IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 8TH DAY OF FEBRUARY, 2019 BEFORE THE HON'BLE MR. JUSTICE K. NATARAJAN CRIMINAL REVISION PETITION NO.698 OF 2012 BETWEEN:
1. SRI A. KARUNAKARA SHETTY S/O. LATE A. GOPAL SHETTY, AGED ABOUT 74 YEARS, RESIDING AT NO.209, 3RD MAIN, 1ST BLOCK, KORAMANGALA, BANGALORE.
2. SRI GIRISH PUNJA S/O. LATE B.T.R. PUNJA, AGED ABOUT 50 YEARS, RESIDING AT SUDHA NIDHI, 21/22, M.G. ROAD, BANGALORE.
3. SRI GEORGE JOSEPH S/O. LATE P.U. STEPHEN, AGED ABOUT 84 YEARS, RESIDING AT NO.7/12, COLLEGE ROAD, MADIKERE.
4. SRI HIREN HEGDE S/O. LATE K.S. HEGDE, AGED ABOUT 45 YEARS, RESIDING AT NO.5, PRIME STREET, GOOL NISHANTH PRIME, LANGFORD TOWN, BANGALORE.
(BY SRI S. SRIRANGA, ADVOCATE) AND:
... PETITIONERS RESERVE BANK OF INDIA DEPARTMENT OF NON-BANKING SUPERVISION, OFFICE AT NO.10/3/8, REGIONAL OFFICE, NRUPATUNGA ROAD, BANGALORE, REPRESENTED BY ASSISTANT MANAGER.
... RESPONDENT (BY SRI T. SURYANARAYANA, ADVOCATE) * * * THIS CRIMINAL REVISION PETITION IS FILED UNDER SECTION 397 OF THE CR.P.C. PRAYING TO SET ASIDE THE ORDER OF THE JUDICIAL MAGISTRATE FIRST CLASS (II COURT), MANGALORE, DATED 19-6-2012 (ANNEXURE A) AND CONSEQUENTLY THE ENTIRE CRIMINAL PROCEEDINGS.
THIS CRIMINAL REVISION PETITION BEING RESERVED FOR ORDERS ON 2-1-2019 AND COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT PRONOUNCED THE FOLLOWING:
O R D E R This revision petition is filed by petitioner Nos.1 to 4 being aggrieved by the order dated 19-6-2012 passed by the Judicial Magistrate First Class (II Court), Mangalore, in Criminal Case No.2460 of 2003 for dismissing the application filed under Section 245 of the Code of Criminal Procedure.
2. The petitioners are accused Nos.2 to 5 and the respondent is the complainant in the trial Court. The ranks of the parties before the trial Court are retained for the sake of convenience.
3. The factual matrix of the case of the prosecution is that, the complainant – Reserve Bank of India (for short, ‘the R.B.I.’) filed a complaint against the accused alleging that they have violated the order of the Company Law Board and thus, committed the offences punishable under Sections 58-B(4-AAA) and 58-C of the Reserve Bank of India Act, 1934 (for short, ‘the R.B.I. Act’). It is alleged by the complainant that accused No.1 is a non-banking financial company registered under the Companies Act. Accused Nos.2 to 5 are the Directors of accused No.1 Company. In spite of collecting deposits, the accused Company was not repaying the public deposits on maturity. Therefore, several aggrieved depositors approached the Company Law Board (for short, ‘the Board’) complaining regarding non-payment of the deposits. Accordingly, the Board, after hearing the parties, passed the order dated 15-5-2000 directing the accused Company for repayment of deposits. It is further alleged that in spite of directions given by the Board, the accused did not repay the amount to the depositors and failed to comply with the order. Thereby, the accused committed the offences as stated above.
