ORDER
1. Feigning innocent look for obtaining relief before this Court proved fatal. A doctorate in engineering who approached this Court with folded hands for protection; but very soon this Court unfolded his heart and found all its arteries filled with dishonesty and fraud.
2. This writ petition is filed seeking writ of mandamus directing the respondents to make an enquiry before registering any crime against the petitioners as and when any complaint is made against them.
3. The first petitioner is one Dr. N.R. Pinna, the Managing Director of M/s. Midwest India Industries Limited, formerly known as Midwest Leading and Finance
Limited. He claims to be pioneer in establishing Midwest group of industries with his engineering acumanship. The second petitioner is the company itself. The first petitioner is promoter of Midwest Group of Companies including the Midwest India Industries Limited. It was registered in the year 1980. The principal business of the company is to accept the deposits from various individuals and companies and to advance the same to other companies. It has its Registered Office at 105-C, Mittal Tower, Nariman Point, Mumbai and Head Office at Begumpet, Hyderabad. It has number of branches all over the country. It has been carrying on the business of financing by way of hire purchase. But, however on account of revised guidelines issued by the Reserve Bank of India in 1997, the company started running into heavy losses. It has around 12000 depositors and 3000 debtors. Since the deposits made by various depositors matured and on account of loss sustained by the company, it could not repay the deposits to the subscribers. Number of complaints were made against the company, and it is also the case of the petitioners that some depositors started harassing and manhandling the Managing Director and some civil and criminal cases were also filed at various places. Since the first petitioner is a respectable person, frequent visits of police has demoralising effect on the status of the Managing Director and that the Company would certainly collect the amounts receivable from others and pay the same to the depositors. But, however, on account of disturbance which is being caused by the depositors and also on account of threat posed by them, the first petitioner is not in a position to concentrate on business and settle the accounts of the depositors. Thus the first petitioner approached this Court with an innocent face in the garb of folded hands stating that the company is capable and willing to pay the amount if some time is granted, and that if he is arrested by the police in criminal investigation, he will
not be able to return the money to the various depositors. With These averments, he approached the Court for appropriate relief.
4. When the matter was heard on 8-2-1999, it was submitted by the learned Counsel for the petitioners that on account of Reserve Bank having issued notification prohibiting the deposits from the public, the finances of the company were disturbed. Therefore, it was finding difficult to make the payments in time and that the company will be able to repay the amounts to the depositors in a phased manner, provided they are allowed to work in the office without any disturbance. They also sought for police protection by providing gun met at their cost. This Court, relying on the submission of the learned Counsel and also taking into consideration of the prime interest of the depositors and to do justice to the depositors apart from the civil and criminal liability of the company, directed the petitioners to file affidavits with regard to the details of depositors and schedule of payment. The petitioners furnished the details with the following schedule:
Year
Total Depositors
Amounts payable
Date of payments
1996
233
Rs.
43,58,220/-
July, 1999
1997
1256
Rs.1,90,000/-
December, 1999
1998
6428
Rs. 8,90,00,000/-
December, 2000
The above figures show that the deposits matured in the year 1996 amounted to Rs.43,58,220/- and the deposits matured in 1997 and 1998 amounted to Rs.1,90,00,000/-and Rs.8,90,00,000/- respectively, and they arc yet to be paid to the depositors.
5. The learned Counsel appearing for the Midwest Industries Investors Welfare Association, Mr. Durga Prasad submitted that the company has obtained deposits from a number of persons and most of them are
retired employees who invested the amounts in the company with a fond hope of getting reasonable returns and that the company has virtually defrauded and deceived them and the depositors are on the starvation point and they lost heavy amounts and not in a position to recover any portion of the deposits. It was also stated that the company is having number of assets which would meet more than the depositors’ requirement and that it was only feigning financial incapacity temporarily. However, keeping in view these submissions and in order to safeguard the interest of depositors, the Court passed the following interim orders on 8-2-1999:
(a) The Deposits in respect of 1996 which are already matured covering 233 depositors shall be paid from 1-5-1999 to 31-5-1999 and the interest shall be calculated upto
30-4-1999.
(b) Similarly, in respect of the 1999 (sic 1997) deposits (total depositors 1,256), the payment shall be made from 1-10-1999 to 31-10-1999 duly calculating the interest upto 30-9-1999.
(c) In respect of 1998 deposits there are 6,428 depositors to whom the amount has to be refunded. Out of this, the deposits in respect of 1,428 depositors shall be refunded from 1-1-2000 to 31-1-2000 duly calculating interest upto 31-12-1999. In respect of next 2,500 depositors, the amounts shall be refunded from 1-4-2000 to 30-4-2000, the balance 2,500 depositors shall be paid from 1-7-2000 to 31-7-2000 calculating the interest as on 31-3-2000, 30-6-2000 respectively.
