N. Kasthuri Reddy , Kasthuraiah, v. N. Rajaram Reddy,
THE HON'BLE SRI JUSTICE M. SATYANARAYANA MURTHY CRIMINAL PETITION No.6247 OF 2016 ORDER:
This criminal petition is filed under Section 482 of Criminal Procedure Code (for short "Cr.P.C.") to quash the proceedings in C.C.No.1 of 2016 on the file of XVI Metropolitan Magistrate, Kukatpally at Miyapur, Cyberabad, registered for the offences punishable under Sections 120(B), 406, 420, 468, 471, 201 r/w 109 of Indian Penal Code (for short "I.P.C.") and Sections 35, 66(C&D), 72(B), 74 of I.T.Act.
N.Rajaram Reddy, S/o Seetharam Reddy, lodged a complaint with the Cyber Crime Police Station on 26.09.2014 making serious allegations regarding fraud committed by the petitioners along with other accused, on the strength of the same, the Station House Officer, Cyber Crime Police Station, registered Crime No.199 of 2014 for the offences punishable under Sections 120(B), 406, 420, 468, 471, 201 r/w 109 IPC and Sections 35, 66(C&D), 72(B) and 74 of I.T.Act, issued F.I.R. against the petitioners and other accused. During investigation, the investigating officer recorded the statements of N.Rajaram Reddy, the complainant and 18 other witnesses, seized several documents from the possession of the accused.
The allegations made in the complaint, in brief, are as follows:
The complainant and his brother Raghuram Reddy have incorporated a private limited company under the name and style of Sridhanada Laboratories Private Limited under the provisions of the Companies Act, 1956. The said N.Rajaram Reddy and his
brother Raghuram Reddy are the only two shareholders of the company having subscribed entire paid up capital in the ratio of 50:50. The complainant's company is engaged in the business of manufacture of pharmaceutical bulk drugs and drug intermediates and has its manufacturing unit at I.D.A.Bollaram. The company had acquired the unit in public auction by the State Bank of India, Stressed Assets Management Branch, R.P.Road, Secunderabad in the month of September, 2011 under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (For short 'SARFAESI Act') for Rs.3,67,00,000/-. The entire amount was paid to the Bank concerned through loan amount of Rs.2.50 crores obtained from Syndicate Bank, N.S.Road Branch, Hyderabad.
The said partnership firm was formed in 2000 with N.Rajaram Reddy, Raghuram Reddy and N.Ramadevi @ Rama Namireddy Devi(A.2), mother and one Kumudini Dixit as partners to manufacture and trade in bulk drugs and chemicals with a small manufacturing facility at Bidar in the state of Karnataka. One Kasthuri Reddy (A1), the husband of the complainant's sister-A.2 was un-employee though he did Ph.D. in Organic Chemistry. As Kasthuri Reddy (A.1) was not gainfully employed, N.Rajaram Reddy made an offer to him to join in the firm. Accordingly, firm was reconstituted with his mother as she is retired from the firm and Kasthuri Reddy (A.1) joined the firm in place of complainant's mother. However, the respondent No.1 and his brother Sri Raghu Ram Reddy met the entire investment in the partnership. On the verge of acquisition of unit at I.D.A. Bollaram in the auction conducted by State Bank of India, the Board of Directors of the
Company consisting of complainant N.Rajaram Reddy and his brother Raghuram Reddy have included the petitioner No.1 as Additional Director in the company with effect from 02.09.2011. The Board had also increased the authorized share capital to amount of Rs.5,00,00,000/- divided into 50,00,000 equity shares of Rs.10/- each. The Board of Directors of the Company met regularly and passed necessary resolutions for obtaining necessary licenses and registration from various authorities such as Central Excise, Inspector of Boilers, Industries Department, registration under the Andhra Pradesh Value Added Tax and Central Sales Tax Act for the purpose of commencing the commercial operations of the unit.
After the company acquired the unit, it started undertaking job work for the partnership firm which would procure orders from various parties and in turn place orders to the company. On receipt of the said orders, the company would manufacture drug intermediates and deliver the same to the partnership firm. Petitioner No.1, who was an additional Director of the company ceased to be a Director in the company by virtue of operation of law on 29th September 2012 on which date the Annual General Meeting of the company was held. In the said company, the complainant and his brother did not pass any resolution re-appointing the petitioner No.1 as a Director in the company. The complainant and his brother did not take any steps appointing the petitioner No.1 as an additional Director once again after the said Annual General Meeting. The Company informed the Registrar of Companies about petitioner No.1 ceasing to be a Director by filing necessary Form - 32, which was uploaded on 25.11.2012. The
company had also uploaded the annual returns as well as Balance Sheet and Profit and Loss Account of the company for the year 2011-2012 with the Registrar of Companies, Andhra Pradesh on 25.11.2012 itself. Petitioner No.1 who has eyed the property of the company and also that of the partnership firm has started fabricating and forging documents with a view to grab and usurp the same for his personal gain. Petitioner No.1 had applied for digital signature with Tata Consultancy Services and obtained the complainant's digital signature by fraud and forgery and as per the records of ROC, the Digital Signature Serial No.52252ED58C92572674OE dated 05.03.2013. Petitioner No.1 used complainant's name by forging signature on the application form and uploaded the returns/documents on to the site of the Ministry of Corporate Affairs.
By these series of fraudulent acts, petitioner Nos.1 and 2 and M.Srinivasa Rao and M.Vineet Reddy has usurped the control over the company. It is pertinent to note that it is complainant's brother who has the digital signature of the company and who is authorized by the Board of Directors to upload returns/ resolutions/ documents of the company to the site of the Ministry of Corporate Affairs. Having obtained digital signature certificate in complainant's name, petitioner No.1 proceeded to fabricate minutes of the meetings of the Board of Directors of the company. Petitioner No.1 fabricated minutes to show as if a meeting of Board of Directors of the company was held on 01.10.2012 and as if the petitioners No.1 and 2 and M.Srinivas Rao and K.Vinit Reddy, were appointed as Additional Directors.
