Karnataka High Court
Sri. Arun Ballakur vs Sri. M. Krishna Reddy on 30 June, 2023
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 30TH DAY OF JUNE, 2023
BEFORE
THE HON'BLE MR. JUSTICE R.NATARAJ
CRIMINAL REVISION PETITION NO.1360/2015
C/W
WRIT PETITION NO.11821/2018 (GM-RES)
IN CRL.RP NO.1360/2015:
BETWEEN:
1. SRI ARUN BALLAKUR
S/O LATE SRI. B.L.N.RAO,
AGED ABOUT 56 YEARS,
RESIDING AT NO.295,
19TH MAIN, 6TH BLOCK,
KORAMANGALA,
BENGALURU-560095.
2. SMT. MADHAVI BALLAKUR
W/O SRI ARUN BALLAKUR,
RESIDING AT NO.295,
19TH MAIN, 6TH BLOCK,
KORAMANGALA,
BENGALURU-560095.
...PETITIONERS
(BY SRI. VIVEK HOLLA, ADVOCATE)
AND:
SRI. M. KRISHNA REDDY,
AGED ABOUT 53 YEARS,
SON OF SRI. M. VENKATA REDDY,
RESIDING AT NO.59D,
2
30TH MAIN ROAD, 4TH A CROSS,
BTM II STAGE,
BENGALURU-560076.
...RESPONDENT
(BY SRI. K.V.SATISH, ADVOCATE)
THIS CRL.RP IS FILED UNDER SECTION 397 READ
WITH SECTION 401 OF THE CODE OF CRIMINAL
PROCEDURE, 1973 PRAYING TO SET ASIDE THE ORDER
DATED 30.10.2015 PASSED BY THE COURT OF THE
SPECIAL COURT (ECONOMIC OFFENCES) AT BANGALORE
ON APPLICATION FOR DISCHARGE FILED UNDER SECTION
245(2) OF CR. PROCEDURE CODE IN C.C.NO.321/2014
(ANNEXURE-A) AND DISCHARGE THE PETITIONERS FROM
THE OFFENCES ALLEGED IN THE COMPLAINT.
IN W.P.NO.11821/2018:
BETWEEN:
1. SRI. ARUN BALLAKUR
S/O LATE B.L.N.RAO,
AGED ABOUT 56 YEARS,
RESIDING AT NO.295,
19TH MAIN, 6TH BLOCK,
KORAMANGALA,
BENGALURU-560095.
2. SMT. MADHAVI BALLAKUR
W/O SRI ARUN BALLAKUR,
AGED ABOUT 54 YEARS,
R/AT NO.295, 19TH MAIN,
3
6TH BLOCK, KORAMANGALA,
BENGALURU-560095.
...PETITIONERS
(BY SRI. VIVEK HOLLA, ADVOCATE)
AND:
SRI. M. KRISHNA REDDY,
S/O M. VENKATA REDDY,
AGED ABOUT 55 YEARS,
R/O NO.306, 24TH CROSS,
27TH MAIN, HSR SECTOR-II,
BENGALURU-560102.
...RESPONDENT
(BY SRI. K.V.SATISH, ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLES
226 AND 227 OF THE CONSTITUTION OF INDIA READ
WITH SECTION 482 OF THE CODE OF CRIMINAL
PROCEDURE, 1973 PRAYING TO CALL FOR THE RECORDS
IN CRIMINAL CASE NO.235/2017 ON THE FILE OF THE
SPECIAL COURT (ECONOMIC OFFENCES) AT BANGALORE
AND ETC.
THIS CRIMINAL REVISION PETITION AND WRIT
PETITION HAVING BEEN HEARD AND RESERVED FOR
ORDER ON 23.05.2023 AND COMING ON FOR
PRONOUNCEMENT OF ORDERS THROUGH VIDEO
CONFERENCE THIS DAY, THE COURT MADE THE
FOLLOWING:-
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COMMON ORDER
Crl.R.P.No.1360/2015 is filed by the accused Nos.1 and 2 in C.C.No.321/2014 pending trial before the Special Court (Economic Offences) at Bengaluru, calling in question the correctness of the order dated 30.10.2015, by which an application filed by them under Section 245(2) of Cr.P.C, was rejected.
2. W.P.No.11821/2018 is filed by the accused Nos.2 and 3 in C.C.No.235/2017 pending trial before the Special Court (Economic Offences) at Bengaluru (henceforth referred to as 'Special Court'), calling in question the correctness of an order dated 27.06.2017 taking cognizance of offence punishable under Section 447 of the Companies Act, 2013 and also the correctness of the order dated 22.11.2017, by which an application filed by them under Section 245 of Cr.P.C. was rejected. The petitioners have also prayed to quash the proceedings in C.C.No.235/2017.
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3. Since both the petitions are disposed off by this common order, the petitioners in Crl.R.P.No.1360/2015 who were the accused Nos.1 and 2 in C.C.No.321/2014 and the petitioners in W.P.No.11821/2018 who were accused Nos.2 and 3 in C.C.No.235/2017 shall be referred by their names to maintain clarity. Mr.Arun Ballakur was the accused No.1 and Mrs. Madhavi Ballakur was the accused No.2 in C.C.No.321/2014. They were accused Nos.2 and 3 in C.C.No.235/2017.
4. C.C.No.321/2014 was registered based on a private complaint in PCR No.7/2014 filed by the respondent herein (henceforth referred to as 'complainant'). The complainant alleged that he was one of the promoter directors and shareholders of Ace Forge Private Limited (henceforth referred to as 'company'). Mr.Arun Ballakur was admitted as a Director with effect from 31.03.2003. The complainant claimed that he and his family members held 98% of the shares of the company, 6 while Mr.Arun Ballakur was neither allotted any shares nor did he acquire or possess any shares of the company either by transfer or purchase. He alleged that the Balance Sheet of the company as on 31.03.2003 indicated an unsecured loan of Rs.52,46,079/-, of which a sum of Rs.27,17,300/- was the amount invested in the company by four shareholders and close family members of complainant, while a sum of Rs.25,28,779/- was the amount invested by the complainant. After Mr.Arun Ballakur was inducted as a Director, he contributed a sum of Rs.7,75,000/- to the company and therefore, the unsecured loan raised to a sum of Rs.60,21,079/- as on 31.03.2003. This apart, a sum of Rs.8,71,343/- was shown as an unsecured loan due to Venkateshwara Marketing Agencies, a proprietary concern of the wife of the complainant.
