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2023 (9) TMI 309 - HC - Companies LawCriminal conspiracy - deceive the banks - committing a criminal breach of trust and faith - vicarious liability - It is submitted that Petitioner were never being the Director of the accused companies - Directors of associate companies are liable for punishment as per sub Section (9) of Section 212 of the Companies Act, 1956 or not - HELD THAT - On perusal of the Investigation report, it is seen that there is no specific averment that the petitioners were in charge of and responsible to the Companies for the conduct of its business at the time of commission of the offence. In the instant case, except the fact that the petitioners are wife and brother of the Director, nothing has been produced by the complainant showing that the petitioners were controlling the day-to-day affairs of the Company. With regard to the nature of charge against the petitioner/A5, as per the report of SFIO, that she, in connivance with other Promoter Directors, involved in misappropriation of fixed Assets of PAPL, siphoning off funds of PAPL to the tune of Rs. 12.03 Crore, by sale of aircraft spares and by receiving the sale proceeds in associate companies by sale of fixed assets and stocks of PAPL to aircraft spare dealers in US and Singapore and non-cooperation in investigation. The case of the respondent-complainant is, the petitioners along with others acted in a criminal conspiracy to deceive the banks and committed a criminal breach of trust and faith, the banks reposed on them. Further, they connived with the promoters of PAPL, in the disposal of the assets belonging to the banks under hypothecation, with a motive to benefit them and the entities belonging to them. On perusal of the SFIO report, it is seen that the information is bereft of even the basic facts, which are absolutely necessary for making out the offence, as against the petitioners herein / A5 and A10. The inherent powers of the High Court is not the one conferred by the Code, but the one which the High Court already has in it and which is preserved by the Court. Section 482 saves inherent power of the High Court postulating that nothing in this Code shall be deemed to limit or affect the inherent powers of the High Court to make such orders as may be necessary to give effect to any order under this Code, or to prevent abuse of the process of any Court or otherwise to secure the ends of justice - Further, the High Court can quash an F.I.R. or a complaint in exercise of its powers under Article 226 of the Constitution or under Section 482 of the Criminal Procedure Code, if the allegations found in the F.I.R. or the complaint, taken at their face value and accepted in its entirety, does not prima facie disclose commission of a cognizable offence or make out a prima facie case against the accused or where manifestly the proceeding is actuated by malice. On careful perusal of the report of SFIO, absolutely nothing would reveal that the petitioners were in overall control of the day-to-day affairs of business of the Company, controlling the day-to-day affairs of the Company and they, in connivance with other Promoter Directors, involved in misappropriation of fixed Assets of PAPL, siphoning off funds of PAPL to the tune of Rs. 12.03 Crore, by sale of aircraft pares and by receiving the sale proceeds in associate companies by sale of fixed assets and stocks of PAPL to aircraft spare dealers in US and Singapore. In order to constitute the offence, the intention to deceive should be in existence at the time when the inducement was made - on a perusal of the complaint and material, comes to a conclusion that the allegations levelled in the complaint on the face of it does not constitute any offence as against the petitioners. The Criminal Original Petitions are allowed.
Issues Involved:
1. Quashing of proceedings in E.O.C.C.No.173 of 2016. 2. Allegations against the petitioners under various sections of the Companies Act and IPC. 3. Role of petitioners in the alleged offences. 4. Applicability of vicarious liability. 5. Examination of SFIO Report and its findings. 6. Application of inherent powers of the High Court under Section 482 CrPC. Summary: Quashing of Proceedings: The petitioners sought to quash the proceedings in E.O.C.C.No.173 of 2016, pending before the Additional Chief Metropolitan Magistrate, Egmore, Chennai. The court decided to address both petitions together due to the similarity of issues involved. Allegations and Charges: The respondent lodged a complaint against the petitioners and others for offences under various sections of the Companies Act, 1956, and the Indian Penal Code (IPC). The allegations included fraudulent activities, misappropriation of funds, and falsification of financial statements. Role of Petitioners: (i) Petitioner/A5: Alleged to have used bank accounts of associated companies to siphon off sale proceeds and involved in misappropriation of funds. However, the court found no specific evidence showing that A5 was in charge of or responsible for the company's day-to-day affairs. (ii) Petitioner/A10: Alleged to be involved due to familial connections with other accused but had no direct involvement in the company's operations. The court found no specific overt acts attributed to A10. Vicarious Liability: The court referenced the Supreme Court's guidelines, emphasizing that vicarious liability cannot be imposed on directors unless the company itself is made an accused. The court noted that the companies involved were not made accused, thus the petitioners could not be held vicariously liable. SFIO Report Examination: The court examined the SFIO report, which detailed various charges against the petitioners and others. The report lacked specific averments that the petitioners controlled the company's day-to-day affairs or were directly involved in the alleged fraudulent activities. Inherent Powers of High Court: The court exercised its inherent powers under Section 482 CrPC, noting that the allegations did not constitute a prima facie case against the petitioners. The court highlighted that the inherent powers are to prevent abuse of process and ensure justice. Conclusion: The court allowed the petitions, quashing the proceedings in E.O.C.C.No.173 of 2016 against the petitioners/A5 and A10. The court emphasized that the allegations, even if taken at face value, did not disclose any offence against the petitioners. Consequently, the connected miscellaneous petitions were also closed.
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