SFIO v. Educomp Solutions Limited & others

2. The investigation was conducted pursuant to the order dated 17.08.2018, passed by Ministry of Corporate Affairs (hereinafter referred as “MCA”), under Section 212 (1)(c) of the Companies Act. Brief Facts

3. By order dated 17.08.2018, MCA, Government of India, empowered under Section 212 (1)(c) of the Companies Act, had directed SFIO to conduct an investigation into the affairs of Educomp Solutions Limited (hereinafter referred as “ESL”). The said investigation was directed to be conducted within a period of four months.

4. The investigation is stated to have been carried out till December, 2022, which finally culminated into a criminal complaint under Section 439(2), read with Section 436, Section 212, Section 621(1) of the Companies Act, read with Section 193 of the Code of Criminal Procedure, 1973 (“Cr.P.C.”), before the Special Judge (Companies Act), alleging commission of offences by the accused persons including the applicant herein under Sections 129, 447, 448 of the Companies Act, under Sections 211, 628, 227/233 of the Companies Act, 1956 and under Sections 420, 120B of the Indian Penal Code, 1860 (“IPC”).

5. During the investigation, SFIO exercising power under Section 212(8), arrested the applicant on 14.10.2022.

6. The complaint is filed against 70 accused of which 15 accused are various companies and 55 accused are individuals.

7. As stated above, the investigation was ordered in relation to affairs of ESL. It is mentioned that the company ESL was incorporated on 07.09.1994 with an authorised capital of ₹40 crores and Mr. Shantanu Prakash was its Managing Director, w.e.f. 07.09.1994.

8. During the course of investigation, approval of the MCA was also obtained for investigating other companies such as Educomp Infrastructure and School Management Limited (hereinafter referred as “EISML”) and Edusmart Services Private Limited (hereinafter referred as “ESSPL”), both subsidiaries of ESL.

9. The status report has been filed by SFIO and it is alleged in nutshell as under:

27.10 acres, which was bought by EISML in July, 2008 in Mussoorie, was identified as one of the asset which was made part of the Corporate Debt Restructuring (“CDR”), approved by the banks and was made available for sale (asset monetisation). iv) It is alleged that the sale proceeds of the said property was to be exclusively used towards repayment of first instalment of the CDR. It is further claimed that since Shantanu Prakash did not want to lose the said asset in the process of CDR, he connived with other co-accused persons including the applicant herein to indirectly acquire the said asset through another company through a complex web of multi-layering transactions and rotation of funds siphoned off from ESL, EISML and ESSPL. v) The role of the applicant is alleged as under: Bindu Rana was Director of MEMPL during the period 14.10.2014 to 31.07.2020 and MEF during the period MEF 01.10.2014 to 01.11.2017. She was also director of Educomp Software Limited during the period 27.11.2014 to 22.02.2015. She was also Ex-Research Head of ESL during the period 2004 to 2014. Bindu Rana had signed the financial statements of MEMPL for the F.Y. 2014-15 to 2018-19 and MEF for the F.Y. 2014-15 to 2015-16, knowing the fact that the financials are not reflecting a true and fair view of the affairs of the company. She had received funds of Rs. 16.10 crores from Priya Prakash. The same funds were transferred from her personal account to MEMPL and then to KBESPL to SDPL and then to EISML against the sale consideration of MIS. She was the authorized signatory in the bank accounts of MEMPL in which funds were received from Priya Prakash, D/o Shantanu Prakash. She had also received funds of Rs 1.25 crores from Group-I companies which were further rotated to MEMPL to ECCPL/LMEPL and then to KBESPL to SDPL for purchase of MIS. She failed to prove the genuineness of the funds received in her personal account. She is a close associate of Shantanu Prakash and was well aware about the fact that funds were routed through her personal account and MEMPL to indirectly hold the control of MIS by Shantanu Prakash.

18. There are various other charges which have been levelled against various accused persons but not the applicant herein.

