Kerala High Court
Paul Joseph vs State Of Kerala on 11 December, 2019
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI
WEDNESDAY, THE 11TH DAY OF DECEMBER 2019 / 20TH AGRAHAYANA,
1941
Crl.MC.No.4325 OF 2016
CC 1612/2015 DATED 22-06-2015 OF ADDITIONAL CHIEF JUDICIAL
MAGISTRATE, ERNAKULAM
PETITIONERS:
1 PAUL JOSEPH
AGED 40 YEARS, S/O. JOSEPH,VALIYAPARAMBIL
HOUSE, N.K.SREEDHARAN ROAD,PACHALAM P.O.,
COCHGIN - 682 012.
2 GREGORY P.J
AGED 52 YEARS, S/O. JOSEPH,PANDIYATHUMPARAMBIL
HOUSE,VADUTHALA P.O., COCHIN - 682 023.
3 P.J.JOSEPH
AGED 52 YEARS, S/O. JOHN, PADINJATTUMURI
HOUSE,VADUTHALA P.O., COCHIN - 682 023.
4 V.J.PETER
AGED 65 YEARS, S/O. JOSEPH,VALIYAPARAMBIL
HOUSE, VADUTHALA P.O.,COCHIN - 682 023.
5 GILROY MENDEZ
AGED 40 YEARS, S/O.ANTONY MENDEZ,VALIYAPARAMBIL
HOUSE, VADUTHALA P.O.,COCHIN - 682 023.
6 JOHN BOSCO D SILVA
AGED 65 YEARS, S/O. LAWRENCE
D'SILVA,ALINGAPADATH HOUSE, VADUTHALA
P.O.,COCHIN - 682 023, NOW RESIDING AT
C/O.BABURSHAH,PATHALA HOUSE, ALANGAD P.O.,
KOTTAPPURAM - 683 511.
7 PYLEE EUGINE
AGED 49 YEARS, S/O. PYLEE,KUNNATH HOUSE,
VADUTHALA P.O.,COCHIN - 682 023.
Crl.M.C.No.4325/2016
2
8 JEROME EMILIAN MENDEZ
AGED 51 YEARS, S/O. LEONS MENDEZ,VALIYAPARAMBIL
HOUSE, VADUTHALA P.O.,COCHIN - 682 023.
9 GEORGE MARTIN
AGED 51 YEARS, S/O. GEORGE,VALIYAPRAMABIL
HOUSE, PACHALAM P.O.,COCHIN - 682 012.
10 DOMINIC SAVIO
AGED 45 YEARS, S/O. JOSEPH,MANAYIL HOUSE,
VADUTHALA P.O.,COCHIN - 682 023.
11 JOSEPH LANGTON CORREYA
AGED 62 YEARS, S/O. MANUEL CORREYA,AMBAT HOUSE,
S.R.M ROAD,KOCHI - 682 012.
12 JERROME CORREYA
AGED 75 YEARS, S/O. JOHN CORREYA,AMBAT HOUSE,
S.R.M ROAD,KOCHI - 682 012.
13 GASPER CORREYA
AGED 75 YEARS, S/O. FRANCIS CORREYA,AMBAT
HOSUE, S.R.M ROAD, KOCHI - 682 012.
14 EPHREM N.M
AGED 40 YEARS, S/O. N.J.MATHEW,NEDUMPILLY
HOUSE, PACHALAM P.O.,KOCHI - 682 012.
15 PETER LOPEZ
AGED 50 YEARS, THUNDIPARAMBIL HOUSE,VADUTHALA
P.O., KOCHI - 682 023.
BY ADVS.
SRI.N.J.MATHEWS
SRI.MADHU N.NAMBOOTHIRIPAD
RESPONDENTS:
1 STATE OF KERALA
REPRESENTED BY THE PUBLIC PROSECUTOR,HIGH COURT
OF KERALA, KOCHI-682031.
Crl.M.C.No.4325/2016
3
2 JUDE A LUIZ
S/O. LAWRENCE LUIZ,AGED 65 YEARS,CHERUPUNATHIL
HOUSE,PACHALAM P.O.,KOCHI - 682 012.
R2 BY ADV. SRI.AJITH MURALI
R2 BY ADV. SRI.K.V.ANIL KUMAR
R2 BY ADV. SRI.T.A.SHAJI SR.
