Telangana High Court
M/S. Madhavi Vuppalapati 3 Others vs Sojitz Corporation The State Of ... on 24 June, 2021
Bench: B.Vijaysen Reddy
IN THE HIGH COURT FOR THE STATE OF TELANGANA
AT: HYDERABAD
CORAM:
* THE HON'BLE SRI JUSTICE B. VIJAYSEN REDDY
+ CRIMINAL PETITION Nos.1951 and 6364 of 2010
% Delivered on: 24-06-2021
Between:
# M/s.MADHAVI VUPPALAPATI & 3 another
... Petitioners
Vs.
$ SOJITZ CORPORATION THE STATE OF A P
Through its Authorized Rep Mr Yukishisa Mataumoto
S/o Mr Hisakichi Atasumto aged 50 yrs Off at 120 Akasaka
6 Chome MinatoKu Tokyo 1078665 Japan & another
... Respondents
! For Petitioners : Mr. C.Sharan Reddy (Representing)
Mr. A HARIPRASAD REDDY
^ For Respondents : PUBLIC PROSECUTOR (TG)
Mr.RAJESH MADDY
< Gist :
> Head Note :
? Cases Referred :
1. (2008) 5 SCC 668
2. (2015) 8 SCC 609
3. (2009) 14 SCC 115
4. (2019) SCC Online Del 8493
5. (2012) SCC Online Ker 29378
6. (2012) SCC Online Bom 210
7. (2009) 12 SCC 331
8. (2007) 5 SCC 108
9. AIR 2020 SC 936
10. (2004) 6 SCC 522
11. (1992) SUPP. (10 SCC 335
12. (2018) 3 SCC 114
13. (2019) 17 SCC 193
THE HON'BLE SRI JUSTICE B. VIJAYSEN REDDY
CRIMINAL PETITION Nos.1951 and 6364 of 2010
COMMON ORDER:
CRLP.No.1951 of 2010 is filed by A3, A6, A8 and A12 and
CRLP.No.6364 of 2010 is filed A5, A7 and A13 to quash the
proceedings in CC.No.140 of 2010 on the file of the IX Metropolitan
Magistrate, Miyapur, Ranga Reddy District.
2. The respondent No.1 is the complainant in CC.No.140 of 2010
filed under Section 200 of the Criminal Procedure Code to prosecute
the petitioners/accused and the other accused for the offences under
Sections 405, 406, 409, 430, 120B read with Section 34 of the Indian
Penal Code.
3. In the complaint, it is stated by the respondent No.1 that
A1 company, its Directors and some of its officers in conspiracy with
one another and with a common intention have unlawfully caused
financial loss to the complainant company by indulging in acts of
cheating and breach of trust and the acts are of such nature, which
will have the possible effect of seriously affecting the ability of
Hyderabad to attract foreign investments and in particular form Japan.
4. The complainant company is represented through its authorized
representatives vide Special Power of Attorney dated 06.08.2010.
The complainant company is engaged in the business of international
trade and inter alia, provides trade finance in respect of sale
equipment and accessories required in the field of telecommunications.
A2 is the Chairman of A1 company (registered under the Indian
Companies Act, 1956). However, the 10th Annual Report of
A1 company for the financial year 2007-2008 makes no reference to
A2 holding the said office. A3 is stated to be the Chairperson of A1 and
inter alia looks after the affairs of A1 company in US. A4 is the
Managing Director of A1 company; A9 and A12 are based in Delhi at
the relevant period and were interacting with the complainant's
representatives on regular basis. A9 and A12 made numerous
misrepresentations to the representatives of the complainant's
company. A9 signed a letter calling upon the Bharat Sanchar Nigam
Limited (BSNL) to set aside the instructions earlier received by it from
A1 to make all payments in stipulated Escrow agreement. A10, inter
alia, signed the mandate forms with respect to Axis Bank wherein
most of the dishonestly misappropriated funds were diverted. A13 with
active support of A2 and A4 held himself out to be an Advisor of the A1
and in that capacity attended most of the meetings at Hyderabad and
was actively involved in misrepresentations made and false
undertakings given to the complainant. The other accused are
variously involved in fraudulent activities of A1 whereby unlawful gain
was attained by A1 and unlawful loss was caused to the complainant.
5. The main substratum of the allegations in the complaint is as
under:
(a) In March 2007, BSNL announced tender for procurement of
certain telecommunication equipment. Clause XI of the tender
document clearly stipulates that 95% of the value of the equipment
would be payable by BSNL immediately upon satisfactory supply of
equipment, which was subject matter of the tender and the remaining
25% was payable by BSNL within six months thereafter. A1 was one of
the bidders in respect of the said tender. HUAWEI, Chinese Company,
who manufactured the equipment to be supplied, entered into
negotiations with A1 and the salient features of the bid such as price
bid, specifications, delivery schedule, logistics, hardware/software
ratio, other commercial conditions were decided between HUAWEI and
A1. The bid was submitted by A1 on 04.06.2007 at BSNL Corporate
Office in New Delhi and on the same day, the bids were opened and
A1's bid was found to be in order.
(b) HUAWEI has done business with complainant in the past.
It contacted the complainant and asked it to consider grant of trade
finance to A1. Thereafter, pursuant to the telephonic discussions
between HUAWEI, the complainant and A1, a meeting was held on
26.06.2007, which was attended by the Mr. Woichi and Mr. Gopalan on
behalf of the complainant and A2, A11 and A13 on behalf of A1.
