IN THE HIGH COURT FOR THE STATE OF TELANGANA
AT: HYDERABAD
CORAM:
* THE HON'BLE SRI JUSTICE B. VIJAYSEN REDDY
+ CRIMINAL PETITION Nos.1951 and 6364 of 2010
% Delivered on: 24-06-2021
Between:
# M/s.MADHAVI VUPPALAPATI & 3 another
... Petitioners
Vs.
$ SOJITZ CORPORATION THE STATE OF A P
Through its Authorized Rep Mr Yukishisa Mataumoto
S/o Mr Hisakichi Atasumto aged 50 yrs Off at 120 Akasaka
6 Chome MinatoKu Tokyo 1078665 Japan & another
... Respondents
! For Petitioners : Mr. C.Sharan Reddy (Representing) Mr. A HARIPRASAD REDDY ^ For Respondents : PUBLIC PROSECUTOR (TG) Mr.RAJESH MADDY < Gist :
> Head Note :
? Cases Referred :
1. (2008) 5 SCC 668
2. (2015) 8 SCC 609
3. (2009) 14 SCC 115
4. (2019) SCC Online Del 8493
5. (2012) SCC Online Ker 29378
6. (2012) SCC Online Bom 210
7. (2009) 12 SCC 331
8. (2007) 5 SCC 108
9. AIR 2020 SC 936
10. (2004) 6 SCC 522
11. (1992) SUPP. (10 SCC 335
12. (2018) 3 SCC 114
13. (2019) 17 SCC 193
2
THE HON'BLE SRI JUSTICE B. VIJAYSEN REDDY
CRIMINAL PETITION Nos.1951 and 6364 of 2010
COMMON ORDER:
CRLP.No.1951 of 2010 is filed by A3, A6, A8 and A12 and CRLP.No.6364 of 2010 is filed A5, A7 and A13 to quash the proceedings in CC.No.140 of 2010 on the file of the IX Metropolitan Magistrate, Miyapur, Ranga Reddy District.
2. The respondent No.1 is the complainant in CC.No.140 of 2010 filed under Section 200 of the Criminal Procedure Code to prosecute the petitioners/accused and the other accused for the offences under Sections 405, 406, 409, 430, 120B read with Section 34 of the Indian Penal Code.
3. In the complaint, it is stated by the respondent No.1 that A1 company, its Directors and some of its officers in conspiracy with one another and with a common intention have unlawfully caused financial loss to the complainant company by indulging in acts of cheating and breach of trust and the acts are of such nature, which will have the possible effect of seriously affecting the ability of Hyderabad to attract foreign investments and in particular form Japan.
4. The complainant company is represented through its authorized representatives vide Special Power of Attorney dated 06.08.2010. The complainant company is engaged in the business of international trade and inter alia, provides trade finance in respect of sale equipment and accessories required in the field of telecommunications. A2 is the Chairman of A1 company (registered under the Indian Companies Act, 1956). However, the 10th Annual Report of A1 company for the financial year 2007-2008 makes no reference to 3 A2 holding the said office. A3 is stated to be the Chairperson of A1 and inter alia looks after the affairs of A1 company in US. A4 is the Managing Director of A1 company; A9 and A12 are based in Delhi at the relevant period and were interacting with the complainant's representatives on regular basis. A9 and A12 made numerous misrepresentations to the representatives of the complainant's company. A9 signed a letter calling upon the Bharat Sanchar Nigam Limited (BSNL) to set aside the instructions earlier received by it from A1 to make all payments in stipulated Escrow agreement. A10, inter alia, signed the mandate forms with respect to Axis Bank wherein most of the dishonestly misappropriated funds were diverted. A13 with active support of A2 and A4 held himself out to be an Advisor of the A1 and in that capacity attended most of the meetings at Hyderabad and was actively involved in misrepresentations made and false undertakings given to the complainant. The other accused are variously involved in fraudulent activities of A1 whereby unlawful gain was attained by A1 and unlawful loss was caused to the complainant.
5. The main substratum of the allegations in the complaint is as under:
(a) In March 2007, BSNL announced tender for procurement of certain telecommunication equipment. Clause XI of the tender document clearly stipulates that 95% of the value of the equipment would be payable by BSNL immediately upon satisfactory supply of equipment, which was subject matter of the tender and the remaining 25% was payable by BSNL within six months thereafter. A1 was one of the bidders in respect of the said tender. HUAWEI, Chinese Company, who manufactured the equipment to be supplied, entered into negotiations with A1 and the salient features of the bid such as price bid, specifications, delivery schedule, logistics, hardware/software 4 ratio, other commercial conditions were decided between HUAWEI and A1. The bid was submitted by A1 on 04.06.2007 at BSNL Corporate Office in New Delhi and on the same day, the bids were opened and A1's bid was found to be in order.
(b) HUAWEI has done business with complainant in the past. It contacted the complainant and asked it to consider grant of trade finance to A1. Thereafter, pursuant to the telephonic discussions between HUAWEI, the complainant and A1, a meeting was held on 26.06.2007, which was attended by the Mr. Woichi and Mr. Gopalan on behalf of the complainant and A2, A11 and A13 on behalf of A1. The meeting was chaired by A2, who held himself out to as being Chairman of A1 company, made numerous claims about his company's order book, financial standing and his belief in conducting his company's business in an absolutely honest manner. The complainant raised numerous queries regarding reason for A1 tendering for hardware contract when A1 was essentially a software solutions company. The accused at the meeting responded by indicating that they are looking towards expanding the A1 company's business and developing software-hardware synergy. There were discussions during the meeting regarding modalities of repayment in respect of trade finance that the complainant may extend to A1 and the accused assured the complainant's representatives that HUAWEI, who already had numerous dealings with the complainant's company has informed them of complainant company's requirement including the need to set up a dedicated Escrow account into which all monies received from BSNL would have to be deposited.
