admits to have signed the cheques in

good faith. Manipulation by the 1st defendant adding the letter "M" and the

word "Sales" took place after the signature of the 3 rd defendant. Mr. Patil has

relied upon the termination letter dated 15 th December 2017 addressed to his

client, whereby services of the 3 rd defendant were terminated for negligence.

Whereas, the termination letter of the 1 st defendant specifically mentioned

embezzlement of funds by him. Mr. Patil has also relied upon an order of

this court in Appeal from Order No.336 of 2018 6, wherein the court had

6 Ranjit Arjan Hira Vs. Kavita Vijay Mehta, dt. 17th September 2018.

1-SL-3989-2020 & IA-3992-2020.doc Dixit occasion to observe that to obtain an injunction under Order XXXIX Rule 1(b)

of CPC, a plaintiff would have to prima facie establish that there was intention

to defraud. A bare averment is of no consequence.

21. On behalf of defendant no.4, Mr. Patil submitted that defendant no.4

was appointed as Vice President (Operation) effective from 17 th July 2013. He

worked for 4 to 5 years till his services were terminated on 15 th December

2017. He was not concerned with the finance department at all, but was

authorized to sign the cheques as a second signatory along with defendant

no.1. He along with defendant nos.2, 3 and 5 were authorized to sign the

cheques as 2nd signatory along with the defendant no.1.

22. On behalf of defendant no.5 Mr. Raj Patel submits that the 5 th

defendant was engaged in 1988 as Accounts Executive. He held multiple posts

before being appointed as CFO. He has an impeccable service record and has

been regularly promoted as a result of appraisals. The plaintiff's contention

that the 2nd defendant was responsible for the 5 th defendant's promotion has

been denied. Mr. Patel submitted that the 5 th defendant has a meritorious

record with the company and was appointed as CFO only pursuant to a board

resolution. One person cannot appoint a CFO of his own accord. In

recognition of his services, even after his retirement, the 5 th defendant has

been continued to assist the plaintiff-company as a Consultant to ensure

smooth transition. He was appointed in the finance department only in July,

1-SL-3989-2020 & IA-3992-2020.doc Dixit 2009. The perpetration of fraud has already apparently commenced at the

hands of defendant no.1. He submitted that his client has been sought to be

singled out and that during his tenure, the cheques were presented to him by

defendant no.1. He states that the aspect of taxation, including sales tax, was

looked after by one Uday Barkur and the defendant no.5 had no role to play. It

is only after the fraud has been discovered, that the 5 th defendant came to

realize its extent. Meanwhile, he had resigned on 30 th June 2015 before the

discovery of the fraud. Upon retirement, he was asked to train the new CFO,

which he agreed to do and therefore he was appointed as a Consultant. He

shared his responsibilities as the CFO. Consequently, the new CFO was

appointed and the defendant no.5 had assisted him. The new CFO had not

commenced using net banking facility, which he had been requested to

continue to do. The FIR was registered on 27 th March, 2018 and on the very

next day, his residence was raided. His salary account was also frozen. Despite

FIR being registered and despite the charge sheet being filed, for more than

two years since then, no material has been presented implicating him in the

alleged fraud. The allegations in the plaint are vague in nature. In the absence

of any cogent material or money trail connecting him or any of his family

members, Mr. Patel submitted that there is no case made out for granting

relief against defendant no.5. It is the board of directors and the auditors, who

should have noticed it. All the debit balances were reflected in the accounts of

the plaintiff-company; however, even the auditors never questioned. The

financial health of the plaintiff-company ought to have been monitored by

1-SL-3989-2020 & IA-3992-2020.doc Dixit the directors, which does not appear to have been done. No evidence having

been found against him, defendant no.5 has denied all the allegations.

23. Before reaching a conclusion, it is appropriate that I consider the

averments in the plaint, which form the basis of the IA. The material

averments relating to the claim against defendant nos.1 to 5 are to be found

from paragraph 3.1 onwards. Specific allegations are to be found in the plaint

from paragraph 3.10 onwards. The gist of the plaintiff's case, as set out in the

plaint, is that defendant nos.1 to 5 have perpetrated and elaborated

commercial fraud by siphoning off and misappropriating Rs.37.03 crores of

the plaintiff's funds and that they are liable to compensate the plaintiff, as

claimed in the plaint. Termination of services of the 1 st defendant was effected

by letter dated 27th December 2017. The letter records that the 1 st defendant

has not attended office from 6th October 2017 without any intimation. It also

recorded that investigations revealed that the 1 st defendant had signed 1,153

cheques from the company's Canara Bank and State Bank of India accounts

during October, 2008 to March, 2017 and about Rs.30.47 crores had been

embezzled during 2013 to 2017. In doing so and in order to conceal the

embezzlement, the defendant no.1, acting on behalf of defendant nos.2 to 5,

concocted and recorded entries, describing them as payments for VAT / CST,

local sales tax, central sales tax, depository sales tax, advance sales tax, VAT

clearing account and VAT on purchase account. A scrutiny of the account

reveals that there was a steady increase in the balances in VAT/CST, which

were found to be unusual and suspicious. He has relied upon a table in

1-SL-3989-2020 & IA-3992-2020.doc Dixit paragraph 4.3 of the plaint. These amounts are said to be so large that it

would have alarmed the auditors, but has been ignored by them. The

averments in paragraph 4.4 onwards of the plaint, with the exception of

paragraphs 11, 12, 23, 24, 27 to 30 and 32, both inclusive, pertain to the

failure of auditors, both internal and external, to detect these transactions. Of

these, only paragraphs 1 to 25 are said to be true to the knowledge of these

signatory to the plaint. Paragraphs 26 to 40 are sought to be verified on the

basis of the information received. The affidavits-in-rejoinder are also filed by

the said authorized signatory. Though the CFO could detect the fraud, he did

not.

