While denying bail to Rahul Dinesh Surana who was the former CEO of Surana Group of Companies between 2015 and 2017 in the alleged case of defrauding various banks to the tune of Rs 10,000 crore, the Madras High Court in a most learned, laudable, landmark and latest judgment titled Rahul Dinesh Surana Vs The Senior Assistant Director, Serious Fraud Investigation Office in Crl.O.P.No.21728 of 2022 and cited in 2022 LiveLaw (Mad) 446 that was reserved on October 17 and then finally pronounced on October 20, 2022 has minced just no words to rationally observe that white-collar crimes are particularly harmful to the society as they are committed by well-educated and influential persons who understood the consequences of their actions. The Single Judge Bench comprising of Hon’ble Mr Justice AD Jagadish Chandra who authored this brilliant, bold, brief and balanced judgment was very forthright in observing that, “It is a case of economic offence of such a huge magnitude affecting the society and thus this Court finds that it is highly premature at this stage to grant bail to the petitioner.” The Court also pointed out that the petitioner himself had conceded to have been appointed as Group CEO to revive and rehabilitate the companies.
It must be mentioned here that the Criminal Original Petition was filed under Section 439 of Cr.P.C. read with Section 212(6) of the Companies Act, 2013 to enlarge the Petitioner on bail in F.No.3/61/2018/CL-II(SR) on the file of the respondent. The Court rightly was of the firm opinion that, “White collar crimes involving embezzlement of thousands of crores of rupees offered as loans by banks are highly harmful to society for they are committed by well-educated and influential people who are otherwise expected to set a moral example and behave responsibly.” No denying it!
At the very outset, this most commendable, courageous, cogent and creditworthy judgment authored by a Single Judge Bench comprising of Hon’ble Mr Justice AD Jagadish Chandra of the Madras High Court sets the ball in motion by first and foremost putting forth in para 1 that, “The petitioner, who was arrested by the respondent on 13.7.2022 and remanded to judicial custody on 14.7.2022 for the offence punishable under Section 447 of the Companies Act, 2013 in F.No.3/61/2018/CL-II(SR) on the file of the respondent police, seeks bail.”
As things stand, the Bench then states in para 2 that, “The petitioner is claimed to have played a key role in the group of Companies and is alleged to have indulged in the offence of siphoning of huge public money availed by way of financial assistance from various banks in the name of some shell Companies and puppet Companies.”
To put things in perspective, the Bench then envisages in para 3 that, “Though a crispy order would suffice in applications for bail, considering the factual aspects projected by the parties, this court is constrained to deal with the factual aspects in brief as under:-
(i) The Ministry of Corporate Affairs (hereinafter referred to as “MCA”), Government of India (GOD), vide order No.F.No.3/61/2018/CL-II dated 28.03.2019, ordered an investigation into the affairs of Surana Industries Limited and 14 other companies (hereinafter referred to as Surana Group of Companies or Surana GOC) by Serious Fraud Investigation Office under Section 212(1)(c) of the Companies Act of 2013. The details of Companies under Surana Group of Companies are as under:
S.No. COMPANY
1. Surana Industries Limited (SIL)
2. Surana Power Limited (SPL)
3. Surana Corporation Limited (SCL)
4. Surana Green Power Limited (SGPL)
5. Vinayaga Infra Limited (VIL)
6. Surana Green Energy Limited (SGEL)
7. SSS Tech Engineers Private Limited (SSSTECH)
8. BLS Power Solution Limited (BL SPL)
9. R.R. Tools Private limited (RR TPL)
10. V.N.R. Infrastructures Limited (VNRIL)
11. Patheypori Gardens Private Limited (FGPL)
12. Grant Logistics Limited (GLL)
13. Natural Coal Private Limited (NCPL)
14. Sayso Exim Private Limited (SAYSO)
15. Thribhuvan Enterprise Private Limited (TEPL)
(ii) On the basis of the SFIO Investigation Report into the affairs of Surana Industries Limited and 14 other Companies, the respondent had filed a complaint against the petitioner and 89 others under Section 439(2) r/w. Section 436(1)(A),(D), & (2) r/w Section 212(6) r/w 212(15) of the Companies Act, 2013, r/w Section 621(1) of the Companies Act, 1956, & Section 193 of the Code of Criminal Procedure, 1973 seeking to prosecute them for the offence under Sections 36(c) r/w 447, 143 r/w 147, 178(8), 188, 447, “448 r/w 129, 131 & 447”, 448 of the Companies Act, 2013; Section 227 r/w 233, 628 r/w 211, 628 of Companies Act, 1956; and Section 420 r/w 120 B of the Indian Penal code, 1860.
