TMI Blog2008 (12) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... mmediately after the first petition was over. I have, therefore, refused the adjournment. 2. The petitioner Nos. 1 and 2 are public limited companies; Petitioner No. 2, being a subsidiary of petitioner No. 1. Petitioner No. 2 (for short, hereinafter referred to as the SIL was incorporated in 1993 whereas petitioner No. 1 (for short, hereinafter referred to as the SGL ) has been in existence for well over two decades. SGL currently holds 88.25 per cent of the shares of SIL. 3. Respondent No. 2 claims to own 57450 shares of SIL and contends that she is a shareholder of both SGL and SIL. She filed a complaint on 8-7-2003 against both the companies and the directors of SGL, some of whom were also on the board of SIL. The allegations made in the complaint were that the companies had committed offences under section 73 of the Companies Act, 1956 as well as under sections 403 and 406 read with section 34 of the Indian Penal Code. Four transactions have been set out in the complaint on the basis of which the allegations have been made. It is contended that monies were paid by the complainant to SIL in 1993 pursuant to a preferential offer document dated 28-8-1993. It is conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 403, 406, 420 and 120B of the Indian Penal Code have been committed. Cognizance was taken of this complaint and the learned Magistrate has issued process under sections 63 and 69 of the Companies Act and section 415 read with section 420 of the Indian Penal Code against the accused Nos. 1 to 4, some of whom are the directors on the boards of SIL and SGL. The order issuing process was challenged unsuccessfully by the petitioners up to the Supreme Court. 5. The learned Magistrate has issued process in the second complaint i.e. The complaint filed in 2003 and that order has been confirmed by the Sessions Court. It is this order which is challenged in the present petition. 6. Counsel have advanced arguments on five main issues viz. : (I) The powers of the High Court under section 482 Crl.PC (II) Limitation; (III) Whether the acts or omissions of the petitioners constitute offences under section 403 and under section 406 IPC; (IV) Whether any offence has been committed under section 73 of the Companies Act; (V) Whether the directors who have allegedly committed offences are officers in default under section 5 of the Companies Act; and (VI) Whether the directors are vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 she took no action in connection with her grievances till late 1999 by which time the management of the Companies had changed thrice. It is also submitted that in Writ Petition No. 1280 of 1999 filed by the respondent, the Division Bench of this court while dismissing the writ petition, observed that if there was a breach of promise to list the securities, as alleged by the petitioners i.e. the respondent herein, she would have remedies under the contract act or under the provisions of the Companies Act. The learned counsel points out that no action has been initiated by the respondent under the provisions of the Indian Contract Act. Criminal Complaint No. 4/S/2000 alleging violation of the provisions of sections 63 and 68 of the Companies Act and various other sections with respect to the alleged mis-statements contained in the preferential offer document of 28-8-1993 has already been filed in January 2000. He submits that the mala fides of respondent No. 2 are apparent from the fact that she has impleaded the directors who had joined the Board of Directors of the companies between February, 1993 and April, 2003, none of whom had anything to do with the preferential offer d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commission of any offence and make out a case against the accused. 4. Where the allegation 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. 109. We also give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad tried to establish that offences had been committed by the petitioners under sections 403 and 406 of the IPC as also under section 73 of the Companies Act, process was not issued with regard to the alleged offence under these sections. Significantly, the respondent has not challenged the order refusing to issue process under these sections. Instead, the respondent has abused the process of law by filing a second complaint in 2003 for the same offences. This Act of the respondent is apparently actuated by mala fides. In my view, therefore, the submissions of the learned counsel for the petitioners must be accepted. 