Companies Act Case Law Shri Ashim K.Roy Vs Bipinbhai Vadilal Mehta & Ors.

PETITIONER:
SHRI ASHIM K.ROY

Vs.

RESPONDENT:
BIPINBHAI VADILAL MEHTA & ORS.

DATE OF JUDGMENT: 14/10/1997

BENCH:
A.S. ANAND, K. VENKATASWAMI

 
ACT:

 

HEADNOTE:

 

JUDGMENT:
THE 14TH DAY OF OCTOBER, 1997
Present:
Hon’ble Dr. Justice A.S.Anand
Hon’ble Mr.Justice K.Venkataswami
R.K. Jain and S.Sanjanwala, Sr.Advs., Anil Shrivastava, Adv.
with them for the appellant
Shanti Phushan, Arun Jaitely, Sr.Advs., Levang S.Nanavati,
Yashank Adhyaru, V.K.Bhatt, Saurin A.Mehta, Mrs. Nirmlala
Gupta, Mrs, V.D.Khanna, Advs. for M/s. I.M.Nanavati
Associates
Ms. Hemantika Wahi, Adv. for the State.
J U D G M E N T
The following Judgment of the Court was delivered:
K.Venkataswami, J.
These appeals arise out of a complain filed by the
appellant which was subsequently registered as Criminal Case
No. 262/89. Brief facts leading to the filing of these
appeals are given below:-
The appellant who was a General Secretary of Hind
Mazdoor Kisan Panchayat to which Gujarat Mazdoor Panchayat a
recognised trade union of a limited company, originally
known as M/s. Sayaji Mills Ltd. now known as Sayaji
Industries Ltd, is affiliated. According to the
appellant/complainant, respondents 1 & 2 (hereinafter called
the “contesting respondents”) have committed offences under
Section 120-B and 409 IPC read with Section 77 of the
Companies Act. The contesting respondents are father and
son. One Vadilal Lalbhai Mehta was the father of the first
respondent Bipinbhai Vadilal Mehta. One Suhasbhai Vadilal
Mehta was the brother of the first respondent. They entered
into a memorandum of understanding on 30.1.1982 for dividing
their properties. As per the said memorandum of
understanding, the first respondent’s family will be given
management and control of M/s Sayaji Industries Ltd and M/s.
C.V. Mehta Pvt. Ltd. On the other hand, the management and
control of other companies, namely, M/s. Industrial
Machinery Manufacturers Pvt. Ltd, M/s. C.Doctor. & Co. Pvt.
Ltd. shall remain with Suhash Bhai Mehta, brother of the
first respondent. As per the terms of the memorandum, the
liabilities of M/s. C.V.Mehta Pvt. Ltd. towards other
concerns amounting to Rs. 39 lacs and odd was to be
discharged by the first respondent and his family and only
after the Clarence of the said liability, the first
respondent and his family could take over the management and
control of the companies allotted to them. It was alleged
by the appellant in the complaint that the contesting
respondents had no funds with them to discharge the
liability allotted to them and they could not also raise
funds to be deposited with M/s. C.V.Mehta Pvt. Ltd. within
the stipulated period, namely, February to November, 1982.
Therefore, a modification to the memorandum of understanding
was entered into between the same parties on 13.11.1982. As
per the modified memorandum of understanding, it was agreed
that the contesting respondents will deposit Rs. 20 lacs
immediately with M/s. C.V. Mehta Pvt. Ltd in order to
acquire the shares of M/s. Sayaji Industries Ltd and thereby
gain management and control of M/s. Sayaji Industries Ltd
(hereinafter referred to as the ‘Company’). In order to
discharge the liability as per the modified memorandum of
understanding, it is the specific case of the appellant that
the contesting respondents entered into a conspiracy to
commit criminal breach in relation to the funds of the
company and thereby dishonestly siphoned the public funds to
the detriment of the shareholders and the employees of the
company. The appellant explaining the act of alleged
conspiracy has stated in the complaint that the contesting
respondents diverted the funds of the company in a
clandestine manner by manipulating and tempering the records
and accounts and caused the wrongful gain in so transferring
the funds of the company by making advances to a supplier
M/s. Santosh Starch Products Ltd. by three different cheques
drawn on Punjab National bank. It was further alleged that
the accused persons in furtherance of the conspiracy made it
to appear that M/s. Santosh Starch Products advanced a loan
of Rs. 20 lacs on 13.11.1982 by three cheques in favour of
Bipin Mehta who in turn ploughed the amount in M/s. C.V.
Mehta Pvt. Ltd. to discharge the liability undertaken by him
as per the modified memo of understanding. In this process,
the contesting respondents acquired the control and
management of M/s. Sayaji Industries Ltd. Inasmuch as the
funds of the company were utilised in the manner aforesaid,
according to the appellant, the contesting respondents have
violated Section 77 of the Companies Act. In addition, it
was the case of the complainant that the contesting
respondents have also committed offences punishable under
