2024 (3) TMI 697 - HC - Companies Law

Criminal proceedings against the Directors - Petitioner contending that financial transactions, inherently civil in nature, were wrongly dragged into criminal litigation - Applicability of vicarious liability in criminal proceedings - Invocation of inherent jurisdiction of this Court under Section 482 CrPC - criminal breach of trust, cheating, dishonestly inducing delivery of property, forgery and criminal conspiracy - HELD THAT - It is manifested that the criminal contents are emanated from the alleged financial transaction took place between the present applicants along with their company namely M/s Dignify Builtech Private Ltd. and opposite party No. 2. Although financial transaction between them is admitted, however, route of money transaction has been disputed by both the parties. Opposite party No. 2 came with the case that there was bipartite financial transaction/agreement between the opposite party No. 2 and the accused company. Thus, opposite party No. 2 has directly transferred the amount in the account of accused company, having considered the negotiation took place between them. However, present applicants came with the case that it was a tripartite agreement between the parties involving one more company namely M/s Shubhkamna Builtech Private Ltd. Thus, it appears that there was circuitous route in transferring the money through another corporate being M/s Shubhkamna Builtech Private Ltd. It would not be befitting to make any comment on the summoning order, however, technicality, if any, is not sufficient to drop the entire criminal proceeding initiated at the behest of opposite party No. 2. In this eventuality, it is always open to the present applicant to raise this objection before the court concerned, who is not bound with the police report submitted under Section 173 CrPC and the court can issue summons, having considered the facts and circumstances of the case and the material available on record, against the other person as well, who has not been arraigned in the charge sheet. He would be at liberty to take action under Section 319 CrPC. Sections 190 and 204 of the CrPC does not restrict the jurisdiction of the court concerned in issuing process against any accused, if warranted. It is admitted to the parties that no final winding up order has been passed under the Companies Act and, while appointing provisional liquidator, company court/tribunal can impose certain conditions/limitations upon the provisional liquidator. Thus, it is evident from the relevant portion of order dated 20.9.1997 passed by Hon ble Delhi High Court that provisional liquidator had been appointed with limited power to take all the assets, books of account and the record of the company. Exhaustive power has been given to the liquidator under the provisions of the Companies Act which, in fact, is applicable after the conclusion of winding up proceedings, therefore, there are no force in the submission that criminal proceedings should not have been initiated without sanction of the court competent - Even assuming that there is requirement of prior sanction of the court competent to institute a case on behalf of company under liquidation, no limitation has been imposed on the power of the court concerned to entertain the criminal prosecution launched in the ordinary course under the provisions of the code of criminal procedure. Provision relating to the prior sanction before filing litigation on behalf of the company is required only to ascertain the financial liabilities of the company and to secure its funds. The opposite party No. 2 has not committed any illegality in instituting a criminal proceeding against the present applicants, who have been arraigned in the FIR for the offence under several sections of the IPC. The criminal proceeding initiated on behalf of respondent No. 2 against the present applicant is maintainable and learned Magistrate has rightly taken cognizance on the police report submitted under Section 173 CrPC. On the facts as mentioned in the FIR prima facie commission of offence is made out against the present applicants, who are the directors of the accused company and were throughout instrumental in inducing the present applicant to purchase the land situated near NOIDA Express Way and dishonestly misused the money for other work which they had received from opposite party No. 2 in lieu of transferring the land which was agreed upon between the parties to be purchased for opposite party No. 2. Disputed question of fact has been raised by the learned counsel for the applicants in order to prove the innocence of the present applicants which can more appropriately be scrutinized by the trial court. In the facts and circumstances of the present case, there are no abuse of the process of Court nor any justifiable ground to pass an order so as to secure the ends of justice. No ground is made out warranting indulgence of this Court in exercise of inherent jurisdiction under Section 482 CrPC to quash the criminal proceeding as prayed for. The instant application under Section 482 CrPC, being misconceived and devoid of merits, is dismissed.

Summary

Issues Involved:

1. Maintainability of criminal proceedings against directors.
2. Legality of the charge sheet and cognizance order.
3. Nature of the financial transaction (civil vs. criminal).
4. Locus standi of the opposite party to initiate criminal proceedings.
5. Disputed financial transaction details.

Summary:

1. Maintainability of Criminal Proceedings Against Directors:
The applicants argued that directors cannot be held vicariously liable for the company's actions in criminal law. They cited Supreme Court cases (GHCL Employees Stock Option Trust, SK Alagh v. Uttar Pradesh) to support that directors cannot be implicated without direct allegations. The court, however, noted that the FIR contained direct allegations against the directors, who were actively involved in negotiations and induced the opposite party to transfer money. Thus, the court found the criminal proceedings against the directors maintainable.

2. Legality of the Charge Sheet and Cognizance Order:
The applicants contended that the charge sheet did not include the company, only its directors, making the cognizance order unsustainable. The court acknowledged that the FIR included the company, but the charge sheet did not. However, it stated that technicalities should not drop the criminal proceedings and that the trial court could summon the company if necessary.

3. Nature of the Financial Transaction (Civil vs. Criminal):
The applicants argued that the financial transaction was civil and should not be criminalized. They presented documents to show it was a tripartite transaction involving another company. The court, however, found prima facie evidence of criminal elements, such as misappropriation of funds, and held that the criminal proceedings were justified. The court cited the Indian Oil Corporation case, emphasizing that a commercial transaction could also involve a criminal offense.

4. Locus Standi of the Opposite Party to Initiate Criminal Proceedings:
The applicants argued that the provisional liquidator appointed for the opposite party should have sanctioned the criminal proceedings. The court noted that the provisional liquidator was appointed with limited power and that the company petition was eventually dismissed. It held that there was no restriction under law for the opposite party to initiate criminal proceedings and cited A.R. Antulay v. Ramdas Sriniwas Nayak, which states that anyone can set the criminal law into motion.

5. Disputed Financial Transaction Details:
The applicants claimed the transaction was tripartite and involved another company, which the opposite party denied. The court stated that these were disputed facts that should be scrutinized during the trial and not at this stage.

Conclusion:
The court dismissed the application under Section 482 CrPC, finding no abuse of the process of court or justifiable ground to quash the criminal proceedings. It held that the criminal proceedings were maintainable, and the trial court should scrutinize the disputed facts.