High Court Extends Anticipatory Bail to Chartered Accountants in SRS Group Fraud Investigation - 2025-10-28

Bail Granted: High Court Clears Air on Auditors' Role in SRS Group Scam

In a significant order delivered on October 28, 2025, the High Court of Punjab and Haryana at Chandigarh granted anticipatory bail to several Chartered Accountants (CAs) implicated in the sprawling financial investigation surrounding the SRS Group of Companies. Justice Anoop Chitkara, presiding over a batch of petitions, ruled that the mere dereliction of professional duty, in the absence of evidence for criminal conspiracy or unjust enrichment, does not warrant custodial interrogation.

Case Background: The SRS Liquidity Crisis

The case stems from a 2018 directive by the Ministry of Corporate Affairs (MCA) to the Serious Fraud Investigation Office (SFIO) to probe 88 companies linked to the SRS Group. Investigators alleged a systematic misappropriation and diversion of loans amounting to approximately ₹1,596.94 crore from a consortium of major public and private banks.

The auditors in question—acting as either Statutory or Internal Auditors for various SRS entities—were accused of certifying falsified financial statements, ignoring “related party” disclosures, and failing to raise red flags regarding “circular trading” and “round-tripping” of funds, which were allegedly used to inflate balance sheets and secure illicit credit limits.

Arguments from Both Sides

• The Petitioners: Counsel for the auditors argued that the SFIO failed to arrest the accused since the inception of the investigation in 2018, noting that the trial court initially issued summons rather than warrants. They contended that there was no criminal intent, asserting that the auditors merely performed their job based on management-provided data, and any errors constituted professional negligence rather than criminal conspiracy.
• The SFIO: The investigative agency vehemently opposed the pleas, arguing that the offences are grave and akin to those under the PMLA and UAPA. They emphasized that the auditors’ failure to verify statutory registers and their complicity in concealing material facts directly facilitated the siphoning of public funds.

Court’s Legal Analysis

Justice Chitkara’s judgment highlights a critical distinction between simple negligence and criminal liability. The Court observed, “If the auditors are not paid anything extra than what they were entitled to, there would be no motive for them to alter the accounts or not give the correct reports intentionally.”

The High Court scrutinized the role of the lending banks, noting that documentation scrutinized during sanctioning—which the CAs were blamed for—interestingly contained no assessment of stock inventory or specific undertakings by these CAs. The Court remarked that the systematic failure involved not just the auditors, but arguably the banks, regulators, and tax authorities themselves.

Key Observations

The judgment is marked by several pointed observations concerning the nature of professional accountability versus criminal intent:

> "The criminal jurisprudence puts the primary burden on the accuser and not on the accused."

> "If there were intentional lapses by Chartered Accountants, why were they not arrested and subjected to a custodial investigation before the complaint was filed?"

> "In the absence of any such undue favors, the culpability is reduced to dereliction of duty, for which custodial interrogation is not required."

Court’s Decision

Citing the principle of parity—following the relief granted to other co-accused statutory auditors—the Court allowed the petitions. The petitioners, including Anuj Agarwal, Khem Chand, and others, were granted anticipatory bail subject to furnishing personal and surety bonds within 15 days.

The Court’s ruling serves as a cautionary tale for investigative agencies, suggesting that without concrete evidence of quid pro quo —such as unjust enrichment or kickbacks—allegations of professional negligence should be handled through civil or professional disciplinary channels rather than pre-trial incarceration.

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Quote for further context: “The siphoning of massive funds points to failures not only of the Chartered Accountants but also of the Regulators and Tax Authorities, as well as loopholes in statutes and rules.”