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2022 (1) TMI 1139 - HC - Companies LawSeeking grant of Bail - Conspiracy - allegation of a fraudulent Merchanting Trade (MT) business - submission of false/deceptive statements/financials to different Banks to avail credit facility in the form of opening of Letter of Credit - loss to the Public Sector Banks - abuse of applicant's position as promoter/directors of FIL to cause wrongful loss to public sector Banks - HELD THAT - 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 ₹ 4041 Crores as account of FIL became NPA. Applicant is also stated to be 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. The applicant provided false and bogus documents to the Banks. Abuse of position as promoter/directors of FIL to cause wrongful loss of ₹ 4041 Crores to public sector Banks - HELD THAT - Applicant utilized the corporate identity of FIL to perpetrate fraud of rotating the funds obtained through Letter of Credits 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 - 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 Merchanting Trade and caused wrongful loss to the Public Sector Bank to the tune of ₹ 7820 Crores approximately applying different modus operandi including siphoning of Bank funds through Merchanting Trade; falsification of financial statement of the Companies involved in the matter by not showing true and fair views. Considering the role of the applicant as alleged against him, nature and gravity of the offence and also the evidence available on record in support thereof, prima facie, it appears that huge amount received by the applicant through Letter of Credit has become NPA due to nonpayment of advance taken by the Company on account of falsification in the books of account furnished by the company before the Bank concerned, therefore, the allegations levelled against the applicant and the company concerned cannot be overlooked at this stage - this court is further of the opinion that the applicant is not entitled to bail even under Section 439 Cr.P.C. even if the bail application is not tested on the touchstone of twin conditions as enumerated in Section 212(6) (ii) of the Company Act, 2013 for the reason that offence committed by the applicant is an economic offence which affects the economy of the nation. Application rejected.
Issues Involved:
1. Bail application under Section 439 of the Code of Criminal Procedure. 2. Allegations of fraudulent Merchanting Trade (MT) business and financial misrepresentation. 3. Submission of false documents and financial statements to banks. 4. Economic offences and their impact on the national economy. 5. Medical grounds for bail. Detailed Analysis: 1. Bail Application under Section 439 of the Code of Criminal Procedure: The applicant sought bail under Section 439 Cr.P.C. in connection with Sessions Trial No. 577 of 2020, arising from a complaint under Section 212(14) of the Companies Act, 2013, involving offences under Sections 36(c) r/w/s. 447, 448 of the Companies Act, 2013, and Section 211 r/w/s 628 of the Companies Act, 1956. The application was filed after the Apex Court directed the applicant to approach the High Court for bail. 2. Allegations of Fraudulent Merchanting Trade (MT) Business and Financial Misrepresentation: The applicant, a Director and CEO of Frost International Limited (FIL), was accused of running a fraudulent MT business. The investigation revealed that the applicant and co-accused submitted false and deceptive financial statements to banks to avail credit facilities, causing significant losses to public sector banks. The applicant allegedly manipulated the books of FIL, showing fake and unrecoverable MT trade receivables amounting to ?3537.74 crores. 3. Submission of False Documents and Financial Statements to Banks: The applicant, along with co-accused, knowingly submitted false documents to banks to induce them to provide credit facilities. The financial statements submitted did not reflect the true and fair accounts of their affairs. The applicant was also accused of speculative currency trading with bank money, resulting in heavy losses and siphoning off ?845 crores. 4. Economic Offences and Their Impact on the National Economy: The court emphasized that economic offences constitute a class apart and require a stringent approach in bail matters. The applicant's actions were seen as having a grave impact on the economy, with the fraudulent activities causing a wrongful loss of ?4041 crores to public sector banks. The court referenced cases like P. Chidambaram vs. Directorate of Enforcement and Y.S. Jagan Mohan Reddy vs. Central Bureau of Investigation to support the need for a different approach to economic offences. 5. Medical Grounds for Bail: The applicant claimed to suffer from diabetes and other ailments, seeking bail on medical grounds. However, the court noted that no documentary evidence was provided to show that the applicant was not receiving proper medical treatment in jail. The court cited Anil Kumar Yadav vs. State (N.C.T.) of Delhi, stating that mere custody duration is not a sufficient reason for bail in serious economic offences. Conclusion: The court, after considering the nature and gravity of the offences, the evidence available, and the impact on the national economy, concluded that the applicant did not satisfy the conditions for bail under Section 212(6)(ii) of the Companies Act, 2013, and Section 439 Cr.P.C. The bail application was rejected. The court urged the trial court to expedite the trial proceedings and conclude them within six months.
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