Karnataka High Court
Starship Equity Holding Limited vs State Of Karnataka on 14 March, 2017
Author: Anand Byrareddy
Bench: Anand Byrareddy
1
IN THE HIGH COURT OF KARNATAKA AT
BENGALURU
DATED THIS THE 14TH DAY OF MARCH 2017
BEFORE
THE HONOURABLE MR. JUSTICE ANAND BYRAREDDY
CRIMINAL PETITION No.9776 OF 2016
CONNECTED WITH
CRIMINAL PETITION No.9778 OF 2016
IN CRL.P.No.9776/2016
BETWEEN:
Starship Equity Holding Limited,
Having its office at
C/o. International Proximity,
608 St. James Court,
St. Denis, St. Port Louis.
Pranav Goyal P.O.A.Holder.
...PETITIONER
(By Shri K.G.Raghavan, Senior Advocate for Shri Nischal Dev
B.R., Advocate )
AND:
1. State of Karnataka,
Through the
Investigating Officer,
2
Cyber Crime Police Station,
CID Head Quarters,
No.1, Carlton House,
Palace Road,
Bengaluru - 560 001.
Represented by its
Public Prosecutor.
2. Office of the Director General
And Inspector General of Police,
Cyber Crime Police Station,
CID Head Quarters,
No.1, Carlton House,
Palace Road,
Bengaluru - 560 001.
3. Vector Program Private Limited,
Having its registered office at
313-314, Richmond Towers,
12, Richmond Road,
Bangalore - 560 025.
Represented by its
Director:
Mr. Surya Kathpalia,
Having residence at F-33,
Kirtinagar,
New Delhi - 110 015.
...RESPONDENTS
(By Shri Chetan Desai, Government Pleader for Respondent
Nos.1 and 2;
Shri Sajan Poovayya, Senior Advocate for Shri R. Swaroop
Anand, Advocate for Respondent No.3)
*****
This Criminal Petition is filed under Section 482 code of
Criminal Procedure, 1973, praying to 1) quash the FIR in Crime
3
No.418/2016 dated 16.12.2016 registered by the Indiranagar
Police on the file of I Additional Chief Metropolitan
Magistrate, Bengaluru (Annexure-B). 2) Quash the complaint
dated 16.12.2016 bearing Crime No.418/2016 filed by the
respondent no.3 under Section 109, 120(B), 406, 108(A), 420
and 409 of IPC (Annexure-C). 3) Direct the restoration of the
shares seized by the respondent No.1 to the Standard Chartered
Bank, Mumbai from where it was seized. 4) Grant
compensation to the petitioner under Section 357 of the Code of
Criminal Procedure, 1973.
IN CRL.P.No.9778/2016
BETWEEN:
Ms. Zarin Daruwala,
Chief Executive Officer,
Standard Chartered Bank,
Crescenzo, C-38/39,
G-Block, Bandra-Kurla Complex,
Bandra (East),
Mumbai - 400 051.
...PETITIONER
(By Shri Uday Holla, Senior Advocate for Shri A. Murali,
Advocate)
AND:
1. The State of Karnataka,
Through CID Cyber Crimes
Police Station,
(Indiranagar Police Station),
Bengaluru - 560 002.
4
2. M/s. Vector Program Private Limited,
#2217, 80 Feet Road,
HAL 2nd Stage,
Indiranagar,
Bengaluru - 560 002.
...RESPONDENTS
(By Shri Chetan Desai, Government Pleader for Respondent
No.1;
Shri Sajan Poovayya, Senior Advocate for Shri R. Swaroop
Anand, Advocate for Respondent No.2)
This Criminal Petition is filed under Section 482 code of
Criminal Procedure, 1973, praying to 1) quash the FIR bearing
Crime No.418/2016 dated 16.12.2016 under Sections 420, 406,
409, 120B , 108A and 109 of the IPC, registered by the
Indiranagar Police Station, Bengaluru along with all the
proceedings in Crime No.418/2016 on the file of I Additional
Chief Metropolitan Magistrate, Bangalore. 2) pending haring
and final disposal of this petition , this Hon'ble Court may be
pleased to direct that no coercive action shall be taken against
the present petitioner by the Police Officers investigating the
impugned FIR bearing No.418/2016 dated 16.12.2016 under
Section 420, 406, 409, 120B, 108A and 109 of IPC , 1860,
registered with Police Station Indiranagar, Bengaluru.
These petitions having been heard and reserved on
19.1.2017 and coming on for pronouncement of orders this
day, the Court delivered the following:-
5
ORDER
These petitions are heard and disposed of together for the sake of convenience.
2. The facts of the case and the background in which these petitions are filed are said to be as follows:
Tamilnadu Mercantile Bank is an Indian bank, registered under the Banking Regulation Act, 1949. The shares of the bank are not listed on the stock exchanges and as such are not freely available in the market. It transpires that an intended transfer of a major portion of the share holding in favour of a private group of companies was not permitted by the Reserve Bank of India. The said group of companies had hence agreed to transfer their share holding to another group of which, M/s Vector Program Pvt. Ltd., a company incorporated under the Companies Act, 1956 and having its registered office at Bangalore, (Hereinafter referred to as 'Vector' , for brevity) was 6 said to be an associate. The group comprising Vector and others, however, faced regulatory issues in the transfer of the shares proposed to be acquired. It is relevant that the sale of the shares are said to have been facilitated by a merchant banker, M/s Corsair Investments LLC, a limited liability company based in New York, USA. (Hereinafter referred to as 'Corsair', for brevity). One of the investors identified by Corsair was the petitioner, in the first of these cases, which is said to be a company incorporated in Mauritius. (Hereinafter referred to as 'Starship', for brevity). It claims to hold 13455 shares of M/s Tamilnadu Mercantile Bank (Hereinafter referred to as 'TMB', for brevity). The same are said to have been purchased from Vector, arrayed as respondent no.3 herein. The said shares are said to be held in escrow by M/s Standard Chartered Bank, Mumbai, (Hereinafter referred to as 'SCB', for brevity, and also represented by the petitioner in the second of these petitions, as its Chief Executive Officer.7
It is said that under an agreement dated 12.5.2007,Vector had agreed to transfer the above mentioned shares to such entities as may be designated by Corsair. And in this regard, in terms of the agreement is said to have placed the shares in escrow with SCB, contingent upon receiving the necessary permissions from the Reserve Bank of India for the transfer to be complete. The agreement was said to be irrevocable, at the instance of Vector. This was especially so as Vector is said to have received the entire sale consideration of Rs.32.52 crore, as on 15.5.2007 from Starship.
It then transpires that the transaction was not completed even as late as the year 2011, when Vector chose to terminate the contract and is said to have filed a civil suit in O.S.988/2011 on the file of High of Judicature at Mumbai, seeking delivery of the share certificates which were held in escrow by SCB and also seeking a restraint on the defendants therein from dealing with the said shares in any manner. An interlocutory motion, seeking interim relief in this regard was said to have been 8 denied by the court. As against such Order, Vector is said to have preferred an appeal before a Division Bench of the court, in Appeal no.468/2011. The Division Bench is said to have directed that the shares would be held in escrow. However, the petitioner is said to have been granted leave to move the learned Single Judge for a variation of the Order in the event of change in circumstances. It is stated that petitioner had accordingly filed an application seeking to vacate the said order and permit transfer of the said shares, under a Notice of Motion no.178 / 2015. The Notice of Motion no. 1399/2011, filed by Vector, which was directed to be heard by the Single judge, with expedition was said to have been heard and dismissed holding that Vector was not entitled to the return of shares and that it could not obstruct the petitioner from getting custody of the shares as the beneficial owner.
