1991 (9) TMI 373 - HC - Indian Laws

Summary

Issues Involved:
1. Application under Section 482 of the Code of Criminal Procedure for quashing criminal proceedings.
2. Allegations of false representations and inducement under Sections 420, 467, 471, and 477A of the Indian Penal Code.
3. Jurisdiction and maintainability of prosecution against corporate entities.
4. Nature and scope of inherent powers of the High Court under Section 482 of the Code of Criminal Procedure.
5. Examination of prima facie evidence and allegations.
6. Determination of whether the dispute is of civil or criminal nature.
7. Suppression of material facts and mala fide intentions.

Detailed Analysis:

1. Application under Section 482 of the Code of Criminal Procedure:
This application seeks to quash the criminal proceedings under Sections 420, 467, 471, and 477A of the Indian Penal Code, read with Section 120B and/or Section 109/114 of the IPC, related to Complaint Case No. 1483 of 1990.

2. Allegations of False Representations and Inducement:
The complaint alleges that the accused made false representations regarding the independence and management of GL, its financial health, and future prospects, which induced the complainant to purchase shares at an inflated price. Specific representations included GL being an independent company, GECI having no detailed knowledge of GL's workings, and GL's profitability and growth potential. The complainant relied on these representations and purchased 5,37,000 shares of GL for Rs. 3,49,05,000.

3. Jurisdiction and Maintainability of Prosecution Against Corporate Entities:
The court held that a corporate body cannot be prosecuted for offenses requiring mens rea (guilty mind), such as those under Sections 420, 467, 471, and 477A of the IPC. The court cited precedents where it was held that corporate entities cannot possess the requisite mens rea. Additionally, offenses involving mandatory imprisonment cannot be imposed on corporate bodies, making the prosecution against the companies not maintainable.

4. Nature and Scope of Inherent Powers of the High Court under Section 482:
The court discussed the inherent powers under Section 482, emphasizing that these powers should be exercised to prevent abuse of the process of the court or to secure the ends of justice. The court can quash proceedings if the complaint does not disclose any offense, is frivolous, vexatious, or if the allegations are inherently improbable.

5. Examination of Prima Facie Evidence and Allegations:
The court examined whether the allegations in the complaint, even if taken at face value, constituted the offenses alleged. It was found that the representations made by the accused were inconsistent and inherently improbable. The complainant, being a large public company with access to financial experts, could not have reasonably relied solely on the accused's representations without conducting its own due diligence.

6. Determination of Whether the Dispute is of Civil or Criminal Nature:
The court concluded that the dispute was of a civil nature, arising out of a commercial transaction. The complainant had conducted extensive investigations and obtained detailed information before agreeing to the purchase. The court noted that untrue praise of goods does not amount to cheating and that the principle of caveat emptor (buyer beware) applied.

7. Suppression of Material Facts and Mala Fide Intentions:
The court identified several instances of suppression of material facts by the complainant, including the takeover of GL's management by SWL, the involvement of Mr. Bansi Mehta (a director of SWL), and the statutory auditors' rejection of the alleged hidden losses. The court also noted a letter from SWL to GECI demanding concessions and threatening criminal prosecution if the demands were not met, indicating a mala fide intention to exert pressure on the petitioners.

Conclusion:
The court found that the allegations were patently absurd and inherently improbable, the dispute was of a civil nature, and the criminal proceedings were initiated with an oblique motive. The continuation of the proceedings would be an abuse of the process of the court. Therefore, the application was allowed, and the criminal proceedings were quashed.