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2023 (5) TMI 144
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....lleges offences under sections 420/120B of the Indian Penal Code 1860 ('IPC' for short), sections 211/628/227/233 of the Companies Act, 1956 ('1956 Act' for short) and sections 129/447/448 of the Companies Act, 2013 ('2013 Act' for short). 2. Notice on this petition was issued on 25.01.2023; whereupon reply has been filed by the SFIO by way of counter affidavit dated 03.02.2023. Both parties have also filed their respective written submissions in the matter. 3. The court has heard Mr. N. Hariharan, learned senior counsel and Mr. Tanveer Ahmed Mir, learned counsel on behalf of the petitioner. The court has also heard Mr. Ajay Digpaul, learned Central Government Standing Counsel on behalf of the SFIO. BRIEF OVERVIEW 4. M/s. Educomp Solutions Ltd. ('ESL' for short) was incorporated in the year 1994. One Shantanu Prakash was its managing director and his father Jagdish Prakash was a whole-time director. In 2013 ESL faced a severe liquidity crunch for various reasons and had to therefore opt for Corporate Debt Restructuring ('CDR' for short) vide Master Restructuring Agreement dated 25.03.2014 ('MRA' for short) signed with the consortium of lenders (banks) led by the State B....
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....port dated 30.11.2022^1 the SFIO has levelled 11 charges against the petitioner. These have then found their way into the criminal complaint by way of 'findings' of the SFIO. The charges and findings may be collated and summarised in the following extracts from the criminal complaint : 10.1. Commission of fraud in the affairs of the Companies Under Investigation ('CUIs') by using the paper companies (divided in 5 groups); and by siphoning-off funds of CUIs in the accounts of the close associates of Shantanu Prakash, punishable under section 447 of the 2013 Act. The relevant allegations read as under : "Ashish Mittal, Ex-CFO Educomp Group 120. Ashish Mittal joined as Vice President (Finance) in ESL on 01.11.2013 and was promoted to CFO of Educomp Group on 26.05.2014. He resigned on 24.02.2018. He had also given professional services to ESL before joining as CFO of Educomp group through his company namely Lotus Risk Management Pvt Ltd during period FY 2009-10 to FY 2012-13. Further, he had also given services to ESSPL through his company Lotus Risk Management Pvt Ltd during period FY 2013-14 to FY 2014-15. 121. Further, Ashish Mittal had received funds o....
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....ned off from ESL, EISML and ESSPL and routed through the entities of Group I & II." 10.3. Commission of fraud by divesting the share in Vidya Mandir Classes Ltd. (VMC), punishable under section 447 of the 2013 Act. The relevant allegations read as under : "Ashish Mittal, Ex-CFO of ESL 209. He joined as Vice President (Finance) in ESL on 01.11.2013 and was promoted to CFO of Educomp Group on 26.05.2014 and resigned on24.02.2018. Ashish Mittal had attended the Joint Lender Meetings of CDR. As per CDR proposal of ESL, VMC was identified one of the assets to be monetized. He was well aware of the fact that Shantanu Prakash was holding indirectly control of VMC by KBESPL.. 210. The first tranche of sale of VMC was executed when he was CFO of Educomp group and he was well aware that the funds of Rs. 16.33 Crore were arranged from SDPL, SESPL, Progressive Finlease and Group I companies. Further, he was also aware of Rs. 3 Crore arranged from ESSPL and the same were utilized by ELHPL for payment to ICICI bank. Ashish Mittal, Auditor of KBESPL and Ajit Singh, Account of KBESPL used to report him. Further, finalization of the books of accounts of KBESPL was done....
