2023 (5) TMI 4 - SC - Indian Laws

Pledge of shares - whether the accused No.1 Company was entitled to invoke the pledge at any time in the event of default or not? - Section 34 of the Arbitration and Conciliation Act, 1996 - HELD THAT - In the event of any of the events occurring in sub-clauses (a) to (i) of Clause 9 of the ICDA, the lender would be entitled at its discretion to enforce its rights as mentioned in the ICDA, Deed of Personal Guarantees, Corporate Guarantee and LoP. A perusal of sub-clause (a) of Clause 9 of the ICDA would reveal that, if any installment of interest required to be paid as per the ICDA remains unpaid even after the expiry of 3 days from the respective due date for payment, accused No.1 Company was entitled to enforce its rights as mentioned in Clause 9 of the ICDA. Similarly, if any shortfall in the security pledged vide LoP executed, subject to which facility was granted, was not replenished even after giving due Notice, accused No.1 Company was entitled to invoke Clause 9 of the ICDA. A perusal of Clause 5 of the LoP would reveal that the Pledgee was entitled to invoke the pledge at any time in the event of default or otherwise for as many number of shares as the Pledgee/lender deems fit in its sole discretion. It further provided that such invocation of pledge would not amount to sale of shares to the lender and the borrower would not be entitled to any credit/adjustment on such invocation/transfer of shares to the lender s account on that date - A perusal of the terms of the ICDA as well as the LoP would clearly reveal that, in the event of any of the events occurring as provided in Clause 9 of the ICDA, accused No. 1 Company was entitled to sell the shares either to itself, its group companies or to any outsider. The accused No.1 Company had also agreed not to dispute or claim any loss on account of the price at which such securities were sold. 16. A perusal of the entire complaint would reveal that the only allegation is that accused No.1 Company had sold the shares to itself when the market price of the shares had fallen. The complainant/respondent No.1 has attempted to turn a purely contractual dispute between the parties into a criminal case. Not only that, there is an inordinate delay in lodging the complaint. Though the complainant/respondent No.1 was aware about the sale of the shares in the year 2001, it did not do anything except filing an application before the learned Arbitrator. According to the complainant/respondent No.1, it received the information from the BSE and NSE in the year 2006, which fortified its suspicion about the fraud being played. Even thereafter, for a period of 5 years, it was silent and filed the complaint only in the year 2011 - though an attempt was made at the time of hearing to contend that it has only filed the complaint after it came to know about the fraud in the year 2009, there is no averment to that effect in the complaint. It is found that the complaint, taken at its face value, does not disclose that any of the ingredients of the offence complained of have been made out. In the totality of the circumstances, it is found that the present complaint is nothing else but an abuse of process of law - appeal allowed.

Summary

Issues Involved:
1. Quashing of the trial court's order issuing summons.
2. Allegations of fraud, cheating, and criminal breach of trust.
3. Applicability of arbitration proceedings and arbitral award.
4. Delay in lodging the complaint.

Summary:

1. Quashing of the Trial Court's Order:
The Supreme Court addressed the appeals challenging the High Court's decision which upheld the trial court's order dated 22nd March 2017, issuing summons to the appellants under Sections 406, 420 read with Section 34 of IPC. The trial court's order was initially challenged by the appellants, but the High Court dismissed their petitions while allowing the complainant's petitions.

2. Allegations of Fraud, Cheating, and Criminal Breach of Trust:
The original complainant/respondent No.1 alleged that the appellants, as Directors of accused No.1 Company, committed fraud, cheating, and criminal breach of trust by selling pledged shares at a lower price to a company where they were also Directors. The complaint was filed under Sections 403, 406, 420, and 120-B of IPC.

3. Applicability of Arbitration Proceedings and Arbitral Award:
The Court noted that the dispute was subject to arbitration, and an arbitral award was passed in favor of accused No.1 Company. The complainant/respondent No.1 had participated in the arbitration proceedings and challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The Court observed that the dispute was purely of civil nature and continuation of criminal proceedings would amount to abuse of process.

4. Delay in Lodging the Complaint:
The Court highlighted the inordinate delay in lodging the complaint. The complainant/respondent No.1 was aware of the sale of shares in 2001 but filed the complaint only in 2011. The Court found no sufficient explanation for the delay, thereby questioning the bona fides of the complaint.

Conclusion:
The Supreme Court concluded that the complaint did not disclose the ingredients of the alleged offences and was an abuse of process. The appeals were allowed, and the impugned judgment of the High Court and the trial court's order were quashed. The complaint was dismissed, with a clarification that the observations would not affect the arbitral proceedings under Section 34 of the Arbitration Act.