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TMI Blog2022 (1) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... ties which lead to the fraudulent activities of the company found during the inspection as per the procedure, certainly there cannot be any difficulty in lodging any complaint under section 447 of the Companies Act. hether or not there is mismanagement or oppression, the same cannot be gone into by the Special Court. The Special Court can try the offence on the specific charges. Situation is not ripen for that stage. Only on recording a finding about the fraud committed by the petitioners, the Court can try the offence for specific charges. The criminal Court cannot assume the role of Company Court and investigate the matter. Though much reliance has been placed on the judgment of the Apex Court in the judgment in NATIONAL BANK OF OMAN VERSUS BARAKARA ABDUL AZIZ ANR. [ 2012 (12) TMI 965 - SUPREME COURT] to contend that the Magistrate has considered the sworn statement. In the above case, the Apex Court has held that the High Court instead of quashing the complaint should have directed the Magistrate to pass fresh Orders following the procedure under section 202 of Cr.P.C. In MD. IBRAHIM ORS VERSUS STATE OF BIHAR ANR [ 2009 (9) TMI 922 - SUPREME COURT] , the Apex C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they played their role independently and hence, they have not been arraigned as accused. It is further stated that in the Annual General Meeting held on 29.01.2016, the petitioners were elected as directors. In the same Annual General Meeting, a resolution was passed to issue bonus share to the existing shareholders in a 500 : 1 ratio. In the Annual General Meeting held on 26.05.2016 the petitioners allegedly decided to issue bonus shares to the shareholders who had supported the petitioners to get elected. Consequently bonus shares were issued against 46,862 shares held by Nonresident Indians facing prosecution by the Enforcement Directorate without the approval of the Reserve Bank of India. The above move was opposed by the then Company Secretary Mr.C.S.Deepak as it would lead to violation. However, the accused ignored the objections and proceeded to issue bonus shares to foreign investors. The Board has also decided not to issue bonus shares to the share holders who have voted against them in the Annual General Meeting in order to strengthen their hold in the bank by issuing shares only to the shareholders who are in their favour and eliminate and decimate those who are against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Though the other grounds are also raised, it is the contention of the learned counsel appearing for the petitioners that the complaint ought not have taken on file. As the offences alleged are under sections 447 and 448, the cognizance can be taken by the Court only on the complaint preferred by the director or any other officer appointed by the Central Government. Hence, the respondent have no locus standi to file such complaint. It is also submitted by the counsel that when there is oppression or mismanagement, separate procedure is contemplated and only when there is a finding with regard to fraud, congnizance can be taken for the offence under sections 447 as per the Companies Act. In the absence of any inquiry conducted in this regard by the authorities as contemplated in the Companies Act, the minority shareholder cannot lodge a complaint alleging fraudulent activities. In other words, it is his contention that only the authorities empowered under the Companies Act can conduct enquiry and give a finding as to the mismanagement, oppression as well as fraudulent activities of the company. In the absence of finding being recorded, the prosecution cannot be launched. It is his fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd another reported in [2013] 2 Supreme Court Cases 488 Shivjee Singh Vs. Nagendra Tiwary and another reported in [2010] 7 Supreme Court Cases 578 Azim and others Vs. India Awake for Transparency in W.P.Nos.10140 10142 of 2020 of High Court of Karnataka at Bengaluru. 6. The entire allegations in the complaint appears to be with regard to issuance of bonus to the shareholders who are nonresidents of India and not to all the shareholders, without the approval of the Reserve Bank of India. It is the further allegation that the Board decided not to issue bonus shares to the shareholders who voted against them in their Annual General Meeting. Similarly, the PAS3 form relating to the allotment of bonus shares is a fraudulent one and it is contrary to the Board Meeting Held on 30.06.216. Therefore, the prosecution is sought under section 447 and under the Companies Act, 2013 and 463 and 464 of IPC. As the very locus standi of the petitioner to launch the private complaint is questioned before this Court, it is relevant to refer Section 448 of the Companies Act, which reads as follows : Section 448: Punishment for false statement. 