TMI Blog2023 (9) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the courts can scant afford to be. In the present context, the public s confidence in the banking industry was at stake, when RBI stepped in, imposed the moratorium and asked DBS to take over the entire functioning, management assets and liabilities of the erstwhile LVB. To permit prosecution of DBS for the acts of LVB officials (who are in fact, facing criminal charges) would result in travesty of justice. The impugned judgment is accordingly set aside; the appeal by DBS is allowed. - S. RAVINDRA BHAT And ARAVIND KUMAR , JJ. JUDGMENT S. RAVINDRA BHAT, J. 1. These appeals Crl. A. No. 2242 / 2023 Crl.A. No. 2243 / 2023 arise from a final order Dated 24.3.2023 in Crl. M. C. No. 3173 of 2021 of the Delhi High Court rejecting a petition for quashing criminal proceedings, filed by the DBS Bank India Limited (second respondent in the first appeal /appellant in second the appeal) (hereafter DBS ). In the two appeals, Religare Finvest Limited (hereafter complainant or RFL ) and DBS have challenged the impugned order. To be more specific, they are also impleaded as second respondents in each other s appeal. 2. RFL filed a commercial suit (Comm.) N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 25, 2020, due to LVB's unstable financial condition, the Central Government directed its non-voluntary amalgamation to DBS under section 45(7) of the Banking Regulation Act, 1949 . 7. On February 12, 2021, a supplementary chargesheet or final report was filed, to implead LVB, represented through its director, (now DBS Bank India Limited after amalgamation), as an accused in Crime No. 1534/2020 along with bank officials and the companies RHC Holding and Ranchem. It was alleged that LVB and other accused parties conspired to siphon off funds that were lent, and belonged to RFL. LVB stood to make substantial profits from this lending, as it obtained the FDs at a 4.5% interest rate and then ostensibly lent the money at a rate of 10% p.a. Investigation revealed that LVB's actions were based on the premise that RFL, RHC Holding, and Ranchem were group companies under the same promoters. LVB created security against FDs of RFL. However, proper authorization from RFL was not secured for this arrangement. The loans advanced by LVB to RHC Holding and Ranchem against FDs of RFL were ultimately utilized by RHC Holding. Consequently, when RHC Holding failed to repay the loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI and should have dismissed the request for quashing, simpliciter and ought not to have indefinitely stayed the summoning order. Contentions of RFL 11. Mr. Rana Mukherjee, learned senior counsel for RFL, contends that the High Court ought not to have indefinitely stayed the summoning order, especially when it observed that quashing the summoning order against DBS would not be in public interest. This is more significant because the High Court denied such interim measure in its previous order dated 17.12.2021. 12. It was argued that the direction to approach RBI for clarification is beyond the scope of the original petition as DBS did not assert or seek relief in its quashing petition for the parties to approach the RBI for clarification. This direction essentially imposes a new obligation on the parties involved. If the High Court deemed it necessary to seek RBI's view, it should have ideally impleaded RBI as a necessary party. Nevertheless, the RBI cannot sit in appeal over the findings of the High Court. Additionally, the High Court failed to take into account its own findings regarding interpretation of Clause 3(3) of the amalgamation scheme, that is 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment passed by a coordinate bench of the same High Court in Nicholas Piramal India Limited v. S. Sundaranayagam Rendered on August 23, 2007, in Cri. M.C. No. 5392 of 2005 passed in similar circumstances, wherein it was held that no vicarious criminal liability was being passed on to the transferee company in an amalgamation where the relevant Clause of the scheme was more or less identical by observing: The legal position which emerges from afore-noted judicial decisions is that upon an amalgamation between two companies, the transferor company dies a civil death and the entity which has evolved upon amalgamation cannot be prosecuted for an offence committed by the transferor company. [ ] So far as clause 8 relied upon by the counsel for the State is concerned, same relates to transfer of legal proceedings. The clause does not contemplate that criminal liability for offence committed by the earlier company would be transferable to the petitioner company. 16. It was submitted that after the amalgamation, particularly, a non-voluntary scheme of amalgamation necessitated to safeguard the public interests, LVB ceased to exist and criminal proceedings against LVB shall ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion notification reads as follows: 3. Transfer of assets and liabilities and general effect thereof. - (1)-(2) xxxxxxx (3) If on the appointed date, any cause of action, suit, decrees, recovery certificates, appeals or other proceedings of whatever nature is pending by or against the transferor bank before any court or tribunal or any other authority (including for the avoidance of doubt, an arbitral tribunal), the same shall not abate, be discontinued or be ill any way prejudicially affected, but shall, subject to the other provisions of this Scheme, be prosecuted and enforced by or against the transferee bank: Provided that where a contravention of any of the provision of any statute or of any rule, regulation, direction or order made thereunder has been committed by or any proceeding for a criminal offence has been instituted against, a director or secretary, manager, officer or other employee of the transferor bank before the appointed date, such director, secretary, manager, officer or other employee shall, without prejudice to the application of section 6 of the General Clauses Act, 1897 (10 of 1897), be liable to be proceeded against under such law and pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndard Inc. v. Udharam Bhagwandas Japanwalla [1975] 45 Comp Cas 16 (Bom) arguments were advanced before the court on whether a company can have mens rea, and on how the process of attribution would, in fact, operate, with the precise question being whose mens rea would be attributed to the company. The High Court accepted that a strict test of mens rea was required to locate or ascribe criminal responsibility of a company, on the concerned decision maker. The Court adopted this line of reasoning, approving Lord Diplock's opinion in Tesco Supermarkets Ltd. v. Nattrass 1971 (2) All ER 127 , including the following relevant observations: In my view, therefore, the question: what natural persons are to be treated in law as being the company for the purpose of acts done in the course of its business, including the taking of precautions and the exercise of due diligence to avoid the commission of a criminal offence, is to be found by identifying those natural persons who by the memorandum and articles of association or as a result of action taken