TaxTMI 
TaxTMI 
2014 (12) TMI 1307
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....hief Metropolitan Magistrate, Hyderabad. The Directorate of Enforcement, Government of India, registered ECIR/01/HZO/2009 on 23.01.2009 and took up investigation. Consequent to the said investigation, Directorate of Enforcement filed complaint bearing SC No. 1/2014 before the XXI Additional Metropolitan Magistrate-cum-Special Sessions Judge at Hyderabad. The Court has taken cognizance of the same by order, dated 25.2.2014. 2. The gravamen of allegations is that the then Management inflated the share price of SCSL. Sri B.Ramalinga Raju and his associates started the company by name M/s.SRSR Holdings Private Limited. All the share held by them in SCSL were sold at inflated price. SR holdings borrowed from NBFC to fund such purchase. The said loans were cleared by Sri B.Ramalinga Raju and his associates. The share proceeds were transferred to front companies, in which the family members and close associates were the Directors. An amount of Rs. 1425 crores were transferred to SCSL through front companies floated by them to SCSL between 17.11.2006 to 30.10.2008. However, Rs. 194.60 crores was returned to some of the front companies and balance of Rs. 1230.40 crores continued to subsi....
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....d the petitioner company. On the contrary, in the charge sheet filed by the CBI, it specifically alleged that on account of the illegalities committed by the then Directors of the company, company became the victim. This is also the stand of the Central Government in affidavits filed before various forums and before the CLB. Learned senior counsel further contended that the present petitioner is inducted as a consequence to steps taken by the Central Government to revive the company and on one hand the Central Government takes the stand that because of the illegalities committed by the previous management, the company suffered and in order to infuse fresh life into the company, Central Government took initiative, a wing of the Central Government prosecute the petitioner company for the illegalities committed by the previous management. Learned senior counsel therefore contended that proceedings against the company under Act, 2002 is wholly illegal and it amounts to unnecessary harassment of the company. 7. Learned senior counsel further contended that it is the consistent stand of all the Central investigating agencies that the petitioner was 'victim of crime' perpetrated by the....
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....orted by documents or resolutions. This Court order also supports petitioners plea on lack of knowledge. It is thus contended that the petitioner company had no knowledge of alleged transactions. 12. Alternatively it is contended by senior counsel that even assuming that petitioner company is responsible for all the illegalities committed by the management of SCSL, those alleged illegalities were committed prior to 2009. Allegation of offence of money laundering is only with respect to scheduled offence as seen from section 3 r/w Section 2(u) and (y) of ACT, 2002. Petitioner company has not committed any forgery and, therefore, said provision is not attracted insofar as the petitioner is concerned. In the charge sheet now filed the provisions which are introduced into schedule by virtue of Amendment Act 2009 are invoked and thereby the petitioner is alleged to have violated the provisions of Sections 120-B, 419, 420, 467 and 471 IPC. Section 120-B of IPC deals with criminal conspiracy, 419 deals with punishment by cheating by impersonation, 420 deals with cheating and dishonestly inducing delivery of the properties, 467 deals with forgery of valuable security/will etc and 471....
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.... 330 x) Standard Chartered Bank and others vs. Directorate of Enforcement and others [(2005) 4 SCC 530 ] xi) Madras High Court Order in W.P.No.530 of 2011, dated 01.04.2011 15. Sri Suresh Kumar contended that writ petition under Article 226 of the Constitution of India praying to quash proceedings pending before XXI Additional Chief Metropolitan Magistrate Court is not maintainable. Constitutional Court cannot interject conducting trial in a crime, even before trial is concluded. He further contended that petitioner has an effective and efficacious remedy under Section 482 Cr.P.C. 16. Sri Suresh Kumar further contended that, the present company is a successor company of Satyam Computer Services Limited and as a successor company, for the illegalities committed by the previous company, it is liable. The Company Court has passed orders of amalgamation on 11.06.2013 in Company Petition No.123 of 2012 and batch. While approving the scheme of amalgamation and arrangement with effect from 01.04.2011, the Court has enforced certain conditions. One of the conditions imposed is debts, liabilities, contingent liabilities, duties and obligations, which relate to the pe....
