Madras High Court Refuses To Quash CBI FIR Against Ind Barath Power Directors Despite Withdrawal Of Fraud Tag

The Madras High Court has refused to quash a CBI FIR against the directors of Ind Barath Power Gencom Limited. It held that the subsequent withdrawal of the company's "Fraud" classification by the lending bank does not wipe out criminal proceedings arising from allegations of diversion of funds, fabrication of records, and other cognisable offences.

The court also observed that the FIR was not registered solely on the basis of the forensic audit that led to the fraud classification.

Justice G.K. Ilanthiraiyan was hearing petitions filed by the company's directors seeking to quash an FIR registered by the Central Bureau of Investigation for offences under the Indian Penal Code and the Prevention of Corruption Act.

“While the classification of an account as "Fraud" entails civil consequences, the registration of an FIR gives rise to criminal consequences.”, the court observed.

The FIR relates to allegations that the company, after availing credit facilities from a consortium of banks led by the State Bank of India, diverted loan funds, manipulated its books of accounts, fabricated records, and obtained unlawful gain from bank funds.

According to the prosecution, the company suffered financial distress after Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) failed to clear its dues, leading its loan account to be classified as a non-performing asset.

A forensic audit allegedly uncovered diversion of funds and manipulation of accounts. The company's account was thereafter classified as "Fraud" and the CBI registered the FIR.

The directors argued that some of them were independent directors with no role in the company's day-to-day affairs and that no specific allegations had been made against them. They also contended that SBI had subsequently withdrawn the fraud classification and that the Fraud Identification Committee later exonerated certain directors. According to them, the very basis for the FIR had therefore ceased to exist.

Rejecting the contention, the court held that the withdrawal of the fraud classification did not affect the criminal proceedings because the fraud classification and criminal prosecution operate in different fields.

“The FIR was not registered solely on the basis of the Forensic Audit Report but also on the basis of several other allegations indicating the commission of cognizable offences.”, the court ruled.

The court noted that the FIR also alleged falsification of records, use of fabricated documents to obtain loans, diversion of about ₹473 crore received from TANGEDCO, and other acts disclosing prima facie cognisable offences.

The court dismissed the petitions. It directed the CBI to complete the investigation and file its final report before the jurisdictional Magistrate within 16 weeks, if it has not already been filed.

For Petitioner: Senior Advocate M.S Krishnan and Advocate Anirudh Krishnan

For Respondents: Senior Advocate K Srinivasan and Advocate M.L Ganesh