(d) The rate of interest shall as fixed in the deposit form.
(e) For the purpose of ensuring the prompt payment to the depositors, this Court appoint Mr. V.S. Raju and Smt. E. Urmila, Advocates, as Advocates-Commissioners.
The Advocates-Commissioners shall open a separate account in the name and style of M/s. Midwest India Industries Limited Depositors Account, in State Bank of Hyderabad, High Court Extension Branch, Hyderabad. The account shall be operated under joint signatures of both the Advocates-Commissioners. On opening the Bank Account, they shall intimate the same to the petitioners forthwith. The petitioners shall deposit a sum of Rs.1,00,000/-(Rupees one lakh only) within one month from today towards ministerial and other expenses.
(f) The petitioners shall deposit the amounts liable to be refunded to the depositors in respect of 1996 deposits in the aforesaid account. The entire amount shall be deposited on or before 1-5-1999. In respect of 1997 deposits, the amounts shall be deposited on or before 5-10-1999 and in respect of 1998 deposits, the amounts of 1st batch, 2nd batch and 3rd batch shall be deposited on or before 5-1-2000, 5-4-2000 and 5-7-2000 respectively. In case of any default, on the part of the petitioners, Advocates-Commissioners shall intimate the same to this Court for further action.
(g) On deposit of the amounts as directed, the Advocates-Commissioners shall issue cheques to the respective depositors under proper documentation.
(h) The petitioners shall furnish the bank guarantee in favour of Advocates-Commissioners for a sum of Rs.10,00,000/-(Rupees Ten lakhs only) within 45 days from today and that shall be kept in operation till the final payment is made to all the depositors.
(i) The 1st and 2nd petitioners shall furnish list of the movable and immovable properties owned and possessed by them to the Advocates-Commissioners with full details of value etc., within a period of one month from today and they shall not
alienate or create any charge over the movable or immovable properties held by the 1st and 2nd petitioners without specific permission of this Court. They shall also give such undertaking before the Advocates-Commissioners on this regard.
(j) The petitioners shall furnish to the Advocates-Commissioners remaining income and expenditure account of 2nd petitioner company every month.
(k) In respect of Deposits which would mature in 1999 the same shall be paid within three months from the date of maturity duly calculating the interest. The said amount shall be deposited by the petitioners to the aforesaid depositors account giving the details and addresses of the depositors. The Advocates-Commissioners shall on such deposit issue cheques to the respective depositors under proper documentation.
(l) The 1st petitioner shall not leave the Country without the specific permission of this Court and he shall intimate this to the Passport Officer giving necessary details of his passport, to ensure that he will not leave the Country without permission of this Court. A copy of the orders shall be sent to the Passport Officer, Hyderabad for necessary action. The 1 st petitioner is permitted to travel within the Country. However, he shall intimate the same to the Commissioner of Police, Hyderabad.
(m) The Commissioner of Police, Hyderabad shall continue to provide two gunmen at the cost of the petitioners, as per the Rules until further orders.
(n) The investigations in respect of the complaints filed against the petitioners for non-refund of the deposits shall be kept in abeyance until further orders. The petitioners shall not be arrested in connection with the
complaints relating to non-refund of deposits either already made or that may be made in future.
(o) The Advocates-Commissioners shall render the progress report every two months from the date of this order.
(p) The remuneration of Advocates-Commissioners is tentatively fixed at two (2) per cent of the amount refunded to the depositors to be apportioned equally between them.
(q) In case any information is called for by the Advocates-Commissioners, the same shall be furnished by the petitioners.
(r) The Advocates-Commissioners may seek any further directions from this Court as and when required depending on the exigencies of the situations. It is also open for the Advocates-Commissioners to take the assistance of the Chartered Accountant, if found necessary.
(s) All the expenses incurred by the Advocates-Commissioners for carrying out the above directions shall be met from out of the amount of Rs. 1,00,000/- (Rupees one lakh only) directed to be deposited for the purpose.
(t) The Advocates-Commissioners shall publish the notices in two news papers having all India circulation requiring the depositors to register their claim with the Advocates-Commissioners well in advance.
6. The Depositors’ Association filed a counter stating that the company has cheated the depositors and that unless firm steps are taken, their interest will not be saved. The counter filed by the Police also reveals that the petitioners involved in a number of cases of cheating and a number of cases were
registered at various places including at Hyderabad.
