Delhi District Court
State vs : B.B.Sharma & Ors. on 28 November, 2015
IN THE COURT OF SH. SUDHANSHU KAUSHIK, ADDL. CHIEF
METROPOLITAN MAGISTRATE-01 : CENTRAL DISTRICT :
TIS HAZARI COURTS : DELHI
State Vs : B.B.Sharma & Ors.
FIR No. : 155/1998
U/s : 420/406/409/120B/411 IPC
PS : Prasad Nagar
Date of Institution : 16.11.1998
Date of Judgment reserved on : 28.11.2015
Date of Judgment : 28.11.2015
Unique ID : 02401R0857912005
Brief details of the case
A) Sl. No. of the case : 66/CR
B) Offence complained of
or proved : U/s 409/420/120B IPC
C) Date of Offence : In the year 1997
D) Name of complainant : Sudarshan Lal
Dy. General Manager,
Reserve Bank of India,
6, Sansad Marg, New Delhi
E) Name of accused : (1) M/s Hoffland Finance Ltd.
1207, Hemkunt, Rajindra
Place, New Delhi-110008
(2) B.B.Sharma
S/o S.P.Sharma,
R/o B-2/54, Safdarjung Enclave.
New Delhi
(3) M.N.Badam
S/o Shridharjoo,
R/o 302, Vipin Garden,
Kakrola More, Uttam Nagar,
New Delhi-110059
(4) A.Subba Rao
S/o A.Srinivasayya,
R/o 153/1A, West Azad Nagar,
Gali No.14, Krishna Nagar,
Delhi
FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 1 of 15
(5) M.Lal
S/o Bihari Lal
R/o D-29/1, Mehrauli,
New Delhi
(6) Vinod Pant
S/o R.D.Pant
R/o 734-B & C, J.N.U,
New Campus, Delhi
F) Plea of accused : Pleaded not guilty
G) Final order : Accused M.N.Badam, A.Subba Rao,
M.Lal and Vinod Pant acquitted
Accused B.B.Sharma Convicted U/s 420 IPC
H) Date of Order : 28.11.2015
Judgment
On the accusation of entering into a criminal conspiracy with the
common object of luring investors to make deposits in their company and
subsequently misappropriating the invested amount, Directors & principal
employees of Hoffland Finance Ltd. Company were sent up to face trial for
committing offences punishable under Section 409/420 IPC read with Section 120
IPC.
Brief facts as disclosed in the charge sheet
2. Hoffland Finance Ltd. Company (hereinafter referred to as ' the
company' ) was a was a Non Banking Financial Company (NBFC) registered under
the Companies Act, 1956 having its registered office at premises No.1207, Hem
Kunt Tower, Rajender Place, New Delhi. It is the case of prosecution that company
and its Directors entered into a criminal conspiracy to cheat investors by inducing
FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 2 of 15
them to make deposits and in furtherance of this conspiracy, number of other
subsidiaries were floated. B.B.Sharma was the Chairman-cum-Managing Director
while M.N.Badam, A.Subba Rao and M.Lal were the Directors of the company.
After floating the company, accused invited investments from the general public by
promising high rate of interest on their investments. In order to induce the public,
the company gave repeated advertisement in the Newspapers painting a very rosy
picture about its financial solvency and future prospects. Believing upon the
inducement given by the accused persons, number of investors invested their hard-
earned money with the company but after accepting deposits, the company
vanished. In order to convince the investors and create an impression about the
genuineness of the entire transaction, the company handed over shares of various
premium blue chip companies to the investors alongwith post-dated cheques. The
shares of companies upto 60% of the invested amount and post-dated cheques
towards interest and principal were given to some investors but on presentation, the
cheques were returned back with remarks ' account closed' . The aggrieved investors
approached Company Law Board for refund of matured deposits and also lodged
complaints with Reserve Bank of Indian (RBI) about the default committed by the
company. On the complaint made by RBI, present FIR bearing No.155/1998 under
Section 420/406/409/120B IPC was registered at Police Station Prasad Nagar.
Statements of witnesses were recorded and all the accused were arrested. The
accounts of the company were inspected by the officials of Reserve Bank of India
FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 3 of 15
and on conclusion of investigation, charge-sheet was put to the court.
