New Delhi: In a major judgement, the Supreme Court has set aside the company law appellate tribunal’s order directing the freezing of assets of Punjab National Bank’s (PNB) former MD and CEO Usha Ananthasubramanian for allegedly not taking preventive steps to prevent the fraud perpetrated by Nirav Modi.
Senior advocates C.S. Vaidyanathan and Meenakshi Arora, representing Ananthasubramanian, had contended before the top court that the National Company Law Appellate Tribunal (NCLAT) passed sweeping orders freezing the assets of an individual (appellant herein) which is confiscatory in nature. “The confiscation/freezing of the properties of the appellant (Ananthasubramanian) is unconstitutional and violative of Article 300-A of the Constitution.”
Gitanjali Gems promoter Mehul Choksi and his relative Nirav Modi are wanted in connection with the alleged multi-crore nearly $2 billion PNB fraud. Modi, 48, currently lodged in a prison in London, is wanted in India in connection with this fraud and proceedings for his extradition are ongoing.
The senior advocates contended there is no provision in the Companies Act, 2013 empowering a court/tribunal to confiscate or freeze the assets of a person “such as the appellant (who has no connection with the company) for a fraud allegedly perpetrated by the company”.
This led to extreme hardship for the former top official of PNB, who was unable to meet daily expenses, they said. The order only permitted Ananthasubramanian to withdraw an amount of Rs 1 lakh per month towards the subsistence of her family.
“She was deprived of enjoying her legitimate income/earnings,” the counsel said.
Advocate-on-record Anirudh Sharma and instructing counsel Vikrant Singh Negi, partner DSK Legal, contended in the petition that the provisions of Sections 221, 222, 241, 242, 246 and 339 of the Companies Act, 2013 does not authorise/permit the freezing of assets of an individual.
A three-judge bench, headed by Justice R.F. Nariman and comprising Justices S. Ravindra Bhatt and V. Ramasubramanian, said it is clear that powers under these sections (invoked against the appellant) cannot possibly be utilised in order that a person who may be the head of some other organization be roped in, and his or her assets be attached.
“This being the case, we set aside the impugned order passed by the NCLAT and well as the NCLT. The appeal is allowed in the aforesaid terms,” it added.
The top court observed that Section 337 refers to penalty for frauds by an officer of the company in which mis-management has taken place. Likewise, Section 339 refers to any business of the company which has been carried on with intent to defraud creditors of that company.
“Obviously, the persons referred 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 again refers to the business of the company which is being mismanaged and not to the business of another company or other persons,” the apex court ruled.
The counsel for the appellant contended at the highest even the criminal case against Ananthasubramanian is only that she omitted to take precautions or preventive steps to prevent the fraud perpetrated by Nirav Modi and thereby committed mis-conduct and conspiracy with other accused persons.
Additional Solicitor General Sanjay Jain, appearing for the Centre, supported the orders passed by the NCLT and the NCLAT in the appellant’s case citing Sections 337 and 339 of the Companies Act. He submitted where a person is liable for fraudulent conduct or business, the jurisdiction under Section 339, “if very wide and would include freezing the assets of any person who was knowingly a party to the carrying on of the fraudulent conduct of business”.
Meanwhile, the top court clarified that nothing stated in this judgment will have any effect insofar as the investigation conducted by the Central Bureau of Investigation or the investigation by the Serious Fraud Investigation Office is concerned.
On January 31, 2019, the NCLT’s Mumbai bench had made Ananthasubramanian a party in the ongoing matter of PNB-Nirav Modi fraud case by accepting the Centre’s request to implead her. In July 2019, the NCLAT passed the order for freezing of her assets.
