Madhya Pradesh High Court
Rahis Ahmed vs The State Of Madhya Pradesh on 22 July, 2011
Author: R.C. Mishra
Bench: Vimla Jain, R.C. Mishra
HIGH COURT OF MADHYA PRADESH : JABALPUR
----------------------------------------------------------------------------------------------------------------------------------------------------
Present: Hon'ble Shri Justice R.C. Mishra
Hon'ble Smt. Justice Vimla Jain
----------------------------------------------------------------------------------------------------------------------------------------------------
Misc. Cr. Case No.1983/2011
Rahis Ahmed, son of Aziz Ahmed,
aged about 50 years, Resident of 1002,
Panchtantra Towers, Yari Road, Andheri (West)
Mumbai - 400 061 (MAH) ...Petitioner
vs.
State of Madhya Pradesh, through SHO
P.S. State Economic Offence, Investigation Bureau
Bhopal (M.P.) ...Respondent
----------------------------------------------------------------------------------------------------------------------
Shri Kishore Shrivastava, Senior Counsel with Shri S.A. Khan,
Advocate for the petitioner.
Shri Umesh Pandey, Standing Counsel for the respondent/State
----------------------------------------------------------------------------------------------------------------------
Date of Hearing : 11.04.2011
Date of Order : 22.07.2011
ORDER
Per R.C. Mishra, J.
This is a petition, under Section 482 of the Code of Criminal Procedure (for short 'the Code'), for having the prosecution for the offences punishable under Sections 420 and 120B of the IPC and 13(1)(d) read with Section 13(2) of the Prevention of Corruption Act, 1988 (hereinafter referred to as 'the Act'), quashed. The corresponding trial is pending as Special Case No.7/2007 in the Court of Special Judge (under the Act) at Bhopal.
2. In that case, cognizance of the offences has been taken against the petitioner upon a supplementary charge-sheet submitted on 31.03.2010 by State Economic Offence Investigation Bureau, Bhopal after further investigation into the case registered on 24.07.2004 as :: 2 ::
Misc. Cr. Case No.1983/2011Crime No.25/2004 at the Bureau in respect of the offences punishable under Sections 409, 420, 467, 468 and 120B of the IPC against the following office-bearers of Madhya Pradesh State Industrial Development Corporation (for brevity "MPSIDC"), a Government Company registered under the Companies Act, 1956 -
(i) Rajendra Kumar Singh, the then Chairman
(ii) Ajay Acharya, the then Director
(iii) J.S. Ramamurthy, the then Director
(iv) M.P. Rajan, the then Managing Director
(v) Narendra Nahta, the then Chairman
(vi) S.R. Mohanty, the then Managing Director as well as against the Directors of as many as 42 Defaulting Companies.
On 06.08.2004, the case was converted into one under Section 13(1)(d) read with 13(2) of the Act also. Among the persons arraigned as accused, S.R. Mohanty came up before this Court for getting the FIR as against him quashed. A single Bench of this Court, vide order- dated 19.01.2006 passed in MCrC No.8235/2005, granted the relief as prayed for by him. In such a situation, charge-sheet for the offences was submitted before the Special Court against all the accused except S.R. Mohanty. Thereafter, the Apex Court, vide its order-dated 03.02.2011 passed in Cri. Appeal No.511/2006, has set aside the aforesaid order and directed the Investigating Agency to complete the investigation against S.R. Mohanty within a period of 6 months.
3. Briefly stated, the accusations made against the Chairpersons and Directors of MPSIDC are that they were involved in a conspiracy to defraud the MPSIDC to the tune of crores of rupees and to misappropriate the surplus fund and in pursuance thereof, they passed a resolution on 19.04.1995 knowing fully well that it was illegal & :: 3 ::
Misc. Cr. Case No.1983/2011unauthorized and, thereafter, continued to act upon it and in the process, also misappropriated additional sum of Rs.517 crores, secured as debt, by disbursing the entire money of MPSIDC, to various companies as loans in the name of Inter-Corporate Deposits (ICDs), even without obtaining reasonably sufficient collateral security for repayment thereof.
4. Relevant contents of the main charge sheet as well as the supplementary charge sheet as against the above-named accused may be summarized as under -
(i) MPAVN Madhya Pradesh Audyogic Vikas Nigam (renamed as MPSIDC) was constituted to promote industrialization in the State of Madhya Pradesh and to provide financial assistance to Industrial Units in the State. The State Cabinet, at its meeting held on 28.01.1994, had the occasion to appraise the activities of the Corporation as well as its financial status. A decision was taken to inhibit MPSIDC from financing industries any further. In accordance with the Cabinet decision, the Board of Directors of MPSIDC, at its 225th meeting held on 31.01.1994, passed a resolution to stop the financial assistance forthwith. The corresponding agenda-note prepared by the Company Secretary Pankaj Dubey read as under -
"That after the review of performance, the Cabinet took the decision that in view of the recent liberalization on measures taken by the Government of India in respect of the economy and the Industry, the RBI approval to the All India Financial Institutions/Banks to sanction projects up to Rs.50 crores, the lowering of interest rate by the Banks, the comfortable CRR and SLR of the Banks and consequent :: 4 ::Misc. Cr. Case No.1983/2011
enhanced liquidity, the considerably enhanced degree of professional and commercial orientation requiring financing under the changed economic scenario, there is no justification for MPSIDC to engage in financing and it should be stopped forthwith. The Cabinet also noted that the performance of MPSIDC in respect of its financial operations had been rather unsatisfactory and has resulted in an adverse portfolio situation and evidenced by the asset classification as on 31.031993 whereby approx 60% of the loan account were in sub- standard/doubtful/loss category."
