TaxTMI 
TaxTMI 
TaxTMI 
2008 (12) TMI 401
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....ted companies; Petitioner No. 2, being a subsidiary of petitioner No. 1. Petitioner No. 2 (for short, hereinafter referred to as the 'SIL' was incorporated in 1993 whereas petitioner No. 1 (for short, hereinafter referred to as the 'SGL') has been in existence for well over two decades. SGL currently holds 88.25 per cent of the shares of SIL. 3. Respondent No. 2 claims to own 57450 shares of SIL and contends that she is a shareholder of both SGL and SIL. She filed a complaint on 8-7-2003 against both the companies and the directors of SGL, some of whom were also on the board of SIL. The allegations made in the complaint were that the companies had committed offences under section 73 of the Companies Act, 1956 as well as under sections 403 and 406 read with section 34 of the Indian Penal Code. Four transactions have been set out in the complaint on the basis of which the allegations have been made. It is contended that monies were paid by the complainant to SIL in 1993 pursuant to a 'preferential offer' document dated 28-8-1993. It is contended that the 'preferential offer' document indicated that the shares of SIL would be listed on the stock exchange. The complainant had believed....
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....ssued process under sections 63 and 69 of the Companies Act and section 415 read with section 420 of the Indian Penal Code against the accused Nos. 1 to 4, some of whom are the directors on the boards of SIL and SGL. The order issuing process was challenged unsuccessfully by the petitioners up to the Supreme Court. 5. The learned Magistrate has issued process in the second complaint i.e. The complaint filed in 2003 and that order has been confirmed by the Sessions Court. It is this order which is challenged in the present petition. 6. Counsel have advanced arguments on five main issues viz.: (I) The powers of the High Court under section 482 Crl.PC (II) Limitation; (III) Whether the acts or omissions of the petitioners constitute offences under section 403 and under section 406 IPC; (IV) Whether any offence has been committed under section 73 of the Companies Act; (V) Whether the directors who have allegedly committed offences are 'officers in default' under section 5 of the Companies Act; and (VI) Whether the directors are vicariously liable for the offences, if any, committed by the companies. The powers of this court under section 482 7. It is well-settled in a catena of jud....
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....0 of 1999 filed by the respondent, the Division Bench of this court while dismissing the writ petition, observed that if there was a breach of promise to list the securities, as alleged by the petitioners i.e. the respondent herein, she would have remedies under the contract act or under the provisions of the Companies Act. The learned counsel points out that no action has been initiated by the respondent under the provisions of the Indian Contract Act. Criminal Complaint No. 4/S/2000 alleging violation of the provisions of sections 63 and 68 of the Companies Act and various other sections with respect to the alleged mis-statements contained in the preferential offer document of 28-8-1993 has already been filed in January 2000. He submits that the mala fides of respondent No. 2 are apparent from the fact that she has impleaded the directors who had joined the Board of Directors of the companies between February, 1993 and April, 2003, none of whom had anything to do with the preferential offer document or transactions prior to their joining the Board. The learned counsel draws my attention to the fact that the respondents have voluntary accepted the offer by tendering merely 531950 ....
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....ation is permitted by a police officer without an order of a Magistrate as contemplated under section 155(2) of the Code. 5. Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused. 6. Where there is an express legal bar engrafted in any of the provisions of the code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party. 7. Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge. 109. 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 ju....
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....nder these sections. Significantly, the respondent has not challenged the order refusing to issue process under these sections. Instead, the respondent has abused the process of law by filing a second complaint in 2003 for the same offences. This Act of the respondent is apparently actuated by mala fides. In my view, therefore, the submissions of the learned counsel for the petitioners must be accepted. 11. This is an eminently fit case in which the powers vested in this court under section 482 of the Cr. PC should be exercised. Apart from this, the offences have not been established as I shall presently discuss and therefore, the complaint must be quashed. Limitation 12. The next question which must be considered is that of limitation. Section 468 of the Cr. PC contemplates a bar to taking cognizance of an offence after expiry of the period of limitation. The offences alleged in the complaint are under section 73 of the Companies Act and sections 403 and 406 of the Indian Penal Code. The limitation prescribed for taking cogni-zance of offences committed under section 73 is one year, whereas for sections 403 and 406 of the Indian Penal Code it is three years. The learned counsel....