The meeting was chaired by A2, who held himself out to as being
Chairman of A1 company, made numerous claims about his company's
order book, financial standing and his belief in conducting his
company's business in an absolutely honest manner. The complainant
raised numerous queries regarding reason for A1 tendering for
hardware contract when A1 was essentially a software solutions
company. The accused at the meeting responded by indicating that
they are looking towards expanding the A1 company's business and
developing software-hardware synergy. There were discussions during
the meeting regarding modalities of repayment in respect of trade
finance that the complainant may extend to A1 and the accused
assured the complainant's representatives that HUAWEI, who already
had numerous dealings with the complainant's company has informed
them of complainant company's requirement including the need to set
up a dedicated Escrow account into which all monies received from
BSNL would have to be deposited.
(c) Further meetings took place between the complainant's
company and accused persons on 02.07.2007 and 17.08.2007.
The meeting was attended by the accused persons at Delhi and
represented on behalf of accused by A9 and A12. The accused
company assured the complainant that there would not be any delay in
repayment of the amount that would be extended as trade finance to
the accused by the complainant. Further negotiations took place
between the accused and the complainant. On 08.11.2007,
BSNL placed an advanced order upon A1. Pursuant to the
representations made by the accused persons and believing them to
be true, an agreement dated 29.11.2007 was entered between the
complainant and the A1 for procurement of goods and supply of goods
to BSNL. The goods consisted of 10G, 400 channels DWDM equipment
manufactured by M/s. HUAWEI Technologies Company Limited. As per
the supply agreement dated 29.11.2007, HUAWEI were to
manufacture the equipment and the complainant was to purchase the
same on letter of credit basis. Subsequently, the complainant sold the
same to A1 company on document against payment basis. After
completion of custom clearance at Indian Seaport/Airport, the said
equipment would be supplied by A1 in terms of the tender conditions
and BSNL's purchase order to BSNL. Upon satisfactory receipt of
equipment, BSNL would be release payment into Escrow account with
a view to protecting the complainant's substantial financial exposure.
(d) On the basis of the assurances given by A1 with regard to
transfer/deposit of all payments relating to the contract in question,
into an Escrow account, a tripartite agreement dated 10.12.2007 was
executed between the complainant, A1 and the Punjab National Bank.
In pursuance thereof, a segregated and irrevocable Escrow agreement
in the name and style of Punjab National Bank - A/c Prithvi
Information Solutions Limited (Escrow account)
No.4437002100000506 was opened. A11 signed the Escrow
agreement on behalf of A1. Under the terms of Escrow agreement,
the accused persons agreed that the cheques would be drawn in
favour of the Escrow account; the cheques would contain
endorsements "Not negotiable/account payee or beneficiary only"
clearly on the face of the cheque drawn; the cheques would be
deposited directly to PNB where Escrow account was being maintained
and further the term 'cheque' wherever used under the agreement
would deem to include the payment made by BSNL through
telegraphic transfer or any other mode.
(e) A1 Under letter dated 01.12.2007, addressed to the Joint
Deputy Director General (MM), BSNL, informed the details of the
Escrow agreement. BSNL was requested to register the Escrow
account number and issue letter of confirmation. BSNL vide letter
dated 05.12.2007 agreed to conform to the aforesaid payment
mechanism. BSNL further clarified that necessary instructions would
be made to the paying authorities at the time of placing a formal
purchase orders. Subsequently, a formal purchase order bearing
No.CT/PO/31/2007/08 dated 04.01.2008 was issued by BSNL in favour
of A1 company for procurement of goods mentioned therein. The
details of the Escrow agreement were duly mentioned in the formal
purchase order. The equipment supplied by the complainant with
relevant invoices was duly received and accepted by BSNL.
(f) At no point of time, the accused or BSNL raised any issue
with regard to the quality of the equipment. The complainant raised on
the accused company invoices amounting to Japanese Yen Five billion,
Fifty Two Million, One Thousand and Nine Hundred and Ninety Nine as
price of goods supplied. As no payments were received in the Escrow
agreement, the complainant began to suspect that something was
wrong. When the complaint questioned the accused, they gave evasive
replies stating that they will take up the matter with BSNL.
The complainant repeatedly insisted the accused in the months of
October, November and December 2008 enquiring as to why
remittances have not been received in the Escrow account.
The accused informed the complainant that some payment has been
received from BSNL, but that payment has been mistakenly sent by
BSNL to another bank account in respect of some other contract the
accused had entered into with BSNL. The accused undertook to make
good the payment received by forwarding the same to Escrow account
and the same is affirmed vide letter dated 06.02.2009. Despite
numerous requests, the accused refused to furnish the details of
payment which have been received from BSNL and which had
mistakenly been forwarded to another account of A1.
(g) On 13.02.2009, the complainant sent a notice to the
accused persons demanding transfer of all payment received by them
against goods supplied to BSNL into the Escrow account together with
delayed interest. The accused persons were requested to furnish
details of the account into which the amount was received directly
from BSNL. In response thereto, the accused have sent letter dated
19.02.2009 wherein they acknowledged the liability and agreed to
make good the payment against the goods supplied by the
complainant in compliance of the terms and conditions of the Escrow
agreement. The accused issued letter dated 26.02.2009 to PNB
instructing the bank to remit a sum of Rs.27,57,00,000/- to the
complainant. On various occasions the accused company admitted the
liability due to the complainant company.
