REPORTABLE        

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 985-986  OF 2011 (Arising out of SLP (Criminal) Nos. 2772-2773 of 2011

CBI, Hyderabad       .... Appellant (s)

Versus

Subramani Gopalakrishnan & Anr.               .... Respondent(s)

J U D G M E N T  

P. Sathasivam, J.

1)   Leave  granted.   These  appeals,  at  the  instance  of  the  

Central  Bureau  of  Investigation  (in  short  “the  CBI”),  

Hyderabad are  directed  against  the  order  dated  25.06.2010  

passed by the High Court of Andhra Pradesh at Hyderabad in  

Criminal  Petition  Nos.  4972  and  4913  of  2010,  in  and  by  

which,  the  High  Court  enlarged  the  respondents  herein,  

namely, S. Gopalakrishnan (A4) and V.S. Prabhakara Gupta  

(A10) on bail by imposing certain conditions.  

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2) Since the CBI has challenged the order of the High Court  

granting bail in respect of the two accused, namely, A4 and  

A10,  we  are  constrained  to  refer  only  the  facts  which  are  

necessary for the disposal of these appeals.  

3) Brief Facts:

(a) On  07.01.2009,  B.  Ramalinga  Raju  (A1),  the  then  

Chairman of M/s Satyam Computer Services Limited (in short  

“M/s SCSL”) addressed a confessional letter to the Board of  

Directors  revealing  certain  financial  irregularities  in  M/s  

SCSL.  As per this letter, the balance-sheet as on 30.09.2008  

showed inflated (non-existent) cash and bank balances of Rs.  

5,040/- crores, an accrued interest of Rs. 376/- crores which  

is  non-existent  and  an  understated  liability  of  Rs.1,230/-  

crores on account of funds arranged by him and an overstated  

debtors position of Rs. 490/- crores (as against Rs. 2,651/-  

crores reflected in the books).  He also revealed several other  

factual details which resulted an increase in artificial cash and  

bank balances.   

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(b) He  also  revealed  several  frauds  and  cooking  books  of  

accounts ever happened in India’s corporate history.  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  (in  short  “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 (in short ‘IPC’).  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.  

(c)  Due to fudging of the company accounts and manipulation  

of  records  by  showing  incorrect  and  inflated  figures  in  the  

balance-sheets by the Chairman, M.D. and other Directors of  

the Company which were certified by the Auditors, the value of  

the shares of the Company suddenly dropped causing huge  

financial loss to the shareholders.  The drop in the value of the  

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shares was due to dishonest and fraudulent acts committed  

by the aforesaid functionaries, who were managing the affairs  

of the Company and were associated with its functioning and  

day-to-day affairs.  

4) With the above brief facts, let us consider the allegations  

leveled against the Respondents herein (A4 and A10) and the  

role played by them.  

The role of S. Gopalakrishnan (A4), Partner and In-charge of  

M/s Price Waterhouse in CC 1/2010:

(a) He affixed his signature on the financial statements as  

partner of M/s Price Waterhouse, the Statutory Auditors for  

M/s SCSL from the financial year 2001 till 2007.  

(b) He  was  a  partner  in  the  firm  ‘M/s  Price  Waterhouse,  

Bangalore and not in ‘M/s Price Waterhouse’.   

(c) In the agreement entered into  between M/s SCSL and  

M/s Price  Waterhouse,  instead  of  affixing  his  signature,  he  

signed  as  ‘M/s  Price  Waterhouse’  which  is  contrary  to  the  

established practice and procedure.  

(d) By  virtue  of  his  status  as  a  Statutory  Auditor,  it  is  

incumbent on his part to verify the bank balances and FDRs  

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claimed to be held by M/s SCSL besides other investments,  

liabilities  and  sales  of  the  Company  before  certifying  the  

statutory  Audit  Report  which  forms  the  basis  of  Annual  

Financial Statement of the Company

(e) The presentations made by him to the Audit Committee  

about the health of the Company were misleading.  