SRI E C BINEESH-PP
THIS CRIMINAL MISC. CASE HAVING BEEN FINALLY HEARD ON
26.10.2019, THE COURT ON 11.12.2019 PASSED THE FOLLOWING:
Crl.M.C.No.4325/2016
4
R.NARAYANA PISHARADI, J
************************
Crl.M.C.No.4325 of 2016
-----------------------------------------------------
Dated this the 11th day of December, 2019
ORDER
The petitioners are the directors of the company by name 'M/s.Bhagyodayam Company' (hereinafter referred to as 'the company'). It is a public company limited by guarantee.
2. The petitioners are accused 1 to 15 in the case C.C.No.1612/2015 on the file of the Court of the Additional Chief Judicial Magistrate, Ernakulam. The offence alleged against the petitioners is punishable under Section 406 read with 34 and 120B I.P.C.
3. The case against the petitioners is based on Annexure-VIII complaint filed in the court by the second respondent (hereinafter referred to as 'the complainant').
4. The material averments in Annexure-VIII complaint can be stated as follows: The complainant is a member of the Crl.M.C.No.4325/2016 5 company. The first accused is the Managing Director of the company. Accused 2 to 5 are the trustees and accused 6 to 10 are the directors of the company who were elected in the Annual General Meeting held on 28.12.2013. Accused 5 and 10 to 15 are the nominated directors of the company. They have no right to officiate as directors. Article 40 of the Articles of Association of the company provides that the profits of the company shall not be distributed among members. The accused, in furtherance of their common intention to swindle the funds of the company, illegally spent an amount of Rs.13,50,000/- and distributed computers with printers and internet facility to 45 members of the company. They also spent an amount of Rs.28,600/- for booking tickets for a pleasure trip to Goa for 28 members of the company. The funds of the company were entrusted to the accused as persons responsible for the management of the company and its affairs. The accused have illegally spent the money which was entrusted to them as the trustees. The accused, being the directors of the company, are entrusted with the funds and the property of the company and they have the Crl.M.C.No.4325/2016 6 obligation to manage and dispose of the property of the company only according to the provisions of the Articles of Association of the company. The accused have dishonestly misappropriated the property of the company in violation of Article 40 of the Articles of Association. They have taken part in the decision making process of the company which ended in spending the amount, as stated above. They had conspired together to commit misappropriation of the funds of the company.
5. This petition is filed under Section 482 Cr.P.C to quash the proceedings against the petitioners on the ground that the allegations/averments in Annexure-VIII complaint do not constitute the ingredients of an offence punishable under Section 406 I.P.C.
6. Heard learned counsel for the petitioners and the second respondent.
7. Learned counsel for the petitioners contended that the averments in Annexure-VIII complaint do not make out the ingredients of the offence of criminal breach of trust which is defined under Section 405 I.P.C and which is made punishable Crl.M.C.No.4325/2016 7 under Section 406 I.P.C. Learned counsel for the petitioners would submit that the amount allegedly spent by the accused belonged to the company and that the complainant had not entrusted the amount to the petitioners and therefore, there was no entrustment of money which is the basic ingredient of an offence defined under Section 405 I.P.C.
8. It is admitted in the petition that the petitioners are the directors of the company.
9. The crux of the allegations in Annexure-VIII complaint is that the petitioners, being the directors and trustees of the company, spent an amount of Rs.13,50,000/- and distributed computers with printer and internet facility to 45 members of the company and that the petitioners also booked tickets for a pleasure trip to Goa for 26 members of the company by spending Rs.28,600/- and the aforesaid acts of the petitioners violated Article 40 of the Articles of Association of the company.
10. Section 405 of the Indian Penal Code reads as follows:
"Criminal breach of trust. - Whoever, being in any manner entrusted with property, or with any Crl.M.C.No.4325/2016 8 dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits "criminal breach of trust."
11. The ingredients of an offence of criminal breach of trust, as defined under Section 405 I.P.C, are the following: (a) a person should have been entrusted with property, or entrusted with dominion over property; (b) that person should dishonestly misappropriate or convert to his own use that property, or dishonestly use or dispose of that property or wilfully suffer any other person to do so; and (c) that such misappropriation, conversion, use or disposal should be in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract which the person has made, touching the discharge of such trust.
12. Learned counsel for the petitioners contended that the Crl.M.C.No.4325/2016 9 complainant had not entrusted any money with the petitioners and that the petitioners had not dishonestly used or disposed of such amount. Learned counsel would contend that the complainant is only a member or shareholder of the company and he has no right over the property of the company.
