2019 (9) TMI 570 - SC - Indian Laws

Supreme Court overturns bail in Companies Act fraud case

Serious Fraud Investigation Office Versus Nittin Johari & Another

The Supreme Court set aside the High Court of Delhi's order granting bail to Respondent No. 1 in a fraud case under the Companies Act, 2013. The Supreme ... Grant of Bail - commission of fraud punishable under Section 447 of the Companies Act, 2013 - siphoning off of funds - fraudulent availment of CENVAT Credit - FY 2009-10 to FY 2016-17 - HELD THAT:- It must be noted that even as per Section 212(7) of the Companies Act, the limitation under Section 212(6) with respect to grant of bail is in addition to those already provided in the Cr.P.C. Thus, it is necessary to advert to the principles governing the grant of bail under Section 439 of the Cr.P.C. Specifically, heed must be paid to the stringent view taken by this Court towards grant of bail with respect of economic offences. The High Court in the impugned order has failed to apply even these general principles. The High Court, after referring to certain portions of the complaint to ascertain the alleged role of Respondent No. 1, came to the conclusion that the role attributed to him was merely that of colluding with the co-accused promoters in the commission of the offence in question - this vague observation demonstrates non-application of mind on the part of the Court even under Section 439 of the Cr.P.C., even if we keep aside the question of satisfaction of the mandatory requirements under Section 212(6)(ii) of the Companies Act. The High Court has failed to apply its mind to all the circumstances that were required to be considered while granting bail, particularly in relation to economic offences - Matter remanded to High Court with a request to the High Court to decide the bail application afresh at an early date, in accordance with law. Issues Involved:1. Grant of bail to Respondent No. 1 by the High Court of Delhi.2. Allegations of fraud under Section 447 of the Companies Act, 2013.3. Applicability of Section 212(6)(ii) of the Companies Act, 2013.4. Consideration of economic offences in bail applications.5. Parity in bail decisions with co-accused.Issue-wise Detailed Analysis:1. Grant of Bail to Respondent No. 1 by the High Court of Delhi:The appeal challenges the High Court of Delhi's order granting bail to Respondent No. 1 in Bail Application No. 1971/2019. The Supreme Court found that the High Court failed to apply general principles governing bail and did not adequately consider the gravity of the economic offences involved. The High Court's decision was based on 'broad probabilities' without sufficient reasoning, leading to the Supreme Court setting aside the impugned order and remanding the matter for reconsideration.2. Allegations of Fraud under Section 447 of the Companies Act, 2013:The prosecution alleged that from FY 2009-10 to FY 2016-17, promoters of Bhushan Steel Ltd. (BSL) used a network of 157 companies to siphon off funds, causing a wrongful loss of Rs. 20,879 crores to banks and financial institutions. Respondent No. 1, as CFO and Whole Time Director (Finance) of BSL, was accused of playing a central role in these frauds, including manipulating financial statements and using fraudulent letters of credit.3. Applicability of Section 212(6)(ii) of the Companies Act, 2013:Section 212(6)(ii) imposes mandatory conditions for granting bail, requiring the court to be satisfied that there are reasonable grounds for believing the accused is not guilty and unlikely to commit an offence while on bail. The Supreme Court emphasized the need to adhere to these conditions, noting that the High Court did not properly address them. The Supreme Court refrained from commenting on the constitutionality of this section due to pending challenges.4. Consideration of Economic Offences in Bail Applications:The Supreme Court highlighted the need for a stringent approach towards economic offences, referencing Y.S. Jagan Mohan Reddy v. CBI, which emphasized the serious nature of economic offences and their impact on the national economy. The Court criticized the High Court for not considering the gravity of the offence and the substantial loss to public funds.5. Parity in Bail Decisions with Co-accused:The High Court's decision was influenced by the fact that co-accused Neeraj Singal had been granted bail and another co-accused, Brij Bhushan Singal, had not been arrested due to old age. The Supreme Court noted that the High Court should not have been influenced by these factors, especially given the peculiar circumstances and the pending proceedings related to the constitutionality of Section 212(6)(ii).Conclusion:The Supreme Court set aside the High Court's order granting bail to Respondent No. 1 and remanded the matter for reconsideration, directing the High Court to decide the bail application afresh in accordance with the principles governing bail under Section 439 of the Cr.P.C. and the mandatory conditions under Section 212(6)(ii) of the Companies Act. Respondent No. 1 was to remain in custody pending the High Court's decision.