Madras HC allows ex-First Leasing executive to operate bank accounts with quarterly spending disclosures in ₹1,200-crore fraud case

The applicant, arrayed as Respondent No. 13 in the Official Liquidator’s application, sought to vacate an interim injunction dated 9 August 2024 insofar as it applied to him.

He had worked for the company in liquidation from 1997 until his resignation in 2007, and contended that he had no statutory or financial decision-making authority and had not benefited from the alleged diversion of company funds.

He relied on the quashing of PMLA proceedings against him and the setting aside of provisional attachment of his properties under SAFEMA; an appeal against the order quashing the PMLA proceedings was pending before the Supreme Court.

The Official Liquidator relied on the SFIO report, which alleged that the applicant performed CFO functions, participated in financial transactions and manipulations, and played a role in diverting company funds.

1. Whether the interim injunction against the applicant should be vacated in light of the outcomes of the PMLA and SAFEMA proceedings and his objections to the SFIO report.

2. Whether the applicant could be permitted to operate his bank accounts while the Official Liquidator’s application remained pending.

The Court referred to Section 35 of the Companies Act, 2013, stating that persons who held relevant positions during a period in which there was a prima facie finding of fraud could be personally liable for resulting losses, and their properties could be proceeded against.

The Court also treated the pending PMLA appeal and unresolved SFIO-related criminal proceedings as matters that had not attained finality; it did not regard the collateral proceedings as finally determining the applicant’s liability in the company proceedings.

The applicant’s reliance on Section 212(2) of the Companies Act, 2013 was recorded, but the Court did not decide that contention.

The Court found that the PMLA proceedings had not reached finality because the appeal against their quashing remained pending, and that the SAFEMA Tribunal’s order setting aside provisional attachment did not finally resolve the issues in the company proceedings.

It also considered the SFIO report and supporting material, including evidence that the applicant performed CFO functions, was authorised as a joint cheque signatory, and was associated with committees and transactions relevant to the alleged diversion of funds.

In the Court’s view, those matters disclosed a prima facie basis to preserve assets for the benefit of the company’s creditors, notwithstanding that the applicant’s alleged role and liability remained to be finally adjudicated.

However, because his bank accounts had been frozen, the Court considered a monitored permission to operate them appropriate.

All other terms of the interim order dated 9 August 2024 remained unchanged; there was no order as to costs.