SECURITIES & EXCHANGE BOARD OF INDIA (TRUST PET. NO.3/1997) vs CRB CAPITAL MARKETS LTD
$~ C1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 7th December, 2023
+ CO.PET. 379/2009, CO.APPLs. 39/2023, 1007/2018, 262/2019, 489/2019, 813/2019, 40/2020, 160/2020, 161/2020, 240/2020, 241/2020, 282/2020, 283/2020, 294/2020, 330/2020, 430/2020, 431/2020, 449/2020, 653/2020, 660/2020, 26/2021, 732/2021, 737/2021, 33/2022, 420/2022, 351/2023, 546/2023, 736/2023, 797/2023, 866/2023
SECURITIES & EXCHANGE BOARD OF
INDIA (TRUST PET. NO.3/1997) ….. Petitioner
Through: Mr. Sujeet Gupta, Ms. Pious Shukla, Advs. (M. 6387229682)
Ms. Pinky Anand, Sr. Adv, Mr. Abhishek Baid, Mr. Praneet Das, & Ms. Asees Jasmine Kaur, Advs. for SEBI (M. 9999469777)
Mr. J Sai Deepak, Mr. Avneesh Garg, Mr. M. T. Reddy, Mr. R. Abhishek, Ms. Srika S. & Mr. Harsh Pal, Advs. (M: 8860518495)
Mr. Raj at Bhalla, Adv. (M.9811661193)
versus
CRB CAPITAL MARKETS LTD ….. Respondent
Through: Mr. Nalin Kohli and Mr. Aman Leekha, Advs. for Special Committee. (M: 9871455077)
Mr. Praveen Suri, Mr. Kartik Kumar & Mr. Shubham Jhunjhunwala, Advs. for Applicant.
Mr. Bhuwan Gugnani, Adv.
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. This hearing has been done through hybrid mode.
2. The Petitioner Securities & Exchange Board of India (hereinafter, SEBI) filed the present petition seeking certain directions against the Respondents in terms of SEBI (Mutual Funds) Regulations, 1996 (hereinafter, 1996 Regulations). The background of the present petition is that in 1993, CRB Capital Markets Limited applied to SEBI to establish a mutual fund, named CRB Mutual Fund. To manage this fund, CRB Asset Management Company Limited was incorporated. Additionally, a trust called CRB Trustee Limited was formed vide Deed of Trust dated 15th December 1993 under the 1996 Regulations.
3. Thereafter, the CRB Mutual Fund launched a close-ended scheme called Arihant Mangal (Growth) Scheme, which was open for subscription from 19th August, 1994, to 5th September, 1994. It is stated that around Rs. 229 crores were collected from around 19,396 investors.
4. In the meantime, the Reserve Bank of India (hereinafter, RBI) intervened. By exercising its powers under the RBI Act, 1934, and Sections 433&434 of the Companies Act, 1956, it filed a winding-up petition against CRB Capital Markets Limited. Vide order dated 22nd May, 1997, a Provisional Liquidator was also appointed for CRB Capital Markets Ltd. to take charge of all properties and accounts of the said company.
5. It is stated that in order to protect the interests of investors in the Arihant Mangal Scheme, SEBI filed the present Trust Petition bearing Trust Petition No. 3/1997 titled SEBI v. The CRB Capital Markets Ltd. before the Bombay High Court, under the provisions of the Indian Trusts Act, 1882 on 3rd June, 1997, against CRB Capital Markets Ltd. and others, including CRB Trustee Limited and CRB Asset Management Company Ltd. The Bombay High Court appointed a Provisional Administrator vide order dated 3rd June 1997 for the entities, CRB Trustee Ltd. and CRB Asset Management Company Ltd. The said Provisional Administrator hadtaken over the charge of all the assets of the mutual funds. One Mr. M.L. T Fernandes was appointed as the Provisional Administrator of CRB Trustee Ltd. and CRB Asset Management Company Ltd. till his demised in 2012.
6. Vide order dated 25th January, 1999, passed by the Bombay High Court in Chamber Summons No. 796 of 1998 in Trust Petition No.3 of 1997, the Provisional Administrator was permitted to repay the small investors up to 300 units to those holding up to 10,000 units, in terms of the responses received by him till 31st May 1998. In terms of the Scheme for repayment, individuals connected with Mr. C.R. Bhansali and his group of companies were excluded from this repayment scheme. Thereafter, on 13th August, 2007, the Supreme Court transferred the said Trust Petition bearing No. 3/1997 to this Court.
