2023 (11) TMI 1413 - HC - Companies Law

Alleged diversion of housing project funds by company signatory u/s447 fraud charge; regular bail denied for investor harm

Regular bail was sought in an offence under s. 447 Companies Act alleging serious fraud through diversion and misuse of project funds by an accused acting ... Seeking grant of Regular bail - commission of serious fraud - diversion of funds - funds that are being utilized/mis-utilized belong to the persons belonging to lower middle class and lower income groups - mis-use of funds in the capacity of authorized signatory - offence punishable under Section 447 of the Companies Act - HELD THAT:- The allegation against the petitioner is of having misused his position as an authorized signatory of ABL-the company. It has also come on record that the amounts which were being used by ABL for its project which the petitioner is accused of having misused in fact were the amounts that form liability of ACCSL-a cooperative society. Meaning thereby, that ultimately it is the lower income group innocent persons who were investing these monies in the hope of getting their own house. This Court does not find that it is a case for grant of bail to the petitioner - bail application dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether regular bail should be granted where the petitioner is arraigned for an offence punishable under Section 447 of the Companies Act, 2013, on allegations of siphoning/diversion of project funds by misuse of position as authorised signatory, and where the funds are stated to represent liability ultimately borne by a cooperative society comprising lower income investors. ISSUE-WISE DETAILED ANALYSIS 1. Grant of regular bail in allegations of fraud under Section 447 of the Companies Act, 2013 involving alleged siphoning/diversion of funds Legal framework (as discussed by the Court): The Court considered the petitioner's arraignment for an offence punishable under Section 447, and reproduced the provision, including its emphasis on 'fraud' as including abuse of position with intent to deceive or gain undue advantage or injure interests, and the enhanced seriousness where 'public interest' is involved. Interpretation and reasoning: The Court assessed the allegations as being of misuse of the petitioner's position as an authorised signatory in relation to the project's accounts. The Court treated as significant that the monies allegedly misused were not merely company funds in the ordinary sense but were stated to constitute liability of a cooperative society, implying that the ultimate impact would fall upon lower income group investors who contributed funds with the expectation of housing. On this factual premise, the Court regarded the allegations as serious in nature and directly material to bail. Conclusions: The Court held that, in view of the allegations and their stated public impact, it was not a case for grant of bail, and dismissed the bail prayer.