AI Drafter 
TaxTMI 
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2025 (12) TMI 460
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....dl. Sessions Judge - 03/Special Judge (Companies Act), Dwarka Court, New Delhi in CC No. 300/2019 ("Complaint") for the offence's punishable u/s Sections 68, 221 r/w 209, 628, 542 of the Companies Act, 1956 and under Section 449 of the Companies Act, 2013 and Summons dated 13.10.2022 received on 12.12.2022 and 11.12.2022 respectively qua the Petitioners. b. Grant such other or further relief(s) as this Hon'ble Court may deem fit and proper in the facts of the case." 2. The present petition is preferred by Mr. Namit Arora, i.e., petitioner no. 1 and Mr. Rahul Raisurana, i.e., petitioner no. 2, and they are hereinafter referred to as the "petitioners". 3. The case of the prosecution as per the complaint filed by the respondent/SFIO is as under: - (i) Genesis of the complaint lies in the order dated 10.02.2016, passed by this Hon'ble Court in Co. Pet. No. 267/2014, titled as "Bharat Bhushan Bansal v. Bush Foods Overseas Pvt. Ltd.", whereby Serious Fraud Investigation Office/Respondent (hereinafter referred to as "SFIO") was directed to investigate into the affairs of Bush Foods Overseas Private Limited (hereinafter referred to as "BFOPL"); (ii) Upon co....
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.... 31.05.2011 and 24.09.2012, during which various financial and operational matters were deliberated. The petitioners were also involved in preparation of BFOPL's financial statements and in discussions on the Information Memorandum, due diligence reports, and related documentation prepared for potential investors; (ix) Subsequently, BFOPL entered into an agreement dated 06.08.2012 with KPMG Advisory Services Pvt. Ltd. (hereinafter referred to as "KPMG") for preparation of an "Information Memorandum and Databook" for prospective investors. The said documents were to form the basis for valuation and presentation of BFOPL's financial position before prospective acquirers; (x) Basis the aforesaid, Hassad Netherlands B.V. (hereinafter referred to as "Hassad"), a subsidiary of Hassad Food Company Q.S.C., Qatar, expressed its interest in acquiring majority stake in BFOPL. Before the acquisition, 'Hassad' conducted an extensive financial, legal and commercial due diligence through professional firms; (xi) An Offer Letter was addressed to BFOPL by 'Hassad', expressing its intent to acquire a majority stake in BFOPL. The offer envisaged acquisition of equity shares....
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....ber 2012, BFOPL had affected sales amounting to INR 291.89 Crores. Basis the said report, 'Hassad' agreed that the held-back portion of the sale consideration would be released only after it was confirmed that the sale proceeds had been received in BFOPL's bank accounts. Subsequently, Deloitte issued a certificate dated 11.03.2013, stating that the full amount of INR 291.89 Crores had been duly received in BFOPL's bank accounts; (xvii) After completion of the acquisition, 'Hassad' became the majority shareholder of BFOPL. Mr. Virkaran Awasty continued as the Managing Director and Chief Executive Officer, while new directors representing 'Hassad', were appointed to the Board alongside, Mr. Vinod Sirohi and Mr. Sai Chandrasekhar; (xviii) After completion of the acquisition process, Mr. Virkaran Awasty transferred USD 1,000,000/- on 10.04.2013 and USD 1,500,000/- on 12.04.2013 to M/s Harin Ventures Limited, a company incorporated in Dubai, which was found to be under the control of Mr. Sai Chandrasekhar. Further, Mr. Virkaran Awasty, through his proprietary concern V & R Overseas, transferred INR 5 Crores on 02.04.2013 to one Mr. R.V. Gowda for the purchase of proper....
