Section 130 of the Companies Act for re­opening of the books of accounts and re­casting the financial statements of the Infrastructure Leasing & Financial Services Limited; IL&FS Financial Services Limited and IL&FS Transportation Networks Limited for the last five years, viz. from Financial Year 2012­13 to the Financial Year 2017­18

1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3747 OF 2019
Hari Sankaran … Appellant
Versus
Union of India & Others … Respondents
J U D G M E N T
M.R. SHAH, J.

  1. Feeling aggrieved and dissatisfied with the impugned Order
    dated 31.01.2019 passed by the National Company Law Appellate
    Tribunal, New Delhi in Company Appeal (AT) No. 29 of 2019 by
    which the learned Appellate Tribunal has dismissed the said
    appeal preferred by the appellant herein – Ex­Director of
    respondent No. 2 – Infrastructure Leasing & Financial Services
    Limited (hereinafter referred to as ‘the IL&FS’) and has confirmed
    the order passed by the National Company Law Tribunal,
    Mumbai Bench (hereinafter referred to as ‘the learned Tribunal’)
    dated 01.01.2019 by which the learned Tribunal allowed the said
    2
    application preferred by the Central Government under Section
    130(1) & (2) of the Companies Act, 2013 (hereinafter referred to
    as the ‘Companies Act’) and has permitted re­casting and reopening of the accounts of IL&FS, IL&FS Financial Services
    Limited (hereinafter referred to as the “IFIN”) and IL&FS
    Transportation Networks Limited (hereinafter referred as the
    “ITNL”) for the last five years, the original appellant has preferred
    the present appeal.
  2. The facts leading to the present appeal in nutshell are as
    under:
    That respondent No. 2 – IL&FS is a company incorporated
    under the provisions of the Companies Act, 1956. That the said
    company IL&FS has 348 group companies, including IFIN and
    ITNL. That the said IL&FS is a core investment company and
    systemically important Non­Banking Finance Company duly
    approved under the Reserve Bank of India Act, 1931. The said
    company was promoted by the Central Bank of India, HDFC Ltd.,
    the Union Trust of India. That the said company is holding
    prominent infrastructure development and finance companies.
    Over the years, it had inducted institutional shareholders. That
    the said IL&FS, during the financial year 2017­18 had 169
    3
    companies, out of which, 24 companies are direct subsidiaries,
    135 companies are indirect subsidiaries, 6 companies are joint
    ventures and 4 companies are associate companies. That the
    appellant herein claims to be the Vice­President/Director of
    IL&FS who has been suspended as the Director of IL&FS and its
    group companies.
    2.1 That on 01.10.2018, the Central Government through the
    Ministry of Corporate Affairs filed a petition before the learned
    Appellate Tribunal under Sections 241 and 242 of the Companies
    Act alleging inter alia, mismanagement by the Board of IL&FS
    and that the affairs of IL&FS were being conducted in a manner
    prejudicial to public interest. That the Central Government
    prayed for the following reliefs:
  3. That the existing Board of Directors of Respondent No. 1
    company, comprising of R2 to R8, be suspended with
    immediate effect and 10 (Ten) persons be appointed as
    directors in terms of provisions of Section 242(2)(k) of the
    Act, to manage the affairs of R1 company and its group
    companies through their nominees, and such directors
    any report and function under the Hon’ble Tribunal on
    such matters as it may direct:
    4
  4. That the Board of Directors appointed by the Hon’ble
    Tribunal in terms of 242(2)(k) of the Act be authorized to
    replace such number of directors of subsidiaries, joint
    ventures and associate companies as may be required to
    make the R1 and its group companies as going concern.
    2.2 That it was found that the management of IL&FS and other
    group company/companies were responsible for negligence and
    incompetence, and had falsely presented a rosy financial
    statement. To unearth the irregularities committed by IL&FS
    and its companies, the provisions of Section 212(1)(c) of the
    Companies Act were invoked for investigation into the affairs of
    the company. The investigation was to be carried out by the
    Serious Fraud Investigation Office (hereinafter referred to as ‘the
    SFIO’) in exercise of powers under Section 212 of the Companies
    Act. The SFIO submitted an interim report dated 30.11.2018 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. The said report shall
    be referred to hereinbelow.
    5
    It appears that the Registrar of Companies also conducted
    an enquiry under Section 206 of the Companies Act, and prima
    facie concluded that mis­management and compromise in
    corporate governance norms and risk management has been
    perpetuated on IL&FS and its group companies by
    indiscriminately raising long term and short terms
    loans/borrowings through Public Sector Banks and financial
    institutions. It was also observed that IL&FS company has been
    presenting a rosy picture by camouflaging its financial
    statements, and concealing and suppressing severe mismatch
    between its cash flows and payment obligations, total lack of
    liquidity and adverse financial ratios. It was also found that
    IL&FS company has first defaulted on commercial paper and
    then on short term borrowings i.e. inter corporate deposits,
    negative cash flows in operating activities etc. It was further
    observed that the consolidated balance­sheet of IL&FS company
    indicated the extremely precarious financial position, and was
    virtually in deep red. It was found that intangible assets of
    approximately Rs.18,540 crores as on 31.03.2017, has increased
    to approximately Rs.20,004 crores as on 31.03.2018, thus
    6
    creating a serious doubt about the correctness of the financial
    statements. A Report dated 03.12.2018 was submitted by the
    Institute of Chartered Accountants of India (“ICAI”) which has
    been placed on the record of the Tribunal.
