Delhi High Court
V Hansprakash(Through Pariokar) vs State on 1 December, 2020
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ BAIL APPLN. 1097/2020, CRL.M.(BAIL) 6446/2020,
CRL.M.(BAIL) 8127/2020, CRL.M.A.13702/2020
Judgment reserved on : 24.11.2020
Date of decision: 01.12.2020
V. HANSPRAKASH (THROUGH PAIROKAR)..... Applicant
Through: Mr. N. Hariharan, Sr. Adv. with Mr.
Shadman Siddiqui, Mr.Anurag Nasiar,
Mr. K. Luthra, Advs.
Versus
STATE ..... Respondent
Through: Mr. Kewal Singh Ahuja, APP for
State.
Mr. Jatin Sehgal & Mr. Harish Malik,
Advs. for complainant.
CORAM:
HON'BLE MS. JUSTICE ANU MALHOTRA
JUDGMENT
ANU MALHOTRA, J.
1. The applicant, vide the present application seeks the grant of
regular bail in relation to FIR No.46/2019, PS EOW, New Delhi under
Sections 406/420/467/468/471/120B of the Indian Penal Code, 1860
submitting to the effect that the applicant has been arrested on
04.02.2020 and the charge sheet in the instant case has already been
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MALHOTRA.
filed on 11.11.2019 which had been filed without the arrest of the
applicant and that on receipt of summons from the Trial Court, the
applicant appeared before the learned ACMM, East District, KKD
Courts, New Delhi and filed the first bail application which was
dismissed by the learned ACMM erroneously and the applicant was
taken into custody. The second bail application filed by the applicant
was also dismissed by the learned ASJ vide order dated 12.02.2020
and that the prayer made by the applicant seeking interim bail on the
account of his wife's illness was also dismissed on 15.04.2020 by the
Court of the learned ASJ.
2. During the course of hearing of the present bail application, it
was submitted on behalf of the applicant on 15.06.2020 that
submissions made in CRL.M.(BAIL) 6446/2020 for the grant of
interim bail may be read as additional grounds to the prayer made by
the applicant seeking the grant of regular bail and may be considered
at the stage of consideration of the main bail application in toto.
3. The status report dated 11.06.2020 submitted under the
signatures of the Assistant Commissioner of Police, Sector-IV, EOW,
Delhi states to the effect that a complaint of M/s Dalmia Cements
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Bharat Ltd. against M/s Allied Financial Services Pvt. Ltd. & Ors was
received in EOW regarding fraudulent transfer of Mutual Funds
Units/securities worth Rs.344.07 Crores of the complainant. It is
submitted further through the said status report that the erstwhile
subsidiaries of the complainant company namely OCL India Cements
Ltd. and Dalmia Cement East Limited were interested in making
mutual fund investments in May 2017 and availed the services of the
Depository i.e. National Securities Depository Limited (NSDL) and its
participant Allied Financial Services Pvt. Ltd. (AFSPL) and AOF
were signed and demat accounts with client ID No. 10061626 in the
name of OCL Cements Ltd. (OCL) and Client ID No. 10061329 in the
name of Dalmia Cements East Ltd. (DCEL) were opened and after
making initial investment, several further investments and
redemptions were made in the said accounts from time to time and the
complainant held securities worth Rs.344.07 Crores in the said
accounts as on 28.12.18 and that the said two companies i.e. OCL and
DCEL were merged into Dalmia Cements Bharat Ltd. (DCBL) and
DCBL became the owner of securities.
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4. It has further been submitted therein that the complainant
submitted redemption dated 27.12.18 to AFSPL as per rules and
market practice and the redemption value of the securities should have
been credited into the account by 28.12.18 but despite various
requests/emails, the redemption amount was not credited in the
accounts and on 17.01.19, the complainant reported the matter to
NSDL and the NSDL vide its reply dated 25.01.19 informed that there
were no securities available in the DMAT accounts of the
complainant.
5. Sh. Awanish Kumar Mishra, Director of AFSPL vide his email
dated 31.01.19 again confirmed the complainant's holding in the above
DMAT accounts and regretted delay in processing of redemption
request and assured that the same would be processed by 06.02.19 and
the Samples of Delivery Instruction Slips (DIS slips) provided by
NSDL were also stated to be allegedly forged and fabricated, as the
complainant never signed the DIS slips nor did it give any consent for
transfer. The details of the alleged fraudulent transaction from the
DEMAT accounts with Client ID No. 10061626 in the name of OCL
Cement Limited {"OCL") and client ID No. 10061329 in the name of
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Dalmia Cement East Limited ("DCEL") held with Allied Financial
Services Pvt Ltd. is stated in the said status report to the effect:-
A- OCL India Ltd (Client ID 10061626)
