Abhinav Garg Vs M/s SRS Limited

Harnam Singh Thakur, Member (Judicial)

The present contempt petition i.e. COCP No. 02/Chd/Hry/2018 has been filed by the petitioner to initiate the contempt proceedings against all the respondents/directors/officers of the company as were responsible on the date of the petition i.e. on 04.08.2016 and also all the officers who are liable as on date. Further, the petitioner seeks that attach the assets/property of SRS Limited and all the respondent/directors/officers so as to enable the petitioner to recover his fixed deposit dues and award exemplary compensation amounting to Rs.5 lakh to the petitioner for mental harassment caused to the petitioner as well as for intangible overhead expenses incurred in taking recourse to his legal remedies. Further, to allow the petitioner/applicants/depositors to implead the instant petition in person.

It is submitted by the petitioner that in response to the deposit scheme of the respondent, the petitioner made fixed deposits of varying amounts during the period from July 2015 to December 2016. The respondent company informed all its depositors that the company has moved to NCLT under Section 74(2) seeking an extension of time for repayment of the principal amount to depositors and requested that advance-dated cheques should not be presented to the Bank. The company’s application i.e. CP No. 121/ND/2016 was disposed of by Delhi Bench-3 of NCLT vide its order dated 20.10.2019 by allowing payment of deposit amount and accrued interest in predetermined instalments and allow the depositors who made a deposit after 01.04.2014 to follow other procedures for recovery of their amounts if they so desire.

It is further submitted that the Company sought further extension of time for repayment and the same was granted by NCLT Delhi vide order dated 02.02.2017. Thereafter, the jurisdiction of the company got changed from Hon’ble NCLT, Delhi to NCLT Chandigarh. The matter was heard by this Tribunal vide application No. RT CP No. 180/Chd/Hry/2017 under Section 74(2) of the Companies Act, 2013. This Tribunal, while disposing of CP No: 121/(ND)/2016 RT CP no. 180/ CHD / HRY 2017 under section 74 (2) of the Companies Act, 2013 passed an order on 20.12.2017 with the following directions-

"In view of the fact that the instant petition remained pending for quite some time, a direction is issued to the petitioner company to pay the upto date amount for which the petitioner company has defaulted despite the directions dated 20.10.2016 and further clarified on 02.02.2017, by 15.01.2018.”

It is further submitted that the company went into the appeal before Hon’ble NCLAT against the aforesaid order dated 20.12.2017 of this Tribunal, the same was dismissed as withdrawn by NCLAT on 08.03.2018 with the following direction:

"The matter was earlier taken up and the appellants were given time to give the time-schedule by which they intend to pay the due amount, but nothing has been filed. Learned counsel for the appellant prays for and is allowed to withdraw the appeal but without any liberty to challenge the same very impugned order before this Appellate Tribunal. The appeal is dismissed as withdrawn."

The petitioner has submitted that the respondent company has failed to comply with the directions/orders dated 20.10.2016 and further clarified on 02.02.2017 of NCLT Delhi and thereafter, the company has failed to comply with the directions/orders dated 20.12.2017 of this Tribunal to pay the up to date amount for which the company has defaulted.

It is stated that the company is running Cinema multiplex halls in different cities for the recovery of the above deposit the same may be attached. Further, the Executive Chairman of SRS Limited disclosed to the BSE under SEBI Listing Obligation and Disclosure Requirement, 2015 on 21.02.2018 that he has sold his retail business of SRS Value Bazaar to M/s Spencers Retail Limited for Rs. 38 crores. The petitioner further seeks directions against the respondents to file a list of their personal properties before this Tribunal so that the same may be directed for sale/attachment and recovery could be made.

