Thursday, December 10, 2015

National Herald's case: 5 top office bearers of congress to face criminal proceedings

Delhi HC orders 5 Top Office-bearers of Congress Party to face criminal proceedings for forming and misusing a section 25 company as SPV for clandestine acquisition of 99% stake in Old defunct real-estate rich newspaper publication company (AJL) and for misappropriating funds of Congress Party for the purpose



Facts


a)    An Old defunct real-estate rich newspaper publication company (AJL) having property worth Rs.2000 crores in many cities but owed Rs.90 crore to employees. In 2008, company was closed and printing of newspapers stopped

b)   If company was liquidated and Rs.90 crores would have been paid off , the old shareholders of the company who bought shares long long ago when rupee had much greater value would have received a fortune

c)   One of the top officer bearers of Congress Party(Treasurer) was Chairman of this company, Instead of liquidating assets, paying off employees and distributing surplus to shareholders, the top office-bearers adopted the following steps to get hold of real estate of AJL :



Interest-free unsecured loan of Rs.90 crores was given by Congress Party to AJL to pay off employees

Now that AJL had no activity, no employees and no liabilities except Rs.90 crores to Congress Party and had Rs.2000 crores real-estate

A section 25 company(YI) was formed by 5 Top Office-bearers of the Congress Party including the Treasurer who was also chairman of AJL

Congress Party assigned Rs.90 crores debt to YI(this new section 25 company) in return for just Rs.50 lakhs and wrote off the balance

Now the new section 25 company(YI) stepped into the shoes of Congress Party and became creditors of AJL for Rs.90 crores

AJL in Board Meeting allotted shares to YI satisfy this Rs.90 crore debt and this gave 99% stake in AJL to YI

Thus the Rs.2000 Cr assets came into the control of office bearers by investing just Rs.50 lakhs, by misappropriating Rs. 89.5 crores of Congress Party and thus the old shareholders who stood with the company in thick and thin were reduced to 1% minority and cheated of their fortune


d) Private criminal complaint was filed against these 5 Office-bearers and summons were issued by Magistrate. The said 5 Office-bearers of Congress Party filed a petition in Delhi HC to quash the criminal proceedings and summons

The Delhi high Court held as under:


1)   Delhi HC finding that the facts of the case prima facie reeked of criminality dismissed the petitions and ordered the 5 petitioners-office-bearers to face criminal proceedings before the Magistrate and also denied exemption from personal appearance.

2)    The Delhi HC rejected arguments of petitioners based on separate legal entity of YI and lifted the corporate veil– Rahul Gandhi v. DR. Subramanian Swamy [2015] 64 taxmann.com 117 (Delhi)
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