2023 (4) TMI 1446 - HC - Indian Laws

Petitioners released; Rs.5,000 crore released per earlier order to settle investor claims, must notify depositors and verify claims

HC allowed the petitions and directed release of the sum ordered by the SC (Rs. 5,000 crores) to settle investor claims, finding that essential ... Failure on the part of Multi State Cooperative Society to pay the dues of the FDs on their maturity - necessary ingredients of the offences are not made out and no allegations have been levelled against the petitioner - HELD THAT:- Once the fact stands established that the depositors' right has to be supervised by the aforesaid Committee constituted by the Hon'ble Supreme Court, the petitioners cannot be said to be in default for not releasing the dues. The claim of the individual investors/depositors is yet to be verified by the concerned Committee and that an additional amount of Rs. 9,000/- crores is still pending in the account (beyond Rs. 5,000/- crores ordered to be released), therefore, there is no valid foundation to support the aforesaid apprehension. It is, however, not the claim of the complainant(s) or the State that the amount payable to the depositors would exceed the abovesaid amount of Rs. 5,000/-. Hence, the continued incarceration of the petitioners is not likely to advance any interest of justice. He further submits that the petitioners shall take appropriate steps to ensure that the depositors should be made aware of the orders passed by the Hon'ble Supreme Court so that they can submit their claims before the authorised Committee alongwith the requisite documents and seek refund accordingly. He further contends that the dispute being a money dispute, the issue having been resolved and the amount being released, the FIR(s) ought to be quashed at this juncture and further that the petitioners may be put to such terms and conditions as this Court may feel necessary for safeguarding the interests/apprehensions of the complainants(s)/investors. Taking into consideration the submissions advanced by the learned counsel for the respective parties as also the order passed by the Hon'ble Supreme Court directing release of amount of Rs. 5,000/- crores to settle the dues of investors and the fact that the present dispute is a money dispute and it has been given to explain the petitioners that the amount of Rs. 5,000/- crores ordered to be released by the Hon'ble Supreme Court exceeds the claims of the depositors who had invested with the Multi State Cooperative Societies, the present petitions are allowed with the fulfilment of directions imposed. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether FIRs registered under Sections 406, 420, 120-B and 506 IPC arising from alleged non-payment of matured fixed deposits by Multi-State Cooperative Societies ought to be quashed where the dispute is essentially one of money/recovery and statutory/alternative remedial machinery under the Multi-State Cooperative Societies Act, 2002 and supervisory directions of a higher Court exist. 2. Whether the ingredients of the offences charged (criminal breach of trust, cheating, criminal conspiracy, and criminal intimidation) are made out against the named accused such that criminal prosecution should continue, particularly where no specific allegations are levelled against certain accused and the alleged inability to pay is said to be consequent to judicial orders and freezing of funds. 3. Whether quashing is appropriate as an interim measure when a higher forum has directed disbursement of funds (including constitution of a supervisory committee) and claimants can seek redress under that mechanism, and what protective conditions (if any) the Court should impose when quashing FIRs to safeguard other aggrieved depositors. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Quashability of FIRs in face of statutory/alternative remedy and supervisory higher court directions Legal framework: The Court considered the scope for invoking writ jurisdiction to quash criminal proceedings where the cause of dispute is essentially a money dispute or where alternative statutory remedy exists (Multi-State Cooperative Societies Act, 2002) and where higher-court directions and a statutory supervisory mechanism for disbursal of funds are in place. Precedent treatment: The judgment does not rely upon or distinguish any specific binding precedents within its text; rather the Court applies established principles permitting quashing where criminal process would amount to misuse of criminal law to settle civil/money disputes or where the remedy provided by statute and supervisory directions is adequate. Interpretation and reasoning: The Court noted that (a) the subject societies are governed by a specific statutory code; (b) judicial orders (including a higher Court direction to transfer a tranche of funds and constitution of a supervisory committee) provide a concrete and supervised mechanism to verify claims and disburse monies to genuine depositors; and (c) the funds earmarked for depositors (Rs. 24,979.67 crores in the account and Rs. 5,000 crores ordered released) exceed the claims of the depositors before the Court. Given these circumstances, continuation of criminal proceedings would amount to using criminal law to resolve a primarily civil/money grievance and would be unnecessary and