Delhi High Court
Gangakhed Sugar And Energy Ltd. vs Central Bureau Of Investigation & Ors. on 23 December, 2024
Author: Chandra Dhari Singh
Bench: Chandra Dhari Singh
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on : 5th November, 2024
Pronounced on: 23rd December, 2024
+ CRL.M.C. 2881/2023 & CRL.M.A. 32691/2023 & CRL.M.A.
30178/2024
GANGAKHED SUGAR AND ENERGY LTD. .....Petitioner
Through: Mr. Mohit Mathur, Senior
Advocate with Mr. Varun Kalra,
Mr. Samir Malik, Ms. Honey
Satpal and Mr. Krishan Kumar,
Advocates.
versus
CENTRAL BUREAU OF INVESTIGATION & ORS.
.....Respondents
Through: Mr. Rajesh Kumar SPP with Ms
Mishika Pandita and Mohd.
Changez Ali Khan, Advocate for
R-1along with Inspector Dhan
Singh.
Mr. Sarfaraz Khan, Advocate for
R-3.
CORAM:
HON'BLE MR. JUSTICE CHANDRA DHARI SINGH
JUDGMENT
CHANDRA DHARI SINGH, J.
FACTUAL MATRIX
1. The instant petition under Section 482 of the Code of Criminal
Procedure, 1973 (hereinafter “CrPC“) [now Section 528 of the Bharatiya
Nagarik Suraksha Sanhita, 2023 (hereinafter “BNSS”)] has been filed on
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
Signing Date:23.12.2024
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behalf of the petitioner seeking quashing of the FIR No.
RC074023E0001, dated 7th February, 2023, registered at Police Station –
BS&FB, Delhi for the offences punishable under Section 120B read with
Section 420 of the Indian Penal Code, 1860 (hereinafter “IPC“) and
Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption
Act, 1988 (hereinafter “PC Act“) and also the proceedings initiated
consequent thereto for the commission of the aforesaid offences qua the
petitioner (i.e., accused no.1).
2. M/s Gangakhed Sugar and Energy Ltd., the petitioner herein, is a
company involved in the business of Integrated Cane Processing Plant
with the manufacturing facilities of sugar, distillery and power in
Maharashtra.
3. The respondent no. 1 is the Superintendent of the Banking and
Securities Fraud Cell of the Central Bureau of Investigation that has
registered the aforesaid FIR.
4. The respondent no. 2 is the Joint Director (Policy) of the Banking
and Securities Fraud Section of the Central Bureau of Investigation to
whom the complaint was addressed.
5. The respondent no. 3 is an Indian Public Sector bank and the
complainant in the present case.
6. The petitioner, when managed and controlled by its erstwhile
directors/management, availed credit facilities by the consortium of
lenders which was led by UCO Bank (respondent no. 3). The banks
sanctioned a term loan with a limit of Rs. 100 Crore and working capital
limit of Rs. 15 Crores on 16th September, 2008 against the principal
security and collateral security. The said loan facilities were renewed
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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several times and the last deed sanctioning the renewed limit was
extended on 28th September, 2015.
7. On 31st January, 2017, the account of the petitioner was classified
as Non-Performing Asset (hereinafter “NPA”) by the respondent no. 3
pursuant to which an application, bearing CP 500(IB)/MB/2019 was filed
by the respondent no. 3 under Section 7 of the Insolvency and
Bankruptcy Code, 2016 (hereinafter “IBC”) before the learned National
Company Law Tribunal, Mumbai Bench (hereinafter “NCLT”) for
initiating corporate insolvency resolution process (hereinafter “CIRP”)
against the petitioner. The said application was admitted by the learned
NCLT vide order dated 10th October, 2019.
8. Thereafter, on 27th November, 2020, the respondent no. 2 filed a
complaint bearing complaint no. Nzo/Vig/14/2020-21 with the
respondent no. 1 against the petitioner, its erstwhile directors and
guarantors. The complaint, inter alia, stated that the petitioner and its
directors/guarantors defrauded the consortium of six banks by availing
the term loan, working capital facility and other non-fund-based facilities
to build an Integrated Cane Processing Plant having manufacturing
facility for sugar, ethanol and green power. As per the complaint, the last
sanction/documents executed by consortium of lenders which was led by
UCO Bank was as far back as in the year 2015 and the alleged fraud was
reported by the respondent no. 2 to RBI on 11th May, 2020. Further, the
complaint was based on the forensic audit conducted by one GD Apte &
Co. for a period of 1st April, 2011 to 31st March, 2017.
9. Pursuant to the above, on 7th February, 2023, an FIR was registered
at Police Station-BS&FB, Delhi against the petitioner and its
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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directors/management/guarantors for the offences punishable under
Section 120B read with Section 420 of the IPC and Section 13(2) read
with Section 13(1)(d) of the PC Act.
10. Subsequently, on 17th February, 2023, the learned NCLT approved
the resolution plan of one M/s Six Sigma Investment Fund.
11. Hence, the present petition has been field seeking quashing of the
aforesaid FIR to the extent of the petitioner.
PLEADINGS BEFORE THIS COURT
12. The petitioner has sought quashing of the impugned FIR on the
following grounds:
“…A BECAUSE the Complaint and FIR, to the extent of
implication of the Petitioner is totally illegal, arbitrary and
bad in the eyes of law and therefore, the same deserve to be
quashed.
B. BECAUSE a bare perusal of the Complaint and FIR does
not disclose any act of the Petitioner or its participation in
commission of the alleged crime. In this regard, the
Petitioner seeks to rely on the observations of the Hon’ble
Supreme Court in State of Haryana and Others v. Bhajan
Lal and Other, 1992 Suppl. (1) 335 wherein the Hon’ble
Court has defined sufficiently channelized guidelines, to give
an exhaustive list of myriad kinds of cases wherein power
under Section 482 of the CrPC ought to be exercised. In
particular, the Hon’ble Supreme Court, among others, held
as under:
“102. In the backdrop of the interpretation of the
various relevant provisions of the Code under Chapter
XIV and of the principles of law enunciated by this
Court in a series of decisions relating to the exercise of
the extraordinary power under Article 226 or the
inherent powers under Section 482 of the Code whichSignature Not Verified
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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we have extracted and reproduced above, we give the
following categories of cases by way of illustration
wherein such power could be exercised either to
prevent abuse of the process of any court or otherwise
to secure the ends of justice, though it may not be
possible to lay down any precise, clearly defined and
sufficiently channelised and inflexible guidelines or
rigid formulae and to give an exhaustive list of myriad
kinds of cases wherein such power should be exercised.
(1) Where the allegations made in the first information
report or the complaint, even if they are taken at their
face value and accepted in their entirety do not prima
facie constitute any offence or make out a case against
the accused.
(2) Where the allegations in the first information report
and other materials, if any, accompanying the FIR do
not disclose a cognizable offence, justifying an
investigation by police officers under Section 156(1) of
the Code except under an order of a Magistrate within
the purview of Section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the
FIR or complaint and the evidence collected in support
of the same do not disclose the commission of any
offence and make out a case against the accused.
(4) Where, the allegations in the FIR do not constitute
a cognizable offence but constitute only a non-
cognizable offence, no investigation is permitted by a
police officer without an order of a Magistrate as
contemplated under Section 155(2) of the Code.
(5) Where the allegations made in the FIR or
complaint are so absurd and inherently improbable on
the basis of which no prudent person can ever reach a
just conclusion that there is sufficient ground for
proceeding against the accused.
(6) Where there is an express legal bar engrafted in
any of the provisions of the Code or the concerned Act
(under which a criminal proceeding is instituted) to the
institution and continuance of the proceedings and/or
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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where there is a specific provision in the Code or the
concerned Act, providing efficacious redress for the
grievance of the aggrieved party.
