The Supreme Court held that bail, including anticipatory bail, for offences under Section 447 (punishment for fraud) of the Companies Act, 2013, cannot be granted unless the twin conditions laid down in Section 212(6) are satisfied.
According to Section 212(6), which pertains to investigations by the Serious Fraud Investigation Office (SFIO), offences under Section 447 are cognizable and subject to stricter bail conditions. These conditions require: (1) that the Public Prosecutor is given an opportunity to oppose the bail application; and (2) if opposed, the court must be satisfied that there are reasonable grounds to believe that the accused is not guilty and is unlikely to commit any offence while on bail. A bench comprising Justices Bela M. Trivedi and Satish Chandra Sharma emphasized that these conditions are mandatory. The Court relied on the precedent set in Vijay Madanlal Choudhary & Others v. Union of India & Others, which upheld the constitutional validity of similar twin conditions under Section 45 of the Prevention of Money Laundering Act (PMLA), asserting that these stringent standards apply even to anticipatory bail. Additionally, the Court cited Union of India through Assistant Director v. Kanhaiya Prasad, where it was held that bail orders lacking proper reasoning and not addressing mandatory bail conditions are perverse and liable to be overturned.
This observation came in the context of setting aside a bail order passed by the Punjab and Haryana High Court, which had drawn a distinction between the PMLA and the Companies Act while granting bail to the respondents.
The High Court observed, "The Companies Act, is a complete Statute in itself and distinguishable from PMLA Act which was brought out to prescribe the procedures and penalties for economic offences. The gravity for the economic offences will have to be gathered from the facts and circumstances of each case and in such circumstances, while considering the application for bail, the Court will have to deal with the same, being sensitive to the nature of allegation made against the accused. This Court also cannot lose sight of the fact that even if the allegation is one of grave economic offence, it is not a rule that bail should be denied in every case since there is no such bar created in the relevant enactment passed by the legislature nor does the bail jurisprudence provide so."
The High Court had also observed that a review petition against the Vijay Madanlal judgment is still pending, along with the constitutional challenge to Section 212(6) of the Companies Act, which is currently under consideration by the Supreme Court.
In the present case, the Respondents, including companies under the Adarsh Group, were accused of committing economic offences. Following these allegations, the Ministry of Corporate Affairs directed the Serious Fraud Investigation Office (SFIO) to investigate various violations under the Companies Acts of 1956 and 2013. The SFIO found that Adarsh Credit Cooperative Society Limited (ACCSL), a Multi-State Cooperative Society, had illegally disbursed loans worth Rs.1700 crore to 70 Adarsh Group companies under its control, as well as to other related entities. These transactions violated legal norms since companies are barred from being members of multi-state credit cooperative societies, and the loans were procured using forged financial documents.
Following the SFIO investigation, a criminal complaint was filed in the Special Court under several provisions of the Companies Acts, the LLP Act, and the CrPC. The Respondents failed to appear despite being summoned, leading the court to issue non-bailable warrants and initiate proceedings under the proclamation of offenders. Their anticipatory bail plea was rejected by the Special Court, after which they approached the Punjab and Haryana High Court, which granted them bail. However, the Supreme Court, while cancelling the bail, criticized the High Court for overlooking the Respondents’ non-cooperation with investigative authorities.
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