TMI Blog2023 (9) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... arge against the petitioner/A5, as per the report of SFIO, that she, in connivance with other Promoter Directors, involved in misappropriation of fixed Assets of PAPL, siphoning off funds of PAPL to the tune of Rs. 12.03 Crore, by sale of aircraft spares and by receiving the sale proceeds in associate companies by sale of fixed assets and stocks of PAPL to aircraft spare dealers in US and Singapore and non-cooperation in investigation. The case of the respondent-complainant is, the petitioners along with others acted in a criminal conspiracy to deceive the banks and committed a criminal breach of trust and faith, the banks reposed on them. Further, they connived with the promoters of PAPL, in the disposal of the assets belonging to the banks under hypothecation, with a motive to benefit them and the entities belonging to them. On perusal of the SFIO report, it is seen that the information is bereft of even the basic facts, which are absolutely necessary for making out the offence, as against the petitioners herein / A5 and A10. The inherent powers of the High Court is not the one conferred by the Code, but the one which the High Court already has in it and which is preserved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n together and a common order is being passed. 3. The facts, which are absolutely necessary for deciding the present petitions, are as follows:- (i) The Respondent lodged a private complaint against the Petitioners/A5 and A10 and other accused before the learned Additional Chief Metropolitan Magistrate, Chennai, on 14.12.2016, for offences under Sections 68, 628 r/w 211, 211(3C) and 211(1) r/w AS-1,2,18,19,26 Schedule VI of the Companies Act and Sections 212, 217(2), 217(2AA) and 217(3) and Sections 253 and 266A of Companies Act 1956 and under Sections 177, 187, 34, 227, 233, 403, 405, 406, 409, 420, 464, 465, 471 and 120B of IPC. (ii) The Serious Fraud Investigation Office (in short, 'the SFIO'), during investigation, analyzed the Tri-partite Agreements (i.e.) Share Holders Agreement(SHA) and Share Subscription Agreement(SSA) executed between the Paramount Airways Pvt. Ltd (in short, 'PAPL'), Promoter Group of PAPL and Kotak Mahindra Bank Limited, on behalf of investors India Growth Fund (IGF). As per the agreement, the promoters of PAPL promised the investors that PAPL would incur marginal loss during first year of operations (i.e.) 2005-06 and PAPL wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not agreed by them also. The Supplemental Rent Payments made to Celestial were not treated as revenue expenditure instead accounted as loans and advances under Maintenance Reserve. There were debits in Maintenance Reserve account transferred from ATF fuel expenses, which were not made to lessors and not agreed by them also. Pre-Operative Expenses (in short, 'POE') debited after commencement of commercial operations. There were unconnected debits transferred from many revenue heads like salaries, insurance, interest, commission and catering expenses. There were high variation in revenue and expenditures during 2009-10 compared to previous years, which were not explained. There were improper accounting entries under stocks, maintenance reserve and repairs and maintenance heads. The statutory auditors could not explain the rationale behind these accountings made by PAPL. The Directors, both present and past, were also unable to explain and put the blame on ex-vice president (Corporate Affairs), who passed away. The statements recorded from the ex-employees revealed that M.Thiagarajan, Ex-MD., was the sole deciding authority and he only managed the entire affairs till closur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither the audited financial statements of subsidiaries or a statement on subsidiaries, as required as per the Act. During the period (2007-09), Lakshmi Murugesan and M.Thiagarajan were the Directors of PAPL till 31.08.2009 / 05.09.2009 (As per filings with ROC, Chennai, filed on 21.01.2011 and 25.06.2011). Later C. Periyakaruppan and E.R.Gurubalachandran became the Directors of PAPL from 29.08.2009 and 05.09.2009. Ex-Directors of PAPL, Lakshmi Murugesan and M.Thiagarajan and present Directors E.R.Gurubalachandran and Periya Karuppan (till liquidation orders) did not comply with the provisions of Section 212 either by filing the financial statements of subsidiaries along with audited financial of PAPL or a statement as required under the Act, if the financial period did not coincide with the FY or Period PAPL. In view of the same, the above Directors are liable for punishment as per sub Section (9) of Section 212 of the Companies Act, 1956. (vii) The Ex-Directors of PAPL Lakshmi Murugesan and M.Thiagarajan and present Directors, till liquidation orders did not comply with the provisions of Section 217 Sub Section 2, 2AA and 3 of the Companies Act, 1956. During the course of inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amely, Lakshmi Murugesan, Kamala Thiagarajan, Ponnusamy Vijayaraja, Thangaraj Jeyakumar are liable to be prosecuted under Section 240(3) of the Companies Act, 1956. (ix) That, SFIO team examined various persons, recorded their statements on oath, including M.Thiagarajan, E.R.Gurubalachandran, present Directors and N. Visvanathan, the statutory Auditors of PAPL. M.Thiagarajan is the promoter Director of PAPL and his statement was recorded on oath, under Section 240 (2) of the Companies Act, 1956, on 10.04.2014, 15.12.2014 to 17.12.2014 and 24.01.2015. During recording of the statement, he informed that T. D.Gopalakrishnan was responsible for managing the day-to-day affairs of the company. The documents collected during investigation established that M.Thiagarajan, had negotiated the investment issues with the Investors as the head of Management team, with the designation Managing Director and every head of the department, was reporting to the Managing Director, M.Thiagarajan only. (x). The documents collected from banks also established that M.Thiagarajan was matters relating to loans. The record reveled that T. D. Gopalakrishnan joined PAPL, again as Vice President on, 25.10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mandatory compliance of filing of Form 32, show his appointment as Director was carried out only on 24.06.2011. No consent letter was filed by E. R. Gurubalachandran along with Form 32, to act as Director of PAPL. It was also revealed that only on 23.06.2011, E R. Gurubalachandran was allotted DIN number. E. R. Gurubalachandran did not have DIN, on the date of his appointment, and also from 28.08.2009 to 22.06.2011. However he acted, as a director of PAPL. during this period. E.R.Gurubalachandran acted as director without DIN. PAPL and the promoter directors namely M. Thiagarajan and Lakshml Murugesan had appointed E. R. Gurubalachandran, to act as Director of PAPL, without DIN from 28.08.2009 to till 22.06.2011 and hence violated the provisions of Section 253 of the Companies Act, 1956. Therefore, the company and M. Thiagarajan and Lakshmi Murugesan E. R. Gurubalachandran being the officers, in default, are liable to be punished under Section 629A of the Companies Act, 1956. (xii) M.Thiagarajan fraudulently sold the current assets of aircraft spares and stocks by way of export and the sale proceeds were received through associate company accounts, namely, PFSPL and PFRPL, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, dishonestly misappropriated the amount of Rs. 13.43 Crore, in 2007-09, and an unspecified sum, up to October 2009, in violation of various provisions of the Indian Penal code, 1860. Thus, they committed an offence of criminal breach of trust, as defined under Section 405 of the Indian Penal Code, 1860 and render themselves liable to be punished under Section 406 of the Indian Penal Code, 1860 r/w Section 120B of the Indian Penal Code, 1860. (xv) On 31.03.2009, the fixed assets, stocks and aircraft spares valued at Rs. 35.53 Crore, but in the Balance Sheet, as on 31.03.2010, reduced to Rs. 1.45 Crore. PAPL not shown income, on the sale of fixed assets. The assets of PAPL were available with PAPL and removed on the instruction of the said M.Thiagarajan, Ex- Managing Director of PAPL. The promoters have disposed of the vehicles, and misappropriated the sale proceeds of the vehicles. The promoters of PAPL exported the stocks and aircraft spares belonging to PAPL, during 2010 to 2012, to the buyers in US and Singapore. However the proceeds were received, in the bank accounts of group companies, namely, PFSPL and PFRPL. The value of the goods was Rs. 0.68 Crore when these goods we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elated-equipments. The entries relating to additional share capital, revenues and profit were nothing but forged and fabricated entries. The reported email of Ratan Ral, head-revenue, on the earnings of PAPL, for the 18 months period ending 31.03.2009 was fabricated one. The revenues were managed by the Paramount Group, and they used to provide the number of tickets sold, during the period. The documents obtained from CENT BANK that the reported foreign investor of Rs. 200.00 Crore was Celestial Corporate Investment Limited, one of the subsidiary companies formed by PAPL. The said M.Thiagarajan conspired with N.Visvanathan, Statutory Auditor of PAPL, prepared false and fabricated provisional financial statements of PAPL for the six months period ending 31.03.2008 and Provisional Financial statement of PAPL, for the eighteen months period ending 31.03.2009. The said M.Thiagarajan forged and fabricated provisional financial statements with the help of N. Visvanathan and submitted the same as genuine to the banks and committed an act of forgery these documents were used by the banks, in assessing the financial performance of PAPL, lending money and in sanctioning the