Bombay High Court
Golden Peace Hospitality Pvt Ltd vs The State Of Maharashtra on 12 August, 2025
Author: Amit Borkar
Bench: Amit Borkar
2025:BHC-AS:34546
ba-4989-2024 with connected-final.doc
AGK
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
BAIL APPLICATION NO.4989 OF 2024
Jayant Sanjeeva Shetty ... Applicant
V/s.
The State of Maharashtra ... Respondent
WITH
INTERIM APPLICATION NO.238 OF 2025
Prada Sadhu Shetty ... Applicant
V/s.
The State of Maharashtra & Anr. ... Respondents
WITH
INTERIM APPLICATION NO.1663 OF 2025
Golden Peace Hospitality Pvt. Ltd. ... Applicant
V/s.
The State of Maharashtra & Anr. ... Respondents
Mr. Aabad Ponda, Sr. Advocate a/w Jugal Kanani for the
Applicant.
Mrs. Megha Bajoria, APP for the State - respondent.
Mr. Mutahar Khan with Sachin Mhatre, Ishita Kamath, and
Rithika Mehra i/b Mhatre Law Associates for the
Intervener in IA/238 of 2025.
Mr. Rahul S. Arote a/w Jay N Suryavanshi for Intervener
in IA/1663/2025.
Mr. Sangle, PI, EOW, is present.
CORAM : AMIT BORKAR, J.
DATED : AUGUST 12, 2025 1 ::: Uploaded on - 12/08/2025 ::: Downloaded on - 12/08/2025 21:41:44 ::: ba-4989-2024 with connected-final.doc P.C.: 1. The present application has been moved by the
Applicant/Accused No.2, namely Jayant Sanjeeva Shetty, under
Section 439 of the Code of Criminal Procedure, 1973, seeking the
grant of regular bail. The matter arises out of C.R. No. 2 of 2020
registered with the Economic Offences Wing, Mumbai, which was
initially registered as C.R. No. 5 of 2020 with Malad Police Station.
The offences alleged against the present Applicant are punishable
under Sections 406, 409, and 420 read with Section 120-B of the
Indian Penal Code, 1860 (hereinafter “IPC“) as also under Sections
3 and 4 of the Maharashtra Protection of Interest of Depositors (in
Financial Establishments) Act, 1999 (hereinafter “MPID Act“).
2. The prosecution case, in brief, is that agents of M/s. Shree
Ramanjaneya Leasing and Finance Pvt. Ltd. (hereinafter “the said
Company”) were operating in the area where the complainant
resides. Through these agents, popularly referred to as “pigmy
agents,” the complainant came to know, in the year 2012, about
the activities of the said Company.
3. According to the prosecution, the pigmy agents represented
to the complainant, one Sunil Nagpal, that the said Company was
engaged in the business of financing and mortgaging property. It
was further informed that apart from giving loans, the Company
also accepted public deposits under various investment schemes,
offering attractive and assured rates of interest. The prosecution
alleges that the said Company primarily generated income by
mortgaging properties and lending against them. For raising the
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funds required for such lending, the Company accepted deposits of
₹1,00,000/- and above from members of the public under
investment/deposit schemes. The collected deposits were then
used by the Company for advancing loans.
4. It is alleged that one Ganesh Shetty personally approached
the complainant and informed him about the investment schemes.
He allegedly stated that people from Malad and other areas of
Mumbai had invested in these schemes and were receiving
guaranteed monthly interest from the Company. Acting on such
representations, the complainant invested ₹1,00,000/- per month
in cash for four consecutive months, totalling ₹4,00,000/-, with an
assurance of monthly interest at the rate of 1.25%. The
complainant further alleged that between 2013 and 2017, he was
regularly paid the assured monthly interest and, upon maturity, the
principal amount. In this period, he claims to have invested a total
of ₹40,00,000/-. However, from December 2017, the Company
allegedly stopped paying interest. When the complainant
approached accused Ganesh Shetty, Harish Shetty, and the present
Applicant, they are said to have informed him that the Company
was facing financial difficulties and requested him to wait.
5. By the year 2018, the complainant’s investments had
matured, and he demanded the principal along with the
outstanding interest. According to him, the accused assured that
they would repay once certain immovable properties and hotels of
the Company were sold.
6. The complainant later discovered, on visiting the Company’s
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office, that numerous other depositors were also facing the same
problem, having been neither paid their interest nor their principal
amounts. It is further alleged that after persistent follow-ups, the
present Applicant convened a meeting of depositors on 26.10.2019
at the office of Fidalgo Group of Hotels at Chincholi Bunder Road,
Malad (West), Mumbai. In this meeting, the Applicant allegedly
did not give any concrete assurance regarding repayment and
stated that another meeting would be held on 09.11.2019.
7. The prosecution case is that from 2012 to 2017, the
Company and its Directors, namely Ganesh Shetty, Harish Shetty,
and the present Applicant, cheated several investors, including the
complainant, by accepting deposits under various schemes, luring
them with the promise of high interest, and ultimately failing to
return the amounts invested along with the promised returns. In
all, the complainant alleges to have deposited a sum of
₹45,76,000/- with the Company, for which he was issued deposit
certificates.
8. Mr. Ponda, learned Senior Advocate appearing for the
Applicant, submitted that the present case essentially arises from a
money-lending transaction. Even if, for the sake of argument, it is
assumed that the transaction amounts to a “deposit,” there is no
allegation or stipulation that the funds were held in a fiduciary
capacity “in specie” or that they were required to be utilized for
any specific or earmarked purpose. In such circumstances, the
essential ingredients of Section 406 or Section 409 of the IPC,
which require proof of entrustment of property and its dishonest
misappropriation, are not attracted.
