M.B. Shah, C.J.
Heard the learned counsel for the parties.
2.Unfortunately, it appears that there is no legislation which can effectively control the mushrooming of Companies which tempt small investors to deposit or invest their life-savings in such Companies promising to pay fanciful returns on their investment but actually defrauding the investors after siphoning off large amounts from such investments. It is also unfortunate that Nationalised Banks are also advancing loans to such institutions without adequate security from such companies as well as their Directors. The situation on the whole, prima facie, is not very happy and knowing fully well the parameters of the powers of the Court as well as the self-imposed restrictions under Article 226 of the Constitution of India, we the Courts, cannot be silent spectator to such piquant situations.
3.In the present case, it is the case of the Petitioners that Petitioners No.1 to 4 are shareholders of Respondent No.1 - Company, viz., Indo French Biotech Enterprises Ltd. Petitioner No.1 is also shareholder of a company known as "Indo Global Biotic Ambience Ltd." The said Companies are floated by Respondent No.3 who is the Chairman and Managing Director and collected large funds. They have floated a Scheme known as "PROJECT GRAPES". The return mentioned in the brochure of PROJECT GRAPES is 1025% and, for that purpose, the members of public were requested to invest in any of the 6 attractive and convenient Schemes and get incredible returns. It appears that, on the basis of the said scheme, nearly 50,000 investors have invested their hard-earned money in PROJECT GRAPES, which scheme was started in the year 1993.
4.Various allegations are made with regard to siphoning off the Company's property and investment made by the public at large. In all, Respondent No.1 has collected Rs.32 crores and odd from the shareholders. It has been pointed out that the company has also taken large amounts of loan from the financial institutions.
5.It has been contended in this Petition that the investment of shareholders, who are middle-class persons, is totally unsafe in such Company. The Petitioners, who are shareholders have particularly pointed out that large amounts of the Company's funds have disappeared and, for that purpose an investigation is required to be carried out.
6.When the matter was first placed before us for admission, the learned counsel appearing on behalf of Respondents No.1, 3 and 8 stated that they would file a detailed affidavit stating how much funds are collected for the PROJECT GRAPES and where the collected amount is invested, along with the statement of account and balance sheet of Respondent No.2 - Company since its inception till date.
7.Thereafter, on 22nd April, 1998, the learned Government Pleader, Mr. Govilkar, stated that immediate action would be taken by the Economic Offences Wing of the Police Department against the concerned persons, including Respondents No.2 and 15 on the complaint filed as per pages 80 to 85 of the Petition.
8.Subsequently, the matter was placed for orders on 6th May, 1998 and, on that date, the Court, inter alia passed the following order:-
"Heard the learned Counsel for the parties
"2. Learned Counsel for Respondent Nos.1, 3 and 8 states that Respondent Nos.1, 3 and 8 would refund the amount invested in the scheme known as "Project Grapes" if the investors demand refund of the said amount. It is directed that on such demand being made, refund must be made within a period of one month from the demand notice.
"It appears that the Reserve Bank of India or SEBI should take appropriate steps immediately to prevent such type of fraud being committed by Companies which are mushrooming in the society. The Reserve Bank of India to see that this order is published in newspapers so that persons who have invested in the aforesaid scheme can file applications for refund of the amount invested by them, if they so desire".
9.Dr. Chandrachud, learned Counsel appearing on behalf of the Reserve Bank of India, states that the Reserve Bank will publish the notice as directed on or before 30th June, 1998.
10.At this stage, we would note that, unfortunately, M.M.T.C. Ltd. which is a Government of India Undertaking appears to have abetted the whole situation by joining as a co-promoter of such companies. The learned Counsel for M.M.T.C. Ltd. states that M.M.T.C. Ltd. has already taken proceedings under sections 397 and 398 of the Companies Act against Respondent No.1 and the proceedings are pending for the last one year. Prima facie, we do not find that the action taken is sufficient to render justice to the common investors in such companies.
