1.00. Present petition under Article 226 of the Constitution of India read with section 482 of the Code of Criminal Procedure has been preferred by the petitioners - original accused Nos.1, 3, 9 and 12 to quash and set aside the impugned criminal proceedings being Criminal Case Nos.1469 of 2010 (arising out of Inquiry Case No.91 of 2004), pending in the court of learned Metropolitan Magistrate, Court No.13, Ahmedabad, filed by the respondent No.2 herein – original complainant, for the offences punishable under sections 406, 409, 420, 120B and 34 of Indian Penal Code, 1860 as well as the impugned order passed by the learned Magistrate in the aforesaid complaint dtd.7/8/2010 directing to register the said complaint and issue process / summons against the petitioners - original accused Nos. 1, 3, 9 and 12. 2.00. Facts leading to the present petition, in nutshell, are as under:-
2.01. That the petitioner No.1 – original accused No.1 is a Company wholly owned by the Government of India; petitioner No.2 – original accused No.3 was the Chairman and Managing Director of the said Company between December, 1996 and March, 2000; the petitioner No.3 – original accused No.12 was the General Manager of the said Company and the petitioner No.4 herein – original accused No.9 was the Director of the accused No.1 Company during the period between 1996 and 1999.
2.02. That the petitioner No.1 herein - original accused No.1 came out with an Issue of on-lep preference shares, IIBI Preference Shares – Series C & D on private placement basis to raise funds for its business operations and offered preference shares (Series C & D) to the public at large aggregating Rs.100/- Crores by offer letter dtd.14/9/1998. That in the said offer, rate of dividend declared was 10.70% per annum and the date of maturity was mentioned as 61 months from the deemed date of allotment (so far as preference shares C Series is concerned).
2.03. It appears that pursuant to the said offer, respondent No.2 herein – original complainant invested a sum of Rs.1/- Crore on purchase of IIBI Preference Shares, Series C, on private placement basis in the year 1998 which was due for redemption on 3/1/2004. It appears that the Company made payment of dividend every year as and when due and payable and in fact paid dividend to respondent No.2 – original complainant – investors till 2003.
2.04. It appears that as per the schedule of maturity of preference shares issued by the petitioner - original accused No.1 Company, Rs.126.67 Crores was due and for redemption during the year 2002-2003, Rs.6 Crores during the year 2003- 2004 and a part (Rs.16.20 Crores) of the preference shares was due for maturity during the year 2004-2005.
2.05. It appears that the Government of India had also such type of IIBI Unsecured Bonds of Rs.148.87 as on 30/3/2002 by conversion of the then existing long term NIC (LTO) Fund of RBI, which carried interest at the rate of 8% per annum payable half yearly and for a maturity period of 20 years. The Government of India was requested to consider utilization of the proceeds of Rs.148.87 Crores being in the nature of quasi equity for the purpose of redemption of the existing preference shares of equivalent amount due for maturity during the years 2002-2003, 2003-2004, 2004-2005 as and when they fall due for redemption or prior to the due date of maturity. It is the case on behalf of the petitioners that the Board of Directors of the petitioner No.1 in its meeting held on 11/6/2002 recommended utilization of the internal resources to the extent of Rs.148.87 Crores equivalent to the long term IIBI Unsecured Bonds subscribed by Government of India for the purpose of redemption of the existing preference shares of equivalent amount due for maturity during the years 2002-2003, 2003-2004 and 2004-2005. It appears that thereafter extraordinary general meeting of the shareholders (inclusive of the respondent No.2 herein – original complainant) was held on 27/6/2002 and it was proposed for redemption of the aforesaid preference shares either on the due date or prior to the date of maturity, as may be mutually agreed by IIBI and concerned investors and the said proposal came to be approved by the shareholders in the extraordinary general meeting held on 27/6/2002 and it was resolved for premature redemption of the aforesaid preference shares.
2.06. That thereafter even approval of the Government of India in that regard was also obtained.
2.07. It appears that thereafter pursuant to the aforesaid resolution and the decision of the Company, which was also approved by the Government of India, respondent No.2 herein – original complainant was sent a communication dtd.28/6/2002 requesting him to convey his willingness to the proposed redemption of preference shares prior to the date of maturity so as to enable them to redeem preference shares along with the interim dividend at the specified rate upto the date of redemption.