Section 120-B and 40 of IPC.
On receipt of such complaint, the Judicial Magistrate,
First Class, Ahmadabad (Rural) conducted an inquiry under
Section 202 Cr. P.C. The learned Magistrate recorded
statements of four witnesses. After considering the
deposition of the said four witnesses and also the documents
produced before him, the Magistrate was of the opinion that
prima facie a case against the contesting respondents was
made out for the offences punishable under Section 120-B and
409 IPC read with Section 77 of the Companies Act. Learned
Magistrate was also of the view that the case has to be
tried by the Sessions Court and accordingly he committed the
case under Section 323 of Cr.P.C. to Sessions Court.
The contesting respondents previously moved the
Sessions Court for anticipatory bail while the proceedings
were pending before the Magistrate. The learned Sessions
Judge rejected that application for anticipatory bail. The
contesting respondents moved the Gujarat High Court against
the order of the Sessions Judge declining to grant
anticipatory bail and also against the order of the
Magistrate registering the case and committing the same for
proceeding further by the Sessions Court. These two cases,
namely, Criminal Revision Application No. 247 of 1989 and
Criminal Miscellaneous Application No. 4216 of 1994 came up
for consideration before the High Court.
Before the learned single Judge, it was conceded by the
learned counsel appearing for the complainant that the
warrant issued against the contesting respondent for the
offence punishable under Section 77 of the Companies Act was
uncalled for and that the order of committing criminal case
to the Sessions Court was also not proper. In view of these
concessions, the High Court confined the dispute as to
whether the warrant issued against the contesting
respondents for the offences punishable under Section 120-B
and 409 was justified. The learned Judge by his detailed
and considered order dated 2.12.94 held that the order
passed by the learned Magistrate was without application of
mind and that on the day on which the offence was said to
have been committed by the contesting respondents, they were
not even ordinary directors much less managing directors of
the company having control and management of the affairs of
the company. On the other hand, the learned Judge held on
facts that it was established, it was the father of the
respondent no. 1 who was the chairman and managing director
of the company on the relevant date and he was not impleaded
as a party. The company also was not impleaded as a party
accused. The learned Judge further found that the complaint
was at the instance of somebody to settle his score with the
contesting respondents and it was a clear case of deliberate
attempt on the part of the complainant to use the machinery
of the court for an oblique purpose. The learned Judge also
found that the chances of ultimate conviction are bleak and
therefore, no useful purpose will be served by allowing the
criminal prosecution to continue. In coming to this
conclusion, the learned Judge placed reliance on a judgment
of this Court in Madhavrao Jiwaji Rao Scindia and Anoher vs.
Sambhajirao Chandrojirao Angre and Others (AIR 1988 SC 709).
In the result, the learned Judge allowed the applications
and quashed the complaint and charge against the contesting
respondents.
Aggrieved by the common order of the High Court, the
present appeals by special leave are preferred.
Mr. R.K. Jain, learned Senior Counsel appearing for the
appellant, submitted that when the money was advanced from
the funds of the company, it was for a definite purpose of
getting it back to discharge the personal liability and this
is sufficient to constitute an offence under Section 409.
He further submitted that even though the contesting
respondents were not in actual control and management of the
company on the relevant date, they were in de facto control
of management of the company and that was sufficient for
making them liable under Section 409. In any case that was
a matter for evidence and not a case for quashing.
He emphasized that contesting respondents held dominion
over the company’s funds and the company having 67% public
money, the transaction in question coupled with the manner
in which it was carried out clearly or at least prima facie
bring out an offence under Section 409 punishable under
Section 120-B IPC. He further emphasized about the limited
jurisdiction of the High Court under Section 482 of the Code
of Criminal Procedure and according to him the High Court
exceeded its jurisdiction in quashing charge and proceeding
which was the result of preliminary inquiry held under
Section 202 of Cr.P.C.
Mr. Shanti Bhushan, learned Senior Counsel, appearing
