Kerala High Court
Jose Pottokaran vs Nirej V. Paul on 3 March, 2025
2025:KER:16749
Crl.M.C.No.881/2020
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE G.GIRISH
MONDAY, THE 3RD DAY OF MARCH 2025 / 12TH PHALGUNA, 1946
CRL.MC NO. 881 OF 2020
TO QUASH ALL FURTHER PROCEEDINGS AGAINST THE PETITIONER IN CC
NO.2 OF 2019 OF ADDITIONAL SESSIONS COURT, ERNAKULAM,
PETITIONER/6TH ACCUSED:
JOSE POTTOKARAN,AGED 77 YEARS,
S/O. ANTHONY, PARTNER - ABRAHAM AND JOSE,
CHARTERED ACCOUNTANTS, MISSION QUARTERS ROAD,
THRISSUR - 1
BY ADVS.ANIL S.RAJ
SMT.K.N.RAJANI
SRI.RADHIKA RAJASEKHARAN P.
RESPONDENTS/COMPLAINANTS AND STATE:
1 NIREJ V. PAUL,VADAKKEDATHU HOUSE,
OORMANA POST, ERNAKULAM - 686 730.
2 JAYA P., VADAKKEDATHU HOUSE, OORMANA POST,
ERNAKULAM - 686 730.
3 THE STATE OF KERALA
REPRESENTED BY THE PUBLIC PROSECUTOR,
HIGH COURT OF KERALA, ERNAKULAM,
HIGH COURT P. O., KOCHI - 682 031.
BY ADVS.SRI.SOORAJ T.ELENJICKAL
SRI.K.ARJUN VENUGOPAL
SMT.HELEN P.A.
SRI.SHAHIR SHOWKATH ALI
SMT.SEENA.P., PUBLIC PROSECUTOR
THIS CRIMINAL MISC. CASE HAVING BEEN FINALLY HEARD ON
25.02.2025, THE COURT ON 03.03.2025 PASSED THE FOLLOWING:
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Crl.M.C.No.881/2020
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ORDER
The petitioner is the sixth accused in C.C.No.2/2019, a private
complaint alleging the commission of offence under Sections 143, 147 &
447 of the Companies Act, 2013 (in short, 'Act'), which was originally filed
before the Additional Chief Judicial Magistrate Court (Economic Offences),
Ernakulam, and later on transferred to the Additional Sessions Court-VII,
Ernakulam, being the designated court for the trial of offences under the
Act. In the present petition filed under Section 482 of the Code of
Criminal Procedure, 1973(in short, 'Cr.PC'), he seeks to quash the
proceedings against him in the said case.
2. C.C.No.2/2019 has its origin in C.M.P.No.2389/2015 filed by
the respondents 1 & 2 herein before the Additional Chief Judicial
Magistrate Court (Economic Offences), Ernakulam, against seven accused,
among whom the accused Nos.1 to 5, were a company, its Chairman and
Directors who are said to be in charge of and responsible for the conduct
of affairs of that company. The petitioner herein, who is the sixth
accused, was the Auditor of that company. The seventh accused is
arraigned as the Company Secretary. The allegation in the said complaint
is that the accused Nos.2 to 5, in collusion with the petitioner herein and
the seventh accused, fraudulently allotted shares to accused Nos.2 to 5 to
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enable them to gain control over the said company. The specific
allegation as against the present petitioner is that he knowingly and
deliberately concealed this fraud in his audit report submitted to the
Registrar of Companies. It is stated that a huge number of shares were
allotted to accused Nos.2 to 5 fraudulently by converting loans, purported
to be advanced by the said accused to the first accused company, into
equity shares in complete violation of the provisions of the Act.
3. The learned Additional Chief Judicial Magistrate, after
recording the sworn statements of the first and second respondents,
passed the order dated 16.05.2016 taking cognizance of the offence
under Sections 143, 147 & 447 of the Act as against accused Nos.1 to 5.
It was observed in the said order that prima facie grounds were not made
out to proceed against the petitioner herein (sixth accused) and the
accused No.7.
