*THE HON’BLE SRI JUSTICE B. CHANDRA KUMAR +CRIMINAL PETITION No.8227 OF 2009 %Dated 28-10-2009 Crl. P. No. 8227 of 2009 # Talluri Srinivas (A-5), S/o.T.L.N. Rao, Aged about 48 years, Chartered Accountant, M/s. Satyam Computer Services Limited, R/o.8-2-293/82/A/1131A, Road No.36, Jubilee Hills, Hyderabad. ..... PETITIONER VERSUS $ The State Rep. by C.B.I., Hyderabad, Rep. by its Public Prosecutor, High Court of A.P., Hyderabad. ...RESPONDENT ! Counsel for Petitioner : Sri K.T.S. Tulsi ^ Counsel for Respondent. : Special Public Prosecutor < GIST : > HEAD NOTE : ? Cases referred : --- 1) Babu Singh v. State of UP. 2) Moti Ram v. State of M.P. 3) Babanrao Tukaram Ranjane v. State of Maharashtra. 4) Anil Kumar Tulsiyani v. State of UP and another. 5) Jayendra Saraswathi Swamighal v. State of Tamil Nadu. 6) Chandraswami and another v. CBI. 7) Ram Narayan Singh and others v. State of Bihar. 8) Ashok Dhingra v. NCT of Delhi. 9) Mehmood Mohammed Sayeed v. State of Maharashtra. 10) Sukhwant Singh v. State of Punjab. 11) B. Jagdish and another v. State of A.P. 12) State of Orissa v. Debendra Nath Padhi. 13) Tri Sure India Ltd v. A.F. Ferguson and Co. 14) Anil Mahajan v. Commissioner of Customs. 15) Lambert Kroger v. Enforcement Directorate. 16) Kalyan Chandra Sarkar v. Rajesh Ranjan. 17) Kalyan Chandra Sarkar v. Rajesh Ranjan. 18) Prahlad Singh Bhati v. NCT, Delhi and another. 19) Ram Govind Upadhyay v. Sudarshan Singh and others. 20) Satish Jaggi v. State of Chhattisgarh and others. 21) State of UP v. Amarmani Tripathi. 22) The State Vs. Captain Jagjit Singh. 23) Hussainare Khatoon Vs. Home Secretary, State of Bihar. THE HON’BLE SRI JUSTICE B. CHANDRA KUMAR CRIMINAL PETITION NO.8227 of 2009 ORDER: Whether to grant bail or not to an accused involved in a case of serious nature of offence has been the question bothering the judiciary quite often. The liberty of the individual and prolonged judicial custody on one side and the magnitude of the offence, its impact on society and the apprehension of the prosecution that the accused who are powerful and influential may win over the witnesses or tamper the prosecution evidence are certain of the important issues which may arise for consideration while deciding bail applications. The brief facts of the case are as follows. M/s. Satyam Computer Services Limited was initially registered as Satyam Computer Services Private Limited under the Companies Act, 1956 with the Registrar of Companies, Andhra Pradesh, Hyderabad on 24th June, 1987. Its name was changed as M/s Satyam Computer Services Limited and a fresh certificate of incorporation consequent on change of name was issued by the Registrar of Companies on 26th August 1991 and Certificate No.01-07564 was allotted to Satyam Computer Services Limited. The Satyam Computers Services Limited (hereinafter referred as ‘Satyam Computers’). The Satyam Computers, thus, became a public limited company since 26th August 1991 and went public in the year 1991 by giving shares to the public to the tune of 81.22%, as such the promoters share holding as on 1992 was 18.78%. The 1st accused B. Ramalinga Raju in his letter dated 7th January 2009 addressed to the Board of Directors confessed that the balance sheet carries as on September 30, 2008 inflated (non- existent) cash and bank balances of Rs.5040 Crores (as against Rs.5,361 crores reflected in the books), an accrued interest of Rs.376 crores which is non-existent, an understated liability of Rs.1,230 crores on account of funds arranged by him and an overstated debtors position of Rs.490 crores (as against Rs.2651 crores reflected in the books). It also reveals that for the September Quarter (Q.2) reported a revenue of Rs.2,700 Crores and an operating margin of Rs.649 crores (24% of revenues) as against the actual revenue of Rs.2112 crores and an actual operating margin of Rs.61 crores (3% revenues) and this has resulted in artificial, cash and bank balances going up by Rs.588 crores in Q.2 alone. He (A1) has also mentioned that the gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years and what started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. The differential gap in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations thereby significantly increase the cost. The Satyam Computers has shown in their balance sheets the cash and bank balances position in the scheduled banks over the years as follows. Year Cash balances in current accounts as shown in the balance sheets in Rs. (a) Cash available in FDRs as shown in the balance sheets in Rs. (b) Cash and Bank balances as shown in balance sheets in Rs. (a+b) 2000- 2001 140,82,04,888 72,53,487 141,54,58,375 2001- 2002 250,63,17,096 820,55,24,121 1071,18,41,217 2002- 2003 230,83,95,441 1262,60,88,295 1493,44,83,736 2003- 2004 313,73,84,102 1469,15,94,918 1782,89,79,020 2004- 2005 397,68,25,638 1804,38,48,734 2202,06,74,372 2005- 2006 1021,28,01,878 1907,42,20,043 2928,70,21,921 2006- 2007 