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2022 (7) TMI 207 - HC - Companies LawSeeking quashing of complaint and prosecution proceedings - Validity of Asset Transfer Agreement - vicarious liability - as per Asset Transfer Agreement (ATA), both the parties failed in meeting their respective conditions within the Long Stop Date and consequently the said ATA expired - HELD THAT - It is not in dispute that respondent Nos.2 and 3 are the shareholders of the said Company having 13.32% shares each. It is also not in dispute that the said Company and respondent Nos.2 and 3 had passed a resolution to sell the property of the Company to M/s. Clininvent Research Private Limited. The only dispute that was raised by respondent Nos.2 and 3 in their complaint is that accused including the petitioners herein did not adhere to the terms and conditions of the ATA dated 24.06.2016 for the reason that in ATA it was mentioned about Long Stop Date i.e., by 22.08.2016, the entire process with regard to the sale of assets of the Company to M/s. Clininvent Research Private Limited should have been completed. In case, the said process could not be completed by the said date, the said agreement would stand terminated. The accused did not complete the said sale process by the Long Stop Date, and there was no extension of Long Stop Date. In view of the same, transfer of the assets of the Company in favour of the Purchaser is nothing but illegal. According to the learned senior counsel, all the said contentions raised by respondent Nos.2 and 3 before the NCLT were rejected in C.P. No.5/241/HDB/2017 vide order dated 11.02.2020. Further, the allegation that the accused did not adhere to the terms and conditions of ATA dated 24.06.2016, whether the Company had obtained the consent of respondent Nos.2 and 3 for extension of Long Stop Date after its expiry, whether the sale process was done in terms of the said ATA dated 24.06.2016 and that the accused never forged and fabricated any document, much less the resolution and that the petitioners herein are only employees of the Purchaser Company and they did not do anything in their personal capacity etc., are all triable issues which are to be adjudicated by the trial Court after full-fledged trial, but not by this Court in a petition filed under Section - 482 of the Cr.P.C. In a given set of facts and circumstances, a contractual dispute, apart from giving rise to cause of action for seeking remedy under Companies Act, may also involve the criminal acts. The nature and scope of civil proceedings are different from criminal proceedings and mere fact that complaint relates to a company s transaction or breach of contract for which a civil remedy is availed, is not by itself a ground to quash the criminal proceedings. The only test which has to be adopted is to find out as to whether the allegations in the complaint disclose the criminal offence or not - The defences that might be available, or facts/aspects which when established during trial, might lead to acquittal, were not grounds for quashing a complaint at the threshold. At that stage, the only relevant question was whether averments in the complaint spell out ingredients of a criminal offence or not. The Court has to consider whether complaint discloses any prima facie offences that were alleged against the respondents. Correctness or otherwise of the said allegations has to be decided only during trial. At the initial stage of issuance of process, it was not open to Courts to stifle proceedings by entering into merits of the contentions made on behalf of the accused. Criminal complaints could not be quashed only on the ground that, allegations made therein appear to be of a civil nature. If ingredients of offence alleged against Accused were prima facie made out in complaint, criminal proceeding shall not be interdicted. The petitioners herein have not made out any ground to quash the proceedings in the aforesaid C.C. Thus, the present petition is devoid of merits and the same is liable to be dismissed - Petition dismissed.
Issues Involved:
1. Quashing of criminal proceedings under Section 482 of the Code of Criminal Procedure, 1973. 2. Allegations of offences under Sections 406, 420, 465, 468, and 471 read with Section 34 of the Indian Penal Code, 1860. 3. Vicarious liability of employees of the purchaser company. 4. Breach of contract and its implications for criminal prosecution. 5. Role of the National Company Law Tribunal (NCLT) and its decisions. 6. Admissibility and relevance of evidence collected by the Investigating Officer. 7. Applicability of legal precedents cited by the petitioners. Detailed Analysis: 1. Quashing of Criminal Proceedings: The petitioners sought to quash the proceedings in C.C. No.165 of 2018 under Section 482 of the Cr.P.C. The court emphasized that quashing criminal proceedings is warranted only in rarest of rare cases with extreme caution, as held by the Supreme Court in Skoda Auto Volkswagen India Private Limited v. The State of Uttar Pradesh. 2. Allegations of Offences: The petitioners were accused of committing offences under Sections 406, 420, 465, 468, and 471 read with Section 34 of the IPC. The allegations included fraudulent transfer of company assets without the consent of certain shareholders and forgery of documents. The court found that these allegations were triable issues that should be adjudicated by the trial court. 3. Vicarious Liability: The petitioners argued that they were merely employees of M/s. Clininvent Research Private Limited and not personally liable. The court noted that vicarious liability requires specific allegations, as held in Sharad Kumar Sanghi v. Sangita Rane and Sunil Bharti Mittal v. Central Bureau of Investigation. However, the court found that the charge sheet contained specific allegations against the petitioners, making it inappropriate to quash the proceedings at this stage. 4. Breach of Contract: The petitioners contended that the allegations primarily constituted a breach of contract, which should not give rise to criminal prosecution for cheating. They argued that the charge sheet did not demonstrate dishonest intention from the beginning of the transaction. The court, however, stated that contractual disputes could also involve criminal acts, and the nature of civil and criminal proceedings are different. The court referred to Hridaya Ranjan v. State of Bihar, which emphasized that mere breach of contract does not constitute cheating unless there is dishonest intention from the outset. 5. Role of NCLT: The petitioners highlighted that respondent Nos.2 and 3 had already approached the NCLT, which dismissed their claims. The court noted that the NCLT's decision did not preclude criminal proceedings, as civil and criminal remedies can coexist. 6. Evidence Collected: The court observed that the Investigating Officer had collected material evidence and recorded statements under Section 161 of the Cr.P.C. The magistrate, upon reviewing the charge sheet, found a prima facie case against the petitioners and took cognizance of the offences. The court held that the truthfulness of the allegations was a matter for trial. 7. Legal Precedents: The petitioners cited several legal precedents to support their case, including Hridaya Ranjan Pd. Verma, Sushil Sethi v. The State of Arunachal Pradesh, Ashok Giri v. State, and Mitesh Kumar J. Sha v. The State of Karnataka. The court found that the facts of these cases were distinguishable from the present case and did not support quashing the proceedings. Conclusion: The court concluded that the petitioners had not made out any ground to quash the proceedings. The criminal petition was dismissed, and the trial was allowed to proceed to adjudicate the issues raised. The court emphasized that the correctness of the allegations would be determined during the trial.
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