Margadarsi Financiers And Anothers vs State Of Ap., Rep.Byits Authorised ...
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Telangana High Court

Margadarsi Financiers And Anothers vs State Of Ap., Rep.Byits Authorised ... on 4 August, 2025

Author: P.Sam Koshy

Bench: P.Sam Koshy

                      * SMT. JUSTICE T.RAJANI

                          %Dated: 31-12-2018
               + CRIMINAL PETITION No. 5971 OF 2011
Between :
# Margadarsi Financiers,
  a proprietor concern,
  rep. by its Proprietor Sri Ch. Ramoji Rao,
  S/o.late Ch. Venkata Subba Rao,
  50-10-195, Fateh Maidan Road, Hyderabad- 500 004 and another

                                      ---            Petitioners
                                   VERSUS
$ The State of Andhra Pradesh,
  Rep. by the Authorised Officer
  (under Section 58-E of the RBI Act, 1934),
  T. KrishnaRaju, IPS, Andhra Pradesh, Hyderabad
  Through the Public Prosecutor,
   High Court of Andhra Pradesh, Hyderabad.
                                   ---        Respondent
               + CRIMINAL PETITION No.6280 OF 2011

# Margadarsi Financiers,
  a proprietor concern,
  rep. by Proprietor Sri Ch. Ramoji Rao,
  S/o.late Ch. Venkata Subba Rao, Age: 71 years
  R/o.50-10-195, Fateh Maidan Road, Hyderabad and another

                                        ---          Petitioners
                                   VERSUS
$ The State of Andhra Pradesh,
  Rep. by the Authorised Officer
  Sri T. Krishna Raju, Inspector General of Police (CID)
  Secretariat, Hyderabad, represented by
  The Public Prosecutor, High Court of Andhra Pradesh,
  Hyderabad.
                                         ---           Respondent

! Counsel for the petitioners    : Mr. B. Nalin Kumar

^ Counsel for the respondent     : Public Prosecutor (TG)

< GIST :

> HEAD NOTE :

? Cases referred :

1.    1973 (3) SCC 25
2.    2012 (5) CTC 203
3.    2005 (2) BC 497
4.    2009 (2) Mh.L.J.558
5.    2008 (5) SCC 449
6.    2018 (3) ALT (Crl.) 156 (T.S. & A.P.)
7.    2012 (10) SCC 303
                                                                                   TR,J
                                          2             Crl.P. Nos.5971 & 6280 of 2011


                            SMT JUSTICE T. RAJANI

               CRIMINAL PETITION Nos.5971 & 6280 OF 2011

ORDER:

1. These two Criminal Petitions, under Section 482 of Cr.P.C., are filed by

the self same Petitioners/Accused, separately, seeking to quash the order, dated

01.07.2011, passed in Crl.M.P. No.885 of 2010 (hereinafter referred to as 'the

IA') in C.C. No.540 of 2008, and also to quash the proceedings in C.C. No.540 of

2008, on the file of the Court of I Additional Chief Metropolitan Magistrate,

Hyderabad (for short, 'the trial Court'), by virtue of which, the trial Court

dismissed the Petition i.e., Crl.M.P. No.885 of 2010, filed under Sections 218 and

219 of Cr.P.C. seeking to restrict their examination under Section 251 of Cr.P.C.

to any three offences either under Section 45S(1)(i) and/or 45S(ii) punishable

under Section 58E of the Reserve Bank of India Act, 1934 (For short, 'the RBI

Act').

2. Heard Sri Siddharth Luthra, learned senior counsel, appearing on behalf

of Sri B.Nalin Kumar, learned counsel for the petitioners, and learned Public

Prosecutor, appearing for the respondent - State.

3. The complaint, which is taken on file as C.C No.540 of 2008, is filed

against M/s.Margadarsi Financiers, showing it as a proprietary concern, and one

Sri Ch.Ramoji Rao, seeking for their prosecution under Sections 45S(1)(i) and (ii)

and Section 45S(2) of the RBI Act, punishable under Section 58(B)(5A) R/w.

Section 58(E) of the RBI Act.

