Delhi High Court
Surinder Singh Marwah & Anr. vs Aeren Entertainment Zone Private ... on 16 December, 2019
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 22.10.2019
Pronounced on:16.12.2019
+ CO.APP. 10/2019, CM. APPLs. 18455/2019, 37262/2019,
37487/2019 & 39863-39864/2019
SURINDER SINGH MARWAH & ANR. ..... Appellants
Through: Mr. Vivek Kohli, Mr. Sunil Tyagi,
Mr. Nalin Talwar, Ms. Prerna Kohli,
Mr. Manoj Gupta, Ms. Yeshi
Rinchhen and Mr. Mudit Gupta,
Advocates.
Versus
AEREN ENTERTAINMENT
ZONE PRIVATE LIMITED & ORS. ..... Respondents
Through:
Mr. Akhil Sibal, Senior Advocate
with Mr. Tanmay Mehta, Mr. Jatin
Sehgal, Ms. Devna Soni, Mr. Ashish
Garg, Ms. Shriya Mishra, Advocates
for R-2.
Mr. Jayant Mehta and Mr. Gursat
Singh, Advocate for R-3.
Ms. Ruchi Sindhwani, Senior
Standing Counsel with Ms. Megha
Bhargava, Advocate for R-1/Official
Liquidator.
CORAM: JUSTICE VIPIN SANGHI
JUSTICE SANJEEV NARULA
JUDGMENT
SANJEEV NARULA, J:
1. The present company appeal is directed against the order of the learned
Single Judge dated 21.02.2019 whereby the earlier orders dated 11.07.2018
and 16.08.2018, restraining transfer, selling or alienating of the properties
purchased by Aeren R. Mallz Pvt. Ltd., Aeren R. Township Pvt. Ltd.,
Yashraj Buildcon Pvt. Ltd., Yashvardhan Infrastructure Developers Pvt.
Ltd., Aeren R Buildcon Pvt. Ltd. and PMC Entertainment Pvt. Ltd. (name
changed to Fortune R Buildco Developers Pvt. ltd.) in village Bonkar
Dogran, Ludhiana, have been vacated.
2. The common terms used hereinafter are being defined as under:
a) "Related Party Companies" refers to the six land owning companies i.e.
Aeren R. Mallz Private Limited; Aeren R. Township Private Limited;
Yashraj Buildcon Private Limited; Yashvardhan Infrastructure Developers
Private Limited; Aeren R. Buildcon Private Limited; and PMC
Entertainment Private Limited;
b) "Intermediate Companies" refers to the two companies i.e., A.R.
Developers Private Limited and Aeren R. Enterprises Private Limited,
through which the funds are alleged to have been diverted to the Related
Party Companies;
c) "subject land" refers to the 11 parcels of lands purchased by different
Companies belonging to Dr. Rajesh Aeren, details of which have been
reproduced at paragraph 12 of the impugned judgment (reproduced at
paragraph 6 hereinafter);
d) "Company in liquidation"/ "Company"/ "Respondent No. 1" refers to M/s
Aerens Entertainment Zone Private Limited (AEZPL);
e) "sister concerns" refers to the Related Party Companies and Intermediate
Companies collectively
Case of the Appellants
3. Respondent No.1, M/s Aerens Entertainment Zone Private Limited
(AEZPL) is engaged in the business of real estate development and is a
family run company. Its ultimate beneficiaries are its promoters [Dr. Rajesh
Aeren and Ms. Sapna Aeren, who are husband and wife, Mr. Yashvardhan
Aeren (son) and Ms. Shagun Aeren (daughter)]. Respondent No. 2 is
Developer Group India Private Limited. Respondent No. 3 is Fortune R.
Buildco Developers Private Limited (formerly known as PMC
Entertainment Private Limited, one of the Related Party Companies).
4. In the year 2008, the Managing Director of the Respondent No.1 - i.e., Dr.
Rajesh Aeren, approached the Appellants and represented that they had
launched a commercial project in the name and style, "Festival City"
(hereinafter referred to as "Project Mall"), at GT Road (NH-1), Ludhiana,
Punjab. Respondent No. 1 availed a term loan of Rs.100,00,00,000/-
(Rupees One Hundred Crores) from a Consortium of Banks for construction
of the Project Mall. The interest of the Appellants was limited to 46 percent
(now 30 percent) in the „Project Mall‟, which did not form part of the
security of Consortium of Banks. Appellants were assured returns by
Respondent No.1 w.e.f. 01.08.2008 on the investments made by them in the
Project Mall, failing which the Respondent No. 1 and all its Directors were
to be jointly and severally liable to pay interest @ 2.5 percent per annum on
the amount remaining unpaid to the Appellants. Appellants were
collectively/jointly allotted 17 shops in the Project Mall and complete
payment in respect thereof was made to Respondent No. 1 in terms of the
Agreement to Sell. Contrary to assurance, construction of the Project Mall
was not completed and the possession was also not offered to the
Appellants. Further, Respondent No. 1 failed to pay the assured return or the
interest thereon for the delay. Appellants then filed the Winding Up petition.
During the course of proceedings, vide order dated 09.12.2015, Respondent
No. 1 was directed to deposit a sum of Rs. 1.5 crores with the Registrar of
this Court. Since Respondent No. 1 failed to comply with the aforesaid
direction, vide order dated 18.03.2016, the company went into liquidation.
Appellants state that there were several other investors which had been
victims of Respondent No.1/ Dr. Rajesh Aeren, and various complaints were
filed before the Economic Offence Wing (EOW). On 07.01.2015, one such
complaint was registered as FIR No. 6/2015 and all the existing FIRs were
tagged along. The investigation in the said FIR culminated into a charge-
sheet filed by the police on 02.12.2016. On a perusal of the charge-sheet, it
becomes evident that huge sums of monies have been diverted, defalcated
and siphoned off from the corpus of Respondent No. 1 which had to be
utilized for construction of the „Project Mall‟. On enquiry, Appellants also
became conscious that w.e.f. 31.03.2009, no balance sheet or financial
records of Respondent No. 1 were filed with the Ministry of Corporate
Affairs (MCA). It is further submitted that as per the records available on
the website of MCA, Respondent No.1 last filed its annual records for the
year ending on 31.12.2009, and since then it has failed to file its Annual
Returns, Balance Sheets and other financial records and is in contravention
of Section 134 of the Companies Act, 2013. Appellants claim that funding
for the Project Mall has been received from several sources, which includes
bank loan, investments made by buyers as also from a foreign investor to the
tunes of Rs. 447,99,98,000/- (Rupees Four Hundred and Forty Seven Crores
Ninety Nine Lacs and Ninety Eight Thousand). The details of the funds have
been shown in the table as under:
S.No. Money received from Amount (In Rs.)