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....ing it as untainted property. Petitioner company directly indulged in the activity of acquiring proceeds of crime and also received the proceeds of crime and projected the same as untainted property. Hence, it cannot be contended that the petitioner no.1 is not having the knowledge about the offence of money laundering. As per the scheme of Act, 2002, a person who is not an accused for schedule offence can also be made as accused in the offence of Money Laundering. 21. He contended that as per the scheme of the Act, 2002, once a prima facie case is made, there is a presumption of guilt and it is on the accused to rebut the presumption. 22. He submits that Division Bench of this High Court upheld validity of various provisions of the act in the case of B.Rama Raju. 23. It is further contended that investigation made so far revealed huge financial illegalities committed by the then Directors of Satyam Computer Services Limited, and huge unaccounted money was brought into the company. The actions of then Directors of the company and the company attract offence of Money Laundering. For the illegalities committed by the then Directors of the company, the company is equally liab....
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....t any knowledge on the part of the petitioner. It only asserts that, the petitioner had possession of the alleged proceeds of crime. The requirement of mens rea in penal statute cannot be dispensed with unless it has been expressly excluded. The 2013 amendment also does not dispense with the requirement of knowledge on the part of the accused. Neither the ED complaint nor the voluminous materials filed by the ED demonstrate that the petitioner had any knowledge of the alleged offence of money laundering which is an essential ingredient of Section 3 of ACT, 2002. 27. Merely because the petitioner company was used as a vehicle for committing fraud, the petitioner company cannot be arrayed as an accused in the absence of any knowledge on the part of the accused. CBI did not make the petitioner as an accused since neither the Board of Directors nor the investors were aware of the alleged fraud or the infusion of Rs. 1230 crores. The CBI also said that there were no documents or records which show that the company was aware of the infusion of Rs. 1230 crores. CBI report also accuses the former management of 'deceiving' the petitioner company. Therefore, the question of petitioner bei....
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....ey laundering. In the absence of any such provision ED has to prove knowledge on the part of the accused. 32. The ED in its complaint has alleged that the petitioner company has committed the offence of money laundering by virtue of the inflow of Rs. 822 crores in the company. Unlike other accused (like A2, A3 and A4), the ED has not accused the petitioner company of being involved in any forgery. 33. The points that arise for consideration are: I. Whether petitioner Company as a successor to SCSL is liable to be proceeded against for the alleged crimes committed by the then management of SCSL? II. Whether amended provisions of the Act, 2002 can be invoked to prosecute Petitioner Company? 34. Before discussing the points for consideration, it is necessary to deal with the objection raised by learned counsel Sri P.S.P.Suresh Kumar forcibly on maintainability of the Writ Petition on the ground that the special court is in session and petitioner has effective remedy under Cr.P.C. 35. In Rajasthan State Industrial Development and Investment Corporation and another vs. Diamond & Gem Development Corporation Limited and another [(2013) 5 SCC 470], in matters ....
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....ion is plenary in nature and is not limited by any other provisions of the Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the exercise of this power. (See Whirlpool Corpn. v. Registrar of Trade Marks ((1998) 8 SCC 1) And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the Court thinks it necessary to exercise the said jurisdiction." 37. As held by the Apex Court in R.P.Kapur v. State of Punjab [AIR 1960 SC 866] this Court can entertain Writ Petition where it is alleged that there is a legal bar against the institution or continuance of criminal proceedings. In the case on hand it is contended that the provisions of IPC invoked in the charge sheet were subsequently brought into the statute book and therefore they were not the crimes made a....
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....y" means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located; (y) "scheduled offence" means- i) the offences specified under Part A of the Schedule; or ii) the offences specified under Part B of the Schedule if the total value involved in such offences is thirty lakh rupees or more, or iii) the offences specified under Part C of the Schedule; Section 3 : Offence of money-laundering:- Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilt of offence of moneylaundering. Section 4 : Punishment for money-laundering:- whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine which may extend to five lakh rupees; Provided that where the proc....
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....nvolved in any proceeds of crime; or v) Actually connected with proceeds of crime; and vi) He must project, it as untainted property 42. Thus, to attract the offence of money laundering, knowledge of indulgence/involvement by a person is necessary requirement and on fulfillment of any one or more of them, he should also project it as untainted property and such knowledge/ indulgence/involvement should be relating to any one or more of the offences prescribed in schedule appended to the Act. 43. It is not the case of Enforcement Directorate that petitioner company had knowledge of the alleged money laundering, was indulging/involved in the offence. Petitioner company cannot be held liable for the alleged illegalities committed by persons who were at the helm of affairs of the company at the relevant time. 44. In Reliance Natural Resources Limited, Supreme Court held that personality of the company must be construed separate from the persons. The doctrine of identification of Chairman and Managing Director with the company may be applicable only in respect of small undertakings , but in case where company has a large shareholders base, one cannot make....
