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The Supreme Court earlier this month set aside the order of the National Company Law Appellate Tribunal (NCLAT) which directed freezing of assets of former MD of PNB, Usha Ananthasubramanian. (Usha Ananthasubramanian vs Union of India)
The Bench of Justices Rohinton Nariman, Ravindra Bhat, and V Ramasubramanian, on February 12, set aside the order of the National Company LAw Tribunal (NCLT) and the NCLAT, which had directed for freezing of assets of several individuals in connection with the case concerning Punjab National Bank, Gitanjali Gems, and Nirav Modi.
The Mumbai Bench of the NCLT, in January 2019, had passed an order which had issued an ex-parte injunction against disposal of personal assets of various persons, including the former MD and CEO of PNB, Usha Ananthasubramanian. The order also added that only a sum of ₹1,00,000 can be withdrawn per month by these persons for their personal expenses. This NCLT order was passed in a Company Petition filed in connection with the alleged mismanagement of Gitanjali Gems Limited.
Since the former CEO of PNB was named as an accused in the CBI Chargesheet in the case, she was impleaded as a party in the NCLT Order. The NCLAT refused to interfere with this order of the NCLT when the appellant challenged the same, which brought her to the Supreme Court.
While setting aside these orders of the Tribunals, the three-Judge Bench of the Apex Court examined the scope of Section 241 read with Sections 337 and 339 of the Companies Act which by and large deal with mismanagement and oppression in the functions of a company and penalties for the same.
Section 241 of the Companies Act empowers the government to itself apply before the Tribunal in case of an alleged misconduct by a company which is prejudicial to public interest. Section 337 sets out the penalty for the fraudulent officers while Section 339 lays down the liabilities of the company in such a case.
Senior Counsel CS Vaidyanathan, appearing for the appellant told the Court that the highest charge against the appellant in the CBI chargesheet pertains to her omission to take precaution or preventive steps to preempt or prevent the fraud committed by Nirav Modi.
The power exercised by the Tribunals under Sections 241 read with Sections 337 and 339 can be only pertaining to the misconduct and mismanagement of the erring company and the CEO of PNB could not have been roped in under this order, it was argued.
The Centre, through Additional Solicitor General Sanjay Jain, supported the orders passed by the NCLT and NCLAT on the grounds that the jurisdiction under Section 339 is very wide and would include freezing the assets of any person who was knowingly a party to the carrying on of the fraudulent conduct of business.
The Court, however, concluded that Section 337 speaks about frauds by an officer of the company in which mis-management has taken place while Section 339 refers to any business of the company which has been carried on with intent to defraud creditors of that company. The Court added,
Obviously, the persons referred to in Section 339(1) as persons who are other than the parties “to the carrying on of the business in the manner aforesaid” which again refers to the business of the company which is being mismanaged and not to the business of another company or other persons... 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.
The Court, thus, set aside the orders passed by the NCLT and NCLAT directing freezing of assets of Usha Ananthasubramanian.
DSK Legal advised Usha Ananthasubramanian and briefed Senior Counsel CS Vaidyanathan. DSK team was led by Partner Vikrant Singh Negi along with Ekta Tyagi, Pratik Thakkar and Anjali Shah. Anirudh Sharma, the Advocate-on-Record, had filed the appeal before the Supreme Court.