by the directors, or by the company in general meeting pursuant to the articles, are entrusted with the exercise of the powers of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. For example, a rule may be stated in language primarily applicable to a natural person and require some act or state of mind on the part of that person himself as opposed to his servants or agents. This is generally true of rules of the criminal law, which ordinarily impose liability only for the actus reus and mens rea of the defendant himself. How is such a rule to be applied to a company? One possibility is that the court may come to the conclusion that the rule was not intended to apply to companies at all; for example, a law which created an offence for which the only penalty was community service. Another possibility is that the court might interpret the law as meaning that it could apply to a company only on the basis of its primary rules of attribution, i.e. if the act giving rise to liability was specifically authorised by a resolution of the board or an unanimous agreement of the shareholders. But there will be many cases in which neither of these solutions is satisfactory; in which the court considers that the law was intended to apply to companies and that, although it excludes ordinary vicarious liability, insistence on the primary rules of attribution would in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dard Chartered Bank v Directorate of Enforcement, 2005 [Supp] (1) SCR 49 the court referred to Section 11 of the IPC, which defined person . The word person includes any Company or Association or body of persons, whether incorporated or not ; the court also referred to the 41st and 47th Law Commission reports. The Law Commission had stated that In every case in which the offence is only punishable with imprisonment or with imprisonment and fine and the offender is a company or other body corporate or an association of individuals, it shall be competent to the court to sentence such offender to fine only. The judges- in the majority held that all penal statutes are to be strictly construed, in the sense that the court must see that the thing charged as an offence is within the plain meaning of the words used and must not strain the words. Any act falling within the mischief that is addressed should be intended to be included and has to included if thought of. Further, all penal provisions, like all other statutes, need to be fairly construed in terms of expressed legislative intent. The intent to prosecute corporate bodies for the offences committed by them was clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (dead) by LR's 1986 (2) SCR 607 , the effect of amalgamation of two companies was considered by the Supreme Court. It was held that after the amalgamation of two companies, the transferor company ceases to have any entity, and the amalgamated company acquires a new status, and it is not possible to treat the two companies as partners or jointly liable in respect of their liabilities and assets. 27. In the context of income tax liability, this court, in Saraswati Industrial Syndicate Ltd. vs. CIT, Haryana, H.P. Delhi 1990 Supp (1) SCR 332 , observed that: The true effect and character of the amalgamation largely depends on the terms and scheme of merger but there cannot be any doubt that when two companies amalgamate and merge into one the transferor company loses its entity as it ceases to have its business. However, their respective rights or liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amalgamation is made effective. 28. McLeod Russel India Limited v. Regional Provident Fund Commissioner, Jalpaiguri Ors. 2014 (9) SCR 162 was a case involving de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of every partner for the individual criminal acts of its partners, was negatived: 9. But we are concerned with a criminal liability under penal provision and not a civil liability. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 10 does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not. 30. It is, therefore, noticeable that the criminal liability of a company (a) is recognized where it can be attributable to individual acts of employees, directors or officials of a company or juristic persons (Tesco, Meridian Global Funds, Standard Chartered Bank, and Iridium) (b) recognized even if its conviction results in a term of imprisonment (Meridian, Iridium); (c) cannot be transferred ipso facto, except when it is in the nature of penalty proceeding (McLeod Russel) (d) the legal effect of amalgamation of two companies is the destruction of the corporate existence of the transferor company (in this case, LVB); it ceases to exist. (e) that apart, only defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered from this backdrop. In this context, the express mention of directors and such other individuals in the proviso means that it is to that extent only that prosecutions or other criminal proceedings can continue; in the ordinary sense, criminal liability can neither be attributed to DBS nor its directors, brought in after the amalgamation, whose appointments were approved by the RBI. 33. The charge sheet, to the extent it is relevant in the present case, reads as follows: PS EOW, FIR 189/2019 ********************** Further, during the course of investigation, the certified copy of the emails were obtained from the bank along with certificate U/s 65-B Evidence Act which are as under: - 1. Certified copy of email dated 10.11.16. 2. Certified copy of email dated 07.01.17. 3. Certified copy of email dated 09.01.17. 4. Certified copy of email dated 13.07.17. Further, the complainant informed that we draw you kind attention to the recent amalgamation of LVB With DBS by the Reserve Bank of India. Pursuant to the Press Release bearing No. 2020- 2021/647, the RBI announced a scheme of amalgamation of LVB with DBS Which came into f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet against the accused persons, company and Bank u/s 409/120B IPC has been prepared by putting their names in column no. 11. It is therefore, respectfully prayed that this supplementary charge sheet may kindly be treated as part of main chargesheet against the said accused and the entire oral and documentary evidence as reflected in the lists of PWs, and documents enclosed herewith may also be treated as supplement to the main chargesheet. 17. Refer Notice Served Yes No: Date Acknowledgement to be placed 18. Dispatched on: -sd- 34. It is, therefore, clear that the criminal liability of the individuals now attributed to DBS are actions of (1) Anjani Kumar Verma, (2) S. Venkatesh, (3) Pradeep Kumar and (4) Parthsarathi Mukherjee. They were all officials of LVB. Their individual responsibility and accountability in criminal law, is and remains unaffected by the amalgamation. Therefore, there is in fact, no involvement of DBS Bank, revealed in the charge sheet filed by the Delhi Police. In completely ignoring these aspects and proceeding on a rather superficial basis, the High Court, in our considered opinion fell into error. 35. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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