Vipin Sanghi, J.
C.P. No. 233/1997
1. On 17.01.2002 counsel for the respondent company made a statement that he has no objection to the company being wound up as prayed in the petition, and the official liquidator being appointed as provisional liquidator of the respondent company. Accordingly, the Court appointed the official liquidator as the provisional liquidator of the respondent company to take charge of the assets and records of the respondent company. Mr. Luthra states that on 30.04.2004 the official liquidator sought to institute proceedings u/s 454 of the Companies Act against the ex-directors and also to take action u/s 468 and 477 of the Companies Act against them, for their failure to file a statement of affairs and failure to produce the records and Accounts Books and assets of the company. However, till date the said report filed on 30.04.2004 has not been taken up. On account of the non-filing of the statement of affairs by the ex-Directors of the company, the prayer made in this report is allowed and the official liquidator is not only permitted, but also directed to file a criminal complaint u/s 454 of the Companies Act and an application u/s 468 and 477 of the Companies Act for non-filing of the statement of affairs by the ex-directors and not handing over the assets and records respondent company to the official liquidator. Necessary steps be taken within one week.
Further report be filed before the next date.
CA No. 1017/2002
1. This application has been filed by three applicants namely Sh. Chaman Lal, Mr. M.N. Sobti and Mr. M.K. Kapoor, inter alia, u/s 542 of the Companies Act, against the Managing Director of the company in liquidation Sh. Sunil Shakt. The case of the applicants is that the applicants Along with hundreds of other unsuspecting investors invested their lifelong savings in the company in liquidation on the promise of handsome returns @ 36% p.a. or thereabout. These investments have, however, gone bad and the reason for the same is stated to be the misappropriation of the funds collected by the company on the aforesaid representation, by its Directors, particularly the Managing Director Sh. Sunil Shakt and his wife Mrs. Shilpi Shakt.
2. Vide order dated 01.11.1999 after hearing the counsel for the parties the court, keeping in mind the interest of small investors who had invested their entire life savings in the respondent company directed the Central Bureau of Investigation (CBI) to enquire into the matter and submit an enquiry report as early as possible. The CBI carried out its investigations and from time to time has filed various reports, which are made a part of this application.
3. Learned Amicus Curiae has taken me through these reports. It is revealed that the respondent company collected nearly Rs. 5 Crores from about 750 investors, on the assurance of giving them a fixed return of 3% per month which translates to 36% p.a. on various schemes. The third report filed by the CBI on 15.05.2000 has particularly been relied upon by the Amicus Curiae. From this report, it appears that the aforesaid Directors and their friends incorporated various business entities apart from the company in liquidation. It appears that these entities were merely a front to carry on what, prima facie, appear to be clandestine activities of siphoning off the funds that were being collected by the respondent company and its Directors. The relevant extract from this report reads as follows:
3. Developments:-...it is learnt that Sunil Shakt & Naresh Tyagi established a company on 2.7.1990 in the name of Fintra Systems Pvt. Ltd at 9-D, Masjid Moth, Phase-II, Greater Kailash, New Delhi vide regn. No. 55-40486 and subsequently this company was renamed on Fintra Systems Ltd. on 21.7.94 to carry on the business of manufacturing and trading of all kinds of communication systems.
...and initially following persons were named as the Directors of the said company:
a) Sunil Shakt S/o Lt. Ramesh Chand Saxena R/o A-2/141, Sector-3, Rohini, Delhi - 85.
b) Naresh Tyagi S/o Lt. Yash Pal Singh Tyagi R/o 108, B-9, Sector-3, Rohini, Delhi-85.
c) Sayed Hasan Abbas Razvi S/o Dr. S.N.A. Rizvi R/o 249, Ghalib Apptt., Road No. 42, Pitampura, Delhi.
d) Neeru Arora D/o Shri H.K.L. Arora R/o 417, Mukherjee Nagar, Delhi.
However, Naresh Tyagi & Neeru Arora @ Shilpy Shakt resigned from the Directorship of M/s Fintra System Ltd. on 22.2.91 and 1.9.91, respectively, while S.N.A. Rizvi left the said company sometimes during 1994 but did not inform to the Registrar of Companies. Thereafter Sunil Shakt appointed Wg. Cdr. R.N. Jain & Harender Singhal, CA as per the extracts of the Board''s meetings held on 01.10.1995 by M/s Fintra Systems Ltd. and copy of account opening form in respect of A/c No. 03258 with Canara Bank, Lajpat Nagar, New Delhi also bear the signature of Sunil Shakt and Wg. Cdr. R.N. Jain which have been collected from the above named bank. But the aforesaid Sunil Shakt, MD of M/s Fintra Systems Ltd. did not submit the required form No. 32 with the Registrar of Companies, New Delhi showing the names of Wg. Cdr. R.N. Jain and Harendra Singhal as directors of M/s Fintra System Ltd., 9-D, Masjid Moth, Phase-II, Greater Kailash, New Delhi.