5. The complainant claimed that Mr.Arun Ballakur, being a Metallurgist, was carrying on the day to day affairs of the company, while the complainant was a 7 joint signatory to the account of the company at Bank of India. The complainant alleged that he reposed utmost trust and faith in Mr.Arun Ballakur. He claimed that during December, 2012, his family members who had invested money in the company started demanding the allotment of shares as against the investment made by them. He claimed that when he followed it up with Mr.Arun Ballakur, he did not respond. Later, the family members of the complainant disclosed that they had secured information from the Registrar of Companies that 5,70,000 shares were allotted during the year 2010-11 of which, 3,50,000 equity shares were allotted in favour of Mr.Arun Ballakur and 2,20,000 shares were allotted in favour of the complainant and that the said allotment was made against receipt by cash. They alleged that the amount invested by them was illegally appropriated towards allotment of shares. The complainant alleged that he was aghast after coming to know of the said illegal allotment of shares and when questioned, Mr.Arun Ballakur tried to justify the action by claiming that he was carrying on the affairs of 8 the company and therefore, he had appropriated the unsecured loan to his account. The complainant claimed that this was a fraud played not only on him but also on the other shareholders as well as the company. The complainant alleged that the allotment of shares was in violation of the Articles of Association as well as the provisions of the Companies Act, as such an allotment could not be made without the concurrence of the shareholders and without convening the meeting of the Board of Directors. He alleged that the audited Balance Sheet of the company as on 31.03.2010 continued to reflect the unsecured loan of Rs.52,46,079/- payable to him and his family members. However, the Balance Sheet as on 31.03.2011 showed an unsecured loan of only Rs.22,63,079/-. He alleged that though he had signed the Balance Sheet, the same was done in good faith and on coming to know of the discrepancy in the Balance Sheet, the complainant took up the matter with the Auditors, who informed that the unsecured loan was reduced on the instructions of Mr.Arun Ballakur. The complainant alleged 9 that Mr.Arun Ballakur stopped attending the registered office of the company and did not take steps to rectify the illegalities. The complainant claimed that during October, 2013, he contacted Mr.Arun Ballakur regarding an issue relating to the land allotted to the company by KIADB. Mr.Arun Ballakur met the complainant on 25.10.2013 whereat he insisted the complainant to sign a letter dated 25.10.2013, which was drawn up by Mr.Arun Ballakur on the letter head of the company, ratifying the illegal acts committed by him and to disown the communication addressed by the complainant and his relatives to Mr.Arun Ballakur. It was also claimed in the letter dated 25.10.2013 that the shares were allotted to Mr.Arun Ballakur in the year 2003 itself. When the complainant refused to sign the said letter, Mr.Arun Ballakur insisted that if he is paid Rs.7,50,00,000-00, he would exit from the company. The complainant claimed that after the above incident, a stalemate resulted and Mr.Arun Ballakur refused to attend the office and also to hold Board Meetings to explain the allotment of shares in his name. 10 The complainant claimed that he was therefore, compelled to issue notice dated 24.01.2014 calling upon Mr.Arun Ballakur to explain all the illegalities pointed out therein. The complainant thereafter, caused a search of the records pertaining to the year 2003 and found that there was no records. Mrs. Madhavi Ballakur, being the wife of Mr.Arun Ballakur was also a beneficiary of the allotment of equity shares of the company, which again was not based on any records. The complainant therefore, caused a notice to Mrs. Madhavi Ballakur to establish as to how she claimed to be a shareholder of the company. Since the accused did not sort out the issues, the complainant approached the Company Law Board, Additional Principal Bench, Chennai, with a petition under Section 186 of the Companies Act, 1956 during May, 2014. Later, during June, 2014, the complainant received a notice dated 12.06.2014 from Mrs. Madhavi Ballakur by which, she requisitioned the holding of an Extra-ordinary General Meeting (henceforth referred to as 'EGM' for short) and appointed herself as the Director of the company and claimed that she held 13% equity shares 11 of the company. This notice was replied by the complainant and he reiterated that no shares were transferred to Mrs. Madhavi Ballakur and she had failed to furnish any proof regarding the transfer of shares in her favour. In reply to this, Mrs. Madhavi Ballakur addressed a communication dated 26.06.2014, wherein she claimed that as per the annual returns filed by the company for the years 2008, 2009, 2010 and 2011, her name was shown as the shareholder of the company and such returns were duly signed by the complainant. The complainant alleged that his signatures found on these annual returns were forged. Therefore, he alleged that Mrs. Madhavi Ballakur was also a party to the fraud played by Mr.Arun Ballakur. The complainant alleged that Mr.Arun Ballakur addressed an e-mail to him on 01.07.2014 to hold a meeting of Board of Directors on 03.07.2014 to consider the requisition received from Mrs. Madhavi Ballakur to hold an EGM. This was replied by the complainant claiming that Mrs. Madhavi Ballakur had failed to produce any documents justifying her shareholding and therefore, the complainant listed out 12 the agenda for the meeting. He alleged that though Mr.Arun Ballakur attended the meeting on 03.07.2014, he refused to sign the attendance register and demanded that except the agenda suggested by him, he was not open for any discussion on the other items suggested by the complainant. Following this, Mr.Arun Ballakur addressed a mail on the same day confirming that no meeting of the Board of Directors was held on 03.07.2014. The complainant therefore, alleged that Mr. Arun Ballakur and Mrs. Madhavi Ballakur had committed various fraudulent acts from the year 2003 with an intention to gain control in the company and for this purpose have forged the signatures of the complainant on the annual returns filed by the company. The complainant being a shareholder of the company filed PCR No.07/2014 under Section 200 of Cr.P.C. read with Sections 447 and 448 of the Companies Act, 2013.
6. The Special Court recorded the sworn statement and after considering the oral and documentary 13 evidence, took cognizance of the offence punishable under Section 447 of the Companies Act, 2013 and ordered the registration of a criminal case and issued process to the accused. The registry of the Special Court registered C.C.No.321/2014 and issued process.
7. The accused (Mr. Arun Ballakur and Mrs. Madhavi Ballakur) were secured and were released on bail. An application was filed by the accused under Section 245(2) of Cr.P.C. to discharge them for the offences on the ground that the claim made by the complainant was clearly a dispute that had to be resolved before the Civil Court. It was also contended that the Books of Accounts for the financial year 2005-06 showed that it was Mr.Arun Ballakur, who had infused funds into the company as an unsecured loan and the said document was attested by the complainant himself. They also claimed that the transfer of shares of the company in their names was recorded in the books and registers maintained by the company and such entries were attested by the complainant himself. They 14 also contended that the annual returns for the years 2008, 2009 and 2011 also indicate that the complainant had ratified the transfer of such shares and therefore, the complainant cannot now disown those documents and claim that the shares were not transferred to Mr. Arun Ballakur and Mrs. Madhavi Ballakur and that his signatures found on the annual returns were forged.