(ii) Acting upon the Cabinet decision, Department of Commerce and Industry, Government of M.P., also issued a Circular No.F-20/1/94/11/B dated 03.03.1994 requiring all the departments/institutions concerned including MPSIDC to discontinue financial assistance to industries and also to concentrate on development of basic infrastructure amenities to the large as well as medium scale industries in the State.
(iii) However, pursuant to a conspiracy hatched for defrauding the MPSIDC, the Board of Directors, in utter contravention of the policy decision taken by the Cabinet, consequent resolution and the circular-dated 03.03.1994 (supra), passed a resolution at its 229th Meeting held on 19.04.1995, authorizing M.P. Rajan, the then Managing Director, to invest surplus funds of MPSIDC in Inter-Corporate Deposits (ICDs), Fixed Deposits (FDs) or in any other form, and also to decide the period of investment and rate of interest from time to time. Apparently, this resolution was also violative of (a) the Memorandum and Article of Association of MPSIDC and (b) the provisions of sub-section (1)(e) and sub-section (4) of Section 292 of the Companies Act, 1956, which impose restrictions and conditions on the exercise by the Board of :: 5 ::
Misc. Cr. Case No.1983/2011Directors of powers to advance loans. Moreover, in the 32nd Annual General Meeting of the MPSIDC held on 21.08.98, the limit of financial assistance to the companies was enhanced from Rs.3.00 crores to Rs.15.00 crores, without obtaining any approval from the State Government, as contemplated under sub-clause (ii) of Article 110 of the Memorandum of Association.
(iv) At the 240th meeting of the Board of Directors held on 30.11.1998, M.P. Rajan, the then Managing Director, was able to get the borrowing capacity of MPSIDC increased from 175 crores to 500 crores on the ground that a total amount of Rs.173.72 crores had already been borrowed whereas by the end of the financial year, investment (presumably by way of ICDs) was expected to reach their limit of Rs.500 crores. By way of this resolution, the Managing Director was authorized to secure loans as well as to invest the amount thus obtained. This resolution was passed without prior approval of the State Government as required under Clauses 57, 58 and 60 of the Memorandum of Association, despite the fact that the Cabinet had already disapproved the activity of financing/funding by MPSIDC.
(v) Under aforesaid resolution-dated 30.11.1998, a total amount of Rs.511.57 crores was collected by M.P. Rajan and other Directors of MPSIDC as per the following details -
S.No. Particulars of lending Institution Amount (Rs.) 1 Indian Industrial Development Bank 150.00 crores 2 Mumbai District Co-operative Bank 110.00 crores 3 Holders of Bonds of MPSIDC (14.4%) 81.61 crores :: 6 ::
Misc. Cr. Case No.1983/20114 Bombay Mercantile Co-operative 75.00 crores Bank Ltd.
5 Apex Urban Bank of Maharashtra 55.00 crores and Goa 6 Syndicate Bank (Overdrafts) 12.00 crores 7 Subordinate Units of the Corporation 27.96 crores and other Corporations of M.P. Total 511.57 crores
(vi) During the period from 1995 to 2002, all the accused named above, under the garb of the resolution dated 19.04.1995, distributed, even without taking adequate security for repayment, crores of rupees by way of ICDs to as many as 42 companies and thus, caused wrongful gain to the Directors of these Companies and corresponding wrongful loss to the MPSIDC.
(vii) M.P. Rajan was relieved of the charge from post of Managing Director on 20.01.2000. However, at its 243rd meeting held on 25.05.2000 under the Chairmanship of Narendra Nahta, a decision was taken to continue with the financing by way of ICDs ignoring the adverse comments recorded in the Financial Status Report.
(viii) The Comptroller and Auditor General of India, in his report pertaining to the financial year ending 31st of March, 2000, also noted that while investing the surplus amount in the ICDs, the Board of Directors neither formulated policies/ procedures/guidelines nor followed the directions issued by the Reserve Bank of India in this regard. It was also pointed out that conferment of power on the Managing Director to make :: 7 ::
Misc. Cr. Case No.1983/2011loans without fixing the maximum limit of deposits was contrary to the provisions of the Companies Act.
(ix) Reserve Bank of India, while observing that under Section 45-I(a) of the Reserve Bank of India Act, 1934, registration of MPSIDC as a non-banking financial institution (NBFI) was a pre-condition for the purpose, also raised objection to the investment of surplus money in the ICDs. In the wake of the objection, the Board of Directors, at its 251st meeting, resolved to apply for the registration and, accordingly, on 06.11.2002, the then Dy. General Manager of MPSIDC forwarded the corresponding proposal to the RBI. In turn, the RBI issued a notice to show cause not only against proposed rejection of the registration application but also against prosecution for the offence punishable under Section 58B(4A) of the RBI Act of 1934 for functioning as a NBFI right from 19.04.1995 without ensuring that as on 31.12.2002, the Net Owned Fund (NOF) ought to have been Rs.200 lacs whereas the balance sheet reflected that as on 31.03.2000, NOF was minus Rs.9415.29 lacs. Ultimately, the RBI, not being satisfied with the explanation tendered on behalf of MPSIDC in its reply dated 30.07.2003, proceeded to reject the registration application vide its order-dated 18.03.2004.
