Suman Chadha v. Serious Fraud Investigation Office

17. Attention of the court is also drawn to the fact that the petitioner has already been admitted to regular bail by the learned Special Judge (CBI), Rouse Avenue District Courts, New Delhi vide order dated 27.09.2022 in connected case bearing No. CBI/13/2021 titled CBI vs. Parul Polymers Pvt. Ltd. & Ors., which case also emanates from same set of allegations as the present one.

18. Counsel submits, that other things apart, the petitioner deserves to be granted regular bail also on grounds of parity since co-accused Komal Chadha[1], Deepak Jha[2] and Taranjeet Singh Bagga[3] have already been admitted to bail by this court.

19. Another plank of the legal submissions made on behalf of the petitioner is that in Satender Kumar Antil vs. Central Bureau of Investigation & Anr.,[4] the Supreme Court has held that the twinconditions in special statutes would apply only after an accused is already under incarceration, observing that: “To clarify this position, we may hold that if an accused is already under incarceration, then the same would continue, and therefore, it is needless to say that the provision of the Special Act would get applied thereafter” (emphasis supplied). It is submitted that therefore, in the present case, the learned Special Judge misdirected himself in applying the twinconditions as specified in section 212(6)(ii) of the Companies Act, since on the date when the petitioner appeared before the learned Special Judge, he was not under incarceration. It is also submitted that at the time when he appeared before the learned Special Judge, the SFIO had not even sought that the petitioner be detained in judicial custody. It is therefore argued, that the order of the learned Special Komal Chadha vs. Serious Fraud Investigation Office, 2022 SCC OnLine Del 4543 Deepak Jha vs. State NCT of Delhi & Ors, Bail Appln No. 2633/2022, Order dated 06.02.2023 (Delhi High Court) Taranjeet Singh Bagga vs. Serious Fraud Investigation Office, 2023 SCC OnLine Del 893

20. On the other hand, opposing the grant of bail, Mr. Shankar, learned CGSC has urged that since the petitioner is the main accused in the case; that charges are yet to be framed against the petitioner; and evidence is yet to be recorded, there is reasonable apprehension that if released on bail, the petitioner would attempt to intimidate or influence witnesses, especially since the witnesses are either his employees or his close associates. It is also alleged that the petitioner was the „mastermind‟ on whose directions the other co-accused worked; and therefore, the petitioner cannot seek bail on grounds of parity.

21. The learned CGSC also submits that a stringent view must be taken of the offences alleged against the petitioner since these are economic offences; and that the nature and gravity of the offences is severe, inasmuch as the fraud in question affects public interest since the huge sums of money siphoned-off were taken from public sector banks and such offences impact the economy of the country. It is further submitted that the twin conditions in section 212(6)(ii) of the Companies Act are mandatory, and are required to be applied in addition to the restrictions contained in section 439 Cr.P.C.

22. It is further alleged that the petitioner has himself admitted that there was no actual sale or purchase of food grain; and that tax invoices were issued without any actual movement of goods. It is also alleged that the petitioner was involved in „kite-flying operations‟, viz. of using bank accounts of companies and entities owned by him to issue cheques without any genuine underlying business transactions only to deceptively avail unauthorized credit on the basis of such cheques. It is also pointed-out that the petitioner is alleged to have manipulated the financial statements of the Company Under Investigation i.e. Parul Polymers Pvt Ltd., by submitting fictitious financial statements, to falsely project revenue growth of the company and fraudulently avail enhanced credit limits. It is alleged that the funds so received were siphoned-off into the petitioner‟s personal bank accounts and were used to purchase personal property.

23. Lastly, learned CGSC submits that merely because the petitioner was not arrested during the course of investigation, that cannot lead to the conclusion that he would not tamper with evidence or influence witnesses; and given his key role in the offending transactions, those factors cannot be disregarded. Besides, it is argued that the petitioner was not arrested during investigation only since the investigating officer was cautious in exercising the discretion conferred upon him by section 212(8) of the Companies Act; which however did not prevent the learned Special Judge from directing judicial custody of the petitioner once cognizance was taken, based upon material available after investigation.