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.... breach of trust, and falsification of accounts by the promoters and key managerial personnel of BFOPL. The complaint was duly registered and subsequently an FIR was lodged, bearing No. 136/2014, PS: EOW, under Section(s) 409, 420 and 120-B of the Indian Penal Code, 1860; (xxiv) Around the same time, several banks issued demand notices under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (hereinafter referred to as "SARFAESI Act") for recovery of their dues. On behalf of BFOPL, 'Hassad' repaid dues amounting to INR 442.68 Crores to nine Indian banks and USD 8.14 Million to three foreign banks; (xxv) In an effort to revive its operations, the Board of Directors of BFOPL, in its meeting dated 09.09.2014, appointed Alvarez & Marshal India Pvt. Ltd. as restructuring consultants, and new directors were appointed in BFOPL; (xxvi) It was revealed during the investigation that Mr. Sai Chandrasekhar, who was earlier employed as Staple Food Manager with Hassad Food Company Q.S.C., colluded and conspired with Mr. Virkaran Awasty and the petitioners, by providing vital insider information to ....
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....ad', despite their knowledge of BFOPL's precarious financial condition and non-existent inventory. The petitioners are alleged to have colluded in continuation and concealment of fraudulent practices, misrepresented the financial position of BFOPL and made false statements under oath during investigation. SUBSEQUENT INVESTIGATION AND PROSECUTION (xxxii) On the basis of complaint lodged by 'Hassad' with EOW, an FIR bearing No. 136/2014 was registered at PS: Mandir Marg, EOW, under Section(s) 409, 420, and 120-B IPC (hereinafter referred to as "EOW FIR") against BFOPL, its directors, including the petitioners; (xxxiii) A Company Petition, bearing No. 267/2014, was preferred by Mr. Bharat Bhushan Bansal, a creditor of BFOPL, on account of failure of BFOPL to pay a sum of INR 6,94,61,376/. It was alleged that cheques amounting to INR 6,94,00,000/- issued by BFOPL towards discharge of its liability were dishonoured upon presentation. The said petition was admitted by this Court and vide order dated 10.02.2016, in the said petition, this Court directed SFIO to investigate into the affairs of BFOPL; (xxxiv) Pursuant to lodging of the EOW FIR, the petiti....
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....0/ 468/ 471/ 120-B of the IPC and 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988. The said complaint alleged that BFOPL and its directors had induced the consortium of banks, led by Bank of India, to sanction and disburse various credit facilities, and thereafter diverted the loan proceeds and falsified their financial statements, thereby causing the consortium members a loss of INR 163.64 Crores; (xl) The petitioners were exonerated by the CBI vide final closure report dated 28.11.2024, wherein the petitioners were not charge sheeted and instead were placed under column 12, which read as "Accused person not chargesheeted"; SUBMISSIONS ON BEHALF OF THE PETITONERS 4. Learned Senior Counsel appearing on behalf of the petitioners submits that the latter were merely Non-Executive Directors nominated on the Board of BOFL from March 31, 2011 to March 28, 2013 by Standard Chartered Private Equity entities, i.e., SCPE II & III, who were minority financial investors of BFOPL, that held 29% stake in the company. It is submitted that the petitioners were employees of Standard Chartered Bank, India, i.e., SCB and both, SCB and SCPE II & III, are ultimately ow....
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....leged offence. It is the case of the petitioners that by way of the aforesaid affidavit, 'Hassad' accepted the exoneration by EOW of the petitioners vide a Closure report dated 17.07.2018. It is also submitted that 'Hassad' vide a communication dated 19.11.2018 to respondent-SFIO had also enclosed the aforesaid affidavit stating that petitioners were not responsible in commission of any alleged offences and no action was required against them. 7. It is further submitted that the impugned summoning order dated 22.09.2022, as well as the summons dated 11.12.2022 and 12.12.2022, suffer from a fundamental non-application of mind, and are ex-facie unsustainable in law. It was further contended that the learned Trial Court, failed to appreciate that no prima facie case was made out against the petitioners. 8. It has been contented by the learned Senior Counsel appearing on behalf of the petitioners that even though the complaint filed by SFIO indicts the petitioners for charges under Section(s) 68, 542 of the Companies Act, 1956 and 449 of the Companies Act, 2013, the impugned order indicts the petitioners of five charges, and then goes on to arraign the petitioners of six charges ....