24. The plaintiff's authorized representative in his rejoinder to the

affidavit-in-reply of defendant no.1 repeats the allegations that defendant

nos.1 to 5 have embezzled and defalcated funds as narrated in the plaint. The

new CFO has noticed huge debit balances in May 2017, which led to the

forensic audit report, which revealed that the 1 st defendant had signed at-

least 966 bearer cheques in favour of "RBIM Sales" and other entities. These

were encashed in external beneficiaries' accounts. There is no

contemporaneous document to support this contention. Plaintiff has filed a

complaint on 10th November 2017 and an addendum to complaint on 8 th

February 2018 with the Economic Offences Wing (EOW). The FIR was filed in

March, 2018 by the EOW. It is contended that in the bail application filed by

defendant no.1, he has confessed he discounted cheques and handed over

cash to the defendant nos.2 to 5 who would have passed on proceeds of crime

1-SL-3989-2020 & IA-3992-2020.doc Dixit to immediate family members or have passed few assets in their names. A

disclosure is therefore sought in respect of these defendants. I had occasion to

peruse the bail application filed by defendant no.1, in which he contends that

he was thoroughly interrogated for six days and that he was working with the

plaintiff-company since 1985. He was victim of circumstances since after

discounting the cheques, cash was handed over to superior officers. His house

has been searched long ago in 2018 and nothing was found. He has no

antecedents. He claims to have been falsely implicated.

25. It is the case of the defendant no.2 that the present suit is filed as a

counter-blast to the suit filed by him in this court for recovery of statutory

dues. In his affidavit-in-reply, defendant no.2 has contended that the plaintiff

has suppressed the fact that they have withheld about Rs.8 crores due towards

statutory dues and emoluments, which had accrued prior to his termination

of services. The suit is barred by limitation since the cheques were said to be

issued between 2008 to 2017. The plaintiff was made aware of the fact that

there were suspicious payments in favour of RBIM Sales by defendant no.6 on

10th March 2016 and in May, 2017, the plaintiff's CFO detected huge debit

balances. The cheques being separate causes of action, the suit has been filed

beyond time, the first cheque being issued in 2008. On account of delays, he

has submitted that no interim relief can be granted as the plaintiff has not

been vigilant or diligent. The delay has not been satisfactorily explained. The

plaintiff filed its complaint with the EOW on 10 th November 2017; yet, the

plaint, as I see, is lodged only on 24 th September 2020. True, a forensic audit

1-SL-3989-2020 & IA-3992-2020.doc Dixit was carried out and the plaintiff contended that it is only upon receipt of the

report that they were in a position to assess the extent of embezzlement of

funds and take appropriate action.

26. The PWC Report is dated 15 th December 2017. Defendant no.2, in his

additional affidavit dated 2nd January 2021, has relied upon the plaint in the

suit filed by him. The suit is filed against (1) the plaintiff, (2) Trustees of the

Bombay Dyeing Superannuation & Group Insurance Scheme, (3) Life

Insurance Corporation of India and, (4) Trustees of the National Peroxide

Limited Employees Provident Fund. The suit seeks (i) a decree in a sum of

Rs.24.50 crores; (ii) a declaration that the termination of services vide notice

dated 15th December 2017 was wrongful and; (iii) for payment of

compensation amounts accrued on superannuation viz. pension (Rs.2.56

crores), provident fund (Rs.1.20 crores), leave encashment (Rs.72 lakhs) and

gratuity (Rs.1.80 crores). That suit is pending.

27. The defendant no.2 has questioned the manner in which defendant

nos.1 to 5 are sought to be bracketed together. No allegations had been made

against defendant nos.1 to 5. The author of the forensic audit report has made

report in 2017 and another one in 2018. Nothing has been found in the said

reports against the 2nd defendant. Even in respect of the allegation of the

plaintiff that defendant no.2 had acquired assets disproportionate to his

sources of income, the forensic audit report records that defendant no.2 had

purchased a 3 BHK flat that he was earning compensation to the tune of Rs.1

1-SL-3989-2020 & IA-3992-2020.doc Dixit crore to Rs.2.5 crores over eight years, aggregating to Rs.17 crores. Thus,

buying a 3 BHK flat is not so difficult with that income. The forensic audit

report concludes that in the absence of evidence, they are unable to trace out

the source of funds for investment in the flat by the 2 nd defendant. The

rejoinder filed on behalf of the plaintiff repeats that financial fraud and

embezzlement was committed by defendant nos.1 to 5. That defendant no.2

was one of the beneficiaries of the fraud being guilty of gross negligence and

misconduct. Having signed 289 bearer cheques to the tune of Rs.8,576 crores

drawn in favour of RBIM Sales sets out the various stages in the tenure of the

defendant no.2 during his employment with the plaintiff. That in internal

enquiries and in the meeting of the board of directions, the defendants could

not offer satisfactory explanation for the losses and damages. Reliance is

placed on the true copy of the board resolution and the 2 nd defendant's

admission that he has signed over 300 bearer cheques and that he should

have been more diligent.

