Delhi High Court

Delhi High Court: In a petition filed by the petitioner challenging the issuance of the Look Out Circular (LOC) against him by the Serious Fraud Investigation Office (SFIO) (respondent 2) for his alleged involvement with the promoters in order to defraud the public institutions in India of a large sum of monies, Prathiba M Singh, J., held that the funds amounting to approximately Rs. 1,400 – Rs. 1,700 crores belonging to public sector banks and financial institutions are at stake, thus, it would be in the larger public interest as well as economic interest of India to not exercise discretion in favour of the petitioner.

The case of the Petitioner is that he and his wife were intending to travel to the U.S.A., however, they were stopped at the Indira Gandhi International Airport as LOC was issued against him by SFIO. The case of the Petitioner is that the company under investigation i.e., Shilpi Cables is not owned or promoted by him, and he was merely a whole-time professional director of the company. Further, the investigation by the SFIO itself commenced sometime in 2020- 2021 and no FIR was registered. Thus, in the absence of any cognizable office, the LOC cannot be continued against the Petitioner specially for an indefinite period.

Shilpi Cables was a company against whom Corporate Insolvency Resolution Process (CIRP) proceedings were initiated by one Macquarie Bank Limited before the National Company Law Tribunal (NCLT). The NCLT ordered the liquidation of Shilpi Cables, and an audit was conducted in which it was discovered that there were several preferential and fraudulent transactions causing an unlawful loss to the secured creditors of Shilpi Cables. The said secured creditors involved public sector banks and other financial institutions.

It was alleged that many funds that were lent to Shilpi Cables by banks and public financial institutions were routed through group companies that were located abroad and were siphoned through the said companies. In view thereof, an SFIO investigation was ordered under Section 212(1)(c) of Companies Act, 2013.

The Court noted that as per the latest report dated 28-12-2021 filed before the NCLT by the liquidator, the claims of financial creditors of Shilpi Cables are to the tune of Rs. 1,770 crores and only around Rs. 6 crores were released by the sale of assets. The facts reveal that the SFIO is still investigating into the conduct of Shilpi Cables, its various group companies both in India and abroad. The role of promoters/ management/employees of Shilpi Cables relating to the said transactions is also being investigated.

The Court remarked that the petitioner was the CEO of Shilpi Cables between 2006 to 2012, and a whole-time director from 2013 to 2017. He was also a member of the audit committee from 2011 to 2016-2017 and it is during this very period that the transactions claimed by the SFIO to be fraudulent transactions occurred. Apart from the role that the Petitioner played in Shilpi Cables, he was also the head of operations of Winston Metals LLC, a step-down subsidiary of Shilpi Cables and a subsidiary of Shilpi Worldwide DMCC, Dubai between 2013 to 2016.

The Court opined that the Petitioner is not merely a professional director of Shilpi Cables but had a much more active role. Even as a member of the audit committee of Shilpi Cables, with his qualifications, the Petitioner would have played a key role in the day-to-day management and administration of not merely Shilpi Cables but also its group companies which were located abroad.

The Court observed that while LOCs cannot be resorted to for every case involving a loan transaction, the present case reveals that many public funds of public sector banks and financial institutions are at stake. The question as to whether the LOC would be valid or not would have to be determined in the facts and circumstances surrounding each case.

The Court concluded that there is a clear possibility that the petitioner may not return to India as his entire immediate family resides abroad and he has not shown any assets in India, therefore, his travel is likely to impede the investigation. The Court refused to quash the LOC as the Petitioner did not merely play a role in the management and administration of Shilpi Cables but, being an auditor, also owed a duty to report any shortcomings or misconduct within the company. Thus, the Petitioner cannot be completely absolved of responsibility merely on the grounds that he was a mute spectator.

[Ghanshyam Pandey v Union of India, 2023 SCC OnLine Del 936, decided on 15-02-2023]

Advocates who appeared in this case :

Mr. Balaji Subramanian, Mr. Pawan Bhushan & Mr. Akash Kundu, Advocates for the Petitioner;

Mr. Anurag Ahluwalia, CGSC with Mr. Kritgya Kumar Kait, GP, Mr. Shriram Tiwary, Mr. Abhigyau Siddhanta and Mr. Salman Razi, Advocates with IO Mr. Gaurav (A.D. SFIO) and prosecutor Mr. Nitin Agnihotri for SFIO.

*Arunima Bose, Editorial Assistant has reported this brief.

Judgment By: Justice Prathiba M Singh.

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