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....ts by relying on the judgments in the case of Bhagirath Kanoria v. State of MP AIR 1984 (SC) 1688 and Japani Sahoo v. Chandra Sekhar Mohanty AIR 2007 SC 841. He contends that the judgments relied on by the learned counsel for the petitioners, in fact support his case that the offences alleged against the petitioners are continuing offences for which there is no prescribed period of limitation. He submits further that in the light of the allegations contained in the complaint that there is a possibility that the trial court would frame charges against the petitioners under the provisions of section 409 of the Indian Penal Code and in such an event the provisions of limitation contained in section 468 of the Cr.PC can never be made applicable. He places reliance on the judgment in the case of the Supreme Court in State of West Bengal v. Laisal Haque AIR 1989 SC 129 where it has been held that issuance of a summons under specific sections cannot be a ground for dismissal of a complaint on the ground of limitation since a person summoned under that section of the Indian Penal Code could be charged under any other section which does not attract the provisions of limitation. 14. In my o....
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....ning of monies of SIL to SGL constituting offences of criminal misappropriation and criminal breach of trust. Apart from this, the petitioners have not returned the monies of the respondent used for the purchase of shares of SIL, with interest at the rate of 50 per cent as stipulated in section 73 and, therefore, it amounts to criminal misappropriation and criminal breach of trust, urges the learned counsel for the respondent. Assuming these allegations are well founded. They all relate to incidents which occurred in 1993 and, therefore, the complaint is barred by limitation. It is well- settled that the purpose of specifying the period of limitation in the Criminal Procedure Code is to prevent parties from abusing the process of law by filing vexatious and belated prosecutions when material evidence may not be available for effectively disposing of the case. 16. The submission of the learned counsel for the respondent that these are continuing offences also cannot be accepted. While dealing with the offence under section 406 of the Indian Penal Code. The Calcutta High Court in the case of Mahipal Bahadur Singh (supra), was dealing with a case where the allegations against the pet....
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....of the offence of criminal breach of trust must be tainted at the point of its commission by a process of transformation. By a transitional phenomenon converting the complexion of the possession, user or dealing of the property and once that transitional phenomenon is over and the conversion is complete by answering at that amount the definition of dishonest misappropriation or criminal breach of trust as contained in the relevant section of the Indian Penal Code. The subsequent continuance of the possession, user or dealing of the property even if it is morally wrong and legally untenable will be lacking the transitional factor of contemporaneous conversion of the complexion of the user from one type to a different type and therefore it cannot be said that the subsequent user is a continuing offence of the same type which was initially committed in changing the complexion of user. In order to constitute a continuing offence the acts complained of must at every moment of continuance reflect all the ingredients necessary for constituting the offence. As we have seen conversion or transitional phenomenon of complexional change of the user being one of the salient ingredients of the o....
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....ly discussed, supported by reasons, as to why an offence of dishonest misappropriation or criminal breach of trust is not a continuing offence and I have held this independently even without taking any support from the Supreme Court decision in State of Punjab v. Sarwan Singh [1981] Cri. LJ 722 (supra). In spite of the view taken by the Punjab and Haryana High Court in Balram Singh (supra) I am inclined to hold for reasons discussed earlier that the offence of dishonest misapp-ropriation or criminal breach of trust is not a continuing offence and in this regard I receive support from another Single Bench decision of this Court in Mohipal v. State 1986 Cal. Cri. LR 1. I, therefore, find that the prosecution in this case is barred by limitation and for this reason the proceeding in the court below must be quashed. The other questions raised in this revisional application are however not considered or decided by me as I find that on ground of limitation the proceeding in the Court below must be quashed. The revisional application is accordingly allowed and the proceeding in the Court below is quashed." 17. I am in respectful agreement with views expressed in the aforesaid judgments. ....