Vector is said to have preferred an appeal in Appeal (L) no. 662/2015 against the above Order dated 31.7.2015, and it is 9 stated that there were interim orders passed in the appeal whereby the escrow arrangement with SCB was continued.
In the meanwhile, in separate proceedings at Chennai, between the share holders of TMB and TMB, the Madras High Court, vide order dated 26.11.2015, is said to have directed the Chairman, TMB to conduct its 88th to 93rd Annual General Meetings on 29.1.2016. The petitioner is then said to have moved the Bombay High Court in Appeal no.662/2015, seeking permission to exercise voting rights in respect of the subject shares at the proposed AGM of TMB. It transpires that Vector had undertaken, at the hearing, that it would not vote on the said shares. However, in violation of the undertaking, it is alleged that Vector had voted at the meeting. This had led the petitioner to seek punishment of Vector for disobedience of the order recording the undertaking given earlier. The High Court had thus summarily dismissed the appeal in view of the admitted breach committed by Vector, by an order dated 9.12.2016. The petitioner contends it was thus entitled to 10 receive the shares from SCB. On a request made to SCB in this regard, it transpires that SCB wanted a certified copy of the Order of the court in order to release the shares.
It is at this point of time that a criminal complaint dated 16.12.2016 is said to have been filed by Vector alleging offences punishable under Sections 109, 120B, 406, 108A, 420 and 409 of the Indian Penal Code, 1860, (Hereinafter referred to as 'the IPC', for brevity) before the I Additional Chief Metropolitan Magistrate, Bangalore. The petitioner was said to have been arrayed as accused no.5 therein. And pursuant to a search warrant issued by the court, the Bangalore police are said to have visited the office of SCB at Mumbai, where the shares were kept in custody and had seized the same, as on 21.12.2016.
It is in the above background that the first of these petitions is filed.
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3. The second of these petitions is filed by the Chief Executive Officer of SCB, Mumbai, also being aggrieved by the registration of the FIR by the Indira Nagar Police, Bangalore, at the instance of Vector. It is seen that the petitioner herein and two other officers of SCB are named as Accused no. 1 to 3 in the said complaint.
4. The learned Senior Advocate, Shri K.G. Raghavan, appearing for the counsel for the petitioner, in the first of these petitions would seek to point out at the outset that the complaint by Vector is a brazen attempt to nullify the express findings of a learned Single Judge of the Bombay High Court, in Notice of Motion 1399/2011 in Suit no. 988/2011, dated 31.7.2011. And it is an order which has been confirmed in appeal by a Division Bench of the said court, in Appeal no.662/2015, dated 9.12.2016. It is close on the heels of that final order by the Bombay High Court - confirming the right of the petitioner to the shares in question, that the criminal case filed on 12 16.12.2016, has been instituted, while grossly suppressing the prolonged proceedings before the Bombay High Court. It is hence emphasized that the mala fides on the part of Vector is writ large.
It is pointed out that the signatory to the complaint, who represented Vector before the Bombay High Court had been hauled up for gross violation of an undertaking given to that court and had been mulcted with a fine of Rs.1 lakh.
Shri Raghavan seeks to highlight the speed at which the criminal proceedings have progressed. It is stated that immediately on registration of the FIR, the same has been transferred to the Criminal Investigation Department as on 17.12.2016 and an Investigation Officer, respondent no.1 herein, had been named on 19.12.2016. On the very date of appointment, he has filed an application under Section 93 read with Section 100 of the Code of Criminal Procedure, 1973 (hereinafter referred to as 'the Cr.P.C.', for brevity) before the 13 Court of I ACMM, Bangalore, seeking permission to search the premises of SCB, Mumbai. It is asserted that it is evident that the application has been filed without even a cursory investigation.
It is further pointed out that the search warrant only authorized search of the premises and not seizure of any property, and that in fact there were no details provided of the property to be seized. This, it is asserted, is in complete violation of Section 99 CrPC. It is contended that the search and seizure carried out on the premises of SCB, Mumbai as on 21.12.2016 is hence illegal.
It is contended that the mala fides on the part of Vector in filing the criminal case is also apparent from the circumstance that the allegations which form the basis of the complaint are significantly not stated by Vector in the pending suit before the Bombay High Court.
14
It is also pointed out that it is indeed odd and unusual that the complainant and his counsel had accompanied the investigating officer to Mumbai and were even said to be present at the time of search and seizure.
Shri Raghavan seeks to highlight the following material suppression of facts in the complaint by Vector.
Not only has the complainant suppressed the series of orders of the Bombay High court, but also the primary circumstance that the complainant has received the entire sale consideration of Rs. 32.52 crore from the petitioner through Corsair and that the beneficial ownership in the shares had passed on to the petitioner as early as in the year 2007.
Vector's agreement to sell the shares is recorded in a letter dated 12.5.2007 and on receipt of the sale consideration which is admitted, there is no further right in Vector over the shares in question. The obligation and responsibility of obtaining any permission from any authority, for the transfer is with the petitioner and is at the risk of the petitioner. 15
That the terms of the above said agreement clearly indicates that Vector was placing the shares in escrow, unconditionally and irrevocably with SCB. These terms had come in for scrutiny by the Bombay High Court and are categorically found in favour of the petitioner.
The gross suppression of the several orders and proceedings before the Bombay High Court, particularly an order which pointedly states that Vector shall not obstruct the transfer of the shares to the petitioner, which has been blatantly violated by seeking to file the criminal case and having had the shares seized is a clear abuse of process of law. Vector has thus achieved by recourse to this devious measure what had been denied on a close scrutiny of the respective rights and obligations of the parties in civil proceedings.
The findings recorded by the Bombay High Court operates as issue estoppel against Vector.
It is contended that the Bombay High Court has already arrived at the following findings of fact, namely : 16
a. The shares held in escrow by SCB were to the account of the petitioner and as its agent.
b. Vector had no right to terminate the agreement and that right vested only with Corsair.
c. Vector cannot even obstruct Starship from getting custody of the shares.
d. The transfer of shares is complete in favour of Starship subject to the clearances required under law , which is the concern of only the petitioner- Starship. And that vector had no stake in the same.
e. The beneficial ownership of the shares have been transferred in favour of the petitioner as early as on 13.5.2007 and respondent no. 3 had no right over the same.
Hence it is contended that if the impugned complaint is not quashed, the petitioner would be subjected to undergo trial before the Magistrate and the same facts and issues would be re-examined and re-adjudicated, all of which have already been settled by the High Court of Bombay. Further, in the light of a 17 categorical undertaking by its letter dated 12.5.2007, as to its right over the subject shares, Vector is estopped from contending that it was not aware of the details of the transaction and the escrow agreement.
5. Shri Udaya Holla, Senior Advocate, appearing for the counsel for the petitioner in the connected petition by SCB, in narrating the background facts from the point of view of SCB, contended that Katra Holdings Limited (Hereinafter referred to as the 'Katra', for brevity) and its associates, including Vector, were in the process of acquiring certain number of shares of TMB. They agreed to sell in favour of such entities as may be designated by Corsair, the said shares of the Bank which they would acquire. In this connection, an Escrow Agreement dated 12.5.2007 came to be entered into between Katra, Corsair and Standard Chartered Bank, Mauritius, (Hereinafter referred to as 'SCBM" for brevity). Schedule 3 to the said agreement sets out the associates of Katra, which includes Vector. 18
In furtherance of the said agreement, Vector is said to have given a letter dated 12.5.2007 to Corsair with a copy endorsed to the petitioner stating that they are in the process of acquiring 13,455 equity shares of the Bank and that they had agreed to deposit the shares, to be acquired by them, with SCB in an Escrow account. This letter was said to specifically refer to the above Escrow agreement dated 12.5.2007, entered into between Katra, Corsair and SCBM. It also is said to have indicates that Vector was fully aware of the terms and conditions of the Escrow agreement dated 12.5.2007 as could be discerned from the different clauses of the Escrow agreement dated 12.05.2007 referred to therein.
