M/S. India Infoline Limited vs Ghcl Employees Stock Option Trust
2009 Latest Caselaw 5165 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+             Crl.M.C.No. 819/2009 & Crl.M.A. No. 3012/2009

%                           Reserved on:      10th December, 2009
                            Date of Decision: 14th December, 2009

#      NIRMAL BHANWARLAL JAIN                       ..... Petitioner
!
                            versus

$      GHCL EMPLOYEES STOCK OPTION TRUST
                                      ..... Respondent
^
+             Crl.M.C. No.800/2009 and Crl.M.A. No. 2935/2009


#      VENKATARAMAN RAJAMANI                         ..... Petitioner
!
                            versus

$      GHCL EMPLOYEES STOCK OPTION TRUST
                                      ..... Respondent
^
+             Crl.M.C. No.801/2009 and Crl.M.A. No. 2938/2009

#      NIMISH RAMESH MEHTA                           ..... Petitioner
!
                            versus

$      GHCL EMPLOYEES STOCK OPTION TRUST
                                      ..... Respondent
^
+             Crl.M.C. No.788/2009 and Crl.M.A. No. 2896/2009

#      NILESH SHIVJI VIKAMSEY                        ..... Petitioner
!
                            versus

$      GHCL EMPLOYEES STOCK OPTION TRUST
                                      ..... Respondent
^



Crl.M.C.Nos.819,800,801,788,786,743,1892 of 2009          Page 1 of 21
 +             Crl.M.C. No.786/2009 and Crl.M.A. No. 2891/2009

#      KRANTI SINHA                                  ..... Petitioner
!
                            versus

$      GHCL EMPLOYEES STOCK OPTION TRUST
                                      ..... Respondent
^
+             Crl.M.C. No.743/2009 and Crl.M.A. No. 2752/2009

#      ARUN KUMAR PURWAR                                ..... Petitioner
!
                            versus

$      GHCL EMPLOYEES STOCK OPTION TRUST
                                      ..... Respondent
^
+             Crl.M.C. No.1892/2009 and Crl.M.A. No. 7059/2009

#      M/s. INDIA INFOLINE LIMITED                      ..... Petitioner
!
                            versus

$      GHCL EMPLOYEES STOCK OPTION TRUST
                                      ..... Respondent
^
Petitioners through:               Mr. Jayant Bhushan,
                                   Mr. Sidharth Luthra, Sr. Advs. with
                                   Mr.Buddy Ranganthan, Mr.Diwakar
                                   Maheshwari, Mr. Neeraj Chouhan,
                                   Mr. Arindam Mukherjee, Advs.

Respondent through:                Mr. Rakesh Tikku, Sr. Adv.


*      CORAM:
       HON'BLE MR. JUSTICE V.K. JAIN

       1.     Whether the Reporters of local papers
              may be allowed to see the judgment?                  Yes



Crl.M.C.Nos.819,800,801,788,786,743,1892 of 2009            Page 2 of 21
        2.     To be referred to the Reporter or not?                   Yes
       3.     Whether the judgment should be
              reported in the Digest?                                  Yes

: V.K. JAIN, J.

1. These seven petitions are directed against the order of

the learned Metropolitan Magistrate dated 27 th September,

2008, whereby the petitioners have been summoned to face

trial under Section 415/409/34/120B of IPC, on a complaint

filed by the respondent. The petitioner in Crl.M.C. No.

1892/2009 is a company India Infoline Limited. Petitioner in

Crl.M.C. No.819/2009 is the Managing Director of the

company, petitioner in Crl.M.C. No. 801/2009 is the

Secretary of the company and the petitioners in other cases

are the Directors of India Infoline Ltd.

2. A complaint alleging commission of offences under

Section 406/409/420/477A/34/120B IPC was filed by the

respondent against the petitioners.

It was alleged in the complaint that the

respondent/complainant opened a Demat account with

accused No.1-India Infoline Ltd. on 11th September, 2007 and

placed orders from time to time for purchase of shares and

also made payments, from time to time, against its running

account with the company. The accused company claimed

that there was an outstanding debit of Rs.10.48 crores

against the complainant, in its Demat account with it.