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9. Learned Senior Counsel pointed out that since the year 1994,
repayments have consistently been made to the investors without
default. The scheme in question was neither of the nature of a
“high-return double-your-money” scheme nor one promising an
exorbitant interest rate such as 5% per month. There is no material
to suggest that there was any element of fraud from the inception
of the scheme, and therefore, invocation of IPC offences is
misconceived.
10. It was argued that once the prosecution case is examined in
this light, the matter would stand confined only to the provisions
of the MPID Act. Even under the MPID Act, the maximum
punishment prescribed is six years, and the Applicant has already
undergone one year and six months of incarceration. A bare
perusal of the charge-sheet, it was submitted, indicates that the
transaction was in the nature of a loan advanced to a party in
financial need. Such a loan transaction, by its very nature, does
not fall within the legal definition of an “investment” or “deposit”
under the MPID Act. The law clearly distinguishes between a loan
and entrustment of property.
11. Learned Senior Counsel emphasised that in civil law, the
Limitation Act itself prescribes different limitation periods for
actions based on loans and those based on deposits. In criminal
jurisprudence also, these two concepts are treated as distinct and
cannot be interchanged.
12. It was submitted that, for an offence of criminal breach of
trust under Section 405 IPC to be made out, two essential
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conditions must be fulfilled: (i) that the accused was entrusted
with property or had dominion over the property, and (ii) that the
accused dishonestly misappropriated or converted that property to
his own use, or disposed of it in violation of any legal direction or
contract relating to such trust. In this context, “entrustment”
means that the ownership or beneficial interest in the money, in
respect of which the breach of trust is alleged, must be vested in a
person other than the accused, and the accused must hold that
money for the benefit of another person or on account of such
person.
13. Applying these principles to the present case, learned Senior
Counsel argued that the investors had advanced monies to the
Company and had been issued fixed deposit certificates in return.
The arrangement was that, upon maturity, the principal amount
along with the agreed rate of interest would be returned to the
investors. There was no understanding between the parties that
the invested money would be applied for any specific or restricted
purpose. In law, once the investors parted with the money under
such an arrangement, the beneficial ownership of that money
vested in the Company. Thus, there was no entrustment in the
legal sense required to constitute an offence under Section 405
IPC.
14. It was further argued that it is not the prosecution’s case that
the Company or the Applicant had a dishonest intention since
inception. On the contrary, from the year 1994 until 2017, the
Company regularly paid both principal and interest to its investors,
a track record spanning over 26 years. In fact, the first informant
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received interest on his principal between 2012 and 2013, and
defaults only began after 2017 due to alleged financial difficulties.
Such a history, it was urged, is inconsistent with any pre-existing
intent to cheat.
15. On this basis, learned Senior Counsel contended that Section
409 IPC is inapplicable to the facts of the present case. Once IPC
provisions are excluded, the remaining offences under the MPID
Act carry a maximum sentence of six years. Since the Applicant has
already spent one year and seven months in custody, his continued
detention is not justified. Reliance was placed on the principles
laid down by the Supreme Court in Sanjay Chandra v. Central
Bureau of Investigation, (2012) 1 SCC 40 , particularly on the
aspect that pre-trial detention should not be prolonged when the
trial is likely to take considerable time.
16. In support of his submissions, learned Senior Counsel placed
reliance upon the following judgments:
(a) Chellor Mankkal Narayan Ittiravi v. State of Travancore-Cochin ,
AIR 1953 SC 478;
(b) M/s. Indian Oil Corporation v. M/s. NEPC India Ltd. , AIR 2006
SC 2780;
(c) Delhi Race Club v. State of Uttar Pradesh, (2024) 10 SCC 690;
(d) Deochand Durlabhji Jogi v. Madanlal Gopikisan Sharma , 1967
SCC OnLine Bom 88;
(e) The Sarvada Merchant Coop. Credit Society Ltd. & Ors. v. State
of Maharashtra & Anr., Criminal Application No. 798 of 2013;
(f) N. Raghavender v. State of Andhra Pradesh, (2021) 18 SCC 70;
(g) Wainganga Krishna Gramin Bank v. State of Maharashtra &
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(h) Nadir Ali Barqa Zaidi & Ors. v. State of U.P. , (1959) SCC
OnLine All 106; and
(i) Satishchandra Ratanlal Shah v. State of Gujarat , (2019) 9 SCC
148.
17. Per contra, Mrs. Megha Bajoria, learned APP, strongly
opposed the bail application. She submitted that the applicant is
one of the Managing Directors of the said Company. From the very
inception of the company, investors were lured with various
investment schemes, such as: (i) Fixed Deposit Scheme – having a
duration of 12 months, offering interest in the range of 1% to
1.5% per month, with the principal amount repayable on maturity
and an option for renewal. ii)Double Money Scheme – where the
amount invested would be doubled within five years. (iii) Daily
Collection Scheme – having a term of 3 to 6 months, where the
company’s agents collected daily deposits of at least ₹100/- from
retail traders, and the depositors were promised interest on the
maturity of such deposits.
18. She submitted that while the company’s stated business was
that of mortgaging property and providing loans against security,
in reality, without possessing any valid license to accept public
deposits, the company illegally ran these investment schemes and
accepted huge sums from investors. Upon maturity, the company
failed to return the principal along with interest. The period of
offence, according to the prosecution, spans from September 2012
to 6 January 2020.
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19. Learned APP pointed out that a certificate issued by the
Reserve Bank of India specifically records that the applicant’s
company was not authorised to accept or hold public deposits, yet
the company continued to do so in violation of the law.
