Md.Moiuudin vs Most.Haliman Nisa & Ors

5. Brief facts of the case are that the present appellant, E. Bapanaiah, (one of the depositors who made deposits with NFL) filed the contempt petition under Section 12 read with Section 10 of the Contempt of Courts Act, 1971 for the alleged wilful disobedience of order dated 29.2.2000 and one dated 21.8.2001 passed by Company Law Board, Southern Region Bench, and for breach of undertakings/affidavits, including one filed by K.S. Raju (Promoter Director of NFL) before CLB and one given in Company Appeal No. 7 of 2001. It is stated by the present appellant that the respondent, K.S. Raju, was Promoter Director of M/s. Nagarjuna Finance Limited, Hyderabad (in short “NFL”). The said company, through its Directors, issued advertisement inviting deposits promising good returns on the deposits with attractive interest thereon, and collected the huge sum from the public. The present appellant deposited ?.40,00,000/- (? forty lakhs) hoping that the same would multiply to double within 45 months as projected in the advertisement. The said amount was deposited in eight fixed deposits of ?.5,00,000/- (? five lakhs) each for a period of 45 months on 20.7.1997 and was due for repayment on maturity on 28.4.2001. However, when the NFL failed to re-pay the sum to the depositors, an application (CP No. 35 of 2000) was filed under Section 58-A of the Companies Act, 1956 before the Company Law Board, Southern Region Bench, for framing the scheme of repayment of deposits in instalments within a period of 48 months. The Company Law Board (CLB), exercising its suo motu powers, allowed the time to NFL on the request of its directors to approve the scheme of repayment. During the pendency of such application the CLB ordered the Directors, including the Promoter Director K.S. Raju, to file affidavits giving undertaking to the CLB that they would abide by the scheme and pay off the amount due to depositors. On the assurance as given in the undertakings/affidavits filed by K.S. Raju, Promoter Director, and other Directors separately, the CLB passed order dated 29.2.2000. But the Promoter Director and its group companies filed Company Appeal Nos. 9 of 2001 and 7 of 2001 against the said order dated 29.2.2000 passed in CP No. 35 of 2000. In said appeals, on behalf of the Company an undertaking was given to pay half of first year’s entitlement of the present appellant by 20.4.2002. However, no amount was paid. As such, the contempt petition was filed by the present appellant before the High Court for violation of the orders of the Company Law Board.

6. According to the appellant, after the scheme was approved, K.S. Raju, Promoter Director of NFL, started pleading that there was change in the management of NFL, and sought to be relieved from his liability as the Promoter Director of NFL, its group companies and from the undertaking given by him to the CLB. The CLB declined to relieve the Promoter Director K.S. Raju from the undertaking given by him and it was directed that he should make the repayment as per the repayment scheme. The Company Appeals were dismissed by the High Court on 3.1.2002. NFL and its Promoter Director failed to comply with the order of the Company Law Board even after dismissal of the Company Appeals. K.S. Raju, the then Promoter Director, was responsible for issuance of the advertisement inviting deposits from the public and failed to repay the deposits as per the undertaking given by him on behalf of the Company. It is further alleged by the present appellant in the Contempt Petition before the High Court that K.S. Raju kept on evading his liability, and attempted to shirk the responsibility by taking plea that he had resigned from the directorship.

8. In the counter affidavits filed on behalf of NFL (through G. Venkatapathi, Executive Director) and N. Selvaraj (respondent No. 2 in the Contempt Petition) it was disclosed that Sridhar Chary, Managing Director, functioning for over a decade of NFL, was none else than the nominee of K.S. Raju, Promoter Director. It was also pleaded on behalf of NFL that out of Paid-up Capital of ?.26.32 crores group companies were holding ?.16.16 crores, i.e., approximately 61%. It was also stated by NFL in its counter affidavit before the High Court that under Articles 104 and 140 of the Articles of Association K.S. Raju had power to appoint the Managing Director and other three Directors as his nominees. N. Selvaraj (respondent No. 2 in the Contempt petition) denied that he was nominee of MFSL. He further pleaded that there was no change in the management of NFL during his tenure as Managing Director, and he further told that entire control remained with K.S. Raju and his nominees. The Executive Director, G. Venkatapathi of NFL, filed additional counter affidavit in which it is clearly stated that the CLB passed the order on the basis of the undertakings and affidavits filed by the Promoter Director and the group companies. The counter affidavits further revealed that on special audit made in April, 2002, several irregularities were found to have been committed by the Management resulting in failure of recoveries in respect of loans advanced to various companies who were not traceable on the addresses given.

The statements made are true to my knowledge and I solemnly affirm that this declaration is true and that no part of it is false.

iii. attend to the complaints of nine depositors received at the bench office and report compliance;

k) M/s. K.R.R. Holdings Pvt. Ltd; and

3. The arrangements made between the company and MFSL shall not be of any consequence in relation to the repayment schedule approved by the CLB. The company, its promoter Director and Group Holding Companies shall continue to be responsible for due compliance of the order stated supra.

7. Taking into consideration the facts and circumstances of the case, the opportunity afforded to the Company and the legal position stated hereinabove, I hereby order that the Company shall pay 30 per cent of the deposit amount together with interest at the contracted rate upto the date of maturity and thereafter till the date of payment at the rate of 14.5 per cent within 30 days of receipt of this order, failing which the applicant is at liberty to move the Court, within whose jurisdiction the registered office of the Company is situated to execute the order of the CLB.”

28. Therefore, having considered submissions of learned counsel for the parties, and material on record, and further considering the relevant provisions of law and the cases referred above, and exercising powers under Article 136 read with Article 142 of the Constitution, we think it just and proper to interfere with the order passed by the Division Bench of the High Court whereby the Division Bench erroneously set aside the finding and sentence awarded by the learned single Judge against K.S. Raju. In our opinion, respondent K.S. Raju wilfully disobeyed the order of CLB and breached the undertaking given to CLB, and thereby committed Contempt of Court subordinate to High Court as such the Division Bench of the High Court has erred in law in allowing the Contempt Appeal No. 3 of 2007 filed by K.S. Raju and setting aside his conviction and sentence, recorded against him by the learned Single Judge in Contempt Case No. 915 of 2002.

29. For the reasons, as discussed above, we allow the present appeal filed against respondent K.S. Raju, and set aside the impugned order of the Division Bench of High Court. Accordingly, order dated 3.8.2007, passed in Contempt Case No. 915 of 2002, to the extent of conviction and sentence recorded against K.S. Raju (respondent) stands restored. However, exercising powers under Article 142 of the Constitution of India, to do complete justice between the parties, we allow sixty days time to respondent K.S. Raju, with effect from pronouncement of this judgment to repay the entire amount to the depositor/appellant as directed by CLB, and if within the said period of sixty days payment is not made to the depositor/appellant, respondent K.S. Raju shall be taken into custody to serve out sentence as recorded against him by the learned Single Judge vide order dated 3.8.2007 in Contempt Case No. 915 of 2002. If the amount is paid to the present appellant as directed by this Court within sixty days, the sentence shall be reduced to the extent of fine only. Rest of the appeals filed by the depositor in respect of all other directors, who were not impleaded by name before the High Court in the contempt Case No. 915 of 2002, and acquitted by the impugned order passed by Division Bench of High Court, are dismissed.

November 07, 2014.