2007 (9) TMI 400 - SC - Companies Law

Supreme Court Upholds High Court Decision on Quashing Complaint

Maksud Saiyed Versus State of Gujarat

The Supreme Court upheld the High Court's decision to quash the complaint and investigation, emphasizing the jurisdiction of the High Court to intervene ... 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.? Whether such a suit was maintainable and/or is ultimately to be decreed or disposed of is a question which had to be gone into in the suit itself? Held that:- Appeal dismissed. As held bu HC there was no suppression or concealment of any facts and it did not amount to criminal breach of trust and cheating on the part of the bank as alleged by the complainant. The said export bills under L/C were negotiated by the bank under the provisions of UCPDC 500 1995 Revision. The bank has also informed vide its letter dated February 8, 2005, to M/s. SBI Capital Markets Ltd. It was stated therein that the bank has not concealed or suppressed any material fact against the interest of the public at large and investors in particular. The bona fide mis-description in setting out the nature of claim was unintentional. It was further stated that the material particulars like the amount of claim, date of filing and name of the company was correctly mentioned. The mis-description did not materially influence/affect the decision of the investors/public Issues Involved:1. Jurisdiction of the High Court to quash a police investigation.2. Allegations of false and misleading information in the bank's prospectus.3. Defamation and criminal liability of bank officials.4. Application of vicarious liability to bank officials.5. Examination of the magistrate's application of mind in ordering an investigation.Issue-wise Detailed Analysis:1. Jurisdiction of the High Court to Quash a Police Investigation:The appellant argued that the High Court erred in quashing the police investigation at an early stage, asserting that the High Court should not have intervened in the determination of disputed facts. The judgment emphasized that the High Court has the well-known jurisdiction to quash an FIR under section 482 of the Code of Criminal Procedure. The court highlighted that while the High Court should not delve into disputed questions of fact, it can consider the allegations made in the complaint and the conduct of the parties involved.2. Allegations of False and Misleading Information in the Bank's Prospectus:The complaint alleged that the bank's prospectus contained false and misleading information regarding the sanction limits, dues, and export bills of the appellant's company. The court noted that the prospectus did contain an error, stating that a matter was pending before the Debts Recovery Tribunal (DRT) instead of the City Civil Court, Ahmedabad. However, the court found that other relevant facts in the prospectus were not incorrect and that the error was inadvertent, not intentional.3. Defamation and Criminal Liability of Bank Officials:The appellant claimed that the false information in the prospectus caused defamation and damage to the company's reputation. The court observed that the Chief Judicial Magistrate's order for police investigation was based on the allegations of false information in the prospectus. However, the court concluded that the inadvertent mistake in the prospectus did not give rise to a cause of action for defamation under section 500 of the Indian Penal Code, as the other particulars were accurate and the error was not intentional.4. Application of Vicarious Liability to Bank Officials:The judgment discussed the principle of vicarious liability, stating that the Indian Penal Code does not contain provisions for attaching vicarious liability to the managing director or directors of a company when the accused is the company itself. The court emphasized that for vicarious liability to apply, the statute must contain specific provisions, and the complainant must make requisite allegations to attract such liability. In this case, the complaint did not make any specific allegations against the individual respondents regarding their personal involvement or responsibility.5. Examination of the Magistrate's Application of Mind in Ordering an Investigation:The court scrutinized the Chief Judicial Magistrate's order directing the police to investigate the complaint. It found that the magistrate had not applied his mind properly, as he incorrectly identified the respondents as managers and branch managers of Dena Bank, whereas they were actually higher-ranking officials. The court cited precedents emphasizing that a magistrate must carefully scrutinize the evidence and apply his mind before summoning the accused or ordering an investigation. The court concluded that the magistrate failed to do so in this case.Conclusion:The Supreme Court upheld the High Court's decision to quash the complaint and the investigation, finding no merit in the appellant's arguments. The court reiterated the importance of judicial scrutiny and the proper application of legal principles in criminal proceedings. The appeal was dismissed with costs, and the counsel's fee was assessed at Rs. 25,000.