8. This application was opposed by the complainant, who claimed that the accused had filed Crl.P.No.12/2014 before this Court where they had challenged the order taking cognizance. This Court disposed off the criminal petition by order dated 23.07.2015 directing them to avail the remedy of a revision petition under Section 397 of Cr.P.C. They claimed that Mrs. Madhavi Ballakur had filed PCR No.10/2014 against the complainant, which was dismissed for non-prosecution on 27.06.2015. They claimed that as per the Articles of Association of the company, there was a restriction against transfer of shares to any outsider 15 without the express approval of other shareholders and Board of Directors and without complying the modalities before effecting transfer of any shares. The complainant alleged that Mr. Arun Ballakur and Mrs. Madhavi Ballakur did not produce any document to justify their claim that they had lawfully become the shareholders of the company in the year 2002-03 itself. He alleged that the names of Mr. Arun Ballakur and Mrs. Madhavi Ballakur were not reflected in the annual returns filed by the company for the years 2003-04 but in the annual returns filed later, the names of the Mr. Arun Ballakur and Mrs. Madhavi Ballakur were inserted in the list of shareholders. The complainant contended that he and others had filed a petition in Company Petition No.37/2014 before the Company Law Board, Chennai, to declare that the shareholding by Mr. Arun Ballakur and Mrs. Madhavi Ballakur was null and void. The complainant claimed that Mr. Arun Ballakur and Mrs. Madhavi Ballakur claimed in Company Petition No.37/2014 that they are not in a position to produce the share certificates. It was therefore, contended that the 16 application for discharge cannot be considered as Mr. Arun Ballakur and Mrs. Madhavi Ballakur were bound to justify the transfer of shares in their favour.
9. The Special Court after considering the material placed on record as well as the pre-summon evidence of PW.1 and PW.2, held that there was sufficient material to proceed against the accused for offences punishable under Sections 447 and 448 of the Companies Act, 2013 and that the contentions urged by the accused in the application for discharge were all issues that had to be decided after trial. Consequently, the Special Court rejected the application in terms of the order dated 30.11.2015, which is now challenged in Crl.R.P.No.1360/2015.
10. In W.P.No.11821/2018, Mr. Arun Ballakur and Mrs. Madhavi Ballakur who were accused Nos.2 and 3 have challenged the criminal proceedings initiated in C.C.No.235/2017 as well as the order taking cognizance and an order rejecting an application for discharge. 17
11. C.C.No.235/2017 was registered on the basis of private complaint filed by the respondent/complainant in PCR No.2/2017. The complainant claimed that in continuation of the facts pleaded in C.C.No.321/2014, the petition filed before the Company Law Board, Chennai, was dismissed on the ground of limitation and jurisdiction. It was alleged that Mrs. Madhavi Ballakur (accused No.2 in C.C.No.321/14) proceeded to call for EGM based on her requisition dated 12.06.2014 and proceeded to convene and hold the EGM on 04.01.2016. The complainant alleged that under Section 100 of the Companies Act, 2013, the meeting held on 04.01.2016 was non-est as it was beyond the period prescribed under sub-section (4) of Section 100, but was after 1 year 3 months and 25 days. In the meanwhile, the order passed by the Company Law Board was challenged before this Court in Company Appeal Nos.24/2015 and 25/2015. This Court in terms of the judgment dated 25.02.2016, noticed that the complainant and his relatives had already approached the Civil Court in 18 O.S.Nos.9950/2015 and 9952/2015 challenging the legality of the claim of the accused that they were the shareholders of the company. This Court therefore, held that the findings recorded by the Company Law Board were merely presumptive and therefore, held that the Civil Court is at liberty to take an independent view of the case and the observations made by the Company Law Board shall not operate as a bar against the Civil Court examining the controversy in accordance with law. The complainant alleged that Mrs. Madhavi Ballakur had contravened the provisions of Section 100 of the Companies Act, 2013. He alleged that aggrieved by the illegal acts of the Mr. Arun Ballakur and Mrs. Madhavi Ballakur, he lodged complaints before the Registrar of Companies on 31.12.2015 and 07.01.2016. The Registrar of Companies issued a show-cause notice dated 19.02.2016 to Mr. Arun Ballakur and Mrs. Madhavi Ballakur holding that the EGM was not held within 3 months as prescribed under Companies Act, 2013 and therefore, was illegal. He called upon the accused to show-cause as to 19 why proceedings under Section 450 of the Companies Act, 2013 should not be initiated. This notice was not replied by the accused. Mr. Arun Ballakur and Mrs. Madhavi Ballakur proceeded to file Form DIR-12 claiming that Mrs. Madhavi Ballakur was appointed as a Director of the company at the EGM dated 04.01.2016. The complainant alleged that filing Form DIR-12 without conducting a meeting of the Board of Directors was itself illegal. Later, Mr. Arun Ballakur convened a board meeting on 30.04.2016 to remove the complainant from the directorship of the company. The complainant alleged that notice of this meeting was not issued to him and thereafter, another EGM was allegedly held on 27.05.2016 by which time, the complainant had already lodged another complaint with the Registrar of Companies on 23.05.2016, wherein he claimed that he had issued a notice dated 05.05.2016 to Mr. Arun Ballakur to convene a Board Meeting on 16.05.2016 to discuss various issues. However, Mr. Arun Ballakur refused to attend the meeting and sent a communication dated 11.05.2016. Despite this, 20 Mr. Arun Ballakur had purportedly convened a EGM on 27.05.2016 to consider the agenda of removal of the complainant from the directorship of the company, without issuing appropriate notice to the complainant. Thus, the complainant alleged that Mr. Arun Ballakur and Mrs. Madhavi Ballakur had committed offences punishable under Sections 447 and 448 of the Companies Act, 2013.
12. The Special Court recorded the sworn statement of the complainant and held that the material on record disclosed that the meeting dated 27.05.2016 was not in accordance with Section 100 of the Companies Act, 2013 and thus took cognizance of the offence punishable under Section 447 of the Companies Act, 2013 and issued process to the accused.
