M.B. Shah, C.J.
Heard the learned Counsel for the parties.
2.Leave to add Omprakash Jogani and State as party-Respondents granted.
3.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 of 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 228 of the Constitution of India, we, the Courts, cannot be silent spectators to such piquant situations.
4.This Petition is filed by the Securities & Exchange Board of India (SEBI) as a public interest litigation, wherein it is submitted that it has come to the notice of the Government of India that there are entities which are issuing instruments such as agro bonds, plantation bonds etc. (hereinafter referred to as "such schemes") offering very high rates of returns which are not consistent with the normal returns in such schemes; the Central Government was concerned with the high element of risks associated with such schemes and hence in order to ensure that the investors make investment in such schemes only after they are fully acquainted with or made aware of the high risk factors involved in such schemes, has felt it necessary to decide an appropriate regulatory framework for regulating entities which issue such schemes. It is prayed that, in public interest, till regulations are framed, appropriate directions be given to protect large amounts invested by middle-class people.
5.It has been also pointed out that Respondent No.1 has floated 18 Schemes and has collected approximately Rs.16 crores from the small investors. The Schemes are offering fanciful returns, which are highly disproportionate and commercially not viable. The Schemes are :
(I)Greenshare Plan - A
(II)Greenshare Plan - B
(III)Greenshare Plan - C
(IV)Greenshare Plan - D
(V)Greenshare Plan - E
(VI)Greenshare Plan - T
(VII)Greenshare Vegetable Unit
(VIII)Greenshare Plan - G
(X)Greenshare Dhansamruddi - 1
(XI)Greenshare Dhansamruddi - 2
(XII)Greenshare Dhansamruddi - 3
(XIII)Greenshare Dhansamruddi - 4
(XIV)Greenshare Dhansamruddi - 5
(XV)Greenshare Dhansamruddi - 6
(XVI)Greenshare Vegetable Unit
(XVII)Aanokhe Aam Scheme
6.It has been pointed out that the Petitioner has recently come across a press report in Bombay TIMES OF INDIA dated 17th May, 1998 that promoters of the schemes of Respondent No.1 were not traceable, Respondent No.1 has downed its shutters, the owners were not available, various offices of Respondent No.1 are closed and the said Company was going through financial crisis. It is submitted that the funds received by Respondent No.1 had been diverted to other Companies. It is submitted that in collusion an order has been obtained from this Court in Company Petition No.226 of 1998 for appointment of Official Liquidator for the Company; that promoters of the Company are not traceable and that many investors are holding demonstrations outside the Petitioner's office demanding action against the Company and its Directors. It is, therefore, submitted that there is an urgent and imperative need that, pending drafting of the Regulations under Section 12(1B) of the SEBI Act, the Bank accounts and other assets moveable as well as immoveable, of Respondent No.1 wheresoever situated require to be frozen and attached to protect the investors' money from being filtered away. It is also submitted that Respondent No.6, being the institution controlling all banking activities, alone has the power to issue orders and directions against commercial banks, Co-operative banks etc. restraining Respondent No.1 from withdrawing monies from commercial banks and/or Co-operative banks or from operating the said bank accounts, and, therefore, SEBI has approached this Court. Mr.Dada, learned Counsel appearing on behalf of the Petitioner, submitted that, apart from the aforesaid facts, in the case of Delhi Development Authority v. Skipper Construction Company (P) Ltd. & anr (1996 AIR SCW 2401), the Apex Court has specifically held that the concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. He prayed immediate action be taken against the Directors who have siphoned off large amounts of investors under the guise corporate veil.
7.Prima facie, it appears that Respondent No.1 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 could have become multi-millionaires by this time. It appears that, because of these empty, false promises, investors are duped and the Company's monies are siphoned off either to sister companies or firms of the Directors or their relatives.
8.In the case of Delhi Development Authority (supra), 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.
9.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 from 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.
10.In this view of the matter, we pass the following order :
a)The Commissioner of Police, Mumbai, to appoint the Deputy Commissioner of Police, Economic Offences Wings to inquire into the various aspects of the 1st Respondent Company;
b)The Deputy Commissioner of Police is directed to hold necessary inquiry to find out the whereabouts of the 1st Respondent Company's property, both movable and immovable;
c)The Reserve Bank of India is directed to appoint at least 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 No.2 to 5 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.2 to 5 and 7 are directed to furnish a list of the group companies and indicate the amounts/assets, whether moveable or immoveable, transferred from Respondent No.1 to its group companies or any other companies in which Respondents No.2 to 5 and 7 are directors or shareholders;
f)Respondent No.6 is directed to write to all scheduled and commercial banks intimating the present order and not to permit Respondents No.1 to 5 and 7 or the group companies of Respondent No.1 (mentioned at page 81 of the Petition) to operate
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their respective bank accounts; g)The Deputy Commissioner of Police is further directed to find out the assets of the Directors of the Company and whether any amount of the Company is siphoned off to any sister concerns or in the name of relatives of the Directors; h)The Deputy Commissioner of Police, with the assistance of the Auditors, prepare an inventory of the properties belonging to Respondent Nos.2 to 5 and 7 and attach them. This is, for the time being, to find out whether the properties belonging to 1st Respondent Company are siphoned off by the Directors by defrauding the investors; i)The Directors of Respondent No.1-Company are directed to co-operate in the aforesaid inquiry; j)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; k)The Deputy Commissioner of Police to submit his interim report on or before 30th June 1998 under a sealed cover. 11.Liberty to apply in case of difficulty. 12.Stand over to 2nd July 1998.