Delhi High Court - Orders
Sanjay Dhingra & Anr vs Central Bureau Of Investigation & Ors on 2 June, 2021
Author: Rajnish Bhatnagar
Bench: Rajnish Bhatnagar
(VIA VIDEO CONFERENCING)
$~13
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CRL.M.C. 1038/2021 & CRL.M.A. 5329/2021
SANJAY DHINGRA & ANR. ..... Petitioners
Through: Mr. Gurpreet Singh and Mr. Jagjeet
Nandal, Advs.
versus
CENTRAL BUREAU OF INVESTIGATION & ORS.
..... Respondents
Through: Mr. Mridul Jain, Spl. PP with Ms.
Kiran S.SP/AC/V/CBI
CORAM:
HON'BLE MR. JUSTICE RAJNISH BHATNAGAR
ORDER
% 02.06.2021 CRL.M.C. 1038/2021
1. The present petition U/s 482 read with 483 of the Code of Criminal Procedure has been filed by the petitioners with the following prayers:
"a. Pass necessary orders and direction (s) to quash the First Information Report bearing No.RC2232020A0005 dated 10.09.2020 instituted by Respondent No. 2 against all the accused persons;
b. Pass an order or direction(s) to restrain the Respondent No. 1 to act in furtherance of the FLR bearing No. RC 2232020A0005 dated 10.09.2020 instituted by Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31 (VIA VIDEO CONFERENCING) Respondent No. 2 through its Assistant General Manager against M/s. Kwality Ltd. and its directors (including the Petitioners herein) on the basis of the Forensic Audit Report dated 22.03.2019 prepared by the Forensic Auditor namely 'M/s. GSA & Associates' for the alleged defaults of 'M/s. Kwality Ltd.';
c. Pass necessary orders and directions thereby quashing the Forensic Audit Report dated 22.03.2019 prepared by the Forensic Auditor namely 'M/s GSA & Associates;
d. Pass an appropriate order/direction (s) for appointing an independent Forensic Auditor and till the forensic auditor gives its report, no action either penal or otherwise can be taken by the Respondent banks or any other law enforcement agency."
2. It is submitted by the Ld. counsel for the petitioners that the FIR of the present case has been registered on the basis of the complaint made by respondent No. 2 which is based on one Forensic Audit Report dated 22.03.2019 prepared by Forensic Auditor namely "M/s GSA & Associates" for the alleged defaults of "M/s Kwality Ltd. It is further submitted that the respondent No. 1 without verifying the contents of the Audit Report and without conducting any proper preliminary enquiry registered the present FIR. It is further submitted by the counsel for the petitioners that the audit report conducted by respondent No. 2 is not as per the audit /accounting standards and is against the principle of natural justice.
3. It is further submitted that the company was never called upon to Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31 (VIA VIDEO CONFERENCING) explain the accounts details during the audit process and the company was only called upon to reply to the allegations vide email dated 06.04.2019 i.e. much after the Forensic Audit Report was finalized i.e. on 22.03.2019.
4. It is further submitted that on 25.07.2014, the independent lenders of M/s Kwality Ltd. got executed the last consortium documents together to form a consortium of lenders, wherein they appointed, designated and recognized respondent No. 2 as the lead bank and the consortium was titled "BoI Consortium" and an inter-se agreement dated 25.07.2014 was thereafter executed. It is submitted that the company wanted to shift from B2B to B2C model which necessitated changes in the existing business model of the company so as to make it consumer oriented which require infrastructure and equipment of that magnitude.
5. It is further urged that with the prior intimation to the consortium members, Kwality Limited in the year 2015 planned for expansion of the existing business model of the company and the said expansion requires infusion of additional funds of Rs. 800 Crores approximately. It is further urged that for that process the Kwality Ltd. had undertaken loan/credit facilities from term loan lenders and sought additional working capital from respondent No. 2 to 11 for the optimum utilization of new machinery. It is further submitted that during the meeting of consortium members of Kwality, it was decided by the said Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31 (VIA VIDEO CONFERENCING) consortium members to conduct and carry out a Forensic Audit of Kwality for the period 01.04.2010 to 31.03.2015 and subsequent to addendum till 30.09.2015 and for this purpose forensic Auditor Satyha Prakash Mangal & Co. were selected and appointed as the forensic auditors by the consortium.