7. It is, however, seen that the petitioners did not carry out the directions granted by this Court, except depositing some amount in the Bank for the expenses of Advocates-Commissioners. Therefore, the Association filed Contempt CaseNo.630 of 1999 for punishing the Managing Director for violating the orders of this Court.
8. Notices were published by the Advocates-Commissioners inviting the requisitions from the depositors so as to assess the payment schedules. But, however, it is seen that the petitioners never deposited any amount and tried to explain that they did not receive any amounts. The petitioners also did not furnish the bank guarantee for Rs. 10,00,000/- as directed by this Court. The petitioners also did not furnish the details of movable and immovable properties and balance sheet to the Advocates-Commissioners, therefore, they filed a report stating that the petitioners did not comply with the directions of this Court. By letter dated 24-3-1999, the petitioners informed the Advocates-Commissioners that no banks are coming forward to furnish bank guarantee and expressed their inability to furnish bank guarantee and submitted the assets of the company as follows:
Fixed Assets of Dr. Pinna N.R.
1.
Agriculture land at Malkapur village Chettuppal Mandalam, Dist.
Nalgonda (to an extent of about 9.00 Acres)
Rs. 3,50,000.00
2.
UTI units 4000 @ Rs. 14/- per unit
Rs. 56,000.00
3.
Shares in different companies
Rs. 5,00,000.00
Total
Rs. 9,06,000.00
9. The petitioners filed another affidavit on 29-12-1998 giving the revised schedule of proposed payments as under:
Sl. No.
Number of Depositors
Principal amount
Date of payments
1
613
Rs.
87,86,925
31-07-1999
2.
614
Rs.
87,86,925
31-10-1999
3
614
Rs.
87,86,925
31-01-2000
4
614
Rs.
87.86,925
31-04-2000
5
614
Rs.
87,86,925
31-07-2000
6
614
Rs.
87,86,925
31-10-2000
7
614
Rs.
87,86,925
31-01-2001
8
614
Rs.
87,86,925
31-04-2001
Total
4,911
Rs.
7,02,95,402
10. Advocates-Commissioners filed a report dated 10-6-1999 stating that the petitioners did not deposit any amount. They also did not furnish title deeds of immovable properties owned by the Company at 105-C, Mittal Towers, Nariman Point, Mumbai stating that the documents were given as collateral security to consortium banks headed by State Bank of India, Recovery and Rehabilitation Branch, R.P. Road, Secunderabad. They have deposited certain title deeds in respect of the properties owned by the Company and also Dr. Pinna N.R. vide their letter dated 17-5-1999 before the Advocates-Commissioners. The following are the details:
A. Company’s properties :
Sl.No.
Document No.
Date
Details of land
1.
135/95
11-01-1995
3 Acres of Agricultural
dry land in survey No. 291 situated in Malkapur village, Chottuppal Mandal, Nalgonda
District.
2.
136/95
11-01-1995
3 Acres of Agricultural
dry land in survey No. 290 situated in Malkaput village, Chottuppal Mandal. Nalgonda
District.
3.
137/95
11-01-1995
3 Acres of Agricultural
dry land in survey No. 291 situated in Malkapur village, Choltuppal Mandal, Nalgonda
District.
4.
138/95
11-01-1995
2 Acres of Agricultural
dry land in survey No. 291 situated in Malkapur village, Choltuppal Mandal, Nalgonda
District.
5.
139/95
11-01-1995
1 Acre 6 gunfas of Agri-cultural
dry land in survey No. 290 situated in Malkapur village, Chottuppal Mandal,
Nalgonda District.
6.
140/95
11-01-1995
2 Acre 16 guntas of
Agri-cultural dry land in survey No. 29 situated in Malkapur village,
Choltuppal Mandal, Nalgonda District.
B. Property owned by Dr. Pinnaa N.R., Director :
1.
3093/95
7-10-1996
8
Acres 17 guntas of Agri-cultural dry land in survey No. .277 situated in
Malkapur village, Chottuppal Mandal, Nalgonda Disirict.
11. Advocates-Commissioners filed third report dated 12-7-1999 stating that they have received claims from various depositors, but the company has not deposited any amounts. On 2-8-1999 fourth report was filed by the Advocates-Commissioners stating that no progress was made with regard to deposit of the amounts, and that the company only furnished the statement of receivables. Fifth report was filed by the Advocates-Commissioners on 19-8-1999 submitting the receivables from various third parties including the Court fees.
12. This Court passed various orders from time to time in order to see that the interest of depositors is protected. The Depositors’ Association also filed details of various properties held by the petitioners. The Government Pleader furnished the information with regard to the cases pending against the petitioners in Andhra Pradesh. Following are the details.
