Karnataka High Court
Sri S Sankaralingam vs The State - Through The Sub on 28 March, 2024
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 28TH DAY OF MARCH, 2024
BEFORE
THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM
CRIMINAL PETITION NO.565 OF 2017
BETWEEN:
1 . SRI S. SANKARALINGAM
ANNAMALAI
AGED 69 YEARS
SON OF SRI SANKARALINGAM
DIRECTOR
TAMILNAD MERCANTILE BANK LTD.,
(TMB), NO.57, V E ROAD
THOOTHUKUDI-628002.
2 . SRI H S UPENDRA KAMATH
AGED 63 YEARS
SON OF SRI SUNDAR KAMATH
MANAGING DIRECTOR AND CEO
TAMILNAD MERCANTILE BANK LTD.,
(TMB), NO.57, V E ROAD
THOOTHUKUDI-628002.
...PETITIONERS
(BY SRI P.P.HEGDE, SENIOR ADVOCATE FOR
SRI VENKATESH SOMAREDDI, ADVOCATE)
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AND:
1 . THE STATE - THROUGH THE SUB
INSPECTOR OF POLICE
INDIRANAGAR POLICE STATION
BENGALURU-58.
2 . DIRECTOR GENERAL OF POLICE
C I D., SPECIAL ECONOMIC
OFFENCE, BENGALURU-01.
3 . VECTOR PROGRAM PVT. LTD.,
HAVING HIS CORPORATE OFFICE
AT#2217, 80 FT. ROAD
2ND STAGE, INDIRANAGAR
BENGALURU-560 008.
REPRESENTED BY ITS DIRECTOR
SURYA KATHPLIA, #2217
80 FT. ROAD, 2ND STAGE
INDIRANAGARA, BENGALURU
...RESPONDENTS
(BY SRI M.R.PATIL, HCGP FOR R1 & R2;
SRI SWAROOP ANAND R., ADVOCATE FOR R3)
THIS CRL.P IS FILED U/S.482 CR.P.C BY THE
ADVOCATE FOR THE PETITIONER PRAYING THAT THIS
HON'BLE COURT MAY BE PLEASED TO QUASH THE FIR IN
CR.NO.418/2016 OF INDIRANAGAR P.S., BENGALURU AND
ALL FURTHER PROCEEDINGS PURSUANT THERETO AND
PENDING ON THE FILE OF IV A.C.M.M., BANGALORE FOR
THE OFFENCES P/U/S 109, 120(B), 406, 108(A), 420 AND
409 OF IPC.
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THIS PETITION HAVING BEEN HEARD AND RESERVED FOR
ORDERS ON 05.02.2024, COMING ON FOR PRONOUNCEMENT OF
ORDER THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
The captioned petition is filed by the Directors of Tamilnad Mercantile Bank (TMB) seeking quashing of the proceedings pending in Crime No.418/2016 of Indiranagar Police Station, Bengaluru for the offences punishable under Sections 420, 406, 409, 120B, 108A and 109 of IPC.
2. The facts leading to the case are as under:
The subject matter of petition is in regard to transfer of shares of Tamilnad Mercantile Bank Limited ('TMB') through an escrow agent i.e., respondent No.3. M/s.
Sterling Group of Companies were holding 33.60% of the share capital of TMB. The company offered and agreed to sell 33.60% stake in TMB to one Mr. MGM Maran and Mr. B.Ramachandra Adityan, who were the then Directors of TMB and entered into an agreement. There was an assignment agreement between the said Mr. MGM Maran 4 and Mr. B.Ramachandra Adityan with M/s. Katra Holding Private Limited to transfer 33.60% of the share capital of TMB. Under the part of this assignment agreement, M/s.
Katra Holding Private Limited advanced a sum of Rs.16.65 crores to Mr. MGM Maran.
3. As per prevailing Banking law, since there was an embargo for a single investor to acquire more than 5% of shares, M/s. Katra Holding Private Limited negotiated with respondent No.3/complainant and respondent No.3/complainant agreed to buy 4.73% of TMB shares totaling to approximately Rs.32.53 crores.
4. On 12.05.2007, M/s. Katra Holding Private Limited introduced respondent No.3 to M/s. Corsair Investments LLC, as respondent No.3 wanted to sell its stake for a profit. Accordingly, an escrow agreement was entered into between respondent No.3/complainant and M/s. Corsair Investments LLC. Immediately after 5 registration of shares by TMB in the name of respondent No.3/complainant and as per respondent No.3's instructions, TMB handed over six share certificates to the Standard Chartered Bank, Mumbai for safe keeping. The respondent No.3 also handed over two blank share transfer forms to Standard Chartered Bank, Mumbai.
