This appeal is by Usha Anandhasubramanian (former MD & CEO of the Punjab National Bank). She was CEO and MD of the said Bank from 14th August 2015 to 5th May 2017. A charge sheet has been filed by the CBI against various persons occupying positions in the Punjab National Bank as well as the Directors of Gitanjali Gems Ltd.

Mr. C.S. Vaidyanathan, learned Senior Advocate appearing on behalf of the appellant, points out that the charge sheet by the CBI itself makes it clear that at the highest even the criminal case against the appellant is only that she omitted to take preventive steps or precautions to prevent the fraud perpetrated by Nirav Modi and thereby Signature Not Verified committed misconduct and conspiracy with the other accused Digitally signed by SUSHMA KUMARI BAJAJ Date: 18th February 2020.

After pointing out the aforesaid charge sheet, Mr. Vaidyanathan then pointed out orders that were passed by the National Company Law Tribunal (NCLT) in the exercise of its jurisdiction under Section 241 of the Companies Act by which certain named individuals were injuncted from disposing of movable and immovable properties or assets which belong to them and whose assets were frozen, making it clear that post-freeze only a sum of Rs.1,00,000/- per month will be permitted to each of such persons for personal expenses. He further argued that in exercising powers under Section 241, powers may be exercised under various provisions of the Companies Act including Section 337 and 339 only insofar as the mismanagement of that very Company is concerned, which is obviously not relatable to any other corporate body, including the Punjab National Bank, of which the appellant is the MD and CEO. According to him, therefore, any order that freezes assets of the appellant in the exercise of jurisdiction under Section 241 of the Companies Act would be without jurisdiction.

Mr. Sanjay Jain, learned Additional Solicitor General appearing for the respondent, on the other hand, supported the orders passed by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) in the appellant’s case by reading to us, in particular, Sections 337 and 339 of the Companies Act. According to him, where a person is liable for fraudulent conduct or business 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.

Issues

The issue was whether the order of the National Company Law Appellate Tribunal (NCLAT) which directed the freezing of assets of former MD of PNB, Usha Ananthasubramanian was without jurisdiction.

Judgment

The Apex Court set aside the order of the National Company Law Appellate Tribunal (NCLAT) which directed freezing of assets of former MD of PNB, Usha Ananthasubramanian. A three-judge bench, headed by Justice R.F. Nariman and comprising Justices S. Ravindra Bhatt and V. Ramasubramanian, said it is clear that powers under these sections (invoked against the appellant) cannot possibly be utilized so that a person who may be the head of some other organization be roped in, and his or her assets be attached.

The court added that “This being the case, we set aside the impugned order passed by the NCLAT and well as the NCLT. The appeal is allowed in the aforesaid terms”. The Apex court observed that Section 337 refers to the penalty for frauds by an officer of the company in which mismanagement has taken place. Likewise, Section 339 refers to any business of the company which has been carried on with intent to defraud creditors of that company. “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,” the Supreme Court ruled.

The Apex court clarified that nothing stated in this judgment will have any effect insofar as the investigation conducted by the Central Bureau of Investigation or the investigation by the Serious Fraud Investigation Office is concerned.