(h) A joint meeting was held on 03.03.2009 and a statement of
account for 10G DWDM - Project as on 28.02.2009 was signed
confirming the outstanding payable on the said date. Again vide letter
dated 30.03.2009 the accused admitted the liability and proposed a
revised the payment schedule, which was not accepted by the
complainant. The complainant through its counsel moved applications
before the BSNL under the Right to Information Act. Pursuant to which
it was revealed that prior to 30.10.2008 the accused with malafide
intention has given Form II to BSNL requesting it to forward payment
to account of A1 held with Axis Bank. The complainant has further
discovered that the accused had issued a letter dated 05.11.2008 to
BSNL wherein they have asked for amendment of change of payment
conditions citing some change in their accounting arrangements. The
responses to the RTI applications clearly showed that the accused
deliberately mislead the complainant that BSNL has mistakenly
forwarded some payments to another account of the accused in
respect of another contract of the accused with BSNL. The RTI replies
clearly evidenced that there was no such contract with respect to
which payments were due and payable by BSNL to A1 at the relevant
time. Thus, the malafide intention of the accused persons is evident
from the fact that a mere perusal of the letter dated 05.11.2008
clearly showed the change of payment schedule happened around the
same time when the payment became due and payable by BSNL and
receivable by the complainant. The accused persons in connivance and
conspiracy with one another have instructed BSNL to await the details
of the bank where the money was to be diverted.
(i) The malafides of the accused are further clearly evident from
the fact that the first payment from BSNL, Kolkata (Eastern Circle) was
made on 18.02.2009, which was after A2's written admission dated
06.02.2009 referred to above. The accused persons in contravention of
the agreement between the parties and with a view to defraud the
complainant and misappropriate the amount in question, had issued
mandates to BSNL to transfer the payments against the goods
supplied to Axis Bank Account No.068010200009317 instead of Escrow
account. On receipt of letter of A1 dated 05.11.2008, BSNL vide letter
dated 05.11.2008 agreed to amend the banking arrangement for
payment as postulated under purchase order dated 04.01.2008.
At no point of time, the complainant was intimated nor was it's
consent taken with regard to change in routing of payments.
The accused acted unilaterally and even attempted to cover up their
acts with other lies thereby clearly establishing their dishonest
intention to cause wrongful loss to the complainant and wrongful gain
to themselves.
(j) The circumstances under which the accused were able to
circumvent the Escrow agreement, suggest the involvement of certain
officers of BSNL. The complainant reserves the right to initiate
appropriate proceedings/lodge complaint in this regard, in due course,
after their identity is established. The complainant took up the matter
several times with A2, A3 and A4. The accused persons made series of
misrepresentations to the complainant. By letter dated 27.03.2009,
A9 asked BSNL to revert back to the payment procedures
contemplated under the supply agreement. However, to cover up the
fact that the accused has intentionally instructed BSNL to make
payment to a personal account in direct contravention of the supply
agreement, the accused presented to the complainant with an
alternative letter addressed to BSNL and similar letter dated
23.07.2009 asking BSNL to make payment into the Escrow account.
However, in the latter letter, the accused deliberately omitted any
reference to its previous instructions to divert funds on its own.
The accused created the latter letter only for the purpose of hiding
from the complainant its previous improper instructions to BSNL.
It is, thus, alleged that the accused from inception of agreement in
question had the intention of defrauding the complainant of very large
sums of money. Thus, the accused persons are liable to be prosecuted
for the offences under Sections 405, 406 and 409 IPC. The accused
are also liable for the offence of cheating under Section 420 IPC and
the criminal acts are performed with a common intention attracting
punishment under Section 34 IPC.
6. Mr. C. Sharan Reddy, learned counsel, representing
Mr. A. Hariprasad Reddy, learned counsel for the petitioners submitted
that on the private complaint lodged by the complainant, the learned
Magistrate, after recording and considering the sworn statements, took
the complaint on file under Sections 406 and 420 IPC read with
Section 34 and 120B IPC, as against the accused vide order dated
25.01.2010. The petitioners/accused are falsely implicated in the case
only on the ground that they are Directors and employees of the A1
company. There is no allegation that the petitioners have ever met or
induced the complainant or its officers to enter into an agreement with
A1. There is also no allegation that the petitioners have ever made any
assurance or given any undertaking that the amounts would be
transferred into the Escrow account. The petitioners have not sent any
correspondence, letter of undertaking or agreement on behalf of A1
company. The petitioner No.1/A3 resides in USA. Petitioner Nos.2 and
3 (A6 and A8) are independent directors and they have nothing to do
with the day-to-day affairs of the company. There is no allegation that
these transactions were placed before the Board of Directors and they
have approved the action of A2, A9 and others who, allegedly,
gave the assurances.
7. Learned counsel further submits that the complainant gave twist
to the civil disputes concealing the facts, events and arbitrations
proceedings in Singapore in accordance with L.C.I.A. Rules applicable
to the court of International Arbitration at Singapore and ultimately,
knocked the doors of judiciary at USA. The complainant also filed the
present complaint under Section 200 Cr.P.C and tactfully caused
issuance of process against the petitioners despite further amount
pending with BSNL around Rs.30 crores as payable to A1 company.
The complainant and manufacturer viz. HUAWEI company are being
responsible for the show cause notice of DRI dated 30.07.2009 to A1
and consequently, surmised different places of manufacturer,
complainant, accused and VMCN and seized records with the
allegations of custom duty evasion, humiliating all the directors
including executive staff of A1 company resulting in substantial loss of
image and reputation of the A1 company. But for interference of DRI
on the alleged lapses of the complainant or manufacturer, the present
issue would not have resulted and A1 company would not have
sustained huge loss by way of foreign exchange. The breach of
assurances or undertaking is only a civil wrong and all the directors
cannot be prosecuted for breach of trust or cheating. There is no
material to warrant an inference that all the directors entered into
criminal conspiracy to cheat the complainant. Thus, continuation of
criminal proceedings against the petitioners is nothing but an abuse of
process of law.