(7) Where a criminal proceeding is manifestly attended
with mala fide and/or where the proceeding is
maliciously instituted with an ulterior motive for
wreaking vengeance on the accused and with a view to
spite him due to private and personal grudge.”
(emphasis supplied)
C.BECAUSE admittedly the purported fraud is alleged to
have been committed by the erstwhile directors and
management of the Petitioner. A perusal of Complaint filed
by Respondent No. 3 would indicate that:
a) The complaint pertains to the dealings between the
Petitioner and the Complainant since November,
2008;
b) The credit facilities were availed in August, 2008;
c) On 30.09.2015, the last credit facilities
sanctioned/documents were executed by the
consortium of lenders which was led by UCO Bank;
d) On 31.10.2017, the account of the Petitioner was
declared an NPA by UCO Bank; (v) Forensic audit
was conducted for a period of 01.04.2011 to
31.03.2017 which purportedly revealed that funds
were diverted;
e) Instances indicating the purported violations, as
highlighted in the complaint, were committed in
Financial Years such as 2013-2014, 2014-2015,
2016-2017; and (vii) On 11.05.2020, the bank
reported the aforesaid account of the Petitioner as
fraud to RBI basis the aforesaid forensic report,
which was submitted on 31.10.2019.
It is therefore submitted that a perusal of the Complaint
would indicate that the alleged fraud was committed
approximately from a period of 2008 to 2015 i.e., the period
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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before the new management had taken over and became the
new Directors of the Petitioner Company.
D.BECAUSE the Corporate Debtor (i.e., the Petitioner
company herein) cannot be prosecuted for the alleged
offences committed by the erstwhile Management and
Directors of the Petitioner from the date the Resolution Plan
has been approved by the Tribunal under Section 31 of IBC
if the Resolution Plan results in the change of management
or control of the Corporate Debtor, subject to certain
conditions.
Moreover, Section 32A of IBC grants immunity to the
Corporate Debtor, even if it is found that there was any
misconduct in the affairs of the Corporate Debtor prior to
the commencement of CIRP.
For the sake of clarity, the relevant portions of S.32A of IBC
is extracted hereunder:
“32A. Liability for prior offences, etc.-
1) Notwithstanding anything to the contrary contained
in this Code or any other law for the time being in
force, the liability of a corporate debtor for an offence
committed prior to the commencement of the corporate
insolvency resolution process shall cease, and the
corporate debtor shall not be prosecuted for such an
offence from the date the resolution plan has been
approved by the Adjudicating Authority under section
31, if the resolution plan results in the change in the
management or control of the corporate debtor to a
person who was not–
(a) a promoter or in the management or control of the
corporate debtor or a related party of such a person; or
(b) a person with regard to whom the relevant
investigating authority has, on the basis of material in
its possession, reason to believe that he had abetted or
conspired for the commission of the offence, and has
submitted or filed a report or a complaint to the
relevant statutory authority or Court:
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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Provided that if a prosecution had been instituted
during the corporate insolvency resolution process
against such corporate debtor, it shall stand discharged
from the date of approval of the resolution plan subject
to requirements of this sub-section having been
fulfilled:.”
E. BECAUSE, the Ld. Tribunal accepted the Resolution Plan
of Six Sigma Investment Fund vide order dated 17.02.2023.
Accordingly, the Corporate Debtor (i.e., the Petitioner
herein), which has been taken over by the Resolution
Applicant, will be immune from any prosecution or
punishment in relation to the same and investigation, if any,
with respect to the same will have no bearing on the
Resolution Applicant.
In this regard, the Petitioner seeks to place reliance on the
following observations of the Hon’ble Supreme Court in
Ebix Singapore Private Ltd. v. Committee of Creditors of
Educomp Solutions Limited & Anr., 2021 SCC OnLine SC
707:
“199. Ebix was responsible for conducting their own
due diligence of Educomp and could not use that as a
reason to revise/modify their approved resolution plan.
In any event, Section 32-A IBC grants immunity to the
corporate debtor for offences committed prior to the
commencement of CRIP and it cannot be prosecuted for
such offences from the date the resolution plan has
been approved by the adjudicating authority under
Section 31, if the resolution plan results in a change of
management or control of the corporate debtor subject
to certain conditions. …
Thus, in any case even if it is found that there was any
misconduct in the affairs of Educomp prior the
commencement of the CIRP, Ebix will be immune from
any prosecution or punishment in relation to the same.
The submission that Ebix has been placed in a
prejudicial position due to the initiation of investigation
into the affairs of Educomp by CBI and SFIO is nothingSignature Not Verified
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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but a red herring since such investigations have no
bearing on Ebix….”
F.BECAUSE the Section 32A of IBC protects the Corporate
Debtor (Petitioner herein) and leads to extinguishment of
criminal liability of the corporate debtor, if the control of the
corporate debtor goes in the hands of the new management
which is different from the original old management. In this
regard, the Petitioner seeks to rely on the observations of the
Hon’ble Supreme Court in Ajay Kumar Radheyshyam
Goenka v. Tourism Finance Corporation of India Ltd., 2023
SCC OnLine SC 266 wherein, the Hon’ble Supreme Court,
among others, terminated the criminal proceedings under
Section 138 of the Negotiable Instrument Act, 1881 against
the Corporate Debtor, as the same was taken over by the
Successful Resolution Applicant. In particular, the Hon’ble
Court, among others, held as under:
“64. In P. Mohanraj (supra), this Court in clear terms
held that Section 32A only protects the corporate
debtor and not the signatories/directors etc.
65. While dealing with the issue of Section 14, IBC, this
Court had the occasion to deal in detail with Section
32A also. The 2nd proviso to Section 32A(1) is a
complete answer to the issue in question. The said
provision is discussed in detail from Paras 39-43 in P.
Mohanraj’s case. Paras 39 to 43 read thus:
“39. The raison d’être for the enactment of Section 32-
A has been stated by the Report of the Insolvency Law
Committee of February 2020, which is as follows:
17.6. Given this, the Committee felt that a distinction
must be drawn between the corporate debtor which
may have committed offences under the control of its
previous management, prior to the CIRP, and the
corporate debtor that is resolved, and taken over by an
unconnected resolution applicant. While the corporate
debtor’s actions prior to the commencement of the
CIRP must be investigated and penalised, the liability
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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for the corporate debtor’s actions in this period.
However, the new management of the corporate debtor,
which has nothing to do with such past offences, should
not be penalised for the actions of the erstwhile
management of the corporate debtor, unless they
themselves were involved in the commission of the
offence, or were related parties, promoters or other
persons in management and control of the corporate
debtor at the time of or any time following the
commission of the offence, and could acquire the
corporate debtor, notwithstanding the prohibition
under Section 29-A. [For example, where the exemption
under Section 240-A is applicable.] ***
67. Thus, Section 32A broadly leads to:
a. Extinguishment of the criminal liability of the
corporate debtor, if the control of the corporate debtor
goes in the hands of the new management which is
different from the original old management.
***
107. I may draw my final conclusions as under:
(a) After passing of the resolution plan under Section
31 of the IBC by the adjudicating authority & in the
light of the provisions of Section 32A of the IBC, the
criminal proceedings under Section 138 of the NI Act
will stand terminated only in relation to the corporate
debtor if the same is taken over by a new
management….”
G.BECAUSE the Hon’ble National Company Law
Appellate Tribunal (NCLAT) in JSW Steel Limited v.
