The main legal point established in the judgment is that a stock auditor cannot be held liable for acts done during a period which did not concern them, and the conditions for granting bail under Section 212(6) of the Companies Act, 2013 were considered.

JUDGMENT :

Jasmeet Singh, J.

1. This is an application filed seeking grant of regular bail to the applicant (accused No. 200 in Complaint Case No. 770/2019 titled as “Serious Fraud Investigation Office vs. Bhushan Steel Limited and Others”.

2. The applicant is a senior citizen and Chartered Accountant (C.A.) by profession with private practice.

3. The facts in brief are:

3.1 M/s Bhushan Steel Limited (hereinafter “BSL”)is a company under investigation on account of allegations of siphoning off by its promoters.

3.2 In brief, the allegation against the applicant is that he being a Chartered Accountant and one of the partners at ASRN & Associates [the firm appointed as stock auditors by the consortium of banks led by Punjab National Bank (hereinafter “PNB”) for Financial Year 2015-16] failed to perform his duty independently and diligently by not verifying the stock in transit, and he is accused to be in collusion with the office bearers of M/s Bhushan Steel Limited.

3.3 It is stated that he is involved in providing and using wrong information to calculate the Drawing Power figures wrongly based on the figures given by M/s Bhushan Steel Limited.

3.4 A complaint dated 01.07.2019 was filed under Section 439(2) read with Section 436(1)(a),(d) and (2) read with Section 212(15) of the Companies Act, 2013 read with Section 621(1) of the Companies Act, 2013, read with Section 193 of the Code of Criminal Procedure, 1973 by the respondent, Serious Fraud Investigation Office (SFIO). The respondent also relies upon Investigation Report dated 27.06.2019 filed with the Ministry of Corporate Affairs.

3.5 As per the complaint, the allegations against the petitioner are as under:-

“32. On account of inter alia, the deprivation of finances to A-01 Bhushan Steel Ltd., the financial position of Company deteriorated. However, despite this, the financial statements of A-01 Bhushan Steel Ltd indicated increasing figures against Stock-in-Transit ("SIT"), both in absolute terms and as a percentage of turnover, especially in the financial years F.Y 2013-14, 2014-15 and 2015-16. The "SIT" is shown at Rs. 3823.48 Cr., Rs. 5093.46 Cr. and Rs. 6523.20 Cr. respectively. Investigation established that figures shown under "SIT" used to be inflated by making false entries in the books of accounts maintained in SAP and Foxpro Legacy. With these manipulated figures A-01 Bhushan Steel Ltd during the F.Y 2013-14 to 2015-16 was able to avail Drawing Power ("DP") against cash credit facility. This conspiracy of availing "DP" by filing inflated figures was hatched by A-158 Brij Bhushan Singal, A- 159 Neeraj Singal, A-160 Nittin Johari, A- 179 Pankaj Tewari. A- 161 Pankaj Kumar Agarwal, A- 190 Pankaj Mahajan and A-200 Sunil Bhatia, stock auditors and A-186 R.K Mehra and A-188 M.P. Mehrotra, statutory auditors. At all material time they were aware that the amount shown under SIT in inflated in the books of accounts.

71. Further, as detailed above, A-158 Brij Bhushan Singal A 159 Neeraj Singal, the ex-promoters of BSL, along with A-160 Nitin Johari, ex-Whole Time Director and Chief Financial officer (CFO) of BSL in active connivance with employees of A-1 BSL, namely, A-181 Vivek Mittal, A-180 Saurabh Mittal, A-179 Pankaj Tewari, A-184 Rajat Jain, A-183 Sunil Agarwal and A-185 Rajesh Sharma have filed various false, deceptive statements and misleading information to various banks, to avail/continue to avail working capital limits from 2013-14 till 2015-16. All the aforesaid accused persons, at all material time, were well aware about the financial position of A-01, BSL and non-existent stocks but nevertheless, induced the banks to sanction total Drawing Power (DP) against Fund Bank Working Capital limits of Rs. 5389 crore, 5606 crore and 5527 crore against which it had cash credit outstanding of Rs. 5761 crore, Rs. 7094 crore and Rs. 9768 crore respectively. This was secured int