1. Consortium of Banks 100,00,00,000/-
2. Foreign Investors 152,99,98,000/-
3. Various Investors (including Complainants) 120,00,00,000/-
4. Transfer of land development rights 75,00,00,000/-
pursuant to merger of AVM with Accused
Company.
Total Rs.447,99,98,000/-
[Rupees Four Hundred
and Forty Seven
Crores Ninety Nine
lacs and Ninety Eight
Thousand Only]
5. In contravention of the terms of Bank Loan sanctioned by the Consortium
of Banks, the Respondent No.1 provided Inter Corporate Deposits and Loan
and Advances to its sister concerns and then, during the year 2009, it has
written off Rs.63,19,79,816/- (Rupees Sixty Three Crores Nineteen Lakhs
Seventy Nine Thousand Eight Hundred and Sixteen) in their favour. The
funds invested in the Project Mall have been diverted or siphoned off to
benefit shareholders of Respondent No.1. Further, in complete disregard and
violation of the terms of the Term Loan, the monies of the investors of the
Project Mall were not deposited in the escrow account opened / maintained
with Allahabad Bank (Lead Bank). Instead, a new account in the name of
the Respondent No.1 was opened in the State Bank of Saurashtra (now State
Bank of India), Lodhi Road, New Delhi and approximately
Rs.19,00,00,000/- (Rupees Nineteen Crores) were diverted into this new
account. As a result, due to non-payment of loan to the tune of Rs. 65 crores,
the account of the Respondent No.1 was declared as Non-Performing Asset
(NPA). The beneficiaries of the Respondent No.1 have also floated various
other companies, including - but not limited to, A.R. Developers Private
Limited, Everest Buildwell Private Limited etc. Dr. Rajesh Aeren is
Promoter/Director and/or related with 44 (forty four) Companies. The
beneficiaries in all the Related Party Companies at the time of siphoning off
- i.e., in the year 2007-2008/ were Respondent No. 1 and Dr. Rajesh Aeren,
and this money has been utilized in purchasing the subject land, by different
Companies belonging to Dr. Rajesh Aeren.
Impugned order of the Learned Single Judge
6. On an application [C.A. 788/2017] filed by the Appellant under section
339, 340, 342 and 447 of the Companies Act, 2013 read with Rule 9 of the
Companies (Court) Rules 1959, the learned Company Court on perusing the
charge-sheet filed by the police, vide order dated 11.07.2018 restrained
Related Party Companies from transferring, selling or alienating the
properties in village Bonkar, Dogra, Ludhiana. On 16.08.2018, on another
application [C.A. No. 910/2018], Court ordered that the company Aeren R.
Mallz Private Limited and Yashraj Buildcon Private Limited shall also be
covered by the interim order dated 11.07.2018. Subsequently, Respondent
No.2, intervener in the said Winding Up Petition, filed applications [C.A.
Nos. 1277/2018, 1278/2018 and 1279/2018] inter-alia, seeking vacation of
the Order(s), dated 11.07.2018 and 16.08.2018. On hearing the parties, on
11.12.2018 learned Single Judge directed the applicant to file an affidavit
with details of the development agreement dated 31.05.2014 and all
consequential steps taken pursuant thereto. Thereafter, vide impugned order
dated 21.02.2019, the Learned Single Judge observed that there are no
allegations in the charge-sheet against the accused Mr. Rajesh Aeren and
Ms. Sapna Aeren regarding flow of funds of Respondent No.1 to the sister
concern/companies for purchase of the land in question, and on this premise,
the interim stay orders were vacated. At the same time, the official liquidator
was directed to carry out an audit of the accounts of the Respondent No.1 to
look into the allegations that are subject matter of C.A. No. 788/2017.
Ellahi Goel and Co., Chartered Accountant has been appointed as the
„Chartered Accountant‟ to conduct the audit. The relevant portion of the
impugned order reads as under:
"CA Nos. 1277/2018, 1278/2018 and 1279/2018
1. These applications are filed seeking vacation of the interim
orders passed by this court dated 11.07.2018 and 16.08.2018
restraining transfer, selling or alienating of the properties
purchased by Aeren R Mallz Pvt. Ltd., Aeren R Township Pvt.
Ltd., Yashraj Buildcon Pvt. Ltd., Yashvardhan Infrastructure
Developers Pvt. Ltd., Aeren R Buildcon Pvt. Ltd. and PMC
Entertainment Pvt. Ltd. (name changed to Fortune R Buildco
Developers Pvt. Ltd.) in village Bonkar Dogran, Ludhiana.
2. On 11.07.2018 and 16.08.2018, learned counsel for the
petitioners/applicants had taken the court through the
chargesheet filed by the police against Dr.Rajesh Aeren and
other directors of the respondent Company to contend that the
properties have been purchased from the funds of the respondent
Company in the name of the sister concerns, namely,
(i)Yashvardhan Infrastructure Developers Pvt. Ltd, (ii) Aeren R.
Buildcon Pvt. Ltd., (iii) Aeren R. Township Pvt. Ltd., (iv) PMC
Entertainment Pvt. Ltd., (v) Aeren R. Mallz Private Limited and
(vi) Yashraj Buildcon Private Limited.
3. Based on the above allegation, this court on 11.07.2018 had
passed an interim order restraining the aforenoted companies
from transferring, selling or alienating the properties in question
till further orders. On 16.08.2018, a typographical error in the
description of the companies was also corrected.
4. Pursuant to the above order, the two applications have been
filed seeking vacation of the interim orders passed by this court
on 11.07.2018 read with order dated 16.08.2018.
5. I have heard learned counsel for the parties.
6. Learned senior counsel appearing for the applicant in C.A.
No.1277/2018 has submitted that a perusal of the charge-sheet
would show that there is no allegation whatsoever of any funds
having been diverted from the respondent company to the sister
concerns for the purchase of the properties in question. It is
pleaded that these properties were purchased way back in 2008.
Subsequently, on 31.05.2014, the applicant entered into a
Development Management Agreement with the said companies to
develop the lands in question. An investment of above Rs.
50crores has been made by the said applicant for the
development of the properties.
7. On 11.12.2018 this court had while hearing this application
directed the applicant to file an affidavit with details of the
development agreement dated 31.05.2014 and all consequential
steps taken. The applicant has filed the necessary affidavit.
8. In the said affidavit, the applicant states that the applicant
entered into a Development Management Agreement dated
31.05.2014 and Supplement Agreements dated 30.10.2014 and
29.12.2014 with six consortium companies for exclusive
development rights of 115 acres of land. It is further stated that
over a period of time, pursuant to various agreements, the
applicant has invested approximately Rs. 50 crores in the
development and acquisition of the interest in the properties in
question inclusive of Rs.29.74 crores towards business deposit
for the project in question.