The Registrar of Companies, NCLT of Delhi and Haryana, vide order dated 28.05.2018 has filed a report on behalf of Registrar of Companies, NCT of Delhi and Haryana stating therein that a criminal complaint has been launched by the Registrar of Companies, NCT of Delhi and Haryana against the company and its officers before the Special Court Gurugram on 12.07.2018. Before that the Registrar of Companies had filed the report with certain documents vide diary No.2335, dated 06.07.2018 along with the copy of the master data, signatory details of the company and the copy of the criminal complaint filed before the Special Court, Dwarka, Delhi and in the further report filed vide diary No.2490, dated 16.07.2018, it is reported that since the matter falls within the jurisdiction of Special Court, Gurugram, the complaint has now been filed before the Special Court Gurugram on 12.07.2018.

The petitioner has filed the present amended contempt petition, list of directors and list of properties sought to be attached and impleading 15 persons as respondents, who are the directors of the company and respondent No. 15 in the case is the company secretary who is not a necessary party, and the name of respondent No. 15 is struck off vide order dated 17.07.2018. Notice of this petition to respondents No. 1 to 14 was issued vide order dated 17.07.2018 as to why they are not directed to appear in person and also as to why the properties, the particulars of which are mentioned in the list of properties, be not attached.

In reply on behalf of respondents No. 3, 4, 6, 8 to 10 the averments have been made similar and common, and none for respondents No. 1, 2 & 7. Therefore, taken up together.

Reply on behalf of respondents No. 3, 4, 6, 8 to 10

A short reply on behalf of the respondents has been filed, stating that the concerned company in question i.e. i.e SRS Limited had filed an application under section 74(2) of the Companies Act, 2013 (the Act) for seeking an extension of time to remit the proceeds of the matured fixed deposits due to long strike observed in the bullion market allover India in early 2016 severely crippled the business of the company and caused financial crises due to which the company was not in a position to honour its liabilities towards the depositors. Keeping in view of the above fact, the situation was beyond the control of the company. From the definition of civil contempt, it is clear that there should not be only disobedience in compliance with the order, but the disobedience shall be wilful, and the contemnor/respondent can only be punished if there is willful disobedience on his part in compliance of an order passed competent court of law. Further, it is stated that there is no wilful disobedience or mala fide on the part of the company in discharging its liabilities towards its depositors and the petitioner has failed to point out how therein any wilful disobedience on the part of the answering respondent. Further, the respondent had worked with the company as a director but with no executive function so far as decision-making is concerned.

The respondents have further stated in their reply that during the pendency of the present petition, one petition bearing no. CP(IB)No.201/Chd/Hry/2018 titled SBI vs SRS Ltd. was filed under Section 7 of the Insolvency and Bankruptcy Code, 2016. The same has been admitted by this Hon'ble Tribunal vide order dated 21.08.2018, and a moratorium has been declared. It is further submitted that as a matter of fact similarly placed depositors of the same company had initiated contempt proceedings against M/s SRS Ltd. which were disposed of by this Hon'ble Tribunal vide order dated 06.09.2018 with a liberty to the petitioners therein to file its claim before the resolution professional. It is submitted in the reply that in para no. 13 of the petition, the petitioner has given the names of directors/officials/officers of the company who were responsible on the date of filing of petition u/s 74(2) of the Act i.e 04.08.2016. However, nothing has been mentioned about how such persons were responsible for non-compliance with the orders passed by the Hon'ble Tribunals. From Annexure (I) annexed by the petitioner, it is clear that the name of every Independent Director, Executive Director, Non-Executive Director, Managing Director, Company Secretary and Executive Chairman has been mentioned whereas it has not been mentioned anywhere regarding what role has been played by them which would amount to willful disobedience in compliance of the orders passed by this Hon’ble Tribunal. It is further submitted that the answering respondent No. 3 has resigned from the company vide resignation letter dated 07.05.2018 and therefore, he cannot be guilty of non-compliance if any, of the orders of the Hon’ble Tribunal. Respondent No. 4 has resigned from the company vide resignation letter taking effect from 01.05.2018. Respondent No. 6 has resigned from the company vide resignation letter dated 26.09.2016 i.e. before the orders upon which contempt is being sought were passed and therefore he cannot be held guilty for non-compliance, if any, of orders of Hon’ble Tribunal. Respondent No. 8 has resigned from the company vide resignation letter dated 06.10.2016 i.e. before the orders upon which contempt is being sought were passed. Respondent No. 9 and 10 have resigned from the company vide resignation letters dated 09.04.2018 and 07.05.2018 respectively, therefore he cannot be held guilty for non-compliance, if any, of the order of the Hon’ble Tribunal.