S. No. Name of mutual funds ISIN Units
1. DSP-Black Rock Low INF740K018P2 12602182.698
Duration Fund-Regular
Plan-Growth
2. DSP Mutual Fund INF740K01FK9 222116.276
Liquidity Fund Insti
Plan Growth Open End
3. Kotak Mahindra 1NF174K01ES7 3516935.686
Mutual Fund Bond
Short Term Reg
Growth
4. Reliance Mutual Fund INF204K01UN9 98375.733
Liquid FD Grw PL
Growth
5. UTI Liquid Cash Plan- INF789FF01PH1 489790.286
Institutional Option -
Growth
B. Dalmia Cement East Limited (Client ID 10061329)
S. No. Name of mutual funds ISIN Units
1. DSP Mutual Fund Low INF740K018P2 50435849.802.
Duration FD Reg
Growth OP
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6. It was further submitted through the said status report that the
investigation revealed that the said units of Mutual Funds worth
Rs.344.07 Crores were fraudulently transferred in favour of Allied
Financial Services Pvt. Ltd. (Depository Participant/Intermediary),
who further pledged it with IL & FS Securities Services Ltd.
Sh.Awanish Kumar Mishra, Director of Allied Financial Services Pvt
Ltd is alleged to have fraudulently transferred the credentials of the
complainant in the account opening form and fed wrong credentials on
NSDL server to deprive the complainant from getting an alert message
for each transaction and that the accused Awanish Kumar Mishra
further fraudulently transferred the mutual fund units of the
complainant worth Rs.344.07 crores by using delivery instruction slips
bearing forged signatures of authorized signatories of the complainant
companies. As per the said status report, the said mutual fund units
were further pledged to IL&FS Securities Services Ltd (ISSL) for
getting margin in derivative trading segments and ISSL and its
officials namely V. Hansprakash i.e. the present applicant herein
malafidely facilitated the accused Awanish Kumar Mishra and AFSPL
in using the said fraudulently transferred mutual fund units for margin.
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7. As per the status report submitted by the State through the
investigation conducted so far, the role alleged against the accused V.
Hansprakash is as under:-
"1. He was the Head of Business Department and Chief
Business Strategy Officer of the IL & FS Securities Services
Ltd.
2. He also suggested that intraday benefits be extended over
and above available collaterals to some selected client,
which resulted in facilitation to the AFSPL.
3. As per Grant Thornton Forensic Audit report, Mr V.
Hansprakash potentially changed the data which was sent
to exchange as well as to bank.
4. He also sent data to the exchange without reducing the
collaterals value by the hair cut as defined by the exchange,
which is potential violation of the exchange rules. By these
acts, he facilitated the AFSPL to commit crime.
5. Being Chief Business Strategy head and responsible
person of the company, in connivance with AFSPL, he
actively facilitated the AFSPL to commit fraudulent transfer
of the mutual fund units."
8. Inter alia it was submitted through the said status report dated
11.06.2020 that during the course of investigation, the applicant joined
investigation as and when required and after completion of
investigation, the charge sheet was filed before the trial court against
accused Allied Financial Services Pvt Ltd, its director Awanish Kumar
Mishra for fraudulent transfer of mutual fund and IL&FS Security
Services Ltd and against the present applicant Chief Business Head
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V. Hansprakash for facilitating him in utilization of the said mutual
fund worth Rs.344.07 Crores of the complainant from its demat
account for getting margin in derivative trading.
9. Through its reply dated 09.06.2020, the complainant has
submitted that admittedly it only had a DMAT account and had no
trading account and as such there was no cause/occasion to transfer
the mutual fund units of INR 344.07 Crores belonging to the
complainant from its DMAT account to the trading accounts of the
accused and that the applicant arrayed as accused No.4 in collusion
and conspiracy with the other accused violated the securities laws and
forged and fabricated DISs in order to criminally misappropriate the
mutual funds units of INR 344.07 Crores belonging to the
complainant, and as a consequence thereof, the complainant being a
public limited company cannot use its own money for meeting its day
to day operations including paying salaries to its employees.
10. The complainant has further alleged that the applicant and the
co-accused has received a premium of INR 380 Crores fraudulently by
using the mutual fund units of INR 344.07 Crores of the Complainant
as their own margin money and a wrongful gain of INR 380 crores has
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accrued to the applicant/accused No.4 and other accused. Inter alia the
complainant has submitted that on 04.12.2018 ISSL/Accused No.3 i.e.
a part of IL&FS Group, committed a fraud of INR 90,000 crores by
forming 350 shell companies and thus, the Central Government sacked
its entire board on the ground of oppression and mismanagement of
the company and as per the media report dated 28.02.2020, IL&FS
Group is also facing investigation for money laundering of over INR
6500 Crores.
11. Inter alia it has been submitted on behalf of the complainant
whilst opposing the prayer made by the applicant seeking the grant of
bail that if at this crucial stage of investigation, the applicant is
released, there is every likelihood that he will not allow to unearth the
amount of INR 380 Crores received as premium by fraudulently using
the mutual fund units of INR 344.07 Crores of the Complainant as his
own margin money and this aspect still needs to be investigated and as
such the State and SFIO are currently investigating into the matter.
The complainant has submitted that the DMAT accounts opened by
the accused No.2 & 3 were opened only for the purpose of holding and
redemption of mutual fund units belonging to the complainant and
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could not have been used for trading and any other related purposes
and that both the OCL and DCEL erstwhile subsidiaries of Dalmia
Cement Bharat Limited i.e. of the complainant had never opened any
trading account nor given any power of attorney to the accused no.2 to
do the same on their behalf.
