2017 (12) TMI 1825 - HC - Indian Laws

Share Holding Agreement entered into between the parties - dispute is predominantly of a civil nature or not - Whether the dispute between the parties is of predominantly civil nature which is tried to be converted to the criminal nature so as to recover the amount which respondent No.3 is claiming as due from the applicant Ramesh Shah? HELD THAT - The matter entirely pertains to civil jurisdiction and not even prima facie case is made out in the complaint for the offence punishable under Sections 418, 420,465, 467, 468, 471, 477(a), 506(2) read with 120(b) of the Indian Penal Code. In our opinion, even if the allegations contained in the complaint are taken to be true on their face value, complaint gives a clear impression that it is primarily a case where respondent No.3 is alleging breach of the terms and conditions of the Share Holding Agreement executed between the parties on the ground that the applicant Ramesh Shah is not acting in accordance therewith and not making the payments as demanded by respondent No.3. Here in the case, it is nowhere alleged in the complaint, even for the sake of it, that since beginning the applicant Ramesh Shah had dishonest or fraudulent intention of cheating the respondent No.3. Conversely, both the parties are having their respective rival contentions for not fulfilling the terms of the Share Holding Agreement. Hence, it is apparent that the grievance is against subsequent non-fulfillment of terms and conditions of the Agreement and not of applicant Ramesh Shah having such intention of cheating since beginning - A clear finding is arrived at, about the allegations made in the complaint, by the Company Law Board totally ruling out mismanagement of the affairs of the company or any fraudulent intention. It was also held that there was no mismanagement and siphoning of funds. The allegations of illegal alteration of share holding and denial of information to the complainant were also negated. In the case of State of Maharashtra and ors -vs- Arun Gulab Gawali, 2010 (8) TMI 1150 - SUPREME COURT , relied upon by learned counsel for respondent No.3, Court has explained the parameters and ambit of section 482 of the Code of Criminal Procedure, in the light of decision of Apex Court, in case of State of Haryana -vs- Bhajanlal 1990 (11) TMI 386 - SUPREME COURT . Applying those very parameters, here in the case it is found that allowing prosecution to continue when the dispute is of civil nature and does not disclose commission of cognizable offence, would be an abuse of process of law as the complaint is filed to recover only funds from applicant Ramesh Shah for which respondent No.3 has already filed civil suit. Application allowed.

Issues Involved:
1. Quashing of FIR No. 78 of 2016.
2. Nature of the dispute – civil or criminal.
3. Allegations of cheating and breach of agreement.
4. Allegations of mismanagement and siphoning of funds.
5. Involvement of banks and valuers in the alleged fraud.
6. Jurisdiction of the High Court under Section 482 of the Code of Criminal Procedure.

Issue-wise Detailed Analysis:

1. Quashing of FIR No. 78 of 2016:
The applications were filed under Article 226 of the Constitution of India and Section 482 of the Code of Criminal Procedure to quash FIR No. 78 of 2016, registered with N.M. Joshi Marg Police Station, Mumbai. The FIR was lodged by respondent No. 3 against the applicants and other accused for offenses under various sections of the Indian Penal Code.

2. Nature of the Dispute – Civil or Criminal:
The court concluded that the matter entirely pertains to civil jurisdiction, stating, "the entire dispute is arising out of the Share Holding Agreement entered into between the parties and therefore, this dispute is predominantly of a civil nature." The court emphasized that the allegations in the complaint, even if taken at face value, indicate a breach of the Share Holding Agreement rather than a criminal offense.

3. Allegations of Cheating and Breach of Agreement:
The complaint alleged that the applicants did not fulfill promises made in the Share Holding Agreement, causing financial loss to respondent No. 3. However, the court observed, "it is nowhere alleged in the complaint, even for the sake of it, that since beginning the applicant Ramesh Shah had dishonest or fraudulent intention of cheating the respondent No. 3." The court cited the Supreme Court's judgment in Hridaya Ranjan Prasad Verma v. State of Bihar, which states that mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown at the beginning of the transaction.

4. Allegations of Mismanagement and Siphoning of Funds:
Respondent No. 3 alleged that the applicants mismanaged the company and siphoned off funds. However, the Company Law Board (CLB) had previously examined these allegations and found no evidence of fraud or mismanagement. The court noted, "the Company Law Board has effectively dealt with these allegations in its judgment," and concluded that there was no mismanagement or siphoning of funds.

5. Involvement of Banks and Valuers in the Alleged Fraud:
The complaint included allegations against the consortium of banks and valuers, claiming they were involved in the fraud. However, the court found that independent reports from valuers appointed by the banks negated these allegations. The court cited the CLB's judgment, which stated, "the banks would not invite any adverse report to their own project report prepared by their officers during the time, they decide to advance loans to a company."

6. Jurisdiction of the High Court under Section 482 of the Code of Criminal Procedure:
The court exercised its jurisdiction under Section 482 of the Code of Criminal Procedure to quash the FIR, stating, "when the disputes are of civil nature and finally adjudicated by the competent authority... it is apparent that complainant wants to manipulate and misuse the process of Court." The court emphasized that allowing the criminal proceedings to continue would be an abuse of the process of law.

Conclusion:
The court allowed the applications and quashed FIR No. 78 of 2016, stating, "allowing prosecution to continue when the dispute is of civil nature and does not disclose commission of cognizable offense, would be an abuse of process of law." The court ruled that the allegations made in the complaint did not make out the ingredients of a criminal offense and were predominantly of a civil nature.

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