TaxTMI 
TaxTMI 
2022 (1) TMI 1383
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....11th accused Tamil nadu Mercantile Bank Limited, holding 2500 equity shares. The accused 1 to 10 are the Directors of the 11th accused which is a banking company and is regulated under the Companies Act, 2013 as well as Banking Regulation Act and Reserve Bank of India. The affairs of the company was managed by the accused 1 to 10. The 6th petitioner is the lawyer by profession and also one of the Director of the bank. He is also incharge of the affairs and functioning of the bank. The board consists of two Directors nominated by Reserve Bank of India, Mr.K.N.Rajan and Mr.K.V.Rajan and they played their role independently and hence, they have not been arraigned as accused. It is further stated that in the Annual General Meeting held on 29.01.2016, the petitioners were elected as directors. In the same Annual General Meeting, a resolution was passed to issue bonus share to the existing shareholders in a 500 : 1 ratio. In the Annual General Meeting held on 26.05.2016 the petitioners allegedly decided to issue bonus shares to the shareholders who had supported the petitioners to get elected. Consequently bonus shares were issued against 46,862 shares held by Nonresident Indians facing ....
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....ding false statement to the Registrar of Companies. Based on the above private complaint, after recording the sworn statement of the complainant, though the complaint was returned by the Court for certain clarifications, was later taken cognizance by the Special Court for the offences referred above. The same is sought to be quashed. 4. The learned counsel appearing for the petitioners contended that the Reserve Bank of India nominated director has not preferred any such complaint. Without following the procedure under section 202 of Cr.P.C., the complaint has been taken on file. Though the other grounds are also raised, it is the contention of the learned counsel appearing for the petitioners that the complaint ought not have taken on file. As the offences alleged are under sections 447 and 448, the cognizance can be taken by the Court only on the complaint preferred by the director or any other officer appointed by the Central Government. Hence, the respondent have no locus standi to file such complaint. It is also submitted by the counsel that when there is oppression or mismanagement, separate procedure is contemplated and only when there is a finding with regard to fraud, con....
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....39 [2] of the Companies Act, the respondent being a shareholder has locus standi to file a complaint. Hence, it is submitted that the complaint is maintainable. It is further submitted that once false statement is being given or omitted to state material facts, it attracts the punishment under section 447 IPC. Hence, it is his contention that the complainant is entitled to file the complaint. Therefore, the private complaint cannot be quashed. In support of his submissions he relied on the following judgments : National Bank of Oman Vs. Barakara Abdul Aziz and another reported in [2013] 2 Supreme Court Cases 488 Shivjee Singh Vs. Nagendra Tiwary and another reported in [2010] 7 Supreme Court Cases 578 Azim and others Vs. India Awake for Transparency in W.P.Nos.10140 & 10142 of 2020 of High Court of Karnataka at Bengaluru. 6. The entire allegations in the complaint appears to be with regard to issuance of bonus to the shareholders who are nonresidents of India and not to all the shareholders, without the approval of the Reserve Bank of India. It is the further allegation that the Board decided not to issue bonus shares to the shareholders who voted against them in their An....
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.... of the above section makes it clear that without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person, who is found to be guilty of fraud, [involving an amount of atleast ten lakh rupees or one percent of the turnover of the company, whichever is lower], shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three time the amount involved in the fraud. The word found to be guilty of fraud, assume significance. Any offence, normally punishable in any other enactment, normally refer that who ever commits forgery shall be punished with imprisonment. In any other enactments, the term 'found to be guilty' is normally absent. The significance of the word 'found to be guilty of fraud under section 447' assumes significance in view of the Special Act, viz., the Companies Act. 8. It is relevant to note that when any inspection or enquiry or investigation is required with regard to the affairs of the company, a separa....
