Nittin Johari v/s Serious Fraud Investigation Office

Citation 2020 SCC OnLine 394: (2020) 220 Comp Cas 247
Estimated Reading Time: 10 minutes

Introduction

The Serious Fraud Investigation Office was established as a multi- disciplinary organization on the recommendation of a Committee on Corporate Governance chaired by Shri Naresh Chandra. Section 211 of the Companies Act, 2013 provides for ‘Establishment of Serious Fraud Investigation Office.’ According to this provision, the Serious Fraud Investigation Office would be headed by a director who would not be of a rank lower than that of a Joint Secretary to the Central Government and must possess necessary experience as well as knowledge to deal in corporate matters. The other members or officers appointed shall belong to different domains such as banking, corporate affairs, forensic audit, law, capital market, taxation, information technology and so on. 

Furthermore, section 212 of the new act establishes the procedure for a Serious Fraud Investigation Office to conduct an investigation into the affairs of the company. Sub section (1) of section 212 confers power on the Central Government to order SFIO to conduct investigation into the company’s affairs either on the receipt of a report by the Registrar of Companies or an Inspector or on the company’s intimation by a special resolution. The investigation can also be directed on the request of any Department of the Central Government or if they have a reason to believe that such investigation is necessary in public interest. Furthermore, sub section (2) provides that if the SFIO is carrying out an investigation of a company, then no other investigating agency or even the Central Government has the authority to conduct a parallel investigation and if the documents of a company are with the Central government or the Registrar then those documents have to be given to the Serious Fraud Investigation Office for the smooth procedure of investigation. 

The Investigation Officer of the SFIO has the same powers as that of an Inspector under section 217 and on the completion of the Investigation procedure they have to submit a report to the Central Government. It is crucial to note that if a person is convicted under section 447 i.e., punishment for fraud, following the investigation carried out by Serious Fraud Investigation Office then that person would not be released on bail, unless the Public prosecutor has been given the opportunity to oppose the bail application and after hearing both the parties the court believes that the person may not be guilty of such an offence. Because of these conditions for granting bail, this provision is very stringent and draconian.

Facts of the Case

Nittin Johari, the applicant in this instant case, is the ex- Chief Financial Officer of Bhushan Steel Ltd., a manufacturer of auto- graded steel in India who was arrested on May 2, 2019 by the Serious Fraud Investigation Office (SFIO for being involved in fraudulent activities and submitting false documents with various banks for availing credit. It is alleged that he manipulated the books and accounts of the company which caused a wrongful loss of Rs. 20,879 to various financial lenders and banks. 

At the time of the commission of the fraudulent activities, the applicant was also a director and a member of the Board of directors on borrowing, investment and loans. In the investigation carried out by the SFIO, it was discovered that the applicant with the help of promoters and employees used a complex web of 157 companies to siphon off the funds of BSL for various activities. 

After the arrest made by the SFIO, he was kept in judicial custody along with the co – accused, Neeraj Singhal. However, Neeraj Singhal was released on interim bail. 

Thereafter, a regular bail application was filed by the petitioner before the Ld. Special Judge, Dwarka District Court, Delhi which was dismissed. After the investigation report was submitted by the SFIO to the Ministry of Corporate Affairs, another bail application was filed by the petitioner which was also dismissed complying with section 212(6) of the Companies Act, 2013.

Aggrieved by the orders of the court, the petitioner approached the Hon’ble High Court of Delhi which allowed the bail application no. 1791/2019 filed by the petitioner. The Serious Fraud Investigation Office filed an appeal against the High Court’s order and the apex court passed an order putting a stay on the High court’s order granting bail. The matter was remanded to the Hon’ble High Court of Delhi in order to decide the bail application afresh considering the gravity and the nature of offence giving rise to this instant case.

Issues involved in the Case

  1. Can the accused be released on bail if the investigation by SFIO under section 212 is complete and report submitted to the Central Government?
  1. Are the twin conditions imposed under section 212(6)(ii) and 212(7) of the Companies Act, 2013 in violation with Article 14 and 21 of the Constitution of India, 1950?

