Bombay High Court
Ganesh Benzoplast Limited ... vs Morgan Securities Credits ... on 26 April, 2021
Bench: A.S. Gadkari
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
CRIMINAL WRIT PETITION NO.127 OF 2020
WITH
INTERIM APPLICATION NO.220 OF 2020
IN
CRIMINAL WRIT PETITION NO. 127 OF 2020
Ganesh Benzoplast Limited
Through its authorized representative
Mr.Ramesh Pilani ....Petitioner.
Vs.
Morgan Securities Credits
Private Limited & Anr. ....Respondents.
WITH
CRIMINAL WRIT PETITION NO. 128 OF 2020
WITH
INTERIM APPLICATION NO.221 OF 2020
IN
CRIMINAL WRIT PETITION NO.128 OF 2020
Ganesh Benzoplast Limited
Through its authorized representative
Mr.Ramesh Pilani ....Petitioner.
Vs.
Prakash Aggarwal & Anr. ....Respondents.
WITH
CRIMINAL WRIT PETITION NO. 129 OF 2020
WITH
INTERIM APPLICATION NO.222 OF 2020
IN
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CRIMINAL WRIT PETITION NO.129 OF 2020
Ganesh Benzoplast Limited
Through its authorized representative
Mr.Ramesh Pilani ....Petitioner.
Vs.
Meera Goyal & Anr. ....Respondents.
WITH
CRIMINAL WRIT PETITION NO. 130 OF 2020
WITH
INTERIM APPLICATION NO.223 OF 2020
IN
CRIMINAL WRIT PETITION NO. 130 OF 2020
Ganesh Benzoplast Limited
Through its authorized representative
Mr.Ramesh Pilani ....Petitioner.
Vs.
Suresh Chand Goyal & Anr. ....Respondents.
WITH
CRIMINAL WRIT PETITION NO. 348 OF 2020
Suresh Chand Goyal ....Petitioner.
Vs.
1 The State Of Maharashtra
2 Ganesh Benzoplast Limited ....Respondents.
WITH
CRIMINAL WRIT PETITION NO. 349 OF 2020
Prakash Aggarwal ....Petitioner.
Vs.
1 The State Of Maharashtra
2 Ganesh Benzoplast Limited ....Respondents.
WITH
CRIMINAL WRIT PETITION NO. 357 OF 2020
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Meera Goyal ....Petitioner.
Vs.
1 The State Of Maharashtra
2 Ganesh Benzoplast Limited ....Respondents.
Mr. M.G. Shukla a/w Ms. Chaula Solanki a/w Mr. H.H. Nagi i/by Nagi &
Associates for the Petitioners in Writ Petition Nos.127 of 2020, 128 of 2020,
129 of 2020 and 130 of 2020 and for the Respondent No.2 in Writ Petition
Nos.348/2020, 349 of 2020 and 357 of 2020.
Mr. Aabad Ponda, Senior Advocate a/w Mr. Abhishek Gupta and Mr. Ravi
Mishra i/by MZM Legal for the Petitioners in WP Nos. 348 of 2020, 349 of
2020 and 357 of 2020 and for Respondent-accused in Writ Petition Nos.127
of 2020, 128 of 2020, 129 of 2020 and 130 of 2020.
Mr. A.R. Patil, APP for the Respondent-State in all Petitions.
CORAM : A. S. GADKARI, J.
RESERVED ON : 10th MARCH, 2021
PRONOUNCED ON : 26th APRIL, 2021.
JUDGMENT:-
1) The aforementioned Petitions are filed under Article 227 of the
Constitution of India and under Section 482 of the Code of Criminal
Procedure, 1973 (for short, 'Cr.P.C.').
The Petitioner Ganesh Benzoplast Limited is Complainant in CC
No.56/SW/2011 pending on the file of learned Metropolitan Magistrate,
Railway Mobile Court, Andheri, Mumbai. The Respondent No.1 in WP No.
127 of 2020 i.e. Morgan Securities Credits Pvt. Ltd. is accused No.1 and
Petitioners in WP No.348 of 2020, 349 of 2020 and 357 of 2020 are original
accused Nos.3, 4 and 2 respectively in the said complaint.
For the sake of brevity, the parties herein will be hereinafter
referred to as per their nomenclature in the said complaint i.e.
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'complainant' and 'accused'.
2) All the Petitioners impugn Judgments and Orders dated 2 nd
December, 2019 passed in Criminal Revision Application Nos.128 of 2017,
167 of 2017, 168 of 2017 and 166 of 2017, by the learned Additional
Sessions Judge, Borivali Division, Dindoshi, Mumbai. The said Revisions
were filed by Accused against the Order of issuance of process under
Sections 406, 420 r/w Section 34 of the Indian Penal Code r/w Section 15-
HA of the SEBI Act, 1992, by the learned Metropolitan Magistrate, Railway
Mobile Court, Andheri, Mumbai, below Exh-1, in CC No.56/SW/2011, by
its Order dated 22nd March, 2017.
2.1) Writ Petition No.127 of 2020 filed by the complainant impugns
Judgment and Order passed in Criminal Revision Application No.128 of
2017 by the Revisional Court, thereby completely exonerating accused
No.1, Morgan Securities Pvt. Ltd.. The Criminal Writ Petition Nos.128 of
2020, 129 of 2020 and 130 of 2020 impugn Orders of the Revisional Court
to the extent, it exonerated accused Nos.2 to 4 from the offences under Sec.
420 of IPC and under Sec. 15-HA of the SEBI Act.
2.2) Writ Petition Nos.348 of 2020 and 349 of 2020 and 357 of
2020 are filed by accused Nos.3,4 and 2 respectively challenging the
impugned Orders to the extent, it upheld issuance of process Order under
Section 406 r/w Section 34 of the IPC against them, being Directors of
accused No.1-company.
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2.3) As common questions of facts and law are involved in all the
aforestated Petitions, the same are decided and disposed off by this
common Judgment.