28. Defendant no.3 was appointed as Sales Manager in January 1995. After

promotions, he was Vice President (Marketing). He has deposed that there was

no system put in by the management for issuance of cheques. He has placed

reliance upon the observations in the forensic audit report that it is

management's responsibility to ensure adequacy of design and

implementation of internal controls, which were either non-existent or not

said to be effectively implemented. He claims that defendant no.1 took

advantage of the system. He claims that the PWC Report is silent as to his

1-SL-3989-2020 & IA-3992-2020.doc Dixit involvement in committing the alleged fraud and embezzlement of funds.

Defendant no.3's services were terminated in December 2017 for misusing

his position and only on account of alleged negligence. On the other hand,

defendant no.1 is specifically found to have embezzled the funds and his

services were terminated for such embezzlement. As Vice-president

(marketing), there was no occasion for defendant no.3 to deal with financial

matters, although he was a signatory to the cheques in question. He has

narrated an incident of October, 2017, which is also stated to be to the

personal knowledge of the first informant one Shailesh Chauhan. After

defendant no.1 stopped attending office he is said to have, met the 3 rd

defendant and Chauhan at a restaurant, whereat defendant no.1 confessed

that he has committed the fraud and had lost money in cricket betting. The

FIR does not mention this incident. It is contended that the cheques were

signed in good faith and later it appears to be manipulated by defendant no.1.

According to the 3rd defendant, the finance department did not carry out

monthly bank statement reconciliation.

29. In a rejoinder, while dealing with the affidavit-in-reply of defendant

no.3, defendant no.3 is said to have co-signed 247 cheques, which were used

for embezzling funds. He is sought to be held liable since he did not question

the rationale for signing of bearer cheques in favour of RBI. Multiple cheques

were signed purportedly for VAT/CST payments. Defendant no.3 has failed to

set out the purpose for which the cheques were issued in the name of RBI.

There was no justification in signing 247 cheques in the name of RBI, without

1-SL-3989-2020 & IA-3992-2020.doc Dixit knowing the purpose. It is alleged that there were no supporting documents

available for signing these cheques and thus attributes negligence and active

participation in committing fraud. The six cheques signed were issued in the

name of fictitious companies. Some cheques were issued to entities whose

names were similar to some Wadia group companies. Defendant no.1 had

signed one of these cheques. He should have known that the name of the

company was incorrect. Defendant no.3 was arrested on 16 th February 2020

and the charge-sheet has been filed. In the rejoinder, there is nothing to

suggest that the defendant no.3 was responsible for maintaining accounts, for

authorizing, for drawing of cheques and for making these entries in the

accounts of the company. Clearly, it appears that the defendant no.3 was in-

charge of his assigned task, namely, that of sales and marketing. No additional

charge of finance is seen to have given to him. No doubt, in some of the

cheques, the signature of defendant no.3 appears first; however, nothing

specific has been set out as to whether defendant no.3 signed the cheques first

and then it was signed by defendant no.1. On the other hand, there is nothing

to suggest in the plaint or in the rejoinder affidavit that defendant no.3 has

initiated the fraud by signing the concerned cheques first. The Process and

Accounting Manual at Exhibit-C to the rejoinder also does not provide for

steps to be taken by a co-signatory.

30. As far as defendant no.4 is concerned, his reply is on similar lines to

that of defendant no.3. Some of the paragraphs are verbatim reproductions of

the affidavit filed by defendant no.3; however, the difference to be noted is

1-SL-3989-2020 & IA-3992-2020.doc Dixit that defendant no.4 joined only on 17 th July 2013; as against this, defendant

no.3 was joined in 1995. Defendant no.5 joined in 1988. Defendant no.4 was

appointed as Vice President (Operations). Defendant no.4 worked for 4 years

and 5 months till his services terminated on 15 th December 2017. He has

contended that he was not involved in the financial matters. He attributes

embezzlement to defendant nos.1, 2 and 5. His services were terminated only

for negligence and not for committing fraud. He complains that his dues have

not been paid and recalls certain incidents including one wherein he had

questioned defendant no.1 as to why multiple cheques were prepared when

all payments were required to be made to RBI. He was told that these cheques

are to be shown in different accounts. He claims that defendant no.1 had even

earlier forged the signature of the then CFO Subodh Desai and withdrawn a

sum of Rs.10,000/- which was later returned. Therefore, no action was taken.

He recalls that while in the office of the then company secretary, defendant

no.1 required him to sign some cheques urgently and he had reprimanded

defendant no.1 for making him sign on multiple cheques at the last minute.

He had signed cheques in good faith after they were signed by defendant no.1,

who was responsible to prepare the cheques and attending to financial affairs,

and therefore he had not suspected defendant no.1. He has taken up all the

contentions taken by defendant no.3 including the contention that suit was

barred by the law of limitation. He has also relied upon the fact that his

services were terminated on account of gross negligence attributed to him;

whereas, defendant no.1 was held liable for the embezzlement of funds.

