Bombay High Court
The Stock Exchange Bombay & Ors vs Mahesh Ratilal Shah & Ors on 2 August, 2016
Bench: Anuja Prabhudessai
appln 1638-02.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPLICATION NO. 1638 OF 2002
1. The Stock Exchange, Mumbai
P.J.Towers, Dalal Street,
Mumbai 400 001
2. R.C.Mathur
Former Executive Director of
The Stock Exchange, Mumbai.
P.J.Towers, Dalal Street,
Fort, Mumbai 400 001
3. J.J.Bhatt,
Director- Listing & Marketing
Operations of
The Stock Exchange, Mumbai.
P.J.Towers, Dalal Street,
Fort, Mumbai 400 001 ..Applicants
(org. Accused Nos.1, 2 and 3)
v/s.
1. Mahesh Ratilal Shah
Proprietor,
Pooja Investments & Financial Management,
Office No.3, 1st Floor,
Hasim Building, Office No.38/40,
Veer Nariman Road,
Opp. Akbarallys,
Fort, Mumbai 400 023.
2. Ashwin C. Choksi , Clg. No. 57-A,
3rd floor, Bhupen Chambers,
pps 1 of 28
::: Uploaded on - 06/08/2016 ::: Downloaded on - 07/08/2016 00:11:10 :::
appln 1638-02.doc
9 Dalal Street, Mumbai 400 001
3. Ashwin C. Choksi ,
Proprietor of M/s. Ashwin C. Choksi
57-A, 3rd floor, Bhupen Chambers,
9 Dalal Street, Mumbai 400 001
4. Suresh Rathi & Co. Clg. No.727,
Parekh Vora Chambers,
N.M.Road, Fort, Mumbai 400 001
5. Suresh N. Rathi,
partner of
Suresh Rathi & Co.
Parekh Vora Chambers,
N.M.Road, Fort, Mumbai 400 001
6. Nand Kishore Rathi,
Partner of
Suresh Rathi & Co.
Parekh Vora Chambers,
N.M.Road, Fort, Mumbai 400 001
7. Shashi Rathi,
partner of
Suresh Rathi & Co.
Parekh Vora Chambers,
N.M.Road, Fort, Mumbai 400 001
8. Naman Securities & Finance Pvt. Ltd.
CLG No. 515
Kotak House, 1st Floor,
Barrck Road,
Opp. Mumbai Hospital
Mumbai 400 020
pps 2 of 28
::: Uploaded on - 06/08/2016 ::: Downloaded on - 07/08/2016 00:11:10 :::
appln 1638-02.doc
9. Jayesh Shah,
Director
Naman Securities & Finance Pvt. Ltd.
Kotak House, 1st Floor,
Barrack Road,
Opp. Mumbai Hospital
Mumbai 400 020
10. Umesh M. Merchant
Director of M/s.
Naman Securities & Finance Pvt. Ltd.
Kotak House, 1st Floor,
Barrack Road,
Opp. Mumbai Hospital
Mumbai 400 020
11.Dhanesh T. Gandhi Clg. No.144,
R-545, Rotunda Bldg.,
5th Floor, Bombay Samachar Marg,
Mumbai 400 001.
12. Dhanesh T. Gandhi
proprietor of
M/s.Dharmesh T. Gandhi
R-545, Rotunda Bldg.,
5th Floor, Bombay Samachar Marg,
Mumbai 400 001
13. Subhash V. Shah, CLG No. 747
32B, Khatau Bldg.
A.D.Mody Marg,
Fort, Mumbai 400 001
1. Subhash V. Shah
Proprietor of M/s.
Subhash V. Shah
pps 3 of 28
::: Uploaded on - 06/08/2016 ::: Downloaded on - 07/08/2016 00:11:10 :::
appln 1638-02.doc
32B, Khatau Bldg.
A.D.Mody Marg,
Fort, Mumbai 400 001
15. Active Finstock Pvt. Ltd.,
Clg. No. 036
60-C, Bhupen Chambers,
Dalal Street, Mumbai 400 001
16. Bal Chand Singhi,
Director of M/s.
