IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1381 OF 2019
(@ S.L.P. (CRL.) NO. 7437 OF 2019
Serious Fraud Investigation Office …Appellant(s)
Versus
Nittin Johari & Anr. …Respondent(s)
J U D G M E N T
MOHAN M. SHANTANAGOUDAR, J.
Leave granted.
2. The instant appeal challenges the grant of bail to
Respondent No. 1 by the High Court of Delhi in Bail Application
No. 1971/2019 in C.C. No. 770/2019, vide the order dated
14.08.2019.
3. The case of the prosecution primarily hinges on the
commission of fraud punishable under Section 447 of the
Companies Act, 2013 (for short “the Companies Act”), though
several other offences under the Companies Act and the Indian
NONREPORTABLE
1
Penal Code, 1860 have also been alleged. Briefly put, it is alleged
that from FY 200910 to FY 201617, Brij Bhushan Singal and
Neeraj Singal, promoters of Bhushan Steel Ltd. (for short “BSL”),
assisted by employees and close associates, used a complex web
of 157 companies to siphon off funds from BSL for various
purposes, and also fraudulently availed of credit from various
lender banks and manipulated the books of accounts and
financial statements of BSL, causing wrongful loss to banks and
financial institutions amounting to Rs. 20,879 crores and
causing wrongful gain to the promoters and their family
members, amounting to around Rs. 3500 crores.
Respondent No. 1 herein, Nittin Johari, who was the Chief
Financial Officer and Whole Time Director (Finance) of BSL, as
well as a member of the Committee of the Board of Directors on
Borrowing, Investment and Loans during the relevant period, was
alleged to have been a close associate of the promoters and to
have played a central role in perpetrating these frauds. In
particular, it is alleged that Respondent No. 1 played an active
role in using fraudulent letters of credit to avail of credit from
lender banks, in inflating StockinTransit figures to avail of
greater Drawing Power from banks, and in manipulating
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statements of accounts and other financial statements of BSL in
the garb of adopting the Indian Accounting Standards.
Investigation into the affairs of BSL and certain associated
companies had been initiated by the Serious Fraud Investigation
Office (for short “the SFIO”), the Appellant herein, pursuant to
the order dated 03.05.2016 issued by the Ministry of Corporate
Affairs (for short “the MCA”) under Section 212(1)(c) of the
Companies Act. Gradually, the scope of investigation expanded to
157 companies and 130 individuals.
4. Respondent No. 1 came to be arrested on 02.05.2019, and
was remanded to the Appellant’s custody on 03.05.2019. He has
been in judicial custody since 08.05.2019. It is also pertinent to
note that previously, coaccused Neeraj Singal had been granted
certain interim reliefs (including interim bail) by the High Court
of Delhi vide order dated 29.08.2018 in W.P. (Crl.) No.
2453/2018, in which he had challenged the constitutionality of
Section 212(6)(ii), (7) and (8) of the Companies Act. The operation
and effect of this order (save for his interim release) had been
stayed by this Court in appeal, vide order dated 04.09.2018.
5. Respondent No. 1 applied for regular bail under Section 439
of the Code of Criminal Procedure, 1973 (for short “the Cr.P.C.”),
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which was dismissed by the Special Judge (Companies Act),
Dwarka District Courts, Delhi, vide order dated 06.06.2019. The
Investigation Report was submitted by the Appellant to the MCA
on 27.06.2019, and after obtaining sanction from the MCA, the
Petitioner filed the Complaint before the Special Court on
01.07.2019. It may be pertinent to note that as per Section
212(15) of the Companies Act, the Investigation Report filed
under Section 212(12) of the Companies Act is deemed to be a
report filed by a police officer under Section 173 of the Cr.P.C.
(i.e. the chargesheet).
Respondent No. 1 filed another application under Section
439 of the Cr.P.C. before the Special Judge, which was dismissed
vide order dated 02.08.2019. It is pertinent to note that both
these orders take note of the mandatory nature of Section 212(6)
(ii) of the Companies Act pertaining to the grant of bail for
offences, as well as of the gravity of the economic offence
committed, the deeprooted nature of the conspiracy, and the
huge loss of public funds involved.
6. Bail Application No. 1791/2019 was subsequently filed
before the High Court of Delhi, which came to be allowed vide the
impugned order, giving rise to the instant appeal. The impugned
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order was stayed by this Court on 16.08.2019. Respondent No. 1
therefore continues to be in custody.
7. At the outset, learned Solicitor General Shri Tushar Mehta,
appearing on behalf of the Appellant, requested that as the
proceedings in SFIO v. Neeraj Singal (Crl. Appeal No. 1114 of
2018) might be referred to by Respondent No. 1 to buttress his
claim for bail on the ground of parity, it may be appropriate for
this bench to also take up the proceedings related to the grant of
interim bail to Neeraj Singal, currently pending before a
coordinate bench of this Court, alongside the present petition. As
of now, we do not find any ground to accept this request, and are
therefore constrained to turn it down for the present.