Pursuant to fabricated minutes, petitioner No.1 uploaded Form No.32 showing as if the petitioner Nos.1 and 2 and M.
and K.Vinit Reddy were appointed as the Additional Directors of the company. Along with Form No.32, petitioner No.1 had also uploaded the alleged minutes of the meeting of the Board of Directors purportedly held on 01.10.2012. A perusal of the said minutes clearly shows that the signature of complainant was forged. Petitioner No.1 had also filed extract of the minutes of the meeting allegedly held on 01.10.2012 to show as if resolutions were passed inducting accused as Additional Directors. The fabricated nature of Form No.32 and alleged minutes of the purported Board Meeting can be established from the fact that the Board of Directors filed Form No.32 on 25.11.2012 with the Registrar of Companies informing about vacation of office by petitioner No.1 by operation of law.
There is no question that there would have been a Board Meeting on 01.10.2012 or any other date whereby the accused could have been appointed as Additional Directors of the company. There was no board meeting convened by complainant either on 01.10.2012 or at any later point of time for the purpose of inducting accused as Additional Directors of the company. As stated above, petitioner No.1 ceased to be an Additional Director with effect from 29.09.2012, on which date the Annual General Meeting of the company was held. Not stopping there with the fabrication of minutes of the meeting and false resolutions and filing of false Form No.32 with the Registrar of Companies, petitioner No.1 has proceeded to allot shares to himself and his wife, petitioner No.2 and their children viz. N.Poorwa Reddy and N.Suhruth Reddy.
The alleged allotment took place on 04.03.2013.
30,000 shares to complainant. The details of the allotment of shares to accused and two minors are tabulated below. Sl.
No Name of Allotter Number of Shares allegedly allotted on 04.03.2013 Total Amount paid (including premium in Rs.) 1.
N.Kasthur Reddy 20,00,000 2,00,00,000/- 2.
N.Ramadevi 12,00,000 1,20,00,000/- N.Poorwa Reddy 4,00,000 40,00,000/- 4.
N.Suhruth Reddy 4,00,000 40,00,000/- N.Raja Ram Reddy 30,000 3,00,000/- Petitioner No.1 purportedly held another board meeting on 08.03.2013 at the Registered Office of the company wherein the petitioner No.1 was allegedly appointed as the Managing Director of the company while complainant's sister (accused No.2) was allegedly appointed as the Executive Director of the company. They have uploaded Form No.32 on to the site of Ministry of Corporate affairs to that effect. Complainant did not convene any such board meetings wherein the petitioner No.1 and his wife, petitioner No.2 were inducted as the Managing Director and the Executive Director respectively of the company. Thus, it is clear that petitioner No.1 and his wife, petitioner No.2, M.
Srinivasa Rao and Vineet Reddy have hatched a conspiracy to wrest control of the company from the complainant and his brother and started fabricating documents. Realizing that their illegal activities cannot be shown to be continued from the registered office of the company, they allegedly passed a resolution shifting the registered office of the company to Flat No.4, Plot Nos.441 and 442, Royal Cedar, HIG Phase-VI, Kukatpally, Hyderabad. Thereafter another Form No.2 was filed showing as if amount of Rs.
shares were allotted to accused Nos.2 and 3 each on 22.04.2013 and along with the Form No.2 they had also filed certified copy of minutes of Board of Directors showing that applications are received from the promoters for allotment of 9,60,000 equity shares in the company and that accordingly the complainant's sister, petitioner No.2 and petitioner No.1 allotted shares. The complainant and his brother never convened any such board meeting nor did they permit the allotment of shares to anybody much less the petitioner Nos.1 and 2/accused Nos.1 and 2 and Mr.Lebaka Dhanamjeya Reddy, accused No.3, Flat No.
504, Afzal Commercial Complex, besides MMTS Railway Station (South) Lakidikapool, Hyderabad, who is Company Secretary also helped in uploading returns/resolutions/documents of the company to the site of the Ministry of Corporate Affairs and he has the knowledge that the signatures do not belong to the complainant and he purposefully certified the Forms as true and correct. The Company Secretary is also involved in the entire conspiracy. Based on the contents of the above complaint, police registered the crime for the offences punishable under Sections referred above.
During the course of investigation police examined the complainant, his brother and other witnesses and recorded their statements under Section 161 of Cr.P.C. and seized several documents. It reveals from the investigation that the petitioner No.1 played fraud and obtained the Digital signature in the name of the complainant and created a resolution as if he was appointed as Additional Director and allotted shares to him and his family members and accused No.3 Dhanunjaya Reddy, Company
Secretary has influenced accused No.4, R.Radhika, e-Consultancy and processed the application for issue of DSC (Digital Signature Certificate) from certifying authority (TCS). The investigation reveals that accused Nos.1 and 2 having not satisfied with the illegal and fraudulent acts and with a view to have over all control on the company and its properties by removing the additional directors M.Srinivas Rao and K.Vinit Reddy who were brought into the Board by way of forged and fraudulent resolution without their consent and knowledge prepared resolution dated 01.09.2013 as if the said directors M.Srinivas Rao and K.Vinit Reddy resigned from the Board and got uploaded the Form 32 on 09.11.2013 to Registrar of Companies. Thus, the petitioner Nos.
1 and 2, who are close relatives of complainant dishonestly hatched a plan to grab the properties of the company of complainant forged and fabricated documents fraudulently and captured the overall control on the company by fraudulent means with the collusion of accused Nos.3 and 4 and thereby cheated the complainant. Therefore, police filed the charge sheet against the petitioners herein and some other accused for the offences punishable under Sections 120(B), 406, 420, 468, 471, 201 r/w 109 IPC and Sections 35, 66(C&D), 72(B), 74 of I.T.Act and the same was numbered as C.C.No.1 of 2016 on the file of XVI Metropolitan Magistrate, Kukatpally at Miyapur, Cyberabad. The present petition is filed under Section 482 of Cr.P.C. to quash the C.C.1 of 2016 referred supra raising several contentions.
