Vishnu Prakash Bajpai vs Securities And Exchange Board Of ...
2010 Latest Caselaw 769 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                           Crl.M.C.1182/2009

                            Reserved on: 8th February, 2010
                            Pronounced on: 10th February, 2010


#      VISHNU PRAKASH BAJPAI          ..... Petitioner
!                  Through: Mr.Parveen Mahajan, Advocate

                       versus

$      SECURITIES AND EXCHANGE
       BOARD OF INDIA.                  ..... Respondent
^                   Through: Mr.Sanjay Mann, Advocate

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

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

       2.     To be referred to the Reporter or not?         YES

       3.     Whether the judgment should be                 YES
              reported in the Digest?


: V.K. JAIN, J.

1. This is a petition under Section 482 of the Code of Criminal

Procedure, for quashing criminal complaint filed by the

respondent against the petitioner under Sections 24(1) and 27 of

the Securities and Exchange Board of India Act, 1992. Quashing

has been sought primarily on the ground that the petitioner was

neither a director nor a person in charge of and responsible to

the Company N.R.Plantations (India) Limited, for conduct of its

business and, therefore, he is not vicariously liable for the

offence committed by the company. The petitioner claims that

he only subscribed to the Memorandum and Articles of

Association of the Company, which does not make him a person

in charge of and responsible to the Company for conduct of its

business.

2. In order to regulate entities, which used to issue

instruments such as Agro Bonds, Plantation Bonds, etc.,

Government of India decided to treat such schemes as Collective

Investment Schemes and brought them under the purview of

SEBI Act, 1992, with the object of protecting the investors and

promoting legitimate investment activities. Securities &

Exchange Board of India (Collective Investment Schemes)

Regulations, 1999 were thereafter framed by SEBI. Vide its

letter dated December 15, 1999/December 29, 1999 and also by

way of a public notice, SEBI directed M/s N.R.Plantations (India)

Limited, which was operating Collective Investment Schemes

and had raised a sum of Rs.2,80,000/- from the general public, to

send an information memorandum to all the investors, detailing

the state of affairs of the Schemes, the amount repayable to each

investor and the manner in which such amount was determined.

The information was required to be sent latest by February 28,

2000, which was later extended to March 31, 2000. In terms of

Regulation 73(1) of the above-referred Regulations, the

Collective Investment Schemes, which failed to apply for

registration with SEBI, were required to wind up the existing

schemes and repay the amount, collected from the investors.

Regulation 74 required the company to formulate a scheme of

repayment and make repayment to the investors, in case it was

not desirous of obtaining provisional registration from SEBI.

N.R.Plantations (India) Limited, however, neither applied for

registration with SEBI, nor did it take steps for winding up the

Scheme and making repayment to the investors and thereby

violated the provisions of Section 12(1B) of SEBI Act, 1992 and

Regulation 5(1), read with Regulation 68(1), 68(2), 73 and 74 of

the above-referred regulations. Thereupon, in exercise of

powers conferred upon it by Section 11(B) of SEBI Act, SEBI

directed the company to refund the money collected from the

persons, who had invested money in its Collective Investment

Schemes, within a period of one month from the date of the

order. However, the company failed to comply with the

directions given by the SEBI.

3. It was alleged in the complaint that accused Nos.2 to 13,

which includes the petitioner, were persons in charge of and

responsible for day-to-day affairs of the Company and all of them

actively connived with each other for the commission of the

offence.

4. In support of his contention that he was neither a director

nor the person in charge of and responsible to the company for

conduct of its business, the petitioner has relied upon the

Memorandum and Articles of Association of N.R.Plantations

(India) Limited, as also on the copy of Form-32 submitted by the

Company to Registrar of Companies. He has also relied upon

copy of Form 29 submitted by three persons, namely, Naresh

Kumar Mishra, Shyam Badan Singh and Ajay Kumar Pandey as

first Directors of the Company and the copy of Statement in lieu

of Prospectus.

5. A perusal of the Memorandum and Articles of Association

would show that the petitioner was one of the initial subscribers

to the equity of the Company. There were eight subscribers,

including the petitioner and all of them had subscribed 100

shares each. The Articles of Association were also signed by the

aforesaid eight persons, including the petitioner Vishnu Prakash

Bajpai.

6. A perusal of copy of Form-32 presented to the Registrar of

Companies on 27th March, 1997 would show that three persons,

namely, Naresh Kumar Mishra, Shyam Badan Singh and Ajay

Kumar Pandey have been shown as Directors of the Company

since its incorporation. The copies of Form-29 submitted by the

aforesaid three persons also contains their consent to be a

director of the company.

