SFIO to probe “fraudulent activites” by directors of Binny Limited
Madras High Court marks a copy of its judgement to the Serious Fraud Investigation Office for conducting an inquiry into allegations of misappropriation of funds
The Madras High Court has referred to the Serious Fraud Investigation Office (SFIO) the allegations of misappropriation of funds of Binny Limited, one of India’s oldest surviving companies, by its directors. Originally incorporated as Buckingham and Carnatic Company in the 19th century, it became a public limited company in 1969 after various amalgamations and demergers over the years.
Justice C.V. Karthikeyan directed the Madras High Court Registry to mark a copy of his judgement in a civil case to the SFIO for conducting an inquiry into the “fraudulent activities” of the company’s directors as well as independent directors to the detriment of the general public. The order copy was marked to the Registrar of Companies and the Bombay Stock Exchange too for information.
The judge, further, imposed costs of ₹5 lakh on the company’s independent director Rajiv Bakshi for having instituted a vexatious litigation and directed him to pay the amount to the Dean of Rajiv Gandhi Government General Hospital in Chennai for being used to treat needy patients. He also said, the plaintiff lacked bonafide and had approached the court by suppressing vital information.
Further, holding that an independent director could not institute a civil suit regarding company affairs, the judge said, the plaintiff ought to have approached the National Company Law Tribunal (NCLT) under Section 213 of the Companies Act of 2013. When the NCLT was empowered to investigate the affairs of a company on a complaint made by any person, the jurisdiction of civil courts would stand ousted, he said.
“Probably, the plaintiff and all the defendants (company’s major shareholder M. Nandagopal, his daughter Sumathi Ramesh Babu, sons Nate Nandha and Arvind Nandagopal, financial director T. Krishnamurthy and another independent director Jamuna Sounderam) want to avoid such investigation and therefore have filed the present suit,” the judge said while disposing of a batch of interim applications in the suit.
He went on to state: “It is clear that they have indulged in shadow boxing and though the real intention is not decipherable, it is clear that the plaintiff lacks bona fide… He who seeks equity must do equity. Unfortunately, the plaintiff’s hands are tainted and smeared… I hold that the litigation is a collusive litigation launched by the plaintiff with all the defendants. There is no iota of credibility in the plaint.”
The judge pointed out the company had practically stopped its original business of manufacturing cloth and was now into multiple other businesses including real estate. Mr. Nandagopal, aged 85 and suffering from cancer, holds 44.86% of the shares and his second son Mr. Arvind holds 3.58% shares. Independent of this, they both jointly held 26.24% of the shares through their other companies.
Thus, the father-son duo alone held 74.69% of the shares either directly or indirectly and the remaining shares were subscribed by the public. One of the major assets of Binny Limited was 63 acres of land in Chennai. SPR Constructions Private Limited had entered into a joint development agreement with Binny for constructing around 2,500 apartments on the property by sharing the profit at 60:40 ratio.
However, disputes arose between Binny and SPR after the project kicked off. The matter was referred to an arbitral tribunal which in April 2024 directed SPR to deposit ₹100 crore within 10 weeks. “It is thus evidently clear that the internecine quarrels and disputes among the second, third fourth and fifth defendants (father and three children) were primarily with regard to sharing of the spoils,” the judge wrote.
Justice Karthikeyan pointed out the present plaintiff had filed the suit against a Board resolution to induct Ms. Babu and Mr. Nandha as directors of the company. Though his prayer in the suit was to restrain only the two siblings from interfering with the affairs of the company, he had filed a sub-application and obtained an interim injunction, from another judge, against the major shareholder Mr. Nandagopal too.
Since it was trite law that the prayer in an interim application could not go beyond the scope of the main prayer in the suit, an inference could be drawn that the plaintiff had deliberately obtained a wrongful injunction against the major shareholder, the judge said.
Further, the plaint was full of charges against the major shareholder and the two newly inducted directors but it was silent on the charges against Mr. Arvind. “This very clearly shows that there is not only suppression of a material fact but collusion with one of the defendants… The plaintiff cannot claim ignorance of the facts and if he claims ignorance, he is not suitable to continue as an independent director,” he added.
Justice Karthikeyan also pointed out that the plaintiff Mr. Bakshi appeared to have had certain financial transactions to the tune of ₹21.6 crore with Binny Limited, through a company named Geetanjali Enterprises Private Limited in which he was one of the directors, but this fact was not brought to the notice of Mr. Nandagopal before inducting him as an independent director in Binny.
“That an independent director should not have had any financial transaction with the company in which he is to be proposed to be inducted as independent director had been stipulated by law. When a person comes to court seeking equity, he must also show equity in his conduct,” the judge said and vacated the interim injunction granted by his predecessor in the applications filed along with the suit.
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Tamil Nadu