for respondent no.1, on the other hand submitted that all
the three findings of the High Court are well-founded. In
addition to that, he also submitted that there was delay in
filing the complaint and the complainant as such has no
locus standi to file the complaint. After referring to
Section 405 IPC Mr. Shanti Bhushan submitted that the
element of entrustment s totally absent in this case as the
accused persons came into picture only after the relevant
date and, therefore, no case was made at all against the
contesting respondents under Section 409 and 20-B IPC.
Therefore, the question of registering the complaint will
not arise. According to the learned Senior Counsel, in
addition to the absence of entrustment aspect, the further
ingredient required to make out a case, namely “with a view
to cause wrongful loss or gain” was also not there. The
transaction was a normal one. Advances were given to the
regular supplier. The cheques given by the supplier to the
individual by way of loan has nothing to do with the subject
matter of complaint and the whole thing was misconceived by
the complainant.
According to the learned Senior Counsel, the High Court
was right in quashing the proceedings.
Mr. Arun Jaitley, learned Senior Counsel, for the
second respondent, adding to the submissions of Mr. Shanti
Bhushan, highlighted that on the relevant date, namely,
13.11.1982, contesting respondents were not in control or
management of the company and they were not even de facto
directors and according to the memorandum of understanding,
both original and modified, the accused came into picture
only after the discharge of the liability and not earlier to
that. Therefore, the accused, if at all, could take over
the control and management of the company only after the
transaction complained of was over. Therefore, the High
Court was right in quashing the proceedings. He also
emphasized that the complaint was to achieve an oblique
purpose and the High Court was right in observing that there
was somebody behind the appellant.
Mr. Jain in reply to the argument submitted that under
Section 409 IPC, there is no question of limitation and in
any case the complainant has explained the delay in moving
the court. He also submitted that the complainant has locus
standi to prefer the complaint.
We have carefully scrutinised the complaint and the
documents and considered the arguments advanced by the
counsel on both sides. We are of the view that the High
Court was right in exercising the power under Section 482
Cr.P.C. and quashing the proceedings in this case. As
noticed above, the High Court has given mainly three reasons
in support of its conclusion. We feel that out of three
reasons by the High Court the one reason with which we
propose to deal with is more than sufficient to sustain the
order of the High Court. Before giving our reasons, it is
necessary to extract the relevant portions from the
complaint itself. The pivotal point in the complaint finds
a place in paragraph 8 of the complaint, which reads as
follows:-
“These accused persons in furtherance of the conspiracy made
advances to a supplier M/s Santosh Starch Products situate
at 71, New Cloth Market, Ahmedabad, as under:-
Amount Rs. Date Cheque No. Bank’s name
1.00 lacs 13.11.82 853901 PNB, Maskati
Mkt. Branch
5.00 lacs -do- 853902 -do-
5.00 lacs 25.11.82 853934 -do-
thus the accused persons in furtherance of conspiracy
diverted the funds of M/s Sayaji Industries Ltd. to M/s
Santosh Starch Products to the tune of Rs. 20.00 lacs. The
complainant has also learnt that M/s Santosh Starch Products
had actually advanced loans to the concerns of accused
persons M/s Santosh Starch Product advanced loan of Rs.
20.00 lacs on 13th November, 1982 by different cheques as
under:-
Amount Rs. Date Cheque Name of Bank’s name
in lacs No. Party
…………………………………………………..
7.00 13.11.82 887275 Bipinbhai PNB
V.Mehta(HUF)
6.00 -do- 887276 -do- -do-
7.00 -do- 887277 Priyambhai -do-
Bipinbhai
Mehta
This transfer of amount from M/s Santosh Starch Products as
loan in their personal accounts and the transfer of funds
from M/s Sayaji Industries Limited clearly reflected the
dishonest and fraudulent intention to take over the
management and control of M/s Sayaji Industries Limited.
These accused persons in furtherance of their conspiracy
cleared their liability of making immediate payment of Rs.
20.00 lacs in M/s C.V. Mehta Pvt. Ltd. as part payment of
the total payment of about Rs. 39.00 lacs and odd and the
accused defrauded company viz. M/s Sayaji Industries Ltd. by
transferring the amount of Rs. 20.00 lac to M/s Santosh
Starch Product. The accused acquired the controlling
interest in the companies shareholders by using funds of the
company itself and thereby violated the provisions of
