Supreme Court of India
HARI SANKARANversusUNION OF INDIA & OTHERS
- Citation
- 2019 INSC 691
- Decided
- 4 June 2019
- Disposal
- Dismissed
- Bench
- INDU MALHOTRA
Holding
The Tribunal’s order under Section 130 is valid as the mismanagement condition was satisfied and procedural requirements, including notice and hearing, were complied with.
Summary
The Central Government, alleging mismanagement and public‑interest prejudice in IL&FS and its group companies, obtained an order from the National Company Law Tribunal (NCLT) suspending the existing board and appointing a new one under Sections 241 and 242 of the Companies Act. Subsequently, the Government applied under Section 130 for the reopening of accounts and recasting of financial statements for the last five years, which the Tribunal approved after considering reports from the Serious Fraud Investigation Office, the ICAI and the Registrar of Companies. The appellant, a suspended director of IL&FS, challenged the Section 130 order on the grounds that the statutory conditions (fraudulent accounts or mismanagement) were not satisfied, that the proviso requiring notice to "other persons concerned" and a hearing was breached, and that observations under Sections 241/242 could not be used. The Supreme Court held that the Tribunal was justified in invoking Section 130 because the mismanagement condition was met, that the procedural requirements, including notice and hearing, were substantially complied with, and that the three provisions must be read conjointly. Consequently, the Court dismissed the appeal, upholding the Tribunal’s order to reopen and recast the accounts.
Issues considered
- The Tribunal’s order under Section 130 of the Companies Act is valid only if either the accounts were prepared fraudulently or the affairs were mismanaged; which condition was satisfied?
- Whether the proviso to Section 130 requiring notice to "other persons concerned" and an opportunity to be heard was complied with, satisfying natural justice.
- Can observations and findings made under Sections 241/242 be considered when exercising power under Section 130?
- Whether the interim order dated 01.10.2018 under Sections 241/242 is a final order for the purpose of Section 130 proceedings.
- Whether subsequent reports, such as the RBI’s, can be taken into account in upholding the Section 130 order.
Legislation cited
- Companies Act, 1956s. 130, s. 206, s. 211, s. 212, s. 241, s. 242
- Companies Act, 2013s. 130, s. 206, s. 211, s. 212, s. 241, s. 242
Subjects
Companies ActSection 130reopening of accountsmismanagementfraudulent accountspublic interestnatural justicetribunalIL&FSSerious Fraud Investigation Officecorporate governance
Judgment
[2019] 8 S.C.R. 761 761
HARI SANKARAN A
v.
UNION OF INDIA & OTHERS
(Civil Appeal No. 3747 of 2019)
JUNE 4, 2019 B
[INDU MALHOTRA AND M. R. SHAH, JJ.]
Companies Act, 1956: s.130 – Exercise of power under –
Essential conditions – On 1.10.2018, the Central Government filed
a petition under ss.241 and 242 before the Tribunal alleging
C
mismanagement by the Board of IL&FS and the affairs of IL&FS
were conducted prejudicial to public interest – In view of the fact
that thousands of crores of public money was involved, and in the
public interest, the Central Government constituted the Serious Fraud
Investigation Office (SFIO) and handed over the investigation to
SFIO with respect to the affairs of IL&FS and other group D
companies – SFIO submitted preliminary report to the Central
Government placing on record that the affairs in respect of IL&FS
group companies were mismanaged and that the manner in which
the affairs of the company were being conducted was against the
public interest – Meanwhile, Registrar of the Companies also
E
conducted an enquiry under s.206 of the Act and prima facie
concluded mismanagement in IL&FS and its group companies – It
was also observed that IL&FS was presenting rosy picture by
camouflaging its financial statements and concealing and
suppressing severe mismatch between its cash flows and payment
obligations – The ICAI also conducted an enquiry and in its F
preliminary report, mentioned that “accounts for the past five years
have been prepared in a fraudulent and negligent manner by the
erstwhile auditors” – In the light of prayers made in petition under
ss.241, 242, the Tribunal suspended the Board of Directors of IL&FS
and appointed newly constituted Board to conduct the business –
G
Thereafter the Central Government filed petition under s.130 of the
Act – After issuing notice to all concerned including the Central
Government, Income Tax Authorities, SEBI, other Statutory
Regulatory Body and even to the erstwhile Directors of IL&FS and
other two companies, the Tribunal permitted/directed the Central
H
761
762 SUPREME COURT REPORTS [2019] 8 S.C.R.
A Government to re-open the books of accounts and to recast the
financial statements of IL&FS and other two companies of last 5
years – Appellant who is suspended Director of IL&FS preferred
an appeal before the Appellate Tribunal – Appellate Tribunal
dismissed the same – Hence the instant appeal – Held: The order
passed by the Tribunal under s.130 of the Act showed that the
B
Tribunal had considered the preliminary report submitted by the
ICAI and SFIO and the observations made in the said reports/
preliminary reports – As per s.130 of the Act, the Tribunal may pass
an order of re-opening of accounts if the Tribunal is of the opinion
that (i) the relevant earlier accounts were prepared in a fraudulent
C manner; or (ii) the affairs of the company were mismanaged during
the relevant period casting a doubt on the reliability of the financial
statements – The word used is “or” – Therefore, if either of the
conditions precedent is satisfied, the Tribunal would be justified in
passing the order under s.130 of the Act – The Tribunal passed the
order on being satisfied with respect to the second part of s.130 of
D
the Act – In the facts and circumstances of the case, and also in the
larger public interest and when thousands of crores of public money
is involved, the Tribunal is justified in allowing the application under
s.130 of the Act.
Companies Act, 1956: s.130 – The submission on behalf of
E the appellant was that all the three provisions, viz., s.130, ss.211/
212 and ss.241/242 operate in different fields and in different
circumstances and they are in the different Chapters and, therefore,
any observation made while passing the orders with respect to a
particular provision may not be considered while passing the order
F under relevant provisions is concerned – Held: All the three
provisions are required to be considered conjointly – While passing
an order in a particular provision, the endeavour should be to see
that the orders passed under other provisions of the Companies Act
are given effect to, and/or in furtherance of the order/orders passed
under other Sections – Therefore, the observations made while
G passing order under ss.241/242 of the Act can be said to be relevant
observations for passing the order under s.130 of the Act – Even
otherwise in the order passed by the Tribunal under s.130 of the
Act, there is a specific observation made by the Tribunal with respect
to mismanagement of the affairs of the company, and even with
H
HARI SANKARAN v. UNION OF INDIA & OTHERS 763
respect to the relevant earlier accounts prepared in a fraudulent A
manner.
Companies Act, 1956: s.130, proviso – Compliance of –
Whether order passed under s.130 was in violation of natural justice
and the proviso of s.130 was not complied with – Held: As per
proviso to s.130 of the Act before passing the order under s.130 of B
the Act, the Tribunal is required to issue notice to the Central
Government, Income Tax Authorities, SEBI or any other statutory
regulatory body or authorities concerned or any “other person
concerned” and is required to take into consideration the
representation, if any made – The “other person concerned” is as
such not defined. While passing the order under s.130 of the Act, C
there shall be reopening of the books of accounts and re-casting of
the financial statements of the company and therefore the Board of
Directors of the company may make a grievance – The erstwhile
directors cannot represent the company as they are suspended
pursuant to the earlier order passed under s.242 of the Act – In the D
instant case, the erstwhile directors of the company represented
before the Tribunal and they opposed the application under s.130
of the Act – Therefore, in the facts and circumstances of the case, it
cannot be said that the order passed by the Tribunal is per se in
violation of the principle of natural justice as alleged.