11. This is an eminently fit case in which the powers vested in this court under section 482 of the Cr. PC should be exercised. Apart from this, the offences have not been established as I shall presently discuss and therefore, the complaint must be quashed. Limitation 12. The next question which must be considered is that of limitation. Section 468 of the Cr. PC contemplates a bar to taking cognizance of an offence after expiry of the period of limitation. The offences alleged in the complaint are under section 73 of the Companies Act and sections 403 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el then urges that the provisions of section 73 are akin to the provisions of the employees provident fund and Miscellaneous Provisions Act which is social welfare legislation as construed by the Apex Court. The learned counsel buttresses his arguments by relying on the judgments in the case of Bhagirath Kanoria v. State of MP AIR 1984 (SC) 1688 and Japani Sahoo v. Chandra Sekhar Mohanty AIR 2007 SC 841. He contends that the judgments relied on by the learned counsel for the petitioners, in fact support his case that the offences alleged against the petitioners are continuing offences for which there is no prescribed period of limitation. He submits further that in the light of the allegations contained in the complaint that there is a possibility that the trial court would frame charges against the petitioners under the provisions of section 409 of the Indian Penal Code and in such an event the provisions of limitation contained in section 468 of the Cr.PC can never be made applicable. He places reliance on the judgment in the case of the Supreme Court in State of West Bengal v. Laisal Haque AIR 1989 SC 129 where it has been held that issuance of a summons under specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s offences under sections 403 and 406, the allegations in the complaint relate to the sale of pig iron plant by SGL to SIL at an exaggerated price and the sale of iron ore by SGL to SIL at a very high price. These acts, according to the respondent, resulted in the siphoning of monies of SIL to SGL constituting offences of criminal misappropriation and criminal breach of trust. Apart from this, the petitioners have not returned the monies of the respondent used for the purchase of shares of SIL, with interest at the rate of 50 per cent as stipulated in section 73 and, therefore, it amounts to criminal misappropriation and criminal breach of trust, urges the learned counsel for the respondent. Assuming these allegations are well founded. They all relate to incidents which occurred in 1993 and, therefore, the complaint is barred by limitation. It is well- settled that the purpose of specifying the period of limitation in the Criminal Procedure Code is to prevent parties from abusing the process of law by filing vexatious and belated prosecutions when material evidence may not be available for effectively disposing of the case. 16. The submission of the learned counsel for the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y wrong. But then such subsequent wrong user or continuance or repetition of the offence of dishonest misappropriation as defined in section 403. The same feature of transitional phenomenon of converting the complexion of the possession or user marks the precipitation and completion of the offence of criminal breach of trust must be tainted at the point of its commission by a process of transformation. By a transitional phenomenon converting the complexion of the possession, user or dealing of the property and once that transitional phenomenon is over and the conversion is complete by answering at that amount the definition of dishonest misappropriation or criminal breach of trust as contained in the relevant section of the Indian Penal Code. The subsequent continuance of the possession, user or dealing of the property even if it is morally wrong and legally untenable will be lacking the transitional factor of contemporaneous conversion of the complexion of the user from one type to a different type and therefore it cannot be said that the subsequent user is a continuing offence of the same type which was initially committed in changing the complexion of user. In order to constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court. In this connection, he also referred to the Full Bench decision of the Punjab and Haryana High Court in Balram Singh v. Sukhwant Kaur 1992 Cri. LJ 792 in support of his argument that the offence of criminal breach of trust is a continuing offence. I have however already elaborately discussed, supported by reasons, as to why an offence of dishonest misappropriation or criminal breach of trust is not a continuing offence and I have held this independently even without taking any support from the Supreme Court decision in State of Punjab v. Sarwan Singh [1981] Cri. LJ 722 ( supra ). In spite of the view taken by the Punjab and Haryana High Court in Balram Singh ( supra ) I am inclined to hold for reasons discussed earlier that the offence of dishonest misapp-ropriation or criminal breach of trust is not a continuing offence and in this regard I receive support from another Single Bench decision of this Court in Mohipal v. State 1986 Cal. Cri. LR 1. I, therefore, find that the prosecution in this case is barred by limitation and for this reason the proceeding in the court below must be quashed. The other questions raised in this revisional application are howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l v. State of Maharashtra AIR 1965 SC 1433, etc. Besides the judgment of the Assam High Court in the case of Mahabir Prasad Goradia v. State of Assam 1961 (2) Cri. LJ. 457 and of the Madhya Pradesh High Court in the case of State of MP v. Pramode Mategaonkar 1965 Cri. LJ. 562 to highlight the scope of the word entrustment used in section 405 of the Indian Penal Code. 20. In U. Dhar s case ( supra ), the Supreme Court has held as follows : "5. In our view, what is relevant is that the contract between TCPL and the complainant is an independent contract regarding execution