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2018 (9) TMI 53
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.....M.A.No.30267/2018 1. The prayer in the present application is for an ad interim order for release of the Petitioner from 'illegal' judicial custody. Background facts 2. The background facts are that the Petitioner was arrested on 8th August 2018 pursuant to an investigation being carried out by the Serious Fraud Investigation Office ('SFIO') (Respondent No.2) into the affairs of Bhushan Steel Limited ('BSL') and Bhushan Steel and Power Limited ('BSPL'). This investigation was pursuant to an order dated 3rd May 2016 issued by the Ministry of Corporate Affairs ('MCA'), Government of India under Section 212 (1) (c) of the Companies Act, 2013 ('Companies Act') which directed investigation into not only the affairs of BSL and BSPL but thirteen other group companies, twelve of BSPL and one of BSL. The transactions which were asked to be investigated were for the period between Financial Years 2007-08 to 2014-15. 3. The broad allegations against the Petitioner, as stated by the SFIO in its application dated 9th August 2018 before the Special Judge (Companies Act), Dwarka Courts seeking his remand to judicial custody, are that he and his father Mr. B.B. Singal, the promoters of BSL, i....
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....accused during examination sought under Section 217 (4) of the said Act." The Special Court observed that the file of the IO had been perused. It was noted that statements of a few persons had been recorded on 11th, 13th, 16th and 17th August 2018. Consequently, the judicial custody was extended till 1st September 2018. The Special judge then noted: "In view of this, while exercising powers u/s 167 Cr PC r/w/s 436 (1) (c) of the Companies Act 2013, judicial custody of the accused is extended for 14 days i.e. till 01.09.2018....the first application of SFIO is allowed." However, as regards the second application, the Special Judge noted that the present petition had been filed before this Court and granted one opportunity to the defence. The application was listed for 24th August 2018. 8. Before this Court, the writ petition was first listed for hearing on 20th August 2018. Notice was issued and accepted by the Respondents, who were already present on advance notice. The order passed by the Court on that date noted: "3. Mr. Tushar Mehta and Ms. Maninder Acharya, learned Additional Solicitors General of India vehemently oppose the grant of any interim relief stating that the Respo....
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....red with regard to the maintenance of files and records relating to the investigations in the SFIO. A separate note of submissions in 43 pages was also tendered on behalf of the SFIO. The application was further heard on 27th August 2018 on which date orders were reserved. On that date, the Petitioner tendered a reply to the affidavit dated 24th August 2018 of the SFIO. Challenge to validity of Section 212 (6) and (8) 12. One prayer in the main writ petition pertains to the constitutional validity of Sections 212(6) (ii) and 212 (7) Companies Act on the ground of their being violative of Articles 14 and 21 of the Constitution of India. Both these provisions pertain to the grant of bail to an accused under the Companies Act where in the context of the offence of fraud under Section 447 Companies Act, the offence has been made cognizable and the grant of bail made subject to a very high threshold of the arrested person having to prove that he is not guilty of the offence as a precondition to grant of regular bail. According to the Petitioner, a similarly worded provision of the PMLA, i.e. Section 45, was struck down by the Supreme Court as unconstitutional in Nikesh Tarachand Shah ....
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.... of this Act shall be cognizable and no person accused of any offence under those sections shall be released on bail or on his own bond unless- (i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and (ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail: Provided that a person, who, is under the age of sixteen years or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs: Provided further that the Special Court shall not take cognizance of any offence referred to this subsection except upon a complaint in writing made by- (i) the Director, Serious Fraud Investigation Office; or (ii) any officer of the Central Government authorised, by a general or special order in writing in this behalf by that Government." 16. Section 212 (7) Companies Act states that the limitation on granting of bail specified in Section 212 (6) is in addition to the limitations under the Cr PC or any other law for the time being in force on granting....