6. It is further submitted that the said auditor inspected in detail the transactions and books of account of the Kwality in order to ascertain any discrepancy which could be highlighted either as suspicious or fraudulent. It is further submitted that the said auditors submitted their draft special forensic audit report for the period 01.04.2010 to 31.03.2015, addendum to the report for the period 01.04.2015 to 30.09.2015 & report on Dubai Subsidiary for the period 04.12.2011 to 31.03.2015 and other related issues.
7. It is submitted by the counsel for the petitioners that this report was put up for consideration before the consortium in the meeting held on 02.05.2016 and after due discussions and deliberations the lenders opined that since the forensic auditors confirmed that there is no diversion of funds and utilization of WC funds is proper, so the account is not to be declared as fraud and the banks which have got it red flagged with CRILC, RBI should start the process of getting the same removed. It is further submitted that the consortium of the banks confirmed that no funds has been diverged or siphoned away.
8. It is further submitted by the counsel for the petitioner that the Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31 (VIA VIDEO CONFERENCING) loan amount was properly serviced and all the instalments from 2010 to early 2018 were duly and timely paid. It is submitted that the main reason for the partial failure / non-performance of Kwalilty was the non disbursal of additional working capital limits of Rs. 248 Crores for the purpose of utilization as working capital, which was although sanctioned by the members banks of the consortium but despite numerous requests it was never disbursed which resulted in financial losses and business failure of Kwality and the loan account was consequently declared NPA.
9. It is further submitted that in the year 2018, respondent No. 2 appointed one firm namely M/s GSA & Associates as a forensic auditor to carry out forensic audit of the company for a period of 3 years from 01.10.2015 to 30.06.2018 and the said company is hand-in-glove with the respondent No. 2 and prepared a one sided and a prejudiced report against the company. It is further submitted that after taking cognizance and analyzing previous forensic audit carried out under the instructions of the BoI Consortium members, the BoI Consortium of Banks itself had opined that there was no diversion of funds or siphoning off money by Kwality or its directors.
10. It is further submitted that upon receipt of the said forensic report by M/s GSA and Associates, respondent No. 2 acting as the consortium leader issued an email dated 06.04.2019 to the petitioner No. 1 pointing out to him the broad observations highlighted by the said forensic Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31 (VIA VIDEO CONFERENCING) auditor. It is further submitted by the counsel for the petitioners that in the said email, the respondent No. 2 asked the petitioner No. 1 to submit his reply latest by 15.04.2019. It is further submitted by the Ld. counsel for the petitioners that the email itself shows that audit was conducted without giving an opportunity to the company and the petitioners to reply to the allegations thus, it clearly violates the principal of natural justice.
11. It is submitted by the counsel for the petitioner that the petitioner vide email dated 17.04.2019 informed the respondent No. 2 that he will submit his reply in a day or two. It is further submitted that petitioner No. 1 vide email dated 18.04.2019 submitted his reply to respondent No. 2 alongwith all the annexures to the forensic auditor queries. It is further submitted by the counsel for the petitioner that the invitation of the comments by the respondent No. 2 to the alleged draft forensic audit report was a mere sham as the report had already been prepared by 22.03.2019, which clearly shows that the entire process was just an eye wash and one sided prejudicial report was prepared.
12. It is further submitted by the counsel for the petitioners that had the petitioners been given proper hearing and an opportunity to present their side of the case then the said report would not have been prepared to the prejudice of the petitioners. It is further submitted by the counsel for the petitioners that prior to the lodging of the FIR respondent No. 2 to 7 and respondent No. 10 and 11 have Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31 (VIA VIDEO CONFERENCING) independently initiated their respective proceedings to declare Kwality and its directors as wilful defaulters. It is further submitted that in respect to the actions initiated by respondent No. 11 to declare quality and its directors as wilful defaulters, the petitioner No. 1 filed a Writ Petition bearing WP(C) No. 4053/2020 titled as Sanjay Dhingra Vs. Dhanlaxmi Bank Ltd. & Anr. impugning the letter dated 22.01.2020 and 12.05.2020 issued by respondent No. 11 declaring the petitioner No. 1 as a wilful defaulter. It is further submitted that this Court vide order dated 09.07.2020 has passed an order that in the meantime, no coercive steps shall be taken by the bank against the petitioner and no publication will be done by the bank pursuant to the impugned order therein and the said writ petition is pending adjudication. It is further submitted that in the Writ petition titled as Sidhant Gupta Vs. Bank of Baroda & Anr. bearing W.P.(C) No. 3782 of 2020, the respondent No. 10 has been directed by this Court vide order dated 29.06.2020 to maintain status quo in the matter but in complete disregard to the above, the respondent No. 10 has given a consent to the respondent No. 2 for filing a complaint before the respondent No. 1.