Accused No. 1 was having lien on 20,46,195 shares

purchased by the complainant in that account. Vide letter

dated 30th April, 2008, accused No. 1 informed the

complainant about the aforesaid debit. The complainant

cleared the amount outstanding against it, by making

payment of Rs. 10.48 crores, by a cheque. Later on, it

transpired that the correct debit against the complainant was

Rs. 10,22,77,522/- only and the accused dishonestly received

a sum of Rs.25,22,477.53 from the complainant by making

false demand. It was stated in the complaint that on receipt

of the amount of Rs. 10.48 crores, the accused were under

legal obligation to transfer the shares purchased by the

complainant, from the Pool Account to its Demat Account,

but, instead of doing that and refunding the excess amount of

Rs.25,22,477.53/ they vide letter dated 14th May, 2008 asked

the complainant to clear the debits of five companies, namely,

(i) Carissa Investments Pvt. Ltd. (ii) Altar Investments Pvt.

Ltd. (iii) Oval Investments Pvt. Ltd. (iv) Dalmia Housing

Finance Ltd. (v) Dear Investment Pvt. Ltd. in terms of its

letter dated 1st March, 2008 failing which, they would

regularize the aforesaid five accounts by selling the stock of

the complainant. Since no letter dated 1st March, 2008 had

been written by the complainant to the accused, it refuted the

averments made in their letter dated 14th May, 2008. It has

been further alleged that on numerous occasions, the

complainant met accused Nos. 2 to 7 and requested to refund

the excess amount and transfer its shares to Demat Account,

but those meetings failed to bring any result. The accused,

according to the complainant, thus committed criminal

breach of trust and also the offence of cheating. The accused

sold off 876668 shares of the complainant on 23 rd June, 2008

and misappropriated the sale proceeds.

3. The bone of contention between the parties is a letter

dated 1st March, 2008 purporting to have been written by

Shri Bhuwneshwar Mishra, Trustee of the respondent to the

Director, India Infoline Ltd. referring to its debit balance of

Rs.7,99,29,681/-in the account of the complainant with the

company and requesting the company to clear the same by

selling the shares in the same account. The letter also

contained a request that the account could be clubbed with

Promoter Group Companies of GHCL, mentioned in the letter,

for the purpose of margin requirement. These are the five

companies referred in the complaint. The case of the

respondent is that neither any such letter was written by Shri

Bhuwneshwar Mishra nor the Trust had the authority to

allow its funds to be used towards clearance of the liabilities

of any other company or person.

4. During the course of arguments, it was contended by

the learned counsels for the petitioners that the complainant

is also an associate organization of GHCL Group and there

have been instances in the past whereby the complainant has

joined other group companies of GHCL Group for taking loan

and pledging its assets for grant of loan to those companies.

Referring to the observations made by the Hon'ble Supreme

Court in All Cargo Movers v. Dhanesh Badarmal, AIR 2008

SC 247 to the documents can be considered in proceedings

under Section 482 of the Code of Criminal Procedure and in

support of this contention, he has referred to Annexure P-9

(Colly.) to the petition which are seven OMPs filed by various

group companies of GHCL Group and Annexure P-10

(Colly.), which are the copies of agreement executed jointly

by those group companies and the complainant Trust for

taking loan from Birla Global Finance Ltd.

5. In my view, at this stage, it is neither permissible nor

feasible for this Court, in exercise of its extraordinary

jurisdiction under Section 482 of the Code of Criminal

Procedure, to go into such disputed questions of fact and

take a view, one way or the other. The case of the

complainant is that the letter dated 1st March, 2008 was not

sent by Shri Bhuwneshwar Mishra to India Infoline Ltd. Shri

Bhuwneshwar Mishra has been produced before the

Metropolitan Magistrate to prove that the letter was not

written by him. If there is a connection between the

complainant and Group Companies of GHCL Group and the

complainant has been pledging its assets for grant of loan to

those companies that may probablize the defence that the

letter dated 1st March, 2008 was actually written by Shri

Bhuwneshwar Mishra to the accused company on behalf of

the complainant-Trust. But, a definite view in this regard can

be taken only after evidence has been taken during trial.