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....ffence referred to this sub-section except upon a complaint in writing made by- (i) the Director, Serious Fraud Investigation Office; or (ii)any officer of the Central Government authorised, by a general or special order in writing in this behalf by that Government. Sub section 6 of Section 212 makes it very clear that the offence covered under section 447 of the Companies Act shall be cognizable in nature. The second proviso of the above section makes it clear that the Special Court shall not take cognizance of any offence referred to this Sub-section except upon a complaint in writing made by the Director, Serious Fraud Investigation Office or any office of the Central Government authorized by a general or special Order in writing in this behalf by that Government in this regard. Therefore, to maintain the prosecution for the offence of fraud, a complaint ought to have been made by either by the Director, Serious Fraud Investigation Office or any office of the Central Government authorized by a general or special Order by the Government. To find out the irregularities of the fraudulent activities only, Chapter XIV has been specifically made in the Companies Act. 9. It is al....
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....er sub section 6 of Section 212 of the Companies, other offences are non cognizable and the Court can take cognizance of any offence on a complaint in writing by the Registrar or a person authorised by the Central Government on their behalf. Explanation for Section 447 reads as follows : Explanation.-For the purposes of this section- (i) "fraud" in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss; (ii) "wrongful gain" means the gain by unlawful means of property to which the person gaining is not legally entitled; (iii) "wrongful loss" means the loss by unlawful means of property to which the person losing is legally entitled. 10. The above explanation makes it clear that there must be any act or omission, concealment of any fact or abuse of connivance in any manner with intent to deceive to ga....
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....led by the shareholder also. Whereas, for prosecution for the offence under section 447 of the Companies which involve an amount of Rs.10 lakhs or one percent of the turn over of the company, which ever is lower, Section 212 [6] proviso makes it clear that cognizance can be taken only on the complaint in writing made by either the Director, Serious Fraud Investigation Office or any Officer of the Central Government authorized by a general or special order in writing in this behalf by that Government. Legislature in their wisdom have included Section 447 in sub Clause 6 of Section 212 to take cognizance by the Court, specifically on the complaint either by the Director, Serious Fraud Investigation Office or any Officer of the Central Government authorized by a general or special order in writing by them. Therefore, merely because the shareholder is given a right to proceed against noncognizable offence, he cannot be permitted to file complaint for cognizable offence in view of specific bar under section 212 [6] of the Companies Act on the basis of certain inferences and assumptions, without any enquiry or investigation or by inspection. 13. It is also relevant to note that the Apex....
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....and examine them on oath, failure or inability of the complainant or omission on his part to examine one or some of the witnesses cited in the complaint or whose names are furnished in compliance of the direction issued by the Magistrate, will not preclude the latter from taking cognizance and issuing process or passing committal order if he is satisfied that there exists sufficient ground for doing so. Such an order passed by the Magistrate cannot be nullified only on the ground of noncompliance of proviso to Section 202(2)." The above case relate to noncognizable offence. Whereas Section 447 is a cognizable offence and there is a specific provision under section 212 [6] in the proviso for cognizable offences. Much emphasis is made on the judgment of the Karnataka High Court in W.P.No.10142 of 2020 Order dated 18.01.2021 in Azim and others Vs. India Awake for Transparency. Whereas in the present case, the case is governed by a Special Act which deals with the procedure to inquire, investigation and inspection and only on a finding recorded by such authorities and the persons are found guilty, he can be prosecuted under section 447 of the Companies Act. Merely on the basis of the....
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....alse document or false electronic record--- First.--Who dishonestly or fraudulently - (a) makes, signs, seals or executes a document or part of a document; (b) makes or transmits any electronic record or part of any electronic record; (c) affixes any digital signature on any electronic record; (d) makes any mark denoting the execution of a document or the authenticity of the digital signature, with the intention of causing it to be believed that such document or a part of document, electronic record or digital signature was made, signed, sealed, executed, transmitted or affixed by or by the authority of a person by whom or by whose authority he knows that it was not made, signed, sealed, executed or affixed; or Secondly.--Who, without lawful authority, dishonestly or fraudulently, by cancellation or otherwise, alters a document or an electronic record in any material part thereof, after it has been made, executed or affixed with digital signature either by himself or by any other person, whether such person be living or dead at the time of such alternation; or Thirdly.--Who dishonestly or fraudulently causes any person to sign, seal, execute or alter a document or an elec....