TaxTMI 
TaxTMI 
2005 (3) TMI 472
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....ers seek quashing of FIR bearing No. 99/2002, PS Connaught Place, New Delhi under sections 406/409/420/424/467/477A read with section 120B of the IPC. The said FIR was registered in pursuance of order dated 19th February, 2002 passed by learned Metropolitan Magistrate, New Delhi on a criminal complaint filed by the respondent against the petitioners who are chairman-cum-managing director, director, chartered accountants and finance controller respectively of Sunair Hotels Ltd. It was alleged in the complaint that in or around December 1994, petitioner Nos. 1 to 3 approached respondent company and requested it to subscribe to the equity share capital of Sunair Hotels Ltd., to the tune of 25 per cent equity share capital amounting to 70 lakh equity shares @ Rs. 10 per share aggregating to Rs. 7 crores. Induced by the assurances of the accused, the complainant-company made payment of Rs. 7 crores for the allotment of shares of Sunair Hotels Ltd., which in turn allotted and issued 70 lakh shares to the respondent-company. Apart from that 25,94,824 fully paid up equity shares of Rs. 10 each aggregating to 2,59,84,240 were also issued to the respondent-company. Thus, at the time of filin....
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....Ltd. and were earning meagre salaries. In para 15 of the complaint, the respondent gave details of certain companies, namely, Bansal Estate (P.) Ltd., Isha Metal (P.) Ltd., Atul Constructions & Finvest (P.) Ltd. It was alleged that huge amounts were shown to have been paid to these companies, which were controlled by either of the petitioners. Various instances of bogus expenditure shown in the books of account of Sunair Hotels Ltd. were also given in para 16 of the complaint. It was alleged that modus operandi adopted by the accused was that during the construction of the hotel project, the accused persons misappropriated the funds of Sunair Hotels Ltd. by creating false documents, fabricating valuable securities and falsifying the books of account of Sunair Hotels Ltd. Other instances of alleged misdeeds of the petitioner were also given in paras 18, 19 and 20 of the complaint. 3. On receipt of this complaint, learned Metropolitan Magistrate passed the following order dated 19th February, 2002 19.02.2002 Present: AR of complaint with counsel. "Heard. File perused. The material on record contains allegation of breach of trust, forgery falsification of....
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....ho in turn made payment to fictitious sub-contractors. Thus, subject-matter of the criminal complaint on the basis of which present FIR has been registered is different from that of application under section 397/398 filed by the respondent before the CLB, although to some extent it may be overlapping. 6. Learned counsel for the petitioner next contended that sections 235 to 242 of the Act provide a complete machinery for investigation into the affairs of the company and resultant prosecution under section 242 of the Act. Therefore, resort to police investigation under the provisions of the Cr.PC is impliedly barred and as such the FIR is liable to be quashed. Reference was made to the decision of the Supreme Court in the case of State of Haryana v. Ch. Bhajan Lal [1990] 4 SC 650, wherein it was held that FIR is liable to be quashed if the Act provides efficacious redress for the grievance of the parties. In para 107, Apex Court has observed as under : "107. In the backdrop of the interpretation of the various relevant provisions of the Code under Chapter XIV and of the principles of law enunciated by this court in a series of decisions relating to the exercise of the ex....
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.... the accused and with a view to spite him due to private and personal grudge." 7. According to the learned counsel for the petitioner, the case in hand falls in the category (6) above. The Companies Act under sections 235 to 242 thereof provides efficacious redress regarding investigation into the affairs of the company and the present FIR is, therefore, liable to be quashed. In the very next paragraph. Supreme Court cautioned the High Courts, while dealing with the question of quashing of FIR, in the following words : "108. We also give a note of caution to the effect that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarest of rare cases; that the court will not be justified in embarking upon an inquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR or the complaint and that the extraordinary or inherent powers do not confer an arbitrary jurisdiction on the court to act according to its whim or caprice." 8. Reliance was also placed on the decision of the Apex Court in the case of Rohtas Industries Ltd. v. S.D. Aggarwal AIR 1969 SC 707, wherein it was h....