Active Fins Stock Pvt. Ltd.,
CLG No.036, 60-C, Bhupen Chambers,
Dalal Street, Mumbai 400 001
17. Jaysingh S. Kothari
Director of M/s.
Active Fins Stock Pvt. Ltd.,
60-C, Bhupen Chambers,
Dalal Street, Mumbai 400 001
18. Mahendra A. Shah,
Kamer Bldg, Room No.30,
4th floor, 38 Cawasji Patel Street,
Mumbai 400 001
19. Mahendra A. Shah
proprietor of
Mahendra A. Shah,
Kamer Bldg, Room No.30,
4th floor, 38 Cawasji Patel Street,
Mumbai 400 001
20. Gaurang M. Gandhi,
Clg. No.211, 1218 Maker Chambers,
V. Nariman Point,
pps 4 of 28
::: Uploaded on - 06/08/2016 ::: Downloaded on - 07/08/2016 00:11:10 :::
appln 1638-02.doc
Mumbai 400 021
21. Gaurang M. Gandhi,
proprietor of
M/s. Gaurang M. Gandhi,
1218 Maker Chambers,
V. Nariman Point,
Mumbai 400 021
22. The State of Maharashtra ..Respondents
(Resp. No.1 Org. Complainant
Resp. Nos.2 to 21 Org. Acc.
Nos.5 to 25)
ig WITH
CRIMINAL APPLICATION NO.1639 of 2002
1) The Stock Exchange Mumbai,
P.J. Towers, Dalal Street,
Mumbai-400 001.
2) R.C. Mathur,
Former Executive Director of the
Stock Exchange, Mumbai, P.J.
Towers, Dalal Street, Fort,
Mumbai-400 001.
3) J.J. Bhatt
Director-Listing and Market
Operations, of the Stock ...Applicants
Exchange, Mumbai, P.J. Towers, (Original Accused Nos.1 to 3)
Dalal Street, Fort, Mumbai- 400
001.
Versus
pps 5 of 28
::: Uploaded on - 06/08/2016 ::: Downloaded on - 07/08/2016 00:11:10 :::
appln 1638-02.doc
1A) The State of Maharashtra
1) Mahesh Ratilal Shah,
Proprietor, Pooja Investments &
Financial Management, Office
No.3, 1st Floor, Hasim Building,
Office No.38/40, Veer Narman
Road, Opp. Akbarallys, Fort,
Mumbai-400023.
2) Suresh Rathi & Co. CLG.
No.727
Parekh Vora Chambers, N.M.
Road, Fort, Mumbai-400 001.
3) Suresh N. Rathi Partner of
Suresh Rathi & Co. Parekh Vora
Chambers, N.M. Road, Fort,
Mumbai- 400001
4) Nand Kishore Rathi, Partner of
Suresh Rathi & Co. Parekh Vora
Chambers, N.M. Road, Fort,
Mumbai 400 001.
5) Shashi Rathi Partner of Suresh
Rathi & Co. Parekh Vora
Chambers, N.M. Road, Fort,
Mumbai-400 001.
6) Dhanesh T. Gandhi, CLG.
No.144 R-545, Rotunda Bldg. 5th
floor, Bombay Samachar Marg,
Mumbai-400 001.
7) Dhanesh T. Gandhi, Proprietor
of Messrs. Dharmesh T. Gandhi R-
pps 6 of 28
::: Uploaded on - 06/08/2016 ::: Downloaded on - 07/08/2016 00:11:10 :::
appln 1638-02.doc
545, Rotunda Bldg., 5th Floor,
Bombay Samachar Marg,
Mumbai- 400 001.
8) Anagram Stock Broking Ltd.
CLG No.027, 204, Dalamal
Towers, Free Press Journal Marg,
Nariman Point, Mumbai-400 001.
