HARI SANKARAN versus UNION OF INDIA & OTHERS

Citation: [2019] 8 S.C.R. 761 · Decided: 04-06-2019 · Supreme Court of India · Bench: INDU MALHOTRA · Disposal: Dismissed

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Judgment (excerpt)

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HARI SANKARAN
v.
UNION OF INDIA & OTHERS
(Civil Appeal No. 3747 of 2019)
JUNE 4, 2019
[INDU MALHOTRA AND M. R. SHAH, JJ.]
Companies Act, 1956: s.130 – Exercise of power under –
Essential conditions – On 1.10.2018, the Central Government filed
a petition under ss.241 and 242 before the Tribunal alleging
mismanagement by the Board of IL&FS and the affairs of IL&FS
were conducted prejudicial to public interest – In view of the fact
that thousands of crores of public money was involved, and in the
public interest, the Central Government constituted the Serious Fraud
Investigation Office (SFIO)  and handed over the investigation to
SFIO with respect to the affairs of IL&FS and other group
companies – SFIO submitted preliminary report to the Central
Government placing on record that the affairs in respect of IL&FS
group companies were mismanaged and that the manner in which
the affairs of the company were being conducted was against the
public interest – Meanwhile, Registrar of the Companies  also
conducted an enquiry under s.206 of the Act and prima facie
concluded mismanagement in IL&FS and its group companies – It
was also observed that IL&FS was presenting rosy picture by
camouflaging its financial statements and concealing and
suppressing severe mismatch between its cash flows and payment
obligations – The ICAI also conducted an enquiry and in its
preliminary report, mentioned that “accounts for the past five years
have been prepared in a fraudulent and negligent manner by the
erstwhile auditors” – In the light of prayers made in petition under
ss.241, 242, the Tribunal suspended the Board of Directors of IL&FS
and appointed newly constituted Board to conduct the business –
Thereafter the Central Government filed petition under s.130 of the
Act – After issuing notice to all concerned including the Central
Government, Income Tax Authorities, SEBI, other Statutory
Regulatory Body and even to the erstwhile Directors of IL&FS and
other two companies, the Tribunal permitted/directed the Central
   [2019] 8 S.C.R. 761
761
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SUPREME COURT REPORTS
[2019] 8 S.C.R.
Government to re-open the books of accounts and to recast the
financial statements of IL&FS and other two companies of last 5
years – Appellant who is suspended Director of IL&FS preferred
an appeal before the Appellate Tribunal – Appellate Tribunal
dismissed the same – Hence the instant appeal – Held:  The order
passed by the  Tribunal under s.130 of the Act showed that the
Tribunal had considered the preliminary report submitted by the
ICAI and SFIO and the observations made in the said reports/
preliminary reports – As per s.130 of the Act, the Tribunal may pass
an order of re-opening of  accounts if the Tribunal is of the opinion
that (i) the relevant earlier accounts were  prepared in a fraudulent
manner; or (ii) the affairs of the company were mismanaged during
the relevant period casting a doubt on the reliability of the financial
statements – The word used is “or” – Therefore, if either of the
conditions precedent is satisfied, the Tribunal would be justified in
passing the order under s.130 of the Act – The Tribunal passed the
order on being satisfied with  respect to the second part of s.130 of
the Act – In the facts and circumstances of the case, and also in the
larger public interest and when thousands of crores of public money
is involved, the Tribunal is justified in allowing the application under
s.130 of the Act.
Companies Act, 1956: s.130 – The submission on behalf of
the appellant was that all the three provisions, viz., s.130, ss.211/
212 and ss.241/242 operate in different fields and in different
circumstances and they are in the different Chapters and, therefore,
any observation made while passing the orders with respect to a
particular provision may not be considered while passing the order
under relevant provisions is concerned – Held: All the three
provisions are required to be considered conjointly – While passing
an order in a particular provision, the endeavour should be to see
that the orders passed under other provisions of the Companies Act
are given effect to, and/or in furtherance of the order/orders passed
under other Sections – Therefore, the observations made while
passing order under ss.241/242 of the Act can be said to be relevant
observations for passing the order under s.130 of the Act – Even
otherwise in the order passed by the Tribunal under s.130 of the
Act, there is a specific observatio

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