406, 420, 468, 471, 201 r/w 109 of Indian Penal Code (for short "I.P.C.") and Sections 35, 66(C&D), 72(B), 74 of I.T.Act, on that ground alone the proceedings in C.C.No.1 of 2016 are liable to be quashed.
(b) The petitioners came to know that on 23.11.2013, the respondent No.1 and his brother, N.Raghuram Reddy filed C.P.No.93 of 2013 on the file of the Company Law Board, Chennai under Sections 397, 398 read with Sections 401 and 403 of the Companies Act 1956 alleging that the petitioners illegally and unlawfully took control over the company from the respondent No.1 and his brother, N.Raghuram Reddy and in this respect sought various reliefs from the Company Law Board and the petitioners filed their counter in the said company petition and the same is pending adjudication before the Company Law Board, Chennai. The respondent No.1 herein filed rejoinder in the said company petition and when a petition is filed for identical reliefs except punishment, the present proceedings before the Criminal Court in C.C.No.
1 of 2016 cannot, simultaneously, be prosecuted and the dispute is totally within the purview of Company Law Board and when the matter is seized by the Company Law Board the continuation of proceedings before the Criminal Court is nothing but abuse of process of law and consequently the proceedings are liable to be quashed.
(c) The respondent No.1 and his brother N.Raghuram Reddy never informed the petitioner No.1 about discontinuing
him as additional director of the company and in fact even after 29.09.2012 i.e. the date of the alleged Annual General Meeting, the petitioner No.1 continued to do business in the name of the company with third parties and the respondent No.1 and his brother were also involved and copied the relevant e-mails and that there were no specific overt acts except bald and omnibus allegations made against the petitioners, consequently the proceedings cannot be continued based on the said bald allegations without specific date and time of incident, therefore, the proceedings before the Criminal Court are liable to be quashed and prayed to allow the petition.
During hearing Sri T.Pradyumna Kumar Reddy, learned counsel for the petitioners, while reiterating the grounds urged in the petition filed under Section 482 of Cr.P.C. drawn the attention of this Court to the prayer in C.P.No.93 of 2013 pending before the Company Law Board, Chennai and the allegations made in the company petition are almost identical to the present facts of the case and the dispute is totally within the purview of Company Law Board, Chennai since it relates to allotment of shares of the company after restructuring the capital, in such case the Criminal Court cannot proceed with the trial. Apart from that bald, routine and casual allegations made in the charge sheet would not constitute an offence; such casual allegations made in the complaint sometimes may cause causality or injury to the reputation of the petitioners on account of proceeding against them
in criminal. Filing such simultaneous petitions both before the Company Law Board and lodging complaint before the police and filing charge sheet by police after due investigation is nothing but abuse of process of law to wreck vengeance against the petitioners converting a civil litigation into criminal dispute and thereby the Court cannot permit such parties to use tools of harassment by filing a criminal complaint and more particularly when the matter is seized by the Company Law Board.
Whereas Sri P.Nagendra Reddy, learned counsel for the respondent No.1, would contend that merely because the company petition is pending before Company Law Board, when there is criminality in the acts and omission of the petitioners the criminal proceedings cannot be quashed. Moreover, restructuring of capital and allotment of shares and totally depriving the complainant - respondent No.1 herein would clinchingly show the collusion between the petitioners and motive to knock away the share of the respondent No.1 in the company and no further material is required to saddle with criminal liability as the petitioners created several documents relating to appointing them as Managing Director and Executive Director by fraud and took over the affairs of the company, consequently the proceedings cannot be quashed at this stage.
It is further contended that the specific allegation made in the complaint on its face value, accepting in its entirety, constitute an offence, prima facie, against the petitioners, therefore the criminal proceedings cannot be quashed and filing of company petition and criminal case does not amount to abuse of process of law since the petitioners committed fraud in allotment of shares of
the company and since the petitioners committed a grave economic offence by abuse of their position in the company, certainly, they are liable for punishment for the said offences and prayed to dismiss the petition.
Considering rival contentions and perusing the material available on record, the points that arise for consideration are:
(1) Whether the allegations made in the charge sheet filed by the Station House Officer, Cyber Crime Police Station, Cyberabad and documents annexed to the charge sheet on their face value would constitute offences punishable under Sections 120(B), 406, 420, 468, 471, 201 r/w 109 of I.P.C. and Sections 35, 66(C&D), 72(B), 74 of I.T.Act?
(2) Whether prosecuting C.P.No.93 of 2013 under Sections 397, 398 read with Sections 401 and 403 of the Companies Act, 1956 filed by the respondent No.1 and C.P.No.73 of 2015 filed by the petitioners seeking various reliefs against the respondent No.1 and simultaneously prosecuting criminal proceedings filed by the respondent No.1 in C.C.No.1 of 2016 on the file of XVI Metropolitan Magistrate, Kukatpally at Miyapur, would amount to abuse of process of the Court and if so, the proceedings in the said C.C. are liable to be quashed by exercising power under Section 482 of Cr.P.C.?
P O I N T Nos.1 and 2:
As both the points are interconnected, I find it expedient to decide both points by common discussion.
Before adverting to the allegations made in the complaint to find out whether the allegations made in the complaint would constitute an offence punishable under Sections 120(B), 406, 420, 468, 471, 201 r/w 109 of I.P.C. and Sections 35, 66(C&D), 72(B), 74 of I.T.Act, I deem it appropriate to advert to the legal position regarding power of this Court under Section 482 of Cr.P.C. Section 482 of Cr.P.C. saves the inherent powers of the High Court to make such orders as may be necessary to give effect to any order under the Code or to prevent abuse of the process of any Court or otherwise to secure the ends of justice. It is an obvious proposition that when a court has authority to make any order, it must have also power to carry that order into effect.