    2.3 In this background, the Union of India approached the
    learned Tribunal for reliefs under Sections 241 and 242 of the
    Companies Act.
    2.4 Thereafter, by a detailed and reasoned order, the learned
    Tribunal vide Order dated 01.10.2018 allowed the said prayers
    and suspended the Board of Directors of IL&FS, and appointed
    the newly constituted Board to conduct the business as per the
    Memorandum and Articles of the companies. That the learned
    Tribunal issued the following directions:
    “On the basis of the foregoing discussions and after
    considering the facts of the case, a narrated in the Petition
    filed by the Union of India, this Bench is of the considered
    view that it is judicious to invoke the jurisdiction prescribed
    under Section 241(2) of the Companies Act, 2013 and the
    Tribunal is of the opinion that as per Section 242(1) of the
    Companies Act, 2013, the affairs of the IL&FS were being
    conducted in a manner prejudicial to public interest. The
    Interim prayer of suspending the present Board of Directors
    7
    and reconstitution of the new Board of Directors is hereby
    allowed. At present, by an additional affidavit only 6 names
    (supra) of Board members have proposed by the Union of
    India.
    Further directed that the present Board of Directors be
    suspended with immediate effect. The six Directors as
    reproduced supra shall take over the R1 company
    immediately. Newly constituted Board shall hold a meeting
    on or before 8th October, 2018 and conduct business as per
    the Memorandum and Articles of Association of the company
    and the provisions of the Companies Act, 2013. Liberty is
    granted to the Board of Directors to select a Chairman among
    themselves. Thereafter, report the roadmap to NCLT, Mumbai
    Bench at the earliest possible not later than the next date of
    hearing. The suspended directors hence forth shall not
    represent the R1 company as a Director and shall also not
    exercise any powers as a director in any manner before any
    authority as well.
    As a consequence of “Admission” of the Petition, issue
    notice to intimate next date of hearing. The Petition is to
    serve copy of this order along with Petition to all the
    Respondents. The Respondents in turn may file their reply by
    15th October, 2018, only after serving copy to the petitioner.
    The Petitioner can file rejoinder, if deem fit, by 30th October,
    2018.”
    8
    2.5 That thereafter the Union of India through the Ministry of
    Corporate Affairs approached the learned Tribunal under Section
    130(1) of the Companies Act seeking permission for re­opening of
    the books of accounts and re­casting thereof, including the
    financial statements of IL&FS, IL&FS Financial Services Limited
    and IL&FS Transportation Networks Limited for the last five years
    viz. from Financial Year 2012­2013 to Financial Year 2017­2018.
    The learned Tribunal issued notices to the Income Tax
    Authorities, SEBI, and any other statutory regulatory body or
    authority, or other persons concerned. The learned Tribunal
    directed the Central Government to serve the notices upon the
    said parties.
    At this stage, it is required to be noted that the aforesaid
    three companies through their new board of directors appeared
    through their counsel before the learned Tribunal at the time of
    hearing of the aforesaid application under Section 130 of the
    Companies Act. That, thereafter, after hearing the counsel
    appearing on behalf of the respective parties, including the
    learned counsel appearing on behalf of the erstwhile directors,
    who opposed the application filed under Section 130 of the
    9
    Companies Act, the learned Tribunal vide its Order dated
    01.01.2019 allowed the application filed under Section 130 of the
    Companies Act, and permitted the said application for re­opening
    the books of accounts, and re­casting the financial statements of
    the aforesaid three companies for the last five years viz. from
    Financial Year 2012­2013 to Financial Year 2017­2018.
    2.6 Feeling aggrieved and dissatisfied with the order passed on
    the application under Section 130 of the Companies Act by the
    learned Tribunal dated 01.01.2019, permitting the re­opening
    and re­casting of the financial statements of the aforesaid three
    companies for the last five years viz. from Financial Year 2012­
    2013 to Financial Year 2017­2018, the appellant herein who is a
    suspended Director of IL&FS alone preferred an appeal before the
    learned Appellate Tribunal. That by the impugned judgment and
    order, the learned Appellate Tribunal has dismissed the said
    appeal.
  5. Feeling aggrieved and dissatisfied with the impugned
    judgment and order passed by the learned Appellate Tribunal
    dismissing the said appeal, and confirming the order passed by
    the learned Tribunal dated 01.01.2019 allowing the application
    10
    under Section 130 of the Companies Act, the original appellant
    i.e. the suspended Director/erstwhile Director of IL&FS has
    preferred the present appeal.
  6. With the consent of the learned Senior Counsel appearing
    on behalf of the respective parties, and in the facts and
    circumstances of the case, we have heard the application for
    vacating the interim Order along with the main Appeal finally.
  7. Shri Dhruv Mehta, learned senior counsel has appeared on
    behalf of the appellant and Shri Maninder Singh, learned Senior
    Counsel has appeared on behalf of the Union of India as well as
    the other contesting respondents.
  8. Shri Dhruv Mehta, learned Senior Counsel appearing on
    behalf of the appellant has vehemently submitted that the
    impugned order passed by the learned Appellate Tribunal
    dismissing the said appeal and confirming the order passed by
    the learned Tribunal allowing the application under Section 130
    of the Companies Act is absolutely illegal and bad in law.