13. Later, the accused filed an application under Section 245 of Cr.P.C. to discharge them from the offence. It was contended therein that the complainant failed to plead succinctly, the fraud played by the accused. It was also contended that the accused were already facing trial 21 in C.C.No.321/2014 based on a private complaint lodged by the complainant. It was also contended that to attract an offence under Section 447 of the Companies Act, 2013, the complainant should prove that he was subjected to wrongful loss, which inherently required him to prove that he owned the property which he lost. It was contended that the complainant had failed to prove the alleged fraud. Further, it was contended that the notice of the EGM dated 12.06.2014 was questioned by the complainant in Company Petition No.37/2014 before the Company Law Board, Chennai, where an order of injunction was granted on 04.08.2014 and therefore, the meeting could not be held. However, Company Petition No.37/2014 was rejected on 12.11.2015, against which the complainant and his relatives filed Company Appeal Nos.24/2015 and 25/2015, where this Court refused to stall the proposed EGM. It was contended that the Company Appeal Nos.24/2015 and 25/2015 were disposed off without any observation regarding the proposed EGM. It was contended that the EGM was held on 04.01.2016 which at best was belated by 22 15 days. It was contended that under Section 100(4) of the Companies Act, 2013, discretion is vested in the person requisitioning the meeting to hold such meeting within the time permitted or beyond. It was also contended that if there is any contravention of Section 100, there were alternative remedies available and a complaint alleging an offence was not the option as the Registrar of Companies had accepted the explanation for not conducting the EGM within time and did not precipitate the matter beyond issuing a show-cause notice. It was further contended that the complainant was given advance intimation of the meeting of the Board of Directors scheduled on 30.04.2016. At that meeting, a resolution was passed to hold an EGM on 27.05.2016. It was contended that the EGM dated 27.05.2016 was not stayed by any Court or authority and accordingly, the meeting dated 27.05.2016 cannot be termed "procedurally irregular". Further, they contended that the complainant sought for an order of injunction in O.S.No.9950/2015 to restrain the holding of the EGM on 27.05.2016, which was 23 not granted. It was contended that the assertion made by the complainant in the private complaint were all triable by a Court of civil jurisdiction and therefore, the process of criminal law deserved to be put to rest.
14. The Special Court after considering the material on record, rejected the application in terms of the impugned order on the ground that there were prima-facie materials to frame a charge against the accused under Section 448 of Companies Act, 2013, which is punishable under Section 447 of the Companies Act, 2013.
15. Being aggrieved by the aforesaid order, the present W.P.No.11821/2018 is filed by Mr. Arun Ballakur and Mrs. Madhavi Ballakur.
16. The learned counsel for the accused in both the petitions submitted that the genesis of the case was a Memorandum of Understating dated 29.12.2002 (henceforth referred to as 'MOU') entered into between M/s. Arun Ballakur Associates, the complainant 24 representing one part and the relatives of the complainant on the other, in terms of which, a disinvestment package was worked out. M/s. Arun Ballakur and Associates were to purchase the shares of the Directors and their group and also take care of the operations of the company. It was agreed that Arun Ballakur and Associates would infuse funds for the day to day operations of the company as an unsecured loan. Accordingly, post-dated cheques were given by Arun Ballakur and Associates to K.R. Srinivasa Reddy Group, A.C. Nanjappa Group, Krishna Murthy Group, K. Prasad Group etc., It was also agreed that M/s. Arun Ballakur Associates and its nominees would be co- opted as Directors of the company. It was also agreed that the existing Directors and shareholders mentioned in the MOU would not have any other monetary claim after realization of cheques and transfer of shares. He contended that the Balance Sheet for the year ending March, 2003 carried a reference to the MOU as well as the funds infused by Arun Ballakur and Associates. Later the authorised share capital of the company was enhanced to 25 a sum of Rs.10,00,000/-. He contended that the accused were running the day to day affairs of the company as agreed and the annual returns were filed from time to time, which showed that 1,51,690 equity shares were allotted to the accused. He contended that the complainant alleging fraud in the matter of transfer of shares approached the Company Law Board in Company Petition No.2/2014 where he sought the following reliefs:-
i) permitting the 1st petitioner (M. Krishna Reddy) to hold a board meeting with one director present in person to form the quorum for the purpose of the meeting.
ii) to direct that agenda for the said Board meeting shall only be appointment of another director and no other business.
17. The learned counsel contended that this petition was objected by the accused, who placed on record all the materials consequent to which, the complainant withdrew the petition reserving liberty to file a fresh petition. He submitted that the complainant instead of settling the dispute as claimed in the memo for 26 withdrawal of Company Petition No.2/2014, filed a private complaint in PCR No.7/2014 before the Special Court for Economic Offences, Bengaluru. He submitted that in the private complaint, the complainant categorically stated about Mr.Arun Ballakur infusing a sum of Rs.7,75,000/- on behalf of the company. He therefore, submitted that the accused is not a swindler but was genuinely interested in disinvestment of the company and to run the company profitably. He contended that the complainant and his shareholder relatives having accepted this proposal, cannot now turn around to claim that Mr.Arun Ballakur was merely a Director and not a shareholder. He submitted that the order of the Special Court taking cognizance for the offence punishable under Section 447 of the Companies Act, 2013 was challenged and stayed in Crl.R.P.No.1360/2015. The complainant without awaiting result in the revision petition, again approached the Company Law Board in Company Petition No.37/2014 where the complainant sought the following reliefs:- 27
i) declare that the allotment of 3,50,000 equity shares made in favour of complainant No.2 - Mr. Arun Ballakur by utilizing the unsecured loan given to the company by the petitioners 2 to 5, as null and void.
ii) consequently, set aside the allotment of 5,70,000 equity shares made on 14.9.2010 as null and void and not binding on the company.
iii) declare that the holding of 38612 equity shares in the name of complainant No.2 - Mr. Arun Ballakur by way of transfer of shares as null and void.
iv) declare that the holding of 113078 equity shares in the name of complainant No.3 - Mrs. Madhavi Ballakur by way of transfer of shares as null and void.
v) consequently, order rectification of the Register of Members to reflect the original shareholding of the petitioners aggregating to 2,75,800.
vi) consequently, declare that the Annual Returns filed by the 2nd complainant on the behalf of the company for the year 2006 to 2011 and any other documents mentioning the names of the 2nd to 9th complainants as shareholders of the company as false and incorrect.28
vii) consequently, direct 2nd complainant - Arun Ballakur to restore the sum of Rs.57,00,000/-
(Rupees Fifty Seven Lakhs only) illegally appropriated by him from the unsecured loan account and share application money account of the company towards allotment of 5,70,000 shares along with interest at the rate of 24% per annum upto the actual date of payment.
viii) to remove the 2nd complainant - Arun Ballakur from the directorship of the company in view of the various acts of breach of trust, fraud and acts of misfeasance.
18. The learned counsel submitted that the complainant also sought for an interim relief to restrain Mrs. Madhavi Ballakur from holding any EGM for appointing her as a Director of the company as per the requisition dated 12.06.2014. He submitted that in the said Company Petition, Mrs. Madhavi Ballakur filed an application for permission to convene the meeting. The learned counsel contended that the Company Law Board after considering the material on record dismissed the petition in terms of the order dated 12.11.2015. Therefore, Mrs. Madhavi 29 Ballakur convened the meeting on 04.01.2016, which was well within the three month period prescribed under Section 100 of the Companies Act, 2013. However, the meeting stood postponed to 27.05.2016. In the meanwhile, the family members of the complainant had filed Company Appeal No.24/2015 before this Court and this Court in terms of the judgment dated 17.12.2015 held that, "In case the EGM (scheduled to be held on 04.01.2016) is held, then the outcome of the same shall be subject to further orders passed in this appeal."