(iii) During the course of investigation, the respondent investigation team arrested Rahul Dinesh Surana, on 13.07.2022, Dinesh Chand Surana, on 02.08.2022, Vijayraj Surana, on 02.08.2022 and Devarajan K.E. on 05.08.2022.
(iv) The Surana Group of Companies (Surana GOC) consists of three flagship companies namely Surana Industries Limited (SIL), Surana Corporation Limited (SCL) and Surana Power Limited (SPL). These Companies have made bank borrowings and have been declared as Non Performing Assets (NPA) and are presently under liquidation, Insolvency and Bankruptcy Code, 2016 (IBC). Under IBC, the Liquidator had adjudicated the dues of the SIL, SCL and SPL and assessed a total liability of Rs.10,238 Crores.
(v) During the course of investigation by the respondent, it was found that the Companies have made various false representations pertaining to revenue generation, share capital contribution and profitability of Surana GOC, based on which, public sector banks have lend monies to SIL, SCL & SPL and the total adjudicated financial liability of the three companies is Rs.10,238 Crores. The investigation has revealed various counts of siphoning of funds, diversion of funds and creation of assets utilizing siphoned out funds. The Companies had floated various shell, puppet Companies, Partnerships and Proprietorship by making its own employees as Directors, Partners and Proprietors respectively inside and outside India to siphon off crores of money to cause loss to the lending banks. The investigation further revealed that there were two (2) distinct groups of entities controlled through their own employees (puppets). The books of accounts were maintained in a fragmented manner, both SAP and tally. False statements of trading revenue were generated to mislead the creditors and shareholders and thereby they have cheated the banks to the tune of Rs.10,238 crores.
(vi) The petitioner was appointed as Group CEO of Surana Group (SIL & SPL) on 27.05.2015 as approved in the BOD of SIL dated 22.05.2015. Email pertaining to this taking charge as Group CEO from DES confirms the same. The specific role of the petitioner in fraudulent conduct of affairs of SIL is as listed below:
● The petitioner (A6), in connivance with his father Dinesh Chand Surana (A4), had utilized Puppet-II managed by his maternal uncle Deepak Kothari (A22) as a tool to inflate revenue figures of SIL during F.Y. 2015-16 and 2016-17 by showing paper trade. Statutory Auditors of SIL have given adverse opinion for both financial years as they were unable to conclude that the financial statements reflect true and fair view of the affairs of SIL. RDS had controlled the affairs of puppet entities SAYSO, TEPL.
● The petitioner, in connivance with his father Dinesh Chand Surana and Yashpal, had siphoned out Rs.115.99 Crores from SIL to RIPL and RVPL.
● The petitioner, in connivance with his father Dinesh Chand Surana and Anandh, had willfully mismanaged SIL between F.Y. 2014-15 and F.Y. 2016-17 for the benefit of Sakthi GOC. The petitioner, in connivance with his father Dinesh Chand Surana and Yashpal Sharma (Yashpal) of Radha GOC, had siphoned out monies to Radha GOC. The petitioner further, in connivance with his father Dinesh Chand Surana, Anandh and Yashpal, had amassed properties at MSS Purasaiwakkam, Victory foundation and Aagam Realty at Anna Nagar, which are being in the custody and enjoyment of the petitioner and his father Dinesh Chand Surana.
● The petitioner, in connivance with his father Dinesh Chand Surana and Deepak Kothari, had utilized three fake transport firms to siphon funds of Rs 14.32 Cr from SIL, which were borrowed from banks.