Joint reply on behalf of respondents No. 5, 11 and 14

It is stated by the respondents that respondent No. 11 was appointed the Chief Financial Officer of the Debtor Company on 20.01.2017 and he resigned on 20.04.2018 due to non-compliance with governmental formalities by the management of the Company. The answering respondent No. 14 was appointed as an Independent Director dated 23.06.2017 and according to the Companies Act, 2013, Independent Directors are those who apart from receiving director's remuneration do not have any material pecuniary relationships or transactions with the company, promoters, senior management, holding company or subsidiary or associates which affect their independence.

It is further submitted that the Management was wholly run by the Whole Time Directors of the company and the entire working of every division was under their control. Respondent No. 11 role for his tenure was only limited to Limited Review of the Company & Consolidation of Accounts. Respondent No. 11 was also a signatory to the balance sheets of the year 2016-2017, but after he resigned and he has no knowledge of any of the company affairs. The Answering Respondents has no connection with the present application and there has been no intentional and willful omission and commission on their part in the present case, as after his resignation, he has no clue as to what orders are Company not complying with.

Reply on behalf of respondent No. 12

Answering Respondent submits that she was appointed as an Independent Director of Respondent No. 1 on 28.07.2014. The Respondent resigned from the independent directorship on 21.02.2018. It is further submitted that whatever proceedings have transpired with respect to the deposit schemes before the Hon'ble Tribunal as narrated from In Para 1 to Para 20 of the present contempt petition was not in the knowledge of the Answering Respondent. Also, no formal Board Meeting of the Respondent No.1 Company had ever been called with respect to apprise of the position of the deposit scheme, etc. and its extension proceedings before the Hon’ble NCLT. All such decisions were taken unilaterally by the Executive Directors of Respondent No. 1. The Answering Respondent No. 12 was appointed as the Independent Directors just for the formality purpose. Further, Answering Respondent No. 12 submits that she does not have any information in respect to the accounts of Respondent No. 1. Neither she has information with Tribunalrespect to the deposit schemes being launched, its defaults, its extensions, etc. No representation has ever been made by Answering Respondent No. 12 to the general public with respect to the deposit scheme being launched by Respondent No. 1 and any of its further actions, as Answering Respondent No. 12 was never aware of it. The Answering Respondent prays from this Tribunal that she may be discharged from the proceedings of the present matter as she has no role to play in the day-to-day affairs of Respondent No.12 as she was only acting as the Independent Director i.e. for the record purposes only.

Reply on behalf of respondent No. 13

The Answering Respondent submits that he was appointed as an Independent Director of the Respondent Company on 13.07.2016. The answering Respondent resigned from the independent directorship on 01.04.2018. Therefore, the Answering Respondent was neither associated with the Company when the deposits were taken nor when the Company defaulted in making repayments. Further, the Answering Respondent was an independent director and was not involved in the day-to-day affairs of the Company. There were no decision-making powers with the Answering Respondent or any other authority to conduct any transaction for and on behalf of the Respondent Company. Moreover, the answering respondent was not an authorised signatory of Respondent Company towards the affairs of Respondent Company at any point of time during their tenure. No formal Board Meeting of the Respondent Company had ever been called with respect to apprise of the position of the deposit scheme, etc. and its extension proceedings before the Hon’ble NCLT. All such decisions were taken unilaterally by the Executive Directors of the Respondent Company. It is further submitted that sub-section (12) of Section 149 of the Companies Act 2013 states that no independent director and non-executive director be held liable for acts done without the knowledge and consent of such director. Also, the Ministry of Corporate Affairs issued a General Circular No.1/2020 dated 02.03.2020 towards clarification on prosecution initiated against independent directors, non-promoters and non-Key Managerial Personnel (KMP), non-executive directors. The true copy of the general circular no. 1/2020 is attached as Annexure R-3 of the reply. In light of the issued circular, the answering respondents submit that the identification of an officer in default is based upon the day-to-day functioning of the company and accordingly whole-time directors and KMPs are held liable for the defaults that occurred at corporate debtor affairs. Further, civil and criminal proceedings cannot be initiated against the Independent Directors and non-executive directors unless sufficient evidence exists to the contrary.