19. Learned Senior Counsel for the applicant submits that the applicant has been falsely implicated in the present case. He submits that the applicant has received several national and international awards and is a renowned academic educationalist and author.

20. The applicant has always cooperated with the investigation for the past four years. She joined as and when she was called. He submits that there was no occasion for the respondent authorities to arrest the applicant.

21. He further submits that the applicant has been targeted by the prosecution. The main accused, even as per the prosecution case has not been arrested till date. The respondents have not arrested other accused persons who are stated to be the coaccused in the transactions which are alleged against the applicant.

22. No offence under Section 447 of the Companies Act is made out against the applicant even if taken at the face value. He submits that the applicant, at best, has entered into certain business transactions with the main accused and his companies but the same cannot be termed as having been entered into for the purpose of siphoning off of the money from the companies under investigation. The money was raised by the applicant’s company for the business expansion. The applicant cannot be alleged to be aware of the source of the funds or that she was aware that the funds were allegedly siphoned off.

23. He submits that the respondent is aware of the utilisation of the funds and it cannot be alleged, at this stage, that the funds were siphoned off by the applicant.

24. It is further submitted that the company, ESL is, already before the Hon’ble National Company Law Tribunal and the Resolution Professional appointed in those proceedings did not find any evidence of diversion of funds or fraud.

25. Learned Senior Counsel further relies upon the judgment passed by the Hon’ble Apex Court in the case of Satender Kumar Antil v. Central Bureau of Investigation & Anr.; 2022 SCC Online SC 825 and other judgments to contend that in a case pertaining to a women, the Court is expected to show some sensitivity.

26. Hon’ble Apex Court has time and again emphasized that the gravity of the offence cannot be the sole consideration for denial of bail. The purpose of prison is not for punishing the accused or to send any message to the society. The investigation, in the present case is complete which has led to filing of the complaint (charge sheet).

27. He submits that the complaint which is equivalent to chargesheet has already been filed and the applicant is not required to be further detained in custody.

28. The learned standing counsel for SFIO has vehemently opposed the grant of bail to the present applicant. He submits that the investigation has unearthed a big scam running into thousands of crores being committed by Shantanu Prakash, the Managing Director of ESL. The said Shantanu Prakash, in connivance with the other co-accused persons including the applicant, has siphoned off huge amount of funds to the tune of ₹240.76 crores through various paper companies and has infused it back into his personal accounts. He has taken the Court through the contents of the complaint in order establish the role of the applicant in commission of the offence.

29. He further submits that the applicant had failed to cooperate with the investigation and remained evasive on several occasions. The offence alleged is a grave economic offence which inflicts severe injuries on both health and wealth of the nation and have the tendency to jeopardise the economy of the country.

30. He further submits that the limitation in grant of bail in terms of Section 212(6) of the Companies Act is in addition to the limitations under the Cr.P.C.

31. He relies upon the judgment passed by this Court in the case of Shivani Rajiv Saxena v. Directorate of Enforcement: 2017 SCC Online DEL 10452 to contend that merely because the applicant is a woman does not entitle her for bail and the nature, gravity and seriousness of the offence have also to be considered.

32. He further relies upon the judgment passed by the Hon’ble Apex Court in the case State of Gujarat v. Mohanlal Jitamalji Porwal: (1987) 2 SCC 364, Y.S. Jagan Mohan Reddy v. CBI: (2013) 7 SCC 439 and Rohit Tandon v. Directorate of Enforcement: (2018) 11 SCC 46 in order to buttress the argument that economic offences constitute a class apart and need to be visited with a different approach in a matter of bail.

33. I have considered the arguments advanced by the parties.

34. After the arrest of the applicant on 14.10.2022, the SFIO has already filed their compliant on 12.12.2022. It is pertinent to note that the provisions of Section 167(2) have been made applicable in relation to arrests made under the Companies Act.

35. In terms thereof, if the chargesheet (complaint) is not presented before the expiry of 60 days from the date of arrest, the accused is entitled for the grant of default bail.