8. Learned counsel for the petitioners, relied on the judgments of
the Supreme Court in MAKSUD SAIYED v. STATE OF GUJARAT1 and
SUNIL BHARTI MITTAL v. CENTRAL BUREAU OF
INVESTIGATION2.
(2008) 5 SCC 668
(2015) 8 SCC 609
9. On the other hand, Mr. Rajesh Maddy, the learned counsel for
the respondent No.1 submitted that the instant quash petition is not
maintainable. The accused are clearly under the control and
management of A1 company and are watchdogs and conscience
keepers of the A1 company being independent directors. They are fully
conversant and informed of the affairs of the A1 company, at such
time of misappropriation of funds and cheating was ordained against
the complainant company. It is well settled that in certain cases, the
very same set of facts may give rise to remedies in civil as well as
criminal proceedings. Even if civil remedy is availed by a party, he is
not precluded from setting in motion the proceedings in criminal law.
The present criminal petition is premature as crucial evidence
pertaining to the matter is yet to be recorded by the learned
Magistrate. The criminal complaint cannot be treated as an exhaustive
encyclopedia of the facts of the case and precise involvement of each
individual accused can only be established at the stage of trial.
There are several disputed questions of which do not fall within the
jurisdiction of this Court under Section 482 Cr.P.C. Recording of
evidence and examination of witnesses has commenced before the
learned Magistrate. The sequence of events indicate that there was
deep rooted conspiracy to cause substantial loss to the complainant
company and all the accused are jointly and severally liable for the
acts committed by A1 company.
10. In support of his contentions, the learned counsel for the
respondent No.1 relied upon the following decisions of the Supreme
Court:
AJOY KUMAR GHOSE v. STATE OF JHARKHAND3; STATE
(NCT OF DELHI) v. SURESH GAUTAM4; INTEGRATED FINANCE
(2009) 14 SCC 115
CO. LTD. v. P.G. THOMAS PUTHENPURAYIL5; MOHAMMAD
BASITODDIN v. STATE OF MAHARASHTRA6; KOPISETTI
SUBBHARAO v. STATE OF A.P.7; N. RANGACHARI v. BHARAT
SANCHAR NIGAM LTD.8; K. JAGDISH v. UDAYA KUMAR G.S.9;
STATE OF A.P. v. GOLCONDA LINGA SWAMY10; STATE OF
HARYANA v. CH. BHAJAN LAL11 and DINESH CHANDUBHAI
PATEL v. STATE OF GUJARAT12
11. Heard the learned counsel for the petitioners and the learned
counsel for the respondent No.1/complainant.
12. There are two agreements viz. one is the supply agreement with
respect to procurement of 40 channels DWDM equipment (supply
agreement dated 29.11.2007) and another is Escrow account
agreement dated 10.12.2007. The supply agreement dated
29.11.2007 is entered into between the complainant company and A1
company. On behalf of A1 company, Mr. A.N. Sharma Head - Legal
and Company Secretary, signed the agreement. The Escrow
agreement was entered into between A1 company, complainant
company and PNB. On behalf of A1 company, the agreement was
signed by A11, as Vice President of the company.
13. The grievance of the complainant company is that the terms and
conditions of the Escrow agreement have been violated. There was
breach by the accused persons in complying with the terms and
conditions of the Escrow account agreement. The petitioners/accused
(2019) SCC Online Del 8493
(2012) SCC Online Ker 29378
(2012) SCC Online Bom 210
(2009) 12 SCC 331
(2007) 5 SCC 108
AIR 2020 SC 936
(2004) 6 SCC 522
(1992) SUPP. (10 SCC 335
(2018) 3 SCC 114
herein are not the signatories of the supply agreement or the Escrow
agreement. Though general allegations have been made here and
there in the complaint that all the accused persons have conspired and
have connived to cause wrongful loss to the complainant, there is no
specific statement made to show the involvement of the
petitioners/accused in the Escrow account agreement and violation of
the terms and conditions contained therein. Insofar as A3, A12 and
A14 are concerned, certain allegations are made against them.
For instance, as against A3, it is stated that she is the Chairperson of
A1 company and inter alia, looks after the affairs of the company in
the US. A12 is stated to be based in Delhi and it was alleged that he
was interacting that complainant's representatives on regular basis.
It is stated that A9 and A12 made numerous misrepresentations to the
representatives of the complainant company. As regards A13 it is
alleged that he with active support of A2 and A3 held himself to be an
adviser of A1 company and attended most of the meetings at
Hyderabad and actively involved in misrepresentations and made false
undertaking given to the complainant. A12 was further said to have
attended meetings at Hyderabad on 02.07.2007 and 17.08.2007
between the complainant's representatives and accused persons and
also at Delhi and assured that if the complainant extended trade
finance to the accused company, there would be no delay in
repayment of the amounts. It is also alleged that the complainant took
up the issue with A2, A3 and A4 but satisfactory explanation was not
given by them and requested the complainant not to initiate any
proceedings and undertook to start making payment to the
complainant forthwith.
14. This Court is of the opinion that merely because A3 is the
Chairperson, she cannot be prosecuted as no specific role is attributed
to her in the instant complaint. As against A12 and A13, though there
is an allegation of misrepresentation and assurance of payment,
the same cannot be a ground to prosecute them since it is not the
assurance of payment for which the accused are being prosecuted.
The cause of action for filing the complaint was when there was
alleged violation of the Escrow agreement and diversion of funds to
which none of the petitioners/accused herein including A3, A12 and
A13 are parties and no specific role is attributed to them.