7. Vide order dated 29th May, 2013, a consent order was passed by this Court that led to the creation of the Special Committee headed by ld. Retd. ADJ S.K Tandon. The said Special Committee was tasked with performing the functions of the Trustee and winding up the Arihant Mangal Scheme in accordance with Regulations 41 and 42 of the 1996 Regulations.
8. This Court has been hearing this matter from time to time. There were various allegations raised against the Special Committee constituted vide order dated 29th May, 2013 consisting of :
S. No.
Members
Position
1.
Mr. S. K Tandon, retired ADJ
Chairperson
2.
Mr. S. C Das, Ex-Executive Director, SEBI
Member
3.
Mr. M.D. Kanther, (suggested by Mr. Bhansali/Ex-Management)
Member
It is submitted by ld. Counsel for the parties that Mr. M.D. Kanther expired on 29th May, 2014. He was replaced with Mr. A.A. Sisodia (suggested by Mr. C.R. Bhansali/ex-management).
9. On 17th August 2023, this Court directed the Special Committee to transfer the entire fund lying with the Committee, which was stated to be approx. over Rs. 120 crores, to the worthy Registrar General of this Court.
10. Considering the circumstances in the present petition, vide order dated 12th September, 2023, this Court amended the composition of the Special Committee. Currently the Committee consists of:
i. Mr. S. K Tandon, retired ADJ (Chairperson)
ii. Mr. S. C. Das, Ex-Executive Director of SEBI (Member)
11. This Court was also constrained to appoint Local Commissioners in the present petition, to ensure that no third-party individuals have access to the Special Committees records. Further, this Court directed that Rommel Investment Pvt. Ltd. (the Applicant in Co. Appl. 737/2021) to take part in the inspection of the said records of the Special Committee. The relevant portion of the order dated 12th September, 2023 reads as follows:
17. The premises, being 201, II Floor, Priyadarshani Vihar, Delhi – 110092, from where the Special Committee is functioning, shall remain in the exclusive possession of the Committee. No other entity or individual shall have access to the said premises. In order to ensure that no other person has access to the records of the Special Committee, Ms. Ruchi Sindwani, Sr. Standing Counsel and Ms. Megha Bharara, advocate who regularly appear for the OL in this Court, are appointed as the Local Commissioners. The said LCs shall visit the premises in question on 13th September, 2023 i.e. tomorrow itself. The Local Commissioners shall replace the locks of the premises. One set of keys of the new locks shall be deposited in the Court and one set of keys shall be given to Mr. S.K. Tandon, who shall keep the same in his exclusive power and possession.
18. The fee of the Local Commissioners is fixed at Rs. 1.5 lakhs (Rs. 1 lakh for Ms. Sindhwani and Rs.50,000/- for Ms. Bharara, advocate).
19. The fee shall be paid by the Special Committee within one week.
20. The documents and records, along with the complete bank account statements of the Special Committee, which were directed to be submitted in
terms of paragraph 12 of the order dated 17th August, 2023, shall be filed by 15th October, 2023. The advance copy of the said records shall be served upon the counsel for the OL and the same shall be filed with the Court in a sealed cover, which shall be produced before the Court on the next date of hearing.
21. It is clarified that the data to be given in terms of paragraph 12 of the order dated 17th August, 2023 shall also include the names of the beneficiaries, to whom the disbursements have been made. The bank account statements of all the banks where the bank accounts were maintained by the Special Committee shall also be filed.
22. The OL office shall give inspection of the said records to two lawyers of the Applicants in CO.APPL.737/2021 as also ld. Counsel for the SEB1 on 17th October, 2023 at 11 :00 am in the OL office. 23. Mr. S.K. Tandon, retired ADJ has joined the proceedings virtually and has been apprised of the order.
24. Insofar as the remaining contentions are concerned, the same shall be considered on the next date of hearing.
12. Subsequently, on 13th October 2023, the Special Committee, expressed objections to granting inspection rights to the counsel for M/s. Rommel Investment Pvt. Ltd. Per contra, ld. Sr. Counsel for SEBI, Ms. Pinki Anand argued for transferring the entire fund to SEBI, suggesting that the Special Committee’s mandate had ended as per the order dated 12th September, 2023. Further, the ld. Counsels for M/s Rommel Investment Pvt. Ltd. were instructed not to share their findings qua the inspection. The relevant extract of the said order is as follows:
10. The status of M/s. Rommel Investment Pvt. Ltd has been disputed by the Special Committee. In view of the arguments and submissions made today, it is directed that two lawyers each from SEBI and from the Applicants in CO.APPL. 737/2021 i.e Rommel Investment Pvt. Ltd.. shall be given inspection in the presence of the two Local Commissioners, who were appointed on the last date i.e. Ms. Ruchi Sindwani, Sr. Standing Counsel and Ms. Megha Bharara, Advocate.
