Companies Act Case Law A.V. Mohan Rao & Anr Vs M.Kishan Rao And Anr.

CASE NO.:
Appeal (crl.) 688 of 2002

 

not.

This appeal filed by the accused persons iPETITIONER:

A.V. MOHAN RAO & ANR.

Vs.

RESPONDENT:
M.KISHAN RAO AND ANR.

DATE OF JUDGMENT: 16/07/2002

BENCH:
D.P.MOHAPATRA, K.G.BALAKRISHNAN.

 
JUDGMENT:

 

D.P.Mohapatra,J.
Leave granted.

The question that arises for determination in
this case is whether on the facts and circumstances
emerging from the averments in the complaint petition and
the materials filed with it a case for quashing the
complaint filed under Section 482 of the Code of Criminal

Procedure (for short ‘CrPC’) is made out ors
directed against the order dated 1.3.2000 of the High
Court of Andhra Pradesh in Criminal Petition No.3052/99
declining to grant the prayer of the appellants for quashing
the proceedings in CC No.24/99 on the file of the Court of
Sub-Judge, Economic Offences at Hyderabad. The
proceeding was instituted on the complaint petition filed
by respondent No.1. The appellants and the respondent
No.1 are stated to be Directors of a Company- M/s
Spectrum Power Generation Limited (hereinafter referred
to as “the Power Company”) incorporated under the Indian
Companies Act, 1956 (for short ‘the Act’), having its
registered office at Secundrabad, in the State of Andhra
Pradesh. The respondent No.1 filed the complaint alleging
offences under Sections 60, 63,68, 68-A read with Section
621 of the Act, against the appellants, alleging inter alia
that the accused persons by making false, deceptive and
misleading statements and by suppressing relevant facts
induced various persons to pay them money for purchase
of shares of the Power Company; raised millions of Dollars
from Non-Resident Indians (NRIs); siphoned off those
funds into bogus companies exclusively owned by them in
off-shore companies and purchased shares of the Power
Company in India in the names of bogus off-shore
companies owned/controlled by them. The matter came to
the notice of the complainant when some of the
prospective NRI investors made correspondence with the
Power Company demanding share certificates for which
they had paid substantial amounts to the appellants. The
off-shore companies through which the appellants
purchased the shares of the Power Company in Hyderabad
are – M/s Spectrum Technologies, USA, M/s Spectrum
Infrastructures Ltd., Jersey, Channel Islands and M/s
Spectrum Infrastructures Ltd. at Mauritius. In this
process the original investors who were promised shares in
Power Company were never allotted any shares. On the
other hand shares were allotted to off-shore companies
which have nothing to do with the Power Companies and
which are exclusively owned and controlled by the
accused persons. It was specifically alleged in the
complaint petition that the accused persons have in effect
committed fraud on the Power Company in whose name
they collected money, invested that in their own companies
and those companies in turn applied and got shares at the
instance of the accused persons with the result that all
these overseas investors are left high and dry. These acts,
it is alleged by the complainant, constitute offences under
Sections 68 and 68-A of the Act. It is further alleged in the
complaint petition that the appellants issued a document
in the name of the Spectrum Infrastructures Ltd., Jersey,
Channel Islands, styled as “Project Overview”. The said
company issued a letter dated 30th September, 1994 by the
first accused. The relevant portions of the said “Project
Overview” and the letter are extracted hereunder:

“SPECTRUM POWER
208 MEGAWATT POWER PLANT AT
KAKINADA, ANDHRA PRADESH, INDIA

PROJECT
OVERVIEW”

The letter dated 30.9.94 reads as
follows:

“Re: Private Sector Power Generation
Project in Kakinada, Andhra Pradesh

I am enclosing a high level overview of
the investment opportunity for the
above project. Though I am introducing
to you to this opportunity now, we
have done extensive groundwork for
this project for the last two years.
Today, we have reached the point
where we can now make the foreign
currency investment in the project.

As you are probably aware, this is
clearly the best time for investing in
India’s economic future. The economic
liberalization towards a market
economy and the focus to encourage a
“for profit” private investment in
infrastructural industries, such as
power, has presented a unique
opportunity for investors like us. We
seized this opportunity and vigorously
promoted and developed the fast
privately held Joint Venture Power
Company in India.

We have a rare ground floor investment
opportunity, which would normally be
sold at a premium. However, this
project is being offered to you with the
same high investment returns as the
promoters. For the financial security of
the capital and the investment income
and for tax beneficial treatment, we
have formed an “offshore” entity,
“SPECTRUM INFRASTRUCTURES
LIMITED” to execute and direct our
investment in the power project. This
entity will be the investment vehicle
through which investors will be
participating in this venture.”

