Economic Offences Are Serious But Severity Of Allegations Cannot Be Justification For Pre-Trial Incarceration: Delhi High Court

Observing that severity of allegations cannot be a justification for pre-trial incarceration, the Delhi High Court has granted bail to a Director of M/s Parul Polymers Pvt Ltd. in a case under Section 447 of the Companies Act, 2013.

Justice Anup Jairam Bhambhani said, “Needless to add, that nothing in this judgment should be taken to detract from the position that economic offences are serious in nature, and the allegations against the petitioner and other co-accused, if proved at the trial, must be met with requisite punishment. However, that punishment must follow conviction, and the severity of the allegations by themselves cannot be justification for pre-trial incarceration.”

The court was hearing the regular bail plea of Suman Chadha accused in the case against Parul Polymers and others under Section 447 of the Companies Act, 2013 for  fraud. It has been alleged that the company, engaged principally in the trade of plastic granules, indulged in cash sales, in fictitious sale of food grain and in creation of accommodation/adjustment accounting entries, apart from misuse of cheque discounting facilities.

It is also the allegation that the company indulged in fraudulent diversion of funds to sister concerns instead of applying the monies towards the business activities of the company. According to the summoning order, Chadha has been implicated for his role as an “officer who is in default” within the meaning of section 2(60) of the Companies Act, since the petitioner was a director of the company at the relevant time.

The counsel for Chadha submitted that he was never arrested throughout the course of investigation and proceeding  and the complaint was also filed by the SFIO without arresting him. He further submitted that in compliance of the summons issued to him by the Special Judge, he appeared before the court in May 2022.

"The bail application filed by him was rejected by the learned Special Judge there-and-then; he was “taken into custody and sent to J/C” on the spot; and the petitioner has been in prison ever-since. As of today therefore, the petitioner has spent about 14 months in jail as an under-trial," the counsel said.

The SFIO contended that evidence is yet to be recorded, there is reasonable apprehension that if released on bail, the petitioner would attempt to intimidate or influence witnesses, especially since the witnesses are either his employees or his close associates.

Considering the submissions, the court referred to the Apex Court's decision in Moti Ram & Ors. vs. State of Madhya Pradesh wherein it has observed that “the consequences of pre-trial detention are grave, since they subject an undertrial to psychological and physical deprivations of jail life, which are usually even more onerous than those imposed on convicts.”

Justice Bhambhani said though no doubt the power under Section 212 (8) of the Companies Act is meant to enforce “police custody” in aid of investigation, “what is important to note is that arrest is permissible if the investigating officer has reason to believe that the accused is guilty of the offence based on available material.”

"In the present case, the record shows that the investigating officer never arrested the petitioner throughout the investigation, further investigation and other pre-cognizance stages, all of which took more than 06 years. Even at the stage when the final investigation report was filed before the learned Special Judge, the investigating officer did not seek that the petitioner be either arrested or remanded to judicial custody. This was presumably guided by the words of the Supreme Court in Joginder Kumar (supra) and Siddharth (supra)," said the court.

The court said there was no prayer for either arresting or remanding him to judicial custody by the investigating officer when he appeared before the court.

"What then prompted the learned Special Judge to remand the petitioner to judicial custody in the first place? Based on the final investigation report filed by the SFIO, did the learned Special Judge record any satisfaction that he had reason to believe that the petitioner was guilty of the offences charged? Was any apprehension expressed by the investigating officer that the petitioner was a flight-risk or that he would influence witnesses or tamper with evidence? Did the learned Special Judge articulate any apprehension as to witness intimidation, evidence tampering, flight-risk or such other matter in the order sending the petitioner to judicial custody? The answer to all these questions is a clear No,” the bench observed

On the twin conditions stipulated under Section 212(6)(ii) of the Companies Act for bail, the court said: “A reasonable interpretation of the twin-conditions leads to the conclusion that since the petitioner had not been arrested throughout the course of investigation; he had appeared before the learned Special Judge against summons - not arrest warrants - issued to him; and most importantly, when the investigating officer had not even sought police custody or judicial custody of the petitioner, the twin conditions would not apply.”

While noting that the Judge issued only summons for the Chadha to appear and did not deem it necessary to issue warrants for his arrest, the court said, “Clearly therefore, learned Special Judge misdirected himself in applying section 212(6) of the Companies Act, on the flawed premise that that that was the stage for grant of bail, whereas, it was the stage of considering whether there was any need to remand the petitioner to judicial custody at all.”

The court granted bail to the accused with several conditions including a directions for issuing a request to the Bureau of Immigration, Ministry of Home Affairs 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."

Case Title: Suman Chadha v. SFIO

Citation: 2023 LiveLaw (Del) 610

Advocates Neeraj Kumar, Himanshu Bhasin, Vilas

Sharma for the petitioner.

Harish Vaidhyanathan Shankar, CGSC with Advocates Srish Kumar Mishra, Sagar Mehlawat and Alexander Mathai Paikaday for SFIO.

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