Between :
HONOURABLE SRI JUSTICE P.NAVEEN RAO WRIT PETITION NO.17525 OF 2014 Date: 22.12.2014 Tech Mahindra Limited, (formerly known as Satyam Computer Services Limited) with its registered office at Gateway Building, Appolo Bunder, Mumbai, having its Office at Infocity, Unit 12, Plot 35/36, Hi-tech City Layout, SurveyNo.64, Madhapur, Hyderabad, rep.by its Assistant Chief Corporate Counsel(Legal), Mr.K.Sudhakar Reddy and another.
….. Petitioners And Joint Director, Directorate of Enforcement, 3rd Floor, Shakar Bhavan, Basheerbagh, Hyderabad and others.
…… Respondents This Court made the following :
ORDER:
HONOURABLE SRI JUSTICE P.NAVEEN RAO WRIT PETITION NO.17525 OF 2014 On 07.01.2009, Sri B.Ramalinga Raju, the then Chairman and Managing Director of Satyam Computer Services Limited (SCSL) made startling revelations about several illegalities in operation of SCSL, which triggered panic buttons among the investors, employees and in the corporate world at large. Crime No.2 of 2009 was registered by the State Crime Investigation Department against the then Chairman, Directors and Auditors of SCSL. By order dated 13.02.2009, Government of A.P., entrusted Crime Investigation to the Central Bureau of Investigation (CBI). The Government of India also passed appropriate orders in this regard. Accordingly, CBI investigated into the crime and filed charge sheet in C.C. Nos.1, 2 and 3 of 2010 on the file of XXI Additional Chief Metropolitan Magistrate, Hyderabad. The Directorate of Enforcement, Government of India, registered ECIR/01/HZO/2009 on 23.01.2009 and took up investigation. Consequent to the said investigation, Directorate of Enforcement filed complaint bearing SC No. 1/2014 before the XXI Additional Metropolitan Magistrate-cum-Special Sessions Judge at Hyderabad. The Court has taken cognizance of the same by order, dated 25.2.2014.
2. The gravamen of allegations is that the then Management inflated the share price of SCSL. Sri B.Ramalinga Raju and his associates started the company by name M/s.SRSR Holdings Private Limited. All the share held by them in SCSL were sold at inflated price. SR holdings borrowed from NBFC to fund such purchase. The said loans were cleared by Sri B.Ramalinga Raju and his associates. The share proceeds were transferred to front companies, in which the family members and close associates were the Directors. An amount of Rs.1425 crores were transferred to SCSL through front companies floated by them to SCSL between 17.11.2006 to 30.10.2008. However, Rs.194.60 crores was returned to some of the front companies and balance of Rs.1230.40 crores continued to subsist with SCSL. Out of this, it is alleged that Rs.822.00 crores constitutes part of loans derived/obtained by pledging inflated shares of SCSL. This amount was used by the SCSL to the financial requirements of the company, like payment of salaries, general, administrative expenses etc. In the meantime as investigation has commenced under Act, 2002, petitioner was restrained from returning this money to 34 companies. The money which has flown into SCSL in this manner remained with SCSL. The Enforcement Directorate treats Rs.822 crores as proceeds of Crime and initiated prosecution and attachment of the said money simultaneously under the Prevention of Money Laundering Act, 2002.
3. The complaint bearing S.C.No.1 of 2014 filed by the Enforcement Directorate and taking cognizance of the same by the XXI Additional Chief Metropolitan Magistrate-cum-Special Sessions Judge, Hyderabad is under challenge in this writ petition.
4. Heard Sri S.Ravi, learned senior counsel for Sri Vivek Reddy and Sri P.S.P.Suresh Kumar, learned counsel for Enforcement Directorate.
5. Learned senior counsel for the petitioners contended that Central Government having noticed grave illegalities in the functioning of Satyam Computer Services Limited, as it existed prior to 2009, by due process of law, inducted new investors and after following due process of law, the company is taken over by Tech Mahindra Limited. As per the orders of the Company Law Board (CLB), as directed by the Central Government, fresh funds were infused into the company. The allegations which are subject matter of initiation of proceedings by the Enforcement Directorate are the allegations pertaining to the several illegalities committed by the then Board of Directors of the Company prior to 2009. Learned Senior Counsel therefore contended that no criminal proceedings can be initiated against the present company. On account of initiation of criminal proceedings, though the petitioner company is no way concerned with the illegalities committed prior to 2009, the company’s reputation would be in jeopardy and it will have a cascading effect on the entire Information Technology industry in the country, its employees and the reputation of companies of India as such.
6. After conducting detailed investigation into Satyam Fiasco, charge sheet was filed by the CBI in C.C.Nos.1, 2 and 3 of 2010. CBI not implicated the petitioner company. On the contrary, in the charge sheet filed by the CBI, it specifically alleged that on account of the illegalities committed by the then Directors of the company, company became the victim. This is also the stand of the Central Government in affidavits filed before various forums and before the CLB. Learned senior counsel further contended that the present petitioner is inducted as a consequence to steps taken by the Central Government to revive the company and on one hand the Central Government takes the stand that because of the illegalities committed by the previous management, the company suffered and in order to infuse fresh life into the company, Central Government took initiative, a wing of the Central Government prosecute the petitioner company for the illegalities committed by the previous management. Learned senior counsel therefore contended that proceedings against the company under Act, 2002 is wholly illegal and it amounts to unnecessary harassment of the company.
7. Learned senior counsel further contended that it is the consistent stand of all the Central investigating agencies that the petitioner was ‘victim of crime’ perpetrated by the former management, as evident from:
a) Serious Fraud Investigation Office (SFIO) Report dated 23.10.2009 (at para 4.13.3)
b) CBI report dated 07.04.2009 (at para 122 and para 138)
c) CBI report dated 22.11.2009 (at para 32, para 62 and para 70)
d) CBI report dated 07.01.2010 (at para 44)
8. Charge sheet filed by CBI reveals that the former Chairman suppressed the information regarding the infusion of Rs.1230 crores from the Board of Directors and the investors; that the amounts were not reflected in the books of accounts or in the financial statements of petitioner. In the complaint before the adjudicating authority, ED submitted that former Chairman never informed the Board or the investors about the infusion of Rs.1230 crores into the company. This demonstrates that the petitioner company did not have knowledge about the alleged inflow. The actions and omissions of the former management cannot be attributed to the petitioner.
9. The Company Law Board also held that the petitioner has suffered huge damages due to acts of commission and omissions by Raju’s, which was upheld by this Court in Manohar Lal Sharma v. Union of India [2009 (6) ALD 315]. This Court in C.A.No.4 & 5 of 2014 categorically held that the prosecution of the petitioner for the actions and omissions of the previous management after it was revived pursuant to the intervention of Government of India and the Company Law Board would be a ‘travesty of justice’ and amounts to ‘persecution’.
