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DNA EXCLUSIVE: SC blocks Ponzi schemes' move to NCLT

Intervenes on behalf of lakhs of Citrus Holidays and Royal Twinkle investors; says promoters colluded with petitioners for initiating bankruptcy proceedings

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The case of two Ponzi schemes of Citrus Holidays and Royal Twinkle, which were dragged into the National Company Law Tribunal (NCLT), has taken an interesting twist after a group of investors moved the Supreme Court against liquidating the company.

The apex court has stayed the proceedings of the Mumbai bench of the NCLT that had admitted the petition for initiating Corporate Insolvency Resolution Process against Royal Twinkle Star Club Ltd and Citrus Check Inns Ltd, two timeshare and collective investment schemes where over 18 lakh investors had put in nearly Rs 7,500 crore of their savings.

The Supreme Court, while passing its order on January 8, observed that prima facie it seemed to be a case where there is a collusion between the promoters and the petitioners who have filed the petition before NCLT, Mumbai Bench, wherein interim resolution professional (IRP) Devendra Jain was appointed.

“We have been informed that this ongoing investigation is not complete yet. It has been pointed out to us that the entire objective of the present exercise under the insolvency code is a collusive effort between the parties concerned as is evident from the fact that the respondent 2 did not oppose the appointment of an insolvency professional and is reflected in the order dated 2/5/2017,” the court said.

“We are therefore of the view that prima facie this seems to be correct and the proceedings under the insolvency court are stayed forthwith,” the apex court said.

The IRP has been directed to file a report as to what he has done till date in the court.

When contacted by DNA Money, Jain said he would submit his report on February 9.

This is the second time that the apex court is intervening on behalf of lakhs of investors. Earlier in the case of Jaypee Infratech, the Supreme Court had stayed the order of the Allahabad NCLT which had accepted Jaypee as insolvent and bankrupt.

On April 27, Sayali Rane and Eknath Ahire, two investors in Citrus and Royal Twinkle, had approached the NCLT to liquidate the two companies. On May 2, the petition was admitted and Jain, a chartered accountant, was appointed as the IRP.

After this, ten Citrus investors approached the NCLT to file intervention petitions. These investors alleged that the NCLT was kept in the dark about certain rulings of the Securities and Exchange Board of India, Securities Appellate Tribunal (SAT) and the Supreme Court also, which had asked the promoters to repay the money in two years’ time. SAT upheld the Sebi order and banned the scheme in 2014.

The market regulator had directed the four directors of Royal Twinkle Star Club Ltd to refund investors’ money within three months. The money was collected under various holiday plans, which promised cashbacks if the investors did not utilise them. Sebi asked Royal Twinkle and its directors Omprakash Basantlal Goenka, Prakash Ganpat Utekar, Venkatraman Natrajan and Narayan Shivram Kotnis to refrain from garnering money under the Collective Investment Scheme (CIS). It also barred them from accessing markets for four years in 2016.

In its order of 2015, Sebi had said: “The company and its directors are restricted from disposing of any assets, except for refunding money to investors.” The market regulator also said that the activities of the directors were prima facie found to be illegal and in violation of the Sebi directions.

PROTECTING SMALL INVESTORS

  • Ten Citrus investors had filed intervention petitions alleging that NCLT was kept in the dark about certain rulings of Sebi, SAT and Supreme Court
     
  • Earlier in the case of Jaypee Infratech, the SC had stayed the order of the Allahabad NCLT which had accepted Jaypee as insolvent and bankrupt
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