Madras High Court
Lia Gagrat vs State Represented By on 6 January, 2025
Author: N.Seshasayee
Bench: N.Seshasayee
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 18.12.2024
Pronounced on : 06.01.2025
CORAM : JUSTICE N.SESHASAYEE
Crl.R.C.Nos.1968, 1969, 1970, 1971, 1972, 1973, 1974, 1977, 1979,
1980, 1981, 1982, 1983, 1984, 1985, 1986, 1988 & 1989 of 2023
and
CMP.Nos.18357, 18358, 18359, 18360, 18362, 18363, 18364,
18365, 18366, 18367, 18368, 18369, 18370, 18371, 18382,
18383, 18385, 18388, 18396, 18398, 18399, 18400, 18401,
18402, 18403, 18404, 18405, 18406, 18407, 18408, 18409, 18410,
18414, 18416, 18418 and 18419 of 2023
1.Lia Gagrat ... Petitioner in Crl.RC.Nos,1968, 1969, 1970, 1971,
1972, 1973, 1974, 1977, 1979 of 2023
2. Farah Bakshay ... Petitioner in Crl.RC.Nos.1980, 1981,1983, 1982
1984, 1985, 1986, 1988, 1989 of 2023
Vs
State Represented by
The Inspector of Police
Central Bureau of Investigation
Bangalore. .... Respondent / Complainant
1/40
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
Petitioner Crl.R.C. Common Prayer
Name Nos.
Lia Gagrat 1968, 1969, Criminal Revisions filed under Section 397 r/w. 401
1970, 1971, Cr.P.C., to set aside the order made in Crl.MP.Nos.
1972, 1973, 2175, 2169, 2183, 2181, 2167, 2171, 2177, 2179 &
1974, 1977, 2173 of 2019 dated 26.05.2023 respectively by the
1979 of learned Additional Chief Metropolitan Magistrate,
2023 Egmore, Chennai-8, and discharge the petitioner from
the case in C.C.Nos. 8409 of 2018, 8030 of 2018,
4239 of 2019, 4238 of 2019 , 7756 of 2018, 8031 of
2018, 279 of 2019, 4237 of 2019 and 8408 of 2018.
Farah 1980, 1981 Criminal Revisions filed under Section 397 r/w. 401
Bakshay 1982, Cr.P.C., to set aside the order made in Crl.MP.Nos.
1983, 2174, 2166, 2176, 2168, 2170, 2178, 2172, 2182 &
1984, 2180 of 2019 dated 26.05.2023 respectively by the
1985, learned Additional Chief Metropolitan Magistrate,
Egmore, Chennai-8, and discharge the petitioner from
1986,
the case in C.C.Nos.8409 of 2018, 7756 of 2018,
1988, 1989 8030 of 2018, 279 of 2019, 8031 of 2018, 4237 of
of 2023 2019, 8408 of 2018, 4239 of 2019 and 4238 of 2019.
For Petitioners : Mr. N.L.Rajah, Senior Advocate
Assisted by Ms.Jayanthi Shah
For Respondent : Mr.Srinivasan
Senior Counsel &
Special Public Prosecutor for CBI
2/40
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
COMMON ORDER
A broad opening statement may be made. The petitioners herein are sisters, and
are daughters of a certain Farouk Irani. He was the Managing Director of
M/s.First Leasing Company of India Ltd., (FLCIL), and he along with few
others, while in the management of the affairs of the company, are alleged to
have manipulated the accounts of the company and diverted the public deposits
made by the general public for their personal benefit of the company. In all
nine cases were registered. After investigation into the allegations the CBI had
filed its final reports implicating the petitioners of committing offences under
Sec.120-B r/w 201, 409, 420, 468 471, and 477A IPC.
1.2 The petitioners individually have taken out separate petitions before the trial
court in each of the nine cases under Sec.239 Cr.P.C, for discharging them.
They came to be dismissed by separate Orders in all the nine cases, dated
26.05.2023. Challenging these Orders, the petitioners have preferred these
revisions.
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
FACTS
2. The facts are as below:
a) M/s.First Leasing Company of India Limited (FLCIL), the Accused
No.1 in all the nine cases was engaged in the business of lease finance;
Hire purchase; General purpose loan to corporates; and re-financing of
hire purchase loan on old assets. The Company is now under
liquidation.
b) Broadly the business of FLCIL was leasing and hire-purchase of
capital assets. It enables its customers who enter into Hire Purchase
Agreements with it to pay the cost of the fixed assets on instalment
basis, and FLCIL would transfer ownership of the said asset to the
lessee thereof on payment of the last instalment. M/s.FLCIL, for its
business purposes, approached the banks for finance against the value
of stock and the lease rentals receivable by it from those whom it had
financed under Leasing and Hire Purchase agreements.
c) On account of the huge exposure of the credit limits and consideration
of various factors, including the norms of the various banks in the
consortium, a Steering Committee consisting of few banks, who have
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
substantial exposure in the consortium, was put in place.
d) The Company being a Non-Banking Financial Company (NBFC) was
subjected to inspection by the RBI. And, between 02.04.2008 and
04.07.2013, FLCIL was stated to be performing creditably.
e) Inspections were carried out by the Consortium bankers periodically.
i.e. quarterly on a rotation basis. Since FLCIL is a non-banking
financial institution, it is subjected to the scrutiny of the RBI.
f) Be that as it may, on 13.09.2013, RBI directed that the business
activities of the company be frozen until further orders. In essence, it
directed FLCIL not to alienate or encumber its property and assets
without prior written permission of RBI; not to declare or distribute
any dividend; transact any business; or incur any further liabilities.
g) Consequent to the RBI’s press release, a consortium meeting was
called on. Mr.Farouk Irani, MD (A-2) informed that the assets creation
was not in line with the liabilities taken by the Company; not enough
income generation to meet the repayment of dues, and that the loans
obtained by FLCIL from the banks were used to service the interest
payable on earlier loans, income tax and sales tax and salary to staff
etc. In short bad time struck the company very badly.