13. Learned counsel for the petitioners referred to the decision of the Supreme Court in Bacha F. Guzdar v. Commissioner of Income Tax : AIR 1955 SC 74 in support of his contention that a shareholder has no right over the property of a company. In this decision, the Apex Court has held that a shareholder has got no right or interest in the property of the company and that the company is a juristic person and is distinct from the shareholders and it is the company which owns the property and not the shareholders. However, the Apex Court has further held that the shareholders of the company have the sole determining voice in administering the affairs of the company and are entitled, as provided by the Articles of Association, to declare that dividends should be distributed out of the profits of the company to the shareholders. In the instant case, no Crl.M.C.No.4325/2016 10 question of declaration of dividends arises as the company is limited by guarantee. But, the right to decide how profits shall be used, otherwise than specifically provided in Article 40 of the Articles of Association, vests with the members.
14. In order to attract the offence defined under Section 405 I.P.C, there is no need of entrustment of property or money to the petitioners by the complainant himself. Entrustment of property as envisaged in Section 405 I.P.C need not be in any particular manner. The entrustment may arise in "any manner'' whatsoever.
15. In Som Nath Puri v. State of Rajasthan : AIR 1972 SC 1490, the Supreme Court has held as follows:
"Section 405 merely provides, whoever being in any manner entrusted with property or with any dominion over the property, as the first ingredient of the criminal breach of trust. The words 'in any manner' in the context are significant. The section does not provide that the entrustment of the property should be by someone or the amount received must be the property of the person on whose behalf it is received. As long as the accused Crl.M.C.No.4325/2016 11 is given possession of property for a specific purpose or to deal with it in a particular manner, the ownership being in some person other than the accused, he can be said to be entrusted with that property to be applied in accordance with the terms of entrustment and for the benefit of the owner".
(emphasis supplied)
16. The expression 'entrusted with property' or 'with any dominion over property' has been used in a wide sense in Section 405 I.P.C. The expression 'entrusted' appearing in Section 405 I.P.C is not necessarily a term of law. It has wide and different implications in different contexts. The property in respect of which criminal breach of trust can be committed must necessarily be the property of some person other than the accused or the beneficial interest in or ownership of it must be in other person and the offender must hold such property in trust for such other person or for his benefit.
17. The funds or the profits of the company do not belong to the directors of the company. It is the property of the company. Therefore, when the directors of a company Crl.M.C.No.4325/2016 12 dishonestly use the money owned by the company in violation of any direction or obligation regarding the manner in which it is to be used, they commit the offence of criminal breach of trust.
18. In R.K. Dalmia v. Delhi Administration : AIR 1962 SC 1821 it has been categorically held by the Apex Court that directors are not only agents but trustees of the company's money and property and they are no doubt trustees of assets which have come into their hands, or which are under their control. In the said decision it was further held that entrustment of property in the capacity of agent will by itself be sufficient to make out the offence of criminal breach of trust against the directors who are the agents of the company.
19. At this juncture, the relevant clauses in the Articles of Association of the company (Annexure-I) shall be looked into. Article 40 reads as follows:
"The profit of the Company cannot be distributed among the members. The net profit of the Company to be entrusted with the Rev.Vicar of this Parish to be utilised for Crl.M.C.No.4325/2016 13 the general welfare of the Chathiath Roman Catholic Latin Church, and for the uplift of Education, Industry etc. of the parish as resolved in the General Meeting. It shall also be utilised for any other purposes to anybody else if so decided by a majority of not less than 75% of the members present in a general meeting."
20. The petitioners have pointed out that, in the year 1985, Article 40 was amended as per Annexure-XII resolution passed by the general meeting of the company. As per the amendment, the provision regarding entrustment of the profits of the company to the Vicar of the parish has been deleted and a stipulation has been made that the profits shall be used only for the purposes of the Roman Catholic Latin Church, Chathiath and also for the educational development in the parish and for other charitable purposes, as contemplated under the Income Tax Act.
21. Even after the amendment, the stipulation in Article 40 of the Articles of Association of the company that the profits shall not be divided among the members of the company remains without any change or alteration. Therefore, as per Article 40, if Crl.M.C.No.4325/2016 14 the profits of the company had to be used for any purpose other than the purposes specifically mentioned therein, it could be done only by a decision taken in a general meeting of the members of the company with majority of not less than 75% of the members present.
22. In the instant case, the petitioners have no case that the decision to spend money for purchase of computers and for conducting pleasure trip to Goa was taken by the members in the general meeting of the company.
23. At this juncture, the other provisions in the Articles of Association of the company regarding the powers of the directors and trustees of the company may be noticed. Article 27 provides that the directors shall manage the business of the company. Article 29 stipulates that the movable and immovable property of the company shall be in the name of the Managing Director and trustees and all the transactions relating to moneys and properties of the company shall be conducted in the name of the Managing Director and the trustees. Article 31 provides that the Managing Director and trustees shall do jointly all the Crl.M.C.No.4325/2016 15 expenditure of the company. It is further stipulated that expenditure exceeding Rs.500/- could be made by them only according to the decision of the general meeting.
