Allahabad High Court
Uday J. Desai vs Serious Fraud Investigation Office, ... on 25 March, 2021
HIGH COURT OF JUDICATURE AT ALLAHABAD Reserved on 22.3.2021 Delivered on 25.3.2021 Case : CRIMINAL MISC. BAIL APPLICATION No. - 22234 of 2020 Applicant :- Uday J. Desai Opposite Party :- Serious Fraud Investigation Office, Through Assistant Director, Delhi Counsel for Applicant :- Gunjan Jadwani, Kartikeya Saran Counsel for Opposite Party :- Gyan Prakash (Senior Adv.), Sanjay Kumar Yadav Hon'ble Om Prakash-VII,J.
1. Present Bail Application has been filed on behalf of the applicant with the prayer to enlarge the applicant on bail in Session Trial No. 577 of 2020, arising from Complaint under Sections 439 (2) read with Section 436(1)(a)&(d) read with provisio to Section 212(6), 212(14) of the Companies Act, 2013, read with Section 621(1) of the Companies Act, 1956 read with Section 195 CrPC.
2. At the outset it is clarified that nothing has been mentioned in the prayer clause of the bail application regarding the penal provisions under Sections 628 read with Section 211 of the Companies Act, 1956 and Section 448 read with Section 447 of the Companies Act, 2013 for which present prosecution has been started and the bail application for the said offences is to be considered.
3. Heard Shri Mukul Rohatgi, learned Senior Counsel through video conferencing and Shri Anurag Khanna, learned Senior Counsel assisted by Ms. Gunjan Jadwani and Shri Kartikeya Saran, learned counsel for the applicant and Shri Gyan Prakash, learned Senior Counsel assisted by Shri Sanjay Kumar Yadav, learned counsel appearing for Serious Fraud Investigation Office (in short 'SFIO') and perused the record.
4. It was submitted by Shri Mukul Rohatgi, learned Senior Counsel appearing for the applicant that applicant is aged about 64 years and is in jail since 19.3.2020. He has cooperated with the investigating agency. There is no need for his further interrogation, as investigation has already been completed and charge sheet has been filed. Since number of witnesses disclosed in the charge sheet are living out of the Country, it will not be possible to conclude the trial expeditiously. Much time will be consumed in serving summons upon them and also in recording their evidence. It was further submitted that besides the said witnesses, there are also a number of witnesses who are residing in India. Hence, there is no chance for early conclusion of trial. Entire prosecution case rests upon documentary evidence. There is no chance of tempering or influencing the evidence and witnesses by the applicant. Shri Rohatgi, learned Senior Counsel also submitted that applicant was suffering from Corona Virus and was shifted at Lucknow for treatment. Apart from the aforesaid disease, he also suffered from other diseases for which treatment was continued at Lucknow and thereafter he was shifted to Kanpur. Medical / physical condition of the applicant is not good as he is suffering from several serious diseases. Father and son both are languishing in jail. Daughter of the applicant is also suffering from Cancer disease, which is at advanced stage. None is to look after her. She requires special care. Since father and brother both are behind the bar, other family members are also in trouble. It was next contended that main accused of Rotomac Group, namely, Vikram Kothari and co-accused in the present matter, namely, Sunil Verma and Anoop Wadhera had approached Apex Court challenging the constitutional validity of the provisions of Section 212(6) of the Companies Act and the Apex Court granted interim protection to them in their petitions. Thus, on this ground as also on medical ground applicant is entitled for bail. It was further submitted that no purpose would be served by keeping the applicant behind the bar as applicant is ready to abide the conditions imposed by the Court. At this juncture, learned Senior Counsel also referred to provisions of Section 212(6) of the Companies Act and further submitted that since applicant is an old and sick person, therefore, bar created under Section 212(6) of the Companies Act will not come in the way of release of applicant on bail. Shri Rohatgi, learned Senior Counsel also referred to the ingredients of alleged offences as well as the maximum sentence provided for the same and further submitted that almost one year time has been spent by the applicant in jail. He should not be kept behind the bar like a convicted person, as guilt of the applicant is still to be proved by prosecution.