I will be in touch with you in the next
few weeks to discuss your investment
commitment. The initial investment
funds will have to be made available by
October 20, 1994.

In the meantime, if you have any
questions, please call 382 0056 or
3821727.

Sincerely yours,
Sd/- ”
The complainant further alleged that the Managing
Director of the Power Company received a letter dated
26.6.1997 said to have been sent in the name of Spectrum
NRI Investors the substance of which is that the NRIs are
anxiously waiting for the Indian Company’s share offer and
public issue. The said letter was received by some persons
claiming to be NRI investors of the Power Company. In the
background of the above mentioned facts on which the
complaint in question came to be filed the gist of which
may be stated thus :

“From the above material and
conclusive evidence, it is clear that
Accused Nos.1 and 2 grossly
misrepresenting by false
representations, induced most of the
unknown investors outside the country
to invest monies by issuing a circular,
offer documents, and dishonestly
concealing the material facts and those
monies were appropriated into the
account of the Accused persons and
the Accused persons’ Companies were
allotted shares and the NRIs were not
given any shares, even though claim is
made that 130 share holders from the
United States of America are the
investors of the said monies. The said
modus operandi and actions of the two
Accused constitute offences under
Section 60, 63, 68 and 68A of the
Companies Act of 1956 and
accordingly this Hon’ble Court is
requested to proceed according to law.”
On receipt of the complaint the Special Judge
for Economic Offences, Hyderabad issued summons to the
accused persons on 13.4.1999 requiring them to appear in
person before the Court on the date fixed therein. On
receipt of the same the accused persons filed the petition
dated 28.6.1994 under Section 482 CrPC in the High
Court of Andhra Pradesh with the prayer to quash the
proceedings in CC No.24/99 and pending disposal of the
petition to stay all further proceedings including
appearance of the petitioners before the Court. The main
grounds of challenge against the proceeding was that the
complaint does not make out any of the offences alleged by
the complainant and as such it is bad in law and not
maintainable; that the Act has no application to the
transactions alleged in the complaint as the petitioners are
the citizens of USA and they are the Directors of the
overseas company which has been incorporated and
functioning abroad and that the offer for investment was
made to NRIs in USA; that the investing companies headed
by the petitioners have taken necessary RBI permission to
invest in the Power Company and accordingly have made
the investment, and therefore they have not violated any
law of the land; that even otherwise the investing
companies did invest all the monies collected by them in
the Power Company and as such the Power Company does
not stand to lose anything; that the complainant who is
not a mere shareholder but is the Vice-Chairman and
Managing Director of the Power Company is in no way
aggrieved by any of the alleged acts by the petitioner, and
therefore, the complaint has been filed with an oblique
motive. The further ground taken by the petitioners was
that Section 60 of the Act is not at all attracted because
the section requires registration of the prospectus before it
is issued by the existing Company or an intended
company. In view of the fact that the Companies involved
herein are not Companies coming within the purview of the
Companies Act and as there has been no prospectus
issued by them as defined in Section 60 of the Act, the
section has no applicability to the facts of the case on
hand.
In the counter affidavit filed on behalf of the
complainant respondent no.1 herein, the allegations and
averments made in the petition filed under section 482
Cr.P.C. were denied. It was contended that in view of the
specific allegations made in the complaint petition a clear
prima facie case under Sections 60, 68,68-A read with
Section 621 of the Act has been made out. It was further
contended by the complainant that the questions raised by
the accused persons in the quashing petition can be
considered only at the trial of the case after evidence is
placed in the case. The complainant submitted that in the
context of the facts and circumstances of the case the
power under section 482 Cr.P.C. could not be exercised to
quash the complaint petition and to terminate the
proceeding at the preliminary stage.

The High Court in its order construing the
provisions of Section 4(2)(n) and Section 188 of the Cr.P.C.
held that the authority of the State to exercise its
jurisdiction effects the rights of persons or entities either
by legislation or execution decree or by judgment of the
Court, within its territory is undisputed, subject of course
to certain exceptions recognized by the international law
like in respect of members of the diplomatic missions,
international institutions etc. The High Court noting that
the problem of exercise of jurisdiction either civil or
criminal over the persons or entities situate outside the
territorial limits of the country is a very complicated area,
took note of the observations in the case of Macleod Vs.
A.G. for New South Wales (1891) A.C. 455 (1) and
Huntington vs. Attrill (1893) A.C. 150(2) that “All crime is
local. The jurisdiction over the crime belongs to the
country where the crime is committed”. The High Court
referring to that section observed that the Parliament
asserted jurisdiction over every citizen of India if such a
citizen commits an offence whether on high seas or
elsewhere.
Regarding the claim of the accused persons
that they are citizens of USA, different stands have been
taken by them in the petition; at one place the statement
is made that petitioners are the Directors in the company
and residents of USA while at another place it is stated
that the petitioners are citizens of USA. The High Court
took the view that this fact has to be ascertained from the
evidence to be led by the parties at the trial of the case.
The Court observed:

“Apart from that in a transaction like
the present one, assuming for the sake
of arguments that all the allegations
made in the complaint are true, it is
doubtful whether it can safely be said
that the alleged offences are committed
wholly outside the territory of India as
one of the elements in the crime is
situated in India i.e. the Company in
which the petitioners are alleged to
have solicited the participation by way
of equity, in view of the judgment of the
Supreme Court in Mobarik Ali Ahmed
vs. State of Bombay (AIR 1957 SC 857),
wherein their Lordships have held that
the corporeal presence of the accused
in the country is not essential to assert
the criminal jurisdiction.”
On the submissions made on behalf of the
accused persons that even accepting the allegations
contained in the complaint to be true the averments did
not constitute the offences alleged therein, the High Court
observed :

“Unless all the documents relied upon
by the complainant are examined,
which can only be done after
appropriate proof of those documents,
it may not be possible for the court to
come to any conclusion whether the
offences alleged in the complaint are
made out. Apart from that in exercise
of the jurisdiction under Section 482 of
the Code of Criminal Procedure, this
Court would not go into the aspect of
appreciation of evidence or sufficiency
of evidence.”
On the discussions and the findings noted
above, the High Court declined to quash the complaint
petition and to drop the case against the accused persons.
The said order is under challenge in this appeal.
The main thrust of the arguments of Shri
Dushyant A.Dave, learned senior counsel appearing for the
appellants was that the allegations in the complaint taken
in entirety do not make out the offences as alleged in it;
that the document alleged to have been issued by the
appellants is not a ‘prospectus’ as defined in Section 2(36)
of the Act; that the ingredients for applicability of Sections
60, 63, 68 and 68-A are not established on the allegations
made in the complaint and the materials produced by the
complainant even prima facie and that the appellants are
citizens of U.S.A. and therefore, a criminal proceeding
instituted against them in the court before the Magistrate
is not maintainable. The offences alleged in the complaint
petition were committed outside India and, therefore, a
Magistrate has no jurisdiction to entertain the complaint
petition.
Shri A.K.Ganguly, learned senior counsel
appearing for the complainant-respondent joined the issue
on each of the points urged by Shri Dave and urged that a
strong prima facie case for criminal action against the
appellants has been made out in the case. Shri Ganguly
further contended that the questions raised in the
proceeding on behalf of the appellants cannot be
considered at this stage of the proceeding since they are to
be determined during the hearing of the case. In any view
of the matter, Shri Ganguly contended, that no case for
quashing of the complaint and the proceeding initiated on
its basis under Section 482 of the Cr.P.C. or Article 226 of
the Constitution of India has been made out and,
therefore, the High Court rightly dismissed the petition
filed by the appellants.
The position has to be taken as well settled that
power of quashing a criminal complaint and the
proceeding initiated on its basis under Section 482 of the
Cr.P.C. or Article 226 of the Constitution is to be exercised
very sparingly and with circumspection and that too in the
rarest of rare cases.
This Court in the case of State of Bihar vs.
Murad Ali Khan & Ors. reported in (1988) 4 SCC 655
observed :
“It is trite that jurisdiction under
Section 482 CrPC, which saves the
inherent power of the High Court, to
make such orders as may be necessary
to prevent abuse of the process of any
court or otherwise to secure the ends
of justice, has to be exercised sparingly
and with circumspection. In exercising
that jurisdiction the High Court should
not embark upon an enquiry whether
the allegations in the complaint are
likely to be established by evidence or
not. That is the function of the trial
Magistrate when the evidence comes
before him. Though it is neither
possible nor advisable to lay down any
inflexible rules to regulate that
jurisdiction, one thing, however,
appears clear and it is that when the
High Court is called upon to exercise
this jurisdiction to quash a proceeding
at the stage of the Magistrate taking
cognizance of an offence the High
Court is guided by the allegations,
whether those allegations, set out in
the complaint or the charge-sheet, do
not in law constitute or spell out any
offence and that resort to criminal
proceedings would, in the
circumstances, amount to an abuse of
the process of the court or not.”