If an order can lawfully be made, it must be carried out; otherwise it would be useless to make it. The authority of the court exists for the advancement of justice, and if any attempt is made to abuse that authority so as to produce injustice, the court must have power to prevent that abuse. In the absence of such power the administration of law would fail to serve the purpose for which alone the court exists, namely to promote justice and to prevent injustice.
The essential object of the criminal law is to protect society against criminals and law breakers. For this purpose, the law holds out threats of punishments to prospective lawbreakers as well as attempts to make the actual offenders suffer with prescribed punishment for the offences they committed and at the same time, the procedure is intended to protect the innocent people from unlawful prosecutions at the threshold itself, to avoid peril of facing trial. Thus, Section 482 of Cr.P.C. vests unbridled
power on the courts to exercise its jurisdiction to give effect to an order under the Code or to prevent abuse of the process of Court or to otherwise secure the ends of justice. The Code also controls and regulates the working of the machinery set up for the investigation and trial of offences. On the one hand it has to give adequately wide powers to make the investigation and adjudicatory processes strong, effective and efficient, and on the other hand, it has to take precautions against errors of judgment and human failures and to provide safeguards against probable abuse of powers by the police or judicial officers. This often involves a "nice balancing of conflicting considerations, a delicate weighing of opposing claims clamouring for recognition and the extremely difficult task of deciding which of them should predominate".
Thus, the Code obviously conferred power under Section 482 of Cr.P.C. to quash the proceedings in crime by conferring inherent power on the High Courts of all the States being higher court of the State. Section 482 of Cr.P.C. makes it clear that the provisions of the Code are as intended to limit or affect the inherent powers of the High Courts. Obviously the inherent power can be exercised only for either of the three purposes specifically mentioned in the section. Such inherent power cannot naturally be invoked in respect of any matter covered by the specific provisions of the Code. It cannot also be invoked if its exercise would be inconsistent with any of the specific provisions of the Code. It is only if the matter in question is not covered by any specific provision of the Code, the power under Section 482 Cr.P.C.
limitations Therefore, the power under Section 482 of Cr.P.C. can be exercised subject to the following conditions: "1. The jurisdiction is completely discretionary. The High Court can refuse to use the power.
2. The jurisdiction is not limited to cases that are pending before the High Court. It can consider any case that comes to its notice (in appeal, revision or otherwise).
3. This power can be invoked only in an event when the aggrieved party is being unnecessarily harassed and has no other remedy open to it.
4. The High Court, under section 482, does not conduct a trial or appreciate evidence. The exercise of this power (although it has a wide scope) is limited to cases that compel it to intervene for preventing a palpable abuse of a legal process.
5. The High Court has the power to provide relief to the accused even if he/she has not filed a petition under section 482.
6. This power cannot be exercised if the trial is pending before the apex court and it has directed the session judge to issue a nonbailable warrant for arresting the petitioners.
7. The power under Section 482 is not intended to scuttle justice at the threshold but to secure justice.
8. This power has to be exercised sparingly with circumspection and in the rarest of rare cases, but cannot be held that it should be exercised in the rarest of rare cases - The expression rarest of rare case may be exercised where death penalty is to be imposed under Section 302 of IPC but this expression cannot be extended to a petition under Section 482 CrPC.
9. So long as inherent power of Section 482 CrPC is in statute, the exercise of such power is not impermissible.
10. In exercise of the powers court would be justified to quash any proceeding if it finds that initiation or continuance of it amounts to abuse of the process of Court or quashing of these proceedings would otherwise serve the ends of justice.
11. Where the accused would be harassed unnecessarily if the trial is allowed to linger when prima facie it appears to Court that the trial would likely to be ended in acquittal.
12. In proceedings instituted on complaint, exercise of inherent powers under Section 482 CrPC to quash the proceedings is called for only in a case where the complaint does not disclose any offence or is frivolous, vexatious or oppressive. If the allegations set out in the complaint do not constitute the offence of which cognizance has been taken by the Magistrate, it is open to the High Court to quash the same.
13. When a complaint is sought to be quashed, it is permissible to look into the materials to assess what the complainant has alleged and whether any offence is made out even if the allegations are accepted in toto.
14. All Courts, whether civil or criminal possess, in the absence of any express provisions, as inherent in their constitution, all such powers as are necessary to do the right and to undo a wrong in course of administration of justice."
The law is settled on the powers as to when such inherent power under Section 482 Cr.P.C. can be exercised and cannot be exercised in various perspective pronouncements of the Apex Court. The leading case on this aspect is "State of Haryana v. Bhajanlal1", wherein the Apex Court laid down the following seven guidelines:
"(1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.
(2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code.
(3) Where the allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.
1 1992 Supp.(1) SCC 335
(4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non- cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the Code.
(5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.
(6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party.
(7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge." Earlier to the Judgment in "State of Haryana v. Bhajanlal" (referred supra), in "R.P. Kapur vs. State of Punjab2" the Apex Court laid down the following guidelines:
"(i) Where institution/continuance of criminal proceedings against an accused may amount to the abuse of the process of the court or that the quashing of the impugned proceedings would secure the ends of justice;
(ii) where it manifestly appears that there is a legal bar against the institution or continuance of the said proceeding, e.g. want of sanction;
(iii) where the allegations in the First Information Report or the complaint taken at their face value and accepted in their entirety, do not constitute the offence alleged; and (iv) where the allegations constitute an offence alleged but there is either no legal evidence adduced or evidence adduced clearly or manifestly fails to prove the charge."
2 AIR 1960 SC 866
The same principle was reiterated in "Padal Venkata Rama Reddy @ Ramu v. Kovvuri Satyanarayana Reddy & Ors.3" In the said Judgment, the Apex Court categorically held that inherent power can be exercised to prevent abuse of the process of court where the court finds that the ends of justice may be met by quashing the proceedings.
