Karnataka High Court quashes SFIO case against Vijay Mallya, Captain R Gopinath

The Karnataka High Court recently quashed proceedings initiated by the Serious Fraud Investigation Office (SFIO) against Kingfisher Airlines, its former owner and fugitive businessman Vijay Mallya, Air Deccan founder Captain R Gopinath and several others on allegations that there was fraud involved in the 2007 Kingfisher-Air Deccan merger. .Justice Hemant Chandangoudar passed the order on April 15 while allowing writ petitions filed by Kingfisher, Deccan Charters, Captain Gopinath and others. Pertinently, the Court opined that criminal prosecution cannot be launched by the SFIO in respect of a merger that has been sanctioned by the Court, more so when none of the alleged aggrieved persons have preferred a complaint. "While sanctioning the scheme of arrangement, this court accepted the valuation of the business assessed by an independent body. Additionally, the shareholders and unsecured creditors approved the scheme by requisite majority. Therefore, the merger process alleged to have been obtained fraudulently cannot be reopened by launching criminal prosecution …If the merger process is indeed obtained fraudulently, the aggrieved person or complainant has the option to approach the court," the Court held. .The SFIO case against Kingfisher and others (a total of nineteen accused persons/ entities) involved allegations that Kingfisher Airlines sought to acquire low-cost air carrier Deccan Air without meeting eligibility conditions for such acquisition and at a time when Kingfisher was facing losses of about ₹1,234 crores.The SFIO claimed that the acquisition was sought to be carried out to secure potential capital gains and fraud was played to avoid tax on such capital gains and to dupe investors of Deccan Air.Kingfisher was accused of creating artificial ‘demerged’ entities to carry out a merger with Deccan Air to avoid the capital gains tax. Among other allegations, Kingfisher was also alleged to have used the brand value of the resultant merged entity to secure additional finance.Kingfisher chairman Vijay Mallya was alleged to have orchestrated these activities along with others accused.The others accused included AK Ravi Nedungadi, a director of Kingfisher Airlines and Group CFO of United Breweries (which markets Kingfisher beer), A Harish Bhat (treasurer of United Breweries), A Raghunathan (Chief Financial Officer of Kingfisher Airlines), Bharath Veeraraghavan (Company Secretary of Kingfisher Airlines), Captain R Gopinath (founder of Deccan Air), several valuers and even the-then Executive Vice President of SBI Capital Markets Ltd., Supratim Sarkar.In 2018, a Special Court in Bengaluru issued arrest warrants against Mallya and others. The accused then approached the High Court with writ petitions challenging the issue of arrest warrants and the SFIO proceedings against them. It may be noted that Mallya was not among those who filed the writ petitions. .The High Court on April 15 allowed the writ petitions on the following grounds:The provisions concerning SFIO probes and the establishment of a special court to try offences investigated by the SFIO were under the Companies Act, 2013. On the other hand, the accused persons were alleged to have committed offences under the earlier law, namely the Companies Act, 1956. The jurisdiction of the special court under the 2013 Act cannot be extended retrospectively to try the offences under the Act, 1956. The special court did not form an opinion on whether there was a prima facie case against the accused before issuing process. Consequently, the order issuing the process violates Section 204 (issue of process) of the Code of Criminal Procedure (CrPC). Therefore, the order passed by the special court judge issuing the process is rendered invalid. The trial court issued an arrest warrant without first issuing summons to secure the presence of the accused, in violation of judgments passed by the Supreme Court, the High Court added. The accused cannot be prosecuted (under the 2013 Act) for actions that were not deemed punishable under the provisions of the 1956 Companies Act. This purported action violates Article 20 (1) of the Constitution of India, which safeguards against retrospective criminalization..The Court, therefore, quashed the criminal proceedings rooting in the SFIO case against the accused. The complaint filed by the SFIO consequently stands dismissed, the Court ordered. "It is evident that the cognizance taken by the learned judge of the special court, established under the Companies Act of 2013, lacks legal authority. Furthermore, since this court has already approved the scheme of arrangement, the matter of whether the merger process was tainted by fraud cannot be revisited through the initiation of criminal prosecution. Therefore, allowing the criminal proceedings to proceed would constitute an abuse of legal process," the High Court added. .Senior Advocate Uday Holla (briefed by MS Rajendra, Advocates) led the arguments for Deccan Charters and its founder, Captain R Gopinath. Senior advocates Amit Desai, CV Nagesh, Sanjog (briefed by Chander Kumar & Associates) Satish Mane Shinde along with advocates Amar Correa, Mahesh S, Ashwain Prabhu, SB Mathapati, R Nagaraja, law firm AZB & Partners and advocate Arjun Rao were among the lawyers who represented the other petitioners. Senior Advocate Prabhuling K Navadagi along with advocate Madhukar Deshpande appeared for the SFIO. .[Read Judgment]