    6.1 Mr. Dhruv Mehta, learned Senior Counsel appearing on
    behalf of the appellant has submitted that the order passed by
    the learned Tribunal allowing the application under Section 130
    of the Companies Act is absolutely illegal and as such contrary to
    11
    the provisions of Section 130 of the Companies Act. It is further
    submitted by Mr. Dhruv Mehta that as such the pre­conditions
    before passing the order under Section 130 of the Companies Act
    for re­opening and re­casting the statements of account of the
    company, namely (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 financial statements, have not been satisfied.
    6.2 Mr. Dhruv Mehta, learned Senior Counsel appearing on
    behalf of the appellant has submitted that as such there is no
    specific finding given by the learned Tribunal while allowing the
    application under Section 130 of the Companies Act that either
    the relevant earlier accounts were prepared in a fraudulent
    manner, or the affairs of the company were mismanaged, during
    the relevant period casting a doubt on the reliability of financial
    statements. It is submitted that in the absence of any specific
    finding by the learned Tribunal on the aforesaid, it was not
    permissible for the learned Tribunal to pass the order under
    Section 130 of the Companies Act permitting re­opening of the
    books of accounts and re­casting of financial statements of the
    company/companies.
    12
    6.3 It is further submitted that, on the contrary, there is a
    specific finding/observation by the learned Tribunal in the order
    under Section 130 of the Companies Act itself that the accounts
    were not prepared in a fraudulent manner. It is submitted that
    the conditions precedent for invoking the powers under Section
    130 of the Companies Act were not satisfied, and the learned
    Tribunal was not justified in passing the impugned order under
    Section 130 of the Companies Act. It is further submitted that
    therefore the learned Appellate Tribunal ought to have quashed
    and set aside the order passed by the learned Tribunal.
    6.4 It is further submitted by Shri Dhruv Mehta learned Senior
    Counsel that, even otherwise, the order passed by the learned
    Tribunal is in breach of natural justice inasmuch as sufficient
    opportunity was not given to the appellant by the learned
    Tribunal before passing the order under Section 130 of the
    Companies Act. It is submitted that the notice on the
    application under Section 130 of the Companies Act was issued
    on 27.12.2018 and the impugned order came to be passed on
    01.01.2019. It is submitted that even though the appellant
    sought time to file the reply, the Tribunal without granting any
    further time to the appellant to file the reply, passed the
    13
    impugned order. It is submitted that as per the amended Section
    130 of the Companies Act, before passing the order under Section
    130 of the Companies Act, not only the Income Tax Authorities
    and other authorities were required to be heard, even the “other
    persons concerned”, including the Directors/Ex­Directors of the
    company were required to be heard. It is submitted that the
    order passed by the learned Tribunal was in violation of the
    principles of natural justice, therefore the same was required to
    be quashed and set aside by the learned Appellate Tribunal.
    It is further submitted that though the aforesaid submission
    was made before the learned Appellate Tribunal, and the learned
    Appellate Tribunal accepted that the order passed by the learned
    Tribunal is in breach of the principles of natural justice, the
    learned Appellate Tribunal dismissed the appeal. It is submitted
    that, therefore, in the facts and circumstances of the case, the
    learned Appellate Tribunal ought to have set aside the order
    passed by the learned Tribunal and ought to have remanded the
    matter to the learned Tribunal for fresh decision after giving
    opportunity of hearing to the appellant. In support of the above
    submissions and request, Shri Dhruv Mehta, learned senior
    counsel appearing on behalf of the appellant has heavily relied
    14
    upon the decisions of this Court in the case of Mannalal Khetan
    v. Kedar Nath Khetan (1977) 2 SCC 424 and in the case of
    Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664.
    Relying upon the above decisions of this Court, it is submitted
    that when the Statute provides that things are required to be
    done in a particular manner, it ought to have been done in the
    same manner as provided under the Statute. It is submitted that
    in the present case as the Statute specifically provides that before
    passing the order under Section 130 of the Companies Act, an
    opportunity is to be given to all concerned and that two
    conditions, as referred to hereinabove, are to be satisfied, the
    same are required to be followed and complied with.
    6.5 It is further submitted by Shri Dhruv Mehta, learned Senior
    Counsel appearing on behalf of the appellant that, even
    otherwise, there is no specific finding by the learned Tribunal
    with respect to the mismanagement by the erstwhile Directors.
    So far as the reliance placed upon the observations made in the
    earlier order dated 01.10.2018 is concerned, it is submitted that
    the order dated 01.10.2018 passed under Sections 241/242 of
    the Companies Act cannot be said to be the final order. It is
    15
    submitted that it is an interim order/report to which the
    appellant has already submitted the objections, which are yet to
    be considered. It is submitted that, therefore, condition No. (ii) of
    Section 130(1) of the Companies Act is not satisfied.
    6.6 It is submitted that therefore, as the condition precedent
    while invoking the powers under Section 130 of the Companies
    Act are not being met, the learned Tribunal ought not to have
    and could not have invoked and applied Section 130 of the
    Companies Act. In support of his above submission, Shri Dhruv
    Mehta, learned Senior Counsel appearing on behalf of the
    appellant has relied upon the decision of this Court in the case of
    Calcutta Discount Company v. Income Tax Officer AIR 1961
    SC 372.
    6.7 It is further submitted by the learned Senior Counsel
    appearing on behalf of the appellant that all the three different
    provisions, namely Section 130, Sections 211/212 and Sections
    241/242 of the Companies Act, operate in the different fields and
    in different situations and as such they are in different chapters
    and therefore the observations made while passing the order
    16
    under one provision cannot be made applicable to while passing
    the order under different provisions.