12. It was further submitted by the complainant adverting to
critical findings in the charge sheet to the effect:-
"i. Awanish Kumar Mishra/Accused No.l in collusion and conspiracy
with the Applicant/Accused No.4, malafidely and dishonestly, had not
only forged mobile number, email id and correspondence address
mentioned in the account opening forms/KYCs of Erstwhile
Subsidiaries of Complainant but also uploaded fake mobile number,
fake email id, and fake address supported by fake address proof of its
Erstwhile Subsidiaries on the portal/website of NSDL so that
Erstwhile Subsidiaries of the Complainant could not get/receive any
transaction alert from NSDL.
ii. The Accused No.l, in collusion and in conspiracy with the
Applicant/Accused No.4, had illegally, dishonestly and fraudulently
transferred the Securities from Demat Accounts of Erstwhile
Subsidiaries of Complainant to their own account(s) and its related
entities based on forged Delivery Instruction Slips and further,
fraudulently placed these Securities as collateral with ISSL/Accused
No.3 (where the Applicant/Aceused No.4 was working as Business
Head) for meeting its own margin obligations in future and option
contracts without consent, knowledge or mandate of the Complainant,
who neither issued any mandate for transfer of the Securities nor
received any consideration for such transfer thereof.
iii. Pursuant to taking above position in future and option contracts by
fraudulently using the Securities of the Complainant as its own margin
money by Allied/Accused No.2 with ISSL/Accused No.3 (where
Signature
Applicant/Accused No.4 was working as Business Head) , the Accused
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Persons had received a sum of INR 380 Crores towards premium, and
thus, Applicant/Accused No.4 along with other Accused Persons
gained a sum of INR 380 crores illegally and wrongfully by causing
illegal and wrongful loss to the Complainant to the tune of INR 344.07
Crores.
iv. Allied/Accused No.2 used to send forged and fabricated Statement
of Holdings from time to time in respect of Demat Accounts just to
make the Complainant believe that its Securities are intact in their
Demat accounts.
v. Forensic Science Laboratory Report ("FSL Report") filed along
with the Charge Sheet, also confirmed that the signatures of
authorized signatories of the Complainant on all sixty-six (66)
Delivery Instructions Slips are forged by Accused Persons which were
used by Accused Persons for fraudulent transfer of Securities from
Demat Accounts of Erstwhile Subsidiaries of Complainant to their
own account(s)/related entities and further, fraudulently used the
Securities of the Complainant as their own margin money and
received a sum of INR 380 Crores as premium and thus,
Applicant/Accused No.4 along with other accused gained a sum of
INR 380 crores illegally and wrongfully by causing illegal and
wrongful loss to the Complainant to the tune of INR 344.07 Crores.
vi. FSL Report further confirmed that the signature of authorized
signatories of Erstwhile Subsidiaries of the Complainant on the
account opening forms/KYCs are also forged. This clearly shows that
the intention of Accused Persons including the Applicant/Accused
No.4, right from beginning, was only to cheat and misappropriate the
Securities of Complainant.
vii. Upon fraud being surfaced, the top management of ISSL/Accused
No.3 had conducted its forensic audit through its own Forensic
Auditor, Grant Thornton, in respect of transaction between
ISSL/Accused No.3 and Allied/Accused No.2. ISSL/Accused No.3, own
Forensic Auditor, Grant Thornton, has reported several irregularities
indicating collusion and conspiracy between Applicant/Accused No.4
& Allied/Accused No.2 through Accused No.1 and further, the above
forensic audit report conducted on behalf of ISSL/Accused No.3
categorically pointed out several instances of collusion and
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conspiracy between the Applicant/Accused No.4 and Allied/Accused
No.2 which are stated as under:
b. Unusual Collateral movements between ISSL and Allied;
i. ISSL allowed Allied to withdraw collaterals amounting to INR 736
Crs on Saturday (non-working day), which were bought back on
Monday.
ii. ISSL allowed Allied to withdraw collateral amounting to INR 243
Crs and deposit back on the same day without any decrease in limit.
iii. ISSL allowed Allied to withdraw collaterals and deposit back INR
102 Crs in the same week.
c. Between Jul'18 to Dec'18- On 65 instances ISSL allowed intra-day
benefit (extending limit without collaterals) totalling to INR 2418 Crs.
d. ISSL accepted illiquid collaterals from Allied which are not
deployable as margin to the exchange and provided limit, based on the
same.
e. ISSL increased limits of Allied unanimously with corresponding
increase in the collaterals.
f. ISSL opened trading terminal of Allied and allowed them to roll
over their position during Jan' 19, specifically after the termination
notice was issued on 8-Jan-19.
g. ISSL choose to ignore significant unusual increase in the asset and
liabilities of Allied financials for FY 18 and didn't acted upon it at all.
