Registrar of Companies vs M/s Sunny Cast and Forge Pvt. Ltd

Justice Anant Bijay Singh;

The instant Appeal was heard together with Company Appeal (AT) Nos. 105, 106, 115, 116, 117 and 202 of 2020.

Company Appeal (AT) No. 203 of 2020, in this Appeal, the Appellant has challenged the legality of the impugned order dated 27.02.2020 passed by the National Company Law Tribunal, New Delhi Bench in CP No. 232/271/272/ND/2018  whereby  the  winding  up  petition  filed  against  the Respondent company was dismissed with following orders:

“14. In view of the discussion made above, the petition is dismissed on three counts, which are as follows;

(i) That there is no compliance with the second proviso to sub-Section 930 of Section 272 of the Companies Act, 2013;

(ii) That there is no specific allegation against the Respondent Company and the single transaction mentioned in the SFIO Report pertains to the past, which is concluded; and

(iii) The Company is being run by new Management as a going concern, which is making all the compliances with the provisions of the Companies Act, 2013 as well as the Income Tax Act, 1961 and filing the returns regularly.

In the light of the above, interim order, if any, is vacated. All other connected CAs stand dismissed. However, there is no order as to cost.

The order is pronounced in open court.”

The facts giving rise to this Appeal are as follows:

i) The Appellant filed a winding up petition being CP No. 232/271-272/ND/2018 against M/s Sunny Cast and Forge Pvt. Ltd. (Respondent herein)  before the NCLT, New Delhi on the basis of the SFIO Report dated 31.03.2016 after fulfilling all the legal requirements and with the permissions of the Central Govt. and prayed for the winding up of the Respondent Company by invoking the provisions contained in Sections 271 and 272 of the Companies Act, 2013. The Ministry of Corporate Affairs, Govt. of India had ordered investigation into the affairs M/s NKS Holdings and its 10 others group companies by SFIO. During the investigation by SFIO, it was found that there were 49 companies including the Respondent Company which were being controlled by S.K. Jain and Virendra Jain (referred as ‘Jain Brothers’ in SFIO Report) and they were involved in money laundering activities by subscribing to the share capital of many beneficiaries during 2009-10.

ii) Further case is that a joint petition bearing CP No. 127/2012 had been filed in the Hon’ble High Court of Delhi on 29.02.2012 under Sections 391/394 of the Companies Act, 1956 for a scheme of amalgamation of NKS Holdings Private Limited, a private company and Shri Niwas Leasing & Finance Limited (SNLFL), a public listed company listed with the Delhi Stock Exchange.

iii) The  Registrar  of  Companies  (RoC),  Delhi  objected  to  the  scheme  of amalgamation inter alia on the grounds:-

a. That NKS, the transferor company had received subscription to its share of face value of Rs. 10/- per share at a premium of Rs. 90/- per share from 3 companies and against the total subscription of Rs. 1028 crore, one crore shares were allotted to 3 companies on 26.03.2011, just five days before the end of financial year;

b. That the entire share subscription received by NKS was further invested immediately in the following companies-

LIPL Rs. 287.19 crore

MDPL Rs. 366.41 crore

USPL Rs. 336.70 crore

c. NKS had not done any significant activity barring the share capital infusion and consequent investment. NKS does not have any fixed assets as per the balance sheet for the period ending on 31.03.2011 and has recorded a loss to the tune of Rs. 8.41 lakhs but still commanding huge share premium.

d. There appears to be circular flow of money to the tune of Rs. 1000 crore each amongst the following set of companies:-

• Sital Holdings Private Limited (earlier known as Quality Cyber Tech Private Limited) (SHPL).

• Avil Financial Services Limited (AFSL)

• Carewell Exim Private Limited (CEPL)

• Solomon Holdings Private Limited (SOHPL)

• Legend Infoways Private Limited (LIPL)

• Microland Developers Private Limited (MDPL)

• Utsav Securities Private Limited (USPL)

• Aquarius Fincap & Credits Private Limited (AFCPL)

• Shalini Holdings Limited (SHOL)

e. Identities of the persons who are behind the whole trail of investments/web of cross investments in various companies could not be found out.

f. All the companies and persons involved appear to be working in concert to create share capital, share application money, share premium and reserves and surplus in these companies just by creating accounting entries and circular transactions. Accounting entries thus created, are sought to be wrapped/adjusted by way of scheme of amalgamation.

g. The allotment of large number of shares on a hefty premium without any justifiable business seems to be deliberate attempt to avoid payment of fees to the govt. exchequer under schedule X on increase in paid up share capital and authorized share capital.