(c) Further meetings took place between the complainant's company and accused persons on 02.07.2007 and 17.08.2007. The meeting was attended by the accused persons at Delhi and 5 represented on behalf of accused by A9 and A12. The accused company assured the complainant that there would not be any delay in repayment of the amount that would be extended as trade finance to the accused by the complainant. Further negotiations took place between the accused and the complainant. On 08.11.2007, BSNL placed an advanced order upon A1. Pursuant to the representations made by the accused persons and believing them to be true, an agreement dated 29.11.2007 was entered between the complainant and the A1 for procurement of goods and supply of goods to BSNL. The goods consisted of 10G, 400 channels DWDM equipment manufactured by M/s. HUAWEI Technologies Company Limited. As per the supply agreement dated 29.11.2007, HUAWEI were to manufacture the equipment and the complainant was to purchase the same on letter of credit basis. Subsequently, the complainant sold the same to A1 company on document against payment basis. After completion of custom clearance at Indian Seaport/Airport, the said equipment would be supplied by A1 in terms of the tender conditions and BSNL's purchase order to BSNL. Upon satisfactory receipt of equipment, BSNL would be release payment into Escrow account with a view to protecting the complainant's substantial financial exposure.
(d) On the basis of the assurances given by A1 with regard to transfer/deposit of all payments relating to the contract in question, into an Escrow account, a tripartite agreement dated 10.12.2007 was executed between the complainant, A1 and the Punjab National Bank. In pursuance thereof, a segregated and irrevocable Escrow agreement in the name and style of Punjab National Bank - A/c Prithvi Information Solutions Limited (Escrow account) No.4437002100000506 was opened. A11 signed the Escrow agreement on behalf of A1. Under the terms of Escrow agreement, 6 the accused persons agreed that the cheques would be drawn in favour of the Escrow account; the cheques would contain endorsements "Not negotiable/account payee or beneficiary only" clearly on the face of the cheque drawn; the cheques would be deposited directly to PNB where Escrow account was being maintained and further the term 'cheque' wherever used under the agreement would deem to include the payment made by BSNL through telegraphic transfer or any other mode.
(e) A1 Under letter dated 01.12.2007, addressed to the Joint Deputy Director General (MM), BSNL, informed the details of the Escrow agreement. BSNL was requested to register the Escrow account number and issue letter of confirmation. BSNL vide letter dated 05.12.2007 agreed to conform to the aforesaid payment mechanism. BSNL further clarified that necessary instructions would be made to the paying authorities at the time of placing a formal purchase orders. Subsequently, a formal purchase order bearing No.CT/PO/31/2007/08 dated 04.01.2008 was issued by BSNL in favour of A1 company for procurement of goods mentioned therein. The details of the Escrow agreement were duly mentioned in the formal purchase order. The equipment supplied by the complainant with relevant invoices was duly received and accepted by BSNL.
(f) At no point of time, the accused or BSNL raised any issue with regard to the quality of the equipment. The complainant raised on the accused company invoices amounting to Japanese Yen Five billion, Fifty Two Million, One Thousand and Nine Hundred and Ninety Nine as price of goods supplied. As no payments were received in the Escrow agreement, the complainant began to suspect that something was wrong. When the complaint questioned the accused, they gave evasive replies stating that they will take up the matter with BSNL. 7 The complainant repeatedly insisted the accused in the months of October, November and December 2008 enquiring as to why remittances have not been received in the Escrow account. The accused informed the complainant that some payment has been received from BSNL, but that payment has been mistakenly sent by BSNL to another bank account in respect of some other contract the accused had entered into with BSNL. The accused undertook to make good the payment received by forwarding the same to Escrow account and the same is affirmed vide letter dated 06.02.2009. Despite numerous requests, the accused refused to furnish the details of payment which have been received from BSNL and which had mistakenly been forwarded to another account of A1.
(g) On 13.02.2009, the complainant sent a notice to the accused persons demanding transfer of all payment received by them against goods supplied to BSNL into the Escrow account together with delayed interest. The accused persons were requested to furnish details of the account into which the amount was received directly from BSNL. In response thereto, the accused have sent letter dated 19.02.2009 wherein they acknowledged the liability and agreed to make good the payment against the goods supplied by the complainant in compliance of the terms and conditions of the Escrow agreement. The accused issued letter dated 26.02.2009 to PNB instructing the bank to remit a sum of Rs.27,57,00,000/- to the complainant. On various occasions the accused company admitted the liability due to the complainant company.