A proper review of financial statements of Allied should have
triggered an alarm and some sort of action should have been taken by
ISSL.
h. Auditors observation was there in financials transactions that Allied
had multiple doubtful transaction with related parties and the
recovery is doubtful which ISSL ignored and have not acted upon.
i. ISSL despite having a previous relationship with Allied, have
misrepresented in their CAM document (at the time of on-boarding)
that they don't have any existing relationship with Allied.
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j. In 2010, SEBI ordered an adverse order against Allied for
synchronised trades and penalised by SEBI. ISSL ignored this instance
at the time of on boarding of Allied.
k. Allied was under Risk Reduction Management (RRM) for 137
trading days out of 299 trading days. RRM specifically that the
trading member crosses 90% of the available margin limit. That
means in a normal situation when margin can be utilised upto 40-
50%, ISSL allowed Allied to go upto more than 100% of margin
utilisation in multiple instances. During RRM period, TM (Allied)
could have only done immediate and cancel order, but he was allowed
to do trading further.
l. On 1st Jan 19, there was an email from ISSL stating that, on 28-dec-
18 terminal was disabled. Then how Allied was allowed to trade for
1000 Crs without sufficient margins."
13. Inter alia the complainant has submitted to the effect that on the
other hand, SEBI, upon completion of forensic audit conducted by it
in respect of transaction between ISSL/ Accused No.3 (where
Applicant/Accused No.4 was working as Business Head) and Allied/
Accused No.2, has also observed that ISSL/ Accused No.3 (where
Applicant/Accused No.4 was working as Business Head) has not only
actively participated in the fraud committed by Allied/Accused No.2
in respect of Securities belonging to the Complainant, but also
facilitated Allied/Accused No.2 in executing fraudulent transfer of
Securities belonging to Complainant in collusion with Accused No.l
and the Applicant herein. Consequently, SEBI has also issued a Show
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Cause Notice dated 09.12.2019 against ISSL/Accused No.3 (where the
Applicant/Accused No.4 was working as Business Head). It has
further been submitted by the complainant that SEBI has also taken
cognizance over the subject matter of unauthorized and fraudulent
transfer and pledging of stolen Securities of Complainant by the
Accused Persons which was reported by the Complainant vide its
complaint dated 08.02.2019.
14. The complainant has further submitted that SEBI while dealing
with similar facts arose in the matter of KARVY STOCK BROKING
LIMITED, SEBI (WTM / AB / SEBI / MIRSD / HO / 42 /2019-20)
vide its order dated 14.01.2020 held in para 11, which is reproduced as
under:
"11. Regarding pledging of securities of its fully paid
clients, a stock broker has no authority to pledge the
securities of its fully paid clients. If a stock broker
pledges securities of its fully paid clients, it amounts to
misappropriation of clients' securities by the stock
broker. Even if securities belonging to fully paid clients
are pledged by the stock broker, such pledge does not
pass any title to the pledge, as the stock broker in such
case himself/itself does not possess any title/right over
such securities. Thus, pledge of securities, belonging to
fully paid client, is not treated as valid pledge in law "
(Emphasis supplied)
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The complainant further submits that admittedly, it had only Demat
Accounts with Allied/Accused No.2 and had no trading account nor
any power of attorney was given by OCL & DCEL to Allied/Accused
No.2, and as such the case of Complainant is much stronger than in
KARVY STOCK BROKING LIMITED, wherein investors had
trading accounts and had also given power of attorney, which was
misused by the broker, while in the instant case, the Complainant had
only Demat Accounts with Allied / Accused No.2 and no trading
account and admittedly, no power of attorney was ever given by OCL
& DCEL to Allied / Accused No.2 in respect of such Demat Accounts.
It was thus submitted on behalf of the complainant that the fraudulent
transfer of Securities of Complainant from its Demat Accounts by the
Accused Persons to their own account and to their related entities is
illegal on the face of it.
15. It was further submitted by the complainant to the effect that the
accused no.1 in collusion and in conspiracy with the
Applicant/Accused No.4, had illegally, dishonestly and fraudulently
transferred the Securities from demat accounts of it erstwhile
Subsidiaries of the Complainant to their own account(s) and its related
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entities based on forged Delivery Instruction Slips and further,
fraudulently placed these Securities as collateral with ISSL/Accused
No.3 (where the Applicant/Accused No.4 was working as Business
Head) for meeting its own margin obligations in future and option
contracts without any consent, knowledge or mandate of the
Complainant, who neither issued any mandate for transfer of the
Securities nor received any consideration for such transfer thereof.
16. Inter alia the complainant has submitted that the FSL Report
filed along with the Charge Sheet, also confirmed that the signatures
of the authorized signatories of the Complainant on all sixty-six (66)
Delivery Instructions Slips are forged by Accused Persons which were
used by the Accused Persons for fraudulent transfer of Securities from
Demat Accounts of erstwhile subsidiaries of the Complainant to their
own account(s)/related entities and also fraudulently used the
Securities of the Complainant as their own margin money and further
received a sum of INR 380 Crores as premium and thus, the
Applicant/Accused No.4 along with other accused gained a sum of
INR 380 crores illegally and wrongfully by causing illegal and
wrongful loss to the Complainant to the tune of INR 344.07 Crores.
