Delhi High Court on Right to travel during ongoing investigations

The Delhi High Court on Wednesday refused to quash a Look Out Circular (LOC) issued against a former CEO, Director, and member of the Audit Committee of Shilpi Cable Technologies due to an ongoing investigation with serious allegations of fraud for siphoning off money through foreign companies. [Ghanshyam Pandey versus Union of India & Anr.]

Facts of the Case

Mr. Ghanshyam (Petitioner) and his wife were traveling to the USA intending to meet their children as they could not meet them for a long duration of time because of pandemic restrictions. On 24th of November 2021, they were however stopped at the Indira Gandhi International Airport as there had been a LOC issued against the Petitioner. He stated that to date he had received only one summon from the Serious Fraud Investigation Office (SFIO) concerning the ongoing investigation against a company by the name of M/s Shilpi Cable Technologies Ltd. He had not just appeared before the SFIO but cooperated and responded to all the questions raised.

Statements by Learned Counsel for Petitioner

Mr. Subramaniam that the Petitioner was merely a Director of the Company from 2013 to 2017 and was not related to the family or promoters of the company in any manner yet since the issue of the first summon he had appeared on 11 occasions and recorded his statement and gave information as per his knowledge to the SFIO. Hence, the LOC issued has impinged his travel and prayed to be quashed. He further stated that the Petitioner does not have residency or citizenship permissions to live in the USA and has the intention to return to India and continue to cooperate with the SFIO’s investigation. 

Arguments on behalf of Respondents

Mr. Ahluwalia the learned counsel from the respondent’s side stated that as per the instructions from Mr. Gaurav (Investigating Officer) submits that Shilpi Cable Company has had transactions related to 8 other companies. Some are based in Dubai. Abu Dhabi and Singapore and the amount of transactions are more than Rs. 800 crores and loans for the same are outstanding and registered against shell companies. According to the affidavit filed by the SFIO, there are more than 15 open charges amounting to Rs.1452 crores out of which Rs. 1400 crores are outstanding with scheduled banks like Canara Bank, Bank of India, Central Bank, Syndicate Bank, etc. These figures were verifiable from the Ministry of Corporate Affairs (MCA) Portal.

The Learned Counsel further submits that the Petitioner chose not to disclose any relevant information and states that he was not having knowledge about various things and has been non-cooperative. Reliance was placed on the facts that he was the Chief Executive Officer (CEO) of Shilpi Cables from 2006 to 2012, and 2013 to 2017 he was the Director and member of the audit committee from 2011 to 2017. It was argued that the Petitioner denied knowledge of emails that were marked and directed toward him. As per Section 177 of the Companies Act 2013, the Petitioner fails to comply with the duties imposed on him for being a member of the audit committee. Also, as per Section 447 of the Companies Act, 2013 the definition of fraud shows that it need not be necessary for the person to have bought a wrongful gain or loss rather even if the person is found conniving with an intent to deceive and cause wrongful loss the same would amount to fraud.

Observations by the High Court

Macquarie Bank Limited had initiated a Corporate Insolvency Resolution Process (CIRP) proceeding against Shilpi Cables before the National Company Law Tribunal (NCLT). Wherein an audit was conducted which discovered that several preferential and fraudulent transactions caused unlawful losses to the creditors of the company. The creditors were involved in public sector banks and other financial institutions. The charges against the banks/ financial institutions run into crores of rupees. As per the affidavit by the SFIO, the company would supply goods to foreign entities who would then default in making payments as a result of which large amounts were due in the books of outstanding. Most of the foreign entities were owned by group companies that were controlled and managed by the employees and management of the Shilpi Cables. The Court further observed the various titles and roles played by the Petitioner in the Shilpi Cables also, he was the head of the operation of M/s Winston Metal LLC which was a step-down subsidiary of Shilpi Cables and a subsidiary of Shilpi Worldwide DMCC, Dubai, and the Petitioner was stationed for a couple of years at Abu Dhabi. It was during the said period that the fraudulent transactions which were claimed by the SFIO took place.

The excerpts from the judgment read out 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.

Justice Prathiba Singh further stated that keeping in view the funds amounting to Rs. 1400 – Rs. 1700 crores belonging to public sector banks are at stake the Petitioner’s appeal to quash the LOC cannot be granted. However, if the SFIO investigation is not concluded by end of this year 2023, the Petitioner is free to approach the Court. The said petition was dismissed along with all pending applications at this stage.

Source: LiveLaw 


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