3) Heard Mr. Aabad Ponda, learned Senior Advocate for the
Petitioners in WP Nos.348 of 2020, 349 of 2020 and 357 of 2020 and for
the Respondent-accused in WP Nos.127 of 2020, 128 of 2020, 129 of 2020
and 130 of 2020, Mr. M.G. Shukla, learned counsel for the Petitioners in WP
Nos.127 of 2020, 128 of 2020, 129 of 2020 and 130 of 2020 and for the
Respondent No.2 in WP Nos.348 of 2020, 349 of 2020 and 357 of 2020 and
Mr. A.R. Patil, learned APP for the State in all the Petitions.
4) Complainant has filed the aforestated complaint bearing CC
No.56/SW/2011 before the learned Magistrate on 11th February, 2011.
It is the case of the complainant that, the complainant is a
company incorporated under the provisions of Companies Act, 1956. That,
Ganesh Benzoates Pvt. Ltd. is the sister concern company of the
complainant and as a Guarantor provided the security to the accused on
behalf of complainant against the Inter Corporate Deposit (ICD) facility
provided by the accused No.1, to the complainant to the extent of Rs.50
lacs. The accused Nos.2 to 4 are the Directors of accused No.1-company
and are responsible for day to day affairs and acts of accused No.1.
4.1) In the month of March, 2000 accused No.1 Morgan Securities
Credits Pvt. Ltd. (for short, 'Morgan') agreed to provide an ICD facility to
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the complainant, Ganesh Benzoplast Limited (for short, 'Ganesh') to the
tune of Rs.50 lacs. Accordingly, on 7th March, 2000, ICD Agreement, D.P.
Note, Letter of Continuity, ICD Receipt, Personal Guarantee Deed and
Corporate Guarantee Deed were executed between the parties. Morgan (A-
No.1) paid Rs.50 lacs to Ganesh vide cheque No.048526 dated 7 th March,
2000.
4.2) A Letter of Pledge dated 7th March, 2000 was executed by
Ganesh in favour of Morgan and Ganesh pledged 15 lakh Equity Shares in
Demat form, owned by it in favour of Morgan. The said shares were
pledged with the accused only as a security. At the time of pledging of the
said shares with accused, the value of each share was Rs.16 and 15 lakh
shares were worth Rs.2 crore 40 lakhs. The said shares could not be sold
and transferred pursuant to the Pledge Agreement and SEBI guidelines. A
sudden market depression led to a fall in the value of the pledged shares.
Morgan therefore, issued notice dated 3rd May, 2000 to Ganesh asking it to
pledge additional shares as the value of pledged shares had decreased to
Rs.1,24,50,000/-, resulting in a short-fall of Rs.75,50,000/- from the agreed
security cover i.e. 200% of the ICD amount. At that relevant time, the value
of shares was Rs.8.30 to 8.50 per share.
4.3) Complainant Ganesh faced acute financial hardship due to
global recession and could not repay the ICD and therefore, on the due
date of said ICD i.e. on 5th June, 2000 asked Morgan to recover ICD dues by
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selling the pledged shares and remitting the balance sale proceeds to the
complainant. At that time, the accused No.1 Morgan assured that, as and
when they would sale Security then they will inform accordingly and give
credit balance amount of sale proceeds. That, the accused despite sending
notice kept assuring that, they will give details of shares in due course and
kept on recovering interest on ICD and asked complainant not to mix the
issue of sale of shares with interest on ICD. The complainant paid interest
on ICD from time to time i.e. between 28 th September, 2000 to 6th August,
2001. Morgan issued notice on 2nd August, 2001 to Ganesh (complainant)
as the value of pledged shares had fallen to Rs.44,25,000/- and demanded
repayment of ICD of Rs.50 lakhs, failing which the pledged shares would be
sold.
4.4) The complainant by its communication dated 14 th August, 2001
informed Morgan proposing to repay initially Rs.25 lakhs in 5 equal
monthly installments at Rs.5 lakhs in cash starting from August, 2001.
Complainant also informed Morgan that, the first installment of Rs.5 lakhs
will be paid to it on or before 25th August, 2001.
4.5) That, on 14th August, 2001, the accused invoked clause No.17
of the ICD Agreement and appointed a Sole Arbitrator, claiming balance
loan amount against the complainant. That, the accused even after
invoking the Arbitration Clause, illegally sold 15 lakh pledged shares
between 24th August, 2001 to 12th September, 2001 for an amount of
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Rs.24,67,631/-, when the matter was already referred to the Arbitrator on
14th August, 2001. That, the accused No.1 with malafide intention and
motive with its pre-planned scheme and arrangement gave effect to the sale
of security by illegal ways. Complainant sought information on the sale of
shares in the said Arbitration proceedings, and Morgan disclosed that the
same took place via NSE from 24th August, 2001 to 12th September, 2001.
Morgan filed evidence in the Arbitration proceedings, disclosed the
transferees name as Doogar and Associates Ltd.. That, Doogar and
Associates Ltd. changed its name to Morgan Ventures Ltd. in the year 2004.
The complainant got suspicious about the conduct of accused and inquired
with the Registrar of Companies for the details of the constitution of both
the companies i.e. Morgan and the transferee company i.e. M/s. Doogar
and Associates Ltd.. It was revealed that, the Directors of both the
companies are the same i.e. accused Nos.2 to 4 herein.
4.6) In the year 2006, complainant applied to BSE and NSE for
details of the sale of shares by Morgan between 24 th August, 2001 to 12th
September, 2001. After receiving details from Stock Exchange and the
registered agent of complainant, the doubt of complainant was confirmed
and it was revealed that, most of the shares were sold by the accused at the
closing time of the share market and that too, at the lowest price of the day.