● The petitioner, in connivance with his father Dinesh Chand Surana, had floated an entity BELL Tower Enterprises LLP(BELL) by employees and subsequently replaced the employees on 10.07.2015 with his illiterate & crippled distant relative Anand Parekh and roped in wife of Anand Parekh (Bindhu Anand) on 14.09.2016. Dinesh Chand Surana & the petitioner had operated BELL and had acquired the wind mills of SIL & SCL by proxy utilizing the bank borrowings siphoned off from SIL & SCL. This is a classic case of how a promoter, who had defaulted in bank borrowing, acquires the same asset by proxy using the siphoned off funds of banks. They had also siphoned out funds (a) Rs 8.25 Crore to the bank accounts of Dinesh Chand Surana (b) Rs 2 Crores to Sakthi GOC. Dinesh Chand Surana & the petitioner had also conceived an implemented manure utilizing employees to transfer siphoned out bank borrowings from BELL to Radha GOC and RAT Ispat. Dinesh Chand Surana and the petitioner had carried out these acts in connivance with Yashpal of Radha Group, Ritesh Rai & Kanniah Anandh.
●Subsequently, the petitioner, in connivance with his father Dinesh Chand Surana, orchestrated removal of steel stock from the books of SIL by following various dubious accounting treatment. They had provisioned/ written off steel from the books of SIL to the extent of Rs.191.31 Crores between F.Y. 2015-16 to 2017-18.
● The petitioner, in connivance with his father Dinesh Chand Surana, orchestrated creation of separate Tally for Madhavaram and to artificially and falsely show trading material loss of Rs.77.44 Crores, resulting in siphoning of stocks of SIL in FY 2015-16.
● The petitioner had connived with Dinesh Chand Surana & Deepak Kothari to appoint employees as directors of SAYSO & TEPL, these BOD were accustomed to act on the direction of Dinesh Chand Surana, the petitioner & PK either directly or indirectly.”
It would be worthwhile to mention that the Bench then discloses in para 7 that, “The petitioner, a key management personnel and son of Dinesh Chand Surana M.D of SIL & SPL, was appointed as Vice President (Projects) in SPL in the Board of Directors Meet dated 28.12.2008. The petitioner looked after the implementation of the 420 MW power plant of SPI. He has been disclosed as Key Management Personnel in the related party disclosures for F.Y. 2010-11, 2011-12, 2012-13 & 2013-14. It is to be noted that both the hiving off 35MW and the plan to establish 420MW power plant happened after appointment of RDS as VP (Projects). The audit documentation 11101.06 Org chart SPL CHO.pdf for FY 2014-15 of SPL shows the overall control of the petitioner over Technical Department, Finance Department, Accounts Department, HR & Admin. Department, Systems Department and Company Secretary. He not only attended most of the BOD Meetings of SPL, but was also part of the Management Committee, Steering Committee of SPL. His role in fraudulent conduct of affairs of SPL is as listed below;
a. The petitioner had remained at the helm of the Power Plant Construction and he had inflated the project cost of the 420 MW through entities controlled through employees (Puppet-I) to enable SBs divert all of the monies invested in SPL as share capital back to SIL. This manner was carried out with the intent to defraud banks by not bringing in any promoter contribution.
b. The petitioner had made various false representations to banks in the form of e-mail correspondences with banks seeking disbursements.
c. During his tenure as Group CEO of SIL & SPL, he had written off Rs.86.24 Crores, in connivance with his father Dinesh Chand Surana, receivable from VIL and BKPL as disclosed in its audited financial statements for FY 2014-15, resulting in loss of monies borrowed from banks and causing siphoning of funds of SPL of Rs.86.24 Crores.”
Be it noted, the Bench then reveals in para 8 that, “The petitioner along with his father Dinesh Chand Surana was operating SAYSO & ‘TEPL using his maternal uncle, Deepak Kothari by making his employees and poor relatives as Directors in the puppet Companies and contracts were entered with puppet companies and monies were rotated among the Companies and puppet Companies. His role in fraudulent conduct of affairs of SCL is as listed below;
a. The petitioner had connived with others to inflate revenue figures of SCL by conducting false paper trade between SAYSO, TEPL, and SCL.
b. The petitioner, in connivance with his father Dinesh Chand Surana & Deepak Kothari, had utilized corporate entities of SAYSO and 1EPL to siphon off Rs.58.8 Crores to Ramlal which is nothing, but funds borrowed by SIL & SCL from banks.
c. The petitioner, in connivance with his father Dinesh Chand Surana, Deepak Kothari & Devarajan, had orchestrated siphoning of funds of SCL, by transferring funds out to SAYSO of Rs.108.37 Crores.