Mahender Kumar Khandelwal & Ors., Company Appeal
(AT) (Insolvency) No. 957 of 2019 held the attachment of
assets of Corporate Debtor by the Enforcement
Directorate to be illegal and without jurisdiction. While
doing so, the Hon’ble Tribunal took note of the following
submissions made, on Affidavit, by the Ministry of
Corporate Affairs:
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
Signing Date:23.12.2024
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“5. It is submitted that if any Corporate Debtor is
undergoing investigation by the Central Bureau of
Investigation (“CBI”), Serious Fraud Investigation
Office(“SFIO”) and/ or the Directorate of Enforcement
(“ED”), such investigations are separate and
independent of the Corporate Insolvency Resolution
Process (“CIR Process”) under the IBC and both can
run simultaneously and independent of each other. It is
further submitted that the erstwhile management of a
company would be held responsible for the crimes, if
any, committed under their regime and the new
management taking over the company after going
through the IBC process cannot be held responsible for
the acts of omission and commission of the previous
management. In other words, no criminal liability can
be fixed on the successful Resolution Applicant or its
officials.
6) In so far as the corporate debtor or its assets are
concerned, after the completion of the CIR Process, i.e.
a statutory process under the IBC, there cannot be any
attachment or confiscation of the assets of the
Corporate Debtor by any enforcement agencies after
approval of the Resolution Plan.
7. … The purpose and scheme of the CIR process is to
hand over the company of the corporate debtor to a
bona fide new resolution applicant. Any threat of
attachment of the assets of the corporate debtor or
subjecting the corporate debtor to proceedings by
investigating agencies for wrong doing of the previous
management will defeat the very purpose and scheme of
CIR process, which inter-alia includes resolution of
insolvency and revival of the company, and the efforts
of the bank to realise dues from their NPAs would get
derailed.
8) In light of the above, it is respectfully submitted that
the ED while conducting investigation under PMLA is
free to deal with or attach the personal assets of the
erstwhile promoters and other accused Company
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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Appeal (AT) (Insol.) Nos. 957, 1034, 1035, 1055, 1074,
1126, 1461 of 2019 persons, acquired through crime
proceeds and not the assets of the Corporate Debtor
which have been financed by creditors and acquired by
a bona fide third party Resolution Applicant through
the statutory process supervised and approved by the
Adjudicating Authority under the IBC.
(emphasis supplied)
H.BECAUSE Hon’ble Supreme Court in Manish Kumar vs.
Union of India, 2021 SCC OnLine SC 30, while dealing with
the challenge to constitutional validity of S.32A of IBC, was
pleased to, among others, observe as under:
“257…. Having regard to the object of the Code, the
experience of working of the code, the interests of all
stakeholders including most importantly the imperative
need to attract resolution applicants who would not shy
away from offering reasonable and fair value as part of
the resolution plan if the legislature thought that
immunity be granted to the corporate debtor as also its
property, it hardly furnishes a ground for this Court to
interfere. The provision is carefully thought out. It is
not as if the wrongdoers are allowed to get away. They
remain liable. The extinguishment of the criminal
liability of the corporate debtor is apparently important
to the new management to make a clean break with the
past and start on a clean slate…”
I.BECAUSE Section 32A of IBC grants immunity to the
Corporate Debtor (after the approval of the Resolution
Plan) from any offences committed by the Corporate Debtor,
prior to the commencement of CRIP. In this regard, the
Petitioner seeks to place reliance on the Statement of
Objects of the Insolvency and Bankruptcy Code
(Amendment) Act, 2020 whereby Section 32A was
incorporated in IBC. It, among others, states that “A need
was felt to …. to provide immunity against prosecution of the
corporate debtor and action against the property of the
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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corporate debtor and the successful resolution applicant
subject to fulfilment of certain conditions”
J.BECAUSE the FIR and Complaint are liable to be
quashed as it does not disclose any allegations against the
new management/directors of the Corporate Debtor/
Petitioner herein. In this regard, the Petitioner seeks to
place reliance on the observations of the Hon’ble High
Court of Bombay in Dewan Housing Finance Corporation
Limited v. Union of India, 2021 SCC OnLine Bom 3926
wherein the Hon’ble Court quashed the order declining to
discharge the Corporate Debtor from a CBI case and
permitting prosecution of the Corporate Debtor. In
particular, the following observations may be of relevance:
“17. Facts of the case and in particular subsequent
events (stated above), has indisputably established,
change in management of a Corporate Debtor…
***
20. Herein, subsequent events indisputably caused
change in management and control of Corporate
Debtor. The immunities sought by the Corporate
Debtor though conditional; yet all these conditions
have been fulfilled and satisfied; viz (i) Resolution Plan
in regard to Corporate Debtor has been approved by
the Adjudicating Authority under Section 31 IBC. (ii)
Resolution Plan approved caused and resulted in
change in management of Corporate Debtor. (iii)
change in management is in favour of persons who
were not related to party of Corporate Debtor.
21. Thus, in my view, immunities under 32A of IBC,
cannot be denied to Corporate Debtor. 22. For these
reasons, I hold that, the petitioner-DHFL, stands
discharged from the CBI Special Case No. 830 of 2021
pending before the CBI Cases Sessions Court,
Mumbai.”
K.BECAUSE the forensic audit report, which forms the very
basis of the Complaint filed against the Petitioner and
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KUMAR BABBAR
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subsequent registration of FIR, was never shown to the
Petitioner, its directors/management. Resultantly, the
Petitioner was never given an opportunity to submit a
representation before classifying its account as fraud. It is
therefore submitted that classification of fraud, based on the
forensic audit report, by the Respondent Bank is in violation
of the Principles of Natural Justice. In this regard, the
Petitioner seeks to rely on the following observations passed
by the Hon’ble Supreme Court in State Bank of India & Ors.
v. Rajesh Agarwal & Ors. , Civil Appeal. No. 7300 of 2022:
“79. … Consistent with the principles of natural justice,
the lender banks should provide an opportunity to a
borrower by furnishing a copy of the audit reports and
allow the borrower a reasonable opportunity to submit
a representation before classifying the account as
fraud. A reasoned order has to be issued on the
objections addressed by the borrower. On perusal of
the facts, it is indubitable that the lender banks did not
provide an opportunity of hearing to the borrowers
before classifying their accounts as fraud. Therefore,
the impugned decision to classify the borrower account
as fraud is vitiated by the failure to observe the rule of
audi alteram partem.
***
81.The conclusions are summarized below:
…
(v) The application of audi alteram partem cannot be
impliedly excluded under the Master Directions on
Frauds. In view of the time frame contemplated under
the Master Directions on Frauds as well as the nature
of the procedure adopted, it is reasonably practicable
for the lender banks to provide an opportunity of a
hearing to the borrowers before classifying their
account as fraud; vi. The principles of natural justice
demand that the borrowers must be served a notice,
given an opportunity to explain the conclusions of theSignature Not Verified
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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forensic audit report, and be allowed to represent by
the banks/ JLF before their account is classified as
fraud under the Master Directions on Frauds. In
addition, the decision classifying the borrower’s
account as fraudulent must be made by a reasoned
order…”
L. BECAUSE it is respectfully submitted that the FIR is
liable to quashed as it lacks territorial jurisdiction as all
material and integral causes of action lie in the State of
Maharashtra. It is submitted that the Petitioner conducts its
affairs in the State of Maharashtra; the purported fraud is
with respect to the affairs and functioning of the Petitioner
company in State of Maharashtra; the Respondent bank
sanctioned loan for activities of the Petitioner carried out in
the State of Maharashtra; and all integral transactions on
the basis of which the alleged fraud/forensic audit report
and registration of FIR are concerned, arises in the State of
Maharashtra.
M. BECAUSE the FIR and the complaint ought to be
quashed as it is being used as a tool of harassing and
victimizing the Petitioner company and its new management
and director as they have not been involved in any offence
muchless the offences punishable under aforesaid sections. It
is respectfully submitted that the Respondents have
registered the FIR by abusing their official position which is
quite apparent and evident from the perusal of the
Complaint and FIR..”
