HC Dissolves Special Committee, Orders Forensic Audit and Constitution of Special Cell in CRB Capital Markets Case

The petition, originally filed as Trust Petition No. 3/1997 by SEBI, related to the winding up of the mutual fund scheme of CRB Capital Markets Ltd. By order dated 29/05/2013, a Special Committee had been constituted to manage redemption and liquidation. Thereafter, a number of applications questioned its operation, claiming disbursal irregularities, non-transparency, and violation of the restraint of 25/01/1999 on payments to the promoter group.

Upon reviewing the record, with 34 interim reports, the Court noted that though huge amounts had been realised and paid out, huge sums were not claimed. It found the doctrine of merger did not suspend the 25/01/1999 restraint. In view of the shortfalls, the Court held that investor protection necessitated an independent forensic audit and restructuring of the winding-up process.

Central Issue: Whether, in light of the allegations regarding the working of the Special Committee and the ongoing embargo of 25/01/1999, winding up of the CRB Mutual Fund scheme necessitated a forensic audit, establishment of a Special Cell, a curb on payments to the promoter group, and instructions regarding unclaimed redemption amounts.

HC’s Ruling: The Court directed a forensic audit of all transactions and records of the Special Committee since 2013 and its dissolution. A Special Cell was formed to take charge of records, documents, and bank accounts, including the unutilized balance from the previous Rs. 1 crore allocation (after settling liabilities). The Cell should also authorise a Qualified Registrar and Transfer Agent (QRTA), digitise investors’ data, finish outstanding work emphasised in the 34th Interim Report, and achieve statutory compliance according to the Companies Act and Income-tax Act.

The Court further held that no payments shall be made to the promoter group or related entities until completion of the forensic audit. Verified claims of non-promoter unit holders may be processed by the Special Cell, including 34 applications amounting to Rs. 13.50 crore. Unclaimed redemption amounts of Rs. 95,40,51,044, representing over 7.22 crore units of 9,860 unit holders, shall, after one year from the formation of the Special Cell, be transferred to the Investor Protection and Education Fund (I.P.E.F.) unless extended by Court order. The forensic audit report must be filed within three months, and the winding up process completed within one year, with no further extension permitted.

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