[IL&FS scam] Madras High Court quashes TNPID case, but clarifies it is not a "clean chit" [Read Judgment]

The Madras High Court on Tuesday quashed a case registered under the Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) Act, 1997 in 2020 in connection with the ₹ 91,000 crore IL&FS scam, although the Court clarified that it is not commenting on SFIO probe underway or giving the alleged perpetrators a clean chit (Ravi Parthasarathy and ors v. State and anr)..Justice M Dhandapani passed the order in petitions moved by former IL&FS directors Ravi Parthasarathy (former chairman), Hari Sankaran (former vice-chairman) and Ramchand Karunakaran..The three had filed petitions seeking to quash the TNPID case registered in Tamil Nadu against the bankrupt Infrastructure Leasing & Financial Services Limited (IL&FS), its subsidiary IL&FS Transportation networks India Limited (ITNL), and various directors of IL&FS and ITNL.."Crime No.13 of 2021 on the file of the 1st respondent/Deputy Superintendent of Police, EOW-II, Chennai, is quashed insofar as the petitioners in the above petitions and ITNL are concerned," the Court ruled on Tuesday. .The TNPID case was registered on a complaint by 63 Moons Technologies Ltd. that ITNL had defaulted on payment of interest on certain non-convertible debentures. .This development took place after the Central government had entrusted the Serious Fraud Investigation Office (SFIO) with investigating the IL&FS scam under Section 212 of the Companies Act, given the enormity of the economic offence involved. .Citing Section 212 of the Companies Act, the High Court on Tuesday ruled that the TNPID investigation is barred given that the case has been assigned to the SFIO. ."A careful perusal of sub-section (2) of Section 212 of the Companies Act, it is predominantly clear that once the case has been assigned by the Central Government to SFIO for investigation under the Companies Act, the other investigating arms of the Central Government and the State Government have been denuded of its powers to proceed with investigation in respect of any offence under the companies Act. It further mandates that even if any such investigation has been set in motion, it shall not be proceeded further with and the concerned agency is required to transfer the relevant documents and records in respect of such offences under this Act to SFIO," the order stated..Given that the SFIO is probing the case, "no other investigative agency is empowered to investigate into the affairs of IL & FS and its subsidiary companies for any offences under the Companies Act," the Court said..Other investigating agencies can only investigate matters which are not within the realm of the Companies Act, the Court observed. .Justice Dhandapani also added that "it is well open to the intervenors to approach SFIO and submit appropriate representation for the relief aforesaid in accordance with law.".Another ground on which the Court quashed the TNPID case was in view of its finding that the amounts received by ITNL could not be termed as "deposits" under TNPID Act. Further, the Court also ruled that ITNL, being a company floating a private placement scheme, could not be termed as "financial establishment" under the same Act.."Once this Court has come to the conclusion that neither ITNL could be termed to be “financial establishment” and the amount collected by it through private placement by issuance of debentures could be termed to be “deposit” with the meaning of Sections 2 (3) and 2 (2) of the TNPID Act, necessarily it has to follow that the provisions of TNPID Act cannot be made applicable to the case of ITNL in the facts of the present case, as the acts of ITNL are in no way within the parameters codified under the TNPID Act. Therefore, this Court is of the firm and clear opinion that TNPID Act is not applicable to the present case and the act of ITNL relating to issuance of debentures under the private placement scheme cannot be termed to be receipt of deposit from public and, therefore, the consequential registration of the case for investigation by the 1st respondent against ITNL and the petitioners herein is beyond its legal dominion and, necessarily the crime registered against the petitioners and ITNL deserves to be quashed," the Court held..The Court declined to comment on the culpability of the IL&FS directors with respect to non-payment of interest on non-convertible debentures floated by ITNL after an NCLAT moratorium."The culpability of the petitioners in the complex web of the economic offence, which is the subject matter of investigation by SFIO, will entangle itself only after full fledged investigation by SFIO," the Court said..While quashing the TNPID case, Justice Dhandapani added that he has not expressed any opinion in the matter, save for examining whether the matter falls within the purview of the TNPID Act. "(The Court) has not adverted to any facts or actions relating to IL & FS or any of its other group companies, as those entities are not before this Court," the judgment said..The judge emphasised further that "this Court, by quashing the case relating to TNPID Act, by no stretch, is giving a clean chit to the petitioners herein, as persons who are beyond a pale of doubt.".In its parting note, the Court further remarked:."It is to be impressed upon that the economic offence committed by IL & FS and its group companies is to the whooping tune of Rs.91,000 Crores and above, which has a spiraling and cascading effect on the economic growth of the country, which has resulted in the Central Government interfering in the administration of IL & FS and its group ompanies by filing petition before NCLT for reconstitution of the Board, which was been discussed above. The various orders passed by the Tribunal at the interference of the Central Government clearly show that all is not well with IL & FS and its group companies and also the persons, who were manning the said companies, of which the petitioners also formed a part then. Though the petitioners had come out of the post of Directors, it is not to be forgotten that the action by the Central Government in filing petition before the NCLT and ordering of investigation by SFIO clearly show the economic imbalance which the group companies had created in derailing the economy of the country ... The petitioners, as the Committee of Directors, have created a economic crisis for the whole group of companies and the persons, who were shareholders in the said companies.".The Court recorded the allegation that the petitioners have siphoned off huge sums of money in the form of salaries, in purchase of immovable properties across the globe, but added that it is "not entering into the said domain to find out the truth or otherwise of the said submissions.".Instead, the Court urged the interevenors making these allegations to approach the SFIO with their inputs. ."The jurisdiction of the SFIO is vast ... the intervenors, if in possession of information, which would be valuable to SFIO in their on-going investigation, could very well provide the information available with them ... any additional material provided by the intervenors would be a material on which SFIO could investigate and try to find the truth and veracity of the very many transactions," the Court observed..Advocates B Kumar, Rahul Unnikrishnan, Manishankar, A Ashwini Kumar, MK Kabir and Sunder Mohan appeared for the former IL&FS directors. .Senior advocate PS Raman, advocate Nithyesh Natraj appeared for 63 Moons Technologies Ltd. Other counsel who appeared for intervenors, were advocates Sarath Chander, B Vijay, Anand Sashidharan and Abdukumar Rajarathnam. Government advocate CE Pratap appeared for the State..[Read Order]