13. The respondent/CBI has filed its reply opposing the present
petition on following grounds:
“..4. That in reply to the averments made in Para-7 ( L) of
the petition, it is submitted that as per the RBI Guidelines,”
All cases involving more than Rs.25 crore be forwarded to
Banking Security and Brand. Cell of the respective centres,
which is specialized cell of the Economic Offences Wing of
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Digitally Signed By:PRAVEEN
KUMAR BABBAR
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the CBJ for major hank fraud cases’. In the instant matter,
ease is registered on the basis of complaint of UCO Bank as
Lead Bank of Consortium in the Banking Security Fraud
Branch, New Delhi and there is no lack of territorial
jurisdiction as CBI is a central agency.
5. That, in reply to the averments made in Para-7 (M) to (O’)
of the petition, it is submitted that CBl registered the case on
the basis of complaint dated 27.1 1.2020 filed by the l ,CO
Bank as lead bank on behalf of the consortium, which prima
facie discloses the commission of offences punishable under
relevant sections of l PC and PC Act. 1988. It is further
submitted that it is aliened in the FIR that the fraud period is
2008 to 2017 and the company and its Directors,
Guarantors during the relevant period and other unknown
persons, are responsible for doing fraud. It is also submitted
that FIR is just a document by which process of law comes
into motion . The allegations mentioned in the FIR are not
the conclusion of investigation. Further, investigation of any
case is not to harass or victimize any innocent but to unearth
the truth and to file all the evidences acquired/collected
during investigation before the Court of Law. ‘Therefore, the
averments made in the corresponding paras are baseless
and thus vehemently denied.
6. Thai the averments made in Para 8- 11 of the petition
need no comments…”
14. Written submissions dated 15th November, 2024 and 4th November,
2024, filed by the petitioner and the respondent/CBI respectively is also
available on record.
SUBMISSIONS
(on behalf of the petitioner)
15. Mr. Mohit Mathur, learned senior counsel appearing on behalf of
the petitioner submitted that the complaint and FIR is totally illegal,
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arbitrary and bad in the eyes of law, and therefore, the same is liable to be
quashed to the extent of implication of the petitioner.
16. It is submitted that a bare perusal of the FIR reveals that the same
does not disclose any act of the petitioner or its participation in
commission of the alleged crime. In order to strengthen his arguments,
learned senior counsel relies upon the judgment passed by the Hon‟ble
Supreme Court in State of Haryana & Ors. v. Bhajan Lal & Ors.1,
wherein, the Hon‟ble Court has defined sufficiently channelized
guidelines to give an exhaustive list of myriad kinds of cases, wherein,
power under Section 482 of the CrPC ought to be exercised.
17. It is submitted that admittedly the purported fraud is alleged to
have been committed by the erstwhile directors and management of the
petitioner. It is therefore submitted that a perusal of the complaint would
indicate that the alleged fraud was committed approximately from a
period of 2008 to 2015, i.e., the period before the new management had
taken over the petitioner company.
18. It is submitted that Section 32A of the IBC grants immunity to the
Corporate Debtor (hereinafter “CD”) (after the approval of the resolution
plan) from any offences committed by the CD, prior to the
commencement of CRIP. In this regard, the learned senior counsel for the
petitioner placed reliance on the Statement of Objects of the Insolvency
and Bankruptcy Code (Amendment) Act, 2020, whereby, Section 32A
was incorporated in the IBC. It, inter alia, states that “A need was felt to
…. to provide immunity against prosecution of the corporate debtor and
1
1992. Suppl. (1) 335
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action against the property of the corporate debtor and the successful
resolution applicant subject to fulfilment of certain conditions”.
19. It is submitted that the CD i.e., the petitioner herein, cannot be
prosecuted for the alleged offences committed by the erstwhile
management and directors of the petitioner from the date the resolution
plan has been approved by the learned NCLT under Section 31 of the
IBC if the resolution plan results in the change of management or control
of the CD, subject to certain conditions. Moreover, Section 32A of the
IBC grants immunity to the CD, even if it is found that there was any
misconduct in the affairs of the CD prior to the commencement of CIRP.
20. It is submitted that the learned NCLT accepted the resolution plan
of M/s Six Sigma Investment Fund vide order dated 17th February, 2023.
Accordingly, the CD, which has been taken over by the resolution
applicant, will be immune from any prosecution or punishment in relation
to the same and investigation, if any, with respect to the same will have
no bearing on the resolution applicant. Reliance in this regard has been
placed on paragraph no. 199 of the judgment passed by the Hon‟ble
Supreme Court in Ebix Singapore Pvt. Ltd. v. Committee of Creditors of
Educomp Solutions 2.
21. It is submitted that Section 32A of the IBC protects the CD and
leads to extinguishment of any criminal liability of the corporate
debtor/petitioner, if the control of the said CD goes in the hands of the
new management which is different from the original old management. In
this regard, the learned senior counsel for the petitioner relies upon the
observations of the Hon‟ble Supreme Court in Ajay Kumar
2
2021 SCC OnLine SC 707
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Radheyshyam Goenka v. Tourism Finance Corpn. of India Ltd.3
wherein, the Hon‟ble Supreme Court terminated the criminal proceedings
under Section 138 of the Negotiable Instruments Act, 1881 against the
CD therein, as the same was taken over by the successful resolution
applicant.
22. It is submitted that the forensic audit report, which forms the very
basis of the complaint filed against the petitioner and subsequent
registration of FIR, was never shown to the petitioner, its
directors/management. Resultantly, the petitioner was never given an
opportunity to submit a representation before classifying its account as
fraud. It is therefore submitted that classification of fraud, based on the
forensic audit report by the respondent bank is in violation of the
principles of natural justice.
23. It is submitted that the FIR is liable to quashed as it lacks territorial
jurisdiction as all material and integral causes of action lie in the State of
Maharashtra. It is submitted that the petitioner conducts its affairs in the
State of Maharashtra; the purported fraud is with respect to the affairs and
functioning of the petitioner company in State of Maharashtra; the
respondent bank sanctioned loan for activities of the petitioner carried out
in the State of Maharashtra; and all integral transactions on the basis of
which the alleged fraud/forensic audit report and registration of FIR are
concerned, arises in the State of Maharashtra.
24. It is submitted that the FIR and the complaint ought to be quashed
as it is being used as a tool of harassing and victimizing the petitioner
company and its new management and director as they have not been
3
(2023) 10 SCC 545
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involved in any offence much less the offences punishable under
aforesaid sections. It is submitted that the respondents have registered the
FIR by abusing their official position which is quite apparent and evident
from the perusal of the Complaint and FIR.
25. Therefore, in view of the foregoing submissions, it is prayed that
the instant petition may be allowed and the reliefs be granted as prayed
for.
(on behalf of the respondent/CBI)
26. Per Contra, Mr. Rajesh Kumar, learned SPP appearing on behalf
of the respondent CBI vehemently opposed the instant petition submitting
to the effect that the same is liable to be dismissed being devoid of any
merit.
27. It is submitted that from the bare perusal of Section 32A of the
IBC, it is clear that the immunity is granted only against the prosecution
but no immunity is granted against the continuance of the investigation.
28. It is further submitted that as per the mandate of Section 32A of
IBC, a duty is casted upon a CD to provide assistance and cooperation to
any authority investigating an offence committed prior to the
commencement of the corporate insolvency resolution process.
29. It is submitted that the case is at the investigation stage and the new
management of the company is not cooperating in the investigation and is
avoiding the notices/emails sent by respondent/CBI on 15th May, 2024,
20th May, 2024 and 28th August, 2024 which is against the spirit and
mandate of section 32A (3) of the IBC.
