Bail granted by High Court to Satyam Auditors’ set aside

CBI, Hyderabad vs Subramani Gopalakrishnan & Anr.


Appeals by the Central Bureau of Investigation(CBI), Hyderabad were directed against the order dated 25.06.2010 passed by the High Court of Andhra Pradesh at Hyderabad by which the High Court enlarged the respondents S. Gopalakrishnan (A4) and V.S. Prabhakara Gupta (A10) on bail by imposing certain conditions.

On 07.01.2009, B. Ramalinga Raju (A1), the then Chairman of M/s Satyam Computer Services Limited (M/s SCSL) addressed a confessional letter to the Board of Directors revealing several financial irregularities in M/s SCSL. He also revealed several frauds and cooking books of accounts. Due to the fraud on the part of the persons in Management including the Financial Advisors, Auditors, etc., many investors suffered loss and on the complaint of one of such investors, a First Information Report (FIR) was registered on 09.01.2009 by the Andhra Pradesh State Crime Investigation Department against the then Chairman, Directors and Auditors of M/s SCSL and others under Section 120-B read with Sections 409, 420, 467, 468, 471 and 477A of the Indian Penal Code. Considering the magnitude of the offence, investigation was entrusted to the CBI and a regular case being  RC. No. 4(S)/2009 was registered by the CBI, Anti- Corruption Branch, Hyderabad, on 20.02.2009.

ASG submitted that at this stage, release of the accused-respondents from judicial custody would jeopardize the trial, particularly, when the two respondents, A4 and A10 who were the external and internal auditors of the Company, would influence the witnesses and it would be difficult for the employees to come and depose against them. He also submitted that considering the seriousness of the offence, impact on the society as a whole and magnitude of the offence, the respondents were not entitled for bail and the High Court committed an error in granting the bail to them. He also submitted that the reliance on the orders of the Supreme  Court insofar as Talluri Srinivas (A5) was not comparable because after the order of the Supreme Court granting him bail on 04.02.2010 the  entire scenario in the trial had changed, hence the said order could not be cited as a precedent.

Counsel appearing for A4 highlighted the alleged role between those accused, i.e. A1, A2, A3, A7, A8 and A9 whose bail has been cancelled by the Supreme Court and that of A4. It was submitted that A4 had been in custody for one year and five months before he was enlarged on bail. Counsel also demonstrated that even according to the prosecution the role assigned to A4 and A5 was identical and when A5 was ordered to be released by the Supreme Court even as early as on 04.02.2010, the High Court rightly applied parity between them and granted bail. He also contended that A4 was not an employee of M/s SCSL but was partner in M/s Price Waterhouse and had nothing to do with the alleged claim in M/s SCSL.

The Supreme Court observed that as per the complaint and investigation, A4 and A10 along with the other accused were involved in one of the greatest corporate scams of the commercial world. The High Court, while ordering bail for A4 and A10, heavily relied on the order of the Supreme Court granting bail to Talluri Srinivas (A5), who is a Chartered Accountant, registered with the Institute of Chartered Accountants of India (ICAI). He was working as a partner with M/s Price Waterhouse, Bangalore registered with the ICAI. M/s Price Waterhouse was the statutory authorized auditors of M/s SCSL and allegation against A5 was that while submitting the audit report for the year 2007-08, some inflated figures were incorporated in the said report and thereby he committed serious breach of faith as a Member of the professional body of auditors/accountants.

The issue before the Supreme Court was whether the same reasoning were applicable to the respondents A4 and A10?

The Supreme Court held that there was no similarity in respect of the role assigned to A4 and A5. It was pointed out that though both A4 and A5 were auditors of M/s SCSL at the relevant time, admittedly, A5 had worked only for a period of one year whereas A4 was in-charge of auditing the accounts of M/s SCSL for a period of seven years, i.e., from 2000 to 2007. After verifying the three charge-sheets and the imputations made against both these accused persons, the Court observed that prima facie, it was satisfied that A4 and A5 could not be put on the same footing in respect of erroneous auditing resulting in inflated cash and bank balances of M/s SCSL.

The Supreme Court also observed that in view of the earlier directions of the Supreme Court, the trial was proceeding on day-to-day basis and likely to be concluded by 31.07.2011.

Counsel for A-10 submitted that he being the internal auditor, employee of M/s SCSL, there was no statutory function and his name did not find place in the first charge-sheet and he was named only in the second charge-sheet. But the Supreme Court considering the materials available, held that it was not desirable to go into the correctness or otherwise at this juncture and at the same time in view of the magnitude of the scam and without the assistance and connivance of persons in-charge of auditing, held that the High Court was not justified in granting bail for him.

Thus in view of the specific allegation by the prosecution that A4 and A10 were party to the criminal conspiracy showing inflated (non-existent) cash and bank balances reflected in the books, inflated proceeds over a period of last several years, frauds and cooking books of accounts, the Supreme Court held that the High Court ought not to have granted bail to the respondents. Appeals were thus allowed.