13. Cases registered against Pinnaa Nageswara Rao of Midwest Finance Ltd., in the State of A.P.
Sl. No.
Police Station
Crime Number
Amount involved.
1.
Rajahmundry II – Town
P.S.
136/98
Rs. 24,60,630/-
2.
Kalcinada III Town P.S.
90/98
Rs. 5,44,921/-
3.
Begumpet, P.S. Hyderabad
1.206198
2.207/98
3.239/93
Rs. 16,00,000/-
Rs. 5,00,000/-
Rs. 69,007/-
14. This Court on 13-7-1999 passed
the following interim orders :
(a) That the petitioner-Company shall furnish the details of receivables from various borrowers and the action taken in respect of each transaction and the status report as on 30th June, 1999 to the Advocate-Commissioners within a period of two weeks. On furnishing such details, the Advocate-Commissioners shall prepare the report and suggest to this Court as to the method and manner of proceeding with the recovery of the amounts from the borrowers.
(b) The petitioners-Company shall not make any payment to the third parties except with the permission of the Advocate-Commissioners;
(c) All bank transactions and non-banking transactions shall also be conducted duly informing the Commissioners.
(d) All the amounts received from third parties and the bank in which they were deposited shall be informed to the Advocate-Commissioners.
(e) Payment of salaries and other office expenses shall be made by the petitioner-Company with the permission of the Advocate-Commissioners.
(f) The Advocate-Commissioner shall filed the report about the financial status of the Company as on the 30th June, 1999, within a period of two weeks.
(g) The Advocate-Commissioners are permitted to withdraw Rs.10,000/- each towards part of the remuneration pending further orders.
(h) The Company shall comply with the above directions meticulously, failing which a serious view will be taken and further proceedings will be initiated against the Company as well as the Managing Director.
(i) Implead (1) Reserve Bank of India, NBFC Division, Mumbai (2) Reserve Bank of India, Saifabad, Hyderabad (3) Syndicate Bank, R.P. Road, Secunderabad (4) Indian Overseas Bank, Raj Bhavan Road, Hyderabad (5) The Registrar of Companies, Maharashtra, 100, Everest, Marine Drive, Mumbai – 400 002 and (6) The Company Law Board, Western Region Branch, NTC House, N.M. Marg, Ballard Estate, Mumbai.
15. The matter was being adjourned from time to time. The Depositors’ Association has evinced keen interest to see that the interest of depositors is protected. They have furnished valuable information from time to time. It is stated that the Managing Director and other family members have acquired a lot of assets with the monies of the depositors, and the following five companies were established:
(1) Midwest Hire Purchase Limited.
(2) Midwest Growth Limited.
(3) Midwest Mutual Fund Limited.
(4) Midwest Iron and Steel Limited.
(5) Midwest Wooltex Limited.
Midwest India Industries Limited is promoted by nonelse than the members of the family as can be seen from the registration certificate of the Company before the Registrar. The following are the promoters:
Sl. No.
Name of the member
Relationship with the
1st petitioner
1.
Nageshwar Rao Pinnaa
1 st petitioner
2.
Geetha Rao Pinnaa
Wife
3.
Suryanarayana Pinnaa
Father (since died)
4.
Venkateswara Rao Pinnaa
Brother
5.
Tirupatamma Pinnaa
Mother
6.
Rama Rao Pinnaa
Brother
7.
Jalaja Pinnaa
Sister
It is also stated that the sister companies acquired much extent of assets and the Association furnished the following details:
Sl. No.
The person in whose name
the property is acquired
Particulars of the
property
1.
Midwest Hire Purchase
Ltd.
(a)
Land admeasuring
Ac.5.00, situated at Puppalaguda village Rajendranagar Mandal, R.R.Dist.
(b)
House in Plot No. 9,
Flat No. 102, Aurora Colony, Banjara Hills, Hyderabad
2.
Midwest Growth limited
Land admeasuring Ac.4.1
6 G situated at Puppalaguda village, Rajendranagar Mandal, R.R. Dist.
3.
Midwest Growth Limited
Flat in Plot No.9,
Aurora Colony, Banjara Hills, Hyderabad.
4.
Midwest Wooltex
Land admeasuring
Ac.23.39 G in Malkapur Village, Chowtuppal Mandal, Nalgonda District.
5.
First respondent
House situated in Eluru Town.
6.
First respondent
House in Plot No.8,
Aurora Colony. Banjara Hills. Hyderabad.
7.
