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2024 (12) TMI 1248
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....ndian Penal Code, 1860 (hereinafter "IPC") and Section 13 (2) read with Section 13 (1) (d) of the Prevention of Corruption Act, 1988 (hereinafter "PC Act") and also the proceedings initiated consequent thereto for the commission of the aforesaid offences qua the petitioner (i.e., accused no. 1). 2. M/s Gangakhed Sugar and Energy Ltd., the petitioner herein, is a company involved in the business of Integrated Cane Processing Plant with the manufacturing facilities of sugar, distillery and power in Maharashtra. 3. The respondent no. 1 is the Superintendent of the Banking and Securities Fraud Cell of the Central Bureau of Investigation that has registered the aforesaid FIR. 4. The respondent no. 2 is the Joint Director (Policy) of the Banking and Securities Fraud Section of the Central Bureau of Investigation to whom the complaint was addressed. 5. The respondent no. 3 is an Indian Public Sector bank and the complainant in the present case. 6. The petitioner, when managed and controlled by its erstwhile directors/management, availed credit facilities by the consortium of lenders which was led by UCO Bank (respondent no. 3). The banks sanctioned a term loan with a limit ....
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....shing of the impugned FIR on the following grounds: "...A BECAUSE the Complaint and FIR, to the extent of implication of the Petitioner is totally illegal, arbitrary and bad in the eyes of law and therefore, the same deserve to be quashed. B. BECAUSE a bare perusal of the Complaint and FIR does not disclose any act of the Petitioner or its participation in commission of the alleged crime. In this regard, the Petitioner seeks to rely on the observations of the Hon'ble Supreme Court in State of Haryana and Others v. Bhajan Lal and Other, 1992 Suppl. (1) 335 wherein the Hon'ble Court has defined sufficiently channelized guidelines, to give an exhaustive list of myriad kinds of cases wherein power under Section 482 of the CrPC ought to be exercised. In particular, the Hon'ble Supreme Court, among others, held as under: "102. In the backdrop of the interpretation of the various relevant provisions of the Code under Chapter XIV and of the principles of law enunciated by this Court in a series of decisions relating to the exercise of the extraordinary power under Article 226 or the inherent powers under Section 482 of the Code which we have extracted and reprodu....
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....plied) C. BECAUSE admittedly the purported fraud is alleged to have been committed by the erstwhile directors and management of the Petitioner. A perusal of Complaint filed by Respondent No. 3 would indicate that: a) The complaint pertains to the dealings between the Petitioner and the Complainant since November, 2008; b) The credit facilities were availed in August, 2008; c) On 30.09.2015, the last credit facilities sanctioned/documents were executed by the consortium of lenders which was led by UCO Bank; d) On 31.10.2017, the account of the Petitioner was declared an NPA by UCO Bank; (v) Forensic audit was conducted for a period of 01.04.2011 to 31.03.2017 which purportedly revealed that funds were diverted; e) Instances indicating the purported violations, as highlighted in the complaint, were committed in Financial Years such as 2013-2014, 2014-2015, 2016-2017; and (vii) On 11.05.2020, the bank reported the aforesaid account of the Petitioner as fraud to RBI basis the aforesaid forensic report, which was submitted on 31.10.2019. It is therefore submitted that a perusal of the Complaint would indicate that the allege....
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....r herein), which has been taken over by the Resolution Applicant, will be immune from any prosecution or punishment in relation to the same and investigation, if any, with respect to the same will have no bearing on the Resolution Applicant. In this regard, the Petitioner seeks to place reliance on the following observations of the Hon'ble Supreme Court in Ebix Singapore Private Ltd. v. Committee of Creditors of Educomp Solutions Limited & Anr., 2021 SCC OnLine SC 707: "199. Ebix was responsible for conducting their own due diligence of Educomp and could not use that as a reason to revise/modify their approved resolution plan. In any event, Section 32-A IBC grants immunity to the corporate debtor for offences committed prior to the commencement of CRIP and it cannot be prosecuted for such offences from the date the resolution plan has been approved by the adjudicating authority under Section 31, if the resolution plan results in a change of management or control of the corporate debtor subject to certain conditions. ... Thus, in any case even if it is found that there was any misconduct in the affairs of Educomp prior the commencement of the CIRP, Ebix wi....
