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TMI Blog2023 (5) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian Penal Code 1860 ('IPC' for short), sections 211/628/227/233 of the Companies Act, 1956 ('1956 Act' for short) and sections 129/447/448 of the Companies Act, 2013 ('2013 Act' for short). 2. Notice on this petition was issued on 25.01.2023; whereupon reply has been filed by the SFIO by way of counter affidavit dated 03.02.2023. Both parties have also filed their respective written submissions in the matter. 3. The court has heard Mr. N. Hariharan, learned senior counsel and Mr. Tanveer Ahmed Mir, learned counsel on behalf of the petitioner. The court has also heard Mr. Ajay Digpaul, learned Central Government Standing Counsel on behalf of the SFIO. BRIEF OVERVIEW 4. M/s. Educomp Solutions Ltd. ('ESL' for short) was incorporated in the year 1994. One Shantanu Prakash was its managing director and his father Jagdish Prakash was a whole-time director. In 2013 ESL faced a severe liquidity crunch for various reasons and had to therefore opt for Corporate Debt Restructuring ('CDR' for short) vide Master Restructuring Agreement dated 25.03.2014 ('MRA' for short) signed with the consortium of lenders (banks) led by the State Bank of Patiala (which bank has later merged with S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner. These have then found their way into the criminal complaint by way of 'findings' of the SFIO. The charges and findings may be collated and summarised in the following extracts from the criminal complaint : 10.1. Commission of fraud in the affairs of the Companies Under Investigation ('CUIs') by using the paper companies (divided in 5 groups); and by siphoning-off funds of CUIs in the accounts of the close associates of Shantanu Prakash, punishable under section 447 of the 2013 Act. The relevant allegations read as under : "Ashish Mittal, Ex-CFO Educomp Group 120. Ashish Mittal joined as Vice President (Finance) in ESL on 01.11.2013 and was promoted to CFO of Educomp Group on 26.05.2014. He resigned on 24.02.2018. He had also given professional services to ESL before joining as CFO of Educomp group through his company namely Lotus Risk Management Pvt Ltd during period FY 2009-10 to FY 2012-13. Further, he had also given services to ESSPL through his company Lotus Risk Management Pvt Ltd during period FY 2013-14 to FY 2014-15. 121. Further, Ashish Mittal had received funds of Rs. 5.50 crores in his personal accounts from the Group-I Companies. He failed to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dir Classes Ltd. (VMC), punishable under section 447 of the 2013 Act. The relevant allegations read as under : "Ashish Mittal, Ex-CFO of ESL 209. He joined as Vice President (Finance) in ESL on 01.11.2013 and was promoted to CFO of Educomp Group on 26.05.2014 and resigned on24.02.2018. Ashish Mittal had attended the Joint Lender Meetings of CDR. As per CDR proposal of ESL, VMC was identified one of the assets to be monetized. He was well aware of the fact that Shantanu Prakash was holding indirectly control of VMC by KBESPL.. 210. The first tranche of sale of VMC was executed when he was CFO of Educomp group and he was well aware that the funds of Rs. 16.33 Crore were arranged from SDPL, SESPL, Progressive Finlease and Group I companies. Further, he was also aware of Rs. 3 Crore arranged from ESSPL and the same were utilized by ELHPL for payment to ICICI bank. Ashish Mittal, Auditor of KBESPL and Ajit Singh, Account of KBESPL used to report him. Further, finalization of the books of accounts of KBESPL was done at the premises of ESL at Gurgaon under his supervision." 10.4. Commission of fraud in the sale of Mussoorie International School, punishable under section 447 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and director of OSN group regarding the transactions towards to be made. He admitted that during F.Y. 2009-10 to 2011-12 huge amount of capital advances to OSN group to reduce the fictitious debtors in the books of account of ESSPL. He also admitted that fictitious collection agencies were created to route the monies through entry-operators based at Sirsa which was managed by Mahesh Sharda, Ex-Director of ElSML and he also admitted that OSN group was indirectly controlled by Shantanu Prakash through Sanjay Saini. 291. He admitted that EISML and EPEL had given capital advances to JDMS, Wens Agro which were controlled by CA Deepak Jain. 292. He also admitted that he had routed the funds received through his controlled companies into the. bank accounts of ESSPL. This whole process was opted just to clear the bogus debtors of ESL which were transferred to ESSPL." 