20. It is further the prosecution’s case that the applicant diverted
investors’ money to his personal bank accounts instead of
depositing the same in the company’s accounts. The applicant
maintained two accounts with Axis Bank, into which significant
sums were received directly from investors. For example, an
investor, Pradip Shetty, transferred ₹5 lakh on 20 March 2013 and
another ₹5 lakh on 26 March 2014, and a further ₹5 lakh on 23
May 2014 into the applicant’s personal accounts.
21. The registration certificate issued by the Municipal
Corporation of Greater Mumbai to the company on 22 December
2015 records its activity as “leasing and finance.” Despite this, the
applicant and other directors illegally accepted public deposits in
violation of applicable law.
22. Learned APP submitted that 32 bank accounts belonging to
the company and the four accused persons, including the present
applicant, have been frozen. A forensic audit is in progress, and
the provisional audit report shows that an amount of ₹268.05
lakhs was deposited in the applicant’s personal accounts, with the
sources of these funds remaining unidentified.
23. It is alleged that the accused siphoned off investors’ funds
into their personal accounts and later transferred substantial
amounts to accounts of M/s. Maberest Hotel Private Limited and
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Hotel Fidalgo, Panaji. Statements of several investors, witnesses,
and pigmy agents of the company reveal that the accused directors
initially enticed investors with promises of high returns, either 1%
to 1.5% monthly or doubling of principal, and thereafter pressured
them to invest even larger amounts.
24. Further, information received regarding the bank accounts of
the accused financial institution shows that the applicant was an
authorised signatory. The statements of 1,933 investors have been
recorded so far, disclosing that the total fraud detected amounts to
₹214 crore. The process of recording investors’ statements is still
ongoing, and the prosecution anticipates that the quantum of the
fraud may further increase.
25. Learned APP also brought to the notice of this Court that the
applicant had filed two anticipatory bail applications before this
Court, both of which were rejected, on 23 October 2020 and 17
December 2020. Thereafter, the applicant remained absconding
and could be arrested only on 17 January 2024. This conduct,
according to the prosecution, reflects the applicant’s disregard for
the law.
26. It was also pointed out that one Nitesh Lalabhai Shah, a
hotelier, has lodged a non-cognizable complaint at Amboli Police
Station, Mumbai against the applicant, alleging that he was
threatened. The prosecution alleges that these threats were issued
by the applicant while he was in judicial custody, and that he was
making calls from jail. Learned APP submitted that such conduct is
of serious concern, as it raises a real apprehension that, if released
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on bail, the applicant may threaten investors or witnesses. In view
of these facts, it was submitted that the present bail application
deserves to be rejected.
27. Mr. Mutahar Khan, learned Advocate for the intervener,
submitted that the total number of investors defrauded by the
applicant and other co-accused has now increased to 3,023. He
pointed out that ten immovable properties of the accused have
been attached under the provisions of the MPID Act. Out of these,
four properties have already been sold. One immovable property
was demolished, and another property was detached from
attachment as it had already been auctioned under SARFAESI
proceedings. According to him, apart from one property at Serial
No. 10 of the affidavit filed by the Economic Offences Wing,
valued at only ₹2 crore, there is no other property left which could
be liquidated to compensate the investors.
28. Learned counsel submitted that the amounts deposited by
investors with the applicant would amount to entrustment within
the meaning of Section 405 IPC if it is shown that the applicant
had dominion over such amounts. From the material in the charge-
sheet, it is clear that the first informant was told by the accused
company that it was in the business of mortgaging property and
providing loans against such security. However, the evidence
indicates that the applicant misappropriated and utilised the
investors’ funds for his own benefit by transferring the amounts to
his personal account as well as to an HUF account controlled by
him. This fact, he submitted, stands confirmed by the applicant’s
sister, wife of another absconding accused, in her reply/objections
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dated 6 September 2024. Such misappropriation and conversion of
amounts received from investors for personal use, according to
him, is contrary to the understanding between the accused and the
investors, and clearly amounts to breach of trust.
29. It was further submitted that under Section 73 of the
Companies Act, the accused company was prohibited from
accepting deposits from members of the public. Similar
restrictions, he pointed out, exist under Section 45-S of the
Reserve Bank of India Act. Moreover, the Securities and Exchange
Board of India had never granted permission to the accused
company, controlled by the applicant, to accept such deposits.
30. Learned counsel argued that floating investment schemes
and accepting deposits without legal authority was illegal from the
very inception. The mere fact that the accused had paid interest or
returned principal amounts to some investors for a certain period
would not make the transaction lawful; the scheme was fraudulent
right from the beginning. In fact, payment of interest in the initial
years was only a device to attract more investors and thereby
perpetuate the fraud. In support, he relied upon the judgment of
this Court in Prashant Wasankar v. State of Maharashtra , (2016) 4
Bom. C.R. (Criminal) 257.
31. The learned counsel submitted that the analogy drawn by
the applicant, comparing deposits with the company to deposits
made with a bank, is wholly misconceived. A bank is authorised
under the RBI Act and operates under strict regulatory control to
accept deposits and utilise them only in prescribed ways.
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Acceptance of money from unsuspecting investors under
fraudulent schemes, such as the present one, cannot be equated
with legitimate banking transactions.
32. He further argued that the applicant falls within the
description of an “agent” under Section 409 IPC. In various judicial
pronouncements, it has been held that to constitute an agent, it
must be shown that the person was entrusted with property or had
dominion over property in the ordinary course of his occupation or
trade, for a particular purpose. In this regard, reliance was placed
upon the decision of the Supreme Court in R.K. Dalmia v. Railway
Administration, 1962 SCC OnLine SC 83.
