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REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7604 OF 2019

USHA ANANTHASUBRAMANIAN     Appellant(s)

                               VERSUS

UNION OF INDIA                                  Respondent(s)

J U D G M E N T

R.F. Nariman, J.

1) The  present  appeal  is  by  Usha  Anandhasubramanian  -

former MD & CEO of the Punjab National Bank.  She was MD &

CEO of the said Bank from 14.08.2015 to 05.05.2017.

2) A  charge  sheet  has  been  filed  by  the  CBI  against

several persons occupying positions in the Punjab National

Bank as well as the Directors of Gitanjali Gems Ltd.

3) 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 precautions or preventive steps to

prevent  the  fraud  perpetrated  by  Nirav  Modi  and  thereby

committed mis-conduct and conspiracy with the other accused

persons.  After pointing out the aforesaid charge sheet, Mr.

Vaidyanathan then pointed out orders that were passed by the

NCLT in exercise of its jurisdiction under Section 241 of

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the Companies Act by which certain named individuals were

injuncted  from  disposing  movable  and  immovable

properties/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 allowed 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 mis-management 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  CEO &  MD.

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.  He read to us the relevant sections of the

Companies Act and pointed out that however widely they are

construed they can only be qua the Company in which acts of

mis-management are alleged and not qua any other person.

4) Mr.  Sanjay  Jain,  learned  Additional  Solicitor  General

appearing for the respondent, on the other hand, supported the

orders passed by the NCLT and the 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 if very wide and would include freezing the assets

of  any  person  who  was  knowingly  a  party  to  the  carrying

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on of the fraudulent conduct of business.

5) Having heard learned counsel for both sides, we may first

set  out  Section  241(2)  and  Sections  337  and  339  of  the

Companies Act, which read as follows:-

“241.  Application  to  Tribunal  for  relief  in

cases of oppression, etc.- (1) xxx

(2) The Central Government, if it is of the

opinion that the affairs of the company are

being  conducted  in  a  manner  prejudicial  to

public interest, it may itself apply to the

Tribunal for an order under this Chapter:

Provided that the applications under this sub-

section, in respect of such company or class of

companies, as may be prescribed, shall be made

before  the  Principal  Bench  of  the  Tribunal

which shall be dealt with by such Bench.

337. Penalty for frauds by officers.- If any

person, being at the time of the commission of

the alleged offence an officer of a company

which is subsequently ordered to be wound up by

the Tribunal under this Act. -

(a) has, by false pretences or by means of any

other fraud, induced any person to give credit

to the company;

(b) with intent to defraud creditors of the

company or any other person, has made or caused

to be made any gift or transfer of, or charge

on, or has caused or connived at the levying of

any  execution  against,  the  property  of  the

company; or

(c) with intent to defraud creditors of the

company, has concealed or removed any part of

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the property of the company since the date of

any unsatisfied judgment or order for payment

of money obtained against the company or within

two months before that date,

he shall be punishable with imprisonment for a

term which shall not be less than one year but

which may extend to three years and with fine

which shall not be less than one lakh rupees

but which may extend to three lakh rupees.

339. Liability  for  fraudulent  conduct  of

business.-  

(1) If in the course of the winding up of a

company, it appears that any business of the

company  has  been  carried  on  with  intent  to

defraud creditors of the company or any other

persons  or  for  any  fraudulent  purpose,  the

Tribunal, on the application of the Official

Liquidator, or the Company Liquidator or any

creditor or contributory of the company, may,

if it thinks it proper so to do, declare that

any  person,  who  is  or  has  been  a  director,

manager,  or  officer  of  the  company  or  any

persons  who  were  knowingly  parties  to  the

carrying  on  of  the  business  in  the  manner

aforesaid  shall  be  personally  responsible,

without any limitation of liability, for all or

any of the debts or other liabilities of the

company as the Tribunal may direct:

Provided that on the hearing of an application

under  this  sub-section,  the  Official

Liquidator or the Company Liquidator, as the

case may be, may himself give evidence or call

witnesses.

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(2)  Where  the  Tribunal  makes  any  such

declaration,  it  may  give  such  further

directions as it thinks proper for the purpose

of giving effect to that declaration and, in

particular,—

(a) make provision for making the liability of

any such person under the declaration a charge

on any debt or obligation due from the company

to him, or on any mortgage or charge or any

interest  in  any  mortgage  or  charge  on  any

assets of the company held by or vested in him,

or  any  person  on  his  behalf,  or  any  person

claiming as assignee from or through the person

liable or any person acting on his behalf;

(b) make such further order as may be necessary

for the purpose of enforcing any charge imposed

under this sub-section.

(3) Where any business of a company is carried

on with such intent or for such purpose as is

mentioned in sub-section (1), every person who

was knowingly a party to the carrying on of the

business  in  the  manner  aforesaid,  shall  be

liable for action under section 447.

(4) This section shall apply, notwithstanding

that  the  person  concerned  may  be  punishable

under any other law for the time being in force

in  respect  of  the  matters  on  the  ground  of

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which the declaration is to be made.

Explanation.—For the purposes of this section,—

(a)  the  expression  “assignee”  includes  any

person  to  whom  or  in  whose  favour,  by  the

directions  of  the  person  liable,  the  debt,

obligation, mortgage or charge was

created, issued or transferred or the interest

was created, but does not include an assignee

for  valuable  consideration,  not  including

consideration by way of marriage, given in good

faith and without notice of any of the matters

on the ground of which the declaration is made;

(b)  the  expression  “officer”  includes  any

person in accordance with whose directions or

instructions the directors of the company have

been accustomed

to act.”

6) Under Section 241(2), the Central Government, if it is of

the  opinion  that  the  affairs  of  the  Company  are  being

conducted  in  a  manner  prejudicial  to  public  interest,  may

apply itself to the Tribunal for orders under this Chapter,

which  is  headed   “prevention  of  oppression  and  mis-

management”.  Apart from the vast powers that are given to the

Tribunal under Section 242, powers under Section 337 and 339

are also given in aid of this power, which will apply mutatis

mutandis.

7) Section 337 refers to penalty for frauds by an officer of

the  company  in  which  mis-management  has  taken  place.

Likewise, Section 339 refers to any business of the company

which has been carried on with intent to defraud creditors of

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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.   

8) This being the case, 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.  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.

9) We may clarify that nothing stated in this judgment will

have any effect insofar as the investigation conducted by the

CBI or the investigation by the SFIO is concerned.

   .......................... J.

       (ROHINTON FALI NARIMAN)

                     .......................... J.   (S. RAVINDRA BHAT)

                     .......................... J.   (V. RAMASUBRAMANIAN)

New Delhi; February 12, 2020.