10.6. Criminal conspiracy and cheating by siphoning-off funds from EISML through acquisition of land located at Hanumangarh, Rajasthan at an inflated price, punishable under section 420 read with section 120B IPC. The relevant allegations read as under : "Ashish Mittal, Ex-CFO of Educomp Group and Virtual CFO of OSN Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10 to FY 2012-13. Later on, he joined as Vice President (Finance) in ESL on 01.11.2013 and promoted to CFO of Educomp Group on 26.05.2014 and resigned on 24.02.2018. He was Director (Finance) during period 01.04.2017 to 30.06.2017. He had also given professional services to ESL before joining as CFO of Educomp group through his company namely Lotus Risk Management Pvt Ltd during period FY 2009-10 to FY 2012-13. Further, he had also given services to ESSPL through his company Lotus Risk Management Pvt Ltd during period FY 2013-14 to FY 2014-15 342. He was the virtual CFO of OSN Group till 2011-12. He had given services to OSN Group through his firms and was the connecting link between Educomp Group and OSN Group. 343. During statement on oath Sanjay Saini confirmed that OSNIPPL and OSNBPL were formed on the instructions of Ashish Mittal. He confirmed that OSN group was indirectly controlled by Shantanu Prakash through Sanjay Saini and that negotiated prices of land parcels were higher than the normal prevailing prices at that time. He further confirmed that it was instructed by Sangeet Gulati, the then CFO of ESL to purchase land at a price significantly higher than the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior counsel and Mr. Mir, learned counsel for the petitioner have made detailed submissions in the matter. From the oral submissions made and the written submissions filed on behalf of the petitioner, the following may be summarised as the key points raised on the petitioner's behalf : 11.1. The main promoters/alleged beneficiaries in the matter are enjoying interim protection and have been charge sheeted without arrest: 11.1.1. The main promoters of the ESL including the MD/CEO Shantanu Prakash, Whole-Time Director/Chairman Jagdish Prakash and Whole-Time Director Vinod Kumar Dandona were all granted interim protection by a Co-ordinate Bench of this court vide order dated 26.05.2022 in W.P. (Crl) 1242/2022. The interim protection is operative till date. No proceedings have been filed by the SFIO to challenge the interim protection so granted. 11.1.2. The above-named main promoters/key managerial personnel, who are the main beneficiaries of the alleged fraud as per SFIO's own case, along with 53 other individuals who have been assigned a greater role than the petitioner by the SFIO, were all chargesheeted without arrest. Several other persons who held key managerial positio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insolvency resolution process under the Insolvency & Bankruptcy Coder 2016 ('IBC' for short), the management control vested with the Resolution Professional appointed w.e.f. 30.05.2017. Though these were the prevailing circumstances, none of the bankers, banks or members of the lending consortium are accused in the present case, which also belies the allegations against the petitioner. 11.3. The petitioner was not involved in the day-to-day decision making or control of any of the subsidiaries of the ESL: 11.3.1. The petitioner was internally referred to as the Group CFO only to facilitate him to coordinate CDR implementation but there is no Board Resolution of ESL or its subsidiaries (as required under section 203(2) of the 2013 Act), or any filing with RoC appointing him as Group CFO. The petitioner was not in control of the day-to-day functioning or any decision making of the subsidiaries of ESL. This has been stated on oath by the main Promoter/Managing Director, who employed the petitioner, in his statement tendered under section 217 of the 2013 Act. There were separate CFOs/Managing Directors/key managerial personnel for each subsidiary company. 11.3.2. The SFIO alleges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the vouchers/cheques issued by ESL. Such papers were signed by Shantanu Prakash, Jagdish Prakash and Pramod Thatoi as per the SFIO's own investigation. 