Therefore, for the purpose of deciding these petitions, I

proceed on the assumption that the letter dated 1 st March,

2008 was not written by Shri Bhuwneshwar Mishra to the

accused company.

6. The main contention of the learned senior counsel for

the petitioners was that even if it is presumed that the letter

dated 1st March, 2008 was not written by the complainant-

Trust and consequently, criminal breach of trust was

committed by appropriating the sale proceeds of the shares of

the complainant towards liquidating the dues payable to the

accused company, by group companies of GHCL Group,

offence is made out only against the company and not against

any of the petitioners.

7. This is not the allegation of the complainant that the

letter dated 1st March, 2008 was forged or got forged by any

particular Director or officer of India Infoline Ltd. Admittedly,

the letter dated 14th May, 2008 to the complainant was not

written by any one out of accused Nos. 2 to 7. This letter has

been written by someone who signed as Authorized Signatory

of India Infoline Ltd. and there is no material on record to

indicate as to who the author of this letter is. This is not the

case of the complainant that the letter dated 1 st March, 2008

was forged by anyone out of accused Nos. 2 to 7 or that it

was forged pursuant to criminal conspiracy to which any of

them was a party. The Demat Account was opened by the

complainant with India Infoline Ltd., which is a company. The

shares were purchased by the complainant through the

company. It was the company which claimed that it had

adjusted the sale proceeds of the shares purchased by the

complainant towards liquidation of the dues payable by group

companies of GHCL Group. It was the company India

Infoline, which sold the shares purchased by the complainant

and adjusted the sale proceeds against dues recoverable from

group companies of GHCL Group. Thus, it was the company

which was entrusted with the property of the complainant or

with dominion over its property. It is the company which

allegedly disposed of the shares of the complainant and

adjusted the sale proceeds in violation of the contract

between complainant-Trust on the one hand and accused

No.1 on the other hand, whereunder Demat Account was

opened and shares were purchased by the complainant

through accused No. 1-India Infoline Ltd.

8. This is not the case of the complainant that the decision

to sell its shares and to appropriate the sale proceeds towards

the liquidation of the outstanding against group companies of

GHCL Group was taken by any of the accused out of accused

Nos. 2 to 7. Admittedly, accused No. 1 is a large company.

Assuming the allegations made in the complaint to be true,

there is no allegation or material to show as to who either

forged or got forged the letter dated 1st March, 2008 and who

decided to sell the shares purchased by the complainant and

to proceed the sale proceeds in liquidation of the amount due

from group companies of GHCL Group instead of crediting

the same in the Demat Account of the complainant.

9. The following are the ingredients of criminal breach of

trust:

"1. Entrusting any person with property or with any dominion over property.

2. That person entrusted (a) dishonestly misappropriating or converting to his own use that property; or (b) dishonestly using or disposing of that property or willfully suffering any other person so to do in violation--

(i) or any direction of law prescribing the mode in which such trust is to be discharged, or

(ii) of any legal contract made touching the discharge of such trust."

In the present case, entrustment of shares was to the

company and not to anyone out of accused No. 2 to 7. There

is also allegation in the complaint that anyone out of accused

No. 2 to 7 had taken the decision to appropriate the sale

proceeds of shares towards adjustment of dues payable to

accused No.1, by other group companies of GHCL Group.

Hence, no offence under Section 406 of IPC or of being party

to a criminal conspiracy is made out against any of them.

10. The learned counsel for the complainant has drawn my

attention to the averments made in para 2 of the complaint

that "the employees of the accused No.1 acts as per the

direction given by the accused No. 2 to 7 from time to time.

They in connivance with each other in order to fulfil the mala

fide intention and in order to make illegal gain have cheated

the petitioner company by in breach of trust also sold the

shares worth Rs. 9 crores approximately."

The above referred allegations, in my view, are not

definite allegations of fact constituting commission of offence

under Section 406 and/or 415/420 of IPC. Such general

allegations without factual foundation constituting an

offence, to my mind, are not sufficient to array accused Nos.2

to 7 at a trial for the offences punishable under Section 406

and/or 415/420 of IPC. It is true that a company being a

judical person acts through its Directors and employees, but,

before a Director or an Employee of the company can be

prosecuted for a criminal offence, there has to be definite

factual evidence against them constituting offence alleged to

have been committed by them. In the absence of a statutory

provision holding the Directors and/or employees of a

company, vicarious liable for the criminal acts committed by

the company, it is not permissible to subject them to the

agony and harassment of a criminal trial.

