Direction of High Court of Bombay in City Investors matter to Concerned Authorities

MUMBAI:23 September 2013

There is finally some hope for thousands of investors duped by alleged fraudulent schemes of Mumbai-based City Limouzines (India) Ltd. The Bombay high court on Monday directed that the official liquidator (OL) would now be the one-window authority for assessing and disbursing claims. The court also asked the Economic Offences Wing (EOW) to forward the 60,000 complaints it has received so far to the Official Liquidator.

Lawyer for the EOW Uma Palsuledesai said, "The department was ready to hand over the recovered amount to the Official Liquidator in the interest of investors' claims.'' It had recovered about Rs 180 crore. The scam is believed to be worth over Rs 1,000 crore. But Justice Nitin Jamdar said "no amounts will be distributed (to claimants) without leave of the court".

The development marks a cohesive effort for claims disbursement. Now only the official liquidator will handle all claims, even future claims,'' the judge said. He clarified that his order would not affect criminal proceedings pending in various courts against the firm and its owner Sayed Masood, including the one initiated by the EOW under the Maharashtra Protection of Investors and Depositors Act and money laundering cases filed by the Enforcement Directorate.

The High Court was hearing a plea filed by the City Group Investors Welfare Association against the EOW for its claims. The issue on Monday was whether the claim to recovered amounts would first rest with the ED or investors. Additional Solicitor General Kevic Setalvad and Advocate Som Sinha said the ED had precedence and added that properties-worth Rs 130 crore-attached by the ED across metros, would not be handed over to the Official Liquidator.

After hearing J P Sen, counsel for the Official Liquidator, Justice Jamdar said, "The money given by EOW must be invested in short-term deposits in nationalized banks, its interest used for claim assessment." The commerce ministry must consider providing funds to the liquidator, the High Court said and ordered all authorities to coordinate with the Official Liquidator.

Thanks

Dr.Zulfiqar Ali Khan

Advocate 

No. 462, Addl Law Chambers

High Court of Madras

Chennai-600 104

MB: 9884102961

I am putting Order Copy Herewith

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

COMPANY APPLICATION LODGING NO.600 OF 2012

in

COMPANY PETITION NO. 234 OF 2010

ALONGWITH

OFFICIAL LIQUIDATOR'S REPORT

City Group Investors Welfare Association                .. Applicant

In the matter between -

Prasad Mhatre                                                             . .. Petitioner

Vs

The Official Liquidator, High Court, Bombay,

(City Limouzines (India) Limited & ors.                      .. Respondents

Mr. B.K.V.Subramanyam,                                            for applicant.

Mr. J.P.Sen a/w Cyrus Ardheshir,                               for Official Liquidator.

Ms. Rupa Sutar, Assistant Official Liquidator present.

Ms. Uma Palsuledesai, Assistant Government Pleader (AGP), for Economic Offence Wing.

Mr. A.V. Saigaonkar, Police Inspector, Economic Offence Wing, present.

Mr. Kevic Setalvad, Additional Solicitor General (ASG) a/w Mr.Som

Sinha a/w Ms Sneha Prabhu, i/b Dhiren Shah, for Directorate of

Enforcement (Union Of India).

Mr.D.Shanmugham, Assistant Director and Mr.Ishan Vyas, Legal

Consultant, from Enforcement Directorate present.

CORAM: N.M.JAMDAR, J.

                                          Monday 23 September, 2013

P.C.:

By this report the Official Liquidator seeks various prayers : A direction to Economic Offence Wing, (EOW) Mumbai, to hand over record and books of account in respect of the Companies in liquidation; A direction to the Enforcement Directorate (ED) and EOW Mumbai, to hand over the possession of the properties of the Company in liquidation: To invite claims from workers and creditors of the Companies under liquidation; and directions regarding payment of advertisement charges.

2. In the Company application an order came to be passed on 13 February 2013 as regards the claim made by the Welfare Association. It was  observed that the claims of the members of the Welfare Association will have to be examined on individual basis. It is only after the entitlement of individual members of the Association is examined and each individual member of the Association is found to be creditor further relief prayed by Association can be considered.

3. On 24 July 2013, the Official Liquidator's Report and the Company Application filed by City Group Investors Welfare Association were taken

up for consideration. Apart from giving directions as regards appointment

of Chartered Accountants ,following directions were issued as regards the

record of the Companies.

“2. The learned Counsel for the Official Liquidator submitted that for the purpose of adjudication, the Official Liquidator needs to be given access of the records of the company which are currently in the custody of the Economic Offence Wing, Crime Branch, CID, Mumbai. The learned Counsel submits that the Officer be directed to give inspection of these records and to permit taking photocopies of the documents for adjudication of the claims. The learned Counsel for the Official Liquidator points out that in the affidavit-in-reply filed, the Police Inspector attached to Economic Offence Wing, Crime Branch, CID, Mumbai, has not seriously disputed the position that the Official Liquidator needs to be given an access to these documents and has stated that the Official Liquidator can take photocopies of the documents required. In view thereof, the Economic Offence Wing, Crime Branch, CID, Mumbai is directed to permit the Official Liquidator to take inspection of the documents required by the Official Liquidator upon the Official Liquidator notifying the concerned Inspector in writing. cosidering the fact that the original documents are in the custody of the Police Inspector attached to the Economic Offence Wing and the proceedings under the Act will take some time and that the Official Liquidator is permitted to take photocopies to expedite the process of adjudication of claim, it will be open to the Official Liquidator to adjudicate the claims on the photocopies of the documents. In case of any difficulty, it will be open to the Official Liquidator to seek appropriate directions from the Court.”

