USHA ANANTHASUBRAMANIAN versus UNION OF INDIA on 12 February 2020

1) The present appeal is by Usha Anandhasubramanian - formerMD & CEO of the Punjab National Bank. She was MD & CEO of thesaid Bank from 14.08.2015 to 05.05.2017.

2) A charge sheet has been filed by the CBI against severalpersons occupying positions in the Punjab National Bank as well as theDirectors of Gitanjali Gems Ltd.

3) Mr. C.S. Vaidyanathan, learned Senior Advocate appearing onbehalf of the appellant, points out that the charge sheet by the CBI itselfmakes it clear that at the highest even the criminal case against theappellant is only that she omittedto take precautions or preventive stepsto prevent the fraud perpetrated by Nirav Modi and thereby committedmis-conduct and conspiracy with the other accused persons. After pointingout the aforesaid charge sheet, Mr. Vaidyanathan then pointed out ordersthat were passed by the NCLT in exercise of its jurisdiction under Section241 of the Companies Act by which certain named individuals wereinjuncted from disposing movable and immovable properties/assets whichbelong to them and whose assets were frozen, making it clear that post-freeze only a sum of Rs.1,00,000/- per month will be allowed to each ofsuch persons for personal expenses. He further argued that in exercisingpowers under Section 241, powers may be exercised under variousprovisions of the Companies Act including Section 337 and 339 onlyinsofar as the mis-management of that very Company is concerned,which is obviously not relatable to any other corporate body, includingthe Punjab National Bank, of which the appellant is the CEO & MD.According to him, therefore, any order that freezes assets of the appellantin the exercise of jurisdiction under Section 241 of the Companies Actwould be without jurisdiction. He read to us the relevant sections of theCompanies Act and pointed out that however widely they are construedthey can only be qua the Company in which acts of mis-managementare alleged and not qua any other person.

4) Mr. Sanjay Jain, learned Additional Solicitor General appearingfor the respondent, on the other hand, supported the orders passed bythe NCLT and the NCLAT in the appellant’s case by reading to us, inparticular, Sections 337 and 339 of the Companies Act. According tohim, where a person is liable for fraudulent conduct or business the A

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Ajurisdiction under Section 339 if very wide and would include freezingthe assets of any person who was knowingly a party to the carryingon of the fraudulent conduct of business.

5) Having heard learned counsel for both sides, we may first setout Section 241(2) and Sections 337 and 339 of the Companies Act,Bwhich read as follows:- “241. Application to Tribunal for relief in cases of oppression,etc.- (1) xxx

(2) The Central Government, if it is of the opinion that the affairsof the company are being conducted in a manner prejudicial toCpublic interest, it may itself apply to the Tribunal for an orderunder this Chapter:

Provided that the applications under this sub-section, in respect ofsuch company or class of companies, as may be prescribed, shallbe made before the Principal Bench of the Tribunal which shallDbe dealt with by such Bench.

337. Penalty for frauds by officers.- If any person, being at thetime of the commission of the alleged offence an officer of acompany which is subsequently ordered to be wound up by theTribunal under this Act. - E(a) has, by false pretences or by means of any other fraud, inducedany person to give credit to the company; (b) with intent to defraud creditors of the company or any otherperson, has made or caused to be made any gift or transfer of, orcharge on, or has caused or connived at the levying of any executionFagainst, the property of the company; or

(c) with intent to defraud creditors of the company, has concealedor removed any part of the property of the company since thedate of any unsatisfied judgment or order for payment of moneyobtained against the company or within two months before thatGdate, he shall be punishable with imprisonment for a term whichshall not be less than one year but which may extend to threeyears and with fine which shall not be less than one lakh rupeesbut which may extend to three lakh rupees.

339. Liability for fraudulent conduct of business.-H

(1) If in the course of the winding up of a company, it appearsthat any business of the company has been carried on with intentto defraud creditors of the company or any other persons or forany fraudulent purpose, the Tribunal, on the application of theOfficial Liquidator, or the Company Liquidator or any creditor orcontributory of the company, may, if it thinks it proper so to do,declare that any person, who is or has been a director, manager,or officer of the company or any persons who were knowinglyparties to the carrying on of the business in the manner aforesaidshall be personally responsible, without any limitation of liability,for all or any of the debts or other liabilities of the company as theTribunal may direct:

Provided that on the hearing of an application under this sub-section, the Official Liquidator or the Company Liquidator, as thecase may be, may himself give evidence or call witnesses.

(2) Where the Tribunal makes any such declaration, it may givesuch further directions as it thinks proper for the purpose of givingeffect to that declaration and, in particular,—

(a) make provision for making the liability of any such personunder the declaration a charge on any debt or obligation due fromthe company to him, or on any mortgage or charge or any interestin any mortgage or charge on any assets of the company held byor vested in him, or any person on his behalf, or any person claimingas assignee from or through the person liable or any person actingon his behalf; (b) make such further order as may be necessary for the purposeof enforcing any charge imposed under this sub-section.

(3) Where any business of a company is carried on with suchintent or for such purpose as is mentioned in sub-section (1), everyperson who was knowingly a party to the carrying on of thebusiness in the manner aforesaid, shall be liable for action undersection 447.

(4) This section shall apply, notwithstanding that the personconcerned may be punishable under any other law for the timebeing in force in respect of the matters on the ground of whichthe declaration is to be made.

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AExplanation.—For the purposes of this section,—

(a) the expression “assignee” includes any person to whom or inwhose favour, by the directions of the person liable, the debt,obligation, mortgage or charge was created, issued or transferredor the interest was created, but does not include an assignee forBvaluable consideration, not including consideration by way ofmarriage, given in good faith and without notice of any of thematters on the ground of which the declaration is made; (b) the expression “officer” includes any person in accordancewith whose directions or instructions the directors of the companyChave been accustomed to act.”

6) Under Section 241(2), the Central Government, if it is of theopinion that the affairs of the Company are being conducted in a mannerprejudicial to public interest, may apply itself to the Tribunal for ordersunder this Chapter, which is headed “prevention of oppression and mis-Dmanagement”. Apart from the vast powers that are given to the Tribunalunder Section 242, powers under Section 337 and 339 are also given inaid of this power, which will apply mutatis mutandis.

7) Section 337 refers to penalty for frauds by an officer of thecompany in which mis-management has taken place. Likewise, SectionE339 refers to any business of the company which has been carried onwith intent to defraud creditors of that company. Obviously, the personsreferred to in Section 339(1) as persons who are other than the parties“to the carrying on of the business in the manner aforesaid” which againrefers to the business of the company which is being mismanaged andnot to the business of another company or other persons.F

8) This being the case, it is clear that powers under these sectionscannot possibly be utilized in order that a person who may be the head ofsome other organization be roped in, and his or her assets be attached.This being the case, we set aside the impugned order passed by theNCLAT and well as the NCLT. The appeal is allowed in the aforesaidGterms.

9) We may clarify that nothing stated in this judgment will haveany effect insofar as the investigation conducted by the CBI or theinvestigation by the SFIO is concerned.

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Nidhi Jain