...The aforesaid persons, namely, Naresh Tyagi, Sunil Shakt and Smt. Shilpy Shakt also established following companies as the sister concern of M/s Fintra System Ltd., although commencement of business certificates were not obtained in the name of M/s Fintra Resorts Ltd., M/s Fintra Agro Foresty Ltd., M/s Fintra Securities Ltd. and M/s Fintra Financial Services Ltd. by Sunil Shakt.
Sr. Name of the company Regn. No. Names of the
No. & date Director at present
1. M/s KLP Finance Ltd. 55-13912 (a) Girdhari Lal Chopra
Dtd. 23.06.82 (b) Sunil Jain
(c) K.L. Mittal
(d) Prithi Raj Kaushik
(e) Teja Singh
(f) Anil Jain
(g) Mrs. Shilpy Shakt
(h) Harendra Singhal
(i) Mrs. Madhu Agarwal
(j) Vipin Jain
(k) P.K. Garg
(Now Fintra Capital
Services Ltd.)
2. M/s Fintra Systems 55-40486
Pvt. Ltd. Dtd. 2.7.90
(Now Fintra Systems Ltd.) (a) Sunil Shakt
(b) Wg. Cdr. R.N. Jain
(c) Harendra Singhal
3. M/s Fintra Resorts 55-71085
Ltd. (Non-functional) Dtd. 24.7.98 (a) Wg. Cdr. R.N. Jain
(b) Harendra Singhal, CA
(c) Sunil Shakt
(d) Alog Agarwal, CA
(e) Lt. Col. Raj Kapoor
(f) N.K. Bansal
4. M/s Fintra Agro 55071083
Foresty Ltd. Dtd. 24.07.95
(non-funtional) (a) Harendra Singhal
(b) Alok Agarwal, CA
(c) Sunil Shakt
(d) Fintra System Ltd.
(e) Abishek Kumar Bacchan
(f) Atul Kumar Jain
5. M/s Fintra 55-71082
Systems Ltd. Dtd. 24.7.95
(non-functional) (a) Harendra Singhal, CA
(b) Sunil Shakt
(c) Alok Agarwal, CA
(d) Alok Associate Pvt. Ltd.
(e) Fintra System Ltd.
(f) Mohan Jain
(g) K. Singh
6. M/s Fintra
Services Ltd. 55-71084
(non-functional) Dtd. 24.7.95 (a) Harendra Singhal, CA
(b) Sunil Shakt
(c) Alok Agarwal, CA
(d) Alok Associate Pvt. Ltd.
(e) Fintra System Ltd.
7. M/s Shristhi Inttl. 56-71051
Pvt. Ltd. (a) Mrs. Shilpy Shakt
(b) Sunil Shakt
8. AD-N-STYLE 15.11.95 (a) Shilpy Shakt, Prop.
9. M/s Fintra Times 12.2.92 (a) Sunil Shakt, Prop.
10. M/s Fintra Centre 04/1996 (a) Naresh Tyagi, Prop.
All the above noted persons & companies hold various accounts with a number of different bankers as per the Anenxure-1 attached herewith. However, current A/c No. 120189 with Bank of America has been closed on 30.11.96. Consequently upon enquiries it is revealed that M/s Fintra System Ltd., M/s Fintra Centre, M/s Fintra Times & M/s KLP Finance Ltd. got published advts. in the Hindustan Times during 1995-96 through Mrs. Shilpy Shakt of M/s AD-N-STYLE & M/s Shristhi International Pvt. Ltd. to get investment of money with the assurance of earning interest @ 30% & 36% per annum. The fee for all such advts. was paid to M/s AD-N-STYLE by Sunil Shakt out of the accounts of M/s Fintra Systems Ltd. in Bank of America and Canara Bank, New Delhi. In this manner, M/s AD-N-STYLE received a total sum of Rs. 3,45,000/- by means of cheques and Rs. 1,20,000/- in cash on account of avts. during the period from Dec., 1995 to Oct., 1996 in her C. A/c No. 10249 with the Fetual Bank Ltd. M/s Shrishti International Pvt. Ltd. managed by Sunil Shakt & Shilpy Shakt as its directors, also received Rs. 4.50 lacs out of the account of M/s Fintra Systems Ltd. for the purchase of 100000 shares of Gurdarshan Leathers Ltd. on behalf of KLP Finance Ltd. (Now Fintra Capital Services Ltd. since Feb, 1996) and 25000 shares of Fintra Capital Services Ltd. on behalf of Fintra Systems Ltd. through M/s Shrishti International Pvt. Ltd. but the shares of Gurdarshan Leathers Ltd. were not got transferred in the name of purchasing company and the major quantity of shares of Fintra Capital Services Ltd. were purchased in the name of Sunil Shakt & Smt. Shiply Shakt, although payments for all these shares were made out of the account No. 1087 of Fintra Systems Ltd. with SBI, Masjid Moth, Phase-II, Greater Kailash, New Delhi.