4. After filing of the complaint by the authorised Officer of the R.B.I. (Annexure-G) before the Judicial Magistrate First Class (II Court), Mangalore, the learned Magistrate took cognizance of the alleged offences against the accused and issued process. Thereafter, accused Nos.2 to 5, being the Directors of the Company, appeared before the Court and later, filed an application under Section 245 of the Code of Criminal Procedure seeking their discharge from the charges (Annexure-J), which came to be dismissed by the learned trial Judge (Annexure-A) dated 19-6-2012. Being aggrieved by the same, the present petition is filed by the accused on the ground that initiation of criminal proceedings against them is illegal, arbitrary and abuse of process of law. The complaint is premature, which came to be filed on 13-5-2003 alleging that the accused have committed the offences punishable under Sections 58-B(4-AAA) and 58-C of the R.B.I. Act. The provision of Section 58-B(4-AAA) of the Act clearly states that whoever fails to comply with an order made under Section 45QA(2) of the R.B.I. Act is punishable. In the case on hand, the Board passed the order dated 15-5-2000 by formulating a Scheme for repayment of deposits. The outer time frame fixed was thirty-nine months from the maturity date or the order of the Board, whichever is later. Thirty-nine months from the date of order of the Board comes to an end only on 15-8-2003, but the complaint came to be filed on 13-5-2003. Therefore, it is premature. The complainant has purposely suppressed the vital facts. Further, the respondent also obtained an order of restraint against the accused Company from disbursing any money. Subsequently, the Company has been wound up by order dated 23-6-2006. The winding up has also been done at the instance of the respondent. The pendency of Company Petition No.125 of 2002 has been suppressed and the present complaint is filed. This fact was not placed before the trial Court by the complainant. The Company was already under liquidation proceedings. The High Court has already appointed an Official Liquidator. Therefore, he prayed for allowing the petition and discharge the accused persons.
5. Learned counsel for the petitioners strenuously argued before this Court mainly on the ground that complaint itself a premature one, since the Board granted thirty-nine months for formulating a Scheme to repay the amount, but the complaint was filed three months prior to completion of thirty-nine months from the date of order of the Board. There is permission from the Board under Section 446 of the Companies Act, 1956, and also contended that when the accused Company was restrained by interim order of this Court in Company Petition, the question of making of payment does not arise. The same was not brought to the notice of the Court by the complainant and the same was not considered by the Court below. Therefore, he prayed for setting aside the order of the trial Court. Hence, it is contended that the accused have not committed the offences and also followed the orders of the Board.
6. Per contra, the learned counsel for the respondent – R.B.I. contended that the order of the Board was passed on 15-5-2000 by following the Scheme in paragraph No.11(a) to (g). No documents were produced by the petitioners to show that they have complied with the order. A show-cause notice came to be issued against the accused persons. They replied by admitting non-compliance of the orders of the Board. Such being the case, the question of filing a premature complaint does not arise and also contended that the offences were already committed by the accused by not complying with the order dated 15-5-2000 prior to filing of the Company Petition before this Court and also passing of the interim order by this Court on 12-9-2003. Therefore, it is argued that the trial Court rightly appreciated the facts and rejected the application of the petitioners. Hence, he prayed for dismissing the petition.
7. Heard learned counsel on both side. Perused the records.
8. It is undisputed fact that accused No.1 is a non-financial Company and accused Nos.2 to 5 are the Directors of the Company. Due to dispute between the customers of the accused Company, they approached the Board. It is an admitted fact that the Company Law Board, Southern Region Bench, Chennai, passed an order dated 15-5-2000, at the instance of the R.B.I, by formulating a Scheme to pay the depositors as per paragraph No.11(a) to (j). For the convenience, the direction of the Board at paragraph No.11 reads as follows:
11. Keeping in view the foregoing, interests of the depositors, the Company as well as the public interest and in exercise of the powers under Section 45QA(2) of the Act, I order as follows:-
“(a) The Company shall pay interest at the contracted rate upto the date of maturity and thereafter from the date of maturity till payment at 12.50% per annum. In the event of failure by the Company to make repayment as per the Scheme approved by the CLB, over due interest shall be payable at 14.50% per annum provided that it shall not exceed the contracted rate of interest.
(b) All deposits upto Rs.5,000/- together with interest from the date of deposit till date of payment shall be paid in 01 (one) instalment within a period of 04 (four) months from the date of maturity or date of the order of the CLB whichever is later.
(c) All deposits of Rs.5,001/- to Rs.10,000/- together with interest from the date of deposit till date of payment shall be paid within 21 (twenty-one) months from the date of maturity or date of the order of the CLB whichever is later at 50% of the principal amount during first year and balance of 50% of the principal amount together with the entire interest due thereon in the second year.