credit facilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the period 2005-06 to 2010-11 have been falsified. M/s Bala Co., Chartered Accountants, through its partner N.Visvanathan audited the financial statements of PAPL without complying the Accounting Standards and furnished its partly qualified report based upon the falsified balance sheets for the period 31.03.2006, 01.04.2006-20.09.2007, 01.10.2007-31.03.2009 and 31.03.2010. The Statutory Auditor of PAPL, tried to conceal, the material facts. He feigned ignorance and pleaded to excuse him, for not providing an answer immediately. He tried to give wrong or incorrect information, and mislead investigation. A.Jahir Hussain, Madurai Chartered Accountant, audited the financial statements of PAPL for the period 31.03.2011 without complying with the Accounting Standards-18 and furnished its unqualified report based upon the falsified balance sheets for the period 31.03.2011, thus, he failed to comply with the provisions of Section 227(2) of the Companies Act, 1956 as the books of accounts of PAPL were falsifed and does not give a true and fair view of their financial affairs. Similarly, the financial statements of PAPL does not conform to the requirements of Section 211 of the Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A12/Paramount Mills Private Limited, Petitioner is the Director. The Paramount Mills Private Limited belongs to A1 and nothing to do with the Petitioner. 6.Further from the reading of entire complaint, nowhere it is stated that there is no overt act attributed against Petitioner/A10, except there are bald allegation stating that A1 had sold fixed assets (Vehicles to the third parties), apart from transferring some vehicles in the name of Associate Companies. Director of Paramount Textile Mills Private Limited had the knowledge of workings of Paramount Airways Private Limited, its borrowings and lien of financing banks over the assets. Despite having knowledge, they permitted the Companies under their control to purchase the assets, to receive the sale proceeds of assets and thereby connived with the Promoter or Directors of Paramount Airways Private Limited. Further Paramount Textile Mills Private Limited was shown as Paramount Mills Private Limited/A12, then also the Petitioner cannot be proceeded with. The Petitioner has been arrayed as accused as Director of Paramount Textile Mills Private limited. In the case of Sharad Kumar Shanghi Vs. Sangeetha Rane , reported in 2015 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attract the provisions constituting vicarious liability. 9. Further, the learned counsel relied on the Judgment of the Apex Court in Birla Corporation Limited Vs. Adventz Investments and Holdings Limited and Others reported in (2019 (16) SCC 610) wherein, it has been held as follows:- 33. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. The application of mind has to be indicated by disclosure of mind on the satisfaction. Considering the duties on the part of the Magistrate for issuance of summons to accused in a complaint case and that there must be sufficient indication as to the application of mind and observing that the Magistrate is not to act as a post office in taking cognizance of the complaint, in Mehmood Ul Rehman, this Court held as under:- 22. ....the Code of Criminal Procedure requires speaking order to be passed under Section 203 Cr.P.C. when the complaint is dismissed and that too the reasons need to be stated only briefly. In other words, the Magistrate is not to act as a post office in taking cognizance of each and every complaint filed before him and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o investigate into the affairs of PAPL. In compliance, the Ministry of Corporate Affairs, in exercise of powers under Section 237 of the Companies Act, 1956, ordered for investigation on 17.12.2013. As per the investigation of the Inspectors of the SFIO, the various irregularities are found like, illegalities, manipulation of Accounts, misappropriation of funds, sale of Air Craft spare parts to foreign entities by PAPL and receipt of proceeds in group/associate companies Accounts by A1 to A12 and on receipt of instruction/ consent from MCA, in compliance, the SFIO filed a complaint before the Chief Metropolitan Magistrate, Egmore (EOI) under Sections 68,628 R/W 211, 211 (3C) 211 (1) R/W Accounting Standards No. 1, 2, 18, 19, 26 Schedule VI of the Act Section 212, S: 217 (2), 217 (2AA) 217 (3), S 240 (3), 629 Section 253 266A of Companies Act 1956 complaint under section 177, 187, 34, 227, 233, 403, 405, 406, 409, 420, 464, 465, 471, 120B of Indian Penal Code, 1860, The learned Magistrate, after prima facie satisfaction, took the complaint on file and issued process. The total assets of the company is Rs. 0.76 crores, whereas, the liabilities is of Rs. 611.82 crores. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent jurisdiction of the High Court could be exercised to quash the proceedings in a proper case either to prevent the abuse of the process of any court or otherwise to secure the ends of justice. The High Court cannot embark upon an enquiry as to whether the evidence in the case is reliable or not. Further, the Supreme Court in the Judgment in Janta Dal V. H. S. Chowdhary Others reported in (1992 (4) SCC 305) wherein it has been held as follows:- This inherent power conferred by Section 482 of the Code should not be exercised to stifle a legitimate prosecution. The High Court being the highest Court of a State should normally refrain from giving a premature decision in a case wherein the entire facts are extremely incomplete and hazy, more so when the evidence has not been collected and produced before the Court and the issues involved whether factual or legal are of great magnitude and cannot be seen in their true perspective without sufficient material. Of course, no hard and fast rule can be laid down in regard to the cases in which the High Court will exercise its extraordinary jurisdiction to quashing the proceedings at any stage. 14. The learned Senior Panel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a charge, why should the already burdened trial courts be further burdened with such an extra work. The time has reached to adopt all possible measures to expedite the court procedures and to chalk out measures to avert all roadblocks causing avoidable delays. If a Magistrate is to write detailed orders at different stages merely because the counsel would address arguments at all stages, the snail paced progress of proceedings in trial courts would further be slowed down. We are coming across interlocutory orders of Magistrates and Sessions Judges running into several pages. We can appreciate if such a detailed order has been passed for culminating the proceedings before them. But it is quite unnecessary to write detailed orders at other stages, such as issuing process, remanding the accused to custody, framing of charges, passing over to next stages in the trial......... 17. The learned counsel also relied on the Judgment of the Apex Court in Dy.Chief Controller of Imports Exports Vs. Roshan Lal Agarwal Ors. reported in (2003) 4 SCC 139 , wherein in para no. 9, it has been held as follows: In determining the question whether any process is to be issued or not, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make the controlling company of the industrial unit figure as the concerned accused in the complaint. All that has to be done is the making of a formal application for amendment by the Appellant for leave to amend by substituting the name of Messrs Modi Industries Limited, the Company owning the industrial unit, in place of Messrs Modi Distillery. Although as a pure proposition of law in the abstract the learned Single Judge's view that there can be no vicarious liability of the Chairman, Vice- Chairman, Managing Director and members of the Board of Directors under Sub-section (1) or (2) of Section 47 of the Act unless there was a prosecution against Messrs Modi Industries Limited, the Company owning the industrial unit, can be termed as correct, the objection raised by the Petitioners before the High Court ought to have been viewed not in isolation but in the conspectus of facts and events and not in vacuum. We have already pointed out that the technical flaw in the complaint is attributable to the failure of the industrial unit to furnish the requisite information called for by the Board. Furthermore, the legal infirmity is of such a nature which could be easily cured. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rayana Reddy and Others reported in (2011 (12) SCC 437) , wherein it has been held as follows:- 32. It would not be proper for the High Court to analyse the case of the complainant in the light of all the probabilities in order to determine whether conviction would be sustainable and on such premise arriving at a conclusion that the proceedings are to be quashed. In a proceeding instituted on a complaint, exercise of inherent powers to quash the proceedings is called for only in a case in which the complaint does not disclose any offence or is frivolous, vexatious or oppressive. There is no need to analyse each and every aspect meticulously before the trial to find out whether the case would end in conviction or acquittal. 