of certain works and even assuming the case of the complainant to be correct. At best it is a matter of recovery of money on account of failure of TCPL to pay the amount said to be due under the contract. The complainant has alleged that TCPL has already received the money from SAIL for the work in question and it has misappropriated the same for its own use instead of paying it to the complainant and it is for this reason that the offences are alleged under sections 403, 406 and 420 etc. 6. The courts below have overlooked the fact that the contract between Bokaro Steel (a unit of SAIL) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominion or power over it. It has to be established further that in respect of the property so entrusted, there was dishonest mis-appropriation or dishonest conversion or dishonest use or disposal in violation of a direction of law or legal contract. By the accused himself or by someone else which he willingly suffered to do. It follows almost axiomatically from this definition that the ownership or beneficial interest in the property in respect of which criminal breach of trust is alleged to have been committed, must be in some person other than the accused and the latter must hold it on account of some person or in some way for his benefit." 22. In Jaswant Lal Nathalal s case ( supra ), the Supreme Court has observed that there must be a trust or an obligation annexed to the ownership of the property and confidence reposed in and accepted by the owner for the benefits of another before there can be any entrustment or dominion over the property. It has been observed thus : "8. The term entrusted found in section 405 IPC governs not only the words with the property immediately, following it but also the words or with any dominion over the property occurring thereafter - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IPC and another for a betting the offence committed by Satya Sunder Mitra. The High Court allowed their appeal, holding that there was no entrustment of the cement in question within the meaning of the term as used in section 405 of Indian Penal Code. In the course of the judgment it was observed : The permit was granted in accordance with the system of control established under the defence of India Rules, under which an order has been issued by the Government of India preventing selling agents such as balmer lawrie and company from delivering any cement except under instructions from the Government or from the Cement Adviser. The transaction, so far as the Contractor is concerned was one of purchase and the property in the cement clearly passed to him. No doubt he could not have obtained the permit through the executive engineer if it had not been intended that the cement should be used for the purpose directed by the engineer. But, in our opinion, in no sense can it be said that there was any entrustment either of the property or of any dominion over the property. We are of the opinion that the legal position is as explained in that decision." (p. 701) 23. In Velji Ragh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has dominion. The learned counsel then places reliance on the judgment in the case of Turner Morrison Co. Ltd. v. K.N. Tapuria 1993 (3) BCR 187 which according to him reiterates the proposi-tion laid down by the Supreme Court in Jaikrishnadas Manohardas Desai s case ( supra ). He then relies on the judgment in the case of Jaswantrai Manilal Akhaney v. State of Bombay AIR 1956 SC 575, special emphasis is laid by the learned counsel for the respondent on the ratio in the judgment of R.K. Dalmia v. Delhi Administration AIR 1962 SC 1821. He then contends that the judgment in the case of Radhe Shyam Khemka v. State of Bihar [1993] 3 SCC 54 is applicable to the facts in the present case. Although process has not been issued under section 34 of the Indian Penal Code, the learned counsel for the respondent submits that this provision can be made applicable to the present petitioners since they had assumed their respective posts as directors of SGL and had developed a common intention to cause a wrongful gain to SGL and wrongful loss to the shareholders of SIL by wilfully authorising the non-listing of the shares of SIL on the exchange. The learned counsel then point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dividendum, the total divisible sum but in its ordinary sense it means the sum paid and received as the quotient forming the share of the divisible sum payable to the recipient. This statement does not justify the contention that shareholders are owners of a divisible sum or that they are owners of the property of the company. The proper approach to the solution of the question is to concentrate on the plain words of the definition of agricultural income which connects in no uncertain language revenue with the land from which it directly springs and a stray observation in a case which has no bearing upon the present question does not advance the solution of the question. There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders, the true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares. Subject to the articles of association, that the profits or any portion thereof should be distributed by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding, the right to attend meetings of the shareholders and to vote at such meetings. 