Delhi District Court
Special Judge (Pc Act) (Cbi)-04/Addl. ... vs Serious Fraud Investigation Office on 12 February, 2018
IN THE COURT OF MANOJ JAIN
SPECIAL JUDGE (PC ACT) (CBI)-04/ADDL. SESSIONS JUDGE
CENTRAL DISTRICT: TIS HAZARI COURTS: DELHI
(1) CNR No. DLCT01-016799-2017
Criminal Revision No. 508/2017
(i) Varun Rai,
Son of Sh. Vinay Rai,
Resident of 12 Aurangzeb Lane,
New Delhi. ......... Revisionist No. 1
(ii) Vinay Rai,
Son of late Sh. Kulwant Rai,
Resident of 12 Aurangzeb Lane,
New Delhi. ......... Revisionist No. 2
Versus
Serious Fraud Investigation Office,
Through its Assistant Director,
Ministry of Company Affairs,
Government of India,
2nd Floor, Paryavran Bhawan,
CGO Complex, Lodhi Road,
New Delhi-110003 .............Respondent
(2) CNR No. DLCT01-016800-2017
Criminal Revision No. 510/2017
Varun Rai,
Son of Sh. Vinay Rai,
Resident of 12 Aurangzeb Lane,
New Delhi. ............... Revisionist
Versus
Serious Fraud Investigation Office,
Through its Assistant Director,
Ministry of Company Affairs,
Government of India,
2nd Floor, Paryavran Bhawan,
CGO Complex, Lodhi Road,
New Delhi-110003 .............Respondent
CR No. 508/2017, 510/2017 & 511/2017 Page 1 of 9
(3) CNR No. DLCT01-016801-2017
Criminal Revision No. 511/2017
(i) Vinay Rai,
Son of late Sh. Kulwant Rai,
Resident of 12 Aurangzeb Lane,
New Delhi. ......... Revisionist No. 1
(ii) Varun Rai,
Son of Sh. Vinay Rai,
Resident of 12 Aurangzeb Lane,
New Delhi. ......... Revisionist No. 2
Versus
Serious Fraud Investigation Office,
Through its Assistant Director,
Ministry of Company Affairs,
Government of India,
2nd Floor, Paryavran Bhawan,
CGO Complex, Lodhi Road,
New Delhi-110003 .............Respondent
Date of allocation of revisions: 13.11.2017
Date of conclusion of arguments: 30.01.2018
Date of judgment: 12.02.2018
Memo of Appearance
Sh. Shakeel Ahmed and Sh. Yogesh Kumar Sharma, learned counsels for
revisionists.
Sh. R.S. Dakha, learned Addl. Central Govt. Counsel/Govt. of India, Sh. Hari
Kishan, learned Prosecutor for SFIO and Sh. Sanjay Chaubey, Law
Consultant for SFIO.
JUDGMENT
1 By this common judgment, I propose to dispose of all the three revision petitions.
2 There is delay of 28 days each in lodging of two revision petitions i.e. CR No. 510/2017 & 511/2017. It has been claimed that such delay is neither intentional nor deliberate. Though the hectic schedule of any counsel would not become a ground for condonation of delay yet keeping in mind the CR No. 508/2017, 510/2017 & 511/2017 Page 2 of 9 overall facts and circumstances of the case, such delay is hereby condoned.
3 Said revision petitions bearing CR No. 510/2017 & CR No. 511/2017 are directed against order dated 15.07.2017 (whereby learned ACMM has held the complaints to be in time) and order dated 05.08.2017 (whereby learned CMM, after holding that complaints were in time, summoned the accused). As far as CR No. 508/2017 is concerned, revisionists have taken exception to order dated 05.08.2017 only. Revisionist had raised issue of limitation in relation to complaint related to CR No. 508/2017 as well by filing a separate revision albeit unsuccessfully. His such petition had been allocated to another court and was reportedly dismissed.
4 Since similar contentions have been raised in all the matters and since all the three revision petitions pertain to same company and are against the same order, therefore, all these petitions have been taken up together and are being disposed of by this common judgment.
5 Coming to the core issue of limitation involved in complaints related to CR No. 510/2017 and CR No. 511/2017, it has been vehemently stressed that complaints were hopelessly barred by time. It has been contended that M/s Koshika Telecom Ltd. (KTL) was regularly filing its balance-sheets and annual returns with Registrar of Companies (RoC) since 30.06.1999 and, therefore, the person aggrieved, if any, could have been RoC only and there was no reason for said authority to sleep over the matter. It has been argued that RoC works under Central Government through Ministry of Corporate Affairs and, therefore, alleged contraventions would have been well within the knowledge of Central Government as well through RoC. It has been fervently asserted that there is unexplained and inordinate delay in filing the complaints as these should have been filed within three years reckoned from 30.06.1999 and thus there was no justification in knocking the doors of the Court after approximately eight years. Revisionists have also expressed astonishment claiming that there is no provision in CR No. 508/2017, 510/2017 & 511/2017 Page 3 of 9 Companies Act or anywhere else whereby any prior sanction of Central Government was required for instituting a complaint, particularly in view of the Gazette Notification (published on 11.05.2005) whereby fifteen officers of Serious Fraud Investigation Office (SFIO), Ministry of Company Affairs have been duly authorized to file and conduct prosecution under the Companies Act. Revisionists have also placed strong reliance upon N. Kumar Vs. M.O. Roy, Assistant Director, SFIO MANU/TN/1368/2007, MADRAS HIGH COURT.
