MUMBAI: Observing that a cheating case was not made out, Bombay High Court on Monday discharged Adani Enterprises Limited (AEL), its Chairman Gautam Adani, and Managing Director Rajesh Adani from a Serious Fraud Investigation Office (SFIO) complaint in an alleged artificial and unlawful manipulation of the company’s share price.
The SFIO case was that the alleged fraud in the ‘Adani scrip’ led to an “unlawful gain’’ of Rs 388 crore to the Adani Group. Justice R N Laddha of the HC, noting the merits cited in its order, rejected a request from SFIO to suspend the operation of the discharge order for two weeks to enable it to assail it before the Supreme Court.
The SFIO lodged a complaint in 2012 and invoked Indian Penal Code sections 420 (cheating) and 120B (criminal conspiracy) against the company and 10 other accused. In 2014 and 2015, a Ballard Pier Magistrate in Mumbai dropped the case against the Adanis. But in 2019, the Mumbai Session court set aside the Magistrate court order. Aggrieved, in 2019, AEL and Gautam Adani, then 57, petitioned the HC in appeal against the Sessions court order. On Monday, pronouncing the judgment, a single-judge HC bench of Justice Rajesh Laddha quashed the sessions court order of November 2019 that declined the relief to Adanis and AEL (formerly Adani Exports Ltd).
The SFIO filed a complaint on April 26, 2012, in the court of Additional Chief Metropolitan Magistrate, Ballard Pier, Mumbai. The complaint was filed against Triumph Securities Limited and ten others. The SFIO, represented by ASG Anil Singh, alleged that the accused, in collusion with the AEL promoters and others, “engaged in fraudulent activities to deceive the genuine investors.’’ The core allegations were that “Ketan Parekh entered into a criminal conspiracy with AEL, others to artificially manipulate the share price of AEL.
The other allegation was the Adani entities gained unlawfully by providing funds and shares to KP entities to artificially manipulate shares and offload their shareholding when prices were high. Senior advocates Amit Desai and Vikram Nankan with advocate Ishwar Nankani i for Adani successfully argued that AEL cannot trade its shares on the stock exchange, hence allegations of manipulation of the shares by it are “devoid of merits”.
Besides, Gautam and Rajesh Adani “can’t be tried vicariously in their capacity of Chairman and Managing Director’’ for the penal offences. Desai contended that the Sessions court exceeded its jurisdiction by relying on the investigation report that was not included in an official record. Besides, no investor lodged any cheating case and with no public grievance, the cheating allegation was “baseless,’’ Desai argued. Justice Laddha agreed. After evaluating the complaint, submissions, and record, the HC said it was evident that the “complaint fails to satisfy the essential ingredients of the offence of cheating under section 420, IPC.’’ The HC in its judgment said, “A fundamental requirement’’ for a cheating offence under section 420, IPC, “is the presence of an element of deception, which leads to the victim suffering from loss while the accused gains wrongfully.’’
But in the SFIO case, the HC said “there is a conspicuous absence of any such allegations from an affected party. Merely by asserting that the accused has made a wrong gain without demonstrating the corresponding wrongful loss or deception suffered by a specific victim does not suffice to attract the offence of cheating under the IPC.’’ With no substance to back the main offence, the ancillary offence of criminal conspiracy becomes “unsustainable’’ the HC held.
The HC added, “Sessions Judge has not found or identified any errors, irregularities or legal improprieties in the findings of the trial Court as recorded in paragraphs No.6 to 8 of the discharge order dated 9 May 2014 or in the findings of the discharge order dated 7 October 2015.
These findings remained undisturbed and have not been deemed to contravene any established legal principles. It is a well-settled principle of law that the scope of the revisional Court’s powers under Section 397 of the CrPC is limited to examining the correctness, legality or propriety of the trial Court’s order. In the absence of any substantive findings, error, or legal infirmity in the discharge orders, the interference by the revisional Court was unwarranted and beyond its jurisdictional mandate..’’
Desai for Adani also argued that the SFIO, when investigating a company’s affairs under the erstwhile Companies Act of 1956, lacked the legal authority to invoke and initiate prosecution under IPC offences. The 1956 law lacked an enabling provision to do so, unlike in the present Act that was enacted in 2013. Justice Laddha left the issue open saying Desai’s submissions “carry substantial merit” but it was “not necessary to adjudicate upon this issue in the present case.’’