4.7) It is the specific case of the complainant that, the shares which
were entrusted with the accused were dishonestly misappropriated and
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converted for illegal gains by the accused. That, when the first notice was
given by the accused company to the complainant on 3 rd May, 2000, the
market price of the shares was Rs.8.50 per share. That means total price of
15 lakh shares was Rs.1,27,50,000/-. That, the accused in order to acquire
more shares of complainant, waited for further fall in the share price and
sold them only in August/September, 2001 for Rs.24,67,531/-. The accused
thus, jointly and severally by fraudulent means not only committed criminal
breach of trust but also committed the act of cheating against the
complainant. That, by indulging into circular trading, the accused also
committed violation of Sec.15 of SEBI Act. In this brief premise, the
present complaint is filed before the learned Magistrate.
5) The record indicates that, learned Magistrate by its Order dated
6th August, 2011 had directed the Police Inspector of Andheri Police Station,
Mumbai to make an inquiry under Section 202 of Code of Criminal
Procedure, 1973 in the matter and to submit a report. Accordingly, on 16 th
March, 2012, the Senior Inspector of Police, Andheri Police Station,
Mumbai, submitted his Inquiry Report before the learned Magistrate. The
learned Magistrate by its Order dated 11 th September, 2012 had earlier
issued process against all the accused, for the offence punishable under
Sections 403, 406, 420 and 120-B of the Indian Penal Code. The said
Order of issuance of process was challenged by the accused before the
Sessions Court by filing Revision Application Nos.1276 of 2012 and 132 to
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134 of 2015. The said Revisions were allowed by the learned Additional
Sessions Judge by its Judgment and Order dated 16 th January, 2016, on the
ground that, there was defect in recording verification statement of the
representative of the complainant under Section 200 of Cr.P.C., as a pre-
typed verification statement was produced by the learned Advocate for the
complainant and the same was accepted by the Trial Court. The learned
Additional Sessions Judge, while allowing the said Revisions directed the
learned Magistrate to re-record verification under Section 200 of the Cr.P.C.
and to proceed with the said case.
6) The learned Magistrate accordingly recorded fresh verification
statement of complainant's authorized representative Shri. Bhupendra R.
Pitale under Section 200 of Cr.P.C., on 9th February, 2016 and also recorded
evidence after verification of Mr.Ramesh S. Pilani of the complainant on
12th July, 2016. The learned Magistrate after perusing complaint,
verification of complainant and the documents filed in support thereof and
the Inquiry Report under Section 202 of Cr.P.C. dated 16 th March, 2012,
submitted by Senior Inspector of Police of Andheri Police Station, was
pleased to issue process under Sections 406. 420 r/w 34 of the IPC r/w
Sec.15-HA of the SEBI Act, 1992 against the accused by its Order dated 22 nd
March, 2017 passed below Exh-1 in the said complaint.
7) Feeling aggrieved by the said Order dated 22 nd March, 2017
passed by the learned Magistrate, issuing process, the accused filed
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Criminal Revision Application Nos.128, 166, 167 and 168 of 2017, in the
Court of Sessions at Dindoshi, Mumbai. The Revision Applications were
partly allowed by impugned Orders dated 2 nd December, 2019. The process
issued against accused No.1 Morgan was set aside in its entirety. The
process issued against accused Nos.2 to 4 under Section 420 of IPC and
Sec.15-HA of SEBI Act has also been set aside. The Revisional Court,
however, has upheld issuance of process against Directors (A-Nos.2 to 4) of
Accused No.1 company to the extent of Sec.406 r/w 34 of the IPC.
8) As such, the Directors (A-Nos.3,4 & 2) have filed aforestated
Criminal Writ Petition Nos.348, 349 and 357 of 2020, challenging the
impugned Order to the extent it upheld the summoning Order under
Section 406 read with 34 of the IPC against them.
The complainant Ganesh has filed aforestated Writ Petition
No.127 of 2020 challenging complete exoneration of Morgan (A-No.1) vide
impugned Order dated 2nd December, 2019. The complainant Ganesh has
also filed aforestated Criminal Writ Petition Nos.128, 129 and 130 of 2020
challenging the impugned Orders to the extent it exonerated the Directors
of Morgan for the offences under Section 420 of IPC and under Section 15-
HA of SEBI Act.
9) It is to be noted here that, at the outset Mr. Shukla the learned
counsel for the complainant on instructions from its authorized
representative, submitted that, the complainant is not pressing for
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application of Section 15-HA of SEBI Act and the allegations made in the
complaint to that extent will not be hereinafter further pursued. The said
statement is accepted.
10) Mr. Ponda, learned Senior counsel appearing for the accused
pointed out various clauses from the Letter of Pledge (Agreement) dated 7 th
March, 2000 executed between the parties and submitted that, in view of
the specific clauses in the said Pledge Agreement, the accused had given
power to the complainant to sell the said shares in case of particular
eventuality. That, as per the clauses of the said Agreement, the accused
had right to sell shares, which they exercised and sold the said shares.
That, the accused can even sell the said shares to its group companies. He
submitted that, in view thereof, there cannot be any breach of trust and or
cheating by the accused as alleged by the complainant.
10.1) He submitted that, at the time of issuance of process Order
dated 22nd March, 2017, the arbitration award dated 9 th December, 2015
was declared by the learned Arbitrator and the findings recorded therein
were not taken into consideration by the Trial Court. That, the averments in
the complaint and the objections raised by the accused persons in the
arbitration proceedings are similar. That, the interpretation of clauses of
the Pledge Agreement of the accused have been accepted by the Arbitrator.
He submitted that, the arbitration award dated 9th December, 2015 has
binding effect. That, the award mentions that, there are no breaches
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committed by the accused and therefore, in his submission, no criminal act
also has been made out by the complainant in his complaint. By relying on
paragraph Nos. 25 and 26 of the decision delivered by the Hon'ble Supreme
Court in the case of Hindustan Construction Company Ltd. & Anr. Vs. Union
of India & Ors. (Writ Petition (Civil) No.1074 of 2019) dated 27 th
November, 2019 , he submitted that, even if the said arbitration award is
challenged under Section 34 of the Arbitration and Conciliation Act, 1996,
its binding effect does not gets stayed automatically and it holds the field
till it is set aside.
