Supreme Court Appoints High-Powered Committee for Asset Liquidation in Sai Prasad Group Case (2024)

Date of the Judgment: 15 July 2024

Citation: 2024 INSC 525

Judges: Surya Kant, J. and K.V. Viswanathan, J.

Can the Supreme Court intervene to expedite the liquidation of assets and refund of money to investors in cases involving complex financial fraud? The Supreme Court of India recently addressed this question by establishing a High-Powered Sale Committee (HPSC) to oversee the liquidation of assets belonging to the Sai Prasad Group of Companies and ensure the disbursal of funds to genuine investors. This decision came in light of the prolonged incarceration of the petitioners and the delay in refunding investors’ money. The judgment was delivered by a two-judge bench comprising Justice Surya Kant and Justice K.V. Viswanathan.

Case Background

The case involves Balasaheb Keshawrao Bhapkar and his family, who are the founders and directors of Sai Prasad Properties Ltd and other companies under the Sai Group. These companies are alleged to have illegally mobilized funds from the public through various schemes. The Securities and Exchange Board of India (SEBI) received complaints starting in 2010 about these illegal activities, leading to multiple investigations and orders against the Sai Prasad Group of Companies.

SEBI investigations revealed that Sai Prasad Group of Companies had collected approximately Rs. 4700 crores from investors, while the initial estimate was Rs. 3049 crores. The group owns over 600 immovable properties across various states. The directors were arrested in 2016, and multiple FIRs were registered against them in several states under various acts, including the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 and the Maharashtra Protection of Interest of Depositors (in Financial Establishment) Act, 1999.

The petitioners sought directions from the Supreme Court to expedite the liquidation of attached assets and the disbursal of funds to genuine investors. They also offered to assist SEBI in identifying genuine investors and the amounts deposited by them.

Timeline

Course of Proceedings

The Securities and Exchange Board of India (SEBI) initiated proceedings against the Sai Prasad Group of Companies based on complaints received regarding illegal fund mobilization. SEBI issued interim and final orders against the companies and their directors, restraining them from collecting further funds and alienating assets. The matter was also taken up by various state police departments, leading to the registration of multiple FIRs against the petitioners across different states under the Prize Chits Act, 1978 and the MPID Act, 1999. The petitioners were arrested and have been in custody since 2016. The MPID Court in Mumbai also attached several properties of the companies. The Supreme Court intervened due to the long incarceration of the petitioners and the delay in refunding investors.

Legal Framework

The judgment refers to the following legal provisions:

• Section 11AA of the Securities and Exchange Board of India Act, 1992: This section defines “Collective Investment Scheme”. The court noted that SEBI found a prima facie violation of Section 11AA(2) of the SEBI Act, 1992 by SSSCL.
• Section 209A of the Companies Act, 1956: This section deals with the inspection of books of accounts and other records of a company by the Registrar of Companies. The Registrar of Companies, Goa, Daman & Diu, conducted an inspection under this section and found that SPPL had been accepting investments.
• Sections 3, 4, and 5 of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978: These sections deal with the prohibition of prize chits and money circulation schemes. FIR No. 78/2015 was registered against the Petitioners under these sections.
• Sections 406, 420 and 34 of the Indian Penal Code: These sections relate to criminal breach of trust, cheating, and acts done by several persons in furtherance of common intention. These sections were invoked in several FIRs registered against the petitioners.
• Section 3 of the Maharashtra Protection of Interest of Depositors (in Financial Establishment) Act, 1999: This section deals with the attachment of properties of financial establishments that default in repayment of deposits. Several FIRs were registered against the petitioners under this section.
• Article 32 of the Constitution of India: This article grants the Supreme Court the power to issue writs for the enforcement of fundamental rights. The petitioners invoked this article seeking directions for the liquidation of assets and refund to investors.
• Article 142 of the Constitution of India: This article empowers the Supreme Court to pass orders necessary for doing complete justice in any cause or matter pending before it. The Supreme Court invoked this article to constitute the High-Powered Sale Committee.