5. In terms of negotiation, M/s. Corsair Investments LLC/accused No.4 transferred a sum of Rs.32.52 crores to the account of respondent No.3 as advance purchase consideration in terms of agreement. An FIRC certificate confirming inward remittance of the amount from Starship was received by respondent No.3. This remittance accounted for full consideration receivable by respondent No.3 towards sale of unit shares.
6. The respondent No.3/complainant has alleged that the Standard Chartered Bank (escrow agent) in collusion with the present petitioners have hatched a plan in 6 criminal conspiracy with M/s. Corsair Investments LLC/accused No.4 and the shares held by the complainant are illegally acquired by Starship Equity Holding Limited/accused No.5 by circumventing Indian Banking Laws and Foreign Investment Regulation. Grievance against the present petitioners is that RBI vide letter dated 10.01.2014 has addressed to the TMB not to transfer any shares or carry out any change in the ownership of shares that were lodged with Standard Chartered Bank escrow groups. The respondent No.3/complainant is asserting that dehors transfer of its shares through escrow agent, still continues to be the owner of 13,455 original TMB shares. The respondent No.3/complainant claimed that bonus shares and dividend accrued out of the shares which were subject matter of escrow agreement has to flow along with ownership and therefore, respondent No.3/complainant has alleged that TMB ought to have registered the bonus shares in its name. The respondent No.3 alleges that the present 7 petitioners who are arrayed as accused Nos.6 and 7 rightly allotted bonus shares in the name of respondent No.3/complainant and filed necessary forms with the Registrar of companies to complete compliance within a week, submitted another letter with the Registrar of companies on September 16, 2016 canceling the bonus shares that were rightfully allotted to respondent No.3/complainant.
7. On these set of precise allegations against the petitioners who are the Directors of TMB, the transfer of shares pursuant to agreement entered into in 2007 and pursuant to rejection of claim on interlocutory application by the Bombay High Court, the present crime is registered not only against the escrow agent and M/s. Corsair Investments LLC/accused No.4 based at New York, but crime is registered against the present petitioners who happen to be the Directors of TMB.
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8. It is pertinent to note that crime is registered against the present petitioners for allegedly canceling the bonus shares that were rightly registered with the Registrar of Companies. Before this Court proceeds further, it would be useful for this Court to cull out the claim of respondent No.3 in a suit filed before the Bombay High Court. The relevant para 3 and 4 and the prayer sought in the plaint reads as under:
"3. The present suit is being filed as defendant No.1 is wrongly refusing to acknowledge the Plaintiffs ownership of and to return to the Plaintiff share certificates representing 13,455 (Thirteen Thousand Four Hundred and Fifty Five) shares of Tamilnad Mercantile Bank (hereinafter referred to as "TMB") that have been transferred to the Plaintiff and are owned by the Plaintiff alone (hereinafter referred to as the "sald shares"). These certificates were deposited with Defendant No.1 for the specific purpose of concluding a potential sale transaction which was to be arranged by Defendant No.3, which has not occurred. The Plaintiff has terminated the proposed transaction and has been asking the Defendants to return the share certificates 9 representing the sald shares to the Plaintiff as more particularly set out hereinafter. However, the Defendants are refusing to return the share certificates. The Plaintiff has reliably learnt that the Defendant No.1 may try and deal with the sald shares in collusion and connivance with Defendant Nos.2 and 3 who the Plaintiff has recently learnt are all Inter-related (the Plaintiff was not aware till recently that Defendant No.3 had such Inter- relationship with Defendant Nos.1 and 2), which will cause Irreparable loss, harm and Injury to the Plaintiff, and is seeking interim injunctive reliefs In this behalf to protect the Plaintiffs' shares. The Plaintiff is also seeking to recover damages currently quantifled at Rs.2,00,00,000/- (Rupees Two Crores) jointly and severally from the Defendants, in the facts and circumstances set out hereinafter.
4. TMB is an Indian scheduled bank established in the year 1921, and registered under the Indian Banking Regulation Act, 1949. The shares of TMB are not listed and, as such, are not freely available in the market."