24. In the instant case, the petitioners have no case that the general meeting of the members of the company had permitted or sanctioned expenditure incurred for purchase of computers and conducting pleasure trip to Goa for the members of the company.
25. In the aforesaid circumstances, I am of the view that, a prima facie case against the petitioners for committing an offence punishable under Section 406 I.P.C has been made out as per the averments in Annexure-VIII complaint. Therefore, I find that the proceedings against the petitioners in the case cannot be quashed. The petition is liable to be dismissed.
26. The petitioners are at liberty to raise all their contentions in the court below. This is a warrant case instituted otherwise than upon a police report. The petitioners would get opportunity for filing application for discharge under Section 245 Cr.P.C, if they are advised that the evidence adduced by the Crl.M.C.No.4325/2016 16 complainant under Section 244 Cr.P.C does not make out a prima facie case against them.
27. Consequently, the petition is dismissed. It is made clear that nothing stated in this order will preclude the petitioners from raising their contentions at the stage of the proceedings before the trial court under Section 245 Cr.P.C.
(sd/-) R.NARAYANA PISHARADI, JUDGE jsr Crl.M.C.No.4325/2016 17 APPENDIX PETITIONERS' EXHIBITS:
ANNEXURE-1: TRUE COPY OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE BHAGYODAYAM COMPANY.
ANNEXURE-II: TRUE COPY OF THE MINUTES OF THE GENERAL MEETING HELD ON 17.08.2015.
ANNEXURE-III: TRUE COPY OF MINUTES OF THE EXTRA ORDINARY GENERAL MEETING HELD ON 4.7.2015.
ANNEXURE-IV: TRUE COPY OF THE ORDER IN I.A.NO.9826/2014 DATED 10.04.2015 OF THE MUNSIFF'S COURT, ERNAKULAM.
ANNEXURE-V: TRUE COPY OF THE ORDER OF THE MUNSIFF'S COURT, ERNAKULAM DATED 17.8.2015 IN I.A.6071/2015.
ANNEXURE-VI: TRUE COPY OF THE ORDER DATED 19.01.2016 IN C.M.A.NO.55 OF 2015.
ANNEXURE-VII: TRUE COPY OF THE JUDGMENT OF THIS COURT IN O.P.(C) 438/2016 DATED 23.2.2016.
ANNEXURE-VIII: TRUE COPY OF THE COMPLAINT FILED BEFORE THE ADDITIONAL CHIEF JUDICIAL MAGISTRATE, ERNAKULAM.
ANNEXURE-IX: TRUE COPY OF THE BALANCE SHEET OF THE PETITIONERS COMPANY AS AT 31/03/2016 AND INCOME AND EXPENDITURE STATEMENT FROM 01/04/2015 TO 31/03/2016.
ANNEXIRE X: TRUE PHOTOCOPY OF COUNTER AFFIDAVIT FILED BY THE PETITIONERS IN I.A.NO.3928/2015 IN O.S.NO.6/2015 IN THE MUNSIFF'S COURT, ERNAKULAM.
ANNEXURE XI: TRUE PHOTOCOPY OF THE I.A.6071 OF 2015 IN O.S.NO.1638/2014 FILED AGAINST THE PETITIONERS' COMPANY.
ANNEXURE-XII: TRUE COPY OF THE MINUTES OF THE ANNUAL GENERAL MEETING OF THE COMPANY HELD ON 26.10.1985.Crl.M.C.No.4325/2016 18
ANNEXURE-XIII: TRUE COPY OF THE MINUTES OF THE 84TH ANNUAL GENERAL MEETING OF THE COMPANY HELD ON 26.9.2016.
ANNEXURE-XIV: TRUE COPY OF THE COMPANY PETITION NO.29/2017 BEFORE THE NATIONAL COMPANY LAW TRIBUNAL, CHENNAI BENCH.
RESPONDENTS' EXHIBITS:
ANNEXURE-B(1): A TRUE COPY OF THE JUDGMENT DATED 10.11.1952 IN A.S.NO.47 OF 1125 (ME)OF TRAVANCORE-COCHIN HIGH COURT WITH TYPED COPY.
ANNEXURE-B(2): A TRUE COPY OF THE ORDER DATED 18.06.2015 IN I.A.NO.3928/2015 IN O.S.6/2015 OF THE ADDL.MUNSIFF AND RENT CONTROL COURT, ERNAKULAM WITH TYPED COPY.
TRUE COPY PS TO JUDGE