Vikas Agarwal v. Serious Fraud Investigation Office, CRL. M.C. 647/2019 & CRL. M.A.

2713/2019, Decided on: 06.02.2019

Facts: Impugned order dated 24.01.2019 of the trial court summoning the petitioner for
commission of offence under Sections 418/120B of IPC and under Section 447 of the Companies
Act, 2013. Petitioner submitted that the only allegation leveled against petitioner, as noticed in
the impugned order, is that petitioner who is arrayed as A-27 with his co-accused A-24, A-25 &
A-26, were partners in the mining firm which was indulging in illegal mining activities and were
part of a larger conspiracy. It is alleged against the petitioner and his co-accused that they had
provided an unsecured loan to the Trust.

Submission advanced on behalf of petitioner - That any prosecution under the Companies Act,
2013 is to be confined to the Companies only and not to private individuals. The fraud under
Section 447 of the Companies Act, 2013 is in relation to the affair of the company and not in
respect of any individual. Hence the impugned order qua petitioner is liable to set aside, as the
trial court has no jurisdiction to summon the petitioner.

Submission advanced on behalf of the respondent - As per Section 447 of the Companies Act,
2013, the definition of ‘fraud’ includes any person who connives in any manner to deceive or to
gain undue advantage from any company and so the trial court has the jurisdiction to summon
petitioner and in any case, petitioner has efficacious remedy to raise the pleas taken herein before
the trial court at the charge stage. Also submitted that at the summoning stage, in-depth
examination of the case is not required to be undertaken. As per the learned standing counsel,
Sanction for prosecution of petitioner has been granted after satisfying that a prima facie case for
prosecution of petitioner is made out.

Held: “Upon hearing and on perusal of impugned order, material on record and the relevant
provisions of the Companies Act, I find that the definition of fraud provided in the explanation to
Section 447 of the Companies Act, 2013 makes it clear that the prosecution is to relate to the
companies in the first instance and also to other persons who have in any manner connived in
commission of the offence to gain undue advantage. A bare perusal of Section 212 of the
Companies Act, 2013 reveals that there is no bar of limitation to proceed under Sections 212 or
447 of the Companies Act, 2013. What is the larger conspiracy cannot be prejudged at this
initial stage and is required to be examined at trial. At the summoning stage, limited scrutiny is
required to be undertaken. Upon doing so, I find no illegality or infirmity in the impugned order.
This Court finds that the trial court has jurisdiction to proceed against petitioner, as sanction for
the prosecution has already been taken. In the considered opinion of this Court, trial court does
not lack the jurisdiction to proceed against petitioner.”

Siddharth Chauhan v Serious Fraud Investigation, CRM-M-38926-2019 [P&H HC]

This court also does not find force in the argument of the ld. Counsel for the petitioner that the
offence under section 447 was not on the statute book on the date when the alleged money of
CUIs of Adarsh Group was transferred to his companies, and therefore; he cannot be
prosecuted by giving retrospective effect to this offence. As is clear from the reading of the
definition of the fraud; as given in section 447 of the new Companies Act, it is not an offence
which stands completed on the date of transfer of money of a company to other company or to
any other person. Rather, the money has reference only for the purpose of quantum 86 of 93 of
punishment. Only to that extent; the transfer of money is the ingredient of the offence under
section 447. Another and more important ingredient is the act, omission or concealment of fact
or abuse of position with an intention to deceive the company, the shareholders or any other
person. Even connivance of another person in these ingredients is an offence. This definition
specifically clarifies that the actual loss or gain by any company or a person is not the
ingredient of this offence. Any damage to the interest of a company or other person is sufficient.
So; the deceitful intention, which makes the transaction a fraud, need not be present at the time
of transfer of funds or at the time of use of the said money. This intention can be developed at
any time even after the money was transferred or used. Even if the money was initially
transferred or used as per some legal agreement, still any subsequent act done or omission or
concealment made; qua that money or qua the transaction made with or regarding that money;
which intends to cause any damage to the interest of the CUIs or to any other person, can
convert the otherwise legal transaction into a fraud punishable under section 447 directly; and
also or indirectly by virtue of section 448. This is quite clear from the opening words of section
447, which start with clarifying that the offence under section 447 is punishable without
prejudice to any liability to make the repayment, which the person committing fraud may incur
on account of 87 of 93 such transaction which was; or turns at any time into a fraud. Hence the
offence under section 447 is not a stand-alone-act offence arising from sole act of transfer of
money or completed on the date of such transfer. It can arise at any subsequent time or from
other subsequent transaction or act, omission or concealment. In that sense it is a continuing
offence, which can have its origin on the date of transfer of money or can be relatable to the use
of that money but which shall be completed when any act, or omission or concealment with
fraudulent intention is made. Since the company offences are usually shrouded with the cloak of
legal procedures, therefore, the deceitful intention may not be easily gatherable from one
transaction or even a series of transaction. Therefore even the continued omission to make
repayment or part repayment of the money which is the subject matter of the offence; can be one
of the ingredients of the offence, if otherwise so reflected from the record. Hence the offence
under section 447 has to be taken as a continuing offence till the repayment of the punishable
quantum of amounts contemplated under section 447 is complete. In the present case, as
observed above, to show any non-deceitful intention qua the transactions involving the CUIs of
Adarsh Group, the petitioner does not have any books of accounts, required to be maintained as
per the Companies Act; despite the risk of being punished for the same only. Hence; the deceit
can very well be 88 of 93 inferred as having started creeping into the transaction. Still further,
the amounts are; not only not repaid to CUIs of Adarsh Group even so far; but also are alleged
to have been transferred; partly; personally to Vivek Harivyasi in the year 2014, i.e. after the
coming into force the new Companies Act. Furthermore; even two persons inducted by the
petitioner into his companies as quid pro quo for the transferred money; were continuing even at
the time when the new Companies Act had come into operation and even after those persons had
severed connections from the CUIs of the Adarsh Group. Hence, the petitioner cannot avoid
prosecution under section 447 on the plea that the new Companies Act had not been enacted on
the date of transfer of funds from CUIs of Adarsh Group to his companies. Although the counsel
for the petitioner has relied upon the judgment of the Supreme Court rendered in case of Udai
Shankar Awasthi (Supra), however, that judgment is not only distinguishable on the facts,
rather; goes against the petitioner in its enunciation of scope of a continuing offence.”