Serious Fraud Investigation Office vs Nittin Johari

CRIMINAL APPEAL NO. 1381 OF 2019 (@ S.L.P. (CRL.) NO. 7437 OF 2019

Serious Fraud Investigation Office …Appellant(s)

Versus

Nittin Johari & Anr. …Respondent(s)

JUDGMENT

MOHAN M. SHANTANAGOUDAR, J.

Leave granted.

2. The instant appeal challenges the grant of bail to

Respondent No. 1 by the High Court of Delhi in Bail Application

No. 1971/2019 in C.C. No. 770/2019, vide the order dated

14.08.2019.

3. The case of the prosecution primarily hinges on the

commission of fraud punishable under Section 447 of the Signature Not Verified

Companies Act, 2013 (for short “the Companies Act”), though Digitally signed by SATISH KUMAR YADAV Date: 2019.09.12 16:50:55 IST Reason:

several other offences under the Companies Act and the Indian

1 Penal Code, 1860 have also been alleged. Briefly put, it is alleged

that from FY 2009­10 to FY 2016­17, Brij Bhushan Singal and

Neeraj Singal, promoters of Bhushan Steel Ltd. (for short “BSL”),

assisted by employees and close associates, used a complex web

of 157 companies to siphon off funds from BSL for various

purposes, and also fraudulently availed of credit from various

lender banks and manipulated the books of accounts and

financial statements of BSL, causing wrongful loss to banks and

financial institutions amounting to Rs. 20,879 crores and

causing wrongful gain to the promoters and their family

members, amounting to around Rs. 3500 crores.

Respondent No. 1 herein, Nittin Johari, who was the Chief

Financial Officer and Whole Time Director (Finance) of BSL, as

well as a member of the Committee of the Board of Directors on

Borrowing, Investment and Loans during the relevant period, was

alleged to have been a close associate of the promoters and to

have played a central role in perpetrating these frauds. In

particular, it is alleged that Respondent No. 1 played an active

role in using fraudulent letters of credit to avail of credit from

lender banks, in inflating Stock­in­Transit figures to avail of

greater Drawing Power from banks, and in manipulating

2 statements of accounts and other financial statements of BSL in

the garb of adopting the Indian Accounting Standards.

Investigation into the affairs of BSL and certain associated

companies had been initiated by the Serious Fraud Investigation

Office (for short “the SFIO”), the Appellant herein, pursuant to

the order dated 03.05.2016 issued by the Ministry of Corporate

Affairs (for short “the MCA”) under Section 212(1)(c) of the

Companies Act. Gradually, the scope of investigation expanded to

157 companies and 130 individuals.

4. Respondent No. 1 came to be arrested on 02.05.2019, and

was remanded to the Appellant’s custody on 03.05.2019. He has

been in judicial custody since 08.05.2019. It is also pertinent to

note that previously, co­accused Neeraj Singal had been granted

certain interim reliefs (including interim bail) by the High Court

of Delhi vide order dated 29.08.2018 in W.P. (Crl.) No.

2453/2018, in which he had challenged the constitutionality of

Section 212(6)(ii), (7) and (8) of the Companies Act. The operation

and effect of this order (save for his interim release) had been

stayed by this Court in appeal, vide order dated 04.09.2018.

5. Respondent No. 1 applied for regular bail under Section 439

of the Code of Criminal Procedure, 1973 (for short “the Cr.P.C.”),

3 which was dismissed by the Special Judge (Companies Act),

Dwarka District Courts, Delhi, vide order dated 06.06.2019. The

Investigation Report was submitted by the Appellant to the MCA

on 27.06.2019, and after obtaining sanction from the MCA, the

Petitioner filed the Complaint before the Special Court on

01.07.2019. It may be pertinent to note that as per Section

212(15) of the Companies Act, the Investigation Report filed

under Section 212(12) of the Companies Act is deemed to be a

report filed by a police officer under Section 173 of the Cr.P.C.

(i.e. the chargesheet).

Respondent No. 1 filed another application under Section

439 of the Cr.P.C. before the Special Judge, which was dismissed

vide order dated 02.08.2019. It is pertinent to note that both

these orders take note of the mandatory nature of Section 212(6)

(ii) of the Companies Act pertaining to the grant of bail for

offences, as well as of the gravity of the economic offence

committed, the deep­rooted nature of the conspiracy, and the

huge loss of public funds involved.

6. Bail Application No. 1791/2019 was subsequently filed

before the High Court of Delhi, which came to be allowed vide the

impugned order, giving rise to the instant appeal. The impugned

4 order was stayed by this Court on 16.08.2019. Respondent No. 1

therefore continues to be in custody.

