APPEAL BEFORE HIGH COURT OF MADRAS BENCH:
APPEAL was filed by M/s Helios and Matheson
Information Technology Ltd:
WA NO. 1227 of 2015
SHORT
NOTE:
This writ appeal arises out of an order passed by
the learned single Judge dismissing a writ petition filed by the appellant,
praying for a declaration that a First Information Report registered against
them in Crime No.5/2015 on the file of the Economic Offences Wing of the City
Police was without jurisdiction.
PRELUDE
1. It appears that the appellant herein was
originally incorporated as a Public Limited Company under the name and style of
"Express Financial Limited",
having its office at T.Nagar, Chennai. It was incorporated under the Companies
Act, 1956 on 8.3.1991. Subsequently, the name of the company was changed to its
present form namely "Helios and Matheson Information Technology
Limited", with effect from 29.4.1999.
2. Even according to the appellant, they were
accepting deposits from the public as well as the shareholders for over 10
years, in terms of Section 58-A of the Companies Act, 1956 and that they were
very prompt in repayment.
3. But after the replacement of The Companies
Act, 1956 by the Companies Act, 2013, a new set of provisions from Sections 73
to 76 in Chapter V dealing with "Acceptance of Deposits by Companies"
have comeinto force.
4. Under Section 74(1) of the Companies Act,
2013, every company which has accepted a deposit before the commencement of the
2013 Act,was obliged to file a statement with the Registrar of Companies, if
the amount of such deposit or any interest due thereon, remained unpaid on the commencement
of the Act. There was also a prohibition under the 2013 Companies Act, for such
companies from accepting new deposits, unless two conditions namely (i)
shareholders' approval at an Annual General Meeting and (ii) a credit rating of
A++ by CRISIL, are fulfilled.
5. Even according to the appellant, they could
not fulfil both the conditions required for acceptance of fresh deposits under
the Companies Act, 2013. The appellant was also admittedly in default in
repayment of the deposits as well as the interest, to a huge number of
depositors, as on the date of commencement of the 2013 Companies Act. It is the
appellant's own case that they were in the habit of receiving fresh deposits
for repayment of the old deposits and this chain was cut, at the commencement
of the 2013 Companies Act.
6. As a consequence, several complaints came to
be lodged with the City Police and it appears that during the period from
September 2014 to January 2015, the police started investigating into the
complaints. The first ever First Information Report was registered against the
appellant in Crime No.02 of 2015 on 29.1.2015 by one Mr.D.Ramalingam. It
appears that the amount due to the said D.Ramalingam was only around
Rs.2,19,020/- and this money was settled by the appellant.
7. Thereafter, the appellant moved an application
before the Company Law Board under Section 74(2) of the Companies Act, 2013.
The application was actually filed on 27.3.2015. The reliefs sought in the
application were:
(a) to extend the time for repayment of the
deposits matured on or before
31.3.2014 by a further period of 6 months; and
(b) to extend the time for repayment of the
deposits matured after 31.3.2014 by a further period of one year. But, by the
time the application under section 74 (2) was filed, the period of 6 months
sought by the appellant in para 16(a) of their petition before the Company Law
Board had already expired. The prayer sought in para 16(b) was to expire in a
period of 4 days, when the petition under Section 74(2) of the Companies Act,
2013 was presented.
8. While so, on 1.4.2015, the Deputy
Superintendent of Police, Economic Offences Wing-II, Anna Nagar, received a
complaint from one Dr.K.Ranjit
Chitturi alleging that the appellant herein received deposits from investors
for durations of 12, 24 and 36 months and that the defacto complainant himself
made 5 deposits to the total tune of Rs.59,50,000/-
during the period from 11.7.2011 to 16.12.2013. It was claimed by the defacto
complainant that 3 out of 5 deposits matured on 14.5.2014, 12.6.2014 and
11.7.2014 respectively, but the appellant failed to repay the deposit amount.
9. The Deputy Superintendent of Police, Economic
Offences Wing, Anna Nagar registered a First Information Report in Crime
No.05/2015 for an alleged offence under Section 5 of the Tamil Nadu Protection
of Interests of Depositors (In Financial Establishments) Act 1997 read with
Section 420 of the Indian Penal Code. In the First Information Report, the
appellant herein as well as its Directors were cited as accused. Immediately
after the registration of the FIR in Crime No.5 of 2015, the Managing Director
and 2 other directors of the appellant were arrested and remanded to judicial 5custody on 1.4.2015.