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....orm of the 'Arrest Order' is appended to the SFIO Arrest Rules. It is addressed to the person arrested. Column 15 thereof is titled "grounds of arrest with sections under which arrested." It is this Arrest Order which in terms of Rule 4 is required to be served on the person arrested. 20. The preparing of the investigation report by the SFIO is to be supervised by the central government. Further, the central government has to direct the further prosecution by the SFIO of the company that is under investigation and its officers or employees or any other person directly or indirectly connected with the affairs of the company. The said provisions read thus: "212 (11) The Central Government if so directs, the Serious Fraud Investigation Office shall submit an interim report to the Central Government. (12) On completion of the investigation, the Serious Fraud Investigation Office shall submit the investigation report to the Central Government. (13) Notwithstanding anything contained in this Act or in any other law for the time being in force, a copy of the investigation report may be obtained by any person concerned by making an application in this regard to the court. (14) On rece....
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.... in relation to which the offence is committed or where there are more Special Courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned; (b) where a person accused of, or suspected of the commission of, an offence under this Act is forwarded to a Magistrate under sub-section (2) or sub-section (2A) of section 167 of the Code of Criminal Procedure, 1973 (2 of 1974), such Magistrate may authorise the detention of such person in such custody as he thinks fit for a period not exceeding fifteen days in the whole where such Magistrate is a Judicial Magistrate and seven days in the whole where such Magistrate is an Executive Magistrate: Provided that where such Magistrate considers that the detention of such person upon or before the expiry of the period of detention is unnecessary, he shall order such person to be forwarded to the Special Court having jurisdiction; (c) the Special Court may exercise, in relation to the person forwarded to it under clause (b), the same power which a Magistrate having jurisdiction to try a case may exercise under section 167 of the Code of Criminal Procedure, 1973 (2 of 1974) in relation to an ac....
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.... (8) states that he should be "informed" of the grounds of arrest, Rule 4 of the SFIO Arrest rules read with the Arrest form appended thereto mandates serving upon the Petitioner the copy of the Arrest Order containing the grounds of arrest in Column 15. Even till the filing of the present petition or even thereafter the Arrest order was not served on the Petitioner. 27. On perusing the files, the Court noticed that the proposal placed before the Director SFIO was for the arrest of the Petitioner and one other person in exercise of the powers under Section 212(8) Companies Act. This proposal was approved. Yet for some unexplained that other person has not been arrested till date. It appears prima facie that the SFIO was selective about whom it wanted to arrest. Further despite the names of several individuals finding mention in the notes, whose culpability is more or less similar to that of the Petitioner, the coercive provision of arrest has been exercised only qua the Petitioner. Applicability of the Cr PC provisions 28. The submission on behalf of the SFIO is that Section 212 of the Companies Act is a code by itself as far as the procedure for arrest, investigation and prosec....
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....nt (which is the procedure envisaged under the Cr PC for non-cognizable offences) or the investigation report itself. In any event, it is submitted that even for the arrest of a person who is the subject matter of the investigation, the SFIO has to be satisfied that he is guilty of an offence and that is the very same standard that will have to be met for filing the investigation report under Section 212(15) Companies Act. Therefore, the stage at which the SFIO can go in for an arrest will have to be upon the completion of the investigation and not at its commencement. 32. The above submissions have been considered. The attempt by the SFIO to exclude the applicability of the Cr PC at this stage is prima facie not convincing. It appears that Section 438 Companies Act is clear that unless explicitly excluded by any provision f the Companies Act, the Cr PC would apply to the investigation and prosecution of all offences. Section 212 (6) excludes the applicability of the Cr PC only for the limited purpose of treating the offence under Section 447 cognisable and not for the entire procedure to be associated with such 'deeming' nature of the offence. In Deepak Mahajan (supra) it was not....