11. The inspection shall be given in a completely orderly manner without any disturbance being caused.
12. Mr. S.K. Tandon, Retd. ADJ, who is heading the Special Committee, is present in Court and has assured the Court that all the records and the bank statements shall be made available to the said two sets of Counsels. The said ld. Counsels shall inspect the records and place their observations before the Court on the next date of hearing. The counsel for M/s Rommel shall not share their findings with their clients till the next date of hearing.
13. Ld. Counsel for SEBI may share their findings with their clients. However, ld. Counsel for the Applicant in CO.APPL. 737/2021 shall place their observations before the Court which shall be considered and appropriate orders shall be passed on the next date of hearing.
13. Vide order dated 31st October, 2023, it was noted that ld. Counsel for Rommel Investment, and ld. Sr. Counsel Ms. Pinky Anand for SEBI submitted their respective reports to the Court in terms of order dated 13th October, 2023. Further, the Special Committee’s Chairperson, Mr. Tandon, presented a list of unit holders who received disbursements from the Committee. However, the list only contained names, without any contact details or identifiable information about the unit holders.
14. Thus, the Court directed the Special Committee to provide a more detailed list, and information on any connections these unit holders might have with CRB companies or Mr. C. R. Bhansali.
15. Thereafter, Rommel Investments moved an application bearing no. Co. Appl. 855/2023 seeking inspection of the documents filed by the Special Committee. The said application was allowed, and the inspection of the documents filed by the Special Committee was allowed.
16. In compliance of the above orders of this Court, the following submissions have been filed in this matter:
a. Written Submissions on behalf of the Special Committee dated 5th December, 2023.
b. Preliminary Report pursuant to the inspection of the documents producted by the Special Committee on 18th October 2023 before the Local Commissioner, on behalf of M/s Rommel Investment Pvt. Ltd (hereinafter, Preliminary Report).
c. Note of arguments on behalf of SEBI.
17. A perusal of the Written Submissions on behalf of the Special Committee shows that the stand of the Special Committee is as under:
a. That the premises rented by the Special Committee for its functioning was rented with the consent of all the parties in terms of order dated 29th May, 2023. According to the Special Committee, the said rented premises is not owned by Mr. C. R. Bhansali. The landlord of the rented premises situated at 201, IInd Floor, A-16, Priyadarshini Vihar, Delhi-110092 is one Mr. K.S. Choudhary s/o Shri Kanchan Singh.
b. Insofar as the unit holders are concerned, there were a total of 19,396 unit holders, for whom an aggregate amount of Rs.229.25 crores was received as reflected by the records of the Provisional Administrator.
c. The disbursements made by the Special Committee is to the tune of total of Rs.210 crores @Rs. 13.48 per unit towards provisional NAV. Vide order dated 17th August 2023, a sum of approx. Rs.122 crores has been deposited with the worthy Registrar General.
18. According to the Special Committee, there was no order restricting disbursements to any person or entity, including to Mr. C.R. Bhansali or his family members. Paragraph 30 of the Written Submissions on behalf of the Special Committee is set out below:
30. It is relevant to mention here that there was no restriction or is imposed by any court order much less the final consent order dated 29/05/2013 passed by this Honble Court directing dissolution of the assets of the Mutual Fund and distributing the sale proceeds amongst the eligible unitholders as per the NAV as determined by the Special Committee. There is/was no order of the court restricting payment to any person or entity including to either C.R. Bhansali or his family members.
19. In response to a query regarding whether any of the unit holders are associated with any of the CRB Companies or Mr. C. R. Bhansali, the stand of the Special Committee is as under:
According to the available records, the following information is provided hereunder:
Name
Folio Number
No. of units
Amount
Relation
Chain Roop Bhansali
11117
100000
1348000
Self
Manjula Bhansali
11110
100000
1348000
Wife
Fateh Chand Bhansali
11114
100000
1348000
Father
Other than the above, the Special Committee has no information/details or knowledge of any other unitholder connected to any of the CRB Companies or to Mr. Bhansali as the same is not available in the records of the Special Committee.