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The complainant has further submitted to the effect that the
applicant/Accused No. 4 and Accused No.l are the master minds in the
whole fraud committed by them just to cause gain each other
including their respective companies (Accused Nos. 1 & 3) illegally
and wrongfully by causing illegal and wrongful loss to the
Complainant to the tune of INR 344.07 crores.
17. The complainant has further submitted that ISSL/Accused No.3
(where Applicant/Accused No.4 was working as Business Head) had
also conducted its forensic audit through its own Forensic Auditor,
Grant Thornton, in respect of transaction between ISSL/Accused No.3
(where the Applicant/Accused No.4 was working as Business Head)
and Allied/Accused No.2. The Forensic Auditor, Grant Thornton, has
also reported several irregularities indicating collusion and conspiracy
between ISSL/Accused No.3 (where the Applicant/Accused No.4 was
working as business head) & Allied/Accused No.2. Consequently,
ISSL/Accused No.3 (where the Applicant/Accused No.4 was working
as Business Head) has been facing multiple investigations by various
authorities including SEBI, NSDL, EOW, SFIO etc. The complainant
has further submitted to the effect that SEBI, upon completion of
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forensic audit conducted by it in respect of the transaction between
ISSL/Accused No.3 (where the Applicant/Accused No.4 was working
as Business Head) and Allied/Accused No.2, has also observed that
ISSL/Accused No.3 (where the Applicant/Accused No.4 was working
as Business Head) has not only actively participated in the fraud
committed by Allied/Accused No.3 in respect of Securities belonging
to the Complainant but also facilitated Allied/Accused No.2 in
executing fraudulent transfer of Securities belonging to the
Complainant in collusion with Allied/Accused No.2 and thus, the
SEBI has also issued a Show Cause Notice dated 09.12.2019 against
ISSL/Accused No.3 (where the Applicant/Accused No.4 was working
as Business Head).
18. It is further contended on behalf of the complainant that the
applicant/accused no.4 is guilty of serious offences such as conspiring
in the commission of forgery for the purpose of cheating, and
commission of breach of trust by agent in respect of Complainant's
mutual fund units worth Rs. 344.07 crores entailing severe punishment
up to life imprisonment as prescribed under sections 409/467 IPC.
Inter alia the complainant has submitted that due to the complexity of
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transactions the role of other officials of ISSL/Accused No.3 including
Applicant/Accused No.4, NSDL and Allied/Accused No.2 are being
probed to unearth the amount of INR 380 crores received by them as
premium by fraudulently using the Securities of the Complainant as its
own margin money and as such investigation is pending qua them and
that there is every likelihood that the Applicant/Accused No.4 may
tamper with evidence, influence the witnesses and ultimately, may not
turn up to face the trial, if released' on bail as he is a permanent
resident of Ahmedabad, Gujarat. The complainant has further
submitted that it is a settled law that once the Applicant/Accused No.4
has been charge sheeted by the Respondent, and cognizance has also
been taken inter alia under Sections 409/467 IPC qua the
Applicant/Accused No.4, the Applicant/Accused No.4 cannot claim
entitlement of bail as a matter of right merely on the ground of being
not arrested by the Respondent during investigation.
19. The petitioner on the other hand through its written synopsis
dated 29.06.2020 submits that the charge sheet was filed without the
arrest of the applicant indicating thus, that there was no recovery and
discovery was required from him and that the status report submitted
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by the State also indicates that the applicant had joined the
investigation as and when required and thus there is no possibility of
the witnesses being influenced by the applicant as he has already left
the company i.e. the accused no.3 (IL & FS Securities Services
Limited- M/s ISSL) on 18.07.2019 and that there is not a whisper of a
single averment about the possibility of the applicant influencing the
witnesses and tampering with the documents in the status report
submitted by the State.
20. The applicant has further submitted that the trial has not yet
commenced and would take many years to conclude as there are as
many as 34 witnesses and documents running upto thousands of
pages. The applicant has further submitted that the charge sheet
reveals that all the main offences as to forgery, criminal cheating,
criminal misappropriation of mutual funds under Sections
406/420/467/468/471/120B of the Indian Penal Code, 1860 have been
committed by the accused nos. 1 & 2 i.e. M/s AFSPL and none of the
criminal offences have been committed by ISSL and the applicant.
21. Inter alia the applicant has submitted further to the effect that
M/s AFSPL further utilized the alleged mutual funds of the
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Complainant to avail margin to carry out future & option trades on
National Stock Exchange ("Exchange") by transferring them with
ISSL which in turn pledged the said units with National Clearing
Limited (" Clearing Corporation" ). It has been submitted by the
applicant that ISSL is a professional clearing member registered with
Clearing Corporation as well as SEBI, who settles the trade carried out
by the trading member on the exchange, whereas M/s AFSPL is a
trading member registered with exchange and SEBI. For ISSL, the
clients are the trading members with no knowledge about the end
clients of the Trading members. The applicant further submits that
ISSL had no knowledge about the background details of the collaterals
provided by the Trading Members to avail margin limits and that in
view of the relevant rules in existence, ISSL had no knowledge of the
end clients, i.e. the complainant in this case.