5. Shri Anurag Khanna, learned Senior Counsel, who was also appearing for the applicant submitted that present prosecution was started against the applicant on the basis of false facts. No manipulation has been done by the applicant in the books of account. No active role has been assigned to him. Receivable amount shown in the books of account was verified by the Bank employees thereafter letter of credit was issued and in lieu thereof advance was taken by the applicant for the business. Applicant was also regularly depositing the advance taken by him and receivable amount was also being returned by the person against whom same was shown as due. There was no question of actual physical possession of goods / articles on part of applicant as it is a merchantine trade done on the basis of bill of lading. Goods directly goes to the possession of end user from the person having possession thereon. Intermediate business on the basis of bill of lading is permissible in merchantine trade. Therefore allegations levelled against the applicant are false and baseless. Applicant was also following the guidelines of R.B.I. and was a genuine trader of goods. Referring to law laid down by the Apex Court in Y.S. Jaganmohan Reddy vs. CBI, (2013) 7 SCC 439 and P. Chidambaram Vs. CBI, (2019) SCC Online SC 1380, Shri Khanna further submitted that for consideration of bail application, Court has to look into the criteria outlined / mentioned in the said decisions. Referring to the facts of the present case and the criteria laid down in the aforesaid decisions it was next contended that since no prima facie case is made out against the applicant, he is entitled for bail. Shri Khanna also referred to the submissions advanced by Shri Mukul Rohatagi, learned Senior Advocate, who was also appearing for applicant through video conferencing and further submitted that applicant is in jail since one year. Maximum sentence for the offences levelled against the applicant is of ten years. There is no likelihood of early conclusion of trial. In support of his submissions, learned Senior Counsel has placed reliance on the following decisions :
(i). Raj Kumar Modi vs. SFIO, (2019) SCC Online P&H 4987.
(ii). Y.S. Jaganmohan Singh Vs. CBI, (2013) 7 SCC 439.
(iii). Shivinder Mohan Singh Vs. Directorate of Enforcement, (2020) SCC Online Del 766..
(iv). P. Chidambaram Vs. CBI, (2019) SCC Online SC 1380.
(v). D.K. Shivakumar Vs. Directorate of Enforcement, 2019 SCC Online Del 10691.
(vi). SFIO Vs. Nittin Johari, (2019) 9 SCC 169.
(vii). State of Maharashtra Vs. Nainmal Punjaji Shah, (1969) 3 SCC 904.
(viii). Sanjay Chandra Vs. CBI, (2012) 1 SCC 40.
(ix). Nikesh Tarachand Shah Vs. Union of India, (2018) 11 SCC 1.
(x). Gudikanti Narsimhulu Vs. Public Prosecutor, High Court of AP, (1978) 1 SCC 240.
6. In reply, Shri Gyan Prakash, learned Senior Counsel appearing for SFIO submitted that present bail application is not maintainable as applicant has directly approached this Court for regular bail. Since entire documents annexed with the complaint are not available before this Court, legal mandate required under Section 212(6) of the Companies Act cannot be arrived at before this Court. It was next contended that at the time of filing the regular bail application before this Court, Courts situated at Kanpur were regularly and properly functioning. Therefore, applicant ought to have approached Court below first. Apart from this, learned Senior Counsel touching the merits of the case submitted that applicant was the Director of the FIL and was directly associated with the MSL also. False receivable amount was shown in the books of account furnished before the Bank and due to that reason banks issued letter of credit for use in foreign countries. In fact Company concerned engaged in Merchanting Trade business was in loss and due to that reason advance taken through letter of credit could not be repaid and it become NPA. Referring to total amount of NPA it was further submitted that applicant and its company furnished false books of account and caused huge loss not only to the Bank concerned but interest of public at large also affected. At this juncture, learned Senior Counsel also referred to contents of complaint and conclusion drawn by SFIO and further submitted that applicant cannot be enlarged on bail merely on this ground that co-accused, who had approached Apex Court challenging the vires of the provisions of Section 212(6) of the Companies Act were granted interim protection. It was also submitted that if the bar created under Section 212(6) of the Companies Act is declared unconstitutional then also merits of the case will remain unchanged. This is an economic offence and interest of public at large is also involved. Lastly, learned Senior Counsel prayed for rejection of bail application filed on behalf of the applicant. In support of his submissions, learned Senior Counsel appearing for SFIO placed reliance on the following case laws:
(i). State of Kerala vs. Rajesh, 220 SCC online SC 81.