415,18,37,616 3365,81,55,971 3780,99,93,587 2007- 2008 956,29,04,881 3317,69,64,590 4273,98,69,471 Q1- 2008 1338,62,32,924 3318,76,93,274 4657,39,26,198 Q2- 2008 1841,16,51,515 3319,17,03,274 5160,33,54,789 The investigation has revealed the following actual position with regard to the cash and bank balances i.e., balances available in the current accounts with various banks and cash available in deposit accounts (FDRs) over the years as shown in the table below. Year Actual cash balances in current accounts in Rs. (a) Actual cash available in FDRs in Rs. (b) Actual cash and bank balances of M/s SCSL in Rs. (a+b) 2000- 2001 27,04,39,571 66,66,810 27,71,06,381 2001- 2002 34,47,45,246 38,58,80,629 73,06,25,875 2002- 2003 63,87,39,890 25,93,00,044 89,80,39,934 2003- 2004 49,50,36,709 22,71,23,856 72,21,60,565 2004- 2005 75,90,77,580 11,91,31,346 87,82,08,926 2005- 2006 69,32,12,316 111,92,25,747 181,24,38,063 2006- 2007 172,12,69,119 57,45,14,792 229,57,30,911 2007- 2008 127,39,26,262 9,36,14,910 136,75,41,172 Q1- 2008 108,39,06,125 10,39,56,736 118,78,62,861 Q2- 2008 128,96,15,132 10,82,07,532 139,78,22,664 Thus, it is revealed that huge amounts of cash and bank balances were fraudulently and dishonestly reflected in the balance sheets of Satyam Computers by the accused, whereas only very less amounts of cash and bank balances were actually available. The cash and bank balances shown in the balance sheets and the actual position of cash and bank balances with various scheduled banks are shown in the following table. Year Cash and bank balances shown in balance sheets in Rs. (a) Actual cash and bank balances with the banks in Rs. (b) Difference in Rs. (a-b) 2000- 2001 141,54,58,375 27,71,06,381 113,83,51,994 2001- 2002 1071,18,41,217 73,06,25,875 998,12,15,342 2002- 2003 1493,44,83,736 89,80,39,934 1403,64,43,802 2003- 2004 1782,89,79,020 72,21,60,565 1710,68,18,455 2004- 2005 2202,06,74,372 87,82,08,926 2114,24,65,446 2005- 2006 2928,70,21,921 181,24,38,063 2747,45,83,858 2006- 2007 3780,99,93,587 229,57,30,911 3551,42,62,676 2007- 2008 4273,98,69,471 136,75,41,172 4137,23,28,299 Q1- 2008 4657,39,26,198 118,78,62,861 4538,60,38,337 Q2- 2008 5160,33,54,789 139,78,22,664 5020,55,32,125 From the above table for the second quarter (Q.2) in the year 2008, the cash and bank balances as shown in the balance sheets were to the tune of Rs.5160,33,54,789/-, whereas the actual cash and bank balances available with Satyam Computers were to the tune of Rs.139,78,22,664/-. Thus the non-existent cash and bank balances were to the tune of Rs.5020,55,32,125/- i.e., Rs.5020.55 crores. There are many other allegations such as TDS on non-existent accrued interest, inflation of sales by generating false invoices, back tracking reports from the PBMS, ONTIME and OPTIMA, inflated debtor position, off-loading of shares of Satyam Computers by the accused and other promoters of Satyam Computers, floating of 327 companies and their financial activities and inflated revenues etc. The petitioner herein is the accused No.5. He is one of the auditors. The accounts have to be prepared in accordance with the law with generally accepted auditing practices (GAAP), the financial statements must show a true and fair view, all required information and records must be made available and the auditors have to verify the correctness of the financial statements given by the management by various sources. They have to directly secure information from various banks with regard to actual financial position and the amounts lying in the form of FDRs etc., from the banks. In this case, M/s Price Waterhouse Chartered Accountants were employed as statutory auditors for Satyam Computers by the shareholders of the Company. Thus, some times the role of statutory auditors would become the role of investigators and fact-finding machinery and they are responsible to place all the facts before the shareholders. They are not expected to blindly accept the information furnished by the board of directors. The shareholders depending upon the reports prepared by the statutory auditors have an opportunity to raise any question they wish at the Annual General Meeting (AGM) to the directors. The petitioner A-5 had signed as partner for and on behalf of Price Waterhouse Chartered Accountants. He had categorically certified that the financial statements give a true and fair view in conformity with the accounting principles generally accepted in India. The prosecution case is that the petitioner is a partner in the firm M/s Price Waterhouse, Bangalore and not in M/s Price Waterhouse and by affixing his signature on the audit reports for and on behalf of M/s Price Waterhouse deliberately with the knowledge of its implications and consequences violated the requirements of Auditing and Assurance Standards (AAS) 28. The allegation is that the petitioner had intentionally cheated the shareholders and other stakeholders by personating himself as partner in M/s