Avinash Aradhya vs. Central Bureau Of Investigation
Original PDF →No AI summary yet for this judgment.
Cause title — parties, addresses and appearances
ORDER
This petition is filed by the petitioner-accused under Section 482 of Cr.P.C. for quashing the criminal proceedings in C.C.No.6082/2023 pending on the file of XVII ACMM, Bengaluru arising out of FIR registered by the CBI in R.C.No.2(A)/2021 and charge sheeted for the offence punishable under Section 120B read with Sections 420, 468, 471 of IPC.
Heard the learned Senior counsel appearing for the petitioner and learned Special counsel appearing for the respondent-CBI.
The case of the prosecution is that the defacto- complainant who is the Bank filed complaint to the CBI on 18.01.2021 alleging that the Bank had financed to accused No.1- M/s. Aradhya Steel Pvt. Ltd. under the consortium arrangement with Union Bank of India (leader of consortium) Industrial finance branch situated at Bengaluru presently handled by MID Corporate Banks at Mitra towers, Kasturba Road, Bengaluru. The above said persons had
4 entered into criminal conspiracy with an intention to cheat the Bankers intentionally induced the Indian banks and other members of the consortium to grant credit facilities by suppressing the materials, relevant facts from the knowledge of the consortium members. After availing the credit facilities, they have dishonestly mis-utilised and misappropriated the amount, thereby caused wrongful loss to the consortium Banks, out of which, Rs.30,50,00,000/- to the Indian Bank as on 05.01.2021 (comprising of book balance of Rs.24,45,00,000/- and unapplied interest of Rs.6,05,00,000/- with applicable interest.
It is further alleged that the petitioner availed loan from Indian Bank slipped into NPA category on 30.06.2019. The other members of the consortium also declared the accounts as NPA. The case referred to the National Company Law Tribunal (NCLT) under (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and process commenced on 9.9.2019. There are certain lapses observed after the account slipped into NPA.
5
It is further alleged that in February 2019, on account of persistent delay in servicing of the debt and frequent devolvement of the bills drawn under inland letter of credit and internal investigation was done and on perusal of the same, the beneficiary did not have any office at the address available in the Letter of credit (LC). It could be inferred that the sales and purchases were only on books and there is no physical movement of books. The receipts were found fake. There was no lorry transport existing in the name of Sri Rajalakshmi transport. The investigation conducted by one Amarnath, Chief Manager (Credit) and V. Sridharan, Chief Manager (Vigilance) and their reports were confirmed. The consortium of Bankers meeting was held on 6.5.2019 which clearly pointed out that these are Shell companies who used to show the transactions on paper. M/s. Spiegel Enterprises Pvt. Ltd. is also Shell Company, M/s. Aradhya Steel Pvt. Ltd., the accused No.1 indulged in trading without movements of actual goods with an intention to fraudulently avail the input tax credit. The forensic audit was commissioned by the leader of
6 consortium conducted by Sharath and Associates, Charted Accountant, Chennai which reveals irregularities committed by the company were treated as fraud. Hence, they requested the CBI to register the complaint against the borrower. Based upon the complaint, the CBI registered the FIR. The petitioner is the Managing Director of M/s. Aradhya Steel Pvt. Ltd. who is arraigned as accused No.2. 6. The petitioner previously challenged the FIR by filing Crl.P.No.1427/2021 which came to be dismissed by this Court on 4.12.2021 and permitted the CBI to investigate the matter. Subsequently, the CBI filed the charge sheet against the petitioner and once again the petitioner is before this Court.