33. Learned counsel then contended that the applicant had
evaded arrest for over four years by concealing his identity. During
this period, the applicant also created back-dated documents in
relation to Hotel Fidalgo with the objective of siphoning off
property and keeping it beyond the scope of attachment under the
MPID Act. The applicant, in his own bail application before the
Sessions Court, has admitted that after registration of the FIR, he
prepared fraudulent documents regarding Hotel Fidalgo and
parted with possession of the said property in favour of a third
party.
34. Considering the applicant’s past conduct of absconding for
four years, learned counsel submitted that there is a very strong
likelihood that, if released on bail, the applicant will not make
himself available for trial.
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35. As regards the applicant’s argument that the trial in respect
of other co-accused has been stayed, learned counsel submitted
that this is of no assistance to the applicant since there is no
impediment to proceeding with the trial against him and other
accused whose trial has not been stayed. He, therefore, urged that
the bail application be rejected.
36. I have heard learned Senior Advocate for the applicant,
learned APP for the State, and learned counsel for the intervener. I
have also perused the charge-sheet, provisional forensic audit
extracts placed on record, the RBI communication relied upon by
the prosecution, the statements of investors received thus far, and
the orders rejecting the applicant’s earlier anticipatory bail.
37. At the stage of bail under Section 439 CrPC, the Court is not
required to conduct a mini-trial or return conclusive findings on
guilt. The exercise is to ascertain whether, on the material
presently available, there exists a prima facie case; the nature and
gravity of the accusations; the role attributed to the applicant; the
likelihood of absconding, tampering with evidence or influencing
witnesses; the stage of investigation/trial; and the balance
between the right to personal liberty and the societal interest.
Economic offences involving public money ordinarily warrant a
strict view, given their impact on the community and investor
confidence.
38. The applicant’s primary contention is that the case springs
from a money – lending/deposit transaction, devoid of
“entrustment”, and, therefore, Sections 406/409 IPC are not
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attracted. It is urged that returns were consistently paid since
1994; the schemes were not usurious; there was no inception-stage
fraud; at the highest, the matter is within the MPID Act where the
maximum sentence is six years; and the applicant has already
undergone around one year seven months of incarceration.
Reliance is placed on decisions emphasising that a breach of
contract does not automatically translate into criminal breach of
trust or cheating, and on the general principle that pre-trial
detention should not be prolonged.
39. The prosecution and the intervener, however, assert that the
applicant, a Managing Director, is shown to have (i) accepted
public deposits without authority; (ii) diverted investor funds into
personal and HUF accounts; (iii) facilitated transfers to allied
entities including Maberest Hotel Pvt. Ltd. and Hotel Fidalgo,
Panaji; (iv) presided over schemes promising 1%-1.5% per month
or even doubling within five years; and (v) remained absconding
after rejection of two anticipatory bail applications (23-10-2020
and 17-12-2020), until arrest on 17-01-2024. The State points to
an RBI communication stating that the company was not
authorised to accept/hold public deposits. A provisional forensic
audit indicates deposits aggregating about ₹2.68 crore in the
applicant’s personal accounts with unidentified sources. The
statements of 1,933 investors have been recorded, and the alleged
fraud presently assessed is about ₹214 crore, which may escalate
as the process continues. There are also allegations of threats to a
hotelier from custody.
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40. On the contention raised by the applicant that the
transactions in question were merely in the nature of loans or
deposits, and therefore lacked the element of “entrustment,” this
Court is mindful that at the stage of deciding a bail application, it
is not required to conclusively determine the issue. The limited
scope of scrutiny is to see whether, on the material presently
placed on record, there exists a prima facie case showing (i)
entrustment of property or dominion over it, and (ii) dishonest
misappropriation, conversion, or use of such property contrary to
the understanding between the parties.
41. In my Prima facie opinion, entrustment is not confined to
formal trust arrangements, it covers any situation where one party
hands over property or funds to another with a specific purpose,
and the recipient obtains dominion over that property with a
corresponding obligation to use it in the manner agreed. What is
crucial is:(i) Delivery of property or funds by one person to
another; (ii) Obligation, express or implied, to use or return them
for that purpose; and (iii)Dishonest misappropriation or
conversion inconsistent with that purpose.
42. The material placed by the prosecution does not merely say
that there was a simple failure to repay money. It goes further and
claims that large amounts were collected from the public through
different investment schemes which were not authorised under
law. These schemes were started without the required licence or
legal permission to take public deposits. The money collected in
this way was not kept or used in the normal course of a lawful
lending business. Instead, as per the provisional forensic audit and
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statements of investors, it was moved into the applicant’s personal
bank accounts and HUF accounts under his control, and then sent
to other related entities.
43. These facts, taking public money without legal authority,
putting it into personal accounts, and then transferring it
elsewhere, clearly go beyond a normal lender-borrower
relationship. In a genuine loan deal, the lender willingly gives the
money to the borrower for an agreed return, and the borrower can
use it as his own so long as he repays it. But here, the allegation is
that the money was taken from investors with the promise that it
would be used for the company’s mortgage and loan business, yet
it was instead used for purposes that did not match that promise.
44. Another important point from the prosecution’s material is
that the fixed deposit receipts given by the applicant’s company to
many investors were missing key details. In several cases, the
maturity value, the maturity amount in words, the way in which
interest would be paid, and even the rate of interest were either
left blank or marked with a dash. In any normal and lawful
financial transaction, a fixed deposit receipt should clearly mention
the principal amount, the agreed rate of interest, the time period
of the deposit, the maturity date, and the exact amount payable on
maturity. If these basic details are missing, the receipt loses much
of its value as proof of a genuine financial agreement and, at first
glance, does not match standard financial practice.
