TMI Blog2005 (3) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act is only to streamline the working of the company. Such investigations may reveal violation of rules and regulations by the office bearers or even commission of technical offences, which are punishable under the Act for which investigation under the Cr.PC may be uncalled for. But if such investigations reveal the commission of offences under IPC. Section 242 enacts an enabling provision under which the Government can also launch prosecution M. Vaidyanathan v. Sub Divisional Magistrate [ 1956 (10) TMI 21 - HIGH COURT OF MADRAS] and Indian Express (Madura) (P.) Ltd. v. Chief Presidency Magistrate [ 1973 (3) TMI 79 - HIGH COURT OF MADRAS] . On the other hand, an investigation by the police officer is launched on receipt of an information of the commission of a cognizable offence. Under section 157 of Cr.PC, it is obligatory on the part of police officer to launch investigation if he suspects commission of cognizable offence or if the commission of such an offence is brought to his notice. Even if there is no specific report and police officer has only a suspicion, may be on the basis of an anonymous complaint, he is duty bound to investigate the same. Every citizen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spectively of Sunair Hotels Ltd. It was alleged in the complaint that in or around December 1994, petitioner Nos. 1 to 3 approached respondent company and requested it to subscribe to the equity share capital of Sunair Hotels Ltd., to the tune of 25 per cent equity share capital amounting to 70 lakh equity shares @ Rs. 10 per share aggregating to Rs. 7 crores. Induced by the assurances of the accused, the complainant-company made payment of Rs. 7 crores for the allotment of shares of Sunair Hotels Ltd., which in turn allotted and issued 70 lakh shares to the respondent-company. Apart from that 25,94,824 fully paid up equity shares of Rs. 10 each aggregating to 2,59,84,240 were also issued to the respondent-company. Thus, at the time of filing of complaint, respondent-company was holding 95,94,824 fully paid-up equity shares of Sunair Hotels Ltd. Besides, on the request of petitioner Nos. 1 to 3, the respondent-company also provided interest bearing security deposit of Rs. 8 crores, on the premise that its deposit was safe and the same would help in the early completion of the hotel project. After taking huge money from the respondent-company, Sunair Hotels Ltd. also approached the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in para 16 of the complaint. It was alleged that modus operandi adopted by the accused was that during the construction of the hotel project, the accused persons misappropriated the funds of Sunair Hotels Ltd. by creating false documents, fabricating valuable securities and falsifying the books of account of Sunair Hotels Ltd. Other instances of alleged misdeeds of the petitioner were also given in paras 18, 19 and 20 of the complaint. 3. On receipt of this complaint, learned Metropolitan Magistrate passed the following order dated 19th February, 2002 19.02.2002 Present: AR of complaint with counsel. Heard. File perused. The material on record contains allegation of breach of trust, forgery falsification of account, etc., against the respondents. SHO Police Station, Connaught Place, is directed to investigate the matter under section 156, Cr.PC in accordance with the law and submit his report by 27th March, 2002. Copy of the order, complaint and the annexed documents be sent to the SHO, complainant counsel to file the same today itself. MM/ND 19/2/2002 4. On the basis of said order, FIR No. 99/2002 was registered under sections 409/411/424/467/477A read with section 120B of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 242 of the Act. Therefore, resort to police investigation under the provisions of the Cr.PC is impliedly barred and as such the FIR is liable to be quashed. Reference was made to the decision of the Supreme Court in the case of State of Haryana v. Ch. Bhajan Lal [1990] 4 SC 650, wherein it was held that FIR is liable to be quashed if the Act provides efficacious redress for the grievance of the parties. In para 107, Apex Court has observed as under : 107. In the backdrop of the interpretation of the various relevant provisions of the Code under Chapter XIV and of the principles of law enunciated by this court in a series of decisions relating to the exercise of the extraordinary power under article 226 or the inherent powers under section 482 of the Code which we have extracted and reproduced above, we give the following categories of cases by way of illustration wherein such power could be exercised either to prevent abuse of the process of any court or otherwise to secure the ends of justice, though it may not be possible to lay down any precise, clearly defined and sufficiently channelised and inflexible guidelines or rigid formulate and to give an exhaustive list of myriad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 inquiry 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. 