TaxTMI 
TaxTMI 
2021 (4) TMI 1138
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....er Section 482 of the Code of Criminal Procedure, 1973 (for short, 'Cr.P.C.'). The Petitioner Ganesh Benzoplast Limited is Complainant in CC No.56/SW/2011 pending on the file of learned Metropolitan Magistrate, Railway Mobile Court, Andheri, Mumbai. The Respondent No.1 in WP No. 127 of 2020 i.e. Morgan Securities Credits Pvt. Ltd. is accused No.1 and Petitioners in WP No.348 of 2020, 349 of 2020 and 357 of 2020 are original accused Nos.3, 4 and 2 respectively in the said complaint. For the sake of brevity, the parties herein will be hereinafter referred to as per their nomenclature in the said complaint i.e. 'complainant' and 'accused'. 2) All the Petitioners impugn Judgments and Orders dated 2^nd December, 2019 passed in Criminal Revision Application Nos.128 of 2017, 167 of 2017, 168 of 2017 and 166 of 2017, by the learned Additional Sessions Judge, Borivali Division, Dindoshi, Mumbai. The said Revisions were filed by Accused against the Order of issuance of process under Sections 406, 420 r/w Section 34 of the Indian Penal Code r/w Section 15-HA of the SEBI Act, 1992, by the learned Metropolitan Magistrate, Railway Mobile Court, Andheri, Mumbai, below Exh-1, in CC No.5....
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....lacs. Accordingly, on 7th March, 2000, ICD Agreement, D.P. Note, Letter of Continuity, ICD Receipt, Personal Guarantee Deed and Corporate Guarantee Deed were executed between the parties. Morgan (ANo.1) paid Rs. 50 lacs to Ganesh vide cheque No.048526 dated 7th March, 2000. 4.2) A Letter of Pledge dated 7th March, 2000 was executed by Ganesh in favour of Morgan and Ganesh pledged 15 lakh Equity Shares in Demat form, owned by it in favour of Morgan. The said shares were pledged with the accused only as a security. At the time of pledging of the said shares with accused, the value of each share was Rs. 16 and 15 lakh shares were worth Rs. 2 crore 40 lakhs. The said shares could not be sold and transferred pursuant to the Pledge Agreement and SEBI guidelines. A sudden market depression led to a fall in the value of the pledged shares. Morgan therefore, issued notice dated 3rd May, 2000 to Ganesh asking it to pledge additional shares as the value of pledged shares had decreased to Rs. 1,24,50,000/-, resulting in a short-fall of Rs. 75,50,000/- from the agreed security cover i.e. 200% of the ICD amount. At that relevant time, the value of shares was Rs. 8.30 to 8.50 per share. 4.3....
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....duct of accused and inquired with the Registrar of Companies for the details of the constitution of both the companies i.e. Morgan and the transferee company i.e. M/s. Doogar and Associates Ltd.. It was revealed that, the Directors of both the companies are the same i.e. accused Nos.2 to 4 herein. 4.6) In the year 2006, complainant applied to BSE and NSE for details of the sale of shares by Morgan between 24th August, 2001 to 12th September, 2001. After receiving details from Stock Exchange and the registered agent of complainant, the doubt of complainant was confirmed and it was revealed that, most of the shares were sold by the accused at the closing time of the share market and that too, at the lowest price of the day. 4.7) It is the specific case of the complainant that, the shares which were entrusted with the accused were dishonestly misappropriated and converted for illegal gains by the accused. That, when the first notice was given by the accused company to the complainant on 3rd May, 2000, the market price of the shares was Rs. 8.50 per share. That means total price of 15 lakh shares was Rs. 1,27,50,000/-. That, the accused in order to acquire more shares of complain....
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....ior Inspector of Police of Andheri Police Station, was pleased to issue process under Sections 406. 420 r/w 34 of the IPC r/w Sec.15-HA of the SEBI Act, 1992 against the accused by its Order dated 22nd March, 2017 passed below Exh-1 in the said complaint. 7) Feeling aggrieved by the said Order dated 22nd March, 2017 passed by the learned Magistrate, issuing process, the accused filed Criminal Revision Application Nos.128, 166, 167 and 168 of 2017, in the Court of Sessions at Dindoshi, Mumbai. The Revision Applications were partly allowed by impugned Orders dated 2nd December, 2019. The process issued against accused No.1 Morgan was set aside in its entirety. The process issued against accused Nos.2 to 4 under Section 420 of IPC and Sec.15-HA of SEBI Act has also been set aside. The Revisional Court, however, has upheld issuance of process against Directors (A-Nos.2 to 4) of Accused No.1 company to the extent of Sec.406 r/w 34 of the IPC. 8) As such, the Directors (A-Nos.3,4 & 2) have filed aforestated Criminal Writ Petition Nos.348, 349 and 357 of 2020, challenging the impugned Order to the extent it upheld the summoning Order under Section 406 read with 34 of the IPC against....