45. This becomes even more serious here because it is not
disputed that the applicant’s company had no legal authority
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under Section 73 of the Companies Act or Section 45-S of the RBI
Act to take public deposits. In such a situation, issuing incomplete
or vague deposit receipts can reasonably be seen, at least at this
stage, as a way to keep control of investors’ money without
committing to clear repayment terms. This, in turn, could make it
easier to divert or misuse the funds. This fits with the prosecution’s
version that the money was collected under so-called “deposit
schemes” but without the transparency, rules, or safeguards that
lawful banks or licensed finance companies are required to follow.
46. For deciding bail at this stage, these incomplete or dash-
marked receipts give initial support to the claim that investors’
money was entrusted to the applicant and his co-accused for a
specific purpose, investment in the company’s finance business,
and was later used in a way that went against that purpose. When
these incomplete receipts are looked at together with the other
allegations, like taking deposits without authorisation and
diverting money into personal accounts, they strengthen the initial
view that there may have been dishonest intention from the start.
47. Whether the applicant, by virtue of his position as a
Managing Director and authorised signatory, would fall within the
category of an “agent” or otherwise be covered under Section 409
IPC is ultimately a matter of evidence to be determined during
trial. At this stage, however, the present material does indicate that
the applicant had dominion over the investors’ funds and that
there was a use of such funds inconsistent with the avowed and
represented purpose. This is sufficient, at the prima facie stage, to
satisfy the basic ingredients of Sections 405, 406, and 409 IPC for
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the purpose of considering the bail application.
48. In Deochand Durlabhji Jogi (supra), this Court clarified that
for an offence under Sections 405/406 IPC, the first and foremost
requirement is entrustment of property or dominion over property.
Mere deposit of money, without any agreement that it will be kept
separate or used for a specific purpose, creates only a debtor-
creditor relationship, not entrustment. In such cases, beneficial
ownership of the money passes to the recipient, who can use it for
their own purposes, subject only to a contractual obligation to
return an equivalent sum. Dishonest refusal to repay may give rise
to civil liability but not necessarily criminal breach of trust.
49. Applying that reasoning to the facts narrated in this case if
the investors had simply advanced money to the company on
terms that, after a fixed period, the principal plus agreed interest
would be repaid, and there was no stipulation that the money
would be earmarked for any particular use or kept in a separate
account, the relationship at inception would resemble that of a
lender and borrower. On this view, entrustment in the strict sense
may be absent.
50. The prosecution’s case here is not confined to non-
repayment. They allege that the company was unauthorised to
accept deposits under the RBI Act/Companies Act. Funds were
diverted to the applicant’s personal and HUF accounts and allied
entities. This diversion was contrary to the understanding given to
investors that their money would be used for the business of
mortgage lending.
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51. As explained in Deochand, if money is handed over for a
specific purpose or under specific directions (even orally or implied
from the scheme’s representation), and the recipient uses it for a
different purpose, that can constitute entrustment plus
misappropriation. The prosecution’s claim that the funds were to
be used in the business of the company and instead were diverted
to personal accounts may supply this “specific purpose” element.
52. While whether the transaction legally amounted to
“entrustment” will ultimately be decided at trial, the present
material, statements of investors, RBI’s prohibition on deposit-
taking, the alleged diversion into personal accounts, provides a
factual basis for the prosecution to argue that the money was held
for a particular business purpose, not as an unrestricted loan. This
is sufficient, at the bail stage, to cross the prima facie threshold for
Sections 405/406/409 IPC, unlike in Deochand, where no such
purpose was pleaded or proved.
53. If the facts are ultimately proved as the prosecution alleges,
i.e., that public funds were collected under an assurance they
would be deployed in a specified business and were instead
diverted for personal use, the transaction could amount to
entrustment under Section 405 IPC, distinguishing it from the pure
debtor-creditor relationship in Deochand. However, if at trial it is
found that there was no such specific obligation and the money
was accepted without restriction on use, Deochand would support
the defence contention that no entrustment existed.
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54. The Supreme Court in N. Raghavavender (supra), has made
it clear that “entrustment” under Sections 405 and 409 IPC is not
limited to formal trust arrangements. It covers any situation where
property is given to someone with control over it, along with an
obligation to use it for a particular purpose. In that case, even a
bank officer’s misuse of funds that he controlled in his official
capacity was enough to show criminal breach of trust. Here, the
applicant, as Managing Director, had control over investors’ funds
in a role similar to a fiduciary, even though the company had no
legal right to take such deposits in the first place. The alleged
diversion to his personal accounts is, on the face of it, inconsistent
with the investment schemes promised to the depositors. Whether
the applicant legally qualifies as an “agent” or comes within the
stricter category of Section 409 IPC will be decided at trial. But for
the purpose of bail, there is enough material to say that a prima
facie case under Sections 405/406/409 IPC exists.
55. The applicant’s reliance on the judgment in Savada Merchant
Cooperative Credit Society(supra) is misplaced. In that case, the
cooperative society was a lawful body that was allowed by law to
take deposits from its members, and the dispute was about
handling those lawful deposits. In the present case, the applicant’s
company was never authorised to take deposits from the public. In
fact, the law expressly prohibited it, and the Reserve Bank of India
had confirmed that the company was not allowed to accept or hold
public deposits. This means that from the very start, the deposit-
taking activity was allegedly illegal. This basic difference means
the ratio of the Savada case cannot be applied here.
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56. Looking at all this together, the present record shows enough
material to indicate entrustment and dishonest misuse of investor
funds. This takes the case beyond a mere civil dispute about a loan
and into the zone of criminal breach of trust for the limited
purpose of deciding bail.