Keeping in mind the broad guidelines laid down by the Apex Court in various Judgments, the High Court is bound to decide the petitions before it, filed under Section 482 Cr.P.C. exercising such power sparingly in exceptional circumstances. In "M. Viswanathan v. M/S.S.K.Tiles & Potteries Private Limited and Others4" the Apex Court held that when there is a triable issue and the allegations relating to creating of a false agreement purporting to terminate original agreements and pilferage of records relating to a private limited company gives rise in the complaint were not adjudicable solely by civil court or company Law Board. Therefore, such proceedings cannot be quashed by exercising jurisdiction under Section 482 of Cr.P.C. In "State of A.P. v. Aravapally Venkanna And Anr5".
the Apex Court in clear terms expressed its opinion that inherent power should not be exercised to stifle a legitimate prosecution and to exercise such power at the threshold, to quash the proceedings in crime, must be exercised in very exceptional circumstances. The Apex Court in "State of Orissa and Anr. v. Saroj Kumar Sahoo6", "Amit Kapoor v.
Another7" and held that power under Section 482 of Cr.P.C. is based upon the maxim quando lex liquid alicuiconcedit, conceder videtur id quo res ipsa esse non protest, i.e., when the law gives anything to anyone, it also gives all those things without which the thing itself would be unavoidable. Section 482 of Cr.P.C. confers very wide power on the Court to do justice and to ensure that the process of the Court is not permitted to be abused. In "State of W.B. v. Swapan Kumar Guha8" the Apex Court held that if the F.I.R. does not disclose the commission of a cognizable offence, the Court would be justified in quashing the investigation on the basis of the information as laid or received. Thus from the law declared by the Apex Court, where the F.I.R.
does not disclose any cognizable offence, this court can exercise power under Section 482 Cr.P.C. and quash he proceedings. Even in "State of Haryana v. Bhajanlal" (referred supra) guidelines 1, 5, 6 and 7 clearly stated about the power that can be exercised by the Court. According to guideline No.1 where the allegations made in the complaint or F.I.R. on its face value taking in its entirety, prima facie, would not constitute an offence, the court can exercise power under Section 482 of Cr.P.C. Similarly when the complaint was lodged as an abuse of process of the court or to wreak vengeance against a particular individual, considering the material on record, the court can quash the proceedings against such of the persons against whom no allegation is made which constitute an offence on its face value.
Keeping in view the law laid down by various Courts referred supra, I would like to examine the allegations made in the complaint to find out whether those allegations on their face value accepting on its entirety would constitute prima facie offence. Petitioners allegedly committed an offence punishable under Section 120-B of I.P.C. besides other offences. Section 120-B of I.P.C. deals with punishment for criminal conspiracy. Criminal conspiracy is defined under Section 120-A of I.P.C., which reads thus:
120A. Definition of criminal conspiracy:- When two or more persons agree to do, or cause to be done:-
(1) an illegal act, or
(2) an act which is not illegal by illegal means, such an agreement is designated a criminal conspiracy: Explanation thereto further says that it is immaterial whether the illegal act is the ultimate object of such agreement, or is merely incidental to that object.
Thus, committing illegal act by illegal manes by two or more persons would amount to criminal conspiracy.
To constitute an offence punishable under Section 120-B of I.P.C. the elements of criminal conspiracy have been stated to be: (a) an object to be accomplished, (b) a plan or scheme embodying means to accomplish that object,
(c) an agreement or understanding between two or more of the accused-persons whereby, they become definitely committed to co-operate for the accomplishment of the object by the means embodied in the agreement, or by any means embodied in the agreement, or by any effectual means, (d) in the jurisdiction where the statute required an overt act. The essence of a criminal conspiracy is the unlawful combination and ordinarily the offence is complete when the combination is formed. From this, it necessarily follows that unless the statute so requires, no overt act need be done in furtherance of the conspiracy, and that the object of the combination need not be accomplished, in order to constitute an indictable offence.
Here, the allegation made against the petitioners, who are no other than the brother-in-law and sister of the defacto complainant, is that with dishonest intention to defraud the defacto complainant they transferred the shares creating certain documents though no resolution has been passed in the General Body Meeting to that effect and allotted the shares in their favour and their children by forgery. Such allegation in the charge sheet, if proved, would constitute an offence under Section 120-B of I.P.C. As discussed in the earlier paragraphs, this Court need not analyze the material evidence including documents meticulously at this stage while deciding the application filed under Section 482 of Cr.P.C. to decide whether there is possibility of conviction or not.
statement recorded by the police during investigation for perusal. Moreover, the allegations made in the charge sheet, on their face value and if accepted on its entirety, would constitute an offence punishable under Section 120-B of I.P.C. since the allegations satisfied the essential ingredients to constitute the offence under Section 120-B of I.P.C. Therefore, I find no ground to quash the proceedings in C.C.No.1 of 2016 on the file of XVI Metropolitan Magistrate, Kukatpally at Miyapur, Cyberabad, registered for the offences punishable under Sections 120 (B) of I.P.C. Petitioners are also allegedly committed offence punishable under Section 406 of I.P.C.
Section 406 of I.P.C. deals with punishment for criminal breach of trust. The word 'criminal breach of trust' is defined under Section 405 of I.P.C., which reads thus:
405. Criminal breach of trust:- Whoever, being in any manner entrusted with property, or with any 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 willfully suffers any other person so to do, commits "criminal breach of trust."
To constitute criminal breach of trust, a person must be entrusted with property or with any dominion over property. Here, the company was entrusted to the petitioners, who are no other than the brother-in-law and sister of the defacto complainant and the petitioners restructured the capital and allotted major shares
to them and their children and others, which were already allotted to the defacto complainant being a promoter, who allegedly restructured the capital and allotted shares in the General Body Meeting of the company. In fact, no such meeting was held, but created such documents taking advantage of digital signature available with the help of Company Secretary and Chartered Accountant and submitted necessary documents to the Registrar of Companies and other authorities.
One of the essential conditions of offence of criminal breach of trust is that the property which is the subject-matter of the offence must have been entrusted to the accused, and trust of some kind is necessary and the property in respect of which criminal breach of trust can be committed must be either the property of some person other than the accused or that the beneficial interest in or the ownership of it must be in some other person and the offender must hold such property on trust for such other person or in some way for his benefit.