30. It is submitted that the investigation conducted so far had already
revealed that the accused company through erstwhile directors/
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guarantors cheated the consortium of banks by way of submitting inflated
stock and debtor statements, got issued LC‟s in favour of various paper
companies, diverted substantial amount of loan funds through these paper
companies, inflation of turnover in the balance sheets by rotating funds
through paper companies etc.
31. It is submitted that the a Coordinate Bench of this Court, vide order
dated 9th August, 2023, in WP (C) No. 10522/2023, has stayed the
decision of declaring the petitioner‟s account as „fraud‟ relying on the
decision of the Hon‟ble Supreme Court in State Bank of India & Ors. v.
Rajesh Agarwal & Ors.4. It can thus be said that if the complaint
discloses any cognizable offence, the investigating agency is bound to
register the FIR and investigate the same as per provisions laid down by
law. It is further submitted that to claim immunity under section 32A of
the IBC, the new management cannot be in anyway be the disguised
avatar of the old management which can be ascertained only during the
course of investigation.
32. It is submitted that although the powers of this Court under Section
482 of the CrPC (now Section 528 of the BNSS) is wide, however, the
said powers are to be exercised cautiously and sparingly. To support his
arguments, learned counsel relied upon the judgment of the Hon‟ble
Supreme Court passed in Neeharika Infrastructure (P) Ltd. v. State of
Maharashtra5.
4
2023 SCC OnLine SC 34
5
(2021) 19 SCC 401
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33. Therefore, in view of the foregoing submissions, it is prayed that
the instant petition is not a fit case to exercise the inherent powers and the
petition may be dismissed.
ANALYSIS AND FINDINGS
34. This Court has heard the parties at length and perused the material
available on record including the complaint, FIR, order dated 17 th
February, 2023 vide which the resolution plan of the CD was approved
by the learned NCLT, written submissions of the parties and the
compilation of judgments relied upon by the parties.
35. Before delving into the facts of the matter in hand, at the threshold,
this Court also deems it appropriate to discuss the extent of exercise of
inherent powers of this Court under Section 482 of the CrPC (now
Section 528 of the BNSS). The Hon‟ble Supreme Court, in Neeharika
Infrastructure (Supra)6, reiterated the principles to be followed while
quashing an FIR and held as under:
“10.3. Then comes the celebrated decision of this Court
in Bhajan Lal [State of Haryana v. Bhajan Lal, 1992 Supp
(1) SCC 335 : 1992 SCC (Cri) 426] . In the said decision,
this Court considered in detail the scope of the High Court
powers under Section 482CrPC and/or Article 226 of the
Constitution of India to quash the FIR and referred to
several judicial precedents and held that the High Court
should not embark upon an inquiry into the merits and
demerits of the allegations and quash the proceedings
without allowing the investigating agency to complete its
task. At the same time, this Court identified the following
cases in which FIR/complaint can be quashed:
“102. (1) Where the allegations made in the first
information report or the complaint, even if they are taken at
6
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their face value and accepted in their entirety do not prima
facie constitute any offence or make out a case against the
accused.
(2) Where the allegations in the first information report
and other materials, if any, accompanying the FIR do not
disclose a cognizable offence, justifying an investigation by
police officers under Section 156(1) of the Code except
under an order of a Magistrate within the purview of Section
155(2) of the Code.
(3) Where the uncontroverted allegations made in the
FIR or complaint and the evidence collected in support of
the same do not disclose the commission of any offence and
make out a case against the accused.
(4) Where the allegations in the FIR do not constitute a
cognizable offence but constitute only a non-cognizable
offence, no investigation is permitted by a police officer
without an order of a Magistrate as contemplated under
Section 155(2) of the Code.
(5) Where the allegations made in the FIR or complaint
are so absurd and inherently improbable on the basis of
which no prudent person can ever reach a just conclusion
that there is sufficient ground for proceeding against the
accused.
(6) Where there is an express legal bar engrafted in any
of the provisions of the Code or the Act concerned (under
which a criminal proceeding is instituted) to the institution
and continuance of the proceedings and/or where there is a
specific provision in the Code or the Act concerned,
providing efficacious redress for the grievance of the
aggrieved party.
(7) Where a criminal proceeding is manifestly attended
with mala fides and/or where the proceeding is maliciously
instituted with an ulterior motive for wreaking vengeance on
the accused and with a view to spite him due to private and
personal grudge.”
***
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13. From the aforesaid decisions of this Court, right from
the decision of the Privy Council in Khwaja Nazir
Ahmad [King Emperor v. Khwaja Nazir Ahmad, 1944 SCC
OnLine PC 29 : (1943-44) 71 IA 203 : AIR 1945 PC 18] ,
the following principles of law emerge:
13.1. Police has the statutory right and duty under the
relevant provisions of the Code of Criminal Procedure
contained in Chapter XIV of the Code to investigate into
cognizable offences.
13.2. Courts would not thwart any investigation into the
cognizable offences.
13.3. However, in cases where no cognizable offence or
offence of any kind is disclosed in the first information
report the Court will not permit an investigation to go on.
13.4. The power of quashing should be exercised sparingly
with circumspection, in the “rarest of rare cases”. (The
rarest of rare cases standard in its application for quashing
under Section 482 CrPC is not to be confused with the norm
which has been formulated in the context of the death
penalty, as explained previously by this Court.)
13.5. While examining an FIR/complaint, quashing of which
is sought, the Court cannot embark upon an enquiry as to
the reliability or genuineness or otherwise of the allegations
made in the FIR/complaint.
13.6. Criminal proceedings ought not to be scuttled at the
initial stage.
13.7. Quashing of a complaint/FIR should be an exception
and a rarity than an ordinary rule.
13.8. Ordinarily, the courts are barred from usurping the
jurisdiction of the police, since the two organs of the State
operate in two specific spheres of activities. The inherent
power of the court is, however, recognised to secure the ends
of justice or prevent the above of the process by Section 482
CrPC.
13.9. The functions of the judiciary and the police are
complementary, not overlapping.
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13.10. Save in exceptional cases where non-interference
would result in miscarriage of justice, the Court and the
judicial process should not interfere at the stage of
investigation of offences.
13.11. Extraordinary and inherent powers of the Court do
not confer an arbitrary jurisdiction on the Court to act
according to its whims or caprice.
13.12. The first information report is not an encyclopaedia
which must disclose all facts and details relating to the
offence reported. Therefore, when the investigation by the
police is in progress, the court should not go into the merits
of the allegations in the FIR. Police must be permitted to
complete the investigation. It would be premature to
pronounce the conclusion based on hazy facts that the
complaint/FIR does not deserve to be investigated or that it
amounts to abuse of process of law. During or after
investigation, if the investigating officer finds that there is no
substance in the application made by the complainant, the
investigating officer may file an appropriate report/summary
before the learned Magistrate which may be considered by
the learned Magistrate in accordance with the known
procedure.
13.13. The power under Section 482CrPC is very wide, but
conferment of wide power requires the Court to be cautious.
It casts an onerous and more diligent duty on the Court.
13.14. However, at the same time, the Court, if it thinks fit,
regard being had to the parameters of quashing and the self-
restraint imposed by law, more particularly the parameters
laid down by this Court in R.P. Kapur [R.P. Kapur v. State
of Punjab, 1960 SCC OnLine SC 21 : AIR 1960 SC 866]
and Bhajan Lal [State of Haryana v. Bhajan Lal, 1992 Supp
(1) SCC 335 : 1992 SCC (Cri) 426] , has the jurisdiction to
quash the FIR/complaint.
13.15. When a prayer for quashing the FIR is made by the
alleged accused, the Court when it exercises the power
under Section 482CrPC, only has to consider whether or not
the allegations in the FIR disclose the commission of a
cognizable offence and is not required to consider on merits
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whether the allegations make out a cognizable offence or not
and the court has to permit the investigating agency/police
to investigate the allegations in the FIR.