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....the connecting link between Educomp Group and OSN Group. Sanjay Saini admitted that OSNIPPL and OSNBPL were formed on the instructions of Ashish Mittal. 290. Further, he used to instruct and direct Sanjay Saini, promoter and director of OSN group regarding the transactions towards to be made. He admitted that during F.Y. 2009-10 to 2011-12 huge amount of capital advances to OSN group to reduce the fictitious debtors in the books of account of ESSPL. He also admitted that fictitious collection agencies were created to route the monies through entry-operators based at Sirsa which was managed by Mahesh Sharda, Ex-Director of ElSML and he also admitted that OSN group was indirectly controlled by Shantanu Prakash through Sanjay Saini. 291. He admitted that EISML and EPEL had given capital advances to JDMS, Wens Agro which were controlled by CA Deepak Jain. 292. He also admitted that he had routed the funds received through his controlled companies into the. bank accounts of ESSPL. This whole process was opted just to clear the bogus debtors of ESL which were transferred to ESSPL." 10.6. Criminal conspiracy and cheating by siphoning-off funds from EISML thro....
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....es namely Ashish Mittal & Co and Lotus Risk Management Pvt Ltd had given services to OSN Group during the period FY 2010-11 to FY 2011-12. He had also given professional services to ESL before joining the Educomp Group through his company namely Lotus Risk Management Pvt Ltd during the period FY 2009-10 to FY 2012-13. Later on, he joined as Vice President (Finance) in ESL on 01.11.2013 and promoted to CFO of Educomp Group on 26.05.2014 and resigned on 24.02.2018. He was Director (Finance) during period 01.04.2017 to 30.06.2017. He had also given professional services to ESL before joining as CFO of Educomp group through his company namely Lotus Risk Management Pvt Ltd during period FY 2009-10 to FY 2012-13. Further, he had also given services to ESSPL through his company Lotus Risk Management Pvt Ltd during period FY 2013-14 to FY 2014-15 342. He was the virtual CFO of OSN Group till 2011-12. He had given services to OSN Group through his firms and was the connecting link between Educomp Group and OSN Group. 343. During statement on oath Sanjay Saini confirmed that OSNIPPL and OSNBPL were formed on the instructions of Ashish Mittal. He confirmed that OSN group was....
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....r view of financials of ESL for FY 2015-16 and FY 2016-17 punishable under section 129/448 read with section 447 of the 2013 Act. The relevant narration in this regard has only general allegations against all accused persons, with nothing specific cited against the petitioner. PETITIONER'S SUBMISSIONS 11. Mr. Hariharan, learned senior counsel and Mr. Mir, learned counsel for the petitioner have made detailed submissions in the matter. From the oral submissions made and the written submissions filed on behalf of the petitioner, the following may be summarised as the key points raised on the petitioner's behalf : 11.1. The main promoters/alleged beneficiaries in the matter are enjoying interim protection and have been charge sheeted without arrest: 11.1.1. The main promoters of the ESL including the MD/CEO Shantanu Prakash, Whole-Time Director/Chairman Jagdish Prakash and Whole-Time Director Vinod Kumar Dandona were all granted interim protection by a Co-ordinate Bench of this court vide order dated 26.05.2022 in W.P. (Crl) 1242/2022. The interim protection is operative till date. No proceedings have been filed by the SFIO to challenge the interim protecti....
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.... at a time when CDR implementation was in progress and the company's financial transactions were being closely supervised and scrutinized by the Monitoring Institution viz. the State Bank of Patiala, and the Monitoring Committee comprising Axis Bank, ICICI Bank, State Bank of India, IDBI Bank and the State Bank of Patiala. Subsequently, once ESL was admitted for undergoing corporate insolvency resolution process under the Insolvency & Bankruptcy Coder 2016 ('IBC' for short), the management control vested with the Resolution Professional appointed w.e.f. 30.05.2017. Though these were the prevailing circumstances, none of the bankers, banks or members of the lending consortium are accused in the present case, which also belies the allegations against the petitioner. 11.3. The petitioner was not involved in the day-to-day decision making or control of any of the subsidiaries of the ESL: 11.3.1. The petitioner was internally referred to as the Group CFO only to facilitate him to coordinate CDR implementation but there is no Board Resolution of ESL or its subsidiaries (as required under section 203(2) of the 2013 Act), or any filing with RoC appointing him as Group CFO. ....