1-SL-3989-2020 & IA-3992-2020.doc Dixit

31. In a rejoinder affidavit, Conrad Fernandes, the authorized

representative of the plaintiff-company contends that defendant no.4 and

other ex-employees committed the fraud are are beneficiaries of proceeds of

fraud. No particulars are given as to how defendant no.4 or others committed

the fraud. I find that knowledge of the fraud and participation in its

perpetration is attributed to defendant no.4, apparently because he did not

question the rationale in issuing bearer cheques to RBI, though multiple

cheques have been signed by him during his tenure i.e. on the same ground as

in the case of defendant no.3. The rest of the affidavit proceeds on the same

basis as in the case of defendant no.3.

32. The defendant no.5 was the oldest employee from amongst defendant

nos.1 to 5. He had joined in 1988, held various positions and resigned in June

2015 as CFO and before the alleged fraud was discovered. He admits to have

signed 279 bearer cheques in which he was the second signatory and those

cheques were signed by defendant no.1. These cheques were brought to his

notice by the defendant no.1. The amount was small in comparison to the

daily business of the company. The cheques were signed over five years

period. He contended that if he was part of the embezzlement, he would not

have resigned in 2015. Even after his retirement, he was requested by the

management to train the new CFO in view of the long standing relations and

some other employees also sought his help since he had access to online

banking facilities of the company. I may mention here that it is not the case of

1-SL-3989-2020 & IA-3992-2020.doc Dixit the plaintiff that the online banking facilities were misused by defendant no.5,

but it does appear that at-least on one occasion, the sales manager of the

company requested defendant no.5 to help in downloading certain bank

statements. He avers that although his residence was raided after the FIR was

filed, nothing incriminating has been found. The charge-sheet came to be

filed belatedly and there is no material to link him to the alleged

embezzlement of funds. Even the forensic audit report does not reveal his

involvement in the alleged fraud. After arrest when he was granted bail, the

order records that a house search had been carried out but nothing

incriminating had been found. In this manner, he has denied liability and

therefore he has opposed grant of ad-interim reliefs.

33. The rejoinder to the reply filed by the defendant no.5 proceeds on

similar lines as that of defendant no.4. In fact, several portions are identical. It

is however contended that the promotions of defendant no.5 were based on

the recommendations of defendant no.2 and therefore the promotions are not

relevant. The fact that defendant no.5 did not question the rationale for

issuance of bearer cheques is not something in his favour since he has

carelessly signed 279 bearer cheques. Some basic verification would have

made him realize this. The majority of the cheques signed did not have

supporting vouchers or challans. The challans if at all were included would

be forged. The bank statements contained debit entries mentioning "RBIM

Sales" were in his possession and with some application of mind, he could

have realized that something was amiss. He was the CFO and being the CFO, it

1-SL-3989-2020 & IA-3992-2020.doc Dixit was his duty to look into this and a basic inspection of the cheques would

have alerted him. The plaintiff is unaware as to the extent to which defendant

no.5 may have unjustly enriched himself and for that reason, it is contended

that his assets must be disclosed. He was appointed as Consultant once again

at the recommendation of the defendant no.2 and he continued to have access

to Canara Bank account, from which monies were embezzled. Defendant no.5

was required to review and manage financial statements, supervise the MIS

for review by the management and monitor cash flows.

34. The PWC Report sets out the background and scope of work wherein

defendant no.1 is identified as the person who is alleged to have

misappropriated funds in excess of Rs.25 crores by misrepresenting them as

payments towards VAT/CST. The scope of work was to understand the

methodology of embezzlement committed by defendant no.1 and identifying

potential involvement of others. After setting out in the Executive Summary,

the forensic auditors noted that it was the management's responsibility to

ensure adequacy of design and implementation of internal controls, which

were either non-existent or not effectively implemented. The signing of

cheques was resorted to without proper diligence and there were no maker -

checker controls. There was lack of segregation of duties. For instance, the

defendant no.1 was able to prepare, sign cheques and record accounting

entries and prepare bank reconciliation statements. Process and Accounting

Manual were not followed and there was no review and reconciliation

procedures in place. The rise in balances were not flagged by the auditors.

1-SL-3989-2020 & IA-3992-2020.doc Dixit

35. The plaintiff-company has based its claim in the suit to a great extent

by relying upon the PWC Reports dated 15 th December 2017 and 6th February

2018. It is therefore necessary to peruse these reports. The background and

scope of work in both these reports is slightly different and as reproduced

below ;

Background and Scope of Work in PWC Report dated 15 th December 2017 :

Mr. Nipul S. Trivedi ("Mr. Trivedi"), Manager, Finance and Accounts had been alleged to have misappropriated funds in excess of INR 25 crores by misrepresenting disbursements as related to payments for VAT/CST. Mr. Trivedi prepared manual bearer cheques in the name of "RBI" and had the authorised co-signatories sign these cheques. We understand that Mr. Trivedi verbally accepted committing the fraud and admitted to have lost the entire amount in gambling. NPL is interested in understanding methodology of the embezzlement committed by Mr. Trivedi as well as in identifying the potential involvement of others, if any.