15. In MAKSUD SAIYED's case (1 supra), the Supreme Court held
as under:
"12. In Saroj Kumar Poddar v. State (NCT of Delhi) [(2007) 3
SCC 693 : (2007) 2 SCC (Cri) 135 : (2007) 2 Scale 36] this
Court held: (SCC p. 697, para 14)
"14. Apart from the Company and the appellant, as
noticed hereinbefore, the Managing Director and all other
Directors were also made accused. The appellant did not
issue any cheque. He, as noticed hereinbefore, had
resigned from the directorship of the Company. It may be
true that as to exactly on what date the said resignation
was accepted by the Company is not known, but, even
otherwise, there is no averment in the complaint petitions
as to how and in what manner the appellant was
responsible for the conduct of the business of the
Company or otherwise responsible to it in regard to its
functioning. He had not issued any cheque. How he is
responsible for dishonour of the cheque has not been
stated. The allegations made in para 3, thus, in our
opinion do not satisfy the requirements of Section 141 of
the Act."
[See also Everest Advertising (P) Ltd. v. State, Govt. of NCT of
Delhi [(2007) 5 SCC 54 : (2007) 2 SCC (Cri) 444 : JT (2007) 5
SC 529] and S.M.S. Pharmaceuticals Ltd. v. Neeta
Bhalla [(2007) 4 SCC 70 : (2007) 2 SCC (Cri) 192 : (2007) 3
Scale 245] .]
13. Where a jurisdiction is exercised on a complaint petition
filed in terms of Section 156(3) or Section 200 of the Code of
Criminal Procedure, the Magistrate is required to apply his
mind. 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.
15. This Court in Pepsi Foods Ltd. v. Special Judicial
Magistrate [(1998) 5 SCC 749 : 1998 SCC (Cri) 1400] held as
under: (SCC p. 760, para 28)
"28. 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. The 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."
The learned Magistrate, in our opinion, shall have kept the said
principle in mind.
16. In SUNIL BHARTI MITTAL's case (2 supra), the Supreme
Court made the following observations:
(iii) Circumstances when Director/person in charge of
the affairs of the company can also be prosecuted, when
the company is an accused person
42. No doubt, a corporate entity is an artificial person which
acts through its officers, Directors, Managing Director,
Chairman, etc. If such a company commits an offence involving
mens rea, it would normally be the intent and action of that
individual who would act on behalf of the company. It would be
more so, when the criminal act is that of conspiracy. However,
at the same time, it is the cardinal principle of criminal
jurisprudence that there is no vicarious liability unless the
statute specifically provides so.
43. Thus, an individual who has perpetrated the commission of
an offence on behalf of a company can be made an accused,
along with the company, if there is sufficient evidence of his
active role coupled with criminal intent. Second situation in
which he can be implicated is in those cases where the
statutory regime itself attracts the doctrine of vicarious liability,
by specifically incorporating such a provision.
45. This very principle is elaborated in various other
judgments. We have already taken note of Maharashtra State
Electricity Distribution Co. Ltd. [Maharashtra State Electricity
Distribution Co. Ltd. v. Datar Switchgear Ltd., (2010) 10 SCC
479 : (2011) 1 SCC (Cri) 68] and S.K. Alagh [S.K.
Alagh v. State of U.P., (2008) 5 SCC 662 : (2008) 2 SCC (Cri)
686] . A few other judgments reiterating this principle are the
following:
45.1.Jethsur Surangbhai v. State of Gujarat [1984 Supp SCC
207 : 1984 SCC (Cri) 474] : (SCC pp. 210-11, para 9)
"9. ... With due respect what the High Court seems to
have missed is that in a case like this where there was
serious defalcation of the properties of the Sangh, unless
the prosecution proved that there was a close cohesion
and collusion between all the accused which formed the
subject-matter of a conspiracy, it would be difficult to
prove the dual charges particularly against the appellant
(A-1). The charge of conspiracy having failed, the most
material and integral part of the prosecution story against
the appellant disappears. The only ground on the basis of
which the High Court has convicted him is that as he was
the Chairman of the Managing Committee, he must be
held to be vicariously liable for any order given or
misappropriation committed by the other accused. The
High Court, however, has not referred to the concept of
vicarious liability but the findings of the High Court seem
to indicate that this was the central idea in the mind of
the High Court for convicting the appellant. In a criminal
case of such a serious nature mens rea cannot be
excluded and once the charge of conspiracy failed the
onus lay on the prosecution to prove affirmatively that the
appellant was directly and personally connected with acts
or omissions pertaining to Items 2, 3 and 4. It is
conceded by Mr Phadke that no such direct evidence is
forthcoming and he tried to argue that as the appellant
was Chairman of the Sangh and used to sign papers and
approve various tenders, even as a matter of routine he
should have acted with care and caution and his
negligence would be a positive proof of his intention to
commit the offence. We are however unable to agree with
this somewhat broad statement of the law. In the absence
of a charge of conspiracy the mere fact that the appellant
happened to be the Chairman of the Committee would not
make him criminally liable in a vicarious sense for Items 2
to 4. There is no evidence either direct or circumstantial
to show that apart from approving the purchase of
fertilisers he knew that the firms from which the fertilisers
were purchased did not exist. Similar is the case with the
other two items. Indeed, if the Chairman was to be made
liable then all members of the Committee viz. Tahsildar
and other nominated members, would be equally liable
because all of them participated in the deliberations of the
meetings of the Committee, a conclusion which has not
even been suggested by the prosecution. As Chairman of
the Sangh the appellant had to deal with a large variety
of matters and it would not be humanly possible for him
to analyse and go into the details of every small matter in
order to find out whether there has been any criminal
breach of trust. In fact, the hero of the entire show seems
to be A-3 who had so stage-managed the drama as to
shield his guilt and bring the appellant in the forefront.