Price Waterhouse on which the shareholders and investors placed their reliance. It is further alleged that the petitioner in furtherance of the conspiracy with the other accused deliberately did not take into account the huge variation in the figures of fixed deposit balance between the bank confirmation received directly and the one received through the company, deliberately did not verify the sources of new fixed deposit receipts, did not verify the advice of domestic/international transfer issued by the authorized signatory of the bank, did not obtain direct confirmation of balances, did not follow- up the international confirmations as envisaged in their own internal guidelines, contrary to the accepted general practices relied upon photo copies of the fax messages received for confirmation of current account balances and other willful violations in derogation to their professional responsibilities, thereby he had accommodated the fraudulent and dishonest acts of A1 to A3 and other co-conspirators, knowing fully well the implications and consequences of their overt acts and intentional omissions. It is also alleged that the petitioner had been compensated through exorbitant audit fees by A1 to A3. Audit fees of only Rs.0.83 crores and 1.10 crores have been paid by M/s Infosys and M/s Wipro respectively, but Satyam Computers had paid 3.73 crores for the year 2007-08 towards audit fees to the petitioner (A- 5). He is also alleged to have received in addition to the above audit fees an amount of Rs.1.27 crores towards rendering other services and these amounts were not reflected separately in the accounts though mandated as per the reporting norms. It is further alleged that the petitioner received the confirmations from the banks which are in great variance with the figures provided by the management and appearing in the books of accounts. Despite this glaring discrepancy and having both the confirmations i.e., the original confirmations received from the banks and the forged bank confirmations provided by the other accused and the petitioner in furtherance of the conspiracy, had chosen the forged bank confirmations provided by the accused, certified the same and incorporated in the final accounts. He had flouted the prescribed audit and assurance standard number 30 of Institute of Chartered Accountants of India (ICAI) thereby facilitated the projection of falsified data in the annual financial statements of the company continuously. The presentations made by the petitioner to the audit committee about the health of the company were misleading and in fact he gave very good certification regarding the financial discipline and controls available in the company contrary to the reality. The petitioner had consciously overlooked the accounting irregularities committed by Satyam Computers since 2007 showing his complicity in the commission of the above said offences and he is liable as co- conspirator. It is further alleged that the letters on the letter pads of M/s Price Waterhouse were recovered from the computer systems of Satyam Computers. These letters were supposed to be written by the auditors addressed to the banks seeking confirmations about the balances. The petitioner as part of the conspiracy got these letters generated in the computer systems of Satyam Computers for the purpose of creation of records which depicts his privy and involvement in the conspiracy. He also made Satyam Computers to generate certain letters addressed to the banks directing the banks to directly inform the auditors. However these letters were generated merely for the purpose of record which shows the role of the petitioner in the conspiracy. But for his active cooperation this would not have taken place for the period since 2007. The petitioner was arrested on 24-01-2009 and since then he is in judicial custody. Earlier he filed bail applications before the IV Addl. Metropolitan Sessions Judge, Hyderabad, but they were dismissed. The petitioner has also filed bail petition in Crl. P. No. 3985 of 2009 and this Court, by its order dated 29-06-2009, dismissed the same. Charge sheet has been filed against the petitioner and other accused alleging that they have committed offences punishable under Sections 120-B read with Sections 420, 419, 467, 468, 471, 477-A and 1212201 IPC. It is not in dispute that from among above mentioned Sections, Section 467 I.P.C. is punishable with imprisonment for life. Consequently Section 471 I.P.C. The petitioner’s case is that he is aged 48 years and permanent resident of Hyderabad since 1984 and presently residing in Hyderabad with his wife, school going son and daughter and aged mother. His further case is that the present application raises some new pleas which were not raised in the previous application or pleas which have arisen after passing of order in previous bail application by this Court on 29-06-2009 in Crl. P. No.3985 of 2009. He was appointed as the