Section 77 of the Companies Act a well as the Articles of
the Association of the Company. The accused dishonestly and
fraudulently made payment to M/s Santosh Starch Product from
M/s Sayaji Industries Ltd. as well as from M/s Maize
Products until of Sayaji Industries Ltd. with a view to
obtain loan from M/s Santosh Starch Product in their own
personal account. Thus these accused persons in furtherance
of the conspiracy to take over the management and control of
M/s Sayaji Industries Ltd. illegally and fraudulently
siphoned the funds of the company. Thus the accused
achieved their primary objective of taking over the
management and control of M/s Sayaji Industries Ltd.
continued with their conspiracy in arranging to consolidate
control and management of M/s Sayaji Industries Ltd. This
was done by acquiring the control and management of M/s C.V.
Mehta Pvt. Ltd. This was very essential to consolidate the
control of M/s Sayaji Industries Ltd. Primarily because M/s
C.V. Mehta Pvt. Ltd. owned approximately 10,000 shares of
M/s Sayaji Industries Ltd.”
Apart from the above, it is also relevant to notice
some of the other allegations in the complaint which are
given below:
In paragraph 6, it is stated: “According to this Memorandum
of Modification the accused persons were required to deposit
Rs.20.00 lacs immediately with M/s C.V. Mehta Pvt. Ltd. in
order to acquire first the shares of M/s Sayaji Industries
Ltd.
In paragraph 7, the complaint has stated: “These
accused persons with a dishonest and fraudulent intention,
with a view to acquire and gain the management and control
of M/s Sayaji Industries Ltd. diverted the funds of the
company in a clandestine manner.
The complainant/appellant herein in his affidavit in
reply before the High Court in Crl. Misc. Application
No.2627 of 1988, inter alia, had stated thus:
“Thus said document also contained
a recital that transfer of the
management of Sayaji Mills Ltd. and
the appointment of Shri Bipinbhai
Vadilal Mehta and Shri Pribambhai
Bipinbhai Mehta on the Board of
Directors thereof are only to be
made after Shri Bipinbhai Vadilal
Mehta has paid and brought in
C.V.Mehta Pvt. Ltd. the sum of Rs.
20.00 lacs. No doubt this document
has been signed on 13th November,
1982 but it clearly transpires that
move for this modification must
have started prior to 13th
November, 1982 and both the
petitioners having finalised the
deal with M/s Santosh Starch
Products Pvt. Ltd. to obtain loan
of Rs. 20.00 lacs in their private
and personal capacity, the document
came to be executed on 13th
November, 1982.” Here the
complainant has speculated also.
A cursory reading of the complaint, in particular the
extracts especially the underlined portion as given above,
will clearly show that the contesting respondents (accused)
will come into picture only after the liability contemplated
under the modified memorandum of understanding was
discharged. In other words, the accused respondents 1 and 2
could have come into picture only after the transactions
complained of had taken place and as noticed above it was
the father of he first respondent, who was the Managing
Director of Sayajit Industries Ltd. when the transactions in
question took place. The respondents Nos.1 and 2 could
have played no part in that transaction as they were not
even ordinary Directors at that time in M/s Sayajit
Industries Ltd. Therefore, the allegations made in the
complaint even it is taken in its entirety still they do not
constitute an offence either under Sections 120-B and 409
IPC. In the circumstances, it would be manifestly unjust to
allow the proceedings in the criminal complaint to be
proceeded with against respondents 1 and 2.
In this connection, though it is very well settled that
the power under Section 482 Cr.P.C. should be sparingly
invoked with circumspection, this court consistently has
taken the view that it should be exercised to see that the
process of law is not abused or misused. In R.P. kapur Vs.
State of Punjab (AIR 1960 SC 866), a three-Judge Bench of
this Court while considering the exercise of power under
Section 561-A of the Code (predecessor for Section 482) held
as follows:-
“It is well established that the
inherent jurisdiction of the High
Court can be exercised to quash
proceedings in a proper case either
to prevent the abuse of the process
of any Court or otherwise to secure
the ends of justice……. It is
not possible, desirable or
expedient to lay down any
inflexible rule which would govern
the exercise of this inherent
jurisdiction can and should be
exercised for quashing the
proceedings. There may be cases
where it may be possible for the
High Court to take the view that
the institution or continuance of
criminal proceedings against an
accused person 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…………………….
