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TMI Blog2024 (12) TMI 1248X X X X Extracts X X X X X X X X Extracts X X X X ..... s to permit the investigating agency/police to investigate the allegations in the FIR.' The Hon ble Supreme Court has time and again reiterated that the power of quashing should be exercised sparingly with circumspection, in the rarest of rare cases . Additionally, while examining an FIR/complaint, quashing of which is sought, the Court cannot embark upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR/complaint - Thus, ordinarily, the Courts are barred from usurping the jurisdiction of the police, since the two organs of the State operate in two specific spheres of activities, however, the inherent power of the Court is to secure the ends of justice or prevent the abuse of the process of law. As per the law, to invoke its inherent jurisdiction under Section 482 of the CrPC, the High Court has to be fully satisfied that the material produced by the accused is such that would lead to the conclusion that the defence is based on sound, reasonable and indubitable facts, and that the material so produced is such as would clearly defeat or negate the allegations contained in the FIR without conducting trial - Further, as per Rajiv Thapa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken over by a new management which is not related to the CD s erstwhile directors/promoters who are related to the allegations of commission of such offence, the said company s liability for an offence committed prior to the commencement of CIRP ceases and the concerned CD shall not be prosecuted for such an offence from the date the resolution plan has been approved - In the instant case, it is an admitted position of fact that the impugned FIR pertains to the allegations of commission of fraud and diversion of funds by the petitioner and its erstwhile directors/promoters during the period 2008 to 2017 which is apparent from the bare reading of the complaint and FIR. Keeping in mind the settled position of law, the admitted position of facts that the offences alleged in the complaint and the FIR pertain to the period 2008-2017, i.e., before the commencement of the CIRP; resolution plan has been approved by the learned NCLT and there has been no objection/appeal against the same; the respondent CBI has not objected or brought on record any contention to submit to the effect that the resolution applicant is related to the persons accused of commission of offences, this Court is of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ) and also the proceedings initiated consequent thereto for the commission of the aforesaid offences qua the petitioner (i.e., accused no. 1). 2. M/s Gangakhed Sugar and Energy Ltd., the petitioner herein, is a company involved in the business of Integrated Cane Processing Plant with the manufacturing facilities of sugar, distillery and power in Maharashtra. 3. The respondent no. 1 is the Superintendent of the Banking and Securities Fraud Cell of the Central Bureau of Investigation that has registered the aforesaid FIR. 4. The respondent no. 2 is the Joint Director (Policy) of the Banking and Securities Fraud Section of the Central Bureau of Investigation to whom the complaint was addressed. 5. The respondent no. 3 is an Indian Public Sector bank and the complainant in the present case. 6. The petitioner, when managed and controlled by its erstwhile directors/management, availed credit facilities by the consortium of lenders which was led by UCO Bank (respondent no. 3). The banks sanctioned a term loan with a limit of Rs. 100 Crore and working capital limit of Rs. 15 Crores on 16th September, 2008 against the principal security and collateral security. The said loan facilities we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the same deserve to be quashed. B. BECAUSE a bare perusal of the Complaint and FIR does not disclose any act of the Petitioner or its participation in commission of the alleged crime. In this regard, the Petitioner seeks to rely on the observations of the Hon ble Supreme Court in State of Haryana and Others v. Bhajan Lal and Other, 1992 Suppl. (1) 335 wherein the Hon ble Court has defined sufficiently channelized guidelines, to give an exhaustive list of myriad kinds of cases wherein power under Section 482 of the CrPC ought to be exercised. In particular, the Hon ble Supreme Court, among others, held as under: 102. In the backdrop of the interpretation of the various relevant provisions of the Code under Chapter XIV and of the principles of law enunciated by this Court in a series of decisions relating to the exercise of the extraordinary power under Article 226 or the inherent powers under Section 482 of the Code which we have extracted and reproduced above, we give the following categories of cases by way of illustration wherein such power could be exercised either to prevent abuse of the process of any court or otherwise to secure the ends of justice, though it may no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since November, 2008; b) The credit facilities were availed in August, 2008; c) On 30.09.2015, the last credit facilities sanctioned/documents were executed by the consortium of lenders which was led by UCO Bank; d) On 31.10.2017, the account of the Petitioner was declared an NPA by UCO Bank; (v) Forensic audit was conducted for a period of 01.04.2011 to 31.03.2017 which purportedly revealed that funds were diverted; e) Instances indicating the purported violations, as highlighted in the complaint, were committed in Financial Years such as 2013-2014, 2014-2015, 2016-2017; and (vii) On 11.05.2020, the bank reported the aforesaid account of the Petitioner as fraud to RBI basis the aforesaid forensic report, which was submitted on 31.10.2019. It is therefore submitted that a perusal of the Complaint would indicate that the