(d) All deposits of Rs.10,001/- to Rs.15,000/- together with interest from the date of deposit till date of payment shall be paid within 30 (thirty) months from the date of maturity or date of the order of the CLB whichever is later at 35% of the principal amount during the first year, 30% of the principal amount in the second year and balance of 35% of the principal amount together with the entire interest due thereon in the third year.
(e) All deposits between Rs.15,001/- to Rs.50,000/- together with interest from the date of deposit till date of payment shall be paid within 36 (thirty-six) months from the date of maturity or date of the order of the CLB whichever is later at 30% of the principal amount during the first year, 35% of principal amount in the second year and balance of 35% of the principal amount together with the entire interest due thereon in the third year.
(f) All deposits above Rs.50,000/- together with interest from the date of deposit till date of payment shall be paid within 39 (thirty- nine) months from the date of maturity or date of the order of the CLB whichever is later at 20% of the principal amount during the first year, 25% of the principal amount during the second year and 30% of the principal amount in the third year and balance of 25% of the principal amount together with the entire interest due thereon during the fourth year.
(g) Notwithstanding the above-
(i) all deposits upto Rs.5,000/- maturing during the year 2001 shall be paid together with interest thereon in one instalment within 03 (three) months from the date of maturity of such deposits;
(ii) all deposits of Rs.5,001/- to Rs.10,000/- maturing during the year 2001 shall be paid together with interest thereon in two equal instalments within 06 (six) months from the date of maturity of such deposits;
(iii) all deposits of Rs.10,001/- to Rs.15,000/- maturing during the year 2001 shall be paid together with interest thereon in three equal instalments within 09 (nine) months from the date of maturity of such deposits;
(iv) all deposits above Rs.15,000/- maturing during the year 2001 shall be paid with interest thereon in 04 (four) equal instalments within 12 (twelve) months from the date of maturity of such deposits;
(v) all deposits maturing during 2002 and onwards shall be paid together with interest thereon on maturity of such deposits.
(h) The above Scheme shall be applicable to all deposits, whether matured or yet to mature.
(i) The amount of none of the instalments in any of the above schedules shall be less than Rs.5,000/- except the last instalment.
(j) The Company shall file-
i. an affidavit with the Bench Officer, Company Law Board, Southern Region Bench, by its directors assuring repayment of the deposits as well as payment of interest by the Company as stipulated in this Order. This shall be done by 31-05-2000.
ii. particulars of the Company’s assets with the Bench Officer by 31-5-2000 and not alienate any of the assets without prior approval of the RBI and only towards discharge of the secured liabilities and of the depositors.
iii. The Company shall route its cash-flow through a Separate Account to be opened in a nationalised bank in the name of “DEPOSIT REFUND ACCOUNT OF VIJAYA COMMERCIAL CREDIT LIMITED” and utilise the proceeds towards payment of depositors, Banks, other creditors and day to day operations of the Company.”
9. The Board also directed that the accused Company shall file an affidavit of compliance of the order in paragraph No.14 and in paragraph No.16, the Company and every Officers including the Directors of the Company shall be jointly and severally responsible for due compliance of the order and in paragraph No.17, it is clearly held that any failure to comply with the order on the part of the Company, its Officers and Directors shall attract penal provisions contained in Sub-section (4-AAA) of Section 58-B of the R.B.I. Act as amended by the R.B.I. (Amendment Act) 1997, and in paragraph Nos.18 and 19, copy of the order shall be sent by the Bench Officer to the General Manager, R.B.I. and also to the Registrar of Companies. The said order has been passed by the Board under Section 45AQ(2) of the R.B.I. Act.
10. A private complaint came to be filed by the R.B.I. on 13-5-2003 (Annexure-G). It is also admitted fact that prior to filing of the complaint by the R.B.I., it got issued a show-cause notice on 2-5-2002 as to why penal action should not be initiated against the Company and the Directors for non-complying with the order of the Board. For that, the accused Company gave its reply on 15-5-2002, addressing to the General Manager, R.B.I., admitting that they are not able to fully comply with the order of the Board, but they have made part payment and other part payment will be made soon. For taking further course of action, they requested time till 2-6-2002.
