MCA initiates strong action in D S Kulkarni Developers case

The Ministry of Corporate Affairs has initiated strong action against D S Kulkarni Developers Ltd and individuals for illegal fund diversions in the garb of "related party transactions".

On a petition moved by the ministry, the National Company Law Tribunal (NCLT) has barred the company as well as various individuals, including key managerial personnel, from mortgaging their properties besides freezing of securities, among other directions.

A senior ministry official said the NCLT order would serve as a strong deterrent against entities indulging in fraudulent activities and the strong message is that "don't take law lightly".

Against the backdrop of instances of corporate frauds, the ministry has invoked certain rarely used provisions in the Companies Act with regard to Pune-based D S Kulkarni Developers case, according to officials.

The ministry, which is implementing the Act, has invoked various sections including 241 and 242. These pertain to seeking relief from the tribunal in cases where a company's affairs are being conducted in a manner prejudicial to public interest.

The petition was filed by Serious Fraud Investigation Office (SFIO) on behalf of the ministry against the company and 15 individuals.

It was submitted by the ministry that the company defaulted in repayments of term loans, fixed deposits and statutory dues as well as perpetrating fraud against the public at large by siphoning funds through related party transactions.

Sufficient material is available on record to show that the respondents in the management of the company "fraudulently collected Rs 1,246 crore in the form of deposits from the public and loans from the financial institutions as against the land bank worth of Rs 27 crore", the order said.

The money has gone to related parties in the name of advances and loans, the order said, adding that the affairs of the company are being conducted in a manner prejudicial to public interest.

By way of an ex-parte order, dated March 13, the NCLT has restrained 11 individuals from "mortgaging or creating charge or lien or third party interest or in any way alienating, the immovable and moveable properties by them".

Besides, they have been directed to disclose details about their moveable and immoveable properties, including bank accounts, owned by them in India or overseas.

Among others, Central Depository Services Ltd (CDSL) and National Securities Depository Ltd (NSDL) have been directed to freeze securities owned by these individuals.

Following the NCLT order, leading exchanges BSE and NSE have suspended trading in the shares of D S Kulkarni Developers.

The case came to the notice of the ministry after a complaint was forwarded by Sebi and subsequently Registrar of Companies (RoC) carried out an inspection of the company. The inspection found various fraudulent activities and in January, an SFIO probe was ordered by the ministry.