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
h) Thereafter, the RBI had appointed M/s. N.C.Rajagopal & Co.,
Chartered Accountants, Chennai to carry out a special audit. This was
followed by a forensic audit at the instance of the Consortium of
banks. The forensic Auditor submitted a preliminary report on
15.02.2014 and a final report on 28.05.2014. The quintessence of the
report is that FLCIL had been showing inflated income and assets in
the financial statements by creating unsubstantiated entries in the
books of accounts since 1998, and that most of the loans advanced by
it were fictious and the borrowers did not have any income but had
only passed book entries showing fictitious income through which
process non- existing assets were created.
i) The findings which later formed the basis for the accusation was that
FLCIL, its directors and others had cheated the bank by submitting
documents derived by fraudulent means and manipulating them for
availing credit limits from the Bank, that on 28.12.2013, the loans
which FLCIL had availed from the banks had become NPA, and the
banks suffered a total loss of about Rs.1,000 crores.
j) Promptly nine banks preferred separate complaints with the CBI, and
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
that had led to the registration of 9 cases. The FIR in each of the cases
arrays several individuals and companies as accused persons. Farouk
Irani, the Managing Director of FLCIL, his wife along with their two
daughters, the petitioners herein, were also arrayed as accused persons.
3. To complete the narration, it may be stated that, treating the above batch of
nine cases as predicate offences, Enforcement directorate has registered its own
cases under the provisions of Prevention of Money Laundering Act. In these
cases the petitioners are not arrayed as accused persons.
4. The CBI has since completed its investigation and laid its final reports in
each of the 9 cases before the Additional Chief Metropolitan Court, Chennai,
suggesting the commission of offences u/s 120B r/w. 201, 409, 420, 468, 471,
477A of IPC. And, the petitioners herein were also implicated in each of the
final-reports. The details of the reports along with details of case, ranking of the
accused, discharge petition and corresponding Revision petitions are as follows:
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
Rank of Discharge C.C.No. / Amount Criminal
the Petition No. Bank Name defrauded as Revision
Accused accused per charge Petition No.
sheet
( Rs. in crores)
(1) (2) (3) (4) (5) (6)
23 2167 / 2019 7756 / 2018 273.99 1972 of( 2023
(IDBI Bank Ltd.)
26 2169 / 2019 8030 / 2018 248.46 1969 of 2023
(State Bank of
India)
26 2171 / 2019 8031 / 2018 35.36 1973 of 2023
(Bank of
Maharastra)
25 2173 / 2019 8408 / 2018 44.80 1979 of 2023
(Canara Bank)
25 2175 / 2019 8409 / 2018 142.94 1968 of 2023
Lia Gagrat (UCO Bank)
25 2177 / 2019 279 / 2019 24.80 1974 of 2023
(Vijaya Bank)
24 2179 / 2019 4237 / 2019 77.74 1977 of 2023
(State Bank of
Mysore – Now
SBI)
24 2181 / 2019 4238 / 2019 102.00 1971 of 2023
(Syndicate Bank)
24 2183 / 2019 4239 / 2019 112.00 1970 of 2023
(State Bank of
Travancore)
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
Amount
defrauded
Rank of as per Criminal
Name of the Discharge C.C.No. /
the charge Revision
accused Petition No. Bank Name
accused sheet Petition No.
( Rs. in
crores)
22 2166 / 2019 7756 / 2018 273.99 1981 of 2023
(IDBI Bank Ltd.)
25 2168 / 2019 8030 / 2018 248.46 1983 of 2023
(State Bank of
India)
25 2170 / 2019 8031 / 2018 35.36 1984 of 2023
(Bank of Maharastra)
24 2172 / 2019 8408 / 2018 44.80 1986 of 2023
(Canara Bank)
24 2174 / 2019 8409 / 2018 142.94 1980 of 2023
Farah (UCO Bank)
Bakshay 24 2176 / 2019 279 / 2019 24.80 1982 of 2023
(Vijaya Bank)
23 2178 / 2019 4237 / 2019 77.74 1985 of 2023
(State Bank of
Mysore – Now SBI)
23 2180 / 2019 4238 / 2019 102.00 1989 of 2023
(Syndicate Bank)
23 2182 / 2019 4239 / 2019 112.00 1988 of 2023
(State Bank of
Travancore)
5.1 In the present batch of 9 + 9 cases, the prosecution has made identical
allegations against the revision-petitioners - a literal cut-copy-paste of one set of
accusation replicating into additional 8. The specific allegation in the final
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
report (running to several pages) attributable to the petitioners is now
reproduced. Since they are identical in all the nine cases, reference is made to
paragraphs 50 to 53 of charge sheet in C.C.No.8030/2018 to which are related
Crl.R.C.No.1969 of 2023 and Crl.R.C.No.1983 of 2023. It is as below:
“50. That the employees working for M/s. FLCIL (A-3), who
were pawns in the hands of Shri Farouk Irani (A-2), were made
Directors of these Satellite Companies and were rotated on
time to time from one Satellite Company to another. The
employment of most of the workers of M/s.FLCIL was shown in
one of these satellite companies. That Shri Farouk Irani (A-2)
himself signed appointment letters in respect of many such
employees giving them appointments in satellite companies.