(ii). Serious Fraud Investigation Office vs. Nittin Johari, (2019) 9 SCC 165.
(iii). Collector of Customs vs. Ahmadalieva Nodira, (2004) 3 SCC 549.
(iv). Nikesh Tarachand Shah vs. Union of India, (2018) 11 SCC 1.
(v). Gautam Kundu vs. Directorate of Enforcement (Prevention of Money Laundering At), (2015) 16 SCC 1.
(vi). State of Bihar vs. Amit Kumar, (2017) 13 SCC 751.
(vii). Ranjitsing Brahmajeetsingh Sharma vs. State of Maharashtra, (2005) 5 SCC 294.
(viii). Nitin Johari vs. Serious Fraud Investigation Office, 2020 SCC OnLine Del. 394.
(ix). State of Maharashtra vs. Nainmal Punjaji Shah, (1969) 3 SCC 904.
(x). Niranjan Singh vs. Prabhakar Rajaram Kharote, (1980) 2 SCC 559.
(xi). P. Chidambaram vs. Central Bureau of Investigation, 2019 SCC OnLine SC 1380.
(xii). D.K. Shivakumar vs. Director of Enforcement, 2019 SCC OnLine Del. 10691.
(xiii). Satpal Singh vs. State of Punjab, (2018) 13 SCC 813.
(xiv). Beant Singh vs. State of Punjab, 2017 SCC OnLine P&H 3801.
(xv). P. Chitambaram vs. Directorate of Enforcement, (2019) 9 SCC 24. (xvi). Y.S. Jagan Mohan Reddy vs. CBI, (2013) 7 SCC 439.
(xvii). Rohit Tandon Vs. Directorae of Enforcement, (2018) 11 SCC 46. (xviii). State of Gujarat Vs. Mohanlal Jitamalji Porwal, (1087) 2 SCC 364. (xix). Shivani Rajiv Saxena vs. Directorate of Enforcement, 2017 SCC OnLine Del 10452. (xx). Aditya Kumar Bhandari Vs. Serious Fraud Investigation Office, 2020 SCC OnLine Del. 588.
7. Shri Anurag Khanna, learned Senior Counsel appearing for applicant, in rejoinder, submitted that rule of parity is applicable in the present matter as co-accused have been granted protection by the Apex Court. It was next contended that in this matter investigation itself is illegal and there was no necessity to arrest the applicant. No active role has been assigned to the applicant in merchanting trade. Since he is suffering from several diseases, he may be released on bail on medical as well as humanitarian ground. There is no chance of fleeing away the applicant. It was further submitted that conditions enumerated in Section 212(6) Companies Act are not mandatory. Similar conditions imposed in PMLA Act has been struck-down by the Apex Court. It was next contended that merchanting trade business was genuine one and it was being carried out since long time without any default. Financial statement furnished by the Companies were accurate and reflect a true state of affairs. Merchanting trade business was also being done alongwith genuine foreign parties (sellers & buyers) and they were running companies independently managed by competent persons having ample experience in the international trade and banking sector. Receivable amount was also genuine and S.F.I.O. has wrongly concluded that false statement was being submitted showing the profitable business, though, company was running in loss. It was next contended that conclusion drawn by S.F.I.O. is not based on concrete evidence and same is only on imagination / hypothesis. Guidelines laid down by the R.B.I. have been complied with in letter and spirit by the Companies. There is inconsistency and contradiction in the complaint itself regarding the charges levelled against the applicant. None of the ingredients of alleged offences are attracted against the applicant.