    6.8 Shri Dhruv Mehta, learned Senior Counsel appearing on
    behalf of the appellant has further submitted that what is
    required to be considered is the relevant material at the time
    when the learned Tribunal passed the order under Section 130 of
    the Companies Act. It is submitted that the respondents cannot
    support the order passed by the learned Tribunal under Section
    130 of the Companies Act relying upon the subsequent
    developments/events. In support of his above submission, he
    has heavily relied upon the decisions of this Court in the cases of
    Mohinder Singh Gill v. Chief Election Commissioner, New
    Delhi (1978) 1 SCC 405 and T.P. Senkumar v. Union of India
    (2017) 6 SCC 801. It is submitted that the decision of this Court
    in the case of Chairman, All India Railway Recruitment
    Board v. K. Shyam Kumar (2010) 6 SCC 614 relied upon by the
    learned Counsel appearing on behalf of the Union of India shall
    not be applicable to the facts of the case on hand. It is submitted
    that in the case of K. Shyam Kumar (supra), this Court was
    considering the administrative decision/order and while
    17
    considering such administrative order/decision, this Court
    observed that the subsequent events/reports can be considered
    while considering the legality and validity of the original
    action/order in the public interest.
    6.9 Shri Dhruv Mehta, learned Senior Counsel appearing on
    behalf of the appellant has further submitted that, therefore,
    neither the condition precedent provided in Section 130(1) of the
    Companies Act has been complied with/satisfied, nor even
    Section 130(2) of the Companies Act has been complied with, and
    it is in violation of the provisions of Section 130(1) of the
    Companies Act, and as sufficient opportunity was not given to
    the appellant, therefore, is in violation of the principles of natural
    justice. It is prayed that the present appeal be allowed and the
    order passed by the learned Tribunal allowing the application
    under Section 130 of the Act be set aside.
    6.10 It is further submitted by Shri Dhruv Mehta, learned Senior
    Counsel appearing on behalf of the appellant that so far as the
    impugned order passed by the learned Appellate Tribunal is
    concerned, it is submitted that none of the submissions/ground
    raised on behalf of the appellant have been dealt with and/or
    18
    considered by the Appellate Tribunal. It is submitted that the
    learned Appellate Tribunal was considering/deciding the
    statutory appeal and therefore the learned Appellate Tribunal
    was supposed to deal with the grounds raised on behalf of the
    appellant. It is submitted that though the plea of violation of
    principles of natural justice was specifically pleaded and even the
    learned Appellate Tribunal also observed that there may be
    violation of principles of natural justice, in that case, the learned
    Appellate Tribunal ought to have remanded the matter to the
    learned Tribunal. It is submitted that the learned Appellate
    Tribunal ought to have appreciated that in view of the violation of
    principles of natural justice, it has caused great prejudice to the
    appellant. It is submitted that as observed and held by this
    Court in the case of Swadeshi Cotton Mills (supra), when the
    principles of natural justice are prescribed by the statutory
    provision, no prejudice is required to be shown for invoking the
    ground of violation of principles of natural justice.
    6.11 it is further submitted by learned Counsel appearing on
    behalf of the appellant that the impugned orders have far
    reaching consequences. It is submitted that the books of
    19
    accounts once re­opened and re­casted are deemed to be final
    under the provisions of Section 130(2) of the Companies Act.
    6.12 Making the above submissions and relying upon the above
    decisions, it is prayed to quash and set aside the impugned order
    passed by the learned Tribunal, confirmed by the learned
    Appellate Tribunal.
  9. The present appeal is vehemently opposed by Shri Maninder
    Singh, learned Senior Counsel appearing on behalf of the Union
    of India.
    7.1 It is vehemently submitted by the learned Senior Counsel
    appearing on behalf of the Union of India that the impugned
    order passed by the learned Tribunal, confirmed by the learned
    Appellate Tribunal do not suffer from any vice of illegality. It is
    submitted that the order passed by the learned Tribunal under
    Section 130 of the Companies Act is absolutely in the larger
    public interest and absolutely in consonance with the provisions
    of Section 130 of the Companies Act.
    7.2 It is further submitted by the learned senior Counsel
    appearing on behalf of the Union of India that there are very
    serious allegations of preparing the earlier accounts in a
    20
    fraudulent manner, and also with respect to the mismanagement of the affairs of the company during the relevant
    period. It is submitted that, in the present case, after having
    satisfied that there are serious allegations against IL&FS group of
    companies, the Department of Economic Affairs took a conscious
    decision to approach the NCLT under Section 242 of the
    Companies Act to order re­constitution of the Board of Directors.