11. In S.K. Alagh vs. State of Uttar Pradesh and others

(2008) 5 SCC 622, the complainant sent two demand drafts

to a company in which the appellant was the Managing

Director, alleging commission of an offence under Section 406

of IPC by him. It was contended before the Hon'ble Supreme

Court that since the appellant was in-charge of and in control

of the business of the company, he would be deemed to be

liable for the offence committed by the company. Rejecting

the contention, the Hon'ble Supreme Court observed that the

Penal Code save and except some provisions specifically

providing therefor, does not contemplate any vicarious

liability on the part of a party who is not charged directly for

commission of an offence. Noticing that the drafts were drawn

in the name of the company, it was held that the appellant

who was its Managing Director cannot be said to have been

committed an offence under Section 406 of IPC. The Hon'ble

Supreme Court noted that if and when a Statute

contemplates creation of such a legal fiction, it provides

specifically therefor and held that in the absence of any

provision laid down under the Statute, a Director of a

company or an employee cannot be held to be vicarious liable

for any offence committed by the company.

12. In Maksud Saiyed vs. State of Gujarat & Others

(2008) 5 SCC 668, a complaint under Section

120B/425/191/192/177/181 and 500 of IPC was filed

against Dena Bank and its Directors alleging commission of

the above referred offences by them. The allegation of the

complainant was that the prospectus published by the bank

for the purpose of its public issue contained false and

misleading information with regard to sanction limits, the

dues and export bills of the company. The Hon'ble Supreme

Court noted that the complaint did not disclose as to who

had acted on behalf the bank and held that the acts of

omission and commission on the part of the bank, if any,

may give rise to a statutory violation of its part, but the

respondents (Directors) were not personally liable therefor.

The Hon'ble Supreme Court, inter alia, observed as under:

"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."

13. The judgment of the Hon'ble Supreme Court in the case

of Maksud Saiyed (supra) squarely applies to the facts of the

present case as the complaint shows no personal allegation

against anyone out of accused No. 2 to 7 except a general

allegation in para 2 of the complaint without giving any

particulars and without disclosing any factual averments

required to constitute an offence punishable under Section

406 and/or 415/420 of IPC.

14. In Keki Hormusji Gharda & Others v. Mehervan

Rustom Irani & Anr. (2009) 6 SCC 475, the Hon'ble

Supreme Court, inter alia observed as under:

"The Penal Code, 1860 save and except in some matters does not contemplate any vicarious liability on the part 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. 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.

15. In Madhavrao Jiwajirao Scindia & Others Vs.

Sambhajirao Chandrojirao (1998) 1 SCC 692, the Hon'ble

Supreme Court, inter alia, observed as under:

"The legal position is well-settled that when a prosecution at the initial stage is asked to be quashed, the test to be applied by the court is as to whether the uncontroverted allegations as made prima facie establish the offence. It is also for the court to take into consideration

any special features which appear in a particular case to consider whether it is expedient and in the interest of justice to permit a prosecution to continue. This is so on the basis that the court cannot be utilised for any oblique purpose and where in the opinion of the court chances of an ultimate conviction is bleak and, therefore, no useful purpose is likely to be served by allowing a criminal prosecution to continue, the court may while taking into consideration the special facts of a case also quash the proceeding even though it may be at a preliminary stage."

16. The learned counsel for the respondent/complainant

has referred to the decision of a learned Single Judge of this

Court in Jia Lal Sharma vs. Madhav Prasad G. Poddar 22

(1982) Delhi Law Times 288. In that case, the petitioner had

paid some money to the respondent, a commission agent, as

an advance money for purchase of a boiler. The respondent

was to charge commission from the petitioner @ 2%. The

petitioner was informed by the respondent that the boiler had

been sold by the seller to another party. When asked to

return the money, the respondent failed to do so. A complaint

under Section 409 of IPC was, in these circumstances, filed

against the respondent, which was dismissed by the learned

Magistrate holding that there was no dishonest intention

found from the letters written by the respondent and the

matter was a case of a civil liability. Setting aside the order of

the learned Magistrate, this Court held that failure to account

was prima facie evidence of dishonest intention when

entrustment was admitted by the agent and all that

Magistrate had to consider was that there was a prima facie

evidence of a criminal offence. This judgment of no help to

the complainant since there are no factual allegation making

out a prima facie case of a criminal breach of trust and/or

cheating on the part of any out of accused No. 2 to 7.

