TMI Blog2010 (10) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Bombay High Court quashing the criminal complaint dated 3-10-2001, filed by the appellant, inter alia , against respondent No. 1, namely, Motorola Incorporated. 2. The complaint pertained to allegations of cheating under section 420 read with section 120B of the Indian Penal Code, 1860. Although the complaint spread over thirty five pages elaborately sets out the factual scenario, we may notice the foundational facts. 3. Motorola Inc. (respondent No. 1), Iridium LLC and Iridium Inc. are a part of one group of corporations created through mergers and takeovers. Respondent No. 1 was the founder promoter of a corporation known as Iridium LLC incorporated in the State of Delaware, U.S.A.; Iridium LLC was incorporated on 19-7-1996, as a wholly owned subsidiary of respondent No. 1. Iridium LLC was the successor of another corporation known as Iridium Inc., which was incorporated on 14-7-1991, also a wholly owned subsidiary of respondent No. 1. On or about, 19-7-1996, Iridium Inc., was merged into Iridium LLC. 4. Iridium system/Iridium Project (which expressions are used inter-changeably) was represented as being the world s first commercial system designed to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged that respondent No. 1 provided itself with excessive profits while saddling Iridium with exorbitant costs. Substantially, all the initial capital raised by Iridium (form persons which included Iridium India Telecom Ltd.) was used to make payments to respondent No. 1. In all a sum of Rs. 19,500 crores (6.5 billion U.S. $) has been paid till date by Iridium to respondent No. 1 for the Iridium system. 7. It was further mentioned in the complaint that in August 1992, a PPM was floated through merchant bankers, Goldman Sachs (who acted as placement agents) with the intention of attracting investments from large and successful companies world wide. Copies of PPM were distributed to and received by several prominent Indian companies, both in the public and private sector. Prominent amongst these were : ( a )Infrastructure Leasing and Financial Services Ltd. (IL and FS); ( b )Industrial Development Bank of India (IDBI); ( c )Industrial Credit and Investments Corporation of India (ICICI); ( d )State Bank of India (SBI); ( e )Export Import Bank of India (EXIM Bank); ( f )Housing Development Finance Corporation Ltd. (HDFC); ( g )Unit Trust of India (UTI); ( h )Genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held small sized phones which were comparable in size and weight to cellular phones. ( d )The Iridium system would provide a high quality signal and offer ( i ) voice; ( ii ) data; ( iii ) fax; and ( iv ) geo-location services. The system would provide a strong signal with sufficient link margin ( i.e., a margin/allowance) in excess of the minimum technical requirement for desired voice quality). ( e )The Iridium system would be eminently viable and the investors in the Iridium project would expect to receive handsome financial gains. ( f )The Iridium system was a creation of respondent No. 1 who was the world leader in cellular technology. Backing of respondent No. 1 ensured its success. ( g )In addition to the benefits of investing in the equity of Iridium Inc., large investors would have the option to purchase the gateway, which would be an inter-connection point between the space based segment of the Iridium system and land/terrestrial network. Investment in gateway would be an extremely remunerative and profitable venture. 10. According to the appellant the aforesaid representations were made to individual institutions and entities handling public money so as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lop its expertise in building satellite systems so that the said expertise could be marketed by it to others. It was further alleged that the market researchers who had been commissioned by respondent No. 1 had reported that Iridium s target market, the professional business traveller would have little interest in using the system. The research group characterised the product as suitable only for oil rigs or the desert. It had been pointed out that Iridium as then conceived may not address the needs of many US based executives who travelled globally and/or have offices in divergent or even in remote area. It was pointed out that the system limitations of Iridium were too severe to sustain interest. 