h. The transferee company is a listed company and out of the total 720 shareholders, 83% are individuals and the remaining 17% are body corporates. The scheme of amalgamation would result in drastic fall in individual shareholding and adversely affect the vital public interest.

iv) The  Ministry  of  Corporate  Affairs,  Govt.  of  India  vide  order  F.  No. 04/181/2013-CL.II (NR) dated 28.10.2013 in exercise of its powers under Section 235 of the Companies Act, 1956, ordered an investigation into the affairs of the NKS Holding Private Limited and its 10 others related companies by Serious Fraud Investigation Office (SFIO), based on the recommendation of the Registrar of Companies, NCT of Delhi and Haryana under Section 234(6) of the Companies Act, 1956.

v) On the basis of the order of MCA and technical security/RoC report under Section 234(6), the following issues were identified for detailed investigation while looking into the affairs of the companies under investigations:-

a. To ascertain the nature of business of the companies under investigation and their modus operandi;

b. To examine the nature of the web of transactions between a set of companies resulting in creation of credits in bank account and use of such credits to subscribes the share capital, reserve and surplus and consequent investment worth Rs. 1000 crore in each of these companies.

c. To analyze the scheme of amalgamation by NKS and SNLFL and examine the scheme is prejudicial in the interest of its member or the public interest.

vi) The SFIO started investigation with the collection of reports from the RoC. The relevant documents such as MOA, AOA, Form 2, Form 20B, Form 32, Annual returns, Form 23 AC, Form 23 ACA maintained in MCA 21 portal, pertaining to SNLFL and NKS and other 9 companies under investigation were downloaded and analyzed. The SFIO team visited the registered office of the most of the companies and collected the documents. During investigation into the affairs of the companies, SFIO team learnt that RBI had conducted inspection in some of the Company under Investigation (CUI) and observed that most of these companies including the Respondent company were carrying on Non-bank Financial Institution (NBFI) kind of activities without obtaining valid Certificate of Registration. SFIO also learnt that the Income Tax Department had conducted search and seizure operations at the business premises of some of the companies under investigation including the residential premises of S.K. Jain & Virendra Jain (Jain Brothers). Numerous incriminating documents were seized by the ITD and assessment proceedings have since been completed on the basis of these documents and post search investigations. ITD has recorded findings that Jain Brothers had been functioning as accommodation entry operators with/through 49 companies/entities under their control. The Investigation revealed that Jain Brothers were the ‘Directing mind and will’ behind the functioning of all 49 companies including the Respondent herein. The observation made during the investigation are summarized as under to substantiate the above statement:-

a) The primary records in the form of daily cash books and mediator ledgers for the period from January 2005 to August 2010 seized by the ITD, have been validated by the SFIO team through the bank statements of the concerned companies. The meticulous record keeping reveals that cash book were maintained by Jain brothers in a unified manner for all the entities under their control. The opening/closing balances shown in the cash books reflect joint opening/closing balance for the entire set of entities. The unified record keeping system has also established the nature of business conducted by Jain Brothers, which could be carried out only with the combined efforts made thorough all the entities.

b) The consolidated account keeping revealed the fact that this particular business cannot be conducted by separate entity independently but requires the simultaneous assistance of a multiple entities working in unison, to launder money through the process of placement of funds, layering of transactions and the final integration of laundered money into the banking channel camouflaged as legitimate transactions.

c) Cash/funds brought in by the mediators on behalf of the beneficiaries, details of entries given to various entities through the mediators, running accounts of the mediators the separate ledgers in their names, clearly indicate the role played by the professionals as mediators. The real nature of entries given.

d) The Investigating team examined one of the cases of money laundering to find out how the Jain Brothers gave affect to the whole transaction. Accordingly, the case of M/s. Jagat Project Limited was taken as the lead and representative case to examine the modus operandi on the Jain Brothers which had running account of Sh. Rajesh Aggarwal in the cash of Jain Brothers along with the ledger account in his name pertaining to Jagat Projects, reflects regular inflow of cash before entries of share subscription made by USPL, SHL and SOHPL.

e) Record of calculation of commission on the basis of entries of share subscription and receipt of the same by Jain Brothers, in the cash book and ledger accounts maintained by them.

f) Reverse money trail preceding subscription of shares in Jagat Projects Ltd. through banking channel by USPL, SHL and SOHPL clearly showed that the three stages of money laundering: placement of cash, layering of transactions and integration into the bank accounts of the beneficiary.