But that by itself would not be conclusive evidence
against the appellant. There is nothing to show that A-3
had either directly or indirectly informed the appellant
regarding the illegal purchase of fertilisers or the missing
of the five oil engines which came to light much later
during the course of the audit. Far from proving the
intention the prosecution has failed to prove that the
appellant had any knowledge of defalcation of Items 2 to
4. In fact, so far as Item 3 is concerned, even Mr Phadke
conceded that there is no direct evidence to connect the
appellant."
(emphasis supplied)
45.2.Sham Sunder v. State of Haryana [(1989) 4 SCC 630 :
1989 SCC (Cri) 783] : (SCC p. 632, para 9)
"9. But we are concerned with a criminal liability under
penal provision and not a civil liability. The penal
provision must be strictly construed in the first place.
Secondly, there is no vicarious liability in criminal law
unless the statute takes that also within its fold. Section
10 does not provide for such liability. It does not make all
the partners liable for the offence whether they do
business or not."
(emphasis supplied)
45.3.Hira Lal Hari Lal Bhagwati v. CBI [(2003) 5 SCC 257 :
2003 SCC (Cri) 1121] : (SCC p. 277, para 30)
"30. In our view, under the penal law, there is no concept
of vicarious liability unless the said statute covers the
same within its ambit. In the instant case, the said law
which prevails in the field i.e. the Customs Act, 1962 the
appellants have been thereinunder wholly discharged and
the GCS granted immunity from prosecution."
(emphasis supplied)
45.5.R. Kalyani v. Janak C. Mehta [(2009) 1 SCC 516 : (2009)
1 SCC (Cri) 567] : (SCC p. 527, para 32)
"32. Allegations contained in the FIR are for commission
of offences under a general statute. A vicarious liability
can be fastened only by reason of a provision of a statute
and not otherwise. For the said purpose, a legal fiction
has to be created. Even under a special statute when the
vicarious criminal liability is fastened on a person on the
premise that he was in charge of the affairs of the
company and responsible to it, all the ingredients laid
down under the statute must be fulfilled. A legal fiction
must be confined to the object and purport for which it
has been created."
45.6.Sharon Michael v. State of T.N. [(2009) 3 SCC 375 :
(2009) 2 SCC (Cri) 103] : (SCC p. 383, para 16)
"16. The first information report contains details of the
terms of contract entered into by and between the parties
as also the mode and manner in which they were
implemented. Allegations have been made against the
appellants in relation to execution of the contract. No case
of criminal misconduct on their part has been made out
before the formation of the contract. There is nothing to
show that the appellants herein who hold different
positions in the appellant Company made any
representation in their personal capacities and, thus, they
cannot be made vicariously liable only because they are
employees of the Company."
(emphasis supplied)
45.7.Keki Hormusji Gharda v. Mehervan Rustom Irani [(2009)
6 SCC 475 : (2009) 2 SCC (Cri) 1113] : (SCC pp. 480-81,
paras 16-19)
"16. We have noticed hereinbefore that despite of the said
road being under construction, the first respondent went
to the police station thrice. He, therefore, was not
obstructed from going to the police station. In fact, a firm
action had been taken by the authorities. The workers
were asked not to do any work on the road. We,
therefore, fail to appreciate that how, in a situation of this
nature, the Managing Director and the Directors of the
Company as also the Architect can be said to have
committed an offence under Section 341 IPC.
17. The Penal Code, 1860 save and except in some
matters does not contemplate any vicarious liability on
the part of 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. The learned
Additional Chief Metropolitan Magistrate, therefore, in our
opinion, was not correct in issuing summons without
taking into consideration this aspect of the matter. The
Managing Director and the Directors of the Company
should not have been summoned only because some
allegations were made against the Company.
18. In Pepsi Foods Ltd. v. Judicial Magistrate [(1998) 5
SCC 749 : 1998 SCC (Cri) 1400] this Court held as under
: (SCC p. 760, para 28)
'28. 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. The 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.'
19. Even as regards the availability of the remedy of filing
an application for discharge, the same would not mean
that although the allegations made in the complaint
petition even if given face value and taken to be correct in
its entirety, do not disclose an offence or it is found to be
otherwise an abuse of the process of the court, still the
High Court would refuse to exercise its discretionary
jurisdiction under Section 482 of the Code of Criminal
Procedure."
47. We have already mentioned above that even if CBI did not
implicate the appellants, if there was/is sufficient material on
record to proceed against these persons as well, the Special
Judge is duly empowered to take cognizance against these
persons as well. Under Section 190 of the Code, any Magistrate
of First Class (and in those cases where Magistrate of the
Second Class is specially empowered to do so) may take
cognizance of any offence under the following three
eventualities:
(a) upon receiving a complaint of facts which constitute such
offence;
(b) upon a police report of such facts; and
(c) upon information received from any person other than a
police officer, or upon his own knowledge, that such offence has
been committed.
This section which is the starting section of Chapter XIV is
subject to the provisions of the said Chapter. The expression
"taking cognizance" has not been defined in the Code.
However, when the Magistrate applies his mind for proceeding
under Sections 200-203 of the Code, he is said to have taken
cognizance of an offence. This legal position is explained by this
Court in Chief Enforcement Officer v. Videocon International
Ltd. [(2008) 2 SCC 492 : (2008) 1 SCC (Cri) 471] in the
following words : (SCC p. 499, para 19)
"19. The expression 'cognizance' has not been defined in
the Code. But the word (cognizance) is of indefinite
import. It has no esoteric or mystic significance in
criminal law. It merely means 'become aware of' and
when used with reference to a court or a Judge, it
connoted 'to take notice of judicially'. It indicates the
point when a court or a Magistrate takes judicial notice of
an offence with a view to initiating proceedings in respect
of such offence said to have been committed by someone.