8. Reliance was also placed on the decision of the Apex Court in the case of Rohtas Industries Ltd. v. S.D. Aggarwal AIR 1969 SC 707, wherein it was held that investigations under sections 235 to 242 of the Act is a serious matter. Such investigation should not be ordered routinely. Reliance was also placed on a later decision of the Supreme Court in the case of Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy [1997] 13 SCL 118. In that case, facts were that there was some dispute between managing director of the appellant-company and his son-in-law who was a former director of the company and also a M.P. At the instance of son-in-law eight shareholders of the company filed a company petition under sections 397 and 398 of the Act b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is necessary. Similarly, this may be done if in the opinion of the CLB there are circumstances suggesting that the business of the company is being conducted with the intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in the manner oppressive of any of its members or that the company was formed for any fraudulent or unlawful purpose. The CLB may also come to a conclusion that there are circumstances suggesting that the persons concerned in the formation of the company or management of its affairs have been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect. In these circumstances, on the basis of the opinion so framed by the CLB, the Central Government nor the CLB has been moved by the first respondent in accordance with law for this purpose. In the case of Rohtas Industries v. S.D. Agarwal , this court examined the nature of the power conferred on the Central Government under section 235 as well as section 237( b ) and held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncalled for. If there are general allegations regarding mismanagement of the affairs of the company or oppression of the minority shareholders, the aggrieved party shall approach Registrar/CLB/Government to take proper steps under section 235 onwards of the Act. In such cases, Government is not supposed to order investigation as a matter of routine - Rohtas Industries Ltd. s case ( supra ). 10. In the present case, the scenario is different. The FIR has already been registered and the investigation/prosecution has already been launched. The nature and scope of investigation to be conducted under sections 235 to 242 is vastly different from the nature and scope of the investigation to be conducted by the police. An investigation under sections 235 to 242 is not an investigation of a criminal case. The purpose of investigation under the provisions of the Companies Act is only to streamline the working of the company. Such investigations may reveal violation of rules and regulations by the office bearers or even commission of technical offences, which are punishable under the Act for which investigation under the Cr.PC may be uncalled for. But if such investigations reveal the commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 237 or in case it is governed by section 235, the Government has a discretion in the matter. An investigation into the affairs of a company under the above provisions of law from the point of view of general reputation of a company is a very serious matter. It can result in a number of consequences, viz., prosecution, vide section 242, winding up of the company or an order under section 397 or 398 of the Act, vide section 243 or initiation of proceedings by the Central Government in the name of the company for recovery of damages or property vide section 244 of the Act. It is also manifest that investigation is ordered into the affairs of a company when there is some aspect of those affairs regarding which the Government is not in possession of full facts and the circumstances exist as are referred to in section 235 or 237 of the Act. In such an event, the Government orders probe into those aspects to apprise itself of the correct facts. It is only after that probe, when further facts come to the notice of the Government, that the Government has to decide about the next step, i.e., whether it should drop the matter or proceed in any of the ways mentioned in sections 242 to 244 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Procedure. The question was answered in the negative by Rajagopalan, J. The above decision was affirmed on appeal by a Division Bench of Madras High Court (Rajamannar, CJ. and Panchapakesa, J.) in M. Vaidyanathan, In re AIR 1957 Mad. 432. (p. 724) 12. The Division Bench further observed as under : The matter can also be looked at from another angle. Any one who has information of the commission of a cognizable offence can make a report about the commission of such offence to the police. The police after registration of the case on the basis of that report in accordance with section 154 of the Code of Criminal Procedure can investigate the matter. If the investigation reveals that such an offence has been committed the police has to put in challan in court, where after the trial of the case would commence in the criminal court. There are certain offences wherein the police cannot put in challan without observing some formality such as obtaining consent in cases covered by section 196A(2) of the Code of Criminal Procedure or requisite sanction in cases covered by section 197 of the Code or section 6 of the Prevention of Corruption Act. There is, however, no provision of law, at lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ka 2003 (Suppl. 1) JT 412. It cannot be said at this stage that the allegation in the complaint even if taken on their face value do not make out an offence. In the case of Radhey Shyam Khemka ( supra ), the Supreme Court repelled the contention that the police investigation in the alleged/suspected cognizable offence is barred in view of the provision of Companies Act. In that case, the appellants who were directors of the company had issued prospectus inviting public subscriptions of 42,000 equity shares and 3,000 preference shares. It was given out by the appellants to the investors that application was being made to the Calcutta Stock Exchange for enlisting the shares of the company for official quotation. Such application, which was made on behalf of the company, was rejected by the stock exchange. In spite of the rejection the share money collected from different investors was held by the appellants and none of the shareholders were either informed or were repaid. On that basis, CBI registered a case and filed challan under section 409 of the IPC. The appellant sought quashing of the FIR on the ground that there are adequate provisions in the Act which can take care of the al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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