13. It is submitted that two forensic audit reports are of dated 22.03.2016 and 22.03.2019 and on bare comparison of the data(s) on which the said two reports have been prepared, it is apparent that no material changes took place in the working of the company between the period of the two reports. It is submitted that one the one hand the report prepared in the year 2016 opined that there is neither diversion Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31 (VIA VIDEO CONFERENCING) of funds nor funds have been siphoned off and the fund was used by the company for the purpose it was sanctioned but the subsequent forensic report of the year 2019 gave contrary findings and the same is based on incorrect facts and without affording an opportunity to the petitioners. It is further submitted by the counsel for the petitioners that the minutes of meeting held on 02.05.2016 of the consortium of the banks had not found any irregularities in the forensic report pertaining to the year 2010 to 2015.
14. It is further submitted by the counsel for the petitioners that the list of debtors and creditors of the company whose transactions were taken into considerations by the two forensic auditors while preparing their respective reports, it would be pertinent to note that the majority of the debtors and creditors of the company remains same over the period. It is submitted by the counsel for the petitioners that it is highly improbable that when the debtors and creditors are almost the same then one report would state that there is no diversion of funds by the company and other report while taking into consideration the same / similar transactions would point out numerous alleged instances of fraud and malpractice. It is further submitted by the counsel for the petitioners that the forensic audit report dated 22.03.2019 is one sided report and has failed to take into consideration the material data and has been prepared under the influence of respondent No. 2 to 11. It is further submitted that the petitioners have been granted anticipatory bail by the Ld. Sessions Court vide order dated 15.10.2020 and they Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31 (VIA VIDEO CONFERENCING) have been joining the investigation.
15. Reply to the petition has been filed by the respondent (CBI). Ld. Special PP for the respondent (CBI) argued on the lines of the reply. It is submitted by the Ld. Special for the respondent (CBI) that the reason for default on the part of the borrower company was cash flow mismatch, non routing of proportionate sales, delay in debtor realisation and repayment obligation of term lenders. It is further submitted that the directors, promoters, guarantors of the company are directly or indirectly related to each other and they have acted dishonestly and defrauded the BoI consortium. It is further submitted that the petitioner Sanjay Dhingra is not an honest tax payer and was in custody in regard to some GST matter. It is further submitted by the Ld. Spl. PP that M/s GSA and Associates concluded their forensic audit which was initiated in August, 2018 and concluded in March, 2019 and they found numerous discrepancies.
16. It is further submitted by the Ld. SPl. PP that the investigation has revealed that the company has engaged in fictitious sales/purchases and has window dressed their balance sheet and financial statements and the promoters have created bogus companies to do fictitious transactions. It is further submitted that the documents have been forged and fabricated including books of accounts and stock position. It is further submitted that most of the directors of the fictitious companies are previous/current employees/workers of M/s Kwality Ltd. and they have been made directors by the petitioners Sanjay Dhingra and Siddhant Gupta for the purpose of Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31 (VIA VIDEO CONFERENCING) defrauding the consortium. It is further submitted by the Ld. Spl. PP that the application for cancellation of the bail of the accused has already been moved which is pending in the High Court.
17. It is further submitted by the Ld. Spl. PP for the respondent (CBI) that conducting of PE before the registration of the FIR is not mandatory. It is further submitted that the petitioners have filed two writ petitions in the High Court claiming the same relief, therefore, this writ petition is not maintainable.