4. The IA shall be taken up first. The grounds on which the order in the IA is

challenged are: the Court below (hereinafter referred to as 'the Court') failed to

appreciate that acceptance of individual deposits in violation of Section 45S(1) is

made an offence and default in repayment of deposits is made a separate

offence under section 45S(1) and 45S(2) as such they cannot be tried at one

trial. It erred in relying on Section 220 of Cr.P.C. It failed to appreciate the object TR,J

of Sections 218 and 219 Cr.P.C. The IA was filed, without prejudice to their right

to challenge the maintainability of the said Petition, and the ultimate prayer made

in the Petition was to restrict the complaint for trial of any three offences i.e.,

either under Section 45S(1)(i) and (ii) and 45S(2) of the R.B.I. Act. The grounds

on which the said relief is based are that : Under Section 45S(1)(i) of the RBI Act,

receipt of any deposit may constitute a separate offence, if the conditions

stipulated therein are satisfied by the allegations in the complaint and in the

present complaint the allegations are omnibus and bald allegations made without

reference to any particular time or details of deposit or depositors; under Section

45S(1), the deposits are not to be accepted subject to the conditions stipulated

therein; whereas under Section 45S(2), the persons who are holding deposits in

violation of Section 45S(1) by 01.04.1997 were put under a legal obligation to

repay such outstanding deposits as on 01.04.1997; under Section 218 of Cr.P.C.,

for every distinct offence there shall be a separate charge and every such charge

shall be tried separately. However, under Section 219 of Cr.P.C., when a person

is accused of more offences than one of the same kind committed within the

span of 12 months from the first to the last of such offences, whether in respect

of the same person or not, he may be charged with and tried at one trial for any

number of them, not exceeding three.

5. Learned counsel appearing on behalf of the petitioners mainly based his

arguments on the purport of Section 218 of Cr.P.C.; according to which, a

separate charge shall be framed for every distinct offence, and Section 219 of

Cr.P.C. provides for three offences of same kind within a year may be charged

together. But, Section 220 of Cr.P.C. provides for trial for more than one offence,

which reads as follows:

"220. Trial for more than one offence -

(i) If, in one series of acts so connected together as to form the same transaction, more offences than one are committed by the same person, he may be charged with, and tried at one trial for every such offence."

TR,J

6. The complaint is lodged against the petitioners not for any one such

offence but for their acts of collecting deposits from the depositors with a promise

to repay them within a certain period. This particular act was continued by the

petitioners from April, 1997 onwards and ran till the year 2006. It is not any one

particular act of collection of deposits that is brought to prosecution. It is the

business transaction of the petitioners during which they continued the activity of

collection of deposits from the public that is brought to prosecution. It is one

transaction involving several acts of collection of deposits. Hence, it cannot be

said that distinct offences are alleged against the petitioners. It is only one

offence that is alleged i.e. the transaction of collection of deposits.

7. Hence, this Court opines that this is a case which falls under Section 220

of Cr.P.C. and, hence, the order, dated 01.07.2011, passed in Crl.M.P. No.885 of

2010 in C.C. No.540 of 2008 is upheld. Accordingly, the Criminal Petition

No.5971 of 2011 is dismissed.

8. Coming to the Criminal Petition No.6280 of 2011, which is filed to quash

the proceedings in C.C. No.540 of 2008, the counsel raises grounds, few of

which are based on technical hurdles for prosecuting the petitioners. Foremost

argument of the learned counsel appearing on behalf of the petitioners is that the

RBI Act does not apply to Hindu Undivided Family (for short, 'the H.U.F'). His

submission is that the complaint is lodged against the petitioners terming it to be

a H.U.F and hence the complaint cannot be maintained against it for the offences

under RBI Act. A perusal of the complaint shows that though in the cause title the

1st petitioner is shown as a proprietary concern, represented by its Proprietor Sri

Ch.Ramoji Rao, who is the 2nd petitioner herein, the contents of the complaint

would show that the 1st petitioner is stated to be a Hindu Undivided Family.