14. Whether the High Court would be justified in granting
stay of further investigation pending the proceedings under
Section 482CrPC before it and in what circumstances the
High Court would be justified is a further core question to be
considered…”
36. Perusal of the aforesaid extracts shows that in terms of the settled
position of law, an FIR can be quashed by the High Court – where the
allegations made in the FIR do not prima facie constitute any offence or
make out a case against the accused, where the uncontroverted allegations
made in the FIR do not disclose the commission of any offence, where
the allegations made in the FIR are so absurd and inherently improbable
on the basis of which no prudent person can ever reach a just conclusion
that there is sufficient ground for proceeding against the accused, where a
criminal proceeding is manifestly attended with mala fides and/or where
the proceeding is maliciously instituted with an ulterior motive for
wreaking vengeance on the accused and with a view to spite him due to
private and personal grudge etc.
37. Furthermore, the Hon‟ble Supreme Court has time and again
reiterated that the power of quashing should be exercised sparingly with
circumspection, in the “rarest of rare cases”. Additionally, while
examining an FIR/complaint, quashing of which is sought, the Court
cannot embark upon an enquiry as to the reliability or genuineness or
otherwise of the allegations made in the FIR/complaint.
38. Thus, ordinarily, the Courts are barred from usurping the
jurisdiction of the police, since the two organs of the State operate in two
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specific spheres of activities, however, the inherent power of the Court is
to secure the ends of justice or prevent the abuse of the process of law.
39. As per the law, to invoke its inherent jurisdiction under Section
482 of the CrPC, the High Court has to be fully satisfied that the material
produced by the accused is such that would lead to the conclusion that the
defence is based on sound, reasonable and indubitable facts, and that the
material so produced is such as would clearly defeat or negate the
allegations contained in the FIR without conducting trial. Further, as per
Rajiv Thapar v. Madan Lal Kapoor7, the material placed on record has to
be of such impeccable quality that would persuade a reasonable person to
dismiss and condemn the accusations as false. Therefore, in order to meet
the ends of justice, the High Court may be persuaded by its judicial
conscience to prevent the abuse of the process of law.
40. Now adverting to the merits of the instant case.
41. It is the case of the petitioner that the impugned FIR is liable to be
quashed on merits as the same cannot exist qua the petitioner in view of
Section 32A of the IBC.
42. It has been contended that an application under Section 7 of the
IBC was filed against the petitioner before the learned NCLT and vide
order dated 17th February, 2023, the learned NCLT approved the
resolution plan by virtue of which a new management has taken over the
control of the petitioner company.
43. Taking support of the same, it has been argued by the learned
senior counsel for the petitioner that since new management has taken
over the control of the petitioner/CD, the petitioner company cannot be
7
(2013) 3 SCC 330
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prosecuted any more under the aforesaid FIR in light of Section 32A of
the IBC which prohibits and bars prosecution of the corporate debtor for
the offences which have been committed prior to the approval of the
resolution plan.
44. In support of his arguments, the learned senior counsel appearing
on behalf of the petitioner relied upon various judgments of the Hon‟ble
Supreme Court as well as this Court to contend that the position of law
has been settled and there is no dispute regarding the same. While relying
upon the judgment passed by a Coordinate Bench of this Court in Tata
Steel BSL Ltd. & Anr. v. Union of India & Anr.8, the learned senior
counsel argued that in the said case, the complaint filed by the Serious
Fraud Investigation Office was quashed. It has been submitted that in the
said case as well, a new management of the petitioner company therein
had taken over who were not connected with the previous management,
and the Court, bearing in mind the provisions of Section 32A of the IBC,
quashed the complaint impugned therein. Therefore, it has been prayed
that the instant petition may be allowed.
45. In rival submissions, it has been argued on behalf of the respondent
CBI that on the basis of a complaint dated 27 th November, 2020 by the
UCO Bank/respondent no. 3, an FIR was registered against the petitioner
company, its directors/promoters/guarantors and several unknown public
servants and private persons, thereby, alleging that the said accused
persons, in pursuance of criminal conspiracy among themselves, have
defrauded the consortium of six banks by way of cheating and
committing criminal misconduct with the help of public servants and
8
2020 SCC OnLine Del 1985
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have thereby caused wrongful pecuniary loss of Rs. 409.26 Crores to the
complainant bank and other consortium banks.
46. It has been submitted that it is alleged in the FIR that the accused
borrower company, i.e., M/s Gangakhed Sugar & Energy Ltd., in
connivance with other accused persons, availed various credit facilities
from the consortium led by the UCO Bank to the tune of Rs. 577.16
Crores in the form of term loan, working capital and other non-fund
based facilities from the consortium led by the UCO Bank along with
Union Bank of India, Bank of India, Oriental Bank of Commerce
(merged with Punjab National Bank), IDBI Bank Ltd. and Indian
Renewable Energy Development Agency to establish Integrated Cane
Processing Plant with the manufacturing facilities of sugar, distillery and
power. The financial facilities were sanctioned to the petitioner from the
year 2008 to 2015. The account became irregular and was declared NPA
on 31st January, 2017. In April 2018, the respondent no. 3 UCO Bank
assigned the account for forensic audit and on the basis of the said
forensic audit report dated 31st October, 2019, the petitioner‟s loan was
declared fraud on 11th May, 2020.
47. It has been contended that the present petition is against the spirit
and mandate of the law laid down in various judgments of the Hon‟ble
Supreme Court. Relying upon the judgment of Neeharika Infrastructure
(Supra), it has been argued that the investigating agency has the statutory
right and duty under the CrPC (now BNSS) to investigate into a
cognizable offence and the Courts should not thwart any investigation
into cognizable offences. Moreover, quashing of complaint/FIR should be
an exception rather than an ordinary rule.
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48. The learned counsel for the respondent CBI has further argued that
in terms of Satvinder Kaur v. State (Govt. of NCT of Delhi)9 , the legal
position is well settled that if an offence is disclosed, the Court will not
normally interfere with an investigation into the case and will permit
investigation into the offence alleged to be completed. It has been
submitted that if the FIR, prima facie, discloses the commission of an
offence, the Court should not normally stop the investigation as the same
would amount to misuse of the process of law.
49. At last, it has been contended by the respondent CBI that from the
bare perusal of Section 32A of the IBC, it is clear that the immunity is
granted only against the prosecution but no immunity is granted against
the continuance of the investigation. Further, as per the mandate of the
said provision, a duly is cast upon a CD to provide assistance and
cooperation to any authority investigating an offence committed prior to
the commencement of the corporate insolvency resolution process.
Additionally, it has also been argued that an FIR is just a document by
which process of law comes into motion and the allegations mentioned in
the FIR are not the conclusion of investigation. Moreover, the case is at
the stage of investigation and final report in the case would be filed in the
Court as per law. Therefore, it has been prayed that the instant petition
may be dismissed.
50. At the outset, it is noted that the petitioner‟s contentions with
respect to quashing of the impugned FIR is based on multiple grounds
which are as follows:
9
(1999) 8 SCC 728
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a. Immunity from prosecution in terms of Section 32A of
the IBC.
b. Lack of territorial jurisdiction.
c. No offence alleged in the FIR is made out against the
petitioner.
51. Since the petitioner has contended that a statutory restriction is
imposed upon the respondent CBI under Section 32A of the IBC to
prosecute the petitioner as a ground for quashing of the impugned FIR,
this Court deems it appropriate to adjudicate the present petition qua the
said ground first.