7. At the outset, learned Solicitor General Shri Tushar Mehta,

appearing on behalf of the Appellant, requested that as the

proceedings in SFIO v. Neeraj Singal (Crl. Appeal No. 1114 of

2018) might be referred to by Respondent No. 1 to buttress his

claim for bail on the ground of parity, it may be appropriate for

this bench to also take up the proceedings related to the grant of

interim bail to Neeraj Singal, currently pending before a

coordinate bench of this Court, alongside the present petition. As

of now, we do not find any ground to accept this request, and are

therefore constrained to turn it down for the present.

Learned Solicitor General also submitted that the relief of

interim bail had been wrongly granted to co­accused Neeraj

Singal by the High Court of Delhi when he mounted a challenge

to the constitutionality of Section 212(6)(ii), (7) and (8) of the

Companies Act, and not on merits. This order had thereafter

been criticized by this Court in Criminal Appeal No. 1114 of 2018

in its order dated 04.09.2018, inter alia on the ground that the

High Court should have at least considered the case for interim

relief by applying the broad contours of Section 439 of the Cr.P.C.

5 In this respect, he referred to the following observations made in

the order dated 04.09.2018:

“9. In the nature of the interim order that we propose to pass, we refrain from elaborating on the contentions and the reasons recorded by the High Court at this stage. However, we may observe that prima facie we find that the reasons being on the constitutional validity of provisions apart from Sections 212(6)(ii) and 212(7) of the Act ought not to have weighed with the High Court for grant of interim relief. Moreover, in any case, the High Court ought to have applied the broad contours required to be kept in mind for grant of bail under Section 439 Cr.P.C., which aspect, we find, has not been adverted to at all in the impugned order. There is prima facie substance in the grievance of the appellants that the High Court has failed to consider matter such as the nature of gravity of the alleged offence. Moreover, we find that in the course of the impugned order, the High Court even proceeded to recall certain observations made by it in another case (Poonam Malik v. Union of India [W.P.(Crl.) No.2384 of 2018] order dated 10th August 2018).”

It was submitted that in light of these peculiar

circumstances, there exists no reason to grant bail to Respondent

No. 1 on the ground of parity with Neeraj Singal. It was further

submitted that the non­arrest of various other co­accused was

not pertinent to deciding whether Respondent No. 1 should be

released on bail.

Learned Solicitor General also sought to impress upon us

the magnitude of the offence, arguing that economic offences

6 form a class apart, particularly cases such as the instant one,

which have resulted in not only a substantial loss to banks but

also a huge blow to the national economy. In such cases, the

Court must account for several factors while granting bail,

especially the gravity of the offence involved. In pursuance of this

contention, he referred to certain observations made by this

Court in Y.S. Jagan Mohan Reddy v. Central Bureau of

Investigation, (2013) 7 SCC 439 to this effect. It was argued that

the above factors had not been considered adequately by the

High Court in the impugned order, which granted bail merely on

the basis of “broad probabilities” and without adverting to the

gravity of the offence and its impact on society.

In this respect, he took us through the contents of the

complaint, arguing that the High Court had erred in selectively

referring to certain portions thereof, and had not appreciated that

the extent of the role of Respondent No. 1 in the alleged offences

had been made out extensively throughout the complaint.

Additionally, reference was made to the mandatory

conditions under Section 212(6)(ii) of the Companies Act, which

require the Court to record its satisfaction that there exist

reasonable grounds for believing that the accused is not guilty of

7 the alleged offence and is not likely to commit any offence while

on bail. It was argued that these conditions do not imply that an

applicant would be kept in custody indefinitely. In this respect,

our attention was drawn to the decision in Collector of

Customs, New Delhi v. Ahmadalieva Nodira, (2004) 3 SCC

549, pertaining to an analogous provision (i.e. Section 37(1)(b)(ii)

of the Narcotic Drugs and Psychotropic Substances Act, 1985), in

which it was held that the term “reasonable grounds” refers to

something more than prima facie grounds, and contemplates

substantial probable causes for believing that the accused is not

guilty of the offence concerned.

Learned Solicitor General also referred to Nikesh

Tarachand Shah v. Union of India, (2018) 11 SCC 1, wherein

this Court had struck down Section 45 of the Prevention of

Money Laundering Act, 2002 (for short “the PMLA”), another

provision analogous to Section 212(6) of the Companies Act. It

was contended that this decision was irrelevant to the present

case, since the classification because of which the provision was

held to be unconstitutional had been done away with. This was

because when the said judgment was passed, Section 45 of the

8 PMLA imposed the twin conditions for bail only for offences found

in Schedule A of the PMLA (i.e., ‘predicate offences’ found in other

penal statutes) which were punishable with imprisonment for

three years or more, and this Court had struck down this

provision as unconstitutional mainly on the ground that the

aforesaid classification did not seem to have a rational nexus to

the object of that legislation. However, the Parliament had

subsequently amended Section 45 of the PMLA, imposing the

twin conditions for bail for offences under the PMLA itself, and

not for offences found in Schedule A. It was further submitted

that after the said amendment, Section 45 of the PMLA had

become in pari materia with Section 212(6) of the Companies Act,

as the latter section also imposed the twin conditions for offences

under Section 447 of the Companies Act itself.