Paragraph No.26 of the complaint reads as follows:

"26. It is submitted that a Hindu Undivided Family (HUF) is an un-incorporated association of individuals. It is not a juristic person. Either as HUF or as individual, the accused are prohibited from acceptance of deposits under Sec.45-S (1) of the Act. The TR,J

prohibition contained in Sec.45-S(1) is absolute and under Section 58-B(5A), for contravention of the provisions of Sec.45-S, is punishable with imprisonment for a term which may extend to two years or with fine which may extend to twice the amount of deposit received. The prohibition contained and the penalty stipulated there-for, under the Act are absolute and clear. The accused had accepted the deposits in violation of Sec. 45-S(1), in spite of the fact that the Reserve Bank of India had advised them not to accept any deposits, even in 1997. The said communication of the Reserve Bank of India is filed as Annexure-463. The violation committed by the accused is open and deliberate. The accused are liable for the maximum punishment for the said violation, under Sec. 58-B(5A) of the Act."

9. But, however, the complaint seems to be not certain about the category to

which the petitioners belong. It seems to be in a doubt, whether the 1st petitioner

is a Hindu Undivided Family or an individual. The complaint has to be based on

certainty of facts; when there is a doubt as regards the status of the 1st petitioner,

the complaint cannot be sustained. However, as regards the maintainability of the

complaint, under Section 45S(1)(i), (ii) and 45S(2) of the RBI Act, learned counsel

would submit that the R.B.I. Act is not applicable to a Hindu Undivided Family. It

would be beneficial, at this stage, to extract Section 45S of the R.B.I. Act, which

reads as follows:

"45S. Deposits not to be accepted in certain cases--

(1) No person, being an individual or a firm or an unincorporated association of individuals shall, accept any deposit--

(i) if his or its business wholly or partly includes any of the activities specified in clause (c) of section 45-I; or

(ii) if his or its principal business is that of receiving of deposits under any scheme or arrangement or in any other manner or lending in any manner: Provided that nothing contained in this sub-section shall apply to the receipt of money by an individual by way of loan from any of his relatives or to the receipt of money by a firm by way of loan from the relative or relatives of any of the partners.

TR,J

(2) Where any person referred to in sub-section (1) holds any deposit on the 1st day of April, 1997 which is not in accordance with sub-section (1), such deposit shall be repaid by that person immediately after such deposit becomes due for repayment or within three years from the date of such commencement, whichever is earlier: Provided that if the Bank is satisfied on an application made by any person to the Bank that such person is unable to repay a part of the deposits for reasons beyond his control or such repayment shall cause extreme hardship to him, it may, by an order in writing, extend such period by a period not exceeding one year subject to such conditions as may be specified in the order.

(3) on and from the date of 1st day of April, 1997, no person referred to in sub-section (1) shall issue or cause to be issued any advertisement in any form for soliciting deposit."

10. It is by an understanding of the phrase 'unincorporated association' used

in Section 45S of RBI Act, as including a H.U.F. that this prosecution is initiated

against the petitioners.

11. Learned senior counsel would submit that Section 45S(1) of the RBI Act

has no application to a Hindu Undivided Family. He draws the attention of this

Court to the intention of the legislature which is reflected by specifically including

the Hindu Undivided Family and the definitions under various Acts, where it

intended to include Hindu Undivided Family. For instance, Section 2(31) of the

Income-tax Act, 1961 and other provisions such as Section 2(10) of the Andhra

Pradesh Value Added Tax Act, 2005 were pointed out. He also draws the

attention of this Court to the Presidential Ordinance 2 of 1997 where the language

used was "S.45S.... no person, other than body corporate, shall accept

deposit:...." and the same was replaced by the Reserve Bank of India

(Amendment) Act, 1997 and the language was changed to read as "S.45S... no

person, being an individual or a firm or an unauthorized association of individuals

shall accept deposit:...".