That all the affairs of these satellite companies were managed
from the office of M/s.FLCIL office and the company seals for
all these satellite companies were held securely in M/s. FLCIL
Office. Over the years, by the end of FY 2003-04, these
Satellite Companies acquired almost 26% shares of M/s.FLCIL
(A-3) and for the purchase of the shares M/s.FLCIL gave
unsecured loans to these Satellite Companies, obviously out of
the loan funds availed from the Banks, thus amounting to
cheating and diversion of Bank Loan funds. That by
circumventing RBI Guidelines regarding accounting &
provisioning of NPA Accounts and to project rosy picture of its
financial health, M/s.FLCIL (A-3) transferred Receivables
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
aggregating to Rs.50-60 crores (approx.,) during 1998-99 to
their Satellite Companies and thus avoided showing loss in the
annual returns of the company. That by effecting such
manipulation and falsification in the books of accounts of
M/s.FLCIL (A-3), the accused persons fraudulently showed
(false) rosy picture of the company to various Banks, Investors,
RBI, SEBI and other agencies. Moreover, for purchase of
these NPAs of M/s.FLCIL (A-3), money was provided to
Satellite Companies by M/s.FLCIL (A-3) only and again out of
loan funds availed from various Banks including State Bank o
India, thus amounting to cheating and diversion of Bank Loan
Funds. The register maintained by M/s.FLCIL (A-3) U/s.370 &
372 of Companies Act 1956 for showing the loans granted to
the companies under the same management, the details of the
abovesaid loans granted by M/s.FLCIL (A-3) to the Satellite
Companies viz., Name of the Satellite Company, Date &
Amount of Loan etc., are recorded along and this register is
signed by Shri A.C.Muthiah (A-1) and Shri Farouk Irani (A-2)
which establishes that both of them were party to this
conspiracy hatched for cheating the banks by floating Satellite
Companies effecting manipulation of books of accounts of
M/s.FLCIL (A-3) using these Satellite Companies.
51. That the aforesaid Satellite’ Companies were also used for
the personal monetary | benefit of. Shri Farouk Irani (A-2) and
his wife Smt. Sherna Irani (A-24). The said Satellite Companies
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
were used for purchase: of high-end (used) cars in the name of
Shri Farouk Irani (A-2) for office use, for hiring-of Shri Farouk
Irani's Mumbai property by M/s. FLCIL (A-3), for receipt of
security deposit and rent from the tenant i.e. M/s FLCIL (A-3)
and for providing loans to Shri Farouk Irani (A-2) at
concessional rate of 3% with repayment period of 15 years etc.
That during early 2007, the property bearing Door No.16 (Old
Door 50), Moore. Street, George Town, Chennai-1, owned. by
Smt. Sherna Irani (A-24) was first shown to be sold to M/s.
Congruent Real Estates Pvt. Ltd, (one of the satellite companies
‘of M/s.FLCIL) for Rs.1 Crore. For making this payment of
Rs.1 Crore to Smt. Sherna Irani (A-24) the required funds were
provided to M/s.Congruent Real Estates Pvt. Ltd. by M/s.
FLCIL (A-3) through another Satellite Company namely M/s.
Thirimoorthy Financial Services Pvt. Ltd. Moreover, the loss
stated to be on account of this transaction was finally written
off as loss in the books of M/s. FLCIL (A-3) after 5 years of this
transaction. That the fund trail carried out in the accounts of
the Satellite Companies held with 5 different banks namely
Vijaya Bank, State Bank of India, Axis Bank, Catholic Syrian
Bank and Karur Vysya Bank; shows huge amount of fund
transfers between M/s. FLCIL and the Satellite Companies and
also within the satellite companies which establishes that the
accused Directors of M/s FLCIL(A-3) with criminal intention to
cheat the bank, used the Loan funds availed from the Banks for
the above manipulative purposes which amounted to diversion
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
of loan funds.
52. That Farouk Irani (A-2), the then Managing Director,
M/s.FLCIL (A-5), his wife Smt.Sherna Irani (A-24) and
daughters Smt.Farah Bakshey (A-25) and Smt.Lia Gagrat (A-
26) made investments in M/s.FLCIL (A-3) through an internal
account termed as “FACTORS” maintained in the books of
M/s.FLCIL (A-3) wherein transactions in the nature of Bills Re-
discounting (bogus), Investment Certificate and Current
Account transactions were made and they earned wrongful
gains by way of undue higher return/interest on the funds
invested by them. The said investments were for short durations
and they were continuously being renewed on maturity by
passing book entries in the books of M/s.FLCIL without any
corresponding transaction (deposit/withdrawal) in respective
Bank Accounts of M/s.FLCIL. That on the bogus Bill
rediscounting transactions an upfront interest rate ranging
from 12.50% p.a. to 15.00% p.a. was being charged by
Shri.Farouk Irani (A-2) and Smt.Sherna Irani (A-24) on
quarterly basis whereas the public depositors were paid an
interest rate of maximum 10% during the relevant period.