15. The appellant-company was further induced to part with a sum of Rs. 126 crores for the gateway. The necessity for installation of a gateway was a complete fraud. Respondent No. 1 knew that no gateway was necessary. The entire need for a gateway was dishonestly created to get a license to operate the system in it. The Collusy group is now operating the system on a limited scale through one single gateway, which further establishes the fact that there was no need for more than one g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complainant company was raised out of public savings and funds of above noted public institutions. Therefore, it reveals that this case involves issues regarding public money. It is settled principle that at the stage of issuance of process prima facie case is to be considered. After giving anxious though to the averments in the complaint and the documents produced on record, it reveals that prima facie case is made out to issue process. Hence, issue process against accused Nos. 1 to 7 for the offence under section 420 read with section 120B of the IPC." 19. Aggrieved by the aforesaid order, the respondents filed a petition under article 227 of the Constitution of India and under section 482 of the Cr. P.C. 1973, seeking quashing of the order issuing process, dated 6-11-2001, passed by the Judicial Magistrate, 1st Class, Khadki Court, Pune. The grounds as culled out from the petition can be summed up as under : ( i )The complaint lacked the basic and essential ingredients of the offence of cheating and conspiracy. ( ii )At best the complaint had set out a civil dispute, subject to mandatory arbitration which the appellant herein (Iridium Telecom (P.) Ltd.) was seeking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court should be disposed of as early as possible. Therefore, we request the High Court to dispose of the pending petition of the respondent by the end of July, 2003 and while so deciding the High Court should also decide whether such decision of the High Court will bind those who have not approached the High Court challenging the summons issued by the trial court to them. With these observations this special leave petition is disposed of." 21. The High Court by order dated 8-8-2003, allowed the petition and quashed the order issuing process passed by the JMFC, Pune. Aggrieved by the said judgment, the appellant have filed the present appeal before this court. 22. We have heard Mr. Ram Jethmalani, learned senior counsel, for the appellant, Mr. Ashok Desai, learned senior counsel for respondent No. 1 and Mr. Parag Tripathy for the Union of India at considerable length. 23. The submissions made by Mr. Jethmalani although very elaborate, may be summed up as follows : ( i )The power to quash a criminal complaint that too at the stage of cognizance, is an extreme power, which must be exercised very sparingly and with abundant caution; that too in the rarest rare ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act, 1956. The statements made in the PPM as also in the representations made to the high ranking officials of the prospective investors including the appellants, have been proved to be incorrect and misleading. According to Mr. Jethmalani, the legal position on this issue is quite clear and placed reliance on : Directors Co., of the Central Railway Co. of Venezuela v. Joseph Kisch [1867] 2 EIA 99 (HL), New Brunswick Canada Railway Land Co. v. Muggeride [1860] 1 Dr. Sm. 381, Redgrave v. Hurd [1881] 20 Ch.D 1 and Aarons Reefs Ltd. v. Twiss [1896] AC 273 (HL). 25. According to Mr. Jethmalani dishonest intention of the respondent is evident from the fact that the proposal to invest in the Iridium system which was taken to the board of directors of the respondent Motorola, was not accepted. The market researchers commissioned by Motorola had in fact clearly stated that the professional business traveller would have little interest in the system. It had been characterised as suitable only for oil rigs or deserts. Mr. Jethmalani reiterated that the respondents deliberately painted a very rosy picture. They had promised a global link from any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is incapable of possessing the necessary mens rea for commission of the offence of cheating. In support of the submissions, he relied upon the following judgments : Velliappa Textiles Ltd. s case ( supra ) and Standard Chartered Bank s case ( supra ). 29. We may now note the submission of Mr. Ashok Desai. Learned senior counsel at the very out set, submitted that even the basic facts have not been placed before this court. According to him there were three things which have to be noted. Firstly, no representation was made by Motorola as such. Secondly, Iridium Inc., was a company controlled by strategic investors. Thirdly, representations were not of existing facts but future projections wherein every possible warning was given. According to learned senior counsel, the most important aspect of the case are that : ( i )We are dealing with a prospectus. ( ii )We are dealing with technological development. Therefore, it can succeed or it can fail. ( iii )Then again we are dealing with feasibility. 