E
Companies Act, 1956: ss.241 and 242 – Submission of the
appellant that order dated 01.10.2018 passed under ss.241/242 of
the Companies Act is an interim order and the same is not a final
order suspending the directors and the erstwhile board of directors
of the company, and therefore the observations made in order dated
01.10.2018 cannot be considered, has no substance – Order dated F
01.10.2018 suspending the erstwhile directors of the company
including the appellant is not challenged by way of an appeal before
an appropriate appellate Tribunal/Court and till date stands and
remains in operation.
Companies Act, 1956: s.130 – Reliance placed on subsequent G
report of RBI – Held: It is required to be noted, independent to the
subsequent report of the RBI, there is specific finding with respect
to the mismanagement and the fraudulent accounts – Therefore,
subsequent report of the RBI report can be taken note of while
H
764 SUPREME COURT REPORTS [2019] 8 S.C.R.
A upholding the order passed by the Tribunal under s.130 of the Act
– Since a larger public interest is involved and reopening of the
books of accounts and recasting of financial statements of the said
companies is required to be carried out in the larger public interest,
to find out the real truth, and both the conditions precedent while
invoking power under s.130 of the Act are satisfied/complied with,
B
therefore in the facts and circumstances of the case, the order passed
by the Tribunal passed under s.130 of the Companies Act not to be
interfered with.
Dismissing the appeal and disposing of the IAs, the Court
C HELD : 1. As per Section 130 of the Act, the Tribunal may
pass an order of re-opening of accounts if the Tribunal is of the
opinion that (i) the relevant earlier accounts were prepared in a
fraudulent manner; or (ii) the affairs of the company were
mismanaged during the relevant period casting a doubt on the
reliability of the financial statements. Therefore, the word used
D is “or”. Therefore, if either of the conditions precedent is
satisfied, the Tribunal would be justified in passing the order under
Section 130 of the Act. The Tribunal passed the order on being
satisfied with respect to the second part of Section 130 of the
Companies Act. The Tribunal also took note of the preliminary
E report submitted by the ICAI with respect to the earlier accounts
were being prepared in a fraudulent manner. On a fair reading of
Section 130 of the Companies Act, if the Tribunal is satisfied that
either of the conditions precedent is satisfied, the Tribunal would
be justified in passing the order under Section 130 of the
Companies Act. In the facts and circumstances of the case, and
F also in the larger public interest and when thousands of crores of
public money is involved, the Tribunal is justified in allowing the
application under Section 130 of the Companies Act, which was
submitted by the Central Government as provided under Section
130 of the Act. [Paras 10, 11] [782-F-H; 783-A, C-D]
G 2. The submission on behalf of the appellant was that all
the three provisions, viz., Section 130, Sections 211/212 and
Sections 241/242 operate in different fields and in different
circumstances and they are in the different Chapters and therefore
any observation made while passing the order/orders with respect
H
HARI SANKARAN v. UNION OF INDIA & OTHERS 765
to a particular provision may not be considered while passing the A
order under relevant provisions is concerned. Iit is required to
be noted that all the three provisions are required to be
considered conjointly. While passing an order in a particular
provision, the endeavour should be to see that the order/orders
passed under other provisions of the Companies Act are given
B
effect to, and/or in furtherance of the order/orders passed under
other Sections. Therefore, the observations made while passing
order under Section 241/242 of the Companies Act can be said to
be relevant observations for passing the order under Section 130
of the Companies Act. Even otherwise in the order passed by
the Tribunal under Section 130 of the Companies Act, there is a C
specific observation made by the Tribunal with respect to
mismanagement of the affairs of the company, and even with
respect to the relevant earlier accounts prepared in a fraudulent
manner. [Para 12] [783-D-G]
3. As per proviso to Section 130 of the Companies Act D
before passing the order under Section 130 of the Act, the Tribunal
is required to issue notice to the Central Government, Income
Tax Authorities, SEBI or any other statutory regulatory body or
authorities concerned or any “other person concerned” and is
required to take into consideration the representation, if any
made. The “other person concerned” is as such not defined. Who E
can be said to be “other person concerned”, that question is
kept open. At this stage, it is required to be noted that while
passing the order under Section 130 of the Act, there shall be
reopening of the books of accounts and re-casting of the financial
statements of the company and therefore the Board of Directors F
of the company may make a grievance. The erstwhile directors
cannot represent the company as they are suspended pursuant
to the earlier order passed under Section 242 of the Companies
Act. The erstwhile directors of the company represented before
the Tribunal and they opposed the application under Section 130
of the Act. Therefore, in the facts and circumstances of the case, G
it cannot be said that the order passed by the Tribunal is per se
in violation of the principle of natural justice as alleged.
[Para 13] [784-C-F]
H
766 SUPREME COURT REPORTS [2019] 8 S.C.R.
A 4. Order dated 01.10.2018 suspending the erstwhile
directors of the company including the appellant is not challenged
by way of an appeal before an appropriate appellate Tribunal/Court
and till date stands and remains in operation. [Para 15] [785-C]
5. As the impugned order passed by the Appellate Tribunal
B is in the larger public interest, subsequent development/report
were taken into account. However, at the same time the same
shall be in support of the order under challenge. Even otherwise,
it is required to be noted, independent to the subsequent report
of the RBI, there is specific finding with respect to the
mismanagement and the fraudulent accounts. Therefore
C subsequent report of the RBI report can be taken note of while
upholding the order passed by the Tribunal under Section 130 of
the Companies Act. Since a larger public interest has been
involved and reopening of the books of accounts and recasting of
financial statements of the aforesaid companies is required to be
D carried out in the larger public interest, to find out the real truth,
and both the conditions precedent while invoking power under
Section 130 of the Companies Act are satisfied/complied with,
therefore in the facts and circumstances of the case, the order
passed by the Tribunal passed under Section 130 of the
Companies Act, confirmed by the Appellate Tribunal, is not
E required to be interfered with. [Para 18] [786-B-E]
Mannalal Khetan v. Kedar Nath Khetan (1977) 2 SCC
424 : [1977] 2 SCR 190 ; Swadeshi Cotton Mills
v. Union of India (1981) 1 SCC 664 : [1981] 2 SCR
533 ; Calcutta Discount Company v. Income Tax Officer
F AIR 1961 SC 372 : [1961] SCR 241 ; Mohinder Singh
Gill v. Chief Election Commissioner, New Delhi (1978)
1 SCC 405 : [1978] 2 SCR 272 ; T.P. Senkumar v. Union
of India (2017) 6 SCC 801 : [2017] 6 SCR 881 ;
Chairman, All India Railway Recruitment Board v. K.
G Shyam Kumar (2010) 6 SCC 614 : [2010] 6 SCR 291
– held inapplicable.
