2021 (6) TMI 795 - HC - Companies Law

Petition for Anticipatory Bail Denied Due to Failure to Meet Legal Conditions

The court dismissed the petition for anticipatory bail as the petitioner failed to satisfy the twin conditions under Section 212(6) of the Companies Act, ... Seeking grant of Anticipatory Bail - Fraud - fraudulently/illegally obtained loan and siphoning off the funds - petitioner (Director of one company out of group companies) was not summoned or arrested by the Investigating Officer during investigation - Constitutional Validity of Section 212(6) of the Companies Act, 2013 - HELD THAT:- In the present case the petitioner has been summoned vide order dated 03.06.2019 passed by learned Sessions Judge, Gurugram to face trial under Sections 58-A, 211(7), 227 and 628 of the Companies Act, 1956, Sections 74(3), 147, 447 and 448 of the Companies Act, 2013 and Section 477-A of the Indian Penal Code, 1860 - By virtue of power conferred by Section 212(8) of the Companies Act, 2013 the Director, Additional Director or Assistant Director of Serious Fraud Investigation Office authorized in this behalf by the Central Government by general or special order can arrest any person whom he believes on the basis of material in his possession and for reasons to be recorded in writing to be guilty of any offence punishable under sections referred to in Section 212(6) of the Companies Act, 2013 but use of word 'may' in Section 212(8) of the Companies Act, 2013 by the Parliament makes it discretionary for him to arrest or not to arrest such person and it is not mandatory for him to arrest such person. Therefore, the mere fact that the petitioner was not summoned or arrested by the Investigating Officer during investigation does not entitle the petitioner to grant of bail. The question of bail is primarily a matter of judicial discretion and not any right of the accused. The question of grant of bail to the accused has to be decided by the Court on the facts and circumstances of the case in accordance with the provisions regarding grant of bail contained in Chapter XXXIII of the Cr.P.C. and the relevant statute creating the offence and well settled principles guiding exercise of judicial discretion. The provisions of Section 212(6) of the Companies Act, 2013 are pari materia to Section 45 of the Prevention of Money Laundering Act, 2002, Section 37(1)(b) of the Narcotic Drugs and Psychotropic Substances Act, 1985, Section 20(8) of the Terrorist and Disruptive Activities (Prevention) Act, 1987 and Section 21(4) of the Maharashtra Control of Organised Crime Act, 1999 - Constitutional validity of Section 20(8) of the Terrorist and Disruptive Activities (Prevention) Act, 1987 was upheld by Hon'ble Supreme Court in Kartar Singh Vs. State of Punjab [1994 (3) TMI 379 - SUPREME COURT]. Admittedly, petition challenging constitutional validity of Section 212(6) of the Companies Act, 2013 is pending before Hon'ble Supreme Court but mere pendency of the petition challenging constitutional validity of the same does not make the said statutory provision inoperative and does not exclude applicability thereof to the case of the petitioner - In view of the fact that Section 212(6) of the Companies Act, 2013 is pari materia to Section 37(1)(b) of the Narcotic Drugs and Psychotropic Substances Act, 1985, the judicial precedents considering the scope and effect thereof are relevant in considering the scope and effect of Section 212(6) of the Companies Act, 2013. Clause (39) of Section 2 of the Companies Act, 2013 defines “financial institution” as including a scheduled bank and any other financial institution defined or notified under the Reserve Bank of India Act, 1934. Prima facie, ACCSL does not fall within the definition of financial institution. Therefore, statement regarding taking of loan from financial institution in all the above-said balance sheets was false in material particulars. Since in balance sheets for the financial years 2013-14, 2014-15 and 2015-16 ending on 31.03.2014, 31.03.2015 and 31.03.2016 name of ACCSL, from which the term loan was taken, was not mentioned, the facts which were material were omitted - the petitioner having no reasons to doubt him accepted his explanation at face value due to lack of knowledge and inability to understand the intricacies involved in financial matters/accounting process but in view of Section 166(3) of the Companies Act, 2013, the petitioner was under obligation to exercise his duties with due and reasonable care, diligence and independent judgement. No doubt, the petitioner is not accused of having committed the offence of fraud punishable under Section 447 of the Companies Act, 2013 as the investigation did not reveal any role of the petitioner in actual fraudulent loan taking process by Fracton Technologies Pvt. Ltd., but the petitioner has prima facie signed and filed financial statements containing false