2.08. It appears that by communication dtd.3/7/2002 it was communicated to the Company on behalf of the complainant that they are not interested in taking prior redemption of the preference shares issued by the Company.
2.09. It appears that thereafter again the original complainant was communicated vide communication dtd.9/7/2002 to convey approval for premature redemption of the preference shares held by them.
2.10. It appears that thereafter again a reminder was sent on 30/7/2002 to the original complainant.
2.11. that in response to the aforesaid letters addressed to the original complainant dtd. 28/6/2002, 9/7/2002 and 30/7/2002, the complainant communicated to the Company that they are not interested in taking prior redemption of the preference shares issued by the Company.
2.12. It appears that thereafter and/or in the meantime, the Company redeemed preference shares and made payment to other investors, who conveyed their willingness to accept the offer of the Company for premature redemption of the preference shares. It also appears that thereafter even the Bord of Directors of the Company in the meeting held on 20/3/2003 approved the payment of interim dividend at the specified rate to the preference shareholders for the year ending 31/3/2003 and accordingly even the complainant was also paid a sum of Rs.9,57,650/- towards interim dividend on the preference shares amount of Rs.1 Crore held by the original complainant.
2.13. It appears that due to poor financial position of the company, the Company could not make the profit thereafter.
2.14. It is the case on behalf of the petitioners that considering section 80 of the Companies Act, it was not possible for the Company to redeem the preference shares and make payment and therefore, the Company could not make payment of preference shares held by the complainant on due date i.e. 3/1/2004 and the complainant was communicated accordingly.
2.15. In view of non-payment of the amount under preference shares held by the complainant – respondent No.2 herein on due date, the respondent No.2 herein – original complainant has filed the impugned criminal proceedings being Criminal Case Nos.1469 of 2010 (arising out of Inquiry Case No.91 of 2004), in the court of learned Metropolitan Magistrate, Ahmedabad, for the offences punishable under sections 406, 409, 420, 120B and 34 of Indian Penal Code, 1860, alleging inter-alia that by not making payment of the preference shares on the due date though promised and assured at the time of offer, the petitioners and other accused have committed the offences punishable under sections 406, 409, 420, 120B and 34 of Indian Penal Code, 1860.
2.16. It appears that the learned Magistrate initially dismissed the said complaint on the ground that the accused persons are the public servants and the accused No.1 is a Government Company and therefore, so long as the sanction of the Central Government / Government under section 197 of the Code of Criminal Procedure is not obtained, the complaint is not maintainable and therefore, by order dtd.23/9/2005 directed to return the complaint to the original complainant.
2.17. It appears that Being aggrieved by and dissatisfied with the aforesaid order of the learned Magistrate dtd.23/9/2005, the original complainant preferred Criminal Revision Application No.287 of 2005 before the learned City Sessions Court, Ahmedabad and the revisional court allowed the said revision application quashing and setting aside the order passed by the learned Magistrate returning the complainant to the original complainant and directed to register the complaint and proceed further with the same in accordance with law and on merits.
2.18. It appears that thereafter by order dtd.6/7/2009 the learned Magistrate adjourned the matter for hearing the complainant and thereafter the learned Magistrate passed order dtd.17/4/2010 adjourning the matter for producing further evidence by the original complainant.
2.19. It appears that thereafter no further evidence was produced on behalf of the original complainant – respondent No.2 herein as per the order dtd.17/4/2010, still the learned Metropolitan Magistrate, Court No.13 has passed the impugned order dtd.7/8/2010, directing to register the complaint and issue process / summons against the accused persons for the offences punishable under sections 406, 409, and 420 of Indian Penal Code, 1860, by observing that the accused have failed to pay the complainant's dues which is evident from the letter of the accused No.1 dtd.11/12/2003 and therefore, it is fit case to issue process against the accused persons as prayed for. Thereafter the said Inquiry Case No.91 of 2004 is registered as Criminal Case No.1469 of 2010. Being aggrieved by and dissatisfied with the impugned complaint and the impugned order passed by the learned Metropolitan Magistrate, Court No.10, Ahmedabad dtd.7/8/2010 directing to register the complaint and to issue process against the accused for the offences punishable under sections 406, 409 and 420 of Indian Penal Code, petitioners - original accused Nos.1, 3, 9 and 12 have preferred the present petition under Article 226/227 of the Constitution of India read with section 482 of the Code of Criminal Procedure.