In para 2 of the above letter, Vector is said to have stated that they have agreed to transfer the shares to entities designated by Corsair.
13,455 shares of the Bank came to be transferred to Vector pursuant to which they deposited with SCB, India the original 19 share certificates along with share transfer forms duly signed by them.
It is stated that on 15.5.2007, SCBM, as the escrow agent paid the entire sale consideration for 13455 shares to Vector. Since RBI permission was awaited, transfer of shares was not effected in favour of Corsair's designated nominees. Corsair in turn nominated Starship Equity Holdings Ltd., (Hereinafter referred to as 'Starship' for brevity) as the purchaser of these shares.
It is stated that on 27.4.2011, Vector claimed that it has terminated the agreement and filed a suit OS No.104/2011 before the Bombay High Court against SCB, SCBM and others including Corsair and Starship, inter alia, for return of the 13455 shares of the Tamil Nadu Mercantile Bank. Shri Holla would reiterate the sequence of proceeding before the Bombay High Court as already stated.
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It is contended that it is subsequent to the dismissal of the appeal and with the malafide intention of overcoming the order of the Bombay High Court, on 16.12.2016, Vector filed a false police complaint with Indiranagar police station. Hence, he submits that the complaint is a totally motivated one and the filing of the suit before the Bombay High Court and the orders of the Bombay High Court have been totally suppressed in the said complaint.
Further, the complaint taken as a whole does not make out any offence. The complaint is a total abuse of the process of court. The Bank is shown to be represented by the CEO. In fact, the present CEO took charge as CEO only in the year 2016, whereas the transaction relates to the period 2007.
It is his further contention that the matter is essentially of a civil nature. The Bombay High Court having already passed an order specifically holding that the sale of the shares is complete and that Vector has no power to terminate the sale or seek return of the shares. When the matter is seized of by the 21 Bombay High Court, the filing of the complaint is a total abuse of process of the court.
The First Information Report at Annexure A of the petition indicates that the date of offence is 15.5.2007. The complaint is filed after a lapse of over 9 ½ years. It is asserted that on this ground alone, the complaint is liable to be quashed in view of the judgement of the Supreme Court reported in the case of Kishan Singh (D) through L.Rs. vs. Gurpal Singh, AIR 2010 SC 3624 (para 21 to 24), wherein the Supreme Court has held that an FIR filed after a lapse of 6 years of the alleged offence was liable to be quashed and was quashed by the Supreme Court on the ground of delay.
A comparison of the Complaint with the Plaint filed in the Bombay High Court, clearly indicates that the allegations in the complaint are totally different from the allegations made in the plaint before the Bombay High Court, thereby clearly indicating that the allegations in the complaint are wholly false. In fact, the plaint is verified by Vector. Further the interim 22 application filed along with the suit is supported by an affidavit of Vector, which sets out the very statements made in the plaint, a perusal of which bears out that there was no allegation of cheating, breach of trust etc., which have been made in the complaint. The suit was filed in the year 2011. Having received the entire sale consideration for the shares and sold the shares and having failed in their attempt before the Bombay High Court, both before the single judge as well as the Division Bench to get back the shares, a mala fide complaint has been lodged making totally false and reckless allegations. The complaint alleges that the offence of cheating, breach of trust has taken place in the year 2007. That is after a lapse of nearly 10 years. On the ground of delay alone, the FIR is liable to be quashed. That apart, the allegations in the complaint do not make out any offence at all. If, RBI approval is not obtained (which was to be after the completion of the sale and only for transfer of shares), the same does not amount to cheating or breach of Trust. At any rate as on date, in view of the change in 23 Regulations, RBI permission is not even needed now. The Apex Court has, commencing with the case of State of Haryana and others vs. ch. Bhajan Lal and others (AIR 1992 SCC 604), held that if the complaint, on the face of it does not disclose any offence, the complaint is liable to be quashed.
It is contended that the Supreme Court has time and again held that criminal proceedings to avail civil remedies and attempts to convert civil disputes into criminal case have to be deprecated. Reliance is placed on the following authorities:-
(a) Chandran Ratnaswami vs. K.C. Palanisamy and others, 2013(6) SCC 740- para 733 to 47 and 60;
(b) Thermax Limited and others vs. K.M. Johny and others 2011(13) SCC 412 (Para 31 to 34 & 49);
(c) Uma shankar Gopalika vs. State of Bihar and another 2005 (10) SCC 336 (Para 6);
(d) S.W. Palanitkar and others vs. State of Bihar and another 2002 (1) SCC 241 (Para 23).24
The Apex court has also held that when there is no mens rea, complaint of cheating is liable to be quashed. (See: V.P. Shrivastava vs. Indian explosives Limited and others 2010 (10) SCC 361 and Ajay Mitra vs. State of M.P. and others 2003 (3) SCC 11 - Para 16 to 20) The gist of the complaint is that though Vector has received the entire sale consideration in respect of the shares in question, it now believes that the shares have been acquired by SCB and that Enforcement Directorate has initiated proceedings. This, it is contended, is also false. SCB is not the purchaser of the shares in question, nor has the Enforcement Directorate ever alleged the same in its show cause notice dated 17.12.2014.
After filing of the suit, having failed in their attempt to get the shares, one Gokul Patnaik, who is one of the associates of Katra and Vector is said to have written to RBI alleging that there is allegedly a violation of Foreign Exchange Management 25 Act (FEMA) as can be seen from paragraph 2 of the letter dated 16.03.2011 of RBI to the Enforcement Directorate. Based on the said letter of RBI, which was issued way back in the year 2011, ED issued show cause notice to SB dated 17th December 2014, to which a suitable reply is said to have been sent by SCB, subsequent to which the Enforcement Directorate has not taken any steps, showing thereby that the Enforcement Directorate has accepted the position that there is no case of violation of FEMA. The very fact that after ad interim order was refused by the Bombay High Court and after 2 years after the letter of the RBI, the ED issued show cause notice and that too at the behest of Gokul Patnaik, an associate of Vector, Vector and their associates are trying various means to get back the shares which have been sold and in respect of which they have admittedly received the entire sale consideration. It is contended that Vector has played fraud. Had it mentioned about the suit before the Bombay High Court and the orders of the Bombay High Court, the Magistrate would 26 definitely not have issued search warrant. Vector was held guilty of contempt of court by the Division Bench of the Bombay High Court and fined on the ground that it has tried to mislead the court. The present complaint is a motivated one, and an attempt to try to convert a civil dispute into a criminal case. In fact after receiving the entire sale consideration and transferring the shares by issuing blank share transfer forms and categorically stating that on receipt or its nominees, Vector is now trying to resile from its obligations, which conduct has been frowned upon by the Bombay High Court. Having failed to get the shares by the initiation of the suit and the interim application before the Bombay High Court, the present complaint has been filed and the shares have been got seized through a devious method of false complaint and a search warrant. Hence, he contends that the entire action is a total abuse of process of court and is liable to be quashed. 27
6. Shri Sajan Poovayya, Senior Advocate, appearing for the counsel for respondent no. 3 would contend and add to the background facts thus. That one MGM Maran and B Ramachandra Adityan had acquired the exclusive rights to sell the 95,418 shares constituting 33.6% shares of Tamilnad Mercantile Bank Limited from Sterling Group consisting of Hemangiri Finance and Leasing Private Ltd., Mrinalini Leasing and Finance Private Ltd., Mansiri Investment and Leasing Private Ltd., and Hi-Tech Traders Private Ltd., under agreement dated 10.03.2006.