9. Various documents regarding the project have been placed on
record including permission for change of land use and other
approval including license to develop, etc. It is also stated that
pursuant to Development Management Agreement dated
31.05.2014, the applicant was delivered vacant and peaceful
possession of the 11 properties in question. It is also stated that
the interest and rights of the applicant under the Agreement
dated 31.05.2014 have been duly secured by equitable mortgage
of the properties belonging to the Consortium Companies. The
equitable mortgage is duly notified with the Registrar of
Companies and the appropriate forms have been filed with the
Registrar of Companies, NCT of Delhi vide Certificate of
Registration dated 24.07.2014 issued by the Registrar of
Companies.
10. Based on the above, it has been argued that the there is no
allegation of any funds having being used from the respondent
Company to buy the lands in question. It is pleaded that the
interim orders passed by this court on 11.07.2018 and
16.08.2018 be accordingly vacated.
11. Learned counsel appearing for PMC Entertainment Pvt. Ltd.
now know as Fortune R. Buildco. Pvt. Ltd. states that they have
filed an application supported by an affidavit being CA No.
1279/2018 stating that no money has flown from the respondent
company to the applicant company for purchase of the properties
in question. A similar application being CA No. 1277/2018 is
also filed by Developer Group India Pvt. Ltd.
12. A perusal of the charge-sheet would show that the only
allegation therein is as follows:-
"During the course of investigation the certified copies of
the sale deed of the land. Purchased by different companies
of Rajesh Aeren were collected and it was revealed that
around Rs.70 crores approximate was spent (as per circle
rate) to purchase these properties from 15.02.2008 to
31.03.2008 and at the same time the alleged company
received around Rs.175 crores from Mondon Investment
Ltd. The details of the properties are as under:-
S. Area of land Place Consideration Party Name Date of
No Purchase
1 131 Karnal 17 Vill. Rs.8,24,06,275 Yashvardan 22.02.2008
marla/16.48 acres Bonkar, Infrastructure
Dogra, Developers Pvt.
Ludhiana Ltd. (Citi Bank
A/c No.
0342546005)
2 126 Kanals -do- Rs.7,87,50,000 Aeren R 22.02.2008
(15.75 acre) Buildcon Pvt.
Ltd.
3 48 kanals -do- Rs.3,00,00,000 Aeren R 22.02.2008
Rs.5,34,37,530 Township Pvt.
4 85 Kanals (Citi Bank A/c
10 Marlas No.034171001
(16.68 acre)
5 50 Kanals -do- Rs.3,17,50,000 PMC 08.02.2008
6 16 Marlas Rs.4,71,25,065 Entertainment 08.02.2008
(15.775 acre) Pvt. Ltd.
75Karnals 8
Marlas
7 117 Kanals -do- Rs.7,35,93,750 Aeren R Mallz 09.04.2008
15 Marlas Pvt. Ltd. 09.04.2008
(14 Acres)
8 16 Kanals -do- Rs.1,00,00,000
(2 acre)
9 12 Kanals -do- Rs.75,00,000 Yashraj 1.12.2008
(1 acre 4 Kanals) Buildcon Pvt.
Ltd.
10 9 Acre 6 Kanals -do- ---- -do- 09.04.2008
11 2 Acre 7 Kanals -do- ---- -do- 09.04.2008
During the course of investigation the land Purchased in the
different group companies/sister concern of accused Rajesh
J Aeren was put under embargo by issuing the notice Sub-
Registrar Ludhiana with the request that the above
properties may not be allowed to transfer, sale, mortgage
etc."
13. Clearly, other than the allegation that the properties have
been purchased by different companies who perhaps were the
sister concerns of the respondent, there is no other allegation in
the charge-sheet which states that the funds have flown from
the respondent Company for the purchase of the said
properties.
14. Learned counsel for the OL has clarified that presently, no
Chartered Account has looked into the accounts of the
respondent company and this aspect has to be gone into at a
later stage.
15. Keeping in view the above, it is clear that there are no
allegations stated by the police who has filed the necessary
charge-sheet against the accused Dr.Rajesh Aeren and Ms.Sapna
Aeren about flow of funds of the respondent company to the sister
concern/companies for purchase of the land in question.
16. In view of the above, in my opinion, the interim order passed
by this court dated 11.07.2018 read with the order dated
16.08.2018 cannot continue any further. I vacate the said interim
order. However, the OL will carry out audit of the accounts of
the respondent company to look into the allegations which are
subject matter of CA No. 788/2017.
17. Ellahi Goel and Co. Chartered Accountant are appointed as
the Chartered Accountant. His fee is fixed at Rs. 1 lakh plus out
of pocket expenses to be paid from the Common Pool Fund
subject to adjustment at a later stage."
(Emphasis supplied)
Submission of the Appellants
7. Mr. Vivek Kohli, learned counsel for the Appellants has sought to explain
the fund flow structure of the Project Mall from the following flow chart:
8. On the basis of the flow chart, Mr. Kohli elaborated his submissions and
argued that the fund inflow into the company is primarily from three sources
i.e. a) Customers-Rs. 123.95 crores; b) Banks-Rs. 100 crores and c) Foreign
investor- Rs. 252 crores. He submits that the aforesaid figures have been
extracted by referring to the chargesheet, balance sheet, term loan
agreements and share acquisition agreements placed on record. Mr. Kohli
has further sought to demonstrate that there has been diversion of funds
from Respondent No. 1 to AR Developers in three streams:
a) Global Distributors- Rs. 39 crores paid by Respondent No. 1 and written
off, of which Rs. 18.42 crores was paid to AR Developers
b) Everest Buildwell - Rs. 33.60 crores was paid by Respondent No. 1 to
Everest Buildwell Pvt. Ltd. (sister company), and the entire amount was
paid by it to AR Developers.
c) Direct Write Off - Rs. 13.39 crores paid by Respondent No. 1 to AR
Developers and written off.
9. The diversion of Rs. 14.99 crores to Aeren R. Enterprise has been derived
by referring to the balance sheet of Respondent No. 1 for the year ending
31.12.2009, and particulars, by referring to loans and advances recoverable
mentioned therein. It has been further urged that monies have been
transferred from AR Developers and Aeren R. Enterprise to Related Party
Companies, who proceeded to buy the subject land in Ludhiana. This has
been explained by referring again, to the balance sheets for the year ending
31.03.2009 of all the concerned entities.