5. As indicated already, cognizance of the offences against the petitioner has been taken upon a supplementary charge-sheet presented on 31.03.2010 by State Economic Offence Investigation Bureau, Bhopal. The other persons impleaded as accused in the additional charge sheet are -
(i) G.K. Rathi, Director/Promoter of M/s Geekay Exim :: 8 ::
Misc. Cr. Case No.1983/2011(India) Limited (hereinafter referred to as the 'Company').
(ii) Anuj Kumar Rathi, Director/Promoter of the Company.
(iii) A.D. Nagpal, Director/Promoter of the Company.
(iv) A.S. Naik, Senior General Manager (Finance & Accounts) of the Company.
M.L. Swarnkar, the then General Manager (Accounts) of MPSIDC, who was also allegedly involved in the offences, had expired during investigation.
Allegations contained in the supplementary charge sheet, in substance, are that the respective roles played by the petitioner and the co-accused in securing the ICDs also constituted parts of the conspiracy to cheat the MPSIDC and in pursuance thereof, they were able to obtain, even without furnishing adequate security for repayment thereof, a total sum of Rs.24 crores as financial assistance by way of ICDs as per the following details -
Amount On
14 crores 06.08.1999
06 crores 21.09.1999
04 crores 20.01.2000
In support of the allegations and the inference that right from the inception, they had no intention to repay any amount covered under the ICDs, the under-mentioned acts and omissions directly attributable to the accused persons have been highlighted -
(a) The resolutions passed by Board of Directors of the Company to obtain the financial assistance from time to time were not forwarded to MPSIDC.
(b) Although, M.P. Rajan, the then Managing Director of :: 9 ::
Misc. Cr. Case No.1983/2011MPSIDC was transferred vide order dated 30.12.1999 yet, he had sanctioned the last instalment of Rs.4 crores to the Company on 20.01.2000 immediately before being relieved of the charge and he was further instrumental in illegally obtaining a sum of Rs.5 lacs, Rs.1 lac and Rs.1 lac respectively as INTACT-MART, CONNECT-98 & DESTINATION-M.P-99 and had also toured foreign countries at the expenses of the Company.
(c) Disbursement of each instalment of the ICDs involved violation of Clause 110(2) of the Memorandum of Association requiring MPSIDC to take sanction of State Government before providing financial assistance of more than Rs.3 crores.
(d) The Company had no industrial unit in the State of Madhya Pradesh and was not, in any way, concerned with the industrialization in State of M.P, the purpose for which MPSIDC was constituted. Moreover, additional financial assistance was given to defaulter companies (which were not able to repay the earlier debts or even the amount of interest).
(e) There is no record as to receipt of the letter of request dated 15th July, 1999 authored by G.K. Rathi, the Director, whereupon first ICD of Rs.14 crores was released by M.P. Rajan in favour of the Company. The letter only indicated that the company having tied up with a Fortune 500 Company and Handy and Harman Refining Group Inc. USA required funding for setting up of Atomizing, Refining and Fabrication in India.
(f) G.K. Rathi had pledged his 10 lacs shares in the Company as :: 10 ::Misc. Cr. Case No.1983/2011
collateral security in favour of MPSIDC as against the ICDs of Rs.15 crores each provided to two other companies namely Snowcem India Ltd and Killick Nixon Ltd. and on the date of filing of supplementary charge sheet, a total of Rs.43 crores was outstanding against these companies.
(g) The loan by way of first ICD of 14 crores was disbursed even without obtaining sanction of the State Government.
Thereafter, only interest accrued on this amount till January, 2001 was paid.
(h) Even in absence of any period in the corresponding application, the monetary assistance was provided to the Company for a term of 5 years.
(i) Although, plants and machinery belonging to M/s Tirumala Impex (Pvt.) Ltd. were hypothecated in respect of first two instalments of ICDs for a total amount of Rs.20 crores yet, the first charge was not created in favour of MPSIDC.
(j) With regard to the last instalment of the ICD worth Rs.4 crores, no property was hypothecated in favour of MPSIDC.
(k)Most of the post-dated cheques issued for repayment of the outstanding amounts were dishonoured by Federal Bank, Mumbai that was not shown as Banker of the Company in its balance sheet for the year 1999-2000. Moreover, the cheques were deliberately issued by the Directors on the Federal Bank with which only nominal amounts were found deposited as reflected in the following table -
S.No. Date of Amount Amount available in
:: 11 ::
Misc. Cr. Case No.1983/2011
cheque covered by Bank (as per attested
cheque statement)
1. 01.05.2001 27,75,000.00 34,22,000.13
2. 01.08.2001 27,75,000.00 22,000.13
3. 01.11.2001 27,75,000.00 21,500.13
4. 01.02.2002 27,75,000.00 21,500.13
5. 01.05.2002 27,75,000.00 21,200.13
6. 01.08.2002 27,75,000.00 00.13
7. 01.08.2002 6,00,00,000.00 00.13
(l) The Directors of the Company did not rectify the
defects/deficiencies in the documents executed in favour of MPSIDC despite letter-dated 21.09.2001 authored by S.R. Iyer, the then Dy. G.M. of MPSIDC.
