MADANLAL JUHARMAL GOYAL & ANR vs UNION OF INDIA
WRIT PETITION No. 7170 of 2024
Facts:
1. The Company was incorporated on 24.02.2006 by the erstwhile promoters. On account of share purchase transactions between 2008 to 2011, the Petitioners became major shareholders of the Company. Company, in December 2009 took a loan from IDBI Bank to the tune of Rs.5 crores. The loan facilities were enhanced from time to time between 2010 to 2017 and finally IDBI Bank had extended facilities aggregating to Rs.70 crores. The IDBI Bank since 2013 conducted regular third party studies with respect to the Company.
2. During the period16.08.2016, the Company requested NOC of IDBI Bank so as to enter into a transaction where the Company would be taken over by a listed entity. Effectively, the financial facility would also have been reassigned from IDBI Bank to SBI Bank. Between 2018 and 2019, the Company starting facing a rough patch due to which the Company could not service its debt and were eventually declared as an NPA on 18.03.2019. Subsequently, on 04.05.2019, the loans were also recalled by IDBI Bank. On 03.03.2020, the CIRP proceeding was admitted against the Company under Section 9 of the IBC on account of an application made by one of the Operational Creditors. Since no resolution could be arrived at, a liquidation order was also passed on 04.12.2020.
3. Liquidator appointed an transaction auditor based on the report of the transaction auditor, the liquidator has taken steps to file an application under Section 43 and 45 of the IBC. The Application under Section 43 and 45 is withdrawn by the IRP. Subsequently, on 21.06.2021, the liquidator filed an application under Section 66 of the IBC, which is pending adjudication.
4. Similarly Petitioners have recently learnt that on 30.11.2021, a sanction was uploaded by Respondent No.1 to investigate into the affairs of the Company by exercising power under Section 212 of the Companies Act, 2013.
4. Writ petition is filed challenging the sanction.
Issue: Whether the petition can be allowed ?
Argument:
Petitioner:
1. Counsel submitted that it is settled position that an order directing investigation under Section 212 (1) (c) of the Companies Act, 2013 (“Companies Act”) should stand on its own feet and must be able to demonstrate that there exist material/circumstances which warrant investigation and that such material/circumstances have been been considered and an opinion is formed by the government to investigate into the affairs of the company on the basis such of material/circumstances. This opinion must be based on specific grounds and reasons which shall form a part of the order authorizing sanction.
2. Counsel submitted that order of investigation is completely unreasoned, requisite opinion is not formed by the Central Government, there does not exist material/circumstances/fact necessitating investigation and is without any basis and is merely based on the ipse-dixi of the liquidator who has already filed an application under Section 66 of the Insolvency and Bankruptcy Code 2016 (“IBC”), which is pending adjudication.
3. It was submitted that without prejudice even assuming the Transaction audit report and all the material produced in the Application filed under section 66 by the IRP to be true and correct, at best, case is made out for a transaction under section 66 of the IBC and by no stretch of imagination can a man of normal prudence come to a conclusion that the same would qualify as transactions carried out in prejudice of the public for the purposes of Section 212 of the Companies Act.
4. It was further submitted that Central Government has not arrived at an opinion requisite to sanction investigation under section 212 (1) (c). It is argued that the impugned order dated 30.11.2021 is mechanically passed without application of mind and is completely non-speaking.
5. It was submitted that a detailed reading of the Transaction Audit Report in its entirety will show that no where does it state that there needs to be investigation under section 212 of the Companies Act and/or public interest is involved or affected by the Transactions made by the Company. Further it is argued that the opinion of the liquidator is immaterial and the Central Government ought to have formed an opinion for commencing investigation under section 212 of the Companies Act.
6. It was contended that once a transaction is classified as a transaction which is likely to be covered under section 66 of the IBC, the provisions of IBC will come into operation and all actions will be required to be taken under the IBC, which is a code in itself.
Respondent:
1. Counsel submitted that opinion is reasonable. The discretion has been exercised by applying correct judicial principles and there is no deviation from the same. For these reasons and when the petition is premature, this Court should not interfere in writ jurisdiction and the petition be dismissed.
Decision:
Rationale:
1. Hon’ble Court noted that Without prejudice to what is stated hereinabove, a perusal of the impugned order dated 30.11.2021 would show that the same is based on a representation made by the liquidator as well as the Transaction audit report. The liquidator, for the same cause of action, has filed preferential transaction application before the learned NCLT, Mumbai. Therefore, it can be safely, assumed that the liquidator has placed on record before the NCLT, shows that conduct of the company was carried out in a manner prejudicial to the public interest.
2. Court held that there is no question of public interest in relation to any transaction with respect to the company as the company itself is a private limited entity. At best, assuming all the allegations to be true and correct, the only deviation of the company is in relation to default of the financial facilities of IDBI bank.
3. It held that a sanction passed by the Central Government under section 212 of the Companies Act cannot be subjected to judicial review before us exercising Writ Jurisdiction, except for testing the impugned sanction on two counts; A) whether there exists opinion by Central Government as mandated under section 212 of the Companies Act; B) Whether there exist material and circumstances to indicate that the company’s affairs are causing prejudice to the public interest.
4. It held that merely ordering investigation in a routinely fashion and in a mechanical way, as is done in the present case, would not qualify as forming of opinion for the purposes of Section 212 of the Companies Act.