First respondent
House plot admeasuring 800
sq. yards in Sy. No.62 of Madapur.
8.
First respondent
land admeasuring 2 acres
in Survey No.62, situated at Madapur village Serilingampally Mandal, Rangareddy
District.
9.
First respondent
Land admeasuring Ac.1.25
G in Survey Nos. 105 and 106 of Khajanguda village, Rajendranagar Mandal, Ranga
Reddy District.
10.
Sri P.V. Rao (brother/ fourth
director in respondent No. 2-Company)
Three bed rooms flat in
1Floor, H. No. 8/3/825/5/2/3 of yellareddyguda, casting around Rs. 15 lakhs,
11.
-do-
House site admeasuring
500 square yards in Sy. No. 62 of Madapur.
12.
P. Rama Rao (brother/ sixth
director in R-2 company)
One house in Madapur in
an extent of 500 sq. yards (un-numbered) in Sy. No.G2 of Madapur village
costing around 15 lakhs.
13.
Smt. Jalaja (sister/ seventh
Director or R-2 company)
Two houses in Madapur in
an extent of 800 sq. yards (unnumbered) in Sy. No. 62 of Madapur village.
14.
-do-
One two bed room flat in
1 floor, H. No.8/3/825/5/2/3 of Yellareddyguda.
It is also brought to the notice of this Court that the first petitioner has purchased an extent of 5 acres of land in Survey No.62 of Madapur, opposite to Madapur Police Station and Hi-Tech City in his name and in the name of his two brothers, who were also the then Directors and Promoters, with the funds of the company under registered documents bearing Nos.8881 of 1987, 8882 of 1987, 8916 of 1997 and 8917 of 1997 on the file of the Sub-Registrar, Rangareddy District. The Association also stated that the copies of wealth tax and income tax returns disclose that the following properties are in the name of the company:
Sl. No.
Description
Value as per returns
1.
UTI units 4000 at Rs.
14/-per unit
Rs. 56,000.00
2.
Shares in different Indian
Companies
Rs. 5,00,000.00
3.
Gold Ornaments 400 grams
at Rs. 473/- per gram.
Rs. 1,89,200.00
4.
Fixed deposit with
companies
Rs. 18,91,500.00
5.
Registered Office
Building in Bombay
Rs. 4,85,00,000.00
16. On 23-8-1999 this Court passed further interim orders to the following effect:
“Pending further orders, the Advocate-Commissioners shall take physical possession of the land situate in Sy.No.62, Madapur, Ranga Reddy District having an extent of Ac.2.00 and another piece of land situate in Sy. Nos. 105 and 106 of Khajaguda having an extent of Ac. 1.20 guntas forthwith. The petitioner shall identify the land and hand over the physical possession as directed above.
The petitioner shall deposit the sale deeds in respect of the aforesaid lands with the Advocate-Commissioners. The Advocate-Commissioners shall, if necessary, appoint watchmen for the purpose of safeguarding the aforesaid property. The SP of RR District and the Mandal Revenue Officer concerned are directed to ensure that no encroachment takes place on the above land and they shall render necessary assistance to the Advocate-Commissioners as and when required by them in this regard.
Implead the Collector, Rangareddy District, SP, Ranga Reddy District and also Mandal Revenue Officer, Serilingampally and the Sub-Registrars of Serilingampally and Madapur.
The Sub-Registrars are directed not to entertain any instruments in respect of the properties mentioned above, pending further orders.
The Advocate-Commissioners shall draw a sum of Rs.5,000/- each towards their part remuneration, pending further orders.”
17. In pursuance of the orders of this Court, the Advocate-Commissioners visited the spot on 30-9-1999 and identified the
lands in Sy. No.62 of Madapur having an extent of Ac.2.00 and at Khajaguda in Sy. Nos.105 and 106 having an extent of Ac.1.20 guntas with the assistance of Mandal Revenue Officer, Revenue Inspector and Village Administrative Officer concerned and took possession of the land.
18. On a further complaint by the Depositors Association, this Court passed order on 5-10-1999 as follows :
“In the counter filed by the fourth
respondent-K Nanjumiappa, the President of the depositors, it is brought out that the first petitioner-Dr. N.R. Pinnaa has opened and operating Bank accounts bearing Current Account Nos.80 and 81 in the name of the second petitioner-Company and Midwest Iron & Steels Limited at Indian Overseas Bank, Vani College Extension Counter at Dilsukhnagar, Hyderabad.
When the petitioner-Dr. N.R Pinnaa was questioned about this, he has accepted that the accounts are being operated. This Court takes a serious view of this matter.
