Custodial Interrogation Is Not Punitive — Arrest Cannot Be Used as a Tool to Humiliate in Corporate Offence Allegations: Delhi High Court Grants Anticipatory Bail

“Whether the dilution of shares was fraudulent or with consent is a matter of trial — Court cannot prejudge at the bail stage”, In a noteworthy ruling that reaffirms the protective scope of anticipatory bail in white-collar crime cases, the Delhi High Court granted pre-arrest bail to Mahesh Chugh, who was accused of forging corporate documents, illegally diluting shareholding, and siphoning off assets in a dispute that allegedly originated in 2010. Justice Amit Mahajan, while passing the order in Mahesh Chugh v. State of NCT of Delhi, observed that “custodial interrogation is not required at this stage,” especially when the investigation hinges on corporate records and the accused has joined inquiry multiple times.

The FIR, registered on 25 December 2024, alleged offences under Sections 420, 467, 468, 471, and 120B of the IPC, claiming that Chugh had forged documents, convened fake Annual General Meetings, and transferred shares fraudulently in his favour and to shell companies, without the knowledge or consent of original shareholders.

The Court found that while the allegations were grave, the delay of over a decade in initiating criminal action, coupled with the complainant’s inaction in seeking civil remedies, pointed to the need for a cautious approach.

“Absence of Civil Action for 14 Years Raises Serious Doubts — FIR Appears to Be a Counterblast to Arbitration Proceedings”

Justice Mahajan did not shy away from questioning the timing of the complaint. Referring to the alleged events of 2010–2011 and the FIR registered in 2024, the Court noted:

“The complaint has been filed belatedly after 14 years stating that the knowledge of the same was gained by the complainant only in the year 2023… Whether the complainant was not aware of the same during these 14 years becomes a subject matter of trial.”

The Court found merit in the submission that the FIR was a retaliatory move to arbitration proceedings initiated by M/s Kalu Ram Builders, where the applicant was a director. It held that: “No proceedings or suit has been initiated by the complainant seeking a declaration with respect to the dilution of shareholding or the validity of the resolutions passed.”

The Court highlighted that despite alleging fraudulent acts, the complainant did not approach civil forums for over a decade. It remarked that such inaction raised serious doubts about the urgency or veracity of the grievance.

“Whether the Applicant Was Complicit in Forgery or Share Transfers Is a Matter of Evidence — Not a Question to Be Decided at the Bail Stage”

While the investigation had revealed troubling inconsistencies — such as forged AGM records showing deceased shareholders as present, and transfers of shares without consent — the Court firmly held that those were matters for trial. The judgment stated: “Whether the dilution of the shares was done in order to defraud or was done with the consent of the parties, becomes a subject matter of trial… and cannot be commented upon at this stage.”

In the Status Report, several shareholders had recorded statements alleging that their shares were transferred without consent. But the Court refused to treat these allegations as conclusive in a pre-arrest bail matter. It held:

“Whether the applicant was complicit in the alleged transfer of shares or the forgery of documents… can only be examined after the evidence is led.”

The Court found no material to suggest that the applicant posed a threat to the investigation, especially in view of his cooperation during earlier summons under interim protection.

“Arrest Is Not Meant for Humiliation — No Justification for Custodial Interrogation When Accused Is Cooperating”

Reiterating the settled principles of criminal jurisprudence, the Court held that arrest cannot be used punitively. Citing Pradip N. Sharma v. State of Gujarat (2025 SCC OnLine SC 457) and Siddharam Satlingappa Mhetre v. State of Maharashtra (2011) 1 SCC 694, Justice Mahajan underscored the need for balance:

“The purpose of custodial interrogation is to aid the investigation and is not punitive.”

The Court noted that “great amount of humiliation and disgrace is attached with the arrest,” and that no apprehension was raised by the prosecution suggesting that the applicant was a flight risk or likely to tamper with evidence. On the contrary, the Court observed: “In cases where the accused has joined the investigation, cooperating with the Investigating Agency and is not likely to abscond, the custodial interrogation should be avoided.”

It was also clarified that not confessing to the crime cannot be equated with non-cooperation, citing the Supreme Court’s view in Dwarkadas Fafat v. State of Maharashtra, (2017) 9 SCC 714.

“Anticipatory Bail Granted with Conditions — Bail Cannot Be Denied Simply Because Allegations Are Serious”

While granting anticipatory bail, the Court directed the applicant to furnish a personal bond of ₹50,000 with two sureties and imposed multiple conditions, including travel restrictions, mandatory cooperation with the investigation, and a bar on contacting witnesses. The Court made it clear:

“In the event of there being any violation of the stipulated conditions, it would be open for the State to seek redressal by filing an application seeking cancellation of the bail.”

Importantly, the Court reiterated that its findings were not to influence the outcome of the trial:

“It is clarified that the observations made in the present order are for the purpose of deciding the present pre-arrest bail application, and should not influence the outcome of the Trial.”

This decision underscores the Delhi High Court’s nuanced approach in criminal cases involving commercial disputes and corporate allegations. The Court has once again made clear that arrest is not a substitute for a fair investigation and that anticipatory bail can be a necessary protection, especially where the complaint appears reactive, and the accused has not evaded the legal process.

The ruling protects the liberty of the accused without compromising the investigative process, while emphasizing that deeply contested factual allegations — especially those marred by delays — must be tested at trial, not presumed at the bail stage.

Date of Decision: December 2, 2025