10. Mr. Kohli has urged that various investors of Project Mall filed
complaints and, pursuant thereto, the FIRs were recorded. During the
course of investigation, it has transpired that the master mind of the entire
conspiracy was Dr. Rajesh Aeren, who has absconded to Dubai without
informing the Investigating Authority-EOW. In contravention of the terms
of the bank loan, Dr. Rajesh Aeren provided inter-corporate deposits and
loans and advances to his sister concerns to siphon off the funds from
Respondent No. 1. Then, during the year 2009, Respondent No. 1 has
written off Rs. 63,19,79,816/-, as reflected in the cash flow statement for the
year ending 31.12.2009. The amount written off has been shown to be as
under:
S. No. Inter-Corporate Amount (In Rs.)
Deposits written off As on 31.12.2009
1. A.R. Developers Private 13,39,00,000/-
Limited
2. Canvas Buildcon Private 2,40,77,270/-
Limited
3. Perfection Buildtech Private 2,58,00,000/-
Limited
4. Pivot Buildcon Private Limited 4,40,38,000/-
5. Aeren R Enterprises Private 48,49,310/-
Limited
6. Shree Mahesh Realtors Private 41,00,000/-
Limited
7. Aeren R Township Private 5,15,416/-
Limited
8. Global Distributors Limited 39,00,00,000/-
Rs. 62,72,79,816/-
Total (Rupees Sixty Two Crores Seventy
Two Lakhs Seventy Nine Thousand
Eight Hundred and Sixteen only).
11. By writing off huge amounts in favour of sister concerns, Respondent
No. 1 has benefitted the sister concerns. The income or benefit accrued to
the sister concern companies are indirectly coming to the promoters of
Respondent No. 1 itself. In addition thereto, monies of the investors of
Project Mall, in violation of the term loan, were not deposited in the Escrow
account opened/maintained with Allahabad Bank (lead bank) and, instead, a
new account in the name of Respondent No. 1 was opened in the State Bank
of Saurashtra (now State Bank of India), Lodhi Road, New Delhi and
approximately Rs. 19 crores were diverted into this new account and, as a
result, the account of Respondent No. 1 was declared as Non Performing
Asset (NPA) due to non payment of loan to the tunes of Rs. 65 crores. He
submits that a perusal of the balance sheet of Respondent No.1 ending
31.12.2009 reflects that Respondent No. 1 diverted Rs. 25,03,99,668/- to
Aeren R. Enterprise Pvt. Ltd. as inter-corporate deposit in the period
01.04.2008 to 31.12.2008. Additionally, a sum of Rs. 14,99,25,000/-
(Rupees Fourteen Crores Ninety Nine Lacs and Twenty Five Thousand)
was advanced to Aeren R. Enterprises Pvt. Ltd. under the head "loans and
advances recoverable". Another amount of Rs. 1,71,52,500 (Rupees One
Crore Seventy One Lakhs Fifty Two Thousand and Five Hundred) was
diverted by Respondent No. 1 under the head of inter-corporate deposits,
given to AR Developers Pvt. Ltd. in the period 01.01.2009 to 31.12.2009.
12. Mr. Kohli has further sought to establish the trail of diverted money
from the Intermediate Companies (A.R. Developers Private Limited and
Aeren R. Enterprises Private Limited) to Related Party Companies by
showing that the balance sheets of Related Party Companies for the period
when the said land was purchased, reflect that the intermediate companies
made the following advances to related party companies, and such
companies purchased the lands after receiving the diverted money from
intermediate companies. This is explained by the following tabulation:
A.R. Developers Private Limited
S.No. Name of the Companies Deposited in the Amount
Year (in Rs.)
1 Aeren R Mallz Private 31.03.2008 8,78,00,000/-
Limited
2 Aeren R. Township Private 31.03.2008 & 10,08,36,000/-
Limited 31.03.2009
3 Yashraj Buildcon Private 31.03.2008 8,55,50,000/-
Limited
4 Yashvardhan Infrastructure 8,65,30,000/-
Developers Private Limited
5 Aeren R. Buildcon Private 31.03.2008 8,52,00,000/-
Limited
6 PMC Entertainment Private 31.03.2008 & 7,06,16,000/-
Limited 31.03.2009
Rs.51,65,32,000/-
(Rupees Fifty One
TOTAL AMOUNT Crores Sixty Five
Lacs and Thirty
Two Thousand
only)
Aeren R. Enterprises Private Limited
S.No. Name of the Companies Deposited in the Amount
Year (in Rs.)
1 Aeren R. Township Private 31.03.2008 57,48,122/-
Limited
3 Yashraj Buildcon Private 31.03.2008 & 89,80,000/-
Limited 31.03.2009
4 Yashvardhan Infrastructure 30,00,000/-
Developers Private Limited
5 PMC Entertainment Private 31.03.2008 47,01,500/-
Limited
Rs.2,24,29,622/-
(Rupees Two Crores
Twenty Four Lacs
TOTAL AMOUNT Twenty Nine
Thousand Six
Hundred and
Twenty Two only)
13. Thus, Mr. Kohli submits that the learned Company Judge was not
justified in vacating the stay earlier granted. He submits that the advancing
of monies by Respondent No.1 to Intermediate Companies and, by them to
the Related Party Companies is a blatant exercise of siphoning off of funds,
and the Court is bound to chase the said diverted funds wherever they lie. He
submits that the Appellants would be left high and dry if the injunction is
lifted, as the lands owned by the Related Party Companies would be sold off
without any recourse available to the Appellants who have invested their life
savings in the „Project Mall‟ of Respondent No. 1.
Submissions of the Respondents
14. Mr. Akhil Sibal, learned senior counsel on behalf of Respondent No. 2,
has strongly contested the submissions of the appellants on several grounds.
Mr. Sibal contended that Respondent No. 2 is a bona fide developer/investor
against whom there are no allegations either by the Appellants, or in the
charge-sheet on which the Appellant has placed reliance. Respondent No. 2
is a 100 percent Foreign Direct Investment Company in the business of
construction, development and project management services related to
construction companies. It has entered into a Development Management
Agreement dated 31.05.2014 with Related Party Companies for Exclusive
Development Rights, inter alia in respect of the residential project to be
developed on the subject land and, consequently, came into possession of
the said land in 2014. The 11 (eleven) properties that are the subject matter
in dispute were purchased in 2008, whereas Respondent No. 2 was
incorporated in 2012.
15. Mr. Sibal contended that the Appellants have filed the application
seeking restraint in respect of the project on the subject land, after a lapse of
9 years since the purchase of the subject land, and 8 years since the filing of
the company petition. In this period, substantial investments had been made
in the subject land that was preceded by due diligence by issuing public
notices and also by registering charges with the concerned authorities.