11. Learned counsel for the respondent produced a show-cause notice and its reply, which clearly show that the accused Company including the Directors have clearly admitted that they have not complied with the direction of the Board and the accused have also not stated how much amount they have repaid. As per paragraph No.14 of the order of the Board, the Company shall file an affidavit of compliance together with a return furnishing the information specified in the Scheme with reference to status of the Scheme before the Bench with a copy to the General Manager, R.B.I. The accused not at all produced any of such affidavit for having complied with the directions of the Board. It is pertinent to note at paragraph No.11, the accused Company is required to pay all deposits up to Rs.5,000/- in one installment within a period of four months, deposits of Rs.5,001/- to Rs.10,000 together with interest within twenty-one months of which 50% of the principal amount during the first year and balance 50% of the principal amount and interest in the second year. Deposits of Rs.10,001/- to Rs.15,000/- together with interest in thirty months of which 35% of the principal amount during the first year, 30% of the principal amount in the second year and 35% of principal amount and interest in the third year, and for deposits between Rs.15,001/- to Rs.50,000/-, it shall be paid within thirty-six months. Even if this period is considered, the complaint was filed on May, 2003 from the date of order and lodging the complaint, thirty-six months have expired and only three months was remaining. The thirty-nine months is only for Rs.50,000/- and above amount. There is no affidavit filed by the accused before the R.B.I. to show that they have complied with the directions of the Board. On the other hand, they have clearly admitted in reply notice on 15-5-2002 that they require some more time, which is a bald reply without any document to show that they actually paid any amount to the creditors. Therefore, the contention of the learned counsel for the petitioners cannot be accepted that, the complaint came to be filed within the timeframe granted or fixed by the Board. No doubt the maximum time granted for deposits above Rs.50,000/- together with interest was within thirty- nine months for which 20% of the principal amount during the first year, 25% in the second year, 30% during the third year and the remaining principal amount together with interest during the fourth year. Up to thirty-nine months, they required to pay 75% of the deposit and remaining 25% to pay in the fourth year only after expiry of three years. Therefore, the accused have not complied with any of the directions as in paragraph No.11(a) to (e), which clearly attracts the provisions of Section 58-B (4-AAA) of the R.B.I. Act.
12. For convenience, Section 58-B (4-AAA) of the R.B.I. Act reads as follows:
“58-B (4-AAA) Whoever fails to comply with any order made by the Company Law Board under sub-section (2) of Section 45-QA, shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to a fine of not less than rupees fifty for every day during which such non-compliance continues.
13. Section 58-C(1) of the R.B.I. Act reads as follows:
58-C. Offences by companies.-
(1) Where a person committing a contravention or default referred to in Section 58-B is a company, every person who, at the time the contravention or default 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 contravention or default and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention or default was committed without his knowledge or that he had exercised all due diligence to prevent the contravention or default.
14. Therefore, in spite of expiry of thirty-six months from the date of the order of the Board till 13-5-2003, there is no document or affidavit produced by the accused to show that they have complied with the order as per paragraph No.11(a) to (e) of the Board and on May, 2002 itself, they admitted that they have not complied with the order of the Board to the full extent without any details of payment. Therefore, the accused are required to be charged for the offences punishable under Sections 58-B(4-AAA) and 58-C(1) of the R.B.I. Act and it cannot be said that complaint was premature. Therefore, the contention of the learned counsel for the petitioners cannot be accepted.
15. The another contention taken by the learned counsel for the petitioners is that when the R.B.I. filed Company Petition No.125 of 2002 before the High Court, there was an interim order passed by the Court on 12-9-2003 restraining the accused – Company from making any payments. Such being the case, the question of non-compliance of the order of the Board does not arise. With regard to the said contention, the petitioners produced the order dated 23-6-2006 passed by this Court in Company Petition No.125 of 2002 and other connected matters (Annexure-D), wherein the R.B.I. moved the petition for winding up of the Company under Section 45MC of the R.B.I. Act read with Section 433 of the Companies Act, 1956, and the final order came to be passed on 23-6-2003 by allowing the Company Petition and ordered to wind up the Company. In this case, the complaint is filed in May, 2003. The interim order dated 12-9-2003 (Annexure-E), which shows that the accused – Company was restrained from making any payment in pursuance of any Court decrees or warrants for their arrest in necessary to any coercive steps taken against the Company for payment of the amount, until further orders.