g) Money trail showed that cash was initially deposited with six entities Ram Trading, Bee Dee Enterprises and four entities controlled by Jain Brothers: Tirupati Fabrics, Erode Clothing Empire, Roshan Lal Lalit Kumar & Co and Chhagan Lal Mukesh Kumar & Co. Subsquently funds were transferred to Tulika Securities Pvt. Ltd. (TSPL) by cheque, which was further transferred to SHL, USPL and SOHPL. From these three entities controlled by Jain Brothers funds were transferred to Jagat Projects Ltd. as share subscription.

h) Documents pertaining to the subscription of shares in Jagat Projects by entities controlled by Jain Brothers were found from the residence of Sh. Satisw Pawa, director, Jagat Projects Ltd. during search by the ITD.

i) Call records in the custody of ITD and reported in the assessment order of Jian Brothers and Jagat Projects Ltd. show regular conversation between Rajesh Aggarwal & S.K. Jain, Ravinder Goel & Rajesh Aggarwal and Sant Lal Aggarwal & Rajesh Aggarwal, though these persons have denied to have been in touch with each other.

j) Admission made by Rajesh Aggarwal during search at his residence by the ITD on 18.01.2011 regarding role played by him in mediating transactions between Jagat Projects Ltd. and Jain Brothers at the behest of Ravinder Goel.

k) Within a short span of time, the share allotted to SHL, USPL & Sohpl were bought back by relatives and associates of Directors of Jagat Projects Ltd. at heavily discounted price, completing the full cycle of regaining control over the company from outside entities.

l) Though the modus operandi is explained with these specific cases as per the specific leads received form the income tax proceedings, the same are also true for all other beneficiaries and mediators, the transaction details of which are recorded in the primary records seized by the ITD.

vii) The Modus-Operandi of M/s NKS Holdings Limited have been detailed in the investigation report of the SFIO from Para No. 4.1.20 to 4.1.30 explaining how the Jain Brothers have been rotating the money through their shell companies and were actively involved in money laundering. All the 49 companies including the Respondent company were utilized for rotating money through book entries without having any purposeful business. The contents of the Modus-Operandi explained in the investigation report with regard to investment made in the Jagat Projects Pvt. Ltd. are not repeated here for the sake on brevity. The statement of Shri Surendra Kumar Jain recorded on 17.04.2014 during investigation reveals that he has accepted the utilization of all the 49 companies for rotation of money by providing accommodation entries to various parties. The said statement clearly shows Shri Jain was mastermind behind all the transaction carried out among all the 49 shell companies giving effect to his object laundering of unaccounted cash to various business through placement of funds, layering of transactions though many entities and then integration of the same back into the business of the beneficiaries by way of subscriptions to shares at huge premium.

viii) After investigation of the NKS Holdings Private Limited and other group companies, SFIO arrived at the conclusion that 49 shell companies of Jain Brothers including the Respondent company were involved in providing accommodation entries to various beneficiaries and recommended for winding up the said companies to prevent any further money laundering activities committed by such companies and submitted its Report dated 31.03.2016. The Ministry of Corporate Affairs obtained the opinion of the Ministry of Law & Justice on the winding up of 49 shell companies. The Ministry of Law Justice had opined that 49 shell companies controlled by Jain Brothers were involved in providing accommodation entries to various beneficiary companies and it was agreed that the administrative Ministry may file the petition for winding up of shell companies before the NCLT.

ix) Based on these other averments, the Appellant preferred petition being CP No. 232/271-272/ND/2018 before the NCLT with following reliefs:-

a. Issue/pass necessary directions/orders for winding up of M/s Sunny Cast and Forge Private Limited in the public interest.

b. Appoint Liquidator for taking over the assets of the Respondent company.

c. Issue directions to the directors of the Respondent Companies to file statement of affairs showing the assets and liabilities with the Liquidator appointed by the Hon’ble Tribunal.

d. Direct the respondents to maintain status quo in respect of the properties of the company and the respondent company be prohibited from dealing with the funds of the company except with the prior permission of this Hon’ble Tribunal.

e. Restrain the respondent company from dealing and transacting in any manner, whatsoever with the movable and/or immovable assets of the company and its Bank Accounts.

After hearing the parties, the Tribunal dismissed the aforesaid winding up petition and passed orders (supra). Hence this Appeal.