However, before proceeding with the matter, there shall be interim direction to the Branch Manager, Indian Overseas Bank, Vani College Extension Counter at Dilsukhnagar, Hyderabad to freeze the entire Current Account Nos.80 and 81; and the Bank shall not permit the petitioner -Dr. N.R. Pinnaa to operate the said accounts until further orders.”
19. The Association filed a consolidated affidavit on 8-11-1999 giving comprehensive details from the inception.
20. The Reserve Bank of India filed counter stating that by virtue of amendment, all Non-Banking Financial Institutions are prohibited from accepting the deposits,
except with the permission of Reserve Bank of India and for this purpose, they have to obtain registration. This amendment came into effect in 1997. The petitioners submitted an application on 19-6-1997 for grant of certificate of registration under Section 45(I)(A) of the Reserve Bank of India Act, 1934 (for short ‘the Act’). The Reserve Bank has noticed a number of defaults and also received complaints for non refund of the deposits already collected by them. In order to consider the application for grant of registration certificate, a special audit of the Company was ordered by M/s. D.V. Ramana Rao and Company and the special audit revealed that the company had outstanding public deposit liability of Rs.1,453.34 lakhs as on 31-3-1997 and Rs. 1,672.81 lakhs as on 31-3-1998 and it had several over due matured deposits of Rs.74.86 lakhs as on 31-3-1998. The realisable value of the assets of the Company was at Rs.1,224.09 lakhs which was far less than the outstanding liability of Rs.2,340.71 lakhs. Apart from this, the company has grossly violated the provisions of Chapter I11D of the Act. Even though the Bank has advised the company to repay the amounts to the depositors, it has never done so. Therefore, the Bank has issued public notification warning the public not to make any deposits with the company as the registration was refused.
21. This is the scenario of this company. The company was promoted by the family members of the first petitioner including himself and started receiving heavy deposits. The depositors were given necessary deposit certificates, but however, did not return any amount to the depositors whose fixed deposits were matured. This gave hue and cry among the depositors. In the meanwhile, in the name of Midwest group of companies, five more companies were registered as detailed above. Number of assets were acquired by this company and also the other companies which were registered subsequent to the registration of
Midwest India Industries Limited. The entire effort of this Court was to protect the interest of the depositors and for this purpose, personal protection was given to the petitioners by directing the police authorities to arrange two gunmen at their cost, so that the property and person can be protected, so as to enable them to make payments to the depositors. But the petitioners obviously enjoyed the protection granted by this Court and grossly violated the directions. They did not bother to make even a single deposit towards the depositors amount, which was opened by the Advocates-Commissioners for this purpose in State Bank of Hyderabad, High Court Branch. All the concerned authorities were alerted not to make any registration of immovable properties and two pieces of land was also attached and taken possession by the Advocates-Commissioners. The petitioners could have easily avoided the consequences if the writ petition was disposed of with the directions. But, this Court made an earnest effort to see as to how much amount is payable to the depositors and on perusing the details as narrated above, it is astonishing to note that enormous amounts which were collected by the petitioners from the people, mostly from the retired persons were misused. The situation created grave situation so as to deal with the petitioners very sternly. Number of cases have been registered and this Court issued directions not to arrest only with a view to see that the petitioner should utilise the opportunity to pay the amounts to the depositors, but this has no effect at all on the petitioners.