alleged fraud was committed approximately from a period of 2008 to 2015 i.e., the period before the new management had taken over and became the new Directors of the Petitioner Company. D. BECAUSE the Corporate Debtor (i.e., the Petitioner company herein) cannot be prosecuted for the alleged offences committed by the erstwhile Management and Directors of the Petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2021 SCC OnLine SC 707: 199. Ebix was responsible for conducting their own due diligence of Educomp and could not use that as a reason to revise/modify their approved resolution plan. In any event, Section 32-A IBC grants immunity to the corporate debtor for offences committed prior to the commencement of CRIP and it cannot be prosecuted for such offences from the date the resolution plan has been approved by the adjudicating authority under Section 31, if the resolution plan results in a change of management or control of the corporate debtor subject to certain conditions. Thus, in any case even if it is found that there was any misconduct in the affairs of Educomp prior the commencement of the CIRP, Ebix will be immune from any prosecution or punishment in relation to the same. The submission that Ebix has been placed in a prejudicial position due to the initiation of investigation into the affairs of Educomp by CBI and SFIO is nothing but a red herring since such investigations have no bearing on Ebix . F. BECAUSE the Section 32A of IBC protects the Corporate Debtor (Petitioner herein) and leads to extinguishment of criminal liability of the corporate debtor, if the control of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oadly leads to: a. Extinguishment of the criminal liability of the corporate debtor, if the control of the corporate debtor goes in the hands of the new management which is different from the original old management. *** 107. I may draw my final conclusions as under: (a) After passing of the resolution plan under Section 31 of the IBC by the adjudicating authority in the light of the provisions of Section 32A of the IBC, the criminal proceedings under Section 138 of the NI Act will stand terminated only in relation to the corporate debtor if the same is taken over by a new management . G. BECAUSE the Hon ble National Company Law Appellate Tribunal (NCLAT) in JSW Steel Limited v. Mahender Kumar Khandelwal Ors., Company Appeal (AT) (Insolvency) No. 957 of 2019 held the attachment of assets of Corporate Debtor by the Enforcement Directorate to be illegal and without jurisdiction. While doing so, the Hon ble Tribunal took note of the following submissions made, on Affidavit, by the Ministry of Corporate Affairs: 5. It is submitted that if any Corporate Debtor is undergoing investigation by the Central Bureau of Investigation ( CBI ), Serious Fraud Investigation Office( SFIO ) and/ or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate... I. BECAUSE Section 32A of IBC grants immunity to the Corporate Debtor (after the approval of the Resolution Plan) from any offences committed by the Corporate Debtor, prior to the commencement of CRIP. In this regard, the Petitioner seeks to place reliance on the Statement of Objects of the Insolvency and Bankruptcy Code (Amendment) Act, 2020 whereby Section 32A was incorporated in IBC. It, among others, states that A need was felt to to provide immunity against prosecution of the corporate debtor and action against the property of the corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice, the lender banks should provide an opportunity to a borrower by furnishing a copy of the audit reports and allow the borrower a reasonable opportunity to submit a representation before classifying the account as fraud. A reasoned order has to be issued on the objections addressed by the borrower. On perusal of the facts, it is indubitable that the lender banks did not provide an opportunity of hearing to the borrowers before classifying their accounts as fraud. Therefore, the impugned decision to classify the borrower account as fraud is vitiated by the failure to observe the rule of audi alteram partem. *** 81.The conclusions are summarized below: (v) The application of audi alteram partem cannot be impliedly excluded under the Master Directions on Frauds. In view of the time frame contemplated under the Master Directions on Frauds as well as the nature of the procedure adopted, it is reasonably practicable for the lender banks to provide an opportunity of a hearing to the borrowers before classifying their account as fraud; vi. The principles of natural justice demand that the borrowers must be served a notice, given an opportunity to explain the conclusions of the forensic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Act. 1988. It is further submitted that it is aliened in the FIR that the fraud period is 2008 to 2017 and the company and its Directors, Guarantors during the relevant period and other unknown persons, are responsible for doing fraud. It is also submitted that FIR is just a document by which process of law comes into motion. The allegations mentioned in the FIR are not the conclusion of investigation. Further, investigation of any case is not to harass or victimize any innocent but to unearth the truth and to file all the evidences acquired/collected during investigation before the Court of Law. 'Therefore, the averments made in the corresponding paras are baseless and thus vehemently denied. 6. Thai the averments made in Para 8-11 of the petition need no comments... 