TMI Blog2003 (8) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... ode. 3. The petitioner is a company incorporated under the laws of the state of Delaware (U.S.A.). Respondent No. 3 (Original Complainant) is also a company incorporated under the Companies Act, 1956 on 24.10.1994. The said complainant relates to equity investments made by the respondent No. 3 in Iridium Inc., a company incorporated under the law of the state of Delaware (U.S.A.) which later on became Iridium LLC.. The allegations made in the complaint are that Iridium (Inc/LLC) was a mere instrumentality of the petitioner which conceived, directed and controlled Iridium at all material times. Initially the entire equity in Iridium was held by the petitioner but subsequently it was diluted on account of sale to various investors and shareholders. In 1992 Iridium floated a Private Placement Memorandum (PPM) with the intention of attracting investments from large companies in the world for the purpose of financing the Iridium System/Project which is a commercial wireless communication system designed to provide global digital hand held telephone, data, facsimile, paging and geolocation services similar to cellular phones. The said PPM set out in details the salient features of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idium was a company worth investing in by purchasing shares and operating a gateway. 5. Relying upon the representations made on behalf of the petitioner, respondent No. 3 in good faith invested a sum of Rs. 25.12 crores constituting 20% of the paid up capital. In addition, respondent No. 3 also invested 70 million U.S. dollars in equity of Iridium. Out of the same 25 million U.S. dollars (about Rs. 130.50 crores) were already invested by IDBI, IL FS, I.C.I.C.I, S.B.I and EXIMP Bank prior to 24.10.1994 and the same were transferred in favour of respondent No. 3 and treated as its investment in the equity of the petitioner. After its incorporation in 1994, respondent No. 3 made a further investment of 45 million U.S. dollars (about Rs. 235 crores). Respondent No. 3 having thus made a large investment was allotted a gateway and thereafter, it was required to spend about Rs. 126.09 crores in connection with the construction, management and operation of the Indian gateway. Respondent No. 3 alleged in its complaint that it later on found that the Iridium System was a complete failure and that all the material representations made on behalf of the petitioner were totally false, dish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of various places in U.S.A., The learned Magistrate therefore, sent all the summonses addressed to the accused to the Indian Embassy in Washington for being served on the petitioner and the other accused. The Indian Embassy in turn forwarded the same to the petitioner. The necessity of mentioning this fact has arisen because it was strongly contended on behalf of the petitioner that there has been no proper and legal service of the summonses in accordance with the provisions of Section 105 of the Cr.P.Code and the petitioner has specifically made it clear that filing of this petition ought not to be treated as and is not tantamount to the Petitioner Company submitting to the jurisdiction of the Learned Magistrate nor is the filing of this petition tantamount to an admission that the receipt of the summons in the United States of America was legal, proper and valid service in accordance with law . 7. After filing of this petition on 3.4.2002, this court granted ad-interim relief staying the proceeding of C.C. No. 81/2001 pending on the file of the learned Magistrate. Respondent No. 3 then filed Special Leave Petition in the Supreme Court challenging the ex-parte stay. The Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry offence the requisite thing is mens rea unless the statute expressly excludes it. So far as the offence of cheating is concerned it does require the mens rea to deceive. Section 415 of the I.P.Code defines the offence of cheating as under: 415. Cheating--Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to cheat . Explanation - A dishonest concealment of facts is a deception within the meaning of this section. Section 11 of the I.P.Code defines the word 'person' as including any Company or Association or body of persons, whether incorporated or not. The definition is not exhaustive but it is inclusive. Therefore, the word 'person' means both a natural person, whether man, woman or child and an artificial or juridical person like a Company or Corporation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bodies. The first being the test of mens rea and the other is the mandatory sentence of imprisonment. It was held that a company being a corporate body cannot be said to have the necessary mens rea, nor can it be sentenced to imprisonment as it has no physical body. 11. In Kalpanath Rai v. State 1998CriLJ369 one of the questions was whether a company which was arraigned as accused No. 12 in a case under the Terrorists and Disruptive Activities (Prevention) Act(TADA) was alleged to have harboured one of the terrorists. The said company was convicted by the trial court of the offence punishable under Section 3(4) of the TADA. Section 3(4) reads:- Whoever harbours or conceal or attempts to harbour or conceal any terrorist shall be punishable with imprisonment for a term which shall not be less than five years but which may extend to imprisonment for life and shall also be liable to fine . The Supreme Court referred to the definition of the word 'harbour' as given in Section 52A of the I.P. Code and pointed out that there is nothing in TADA, either expressly or even by implication, to indicate that mens rea has been excluded from the offence under Section 3(4) of TA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the High Court it did not