    It is submitted that by a detailed order and considering the
    material on record, and having been prima facie satisfied with
    respect to the allegations of mismanagement and relating to the
    affairs of IL&FS group of companies, the learned Tribunal passed
    an order dated 01.10.2018 suspending the earlier
    Directors/Board of Directors of the companies and appointed a
    new Board of Directors. It is submitted that even the Ministry of
    Corporate Affairs, Government of India in exercise of powers
    under Section 212 of the Companies Act had issued an order
    directing to conduct investigation into the affairs of IL&FS group
    of companies. It is submitted that SFIO constituted under
    Section 212 of the Act has already commenced a specialized
    investigation into the affairs of IL&FS group of companies. It is
    submitted that the appellant has been arrested on 02.04.2019,
    21
    and is presently in judicial custody. It is submitted that
    thereafter when the Union of India through the Ministry of
    Corporate Affairs submitted an application before the learned
    Tribunal to re­open the books of accounts and to re­cast the
    financial statements of the three main companies for the last five
    years and thereafter considering the investigation reports and
    having been satisfied that the conditions precedent for invoking
    the powers exercised under Section 130 of the Companies Act are
    satisfied/complied with, thereafter when the learned Tribunal
    has passed the order, the same cannot be said to be illegal. It is
    submitted that all the requirements under Section 130 of the
    Companies Act have been complied with/satisfied.
    7.3 It is further submitted that the order dated 01.10.2018
    passed under Sections 241/242 of the Companies Act has
    attained finality inasmuch as the same is not challenged till date.
    It is submitted that therefore the same can be considered by
    passing an order under Section 130 of the Companies Act also.
    7.4 It is further submitted by the learned Senior Counsel
    appearing on behalf of the Union of India that all the three
    provisions, namely Sections 211/212, Sections 241/242 and
    22
    Section 130 of the Companies Act are required to be considered
    and read conjointly. It is submitted that while considering the
    one provision and/or while passing the order under one
    provision, it is required to be seen that the effect of the
    order/orders passed in other provisions do not become nugatory
    and/or ineffective. It is submitted that therefore if all the
    aforesaid three provisions are considered and read conjointly, in
    that case, it can be said that the order passed under Section 130
    of the Companies Act would be in the aid of the investigation
    going on by the SFIO under Section 212 of the Companies Act
    and the same shall be in the larger public interest. It is
    submitted that, in the present case, Justice D. K. Jain, a former
    Judge of this Court, has been appointed to supervise the
    resolution process of IL&FS group of companies. It is submitted
    that the re­opening of the books of accounts and re­casting the
    financial statements of the aforesaid three companies is very
    much required and necessary, since the same shall be in the
    larger public interest, to find out the real truth.
    7.5 It is further submitted by the learned Senior Counsel
    appearing on behalf of the Union of India that the powers
    23
    conferred under Section 130 of the Companies Act are less
    stringent than the powers conferred under Sections 241/242
    and/or Sections 211/212 of the Companies Act. It is submitted
    that while exercising powers under Section 130 of the Companies
    Act, there may not be any final conclusion/opinion that the
    relevant earlier accounts are prepared in a fraudulent manner or
    the affairs of the company were mismanaged during the relevant
    period. It is submitted that if, on the basis of the material on
    record, the learned Tribunal is satisfied on either of the aforesaid
    two eventualities, it is always open to the Tribunal to pass the
    order to re­open the books of accounts and to re­cast the
    financial statements of the company.
    It is further submitted that, in the present case, before
    passing the order under Section 130 of the Companies Act
    notices were issued under the first proviso to Section 130 of the
    Companies Act. It is submitted that SEBI appeared and
    submitted that it had no objection to the accounts and financial
    statement of respondent Nos. 2 to 4, which are listed companies,
    being re­opened and re­casted.
    24
    It is submitted that, as observed by the Tribunal in the
    impugned order, the erstwhile directors had opposed the
    application under Section 130 of the Companies Act, that after
    hearing all parties, the impugned order has been passed by the
    learned Tribunal. It is submitted that therefore the impugned
    order passed by the learned Tribunal cannot be said to be in
    violation of the principles of natural justice as alleged.
    7.6 Relying upon the subsequent interim investigation reports
    by the RBI, it is submitted that the impugned order passed by
    the learned Tribunal under Section 130 of the Companies Act is
    not required to be interfered with. It is submitted that mere
    perusal of the report of the RBI dated 22.3.2019 demonstrates
    and establishes beyond any doubt about the complete
    correctness, validity and legality of the order under Section 130
    of the Act. In support of his submission, the learned counsel
    has relied upon and requested to consider the subsequent event
    also, more particularly the report of the RIB dated 22.03.2019.
    The learned counsel appearing on behalf of the Union of India
    has heavily relied upon the decision of this Court in the case of
    25
    K. Shyam Kumar (supra) in support of the prayer to consider
    the subsequent Report of RBI also.
    7.7 Making the above submissions, it is prayed to dismiss the
    present appeal, more particularly, considering the larger public
    interest as, in the present case, thousands of crores of the public
    money is involved.
  10. We have heard the learned counsel for the respective parties
    at length and perused the written submissions filed by them.
    At the outset, it is required to be noted that by the
    impugned order and in exercise of powers under Section 130 of
    the Companies Act, the learned Tribunal has allowed the said
    application preferred by the Central Government and has
    directed/permitted re­opening of the books of accounts and recasting the financial statements of IL&FS and other two
    companies for the last 5 years, viz., F.Y 2012­2013 to 2017­2018.
    The order passed by the learned Tribunal has been affirmed by
    the learned Appellate Tribunal. Therefore, the short question
    which is posed for consideration before this Court, whether in the
    facts and circumstances of the case, can it be said that the order
    26
    passed by the learned Tribunal is illegal and/or contrary to
    Section 130 of the Companies Act?