8. On the other hand, learned Senior Counsel Shri Kapil Sibal,

appearing on behalf of Respondent No. 1, submitted that once

investigation is over and a chargesheet has been filed, as has

been done in the present case, the nature of allegations may not

be a factor to decide if bail is to be granted. Instead, in such

cases, the Court must consider whether the applicant has been

cooperating in the investigation, and whether there is a

9 possibility that the applicant may abscond or tamper with

evidence. At the same time, learned Senior Counsel was quick to

caution that mere apprehension of tampering or absconding is

not enough to deny bail, and that there should be an attempt at

tampering with evidence or certainty that the petitioner would

abscond if he is granted bail. Reliance was placed on State of

Maharashtra v. Nainmal Punjaji Shah, (1969) 3 SCC 904 to

buttress this proposition. It was stressed that in the instant case,

there had been no allegation of tampering with evidence or

influencing witnesses against Respondent No. 1.

Learned Senior Counsel also referred to Y.S. Jagan Mohan

Reddy (supra), where the Court had given the accused therein

liberty to renew his prayer for bail once the chargesheet had been

filed. He also highlighted that bail had been granted within five

days after the chargesheet had been filed. The decision of this

Court in Sanjay Chandra v. Central Bureau of Investigation,

(2012) 1 SCC 40, was also referred to, wherein bail had been

granted since custody was felt to be unnecessary after the

chargesheet had been filed.

10 It was also contended that since BSL has been taken over

by the Tata Group, there was no possibility of tampering with any

evidence, as all relevant documents were either in the possession

of the new owners of BSL or of the Court.

Learned Senior Counsel further submitted that the

Appellant had unfairly targeted Respondent No. 1 by arresting

only him, although 287 parties, including 157 companies and

130 individuals, were named in the complaint. Further, he drew

our attention to the order dated 16.08.2019 vide which the

Special Judge has directed the parties to be summoned in

batches until December 2019. It was further contended that the

documents sought to be submitted by the Appellant ran into

more than 70,000 pages, the perusal of which at the stage of

framing of charges before the Special Judge would take a

considerable amount of time. It was thus argued that if the

present appeal before this Court were allowed, Respondent No.1,

who has already spent 124 days in custody, would have to spend

well over a year or more in custody even before the

commencement of the trial.

With respect to the twin mandatory conditions under

Section 212(6)(ii) of the Companies Act, learned Senior Counsel

11 highlighted that in Nikesh Tarachand Shah (supra), Section 45

of the PMLA had been held unconstitutional not only under

Article 14, but also under Article 21 of the Constitution, as the

said section made drastic inroads into the fundamental right of

liberty without there being a compelling state interest. However,

without going into the question of the constitutionality of Section

212(6) of the Companies Act itself, it was stressed that since the

provision, as it exists, requires the Court to practically record a

finding of acquittal in order to grant bail, it is well nigh

impossible for an applicant to obtain bail under the provision.

Overall, it was contended that the High Court had used its

discretion in granting bail in Respondent No.1 after applying its

mind to the contents of the complaint and relevant legal

propositions, and did not suffer from any perversity so as to

warrant the intervention of this Court.

9. Having heard the learned Counsel on either side, we have

perused the record.

10. It is pertinent to begin our discussion by referring to the

mandatory conditions imposed under Section 212(6)(ii) for the

grant of bail in connection with offences under Section 447 of the

Companies Act. Sub­clause (ii) of Section 212(6) reads as follows:

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“(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), offence covered under section 447 of this Act shall be cognizable and no person accused of any offence under those sections shall be released on bail or on his own bond unless—

(ii) where the Public Prosecutor opposes the application, 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”

Although arguments have been advanced touching upon the

scope and validity of the above provision, particularly in the

aftermath of the decision of this Court in Nikesh Tarachand

Shah (supra) pertaining to a similar provision in the PMLA, we

do not find it appropriate to make any observations in this regard

in light of the pendency of the challenge to the constitutionality of

the said provision of the Companies Act before this Court.