(m) MPSIDC had not taken appropriate legal action for dishonour of cheques within the specified period. It was on 13.05.02 that its Manager (Accounts) sent a letter to the Legal Section along with a dishonored cheque for a sum of Rs. 64.75 lakhs for necessary action. Thereafter, on 12.08.2002, a similar letter was addressed to the Legal Section for initiating action in respect of 4 dishonored cheques for a total amount of Rs.20.93 crores. Although, the Legal Section had sent demand notices to the Company and its Directors but the same were returned unserved with the report that the Office of the Company had already been closed. Subsequently, in the note-sheet dated 08.04.2003, S.J. Golhani, the then Manager, had mentioned the fact that criminal cases regarding dishonoured cheques for a total sum of Rs.530.50 lacs only were pending.
(n) On 28.04.2004, notice was issued to M/s Tirumala Impex :: 12 ::
Misc. Cr. Case No.1983/2011Pvt. Ltd. indicating that in case of failure to pay the outstanding amount, action would be initiated for attachment and sale of the properties hypothecated in favour of MPSIDC but no action was taken. Similarly, no follow up action was taken in respect of the letter dated 30.04.2004 authored by Managing Director of MPSIDC asking the Company to pay a total amount of Rs.39.89 crores by 5 th May, 2004.
6. Learned Senior Counsel has termed continuance of prosecution of the petitioner as an abuse of the process of the Court on these grounds -
(A) Even if the allegations contained in the charge-sheet and the documents annexed thereto are taken at their face value, no offence would be made out against the petitioner.
(B) None of the documents relating to security or repayment against the ICDs bears his signature.
(C) There is no iota of evidence to suggest that he, in any way, influenced the decision-making procedure followed by MPSIDC in providing financial assistance to the Company by way of ICDs.
(D) The petitioner is not even a beneficiary or recipient of any amount of money disbursed on behalf of MPSIDC.
(E) There is no legal evidence to support the petitioner's involvement in the alleged criminal conspiracy.
(F) Merely because he happened to be the Director & Managing Director of the Company, he cannot be held criminally liable in absence of any specific allegation :: 13 ::
Misc. Cr. Case No.1983/2011demonstrating his role in the alleged conspiracy or the related offences.
(G) A criminal conspiracy cannot be inferred or presumed without there being legal evidence or convincing circumstances to show its existence.
7. In response, learned Government Advocate has submitted that the Company, though a legal person, has not been arraigned as an accused in view of the fact that the offending acts were committed by the Directors thereof. According to him, the petitioner has been charge-sheeted as one of the persons involved in the conspiracy and other offences committed pursuant thereto, in view of the following facts and circumstances -
(i) Entire amount of Rs.24 crores was deposited in the Company's Bank Account during the period when the petitioner was working as Executive Director/Director of the Company and therefore, was expected to be aware of day-to-day business as well as affairs of the Company.
(ii) Some of the cheques issued for repayment of the interest accrued on the ICDs were dishonoured by the bank during the tenure of the petitioner as Managing Director of the Company.
(iii) The petitioner, in the official capacity of Executive Director of the Company, did not take any further action to repay the amount covered by the dishonoured cheques and the other amounts outstanding against the ICDs, despite the fact that
-
:: 14 ::
Misc. Cr. Case No.1983/2011(a) his attention was invited to the non-payment of interests over dues, by way of some of the communications (Annexure 'R2' and 'R3').
(b) the petitioner, at the meeting with S.R. Iyer, Dy. G.M. of MPSIDC, had promised to ensure payment of at least Rs.50 lakhs to 1 crore by 15th February, 2002 and also to pay the balance during the period of next 3 months, as reflected in the note-sheet (Annexure 'R4').
(iv) The resolution passed by the Board of Directors of the Company on 29.09.1999 to affix a common seal of the Company on the deed of hypothecation dated 01.11.1999 (Annexure 'R1') whereby the plants and machinery of Tirumala Impex (Pvt.) Ltd, a Company incorporated and registered under the Companies Act, 1956, were hypothecated in favour of MPSIDC as security for repayment of an amount of 20 crores, clearly indicated that it was a collective decision and not an individual one.
According to him, - the fact that none of the documents relating to security or repayment bears his signature is of no consequence simply because the petitioner was not only responsible to the Company for the conduct of business thereof, in his capacity as one of the members of the Board of Directors but also, had no intention, right from the beginning, to get the amounts covered by the ICDs repaid.
8. In reply, learned Senior Counsel has contended that the petitioner cannot be made vicariously liable for the offences committed in respect of the monies entrusted to the Company :: 15 ::
Misc. Cr. Case No.1983/2011particularly when it has not been arraigned as an accused. For this, reference has been made to a series of pronouncements of the Supreme Court, noted below -
(i) Asoke Basak v. State of Maharashtra, (2010) 10 SCC 660
(ii) Maharashtra State Electricity Distribution Company Limited v. Datar Switchgear Limited, (2010) 10 SCC 479
(iii) Keki Hormusji Gharda v. Mehervan Rustom Irani, (2009) 2 SCC (Cri) 1113
(iv) Sharon Michael v. State of Tamil Nadu (2009) 2 SCC (Cri) 103.