    8.1 While considering the aforesaid question/issue, few facts
    and the relevant provisions of the Companies Act which are
    relevant for determining/considering the legality and validity of
    the order passed by the learned Tribunal are required to be
    referred to and considered, which are as under:
    Section 211 of the Companies Act provides for
    establishment of Serious Fraud Investigation Office to investigate
    frauds relating to a company. Section 212 of the Companies Act
    provides for investigation into affairs of company by SFIO.
    Section 212 of the Companies Act provides that if the Central
    Government is of the opinion that it is necessary to investigate
    into the affairs of a company by SFIO….in the public interest; or
    on a request made by any department of the Central Government
    or a State Government. In the present case, the Central
    Government has already constituted SFIO and has also ordered
    investigation into the affairs of IL&FS and other group of
    companies and the investigation by the SFIO is under progress.
    It is also required to be noted that SFIO had also submitted its
    27
    preliminary report. In the preliminary SFIO report, there are
    specific findings with respect to mismanagement of the affairs of
    the aforesaid companies, and also with respect to preparing
    fraudulent accounts. At this stage, it is also required to be noted
    that ICAI had also conducted an enquiry into the accounts for
    the past five years, and in the preliminary report, the ICAI has
    mentioned that “accounts for the post five years have been
    prepared in a fraudulent and negligent manner by the erstwhile
    auditors”. That the Registrar of Companies had also conducted
    an enquiry under Section 206 of the Companies Act and prima
    facie concluded that mismanagement and compromise in
    corporate governance norms and risk management has been
    perpetuated on IL&FS and its group companies by
    indiscriminately raising long term and short term
    loans/borrowings through public sector banks and financial
    institutions. Considering the fact that thousands of crores of
    public money is involved, and in the public interest, the Central
    Government has thought it fit to handover the investigation with
    respect to the affairs of IL&FS and other group companies to
    SFIO.
    28
    8.1.1 Sub­section (2) of Section 241 of the Companies Act
    provides that if the Central Government is of the opinion that the
    affairs of the company are being conducted in a manner
    prejudicial to public interest, it may itself apply to the Tribunal
    for an appropriate order under Chapter XVI, more particularly
    the order under Section 242 of the Companies Act. In the
    present case, the Central Government had approached the
    learned Tribunal under Section 241 of the Companies Act and for
    an appropriate order to suspend the existing Board of Directors
    of the Companies and to appoint new Directors in terms of the
    provisions of Section 242(2)(k) of the Companies Act, to manage
    the affairs of IL&FS and group companies. That by an order
    dated 01.10.2018, the learned Tribunal, in exercise of powers
    under Section 242(2) of the Companies Act, has suspended the
    Board of Directors of IL&FS and has further passed an order for
    reconstitution of the new Board of Directors. Six persons are
    appointed as Directors as Board members. While issuing such
    directions, the learned Tribunal has specifically observed that the
    learned Tribunal is satisfied that the affairs of the IL&FS were
    being conducted in a manner prejudicial to public interest.
    Thus, pursuant to the said order dated 01.10.2018, the erstwhile
    29
    Board Members/Directors of the IL&FS are suspended, and new
    Directors are appointed as Board Members and the new Board of
    Directors are conducting the affairs of the IL&FS and group
    companies. It is further ordered that the suspended Directors
    henceforth shall not represent the IL&FS company as Directors,
    and shall also not exercise any power as Directors in any manner
    before any authority as well. The appellant herein is the Vice
    President and suspended Director of the company, who alone has
    challenged the impugned order passed by the learned Tribunal
    passed under Section 130 of the Companies Act.
    8.2 In between there is one another development. Pursuant to
    the order passed by the NCLAT, a former Judge of this Court –
    Hon’ble Justice (Retd.) D.K. Jain has been appointed to supervise
    the operation of the “Resolution Process” of the IL&FS group
    companies. Considering the aforesaid facts and circumstances
    and in the larger public interest and having found on the basis of
    the reports/preliminary reports of SFIO, ICAI and ROC and
    having observed and found that the relevant earlier accounts of
    IL&FS and other group companies, named hereinabove, were
    prepared in a fraudulent manner and the affairs of the company
    30
    were mismanaged during the relevant period, casting a doubt on
    the reliability of the financial statements, the Union of
    India/Central Government considered it fit to submit an
    application before the learned Tribunal under Section 130 of the
    Companies 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, by the impugned order, the
    learned Tribunal has permitted/directed the Central Government
    to re­open the books of accounts and to recast the financial
    statements of IL&FS and other two companies, named
    hereinabove, of last 5 years.
    8.3 Considering the aforesaid facts and circumstances, the
    legality and validity of the impugned order passed by the learned
    Tribunal passed under Section 130 of the Act, confirmed by the
    learned Appellate Tribunal is required to be considered.
  11. On going through the order passed by the learned Tribunal
    passed under Section 130 of the Act, it appears that the learned
    Tribunal is conscious of the relevant provisions of the Act, more
    particularly Section 130 of the Companies Act and more
    31
    particularly the conditions precedent to be complied
    with/satisfied while directing/permitting re­opening of the books
    of accounts and re­casting of the financial statements of the
    company. From the order passed by the learned Tribunal under
    Section 130 of the Companies Act, it appears that the learned
    Tribunal has considered the preliminary report submitted by the
    ICAI and SFIO and the observations made in the aforesaid
    reports/preliminary reports. That thereafter having satisfied that
    the conditions precedent for invoking powers under Section 130
    of the Companies Act, stated in Section 130 (i) OR (ii) of the
    Companies Act are satisfied, thereafter the learned Tribunal has
    passed an order allowing the application under Section 130 of the
    Companies Act for re­opening the books of accounts and recasting the financial statements of IL&FS and other two
    companies, viz, for the last 5 years.