9) Bhavesh Shah, Director of
Anagram Stock Broking Ltd. 204,
Dalamal Towers, Free Press
Journal Marg, Nariman Point,
Mumbai-400 001.
10) Hemant Moghe, Director of
Anagram Stock Broking Ltd., 204,
Dalamal Towers, Free Press
Journal Marg, Nariman Point,
Mumbai- 400 001.
11) Jasvantlal Chhotalal & Co.,
CLG No.340, Bhupen Chambers,
Gr. Floor, Dalal Street, Fort,
Mumbai-400 001.
12. Jasvantlal C. Parekh, Partner
of Jasvantlal Chhotalal & Co. The
Vice President of the Stcok
Exchange Mumbai, Bhupen
Chambers, Ground Floor, Dalal
Street, Fort, Mumbai- 400 001.
13. Dhirajlal C. Parekh, Partner of
Jasvantlal Chhotalal & Co.
Bhupen Chambers, Gr. Floor,
Dalal Street, Fort,
pps 7 of 28
::: Uploaded on - 06/08/2016 ::: Downloaded on - 07/08/2016 00:11:10 :::
appln 1638-02.doc
Mumbai- 400 001.
14. N. Mohanlal Nagardas, CLG.
No.532, R-604, Rotunda Bldg., 6th
Floor, Bombay Samachar Marg,
Mumbai- 400001.
15. Navnitlal M. Shah, Partner of
N. Mohanlal Nagardas, R-604,
Rotunda, Bldg., 6th Floor,
Bombay Samachar Marg,
Mumbai- 400 001.
16. Ketan N. Shah, Partner of N.
Mohanlal Nagardas, R-604,
Rotunda, Bldg., 6th floor,
Bombay Samachar Marg, Mumbai
400 001.
17. Sumat Prasad Jain, CLG No.:
620 14, Rajabahadur Bldg., 3rd
Floor, A. Doshi Marg, Fort,
Mumbai-400 001.
18. Sumat P. Jain, Proprietor of
Sumat Prasad Jain, 14
Rajabahadur Bldg., 3rd Floor, A.
Doshi Marg, Fort,
Mumbai 400 001.
19. Subhash V. Shah CLG. No.747,
32-B Khatau Building, A.D. Mody
Marg, Fort, Mumbai-400 001.
20. Subhash V. Shah Proprietor of
M/s. Subhash V. Shah, 32-B
Khatau Building, A.D. Mody
pps 8 of 28
::: Uploaded on - 06/08/2016 ::: Downloaded on - 07/08/2016 00:11:10 :::
appln 1638-02.doc
Marg, Fort, Mumbai-400 001.
21. Gaurang M. Gandhi, CLG.
No.211, 1218, Maker Chambers V.
Nariman Point, Mumbai 400 021.
22. Gaurang M. Gandhi,
Proprietor of M/s. Gaurang M.
Gandhi, 1218 Maker Chambers V.
Nariman Point, Mumbai 400 021.
23. Dipak G. Cholera, CLG.
No.:160 Bandukwala Bldg. Gr.
Floor, British Hotel Lane, B.S.
Marg, Mumbai- 400 001.
24. Dipak G. Cholera, Proprietor
of Dipak G. Cholera, Bandukwala
Bldg., Gr. Floor, British Hotel
Lane, B.S. Marg, Mumbai-400
001.
25. Kishor N. Choksi, CLG No.394
406, 4th floor, P.J. Towers, Dalal
Street, Fort, Mumbai 400 001.
26. Kishor N. Choksi, Proprietor,
of Kishor N. Choksi, 406, 4th Floor,
P.J. Towers, Dalal Street, Fort,
Mumbai- 400 001.
27. Dipak N. Choksi, Proprietor
of Kishor N. Choksi, 406, 4th floor,
P.J. Towers, Dalal Street, Fort,
Mumbai- 400 001.