10. Referring to order of this court Orders in para 31(b) in C.P.No.123 of 2013, learned senior counsel contended that Section 394 (1)(b)(iii) of the Companies Act, 1956 mandates the proceedings against Transferor Company to be continued against the Transferee Company and such direction forms part of every order approving scheme of Amalgamation under Section 394 of the Companies Act, 1956. Such being a general order, its application cannot be extended to present issue mechanically.
11. He submitted that High Court categorically stated that the approved scheme would have no bearing on C.P.No.1 of 2009 pending before the Company Law Board against the petitioner and the alleged infusion of Rs.1230 crores was tainted with secrecy and behind the Board of Directors. The High Court also observed that the said payments from 2006 to 2008 are not supported by documents or resolutions. This Court order also supports petitioners plea on lack of knowledge. It is thus contended that the petitioner company had no knowledge of alleged transactions.
12. Alternatively it is contended by senior counsel that even assuming that petitioner company is responsible for all the illegalities committed by the management of SCSL, those alleged illegalities were committed prior to 2009. Allegation of offence of money laundering is only with respect to scheduled offence as seen from section 3 r/w Section 2(u) and (y) of ACT, 2002. Petitioner company has not committed any forgery and, therefore, said provision is not attracted insofar as the petitioner is concerned. In the charge sheet now filed the provisions which are introduced into schedule by virtue of Amendment Act 2009 are invoked and thereby the petitioner is alleged to have violated the provisions of Sections 120-B, 419, 420, 467 and 471 IPC. Section 120-B of IPC deals with criminal conspiracy, 419 deals with punishment by cheating by impersonation, 420 deals with cheating and dishonestly inducing delivery of the properties, 467 deals with forgery of valuable security/will etc and 471 deals with using as genuine a forgery document or electronic record. Except 467 IPC these provisions are introduced for the first time by virtue of Amendment Act 2009 and, therefore, those provisions have no application. Learned senior counsel therefore contends that initiation and continuation of criminal prosecution against petitioner is unsustainable and amounts to arbitrary exercise of power without jurisdiction and competence and, therefore, liable to be set aside. It amounts to applying penal provisions retrospectively. Article 20(1) prohibits even formulation of charge with respect to an incident when such incident/act is not classified as crime. Petitioner company is not concerned with forgery and the former management is accused of forgery. The petitioner company is not alleged to have knowledge of the offence of money laundering where as primary ingredient of Section 3 of the Act is knowledge and therefore the proceedings against petitioner company are ex-facie illegal.
13. Showing petitioner as accused adversely impacts the petitioner since a company which is prosecuted is not eligible to participate in various international and government contacts. In W.P.No.37487 of 2012, this Court while granting stay of attachment under Section 5 of ACT, 2002 observed that such an action is counterproductive to actions initiated by other wings of Government of India.
14. In support of above submissions, learned senior counsel relied on the following decisions:
i) State of Maharashtra vs. Kaliar Koil Subramaniam Ramaswamy[1]
ii) Soni Devrajbhai Babubhai vs. State of Gujarat and others[2] [3]
iii) State of Haryana and others vs. Bhajan Lal and others
iv) Delhi Development Authority vs. Skipper Construction Co.(P) Ltd.
[4] and another [5]
v) Manohar Lal Sharma Vs. Union of India and another [6]
vi) Ganesh Gogoi vs. State of Assam [7]
vii) Reliance Natual Resources Limited vs. Reliance Industries Limited
viii) Mr.Radha Mohan Lakhotia, Indian National and Citizen vs. The Deputy Director, PMLA, Directorate of Enforcement, Ministry of Finance, [8] Department of Revenue [9]
ix) Rajiv Thapar and others vs. Madan Lal Kapoor
x) Standard Chartered Bank and others vs. Directorate of Enforcement [10] and others
xi) Madras High Court Order in W.P.No.530 of 2011, dated 01.04.2011
15. Sri Suresh Kumar contended that writ petition under Article 226 of the Constitution of India praying to quash proceedings pending before XXI Additional Chief Metropolitan Magistrate Court is not maintainable. Constitutional Court cannot interject conducting trial in a crime, even before trial is concluded. He further contended that petitioner has an effective and efficacious remedy under Section 482 Cr.P.C.
16. Sri Suresh Kumar further contended that, the present company is a successor company of Satyam Computer Services Limited and as a successor company, for the illegalities committed by the previous company, it is liable. The Company Court has passed orders of amalgamation on 11.06.2013 in Company Petition No.123 of 2012 and batch. While approving the scheme of amalgamation and arrangement with effect from 01.04.2011, the Court has enforced certain conditions. One of the conditions imposed is debts, liabilities, contingent liabilities, duties and obligations, which relate to the period or upto the appointed date, stands transferred and vested in Tech Mahidra Limited and all those liabilities would become the liabilities and obligations of Tech Mahindra Limited on the same terms and conditions as are applicable to SCSL. It is further ordered that all the pending proceedings of whatever nature, would not abate or be discontinued and would not be prejudicially affected by reason of the transfer of the entire business and proceedings should be continued and prosecuted and enforced by or against the petitioner company, in the same manner and to the same extent as they would or might have been continued, if the scheme has not been made.
17. As seen from paras 12 to 15, 17, 19, 20 to 24, 32 to 34, 44, 45, 50 to 52, 59, 60, 63, 66, 67, 74, 80, 85, 91, 203 of the CBI charge sheet and the supplementary charge-sheet filed by CBI, CBI concluded that the total loss suffered by financial institutions and investors is approximately to a tune of Rs.14162,25,41,109.51. The SCCL was the company concerned and TML is its successor.
18. Provision in Section 3 of Act, 2002 applies to offence of money laundering by company and therefore on an offence of money laundering a company can be proceeded. Thus, non-inclusion of SCCL as accused by the CBI in CC Nos. 1, 2 and 3 of 2010 has no relevance to proceedings under Act, 2002. SCCL accounts were forged, balance sheets were fabricated and records were tampered and shares were traded at a inflated price and the company received proceeds of crime and utilized the same as untainted money. Hence the involvement of company cannot be ruled out in the commission of offence of money laundering.
19. He further submitted that petitioner No.1 in the audit report for the year 2010- 11, at para 5.1 stated that the alleged advances have been presented separately. Further in the letter dated 06.06.2012, Enforcement Directorate was informed that company has sufficient cash reserves to meet any obligations that may ultimately arise on the subject money. Therefore, it cannot be said that petitioner company was not aware.
20. He further submitted that the language of Section 3 is very wide and covers all categories of persons involved directly or indirectly, attempt to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property. Petitioner company directly indulged in the activity of acquiring proceeds of crime and also received the proceeds of crime and projected the same as untainted property. Hence, it cannot be contended that the petitioner no.1 is not having the knowledge about the offence of money laundering. As per the scheme of Act, 2002, a person who is not an accused for schedule offence can also be made as accused in the offence of Money Laundering.
21. He contended that as per the scheme of the Act, 2002, once a prima facie case is made, there is a presumption of guilt and it is on the accused to rebut the presumption.
