TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 1825
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....the offence punishable under Sections 418, 420,465, 467, 468, 471, 477(a), 506(2) read with 120(b) of the Indian Penal Code. 3] It is stated by respondent No.3 in his complaint that he is carrying on business of fabrics and clothing through his companies namely Tushar Fabrics Pvt. Ltd and Tushar Clothing Pvt .Ltd. He was introduced to applicant Ramesh D. Shah by one Mr. Jayesh Tanna, who is contractor, in one of the companies of the applicant Ramesh Shah. 4] In pursuance of the various negotiations held between the parties, respondent No.3 agreed to invest the substantial amount of funds in the company of the applicant by accepting 45% equity share holding in ETCO Denim Pvt. Ltd. According to respondent No.3 on various representations and inducements made by the applicant Ramesh Shah, he agreed to enter into Share Holding Agreement on 12.12.2012, according to which he was to be appointed on the Board of Directors and designated as Vice Chairman of ETCO Denim on execution of agreement. Moreover, as Vice Chairman, he was to receive remuneration of Rs. 2.75 lacs per month. All important decisions of the company were to be taken jointly by him and the applicant Ramesh Shah. In pursua....
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....utorship to him and his company, applicant Ramesh Shah caused him loss of Rs. 35.40 crores. As a result, he also suffered loss in his goodwill and reputation. Thus, according to respondent No.3, applicant Ramesh Shah along with other two applicants and other accused including the various banks, in connivance with each other, committed criminal breach of trust and cheated him to the tune of Rs. 94.13 crores in respect of the investments made by him and his group companies in ETCO Denim Company. 7] It is on this complaint of the respondent No.3 that C.R. bearing No.78 of 2016 came to be registered and the investigation thereof is at present being carried out by Economic Offence Wing, Mumbai. 8] According to learned counsel for the applicants, even the bare perusal of this complaint is more than sufficient to reveal that the entire dispute is arising out of the Share Holding Agreement entered into between the parties and therefore, this dispute is predominantly of a civil nature and hence availing criminal remedy to settle the same is totally a gross abuse and misuse of the law. It is further submitted by learned counsel for the applicants that respondent No.3 has already availed ci....
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....vil jurisdiction and not even prima facie case is made out in the complaint for the offence punishable under Sections 418, 420,465, 467, 468, 471, 477(a), 506(2) read with 120(b) of the Indian Penal Code. In our opinion, even if the allegations contained in the complaint are taken to be true on their face value, complaint gives a clear impression that it is primarily a case where respondent No.3 is alleging breach of the terms and conditions of the Share Holding Agreement executed between the parties on the ground that the applicant Ramesh Shah is not acting in accordance therewith and not making the payments as demanded by respondent No.3. 13] It is a common ground between the parties that Share Holding Agreement was entered into between the applicant Ramesh Shah and respondent No.3 on 12 th December, 2012, a copy of which is produced at Exhibit "A". Clause (D), (E) and (F) of the Agreement reads as under :- "D. That Shareholder No.3 (Respondent No.3) is one of the leading and renowned distributors of the Denim Fabric in India and is well versed with the market conditions. Shareholder No.3 is also the Chairman and equity Shareholder in another two companies i.e. Tushar Clothing....
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....es of the Agreement provide for the appointment of respondent No.3 on the Board of Directors as Vice Chairman, with remuneration of Rs. 2.75 lacs per month. 17] In pursuance of the said Agreement, respondent No.3 has invested total amount of Rs. 49.83 crores. The first grievance of respondent No.3 is that applicant Ramesh Shah has not acted in accordance with this Agreement and thereby caused substantial financial loss to him. The crux of this complaint can be found in the specific averments made in the complaint as follows :- "The initial investment made by me and my group companies with ETCO was Rs. 49.83 Crores. Taking into consideration aforesaid basic investment, Ramesh Shah and ETCO Denim Pvt. Ltd, are bound to pay the interest amount of Rs. 29.35 crores to me and my group companies. Similarly, Ramesh Shah and ETCO Denim Pvt. Ltd were bound to give me and my companies exclusive distributorship of Denim Fabrics to be manufactured by ETCO Denim Pvt. Ltd., from May 2013 onwards. If they had given this distributorship to me and my companies, we could have earned approximately Rs. 35.40 crores as on today. Ramesh Shah and ETCO Denim Pvt. Ltd, by denying this distributorship to ....