6 As per trial court record related to CR No. 510/2017, the complaint had been filed against four accused persons including revisionist (arraigned as accused no. 3) in the complaint. Such complaint is for commission of offence under Section 628 of Companies Act 1956. Revisionist Varun Rai has been claimed to be the Managing Director of M/s Koshika Telecom Limited (KTL). As per the averments made in the complaint, M/s KTL had been granted licence by Department of Telecommunication to establish, maintain and operate Cellular Mobile Telephone Service in the designated areas and it had approached Industrial Finance Corporation of India Limited (IFCI) for financial assistance. Details of the loan sanctioned/disbursed by IFCI are also mentioned in the complaint and as per contractual obligation, M/s KTL was required, inter alia, to open Escrow Account and to obtain a separate "No Lien Account". Investigation revealed that M/s KTL had suppressed material facts by not disclosing about the non- opening of "Escrow Account" and not transferring the collected funds from time to time out of the company's sales realizations in "No Lien Account". Opening of Escrow Account was part of the loan agreement to safeguard the interest of financial institution in case of any default and, therefore, it was a very material fact and all the proposed accused, who were Directors and signatories to the annual report for the period ending 30.06.1999, deliberately omitted to supply the said information.
7 As per the trial court record in relation to CR No. 511/2017, complaint is directed against six persons including Sh. Vinay Rai and Sh.
CR No. 508/2017, 510/2017 & 511/2017 Page 4 of 9Varun Rai for commission of offence under Section 628 of Companies Act 1956. In such complaint also, there is reference of loan obtained from IFCI and it has been mentioned that as per loan agreement, M/s KTL was under
obligation to create 'debt service reserve' out of internal sources/out of the funds raised by way of private placement of equity capital during 1998 and 1999 and to maintain account equivalent to its repayment/obligation to IFCI for ensuing six months. M/s KTL was also under obligation to convert its preference share capital into equity shares by June 1999. Investigation revealed that M/s KTL failed to create 'debt service reserve' and also did not account its preference share capital into equity shares. Thus, material information was deliberately and willfully suppressed which made all the accused liable to face action under Section 628 of Companies Act 1956.
8 As per specific case of complainant SFIO, it came into picture only when an order had been passed by Hon'ble Company Law Board on 22.03.2005. As per said order, Hon'ble Board, while allowing the petition filed by IFCI against M/s KTL under Section 237 (b) of Companies Act, directed Central Government to take appropriate steps to appoint inspectors for inquiry and to take appropriate action on the basis of such inquiry report.
9 On the basis of such order passed by Hon'ble Board, Sh. K.V.S. Singh was appointed as Inspector under Section 237 (b) of Companies Act and some other officers were also appointed to assist Sh. Singh. Such order of Central Government is dated 18.05.2005.
10 It is quite apparent that it was only pursuant to the aforesaid judicial order that SFIO had been directed to carry out the investigation.
11 Section 628 of Companies Act provides sentence upto two years and fine and since the Companies Act, in itself, does not contain any provision related to limitation, Section 468 (2) (c) Cr.P.C. would come into play and, therefore, the period of limitation in such context would be three years.
CR No. 508/2017, 510/2017 & 511/2017 Page 5 of 912 I have carefully gone through the averments appearing in complaint as well as documents annexed with the complaint. I have also seen the pre-summoning evidence of CW1 Sh. Dinesh Kumar, Assistant Director, SFIO, CW2 Sh. Anupam Vashista, Sr. Assistant Director, SFIO and CW3 Sh. K.V.S. Singh, Joint Director, SFIO.
13 To me, it seems quite evident that complaints are well within time. Undoubtedly, the balance-sheet/ annual reports of the accused company would be available with the Registrar of Companies but that by itself would not mean that immediately on the date of filing of any such returns, the period would start to run.
14 Moreover, as already noticed above and as is apparent from the entire record, SFIO came into picture only after Sh. K.V.S. Singh had been appointed inspector. M/s IFCI had knocked the doors of the Hon'ble Company Law Board and Hon'ble Company Law Board vide order dated 22.03.2005 had directed an inquiry and Central Government was directed to appoint inspectors and to take action as per such report. Such directions contained in judicial order passed by Hon'ble Company Law Board, Principal Bench, New Delhi have to be adhered to by all concerned. Inquiry had been initiated as per the specific order passed by a judicial authority and, therefore, revisionist cannot be permitted to raise any grievance.