10.2) Mr. Ponda further submitted that, the whole case put-forth by
the complainant has to be appreciated in view of the stringent terms
incorporated in the said Agreement. That, by reading the clauses of
Agreement, it can clearly be gathered that, accused were having power to
sell the said shares to an entity of their choice. That, the clauses mentioned
in the Letter of Pledge (Agreement) cannot be ignored and ought to have
been taken into consideration by the Trial Court at the first place while
issuing process against the accused. He submitted that, summoning of an
accused in a criminal case is a serious matter. Criminal law cannot be set
into motion, as a matter of course. That, the allegations made in the
complaint even if given face value and taken to be correct in its entirety,
does not disclose an offence. He submitted that, the present complaint filed
by the accused, is filed for causing harassment to the accused. He
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submitted that, there is no legal evidence connecting the accused with any
crime, much less the offences alleged as the materials are not capable of
being converted into legal evidence and therefore, the proceedings against
the accused are also liable to be quashed. He submitted that, a perusal of
complaint would indicate that, the complainant has not made specific
allegations against accused Nos.2 to 4 and therefore, also the present
complaint is not maintainable. In support of these contentions, Mr. Ponda
relied on the following decisions of the Hon'ble Supreme Court.
1 Charanjit Singh Chadha & Ors. Vs. Sudhir Mehra,
MANU/SC/0514/2001 : AIR 2001 SC 3721;
2 International Advanced Research Centre for Powder Metallurgy and
New Materials (ARCI) & Ors. Vs. Nimra Cerglass Technics (P) Ltd. &
Ors., MANU/SC/1063/2015 : (2016) 1 SCC 348;
3 Pepsi Foods Ltd. & Ors. Vs. Special Judicial Magistrate & Ors.,
MANU/SC/1090/1998 : AIR 1998 SC 128;
4 All Cargo Movers (I) Pvt. Ltd. & Ors. Vs. Dhanesh Badarmal Jain &
Ors., MANU/SC/8047/2007 : AIR 2008 SC 247;
5 Suryalakshmi Cotton Mills Ltd. Vs. Rajvir Industries Ltd. & Ors.,
MANU/SC/7050/2008 : AIR 2008 SC 1683;
6 M. Mohan Vs. The State represented by the Deputy Superintendent
of Police, MANU/SC/0161/2011 : AIR 2011 SC 1238;
7 The Superintendent & Remembrancer of Legal Affairs, West Bengal
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Vs. S.K. Roy, MANU/SC/0229/1974 : AIR 1974 SC 794;
8 GHCL Employees Stock Option Trust Vs. India Infoline Ltd.,
MANU/SC/0271/2013 : AIR 2013 SC 1433;
9 Sushil Sethi & Ors. Vs. The State of Arunachal Pradesh & Ors.,
MANU/SC/0119/2020 : AIR 2020 SC 765;
10 Suresh Vs. Mahadevappa Shivappa Danannava & Ors.,
MANU/SC/0110/2005 : AIR 2005 SC 1047.
10.3) Mr. Ponda further submitted that, it is well settled that, every
breach of contract would not give rise to an offence of cheating and only on
those cases breach of contract would amount to cheating where there was
any deception played at the very inception. That, if the intention to cheat
has developed later on, the same cannot amount to cheating. In support of
his contentions, he relied on two decisions of the Hon'ble Supreme Court
viz. (i) Uma Shankar Gopalika Vs. State of Bihar & Ors. MANU
/SC/1233/2004 : (2005) 10 SCC 336 and (ii) Vesa Holdings Private
Limited & Anr. Vs. State of Kerala & Ors., reported in (2015)8 SCC 293.
10.4) Mr. Ponda submitted that, the Indian Penal Code does not
contain any provision for attaching vicarious liability on the part of the
Managing Director or Directors of the company, when the accused is the
company. In the absence of any provision laid down under the statute, a
Director of a company or an employee cannot be held to be vicariously
liable for any offence committed by the company itself. That, a vicarious
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liability can be fastened only by reason of a provision of a statute and not
otherwise and for the said purpose, a legal friction has to be created. In
support of these contentions, he relied on the following decisions of the
Hon'ble Supreme Court :-
1 Maksud Saiyed Vs. State of Gujarat & Ors., MANU/SC/7923/2007 :
(2008) 5 SCC 668;
2 S.K. Alagh Vs. State of U.P. & Ors., MANU/SC/7162/2008 : AIR 2008
SC 1731;
3 R. Kalyani Vs. Janak C. Mehta & Ors., MANU/SC/8183/2008 :(2009)
1 SCC 516;
4 Sharon Michael & Ors. Vs. State of Tamil Nadu & Ors.
MANU/SC/8454/2008 : (2009) 3 SCC 375;
5 Keki Hormusji Gharda & Ors. Vs. Mehervan Rustom Irani & Ors.,
MANU/SC/0798/2009 : AIR 2009 SC 2594 : (2009) 7 scc 475;
6 Sunil Bharti Mittal Vs. Central Bureau of Investigation,
MANU/SC/0016/2015 : AIR 2015 SC 923;
7 Shiv Kumar Jatia Vs. State of NCT of Delhi, MANU/SC/1154/2019 :
AIR 2019 SC 4463 : (2019) 17 SCC 193.
10.5) Two contrary submissions were advanced by the learned
counsel for the Accused i.e. (i) Company cannot be held liable for the acts
of its Directors and (ii) Directors cannot be held responsible for the act of
company as the Letter of Pledge dated 7 th March, 2000 was executed in
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favour of Accused No.1-company. He inter-alia contended that, none of the
accused persons herein have committed any offence as alleged by the
complainant.