11.On behalf of the Petitioners as well as SEBI, it has been pointed out that as many as 50 investors have filed complaints with the Economic Offences Wing of the Police Department, stating that the cheques issued by the Respondent No.1 and 2 have bounced and are not honoured. The amount mentioned for that purpose in Exhibit 'J' is, in all, Rs.29,75, 000/-.
12.The learned Counsel appearing on behalf of SEBI states that, SEBI has already filed a criminal complaint against Respondent No.1 and its Directors under SEBI Act and Companies Act. However, he points out that the said remedy is not a sufficient remedy for protecting the investors or depositors.
13.The learned Counsel appearing on behalf of the Reserve Bank of India also points out that, at present, the Reserve Bank is also not in a position to control such unlawful activities, because there is no law empowering the Reserve Bank to take immediate action in such matters.
14.The affidavit filed by Respondent No.8, one of the Directors of Respondent No.1 - Company, clearly discloses that the Company has suffered losses due to circumstances beyond the control of the management; however, the affidavit is totally silent about the alleged circumstances beyond the control of the management. No details have been disclosed in that regard. Again, there is a statement in the affidavit that certain fruits were exported on credit basis. However, the deponent has maintained total silence about details of such exports.
15.Though it has been brought to our notice that a suit has been filed by the State Bank of India and another by Federal Bank of India seeking certain reliefs against the Respondent - Companies, the same cannot be said to be sufficient to safeguard the interests of innumerable investors in the said Companies.
16.Prima facie, it appears that Respondents No.1 and 2 and such other Companies, which are mushrooming in the country under the corporate veil, are committing fraud by tempting middle-class persons to invest their life-long savings in the high hope of having fanciful returns, without there being any basis. Further, in agricultural production, this type of high returns are impossibility in this country, where, otherwise, the farmers of this country would have become multi-millionaires by this time. It appears that, because of these empty, false promises, investors are duped and the Companies monies are siphoned off either to sister companies or firms of the Directors of their relatives.
17.In the case of Delhi Development Authority V. Skipper Construction (P) Ltd. & Anr. (1996 AIR SCW 2401), the Apex Court has referred to the discussion on the topic of corporate veil in Palmer's Company Law and has quoted with approval the observations that Courts have shown themselves willing to lifting the veil where the device of incorporation is used for some illegal or improper purpose. The Court has also considered the concept of corporate entity and held that where the corporate character is employed for the purpose of committing illegality or for defrauding others, the Court would ignore the entity with regard to corporate Company and its association of men and women and will do justice between the real persons. After discussing other authorities, the Court has observed that the concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people and held as follows:-
"Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the Court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people".
The Court has also held that the absence of a statutory provision will not inhibit the Court (as the Court was exercising power under Article 142 of the Constitution) while acting under the said Article from making appropriate orders for doing complete justice between the parties. The Court has also observed that in India, the Courts are not only Courts of law, but also the Courts of equity and thereafter passed an appropriate order attaching certain properties of the Directors of the Company in the aforesaid case.
18.In our view, applying the aforesaid ratio and taking into consideration the fact that large number of investors are being defrauded by employing the corporate veil, which may amount to a criminal offence, and also the fact that under Criminal Law property acquired by fraud, cheating etc., can be followed and seized for wherever it is lying, appropriate directions could be issued by this Court to search and seize such property. Further, under Article 226 of the Constitution, the Court can issue appropriate directions for not only enforcing any of the rights conferred by Part III but "for any other purpose", and "any other purpose" would include such public interest purpose.
19.Considering all the facts disclosed from the material on record and taking into consideration the submissions, for combating exploitation and to retrieve hard-earned money and/or life savings of innumerable investors, we direct as under:-
(a)The Commissioner of Police, Mumbai, is directed to appoint the Deputy Commissioner of Police, Economic Offences Wing to inquire into the various aspects of the Companies some of which we shall mention presently.
(b) The Deputy Commissioner of Police is also directed to take the assistance of Panel of Auditors appointed by the Reserve Bank of India for such purpose. The Reserve Bank of India is directed to appoint at least three auditors with other necessary staff to assist the Deputy Commissioner of Police in conducting such inquiry.
