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IN THE HIGH COURT OF DELHI AT NEW DELHI
ANUP JAIRAM BHAMBHANI, J.
Ashish Mittal – Appellant
Versus
Serious Fraud Investigation Office - Respondent
Bail Appln. 251 of 2023 & Crl.M.(BAIL) 115 of 2023, Crl.M.A. 2074 of 2023, Crl.M.A. 2470 of 2023
Decided on : 03-05-2023
The petitioner, a CFO of Educomp Solutions Ltd. (ESL), was arrested by the Serious Fraud Investigation Office (SFIO) for alleged fraud and round-tripping of funds. The petitioner sought regular bail, arguing that he was not involved in the alleged siphoning-off of funds and that the twin-conditions for bail under the Companies Act were not satisfied. The court held that the petitioner was not a key managerial personnel and did not have control over the financial affairs of ESL. It also noted that the main promoters and directors of ESL were granted interim protective orders and were never arrested. The court further observed that the petitioner had cooperated with the investigation and was not a flight risk. Accordingly, the court granted the petitioner regular bail subject to certain conditions.
Fact of the Case:
The petitioner, Ashish Mittal, was the Chief Financial Officer (CFO) of Educomp Solutions Ltd. (ESL). He was arrested by the Serious Fraud Investigation Office (SFIO) for alleged fraud and round-tripping of funds. The petitioner filed a petition seeking regular bail.
Finding of the Court:
The court held that the petitioner was not a key managerial personnel and did not have control over the financial affairs of ESL. It also noted that the main promoters and directors of ESL were granted interim protective orders and were never arrested. The court further observed that the petitioner had cooperated with the investigation and was not a flight risk.
Issues: 1. Whether the petitioner was a key managerial personnel and had control over the financial affairs of ESL. 2. Whether the main promoters and directors of ESL were granted interim protective orders and were never arrested. 3. Whether the petitioner had cooperated with the investigation and was not a flight risk.
Ratio Decidendi: 1. The court held that the petitioner was not a key managerial personnel and did not have control over the financial affairs of ESL because: * He was not a member of the Board of Directors or any of the committees of ESL. * He was not a signatory to the financial statements and accounts of ESL. * He was appointed as CFO with the task of coordinating implementation of the CDR process of ESL, which was monitored by a Monitoring Institution headed by the State Bank of Patiala. 2. The court noted that the main promoters and directors of ESL were granted interim protective orders and were never arrested, which indicated that there was no strong case against them. 3. The court observed that the petitioner had cooperated with the investigation and was not a flight risk because: * He had appeared before the SFIO on several occasions during the investigation. * He had submitted the required documentation to the SFIO. * He had not been questioned while in judicial custody. * He had travelled abroad on 05 occasions during the course of the investigation and returned in compliance with the orders of the court.
Final Decision: The court granted the petitioner regular bail subject to certain conditions, including: * Furnishing a personal bond and sureties. * Surrendering his passport. * Not contacting or visiting any of the prosecution witnesses or other persons acquainted with the facts of the case. * Not tampering with evidence or otherwise indulging in any act or omission that is unlawful or that would prejudice the proceedings in the matter. * Not contacting or visiting or having any transaction with any of the officials/employees of the banks, financial institutions, companies, entities etc., who are concerned with the complaint in this case, whether in India or abroad.
JUDGMENT :
Anup Jairam Bhambhani, J.
By way of the present petition filed under section 439 of the Criminal Procedure Code, 1973 (‘Cr.P.C.’ for short) read with section 212(6) of the Companies Act, 2013, the petitioner seeks regular bail in criminal complaint case bearing Ct. Case No. 990/2022 filed by the respondent/Serious Fraud Investigation Office (‘SFIO’ for short). The criminal complaint alleges offences under sections 420/120B of the Penal Code, 1860 (‘IPC’ for short), sections 211/628/227/233 of the Companies Act, 1956 (‘1956 Act’ for short) and sections 129/447/448 of the Companies Act, 2013 (‘2013 Act’ for short).
2. Notice on this petition was issued on 25.01.2023; whereupon reply has been filed by the SFIO by way of counter affidavit dated 03.02.2023. Both parties have also filed their respective written submissions in the matter.
3. The court has heard Mr. N. Hariharan, learned senior counsel and Mr. Tanveer Ahmed Mir, learned counsel on behalf of the petitioner. The court has also heard Mr. Ajay Digpaul, learned Central Government Standing Counsel on behalf of the SFIO.
BRIEF OVERVIEW
4. M/s. Educomp Solutions Ltd. (‘ESL’ for short) was incorporated in the year 1994. One Shantanu Prakash was its managing director and his father Jagdish Prakash was a whole-time director. In 2013 ESL faced a severe liquidity crunch for various reasons and had to therefore opt for Corporate Debt Restructuring (‘CDR’ for short) vide Master Restructuring Agreement dated 25.03.2014 (‘MRA’ for short) signed with the consortium of lenders (banks) led by the State Bank of Patiala (which bank has later merged with State Bank of India).
5. Vide order dated 17.08.2018 bearing No. 1/52/2017 the Ministry of Corporate Affairs assigned the investigation into the affairs of ESL to the SFIO. After commencement of investigation against ESL, approval was also obtained for investigation into the affairs of two other companies M/s. Educomp Infrastructure and School Management Ltd. (‘EISML’ for short) and M/s. Edu Smart Services Pvt. Ltd. (‘ESSPL’ for short), both of which are subsidiaries of ESL.
6. After a detailed investigation in the matter, the SFIO has filed a prosecution complaint under section 439(2)/436/212 of the 2013 Act, which is the equivalent of a chargesheet, arraigning 70 persons as accused. Of the accused, 15 are corporate entities and 55 are various persons alleged to have been associated with ESL and other subsidiary companies in various ways.
RELEVANT FACTUAL MATRIX
7. The factual matrix that is relevant for purposes of the present petition is that as part of the CDR proposal for ESL, its managing director Shantanu Prakash (A-16 in the prosecution complaint) was required to contribute Rs. 240.76 crores out of his own funds towards ‘promoter contribution’. The allegation goes that instead of investing his own funds towards promoter contribution, Shantanu Prakash siphoned-off Rs. 240.76 crores from ESL and received that money back into his personal bank accounts from some 65 companies/entities through dubious transactions, which money he then showed as promoter contribution towards the CDR process. The allegation accordingly is, that the investment made by Shantanu Prakash as promoter were not his funds; but were funds that Shantanu Prakash had siphoned-off through various companies into his personal accounts, with the intent to deceive investors and CDR lenders; and that Shantanu Prakash had then invested the same as part of the CDR process to fraudulently show that he had fulfilled the conditions.
8. The crux of the offence alleged against the accused persons is therefore, that by round-tripping funds, ESL and some of the other 69 accused (including companies and individuals), have committed ‘fraud’ as contemplated under section 447 of the 2013 Act, apart from other offences under the 1956 Act and the IPC.
9. The petitioner is arraigned as A-18 in the criminal complaint.
10. In investigation report dated 30.11.2022[section 212(15) of the 2013 Ac
In serious fraud cases, bail may be denied due to substantial allegations, criminal antecedents, and flight risk, despite long custody periods.
Point of law: While laying down cast-iron rules in a matter like granting anticipatory bail, it is apt to be overlooked that even judges can have but an imperfect awareness of the needs of new situat....
Point of law: While laying down cast-iron rules in a matter like granting anticipatory bail, it is apt to be overlooked that even judges can have but an imperfect awareness of the needs of new situat....
Economic offence allegations do not automatically justify remand; court must consider specific evidence of risk before denying bail, particularly for women under the Companies Act.
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