24. In support of his submissions, learned CGSC places reliance on the following judgments: Vijay Madanlal Choudhary & Ors. vs. Union of India & Ors.5, Serious Fraud Investigation Office vs. Nittin Johari & Anr.6, Prahlad Singh Bhati vs. NCT. Delhi & Anr.7, Gudikanti Narashimhulu & Ors. vs. Public Prosecutor, High Court of Andhra Pradesh[8] and Rohit Tandon vs. Directorate of Enforcement.[9] Discussion & Conclusions

25. To begin with, a brief recap of the principles for grant of bail as enunciated by the Supreme Court, including in the context of the stringent, additional twin-conditions imposed under section 212(6) of the Companies Act, as relevant for the present petition, would be useful:

25.1. In Moti Ram & Ors. vs. State of Madhya Pradesh.10 the Supreme Court has observed that the consequences of pre-trial detention are grave, since they subject an undertrial to psychological and physical deprivations of jail life, which are usually even more onerous than those imposed on convicts. It has further been observed that an undertrial in custody is prevented from contributing to the preparation of his defence at the trial, which burden then falls heavily upon innocent family members.

25.2. Furthermore, in a matter concerning a serious economic offence in Sanjay Chandra vs. Central Bureau of Investigation11 the Supreme Court says that where a person was not arrested in connection with the alleged offence, nor is there any allegation that the person would commit any offence while on bail, such person could be admitted to bail.

25.3. In Rana Kapoor vs. Directorate of Enforcement12, again a case involving a serious economic offence, a Co-ordinate Bench of this court has taken the view that where the accused, though accused of an offence under the Prevention of Money Laundering Act, 2002 (“PMLA” for short), was never arrested during or after investigation despite the Enforcement Directorate having statutory powers to do so, the accused may be admitted to bail.

25.4. Emphasising the necessity of protecting Constitutional rights of an accused, in Jainam Rathore vs. State of Haryana & Anr.13 and Sujay U. Desai vs. Serious Fraud Investigation Office14, the Supreme Court has emphasised that apart from enforcing the provisions of section 212(6) of the Companies Act, the Constitutional rights of an accused to expeditious trial are also required to be protected, further observing that where there are

25.5. On the weightage to be given to a final report filed by an investigating officer under section 173 Cr.P.C., which is the equivalent of a criminal complaint filed by the SFIO, in K Veeraswami vs. Union of India & Ors.15 the Supreme Court has expressed the view that the final report is nothing more than the opinion of the investigating officer.

25.6. On the broader principles of grant of bail, in Dataram Singh vs. State of Uttar Pradesh & Anr.16 the Supreme Court has observed that discretion in the matter of grant of bail must be exercised judiciously, and in a humane and compassionate manner.

25.7. Though, in Gurcharan Singh & Ors. vs. State (Delhi Administration)17 the well-worn principles that likelihood of an accused fleeing from justice and tampering with prosecution evidence have been reiterated as the two paramount considerations for grant of bail, in Ashok Sagar vs. State (NCT of Delhi)18 it has been observed that equally it cannot be overlooked that theoretically every undertrial is a flight-risk if granted bail.

25.8. It may also be noticed that though the gravity of an offence is certainly one of the considerations for deciding bail, in P. Chidambaram vs. Directorate of Enforcement19, the Supreme Court has also observed that the gravity of the offence will beget the length of the sentence, meaning thereby that merely because an offence alleged is serious, does not mean that the court should necessarily deny bail and pre-emptively make an undertrial suffer a sentence, even though such sentence may eventually be awarded to him if he is convicted.