11.5. As per documents relied upon by the prosecution, during the petitioner's tenure only about Rs. 5.76 crore was allegedly transferred out from the accounts of ESL into the accounts of the 65 companies, alleged to be paper companies : 11.5.1. As explained above, such siphoning-off could, if at all, only have been done by the Procurement Department headed by the Procurement Head, which was directly reporting to the main promoter, Shantanu Prakash. Since no vouchers, cheques, invoices were ever signed by the petitioner, he could not have had any knowledge about the transactions related to such alleged bogus purchases/sales. As per the MCA report the network of operators for the alleged siphoning-off funds was already in place prior to the petitioner joining the company; and almost the entire alleged siphoning of Rs. 240.76 crore had already taken place before he joined ESL. None of the operators of the alleged paper companies have stated that the petitioner was involved in the alleged siphoning operations. 11.5.2. During t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 which names as many as 12 people, but importantly does not name or implicate the petitioner. On the other hand, the said report directly names Shantanu Prakash, VK Dandona, Jagdish Prakash, Rajat Khare, VK Chaudhary, Krishna Pratap Singh, Raman Bajaj, DK Gupta, Pramod That oi, Sunil Malhotra, Mahesh Gandhi, and Abhinav Dhar. However all these accused have been chargesheeted without arrest by the SFIO. 11.6. The amount of Rs. 5.5 crore received by the petitioner from Group 1 Companies, alleged to be paper companies, was only a loan : 11.6.1. In response to this charge, it is the petitioner's contention that the amount of Rs.5.5 crore received by the petitioner was only a loan advanced and arranged by the promoter through his business associates between November, 2014 and March, 2015. This money was not routed back to the promoter, or for any of his proxy investments like in the case of others accused persons. The transaction happened through legitimate banking channels and on proper documentation in the nature of loan agreements, regularized through purchase of stamp paper, which was done shortly after the transaction. The petitioner could not have known the actual source from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ex-Director, for construction of a school in the name and style of 'The Millennium School' and out of these funds Rs. 0.50 crore was received from Group-1 companies is baseless : 11.8.1. Millennium Education Foundation is a Not-for-Profit company under section 8 of the 2013 Act and is not part of, or related to, the Educomp Group in any manner whatsoever. The petitioner's wife is a lifetime Educator and currently runs a school in a village in NOIDA for underprivileged children. In these circumstances, it was only natural for her to provide her expertise to MEF where she was a Director with insignificant shareholding of less than 1%. She was requested for a Director loan of Rs.1.50 crore to MEF for working capital requirements, and she obliged by borrowing that sum from her husband, the petitioner. The petitioner had redeemed his investments in certain fixed deposits and mutual funds, from which that sum was advanced as loan to the Petitioner's wife between December 2015 and March 2016. This had no connection with the Rs. 5.5 crore loan received by the petitioner from the company almost a year back which was used to meet other liabilities. The transaction happened through legiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yderabad land deal was signed on 09.09.2010. The sellers of the lands have not incriminated the petitioner in any manner whatsoever regarding the land deals or the fixation of prices. The petitioner never signed any document, cheque or agreement on behalf of OSN. All land deals were signed by Sanjay Saini, Promoter/Director of OSN; (iii) The petitioner quit his consultancy contract with OSN after 10 months, immediately after an Income Tax raid was conducted on OSN in August 2011. It is pertinent to note that the petitioner's Income Tax Assessment Orders for the relevant period (2008-2013) do not impute any undisclosed income; (iv) The only evidence which the SFIO claim to have against the petitioner in relation to this charge is the statement of the co-accused and the statement of the petitioner, which were recorded by use of coercion and were retracted on 28.11.2022 and 23.12.2022. In any case, the present charge pertains to section 420 of the IPC and not to any provision of the 2013 Act and therefore is not subject to the additional twin-conditions imposed for bail under the Companies Act and the SFIO do not have the power to arrest the petitioner on this charge. 11.9.2. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is only required to arrive at a finding on the basis of broad probabilities; and that the twin-conditions are not an absolute restraint on the grant of bail. 12.2. Raman Bhuraria vs. Directorate of Enforcement 2023 SCC OnLine Del 657 at paras 57-60 and Paras Mal Lodha vs. Assistant Director, Directorate of Enforcement 2017 SCC OnLine Del 8676 at para 8: on the proposition that at the stage of bail, notwithstanding the admissibility of the retracted statements, the court is to assess whether the same are reliable; and that bail cannot be denied solely on the basis of retracted statements. 12.3. Ranjitsing Brahmajeetsingh Sharma vs. State of Maharashtra (2005) 5 SCC 294 at paras 36-38, 43-48 and Union of India vs. Shiv Shanker Kesari (2007) 7 SCC 798 at paras 6-8, 10,11: on the proposition that the embargo in the twin-conditions does not require the accused to positively establish his innocence beyond a reasonable doubt. 12.4. Jainam Rathod vs. State of Haryana & Anr 2022 SCC OnLine SC 1506 at paras 8, 9 and Sujay U Desai vs. SFIO 2022 SCC OnLine SC 1507 at para 7: on the proposition that notwithstanding the twin-conditions, the accused's right to a speedy trial must be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FIO'S SUBMISSIONS 13. Arguing on behalf of SFIO, Mr Ajay Digpaul, learned CGSC has opposed the grant of bail. Based on the charges placed in the SFIO complaint filed before the learned Special Judge, on the oral submissions made by learned CGSC and the written submissions filed in the matter, the following may be summarised as the key points raised on behalf of the SFIO : 13.1. It is the SFIO's submission that Shantanu Prakash had invested directly as well as through A.P Eduvision, money as promoter's contribution in succeeding years starting FY 2013-14 to FY 2016-17, and during this period the petitioner was the CFO of ESL. Furthermore, the statement of Pramod Thatoi suggests that the petitioner was looking after the finances of ESSPL which was not a subsidiary of ESL. 13.2. As regards the charge of siphoning-off funds of ESL, EISML, and ESSPL into the accounts of the close associates of Shantanu Prakash, the SFIO submits that though the petitioner says that the amount of Rs 5.50 crore received by him was a loan, in fact this amount was siphoned-off from ESL and was received by the petitioner from Group-I Companies. Furthermore, it has been admitted by the Entry Operator, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so that the control of VMC remained with Shantanu Prakash indirectly. 13.6. Similar is the allegation of commission of fraud in relation to the sale of Mussoorie International School ('MIS'), the allegation being that the petitioner was responsible for managing the finances of ESL, and had also attended the Joint Lenders Meeting for CDR, and was therefore well aware that money was siphoned-off to acquire MIS so that the control of MIS remained indirectly with Shantanu Prakash. 13.7. In response to the reliance placed by the petitioner on the bail granted to co-accused Bindu Rana by a Co-ordinate Bench of this court vide order dated 20.01.2023, the SFIO submits that the role of every accused has to be considered on its own merits; and no parity can be drawn between two co-accused. Is the SFIO's allegation that the petitioner has been involved in the fraud since the beginning, when money had started being siphoned-off to clear fictitious debts of ESSPL through the OSN Group. On the other hand, Bindu Rana was associated with ESL in the capacity of a Research Head and has been implicated only in 3 charges; whereas the petitioner was the financial expert being CFO and was the 'direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic auditor only examined transactions of more than Rs 1.0 crore (and many such transactions have taken place) and only related-party transactions (which does not include transactions with paper companies); and besides, the forensic audit was done on the basis of Audited Financial Statements of the company (which financial statements were false).Furthermore, it is also pointed-out that the conclusions in the Grant Thornton Report mention that they had undertaken no physical verification, which shows that the forensic audit of the Financial Statements was not verified by the Forensic Auditors themselves. Attention is also drawn to the 'Disclaimer' contained in the forensic auditor's report, which mentions that the analyses were made only on the information available for the period from 07.03.2016 to 01.09.2016. 