3.00. Mr.Mihir Joshi, learned Senior Advocate appearing on behalf of the petitioners has vehemently submitted that as such no offence has been committed by the petitioners, as alleged, for which summons has been issued by the learned Magistrate. It is submitted that even if the averments and allegations made in the impugned complaint are taken as it is on its face value, then also the same do not constitute the offences punishable under sections 406, 409 and 420 of Indian Penal Code, as alleged. It is submitted that as such it cannot be said that the intention of the original accused No.1 Company which is a Government Company was from beginning and inception to cheat and/or deceive the complainant and other investors, i.e. at the time of offering preference shares. It is submitted that all through out and thereafter as and when the dividend had become due, the same was paid to the complainant and other investors. He has further submitted that not only that even thereafter, after obtaining necessary permission from the Central Government as well as after resolution was approved by the shareholders in the extraordinary general meeting held on 27/6/2002 in fact, all the investors inclusive of the original complainant – respondent No.2 herein were offered for redemption of the preference shares prior to the date of maturity. However, the complainant herein had shown his unwillingness and did not accept the said offer and did not opt for premature redemption of the preference shares. It is submitted that if the intention of the accused No.1 Company was to cheat and/or deceive and not to pay any amount for the preference shares, in that case the original complainant would not have even offered for redemption of the preference shares prematurely.
3.01. Mr.Mihir Joshi, learned Senior Advocate appearing on behalf of the petitioners has further submitted that only on non-payment of the amount i.e. redemption of amount under the preference share by itself cannot be said that the petitioners have committed the offences of cheating or breach of trust, as alleged. It is submitted that as such in view of the provisions of section 80 of the Companies Act, the accused No.1 Company was not in a position to redeem the preference shares and therefore, the Company was statutorily debarred from redemption of preference shares.
3.02. Mr.Mihir Joshi, learned Senior Advocate appearing on behalf of the petitioners has further submitted that as such the learned Magistrate has directed to issue process against the petitioners for the offences punishable under sections 406, 409 and 420 of Indian Penal Code, mechanically and though no further evidence was adduced by the original complainant as per the earlier order dtd.17/4/2010 passed by the learned Metropolitan Magistrate, Court No.13, Ahmedabad. He has further submitted that the learned Magistrate has directed to issue process for the offences punishable under sections 406, 409 and 420 of Indian Penal Code mainly on the ground that the accused have failed to pay complainant's dues which is clear from the letter of the accused No.1 dtd.11/12/2003. He has further submitted that merely because the accused have failed to pay the complainant's dues, it cannot be said that the accused have committed the offence of criminal breach of trust and/or cheating, as alleged. Mr.Joshi, learned senior advocate appearing on behalf of the petitioners has further submitted that at the most it can be said to be a breach of contract and is a civil dispute for which the complainant has already instituted civil proceedings by way of filing Suit and even unconditional leave to defend the suit has been granted in favour the accused Company. Mr.Mihir Joshi, learned counsel appearing on behalf of the petitioners has further submitted that the respondent No.2 – original complainant has tried to convert the civil dispute into criminal by way of filing the impugned complaint, which is nothing but an abuse of process of law and court and therefore, it is requested to exercise powers under Article 226 of the Constitution of India read with section 482 of the Code of Criminal Procedure and to quash and set aside the impugned criminal proceedings and the impugned orders, so far as the petitioners are concerned.
3.03. Mr.Mihir Joshi, learned Senior Advocate appearing on behalf of the petitioners has relied upon the following decisions of the Hon'ble Supreme Court :-
(1) (2005) 7 SCC 69 (Vijaya Rao Vs. State of Rajasthan
and another);
(2) (2005) 10 SCC 336 (Uma Shankar Gopalika Vs.
State of Bihar and another);
(3) (2007) 14 SCC 776 (All Cargo Movers (India) Private Limited and others Vs. Dinesh Badarmal Jain and another);
(4) 2008 (1) GLH 603 (Inder Mohan Goswami and another Vs. State of Uttaranchal and others) and
(5) (2009) 6 SCC 77 (S.V.L. Murthy Vs. State
represented by CBI, Hyderabad)
By making above submissions and relying upon the above decisions, Mr.Joshi, learned Senior Advocate appearing on behalf of the petitioners has requested to allow the present petition and to quash and set aside the impugned criminal proceedings as well as order passed by the learned Magistrate directing to issue process for the offences punishable under sections 406, 409 and 420 of Indian Penal Code, so far as petitioners are concerned.