 

A similar view was taken by this Court in the
case of State of Haryana & Ors. vs. Bhajan Lal & Ors.,
1992 Suppl.(1) SCC 335 wherein it was observed thus :

“We also give a note of caution to the
effect that the power of quashing a
criminal proceeding should be
exercised very sparingly and with
circumspection and that too in the
rarest of rare cases; that the court will
not be justified in embarking upon an
enquiry as to the reliability or
genuineness or otherwise of the
allegations made in the FIR or the
complaint and that the extraordinary
or inherent powers do not confer an
arbitrary jurisdiction on the court to
act according to its whim or caprice.”

The same view was expressed by this Court in
the case of Mahavir Prasad Gupta & Anr. vs. State of
National Capital Territory of Delhi & Ors., 2000 (8) SCC
115.
In view of the principles of law it is to be
considered whether on the allegations which applicants
made in the complaint and the materials filed by the
complainant a case for exercise of jurisdiction under
Section 482 Cr.P.C. or Article 226 of the Constitution has
been made out. As noted earlier, it is alleged in the
complaint that the accused, appellants herein, have
committed the offences under Sections 60, 63, 68, 68-A
read with Section 621 of the Act.
Section 60 provides that : No prospectus shall
be issued by or on behalf of a company or in relation to an
intended company unless, on or before the date of its
publication, there has been delivered to the Registrar for
registration a copy thereof signed by every person who is
named therein as a director or proposed director of the
company or by his agent authorised in writing, and having
endorsed thereon the documents enumerated in the
section.
The expression ‘prospectus’ is defined in
Section 2(36) of the Act to mean “any document described
or issued as a prospectus and includes any notice,
circular, advertisement or other document inviting deposits
from the public or inviting offers from the public for the
subscription or purchase of any shares in, or debentures
of, a body corporate”.
Section 63 of the Act makes provision regarding
criminal liability for mis-statements in the prospectus. In
sub-section (1) thereof it is laid down that “where a
prospectus issued after the commencement of this Act
includes any untrue statement, every person who
authorised the issue of the prospectus shall be punishable
with imprisonment for a term which may extend to two
years, or with fine which may extend to fifty thousand
rupees, or with both, unless he proves either that the
statement was immaterial or that he had reasonable
ground to believe, and did up to the time of the issue of the
prospectus believe, that the statement was true.”
Section 68 of the Act makes provision regarding
penalty for fraudulently inducing persons to invest money.
It is laid down therein that : “Any person who, either by
knowingly or recklessly making any statement, promise or
forecast which is false, deceptive or misleading, or by any
dishonest concealment of material facts, induces or
attempts to induce another person to enter into, or to offer
to enter into
(a) any agreement for, or with a view to,
acquiring, disposing of, subscribing for, or
underwriting shares or debentures; or
(b) any agreement the purpose or pretended
purpose of which is to secure a profit to
any of the parties from the yield of shares
or debentures, or by reference to
fluctuations in the value of shares or
debentures;
shall be punishable with imprisonment for a term which
may extend to five years, or with fine which may extend to
one lakh rupees, or with both.
Section 68-A of the Act deal with personation
for acquisition, etc., of shares and the action of any person
who makes in a fictitious name an application to a
company for acquiring, or subscribing for, any shares
therein, or otherwise induces a company to allot, or
register any transfer of, shares therein to him, or any other
person in a fictitious name, shall be punishable with
imprisonment for a term which may extend to five years.
Reading of the complaint petition and the
materials produced by the complainant with it in the light
of provisions in the aforementioned sections it cannot be
said that the allegations made in the complaint taken in
entirety do not make out, even prima facie, any of the
offences alleged in the complaint petition. We refrain from
discussing the merits of the case further since any
observation in that regard may effect one party or the
other. The allegations made are serious in nature and
relate to the power company registered under the Act
having its head office in this country. Whether the
appellants were or were not citizens of India at the time of
commission of the offences alleged and whether the
offences alleged were or were not committed in this
country, are questions to be considered on the basis of the
evidence to be placed before the Court at the trial of the
case. The questions raised are of involved nature,
determination of which requires enquiry into facts. Such
questions cannot be considered at the preliminary stage
for the purpose of quashing the complaint and the
proceeding initiated on its basis. It is relevant to note here
that from Sections 4 and 188 of the Criminal Procedure
Code it is clear that even if the offence is committed by a
citizen of India outside the country the same is subject to
the jurisdiction of courts in India. [See Central Bank of
India Ltd. vs. Ram Narain, AIR 1955 SC 36, Mobarik Ali
Ahmed vs. The State of Bombay, 1958 SCR 328 and Ajay
Aggarwal vs. Union of India & Ors., (1993) 3 SCC 609].
On consideration of the matter, we are of the
view that in the context of the facts and circumstances of
the case, the High Court was right in declining to quash
the complaint petition and the proceedings initiated on its
basis. In the result, this appeal being devoid of merit is
dismissed.

 

 

 

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