27. As regards the PIG Iron Plant and the sale of iron ore as well, these are transactions which have taken place between 2 legal entries i.e. 2 indepen-dent companies SGL and SIL. They were dealing with the properties as owners of the properties. A shareholder of SGL cannot in any manner question the purchase price paid by SGL to acquire the assets of SIL nor can a shareholder of SIL question the decision of the sale of its company s property at a certain price in a criminal action such as the present one. Respondent No. 2 could have taken recourse to her civil remedies in order to ensure that SIL had not purchased the PIG Iron Plant from SGL at a price which she claims is absurdly high. The company cannot be held liable for an offence under sections 403 and 406 of the Indian Penal Code since the offences required mens rea on the part of the company. As held in the case of Motorola Inc. v. Iridium India Telecom Ltd. 2004 Cri. LJ. 1576 an offence like cheating as defined under section 415 IPC, which involves the criminal intention to deceive others cannot be perpetrated by a corporate b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days after the liability arises. The company and every director of the company who is an officer in default shall on expiry of the 8th day, be jointly and severally liable to pay the money with interest. According to the learned counsel, the petitioners had not sought permission for listing the shares issued to the public, pursuant to the prospectus. Therefore, submits the learned counsel, the money paid by respondent No. 2 for the purchase of shares ought to have been repaid within 8 days from the liability having arisen. He submits that admittedly. This amount has not been returned and, therefore, the company and its directors who are officers in default are jointly and severally liable to return the amount along with interest. He submits that the provisions of section 73( 1a ) any prospectus whether issued to the public or to a class section of the public would attract the provisions of section 73 of the Companies Act. It is also urged that besides allotting the shares to the shareholders of SGL, SIL had also allotted shares to people who are rank outsiders and not shareholders of SGL. Therefore, it would mean that the document of 28-8-1993 was an offer to the public and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture does not indicate that an offence has been committed under this section. 31. In my view, merely because the earlier writ petition has been dismissed at the stage of admission and a special leave petition has upheld the order of the dismissal it would not necessarily mean that the issue regarding the breach of section 73 of the Companies Act qua the preferential offer letter of 28-8-1993 and the offer of 5-6-2003 was finally concluded. Section 73 reads as under : "73. Allotment of shares and debentures to be dealt in on stock exchange. (1) Every company, intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognised stock exchanges for permission for the shares or debentures intending to be so offered to be dealt within the stock exchanges or each such stock exchange. (1A) Where a prospectus, whether issued generally or not, states that an application under sub-section (1) has been made for permission for the shares or debentures offered thereby to be dealt in one or more recognised stock exchanges, such prospectus shall state the name of the stock exchange o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( 2B ) If default is made in complying with the provisions of sub-section (2-A), the company and every officer of the company who is in default shall be punishable with fine which may extend to fifty thousand rupees. And where repayment is not made within six months from the expiry of the eighth day, also with imprisonment fora term which may extend to one year. (3) All moneys received as aforesaid shall be kept in a separate bank account maintained with a scheduled bank until the permission has been granted, or where an appeal has been preferred against the refusal to grant such permission. Until the disposal of the appeal, and the money standing in such separate account shall where the permission has not been applied for as aforesaid or has not been granted, be repaid within the time and in the manner specified in sub-section (2); and if default is made in complying with this sub-section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees. ( 3A ) moneys standing to the credit of the separate bank account. Referred to in sub-section (3) shall not be utilised for any purpose other than the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g deposits from the public or inviting offers from the public for subscription or purchase of shares in or debentures of a body corporate. Mr. Desai submits that the offer document of 28-8-1993 can by no means be considered as a prospectus. According to the learned counsel, unless deposits were invited from the public. The preferential offer document was not a prospectus. There is no doubt that the document offered shares to the shareholders of SGL only. There was no involvement of the general public in the purchase/allotment of the shares. Therefore, the submission of the learned counsel for the respondent that this is a prospectus cannot be accepted. The letter of 