(f) As  a  consideration  for  his  acts  in  accommodating  the  

accused persons, he received an exorbitant audit fee from M/s  

SCSL over and above the market rate which reflects a quid pro  

quo arrangement.   

(g) Letters  generated  on  the  letter-heads  of  M/s  Price  

Waterhouse were recovered from the computer systems of M/s  

SCSL.   These  letters  were  supposed  to  be  written  by  the  

Auditors addressed to the banks seeking confirmations about  

the balances.   

(h) Though  deficiencies  were  found  in  Information  

Technology  General  Check,  no  substantial  and  elaborate  

examination of the financial accounts was conducted by him.   

(i) Control  deficiencies  identified  in  the  integrated  audit  

were not brought to the notice of the Audit committee.  

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(j) The above overt acts of A4 reveal the offences punishable  

under Section 120-B read with Sections 420, 419, 467, 471  

and 477A of IPC.

5) The role of Sri S. Gopalakrishnan (A4), in CC 3/2010:  

(a) He  failed  to  comply  with  the  Audit  &  Assurance  

Standards while  conducting Statutory  Audit  in  case of  M/s  

SCSL.   

(b) He  failed  to  point  out  the  existence  of  forged  and  

fabricated invoices in the Invoice Samples.

(c) As  a  quid  pro  quo for  his  role  he  received  very  high  

remuneration.  

(d) The above overt acts of A4 reveal the offences punishable  

under Section 120-B r/w 420, 471 & 477A IPC.

The role  of  Sri  V.S.  Prabhakara Gupta (A10),  Head Internal  

Audit, M/s SCSL in the Supplementary Charge-sheet:  

(a) He was the Associate In-charge – Internal Audit and was  

the  Global  Head  of  Internal  Audit  of  M/s SCSL during  the  

relevant period of time.  

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(b) He  had  intentionally  not  included  auditing  of  Oracle  

Financials  (OF)  in the  Internal  Audit  Plan of  M/s SCSL till  

2007 even though the system was operational since 2002.   

(c)   He  intentionally  submitted  a  prioritization  plan  to  the  

Audit  Committee  for  postponing  the  audit  of  many  items  

including Oracle Financials citing several irrelevant reasons.  

(d) With regard to anomalies pertaining to the invoices no  

correctional measures or follow up action was taken.  

(e) He did not properly follow up for the restoration of the  

access to the offshore books of accounts for the Internal Audit  

team.  

(f) He  intentionally  flouted  the  laid  down  procedures  

mentioned in the Internal Audit Manual.  

(g) The  above  overt  acts  of  A10  reveal  the  offences  

punishable under Section 120-B r/w Section 420 IPC.   

6) Apart from the above details, Mr. P.P. Malhotra, learned  

ASG has also brought to our notice that prior to the grant of  

bail  by the High Court  A4 had filed seven bail  applications  

and the High Court passed the impugned order only in the  

eighth bail application.  He also pointed out that in the same  

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way, A10 had filed six bail applications and the High Court  

passed the impugned order enlarging him on bail only in the  

sixth bail application.  

7) By pointing out all these details, learned ASG submitted  

that  at  this  stage,  release  of  the  accused-respondents  from  

judicial  custody  will  jeopardize  the  trial,  particularly,  when  

these two respondents, A4 and A10 who were the external and  

internal auditors of the Company, will 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 are not entitled  

for bail and the High Court has committed an error in granting  

the bail to them.  He also submitted that the reliance on the  

orders  of  this  Court  insofar  as  Talluri  Srinivas  (A5)  is  not  

comparable because after the order of this Court granting him  

bail on 04.02.2010 in Criminal Appeal No. 257 of 2010, the  

entire scenario in the trial has changed, hence the said order  

cannot  be  cited  as  a  precedent.   He  also  submitted  that  

though A4 and A5 were Auditors of M/s SCSL, A5 was there  

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only for a limited period of one year whereas A4 worked for a  

period of seven years i.e. from 2000-07.  He also relied on the  

order of this Court in Criminal Appeal No. 2068-2072 of 2010  

dated  26.10.2010  wherein  this  Court  cancelled  the  bail  

granted by the High Court insofar as A1, A2, A3, A7, A8 and  

A9 are concerned.  