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....t offences, should not be penalised for the actions of the erstwhile management of the corporate debtor, unless they themselves were involved in the commission of the offence, or were related parties, promoters or other persons in management and control of the corporate debtor at the time of or any time following the commission of the offence, and could acquire the corporate debtor, notwithstanding the prohibition under Section 29-A. [For example, where the exemption under Section 240-A is applicable.] *** 67. Thus, Section 32A broadly leads to: a. Extinguishment of the criminal liability of the corporate debtor, if the control of the corporate debtor goes in the hands of the new management which is different from the original old management. *** 107. I may draw my final conclusions as under: (a) After passing of the resolution plan under Section 31 of the IBC by the adjudicating authority & in the light of the provisions of Section 32A of the IBC, the criminal proceedings under Section 138 of the NI Act will stand terminated only in relation to the corporate debtor if the same is taken over by a new management...." G. BECAUSE t....
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....126, 1461 of 2019 persons, acquired through crime proceeds and not the assets of the Corporate Debtor which have been financed by creditors and acquired by a bona fide third party Resolution Applicant through the statutory process supervised and approved by the Adjudicating Authority under the IBC. (emphasis supplied) H. BECAUSE Hon'ble Supreme Court in Manish Kumar vs. Union of India, 2021 SCC OnLine SC 30, while dealing with the challenge to constitutional validity of S.32A of IBC, was pleased to, among others, observe as under: "257.... Having regard to the object of the Code, the experience of working of the code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debto....
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....e forensic audit report, which forms the very basis of the Complaint filed against the Petitioner and subsequent registration of FIR, was never shown to the Petitioner, its directors/management. Resultantly, the Petitioner was never given an opportunity to submit a representation before classifying its account as fraud. It is therefore submitted that classification of fraud, based on the forensic audit report, by the Respondent Bank is in violation of the Principles of Natural Justice. In this regard, the Petitioner seeks to rely on the following observations passed by the Hon'ble Supreme Court in State Bank of India & Ors. v. Rajesh Agarwal & Ors. , Civil Appeal. No. 7300 of 2022: "79. ... Consistent with the principles of natural justice, the lender banks should provide an opportunity to a borrower by furnishing a copy of the audit reports and allow the borrower a reasonable opportunity to submit a representation before classifying the account as fraud. A reasoned order has to be issued on the objections addressed by the borrower. On perusal of the facts, it is indubitable that the lender banks did not provide an opportunity of hearing to the borrowers before classifying....
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....mitted that as per the RBI Guidelines," All cases involving more than Rs.25 crore be forwarded to Banking Security and Brand. Cell of the respective centres, which is specialized cell of the Economic Offences Wing of the CBJ for major hank fraud cases'. In the instant matter, ease is registered on the basis of complaint of UCO Bank as Lead Bank of Consortium in the Banking Security Fraud Branch, New Delhi and there is no lack of territorial jurisdiction as CBI is a central agency. 5. That, in reply to the averments made in Para-7 (M) to (O') of the petition, it is submitted that CBl registered the case on the basis of complaint dated 27.1 1.2020 filed by the l ,CO Bank as lead bank on behalf of the consortium, which prima facie discloses the commission of offences punishable under relevant sections of l PC and PC Act. 1988. It is further submitted that it is aliened in the FIR that the fraud period is 2008 to 2017 and the company and its Directors, Guarantors during the relevant period and other unknown persons, are responsible for doing fraud. It is also submitted that FIR is just a document by which process of law comes into motion. The allegations mentioned in t....
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....against prosecution of the corporate debtor and action against the property of the corporate debtor and the successful resolution applicant subject to fulfilment of certain conditions". 19. It is submitted that the CD i.e., the petitioner herein, cannot be prosecuted for the alleged offences committed by the erstwhile management and directors of the petitioner from the date the resolution plan has been approved by the learned NCLT under Section 31 of the IBC if the resolution plan results in the change of management or control of the CD, subject to certain conditions. Moreover, Section 32A of the IBC grants immunity to the CD, even if it is found that there was any misconduct in the affairs of the CD prior to the commencement of CIRP. 20. It is submitted that the learned NCLT accepted the resolution plan of M/s Six Sigma Investment Fund vide order dated 17th February, 2023. Accordingly, the CD, which has been taken over by the resolution applicant, will be immune from any prosecution or punishment in relation to the same and investigation, if any, with respect to the same will have no bearing on the resolution applicant. Reliance in this regard has been placed on paragraph no....