7. The statement in lieu of prospects delivered for

registration by the Company gives the names of three persons

Naresh Kumar Mishra, Shyam Badan Singh and Ajay Kumar

Pandey as directors or proposed directors.

8. The respondents, on the other hand, have placed on record

a letter dated 15.1.1998 written by N.R. Plantations (India)

Limited. Para 3 of this letter contains the names of

promoters/sponsors of the Company and names of seven

persons, including the petitioner Vishnu Prakash Bajpai, have

been given in para 3 of this letter. The bio data of the petitioner

has also been annexed to this letter. The respondent has also

placed on record a copy of the letter dated 29.4.1998 written to

SEBI, forwarding therewith the details of Directors of the

Company. The resume of four persons, including the petitioner

Vishnu Prakash Bajpai, have been annexed to this letter.

9. Thus, the documents filed by the petitioner do not show

him as a Director of N.R. Plantaions (India) Limited, though it

does show him as one of the eight initial subscribers to the paid-

up capital of the Company and the number of shares subscribed

by all the eight subscribers was equal. The documents filed by

the respondent, on the other hand, contain a positive statement

from the Company to the effect that the petitioner was not only a

promoter but also a Director of this Company.

10. The scope of exercise of power under Section 482 Cr. P.C. and

the categories of cases where the High Court may exercise power

under it, relating to cognizable offences, to prevent abuse of process

of any court or otherwise to secure the ends of justice were set out in

State of Haryana v. Bhajan Lal; AIR 1992 SC 604. The illustrative

categories indicated by the Hon'ble Supreme Court are as follows:

"(1) Where the allegations made in the first information report or 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 a case against the accused.

11. In R. Kalyani v Janak C. Mehta & Others; (2009) 1 Supreme

Court Cases 516, the Hon'ble Supreme Court summarized the

proposition of law on the subject as under:

"(1) The High Court ordinarily would not exercise its inherent jurisdiction to quash a criminal proceeding and, in particular, a first information report unless the allegations contained therein, even if given face value and

taken to be correct in their entirely, disclosed no cognizable offence.

(2) For the said purpose the Court, save and except in very exceptional circumstances, would not look to any document relied upon by the defence.

(3) Such a power should be exercised very sparingly. If the allegations made in the FIR disclose commission of an offence, the Court shall not go beyond the same and pass an order in favour of the accused to hold absence of any mens rea or actus reus.

(4) If the allegation discloses a civil dispute, the same by itself may not be a ground to hold that the criminal proceedings should not be allowed to continue.

12. While exercising jurisdiction under Section 482 of the

Code of Criminal Procedure, the High Court is not expected to

appreciate and weigh the evidence sought to be produced by the

complainant or to compare one set of evidence with the other set

of evidence available before it. The appreciation of evidence

being the function of the trial court and not of the High Court

exercising jurisdiction under Section 482 of the Code of Criminal

procedure, it would not be appropriate for this Court to say, at

this stage in these proceedings, as to whether the evidence

produced by the complainant should be preferred or the

evidence produced by the petitioner is more reliable. For the

purpose of proceedings under Section 482 of Code of Criminal

Procedure, the allegations made in the complaint have to be

taken as correct and on their face value and if on consideration

of the allegations it appears to the High Court that ingredients

of the offence or offences alleged to have been committed by the

petitioners are made out and there is no material to show that

the prosecution is mala fide, frivolous or fictitious, it would not

be appropriate for it to interfere with the prosecution, in

exercise of extraordinary power conferred upon it under Section

482 of the Code of Criminal Procedure. Ordinarily, an accused

against whom criminal proceedings are instituted needs to face

trial in accordance with procedure prescribed in the Code of

Criminal Procedure and it is only in extreme cases that the High

Court would be justified in interfering, at an interim stage, in

exercise of its powers under Section 482 of the Code. The

exercise of jurisdiction envisaged in Section 482 of the Code, to

quash the complaint or a chargesheet being an exception, the

petitions for quashing need to be entertained with care and

circumspection.

13. In the present case, if the trial court finds that as alleged in

the complaint, the petitioner, in fact, was a promoter and a

director of N.R.Plantations (India) Limited, at the time offence

was committed by the Company, and was a person in charge of

and responsible to the Company for conduct of its business, he

would be vicariously liable for the offence attributed to the

Company. In fact, the petitioner will be vicariously liable even if

he was not a director of the Company, provided, of course, that

he was a person in charge of and responsible to the Company for

conduct of its business, at the time offence is alleged to have

been committed by the Company. For a person to be vicariously

liable for an offence of this nature, he need not necessarily be a

Director of the Company. Even without being a Director he can

be shown to be a person in charge of and responsible to the

Company for conduct of its business. Therefore, even if the

petitioner was not a director of the Company but was one of its

promoters, it is open to the complainant/respondent, to prove,

during trial that being a promoter of the company, he was a

person in charge of and responsible to the Company for conduct

of the business of the Company.