4.00. Present petition is opposed by Mr.P.K. Pancholi, learned advocate appearing on behalf of the respondent No.2 – original complainant. It is submitted that the averments and allegations made in the impugned complaint disclose prima facie commission of cognizable offences for the offences punishable under sections 406, 409 and 420 of Indian Penal Code and considering the same and material on record, when the learned Magistrate has exercised the discretion and has directed to issue process against the petitioners and other accused persons, it cannot be said that the learned Magistrate has committed an error and/or illegality which calls for the interference of this Court ion exercise of powers under Article 226/227 of the Constitution of India read with section 482 of the Code of Criminal Procedure.
4.01. Mr.Pancholi, learned advocate appearing on behalf of the respondent No.2 – original complainant has further submitted that at the time of making offer and inviting the investors for preference shares it was promised that the said preference shares shall be redeemed on completion of 61 months and therefore, relying upon the said promise and assurance, the complainant – investor invested a huge sum of Rs.1 Crore and thereafter when on the due date the preference shares are not redeemed and the payment is not made on the due date as promised and assured, a clear case of breach of trust and cheating has been made out and therefore, the learned Magistrate has not committed any error and/or illegality in directing to issue process against the petitioners for the offences punishable under sections 406, 409 and 420 of Indian Penal Code.
4.02. Mr.Pancholi, learned advocate appearing on behalf of the respondent No.2 – original complainant has further submitted that even subsequent conduct on the part of the original accused No.1 Company to offer 20% of the preference shares speaks volume of things against the accused about their intention. Therefore, it is submitted that no case is made out to interfere with the impugned order passed by the learned Magistrate directing to issue process against the petitioners for the offences punishable under sections 406, 409 and 420 of Indian Penal Code.
Submitting accordingly it is requested to dismiss the present petition by submitting that whatever has been submitted by the petitioners are all the defences which are required to be considered at the time of trial.
5.00. Mr.Dabhi, learned Additional Public Prosecutor has requested to pass appropriate order in the facts and circumstances of the case.
6.00. At the outset it is required to be noted that the respondent No.2 – original complainant has instituted the impugned complaint against the petitioners and other accused persons for the offences punishable under sections 406, 409, 420, 120B and 34 of Indian Penal Code, 1860 mainly alleging inter-alia that as the accused No.1 has not made payment and/or redeemed preference shares on the due date as per their offer dtd.14/9/1998, the accused persons have committed offence of breach of trust, cheating etc. It is the case on behalf of the original complainant that relying upon the promise and assurance as per the offer letter dtd.14/9/1998 that preference shares of the Company which were on private placement basis shall be redeemed after 61 months from the deemed date of allotment (IIBI Preference Shares C Series), the complainant invested huge sum of Rs.1 Crore and purchased IIBI Preference Shares – Series C and thereafter when the said shares are not redeemed on the due date i.e. on 3/1/2004, there is breach of trust and cheating by the accused persons. The learned Magistrate has accepted the above and has directed to issue process against the petitioners and other accused persons for the offences punishable under sections 406, 409 and 420 of Indian Penal Code. However, it is required to be noted that all throughout the company has made payment of dividend as and when due and payable from 1998 till 2003. It is also required to be noted that thereafter the Company decided to redeem the aforesaid preference shares prematurely and a resolution was also passed by the Board of Directors which was also approved by the shareholders (inclusive of the original complainant – respondent No.2 herein) and it was decided to offer premature redemption of the preference shares and even approval from the Central Government was also obtained. That pursuant thereto in fact the Company also offered the complainant for redemption of preference shares prematurely and prior to due date of maturity, however, the complainant did not accept the said offer and did not opt for redemption of preference shares held by them prior to due date of maturity. Under the circumstances, it cannot be said that the intention of the Company was from the very beginning not to redeem the preference shares on due date and/or to cheat or deceive the investor from the very beginning and/or inception at the time of inviting offer on 14/9/1998. If the intention of the accused persons was to cheat and/or deceive the investors from the very beginning and/or even subsequently in that case they would not have even paid dividend and/or even offer for redemption of the preference shares prematurely. It is submitted that thereafter, the financial position of the accused No.1 Company was not sound and the company was not making profit and therefore, in view of the statutory bar under section 80 of the Companies Act, the Company could not redeem the preference shares on due date. It is the case on behalf of the Company that in view of section 80 of the Companies Act, the Company was not in a position to redeem the preference shares on due date. Considering the above, it cannot be said that the petitioners have committed the offences punishable under sections 406, 409 and 420 of Indian Penal Code, as alleged, for which the learned Magistrate has directed to issue process against them. Mere on account of non-payment of amount i.e. redemption of the shares on the due date by itself it cannot said that the petitioners have committed the offences punishable under sections 406, 409 and 420 of Indian Penal Code.
