Aryavarth (Bengaluru): In a landmark judgment, the Supreme Court has quashed the orders passed by the Allahabad High Court that had stayed the investigation against Indiabulls Housing Finance Limited (IHFL), its officials, and others in connection with alleged irregularities in the sale of properties mortgaged with IHFL by the Shipra Group to recover its dues. The apex court’s ruling comes as a major setback for the accused parties and paves the way for a thorough investigation into the alleged offenses.
The Supreme Court bench, comprising Justices Bela M. Trivedi and Prasanna B. Varale, delivered a stern judgment, castigating the High Court for passing “blanket orders” staying the investigations and protecting the accused from any coercive action in “utter disregard” of the settled legal position.
The case has its roots in a series of loan facilities amounting to a staggering Rs 2,801 crores sanctioned by IHFL between 2017-2020 to the Shipra Group, comprising Shipra Hotels Ltd., Shipra Estate Ltd., and Shipra Leasing Pvt. Ltd., for the construction and development of housing/residential projects. These loans were secured by the pledge of shares of various companies and the mortgage of valuable properties, including a 73-acre land parcel in Noida and the ‘Shipra Mall’ in Ghaziabad.
Upon defaults in repayment by the Shipra Group, IHFL initiated recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, which sparked a series of litigations before the Debt Recovery Tribunal (DRT) and the High Courts. Ultimately, on July 1, 2021, IHFL sold the shares of M/s Kadam Developers Pvt. Ltd. (a Shipra Group entity holding the 73-acre Noida land) to Final Step Developers P. Ltd., a subsidiary of M3M India P. Ltd., for Rs 750 crores. The funds for this purchase were provided to Final Step Developers by M3M India through a loan from IHFL itself on the same day, a move that raised eyebrows.
Following these events, multiple FIRs were filed against IHFL, its officers, M3M India, and others by various parties, alleging offenses such as cheating, forgery, and criminal conspiracy in the sale of properties and shares.
One FIR (No. 427/2023) was filed by Amit Walia, a Director of Shipra Hotels, against IHFL and its officers, alleging that IHFL had illegally shown the Shipra Group as defaulters to misappropriate the group’s properties through illegal means. The FIR also alleged that IHFL had conspired with M3M India and sold the 73-acre Noida land to M3M India for Rs 300 crores, despite its market value being around Rs 4,000 crores.
Another FIR (No. 197/2023) was filed by YEIDA (Yamuna Expressway Industrial Development Authority) against IHFL, M3M India, M/s Kadam, and M/s Beacon Trusteeship Ltd., alleging violations of the terms and conditions contained in the permission letter, indemnity certificate, and sub-lease document. YEIDA claimed to have suffered a financial loss of approximately Rs 200 crores due to these alleged violations.
Yet another FIR (No. 611/2023) was filed by Mohit Singh, an authorized representative of the Shipra Group, against Reena Bagga, an authorized officer of IHFL, and others. The FIR alleged that the ‘Shipra Mall’ in Ghaziabad, which formed part of the mortgaged properties, had been sold for Rs 551 crores to Himri Estate Pvt. Ltd. based on false and fabricated documents, despite the actual value of the land being over Rs 2,000 crores. Mohit Singh claimed that these alleged illegalities had caused a huge loss to the Shipra Group.
Based on two of these FIRs (Nos. 197/2023 and 427/2023), the Directorate of Enforcement (ED) registered an Enforcement Case Information Report (ECIR) No. ECIR/HIU-I/06/2023 on June 9, 2023, to investigate potential money laundering offenses under the Prevention of Money Laundering Act, 2002.
IHFL, its officers, M3M India, and others approached the Allahabad High Court, seeking quashing of the FIRs and the consequential proceedings initiated by the ED. The High Court, through interim orders dated July 13, 2023, August 8, 2023, and September 13, 2023, stayed the proceedings of the FIRs and the ECIR, directing that no coercive action be taken against the petitioners pending the disposal of the writ petitions.
The accused parties, represented by senior counsels, contended before the Supreme Court that the respondent-complainant Shipra Group, having failed in the SARFAESI proceedings and litigations before the courts, had resorted to criminal proceedings to create fear among the financial institution and its officers. They argued that the High Court had rightly protected IHFL and its officers, who had discharged their duties for the recovery of dues from the borrowers.
