Delhi HC sets aside order summoning Unitech Officers for failing to re-pay deposit of 603 crore

The Delhi High court has quashed the summon issued to five officers of Unitech Ltd in connection with Unitech’s failure to re-pay deposits of Rs. 603 crore taken from 56,436 investors.

The order was pronounced by a Single Judge Bench of Justice RK Gauba in a batch of pleas challenging the validity of the summoning order passed by the Additional Sessions Judge in the complaint filed by the Registrar of Companies (ROC) with respect to Unitech’s failure to pay the said deposits.

As per Section 74(1) of the Companies Act 2013, Unitech was obliged to repay the said deposits within the period prescribed. The Act also provides for enlargement of time for discharge of liability to pay by making an application before National Company Law Tribunal under Section 74(2). Any default in payment of the requisite amounts within the statutorily prescribed period or within the extension allowed by the Tribunal attracts penal clause contained in Section 74(3).

Upon receiving an application under Section 74(2), the Tribunal on March 11, 2016 permitted the enlargement of time for compliance with the statutory provisions by Unitech. After this, several other extensions were also awarded to the company. However, no payments were made by it.

Finally, on July 4, 2016, the tribunal found no good reason to grant any further enlargement of time for compliance and dismissed Unitech’s petition for extension. It also suggested to the ROC take appropriate action against the company under Section 74(3). Subsequently, the ROC filed a criminal complaint before the Court of Sessions.

After considering the facts set out in the complaint, the Additional Sessions Court took cognizance on September 20, 2016 and summoned Unitech and five of its officers as accused and answer the charge for the offence under Section 74(3).

Meanwhile, Unitech also challenged the order of the Tribunal dismissing its plea for enlargement of time before the National Company Law Appellate Tribunal under Section 421 of the Companies Act, 2013.

The Appellate Tribunal on September 20, 2016, while entertaining the appeal, directed that no coercive steps shall be taken against Unitech and its officers pursuant to the order the Tribunal. Later, on October 26, 2016, the Appellate Tribunal also stayed the Tribunal’s request to the ROC to take action under Section 74(3).

In light of this development, Unitech and its Officers challenged the summoning order before the High Court.

Before the High Court, the counsel appearing for ROC highlighted that Unitech’s appeal was ultimately dismissed in January 2017, hence, the summon order could not be challenged. Unitech on the other hand maintained that since the period of compliance with the requirement of Section 74(1) stood extended till December 31, 2016 by the NCLAT, there was no occasion for invoking the penal provisions of Section 74(3).

Observing that the gravamen of the charge on which the prosecution under Section 74(3) is the Company’s failure to abide by its liability under Section 74(1) or within the extended period, the Court held that the time extended by the tribunal has to be construed along with modifications ordered in appeal by the appellate tribunal.

“Since the order of the tribunal does not attain finality inasmuch as there is a remedy of appeal available there against, the provision contained in Section 74(2), in so far as it refers to the time allowed “by the tribunal” will have to be construed as the time allowed “by the tribunal” alongwith modification in such regard if ordered in appeal by the appellate tribunal.”

In the present case, since the Appellate Tribunal had entertained the appeal against the Tribunal’s order and also extended the deadline till December 31, 2016, even before the Court took cognizance of the criminal complaint, the Court held that the criminal complaint was rendered “premature or infructuous“.

 “By virtue of the subsequent order of the appellate tribunal, bottom had gone out of the case of the respondent in the aforementioned criminal complaint case, continuation whereof would undoubtedly be an abuse of the process of the court.”

The Court thus vacated and set aside the summoning orders passed by the Trial Court against Unitech and its Officers. It has, however, clarified that the ROC is not inhibited from initiating a criminal action in accordance with law in light of subsequent facts.

It thus decreed,

“Nothing in this order however, shall inhibit the respondent/ROC from initiating a criminal action in accordance with law in light of subsequent facts. This observation, of course, is without prejudice to the right of the petitioners and others to raise such defences as may be available to them in law.”

The Petitioners were represented by Advocates Saket Sikri, Vikalp Mudgal, Adwaita Sharma and Sangram S. Saron.

The ROC was represented by Central Government Standing Counsel Vikram Jetly.