30. Mr. Desai submitted that the Iridium system was and is a technological success. It is being used in global aerospace programmes and defence departments of differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the notice, and the accompanying documents. The High Court also correctly stated the legal position with regard to the inability of a company to possess the necessary mens rea for the commission of a criminal offence. According to Mr. Desai, the facts pleaded would disclose only civil liability at best. It is submitted by him that it was not necessary for the High Court to permit the matter to proceed any further. The High Court on a correct interpretation of the various clauses of the 1992 PPM and the stock purchase agreements of 1993 and 1994, concluded that it was a case of pure and simple civil liability. It was further submitted that the High Court was within its jurisdiction to look at all the document including the documents which were not on record. The power of the High Court under section 482 of the Cr. P.C., is much wider than the revisional jurisdiction of the High Court under section 401 of the Cr. P.C. In support of the submissions, learned counsel has relied on Madhav Rao Jiwaji Rao Scindia v. Sambhajirao Chandrojirao Angre [1988] 1 SCC 692, State of Orissa v. Debendra Nath Padhi [2005] 1 SCC 568 and M.N. Ojha v. Alok Kumar Srivastav [2009] 9 SCC 682. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uth or falsehood of the allegations made in the complaint ( i ) on the materials placed by the complainant before the court; ( ii ) for the limited purpose of finding out whether a prima facie case for issue of process has been made out; and ( iii ) for deciding the question purely from the point of view of the complainant without at all adverting to any defence that the case may have. In fact it is well-settled that in proceedings under section 202, the accused has got absolutely no locus standi and is not entitled to be heard on the question whether the process should be issued against him or not." (p. 740) It has been further held (paragraph 5) as follows : "... Once the Magistrate has exercised his discretion it is not for the High Court, or even this court, to substitute its own discretion for that of the Magistrate or to examine the case on merits with a view to find out whether or not the allegations in the complaint, if proved, would ultimately end in conviction of the accused. These considerations, in our opinion, are totally foreign to the scope and ambit of an inquiry under section 202 of the Code of Criminal Procedure which culminates into an order under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions of law which were said to be illustrative in the case of Smt. Nagawwa ( supra ). It was further held as follows : "10. It is, therefore, manifestly clear that proceedings against an accused in the initial stages can be quashed only if on the face of the complaint or the papers accompanying the same, no offence is constituted. In other words, the test is that taking the allegations and the complaint as they are, without adding or subtracting anything, if no offence is made out then the High Court will be justified in quashing the proceedings in exercise of its powers under section 482 of the present Code." 38. The aforesaid proposition of law was again reiterated by this court in the case of Madhav Rao Jiwaji Rao Scindia ( supra ), in the following words: "The legal position is well-settled that when a prosecution at the initial stage is asked to be quashed, the test to be applied by the court is as to whether the un-controverted allegations as made prima facie establish the offence. It is also for the court to take into consideration any special features which appear in a particular case to consider whether it is expedient and in the interest of justice to perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 103. 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 embark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its extraordinary jurisdiction of quashing the proceedings at any stage." (p. 355) 41. Adverting to the scope of the jurisdiction of the High Court under section 482, this court in the case of Debendra Nath Padhi ( supra ) again reiterated as follows : "It is evident from the above that this court was considering the rare and exceptional cases where the High Court may consider unimpeachable evidence while exercising jurisdiction for quashing under section 482 of the Code. In the present case, however, the question involved is not about the exercise of jurisdiction under section 482 of the Code where along with the petition the accused may file unimpeachable evidence of sterling quality and on that basis seek quashing, but is about the right claimed by the accused to produce material at the stage of framing of charge." (p. 578) 42. Again upon a very elaborate examination of the powers possessed by the High Court under section 482 of the Cr. P.C., this court in the case of Inder Mohan Goswami v. State of Uttaranchal [2007] 12 SCC 1, very clearly observed that the aforesaid powers are very wide and the very plentitude of the power requires great caution in its exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thermore, the High Court had dismissed a petition for quashing the order of SDJM by a cryptic and non-speaking order. In such circumstances, this court observed : "25. Had the learned SDJM applied his mind to the facts and circumstances and sequence of events and as well as the documents filed by the complainant himself along with the complaint, surely he would have dismissed the complaint. He would have realised that the complaint was only a counterblast to the FIR lodged by the bank against the complainant and others with regard to the same transaction. ... 