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2018 (9) TMI 53 - HC - Companies LawInterim order for release of the Petitioner from illegal judicial custody - bail application - Challenge to validity of Section 212 (6) and (8) of CA act - Held that - The form of the Arrest Order is appended to the SFIO Arrest Rules. It is addressed to the person arrested. Column 15 thereof is titled grounds of arrest with sections under which arrested. It is this Arrest Order which in terms of Rule 4 is required to be served on the person arrested. In the present case the grounds of arrest even according to the SFIO were only explained to the Petitioner. Nowhere is it noted that he was attempted to be served with the grounds of arrest and he refused to receive the grounds. It is only said that he refused to sign the arrest memo in acknowledgment of his having been explained the grounds of arrest. Although Section 212 (8) states that he should be informed of the grounds of arrest Rule 4 of the SFIO Arrest rules read with the Arrest form appended thereto mandates serving upon the Petitioner the copy of the Arrest Order containing the grounds of arrest in Column 15. Even till the filing of the present petition or even thereafter the Arrest order was not served on the Petitioner. On perusing the files the Court noticed that the proposal placed before the Director SFIO was for the arrest of the Petitioner and one other person in exercise of the powers under Section 212(8) Companies Act. This proposal was approved. Yet for some unexplained that other person has not been arrested till date. It appears prima facie that the SFIO was selective about whom it wanted to arrest. Further despite the names of several individuals finding mention in the notes whose culpability is more or less similar to that of the Petitioner the coercive provision of arrest has been exercised only qua the Petitioner. The power vested in an Inspector of the SFIO to use the signed statement of an accused as evidence against him in terms of Section 271 (4) read with Section 217 (7) prima facie appears to violate the fundamental right against self incrimination enshrined in Article 20 (3) of the Constitution of India. The Petitioner has been arrested pursuant to the investigation commenced by the SFIO into the affairs of BSL BSPL and their group companies. Yet till date there has been no move to prosecute any of the companies. It is contended by the SFIO that the arrest of the Petitioner in his individual capacity without proceeding against the companies he was promoter of or was controlling is not illegal since the definition of fraud in terms of the explanation to Section 447 of the Companies Act contemplates any person committing such fraud against a company. This need not include the company which has suffered such fraudulent acts. The above submission has to be examined in light of Section 212 (14) of the Companies act which states that the central government has to take a call on whether prosecution should be launched against the company and its officers or employees who are or have been in employment of the company or any other person directly or indirectly connected with the affairs of the company. It is not the disjunctive or that is used between the expressions the company and its officers or employees . Under Section 15 IBC there has to be a public announcement of the corporate insolvency resolution process. Under Section 18 IBC the interim RP has to collect information concerning the business operations of the company under insolvency for the past two years. In terms of Regulation 36 (2) (h) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 the information memorandum should contain details of all material litigation and any ongoing investigation of proceeding initiated by the Government and statutory authorities against the company facing liquidation. Whether the fact that BSL was under investigation by the SFIO and whether this considered as part of the decision-making process of the NCLT which approved the resolution plan is a question which does not find an answer in the records shown to the Court in the process of hearing the present interim application. As regards the challenge to the validity of Section 212 (6) of the Companies Act insofar as it severely curtails the chances of a person accused of the offence under Section 447 of the Companies Act getting regular bail - Both the PMLA provisions and Section 447 Companies Act pertain to economic offences. It is not possible at this stage to conclude that the offence under Section 447 Companies Act is more heinous than that under Section 45 PMLA. Secondly as far as the high threshold for grant of bail is concerned barring the slight difference in the language both provisions do make it equally difficult for a person accused of an offence thereunder to obtain bail. The above observations in Nikesh Tarachand Shah 2017 (11) TMI 1336 - SUPREME COURT OF INDIA prima facie support the challenge by the Petitioner to the constitutional validity of Section 212 (6) Companies Act. Thirdly even at a practical level if indeed for a valid arrest if the records have to bear out the opinion of the Director SFIO that the person arrested has been guilty of the offence under Section 447 then it will be virtually impossible for the Special Judge to conclude for the purpose of Section 212 (6) that the said person is not guilty of the offence. For all the above reasons the Court is of the view that the Petitioner has a prima facie case in his favour for the grant of interim relief. The present petition cannot be viewed as a mere petition for issuance of a writ of habeas corpus and an attempt to bypass the regular route of obtaining regular bail. With the provision for grant of bail i.e. Section 212(6)(ii) Companies Act and the provision concerning arrest i.e. Section 212(8) Companies Act themselves being challenged and since those challenges are prima facie not frivolous the Petitioner should also be able to seek interim relief incidental to such challenge. The Petitioner will submit a personal bond in the sum of 5 lakhs as well as two sureties in the sum of 2 lakhs each to the satisfaction of the Special Judge (Companies Act) in the case (SFIO v. Neeraj Singal) File No. SFIO/INV/BPS/2016/480-494.