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....section 405 of the Indian Penal Code. 20. In U. Dhar's case (supra), the Supreme Court has held as follows : "5. In our view, what is relevant is that the contract between TCPL and the complainant is an independent contract regarding execution of certain works and even assuming the case of the complainant to be correct. At best it is a matter of recovery of money on account of failure of TCPL to pay the amount said to be due under the contract. The complainant has alleged that TCPL has already received the money from SAIL for the work in question and it has misappropriated the same for its own use instead of paying it to the complainant and it is for this reason that the offences are alleged under sections 403, 406 and 420 etc. 6. The courts below have overlooked the fact that the contract between Bokaro Steel (a unit of SAIL) and TCPL is a separate and independent contract. The contract between the complainant and TCPL is altogether a different contract. The contractual obligations under both the contracts are separate and independent of each other. The rights and obligations of the parties i.e. the complainant and TCPL are to be governed by the contract between them for which ....
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....definition that the ownership or beneficial interest in the property in respect of which criminal breach of trust is alleged to have been committed, must be in some person other than the accused and the latter must hold it on account of some person or in some way for his benefit." 22. In Jaswant Lal Nathalal's case (supra), the Supreme Court has observed that there must be a trust or an obligation annexed to the ownership of the property and confidence reposed in and accepted by the owner for the benefits of another before there can be any entrustment or dominion over the property. It has been observed thus : "8. The term entrusted found in section 405 IPC governs not only the words 'with the property immediately, following it but also the words or with any dominion over the property' occurring thereafter - See Velji Raghvaji Patel v. State of Maharashtra AIR 1965 SC 1433. Before there can be any entrustment there must be a trust meaning thereby an obligation Annexed to the ownership of property and a confidence reposed in and accepted by the owner or declared and accepted by him for the benefit of another or of another and the owner. But that does not mean that such an entrustme....
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....nce of India Rules, under which an order has been issued by the Government of India preventing selling agents such as balmer lawrie and company from delivering any cement except under instructions from the Government or from the Cement Adviser. The transaction, so far as the Contractor is concerned was one of purchase and the property in the cement clearly passed to him. No doubt he could not have obtained the permit through the executive engineer if it had not been intended that the cement should be used for the purpose directed by the engineer. But, in our opinion, in no sense can it be said that there was any entrustment either of the property or of any dominion over the property. We are of the opinion that the legal position is as explained in that decision." (p. 701) 23. In Velji Raghavji Patel's case (supra), the Supreme Court was considering a case under the provisions of sections 405 and 409. The Supreme Court observed that before a person can be said to have committed an offence of criminal breach of trust, it must be established that he was either entrusted with the property or entrusted with the dominion over the property which he is said to have converted to his own u....
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....is laid by the learned counsel for the respondent on the ratio in the judgment of R.K. Dalmia v. Delhi Administration AIR 1962 SC 1821. He then contends that the judgment in the case of Radhe Shyam Khemka v. State of Bihar [1993] 3 SCC 54 is applicable to the facts in the present case. Although process has not been issued under section 34 of the Indian Penal Code, the learned counsel for the respondent submits that this provision can be made applicable to the present petitioners since they had assumed their respective posts as directors of SGL and had developed a common intention to cause a wrongful gain to SGL and wrongful loss to the shareholders of SIL by wilfully authorising the non-listing of the shares of SIL on the exchange. The learned counsel then points out that the transfer of the glass furnace from SGL to SIL was at the cost of the shareholders of SIL. This submission has been made essentially on the assumption that the property of the company is the property of the shareholders of the company. 25. In the case of Mrs. Bacha F. Guzdar v. CIT AIR 1955 SC 74 the Supreme Court has held that the assets of the company belonged to the company and are not held in trust for the....
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....gricultural income which connects in no uncertain language revenue with the land from which it directly springs and a stray observation in a case which has no bearing upon the present question does not advance the solution of the question. There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders, the true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares. Subject to the articles of association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be leftover after winding up but not in the assets as a whole as lord Anderson puts it." (p. 77) 26. Thus, once the shares were allotted to respondent No. 2 by SIL. The respondent ceased to have any control over the money she utilised to purchase those shares. The only interest that she acquired after the purch....