Further Naresh Tyagi and Alok Mishra, Director and Accountant of Fintra Group of Companies, respectively, received a sum of Rs. 12,00,000/- and Rs. 30,77,619/-, respectively out of the current A/c No. 3258 of Fintra Systems Ltd. with Canara Bank, Lajpat Nagar Branch, New Delhi during the period 30.10.95 to 4.12.96 without any genuine or specific purpose and have been stated to have handed over the cash to Sunil Shakt as the cash could have not been withdrawn by means of ''self'' cheques out of the account of M/s Fintra Systems Ltd. Sunil Shakt also withdraw cash amounting to Rs. 3,80,000/- out of the aforesaid account No. 3258. Furthermore, the said Sunil Shakt spent a huge amount of Rs. 1.24 crores (approx.) for the purchase of shares of various sick companies as detailed below in the names of Fintra Systems Ltd. and Fintra Times by making payments out of the a/c of Fintra Systems Ltd. during the year 1995-96 through M/s Aruna Singhal, proprietor of M/s Hylex Consultants and wife of Harendra Singhal, one of the directors of the Fintra Group of Companies. Sunil Shakt further purchased 1,00,000 shares of Rs. 10/- each face value of another sick company - Gurdarshan Leathers Ltd. @ of Rs. 4.50 per share through Mrs. Shilpy Shakt of M/s Shrishti International Pvt. Ltd. but did not get these shares transferred in the names of M/s Fintra Systems Ltd.
Sl. No. Name of the company Quantity Total value
of which shares purchased (Rs.)
1. Premier Polyfilm Ltd. Illegible Illegible
2. Illegible 11,600 68,115/-
3. Flex Industries 500 Illegible
4. Mahadev Agro Illegible 5,40,480
5. Illegible 800 Illegible
6. Reliance Industries 1,800 3,94,607/-
7. Mahadev Agro 2,000 28,930/-
8. GEEKAY Textiles 7,500 1,13,210/-
9. Flex Industries 500 90,380/-
10. Gurdarshan Leathers Ltd. 100,000 4,50,000/-
Total 1,24,31,931/-
But there is no bank account transactions by means of cheques as per the accounts of Fintra Systems Ltd. with M/s Hylex Consultants for above shares but huge amount of cash were withdrawn from the account of Fintra Systems Ltd. by Sunil Shakt during the relevant period. Also, scrutiny of the accounts held by the said Fintra Systems Ltd. with SBI, Canara Bank and Bank of America reveal that during the period July, 1994 to May, 1996 Sunil Shakt withdrew huge cash amount from the current a/c No. 1087 of the accused company without any expressed purpose and during the same period cash deposit of Rs. 21.54 lacs were made in his personal account No. 11581 with Andhra Bank, Connaught Circus Br., New Delhi out of which Sunil Shakt again withdrew cash by means of ''self'' cheques and also made payments of Rs. 65,000/- to his wife''s brother Deepak Arora by means of cheques No. 942816 dtd. 22.9.94, 942818 dtd. 12.10.94 and 942820 dtd. 13.1.95.
During the course of further enquiry, it has come to notice that during the search of his business office 41,200 shares of Rs. 10/- each face value of Fintra Capital Services Ltd. (formerly KLP Finance Ltd.) in the name of different investors were recovered. It has been further revealed that accused Sunil Shakt had been siphoning off funds of Fintra Systems Ltd. by way of sale and purchase of shares of his other company i.e. Fintra Capital Services Ltd. and few other sick companies, like, Premier Polyfilm Ltd., Path Aluminum, Biax Industries Mahadev Agro, GEEKAY TEXTILES & STEELCO and other companies. The modus-operandi was that he used to buy the shares of KLP Finance Ltd. and make payment to his own company KLP Finance Ltd. (Now Fintra Capital Services Ltd.) through Fintra Systems Ltd. In this manner he used to siphon off the funds deposited by the public at large with Fintra Systems Ltd. and M/s Fintra Centre to KLP Finance Ltd. (formerly Fintra Capital Services Ltd.). Another accused Naresh Tyagi and Harendra Singhal, CA were also hand in gloves with Sunil Shakt and aided and abetted the activities of Sunil Shakt in every possible way to earn undue profit by purchasing huge quantity of shares of the sick companies, which have no value at the moment. Their business was conducted at 9-D, Masjid Moth, Phase-II, G.K. New Delhi and also at 306, Namdhari Chamber, Karol Bagh and by making advts. in the Hindustan Times by M/s AD-N-STYLE through its Prop. Shilpi Shakt for investment in Fintra Systems Ltd. and Fintra Centre to earn interest ranging between 30% to 36% p.a. and in this manner, they lured the small investors to invest their hard earned money in the said companies. Accused persons have also held large quantity of shares of sick companies namely, Premier Polyfilm Ltd., Fintra Capital Services Ltd. and Gurdarshan Leather Ltd. in their possession for giving these shares as security to the investors.
So far Smt. Shilpi Shakt is concerned, it is learnt that she was proprietor of M/s AD-N-STYLE and a Director with her husband Sunil Shakt in M/s Shristhi International Pvt. Ltd. to publish misleading advts. in the Hindustan Times during 1995-96 and other transactions for and on behalf of M/s KLP Finance Ltd. & Fintra Systems Ltd. She is maintaining following bank accounts:
(i) SB A/c No. 34000 with SBI, Lajpat Nagar, New Delhi.