Case Law Reference
[1977] 2 SCR 190 held inapplicable Para 6.4
[1981] 2 SCR 533 held inapplicable Para 6.4
H
HARI SANKARAN v. UNION OF INDIA & OTHERS 767
[1961] SCR 241 held inapplicable Para 6.6 A
[1978] 2 SCR 272 held inapplicable Para 6.8
[2017] 6 SCR 881 held inapplicable Para 6.8
[2010] 6 SCR 291 held inapplicable Para 6.8
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3747 B
of 2019.
From the Judgment and Order dated 31.01.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Company) No. 29 of 2019.
C
Dhruv Mehta, Sr. Adv., Samir Malik, Ms. Rimali Batra, Ravi
Prakash, Aditya Sharma, Chandra Prakash, Advs. for the Appellant.
Maninder Singh, ASG, Ms. Gauri Rasgotra, Vikash Kumar Jha,
Aditya Sikka, Siddhant Sharma, Soumya S. Dasgupta, Nishit Agrawal,
M/S.Cyril Amarchand Mangaldas, Advs. for the Respondents.
D
The Judgment of the Court was delivered by
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned Order
dated 31.01.2019 passed by the National Company Law Appellate
Tribunal, New Delhi in Company Appeal (AT) No. 29 of 2019 by which E
the learned Appellate Tribunal has dismissed the said appeal preferred
by the appellant herein – Ex-Director of respondent No. 2 – Infrastructure
Leasing & Financial Services Limited (hereinafter referred to as ‘the
IL&FS’) and has confirmed the order passed by the National Company
Law Tribunal, Mumbai Bench (hereinafter referred to as ‘the learned F
Tribunal’) dated 01.01.2019 by which the learned Tribunal allowed the
said application preferred by the Central Government under Section 130(1)
& (2) of the Companies Act, 2013 (hereinafter referred to as the
‘Companies Act’) and has permitted re-casting and re-opening of the
accounts of IL&FS, IL&FS Financial Services Limited (hereinafter
referred to as the “IFIN”) and IL&FS Transportation Networks Limited G
(hereinafter referred as the “ITNL”) for the last five years, the original
appellant has preferred the present appeal.
2. The facts leading to the present appeal in nutshell are as under:
That respondent No. 2 – IL&FS is a company incorporated under
H
768 SUPREME COURT REPORTS [2019] 8 S.C.R.
A the provisions of the Companies Act, 1956. That the said company IL&FS
has 348 group companies, including IFIN and ITNL. That the said IL&FS
is a core investment company and systemically important Non-Banking
Finance Company duly approved under the Reserve Bank of India Act,
1931. The said company was promoted by the Central Bank of India,
HDFC Ltd., the Union Trust of India. That the said company is holding
B
prominent infrastructure development and finance companies. Over
the years, it had inducted institutional shareholders. That the said IL&FS,
during the financial year 2017-18 had 169 companies, out of which, 24
companies are direct subsidiaries, 135 companies are indirect subsidiaries,
6 companies are joint ventures and 4 companies are associate companies.
C That the appellant herein claims to be the Vice-President/Director of
IL&FS who has been suspended as the Director of IL&FS and its group
companies.
2.1 That on 01.10.2018, the Central Government through the
Ministry of Corporate Affairs filed a petition before the learned Appellate
D Tribunal under Sections 241 and 242 of the Companies Act alleging inter
alia, mismanagement by the Board of IL&FS and that the affairs of
IL&FS were being conducted in a manner prejudicial to public interest.
That the Central Government prayed for the following reliefs:
1. That the existing Board of Directors of Respondent No. 1
E company, comprising of R2 to R8, be suspended with
immediate effect and 10 (Ten) persons be appointed as
directors in terms of provisions of Section 242(2)(k) of the
Act, to manage the affairs of R1 company and its group
companies through their nominees, and such directors any
report and function under the Hon’ble Tribunal on such matters
F as it may direct:
2. That the Board of Directors appointed by the Hon’ble Tribunal
in terms of 242(2)(k) of the Act be authorized to replace such
number of directors of subsidiaries, joint ventures and
associate companies as may be required to make the R1 and
G its group companies as going concern.
2.2 That it was found that the management of IL&FS and other
group company/companies were responsible for negligence and
incompetence, and had falsely presented a rosy financial statement. To
unearth the irregularities committed by IL&FS and its companies, the
H
HARI SANKARAN v. UNION OF INDIA & OTHERS 769
[M. R. SHAH, J.]
provisions of Section 212(1)(c) of the Companies Act were invoked for A
investigation into the affairs of the company. The investigation was to
be carried out by the Serious Fraud Investigation Office (hereinafter
referred to as ‘the SFIO’) in exercise of powers under Section 212 of
the Companies Act. The SFIO submitted an interim report dated
30.11.2018 to the Central Government placing on record that the affairs
B
in respect of IL&FS group Companies were mis-managed, and that the
manner in which the affairs of the company were being conducted was
against the public interest. The said report shall be referred to hereinbelow.
It appears that the Registrar of Companies also conducted an
enquiry under Section 206 of the Companies Act, and prima facie
concluded that mis-management and compromise in corporate C
governance norms and risk management has been perpetuated on IL&FS
and its group companies by indiscriminately raising long term and short
terms loans/borrowings through Public Sector Banks and financial
institutions. It was also observed that IL&FS company has been
presenting a rosy picture by camouflaging its financial statements, and D
concealing and suppressing severe mismatch between its cash flows
and payment obligations, total lack of liquidity and adverse financial ratios.
It was also found that IL&FS company has first defaulted on commercial
paper and then on short term borrowings i.e. inter corporate deposits,
negative cash flows in operating activities etc. It was further observed
that the consolidated balance-sheet of IL&FS company indicated the E
extremely precarious financial position, and was virtually in deep red. It
was found that intangible assets of approximately Rs.18,540 crores as
on 31.03.2017, has increased to approximately Rs.20,004 crores as on
31.03.2018, thus creating a serious doubt about the correctness of the
financial statements. A Report dated 03.12.2018 was submitted by the F
Institute of Chartered Accountants of India (“ICAI”) which has been
placed on the record of the Tribunal.
2.3 In this background, the Union of India approached the learned
Tribunal for reliefs under Sections 241 and 242 of the Companies Act.
2.4 Thereafter, by a detailed and reasoned order, the learned G
Tribunal vide Order dated 01.10.2018 allowed the said prayers and
suspended the Board of Directors of IL&FS, and appointed the newly
constituted Board to conduct the business as per the Memorandum and
Articles of the companies. That the learned Tribunal issued the following
directions: H
770 SUPREME COURT REPORTS [2019] 8 S.C.R.
A “On the basis of the foregoing discussions and after considering
the facts of the case, a narrated in the Petition filed by the Union
of India, this Bench is of the considered view that it is judicious to
invoke the jurisdiction prescribed under Section 241(2) of the
Companies Act, 2013 and the Tribunal is of the opinion that as per
Section 242(1) of the Companies Act, 2013, the affairs of the
B
IL&FS were being conducted in a manner prejudicial to public
interest. The Interim prayer of suspending the present Board of
Directors and reconstitution of the new Board of Directors is
hereby allowed. At present, by an additional affidavit only 6 names
(supra) of Board members have proposed by the Union of India.