(h) A joint meeting was held on 03.03.2009 and a statement of account for 10G DWDM - Project as on 28.02.2009 was signed confirming the outstanding payable on the said date. Again vide letter dated 30.03.2009 the accused admitted the liability and proposed a 8 revised the payment schedule, which was not accepted by the complainant. The complainant through its counsel moved applications before the BSNL under the Right to Information Act. Pursuant to which it was revealed that prior to 30.10.2008 the accused with malafide intention has given Form II to BSNL requesting it to forward payment to account of A1 held with Axis Bank. The complainant has further discovered that the accused had issued a letter dated 05.11.2008 to BSNL wherein they have asked for amendment of change of payment conditions citing some change in their accounting arrangements. The responses to the RTI applications clearly showed that the accused deliberately mislead the complainant that BSNL has mistakenly forwarded some payments to another account of the accused in respect of another contract of the accused with BSNL. The RTI replies clearly evidenced that there was no such contract with respect to which payments were due and payable by BSNL to A1 at the relevant time. Thus, the malafide intention of the accused persons is evident from the fact that a mere perusal of the letter dated 05.11.2008 clearly showed the change of payment schedule happened around the same time when the payment became due and payable by BSNL and receivable by the complainant. The accused persons in connivance and conspiracy with one another have instructed BSNL to await the details of the bank where the money was to be diverted.
(i) The malafides of the accused are further clearly evident from the fact that the first payment from BSNL, Kolkata (Eastern Circle) was made on 18.02.2009, which was after A2's written admission dated 06.02.2009 referred to above. The accused persons in contravention of the agreement between the parties and with a view to defraud the complainant and misappropriate the amount in question, had issued mandates to BSNL to transfer the payments against the goods 9 supplied to Axis Bank Account No.068010200009317 instead of Escrow account. On receipt of letter of A1 dated 05.11.2008, BSNL vide letter dated 05.11.2008 agreed to amend the banking arrangement for payment as postulated under purchase order dated 04.01.2008. At no point of time, the complainant was intimated nor was it's consent taken with regard to change in routing of payments. The accused acted unilaterally and even attempted to cover up their acts with other lies thereby clearly establishing their dishonest intention to cause wrongful loss to the complainant and wrongful gain to themselves.
(j) The circumstances under which the accused were able to circumvent the Escrow agreement, suggest the involvement of certain officers of BSNL. The complainant reserves the right to initiate appropriate proceedings/lodge complaint in this regard, in due course, after their identity is established. The complainant took up the matter several times with A2, A3 and A4. The accused persons made series of misrepresentations to the complainant. By letter dated 27.03.2009, A9 asked BSNL to revert back to the payment procedures contemplated under the supply agreement. However, to cover up the fact that the accused has intentionally instructed BSNL to make payment to a personal account in direct contravention of the supply agreement, the accused presented to the complainant with an alternative letter addressed to BSNL and similar letter dated 23.07.2009 asking BSNL to make payment into the Escrow account. However, in the latter letter, the accused deliberately omitted any reference to its previous instructions to divert funds on its own. The accused created the latter letter only for the purpose of hiding from the complainant its previous improper instructions to BSNL. It is, thus, alleged that the accused from inception of agreement in 10 question had the intention of defrauding the complainant of very large sums of money. Thus, the accused persons are liable to be prosecuted for the offences under Sections 405, 406 and 409 IPC. The accused are also liable for the offence of cheating under Section 420 IPC and the criminal acts are performed with a common intention attracting punishment under Section 34 IPC.
6. Mr. C. Sharan Reddy, learned counsel, representing Mr. A. Hariprasad Reddy, learned counsel for the petitioners submitted that on the private complaint lodged by the complainant, the learned Magistrate, after recording and considering the sworn statements, took the complaint on file under Sections 406 and 420 IPC read with Section 34 and 120B IPC, as against the accused vide order dated 25.01.2010. The petitioners/accused are falsely implicated in the case only on the ground that they are Directors and employees of the A1 company. There is no allegation that the petitioners have ever met or induced the complainant or its officers to enter into an agreement with A1. There is also no allegation that the petitioners have ever made any assurance or given any undertaking that the amounts would be transferred into the Escrow account. The petitioners have not sent any correspondence, letter of undertaking or agreement on behalf of A1 company. The petitioner No.1/A3 resides in USA. Petitioner Nos.2 and 3 (A6 and A8) are independent directors and they have nothing to do with the day-to-day affairs of the company. There is no allegation that these transactions were placed before the Board of Directors and they have approved the action of A2, A9 and others who, allegedly, gave the assurances.
7. Learned counsel further submits that the complainant gave twist to the civil disputes concealing the facts, events and arbitrations 11 proceedings in Singapore in accordance with L.C.I.A. Rules applicable to the court of International Arbitration at Singapore and ultimately, knocked the doors of judiciary at USA. The complainant also filed the present complaint under Section 200 Cr.P.C and tactfully caused issuance of process against the petitioners despite further amount pending with BSNL around Rs.30 crores as payable to A1 company. The complainant and manufacturer viz. HUAWEI company are being responsible for the show cause notice of DRI dated 30.07.2009 to A1 and consequently, surmised different places of manufacturer, complainant, accused and VMCN and seized records with the allegations of custom duty evasion, humiliating all the directors including executive staff of A1 company resulting in substantial loss of image and reputation of the A1 company. But for interference of DRI on the alleged lapses of the complainant or manufacturer, the present issue would not have resulted and A1 company would not have sustained huge loss by way of foreign exchange. The breach of assurances or undertaking is only a civil wrong and all the directors cannot be prosecuted for breach of trust or cheating. There is no material to warrant an inference that all the directors entered into criminal conspiracy to cheat the complainant. Thus, continuation of criminal proceedings against the petitioners is nothing but an abuse of process of law.