Mr. MGM Maran and Mr.B Ramachandra Adityan also entered into an agreement dated 02/03/2006 with M/s. Katra Holding Private Limited and granted them exclusive rights to sell and place 95,418 shares of Tamilnad Mercantile Bank Ltd.
Katra Holding Private Ltd., offered to sell the third Respondent Company, 13,455 equity shares of TMB constituting 4.73% of its total shareholding for Rs.24,170/- per 28 share totaling to approximately Rs.32.52 crore and gave the third Respondent company physical possession of the share certificates on 03/04/2007.
Standard Chartered Bank (SCB), accused Nos.1 to 3 in FIR 418/2016 had hatched a plan in criminal conspiracy with Corsair Investments LLC to illegally acquire 40% shares of TMB by circumventing Indian laws and foreign investment regulation in the month of January 2007 itself. The same indicates that SCB in an investor in Corsair, Accused No.4 in FIR 418/2016, and controls Corsair and is using Corsair as a Special Purpose Vehicle, to acquire majority stake in TMB by circumventing Indian laws.
In furtherance of the conspiracy by Corsair Investments LLC and SCB to purchase the shares of TMB, Corsair Investments LLC proposed to constitute an escrow and complete the sale transaction with Standard Chartered Bank. 29
Accordingly, Standard Chartered Bank, Mauritius and Corsair Investments LLC, Katra Holdings Ltd., and others constituted an escrow under an agreement dated 12/05/2007 under which an escrow with Standard Chartered Bank, Mauritius in the name of Project Windmill Escrow was constituted and Standard Chartered Bank - Securities Service, Mumbai was appointed as the sub-agent of Standard Chartered Bank, Mauritius.
Under the escrow agreement, Corsair Investments LLC would identify prospective buyers for the TMB shares, which would be placed in compliance with Indian laws and the sale would be complete only upon receipt of relevant RBI approval in case of a non-Indian entities.
The third Respondent Company's 13,455 shares of TMB were spread over 52 share certificates.
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Corsair Investments LLC asked the third Respondent Company to deposit its 13,455 shares in TMB in the escrow created with Standard Chartered Bank, Mauritius and Standard Chartered Bank - Securities Service, Mumbai for safe custody until completion of sale and they exchanged correspondence to this effect. The correspondence dated 12.05.2007 (wrongly shown as 12.05.2006) between the third Respondent Company and Corsair Investments LLC.
The second paragraph of Annexure R5 at page 83 stipulates that the sale and transfer of shares is subject to receipt of applicable approvals under Indian laws including approval of RBI.
Subsequently the duly constituted escrow, Standard Chartered Bank, Mauritius and Standard Chartered Bank - Securities Service, Mumbai wrote to TMB on May 12, 2007 asking them to register the third Respondent Company's 13,455 shares of TMB spread over 52 share certificates in the name of 31 the third Respondent Company and return the same to the escrow for safe custody.
Tamilnad Mercantile Bank Ltd., conducted a Board Meeting on 13.05.2007 and approved the third Respondent Company as a shareholder and cancelled the 52 shares certificates and issued 6 new share certificates in the name of the third Respondent Company bearing certificate numbers 37903 to 37908 and bearing Folio No. 32987 consisting of 13,455 shares of TMB. By this the third Respondent Company was registered as a shareholder of TMB and the title of the said shares absolutely vested with the third Respondent Company.
The 6 new Share Certificates were, on the instructions of the third Respondent - Company, given by TMB to Standard Chartered Bank, Mauritius and Standard Chartered Bank- Securities Service, Mumbai for safe custody. TMB through their letter dated 13.05.2007, deposited the 6 new share 32 certificates with Standard Chartered Bank-Securities Service, Mumbai for safe custody.
The third Respondent Company received into its account No. 009010200029111 with Axis Bank, MG Road, Branch, Bangalore, a sum of Rs.32.53 crore. Thus the crime alleged against the Petitioner by third Respondent Company was brought into effect by the petitioner, on receipt of money into the account of the third respondent - Company in Bangalore.
The third Respondent Company was informed by Corsair Investments LLC that the said money was alleged sale consideration for purchase of shares by Starship Equity Holdings Ltd., the petitioner herein.
The third Respondent Company kept asking Corsair Investments LLC to furnish the Foreign Inward Remittance Certificate (FIRC) for the amount remitted into its account so 33 that the said sum could be accounted and not shown as a liability in its books of accounts.
It is claimed that inspite of repeated follow-up, the third respondent - Company did not receive the FIRC and its account statement depicted that the monies it had received had come from Project Windmill Escrow Account and not from either the Petitioner or Corsair Investment LLC. Standard Chartered Bank sent the third Respondent Company a letter dated 04.07.2008 and attached a FIRC dated 23.05.2007. The said FIRC stated that the money was paid by the escrow account on behalf of Starship Equity Holdings Ltd., to the third Respondent Company as advance sale consideration.
As the FIRC was not proper and since RBI approval was not provided to complete the sale, even after a year, the third Respondent Company issued a legal notice dated 19.02.2010 after several follow ups and terminated the sale and asked Corsair Investment LLC, SCB and Starship Equity Holdings 34 Ltd., to take back the money and give back its 13,455 equity shares.
It is contended that after sending the legal notice, the third respondent - Company also asked its banker, Axis Bank to run a tracer on the remittance of Rs. 32.53 crore that it had received and it came to know that the money deposited on behalf of Starship Equity Holdings Limited was actually done by pledging TMB shares owner by third Respondent Company illegally by Corsair Investments LLC, Standard Chartered Bank and Starship Equity Holdings Limited and raising a loan over the same in Mauritius in the escrow account and sending the said money to it as sale consideration. None of this had RBI approval.
This tracer information depicts that on the date of remittance of Rs.32.53 crore i.e. 15.05.2007 into the account of third Respondent Company, Starship Equity Holdings Ltd., had 35 not deposited any money into the Project Windmill escrow account nor was it part of the escrow account.
It is contended that the money received by the third Respondent Company was illegal, without its knowledge and violated Indian laws and hence could not be accounted by it and became a liability in its hands, causing it wrongful loss and hardship. The tracer also showed that the bank account of Starship Equity Holdings Ltd., never even existed on the date of remittance with Standard Chartered Bank, nor was it a part of the escrow and the money was paid by Standard Chartered Bank on the security of the third Respondent Company's TMB shares, without its knowledge, illegally by violating Indian laws.
It is stated that the respondent herein came to know that the instruction to remit money of Rs.32.53 crore into the account of the third Respondent Company herein in Bangalore came from Corsair Capital on 14.05.2007. (Corsair Capital is 36 controlled by SCB which is evident from Annexure - R3 paragraph no. 1 at page 20).
It is further urged that in the account statement of Project Windmill Escrow account in SCB Mauritius at Annexure R13 at page 103 the fourth entry from the bottom for USD 7,945,320.23 on 14.05.2007 amounting to Rs. 32.53 crore bearing TT number 0T00010705140021 is seen to be debited from the escrow account. This is the same TT number mentioned in 4th row from bottom of FIRC at Annexure R10 at page 96. Thus from the account statement at Annexure R13 at page 103 it is prima facie evident that Starship Equity Holdings Ltd., did not provide the funds for acquisition of the shares and it was provided by SCB making the FIRC at Annexure R10 at page 96 a forged and fabricated document. The said remittance by SCB is also in violation of and in criminal breach of trust of second paragraph of Annexure R4 at page 83 and clause 37 2.3.1(i) of Annexure R4 at page 31 and clause 4.2 of Annexure R4 at page 33.