3. Copies of the charge-sheet were supplied to all the accused and vide
order dated 28.03.2000, charges under Section 120B IPC and Section 409/420 IPC
read with Section 120B IPC were framed against them to which they pleaded not
guilty and claimed trial. The accused preferred revision against framing of charges
and the appellate court ordered for deletion of charge framed under Section 409
IPC. Initially, the complaint filed by the RBI mentioned the names of Directors
including D.P.Nayar, S.P.Sharma, Lt. Gen. Jagdish Narayan and Maj. Gen. Pramod
Kapoor besides B.B.Sharma, M.N.Badam, A.Subba Rao, M.Lal and Vinod Pant
but the trial proceeded only against B.B.Sharma, M.N.Badam, A.Subba Rao, M.Lal
and Vinod Pant. Subsequently, in the year 2002, additional accused (Bharti
Sharma, Rakesh Mishra, Suraj Pal Sharma, Ashok Kohli, N.C.Pandey, Ram Niwas
Titoria, Vinod Chauhan and Dilip Sharma) were also summoned on the basis of the
supplementary charge-sheet filed under Section 173(8) Cr.P.C but vide order dated
07.08.2010, proceedings against them were dropped. Trial proceeded only against B.B.Sharma, M.N.Badam, A.Subba Rao, M.Lal and Vinod Pant. During trial, B.B.Sharma was declared to be a ' proclaimed offender' after he stopped appeared before the court but subsequently, he was arrested and trial concluded qua all the accused.
Witnesses Examined
4. More than 100 witnesses were cited by the prosecution but only 65 of FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 4 of 15 them were examined.
Investors PW-1 Madhu Balal PW-2 Sudarshan Lal PW-3 B.N.Kakkar PW-4 Maj. Rajender Lal PW-7 Durga Ban Goswami PW-8 N.G.Gupta PW-9 Mahinder Singh PW-10 Dinesh Bhardwaj PW-11 Pankaj Jain PW-12 Dalel Singh PW-13 Col. D.N.More PW-14 Suraj Bhan PW-15 Balbir Singh PW-15 S.K.Bakshi PW-16 Vimal Bakshi PW-18 Arun Kalra PW-19 Vishnu Dev PW-20 Kiran Gehlot PW-21 Tirath Kaur PW-22 Vidhya Bhutani PW-23 Surender Kumar Sharma PW-24 Col. Prithvi Raj Singh PW-25 Suruchi Oberoi PW-26 Radhey Shyam PW-27 Urmil Kaur Kalsi PW-28 Bhagat Ram Sharma PW-29 Jagmohan Kapoor PW-30 Anil Kumar Dhir PW-31 Lt. Col. Narender Kumar PW-32 Parvinder Kaur Marwah PW-33 Manvender Kaur Marwah PW-34 Brig. K.J.Singh PW-35 Wg. Com. J.S.Garewal PW-36 Shweta PW-37 Col. M.S.Ghura PW-38 Wg. Com. Jagdeep Singh PW-39 Pradeep Kumar Dey PW-40 Lt. Col. L.S.Bedi PW-41 Maj. Gen. S.K.Behal FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 5 of 15 PW-42 Habanas Gandotra PW-43 Saroj Bala PW-44 Jai Rani Nadwani PW-45 R.K.Yadav PW-46 Meena Rattan PW-47 Ajay Kumar PW-48 Om Prakash PW-49 Nand Kishore PW-50 Sipra Dass PW-51 Parveen Malakar PW-55 Roshan Lal PW-56 V.N.Sharma PW-57 Harsh Lata PW-58 Shweta Bindra PW-59 Anuradha Nanda PW-60 Veena Dhawan PW-61 A.K.Dhawan PW-62 I.M.Nagar PW-63 Col. D.S.Panjrath PW-64 Shiv Charan PW-65 D.D.Sardana PW-66 Chander Bhan Witness from Bank PW-5 Rajender Kumar (Computer Operator, Oriental Bank of Commerce) produced bank statement of the company for the relevant period. Formal Witnesses PW-6 P.Sita Ram (Auditor of the company) mentioned that nothing wrong was found in the functioning of the company.
PW-52 ASI Harman Beg (Duty Officer) PW-53 HC Prem Singh (Formal witness) PW-54 Krishan Pal Singh (Clerk, Revenue Department)
5. Separate statements of accused were recorded under Section 313 FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 6 of 15 Cr.P.C. B.B.Sharma admitted that he was the Chairman-cum-Managing Director of the company. He denied the incriminating evidence and took defence that he never intended to cheat the investors. He stated that his company incurred huge losses in the stock exchange and on account of said reason, the cheques of interest and the principal amount were dishonored. On the other hand, the other accused persons took defence that they were not managing the affairs of the company. M.N.Badam, A.Subba Rao and M.Lal mentioned that they were Directors only on paper having no real control over the company. They stated that B.B.Sharma was managing the affairs of the company and they had no say in the business. Vinod Pant mentioned that he was only an employee of the company. He stated that although, he was working as a Manager of the company but he resigned from the said post. It has been the common stand of accused persons that they can not be held vicariously liable for the acts of the company. One defence witnesses was examined. DW-1 Shree Bhagwan, Record Clerk from Company Law Board produced the copy of the order dated 21.10.1998 passed by the Company Law Board which is Ex.DW-1/A. Arguments
6. I have heard Ld. APP for State as well as Ld. Defence Counsel and carefully gone through the entire material available on record.