8) On the other hand, Mr. Mukul Rohatgi,  learned senior  

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 this Court  and that of  A4.   According to  

him,  the  order  of  this  Court  dated  26.10.2010  in  Criminal  

Appeal No. 2068-2072 of 2010 is not applicable.  A4 had been  

in  custody  for  one  year  and  five  months  before  he  was  

enlarged on bail.  He also demonstrated that even according to  

the prosecution the role assigned to A4 and A5 is identical and  

when A5 was ordered to be released by this 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  

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Price Waterhouse and has nothing to do with the alleged claim  

in M/s SCSL.   

9) Shri D. Rama Krishna Reddy, learned counsel appearing  

for A10 submitted that though he was an internal auditor of  

M/s SCSL, no statutory function was assigned to him.  He  

also  pointed  out  that  only  in  the  second  charge-sheet,  his  

name was included as an accused.  He further pointed out  

that before granting bail by the High Court, he was put in jail  

for 222 days.  

10) We have perused the impugned order of the High Court,  

various details furnished by both the sides and considered the  

rival contentions.   

11) As per the complaint and investigation, A4 and A10 along  

with  the  other  accused  are  involved  in  one  of  the  greatest  

corporate  scams of  the  commercial  world.   It  has caused a  

financial  storm  not  only  throughout  the  country  but  also  

worldwide  and  by  their  action  and  conduct,  lakhs  of  

shareholders and others have been duped and the corporate  

credibility of the nation has received a serious setback.  It is  

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not in dispute that nobody can underestimate the sufferings of  

the shareholders and others due to the scam in question.  

12) Though it was argued that the Management of M/s SCSL  

has been shifted to other corporate entity, it is demonstrated  

before  us  that  the  employees  who  were  working  in  the  

erstwhile  M/s  SCSL  are  now  working  under  the  present  

management.  In view of the same, at least persons working in  

the  accounts  section/financial  management  will  not  come  

forward  to  depose  against  the  Respondents  herein  (A4  and  

A10)  who  were  the  external  and  internal  auditors  of  the  

Company and who had influence in the Company.  

13) The  High  Court,  while  ordering  bail  for  A4  and  A10,  

heavily  relied  on  the  order  of  this  Court  dated  04.02.2010  

made in Criminal Appeal No. 257 of 2010.  The said appeal  

relates  to  one  -  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 is the statutory authorized auditors of  

M/s SCSL and allegation against A5 is that while submitting  

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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.   After  noting  several  details  and  

hearing the learned counsel on either side, this Court noted  

the following circumstances for releasing A5 on bail:

“i) the charge-sheet is running into several thousand  

pages;

ii) The CBI proposes to examine 470 witnesses;

iii) a very large volume of records have been produced  

in this case;

iv) therefore, it can be easily assumed that the trial of  

this case will take a long time even to start.”  

Considering  these  factual  details  without  expressing  any  

opinion  on  the  merits  of  the  case  regarding  the  nature  of  

offence  or  gravity  thereof  allegedly  committed  by  A5  and  

having regard to the fact that he had been in custody for more  

than a year released him on bail on 04.02.2010 by imposing  

certain conditions.  

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14) Now the  question  is  whether  the  same reasonings  are  

applicable to the respondents herein, i.e. A4 and A10?

