2013 (3) TMI 725 - SC - Companies Law

Supreme Court Upholds Decision Quashing Criminal Proceedings Due to Insufficient Allegations

GHCL Employees Stock Option Trust Versus India Infoline Limited, Nilesh Shivji Vikamsey, Venkataraman Rajamani, Nimish Ramesh Mehta, Arun Kumar Purwar, Nirmal Bhanwarlal Jain, Kranti Sinha

The Supreme Court upheld the High Court's decision to quash criminal proceedings against the Managing Director, Company Secretary, and Directors of the ... Validity of summon order passed by the Metropolitan Magistrate (M.M) u/s 415, 409, 34, 120B of the Indian Penal Code (IPC) against the Managing Director, the Company Secretary and the Directors of the Company and the company - The complainant alleged that the respondents have committed criminal breach of trust and cheating, inasmuch as they have sold off shares of the complainant and misappropriated the entire sale proceeds. Considering the facts of the case magistrate issued the summon. HELD THAT:- Considering the allegations made in the complaint, documents placed on the record and the evidence led by the witnesses, and after being satisfied that a prima facie case is made out, directed issuance of summons against the respondents to face trial under the aforementioned Sections of IPC. The learned Magistrate has been directed to proceed with the trial against respondent No. 1 u/s of IPC. The issuance of summons against respondents Nos. 2 to 7, namely, the Managing Director, the Company Secretary and the Directors of the Company cannot be sustained and the same are liable to be set aside. So far as respondent No. 1 Company is concerned, the issuance of summons as against the Company under Section 415 IPC also cannot be sustained. The order of the High Court, therefore, needs no interference by this Court. Issues Involved:1. Legality of the issuance of summons against the Managing Director, Company Secretary, and Directors of the Company.2. Examination of the specific allegations made in the complaint.3. Determination of whether the acts alleged constitute a criminal offense or a civil wrong.4. Evaluation of the High Court's decision to quash the criminal proceedings against certain respondents.Detailed Analysis:1. Legality of the Issuance of Summons:The High Court held that the issuance of summons against the Managing Director, Company Secretary, and Directors of the Company (respondent Nos. 2 to 7) was not sustainable. The court emphasized that criminal law cannot be set into motion as a matter of course and that the Magistrate must apply his mind to the facts of the case and the law applicable thereto. The Magistrate must record his satisfaction with regard to the existence of a prima facie case based on specific allegations supported by satisfactory evidence and other material on record.2. Examination of Specific Allegations:The Supreme Court examined the complaint to determine if specific allegations were made against respondent Nos. 2 to 7. It was found that the complaint contained general and vague allegations without specifying the exact role played by these respondents. The complaint lacked specific details about interactions with the complainant, dates of meetings, and individual actions of the respondents. The court noted that the complaint must contain specific averments and allegations against each and every Director of the Company.3. Criminal Offense vs. Civil Wrong:The court acknowledged that cases of breach of trust or cheating could be both civil wrongs and criminal offenses. However, under certain situations where the act alleged would predominantly be a civil wrong, such an act does not constitute a criminal offense. The court highlighted that the judicial process should not be an instrument of oppression or needless harassment and that the Magistrate must be circumspect and judicious in exercising discretion before issuing process.4. Evaluation of High Court's Decision:The Supreme Court agreed with the High Court's decision to quash the criminal proceedings against respondent Nos. 2 to 7. The High Court correctly noted that the issuance of summons against these respondents was illegal and amounted to an abuse of the process of law. The Supreme Court found no merit in the appeals and dismissed them, upholding the High Court's order.Conclusion:The Supreme Court dismissed the appeals, finding that the High Court correctly quashed the criminal proceedings against the Managing Director, Company Secretary, and Directors of the Company due to the lack of specific allegations and the potential misuse of the judicial process for personal vendetta. The court emphasized the importance of specific allegations and evidence to support the issuance of summons in criminal cases.