28. Dinesh J. Shah, CLG No.:155
pps 9 of 28
::: Uploaded on - 06/08/2016 ::: Downloaded on - 07/08/2016 00:11:10 :::
appln 1638-02.doc
R-525, Rotunda Bldg., 5th floor,
Bombay Samachar Marg, Mumbai
400 001.
...Respondents
29. Dinesh J. Shah, Proprietor of (Respondent No.1 orig.
Dinesh J. Shah, R-525, Rotunda complainant. Respondent Nos.2
Bldg., 5th floor, Bombay Samachar to 29, original accused Nos.5 to
Marg, Mumbai- 400 001. 32.)
Mr. Amit Desai a/w. Sanjog Parab for the Applicant.
None for the Respondent No.1 /Complainant.
Mrs. R.M.Gadhvi APP for the State.
CORAM : SMT. ANUJA PRABHUDESSAI, J.
RESERVED ON : JUNE 23, 2016.
DATED : AUGUST 02, 2016.
JUDGMENT .
1. These applications filed under Section 482 of Cr.P.C. challenge
orders dated 24th August 2000 in C.C.No.1217/S/2000 and C.C.No.
1218/S/2000 whereby the learned Metropolitan Magistrate, 33 rd Court,
Ballard Pier, Mumbai has issued process against the applicants (Org.
accused nos.1, 2 and 3) for offence under Sections 409, 471 rw. 34 of
the Indian Penal Code.
2. The applicant no.1 is a Stock Exchange, recognized under the
pps 10 of 28
appln 1638-02.doc
provisions of the Securities Contract Act, 1956 and governed by the
Rules, Bye-laws and Regulations, 1957 of the Stock Exchange. The
applicant nos.2 and 3 were the Executive Director/ Director of the
applicant no.1 Exchange.
3. The equity shares of M/s. Presto Finance Ltd. were listed in the
Stock Exchange, Mumbai w.e.f. 28.02.1996 for trading. The
respondent no.1/ complainant who is a sub-broker in B.S.E. (AMI),
had filed private complaints before the Metropolitan Magistrate 33 rd
Court, Ballard Pier, Mumbai, against the applicants and twenty others
alleging that in March/April 1996 alleging that with the assistance of
the broker Yogesh Mehta he had traded and purchased 96000 and
76000 shares on behalf of his clients by making prompt payment of
Rs.1601580/- and 1424932.25 by cheques. The complainant further
traded in all purchasing 1,89,200 and 109500 shares, the delivery of
which was not given to him. By notice dt. 6.4.1996 the applicants
suspended trading with effect from 8.4.1996. Upon enquiries the
complainant learnt that the shares were fake, forged and thus invalid.
pps 11 of 28
appln 1638-02.doc
Upon being appraised, the broker Yogesh Mehta made a written
complaint to the applicant.
4. The complainant has stated that the applicants had listed the
shares of Presto Company for trading despite knowing that the accused
nos. 5 to 24 had introduced the forged and invalid shares in the
market. The complainant has further stated that the applicant who had
retained the cheques and shares till 30.10.1996 ought not to have paid
the deposited amount of buyers to accused nos.5 to 24, since they were
not legally entitled for the same. The complainant further stated that
the best thing in the best interest of buyers was to return the invalid
shares to the accused no.5 to 24 by withholding the already deposited
amount instead of parting with it in the most dishonest way. The
complainant has stated that the applicants herein had conspired with
the other accused to cheat the innocent investors.
5. By order dated 06.02.1998 the learned Magistrate referred both
the complaints to MRA Marg Police Station for further investigation
pps 12 of 28
appln 1638-02.doc
under Section 202 Cr.P.C. The MRA Marg police station returned the
complaints for being forwarded to EOW branch. The EOW branch
submitted the reports on 7.3.2007 stating that no offences were
disclosed vis-a-vi the applicants herein. The learned Magistrate
however, by orders dt. 24.8.2000 in both the complaints ordered to
issue process against the applicants and other accused for offences
under Section 409, 471 r/w. 34 IPC. Being aggrieved by the said
orders, the applicants have invoked the jurisdiction of this court for
quashing the said orders.