We have heard the learned counsel for the petitioner/applicants and the respondents. after careful perusal of the record available and written submissions.

We observe that the orders against which this contempt application is filed were passed on 20.10.2016 & 20.12.2017. We also note that CIRP in the case of the corporate debtor has been initiated on 21.08.2018. With the CIRP, the situation takes a different dimension as the corporate debtor can’t be asked to pay for the omission and commission of the previous management. The IBC, though, provides for the filing of claims for the period prior to initiation of CIRP before the payment in terms of the provisions of Section 53 (1) of the IBC Code, 2016.

In the present case, we also take note of the contention of most of the respondents that as per circular No.1/2020 issued by the Ministry of corporate affairs dated 02.03.2020, civil and criminal proceedings cannot be fastened to independent directors and non-executive directors in a general way without specifying the default committed by them. The applicant in the present application has initiated contempt proceedings against the entire management personnel, some of whom were not even in the employment of the corporate Debtor at the time of the impugned default. In short, no specific case has been made out against the individual respondents, and that is against the contents of general circular No. 1/2020 referred to above. We also note the fact that at the time of default, the financial condition of the corporate Debtor was precarious with multiple applications being filed for recovery of dues by many creditors leading to the initiation of CIRP against the corporate Debtor on 21.08.2018. We are, therefore, of the view that the contention of the respondents that the situation was beyond the control of the company looks plausible in the given circumstances and the alleged disobedience of the order of this Tribunal passed on 20.10.2016 and 20.12.2017 were not wilful or malafide. We also note the fact that besides the present applicant, there were many other similarly placed applicants whose contempt applications were allowed to be withdrawn by this Tribunal on 06.09.2018 with liberty to the petitioners therein to file its claim before the resolution professional.

In view of the above discussion, no case is made out for contempt, thus, we reject the present contempt application with liberty to the applicant to file his claim before the resolution professional with a further direction to the resolution professional to admit the claim of the applicant and payments be made as per the provisions of IBC, Rules and Regulations thereof. In the result, this application is dismissed and disposed of accordingly.

CA No. 68/2019

Considering that the facts and prayers in CA No.68/2019 and CA No. 86/2019 are closely interlinked, the same are taken up together for consideration.

The present application i.e., CA No. 68/2019 is filed on behalf of respondent no. 4 i.e., Mr Vinod Kumar, Whole Time Director of SRS Limited, under Rule 11 of CLT Rules, 2013 for dropping the contempt proceedings and disposing of the petition with liberty to the petitioner to file its claim before the Interim Resolution Professional or Resolution Professional in view of the moratorium issued by  this  Hon'ble  Tribunal  vide  order dated 21.08.2018 passed in CP(IB) no. 201/Chd/Hry/2018 titled SBI vs SRS Ltd.

It is submitted by the applicant that the petitioner has filed the instant petition under section 425 of the Companies Act 2013 alleging violation of orders dated 20.10.2016, 02.02.2017 and 20.12.2017 passed by this Tribunal and the Hon'ble National Company Law Tribunal, New Delhi Bench, New Delhi.