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....tioners cannot be arrayed in any civil or criminal proceedings, in relation to the affairs of BFOPL, as they were not holding any key managerial positions in BFOPL. 14. Learned Senior Counsel further contended that the entire case of prosecution is misconceived, as the petitioners had been exonerated by all investigating agencies, including EOW, ED and CBI, and even 'Hassad' had acknowledged their innocence. 15. It is further submitted that the petitioners being only nominee non- executive directors on behalf of SCPE II & III in BFOPL, were required to participate in the board meetings and discussions to ensure that SCPE II & III's interest is safeguarded in accordance with the terms of SPSSA. The petitioners had only attended 8 board meetings, which they were statutorily required to do, and the same cannot be considered as an overt act. 16. It was further submitted that the summoning of the petitioners merely by reproducing the allegation from the SFIO complaint and without any independent reasoning, shows a mechanical exercise of jurisdiction by the learned Special Judge (Companies Act). 17. Reliance was placed upon the decisions of the Hon'ble Supreme Court in Sunil ....
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....the case of the prosecution that both the petitioners were fully aware of BFOPL's misconduct and colluded with other Directors of the said company to continue the fraudulent practices in order to protect their own interest/investment. It is pointed out that the present petitioners failed to exercise due diligence to stop the fraudulent practices of the company or disclose the same to the concerned authorities and thereby, defrauding the financial institutions, trade creditors and other investors. It is further submitted that the learned Special Court vide its detailed order dated 22.09.2022 based on the contents of the Complaint and Investigation Report along with all its annexures, has been pleased to take cognizance and accordingly, issued summons to the present petitioners, i.e., Mr. Namit Arora and Mr. Rahul Raisurana, for offences punishable under Sections 68, 211 read with Sections 209, 628, 542 of the Companies Act, 1956 and under Section 449 of the Companies Act, 2013. 21. It is further submitted by learned CGSC for SFIO that it is settled law that learned Special Court is empowered to add or alter any other charge apart from the ones mentioned in the Complaint/Chargeshe....
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.... "149. Company to have Board of Directors: **** **** **** (12) Notwithstanding anything contained in this Act(z) an independent director; (ii) a nonexecutive director not being promoter or key managerial personnel; Shall be held liable, only in respect of such acts of omission of commission by a Company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently." Therefore, in view of the provisions of Section - 149(12) of the Companies Act, 2013, the liability of the petitioners can clearly be invoked in view of their knowledge and role as mentioned in the foregoing paragraphs and their active involvement in the affairs of the Company. It is further submitted that the petitioners sat in eight (8) Board meetings where significant decisions were taken and they have been sending and receiving emails regarding the audit of the financials of the company and they were also actively involved in the preparation of the Information Memorandum of BFOPL which was submitted to 'Hassad' International for investing in BFOPL. This shows that they were not mere ....
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....ghtly invoking their liabilities under Section 449 of the Companies Act, 2013. 28. It is further submitted that the Company, i.e., BFOPL, is not arraigned as an Accused because the Company was under liquidation when the instant Criminal Complaint was filed. It is submitted so as to not hamper the liquidation proceedings of BFOPL by way of filing the Criminal Complaint, the Complaint did not arraign the Company as an accused and the Complaint was filed only against the Directors. Furthermore, the Petitioners are arraigned as accused in view of their individual roles. It is submitted that as per the scheme of the Companies Act, 1956 the same does not prescribe for mandatory arraignment of the Company as an accused and therefore the Directors were arrayed as the accused. 29. Furthermore, it is submitted that the statement on oath by SFIO is recognized by the statute itself under Section 217(4) of the Companies Act, 2013, and the law also prescribes punishment if a person gives false statement on Oath, therefore the statements given by the Accused people on Oath is valid and good in law. 30. It is further submitted that the exercise of powers under Section 482 of the Cr.P.C. t....