10. Therefore, the appellant moved a writ
petition in W.P.No.10015 of 2015, challenging the Constitutional validity of
the Tamil Nadu Protection of Interests of Depositors (In Financial
Establishments) Act 1997, in the light of the provisions of the Companies Act,
2013.
11. It is relevant to point out here that as soon
as the Tamil Nadu Protection of Interests of Depositors (In Financial
Establishments) Act, 1997 was enacted, the Constitutional validity of the same
was challenged way back in 1999, but the challenge was thrown out by a learned
judge of this Court in Thiru Muruga Finance v. State of Tamil
Nadu [2000 (2) CTC 609]. Despite this decision, a fresh challenge was
made to the Constitutional validity of the Act, once again in the year 2006 and
a Full Bench of this Court upheld the Act for a second time in S.Bagavathy
v. State [2007 (2) CTC 207].
12. Therefore, the writ petition W.P.No.10015 of 2015
filed by the appellant herein, challenging the Constitutional validity of Tamil
Nadu Protection of Interests of Depositors (In Financial Establishments) Act,
1997 was actually a third round of challenge (though not by the appellant) to
the very same Legislation. Realizing the futility of such a challenge, during
the course of hearing of the writ petition, the appellant withdrew the writ
petition with liberty to raise all the contentions, in a quash petition to be
filed under Section 482 of the Code of Criminal Procedure, seeking the quashing
of the FIR in Crime No.05 of 2015.
13. Thereafter, the appellant moved a petition in
Crl.O.P.No. 9982 of 2015 under Section 482 of the Code of Criminal Procedure,
for quashing the FIR in Crime No.05 of 2015. It is claimed by the appellant
that the quash petition was also withdrawn by them, leaving
all the contentions open to be raised at the appropriate forum and at the
appropriate stage. But the records reveal that the quash petition
was dismissed as withdrawn on 20.4.2015 by an order which reads as follows:
"The learned counsel
appearing for the petitioners has sought permission of this Court to withdraw
the petition and he had also made an endorsement to that effect.
2. In view of the
endorsement made by the learned counsel for the petitioners, this Criminal
original Petition is dismissed as withdrawn with liberty to the petitioner to
put forth all the contentions which is raised today before the appropriate
forum. Consequently, connected Miscellaneous Petitions are closed"
14. After (i) withdrawing the writ
petition W.P.No. 10015 of 2015 challenging the Constitutional validity of the
Tamil Nadu Act, with liberty to raise all contentions in the quash petition and
(ii) after withdrawing the quash petition itself with liberty to merely put forth
all contentions before the appropriate forum, the appellant filed a writ
petition under Article 226 of the Constitution in W.P.No.14664 of 2015 praying
for the issue of a writ of declaration that the FIR in Crime No.5 of 2015 was
without jurisdiction and ultra vires. We do not know how after
the withdrawal of the quash petition under section 482 of the Code, another
quash petition under Article 226 is maintainable on the specious plea that they
had obtained liberty to move the appropriate forum.
15. Be that as it may, the writ petition for
quashing the FIR, has now been dismissed by a learned Judge, by an order passed
on 6.8.2015. Aggrieved by the dismissal of their writ petition, the appellant
is before us.
16. Thus, in essence, the
litigation before us is virtually a third attempt on the part of the appellant
to stall an investigation by the respondent police, into serious allegations of
defrauding of thousands of depositors to the tune of Crores of rupees. The
first attempt made by the appellant was in the form of a writ petition
challenging the Constitutional validity of the Tamil Nadu Act. The second
attempt made by the appellant was in the form of a petition under Section 482
of the Code of Criminal Procedure, to quash the FIR. While the first writ
petition was withdrawn with liberty to raise all contentions in the quash
petition, the quash petition itself, is said to have been withdrawn with
liberty to raise all the contentions at the appropriate forum. Therefore, the
present attempt, which is the third attempt in succession, to stall an
investigation, required a careful scrutiny and this is what was done by the
learned Judge, before coming to the conclusion that the writ petition was
devoid of merits.