The learned Senior counsel appearing for the petitioner has contended that this petitioner is the Director of the company- accused No.11 submitted the Letter of Credit for having purchased the goods on credit. The amount has been paid by the Banker and prior to the complaint, the forensic audit was conducted on 30.09.2019
7 where it is stated that there is no element of fraud. A writ petition also filed before the High Court in W.P.No.6771/2023 which was disposed on 10.07.2023 where it is stated that there is no fraud. The DRT proceedings was conducted, the matter was settled between the parties. A OTS facilities were given. The amount has been paid. The committee of creditors also held meeting and agreed to receive the amount. The payment was made by the company. There is no cheating or wrongful loss to the Bank. The petitioner has not violated the conditions. Absolutely, there is no case made out against the petitioner for conducting trial. The internal audit report says that there is no fraud committed. The GST council also verified the records, taxes were paid and absolutely, there is no material to show that the petitioner committed any offence. Therefore, prayed for quashing the criminal proceedings.
Per contra, learned counsel for CBI has objected the petition and contended that this Court on the earlier petition considered the case on merits, dismissed the
8 petition and permitted the CBI to investigate the matter. The Spiegel company is the Shell company, all the transactions were on paper. There is no physical movement of goods. There is no existence of transport company. The address of the Spiegel company and on verification, there is no company situated in the address and also contended that the internal audit report has clearly mentioned the disclaimer clause as they stated that they have not physically verified the offence, but they have only verified the papers. Subsequently, the CBI investigated the matter, they found the truth which clearly reveals, they created the documents for the purpose of getting the benefit from the Bank by way of letter of credit. Learned Special counsel further contended that merely the amount was paid by the accused by way of settlement, the criminal case cannot be exonerated as the recovery was under the civil proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'SARFAESI Act') and hence, prayed for dismissing the petition.
9
Having heard the arguments and on perusal of the records, it is the contention of the complainant before the Police that the petitioner-company obtained the letter of credit from the Bank and placed some order for supplying the steels from Spiegel Enterprises and after receipt of the invoice, they sent to the Banker accordingly, the Banker cleared the amount to the Spiegel Company. Subsequently the petitioner-company become default in payment of loan and subsequently, came to know that there is no movement of goods, only the invoice is prepared and set up the case as good as a transaction took place between the Spiegel Enterprises and the petitioner-company. Later, the matter referred to the National Company Law Tribunal (NCLT), where the consortium banks had meeting and they agreed to receive the amount from the petitioner by giving OTS facilities. There was settlement between the bankers and the petitioner-company. The FIR was registered against the petitioner-company and the petitioner alleging that they have cheated the bank by committing fraud, but during the investigation stage, the petitioner approached this Court for
10 quashing the FIR which came to be dismissed and permitted to continue the investigation. The petitioner once again before this Court mainly on three grounds: 1) There was compromise between the bankers and the petitioner-company. The matter has been settled before the NCLT. A DRT proceedings initiated under SARFAESI Act where the matter has been settled by giving one time settlement (OTS) facility. Accordingly, amount has been paid by the petitioner- company and matter has been settled. Therefore, it is contended that once the matter has been settled between the parties in the competent court of law, the question of continuing the criminal proceedings does not arise. In view of the judgment of the Hon'ble Supreme respondent-Police shall not be sustainable.
3) The another contention taken by the petitioner is that the banker freezed the account of the petitioner on the ground of fraud, subsequently, the petitioner
12 approached the High Court by filing writ petition where the Co-ordinate Bench of this Court has held that there is no fraud committed by the petitioner and directed to defreeze the account in writ petition No.6771/2023 dated 10.07.2023. When the High Court itself has stated in the order that there is no fraud committed by the petitioner, once again the criminal proceedings cannot be sustainable and hence, prayed for quashing the criminal proceedings.
Considering the contention raised by the learned counsel for the petitioner where there was minutes of the consortium Bankers' meeting produced by the counsel which reveals the committee of creditors meeting was held on 01.06.2020. They verified the report of the auditors and committee requested the auditor to remove the report in the light of the observation made in the meeting. It is pertinent to note that in the auditors report, it has been already mentioned that there is no fraud committed. Subsequently, the National Company Law Tribunal (NCLT) also passed an
13 order on 24.08.2020 considering the resolution passed by the Insolvency Resolution Process for Corporate Persons, Regulations, 2016 and disposed the petition by giving some directions. It is also an admitted fact that the DRT proceedings were initiated under the SARFAESI Act which was settled by filing compromise application. A meeting was held by the lenders on 23.01.2020, where it is mentioned that the Forensic audit does not reveal any fraudulent transactions under valued transactions, defrauding creditors, extortionate credit transactions, fraudulent trading or wrongful trading. It was agreed by majority of Banks like Union Bank of India, Bank of Baroda, HDFC and Hero Fin Corporation that not to report the account as fraud in terms of RBI master directions of fraud and sharing pattern also mentioned which reveals in the meetings of the bankers as they have come to the conclusion that there is no fraudulent transactions or fraudulent trading. Such being the case, the contention of the learned counsel for the respondent that the trading was fraudulent and no goods moved cannot be acceptable.