8. Learned counsel for the petitioners, relied on the judgments of the Supreme Court in MAKSUD SAIYED v. STATE OF GUJARAT1 and SUNIL BHARTI MITTAL v. CENTRAL BUREAU OF INVESTIGATION2.
1 (2008) 5 SCC 668 2 (2015) 8 SCC 609 12
9. On the other hand, Mr. Rajesh Maddy, the learned counsel for the respondent No.1 submitted that the instant quash petition is not maintainable. The accused are clearly under the control and management of A1 company and are watchdogs and conscience keepers of the A1 company being independent directors. They are fully conversant and informed of the affairs of the A1 company, at such time of misappropriation of funds and cheating was ordained against the complainant company. It is well settled that in certain cases, the very same set of facts may give rise to remedies in civil as well as criminal proceedings. Even if civil remedy is availed by a party, he is not precluded from setting in motion the proceedings in criminal law. The present criminal petition is premature as crucial evidence pertaining to the matter is yet to be recorded by the learned Magistrate. The criminal complaint cannot be treated as an exhaustive encyclopedia of the facts of the case and precise involvement of each individual accused can only be established at the stage of trial. There are several disputed questions of which do not fall within the jurisdiction of this Court under Section 482 Cr.P.C. Recording of evidence and examination of witnesses has commenced before the learned Magistrate. The sequence of events indicate that there was deep rooted conspiracy to cause substantial loss to the complainant company and all the accused are jointly and severally liable for the acts committed by A1 company.
10. In support of his contentions, the learned counsel for the respondent No.1 relied upon the following decisions of the Supreme Court:
AJOY KUMAR GHOSE v. STATE OF JHARKHAND3; STATE (NCT OF DELHI) v. SURESH GAUTAM4; INTEGRATED FINANCE 3 (2009) 14 SCC 115 13 CO. LTD. v. P.G. THOMAS PUTHENPURAYIL5; MOHAMMAD BASITODDIN v. STATE OF MAHARASHTRA6; KOPISETTI SUBBHARAO v. STATE OF A.P.7; N. RANGACHARI v. BHARAT SANCHAR NIGAM LTD.8; K. JAGDISH v. UDAYA KUMAR G.S.9; STATE OF A.P. v. GOLCONDA LINGA SWAMY10; STATE OF HARYANA v. CH. BHAJAN LAL11 and DINESH CHANDUBHAI PATEL v. STATE OF GUJARAT12
11. Heard the learned counsel for the petitioners and the learned counsel for the respondent No.1/complainant.
12. There are two agreements viz. one is the supply agreement with respect to procurement of 40 channels DWDM equipment (supply agreement dated 29.11.2007) and another is Escrow account agreement dated 10.12.2007. The supply agreement dated 29.11.2007 is entered into between the complainant company and A1 company. On behalf of A1 company, Mr. A.N. Sharma Head - Legal and Company Secretary, signed the agreement. The Escrow agreement was entered into between A1 company, complainant company and PNB. On behalf of A1 company, the agreement was signed by A11, as Vice President of the company.
13. The grievance of the complainant company is that the terms and conditions of the Escrow agreement have been violated. There was breach by the accused persons in complying with the terms and conditions of the Escrow account agreement. The petitioners/accused 4 (2019) SCC Online Del 8493 5 (2012) SCC Online Ker 29378 6 (2012) SCC Online Bom 210 7 (2009) 12 SCC 331 8 (2007) 5 SCC 108 9 AIR 2020 SC 936 10 (2004) 6 SCC 522 11 (1992) SUPP. (10 SCC 335 12 (2018) 3 SCC 114 14 herein are not the signatories of the supply agreement or the Escrow agreement. Though general allegations have been made here and there in the complaint that all the accused persons have conspired and have connived to cause wrongful loss to the complainant, there is no specific statement made to show the involvement of the petitioners/accused in the Escrow account agreement and violation of the terms and conditions contained therein. Insofar as A3, A12 and A14 are concerned, certain allegations are made against them. For instance, as against A3, it is stated that she is the Chairperson of A1 company and inter alia, looks after the affairs of the company in the US. A12 is stated to be based in Delhi and it was alleged that he was interacting that complainant's representatives on regular basis. It is stated that A9 and A12 made numerous misrepresentations to the representatives of the complainant company. As regards A13 it is alleged that he with active support of A2 and A3 held himself to be an adviser of A1 company and attended most of the meetings at Hyderabad and actively involved in misrepresentations and made false undertaking given to the complainant. A12 was further said to have attended meetings at Hyderabad on 02.07.2007 and 17.08.2007 between the complainant's representatives and accused persons and also at Delhi and assured that if the complainant extended trade finance to the accused company, there would be no delay in repayment of the amounts. It is also alleged that the complainant took up the issue with A2, A3 and A4 but satisfactory explanation was not given by them and requested the complainant not to initiate any proceedings and undertook to start making payment to the complainant forthwith.
14. This Court is of the opinion that merely because A3 is the Chairperson, she cannot be prosecuted as no specific role is attributed 15 to her in the instant complaint. As against A12 and A13, though there is an allegation of misrepresentation and assurance of payment, the same cannot be a ground to prosecute them since it is not the assurance of payment for which the accused are being prosecuted. The cause of action for filing the complaint was when there was alleged violation of the Escrow agreement and diversion of funds to which none of the petitioners/accused herein including A3, A12 and A13 are parties and no specific role is attributed to them.