(ii) SB A/c No. 6140 with SBI, Masjid Moth, Ph-II, GK, New Delhi.
(iii) Current A/c No. 10249 in the name of AD-N-STYLE with the Federal Bank Ltd., Greater Kailash-I, New Delhi.
(iv) Current A/c No. 10329 in the name of Shrishti Intll. Pvt. Ltd. with the Federal Bank Ltd., Alaknanda Br., New Delhi of Smt. Shilpi Shakt and her husband, Sunil Shakt as Directors.
It is further revealed that during the enquiry that during 1995-96, the aforesaid M/s AD-N-STYLE had received a sum of Rs. 5,78,467/- from Fintra Systems Ltd. in its bank a/c No. 10248, Smt. Shilpi Shakt in fact acted as an advertising agency for Fintra Systems Ltd. and was designing, marketing and inducing the investors Along with Naresh Tyagi, Director to invest in Fintra Systems Ltd. and Fintra Centre as per the advts. Sunil Shakt and his wife Smt. Shilpi Shakt also established a company in the name of Shrishti Intell. Pvt. Ltd. being the directors but this company did not carry out any business activities but its bank account No. 10329 was credited with a sum of Rs. 5 lacs on 17.2.96 and Rs. 4,50,000/- was paid on account of purchase of 1,00,000 shares of a sick company, namely, Gurdarshan Leathers Ltd. on behalf of KLP Finance Ltd. (now Fintra Capital Services Ltd.) on 24.2.96 and out of the said amount Shilpy Shakt received Rs. 50,000/- as commission for arranging the aforesaid deal.
The enquiry further revealed that most of the transactions relating to shares and establishment of new companies as sister concern of Fintra System Ltd. were conducted through Harendra Singhal, CA who was one of the directors of Fintra Group of Companies most of which were non-functional companies but such firm were instrumental in selling and buying of shares worth crores of rupees for Fintra System Ltd. and Fintra Times through M/s Hylex Consultants Prop. Aruna Singhal w/o Sh. Harendra Singhal R/o J-5/144, Rajouri Garden, New Delhi.
Thus, in the instant case allegations against the accused persons are that they in pursuance of criminal conspiracy allured innocent depositors to deposit money with Fintra Systems Ltd. of which accused Smt. Shakt and Naresh Tyagi were the directors and thereafter the accused persons swelled the hard-earned money of the innocent investors.
...Furthermore, bank account of Fintra Centre (a sister concern of Fintra Systems Ltd.), were managed by the directors, namely, Sunil Shakt and Naresh Tyagi. He was also instrumental in processing and luring the small investors for investments in Fintra Systems Ltd. as well as Fintra Centre. They managed to siphon off funds of crores of rupee of both the said companies. These companies were different only in the name but they were working in the same manner and pattern as a part of deep rooted conspiracy to cheat the public at large as per the few cheques/receipts signed by Naresh Tyagi on behalf of Fintra Systems Ltd. although he claimed to have left this company in Sept., 1991 but these cheques and receipts were issued during subsequent year. Shilpi Shakt, who maintained personal bank account No. 34000 with the SBI, Lajpat Nagar, New Delhi, whereupon scrutiny of the said account opening form indicates the occupation of Shilpi Shakt as house wife but she recovered the total sum of Rs. 11,34,232/- and the huge sums were, lateron, withdrawn in cash and this bank account No. 34000 shows credit balance of Rs. 9,557/- only at the moment. Besides above, Smt. Shilpi Shakt was having a proprietorship firm namely M/s AD-N-STYLE, which maintained a/c No. 10248 with the Federal Bank Ltd. G.K.-II, New Delhi.
Also during the period 1996-97, Shilpi Shakt received a total sum of Rs. 5,73,367/- in her bank a/c No. 10248 which has been withdrawn on different dates and presently only a sum of Rs. 6536 is lying credited in her a/c No. 10248 with the Federal Bank Ltd., Alaknand Br. GK, New Delhi. Further enquiry has revealed that M/s AD-N-STYLE had only one source of income i.e. Fintra Systems Ltd. for which it was acting as an advertising agency and was designing to mislead the small investors by got publishing misleading catchy advts. in the Hindustan Times during 1995-96 and received Rs. 5,78,467/- out of the a/c No. 3258 of M/s Fintra Systems Ltd. Accused Sunil Shakt and Shilpi Shakt also established a company in the name and style of M/s Shrishti Intll. Pvt. Ltd. on 24.8.95 under the directorship of Shilpi Shakt and Sunil Shakt. However, the said M/s Shrishti Intell. Pvt. Ltd. did not carry out any stated business of exports etc. but received a sum of Rs. 5 lacs through Fintra Systems Ltd. on 17.2.96, out of which Rs. 4,50,000/- was paid to Gurdarshan Leathers Ltd. vide cheque No. 492503 dt. 24.2.96 as mentioned earlier and another amount of Rs. 50,000 was withdrawn on 19.2.96 and paid to Navraj Kwatra on 19.2.96 vide cheque dt. 19.2.96 drawn on a/c No. 10329 with Federal Bank Ltd., New Delhi on account of payment for the purchase of Terrace of flat No. S-185, GK-II, New Delhi for the aforesaid property.