TURN OF
EVENTS BEFORE THE LEARNED JUDGE
17. It is seen from the affidavit filed by the
appellant in support of the writ petition as well as the summary of arguments
and additional written arguments filed by the appellant before the learned
Judge that the appellant raised two
fundamental issues for seeking a declaration that the First Information
Report was without jurisdiction. They are:
(i) Whether the company which is not in the
business of receiving deposits,but which received deposits in terms of the
provisions of the Companies Act, 1956, can be prosecuted for an offence under
Tamil Nadu Protection of Interests of Depositors (In Financial Establishments)
Act, 1997, hereinafter referred to as the TNPID Act, especially when there is a
specific provision under Section 74(2) of the Companies Act, 2013 enabling the
company to approach the Company Law Board for extension of time to repay the deposits?
and
(ii) Whether the police would have jurisdiction
to entertain and investigate the matters under the Tamil Nadu Protection of
Interests of Depositors (In Financial Establishments) Act, 1997, without the
sanction of the competent authority ?
18. On the first question, the learned single Judge, to some extent, agreed with the contention
that unless a company was carrying on the business of receiving deposits, it
would not come within the definition of the expression "financial
establishment" under Section 2(3) of the TNPID Act, 1997. But,
nevertheless the learned Judge found from the website of the appellant company
that the same contained a representation to the public that the appellant was
engaged in the business of banking and financial services. The Directors'
report for 2012-2013 filed by the appellant with the Registrar of Companies
also contained an indication that the business focus of the appellant continued
to be of banking and financial services. Therefore, the learned Judge rejected
the first contention of the appellant.
19. On the second contention, heavy reliance was
placed by the appellant, on the fact that in P.S.Chellamuthu
v. State [SLP (Criminal)No.53/2009], the Supreme Court was
already seized of the issue as to whether the police would have jurisdiction to
entertain and investigate the matters under the TNPID Act, 1997 without the sanction
of the competent authority. One learned Judge of this Court answered this
question in the affirmative and the Supreme Court not only granted leave on the
same question of law, but also granted stay. Consequently, several financial establishments
have obtained stay of investigation from this Court and hence, the appellant
contended on the second question that he was also entitled to the same benefit.
But the said argument was rejected by the learned Judge on the basis of the law
laid down by the Supreme Court in several decisions including the one in Shree
Chamundi Moped Limited v. Church of South India Trust Association [1992 (3) SCC
-1], wherein the Supreme Court held that the grant of leave and the grant
of an interim order by the Supreme Court as against a judgment of the High
Court does not have the effect of wiping out the law laid down by the High
Court. At the most, it can be said that the issue had not attained finality
with an authoritative pronouncement from the Supreme Court.
20. The appellant had also raised a few other
contentions before the learned single Judge, but they were all incidental to
the above two main grounds of attack. All those ancillary grounds fell like a
pack of cards, once the two main grounds indicated above were decided by the
learned Judge against the appellant. Therefore, aggrieved by the dismissal of
their writ petition, the appellant is before us.
A BRIEF
INTERLUDE
i.) As we have stated earlier, the appellant and
its Directors came under the Police Scanner, in September, 2014. After calling
upon the appellant to furnish details of deposits collected and not repaid, the
police registered the first criminal complaint in Crime No.02 of 2015 on
29.1.2015 at the behest of a depositor by name D.Ramalingam. It appears that
the amount payable to the said complainant was Rs.2,19,020/-. The appellant appears
to have paid the said amount and hence the complaint was not investigated
further.
ii.) Realizing that the settlement of the deposit
amount to one depositor would not resolve the larger problem relating to
thousands of depositors, the appellant filed an application on 27.3.2015 before
the Regional Bench of the Company Law Board under Section 74(2) of the Companies
Act, 2013, praying for two reliefs. As we have indicated earlier, the first
relief prayed in paragraph 16(a) was for extending the time for repayment of
the deposits that matured for payment on or before 31.3.2014 by a further
period of six months. The prayer in paragraph 16(b) was to
extend the time for repayment of the deposits
that mature on or after 31.3.2014 by a further period of one year.
