M/S Reebok India Company & Ors vs. Registrar of Company
Facts of the Case-
The Reebok Scam which came into light in the month of March, 2012 and is one of the major issues of corporate mismanagement, has given a vast field for legal research catering to the solution towards a major issue is drafted below.
The company complained against its former Managing Director, Subhinder Singh as well as the company’s former Chief Operating Officer, Vishnu Bhagat for a fraud of RS 870 crore. An internal investigation was done by the company’s financial director, and also a formal complaint was lodged against two of its members in the month of May, 21 at the Gurgaon Police Station. The company also faced charges by Adidas, as Adidas acquired Reebok as a subsidiary in August 2005 which united two of the largest sport outfitting companies. However, operations were maintained under their separate brand names. Adidas put up charges against Reebok saying there was fudging of the accounts of the company as well as some operations of secret warehouses. After this, a defamation case was filed by the former managing director named Subhinder Singh who claimed 15 crore as the damage suffered.
Adidas contacted the KPMG’s forensic arm in order to do a required study in the year 2010 and around 50,000 emails were scanned from 1992 which was done under a secret investigation named “Project Diamond”. A report was presented in June 2011 which found out that the expenses of Subhinder Singh were far more than his actual income, and also his EMI was Rs 10.79 Lakhs which more than his monthly pay of Rs 9.15 lakh, it was said by Subhinder Singh that he owned 9 real estate properties in Delhi/NCR, however, later it was found out that 3 more properties were in his name, he then said that the property was joint in nature. Also, the two were alleged for renting four warehouses without informing the seniors of the company and used them in order to store goods and it was falsely claimed that the products were being supplied to actual dealers; they were also accused of transferring goods to ghost companies around the world saying that the pieces were defective in nature. They were also accused of over invoicing to 147 crore, and also for running false franchise referral programme receipts which costed 114 crore and also or raising fake invoices to show higher sales and claim promotions as well as bonuses.
Whether The two ex-employees are accused of forging records, stealing goods and creating ghost distributors across the country to defraud Reebok over five years.?
Subhinder Singh and Bhagat along with – Sanjay Mishra, Prashant Bhatnagar and Surakshit Bhat, Subhinder Singh and Bhagat were arrested by the Gurgaon police as well as convicted for committing the crime of fraud under section 421 as well as criminal conspiracy u/s 120A of the Indian Penal Code, 1860.
The impact of the scam were so huge that the sale of Reebok declined for up to 26% and the revenue dropped from an amount of 427 million euro which was in the year 2010 – 2011 2 and astonishing amount of 336 million euro in the year 2011- 2012 , this was a huge loss for the company.
The agencies have detected a major corporate fraud which was a result of mismanagement in the process of business planning as well as mismanagement in the running of the company which was caused by some of the officials of the company. The governance as well as the operation of the company was mismanaged and the bills were inflated, thus no proper record was maintained.
The judgment says that the petition was filed under section 621A of the Companies Act before the company law board in order to seek a necessary relief of compounding offences under section 159 of the act for the filing of annual return for the financial year which was ending on 31. 03. 2012. The company law board ordered that there has indeed been a financial scam in the appellant company and investigations should be conducted by the officials of SFIO And the nature of the financial scam has been reported Even a criminal complaint has been filed in Gurgaon and it has been stated that there has been a falsification of the books which consist of the accounts of the company and a fraud to the extent of rupees 1425.53 crore Has been committed and the trial is pending. The court had declined to permit the compounding application; the Company Law Board dismissed the present application.”
It is stated that in ordinary since the offense is found to be compoundable under the provisions of the code of criminal procedure and the power of permission which is conferred is on the court except in those offences for which the permission is not required. However taking the view of the non obstinate clause, then the power of the composition can be found to be exercised by the court or by the company law board. As the legislature has conferred the same power to the company law CO.A. (SB) 58/2014 page 5. Thus, the board can exercise its power before or even after the institution of any prosecution; however the Criminal Court would have no power or permission for the composition of an offense before the institution of the proceeding. It is stated that the legislature has not put the rider of prior permission off the court before the compounding of the offense by the company law board and in this case the contention of the appellant is accepted ask the same would amount to the addition of the words “with the prior permission of the court” in the act.