36. It is not in dispute that economic offences have deep rooted conspiracies involving huge loss of public funds and need to be viewed seriously. They have a tendency of affecting the economy of the country as a whole and cause serious consequences to the community at large.

37. Keeping these factors in mind, the legislature has in fact introduced limitations on grant of bail in relation to offences covered under Section 447 of the Companies Act. Section 212(6) of the Companies Act states as under:

38. It is apparent that no person accused of an offence under Section 447 shall be released on bail unless the Court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail.

39. The legislature, however, in its own wisdom decided to exempt the person who is under the age of 16 or is a woman or is sick or infirm from the limitations prescribed in Section 212(6).

40. It, however, does not mean that the woman who is found to have committed the offence should necessarily be released on bail and the basic jurisprudence to bail still have to be applied.

41. The economic offences are considered under the category of grave offences and is a factor which has to be kept in mind in addition to the triple test which is normally applied while considering the application for grant of bail.

42. It is, however, equally true that only because the allegations are one of the grave economic offences, it is not a rule that the bail has to be denied in every case. Every application has to be considered on its own merits and considering the factors which are relevant for the said case. The basic test, as reiterated by the Hon’ble Apex Court from time to time, remains the same being:

(i) the chances of tampering with the documents and evidence,

(ii) the chances of influencing the witness, and

(iii) the flight risk.

43. It is not in dispute that the investigation in the present case is already complete, which has culminated into a criminal complaint filed before the concerned Special Court.

44. There may be certain aspects of investigation which are stated to be pending further investigation but it is not denied that the complaint has already been filed and is pending consideration for the purpose of taking cognizance before the learned Special Judge.

45. The fact is that the complaint has been filed by the SFIO without feeling the need of any custody of the 53 out of 55 accused persons. The main accused even as per the SFIO has not been arrested, being protected by the order passed by this Court in Writ Petition (Criminal) No. 1242 of 2022. The said writ petition was filed by accused namely ‘Vinod Kumar Dandona’ and others including the main accused ‘Shantanu Prakash’ seeking quashing of the order dated 17.08.2018 passed by the MCA under Section 212(1)(c) of the Companies Act, which led to the start of investigation into the affairs of ESL.

46. The coordinate bench of this court, considering the facts of the case, by its order dated 26.05.2022, had directed SFIO not to take any coercive steps against the petitioners therein, which includes the main accused ‘Shantanu Prakash’.

47. From the perusal of the complaint, it is apparent that even in relation to the charges which are alleged against the present applicant, there are various other accused persons who have been named as co-accused. The role assigned to them at this stage is no different than the Applicant. However, surprisingly the SFIO did not feel any need or ground to arrest those co-accused persons and proceeded to file the complaint praying the learned Special Court to take cognizance of the offences.

48. The investigation, even though is stated to have started in the year 2018, the applicant was called on few occasions in the year 2020, then in February 2021 and thereafter information was sought from the applicant in July and September, 2022 and she was ultimately arrested on 14.10.2022.

49. It is also argued by the SFIO that the applicant was evasive in her interrogation. The same, in my opinion, cannot be an allegation of such nature so as to disentitle an accused from grant of bail. Even though allegation of being evasive has been levelled, the fact still remains that the investigation in relation to the applicant is stated to be complete, which led to filing of the complaint before the Special Judge. It is not the case of SFIO that an incomplete complaint was filed for the purpose of denying Applicant the benefit of default Bail under Section 167(2) of CrPC.

50. The learned senior counsel has made detailed arguments in order to show that the transactions alleged against the applicant were commercial in nature.

51. It was submitted that the Applicant was coerced, threatened and browbeaten into making incriminating statements during her SFIO custody, contrary to the facts and her previous statements. SFIO coerced the Applicant to do so by threatening to drag her young daughter, who was an early MEMPL director, into the investigation. It is stated that the such statements were withdrawn subsequently by filing appropriate application before the Special Judge.