10.6) He submitted that, the present complaint is filed in February,
2011 for the alleged offence which took place in the year 2001 and
therefore it is hit by delay. He submitted that, before issuing the Order
dated 22nd March 2017, thereby issuing process against the accused, the
learned Magistrate did not call for fresh report under Section 202 of Cr.P.C..
He therefore, prayed that, the Petition Nos.348, 349 and 357 of
2020 filed by the accused be allowed and the Petitions filed by the
complainant may be dismissed summarily.
11) Per contra, Mr. Shukla, learned counsel for the complainant
vehemently opposed the Petitions filed by the accused. He submitted that,
in view of the specific allegation of the complainant of cheating as
contemplated under Section 420 of Indian Penal Code in the present case,
limitation would not apply to it and therefore complaint is not hit by delay.
He submitted that, the alleged delay by the accused persons in filing the
present complaint has been properly explained by the witnesses of the
complainant namely Shri. Bhupendra R. Pitale and Shri. Ramesh S. Pilani
while recording their verification statement dated 9 th February, 2016 and
evidence after verification dated 12th July, 2016 respectively. He submitted
that, the facts in the present case are so complex and interwoven that the
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dishonest intention of the accused can be derived at the time of trial only.
That the legitimate prosecution initiated by the complainant should not be
scuttled at its inception. He submitted that, the accused invoked provisions
of Arbitration by giving notice on 14 th August, 2001 and from 24th August,
2001 to 12th September, 2009 sold shares of the complainant company
allegedly in open market, only to one single buyer i.e. Doogar and
Associates Ltd. and it cannot be termed as a coincidence. That, the accused
Nos.2 to 4 herein are also the Directors of the said Doogar and Associates
Ltd. (now, Morgan Ventures Ltd.). That the accused sold shares of
complainant company, to its sister concern at a very low rate and that too at
the time of closure of share market. He submitted that, the report
submitted by the Senior Inspector of Police, Andheri Police Station under
Section 202 of Cr.P.C. dated 16 th March, 2012 clearly mentions that, the
accused herein sold the said shares subsequently for higher rate in the
market. That, the police have found substance in the complaint of the
complainant and have accordingly submitted report before the Magistrate.
11.1) While responding to the contention of the learned counsel for
the accused that, the accused No.1 company cannot be held vicariously
liable, Mr. Shukla submitted that, the companies and corporate houses can
no longer claim immunity from criminal prosecution on the ground that,
they are incapable of possessing the necessary mens-rea for the commission
of criminal offences. That, a company is liable to be prosecuted and
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punished for criminal offences. That, there is no immunity to the company
from prosecution merely because the prosecution in respect of the offences
for which the punishment prescribed is mandatory imprisonment. In
support of his contention, he relied on a decision of the Hon'ble Supreme
Court in the case of Iridium India Telecom Ltd. Vs. Motorola Incorporated &
Ors., reported in (2011) 1 SCC 74 : LAWS(SC) 2010 10 13. He submitted
that, the Revisional Court has committed an error, by not taking into
consideration the ratio laid down by the Hon'ble Supreme Court in the case
of Iridium India Telecom Ltd. (supra) while allowing the Revision
Application No.128 of 2017 filed by the accused No.1-Morgan. He
submitted that, Morgan is equally responsible for the offence committed by
other accused persons as the complainant has also alleged conspiracy. That
the Trial Court while issuing process by its Order dated 22 nd March, 2017
has applied Section 34 of the Indian Penal Code and therefore, also the
presence of accused No.1-Company at the time of final adjudication of the
complaint is must.
11.2) Mr. Shukla submitted that, the accused invoked Arbitration
clause on 14th August, 2001, however, claimed and accepted interest on the
complainant upto 6th August, 2001. He submitted that, the report under
Section 202 of Cr.P.C. filed by the police mentions the said fact of repayment
of interest by the complainant. He therefore submitted that, it is thus clear
that, all the accused persons had intention to commit act of cheating
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against the complainant. He submitted that, all the ingredients for
commission of offence under Sections 406, 420 read with 120-B or 34 of
the Indian Penal Code have been incorporated in the complaint by the
complainant and no fault of whatsoever nature can be found out for
deleting Section 420 of the IPC from it. He submitted that, the Revisional
Court has committed an error in setting aside the Order of issuance of
process for the offence punishable under Section 420 read with 34 of the
IPC against the accused Nos.2 to 4 by its impugned Orders.
He therefore prayed that, the Writ Petition Nos.127 to 130 of
2020 filed by the complainant be allowed in its entirety and Writ Petitions
filed by the accused be dismissed summarily.
12) It is to be noted here that, most of the contentions and or
submissions advanced by the learned Senior counsel for the accused,
recorded hereinabove, have been answered by the Hon'ble Supreme Court
in its recent decision, in the case of Priti Saraf & Anr. Vs. State of NCT of
Delhi & Anr. in Criminal Appeal No(s). 296 of 2021 dated 10 th March,
2021. The Hon'ble Supreme Court, after taking into consideration its
various decisions in the field, has held that, it being a settled principle of
law that, to exercise powers under Section 482 of Cr.P.C., the complaint in
its entirety shall have to be examined on the basis of the allegation made in
the complaint /FIR/charge-sheet and the High Court at that stage was not
under an obligation to go into the matter or examined its correctness. That,
ssm 21 wp127.20gp-final.doc
whatever appears on the face of the complaint/FIR/charge-sheet shall be
taken into consideration without any critical examination of the same. The
offence ought to appear ex-facie on the complaint/FIR/charge-sheet and
other documentary evidence if any, on record. It is further held that, it is
thus settled that the exercise of inherent power of the High Court is an
extra-ordinary power which has to be exercised with a great care and
circumspection in deciding whether the case is rarest of rare case, to scuttle
the prosecution at its inception. That, in the matter of exercise of inherent
power by the High Court, the only requirement is to see whether
continuance of the proceedings would be a total abuse of the process of the
Court. The Cr.P.C. contains a detailed procedure for investigation, framing
of charge and trial, and in the event when the High Court is desirous of
putting a halt to the known procedure of law, it must use proper
circumspection with great care and caution to interfere in the
complaint/FIR/charge-sheet in exercise of its inherent jurisdiction. The
Hon'ble Supreme Court has further observed that, we would like to add
that, whether the allegations in the complaint are otherwise correct or not
has to be decided on a basis of the evidence to be led during the course of
trial. Simply because, there is a remedy provided for breach of contract or
arbitral proceedings initiated at the instance of the appellants, that does not
by itself clothe the court to come to a conclusion that, Civil remedy is the
only remedy and the initiation of Criminal proceedings, in any manner, will
ssm 22 wp127.20gp-final.doc
be an abuse of the process of the Court for exercising inherent powers of
the High Court under Section 482 Cr.P.C. for quashing of such proceedings.