22. He submits that Division Bench of this High Court upheld validity of various provisions of the act in the case of B.Rama Raju.
23. It is further contended that investigation made so far revealed huge financial illegalities committed by the then Directors of Satyam Computer Services Limited, and huge unaccounted money was brought into the company. The actions of then Directors of the company and the company attract offence of Money Laundering. For the illegalities committed by the then Directors of the company, the company is equally liable under the provision of Act, 2002 and as the successor company, in accordance with the orders passed by the Company Court, the E.D. is competent to proceed against the petitioner company. Learned standing counsel, therefore, contended that it is within the competence of E.D. to continue the proceedings against the petitioner company. He, therefore, contended that once power is vested in the Enforcement Directorate to initiate proceedings and when the proceedings are validly initiated, writ petition does not lie. The writ court cannot go into the validity of allegations leveled against the petitioner company.
24. Learned counsel representing the Enforcement Directorate submits that by the time the proceedings are taken up and the charge sheet is filed, the above provisions are in statute book and, therefore, the said provisions are also applicable to case of the petitioner company and therefore the charge sheet is validly filed applying the violation of the above provisions of IPC.
25. In support of said contentions, he relied on following decisions:
i) State of Bihar and another vs. P.P.Sharma, IAS and [11] another [12]
ii) State of M.P. vs. Awadh Kishore Gupta and others [13]
iii) C.P.Subhash vs. Inspector of Police, Chennai and others
iv) Government of Orissa vs. Ashok transport Agency and [14] others [15]
v) The State of Madras vs. C.V.Parekh and Anr
vi) Aneeta Hada vs. M/s. Godfather Travels & Tours Pvt. Ltd.
[16] ,
vii) B.Rama Raju and others vs. Union of India, Ministry of Finance, Department of Revenue, rep. by its Secretary (Revenue), New [17] Delhi and others [18]
viii) Radha Mohan Lakhotia vs. Deputy Director
ix) Iridium India Telecom vs. Motorola Incorporated & Ors.,[19]
x) B.Rama Raju vs. Union of India and others[20]
26. In reply learned senior counsel further submitted that mere possession or even use of alleged proceeds of crime cannot form the basis of a prosecution under Section 3 of ACT, 2002. Section 3 also requires knowledge of the alleged proceeds of crime. This is in contrast to section 5 where possession is sufficient to initiate attachment proceedings. E.D., complaint does not assert any knowledge on the part of the petitioner. It only asserts that, the petitioner had possession of the alleged proceeds of crime. The requirement of mens rea in penal statute cannot be dispensed with unless it has been expressly excluded. The 2013 amendment also does not dispense with the requirement of knowledge on the part of the accused. Neither the ED complaint nor the voluminous materials filed by the ED demonstrate that the petitioner had any knowledge of the alleged offence of money laundering which is an essential ingredient of Section 3 of ACT, 2002.
27. Merely because the petitioner company was used as a vehicle for committing fraud, the petitioner company cannot be arrayed as an accused in the absence of any knowledge on the part of the accused. CBI did not make the petitioner as an accused since neither the Board of Directors nor the investors were aware of the alleged fraud or the infusion of Rs.1230 crores. The CBI also said that there were no documents or records which show that the company was aware of the infusion of rs.1230 crores. CBI report also accuses the former management of ‘deceiving’ the petitioner company. Therefore, the question of petitioner being involved in the offence does not arise. Even the SFIO report said that the petitioner company did not have any knowledge of inflow of proceeds of crime.
28. Under section 70 of Act, 2002, if the person committing an offence is a company, the company as well as the person incharge of carrying on the business is deemed to be liable. Section 70 of Act, 2002 would apply only if the ED is able to establish contravention under Section 3 of Act, 2002. Without satisfying mandate of Section 3 of Act, 2002, Section 70 has no application.
29. If the allegation against the company does not stand scrutiny under Section 3 of ACT, 2002, it only releases the directors from their vicarious liability. However, it does not release the former management of their direct liability for committing the offence of money laundering.
30. The ED in its complaint makes several allegations against the former management for their direct involvement in committing the offence of money laundering and not just for being in charge of, and responsible for the conduct of the business of the company. The liability of the former management for being directly involved in committing the offence of money laundering would not in any way be affected if the complaint against the petitioner company is quashed. The precedents relied upon by the counsel for ED are under the Negotiable Instruments Act and are not applicable to the present case. Under the Negotiable Instruments act, the offence is committed only by the company since the cheque which dishonoured would be in the name of the company. For the said action, directors are held constructively liable. There is no scope for allegation of personal liability under NI Act. In the present case, the ED has alleged that the former management is directly involved in the commission of the offence. Consequently, they will be held liable under the Act, 2002.
31. Section 24 does not reverse the burden with respect to showing knowledge on the part of the accused in committing the offence of money laundering. The burden of proof to demonstrate the knowledge on the part of the accused is still on the prosecution. The reversal of burden of proof is only with respect to the proceeds of crime as untainted. Unlike other enactments, Act, 2002 does not contain any provision which presumes knowledge on the part of the accused in committing the offence of money laundering. In the absence of any such provision ED has to prove knowledge on the part of the accused.
32. The ED in its complaint has alleged that the petitioner company has committed the offence of money laundering by virtue of the inflow of Rs.822 crores in the company. Unlike other accused (like A2, A3 and A4), the ED has not accused the petitioner company of being involved in any forgery.
33. The points that arise for consideration are:
I. Whether petitioner Company as a successor to SCSL is liable to be proceeded against for the alleged crimes committed by the then management of SCSL?
II. Whether amended provisions of the Act, 2002 can be invoked to prosecute Petitioner Company?
34. Before discussing the points for consideration, it is necessary to deal with the objection raised by learned counsel Sri P.S.P.Suresh Kumar forcibly on maintainability of the Writ Petition on the ground that the special court is in session and petitioner has effective remedy under Cr.P.C.
35. In Rajasthan State Industrial Development and Investment Corporation and another vs. Diamond & Gem Development Corporation Limited and [21] another , in matters concerning the contract, Supreme Court held as under:
“21. It is evident from the above that generally the Court should not exercise its writ jurisdiction to enforce the contractual obligation.
The primary purpose of a writ of mandamus is to protect and establish rights and to impose a corresponding imperative duty existing in law. It is designed to promote justice (ex debito justitiae). The grant or refusal of the writ is at the discretion of the court. The writ cannot be granted unless it is established that there is an existing legal right of the applicant, or an existing duty of the respondent. Thus, the writ does not lie to create or to establish a legal right, but to enforce one that is already established. While dealing with a writ petition, the court must exercise discretion, taking into consideration a wide variety of circumstances, inter alia, the facts of the case, the exigency that warrants such exercise of discretion, the consequences of grant or refusal of the writ, and the nature and extent of injury that is likely to ensue by such grant or refusal.