57. The authorities relied upon by the applicant to emphasise
the distinction between civil and criminal liability are, in the
considered view of this Court, distinguishable on facts at this
stage. It is no doubt well settled that the criminal law should not
be invoked to settle purely civil disputes, and that a mere breach of
contract or failure to repay a debt, without more, ordinarily gives
rise to civil remedies rather than criminal prosecution. Those
principles serve as a safeguard against the misuse of criminal
process in matters where no criminal intent can be inferred even
prima facie.
58. However, the present factual matrix goes beyond the
boundaries of a simple civil breach. The record, as it stands today,
discloses specific allegations of (i) acceptance of public deposits in
clear contravention of statutory provisions and without the
requisite regulatory authority; (ii) diversion of substantial amounts
from such deposits into the applicant’s personal accounts and HUF
accounts under his control, as well as to allied entities; and (iii)
systemic inducement of investors through schemes offering high
and assured returns, thereby encouraging larger and continued
investment inflows.
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59. These features, if ultimately proved, are indicative not
merely of non-repayment, but of a course of conduct involving
deception, misuse of public funds, and breach of the specific
representation allegedly made to depositors regarding the use of
their money. For the limited purpose of assessing a bail application,
such allegations are sufficient to prima facie remove the matter
from the category of a pure debtor-creditor dispute and bring it
within the realm of offences involving dishonest intention at some
stage of the transaction.
60. Therefore, while the decisions cited by the applicant remain
good law on their own facts, they cannot be pressed into service to
neutralise the weight of the present allegations at the bail stage.
The distinctive factual elements in the case at hand justify the
invocation of criminal process alongside any civil remedies that
may be available to the investors.
61. On the other hand, the decision cited by the intervener,
which, among other things, makes it clear that making regular
payments at the beginning does not make an unlawful scheme
lawful, appears to match the present facts, at least at this initial
stage. At this point, the Court is only considering the material to
see if there is a prima facie case, and this principle seems relevant.
However, it would not be proper to go into a detailed discussion or
make any conclusive finding on this aspect now, so as to avoid
causing any prejudice to either side during the trial.
62. The applicant has argued that since the company has been
regularly paying interest and principal to investors since 1994, it
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shows there was no dishonest intention. However, this fact alone
cannot be taken as final proof that there was no criminal intent
(mens rea). In cases where money is collected from the public
without legal authority, it is quite common that, in the beginning,
the promoters make all payments on time. These early and regular
payouts are often used to build trust among existing investors and
to attract more people to invest, helping the scheme expand. In
financial fraud investigations, this stage is sometimes called the
“confidence-building stage.” Such early payments do not change
the legal nature of the scheme if it is later found to be in violation
of legal prohibitions.
63. It is a well-settled rule that simply making the promised
payments in the early years does not wipe away an illegality that
was present right from the start. If the very act of collecting
deposits from the public was done without the required legal
permission, or in breach of the prohibitions under the Companies
Act, the Reserve Bank of India Act, or the MPID Act, then later
regular payments cannot make the arrangement lawful. Even in
such a case, the dishonest intention (mens rea) to commit the
offence can still be inferred if it is shown that the accused knew
the company had no authority to accept public deposits, yet
continued to ask for and receive people’s money.
64. The intervener is right in saying that early and timely
payments cannot be taken as proof that the scheme was lawful
from the beginning. In fact, according to the prosecution, these
payments may have been part of a calculated plan to make the
scheme appear safe and genuine, so that more people would invest
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larger amounts over time. If, at the trial, it is proved that the
scheme was illegal right from its inception, then these early
repayments will have no bearing on whether an offence was
committed, except to show the method used to gain the trust of
investors and persuade them to hand over their money.
65. The applicant has argued that this case should be looked at
only under the MPID Act and not under the Indian Penal Code. At
this stage, this Court is not persuaded by that argument. It is
correct that the MPID Act is a special law made to protect
depositors by allowing the authorities to attach the properties of
financial establishments and sell them to repay investors. But just
because such a special law exists, it does not mean that the general
criminal law in the IPC stops applying, if there is enough material
to show that those offences are also made out on the facts.
66. The MPID Act mainly deals with what happens when a
financial establishment fails to return deposits, it focuses on
attaching and liquidating assets for repayment. On the other hand,
IPC offences like cheating (Section 420) or criminal breach of trust
(Sections 405, 406, 409) deal with the mental element, dishonest
intention and misuse of someone else’s property. It is well settled
that if the same set of facts shows the ingredients of offences under
both a special law and the IPC, the prosecution can go ahead
under both, unless a specific legal bar says otherwise.
67. In the present case, the prosecution has brought on record
material indicating that (a) the Reserve Bank of India had clearly
communicated that the company was not authorised to accept
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public deposits; (b) accepting such deposits was also barred under
Section 73 of the Companies Act and Section 45-S of the RBI Act;
and (c) substantial amounts collected from investors were
allegedly diverted to the applicant’s personal accounts and HUF
accounts under his control, and further transferred to related
entities.
68. If these allegations are ultimately proved, they would not
only establish a violation under the MPID Act but also satisfy the
prima facie elements of IPC offences involving entrustment,
dishonest misappropriation, and inducement with fraudulent
intent. The law does not prevent the two streams of liability from
operating concurrently when the facts so justify. Therefore, at the
present stage, this Court is unable to accept the submission that
the matter should be examined only through the lens of the MPID
Act, ignoring the provisions of the IPC.