4. The respondents 1 & 2 challenged the aforesaid order of the
learned Magistrate by filing O.P.(Crl)No.382/2016 under Article 227 of the
Constitution of India. In the judgment dated 11.04.2018 in that original
petition, this Court held that the finding of the learned Magistrate that
there were no sufficient grounds to proceed against the accused Nos.6 &
7 was not correct, and hence, it required reconsideration. It was further
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observed in the said order that as per the notification under Section 440
of the Act, the Special Court constituted thereunder was the proper court
to entertain the said complaint. Accordingly, the learned Magistrate was
directed to transmit the complaint to the Special Court.
5. The learned Additional Sessions Judge-VII, Ernakualm, who
presided the Special Court, considered the complaint afresh and held vide
order dated 29.01.2019 in Crl.M.P.No.2389/2015 that the petitioner herein
(accused No.6) and accused No.7 were also liable to be proceeded
against for the commission of offence under Sections 143, 147 & 447 of
the Act.
6. In the present petition, the petitioner would contend that the
allotment of shares to accused Nos.1 to 5 which came to his notice during
the course of audit, is reflected in the balance sheet of the company
which was audited by him, and hence he could not be found liable for the
commission of offence alleged in this complaint. According to the
petitioner, the transactions regarding the allotment of shares by
conversion of loans were done by another Company Secretary who had
not been prosecuted. It is the further contention of the petitioner that
the aforesaid allotment of shares in favour of accused Nos.2 to 5 was
approved by the National Company Law Tribunal, Kochi, as per the order
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dated 13.11.2019 in T.C.P. No.23/2019. Upon the above grounds, the
petitioner seeks to quash the proceedings against him.
7. Heard the learned counsel for the petitioner, learned counsel
for the respondents 1 & 2 and the learned Public Prosecutor representing
the State of Kerala.
8. The main argument advanced by the learned counsel for the
petitioner is that Annexure-A5 order of the National Company Law
Tribunal, Kochi Bench, has found that the impugned allotment of shares
in favour of accused Nos. 2 to 5 was justified, and hence the failure on
the part of the petitioner to qualify the above allotment as a fraudulent
transaction, cannot be termed as a violation of law to attract Sections 147
& 447 of the Act.
9. The learned counsel for the respondents 1 & 2 submitted that
Annexure-A5 order had already been challenged before the Appellate
Tribunal, and hence it cannot be said that the objectionable act
committed by the petitioner would be justified by the said order. It is
further argued by the learned counsel for the respondents 1 & 2 that the
only aspect which the National Company Law Tribunal, Kochi Bench, had
dealt with in Annexure-A5 order is that conversion of loans into equity
shares in favour of the Directors, cannot be termed as violation of law,
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and that the fraud played by the accused behind the above conversion of
loans had not been looked into by the said Tribunal.
10. It is pertinent to note that the specific allegation in the
complaint filed by the respondents 1 & 2 is that the accused Nos.2 to 5
got allotment of huge number of shares in their favour under the pretext
of conversion of loans advanced by them to the first accused company. It
is stated by the complainants that by allotting shares to themselves, the
accused Nos.2 to 5 made it appear that the amount required for the same
had already been paid by them to the company. The further averments in
that regard in the complaint are that the balance sheet of the company
for the year 2012-13 would reveal that the loans from the Directors were
classified as short term borrowings and that there had been no
borrowings at all from the Directors before the said period. It is also
stated that the balance sheet categorically mentions the loans given by
the Directors as short term borrowings, and not as one that could be
converted into equity. Thus, it is contended that the unilateral allotment
of shares in favour of accused Nos.2 to 5 on the basis of the above short
term borrowings which could not be converted as equity, was in violation
of the relevant provisions of the Act. As against the present petitioner,
the specific accusation is that he had deliberately suppressed the above
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violation in the audit report in collusion with the other accused, so as to
enable the accused Nos.1 to 5 to take control of the affairs of the
company by deceitful means. The above aspect about the conversion of
short term borrowings into equity shares under the pretext of loans
advanced by the accused Nos.2 to 5 to the first accused company has not
been dealt with in Annexure-A5 order of the Tribunal. The mere
observation in Annexure-A5 order that there is no violation of the
fiduciary duties of the Directors in the conversion of loans into equity
shares, cannot be taken as a finding justifying the impugned acts
attributed to the accused in the aforesaid complaint. Nor could it be said
that the omission on the part of the petitioner herein to qualify the above
conversion of short term borrowings in the audit report filed by him, is
sanctified by the aforesaid order of the Tribunal. It is pertinent to note
that the specific case of respondents 1 & 2 as against the petitioner
herein, is that he clandestinely suppressed the fraud committed by
accused Nos.2 to 5 in the pretended advancement of loan to the first
accused company, for mobilising shares of that company. All those
aspects are to be analysed in detail by the Trial Court in the further
course of the proceedings in C.C.No.2/2019. At any rate, it is not possible
for this Court to sit on judgment upon the legality and sanctity of the
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aforesaid conversion of short term loans as equity shares by accused
Nos.2 to 5, and the omission on the part of the petitioner herein to report
the same in his audit report. Needless to say that the prayer in this
petition to quash the proceedings against the petitioner/sixth accused
cannot be allowed.