Learned Solicitor General also submitted that the relief of
interim bail had been wrongly granted to coaccused Neeraj
Singal by the High Court of Delhi when he mounted a challenge
to the constitutionality of Section 212(6)(ii), (7) and (8) of the
Companies Act, and not on merits. This order had thereafter
been criticized by this Court in Criminal Appeal No. 1114 of 2018
in its order dated 04.09.2018, inter alia on the ground that the
High Court should have at least considered the case for interim
relief by applying the broad contours of Section 439 of the Cr.P.C.
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In this respect, he referred to the following observations made in
the order dated 04.09.2018:
“9. In the nature of the interim order that we propose
to pass, we refrain from elaborating on the contentions
and the reasons recorded by the High Court at this
stage. However, we may observe that prima facie we
find that the reasons being on the constitutional
validity of provisions apart from Sections 212(6)(ii) and
212(7) of the Act ought not to have weighed with the
High Court for grant of interim relief. Moreover, in
any case, the High Court ought to have applied the
broad contours required to be kept in mind for grant of
bail under Section 439 Cr.P.C., which aspect, we find,
has not been adverted to at all in the impugned order.
There is prima facie substance in the grievance of the
appellants that the High Court has failed to consider
matter such as the nature of gravity of the
alleged offence. Moreover, we find that in the course of
the impugned order, the High Court even proceeded to
recall certain observations made by it in another case
(Poonam Malik v. Union of India [W.P.(Crl.) No.2384
of 2018] order dated 10th August 2018).”
It was submitted that in light of these peculiar
circumstances, there exists no reason to grant bail to Respondent
No. 1 on the ground of parity with Neeraj Singal. It was further
submitted that the nonarrest of various other coaccused was
not pertinent to deciding whether Respondent No. 1 should be
released on bail.
Learned Solicitor General also sought to impress upon us
the magnitude of the offence, arguing that economic offences
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form a class apart, particularly cases such as the instant one,
which have resulted in not only a substantial loss to banks but
also a huge blow to the national economy. In such cases, the
Court must account for several factors while granting bail,
especially the gravity of the offence involved. In pursuance of this
contention, he referred to certain observations made by this
Court in Y.S. Jagan Mohan Reddy v. Central Bureau of
Investigation, (2013) 7 SCC 439 to this effect. It was argued that
the above factors had not been considered adequately by the
High Court in the impugned order, which granted bail merely on
the basis of “broad probabilities” and without adverting to the
gravity of the offence and its impact on society.
In this respect, he took us through the contents of the
complaint, arguing that the High Court had erred in selectively
referring to certain portions thereof, and had not appreciated that
the extent of the role of Respondent No. 1 in the alleged offences
had been made out extensively throughout the complaint.
Additionally, reference was made to the mandatory
conditions under Section 212(6)(ii) of the Companies Act, which
require the Court to record its satisfaction that there exist
reasonable grounds for believing that the accused is not guilty of
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the alleged offence and is not likely to commit any offence while
on bail. It was argued that these conditions do not imply that an
applicant would be kept in custody indefinitely. In this respect,
our attention was drawn to the decision in Collector of
Customs, New Delhi v. Ahmadalieva Nodira, (2004) 3 SCC
549, pertaining to an analogous provision (i.e. Section 37(1)(b)(ii)
of the Narcotic Drugs and Psychotropic Substances Act, 1985), in
which it was held that the term “reasonable grounds” refers to
something more than prima facie grounds, and contemplates
substantial probable causes for believing that the accused is not
guilty of the offence concerned.
Learned Solicitor General also referred to Nikesh
Tarachand Shah v. Union of India, (2018) 11 SCC 1, wherein
this Court had struck down Section 45 of the Prevention of
Money Laundering Act, 2002 (for short “the PMLA”), another
provision analogous to Section 212(6) of the Companies Act. It
was contended that this decision was irrelevant to the present
case, since the classification because of which the provision was
held to be unconstitutional had been done away with. This was
because when the said judgment was passed, Section 45 of the
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PMLA imposed the twin conditions for bail only for offences found
in Schedule A of the PMLA (i.e., ‘predicate offences’ found in other
penal statutes) which were punishable with imprisonment for
three years or more, and this Court had struck down this
provision as unconstitutional mainly on the ground that the
aforesaid classification did not seem to have a rational nexus to
the object of that legislation. However, the Parliament had
subsequently amended Section 45 of the PMLA, imposing the
twin conditions for bail for offences under the PMLA itself, and
not for offences found in Schedule A. It was further submitted
that after the said amendment, Section 45 of the PMLA had
become in pari materia with Section 212(6) of the Companies Act,
as the latter section also imposed the twin conditions for offences
under Section 447 of the Companies Act itself.