8. I have considered the rival submissions advanced by the learned counsel for the parties and have gone through the entire record including the case laws relied upon by the learned counsel for the parties carefully.
9. Briefly stated the facts, as mentioned in the affidavit filed in support of the bail application and also the counter affidavit filed by the SFIO, are that the applicant has been arraigned as an accused no.43 in the complaint dated 15.5.2020 filed by the SFIO. It has been averred in the said complaint that applicant was the Managing Director, Signatory of the financial statements of Frost International Limited (in short 'FIL') which is a company engaged in the business of commodities and merchant trading and Chairman Audit Committee and Director in Mohan Steels Limited. He alongwith his son were the ultimate decision makers with reference to Merchanting Trade business of the FIL and MSL. FIL had secured the credit facilities by way of margin money / FD's as well as other collaterals. It has also been averred that since its incorporation in 1995 till February, 2018 FIL had duly serviced all its loans and obligations towards Banks and other creditors in a timely manner and over a period of time, Banks have increased the sanction limit from time to time. Later on, on the basis of complaint, Banks initiated action against FIL based on R.B.I. Circular dated 12.2.2018 and also before the National Company Law Tribunal, Mumbai under the Insolvency and Bankruptcy Code. FIL had challenged the said RBI Circular before Apex Court and the NCLT proceeding was stayed and Circular was quashed. Thereafter, Banks stopped FIL's credit lines and the money received as advance from the buyers for future supplies were adjusted by the Banks against the devolved Letters of Credit. It has also been averred that applicant under the garb of MT conducted moping of interest arbitrage thereby, fraudulently inducing the public sector Banks to obtain credit facilities to FIL. Applicant had knowingly falsified the books of accounts and the financial statements of FIL deliberately concealing material facts thereby including public sector Banks to fraudulently credit facilities to FIL which ultimately remained outstanding at Rs. 4041 Crores as account of FIL became NPA. It is also averred that applicant was also indulged in speculative currency trading unrelated to MT being undertaken by RGC thereby gambling with Banks money which resulted in huge loss. Applicant was instrumental in holding the currency losses in the books of accounts under the garb of debit notes. These debit notes were raised against foreign parties and made part of trade receivable. Later on these debit notes were adjusted against the payment received from the LC rotated funds. Falsified financial statements of FIL signed by the applicant was filed with ROC and was submitted to public sector Banks depicted false MT trade receivables. Applicant provided false and bogus documents to the Banks.
10. Allegation against the applicant is also that he abused his position as promoter-directors of FIL to cause wrongful loss of Rs. 4041 Crores to public sector Banks. He utilized the corporate identity of FIL to perpetrate fraud of rotating the funds obtained through Letter of Credit discounting for mopping the interest arbitrage available between LC issuance and discounting charges and that between the interest on fixed deposits. This whole conspiracy was played under the garb of doing MT.
11. MSL (Mohan Steel Limited) started doing MT business as done by RGC and FIL i.e. mopping the interest arbitrage by rotation of funds through foreign countries entities, availed by discounting of LCs opened from domestic Banks. MSL has also shown false trade receivables in its financial statements against Surya Global and Gulf Distribution Limited to the tune of Rs. 460 Crores aprox. Further, MT purchase - sale has been falsely shown as profitable to get credit facilities though the real profit is generated through interest earned on FD. Thus, MSL has been showing false trade receivables in its financial statements against Surya Global and Gulf Distribution Limited.