In this context, National Peroxide Limited ("NPL") has appointed Price Water House Coopers Private Limited ("PWC") to conduct a fact finding investigation in ascertaining the methodology and aggregate quantum of fraud committed by Mr. Trivedi. The detailed scope of work of this investigation is stated in our engagement letter dated October 26, 2017.

Background and Scope of Work in PWC Report dated 6 th February 2018 :

We are given to understand that the Company's funds in excess of INR 25 crores were embezzled by misrepresenting disbursements as related to payments for VAT/CST. National Peroxide Limited ("NPL") is interested in understanding the methodology of the embezzlement

1-SL-3989-2020 & IA-3992-2020.doc Dixit committed as well as in identifying the potential involvement of others, if any.

In this context, the Audit Committee of National Peroxide Limited in its meeting dated October 18, 2017 appointed Price Water House Coopers Private Limited ("PWC") to conduct a fact finding investigation in ascertaining the methodology and aggregate quantum of fraud. The detailed scope of work of this investigation is stated in our engagement letter dated October 26, 2017 and our addendum to the engagement letter dated January 3, 2018.

36. Thus, it is evident that while the first report focused on defendant no.1-

Trivedi and the potential involvement of others based on the engagement

letter of 26th October 2017, the second report is pursuant to an engagement

letter and an addendum to engagement letter dated January, 2003. The court

does not have the benefit of the engagement letters. Both the reports contain

Executive Summaries, which list out the factors that the auditors identified

that may have potentially aided defendant no.1 in embezzlement. The focus in

the first report is more oriented towards defendant no.1; whereas, the second

report appears more broad based. Both the reports refer to modus operandi

believed to have been followed for embezzlement of funds. There are

references to the documents, reviews, forensic technology procedures, market

intelligence procedures adopted by the auditors in the first report. The second

report contains an additional finding pertaining to Lohokare - defendant no.2

and Arun Naik - defendant no.5. The plaintiff-company has extracted the

relevant data from these reports in the plaint. The reports are fairly detailed

with year-wise summaries, but eventually covered by the standard

1-SL-3989-2020 & IA-3992-2020.doc Dixit disclaimers. In a nutshell, the reports contain suggestions alluding to

defendant no.2 and defendant no.5 having acquired property and assets,

which were disproportionate. The reports do refer to such assets as "potential

disproportionate assets". In the case of defendant no.5-Arun Naik, what stands

out is that investments in the name of his mother-in-law were higher, had

gone up from 2009 to 2014 from Rs.124.90 lakhs to Rs.805.52 lakhs. The

reports specify that and seek to conclude that the investments of Naik family

increased from Rs.237.02 lakhs to Rs.1,066.68 lakhs and this was largely due

to increase in mother-in-law's income at Rs.805.52 lakhs. The property

owned by him is also disclosed in the reports and the reports proceed on the

basis that in the absence of evidence relating to source of funds for

investments made by Mr. Naik's in-laws, no link could be established. In the

present IA, the plaintiff had restricted its prayers to the defendants although

the prayers include family members.

37. The reports also delve into the assets and lifestyle of defendant no.1-

Trivedi which is found largely unexceptional. His lifestyle is said to be average

and not flamboyant. As regards defendant no.2, the main contention is that he

had booked a flat in the Lodha Group at Lower Parel at the cost of Rs.7.25

crores, of which he has paid Rs.6.05 crores. The defence is to the effect that he

was managing director of the plaintiff-company and it has been is case that it

is not so difficult to acquire a flat to that price given to his emoluments over

the years. The reports do not identify the source of funds for want of evidence.

It must be remembered here that the plaintiff has withheld more than Rs.8

1-SL-3989-2020 & IA-3992-2020.doc Dixit crores admittedly owing to defendant no.2, in respect of which the suit has

already been filed. One of the aspects being sought to be held against

defendant no.2 is that he has deleted his WhatsApp messages while handing

over his phone to the plaintiff-company, That is sought to be portrayed as an

attempt to delete evidence. His response on the other hand is that private

messages and his WhatsApp chats were not required to be handed over to the

plaintiff while phone was being returned.

38. It is material to note that none of the defendant nos.1 to 5 have

disputed that funds have been taken out of the company without legitimate

justification or for the reasons unknown by numerous bearer cheques, but

which were not utilized for the payment of taxes. The whole factual matrix is

quite shocking and the fact that senior officers of the company had not

questioned repetitive issuance of bearer cheques. In this behalf, the factors

with potentially aided embezzlement had been identified by the first report

and they are as follows :-

"Failure of senior management to exercise due diligence, weak internal control environment, non-implementation of NPLs process and accounting management, absence of review and reconciliation procedures, accounts raising suspicious on two individuals."

39. This leads me to consider identity of the persons named in the report

and in this behalf, the first report in Section 3(c) reads as follows :-

"Our procedures have identified actions of two individuals leading to aroused suspicion i.e. Mr. Arun Naik and Mr.

1-SL-3989-2020 & IA-3992-2020.doc Dixit Paresh Jayade, were either involved and/or had knowledge of the embezzlement of funds by Mr. Trivedi".