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....rent that the grievance is against subsequent non-fulfillment of terms and conditions of the Agreement and not of applicant Ramesh Shah having such intention of cheating since beginning. 21] Even the recitals in the Agreement reveal that it was the respondent No.3 who has approached the applicant Ramesh Shah for making investment in the company of the applicant. Paragraph (d) of the Agreement, as referred above, makes it clear that it was respondent No.3, who has shown interest in the business of the applicant's company and accordingly approached the applicant Ramesh Shah to buy shares of the company. The Agreement was, therefore, executed at the instance of respondent No.3 and hence the question of applicant inducing the respondent No.3 to enter into such an agreement, with fraudulent intention of cheating him since beginning does not arise. Therefore, apparently the dispute appears to be in respect of breach of the Agreement, which may be on account of subsequent developments, in respect of which allegations and counter allegations are made by the parties against each other. On the basis of mere breach of Agreement, it would not be possible to hold that applicant Ramesh Shah....
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....reasonably expect. Therefore, to my mind, an order for an investigation would be unjust and improper. Further, an investigation may seriously damage the reputation of a Company and should not be ordered without proper material gathered in the manner provided in law. ... ... ...." (emphasis supplied) 27] Thus, a clear finding is arrived at, about the allegations made in the complaint, by the Company Law Board totally ruling out mismanagement of the affairs of the company or any fraudulent intention. It was also held that there was no mismanagement and siphoning of funds. The allegations of illegal alteration of share holding and denial of information to the complainant were also negated. 28] It is also pertinent to note that two Summery Suits for recovery of the amounts bearing COMS/188/2016 and COMS/222/2016, respectively, are pending in the Court which are filed by Respondent No.3 Company M/s Tushar Fabrics. The applicant's company Denim Private Limited has also filed Summery Suit No.COMSL/257/2016 for recovery of Rs. 124 crores towards loss and damages for non lifting of denim by Respondent No.3. Arbitration Petition No. ARBP/262/2017 under Section 14 has also been filed ....
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....fficult to disbelieve the reports of these independent persons merely because they are favouring to applicant Ramesh Shah or to infer connivance between them and applicant so as to implead them also along with consortium of banks as accused in the case. 31] With regard to the complaint made by respondent No.3 to the Corporation Bank, in this respect, the bank has in it's meeting dated 27.3.2014, specifically held that :- "With regard to valuation of machineries and end use of the loan amount, it was observed that a Competent LIE i.e. M/s Yardi Prabhu from the panel of Lead Bank, was appointed, who has made six visits to the site from time to time. LIE reports and CA's certificates were duly requisitioned at regular intervals for monitoring of the project. On completion of the project, another LIE i.e. M/s A.V. Shetty & Associates from Lead Bank's panel list was also engaged. The fresh valuations have been carried out by M/s A.V. Shetty & Associates and they have already submitted their report wherein the valuation of machinery and the project on the whole have been found to be satisfactory. The report concludes as under:- "After inspection and verification of the c....
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....so do not make out ingredients of the criminal offence, though at the most they may attract civil dispute, for which respondent No.3 has already taken recourse to the civil law and therefore, on this count also, complaint needs to be quashed and set aside. 35] In this respect, one can safely place reliance on the observations of the Apex Court in the case of Chandran Ratnaswami -vs- K.C. Palanisamy and ors (2013) 6 SCC 740, relied upon by learned counsel for applicant, wherein it was held that, when the disputes are of civil nature and finally adjudicated by the competent authority, as in the present case, by the Company Law Board and the disputes are arising out of alleged breach of joint venture agreement and when such disputes have been finally resolved by the Court of competent jurisdiction, then it is apparent that complainant wants to manipulate and misuse the process of Court. In this judgment, it was held that, it would be unfair if the applicants are to be tried in such criminal proceeding arising out of the alleged breach of a Joint Venture Agreement. It was further held that the wholesome power under Section 482 of Code of Criminal Procedure entitles the High Court to q....