It is submitted that one petition bearing CP(IB) no. 201/Chd/Hry/2018 titled SBI vs SRS Ltd. has been admitted by this Tribunal vide order dated 21.08.2018, and a moratorium has been declared. Further, in view of the moratorium issued by this Hon'ble Tribunal continuation of pending suits or proceedings against the corporate debtor including execution of any judgment decree or order in any court of law, tribunal, arbitration panel or other authority is barred till the existence of moratorium and the petitioner has the liberty to file its claim before the Interim Resolution Professional or Resolution professional, as the case may be, appointed by this Hon'ble Tribunal vide order dated 21.08.2018. Therefore, it cannot be concluded that there is any wilful disobedience on the part of the applicant. Moreover, the pendency of insolvency proceedings against M/s SRS Limited itself establishes that the company is not in a position to discharge its liability and the ingredients for initiating/continuing the contempt proceedings are not fulfilled, and the same is liable to be dropped.

The respondent has filed his written submissions vide diary No. 00249/01 dated 15.06.2022 in CA Nos. 68/2019 & 86/2019, wherein it is stated that as per the order of Enforcement Directorate ERC/03/CDZO/2018/232, dated 08.01.2020, Provisional Attachment Order No. - 01/2020 and as per the statement of Mr Tinku Singh, SRS Group President who was looking after the cinema division of SRS LTD. I.e. the contemnor company - SRS Ltd. and its promoters and officers received an advance of Rs. 50 Crore from a company named Book My Show which was misappropriated by them and has been diverted in the accounts of associated shell companies of jewels & other sections of SRS Ltd. Hence, once again deceiving and concealing the facts from the Hon'ble Tribunal by giving false affidavits and undertaking on account of sale of cinema business and returning the petitioner-applicant-depositor monies back. The flagrant breach and non-compliance of undertaking with respect to paying the monies of the fixed deposit holders by the CMD of the company i.e. SRS Ltd. before the Hon'ble NCLT, New Delhi and Hon’ble NCLT, Chd. and thereby, deceiving this Hon'ble Tribunal.

It is averred by the respondent that initiate the contempt proceedings against all the Respondent(s)/ Key Managerial Personnel directors independent directors/ officers of the company as were responsible and as on date of default occurred till the date of default and as on the date of the petition filed by the SRS Ltd. under section 74 (2) of the Companies Act, 2013 i.e. on 04.08.2016. Further, all the respondent(s) have abused the process of law to the hilt and caused grave & irreparable damage to the interest of Petitioner - Depositor/ Applicant and to the interest of justice. Having committed contempt of court, all the respondent(s) be directed to be detained in prison unless they purge out themselves by making the payment along with interest to the petitioner.

It is further submitted that the compliance of the order dated - 20.10.2016 & 20.12.2017 passed by this Hon’ble Tribunal may be secured with a resort to coercion against all the respondent(s) through the contempt powers vested with this Hon’ble Tribunal. Attach the assets property of SRS Ltd. and all the 'respondent(s) / Key Managerial Personnel/directors/officers so as to enable the petitioner to recover his fixed deposit dues. Award exemplary compensation amounting to Rs. 5 Lacs to the Applicant for mental harassment caused to the Petitioner depositor as well as for intangible overhead expenses incurred in taking recourse to his legal remedies; Award the costs of instant proceedings in favour of the Petitioner - depositor /applicant

Report of Resolution Professional vide order dated 11.04.2019

The Resolution Professional vide order dated 11.04.2019 of this Tribunal has put on record a list of all the movable and immovable assets of M/s SRS Ltd. on the basis of the information memorandum i.e., land & building, Lease hold improvement at various locations in Cinema division, vehicles, other fixed assets, investments, financial assets, inventories, Cash and cash equivalents, and Trade Receivable, details of which are attached as Annexure A 1 to A13 of the report.