40. The reports then records findings. It deals with Mr. Naik's (defendant

no.5) access to the plaintiff's banks and investment accounts after he had

resigned in 2015. There were no board resolutions to authorize his continued

association with the plaintiff-company. He was allowed to retain his laptop

upto June, 2017. Apparently, this was approved by the IT team of the

plaintiff-company and a note has been referred to by the auditors in the

reports. They have expressed surprise as to why Naik's cell numbers were

retained as the point of contact with SBI and Canara Bank and also plaintiff's

investment accounts post his resignation. When Naik was asked why this was

so, according to the reports, he stated that on multiple occasions, he had

requested defendant no.1-Trivedi to inform the bankers, but the change was

never made. This is an aspect that is perplexing. Furthermore, none of the

marketing team members or others had raised any concerns about bank

statements being received from former employees and his access was disabled

only in November, 2017, by which time, the first report was well underway

since they were engaged in October, 2017. Thus, even after the investigation

has progressed, defendant no.5-Arun Naik was permitted to access the bank

statements. His version is that the new CFO required help in taking charge

and that he was requested to discharge this function as well as a consultant;

however, the fact remains that there has been no formal appointment of

defendant no.5-Naik for this purpose.

1-SL-3989-2020 & IA-3992-2020.doc Dixit

41. The plaintiff would submit that this was authorized by defendant no.2-

Lohokare, who was the then managing director. But, the first forensic report

does not specifically deal with this aspect. The second individual mentioned in

the report is one Paresh Jayade. The auditors interacted with him and he

contended that his role was limited to compiling data during VAT audits.

According to his version, the net position at the plaintiff's organization would

have been that proceeds of VAT/CST would be higher than VAT/CST collected

by the company. The auditors found Jayade knowledgeable about sales tax

rates, although he was not involved in sales tax matters and claims he never

seen local sales tax payable or central sales tax payable accounts. These were

managed by one Trivedi - defendant no.1. However, one interesting fact that

the report records is that the auditors' electronic discovery procedures

employed on Trivedi's desktop found five emails exchanged with Jayade, all of

which were identical in language except for change in the amount. These are

part of the first report, copies of these emails have been set out at Section 1.8

in the first report. According to the auditors, the emails exchanged requests

Trivedi to make payments of VAT and the amounts in the emails are identical

to amounts that were withdrawn as "RBIM Sales" a few days after the date of

the emails. In this respect, it is also observed that Trivedi appears to have

forwarded an email received from Jayade requesting for VAT payment back to

Jayade and in these two instances, within a span of a few minutes, Jayade sent

a fresh email to Trivedi requesting VAT payments. The auditors thus indicate

the potential involvement or knowledge of Jayade in the embezzlement of

1-SL-3989-2020 & IA-3992-2020.doc Dixit funds. The report also sets out at page 208 the chronology of dates and

amounts of the cheques, juxtaposed with the emails exchanged with Jayade

and Trivedi, three of which are seem to have been marked in copy to

defendant no.5-Naik. Thus, at-least three of these cheques for amounts of

Rs.8,81,443/-, Rs.8,76,987/- and Rs.8,76,419/- were issued in response to the

emails referred to above. Thus, it is improbable that defendant no.5 was

unaware of these developments, if indeed he was co-signatory to these

cheques. The reports contain detailed analysis of the cheques in the names of

various past signatories of the cheques. In this respect, discussions held with

Naik by PWC auditors and forming part of the reports revealed that according

to Naik, plaintiff-company always paid their direct taxes through the SBI

account, but since Trivedi never informed him that since VAT and CST

department accept only cheques, they were paying it manually and not

through net-banking. Naik also explained that the cheques for payments of

VAT and CST were prepared by Trivedi, but were unsupported by payment

vouchers and calculations and that was not the practice followed in the

plaintiff's organization. He admitted to have signed cheques sent by Trivedi

on the basis of availability of the second signatory. At times, cheques were also

sent to Naik's residence and apparently Naik did not question Trivedi as to

why cheques were being issued for payment of government dues such as VAT

and CST.

42. It does strike one as odd that in the absence of any formal appointment

by the plaintiff-company, defendant no.5-Naik continued to access the bank

1-SL-3989-2020 & IA-3992-2020.doc Dixit account, download statements and provide to those still in the employer-

company. Naik also observed that after having read the SEBI complaint filed

by the plaintiff-company about the fraud committed by Trivedi, defendant

no.5 felt that Trivedi was incapable to perpetrate a fraud of this magnitude

and believed that someone would have internally and / or externally

supported him, but Naik did not give any names or reasons. The whole affair

thus is rather bizarre. The plaintiff-company does not appear to have

proceeded against Jayade at all. The report records discussions held with

Jayade as well. Section 1.8 of the first report reproduces the emails from

Jayade and one was addressed to Trivedi and Naik. Although a further

reference is made in paragraph 2.4.2 of the report to the fact that defendant

no.5 was the sole approver for 73 RTGS transfers, some others were by

defendant nos.2, 3 and 4, who were the first approvers, with the assistance of

Trivedi, who was the maker / initiators of 102 out of 128 RTGS transfers. One

Saravia initiated 24 transfers and Jayade initiated 2 transfers. While Jayade's

name appears in the tabulated form, the name of Saravia does not. Although

the reports are the basis on which the suit is filed and the time was taken for

analysis of which is one of the reasons given for delay in approaching this

court the plaint contains no reference to the role if any played by Jayade. The

auditors appear to have focused on the assets of Trivedi, Naik and Lohokare

and not much emphasis is laid on the assets of the defendant nos.3 and 4,

although defendant nos.3 and 4 who have also counter-signed the bearer

cheques and Jayade who was party to the email exchange.