25.9. Most pertinently, interpreting the additional conditions imposed by section 37 of the NDPS Act for grant of bail, which conditions are worded exactly as those in section 212(6) of the Companies Act, in its recent decision in Mohd. Muslim alias Hussain vs. State (NCT of Delhi)20, the Supreme Court has said this:

25.10. In fact in Mohd Muslim (supra) the Supreme Court also cites certain observations of the Kerala High Court that bring-out the stark reality and the enormity of consequences of prison detention, especially pre-trial detention, when an inmate is only an accused under trial and not a convict serving a sentence awarded:

25.11. The observations of the Supreme Court in the context of judicial remand at the stage of taking cognizance, are also pertinent. In Mithabhai Pashabhai Patel & Ors. vs. State of Gujarat21 the Supreme Court has said this:

25.12. In State through CBI vs. Dawood Ibrahim Kaskar & Ors.22 the following observations of the Supreme Court must also be noted:

25.13. Another facet that requires to be understood, is the legal meaning of the word „arrest‟. The word „arrest‟ has not been defined either in the Cr.P.C. nor in the IPC. It has however been explained by the Supreme Court in Union of India vs. Padam Narain Aggarwal & Ors.23 in the following way: “20. The term “arrest” has neither been defined in the Code of Criminal Procedure, 1973 nor in the Penal Code, 1860 nor in any other enactment dealing with offences. The word “arrest” is derived from the French word “arrater” meaning “to stop or stay”. It signifies a restraint of a person. “Arrest” is thus a restraint of a man's person, obliging him to be obedient to law. “Arrest” then may be defined as “the execution of the command of a court of law or of a duly authorised officer”.”

26. Another important decision of the Supreme Court which enunciates the distinction between custody, detention and arrest is also pertinent for purposes of this matter. The following relevant para of Sundeep Kumar Bafna vs. State of Maharashtra & Anr.24 may be referred to for this purpose:

26.1. Also relevant are the instructions of the Supreme Court in Joginder Kumar vs. State of U.P. & Ors.25 and Siddharth vs. State of Uttar Pradesh & Anr.26, where the Supreme Court says:

Joginder Kumar vs. State of U.P. & Ors.27

officer in the interest of protection of the constitutional rights of a citizen and perhaps in his own interest that no arrest should be made without a reasonable satisfaction reached after some investigation as to the genuineness and bona fides of a complaint and a reasonable belief both as to the person's complicity and even so as to the need to effect arrest. Denying a person of his liberty is a serious matter. The recommendations of the Police Commission merely reflect the constitutional concomitants of the fundamental right to personal liberty and freedom. A person is not liable to arrest merely on the suspicion of complicity in an offence. There must be some reasonable justification in the opinion of the officer effecting the arrest that such arrest is necessary and justified. Except in heinous offences, an arrest must be avoided if a police officer issues notice to person to attend the Station House and not to leave the Station without permission would do.” Siddharth vs. State of Uttar Pradesh & Anr.28

27.4. Therefore, taking cue from what the Supreme Court has held in Satender Kumar Antil (supra), evidently when the petitioner appeared before the learned Special Judge in compliance of the summons issued to him, he was „in custody‟ of the court but not „under incarceration‟. Accordingly, the twin-conditions contained in section 212(6) of the Companies Act did not get actuated. Furthermore, in the context of section 170 Cr.P.C, in Siddharth35 (supra) the Supreme Court has held that custody does not contemplate either police custody or judicial custody. Also, as held in Manubhai Ratilal Patel36 (supra), remand requires application of mind on the part of the court, and is not to be dealt-with lightly or in a mechanical manner. Incarceration therefore must be for some justifiable and articulated reason, based upon material available against a person.

27.5. The decisions of the Supreme Court cited by the SFIO regarding the twin-conditions have to be read and understood in the context in which they were rendered37. In Nittin Johari (supra) and Rohit Tandon (supra), the accused had already been

Bharat Petroleum Corpn Ltd & Anr. vs. NR Vairamani & Anr., (2004) 8 SCC 579 at paras 9-12; State of Orissa vs. Sudhansu Sekhar Misra & Ors., AIR 1968 SC 647 at para 12; Kalyan Chandra Sarkar vs. Rajesh Ranjan, (2005) 2 SCC 42 at para 42 arrested in the course of investigation and had also been remanded to judicial custody, and the bail application was filed only thereafter. Therefore, those cases did not deal with a situation where the accused had never been arrested as of the date the court took cognisance of the offence, or even thereafter upto the date on which summons were returnable.