19. The learned counsel contended that the Company Appeal No.24/2015 was dismissed reserving liberty to seek resolution of the dispute before the Civil Court in O.S.Nos.9950/2015 and 9952/2015. He submits that this Court in Company Appeal No.24/2015 did not comment upon the EGM held on 04.01.2016. He submitted that now the complainant and others are 30 already before the Civil Court in O.S.Nos.9950/2015 and 9952/2015 where they have sought to,
(i) declare that the alleged transfer of 1,96,810 shares in the names of defendant Nos.10 to 14 to the names of defendant Nos.2 to 9 as void and in violation of Articles of Association.
(ii) declare that the allotment of 5,70,000 equity shares of the company as per Form No.2 dated 14.09.2010 filed by Arun Ballakur with the Registrar of Companies indicating allotment of 3,50,000 shares in his favour and 2,20,000 shares in favour of the complainant by adjusting the unsecured loan, as illegal and not binding on the company
(iii) order rectification of register of members of the company
(iv) declare the Annual Returns filed for the years 2005 to 2011 and any other documents mentioning the names of the accused and others as shareholders of the company, as invalid and not binding
(v) consequently to direct the transferee shareholders to re-transfer the respective shareholding to the complainant and others at the 31 rate of Rs.1/- per share, commensurate with their shareholding
(vi) direct Mr. Arun Ballakur to restore the statutory registers and records of the company removed by him from the registered office of the company.
20. The learned counsel contended that the complainant had acknowledged the fact of filing the annual returns as well as the Balance Sheet of the company and therefore, he cannot now resile and claim that there is no share transfer in favour of the accused. He submitted that the Special Court without looking into this material, blindly took cognizance of the offence punishable under Section 447 of the Companies Act, 2013. He submitted that the Special Court even after bringing to its notice the documents which justified the shareholding of the accused, refused to discharge the accused. He relied upon the judgment of the Hon'ble Apex Court in the case of Sanjay Kumar Pai vs. State of Uttar Pradesh and another [2021 SCC Online SC 367] and contended that the orders framing charge or refusing discharge are not affected by the bar under Section 397(2) of Cr.P.C. He 32 also relied upon the judgment of this Court in the case of The Hassan Co-operative Milk Producers Societies Union Limited and Others vs. State of Karnataka, Department of Co-operative Societies and others [ILR 2014 KAR 4257] and contended that any amending provision has retrospective effect unless anything is contained to the contrary in law or any established principle of interpretation. These judgments were relied upon to contend that under Section 212 (6) of the Companies Act, 2013, Section 447 was made as a cognizable offence by Act No.21 of 2015 and hence, the Special Court could not have taken cognizance.
21. The learned counsel invited the attention of the Court to a communication dated 31.05.2017 addressed by the Registrar of Companies to the Regional Director of Ministry and Corporate Affairs based on the complaint regarding the removal of the complainant as the Director of the company and contended that no punitive action was proposed by the Registrar of Companies as the issue had 33 to be resolved before the Civil Court. This was challenged by the complainant in W.P.No.54686/2017. Therefore, he contended that the complainant was not justified in filing of private complaint until W.P.No.54686/2017 was disposed off.
22. Per contra, the learned counsel for the complainant submitted that the accused had filed an application under Section 245(2) of Cr.P.C. seeking discharge in C.C.No.321/2014, which was rejected in terms of the order dated 30.10.2015. He submitted that the issue whether the accused had committed an offences punishable under Sections 447 and 448 of the Companies Act, 2013 is purely a question of fact that had to be tried and certainly not a question that could be considered based on assertions in the application. He submitted that the accused were protracting the proceedings on one or the other ground and were not cooperating with the trial of the case. He submits that pendency of the proceedings before the Civil Court would not come in the way of the 34 Special Court proceeding with the trial as both proceedings are distinct and different. He contended that company in question is a Private Limited Company and is governed by the Articles of Association. He claimed that the Articles of Association specifically mandated as follows:-
"In order to ascertain whether a member is willing to purchase a share at the face value, the person who is the member of the company proposing to transfer the same (hereinafter called "the selling member") shall give notice in writing (hereinafter described as a "sale notice") to the company of his intention to sell the whole or part of his holding of shares in the company and in the latter case, he shall specify the number of shares he intends to sell. Every sale notice shall specify the denoting number of shares which the selling member desires to sell and shall constitute the company, the agent of the selling member for the sale of such shares to any member of the company at the face value without assuming any liability thereof. No sale notice shall be withdrawn except with the sanction of the Board of Directors."35
23. The learned counsel submitted that every share shall be transferable but every transfer must be in writing in the prescribed form and must be left at the registered office for the time being of the company accompanied by the Certificate of Share to be transferred and such other evidence (if any) as the Board of Director may require to prove the title of the transferor.
24. The learned counsel further contended that the accused have not produced any documents till date to justify their shareholding in the company. He submitted that a private complaint could be lodged by any shareholder or a member of the company and therefore, there was nothing illegal about the private complaint. He submitted that all offences under the Companies Act, 2013 except the offence under Section 212(6) are cognizable and therefore, the private complaint filed is justified. He referred to Section 439(2) of the Companies Act, 2013 and claimed that a complaint in writing could be filed by any 36 shareholder or member of a Company in respect of any offence committed under the Companies Act, 2013.
25. In reply, the learned counsel for the accused submitted that it is for the Central Government to decide whether it is necessary to investigate into the affairs of the company by the Serious Fraud Investigating Office ('SFIO' for short) and once it is assigned, no other investigating agency of the Central or State Government shall proceed with the investigation in such case. He submitted that second proviso to sub-section (6) of Section 212 provides that, "The Special Court shall not take cognizance of any offence referred to in this sub-section except upon a complaint in writing made by
(i) the Directors, Serious Fraud Investigation Office or
(ii) any officer of the Central Government authorised, by a general or special order by writing in this behalf by that Government."
The learned counsel submitted that when the Central Government is of the opinion that an investigation is not 37 warranted, the Special Court could not have ventured to take cognizance. In this regard, he relied upon a judgment of a co-ordinate bench of this Court in M. Gopal vs. Ganga Reddy [Criminal Petition No.3550/2017 (D.D. 21.10.2022)]. It was held in the said decision that the Special Court cannot take cognizance of an offence under Section 447 of the Companies Act, 2013 on a private complaint filed by a shareholder, in view of the express bar contained in Section 212 (6) of the Companies Act, 2013.
26. The learned counsel for the complainant, on the other hand, invited the attention of the Court to Section 447 of the Companies Act, 2013 which reads as follows:-
"447. Punishment for fraud.-- Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud involving an amount of at least ten lakh rupees or one per cent of the turnover of the company, whichever is lower, shall be punishable with imprisonment for a term which shall not be 38 less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud:
Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.
Provided further that where the fraud involves an amount less than ten lakh rupees or one per cent of the turnover of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to fifty lakh rupees or with both.