20. Regarding the Preliminary Report dated 30th October, 2023, filed by M/s Rommel Investment Pvt. Ltd., two main issues have been identified.
a. Firstly, the unit holders list submitted by the Special Committee vide order dated 13th October, 2023 and 30th October, 2023 concealed the names of approximately 5,000 unit holders.
b. Secondly, it is alleged that several unit holders have not received any payments, as indicated by the figure zero against their names.
c. Thirdly, a substantial sum has been released to the companies connected with the CRB group companies, and Mr. CR Bhansali himself, and his relatives the details of which are as under:
Sr. No.
Sr. No. mentioned in the List
Name of the alleged unit holder/ disburse
Amount disbursed
Pg. No. of the List
1)
2139
CHAIN ROOP BHANSALI
13,48,000
@ 126
2)
3201
FATEHCHAND BHANSALI
13,48,000
@ 189
3)
6658
MANJULA BHANSALI
13,48,000
@ 392
4)
11018
SANGEETA JAIN
1,88,04,600
@ 649
5)
13206
SWETA JAIN
1,34,80,000
@ 777
6)
1574
BANWARI DEVI BHANSALI
9,48,000
@ 93
7)
1864
BILL FINANCE CORPORATION LTD
5,25,72,000
@ 110
8)
1965
BILL FINANCE CORPORATION LTD
6,73,32,600
@ 110
9)
2445
CRAVEX IMPEX & CONSULTANTS PVT LTD
1,34,80,000
@ 144
10)
3517
GLOBAL FINANCE CORPORATION LTD
13,48,00,000
@ 207
11)
3633
GREENQUEST TRADE ASSOCIATION LTD
13,46,00,000
@ 214
12)
3771
HAENGNAM RNT STONE WARE LTD
1,34,77,304
@ 222
13)
4237
JAI HIND MARMO PVT LTD
6,73,32,600
@ 250
14)
4392
JAYANT SECURITIES PVT. LTD
3,37,67,400
@ 259
15)
4491
JINPRABHU INNFASTRUCTURE DEVELOPMENTS LTD
4,04,40,000
@ 265
16)
4492
JIN PRABHU SECURITIES PVT LTD.
5,39,20,000
@ 265
17)
5383
KIEV FINANCE LTD
8,76,20,000
@ 317
18)
7750
NAV SURYA HOLDING (P) LTD
1,34,80,000
@ 456
19)
8898
PRAMUKH SOFT TECHNOLOGIES PVT. LTD.
2,82,40,600
@ 524
20)
10329
RAVITEJ EXPORTS LTD
6,74,00,000
@ 608
21)
12043
SHREE TULSI ONLINE COM LTD
3,77,44,000
@ 709
22)
12175
SIDH PROPERTIES LTD
67,40,000
@ 717
23)
12199
SIL LEASING & INDUSTRIAL FINANCE P. LTD
2,56,79,400
@ 718
24)
12366
SPECTRUM EQUITY LTD
6,74,00,000
@728
25)
13485
TOPSEY IMPEX PVT LTD.
1,34,80,000
@749
26)
13575
TSW INFOTECH LTD
3,37,00,000
@ 796
27)
14575
ZERRY EXIM PVT LTD
1,34,80,000
@ 858
28)
702
ANJANA DEVI
1,48,28,000
@ 42
29)
1434
BABULAL L SHAH
1,07,84,000
@ 85
30)
1438
BABULAL SHAH HUF
2,68,92,600
@ 85
31)
2916
DIPIKA PREMCHAND SHAH
1,28,06,000
@ 172
32)
9086
PREMCHAND LAL CHAND SHAH
1,15,25,400
@ 535
33)
9115
PRITI B SHAH
1,01,10,000
@ 537
34)
8468
PARUL B SHAH
1,21,32,000
@ 499
35)
5755
LADBEN PREMCHAND SHAH
1,28,06,000
@ 339
36)
13709
USHABEN ANIL KUMAR SHAH
1,21,32,000
@ 807
37)
14335
VINOD KUMAR BOTHRA
1,61,08,600
@ 844
38)
9642
RAJASTHAN HORTICULTURE PVT. LTD.
6,74,00,000
@ 568
39)
8091
ODESSY TRADE AND LEASING PVT. LTD.
1,34,80,000
@ 477
40)
13308
T. SPRITUAL WORLD LTD
5,38,90,344
@ 783
21. According to M/s Rommel Investment Pvt. Ltd., based on the records filed by the Special Committee and verified up to this stage, the total disbursements made to Mr. Bhansali and companies related to CRB is to the tune of Rs.131.90 crores.
