Mere Lapses in Audit Cannot Invite Criminal Liability Without Evidence of Conspiracy or Undue Benefit: Punjab & Haryana High Court on SRS Group Fraud

“Allegations of dereliction of duty, absent proof of mens rea or quid pro quo, fall short of criminal conspiracy”— In a landmark ruling Punjab and Haryana High Court granted anticipatory bail to several Chartered Accountants (CAs) accused of aiding a massive financial fraud by the SRS Group of Companies. The judgment in Anuj Agarwal & Others v. SFIO clarified that auditors cannot be prosecuted under criminal law merely for professional lapses, unless there exists cogent material establishing intentional wrongdoing, collusion, or personal gain.

The Court found that the rigorous twin conditions under Section 212(6) of the Companies Act, 2013—which make bail difficult in cases involving serious fraud—do not apply where the allegations only pertain to negligence without criminal intent or profit. The decision sets a defining precedent for distinguishing professional accountability from criminal complicity under corporate and economic offences.

SRS Group Fraud: A Corporate Collusion or a Case of Overstretched Accusation?

The controversy originated from an extensive probe initiated by the Ministry of Corporate Affairs on August 1, 2018, under Section 212(1)(c) of the Companies Act, 2013, authorising the Serious Fraud Investigation Office (SFIO) to investigate the affairs of 88 companies associated with the SRS Group. The group, controlled by Anil Jindal and his associates, was found to be running a network of companies engaged in circular transactions, bogus share capital, inflated revenues, and loan diversions—causing an estimated loss of over ₹645 crores to banks.

The SFIO filed a criminal complaint before the Special Court (Companies Act), Gurugram, in June 2021, implicating 81 individuals, including several statutory and internal auditors of the group. The auditors were accused of failing to detect and report fraudulent transactions, overlooking related party dealings, and certifying falsified accounts.

The accused CAs, including statutory auditors of SRS Ltd., SRS Entertainment Ltd., and SRS Real Infrastructure Ltd., approached the High Court seeking anticipatory bail, after the trial court issued summons and warrants against them. They contended that the allegations amounted to professional negligence, not criminal misconduct.

“No Disproportionate Payment, No Motive, No Criminality”: High Court Rejects SFIO’s Opposition

Justice Anoop Chitkara delivered a pointed critique of the SFIO’s attempt to stretch the auditors’ liability into the realm of criminal law. The Court categorically held that absent proof of any personal benefit or active participation in the fraud, the twin conditions under Section 212(6) were not triggered.

“There is no allegation that the petitioners were paid even a rupee over and above their entitled audit fee,” the Court noted, further stating:

“If the auditors are not paid anything extra than what they were entitled to, there would be no motive for them to alter the accounts or not to give the correct reports intentionally.”

The Court also emphasized that none of the banks claimed to have relied exclusively on the audit reports before granting loans. In fact, the State Bank of India specifically stated that audited financials were not a deciding factor in loan disbursement.

The Court thus concluded:

“In the absence of any undue favours or disproportionate payments, the culpability is reduced to dereliction of duty, not criminal complicity.”

“Reverse Burden Cannot Be Triggered on Speculative Allegations”: Court Deconstructs Section 212(6)

The most striking aspect of the judgment is its authoritative interpretation of Section 212(6), which restricts bail in serious fraud cases unless the accused satisfies the Court that they are not guilty and unlikely to commit such offences again. The High Court made it clear that such a reverse burden applies only after the prosecution establishes a prima facie case.

“The doctrine of reverse burden activates only after the accusers have discharged the primary burden. Even where the statute puts burden on the accused, such burden shifts only after prima facie material indicating culpability exists.”

Justice Chitkara reinforced that invoking Section 212(6) without proper application of mind leads to arbitrary denial of liberty:

“Satisfying the fetters of Section 212(6) is like candling the infertile eggs. Once the bubble of rigors bursts, the bail considerations revert to those under general criminal law.”

The Court also rejected the SFIO's reliance on prior denial of bail to co-accused or similar cases under PMLA, noting that such comparisons lacked legal basis.

“Criminal Law Cannot Be Weaponised Against Professionals for Errors Absent Mens Rea”: Bail Allowed

In its conclusive remarks, the Court underscored the need for restraint and fairness in prosecuting professionals under the criminal justice system, especially in complex corporate investigations. The distinction between error and intent, negligence and fraud, was at the heart of the decision.

“Allegations, even if taken at face value, amount to professional lapses, and not criminal conduct. The statutory rigor under Section 212(6) does not get activated unless evidence of intentional wrongdoing, personal benefit, or conspiracy is brought on record.”

The Court thus allowed the anticipatory bail petitions, directing the accused CAs to cooperate with the investigation and appear before the trial court as required.

“Regulators Must Act, But Without Criminalising Every Professional Misstep”: A Guiding Decision for Future Investigations

This judgment draws a clear and principled line between the domain of professional regulation (like ICAI disciplinary actions) and that of criminal prosecution. It affirms that criminal liability must be tethered to intent, participation, or benefit, not just professional omissions.

In the landscape of growing scrutiny over auditors and corporate professionals, this ruling will serve as a foundational precedent in protecting them from excessive and unjustified criminal proceedings, while still leaving space for civil and regulatory consequences.

Date of Decision: October 28, 2025