Thus, the tracer run by Axis Bank at page 98 of Annexure R11 which states that banking relationship as per KYC from date of remittance of the amount of Rs. 32.53 crore i.e. 14.05.2007 by SCB Project Wildmill Escrow account into the account of third Respondent Company in Axis Bank, Bangalore till date of the tracer i.e. 15.03.2011 is 3.8 years is prima facie correct.
Hence, it is contended that the account statement of Project Windmill Escrow account is SCB Mauritius at Annexure R13 at page 123 discloses the first entry from the top for USD 1,796,307.00 is on 11.07.2008. The said entry depicts that a credit for the said amount has been made by Starship Equity Holdings Ltd., for the first time into the escrow account. 38
Thus the tracer run by Axis Bank at page 99 of Annexure R11 which states that banking relationship as per KYC from date of remittance of the amount by Starship equity Holdings Ltd., into the escrow account i.e. 11.07.2008 till date of the tracer i.e. 15.03.2011 is 2.7 years is prima facie true and correct. This tracer information depicts that on the date of remittance of Rs.32.53 crore i.e. 15.05.2007 into the account of third Respondent Company, Starship Equity Holdings Ltd., had not deposited any money into the escrow account nor was it part of the escrow account and thus the money did not come from Starship Equity Holdings Ltd., SCB, Corsair and Starship Equity Holdings Ltd., conspired to issue a forged and fabricated FIRC at Annexure R10 at page 96.
Pursuant to the above the third Respondent instituted O.S. 988/2011 against Standard Chartered Bank and others before the Bombay High Court and sought for return of their TMB shares and called upon Standard Chartered Bank to take back the money.
39
It is urged that inspite of not having RBI approval for pledging the shares or acquiring the TMB shares, Starship Equity Holdings Ltd., by cheating the third Respondent wrote to RBI asking for transfer of shares in its name and RBI through its letter dated 19.05.2010, rejected the share transfer and also recognised the illegality done by Starship Equity Holdings Ltd., in criminal conspiracy with Standard Chartered Bank and Corsair Investments LLC and wrote to Enforcement Directorate to investigate the matter.
It is contended that the Enforcement Directorate commenced investigation under FEMA for violation of provisions of FEMA and RBI guidelines and personally summoned the directors of the third Respondent Company on 15.02.2012 and 24.02.2012 and recorded their statement.
Based on the same the Enforcement Directorate filed a complaint against TMB and Standard Chartered Bank under FEMA with the Special Director of ED and the Special Director 40 has started adjudication proceedings on the basis of the same has issued adjudication notice dated 17.12.2014.
It is urged that in the said adjudication notice the ED has specifically highlighted pleading of the third Respondent's TMB shares without RBI approval by Standard Chartered Bank and the Petitioner herein and thereby prima-facie stating that the said remittance made to the third Respondent is illegal. The said act of the Petitioner and Standard Chartered Bank has caused wrongful loss to the Respondent herein. The ED has also held in the said notice that the escrow created by SCB is illegal and without RBI approval.
Pursuant to the above, the Enforcement Directorate has also notified the Registrar of Companies vide its letter dated 19.11.2016 cautioning the general public not to deal with shares which are the subject matter of its adjudication notice dated 17.12.2014.
41
In the light of the above Shri Poovayya seeks dismissal of the petitions.
7. By way of reply, Shri K. G. Raghavan on behalf of Starship would contend that in the course of their arguments, Respondent No.3 has stated that they came to know about the alleged fraud when they had received the KYC details from their bankers Axis Bank Ltd., when they had run the tracer. These details as per the documents filed would show that it was known to the Respondent No.3 on 15.03.2011 and the suit No.O.S.988/2011 has been filed by Respondent No.3 on 22.03.2011. None of these details find a place in the pleadings before the Bombay High Court. Further, these allegations are not even a part of the impugned complaint filed by the complainant before this Court. All these arguments are made for the first time at the bar and this clearly demonstrates that the argument of the complainant is baseless and an after-thought. 42
That in so far as the contention with reference to the RBI guidelines etc., which was urged on behalf of Vector is concerned it is pointed out that under the Banking Regulation Act, 1949 (BR Act), the Reserve Bank of India (RBI) had issued guidelines vide a circular dated 3.2.2004 where "acknowledgement from the RBI" was required for acquisition of 5% or more shares of a Scheduled Bank by an individual or group. Further, this requirement does not affect or apply to the petitioner, since the suit shares acquired by each of the accused is not above 5%.
Further, that various proceedings were filed by the shareholders of TMB, pursuant to which the RBI investigated the issue of whether the consolidated holding of TMB shares by the complainant along with a group of 17 other entities, as a 'group', was over 5% and in view of the same would the 'group' require an 'acknowledgement' under the BR Act.
In this regard, vide and an order dated 31.03.2011, the RBI held that the complainant along with 17 others formed a 43 part of a 'group' and declined to acknowledge their holding of over 5% of the shares of TMB and therefore directed the complainant to divest and bring their holding below 5%.
Therefore, by this order, the RBI had recognised the ownership of the shares and had directed the complainant and 17 others to divest as they were held to be a 'group'. However, this order of the RBI had not been filed by either of the parties in the present proceedings and it is undisputedly not been challenged by anyone, including the complainant and hence has attained finality. Hence, by transferring the shares to Starship, Vector would only be complying with the orders of the RBI.
In so far as the apprehension of proceedings that are claimed, to which the said respondent no.3 could be exposed to at the behest of the Enforcement Directorate, it is pointed out that the Complainant was never an addressee to the notices issued by the Directorate of Enforcement (ED notice). Therefore, it was unclear as to how the complainant got the 44 possession of certain documents. the complainant has also not been able to explain to this court as to how he had come in possession of the documents pertaining to the ED notices, all of which have not even been addressed to them. Further, the shares of the third respondent is not the subject matter of the ED's notice and the ED has not found the third respondent to be at fault.
Further, the complainant has no liability in respect of the shares as the beneficial ownership has passed on to the petitioner and the petitioner at its own risk and cost, deals with the shares. This aspect has been dealt with in detail by the learned Single Judge of the Bombay High Court in his order dated 31.07.2015.
Even though the ED notice is of the year 2014, no adverse finding has been recorded by ED till date. It is the stand of Respondent No.3 that it fears consequence on account of the violation of foreign exchange loss at the hands of the ED is a mere surmise.
45
It is hence emphasized that whatever may be the position with respect to RBI and ED, it is clear that these facts do not attract either cheating or criminal misappropriation. The violation of the provision of foreign exchange loss and or the BR Act does not attract any of the offences under the Indian Penal Code as the instance of the complainant who has not suffered any injury.
8. Shri Udaya Holla by way of reply, on behalf of SCB would in response to the contention that SCB planned a criminal conspiracy with Corsair to illegally acquire 40% of the shares of TMB, submits that the contention is wholly false and that Vector has not produced any material to show that SCB was the acquirer of the shares. Per contra, the very documents produced by Vector shows that the purchaser was starship and not SCB. Further, in paragraph 2 of the letter dated 12.05.2007 written by Vector to Corsair and a copy to SCB specifically states that Vector has agreed to transfer the shares to entities to 46 be designated by Corsair. When that was the position, to whom the shares are to be sold is of no concern to Vector and even assuming, whilst categorically denying that the shares are sold to SCB, it cannot tantamount to criminal conspiracy or cheating.
