Supreme Court Sets Aside Bail in Serious Fraud Case: SFIO vs. Nittin Johari (2019)

Introduction

Date of the Judgment: 12 September 2019

Citation: Criminal Appeal No. 1381 of 2019 (@ S.L.P. (Crl.) No. 7437 of 2019)

Judges: N.V. Ramana, J., Mohan M. Shantanagoudar, J., Ajay Rastogi, J.

Can an accused, charged with serious economic offenses, be granted bail based on “broad probabilities,” or are there stricter criteria that must be met? The Supreme Court of India recently examined this question in a case involving allegations of a massive financial fraud. The Court considered whether the High Court of Delhi had correctly applied the law while granting bail to an accused, particularly concerning the stringent requirements for bail in economic offenses under the Companies Act, 2013 and the Code of Criminal Procedure, 1973. The judgment was authored by Justice Mohan M. Shantanagoudar, with Justices N.V. Ramana and Ajay Rastogi concurring.

Case Background

The case revolves around allegations of fraud committed at Bhushan Steel Ltd. (BSL) between the financial years 2009-10 and 2016-17. It is alleged that Brij Bhushan Singal and Neeraj Singal, the promoters of BSL, along with employees and associates, used a network of 157 companies to siphon funds from BSL. They are also accused of fraudulently obtaining credit from banks, manipulating financial statements, and causing a loss of approximately Rs. 20,879 crores to banks and financial institutions, while gaining around Rs. 3,500 crores for themselves and their families.

Nittin Johari, the first respondent in this appeal, was the Chief Financial Officer and Whole Time Director (Finance) of BSL. He was also a member of the Committee of the Board of Directors on Borrowing, Investment, and Loans during the period of the alleged fraud. He is alleged to have played a central role in these fraudulent activities, including using fraudulent letters of credit, inflating stock figures, and manipulating financial statements. The Serious Fraud Investigation Office (SFIO) initiated an investigation based on an order from the Ministry of Corporate Affairs (MCA) on 03.05.2016, which expanded to include 157 companies and 130 individuals.

Nittin Johari was arrested on 02.05.2019 and has been in judicial custody since 08.05.2019.

Timeline

Course of Proceedings

The Special Judge (Companies Act), Dwarka District Courts, Delhi, dismissed Nittin Johari’s (Respondent No. 1) bail application on 06.06.2019. The Special Judge noted the mandatory nature of Section 212(6)(ii) of the Companies Act, 2013, regarding bail for such offenses, as well as the gravity of the economic offense, the deep-rooted conspiracy, and the significant loss of public funds involved.

After the SFIO submitted its Investigation Report and filed a complaint, Nittin Johari filed another bail application, which was also dismissed by the Special Judge on 02.08.2019, reiterating the points made in the previous order.

Subsequently, the High Court of Delhi granted bail to Nittin Johari in Bail Application No. 1791/2019. This order was then stayed by the Supreme Court on 16.08.2019, leading to the present appeal.

Legal Framework

The case primarily involves offenses under Section 447 of the Companies Act, 2013, which deals with fraud. The investigation was initiated under Section 212(1)(c) of the Companies Act, 2013, which empowers the Ministry of Corporate Affairs to order an investigation by the SFIO.

Section 212(6) of the Companies Act, 2013, imposes stringent conditions for granting bail to individuals accused of offenses under Section 447. Specifically, Section 212(6)(ii) states that:

“(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”

Section 212(7) clarifies that the limitations on granting bail under Section 212(6) are in addition to those already provided in the Code of Criminal Procedure, 1973. Thus, Section 439 of the Cr.P.C., which deals with the power of the High Court or Court of Session to grant bail, is also relevant.

Arguments

Appellant (SFIO) Arguments:

• 
  The Solicitor General, appearing for the SFIO, argued that the High Court had erred in granting bail to Nittin Johari. He contended that economic offenses are a class apart and should be treated with a different approach, especially those involving deep-rooted conspiracies and huge losses of public funds.
• He highlighted that the High Court did not adequately consider the gravity of the offense and its impact on society. The Solicitor General also referred to the mandatory conditions under Section 212(6)(ii) of the Companies Act, 2013, which require the court to be satisfied that there are reasonable grounds to believe that the accused is not guilty and is not likely to commit any offense while on bail.
• He argued that the High Court’s decision was based on “broad probabilities” without considering the detailed allegations against Nittin Johari in the complaint.
• The Solicitor General distinguished the case from Nikesh Tarachand Shah v. Union of India, (2018) 11 SCC 1, where Section 45 of the Prevention of Money Laundering Act (PMLA) was struck down. He argued that the amendment to Section 45 of the PMLA made it similar to Section 212(6) of the Companies Act, making the decision irrelevant.
• The Solicitor General also argued that the interim bail granted to co-accused Neeraj Singal was not on merits but on a challenge to the constitutionality of certain provisions of the Companies Act. The Supreme Court had criticized this order, and therefore, there was no ground for parity.

