Look Out Notice Against Auditor for Owing Huge Debt to Banks can’t be Quashed

Case Details: Ghanshyam Pandey v. Union of India - [2023] 151 taxmann.com 27 (Delhi)

Judiciary and Counsel Details

• • Prathiba M. Singh, J.
  • Balaji Subramanian, Pawan Bhushan & Akash Kundu, Advs. for the Appellant.
  • Anurag Ahluwalia, CGSC, Kritgya Kumar Kait, GP, Shriram Tiwary, Abhigyau Siddhanta, Salman Razi, Advs., Gaurav, (A.D. SFIO) & Nitin Agnihotri for the Respondent.

Facts of the Case

In the instant case, an investigation by the Serious Fraud Investigation Office (SFIO) was initiated against individual/entity ‘S.’ The investigation uncovered connections between the transactions of ‘S’ and foreign entities, specifically its affiliated companies.

Further, it was revealed that a significant sum of money had been transferred to these related companies, resulting in outstanding loans owed to public financial institutions and banks.

Later, the SFIO issued a look out circular (LOC) against petitioner i.e, a whole-time director and a member of audit committee of ‘S’. Consequently, the Petitioner filed instant petition praying for quashing of said LOC issued against him.

Subsequently, it was found that petitioner was a CEO of ‘S’ between 2006-2012, a whole-time director of ‘S’ from 2013 to 2017 and a member of audit committee from 2011 to 2017, during which transactions claimed by SFIO to be fraudulent transactions had occurred.

High Court Held

The High Court held that the petitioner being an auditor was not to be absolved of responsibility merely on ground that he was a mute spectator of shortcomings or misconduct within company and, thus, LOC was not liable to be quashed.

List of Cases Reviewed

• • Brij Bhushan Kathuria v. Union of India 2021 SCC OnLine Delhi 2587
  • Lakshmi Satyanarayana Dutt Tadikond v. Union of India [2020] 114 taxmann.com 424/274 Taxman 414/426 ITR 550 (Delhi)
  • Sumer Singh Salkha v. Asstt. Director ILR (2010) 6 Delhi 706
  • Rana Ayyub v. Union of India 2022 SCC Online Delhi 961 (para 26) distinguished.

List of Cases Referred to

• • Brij Bhushan Kathuria v. Union of India 2021 SCC OnLine Delhi 2587
  • Sumer Singh Salkha v. Asstt. Director ILR (2010) 6 Delhi 706
  • Lakshmi Satyanarayana Dutt Tadikond v. Union of India [2020] 114 taxmann.com 424/274 Taxman 414/426 ITR 550 (Delhi)
  • Rana Ayyub v. Union of India 2022 SCC Online Delhi 961
  • Bharadwaj Venkataraghavan Thiruvenkata v. Serious Fraud Investigation Office [W.P.(Crml.) 413/2022, dated 15-9-2022]
  • Union of India v. Savita Kumar [LPA No. 219 of 2017, dated 28-8-2019]
  • Rohit Tandon v. Directorate of Enforcement [2017] 87 taxmann.com 260/[2018] 145 SCL 1 (SC)
  • State of Gujarat v. Mohanlal Jitamalji Porwal 1987 taxmann.com 612 (SC)
  • Vijay Madanlal Choudhary v. Union of India [2022] 140 taxmann.com 610 (SC).