oppressive at this stage. Ratio vs. Obiter: Ratio - Where an effective, supervised, alternative remedy exists for recovery (statutory machinery plus higher-court supervised disbursal), and the disbursal directed would adequately meet claimants' legitimate dues, quashing of criminal proceedings arising from non-payment of matured deposits is justified to prevent misuse of criminal law. Obiter - Observations regarding wider policy implications of freezing and corporate group consequences are ancillary. Conclusions: The Court held that, having regard to the statutory scheme and the higher-court directions establishing a supervised claims and disbursal mechanism which is capable of redressing depositors' grievances, the FIRs arising from non-payment of matured deposits are susceptible to quashing at this stage. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Sufficiency of allegations and applicability of criminal offences to alleged failure to pay due to judicial orders/frozen funds Legal framework: Elements of alleged offences under IPC - criminal breach of trust (s.406), cheating (s.420), criminal conspiracy (s.120-B), and criminal intimidation (s.506) - require proof of dishonest intention, misappropriation or inducement by deceit, concerted criminal design, and threatened conduct, respectively. Precedent treatment: The Court proceeded on established criminal law principles that mens rea and proximate causal act/omission must be discernible from the FIR and that mere failure to pay money, in the absence of dishonest intent or overt acts of deception distinct from a civil breach, does not necessarily sustain criminal prosecution. Interpretation and reasoning: The Court observed that (a) the FIRs and contemporaneous records did not specifically allege acts establishing dishonest intention on the part of the petitioners; (b) the non-payment was plausibly attributable to external judicial orders and freezing of assets affecting the ability of societies to pay; and (c) at least one earlier FIR of similar character had been cancelled on the ground that the dispute was civil in nature. The Court emphasized that vague or generalized allegations and the absence of direct imputations against certain accused undermine the case for sustaining criminal charges at the threshold. Ratio vs. Obiter: Ratio - Criminal liability cannot be sustained where the material on record (including the FIR) does not disclose the necessary ingredients of the charged offences and where non-payment is linked to judicial interdictions affecting capacity to pay. Obiter - Remarks on cooperation by the petitioners with the supervisory committee and on the public communication obligations imposed are incidental to the decision. Conclusions: The Court concluded that the FIRs, as framed and on the material before it, do not prima facie disclose the requisite criminal ingredients against the petitioners so as to justify continuation of criminal proceedings; therefore quashing is appropriate subject to conditions aimed at safeguarding depositors' rights. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Appropriateness and terms of quashing when higher-court supervised disbursal mechanism exists; safeguards for other depositors Legal framework: The power to quash criminal proceedings is to be exercised sparingly but can be used to prevent abuse of process where effective alternate remedy exists; Courts may impose terms and conditions when granting relief to protect third-party interests. Precedent treatment: The Court applied the principle of conditional quashing - quashing may be allowed coupled with directions to implement available remedial mechanisms and measures to inform aggrieved persons - rather than blanket immunity. Interpretation and reasoning: Given the higher Court's directions to transfer and disburse funds under supervision and the practical availability of a claims mechanism, the Court found it appropriate to quash the FIRs but to impose specific protective conditions: (i) publication of the higher-court order in widely circulated regional newspapers to apprise depositors; (ii) sending registered communications to depositors at addresses in society records; (iii) liberty to depositors to seek revival of proceedings if their grievances persist; and (iv) an obligation on petitioners to file affidavits proving compliance within a fixed period. These measures were intended to ensure effective notice and access to the supervisory claims process, and to preserve the rights of all aggrieved depositors. Ratio vs. Obiter: Ratio - Quashing may be conditioned upon concrete steps that secure notice to aggrieved persons and facilitate claims under the supervisory mechanism established by a higher Court; such conditional quashing strikes a balance between preventing misuse of criminal law and protecting third-party rights. Obiter - Specific choice of newspapers and timelines are pragmatic directions particular to the facts but illustrate the general principle of protective terms. Conclusions: The Court quashed the FIRs and consequential proceedings subject to directions that the societies publish and communicate the higher-court order to depositors, submit affidavits proving compliance within eight weeks, and that depositors retain liberty to revive litigation if their claims are not redressed by the prescribed mechanism.