C Further directed that the present Board of Directors be
suspended with immediate effect. The six Directors as reproduced
supra shall take over the R1 company immediately. Newly
constituted Board shall hold a meeting on or before 8th October,
2018 and conduct business as per the Memorandum and Articles
D of Association of the company and the provisions of the Companies
Act, 2013. Liberty is granted to the Board of Directors to select a
Chairman among themselves. Thereafter, report the roadmap to
NCLT, Mumbai Bench at the earliest possible not later than the
next date of hearing. The suspended directors hence forth shall
not represent the R1 company as a Director and shall also not
E exercise any powers as a director in any manner before any
authority as well.
As a consequence of “Admission” of the Petition, issue notice
to intimate next date of hearing. The Petition is to serve copy of
this order along with Petition to all the Respondents. The
F Respondents in turn may file their reply by 15th October, 2018,
only after serving copy to the petitioner. The Petitioner can file
rejoinder, if deem fit, by 30th October, 2018.”
2.5 That thereafter the Union of India through the Ministry of
Corporate Affairs approached the learned Tribunal under Section 130(1)
G of the Companies Act seeking permission for re-opening of the books of
accounts and re-casting thereof, including the financial statements of
IL&FS, IL&FS Financial Services Limited and IL&FS Transportation
Networks Limited for the last five years viz. from Financial Year 2012-
2013 to Financial Year 2017-2018. The learned Tribunal issued notices
H
HARI SANKARAN v. UNION OF INDIA & OTHERS 771
[M. R. SHAH, J.]
to the Income Tax Authorities, SEBI, and any other statutory regulatory A
body or authority, or other persons concerned. The learned Tribunal
directed the Central Government to serve the notices upon the said
parties.
At this stage, it is required to be noted that the aforesaid three
companies through their new board of directors appeared through their B
counsel before the learned Tribunal at the time of hearing of the aforesaid
application under Section 130 of the Companies Act. That, thereafter,
after hearing the counsel appearing on behalf of the respective parties,
including the learned counsel appearing on behalf of the erstwhile
directors, who opposed the application filed under Section 130 of the
Companies Act, the learned Tribunal vide its Order dated 01.01.2019 C
allowed the application filed under Section 130 of the Companies Act,
and permitted the said application for re-opening the books of accounts,
and re-casting the financial statements of the aforesaid three companies
for the last five years viz. from Financial Year 2012-2013 to Financial
Year 2017-2018. D
2.6 Feeling aggrieved and dissatisfied with the order passed on
the application under Section 130 of the Companies Act by the learned
Tribunal dated 01.01.2019, permitting the re-opening and re-casting of
the financial statements of the aforesaid three companies for the last
five years viz. from Financial Year 2012-2013 to Financial Year 2017- E
2018, the appellant herein who is a suspended Director of IL&FS alone
preferred an appeal before the learned Appellate Tribunal. That by the
impugned judgment and order, the learned Appellate Tribunal has
dismissed the said appeal.
3. Feeling aggrieved and dissatisfied with the impugned judgment F
and order passed by the learned Appellate Tribunal dismissing the said
appeal, and confirming the order passed by the learned Tribunal dated
01.01.2019 allowing the application under Section 130 of the Companies
Act, the original appellant i.e. the suspended Director/erstwhile Director
of IL&FS has preferred the present appeal.
G
4. With the consent of the learned Senior Counsel appearing on
behalf of the respective parties, and in the facts and circumstances of
the case, we have heard the application for vacating the interim Order
along with the main Appeal finally.
H
772 SUPREME COURT REPORTS [2019] 8 S.C.R.
A 5. Shri Dhruv Mehta, learned senior counsel has appeared on
behalf of the appellant and Shri Maninder Singh, learned Senior Counsel
has appeared on behalf of the Union of India as well as the other
contesting respondents.
6. Shri Dhruv Mehta, learned Senior Counsel appearing on behalf
B of the appellant has vehemently submitted that the impugned order passed
by the learned Appellate Tribunal dismissing the said appeal and confirming
the order passed by the learned Tribunal allowing the application under
Section 130 of the Companies Act is absolutely illegal and bad in law.
6.1 Mr. Dhruv Mehta, learned Senior Counsel appearing on behalf
C of the appellant has submitted that the order passed by the learned
Tribunal allowing the application under Section 130 of the Companies
Act is absolutely illegal and as such contrary to the provisions of Section
130 of the Companies Act. It is further submitted by Mr. Dhruv Mehta
that as such the pre-conditions before passing the order under Section
130 of the Companies Act for re-opening and re-casting the statements
D of account of the company, namely (i) the relevant earlier accounts were
prepared in a fraudulent manner; or (ii) the affairs of the company were
mismanaged during the relevant period, casting a doubt on the reliability
of financial statements, have not been satisfied.
6.2 Mr. Dhruv Mehta, learned Senior Counsel appearing on behalf
E of the appellant has submitted that as such there is no specific finding
given by the learned Tribunal while allowing the application under Section
130 of the Companies Act that either the relevant earlier accounts were
prepared in a fraudulent manner, or the affairs of the company were
mismanaged, during the relevant period casting a doubt on the reliability
F of financial statements. It is submitted that in the absence of any specific
finding by the learned Tribunal on the aforesaid, it was not permissible
for the learned Tribunal to pass the order under Section 130 of the
Companies Act permitting re-opening of the books of accounts and re-
casting of financial statements of the company/companies.
G 6.3 It is further submitted that, on the contrary, there is a specific
finding/observation by the learned Tribunal in the order under Section
130 of the Companies Act itself that the accounts were not prepared in
a fraudulent manner. It is submitted that the conditions precedent for
invoking the powers under Section 130 of the Companies Act were not
satisfied, and the learned Tribunal was not justified in passing the impugned
H
HARI SANKARAN v. UNION OF INDIA & OTHERS 773
[M. R. SHAH, J.]
order under Section 130 of the Companies Act. It is further submitted A
that therefore the learned Appellate Tribunal ought to have quashed and
set aside the order passed by the learned Tribunal.
6.4 It is further submitted by Shri Dhruv Mehta learned Senior
Counsel that, even otherwise, the order passed by the learned Tribunal
is in breach of natural justice inasmuch as sufficient opportunity was not B
given to the appellant by the learned Tribunal before passing the order
under Section 130 of the Companies Act. It is submitted that the notice
on the application under Section 130 of the Companies Act was issued
on 27.12.2018 and the impugned order came to be passed on 01.01.2019.
It is submitted that even though the appellant sought time to file the
reply, the Tribunal without granting any further time to the appellant to C
file the reply, passed the impugned order. It is submitted that as per the
amended Section 130 of the Companies Act, before passing the order
under Section 130 of the Companies Act, not only the Income Tax
Authorities and other authorities were required to be heard, even the
“other persons concerned”, including the Directors/Ex-Directors of the D
company were required to be heard. It is submitted that the order passed
by the learned Tribunal was in violation of the principles of natural justice,
therefore the same was required to be quashed and set aside by the
learned Appellate Tribunal.
