Ridge Innovations Pvt. Ltd. v. Jcr And Company And ANR.

Arun

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION INTERIM APPLICATION NO. 1332 OF 2021 IN INTERIM APPLICATION NO. 1153 OF 2021 IN SUIT NO. 96 OF 2021 Ridge Innovations Pvt Ltd ...Applicant/Pl aintiff

Versus

JCR & Company & Anr ...Defendants Mr Rafique Dada, Senior Advocate, with Dr Birendra Saraf, Senior Advocate, Mukul Taly, Azis Mohd & Sehyr Taly, i/b S Mohomedbhai & Co, for the Applicant/Plaintiff. Ms Lopa Munim, with JB Navlani, i/n Kusumakar Kaushik, for Defendant No.1.

Mr Nitin G Thakker, Senior Advocate, with Charles De Souza, ARUN RAMCHNDRA SANKPAL Vinod Kothari, Sonal Sanap & Priyansh Jain, i/b M/s Apex Law Partners, for Defendant No.2 by ARUN RAMCHNDRA SANKPAL Date: 2021.09.16 10:43:09 +0530

CORAM:

G.S. PATEL, J DATED:

PC:- 1.

The present Interim Application seeks the following relief. "(a) That pending the hearing and final disposal of the Suit and the Application under Order 12 Rule 6 of the Code

of Civil Procedure, this Hon'ble Court be pleased to restrain the Defendants or any of their partners, substitutes or delegates by a temporary order and injunction from in any manner directly or indirectly taking any steps or action purporting to hold a sham hearing to purportedly classify the Applicant's account as 'fraud' in pursuance of the SCN dated 29th January 2021 issued by the 2nd Defendant and report as such to the Reserve Bank of India.

2.

This is the second Interim Application in this Suit. On the first Interim Application, AK Menon J made a detailed reasoned order on 11th March 2021. A copy of that order is at Exhibit "A" from pages 35 to 77. The present Plaintiff filed an appeal. 3.

For the purposes of the present order, shortly stated, AK Menon J held that a Forensic Audit Report prepared by the 1st Defendant could not and ought not to be permitted to be relied on by the 2nd Defendant in its show-cause notice issued to the Plaintiff. That show-cause notice is at page 414. It is dated 29th January 2021. Paragraph 9 of the show-cause notice of 29th January 2021 (at pages 416 and 417) reads thus:

"9.

IFCL Limited vide letter dated 18.11.2020 appointed a Forensic Auditor, JCR & Co., Chartered Accounts, who after auditing submitted a report dated 21.12.2020 stating their opinion at page no.24 of the report that following are fulfilled.

a) Misappropriation and Criminal Breach of Trust and (b) Manipulation of books of account or through fictitious accounts.

Therefore it is concluded that Company has perpetrated a fraud against IFCI Limited.

A copy of the said Forensic Report by JCR & Co. is enclosed herewith.

The above clearly shows the malafide intent of you addressees to misappropriate the amount so as to defraud the creditor and causing wrongful loss to IFCI Ltd. as the liability cannot be abated and extinguished until paid." 4.

After an extended hearing in Court, both sides have agreed on a workable order that is without prejudice to rival rights and contentions, with certain additional directions as more particularly set out later in this order. At my instance, and on taking instructions, Mr Thakker, learned Senior Advocate for the 2nd Defendant has agreed to issue a substituted show-cause notice that is identical in every respect to the 29th January 2021 show-cause notice except that the substituted notice now physically omits paragraph 9 of the earlier notice. This, therefore, is in keeping and in line with Mr Justice Menon's order. It obviates any possibility of a later misunderstanding that might have occurred had paragraph 9 been retained.

5.

This takes care of one part of the controversy, as regards the Forensic Audit Report.

6.

There are two other areas canvassed by Mr Dada. First, there is a demand for documents. Mr Taly instructing Mr Dada has since the date of the last hearing furnished a list of the documents that the Plaintiff seeks. It seems to me abundantly clear that the 2nd Defendant is bound to give the Plaintiff inspection and copies of the documents on which the 2nd Defendant relies in the show-cause

notice or on which it proposes to rely at the hearing following the show-cause notice. But Mr Dada's submission that a large number of other documents, whether or not in the 2nd Defendant's possession, and whether or not relied on by the 2nd Defendant, and whether or not mentioned in the show-cause notice, must also be furnished seems to me to be one that I cannot readily accept. 7.