To the further contention that Annexure R3 to the objections is an inter-office memo of SCB which indicates that SCB is the investor in Corsair, the reply of the learned Senior Advocate is that a perusal of the said letter does not indicate that SCB is an investor in Corsair. Per contra, it merely states that SCB has the option to acquire 4.95% of the equity shares of TMB, which is well within 5% cap and that too on receiving an opinion from counsel that the structure would not violate any of the Indian laws and would not jeopardize the interest of Corsair. This very inter office memo clearly indicates that SCB had absolutely no intention to violate RBI norms, which is the present allegation, falsely made by Vector in the complaint. 47
As far as the contention that the crime alleged against Corsair/Starship was brought about on receipt of money into the account of Vector, it is the reply of the learned Senior counsel that the said contention is inane and without any sequitur. The receipt of money by Vector is an admitted fact and if Vector has received the money as per the terms of the Agreement between Vector and Corsair, it is not understood as to how a crime is committed. Moreover, admittedly, the money was received in the year 2007 and the complaint is filed in the year 2016. Therefore, on the ground of delay itself, the complaint is liable to be quashed. Further, in paragraph 20 of the written submissions it is stated that FIRC was not proper, since RBI approval had not been provided for completion of the sale and therefore Vector issued legal notice dated 19.2.2010. This contention, it is urged, is wholly fallacious. The issued FIRC was proper and legal. At any rate, even if it is not legal, it is for the RBI to initiate steps and the same does not tantamount to cheating vector in any way. Further, this also indicates that 48 Vector was aware of the FIRC even as early as 2010 or even prior thereto and yet kept quiet for over six years thereafter. Therefore, the complaint is belated and is even liable to be quashed.
To the contention that the shares of the TMB were pledged with SCB which was illegal, it is the reply of the learned Senior Advocate that there was no pledge of the shares as alleged. It was only held in Escrow as seen from the very documents produced by Vector. As seen from the very letter of Vector to Corsair dated 12th May 2007, on receipt of the entire amount, the title to the shares automatically got transferred to the designated transferee (namely Starship). Therefore, even if there was a pledge it would not tantamount to any offence.
Insofar as the contention that payment consideration of Rs.32.53 crore was received by Vector, not from Starship, it is the reply of the learned Senior Advocate that the statement made by Vector and inferences drawn therefrom by Vector are entirely incorrect. Assuming however, without admitting that 49 the consideration amount of Rs.32.53 crore was not paid by Starship to Vector, the same could not tantamount to criminal conspiracy or an attempt to cheat Vector. This is evident from the fact that in paragraph 2 of the letter dated 12.05.2007 written by Vector to Corsair, and a copy to SCB specifically states that Vector. When that be so, to whom the shares are to be sold is of no concern to Vector or who was to make payment therefor.
To the further contention that Vector filed the suit O.S.No.988/2011 pursuant to what is stated in the earlier paragraphs of the written submissions, it is the reply of the learned Senior Advocate to the effect that this is a clear admission on the part of the Vector, that it knew about the letter inter office memo of SCB dated 22.01.2007, about remittance of the money into Vector's account, etc., even before filing of the suit O.S.No.988/2011 which was filed on 23.03.2011. Yet at that point of time and till the complaint was filed, i.e., after a lapse of five years after the suit, according to Vector, no 50 criminal offence was committed by SCB and it is obvious that only after having failed in the suit as well as in the appeal filed before the Bombay High Court to secure the share certificates, with mala fide intention of securing the share certificate, the present complaint was filed, making false allegations.
Insofar as the contention that Enforcement Directorate (ED) has initiated proceedings against SCB for violation of Foreign Exchange Management Act (FEMA) and RBI guidelines, it is the reply of the learned Senior Advocate that these allegations of violation of FEMA and RBI Guidelines are wholly and patently false. The proceedings were initiated by ED at the best of one Gokul Patnaik, who is acting in concert with Vector, as can be seen from paragraph 2 of the letter dated 16.03.2011 of RBI to ED. After a lapse of more than 2 ½ years, ED issued a show cause notice dated 17.12.2014 to which a suitable reply has been sent by SCB and thereafter the ED has not taken any steps, showing thereby that there was no violation of FEMA and the reply of SCB was found to be satisfactory by 51 the ED. Assuming without admitting, that there is any violation under FEMA or the RBI Guidelines, the same cannot tantamount to any criminal offence against Vector and Vector will not have any cause of action to file the complaint.
9. In the light of the above rival contentions and on a closer perusal of the voluminous material produced by the parties and the involved contentions of the parties, it may not be possible to stop short of the findings of fact that have been arrived at by the Bombay High Court in the course of interlocutory proceedings. The said findings can only be construed as prima facie findings and the civil suit in which those findings are arrived at is pending and the trial is yet to commence.
Vector is accused of suppression of facts and of having filed the impugned complaint without reference to the long drawn out proceedings before the Bombay High Court and the adverse orders it had suffered before that Court. It is equally 52 found that the role played by SCB was also not fully disclosed before the Bombay High court and it cannot also be claimed that its role was as a mere banker acting as an escrow agent in the transaction. This is evident from an inter-office memorandum of SCB seeking approval to further its commitment to Corsair by an additional 2 million US dollars increasing its interest to US $ 77 million.
The following excerpts from the above said Memorandum dated 22.1.2007, is revealing:
"Standard Chartered ("SCB"), through Standard Chartered Holdings (International) BV ("Holdings") is a limited partner in Corsair III Financial Services Capital Partners - a private equity fund managed by Corsair Capital ("Corsair"), an investment firm focussed on opportunities in the global financial sector. Holdings' commitment is for up to US$75m, to be drawn down as investment opportunities arise."
xxxx 53 "Corasir has been mandated to place 40% of the equity shares of TMB with reputable foreign investors who are limited partners of Corsair (including the Soros funds, Swiss Respondent, Winterthur Insurance, GE Pension Fund and the Kuwait Investment Authority). With Indian regulations prohibiting a single foreign shareholder from owning more than a 5% stake in a domestic bank, this investment would not be made directly by Corsair III but rather by each investor setting up an SPV to make its investment in TMB. Each investor would act independently of each other as prescribed by the Indian regulations with Corsair management administering the group of independent investors."
xxx "30% that Corsair will place is currently held by a single shareholder, which the Reserve Bank of India (RBI) finds objectionable and has required to be divested. The RBI has indicated that none of this block of 30% shares may be purchased by another bank (precluding SCB from buying from 54 this block). Corsair has been seeking ways of allowing SCB to participate in this investment using another 104 stake that is not subject to this regulatory prescription. Such a stake of 105 (the "10% Block") was brought on third January 2007 by a group of local Indian investors known to Corsair. The purchase was financed by a secured loan made by SCB in India to the Indian investors. SCB will acquire its stake in TMB from these shares which Corsair has an option over. The remaining 10% (50%-30%-10%) is currently held by a group of independent, reputable and friendly investors in New York."
This veiled transaction for, and on behalf of SCB, through Corsair Investments further being screened from the scrutiny of regulators is evident from the following clause in an agreement dated 12.5.2007, styled as an Escrow and Transaction Settlement Agreement, which reads as follows :
"(C) The Arranger and Corsair have also represented to the Escrow and Transaction Settlement Agent that Arranger and Corsair have 55 executed an agreement on 29th December 2006 ("Placement Agreement") for the placement of equity shares held by the Sellers in Tamilnad Mercantile Bank Limited, a scheduled bank having its registered office at No.57, VE Road, Thoothukudi-628 002, India (the "Bank") by Corsair to various independent buyers each acquiring less than a 5% equity stake in the Bank as per RBI Approval (the "Buyers").
Under the said agreement, the following clause would indicate that an escrow account had also been opened for depositing of share sale consideration as well as other monies by the purchasing entities:
"2.3.1 (I) The Escrow and Transaction Settlement Agent has opened an USD cash account titled "SCB A/c Project Windmill Escrow A/c" ("USD Account"). This account has been opened for depositing of share sale consideration by Purchasing entities and other moneys by Purchasing entities which are payable from time to 56 time in accordance with the terms of this Agreement."