22. Furthermore, the applicant has submitted that no wrongful loss
has been caused to the Complainant as the mutual funds worth of Rs.
344.07 crores have been seized by the Police u/s 102 CrPC and no
corresponding gain has occurred to ISSL & the Applicant and that it is
ISSL which has suffered huge losses and has been the worst victim in
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the entire transaction as M/s AFSPL had already carried out the trade
on exchange by availing the margins and ISSL is no more in a position
to utilize the mutual funds to settle the trades of AFPSL with other
trading members because of the freezing order passed by the Police.
23. The applicant has further submitted that he was the Vice
President of the Business & Marketing team at ISSL during the period
of the alleged transaction. The applicant further submits that he was
merely a salaried employee of M/s ISSL and was never in charge of
the Operations and Compliance Team of ISSL. Inter alia the applicant
submits that the entire process of due diligence and KYC was
performed by Operation Team. The securities and mutual funds
operations as well as reporting to exchange was performed by the
Operation Team. The Applicant further submits that he had no access
to the collateral interface and exchange reporting module of ISSL. It is
submitted by the applicant that in emails, the Applicant only suggested
that intraday benefits should be extended to some clients as a part of
the business strategy, subject to the confirmation of the final decision
of the Operation Team of ISSL.
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24. Inter alia the applicant has submitted that vide its email dated
31.12.2018 he suggested that the ISSL should disassociate with its
Client i.e. M/s AFSPL and that ISSL learnt about the identity of the
end clients i.e. subsidiaries of Dalmia Cement (Bharat) Limited on
28.12.2018 when M/s AFSPL sought release of the mutual funds of
the Complainant from ISSL.
25. The applicant has further submitted that he satisfies the
TripleTest- of not being a Flight risk, of there being no scope of
tampering of evidence and Influencing the witnesses at his end- as laid
down by the Hon'ble Supreme Court in P. Chidambaram v. ED
(Criminal Appeal no.1831/2019) as well as the basic principles of
grant of bail after the submission of the charge-sheet, that the grant
thereof must be a norm not an exception as propounded in Sanjay
Chandra v. CBI (2012) 1 SCC 40.
26. The applicant has further submitted that the dictum of the
verdict of Lt. Gen. Tejinder Singh V. CBI 2014 SCC Online Del
4560 which categorically holds that if the charge-sheet is filed without
arrest and the accused appears in compliance of the summons, the Ld.
Court has no other option except to release the Accused on bail
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irrespective of the fact that he files a bail application or not is wholly
applicable to the case.
27. The applicant has thus sought that he be allowed to be released
on bail subject to conditions as may be imposed as deemed fit by the
Court.
ANALYSIS
28. It is essential to observe that the applicant was in a fiduciary
capacity and has allegedly committed gross breach of trust in relation
thereto in alleged connivance with other co-accused persons of an
alleged amount of INR 344.07 crores, and it has to be taken into
account the factum that the complainant is a public limited company,
and that the members of the public have also consequently been
allegedly defrauded of the amount of INR 344.07 crores by alleged
fraudulent use of the mutual funds units of the complainant of INR
344.07 Crores by the accused persons inclusive of the applicant
arrayed as the accused no.4 by inter alia creation of 350 shell
companies.
29. It is also essential to advert to the show cause notice issued by
the SEBI dated 09.12.2019 as issued to IL & FS Securities Services
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Limited i.e. ISSL arrayed as accused no.3 of which the applicant was
working as a business head. The investigation conducted by the SEBI
making the reference to the Grand Thornton Forensic Audit Report
which audit was conducted to look into the dealings of ISSL i.e. the
accused no.4 with AFSPL i.e. the accused no.2, the SEBI obtained the
copy of NSE Clearing Limited's Inspection Report with respect to
ISSL's functioning as a clearing member and the said investigation
inter alia is stated to have revealed to the effect:-
"a. There were certain irregularities while on boarding AFSPL by
ISSL. The said irregularities were regarding the audited financial
statements submitted by AFSPL to ISSL (different CA certificates with
different financial statements mentioning different shareholding
patterns were submitted to ISSL and MCA/NSE by AFSPL), anomalies
noted in the KYC pertaining to a question regarding existing
relationship of AFSPL with IL&FS Group, anomalies noted regarding
income mentioned in the KYC provided by AFSPL, ISSL ignoring
significant unusual increase in the asset size of AFSPL during FY
2017-18 and AFSPL having multiple doubtful transactions with
related parties where the recovery was doubtful. In terms of
regulations 11.3.1 of Chapter 11 of NCL F&O Regulations, a
Clearing Member is required to do proper due diligence when
establishing a relationship with a new client. Also, clearing members
must take reasonable steps to assess the background, genuineness,
financial soundness of such person and his objectives, which was not
done in the instant case. In view of the aforesaid, prima-facie, non-
compliance with respect to carrying out proper due diligence was
observed when ISSL established relationship with AFSPL which has
allegedly resulted in violation of clauses A (2) & A (5) of the code of
conduct as specified in Schedule li of Regulation 9 (f) of SEBI (Stock
Brokers) Regulations, 1992, read with regulation 10 F of SEBI (Stock
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Brokers) Regulations, 1992 and Regulation 11.3 .1 of Chapter 11 of
NCL F&O Regulations.