It is further held that, in fact, many a times offence of cheating is
committed in the course of commercial transactions and illustrations have
been set out under Sections 415, 418 and 420 IPC. That, so far as initiation
of arbitral proceedings is concerned, there is no correlation with the
Criminal proceedings.
13) The Hon'ble Supreme Court has thus made it clear that, in fact,
many a times offence of cheating is committed in the course of commercial
transactions. That, initiation of arbitral proceedings has no correlation with
the criminal proceedings. In view thereof, the contentions raised by the
learned Senior Counsel and recorded in para Nos.(10),(10.1),(10.2) and
(10.3) hereinabove, do not hold any substance in it, as the arbitral
proceedings initiated by accused has no bearing on the present criminal
case.
The criminal complaint filed by the complainant therefore, has
to be considered independently.
14) It is the settled position of law that, at the stage of issuance of
process or a challenge to an Order of issuance of process, the Court at this
juncture would not consider the defence of the accused. That, ordinarily,
defence of an accused although appears to be plausible should not be taken
into consideration for exercise of the said jurisdiction. That, the High Court
ssm 23 wp127.20gp-final.doc
at that stage would not ordinarily enter into a disputed question of fact.
That the Order of 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 the allegations made in the complaint and
the evidence, both oral and documentary in support thereof.
14.1) The complainant has filed a detailed complaint giving all the
necessary facts, which constitutes an offence of criminal breach of trust
under Section 406 of IPC and cheating under Section 420 of IPC.
It is an admitted fact on record that, the complainant availed
ICD facility from the accused No.1 to the tune of Rs.50 lakhs and amongst
other various documents also executed a Letter of Pledge (Agreement)
dated 7th March, 2000. In pursuance of the said Letter of Pledge
(Agreement) dated 7th March, 2000, the complainant pledged 15 lakhs
equity shares in demat form owned by it in favour of Morgan. The accused
No.1-Morgan issued notice dated 3rd May, 2000 to complainant asking it to
pledge additional shares as the value of pledged shares had decreased to
Rs.1,24,50,000/- from the agreed security cover i.e. 200% of the ICD
amount. At that relevant time, the value of shares was Rs.8.30 to 8.50 per
share. The complainant faced acute financial hardship due to global
recession and could not repay the ICD and therefore, on its due date i.e. on
5th June, 2000 asked Morgan to recover ICD dues by selling the pledged
shares and remitting the balance sale proceeds to the complainant. The
ssm 24 wp127.20gp-final.doc
record clearly indicates that, by a letter/communication dated 14 th August,
2001 the complainant informed Morgan, thereby proposing to repay
initially Rs.25 lakhs in five equal monthly installments at Rs.5 lakhs in cash
starting from August, 2001. It was also informed to Morgan that, the first
installment of Rs.5 lakhs will be paid to it on or before 25 th August, 2001.
Despite receipt of the said communication dated 14th August, 2001 by the
accused, the accused sold the pledged shares of complainant via NSE from
24th August, 2001 to 12th September, 2001 for an amount of Rs.24,67,631/-.
It is the precise case of the complainant that, the accused with dishonest
intention, misappropriated and converted for its illegal gains and sold the
said shares when the price of the share was at its minimal in the market.
The said shares were sold at the closing hours on those relevant days to the
accused No.1 company's sister concern namely Doogar and Associates Ltd..
The said Doogar and Associates Ltd. subsequently changed its name to
Morgan Ventures Ltd. in the year 2004. That, the Directors of both the said
companies are the same i.e. accused Nos.2 to 4 herein. The accused did not
sell shares of complainant company either on 3 rd May, 2000 or on 5th June,
2000, when the price of the said shares were much more higher and was
sufficient to square off the ICD amount accepted by the complainant.
14.2) The Senior Inspector of Police, Andheri Police Station, in
furtherance of the Order passed under Section 202 of Cr.P.C. by the learned
Magistrate, after conducting investigation into the matter, has submitted a
ssm 25 wp127.20gp-final.doc
report dated 16th March, 2012 to it. In the said report, he has recorded a
categorical finding that, the accused have sold the said shares to their own
sister concern for a very minimal rate and subsequently the said Doogar and
Associates Ltd. sold the said shares in open market at much higher price. It
was revealed to him that, the accused have committed criminal breach of
trust and cheating of complainant.
14.3) It is to be further noted here that, the complainant in complaint
and its witnesses namely Shri. Bhupendra R. Pitale in his verification
statement dated 9th February, 2016 and Mr. Ramesh Pilani in his evidence
after verification dated 12th July, 2016, have explained delay in lodging the
present complaint. The learned counsel for the complainant submitted
that, as an offence under Section 420 of IPC has been alleged against the
accused, there is no question of application of limitation in the present
complaint. I find substance in the same.