14. Written submissions dated 15th November, 2024 and 4th November, 2024, filed by the petitioner and the respondent/CBI respectively is also available on record. SUBMISSIONS (on behalf of the petitioner) 15. Mr. Mohit Mathur, learned senior counsel appearing on behalf of the petitioner submitted that the complaint and FIR is totally illegal, arbitrary and bad in the eyes of law, and therefore, the same is liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, 2023. Accordingly, the CD, which has been taken over by the resolution applicant, will be immune from any prosecution or punishment in relation to the same and investigation, if any, with respect to the same will have no bearing on the resolution applicant. Reliance in this regard has been placed on paragraph no. 199 of the judgment passed by the Hon ble Supreme Court in Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions 2021 SCC OnLine SC 707. 21. It is submitted that Section 32A of the IBC protects the CD and leads to extinguishment of any criminal liability of the corporate debtor/petitioner, if the control of the said CD goes in the hands of the new management which is different from the original old management. In this regard, the learned senior counsel for the petitioner relies upon the observations of the Hon ble Supreme Court in Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corpn. of India Ltd. (2023) 10 SCC 545 wherein, the Hon ble Supreme Court terminated the criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881 against the CD therein, as the same was taken over by the successful resolution applicant. 22. It is submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estigating an offence committed prior to the commencement of the corporate insolvency resolution process. 29. It is submitted that the case is at the investigation stage and the new management of the company is not cooperating in the investigation and is avoiding the notices/emails sent by respondent/CBI on 15th May, 2024, 20th May, 2024 and 28th August, 2024 which is against the spirit and mandate of section 32A (3) of the IBC. 30. It is submitted that the investigation conducted so far had already revealed that the accused company through erstwhile directors/ guarantors cheated the consortium of banks by way of submitting inflated stock and debtor statements, got issued LC s in favour of various paper companies, diverted substantial amount of loan funds through these paper companies, inflation of turnover in the balance sheets by rotating funds through paper companies etc. 31. It is submitted that the a Coordinate Bench of this Court, vide order dated 9th August, 2023, in WP (C) No. 10522/2023, has stayed the decision of declaring the petitioner s account as fraud relying on the decision of the Hon ble Supreme Court in State Bank of India Ors. v. Rajesh Agarwal Ors. 2023 SCC OnLi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uashed: 102. (1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused. (2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155 (2) of the Code. (3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused. (4) Where the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155 (2) of the Code. (5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The functions of the judiciary and the police are complementary, not overlapping. 13.10. Save in exceptional cases where non-interference would result in miscarriage of justice, the Court and the judicial process should not interfere at the stage of investigation of offences. 13.11. Extraordinary and inherent powers of the Court do not confer an arbitrary jurisdiction on the Court to act according to its whims or caprice. 13.12. The first information report is not an encyclopaedia which must disclose all facts and details relating to the offence reported. Therefore, when the investigation by the police is in progress, the court should not go into the merits of the allegations in the FIR. Police must be permitted to complete the investigation. It would be premature to pronounce the conclusion based on hazy facts that the complaint/FIR does not deserve to be investigated or that it amounts to abuse of process of law. During or after investigation, if the investigating officer finds that there is no substance in the application made by the complainant, the investigating officer may file an appropriate report/summary before the learned Magistrate which may be considered by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR/complaint, quashing of which is sought, the Court cannot embark upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR/complaint. 38. Thus, ordinarily, the Courts are barred from usurping the jurisdiction of the police, since the two organs of the State operate in two specific spheres of activities, however, the inherent power of the Court is to secure the ends of justice or prevent the abuse of the process of law. 39. As per the law, to invoke its inherent jurisdiction under Section 482 of the CrPC, the High Court has to be fully satisfied that the material produced by the accused is such that would lead to the conclusion that the defence is based on sound, reasonable and indubitable facts, and that the material so produced is such as would clearly defeat or negate the allegations contained in the FIR without conducting trial. Further, as per Rajiv Thapar v. Madan Lal Kapoor (2013) 3 SCC 330, the material placed on record has to be of such impeccable quality that would persuade a reasonable person to dismiss and condemn the accusations as false. Therefore, in order to meet the ends of justice, the High Court may be persuaded by its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of six banks by way of cheating and committing criminal misconduct with the help of public servants and have thereby caused wrongful pecuniary loss of Rs. 409.26 Crores to the complainant bank and other consortium banks. 