That it is clearly established that the Bill Re-discounting shown
against various firms including M/s.Hatsun Agro Products Ltd
are artificial and bogus.
53. That during the years 2010-2013, Shri Farouk Irani (A-2),
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
Smt.Sherna Irani (A-24), Smt.Farah Bakshey (A-25) and
Smt.Lia Gagrat (A-26), withdrew all their investments made in
M/s.FLCIL (A-3) through FACTOR Account along with
wrongful interest earned thereon and placed the same in
various fixed deposits held in their names at different banks.
The major amount of sum was deposited in the Fixed Deposits
opened in the names of Smt.Farah Bakshey (A-25) and
Smt.Lia Gagrat (A-26). Subsequently, after closing various
fixed deposits more than Rs.20 crores each was transferred to
the Bank Accounts of Smt.Farah Bakshey (A-25) and
Smt.Lia Gagrat (A-26) maintained with Bank of Baroda, Worli
Branch, Mumbai and Dena Bank of Worli Branch, Mumbai
respectively. Meanwhile, Smt.Farah Bakshey (A-25) and Smt.
Lia Gagrat (A-26), in criminal conspiracy with Shri Farouk
Irani (A-2), Smt.Sherna Irani (A-24) and others, opened a
trust namely “IRANI FAMILY MAINTENANCE TRUST”
for the benefit of Shri.Farouk M.Irani (A-2) and Smt.Sherna
Irani (A-24) by executing a Trust Deed on 23.03.2014 at
Mumbai and got it registered with the Department of Inspector
General of Registration, at BBE3 Joint Sub Registrar Mumbai,
City3, Mumbai. Subsequently, a current account in the name of
IRANI FAMILY MAINTENANCE TRUST was opened by
Smt.Farah Bakshey (A-25) and Smt.Lia Gagrat (A-26) at
Lakshmi Vilas Bank, Andheri East Branch, Mumbai.
Thereafter, a sum of Rs.20 crores each from the bank accounts
of Smt.Farah Bakshey (A-25) and Smt.Lia Gagrat (A-26)
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
maintained with Bank of Baroda, Worli Branch, Mumbai and
Dena Bank of Worli Branch, Mumbai respectively, was
transferred to the Account No.0176360000000330 of Lakshmi
Vilas Bank, Andheri East Branch, Mumbai and from the said
amount and other diversions fixed deposits were opened in the
name of IRANI FAMILY MAINTENANCE TRUST. Thus it
is established that Smt.Farah Bakshay (A-25) D/o.Shri Fraouk
M.Irani (A-2) and Smt.Lia Gagrat (A-26) D/o.Shri Farouk M
Irani (A-2) conspired with Shri Farouk M Irani and others and
opened a trust namely 'IRANI FAMILY MAINTENANCE
TRUST' for the benefit of Shri Farouk M Irani (A-2) and
Smt.Sherna Irani (A-24) and diverted huge amount from the
Accounts of M/s.FLCIL as unlawful benefits on FACTOR
Account to their own accounts and finally divered the huge sum
(more than Rs.40 crores) by opening various Fixed Deposits in
the name of “IRANI FAMILY MAINTENANCE TRUST”.
5.2 The Prosecution case can be easily explained through a flow chart which the
Enforcement Directorate has prepared (whose correctness the CBI does not
question) and is as below:
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
5.3 To substantiate its accusation, the prosecution relies on The Special Audit
Report, Forensic Audit Report, and statements of five witnesses namely: (i)
Victor Zacharias Victor, the former Assistant Vice President of FLCIL, (ii) V.
Lakshmanan, the former Manager of FLCIL, (iii) Madanlal, the then Manager of
Dena Bank, (iv) Chandran, Branch Manager of M/s Lakshmi Vilas Bank Ltd.,
and (v) Kamatham Thiripalaiah, the then Senior Manager of Bank of Baroda.
6.1 As stated in paragraph 1.2 above, the petitioners have preferred separate
petitions before the trial court for discharging them. Broadly their contentions
are that the complainant banks' accusation is pivoted on the way FLCIL had
operated, and how it inflated its assets, borrowed loans from these banks, and
how it diverted the loan amounts so borrowed etc through manipulations of
books of accounts, these are all internal to the functioning of FLCIL and might
have happened at the management level, and that the petitioners are not part of
the corporate structure of FLCIL and that they never had any occasion to be part
of the management of the company for them to even to gain an opportunity to sit
and conspire with those in the management of the affairs of the company, and
except being the daughters of the Managing Director of FLCIL, there is nothing
to incriminate or implicate the petitioners in the cases.
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
7. This plea however, was not accepted by the trial court, as it found that the
issues raised by the petitioners are fundamentally triable. Hence its Order is
now under challenge in this batch of revisions.
Arguments:
8.1 Arguing for the revision-petitioners, Mr. N.L Rajah, Senior Advocate, made
the following submissions:
a) If the accusation of the prosecution is dissected, it only discloses that
➢ The petitioners made investments in FLCIL through an internal
account termed as ‘FACTORS’ maintained in the books of First
Leasing Company of India Limited and derived unlawful monetary
gains in the form of dividends on false profits of FLCIL.