5-7-1993 also is not a prospectus. An indication of the offer only for the shareholders of SGL is brought out from the fact that the renunciation of the shares was not permitted. Reliance has been placed on several judgments by the learned counsel for the petitioner in support of his submission that an offer of shares in a new company to members of an old company in respect of the shares in the new company is not an offer to the public. He relies on the observations made by the court of appeals in Booth v. New Afrika ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows : "5. Meaning of Officer who is in default . For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment fine or otherwise. The expression officer who is in default means all the following officers of the company, namely : ( a )The managing director or managing directors; in relation to any provision referred to in section 5, has the meaning specified in that section. ( b )the whole time director or whole time directors; ( c )the whole time director or whole time directors; ( d )the manager; ( e )any secretary; ( f )any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to Act;" 35. Criminal liability cannot be attached to a person unless there is both mens rea and actus reus attributable to the person. Some of the directors like petitioner Nos. 5, 9, 10 and 11 in write petition No. 2739 of 2006 are directors of both the companies SGL as well as SIL whereas the others are directors of SGL. The criminal liability of a director would arise only when he is an off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company. The complaint does not describe the actus reus besides the mens rea to make out an offence against the directors under the Indian Penal Code. In case of Shi Yang @ Sang v. A. Kannagi 2008 Cr. L.J. 617, the Madras High Court has held that if a person is alleged to be guilty of an offence there must be necessary averments incorporated in the complaint. The particular Acts which are attributable to the accused person must spelt out in any complaint accurately and unequivocally pointing to the criminality of the accused person. There must be a specific pleading to the effect that a particular director. Personally, has committed an offence. It is now well settled that in the absence of a particular direction as to the role of an accused it would not be appropriate to accept an omnibus allegation for implication of a person in the offence. Besides this, the Offences alleged are in respect of events which have taken place prior to 2003. In Ajay Mitra v. State of M.P. [2003] 3 SCC 11, the Supreme Court has observed that no liability can be fastened on persons who have become directors after the alleged offences have been committed. It is now well settled that for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a matter under the U.P. Electricity (Duty) Act and the Electricity Act, 1910 as well as the Companies Act. It was observed by the Supreme Court that after taking into consideration the functioning of the subsidiary company and the holding company and by lifting the corporate veil it was possible to ascertain that Renusagar had in reality no separate existence as a subsidiary company, apart from and independent of Hindalco. It was observed that the persons generating and consuming the energy were the same and therefore by lifting the corporate veil the Supreme Court held that Hindalco and Renusagar should be treated as one concern and that the power plant of Renusagar should be treated as the source of generation of electricity by Hindalco. The submission of the learned counsel for the respondent does not appeal to me. If one is to accept the submission that the SGL was "the head and brain" of SIL and that by lifting the corporate veil the liability of SIL and SGL was the same then the respondent can have no grievance. She owned shares in both SGL and SIL and therefore even if one accepts the submissions on behalf of the respondent. She would be equally benefitted by SGL having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducement by them would not arise. Mens rea must be present from inception and the contention of the respondent that all the directors of the company were equally liable cannot be accepted. Further-more, it cannot be presumed that the present directors had knowledge of any offence having been committed by the company. Assuming they had such knowledge, it would not be sufficient to make them liable for the alleged offences. As noted above. R.K. Dalmiya s case ( supra ) dealt with section 409 under which Dalmiya was convicted. The Supreme Court on the basis of the evidence on record did not accept the contentions put forth on behalf of Dalmiya that he could not be convicted under the aforesaid section merely because he was the chairman of the company. The Supreme Court in its detailed judgment has observed that Dalmiya actually looked after the share business and had knowledge of the losses of the company union agencies. 41. The contention of the learned counsel for the respondent is that the petitioner-directors would not be absolved of their culpability merely because they assumed office in the years subsequent to 1995 when the shares were required to be listed. He has place ..... X X X X Extracts X X X X X X X X Extracts X X X X
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