22. Hence, discretion must be exercised by the court on grounds of public policy, public interest and public good. The writ is equitable in nature and thus, its issuance is governed by equitable principles. Refusal of relief must be for reasons which would lead to injustice. The prime consideration for the issuance of the said writ is, whether or not substantial justice will be promoted. Furthermore, while granting such a writ, the court must make every effort to ensure from the averments of the writ petition, whether there exist proper pleadings. In order to maintain the writ of mandamus, the first and foremost requirement is that the petition must not be frivolous, and must be filed in good faith. Additionally, the applicant must make a demand which is clear, plain and unambiguous.”
36. I n ABL International Ltd. and another vs. Export Credit Guarantee [22] Corporation of India Ltd. and others , Supreme Court considered earlier decisions on scope of maintainability of a writ petition and held as under:
“28. However, while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution of India, the court should bear in mind the fact that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provisions of the Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the exercise of this power. (See Whirlpool Corpn. v. Registrar of Trade Marks ((1998) 8 SCC 1) And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the Court thinks it necessary to exercise the said jurisdiction.”
37. As held by the Apex Court in R.P.Kapur v. State of Punjab[23] this Court can entertain Writ Petition where it is alleged that there is a legal bar against the institution or continuance of criminal proceedings. In the case on hand it is contended that the provisions of IPC invoked in the charge sheet were subsequently brought into the statute book and therefore they were not the crimes made applicable to a company under the Act,2002 when the alleged crime was committed and the company cannot be alleged to have committed offence of money laundering when the essential ingredients of Section 3 are not attracted. Thus, it cannot be said that the Writ Petition is not maintainable. Hench said objection is rejected.
38. To appreciate the rival contentions, it is necessary to look into the statutory environment that governs the issues. The object of Prevention of Money Laundering Act, 2002 (Act, 2002) is two fold; to punish the person who commits offence of money laundering and also to confiscate the assets acquired by utilization of proceeds of crime. A person who may not be liable to be punished for offence of money laundering, can still be preceded for attachment of his properties, if it is found that his properties were acquired by utilizing proceeds of crime. The act is divided into ten chapters. In Charpter-I definitions on various terms used in the Act are provided. Chapter-II of the Act prescribes offence of money laundering and the punishment thereof. Chapter-III prescribes procedure for attachment, adjudication and confiscation of property. Once a complaint is received by the Enforcement Directorate that a person is involved in money laundering, the Enforcement Directorate sets in motion the investigation on the allegations of money laundering against the person.
39. The relevant provisions of Act, 2002 are Sections 2(1) (p), (s), (u), (v) and (y), 3, 4 and 70. They read as under:
Sections 2 : (1) Definitions, in this act, unless the context otherwise requires:-
(p). “money-laundering” has the meaning assigned to it in Section 3;
(s) “person” includes:-
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and
(vii) any agency, office or branch owned or controlled by any of the above persons mentioned in the preceding sub-clauses;
(u) “proceeds of crime” means any property derived or obtained directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property,
(v) “property” means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located;
(y) “scheduled offence” means—
i) the offences specified under Part A of the Schedule; or
ii) the offences specified under Part B of the Schedule if the total value involved in such offences is thirty lakh rupees or more, or
iii) the offences specified under Part C of the Schedule;
Section 3 : Offence of money-laundering:- Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilt of offence of money- laundering.
Section 4 : Punishment for money-laundering:- whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine which may extend to five lakh rupees;
Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as it for the words “which may extend to seven years”, the words “which may extend to ten years” had been substituted.
Section 70: Offence by companies: (1) Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention 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 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 took place without his knowledge or that he exercised all due diligence to prevent such contravention.
(2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of any director, manager, secretary or other officer of any company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.
40. Schedule – Part-B OFFENCE UNDER THE INDIAN PENAL CODE Section Description of offence 120B* Criminal Conspiracy 419* Pnishment for cheating by personation 420* Cheating and dishonestly inducing delivery of Properties 467 Forgery of valuable security, will, etc.
471* Using as genuine a forged document or electronic Record * Ins.by Act 21 of 2009 (w.e.f. 1-6-2009)
41. The ingredients to attract the offence of Money Laundering are:
A person must
i) attempts to indulge directly or indirectly with proceeds of crime; or
ii) Knowingly assists in proceeds of crime; or
iii) Knowingly is a party to proceeds of crime; or
iv) Actually involved in any proceeds of crime; or
v) Actually connected with proceeds of crime; and
vi) He must project, it as untainted property
42. Thus, to attract the offence of money laundering, knowledge of indulgence/involvement by a person is necessary requirement and on fulfillment of any one or more of them, he should also project it as untainted property and such knowledge/ indulgence/involvement should be relating to any one or more of the offences prescribed in schedule appended to the Act.
43. It is not the case of Enforcement Directorate that petitioner company had knowledge of the alleged money laundering, was indulging/involved in the offence. Petitioner company cannot be held liable for the alleged illegalities committed by persons who were at the helm of affairs of the company at the relevant time.
44. In Reliance Natural Resources Limited, Supreme Court held that personality of the company must be construed separate from the persons. The doctrine of identification of Chairman and Managing Director with the company may be applicable only in respect of small undertakings , but in case where company has a large shareholders base, one cannot make the companies’ personality the same as that of the persons involved.
45. In Delhi Development Authority, even if there is any collusion between the officials of the DDA and an authority (in this case DDA), where the acts and deeds of the officials are not only beyond their authority, but are done with a mala fide intent, it may not be just and fair to bind DDA with such mala fide acts and deeds.
46. In Mr. Radha Mohan Lakhotia, the Division Bench of Bombay High Court held that, in a given case a person can be in possession of proceeds of crime without his knowledge that the property held by him is tainted. That person may not face prosecution under Section 3 of the Act of 2002. It is further held, “in our opinion, on fair reading of Section 5(1) read with Section 8 of the Act, it postulates two categories of persons against whom action of attachment of property can be proceeded with. The first category is any person who is in possession of any proceeds of crime. A person falling in this category need not be a person, charged of having committed a scheduled offence. The second category is of a person who has been charged of having committed a scheduled offence. Besides, being charge of having committed a scheduled offence, that person is found to be in possession of any proceeds of crime. In either case, it is open to take recourse to section 5 of the Act if the specified authority has reason to believe and reason for such belief is recorded in writing that the proceeds of crime likely to be concealed, transferred or dealt with in any manner, which may result in frustrating any proceedings relating to confiscation of such proceeds of crime.