And further SCB, Mumbai, was to act as a sub-agent of SCB, Mauritius, in terms of the following clause under the agreement :
"(ii) The Escrow and Transaction Settlement Agent will appoint Standard Chartered Bank, a Banking Company duly incorporated in England by a royal charter of 1853, having its principal office at 1, Aldermanbury Square, London EC2V7SB and having a branch in India inter alia at 23 - 25, Mahatma Gandhi Road, Fort, Mumbai-
400 001 (hereinafter referred to as "SCB India", which expression shall mean and include only its operations, assets and business in India and unless it is repugnant to the context or meaning thereof, be deemed to mean and include its successors and permitted assigns) as its sub Agent under the terms of this Agreement and has instructed SCB India to open the following accounts:
57
(a) INR denominated account titled "SCB Project Windmill (Sale Consideration) Escrow Account" ("INR Account") for remitting sale consideration payable from the USD Account to the INR Account which in turn is payable to the sellers of the NRI Shares or Resident Shares (which, for the avoidance of doubt, does not refer to the sale of Bank shares by the NRI Transferees or Resident Transferees to Purchasing Entities) from time to time in accordance with the terms of this Agreement.
(b) an escrow/safekeeping account titled "SCB Project Windmill (Shares) Escrow Account"
to hold Escrow Shares and Transfer Deeds (the "Share Account").
It is also seen that under the escrow agreement, Corsair would identify prospective buyers for the shares of TMB, which would be placed in compliance with the Indian laws and the sale was to be complete only upon receipt of the relevant RBI approval in case of non-Indian entities. This is evident from the following clause :58
"4.2 From time to time after the date hereof, Corsair may deliver a certificate in the form attached as Annexure 3 hereto (a "Closing Notice") specifying (i)a date on which a Closing will take place (a "Closing Date", (ii) the identity of the Buyer (a "Purchasing Entity") that will purchase Escrow Shares at such Closing, and (iii) the number of Escrow Shares to be purchased by such Purchasing Entity at such Closing (the "Purchasing Entity's Allocation"), which, for the avoidance of doubt, shall not result in such Purchasing Entity owning (beneficially or otherwise) or controlling an interest of more than 4.95% of the equity shares of the Bank. Each Closing Notice shall include as an attachment a copy of any relevant RBI Approval. A copy of such Closing Notice shall simultaneously be sent to each of BroadStreet and Gupta. For the avoidance of doubt, each of BroadStreet and Gupta shall not be deemed to be a "Purchasing Entity" under this agreement."59
It is seen that Vector had been called upon by Corsair to deposit 13455 shares of TMB in escrow, created with SCB, Mumbai for safe keeping until completion of the sale as is evident from the exchange of correspondence. It is also seen that it was subject to receipt of approvals under the Indian law.
SCB has then called upon TMB by a letter dated 12.5.2007 to register the 13455 shares of TMB in the name of Vector. TMB is seen to have accordingly conducted a Board Meeting on 13.5.2007 and approved Vector as a share holder and had cancelled the earlier share certificates and is seen to have issued fresh share certificates in the name of Vector. Hence the title had vested with Vector in respect of the said shares. TMB has also intimated RBI to the effect that Vector had been registered as its share holder, as follows : 60
"4. The balance 48,556 shares were proposed to be transferred in the names of persons resident in India as per particulars furnished hereunder:
Sr.No. Particulars of the No. of % to total
purchasers shares shareholding of the
Bank
1. Shri M.G.M. Maran 8,530 3%
Director and (his total
Chairman of the Bank shareholding after
taking into account
his existing
shareholding along
with his relatives
and associates
would be 13289 i.e.
4.67% of the total
shares)
2. Shri B. Ramachandra 10,800 3.79%
Adityan, Director of (his total
the Bank shareholding
taking into account
his existing
shareholding along
with his relatives
and associates
would be 13,791
shares i.e. 5.85% of
the total shares)
3. Shri Gokul Patnnaik, 6,749 2.37%
Delhi
61
4. M/s. Vector Program 13,455 4.73%
Private Limited,
Hyderabad
5. 205 Indian resident 9,022 3.17%
Investors.
Total 48,556 17.065
5. The Bank had convened a meeting of the Board on
13.5.2007 to consider changes in the organizational structure of the Bank. The subject matter regarding registration of the proposed transfer of 95418 shares as mentioned above was also placed before the Board after a thorough scrutiny of the documents from all aspects by the Company Secretary of the Bank. Even though the said Board meeting was convened at a shorter notice, all the Directors of the Bank were present in the meeting. A copy of the agenda tabled in the meeting is enclosed as Annexure-1.
7. Thereafter the Board considered the matter and after detailed deliberations, an unanimous resolution was passed to approve the registration of transfer of 95418 shares of the Bank 62 as per particulars furnished in Paragraphs 3 and 4 above. An extract of the minutes of the Board meeting with regard to the above agenda is enclosed as Annexure-2. The share certificates after registration of transfer of 95418 shares of the Bank were delivered to the Standard Chartered Bank, Mumbai who had been acting as an Escrow Agent and who had lodged the said shares with the Bank."
The said share certificates had been thereafter deposited with SCB, Mumbai, for safe custody.
Vector is said to have received Rs.32.53 crore into its account with Axis Bank, Bangalore and it was said to have been informed that the same was the sale consideration for the purchase of shares by the petitioner Starship. In this regard Vector is said to have made repeated requests to furnish the Foreign Inward Remittance Certificate ( FIRC) for the amount remitted into its account so that the sum could be accounted for. It is claimed that the same was not furnished, the account 63 statement is said to have depicted that the money it had received came from Project Windmill Escrow Account and not from either the petitioner or Corsair. It is claimed that it is only on 4.7.2008 that SCB had by its letter of that date, enclosed an FIRC dated 23.5.2007. The said FIRC indicated that the money was paid by the escrow account on behalf of Starship to Vector, as advance sale consideration. It is said that it is in this background, in the light of the improper FIRC and in view of the RBI approval not having been received even after one year, Vector is said to have terminated the agreement of sale and called upon Corsair and Starship to take back the sale consideration and return the Shares.
After having issued the legal notice, Vector is said to have requested its bank, Axis bank to run a tracer on the remittance of Rs.32.53 crore that it had received. It was then said to have discovered that the money deposited on behalf of Starship was by recourse to a pledge of the TMB shares belonging to Vector, and on a surreptitious arrangement 64 between Corsair, SCB and Starship and by raising a loan over the same in Mauritius in the escrow account and sending the money to Vector as the sale consideration. It is the assertion of Vector that the said arrangement did not have the RBI approval.
It is further pointed out that from the information provided by its banker as at Annexure R-11 pages 98 and 99 of the Statement of objections would indicate that as on the date of remittance of Rs.32.53 crore, namely 15.5.2007, into the account of Vector, Starship had not deposited any money into Project Windmill escrow account nor was it a part of the escrow account. It is therefore contended that the money received by Vector was illegal and it would appear that Vector has been unwittingly made to seem to have violated the law as the money cannot be legitimately accounted for and can only be treated as a liability in its hands. The information also indicated that the bank account of Starship never even existed on the date of the remittance with SCB, nor was it part of the escrow and this 65 would unerringly establish that the money was paid by SCB on the security of the TMB shares belonging to Vector- without its knowledge, and in violation of the law in India.
Further, a question does arise as to whether SCB would really be construed as an impartial escrow agent as sought to be projected in the light of the following authorities:-
As described in Black's Law Dictionary, "Escrow" is a legal document or property delivered by a promisor to a third party to be held by the third party for a given amount of time or until the occurrence of a condition, at which time the third party is to hand over the document or property to the promisee.