14.4) The facts of the present case as noted hereinabove, leave no
manner of doubt that, the accused have committed criminal breach of trust
of the complainant and have deceived it thereby committing an act of
cheating. As a matter of fact, the complainant has made out a strong prima
facie case against the accused for issuance of process. Taking into
consideration the aforestated facts, it clearly appears to this Court that, the
learned Magistrate has not committed any error while passing the
impugned Order dated 22nd March, 2017 below Exh-1 in the said complaint.
ssm 26 wp127.20gp-final.doc
15) As far as the contention of learned counsel for the accused that,
before passing Order dated 23rd March, 2017 below Exh-1, thereby issuing
process against the accused the learned Magistrate did not call for fresh
report under Section 202 of Cr.P.C. is concerned, it is to be noted here that,
by an Order dated 6th August, 2011, the predecessor in title of the present
Magistrate, had directed the Police Inspector of Andheri Police station,
Mumbai to make an inquiry into the matter under Section 202 of Cr.P.C. and
to submit report in that behalf. The record indicates that, accordingly on
16th March, 2012, the Senior Police Inspector, Andheri Police Station,
Mumbai has submitted an Inquiry Report before the learned Magistrate. As
per the inquiry conducted by the concerned police, it was revealed that, the
accused in connivance with each other and in conspiracy, committed
criminal breach of trust of the complainant and sold its shares to their own
Company namely Doogar and Associates Ltd. and particularly when the
price of the shares of complainant Company were fetching very low price
and subsequently the said Doogar and Associates Ltd. further sold it to
higher price in market. As the report under Section 202 of Cr.P.C. has
already been submitted by the police on record, it was and is not at all
necessary for the learned Magistrate to again call for it afresh. The facts
inquired into on an earlier occasion have not at all changed and are the
same till today. On an earlier occasion, by an Order dated 16 th January,
2016, the Revisional Court had set aside the Order of Magistrate and
ssm 27 wp127.20gp-final.doc
remanded the complaint back, only on the ground that, there was technical
error in recording verification statement under Section 200 of Cr.P.C. of the
complainant and not for any other reason. It thus, appears to this Court
that, there is no technical lapse or illegality committed by the Magistrate
while issuing process against accused by its present Order dated 22 nd
March, 2017. This Court, therefore, finds that there is no substance in the
aforenoted contention of the learned counsel for the accused.
16) As far as the contention of the learned counsel for the accused
that, the complainant is foisting vicarious liability upon the accused No.1 is
concerned, the pleadings in the complaint prima facie discloses that, there
is no mention of vicarious liability of Accused No.1-Company in it. It is the
defence of Accused No.1 that, 'vicarious liability' is being foisted upon it,
which the learned counsel wants this Court to test it at the stage of issuance
of process. The same is contrary to the settled principles of law. It is well
settled that, at the time of issuance of process, the Magistrate is required to
conduct an inquiry for the limited purpose of finding out whether a prima
facie case for issuance of process has been made out and it is limited only to
the ascertainment of the truth or falsehood of the allegations made in the
complaint.
17) The aforenoted contention in paragraph No.(10.5) cannot be
accepted and has to be rejected at its threshold. It is the settled principle of
law that, a Company is a juristic person and it can sue or can be sued. No
ssm 28 wp127.20gp-final.doc
doubt, a corporate entity is an artificial person which acts through its
officers, Directors, Managing Director, Chairman etc.. It's affairs are
governed by or conducted by its Directors. If the offence alleged against
the accused is proved, then the accused-Directors will have to be sentenced
as the Company though being a juristic person, cannot be sentenced with
corporal punishment.
18) The Hon'ble Apex Court in Iridium India Telecom Ltd. (Supra),
while considering the issue of criminal liability of a Company/Corporation
in para Nos.63 to 66 has held as under :-
63. From the above it becomes evident that a
corporation is virtually in the same position as any individual and
may be convicted of common law as well as statutory offences
including those requiring mens rea. The criminal liability of a
corporation would arise when an offence is committed in relation
to the business of the corporation by a person or body of persons
in control of its affairs. In such circumstances, it would be
necessary to ascertain that the degree and control of the person or
body of persons is so intense that a corporation may be said to
think and act through the person or the body of persons. The
position of law on this issue in Canada is almost the same. Mens
rea is attributed to corporations on the principle of "alter ego" of
the company.
64. So far as India is concerned, the legal position has been
clearly stated by the Constitution Bench judgment of this Court in
Standard Chartered Bank v. Directorate of Enforcement [(2005) 4
SCC 530 : 2005 SCC (Cri) 961]. On a detailed consideration of
ssm 29 wp127.20gp-final.doc
the entire body of case laws in this country as well as other
jurisdictions, it has been observed as follows: (SCC p. 541, para 6)
"6. There is no dispute that a company is liable to be
prosecuted and punished for criminal offences. Although
there are earlier authorities to the effect that corporations
cannot commit a crime, the generally accepted modern
rule is that except for such crimes as a corporation is held
incapable of committing by reason of the fact that they
involve personal malicious intent, a corporation may be
subject to indictment or other criminal process, although
the criminal act is committed through its agents."
65. This Court also rejected the submission that a
company could avoid criminal prosecution in cases where
custodial sentence is mandatory. Upon examination of the entire
issue, it is observed as follows: (Standard Chartered Bank Case
[(2005) 4 SCC 530 : 2005 SCC (Cri) 961], SCC pp. 548-50, paras
27-28 & 30-32)
"27. In the case of Penal Code offences, for
example under Section 420 of the Penal Code, for cheating
and dishonestly inducing delivery of property, the
punishment prescribed is imprisonment of either
description for a term which may extend to seven years
and shall also be liable to fine; and for the offence under
Section 417, that is, simple cheating, the punishment
prescribed is imprisonment of either description for a term
which may extend to one year or with fine or with both. If
the appellants' plea is accepted then for the offence under
Section 417 IPC, which is an offence of minor nature, a
company could be prosecuted and punished with fine
ssm 30 wp127.20gp-final.doc
whereas for the offence under Section 420, which is an
aggravated form of cheating by which the victim is
dishonestly induced to deliver property, the company
cannot be prosecuted as there is a mandatory sentence of
imprisonment.