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.... Court in the case of Hindustan Construction Company Ltd. & Anr. Vs. Union of India & Ors. (Writ Petition (Civil) No.1074 of 2019) dated 27th November, 2019 , he submitted that, even if the said arbitration award is challenged under Section 34 of the Arbitration and Conciliation Act, 1996, its binding effect does not gets stayed automatically and it holds the field till it is set aside. 10.2) Mr. Ponda further submitted that, the whole case put-forth by the complainant has to be appreciated in view of the stringent terms incorporated in the said Agreement. That, by reading the clauses of Agreement, it can clearly be gathered that, accused were having power to sell the said shares to an entity of their choice. That, the clauses mentioned in the Letter of Pledge (Agreement) cannot be ignored and ought to have been taken into consideration by the Trial Court at the first place while issuing process against the accused. He submitted that, summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion, as a matter of course. That, the allegations made in the complaint even if given face value and taken to be correct in its entirety, does not di....
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....ate of Bihar & Ors. MANU /SC/1233/2004 : (2005) 10 SCC 336 and (ii) Vesa Holdings Private Limited & Anr. Vs. State of Kerala & Ors., reported in (2015) 8 SCC 293. 10.4) Mr. Ponda submitted that, the Indian Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or Directors of the company, when the accused is the company. In the absence of any provision laid down under the statute, a Director of a company or an employee cannot be held to be vicariously liable for any offence committed by the company itself. That, a vicarious liability can be fastened only by reason of a provision of a statute and not otherwise and for the said purpose, a legal friction has to be created. In support of these contentions, he relied on the following decisions of the Hon'ble Supreme Court :- 1 Maksud Saiyed Vs. State of Gujarat & Ors., MANU/SC/7923/2007 : (2008) 5 SCC 668; 2 S.K. Alagh Vs. State of U.P. & Ors., MANU/SC/7162/2008 : AIR 2008 SC 1731; 3 R. Kalyani Vs. Janak C. Mehta & Ors., MANU/SC/8183/2008 :(2009) 1 SCC 516; 4 Sharon Michael & Ors. Vs. State of Tamil Nadu & Ors. MANU/SC/8454/2008 : (....
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....notice on 14th August, 2001 and from 24th August, 2001 to 12th September, 2009 sold shares of the complainant company allegedly in open market, only to one single buyer i.e. Doogar and Associates Ltd. and it cannot be termed as a coincidence. That, the accused Nos.2 to 4 herein are also the Directors of the said Doogar and Associates Ltd. (now, Morgan Ventures Ltd.). That the accused sold shares of complainant company, to its sister concern at a very low rate and that too at the time of closure of share market. He submitted that, the report submitted by the Senior Inspector of Police, Andheri Police Station under Section 202 of Cr.P.C. dated 16th March, 2012 clearly mentions that, the accused herein sold the said shares subsequently for higher rate in the market. That, the police have found substance in the complaint of the complainant and have accordingly submitted report before the Magistrate. 11.1) While responding to the contention of the learned counsel for the accused that, the accused No.1 company cannot be held vicariously liable, Mr. Shukla submitted that, the companies and corporate houses can no longer claim immunity from criminal prosecution on the ground that, they ....
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....sed summarily. 12) It is to be noted here that, most of the contentions and or submissions advanced by the learned Senior counsel for the accused, recorded hereinabove, have been answered by the Hon'ble Supreme Court in its recent decision, in the case of Priti Saraf & Anr. Vs. State of NCT of Delhi & Anr. in Criminal Appeal No(s). 296 of 2021 dated 10th March, 2021. The Hon'ble Supreme Court, after taking into consideration its various decisions in the field, has held that, it being a settled principle of law that, to exercise powers under Section 482 of Cr.P.C., the complaint in its entirety shall have to be examined on the basis of the allegation made in the complaint /FIR/charge-sheet and the High Court at that stage was not under an obligation to go into the matter or examined its correctness. That, whatever appears on the face of the complaint/FIR/charge-sheet shall be taken into consideration without any critical examination of the same. The offence ought to appear ex-facie on the complaint/FIR/charge-sheet and other documentary evidence if any, on record. It is further held that, it is thus settled that the exercise of inherent power of the High Court is an extra-ord....