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....ty to the conspiracy or to guilty knowledge about the illegality of the transaction which was to be carried out under the agreement. On these grounds it seems to me that it is mistaken to regard the plaintiff company as being in law party to the conspiracy. I feel glad to be able to reach that decision because, for reasons that I indicated at the beginning of this section of my judgment, it seems to me to be completely unreal to regard the plaintiff company as party to the conspiracy. Accordingly, in my judgment, the judge was wrong in dismissing the action on that ground. " 48. In Sitaram Motilal Kalal vs. Santanuprasad Jaishankar Bhatt AIR 1966 SC 1697, Supreme Court held as under: "33. The law with regard to agents is the same. As was observed by Lord Atkinson in Samson v. Aitchison, 1912 AC 844 it is a matter of indifference whether a person be styled a servant or agent since it is the retention of control which makes the owner or the principal responsible. Just as the tort must be committed by a servant either under the actual control of his master or while acting in the course of his employment, the act of the agent will only make the principal liable if it is don....
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....art of her original cargo and load some fresh cargo. The shipowners engaged a stevedore company to discharge the load. A servant of the stevedore company stole a brass plate, which was a cover that could be removed to give access to a storm valve. Its removal rendered the ship unseaworthy as sea water could enter when the ship rolled. The resulting hole in the ship was concealed by part of the fresh cargo loaded. On her voyage after leaving the port the ship encountered heavy weather. Water entered through the hole and damaged part of the original cargo. In an action for damages by the owners of the damaged cargo, the ship-owners contended that they were excepted from liability by Art. IV R. 2(q) of th e Hague Rules, because the cause of the damage arose without their actual fault or privity and 'without the fault or neglect of the agents or servants' of the shipowners. 24. Salmon L. J., speaking in a similar strain (at page 599) emphasized that the fact that the thief's employment on board presented him with the opportunity to steal does not suffice to make the shipowners liable. The conclusion drawn was: "For an employer to be liable, however, it is not enough t....
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....a wrongful act authorized by the master, or (2) a wrongful and unauthorized mode of doing such act authorized by the master. On the other hand, if the unauthorized and wrongful act of the servant is not connected with his employment but is an independent act of his own, the master is not responsible: for in such a case the servant is not acting in the course of his employment, but has gone outside of it. The act of permitting another to drive may be a mode, albeit an improper one, of doing the authorized act. But the act of giving lifts to third parties is clearly outside the scope of employment; Salmond's Law th of Torts, 16 Ed. Pp.474, 475. " 51. In M/s. Jiwan Dass Roshan Lal v. Karnail Singh and others [AIR 1980 P & H 167], it is held as under: "9. The solitary question that thus remains is whether Karnail Singh driver can be deemed to be acting in the course of the employment of the owners in un-authorisedly carrying the deceased Pritam Singh herein ? Acting in direct contravention of a statutory provision which is made an offence by an employee cannot be easily conceived as in the normal course of employment. No employer can be deemed or assumed to authorize ....
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.... In such circumstances, it would be necessary to ascertain that the degree and control of the person or body of persons is so intense that a corporation may be said to think and act through the person or the body of persons. The position of law on this issue in Canada is almost the same. Mens rea is attributed to corporations on the principle of 'alter ego' of the company. ..... .... 66. These observations leave no manner of doubt that a company/corporation cannot escape liability for a criminal offence merely because the punishment prescribed is that of imprisonment and fine. We are of the considered opinion that in view of the aforesaid judgment of this Court, the conclusion reached by the High Court that the respondent could not have the necessary mens rea is clearly erroneous. " 55. Guided by the principles in the above precedents, I consider the issue of liability of petitioner company. 56. Soon after noticing the grave illegalities in the functioning of SCSL, Government of India stepped in, took active role in inducting new Board of Directors and new investor, who brought in fresh funds for reviving and effective running of the company. All th....
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....nsferred to the bank accounts of the petitioner company by the 37 front companies from 17.11.2006 to 30.10.2008, out of which Rs. 194.60 crores was repaid by the petitioner company to the front companies. Therefore, a sum of Rs. 1230.40 crores remained with the petitioner company." 60. Court also noticed that on 10.04.2009, the Enforcement Directorate issued orders to the petitioner company restraining from repaying the amount of Rs. 1230.40 crores to the front companies, which had already put in requests for refund of their loans. On detailed consideration of the matter, this Court stayed provisional attachment order dated 18.10.2012. 61. On the administrative side, Government of India and its specialized agencies, such as, CBI and SFIO have constantly opined that SCSL was victim of fraud played by persons in the helm of affairs and their associates and family members. In the charge sheet filed by CBI, CBI alleged that petitioner company was the victim of fraud played by the persons in the helm of affairs. This Court in C.P.No.123 of 2013, Company Appeal Nos. 4 and 5 of 2014 and W.P.No.37487 of 2012 observed that SCSL was victim of fraud played on it. Company Law Board also ....