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.... In para 9 of the judgment, the Apex Court has observed as under : "The power, therefore, to appoint an inspector to investigate the affairs of a company has to be exercised by the Central Government after a proper preliminary scrutiny by the Registrar, or by the CLB as the case may be. It cannot be instituted simply on the basis of allegations made by one shareholder. Under section 237, there is a further power given to the Central Government to appoint inspectors to investigate the affairs of a company if the company, by a special resolution, or the court, by order declares that such investigation is necessary. Similarly, this may be done if in the opinion of the CLB there are circumstances suggesting that the business of the company is being conducted with the intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in the manner oppressive of any of its members or that the company was formed for any fraudulent or unlawful purpose. The CLB may also come to a conclusion that there are circumstances suggesting that the persons concerned in the formation of the company or management of its affairs have been guilty of....
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.... CLB will also order investigation if (a) in the case of a company having a share capital, an application has been received from not less than two hundred members or from members holding not less than one-tenth of the total voting power therein, and (b) in the case of a company having no share capital, an application has been received from not less than one-fifth of the persons on the company's register of members. In that case, there was no compliance of provisions of section 235. Under the circumstances, Supreme Court felt that ordering an investigation at the instance of single shareholder is uncalled for. If there are general allegations regarding mismanagement of the affairs of the company or oppression of the minority shareholders, the aggrieved party shall approach Registrar/CLB/Government to take proper steps under section 235 onwards of the Act. In such cases, Government is not supposed to order investigation as a matter of routine - Rohtas Industries Ltd.'s case (supra). 10. In the present case, the scenario is different. The FIR has already been registered and the investigation/prosecution has already been launched. The nature and scope of investigation to be conducte....
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....isappropriation of funds concerning the affairs of the company is to direct investigation into the affairs of the company under section 235. While dealing with this argument, the Division Bench has observed as under : "An investigation into the affairs of a company is ordered in a variety of circumstances which have been mentioned in sections 235 and 237 of the Companies Act. In cases covered by section 237(a) the Government is bound to appoint one or more competent persons as inspectors to investigate the affairs of a company. As against that, if a case is governed by clause (b) of section 237 or in case it is governed by section 235, the Government has a discretion in the matter. An investigation into the affairs of a company under the above provisions of law from the point of view of general reputation of a company is a very serious matter. It can result in a number of consequences, viz., prosecution, vide section 242, winding up of the company or an order under section 397 or 398 of the Act, vide section 243 or initiation of proceedings by the Central Government in the name of the company for recovery of damages or property vide section 244 of the Act. It is also manif....
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....n 242 or other provisions of the Companies Act to point to the conclusion that no prosecution can be launched or no report can be made to the police in respect of an alleged act of embezzlement or malfeasance by an individual connected with the company without recourse to an investigation under section 235 or 237 of the Act. In the case of M. Vaidyanathan v. Sub-Divisional Magistrate Erode AIR 1957 Mad. 65, question arose whether the provisions of section 630 of the Companies Act constituted a bar to the exercise of the jurisdiction vested in a police officer under sections 154, 156 and 157 of the Code of Criminal Procedure. The question was answered in the negative by Rajagopalan, J. The above decision was affirmed on appeal by a Division Bench of Madras High Court (Rajamannar, CJ. and Panchapakesa, J.) in M. Vaidyanathan, In re AIR 1957 Mad. 432." (p. 724) 12. The Division Bench further observed as under : "The matter can also be looked at from another angle. Any one who has information of the commission of a cognizable offence can make a report about the commission of such offence to the police. The police after registration of the case on the basis of that report in....
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....s of the company anybody can approach the police which then is obliged to carry but the investigation. Every citizen has constitutional right to approach police officer or the Court for the investigation into the commission of the cognizable offence. In the present case, FIR was lodged under the Court orders, which has not been challenged in any proceedings. While considering the question of quashing of the FIR in a writ petition or in a petition filed under section 482, Cr.PC, the Court is not supposed to minutely examine the veracity/truthfulness of the evidence or the probative value thereof - M. Narayandas v. State of Karnataka 2003 (Suppl. 1) JT 412. It cannot be said at this stage that the allegation in the complaint even if taken on their face value do not make out an offence. In the case of Radhey Shyam Khemka ( supra), the Supreme Court repelled the contention that the police investigation in the alleged/suspected cognizable offence is barred in view of the provision of Companies Act. In that case, the appellants who were directors of the company had issued prospectus inviting public subscriptions of 42,000 equity shares and 3,000 preference shares. It was given out by the....