1. Appeal against grant of bail for fraud under Section 447 of the Companies Act involving siphoning of funds and manipulation of financial statements. (Para 2 , 3 )
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2019 Supreme(SC) 1010
SUPREME COURT OF INDIA
N.V. Ramana, Mohan M. Shantanagoudar, Ajay Rastogi, JJ.
Serious Fraud Investigation Office - Appellant
Versus
Nittin Johari & Anr. – Respondents
CRIMINAL APPEAL NO. 1381 OF 2019 (@ S.L.P. (CRL.) NO. 7437 OF 2019
Decided On : 12-09-2019
Advocates Appeared:
For the Petitioner(s): Mr. Neeraj Kumar Sharma, AOR
For the Respondent(s): Mr. Sidharth Luthra, Sr.Adv. Ms.Ranjana R.Gavai, Adv. Mr.Arshdeep Singh Khurana, Adv. Mr.Gautam Khazanchi, Adv. Mr.Himanshu, Adv. Mr.Pradyuman, Adv. Mr.Akshat Gupta, Adv. Mr.Ujjwal Jain, Adv. Ms. Devina Sehgal, AOR
For the Petitioner(s): Mr. Neeraj Kumar Sharma, AOR
For the Respondent(s): Mr. Sidharth Luthra, Sr.Adv. Ms.Ranjana R.Gavai, Adv. Mr.Arshdeep Singh Khurana, Adv. Mr.Gautam Khazanchi, Adv. Mr.Himanshu, Adv. Mr.Pradyuman, Adv. Mr.Akshat Gupta, Adv. Mr.Ujjwal Jain, Adv. Ms. Devina Sehgal, AOR
Important Points
IMPORTANT POINT
Limitations for grant of bail u/s 212(6)(ii) for offences u/s 477 of Companies Act, 2013 are in addition to those provided in section 439, Code of Criminal Procedure, 1973 and are mandatory.
Limitations for grant of bail u/s 212(6)(ii) for offences u/s 477 of Companies Act, 2013 are in addition to those provided in section 439, Code of Criminal Procedure, 1973 and are mandatory.
Subject
Bail - Economic Offences
Act Referred
Headnote
(a) Companies Act, 2013 - Section 212(6)(ii), 212(7) and 477 - Limitations for grant of bail for offences u/s 477 - Mandatory requirement - In addition to those provided in section 439, Code of Criminal Procedure, 1973. (Para 11, 13)
(b) Code of Criminal Procedure, 1973 - Section 439 - Grant of bail - Vague observations and non application of mind - Not sustainable. (Para 13)
Facts of the case:
The instant appeal challenges the grant of bail to Respondent No. 1 by the High Court for commission of fraud punishable under Section 447 of the Companies Act, 2013.
Finding of the Court:
Impugned order suffers from vague observations and non application of mind.
Result: Appeal disposed of.
Legal Category Hierarchy
Table of Contents
2. Dispute over the applicability of mandatory twin conditions under Section 212(6)(ii) of the Companies Act versus general bail principles under Section 439 of the Cr.P.C. (Para 7 , 8 )
3. The High Court failed to consider the gravity of the economic offence and the mandatory requirements of Section 212(6)(ii) of the Companies Act. (Para 11 , 12 , 13 , 14 )
4. Economic offences involving deep-rooted conspiracies and huge public fund losses constitute a class apart requiring a more stringent approach to granting bail. (Para 11 )
5. Impugned order set aside and matter remanded to the High Court for reconsideration of the bail application in accordance with law. (Para 15 , 16 , 17 )
6. How should courts approach bail applications in cases of grave economic offences?
Economic offences constitute a class apart due to deep-rooted conspiracies and huge losses of public funds. Courts must consider the nature of accusations, evidence, severity of punishment, character of the accused, and the larger interests of the public or State. (Para 11 )
7. What are the mandatory conditions for granting bail under Section 212(6)(ii) of the Companies Act for offences under Section 447?