46. It has been submitted that it is alleged in the FIR that the accused borrower company, i.e., M/s Gangakhed Sugar Energy Ltd., in connivance with other accused persons, availed various credit facilities from the consortium led by the UCO Bank to the tune of Rs. 577.16 Crores in the form of term loan, working capital and other non-fund based facilities from the consortium led by the UCO Bank along with Union Bank of India, Bank of India, Oriental Bank of Commerce (merged with Punjab National Bank), IDBI Bank Ltd. and Indian Renewable Energy Development Agency to establish Integrated Cane Processing Plant with the manufacturing facilities of sugar, distillery and power. The financial facilities were sanctioned to the petitioner from the year 2008 to 2015. The account became irregular and was declared NPA on 31st January, 2017. In April 2018, the respondent no. 3 UCO Bank assigned the account for forensic audit and on the basis of the said forensic audit report da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51. Since the petitioner has contended that a statutory restriction is imposed upon the respondent CBI under Section 32A of the IBC to prosecute the petitioner as a ground for quashing of the impugned FIR, this Court deems it appropriate to adjudicate the present petition qua the said ground first. 52. Before adverting to the issue, relevant portion of Section 32A of the IBC is reproduced herein for reference: [32A. Liability for prior offences, etc. (1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not (a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (b) a person with regard to whom the relevant investigating authority has, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor; (ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable. (3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate debtor and any person who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process.].. 53. Perusal of the aforesaid extracts shows that the liability of a corporate debtor for an offence committed prior to the commencement of the CIRP shall cease and the corporate debtor shall not be prosecuted for such an offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te debtor for offences committed prior to the commencement of CRIP and it cannot be prosecuted for such offences from the date the resolution plan has been approved by the adjudicating authority under Section 31, if the resolution plan results in a change of management or control of the corporate debtor subject to certain conditions. Section 32-A reads as follows: Thus, in any case even if it is found that there was any misconduct in the affairs of Educomp prior the commencement of the CIRP, Ebix will be immune from any prosecution or punishment in relation to the same. The submission that Ebix has been placed in a prejudicial position due to the initiation of investigation into the affairs of Educomp by CBI and SFIO is nothing but a red herring since such investigations have no bearing on Ebix 59. In the aforesaid judgment, Ebix Singapore Pvt. Ltd. submitted a resolution plan for Educomp Solutions Ltd., a CD undergoing the CIRP under the IBC. While dealing with various legal issues, the Hon ble Supreme Court observed that Section 32A of the IBC was introduced to provide immunity to the CD and its assets from liabilities arising out of past offenses once the resolution plan is appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The provision deals with reference to offences committed prior to the commencement of CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the interim resolution professional and thereafter into the hands of the resolution professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a ration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force is due, guarantors and other stakeholders involved in the Resolution Plan. 65. It is to be noted that in order to invoke Section 32A of the IBC, this Court has to take the following points into consideration: a. The offence alleged against the CD has to be committed prior to the commencement of CIRP. b. The resolution plan of the company/accused/CD has been approved. c. The control of the affairs of the CD has been taken over by new management/resolution applicant. d. The resolution applicant is not the person or not related to the persons accused of committing such offence. 66. Therefore, keeping in mind the settled position of law, the admitted position of facts that the offences alleged in the complaint and the FIR pertain to the period 2008-2017, i.e., before the commencement of the CIRP; resolution plan has been approved by the learned NCLT and there has been no objection/appeal against the same; the respondent CBI has not objected or brought on record any contention to submit to the effect that the resolution applicant is related to the persons accused of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed FIR. In view of the same, the instant petition is allowed and the FIR No. RC074023E0001, dated 7th February, 2023, registered at Police Station - BS FB, Delhi for the offences punishable under Section 120B read with Section 420 of the IPC and Section 13 (2) read with Section 13 (1) (d) of the PC Act and also the consequential proceedings emanating therefrom are quashed with respect to the petitioner herein (i.e., accused no. 1). 73. It is made clear that this Court has not restricted the learned Trial Court from proceeding further with the matter against the other accused persons. The aforesaid direction of quashing is restricted only to the petitioner/corporate debtor and not to its erstwhile directors/guarantors who are accused in the instant FIR. 74. As per the statutory requirement, it is made clear that the petitioner shall, in terms of provisions of Section 32A(3) of the IBC shall assist the concerned investigating agency for the purpose of investigation, if any required, in accordance with the law. However, the same shall not be taken as an expression of this Court to prosecute the petitioner at any given stage. 75. It is further made clear that this Court has not gone in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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