Respondent No. 2 is now finally in a position to carry forward the approved
project and, at this critical juncture, the Appellants have sought to restrain
them. He urged that it is extremely essential that there should not be any
restraint, as it would result into unavoidable delays and would lead to
collapse of the Project Mall, leading to multifarious litigation from the
customers who have booked their plots in the project. Mr. Sibal also
vigorously argued that the application of the Appellants before the Company
Court seeking to invoke the powers of the Court under Sections 339, 340,
342 and 447 of the Companies Act, was misconceived and the nature of
relief sought for in the application could not have been granted on a plain
reading of the said provisions. Besides, he submitted that the Appellants
have only prayed for an inquiry into the conduct of Dr. Rajesh Aeren and
sought a declaration qua him alone, and the properties in question over
which the restraint is sought, are not that of Dr. Rajesh Aeren. There is no
prayer for any declaration or inquiry in respect of these six land owning
companies which are the owners of the subject land. The said companies
were not even joined as parties to the application. He argued that there can
be no relief of attachment or any restraint in respect of properties which are
not stated to belong to Dr. Rajesh Aeren. The restraint, at this stage, is
premature and the Appellants have themselves prayed for attachment of the
subject land consequent to an inquiry into the conduct of Dr. Rajesh Aeren,
and a declaration against him in personal capacity and, therefore, the reliefs
sought are contrary to their own prayers. Appellants have set up a new case,
contrary to the pleadings and the submissions made before the learned
Single Judge. Mr. Sibal also submitted that without prejudice to his
objections regarding the maintainability of the appeal, having regard to the
nature of reliefs sought, the alleged money trail from Respondent No. 1 to
the land owning companies for the purchase of subject land is entirely
speculative and misconceived. Appellants have referred to an amount of Rs.
39 crores which is stated to have been written off as a debt not recoverable
by Respondent No. 1 from Global Distributors Ltd., under a scheme of
reorganization duly approved by this Court. No money is stated to have
travelled directly from Global Distributors Ltd. to any of the land owning
companies. Writing off a debt as not recoverable only reflects that money
was advanced at some point in the past and it is not apparent when the said
money was advanced to Global Distributors Ltd. or when the said amount
was written off. Appellants have misinterpreted the concept of "written off
debt- as not recoverable" with "infusion of funds" into the company. He
submitted that the alleged writing off was in the year 2009, whereas the
subject land was purchased in 2008 and in any event, a write off does not
result in money becoming available to the company in favour of which the
amount is written off. He also referred to the flow chart forming part of the
charge-sheet to argue that the same does not seem to suggest that the money
received by AR Developers Pvt. Ltd. was utilized for purchase of the subject
land. Mr. Sibal also laid considerable emphasis on the point that the above
stated flow chart does not relate to the specific money/funds invested by the
alleged victims who filed complaint before EOW. The money inflow is from
a foreign investor who is not before this Court. No part of the monies
invested by the alleged victims including the Appellants has been utilized
for purchase of the subject land as per the chargesheet.
16. Respondent No. 3 also strongly objected to the present appeal,
controverting all the allegations regarding the siphoning off and
misutilization of the monies received for the development of the Project
Mall. It is submitted that a Share Acquisition Agreement dated 25.08.2008
was entered into between M/s Mondon Investments Pvt Ltd, M/s AEZPL,
M/s A R Developers Pvt. Ltd., Dr. Rajesh J Aeren and Ms. Sapna Aeren,
wherein the amount of Rs. 66,18,02,603/- was received from M/s Mondon
Investments Pvt. Ltd. as consideration for transfer was duly acknowledged.
It was thus urged that the monies received by M/s AR Developers, were in
lieu of transfer of shares. The amounts received by M/s AR Developers by
selling their shareholding in M/s AEZPL were further transferred in favour
of Respondent No. 3 and the collaborating companies, who in turn used the
same for purchasing the subject lands. It is further urged that the amounts
alleged to have been siphoned off, reflected under the head "loan and
advances recoverable" were duly received by Respondent No. 1, and as on
date, no amounts are recoverable by M/s AEZPL from these companies.
Further, funds received by M/s AR Developers have also been duly paid
back to Respondent No.1, by Respondent No. 3 as well as other Related
Party Companies.
17. It has also been submitted that an MOA dated 05.07.2006 was executed
between one M/s AVM Land Developers and Respondent No.1 for
development of a shopping cum multiplex mall on agricultural land in
Ludhiana (project land) registered in the name of M/s AVM Land
Developers Pvt. Ltd. Under the said MOA, a payment of Rs. 73.25 crores
was made by Respondent No.1 to AVM Land Developers, given as advance
to 8 companies. In 2007-2008 an Investor and Shareholders Agreement
dated 25.08.2008 was entered into between M/s Mondon Investments Pvt.
Ltd, Respondent No.1, Dr. Rajesh J Aeren, M/s AVM Land Developers Pvt.
Ltd, M/s A R Developers Pvt. Ltd and M/s Everest Buildwell Pvt. Ltd.
Under the said agreement, it was agreed that the project land would vest
with Respondent No.1 either by way of transfer or by way of merger
between Respondent No.1 and M/s AVM Land Developers Pvt. Ltd. Post
merger, the amount of Rs. 73.25 crores paid by Respondent No.1 to M/s
AVM Land Developers Pvt. Ltd was reflected in the balance sheet of
Respondent No.1 and, hence, an amount of Rs.63,19,79,816/- was written
off and had the merger not taken place, the said amount would have
reflected in the books of M/s AVM Land Developers Pvt. Ltd.
18. It was further urged that if the relief as sought for by the Appellant were
to be granted, it would cause impediment in the development of the project
undertaken by Respondent No. 3 and shall also further jeopardize the rights
of third parties, bona fide customers and stakeholders of the project. This
would result in gross miscarriage of justice and cause irreparable loss to
Respondent No. 3 and its collaborating companies in terms of money and
reputation.
Scope of the present appeal
19. We have deliberated upon the submissions advanced by the learned
counsels for the parties and have also perused the documents that form part
of the record of the Company Court. The learned Single Judge has ordered
audit of the accounts of the Respondent No.1 and we are informed that the
same is under progress. Therefore, at this stage, we refrain ourselves from
giving any conclusive and definite findings with respect to the allegations
levelled by the Appellants regarding diversion and siphoning off of funds.
However, since the interim orders in the nature of preserving the subject
land have been vacated, we have to examine whether such a course was
proper and justified, in light of the serious allegations of fraud and diversion
of funds against Respondent No.1, its promoters and the companies taken
note of hereinabove. Therefore, we have scrutinized the facts and the
material placed on record to ascertain if there is, indeed, a strong prima facie
case in favour of the Appellants that would justify the protective orders. If it
emerges that appellants‟ apprehension has a strong foundation, we would
then have to examine where the balance of convenience would lie, and
whether it is necessary to restore the injunction orders pending the audit
ordered by the Company Court. Thus, the scope of the appeal lies in the
narrow compass as noted above, and we now proceed to evaluate the merits
of factual averments.
ANALYSIS AND CONCLUSION
20. It is an admitted fact that the Investigating Agency-EOW has been
investigating into the affairs of Respondent No.1 and has filed a chargesheet.
At this stage, we may observe that registration of a single FIR and the
addition of other complainants as mere witnesses to a conspiracy, and the
resultant filing of a single chargesheet against the accused is not in
accordance with the Cr.P.C and separate FIRs ought to have been registered
on the basis of each of the complainants disclosing commission of
cognizable offences in the light of the discussion of this Court in State v.