27. The case on hand is a classic illustration of non-application of mind by the learned Magistrate. The learned Magistrate did not scrutinise even the contents of the complaint, leave aside the material documents available on record. The learned Magistrate truly was a silent spectator at the time of recording of preliminary evidence before summoning the appellants. 28. The High Court committed a manifest error in disposing of the petition filed by the appellants under section 482 of the Code without even adverting to the basic facts which were placed before it for its consideration. 29. It is true that the court in ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who is capable of having mens rea to commit the offence. According to the High Court, the same reasoning would also apply in respect of the offence of conspiracy which involves a guilty mind to do an illegal thing. 46. The judgments relied upon by the complainant are distinguished by the High Court, as they pertain to special provisions contained in different statutes such as, Income-tax Act, Essential Commodities Act, Food Adulteration Act and TADA Act, 1987. It is noticed that in Kalpnath Rai s case ( supra ), this court was concerned with the provisions of the TADA Act. The High Court was further of the opinion that the Indian Penal Code does not contain any provision similar to the aforesaid Acts. Since the offence of cheating under section 415 and the offence of conspiracy under section 120B can only be committed by a natural person, the word "whoever" cannot include in its sweep, a juridical person like a company. The High Court notices the judgment of the Calcutta High Court in the case of A.K. Khosla v. T.S. Venkatesan [1994] 80 Comp. Cas. 81, wherein it was held that there are two tests in respect of prosecution of a corporate body, i.e., first being the test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions in modern times are conducted through these bodies, and particularly that inter-State commerce is almost entirely in their hands, and to give them immunity from all punishment because of the old and exploded doctrine that a corporation cannot commit a crime would virtually take away, the only means of effectually controlling the subject-matter and correcting the abuses aimed at." 48. The aforesaid sentiment is reiterated in the 19 American Jurisprudence 2d paragraph 1434 in the following words : "Lord Holt is reported to have said (Anonymous, 12 Mod 559, 88 Eng Reprint 1164) that a corporation is not indictable, but the particular members of it are . On the strength of this statement it was said by the early writers that a corporation is not indictable at common law, and this view was taken by the courts in some of the earlier cases. The broad general rule is now well established, however, that a corporation may be criminally liable. This rule applies as well to acts of misfeasance as to those of non-feasance, and it is immaterial that the Act constituting the offence was ultra vires. It has been held that a de facto corporation may be held criminally lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... body corporate. Counsel for the respondents says that, although a body corporate may be capable of having an intention, it is not capable of having a criminal intention. In this particular case the intention was the intention to deceive. If, as in this case, the responsible agent of a body corporate puts forward a document knowing it to be false and intending that it should deceive, I apprehend, according to the authorities that Viscount Caldecote, L. C. J., has cited, his knowledge and intention must be imputed to the body corporate." 51. The principle has been reiterated by Lord Denning in the case of H.L. Bolton (Engineering) Co. Ltd. v. T.J. Graham Sons Ltd. [1956] 3 All ER 624 (CA) in the following words : "A company may in many ways be likened to a human body. They have a brain and a nerve centre which controls what they do. They also have hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a corporation would arise when an offence is committed in relation to the business of the corporation by a person or body of persons in control of its affairs. In such circumstances, it would be necessary to ascertain that the degree and control of the person or body of persons is so intense that a corporation may be said to think and act through the person or the body of persons. The position of law on this issue in Canada is almost the same. Mens rea is attributed to corporations on the principle of "alter ego" of the company. 