28. So also there are several other offences in the
Penal Code which describe offences of serious nature
whereunder a corporate body also may be found guilty,
and the punishment prescribed is mandatory custodial
sentence. There are a series of other offences under
various statutes where the accused are also liable to be
punished with custodial sentence and fine.
30. As the company cannot be sentenced to
imprisonment, the court has to resort to punishment of
imposition of fine which is also a prescribed punishment.
As per the scheme of various enactments and also the
Penal Code, mandatory custodial sentence is prescribed for
graver offences. If the appellants' plea is accepted, no
company or corporate bodies could be prosecuted for the
graver offences whereas they could be prosecuted for
minor offences as the sentence prescribed therein is
custodial sentence or fine. ...
31. As the company cannot be sentenced to
imprisonment, the court cannot impose that punishment,
but when imprisonment and fine is the prescribed
punishment the court can impose the punishment of fine
which could be enforced against the company. Such a
discretion is to be read into the section so far as the juristic
person is concerned. Of course, the court cannot exercise
ssm 31 wp127.20gp-final.doc
the same discretion as regards a natural person. Then the
court would not be passing the sentence in accordance
with law. As regards company, the court can always
impose a sentence of fine and the sentence of
imprisonment can be ignored as it is impossible to be
carried out in respect of a company. This appears to be the
intention of the legislature and we find no difficulty in
construing the statute in such a way. We do not think that
there is a blanket immunity for any company from any
prosecution for serious offences merely because the
prosecution would ultimately entail a sentence of
mandatory imprisonment. The corporate bodies, such as a
firm or company undertake a series of activities that affect
the life, liberty and property of the citizens. Large-scale
financial irregularities are done by various corporations.
The corporate vehicle now occupies such a large portion of
the industrial, commercial and sociological sectors that
amenability of the corporation to a criminal law is essential
to have a peaceful society with stable economy.
32. We hold that there is no immunity to the
companies from prosecution merely because the prosecution
is in respect of offences for which the punishment prescribed
is mandatory imprisonment (sic and fine). We overrule the
views expressed by the majority in Velliappa Textiles Ltd.
[Commr. (Assessment) v. Velliappa Textiles Ltd. (2003) 11
SCC 405 : 2004 SCC (Cri) 1214] on this point and answer the
reference accordingly. Various other contentions have been
urged in all appeals, including this appeal, they be posted for
hearing before an appropriate Bench."
ssm 32 wp127.20gp-final.doc
66. These observations leave no manner of doubt that a
company/corporation cannot escape liability for a criminal offence
merely because the punishment prescribed is that of imprisonment
and fine. We are of the considered opinion that in view of the
aforesaid judgment of this Court, the conclusion reached by the
High Court that the respondent could not have the necessary mens
rea is clearly erroneous."
19) After applying a ratio laid down by the Hon'ble Supreme Court
in the case of Iridium India Telecom Ltd. (Supra), it is clear that, the
accused No.1-Morgan is a necessary party for proper adjudication of the
complaint. It is to be noted here that, the Letter of Pledge (Agreement)
dated 7th March, 2000 is executed by the Authorized Signatory of the
complaint on behalf of it, in favour of the accused No.1 company and
therefore also impleadment of Morgan (A-No.1) is necessary for proper
adjudication of the present complaint. The contention that, the accused
No.1 is being foisted with vicarious liability, is the defence and a specious
plea raised by the said accused. The accused No.1 will have to prove the
said defence at the time of trial by leading cogent and plausible evidence in
that behalf.
The aforestated deliberation leads to draw an irresistible
conclusion that, the accused No.1 company is a necessary and relevant
party to the said complaint and it cannot be dropped from the present
proceedings at its inception.
ssm 33 wp127.20gp-final.doc
20 That, the accused with dishonest intention have committed
criminal breach of trust, deceived the complainant and have committed the
act of cheating against it. In view thereof, the complainant succeeds.
The impugned Orders dated 2nd December, 2019 passed in
Criminal Revision Application Nos.128 of 2017, 167 of 2017, 168 of 2017
and 166 of 2017 filed by the accused are quashed and set aside and the
Order dated 22nd March, 2017 passed by the learned Metropolitan
Magistrate, Railway Mobile Court, Andheri, Mumbai, below Exh-1 in CC
No.56/SW/2011 is upheld and restored to the file. However, in view of the
statement made by the complainant in the present proceedings that, the
complainant hereinafter will not pursue application of Section 15-HA of the
SEBI Act in the said complaint, Section 15-HA of SEBI Act is dropped from
the Order dated 22nd March, 2017 passed below Exh-1 in CC
No.56/SW/2011. The Order dated 22nd March, 2017 passed by the learned
Magistrate is modified to that extent only.
21) In view of the above, Writ Petition Nos.127 of 2020, 128 of
2020, 129 of 2020 and 130 of 2020 filed by the complainant are allowed.
Writ Petition Nos.348 of 2020, 349 of 2020 and 357 of 2020 filed by the
accused are accordingly dismissed.
In view of disposal of Writ Petition Nos.127 to 130 of 2020
filed by the complainant, Interim Application Nos.220 to 223 of 2020 filed
therein, do not survive and are accordingly disposed off.
ssm 34 wp127.20gp-final.doc
22) The present complaint filed in the month of February, 2011 by
the complainant, is pending on the file of learned Metropolitan Magistrate,
Railway Mobile Court, Andheri, Mumbai for last more than 10 years. In
view thereof, learned Magistrate seized of the said complaint is directed to
expedite hearing of the said complaint and to make an endeavour to
dispose off the same within a period of one year from the date of receipt of
present Order. It is needless to mention that, the period during which the
smooth functioning of the concerned Court is paralyzed or affected due to
the present pandemic situation, will be excluded from computation of the
said period of one year.
(A.S. GADKARI, J.)