14. In "K.K.Ahuja Vs. Vora & Another", 2009 (3) JCC (NI)

194 on the question as to who would be the person responsible

to the company for conduct of its business, the Hon'ble Supreme

Court, inter alia, held as under:

"A company though a legal entity can act only through its Board of Directors. The settled

position is that a Managing Director is prima facie in charge of and responsible for the company's business and affairs and can be prosecuted for offences by the company. But insofar as other directors are concerned, they can be prosecuted only if they were in charge of and responsible for the conduct of the company's business. A combined reading of Sections 5 and 291 of Companies Act, 1956 with the definitions in clauses (24), (26), (30), (31), (45) of Section 2 of that Act would show that the following persons are considered to be the persons who are responsible to the company for the conduct of the business of the company :

(e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act;

Therefore, it is quite possible for the complainant/respondent to

establish, during trial that being a promoter of the company, the

petitioner was a person in accordance with whose directions the

Board of Directors of N.R.Plantations (India) Limited was

accustomed to act. If this is shown, the petitioner would a

person in charge of and responsible to the Company for conduct

of its business, even if he was not a Director of the Company.

15. It would be pertinent to note here that the petitioner has

not filed copies of Form-32 for all the years starting the year in

which the violation of the provisions of SEBI Act was committed

for the first time by the Company, nor has he filed any certificate

from Registrar of Companies to show that he was never a

Director of N.R.Plantations (India) Limited during the relevant

period. The Company N.R.Plantations (India) Limited

contravened the provisions of SEBI Act by not refunding the

money collected by it from the persons who had invested money

in its Collective Investment Schemes and this offence is a

continuing offence till the time the Company complies with the

regulations and directions issued by SEBI by refunding the

money to the investors. If the petitioner was a person in charge

of and responsible to the Company N.R.Plantations (India)

Limited at any point of time since the time offence punishable

under SEBI Act was committed for the first time by the company

N.R.Plantations (India) Limited, he would be vicariously liable

for the period during which he was managing or controlling the

affairs of the company.

16. The learned counsel for the petitioner has referred to a

decision of this Court in " Raj Chawla Vs. SEBI & Another" ,

Crl.M.C.3937/09 decided on12.1.2010. In the case of Raj

Chawla (supra), the petitioner h ad placed on record certified

copy of Form-32 which showed that she had resigned as a

Director of the concerned Company with effect from 30 th March,

1997 and had given intimation in this regard to Registrar of

Companies on or before 14th January, 1998. The respondent in

that case did not dispute the authenticity and genuineness of

certified copy of Form-32 filed by the petitioner. The offence

punishable under SEBI Act by Company in question, namely,

Fair Deal Forests Limited, was committed for the first time

much after the petitioner had ceased to be a director of that

Company. The facts of that case are, therefore, altogether

different from the present case where the respondents/

complainants have placed on record letters written by the

Company itself, stating therein that the petitioner was a

promoter and director of the company and, therefore, it has

become a disputed question of fact as to whether he actually was

a director of the company at the time when offence was

committed by the company or not. Moreover, in the case of Raj

Chawla (supra) there was no allegation that the petitioner was

also a promoter of the company.

17. The petitioner has relied upon the decision of this Court in

Crl.M.C.6275/06 filed by one Ram Chander Singh. A perusal of

the judgment would show that the learned counsel, appearing

for the SEBI, was unable to show any document other than

Memorandum and Articles of Association of the Company for

roping the petitioner in for the offence committed by the

Company. In the present case, however, the respondent have

placed on record the documents filed by the Company itself

claiming that the petitioner was not only one of its promoters

but was also one of its directors. Therefore, the question as to

whether the petitioner was actually a director of the company at

the relevant time or not needs to be adjudicated during trial and

no view in this regard can be taken by this Court, while

exercising jurisdiction under Section 482 of the Code of Criminal

Procedure.

18. Since I have taken a view that the factual issue involved in

this case need adjudication after trial, I need not examine the

contention of the respondent that the document relied upon by

the petitioner being his defence, cannot be considered in these

proceedings, as neither they are public documents nor admitted

documents.

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

petition is, hereby dismissed.

V.K. JAIN (JUDGE) FEBRUARY 10, 2010 RS/