Contentions of the Parties

Learned Senior counsel, Sidharth Luthra appearing on behalf of the petitioner/ accused submitted that among the 284 accused persons, only the petitioner has been kept in the judicial custody even though he has fully cooperated with the investigation carried out by the SFIO at all the stages. He was arrested by the SFIO without providing any reasons and was kept in custody for five days. After that he was remanded to judicial custody. The argument put forth by the counsel was that the investigation has already been completed by the SFIO and chargesheet is also filed. Therefore, even if the petitioner is released on bail there is no way he could tamper any evidence against him. Furthermore, the company has now been taken over by the Tata Group and the petitioner is no longer a part of the company and thus does not have access to the company’s documents now. 

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It was also submitted that the petitioner is a diabetic patient and is not keeping well in the judicial custody and therefore, must be released on medical grounds.

To prove the petitioner’s innocence it was submitted by the learned counsel that the petitioner was just an employee of the company and not a shareholder and therefore no financial benefit can be accrued by him from such fraudulent activities. He submitted that the petitioner, like any other employee, was delegated the tasks and therefore there is no scope that he could have done something illegal or fraudulent. 

In regard to the second issue, the Learned senior counsel contended that the twin conditions imposed on bail applications under section 212(6)(ii) and 212(7) are unreasonable, draconian and in contravention of the fundamental concepts of criminal law. The defend his argument the counsel placed reliance of the case of Ranjit Singh Brahmajeet Singh Sharma v/s State of Maharashtra, 92005 INSC 225, where the court was of the view that if the twin conditions for bail under section 21(4) of the MCOCA would be complied then it would be impossible to grant bail to any person arrested under this provision. 

Furthermore, in the case of Nikesh Tarachand shah v/s Union of India, (2018) 11SCC 1, the apex court struck down section 45 of the Prevention of Money Laundering act which provided for the same twin conditions for the grant of bail as it was in violation with article 14 and 21 of the Indian Constitution. 

The counsel also placed reliance on the case of Gurbaksh Singh Sibbia v/s State of Punjab, 1980 AIR 1632 where the Hon’ble Supreme Court held that, ‘Bail is a rule but Jail is an exception’.

Learned Assistant Solicitor General appearing on behalf of the respondent submitted that the petitioner is charged for serious offences under section 36( c), 128, 447 and 448 of the Companies act, 2013 along with sections 209, 211 read with section 628 of the Companies act, 1956 and sections 467, 468 and 478 read with 120-B of the Indian penal Code, 1860. Apart from this the case is directly related to section 212(6)(ii) of the companies act, 2013 which begins with a non obstante clause, ‘without prejudice.’ The counsel contended that these allegations are serious in nature and are considered as economic offences and the petitioner is the prime accused in this case. There are stringent conditions for granting bail under this provision and it is mandatory to comply with them. However, the twin conditions provided under section 212(6)(ii) and 212(7) are not satisfied in this case and therefore granting bail to the accused would be unjust

The counsel further submitted that the Hon’ble Supreme Court remanded the matter to the High Court and directed them to consider the bail application in accordance with section 439 of Cr.P.C and section 212(6)(ii) of the Companies act, 2013 and the High Court must comply with the orders of the apex court. As neither of the conditions are satisfied, bail must not be granted to the petitioner. 

Summary of Judgement

The Hon’ble High Court of Delhi by placing reliance on all the evidence put on record observed that the petitioner is the mastermind behind these fraudulent activities. He availed credit from banks by submitting misleading documents causing a huge wrongful loss to those banks and other financial institutions which had a great negative impact on the economy as well. He also manipulated the company’s accounts during the investigation to conceal the illegal activities carried out by him and the other co- accused people.

The bench observed that although the contentions put forth by the learned senior counsel appearing on behalf of the petitioner are apt, there is no straight-jacket formula to grant bail. Every case is decided on its own merits. The Hon’ble court was of the view that the offences alleged against the petitioner are very heinous and form a part of economic offences which are dealt in a different manner from the other cases and therefore a different strategy for dealing in bail matters is required because these types of offences cause irreversible damage to the economic system. After examining the provision for bail the court observed that the conditions provided under section 212 are an addition to the conditions provided under section 439 of the Cr.P.C. 