47. I n Belmont Finance Corporation Ltd. v. Williams Furniture Ltd. and [24] others , Supreme Court held as under:
“So far my part I do not feel able to accept Mr. Browne-Wilkinson’s contention that the conspiracy here is founded on the illegal agreement. It is quite true that the illegal agreement was part and parcel of the implementation, but it seems to me that the allegation of a conspiracy relates to something different. The plaintiff company, not being shown to have knowledge of the facts relevant to the illegality of the agreement, is not in my judgment de barred from suing the defendants for damages for the conspiracy, because the plaintiff company is not shown to have been a party to the conspiracy or to guilty knowledge about the illegality of the transaction which was to be carried out under the agreement. On these grounds it seems to me that it is mistaken to regard the plaintiff company as being in law party to the conspiracy. I feel glad to be able to reach that decision because, for reasons that I indicated at the beginning of this section of my judgment, it seems to me to be completely unreal to regard the plaintiff company as party to the conspiracy. Accordingly, in my judgment, the judge was wrong in dismissing the action on that ground. ”
[25]
48. In Sitaram Motilal Kalal vs. Santanuprasad Jaishankar Bhatt Court held as under:
“33. The law with regard to agents is the same. As was observed by Lord Atkinson in Samson v. Aitchison, 1912 AC 844 it is a matter of indifference whether a person be styled a servant or agent since it is the retention of control which makes the owner or the principal responsible. Just as the tort must be committed by a servant either under the actual control of his master or while acting in the course of his employment, the act of the agent will only make the principal liable if it is done within the scope of his authority. By a process of , Supreme ratiocination, the courts have made a slight distinction by attempting to find a ‘right of control’ as the basis of the master’s liability and have distinguished it from ‘ a right to control’ in cases of simple agency to bring the two cases together. We find it simpler to state the law than an agent will make the principal responsible so long as the agent does the act within the scope of his authority or does so under the actual control of the principal. We do not subscribe to the extension of the doctrine that the act of the servant or the agent must be for the master’s benefit. This extension was made by Wiles, J. in Barwick v. English Joint Stock Bank, (1867) 2 Ex 259. The word ‘benefit’ is vague and it is better to adhere to the words the scope of authority;. There is much institutional criticism of such extension. Similarly, we are doubtful whether the extension of the principle by the introduction of the doctrine of implied authority, which was relied upon in the school master’s case referred to above, was quite correct. If the dictum is accepted, not only the master would be liable for what he may be supposed to have ‘impliedly authorized’ the servant to do (however illegal) but also for all the servant’s negligence not in doing his duty but in doing something on his own account when he should be properly acting for the master. The true rule in such cases is the one stated by Cockburn, C.J., in (1869) 4 QB 476 thus:
“ that the master is only responsible so long as the servant can be said to be doing the act, in the doing of which he is guilty of negligence, in the course of his employment as servant.”
49. In State Bank of India (Successor to the Imperial Bank of India) v. Smt.
[26] Shyama Devi , Supreme Court held as under:
“22. The first of these principles is that the employer is not liable for the act of the servant if the cause of the loss or damages arose without his actual fault or privity and without the fault or neglect of his agents or servants in the course of their employment. This principle has been illustrated by the decision of the House of Lords in Leesh River Tea Co. Ltd. v. British India Steam Navigation Co. Ltd., (1966) 3 All ER 593. The facts of that case were that during the voyage a ship called at an intermediate port to discharge part of her original cargo and load some fresh cargo. The shipowners engaged a stevedore company to discharge the load. A servant of the stevedore company stole a brass plate, which was a cover that could be removed to give access to a storm valve. Its removal rendered the ship unseaworthy as sea water could enter when the ship rolled. The resulting hole in the ship was concealed by part of the fresh cargo loaded. On her voyage after leaving the port the ship encountered heavy weather. Water entered through the hole and damaged part of the original cargo. In an action for damages by the owners of the damaged cargo, the ship-owners contended that they were excepted from liability by Art. IV R. 2(q) of t h e Hague Rules, because the cause of the damage arose without their actual fault or privity and ‘without the fault or neglect of the agents or servants’ of the shipowners.
24. Salmon L. J., speaking in a similar strain (at page 599) emphasized that the fact that the thief’s employment on board presented him with the opportunity to steal does not suffice to make the shipowners liable. The conclusion drawn was:
“For an employer to be liable, however, it is not enough that the employment merely afforded the servant or agent an opportunity of committing the crime. ”
It must be shown that the damage complained of was caused by any wrongful act of his servant or agent done within the scope or course of the servant’s or agent’s employment, even if the wrongful act amounted to a crime. For this proposition, Salmon, L.J. referred to Lloyd v. Grace, Smit & Co. (1912 AC 716).
25. In United Africa Company Ltd. v. Saka Owoade (1955( AC 130), the Privy Council laid down that a master is liable for his servant’s fraud perpetrated in the course of master’s business, whether the fraud was for the master’s benefit or not, if it was committed by the servant in the course of his employment. There is no difference in the liability of a master for wrongs whether for fraud or any other wrong committed by a servant in the course of his employment, and it is a question of fact in each case whether it was committed in the course of the employment. ”
50. I n Premwati Soni Jain and others v. The State of Rajasthan and [27] others , it is held as under:
“5. In the circumstances, it cannot be doubted that though the act of the respondent No.3 in bringing the jeep from the workshop at 6 P.M. that evening was undoubtedly in the course of his employment, but his act of going on a spree that night, and the act of giving lifts to third parties, was something beyond the scope of his employment, for which the State Government cannot be saddled with liability.
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8. The contention that nonetheless the State Government would be vicariously liable can easily be met. The law is stated in Clerk and Lindsell on torts, 10th Ed. P.122, thus:
“A master will usually be responsible for the servant’s negligence in doing something which he is merely permitted to do or does for his own purposes, but is not employed to do. If a servant does an act for his own pleasure, quoad that act he is a stranger to his master, although he may be in other respects engaged at the time upon the master’s business, and the mere fact that the master does not prohibit the doing of the act ought not render him liable.”
A master is not responsible for a wrongful act done by his servant unless it is done in the course of his employment. It is deemed to be so done if it is either (1) a wrongful act authorized by the master, or (2) a wrongful and unauthorized mode of doing such act authorized by the master. On the other hand, if the unauthorized and wrongful act of the servant is not connected with his employment but is an independent act of his own, the master is not responsible: for in such a case the servant is not acting in the course of his employment, but has gone outside of it. The act of permitting another to drive may be a mode, albeit an improper one, of doing the authorized act. But the act of giving lifts to third parties is clearly outside the scope of employment; Salmond’s Law of Torts, 16th Ed. Pp.474, 475. ”
[28]
51. In M/s. Jiwan Dass Roshan Lal v. Karnail Singh and others , it is held as under:
“9. The solitary question that thus remains is whether Karnail Singh driver can be deemed to be acting in the course of the employment of the owners in un-authorisedly carrying the deceased Pritam Singh herein ? Acting in direct contravention of a statutory provision which is made an offence by an employee cannot be easily conceived as in the normal course of employment. No employer can be deemed or assumed to authorize the contravention of law or the commission of an offence. Assuming so entirely for the argument sake that in such a remote contingency it could only be so by an established express command by the employer and here as already noticed, there is not the least evidence to this effect. On plain principle therefore, the only answer to the question seems to be that Karnail Singh, driver, in this situation cannot even remotely be said to be acting in the course of his employment in order to make the appellant- owners vicariously liable therefore. ”
[29]
52. In Maimuna Begum and others vs. Taju and others , the Bombay High Court held as under:
“…… A proposition that implied authority in the agent to do a criminal act should be presumed in the absence of specific instructions not to do such act, appear to our mind to be highly debatable, but the said controversy need not detain us in the present case. We may, however, in the parting notice the following observations in the case of Jiwan Dass Roshan Lal v. Karnail Singh, 1980 ACJ 445 (P&H).
