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TMI Blog1964 (5) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... or agreeing to subscribe for any shares or agreeing to procure subscribers for any shares, but so that the commission in respect of the shares shall not exceed ten per cent, of the shares subscribed or to be subscribed. The articles also provided that " Messrs. Eastland Trust"-a firm-will be appointed managing agents for a period of twenty years with authority, inter alia, to appoint underwriters on a commission of ten per cent, on sale of shares of the company sold directly or through brokers or agents appointed by them. On November 30, 1946, the prospectus of the company was filed with the Registrar, Joint Stock Companies, West Bengal. On December 2, 1946 Ram Kishore Chatterji, the third appellant in this appeal, applied to that managing agents of the company offering the services of Messrs. Chatterji and Co. of which he was a partner as underwriters of the company. By letter dated December 9, 1946, Messrs. Chatterji and Co. were informed that the application had been placed before the board of directors and it had been decided to appoint Messrs. Chatterji and Co. as underwriters of the company. A formal contract was then executed. At a meeting of the board of directors held on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t aside the conviction of the appellants, Naini Gopal Lahiri, Sheo Prasad Sharma and Ram Kishore Chatterji for offences under sections 417, 465, 471, 477A and 409 read with section 120B and section 34 of the Indian Penal Code, but maintained the order of conviction for offences under section 420 read with section 34 of the Indian Penal Code on the charge of cheating in a sum of Rs. 6,680 paid by the company to Messrs. Chatterji and Co. as commission under the underwriting agreement. The High Court confirmed the sentences passed by the Court of Session for that offence. With special leave, the there appellants have appealed to this court. The only question which falls to be determined in this appeal is whether, on the findings recorded by the High Court, the appellants are proved to have committed, in furtherance of their common intention, the offence of cheating the company, and thereby inducing it to part with Rs. 6,680 as commission under the underwriting agreement. By the ninth head of charge framed by the Court of Session the appellants, Sheo Prasad Sharma, R. K. Chatterji and R. C. Moitra (who was acquitted by the High Court), were charged with having dishonestly or fraudulen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n primarily relied for establishing its case generally. The High Court held that the Evidence did not establish the case of the prosecution that the funds of the company were misused and that the State had failed to establish that the real purpose for the formation of the company was to finance the Bengal Express Bank, which it was alleged was a moribund company. The High Court also held that the story about the fraudulent representations alleged to have been made in pursuance of a criminal conspiracy in the prospectus of the company so as to induce shareholders to subscribe to the share capital was not established, and that the charge for the offence under section 417 of the Indian Penal Code in respect of certain shares alleged to have been purchased by three ladies, Shaila Bala, Sabita Devi and Surja Bala, was also not made out. The only charge, which, in the view of the High Court, was proved was one relating to fraudulent and dishonest inducements made to the company to pay Rs. 6,680 as commission pursuant to the underwriting agreement. But the High Court found that the case of the State, that the Underwriting agreement was a " sham or fictitious " agreement, was not made out. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court still held that R. K. Chatterji was a person of no means and under the cloak of his appointment Lahiri, the first appellant, and Sharma, the second appellant, exploited the underwriting agreement to their own advantage, by selling the shares themselves and manipulated things in such a way that, although underwriting commission was debited as paid to Messrs. Chatterji and Co., a substantial part thereof was received by them. The High Court relied in support of this argument that the appellants, Lahiri and Sharma, and one Banerjee were canvassing, for sale of shares and were receiving share application money on behalf of the company and the evidence disclosed that out of 1,100 applications for shares not one bore the signature of R. K. Chatterji as agent of the under-writers, nor were any other applications shown to have been made in which Messrs Chatterji and Co. had acted as underwriters. The High Court observed that the shareholders who were examined as witnesses had deposed that they had purchased shares from Lahiri, Sharma and K. L. Banerji and that R. K. Chatterji had not negotiated the sale of the shares to them. From this the High Court inferred that in reality shares w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of criminal breach of trust in respect of underwriting commission obtained by cheating the company, but once a conviction was recorded for the offence of cheating, it would be anomalous to convict the same person of the criminal breach of trust on the same facts. As we have already observed the foundation of the charge under section 420 read with section 34 of the Indian Penal Code was that relying upon the fictitious underwriting agreement the company was made to part with the underwriting commission. The High Court reached that conclusion in three steps: first, that the directors of the company were not entitled to participate in the sale of shares; second, that even though there was a genuine agreement in favour of Messrs. Chatterji and Co. appointing them as underwriters of the company, in fact nothing was done by Chatterji and Co.; and third, that the shares were sold by Lahiri, Sharma and others and the commission which was nominally paid over to the underwriters was shared between Lahiri, Sharma and R. K. Chatterji : We may usefully refer to the terms of the underwriting agreement : " Name of underwriter-Messrs. Chatterji and Co. Address B/8/48, Sonapura, Benaras. Place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cure purchasers for the shares underwritten by him, it is no concern of the company as to how the underwriter procures the purchasers. On the finding recorded by the High Court it is clear that the underwriting agreement was genuine, and commission was in fact debited to Chatterji and Co. for shares subscribed by the public. It is true that according to the High Court, in the applications for shares submitted by the public the underwriters did not figure, and the work of canvassing was mainly done by Lahiri, appellant No. 1, Sharma, appellant No. 2, and others. This may give rise to two alternative inferences consistent with probabilities : (1)that the canvassers acted as agents of the underwriters who were expressly authorised to appoint agents ; (2)that the underwriters after obtaining the agreement for some reason gemained supine, and other persons independently of them canvassed share, and then the underwriters made a fraudulent representation that the shares purchased by the public were covered by the underwriting agreement, and obtained payment. If the first be a legitimate inference, no offence of cheating can be deemed to be made out. The High Court, it appears, raised t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he offender must, in offering the inducement, have the specified metis rea. The charge of fraud, by the Court of Session, apart from the infirmity set out earlier, does not refer to any deception of the company. There is no mention of any representation made to the company; and these defects are not technical, but of substance. Our attention is not invited to any specific evidence of representation, express or by conduct, which deceived the company, nor has the High Court recorded any finding in that behalf. The vouchers submitted by Messrs. Chatterji and Co. claiming payment of underwriting commission, have not been produced Before the court. Only receipts for payment of commission made to Chatterji and Co/are produced. Unless there, was a representation which deceived the conpany, and the company was induced fraudulently or dishonestly to part with property, the offence of cheating could not be deemed to be committed. Chatterji and Co. had undertaken to procure purchasers for shares of the value of Rs. 1 lakh within one year. Assuming that they claimed commission in respect of the shares which were sold by other persons, it could not be said merely on that account, that the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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