d. The petitioner, in connivance with his father, Dinesh Chand Surana, had floated an entity Bell Tower Enterprises LLP(BELL) with his employees and subsequently replaced the employees on 10.07.2015 with his illiterate distant relative Anand Parekh and roped in wife of Anand Parekh (Bindhu Anand) on 14.09.2016. Dinesh Chand Surana and the petitioner had operated BELL and had acquired the windmills of SIL & SCL by proxy utilizing the bank borrowings siphoned off from SIL & SCL. This is a classic case of how a promoter, who had defaulted in bank borrowing, acquires the same asset by proxy using the siphoned off funds of banks.
e. The petitioner, in connivance with his father Dinesh Chand Surana, had also siphoned out funds (a) Rs.8.25 Crores to the bank accounts of Dinesh Chand Surana; (b) Rs.2 Crores to Sakthi GOC through BELL, which was partly repaid after the commencement of investigation. Dinesh Chand Surana and the petitioner had also conceived an implemented manner utilizing employees to transfer siphoned out bank borrowings from BELL to Radha GOC and RAI Ispat. Dinesh Chand Surana and the petitioner had carried out these acts, in connivance with Yashpal of Radha Group, Ritesh Rai & Kanniah Anandh.”
Needless to say, the Bench then states in para 9 that, “Hence, the respondent has filed the complaint against the petitioner and others, citing 125 witnesses, annexing 532 documents and 115 statements of witnesses.”
Most significantly, what forms the nucleus of this robust judgment is then encapsulated in para 17 holding that, “On a perusal of the materials available, this court finds that the offence is a serious economic offence of grave magnitude involving around 10,000 crores of hard earned public money. Among other crimes, this sort of white-collar crimes are particularly harmful to society as they are committed by not just literate, but well educated and influenced persons, who are expected to set a moral example and behave responsibly. The fraudulent activity in siphoning of pubic money by defrauding the financial institutions is unlike any other offence which could have been committed by sudden provocation as it is a well calculated one with the deep understanding as to the consequences and with the ideology to conquer them. Therefore, if the court finds a prima facie case against the accused in such cases, it cannot come to a satisfaction that there are reasonable grounds for believing that the accused is not guilty of such offence and that he is not likely to commit any offence while on bail as specified in Section 212 (6)(ii) of the Companies Act, 2013.”
Quite damningly, the Bench then lays bare in para 18 that, “Though the petitioner claims to be an innocent and he was only the Vice President (Operations), from the materials submitted alongwith the Application, it is clear that the petitioner has played a major role in the affairs of the Company. He himself claims to have been appointed as a Group CEO only for the purpose of reviving and rehabilitating the Company. On one side, he claims such a responsibility of reviving and rehabilitating the Company and on the other side, he claims no knowledge when it comes to the part of fraudulent activity in dealing with the Banks and siphoning of amounts, whereas the records also reveal that the petitioner and the other accused have formed benami/shell and puppet Companies and they have indulged in round tripping of money to their Companies. Though there are several statements recorded from the witnesses, the statement recorded from one of the Statutory Auditors viz., Geetha Suryanaranayan under Section 217 of the Companies Act reveals that the petitioner had played a key/pivotal role in the organisation. Further, a perusal of the statements recorded from other witnesses also show that the petitioner is the person, who is responsible for floating puppet and shell Companies in the name of their employees, poor relatives and round tripping and layering of money.”
As we see, the Bench then mentions in para 19 that, “A perusal of the materials reveals that the petitioner is the person who has signed in various documents as person in charge of commercial/financial transactions of Surana Power Limited. Apart from the above, the statement recorded from Banvarlal Sharma discloses about the role played by the petitioner and other accused for defrauding the banks and embezzlement of funds.”
Quite revealingly, the Bench then discloses in para 20 that, “The witnesses viz., Ramachandran and Banvarlal Sharma say that without there being any actual business activities in those Companies, the petitioner and other accused, were round tripping the money and the money borrowed were projected as capital to inflate and show profit in the Companies and contracts were entered between the benami Companies at high rates and the monies were returned back to Surana for business activities.”