(c)The Reserve Bank of India is directed to appoint at last three auditors with other necessary staff to carry out the inquiry and assist the Deputy Commissioner of Police in carrying out such inquiry;
(d) Respondents Nos.3 to 8 and 15 are directed forthwith to state on oath in an affidavit the following:-
i) The list of their moveable and immoveable properties and all assets and the location thereof;
ii) The list of their bank accounts and the particulars thereof, including the names and addresses of the banks and the amounts therein.
e) Respondents No.3 to 8 and 15 are directed to furnish a list of the group companies and indicate the amounts/assets, whether moveable or immoveable, transferred from Respondents No.1 and 2 to their group companies or any other companies in which Respondents No.3 to 8 are directors or shareholders;
(f) The Deputy Commissioner of Police is further directed to find out the assets of the Directors of Respondents No.1 and 2 Companies and whether any amount of the Companies is siphoned off to any sister concerns or in the name of relatives of the Directors.
(g)The inquiry by the police would include the following:-
(A) To inquire into the disappearance of Rs.1,47,19,974/- which amount is stated to have been earned by way of interest on Public Issue in the year 1993-94 (and does not find place in the balance sheet of Respondent No.1 Company).
(B) To inquire whether Respondent No.1 owns 500 acres of land at Nasik and whether it includes the land amounting to 218 acres belonging to Project Grape Investors or the same is separately held in the names of the said Investors.
(C) To inquire whether 218 acres of land at Nasik for Project scheme was taken on deposit of Rs.291.00 lacs on 50 years licence basis or it is outright purchase of lands at Rs.14,000/- per acre or at any other rate and whether, in the process, a sum of Rs.189,36,000/- of the Company has been misappropriated.
(D) To inquire whether the Project Grape Scheme collected a sum of Rs.11.09 crores from 3136 Members only and whether the company's documents show that there were 4400 Investors in Phase-I and details in that regard.
(E) To inqure into the amount of collection made in Phase-II of Project Grape Scheme and the investment or disbursement thereof.
(F) To inquire into the loan amounts taken by Respondent No.1, including the amount of Rs.1099.30 lakhs as shown in Schedule 3 as secured loans and Rs.635.74 lacs as unsecured loans and utilisation of such loan amounts by Respondent No.1 Company.
(G) To inquire whether Respondent No.1 paid Rs.4,61,24,000/- towards Deposits and Advances of land on lease or it is on ownership basis or otherwise.
(H) To inquire whether Respondent No.1 has fixed assets in building and premises of Rs.1,62,83,000/- and plants and machinery at Rs.1,80,56,000/-, Electrical installation of Rs.25,72,000/- along with details regarding the same.
(I) To inquire whether the plantation in Nasik on 250 acres of land under exp
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ansion phase requires a sum of Rs. 10,11,09,000/-. (J) To inquire whether the advances shown at Rs.7,06,68, 000/- and other deposits of Rs.28,90,000/- are true and correct or are entries and/or the same have disappeared from the accounts of Respondent No.1 Company and details regarding the same. (K)and to verify the entire records, find out whether the Company is in a position to repay the investors of depositors, to inquire the genuineness and viability of the project floated by the Company. (h)The properties, both moveable and immoveable, belonging to Respondents No.3 to 8 and 15 be attached forthwith. (i) The Directors of Respondent-Companies are directed to co-operate in the aforesaid inquiry and/or attachment of the properties. (j) Respondent No.13 is directed to write to all scheduled and commercial banks intimating the present order and not to permit Respondents No.1 to 8 of the group companies of Respondents No. 1 & 2 to operate their respective bank accounts. (k) The Directors of Respondent - Companies are directed to co-operate in the aforesaid inquiry and/or attachment of the properties. (l)The Deputy Commissioner of Police inquiring the matter would only attach the property and not to dispossess the persons in possession, after preparing the necessary Panchanama. (m)The Deputy Commissioner of Police of submit his interim report on or before 30th June, 1998 under a sealed cover. 20.Liberty to apply in case of difficulty. 21.Stand over to 2nd July, 1998.