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....025 in SLP (Crl.) No. 6185/2023 [Para(s) 32, 33, 35]; c) Ashish Bhalla v. State 2023 SCC OnLine Del 5818 [Para(s) 51, 54, 60, 61, 62, 63, 64, 84, 87]; d) Raja Narayan Bansilal v. Maneck Phiroz Mistry & Anr. (1960) 30 COMP CAS 644 [Para(s) 18, 19, 21, 23] e) State of Haryana v. Bhajan Lal 1992 Supp (1) SCC 335 [Para 103]; f) Som Mittal v. Govt. of Karnataka (2008) 3 SCC 574 [Para 8]; g) CBI v. Ravi Shankar Srivastava (2006) 7 SCC 188 [Para 7, 9]; h) Kamal Shivaji Pokarnekar v. State of Maharashtra (2019) 14 SCC 35 [Para(s) 4, 5]; i) K. Ashoka v. N.L. Chandrashekar (2009) 5 SCC 199 [Para 14]; j) State of Bombay v. S.L. Apte 1960 SCC OnLine SC 56 [Para(s) 1, 3, 4, 6, 7, 9, 10, 11, 12, 13, 14, 15, 16, 17]; REJOINDER SUBMISSIONS ON BEHALF OF THE PETITIONER 34. Learned Senior Counsel appearing on behalf of the petitioners submits that the response filed on behalf of the respondent is wholly misconceived, as the allegations levelled against the petitioners are contrary to the record. It is contended that the respondent has intentionally suppressed material facts and it has also failed to disclose the fact that t....
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....e said representation, in accordance with the Institute of Chartered Accountants of India guidelines, were contained in the detailed Management Representations letter dated 24.09.2012, which was relied upon by Deloitte as part of its audit report. It was further submitted that the said Letter of Representation, containing the financial and inventory position of BFOPL, given to Deloitte, was signed by Mr. Virkaran Awasty and Mr. Vinod Sirohi, as they were the Key Managerial Personnel of BFOPL. 40. It is the case of the petitioners that the Information Memorandum and Databook was a document prepared by KPMG, based on the information and representations given by Key Managerial Personnel of BFOPL and not by the petitioners. Further, the disclaimer clause of the Information Memorandum states that the Information Memorandum should not be the basis for any investment decision by any party. It was further contended that even assuming that the petitioners were involved in the preparation of the said Information Memorandum and Databook, it is relevant to state that 'Hassad's offer to invest in BFOPL was only a non-binding offer, which clearly stated that 'Hassad' would make a binding/defi....
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....hether or not to take cognizance of the offence. From this it follows that it is not as if that the Magistrate is bound to accept,, the opinion of the police that there is a case for placing the accused, on trial. It is open to the Magistrate to take the view that the facts disclosed in the report do not make out an offence for taking cognizance or he may take the view that there is no sufficient evidence to justify an accused being put on trial. On either of these grounds, the Magistrate will be perfectly justified in declining to take cognizance of an offence, irrespective of the opinion of the police........." 5. Thus, considering the allegations mentioned in the Investigating Report of SFIO and supporting documents, cognizance of alleged offences Companies Act, 1956 and Companies Act, 2013 is taken. 6. Further, it is found that sufficient material has been placed on record against the accused persons to face prosecution in respect of following offences: No. of Accused Name of Accused Sections for which accused is summoned A-1 Virkaran Awasty U/s. 68, 211 r/w 209, 628, 542 of the Companies Act, 1956. A-2 Ritika Awasty U/s. 211 r/w ....
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....the facts and materials before him. In doing so, the Magistrate is not bound by the opinion of the investigating officer and he is competent to exercise his discretion irrespective of the views expressed by the police in its report and may prima facie find out whether an offence has been made out or not. 17. The taking of cognizance means the point in time when a court or a Magistrate takes judicial notice of an offence with a view to initiating proceedings in respect of such offence which appears to have been committed. At the stage of taking of cognizance of offence, the court has only to see whether prima facie there are reasons for issuing the process and whether the ingredients of the offence are there on record. 18. The principles relating to taking of cognizance in a criminal matter has been very lucidly explained by this Court in Chief Enforcement Officer v. Videocon International Ltd. [(2008) 2 SCC 492 : (2008) 1 SCC (Cri) 471], the relevant observations wherefrom are set out: (SCC p. 499, paras 19 & 20) "19. The expression 'cognizance' has not been defined in the Code. But the word (cognizance) is of indefinite import. It has no esoteric or myst....
