2022 (10) TMI 1275 - HC - Companies Law

Chartered Accountant gets bail in Companies Act fraud case involving fund transfer and gold write-off scheme

K.E. Devarajan Versus The Senior Assistant Director, Chennai

Madras HC granted bail to a petitioner charged under Sections 212(1)(c) and 447 of Companies Act, 2013 for alleged fraudulent transfer of funds and gold ... Seeking grant of bail - implication of a fraudulent scheme of transferring funds from the company to a puppet company - alleged offences punishable under Sections 212 (1)(c) of the Companies Act, 2013 - HELD THAT:- The write-off gold as wastage was in the Financial Year 2014-15 which is before the petitioner's term of directorship, while the fact is that the gold write-off was over a period of three years i.e. Financial Year 2014-15 to Financial Year 2016-17. The petitioner was in-charge of finance and accounts from the year 2011 onwards. As per Section 447 of Companies Act, 2013, the fraud in relation to affairs of a company committed by any person or any other person with connivance in any manner, as such it does not require a person to be director alone to be charged under the Section, rather Section 447 of Companies Act applies to any person who is a party to the fraud. Under Section 170 of the Companies Act, 2013, the appointment of the petitioner was only registered as a Director and no filing as a Key Managerial Personnel was done within 30 days of such appointment. Therefore, he has never been shown as a Key Managerial Personnel of M/s.Surana Corporation Limited in such Register. It is also submitted that all the other accused persons have released on bail except the founders of the company. The petitioner herein is a Chartered Accountant by profession and he had done his duty as a Chartered Accountant, without involving himself in any of the physical activities alleged against the company. Conclusion - The petitioner, despite not being a Key Managerial Personnel officially, was involved in the financial affairs of the companies and could be held liable under Section 447 for fraudulent activities. Considering the facts and circumstances of the case and the period of incarceration suffered by the petitioner from the date of arrest i.e on 05.08.2022, this Court is inclined to grant bail to the petitioner with certain conditions - bail application allowed. The petitioner sought bail after being arrested for alleged offenses under Sections 212(1)(c) of the Companies Act, 2013 related to financial irregularities within the Surana Group of Companies. The prosecution accused the petitioner, a Chartered Accountant, of involvement in fraudulent activities including siphoning off funds and gold, falsifying accounts, and inducing banks to lend money. The key allegations included unauthorized removal of gold, transferring funds to a puppet company, and misrepresenting debt recoverability. The defense argued that the petitioner had resigned before some alleged irregularities occurred and had no direct involvement in the day-to-day operations of the company.The Court considered the petitioner's role, noting his positions as a Director and Vice President in the companies involved. The prosecution highlighted the petitioner's signing of false financial statements and involvement in fraudulent activities. The defense emphasized the petitioner's limited role as a Non-Executive Director and lack of awareness of the alleged misconduct. The Court analyzed the legal framework, including Sections 212 and 447 of the Companies Act, 2013, regarding fraud and liability. It also considered the appointment and responsibilities of Key Managerial Personnel under relevant provisions.The Court found that the petitioner, despite not being a Key Managerial Personnel officially, was involved in the financial affairs of the companies and could be held liable under Section 447 for fraudulent activities. However, considering the petitioner's incarceration since arrest, the Court granted bail with conditions. The petitioner was required to deposit a substantial amount, provide sureties, report to the police regularly, refrain from tampering with evidence or absconding, and face consequences for breaching bail conditions.In conclusion, the Court balanced the seriousness of the allegations against the petitioner with the need for bail due to the period of incarceration. The decision reflected a nuanced understanding of the petitioner's role in the alleged offenses and the legal principles governing liability in financial fraud cases under the Companies Act, 2013.