iii.) But,
before the Company Law Board could proceed with the hearing of the application
under Section 74(2) of the Companies Act, 2013,a second complaint came to be
lodged on 1.4.2015 by one Dr. Ranjit Chitturi, alleging non repayment of the
deposits to the tune of Rs.59,50,000/-, the Economic Offences Wing registered
the complaint in Crime No.05 of 2015 and started investigation in a serious manner.
iv.) The
investigation revealed that the appellant was originally incorporated under the
Companies Act, 1956 on 8.3.1991 with the name Express Financial Limited. But
the name was changed on 29.4.1999 to what it is now. The investigation also
revealed that the appellant has 7 subsidiary companies, some of which are also
incorporated outside India.
v.) As per
the statement furnished by the Deputy Superintendent of Police, Economic
Offences Wing before the learned single Judge, the
appellant had engaged the services of several finance brokers such as (i) Bajaj
Capital; (ii) Karvy Stock Brokering Limited; (iii) Mahavir Group; (iv) Mehta
Finance Services Private Limited; (v) Almondz Global Securities Limited; (vi)
R.K. Investments; (vii) Samantha Investments; and (viii) Western Securities,
for mobilising fixed deposits from the public on commission basis. Through
these agents, as well as directly from the public, the appellant had received a
total amount of Rs.55,25,70,000/-, as deposits from 6540 depositors all over
the country. Once the Economic Offences Wing started
investigating into the crime No.05 of 2015, lot of complaints started pouring
in. It appears that 745 depositors have given complaints alleging that they
have been cheated to the tune of Rs.28,29,86,000/-. Many of the depositors are
stated to be senior citizens.
vi.) The investigation also revealed that the
appellant has debts due to 5 banks to the total tune of Rs.189,76,33,434/-.
When the Economic Offences Wing froze the accounts of the appellant, they found
that what was available with the banks was only a meagre
amount of Rs.2,01,476/-.
vii.) As
soon as the police activated the investigation and arrested the Managing
Director and 2 other Directors, the appellant filed a writ petition in W.P.No.10015
of 2015 seeking a declaration that the provisions of the TNPID Act, 1997, are inapplicable
to companies receiving deposits under the Companies Act (S.58 of the Old Act of
1956 and S.73-76 of the New Act of 2013) which are not 'Non Banking Finance
Corporations' nor 'Financial Establishments'.
viii.) After facing hostile weather in court, the
appellant withdrew the writ petition with liberty. That the appellant faced
hostile weather could be well understood by the fact that the Constitutional
validity of the Act was already upheld, first by a single Judge of this Court
in Thiru Muruga Finance v. State of Tamil Nadu [2000 (2) CTC
609] and then by a Full Bench in a second attempt made in S.Bagavathy
v. State [2007 (2) CTC207]. The Judgment of the Full Bench upholding the
Constitutional validity of the Act also received the seal of approval from the
Supreme Court in
K.K.Baskaran v. State [(2011) 3 SCC
793]. Therefore, the writ petition filed by the appellant in W.P.No.10015
of 2015 was nothing but an attempt at re-agitating the same issue and hence
after finding that it was an exercise in futility, the appellant chose to
withdraw the writ petition. The order of the Division Bench dated 7.4.2015
dismissing the said writ petition W.P.No.10015 of 2015 is reproduced as
follows:-
"After arguing at length, learned
counsel for the petitioner seeks to withdraw the writ petition and states that he
reserves liberty to move appropriate quashing proceedings, n which he will
raise the issues, as are sought to be canvassed before this Court.
2.Writ petition is dismissed as withdrawn
in afore said terms. No costs. Consequently, M.P.No.1 of 2015 is also dismissed"
ix.) In
the meantime, three depositors came up before the Company Court and moved
petitions in C.P.Nos.143 to 145 of
2015 under Section 433(e) and 434(1)(a) of the Companies Act, 1956, for
winding up the appellant. Along with the petitions for winding up, the
creditors also filed interlocutory applications for the appointment of a
Provisional Liquidator. On the applications for the appointment of Provisional
Liquidator, the Company Court passed an order on 30.3.2015, directing the issue
of notice to the appellant returnable by 07.4.2015.