In this connection, it is also to be mentioned that Sunil Shakt S/o late R.C. Saxena of M/s Fintra Systems Ltd. entered into an agreement dtd. 21.10.95 with Mr. Jasdeep Singh and Mrs. Savender Kaur, Director and Parmod Lakhanpal, GM of M/s Gurdarshan Leathers Ltd. and handed over 2,00,000/- shares of Rs. 10/- each face value and 5.50 lacks shares of the company were also handed over to Sunil Shakt, MD of M/s Fintra Systems Ltd. as security for the disposal of such shares. However, Sunil Shakt purchased only 1 lakh share of M/s Gurdarshan Leathers Ltd. @ Rs. 4.50/- per share at the relevant time for a total sum of Rs. 4,50,000/- vide cheque No. 492503 dtd. 24.2.96 drawn on the Federal Bank Ltd. A/c No. 10329 and kept the said share certificates with him, but the balance share of Gurdarshan Leathers Ltd. remained possession of Sunil Shakt for which no payment was made to M/s Gurdarshan Leathers Ltd. by Sunil Shakt, MD of M/s Fintra Systems Ltd. and these shares are not in the name of Fintra System Ltd. The above mentioned agreement dtd. 21.10.95 bearing the signatures of Sunil Shakt has been signed by Sunil Shakt and Jasdeep Singh and other directors of the aforesaid Gurdarshan Leathers Ltd. on 21.10.95.
...As regards the immovable properties of M/s Fintra Systems Ltd. Sunil Shakt, Shilpi Shakt, Harendra Singhal, CA, Alok Agarwal, CA, Naresh Tyagi and Wg. Cdr. R.N. Jain all the former and present directors of M/s Fintra Systems Ltd. are shown below:
Sl. Name and address Area Authority under which Cast value paid
No. of the holder held & source of
funds
(Rs.)
1. Sunil Shakt S/o late 830 sq. Sale deed dt. 26.5.95 1,40,000/- out
R.C. Saxena, S-185, ft. by J.S. Suri and of the a/c No.
GK-II, New Delhi Pardeep Kaur 1087 of Fintra
Systems Ltd.
2. Shilpi Shakt W/o -do- Sale deed dt. 26.5.95 1,60,000/- out
Sunil Shakt, R/o of her personal
S-185, G.K.-II, SB a/c No.
New Delhi. 34000
3. -do- Terrace Sale deed dtd. 24.5.96 1,00,000/- out
of 2nd of the personal
floor SB a/c No.
area not 34000
shown
It may not be out of place to mention here that through the advts. Published in The Hindustan Times during the year 1995-96, M/s Fintra Systems Ltd. and M/s Centre having their office at 9-D, Masjid Moth, Phase-II, Greater Kailash, New Delhi and 306, Namdhari Chamber, D.B. Gupta Road, Karol Bagh, New Delhi, respectively, induced the public at large to earn interest @ 36% p.a. by making investments in the said companies. Consequently, the details of investments received by the accused companies during 1995-96 are as under:
A. FINTRA SYSTEMS LTD., 9-D, MASJID MOTH, PHASE-II, GREATER KAILASH, NEW DELHI.
Sl. No. Investment made No. of investors Name of the scheme i) 3,49,11,322 672 Unsecured ii) 1,12,95,000 63 Secured Total Rs. 4,62,06,322 735
B. FINTRA CENTRE, 9-D, MASJID MOTH, PHASE-II, GREATER KAILASH, NEW DELHI & 3306, NAMDHARI CHAMBER, KAROL BAGH, NEW DELHI.
Sl. No. Investment made No. of investors Name of the scheme
(Rs.)
i) 64,98,200 24 Unsecured
Total Rs. 4,62,06,322
1. Thus, the abovenoted two companies collected a total sum of Rs. 5,27,04,522/- (Rs. Five Crores Twenty seven lacs four thousand, five hundred twenty two only) from 759 number of investors during the period 1995-96. Further, upon through scrutiny of the accounts No. 03258 with Canara Bank account No. 1087 with SBI and account No. 120189 with the Bank of America, New Delhi of M/s Fintra Systems Ltd., it is revealed that the said company had made some payments to a few investors during 1995-96 but has misappropriated the remaining amounts due to mismanagement of the affairs of the company as already mentioned hereinabove.