22. This Court is cognisant of the fact that the Special Committee was constituted vide order dated 29th May 2013, to carry out their duties as trustees in accordance with the 1996 Regulations. According to Regulation 18(12) of the 1996 Regulations, the trustees shall be accountable for, and be the custodian of, the funds and property of the respective schemes and shall hold the same in trust for the benefit of the unitholders in accordance with these regulations and the provisions of trust deed. Further, the trustees are obligated to ensure that there is no conflict of interest between the manner of deployment of its net worth by the asset management company, and the interest of the unit- holders.
23. Therefore, considering the above allegations and counter-allegations, let an affidavit be placed on record by the Special Committee stating:
a. The manner, in which the approval for these disbursements were given by the Special Committee, shall also be placed on record by way of an affidavit.
b. Whether any of the above persons and entities (as mentioned in paragraph 18 above) are connected to CRB Group of companies as well as Mr. C. R Bhansali and/or his relatives,
c. Whether any verification was conducted prior to releasing these amounts to these unit holders mentioned in paragraph 18 above and,
d. Whether any leave was sought from the Court prior to release of the said amounts to the unit holders.
24. Mr. Das, a retired official of SEBI and a member of the Special Committee is also present in Court. When queried by the Court, Mr. Das informed that he is based out of Kolkata, and that he attended meetings of the Special Committee in Delhi twice a month. Primarily according to Mr. Das, the Committee was being managed on a day-to-day basis by Mr. Tandon and the other member Mr. Sisodiya.
25. In view of the above contentions recorded on behalf of the parties, it is deemed appropriate to direct Mr. A.A. Sisodiya, who was Mr. C. R. Bhansalis nominee on the Special Committee to remain present in Court on the next date of hearing.
26. In addition, let notice be issued to Mr. Chain Roop Bhansali [M: 9820093473; Address: Flat No. 1, Upper Ground Floor, Khasra No. 407/2, Village Neb Sarai, New Delhi-110068). Let Registry issue notice to Mr. C. R. Bhansali and Mr. Sisodiya (M: 9833718361) for appearance on the next date of hearing. Mr. S.K.Tandon who is present in Court shall also remain present on the next date. Mr. Tandon shall also inform Mr. Sisodiya of todays order.
27. Mr. Bhuvan Gugnani, ld. Counsel submits that he would be able to serve the notice upon Mr. Chain Roop Bhansali and give him the required intimation. Accordingly, let dasti notice be given to Mr. Bhuvan Gugnani, ld. Counsel who can serve Mr. C. R. Bhansali to ensure his appearance on the next date of hearing.
28. The Special Committee is permitted to file its written submissions dealing with all the allegations raised by M/s Rommel Investment Pvt. Ltd. in their Preliminary Report dated 30th October 2023.
29. Considering the overall facts and circumstances, in the opinion of this Court, the records lying with the Special Committee need to be safeguarded to protect the integrity of the Trust and the interest of the unit holders in terms of the 1996 Regulations.
30. In view of the above position, Mr. Tandon, the head the Special Committee shall hand over the keys to the premises of the Special Committee, where the records relating to CRB Mutual Fund are stored, to the Ms. Ruchi Sindhwani, the Local Commissioner who was appointed in this matter. Ms. Sindhwani shall visit the Special Committees office and any other premises where the records are located and take charge of the same. Local Commissioner is free to change the locks of the premises and deposit one set of keys with the Court. The same shall be retained by the Registrar (Company Court). The second set of keys shall remain with the Local Commissioner. If the records have to be accessed for any purpose by Mr. Tandon or counsels for Rommel, the Local Commissioner- Ms. Ruchi Sindhwani shall be contacted and any perusal or inspection of the records shall take place in the presence of the Local Commissioner.
31. The Local Commissioner is directed to deposit the keys with the Registrar (Company Court) by 14th December 2023.
32. The rejoinder in Co. Appl. 39/2023 be brought on record. Delay if any is condoned. Application is disposed of.
33. Written Submissions filed by SEBI in Co. Appl 420/2022 are not on record. The same have been returned under objections. Let the same be brought on record before the next date of hearing. If SEBI wishes to file a response in respect of any of the submissions filed, it is free to do so.
34. List on 18th January, 2024 at 2:30 p.m.
35. This is a part heard matter.
PRATHIBA M. SINGH
JUDGE
DECEMBER 07, 2023
dj/dn
(corrected & released on 12th December, 2023)
CO.PET. 379/2009 Page 2 of 2