Case Note & Summary
The appeal was filed by Usha Ananthasubramanian, former Managing Director and CEO of Punjab National Bank (PNB), against orders of the NCLT and NCLAT that had frozen her assets and allowed only a monthly withdrawal of Rs. 1,00,000 for personal expenses. The orders were passed in proceedings under Section 241 of the Companies Act, 2013, relating to alleged mismanagement in Gitanjali Gems Ltd., a company unconnected with PNB. The appellant had been charge-sheeted by the CBI for omission to take precautions to prevent the fraud perpetrated by Nirav Modi, but the charge sheet did not allege direct involvement in the fraud. The Supreme Court examined the scope of Sections 241, 337, and 339 of the Companies Act, 2013. It held that the powers under these sections are limited to the company whose affairs are being mismanaged and cannot be used to attach assets of persons who are heads of other organizations. The Court set aside the impugned orders of the NCLAT and NCLT, clarifying that the judgment would not affect investigations by the CBI or SFIO.
Headnote
A) Companies Act - Oppression and Mismanagement - Section 241, 337, 339 - Jurisdiction of NCLT - The NCLT, while exercising powers under Section 241 of the Companies Act, 2013, cannot pass orders freezing the assets of a person who is not an officer or party to the mismanagement of the company in question, but is the head of another organization. The powers under Sections 337 and 339 are limited to the company whose affairs are being mismanaged and cannot be used to attach assets of persons unconnected with that company. (Paras 6-8)
B) Companies Act - Fraudulent Conduct of Business - Section 339 - Scope - Section 339 of the Companies Act, 2013, which deals with liability for fraudulent conduct of business, applies only to persons who are knowingly parties to the carrying on of the business of the company that is being wound up or mismanaged. It does not extend to persons who are heads of other organizations, even if they are accused of omission to prevent fraud in that other organization. (Paras 7-8)
C) Companies Act - Penalty for Frauds by Officers - Section 337 - Applicability - Section 337 of the Companies Act, 2013, which provides for penalty for frauds by officers, applies only to officers of the company in which mismanagement has taken place. It cannot be used to penalize officers of a different company. (Para 7)
Issue of Consideration
Whether the NCLT, in exercise of its powers under Section 241 of the Companies Act, 2013, can pass orders freezing the assets of a person who is not an officer or party to the mismanagement of the company in question, but is the head of another organization.
Final Decision
The Supreme Court allowed the appeal, setting aside the impugned orders of the NCLAT and NCLT. The Court held that the powers under Sections 241, 337, and 339 of the Companies Act, 2013, cannot be used to attach assets of a person who is the head of some other organization and not connected with the mismanaged company. The Court clarified that the judgment does not affect investigations by the CBI or SFIO.
Law Points
- Section 241 Companies Act
- 2013
- Section 337 Companies Act
- Section 339 Companies Act
- Jurisdiction of NCLT
- Freezing of assets
- Fraudulent conduct of business
- Oppression and mismanagement
Case Details
2020 LawText (SC) (2) 103
Civil Appeal No. 7604 of 2019
Rohinton Fali Nariman, S. Ravindra Bhat, V. Ramasubramanian
C.S. Vaidyanathan (for appellant), Sanjay Jain (for respondent)
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Nature of Litigation
Civil appeal against orders of NCLT and NCLAT freezing assets of the appellant under Section 241 of the Companies Act, 2013.
Remedy Sought
Setting aside of the NCLT and NCLAT orders freezing the appellant's assets and restricting her monthly expenses.
Filing Reason
The appellant, former MD & CEO of Punjab National Bank, was aggrieved by orders passed by NCLT and NCLAT in proceedings under Section 241 of the Companies Act, 2013, relating to mismanagement in Gitanjali Gems Ltd., which froze her assets and allowed only Rs. 1,00,000 per month for personal expenses.
Previous Decisions
NCLT passed an order freezing assets of certain individuals, including the appellant, and allowing only Rs. 1,00,000 per month for personal expenses. NCLAT upheld the order.
Issues
Whether the NCLT, in exercise of its powers under Section 241 of the Companies Act, 2013, can pass orders freezing the assets of a person who is not an officer or party to the mismanagement of the company in question, but is the head of another organization.
Submissions/Arguments
Appellant argued that the charge sheet by CBI only alleged omission to take precautions, not direct involvement in fraud. The powers under Section 241 read with Sections 337 and 339 can only be exercised qua the company in which mismanagement is alleged, not against persons unconnected with that company.
Respondent argued that under Section 339, the jurisdiction is wide and includes freezing assets of any person who was knowingly a party to the fraudulent conduct of business.
Ratio Decidendi
The powers under Sections 241, 337, and 339 of the Companies Act, 2013, are limited to the company whose affairs are being mismanaged and cannot be used to attach assets of persons who are heads of other organizations, even if they are accused of omission to prevent fraud in that other organization.
Judgment Excerpts
Under Section 241(2), the Central Government... may apply itself to the Tribunal for orders under this Chapter... Apart from the vast powers that are given to the Tribunal under Section 242, powers under Section 337 and 339 are also given in aid of this power, which will apply mutatis mutandis.
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.
This being the case, it is clear that powers under these sections cannot possibly be utilized in order that a person who may be the head of some other organization be roped in, and his or her assets be attached.
Procedural History
The appellant was MD & CEO of Punjab National Bank from 14.08.2015 to 05.05.2017. A charge sheet was filed by CBI against several persons including the appellant. The NCLT, in proceedings under Section 241 of the Companies Act, 2013, relating to mismanagement in Gitanjali Gems Ltd., passed an order freezing assets of certain individuals including the appellant, allowing only Rs. 1,00,000 per month for personal expenses. The NCLAT upheld the order. The appellant then appealed to the Supreme Court.
Acts & Sections
- Companies Act, 2013: 241, 337, 339