1-SL-3989-2020 & IA-3992-2020.doc Dixit

43. Naik's reliance on the order granting him bail and as set out in

paragraph 15 of his affidavit-in-reply is rather misleading inasmuch as

paragraph 15 suggests that the bail order observed that "the defendant no.5

had shown evidence that all money investigated (*sic) is his hard-earned

money"; however, the order does not say so. It merely records defendant

no.5's averment in his bail application to the effect that "he has produced the

documents to show that all the money investigated (*sic) is his hard-earned

money". Thus, the reasons in the bail order do not certify Naik's investments

are a result of hard-earned money. Thus, we have a set of allegations in the

plaint, which seek reliance on the PWC Reports. The PWC Reports themselves

seek to analyze the modus operandi and in its detailed findings after

observing that the persons the company suspected to be involved were

defendant nos.1 to 5, goes on to analyze assets of only defendant nos.1, 2 and

5 (see pages 210 and 212). Section 4 (defendant no.5) and Section 5 (defendant no.1)

analyzes the time line of Trivedi's association with the plaintiff and an

illustrative email from defendant no.5 providing bank statements of Canara

Bank to Trivedi (Exhibit 1.6) and the identical language of emails exchanged

between Paresh Jayade and Trivedi and Naik.

44. The second report provides additional findings on defendant nos.2 and

5 and a brief reference to Trivedi's whereabouts and assets, classifying it inter

alia as hear-say. The result of enquiries indicated that Trivedi's lifestyle was

average and not as stated above. There is no detailed study of assets or

1-SL-3989-2020 & IA-3992-2020.doc Dixit increase in assets of defendant no.3 or defendant no.4. The plaintiff provides

no explanation or the basis of their suit seeking identical reliefs against these

two defendants. This must be read with the fact that their letters of

termination alleged negligence but not embezzlement. The allegation of

embezzlement is only against Trivedi. The allegation against defendant no.2 is

also of negligence, resulting in prompt termination of his services. Defendant

no.5 had meanwhile resigned in 2015.

45. It is in this background that I have considered the prayers in the IA. As

stated earlier, the plaintiff had restricted the relief sought in prayers of the IA

to defendant nos.1 to 5 for the time being and did not press for reliefs against

the immediate family members. As far as defendant nos.6 to 19 are

concerned, they are required to preserve all documents. Although defendant

nos.10 and 11 have not appeared, they would be bound by identical

directions. Thus, what remains to be considered is whether the plaintiff had

made out a case for a direction against defendant nos.1 to 5 to disclose on

affidavit particulars of all their dealings with the plaintiff's funds forming

part of the suit claim and defendant nos.1 to 5's assets and properties and

documents of ownership of such assets and properties including balance-

sheet for financial year 2008-09 till date. Upon such disclosure, to attach

such properties of defendant nos.1 to 5 and to issue a temporary injunction

restraining and prohibiting defendant nos.1 to 5 from dealing with,

alienating, parting with possession of these assets and properties. Taking an

overall view of the factual aspects, as pleaded in the plaint, the plaint

1-SL-3989-2020 & IA-3992-2020.doc Dixit attributes to defendant nos.1 to 5 for embezzlement of the funds of the

plaintiff. Defendant no.2 had executed a charter of authority dated 1 st July

2015 retaining most of the approving authorities, but this charter of authority

is seem to be prepared and reviewed not only by defendant no.4-Goyal but

also by one Sunil Londhe, who was the plaintiff's CFO between July 2015 to

August 2016. The plaintiff have no grievance against the said former CFO.

46. The Charter of Authority which the plaintiff considers as a fraud

enabling measure structured by defendant no.2 is seen to have been prepared

and reviewed by four individuals and approved by defendant no.2. I do not

find this to be a good foundation for the plaintiff's allegations against

defendant no.2, since there are several other people/numerous persons, who

have been authorized by the Charter of Authority including the then CFO-

Sunil Londhe, the company secretary. As far as defendant no.2-the Managing

Director is concerned, his reporting authority is said to be the Chairman. The

question whether this was without board approval has not been established.

Since almost every department of the plaintiff is seen to be involved, this is

effective from July, 2015, where the CFO's name has been included as an

authorized person for signing cheques. The CFO at that time was S.B. Londhe

and not the defendant no.5. Therefore the Charter of Authority would be of

no avail. These are aspects that will be considered at the stage of trial and

after the defendants file their written statements. At this interim stage, there

are several aspects which plaintiff itself has not explained such as the role of

Jayade if any. Despite the direct evidence being pointed out, one is left

1-SL-3989-2020 & IA-3992-2020.doc Dixit wondering why the plaintiff has made no allegations against him at all. There

appears more than meets the eye. The letter of termination of defendant no.1

records that a thorough investigation is carried out, which resulted in 1,153

bearer cheques being issued and the amount of about Rs.30.47 crores had

been embezzled. The amounts of 1,153 bearer cheques do not found to be

embezzled and he was first signatory to those cheques, which he altered from

RBI to RBIM Sales. These cheques were then encashed and amounts were

concealed in the books of accounts as being related to VAT and CST. Surely, at

this stage, the company would have the benefit of the first PWC Report dated

15th December 2017 since it is on 27 th December 2017 that defendant no.1's

services were terminated. On the same day, the services of defendant no.2

were terminated on account of gross negligence. The termination letters of

defendant no.3-Jain and defendant no.4-Goyal are also dated 15 th December

2017, once again, for having acted in gross negligence. Defendant no.5 had

resigned by then.