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.... headed by the Chief Procurement Officer Mansoor Raza, who has not even been made an accused in the case. It was the Procurement Department that prepared purchase orders, made material receipt notes against invoices received by them, and effected payments through cheques signed by the promoters. No purchases or payments were authorized by the petitioner and he was never part of the purchase process. The petitioner was not signatory to the vouchers/cheques issued by ESL. Such papers were signed by Shantanu Prakash, Jagdish Prakash and Pramod Thatoi as per the SFIO's own investigation. 11.5. As per documents relied upon by the prosecution, during the petitioner's tenure only about Rs. 5.76 crore was allegedly transferred out from the accounts of ESL into the accounts of the 65 companies, alleged to be paper companies : 11.5.1. As explained above, such siphoning-off could, if at all, only have been done by the Procurement Department headed by the Procurement Head, which was directly reporting to the main promoter, Shantanu Prakash. Since no vouchers, cheques, invoices were ever signed by the petitioner, he could not have had any knowledge about the transactions relat....
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....he RP ascertained that there was no transaction which fell within the ambit of section 43, 45, 50 or 66 of the IBC viz. that there were no preferential transactions (section 43 of the IBC), undervalued transactions (section 45 of the IBC), extortionate credit transactions (section 50 of the IBC) and fraudulent trading or wrongful trading (section 66 of the IBC) in the accounts of ESL. 11.5.6. The SFIO was also supplied the Axis Bank Fraud Monitoring Report dated 24.07.2020 which names as many as 12 people, but importantly does not name or implicate the petitioner. On the other hand, the said report directly names Shantanu Prakash, VK Dandona, Jagdish Prakash, Rajat Khare, VK Chaudhary, Krishna Pratap Singh, Raman Bajaj, DK Gupta, Pramod That oi, Sunil Malhotra, Mahesh Gandhi, and Abhinav Dhar. However all these accused have been chargesheeted without arrest by the SFIO. 11.6. The amount of Rs. 5.5 crore received by the petitioner from Group 1 Companies, alleged to be paper companies, was only a loan : 11.6.1. In response to this charge, it is the petitioner's contention that the amount of Rs.5.5 crore received by the petitioner was only a loan advanced and arra....
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....of assets. The petitioner was not part of the day-to-day decision making of any of the subsidiaries of the ESL and this has been stated under oath by the main Promoter/Managing Director in his statement tendered under section 217 of the 2013 Act. In fact, in his statement Shantanu Prakash even gives the names of the persons who were in charge of the day-to-day functioning of some of the subsidiaries. 11.8. The charge that the petitioner had transferred Rs. 1.50 crore in Millennium Education Fund, through his wife Poonam Mittal who was an ex-Director, for construction of a school in the name and style of 'The Millennium School' and out of these funds Rs. 0.50 crore was received from Group-1 companies is baseless : 11.8.1. Millennium Education Foundation is a Not-for-Profit company under section 8 of the 2013 Act and is not part of, or related to, the Educomp Group in any manner whatsoever. The petitioner's wife is a lifetime Educator and currently runs a school in a village in NOIDA for underprivileged children. In these circumstances, it was only natural for her to provide her expertise to MEF where she was a Director with insignificant shareholding of less than 1%. She....
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....idiaries; (iii) The petitioner had no role in the land deals arranged by OSN for ESL; he was not involved in price negotiation for these land deals and is not a signatory or witness to any documents related to these deals. The petitioner has received no money pertaining to these transactions. All the MoUs relating to the land deals were signed before the petitioner started giving consulting services to OSN from 1st October 2010 for 10 months. The Hanumangarh land deal was signed on 02.04.2009, the MoU for the Alwar land deal was signed on 25.08.2010 and the MOU for the Hyderabad land deal was signed on 09.09.2010. The sellers of the lands have not incriminated the petitioner in any manner whatsoever regarding the land deals or the fixation of prices. The petitioner never signed any document, cheque or agreement on behalf of OSN. All land deals were signed by Sanjay Saini, Promoter/Director of OSN; (iii) The petitioner quit his consultancy contract with OSN after 10 months, immediately after an Income Tax raid was conducted on OSN in August 2011. It is pertinent to note that the petitioner's Income Tax Assessment Orders for the relevant period (2008-2013) do not im....