(v) S.K. Alagh v. State of U.P. (2008) 2 SCC (Cri) 686.
(vi) Maksud Saiyed v. State of Gujarat (2008) 2 SCC (Cri) 692.
(vii) Vijaya Rao v. State of Rajasthan 2006 (1) Crimes 65 (SC)
9. Further, to buttress the contention that a Director of the Company can be made liable for the offences allegedly committed by the Company only if he was in-charge of and responsible to the Company for the conduct of its business, reliance has been placed on the following set of decisions -
(i) Harshendra Kumar D. v. Rebatilata Koley JT 2011 (2) SC 586
(ii) Central Bank of India v. Asian Global Ltd. AIR 2010 SC 2835
(iii) National Small Industries Corporation Ltd. v.
Harmeet Singh Paintal (2010) 2 SCC (Cri) 1113
(iv) K.K. Ahuja v. V.K. Vora (2009) 10 SCC 48
(v) K. Srikanth Singh v. North East Securities Ltd. (2007) 12 SCC 788
(vi) Raghu Lakshminarayanan v. Fine Tubes (2007) 5 SCC 103
(vii) N.K. Wali v. Shekhar Singh (2007) 3 SCC (Cri) 203 :: 16 ::
Misc. Cr. Case No.1983/2011(viii) Saroj Kumar Poddar v. State of NCT (Delhi), (2007) 3 SCC 693
(ix) Sabitha Ramamurthy v. R.B.S. Channabasavaradhya, (2006) 10 SCC 581
(x) S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2005) 8 SCC 89 A bare reading of these precedents would reveal that they relate to the provisions of Sections 138 and 141 of the Negotiable Instruments Act, 1881 and are based on a three-judge Bench decision of the Apex Court in S.M.S. Pharmaceuticals's case (supra) wherein the nature and extent of the liability under Section 141 of the Act was explained in the following terms -
"The liability under S. 141 arises from being in charge of and responsible for conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a Company may be liable if he satisfies the main requirement of being in charge of and responsible for conduct of business of a Company at the relevant time. Liability depends on the role one plays in the affairs of a Company and not on designation or status. If being a Director or Manager or Secretary was enough to cast criminal liability, the Section would have said so. Instead of 'every person' the Section would have said 'every Director, Manager or Secretary in a Company is liable'... etc. The legislature is aware that it is a case of criminal liability, which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action"
10. On a conspectus of the subsequent decisions on the subject, the Supreme Court in Harshendra Kumar's case (supra) has quoted with approval the following principles culled out in Harmeet Singh Paintal's case (above) -
:: 17 ::
Misc. Cr. Case No.1983/2011(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable.
For fastening the criminal liability, there is no presumption that every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.
(iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.
(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred.
(v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.
(vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint.
(vii) The person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred :: 18 ::
Misc. Cr. Case No.1983/2011as a fact as there is no deemed liability of a Director in such cases."
(Emphasis supplied)
11. However, we are not required to delve into the question of liability under Section 141 of the N.I. Act any further as, in the present case, the petitioner has not been prosecuted for dishonour of any cheque issued for and on behalf of the Company. As pointed out already, the circumstances attending dishonour of cheques and subsequent non-payment of the amounts covered thereby at the time when the petitioner was working as Executive Director/Director/ Managing Director have been projected to bring home his complicity in the offences of conspiracy and cheating. This apart, fact of the matter is that the Company has not been arraigned as an accused.
12. Adverting to the other series of cases as enumerated in Para 8 (above), it may be observed that proceedings relating to prosecution of the office-bearers of the Company have been quashed therein on the ground that Indian Penal Code does not except in some matter, create vicarious liability. In order to deal with this aspect of the matter, reference may also be made to the facts of the cases.
13. In Asoke Basak's case (ibid), cognizance of the offences punishable under Sections 406 and 409 read with 34 of the IPC was taken against Chairman of MSEB (Maharashtra State Electricity Board) upon the complaint made by respondent no.2-M/s Datar Switchgear Ltd., a Company, to the effect that a sum of Rs.5 lacs deposited as security to bid for tenders invited by MSEB was dishonestly and wilfully adjusted against dues payable by the Company. The Supreme Court, while observing that -
(i) MSEB was not arraigned as an accused.
:: 19 ::
Misc. Cr. Case No.1983/2011
(ii) The complaint did not contain any specific averments,
demonstrating role of the Chairman in commission of the offences.
(iii) The complaint did not reveal any pre-concert for the planning to misappropriate the amount in question,
- proceeded to quash the order-taking cognizance as against the Chairman.
