SUPREME COURT HOLDS HIGH COURT’S INTERIM ORDERS RESTRAINING ARREST OF RESPONDENTS-ACCUSED AS UNSUSTAINABLE

In a recent case of Directorate of Enforcement Vs Niraj Tyagi & Ors. Criminal Appeal No. 843 of 2024, arising out of Special Leave Petition (Crl.) No. 10913 Of 2023 and other connected matters, a two Judge Bench of the Supreme Court comprising of Justice Bela M. Trivedi and Justice Prasanna B. Varale passed a Judgment dated 13-02-2024 and observed that High Courts cannot stay the investigations or restrain the police from taking coercive action against the Accused, pending Petitions under Section 482 of the Code of Criminal Procedure 1973 (CrPC) (Saving of inherent power of High Court).

Facts

i) In the present case, one, India Bulls Housing Finance Limited, a Non-Banking Financial Institution (NBFC), had sanctioned 16 loan facilities of Rs. 2801 Crores to the Shipra Group comprising of Shipra Hotels Ltd., Shipra Estate Ltd. and Shipra Leasing Pvt. Ltd. for construction and development of housing and residential projects. Out of the sanctioned loan amount, Rs. 1995.37 Crores was disbursed.

ii) Against such loan, the Shipra Group furnished the following securities to the NBFC:

a) 22 Pledge Agreements were provided by the Shipra Group including shares in various companies held by Shipra Entities.

b) Further, a Pledge Agreement was executed with IHFL by the Shipra Group and one, M/s Kadam Developers Pvt. Ltd. (M/s Kadam), in which Shipra Estate Limited had a major shareholding, thereby, pledging 100% equity shares (dematerialized) of M/s Kadam as security against the loan.

c) Furthermore, M/s Kadam had taken on sub-lease a parcel of land admeasuring 73 Acres in Sector 128, Noida, from the predecessor of Yamuna Expressway Industrial Development Authority (YEIDA). The said Property was also mortgaged against the aforementioned loan.

d) A Mall in Ghaziabad, namely, ‘Shipra Mall’ was also mortgaged.

iii) Upon defaulting in repayment of loan amounts, the NBFC issued Notices recalling all the loans advanced to the Shipra Group of about Rs. 1763 Crores.

iv) Aggrieved, the Shipra Group challenged the said Notices before the Hon’ble Delhi High Court in a First Appeal bearing FAO(OS) COMM 59/2021. The High Court, vide Order dated 16-04-2021, allowed the NBFC to proceed with the recovery proceedings, however the sale of shares have to be done at a fair market value and in a transparent manner.

v)Thereafter, a series of litigations ensued between the Parties under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) before the Ld. Debt Recovery Tribunal and the High Court.

vi) Later, on 01-07-2021, the NBFC sold off the shares of M/s Kadam to one, Final Step Developers P. Ltd., a subsidiary of M3M India P. Ltd. at about Rs. 750 Crores. However, the said sum of money was lent by the NBFC itself to M3M India, as the latter did not have the financial resources to buy the shares.

vii) Also, the NBFC sold off the mortgaged properties and the land to recover dues from the Shipra Group.

viii) Aggrieved, the Shipra Hotels through its Director, Mr Amit Walia filed a Complaint before the Police, which was registered as an FIR bearing No. 427 of 2023 dated 09-04-2023, against the NBFC and its officers, thereby, alleging that the NBFC had illegally showed the Shipra Group as defaulters, so that they can misappropriate the properties and shares owned by the Shipra Group. It was further alleged that the NBFC had conspired with M3M India by forging and fabricating documents to sell of the mortgaged properties at a rate lesser than the market value. As a result, this caused huge loss to the Shipra Group.

ix) Another FIR bearing No. 197 of 2023 was registered against the NBFC, M3M India, M/s Kadam etc, upon a Complaint filed by YEIDA in Greater Noida Police Station, alleging that its permission was not sought before pledging shares to the NBFC or mortgaging the land in favor of the NBFC, as the same was given only on sub-lease to M/s Kadam by YEIDA. As a result, this caused huge loss to YEIDA.

x) A third FIR bearing No. 611 of 2023 was registered against one, Reena Bagga, Authorised Officer of the NBFC, upon a Complaint filed by one, Mohit Singh, the Authorised Representative of the Shipra Group in Ghaziabad Police Station, alleging that the Shipra Mall was sold off by the NBFC based on forged and fabricated documents and at a lesser than the market value rate. Hence, the said acts of the NBFC have caused huge loss to the Shipra Group.

xi) The NBFC challenged the said FIRs before the Hon’ble Supreme Court in P. (Crl) being no. 166 of 2023.

xii) Meanwhile, the Enforcement Directorate (ED) registered an ECIR bearing no. ECIR/HIU-I/06/2023 in Delhi on 09-06-2023, on the basis of the aforesaid FIR nos. 427/2023 and 197/2023, to investigate into the offences of money laundering under the Prevention of Money Laundering Act, 2002 (PMLA).

xiii) The Apex Court in P. (Crl) 166 of 2023, vide Order dated 04-07-2023, directed the Parties to approach the High Court(s) to seek the reliefs against registration of FIRs. The Bench further held that “no coercive steps would be taken against the petitioner financial institution and its officers, representatives and managers till final disposal of such petitions by the High Court”.