“Acting in direct contravention of a statutory provision which is made an offence by an employee cannot be easily conceived as in the normal course of employment. No employer can be deemed or assumed to authorize the contravention of law or the commission of an offence. Assuming so entirely for the argument sake that in such a remote contingency it could only be so by an established express command by the employer and here as already noticed, there is not the least evidence to this effect”.
53. In Aneeta Hada, Supreme Court held as under:
“ 25. ….If a group of persons that guide the business of the companies have the criminal intent that would be imputed to the body corporate.
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42. …. Commission of offence by the company is an express condition precedent to attract the vicarious liability of others.”
54. In Iridium India Telecom Limited, Supreme Court held as under:
“63. From the above it becomes evident that a corporation is virtually in the same position as any individual and may be convicted of common law as well as statutory offences including those requiring mens rea. The criminal liability of a corporation would arise when an offence is committed in relation to the business of the corporation by a person or body of persons in control of its affairs. In such circumstances, it would be necessary to ascertain that the degree and control of the person or body of persons is so intense that a corporation may be said to think and act through the person or the body of persons. The position of law on this issue in Canada is almost the same. Mens rea is attributed to corporations on the principle of ‘alter ego’ of the company.
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66. These observations leave no manner of doubt that a company/corporation cannot escape liability for a criminal offence merely because the punishment prescribed is that of imprisonment and fine. We are of the considered opinion that in view of the aforesaid judgment of this Court, the conclusion reached by the High Court that the respondent could not have the necessary mens rea is clearly erroneous. ”
55. Guided by the principles in the above precedents, I consider the issue of liability of petitioner company.
56. Soon after noticing the grave illegalities in the functioning of SCSL, Government of India stepped in, took active role in inducting new Board of Directors and new investor, who brought in fresh funds for reviving and effective running of the company. All these measures were taken to bring the confidence back to the employees and shareholders of the company and to protect their interests and to ensure the confidence of investors in Indian companies.
57. Tech Mahindra is brought in as part of the scheme of amalgamation and arrangement. The scheme of amalgamation was approved by the Company Court in Company Petition Nos.123 and 192 of 2012. Tech Mahindra Limited has become the successor company to SCSL.
58. In W.P.No.37487 of 2012 while considering the validity of attachment of properties of petitioner company, in exercise of power under Section 5(1) of the Act, this Court extensively considered various aspects on the initiation of proceedings against the petitioner company. Statement of Sri B.Ramalinga Raju was also extracted. Relevant portion of answer against the question No.27 as extracted reads as under:
“ As declared by me in my letter dt.7.1.09 none of my family members or any of the Directors or share holders of the Companies that provided the funds were privy to some of the facts that came into the public domain for the first time. As regards non-appearance of these receipts in the books, it was for the obvious reason of not being able to reflect a borrowal when the company apparently had significant liquid assets in the form of fixed deposits. The records and the bank statements would prove receipt of these funds in a conclusive and undeniable fashion as these were by way of crossed cheques or Demand Drafts and also the uses for these funds were clearly to meet some of the pressing payments such as payment of salaries, meeting some sales and General Administration expenditure, etc.”
59. In Page 16 of the Order the Court noted as under:
“The investigation by the CBI, reflected in the charge sheets, revealed that loan amounts were disbursed by various financial companies to 11 companies floated by B.Ramalinga Raju and his family members against pledge of the petitioner company’s share as collateral security by M/s.SRSR Holdings Private Limited. The loans, amounting to Rs.2171.45 crores, were transferred to the front companies which, in turn, transferred the same to some other front companies and individual to conceal the actual source of funds, which were the loans derived from pledge of the inflated shares of the petitioner company. A sum of Rs.1425 crores was transferred to the bank accounts of the petitioner company by the 37 front companies from 17.11.2006 to 30.10.2008, out of which Rs.194.60 crores was repaid by the petitioner company to the front companies. Therefore, a sum of Rs.1230.40 crores remained with the petitioner company.”
60. Court also noticed that on 10.04.2009, the Enforcement Directorate issued orders to the petitioner company restraining from repaying the amount of Rs.1230.40 crores to the front companies, which had already put in requests for refund of their loans. On detailed consideration of the matter, this Court stayed provisional attachment order dated 18.10.2012.
61. On the administrative side, Government of India and its specialized agencies, such as, CBI and SFIO have constantly opined that SCSL was victim of fraud played by persons in the helm of affairs and their associates and family members. In the charge sheet filed by CBI, CBI alleged that petitioner company was the victim of fraud played by the persons in the helm of affairs. This Court in C.P.No.123 of 2013, Company Appeal Nos. 4 and 5 of 2014 and W.P.No.37487 of 2012 observed that SCSL was victim of fraud played on it. Company Law Board also held that SCSL suffered huge damages due to acts of omissions and commissions by persons in the helm of affairs.
62. Ordinarily, Government of India does not interfere in matters concerning a private company. After revelation by the then Chairman of SCSL about the financial irregularities of the company and the consequent outburst of anger by investors and employees, Government of India felt that it is necessary in the larger public interest to directly involve in the affairs of SCSL. The induction of Tech Mahindra is as a result of concerted effort made by various agencies/institutions under the watchful eyes of the Government of India. It was an extraordinary situation requiring special measures. As things now stand, all the steps taken were in the right direction. The panic buttons pressed in Information Technology Industry subsided, normalcy restored and confidence in Indian industry remained intact. The sinking company is revived.
63. Record of this writ petition would disclose that the persons who were at the helm of affairs of the SCSL during the relevant period laid down a carefully maneuvered plan to give rosy picture of the company, sold their shares at a very high premium, surruptiously brought money into the company. The Board was not taken into confidence. The flow of funds was not known to the company and except those who hatched such plan, no other person of the company was having knowledge of the is s ue. In the complaint filed before the XXI Additional Chief Metropolitan Magistrate’s Court cum Special Sessions Court, Hyderabad, while dealing with the role of SCSL, it is alleged that as admitted by Ramalinga Raju in his confession dated 07.01.2009, the amount of Rs.822 crores being proceeds of crime still subsists in M/s.SCSL and the same fact is also acknowledged by the new Management in their annual report during the financial year 2010-2011. It is further alleged that these proceeds of crime was concealed in SCSL by accused nos.2 and 3 i.e., B.Ramalinga Raju and B.Rama Raju, respectively. Thus, it is alleged that SCSL is actually involved in the offence of Money Laundering by possessing proceeds of crime and projecting them as untainted and act of possession amounts to involvement and it is therefore guilty of offence of Money Laundering. As discussed above, there was no knowledge to the petitioner company about the nature of funds that were flown into petitioner company. While praying for attachment of properties in the claim filed before the adjudicating authority, the Enforcement Directorate recorded in para 12 that the transactions which resulted in Rs.822.00 crores coming into the petitioner company were not reflected in the books of accounts and financial statements and Board of SCSL was never informed of about these transactions. These transactions were reflected as if they were receipts from sale proceeds. The record of the writ petition would disclose that Rs.822 crores were obtained by pledging inflated shares of SCSL held by SRSR Holdings Private Limited, transferred by front companies and their Directors to SCSL. The Enforcement Directorate narrates in the complaint that the receipts into the SCSL were in the form of loans from the front companies. Thus, in the facts of this case, it cannot be ascribed to SCSL as a company about the nature of funds infused into the company. SCSL and petitioner company as successor company cannot be fastened with criminal liability for the illegalities committed by the persons who were at the helm of affairs of SCSL at the relevant time. It cannot be said that the company had knowledge of source of funds and projected the said funds as untainted.