"The plaintiff therefore, prays:
(a) That the Defendants be ordered and decreed by this Hon'ble Court to deliver the said 10 share certificates representing 13,455 TMB shares to the plaintiff;
(b) That the Defendants be ordered and decreed jointly and severally to pay Rs.2,00,00,000/- (Rupees Two Crores only) together with interest thereon at the rate of 18% per annum or such other rate as this Hon'ble Court may deem fit on from the date hereof till payment to the plaintiff as per the particulars of Plaintiffs claim set out in Exhibit "N" hereto;
(c) that pending the hearing and final disposal of the suit, the Defendants, their servants and agents be restrained by an order and injunction of this Hon'ble Court from dealing with, disposing of, transferring, alienating, releasing physical custody and/or creating a charge on or creating third party rights of any nature whatsoever with respect to the said shares;
(d) that pending the hearing and final disposal of the suit the Defendants be ordered and decreed by this Hon'ble Court to deliver the share certificates in respect of the said 13,455 TMB shares to the Plaintiff;
(e) For interim and ad-interim reliefs in terms of prayer clause (c) and (d) above;
(f) For costs; and 11
(g) For such other and further reliefs as this Hon'ble Court may deem fit in the facts and circumstances of the present case;"
9. It would be useful for this Court to cull out the findings recorded by the Bombay High Court which reads as under:
"The Defendant No.5 has under cover of its letter dated 28th December, 2017 deposited with the Prothonotary and Senior Master, bonus shares and dividend declared by the Defendant No.5 in the suit shares pursuant to the resolution passed in the Annual General Meeting of the shareholders of Defendant no.5 on 29th January, 2016. However, the Demand Draft of Rs.3,29,64,750/- deposited with the prothonotary by the Defendant No.5 is issued in favour of M/s. Starship Equity Holding Limited. The said Demand Draft is retuned to the Advocate for the Defendant No.5 with a direction to get the Demand Draft issued in favour of Prothonotary & Senior Master. The Prothonotary & Senior Master shall upon receipt of the demand draft, encash and invest the said amount in Fixed Deposit/s of any Nationalized Bank initially for a period of six months and thereafter, as per the 12 directions of this Court. Though the bonus shares are issued in the name of the Applicant and deposited with the Prothonotary & Senior Master, the Applicant shall until further orders not claim any equity or benefits or exercise any rights, on the basis thereof. Needless to add that this order is passed without prejudice to the rights and contentions of the parties. Place the above Notice of Motion for hearing and final disposal in normal course."
10. The case on hand involves dispute between the respondent No.3/complainant an escrow agent and Starship Equity Holding Limited (accused No.5) regarding transfer of shares held by respondent No.3. The respondent No.3 has entered into an escrow agreement with Standard Chartered Bank and M/s. Corsair Investments LLC/accused No.4. It is imperative to note that the present petitioners are not at all party to the escrow agreement. It is only after confirmation by respondent No.3 in regard to escrow agreement and request made, the TMB has lodged the TMB shares with escrow agent. Therefore, the present petitioners acting in 13 their capacity as Directors of TMB facilitated the transfer of shares through the escrow agent. Their actions are in strict compliance with the Banking Rules and Regulations and there is no evidence to suggest any impropriety on their part. The suit filed by the respondent No.3/complainant in 2011 also does not indicate any allegations against the present petitioners.
11. Furthermore, mere denial of transfer of bonus shares by respondent No.3 who had already transferred the shares in terms of escrow agreement does not constitute offence under Section 420 of IPC insofar as petitioners are concerned. The findings recorded by the Bombay High Court which are culled out supra, clearly demonstrate that bonus shares are deposited with the Prothonotary and Senior Master of the Bombay High Court. Therefore, essential facts that emerge in the light of the above significant details are as follows:
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(i) Respondent No.3 has entered into an escrow agreement with the Standard Chartered Bank and M/s.
Corsair Investments LLC/accused No.4. The TMB at the behest of respondent No.3 transferred shares to escrow agent.
(ii) Respondent No.3 received Rs.32 Crores in accordance with the terms of escrow agreement.
(iii) Though there is a dispute that respondent No.3 by filing suit is seeking return of the transfer of share certificates along with blank transfer forms, matter is seized before the Bombay High Court in regard to its entitlement.
(iv) Importantly, the bonus shares in question have been deposited with the Bombay High Court and have not been transferred to either party.
(v) Furthermore, there is no evidence or indication to suggest any wrong doing or misconduct on the part of the present petitioners. Their actions in facilitating transfer of shares to the escrow agent were conducted in compliance 15 with banking Regulations and in fulfillment of their duties as Directors of TMB.
(vi) The mere fact that respondent No.3 denied the transfer of bonus shares which are currently held by the Bombay High Court does not constitute a valid basis for allegation of fraud or cheating against the petitioners.
(vii) The deposit of bonus shares with the Bombay High Court indicates the neutral stance regarding the ownership of these disputed shares and further undermines any claims of fraudulent act on the part of the present petitioners.
(viii) Given the lack of evidence supporting the allegations and the neutral disposition of bonus shares pursuant to filing of suit by respondent No.3/complainant lacks merits and therefore, the proceedings for the offences punishable under Section 420 insofar as petitioners are concerned, are liable to be quashed by this Court. 16
12. For the reasons stated supra, this Court proceeds to pass the following:
ORDER
(i) The criminal petition is allowed;
(ii) The proceedings in Crime No.418/2016 registered by the Indiranagar Police Station, Bengaluru pending on the file of the IV Additional Chief Metropolitan Magistrate, Bengaluru, is hereby quashed insofar as the petitioners/accused Nos.6 and 7 are concerned.
(iii) Pending I.As., if any, do not survive for consideration and stands disposed of.
Sd/-
JUDGE CA