20. 'Taking cognizance' does not involve any formal action
of any kind. It occurs as soon as a Magistrate applies his
mind to the suspected commission of an offence."
49. Cognizance of an offence and prosecution of an offender
are two different things. Section 190 of the Code empowered
taking cognizance of an offence and not to deal with offenders.
Therefore, cognizance can be taken even if offender is not
known or named when the complaint is filed or FIR registered.
Their names may transpire during investigation or afterwards.
17. The decisions relied upon by the learned counsel for the
respondent No.1 viz. AJOY KUMAR GHOSE's case (3 supra); STATE
(NCT OF DELHI)'s case (4 supra); INTEGRATED FINANCE CO.
LTD.'s case (5 supra) and MOHAMMAD BASITODDIN's case
(6 supra) deal with the proceedings arising out of discharge petitions
filed before the trial Court under Section 245 of Cr.P.C and connected
provisions. By placing reliance on these decisions, the learned counsel
for the respondent No.1 contended that the analogy, underlying the
provisions under Sections 238, 239, 244 and 245 Cr.P.C., applicable to
discharge petitions is applicable even to the petitions filed under
Section 482 Cr.P.C. It would be premature to entertain a quash
petition at this stage, more particularly, because the material before
the trial Court is only the complaint and the relevant documents,
based on which the Court below took cognizance, on being satisfied,
that prima facie there is a case to proceed against all the accused.
If the quash petition is entertained, at this stage, valuable right of the
complainant is lost, as the complainant otherwise would have had the
opportunity to lead evidence before the trial Court at two stages i.e.
before framing charge and after framing charge (paras 19, 20 and 22
in AJOY KUMAR GHOSE's case (3 supra) in the cases instituted
otherwise than police report. The ratio laid in the judgments (supra) is
not applicable to the facts of this case, as this Court is not dealing with
an order arising out of a discharge petition. The learned counsel has
not brought to the notice of this Court any judgment of either the
Supreme Court or any other High Court to buttress his argument that
the analogy under Sections 238, 239, 244 and 245 Cr.P.C. has to be
applied to petitions under Section 482 Cr.P.C. Hence, the judgments
are of no assistance to the respondent No.1.
18. The judgment in KOPISETTI SUBBHARAO's case (7 supra) is
distinguishable on facts. The Supreme Court upheld the order of the
High Court dismissing the quash petition on the ground that there are
disputed questions of fact. In N. RANGACHARI's case (8 supra),
the Supreme Court has taken note of the averments in the complaint
filed under Section 138 read with Section 141 of the Negotiable
Instruments Act (N.I. Act) and came to the conclusion that the
requirement under the said provisions is satisfied wherein there was
an averment in the complaint that the appellant and another were
directors of the company and in-charge of the affairs of the company
and that the burden is on the Board of Directors, in-charge of the
affairs of the company, to show that they are not liable to be convicted
and such contentions can be dealt with after conclusion of trial (Paras
18 and 19). The deemed liability of the directors of a company as
provided under Section 141 of the N.I. Act cannot be applied to the
criminal proceedings under IPC.
19. The proposition of law laid down in K. JAGDISH's case
(9 supra) is that in certain case same set of facts may give rise to
remedies in civil law as well as in criminal proceedings and by availing
civil remedy, the appellant is not precluded from setting in motion
proceedings under the criminal law. However, the same is not the
issue involved in the instant case.
20. In GOLCONDA LINGA SWAMY's case (10 supra),
the Supreme Court set aside the order of the High Court quashing the
FIR registered for the offence under the A.P. Excise Act, 1968 and A.P.
Prohibition Act, 1995. The allegation against the accused was
regarding transportation and storing of black jaggery or molasses for
the purpose of manufacturing illicit distilled liquor or was an abettor of
such offence. The High Court quashed the FIR holding that there is no
material to show that seized articles are intended to be used for
manufacturing distilled liquor. The Supreme Court held that the
inherent power of the High Court should not be exercised to stifle a
legitimate prosecution and the High Court should refrain from giving a
prima facie decision in a case where the entire facts are incomplete
and hazy, more so, when evidence has not been collected and
produced before the Court and issues involved whether factual or legal
are of magnitude and cannot be seen either in true perspective without
sufficient material (para 8). It was further held that though the FIR is
not intended to be an encyclopedia of background scenario, yet even
skeletal features must disclose commission of offence. (para 12)
21. In CH. BHAJAN LAL's case (11 supra), the order of the High
Court quashing the FIR as being vitiated by political considerations and
the matter therein related to initiation of criminal proceedings by the
incoming Government in connection with the commissions and
omissions of outgoing Government. The view of the High Court was
disapproved by the Supreme Court. In DINESH CHANDUBHAI
PATEL's case (12 supra) the order of the High Court quashing the
investigation came up for consideration before the Supreme Court.
It was held that the order of the High Court did not advert to the
merits of the case within the guidelines laid down in CH. BHAJAN
LAL's case (11 supra). The ratio laid down in these two cases is not
applicable to the facts of the present case.