21. Further, relying on the Judgment of the Delhi High Court in Malvinder Mohan Singh Vs. Enforcement Directorate Anr reported in (2022 LiveLaw (Del) 445) the learned counsel would submit that the Economic offences are detrimental not only to the economy of the nation but also the society at large the underprivileged and downtrodden are often at the receiving end of the after-effects of such offences. Extraordinary powers of High Court are not me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estigation report, it is seen that there is no specific averment that the petitioners were in charge of and responsible to the Companies for the conduct of its business at the time of commission of the offence. In the instant case, except the fact that the petitioners are wife and brother of the Director, nothing has been produced by the complainant showing that the petitioners were controlling the day-to-day affairs of the Company. With regard to the nature of charge against the petitioner/A5, as per the report of SFIO, that she, in connivance with other Promoter Directors, involved in misappropriation of fixed Assets of PAPL, siphoning off funds of PAPL to the tune of Rs. 12.03 Crore, by sale of aircraft spares and by receiving the sale proceeds in associate companies by sale of fixed assets and stocks of PAPL to aircraft spare dealers in US and Singapore and non-cooperation in investigation. 27. The ingredients, in order to constitute criminal breach of trust, as defined under Section 405, IPC, are: (i) entrusting a person with property or with any dominion over property, (ii) that person entrusted (a) dishonestly misappropriating or converting that property to his own use; o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst Mr.M.Thiagarajan, and Mrs.Lakshmi Murugesan; Charge No.5, for violation of Section 628 r/w. Section 211 of the Companies Act, against Mr.M.Thiagarajan, Mrs.Lakshmi Murugesan, Mr.E.R.Gurubalachandran, Mr.C.Periyakaruppan and N.Visvanathan, Statutory Auditor. Charge No.6, for violation of Section 212 of the Companies Act, against M.Thiagarajan, Mrs.Lakshmi Murugesan, Mr.E.R.Gurubalachandran and Mr.C.Periyakaruppan; Charge No.7, for violation of Section 217 of the Companies Act, against M.Thiagarajan, Mrs.Lakshmi Murugesan, Mr.E.R.Gurubalachandran, and Mr.C.Periyakaruppan; Charge No.8, for violation of Section 248 of the Companies Act, against Mrs.Lakshmi Murugesan, Mrs.Kamala Thiagarajan, Ex-Directors of PFSPL, PFRPL and BBPPL, Mr.Ponnusamy Vijayaraja and Mr.Thangaraj Jeyakumar; Charge No.9, for violation of Section 629 of the Companies Act, against Mr.M.Thiagarajan, Mr.E.R.Gurubalachandran and Mr. N.Visvanathan; Charge No.10, for violation of Section 266-A, against Mr.M.Thiagarajan, Mrs.Lakshmi Murugesan and Mr.E.R.Gurubalachandran, 29. As regards violation of Indian Penal Code, Charge No.11, for offence under Sections 34, 420 r/w 120-B against M.Thiagarajan, Mrs.Lakshmi M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r misappropriation of Sections 406, 409 r/w 120-B IPC., again primarily the petitioner is roped in on the charge of conspiracy and the enquiry report reveals that it was Thiagarajan, who fully aware of the sale of stocks and aircraft spares on receipt of sale proceeds in the PFSPL and PFRPL account and by sale of fixed assets, stocks and aircraft spares and also sale of vehicles, a sum of Rs. 12.30 crores siphoned by Thiagarajan of PAPL, through its other group of Companies viz., PFSPL and PFRPL. A5 is proceeded being Director of these two companies and conspired with Thiagarajan, who is none other than the husband of A5. There cannot be conspiracy between husband and wife, more so, when the categorical finding of the enquiry is that it was A1/Thiagarajan, who had complete control of all the Companies, actively taking part in the affairs of the company. It is seen that CBI registered a case in RC.No.220-2016 E0004, dated 13.042016 and finally report has been filed in this case before the Patiala Court, New Delhi, for offence under Sections 120-B, r/w Sections 420, 467, 468 and 471 of IPC., against Paramount Airlines Pvt.Ltd. Thiagarajan, Managing Director, N.Visvanathan, N.Venkates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders as may be necessary to give effect to any order under this Code, or to prevent abuse of the process of any Court or otherwise to secure the ends of justice . When the High Court on examination of the record finds that there is grave miscarriage of justice or abuse of process of the courts or the required statutory procedure has not been complied with or there is failure of justice or order passed or sentence imposed by the Magistrate requires correction, it is but the duty of the High Court to have it corrected at the inception lest grave miscarriage of justice would ensue. It is, therefore, to meet the ends of justice or to prevent the abuse of the process that the High Court is preserved with inherent power and would be justified, under such circumstance, to exercise the inherent powers in an appropriate case. 34. Further, the High Court can quash an F.I.R. or a complaint in exercise of its powers under Article 226 of the Constitution or under Section 482 of the Criminal Procedure Code, if the allegations found in the F.I.R. or the complaint, taken at their face value and accepted in its entirety, does not prima facie disclose commission of a cognizable offence or make ..... X X X X Extracts X X X X X X X X Extracts X X X X
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