22. It is no doubt true that Midwest India Industries Limited was registered by their family members viz., parents, brothers and sisters of the first petitioner. As on today, they are not the directors, but it cannot be disputed that they are the promoters. It is also revealed prima facie that much extent of assets were acquired by the family members and also by the first petitioner and
some assets were also acquired by the companies which were registered subsequent to the registration of Midwest India Industries Limited. It is thus prima facie establishes that the funds collected by the petitioners from various depositors have been diverted for purchase of various assets and they are misused by the petitioners, promoters and other directors who were holding office from time to lime. In Chapter III-B of the Act, the definition of term ‘non-banking financial company’ was added by Amendment Act 23 of 1997 with effect from 9-1-1997. Under Section 45-IA of the Act, which came into force with effect from 9-1-1997 prohibits non-banking financial company either to commence or carry on business without obtaining certificate of registration, failure of its compliance leads to prosecution. Admittedly, even the Reserve Bank refused to grant registration certificate for operating as Non-Banking Institution, as it found that the petitioners have grossly violated the norms and did not return the deposits after maturity. The rejection order became final. The Reserve Bank has only power either to prosecute under Chapter V of the Act or to recommend for winding up under Section 45-MC of the Act. Even the complaints made by the depositors are only registered under Section 420 of IPC. But the most important question is fate of the depositors who had made savings by sacrificing their essential need and to utilise the same during post retirement life. They deposited with the petitioners under a fond hope that they get reasonable returns on their hard earned money. That proved to be a myth and misery. The depositors are more than 11,000, and they are virtually on the streets as on the date, as the first petitioner is now stating that he is not in a position to repay any amount. Even if the first petitioner-Managing Director, including those connected with the offences viz., past directors and promoters are sent to the prison, the question still remains that whether the Court has done any justice to the depositors. Sentencing the offenders
and committing them to the prison is one thing than ensuring the return of deposits to the poor depositors who made deposits from every nook and corner of this country. This Court also takes judicial notice of the present trend that number of non-banking financial companies have received huge deposits from the people of this Country by mesmerising them with heavenly pleasures and these companies have lifted their boards itself in a very short time. In Andhra Pradesh itself, there are many such instances which are being reported in the press every day. What is the solution that has to be carved to arrest the situation ? Can the Slate be a mute spectator when huge amounts running into crores of innocent public is being misused and misappropriated by the financial institutions. The provisions of the RBI Act have only regulated the conduct of Non-Banking Financial Institutions after the issuance of registration certificates. But, the institutions which have already collected deposits as on the date of coming into force the amended provisions in 1997 and which were refused certificate of registration by Reserve Bank of India and failed to refund the deposits, no provision has been made to deal with such companies. The fate of these depositors with such companies is hanging in fire. Therefore, a grave situation arisen wherein the State is required to deal with it with stern hands.
23. The present case would not have come to light if the Court has not made elaborate enquiry into this aspect with regard to assets and details of promoters and the past directors etc., and also the companies established. Can the thirst of the depositors be wiped out if these offenders are prosecuted and sent to prisons. The answer is emphatically ‘no’. Similar situation came to light before the Supreme Court in Delhi Development Authority v. Skipper Construction Co. (P) Ltd., . The Supreme Court clarified that ”imposition of punishment for contempt
would not denude the Court of its power to issue directions to remedy by the wrong done by the contemner including those so as not to enable the contemner to retain the benefit derived by the contempt.” The Supreme Court further clarified that “it is open for the Court to lift the corporate veil to see the real men behind the veil who are involved in defrauding others by corrupt and illegal means in deliberate defiance of Court’s order.” The Supreme Court further held that “the Courts have power to reach the illegally obtained property even in the hands of relatives and associates and restore it to the victims of the fraud or corruption.” In this case, it is clear that the corporate character was employed by the first petitioner for the purpose of committing illegality and defrauding the others. In such an event, this Court, piercing the corporate veil, can look at the reality behind the corporate veil so as to pass appropriate orders to do substantial justice to the victims. It is seen that the Managing Director not only incorporated Midwest India Industries Limited, and subsequently other companies were brought into effect and that too by the persons who are nonelse than the close relations and promoters of the first company. The Supreme Court treated all such companies as one entity belonging to one and controlled by one family. The learned Counsel for Reserve Bank of India also submits that the Bank was taking steps to initiate prosecution proceedings and also for winding up of the company, as it was a confirmed case of non-refund of deposits. The submission of the learned Counsel appears to be very appropriate. De hors this submission, this Court also gave number of opportunities to the petitioners to refund the deposits as per their own schedule of payments. Even though the schedule of payment was changed twice on the request of the petitioners, yet, there was not even a single case where the company deposited any amount in the account opened by the Advocates-Commissioners. Thus, it proved to be a clear case for winding up.
24. The fate of lakhs of defrauded depositors by the company is still uncertain. Their aspirations that goose would lay golden eggs for them proved to be costly dream -the goose is not even responding for laying normal eggs. Their sweat and blood invested in the company vanished and plunged them in miseries and frustration. Even the new Act introduced by the Government of Andhra Pradesh did not deal with Non-Banking Companies who had already misused the deposits and it has only prospective effect. But the emotions and feelings of parties have no place in judicial proceedings. This Court is required to salvage the situation in accordance with law keeping in view the mandate of the Constitution. It spreads its arms of justice to identify and reach the injustice, and thereby remedy the cause. The efforts of this Court to save the depositors yielded microscopic results. But at the same time, no offender should be allowed to gain an impression that Courts lean towards them. The petitioner failed to respond to the opportunities granted by this Court. The endoscopy of the matter leads to inevitable conclusion that physico-judicial therapy is not the cure, but the judicial surgery is only the situation.