x.) While responding to those winding up
petitions, the appellant claimed that they had already moved an application
under Section 74 of the Companies Act, 2013 before the Company Law Board,
praying for extension of time to repay the deposits. But unfortunately for the
appellant, the Scheme of Chapter V of the Companies Act, 2013, is completely
different from the Scheme of Chapter XV. While Chapter V deals with
"Acceptance of Deposits by Companies", from Sections 73 to 76,
Chapter XV deals with "Compromises,
Arrangements and Amalgamations" from Sections 230 to 240.
xi.) Therefore, whenever a company proposes to make
an arrangement with its creditors, especially when a petition for winding up is
pending, the same could be done only before the Company Court (until the constitution
of the Tribunal). The purpose of Section 74(2) is merely to grant time to the
company to repay the deposit as well as the interest. But, in a Scheme of
Arrangement under Section 230 of the Companies Act, 2013, it is possible even
to reduce the amount payable, subject to certain conditions.
xii.) In
this case, the company petitions in C.P.Nos.143 to 145 of 2015 for the winding
up of the appellant company were filed on 10.3.2015 by the depositors/creditors.
They were found to be in order and numbered on 26.3.2015. It was only
thereafter that the appellant filed the petition under Section 74(2) before the
Company Law Board on 27.3.2015. In other words, on the date on which the
appellant presented an application before the Company Law Board under Section
74(2), three petitions for winding up had already been filed before this Court.
xiii.) Therefore, the appellant agreed, when the
company petitions came up for hearing, to file an application before the
Company Court itself for accepting a schedule of payment. But, the appellant
could not file such an application during the period from 01.4.2015 to 27.4.2015,
since the Managing Director and two other Directors of the appellant were in
judicial custody at that time.
xiv.) But,
during the first week of May 2015, the appellant filed a quash petition in
Crl.O.P.No. 9982 of 2015 (and not 11760 of 2015 as wrongly mentioned in the
writ petition) under section 482 of the Code of Criminal Procedure for quashing
the FIR in Crime No.05 of 2015. But the same was also withdrawn by the
appellant, obviously due to heavy turbulence in court hall.
xv.) Though the appellant
sought to withdraw the quash petition with liberty only to raise all
contentions at the appropriate forum, they came up with a writ petition in
W.P.No.14664 of 2015, for the very same prayer. It is
out of the dismissal of the said writ petition that the present appeal arises.
xvi.) Therefore, the analysis of the legal issues
raised forcibly by the learned senior counsel for the appellant cannot be done
without taking note of the above factual details and without remembering the
cry and curses of more than 6500 depositors.
FIRST
CONTENTION BEFORE US
1. As we have indicated earlier, the first
contention of the learned senior counsel for the appellant is that the
provisions of TNPID Act, 1997, are not intended to deal with the inability to
repay, of the companies not engaged in the business of receiving deposits, but
to penalise only those fraudulent financial establishments that are engaged in
the business of receiving deposits. Therefore, it is his contention that the
provisions of TNPID Act, 1997, cannot be invoked against all kinds of companies
such as the appellant herein, which is engaged only in the business of
providing software solutions and not in the business of receiving deposits.
2. Either during the course of investigation or
at the worse during the trial, the appellant can always establish that they
never carried on the business of receiving deposits under any Scheme or
Arrangement or in any other manner, so as to come within the purview of the
definition of the expression "financial establishment" under Section
2(3) of the TNPID Act, 1997. The FIR cannot be quashed on the basis
of an assertion in an affidavit filed before the Court that the appellant is
not carrying on
the business of receiving deposits. The
Investigating Officer has found at least prima facie
(i) that the appellant had engaged the services
of 8 or 9 finance brokers, and
(ii) that through them and even directly, the
appellant had collected deposits from about 6540 depositors throughout the
country,
to the total tune of more than Rs.55 Crores.
3. Therefore, the learned Judge was right in
refusing to adjudicate in a writ petition under Article 226 for quashing an
FIR, the question as to whether the appellant is carrying on the business of
receiving deposits or not. Hence, the first contention of the appellant has to
be rejected. Accordingly, it is
rejected.
SECOND
CONTENTION
4. As we have pointed out earlier, the second
contention of the appellant is that the police have no powers under the TNPID
Act, to investigate an offence under the Act, without a sanction from the
competent authority. In support of his contention, the appellant relies upon
the fact that the same question of law is under consideration of the Supreme
Court in S.L.P.(Crl.) No.53 of 2009, in an appeal arising out of a judgment of
a learned Judge of this Court.