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....f a person under Section 35 (2) FERA, the Supreme Court did observe as under: "113. Though an authorised officer of Enforcement or Customs is not undertaking an investigation as contemplated under Chapter XII of the Code, yet those officers are enjoying some analogous powers such as arrest, seizures, interrogation etc. Besides, a statutory duty is enjoined on them to inform the arrestee of the grounds for such arrest as contemplated under Article 22(1) of the Constitution and Section 50 of the Code. Therefore, they have necessarily to make records of their statutory functions showing the name of the informant, as well as the name of the person who violated any other provision of the Code and who has been guilty of an offence punishable under the Act, nature of information received by them, time of the arrest, seizure of the contraband if any and the statements recorded during the course of the detection of the offence/offences." (emphasis supplied) 36. Here in the Companies Act, the Cr PC provisions are not per se excluded except in a limited context of treating Section 447 as a cognisable offence. Section 438 of the Companies Act makes this clear. If the investigative report fil....
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.... itself that the remand or extension thereof is warranted. All of this is relevant to test the legality of the arrest. As explained in State of Punjab v. Davinder Pal Singh Bhullar (2011) 14 SCC 770: "It is a settled legal proposition that if initial action is not in consonance with law, all subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order. In such a fact-situation, the legal maxim "sublato fundamento cadit opus" meaning thereby that foundation being removed, structure/work falls, comes into play and applies on all scores in the present case." Retrospectivity of the provisions 39. Now to the point concerning retrospectivity of the provisions. It will be recalled, that it was only with effect from 25th May 2015 that Section 212 (6) Companies Act stood amended and the offence of 'fraud' under Section 447 Companies Act was made cognizable. Prior thereto, the offence under Section 447 Companies Act was non-cognizable and the restrictions on the grant of regular bail imposed under Section 212 (6) Companies Act did not apply thereto. The investigations into the affairs of BSL and BSPL were ordered on 3rd May 2....
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....h the affairs of the company." It is not the disjunctive "or" that is used between the expressions 'the company' and 'its officers or employees'. Takeover by the Tata Group 43. At this juncture it requires to be noticed that in the remand application dated 9th August 2018, it is stated in para 5 that: "The Committee of Creditors of Lenders Bank was constituted and on 18.7.2018, as per the resolution plan approved by Hon'ble NCLT, New Delhi, Bhushan Steel Ltd. was transferred to Tata Group for a consideration of around 35,000 crores." 44. There is no mention of this fact anywhere in the notes of investigation by the SFIO that were shown to this Court. The Court finds from the noting of 1st July 2017 in the file of the SFIO, that BSL's account was classified as 'fraud'. Further it is seen that although in the remand application it is stated that a Resolution Professional (RP) was appointed under the Insolvency and Bankruptcy Code 2016 (IBC) by the National Company Law Tribunal (NCLT) on 26th July 2017 due to non-payment of loans, this fact does not from part of the notes of investigation. 45. Under Section 15 IBC, there has to be a public announcement of the corporate insolvency....
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....he offence under Section 447 Companies Act was of an extremely heinous nature and should be viewed as being as serious as the offences under the legislations to counter terrorist crimes and drug related crimes. 48. The Court finds that, notwithstanding the fact that the phraseology of Section 45 PMLA differs slightly from Section 212 (6) Companies Act, what also weighed with the Supreme Court in Nikesh Tarachand Shah (supra) was its view that Section 45 PMLA is "a drastic provision which turns on its head the presumption of innocence which is fundamental to a person accused of an offence". The Supreme Court further observed as under: "Before application of a section which makes drastic inroads into the fundamental right of personal liberty guaranteed by Article 21 of the Constitution of India, we must be doubly sure that such provision furthers a compelling State interest for tackling serious crime. Absent any such compelling State interest, the indiscriminate application of the provisions of Section 45 will certainly violate Article 21 of the Constitution. Provisions akin to Section 45 have only been upheld on the ground that there is a compelling State interest in tackling crim....
