NEW DELHI: The Supreme Court has ordered that the Union government could not have moved under company law for freezing the assets of ex-managing director of Punjab National Bank Usha Ananthasubramanian, who was chargesheeted by the CBI in the Rs 14,000 crore loan default scam allegedly engineered by Nirav Modi and Mehul Choksi.

A bench of Justices R F Nariman, S Ravindra Bhat and V Ramasubramanian in a recent order said the powers under Sections 241, 337 and 339 of the Companies Act could not be utilised to attach assets of persons heading a bank or any organisation when the fraud was not committed by that particular organisation.

It clarified that these provisions of Company Act related to persons responsible for the business of the company that indulged in the fraud leading to defaulting of the loan and not to the business of another company or persons heading it.

Appearing for Ananthasubramanian, senior advocate C S Vaidyanathan and advocate Vikrant Singh Negi told the bench that the CBI chargesheet against several senior officials of PNB and directors of Gitanjali Gems, at best, showed that she “omitted to take precautions or preventive steps to prevent the fraud perpetrated by Nirav Modi and thereby committed misconduct and conspiracy with other accused”.

Vaidyanathan said provisions of the Company Act permitted the government to move for attachment of property of those officials involved with the running of the company accused of fraud and, hence, could not be used against the ex-MD of PNB.

Writing the judgment for the bench, Justice Nariman said, “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 mismanagement’.”

He added, “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 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 bench further said, “This being the case, it is clear that powers under these sections cannot possibly be utilised in order that a person who may be the head of some other organisation 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. 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.”