➢ The petitioners, in furtherance of criminal conspiracy, withdrew
their investments made in FLCIL through ‘FACTORS” account
along with wrongful interest earned.
b) Higher rate of interest was given for the deposits they had made, that they
had opened accounts into which their parents had transferred their funds,
which were later converted into fixed deposits, that the fixed deposits
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
were subsequently closed and the amounts in these accounts later were
transferred to a Family Maintenance Trust in which only the parents of the
petitioners were the beneficiaries. What is required to be noted are:
➢ The alleged payment of higher rate of interest to the deposits of the
petitioners, even it is presumed to be true, is the decision of the
management of FLCIL and the petitioners can never be responsible
for it. At the relevant time petitioners were in their mid-20s,
unmarried, and dependent on their parents. The money invested
belonged to parents, the interest given was by FLCIL, and in none
of them the petitioners had a role. Indeed, it is not even the
prosecution’s case that the petitioners had any specific role in it.
➢ The fact that the petitioners were given higher rate of interest for
the deposits made in their names, does not constitute an offence,
and at any rate, the petitioners are not responsible for it.
➢ Turning to opening of accounts by the petitioners is concerned, it is
not a crime to open bank accounts. That the parents had
transferred funds into the accounts of the petitioners so opened also
is not a crime. It might be that such amounts transferred to the
newly opened accounts of the petitioners by their parents constitute
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
proceeds of crime, assuming it is, but such proceeds of crime are
generated by those in the management of the FLCIL in which the
petitioners have no role. Indeed, the nine cases registered by the
CBI at the instance of nine banks pertain to what had happened
inside FLCIL and not how after making wrongful gains those who
might be responsible for it have diverted such proceeds of crime.
➢ Assuming that the amounts transferred to the savings bank account
in two banks opened by the petitioners from their parents' accounts
constitute proceeds of crime, then petitioners as daughters of the
Managing Director of FLCIL had little to suspect it. Here the
prosecution has not produced any material how and with whom the
petitioners have conspired with which led to the bank suffering
wrongful loss.
c) Neither the Special Audit Report (constituted by the RBI), nor the
Forensic Audit Report (constituted by the consortium of banks) have
either named the petitioners or attributed any specific overt acts to
implicate the petitioners in these cases, nor has the prosecution explained
how despite these audit reports not making any reference to the petitioners
except as depositors along with few hundred depositors are responsible
https://www.mhc.tn.gov.in/judis
Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
for bank suffering wrongful loss.
d) The petitioners never had any connection whatsoever with the
management of FLCIL in any capacity, and it is not even the case of the
prosecution. The petitioners were never involved, either in the
management or in the decision-making process of First Leasing Company
of India Limited at any point of time. Even according to the CBI, accounts
were fudged and camouflaged by the persons belonging to the accounts
department of the FLCIL and the petitioners did not have control over
them. They had neither represented FLCIL, nor had signed in any
documents on its behalf.
e) The case of the Prosecution is that only Mr. Farouk Irani MD (A-2) along
with Mr. Dilli Raja (A-8) along with A9 had conspired together from the
beginning by manipulating the records and further it was also alleged by
the Prosecution in its final report that no other officials had any control
and powers over financial transactions of the Company except Mr.Farouk
Irani (A-2) himself. The Prosecution ought not to have come to
conclusion that the Petitioner was a party to the alleged offences
committed by the management of the Company.
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
f) Most importantly the principal lender to the Company ICICI bank, had
withdrawn all the proceedings against the company and hence, the very
filing of this case is vexatious.
g) It is submitted that nowhere in the charge sheet it is mentioned that any
complaints were received from general public regarding the alleged
charging of differential interest rates or any violation of any law or
contract.
The allegations made in the final reports, therefore, are sweeping without
touching on the specific overt-acts. Nor has the investigation agency made
available any material that may suggest a triable case against the petitioners.
Merely because the petitioners are the daughters of Farouk Irani they cannot be
made accused for all the alleged offences which their father might have
committed since it was he who was the Managing Director of FLCIL along with
other company officials. The Prosecution has erroneously come to the
conclusion that the petitioners were involved in the alleged conspiracy of
defrauding the banks merely on the ground that they are the daughters of the
Managing Director of the Company and received profits on the investments
made in the Company without any evidence or document on record. A perusal
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
of the statement of the witnesses recorded under Section 161 CrPC further
reveals that there is no link between the petitioners and other accused except for
the fact that they are the daughters of the then Managing Director of First
Leasing Company of India Limited. None of the witnesses spoke about any
positive act or omission on the part of the petitioners in the entire transaction.
8.2 So far as the offence under Sec.201 IPC is concerned, for constituting an
offence, (a) the accused must have known or has reason to believe that an
offence had been committed; (b) that the accused has caused disappearance of
evidence thereof. So far as the present case is concerned, all the accounts which
are alleged to have been fudged are available, and there is no case for the
prosecution that the petitioners had caused to disappear any of the evidentiary-
documents. And so far as the alleged routing of the funds of petitioners' parents
through their accounts goes, even if it is presumed to be the proceeds of crime,
yet they have not disappeared, but are well locked in the banking system, and
indeed the Enforcement Directorate has even attached them. Therefore no prima
facie case is made out even with regard to offence under Sec.201 IPC.
