2025 (12) TMI 460 - HC - Companies Law

Section 482 CrPC plea rejected, cognizance upheld as sufficient grounds found to proceed against accused.

MR. NAMIT ARORA & ANR. Versus SERIOUS FRAUD INVESTIGATION OFFICE

The HC, exercising jurisdiction under Section 482 CrPC, declined to interfere with the Special Court's order taking cognizance. Relying on the settled ... Jurisdiction - power of this Court to interfere with the order taking cognizance by the learned Special Court - whether in the exercise of power under Section 482 of the CrPC, can this Court interfere with the order taking cognizance by the learned Special Court? - HELD THAT:- A similar issue, the Hon’ble Supreme Court in Nupur Talwar v. Central Bureau of Investigation, Delhi and Anr., [2012 (1) TMI 270 - SUPREME COURT] had observed and held 'The correctness of the order whereby cognizance of the offence has been taken by the Magistrate, unless it is perverse or based on no material, should be sparingly interfered with. In the instant case, anyone reading the order of the Magistrate taking cognizance, will come to the conclusion that there has been due application of mind by the Magistrate and it is a well-reasoned order. The order of the High Court passed on a criminal revision under Sections 397 and 401 of the Code (not under Section 482) at the instance of Dr. Mrs Nupur Talwar would also show that there has been a proper application of mind and a detailed speaking order has been passed.' It is also equally well settled law that cognizance is always taken of the offence and not the offender(s). The learned Magistrate/Court while taking cognizance has to apply his mind to the complaint/police report alongwith material placed before it, and if satisfied, he can proceed further by taking cognizance and summoning the accused persons. The concerned learned Magistrate/Court, at this stage, is not required to examine in detail whether the offence has been committed by the alleged accused person or not, as the same would be considered by the concerned Court at the stage of consideration on the point of charge. The concerned Court while taking cognizance is taking judicial notice of the complaint/police report filed before it to initiate proceedings. The perusal of the impugned order taking cognizance shows that the learned Special Court had examined the facts and allegations made in the complaint qua the offences alleged as well as accused persons arrayed in the said complaint. In view of the settled legal position, at this stage, the concerned Court is mainly concerned with material to satisfy itself whether there are sufficient grounds to proceed and summon the alleged accused person(s). The said order cannot be faulted with, and therefore, no interference from this Court, in the present jurisdiction, is called for. The said order clearly reflects that there has been due application of mind by the learned Special Court. Thus, no grounds for interference are made out at this stage. In the considered opinion of this Court, the impugned order does not suffer from any infirmity, illegality, or perversity - the petition is dismissed and disposed of. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the High Court, in exercise of jurisdiction under Section 482 CrPC, could interfere with an order of the Special Court taking cognizance and summoning the petitioners for offences under the Companies Act. 1.2 Whether exoneration of the petitioners by other investigating agencies (EOW, ED, CBI) and the stand of the principal complainant in earlier proceedings barred or rendered improper the cognizance taken on the SFIO complaint. 1.3 Whether the petitioners, as nominee non-executive directors, could be summoned for offences under the Companies Act on the basis of the material placed by SFIO, having regard to Section 149(12) of the Companies Act, 2013 and allied provisions. 1.4 Whether the impugned summoning order suffered from non-application of mind, including (i) summoning under sections not expressly alleged in the SFIO complaint, and (ii) failure to array the company as an accused. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Scope of interference under Section 482 CrPC with an order taking cognizance and issuing summons Legal framework (as discussed) 2.1 The Court referred to Section 190 and Section 204 CrPC and to precedents on 'taking cognizance', including Nupur Talwar v. CBI, Chief Enforcement Officer v. Videocon International Ltd., Bhushan Kumar v. State (NCT of Delhi), and Kallu Nat @ Mayank Kumar Nagar v. State of U.P. 2.2 It noted that, by virtue of Section 212(15) of the Companies Act, 2013, an SFIO investigation report filed before the Special Court is deemed to be a police report under Section 173 CrPC, enabling the Special Court to scrutinize it for taking cognizance, as explained in Abhinandan Jha v. Dinesh Mishra. Interpretation and reasoning 2.3 The Court reiterated that 'cognizance' signifies the stage when a court applies its judicial mind to suspected commission of an offence with a view to initiating proceedings; it is taken of the offence, not of the offender. 2.4 At the stage of taking cognizance and issuing process, the court is only required to see whether there is prima facie material and sufficient ground for proceeding, not whether the material is sufficient for conviction or to finally determine the involvement of particular accused. 2.5 The Magistrate/Special Court is not bound by the opinion of the investigating officer and may accept or reject that opinion. It is not necessary to record detailed reasons in a summoning order under Section 204 CrPC, provided the order reflects application of mind to the complaint/report and accompanying material. 