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....ioned while he has been judicial custody. He is not a flight risk, as he has travelled aboard on 05 occasions during the course of the investigation and returned in compliance with the orders of the court. 12. The petitioner has relied on the following judgements in support of his contentions : 12.1. Vijay Madanlal Choudhary & Ors vs. Union of India & Ors (2022) SCC OnLine SC 929 at paras 388, 400-401: on the proposition that the court must consider whether the accused possessed the requisite mens rea, and that the court is not required to record a positive finding that the accused has not committed an offence, and is only required to arrive at a finding on the basis of broad probabilities; and that the twin-conditions are not an absolute restraint on the grant of bail. 12.2. Raman Bhuraria vs. Directorate of Enforcement 2023 SCC OnLine Del 657 at paras 57-60 and Paras Mal Lodha vs. Assistant Director, Directorate of Enforcement 2017 SCC OnLine Del 8676 at para 8: on the proposition that at the stage of bail, notwithstanding the admissibility of the retracted statements, the court is to assess whether the same are reliable; and that bail cannot be denied solely on the basi....
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.... be the basis for refusal of bail. 12.12. P Chidambaram vs. CBI (2020) 13 SCC 337 at para 32: on the proposition that mere allegations of the possibility of the accused influencing witnesses or tampering with evidence cannot be grounds to deny bail. 12.13. Mehboob Dawood Shaikh vs. State of Maharashtra (2004) 2 SCC 362 at para 12: on the proposition that a judgment has to be understood in light of the facts of the case. 12.14. Dr Bindu Rana vs. Serious Fraud Investigation Office 2023 SCC OnLine Del 276 at paras 45-47, 55, 59, 62: to assert that the only co-accused who was also in custody, has already been admitted to regular bail. SFIO'S SUBMISSIONS 13. Arguing on behalf of SFIO, Mr Ajay Digpaul, learned CGSC has opposed the grant of bail. Based on the charges placed in the SFIO complaint filed before the learned Special Judge, on the oral submissions made by learned CGSC and the written submissions filed in the matter, the following may be summarised as the key points raised on behalf of the SFIO : 13.1. It is the SFIO's submission that Shantanu Prakash had invested directly as well as through A.P Eduvision, money as promoter's contribution in succeeding year....
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....Companies. 13.5. As for the allegation of commission of fraud by divesting the shares in Vidya Mandir Classes Ltd. ('VMC'), the SFIO says that it was the petitioner's duty to ensure that the implementation of CDR is done in a manner which served the best interests of ESL; and also that the petitioner being CFO was responsible for managing the finances of ESL and had also attended the Joint Lenders Meeting for CDR. Despite the availability of a higher offer from Resonance (another company that was interested in acquiring VMC), that offer was rejected by the management of ESL and instead, a paper company i.e., KBESPL was used to acquire the shares of VMC, so that the control of VMC remained with Shantanu Prakash indirectly. 13.6. Similar is the allegation of commission of fraud in relation to the sale of Mussoorie International School ('MIS'), the allegation being that the petitioner was responsible for managing the finances of ESL, and had also attended the Joint Lenders Meeting for CDR, and was therefore well aware that money was siphoned-off to acquire MIS so that the control of MIS remained indirectly with Shantanu Prakash. 13.7. In response to the reliance placed by the....