52. Before adverting to the issue, relevant portion of Section 32A of
the IBC is reproduced herein for reference:
“…[32A. Liability for prior offences, etc.–(1)
Notwithstanding anything to the contrary contained in this
Code or any other law for the time being in force, the
liability of a corporate debtor for an offence committed prior
to the commencement of the corporate insolvency resolution
process shall cease, and the corporate debtor shall not be
prosecuted for such an offence from the date the resolution
plan has been approved by the Adjudicating Authority under
section 31, if the resolution plan results in the change in the
management or control of the corporate debtor to a person
who was not–
(a) a promoter or in the management or control of the
corporate debtor or a related party of such a person; or
(b) a person with regard to whom the relevant investigating
authority has, on the basis of material in its possession,
reason to believe that he had abetted or conspired for the
commission of the offence, and has submitted or filed aSignature Not Verified
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report or a complaint to the relevant statutory authority or
Court:
Provided that if a prosecution had been instituted during the
corporate insolvency resolution process against such
corporate debtor, it shall stand discharged from the date of
approval of the resolution plan subject to requirements of
this sub-section having been fulfilled:
Provided further that every person who was a “designated
partner” as defined in clause (j) of section 2 of the Limited
Liability Partnership Act, 2008 (6 of 2009), or an “officer
who is in default”, as defined in clause (60) of section 2 of
the Companies Act, 2013 (18 of 2013), or was in any manner
incharge of, or responsible to the corporate debtor for the
conduct of its business or associated with the corporate
debtor in any manner and who was directly or indirectly
involved in the commission of such offence as per the report
submitted or complaint filed by the investigating authority,
shall continue to be liable to be prosecuted and punished for
such an offence committed by the corporate debtor
notwithstanding that the corporate debtor’s liability has
ceased under this sub-section.
(2) No action shall be taken against the property of the
corporate debtor in relation to an offence committed prior to
the commencement of the corporate insolvency resolution
process of the corporate debtor, where such property is
covered under a resolution plan approved by the
Adjudicating Authority under section 31, which results in the
change in control of the corporate debtor to a person, or
sale of liquidation assets under the provisions of Chapter III
of Part II of this Code to a person, who was not–
(i) a promoter or in the management or control of the
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(ii) a person with regard to whom the relevant investigating
authority has, on the basis of material in its possession
reason to believe that he had abetted or conspired for the
commission of the offence, and has submitted or filed a
report or a complaint to the relevant statutory authority or
Court.
Explanation.–For the purposes of this sub-section, it is
hereby clarified that,–
(i) an action against the property of the corporate debtor in
relation to an offence shall include the attachment, seizure,
retention or confiscation of such property under such law as
may be applicable to the corporate debtor;
(ii) nothing in this sub-section shall be construed to bar an
action against the property of any person, other than the
corporate debtor or a person who has acquired such
property through corporate insolvency resolution process or
liquidation process under this Code and fulfils the
requirements specified in this section, against whom such an
action may be taken under such law as may be applicable.
(3) Subject to the provisions contained in sub-sections (1)
and (2), and notwithstanding the immunity given in this
section, the corporate debtor and any person who may be
required to provide assistance under such law as may be
applicable to such corporate debtor or person, shall extend
all assistance and co-operation to any authority
investigating an offence committed prior to the
commencement of the corporate insolvency resolution
process.]..”
53. Perusal of the aforesaid extracts shows that the liability of a
corporate debtor for an offence committed prior to the commencement of
the CIRP shall cease and the corporate debtor shall not be prosecuted for
such an offence from the date of approval of the resolution plan by the
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NCLT under Section 31 of the IBC, if the resolution plan results in the
change of the management or control of the CD to a person who was not
a promoter or in the management or control of the CD or a related party
or a person against whom the investigating agency has reason to believe
that he had conspired or abetted the commission of the offence.
54. The said provision also states that if a prosecution had been
instituted during the CIRP against such CD, it shall stand discharged from
the date of approval of the resolution plan.
55. Further, every person who was a „designated partner‟ in terms of
Limited Liability Partnership Act, 2008 or an „officer who is in default‟
under the Companies Act, 2013, or any person who was responsible to
the CD and who was directly or indirectly involved in the commission of
such offence, shall continue to be liable to be prosecuted and punished for
such an offence committed by the CD, notwithstanding that the CD‟s
liability has ceased.
56. It is further stated in the said provision that no action shall be taken
against the property of the CD in relation to an offence committed prior
to the commencement of the CIRP where such property is covered under
a resolution plan which has resulted in change in control of the CD.
57. Lastly, Section 32A(3) of the IBC states that notwithstanding the
immunity given in this Section, the CD and any person who may be
required to provide assistance shall extend all assistance and cooperation
to any investigating authority investigating an offence committed prior to
the commencement of the CIRP.
58. Insofar as the law is concerned, the above narrated statutory
provisions are self explanatory and there is no need for any further
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discussion thereto. However, for the sake of better understanding, this
Court has referred to the judgment of the Hon‟ble Supreme Court passed
in Ebix Singapore Pvt. Ltd. (Supra), wherein, the Hon‟ble Court
enunciated and discussed the principle, applicability and limitations of
Section 32A of the IBC in terms of the immunity of a corporate debtor.
The relevant paragraph of the same is as under:
“..199. Ebix was responsible for conducting their own
due diligence of Educomp and could not use that as a reason
to revise/modify their approved resolution plan. In any
event, Section 32-A IBC grants immunity to the corporate
debtor for offences committed prior to the commencement of
CRIP and it cannot be prosecuted for such offences from the
date the resolution plan has been approved by the
adjudicating authority under Section 31, if the resolution
plan results in a change of management or control of the
corporate debtor subject to certain conditions. Section 32-A
reads as follows:…………………
Thus, in any case even if it is found that there was any
misconduct in the affairs of Educomp prior the
commencement of the CIRP, Ebix will be immune from any
prosecution or punishment in relation to the same. The
submission that Ebix has been placed in a prejudicial
position due to the initiation of investigation into the affairs
of Educomp by CBI and SFIO is nothing but a red herring
since such investigations have no bearing on Ebix…”
59. In the aforesaid judgment, Ebix Singapore Pvt. Ltd. submitted a
resolution plan for Educomp Solutions Ltd., a CD undergoing the CIRP
under the IBC. While dealing with various legal issues, the Hon‟ble
Supreme Court observed that Section 32A of the IBC was introduced to
provide immunity to the CD and its assets from liabilities arising out of
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past offenses once the resolution plan is approved. It was also observed
that the said provision ensures the clean slate principle, shielding the CD
and its assets from past liabilities once a resolution plan is implemented.
It was further clarified that this immunity is crucial for the successful
implementation of resolution plans and encourages resolution applicants
to participate in the CIRP.
60. Further, in Ajay Kumar Radheyshyam Goenka (Supra), the
Hon‟ble Supreme Court while upholding the settled position of law
observed that Section 32A of the IBC ensures that the corporate debtor is
freed from the past liabilities under the approved resolution plan in the
event the new control is with the person/management which is not related
to the person/management related to the commission of such offence.
However, while stating the effect of Section 32A of the IBC on the
directors of the company, it was made clear by the Hon‟ble Court that the
criminal liability of directors and officers of the concerned corporate
debtor is not absolved and the IBC does not shield individuals from
personal criminal liabilities under the Negotiable Instruments Act, 1881.
The relevant paragraphs of the same are as under:
“…64.P. Mohanraj [P. Mohanraj v. Shah Bros. Ispat (P)
Ltd., (2021) 6 SCC 258 : (2021) 3 SCC (Civ) 427 : (2021) 2
SCC (Cri) 818] has harmoniously construed Section 32-A
with Section 14 IBC so as to apply to Section 138 NI Act
proceedings. Section 32-A(1) is very crucial and hence, is
quoted below:………………….