16. A perusal of the order of the Court indicates that, it does not prevent the Company from making any payment, as per the order passed by the Board. But the order of this Court is only against the persons, who file the original suit before the Civil Court and obtains any decree and tried to execute decree by fresh warrant. But this order came to be passed after three years from the date of the order of the Board. Even if it is considered, thirty-nine months would lapse in August, 2003 itself prior to passing of interim order in September, 2003. Therefore, the accused – petitioners cannot take shelter on the interim order dated 12-9-2003 for non-payment or default payment in compliance of the order of the Board, but they can agitate the same in trial and not at the stage of framing of charge. If at all, the accused Company paid any amount to the creditors, they could have filed the documents before the Magistrate, if they have really complied with. The directions of the Board, prima-facie, goes to show the document produced by the learned counsel for the R.B.I., the accused have admitted in reply dated 15-5-2002 to the show-cause notice that they have not complied with the orders of the Board, which attracts the provisions of Section 58-B(4-AAA) of the R.B.I. Act. Therefore, these documents, i.e. Annexures-D and E will not come to the aid of the accused from discharging them of the charges.
17. Another contention taken by the learned counsel for the petitioners is that before filing the complaint, the leave of the Court to be obtained under Section 446 of the Companies Act.
18. On bare reading of Section 446 of the Companies Act refers that, after passing of the winding up order by the Court, no suit or legal proceeding can be commenced against the Company, except by leave of the Court and subject to such terms as Court may impose. If a suit or proceeding is pending at the date of the order, it shall not be proceeded except with the leave of the Court. On clear terms, it goes to show that the expression “legal proceedings” in Section 446 of the Companies Act means only those proceedings, which have a bearing on the assets of a Company in winding up or some relationship with the issues in winding up. It does not mean each and every civil proceedings which has no bearing on the winding up proceedings or criminal offences, where the Company was liable to be prosecuted. It clearly goes to show that permission is required to initiate the proceedings against the Company, after passing of the winding up order or any proceedings. They have to seek leave of the Court, but it is not included the criminal action against the offences committed by the Company. In this regard, learned counsel relied upon the order passed this Court in Criminal Petition No.6064 of 2012 and connected matters in the case of SAJJAN KUMAR JHUNJHUHNWALA AND OTHERS v. M/S. EASTERN ROADWAYS PRIVATE LIMITED wherein, a complaint was filed against the Directors under Section 138 of the Negotiable Instruments Act without making the Company as a party. In the said case, this Court relying upon the judgments of the Hon'ble Supreme Court in the case of ANEETA HADA v. GODFATHER TRAVEL AND TOURS PRIVATE LIMITED reported in [(2012) 5 SCC 661] and in the case ANIL HADA v. INDIAN ACRYLIC LIMITED reported in [(2000) 1 SCC 1], has set aside the issuance of process in respect of the case filed against the Directors without making the Company as a party. Therefore, the said judgments are not applicable to the facts and circumstances of the present case.
19. Learned counsel for the petitioners also relied on the judgment in the case DR. C.R. BHANSALI v. K. RAMESH AND ANOTHER reported in ILR 2001 KAR 734, wherein it was held that in case the liquidation proceedings are initiated, then the permission of the Company Court is necessary to file a complaint.
20. On perusal of the judgment, it goes to show that a complaint came to be filed without the leave of the Court, without passing of the order of the liquidation and appointment of Official Liquidator. In this case, the Board passed the order in the year 2000, whereas the complaint came to be filed in the year 2003 itself, prior to passing any order by this Court either by interim or final order in the Company Petition.
Therefore, there is no necessity for seeking permission to file complaint by the R.B.I.