15 Investigation report was prepared by SFIO and was forwarded to Ministry of Company Affairs and vide order dated 17.08.2006, Central Government, through Ministry of Company Affairs, conveyed the instructions to file prosecution and on the basis of said instructions, complaints were filed before the court of learned ACMM, Delhi.
16 Revisionist cannot dig out any advantage from N. Kumar Vs. M.O. Roy (Supra) as in the present case, as already noticed above, inquiry had been initiated as per the specific directions of Hon'ble Company Law CR No. 508/2017, 510/2017 & 511/2017 Page 6 of 9 Board which aspect was not involved in the afore-cited precedent 17 Complaint, in relation to CR No. 510/2017, was filed on 28.04.2007 and the other one was filed on 17.02.2007. I have no hesitation in holding that both the said complaints are found to be within time. SFIO entered the scene only after it was asked to conduct an inquiry in terms of said order passed by Hon'ble Company Law Board. Merely because the balance-sheets and annual returns were already available in the office of ROC, it cannot be automatically inferred that even the commission of offence was well within the knowledge of ROC or for that matter SFIO. M/s IFCI prayed for investigation before the Hon'ble Board and omission came to fore only when investigation was carried out later.
18 Before parting, I would also like to take up the aspect regarding the grant of sanction of Central Government for launching of prosecution.
19 In the complaint, it has been mentioned that after the investigation report was submitted to the Government of India, complainant received a letter dated 17.08.2006 to file complaint and accordingly complaint had been filed. Such aspect again needs to be read in conjunction with the directions contained in the aforesaid order of Hon'ble Company Law Board. SFIO could have only carried out the investigation or inquiry in terms of the directions and as per the specific observations appearing in order of Hon'ble Company Law Board, it was for the Central Government to take appropriate action on the basis of such inquiry report. It was in that context only that SFIO had sent the inquiry report to Central Government which eventually directed SFIO to launch prosecution. Merely because some officers of SFIO had already been designated to file and conduct prosecution would not mean that SFIO stood relieved of taking any further permission from Central Government. Therefore, SFIO waited for a final nod from the Central Government.
20 Be that as it may, I do not find any reason to hold that said two complaints were barred by time.
CR No. 508/2017, 510/2017 & 511/2017 Page 7 of 921 Let me now switch over to the other aspect of the case i.e. summoning order dated 05.06.2017.
22 It has been claimed by revisionists that there is no falsification of record and, therefore, there was no occasion to have summoned anyone. It has been claimed that merely because revisionists were Directors of the accused company along with others at some point of time would not mean that they would become vicariously liable. It has also been claimed that revisionists did not even fail within the definition of "officer in default" as given under Section 5 of Companies Act. It has also been alleged that there are no specific allegations against revisionists and no prima facie material on record justifying their summoning. It has also been contended that SFIO cannot be labelled as "aggrieved party" either.
23 I have given my thoughtful consideration to such contentions. I have already noted the averments made in two complaints. As regards, complaint related to CR No. 508/2017, it has been, inter alia, alleged that M/s KTL has shown expenses on account of advertisement, printing and stationery etc. and all such expenses were found to be fictitious in nature and were found booked to inflate the expenses with an objective to reduce the tax liability. For said purpose, M/s KTL had used the services of firm/concerns operated and controlled by one Hemant Kumar. Investigation of said matter also revealed the cunning modus operandi to siphon off the funds. It has also been alleged that either false statements were made intentionally or there was deliberate suppression of material facts which made accused liable to face action under Section 628 of Companies Act 1956.
24 Accused persons have been summoned after the pre-summoning evidence was led.
25 From the side of SFIO, it has been highlighted that the promoters CR No. 508/2017, 510/2017 & 511/2017 Page 8 of 9 of M/s KTL did not appear during the investigation. Sh. Vinay Rai avoided his appearance despite the efforts made by the investigation team and Sh. Anil Rai also remained elusive. Sh. Varun Rai appeared before the investigation team but left midway and when questionnaire was sent to all three of them, SFIO received vague and evasive reply.
26 I am of the considered opinion that in view of the averments made in the complaints, testimony led by SFIO and the documents proved, there existed prima facie case against the revisionists and, therefore, there is no illegality or impropriety in having summoned them as accused.
27 As an upshot of my foregoing discussion, I hereby dismiss all the three revision petitions.
28 A signed copy of this common judgment be placed in case file of CR No. 510/2017 and attested copy of thereof in the other two files.
29 A copy of the judgment be sent to learned trial court along with trial court record.
30 Files pertaining to revision petitions be consigned to Record Room.
Announced in the open Court On this 12th day of February, 2018 (MANOJ JAIN) ASJ/Special Judge (PC Act) (CBI)-04 Central Distt: Tis Hazari Courts: Delhi Digitally signed MANOJ by MANOJ JAIN Date: JAIN 2018.02.12 14:55:50 +0530 CR No. 508/2017, 510/2017 & 511/2017 Page 9 of 9