6. The learned Sr. Counsel Shri Desai has submitted that the
applicant no.1 and its governing body has acted in accordance with the
bye laws, rules and regulations and that no process could be issued
against the applicants on the bare allegations of 'criminal conspiracy',
'mis-appropriation' or 'cheating'. He has further submitted that the
report of EOW clearly exonerates the applicants and in the absence of
any prima facie material to sustain the allegations, no process could be
issued as against the applicants for offences under Section 409, 471
pps 13 of 28
appln 1638-02.doc
IPC. The learned Counsel for the applicants has further submitted that
the impugned orders are erroneous and untenable in law.
7. The complainant was not represented by any counsel despite due
service of notice. Consequently, no arguments have been advanced on
behalf of the respondent no.2. I have perused the records and
considered the submissions advanced by the learned Senior Counsel
Shri Desai for the applicants and the learned APP for the State.
8. At the outset, it may be stated, in M/s. Pepsi Foods Ltd. & Anr.
v. Special Judicial Magistrate & Ors, (1998) 5 SCC 749 the Apex
Court has observed that summons to an accused in a criminal case is
something very serious as it puts the accused person, so summoned, to
a great degree of peril of facing an unending trial, mental torture and
harrassment, and therefore this should not be done in a casual manner.
9. In M/s. Indian Corporation vs NEPC India Ltd. & Ors. dated
20.7.2006, the Apex Court after considering its previous decisions on
pps 14 of 28
appln 1638-02.doc
the principles relating to exercise of jurisdiction under Section 482 of
Criminal Procedure Code has reiterated the principles as under :
"9(i) A complaint can be quashed where the allegations
made in the complaint, even if they are taken at their
face value and accepted in their entirety, do not prima
facie constitute any offence or make out the case alleged
against the accused.
For this purpose, the complaint has to be examined as a
whole, but without examining the merits of the
allegations. Neither a detailed inquiry nor a meticulous
analysis of the material nor an assessment of the
reliability or genuineness of the allegations in the
complaint, is warranted while examining prayer for
quashing of a complaint.
(ii) A complaint may also be quashed where it is a clear
abuse of the process of the court, as when the criminal
proceeding is found to have been initiated with
malafides/malice for wreaking vengeance or to cause
harm, or where the allegations are absurd and inherently
improbable.
(iii) The power to quash shall not, however, be used to
stifle or scuttle a legitimate prosecution. The power
should be used sparingly and with abundant caution.
(iv) The complaint is not required to verbatim reproduce
the legal ingredients of the offence alleged. If the
necessary factual foundation is laid in the complaint,
merely on the ground that a few ingredients have not
pps 15 of 28
appln 1638-02.doc
been stated in detail, the proceedings should not be
quashed. Quashing of the complaint is warranted only
where the complaint is so bereft of even the basic facts
which are absolutely necessary for making out the
offence.
(v) A given set of facts may make out : (a) purely a civil
wrong; or (b) purely a criminal offence; or (c) a civil
wrong as also a criminal offence. A commercial
transaction or a contractual dispute, apart from
furnishing a cause of action for seeking remedy in civil
law, may also involve a criminal offence. As the nature
and scope of a civil proceedings are different from a
criminal proceeding, the mere fact that the complaint
relates to a commercial transaction or breach of contract,
for which a civil remedy is available or has been availed,
is not by itself a ground to quash the criminal
proceedings. The test is whether the allegations in the
complaint disclose a criminal offence or not.
10. While on this issue, it is necessary to take notice of
a growing tendency in business circles to convert purely
civil disputes into criminal cases. This is obviously on
account of a prevalent impression that civil law remedies
are time consuming and do not adequately protect the
interests of lenders/creditors. Such a tendency is seen in
several family disputes also, leading to irretrievable
break down of marriages/families. There is also an
impression that if a person could somehow be entangled
in a criminal prosecution, there is a likelihood of
imminent settlement. Any effort to settle civil disputes
and claims, which do not involve any criminal offence,
by applying pressure though criminal prosecution should
be deprecated and discouraged. In G. Sagar Suri vs. State of
UP [2000 (2) SCC 636], this Court observed :
pps 16 of 28
appln 1638-02.doc
""It is to be seen if a matter, which is essentially of civil
nature, has been given a cloak of criminal offence.