21. Learned counsel for the respondent – R.B.I. contended that for initiating criminal proceedings against the Directors, the permission is not required. Reliance is placed by learned counsel in the case of M/S. PENNAR PATERSON LTD. v. M/S. SHIKSHAK SAHAKARI BANK LIMITED reported in (2010) 101 SCL 290 (SC), wherein it is held for initiating criminal proceedings, the permission of the Court under Section 446 of the Companies Act is not required. He further relied on the judgment of the Hon’ble Supreme Court in the case of M/S. BSI LTD. AND ANOTHER v. GIFT HOLDINGS PVT. LTD. AND ANOTHER reported in (2000) 100 COMPANY CASES 436, wherein it is held that suit does not include prosecution and if offences were committed before the Company declaring as sick industry, therefore, it is held the prosecution was not barred. In the said case, the Directors were issued cheque which was dishonored and a complaint was filed under Section 138 of the Negotiable Instruments Act and subsequently, the said industry was declared as a sick industry under the Sick Industrial Companies (Special Provision) Act, 1985. Therefore, the Hon'ble Supreme Court held if the offences committed prior to declaring as sick industry, for filing of the complaint, the permission is not required. In this case, even on considering the case of the accused Company, the Board passed the order in May, 2000 and issuance of show-cause notice by the R.B.I., the accused have not complied with the order. The Company Petition came to be filed by the R.B.I. in the year 2002 and the final order came to be passed for winding up of the Company only on 23-6-2006. Therefore, for filing the suit or any proceedings, the permission under Section 446 of the Companies Act is required, only after passing of the order in the Company Petition for winding up of the Company. Therefore, as held by the Hon’ble Supreme Court stated Supra, the criminal proceedings for filing the complaint for the offences were already committed prior to passing of order in the Company Petition and hence, seeking permission does not arise. On this ground also, the revision petition deserves to be dismissed.
22. Learned counsel for the petitioners submitted that the Court has power to relieve the petitioners from liability, if it appears to the Court that they have acted honestly and reasonably. He further contended that the petitioners require to sell the property, recover the amount from the borrowers, which requires much more time, they made an honest effort to pay the amount to the creditors. Therefore, the petitioners have not committed any offences. In support of his arguments, learned counsel relied upon the provisions of Section 633 of the Companies Act.
23. On the other hand, the learned counsel for the respondent – R.B.I. contended that benefit of Section 633 of the Companies Act will not be available to the petitioners since the offences were committed under the R.B.I. Act for violation of order of the Board.
24. On perusal of Section 633 of the Companies Act provides the Court can excuse and relieve persons either partly or wholly from the liability. However, the proviso restricts that in a criminal proceeding, the Court shall have no power to grant any relief from any civil liability which may attach to an Officer in respect of such negligence, default, breach of duty, misfeasance or breach of trust. In this case, though the petitioners were respondents before the Board, a direction was issued to them for making payment to the creditors by framing a Scheme, but none of the Scheme has been complied with by the accused - petitioners and they themselves admitted in reply notice for non-compliance. Apart from that, it is a criminal proceeding mutated for having negligence to comply with the order, which is punishable under the R.B.I. Act. Therefore, the contention of the learned counsel for the petitioners for relieving the petitioners by excusing them does not arise, at this stage. If at all, the petitioners able to elicit any evidence in cross-examination of the prosecution witness and adduce evidence as defence on their behalf, they have to take such a defence during the trial. But, at this stage of framing of charges, the Court cannot go into the merit of the case for giving excuse or benefit to the petitioners. Hence, the said contentions taken by learned counsel for the petitioners is rejected.
25. On perusal of the contention taken by learned counsel for the petitioners, none of the grounds were meted out by the petitioners to discharge them of the charges in the complaint filed by the R.B.I. Therefore, the trial Court rightly held that there is sufficient material to frame the charges for the alleged offences and if at all any defence available to the accused, they can agitate and take defence in the cross-examination. It is well settled principle of the Hon’ble Supreme Court in the catena of cases for framing of charges, the Court requires to see prima-facie material available on record to proceed the trial against the accused and not to go into the merits of the case for acquittal or conviction.
26. Therefore, I do not find that the order of the trial Court suffers from any infirmity or illegality warranting interference by this Court. Therefore, the revision petition being devoid of merit is liable to be dismissed.
Accordingly, the criminal revision petition is dismissed. The trial Court is directed to proceed in accordance with law and to dispose off the case as early as possible.
SD/- JUDGE kvk