11. At this juncture, it must be noted that even as per Section

212(7) of the Companies Act, the limitation under Section 212(6)

with respect to grant of bail is in addition to those already

provided in the Cr.P.C. Thus, it is necessary to advert to the

principles governing the grant of bail under Section 439 of the

Cr.P.C. Specifically, heed must be paid to the stringent view

taken by this Court towards grant of bail with respect of

economic offences. In this regard, it is pertinent to refer to the

13 following observations of this Court in Y.S. Jagan Mohan Reddy

(supra):

“34. Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offences having deep­ rooted conspiracies and involving huge loss of public funds need to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of the country.

35. While granting bail, the court has to keep in mind the nature of accusations, the nature of evidence in support thereof, the severity of the punishment which conviction will entail, the character of the accused, circumstances which are peculiar to the accused, reasonable possibility of securing the presence of the accused at the trial, reasonable apprehension of the witnesses being tampered with, the larger interests of the public/State and other similar considerations.”

This Court has adopted this position in several decisions,

including Gautam Kundu v. Directorate of Enforcement

(Prevention of Money Laundering Act), Government of India,

(2015) 16 SCC 1, and State of Bihar v. Amit Kumar, (2017) 13

SCC 751. Thus, it is evident that the above factors must be taken

into account while determining whether bail should be granted in

cases involving grave economic offences.

12. As already discussed supra, it is apparent that the Special

Court, while considering the bail applications filed by Respondent

14 No. 1 both prior and subsequent to the filing of the Investigation

Report and complaint, has attempted to account not only for the

conditions laid down in Section 212(6) of the Companies Act, but

also of the general principles governing the grant of bail.

13. In our considered opinion, the High Court in the impugned

order has failed to apply even these general principles. The High

Court, after referring to certain portions of the complaint to

ascertain the alleged role of Respondent No. 1, came to the

conclusion that the role attributed to him was merely that of

colluding with the co­accused promoters in the commission of

the offence in question. The Court referred to the principles

governing the grant of bail as laid down by this Court in

Ranjitsing Brahmajeetsingh Sharma v. State of

Maharashtra, (2005) 5 SCC 294, which discusses the effect of

the twin mandatory conditions pertaining to the grant of bail for

offences under the Maharashtra Control of Organised Crime Act,

1999 as laid down in Section 21(4) thereof, similar to the

conditions embodied in Section 212(6)(ii) of the Companies Act.

However, the High Court went on to grant bail to Respondent No.

15 1 by observing that bail was justified on the “broad probabilities”

of the case.

In our considered opinion, this vague observation

demonstrates non­application of mind on the part of the Court

even under Section 439 of the Cr.P.C., even if we keep aside the

question of satisfaction of the mandatory requirements under

Section 212(6)(ii) of the Companies Act.

14. Moreover, the fate of the co­accused promoters alleged to be

the “mind and will” of the accused companies seems to have

played heavily on the Court’s mind. The High Court observed that

while co­accused Brij Bhushan Singal had not been arrested due

to his old age, co­accused Neeraj Singal had already been granted

bail, vide order dated 29.08.2018. The Court noted that the order

dated 29.08.2018 primarily dealt with the challenge mounted to

the constitutional validity of various sub­sections of Section 212

of the Companies Act, and that though the operation of that

order had been stayed by the Supreme Court, this was only

because the observations made by the High Court in its order

dated 29.08.2018 were of far­reaching consequences, and the

release of such co­accused on bail had not been reversed.

16 We refrain from making any observations with respect to the

proceedings pertaining to Neeraj Singal, particularly since the

proceedings pertaining to the vires of Section 212(6)(ii) of the

Companies Act that have arisen therefrom are pending before

this Court, as already noted supra. However, we find it necessary

to note that in light of the peculiar circumstances of the case, the

High Court ought not to have been influenced by the non­arrest

of Brij Bhushan Singal and the grant of bail to Neeraj Singal.

15. In light of the foregoing discussion, we are of the view that

the High Court has failed to apply its mind to all the

circumstances that were required to be considered while granting

bail, particularly in relation to economic offences. Accordingly,

the impugned order is hereby set aside.

16. In the interest of justice, we deem it fit to remand the matter

to the High Court to reconsider Bail Application No. 1971/2019

filed by Respondent No.1 in light of the principles governing the

grant of bail under Section 439 of the Cr.P.C, while also keeping

in mind the scope and effect of the twin mandatory conditions for

grant of bail laid down in Section 212(6)(ii) of the Companies Act.

Needless to say, Respondent No. 1 shall continue to remain in

17 custody subject to the order of the High Court in the said bail

application.

17. The impugned order of the High Court is set aside. This

appeal is disposed of accordingly, with a request to the High

Court to decide the bail application afresh at an early date, in

accordance with law, and in the light of the aforesaid

observations.

..........................................J. (N.V. Ramana)

...........................................J. (Mohan M. Shantanagoudar)

............................................J. (Ajay Rastogi) New Delhi;

September 12, 2019.

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