15. In MAKSUD SAIYED's case (1 supra), the Supreme Court held as under:
"12. In Saroj Kumar Poddar v. State (NCT of Delhi) [(2007) 3 SCC 693 : (2007) 2 SCC (Cri) 135 : (2007) 2 Scale 36] this Court held: (SCC p. 697, para 14) "14. Apart from the Company and the appellant, as noticed hereinbefore, the Managing Director and all other Directors were also made accused. The appellant did not issue any cheque. He, as noticed hereinbefore, had resigned from the directorship of the Company. It may be true that as to exactly on what date the said resignation was accepted by the Company is not known, but, even otherwise, there is no averment in the complaint petitions as to how and in what manner the appellant was responsible for the conduct of the business of the Company or otherwise responsible to it in regard to its functioning. He had not issued any cheque. How he is responsible for dishonour of the cheque has not been stated. The allegations made in para 3, thus, in our opinion do not satisfy the requirements of Section 141 of the Act."
[See also Everest Advertising (P) Ltd. v. State, Govt. of NCT of Delhi [(2007) 5 SCC 54 : (2007) 2 SCC (Cri) 444 : JT (2007) 5 SC 529] and S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [(2007) 4 SCC 70 : (2007) 2 SCC (Cri) 192 : (2007) 3 Scale 245] .]
13. Where a jurisdiction is exercised on a complaint petition filed in terms of Section 156(3) or Section 200 of the Code of 16 Criminal Procedure, the Magistrate is required to apply his mind. The Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company when the accused is the Company. The learned Magistrate failed to pose unto himself the correct question viz. as to whether the complaint petition, even if given face value and taken to be correct in its entirety, would lead to the conclusion that the respondents herein were personally liable for any offence. The Bank is a body corporate. Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. Statutes indisputably must contain provision fixing such vicarious liabilities. Even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability.
15. This Court in Pepsi Foods Ltd. v. Special Judicial Magistrate [(1998) 5 SCC 749 : 1998 SCC (Cri) 1400] held as under: (SCC p. 760, para 28) "28. Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. It is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set into motion. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charge home to the accused. It is not that the Magistrate is a silent spectator at the time of recording of preliminary evidence before summoning of the accused. The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused."
The learned Magistrate, in our opinion, shall have kept the said principle in mind.
17
16. In SUNIL BHARTI MITTAL's case (2 supra), the Supreme Court made the following observations:
(iii) Circumstances when Director/person in charge of the affairs of the company can also be prosecuted, when the company is an accused person
42. No doubt, a corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman, etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. It would be more so, when the criminal act is that of conspiracy. However, at the same time, it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides so.
43. Thus, an individual who has perpetrated the commission of an offence on behalf of a company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Second situation in which he can be implicated is in those cases where the statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision.
45. This very principle is elaborated in various other judgments. We have already taken note of Maharashtra State Electricity Distribution Co. Ltd. [Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd., (2010) 10 SCC 479 : (2011) 1 SCC (Cri) 68] and S.K. Alagh [S.K. Alagh v. State of U.P., (2008) 5 SCC 662 : (2008) 2 SCC (Cri) 686] . A few other judgments reiterating this principle are the following:
45.1.Jethsur Surangbhai v. State of Gujarat [1984 Supp SCC 207 : 1984 SCC (Cri) 474] : (SCC pp. 210-11, para 9) "9. ... With due respect what the High Court seems to have missed is that in a case like this where there was serious defalcation of the properties of the Sangh, unless the prosecution proved that there was a close cohesion and collusion between all the accused which formed the subject-matter of a conspiracy, it would be difficult to prove the dual charges particularly against the appellant 18 (A-1). The charge of conspiracy having failed, the most material and integral part of the prosecution story against the appellant disappears. The only ground on the basis of which the High Court has convicted him is that as he was the Chairman of the Managing Committee, he must be held to be vicariously liable for any order given or misappropriation committed by the other accused. The High Court, however, has not referred to the concept of vicarious liability but the findings of the High Court seem to indicate that this was the central idea in the mind of the High Court for convicting the appellant. In a criminal case of such a serious nature mens rea cannot be excluded and once the charge of conspiracy failed the onus lay on the prosecution to prove affirmatively that the appellant was directly and personally connected with acts or omissions pertaining to Items 2, 3 and 4. It is conceded by Mr Phadke that no such direct evidence is forthcoming and he tried to argue that as the appellant was Chairman of the Sangh and used to sign papers and approve various tenders, even as a matter of routine he should have acted with care and caution and his negligence would be a positive proof of his intention to commit the offence. We are however unable to agree with this somewhat broad statement of the law. In the absence of a charge of conspiracy the mere fact that the appellant happened to be the Chairman of the Committee would not make him criminally liable in a vicarious sense for Items 2 to 4. There is no evidence either direct or circumstantial to show that apart from approving the purchase of fertilisers he knew that the firms from which the fertilisers were purchased did not exist. Similar is the case with the other two items. Indeed, if the Chairman was to be made liable then all members of the Committee viz. Tahsildar and other nominated members, would be equally liable because all of them participated in the deliberations of the meetings of the Committee, a conclusion which has not even been suggested by the prosecution. As Chairman of the Sangh the appellant had to deal with a large variety of matters and it would not be humanly possible for him to analyse and go into the details of every small matter in order to find out whether there has been any criminal breach of trust. In fact, the hero of the entire show seems to be A-3 who had so stage-managed the drama as to 19 shield his guilt and bring the appellant in the forefront. But that by itself would not be conclusive evidence against the appellant. There is nothing to show that A-3 had either directly or indirectly informed the appellant regarding the illegal purchase of fertilisers or the missing of the five oil engines which came to light much later during the course of the audit. Far from proving the intention the prosecution has failed to prove that the appellant had any knowledge of defalcation of Items 2 to
4. In fact, so far as Item 3 is concerned, even Mr Phadke conceded that there is no direct evidence to connect the appellant."