13.13. The SFIO says that several banks are themselves affected by the fraud perpetrated in the affairs of ESL, and Fraud Monitoring Reports (FMRs) have been received by various banks pertaining to the loans taken by ESL and its subsidiary EISML, by way of siphoning-off funds. 13.14. As for the petitioner's submission, that siphoning-off fund could only have happened thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ail. 16. A brief discussion of the law on the point is therefore necessary. 17. The twin-conditions contained in section 212(6) of the 2013 Act do not imply that as soon as section 212(6) is triggered, bail must reflexively, immediately or automatically be rejected. Section 212(6) however raises the threshold of satisfaction required of the court while considering the grant or denial of bail. In addition to the usual and ordinary conditions under section 439 Cr.P.C., the court is also required to be satisfied that there are reasonable grounds for believing that the accused is not guilty, and that the accused is not likely to commit any offence while on bail. 18. At the threshold therefore, it must be seen if there are any allegations against the accused under the relevant section viz. section 447 of the 2013 Act, since otherwise section 212(6) will not come into play at all. 19. Section 212(6) contemplates that before a court decides to grant bail to an accused, the public prosecutor must be given an opportunity to oppose the bail application. 20. Giving to the public prosecutor the opportunity to oppose bail however, does not mean rejection of bail on opposition simpliciter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws from the fundamental principle of the law of evidence that the onus lies on the propounder of a fact5 and the cardinal presumption6 that all individuals are innocent until proven guilty.7 24. An insight into how the additional twin-conditions under section 212(6) of the 2013 Act are to be applied, is found in other decisions of the Supreme Court on similar conditions that appear in similar statutes. Some of them are discussed below. 25. In the context of sections 35 and 54 of the Narcotic Drugs and Psychotropic Substances Act, 1985 ('NDPS Act' for short), the Supreme Court has specifically held that the initial burden to show the existence of foundational facts remains on the prosecution and only when those facts are satisfactorily shown, does the legal burden shift to the accused; observing that a failure to prove the foundational facts would necessarily prevent the presumptions contained therein being applied.8 It has also recently been held by the Supreme Court that that the twin-conditions contained in section 37 of the NDPS Act have to be read reasonably and not literally9. Considering the drastic powers in the statute which can deprive a citizen of liberty, the necessity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated in a complaint or the FIR are only allegations, which may or may not be founded on evidence or material. To borrow the words of the Supreme Court in Noor Aga (supra), superficially a case may have an ugly look and thereby, prima facie, shaking the conscience of any court but it is well settled that suspicion, however high it may be, can under no circumstances, be held to be a substitute for legal evidence.16 Unlike cases of preventive detention, this is not a jurisdiction of suspicion. Indeed, the more severe the punishment, the greater must be the care taken to see that all safeguards in a statute are scrupulously followed.17 30. Therefore, to assess whether the State has been able to prima-facie make-out a case against an accused and for the additional twin-conditions to apply, there must be (i) a specific allegation against the accused; (ii) which allegation must find place in the complaint/FIR; (iii) there must be material in support of such allegation; and (iv) the combined reading of the material in support of the allegation must point towards the guilt of the accused as regards the relevant offence. It would be necessary to note that the bulky nature of material an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esigned as CFO on 24.02.2018. It is not in dispute that before that the petitioner had been advising ESL as its chartered accountant/financial consultant for many years; and had joined the company as Senior Vice President (Finance) with effect from 01.11.2013 and held that position for about 07 months before he became the CFO. 34.3. During the period before 26.05.2014, the petitioner was not in charge of or in control of the management of financial affairs of ESL. The petitioner did not sign the financial statements and accounts of ESL before he became CFO. 34.4. Even when he joined as CFO, the petitioner was not on the Board of Directors of ESL; he was not even a member of any of the committees; and was therefore not a 'key managerial personnel.' 