Criminal proceedings are not a short cut of other
remedies available in law. Before issuing process a
criminal court has to exercise a great deal of caution. For
the accused it is a serious matter. This Court has laid
certain principles on the basis of which High Court is to
exercise its jurisdiction under Section 482 of the Code.
Jurisdiction under this Section has to be exercised to
prevent abuse of the process of any court or otherwise to
secure the ends of justice."
While no one with a legitimate cause or grievance
should be prevented from seeking remedies available in
criminal law, a complainant who initiates or persists with
a prosecution, being fully aware that the criminal
proceedings are unwarranted and his remedy lies only in
civil law, should himself be made accountable, at the end
of such misconceived criminal proceedings, in
accordance with law. One positive step that can be taken
by the courts, to curb unnecessary prosecutions and
harassment of innocent parties, is to exercise their power
under section 250 Cr.P.C. more frequently, where they
discern malice or frivolousness or ulterior motives on
the part of the complainant."
10. In the light of the above well settled principles, the question
which falls for consideration is whether the averments in the
complaints taken at its face value, make out the essential ingredients of
the offence punishable under Section 409 and 471 of IPC.
pps 17 of 28
appln 1638-02.doc
11. Section 405 IPC defines criminal breach of trust as under:
405. Criminal breach of trust.--Whoever, being in any
manner entrusted with property, or with any dominion
over property, dishonestly misappropriates or converts to
his own use that property, or dishonestly uses or disposes
of that property in violation of any direction of law
prescribing the mode in which such trust is to be
discharged, or of any legal contract, express or implied,
which he has made touching the discharge of such trust,
or wilfully suffers any other person so to do, commits
"criminal breach of trust".
12. A plain reading of these provisions indicates that the offence of
criminal breach of trust involves the following essential ingredients:
1) Entrustment with property or dominion over property.
2) Dishonest mis-appropriation of such property, or
conversion to own use or disposal of the property by the
person entrusted with such property.
13. Likewise, the essential ingredients of offence under Section 471
are :
1) User of forged document as genuine.
pps 18 of 28
appln 1638-02.doc
2) Such user is made fraudulently or dishonestly despite
knowledge or reasons to believe that the document was
forged.
14. In the instant case, the applicant no.1 herein is a Stock Exchange
recognized under the provisions of Security Contract (Regulation) Act,
1956. The activities of the applicant no.1 are governed by rules, bye
laws and regulations of the Stock Exchange, Mumbai. The main
object of the applicant no.1 as set out in Exchange Rules, Bye-laws
and regulations is to support and protect (in the public interest) the
character and status of progress of dealers and to further their interest
both of brokers and dealers as well as of the public interested in
securities, to assist, regulate and control (in the public interest. The
exchange primarily provides facilities for trading in shares and other
securities which are listed/quoted on the exchange and also provides
facilities for settling such trades/purchases/sales by payment of
purchase price and delivery of the concerned shares/securities on
"net".
pps 19 of 28
appln 1638-02.doc
15. As per the procedure, the shares and securities are traded in
exchange on every trading day. Under bye-law 191 of the Exchange
Rules, the Exchange does not recognize as parties to any bargain in
the market other than its own members and every member is directly
and primarily liable to every other member with whom he effects a
bargain for its due fulfillment in accordance with the Rules.
