Sunil Bhatia Vs Serious Fraud Investigation Office (Delhi High Court)
Since the ex-promoters/directors and similarly situated chartered accountants have been granted bail, there is no reason why the Applicant should be treated any differently.
Facts-
M/s Bhushan Steel Limited (BSL) is a company under investigation on account of allegations of siphoning off by its promoters.
The allegation against the applicant is that he being a Chartered Accountant and one of the partners at ASRN & Associates [the firm appointed as stock auditors by the consortium of banks led by Punjab National Bank (PNB) for FY 2015-16 failed to perform his duty independently and diligently by not verifying the stock in transit, and he is accused to be in collusion with the office bearers of M/s Bhushan Steel Limited.
It is stated that he is involved in providing and using wrong information to calculate the Drawing Power figures wrongly based on the figures given by M/s Bhushan Steel Limited.
A complaint dated 01.07.2019 was filed under Section 439(2) read with Section 436(1)(a),(d) and (2) read with Section 212(15) of the Companies Act, 2013 read with Section 621(1) of the Companies Act, 2013, read with Section 193 of the Code of Criminal Procedure, 1973 by the respondent, Serious Fraud Investigation Office (SFIO). The respondent also relies upon Investigation Report dated 27.06.2019 filed with the Ministry of Corporate Affairs.
Based on the conclusions in the Investigation Report and allegations contained in the complaint, the learned Special Court was pleased to summon the applicant u/s. 36(c) read with Section 447 of the Companies Act, 2013 vide summoning orders dated 16.08.2019.
The applicant filed his bail application and sought to be supplied with the complete Charge Sheet in accordance with his rights u/s. 207/208 Cr.PC.
Conclusion-
A bare perusal of the above answer shows that the Punjab National Bank (PNB) did not lay much emphasis to the audit report given by the applicant. Even if I see the audit report, the audit report shows that the applicant had raised serious issues, and no loan should have been advanced based on the asset classification and Position of Accounts in the stock audit report.
I am of the view that since the ex-promoters/directors and similarly situated chartered accountants have been granted bail, there is no reason why the Applicant should be treated any differently.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This is an application filed seeking grant of regular bail to the applicant (accused No. 200 in Complaint Case No. 770/2019 titled as “Serious Fraud Investigation Office vs. Bhushan Steel Limited and Others”.
2. The applicant is a senior citizen and Chartered Accountant (C.A.) by profession with private practice.
3. The facts in brief are:
3.1 M/s Bhushan Steel Limited (hereinafter “BSL”) is a company under investigation on account of allegations of siphoning off by its promoters.
3.2 In brief, the allegation against the applicant is that he being a Chartered Accountant and one of the partners at ASRN & Associates [the firm appointed as stock auditors by the consortium of banks led by Punjab National Bank (hereinafter “PNB”) for Financial Year 2015-16] failed to perform his duty independently and diligently by not verifying the stock in transit, and he is accused to be in collusion with the office bearers of M/s Bhushan Steel Limited.
3.3 It is stated that he is involved in providing and using wrong information to calculate the Drawing Power figures wrongly based on the figures given by M/s Bhushan Steel Limited.
3.4 A complaint dated 01.07.2019 was filed under Section 439(2) read with Section 436(1)(a),(d) and (2) read with Section 212(15) of the Companies Act, 2013 read with Section 621(1) of the Companies Act, 2013, read with Section 193 of the Code of Criminal Procedure, 1973 by the respondent, Serious Fraud Investigation Office (SFIO). The respondent also relies upon Investigation Report dated 27.06.2019 filed with the Ministry of Corporate Affairs.
3.5 As per the complaint, the allegations against the petitioner are as under:-
“32. On account of inter alia, the deprivation of finances to A-01Bhushan Steel Ltd., the financial position of Company deteriorated. However, despite this, the financial statements of A01 Bhushan Steel Ltd indicated increasing figures against Stock-in- Transit (“SIT”), both in absolute terms and as a percentage of turnover, especially in the financial years F.Y 2013 14, 2014-15 and 2015-16. The “SIT” is shown at Rs. 3823.48 Cr., Rs. 5093.46 Cr. and Rs. 6523.20 Cr. respectively. Investigation established that figures shown under “SIT” used to be inflated by making false entries in the books of accounts maintained in SAP and Foxpro Legacy. With these manipulated figures A-01 Bhushan Steel Ltd during the F.Y 2013-14 to 2015-16 was able to avail Drawing Power (“DP”) against cash credit facility. This conspiracy of availing “DP” by filing inflated figures was hatched by A-158 Brij Bhushan Singal, A- 159 Neeraj Singal, A160 Nittin Johari, A- 179 Pankaj Tewari. A- 161 Pankaj Kumar Agarwal, A- 190 Pankaj Mahajan and A-200 Sunil Bhatia, stock auditors and A- 186 R.K Mehra and A- 188 M.P. Mehrotra, statutory auditors. At all material time they were aware that the amount shown under SIT in inflated in the books of accounts.
