| Headnote |
Companies Act, 1956: s.130 – Exercise of power under – Essential conditions – On 1.10.2018, the Central Government filed a petition under ss.241 and 242 before the Tribunal alleging mismanagement by the Board of IL&FS and the affairs of IL&FS were conducted prejudicial to public interest – In view of the fact that thousands of crores of public money was involved, and in the public interest, the Central Government constituted the Serious Fraud Investigation Office (SFIO) and handed over the investigation to SFIO with respect to the affairs of IL&FS and other group companies – SFIO submitted preliminary report to the Central Government placing on record that the affairs in respect of IL&FS group companies were mismanaged and that the manner in which the affairs of the company were being conducted was against the public interest – Meanwhile, Registrar of the Companies also conducted an enquiry under s.206 of the Act and prima facie concluded mismanagement in IL&FS and its group companies – It was also observed that IL&FS was presenting rosy picture by camouflaging its financial statements and concealing and suppressing severe mismatch between its cash flows and payment obligations – The ICAI also conducted an enquiry and in its preliminary report, mentioned that “accounts for the past five years have been prepared in a fraudulent and negligent manner by the erstwhile auditors” – In the light of prayers made in petition under ss.241, 242, the Tribunal suspended the Board of Directors of IL&FS and appointed newly constituted Board to conduct the business – Thereafter the Central Government filed petition under s.130 of the Act – After issuing notice to all concerned including the Central Government, Income Tax Authorities, SEBI, other Statutory Regulatory Body and even to the erstwhile Directors of IL&FS and other two companies, the Tribunal permitted/directed the Central Government to re-open the books of accounts and to recast the financial statements of IL&FS and other two companies of last 5 years – Appellant who is suspended Director of IL&FS preferred an appeal before the Appellate Tribunal – Appellate Tribunal dismissed the same – Hence the instant appeal – Held: The order passed by the Tribunal under s.130 of the Act showed that the Tribunal had considered the preliminary report submitted by the ICAI and SFIO and the observations made in the said reports/ preliminary reports – As per s.130 of the Act, the Tribunal may pass an order of re-opening of accounts if the Tribunal is of the opinion that (i) the relevant earlier accounts were prepared in a fraudulent manner; or (ii) the affairs of the company were mismanaged during the relevant period casting a doubt on the reliability of the financial statements – The word used is “or” – Therefore, if either of the conditions precedent is satisfied, the Tribunal would be justified in passing the order under s.130 of the Act – The Tribunal passed the order on being satisfied with respect to the second part of s.130 of the Act – In the facts and circumstances of the case, and also in the larger public interest and when thousands of crores of public money is involved, the Tribunal is justified in allowing the application under s.130 of the Act. Companies Act, 1956: s.130 – The submission on behalf of the appellant was that all the three provisions, viz., s.130, ss.211/ 212 and ss.241/242 operate in different fields and in different circumstances and they are in the different Chapters and, therefore, any observation made while passing the orders with respect to a particular provision may not be considered while passing the order under relevant provisions is concerned – Held: All the three provisions are required to be considered conjointly – While passing an order in a particular provision, the endeavour should be to see that the orders passed under other provisions of the Companies Act are given effect to, and/or in furtherance of the order/orders passed under other Sections – Therefore, the observations made while passing order under ss.241/242 of the Act can be said to be relevant observations for passing the order under s.130 of the Act – Even otherwise in the order passed by the Tribunal under s.130 of the Act, there is a specific observation made by the Tribunal with respect to mismanagement of the affairs of the company, and even with respect to the relevant earlier accounts prepared in a fraudulent manner. Companies Act, 1956: s.130, proviso – Compliance of – Whether order passed under s.130 was in violation of natural justice and the proviso of s.130 was not complied with – Held: As per proviso to s.130 of the Act before passing the order under s.130 of the Act, the Tribunal is required to issue notice to the Central Government, Income Tax Authorities, SEBI or any other statutory regulatory body or authorities concerned or any “other person concerned” and is required to take into consideration the representation, if any made – The “other person concerned” is as such not defined. While passing the order under s.130 of the Act, there shall be reopening of the books of accounts and re-casting of the financial statements of the company and therefore the Board of Directors of the company may make a grievance – The erstwhile directors cannot represent the company as they are suspended pursuant to the earlier order passed under s.242 of the Act – In the instant case, the erstwhile directors of the company represented before the Tribunal and they opposed the application under s.130 of the Act – Therefore, in the facts and circumstances of the case, it cannot be said that the order passed by the Tribunal is per se in violation of the principle of natural justice as alleged. Companies Act, 1956: ss.241 and 242 – Submission of the appellant that order dated 01.10.2018 passed under ss.241/242 of the Companies Act is an interim order and the same is not a final order suspending the directors and the erstwhile board of directors of the company, and therefore the observations made in order dated 01.10.2018 cannot be considered, has no substance – Order dated 01.10.2018 suspending the erstwhile directors of the company including the appellant is not challenged by way of an appeal before an appropriate appellate Tribunal/Court and till date stands and remains in operation. Companies Act, 1956: s.130 – Reliance placed on subsequent report of RBI – Held: It is required to be noted, independent to the subsequent report of the RBI, there is specific finding with respect to the mismanagement and the fraudulent accounts – Therefore, subsequent report of the RBI report can be taken note of while upholding the order passed by the Tribunal under s.130 of the Act – Since a larger public interest is involved and reopening of the books of accounts and recasting of financial statements of the said companies is required to be carried out in the larger public interest, to find out the real truth, and both the conditions precedent while invoking power under s.130 of the Act are satisfied/complied with, therefore in the facts and circumstances of the case, the order passed by the Tribunal passed under s.130 of the Companies Act not to be interfered with. |