65. Section 32-A IBC has been upheld by this Court
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of India, (2021) 5 SCC 1 : (2021) 3 SCC (Civ) 50] . This
Court has held that the said section does not permit the
wrongdoer to get away. Thus, if the argument of allowing
the signatory/Director to go scot-free after the approval of
the resolution plan is accepted the same would run contrary
to the legislative intent of Section 32-A which has been
upheld by this Court as under : (SCC pp. 170-71, para 326)
“326. We are of the clear view that no case whatsoever
is made out to seek invalidation of Section 32-A. The
boundaries of this Court’s jurisdiction are clear. The
wisdom of the legislation is not open to judicial
review. Having regard to the object of the Code, the
experience of the working of the Code, the interests of
all stakeholders including most importantly the
imperative need to attract resolution applicants who
would not shy away from offering reasonable and fair
value as part of the resolution plan if the legislature
thought that immunity be granted to the corporate
debtor as also its property, it hardly furnishes a ground
for this Court to interfere. The provision is carefully
thought out. It is not as if the wrongdoers are allowed
to get away. They remain liable. The extinguishment of
the criminal liability of the corporate debtor is
apparently important to the new management to make a
clean break with the past and start on a clean slate. We
must also not overlook the principle that the impugned
provision is part of an economic measure. The
reverence courts justifiably hold such laws in cannot
but be applicable in the instant case as well. The
provision deals with reference to offences committed
prior to the commencement of CIRP. With the
admission of the application the management of the
corporate debtor passes into the hands of the interim
resolution professional and thereafter into the hands of
the resolution professional subject undoubtedly to the
control by the Committee of Creditors. As far as
protection afforded to the property is concerned there
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object of the statute we hardly see any manifest
arbitrariness in the provision.”
(emphasis supplied)
66. In P. Mohanraj [P. Mohanraj v. Shah Bros. Ispat (P)
Ltd., (2021) 6 SCC 258 : (2021) 3 SCC (Civ) 427 : (2021) 2
SCC (Cri) 818] , this Court in clear terms held that Section
32-A only protects the corporate debtor and not the
signatories/Directors, etc. The prosecution against the
signatories/Directors would continue…”
61. Therefore, it is settled that once a company, against whom an FIR
is registered, undergoes CIRP and a resolution plan gets duly approved by
the NCLT, whereby, the control of the affairs of the concerned CD is
taken over by a new management which is not related to the CD‟s
erstwhile directors/promoters who are related to the allegations of
commission of such offence, the said company‟s liability for an offence
committed prior to the commencement of CIRP ceases and the concerned
CD shall not be prosecuted for such an offence from the date the
resolution plan has been approved.
62. This Court has taken into consideration the entire material placed
on record and has discussed the settled position of law in order to
understand the immunity granted to a corporate debtor taken over by a
new management and the scope of inherent powers of this Court to quash
an FIR.
63. In the instant case, it is an admitted position of fact that the
impugned FIR pertains to the allegations of commission of fraud and
diversion of funds by the petitioner and its erstwhile directors/promoters
during the period 2008 to 2017 which is apparent from the bare reading
of the complaint and FIR.
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64. However, prior to the registration of the FIR in the year 2023, the
petitioner company‟s CIRP commenced vide order dated 10th October,
2019 passed by the learned NCLT. Thereafter, during the pendency of the
investigation in the said FIR, the resolution plan submitted by the
resolution applicant namely M/s Six Sigma Investment Fund was
approved vide order dated 17th February, 2023. The relevant extract from
the order dated 17th February, 2023 is as follows:
“..6. … The Resolution Plan submitted by Six Sigma
Investment Funds is hereby approved. It shall become
effective from this date and shall form part of this order. It
shall be binding on the Corporate Debtor, its employees,
members, creditors, including the Central Government, any
State Government or any local authority to whom a debt in
respect of the payment of dues arising under any law for the
time being in force is due, guarantors and other stakeholders
involved in the Resolution Plan. …”
65. It is to be noted that in order to invoke Section 32A of the IBC, this
Court has to take the following points into consideration:
a. The offence alleged against the CD has to be committed
prior to the commencement of CIRP.
b. The resolution plan of the company/accused/CD has been
approved.
c. The control of the affairs of the CD has been taken over
by new management/resolution applicant.
d. The resolution applicant is not the person or not related to
the persons accused of committing such offence.
66. Therefore, keeping in mind the settled position of law, the admitted
position of facts that the offences alleged in the complaint and the FIR
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pertain to the period 2008-2017, i.e., before the commencement of the
CIRP; resolution plan has been approved by the learned NCLT and there
has been no objection/appeal against the same; the respondent CBI has
not objected or brought on record any contention to submit to the effect
that the resolution applicant is related to the persons accused of
commission of offences, this Court is of the view that there are cogent
grounds to invoke Section 32A of the IBC.
67. This Court is of the view that the CD, i.e., the petitioner herein
cannot be prosecuted for the alleged offences committed by the erstwhile
management and directors of the petitioner from the date the resolution
plan was approved by the learned NCLT under Section 31 of the IBC as
the resolution plan has resulted in the change of management/control of
the CD.
68. It has been ascertained that Section 32A of the IBC protects a CD
and leads to extinguishment of any criminal liability of the CD if the
control of the said CD goes in the hands of the new management which is
different from the original/old management.
69. Thus, the petitioner company is duly entitled to the grant of
immunity from any prosecution or punishment in relation to the
impugned FIR and investigation thereto under Section 32A of the IBC. In
light of the same, this Court finds merit in the instant petition and is of the
considered view that the impugned FIR is liable to be quashed.
70. At last, this Court also deems it apposite to state that the present
petition has been adjudicated only with respect to the contention of
immunity from the prosecution of the CD/petitioner under Section 32A of
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the IBC and has neither dealt with the issues on merits of the allegations
levelled in the impugned FIR nor with the issue of territorial jurisdiction.
CONCLUSION
71. Summarily stated, the observations made hereinabove reveal that in
view of the undisputed fact that the CIRP in regard to the petitioner
company commenced on 10th October, 2019 whereas the FIR was
registered on 7th February, 2023 in regard to the alleged offences
committed between the year 2008 to 2017, and that the resolution plan of
the CD has been approved on 17th February, 2023 by virtue of which a
new management has taken over the control of the petitioner/CD; any
liability for such offences shall cease against the petitioner/CD and the
petitioner cannot be prosecuted for the said offences as the same were
committed prior to the approval of the resolution plan. Therefore, the
impugned FIR is liable to be quashed qua the petitioner.
72. In light of the above discussions on facts and law, this Court is
inclined to exercise its inherent powers under Section 482 of the CrPC
(now Section 528 of the BNSS) and quash the impugned FIR. In view of
the same, the instant petition is allowed and the FIR No.
RC074023E0001, dated 7th February, 2023, registered at Police Station –
BS&FB, Delhi for the offences punishable under Section 120B read with
Section 420 of the IPC and Section 13(2) read with Section 13(1)(d) of
the PC Act and also the consequential proceedings emanating therefrom
are quashed with respect to the petitioner herein (i.e., accused no.1).
73. It is made clear that this Court has not restricted the learned Trial
Court from proceeding further with the matter against the other accused
persons. The aforesaid direction of quashing is restricted only to the
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petitioner/corporate debtor and not to its erstwhile directors/guarantors
who are accused in the instant FIR.
74. As per the statutory requirement, it is made clear that the petitioner
shall, in terms of provisions of Section 32A(3) of the IBC shall assist the
concerned investigating agency for the purpose of investigation, if any
required, in accordance with the law. However, the same shall not be
taken as an expression of this Court to prosecute the petitioner at any
given stage.
75. It is further made clear that this Court has not gone into merits of
the allegations made in the FIR.
76. Accordingly, the instant petition stands disposed of along with the
pending applications, if any.
77. The judgment be uploaded on the website forthwith.
(CHANDRA DHARI SINGH)
JUDGE
DECEMBER 23, 2024
na/RYP/av
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