In the present case, the petitioners claiming to be managing directors of the company allegedly entrusted with the management of the company. The word 'trust' is a comprehensive expression which has been used not only to cover the relationship of trustee and beneficiary, but also those of bailor and bailee, master and servant, pledger and pledgee, guardian and ward and all other relations which postulate the existence of a fiduciary relationship between the complainant and the accused. The expression "entrusted" embraces all cases in which goods are entrusted and
are dishonestly disposed of in violation of any direction of law or in violation of the contract.
Here, the relationship between the petitioners and the defacto complainant is fiduciary in character and they were entrusted with the dominion over the property i.e. company for the benefit of other directors, by appointing initially as additional directors but instead of maintaining fiduciary relationship, petitioners converted the property i.e. shares of the defacto complainant and allotted for them. Therefore, there is prima facie allegation against the petitioners in the charge sheet to constitute offence punishable under Section 406 of I.P.C. and in such circumstances this Court while exercising inherent power under Section 482 of Cr.P.C. cannot be quash such proceedings in C.C.No.1 of 2016 on the file of XVI Metropolitan Magistrate, Kukatpally at Miyapur, Cyberabad. Therefore, the contention of the learned counsel for the petitioners that there was no material against the petitioners for the offence punishable under Section 406 of I.P.C. is turned down and this contention is not substantiated.
The other offences allegedly committed by the petitioners along with other accused are punishable under Sections 420, 468, 471 and 201 of I.P.C.
Section 420 of I.P.C. deals with punishment for cheating and dishonestly inducing delivery of property. Cheating is defined under Section 415 of I.P.C.
415. Cheating:- Whoever by deceiving any person, fraudulently or dishonestly induces the person so deceived to
deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat". The essential ingredients required to constitute the offence of cheating are:
(i) There should be fraudulent or dishonest inducement of a person by deceiving him;
(ii) (a) The person so deceived should be induced to deliver any property to any person, or to consent that any person shall retain any property; or (b) The person so deceived should be intentionally induced to do or omit to do anything which he would not do or omit if he were not so deceived; and (iii) In cases covered by (ii) (b), the act or omission should be one which causes or is likely to cause damage or harm to the person induced in body, mind, reputation or property.
Section 468 of I.P.C. deals with forgery for purpose of cheating and forgery is defined under Section 463 of I.P.C., which reads as under:
463. Forgery:- Whoever makes any false document or false electronic record or part of a document, or electronic record with intent to cause damage or injury to the public or to any person, or to support any claim or title, or to cause by person to apart with property, or to enter into any express or implied contract, or
with intent to commit fraud or that fraud may be committed commits forgery.
Section 471 of I.P.C. reads as under:
471. Using as genuine a forged document or electronic record:- Whoever fraudulently or dishonestly uses as genuine any document or electronic record which he knows or has reason believe to be a forged document or electronic record, shall be punished in the same manner as if he had forged such document or electronic record.
Section 201 of I.P.C. deals with causing disappearance of evidence of offence, which reads thus:
201. Causing disappearance of evidence of offence, or giving false information to screen offender:- Whoever knowing or having reason to believe that an offence has been committed, causes any evidence of the commission of that offence to disappear, with the intention of screening the offender from legal punishment, or with that intention gives any information respecting the offence which he knows or believes to be false. In the present facts of the case, the petitioners along with other accused gained dominion over the company and changed registered office address from one place to the other place and created documents with the help of Company Secretary and Chartered Accountant and managed to obtain documents belonging to the complainant and his brother i.e. ID proof, address proof, Pan card and other documents/records/ transfer deeds useful to accused Nos.1 and 2. Then accused Nos.1 and 2 approached accused No.3, who in turn has manipulated, created, forged the signature of defacto complainant on various board
resolutions, minutes of meeting of Board of Directors, application forms etc and managed to get the DSC on the name of defacto complainant through accused No.4, who colluded and assisted the accused Nos.1 and 2 in obtaining the DSC from TCS-CA in a fraudulent manner. After obtaining the DSC, the accused Nos.1 and 2 forged the signatures of the complainant on papers and got prepared the Board resolutions and minutes of the meetings of the Board of Directors of Sridhanada Laboratories Pvt. Ltd and also forged the signatures of defacto complainant on various minutes of the meetings of the Board of Directors for appointment of new Managing Director and Executive Director i.e. accused Nos.1 and 2 and allotment of shares for accused Nos.
1 and 2 and their children and also prepared forged Form - 32 and uploaded the same along with the forged minutes of the meetings of the Board of Directors with the fraudulently obtained DSC. Thus, by way of fraudulently created documents uploaded to Registrar of Companies, accused Nos.1 and 2 entered into the company as Additional Directors and having obtained the control over the Board of the company allotted shares to themselves and their children totaling 40,00,000 shares. Thus, the petitioners by fraudulent means became Directors and grabbed the entire company and prepared forged resolutions of Board of Directors and got allotment of huge number of shares i.e. 40,00,000 shares.
Thereafter, though the bank account was freezed in the Syndicate Bank, the petitioners colluded with the Syndicate Bank officials and managed to adjust the existing deposits belonging to Sridhanada Laboratories in the loan account of Sri Dhanada Laboratories Pvt. Ltd.
of defacto complainant and his brother. Further investigation revealed that the petitioners captured the major shares in the company by illegal allotment and taken over the entire management.
Getting such allotment based on forged documents, creating false resolutions with the help of Company Secretary and Chartered Accountant for their unlawful gain i.e. allotment of 40,00,000 shares in the name of petitioner Nos.1 and 2 and their children, on its face value would constitute offences punishable under Section 420, 468, 471 and 201 of I.P.C. since they created documents by illegal means, with dishonest intention. However, the dishonest intention is a question of disputed fact and when there is an allegation in the charge sheet that the petitioners with dishonest intention committed those acts itself is sufficient ground to proceed against the petitioners.