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.... by abusing their official position which is quite apparent and evident from the perusal of the Complaint and FIR. 25. Therefore, in view of the foregoing submissions, it is prayed that the instant petition may be allowed and the reliefs be granted as prayed for. (on behalf of the respondent/CBI) 26. Per Contra, Mr. Rajesh Kumar, learned SPP appearing on behalf of the respondent CBI vehemently opposed the instant petition submitting to the effect that the same is liable to be dismissed being devoid of any merit. 27. It is submitted that from the bare perusal of Section 32A of the IBC, it is clear that the immunity is granted only against the prosecution but no immunity is granted against the continuance of the investigation. 28. It is further submitted that as per the mandate of Section 32A of IBC, a duty is casted upon a CD to provide assistance and cooperation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process. 29. It is submitted that the case is at the investigation stage and the new management of the company is not cooperating in the investigation and is avoiding the notices/emails sent....
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....uss the extent of exercise of inherent powers of this Court under Section 482 of the CrPC (now Section 528 of the BNSS). The Hon'ble Supreme Court, in Neeharika Infrastructure (Supra) (2021) 19 SCC 401, reiterated the principles to be followed while quashing an FIR and held as under: "10.3. Then comes the celebrated decision of this Court in Bhajan Lal [State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335 : 1992 SCC (Cri) 426] . In the said decision, this Court considered in detail the scope of the High Court powers under Section 482CrPC and/or Article 226 of the Constitution of India to quash the FIR and referred to several judicial precedents and held that the High Court should not embark upon an inquiry into the merits and demerits of the allegations and quash the proceedings without allowing the investigating agency to complete its task. At the same time, this Court identified the following cases in which FIR/complaint can be quashed: "102. (1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case agains....
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....l not permit an investigation to go on. 13.4. The power of quashing should be exercised sparingly with circumspection, in the "rarest of rare cases". (The rarest of rare cases standard in its application for quashing under Section 482 CrPC is not to be confused with the norm which has been formulated in the context of the death penalty, as explained previously by this Court.) 13.5. While examining an FIR/complaint, quashing of which is sought, the Court cannot embark upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR/complaint. 13.6. Criminal proceedings ought not to be scuttled at the initial stage. 13.7. Quashing of a complaint/FIR should be an exception and a rarity than an ordinary rule. 13.8. Ordinarily, the courts are barred from usurping the jurisdiction of the police, since the two organs of the State operate in two specific spheres of activities. The inherent power of the court is, however, recognised to secure the ends of justice or prevent the above of the process by Section 482 CrPC. 13.9. The functions of the judiciary and the police are complementary, not overlappin....
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....eedings under Section 482CrPC before it and in what circumstances the High Court would be justified is a further core question to be considered..." 36. Perusal of the aforesaid extracts shows that in terms of the settled position of law, an FIR can be quashed by the High Court - where the allegations made in the FIR do not prima facie constitute any offence or make out a case against the accused, where the uncontroverted allegations made in the FIR do not disclose the commission of any offence, where the allegations made in the FIR are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused, where a criminal proceeding is manifestly attended with mala fides and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge etc. 37. Furthermore, the Hon'ble Supreme Court has time and again reiterated that the power of quashing should be exercised sparingly with circumspection, in the "rarest of rare cases". Additionally, while examining an FIR/comp....
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....ourt as well as this Court to contend that the position of law has been settled and there is no dispute regarding the same. While relying upon the judgment passed by a Coordinate Bench of this Court in Tata Steel BSL Ltd. & Anr. v. Union of India & Anr. 2020 SCC OnLine Del 1985, the learned senior counsel argued that in the said case, the complaint filed by the Serious Fraud Investigation Office was quashed. It has been submitted that in the said case as well, a new management of the petitioner company therein had taken over who were not connected with the previous management, and the Court, bearing in mind the provisions of Section 32A of the IBC, quashed the complaint impugned therein. Therefore, it has been prayed that the instant petition may be allowed. 45. In rival submissions, it has been argued on behalf of the respondent CBI that on the basis of a complaint dated 27th November, 2020 by the UCO Bank/respondent no. 3, an FIR was registered against the petitioner company, its directors/promoters/guarantors and several unknown public servants and private persons, thereby, alleging that the said accused persons, in pursuance of criminal conspiracy among themselves, have defr....
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.... process of law. 49. At last, it has been contended by the respondent CBI that from the bare perusal of Section 32A of the IBC, it is clear that the immunity is granted only against the prosecution but no immunity is granted against the continuance of the investigation. Further, as per the mandate of the said provision, a duly is cast upon a CD to provide assistance and cooperation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process. Additionally, it has also been argued that an FIR is just a document by which process of law comes into motion and the allegations mentioned in the FIR are not the conclusion of investigation. Moreover, the case is at the stage of investigation and final report in the case would be filed in the Court as per law. Therefore, it has been prayed that the instant petition may be dismissed. 50. At the outset, it is noted that the petitioner's contentions with respect to quashing of the impugned FIR is based on multiple grounds which are as follows: a. Immunity from prosecution in terms of Section 32A of the IBC. b. Lack of territorial jurisdiction. c. No....