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....nor can a shareholder of SIL question the decision of the sale of its company's property at a certain price in a criminal action such as the present one. Respondent No. 2 could have taken recourse to her civil remedies in order to ensure that SIL had not purchased the PIG Iron Plant from SGL at a price which she claims is absurdly high. The company cannot be held liable for an offence under sections 403 and 406 of the Indian Penal Code since the offences required mens rea on the part of the company. As held in the case of Motorola Inc. v. Iridium India Telecom Ltd. 2004 Cri. LJ. 1576 an offence like cheating as defined under section 415 IPC, which involves the criminal intention to deceive others cannot be perpetrated by a corporate body like a company or association. Although such a body can be a victim of deception it can be only a natural person who is capable of having mens rea to commit an offence and who can be a perpetrator of the offence. Similarly, under sections 403 and 406, it is difficult to accept the proposition that the company can commit an offence under these sections. Thus, in my opinion, the offences under sections 403 and 406 are not made out in the complaint. ....
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....been repaid within 8 days from the liability having arisen. He submits that admittedly. This amount has not been returned and, therefore, the company and its directors who are 'officers in default' are jointly and severally liable to return the amount along with interest. He submits that the provisions of section 73(1a) any prospectus whether issued to the public or to a class section of the public would attract the provisions of section 73 of the Companies Act. It is also urged that besides allotting the shares to the shareholders of SGL, SIL had also allotted shares to people who are rank outsiders and not shareholders of SGL. Therefore, it would mean that the document of 28-8-1993 was an offer to the public and the provisions of section 73 were squarely applicable. The learned counsel submits that the petitions and the SLPs filed in the Supreme Court against the issuance of process in respect of the earlier complainant were dismissed. He points out that as a consequence the contention of the petitioners that the document dated 28-8-1993 is not a prospectus but a private confidential document meant for subscription only by the shareholders of SGL, has not been accepted by the Cou....
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....3. Allotment of shares and debentures to be dealt in on stock exchange.-(1) Every company, intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognised stock exchanges for permission for the shares or debentures intending to be so offered to be dealt within the stock exchanges or each such stock exchange. (1A) Where a prospectus, whether issued generally or not, states that an application under sub-section (1) has been made for permission for the shares or debentures offered thereby to be dealt in one or more recognised stock exchanges, such prospectus shall state the name of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made, be void if the permission has not been granted by the stock exchange or each such stock exchange, as the case may be, before the expiry of ten weeks from the date of the closing of the subscription lists : Provided that where an appeal against the decision of any recognised stock exchange refusing permission for the shares of or debenture....
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....ission has been granted, or where an appeal has been preferred against the refusal to grant such permission. Until the disposal of the appeal, and the money standing in such separate account shall where the permission has not been applied for as aforesaid or has not been granted, be repaid within the time and in the manner specified in sub-section (2); and if default is made in complying with this sub-section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees. (3A) moneys standing to the credit of the separate bank account. Referred to in sub-section (3) shall not be utilised for any purpose other than the following purposes, namely:- (a )Adjustment against allotment of shares, where the shares have been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus; or (b )repayment of moneys received from applicants in pursuance of the prospectus where shares have not been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus, as the case may be, or, where the company is for any other reason unable to make the allot....
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....otment of the shares. Therefore, the submission of the learned counsel for the respondent that this is a prospectus cannot be accepted. The letter of 5-7-1993 also is not a prospectus. An indication of the offer only for the shareholders of SGL is brought out from the fact that the renunciation of the shares was not permitted. Reliance has been placed on several judgments by the learned counsel for the petitioner in support of his submission that an offer of shares in a new company to members of an old company in respect of the shares in the new company is not an offer to the public. He relies on the observations made by the court of appeals in Booth v. New Afrikander Gold Mining Co. Ltd. [1903] 1 Chancery 298. 33. Apart from this, there is no application on the part of the public limited company to have its shares listed on the stock exchange. As held in the case of Raymond Synthetics Ltd. v. Union of India AIR 1992 SC 847, it is only if a company intends to offer its shares to the public for subscription by issue of a prospectus that it must apply to the stock exchange for permission to list its shares in terms of section 73, before issuing such a prospectus. It is only when the....