It is further submitted that though the aforesaid submission was E
made before the learned Appellate Tribunal, and the learned Appellate
Tribunal accepted that the order passed by the learned Tribunal is in
breach of the principles of natural justice, the learned Appellate Tribunal
dismissed the appeal. It is submitted that, therefore, in the facts and
circumstances of the case, the learned Appellate Tribunal ought to have
set aside the order passed by the learned Tribunal and ought to have F
remanded the matter to the learned Tribunal for fresh decision after
giving opportunity of hearing to the appellant. In support of the above
submissions and request, Shri Dhruv Mehta, learned senior counsel
appearing on behalf of the appellant has heavily relied upon the decisions
of this Court in the case of Mannalal Khetan v. Kedar Nath Khetan G
(1977) 2 SCC 424 and in the case of Swadeshi Cotton Mills v. Union
of India (1981) 1 SCC 664. Relying upon the above decisions of this
Court, it is submitted that when the Statute provides that things are
required to be done in a particular manner, it ought to have been done in
the same manner as provided under the Statute. It is submitted that in
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774 SUPREME COURT REPORTS [2019] 8 S.C.R.
A the present case as the Statute specifically provides that before passing
the order under Section 130 of the Companies Act, an opportunity is to
be given to all concerned and that two conditions, as referred to
hereinabove, are to be satisfied, the same are required to be followed
and complied with.
B 6.5 It is further submitted by Shri Dhruv Mehta, learned Senior
Counsel appearing on behalf of the appellant that, even otherwise, there
is no specific finding by the learned Tribunal with respect to the
mismanagement by the erstwhile Directors. So far as the reliance placed
upon the observations made in the earlier order dated 01.10.2018 is
concerned, it is submitted that the order dated 01.10.2018 passed under
C Sections 241/242 of the Companies Act cannot be said to be the final
order. It is submitted that it is an interim order/report to which the appellant
has already submitted the objections, which are yet to be considered. It
is submitted that, therefore, condition No. (ii) of Section 130(1) of the
Companies Act is not satisfied.
D 6.6 It is submitted that therefore, as the condition precedent while
invoking the powers under Section 130 of the Companies Act are not
being met, the learned Tribunal ought not to have and could not have
invoked and applied Section 130 of the Companies Act. In support of his
above submission, Shri Dhruv Mehta, learned Senior Counsel appearing
E on behalf of the appellant has relied upon the decision of this Court in the
case of Calcutta Discount Company v. Income Tax Officer AIR 1961
SC 372.
6.7 It is further submitted by the learned Senior Counsel appearing
on behalf of the appellant that all the three different provisions, namely
F Section 130, Sections 211/212 and Sections 241/242 of the Companies
Act, operate in the different fields and in different situations and as such
they are in different chapters and therefore the observations made while
passing the order under one provision cannot be made applicable to while
passing the order under different provisions.
G 6.8 Shri Dhruv Mehta, learned Senior Counsel appearing on behalf
of the appellant has further submitted that what is required to be considered
is the relevant material at the time when the learned Tribunal passed the
order under Section 130 of the Companies Act. It is submitted that the
respondents cannot support the order passed by the learned Tribunal
under Section 130 of the Companies Act relying upon the subsequent
H developments/events. In support of his above submission, he has heavily
HARI SANKARAN v. UNION OF INDIA & OTHERS 775
[M. R. SHAH, J.]
relied upon the decisions of this Court in the cases of Mohinder Singh A
Gill v. Chief Election Commissioner, New Delhi (1978) 1 SCC 405
and T.P. Senkumar v. Union of India (2017) 6 SCC 801. It is submitted
that the decision of this Court in the case of Chairman, All India Railway
Recruitment Board v. K. Shyam Kumar (2010) 6 SCC 614 relied
upon by the learned Counsel appearing on behalf of the Union of India
B
shall not be applicable to the facts of the case on hand. It is submitted
that in the case of K. Shyam Kumar (supra), this Court was considering
the administrative decision/order and while considering such administrative
order/decision, this Court observed that the subsequent events/reports
can be considered while considering the legality and validity of the original
action/order in the public interest. C
6.9 Shri Dhruv Mehta, learned Senior Counsel appearing on behalf
of the appellant has further submitted that, therefore, neither the condition
precedent provided in Section 130(1) of the Companies Act has been
complied with/satisfied, nor even Section 130(2) of the Companies Act
has been complied with, and it is in violation of the provisions of Section D
130(1) of the Companies Act, and as sufficient opportunity was not given
to the appellant, therefore, is in violation of the principles of natural justice.
It is prayed that the present appeal be allowed and the order passed by
the learned Tribunal allowing the application under Section 130 of the
Act be set aside.
E
6.10 It is further submitted by Shri Dhruv Mehta, learned Senior
Counsel appearing on behalf of the appellant that so far as the impugned
order passed by the learned Appellate Tribunal is concerned, it is
submitted that none of the submissions/ground raised on behalf of the
appellant have been dealt with and/or considered by the Appellate
Tribunal. It is submitted that the learned Appellate Tribunal was F
considering/deciding the statutory appeal and therefore the learned
Appellate Tribunal was supposed to deal with the grounds raised on
behalf of the appellant. It is submitted that though the plea of violation
of principles of natural justice was specifically pleaded and even the
learned Appellate Tribunal also observed that there may be violation of G
principles of natural justice, in that case, the learned Appellate Tribunal
ought to have remanded the matter to the learned Tribunal. It is submitted
that the learned Appellate Tribunal ought to have appreciated that in
view of the violation of principles of natural justice, it has caused great
prejudice to the appellant. It is submitted that as observed and held by
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776 SUPREME COURT REPORTS [2019] 8 S.C.R.
A this Court in the case of Swadeshi Cotton Mills (supra), when the
principles of natural justice are prescribed by the statutory provision, no
prejudice is required to be shown for invoking the ground of violation of
principles of natural justice.
6.11 it is further submitted by learned Counsel appearing on behalf
B of the appellant that the impugned orders have far reaching consequences.
It is submitted that the books of accounts once re-opened and re-casted
are deemed to be final under the provisions of Section 130(2) of the
Companies Act.
6.12 Making the above submissions and relying upon the above
C decisions, it is prayed to quash and set aside the impugned order passed
by the learned Tribunal, confirmed by the learned Appellate Tribunal.
7. The present appeal is vehemently opposed by Shri Maninder
Singh, learned Senior Counsel appearing on behalf of the Union of India.
7.1 It is vehemently submitted by the learned Senior Counsel
D appearing on behalf of the Union of India that the impugned order passed
by the learned Tribunal, confirmed by the learned Appellate Tribunal do
not suffer from any vice of illegality. It is submitted that the order passed
by the learned Tribunal under Section 130 of the Companies Act is
absolutely in the larger public interest and absolutely in consonance with
E the provisions of Section 130 of the Companies Act.
7.2 It is further submitted by the learned senior Counsel appearing
on behalf of the Union of India that there are very serious allegations of
preparing the earlier accounts in a fraudulent manner, and also with
respect to the mis-management of the affairs of the company during the
F relevant period. It is submitted that, in the present case, after having
satisfied that there are serious allegations against IL&FS group of
companies, the Department of Economic Affairs took a conscious
decision to approach the NCLT under Section 242 of the Companies
Act to order re-constitution of the Board of Directors. It is submitted
that by a detailed order and considering the material on record, and
G having been prima facie satisfied with respect to the allegations of
mismanagement and relating to the affairs of IL&FS group of companies,
the learned Tribunal passed an order dated 01.10.2018 suspending the
earlier Directors/Board of Directors of the companies and appointed a
new Board of Directors. It is submitted that even the Ministry of
Corporate Affairs, Government of India in exercise of powers under
H
HARI SANKARAN v. UNION OF INDIA & OTHERS 777
[M. R. SHAH, J.]