14. In Maharashtra State Electricity Distribution Co. Ltd v. Datar Switch Gear Ltd. [supra], various contracts were entered into between complainant-company and MSEB (Maharashtra State Electricity Board) for installation of (Low tension load management systems) LTLMS and during the validity period of the contract, on 19.02.1999, the complainant partially terminated the contract conveying that it would not install any more LTLMS and on 21.04.1999 terminated the contract in its entirety and in wake of the dispute, the High Court of Bombay vide order dated 05.05.1999 referred the dispute to the Arbitral Tribunal. The Tribunal passed the final Award whereby it directed MSEB to pay an amount of Rs.1,85,97,86,399/- as damages to the Company together with interest and also observed that MSEB had introduced certain fabricated documents in evidence. A complaint was filed against the appellant- Company, the successor-in-interest of MSEB and its Chairman in respect of the offences under Sections 192 and 199 read with 34 of the IPC. Rejecting the contention that joint action of the accused attracted vicarious liability under IPC for fabricating the documents, the Supreme Court, while pointing out that -
(i) neither Section 192 nor Section 199 incorporate principle of vicarious liability :: 20 ::
Misc. Cr. Case No.1983/2011(ii) in absence of any specific averment in the complaint as to the participation of Chairman in commission of the offences, one could not draw a presumption that he was responsible for all acts committed by or on behalf of the Company,
- opined that it was a fit case where the High Court should have exercised power under Section 482 of the Code.
15. In Keki Hormusji Gharda's case (above), the appellants, being the Managing Directors and Directors of a Limited Company, took a decision to get the access road leading to Villa, owned by a Company, repaired through a contractor. Opposing the move, the first respondent initiated criminal proceedings against the appellants and the architect on the ground that they had committed offence of wrongful restraint by obstructing the way of himself and his family members due to alleged illegal repair of the road. The Apex Court, placing reliance on earlier decision in Pepsi Foods Ltd., M/s. v. Special Judicial Magistrate AIR 1998 SC 128, allowed the appeal and reiterating the principle that office bearers of a Limited Company are not personally liable for commission of an offence under the Penal Code, quashed the order summoning the appellant as accused.
16. In the case of Sharon Michael's case (ibid), "E", a German Company approached "M" in Hong Kong for supply of certain garments; "M", however, contacted "T", the appellant Company to procure those goods and supply them to "E". The appellant Company in turn approached A, the complainant, for supply of aforesaid goods. In furtherance of the contract entered into by and between the parties, the consignment of the garments, which were certified by T to be in good condition, was exported by A. The buyer Company E refused to accept the shipment on the premise that on a random checking too :: 21 ::
Misc. Cr. Case No.1983/2011many defects were noticed in the garments and as such, the goods being sub-standard were not acceptable. Upon the FIR lodged by the complainant for the offences under Sections 120B, 405, 409 and 420 IPC, summons were issued to the appellants. Taking note of the fact that there was nothing to show that the appellants, who held different positions in appellant Company, had made any representation in their personal capacities; the Supreme Court quashed the summons issued to them.
17. In Maksud Saiyed's case (supra), the Supreme Court had the occasion to deal with the question of vicarious liability of Directors for the charges levelled against the Company in respect of the offences under Sections 120B, 177, 181, 191, 192, 425 and 500 of the IPC. In that case, defamatory remarks were made regarding company's debt but due to inadvertence, a wrong statement was made in the prospectus that the suit for recovery of such debt was pending before DRT whereas it was, in fact, pending before the City Civil Court. It was held that in absence of any provision in the Penal Code for attaching vicarious liability on the part of the Managing Director or the Directors of the accused Company, complaint was liable to be quashed under the inherent powers.
18. The principle explained in Maksud Saiyed's case was followed in S.K. Alagh's case (above). In that case, the complainant, an ex- wholesale dealer of a Company, after termination of his dealership, had sent demand drafts to the Company for supply of goods on the ground that the dealership was subsequently reiterated by it and thereafter, proprietor of the dealer filed complaint before the CJM alleging commission of offence under Section 406 IPC by the Company and its Managing Director on the ground that company with mala fide intention neither supplied the goods nor returned the money.
:: 22 ::
Misc. Cr. Case No.1983/2011The Apex Court, while pointing out that vicarious liability is not extendable to the Director of the Company even in a case falling under Section 406 of the IPC, proceeded to quash the complaint and also imposed cost to the tune of Rs.1 lac for causing harassment to the appellant.
19. In Vijaya Rao's case (above), cognizance of the offence under Section 420 of the IPC was taken against accused no.1 and 2 on the allegation that, being in-charge of the business activity of Company whose debentures were held by the complainant, they had failed to pay interest thereon and the appellant was summoned as accused no.3 in her capacity as Vice President of ICICI Ltd. upon the allegation that she had acted as trustee on behalf of the debenture-holders. The Apex Court quashed the proceedings as against the appellant observing that except using the expression "fraudulent misappropriation and mala fide intention" the allegations contained in the complaint did not at all disclose as to how the appellant could be found guilty of the offence under Section 420 of IPC.
