Telangana High Court
Riddhi Kalapi Shah vs State Of Telangana on 12 April, 2022
Author: K. Lakshman
Bench: K. Lakshman
HON'BLE SRI JUSTICE K. LAKSHMAN
CRIMINAL PETITION No.9328 OF 2021
ORDER:
The present criminal petition is filed seeking to quash FIR No. 943 of 2020 dated 19.09.2020 registered by P.S. Madhapur under Sections 406 and 420 of the Indian Penal Code and Section 5 of the Telangana Protection of Depositors of Financial Establishments Act, 1999.
2. Heard Mr. K. Ramakrishna Reddy learned Senior Counsel representing Mr. K. Manoj Reddy learned counsel for the Petitioner, Mr. T. Jayant Jaisoorya learned counsel for Respondent No. 2 and Mr. Khaja Vizart Ali learned Assistant Public Prosecutor.
Facts of the case
3. The Petitioner herein is the director in M/s. Teji Mandi Analytics Pvt. Ltd. (hereinafter 'TMAPL'). The said TMAPL is an authorised person of another company M/s. Anugrah Stock and Broking Pvt. Ltd. (hereinafter 'ASBPL') which is a stock broking firm based out of Mumbai and is registered with the National Stock KL,J Crl.P. No.9328 of 2021 2 Exchange (hereinafter 'NSE'). The role of TMAPL was to refer clients to ASBPL for trading of shares. TMAPL in turn received a share of brokerage for referring the clients to ASBPL.
4. According to Respondent No. 2, he and his wife were approached by TMAPL's director named Mr. Anil Gandhi to deposit certain amount in the form of shares and cheque amount in the scheme run by ASBPL to earn returns to the tune of 1% to 1.5% per month on the deposited amount. The said Anil Gandhi allegedly promised and assured profits if amount is invested in ASBPL's scheme. Relying on the alleged statements and assurances of Mr. Anil Gandhi, the Petitioner and his wife opened a trading account in ASBPL and deposited an amount of Rs. 20 lakhs through bank transfer and deposited shares worth of Rs. 53.30 lakhs.
5. Respondent No. 2 further alleges that he had received returns only from January 2020 to May 2020. After May 2020 no returns as promised by TMAPL and ASBPL were received. According to Respondent No. 2, various requests were made to transfer funds/securities and closure of his account with ASBPL.
KL,J Crl.P. No.9328 of 2021 3 No details were provided by the directors of TMAPL and ASBPL regarding the latest credit balances of Respondent No. 2 and the server of ASBPL was shut down in August 2020.
6. Respondent No. 2 alleging fraud, cheating and misappropriation of funds had filed FIR No. 943 of 2020 on 19.09.2021 which was registered under Sections 406 and 420 of the Indian Penal Code and Section 5 of the Telangana Protection of Depositors of Financial Establishments Act, 1999. In the said FIR, the Petitioner is arraigned as Accused No. 7.
7. The said FIR is sought to be quashed by the Petitioner in the present case.
8. Contentions of the Petitioner
i) The Petitioner is named as an accused solely because she is a director in TMAPL. However, she is not involved in the management and day to day affairs of the company. She is not aware of the financial transactions of the company and has never drawn any salary and remuneration from TAMPL for her role as a director.
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ii) All the allegations against TMAPL are against Anil Gandhi who was responsible for the running of business and was also the authorised signatory of TMAPL.
iii) Further, Anil Gandhi admitted in a complaint filed by TMAPL before the Economic Offences Wing that the Petitioner was not involved in the day-to-day activities of TMAPL.
iv) Petitioner herself is aggrieved by the fraud committed by ASBPL as she and her family members have suffered a loss of more than Rs. 200 Crores.
v) The complaint and the FIR do not disclose any specific act attributable to the Petitioner. Therefore, in absence of any specific allegations a director of a company cannot be arraigned as an accused. Reliance was placed on Sunil Bharti Mittal v. Central Bureau of Investigation1 and S.M.S. Pharmaceuticals v. Neeta Bhalla2.
vi) The concept of vicarious liability is not applicable to criminal law unless it is specifically provided for in the statute. No such concept is recognised for offences committed under the IPC. 1 . (2014) 4 SCC 609 2 . (2005) 8 SCC 89.
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vii) Therefore, the Petitioner cannot be held liable for the acts done by TMAPL in the absence of any specific role attributed to her. Reliance was placed on Ravindranatha Bajpe v. Mangalore Special Economic Zone3.
ix) No prima facie case has been made out as none of the ingredients of Sections 406 and 420 of the Indian Penal Code are made out. Reliance was placed on Archana Rana v. State of Uttar Pradesh4, R.K. Vijayasarathy v. Sudha Seetharam5, Binod Kumar v. State of Bihar6 and Mitesh Kumar J. Sha v. State of Karnataka7.
x) Ingredients of Section 5 of the Telangana Protection of Depositors of Financial Establishments Act, 1999 are also not satisfied as neither TMAPL nor the Petitioner have accepted any deposits and they do not fall within the definition of financial establishment under Section 2(c) of the Act, 1999. 3 . 2021 SCC OnLine SC 806.