8. On the other hand, learned Senior Counsel Shri Kapil Sibal,
appearing on behalf of Respondent No. 1, submitted that once
investigation is over and a chargesheet has been filed, as has
been done in the present case, the nature of allegations may not
be a factor to decide if bail is to be granted. Instead, in such
cases, the Court must consider whether the applicant has been
cooperating in the investigation, and whether there is a
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possibility that the applicant may abscond or tamper with
evidence. At the same time, learned Senior Counsel was quick to
caution that mere apprehension of tampering or absconding is
not enough to deny bail, and that there should be an attempt at
tampering with evidence or certainty that the petitioner would
abscond if he is granted bail. Reliance was placed on State of
Maharashtra v. Nainmal Punjaji Shah, (1969) 3 SCC 904 to
buttress this proposition. It was stressed that in the instant case,
there had been no allegation of tampering with evidence or
influencing witnesses against Respondent No. 1.
Learned Senior Counsel also referred to Y.S. Jagan Mohan
Reddy (supra), where the Court had given the accused therein
liberty to renew his prayer for bail once the chargesheet had been
filed. He also highlighted that bail had been granted within five
days after the chargesheet had been filed. The decision of this
Court in Sanjay Chandra v. Central Bureau of Investigation,
(2012) 1 SCC 40, was also referred to, wherein bail had been
granted since custody was felt to be unnecessary after the
chargesheet had been filed.
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It was also contended that since BSL has been taken over
by the Tata Group, there was no possibility of tampering with any
evidence, as all relevant documents were either in the possession
of the new owners of BSL or of the Court.
Learned Senior Counsel further submitted that the
Appellant had unfairly targeted Respondent No. 1 by arresting
only him, although 287 parties, including 157 companies and
130 individuals, were named in the complaint. Further, he drew
our attention to the order dated 16.08.2019 vide which the
Special Judge has directed the parties to be summoned in
batches until December 2019. It was further contended that the
documents sought to be submitted by the Appellant ran into
more than 70,000 pages, the perusal of which at the stage of
framing of charges before the Special Judge would take a
considerable amount of time. It was thus argued that if the
present appeal before this Court were allowed, Respondent No.1,
who has already spent 124 days in custody, would have to spend
well over a year or more in custody even before the
commencement of the trial.
With respect to the twin mandatory conditions under
Section 212(6)(ii) of the Companies Act, learned Senior Counsel
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highlighted that in Nikesh Tarachand Shah (supra), Section 45
of the PMLA had been held unconstitutional not only under
Article 14, but also under Article 21 of the Constitution, as the
said section made drastic inroads into the fundamental right of
liberty without there being a compelling state interest. However,
without going into the question of the constitutionality of Section
212(6) of the Companies Act itself, it was stressed that since the
provision, as it exists, requires the Court to practically record a
finding of acquittal in order to grant bail, it is well nigh
impossible for an applicant to obtain bail under the provision.
Overall, it was contended that the High Court had used its
discretion in granting bail in Respondent No.1 after applying its
mind to the contents of the complaint and relevant legal
propositions, and did not suffer from any perversity so as to
warrant the intervention of this Court.
9. Having heard the learned Counsel on either side, we have
perused the record.
10. It is pertinent to begin our discussion by referring to the
mandatory conditions imposed under Section 212(6)(ii) for the
grant of bail in connection with offences under Section 447 of the
Companies Act. Subclause (ii) of Section 212(6) reads as follows:
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“(6) Notwithstanding anything contained in the Code of
Criminal Procedure, 1973 (2 of 1974), offence covered
under section 447 of this Act shall be cognizable and
no person accused of any offence under those sections
shall be released on bail or on his own bond unless—
(ii) where the Public Prosecutor opposes the
application, the court is satisfied that there are
reasonable grounds for believing that he is not guilty of
such offence and that he is not likely to commit any
offence while on bail”
Although arguments have been advanced touching upon the
scope and validity of the above provision, particularly in the
aftermath of the decision of this Court in Nikesh Tarachand
Shah (supra) pertaining to a similar provision in the PMLA, we
do not find it appropriate to make any observations in this regard
in light of the pendency of the challenge to the constitutionality of
the said provision of the Companies Act before this Court.
11. At this juncture, it must be noted that even as per Section
212(7) of the Companies Act, the limitation under Section 212(6)
with respect to grant of bail is in addition to those already
provided in the Cr.P.C. Thus, it is necessary to advert to the
principles governing the grant of bail under Section 439 of the
Cr.P.C. Specifically, heed must be paid to the stringent view
taken by this Court towards grant of bail with respect of
economic offences. In this regard, it is pertinent to refer to the
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following observations of this Court in Y.S. Jagan Mohan Reddy
(supra):
“34. Economic offences constitute a class apart and
need to be visited with a different approach in the
matter of bail. The economic offences having deeprooted conspiracies and involving huge loss of public
funds need to be viewed seriously and considered as
grave offences affecting the economy of the country as
a whole and thereby posing serious threat to the
financial health of the country.