CA No. 86/2019

The present application i.e., CA No. 86/2019 has been filed by respondent No. 13 in COCP No. 2/Chd/Hry/2018 seeking that the name of respondent No. 13 be struck from an array of respondents with immediate effect. Further direction to pass an order for de-freezing of all bank accounts and free use of the immovable property with immediate effect.

It is submitted by the applicant/respondent No. 13 that he was appointed as an Independent Director (Non-Executive) by the board of directors of SRS Ltd. with effect from 13.07.2016 and his responsibilities are restricted to ensuring various compliances prescribed under the Companies Act and has very limited role under the law. Further, he was not engaged in any financial activity and in day to day affairs of the company. It is stated by the applicant that the applicant has resigned from the post of Independent Director w.e.f. 01.04.2018. The applicant has never attended any Board/Committee meeting during his tenure as Independent Director and is unaware of the legal status and proceedings of the company with stakeholders.

It is submitted by the applicant that the contempt petition i.e. COCP No. 02/Chd/Hry/2018 was filed on 04.08.2016 and he was appointed as an independent director in the company just 22 days i.e. on 13.07.2016 before the filing of above company petition.

It is submitted that as per Hon'ble Tribunal's order dated September 17, 2018, Mr. Sardavider, Advocate filed the Power of Attorney in respect of the applicant along with other respondents On instructions, learned counsel for the respondents further submits that the Respondent, whom he is representing, will not alienate their own immovable properties and will not withdraw the amounts, if any lying in the Fixed Deposit Receipts in their names, till the next date of hearing. This undertaking was taken on record.

The applicant in this CA No. 86/2019 stated and submitted that no such instruction "not alienate their own immovable properties and will not withdraw the amounts if any lying in the Fixed Deposit Receipts" was given by the applicant to the said counsel Mr Sardavider, Advocate Vakalatnama was signed on the advice of Mr Krishan Garg for striking of the name from the Memo of parties since Independent Directors have no role in the financial matter of the Company. Lawyers appeared on behalf of the respondent to mislead and misrepresent the facts which is never been instructed to them.

It is stated by the applicant that pursuant to the order dated September 17, 2018, of this Tribunal his saving account bearing number 764902010004675 with Union Bank of India, Sector-28, Faridabad Branch has been freezed which is affecting his day-to-day bread and butter. It is averred that the applicant is the sole earner of the family and has a six-month-old son, wife and old parents. The applicant’s main account is with Union Bank of India, Sector-28, Faridabad Branch. The applicant may have any emergency fund requirement and is a law-abiding Citizen and always ready to cooperate with all statutory authorities.

The respondent has filed his written submissions vide diary No. 00249/01 dated 15.06.2022 in CA Nos. 68/2019 & 86/2019,

We have heard the learned counsel for the petitioner/applicants and the respondents and carefully perused the record available and written submissions.

It may be noted that Schedule IV under section 149(7) of the Companies Act, 2013 provides for Code for Independent Directors, which includes guidelines for professional conduct, role & functions and duties. The Code is a guide to professional conduct as per which independent directors shall uphold ethical standards of integrity and probity; strive to attend general meetings of the company; for resolving their concerns about the running of the company shall insist on recording the same in the minutes of the Board meeting; keep themselves well informed about the company & its environment in which it operates; not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board, ensure the interests of persons who uses vigil mechanism are not prejudicially affected; report concerns about unethical behaviour; suspected fraud or violation of company’s code; and assist in protecting the legitimate interests of the company’s shareholders and its employees.

Further, the relevant provision i.e., Section 149(12) of the Companies Act, 2013 is extracted below for reference purposes

(12) Notwithstanding anything contained in this Act,—

(i) an independent director;

(ii) a non-executive director not being promoter or key managerial personnel,

shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.

In view of the above discussions and also our decision in the main contempt petition, We allow the present petitions No.CA 68/2019 and CA no.86/2019. In a result, both these applications are allowed subject to the above discussions and shall stands disposed of accordingly.