Madras HC Quashes Case against 3 Directors of ITNL, Asks Debenture-holders To Approach SFIO
Moneylife Digital Team 02 September 2021
The Madras High Court (HC), while dismissing a case against IL&FS Transportation Networks India Ltd (ITNL) and its former directors Ravi Parthasarathy, Hari Sankaran and Ramchand Karunakaran, has asked the company’s debenture-holders to approach the Serious Fraud Investigation Office (SFIO). The SFIO is conducting a comprehensive probe of Infrastructure Leasing and Finance Ltd (IL&FS), the parent of ITNL.
The three former directors of ITNL had approached the HC to quash the case filed against them by the economic offences wing (EOW) of Chennai police under the Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) (TNPID) Act of 1997.
However, justice M Dhandapani says ITNL could not be described as a ‘financial establishment’ or the company’s debentures could not be termed as ‘deposits’ as defined under the TNPID Act. 
“In the present case, the debentures had been issued at a face value of Rs10 lakh, and they were primarily aimed at corporates, who were well aware of the nuances of such business transactions and the risks associated therewith. Therefore, the debentures would not fall within the definition of deposit under the TNPID Act,” the bench says. 
The HC kept the order limited to the three directors of ITNL, since the company’s parent IL&FS was not a party in the matter. "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. This Court has only quashed the case against the petitioners on the ground that the investigation under the TNPID Act by the 1st respondent is not sustainable..."
In his order, justice Dhandapani noted that ITNL debenture-holders could approach the SFIO, which is conducting a comprehensive probe of the economic offence of IL&FS. 

However, the HC says, "in the larger interest of all the stakeholders, who have an association with the IL&FS and group companies in one form or the other, the central government having already assigned investigation with SFIO, which investigating agency, as stated above, is vested with jurisdiction and wider powers of investigation to deal with an infraction under any law in addition to its exclusive jurisdiction under the Companies Act, it is well open to the intervenors to approach SFIO and submit an appropriate representation for the relief aforesaid in accordance with law..."

The bench also noted that the economic offence committed by IL&FS, and its group companies is to the whopping tune of Rs91,000 crore and above, which has a spiralling and cascading effect on the economic growth of the country, which had resulted in the central government interfering in the administration of IL&FS and its group companies by filing the petition before NCLT for reconstitution of the board, which has 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. Finding has been rendered by NCLT that the petitioners were within the committee of directors, who were at the helm of affairs in running IL&FS and its group companies," the Madras HC says.

Ravi Parthasarathy, former chief of the crisis-hit IL&FS, is undergoing treatment for cancer at Apollo Cancer Hospital in Chennai as per the HC order. The EOW had arrested him in the Rs200 crore cheating and criminal breach of trust case filed by 63 moon technologies ltd. But more about it later. 
In July this year, senior counsel B Kumar, representing Mr Parthasarathy, had requested the Madras HC that the former chief of IL&FS is suffering from cancer, which has spread to his lungs, for which he needed to schedule and undergo a biopsy test. 
In his order issued on 6 July 2021, justice Dhandapani had said, “Considering the medical condition of Mr Parthasarathy, as pointed out by the senior counsel, and there being no objection on the part of the interveners as also the law enforcing agency in permitting the petitioner to take treatment at a private hospital, this Court permits the petitioner to take treatment at Apollo Cancer Hospital, Chennai, as suggested by the senior counsel for the petitioner and the expenditure incurred for the same will be borne by the petitioner.”
Coming back to the case filed by 63 moon technologies, it had alleged offences of cheating and criminal breach of trust in the repayment of Rs200 crore invested by the company in debentures of ITNL. 
During 2014 and 2015, ITNL had notified issuance of 1,000 and 2,000 non-convertible debentures with a face value of Rs10 lakh each, aggregating Rs100 crore and Rs250 crore, respectively, on a private placement basis.
“To lure investors, ITNL falsely promised guaranteed annual return of up to 11.8% payable half-yearly until redemption to its investors against their deposits with ITNL. We relied on the representations and assurances made by the ITNL and key managerial personnel and invested Rs200 crore in debentures,” 63 moon technologies had stated in its complaint.
In 2018, IL&FS defaulted on its obligations, and ITNL too defaulted in repaying interest on debentures to investors.
Earlier in January this year, the EOW had arrested Ramchand Karunakaran, former managing director, and Hari Sankaran, former vice-chairman and director of ITNL from Mumbai.
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