In the result, the petition is hereby dismissed.
(sd/-)
G. GIRISH, JUDGE
DST
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APPENDIX
PETITIONER ANNEXURES
ANNEXURE A1 TRUE COPY OF THE COMPLAINT IN CC 2 OF 2019 OF
THE VII ADDITIONAL SESSIONS COURT, ERNAKULAM.
ANNEXURE A2 TRUE COPY OF THE FORM OF ALLOTMENT AVAILABLE
IN THE WEBSITE OF THE REGISTRAR OF COMPANIES.
ANNEXURE A3 TRUE COPY OF THE BALANCE SHEET, PROFIT AND
LOSS ACCOUNT AND THE NOTES FORMING PART OF THE
ACCOUNTS FOR THE YEAR 2013-14 AUDITED BY THE
PETITIONER.
ANNEXURE A4 TRUE COPY OF THE INDEPENDENT AUDITOR'S REPORT.
ANNEXURE A5 TRUE COPY OF THE ORDER OF THE NCLT, KOCHI IN
TCP 23 OF 2019 DATED 13.11.2019.
ANNEXURE A6 TRUE COPY OF THE ARTICLES OF ASSOCIATION OF
THE CANNING INDUSTRIES COCHIN LIMITED.
RESPONDENTS' EXHIBITS
ANNEXURE R1(A) TRUE COPY OF THE STATEMENT OF CW1 IN THE
COMPLAINT PROCEEDINGS NO.2389 OF 2015
ANNEXURE R1(B) TRUE COPY OF THE STATEMENT OF CW2 IN THE
COMPLAINT PROCEEDINGS CMP NO.2389 OF 2015
ANNEXURE R1(C) TRUE COPY OF THE ORDER DATED 16.05.2016 PASSED
IN CMP NO.2389/2015.
ANNEXURE R1(D) TRUE COPY OF THE OP(CRL) NO.382/2016 FILED BY
THE COMPLAINANTS BEFORE THIS HON'BLE COURT.
ANNEXURE R1(E) TRUE COPY OF THE CR.M.C.NO.7369/2016 FILED BY
THE ACCUSED NOS.1 TO 5 BEFORE THIS HON'BLE
COURT.
ANNEXURE R1(F) TRUE COPY OF THE ORDER DATED 10.04.2018 OF
THIS HON'BLE COURT IN CRL.M.C.NO.7369/2016
ANNEXURE R1(G) THE TRUE COPY OF THE JUDGMENT DATED 11.04.2018
PASSED BY THIS HON'BLE COURT IN O.P. (CRL)
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ANNEXURE R1(H) THE TRUE COPY OF THE ORDER DATED 29.01.2019
PASSED BY THE ADDITIONAL SESSIONS JUDGE-VII,
ERNAKULAM
ANNEXURE R1(I) TRUE COPY OF THE PROCEEDINGS SHEET IN TA (AT)
ANNEXURE R1(J) THE TRUE COPY OF THE ORDER DATED 12.07.2024,
IN TA (AT) NO. 133/2021 OF THE APPELLATE
TRIBUNAL, CHENNAI
ANNEXURE R1(J) (I) THE TRUE COPY OF THE ORDER DATED 29.09.2023 IN
TA (AT) NO. 133/2021 OF THE APPELLATE
TRIBUNAL, CHENNAI
ANNEXURE R1(J (II) THE TRUE COPY OF THE ORDER DATED 18.12.2024 OF
THE APPELLATE TRIBUNAL CHENNAI