If the allegations made in the complaint are purely regarding allotment of shares, which would fall within the ambit of Companies Act and the jurisdiction over which is vested with the Company Law Board or Registrar of Companies. But here the specific allegation made against the petitioners is that they submitted false statements and forged forms to the concerned authorities i.e. Registrar of Companies in collusion with the other accused i.e. Company Secretary and Chartered Accountant and forged the signatures of the defacto complainant on the fake resolutions of the Board of Directors. In those circumstances, fabrication of documents and forgery of documents i.e. resolutions of Board of Directors without holding any meeting etc. would fall
within the realm of criminal law. One of the contentions of the learned counsel for the petitioners is that when two company petitions are pending before the Company Law Bard, let there be a decision regarding allotment of shares based on the fake resolutions etc., and if the Company Law Board decides that the documents are created and forged and based on them the allotment of shares has taken place, then the petitioners are liable for punishment for the offences under Sections 447 and 448 of the Companies Act, 2013 and when two Company Petitions are pending, the Criminal Court cannot be allowed to proceed against the petitioners.
Section 447 of the Companies Act, 2013 deals with punishment for fraud, which reads thus:
"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, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to find 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."
Section 448 of the Companies Act, 2013 deals with punishment for false statement, which reads thus: "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"
Here, the petitioners allegedly gave statements in Form No.32 and Form No.2 of the Companies Act for allotment of shares and change of registered office, which would fall within the ambit of Section 447 of the Companies Act, 2013 but till the Company Law Board gave a finding regarding forgery, no prosecution appears to have been lie against the petitioners. However, learned counsel for the petitioners drawn the attention of this Court to Company Petition No.93 of 2013, which was filed with the same and identical allegations regarding allotment of shares to the petitioners and their family members. The allegations made in the said company petition are totally identical to the present complaint. The relief claimed in paragraph No.7 of the petition is as follows:
"7. Main Relief In view of the aforesaid facts and circumstances, the petitioners pray for the following reliefs:
7.1. To declare that the appointment of Second to Fifth Respondents at the alleged meeting of the Board of Directors dated 1/10/2012 as additional directors of the Company as invalid and non-est in law;
7.2. To declare the Board meeting dated 1/10/2012 where the Second, Third, Fourth and Fifth Respondents got inducted as additional directors of the First Respondent Company as null and void;
7.3. To declare that the alleged allotments purported to have been made on 04.03.2013 in favour of the Second, Third, Sixth and Seventh Respondent and the Second Petitioner as reflected in the Para 6.9 of the petition and the form no.2 filed on behalf of the First Respondent Company as totally invalid and without basis and consequently declare that the Second, Third, Sixth and Seventh Respondents are not shareholders of the First Respondent Company;
7.4. To declare that the alleged allotments purported to have been made on 22.04.2013 in favour of the Second and Third Respondents as reflected in Para 6.10 of the Petitioner and the form no.2 filed on behalf of the First Respondent Company as totally invalid and without basis and consequently declare that the Second and Third Respondents are not shareholders of the First Respondent Company;
7.5. To grant such other reliefs as this Hon'ble Bench may feel just and proper in the facts and circumstances of the case: 7.6. To award costs relating to the present proceedings." From a bare reading of the relief claimed in the petition, the defacto complainant sought for declaratory relief, but the contents of the petition in various paragraphs more particularly in paragraph Nos.6.9 and 6.10 shows the basis for such declaration is forgery, fabrication etc. When the respondent No.1 did not seek to impose any punishment while declaring that the documents i.e. Form No.32 and Form No.2 are forged and fabricated;
consequently allotment of shares based on the forged documents is not just and proper, the pendency of the company petition will not come in the way of criminal Court to try the case for the offences punishable under Sections 120(B), 406, 420, 468, 471, 201 r/w 109 of I.P.C. in view of the law declared in "M. Viswanathan v. M/S.S.K.Tiles & Potteries Private Limited and Others" (referred supra). Moreover, the complaint was not filed against the
petitioners for the offences punishable under Section 447 of 448 of the Companies Act, 2013, but for the offences punishable under various provisions of Indian Penal Code and Information Technology Act.
Copy of the company petition allegedly filed by the petitioners in C.P.No.73 of 2015 is not brought on record even for perusal of the Court. Learned Counsel for the Petitioners drawn the attention of this Court to certain documents sent by e-mails with attachments. The copies of said e-mails show that they have sent certain attachments, but the said attachments are not filed for perusal of this Court to find out whether they are relevant or not. However, those e-mails are of no use to quash the proceedings at present.
The other offences allegedly committed by the petitioners are punishable under Sections 35, 66(C&D), 72(B), 74 of I.T.Act. Chapter VII of the Information Technology Act, 2000 (for short "I.T.Act") deals with Electronic Signature Certificates. Section 35 of the I.T. Act deals with certifying authority to issue (Electronic Signature) Certificate, but it does not deal with any punishment, it specifies procedure for issuing certificate. Therefore, the question of finding the petitioners guilty for the offence under Section 35 of the I.T. Act does not arise even if they are tried, since, Section 35 of the I.T. Act is not a penal provision.
Section 66-C of the I.T.Act deals with punishment for identity theft, which is as follows:
"66-C.
Punishment for identity theft:
Whoever, fraudulently or dishonestly make use of the electronic signature, password or any other unique identification feature of any other person, shall be punished with imprisonment of either description for a term which may extent to three years and shall also be liable to fine which may extend to rupees one lakh." Section 66-D of the I.T.Act deals with punishment for cheating by personation by using computer resource, which is as follows:
"66-D. Punishment for cheating by personation by using computer resource: Whoever, by means for any communication device or computer resource cheats by personating, shall be punished with imprisonment of either description for a term which may extend to three years and shall also be liable to fine which may extend to one lakh rupees."