2.6 Applying these principles, the Court noted that the Special Court had (i) adverted to Section 212(15), (ii) referred to its power to examine the SFIO report like a charge-sheet, and (iii) expressly taken cognizance and identified specific offences and accused. This, in the Court's view, showed due application of mind and satisfaction that sufficient material existed to proceed. Conclusions 2.7 The Court held that interference with the cognizance/summoning order under Section 482 CrPC is permissible only where the order is perverse or based on no material. The impugned order did not suffer from such infirmities. 2.8 The Court declined to re-evaluate the sufficiency or weight of the material at the cognizance stage and held that such assessment is reserved for the stage of consideration of charge and trial. 2.9 Consequently, no ground was made out to set aside the order taking cognizance and issuing summons. Issue 2 - Effect of exoneration of the petitioners by EOW, ED, CBI and the complainant's earlier stand Legal framework (as discussed) 3.1 The Court considered the petitioners' reliance on: (i) supplementary charge-sheets in the EOW FIR placing them in column 12, (ii) EOW Court's order dated 10.11.2022 indicating no material to proceed against column-12 persons, (iii) non-arraignment of the petitioners by ED in the PMLA complaint, (iv) CBI closure report placing them in column 12, and (v) an affidavit filed by Hassad acknowledging no criminality on their part. Interpretation and reasoning 3.2 The Court held that an opinion formed by one investigating agency is not binding on another investigating agency, nor on the court. Exoneration in investigations relating to IPC/PMLA offences does not, by itself, bar prosecution for distinct statutory offences under the Companies Act on the basis of independent material collected by SFIO. 3.3 It noted that the order of the EOW Court dated 10.11.2022 was based on (i) the material before that court at that time, and (ii) the absence of any protest petition by the complainant there. It did not amount to a judicial adjudication exonerating the petitioners for all purposes or binding the Special Court dealing with Companies Act offences. 3.4 The Court highlighted Recommendation No. 1 in the SFIO Investigation Report which recorded that EOW had already filed a charge-sheet under IPC and that, in view thereof, SFIO had not recommended IPC charges but confined its complaint to offences under the Companies Act, forwarding its material to EOW. Thus, the SFIO complaint stood on an independent statutory footing focused on corporate offences. 3.5 The Court found that the mere fact that ED and CBI did not array the petitioners as accused in their proceedings could not be treated as a legal bar to SFIO's complaint or to the Special Court's decision to take cognizance of Companies Act offences against them. Conclusions 3.6 The prior treatment of the petitioners by EOW, ED, and CBI, and the affidavit by Hassad, did not nullify or fetter the Special Court's power to take cognizance on the SFIO complaint. 3.7 These aspects, at best, constitute part of the evidentiary matrix and may be pressed at the stage of consideration of charge or trial, but they do not, by themselves, render the cognizance order illegal or warrant quashing under Section 482 CrPC. Issue 3 - Liability of nominee non-executive directors under the Companies Act and the material relied upon by SFIO Legal framework (as discussed) 4.1 The Court noted the petitioners' reliance on their status as nominee non-executive directors and on authorities and circulars (including MCA General Circular No. 1/2020 and decisions such as S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla) indicating that non-executive directors are not, by default, liable absent specific allegations of involvement. 4.2 The Court also noted the respondent's reliance on Section 149(12) of the Companies Act, 2013 which provides that a non-executive director (not being promoter or KMP) shall be liable only in respect of acts or omissions of the company which occurred with his knowledge (attributable through Board processes), with his consent or connivance, or where he had not acted diligently. 4.3 Reference was also made to Sections 209 and 211 of the Companies Act, 1956 (duty and liability relating to maintenance and presentation of books of account and financial statements), Section 542 of the 1956 Act (liability for fraudulent conduct of business), and Section 449 of the 2013 Act (punishment for false evidence). Interpretation and reasoning 4.4 The Court recorded that the petitioners asserted they were merely nominee non-executive directors, not part of Key Managerial Personnel, had attended only a limited number of board meetings, and had no role in day-to-day management, inventory verification, or fraudulent accounting, and that other agencies had accepted such position. 4.5 Conversely, SFIO alleged that the petitioners: (i) actively participated in preparation and finalisation of the Information Memorandum, Databook and due diligence materials presented to investors; (ii) held meetings with KPMG, auditors and others and gave comments on draft financial presentations, with finalisation requiring approval of petitioner no. 2; (iii) attended significant board meetings involving appointment of auditors, enhancement of credit facilities, adoption of accounts; (iv) were party to internal email communications and allegedly aware of fictitious inventories and bogus transactions; and (v) made allegedly false statements during SFIO investigation, attracting Section 449. 4.6 SFIO contended that, in light of these allegations and materials (emails, statements, board minutes), the requirements of Section 149(12) were, prima facie, attracted, as the alleged acts occurred with the petitioners' knowledge attributable through board processes and/or lack of due diligence. 