The Ld. Counsel for the Appellant during the course of argument relied on the grounds mentioned in the memo of Appeal and also written submissions filed in Company Appeal (AT) No. 105 of 2020 which has been adopted in this Appeal and submitted that the impugned order dated 27.02.2020 passed by the Tribunal is illegal, unreasonable and against the well settled principles of law. The Tribunal has also failed to appreciate that a company which has a high premium in its books of accounts brought in by the Jain Brothers which still existed and carried forward is one of the traits of a shell company. The Respondent company is having a very dark past and its involvement in money laundering activity is above board. A bare perusal of the balance sheet of the Respondent company reveals that during the period 2008-09, 2009-10, 2010-11, the Respondent company was not having sufficient income to impress upon the general public to purchase its shares at a high premium. A group of companies controlled by Jain Brothers namely Shri S.K. Jain and Shri Virendra Jain in connivance with one another hatched a criminal conspiracy and started purchasing the shares of beneficiary companies at a high premium to enable them to convert their black money into legitimate money for taking the commission giving accommodation entries.

It is further submitted that the Respondent Company is a body corporate and it never dies with the change of the management. In the present case, it appears that the management of the Respondent company got changed but the revenue and the surplus amount which reflects in the balance sheet of company is outcome of the fraud and illegal activities. The SFIO was appointed for investigation of some of the companies of Jain Brothers who are mastermind of the all the organized crime of money laundering activities. In the year 2012, an amalgamation petition was filed in the High Court of Delhi at New Delhi and the objection of the Registrar of Companies was called for. The Registrar of Companies submitted its objection and the involvement of those companies in the money laundering activities came into the light. Resultantly, SFIO was appointed for conducting the investigation. During the course of investigation of certain companies, it revealed that the Respondent company was also one of those companies which were being controlled by Jain Brothers for committing the organized crime of money laundering. The SFIO submitted its report on 31.03.2016 and gave its recommendation for initiating winding up petition against all those 49 companies which were found involved in the crime.

It is further submitted that the letter dated 29.08.2017 is the letter of sanction to the Registrar of Companies and it was issued after due discussion, deliberation and application of minds. However, the letter has been addressed to the Director, SFIO and a copy thereof has been sent to the petitioner but the perusal of the letter dated 29.08.2017 reveals that the purpose of addressing the Director, SFIO was only to request him to assist the ROC to file the winding up petition be deputing the concerned IO who had conducted the investigation. Further, there is no any prescribed format for granting sanction in a particular manner. The word sanction means official permission. In the present case, petitioner has not filed a winding up petition against the Respondent company without the permission of the Central Govt. The letter dated 29.08.2017 which is, in fact, a sanction letter has been issue dafter considering the notices and replies from the Respondent company. Since there is nothing in the reply of the Respondent except the request for the copy of the SFIO report, therefore, it was not considered necessary to give personal hearing to the Respondent company.

It is further submitted that the Tribunal unreasonably considered those points while passing the impugned order which should not have taken into consideration as per law. The Tribunal mentioned in the order that the criminal prosecution has not culminated in holding the Respondent company guilty or for that reason, even ordained conviction of the Jain Bros. It was further mentioned in the order that the management of the company has changed hands in 2013 and there is no controversy with respect to the present business and its present business under a different management is a flourishing legal one. These facts are factually and legally incorrect. The existence of a company is perpetual and not dependent upon its shareholders and changed management. Even if the Respondent is having a flourishing business, it does not mean that illegal acts committed by the Respondent in the past would be forgotten that too when the Respondent is still enjoying the amount wrongfully gained.

It is further submitted that the winding up petition was dismissed without examining and going into the details to know as to how Shri S.K. Jain entered into the company and transferred the accommodation entries to the current management. It is also an erroneous decision that Shri Surendra Jain was a director for a short period of time. It is submitted that, to control a company, a person need not be its director but it can be controlled as a shareholder holding shares through corporate entities. As has been the modus operandi of Jain brothers, 49 group companies including the Respondent company were being controlled by Jain brothers. Presently as shown above, Jain brothers are indirectly holding influence in the company. Further, the Tribunal failed to take a holistic view of the facts presented before it regarding 5the money laundering activity carried out by the group companies promoted by Jain brothers and its adverse impact on the exchequer as well as on the economy. This order of the Tribunal will embolden the accommodation entry operators and purchasers of such accommodation entries like the present management in carrying out such activities in further also. Based on above submissions the impugned order is fit to be set aside and the Appeal be allowed.