27.6. On the other hand the observations in paras 410-412 (SCC OnLine) of Vijay Madanlal Choudhary (supra), which judgment is generally on the scheme of the PMLA, are in the context of applicability of section 45 PMLA to anticipatory bail applications. It is in this context that the Supreme Court has held that the twin-conditions would apply even to anticipatory bail applications, by noting that there cannot be a difference between someone who applies for bail after arrest (regular bail) and someone who is yet to be arrested (anticipatory bail). Thus, it can safely be said that the interpretation of section 45 PMLA in Vijay Madanlal Choudhary does not contemplate a situation where the accused has never been arrested.

27.7. Accordingly, the judgments in Nittin Johari, Rohit Tandon and Vijay Madanlal Choudhary are all distinguishable on facts. On the other hand, a reasonable interpretation of the twinconditions as mandated by Mohd Muslim (supra)38 read with the observations in Satendar Kumar Antil (supra)39 that twin- conditions in special statutes would only apply after incarceration, leads to the inevitable conclusion that the twinconditions in section 212(6) of the Companies Act would not apply to a case where the accused has never been arrested even till the stage of cognisance, and appears against summons issued by the court.

27.8. The above position is also bolstered by a decision of this court in Ashish Mittal vs. Serious Fraud Investigation Office40 which takes the view that the opposition by the public prosecutor contemplated in section 212(6) must be reasoned opposition. In the present case, a perusal of the order of the learned Special Judge declining bail shows that no reasoned opposition was offered by the public prosecutor in relation to the offence alleged under the Companies Act, except a pedantic recitation that the allegations inter-alia against the petitioner “... are of grave nature... ”; that the investigation in the matter was initiated as per directions of the Delhi High Court; and that, according to the final investigation report filed in the matter inter-alia the petitioner has “... committed offence punishable under Section 447 of Companies Act, 2013 alongwith other offences... ”.

27.9. Though detailed submissions have been made on behalf of the SFIO to urge that since the petitioner was the main person incharge of the affairs of the company, he is guilty of 2023 SCC OnLine Del 2484 at paras 20-24 commission of the offence inter alia under section 447 of the Companies Act, suffice it to say that as observed by the Supreme Court in Sanjay Chandra (supra) and P Chidambaram (supra), seriousness of the allegations is not the only test or factor to deny bail, and the gravity of the allegations will beget the length of sentence, if and once, the petitioner is convicted of the offence charged. This court therefore does not consider it necessary to delve any deeper into the allegations made against the petitioner on merits.

27.10. In view of the above discussion, a reasonable interpretation of the twin-conditions leads to the conclusion that since the petitioner had not been arrested throughout the course of investigation; he had appeared before the learned Special Judge against summons - not arrest warrants - issued to him; and most importantly, when the investigating officer had not even sought police custody or judicial custody of the petitioner, the twin conditions would not apply. At that point in time, the twinconditions stipulated in section 212(6) of the Companies Act did not automatically get actuated. What really transpired was that merely upon appearing before the learned Special Judge, as if by reflex action, the court remanded the petitioner to judicial custody; whereupon the petitioner filed a bail application; which also came to be dismissed there-and-then invoking section 212(6).

27.11. In the present case, this court is at pains to explain, that when the petitioner appeared before the learned Special Judge in compliance of the summons issued to him, he was not under arrest. It must also be re-emphasised that on taking cognizance of the offence, the learned Special Judge issued only summons for the petitioner to appear and did not deem it necessary to issue warrants for his arrest.

27.12. Clearly therefore, learned Special Judge misdirected himself in applying section 212(6) of the Companies Act, on the flawed premise that that that was the stage for grant of bail, whereas, it was the stage of considering whether there was any need to remand the petitioner to judicial custody at all. As discussed above, it was for the Investigating Officer to seek that the petitioner be remanded to judicial custody, for justifiable reasons based on material gathered during investigation, which he did not do.