According to the defacto complainant, the petitioners with the help of company secretary accessed to the I.D. number of the defacto complainant and affixed electronic or digital signature on resolutions of general body meeting to upload Form Nos.32 and 2. The Computer and other equipment were seized during the course of investigation and obtained opinion from FSL, who certified that the computer system is in working condition and MAC address of item No.1 is "EO-69-95-FB-E7-E1" and it has four NTFS partitions of capacities 100 MB, 97.6 GB, 270.4 GB and 97.7 GB. "Windows 7 Ultimate" operating system was installed in computer and retrieved the relevant data from the computer. Therefore, the accessing to the electronic ID of the defacto complainant by misusing the digital signature for unlawful gain would prima facie amounts to offences punishable under Section 66-C and 66-D of the I.T.Act.
Section 74 of the I.T. Act deals with publication of fraudulent purpose, which is as follows:
"74.
Publication for fraudulent purpose:
Whoever knowingly creates, publishes or otherwise makes available a (Electronic Signature) certificate for any fraudulent or unlawful purpose shall be punished with imprisonment for a term which may extend to two years, or with fine which may extend to one lakh rupees, or with both."
Charge Sheet is also filed against the petitioners for the offence punishable under Section 72-B of the I.T. Act, but there is no such provision in the Act. In the absence of any provision i.e. Section 72-B in I.T.Act, it is difficult to find that they are liable for prosecution for the said offence under Section 72 -B of the I.T. Act. Therefore, the material on record, at best, would constitute an offence punishable under Sections 35, 66(C&D) and 74 of I.T.Act. In "Chandran Ratnaswami v. K.C.Palanisamy9" an identical question came up before the Apex Court and the Apex Court placed reliance on the judgments rendered in "Zandu Pharmaceutical Works Ltd.
v.
Mohd.Sharaful Haque10"
"Indian Oil Corpn v. NEPC India Ltd.11" "Inder Mohan Goswami v. State of Uttaranchal12" "G.Sagar Suri v. State of U.P.13" "S.N.Sharma v. Bipen Kumar Tiwari14" "State of W.B. v. Swapan Kumar Guha" (referred supra) "Uma Shankar Gopalika v. State of Bihar15" and held as follows:
9 (2013) 6 SCC 740 10 (2005) 1 SCC 122 11 (2006) 6 SCC 736 12 (2007) 12 SCC 1 13 (2000) 2 SCC 636 14 (1970) 1 SCC 653 15 (2005) 10 SCC 336
"As noticed above, after the dispute was finally settled by the Company Law Board and the Madras High Court in appeal, the Respondent approached the Economic Offences Wing, who refused to entertain the complaint. The Respondent then moved the complaint before the Judicial Magistrate, Perundurai for initiating criminal action against the Appellant for breach of contract, which was dismissed by the Magistrate holding the same as nothing but to take vengeance. The Magistrate further held that if the conditions of the agreement are violated the Respondent has to seek remedy under the Contract Act or the Company Law instead of filing criminal case.
Suppressing the said complaint and the order passed by the Magistrate, the Respondent tried again by filing a complaint before the Judicial Magistrate, Kangayam for initiating criminal action against the Appellants for the breach of contract and conspiracy. Although the FIR was registered, but a closure report as a mistake of fact was prepared. The High Court while passing the order observed that the Court would frown upon the conduct of the complainant in indulging in repeated harassment of the Petitioners-Appellants. Irrespective of the dispute with regard to the closure of the case, a fresh life was given to the criminal case at the instance of Superintendent of Police, who directed re-investigation and in course of the said criminal proceeding irrespective of FIR No.
7/2007 the Appellants were harassed and on technicalities various orders for surrender, arrest and their detention had been passed.
We are of the definite opinion that the complainant has manipulated and misused the process of Court so as to deprive the Appellants from their basic right to move free anywhere inside or outside the country. Moreover, it would be unfair if the Appellants are to be tried in such criminal proceedings arising out of alleged breach of a Joint Venture Agreement specially when such disputes have been finally resolved by the Court of competent jurisdiction. Hence, allowing the criminal proceedings arising out of FIR No. 7 of 2007 to continue would be an abuse of the process of the Court and, therefore, for the ends of justice such proceedings ought to be quashed. Since the High Court failed to look into this aspect of the matter while passing the impugned order, in our opinion, the same could not be sustained in law."
The principle laid down therein is that filing complaint when the matter was already decided by the Company Law Board and
High Court in appeal, amounts to misuse of process of the Court so as to deprive the appellants from using their basic right to move freely anywhere inside or outside the country. Moreover, it would be unfair if the appellants are to be tried in such criminal proceedings arising out of the alleged breach of a joint venture agreement specially when such disputes have been finally resolved by the Court of competent jurisdiction.
Though the facts of the present case are nearer to the facts of the above judgment, there is a thin difference regarding decision by the Company Law Board and the appeal by the Madras High Court, but here the proceedings before the Company Law Board are pending and no decision was taken yet.
In those circumstances, the principle laid down in the aforesaid judgment cannot be applied to the present facts of the case to conclude that the filing of criminal complaint would amount to abuse or misuse of process of the Court to wreck vengeance against the petitioners as per guideline No.7 of "State of Haryana v. Bhajanlal" (referred supra). Hence, the principle laid down in the above said judgment has no direct application to the present facts of the case. In view of my foregoing discussion, the pendency of company petitions before Company Law Board in C.P.No.93 of 2013 and C.P.No.73 of 2015 filed by the defacto complainant and petitioners respectively would not come in the way to proceed against the petitioners in criminal Court since offences allegedly committed by the petitioners are triable by the Criminal Court and the Company Law Board has nothing to do with the offences committed by the petitioners; at best, the Company Law Board may issue declaration
as sought for in the company petitions, if satisfied. Therefore, I find existence of sufficient ground to proceed against the petitioners for the above offences and the petition is liable be dismissed since the petition is devoid of any merit.
In the result, the petition is dismissed. No costs. Consequently, miscellaneous applications pending if any, shall also stand closed.
__________________________________________ JUSTICE M. SATYANARAYANA MURTHY 02.01.2017 Ksp