engagement partner of Price Waterhouse (FRN 007568S) for the audit of Satyam Computers in 2007. His further case is that he is in no manner concerned with the accounts or the audit of Satyam Computers prior to 2007. The Institute of Chartered Accountants of India (ICAI) a specialized body constituted under the Chartered Accountants Act, 1949 the object of which is to regulate the conduct of its members initiated disciplinary proceedings arising out of Satyam Computers audit, under Section 21 of the Chartered Accountants Act, 1949 against the petitioner. It is also his case that the CBI has not interrogated/questioned him at any time other than March 10 to March 17, 2009 and thereafter since the order dated 29- 06-2009 was passed in Crl. P. No.3985 of 2009 and therefore it is clear that the CBI does not require his custody any longer. His further case is that second FIR was illegally registered which has no basis in law and could not result in the charge sheet. According to the petitioner, SEBI also interrogated him on several occasions. Petitioner was arrested on 24-01-2009 and charge sheet was filed on 07-04- 2009. The petitioner would not abscond and would be made available himself for further investigation if necessary. He will not tamper the investigation or any evidence or witnesses. He is the sole breadwinner of the family and continued incarceration is causing grave agony and hardship to his family members. The CBI filed objections. The main contention of the CBI is that this is the 9th bail application filed by the petitioner without any change in the circumstances. The CBI is no way connected with the investigation initiated by the Institute of Chartered Accountants of India (ICAI). The further investigation in this case is at crucial stage. The CBI has filed an application before the XIV Addl. Chief Metropolitan Magistrate, Nampally, Hyderabad, seeking permission to subject A1 to A3 to polygraph and brain mapping tests. Though the said application was allowed A1 to A3 had challenged the said order before this Court and the same is pending vide Crl. Petition Nos.5554, 5464 and 5569 of 2009 before the Division Bench of this Court. Since A1 to A3 had not divulged several facts during their custodial interrogation, therefore enlargement of the petitioner at this stage would adversely effect the prosecution case. It is further submitted that the investigation is transferred from CBCID, A.P., to CBI, as such the FIR registered by CBCID and the case records had merged with the case records of the present case, therefore it is incorrect to allege that there are two FIRs registered in this case. When further reliable information was received by the investigating agency about the diversion of funds and misappropriation of monies by A1 and others a petition in Crl.M.P No.2214 of 2009 was filed before the trial Court under Section 173(8) Cr.P.C on 13-04-2009 for grant of permission for conducting further investigation and to look into the diversion and misappropriation aspects and the same was allowed by the said Court on 25-04-2009. Further investigation has already started and considerable progress has been made. The CBI, MDIT after filing charge sheet requested the Government of A.P., to designate an exclusive court for trying this case in order to conduct speedy trial on 20-05-2009 and this Court addressed a letter to the Government for establishment of Addl. Chief Metropolitan Magistrate Court at Hyderabad for conducting trial of this case and orders of the Government are awaited. The petitioner is highly influential and if he is released on bail there is every possibility that he would impede and interfere with the process of further investigation and tamper with the evidence and influence the witnesses already examined and to be examined in this case and the release of the petitioner will certainly hamper further investigation and adversely effect the case. This case is a rarest of rare case and it is a gigantic fraud committed in the history of the country perpetrated by the management with active connivance of the petitioner. The C.B.I. has also referred to various allegations made against the petitioner in the charge sheet in its objections. Their further case is that the petitioner under Section 227 4(A) of the Companies Act, 1956 is duty bound to report the instances of fraud perpetrated by or on the company. The funds of Satyam Computers have been sent to third parties across the globe during the fraud period and Letters Rogatory have been issued by the XIV ACMM, Nampally to the competent judicial authorities at USA, UK, Mauritius, Singapore, Belgium and British Virgin Islands on 10-09-2009 and replies are awaited. The petitioner will also influence the witnesses in India and abroad as the accused is a co- conspirator and is a high profile and influential person. The Registrar of Companies (ROC), Securities and Exchange Board of India (SEBI), Serious Fraud Investigation