During the proceedings before the Supreme Court, the counsels for Kadam Developers and the Shipra Group, represented by Mohit Singh, highlighted the alleged losses suffered by their clients due to the purported undervaluation of properties and irregularities in the sale transactions.
Mohit Singh, on behalf of the Shipra Group, contended that the ‘Shipra Mall’ in Ghaziabad, which was part of the mortgaged properties, had been sold for a mere Rs 551 crores to Himri Estate Pvt. Ltd., despite its actual value being over Rs 2,000 crores. He alleged that IHFL had caused a massive loss to the Shipra Group by not reflecting the true value of the property and engaging in illegal activities.
Similarly, the counsels for Kadam Developers argued that the 73-acre Noida land, which was sub-leased to the company, had been sold by IHFL to M3M India for a meager Rs 300 crores, despite its market value being around Rs 4,000 crores. They claimed that IHFL’s actions had resulted in substantial financial losses for Kadam Developers and the Shipra Group.
The Supreme Court, in its judgment, made several crucial observations and rulings:
1. The High Court passed the impugned orders under the “umbrella” of the Supreme Court’s order dated July 4, 2023, in the case of Gagan Banga, creating an impression that the orders were passed in furtherance of the Supreme Court’s order, which was not the case.
2. The High Court’s orders staying the investigations and restraining the investigating agencies from taking coercive action against the accused were passed in “utter disregard” of the settled legal position established by the Supreme Court in various decisions, including the landmark case of Neeharika Infrastructure Pvt. Ltd. vs. State of Maharashtra and Others.
3. The High Court could not have stayed the investigations and restrained the investigating agencies from investigating cognizable offenses alleged in the FIRs and the ECIR, particularly when the investigations were at a nascent stage.
4. By passing such orders, the High Court effectively granted “blanket orders” restraining the arrest of the accused without them applying for anticipatory bail under Section 438 of the Code of Criminal Procedure (CrPC).
5. The impugned orders were in direct contravention of the guidelines issued by the Supreme Court’s three-judge bench in the Neeharika Infrastructure case, which strongly deprecated the practice of staying investigations or directing not to take coercive action against the accused pending petitions under Section 482 of the CrPC.
6. The extraordinary and inherent powers of the court do not confer arbitrary jurisdiction on the court to act according to its whims or caprice.
7. Without expressing any opinion on the merits of the writ petitions pending before the High Court, the Supreme Court set aside the impugned interim orders passed by the High Court, vacating the protection granted to the accused.
The Supreme Court’s judgment has far-reaching implications for the case and beyond. By setting aside the High Court’s interim orders, the ED and other investigating agencies can now proceed with their investigations into the alleged offenses without any restraint. The accused, including IHFL, its officials, M3M India, and others, will no longer be protected from coercive action during the pendency of the writ petitions before the High Court.
The judgment reaffirms the well-established principle that courts should not thwart investigations into cognizable offenses and that the power to quash FIRs/complaints should be exercised sparingly and in the rarest of rare cases. It also underscores the need for judicial comity and discipline, emphasizing that higher courts should follow the law and not act according to whims or caprice.
The case has attracted significant attention due to the involvement of prominent real estate entities and financial institutions, as well as allegations of irregularities in property transactions and financial dealings involving substantial sums of money. The Supreme Court’s ruling paves the way for a thorough and unhindered investigation into the alleged offenses, ensuring that the truth is unearthed and justice is served, irrespective of the parties involved.
Moving forward, the accused parties retain the option to take legal recourse and present their contentions before the High Court during the hearing of the writ petitions. The High Court will now be tasked with examining the merits of the petitions and deciding whether to quash the FIRs and consequential proceedings, in accordance with the legal principles laid down by the Supreme Court.
The judgment serves as a reminder of the delicate balance between the judiciary’s powers and the investigative agencies’ duties, emphasizing the need for judicial restraint and adherence to established legal principles. It reinforces the principle that courts should not unduly interfere in investigations unless exceptional circumstances warrant such intervention.