b. There were 4 instances where collateral was released by ISSL to
AFSPL without corresponding reduction in exposure/margin
requirements. The aforesaid instances of release of collaterals over
weekends were unusual. The said release of collateral by ISSL helped
AFSPL to make Dalmia Group believe that their MF units were intact
in their respective demat accounts. Details of which are as under:
Da Total Cash Securities MF Total Shortfall
te Margin Amount Collateral on
Released Saturday
and
Sunday
30 1,81,27,20 71,62,00,0 3,40,27,11,2 3,29,62,41 82,26,69, 99,00,50,5
- ,261.54 00.00 66,266.92 ,561.48 705.44 56.1 0
De
c-
31 1,81,27,20 71,62,00,0 3,40,27,11,2 3,29,62,41 82,26,69, 99,00,50,5
- ,261.54 00.00 66,266.92 ,561.48 705.44 56.1 0
De
c-
31 3,25,99,58 1,00,30,00 3,50,79, 3,35,05,98 1,16,03,17 2,09,96,40
- ,458.67 ,000.00 16,668.34 ,756.50 ,911.85 ,546.82
M
ar-
01 3,25,99,58 1,00,30,00 3,50,79, 3,35,05,98 1,16,03,17 2,09,96,40
- ,458.67 ,000.00 16,668.34 ,756.50 ,911.85 ,546.82
Ap
r-
It was also observed that intra-day limits provided by ISSL to AFSPL
were enhanced without sufficient collateral inflow (naked benefit) and
were reduced at end of the day. During July 02, 2018 to December 27,
2018, there were 65 instances/trading days where total amount of
intraday benefit extended to AFSPL by ISSL amounted to Rs. 2417.87
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crores. The same had resulted in increased risk for ISSL In view of the
same, it is alleged that there was a failure to collect margin by ISSL
from AFSPL in accordance with Regulation 4.5.1 of NCL Regulations
(F&O segment). In view of the aforesaid, primafacie, non-compliance
by ISSL with respect to collection of margin was observed which is in
violation of clauses A (2) & A (5) of the code of conduct as specified
in Schedule II of Regulation 9 (f) of SEBI (Stock Brokers) Regulations,
1992, read with regulation 10 F of SEBI (Stock Brokers) Regulations,
1992 and Regulation 4.5.1 of Chapter 4 of NCL F&O Regulations
(F&O segment).
c. ISSL opened trading terminal for AFSPL and allowed them to roll
over their position during January 2019, specifically after the
termination notice was issued to AFSPL by ISSL. In terms of Bye-Law
3 of Chapter IX of NCL (F&O Segment) Bye-Law, ISSL had the option
to close-out the positions in the month of January 2019 after failure by
AFSPL to pay the margins. Therefore, ISSL by allowing AFSPL to roll
over their position even after termination of their contract has prima-
facie violated clauses A (2) & A (5) of the code of conduct as specified
in Schedule II of Regulation 9 (f) of SEBI (Stock Brokers) Regulations,
1992 read with regulation 10 F of SEBI (Stock Brokers) Regulations,
1992 and Bye-Law 3 of Chapter IX of NCL (F&O Segment) Bye-Law.
d. Inter Corporate Deposits (ICDs), interest on ICDs, loan to IL&FS
Employee welfare trust, interest on loan, sundry debtors were not
considered under the header "doubtful debts and advances" for
calculation of networth by ISSL. Instances of the same are as under:
S.No. Particulars
1. Networth as on September 30, 2018 after deducting ICDs, interest
on ICDs, loan to IL&FS Employee welfare trust, Interest on Joan,
Impact of lnd AS and Sundry Debtors of Rs. ( 154.06) Cr, Networth
as on September 30, 2018 is 53 .0 I Cr. as against Nerworth
submission of member of Rs. 207.07 Cr
2. After deducting ICDs amounting toRs. 750 Cr, Networth as on
March 31,2018 is (573 .01) Cr as against Networth submission of
member ofRs. 176.99 Cr.
If ISSL had duly considered the aforesaid ICDs under the head
doubtful debts and advances, it would have revealed the shortfall in its
networth and thereby resulting into noncompliance of Rule 12 of
Chapter IV of The Rules of NSE Clearing Limited. Since, ISSL has
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failed to meet the requirement of minimum networth, the same is
prima-facie in violation of clauses A (2) & A (5) of the code of conduct
as specified in Schedule II of Regulation 9 (f) of SEBI (Stock Brokers)
Regulations, 1992, read with regulation 1 OF of SEBI (Stock Brokers)
Regulations, 1992 and Rule 12 of Chapter IV of The Rules of NSE
Clearing Limited.
e. The aforesaid actions/lapses of the Noticee has allegedly facilitated
AFSPL in executing the fraudulent transfer of mutual funds units from
the account of DCEL, OCL and NEPL. Therefore, it is alleged that the
Noticee has violated Regulation 3(a) and 4(1) of SEBI (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 2003 (PFUTP Regulations).",
that the applicant herein was the business head of accused no.3 i.e.