7. Ld. Defence Counsels have argued that prosecution has failed to establish its case. Counsel for accused B.B.Sharma argued that the deposits were accepted under a bonafide belief that the company would be in a position to FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 7 of 15 provide handsome return to the investors. It was argued that the invested amount could not be returned as the company suffered huge losses. Counsel for accused M.N.Badam argued that not even a single witness has deposed anything against this accused. He contended that accused was only an employee of the company having no control over its affairs. Similar arguments were tendered in respect of M.Lal and A.Subba Rao. Accused Vinod Pant argued in person and stated that he was only working as a Manager in the company. He submitted that he continued to remain in employment till 15.12.1996 and his resignation was accepted by the company on 20.11.1996. He stated that he continued to be associated with the company as a consultant but no criminal liability can be fastened upon him. It has been the common line of argument that there is no evidence to infer that the company had criminal intention to cheat the investors. Counsels have contended that default in repayment occurred due to circumstances beyond the control of accused and no criminal liability can be fasten upon them. It was argued that the vicarious liability of the Directors arises not because of their position but because of the nature of duties performed by them. It has been the stand of the counsels that a Director of the company can not be held liable for the acts of the company unless it is proved by evidence that he was managing the day-to-day affairs of the company. On the force of these submissions, counsels have prayed that the accused should be acquitted.
8. On the other hand, Ld. APP has countered the arguments of defence FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 8 of 15 arguing that the prosecution' s case stands proved beyond reasonable doubt. He contended that in case of criminal conspiracy, there is hardly any possibility of bringing on record direct evidence and the conspiracy has to be inferred from circumstantial evidence. He argued that the testimony of witnesses, coupled with the documents seized by the Investigating Officer, leaves no scope for doubt that all the accused were acting in furtherance of criminal conspiracy. He contended that although there are minor contradictions in the testimony of witnesses but the same are inconsequential. It has been argued by him that invariably, conspiracy is hatched behind closed doors and the possibility of obtaining direct evidence is remote. He mentioned that investors have categorically deposed that they were carried away by the rosy picture painted by the accused and the lucrative interest promised by their company. He argued that there is no evidence to show that the company suffered huge losses or the default occurred due to circumstances beyond the control of accused. He mentioned that in a very calculated manner, accused siphoned the invested money by transferring the invested amount in the parent company and other sister-concerns and cheated the innocent investors.
Brief reasons for decision
9. I have perused the record in the light of respective arguments.
10. On perusal of record, I have arrived at a conclusion that there is sufficient evidence to establish that M/s Hoffland Finance Ltd. and its Chairman- cum-Managing Director B.B.Sharma committed an offence punishable under FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 9 of 15 Section 420 IPC. Section 420 IPC provides punishment for cheating and states that whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of valuable security or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with the imprisonment provided under the said Section. The term cheating has been defined under Section 415 IPC. It provides that whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he was not so deceived, and which act of omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to cheat. Thus, to conclude that a person has cheated a person, the first and foremost ingredient is that there should be a dishonest inducement to deceive a person to deliver any property and the person so deceived must act on the said dishonest inducement.
11. In order to demonstrate the inducement part, prosecution relied upon the testimony of investors who invested money in the company. V.N.Kakkar (PW-3) stated that he read the advertisement of the company wherein lucrative rate of interest on investment was promised. His testimony shows that he believed the false representation made by the company and acting upon the said representation, FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 10 of 15 deposited money in the company. Similarly, Rajender Lal Grover (PW-4), Durga Goswami (PW-7), N.G.Gupta (PW-8), Mahinder Singh (PW-9), Dinesh Bhardwaj (PW-10), Suraj Bhan (PW-14), Balbir Singh (PW-15), Arun Kalra (PW-18), Bhagat Ram Sharma (PW-28), Jagmohan Kapoor (PW-29), Col. Narender Kumar (PW-31), Col. D.S.Panjarath (PW-64) and other investors also deposed that they were persuaded by the rosy picture painted by the company and deposited their hard earned money. Witnesses have deposed that the company promised to give a return of as much as 27% per annum on the invested amount. The cutting of the advertisement painting a rosy picture and making lofty assurances about the return on investment is Ex.PW-1/A. The investors have deposed that at one point or the other, the agents of the company assured them high rate of interest and they deposited the amount on the said assurance. In view of the testimony of investors, there is absolutely no doubt that the advertisement given by the company painting a rosy picture and promising exceptionally high rate of interest did play on their mind. Believing upon the assurances given to them, the investors invested money in the company. Thus, the inducement part stands established.
