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2005 (3) TMI 472 - HC - Companies LawSeeking to quash FIR - Investigation of affairs of a company - allotment of shares - Whether recourse to investigation in the affairs of company under sections 235 to 242 of the Companies Act 1956 ( the Act ) is the only way to launch prosecution in respect of alleged/suspected commission of cognizable offences under the Indian Penal Code ( IPC ) by the office bearers of the company or the police can investigate such allegations of its own or under orders of Court if approached by the aggrieved person/shareholder - HELD THAT - The FIR has already been registered and the investigation/prosecution has already been launched. The nature and scope of investigation to be conducted under sections 235 to 242 is vastly different from the nature and scope of the investigation to be conducted by the police. An investigation under sections 235 to 242 is not an investigation of a criminal case. The purpose of investigation under the provisions of the Companies Act is only to streamline the working of the company. Such investigations may reveal violation of rules and regulations by the office bearers or even commission of technical offences which are punishable under the Act for which investigation under the Cr.PC may be uncalled for. But if such investigations reveal the commission of offences under IPC. Section 242 enacts an enabling provision under which the Government can also launch prosecution M. Vaidyanathan v. Sub Divisional Magistrate 1956 (10) TMI 21 - HIGH COURT OF MADRAS and Indian Express (Madura) (P.) Ltd. v. Chief Presidency Magistrate 1973 (3) TMI 79 - HIGH COURT OF MADRAS . On the other hand an investigation by the police officer is launched on receipt of an information of the commission of a cognizable offence. Under section 157 of Cr.PC it is obligatory on the part of police officer to launch investigation if he suspects commission of cognizable offence or if the commission of such an offence is brought to his notice. Even if there is no specific report and police officer has only a suspicion may be on the basis of an anonymous complaint he is duty bound to investigate the same. Every citizen has constitutional rights to approach police and the Court when commission of cognizable offence is suspected. Various High Courts and the Apex Court have taken consistent view that the provisions of sections 235 to 242 do not have the effect of abrogating or repealing the provisions of the Cr.PC which deal with the powers of the police officer to investigate report about the commission of the cognizable offence. As observed in the present case FIR has been registered under order of the Court which order has not been challenged so far. The investigation is still in progress and at this stage it is not possible to say that the allegations are totally groundless or on the face of it they do not make out any offence under the IPC. The provisions of sections 235 to 242 of the Act do not create any bar against an investigation by police officer if cognisable offence punishable under the IPC are suspected to have been committed in connection with the affairs of the company. In the result this writ petition fails and is hereby dismissed.
Issues Involved:
1. Whether the investigation under sections 235 to 242 of the Companies Act, 1956 is the only way to launch prosecution for alleged/suspected commission of cognizable offences under the Indian Penal Code (IPC) by the office bearers of a company. 2. Whether the FIR No. 99/2002 registered under sections 406/409/420/424/467/477A read with section 120B of the IPC is liable to be quashed. Issue-wise Detailed Analysis: 1. Investigation under Sections 235 to 242 of the Companies Act vs. Police Investigation: The court examined whether the investigation into the affairs of a company under sections 235 to 242 of the Companies Act, 1956 is the exclusive method for launching prosecution for cognizable offences under the IPC. The court noted that the nature and scope of investigations under the Companies Act are distinct from those conducted by the police. Investigations under the Companies Act aim to streamline the company's working and may reveal violations of rules, regulations, or technical offences. However, if such investigations reveal the commission of offences under the IPC, the government can launch prosecution under section 242 of the Act. Conversely, police investigations are triggered by information about the commission of a cognizable offence and are obligatory under section 157 of the Cr.PC. The court emphasized that every citizen has the constitutional right to approach the police or court for investigating cognizable offences, and the provisions of sections 235 to 242 do not abrogate the Cr.PC provisions that empower police officers to investigate such offences. 2. Quashing of FIR No. 99/2002: The petitioners sought the quashing of FIR No. 99/2002, arguing that the respondent had already approached the Company Law Board (CLB), which had rejected the application under section 397/398 of the Companies Act. They contended that a parallel police investigation into the same allegations was impermissible. The court, however, noted that the order by the CLB primarily dealt with the fraudulent allotment of shares, whereas the FIR in question was based on allegations of siphoning off the company's funds through bogus entries in the account books. The court observed that the subject matter of the criminal complaint leading to the FIR was different from the application under section 397/398 filed before the CLB, although there might be some overlap. The court further considered the argument that sections 235 to 242 of the Companies Act provide a complete mechanism for investigating the affairs of a company and resultant prosecution, thereby implying a bar on police investigations under the Cr.PC. The court referred to the Supreme Court's decision in State of Haryana v. Ch. Bhajan Lal, which outlined categories of cases where FIRs could be quashed. The court concluded that the present case did not fall within those categories. The court also referred to the Supreme Court's caution against quashing FIRs except in the rarest of rare cases. Additionally, the court discussed the Supreme Court's decisions in Rohtas Industries Ltd. v. S.D. Aggarwal and Sri Ramdas Motor Transport Ltd. v. Tadi Adhinarayana Reddy, which emphasized that investigations under the Companies Act should not be ordered routinely and should follow proper procedures. However, the court clarified that these decisions did not imply that police investigations into suspected cognizable offences related to company affairs were ruled out. The court highlighted that the FIR in the present case was registered under a court order, which had not been challenged. The investigation was ongoing, and it was not possible to conclude at this stage that the allegations were entirely groundless or did not constitute an offence under the IPC. The court reiterated that the provisions of sections 235 to 242 of the Companies Act do not bar police investigations into cognizable offences related to company affairs. Conclusion: The court dismissed the writ petition, holding that the FIR No. 99/2002 was not liable to be quashed. The court affirmed that police investigations into suspected cognizable offences related to company affairs are permissible and not barred by the provisions of sections 235 to 242 of the Companies Act, 1956.
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