Arguments

The petitioners sought the following reliefs:

• A direction to SEBI to liquidate the attached assets within six months or allow the Petitioners to assist in the liquidation.
• A direction to SEBI to distribute the amount to genuine investors as early as possible.
• A direction to SEBI to allow the Petitioners to assist in identifying genuine investors and the amounts deposited by them.

The petitioners argued that they are willing to cooperate in the process of liquidating the assets and refunding the investors. They also highlighted their prolonged incarceration as undertrials and the hardship faced by the investors who have been waiting for refunds for over a decade.

SEBI, while acknowledging the difficulties in liquidating assets spread across different states, agreed to the constitution of a High-Powered Sale Committee (HPSC) to auction the immovable assets of the companies and satisfy the investors’ claims.

The Court noted that the petitioners and SEBI submitted comprehensive notes of suggestions to work out the modalities for the constitution of the HPSC.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. How to expedite the liquidation of the attached assets of the Sai Prasad Group of Companies and ensure the disbursal of funds to genuine investors in a time-bound manner?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court, exercising its powers under Article 142 of the Constitution, constituted a High-Powered Sale Committee (HPSC) to oversee the liquidation of the assets of the Sai Prasad Group of Companies and the disbursal of funds to genuine investors. The HPSC is composed of:

• Hon’ble Mr. Justice S. Ravindra Bhatt, Former Judge, Supreme Court of India – Chairperson
• Dr. Justice Satish Chandra, Former Judge, High Court of Allahabad – Member
• A nominee of SEBI (Director level) – Member
• One officer from the Revenue Department (Collector level) from each of the States of Chhattisgarh, Maharashtra, Madhya Pradesh, Rajasthan, Uttar Pradesh and Haryana – State Representatives
• Mr. Pardeep Kumar Sharma, Registrar (Retd.), Supreme Court of India – Member Secretary-cum-Nodal officer
• The Deputy Secretary, Department of Home, Government of Maharashtra – Secretary

The HPSC is vested with the powers of a civil court and is tasked with obtaining all property documents, creating a database, ensuring safe storage of documents, appointing certified valuers, engaging e-auction service providers, and deciding on the disposal of assets. The HPSC will also identify investors, determine the amount to be refunded, and oversee the refund process.

The Court also directed the Petitioners and their Companies to submit details of all immovable assets and handover original title deeds to the HPSC. The Petitioners were also directed to execute necessary sale deeds as per the instructions of the HPSC.

The Court directed that the objections, if any, submitted by the Companies against the Forensic Audit Report pending before the MPID Court, Mumbai, are to be decided within two months.

The Court also directed SEBI to provide a separate account where the sale proceeds shall be deposited, to be jointly operated by the Chairperson or his nominee Member along with the Member, nominated by SEBI.

The Supreme Court also directed the release of Petitioner Nos. 1 and 2 on interim bail to the satisfaction of the MPID Court, Mumbai, considering the period of incarceration already undergone.

The Court fixed the honorarium for the Chairperson at Rs. 2 lakhs per sitting day, for the Member (former High Court Judge) at Rs. 1.50 lakhs per sitting day, and for the Member Secretary cum Nodal Officer at Rs. 75 thousand per sitting day. The SEBI nominee will not be entitled to any remuneration.

The Court directed the States of Chhattisgarh, Maharashtra, Madhya Pradesh, Rajasthan, Uttar Pradesh, and Haryana to extend full cooperation to the HPSC. The Directors General of Police of these states were also directed to provide assistance for securing and protecting the properties of the Companies.

The Court observed, “Keeping these exceptional and peculiar circumstances in view, we deem it fit to invoke our powers under Article 142 of the Constitution of India, so as to do complete justice between the parties.”

The Court also noted, “The final decision regarding the disposal of the assets shall be at the complete discretion of the HPSC and once the sale is made the property shall vest in the buyer, free from all encumbrances.”