In Halsbury's Laws of England, Fourth Edition, 2007 Reissue Volume-13, at Page 28 Para 38, it is noted as follows:
"However, a deed cannot be delivered as an escrow to the party intended to benefit under it, as such, because delivery of the document to him is necessarily its delivery as a deed, and any stipulation then made by word of mouth and purporting to suspend the operation of the deed 66 until the performance of some condition would be repugnant to such delivery, and the party delivering the deed would be estopped from averring such a stipulation in contradiction of the deed. Previously in equity, if an instrument was delivered as a deed (or a fortiori as an escrow) to a party to benefit under it, upon an agreement that it should not take effect until the performance of some condition, he would be restrained from enforcing it at law until the condition was fulfilled, and if the condition was not observed, the other party would be relieved from liability under the deed."
Further, at Page 29 Para 39, it is noted that, when an instrument is delivered as an escrow, it cannot take effect as a deed pending the performance of the condition subject to which it was so delivered, and if that condition is not performed the writing remains entirely inoperative. If, therefore, an instrument delivered as an escrow comes, pending the performance of the condition and without the consent, fault, or 67 negligence of the party who so delivered it, into the possession of the party intended to benefit, it has no effect either in his hands or in the hands of any purchaser from him; for until fulfillment of the condition it is not, and never has been, the deed of the party who so delivered it. When an instrument has been delivered as an escrow to await the performance of some condition, it takes effect as a deed (without any further delivery) immediately the condition is fulfilled, and the rule is that its delivery as a deed will relate back to the time of its delivery as an escrow but only for such purposes as are necessary to give efficacy to the transaction.
"Escrow", a term usually applied to deeds, but by analogy applied to Negotiable Instruments. Under Section 46 of the Negotiable Instruments Act, 1881, the third paragraph thereof is reproduced hereunder for ready reference:
"As between such parties and any holder of the instrument other than a holder in due course, it may be shown that the instrument was delivered conditionally 68 or for a special purpose only, and not for the purpose of transferring absolutely the property therein."
It may be seen from the third paragraph above of the section, it would appear that, delivery of the document or property was endorsed to take effect on a condition being complied with; for evidence may be given of such agreement, which would constitute a condition precedent on which the performance of the written contract has to depend. The above paragraph 3 of Section 46 of the NI Act, and Section 92 of the Evidence Act are clear on the point and support the view above indicated. In fact there is no difference in substance between this section and proviso (3) of Section 92 of the Evidence Act, 1872.
The Supreme Court in the case of Siddhivinayak Realities (P) Ltd. vs. Tulip Hospitality Services Ltd. and others, (2007)4 SCC 612, has defined as to what would be "Escrow" and has stated as follows:
69
That an "Escrow arrangement" is normally arrived at in order to safeguard the interest of the parties for the purpose of a contract and the escrow agents are normally persons who are trusted by the parties to act fairly and without bias notwithstanding their relationship with the respective parties.
It is also seen that the account statement of Project Windmill Escrow account in SCB, Mauritius, Annexure R-13 of Statement of Objections, an entry of USD 7945320, dated 14.5.2007 corresponds to Rs.32.3 crore, which is debited to the escrow account. The TT number mentioned therein is the same number mentioned in the FIRC at Annexure R-10. Thus it is prima facie evident that Starship did not provide the funds for acquisition of the shares and it was provided by SCB, rendering the FIRC a fabricated document and therefore would also render Vector culpable for the violation of law.
This is further fortified by the account statement of Project Windmill Escrow account in SCB, Mauritius, the first 70 entry is on 11.7.2008. This would indicate that a credit for the first time is made by Starship in to the account.
It is therefore inexplicable that inspite of not having RBI approval for pledging the shares or acquiring the TMB Shares, Starship had addressed the RBI seeking transfer of shares in its name and the RBI through its letter dated 19.5.2010, Annexure R-14, has rejected the share transfer and also recognized the illegality committed by Starship in active connivance with SCB and Corsair and has addressed the Enforcement Directorate to investigate the matter. (Annexure - R15) In this regard, the ED is said to have summoned the directors of Vector and recorded their statements. It is further found that the ED has filed a complaint against TMB and SCB under FEMA with the Special Director, ED, who has issued notice dated 17.12.2014. (Annexure R-16) 71 Though it is indicated that the said regulatory bodies have not chosen to take any further action, it is also not evident that the proceedings have been closed.
It is also pertinent to note that the learned single judge of the Bombay High Court in his detailed order dated 31.7.2015 has proceeded on the basis of the suits being in respect of the respective ownership of the shares of TMB and the purported termination of the agreement and Vector seeking return of the shares and its claim for damages.
It is this which has prompted the learned judge to observe thus :
"At the outset, it must be noted that in the present matter, we are examining inter se rights between two private parties, i.e. the transferor and the transferee of the suit shares. The relevant regulatory authority, namely RBI is neither before the Court nor is the regulatory perspective relevant for the purposes of the present action except insofar as it affects such inter se rights. In 72 other words, Vector can rely on the regulatory circulars only to the extent they create a right in its favour or a corresponding liability in Corsair or Starship. If, on the other hand, the regulatory framework simply casts some obligations on the transferee before rights could be asserted by it as such transferee, the transfer will have to go through subject to these obligations."
But however, in the light of Vector, whether mischievously or on a genuine latent discovery of an irregular transaction, claiming that it was kept in the dark about SCB, London, had, in agreement with Corsair, planned to acquire 40% of the total equity of TMB, which is said to be expressly prohibited under Indian law and by the RBI. And that in furtherance of the criminal conspiracy, Corsair having approached Vector with the offer of buying the shares of TMB and having obtained custody from it and having it placed with its nominee, SCB, Mumbai, in escrow, falsely with criminal 73 intent that it would be kept in SCB, Mumbai, till the completion of the sale for safe custody.
Further, that Corsair, SCB , London, SCB, Mauritius and SCB, Mumbai having entered into an escrow agreement with Katra Holdings Private limited, dated 12.5.2007, and that under the agreement Corsair was required to find buyers who could each acquire less than 5% equity shares from out of the shares deposited by Vector and Katra in SCB, Mumbai. And whether Corsair and SCB, Mauritius had represented to Vector that the buyers found would have RBI approval and that the sale transaction would be closed only upon the buyer of the shares having RBI approval. And in the light of the details furnished above whether the money paid to Vector as the sale consideration , without indicating the name of the purchaser or the RBI approval. And as alleged by the Complainant , whether the very shares were pledged by SCB in association with Corsair in raising the sale amount that was remitted to the account of Vector. And thereby leaving it exposed to action for 74 violation of the law, are the possible aspects that may be the subject matter of the criminal complaint. It would not be prudent for this court at this stage to pronounce on the correctness or the truth or falsity of these allegations on a prima facie test of perusal of documents and on the basis of assertions by the parties.
It would appear that the search and seizure carried out pursuant to the complaint and warrant issued by the court below does appear to be carried with considerable expedition and in a slick manner, which is unusual for an agency which is normally seen to respond laconically. But that by itself would not vitiate the criminal proceedings.
It is also to be kept in view that Vector cannot have possession of the shares without the refund of the money received by it as the purported sale consideration and of course subject to the civil proceedings pending before the Bombay High Court.
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The present criminal petitions however, do not make out a case for this court's interference in the impugned complaint and are dismissed. The shares in the custody of the court below however, shall remain in its custody either till the culmination of the proceedings before the Bombay High court or the proceedings before itself, whichever is earlier.
Sd/-
JUDGE KS*