SUPREME COURT DIRECTS HIGH-POWERED SUPERVISORY COMMITTEE TO OVERSEE ASSET LIQUIDATION AND INVESTOR REFUNDS IN FINANCIAL FRAUD CASE

INTRODUCTION

A two- Judge Bench of the Supreme Court comprising of Justice Surya Kant and Justice K.V. Vishvanathan passed an Order dated 15.07.2024 in Writ Petition (Crl.) No. 546 of 2023 in Balasaheb Keshawrao Bhapkar & Ors Vs. Securities and Exchange Board of India & Ors. and held that the High-Powered Supervisory Committee (HPSC) would oversee the disposal of assets belonging to the Sai Prasad Group of Companies to ensure that the proceeds are used to refund defrauded investors.

FACTS

Petitioner Nos. 1 and 2 were the founder-Directors of the Company, Sai Prasad Properties Ltd, incorporated under the provisions of the Companies Act, 1956. Petitioner No. 3 also joined the aforesaid company as a Director in 2008, allegedly when he was still studying in college, and was claimed to have thereafter resigned in the year 2014. The Petitioners also floated various other companies, known as the Sai Group of Companies, consisting of:

• M/s Sai Prasad Properties Ltd.;
• M/s Sai Prasad Foods Ltd.;
• M/s Sai Prasad Corporation Ltd.; and
• M/s Shree Sai Space Creations Ltd.

The Sai Prasad Group of Companies was found to be involved in large-scale financial fraud, raising substantial amounts of money from investors under false pretences. The companies promised high returns on investments, which attracted a large number of investors. However, these promises were not backed by legitimate business operations, leading to significant financial losses for the investors. The case resulted in series of legal proceedings aimed at recovering funds for defrauded investors. The fraudulent activities prompted multiple complaints and led to a forensic audit by the Economic Offence Wing (EOW) of Mumbai Police. This audit revealed substantial discrepancies and confirmed the extensive fraudulent operations of the Company. Initially, the audit estimated a refund liability of Rs. 2560.67 Crores, which was later revised to Rs. 4700 Crores upon further investigation.

The Securities and Exchange Board of India (SEBI) played a crucial role in the investigation and subsequent legal proceedings. Acting on the findings, SEBI’s Whole Time Member issued Orders dated 17.07.2013 and 14.01.2015 restraining the Sai Prasad Group from collecting any additional funds and directed the Company to refund the investors. The scale of the fraud and the involvement of SEBI highlighted the severity of the case, necessitating further judicial intervention.

To oversee the asset liquidation and refund process, the Supreme Court constituted the High-Powered Supervisory Committee (HPSC). The HPSC consisted of the following members;

• Hon’ble Mr. Justice S. Ravindra Bhatt, Former Judge, Supreme Court of India – Chairperson;
• Justice Satish Chandra, Former Judge, High Court of Allahabad – Member;
• A nominee of SEBI who shall be an officer preferably in the rank of its Director Member;
• States of Chhattisgarh, Maharashtra, Madhya Pradesh, Rajasthan, Uttar Pradesh and Haryana who were directed to appoint one of their officers of the Revenue Department, not below the rank of Collector, to assist the HPSC in relation to the properties situated within that State. The Collector was obligated to provide the requisite information, in writing, and required to sign the proceedings as State Representative;
• Pardeep Kumar Sharma, Registrar (Retd.), Supreme Court of India is hereby appointed as the Member Secretary-cum-Nodal officer of the HPSC. He shall be the Principal Custodian of all records and shall coordinate between the Chairperson and Members of the Committee as well as the State Authorities to give effect to the task assigned to the HPSC;
• The Deputy Secretary, Department of Home, Government of Maharashtra, who is the Officer in charge of the EOW, shall act as Secretary to the HPSC for the purpose of securing title/ownership records or other relevant documents from different States and shall be jointly responsible along with Member-Secretary for maintenance and custody of record;

The HPSC was endowed with the powers of a Civil Court to expedite the process, including obtaining property documents and original title deeds. The Supreme Court granted the HPSC the authority to appoint certified valuers for the evaluation of the Sai Prasad Group’s assets. Additionally, the Committee was empowered to engage e-auction service providers to conduct the auction of these assets. The primary objective was to achieve fair market value for the properties, ensuring that they were sold free from all encumbrances once the sale was finalized. The final decision-making power regarding asset disposal lies entirely with the HPSC.

The management of asset documents was a crucial aspect of the liquidation process. SEBI, with the assistance of Stock Holding Document Management Services Ltd., was tasked with ensuring the safe storage, digitization, and unique number marking of these asset documents.

To ensure transparency and accountability in managing the proceeds from the asset sales, the Supreme Court ordered the creation of a separate account. This account was to be jointly operated by the Chairperson of the HPSC and a SEBI-nominated member. The sale proceeds deposited in this account were designated for refunding the defrauded investors, ensuring that the funds were handled with the highest level of integrity.

The founder-Directors of the Sai Prasad Group, who are Petitioners in the case, were allowed to participate in the auction proceedings and bring prospective buyers. However, the HPSC retained full discretion in deciding on these suggestions, maintaining the integrity of the process. Additionally, the Petitioners were required to submit details of all immovable assets and jewellery items to the HPSC and assist in executing the necessary sale deeds. This cooperation was vital for the timely liquidation of assets and the subsequent refund to investors.

CONCLUSION

The coordinated efforts of the HPSC and SEBI, under the vigilant oversight of the Supreme Court, are pivotal in addressing the extensive fraud perpetrated by the Sai Prasad Group of Companies. The structured approach to asset liquidation, coupled with the stringent measures for refunding investors, highlights the judiciary’s commitment to delivering justice and financial restitution to the victims.

 

Kartik Khandekar

Senior Associate

The Indian Lawyer & Allied Services

 

Editor’s Comments

The intervention of the Supreme Court in monitoring the huge fraud committed by the Sai Prasad Group of Companies is a welcome relief for the Investors who were defrauded of thousands of crores of rupees. Such intervention by the Apex Court and coordinated efforts of the HPSC and SEBI should bring relief and justice to the Investors. It is of course not possible for the Supreme Court to interfere in all matters but is much required to balance equity and good governance

 

Sushila Ram Varma, Advocate

Chief Consultant The Indian Lawyer