4. From the aforesaid report, the following has emerged:
i) Mr. Sunil Shakt with his friends established Fintra Systems Pvt. Ltd., later re-named as Fintra Systems Ltd.
ii) Mr. Sunil Shakt and his wife Smt. Shilpi Shakt Along with one Mr. Naresh Tyagi established sister concerns of Fintra Systems Ltd. namely, M/s. Fintra Resorts Ltd., M/s. Fintra Agro Foresty Ltd., M/s. Fintra Securities Ltd., M/s. Fintra Financial Services Ltd. and M/s. Srishti International Pvt. Ltd. Mrs. Shilpi Shakt was also a Director of M/s. Fintra Capital Services Ltd. subsequently known as M/s. KLP Finance Ltd. She was also the proprietor of M/s. AD-N-STYLE. Fintra Times was a proprietary of Mr. Sunil Shakt and Fintra Centre was the proprietary of Mr. Naresh Tyagi. Mr. Sunil Shakt and Mrs. Shilpi Shakt were the Directors of M/s Srishti International Pvt. Ltd.
iii) Fintra Systems Ltd and Fintra Capital Services Ltd., its sister concern collected sum in excess of Rs. 5.27 crores from over 750 unsuspecting investors and it made payment to only a few investors during 1995-96 but most of these funds were misappropriated by Mr. Sunil Shakt and his wife Mrs. Shilpi Shakt.
iv) The aforesaid entities invited investment from the public on assurance of unusually high returns of 30% and 36% per annum.
v) All the advertisements to attract investments by M/s Fintra Systems Ltd. were issued through M/s. AD-N-STYLE proprietary of Mrs. Shilpi Shakt and all the payment to AD-N-STYLE were made from the account of M/s. Fintra Systems Ltd., amounting to Rs. 3.45 lacs by cheque and Rs. 1.25 lakhs in cash between the period December 1995 to October 1996.
vi) Rs. 5 lakhs was siphoned out of the account of the Company in liquidation by transfer to M/s. Srishti International Pvt.Ltd., managed by Mr. Sunil Shakt and Mrs.Shilpi Shakt. This company did not carry out any business. These funds are stated to have been provided for purchase of one lac shares of Gurdarshan Leathers Ltd. on behalf of KLP Finance Ltd and 25000 shares of Fintra Capital Services Ltd on behalf of Fintra Systems Ltd. However, the shares of Gurdarshan Leathers Ltd were not transferred in the name of purchasing Company, and major quantity of shares of Fintra Capital Services Ltd were purchased in the name of Mr. Sunil Shakt and Mrs.Shilpi Shakt, although payment was made on behalf of Company in liquidation. Rs. 50,000/- was paid to Mrs. Shilpi Shakt as commission for arranging the aforesaid deal. This amount of Rs. 50,000/- was withdrawn in cash on 19.2.1996 to be paid to Navraj Kwatra on 19.2.1996 on account of the payment for purchase of terrace of flat No. S-185, Greater Kailash, Part II, New Delhi. Thus, the funds of the Company in liquidation were channeled for the purpose of purchasing the aforesaid property in the name of Mr. Sunil Shakt and Mrs.Shilpi Shakt. Mr. Sunil Shakt and his wife Mrs. Shilpi Shakt were the direct beneficiaries at the expense of funds of the Company in liquidation.
vii) Funds to the tune of Rs. 46.5 lakhs was transferred from the Company in liquidation into the accounts of Naresh Tyagi and Anoop Misra, Accountant of Fintra Group of Companies on the ground that they handed over cash to Sunil Shakt of the equivalent amount. In the year 1995-96, Rs. 1.24 crores of the Company in liquidation was spent by Sunil Shakt for purchase of shares of various Sick Companies. However, these shares were not transferred in the name of Company in liquidation. Thus, Rs. 1.74 crores was siphoned off by Mr. Sunil Shakt in this process without any accounting of the same.
viii) Mrs. Shilpi Shakt in her bank account opening form disclosed that she is a housewife. She received a sum of Rs. 11,34,232/- from inter-alia, the Company in liquidation which she withdrew in cash. In the year 1996-97, she received a total sum of Rs. 73,367, which she also withdrew on different dates. Pertinently, M/s. AD-N-STYLE had only one source of income, namely M/s. Fintra Systems Ltd.
ix) Thus, the funds of Fintra Systems Ltd. were siphoned of to promote the business of their sister concerns and also to dole out huge amount of commission in the name of the proprietary concern of M/s. Shilpi Shakt wife of Shri Sunil Shakt.
5. The learned Amicus Curiae submits that the assets of the Directors, including, the property situated at second floor, and the terrace above the second floor at S-185, Greater Kailash-II, New Delhi, clearly appears to have been bought by Sh. Sunil Shakt and his wife Smt. Shilpi Shakt from the funds siphoned off by them, and the same should be directed to be sold and the proceeds distributed amongst the investors. He argues that u/s 542 of the Companies Act, all that is required is that it should "appear" to the Court in the course of the winding up proceedings, that the business of the company has been carried out by the Directors with the intent of defrauding the creditors of the company. If this condition is satisfied, the Court could, on an application of the official liquidator, or the liquidator or any creditor or contributory of the company declare that any persons, who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible without any limitation of liability for any of the debts or other liabilities of the company, as the Court may direct. He submits that normally it would have been the official liquidator, or the liquidator appointed by the court, who would be expected to carry out the investigation and bring the relevant material before the Court for initiating action u/s 542. However, in this case, that task was entrusted to CBI, which is a specialized investigating agency. He submits that the reports filed by the CBI can, Therefore, form the basis of an action u/s 542. He further submits that for the purpose of Section 542 what is required is the formation of an opinion which is inferential, since the expression "it appears" has been used in the Section, regarding the conduct of the Directors being fraudulent qua the creditors of the company.