5. There are two aspects. The first is as to
whether we are entitled to take note of the law laid down by a learned Judge of
this Court in P.S.Chellamuthu v. State, at least as of
persuasive value. The second aspect is as to whether the grant of a stay by the
Supreme Court in P.S.Chellamuthu v. State, would act as a bar for
us even to consider this contention.
6. According to the appellant, we are not
entitled to take note of the law laid down by the learned Judge of this Court
in P.S.Chellamuthu, in view of the stay granted by the Supreme Court. We are
afraid that it is a wrong understanding of the law on the part of the appellant.
In P.S.Chellamuthu,the question that arose before a learned Judge of this Court
was as to whether the police have power to investigate into a complaint under
TNPID Act or not. The learned Judge of this Court answered the question in the affirmative.
On an appeal to the Supreme Court, the Supreme Court granted leave and passed
the following order:
"During the pendency of the appeal,
operation and implementation of the impugned judgment and order shall as also
further proceedings in C.C.No.31 of 2001 pending before the Special Court
(TNPID Act) Chennai shall remain stayed".
7. The above order of the Supreme Court
cannot be read as a blanket order of stay of all investigations by the police
and all trials by the Special Courts in all cases throughout Tamil Nadu. If it
is so construed, it would mean that after upholding the Constitutional validity
of the Act, the Supreme Court had indirectly stayed the implementation of the provisions
of the Act. Therefore, the stay granted by the Supreme Court cannot be taken to
be a general amnesty to all financial establishments from being prosecuted by
the police under the TNPID Act.
8. The learned Judge was right in holding, on the
basis of the law laid down by the Supreme Court in Shree
Chamundi Moped Limited v. Church of South India Trust Association [1992 (3) SCC
1], that the grant of a stay by the Supreme Court in a case would not
tantamount to wiping out the law laid down by the High Court. The law cannot be
allowed to be in a state of limbo or presumed to be what the parties argue,
until the Supreme Court finally decides the issue. At the most, the grant of an
order of stay by the Supreme Court could be taken to mean that the issue raised
therein had not reached finality. What the
appellant now wants us to do is to accept what according to him is the law,
till the Supreme Court disposes of SLP (Crl.) No.53 of 2009.
9. We are afraid we cannot do that. We
cannot ask thousands of depositors to await the outcome of the case pending
before the Supreme Court from the year 2009, as many of them are senior citizens,
who want their hard earned money to be repaid to them,before the last and final
boarding call is made to them. Even if tell the depositors to wait till a
decision is rendered by the Supreme court in the criminal appeal in
P.S.Chellamuthu Vs. State, many of them may not be able to wait, as time waits
for none.
10. As a matter of fact, the Company Court (of
this Court) ordered notice in C.A.No.561 of 2015 in C.P.Nos. 143 to 145 of 2015
filed by the appellant for accepting a schedule of payment to the depositors. In
response to the notice published by the appellant in newspapers, inviting
objections to the proposed scheme of arrangement, hundreds of depositors have
sent letters, partly written in ink and mostly in tears.
11. The
second contention of the appellant in entirety, loses sight of one more
important fact. The FIR registered in Cr.No.05 of 2015 against the appellant
and its Directors, is not merely for an offence under Section 5 of the TNPID
Act, but also for the offence under Section 420 IPC. We are completely at a
loss to understand as to why the Economic Offences Wing cannot even investigate
into the offence under Section 420 IPC, for alleviating the sufferings of
thousands of depositors, some of whom are at the fag end of their lives.
Therefore, the second contention is also devoid of merits.
Next Liquidation order and what should be your next course of action will be put up for social welfare.
It is my personal short note from order, It is not for coading in any court of law. It is put up in short form for easy understanding for interested peoples.
Thanks & Regards
Dr. Zulfiqar Ali Khan, M.A., M.L.,M.Phil(Law),Ph.D
Advocate & Commissioner of Oaths
No. 462, Addl law Chambers
High Court of Madras
Chennai- 600 104
MB: 9884102961 / 9444412961
i and my family, friends have FD, promissory notes of Helios and matheson worth Rs07-40 lacs and all interest warrants are due since August 2014 which are bouncing back unpaid.
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