4. (2021) 3 SCC 751.
5. (2019) 16 SCC 739.
6. (2014) 10 SCC 663.
7. 2021 SCC OnLine 976.
KL,J Crl.P. No.9328 of 2021 6 9. Contentions of Respondent Nos. 1 and 2
i) The allegations disclose commission of a large-scale fraud involving conspiracy between various entities like the National Stock Exchange, ASBPL, TMAPL, Edelweiss Custodial Services Private Limited and other individuals including directors and key managerial personnel of these entities.
ii) Anil Gandhi who is Accused No. 6 acting on behalf of TMAPL induced Respondent No. 2 herein and various other people to invest in the scheme of ASBPL.
iii) The case is still at the stage of investigation and the role played by the Petitioner in the perpetration of fraud will come to light after the completion of investigation.
iv) Reliance was placed in Neeharika Infrastructure Private Limited v. State of Maharashtra8, to contend that the impugned FIR cannot be quashed.
Findings of the Court
10. A bare reading of the complaint and the statements of witnesses reveals that various people invested money in the form 8 . AIR 2021 SC 1918 KL,J Crl.P. No.9328 of 2021 7 shares with ASBPL. The said ASBPL used the deposited money for the purposes other than trading and has failed to provide the details to its investors regarding their shareholding and returns. All the examined witnesses allege that it was through Mr. Anil Gandhi and TMAPL that they deposited money with ASBPL.
11. While it is true that the FIR does not ascribe any specific role to the Petitioner, given the facts of the case and the involvement of various entities and regulators, this Court feels that seeking a quash of the FIR at the stage of investigation is a premature relief which cannot be granted.
12. The Supreme Court has time and again held that an FIR is not an encyclopedia and it need not disclose all the facts relating to the offence. In CBI v. Tapan Kumar Singh9, the Supreme Court has held as follows:
"20. It is well settled that a first information report is not an encyclopaedia, which must disclose all facts and details relating to the offence reported. An informant may lodge a report about the commission of an offence though he may not know the name of the victim or his assailant. He may not even know how the occurrence took place. A 9 . (2003) 6 SCC 175 KL,J Crl.P. No.9328 of 2021 8 first informant need not necessarily be an eyewitness so as to be able to disclose in great detail all aspects of the offence committed. What is of significance is that the information given must disclose the commission of a cognizable offence and the information so lodged must provide a basis for the police officer to suspect the commission of a cognizable offence. At this stage it is enough if the police officer on the basis of the information given suspects the commission of a cognizable offence, and not that he must be convinced or satisfied that a cognizable offence has been committed. If he has reasons to suspect, on the basis of information received, that a cognizable offence may have been committed, he is bound to record the information and conduct an investigation. At this stage it is also not necessary for him to satisfy himself about the truthfulness of the information. It is only after a complete investigation that he may be able to report on the truthfulness or otherwise of the information. Similarly, even if the information does not furnish all the details he must find out those details in the course of investigation and collect all the necessary evidence. The information given disclosing the commission of a cognizable offence only sets in motion the investigative machinery, with a view to collect all necessary evidence, and thereafter to take action in accordance with law. The true test is whether the information furnished provides a reason to suspect the commission of an offence, which the police officer concerned is empowered under Section 156 of the KL,J Crl.P. No.9328 of 2021 9 Code to investigate. If it does, he has no option but to record the information and proceed to investigate the case either himself or depute any other competent officer to conduct the investigation. The question as to whether the report is true, whether it discloses full details regarding the manner of occurrence, whether the accused is named, and whether there is sufficient evidence to support the allegations are all matters which are alien to the consideration of the question whether the report discloses the commission of a cognizable offence. Even if the information does not give full details regarding these matters, the investigating officer is not absolved of his duty to investigate the case and discover the true facts, if he can."
Therefore, it is only after the investigation is completed and the final report is filed that the role of the petitioner in commission of the offence can be ascertained.
13. Further, reliance on the decision in Sunil Bharti Mittal (Supra) and other decisions by the Petitioner is misplaced as the investigation is still underway. Regarding the culpability of Directors in offences committed by a company, the Supreme Court has held as follows:
KL,J Crl.P. No.9328 of 2021 10 "42. No doubt, a corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman, etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. It would be more so, when the criminal act is that of conspiracy. However, at the same time, it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides so.
43. Thus, an individual who has perpetrated the commission of an offence on behalf of a company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Second situation in which he can be implicated is in those cases where the statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision.