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.... directors; (c )the whole time director or whole time directors; (d )the manager; (e )any secretary; (f )any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to Act;" 35. Criminal liability cannot be attached to a person unless there is both mens rea and actus reus attributable to the person. Some of the directors like petitioner Nos. 5, 9, 10 and 11 in write petition No. 2739 of 2006 are directors of both the companies SGL as well as SIL whereas the others are directors of SGL. The criminal liability of a director would arise only when he is an officer in default as defined in section 5 of the companies Act. None of the petitioners are officers in default within the meaning of section 5 of the companies Act. Therefore, they cannot be accused of having committed a breach of section 73 of the companies Act. Moreover unless the criminal liability is stipulated in a particular statute, a person cannot be made liable vicariously. The submission of the learned counsel for the respondent that by lifting of the corporation veil, this court should go beyond the company and reach out to bring within its ambit the true person....
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.... that a particular director. Personally, has committed an offence. It is now well settled that in the absence of a particular direction as to the role of an accused it would not be appropriate to accept an omnibus allegation for implication of a person in the offence. Besides this, the Offences alleged are in respect of events which have taken place prior to 2003. In Ajay Mitra v. State of M.P. [2003] 3 SCC 11, the Supreme Court has observed that no liability can be fastened on persons who have become directors after the alleged offences have been committed. It is now well settled that for a person to be liable of criminal breach of trust and inducement, mens rea is required to be established from the inception. The directors who have been arraigned as accused were not on the board of directors when the alleged misrepresentations were made in the preferential offer document of 1993. They were neither directors of SIL nor SGL at that time and, therefore, could not have been involved in either the inducement or entrustment. The knowledge relevant for attributing criminal liability must be contemporaneous knowledge, a director cannot be implicated by the mere fact that he obtained kno....
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....as one concern and that the power plant of Renusagar should be treated as the source of generation of electricity by Hindalco. The submission of the learned counsel for the respondent does not appeal to me. If one is to accept the submission that the SGL was "the head and brain" of SIL and that by lifting the corporate veil the liability of SIL and SGL was the same then the respondent can have no grievance. She owned shares in both SGL and SIL and therefore even if one accepts the submissions on behalf of the respondent. She would be equally benefitted by SGL having purchased the pig iron plant at a lower rate. In my opinion, in the present case there is no need to pierce the veil as admittedly there are two different companies against which the respondent has made two different sets of allegations. 39. In the case of R.K. Dalmiya (supra), the Supreme Court considered whether R.K. Dalmiya who was the chairman of the company could be held liable and convicted under sections 405, 409 of the Indian Penal Code amongst others. The Supreme Court came to the conclusion on the evidence before it that Dalmiya had knowledge of the transactions in question and therefore was liable in the fac....
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....a that he could not be convicted under the aforesaid section merely because he was the chairman of the company. The Supreme Court in its detailed judgment has observed that Dalmiya actually looked after the share business and had knowledge of the losses of the company union agencies. 41. The contention of the learned counsel for the respondent is that the petitioner-directors would not be absolved of their culpability merely because they assumed office in the years subsequent to 1995 when the shares were required to be listed. He has placed reliance on the judgment in Laxmi N. Joshi's case (supra). The cases cited by the learned counsel for the respondent to buttress his submission that the directors are vicariously liable for offences committed by the company indicate that the vicarious liability was provided for in the relevant provisions of law applicable to those cases. Therefore, in my view, the submission of the learned counsel for the respondent that the directors both past and present are vicariously liable for the offences committed by the company under sections 403 and 406 is unsustainable. 42. One more issue which was raised by the learned counsel for the respondent to....