The Delhi High Court has asserted that a body acting in a fiduciary capacity, such as a court-appointed committee, has a duty to seek clarification from the court when faced with ambiguity or conflicting judicial directions, rather than making its own interpretations or assumptions. The Court also said that the doctrine of merger does not apply in stricto sensu to an order that is “open-ended and itself contemplated multiple contingencies and further proceedings”.
Essentially, it was held that the court that appoints a committee to carry out specific functions retains supervisory jurisdiction over it, and formal disposal of a petition does not terminate this oversight, especially when the constituting order provides for ongoing monitoring and grants liberty to seek further directions.
The Court pointed out that the inherent powers of the Company Court under Rule 9 of the Companies (Court) Rules, 1959, are preserved to meet the ends of justice. These powers operate in a distinct sphere from the regulatory powers of SEBI under Regulation 68 of the 1996 Regulations and are not mutually exclusive.
Accordingly, the Court upheld the directions given by the Single Judge, for (i) A forensic audit to be conducted by SEBI; (ii) The constitution of a Special Cell of SEBI to take over and complete the winding-up of the Scheme; and (iii) The SEBI to proceed in accordance with the law to recover disbursements made to the CRB Group if the forensic audit identifies any violations.
The Division Bench comprising Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar emphasized that the Special Committee, having been appointed by the Court to function as trustees, stood in a fiduciary position. This role imposes an obligation to act with good faith, fairness, loyalty, and scrupulous integrity, primarily for the benefit of the unitholders.
The Bench observed that the 2013 order was intended to bring finality to a long-pending matter, with the paramount objective of protecting unitholders’ interests. However, the order was not intended to be absolutely final, as it expressly granted liberty to the Committee to approach the Court for clarifications or modifications and required the filing of periodic reports, indicating continuous judicial oversight.
The Bench noted an apparent contradiction between the 1999 order, which excluded CRB Group entities from payments, and the 2013 order, which directed distribution to “all the unit holders”. It was observed that in the event of such ambiguity, it would have been prudent for the Special Committee to seek clarification from the Court, instead of proceeding on assumptions.
The Bench found that the direction for a forensic audit was both necessary and justified. This was based on multiple inconsistencies in the record, including a statement by the Special Committee that it had not found any CRB-connected company to be a unitholder, which appeared to contradict later submissions. The Bench clarified that the objective of a forensic audit is to ascertain the truth, not to presume wrongdoing.
Further, the Bench expressed ‘deep dismay’ that the winding-up of a scheme that matured in 1999 was still not complete, frustrating the object of the 2013 order. It was also observed that SEBI, as the regulator and petitioner, should have acted with greater promptitude and vigilance, particularly regarding the repeated extensions granted to the Committee and by not highlighting the 1999 order when the 2013 order was passed.
Lastly, the Bench held that the Special Committee acted beyond its jurisdiction by passing an order on NCM International’s claim on 29.11.2023, as its application for extension of mandate was still pending and it lacked express authorization.
Briefly, the proceedings originate from the winding-up of the Arihant Mangal Growth Scheme of the CRB Mutual Fund. The CRB Mutual Fund was established in 1993 by CRB Capital Markets Ltd. (CCML), and in 1994, it launched the Arihant Mangal Growth Scheme. The SEBI detected multiple regulatory violations and hence, prohibited CRB companies from launching new schemes until June 1997.
Later, the Reserve Bank of India (RBI) instituted a winding-up petition against CCML in 1997. Separately, SEBI filed a Trust Petition, and the Bombay High Court appointed a Provisional Administrator (PA) to take charge of the assets of CRB Trustees Limited and CRB Asset Management Company Limited and to wind up the Scheme. Thereafter, the Bombay High Court approved a repayment scheme for small investors but explicitly directed that entities belonging to the CRB Group Companies and persons associated with Mr. C.R. Bhansali would be excluded from such payments.
After the transfer of the Trust Petition to the Delhi High Court and the demise of the PA, the Single Judge constituted a three-member Special Committee to take over the winding-up process, which was tasked with liquidating the assets and disbursing the proceeds to unitholders. The Special Committee’s tenure was extended multiple times from 2013 to 2022. Later, in 2021, an application was filed by Rommel Investment Pvt Ltd. alleging serious irregularities, including disbursements to the Ex-Management of CRB. A preliminary report later alleged that approximately Rs. 131.90 crores had been disbursed to Mr. C.R. Bhansali, his family, and related entities.
Following the allegations, the Single Judge ordered a forensic audit, constituting a Special Cell of SEBI to take over the winding-up, and restraining further payments to Mr. C.R. Bhansali and related entities pending the audit.
Appearances:
Senior Advocates Nidhesh Gupta and Pinaki Misra, along with Advocates Aman Leekha, Ankur Chibber, Jaymut, Rahul Sharma, Shubham Shekhar, and Himanshu Singh, for the Appellants
Senior Advocate Pratap Venugopal, along with Advocates Abhishek Baid, Praneet Das, Avneesh Garg, Utkarsh Sharma, Iptisha, Sneha Sharma, Saloni Kapoor and Ayush Pundir, for the Respondents