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....to acquire various assets has taken place even after 2014. 13.11. Furthermore, the SFIO contends that the petitioner being the CFO, which comes under the ambit of 'key managerial person' as defined under section 2(51) of the 2013 Act, and also thereby under the definition of 'officer in default' under section 2(60) of the 2013 Act, it was his responsibility to implement the CDR process in the best interests of the ESL as well as its lenders. 13.12. It is also submitted that the petitioner has not presented the true facts before this court with regard to the Grant Thornton Report, since, as narrated in the 'Scope of Work' of that report, it is clear that the forensic auditor only examined transactions of more than Rs 1.0 crore (and many such transactions have taken place) and only related-party transactions (which does not include transactions with paper companies); and besides, the forensic audit was done on the basis of Audited Financial Statements of the company (which financial statements were false).Furthermore, it is also pointed-out that the conclusions in the Grant Thornton Report mention that they had undertaken no physical verification, which shows that the forensic ....
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....) 3 SCC 549 at para 7, Satpal Singh vs. State of Punjab (2018) 13 SCC 813 at para 3 and Shiv Shanker Kesari (supra): on the proposition that the phrase "reasonable grounds" in the twin-conditions connote substantial probable cause for believing that the accused is not guilty of the offence he is charged with. DISCUSSION ON LAW 15. Now, of the offences alleged against the petitioner, the one that requires closer consideration is the offence under section 447 of the 2013 Act. It is that offence for which the SFIO is entitled to arrest; and in relation to which the additional twin-conditions in section 212(6) of the 2013 Act are required to be satisfied, while considering grant of bail. 16. A brief discussion of the law on the point is therefore necessary. 17. The twin-conditions contained in section 212(6) of the 2013 Act do not imply that as soon as section 212(6) is triggered, bail must reflexively, immediately or automatically be rejected. Section 212(6) however raises the threshold of satisfaction required of the court while considering the grant or denial of bail. In addition to the usual and ordinary conditions under section 439 Cr.P.C., the court is also required t....
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....d by law, which procedure must not be arbitrary, unfair or unreasonable.^4 The sanctity of personal liberty cannot be waylaid on mere unreasoned ipse-dixit of the public prosecutor. 23. Failure of the public prosecutor to establish foundational facts would necessarily lead the court to be satisfied that there are reasonable grounds for believing that the accused is not guilty. Only when the prosecution is able to cross that threshold - of establishing foundational facts - would the onus shift to the accused to explain his position and to satisfy the court as to reasonable grounds for absence of guilt. The requirement for the public prosecutor to establish foundational facts in the first instance, also flows from the fundamental principle of the law of evidence that the onus lies on the propounder of a fact^5 and the cardinal presumption^6 that all individuals are innocent until proven guilty.^7 24. An insight into how the additional twin-conditions under section 212(6) of the 2013 Act are to be applied, is found in other decisions of the Supreme Court on similar conditions that appear in similar statutes. Some of them are discussed below. 25. In the context of sections 35 ....
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....ations apply against the accused. To reiterate, the opposition by the public prosecutor must be reasoned opposition, supported by valid and relevant reasons. When the public prosecutor opposes a bail plea, he would have to establish foundational facts sufficiently to dislodge the presumption of innocence, and it is only then that the onus of satisfying the stringent twin-conditions would shift onto the accused. To be clear, there is no statutory mandate for the court to depart from the presumption of innocence. 29. Coming back to the present case, section 212(6) of the 2013 Act is actuated when the individual is accused of committing an offence as mentioned in the said section, viz. section 447 of the 2013 Act. However, what is stated in a complaint or the FIR are only allegations, which may or may not be founded on evidence or material. To borrow the words of the Supreme Court in Noor Aga (supra), superficially a case may have an ugly look and thereby, prima facie, shaking the conscience of any court but it is well settled that suspicion, however high it may be, can under no circumstances, be held to be a substitute for legal evidence.^16 Unlike cases of preventive detention, t....
