2022 (10) TMI 1276 - HC - Companies Law

Bail denied in massive corporate fraud case involving 10,000 crore siphoning through shell companies under Section 447

Rahul Dinesh Surana Versus The Senior Assistant Director,

The HC dismissed a bail application under Section 447 of the Companies Act, 2013, involving alleged siphoning of approximately 10,000 crores through shell ... Seeking grant of bail u/s 447 of the Companies Act, 2013 - offence of siphoning of huge public money availed by way of financial assistance from various banks in the name of some shell Companies and puppet Companies - HELD THAT:- On a perusal of the materials available, this court finds that the offence is a serious economic offence of grave magnitude involving around 10,000 crores of hard earned public money. Among other crimes, this sort of white-collar crimes are particularly harmful to society as they are committed by not just literated, but, well educated and influenced persons, who are expected to set a moral example and behave responsibly - if the court finds a prima facie case against the accused in such cases, it cannot come to a satisfaction that there are reasonable grounds for believing that the accused is not guilty of such offence and that he is not likely to commit any offence while on bail as specified in Section 212 (6)(ii) of the Companies Act, 2013. Though there are several statements recorded from the witnesses, the statement recorded from one of the Statutory Auditors viz., Geetha Suryanaranayan under Section 217 of the Companies Act reveals that the petitioner had played a key/pivotal role in the organisation. Further, a perusal of the statements recorded from other witnesses also show that the petitioner is the person, who is responsible for floating puppet and shell Companies in the name of their employees, poor relatives and round tripping and layering of money - A perusal of the materials reveals that the petitioner is the person who has signed in various documents as person in charge of commercial/financial transactions of Surana Power Limited. Apart from the above, the statement recorded from Banvarlal Sharma discloses about the role played by the petitioner and other accused for defrauding the banks and embezzlement of funds. The golden principle has been time and again held by various courts that no person shall be deprived of his life or personal liberty except according to a procedure established by law. But, at the same time, the courts must strike a balance between the interest of the society in general and the right of an accused to personal liberty. Conclusion - This court is of the opinion that the petitioner has not satisfied the conditions imposed under Section 212(6)(ii) of the Companies Act for grant of bail for the offence punishable under Section 447 of the Companies Act. Further, it is a case of economic offence of such a huge magnitude affecting the society and thus, this court find that it is highly premature at this stage to grant bail to the petitioner. Petition dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe primary issue considered by the Court was whether the petitioner, accused of participating in a large-scale financial fraud involving the siphoning of public funds through the Surana Group of Companies, is entitled to bail under Section 447 of the Companies Act, 2013. The Court also examined whether the petitioner satisfied the conditions under Section 212(6) of the Companies Act, 2013, which governs the grant of bail in cases involving serious fraud investigations.2. ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework primarily involved Section 447 of the Companies Act, 2013, which pertains to fraud, and Section 212(6) of the same Act, which imposes stringent conditions for granting bail in cases involving serious fraud investigations. The Court also referenced Section 439 of the Code of Criminal Procedure, 1973, regarding bail provisions, and considered precedents such as Masroor vs. State of Uttar Pradesh and Serious Fraud Investigation Office vs. Nittin Johari, which emphasize a cautious approach in granting bail for economic offenses.Court's Interpretation and ReasoningThe Court highlighted the grave nature of the allegations, involving fraudulent activities that led to a loss of approximately Rs. 10,000 crores to public banks. It emphasized that economic offenses, especially those involving educated individuals in positions of trust, pose a significant threat to societal and economic stability. The Court noted that granting bail in such cases requires a careful balance between individual liberty and societal interests.Key Evidence and FindingsThe Court considered the Serious Fraud Investigation Office's (SFIO) findings, which indicated that the petitioner played a pivotal role in the fraudulent activities of the Surana Group of Companies. Evidence included the creation of shell companies, round-tripping of funds, and false financial representations to banks. Witness statements and documentary evidence pointed to the petitioner's involvement in managing financial transactions and orchestrating fraudulent schemes.Application of Law to FactsThe Court applied Section 212(6) of the Companies Act, 2013, which requires that the Public Prosecutor be given an opportunity to oppose bail and that the Court be satisfied that the accused is not guilty and unlikely to commit further offenses. The Court found that the petitioner did not meet these conditions, as there was substantial prima facie evidence of his involvement in the fraud.Treatment of Competing ArgumentsThe petitioner argued that he was not responsible for the fraudulent activities, citing his role as primarily technical and operational. He also referenced previous legal proceedings where he was not implicated. The prosecution countered that the petitioner was deeply involved in financial management and fraudulent schemes. The Court found the prosecution's arguments more compelling, given the evidence of the petitioner's active role in the fraud.ConclusionsThe Court concluded that the petitioner did not satisfy the conditions for bail under Section 212(6) of the Companies Act, 2013. The evidence suggested a significant role in the fraudulent activities, and the potential risk to public interest and financial stability outweighed the petitioner's right to liberty.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning'Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offences having deep-rooted conspiracies and involving huge loss of public funds need to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of the country.'Core principles establishedThe Court reinforced the principle that economic offenses, especially those involving significant public funds and complex fraudulent schemes, require a stringent approach in bail considerations. The balance between individual liberty and societal interest is crucial, with a focus on the potential impact on public trust and financial stability.Final determinations on each issueThe Court determined that the petitioner was not entitled to bail, given the serious nature of the offenses, the evidence of his involvement, and the failure to meet the statutory conditions for bail under the Companies Act. The petition for bail was dismissed, emphasizing the need for a cautious approach in cases involving significant economic offenses.