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....uthority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under this sub-section. (2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not- (i) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (ii) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court. Explanation.-For the pur....
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.... notwithstanding that the CD's liability has ceased. 56. It is further stated in the said provision that no action shall be taken against the property of the CD in relation to an offence committed prior to the commencement of the CIRP where such property is covered under a resolution plan which has resulted in change in control of the CD. 57. Lastly, Section 32A(3) of the IBC states that notwithstanding the immunity given in this Section, the CD and any person who may be required to provide assistance shall extend all assistance and cooperation to any investigating authority investigating an offence committed prior to the commencement of the CIRP. 58. Insofar as the law is concerned, the above narrated statutory provisions are self explanatory and there is no need for any further discussion thereto. However, for the sake of better understanding, this Court has referred to the judgment of the Hon'ble Supreme Court passed in Ebix Singapore Pvt. Ltd. (Supra), wherein, the Hon'ble Court enunciated and discussed the principle, applicability and limitations of Section 32A of the IBC in terms of the immunity of a corporate debtor. The relevant paragraph of the same is as under: ....
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....f directors and officers of the concerned corporate debtor is not absolved and the IBC does not shield individuals from personal criminal liabilities under the Negotiable Instruments Act, 1881. The relevant paragraphs of the same are as under: "...64. P. Mohanraj [P. Mohanraj v. Shah Bros. Ispat (P) Ltd., (2021) 6 SCC 258 : (2021) 3 SCC (Civ) 427 : (2021) 2 SCC (Cri) 818] has harmoniously construed Section 32-A with Section 14 IBC so as to apply to Section 138 NI Act proceedings. Section 32-A(1) is very crucial and hence, is quoted below:...................... 65. Section 32-A IBC has been upheld by this Court in Manish Kumar v. Union of India [Manish Kumar v. Union of India, (2021) 5 SCC 1 : (2021) 3 SCC (Civ) 50]. This Court has held that the said section does not permit the wrongdoer to get away. Thus, if the argument of allowing the signatory/Director to go scot-free after the approval of the resolution plan is accepted the same would run contrary to the legislative intent of Section 32-A which has been upheld by this Court as under : (SCC pp. 170-71, para 326) "326. We are of the clear view that no case whatsoever is made out to seek invalidation of ....
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....iability for an offence committed prior to the commencement of CIRP ceases and the concerned CD shall not be prosecuted for such an offence from the date the resolution plan has been approved. 62. This Court has taken into consideration the entire material placed on record and has discussed the settled position of law in order to understand the immunity granted to a corporate debtor taken over by a new management and the scope of inherent powers of this Court to quash an FIR. 63. In the instant case, it is an admitted position of fact that the impugned FIR pertains to the allegations of commission of fraud and diversion of funds by the petitioner and its erstwhile directors/promoters during the period 2008 to 2017 which is apparent from the bare reading of the complaint and FIR. 64. However, prior to the registration of the FIR in the year 2023, the petitioner company's CIRP commenced vide order dated 10th October, 2019 passed by the learned NCLT. Thereafter, during the pendency of the investigation in the said FIR, the resolution plan submitted by the resolution applicant namely M/s Six Sigma Investment Fund was approved vide order dated 17th February, 2023. The relevant ....
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....s duly entitled to the grant of immunity from any prosecution or punishment in relation to the impugned FIR and investigation thereto under Section 32A of the IBC. In light of the same, this Court finds merit in the instant petition and is of the considered view that the impugned FIR is liable to be quashed. 70. At last, this Court also deems it apposite to state that the present petition has been adjudicated only with respect to the contention of immunity from the prosecution of the CD/petitioner under Section 32A of the IBC and has neither dealt with the issues on merits of the allegations levelled in the impugned FIR nor with the issue of territorial jurisdiction. CONCLUSION 71. Summarily stated, the observations made hereinabove reveal that in view of the undisputed fact that the CIRP in regard to the petitioner company commenced on 10th October, 2019 whereas the FIR was registered on 7th February, 2023 in regard to the alleged offences committed between the year 2008 to 2017, and that the resolution plan of the CD has been approved on 17th February, 2023 by virtue of which a new management has taken over the control of the petitioner/CD; any liability for such offence....