64. The allegations would go to show that Sri B.Ramalinga Raju, B.Rama Raju and their spouses transferred 2.78 crores to M/s. SRSR Holding Private Limited. Immediately thereafter bonus shares were issued in the ratio of 1:1, thereby the share holding of M/s.SRSR Holding Private Limited was doubled to 5.56 crores. These inflated shares of SCSL were pledged with various NBFCs for loans and an amount of Rs.2171.45 crores were raised which were given to several front companies floated by B.Ramalinga Raju and others. Rs.1425 crores was transferred by these front companies to SCSL. However, out of this, Rs.194.60 crores was returned by SCSL and, therefore balance remained was Rs.1230.40 crores. The investigation revealed that out of this Rs.1425 crores, Rs.822 crores constituted a part of the loans that were derived or obtained by pledge of inflated shares of SCSL.
65. In the instant case, there is no dispute of the fact that the alleged illegalities were committed prior to 2009 and precisely from 2001 to 2008. In the instant case, when the alleged incident occurred, the provision that was in the statute book was Section 467 IPC only insofar as the petitioner case is concerned. In terms thereof, it thus means that to attract Section 3 only allegation that can be leveled was forgery of valuable securities/will/authority to receive any money by the SCSL.
66. In Soni Devrajbhai Babubhai, Kaliar Koil Subramaniam Ramaswamy and Ganesh Gogoi, Supreme Court held that no person can be tried and punished on a new offence created subsequent to commission of offence.
67. In Varinder Singh v. State of Punjab and another[30], almost identical issue has come up for consideration before the Supreme Court. The appellant was visited to the Central Jail, Ferozepur on 17.09.2009. On such a mobile phone and charger were recovered from him, crime was registered on 24.09.2009 under Sections 42 and 45(12) of the Prisons Act, 1894. He was charged on 01.05.2010 under the above provisions. He challenged the same by way of petition under Section 482 of the Code of Criminal Procedure, 1973 before the High Court praying to quash the FIR. The High Court dismissed the said petition. High Court applied provision in Section 42 to hold against the appellant. High Court held that provision of Sections 42 and 45(12) are not attracted. Section 52-A was introduced by way of Prisons (Punjab Amendment) Bill 2011. As per this provision, supplying mobile phone or any other instruments by any person is made an offence. Notification of the above provision was issued by the Punjab Government on 8.3.2011. Supreme Court held that notification does not apply to the case on hand as alleged offence was committed in 2009 and retrospective effect will not apply in the case of criminal laws (para 10). Supreme Court further considered the scope of High Court to quash FIR under Section 482 Cr.P.C., by relying on the decision of Supreme Court in Bhajan Lal. Supreme Court held that High Court erred in not exercising the power under Section 482 Cr.P.C. It further held that principle-1 in Bajan Lal case is attracted since on the date of offence the mobile phone was not listed as one of the prohibited articles under the Pubjab Prison Manual and, therefore, no offence was made out under Section 42 of the Act, as appellant was not a prisoner and the prison offence as defined under Section 45 of the Act was not attracted.
68. The principle of non-applicability of Penal provision from retrospective date is further extended to punishments that can be imposed by an employer of an employee in the decision of Supreme Court in State of Andhra Pradesh and others vs.
[31] Ch.Gandhi . On an extensive review of various principles laid down, the Supreme Court held that even if an amendment is made by way of substitution that substitution has no retrospective effect, even though employer has got power to amend retrospectively.
69. I n Tej Prakash Pathak and others vs. Rajasthan High Court and [32] others , Supreme Court held that “Under the scheme of our Constitution an absolute and non-negotiable prohibition against retrospective law-making is made only with reference to the creation of crimes. Any other legal right or obligation could be created, altered, extinguished retrospectively by the sovereign law-making bodies.”
70. It is settled principle of law that no person can be prosecuted on the allegation which occurred earlier by applying the provision of law which has come into force after the alleged incident. In other words, there can be no retrospective application of criminal liability for the incident occurred prior to introduction of such liability in the statute book.
71. Admittedly, prior to Amendment Act, 2009, none of the provisions which are now invoked by the Enforcement Directorate were on the statue book except Section 467 IPC. Thus, the petitioner cannot be prosecuted by invoking those provisions.
72. A bare look at the complaint would show that it is not the case of ED that SCSL has committed forgery of any document to attract provision in Section 467 IPC. If Section 467 IPC is not attracted, question of initiating proceedings under Section 3 of Act to prosecute petitioner company does not arise.
73. Principle of law is well settled that if the allegations in the complaint do not make out an offence, the Writ Court can, in exercise of power of judicial review to quash the complaint/taking cognizance of offence.
74. On the scope of interference by the Writ Court against registering of crime and taking cognizance, the Supreme Court in the case of Bhajan Lal laid down the parameters by way of illustration, where the writ Court can exercise extraordinary power under Article 226 of the Constitution of India. Supreme Court held as under:
(1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.
(2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.
(4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the code.
(5) Where the allegations made in the FIR or complaint 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 concerned Act (under which a criminal proceeding is instituted) to the institution and continuation of the proceedings and/or where there is a specific provision in the Code or the concerned Act, 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 accused and with a view to spite him due to private and personal grudge.
75. In all the subsequent decisions, the principles laid down in Bhajan Lal were religiously followed.
76. In Rajiv Thapar, Supreme Court laid down the steps to determine the veracity of the prayer for quash criminal proceedings by an accused by invoking the power vested in the High Court under Section 482 of Cr.P.C. Para-30 reads as under:
“30. Based on the factors canvassed in the foregoing paragraphs, we would delineate the following steps to determine the veracity of a prayer for quashment raised by an accused by invoking the power vested in the High Court under Section 482 Cr.P.C.”