15) We have already pointed out that in view of the appeal  

filed by Talluri Srinivas (A5) against the dismissal of his bail  

application by the High Court, this Court considering the facts  

stated in the earlier paragraph passed an order on 04.02.2010  

releasing A5 on bail subject to certain conditions.   First of all,  

there is no similarity in respect of the role assigned to A4 and  

A5.   Mr. Mukul Rohtagi, learned senior counsel, after taking  

us through several materials, submitted that even as per the  

prosecution, the role assigned to A4 and A5 is identical.  After  

going through the same, prima facie, we are satisfied that the  

said assumption is incorrect.   It is 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.  In  

addition to the same, we have also verified three charge-sheets  

and  the  imputations  made  against  both  these  accused  

persons.  In these factual details available, prima facie, we are  

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satisfied that A4 and A5 cannot be put on the same footing in  

respect of erroneous auditing  resulting  in inflated cash and  

bank balances of  M/s SCSL.     

16) It is relevant to point out the recent order of this Court  

dated 26.10.2010 in Criminal Appeal No. 2068-2072 of 2010  

wherein  this  Court  cancelled  the  bail  granted  by  the  High  

Court in respect of A1, A2, A3, A7, A8 and A9.  After passing  

such order, this Court after recording the fact that the charges  

have  been framed on  25.10.2010  and  trial  is  scheduled  to  

commence w.e.f. 02.11.2010 issued several directions, namely,

(i) the trial Court to take up the case on day-to-day basis  

and conclude the trial as expeditiously as possible in any  

event on or before 31.07.2011;

(ii) the  trial  Court  would  avoid  granting  undue  

adjournments, unless it becomes absolutely imperative;

(iii) the  parties  are  directed  to  examine  only  material  and  

most  essential  witnesses  and  fully  cooperate  with  the  

trial Court;

(iv) the accused shall be produced before the trial Court on  

time, on every date of hearing, unless exempted by orders  

of the Court;

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(v) the trial Court is free to decide the case without being  

influenced by any of the observations made by the High  

Court or by this Court;

(vi) for any reason, trial is not concluded before 31.07.2011,  

the  accused  would  be  at  liberty  to  approach  the  trial  

Court for grant of bail.

17) The recent order dated 26.10.2010 of this Court referred  

to above makes it clear that this Court cancelled the bail in  

respect of prime accused, namely, A1, A2, A3, A7, A8 and A9.  

It  is  also  brought  to our notice  that  in  view of  the  specific  

directions of this   Court in the said order, the trial has started  

and according to the learned ASG, it is likely to be concluded  

by the cut off date, i.e. 31.07.2011.  It is also brought to our  

notice that out of 697 witnesses, the prosecution has dropped  

470 witnesses  and only  227 witnesses are  to  be examined.  

Out of this, 193 witnesses have already been examined and  

some of them are to be cross-examined.  According to the him,  

only 30 more witnesses have to be produced and examined.   

18) In view of the directions of this Court in the subsequent  

order dated 26.10.2010, the trial is proceeding on day-to-day  

basis  and  likely  to  be  concluded  by  31.07.2011.   We  are  

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satisfied that the reasons stated while granting bail for Talluri  

Srinivas (A5) by this Court on 04.02.2010 are not applicable to  

the respondents herein.  Accordingly reliance on the basis of  

the bail  order granted in favour of A5 cannot be applied to  

these respondents.

19) Mr. Mukul Rohatgi, learned senior counsel, appearing for  

A4  and  Mr.  D.  Rama  Krishna  Reddy,  learned  counsel  

appearing for A10 strongly commented the conduct of the CBI  

in not challenging the order of the High Court granting bail to  

these persons and failure on their part to place these matters  

before the Court at the appropriate time.  It is not in dispute  

that  the  High  Court  granted  bail  to  these  respondents  on  

25.06.2010 and the CBI challenging the said order filed two  

special  leave petitions before this Court on 06.10.2010.  No  

doubt,  the  matter  was  listed  before  the  Court  only  on  

01.04.2011  on  which  date,  this  Court  issued  notice  to  the  

respondents and on the same day the notice was accepted by  

the  respective  counsel  for  the  respondents  and  they  were  

permitted to file their reply.  After filing reply, when the matter  

again came up for hearing on 04.04.2011 at the request of  

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both  sides,  the  matter  was  posted  for  final  hearing  on  

15.04.2011  and  was  argued  at  length  on  the  same  day.  