14
Once the matter has been settled between the parties, the question of continuing the proceedings against the petitioner does not arises in view of the judgment of the Hon'ble Supreme Court in the case of Gian Singh stated supra.
As regard to the fraudulent transactions alleged by the respondent in the FIR and charge sheet that no goods were moved etc., but the Co-ordinate Bench of this Court in W.P.6771/2023 (GM-RES) dated 10.07.2023 has held as under:
"Both the sides having argued the matter vociferously for some time, this Court suggested and they fairly agreed that the Respondent - Bank should retrace its steps concerning the subject loan account being branded fraudulent inasmuch as, deeper enquiry having been accomplished, there is no blameworthy conduct attributable to the Petitioner; the Respondent - Bank should tell the RBI that the allegation of fraud after enquiry is found to be not true and therefore, the earlier communication made by it to the
15 RBI on a wrong assumption of fraud should be accordingly recalled and rescinded."
The Co-ordinate Bench of this Court has categorically held in the aforementioned writ petition that there is no fraud committed by the petitioner or his company and has stated it is a wrong assumption of fraud and accordingly, the accounts were defreezed by the Co-ordinate Bench. The order of the Co- ordinate Bench has not been challenged by the CBI or any other Authorities. Once the Co-ordinate Bench held that there is no fraudulent act committed by the petitioner, question of continuing the criminal proceedings in this case does not arise.
That apart, the GST Department also verified the transactions and has held that there is no such fraud committed and GST also paid by the petitioner. If the transaction is fraudulent transaction, the question of paying GST does not arise.
16
Apart from that, learned Senior counsel for the petitioner argued that the company alleged have been involved in the fraudulent transaction is not correct. The said Spiegel company is running business from the year 2011 onwards. There were several persons working in the company, salaries were paid and they are paying the taxes etc. The same was not controverted by the respondent counsel.
The learned Senior counsel for the petitioner produced the credit information report of M/s Spiegel Enterprises Ltd., which reveals the company is doing business with the Bank from 2016 and the company was established from 29.04.2011 onwards with paid up capital of Rs.25,22,870/- and it is also registered with Central Tax GST Commissionerate which reveals the company was existing from 2011, whereas the allegation made by the respondent that there is no such company existing cannot be acceptable. On the other hand, the Co-ordinate Bench of this Court after considering the arguments in the writ
17 petition, has held that there is no fraud committed by the petitioner. That apart, the Bankers also held in their meeting that there is no fraudulent transactions. The National Company Law Tribunal (NCLT) also settled the dispute between the petitioner and the Bankers. Matter has been settled between the parties by way of compromise in DRT proceedings, the consortium Bankers headed by the complainant who filed the complaint to the Police and thereafter, they themselves held the meeting and stated that there is no siuch fraudulent transactions occurred and the co bench also in W.P.No.6771/2023 has held that there is no fraud committed by the petitioner. Such being the case, continuing the criminal proceedings against this petitioner in the charge sheet filed by the respondent amounts to abuse of process of law and hence, liable to be quashed.
Accordingly, the petition is allowed. The criminal proceedings against the petitioner- accused in C.C.No.6082/2023 pending on the file of XVII
18 ACMM, Bengaluru arising out of FIR registered by the CBI in R.C.No.2(A)/2021 is hereby quashed. JUDGE
GBB CT:SK
Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.