Section 212 of the Companies Act had issued an order directing to conduct A
investigation into the affairs of IL&FS group of companies. It is submitted
that SFIO constituted under Section 212 of the Act has already
commenced a specialized investigation into the affairs of IL&FS group
of companies. It is submitted that the appellant has been arrested on
02.04.2019, and is presently in judicial custody. It is submitted that
B
thereafter when the Union of India through the Ministry of Corporate
Affairs submitted an application before the learned Tribunal to re-open
the books of accounts and to re-cast the financial statements of the
three main companies for the last five years and thereafter considering
the investigation reports and having been satisfied that the conditions
precedent for invoking the powers exercised under Section 130 of the C
Companies Act are satisfied/complied with, thereafter when the learned
Tribunal has passed the order, the same cannot be said to be illegal. It is
submitted that all the requirements under Section 130 of the Companies
Act have been complied with/satisfied.
7.3 It is further submitted that the order dated 01.10.2018 passed D
under Sections 241/242 of the Companies Act has attained finality
inasmuch as the same is not challenged till date. It is submitted that
therefore the same can be considered by passing an order under Section
130 of the Companies Act also.
7.4 It is further submitted by the learned Senior Counsel appearing E
on behalf of the Union of India that all the three provisions, namely
Sections 211/212, Sections 241/242 and Section 130 of the Companies
Act are required to be considered and read conjointly. It is submitted
that while considering the one provision and/or while passing the order
under one provision, it is required to be seen that the effect of the order/
orders passed in other provisions do not become nugatory and/or F
ineffective. It is submitted that therefore if all the aforesaid three
provisions are considered and read conjointly, in that case, it can be said
that the order passed under Section 130 of the Companies Act would be
in the aid of the investigation going on by the SFIO under Section 212 of
the Companies Act and the same shall be in the larger public interest. It G
is submitted that, in the present case, Justice D. K. Jain, a former Judge
of this Court, has been appointed to supervise the resolution process of
IL&FS group of companies. It is submitted that the re-opening of the
books of accounts and re-casting the financial statements of the aforesaid
three companies is very much required and necessary, since the same
shall be in the larger public interest, to find out the real truth. H
778 SUPREME COURT REPORTS [2019] 8 S.C.R.
A 7.5 It is further submitted by the learned Senior Counsel appearing
on behalf of the Union of India that the powers conferred under Section
130 of the Companies Act are less stringent than the powers conferred
under Sections 241/242 and/or Sections 211/212 of the Companies Act.
It is submitted that while exercising powers under Section 130 of the
Companies Act, there may not be any final conclusion/opinion that the
B
relevant earlier accounts are prepared in a fraudulent manner or the
affairs of the company were mismanaged during the relevant period. It
is submitted that if, on the basis of the material on record, the learned
Tribunal is satisfied on either of the aforesaid two eventualities, it is
always open to the Tribunal to pass the order to re-open the books of
C accounts and to re-cast the financial statements of the company.
It is further submitted that, in the present case, before passing the
order under Section 130 of the Companies Act notices were issued under
the first proviso to Section 130 of the Companies Act. It is submitted
that SEBI appeared and submitted that it had no objection to the accounts
D and financial statement of respondent Nos. 2 to 4, which are listed
companies, being re-opened and re-casted.
It is submitted that, as observed by the Tribunal in the impugned
order, the erstwhile directors had opposed the application under Section
130 of the Companies Act, that after hearing all parties, the impugned
E order has been passed by the learned Tribunal. It is submitted that
therefore the impugned order passed by the learned Tribunal cannot be
said to be in violation of the principles of natural justice as alleged.
7.6 Relying upon the subsequent interim investigation reports by
the RBI, it is submitted that the impugned order passed by the learned
F Tribunal under Section 130 of the Companies Act is not required to be
interfered with. It is submitted that mere perusal of the report of the
RBI dated 22.3.2019 demonstrates and establishes beyond any doubt
about the complete correctness, validity and legality of the order under
Section 130 of the Act. In support of his submission, the learned counsel
has relied upon and requested to consider the subsequent event also,
G more particularly the report of the RIB dated 22.03.2019. The learned
counsel appearing on behalf of the Union of India has heavily relied
upon the decision of this Court in the case of K. Shyam Kumar (supra)
in support of the prayer to consider the subsequent Report of RBI also.
H
HARI SANKARAN v. UNION OF INDIA & OTHERS 779
[M. R. SHAH, J.]
7.7 Making the above submissions, it is prayed to dismiss the A
present appeal, more particularly, considering the larger public interest
as, in the present case, thousands of crores of the public money is involved.
8. We have heard the learned counsel for the respective parties
at length and perused the written submissions filed by them.
At the outset, it is required to be noted that by the impugned order B
and in exercise of powers under Section 130 of the Companies Act, the
learned Tribunal has allowed the said application preferred by the Central
Government and has directed/permitted re-opening of the books of
accounts and re-casting the financial statements of IL&FS and other
two companies for the last 5 years, viz., F.Y 2012-2013 to 2017-2018. C
The order passed by the learned Tribunal has been affirmed by the learned
Appellate Tribunal. Therefore, the short question which is posed for
consideration before this Court, whether in the facts and circumstances
of the case, can it be said that the order passed by the learned Tribunal
is illegal and/or contrary to Section 130 of the Companies Act?
D
8.1 While considering the aforesaid question/issue, few facts and
the relevant provisions of the Companies Act which are relevant for
determining/considering the legality and validity of the order passed by
the learned Tribunal are required to be referred to and considered, which
are as under:
E
Section 211 of the Companies Act provides for establishment of
Serious Fraud Investigation Office to investigate frauds relating to a
company. Section 212 of the Companies Act provides for investigation
into affairs of company by SFIO. Section 212 of the Companies Act
provides that if the Central Government is of the opinion that it is necessary
to investigate into the affairs of a company by SFIO....in the public F
interest; or on a request made by any department of the Central
Government or a State Government. In the present case, the Central
Government has already constituted SFIO and has also ordered
investigation into the affairs of IL&FS and other group of companies
and the investigation by the SFIO is under progress. It is also required G
to be noted that SFIO had also submitted its preliminary report. In the
preliminary SFIO report, there are specific findings with respect to
mismanagement of the affairs of the aforesaid companies, and also with
respect to preparing fraudulent accounts. At this stage, it is also required
H
780 SUPREME COURT REPORTS [2019] 8 S.C.R.
A to be noted that ICAI had also conducted an enquiry into the accounts
for the past five years, and in the preliminary report, the ICAI has
mentioned that “accounts for the post five years have been prepared in
a fraudulent and negligent manner by the erstwhile auditors”. That the
Registrar of Companies had also conducted an enquiry under Section
206 of the Companies Act and prima facie concluded that
B
mismanagement and compromise in corporate governance norms and
risk management has been perpetuated on IL&FS and its group
companies by indiscriminately raising long term and short term loans/
borrowings through public sector banks and financial institutions.
Considering the fact that thousands of crores of public money is involved,
C and in the public interest, the Central Government has thought it fit to
handover the investigation with respect to the affairs of IL&FS and
other group companies to SFIO.