(emphasis supplied) 45.2.Sham Sunder v. State of Haryana [(1989) 4 SCC 630 : 1989 SCC (Cri) 783] : (SCC p. 632, para 9) "9. But we are concerned with a criminal liability under penal provision and not a civil liability. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 10 does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not."
(emphasis supplied) 45.3.Hira Lal Hari Lal Bhagwati v. CBI [(2003) 5 SCC 257 : 2003 SCC (Cri) 1121] : (SCC p. 277, para 30) "30. In our view, under the penal law, there is no concept of vicarious liability unless the said statute covers the same within its ambit. In the instant case, the said law which prevails in the field i.e. the Customs Act, 1962 the appellants have been thereinunder wholly discharged and the GCS granted immunity from prosecution."
(emphasis supplied) 45.5.R. Kalyani v. Janak C. Mehta [(2009) 1 SCC 516 : (2009) 1 SCC (Cri) 567] : (SCC p. 527, para 32) "32. Allegations contained in the FIR are for commission of offences under a general statute. A vicarious liability can be fastened only by reason of a provision of a statute and not otherwise. For the said purpose, a legal fiction 20 has to be created. Even under a special statute when the vicarious criminal liability is fastened on a person on the premise that he was in charge of the affairs of the company and responsible to it, all the ingredients laid down under the statute must be fulfilled. A legal fiction must be confined to the object and purport for which it has been created."
45.6.Sharon Michael v. State of T.N. [(2009) 3 SCC 375 : (2009) 2 SCC (Cri) 103] : (SCC p. 383, para 16) "16. The first information report contains details of the terms of contract entered into by and between the parties as also the mode and manner in which they were implemented. Allegations have been made against the appellants in relation to execution of the contract. No case of criminal misconduct on their part has been made out before the formation of the contract. There is nothing to show that the appellants herein who hold different positions in the appellant Company made any representation in their personal capacities and, thus, they cannot be made vicariously liable only because they are employees of the Company."
(emphasis supplied) 45.7.Keki Hormusji Gharda v. Mehervan Rustom Irani [(2009) 6 SCC 475 : (2009) 2 SCC (Cri) 1113] : (SCC pp. 480-81, paras 16-19) "16. We have noticed hereinbefore that despite of the said road being under construction, the first respondent went to the police station thrice. He, therefore, was not obstructed from going to the police station. In fact, a firm action had been taken by the authorities. The workers were asked not to do any work on the road. We, therefore, fail to appreciate that how, in a situation of this nature, the Managing Director and the Directors of the Company as also the Architect can be said to have committed an offence under Section 341 IPC.
17. The Penal Code, 1860 save and except in some matters does not contemplate any vicarious liability on the part of a person. Commission of an offence by raising a legal fiction or by creating a vicarious liability in terms of the provisions of a statute must be expressly stated. 21 The Managing Director or the Directors of the Company, thus, cannot be said to have committed an offence only because they are holders of offices. The learned Additional Chief Metropolitan Magistrate, therefore, in our opinion, was not correct in issuing summons without taking into consideration this aspect of the matter. The Managing Director and the Directors of the Company should not have been summoned only because some allegations were made against the Company.
18. In Pepsi Foods Ltd. v. Judicial Magistrate [(1998) 5 SCC 749 : 1998 SCC (Cri) 1400] this Court held as under : (SCC p. 760, para 28) '28. Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. It is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set into motion. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charge home to the accused. It is not that the Magistrate is a silent spectator at the time of recording of preliminary evidence before summoning of the accused. The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused.'
19. Even as regards the availability of the remedy of filing an application for discharge, the same would not mean that although the allegations made in the complaint petition even if given face value and taken to be correct in its entirety, do not disclose an offence or it is found to be otherwise an abuse of the process of the court, still the High Court would refuse to exercise its discretionary jurisdiction under Section 482 of the Code of Criminal Procedure."
47. We have already mentioned above that even if CBI did not implicate the appellants, if there was/is sufficient material on 22 record to proceed against these persons as well, the Special Judge is duly empowered to take cognizance against these persons as well. Under Section 190 of the Code, any Magistrate of First Class (and in those cases where Magistrate of the Second Class is specially empowered to do so) may take cognizance of any offence under the following three eventualities:
(a) upon receiving a complaint of facts which constitute such offence;
(b) upon a police report of such facts; and
(c) upon information received from any person other than a police officer, or upon his own knowledge, that such offence has been committed.