  12. While assailing the order passed by the Tribunal under
    Section 130 of the Act, it is vehemently submitted on behalf of
    the appellant, who as such is a suspended director of the
    company that there is no specific finding recorded by the learned
    Tribunal that (i) the relevant earlier accounts were prepared in a
    32
    fraudulent manner; and (ii) the affairs of the company were
    mismanaged during the relevant period casting a doubt on the
    reliability of the financial statements. It is the case on behalf of
    the appellant that in the order dated 01.01.2019 passed under
    Section 130 of the Companies Act, learned Tribunal has
    specifically given a finding that the alleged accounts of the
    companies cannot be said to have been prepared in a fraudulent
    manner. However, it is required to be noted that the aforesaid
    observations by the Tribunal are required to be considered in the
    context for which the observations are made. It appears that the
    said observations are made with respect to role of the auditors. It
    is to be noted that in the same para, the learned Tribunal has
    specifically observed that in the earlier order dated 01.10.2018, it
    is observed that the affairs of the company were mismanaged
    during the relevant period and that the affairs of the company
    and subsidiary companies were being mismanaged during the
    relevant period, as contemplated under Sub­Section (1) and (2).
    At this stage, it is required to be noted that as per Section 130 of
    the Act, the Tribunal may pass an order of re­opening of
    accounts if the Tribunal is of the opinion that (i) the relevant
    earlier accounts were prepared in a fraudulent manner; OR (ii)
    33
    the affairs of the company were mismanaged during the relevant
    period casting a doubt on the reliability of the financial
    statements. Therefore, the word used is “OR”. Therefore, if
    either of the conditions precedent is satisfied, the Tribunal would
    be justified in passing the order under Section 130 of the Act.
    Considering the order passed by the Tribunal passed under
    Section 130 of the Companies Act, it appears that the learned
    Tribunal has passed the order on being satisfied with respect to
    the second part of Section 130 of the Companies Act. It is also
    required to be noted that the learned Tribunal has also taken
    note of the preliminary report submitted by the ICAI with respect
    to the earlier accounts were being prepared in a fraudulent
    manner. On a fair reading of Section 130 of the Companies Act,
    if the Tribunal is satisfied that either of the conditions precedent
    is satisfied, the Tribunal would be justified in passing the order
    under Section 130 of the Companies Act.
  13. Considering the facts narrated hereinabove and the
    preliminary reports of SFIO and ICAI which came to be
    considered by the learned Tribunal and considering the specific
    observations made by the learned Tribunal while passing the
    34
    order under Section 241/242 of the Companies Act and
    considering the fact that the Central Government has entrusted
    the investigation of the affairs of the company to SFIO in exercise
    of powers under Section 242 of the Companies Act, it cannot be
    said that the conditions precedent while invoking the powers
    under Section 130 of the Act are not satisfied. We are more than
    satisfied that in the facts and circumstances of the case, narrated
    hereinabove, 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 Section 130 of the
    Companies Act, which was submitted by the Central Government
    as provided under Section 130 of the Companies Act.
  14. Now so far as the submission on behalf of the appellant that
    all the three provisions, viz., Section 130, Sections 211/212 and
    Sections 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 order/orders
    with respect to a particular provision may not be considered
    while passing the order under relevant provisions is concerned, it
    is required to be noted that all the three provisions are required
    35
    to be considered conjointly. While passing an order in a
    particular provision, the endeavour should be to see that the
    order/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 Section 241/242 of the Companies Act
    can be said to be relevant observations for passing the order
    under Section 130 of the Companies Act. At this stage, it is
    required to be noted that even otherwise in the order passed by
    the Tribunal under Section 130 of the Companies Act, there is a
    specific observation made by the learned Tribunal with respect to
    mismanagement of the affairs of the company, and even with
    respect to the relevant earlier accounts prepared in a fraudulent
    manner.
  15. It is next contended on behalf of the appellant that proviso
    to Section 130 of the Act has not been complied with and that the
    order passed by the learned Tribunal passed under Section 130
    of the Act is in violation of the principle of natural justice. At the
    outset, it is required to be noted that while passing he order
    under Section 130 of the Companies Act, the learned counsel
    36
    appearing on behalf of the erstwhile directors appeared and
    opposed the application under Section 130 of the Companies Act.
    Therefore, the learned counsel appearing on behalf of the
    erstwhile directors was heard before passing he order under
    Section 130 of the Companies Act. Therefore, it can be said that
    there is a compliance/substantial compliance of the principle of
    natural justice to be followed. It is required to be noted that as
    per proviso to Section 130 of the Companies Act before passing
    the order under Section 130 of the Act, the Tribunal is required
    to issue notice to the Central Government, Income Tax
    Authorities, SEBI or any other statutory regulatory body or
    authorities concerned or any “other person concerned” and is
    required to take into consideration the representation, if any
    made. The “other person concerned” is as such not defined.