47. In support of the plaintiff's contention, the plaintiff has relied upon an

observation of the Division Bench of this court in the case of Bashir Ahmed

Chand Shaikh Vs. State of Maharashtra and Anr. 7, wherein reference was

made to the fact that the Supreme Court has overlooked the delay and the

Supreme Court had taken note of serious allegations of fraud although there

was a delay of 13 years. Mr. Kamat seeks to draw a parallel by contending

that in the present case also, merely because the fraud was committed over

7 [2010 (1) Mh.L.J. 500]

1-SL-3989-2020 & IA-3992-2020.doc Dixit several years, it became actionable only after the PWC Report was made

available. I am afraid that is of no avail in the facts at hand. Despite the fact

that defendant no.6 had already informed the plaintiff of suspicious

transactions having reference to the cheques issued in the name of "RBIM

Sales" in March, 2016 and that in May, 2017, the plaintiff's CFO also detected

these huge debit balances; yet, a suit is filed only after expiry of the period of

limitation on 24th September 2020 and the ad-interim application has been

moved belatedly.

48. Taking an overall view and considering the fact that the plaintiff was

alerted of this way back in December, 2017 and had all relevant information

provided under the PWC Reports as far back as in February 2018, I am of the

view that the delay has not been satisfactorily explained. Although the

amount involved is fairly large, the plaintiff's response does not demonstrate

diligence that would have been expected after the PWC Reports were filed.

There is no doubt that fraud must be pleaded meticulously and in detail. Bald

assertions and vague allegations are not sufficient there can be no

presumption of fraud as detailed in the judgments cited by Mr.Pandit. For

that matter in Raman Tech & Process Engineering Co. and Anr. Vs. Solanki

Traders the Supreme Court reiterates the court should be satisfied that there

is a reasonable chance of a decree being passed in favour of the plaintiff. An

order of attachment before judgment cannot be granted mechanically nor

should an injunction be issued merely because a suit is filed against the

defendants. In the facts at hand I find no justification in granting reliefs

1-SL-3989-2020 & IA-3992-2020.doc Dixit sought. Given the delay in approaching court In my view, no case is made out

for attaching property before judgment especially since dues of most of

defendant nos.1 to 5 have been withheld.

49. The plaintiff's case is based on the fact that bearer cheques were

repeatedly issued and that senior managers had failed to take notice of these

instances, but one cannot lose sight of the fact that the PWC Reports have

narrowed down the involvement of Defendant no.1, the said Jayade and

defendant no.5, as referred above. In the face of a specific reference to the

probable involvement of Jayade, plaintiff has not explained why it believed

that he was not involved or that the mention of his name was erroneous. Read

with the fact that the termination of services of the defendants, especially

defendant nos.3 and 4 had occasioned based on the allegations of negligence

and upon failure to prevent repeated issuance of bearer cheques, no case is

made out for grant of reliefs in the IA against these persons as well. As far as

the disclosures are concerned, the PWC Reports had collected information

about certain properties of the defendants. The Plaintiff has however chosen

not to act in relation to those properties. It will not be appropriate to make

any observations on the merits of the plaintiff's case that the assets of the

family members have shown a marked increase. Reliefs sought in the IA have

been restricted against defendant nos.1 to 5. Prayer clause (a) inter alia seeks

a direction to disclose particulars of the defendants' dealings with the

plaintiff's funds forming part of the suit claim. Grant of relief would lead to a

presumption that the defendants have been found to have misappropriated

1-SL-3989-2020 & IA-3992-2020.doc Dixit plaintiff's funds. That is clearly not warranted. The relief sought about details

of extent and ownership of assets of defendant nos.1 to 5 and their balance

sheets from financial year 2008-09 are extremely wide. The relief of

attachment and injunction of the nature sought is also not justified since the

main prayer of disclosure in the IA proceeds on the presumption of the

defendants being beneficiaries. That having been said, I have observed that

several persons have noticed these discrepancies in the accounts and they

would be material witnesses. The signatory to the plaint does not appear to be

personally aware of the on-goings at the material time. I am therefore of the

view that the plaintiff has failed to make out a case for grant of interim relief.

Considering the facts of the case and the age of some of the defendants, I find

it appropriate that hearing of the suit should be expedited.

50. In the circumstances, I pass the following order :-

           (i)             IA is dismissed.
           (ii)            Suit is expedited.
           (iii)           No costs.



                                                                 (A. K. MENON, J.)




Sneha      Digitally signed
           by Sneha A. Dixit

A. Dixit   Date: 2021.02.09
           16:22:37 +0530





1-SL-3989-2020 & IA-3992-2020.doc
Dixit