18. Per contra, it is submitted by the counsel for the petitioners that petitioner Sidhant Gupta filed a writ petition bearing W.P.(C) No. 3782/2020 titled as Sidhant Gupta Vs. Bank of Baroda and Anr. and petitioner Sanjay Dhingra filed a writ petition bearing W.P.(C) No. 4053/2020 titled as Sanjay Dhingra Vs. Dhanlaxmi Bank Ltd and Anr. and in both the writ petitions the relief which has been claimed is not similar to the relief claimed in the present petition. It is submitted by him that in the present petition, the petitioners are seeking quashing of the FIR which has not been prayed in the previous two writ petitions.
19. It has been mainly argued by the counsel for the petitioners that first forensic audit report was transparent and followed the principle of natural justice. It is evident from the record that the consortium bank has confirmed that no funds has been diverged or siphoned away on the basis of the report filed by forensic auditors M/s Satyaprakash Mangal and Company. The relevant paragraphs of the said Minutes of Meeting dated 02.05.2016 reads as follows:
Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31(VIA VIDEO CONFERENCING) "Then company officials were asked to leave meeting room so that discussion among lenders and Special (Forensic) Auditors could take place. Upon discrete queries of lenders, officials from Satya Prakash Mangal & Co. (Forensic Audit Firm) confirmed that:
1. They have not found any diversion of funds.
2. Verification of debtors & creditors (both physically by way of visit to their place of work and by verification of related record of company through balance sheet/other KYC documents) has been made by them.
3. They have not found any misutilization of WC limits.
4. Bulk sale/trading of milk, curd and chaach is being undertaken as per the prudent market practices as verified from two peer companies.
5. RBLA and risk management of the company needs to be strengthened.
6. Excepting for some minor operational lapses, remaining things are satisfactory. ..."
Meaning thereby, the first audit report did not find any diversion and siphoning of funds.
20. The subsequent audit report which was conducted by M/s G.S.A. & Associates found irregularities in the accounts of the company. The email dated 06.04.2019 was sent by BoI to the petitioner Sanjay Dhingra, Kwality Finance and other members of the consortium. I have perused the email dated 06.04.2019 which has been sent to Sanjay Dhingra, Kwality Finance and othere banks of the consortium. The subject of this email is Forensic "Audit Observation-Reply Required". The opening para of this email is as follows:
Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31(VIA VIDEO CONFERENCING) "This is to inform you that Forensic Auditor M/s GSA & Associates have submitted Final Forensic Audit Report and same has been shared with all the lenders. The auditor has pointed out following broad observation in the affairs of the company."
21. By virtue of this email, the observations which were pointed out by the auditor in regard to the affairs of the company were informed to the petitioners. By the same email the petitioners were directed to submit their reply to the observations as pointed out by forensic auditor to the consortium latest by 15.04.2019. The reading of this email shows that the forensic auditor M/s G.S.A. & Associates have submitted their final forensic audit report which has been shared with all the lenders. So, if this is the case, there was no scope for the petitioners to have sent any reply as asked by this email. But still as per the petitioners they had sent their reply alongwith annexures vide email dated 18.04.2019.
22. Even if we go by this assertion that it was a draft report, the reply though sent late by the petitioners could have been considered in response to the findings of the forensic audit report of M/s G.S.A. and Associates. It is a fact on record that the complaint in this case was filed on 11.08.2020 and the FIR was registered on 10.09.2020. So, there was ample time between the issuance of this email and filing of the complaint between which the reply sent by the petitioners could have been considered and further clarifications if any could have been called for.
23. Therefore, in these facts and circumstances of this case, at this stage, I Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31 (VIA VIDEO CONFERENCING) am not inclined to quash the Forensic Audit Report of M/s GSA & Associates, so a fresh Forensic Audit Firm namely PVRN & Co. is appointed from the list of IBA empanelled Forensic Audit Firms which are empanelled for conducting forensic audit of frauds above an exposure of Rs. 50 Crores with the directions to examine the matter afresh between the period 01.10.2015 to 30.06.2018. The said Forensic Audit Firm shall give its report within 5 months and till that time no further coercive action be taken against the petitioners. All the expenses in respect of the said Audit shall be borne by the petitioners.
24. List on 24.11.2021.
RAJNISH BHATNAGAR, J JUNE 2, 2021 Signature Not Verified Digitally Signed By:KAMAL KANT MENDIRATTA Signing Date:07.06.2021 20:31