[Serious Fraud] Non-Compliance With Formalities Of Companies Rules Not Breach Of Mandate To Inform Grounds Of Arrest When Accused Not Formally Arrested: P&H High Court

The Punjab & Haryana High Court has set aside the bail orders granted in serious fraud cases under the Companies Act (the Act), observing that "mere non-compliance of the formality" under Companies Act Rules cannot be construed to be the breach of the mandate carried in Section 212(8) of the Act of 2013, when theaccused person is not formally arrested.

Section 212(8) of the Act states that if the Director, Additional Director or Assistant Director of Serious Fraud Investigation Office (SFIO) authorised on this behalf by the Central Government by general or special order, has on the basis of material in his possession reason to believe (the reason for such belief to be recorded in writing) that any person has been guilty of any offence punishable under sections referred to in subsection (6), he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.

As per, Rule 4 of the Rules of 2017, the Director, Additional Director or Assistant Director, while exercising powers under sub-section (8) of section 212 of the Act, shall sign the arrest order together with a personal search memo in Form appended to these rules and shall serve it on the arrestee and obtain written acknowledgement of service.

Justice Kuldeep Tiwari said, "Mere non-compliance of the formality encapsulated in Rule 4 of the Rules of 2017 cannot be construed to be the breach of the mandate carried in Section 212(8) of the Act of 2013, as in the case at hand, since no formal arrest had taken place, therefore, there arose no occasion for the petitioner to make compliance of the said Rules, which could have only been done had a formal arrest of the respondent been made by the petitioner."

The Court further added that the prime object behind the incorporation of the above provisions is to curtail the arbitrary powers of the authorized arresting officer and to constitute an element of fairness and accountability in the arrest mechanism of the S.F.I.O, specifically when, consequent upon arrest, the accused has to pass the rigour of Section 212(6) of the Act of 2013.

The Court was hearing three petitions filed by the Serious Fraud Investigation Office, against bail orders granted to persons accused of being "masterminds of a huge financial scam."

The prime grievance woven by the petitioner is that the trial Court has, while granting regular bail to the accused persons, turned a blind eye to the material facts indicative of the respondent's culpability in the commission of a serious economic offence. 

After hearing the submissions, the Court noted that the bail was granted by the trial court on the ground that the "statutory mandate carried in Section 212(8) of the Act of 2013 and in Rule 4 of the Rules of 2017" had not been followed.

Reliance was placed on Apex Court's ruling Pankaj Bansal Vs. Union of India & Ors., to underscore that, non-compliance of the mandate carried in Section 212(8) of the Act of 2013 and in Rule 4 of the Rules of 2017, the arrest of a person becomes vitiated and resultantly, he/she becomes entitled to regular bail.

However, the Court noted that in the present case, the accused persons were never formally arrested by the SFIO as they were already in custody in some other case, rather in pursuance of production warrants, they were produced before the Court concerned by the jail authorities concerned, through virtual platform and, on the same day itself, upon an application moved by the SFIO, he was remanded to judicial custody.

Justice Tiwari highlighted that when the application filed by SFIO fulfilled all the mandatory requirements, i.e. "(i) it disclosed the materials collected during investigation, which constituted the 'reason to believe' that the respondent/ accused concerned has been guilty of offence punishable under section referred to in sub-section (6); and (ii) it disclosed the specific role of the respondent/accused concerned in commission of the alleged offences, besides disclosing the opinion and permission to arrest him; and, when the application has always been a part of the judicial record, which is accessible to all concerned, therefore, this Court has no hesitation to hold that all the mandatory requirements encapsulated in Section 212(8) of the Act of 2013 have been complied with."

Once all the safeguards, as provided by the legislature in the provisions, have been meticulously complied with by the SFIO, through detailing all the relevant materials in the respective applications for production warrants and for remand to judicial custody, therefore, there was no occasion for the accused to insist for issuance of “arrest order”, as prescribed under the Rules of 2017, especially when no formal arrest had taken place, added the Court.

The Court also expunged the remarks made by the Trial Court wherein it "acted like an appellate court and reviewed the order of its predecessor, whereupon, it not only held the remand order to be illegal...but also recorded adverse remarks."

In the light of the above the plea was allowed.

2024 LiveLaw (PH) 155

Case: SERIOUS FRAUD INVESTIGATION OFFICE THROUGH B RAMESH KUMAR v. ANIL JINDAL

Click here to read/download the order