6. He further submits that these reports of the CBI have been on record since the year 2000. In fact the ex-Director Mr. Sunil Shakt had even sought time on 07.09.2000 to study the reports and to make his submissions. He further submits that these findings mentioned in the reports have not been specifically controverter by Mr. Sunil Shakt till date. Therefore, the Court can proceed to act u/s 542 of the Act and sell the aforesaid property to settle the dues of the creditors/depositors of the company. He also submits that to draw an inference of fraud, it is not necessary that each fraudulent transaction has to be established from beginning to end and it would be sufficient if the fraud is apparent from a general trend of transactions undertaken by the concerned parties.
7. On the other hand, Mr. Arun Srivastava, at the outset submits that he appears only for Mr. Sunil Shakt and not for his wife Mrs. Shipli Shakt, even though Mr. Sunil Shakt and Mrs. Shilpi Shakt are husband and wife. Nothing has been brought on record to show that they are not living together as husband and wife. In my view, their endeavor appears to be only to avoid the process of the Court and oppose the consideration of this application on hyper technical grounds. I, Therefore, reject the argument of Mr. Srivastva that the interest of Smt. Shilpi Shakt is not represented in these proceedings, and so no order should be passed on this application. Her husband Shri Sunil Shakt has represented her interest, and, as a matter of fact, Mr. Arun Srivastava has, during the course of his arguments, represented the cause of Smt. Shilpi Shakt as well. Therefore, I proceed to consider this application.
8. The submission of Mr. Srivastava is that the reports of the CBI have been controverter by way of reply filed to the application. He further submits that some of the applicants have, in fact, been paid off the amounts due to them, while in respect of some others, they were given shares of the company as security, and merely because the share values have in the meantime gone down, the applicants cannot raise a claim for return of their investments. The further submission of Mr. Srivastava is that there is already a restraint order passed by this Court in respect of the aforesaid immovable property of Mr. Sunil Shakt and his wife and no further orders are called for at this stage. He further submits that no evidence has been led in terms of Section 542 to arrive at a finding, or make a declaration that his client, and his wife have defrauded the creditors of the company.
9. Mr. S.K. Luthra, who appears for the official liquidator, has suggested a middle path. He submits that the aforesaid property should be directed to be attached at this stage, and the sale of the property could be considered after the parties have led their evidence, and in case the Court ultimately comes to the conclusion that the Directors have defrauded the creditors.
10. Having considered the respective submissions I am, as at present advised, inclined to agree with the submissions of Mr. Rajiv Shakdher, Sr. Advocate the learned Amicus Curiae. Keeping in view the purpose for which Section 542 has been enacted, and the fact that timely action is of the essence, not only to prevent the presentation of a fiat accompli by the fraudulent Directors of the company, but also to provide relief to the victims of the fraud, it seems that the establishment of the fraudulent conduct for attracting the provision of Section 542 of the Companies Act does not require the same standard of proof as in a criminal trial and the rigours of the law of evidence as apply to a criminal trial would not apply to establish the commission of fraudulent acts and omissions by the Directors and managers of a company. It has also to be kept in mind that by its very nature, fraud is not easy to establish. This is even more so, when the fraudulent conduct is undertaken by the Directors of a company, sitting in their own office, with a view to defraud the creditors/investors who, though the victim of the fraud, are not involved in the transactions which constitute such conduct, and may have no personal knowledge of the same. In
11. I also find merit in the submission of Mr. Shakdher that it is not necessary that each transaction/instance of funds being siphoned or fraudulent conduct needs to be established from the beginning to the end to invoke Section 542 of the Act. That is because it would be reasonable to assume, that directors/managers who are shown to have indulged in even a single act of fraud in the discharge of their duties towards the company, its shareholders and creditors, would have generally resorted to such conduct. Traits of greed and dishonesty amongst men are known to manifest whenever the opportunity presents itself. This is even more true, when such conduct is displayed by the relatively affluent members of society, as their conduct is not driven by their need or undertaken in desperation. The pattern that emerges from the conduct of Mr. & Mrs. Shakt shows that their actions were focused on collecting funds in the company from the public by promising huge returns, and then siphoning them out in one way or another. That seems to have been the true "business activity" of the promoter Directors and managers of the company. No other business appears to have been conducted by the company with a view to earn profits for the company, its shareholders and creditors. In the aforesaid process, the entity of the company has been misused and exploited.