Mr Dada then submits that if this be so the fullness of the Plaintiff's contentions and submissions must be left open, including without limitation the following:

(a) that if the 2nd Defendant is unable to produce documents that the Plaintiff submits are essential and necessary, then an adverse inference can be invited against the 2nd Defendant;

(b) that the Plaintiff will be entitled to contend that the 2nd Defendant does not in fact have the right either to demand repayment of the Zero Coupon Bonds in question, or to issue the show-cause notice or to classify the Plaintiff's account as a fraud account whether for misappropriation or for any other reason; (c) that having regard to the long and complex litigation history, the Plaintiff's contention that there is a demonstrable bias on the part of the committee must be kept open.

8.

This is by no means an exhaustive list of the possible defences by the Plaintiff in the hearing before the committee. Mr Dada's statement is reasonable. Keeping open these contentions balances

the rights and equities on both sides. Merely keeping the defences open causes no prejudice to the 2nd Defendant. Thus, Mr Dada's submission is accepted. All defences are left open and are available. 9.

Equally, all contentions of the 2nd Defendant are open, including its case that the Plaintiff has deliberately refused to honour its commercial and financial obligations in relation to the Zero Coupon Bonds in question, as also in regard to other borrowings by the Plaintiff or its predecessor-in-title. 10.

Mr Thakker submits that the Plaintiffs have filed a Reply to the previous show-cause of 29th January 2021. That may be so, but it does not mean that a supplemental Reply should be prohibited. The revised show-cause notice of 15th September 2021, a copy of which is handed over to Mr Taly and a copy of which is appended to this order also gives time of 21 days. I do not think this is an unreasonably long period of time. Within that time, the Plaintiff must file either a supplemental or consolidated Reply as the Plaintiff deems appropriate.

11.

Since a copy of the show-cause notice is given to Mr Taly, he on behalf of the Plaintiffs waives formal service of the show-cause notice.

12.

I am making no observations as to whether an Advocate is permitted to represent the Plaintiff at the hearing of this show-cause notice, nor am I issuing any directions as to whether the hearing

should be in physical form in Delhi or online. The parties will undoubtedly have to work that out.

13.

This is so far as the agreement between the parties is concerned.

14.

Mr Dada's next submission is that if the result of the showcause notice and hearing is against the Plaintiff, and which he believes is inevitable, there should be a reasonable stay to permit to allow the Plaintiff to move this Court for appropriate relief. Mr Thakker has no instructions to agree to a direction in this regard. It is clear that the show-cause notice has been issued by the 2nd Defendant in compliance with an RBI notification and directions governing non banking financial companies and classification of certain accounts as "fraud" accounts.

15.

The result of such an inquiry and process is that the 2nd Defendant would have to report the result and the resultant findings to the Reserve Bank of India. Mr Dada is correct, I believe, in saying that any such reporting would immediately trigger several adverse events and consequences including on other enterprises that the Plaintiff's directors may have since set up. Having regard to how long this litigation has been going on in one forum or the other, I do not think it is unreasonable to direct the 2nd Defendant to not give immediate effect to any order adverse to the Plaintiff for a period of three weeks after that order is signed, issued and made available to the Plaintiffs or their Advocates. I clarify that should the Plaintiff not obtain an appropriate order of a Court or Tribunal of competent

jurisdiction within that period of three weeks, the 2nd Defendant will of course not only be at liberty, but will be obliged to complete compliance and reporting as required by the relevant applicable RBI directions and circulars.

16.

Mr Dada states with these clarifications and directions, the Plaintiffs will appear on the appointed date before the committee constituted by the 2nd Defendant. The statement is noted and accepted.

17.

This is sufficient to dispose of the present Interim Application. There will be no order as to costs. 18.

Mr Dada states that the Plaintiffs will be withdrawing the Appeal that they have filed against the order of Justice AK Menon of 11th March 2021. The statement is noted.

19.

For the reasons stated earlier I have not examined the rival contentions on merits.

20.

copy of this order.

(G. S. PATEL, J)