69. In simple terms, the comparison made by the applicant
between the money kept in a licensed bank and the money given
in the present case does not hold good. A bank is a financial
institution which works only after getting a proper licence from the
Reserve Bank of India, and it must follow strict legal rules. These
rules include keeping a certain amount of money in reserve,
following safe lending practices, and working under continuous
checks by the authorities. The law clearly allows banks to use the
money deposited by customers, but only in certain approved ways,
and this use is always under watch to make sure the depositors’
money is safe. Even when a bank uses the depositors’ money for its
own business, it has to do so within a protected system, where
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proper safeguards are in place to ensure that the money can be
returned and, if there is a problem, the law provides for strict
regulatory action.
70. The present allegations stand on an entirely different
footing. It is not the prosecution’s case that the applicant was
carrying on deposit-taking activities under lawful authority. On the
contrary, the material on record suggests that the company of
which the applicant was a Managing Director was expressly
unauthorised to accept public deposits. Despite this, it is alleged
that public funds were solicited and collected through various
investment schemes. More importantly, there is specific material
showing that significant amounts from such collections were
transferred into the applicant’s personal accounts and HUF
accounts under his control, and further moved to allied entities
such as related companies and hotels.
71. These circumstances fundamentally distinguish the present
case from the operations of a regulated bank. In the case of a bank,
the depositor knowingly parts with ownership of money with the
understanding that it will be used in accordance with statutory
norms. Here, if the prosecution’s version is accepted at face value,
the investors were led to believe that their money would be
utilised for the business activities of the company, namely
mortgage lending, but instead, the funds were diverted for
purposes outside the agreed scope.
72. At this stage, therefore, the analogy with a banking
transaction does not hold good. The legal and regulatory
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environment of banks provides a presumption of legitimacy to
their deposit-taking, whereas the present activity, as alleged, was
illegal from its inception and conducted in defiance of statutory
prohibitions. Such unauthorised and unregulated acceptance of
public funds, coupled with the alleged diversion for personal
benefit, places the case in a category far removed from legitimate
banking operations.
73. As regards the quantum and spread of the alleged
transactions, the material placed on record by the prosecution
shows that, as on date, statements of 1,933 investors have already
been recorded. These statements, according to the prosecution, are
only part of the total picture, as they assert that the number of
affected depositors runs into several thousands. The provisional
forensic audit presently indicates an alleged financial exposure of
approximately ₹214 crore, with the clear possibility of this figure
increasing as the remaining statements are recorded and the audit
process is completed.
74. While the precise quantum and the total number of investors
are ultimately matters to be established at trial through admissible
evidence, the sheer breadth of the alleged victim class and the
magnitude of the sums involved cannot be ignored at this stage.
These factors are relevant not for determining guilt but for
assessing the gravity of the accusations and the potential impact
on public confidence in financial dealings.
75. In offences involving large-scale public investment, the
number of victims and the total financial exposure are not mere
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statistics, they indicate the scale of the alleged breach of trust and
the corresponding risk to the economic security of a wide section
of the public. Even if the final figure differs from the provisional
estimate, the material presently available shows that the alleged
fraudulent activity was neither isolated nor minor in scope, but
extended over a large geographical and social spectrum.
76. Such magnitude, coupled with the allegation that the activity
was unauthorised and in violation of statutory provisions,
heightens the seriousness of the offence. It also strengthens the
apprehension that, if released on bail at this stage, the applicant
may influence a substantial number of potential witnesses, thereby
affecting the fairness of the trial.
77. On the issue of flight risk and conduct, the record shows that
the applicant had filed two separate anticipatory bail applications
before this Court in the year 2020, both of which came to be
rejected, first on 23 October 2020 and again on 17 December
2020. Despite the rejection of these applications, the applicant did
not make himself available for investigation. Instead, he remained
untraceable for a prolonged period of more than three years, until
he was finally apprehended on 17 January 2024.
78. Such prolonged absence from the reach of the investigating
agency, particularly after denial of anticipatory bail, creates a
strong prima facie impression that the applicant is capable of, and
willing to, evade the legal process when it suits his convenience. At
this stage, the explanation offered by the defence for this long
absence does not appear sufficient to dispel this inference.
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79. The apprehension of the prosecution is further reinforced by
allegations that, even while in judicial custody, the applicant has
issued threats to at least one individual, namely, a hotelier, who
has lodged a complaint in this regard. It is also alleged that these
threats were made through phone calls originating from within the
jail premises. If these allegations are ultimately proved, they would
not only amount to misconduct during custody but would also
support the conclusion that the applicant poses a real and tangible
risk of influencing or intimidating witnesses if enlarged on bail.
80. In matters involving a large number of victims and
significant public interest, the Court is duty-bound to ensure that
the trial process remains free from interference or coercion. When
past conduct shows both evasion of arrest and alleged acts of
intimidation, the risk of the applicant misusing his liberty cannot
be lightly brushed aside. These factors, when weighed together,
operate strongly against the exercise of discretionary power in
favour of granting bail at this stage.
81. With regard to the stage of the proceedings, it is true that the
investigation has advanced to the point where a charge-sheet has
been filed against the applicant and other accused. However, the
record also makes it clear that the investigative process is not yet
complete in all respects. The forensic audit, which is crucial for
tracing the flow of funds, identifying the ultimate beneficiaries,
and determining the full extent of the alleged misappropriation, is
still stated to be in progress.
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82. In addition, the prosecution has placed on record that as
many as 32 bank accounts belonging to the accused persons and
the concerned company have been frozen. Statements from a large
number of investors are yet to be recorded, and the process is
continuing. The number of potential witnesses in this case is
substantial, given the wide spread of investors across different
locations.
83. In such a situation, releasing the applicant, who is alleged to
be a principal functionary and one of the key decision-makers of
the company, at this delicate juncture carries a real and credible
possibility of obstructing the due course of justice. This obstruction
may take the form of contacting or influencing investors and other
witnesses, persuading them to alter or dilute their statements, or
creating confusion about the nature of their investments.