Though  the  appellant-CBI  was  not  so  diligent  to  bring  the  

special leave petitions for orders immediately after filing of the  

same  due  to  various  reasons  and  compliance  of  the  office  

report  had taken some time,  however,  on this  ground their  

challenge with regard to the order of the High Court granting  

bail cannot be rejected without going into the merits.

20) Though Mr. D. Rama Krishna Reddy, learned counsel for  

A-10, submitted that he being the internal auditor, employee  

of M/s SCSL, there is no statutory function and his name does  

not find place in the first charge-sheet and he was named only  

in  the  second  charge-sheet,  considering  the  materials  

available,  it  is  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, we are unable to  

accept the stand of the learned counsel and hold that the High  

Court is not justified in granting bail for him.

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21) It is also relevant to note that there is difference between  

yardsticks for cancellation of bail and appeal against the order  

granting bail.    Very cogent and overwhelming circumstances  

are necessary for  an order directing the cancellation of  bail  

already  granted.   Generally  speaking,  the  grounds  for  

cancellation  of  bail  are,  interference  or  attempt  to  interfere  

with the due course of administration of justice or evasion or  

attempt  to  evade the  due course  of  justice  or  abuse  of  the  

concessions granted to the accused in any manner.  These are  

all only few illustrative materials.  The satisfaction of the Court  

on the basis of the materials placed on record of the possibility  

of  the  accused  absconding  is  another  reason  justifying  the  

cancellation of bail.  In other words, bail once granted should  

not be cancelled in a mechanical manner without considering  

whether any supervening circumstances have rendered it no  

longer conducive to a fair trial to allow the accused to retain  

his freedom by enjoying the concession of bail during the trial.  

We have already pointed out that the issue before us is not for  

cancellation of bail granted earlier, the question is whether in  

the facts and circumstances of the magnitude of the scam, the  

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bail  granted  in  favour  of  all  the  main  accused  have  been  

cancelled and the Respondent Nos. A4 and A10 being external  

and internal auditors respectively, their role being paramount  

in inflating processing assets and bank balances of M/s SCSL,  

we  are  of  the  view  that  the  High  Court  is  not  justified  in  

granting bail.     

22) 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, we are satisfied that  

the  High  Court  ought  not  to  have  granted  bail  to  these  

respondents.  Considering the subsequent order of this Court  

dated  26.10.2010  cancelling  the  bail  in  respect  of  other  

accused and issuing directions based on which the trial has to  

be concluded within the schedule  time,  viz.  31.07.2011, we  

hold that the High Court committed an error in granting bail  

to these respondents A4 and A10.

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23) In the light of the above discussion, the impugned order  

of the High Court dated 25.06.2010 in Crl. Petition Nos. 4913  

and 4972 of 2010 granting bail in favour of the respondents  

i.e., A4 and A10 is set aside.  They are directed to surrender  

on  or  before  30.04.2011  otherwise  the  appellant  shall  take  

appropriate steps in accordance with law.  All the observations  

and directions, as stated in the earlier order dated 26.10.2010,  

are also applicable to the respondents (A4 and A10).  We also  

make it clear that the above said conclusion is for considering  

the grant of bail by the High Court and the trial Court is free  

to  decide  the  case  without  being  influenced  by  any  of  the  

observations made by the High court and by this Court in this  

order.

24) The appeals are allowed.         

…………………………J.            (P. SATHASIVAM)                                  

      ……………………………J.                  (DR. B.S. CHAUHAN)  

NEW DELHI; APRIL 21, 2011.                     

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