TR,J

12. It is very clear from the change of the language, from the Presidential

Ordinance to the provision proper, that the broadness of the categories of

persons that were brought under Section 45S in the Presidential Ordinance was

narrowed down, by mentioning the specific categories of persons. As regards the

question of Hindu Undivided Family being brought under unauthorized

association of individuals, the counsel relies on the ruling of the Apex Court in

The Income Tax Officer Vs. Shri Ram Prasad and others1; wherein, at Para 8,

the Apex Court held that they are unable to uphold the contention that so long as

the business continues, the change of the person who carries on the business is

immaterial. It observed that Section 44 of the Indian Income-tax Act, 1922 was

taken assistance by learned counsel for the appellant therein, which reads as

under:

"Where any business, profession or vocation carried on by a firm or association of persons has been discontinued, or where an association of persons is dissolved, every person who was at the time of such discontinuance or dissolution a partner of such firm or a member of such association shall, in respect of the income profits and gains of the firm or association, be jointly and severally liable to assessment under Chapter IV and for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment."

13. By reading the above provision, the Apex Court held that the said

provision applies only to firms and association of persons. It held that Hindu

Undivided Family is neither a firm nor an association of persons and it is a

separate entity by itself. It also observed therein that, that is made clear by the

Indian Income-tax Act, 1922, which classifies the assessee under the heads

"individuals", "Hindu undivided families", "Companies", "local authorities", "firms"

and "other associations of persons". It further held that if Hindu Undivided Family

is to be considered as an association of persons, there was no point in making

separate provision for the assessment of Hindu Undivided Family.

1973 (3) SCC 25 TR,J

14. By virtue of the said observations, it can be understood that whenever the

intention of the legislature was to include the Hindu Undivided Family under any

enactment, it did so by using explicit language.

15. The other ruling relied upon by learned counsel for petitioners is in

Abraham Memorial Education Trust Vs. C.Suresh Babu2; wherein, the Madras

High Court took up for discussion the case decided by this Court in Jagadish Rai

Agarwal and others Vs. State of Andhra Pradesh and others3; wherein, while

considering the scope of Section 141(2) of the Negotiable Instruments Act, 1881,

this Court held as follows:

"..............Since the dishonoured cheque was issued by the 1st petitioner as kartha of the HUF, petitioners 2 to 4, being the sons of 1st petitioner and member of HUF, in view of the Explanation of Section 141 of the Act, like Directors of a Company, can be made liable for the offence under Section 138 of the Act."

16. The ruling of the Bombay High Court in Dadasaheb Rawal Co-op Vs.

Ramesh4, also dealt with similar question; that was also a case where the High

Court was called upon to resolve the controversy as to whether a Hindu

Undivided Family business will be a Company as explained in Section 141 of the

Negotiable Instruments Act. In Paragraph No.9 of the judgment, the Bombay

High Court held as follows:

"9. A plain reading of the expression "company" as used in sub-clause (a) of the Explanation is that it is inclusive of any body corporate or "other association of individuals". The term "association of individuals" will include club, trust, HUF business, etc. It shall have to be construed ejusdem generic along with other expressions "company" or "firm". Therefore, a joint family business must be deemed as a juristic person like a company or firm. When it is specifically alleged that the respondent Nos.1 and 2 are the joint proprietors/owners of the business of M/s.New Sheetal Traders, which is a joint family business of themselves and their

2012 (5) CTC 203

2005 (2) BC 497

2009 (2) Mh.L.J. 558 TR,J

son - Sheetal, prima facie, they are covered under Section 141 of the Negotiable Instruments Act in view of the Explanation appended thereto."

17. The Madras High Court, after a scientifical analysis of the provisions of

the Negotiable Instruments Act, and having considered the context in which

Section 141 was incorporated, expressed its inability to agree with the views

expressed by this Court and Bombay High Court and held that a HUF is not an

"Association of Individuals". It based its conclusion on the judgment of the Apex

Court in Ramanlal Bhailal Patel Vs. State of Gujarat5; wherein, at Para No.29

of the judgment, the Apex Court held as follows:

"29. Normally, where a group of persons have not become co- owners by their volition with a common purpose, they cannot be considered as a 'person'. When the children of the owner of a property succeed to his property by testamentary succession or inherit by operation of law, they become co-owners, but the co- ownership is not by volition of parties nor do they have any common purpose. Each can act in regard to his/her share, on his/her own, without any right or obligation towards the other owners. The legal heirs though co-owners, do not automatically become an 'association of persons/ body of individuals'. When different persons buy undivided shares in a plot of land and engage a common developer to construct an apartment building, with individual ownership in regard to respective apartment and joint ownership of common areas, the co-owners of the plot of land, do not become an 'association of persons/body of individuals', in the absence of a deeming provision in a statute or an agreement. Similarly, when two or more persons merely purchase a property, under a common sale deed, without any agreement to have a common or joint venture, they will not become an 'association of persons/body of individuals'. Mere purchase under a common deed without anything more, will not convert a co-ownership into a joint enterprise. Thus when there are ten co-owners of a property, they are ten persons and not a 'body of individuals' to be treated as a 'single person'. But if the co- owners proceed further and enter into an arrangement or agreement to have a joint enterprise or venture to produce a

2008 (5) SCC 449 TR,J

common result for their benefit, then the co-owners may answer the definition of a 'person'."

18. Further, at Para No.35, the Madras High Court in Abraham Memorial2,

held as follows:

"35. In the above judgment, the Hon'ble Supreme Court has made it very clear that a mere combination of individuals will not constitute an "Association of Individuals". To make it as an "Association of Individuals", in terms of Section 141 of the Act, it is absolutely necessary that the combination of individuals must be on their own volition. Secondly, it is also necessary that such combination of individuals must be with a common purpose. In an HUF, both the above essential requirements are absent inasmuch as an individual becomes a member of the HUF, not on his own volition but by birth. Similarly, there is no common purpose to be carried forward by a HUF. It is for these reasons, I had to hold that a HUF is not a Company in terms of Section 141 of the Negotiable Instruments Act."

19. The other judgment relied upon on this aspect is the decision of this Court

in Dr.G.Ramakrishna Reddy Vs. State of A.P. and another6; wherein this Court

relying upon the ruling of the Apex Court in Ramanlal Bhailal5 held that mere

combination of individuals will not constitute an "association of individuals" within

the fold of Section 141 of the N.I. Act.

20. Hence, from the above law laid down by the Apex Court and various High

Courts, it can be concluded that HUF cannot be termed as an association of

individuals and it cannot be brought within the purview of Section 45S(2) of the

R.B.I. Act. As regards the allegations against the individual, who is the 2nd

petitioner herein, there are no averments in the complaint to say that he

personally collected any deposits from the public.

21. The next contention, though is a weak contention, on which the learned

counsel based his argument, is that as per Section 105 of the A.P.

2018 (3) ALT (Crl.) 156 (T.S. & A.P.) TR,J

Reorganization Act, 2014 every proceeding pending immediately before the

appointed day before a court (other than High Court) tribunal, authority or officer

in any area which on that day falls within the State of Andhra Pradesh shall, if it is

a proceeding relating exclusively to the territory, which as from that day are the

territories of the State of Telangana, stand transferred to the corresponding court,

tribunal, authority or officer of that State. Learned counsel submits that since

there is no specificity in the complaint, as to whether the alleged offences fall

within the State of Andhra Pradesh or State of Telangana, the complaint has to

fail on that count.

22. But, a proper reading of Section 105 of the A.P. Reorganization Act

shows that if the proceeding pending immediately before the appointed day in the

Court of Andhra Pradesh, shall if it a proceeding relating exclusively to the

territory, which as from that day are the territories of the state of Telangana,

stand transferred to the corresponding court of that state. The averments in the

complaint can be understood to mean that the business of the petitioners herein

was carried on by collecting deposits from both the States, hence, the said

contention does not stand to merit.

23. The other submission of the learned counsel is that the petitioners have

paid the deposits to the depositors and only the unclaimed amount is lying in

escrow account.