84. There is also a real risk that assets which have not yet been
found could be hidden or disposed of. The properties already
attached under the MPID Act, ten immovable assets in total, may
not be enough to repay all the depositors, especially since some of
these have already been sold, demolished, or released from
attachment due to earlier proceedings like SARFAESI actions,
particularly when according to intervenors only one property
worth 2 crores is available for liquidation. If any remaining
untraced or unencumbered assets are sold off or transferred during
this period, it could seriously damage the purpose of the
prosecution and make it impossible for investors to recover their
money through the process provided under the MPID Act.
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85. Considering these facts, the ongoing investigation into
important aspects of the case, together with the applicant’s alleged
role and access to resources, creates a strong reason to deny bail at
this stage. Granting bail now could not only affect the fairness of
the criminal case but also harm the separate process under the
MPID Act meant to secure repayment to the investors.
86. The plea advanced on behalf of the applicant, that he has
already undergone a certain period of incarceration and that the
maximum sentence under the MPID Act is comparatively lower,
does not, in the opinion of this Court, tilt the balance in his favour
at this stage.
87. Firstly, the applicant has disputed the applicability of Section
409 IPC; however, for the reasons already discussed earlier, there
exists prima facie material to proceed against him under that
provision. Section 409 IPC, which deals with criminal breach of
trust by a public servant, banker, merchant, or agent, prescribes a
substantially higher maximum punishment than the offences under
the MPID Act. If the allegations are ultimately established, the
applicant could face a far more severe sentence than that
contemplated under the special statute alone. Therefore, the
argument that his custody period should be weighed only against
the MPID Act‘s sentencing framework is not persuasive.
88. Secondly, while it is true that the Supreme Court in Sanjay
Chandra (supra) reiterated the principle that bail is the rule and
jail is the exception, the same judgment makes it equally clear that
the Court, while deciding a bail application, must give due regard
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to the gravity of the offence, its impact on society, and the
likelihood of the accused interfering with the process of justice.
These factors are not merely formal considerations; they go to the
heart of the Court’s discretion under Section 439 CrPC.
89. From the material placed before this Court at this stage, the
allegations are not about an isolated or small transaction but about
a large-scale operation involving the collection of public money in
direct breach of legal prohibitions. The prosecution says that these
funds, instead of being used for the purpose for which they were
collected, were moved into the applicant’s personal accounts, HUF
accounts, and accounts of related entities. The case records also
suggest that the number of affected investors runs into thousands,
and the provisional figure of loss has been estimated in hundreds
of crores, though the final figure may be even higher once the
forensic audit is complete.
90. Such large-scale mobilisation of funds, allegedly in
contravention of statutory provisions meant to safeguard the
public, significantly increases the seriousness of the case. The
Court also cannot overlook the applicant’s past conduct, after his
anticipatory bail applications were rejected, he is said to have
remained out of reach for several years before being arrested. This
past behaviour, coupled with the allegation that he issued threats
to a third party while in judicial custody, raises a genuine and
reasonable fear that if released, the applicant might attempt to
influence or intimidate witnesses, or take steps to hide or dispose
of assets.
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91. Given these factors, there is a real possibility that releasing
the applicant on bail at this stage may not only hamper the
investigation and trial but may also make it more difficult to
recover the amounts allegedly misappropriated, thereby frustrating
the process intended to secure restitution for the investors.
92. When these aspects are considered cumulatively, the
principle in Sanjay Chandra does not operate in isolation to secure
the applicant’s release. On the contrary, applying the very tests laid
down in that judgment, gravity, public impact, and likelihood of
interference, the present case clearly falls within the category
where continued detention is justified in the interest of justice.
93. Taking a holistic view, the scale of the alleged fraud; the role
attributed to the applicant as Managing Director and authorised
signatory; the money trail to personal/HUF accounts and allied
entities; the unlicensed nature of the deposit-taking activity; the
period of abscondence and the apprehension of intimidation, I am
not persuaded that this is a fit case for exercise of discretion in
favour of the applicant at this juncture.
94. After considering all the points discussed above, this Court
finds that, at this stage, the prosecution has shown enough
material to indicate: (i) a prima facie entrustment of investors’
money to the applicant, (ii) that these funds were collected in
violation of legal prohibitions, (iii) that the money was diverted
and used in a way that went against the stated purpose, (iv) that
incomplete deposit receipts were issued, pointing to a lack of clear
repayment terms, (v) the large number of alleged victims and the
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huge scale of the case, (vi) a real risk that the remaining assets
could be hidden or disposed of, and (vii) the applicant’s past
conduct showing a risk of absconding and possibly influencing
witnesses. Looking at all these factors together, and keeping in
mind the well-settled principles for granting bail in economic
offence cases, this Court is of the view that releasing the applicant
now would likely harm both the criminal case and the process of
recovering money for the investors under the MPID Act. The bail
application is, therefore, rejected.
95. Before parting, two directions are necessary in aid of a fair
and expeditious process: (i) the Investigating Officer and the
prosecuting agency shall endeavour to complete the forensic audit
and file any supplementary charge-sheet(s) within a reasonable
time; (ii) the Trial Court may, if otherwise permissible, consider
segregation/scheduling so that the trial against the present
applicant proceeds without being held up by any stay operating in
respect of other co-accused.
96. Subject to the above observations, the application for bail is
rejected.
97. In view of disposal of the Bail Application, nothing remains
for adjudication in the interim applications. Hence, all interim
applications are also disposed of.
(AMIT BORKAR, J.)
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