Where the Public Prosecutor opposes the application, the court must be satisfied that there are reasonable grounds for believing that the accused is not guilty of the offence and is not likely to commit any offence while on bail. (Para 10 )
8. Does the grant of bail to a co-accused automatically entitle another accused to bail on the ground of parity in economic offences?
Not necessarily. Parity may not apply if the co-accused was granted bail under peculiar circumstances, such as challenges to constitutional validity or specific personal factors, without a full merit-based assessment of the offence's gravity. (Para 14 )
JUDGMENT :
MOHAN M. SHANTANAGOUDAR, J.
Leave granted.
2. The instant appeal challenges the grant of bail to Respondent No. 1 by the High Court of Delhi in Bail Application No. 1971/2019 in C.C. No. 770/2019, vide the order dated 14.08.2019.
3. The case of the prosecution primarily hinges on the commission of fraud punishable under Section 447 of the Companies Act, 2013 (for short “the Companies Act”), though several other offences under the Companies Act and the Indian Penal Code, 1860 have also been alleged. Briefly put, it is alleged that from FY 2009-10 to FY 2016-17, Brij Bhushan Singal and Neeraj Singal, promoters of Bhushan Steel Ltd. (for short “BSL”), assisted by employees and close associates, used a complex web of 157 companies to siphon off funds from BSL for various purposes, and also fraudulently availed of credit from various lender banks and manipulated the books of accounts and financial statements of BSL, causing wrongful loss to banks and financial institutions amounting to Rs. 20,879 crores and causing wrongful gain to the promoters and their family members, amounting to around Rs. 3500 crores.
Respondent No. 1 herein, Nittin Johari, who was the Chief Financial Officer and Whole Time Director (Finance) of BSL, as well as a member of the Committee of the Board of Directors on Borrowing, Investment and Loans during the relevant period, was alleged to have been a close associate of the promoters and to have played a central role in perpetrating these frauds. In particular, it is alleged that Respondent No. 1 played an active role in using fraudulent letters of credit to avail of credit from lender banks, in inflating Stock-in-Transit figures to avail of greater Drawing Power from banks, and in manipulating statements of accounts and other financial statements of BSL in the garb of adopting the Indian Accounting Standards.
Investigation into the affairs of BSL and certain associated companies had been initiated by the Serious Fraud Investigation Office (for short “the SFIO”), the Appellant herein, pursuant to the order dated 03.05.2016 issued by the Ministry of Corporate Affairs (for short “the MCA”) under Section 212(1)(c) of the Companies Act. Gradually, the scope of investigation expanded to 157 companies and 130 individuals.
4. Respondent No. 1 came to be arrested on 02.05.2019, and was remanded to the Appellant’s custody on 03.05.2019. He has been in judicial custody since 08.05.2019. It is also pertinent to note that previously, co-accused Neeraj Singal had been granted certain interim reliefs (including interim bail) by the High Court of Delhi vide order dated 29.08.2018 in W.P. (Crl.) No. 2453/2018, in which he had challenged the constitutionality of Section 212(6)(ii), (7) and (8) of the Companies Act. The operation and effect of this order (save for his interim release) had been stayed by this Court in appeal, vide order dated 04.09.2018.
5. Respondent No. 1 applied for regular bail under Section 439 of the Code of Criminal Procedure, 1973 (for short “the Cr.P.C.”), which was dismissed by the Special Judge (Companies Act), Dwarka District Courts, Delhi, vide order dated 06.06.2019. The Investigation Report was submitted by the Appellant to the MCA on 27.06.2019, and after obtaining sanction from the MCA, the Petitioner filed the Complaint before the Special Court on 01.07.2019. It may be pertinent to note that as per Section 212(15) of the Companies Act, the Investigation Report filed under Section 212(12) of the Companies Act is deemed to be a report filed by a police officer under Section 173 of the Cr.P.C. (i.e. the charge-sheet).
Respondent No. 1 filed another application under Section 439 of the Cr.P.C. before the Special Judge, which was dismissed vide order dated 02.08.2019. It is pertinent to note that both these orders take note of the mandatory nature of Section 212(6) (ii) of the Companies Act pertaining to the grant of bail for offences, as well as of the gravity of the economic offence committed,