Office (SFIO) and Enforcement Directorate (ED) are also investigating into the monumental fraud of gigantic proportion committed in this case by the accused including the petitioner. The petitioner is not a member of M/s Price Waterhouse and therefore he is violated Section 229 of the Companies Act. The monies paid by Satyam Computers towards audit fees have actually reached the account of M/s Lovelock and Lewes where the petitioner is a partner and it shows that the audit was actually done by the firm M/s Lovelock and Lewes and not the firm M/s Price Waterhouse. The investigation revealed that Rs.1425 crores which were brought into Satyam Computers was clandestinely and dishonestly shown as sale proceeds and records were fabricated is if to show that these were money transfers from Bank of Baroda, New York branch into the local banks. It is also alleged that even when a whistle blower e-mail received by one of the independent directors was sent to the petitioner for comments, the petitioner did not react and has stated that there is no truth in the contents of that e-mail, which reflects the intentions of the petitioner. Heard the arguments. The points which arise for consideration are: (1) Whether the second application for bail is maintainable? (2) Whether there are prima-facie grounds to believe that the petitioner had committed the offences charged with? (3) Whether the petitioner is entitled to bail? and (4) What are the considerations for granting bail? The learned Senior Counsel for the petitioner had relied on the following judgments. 1) Babu Singh v. State of UP[1], 2) Moti Ram v. State of M.P.[2], 3) Babanrao Tukaram Ranjane v. State of Maharashtra[3], 4) Anil Kumar Tulsiyani v. State of UP and another[4], 5) Jayendra Saraswathi Swamighal v. State of Tamil Nadu[5], 6) Chandraswami and another v. CBI[6], 7) Ram Narayan Singh and others v. State of Bihar[7], 8) Ashok Dhingra v. NCT of Delhi[8], 9) Mehmood Mohammed Sayeed v. State of Maharashtra[9], 10) Sukhwant Singh v. State of Punjab[10], 11) B. Jagdish and another v. State of A.P.[11], 12) State of Orissa v. Debendra Nath Padhi[12], 13) Tri Sure India Ltd v. A.F. Ferguson and Co.[13], 14) Anil Mahajan v. Commissioner of Customs[14], 15) Lambert Kroger v. Enforcement Directorate[15], In Babu Singh v. State of UP (1 supra) principles had been laid down for considering the bail applications. In Moti Ram v. State of M.P. (2 supra) whether the Court is justified to seek local sureties and to direct a mason to furnish sureties of Rs.10,000/- was the issue that came up for consideration. I n Babanrao Tukaram Ranjane v. State of Maharashtra (3 supra), the Supreme Court observed that detailed discussion on the scope of the Maharashtra Control of Organised Crime Act, 1999 or materials against the appellant on merits not called for at the stage of bail. In that case, the appellant was in custody for more than two years and three months. Taking into the period of custody bail was granted to the appellant therein. However, the Supreme Court observed that we have necessarily to keep in mind the magnitude of the alleged crime and the consequences that have flowed from such a crime. I n Anil Kumar Tulsiyani v. State of U.P. and another (4 supra), the Supreme Court, while considering the bail application filed by an accused who was an advocate, observed that reasonable apprehension of the witnesses being tampered with or won over, coerced, threatened or intimidated by the accused using his influence and position could not be ruled out. It was also held that there are no mitigating circumstances to grant bail in that case. In Jayendra Saraswathi Swamigal v. State of Tamil Nadu (5 supra), the Supreme Court considered the issue how to use the confession made by the co-accused under Section 10 of the Evidence Act. In Chandraswami and another v. CBI (6 supra), the Supreme Court considered the circumstances that the offence under Section 120-B read with Section 420 IPC registered about 16 years ago and which is not covered by the exception clauses (i) and (ii) of Section 437(1) Cr.P.C and other circumstances that the examination of the main witnesses was already over and that there was any evidence which could be tampered with or influenced by the accused ordered release of the accused in the peculiar circumstances of that case. The Supreme Court in Ram Narayan Singh and others v. State of Bihar (7 supra) granted bail to an accused where the allegation is that the accused misappropriated to the tune of Rs.75,000/- for giving employment. It appears that the trial was not proceeding as per the directions of the Supreme Court and that the petitioner was in jail for more than nine months. Taking into consideration those circumstances, the bail was granted in that case. Similarly, in Ashok Dhingra v. NCT of Delhi (8 supra) the accused was in jail for about nine months and the allegation is that he cheated a Japanese national of a whopping sum