Explanation.-- For the purposes of this section--
(i) "fraud" in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or 39 its creditors or any other person, whether or not there is any wrongful gain or wrongful loss;
(ii) "wrongful gain" means the gain by unlawful means of property to which the person gaining is not legally entitled;
(iii) "wrongful loss" means the loss by unlawful means of property to which the person losing is legally entitled."
He also invited the attention of the Court to Section 448 of the Companies Act, 2013 which reads as follows:
"448. Punishment for false statement.-- Save as otherwise provided in this Act, if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement,--
(a) which is false in any material particulars, knowing it to be false; or
(b) which omits any material fact, knowing it to be material, he shall be liable under section
447."
The learned counsel contended that the issue whether there was a MOU dated 29.12.2002 and whether 40 there was any corresponding order allotting shares to Mr. Arun Ballakur and whether the signatures of the complainant on the Annual Statements were forged or not and whether Mr. Arun Ballakur was justified in allotting shares in his name as well as in the name of his wife Mrs. Madhavi Ballakur by appropriating the unsecured loans of the company are all matters of trial and cannot be decided based on assertions made in the application for discharge. He contended that for the purposes of Section 447 of the Companies Act, 2013, fraud is defined differently and cannot be equated to the definition found in Section 420 of IPC. Therefore, he contends that if an offence under Section 447 of the Companies Act, 2013 is made out, then the accused are bound to face the trial.
27. I have considered the submissions made by the learned counsel for the accused as well as the learned counsel for the complainant. I have also secured photocopies of the records in C.C.No.321/2014, which is now renumbered as Special C.C.No.434/2018 now pending 41 trial before the LIX Additional City Civil and Sessions Judge, Bengaluru City (CCH - 60).
28. The gravamen of the allegations of the complainant in C.C.No.321/2014 are that Mr. Arun Ballakur was appointed as a Director of the company to oversee the operations and the day to day affairs in the Company and that he was not allotted with any shares of the Company. However, it is alleged that Mr. Arun Ballakur misused his position by filing annual returns and financial statements, wherein he declared himself to be the shareholder of the company. The accused have now placed on record a Memorandum of Understanding entered into between M/s. Arun Ballakur Associates and the complainant representing one part and other shareholders on the other part, in terms of which, Arun Ballakur and Associates and the complainant had allegedly agreed to purchase the shares belonging to the other shareholders and had allegedly infused funds into the company for carrying on the operations. This MOU is seriously disputed by the 42 complainant who claims that this document was never placed before any authority including the Registrar of Companies and despite issuing notices, there was no whisper about the alleged MOU. It is not the case of the accused that there are any documents justifying the transfer of shares in the names of the accused. The Articles of Association of the company sets out the procedure for transfer of shares and evidently, there are no documents placed on record till date justifying the transfer of shares. On the contrary, the transfer of shares is sought to be justified by claiming that the complainant was a signatory to the annual returns and the financial statements of the company filed with the Registrar of Companies and therefore, he is estopped from now contending to the contrary. The complainant has denied the signatures found on the annual statements and claims them to be forged.
29. Mrs. Madhavi Ballakur is the wife of Mr. Arun Ballakur, who claimed to be a shareholder, though there 43 are no documents till date to justify her claim. Nonetheless, she submitted a request on 12.06.2014 to conduct an EGM, which however could not be held due to various litigations as the complainant challenged the authority of Mrs. Madhavi Ballakur making a request for conducting the EGM. Nonetheless, Mrs. Madhavi Ballakur after one year 6 months and 23 days convened an EGM on 04.01.2016, where she was appointed as a Director of the Company. Mr. Arun Ballakur thereafter convened a meeting of the Board of Directors comprising him and his wife to remove the complainant from the directorship of the company. This was followed by another EGM on 27.05.2016 for removal of the complainant as the Director of the Company. Therefore, it is evident that there is an attempt at one-upmanship in the company. If the allegations made by the complainant are perused, they certainly are enough to try the accused for the offences punishable not only under Section 447 but also under Section 448 of the Companies Act, 2013. The nature of allegations being complicated questions of fact have to be 44 necessarily tried and the Special Court was justified in rejecting the application filed under Section 245(2) of Cr.P.C. in C.C.No.321/2014 and in C.C.No.235/2017. It is now well settled that the Court while considering an application for discharge would not pierce through the evidence to find out its veracity but would weigh the evidence to check whether an offence is made out or not. The attempt of the accused appears to be to compel the Court to disbelieve the truth of the allegations made in the complaint, based on documents lying with them. These documents constitute the defense of the accused and the same needs to be established in trial.
30. The fact that civil cases are already filed in O.S.Nos.9950/2015 and 9952/2015 cannot pre-empt the criminal proceedings as the reliefs sought for in the civil suits are wholly different from the punitive provisions provided under Section 447 and Section 448 of the Companies Act, 2013. Therefore, both the proceedings can continue independently.
45
31. Now coming to the interesting question raised by the learned counsel for the accused that a Special Court cannot take cognizance of an offence under Section 447 of the Companies Act, 2013, in view of the bar against taking cognizance contained in Section 212 (6) of the Companies Act, 2013, a Co-ordinate Bench of this Court in M. Gopal vs. Ganga Reddy [Criminal Petition No.3550/2017 (D.D. 21.10.2022)] held that the Special Court cannot take cognizance of an offence under Section 447 of the Companies Act, 2013 on a private complaint filed by a shareholder, in view of the express bar contained in Section 212 (6) of the Companies Act, 2013. Similarly, the High Court of State of Telangana in Sumana Paruchuri vs Jakka Vinod Kumar Reddy and others [Criminal Petition Nos.8025/2021 and 8024/2021 (D.D. 06.06.2022)] also took the same view.
32. I have gone through the Judgment rendered by the Co-ordinate Bench of this Court, referred supra, in great detail. With all humility at my command and with 46 utmost respect to the erudition and learning of my esteemed learned brother of this Court and my sister from the High Court of State of Telangana, I prefer to take a different view for the following reasons.
33. It is seen that the private complaints in PCR Nos.7/2014 and 2/2017 were filed under Section 200 of Cr.P.C. to take cognizance of an offence under Sections 447 and 448 of the Companies Act, 2013. A perusal of the above two provisions leaves no doubt that "fraud" has a wider connotation and includes any act or omission that has the effect of either causing any wrongful loss or gain to the Company or its shareholders or its creditors or any person, while "false statement" has a restricted application and applies to furnishing false particulars or omitting to furnish relevant particulars in any return, report, certificate, financial statement, prospectus, statement of affairs or any other document required or prescribed under the provisions of the Companies Act, 2013. An offence of furnishing false information is punishable under Section 47 448 of the Companies Act, 2013. It is very pertinent to note that Section 439 (1) declares that all offences under the Companies Act, 2013 except an offence under Section 447 of the Companies Act, 2013 are non-cognizable and in respect of such non-cognizable offences, cognizance can be taken by a Special Court under Section 439(2), but on a complaint in writing of the Registrar, a shareholder, or a member of the Company, or of a person authorized by the Central Government or by a person authorized by the Securities and Exchange Board of India.