17. In Pepsi Foods Ltd. v. Special Judicial Magistrate,

(1998) 5 SCC 749, the Hon'ble Supreme Court, inter alia,

observed as under:

"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. 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"

18. Keeping in view the facts and circumstances of the case

and considering the nature of a personal allegation made in

the complaint, without any material, either in the form of oral

statements or in the form of documentary evidence,

indicating involvement of any particular person, it would not

be appropriate to subject accused No.2 to 7 to undergo the

agony and harassment of a criminal trial, particularly when I

see no reasonable possibility of their being convicted on the

basis of allegations made in the complaint against them.

19. As regards the alleged cheating, it was contended by the

learned counsel for the respondent that though the amount

outstanding against the complainant was only

Rs.10,22,77,522/- the accused claimed Rs.10.48 crores vide

its letter dated 30th April, 2008 and thus dishonestly induced

the complainant to part with an excess amount of

Rs.25,22,477.53/-.

20. Cheating has been defined in Section 415 of Indian

Penal Code. The essential requirements of cheating are:

1. Deception of any person.

2. (a) Fraudulently or dishonestly inducing that person:

(i) to deliver any property to any person, or

(ii) to consent that any person shall retain any property, or

(b) intentionally inducing that person to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property.

Unless there is a fraudulent or dishonest intention on the

part of the person accused of cheating, the offence under

Section 415 of Indian Penal Code is not made out against

him. The complainant himself has filed a statement of

account with the complainant. A perusal of the statement of

the account would show that a sum of Rs. 21,15,545.34/-

has been debited in the account of the complainant towards

delayed payment charges for the month of April, 2008 and

another sum of Rs.68185.00/- has been debited towards

delayed payment charges from the period from 1.05.2008 to

05.05.2008, leaving credit balance of Rs.3,38,747.19/- as on

5th May, 2008. The case of the petitioners, as stated in para

8 of the petition, is that this balance amount was adjusted in

clearing of the debit balance of group companies of GHCL

Group in terms of the letter dated 1st March, 2008. The very

fact that accused company has given credit for the balance

amount in the account of the complainant with it leaves no

reasonable doubt that it had no dishonest or fraudulent

intention to retain that amount. It appears from the

documents that there was some dispute between the parties

as regards the rate of interest to be charged for delayed

payment. If either on account of higher interest being

claimed by the accused company or on account of some

mathematical error, a higher amount was claimed that by

itself would not show any dishonest intention on the part of

the accused company when the credit for the balance amount

has been given in the account maintained by the complainant

with the accused company. Whether the accused company

was entitled to interest of delayed payment or not may be a

disputed question of fact, but, no cheating is made out by

making a claim for interest. As regards adjustment of the

balance amount towards clearance of the liabilities of group

companies of GHCL Group, the company, in any case, is

facing trial for criminal breach of trust on the allegation that

the letter dated 1st March, 2008 was not written to it by the

complainant. No separate offence of cheating is, however,

made out against it by making these adjustments.

21. For the reasons given in the preceding paragraphs, the

impugned order dated 27th September, 2008, to the extent it

summons the petitioners Nirmal Bhanwarlal Jain,

Venkataraman Rajamani, Nimish Ramesh Mehta, Nilesh

Shivji Vikamsey, Kranti Sinha and Arun Kumar Purwar for

the offences punishable under Sections 415/409/34/120B of

IPC and further to the extent it summons the company India

Infoline Ltd. under Section 415 of IPC is hereby set aside. The

learned Magistrate will, however, proceed with the trial

against the accused India Infoline Ltd. under other Sections

of IPC. The parties are directed to appear before the learned

Magistrate at 10.00 am on 21st December, 2009.

(V.K.JAIN) JUDGE DECEMBER 14, 2009 bg