12. It has also been established that the investors did part with the money and deposited the amount in the company. Each investor has given details of the cheque and narrated the manner in which the amount was invested in the company. The investors have deposed that at the time of investing money, the company handed over post-dated cheques towards assured return on their investment. The FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 11 of 15 details of the cheques have been given by them and the copies of the cheques are on record. These cheques were dishonoured and returned back with remarks ' account closed' . The cheque return memos are also on record. Thus, it has been established that the company failed to honour its commitment and return the invested amount. Rajender Kumar, Computer Operator from Oriental Bank of Commerce produced the account opening form of the company and stated that B.B.Sharma was authorized to operate the said account. It further goes on to show that the controlling power of the company vested in B.B.Sharma who was the Chairman-cum-Managing Director. Record shows that the company generated funds under Secured Investment Scheme without obtaining the requisite license from RBI. It was found that the generated amount was rotated between the parent company and its subsidiaries. Thereafter, the rotated amount was siphoned off.
13. It has been the stand of defence that there is no evidence to infer that the company or the accused committed the offence with a criminal intention. Counsel has argued that in a criminal trial under Section 420 IPC, it is essential to establish that accused committed the alleged offence with the requisite criminal intention. He argued that mens-rea is an essential ingredient of the offence of cheating and the accused can not be convicted merely because the company could not provide the promised return on the investment made by the investors. He has contended that neither the company nor the accused can be held criminally liable unless it is established that at the time of accepting deposits, they had criminal FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 12 of 15 intention to cheat the investors. Ld. APP has argued that the criminal intention of the accused can be inferred from the record. He mentioned that there can not be any direct evidence to establish mens-rea and it can be gathered only from the circumstances in which the transaction was done and the manner in which the accused conducted himself. He argued that after accepting huge deposits from various investors, accused transferred the money to various subsidiaries of Hoffland Finance Ltd. and subsequently, the invested amount was siphoned by him. He mentioned that in a very calculated manner, accused cheated the investors and disappeared. He stated that the criminal intention to cheat is writ large on record.
14. On perusing the evidence in the light of respective arguments, I have reached a conclusion that there is sufficient evidence to conclude that accused committed the offence with criminal intention to cheat the investors. The company advertised in the daily Newspapers that any person investing money in the company would get a high rate of interest. The exceptionally high rate of interest promised by the accused was a ploy to lure the investors. The investors fell in the trap and believing upon the false assurance, they parted with their money and deposited huge amount. In order to convince the investors, company issued post- dated cheques and in some case, shares of blue chip companies having value upto 60% of the invested amount were also given to the investors. All these tactics were adopted just to gain trust of the investors. Subsequently, the deposits were siphoned FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 13 of 15 by the accused by rotating the invested amount in various subsidiaries. It is proved beyond reasonable doubt that the company deceived the investors by fraudulently and dishonestly inducing them to deposit money against fictitious schemes and subsequently, misappropriated the invested amount.
15. The liability of the company has been established. It is an admitted position that accused was the Chairman-cum-Managing Director of the company and he was responsible for the day-to-day affairs. He was the Incharge of the company who was at the helm of affairs. He was managing the entire affairs behind the corporate veil. It has been proved that accused cheated the investors and caused wrongful loss to them. However, the evidence is not sufficient to prove charge against the Directors and the Manager of the company. The argument of the prosecution that accused M.N.Badam, A.Subba Rao and M.Lal were liable for committing the offence because of being Directors of the company is not convincing. There is no universal rule that each Director is in charge of the affairs of the company. The liability of a Director depends upon the role played by him in the affairs of the company and not his status or designation. The liability arises on account of conduct, act or omission on the part of the Director and not merely on account of holding the office or position in the company. From the very beginning, it has been the stand of B.B.Sharma that he himself was managing the affairs of the company. The record also suggests that all the powers of the company were concentrated in the Chairman and he was exercising and controlling the company FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 14 of 15 for all the practical purpose. There is no reliable evidence to show that A.Subba Rao, M.Lal or M.N.Badam were managing the affairs of the company. Admittedly, Vinod Pant was working as Manager of the company. A.Subba Rao resigned from the Directorship on 30.04.1998. Similarly, Vinod Pant also resigned from the company on 15.11.1996. Although, he continued his association with the company as a consultant but he resigned from the post of Manager. Accordingly, M/s Hoffland Finance Ltd. and its Chairman-cum-Managing Director B.B.Sharma stand convicted for committing offence punishable under Section 420 IPC while M.N.Badam, A.Subba Rao, M.Lal and Vinod Pant are acquitted.
Be heard separately on the point of sentence.
Announced in open Court (SUDHANSHU KAUSHIK)
on 28.11.2015 ACMM-01, Central District,
Tis Hazari Courts, Delhi
It is certified that this judgment contains Fifteen (15) pages and each page bears my signatures.
(SUDHANSHU KAUSHIK) ACMM-01, Central District, Tis Hazari Courts, Delhi FIR No.155/1998 State Vs B.B.Sharma & Ors. Page 15 of 15