52. It is submitted that the Applicant has during the course of investigation explained all transactions undertaken by her and the aforesaid companies. Applicant was never involved in the financial affairs of ESL and was never an authorised signatory of the company and has not signed any balance sheet of ESL during her tenure. All transactions were undertaken through proper banking channels and as per lawful commercial practices.

53. It was further submitted that the investigations started pursuant to corporate rivalry. Raffles Group filed fraudulent complaints with investigative agencies. The allegations levelled in the present case have already been investigated by Economic Offences Wing, Delhi Police (“EOW”) in FIR No. 222/2019, registered against the ESL Group on the behest of Raffles Group. In the aforesaid case, EOW has concluded that the documents submitted by Raffles Group were forged and fraudulent.

54. It was also stated that the Loans totalling INR 18.10 Crores taken by the Applicant from daughter of Shantanu Prakash has been repaid to the extent of INR 10.15 Crores and it was disclosed to all relevant authorities including SFIO.

55. All these aspects and the veracity of the allegations in my opinion would be considered during the course of trial and are not required to be commented upon at this stage. At this stage the Applicant does not appear to be the beneficiary of the alleged fraud. The allegation is that the Applicant helped in siphoning of some part of the amount from the companies under investigation.

56. Nothing has been pointed out to show that the arrest and further custody of the applicant would substantiate the process of investigation more so when the main accused person and other co accused having similar and in some cases graver role have not been arrested and the applicant has already joined the investigation.

57. It is also not alleged that the applicant has been found to be tampering with the evidence. The evidence relied upon has already been made part of the complaint.

58. From the very nature of investigation and the complaint filed by the SFIO, the evidence appears to be documentary in nature which is already in custody of SFIO.

59. The SFIO also has not been able to point out the need for continuing the custody of the applicant. Even though they have stated in cursory manner in the Status Report that the applicant is a flight risk, the same, however, can be taken care of by putting appropriate conditions.

60. The applicant is stated to be a 58 year old lady having no criminal antecedents. It is not denied that she lives with her family comprising of unmarried daughter, one son and a husband who retired from a government job.

61. The consequences of pre-trial detention are grave and the burden of such detention also causes severe effect on the other innocent members of the family, especially when it relates to a woman being in custody.

62. The very fact that the SFIO did not feel the need to keep 53 out of 55 accused persons in custody and did not feel that their custody would be relevant in order to complete investigation, shows that it does not apprehend any tampering with the evidence or influencing of the witnesses. From the perusal of the complaint the role of Applicant does not appear to be graver than other co-accused persons. In fact the same has not even been contended by SFIO during the course of arguments.

63. As reiterated by the Hon’ble Apex Court from time to time, the object of bail is neither punitive nor preventive and deprivation of liberty must be considered as a punishment.

64. Considering the aforesaid facts and circumstances in mind, I am persuaded to admit the applicant on regular bail pending the trial in the Criminal Complaint titled SFIO Vs Educomp Solutions Limited & others. The applicant is, therefore, directed to be released on bail on furnishing a personal bond for a sum of ₹5 lakh with one surety of the like amount to the satisfaction of the Special Judge / Duty Magistrate on the following conditions:

(i) The applicant shall join and cooperate with any further investigation as and when directed by the IO.

(ii) The applicant shall not take adjournment and attend the

(iii) The applicant shall not leave the country without the permission of the learned Special Court.

(iv) The applicant shall surrender her passport to the learned

(v) The applicant shall not contact the witnesses in any manner.

65. The applicant during the period that she is on bail shall not commit any offence whatsoever and in the event of there being any FIR/ DD Entry/Complaint lodged against the applicant, it would be open to the State to seek cancellation of bail, which application, if any, would be dealt with on its own merits.

66. The application, is accordingly, allowed in the aforementioned terms.

67. It is, however, made clear that any observation made in the present order are only for the purpose of deciding the present application and should not influence the outcome of the trial and also not be taken as an expression of opinion on the merits of the case. AMIT MAHAJAN, J JANUARY 20, 2023 “SS” / KDK