Khimji Bhai Jadeja (2019) 261 DLT 430 (DB). In any event, reference to
the chargesheet, is necessary. On a perusal of the chargesheet it emanates
that the Investigating Agency has unearthed several irregularities in the
affairs of Respondent No. 1 in cahoots with its promoters and sister
concerns. All these companies are related to Dr. Rajesh Aeren, the promoter.
The flow chart of the amount routed and re-routed by Respondent No. 1 and
its sister concerns has been reflected in the chargesheet as under:
21. In the chargesheet, it has been revealed that Respondent No. 1 had
advanced money to several companies and written off debts as not
recoverable, and the ultimate beneficiary in all such cases is Dr. Rajesh
Aeren Group. The relevant portion of the charge-sheet dealing with the said
aspect is as under:
"During the course of investigation a sham company in the
name of Global Distributors- Ltd. was also identified in
which Rs.39 crores were write off by the accused company. It
was revealed that in actual this company was controlled by
accused Rajesh J Aeren .
Further the Account Opening Form as well as bank account
statement of global Distributors from Oriental Bank of
Commerce, branch Safdarjung Enclave was obtained. The
scrutiny of the Account No. 03691010005950 of Global
Distributor Ltd revealed that there is no actual work done in
the company and the money is coming from one company
belonging to Rajesh Aeren Group and going to another
company of Rajesh Aeren. In this manner the sham liability
is created which is ultimately shown as write off to the tune of
Rs. 39 crores approximately. There are no documents in
support of the write off done by different companies of
Rajesh Aeren Group. The perusal of the statement revealed
as :-
S. N Date Credited Name of Debited Name of
Amount Company Amount Company
1. 31.07.07 6,00,00,000 AVM 6,00,00,000 AR Developers
2. 07.08.07 4,00,00,000 AVM 4,00,00,000 AR Developers
3. 20.08.07 1,50,00,000 AVM 1,50,00,000 AR Developers
4. 03.09.07 5,20,000 AVM 5,20,000 AR Developers
5. 03.09.07 5,00,00,000 AVM 5,00,00,000 AR Developers
6. 20.09.07 1,86,80,000 AVM 1,86,80,000 AR Developers
Similarly there are various transaction in this account which
clearly establish that it was operated by AEZPL and the company
Global Distributors Ltd. was bogus company created for the
purpose of accommodation of the money of the alleged company
AEZPL."
(Emphasis supplied)
22. From the above, it manifests that there is sufficient material on record
which, prima facie, shows that there has been siphoning off of funds from
Respondent No.1. The balance sheet for the period ending 31.12.2009 also
reflects that inter-corporate deposits have been written off by Respondent
No. 1. Appellants, thus, have a good ground to say that the amounts invested
by them were diverted by Respondent No. 1 to Intermediate Companies
which were further diverted to Related Party Companies who have
purchased the subject land. The Related Party Companies have a nexus with
Dr. Rajesh Aeren, the Managing Director of Respondent No. 1. There is
also material on record to prima facie show that in all Related Party
Companies, AEZPL and Dr. Rajesh Aeren were the beneficiaries. In fact,
the annual return of Aeren R. Enterprises Pvt. Ltd., reflects that Dr. Rajesh
Aeren, his wife and his son and daughter are the shareholder and the
ultimate beneficiaries. The Related Party Companies have entered into
various transactions with Respondent No.1. Therefore, it cannot be ignored
that there is a trail of money which ultimately results into the purchase of
subject land by Dr. Rajesh Aeren through sister concerns of Respondent No.
1 in the names of the sister concerns.
23. The learned Single Judge has concluded that there are no allegations in
the chargesheet against Dr. Rajesh Aeren and Ms. Sapna Aeren about flow
of funds of Respondent No. 1 to the sister concerns and Related Party
Companies for purchase of the subject land. This assumption has weighed
with the learned Single Judge to vacate the interim order(s) dated
11.07.2018 and 16.08.2018. Evidently, the learned Single Judge has erred in
coming to the aforesaid conclusion. From the facts as narrated above, it can
be easily discerned that there is sufficient material on record, which exhibits
diversion of monies to Related Party Companies through the Intermediate
Companies. There is material on record to show the nexus between Related
Party Companies and Respondent No. 1 and/or Dr. Rajesh Aeren who was
then the Managing Director of Respondent No. 1. The learned Single Judge
has rightly ordered an audit into the accounts of Respondent No. 1, which
we feel is a step in the right direction, as it would unearth, in greater detail,
the trail of money and this would then assist the Court to take necessary
measures. Nonetheless, pending the audit, the learned Single Judge ought
not to have vacated the interim orders. Even if one were to apply the basic
principles governing the grant of injunction, we feel that in the instant case,
since the Appellants have established a prima facie case in their favour, the
balance of convenience lies in preservation of the subject land. It is
essential to maintain status quo qua the subject land, pending the audit by
the Chartered Accountant appointed by the learned Single Judge.
24. We are not impressed with the arguments advanced by Mr. Sibal that
since Respondent No. 2 has made substantial investments, it should now be
permitted to continue with the project, failing which there would be delay
and other complications. If the siphoning off/defalcation/diversion of funds
from Respondent No. 1 to the Related Party Companies is conclusively
established on the basis of the audit ordered by the Court, it would require
the learned Single Judge to issue appropriate directions in conformity with
Sections 339, 340 and 342 of the Companies Act to safeguard the interests
of the large body of investors whose monies have been utilized, in the first
place, to acquire the properties in which Respondent No. 1 claims interest.
Mr. Sibal has attempted to establish that there is no direct/live link between
the purchase of the subject land and the funds which are alleged to be
tainted. He exerted to show that no connection can be drawn between the
Rs. 39 crores written off, and the purchase of the subject land. He also
argued that the money which has been shown in the flow chart in the charge
sheet is of a foreign investor, who is not before the Court, and has also tried
to find support from two certificates of Foreign Inward Remittance issued by
Citi Bank, which reflect a cumulative amount of about Rs. 66 crores
received by AR Developers, on 10.01.2008 and 11.02.2008, from Mondon
Investments Ltd., towards purchase of equity. He submits that the aforesaid
amounts received by AR Developers Pvt. Ltd. in 2008, did not, in any
manner belong to Respondent No. 1 and in the same year, subsequent to the
receipt of these monies, AR Developers Pvt. Ltd. transferred an amount of
Rs. 51.6 crores in favour of Related Party Companies and, thus, there is
money trail linking to the Related Party Companies, who in turn purchased
the subject land all in 2008.