25. Under these circumstances, in the wake of the details referred to above and in order to see that the companies do not defraud the innocent depositors, the writ petition is disposed of with the following directions:
(a) The State Government shall constitute a separate cell in the office of the Director General of Police headed by an officer of the rank of Superintendent of Police and above for dealing with Non-Banking Financial Institutions who have already collected the amounts and failed to repay the deposits and which did not possess registration under the Reserve Bank of India Act. The cell shall cause discrete enquiries in respect of all such institutions
and take immediate action to seize the properties of the company and also the assets of the persons involved in the formation or administration of the company and also the persons who obtained illegal benefit out of the transactions or assets of the company to ensure that the payments are made to the depositors either in full or in pro rata depending upon the circumstances of each case. The cell shall initiate prosecution under various laws against all the offenders who are either directly or indirectly involved.
(b) In respect of the petitioner-Company, the Government of Andhra Pradesh shall order immediate investigation by the CBCID by an officer of the rank of Superintendent of Police and above into the irregularities traced out in this order apart from the complaints already made. The criminal prosecution shall be launched under the provisions of Indian Penal Code, RBI Act and other laws against not only the Managing Director of Midwest India Industries Limited, the first petitioner, but against all the promoters and also the past directors including other persons who are responsible for misuse of the funds of the company either directly or remotely. All the concerned Governmental and non-governmental agencies shall extend co-operation to the investigating team. The Depositors Association also shall assist the investigating agency in this regard.
(c) The Reserve Bank of India shall initiate criminal proceedings against the petitioners and also file an application for winding up of the second petitioner-company under Section 45-MC of RBI Act forthwith under the provisions of Indian Companies Act treating the Registered Office at Hyderabad as the Registered Office at Mumbai ceased to work for number of years and Hyderabad office was only being operated.
(d) All the documents delivered by the petitioners to the Advocates-Commissioners
viz., title deeds etc., shall be deposited before the Registrar (Judicial) for safe custody. As and when any requisition is received from the winding up Court, they may be transmitted under proper receipt.
(e) The first petitioner-Managing Director and the Company shall not in any way transfer or alienate any of the properties either movable or immovable held by them as on the date, pending winding up proceedings before the Court. The CBCID shall seize office premises and records at Hyderabad and all other places including Mumbai wherever the company operated its offices for the purpose of investigation and further action as per law.
(f) The Inspector-General of Stamps and Registrations, AP, Hyderabad shall issue necessary instructions to the concerned Registrars in whose jurisdiction the properties of the company and the Managing Director are situate, not to register any instruments including sale deeds pending winding up proceedings.
The two pieces of land situate in Madapur (in Sy. No.62, having an extent of Ac.2.00) and Khajagtida (in Sy. Nos.105 and 106 having an extent of Ac. 1.20 guntas) whose possession was taken over by the Advocate-Commissioners shall now continue in the possession of the Mandal Revenue Officer, Serilingampally pending winding up proceedings. He shall ensure that no encroachment takes place. He shall abide by further directions that may be issued by the winding up Court.
(g) The facility of two gun men granted by this Court to the first petitioner shall stand revoked forthwith. He shall be immediately arrested by Begumpet police in connection with pending crimes. He shall not be granted any bail by any Subordinate Court in the State till the entire investigation is completed by the CBCID and necessary charge-sheets were filed before the Courts.
The order of bail if any granted by the lower Courts in Crime No.204, 207 and 238 of 1998 of Begumpet P.S. stand cancelled.
(h) The State Government shall also consider establishing a separate Court to deal with the offences relating to the fraud played by the Non-Banking Financial Institutions, so as to avoid spread over of cases in various Courts.
(i) The Depositors’ Association has taken tremendous efforts to unearth the real facts and provided important information to enable the Court to pass appropriate order. Therefore, it is necessary that it should not only be appreciated but also properly remunerated. A sum of Rs.15,000/- from out of the amount lying to the credit of special account in State Bank of Hyderabad, High Court Branch shall be paid to the Counsel appearing for the depositors.
(j) Advocates-Commissioners who have been taking meticulous care for complying with the directions of this Court issued from time to time are permitted to draw a sum of Rs.10,000/- each from the above account.
(k) The balance amount lying in the bank shall be under the supervision of the Registrar (Judicial) pending winding up proceedings. He shall operate the said special account on the directions of this Court or winding up Court as the case may be.
26. Accordingly, the writ petition is disposed of.
27. A copy of this order shall be transmitted to the Chief Secretary, Government of Andhra Pradesh, Hyderabad; Secretary, Company Law Affairs, Government of India, New Delhi; Company Law Board, Chennai; Registrar of Companies, Hyderabad/Mumbai for taking appropriate action.