The Supreme Court of India has clearly ruled that bail or anticipatory bail cannot be granted for offences under Section 447 of the Companies Act, 2013—related to corporate fraud—unless two mandatory conditions, known as the "twin conditions," are fully satisfied.
These twin conditions are laid out in Section 212(6) of the Companies Act. According to this section:
“(i) The Public Prosecutor must be given an opportunity to oppose the bail application;
(ii) If opposed, the court must be satisfied that there are reasonable grounds to believe the accused is not guilty and is not likely to commit any offence while on bail.”
The bench comprising Justice Bela M. Trivedi and Justice Satish Chandra Sharma delivered this judgment, strongly emphasizing that these conditions are mandatory and must be fulfilled before granting any bail under Section 447.
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The Supreme Court relied on its earlier judgment in Vijay Madanlal Choudhary v. Union of India, which upheld the constitutional validity of the twin conditions under the Prevention of Money Laundering Act (PMLA). It stressed that such conditions apply equally to anticipatory bail.
In the current case, the Serious Fraud Investigation Office (SFIO) had filed a criminal complaint against several directors and individuals associated with the Adarsh Group of Companies. The Ministry of Corporate Affairs had directed SFIO to investigate serious economic offences committed under both the Companies Act, 1956 and 2013.
Upon investigation, it was revealed that:
- Adarsh Credit Cooperative Society Limited (ACCSL), a multi-state credit cooperative society, had illegally disbursed over ₹1,700 crores in loans to about 70 companies of the Adarsh Group and some others.
- These loans were given based on forged financial documents.
- The accused directors siphoned off these funds and falsely declared the loans as "financial institution borrowings" in their balance sheets.
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The Special Court had taken cognizance of the offences and issued bailable warrants. However, when the accused failed to appear, non-bailable warrants and even proclamation orders under Section 82 CrPC were issued. Despite multiple summons, several accused persons deliberately absconded, leading to further delay in criminal proceedings.
“There is a brazen attempt made by the respondents to stall the criminal proceedings initiated against them by not respecting the summons/warrants issued by the Special Court… thereby causing obstruction in the administration of justice,” the bench observed.
While the Punjab and Haryana High Court had granted bail to some of the respondents, the Supreme Court found the High Court orders flawed as they did not properly evaluate the mandatory twin conditions. The Apex Court emphasized that:
“Cryptic bail orders that fail to consider the statutory twin conditions are perverse and liable to be set aside.”
Additionally, the Supreme Court noted that the High Court’s assumption—that Companies Act provisions are less stringent than those of PMLA—was incorrect.
“The gravity of economic offences must be assessed from case to case, but it cannot be said that serious economic frauds under the Companies Act are less severe. Bail cannot be granted ignoring the legislative mandate,” the Court clarified.
Importantly, the Court also remarked on the pending review petitions against Vijay Madanlal Choudhary and on the pending challenge to the validity of Section 212(6). However, until any such judgment is delivered, the law remains binding and enforceable.
The Supreme Court thus cancelled the bails granted by the High Court, reaffirming that:
“The twin conditions are mandatory and non-negotiable under Section 212(6) of the Companies Act for offences falling under Section 447.”
Case Details: SERIOUS FRAUD INVESTIGATION OFFICE v. ADITYA SARDA|SPECIAL LEAVE PETITION (CRIMINAL) NO. 13956