The Court further stated, “To facilitate the sale and disbursement process and keeping in mind the period of incarceration already undergone, Petitioner Nos. 1 and 2 are directed to be enlarged on interim bail to the satisfaction of the MPID Court, Mumbai in Case No. 7 / 2016.”

What weighed in the mind of the Court?

The Supreme Court’s decision to constitute the High-Powered Sale Committee (HPSC) was influenced by several factors, primarily aimed at ensuring justice and expediting the process of asset liquidation and refund to investors. The Court emphasized the following:

• Prolonged Incarceration: The fact that Petitioner Nos. 1 and 2 had been in jail as undertrials for over eight years weighed heavily on the Court’s mind. This highlighted the urgency of resolving the matter to address the prolonged detention.
• Hardship to Investors: The Court acknowledged that innocent investors had been waiting for the refund of their hard-earned money for more than a decade. This underscored the need for a swift and effective mechanism to return their investments.
• Inefficiency of Existing Mechanisms: The Court recognized that SEBI and the MPID Court in Mumbai were facing difficulties in conducting public auctions in a time-bound manner due to the complex nature of the assets and their geographical spread.
• Bona Fide Intent of Petitioners: The Court noted that the Petitioners had shown their willingness to refund the investors’ amounts, suggesting a desire to cooperate in the process.
• Need for Complete Justice: The Court invoked its powers under Article 142 of the Constitution to ensure complete justice between the parties, indicating a proactive approach to resolve the complex situation.

Key Takeaways

• A High-Powered Sale Committee (HPSC) has been constituted to oversee the liquidation of assets of the Sai Prasad Group of Companies and the disbursal of funds to genuine investors.
• The HPSC is vested with the powers of a civil court to expedite the process.
• The Petitioners have been granted interim bail to facilitate the sale and disbursement process.
• The States have been directed to provide full cooperation and assistance to the HPSC.
• The Supreme Court has emphasized the need for a time-bound resolution of the matter, keeping in mind the prolonged incarceration of the petitioners and the hardship faced by the investors.

Directions

The Supreme Court issued the following directions:

• Constituted the High-Powered Sale Committee (HPSC) with specified members and powers.
• Directed the HPSC to obtain all property documents, create a database, ensure safe storage of documents, appoint certified valuers, engage e-auction service providers, and decide on the disposal of assets.
• Directed the HPSC to identify investors, determine the amount to be refunded, and oversee the refund process.
• Directed the Petitioners and their Companies to submit details of all immovable assets and handover original title deeds to the HPSC.
• Directed the Petitioners to execute necessary sale deeds as per the instructions of the HPSC.
• Directed that the objections, if any, submitted by the Companies against the Forensic Audit Report pending before the MPID Court, Mumbai, are to be decided within two months.
• Directed SEBI to provide a separate account where the sale proceeds shall be deposited, to be jointly operated by the Chairperson or his nominee Member along with the Member, nominated by SEBI.
• Directed the release of Petitioner Nos. 1 and 2 on interim bail to the satisfaction of the MPID Court, Mumbai.
• Fixed the honorarium for the Chairperson, Member (former High Court Judge), and the Member Secretary cum Nodal Officer.
• Directed the States of Chhattisgarh, Maharashtra, Madhya Pradesh, Rajasthan, Uttar Pradesh, and Haryana to extend full cooperation to the HPSC.
• Directed the Directors General of Police of the above-mentioned States to provide assistance for securing and protecting the properties of the Companies.

Development of Law

The ratio decidendi of the case is the establishment of a High-Powered Sale Committee (HPSC) by the Supreme Court, exercising its powers under Article 142 of the Constitution, to expedite the liquidation of assets and refund to investors in cases involving complex financial fraud. This decision sets a precedent for the Supreme Court’s intervention in similar cases where existing mechanisms are inadequate to ensure justice and timely resolution.