This section which is the starting section of Chapter XIV is subject to the provisions of the said Chapter. The expression "taking cognizance" has not been defined in the Code. However, when the Magistrate applies his mind for proceeding under Sections 200-203 of the Code, he is said to have taken cognizance of an offence. This legal position is explained by this Court in Chief Enforcement Officer v. Videocon International Ltd. [(2008) 2 SCC 492 : (2008) 1 SCC (Cri) 471] in the following words : (SCC p. 499, para 19) "19. The expression 'cognizance' has not been defined in the Code. But the word (cognizance) is of indefinite import. It has no esoteric or mystic significance in criminal law. It merely means 'become aware of' and when used with reference to a court or a Judge, it connoted 'to take notice of judicially'. It indicates the point when a court or a Magistrate takes judicial notice of an offence with a view to initiating proceedings in respect of such offence said to have been committed by someone.
20. 'Taking cognizance' does not involve any formal action of any kind. It occurs as soon as a Magistrate applies his mind to the suspected commission of an offence."
49. Cognizance of an offence and prosecution of an offender are two different things. Section 190 of the Code empowered taking cognizance of an offence and not to deal with offenders. Therefore, cognizance can be taken even if offender is not known or named when the complaint is filed or FIR registered. Their names may transpire during investigation or afterwards. 23
17. The decisions relied upon by the learned counsel for the respondent No.1 viz. AJOY KUMAR GHOSE's case (3 supra); STATE (NCT OF DELHI)'s case (4 supra); INTEGRATED FINANCE CO. LTD.'s case (5 supra) and MOHAMMAD BASITODDIN's case (6 supra) deal with the proceedings arising out of discharge petitions filed before the trial Court under Section 245 of Cr.P.C and connected provisions. By placing reliance on these decisions, the learned counsel for the respondent No.1 contended that the analogy, underlying the provisions under Sections 238, 239, 244 and 245 Cr.P.C., applicable to discharge petitions is applicable even to the petitions filed under Section 482 Cr.P.C. It would be premature to entertain a quash petition at this stage, more particularly, because the material before the trial Court is only the complaint and the relevant documents, based on which the Court below took cognizance, on being satisfied, that prima facie there is a case to proceed against all the accused. If the quash petition is entertained, at this stage, valuable right of the complainant is lost, as the complainant otherwise would have had the opportunity to lead evidence before the trial Court at two stages i.e. before framing charge and after framing charge (paras 19, 20 and 22 in AJOY KUMAR GHOSE's case (3 supra) in the cases instituted otherwise than police report. The ratio laid in the judgments (supra) is not applicable to the facts of this case, as this Court is not dealing with an order arising out of a discharge petition. The learned counsel has not brought to the notice of this Court any judgment of either the Supreme Court or any other High Court to buttress his argument that the analogy under Sections 238, 239, 244 and 245 Cr.P.C. has to be applied to petitions under Section 482 Cr.P.C. Hence, the judgments are of no assistance to the respondent No.1.
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18. The judgment in KOPISETTI SUBBHARAO's case (7 supra) is distinguishable on facts. The Supreme Court upheld the order of the High Court dismissing the quash petition on the ground that there are disputed questions of fact. In N. RANGACHARI's case (8 supra), the Supreme Court has taken note of the averments in the complaint filed under Section 138 read with Section 141 of the Negotiable Instruments Act (N.I. Act) and came to the conclusion that the requirement under the said provisions is satisfied wherein there was an averment in the complaint that the appellant and another were directors of the company and in-charge of the affairs of the company and that the burden is on the Board of Directors, in-charge of the affairs of the company, to show that they are not liable to be convicted and such contentions can be dealt with after conclusion of trial (Paras 18 and 19). The deemed liability of the directors of a company as provided under Section 141 of the N.I. Act cannot be applied to the criminal proceedings under IPC.
19. The proposition of law laid down in K. JAGDISH's case (9 supra) is that in certain case same set of facts may give rise to remedies in civil law as well as in criminal proceedings and by availing civil remedy, the appellant is not precluded from setting in motion proceedings under the criminal law. However, the same is not the issue involved in the instant case.
20. In GOLCONDA LINGA SWAMY's case (10 supra), the Supreme Court set aside the order of the High Court quashing the FIR registered for the offence under the A.P. Excise Act, 1968 and A.P. Prohibition Act, 1995. The allegation against the accused was regarding transportation and storing of black jaggery or molasses for the purpose of manufacturing illicit distilled liquor or was an abettor of 25 such offence. The High Court quashed the FIR holding that there is no material to show that seized articles are intended to be used for manufacturing distilled liquor. The Supreme Court held that the inherent power of the High Court should not be exercised to stifle a legitimate prosecution and the High Court should refrain from giving a prima facie decision in a case where the entire facts are incomplete and hazy, more so, when evidence has not been collected and produced before the Court and issues involved whether factual or legal are of magnitude and cannot be seen either in true perspective without sufficient material (para 8). It was further held that though the FIR is not intended to be an encyclopedia of background scenario, yet even skeletal features must disclose commission of offence. (para 12)
21. In CH. BHAJAN LAL's case (11 supra), the order of the High Court quashing the FIR as being vitiated by political considerations and the matter therein related to initiation of criminal proceedings by the incoming Government in connection with the commissions and omissions of outgoing Government. The view of the High Court was disapproved by the Supreme Court. In DINESH CHANDUBHAI PATEL's case (12 supra) the order of the High Court quashing the investigation came up for consideration before the Supreme Court. It was held that the order of the High Court did not advert to the merits of the case within the guidelines laid down in CH. BHAJAN LAL's case (11 supra). The ratio laid down in these two cases is not applicable to the facts of the present case.