12. Applicant used the corporate identity of FIL to rotate LC funds for mopping the interest arbitrage and showed it in the books as Merchanting Trade business. Since it was not actually into MT business the corresponding sales and purchase shown in the financial statements and books of accounts is false. Since mopping of interest was done by keeping the rotated funds obtained through LC discounting in Fixed Deposits to camouflage the same the interest income from FD was shown as part of revenue from operation in the financial statements to give a false picture of profitability of MT business. A large amount of these fictitious trade receivables were standing against their undisclosed related parties.
13. The issues in the MT business and otherwise in the case of FIL which have been revealed during the investigation viz. Round tripping of LC funds for interest arbitrage mopping, segment reporting, revenue manipulation, fictitious trade receivables against foreign parties under the garb of MT and flouting of RBI guidelines were never reported in audit report of FIL of F.Y. 2017-18 by Ankit Bhargawa.
14. Thus, the sum and substance of the outcome of the investigation conducted in the matter and the facts mentioned in the complaint for prosecution are that concerned Companies were engaged in fraudulent merchantine trade and caused wrongful loss to the Public Sector Bank to the tune of Rs. 7820 Crores approximately applying different modus operandi including siphoning of Bank funds through merchantine trade; falsification of financial statement of the Companies involved in the matter by not showing true and fair views.
15. As regards the preliminary objection raised on behalf of SFIO is concerned, certainly present bail application has been filed directly before this Court, applicant did not approach the Court below firstly but keeping in view the prayer made by the applicant before the Apex Court in Special Leave to Appeal (Criminal) No. 2393 of 2020 and the order dated 28.5.2020 passed by the Apex Court, said objection raised on behalf of prosecution is meaningless.
16. So far as the order granting interim protection passed in favour of Sunil Verma, Anoop Kumar Wadhera as well as Vikram Kothari is concerned, if the prohibition contained under Section 212(6) of the Companies Act is declared unconstitutional and struck-down from the Statute, then in that situation also merits of the present matter will not change. Thus, on the the basis of interim protection granted to co-accused by the Apex Court, the applicant cannot be enlarged on bail.
17. If the role of the applicant as alleged by the prosecution, nature and gravity of the offence and also the evidence available on record in support thereof, are compared in consonance with the Guidelines laid down by the Hon'ble Supreme Court in Y.S. Jagmohan Reddy case (supra) and P. Chidambaram case (supra), then also in the present matter huge amount received by the applicant through Letter of Credit has become NPA due to non-payment of advance taken by the Company. It is also evident that this situation arose due to falsification in the books of account furnished by the company before the Bank concerned. Accusation against the applicant and the Company concerned is also that in fact company was running in loss and false receivable amount was shown as profit. Hence, if the aforesaid facts are considered at this stage in light of the submissions raised across the bar, allegations made against the applicant and the Company concerned cannot be overlooked / ignored. Though it is true that merchanting trade business is legal and recognized in India and actual physical possession of goods / articles is not required and intermediary business is permissible on the basis of bill of lading without actual physical possession of the goods / articles, as it goes to the end user directly from first person, yet on the basis of the accusation made against the applicant when proper treatment is being given to him by the concerned Jail Authorities, prayer for bail is not liable to be granted.
18. Further, keeping in view the modus operandi adopted by the Companies concerned for obtaining the Letter of Credit and the amount of NPA, applicant can also not be enlarged on bail on the ground that his daughter is suffering from Cancer.
19. Hence, in view of the Court the nature and gravity of the allegations / offences levelled against the applicant shake the conscience of the society and public at large. Therefore, considering the entire facts and circumstances of the case, submissions of learned counsel for the parties and keeping in view the nature of offence, evidence, complicity of accused and without expressing any opinion on the merits of the case, the Court is of the view that there is no substance in the submissions made by the learned counsel appearing for the applicant. The applicant has not made out a case for bail. The bail application is liable to be rejected and the same is accordingly rejected.
Order Date :- 25.03.2021 safi