[33]
77. In Amit Kapoor vs. Ramesh Chander and another , the Supreme Court held as under:
“10. Aggrieved by the judgment of the High Court, in the present appeal, the appellant impugns the same primarily on the ground that the High Court had exceeded and not appropriately exercised its jurisdiction under Sections 397 and 482 of the Code in quashing the charge framed against the respondent under section 306 IPC.
11. Before examining the merits of the present case, we must advert to the discussion as to the ambit and scope of the power which the courts including the High Court can exercise under Section 397 and Section 482 of the Code.
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16. The above stated principles clearly show that inherent as well as revisional jurisdiction should be exercised cautiously. If the jurisdiction under Section 482 of the Code in relation to quashing of an FIR is circumscribed by the factum and caution afore noticed, in that event, the revisional jurisdiction, particularly while dealing with framing of a charge, has to be even more limited. ”
78. In P.P.Sharma, Supreme Court held as under:
“33 At a stage when the police report under Section 173 Cr.P.C. has been forwarded to the Magistrate after completion of the investigation and the material collected by the investigating officer is under the gaze of judicial scrutiny, the High Court would do well to discipline itself not to undertake questioning proceedings at that stage in exercise of its inherent jurisdiction.”
…… …… 68. …… Quashing the charge sheet even before cognizance is taken by a criminal court amounts to “killing a stillborn child”. Till the criminal court takes cognizance of the offence there is no criminal proceedings pending. I am not allowing the appeals on the ground that alternative remedies provided by the Code as a bar. It may be relevant in an appropriate case. My view is that entertaining the writ petitions against charge-sheet and considering the matter on merit in the guise of prima facie evidence to stand an accused for trial amounts to pre-trial of a criminal trial under Article 226 or 227 even before the competent Magistrate or the Sessions Court takes cognizance of the offence. Once the proceedings are entertained the further proceedings get stayed. Expeditious trial of a criminal case is the cardinal rule.
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The Commission of offence cannot be decided on affidavit evidence. The High Court has taken short course “in annihilating the still born prosecution” by going into the merits on the plea of proof of prima facie case and adverted to those facts and gave findings on merits. Grossest error of law has been committed by the High Court in making pre-trial of a criminal case in exercising its extraordinary jurisdiction under Article 226.
79. In Awadh Kishore Gupta, Supreme Court held as under:
“8 In exercise of the powers, court would be justified to quash any proceedings if it finds that initiation/continuance of it amounts to abuse of the process of court or quashing of these proceedings would otherwise serve the ends of justice. When no offence is disclosed by the complaint, the court may examine the question of fact. When a complaint is sought to be quashed, it is permissible to look into the materials to assess what the complainant has alleged and whether any offence is made out even if the allegations are accepted in toto.
9. In R.P.Kapur, this Court summarized some categories of cases where inherent power can and should be exercised to quash the proceedings:
(i) where it manifestly appears that there is a legal bar against the institution or continuance e.g. want of sanction;
(ii) where the allegations in the first information report or complaint taken at their face value and accepted in their entirety do not constitute the offence alleged.
(iii) where the allegations constitute an offence, but there is no legal evidence adduced or the evidence adduced clearly or manifestly fails to prove the charge.
10 When exercising jurisdiction under Section 482 of the Code, the High Court would not ordinarily embark upon an enquiry whether the evidence in question is reliable or not or whether on a reasonable appreciation of it accusation would not be sustained. That is the function of the trial Judge.
11….. The inherent power should not be exercised to stifle a legitimate prosecution. The High Court being the highest court of a State should normally refrain from giving a prima facie decision in a case where the entire facts are incomplete and hazy, more so, when the evidence has not been collected and produced before the Court and the issues involved, whether factual or legal, are of magnitude and cannot be seen in their true perspective without sufficient material.”
80. In C.P.Subhash, Supreme Court held as under:
“7. ….. Suffice it to say that in cases where the complaint lodged by the complainant whether before a court or before the jurisdictional police station makes out the commission of an offence, the High Court would not in the ordinary course invoke its powers to quash such proceedings except in rare and compelling circumstances enumerated in the decision of this Court in State of Haryana vs. Bhajan Lal.
81. In the instant case, the alleged incidents occurred prior to June, 2009. Prior to June, 2009, the relevant provisions of Indian Penal Code were not included in schedule appended to the Act 2002. These provisions were not listed as offences under the Act admittedly when the alleged incidents have taken place. The only provision that is invoked which was in the schedule to the Act is Section 467. The illegal activities committed by the persons in the helm of affairs cannot be attributed to petitioner company, more particularly the allegation of forgery as all those illegalities were committed by them behind the back and without the involvement of the petitioner company. Thus, if the allegations made are taken at their face value and accepted in their entirety, they do not prima facie constitute any offence or make out a case against the petitioner company. In accordance with the principles laid down by the Supreme Court in Bajan Lal, the petitioner company cannot be proceeded against under Section 3 of Act 2002. Thus, filing of complaint and taking cognizance thereof is unsustainable.
82. In view of the above findings, the writ petition is allowed. There shall be no order as to costs.
83. It is made clear the observations made and findings recorded in this writ petition are for the purpose of considering the maintainability of complaint filed by the Enforcement Directorate and taking cognizance of the same by the Special Court against the petitioner company. These observations or findings do not come in the way of deciding the issue in the cases pending before the Special Court against other accused.
84. Miscellaneous petitions if any pending in this writ petition shall stand closed.
JUSTICE P.NAVEEN RAO Date: 22.12.2014 Kkm Note: L R copy to be marked –Yes / No HONOURABLE SRI JUSTICE P.NAVEEN RAO kkm WRIT PETITION NO.17525 OF 2014 Date: 22.12.2014 [1] (1977) 3 Supreme Court Cases 525 [2] (1991) 4 SCC 298 [3] 1992 Supp (1) SCC 335 [4] (1996) 4 SCC 622 [5] 2009 (6) ALD 315 [6] (2009) 7 SCC 404 [7] (2010) 7 SCC 1 [8] 2010 SCC Online Bom 1116 [9] (2013) 3 SCC 330 [10] (2005) 4 SCC 530 [11] 1992 Supp (1) SCC 222 [12] (2004) 1 SCC 691 [13] (2013 ) 11 SCC 559 [14] 2005 (1) SCC 536 [15]
AIR 1971 SC 447 (1)
16. AIR 2012 SC 2795 [17] 2011 (3) ALT (D.B.) [18] 2010 LawSuit(Bom) 1152 [19]
(2011) 1 SCC 74
[20] 2011 (4) ALD 383 (DB) [21] (2013) 5 SCC 470 [22] (2004) 3 SCC 553 [23]
AIR 1960 SC 866
[24] [(1979) Ch. 250]
[25] AIR 1966 SC 1697
[26] AIR 1978 SC 1263
[27] AIR 1977 Rajasthan 116
[28] AIR 1980 P & H 167
[29] 1988 ACJ 417
[30] (2014) 3 SCC 151
[31] (2013 ) 5 SCC 111
[32] (2013) 4 SCC 540
[33] (2012) 9 SCC 460