71. Further, as detailed above, A-158 Brij Bhushan Singal A 159 Neeraj Singal, the ex-promoters of BSL, along with A-160 Nitin Johari, ex- Whole Time Director and Chief Financial officer (CFO) of BSL in active connivance with employees of A-1 BSL, namely, A-181 Vivek Mittal, A- 180 Saurabh Mittal, A-179 Pankaj Tewari, A-184 Rajat Jain, A-183 Sunil Agarwal and A185 Rajesh Sharma have filed various false, deceptive statements and misleading information to various banks, to avail/ continue to avail working capital limits from 2013-14 till 2015-16. All the aforesaid accused persons, at all material time, were well aware about the financial position of A-01, BSL and non-existent stocks but nevertheless, induced the banks to sanction total Drawing Power (DP) against Fund Bank Working Capital limits of Rs. 5389 crore, 5606 crore and 5527 crore against which it had cash credit outstanding of Rs. 5761 crore, Rs. 7094 crore and Rs. 9768 crore respectively. This was secured inter alia against the non-existent Raw Material (Stock in-Transit) which caused wrongful loss to lenders.
72. The Stock Auditors A-199 Pankaj Mahajan, CA and A-200 Sunil Bhatia, CA appointed by the Banks also colluded with the above-mentioned accused and did not discharge their duties diligently.
73. A-158 Brij Bhushan Singal, A-159 Neeraj Singal, A-160 Nitin Johri, A-161 Pankaj Kumar Aggarwal, A-179 Pankaj Tewari, A-183 Sunil Agarwal, A-184 Rajat Jain, A-185 Rajesh Sharma, A-181 Vivek Mittal, A-180 Saurabh Mittal of BSL, alongwith A-186 R.K. Mehra, CA of Mehra Goel & Co., connived in making false, misleading statements relating to Stock-in-Transit for the credit facilities availed from bankers during the period covering F.Y. 2013-14 to 2015-16.
74. Thus A-1 BSL, A-158 Brij Bhushan Singal, A-159 Neeraj Singal, A-160 Nittin Johari, A-181 Vivek Mittal, A-180 Saruabh Mittal, A-179 Pankaj Tewari, A-183 Sunil Aggarwal, A-184 Rajat Jain, A-185 Rajesh Sharma, A-190 Pankaj Mahajan, A-200 Sunil Bhatia, A-186 R.K. Mehra, A-161 Pankaj Kumar Aggarwal are liable for fraudulent inducement of creditors as laid down in Section 36 (c) of Companies Act 2013 and are liable to be punished u/s 447 of the Companies Act, 2013.”
3.6 The Investigation Report records as under:-
“OBSERVATION ON THE STOCK AUDIT REPORT OF M/S ASRN & ASSOCIATES, CHARTERED ACCOUNTANTS
4.12 Based on the statement and the Stock Audit report, the following observations are made on the report submitted by M/S ASRN & Associates, Chartered Accountants:
> The movement of stocks for intervening period was not taken by the auditor.
> The auditor confirmed that due to pressure from the Bank to conclude the Stock Audit, certain norms for verifying the stock positions was not taken care by them.
> The Stocks at Jawaharlal Nehru Port, Mumbai could not be verified due to strike. The company could not provide the full details of supporting documents regarding ownership of the stock i.e., like invoices and bill of entry. M/s ASRN & Associates verified the stock on test check basis and hence they had relied upon the stock position given by the management.
> The stock in transit was also verified as per the information/ data provided by the Management of BSL. However, certain bills/invoices were verified as the auditors were not provided with supporting documents to the extent of stocks lying in transit i.e. Rs 5389.58 Crore. The stock auditors were told by the management and the bank to cover the DP therefore, the stock positions shown in the stock in transit is actually not correct.
> The physical stock in transit could not be verified as the company could not provide supporting documents such as invoices and bill of entries etc. for claiming the same.