25. We cannot be bogged down into the quagmire of the transactions
between the Related Party Companies and Intermediate Companies and
Respondent No. 1. Merely because funds were received by the Intermediate
Company, also from the foreign investor, one cannot differentiate the colour
of money in the hands of Intermediate Companies, and transfer to Related
Party Companies does not get legitimised. The transactions between the
Intermediate Companies and the Related Party Companies cannot be
bifurcated into those involving the foreign investment, and those involving
the siphoned off funds. Once they are all merged into the books of the
Intermediate Companies, they lose their colour and identity. It cannot be
assumed that the purchase of properties is by way of seamless and authentic
transactions. The large scale write offs, and several other aspects noted
above indicate that something is amiss. The routing of funds is central to the
scheme of layering the tainted money, which is always a challenge for
unearthing fraud and tracing the source and the trail. The volume of funds
pushed into purchase and acquisition of properties in question can only be
estimated at this stage with the existing information. It will, of course,
require detailed scrutiny of accounts to reach to a definite conclusion.
Looking at the complexity of transactions, the task appears to be formidable,
and the way forward is the audit of the accounts that the Company Court has
already ordered. At this stage, it is too early to conclude that the
transactions relating to purchase of properties are beyond the realm of
suspicion.
26. We cannot isolate the purchase of properties to the exclusive
investments made by the Foreign investor- Mondon Investments Ltd. In
matters relating to fraudulent activities, it is not necessary that the corpus of
funds has a separate and distinct colour. The funds in the hands of
Respondent No. 1, from whatever quarters it so receives, get inherently
mixed up when it enters its books of account and lose its color and
characteristics.
27. We may also observe that Respondent No. 2 has not distanced itself
from the apparent fraud, prima facie, perpetrated by Respondent No. 1, its
promoters, the Intermediate Companies and the Related Party Companies
upon the Appellants. His submissions - not once, showed any effort on its
part to, in any way, safeguard the interests of all the investors, including the
Appellants. This leaves us with a feeling that Respondent No. 2 could well
be a front for Respondent No. 1, its promoters, the Intermediate Companies,
and the Related Party Companies.
28. We now proceed to deal with the legal aspects involved in the present
case. Section 339 of the Act, inter alia, provides that if during the course of
winding up proceedings, the Court comes to a conclusion that the business
of the company has been carried on with the intention to defraud creditors of
the company, or any other persons or for any fraudulent purpose the Court
would be well within its power to declare that any person, who is or has
been a director, manager, or officer of the company or any persons who
were knowingly parties to the carrying on of the business in the manner
aforesaid shall be personally responsible, without any limitation of liability,
for all or any of the debts or other liabilities of the company as the Tribunal
may direct. The wordings of Section 339 are wide enough to confer powers
with the Court to issue declaration so as to make all such persons
responsible for any of the debts or liabilities of the company whose creditors
have been defrauded. The arms of the law are long enough to chase the
fraudulently, ill gotten wealth, and to chase the fraudsters, even after they
change their faces/identities by resorting to transfer of funds/layering. There
seems to be no justification for Respondent No. 1 not utilizing the funds
collected by it from different sources for the „Project Mall‟, and for
diversion of the funds into the Intermediate Companies. There is no basis
for the writing off of the advances made. Clearly, the
promoters/management of Respondent No. 1 acted fraudulently, and were
charitable towards the Intermediate Companies at the expense of, inter alia,
the investors, including, the Appellants. Similar is the position with regard
to transfer of funds by the Intermediate Companies in the coffers of the six
Related Party Companies. It would be apposite to note the views expressed
by one of us (Vipin Sanghi, J.) in M.R. Bhakshi vs. Fintra Systems Ltd.
and Ors. 151(2008) DLT 1 . The relevant portion of the same has been
extracted below:
"10. Having considered the respective submissions I am, as at
present advised, inclined to agree with the submissions of Mr.
Rajiv Shakdher, Sr. Advocate the learned Amicus Curiae.
Keeping in view the purpose for which Section 542 has been
enacted, and the fact that timely action is of the essence, not only
to prevent the presentation of a fiat accompli by the fraudulent
Directors of the company, but also to provide relief to the victims
of the fraud, it seems that the establishment of the fraudulent
conduct for attracting the provision of Section 542 of the
Companies Act does not require the same standard of proof as in
a criminal trial and the rigours of the law of evidence as apply to
a criminal trial would not apply to establish the commission of
fraudulent acts and omissions by the Directors and managers of
a company. It has also to be kept in mind that by its very nature,
fraud is not easy to establish. This is even more so, when the
fraudulent conduct is undertaken by the Directors of a company,
sitting in their own office, with a view to defraud the
creditors/investors who, though the victim of the fraud, are not
involved in the transactions which constitute such conduct, and
may have no personal knowledge of the same. In K.T.
Dharanendrah v. R.T. Authority MANU/SC/0288/1987:
1987CriLJ1061 the Supreme Court, while dealing with a case
under the Customs Act, 1962 observed that "An economic offence
is committed with cool calculation and deliberate design with an
eye on personal profit regardless of the consequence to the
Community. A disregard for the interest of the Community can be
manifested only at the cost of forfeiting the trust and faith of the
Community in the system to administer justice in an even handed
manner without fear of criticism from the quarters which view
white collar crimes with a permissive eye unmindful of the
damage done to the National Economy and National Interest."
11. I also find merit in the submission of Mr. Shakdher that it is
not necessary that each transaction/instance of funds being
siphoned or fraudulent conduct needs to be established from the
beginning to the end to invoke Section 542 of the Act. That is
because it would be reasonable to assume, that
directors/managers who are shown to have indulged in even a
single act of fraud in the discharge of their duties towards the
company, its shareholders and creditors, would have generally
resorted to such conduct. Traits of greed and dishonesty amongst
men are known to manifest whenever the opportunity presents
itself. This is even more true, when such conduct is displayed by
the relatively affluent members of society, as their conduct is not
driven by their need or undertaken in desperation. The pattern
that emerges from the conduct of Mr. & Mrs. Shakt shows that
their actions were focused on collecting funds in the company
from the public by promising huge returns, and then siphoning
them out in one way or another. That seems to have been the true
"business activity" of the promoter Directors and managers of
the company. No other business appears to have been conducted
by the company with a view to earn profits for the company, its
shareholders and creditors. In the aforesaid process, the entity of
the company has been misused and exploited.
12. From the aforesaid reports of the CBI, prima facie it appears
to me that this is a fit case for holding the directors of the
company in liquidation personally liable, without any limitation
of liability. Section 542 is an exception to the general rule that in
a limited liability company, the liability of the shareholders and
directors is limited. The purpose and object of Section 542 is to
catch up with the fraudulent directors and other persons
responsible for defrauding the creditors and shareholders of the
company, who deliberately conduct the affairs of the company in
a manner as to rob the company of its resources and allow it to
bleed. Conduct, which does not appear to be bona fide or
innocent, or a mere judgmental error, but which personally
enriches the Directors/managers of the company directly or
indirectly at the expense of the company, permits the Courts to
take away the protective shield that the directors/manager enjoy
under the law. The shield of corporate entity with limited liability
of the shareholders/Directors, provided by the law is not meant
to protect fraudsters. They cannot be permitted to defraud the
shareholders and the public through the instrumentality of a
corporate entity with limited liability, and then mock at their
shareholders and creditors and the Courts, and seek to protect
themselves behind the veil of the Corporate Entity. The law is not
toothless, but empowers the Courts with authority to deal with
such situations.