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....rather it is the condition precedent to the initiation of proceedings by the Magistrate or the Judge. Cognizance is taken of cases and not of persons. Under Section 190 of the Code, it is the application of judicial mind to the averments in the complaint that constitutes cognizance. At this stage, the Magistrate has to be satisfied whether there is sufficient ground for proceeding and not whether there is sufficient ground for conviction. Whether the evidence is adequate for supporting the conviction can be determined only at the trial and not at the stage of enquiry. If there is sufficient ground for proceeding then the Magistrate is empowered for issuance of process under Section 204 of the Code. 12. A "summons" is a process issued by a court calling upon a person to appear before a Magistrate. It is used for the purpose of notifying an individual of his legal obligation to appear before the Magistrate as a response to violation of law. In other words, the summons will announce to the person to whom it is directed that a legal proceeding has been started against that person and the date and time on which the person must appear in court. A person who is summoned is legall....
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....istrate is said to have taken judicial notice of the commission of an offence, with a view to initiate proceedings against the person or persons alleged to have committed such offence. [See: Chief Enforcement Officer v. Videocon International Ltd., (2008) 2 SCC 492]. 21. Cognizance is, at its heart, always an act of the court. It entails not merely the receipt of information or the mechanical act of acknowledgement of a particular offence by a judicial authority, but a conscious application of mind by it, to the information disclosed or received, as the case may be, and the subjective element of its satisfaction that i) an offence has indeed occurred and ii) the circumstances necessitate setting into motion criminal proceedings in respect of the said offence, or at the very least take steps for ascertaining if there is any basis for initiating such proceedings. Cognizance is attended by the assumption of jurisdiction for proceeding further. *** *** *** 24. The process of "taking cognizance" is one of variable and inderminate import; it neither carries a uniform or fixed procedural contour nor has it been used in the same sense throughout the scheme of the....
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....the effect that since the other agencies had given the petitioners a clean chit, and therefore, the complaint ought not to have been filed and cognizance could not have been taken by the learned Special Judge cannot be accepted for the simple reason that the opinion of an Investigating Officer of a certain agency would not be binding on any other Officer of a different agency, or for that matter, on the Court. 49. In fact, learned Trial Court in EOW case, after filing of supplementary chargesheet, which as per learned Senior Counsel for the petitioners had exonerated the latter, vide order dated 10.11.2022 had observed as under: - "SC NO. 104/21 STATE Vs SAI CHANDRA SHEKHAR FIR No. 136/14 PS- EOW SOUTH 10.11.2022 Present :- Mr. Nishchal Singh Ld. Addl. PP for State. Accused Sai Chandrashekhar with Sh. Yash Dutt, Ld. Counsel. Accused Vir Karan and Ritika are P.O. Sh. Neeraj Agarwal, Ld. Counsel for Official Liquidator for M/s Bush Food Pvt. Ltd. Sh. Shahrukh, Ld. Counsel for Reliance Assets Reconstruction Co. India. Ms. Gunjan Mangla and Sh. Chandan Singh Shekhawat Ld. Counsel for Rahul Rai Surana and Nami....
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....the material placed by the complainant/SFIO for prosecution of offence(s) under the Companies Act, the learned Special Court had passed the impugned order on cognizance. 50. Reliance has been placed by learned Senior Counsel for the petitioners on the judgments of the Hon'ble Supreme Court with regard to the exercise of power under Section 482 of the CrPC for quashing of proceedings at stage of summoning of the accused person(s). It is however, noted that the prayer in the present petition is restricted to setting aside of the impugned order taking cognizance dated 22.09.2022. The scope of the present petition is, therefore, limited to examine whether an interference is called for in the said order taking cognizance. 51. It has been argued by learned CGSC for respondent/SFIO that the offences for which the complaint has been filed by the respondent relates to the offences under the Companies Act. It is submitted that the petitioners have been exonerated by the EOW, but the same cannot be a bar to their prosecution for offences under the Companies Act. 52. It has been vehemently argued on behalf of the learned Senior counsel for the petitioners that the latter being the non....