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....at were flown into petitioner company. While praying for attachment of properties in the claim filed before the adjudicating authority, the Enforcement Directorate recorded in para 12 that the transactions which resulted in Rs. 822.00 crores coming into the petitioner company were not reflected in the books of accounts and financial statements and Board of SCSL was never informed of about these transactions. These transactions were reflected as if they were receipts from sale proceeds. The record of the writ petition would disclose that Rs. 822 crores were obtained by pledging inflated shares of SCSL held by SRSR Holdings Private Limited, transferred by front companies and their Directors to SCSL. The Enforcement Directorate narrates in the complaint that the receipts into the SCSL were in the form of loans from the front companies. Thus, in the facts of this case, it cannot be ascribed to SCSL as a company about the nature of funds infused into the company. SCSL and petitioner company as successor company cannot be fastened with criminal liability for the illegalities committed by the persons who were at the helm of affairs of SCSL at the relevant time. It cannot be said that the ....
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....vision of Sections 42 and 45(12) are not attracted. Section 52-A was introduced by way of Prisons (Punjab Amendment) Bill 2011. As per this provision, supplying mobile phone or any other instruments by any person is made an offence. Notification of the above provision was issued by the Punjab Government on 8.3.2011. Supreme Court held that notification does not apply to the case on hand as alleged offence was committed in 2009 and retrospective effect will not apply in the case of criminal laws (para 10). Supreme Court further considered the scope of High Court to quash FIR under Section 482 Cr.P.C., by relying on the decision of Supreme Court in Bhajan Lal. Supreme Court held that High Court erred in not exercising the power under Section 482 Cr.P.C. It further held that principle-1 in Bajan Lal case is attracted since on the date of offence the mobile phone was not listed as one of the prohibited articles under the Pubjab Prison Manual and, therefore, no offence was made out under Section 42 of the Act, as appellant was not a prisoner and the prison offence as defined under Section 45 of the Act was not attracted. 68. The principle of non-applicability of Penal provision from ....
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....information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused. (2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code. (3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused. (4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation 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 g....
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....rt held as under: "33. ..... At a stage when the police report under Section 173 Cr.P.C. has been forwarded to the Magistrate after completion of the investigation and the material collected by the investigating officer is under the gaze of judicial scrutiny, the High Court would do well to discipline itself not to undertake questioning proceedings at that stage in exercise of its inherent jurisdiction." ...... ...... 68. ...... Quashing the charge sheet even before cognizance is taken by a criminal court amounts to "killing a stillborn child". Till the criminal court takes cognizance of the offence there is no criminal proceedings pending. I am not allowing the appeals on the ground that alternative remedies provided by the Code as a bar. It may be relevant in an appropriate case. My view is that entertaining the writ petitions against charge-sheet and considering the matter on merit in the guise of prima facie evidence to stand an accused for trial amounts to pre-trial of a criminal trial under Article 226 or 227 even before the competent Magistrate or the Sessions Court takes cognizance of the offence. Once the proceedings are entertained the further proceeding....
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....nce has not been collected and produced before the Court and the issues involved, whether factual or legal, are of magnitude and cannot be seen in their true perspective without sufficient material." 80. In C.P.Subhash, Supreme Court held as under: "7. ..... Suffice it to say that in cases where the complaint lodged by the complainant whether before a court or before the jurisdictional police station makes out the commission of an offence, the High Court would not in the ordinary course invoke its powers to quash such proceedings except in rare and compelling circumstances enumerated in the decision of this Court in State of Haryana vs. Bhajan Lal. 81. In the instant case, the alleged incidents occurred prior to June, 2009. Prior to June, 2009, the relevant provisions of Indian Penal Code were not included in schedule appended to the Act 2002. These provisions were not listed as offences under the Act admittedly when the alleged incidents have taken place. The only provision that is invoked which was in the schedule to the Act is Section 467. The illegal activities committed by the persons in the helm of affairs cannot be attributed to petitioner company, more partic....