deal with that ground that prosecution of the respondent company under Section 276B was not maintainable for if ultimately the Special Court found it guilty, the Court could not legally impose a substantive sentence upon the Company which was mandatory under that section. The matter was carried to the Supreme Court and the question posed before it was whether a company being a juristic per on and thus incapable of being sentenced to imprisonment, can be prosecuted and for that matter be convicted. The Supreme Court referred to the provisions of Section 278B which are as under:- 278B(1) Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against an punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due dilig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and shall be liable to be proceeded against and punished accordingly. Therefore, by this provision statute expressly provided that a company can be prosecuted for committing offences under the Income Tax Act. This decision cannot have any application in the present case as under the Penal Code, there is no such similar provision that a company is also liable to be prosecuted even when statute creating such offence of defamation clearly lays down that mens rea is one of the essential ingredients . In this context the observations made by the Supreme Court in Kalpanath Rai's case (cited supra) are relevant and material. The Indian Penal Code does not contain any provision similar to that in the Income Tax Act, which specifically states that a company, being a person within the meaning of the word as defined in Section 11 can be punished even for offences involving mens rea as an essential ingredient. The Income Tax Act, The Essential Commodities Act, The Prevention of Food Adulteration Act etc. do contain specific provisions to deal with offences by companies. Therefore, reliance upon M.V. Javali's case by Shri Rohatgi is not proper and correct and it cannot sustain prose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of illustration wherein the exercise of inherent powers under Section 482 of the Cr.P.Code by the High Court would be necessary and two of such categories are where the allegations made in the complaint or F.I.R., even if they are taken at their face value and accepted in their entirity, do not prima facie constitute any offence or make out a case against the accused and where the uncontroverted allegations made in the complaint or F.I.R. and the evidence collected in support of the same do not disclose the commission of any offence or make out a case against the accused. A dispute which is basically and essentially of civil nature falls under these categories. It would not however, be proper to say that the dispute is exclusively of civil nature as it arises out of a commercial transaction or contract. As observed in Rajesh Bajaj v. State 1999CriLJ1833 merely because an act has a civil profile is not sufficient to denude it of its criminal outfit. It was further observed that there is hardly a reason to hold that the offence of cheating would elude from a commercial or money transaction because many a cheating were committed in the course of commercial and also money transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound by respondent No. 3 can be summarised as under: Alleged (mis)-representations. Actual -realities. i) The Iridium System would provide a subscriber link on a global basis and this link would be accessible virtually anywhere on the earth's surface except where severe and unusual conditions prevent reception of (SIC). (i) The said system could not generate signals strong enough to be picked up by satellite phones inside buildings or automobiles. It became necessary for an (SIC)(SIC) to install an additional antenna which was required to be open to sky directly in line with the satellite. ii) The Iridium system would offer a very high quality of voice and\or data and\or fax reception. (ii) None of these service were made available. iii) The Iridium phones would be compact, small size, hand held phones comparable to cellular phones (iii) The phones were extremely bulky with a monstrous antenna and were unwieldy to handle and operate. iv) The Iridium System was tested and proven and had been successfully a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of any person. The words by deceiving any person in Section 415 mean causing to believe that is false; or misleading as to a matter of fact or leading into an error. (Vide Law of Crimes by Ratanlal) According to respondent No. 3, deception was practised by the petitioner through the representations and statements made in its 1992 PPM. It is in the nature of a prospectus or a brochure of Iridium Inc., giving all technical information in respect of the Iridium System alongwith the information relating various other connected issues such as market forecast, competition, financial information, space system, contracts, petitioner's role and conflict of interest, spectrum and other regulatory matters, management, terms of the offers etc. It is an exhaustive document running into about 400 pages. What is most important to be noted is the caution given to the prospective investors about certain risk factors involved in the investment. The very first page of 1992 PPM contains the following caution in bold capital type: AN INVESTMENT IN IRIDIUM INVOLVES CERTAIN RISKS, MANY OF WHICH RELATE TO THE FACTORS AND DEVELOPMENTS LISTED ABOVE. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e these assumptions without the benefit of directly comparable systems. These assumptions are critical because the Company expects that almost all of its costs will be fixed. Thus, while the Company believes its projections are reasonable, the Company is unlikely to achieve its projected financial results if these assumptions prove to be optimistic. Financial Requirements. The Company presently expects to require total capital of approximately $ 4.0 billion. This is made up of approximately $3.37 billion to purchase the initial IRIDIUM constellation of satellites and system control facilities under the Space System Contract, approximately $0.46 billion for estimated payments of interest, and approximately $0.19 billion for estimated net start-up and operating expenses through 1998. The Company proposes to raise 40 percent of such amount, or approximately $1.6 billion, in this and subsequent equity offerings and the remaining 60 percent through debt financing, certain of which may require credit enhancements supported by the Company's stockholders. The company has not received any commitments with respect to any financing. Moreover, there can be no assurance that currently an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any warranty or assurance about the technical and financial viability of the project. Clause 7 of the agreement mentions representations, warranties, acknowledgements and agreements of the investors. Sub-clauses (a)-(v)(vii) and (b)(ii) are relevant and they read as under: (a) Investor Representations and Warranties :- As a material inducement to the Company to enter into this Agreement, each Investors, with respect to itself only, hereby represents and warrants that as of the closing: (v) Such Investor is capable of evaluating the merits and risks of the purchase of the Shares. Such Investor is acquiring the shares hereunder for its own account, as principal for investment and not with a view to the direct or indirect resale or distribution of all or any part of or any interest in such shares. (vii) In purchasing shares, such Investors has relied only on the advice of such Investor's own advisors, the representations and warranties of the company contained herein and the information contained in the Private Placement Memorandum. (b)(ii) Such Investor (1) has received and read copy of the Space System Contract and the J M Contract, (2) has had full access to such o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the subscriber equipment. Such limitations will vary, sometimes significantly, as actual situations and conditions vary and as the satellites in the IRIDIUM System move across the sky. Based upon current testing and simulations, it is expected that such limitations will also vary according to the particular subscriber equipment being employed, with smaller units using integral antennas, such as portable, hand- held ISUs, being generally more susceptible to limitations than units having accessory antennas such as automobile antennas. The degradation that may be experienced on a satellite-based communications system like the IRIDIUM System includes: inability to initiate or receive calls; interruptions of service ranging from brief (no major disruption of communications) to moderate (possibly requiring repetition of words, phrases and sentences by the speaker) to complete (an ongoing transmission is terminated involuntarily); and spurious noises. Generally these limitations will be more severe than the limitations that would be experienced in comparable environments in mature cellular systems due in part to the generally lower link margins in the IRIDIUM system than those pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investing. The statements/ representations made in the 1992 PPM cannot be read in isolation and have to be considered subject to the caution given. There would have been much substance in the grievance if the 1992 PPM had been reticent about the risk factors involved in the project. But as seen above there is no suppression of the risks involved in the investment. It despite the caution given, the investors ignore the same and invest their money in the project, they do it at their own risk and it cannot be said that they were misled, misrepresented or deceived. It is pertinent to note that the 1992 PPM nowhere gives absolute warranty about technical viability and feasibility. There is no doubt that the petitioner was interested in raising capital for its project and that it did solicit investments but in the light of the abovementioned facts it cannot be said that there was any fraudulent or dishonest inducement by the petitioner of respondent No. 3. Nor could it be said that there was intentional inducement by the petitioner of respondent No. 3 to invest and thereby cause loss or damage to respondent No. 3. 21. It was pointed out on behalf of the petitioner that there were 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dium System is not a fact which the petitioner was expected to disclose to the prospective investors. It is an extraneous fact which did not form part and parcel of the Iridium System nor the success or failure of the system was concerned with or dependent on it. The prospective investors were supposed to take decision whether to invest or not to invest on the merits and demerits of the system keeping in view all the risk factors brought to their notice. Therefore, even assuming that there was any such non-disclosure on the part of the petitioner, it does not amount to deception within the meaning of Section 415. Shri Ashok Desai, the learned counsel for the petitioner submitted that respondent No. 3 suppressed some material documents from the learned Magistrate at the time of seeking order of issue of process. There appears to be much substance in this grievance. A bare perusal of the complaint shows that there is no reference to the Stock Purchase Agreements of 1993 and 1994. 