4. The learned counsel for the Official Liquidator submits that the process of adjudication of claims is going on and since there are large number of claims almost to the tune of 40,000 to 50,000,the application for documents is not yet made. Considering the fact that the Official Liquidator is still in the process of examining the claims of the creditors / workmen, the consideration for grant of prayer handing over the properties as sought need not be taken up on immediate basis.

5. The learned ASG points out that the properties of the Company under liquidation have been attached under the provisions of Prevention of Money Laundering Act, 2002 (PMLA). If that be so, at present the property is secured in the hands of the authority under PMLA. The learned counsel for the Official Liquidator states that the authority under the PMLA, is empowered to dispose of the property and if that takes place, the claim of the Official Liquidator will be prejudiced. The learned ASG points out that there is an elobarate machinery provided under the PMLA, including the appeals to the appellate authority in the High Court and therefore, the disposal of the property is not in contemplation in the near future. In any case the Enforcement directorate will inform the Official Liquidator if any steps are taken regarding disposal of the properties of the Companies under liquidation and / or if any attachment of any of the properties of the Company are withdrawn or set aside.

6. As far as the EOW Crime branch Mumbai is concerned, an affidavit has been filed by Mr.Abhay Vasudeo Saigaonkar, Police Inspector presently attached to EOW. In the affidavit it is stated as under :

““13. I say that during the course of investigation, the investigating agency attached 25 immoveable properties and froze approximately 55 bank accounts of City Group of Companies. Estimated Value of the attached properties is more than Rs.180 Crores, whereas the volume of the fraud is estimated to be around Rs.2000 Crores.

….....

18. I say that with respect to handing over of possession of the said property and remittance of entire money lying in the said bank accounts along with interest accrued therein if any, this office has “No Objection” if this Hon'ble Court directs this office to remit the said money to Official Liquidator with condition that the claims of duped investors of this case i.e. E.O.W. CR No.74 of 2007 (City Limouzine Case) be settled on priority basis”.

”

7. The learned AGP submits that the Investigating agency has attached immovable properties as well as attached the bank accounts of the Companies under liquidation and the estimated value of the property is around Rs.180 crores. As stated in the affidavit the EOW has no objection for transferring this amount to the Official Liquidator, so also the possession of these properties. The learned ASG also has no objection for the same.

8. Both, the learned AGP as well as learned counsel appearing for the Official Liquidator states that if the amount is deposited with the Official Liquidator as a central agency, the various claims which have been made

by different authorities can be considered at one place instead on ad-hoc

manner which is currently being adopted. Thus, this workable arrangement of deposit of the amount and assets with the Official Liquidator by consent of parties can be done without going into the large question of law involved in this report. The EOW and the Official Liquidator shall do so.

9. The learned AGP on instruction submits that more than 60,000 to 70,000 complaints from the depositors have been received and 40,000 complaints have been so far ascertained. These complaints will be forwarded to the Office of the Official Liquidator. The Official Liquidator will consider these claims as well as the claims received by the Official Liquidator and adjudicate/ascertain the same. If the Official Liquidator needs more Chartered Accountants for that purpose a report may be placed on record. It is directed that no distribution of money so deposited will be made without leave of the Court. If any other authorities or depositors or creditors raise a claim with the EOW, the said EOW will forward the same to the Official Liquidator after carrying out a preliminary inquiry.

10. The learned counsel for the Official Liquidator submits that the Official Liquidator has no funds to carry out this exercise and the Common Fund of the Official Liquidator is exhausted. The learned counsel for the Official Liquidator as well as the learned AGP states that the amount received from the EOW will be invested in a short term deposit for a period of six months and the interest can be utilised for the purpose to carry out the examination of claims. The learned ASG may communicate to the Ministry of Commerce the difficulties faced by the Official Liquidator due lack of funds in the present matter. Considering the fact that there are more than 60-70000 claims the office of the Official Liquidator is under severe strain. The Ministry of Commerce may consider if funds could be made available to the Official Liquidator for this purpose or the common fund which is stated to be exhausted due to this matter, can be replenished.

11. Though various agencies of the the State are involved and there are

conflicts of jurisdictions, the authorities will be alive to the larger social problem that has arisen these matters and the authorities will act in spirit

of cooperation and will coordinate with each other. The Counsels appearing for them assure to do so.

12. It is clarified that this order will not affect any of the pending proceedings under the various acts. S.O. to 29 October 2013.