Cases may also arise where the
allegations in the First
Information Report or the
complaint, even if they are taken
at their face value and accepted in
their entirely, do not constitute
the offence alleged; in such cases
no question of appreciating
evidence arises; it is a matter
merely of looking at the complaint
or the First Information Report to
decide whether the offence alleged
is disclosed or not. In such cases
it would be legitimate for the High
Court to hold that it would be
manifestly unjust to allow the
process of the criminal court to be
issued against the accused person.”
We are firmly of the view that the above observations
with all fours apply to the facts of this case in the light
of the extracts given above from the complaint itself. The
law laid down by this Court in K.P.Kapur’s case has stood
the test of time and held the field or more than three
decades. This Court has applied the above ruling wherever
the facts warranted the application. Very recently in State
of U.P. Vs. O.P. Sharma – (1996) 7 SCC 705, again a three-
Judge Bench of this Court quoted with approval the following
passage from the State of Bihar Vs. Rajendra Agrawalla –
(1996) 8 SCC 164:-
“It has been held by this Court in
several cases that the inherent
power of the Court under Section
482 of the Code of Criminal
Procedure should be very sparingly
and cautiously used only when the
court comes to the conclusion that
there would be manifest injustice
of the court, it such power is not
exercised. So far as the order of
cognizance by a Magistrate is
concerned, the inherent power can
be exercised when the allegations
in the first information report or
the complaint together with the
other materials collected during
investigation taken at their face
value, do not constitute the
offence alleged. at that stage it
is not open for the court either to
sift the evidence or appreciate the
evidence and come to the conclusion
that no prima facie case is made
out.”
In fairness to the High Court, we must also set out the
reasoning of the High Court on this aspect. The High Court
rightly observed:-
“Reading the complaint and other
material on record it appears that
even according to the complainant
the loan was advanced on 13.11.1982
by Sayaji Industries Limited to
Santosh Starch Products and the
Santosh Starch Products are alleged
to have advanced the loan to the
accused on the same day i.e. on
13.11.1982 and this, according to
him, is an offence constituting
both criminal breach of trust and
conspiracy. Reading the
requirement of Section 409 it is
clear that proof of entrustment of
money is a condition precedent.
The ingredients of offence u/s 409
of IPC are to be found in the
definition clause of “criminal
breach of trust” in section 405 of
IPC. It is therefore necessary for
the complainant o prove the
entrustment of property or dominion
over it and in the second instance
“dishonest misappropriation” or
“conversion to the accused own use”
of the property concerned, It is
well settled that the dishonest use
or disposition of the property in
question in violation of any
direction of the law prescribing
the mode in which the trust is to
be discharge or of any legal
contract, express or implied, which
is made touching the discharge of
such trust, or wilfully suffering
of any person to do so also
constitute the offence of “Criminal
Breach of Trust”. Now upon reading
the complaint, it becomes clear
that it is the specific case of the
complainant that the loan was
advanced on 13.11.1982 by Sayaji
Industries Limited to Santosh
Starch Products alleged to have
advanced the loan to the accused on
the same day and thus, according to
him, is an offence constituting of
both criminal breach and trust and
conspiracy. This, in my view, does
not amount in law into an offence
under section amount in law into an
offence under section 409 as the
ingredients of section 409 are not
attracted. For attracting the
provisions of Section 409 one has
to allege that the breach of trust
is committed by public servant or
by banker, merchant or agent,
broker or attorney. Reading the
accused occupy any of these
positions. In absence of these
particulars in the complaint, in my
view, the complainant has prima
facie failed to make out the case
against the petitioners, Similarly,
it is clear from reading the
complaint and other material on
record that the complainant has
failed to make out any case under
section 120B or 409 of IPC.”
We are in agreement with the view expressed above by
the High Court. This one aspect is sufficient to quash the
proceeding and we need not deal with the other points on
which arguments were advanced before us. In the result, the
appeals fail and are accordingly dismissed.

 

 

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