9. In essence, the prosecution has not been able to produce any evidence to
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
make out a prima facie case that the petitioners had or could have conspired with
A1 and other officials of FLCIL to commit any offence under Sec.120B r/w 201,
409, 420, 468 471 and Sec.477 A IPC. Reliance was placed on the ratio in
Narendra Pratap Narain Singh Vs State of U.P. [(1991) 2 SCC 623]; Mariam
Fasihuddin and another Vs State by Adugodi Police Station and another
[2024 SCC OnLine SC 58]; Deepak Gaba and others Vs State of Uttar Pradesh
and another [(2023) 3 SCC 423]; Central Bureau of Investigation, Hyderabad
Vs K.Narayana Rao [(2012) 9 SCC 512]; P.K.Narayanan Vs State of Kerala
[(1995) 1 SCC 142]; Pushpendra Kumar Sinha Vs State of Jharkhand [2022
SCC OnLine SC 1069]; Sanjay Kumar Rai Vs State of Uttar Pradesh &
another [2021 SCC OnLine SC 367]; Gajanan Property Dealer and
Construction Pvt. Ltd., and others Vs State of Orissa and another [2018 SCC
OnLine Ori 387]; Muthammal & others Vs S.Thangam [ Order of Madurai
Bench of Madras High Court dated 05.10.2018 in Crl.OP(MD) No.6123 of
2016] and Capt.V.N.Katiere and others Vs The Registrar of Companies [Order
of Principal Bench of Madras High Court dated 21.12.2020 in Crl.R.C.Nos.1002
to 1004 of 2013].
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
10.1 Per Contra, the learned Prosecutor explained the materials which according
to him prima facie indicate the involvement of the petitioners in the crime with
reference to (a) two separate flow charts for each of the petitioners (the
consolidated one is provided by the Enforcement Directorate. See; Paragraph 5.2
above) (b) the first two paragraphs of the final report extracted in paragraph 5.1
above; and (c) statements of (i) Victor Zacharias Victor, the former Assistant
Vice President of FLCIL, (ii) V. Lakshmanan, the former Manager of FLCIL,
(iii) Madanlal, the then Manager of Dena Bank, (iv) Chandran, Branch Manager
of M/s Lakshmi Vilas Bank Ltd., and (v) Kamatham Thiripalaiah, the then
Senior Manager of Bank of Baroda. Since they have been already extracted, this
Court refrains from re-stating it.
10.2 Placing reliance on the ratio in Amit Kapoor Vs Ramesh Chander and
another [(2012) 9 SCC 460], the learned Prosecutor submitted that Court may
not go into a meticulous analysis of the materials made available by the
investigating agency in its final report, and must only ascertain if the materials
so made available make out a case for framing charges.
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
Discussion & Decision
11.1 The accusation against the petitioners herein can be segregated into two
parts:
a) The crime of conspiracy and falsification of accounts of FLCIL
showing a higher asset value and borrowing of funds from the
complainant banks and defrauding it of the sums (which are indicated
in each of the cases in column 5 in the table in paragraph 4 above)
owing to which the banks have suffered wrongful loss whereas the
accused persons who had conspired to falsify the accounts etc.
inflicting the said loss on the banks have made wrongful gains. The
modus operandi adopted was in bogus re-discounting of bills,
investment certificates and manipulation of current account, and they
relate to a class of accounts which FLCIL had maintained and known
as Factors Accounts. Going by the prosecution case, the banks have
lost their money essentially here.
b) There is a second part to the final report. It relates to the flow of
money alleged to have been defrauded by fudging the accounts of
FLCIL by Farouk Irani to the accounts of the petitioners, then
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
converted them into fixed deposits which eventually had gone to form
the corpus of a Family Trust, which is intended to benefit only Farouk
Irani and his wife, the parents of the petitioners. This part of the final
report as explained by the prosecutor , if closely scanned for its
criminality, reveals that it relates to the money trail of the proceeds of
the predicate offence which the CBI has investigated and laid its final
reports. As outlined in paragraph 3 above, the Enforcement
Directorate are behind the money-trail of the proceeds of the crime
constituting the predicate offences, and opened its own investigation
under the PMLA. It has also promptly attached all the accounts of
petitioners and their parents, including the account of the Family Trust.
11.2. While the petitioners have been arrayed as accused persons in all the nine
cases constituting the predicate offence, they are not accused in the cases
registered by the Enforcement Directorate.
12. Now inasmuch as the petitioners have been arraigned as accused persons
only in the nine cases involving the predicate offences in which final reports too
have been filed, this court is only required to evaluate the materials gathered and
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
made available by the CBI to ascertain if they prima facie disclose petitioners'
involvement in the commission of the crime alleged against them.
13. Prosecution in effect relies on four paragraphs of the final reports, which are
extracted in paragraph 5.1 above. As already stated these paragraphs get
repeated in all the cases, except that they carry different paragraph numbers. If
these paragraphs are closely read it could be seen that the first two paragraphs
did not make any reference to the petitioners but only their father Farouk Irani
(A2 in all the nine cases). If the last two paragraphs of the final report are read
they do refer to the petitioners by name and also make certain allegations. To
back it up, the prosecution relies on the statements of (i) Victor Zacharias
Victor, the former Assistant Vice President of FLCIL, (ii) V. Lakshmanan, the
former Manager of FLCIL, (iii) Madanlal, the then Manager of Dena Bank, (iv)
Chandran, Branch Manager of M/s Lakshmi Vilas Bank Ltd., and (v)
Kamatham Thiripalaiah, the then Senior Manager of Bank of Baroda.