6.01. In the case of Uma Shankar Gopalika (supra); All Cargo Movers (India) Private Limited and others (supra) and Inder Mohan Goswami and another (supra), the Hon'ble Supreme Court has categorically held that for making out a case of cheating, existence of intention to cheat at the time of making initial promise or formation of contract is must. In the case of Uma Shankar Gopalika (supra) the Hon'ble Supreme Court while considering offences punishable under sections 420 and 120B of Indian Penal Code, has observed and held that breach of contract would amount to cheating only if the intention of cheating was existing at the very inception. It is further held that if the said intention developed later-on, the same would not amount to cheating and in such a case remedy lies before the Civil Court by filing a properly constituted suit.
6.02. In the present case as stated above and considering the facts stated hereinabove, it cannot be said that the intention to cheat and/or deceive the investors was from the very beginning i.e. at the time of inviting offer on 14/9/1998.
On the contrary, as stated above the accused No.1 Company not only paid dividend to its shareholders inclusive of the original complainant as and when due and payable and declared but also offered premature redemption of the preference shares, however the complainant – respondent No.2 herein refused to accept the said offer. Under the circumstances, it cannot be said that the petitioners have committed offence of breach of trust and/or cheating, as alleged, for which the learned Magistrate has directed to issue process against the petitioners. Under the circumstances, to continue the criminal proceedings against the petitioners would be abuse of process of law and court.
6.03. It is also required to be noted at this stage that subsequently the complainant has already instituted a Summary Suit against the Company for the very preference shares and even unconditional leave to defend has been granted by the concerned court in favour of the Company. Under the circumstances, it appears that the learned Magistrate has committed an error in directing to issue process against the petitioners for the offences punishable under sections 406, 409 and 420 of Indian Penal Code.
6.04. It is also required to be noted that earlier on 17/4/2010 the learned Magistrate postponed issuance of process observing that before taking cognizance, further evidence on behalf of the complainant is required to be adduced and the matter was adjourned so as to enable the original complainant – respondent No.2 herein to adduce further evidence, however, it appears that thereafter no further evidence has been adduced by the original complainant, still, the learned Magistrate has straightway directed to issue process for the offences punishable under sections 406, 409 and 420 of Indian Penal Code, by observing that the accused have failed to pay complainant's dues which is clear from the letter of the accused Company dtd.11/12/2003. Therefore, it appears that what is weighed with the learned Magistrate while issuing the process is non-payment of the complainant's dues. As stated above, mere non-payment of the complainant's dues cannot be said to be breach of trust and/or cheating by the petitioners - accused. Under the circumstances, the learned Magistrate has materially erred in directing to issue process against the petitioners - original accused Nos.1, 3, 9 and 12 for the offences punishable under section 406, 409 and 420 of Indian Penal Code.
7.00. In view of the above and for the reasons stated above, present petition is allowed. The impugned criminal proceedings being Criminal Case Nos.1469 of 2010 (arising out of Inquiry Case No.91 of 2004), pending in the court of learned Metropolitan Magistrate, Court No.13, Ahmedabad, as well as the impugned order passed by the learned Metropolitan Magistrate, Court No.13, Ahmedabad in the aforesaid complaint dtd.7/8/2010 directing to issue process against the petitioners herein - original accused Nos. 1, 3, 9 and 12, for the offences punishable under sections 406, 409 and 420 of Indian Penal Code, are hereby quashed QUA petitioners herein - original accused Nos. 1, 3, 9 and 12 only. However, the same shall be without prejudice to the rights and contentions of the original complainant in the pending suit and/or against other accused persons in the aforesaid complaint in question. The pending suit shall be decided by the concerned court in accordance with law and on merits and without in any way being influenced by any of the observations made by this court in the present judgement and order. Rule is made absolute to the aforesaid extent.
rafik [M.R. SHAH, J.]