34.5. The petitioner was appointed CFO with the task of co-ordinating implementation of the CDR process of ESL. During the CDR process the financial affairs of the ESL were monitored by a Monitoring Institution headed by the State Bank of Patiala, which was the consortium leader. The State Bank of Patiala has issued a certificate dated 13.01.2014 stating that there was no fraud in the transactions. This is one of the documents relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iz., 'Group CFO' and 'Procurement Head'; and the petitioner was in-charge of the Group CFO vertical, with neither the knowledge nor any control over the functioning of the Procurement Head vertical, which was headed by a different individual viz. Mansoor Raza. The latter is neither an accused nor a witness in the case. 34.13. The assessment orders issued by the Income Tax Department to M/s OSN Infrastructure & Projects Pvt. Ltd. for AY 2011-2012, as also to the petitioner for AY 2006-07 to 2012-13 accept the taxes filed by them for the said years without anything remiss. 34.14. The SFIO's case against the petitioner is based essentially on the statements of Sanjay Saini and of the petitioner Ashish Mittal recorded under section 217 of the 2013 Act, which are admissible in evidence since these statements are recorded under oath. In addition, the SFIO also relies upon the statements of Sitaram Saini, Poonam Mittal (the petitioner's wife), Manoj Garg and V.K. Dandona. However, the petitioner has retracted his statements on 28.11.2022 and 23.12.2022; and the within-named Sanjay Saini has also done so, which the law permits them to do. 34.15. Only 02 out of 55 accused persons in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25.03.2014, under which the financial affairs of ESL were under the oversight of the consortium of banks, headed by the State Bank of Patiala as the Monitoring Institution. Thereafter, ESL went into bankruptcy and the management and affairs of ESL came under the control of Resolution Professional appointed w.e.f. 30.05.2017. The investigation report dated 07.11.2016 rendered by M/s Grant Thornton, which conducted a forensic audit of the financial affairs of ESL for the period from 01.04.2012 to 31.03.2016, also did not find anything amiss, in particular, relating to siphoning-off funds and round-tripping them as 'promoter contribution'. 37.4. The principal promoters and Whole-time Directors of ESL have never suffered any custody, since they were granted interim protective orders by a Co-ordinate Bench of this court. Other senior officers, such as the Procurement Head and others, have not even been named as accused. Only 02 out of the 55 accused persons were ever arrested - one, the petitioner; and the other, the CTO/Dr. Bindu Rana. Dr. Bindu Rana has been admitted to regular bail by a Co-ordinate Bench of this court on 20.01.2023. The bail has been granted not under the special d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. The petitioner shall not tamper with evidence nor otherwise indulge in any act or omission that is unlawful or that would prejudice the proceedings in the matter; and 38.7. In addition to the above condition, it is specifically directed that the petitioner shall also not, whether directly or indirectly, contact or visit or have any transaction with any of the officials/employees of the banks, financial institutions, companies, entities etc., who are concerned with the complaint in this case, whether in India or abroad. 38.8. The Investigating Officer is further directed to issue a request to the Bureau of Immigration, Ministry of Home Affairs of the Government of India or other appropriate authority to forthwith open a 'Look-out-Circular' in the petitioner's name, to prevent the petitioner from leaving the country, without the permission of the learned Special Judge. 39. Nothing in this judgment shall be construed as an expression of opinion on the merits of the pending matter. 40. A copy of this judgment be sent to the concerned Jail Superintendent forthwith. 41. Petition stands disposed of in the above terms. 42. Pending application, if any, also stand disposed of. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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