information knowing it to be false and omitting material information as to material facts knowing it to be material and to have thereby committed offence under Section 448 punishable under Section 447 of the Companies Act, 2013 to which the rigors of twin conditions laid down in Section 212 (6) (ii) of the Companies Act, 2013 are applicable. The Court can not presume absence of guilty mind/mens rea at this stage. Considering serious nature of the economic offences involved, nature of accusation against and role attributed to the petitioner who is alleged to have signed and filed financial statements which were false in material particulars and also omitted material facts, there being no reasonable ground to believe that the petitioner has not committed offence under Section 448 punishable under Section 447 of the Companies Act, 2013 - the petitioner does not deserve grant of anticipatory bail. Application dismissed. Issues Involved:1. Grant of anticipatory bail under Section 438 of the Cr.P.C.2. Applicability of Section 212(6) of the Companies Act, 2013.3. Whether the petitioner committed offenses under Sections 58A, 211(7), 227, 628 of the Companies Act, 1956, Sections 74(3), 147, 447, 448 of the Companies Act, 2013, and Section 477A of the IPC.4. Petitioner’s knowledge and involvement in the alleged fraud.5. Constitutional validity of Section 212(6) of the Companies Act, 2013.6. Comparison with similar cases where bail was granted.Detailed Analysis:1. Grant of Anticipatory Bail under Section 438 of the Cr.P.C.:The petitioner sought anticipatory bail in connection with a complaint filed by the Serious Fraud Investigation Office (SFIO) alleging various offenses under the Companies Act, 1956, Companies Act, 2013, and the IPC. The petitioner argued that he was not aware of the financial intricacies and relied on explanations given by the Chartered Accountant of AGCL. The court, however, emphasized that the petitioner, as a director, was under obligation to exercise due care, diligence, and independent judgment as per Section 166(3) of the Companies Act, 2013.2. Applicability of Section 212(6) of the Companies Act, 2013:The court discussed the twin conditions under Section 212(6) of the Companies Act, 2013, which bar the release of a person on bail unless the court is satisfied that there are reasonable grounds for believing that the accused is not guilty and that he is not likely to commit any offense while on bail. The court noted that these conditions are mandatory and cumulative, and the petitioner failed to satisfy the first condition as there were no reasonable grounds to believe that he had not committed the offense.3. Whether the Petitioner Committed Offenses:The investigation revealed that the petitioner, as a director of Fracton Technologies Pvt. Ltd., signed and filed financial statements containing false information and omitted material facts. The company obtained loans from ACCSL, which were shown as secured loans from a financial institution, contrary to the actual facts. The court found that the petitioner had prima facie committed offenses under Section 448 punishable under Section 447 of the Companies Act, 2013.4. Petitioner’s Knowledge and Involvement:The petitioner claimed ignorance of financial matters and relied on explanations from the Chartered Accountant. However, the court held that the petitioner, as a director, was responsible for exercising due care and diligence. The court found that the petitioner knowingly signed and filed false financial statements, thereby committing the alleged offenses.5. Constitutional Validity of Section 212(6) of the Companies Act, 2013:The petitioner argued that the twin conditions under Section 212(6) are unconstitutional, relying on the Supreme Court's judgment in Nikesh Tarachand Shah v. Union of India. However, the court noted that the constitutional validity of Section 212(6) is pending before the Supreme Court, and mere pendency does not make the provision inoperative. The court also referred to other statutes with similar provisions that have been upheld by the Supreme Court.6. Comparison with Similar Cases:The petitioner compared his case with others who were granted bail, arguing for parity. The court distinguished the cases, noting that those individuals were not accused under Section 447 of the Companies Act, 2013, or were granted bail under specific conditions not applicable to the petitioner. The court emphasized the serious nature of the economic offenses involved and the petitioner’s role in signing and filing false financial statements.Conclusion:The court concluded that the petitioner failed to satisfy the twin conditions under Section 212(6) of the Companies Act, 2013, and did not deserve anticipatory bail. The petition was dismissed, considering the serious nature of the economic offenses and the petitioner’s involvement in signing and filing false financial statements.