35. While granting bail, the court has to keep in mind
the nature of accusations, the nature of evidence in
support thereof, the severity of the punishment which
conviction will entail, the character of the accused,
circumstances which are peculiar to the accused,
reasonable possibility of securing the presence of the
accused at the trial, reasonable apprehension of the
witnesses being tampered with, the larger interests of
the public/State and other similar considerations.”
This Court has adopted this position in several decisions,
including Gautam Kundu v. Directorate of Enforcement
(Prevention of Money Laundering Act), Government of India,
(2015) 16 SCC 1, and State of Bihar v. Amit Kumar, (2017) 13
SCC 751. Thus, it is evident that the above factors must be taken
into account while determining whether bail should be granted in
cases involving grave economic offences.
12. As already discussed supra, it is apparent that the Special
Court, while considering the bail applications filed by Respondent
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No. 1 both prior and subsequent to the filing of the Investigation
Report and complaint, has attempted to account not only for the
conditions laid down in Section 212(6) of the Companies Act, but
also of the general principles governing the grant of bail.
13. In our considered opinion, the High Court in the impugned
order has failed to apply even these general principles. The High
Court, after referring to certain portions of the complaint to
ascertain the alleged role of Respondent No. 1, came to the
conclusion that the role attributed to him was merely that of
colluding with the coaccused promoters in the commission of
the offence in question. The Court referred to the principles
governing the grant of bail as laid down by this Court in
Ranjitsing Brahmajeetsingh Sharma v. State of
Maharashtra, (2005) 5 SCC 294, which discusses the effect of
the twin mandatory conditions pertaining to the grant of bail for
offences under the Maharashtra Control of Organised Crime Act,
1999 as laid down in Section 21(4) thereof, similar to the
conditions embodied in Section 212(6)(ii) of the Companies Act.
However, the High Court went on to grant bail to Respondent No.
15
1 by observing that bail was justified on the “broad probabilities”
of the case.
In our considered opinion, this vague observation
demonstrates nonapplication of mind on the part of the Court
even under Section 439 of the Cr.P.C., even if we keep aside the
question of satisfaction of the mandatory requirements under
Section 212(6)(ii) of the Companies Act.
14. Moreover, the fate of the coaccused promoters alleged to be
the “mind and will” of the accused companies seems to have
played heavily on the Court’s mind. The High Court observed that
while coaccused Brij Bhushan Singal had not been arrested due
to his old age, coaccused Neeraj Singal had already been granted
bail, vide order dated 29.08.2018. The Court noted that the order
dated 29.08.2018 primarily dealt with the challenge mounted to
the constitutional validity of various subsections of Section 212
of the Companies Act, and that though the operation of that
order had been stayed by the Supreme Court, this was only
because the observations made by the High Court in its order
dated 29.08.2018 were of farreaching consequences, and the
release of such coaccused on bail had not been reversed.
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We refrain from making any observations with respect to the
proceedings pertaining to Neeraj Singal, particularly since the
proceedings pertaining to the vires of Section 212(6)(ii) of the
Companies Act that have arisen therefrom are pending before
this Court, as already noted supra. However, we find it necessary
to note that in light of the peculiar circumstances of the case, the
High Court ought not to have been influenced by the nonarrest
of Brij Bhushan Singal and the grant of bail to Neeraj Singal.
15. In light of the foregoing discussion, we are of the view that
the High Court has failed to apply its mind to all the
circumstances that were required to be considered while granting
bail, particularly in relation to economic offences. Accordingly,
the impugned order is hereby set aside.
16. In the interest of justice, we deem it fit to remand the matter
to the High Court to reconsider Bail Application No. 1971/2019
filed by Respondent No.1 in light of the principles governing the
grant of bail under Section 439 of the Cr.P.C, while also keeping
in mind the scope and effect of the twin mandatory conditions for
grant of bail laid down in Section 212(6)(ii) of the Companies Act.
Needless to say, Respondent No. 1 shall continue to remain in
17
custody subject to the order of the High Court in the said bail
application.
17. The impugned order of the High Court is set aside. This
appeal is disposed of accordingly, with a request to the High
Court to decide the bail application afresh at an early date, in
accordance with law, and in the light of the aforesaid
observations.
..........................................J.
(N.V. Ramana)
...........................................J.
(Mohan M. Shantanagoudar)
............................................J.
(Ajay Rastogi)
New Delhi;
September 12, 2019.
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