20. But, none of the aforesaid decisions is of any avail to the petitioner in the present case as it reflects an altogether different factual scenario. The petitioner and other Directors of the Company stand prosecuted in respect of the offences under Sections 120B and 420 of the IPC and 13(1)(d) read with 13(2) of the Act, for rendering necessary assistance to the Managing Director and other office- bearers of the MPSIDC in defrauding it and misappropriating a huge amount of public money in the form of surplus funds as well as the amount secured as debt for the purpose. They certainly had a legal duty to show not only a reasonable level of skill, care and diligence in the discharge of their functions, but also to bring to bear such knowledge, skill and experience as they have. Further, a Director is :: 23 ::
Misc. Cr. Case No.1983/2011able to assess the nature and scale of operational risk attached to the business strategies adopted by the Company. As pointed out in S.M.S. Pharmaceuticals's case (supra), -
"a person normally having business or commercial dealings with a company, would satisfy himself about its creditworthiness and reliability by looking at its promoters and Board of Directors and the nature and extent of its business and its Memorandum or Articles of Association.
As such, the petitioner was also expected to know that MPSIDC is not a financial company but a Govt. Company established for promotion/development of industrialization in the State of Madhya Pradesh and further that MPSIDC was apparently guilty of commission of a large number of illegalities including violation of the provisions of Section 45(1A) of the Reserve Bank of India Act.
21. The facts - that no resolution was passed by the Board of Directors of the Company for securing financial assistance in the form of ICDs and further - that the Company, that was facing financial crisis and was ultimately winded up, was able to avail subsequent ICD of Rs.4 crores even without paying a single penny, give a clear picture as to the nature and likely consequences of the loan transactions. As contemplated by the explanation appended to Section 415 of the IPC and as exemplified in illustration (i) thereto, even a dishonest concealment of fact may tantamount to deception. Accordingly, it is the intention, which is important, and not whether a man is under a legal duty to disclose or suppress fact within his knowledge and the intention of the accused has to be gathered from the surrounding facts and circumstances including his subsequent conduct. In this view of the matter, suppression of material facts as to adverse financial status of the Company, of which the petitioner was Director/Managing Director thereof, for securing the loan by way of ICDs prima facie :: 24 ::Misc. Cr. Case No.1983/2011
amounted to cheating.
22. Coming to the offence of conspiracy, it may be seen that conspiracy is a matter of inference to be deduced from acts done or omission made in pursuance of the common design. The fact that the petitioner had allegedly joined the conspiracy at a later point of time, also does not assume any significance. For this reference may be made to the following observations of the Apex Court in S. Swami Ratnam v. State of Madras AIR 1957 SC 340 -
"In the case of single conspiracy although spread over for several years as long as there is one object of the conspiracy that is to cheat the members of the public, the fact that in the course of years others joined in the conspiracy of several instances of cheating took place in pursuance of the conspiracy does not change the conspiracy and it does not split up a single conspiracy into several conspiracies."
23. There is no difference between the mode of proof of the offence of conspiracy and that of any other offence : it can be established by direct evidence or by circumstantial evidence. But, Section 10 of the Evidence Act introduces the doctrine of agency and if the conditions laid down therein are satisfied, the act done by one is admissible against the co-conspirators (See. Bhagwan Swarup Lal Bishan Lal v. State of Maharashtra AIR 1965 SC 682). Direct evidence, being extremely rare, criminal conspiracy can be proved by the circumstantial evidence. In fact because of the difficulties in having direct evidence of criminal conspiracy, once reasonable ground is shown for believing that two or more persons have conspired to commit an offence then, anything done by anyone of them in reference to their common intention after the same is entertained becomes, according to Section 10 of the Evidence Act, relevant for :: 25 ::
Misc. Cr. Case No.1983/2011proving both conspiracy and the offences committed pursuant thereto (Noor Mohammad Mohd. Yusuf Momin v. State of Maharashtra AIR 1971 SC 885 referred to).
24. Furthermore, the offence of criminal conspiracy under Section 120-A is a distinct offence. The very agreement, concert or league is the ingredient of the offence. It is not necessary that all the conspirators must know each and every detail of the conspiracy as long as they are co-participators in the main object of the conspiracy. There may be so many devices and techniques adopted to achieve the common goal of the conspiracy and there may be division of performances in the chain of actions with one object to achieve the real end of which every collaborator be interested. There must be unity of object or purpose but there may be plurality of means some times even unknown to the others. The only relevant fact is that all means adopted and illegal acts done must be and purported to be in furtherance of the object of the conspiracy even though there may be sometimes mis-fire or over-shooting by some of the conspirators. Even if some steps are resorted to by one or two of the conspirators without the knowledge of the others it will not affect the culpability of those others when they are associated with the object of the conspiracy (Yash Pal Mittal v. State of Punjab, AIR 1977 SC 2433 relied on).
25. Glanville Williams [in Chapter 44 of "Textbook of Criminal Law" (2nd Edn.)], while discussing about criminal liability of persons committing an offence on account of or for the benefit of the Company, observes -
"The law recognizes corporate liability, but the device of incorporation is not a blot-hole for people who commit offences. A company can act only through :: 26 ::Misc. Cr. Case No.1983/2011
human beings and a human being who commits an offence on account of or for the benefit of a company will be responsible for that offence himself, just as any employee committing an offence for a human employer is liable".
26. Thus, in the light of the well-settled position of law on the subject, it is difficult to hold that even if the allegations are taken at their face value, the offence of criminal conspiracy would not be made out against the petitioner. Moreover, the above-mentioned facts and circumstances would go to suggest that it is not a case of vicarious liability for the offences committed by the Company. Obviously, the petitioner has been prosecuted for acting in furtherance of the common design underlying the conspiracy with the Managing Director and other office bearers of MPSIDC, to cause wrongful loss of a huge amount of public money to it.