8.1.1 Sub-section (2) of Section 241 of the Companies Act provides
that if the Central Government is of the opinion that the affairs of the
D company are being conducted in a manner prejudicial to public interest,
it may itself apply to the Tribunal for an appropriate order under Chapter
XVI, more particularly the order under Section 242 of the Companies
Act. In the present case, the Central Government had approached the
learned Tribunal under Section 241 of the Companies Act and for an
appropriate order to suspend the existing Board of Directors of the
E Companies and to appoint new Directors in terms of the provisions of
Section 242(2)(k) of the Companies Act, to manage the affairs of IL&FS
and group companies. That by an order dated 01.10.2018, the learned
Tribunal, in exercise of powers under Section 242(2) of the Companies
Act, has suspended the Board of Directors of IL&FS and has further
F passed an order for reconstitution of the new Board of Directors. Six
persons are appointed as Directors as Board members. While issuing
such directions, the learned Tribunal has specifically observed that the
learned Tribunal is satisfied that the affairs of the IL&FS were being
conducted in a manner prejudicial to public interest. Thus, pursuant to
the said order dated 01.10.2018, the erstwhile Board Members/Directors
G of the IL&FS are suspended, and new Directors are appointed as Board
Members and the new Board of Directors are conducting the affairs of
the IL&FS and group companies. It is further ordered that the suspended
Directors henceforth shall not represent the IL&FS company as
Directors, and shall also not exercise any power as Directors in any
H manner before any authority as well. The appellant herein is the Vice
HARI SANKARAN v. UNION OF INDIA & OTHERS 781
[M. R. SHAH, J.]
President and suspended Director of the company, who alone has A
challenged the impugned order passed by the learned Tribunal passed
under Section 130 of the Companies Act.
8.2 In between there is one another development. Pursuant to
the order passed by the NCLAT, a former Judge of this Court – Hon’ble
Justice (Retd.) D.K. Jain has been appointed to supervise the operation B
of the “Resolution Process” of the IL&FS group companies. Considering
the aforesaid facts and circumstances and in the larger public interest
and having found on the basis of the reports/preliminary reports of SFIO,
ICAI and ROC and having observed and found that the relevant earlier
accounts of IL&FS and other group companies, named hereinabove,
were prepared in a fraudulent manner and the affairs of the company C
were mismanaged during the relevant period, casting a doubt on the
reliability of the financial statements, the Union of India/Central
Government considered it fit to submit an application before the learned
Tribunal under Section 130 of the Companies Act. After issuing notice
to all concerned including the Central Government, Income Tax D
Authorities, SEBI, other Statutory Regulatory Body and even to the
erstwhile Directors of IL&FS and other two companies, by the impugned
order, the learned Tribunal has permitted/directed the Central Government
to re-open the books of accounts and to recast the financial statements
of IL&FS and other two companies, named hereinabove, of last 5 years.
E
8.3 Considering the aforesaid facts and circumstances, the legality
and validity of the impugned order passed by the learned Tribunal passed
under Section 130 of the Act, confirmed by the learned Appellate Tribunal
is required to be considered.
9. On going through the order passed by the learned Tribunal F
passed under Section 130 of the Act, it appears that the learned Tribunal
is conscious of the relevant provisions of the Act, more particularly
Section 130 of the Companies Act and more particularly the conditions
precedent to be complied with/satisfied while directing/permitting re-
opening of the books of accounts and re-casting of the financial
statements of the company. From the order passed by the learned G
Tribunal under Section 130 of the Companies Act, it appears that the
learned Tribunal has considered the preliminary report submitted by the
ICAI and SFIO and the observations made in the aforesaid reports/
preliminary reports. That thereafter having satisfied that the conditions
precedent for invoking powers under Section 130 of the Companies H
782 SUPREME COURT REPORTS [2019] 8 S.C.R.
A Act, stated in Section 130 (i) OR (ii) of the Companies Act are satisfied,
thereafter the learned Tribunal has passed an order allowing the
application under Section 130 of the Companies Act for re-opening the
books of accounts and re-casting the financial statements of IL&FS and
other two companies, viz, for the last 5 years.
B 10. While assailing the order passed by the Tribunal under Section
130 of the Act, it is vehemently submitted on behalf of the appellant,
who as such is a suspended director of the company that there is no
specific finding recorded by the learned Tribunal that (i) the relevant
earlier accounts were prepared in a fraudulent manner; and (ii) the affairs
of the company were mismanaged during the relevant period casting a
C doubt on the reliability of the financial statements. It is the case on
behalf of the appellant that in the order dated 01.01.2019 passed under
Section 130 of the Companies Act, learned Tribunal has specifically given
a finding that the alleged accounts of the companies cannot be said to
have been prepared in a fraudulent manner. However, it is required to
D be noted that the aforesaid observations by the Tribunal are required to
be considered in the context for which the observations are made. It
appears that the said observations are made with respect to role of the
auditors. It is to be noted that in the same para, the learned Tribunal has
specifically observed that in the earlier order dated 01.10.2018, it is
observed that the affairs of the company were mismanaged during the
E relevant period and that the affairs of the company and subsidiary
companies were being mismanaged during the relevant period, as
contemplated under Sub-Section (1) and (2). At this stage, it is required
to be noted that as per Section 130 of the Act, the Tribunal may pass an
order of re-opening of accounts if the Tribunal is of the opinion that (i)
F the relevant earlier accounts were prepared in a fraudulent manner;
OR (ii) the affairs of the company were mismanaged during the relevant
period casting a doubt on the reliability of the financial statements.
Therefore, the word used is “OR”. Therefore, if either of the conditions
precedent is satisfied, the Tribunal would be justified in passing the order
under Section 130 of the Act. Considering the order passed by the Tribunal
G passed under Section 130 of the Companies Act, it appears that the
learned Tribunal has passed the order on being satisfied with respect to
the second part of Section 130 of the Companies Act. It is also required
to be noted that the learned Tribunal has also taken note of the preliminary
report submitted by the ICAI with respect to the earlier accounts were
H being prepared in a fraudulent manner. On a fair reading of Section 130
HARI SANKARAN v. UNION OF INDIA & OTHERS 783
[M. R. SHAH, J.]
of the Companies Act, if the Tribunal is satisfied that either of the A
conditions precedent is satisfied, the Tribunal would be justified in passing
the order under Section 130 of the Companies Act.
11. Considering the facts narrated hereinabove and the preliminary
reports of SFIO and ICAI which came to be considered by the learned
Tribunal and considering the specific observations made by the learned B
Tribunal while passing the order under Section 241/242 of the Companies
Act and considering the fact that the Central Government has entrusted
the investigation of the affairs of the company to SFIO in exercise of
powers under Section 242 of the Companies Act, it cannot be said that
the conditions precedent while invoking the powers under Section 130
of the Act are not satisfied. We are more than satisfied that in the facts C
and circumstances of the case, narrated hereinabove, and also in the
larger public interest and when thousands of crores of public money is
involved, the Tribunal is justified in allowing the application under Section
130 of the Companies Act, which was submitted by the Central
Government as provided under Section 130 of the Companies Act. D
12. Now so far as the submission on behalf of the appellant that
all the three provisions, viz., Section 130, Sections 211/212 and Sections
241/242 operate in different fields and in different circumstances and
they are in the different Chapters and therefore any observation made
while passing the order/orders with respect to a particular provision may E
not be considered while passing the order under relevant provisions is
concerned, it is required to be noted that all the three provisions are
required to be considered conjointly. While passing an order in a particular
provision, the endeavour should be to see that the order/orders passed
under other provisions of the Companies Act are given effect to, and/or
in furtherance of the order/orders passed under other Sections. F
Therefore, the observations made while passing order under Section
241/242 of the Companies Act can be said to be relevant observations
for passing the order under Section 130 of the Companies Act. At this
stage, it is required to be noted that even otherwise in the order passed
by the Tribunal under Section 130 of the Companies Act, there is a G
specific observation made by the learned Tribunal with respect to
mismanagement of the affairs of the company, and even with respect to
the relevant earlier accounts prepared in a fraudulent manner.