54. So far as India is concerned, the legal position has been clearly stated by the Constitution Bench judgment of this court in the case of Standard Chartered Bank ( supra ). On a detailed consideration of the entire body of case laws in this country as well as other jurisdictions, it has been observed as follows : "There is no dispute that a company is liable to be prosecuted and punished for criminal offences. Although there are earlier authorities to the effect that corporations cannot commit a crime, the generally accepted modern rule is that, except for such crimes as a corporation is held incapable of committing by reason of the fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the company. Such a discretion is to be read into the section so far as the juristic person is concerned. Of course, the court cannot exercise the same discretion as regards a natural person. Then the court would not be passing the sentence in accordance with law. As regards a company, the court can always impose a sentence of fine and the sentence of imprisonment can be ignored as it is impossible to be carried out in respect of a company. This appears to be the intention of the Legislature and we find no difficulty in construing the statute in such a way. We do not think that there is a blanket immunity for any company from any prosecution for serious offences merely because the prosecution would ultimately entail a sentence of mandatory imprisonment. The corporate bodies, such as a firm or company undertake series of activities that affect the life, liberty and property of the citizens. Large scale financial irregularities are done by various corporations. The corporate vehicle now occupies such a large portion of the industrial, commercial and sociological sectors that amenability of the corporation to a criminal law is essential to have a peaceful society with stable e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omission must cause or must be likely to cause damage or harm to that person in body, mind, reputation or property. Thus, it is evident that deception is a necessary ingredient for the offences of cheating under both parts of this section. The complainant, therefore, necessarily needs to prove that the inducement had been caused by the deception exercised by the accused. Such deception must necessarily produce the inducement to part with or deliver property, which the complainant would not have parted with or delivered, but for the inducement resulting from deception. The Explanation to the section would clearly indicate that there must be no dishonest concealment of facts. In other words, non-disclosure of relevant information would also be treated as a mis-representation of facts leading to deception. It was, therefore, necessary for the High Court to examine the averments in the complaint in terms of the aforesaid section. The High Court upon detailed examination of the 1992 PPM, the Stock Purchase Agreements and the 1995 PPM concluded that even if the averments made in the complaint are accepted on their face value, it would only disclose a civil dispute between the parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In fact, these two important documents contain acknowledgements of the investors about their capability of evaluating the merits and risks of the purchase of the shares and their relying upon their own advisors". The High Court, therefore, negated the submission that there has not been a complete and candid disclosure of the entire material which has resulted in the deception/inducement of the appellant to make huge investment in the Iridium. This conclusion reached by the High Court did not take notice of the Explanation to section 415. The aforesaid Explanation gives a statutory recognition to the legal principles established through various judicial pronouncements that misleading statements which withhold the vital facts for intentionally inducing a person to do or to omit to do something would amount to deception. Further, in case it is found that misleading statement has wrongfully caused damage to the person deceived it would amount to cheating. It would at this stage be appropriate to notice the observations made by the House of Lords in the case of Directors Co., of the Central Railway Co. of Venezuela ( supra ), which would be of some relevance to the issue under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a foundation is laid for setting aside the contract which was founded upon that basis . And in the case of Dobell v. Stevens [1825] 3 B C 623 to which he refers as an authority in support of the proposition, which (was an action for deceit in falsely representing the amount of the business done in a public house, the purchaser was held to be entitled to recover damages, although the books were in the house, and he might have had access to them if he thought proper. Upon the whole case I think the decree of Lords Justices ought to be affirmed, and the appeal dismissed with costs." 63. The aforesaid observations leave no manner of doubt that the appel-lants were entitled to an opportunity to prove the averments made in the complaint. They were entitled to establish that they have been deliberately induced into making huge investments on the basis of representations made by respondent No. 1 and its representatives, which representations subsequently turned out to be completely false and fraudulent. The appellants were entitled to an opportunity to establish that respondent No. 1 and its representatives were aware of the falsity of the representations at the time when the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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