To be sure, the Bench then held in para 21 that, “So far as the stand taken by the petitioner that he has got a clean chit in the writ petition filed by him challenging the Look Out Circular issued against him, it is seen that he was not an accused in the case connected with such proceedings and therefore, he cannot claim such an order as an immunity for him in the bail application of the current proceedings, where he is arrayed as an accused, alleged to have indulged in fraudulent activities against the banks to siphon the money to a very large extent and especially, when the prosecution has come out with a prima facie materials against his role in such offence.”
While clearing the air, the Bench then further clarified in para 22 that, “Similarly, the petitioner cannot take a shelter by contending that the loans were disbursed only on the basis of the Report of the Lender’s Independent Engineer and thus, he had not defrauded the Banks as the correspondences produced by the respondent reveal that such a Report was produced only on the basis of the information/inputs provided by the petitioner’ Group of Companies.”
Furthermore, the Bench added in para 23 that, “The petitioner cannot contend that in a proceedings before NCLT, a finding was given in favour of the Group of Companies which affirms that he too had not indulged into any fraud as such a finding is based on the report of the Insolvency Resolution Professional, who has given the report based on the inputs given by the petitioner group Companies in respect of which, no in-depth investigation had been done.”
What’s more, the Bench then maintains in para 24 that, “So far as the stand taken by the petitioner that a co-accused has been granted bail by this court and thus, he is also entitled to grant of bail, it is seen that such a co-accused is a Chartered Accountant and this Court had granted bail to him on the ground that he is not a Founder or Promoter of the group Companies and that the other accused belonging to the Promoter family are still in custody.”
Most remarkably, the Bench then underscores in para 25 stating that, “Of course, the golden principle has been time and again held by various courts that no person shall be deprived of his life or personal liberty except according to a procedure established by law. But, at the same time, the courts must strike a balance between the interest of the society in general and the right of an accused to personal liberty. It is relevant to note that in Masroor vs. State of Uttar Pradesh and another (2009) 14 SCC 286, it has been held as under:-
“15. There is no denying the fact that the liberty of an individual is precious and is to be zealously protected by the courts. Nonetheless, such a protection cannot be absolute in every situation. The valuable right of liberty of an individual and the interest of the society in general has to be balanced. Liberty of a person accused of an offence would depend upon the exigencies of the case. It is possible that in a given situation, the collective interest of the community may outweigh the right of personal liberty of the individual concerned.””
Most forthrightly, while citing the most relevant case law, the Bench then states in para 26 that, “Further, in Serious Fraud Investigation Office vs. Nittin Johari (2019) 9 SCC 165, a Three Judges Bench of the Apex Court has held as under:-
“24. 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 CrPC. Thus, it is necessary to advert to the principles governing the grant of bail under Section 439 of CrPC. 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 following observations of this Court in Y.S. Jagan Mohan Reddy [Y.S. Jagan Mohan Reddy v. CBI, (2013) 7 SCC 439 : (2013) 3 SCC (Cri) 552] : (SCC p. 449, paras 34-35)
“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 deep-rooted 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 [Gautam Kundu v. Directorate of Enforcement, (2015) 16 SCC 1 : (2016) 3 SCC (Cri) 603] and State of Bihar v. Amit Kumar [State of Bihar v. Amit Kumar, (2017) 13 SCC 751 : (2017) 4 SCC (Cri) 771] . 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.”
Finally, the Bench then concludes by holding in para 27 that, “Having perused the entire materials available on record, as of now, this court is of the opinion that the petitioner has not satisfied the conditions imposed under Section 212(6)(ii) of the Companies Act for grant of bail for the offence punishable under Section 447 of the Companies Act. Further, it is a case of economic offence of such a huge magnitude affecting the society and thus, this court find that it is highly premature at this stage to grant bail to the petitioner. Accordingly, the Criminal Original Petition stands dismissed.”
In a nutshell, we thus see that the Madras High Court has very rightly taken a most stern view of white collar crimes noting that they are highly harmful to society. We have discussed this in detail already. Those elite people who are fortunate enough to occupy high seats must definitely for their own betterment as well as for the benefit of others pay heed always and take most seriously always what the Madras High Court has laid down so very explicitly, elegantly and effectively in this leading case! It certainly merits no reiteration that the earlier, they realize this, the better it shall be not only for the nation but also for their ownselves. No denying it!
Sanjeev Sirohi