This petition is filed u/s.482 of Cr.P.C. to quash Annexure-I complaint pending before Chief Judicial Magistrate Court, Ernakulam as C.C.No.137/2009. The above complaint was filed by the 2nd respondent alleging the offence punishable u/s.406, 409 r/w.34 IPC.
2. The petitioners are 3rd, 4th and 5th accused in the above case. The petitioners contended that the 1st accused is a share trading company registered with SEBI. Annexure-II Client Registration Kit shows the high risk involved in the transactions, being speculative business, which was disclosed to the 2nd respondent before registration of the accepted terms. The petitioners were the employees of the 1st accused company. They were not directly involved in any of the alleged transaction. Now they were resigned from the company and doing independent work in other companies. There is no allegation in the complaint that the invested funds were misappropriated by the petitioners for their own use. Moreover, a perusal of the complaint shows that no materials are produced before Court to make a prima facie case against them. Hence, the inherent jurisdiction may be invoked to quash Annexure-I complaint in this case.
3. The 2nd respondent's allegation in Annexure-I complaint is that he is a business man mainly engaged in share investing business and the 1st accused is a share- broking company registered under the provisions of the Companies Act, having its branch office at Ernakulam. The other accused persons are office bearers and person in charge of the branch of the company at Ernakulam. In January, 2000, a person working in the 1st accused company telephoned the 2nd respondent introducing as the branch manager and informed that the firm wish to deal with the share trading and investment business with the 2nd respondent. He further informed that if the 2nd respondent opens and operates a share dealing account through his company's branch at Ernakulam, the 2nd respondent could make enormous profit through the advices and services they offer. As per the assurance, he signed a member-client agreement. In the year 2006, the 3rd accused advised to do the speculative section of share operation. The accused persons stated to the 2nd respondent that he would get greater and quicker profit from this type of share business than normal investments. In November 2006, the 2nd respondent received a contract note of the Futures transaction of a company called 'Escorts' sent by the accused persons. But, without the consent of the 2nd respondent, the accused persons purchased the Escorts futures in the account of the 2nd respondent in large quantity. In that transaction, the 2nd respondent sustained huge loss. In November also, he received another contract notes of Escorts futures, in which also it was found that the 1st accused had violated the lawful directions of the 2nd respondent. Due to that illegal act, the 2nd respondent sustained a huge loss of Rs.1,79,755.37/- and due to criminal misappropriation, he also sustained a loss of Rs.73,650/-. In the circumstances, the 2nd respondent filed Annexure-I complaint before CJM, Ernakulam. Hence, the petitioners, who are the employees of the 1st accused approached this Court with this petition.
4. The learned counsel for the petitioners contended that the petitioners have no direct contact with the transaction, which caused huge loss to the 2nd respondent. There is no entrustment of money with them, no misappropriation of such amount and no offence u/s.406, 409 r/w.34 IPC were attracted against them. The 1st accused company is a firm incorporated under the Companies Act and is working as per the Statute. The entire business transaction of the Company is being carried out strictly in accordance with the guidelines laid down by the Securities Exchange Board of India. The entire trading is based upon speculative business and no guarantee or assurance for profit can be given by the share trading company. Therefore, a high level risk is involved in the conduct of the transactions. The 2nd respondent signed member client agreement only after realising the risk involved in the business. There is no misappropriation of funds by the petitioners. Therefore, prima facie, no case is made out to attract the alleged Section. When no prima facie case is made out against petitioners, the trial of the case will be a mere abuse of the process of Court. The learned counsel relied the Apex Court decisions in Asoke Basak v. State of Maharashtra and others [(2010) 10 SCC 660] and GHCL Employees Stock Option Trust v. Kranti Sinha [ (2013) 4 SCC 506].
5. The learned counsel appearing for the 2nd respondent strongly resisted the above contention and contended that the 1st petitioner was the Branch Manager of the Company and the entire transaction was processed through him. He acted as per the direction issued by the 1st accused company. Therefore, they are necessary parties. Even though, the 1st accused received the amount, these petitioners are also liable for the act done by them. If the jurisdiction u/s.482 Cr.P.C. is invoked at this stage, it will affect the entire case.
4. The inherent jurisdiction can be invoked to make such 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 prima facie case is made out in a complaint against the accused, it is not fair to invoke such inherent jurisdiction at the pre-trial stage. Therefore, while invoking the inherent jurisdiction, the High Court cannot conduct an enquiry with regard to the nature of evidence furnished in the trial Court for satisfaction of the High Court that whether it is reliable or whether there is evidence for a conviction. The principles governing for invoking the inherent jurisdiction have been explained by the Apex Court in State of Haryana v. Bhajanlal, [1992 SCC (Crl) 426], which reads as follows:
“(1) Where the allegations in the FIR/complaint, even if they are taken at their face value do not prima facie constitute any offence against the accused. (2) Where the allegations in the FIR of other materials do not constitute a cognizable offence justifying an investigation by the police under Section 156(1) of the code except under an order of a Magistrate within the purview of Section 155(2). (3) Where the uncontroverted allegations in the FIR/complaint and the evidence collected thereon do not disclose the commission of any offence. (4) Where the allegations in the FIR/complaint do not constitute any cognizable offence but constitute only non-cognizable offence to which no investigation is permitted by the police without the order of Magistrate under Section 155(2).
