Delhi High Court Orders Forensic Audit of CRB Mutual Funds’ Arihant Mangal Growth Scheme; SEBI to Oversee Winding Up
The Court has transferred operational control from the Special Committee to a Special Cell of SEBI, and set timelines and safeguards for records, funds, claim verification and disbursal.
The Delhi High Court has ordered a forensic audit of the records, accounts, and disbursals made in the course of winding up the Arihant Mangal Growth Scheme and directed that a Special Cell of the Securities and Exchange Board of India (SEBI) will henceforth manage the process.
The directions were issued while deciding a series of applications concerning investor redemptions, alleged irregularities in the functioning of the Special Committee, and the future course for completing the winding up of the scheme.
A bench comprising Justice Prathiba M. Singh ordered that the funds earlier transferred to the Registrar General of the Delhi High Court in compliance with interim directions are now to be moved to an escrow account of SEBI under judicially prescribed safeguards.
The Court has directed SEBI, through the newly constituted Special Cell, to oversee all further processes related to the winding up of the scheme, including the verification of claims, reconciliation of funds, and disbursal of amounts due to investors. The Special Cell has also been authorised to appoint a Qualified Registrar and Transfer Agent (QRTA) to manage claims, verification, and fund reconciliation.
Appearing counsel included Senior Advocates Pratap Venugopal and Vivek Sibal, Advocates Avneesh Garg, Pavitra Singh & Iptisha, along with other counsel.
Background
The Arihant Mangal Growth Scheme was launched by CRB Mutual Funds in August 1994. Following an inspection conducted by the Securities and Exchange Board of India (SEBI) in December 1994, breaches of the SEBI (Mutual Funds) Regulations, 1993 were identified, leading to the issuance of restrictive directions.
In 1997, the Bombay High Court appointed a Provisional Administrator to manage the affairs of the scheme. In January 1999, the Court approved limited premature redemptions while expressly restraining payments to CRB-linked entities. In 2007, the proceedings were consolidated before the Delhi High Court.
Following the demise of the Provisional Administrator in 2012, a three-member Special Committee was constituted in May 2013 to oversee the winding up of the scheme, liquidation of assets, and disbursal of redemption amounts. Over time, several objections were raised regarding the Committee’s functioning, including the absence of beneficiary-wise disclosures and concerns over the transparency of disbursals.
During the winding-up process, the Special Committee sought repeated extensions beyond its initial tenure. SEBI subsequently moved an application seeking the substitution of the Committee and requested permission to conduct a forensic audit, take custody of all records under seal, and implement an end-to-end resolution through a SEBI-managed framework. SEBI proposed appointing a Qualified Registrar and Transfer Agent (QRTA) to handle verification, reconciliation, and investor disbursals.
Pursuant to SEBI’s request, the Court’s interim directions in August–September 2023 required the transfer of the corpus from the Special Committee to the Registrar General and imposed a moratorium on further transactions until reconciliation and deposit were completed. An amount of ₹122,86,05,000 was thereafter recorded in the Registrar General’s dedicated account, with a portion earmarked in compliance with the Supreme Court’s status quo order and a limited amount retained by the Committee for administrative purposes.
Court’s Observations
The Delhi High Court held it the jurisdiction to substitute the Special Committee and supervise the winding up of the Arihant Mangal Growth Scheme. Referring to earlier orders recognising the fiduciary role of the Provisional Administrator and the Special Committee, the Court observed that such bodies function under its continuing supervisory jurisdiction in matters involving investor protection.
The Court considered allegations regarding irregularities in the Committee’s functioning, including issues related to disbursals and the lack of complete reconciliation of funds. It noted that a full investor-wise reconciliation was essential to protect the interests of unit holders and directed that all records, accounts, and documents maintained by the Special Committee be taken over by the Securities and Exchange Board of India (SEBI).
To ensure accuracy, the Court ordered a forensic audit of the scheme’s accounts and transactions to be completed within three months. It also made it clear that no further extensions would be granted and, in case the audit could not be completed within the stipulated period, even tentative conclusions must be placed before SEBI.
The Court further directed that the management of the winding-up process be transferred from the Special Committee to a newly constituted Special Cell of SEBI. The Cell is to be headed by an officer not below the rank of Deputy General Manager and will include two officers of Assistant Manager level as members.
It has been authorised to appoint a Qualified Registrar and Transfer Agent (QRTA) from the list placed on record for handling claim verification, reconciliation of funds, and disbursal of amounts to eligible investors. The Cell may also engage experts for technical assistance, including reconciliation and related tasks.
In its directions regarding funds, the Court recorded that an amount of ₹122,86,05,000 was lying with the Registrar General of the Delhi High Court in a dedicated account pursuant to earlier orders. It directed that, after excluding the sums earmarked for Rommel Investments Pvt. Ltd. in view of earlier orders of the Supreme Court, applicable taxes including TDS, and any premature withdrawal penalties, the remaining balance shall be transferred to an escrow account of SEBI. SEBI has been instructed to then move the funds into the Special Cell’s designated account for utilisation in accordance with the Court’s directions, including verified disbursals to eligible investors.
The Court also addressed the treatment of disgorged amounts and income derived from unclaimed redemptions. It held that, in accordance with the statutory and regulatory framework, amounts directed under Section 11B of the SEBI Act are required to be credited to SEBI’s Investor Protection and Education Fund (IPEF), and any income earned on unclaimed redemption amounts after the stipulated period must also be utilised for investor education.
Conclusion
Disposing of the applications, the Delhi High Court directed SEBI to conduct a forensic audit into the winding up of the mutual fund scheme and to take over the functions of the erstwhile Special Committee through a newly constituted Special Cell. The Special Cell has been entrusted with the responsibility of verifying claims, reconciling accounts, and effecting redemptions, with liberty to engage professional assistance where necessary.
The Court further ordered that the funds presently held in Court be transferred to SEBI’s designated account, after making deductions in accordance with prior judicial directions and applicable statutory requirements. It was also clarified that unclaimed amounts and income arising therefrom must be credited to SEBI’s Investor Protection and Education Fund in line with the law.
Cause Title: Securities and Exchange Board of India v. CRB Capital Markets Ltd. & Ors. (Neutral Citation: 2025:DHC:7584)
Appearances
Petitioners: Senior Advocate Pratap Venugopal with Advocates Abhishek Baid & Praneet Das
Respondents: Senior Advocates Pinaki Mishra, Vivek Sibal, with Advocates Abhinav Hansaria, Sugandh Shahi, Bhuvan Gugnani, Ninad Dogra, Rupender Sharma and others.