16. The bargain bye-law 192 further provides that all bargains at the
stock exchange are regulated by rules, bye-laws and regulations of the
exchange. As per the said rules and regulations each member broker is
liable to fulfill/ perform his obligations to a contract by paying money
for shares bought by him and by delivering shares which were sold. In
case of 'bad delivery' i.e. in the event the shares delivered by a member
do not meet the description, and cannot be transferred either due to
technical defect or on account of shares being forged, fabricated,
hypothecated etc, the introducing member/broker is primarily
responsible to rectify the defect or to replace the bad delivery shares
pps 20 of 28
appln 1638-02.doc
with an equivalent numbers of other good delivery shares of the same
company. If the broker/member fails to rectify the defect or replace
the shares, the exchange is required to conduct an auction, purchase
the requisite number of shares on the selling members account, and
deliver the same to the buying members. If the shares of the company
are not available in the market due to delisting of the company, or
suspension of scrip etc, the transaction is closed out by the Exchange
and compensation is paid to the buying member on the selling
member's account, in accordance with the fixed prescribed formula.
As regards the market settlement as approved by the Central
Government as well as SEBI, the member is required to maintain the
requisite capital for the purpose of conducting the transaction on the
floor of the Exchange. This amount is reflected on the Valan account
of the member broker. The said account is like a ledger account and it
reflects a type of credit and debit position of money and securities of
the member broker. As per the norms the member is statutorily
required to maintain the credit balance to discharge his obligation and
in the event of bad delivery or in order to fulfill market obligation
pps 21 of 28
appln 1638-02.doc
unless there is any order passed by any Regulatory Authority or Court.
17. Reverting to the facts of the present case, the averments in the
complaints reveal that equity shares of Presto Finance Ltd. Company
were listed for trading on the applicant no.1 stock exchange w.e.f.
28.2.1996. The ASE had informed the applicants that it had received
complaints against the company Presto Finance Ltd. and that it
intended conducting investigation. The said ASE had also informed
the applicant exchange that it had suspended trading of equity shares
of the said company for a period of three days.
18. The scrip of the company was listed between 28.2.1996 and
8.4.1996 during which period regular trading activities in connection
with the scrip was done on the floor of the applicant no.1 exchange.
The applicant no.1 exchange having received information from ASE
that some defective/ duplicate/ invalid share certificates of the said
company were circulating in the exchange and in the market, the
applicant no.1 vide notice dt. 6.4.96 suspended trading of the scrip
pps 22 of 28
appln 1638-02.doc
w.e.f. 9.4.96. The applicant no.1 exchange vide notice dt. 9.4.96
informed the members that the trading which had taken place on
9.4.96 were deemed to be canceled, and further by notice dt 12.4.96
informed its members that defective/duplicate/invalid shares had been
introduced. The applicant no.1 further informed its members that the
board of the applicant no.1 had decided to retain the shares of the said
company and consequent payments for settlement in the clearing
house of the applicant no.1 till further instructions. The applicant no.1
also requested the members who had delivered the said scrips to
deposit their cheques at the standard rate in the clearing house of the
applicant no.1 exchange and the members who had received shares of
Prestor company were requested to deposit the same by giving full
details in form 11 and 12.
19. The correspondence placed on record by the applicants, the
genuineness of which is not disputed also reveals that the applicant
no.1 Exchange had brought these facts to the notice of SEBI with a
request to initiate inquiry into the matter on urgent basis. By letter dt.
pps 23 of 28
appln 1638-02.doc
16.4.1996 the applicant no.1 exchange had brought these facts to the
notice of Sr. Inspector of Police CID, Mumbai and requested to
investigate the matter and to take appropriate action. Pursuant to the
said complaint crime No. 69 of 1996 was registered and the
investigation was initiated. The copy of the said letter was also
forwarded to SEBI for necessary action. In the course of the
investigation of the said crime, at the request of the Investigating
officer, the applicant no.1 handed over all the required documents
including duplicate share certificates along with transfer deeds with a
request to return the same after completion of the investigation.
20. The documents placed on record reveal that the High Court of
Gujrat had passed an order of winding up of said Presto Company.