24. The said fact is not disputed by the learned Public Prosecutor.

25. The certificate issued by the Chartered Accountants shows that the

outstanding deposit liability as on 31.03.2007 is Rs.2,541.59 crores. Repayment

processed during 01.04.2007 to 31.08.2018 is Rs.2,596.98 crores. The

outstanding deposit liability as on 31.08.2018 is Rs.5.33 crores, and the balance

available in escrow account is Rs.5.43 crores. It is further observed in the

certificate that balance lying in the escrow account is in excess of the outstanding

liability as on 31.08.2018.

TR,J

26. In order to draw support for the contention that the complaint can be

quashed when once settlement is entered into between the parties, learned

counsel relies on the judgment of the Apex Court in Gian Singh Vs. State of

Punjab and another7; wherein, the Apex Court explained the relevant scope of

inherent power of High Court under Section 482 of Cr.P.C. to quash the criminal

proceedings involving non-compoundable offences in view of the compromise

arrived at between the parties. Para No.61 of the judgment therein reads as

follows:

"61. ........... The power of the High Court in quashing a criminal proceeding or FIR or complaint in exercise of its inherent jurisdiction is distinct and different from the power given to a criminal court for compounding the offences under Section 320 of the Code. Inherent power is of wide plenitude with no statutory limitation but it has to be exercised in accord with the guideline engrafted in such power viz; (i) to secure the ends of justice or (ii) to prevent abuse of the process of any Court. In what cases power to quash the criminal proceeding or complaint or F.I.R may be exercised where the offender and victim have settled their dispute would depend on the facts and circumstances of each case and no category can be prescribed. However, before exercise of such power, the High Court must have due regard to the nature and gravity of the crime. Heinous and serious offences of mental depravity or offences like murder, rape, dacoity, etc. cannot be fittingly quashed even though the victim or victim's family and the offender have settled the dispute. Such offences are not private in nature and have serious impact on society. Similarly, any compromise between the victim and offender in relation to the offences under special statutes like Prevention of Corruption Act or the offences committed by public servants while working in that capacity etc; cannot provide for any basis for quashing criminal proceedings involving such offences. But the criminal cases having overwhelmingly and pre-dominatingly civil flavour stand on different footing for the purposes of quashing, particularly the offences arising from commercial, financial, mercantile, civil, partnership or such like transactions or the offences arising out of matrimony relating to dowry, etc. or the family disputes where the

2012 (10) SCC 303 TR,J

wrong is basically private or personal in nature and the parties have resolved their entire dispute. In this category of cases, High Court may quash criminal proceedings if in its view, because of the compromise between the offender and victim, the possibility of conviction is remote and bleak and continuation of criminal case would put accused to great oppression and prejudice and extreme injustice would be caused to him by not quashing the criminal case despite full and complete settlement and compromise with the victim. In other words, the High Court must consider whether it would be unfair or contrary to the interest of justice to continue with the criminal proceeding or continuation of the criminal proceeding would tantamount to abuse of process of law despite settlement and compromise between the victim and wrongdoer and whether to secure the ends of justice, it is appropriate that criminal case is put to an end and if the answer to the above question(s) is in affirmative, the High Court shall be well within its jurisdiction to quash the criminal proceeding."

27. From the fact that no depositors have come forward with any complaint

against the petitioners and that, in pursuance of the allegations made in the

complaint, the petitioners have taken up the exercise of paying back the deposits,

it can be understood that there was no malafide intention on the part of the

petitioners to commit any offences with regard to the deposits collected from the

depositors.

28. Hence, this Court opines, that this is a case where the inherent power

under Section 482 of Cr.P.C. can be exercised for quashing the proceedings

against the petitioners/accused.

29. Accordingly, with the above observation, the Criminal Petition No.6280 of

2011 is allowed and all further proceedings against the petitioners/accused in

C.C. No.540 of 2008, on the file of the Court of I Additional Chief Metropolitan

Magistrate, Hyderabad, are hereby quashed.

TR,J

30. As a sequel, miscellaneous petitions, if any, pending in these Criminal

Petitions shall stand closed.

______________________ T. RAJANI, J Date: 31.12.2018.

Dsh TR,J

SMT JUSTICE T.RAJANI

CRIMINAL PETITION Nos.5971 & 6280 OF 2011

Date. 31.12.2018

DSH