22. It is not in dispute that the petitioners/accused are not signatories to the Escrow agreement. Neither the role of the petitioners is explained nor their involvement is spelt out in the complaint averments. Apart from the fact that there is no specific 26 allegation against the petitioners, there is no material on record to show that the petitioners have any control over the management and affairs of the A1 company. The main grievance of the complainant company is regarding violation of the terms and conditions of the Escrow agreement. The signatory of the Escrow agreement, the managing director and other accused who are responsible for violation of the Escrow agreement, false representations, diversion of funds to another account etc. may be liable for prosecution. But coming to the petitioners/accused herein, there are no such allegations. Nothing is attributed against the petitioners as to the manner in which they are responsible for the affairs of the company and breach of terms and conditions of the Escrow agreement.
23. The High Court while exercising jurisdiction under Section 482 Cr.P.C. cannot enter into disputed questions of fact. But in the instant case, the allegations are on the basis of documentary evidence to which none of the petitioners are parties. Without knowing the actual role of the petitioners and in what manner they have participated in the affairs of the company, it would be unjust to rope in the petitioners in the criminal proceedings. On the basis of the record, this Court finds that there is no prima facie material to prosecute the petitioners merely because they are the directions of the A1 company. It is not as if every director of the company has to be presumed to be responsible for the actions of the company. A director in a company has got a limited role in the affairs of the company. However, a director may be entrusted with some responsibility touching upon the management of the company and he/she may be acting under different designations. The complainant may not be having knowledge of such responsibilities of the directors. But, on assumptions and presumptions, it would be 27 unjust to prosecute the directors whose role is not prima facie made out in the management of the day-to-day affairs of the company.
24. The vicarious liability of the Chairman, Managing Director, Directors and Officers in-charge of a company under criminal law cannot be presumed unless the statute specifically provides for the same. For instance, for the offence under Section 138 of the Negotiable Instruments Act, the vicarious liability is provided for under Section 141 of the Act. Such similar provision is not available for the offences under the Indian Penal Code. In SHIV KUMAR JATIA v. STATE OF NCT OF DELHI13, the Supreme Court dealing with the concept of vicarious liability in criminal matters made the following observations:
"19. The liability of the Directors /the controlling authorities of company, in a corporate criminal liability is elaborately considered by this Court in the case of Sunil Bharti Mittal [(2015) 4 SCC 609]. In the aforesaid case, while considering the circumstances when Director/person in charge of the affairs of the company can also be prosecuted, when the company is an accused person, this Court has held, a corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman, etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. At the same time it is observed that it is the cardinal principle of criminal jurisprudence that there is no vicarious etc. liability unless the Statute specifically provides for. It is further held by this Court, an individual who has perpetrated the commission of an offence on behalf of the company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Further it is also held that an individual can be implicated in those cases where statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision. ...13
(2019) 17 SCC 193 28
21. By applying the ratio laid down by this Court in the case of Sunil Bharti Mittal it is clear that an individual either as a Director or a Managing Director or Chairman of the company can be made an accused, along with the company, only if there is sufficient material to prove his active role coupled with the criminal intent. Further the criminal intent alleged must have direct nexus with the accused. Further in the case of Maksud Saiyed vs. State of Gujarat & Ors. [(2008) 5 SCC 668] this Court has examined the vicarious liability of Directors for the charges levelled against the Company. In the aforesaid judgment this Court has held that, the Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company, when the accused is a Company. It is held that vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the Statute. It is further held that Statutes indisputably must provide fixing such vicarious liability. It is also held that, even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability.
22. In the judgment of this Court in the case of Sharad Kumar Sanghi vs. Sangita Rane [(2015) 12 SCC 781] while examining the allegations made against the Managing Director of a Company, in which, company was not made a party, this Court has held that when the allegations made against the Managing Director are vague in nature, same can be the ground for quashing the proceedings under Section 482 of Cr.P.C. In the case on hand principally the allegations are made against the first accused-company which runs Hotel Hyatt Regency. At the same time, the Managing Director of such company who is Accused 2 is a party by making vague allegations that he was attending all the meetings of the company and various decisions were being taken under his signatures. Applying the ratio laid down in the aforesaid cases, it is clear that principally the allegations are made only against the company and other staff members who are incharge of day to day affairs of the company. In absence of specific allegations against the Managing Director of the company and having regard to nature of allegations made which are vague in nature, we are of the view that it is a fit case for quashing the proceedings, so far as the Managing Director is concerned."
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25. In the facts and circumstances of the case, this Court, having perused all the documents, is of the view that there is no material on record nor any case is made out to proceed against the petitioners. In the event any evidence is let in by the complainant showing complicity of the petitioners during trial, the complainant is always entitled to proceed against the petitioners by filing an application under Section 319 Cr.P.C as held by the Supreme Court in SUNIL BHARTI MITTAL's case (2 supra).
In view of the above observations, the criminal petitions are allowed and the proceedings in CC.No.140 of 2010 on the file of the IX Metropolitan Magistrate, Miyapur, Ranga Reddy District, against the petitioners/accused, are hereby quashed.
Pending miscellaneous petitions, if any, shall stand closed.
__________________ B. VIJAYSEN REDDY, J June 24, 2021 DSK