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The Hon’ble court held that even if the investigation is complete and the accused cannot tamper with the evidence upon release, still bail cannot be granted in this particular case as the conditions provided under section 212(6)(ii) and 212(7) are very stringent and bail can be granted only if those conditions are satisfied. According to section 212(6)(ii), bail can be granted only if after reasonable opportunity is provided to the Public Prosecutor to put forward his arguments against the bail applications and after hearing him, the court has a reason to believe that the accused is not guilty of the offence. In this case, there is no doubt that the accused has not committed the offence. Furthermore, in the case of Ankush Kumar v/s State of Punjab, 2018 SCC OnLine P&H 1259, the court held that releasing the accused on bail under section 37(1)(b)(ii) on the ground that he is not likely to commit any offence after release is completely irrational. 

The court further observed that the bail cannot be granted even under section 439 of Cr.P.C as the petitioner committed an economic offence. Reliance was placed on the Supreme Court judgment in the matter of Y.S Jagan Mohan Reddy v/s Central Bureau of Investigation, (2013) 7 SCC 439, where it was held that in a petition filed for the grant of bail, certain factors are important to be considered by the court. These factors include- nature of accusation, nature of evidence, punishment if found guilty, character of the accused, possibility of evidence tampering and possibility of securing the accused person’s presence when required and so on. In this case, the petitioner is accused of an offence which is punishable with life imprisonment.

Furthermore, the court held that as no medical documents had been placed on record by the petitioner- counsel, the court cannot release the petitioner on bail on medical grounds.

Analysis of the Judgement

‘Bail is a rule whereas jail is an exception’ is one of the fundamental concepts in criminal jurisprudence. According to this principle, a person must not be detained by the authorities until proven guilty. In this case, the court after examining all the facts and evidence was of the view that the accused had committed the offence. The petition was filed before the Hon’ble High Court for the grant of bail and therefore the materials placed on record were limited. When the bail application was filed, the accused was under trial and was not proven guilty. However, bail was denied to him and his fundamental rights were infringed. 

Additionally, section 212(6)(ii) states, a person can be released from jail if the court is satisfied that he is not likely to commit any crime after release on bail. However, this condition is absolutely unreasonable and arbitrary. No court can hypothesize ‘mens rea’ which is an important element of a crime and therefore, it is impossible to determine if a person can commit an offence in future or not.

Upon careful perusal of section 212(6), the provision appears to be arbitrary and in violation of article 14 and 21 of the Indian Constitution. The Public Prosecutor has been vested with arbitrary powers by the statute, where the acceptance or dismissal of a bail application is completely dependent on him. The provision is also ambiguous on the situation that if the public prosecutor does not exercise his power and thereby, does not defy the bail application then will the probability of the petitioner to be released on bail become nil. Every person has a right to life and personal liberty and the right to bail is covered under it and denying bail to a person infringes such right

All of the above stated reasons make this provision absolutely draconian and arbitrary and therefore, this provision must be struck down.

Conclusion

Section 212(6) of the Companies act, 2013 if interpreted in its literal sense, is a very rigid and stringent provision. In the instant case, the court complying with the orders and directions of the Hon’ble Supreme Court interpreted this provision as leaving no room for a different construction or perception. 

However, one of the most important roles of the judiciary is to construe the provisions of a statute for reaching a fair and just decision. The right to bail is a fundamental right which has been infringed in this case causing grave injustice to the petitioner. As the petitioner was prepared to face the trial and was not a threat if released from jail, the bail should have been granted to him. It must also be noted that the investigation procedure was already completed at that stage and in no way the petitioner could have interfered in the case by tampering any evidence. So to conclude, the author would say that the court by applying its power of judicial review must interpret and examine the twin conditions imposed under section 212(6)(ii) and 212(7) as these are exceedingly irrelevant and unreasonable.

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