The ministry had moved the tribunal under various provisions of the Companies Act, 2013, which pertain to freezing of assets of a company on inquiry and investigation and also relate to imposition of restrictions upon securities.
The Supreme Court has set aside the NCLAT order that directed freezing of assets of former Punjab National Bank (PNB) managing director and CEO Usha Ananthasubramanian in the Rs 14,000-crore Nirav Modi and Mehul Choksi scam that hit the state-run lender in 2018.
The apex court accepted the stand of senior counsel CS Vaidyanathan, appearing for Ananthasubramanian, that the powers to freeze assets can only be exercised against the company in which acts of mismanagement have been alleged – which, in the instant case, is Gitanjali Gems – and not other companies like PNB. A bench led by Justice RF Nariman rejected the government’s stand that the jurisdiction under Section 339 of the Companies Act is wide enough to include freezing the assets of any person who was “knowingly a party to the carrying on of the fraudulent conduct of business”.
However, the apex court clarified that the judgment won’t have any effect on the CBI or SFIO investigations in the case.
Ananthasubramanian headed PNB between August 2015 and May 2017, prior to which she was also an executive director of the bank from July 2011 to November 2013.
The Mumbai bench of the National Company Law Tribunal (NCLT) had on January 31, 2019, made her a party along with 18 others after the ministry of corporate affairs sought to make them respondents in the scam. The tribunal also the froze the assets of all accused and restrained them from disposing of their movable and immovable assets. It had also said that a sum of Rs one lakh will be allowed to each of them for personal expenses. The ministry had moved the tribunal under various provisions of the Companies Act, 2013, which pertain to freezing of assets of a company on inquiry and investigation and also relate to imposition of restrictions upon securities.
Ananthasubramanian had challenged this order first in the NCLAT and then in the Supreme Court.
Justice Nariman, while setting aside the NCLAT and NCLT orders, said that powers under Sections 337 and 339 of the Act could not be utilized to rope in the head of other organisations and attach his/her assets. He added that the CBI charge sheet had clarified that the criminal case against her was only that she omitted to take precautions or steps to prevent the fraud perpetrated by Modi and thereby committed misconduct and conspiracy with the other accused.
The court said that both Sections 337 and 339 refer to penalty for frauds by an officer of the company in which mismanagement has taken place and the business of the company which has been carried on with intent to defraud creditors of that company, respectively. He said that the provisions don’t include the business of another company or other persons.
The scam had come to light in late January 2018 when PNB informed the stock exchanges and the CBI about the scam involving directors of Modi’s companies and Choksi’s Gitanjali Gems Ltd issuing fake letters of undertakings against non-existing invoices since 2007.
Ananthasubramanian had argued that she had no concern with Gitanjali Gems as the alleged commission of crime was between 2017-2018. Her lawyer said there existed no allegation of pecuniary benefit or direct involvement of Ananthasubramanian in the working of the Gitanjali Gems. No direct act was attributed to the her in the transaction, her counsel Vikrant Singh Negi had said.