44. When the company is the offender, vicarious liability of the Directors cannot be imputed automatically, in the absence of any statutory provision to this effect. One such example is Section 141 of the Negotiable Instruments Act, 1881. In AneetaHada [AneetaHada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661 : (2012) 3 SCC (Civ) 350 : (2012) 3 SCC (Cri) 241] , the Court noted that if a group of persons that guide the business of the company have the criminal intent, that would be imputed to the body corporate and it is in this backdrop, Section 141 of KL,J Crl.P. No.9328 of 2021 11 the Negotiable Instruments Act has to be understood. Such a position is, therefore, because of statutory intendment making it a deeming fiction. Here also, the principle of "alter ego", was applied only in one direction, namely, where a group of persons that guide the business had criminal intent, that is to be imputed to the body corporate and not the vice versa. Otherwise, there has to be a specific act attributed to the Director or any other person allegedly in control and management of the company, to the effect that such a person was responsible for the acts committed by or on behalf of the company."
14. Therefore, where on perusal of the evidence, if the court does not find any specific role attributed to the Directors only then criminal proceedings can be quashed. According to this Court, where the case is only at the stage of investigation and no charge sheet is filed and the role of the Petitioner in commission of the offence is unclear, the proceedings cannot be quashed.
15. In Neeharika Infrastructure Private Limited (Supra), the Supreme Court relying on its previous decisions has laid down the following factors to be considered while exercising the powers under Section 482 of the Cr.P.C. :
KL,J Crl.P. No.9328 of 2021 12 "....
iv) The power of quashing should be exercised sparingly with circumspection, in the 'rarest of rare cases'. (The rarest of rare cases standard in its application for quashing under Section 482 Cr.P.C. is not to be confused with the norm which has been formulated in the context of the death penalty, as explained previously by this Court);
v) While examining an FIR/complaint, quashing of which is sought, the court cannot embark upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR/complaint;
vi) Criminal proceedings ought not to be scuttled at the initial stage;
vii) Quashing of a complaint/FIR should be an exception and a rarity than an ordinary rule;
viii) Ordinarily, the courts are barred from usurping the jurisdiction of the police, since the two organs of the State operate in two specific spheres of activities. The inherent power of the court is, however, recognised to secure the ends of justice or prevent the above of the process by Section 482 Cr.P.C.
ix) The functions of the judiciary and the police are complementary, not overlapping;
x) Save in exceptional cases where non-interference would result in miscarriage of justice, the Court and the judicial process should not interfere at the stage of investigation of offences;
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xi) Extraordinary and inherent powers of the Court do not confer an arbitrary jurisdiction on the Court to act according to its whims or caprice;
xii) The first information report is not an encyclopedia which must disclose all facts and details relating to the offence reported. Therefore, when the investigation by the police is in progress, the court should not go into the merits of the allegations in the FIR. Police must be permitted to complete the investigation. It would be premature to pronounce the conclusion based on hazy facts that the complaint/FIR does not deserve to be investigated or that it amounts to abuse of process of law. During or after investigation, if the investigating officer finds that there is no substance in the application made by the complainant, the investigating officer may file an appropriate report/summary before the learned Magistrate which may be considered by the learned Magistrate in accordance with the known procedure;
xiii) The power under Section 482 Cr.P.C. is very wide, but conferment of wide power requires the court to be cautious. It casts an onerous and more diligent duty on the court;
xiv) However, at the same time, the court, if it thinks fit, regard being had to the parameters of quashing and the self-restraint imposed by law, more particularly the parameters laid down by this Court in the cases of R.P. Kapur (supra) and Bhajan Lal (supra), has the jurisdiction to quash the FIR/complaint; and KL,J Crl.P. No.9328 of 2021 14
xv) When a prayer for quashing the FIR is made by the alleged accused, the court when it exercises the power under Section 482 Cr.P.C., only has to consider whether or not the allegations in the FIR disclose the commission of a cognizable offence and is not required to consider on merits whether the allegations make out a cognizable offence or not and the court has to permit the investigating agency/police to investigate the allegations in the FIR."
16. Similarly, in Skoda Auto Volkswagen India Private Limited v. The State of Uttar Pradesh10, the Apex Court referring to the earlier judgments rendered by it has categorically held that the High Courts in exercise of its inherent powers under Section - 482 of Cr.P.C has to quash the proceedings in criminal cases in rarest of rare cases with extreme caution.
17. As stated above, given the nature of allegations and the fraud involved this Court is not inclined to scuttle the investigation by the authorities at this stage. Therefore, the present criminal petition is liable to be dismissed.
18. The present Criminal Petition is accordingly dismissed. 10 . AIR 2021 SC 931 KL,J Crl.P. No.9328 of 2021 15 As a sequel, miscellaneous petitions, if any, pending in the Criminal Petition shall stand closed.
_________________ K. LAKSHMAN, J 12th April, 2022 Mgr