27. This brings us to the petitioner's liability for the offence under Section 13(1)(d) read with 13(2) of the Act, allegedly committed by the public servants named as accused in the main charge-sheet. In this regard also, the status of the petitioner is of no relevance in view of well established principle, as explained in P. Nallammal v. State rep. by Inspector of Police AIR 1999 SC 2556, that the offences under the Act can be abetted by or committed in conspiracy with non-public servant also.
28. The nature, scope and purpose of Section 482 of the Code have been explained by the Supreme Court in umpteen number of cases. In State of Orissa v. Saroj Kumar Sahoo (2005) 13 SCC 540, after analyzing all the leading decisions concerning the subject, the legal position was summed up as under -
:: 27 ::
Misc. Cr. Case No.1983/2011"Exercise of power under Section 482 CrPC in a case of this nature is the exception and not the rule. The section does not confer any new powers on the High Court. It only saves the inherent power which the Court possessed before the enactment of CrPC. It envisages three circumstances under which the inherent jurisdiction may be exercised, namely, (i) to give effect to an order under CrPC,
(ii) to prevent abuse of the process of court, and (iii) to otherwise secure the ends of justice. It is neither possible nor desirable to lay down any inflexible rule which would govern the exercise of inherent jurisdiction. No legislative enactment dealing with procedure can provide for all cases that may possibly arise. The courts, therefore, have inherent powers apart from express provisions of law which are necessary for proper discharge of functions and duties imposed upon them by law. That is the doctrine which finds expression in the section which merely recognises and preserves inherent powers of the High Courts. All courts, whether civil or criminal possess, in the absence of any express provision, as inherent in their constitution, all such powers as are necessary to do the right and to undo a wrong in the course of administration of justice on the principle of "quando lex aliquid alicui concedit, concedere videtur id sine quo res ipsa esse non potest" (when the law gives a person anything, it gives him that without which it cannot exist). While exercising the powers under the section, the court does not function as a court of appeal or revision. Inherent jurisdiction under the section, though wide, has to be exercised sparingly, carefully and with caution and only when such exercise is justified by the tests specifically laid down in the section itself. ........................
Authority of the court exists for advancement of justice and if any attempt is made to abuse that authority so as to produce injustice, the court has the power to prevent abuse. It would be an abuse of process of the court to allow any action, which would result in injustice and prevent promotion of justice. In exercise of the powers the court :: 28 ::
Misc. Cr. Case No.1983/2011would be justified to quash any proceeding if it finds that initiation/continuance of it amounts to abuse of the process of court or quashing of these proceedings would otherwise serve the ends of justice.
In that case, reference was also made to the decision rendered in R.P. Kapur v. State of Punjab AIR 1960 SC 866 wherein the Supreme Court has summarized some of the categories of cases where the inherent jurisdiction to quash proceedings can and should be exercised. They are:
(i) Where it manifestly appears that there is a legal bar against the institution or continuance e.g. want of sanction;
(ii) Where the allegations in the first information report or complaint taken at their face value and accepted in their entirety do not constitute the offence alleged;
(iii) Where the allegations made against the accused person do constitute an offence alleged but there is either no legal evidence adduced in support of the case or the evidence adduced clearly or manifestly fails to prove the charge. In dealing with this class of cases it is important to bear in mind the distinction between a case where there is no legal evidence or where there is evidence, which is manifestly and clearly inconsistent with the accusation made and cases where there is legal evidence which on its appreciation may or may not support the accusation in question.
(Emphasis supplied)
29. In State of Haryana v. Bhajan Lal AIR 1992 SC 604, the Supreme Court, after illustrating category of cases attracting interference under Section 482 of the Code, also sounded a note of caution to the effect that the power of quashing the criminal :: 29 ::
Misc. Cr. Case No.1983/2011proceedings should be exercised very sparingly with circumspection and that too in the rarest of rare cases. The guidelines were restated in Zandu Pharmaceutical Works Ltd. v. Mohd. Sharaful Haque (2005) 1 SCC 122.
30. This Court's jurisdiction in quashing the charge-sheet is confined to examination of documents annexed thereto as a whole without going into the merits of the allegations made therein. The acid test is whether any offence would be made out against the petitioner if the allegations are taken at their face value and accepted in their entirety. However, as discussed already, prima facie it is not a case of no incriminating evidence or that of no criminal liability. Needless to say, the case of the petitioner does not fall within anyone of the categories enumerated in Bhajan Lal's case (supra).
31. Further, the inherent powers, under Section 482 of the Code, are to be exercised ex debito justitiae to prevent abuse of the process of Court but not to stifle a legitimate prosecution, when the issues involved, whether factual or legal, can not be decided without sufficient material.
32. The petition, therefore, stands dismissed. However, nothing contained herein shall be construed as any expression of opinion on the merits of the case. It shall still be open to the petitioner to raise all such pleas as are available under law.
Petition dismissed.
(R.C. Mishra) (Smt. Vimla Jain)
JUDGE JUDGE
22.07.2011 22.07.2011