Conclusion

The Supreme Court’s judgment in the case of Balasaheb Keshawrao Bhapkar & Ors. vs. Securities and Exchange Board of India & Ors. marks a significant step towards resolving a complex financial fraud case. By constituting a High-Powered Sale Committee (HPSC), the Court has taken a proactive approach to expedite the liquidation of assets and ensure the disbursal of funds to genuine investors. This decision underscores the Court’s commitment to protecting the interests of investors and ensuring justice in cases involving financial irregularities. The judgment also sets a precedent for the Court’s intervention in similar cases where existing mechanisms are unable to provide timely and effective solutions.

Category

Parent Category: Securities Law

Child Categories:

• Collective Investment Schemes
• Securities and Exchange Board of India (SEBI)
• Asset Liquidation
• Investor Protection
• High-Powered Committee
• Article 142, Constitution of India
• Prize Chits and Money Circulation Scheme (Banning) Act, 1978
• Maharashtra Protection of Interest of Depositors (in Financial Establishment) Act, 1999

Parent Category: Constitution of India

Child Categories:

• Article 142, Constitution of India

Parent Category: Securities and Exchange Board of India Act, 1992

Child Categories:

• Section 11AA, Securities and Exchange Board of India Act, 1992

Parent Category: Prize Chits and Money Circulation Scheme (Banning) Act, 1978

Child Categories:

• Sections 3, 4, 5, Prize Chits and Money Circulation Scheme (Banning) Act, 1978

Parent Category: Maharashtra Protection of Interest of Depositors (in Financial Establishment) Act, 1999

Child Categories:

• Section 3, Maharashtra Protection of Interest of Depositors (in Financial Establishment) Act, 1999

FAQ

Q: What is the main issue in the Balasaheb Keshawrao Bhapkar case?

A: The main issue is how to expedite the liquidation of assets of the Sai Prasad Group of Companies and ensure the refund of money to genuine investors who were defrauded through illegal schemes.

Q: What is the High-Powered Sale Committee (HPSC)?

A: The HPSC is a committee constituted by the Supreme Court to oversee the liquidation of assets of the Sai Prasad Group of Companies and the disbursal of funds to genuine investors. It is vested with the powers of a civil court to expedite the process.

Q: Who are the members of the HPSC?

A: The HPSC is composed of a former Supreme Court Judge (Chairperson), a former High Court Judge (Member), a nominee of SEBI (Member), one officer from the Revenue Department (Collector level) from each of the States of Chhattisgarh, Maharashtra, Madhya Pradesh, Rajasthan, Uttar Pradesh and Haryana (State Representatives), a Registrar (Retd.) of the Supreme Court (Member Secretary-cum-Nodal officer) and the Deputy Secretary, Department of Home, Government of Maharashtra (Secretary).

Q: What are the main tasks of the HPSC?

A: The HPSC is responsible for obtaining all property documents, creating a database, ensuring safe storage of documents, appointing certified valuers, engaging e-auction service providers, deciding on the disposal of assets, identifying investors, determining the amount to be refunded, and overseeing the refund process.

Q: What is the role of SEBI in this case?

A: SEBI is directed to assist the HPSC, provide a separate account for the sale proceeds, and nominate a member to the HPSC. It will also transfer the amount from the account monitored presently by the MPID Court, Mumbai, to the escrow account to be opened by the HPSC.

Q: What is the significance of Article 142 of the Constitution in this case?

A: The Supreme Court invoked Article 142 of the Constitution to do complete justice between the parties, allowing it to pass orders necessary for the resolution of the case, including the constitution of the HPSC.

Q: What does the judgment mean for the investors?

A: The judgment provides a structured mechanism for the liquidation of assets and the disbursal of funds to genuine investors. The HPSC is expected to expedite the process and ensure that investors receive their refunds as soon as possible.

Q: What is the timeline for the liquidation of assets and refund process?

A: The Supreme Court has requested the HPSC to make an endeavor to conclude the entire process within one year.

Q: What is the role of the State Governments in this case?

A: The State Governments of Chhattisgarh, Maharashtra, Madhya Pradesh, Rajasthan, Uttar Pradesh and Haryana are directed to provide full cooperation andassistance to the HPSC. The Directors General of Police of these states are also directed to provide assistance for securing and protecting the properties of the Companies.