Retrospective criminal jurisdiction and sanctioned scheme challenges under company law were rejected for lack of jurisdiction and fraud ingredients.

The Special Court under the Companies Act, 2013 was treated as lacking retrospective jurisdiction to take cognizance of offences alleged under the Companies Act, 1956, because offences under the repealed law had to follow the forum and mode of cognizance prescribed by that law. The order issuing process was also found defective for want of application of mind and non-compliance with the mandatory requirements of Sections 202 and 204 of the Code of Criminal Procedure. A sanctioned scheme of arrangement under Sections 391 to 394 of the Companies Act, 1956 could not be reopened through criminal prosecution merely on allegations of fraud, and the complaint failed to disclose the ingredients of an offence under Section 68.

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Issues: (i) Whether the Special Court constituted under the Companies Act, 2013 could take cognizance of offences alleged under the Companies Act, 1956; (ii) Whether the order issuing process complied with Sections 202 and 204 of the Code of Criminal Procedure, 1973; (iii) Whether a scheme of arrangement sanctioned under Sections 391 to 394 of the Companies Act, 1956 could be reopened through criminal prosecution on allegations of fraud; (iv) Whether the allegations disclosed an offence under Section 68 of the Companies Act, 1956.

Issue (i): Whether the Special Court constituted under the Companies Act, 2013 could take cognizance of offences alleged under the Companies Act, 1956.

Analysis: The complaint related to alleged offences committed during the regime of the Companies Act, 1956. The statutory scheme distinguished the forum for offences under the repealed law and the forum created under the Companies Act, 2013. The Special Court under Section 435 of the Companies Act, 2013 was held to be empowered to try offences under the 2013 Act, while offences under the earlier enactment remained triable according to the forum prescribed by the repealed law. The change of forum was not treated as a mere procedural transfer so as to retrospectively confer jurisdiction over offences under the earlier Act.

Conclusion: The Special Court lacked jurisdiction to take cognizance of the offences alleged under the Companies Act, 1956.

Issue (ii): Whether the order issuing process complied with Sections 202 and 204 of the Code of Criminal Procedure, 1973.

Analysis: The requirement to apply judicial mind and form an opinion that there were sufficient grounds to proceed was treated as mandatory. Although a complaint by a duly authorized public servant could dispense with an inquiry under Section 202 in the facts of a given case, the order still had to disclose application of mind before issuance of process under Section 204. On the record, the Special Court failed to form the requisite opinion and also issued an arrest warrant at the outset without first issuing summons.

Conclusion: The issuance of process was vitiated for non-compliance with the governing criminal procedure requirements.

Issue (iii): Whether a scheme of arrangement sanctioned under Sections 391 to 394 of the Companies Act, 1956 could be reopened through criminal prosecution on allegations of fraud.

Analysis: A scheme sanctioned under the company law framework was treated as binding and not open to collateral reopening through criminal proceedings merely on the basis of disputed commercial choices or valuation methodology. The proper remedy for an alleged fraud in obtaining sanction was to approach the court that sanctioned the scheme or the appropriate forum for challenging that order. In the absence of material showing suppression of material facts or a direct complaint by the affected shareholders or creditors, launching criminal prosecution on the same subject was considered impermissible.

Conclusion: The sanctioned scheme could not be reopened through the present criminal complaint.

Issue (iv): Whether the allegations disclosed an offence under Section 68 of the Companies Act, 1956.

Analysis: The allegations were held insufficient to sustain the statutory ingredients of fraudulent inducement. The complaint did not place material showing that the petitioners knowingly or recklessly made false statements, promises, forecasts, or concealments amounting to inducement within the meaning of the provision. The court also held that the prosecution, as framed, amounted to an abuse of process and could not be sustained on the pleaded facts.

Conclusion: The allegations did not disclose a sustainable offence under Section 68 of the Companies Act, 1956.

Final Conclusion: The complaint and all consequential proceedings were held unsustainable in law and were quashed.

Ratio Decidendi: A Special Court under the Companies Act, 2013 cannot retrospectively assume cognizance over offences exclusively governed by the Companies Act, 1956 where the earlier statute prescribed a different forum and mode of cognizance, and criminal prosecution cannot be used as a collateral mechanism to reopen a sanctioned scheme of arrangement absent material showing suppression or statutory ingredients of fraud.

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