The Bench of Justices Rohinton Nariman, Ravindra Bhat, and V Ramasubramanian of the Supreme Court of India set aside the order of the National Company Law Tribunal (NCLT) and the NCLAT, which had directed for freezing of assets of several individuals in connection with the case concerning Punjab National Bank, Gitanjali Gems, and Nirav Modi.
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.
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.
- 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”.
- They also contended that, “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 and she was deprived of enjoying her legitimate income/earnings”.
- 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 do not authorise/permit the freezing of assets of an individual.
- 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 also added that, 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”.
The Supreme Court set aside the order of the National Company Law Appellate Tribunal (NCLAT) which directed freezing of assets of former MD of PNB, Usha Ananthasubramanian. 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.
It added that, “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”. 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 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.
Edited by J. Madonna Jephi
Approved & Published – Sakshi Raje
- Case of Usha Ananthasubramanian vs. Union of India, Civil Appeal No. 7604 of 2019, decided by the Supreme Court of India, on February 12, 2020.