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 only upon their ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, it is the intention which is the gist of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise. From his mere failure the promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed. Reading the averments in the complaint in the light of the risk factors stated in the PPMs and the acknowledgements given by respondent No. 3 in the Stock Purchase Agreement, it cannot be said even prima facie that there was such a culpable intention on the part of the petitioner when the representations were made to the investors. Even giving those averments, in the complaint their face value, it is not possible to come to a conclusion that there existed sufficient grounds for proceedings against the petitioner. To my mind the facts disclosed by the complaint show that the dispute between the parties is really of civil nature though it has been tried to be projected as of criminal nature by attributing dishonest or fraudulent intention to the petitioner. It appears that respondent No. 3 had high hopes of the project turning into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt within whose jurisdiction it was committed. The respondent company (complainant) has its registered office at Mumbai and the alleged representations amounting to deceitful inducement appear to have been made at Mumbai. Section 179 of the Cr.P.Code, however, states that when an act is an offence by reason of anything which has been done and of a consequence which has ensued, the offence may be inquired not or tried by a court within whose local jurisdiction such things has been done or such consequence has ensued. Shri Chinoy the learned counsel for the petitioner pointed out that admittedly the alleged act of cheating did not take place at Khadki or Pune. As regards, the consequences of the alleged cheating he submitted that it is not part of the offence and therefore, Section 179 has no application to this case. Setting up of a gateway at Dighi, Pune may be a consequence of the alleged mis-representations by the accused but it does not form part of the offence. Parting of property (money) and/or suffering loss or damage which is the consequence of cheating and there is nothing in the complaint to indicate that any of the two had taken place in the local limits of the Khadki C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... located at Indore in Madhya Pradesh. What the Magistrate did, was that he forwarded the complaint to police for investigation under Section 156(3) of the Cr.P.Code. The accused challenged that order -inter alia that the Magistrate at Gandhidham had no jurisdiction to entertain the complaint. The challenge was upheld by the High Court but the Supreme Court set aside the High Courts order by making the above observations. In the instant case, however, the learned Magistrate at Khadki not only took cognizance of the alleged offences but also issued process against the accused. But it will be too much to expect the Magistrate to examine the question of his jurisdiction closely at the initial stage when the accused have not yet made their appearance before the Court. More-over in some case, as in this case, the question of territorial jurisdiction of the court is somewhat complicated, which can be decided by bilateral hearing only. What is expected to him is the prima facie satisfaction about his having jurisdiction. Shri Rohatgi is therefore, right when he submitted that the High Court should not decide that issue in this petition and leave the same to be decided by the Court in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been illustrating the categories of cases where inherent powers could and should be exercised to quash a criminal proceeding. Nagawwa v. Veeranna 1976CriLJ1533 , State of Karnataka v. L. Munniswami, 1977CriLJ1125 , Madhu Limaye v. State of Maharashtra 1978CriLJ165 ; State of Haryana v. Bhajanlal 1992 (Cri.) S.C.C. 426 have all tried to illustrate the categories of cases wherein the exercise of inherent powers can be made. Two of such categories of cases mentioned in Bhajanlal's case are i) where the allegations made in the F.I.R. or complaint, even if they are taken at their face value and accepted in their entirity do not prima facie constitute offence or make out any case against the accused and ii) where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose commission of any offence or make out a case against the accused. As stated by me earlier, a dispute which is basically and essentially of civil nature falls under these categories. In Sharadchandra v. Gurushant 1986(25)ELT915(Bom) a learned single judge after referring to the categories of cases illustrated in R.P. Kapur's case (supra) observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used, that does not affect the order of issue of process which cannot be faulted and quashed on that ground. Service of summons is a matter of procedure. Secondly, the remaining accused are not before me since they are not parties to this petition. Therefore, it is unnecessary for me to consider whether they have been properly served with summonses of the trial court. The third and most relevant reason is that the question about service of summons to the accused becomes only academic since I propose to quash the order of issue of process made by the learned Magistrate. 32. What remains to be considered is the effect of the proposed order on the other accused who are not before this court as parties to this petition. The Hon'ble Supreme Court while disposing of SLP No. 2993/2003 has requested this court also to decide whether its decision will bind those parties who have not approached this court for challenging the summonses issued by the trial court to them. It is obvious that the Supreme Court contemplated an eventuality of this petition being dismissed and whether in that event the decision of this court will bind the other accused or whether they will be entitled to chal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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