2021 (4) TMI 780 - HC - Indian Laws

Issuance of Duplicate share certificates - original share certificates were misplaced - section 420/406 of the Penal Code - HELD THAT - In the case in hand, the allegations made against the accused petitioners are bereft of any intention of cheating or misappropriation at the inception of the transaction. The equity shares were admittedly issued against consideration and loss or misplacement of such shares by the opposite party is a subsequent event which was not contemplated by the parties at the time of issuance of the shares. No prima facie case of initial deception has been made out and under no stretch of imagination can it be held that the petitioners acted with criminal intent at the inception on an anticipation that the shares would be misplaced at a subsequent stage. Even if it is held that duplicate share certificates were deliberately not issued in favour of the opposite party with criminal intent, such act was done at a subsequent stage only after the original share certificates were misplaced and no such intent is found at the inception of the transaction. No prima facie case of criminal intent at the inception having been made out against the petitioners in the complaint, it can be held that no criminal offence, far less an offence under section 420/406 of the Penal Code is disclosed in the complaint and allowing the proceedings to continue shall amount to abuse of the process of law - application allowed.

Issues Involved:
1. Quashing of proceedings under sections 406, 420, and 120B of the Penal Code.
2. Allegation of non-issuance of duplicate share certificates.
3. Determination of prima facie case for cheating and criminal breach of trust.
4. Applicability of the Companies Act, 2013 provisions.
5. Jurisdiction under section 482 of the Code of Criminal Procedure.

Detailed Analysis:

1. Quashing of Proceedings under Sections 406, 420, and 120B of the Penal Code:
The petitioners sought to quash the proceedings of complaint case no. C.S./21563 of 2019 under sections 406, 420, and 120B of the Penal Code. The court examined whether the allegations made in the complaint established a prima facie case. It was concluded that no prima facie case of initial deception or criminal intent at the inception of the transaction was made out against the petitioners. The court held that allowing the proceedings to continue would amount to abuse of the process of law.

2. Allegation of Non-Issuance of Duplicate Share Certificates:
The opposite party claimed to hold 27,000 equity shares in the petitioner company, which were misplaced, and requested duplicate share certificates. The petitioners contended that the shares were transferred in their favor in 2016, and the opposite party received ?2,70,000/- for the transfer. The court noted that the dispute pertained to non-issuance of duplicate share certificates, which is governed by the Companies Act, 2013, and not an offense under sections 420/406 of the Penal Code.

3. Determination of Prima Facie Case for Cheating and Criminal Breach of Trust:
The court analyzed the ingredients of offenses under sections 420 and 406 of the Penal Code. It found no evidence of fraudulent or dishonest inducement or criminal breach of trust at the inception of the transaction. The equity shares were issued against consideration, and the misplacement of shares was a subsequent event. Therefore, no prima facie case of cheating or criminal breach of trust was established.

4. Applicability of the Companies Act, 2013 Provisions:
The petitioners referred to several provisions of the Companies Act, 2013, dealing with the issuance of duplicate share certificates. The court observed that these provisions do not fall within the ambit of an application under section 482 of the Code of Criminal Procedure. The dispute over the issuance of duplicate share certificates should be addressed under the Companies Act, not the Penal Code.

5. Jurisdiction under Section 482 of the Code of Criminal Procedure:
The court emphasized that its jurisdiction under section 482 of the Code should be exercised with extreme care, caution, and circumspection. It should not be used to stifle legitimate prosecution. The uncontroverted allegations in the complaint did not prima facie establish a case of criminal intent or misappropriation. Therefore, the court quashed the proceedings to prevent abuse of the process of law.

Conclusion:
The court allowed CRR 3058 of 2019, quashing the proceedings of complaint case no. C.S./21563 of 2019 under sections 406, 420, and 120B of the Penal Code. The connected application CAN 1 of 2020 (Old CAN 930/2020) was disposed of, and there was no order as to costs. A copy of the judgment was directed to be sent to the learned trial court for information and necessary action.

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