xiv) Accordingly, the NBFC and the Respondent-Niraj Tyagi, President (Legal) thereof, filed Criminal Misc. Writ Petition No. 10893/2023 before the High Court of Judicature at Allahabad seeking quashing of FIR No.197 of 2023 and the consequential proceedings arising out of the said FIR before the ED.

xv) The NBFC and the Respondent-Ms. Reena Bagga, Authorised Officer thereof also filed Criminal Miscellaneous Writ Petition No. 11837/2023, before the High Court seeking quashing of FIR 611 of 2023.

xvi) The Respondent- M3M India Pvt. Ltd. and M/s Kadam also filed a Criminal Misc. Writ Petition No.14053/2023 seeking the reliefs similar to the reliefs prayed for in the aforesaid Writ Petition No.10893/2023.

xvii) The High Court in Criminal Misc. Writ Petition Nos. 10893/2023, 11837/2023 and 14053/2023, passed Interim Orders dated 13-07-2023, 08-08-2023 and 13-09-2023 respectively and (a) stayed the proceedings of the FIRs and the proceedings registered by the ED against the Respondents-Accused and (c) further directed not to take any coercive action against Respondents during the pendency of the said Writ Petitions.

Supreme Court Observations

Aggrieved by the High Court’s Interim Orders dated 13-07-2023, 08-08-2023 and 13-09-2023, the Appellants- ED and Mohit Singh from the Shipra Group, filed Criminal Appeal No. 843 of 2024, Criminal Appeal No. 844 of 2024 and Criminal Appeal No. 845 of 2024 before the Supreme Court. The Apex Court, vide Order dated 13-02-2024, made the following observations:

1) That the Bench had in P. (Crl) 166 of 2023, passed an Order dated 04-07-2023, and directed the Parties to approach the High Court to seek quashing of FIRs and further stayed the proceedings arising out of the said FIRs and the ECIR, till final disposal of such petitions by the High Court. However, the Bench further added that “it would be open for the petitioners to seek stay of proceedings which would be considered by the High Court on its own merits.”

2) That the High Court, vide the aforementioned Interim Orders, stayed the proceedings arising out of the said FIRs and the ECIR, on the basis of the aforesaid Supreme Court Order dated 04-07-2023, without applying its own mind.

3) That the High Court has inherent powers under Section 482 CrPC to apply its own mind and decide whether quashing of FIR is necessary or not. The Bench further observed as follows:

“Without undermining the powers of the High Court under Section 482 of Cr.PC to quash the proceedings if the allegations made in the FIR or complaint prima facie do not constitute any offence against the accused, or if the criminal proceedings are found to be manifestly malafide or malicious, instituted with ulterior motive etc., we are of the opinion that the High Court could not have stayed the investigations and restrained the investigating agencies from investigating into the cognizable offences as alleged in the FIRs and the ECIR, particularly when the investigations were at a very nascent stage.”

4) Hence, by passing such Interim Orders and restraining the investigating agencies from taking any coercive action against the Respondents-Accused, pending disposal of the Petitions under Section 482 CrPC, the High Court had wrongly granted blanket orders, thereby, restraining the arrest of the Accused, when the Accused had not even applied for the anticipatory bail under Section 438 of CrPC (Direction for grant of bail to person apprehending arrest).

5) That the Apex Court has in earlier cases observed as follows regarding the High Courts ordering against coercive action to be taken by the investigation agency:

i) Police has the statutory right and duty under Chapter 14 of CrPC to investigate into a cognizable offence.

ii) “Courts would not thwart any investigation into the cognizable offences.”

iii) “Ordinarily, the courts are barred from usurping the jurisdiction of the police, since the two organs of the State operate in two specific spheres of activities and one ought not to tread over the other sphere.”

iv) It is only in cases where cognizable offence is not made out or offence of any kind is disclosed in the FIR, that the Court can restrain the investigating agency from carrying on the investigation.

v) “When a prayer for quashing the FIR is made by the alleged accused and the court when it exercises the power under Section 482CrPC, only has to consider whether the allegations in the FIR disclose commission of a cognizable offence or not. The court is not required to consider on merits whether or not the merits of the allegations make out a cognizable offence and the court has to permit the investigating agency/police to investigate the allegations in the FIR.”

vi) This is because criminal proceedings ought not to be rushed at the initial / nascent stage.

vii) Further, in cases when the investigation is in progress and the entire evidence / material is not before the High Court, “the High Court should restrain itself from passing the interim order of not to arrest or ‘no coercive steps to be adopted’ and the accused should be relegated to apply for anticipatory bail under Section 438 CrPC before the competent court.”

6) Thus, High Courts, while dismissing / disposing of a quashing petition under Section 482 CrPC and/or Article 226 of the Constitution of India, are not justified in passing an order restraining arrest and/or taking any coercive steps against the accused, either (i) during the investigation, (ii) till the investigation is completed and/or (iii) till the charge-sheet is filed under Section 173 CrPC (Report of police officer on completion of investigation).

Conclusion

Thus, based on the aforesaid observations, the Supreme Court held that the High Court was not justified in passing the Interim Orders dated 13-07-2023, 08-08-2023 and 13-09-2023, thereby, restraining the investigating agencies from taking any coercive action against the Respondents, pending disposal of the Petitions under Section 482 CrPC, as the same is contrary to the aforesaid principles of law. As a result, the Appeals filed by the ED and Shipra Group were allowed and the High Court’s Interim Orders dated 13-07-2023, 08-08-2023 and 13-09-2023 were set aside.

 

Harini Daliparthy

Senior Associate

The Indian Lawyer