Issues Involved:
1. Validity of Section 212 (6) and (8) of the Companies Act. 2. Legality of arrest and judicial custody. 3. Applicability of the Code of Criminal Procedure (Cr PC) to SFIO investigations. 4. Retrospective application of the amended provisions. 5. Requirement of maintaining case diaries. 6. Interim bail and conditions for its grant. Detailed Analysis: 1. Validity of Section 212 (6) and (8) of the Companies Act: The petitioner challenged the constitutional validity of Sections 212(6)(ii) and 212(7) of the Companies Act, arguing that they violate Articles 14 and 21 of the Constitution. These sections pertain to the grant of bail and impose a high threshold for bail in cases of fraud under Section 447 of the Companies Act. The petitioner cited the Supreme Court's decision in *Nikesh Tarachand Shah v. Union of India* (2018) 11 SCC 1, which struck down a similar provision in the PMLA as unconstitutional. The court found that the petitioner's challenge to the vires of these sections prima facie has merit. 2. Legality of Arrest and Judicial Custody: The petitioner was arrested by the SFIO under Section 212(8) of the Companies Act. The court noted that the SFIO failed to serve the petitioner with a copy of the arrest order containing the grounds of arrest, as mandated by Rule 4 of the SFIO Arrest Rules. The court also observed that the SFIO appeared to be selective in its arrests, as other individuals with similar culpability were not arrested. This raised questions about the legality of the arrest. 3. Applicability of the Cr PC to SFIO Investigations: The SFIO argued that Section 212 of the Companies Act is a code by itself, and there is no requirement for the registration of a case or maintenance of case diaries as mandated by Section 172 Cr PC. However, the court found this argument unconvincing, noting that Section 438 of the Companies Act makes it clear that the Cr PC applies unless explicitly excluded. The court concluded that the SFIO officers could be considered police officers for the purposes of the penal provisions under the Companies Act, and therefore, the discipline of Chapter XII Cr PC, including Section 172, should be adhered to. 4. Retrospective Application of the Amended Provisions: The court noted that the coercive provisions under Sections 212(8) to (10) of the Companies Act, which give senior officers of the SFIO the power of arrest, became operational only on 24th August 2017. The court found that these provisions, which affect life and liberty, cannot be applied retrospectively to events that occurred before they became operational. 5. Requirement of Maintaining Case Diaries: The court emphasized the importance of maintaining case diaries as per Section 172 Cr PC, which requires the Investigating Officer to enter his proceedings day by day in a diary. The court found that the SFIO did not maintain a single volume case diary, which could lead to tampering of documents. The Special Judge, who granted judicial remand, did not append his signature on the files, further questioning the legality of the arrest. 6. Interim Bail and Conditions for Its Grant: The court granted interim bail to the petitioner, noting that he had been in judicial custody since 8th August 2018, and the SFIO had not provided a convincing explanation for the need for continued custody. The court imposed several conditions for the grant of interim bail, including the submission of a personal bond and sureties, cooperation with the investigation, and prohibition from tampering with evidence or influencing witnesses. The court clarified that the observations in the order were only for the purpose of granting interim relief and would not affect the independent determination of the issues in the main writ petition. Conclusion: The court granted interim bail to the petitioner, subject to conditions, and found prima facie merit in the challenge to the constitutional validity of Sections 212(6) and (8) of the Companies Act. The court also questioned the legality of the arrest and the SFIO's selective application of its powers. The applicability of the Cr PC to SFIO investigations and the requirement of maintaining case diaries were emphasized. The retrospective application of the amended provisions was found to be problematic.
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