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.... a challenge to an Order of issuance of process, the Court at this juncture would not consider the defence of the accused. That, ordinarily, defence of an accused although appears to be plausible should not be taken into consideration for exercise of the said jurisdiction. That, the High Court at that stage would not ordinarily enter into a disputed question of fact. That the Order of Magistrate summoning the accused must reflect that, he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of the allegations made in the complaint and the evidence, both oral and documentary in support thereof. 14.1) The complainant has filed a detailed complaint giving all the necessary facts, which constitutes an offence of criminal breach of trust under Section 406 of IPC and cheating under Section 420 of IPC. It is an admitted fact on record that, the complainant availed ICD facility from the accused No.1 to the tune of Rs. 50 lakhs and amongst other various documents also executed a Letter of Pledge (Agreement) dated 7th March, 2000. In pursuance of the said Letter of Pledge (Agreement) dated 7th March, 2000, the complainant pledged 15 la....
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.... sold the said shares to their own sister concern for a very minimal rate and subsequently the said Doogar and Associates Ltd. sold the said shares in open market at much higher price. It was revealed to him that, the accused have committed criminal breach of trust and cheating of complainant. 14.3) It is to be further noted here that, the complainant in complaint and its witnesses namely Shri. Bhupendra R. Pitale in his verification statement dated 9th February, 2016 and Mr. Ramesh Pilani in his evidence after verification dated 12th July, 2016, have explained delay in lodging the present complaint. The learned counsel for the complainant submitted that, as an offence under Section 420 of IPC has been alleged against the accused, there is no question of application of limitation in the present complaint. I find substance in the same. 14.4) The facts of the present case as noted hereinabove, leave no manner of doubt that, the accused have committed criminal breach of trust of the complainant and have deceived it thereby committing an act of cheating. As a matter of fact, the complainant has made out a strong prima facie case against the accused for issuance of process. Taking....
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....he accused that, the complainant is foisting vicarious liability upon the accused No.1 is concerned, the pleadings in the complaint prima facie discloses that, there is no mention of vicarious liability of Accused No.1-Company in it. It is the defence of Accused No.1 that, 'vicarious liability' is being foisted upon it, which the learned counsel wants this Court to test it at the stage of issuance of process. The same is contrary to the settled principles of law. It is well settled that, at the time of issuance of process, the Magistrate is required to conduct an inquiry for the limited purpose of finding out whether a prima facie case for issuance of process has been made out and it is limited only to the ascertainment of the truth or falsehood of the allegations made in the complaint. 17) The aforenoted contention in paragraph No.(10.5) cannot be accepted and has to be rejected at its threshold. It is the settled principle of law that, a Company is a juristic person and it can sue or can be sued. No doubt, a corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman etc.. It's affairs are governed by or conducted by its Dir....
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.... 30-32) "27. In the case of Penal Code offences, for example under Section 420 of the Penal Code, for cheating and dishonestly inducing delivery of property, the punishment prescribed is imprisonment of either description for a term which may extend to seven years and shall also be liable to fine; and for the offence under Section 417, that is, simple cheating, the punishment prescribed is imprisonment of either description for a term which may extend to one year or with fine or with both. If the appellants' plea is accepted then for the offence under Section 417 IPC, which is an offence of minor nature, a company could be prosecuted and punished with fine whereas for the offence under Section 420, which is an aggravated form of cheating by which the victim is dishonestly induced to deliver property, the company cannot be prosecuted as there is a mandatory sentence of imprisonment. 28. So also there are several other offences in the Penal Code which describe offences of serious nature whereunder a corporate body also may be found guilty, and the punishment prescribed is mandatory custodial sentence. There are a series of other offences under various statutes w....
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.... 11 SCC 405 : 2004 SCC (Cri) 1214] on this point and answer the reference accordingly. Various other contentions have been urged in all appeals, including this appeal, they be posted for hearing before an appropriate Bench." 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." 19) After applying a ratio laid down by the Hon'ble Supreme Court in the case of Iridium India Telecom Ltd. (Supra), it is clear that, the accused No.1-Morgan is a necessary party for proper adjudication of the complaint. It is to be noted here that, the Letter of Pledge (Agreement) dated 7th March, 2000 is executed by the Authorized Signatory of the complaint on behalf of it, in favour of the accused No.1 company and therefore also impleadment of Morgan (A-No.1) is necessary for proper adjudication of the present complaint. The contention that, the a....