13. It is next contended on behalf of the appellant that proviso to
Section 130 of the Act has not been complied with and that the order H
784 SUPREME COURT REPORTS [2019] 8 S.C.R.
A passed by the learned Tribunal passed under Section 130 of the Act is in
violation of the principle of natural justice. At the outset, it is required to
be noted that while passing he order under Section 130 of the Companies
Act, the learned counsel appearing on behalf of the erstwhile directors
appeared and opposed the application under Section 130 of the
Companies Act. Therefore, the learned counsel appearing on behalf of
B
the erstwhile directors was heard before passing he order under Section
130 of the Companies Act. Therefore, it can be said that there is a
compliance/substantial compliance of the principle of natural justice to
be followed. It is required to be noted that as per proviso to Section 130
of the Companies Act before passing the order under Section 130 of the
C Act, the Tribunal is required to issue notice to the Central Government,
Income Tax Authorities, SEBI or any other statutory regulatory body or
authorities concerned or any “other person concerned” and is required
to take into consideration the representation, if any made. The “other
person concerned” is as such not defined. Who can be said to be “other
person concerned”, that question is kept open. At this stage, it is required
D
to be noted that while passing the order under Section 130 of the Act,
there shall be reopening of the books of accounts and re-casting of the
financial statements of the company and therefore the Board of Directors
of the company may make a grievance. The erstwhile directors cannot
represent the company as they are suspended pursuant to the earlier
E order passed under Section 242 of the Companies Act. Be that as it
may, even otherwise in the present case and as observed hereinabove
the erstwhile directors of the company represented before the Tribunal
and they opposed the application under Section 130 of the Act. Therefore,
in the facts and circumstances of the case, it cannot be said that the
order passed by the learned Tribunal is per se in violation of the principle
F
of natural justice as alleged.
14. The submission by learned Counsel appearing on behalf of
the appellant that in the impugned order passed by the learned Appellate
Tribunal, the learned Appellate Tribunal has specifically observed that
there is a violation of principle of natural justice and therefore the learned
G Appellate Tribunal ought to have remanded the matter to the Tribunal is
concerned, on considering/fair reading of the impugned order passed by
the learned Appellate Tribunal, as such, there is no specific finding by
the learned Appellate Tribunal that there is a violation of principle of
natural justice. What is observed by the learned Appellate Tribunal is
H that “even if it is accepted that the appellant on receipt of notice wanted
HARI SANKARAN v. UNION OF INDIA & OTHERS 785
[M. R. SHAH, J.]
to file reply” cannot be considered as a specific finding given that the A
order passed by the Tribunal was in violation of principle of natural justice.
15. Now insofar as the submission on behalf of the appellant that
the order dated 01.10.2018 passed under Section 241/242 of the
Companies Act is an interim order and the same is not a final order
suspending the directors and the erstwhile board of directors of the B
company, and therefore the observations made in the order dated
01.10.2018 cannot be considered, has no substance. It is required to be
noted that as on today the order dated 01.10.2018 suspending the erstwhile
directors of the company including the appellant stands and remains in
operation. The same is not challenged by way of an appeal before an
appropriate appellate Tribunal/Court. C
16. Now so far as the submission on behalf of the appellant that
the impugned order passed by the learned Appellate Tribunal is a non-
speaking and non-reasoned order and the grounds urged before the
learned Appellate Tribunal have not been dealt with by the learned
Appellate Tribunal and therefore the prayer to set aside the order is D
concerned, in view of our specific findings recorded hereinabove on the
legality and validity of the order passed by the learned Tribunal under
Section 130 of the Companies Act, we do not propose to remand the
matter to the learned Appellate Tribunal. It is true that the learned
Appellate Tribunal could have passed a reasoned/speaking order. But in E
the facts and circumstances of the case and our findings recorded
hereinabove and as observed hereinabove, the order passed by the
Tribunal under Section 130 of the Companies Act does not suffer from
any illegality and the same is passed in the larger public interest, we
have considered the order passed by the learned Tribunal under Section
130 of the Companies Act on merits. F
17. In view of the aforesaid findings recorded by us, the decisions
relied upon by the learned counsel appearing on behalf of the appellant
shall not be applicable to the facts of the case on hand. There cannot be
any dispute to the proposition of law laid down by this Court in the
aforesaid decisions relied upon by the learned counsel appearing on behalf G
of the appellant. However, in the light of the aforesaid findings recorded
by us, none of the decisions relied upon by the learned counsel appearing
on behalf of the appellant shall be applicable to the facts of the case on
hand.
H
786 SUPREME COURT REPORTS [2019] 8 S.C.R.
A 18. Now so far as reliance placed upon the subsequent report of
the RBI and the objection by the learned counsel appearing on behalf of
the appellant to rely upon the subsequent report and the reliance placed
upon the decision of this Court in the case of Mohinder Singh (supra)
is concerned, as the impugned order passed by the learned Tribunal is in
the larger public interest, this Court can take note of the subsequent
B
development/report. However, at the same time, the same shall be in
support of the order under challenge. Even otherwise, it is required to be
noted and as observed hereinabove, independent to the subsequent report
of the RBI, there is a specific finding with respect to the mismanagement
and the fraudulent accounts. Therefore subsequent Report of the RBI
C Report can be taken note of, while upholding the order passed by the
learned Tribunal under Section 130 of the Companies Act. As observed
hereinabove, a larger public interest has been involved and reopening of
the books of accounts and recasting of financial statements of the
aforesaid companies is required to be carried out in the larger public
interest, to find out the real truth, and as observed hereinabove both the
D
conditions precedent while invoking power under Section 130 of the
Companies Act are satisfied/complied with, therefore in the facts and
circumstances of the case, we are of the opinion that the order passed
by the learned Tribunal passed under Section 130 of the Companies Act,
confirmed by the learned Appellate Tribunal, is not required to be
E interfered with.
19. In view of the above and for the reasons stated above, we see
no reason to interfere with the impugned order dated 01.01.2019 passed
by the learned Tribunal under Section 130 of the Companies Act for re-
opening of the books of accounts and re-casting the financial statements
F of the Infrastructure Leasing & Financial Services Limited; IL&FS
Financial Services Limited and IL&FS Transportation Networks Limited
for the last five years, viz. from Financial Year 2012-13 to the Financial
Year 2017-18, which came to be confirmed by the learned Appellate
Court vide impugned judgment and order dated 31.01.2019. Consequently,
the present appeal fails and deserves to be dismissed and is accordingly
G dismissed.
All connected IAs are also disposed of.
Devika Gujral Appeal dismissed and IAs diposed of.
H
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