ISSL, cannot be overlooked presently and that he was also the Chief
Business Statutory Officer of IL & FS Securities Services Limited and
suggested that intra day benefits be extended over and above available
collaterals to some selected client which resulted in facilitation to
AFSPL with it having also been inter alia brought forth through the
Grand Thornton Forensic Audit Report that the applicant potentially
changed the data which was sent to the Exchange as well as to the
Bank and sent the data to the Exchange without reducing the
collaterals value in potential violation of the Exchange Rules and
being the Chief Business Statutory Head and responsible for the
company in connivance with AFSPL facilitated the AFSPL to commit
fraudulent transfer of the mutual funds units.
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30. Taking the said aspect into account and the factum that the
applicant is alleged to have committed an economic fraud which
affects the moral fabric of society, coupled with the factum that
economic offences corrode the very fabric of democratic governance
and probity in public life and are considered to be the gravest offences
against the society and the persons alleged to have committed such
offences are necessarily required to be treated differently in the matter
of bail despite the submission made on behalf of the petitioner placing
reliance on the verdict of his Court in Tejinder Singh (supra) with
specific observations therein in paragraph 20(v) which reads to the
effect:-
"20. (v) The Court shall on appearance of an accused
in non bailable offence who has neither been arrested
by the police/Investigating Agency during investigation
nor produced in custody as envisaged in Section 170,
Cr.P.c. call upon the accused to move a bail
application if the accused does not move it on his own
and release him on ball as the circumstance of his
having not been arrested during investigation or not
being produced in custody is itself sufficient to entitle
him to be released on bail. Reason is simple. If a
person has been at large and free for several years and
has not been even arrested during investigation, to
send him to jail by refusing bail suddenly, merely
because charge-sheet has been filed is against the
basic principles governing grant or refusal of bail.",
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which is reiteration of observations of this Court in "Court on its own
motion Vs. CBI" 109 (2003) DLT 4944, it is essential to observe that
what is brought forth through the observations therein is to the effect
that merely because a person who was not arrested by the police or
Investigating Agency during investigation nor produced in custody as
envisaged in Section 170 of the Cr.P.C., 1973 ought not to be taken
into custody merely because the charge sheet has been filed, the same
however, does not spell out an embargo on the Court to reject a prayer
made for bail by such an accused not arrested during investigation or
not produced in custody, to be taken into custody in the circumstances
where the facts of a case as alleged bring forth the gravity and
magnitude of the alleged commission of an offence and consequently
negate the grant of bail.
31. To similar effect are the observations of the Hon'ble Supreme
Court in "CBI Vs. Ramendu Chatupadhyay" in CRL.A.1711/2019.
32. In the circumstances, the cases relied upon on behalf of the
petitioner are distinguishable from the facts and circumstances of the
instant case.
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33. As regards the contention raised on behalf of the petitioner that
the petitioner falls within the ambit of the minutes of the Hon'ble High
Powered Committee of this Court dated 18.05.2020, it is essential to
observe that offences investigated by EOW have been specifically
kept out of the domain of consideration of grant of even interim bail
and vide the verdict of this Court in W.P.(Crl.)841/2020 a verdict
dated 10.08.2020 titled as "Malvinder Mohan Singh Vs. State &
Anr.", the prayer made therein seeking the quashing of the minutes of
the Hon'ble High Powered Committee of this Court dated 18.05.2020
which excluded the persons falling within the category of cases
investigated by CBI/ED/NIA/Special Cell Police/Terror related cases
under anti national activities and unlawful activities, was declined
whilst upholding the minutes of the Hon'ble High Powered
Committee of this Court declining to consider the persons committing
the offences alleged to be accused in cases which investigated by
Special Agencies for grant of consideration of interim bail, was
upheld.
34. As regards the contention raised on behalf of the petitioner that
the petitioner was not a flight risk and there is no scope of his
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tampering evidence and influencing the witnesses, the same per se
does not suffice to grant bail to the applicant in view of the magnitude
of the alleged commission of breach of fiduciary trust placed. In the
circumstances the bail application filed by the applicant seeking the
grant of regular bail is rejected and as regards the prayer made by the
applicant seeking the grant of interim bail for the reasons that his wife
is unwell, it cannot be overlooked that the proceedings in the present
application are pending since institution in June 2020 and apparently
there is no urgency qua the treatment of the applicant's wife required.
35. Furthermore, on behalf of the applicant, the prayer made
initially seeking the grant of interim bail has expressly during the
course of the proceedings on 15.06.2020 was not sought to be pressed.
CONCLUSION
36. The bail application in the circumstances is dismissed.
37. Nothing stated hereinabove shall however amount to any
expression on the merits or demerits of the case.
ANU MALHOTRA, J.
DECEMBER 01, 2020
'neha chopra'
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