Issuance of NCDs to a selected group via private placement couldn’t be termed as deposits u/s 2(2) of TNPID Act: HC

Case Details: Ravi Parthasarathy v. Deputy Superintendent of Police Economic Offence Wing-II - [2021] 133 taxmann.com 325 (Madras)

Judiciary and Counsel Details

• • M. Dhandapani, J.
  • B. Kumar, SC, Rahul Unnikrishnan, Manishankar, SC, A. Ashwini Kumar, M.K. Kabir, SC, Sunder Mohan, Nithyesh Natraj, C.E. Pratap, GA, P.S. Raman, SC, Sarath Chander, B. Vijay, Anand Sashidharan and Abdukumar Rajarathnam for the Appearing Parties.

Facts of the Case

In the instant case, R2 being a purchaser of non-convertible debentures of company ITNL and having not received interest as undertaken by ITNL while issuing said debentures lodged a complaint before R1- Economic Offence Wing (EOW) under Tamil Nadu Protection of Investment of Depositors (in Financial Establishments) against company ITNL and its directors including petitioners.

Aggrieved by the said registration of the case against the petitioners, a criminal petition was filed on the ground that the invocation of the provisions of TNPID Act would not stand attracted to the debentures floated by ITNL as the said debentures were not ‘deposit’ and ITNL was not a ‘financial establishment’ as defined under section 2(2) and 2(3) of the TNPID Act.

It was the case of the petitioners that ITNL, which was a group company under the umbrella of IL&FS was involved in the infrastructural activities and not into finance and banking activities. ITNL had floated non-convertible debentures, to a select few, on which interest was to be paid. The petitioners were, till 21-1-2019 were paying interest on the said debentures, but in view of the moratorium issued by NCLAT, ITNL was not able to pay the interest, which defaults led to the registration of the complaint by the intervenors under the TNPID Act.

High Court Held

The High Court noted that neither there was any advertisement soliciting deposits from the public to invest in ITNL nor collection of any money from the public. The Debentures were issued on a private placement basis only to a selected group of persons. The Such being the case, issuance of debentures would by no stretch of imagination be termed to be ‘deposits’ within the meaning of section 2(2) nor company floating private placement scheme could be termed to be a ‘financial establishment’ as defined under section 2(3) and therefore, provisions of TNPID Act could not be made applicable in the instant case and consequential registration of case for the investigation by EOW against ITNL and petitioners was beyond its legal domain.

It was also noted that investigation of the issue had already been entrusted with SFIO under section 212, thus, the jurisdiction of EOW under TNPID Act to conduct the parallel investigation was barred. Therefore, the crime registered with EOW against petitioners and ITNL deserved to be quashed.

List of Cases Referred to

• • SSR Holdings (P.) Ltd. v. SEBI 2017 SCC OnLine SAT 88 (para 38)
  • Chintalapati Srinivasa Raju v. SEBI [2018] 93 taxmann.com 202/148 SCL 1 (SC) (para 38)
  • N. Magesh v. State of Tamil Nadu 2019 SCC OnLine Mad. 38922 (para 38)
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  • Serious Fraud Investigation Office v. Rahul Madi [2019] 5 SCC 266 (para 38)
  • Doraisamy v. State 2019 SCC OnLine Mad. 1354 (para 38)
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