14. The suggested charges against the petitioners by the prosecution involves
their involvement in offences under Sec.120B r/w Sec.201 (causing
disappearance of evidence), Sec.409 IPC (criminal breach of trust by public
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
servant/banker), 420 (cheating), 468, 471, 477A of IPC (relating to forging of
documents) and Sec.477A (falsification of accounts). Can the petitioners be
alleged to have committed any of these offences? It may be considered in some
detail:
a) The petitioners cannot be charged of committing an offence under
Sec.409 IPC, for they are neither public servants, nor they are bankers.
b) They cannot be charged with offence under Sec.420 IPC because there is
no case for the prosecution that they had, dishonestly and fraudulently
induced or deceived any person or entity to deliver any property, or
altered or destroyed the whole or any part of any valuable security, or
anything which is signed or sealed, and is capable of being converted into
a valuable security. And, the prosecution does not have a case here against
the petitioners that they had engaged in anything that may constitute an
offence under Sec.420 IPC.
c) Then comes Secs.468, 471 and 477A IPC. They relate to forging of
documents and falsification of accounts of FLCIL. Even here, there is no
accusation that the petitioners are involved in any of these classes of
crimes. After all it is no case of the prosecution that the petitioners were
part of the management of FLCIL and that they had a role in taking any
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
decision for the company, or they had access to the books of accounts etc,
of the company.
d) What remains is Sec.201 IPC, but it essentially relates to causing the
disappearance of evidence. What is that evidence which these petitioners
have caused to disappear? The prosecution's narrative against the
petitioners does not specify the documents which they had caused to
disappear nor it mentions the role that they had played.
e) This leaves only the applicability of Sec.120B IPC, and how far the
materials which the prosecution has made available in its final report
makes out a prima facie case for framing charges. For constituting an
offence under Sec.120B, there should be a meeting or convergence of
minds of at least one accused person against whom materials have been
gathered by the CBI for commission of any of the offences under Sec.201,
409, 420, 468, 471 and 477A and the petitioners. After all when the
prosecution has not been able to provide materials which could prima
facie indicate the involvement of the petitioners directly in any of these
offences, then unless the prosecution is able to establish through its final
report that the petitioners have conspired with those who according to it
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
have committed the said offences under Sec.201, 409, 420, 468, 471 and
477A IPC, it cannot be said that charges could be framed against the
petitioners and force them to undergo the agony of a trial.
15.1 The learned Prosecutor made a pointed statement in his customary
vehemence as to how each of the petitioners had opened two bank accounts with
Rs.1,000/- in two different banks, and how to each of these newly opened
savings accounts, money from the accounts of their father and mother were
respectively transferred, and how the money that came into the newly opened
bank accounts of the petitioners were finally consolidated and converted into
fixed deposits, and how after few years they were closed and the amounts in
those accounts were credited back to their respective savings accounts of the
petitioners, and how the money was then transferred to the account of the Family
Trust which was formed for the benefits of the parents of the petitioners. Let its
truth be presumed. Indeed, in all probability, the petitioners might not be even
able to deny the money trail through their account irrespective of whether the
source of the money is legal or illegal, since these facts are essentially based on
documentary evidence.
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
15.2 Let these allegations of the prosecutor be analysed:
a) Both the petitioners opened two fresh bank accounts within a short period
of time in two different banks with Rs.1,000/-. But the respondents
should know that it is not illegal to open bank accounts.
b) Money has been transferred from the account of the petitioners' parents to
their newly opened accounts. This may be a fact, but how they could have
conspired with those in actual management of the company to fudge the
accounts of the FLCIL when they were no more than investors/depositors
of FLCIL at one point of time along with around 1000 investors whose
money which FLCIL had maintained as Factors Account? There is
neither any accusation nor are there materials to indicate that the
petitioners herein, had access to the account books of the company or had
the opportunity to fudge them to enable the managers of the company to
inflate the value of the assets and to borrow from the complainant-banks
on such inflated value and to defraud these banks. Indeed, it is not even
the prosecution's case that these petitioners were actively involved in
fudging the accounts of the FLCIL.
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
c) The next aspect highlighted by the prosecution was that the money so
collected in the accounts of the petitioners were converted into fixed
deposits and then it ultimately found its way to the account of the Family
Trust created for the maintenance of the parents of the petitioners, of
which the petitioners themselves are the trustees. If this is analysed,
formation of Trust by itself is not a criminal act, or to become the trustees
of the Trust is not an action involving any shades of criminality.
15.3 The discussion above shows that the individual limb of prosecution's
accusation does not constitute any offence in itself nor can it be a part of any of
the constituent offence in the batch of predicate cases.
16. There is one accusation by the prosecution that certain sums of money have
directly come from the FACTORS account of FLCIL to the individual account
of the petitioners. What the prosecution has not appreciated is that the
petitioners themselves were depositors in the FACTORS account and that all the
depositors have been paid and account have been closed even by 2013, and this
fact gets reflected in the report of Special Audit by RBI.