12. From the aforesaid reports of the CBI, prima facie it appears to me that this is a fit case for holding the directors of the company in liquidation personally liable, without any limitation of liability. Section 542 is an exception to the general rule that in a limited liability company, the liability of the shareholders and directors is limited. The purpose and object of Section 542 is to catch up with the fraudulent directors and other persons responsible for defrauding the creditors and shareholders of the company, who deliberately conduct the affairs of the company in a manner as to rob the company of its resources and allow it to bleed. Conduct, which does not appear to be bona fide or innocent, or a mere judgmental error, but which personally enriches the Directors/managers of the company directly or indirectly at the expense of the company, permits the Courts to take away the protective shield that the directors/manager enjoy under the law. The shield of corporate entity with limited liability of the shareholders/Directors, provided by the law is not meant to protect fraudsters. They cannot be permitted to defraud the shareholders and the public through the instrumentality of a corporate entity with limited liability, and then mock at their shareholders and creditors and the Courts, and seek to protect themselves behind the veil of the Corporate Entity. The law is not toothless, but empowers the Courts with authority to deal with such situations.
13. At the same time, it is equally true that no one can be condemned unheard. The language of Section 542 itself shows that an opportunity has to be given to the concerned persons to lead evidence in support of their case. The Director Sh. Sunil Shakt and his wife appear to have derived the funds for the purchase of the property directly or indirectly from the business of the company in liquidation. The funds of the company appear to have been siphoned off with the intent to defraud the creditors. The Directors of the Company would have known that the withdrawal of the funds from the account of the company in liquidation, inter alia, for the benefit of the Directors will result in the creditors being denied not only the handsome returns on their investments as promised, but also put in jeopardy the principal amounts invested by them. From the CBI reports, it appears that the action of the Directors of the Company in liquidation cannot be said to have been undertaken for the purpose of running the business of the company to generate income for the company sufficient to meet its expenses and fulfill its undertaken obligations towards the investors/creditors. In A Company Re (No. 001418 of 1988), 1991 BCLC 197 as reported in Guide to the Companies Act, by A. Ramaiya, 16th Edition 2004, "A Director found to have been a knowing party to the carrying on of the company''s business with the intent of defrauding creditors was ordered to pay � 156,428 for its debts and liabilities. The company had exceeded its overdraft limits and had fallen behind with paying tax dues and trade creditors but continued to pay huge sums as remuneration to its managing director who was majority shareholder. The company went into liquidation. The liquidator sought to hold the director liable for fraudulent trading. It was held that the managing director was knowingly a party to the carrying on of the company''s business with intent to defraud its creditors and there was real moral blame in procuring the company''s continued trading when there was no reason for thinking that it could pay its debts as they fell due. The amount decreed represented the extent to which the creditors were defrauded and punitive element."
14. Mr. Srivastava argues that so far as the wife Mrs. Shilpi Shakt is concerned, she purchased her share in the said property from her own funds and not from the funds of the company. However, from the report of the CBI, it is seen that she was the recipient of huge amounts of commission from the company in liquidation. Apart from that, as above extracted, she was the recipient with her husband, of shares bought from the funds of the company in liquidation. These commissions appear to have been paid as a part of a design to siphon out the funds of the company in liquidation and was a device to hoodwink the investors/creditors.
15. I, Therefore, direct the official liquidator to forthwith attach the property i.e. second floor and terrace above it, of property No. S-185, Greater Kailash-II, New Delhi. I further direct the SHO of the concerned police station to render all assistance required by the official liquidator in the attachment of the property. I further direct that the evidence in relation to this application be recorded by the Registrar (Companies), and the report be sent to this Court as expeditiously as possible. The applicants may file their affidavits by way of evidence before the Registrar (Companies) within six weeks. The official liquidator shall also place the material available with it on record with an affidavit. For this purpose, the official liquidator is directed to collect the documents, on the basis of which the reports have been prepared by the CBI, and the same be filed in this Court. Copies of the affidavit/documents be exchanged between the parties including Mr. Sunil Shakt and Mrs. Shilpi Shakt Shakh through his/their counsel. The official liquidator shall file the affidavit after obtaining the copies within nine weeks. Mr. Shakt may respond to the evidence produced by the applicants and the official liquidator by filing an affidavit by way of evidence within four weeks, thereafter. It shall be open to Mrs. Shilpi Shakt as well to lead her evidence, in case she so desires.
16. List before Registrar (Companies) for recording of evidence on 07.07.2008.
C.A. No. 294/2007
Issue notice to the ex-Directors except Mr. Sunil Shakt returnable on 21.07.2008. Notice be served by the official liquidator.
C.A. Nos. 1069/2007 and 92/2008
By these applications Mr. Rajiv Kumar Gupta seeks leave of the Court to continue with the various proceedings lodged by him against Mr. Sunil Shakt before the Consumer Court, the Civil Court and the complaints u/s 138 of the Negotiable Instruments Act, in the criminal Courts. The applicant was required to file details of the pending proceedings, which have been filed in C.A. No. 92/2008. Considering the fact that the applicant is an investor in the company in liquidation and, prima facie, it appears that the ex-Directors of the company have siphoned off the funds of the company, I am inclined to allow these applications. The applicant is, Therefore, permitted to continue with the legal proceedings filed against the company as well as the ex-Directors, details whereof are contained in annexure to C.A. No. 92/2008. Case stand disposed of.
C.A. No. 869/2006
In view of the orders passed in this case today, this application does not survive. Dismissed.