(5) Where the allegations are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused. (6) Where there is an express legal bar engrafted in any of the provisions of the Code or the Statute concerned (under which the proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the code or in the statute concerned, providing efficacious redress for the grievance of the aggrieved party. (7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accuse with a view to spite him due to private and personal vengeance.
In this case, I have considered the averments put forwarded by the 2nd respondent in Annexure-I complaint. It is the case of the 2nd respondent that the petitioners along with the other accused conducted the share broking business and thereby, the 2nd respondent sustained a huge loss of Rs.1,79,755.37/- and Rs.73,650/-. According to the 2nd respondent, the petitioners and other accused committed criminal breach of trust and misappropriated those amount. In Annexure-I it is admitted that the 2nd respondent signed member client agreement and as per the assurance given by the 1st accused share broking company, he engaged in the business. The high risk involved in the business was admitted by the petitioners. In Annexure-II, 13th clause reads as follows:
“The Client and the Stock Broker agree to refer any claims and/or disputes to arbitration as per the Rules, Byelaws and Regulations of the Exchange and circulars issued thereunder as may be in force from time to time.”
The risk factors were also mentioned in Annexure-II. There is also an agreement with regard to deposited cash and property. In Annexure-II, clause 3.2 deals with such subjects and it is assured that all dealings shall be subject to arbitration as per the byelaws/regulations of the Exchange.
5. In order to attract offence u/s.406 and 409 IPC, the 2nd respondent has to plead and establish that any person entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged or of any legal contract, express or implied, which he has made touching the discharge of such trust or wilfully suffers any other person so to do, commits criminal breach of trust. Here, there is no averment in the complaint that the entire amount was entrusted to the petitioners and petitioners in violation of the direction of law misappropriated those amounts for their own use. Therefore, it is found that prima face case is not made out against these petitioners. Apex Court in G.Sagar Suri v. State of
U.P. [(2000) 2 SCC 636] held as follows:
“8. Jurisdiction under Section 482 of the Code has to be exercised with great care. In exercise of its jurisdiction the High Court is not to examine the matter superficially. It is to be seen if a matter, which is essentially of a civil nature, has been given a cloak of criminal offence. Criminal proceedings are not a short cut of other remedies available in law. Before issuing process a criminal court has to exercise a great deal of caution. For the accused it is a serious matter. This Court has laid certain principles on the basis of which the High Court is to exercise its jurisdiction under Section 482 of the Code. Jurisdiction under this section has to be exercised to prevent abuse of the process of any court or otherwise to secure the ends of justice.”
6. In Annexure-2, it is admitted that when there arise any dispute with regard to the transaction, the remedy available to the parties is to approach for arbitration. Such civil remedy is available in this case. Therefore, I am of the opinion that this is a fit case to invoke the inherent jurisdiction. The transaction is with the company. Nothing has been mentioned in the complaint to show that who is the person in- charge and responsible for the day-to-day affairs of the company. The responsibility of the Managing Director of the
Company was discussed by the Apex Court in S.K. Alagh v. State of U.P.[ (2008) 5 SCC 662], in which it was held as follows:
“19. As, admittedly, drafts were drawn in the name of the Company, even if the appellant was its Managing Director, he cannot be said to have committed an offence under Section 406 of the Penal Code. If and when a statute contemplates creation of such a legal fiction, it provides specifically therefor. In absence of any provision laid down under the statute, a Director of a company or an employee cannot be held to be vicariously liable for any offence committed by the company itself.”
Moreover, the liability of the Company was explained by the larger Bench of the Apex Court in S.M.S. Pharmaceuticals Ltd., v. Neeta Bhalla [(2007) 4 SCC 70], 12. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the Section are "every person". These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words "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 etc." What is required is that the persons who are sought to be made criminally liable under Section 141 should be at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for conduct of business of the company at the time of commission of an offence, who will be liable for criminal action.It follows from this that if a director of a Company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a Company may be liable if he satisfies the main requirement of being in charge of and responsible for conduct of business of a Company at the relevant time. Liability depends on the role one plays in the affair of a Company and not on designation or status. If being a Director or Manager or Secretary was enough to cast criminal liability, the Section would have said so. Instead of "every person" the section would have said "every Director, Manager or Secretary in a Company is liable'..........etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action.”
7. Considering the facts and circumstances in this case, I am of the view that prima facie case is not made out against the petitioners. If trial is proceeded with Annexure-1 complaint, it is a mere abuse of process of the Court. Hence, I quash Annexure-I complaint filed u/s.190 and 200 of Cr.P.C against the petitioners and this petition is allowed accordingly.
However, I make it clear that this will not stand in the way of the case pending against the 1st and 2nd accused.
acd P.D. RAJAN, JUDGE.