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
17. Therefore, the petitioners have two sources of money into their accounts;
one from their own deposits which has been repaid to them; and the second is
the money from their parents. So far as money from parents is concerned, as
already stated, unless the prosecution comes out with some material that the
money transferred by the parents of the petitioners form part of the wrongful
loss occasioned to the complainant banks, and that the petitioners have also
actually participated in generating wrongful gains for the parents, it cannot be
said that the petitioners are involved in committing the offences involved in the
predicate cases.
18. Turning to the statements of Victor Zacharias Victor, the then Assistant Vice
President of FLCIL and Lakshmanan, the then Manager of FLCIL they merely
say how certain investment certificates were issued in the name of the petitioners
without any back-up investments, and how the general ledger of the FACTORS
account have been fudged. But these allegations are internal to FLCIL and even
Victor Zacharias Victor only accuses Farouk Irani and not his daughters, the
petitioners herein. So far as the statements of other three witnesses Madanlal,
Chandran, and Kamatham Thiripalaiah are concerned, they are merely the bank
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
officials of three banks in which the petitioners have opened new accounts, and
they merely speak to when the accounts were opened, how the monies got
transferred from the accounts of the parents to the accounts opened in the
respective banks by the petitioners, and how the money which reached those
accounts of the petitioners were later converted into fixed deposits. In effect
they speak about the trail of money from the parents of the petitioners that go
through their hands. When the issue is whether the petitioners had participated
in the commission of core offences leading to wrongful loss to the complainant
banks, the facts that these bank officials speak to in their statements do not
connect the petitioners to the core offences. Set in the context, invoking
Sec.120B IPC vis-a-vis the petitioners, except it finding a kind of tag-line in the
final report, there is not a shred of material to come to a prima facie conclusion
that the petitioners herein might have conspired to cause wrongful loss to the
complainant-banks.
19. Turning to the authorities, in Amit Kumar Case [(2012) 9 SCC 460], the
Hon'ble Supreme Court has held:
“17. Framing of a charge is an exercise of jurisdiction by
the trial court in terms of Section 228 of the Code, unless
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
the accused is discharged under Section 227 of the Code.
Under both these provisions, the court is required to
consider the “record of the case” and documents submitted
therewith and, after hearing the parties, may either
discharge the accused or where it appears to the court and
in its opinion there is ground for presuming that the
accused has committed an offence, it shall frame the
charge. Once the facts and ingredients of the section exists,
then the court would be right in presuming that there is
ground to proceed against the accused and frame the
charge accordingly. This presumption is not a presumption
of law as such. The satisfaction of the court in relation to
the existence of constituents of an offence and the facts
leading to that offence is a sine qua non for exercise of such
jurisdiction. It may even be weaker than a prima facie case.
There is a fine distinction between the language of Sections
227 and 228 of the Code. Section 227 is the expression of a
definite opinion and judgment of the Court while Section
228 is tentative. Thus, to say that at the stage of framing of
charge, the Court should form an opinion that the accused
is certainly guilty of committing an offence, is an approach
which is impermissible in terms of Section 228 of the Code.
19. At the initial stage of framing of a charge, the court is
concerned not with proof but with a strong suspicion that
the accused has committed an offence, which, if put to trial,
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
could prove him guilty. All that the court has to see is that
the material on record and the facts would be compatible
with the innocence of the accused or not. The final test of
guilt is not to be applied at that stage.
Proceeding further, the Supreme Court has gone on to rely on its earlier
authority in State of Bihar Vs Ramesh Singh [(1977) 4 SCC 39], wherein the
Hon'ble Supreme Court has illustrated how the Court may approach the issue on
framing charges. It reads :
“We may just illustrate the difference of the law by one more
example. If the scales of pan as to the guilt or innocence of the
accused are something like even at the conclusion of the trial,
then, on the theory of benefit of doubt the case is to end in his
acquittal. But if, on the other hand, it is so at the initial stage of
making an order under Section 227 or Section 228, then in such a
situation ordinarily and generally the order which will have to be
made will be one under Section 228 and not under Section 227.”
20. If this Court now reads the materials made available by the prosecution as
against the accusation it makes, the pan of innocence of the petitioners weighs
so much that it leaves the pan of evidentiary materials irrelevant. It is so
because while the case is all about causing wrongful loss to the complainant
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
banks, the respondent has spent more time explaining how the money has
traveled through the accounts of the petitioners. The objective of the
prosecution should have been to gather such materials as would be capable of
connecting the accused persons to any of the aspects of the crime which
according to the prosecution had led the banks to suffer wrongful loss.
21. To conclude, it is now writing on the wall for the respondent. These
petitions are allowed and the petitioners are discharged from the accusation
levelled against them. Consequently, connected miscellaneous petitions are
closed.
06.01.2025
Index : Yes / No
Neutral Citation : Yes / No
Speaking order / Non-speaking order
ds
To:
1.The Inspector of Police
Central Bureau of Investigation
Bangalore.
2.The Public Prosecutor
High Court, Madras.
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Crl.R.C.Nos.1968 to 1974 of 2023 & batch etc.,
N.SESHASAYEE.J.,
ds
Pre-delivery order in
Crl.R.C.Nos.1968, 1969, 1970, 1971, 1972,
1973, 1974, 1977, 1979,1980, 1981, 1982,
1983, 1984, 1985, 1986, 1988 & 1989 of 2023
06.01.2025
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