34. Chapter XIV of the Companies Act, 2013 deals with inspection, inquiry and investigation into the affairs of the Companies and its officers. A perusal of the provisions contained therein shows three ways when and how a prosecution can be initiated against a company and its officers before the Special Court.
35. Firstly, when the Registrar of Companies initiates action under Section 206 of the Companies Act, 2013 for an inspection and inquiry and later conducts an 48 inspection and inquiry under Section 207 of the Companies Act, 2013 and submits a report to the Central Government under Section 208 of the Companies Act, 2013. The Central Government may order an investigation into the affairs of the Company through any inspectors duly appointed by it who may submit a report in such manner as may be directed. If upon such investigation, it is found that the Company has indulged in any acts or omissions or conducted its affairs in a fraudulent manner, the Central Government may authorize the Registrar of Companies to file appropriate complaint before the Special Court.
36. Secondly, through the Serious Fraud Investigation Office (SFIO) established under Section 211 of the Companies Act, 2013. If a report under Section 208 of the Companies Act, 2013 is placed before it by the Registrar or on receipt of intimation of a special resolution passed by a Company that the affairs of the Company needs to be investigated or in public interest or on receipt of a request of any department of the Central Government 49 or a State Government, then under Section 212 of the Companies Act, 2013, the Central Government may order that the investigation shall be conducted by the SFIO. When the investigation is entrusted to SFIO, no other investigating agency of either the Central or State Government shall proceed with any investigation and if already initiated, shall be halted and transfer all records and documents to SFIO. The investigating officer conducting the investigation shall have all the powers of an inspector under Section 217 of the Companies Act, 2013. If the investigating officer is an officer not below the rank of an Assistant Director of SFIO and he has on the basis of material in his possession, reason to believe that any person is guilty of an offence punishable under Section 447 of the Companies Act, 2013, he may arrest such person and as soon as possible inform him the grounds of such arrest. He shall after such arrest, forward a note to the SFIO along with all the material particulars. The person arrested shall be produced before the Special Court or the Judicial Magistrate within 24 hours, excluding the time 50 taken for travel. If the Central Government directs that an interim report be submitted, the SFIO may do so. Once an investigation is completed, the SFIO shall submit its report to the Central Government. On receipt of such report, the Central Government may direct the SFIO to initiate prosecution against the Company and its officers or employees who are or were in the employment or who were directly or indirectly connected with the affairs of the Company. An investigation report filed before the Special Court is deemed to be a report filed by a police officer under Section 173 of Cr.P.C. A safeguard against wrongful prosecution is fused by a proviso to Section 212 (6) of the Companies Act, 2013, which prescribes that the Special Court shall not take cognizance of an offence under Section 447 except upon a complaint in writing made by the Director of SFIO or any officer of the Central Government authorized by a general or special order in writing. The remaining provisions of Section 212 deal with the procedure for bail when the arrested person is accused 51 of an offence under Section 447 of the Companies Act, 2013.
37. Thirdly, when an application is made by not less than 100 members or members holding not less than 1/10th of the total voting power, in case of a company having a share capital or not less than 1/5th of the members in the case of a company having no share capital or an application by any person to the National Companies Law Tribunal and if it is satisfied that (a) there are circumstances suggesting that the affairs of the Company is conducted fraudulently or for an unlawful purpose or in any manner oppressively against any members etc., (b) if the founders or persons managing the company are guilty of fraud, misfeasance or misconduct against the company or towards the members, (c) if the members of the company are not provided with all information regarding the affairs of such company etc., the Tribunal may direct the Central Government to investigate the affairs of such company through the inspector or inspectors appointed by 52 the Central Government. If it is proved after investigation that the affairs of the Company is conducted fraudulently or for an unlawful purpose, then the company and all persons responsible for the offence under Section 447 of the Companies Act, 2013 shall be prosecuted in the same manner either through the SFIO or through the Registrar or through such officer as may be authorized by the Central Government, as it is doubtful whether the Tribunal can itself initiate prosecution against the accused and punish them.
38. Section 435 provides for the establishment of Special Courts for Trial of offences under the Companies Act, 2013 except under Section 452 of the Companies Act, 2013 and reads as follows:
"435. Establishment of Special Courts.-- (1) The Central Government may, for the purpose of providing speedy trial of offences under this Act, except under section 452, by notification, establish or designate as many Special Courts as may be necessary:
(2) A Special Court shall consist of 53
(a) a single judge holding office as Session Judge or Additional Sessions Judge, in case of offences punishable under this Act with imprisonment of two years or more; and
(b) a Metropolitan Magistrate or a Judicial Magistrate of the First Class, in the case of other offences, who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working."
39. Section 436 of the Companies Act, 2013 deals with the offences triable by the Special Courts, which reads as follows:
"436. Offences triable by Special Courts. - (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),---
(a) all offences specified under sub-section (1) of section 435 shall be triable only by the Special Court established or designed for the area in which the registered office of the company in relation to which the offence is committed or where there are more Special Courts than one for such area, by 54 such one of them as may be specified in this behalf by the High Court concerned;
(b) where a person accused of, or suspected of the commission of, an offence under this Act is forwarded to a Magistrate under sub-section (2) or sub-section (2A) of section 167 of the Code of Criminal Procedure, 1973 (2 of 1974), such Magistrate may authorise the detention of such person in such custody as he thinks fit for a period not exceeding fifteen days in the whole where such Magistrate is a Judicial Magistrate and seven days in the whole where such Magistrate is an Executive Magistrate:
Provided that where such Magistrate considers that the detention of such person upon or before the expiry of the period of detention is unnecessary, he shall order such person to be forwarded to the Special Court having jurisdiction;
(c) the Special Court may exercise, in relation to the person forwarded to it under clause (b), the same power which a Magistrate having jurisdiction to try a case may exercise under section 167 of the Code of Criminal Procedure, 1973 (2 of 1974) in relation to an accused person who has been forwarded to him under that section; and 55
(d) a Special Court may, upon perusal of the police report of the facts constituting an offence under this Act or upon a complaint in that behalf, take cognizance of that offence without the accused being committed to it for trial.
(2) When trying an offence under this Act, a Special Court may also try an offence other than an offence under this Act with which the accused may, under the Code of Criminal Procedure, 1973 (2 of 1974) be charged at the same trial.