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.... and non-bailable and to which Section 212 (6) Companies Act squarely applies. Where the Petitioner has a prima facie case in his challenge to the constitutional validity of Section 212 (6) Companies Act, to relegate him to the Special Court for the purposes of regular bail at this stage would frustrate the very purpose of his filing the present petition. 54. As already noticed Section 212 (6) Companies Act places an onerous burden on the Petitioner. For the purposes of arrest, the SFIO is to be satisfied that the Petitioner has been guilty of the offence under Section 447 Companies Act and yet, for the purposes Section 212(6) Companies Act, if the Petitioner has to show that he is in fact not guilty of the offence. It would be impossible for the Special Judge, if he is satisfied with the validity of the arrest under Section 212 (8) Companies Act to hold, for the purposes of Section 212 (6) (ii) Companies Act, that the Petitioner is not guilty of the offence. 55. There is another practical aspect that arises in the present case. All that has been provided to the Petitioner at this stage, even 20 days after his arrest, is a remand application which is, at best, sketchy. It only ma....
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....ner on 27th September 2014, subject to conditions, two of which were that (i) he should surrender his passport in the Court and (ii) he should not leave the country without the prior permission of that Court. It is submitted that in the four years since, there has not been a single instance of the Petitioner violating the conditions of bail. He is stated to have travelled abroad hundreds of times and has returned to India each time. This was in fact taken note of by the Special Judge (CBI-05) while passing an order on 27th January 2016 in an application filed by the present Petitioner seeking modification of the above two conditions. 59. The CBI Court in the above order dated 27th January 2016 noted that "the applicant has been granted permission on various occasions and he has complied with the conditions each time." The CBI Court then substituted the above conditions in the earlier order dated 27th September 2014 with the following conditions: "(i) The applicant shall not leave the country without informing the court 03 days in advance of his visiting abroad and shall furnish the complete itinerary stating the country/countries which he intends to visit and the period of his st....
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....he grounds of arrest would be governed by the decision of this Court in Moin Akhtar Qureshi v. Union of India [decision of a Division Bench of this Court in W.P. (Crl) 2465/2017 dated 1st December 2017] notwithstanding the reference of the correctness of that decision to a larger bench in Rajbhushan Omprakash Dixit v. Union of India (2018) 1 JCC 506. Ms. Acharya submitted that the decisions of the Co-ordinate Bench of this Court in Vakamulla Chandrashekhar v. Directorate of Enforcement [decision of a Division Bench of this Court dated in W.P. (Crl) 852/2017 8th May 2017] and Moin Akhtar Qureshi (supra) would continue to hold the field. 63. The above preliminary objection has been considered. There are several prayers in the main writ petition, one of which seeks the issuance of writ of habeas corpus. The other prayers in the writ petition pertain to the constitutional validity of Sections 212 (6)(ii), 212 (7) and 212 (8) of the Companies Act as being violative of Articles 14 and 21 of the Constitution of India. This Court has already observed earlier that the Petitioner has a prima facie case as far as the said challenge is concerned. 64. According to Ms. Acharya, Prayer 'B' is n....
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....f those very decisions. In the circumstances, this Court, which incidentally comprises the same Judges who passed the order in Poonam Malik (supra) on 10th August 2018, hereby clarifies that its observation in para 4 of the said order that the legal position concerning the need to provide an arrestee the grounds of arrest in writing stood governed by the decision in Moin Akhtar Qureshi (supra) is incorrect. That observation in para 4 of the order in Poonam Malik (supra) is hereby recalled. 68. At the highest, it could be argued that neither the decisions in Moin Akhtar Qureshi (supra) and Vakamulla Chandershekhar (supra) on the one hand and Rajbhushan Omprakash Dixit (supra) on the other, which seek to interpret Section 19 of the PMLA, should be considered while interpreting Section 212 (8) Companies Act. Going by that proposition, Section 212 (8) Companies Act would have to be interpreted on first principles without reference to the above decisions. That is the prima facie exercise which has been undertaken in this order earlier. 69. In any event, therefore, this would not impact the maintainability of this petition which inter alia challenges the constitutional validity of Sect....