13. At the same time, it is equally true that no one can be
condemned unheard. The language of Section 542 itself shows
that an opportunity has to be given to the concerned persons to
lead evidence in support of their case. The Director Sh. Sunil
Shakt and his wife appear to have derived the funds for the
purchase of the property directly or indirectly from the business
of the company in liquidation. The funds of the company appear
to have been siphoned off with the intent to defraud the creditors.
The Directors of the Company would have known that the
withdrawal of the funds from the account of the company in
liquidation, inter alia, for the benefit of the Directors will result
in the creditors being denied not only the handsome returns on
their investments as promised, but also put in jeopardy the
principal amounts invested by them. From the CBI reports, it
appears that the action of the Directors of the Company in
liquidation cannot be said to have been undertaken for the
purpose of running the business of the company to generate
income for the company sufficient to meet its expenses and fulfill
its undertaken obligations towards the investors/creditors. In A
Company Re (No. 001418 of 1988), 1991 BCLC 197 as reported
in Guide to the Companies Act, by A. Ramaiya, 16th Edition
2004, "A Director found to have been a knowing party to the
carrying on of the company's business with the intent of
defrauding creditors was ordered to pay £ 156,428 for its debts
and liabilities. The company had exceeded its overdraft limits
and had fallen behind with paying tax dues and trade creditors
but continued to pay huge sums as remuneration to its managing
director who was majority shareholder. The company went into
liquidation. The liquidator sought to hold the director liable for
fraudulent trading. It was held that the managing director was
knowingly a party to the carrying on of the company's business
with intent to defraud its creditors and there was real moral
blame in procuring the company's continued trading when there
was no reason for thinking that it could pay its debts as they fell
due. The amount decreed represented the extent to which the
creditors were defrauded and punitive element.""
29. Section 339 (2) also clearly envisages that the Court would also have the
power to issue further directions as it thinks proper for giving effect to the
declaration. We are also not convinced with the arguments of Mr. Sibal that
the scheme of Sections commencing from 339 to 342 do not envisage the
relief of interim protection as has been sought by the Appellants. If in the
course of winding up of a company, it appears that the business of the
company was carried on with the intent to defraud the creditors of the
company or any other persons or for any fraudulent purpose, the Courts
would necessarily have the mandate to fix the responsibility. This becomes
evident from the scheme of Sections 339-342 which empower the Courts to
assess the damages against delinquent Directors etc. Where a declaration
under Section 339 or an order under Section 340 is made in respect of a firm
or a body corporate, the Court shall also have the power under Section 341
to make a declaration or pass orders in respect of any person who was, at the
relevant time, a partner in that firm or a Director of that body corporate.
Under Section 342, the Court can also direct the liquidator to prosecute the
offender or to refer the matter to the Registrar. The sweep of powers under
Sections 339 to 342 is wide enough, and that is for the apparent reason that
once it becomes clear that the business of the company was carried on with
the intent to defraud creditors, or for any fraudulent purpose, the Court
should have all the necessary powers to set right the fraudulent wrongs, the
company has committed. The law is geared to appropriately deal with and
catch up with the fraudsters and their ill gotten wealth, even after its
conversion into a different form.
30. These provisions also take into consideration the doctrine of lifting or
piercing of the corporate veil. The cardinal principal that a company, in law,
is a separate entity from those who subscribe to its memorandum of
association i.e. its shareholders, as enunciated in Solomon v. A Solomon
and Co. Ltd. [1897] AC 22 -HL has been well recognized and followed
over the years. In spite of that, the Courts have in appropriate cases, resorted
to lifting the veil, whenever the circumstances have so warranted. If the
business of the company has been carried on with the intent to defraud
creditors or for any other fraudulent purpose, the corporate veil has to be
lifted. This principle of law - „lifting of corporate veil‟ has been incorporated
in the language of Section 339 and the succeeding sections. The fixing of
responsibility or liability would follow the detailed investigation into the
affairs of the corporate entity. Once the Court has all the relevant and
requisite information before it, to come to a conclusion that a declaration as
contemplated under Section 339 is merited, it would proceed further. The
wording of Section 339 makes it evident that the said provision can be
resorted to provide relief to the victims of fraud, so that they are not
presented with a fait accompli by the fraudulent persons who carried out the
business in such manner.
31. Pending the audit, the subject land has to be preserved. In case, we do
not do so, it would only result in creating further complications which would
seriously complicate the rights of innocent investors/depositors who are
likely to make investments into the subject land. Respondent Nos. 2 and 3
cannot possibly object to the audit ordered into the affairs of Respondent
No.1. They display the badge of "bona fide purchaser", distancing
themselves from Respondent No. 1 and have projected and labelled
themselves to be victims, though curiously they do not advance any
submission to the detriment of the promoters of all the companies involved
viz. the Aeren family. We cannot visualize the final outcome of the audit
with absolute certainty, but since there is prima facie evidence to suggest
that the trail of funds in the purchase of the subject land is linked to the
fraudulent business affairs of Respondent No. 1, by its promoters, we feel
that the balance of convenience lies in protecting the subject land. If a status
quo is not maintained, the subject land will be embroiled in multiple title
disputes which could frustrate the very purpose of Section 339, and
irretrievably mar the interest of the Appellants and the other investors.
32. Thus, interim directions/orders are required to be passed under Section
339, since it is reasonable to assume on the basis of the facts shown to us
that Dr. Rajesh Aeren had a direct nexus with the Related Party Companies
which emerges from the pattern/trail of funds which has been discovered by
the Investigating Agency, noted here.
33. Consequently, we set aside the impugned orders dated 21.02.2019 to the
extent it vacates the interim orders dated 11.07.2018 and 16.08.2018, and
direct that till such time the Court considers the audit report in terms of its
order dated 21.02.2019, the Respondent Nos. 2 and 3 as also the other
Related Party Companies listed out in orders dated 11.07.2018 and
16.08.2018 shall maintain status quo with respect to the subject land.
Needless to say, this order is without prejudice to the rights and contentions
of the parties that may be urged at the time of consideration of the audit
report, as and when prepared and presented to the court. We also leave it to
the discretion of the learned Single Judge to consider whether it would be
advisable to take assistance of the SFIO, to conduct further investigation
into the affairs of Respondent No.1, where the report is taken up for
consideration.
34. Accordingly, appeal is allowed in the above terms. All pending
applications are disposed of.
SANJEEV NARULA, J
VIPIN SANGHI, J
DECEMBER 16, 2019
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