4.7 The Court held that the rival stands regarding the actual role and knowledge of the petitioners, their involvement (or otherwise) in day-to-day affairs, inventory verification, preparation of financial documentation, and the truthfulness of their statements under Section 217(4) of the Companies Act, 2013, raise disputed questions of fact. 4.8 It emphasised that such factual disputes, relating to the extent of participation, knowledge, consent, connivance or diligence of the petitioners, cannot be adjudicated in proceedings under Section 482 CrPC at the stage of cognizance. These are matters to be tested before the Special Court at the stage of consideration of charge and, if charges are framed, at trial. Conclusions 4.9 The Court did not make any conclusive pronouncement on whether the petitioners, as nominee non-executive directors, are ultimately liable under the invoked provisions. It confined itself to holding that, at the cognizance stage, the Special Court was entitled to proceed on the basis of the allegations and material placed by SFIO. 4.10 The pleas founded on non-executive status, lack of managerial role, exoneration by other agencies, and professional reports (Deloitte, G.M. Kapadia, KPMG) were left open to be raised before the Special Court at the stage of charge, with the explicit clarification that no finding on merits was being returned. Issue 4 - Alleged non-application of mind in the summoning order, inclusion of additional sections, and non-impleadment of the company Legal framework (as discussed) 5.1 The Court considered the petitioners' contention that: (i) the SFIO complaint mentioned only specified sections (e.g. Sections 68 and 542 of the 1956 Act, and 449 of the 2013 Act) against them, whereas the impugned order summoned them under additional sections (Sections 209, 211, 628); and (ii) the complaint did not array the company as an accused despite proceedings being founded on acts of the company. 5.2 The respondent invoked the principle that a court taking cognizance is not confined to sections cited in the complaint/charge-sheet and may take cognizance for appropriate offences disclosed by the material, relying on judgments such as Rakesh Prasad Singh v. State of UP and Rajendra Prasad v. Bashir, and on the general jurisprudence (including Pepsi Foods Ltd. v. Special Judicial Magistrate) that a Magistrate must apply his mind to evidence but is free as to the legal characterisation of offences. 5.3 On non-impleadment of the company, the respondent contended that the company was under liquidation and was therefore not arrayed as an accused to avoid interference with liquidation, and that the Companies Act, 1956 does not mandate that the company be made an accused in every prosecution against its officers. Interpretation and reasoning 5.4 The Court noted that, under general criminal law principles, the court taking cognizance can look at the entirety of facts and material and is not rigidly bound to the specific penal provisions cited in the complaint or report. If the material prima facie discloses other cognizable offences, the court may take cognizance accordingly. 5.5 The Court held that the mere inclusion of additional sections (such as Sections 209, 211, 628 of the 1956 Act) in the summoning order, beyond what was specifically articulated in the complaint against the petitioners, does not by itself demonstrate non-application of mind, especially where the complaint and investigation report broadly cover the underlying factual allegations relating to falsification and misrepresentation in books and financial statements. 5.6 With respect to non-impleadment of the company, the Court recorded SFIO's explanation that the company was in liquidation at the time of filing of the complaint and that, to avoid impeding the liquidation proceedings, only directors and other individuals/entities were arrayed as accused. It accepted that, under the scheme of the Companies Act, 1956, there is no absolute statutory requirement that the company must invariably be made an accused for its officers to be prosecuted. 5.7 The Court confined itself to examining the legality of the cognizance order and did not accept the argument that absence of the company as an accused, in the factual matrix pleaded, rendered the cognizance order ex facie illegal or a ground for quashing under Section 482 CrPC. Conclusions 5.8 The Court held that the Special Court was competent to summon the petitioners under sections that, in its view, were attracted by the facts disclosed in the SFIO complaint and report, even if every such section was not specifically pleaded against them by SFIO. 5.9 The Court rejected the contention that the impugned summoning order was a mechanical reproduction of the SFIO complaint or passed without independent application of mind. On the contrary, it found that the order showed due consideration of allegations and offences, and therefore could not be interfered with in exercise of inherent jurisdiction. 5.10 The Court did not accept non-impleadment of the company as a ground to vitiate the cognizance order. Any legal consequences of such non-impleadment, if relevant, were left to be agitated before the Special Court at appropriate stages. Overall conclusion 6.1 The Court held that the impugned order of the Special Court taking cognizance of offences under the Companies Act, 1956 and Companies Act, 2013 and summoning the petitioners did not suffer from illegality, perversity, or non-application of mind. 6.2 It dismissed the petition under Section 482 CrPC, clarified that no opinion was expressed on merits or on the pending trial, and granted liberty to the petitioners to raise all their contentions, including those urged in this petition, before the Special Court at the stage of consideration of charge.