    Who can be said to be “other person concerned”, that question is
    kept open. At this stage, it is required to be noted that while
    passing the order under Section 130 of the Act, there shall be
    reopening of the books of accounts and re­casting of the financial
    statements of the company and therefore the Board of Directors
    of the company may make a grievance. The erstwhile directors
    cannot represent the company as they are suspended pursuant
    37
    to the earlier order passed under Section 242 of the Companies
    Act. Be that as it may, even otherwise in the present case and as
    observed hereinabove the erstwhile directors of the company
    represented before the Tribunal and they opposed the application
    under Section 130 of the Act. Therefore, in the facts and
    circumstances of the case, it cannot be said that the order
    passed by the learned Tribunal is per se in violation of the
    principle of natural justice as alleged.
  16. The submission by learned Counsel appearing on behalf of
    the appellant that in the impugned order passed by the learned
    Appellate Tribunal, the learned Appellate Tribunal has
    specifically observed that there is a violation of principle of
    natural justice and therefore the learned Appellate Tribunal
    ought to have remanded the matter to the Tribunal is concerned,
    on considering/fair reading of the impugned order passed by the
    learned Appellate Tribunal, as such, there is no specific finding
    by the learned Appellate Tribunal that there is a violation of
    principle of natural justice. What is observed by the learned
    Appellate Tribunal is that “even if it is accepted that the appellant
    on receipt of notice wanted to file reply” cannot be considered as
    38
    a specific finding given that the order passed by the Tribunal was
    in violation of principle of natural justice.
  17. Now insofar as the submission on behalf of the appellant
    that the order dated 01.10.2018 passed under Section 241/242
    of the Companies Act is an interim order and the same is not a
    final order suspending the directors and the erstwhile board of
    directors of the company, and therefore the observations made in
    the order dated 01.10.2018 cannot be considered, has no
    substance. It is required to be noted that as on today the order
    dated 01.10.2018 suspending the erstwhile directors of the
    company including the appellant stands and remains in
    operation. The same is not challenged by way of an appeal before
    an appropriate appellate Tribunal/Court.
  18. Now so far as the submission on behalf of the appellant that
    the impugned order passed by the learned Appellate Tribunal is a
    non­speaking and non­reasoned order and the grounds urged
    before the learned Appellate Tribunal have not been dealt with by
    the learned Appellate Tribunal and therefore the prayer to set
    aside the order is concerned, in view of our specific findings
    39
    recorded hereinabove on the legality and validity of the order
    passed by the learned Tribunal under Section 130 of the
    Companies Act, we do not propose to remand the matter to the
    learned Appellate Tribunal. It is true that the learned Appellate
    Tribunal could have passed a reasoned/speaking order. But in
    the facts and circumstances of the case and our findings
    recorded hereinabove and as observed hereinabove, the order
    passed by the Tribunal under Section 130 of the Companies Act
    does not suffer from any illegality and the same is passed in the
    larger public interest, we have considered the order passed by the
    learned Tribunal under Section 130 of the Companies Act on
    merits.
  19. In view of the aforesaid findings recorded by us, the
    decisions relied upon by the learned counsel appearing on behalf
    of the appellant shall not be applicable to the facts of the case on
    hand. There cannot be any dispute to the proposition of law laid
    down by this Court in the aforesaid decisions relied upon by the
    learned counsel appearing on behalf of the appellant. However,
    in the light of the aforesaid findings recorded by us, none of the
    40
    decisions relied upon by the learned counsel appearing on behalf
    of the appellant shall be applicable to the facts of the case on
    hand.
  20. Now so far as reliance placed upon the subsequent report of
    the RBI and the objection by the learned counsel appearing on
    behalf of the appellant to rely upon the subsequent report and
    the reliance placed upon the decision of this Court in the case of
    Mohinder Singh (supra) is concerned, as the impugned order
    passed by the learned Tribunal is in the larger public interest,
    this Court can take note of the subsequent development/report.
    However, at the same time, the same shall be in support of the
    order under challenge. Even otherwise, it is required to be noted
    and as observed hereinabove, independent to the subsequent
    report of the RBI, there is a specific finding with respect to the
    mismanagement and the fraudulent accounts. Therefore
    subsequent Report of the RBI Report can be taken note of, while
    upholding the order passed by the learned Tribunal under
    Section 130 of the Companies Act. As observed hereinabove, a
    larger public interest has been involved and reopening of the
    41
    books of accounts and recasting of financial statements of the
    aforesaid companies is required to be carried out in the larger
    public interest, to find out the real truth, and as observed
    hereinabove both the conditions precedent while invoking power
    under Section 130 of the Companies Act are satisfied/complied
    with, therefore in the facts and circumstances of the case, we are
    of the opinion that the order passed by the learned Tribunal
    passed under Section 130 of the Companies Act, confirmed by
    the learned Appellate Tribunal, is not required to be interfered
    with.
  21. In view of the above and for the reasons stated above, we
    see no reason to interfere with the impugned order dated
    01.01.2019 passed by the learned Tribunal under Section 130 of
    the Companies Act for re­opening of the books of accounts and
    re­casting the financial statements of the Infrastructure Leasing
    & Financial Services Limited; IL&FS Financial Services Limited
    and IL&FS Transportation Networks Limited for the last five
    years, viz. from Financial Year 2012­13 to the Financial Year
    2017­18, which came to be confirmed by the learned Appellate
    42
    Court vide impugned judgment and order dated 31.01.2019.
    Consequently, the present appeal fails and deserves to be
    dismissed and is accordingly dismissed.
    All connected IAs are also disposed of.
    ……………………………..J
    [INDU MALHOTRA]
    …………………………….J.
    [M. R. SHAH]
    NEW DELHI,
    JUNE 4, 2019