(3) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the Special Court may, if it thinks fit, try in a summary way any offence under this Act which is punishable with imprisonment for a term not exceeding three years:
Provided that in the case of any conviction in a summary trial, no sentence of imprisonment for a term exceeding one year shall be passed:
Provided further that when at the commencement of, or in the course of, a summary trial, it appears to the Special Court that the nature of the case is such that the sentence of imprisonment for a term exceeding one year may have to be passed or that it is, for any other 56 reason, undesirable to try the case summarily, the Special Court shall, after hearing the parties, record an order to that effect and thereafter recall any witnesses who may have been examined and proceed to hear or rehear the case in accordance with the procedure for the regular trial."
40. For the purpose of this case, Section 436 (1)(d) is relevant and emphasis is laid on the words "a special Court may, upon perusal of the police report of the facts constituting an offence under this Act or upon a complaint in that behalf, take cognizance of that offence, without the accused being committed to it for trial".
41. It is indisputable that the Special Court is established to try all offences under the Companies Act, 2013 except the offence under Section 452 of the Companies Act, 2013. The bar against the Special Court taking cognizance of an offence under Section 447 of the Companies Act, 2013, contained in the proviso to Section 212 (6) of the Companies Act, 2013 is applicable only when the investigation is undertaken by the SFIO and is a 57 clear safeguard against wrongful or abusive prosecution. This cannot take away the jurisdiction of the Special Court to entertain a private complaint alleging an offence under Section 447 of the Companies Act, 2013. The fetters sought to be laid on the Special Court on the basis of the judgment of a co-ordinate bench of this Court, would actually deprive a shareholder, a forum to seek redressal of his grievance and the Special Court would be rendered toothless when a private complaint is filed and it has to simply direct such shareholder to go through the labyrinthine multilayered process envisaged in Chapter XIV of the Companies Act, 2013. On the contrary, if the words "on a complaint in that behalf, take cognizance" found in Section 436 (1)(d) of the Companies Act, 2013 is understood in the plain and ordinary sense, the Special Court is also clothed with the jurisdiction to take cognizance of an offence under Section 447 of the Companies Act, 2013. The Special Court may itself inquire or direct an inquiry by the Registrar of Companies or an Inspector appointed by the Central Government under 58 Section 210 (2) of the Companies Act, 2013 and submit a report in such manner and may thereafter take cognizance. The argument that a shareholder cannot hold the Company to ransom by accusing the Company and its officers of fraud or unlawful act by launching a false prosecution, does not merit consideration as the Special Court is bound to be satisfied before ordering an investigation or inquiry and before taking cognizance of an offence under Section 447 of the Companies Act, 2013. However, if SFIO is already investigating an offence under Section 447, then all other proceedings, including any private complaint before a Special Court, stand arrested. Therefore, the apprehension expressed by the learned counsel for the accused is wholly unwarranted and without any basis.
42. Therefore, the Special Court is empowered to take cognizance of an offence under Section 447 of the Companies Act, 2013 and may itself inquire or refer it to 59 the Registrar of Companies or the Inspector appointed by the Central Government for the said purpose.
43. This different view of mine is not infallible and therefore to doubt the correctness of the Judgment rendered by my learned esteemed brother would be like doubting my own self. Hence, in order to maintain judicial propriety and to maintain the purity of precedents, I have felt it appropriate to place the case before the Hon'ble Chief Justice requesting His Lordship to refer the questions of law for adjudication by a larger Bench. However, since I have taken a view that the Special Court is entitled to take cognizance of an offence under Section 447 of the Companies Act, 2013 based on a private complaint and I have referred it for adjudication by a larger Bench, it is appropriate that the Special Court shall not render its Judgment until the Bench to be constituted gives its finding.
44. On facts, there is no merit and hence these petitions are dismissed. Since the cases are languishing 60 in the Courts since the year 2014 without any progress, it is appropriate that the Trial Court is directed to proceed with the Trial for the offences under Section 447 of the Companies Act, 2013 and conclude the trial within six months from the date of receipt of a certified copy of this Order. However, the Trial Court shall not pronounce judgment until the questions of law framed by this Court are answered by a Bench that may be constituted.
Sd/-
JUDGE
PMR
61
RNJ CRL.R.P.No.1360/2015 C/W
30.06.2023 W.P.No.11821/2018
(THROUGH VIDEO CONFERENCING)
ORDER REFERRING THE QUESTIONS OF LAW FOR
CONSIDERATION BY A LARGER BENCH
A Co-ordinate Bench of this Court in M. Gopal vs. Ganga Reddy [Criminal Petition No.3550/2017 (D.D. 21.10.2022)] held that the Special Court constituted under Section 435 of the Companies Act, 2013 cannot take cognizance of an offence under Section 447 of the Companies Act, 2013 on a private complaint filed by a shareholder, in view of the express bar contained in Section 212 (6) of the Companies Act, 2013. My learned brother has rejected the contention of the complainant therein that a private complaint under Section 439(2) of the Companies Act, 2013 can be filed to take cognizance of an offence under Section 447 of the Companies Act, 2013, as Section 439 deals with non cognizable offences, while Section 447 of the Act, 2013 is a cognizable offence. My learned brother has also held that whenever an offence of 62 fraud punishable under Section 447 of the Companies Act, 2013 is alleged, then it has to be investigated by the Serious Fraud Investigation Office ('SFIO' in short) constituted under Section 211 of the Act, 2013 and prosecution can only be initiated by it.
However, I have taken a different view that a Special Court is not deprived of its power to take cognizance of an offence under Section 447 of the Companies Act, 2013 in view of the words "upon a complaint in that behalf" found in Section 436 (1)(d) of the Companies Act, 2013. I have also held that Chapter XIV of the Companies Act, 2013 deals with inspection, inquiry and investigation and prescribes the mode of initiating prosecution of a Company and its officers. I have also held that the second proviso to Section 212 (6) of the Companies Act, 2013 applies only when the prosecution is launched by the SFIO and is a safeguard against mindless or wrongful prosecution.
63
Since the view taken by me, is though not infallible but is not in line with the view taken by my learned Brother in the case of M. Gopal vs. Ganga Reddy [Criminal Petition No.3550/2017 (D.D. 21.10.2022)], in order to maintain judicial propriety and the purity of precedents, the registry is directed to place these two cases before Hon'ble the Chief Justice to constitute a Bench of appropriate strength to determine the following questions of law:-
(i) Whether the Special Court constituted under Section 435 of the Companies Act, 2013 can take cognizance of an offence punishable under Section 447 of the Companies Act, 2013 on a private complaint by a shareholder or a member of a Company ?
(ii) Whether the bar contained in the Second proviso to Section 212 (6) of the Companies Act, 2013 restricts the power of the Special Court to take cognizance of an offence 64 under Section 447 of the Companies Act, 2013 on a private complaint ?
(iii) Is it mandatory that every complaint alleging an offence under Section 447 of the Companies Act, 2013 should go through the process prescribed under Chapter XIV of the Companies Act, 2013 ?
Sd/-
JUDGE PMR