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....cern the following facts on broad probabilities: 34.1. ESL went under CDR vide order Master Restructuring Agreement dated 25.03.2014, which was signed between ESL, State Bank of Patiala (as the Monitoring Institution) and the consortium of banks (as CDR lenders); after which all financial affairs of ESL were conducted under the oversight of the consortium of banks. 34.2. The principal allegation is of siphoning-off about Rs.240 crores from ESL, out of which, the SFIO's own case is that about Rs.235 crores was siphoned-off between FY 2012-13 and FY 2014-15. The petitioner joined as Chief Financial Officer of the company with effect from 26.05.2014, that is to say after about Rs.235 crores had already been allegedly siphoned-off. The petitioner resigned as CFO on 24.02.2018. It is not in dispute that before that the petitioner had been advising ESL as its chartered accountant/financial consultant for many years; and had joined the company as Senior Vice President (Finance) with effect from 01.11.2013 and held that position for about 07 months before he became the CFO. 34.3. During the period before 26.05.2014, the petitioner was not in charge of or in control of the manageme....
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....llegations is of 'round-tripping of money', none of the so-called paper companies or shell companies have been investigated. 34.11. Part of the scope of review by M/s. Grant Thornton was "review of induction of money by Promoters" and the report covers the entire period from 01.04.2012 to 31.03.2016. However, there is no clear inference in that report on this aspect, whereby it would appear that the forensic auditor did not find anything remiss in relation to the induction of promoter's contribution. This does beg the question, that if a forensic auditor did not find anything amiss, then how could the petitioner have found something, in the usual and ordinary course of work. 34.12. The organisational chart shows that ESL was structured in two separate verticals, viz., 'Group CFO' and 'Procurement Head'; and the petitioner was in-charge of the Group CFO vertical, with neither the knowledge nor any control over the functioning of the Procurement Head vertical, which was headed by a different individual viz. Mansoor Raza. The latter is neither an accused nor a witness in the case. 34.13. The assessment orders issued by the Income Tax Department to M/s OSN Infrastructure & Pro....
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....to 24.02.2018. Though it is alleged that he was advising ESL in his professional capacity as a Chartered Accountant/financial consultant even before that, at that time the petitioner was clearly not an officer of the company and could not, therefore, have been a 'key managerial personnel' or an 'officer in default'. 37.2. Even as Senior Vice President (Finance), the petitioner could not have been the final deciding authority in relation to the financial affairs of ESL. Out of the Rs.240 crores alleged to have been siphoned-off from ESL, Rs.235 crores were siphoned-off before 31.03.2015, between FY 2012-13 and FY 2014-15; but the petitioner became CFO only w.e.f. 26.05.2014. 37.3. ESL has undergone a CDR process which commenced with the signing of the Master Re-structuring Agreement dated 25.03.2014, under which the financial affairs of ESL were under the oversight of the consortium of banks, headed by the State Bank of Patiala as the Monitoring Institution. Thereafter, ESL went into bankruptcy and the management and affairs of ESL came under the control of Resolution Professional appointed w.e.f. 30.05.2017. The investigation report dated 07.11.2016 rendered by M/s Grant Thor....
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....sure that the number is kept active and switched-on at all times; 38.3. The petitioner shall ordinarily reside at his place of residence as per records; and shall inform the Investigating Officer in writing at least 07 days in advance if he proposes to change his place of ordinary residence; 38.4. The petitioner shall surrender his passport to the learned Special Judge; and shall not travel out of the country without prior permission of the learned Special Judge; 38.5. The petitioner shall co-operate in any further investigation or proceedings by the Investigating Officer, as and when required; 38.6. The petitioner shall not, whether directly or indirectly, contact nor visit nor offer any inducement, threat or promise to any of the prosecution witnesses or other persons acquainted with the facts of the case. The petitioner shall not tamper with evidence nor otherwise indulge in any act or omission that is unlawful or that would prejudice the proceedings in the matter; and 38.7. In addition to the above condition, it is specifically directed that the petitioner shall also not, whether directly or indirectly, contact or visit or have any transaction with any of the off....