22. It is not in dispute that the petitioners/accused are not
signatories to the Escrow agreement. Neither the role of the
petitioners is explained nor their involvement is spelt out in the
complaint averments. Apart from the fact that there is no specific
allegation against the petitioners, there is no material on record to
show that the petitioners have any control over the management and
affairs of the A1 company. The main grievance of the complainant
company is regarding violation of the terms and conditions of the
Escrow agreement. The signatory of the Escrow agreement,
the managing director and other accused who are responsible for
violation of the Escrow agreement, false representations, diversion of
funds to another account etc. may be liable for prosecution. But
coming to the petitioners/accused herein, there are no such
allegations. Nothing is attributed against the petitioners as to the
manner in which they are responsible for the affairs of the company
and breach of terms and conditions of the Escrow agreement.
23. The High Court while exercising jurisdiction under Section 482
Cr.P.C. cannot enter into disputed questions of fact. But in the instant
case, the allegations are on the basis of documentary evidence to
which none of the petitioners are parties. Without knowing the actual
role of the petitioners and in what manner they have participated in
the affairs of the company, it would be unjust to rope in the petitioners
in the criminal proceedings. On the basis of the record, this Court finds
that there is no prima facie material to prosecute the petitioners
merely because they are the directions of the A1 company. It is not as
if every director of the company has to be presumed to be responsible
for the actions of the company. A director in a company has got a
limited role in the affairs of the company. However, a director may be
entrusted with some responsibility touching upon the management of
the company and he/she may be acting under different designations.
The complainant may not be having knowledge of such responsibilities
of the directors. But, on assumptions and presumptions, it would be
unjust to prosecute the directors whose role is not prima facie made
out in the management of the day-to-day affairs of the company.
24. The vicarious liability of the Chairman, Managing Director,
Directors and Officers in-charge of a company under criminal law
cannot be presumed unless the statute specifically provides for the
same. For instance, for the offence under Section 138 of the
Negotiable Instruments Act, the vicarious liability is provided for under
Section 141 of the Act. Such similar provision is not available for the
offences under the Indian Penal Code. In SHIV KUMAR JATIA v.
STATE OF NCT OF DELHI13, the Supreme Court dealing with the
concept of vicarious liability in criminal matters made the following
observations:
"19. The liability of the Directors /the controlling authorities of
company, in a corporate criminal liability is elaborately
considered by this Court in the case of Sunil Bharti Mittal
[(2015) 4 SCC 609]. In the aforesaid case, while considering
the circumstances when Director/person in charge of the affairs
of the company can also be prosecuted, when the company is
an accused person, this Court has held, a corporate entity is an
artificial person which acts through its officers, Directors,
Managing Director, Chairman, etc. If such a company commits
an offence involving mens rea, it would normally be the intent
and action of that individual who would act on behalf of the
company. At the same time it is observed that it is the cardinal
principle of criminal jurisprudence that there is no vicarious etc.
liability unless the Statute specifically provides for. It is further
held by this Court, an individual who has perpetrated the
commission of an offence on behalf of the company can be
made an accused, along with the company, if there is sufficient
evidence of his active role coupled with criminal intent. Further
it is also held that an individual can be implicated in those
cases where statutory regime itself attracts the doctrine of
vicarious liability, by specifically incorporating such a provision.
...
(2019) 17 SCC 193
21. By applying the ratio laid down by this Court in the case of
Sunil Bharti Mittal it is clear that an individual either as a
Director or a Managing Director or Chairman of the company
can be made an accused, along with the company, only if there
is sufficient material to prove his active role coupled with the
criminal intent. Further the criminal intent alleged must have
direct nexus with the accused. Further in the case of Maksud
Saiyed vs. State of Gujarat & Ors. [(2008) 5 SCC 668] this
Court has examined the vicarious liability of Directors for the
charges levelled against the Company. In the aforesaid
judgment this Court has held that, 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 a Company. It is held that vicarious
liability of the Managing Director and Director would arise
provided any provision exists in that behalf in the Statute. It is
further held that Statutes indisputably must provide fixing such
vicarious liability. It is also held that, 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.
22. In the judgment of this Court in the case of Sharad Kumar
Sanghi vs. Sangita Rane [(2015) 12 SCC 781] while examining
the allegations made against the Managing Director of a
Company, in which, company was not made a party, this Court
has held that when the allegations made against the Managing
Director are vague in nature, same can be the ground for
quashing the proceedings under Section 482 of Cr.P.C. In the
case on hand principally the allegations are made against the
first accused-company which runs Hotel Hyatt Regency. At the
same time, the Managing Director of such company who is
Accused 2 is a party by making vague allegations that he was
attending all the meetings of the company and various
decisions were being taken under his signatures. Applying the
ratio laid down in the aforesaid cases, it is clear that principally
the allegations are made only against the company and other
staff members who are incharge of day to day affairs of the
company. In absence of specific allegations against the
Managing Director of the company and having regard to nature
of allegations made which are vague in nature, we are of the
view that it is a fit case for quashing the proceedings, so far as
the Managing Director is concerned."
25. In the facts and circumstances of the case, this Court, having
perused all the documents, is of the view that there is no material on
record nor any case is made out to proceed against the petitioners.
In the event any evidence is let in by the complainant showing
complicity of the petitioners during trial, the complainant is always
entitled to proceed against the petitioners by filing an application
under Section 319 Cr.P.C as held by the Supreme Court in SUNIL
BHARTI MITTAL's case (2 supra).
In view of the above observations, the criminal petitions are
allowed and the proceedings in CC.No.140 of 2010 on the file of the IX
Metropolitan Magistrate, Miyapur, Ranga Reddy District, against the
petitioners/accused, are hereby quashed.
Pending miscellaneous petitions, if any, shall stand closed.
__________________
B. VIJAYSEN REDDY, J
June 24, 2021
DSK
