The court emphasized that the failure to physically verify stocks before conducting an audit, while a lapse in diligence, was not sufficient to attract the offence under Sec. 447 of the Companies Act.

JUDGMENT

1. Heard learned Senior Advocate Shri Amit Desai for the applicant, learned counsel Shri Venegavkar for respondent No.1 and learned APP for the State.

2. This is an application for bail. A criminal complaint No.418 of 2022 was lodged by the Serious Fraud Investigation Office (hereafter "SFIO", for short) on 22/04/2022 under Sec. 447 of the Companies Act, 2013 (hereafter "the Companies Act", for short)

3. The applicant is the partner at a CA audit firm, which was a statutory auditor with the Company called as Jagat Agro Commodities Private Limited which is the accused No.1 in the criminal complaint. There are in all 14 accused. The applicant is the accused No.7. The applicant was the statutory auditor of the Company right from the time of its inception till the year 2015. The accused Nos.2 and 3 are the promoters of the accused No.1 company.

4. The allegation against the applicant is that he colluded with the directors/promoters of the accused No.1 Company and did not disclose the true and fair state of affairs of accused No.1 and proceeded to audit the financial statements without verifying the primary records as well as actual stock position. It is alleged that the applicant made a sample check of the stocks and never verified the actual position of stock in the godowns of the company. It is alleged that he deliberately relied upon the information provided by the management of the company and finalised the report based on falsified accounts without looking into the actual position and affairs of the company and served his masters as per their instructions. The fraud alleged against the accused No.1 company was to the tune of Rs.386.99 Crores.

5. In the complaint it is averred that there was enough evidence to conclude that large scale fraud had taken place in the company as the accounts had been fudged for taking loans and increasing credit limits. The dispute is regarding the actual value of the stocks and after a report was submitted, it was revealed that the accused No.1 had manipulated the stock to gain some undue financial advantage. The actual stock which was found in the godowns was not as what was projected by the company. It is alleged that in some instances it was revealed that the godowns itself were not found.

6. So far as the present applicant is concerned, the allegations in the complaint are in paragraph 40 and 41. The same reads thus :-

"40. A-7 Suhas S. Paranjpe was the statutory auditor since incorporation of A-1 Jagat Agro Commodities Private Limited. The forensic auditor (State Bank of Patiala), in his report dtd. 8/10/2015 had raised several red flags regarding the transactions being carried out by the A-1 Jagat Agro Commodities Private Limited but being a statutory auditor of the company for the past several years, he failed to identify the areas in which the A-1 Jagat Agro Commodities Private Limited had been manipulating their books of accounts.

41. A-7 Suhas S. Paranjpe colluded with the directors/promoters of A-1 Jagat Agro Commodities Private Limited and did not disclose the true and fair state of affairs of A-1 Jagat Agro Commodities Private Limited and proceeded to audit the financial statements without verifying the primary records as well as actual stock position. He made a sample check of the stocks and never verified the actual position of stock in the godowns of the company. He deliberately relied upon the information provided by the management of the company and finalized the report based on falsified accounts without looking into the actual position and affairs of the company and served his masters as per instructions."

7. It is the contention of SFIO that the forensic audit which was conducted in the year 2015 revealed a large scale fraud in the matter of actual availability of stocks in the godowns.

8. The applicant was the statutory auditor of the company. The auditor's responsibilities relating to fraud in the audit financial statements is provided for in the Standard on Auditing (her