The Ld. Counsel for the Respondent during the course of argument and in his reply affidavit along with written submissions submitted that the Tribunal vide order dated 27.02.2020 dismissed the petition on both grounds lack of sanction as well as on merit. The Tribunal held that facts of this case are identical to the case which was dismissed by this Bench vide order dated 18.01.2019 in the case of “Registrar of Companies Vs. Apoorva Leasing Finance & Investment Company Limited” and is now upheld by this Appellate Tribunal comprising of Hon’ble three Member Bench in Company Appeal (AT) No. 88 of 2019 vide order dated 04.12.2019 which read hereunder:

“15. This sanction order does not contain what are the allegations against the Respondent No.1 company and to substantiate the allegations what documents were placed before him. It is also not mentioned that before according sanction the company has been given reasonable opportunity of making representations. It is also not mentioned that the sanctioning authority prima facie satisfied with the allegations against the Respondent No.1 company. In this regard it is useful to cite the judgement of Punjab & Haryana High Court in the case of ROC Vs Suraj Bachat Yojna Pvt Ltd and Others 1973 (43) Comp Case 343. Though this case was under the old Act, 1956 but in substance the provisions of the new Act, 2013 are same.

“5.xxxxx The legislature enacted a safeguard for the companies not to be harassed by frivolous or doubtful-of-success petitions for its winding-up by the Registrar in Section 439(6) of the Act by enjoining on the Central Government not to accord its sanction to the Registrar u/s 439(5) unless an opportunity is afforded to the company of making representations, if any. The delegate of the Central Government while according sanction, has a solemn duty to perform of informing himself about the true position of the company in the light of the explanations made by it. The explanations have to be considered with a judicial mind and outlook and are not to be discarded off-hand unless considered to be flimsy, fallacious or frivolous. It is not a mere formality to receive the explanations from the company and dismiss them as unsatisfactory without getting the doubts cleared. Xxxxx”

It is apparent that without giving reasonable opportunity of representation to Respondent No.1 the sanction has been granted that too without applying the mind thus we find no ground to interfere in the order passed by the NCLT. The appeal is dismissed. No order as to cost.”

It is further submitted that the aforesaid decision of the Hon’ble NCLAT was challenged before the Hon’ble Supreme Court in “Civil Appeal vide Diary No. 14952 of 2020 (Union of India Vs. Apoorva Leasing Finance and Investment Co Ltd. and Another)” wherein the Hon’ble Supreme Court vide order dated 29.01.2021 passed the following orders:

“1. The appeal under Section 423 of the Companies Act 2013 is filed with a delay of 166 days.

Under the provisions of Section 423, this Court is empowered to condone a delay (beyond the original period of limitation of 60 days) only to the extent of a further period of 60 days. Hence, since the appeal has been filed beyond the maximum period that can be condoned under the proviso to Section 423, the appeal cannot be entertained and is accordingly dismissed on the ground of limitation.

However, since we have not entered upon the merits of the controversy, it only needs to be clarified that the order of the NCLAT, which had come to the conclusion that there was a violation of the principles of natural justice in adhering to the provisions of Section 272(4) of the Companies Act 2013, will not come in the way of the appellant taking recourse to the remedies available in law after following due process.

Pending applications, if any, stand disposed of.”

It is further submitted that in view of the fact that the Hon’ble three Member  Bench  of  this  Appellate  Tribunal  have  dismissed  the  Appeal  i.e. Company Appeal (AT) No. 88 of 2019 and the case of the Respondent is fully covered by this Judgment which have attained finality as the Civil Appeal has also been dismissed by the Hon’ble Supreme Court, therefore, there is no merit in the Appeal, the instant Appeal may be dismissed.

After hearing the parties and going through the pleadings made on behalf of the parties and also the Judgment passed by Hon’ble three Member Bench of this Tribunal in the case of “Registrar of Companies Vs. Apoorva Leasing Finance & Investment Company Limited [Company Appeal (AT) No. 88 of 2019] dated 04.12.2019” which has attained finality as the Civil Appeal has also been dismissed by the Hon’ble Supreme Court in “Civil Appeal Diary No. 14952 of 2020 (Union of India Vs. Apoorva Leasing Finance and Investment Co Ltd. and Another)”, we find that facts of the instant Appeal are same and identical to the case which was dismissed by this Appellate Tribunal vide order dated 04.12.2019 in the case of “Registrar of Companies Vs. Apoorva Leasing Finance & Investment Company Limited and Another”. Therefore, we are of the view that there is no merit in the Appeal, the instant Appeal is hereby dismissed.

Registry to upload the Judgment on the website of this Appellate Tribunal and send the copy of this Judgment to the National Company Law Tribunal, New Delhi Bench, forthwith.