> The goods received under LC were devolved to the extent of Rs. 3,676.61 and the amount was paid by the bank, hence, it is not paid stock and it should have been excluded for the purpose of arriving DP. The banks and the management had expressed their concern if this devolved liability excluded for the purpose of DP, the DP should have gone down to the extent above. Hence, the same was taken for DP purpose.
> In view of the above facts the Stock Auditors M/s ASRN & Associates have failed to discharge their legitimate duties to prepare the audit report impartially and against norms of Audit Principles and ignore the serious irregularities in the stock audit report. Hence, he is responsible for the lapses.
5.1.14. Investigation revealed that the Stock Auditors, Sunil Bhatia, a partner of firm of M/s ASRN & Associates conducted the stock audit on behalf of PNB for the period of “BSL” as on 30.09.2016. The auditors failed to verify the supporting documents of “SIT” which “BSL” had shown at Rs.5389.58 crore (refer para 4.4 (Table No. 4.7) of factual matrix) specifically keeping in view the nature of account of “BSL” which was classified as “Non-Performing Asset since 1.10.2014/Doubtful”.
5.1.15. Thus, both the Stock Auditors, failed to perform their duties independently and diligently by not verifying the stock in transit, and thereby colluded with the officers of “BSL” in providing and using the wrong information to calculate the DP figures wrongly based on the figures given by “BSL” management. The Stock Auditors also got influenced and did not perform their assigned duty diligently and professionally.”
3.7 Based on the conclusions in the Investigation Report and allegations contained in the complaint, the learned Special Court was pleased to summon the applicant under Section 36(c) read with Section 447 of the Companies Act, 2013vide summoning orders dated 16.08.2019.
3.8 The applicant filed his bail application and sought to be supplied with the complete Charge Sheet in accordance with his rights under Section 207/208 Cr.PC.
3.9 It is submitted that the Charge Sheet is approximately of 60,000 pages, and in February 2022, the learned Special Court directed the applicant to conduct physical inspection of the voluminous record every Thursday from 12 Noon to 4 PM till 31.05.2022.
3.10 The inspection was conducted by applicant’s counsel on numerous dates, and on numerous occasions, the inspection could not be conducted as officers of SFIO were not present.
3.11 On 08.04.2022, the learned Special Court directed as under:-
“I am fixing two dates of hearing i.e. 01.06.2022 and 04.07.2022 for arguments on the bail applications. I note that on 01.06.2022 first arguments shall be advanced on the applications under Section 207 Cr.PC pending qua any of these accused persons and thereafter arguments on the bail application shall be heard.
I further note that if arguments on the bail application are not concluded on the said, the remaining accused persons shall argue their bail applications on 04.07.2022.
Now list this matter on 01.06.2022 for arguments on the pending applications qua A-190 to A-203.”
3.12 On 01.06.2022, the applicant went to attend the Court proceedings, but the learned Special Judge was pleased to hear the arguments on bail application and dismissed the same and took the applicant in judicial custody.
4. This Court on 06.06.2022 was pleased to direct issuance of notice, and on 13.06.2022, this Court directed the matter to be listed on 24.06.2022.
5. The Hon’ble Supreme Court on 17.06.2022 directed this Court to hear and decide the bail application filed by the petitioner on 24.06.2022.
6. Accordingly, and as per the directions of the Hon’ble Supreme Court, I have heard Mr. P.V. Kapur, learned senior counsel for the applicant and Mr. Ripu Daman Bhardwaj, learned CGSC appearing for the respondent.
7. Mr. Kapur, learned senior counsel for the applicant submits that at the outset, the complaint against the petitioner is not maintainable.
7.1 He submits that as per the complaint, the main allegation is that the promoters of BSL, along with some other accused persons, filed various false deceptive statements and misleading information to various banks to avail and continue to avail working capital limits from 2013-14 till 2015-16.It is further alleged that the applicant‟s firm was appointed by the bank, Punjab National Bank, and they colluded with the BSL and did not discharge their duties diligently. The issue under investigation in the case of M/s Bhushan Steel Limited was1.9 xv – “Role of Stock auditor who conduct audit of BSL in the F.Y. 2014-15 & 2015-16.”.
7.2 He submits that a bare perusal of the appointment letter dated 29.10.2016 shows that the applicant was appointed as a Stock Auditor for conducting stock audit for the year 2016-17. The terms of appointment were as under:-
“(Appointment Letter dt. 29.10.2016)