Respondent (Nittin Johari) Arguments:

• 
  Senior Counsel for Nittin Johari argued that once the investigation is complete and a chargesheet is filed, the nature of allegations is not the primary factor for deciding bail. Instead, the focus should be on whether the accused has cooperated with the investigation and whether there is a risk of absconding or tampering with evidence.
• He contended that there was no allegation of tampering with evidence or influencing witnesses against Nittin Johari.
• He referred to Y.S. Jagan Mohan Reddy v. Central Bureau of Investigation, (2013) 7 SCC 439, where the court had allowed the accused to renew his bail application after the chargesheet was filed. He also cited Sanjay Chandra v. Central Bureau of Investigation, (2012) 1 SCC 40, where bail was granted after the chargesheet was filed, as custody was deemed unnecessary.
• He highlighted that BSL had been taken over by the Tata Group, eliminating the possibility of tampering with evidence.
• He argued that Nittin Johari was unfairly targeted as only he was arrested while 287 parties were named in the complaint. He also pointed out that the trial would take a long time due to the voluminous documents, and keeping him in custody would be unjust.
• He also argued that Section 212(6)(ii) of the Companies Act, 2013, is practically impossible for an applicant to obtain bail, as it requires the court to record a finding of acquittal.
• He submitted that the High Court had correctly exercised its discretion in granting bail and that the order did not warrant interference.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the Court was:

• Whether the High Court was justified in granting bail to the respondent, considering the mandatory conditions under Section 212(6)(ii) of the Companies Act, 2013, and the general principles governing the grant of bail under Section 439 of the Code of Criminal Procedure, 1973, particularly in cases involving economic offenses.

Additionally, the court also considered the issue of parity with the co-accused, Neeraj Singal, who had been granted interim bail by the High Court.

Treatment of the Issue by the Court

Authorities

Judgment

How each authority was viewed by the Court?

✓ Y.S. Jagan Mohan Reddy v. Central Bureau of Investigation, (2013) 7 SCC 439*: The Supreme Court relied on this case to emphasize the need for a stringent approach towards bail in economic offenses.

✓ Gautam Kundu v. Directorate of Enforcement (Prevention of Money Laundering Act), Government of India, (2015) 16 SCC 1*: This case was used to further support the view that a stringent approach is necessary for bail in grave economic offenses.

✓ State of Bihar v. Amit Kumar, (2017) 13 SCC 751*: This case was also used to reinforce the need for a stringent approach in economic offenses.

✓ Ranjitsing Brahmajeetsingh Sharma v. State of Maharashtra, (2005) 5 SCC 294*: This case was referred to understand the effect of twin mandatory conditions for granting bail.

✓ Collector of Customs, New Delhi v. Ahmadalieva Nodira, (2004) 3 SCC 549*: The Court used this case to interpret the term “reasonable grounds” in the context of bail.

✓ Nikesh Tarachand Shah v. Union of India, (2018) 11 SCC 1*: The Court discussed this case but distinguished it, noting that the PMLA was amended to remove the classification that led to the unconstitutionality.

✓ State of Maharashtra v. Nainmal Punjaji Shah, (1969) 3 SCC 904*: This case was used to highlight that mere apprehension of tampering or absconding is not enough to deny bail.

✓ Sanjay Chandra v. Central Bureau of Investigation, (2012) 1 SCC 40*: The Court noted the respondent’s reference to this case, where bail was granted after the chargesheet was filed, but did not apply it in this instance.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The gravity of the economic offense and its impact on the economy.
• The mandatory conditions for bail under Section 212(6)(ii) of the Companies Act, 2013.
• The failure of the High Court to apply its mind to all relevant circumstances and its reliance on “broad probabilities.”
• The need for a stringent approach in cases involving economic offenses.
• The fact that the interim bail granted to the co-accused was not on merits.

Sentiment Analysis Table

Fact:Law Ratio Table

Ratio Decidendi

The core legal principle established by the Supreme Court in this case is that in matters involving serious economic offenses, the courts must adopt a stringent approach while considering bail applications. The mandatory conditions under Section 212(6)(ii) of the Companies Act, 2013, must be strictly adhered to, and the courts should not grant bail based on “broad probabilities” or without a thorough examination of the case’s specific circumstances. Additionally, the Court emphasized that the grant of interim bail to a co-accused on grounds that are not on merits should not influence the decision on bail for other accused individuals.

Obiter Dicta

The Court acknowledged the arguments regarding the scope and validity of Section 212(6)(ii) of the Companies Act, 2013, and noted that a challenge to its constitutionality was pending before the Court. However, the Court refrained from making any observations on this aspect, as it was not the core issue for the present case. This observation constitutes an obiter dictum.

Final Order

The Supreme Court, therefore, set aside the order of the High Court of Delhi granting bail to the respondent, Nittin Johari. The matter was remanded back to the High Court for reconsideration in light of the observations made by the Supreme Court in this judgment.

Flowchart of the Case