27.13. Even insofar as the usual and ordinary triple-test for bail is concerned, the Investigating Officer nowhere alleged that the petitioner had attempted to tamper with evidence; or that he had influenced witnesses; or that he was a flight risk. In fact, the Investigating Officer had not filed any application seeking that the petitioner be placed in judicial custody, even upto the stage when the petitioner appeared before the learned Special Judge on being summonsed. Since the Investigating Officer did not arrest the petitioner during the more than 06-year long proceedings and investigation, evidently, the Investigating Officer did not consider it necessary to do so based on the material in his possession collected in the course of investigation.

27.14. As observed by this court in Komal Chadha vs. Serious Fraud Investigation41, without any additional material or evidence having been placed before the learned Special Judge, there was no basis for the court to draw any inference other than the reasonable belief entertained by the Investigating Officer, who never considered the petitioner being a flight risk, or otherwise being likely to tamper with evidence or influence witnesses, for which reason he had never arrested the petitioner.

27.15. To add to this, trial in the matter is bound to take considerable time; and this court sees no reason to wait for further time to elapse before lamenting that the petitioner has suffered pre-trial detention for an unduly long period. As cited above, the Supreme Court has held in Jainam Rathore (supra) and Sujay

Companies Act applies, that does not detract from an accused‟s right to an expeditious trial. To quote Mohd Hakim vs. State (NCT of Delhi)42, a judgment rendered by a Division Bench of this court, of which the undersigned was a member: “28. Courts must not play coroner and attend to legal or constitutional rights only after they are „dead‟. Instead we

2021 SCC OnLine Del 4623 must play doctor, and save such rights from demise before they are extinguished. Courts should pro-actively step-in to protect such rights from being stifled and buried. If equity calls upon affected persons to be vigilant to protect their rights, then surely the courts must also be vigilant, and, to quote the Hon‟ble Supreme Court, act as sentinels on the qui vive when it comes to protecting constitutional and legal rights.”

28. In the above view of the matter, this court is inclined to admit the petitioner to regular bail, subject to the following conditions:

28.1. The petitioner shall furnish a personal bond in the sum of Rs. 5,00,000/- (Rs. Five Lacs Only) with 02 sureties in the like amount from family members, to the satisfaction of the learned Special Judge;

28.2. The petitioner shall furnish to the Investigating Officer/SFIO a cell-phone number on which the petitioner may be contacted at any time and shall ensure that the number is kept active and switched-on at all times;

28.3. If the petitioner has a passport, he shall surrender the same to the learned Special Judge and shall not travel out of the country without prior permission of the learned Special Judge;

28.4. The petitioner shall not contact, nor visit, nor offer any inducement, threat or promise to any of the prosecution witnesses or other persons acquainted with the facts of 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 pending trial;

28.5. In addition to the above conditions, 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 officials/employees of the banks or financial institutions, companies, entities, etc., who are concerned with the subject matter of the case, whether in India or abroad; and

28.6. The investigating officer is further directed to issue a request to the Bureau of Immigration, Ministry of Home Affairs of the Government of India or other appropriate authority, to forthwith open a „Look-out-Circular‟ in the petitioner‟s name, to prevent the petitioner from leaving the country, without the permission of the learned Special Judge.

29. Nothing in this judgment shall be construed as an expression of opinion on the merits of the pending matter.

30. Needless to add, that nothing in this judgment should be taken to detract from the position that economic offences are serious in nature, and the allegations against the petitioner and other co-accused, if proved at the trial, must be met with requisite punishment. However, that punishment must follow conviction, and the severity of the allegations by themselves cannot be justification for pre-trial incarceration.

31. The petition stands disposed-of in the above terms.

32. Pending applications, if any, also stand disposed-of.

33. Let a copy of this judgment be sent to the concerned Jail Superintendent forthwith.

ANUP JAIRAM BHAMBHANI, J JULY 19, 2023 HJ/uj