By notices dt. 25.10. 1996 and 26.10.1996 the applicant no.1 informed
the members about the said order. The applicant no.1 decided to
release the other shares of the company to the concerned buyer
members valan account by adjusting the debit in the members valan
account. The buyer and seller members were called upon to collect
pps 24 of 28
appln 1638-02.doc
the relevant shares as well as the amount. Accordingly, an amount o
Rs.57,46,515/- was paid by the clearing house to about 90 selling
members.
21. The averments in the complaints vis-à-vis the documents which
are placed on record prima facie indicate that Presto Finance Ltd. had
perpetuated fraud by circulating fake and duplicate share certificates in
the market and pursuant to the complaint lodged by the applicant no.1
exchange, crime was registered against the said company. It is
pertinent to note that the applicant who is a sub-broker had no privity
of contract with the applicant no.1 Exchange. He had purchased the
shares through Yogesh Mehta, a member of BSE, who had already
filed a private complaint C.C.No.518/S/2000 against the applicant
exchange and its Directors alleging criminal conspiracy. The
complainant in the present case is a witness in C.C.No.518/S/2000
filed by Yogesh. The complaint Nos.1217/S/2000 and 1218/S/2000
relate to the same facts as alleged by Yogesh. Be that as it may, the
records reveal that the learned Magistrate after recording the
pps 25 of 28
appln 1638-02.doc
verification statements of respondent no.1 had referred the complaints
to the concerned police station under Section 202(ii) of Cr.P.C. The
said complaints was subsequently forwarded to the Economic Offence
Wing, CID. The Economic Offence Wing filed a detail report before
the Magistrate on 7.5.2000 stating that the complaints did not disclose
any offence under Section 409 and 471 r/w.34 of IPC . The learned
Magistrate rejected the report and issued process under Section 409
and 471 r/w. 34 of IPC. The competency of the Magistrate to reject
the report and to issue process is not in question. It is also not in
dispute that while issuing the process, the Magistrate is not required to
give elaborate reasons or pass detailed order. Nevertheless, it is
incumbent upon the Magistrate to apply his mind and ascertain
whether the complaint and the material placed before him prima facie
disclose essential ingredients of alleged offence and whether there are
sufficient grounds to proceed against the accused.
22. In the instant case, the complaints and the statement under
Section 200 of Cr.P.C. do not reveal essential ingredients of offence
pps 26 of 28
appln 1638-02.doc
under Section 406 and 471 r/w. 34 of IPC, viz. entrustment and
consequent misappropriation and user of forged documents as genuine
documents. The complaints and the statements under Section 200
Cr.P.C. do not indicate that the applicants had listed the share
certificates despite knowing that the same were duplicate, fake or
invalid. On the contrary, the records prima facie indicate that as soon
as the applicant was informed that the fake/duplicate shares of Presto
Company were circulated, the applicant suspended trading and acted
promptly and diligently in accordance with the procedure under the
Rules, Bye-laws and Regulations of the exchange.
23. The complaints alongwith the annexures and the verification
statement, taken at its face value do no directly or indirectly indicate
entrustment of money or property to the applicant no.1 and
consequent mis-appropriation or dishonest inducement and cheating.
Furthermore, the complaints do not prima facie indicate that the
applicants had circulated the said shares as genuine despite knowing
that the said shares were fake, duplicate and invalid. This being the
pps 27 of 28
appln 1638-02.doc
case, there was no justification for issuing process against the
applicants for offences under Section 409, 471 r/w. 34 of IPC.
Despite which the learned Magistrate has ordered issuance of process
against these applicants mechanically and without application of mind.
Allowing the proceedings to continue against these applicants will be
abuse of process of law. Hence the order cannot be sustained .
24. Under the circumstances and in view of the discussion supra,
the applications are allowed. The impugned Orders dt. 24.8.2000 in
C.C.Nos.1217/S/2000 and 1218/S/2000 passed by the Metropolitan
Magistrate, 33rd Court, Ballard Pier, Mumbai are hereby quashed and
set aside qua the applicants.
(ANUJA PRABHUDESSAI, J.)
pps 28 of 28