448. Save as otherwise pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aud, but which may extend to three time the amount involved in the fraud. The word found to be guilty of fraud, assume significance. Any offence, normally punishable in any other enactment, normally refer that who ever commits forgery shall be punished with imprisonment. In any other enactments, the term 'found to be guilty' is normally absent. The significance of the word 'found to be guilty of fraud under section 447' assumes significance in view of the Special Act, viz., the Companies Act. 8. It is relevant to note that when any inspection or enquiry or investigation is required with regard to the affairs of the company, a separate proceedings are contemplated under the Companies Act 2013. Chapter XIV deals with enquiry, inspection and investigation. Section 206 of the Companies Act deals with the power to call for information, inspect books and conduct enquiries on the basis of the information received by the Registrar. On such investigation, if it is found that the business of a company is being carried for fraudulent or unlawful purpose or not in compliance with the provisions of the Act or if the grievances of investors are not being addressed every office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce referred to this Sub-section except upon a complaint in writing made by the Director, Serious Fraud Investigation Office or any office of the Central Government authorized by a general or special Order in writing in this behalf by that Government in this regard. Therefore, to maintain the prosecution for the offence of fraud, a complaint ought to have been made by either by the Director, Serious Fraud Investigation Office or any office of the Central Government authorized by a general or special Order by the Government. To find out the irregularities of the fraudulent activities only, Chapter XIV has been specifically made in the Companies Act. 9. It is also relevant to note that even in mismanagement, oppression, complaint by any of the minority shareholders, the remedy lies under section 241 of the Companies Act for oppression or mismanagement. Only if the Tribunal gives any finding that there are fraudulent activities and fraud has been committed by any person, give cause of action to proceed under section 447 of the Companies Act. Chapter XIV and XVI of the Companies Act are fact finding procedures. If any irregularities which lead to the fraudulent activities of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss; (ii) wrongful gain means the gain by unlawful means of property to which the person gaining is not legally entitled; (iii) wrongful loss means the loss by unlawful means of property to which the person losing is legally entitled. 10. The above explanation makes it clear that there must be any act or omission, concealment of any fact or abuse of connivance in any manner with intent to deceive to gain undue advantage from or to injure the interests of the company or its shareholders or its creditors or any other person. Therefore, this Court is of the view that to proceed for any penal action, there must a fact finding either by way of enquiry or by way of investigation or inspection, a finding recorded by the Tribunal under section 241 of the Companies Act. What was sought to be envisaged in a private complaint is oppression of some of the share holders and preference given to non resident shareholders. Further the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their wisdom have included Section 447 in sub Clause 6 of Section 212 to take cognizance by the Court, specifically on the complaint either by the Director, Serious Fraud Investigation Office or any Officer of the Central Government authorized by a general or special order in writing by them. Therefore, merely because the shareholder is given a right to proceed against noncognizable offence, he cannot be permitted to file complaint for cognizable offence in view of specific bar under section 212 [6] of the Companies Act on the basis of certain inferences and assumptions, without any enquiry or investigation or by inspection. 13. It is also relevant to note that the Apex Court in the judgment in Satish Mehra V. State [NCT of Delhi and another reported in [2012] 13 Supreme Court Cases has observed as follows : A criminal trial cannot be allowed to assume the character of fishing and roving enquiry. It would not be permissible in law to permit a prosecution to linger, limp and continue on the basis of a mere hope and expectation that in the trial some material may be found to implicate the accused. Such a course of action is not contemplated in the system of criminal juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of proviso to Section 202(2). The above case relate to noncognizable offence. Whereas Section 447 is a cognizable offence and there is a specific provision under section 212 [6] in the proviso for cognizable offences. Much emphasis is made on the judgment of the Karnataka High Court in W.P.No.10142 of 2020 Order dated 18.01.2021 in Azim and others Vs. India Awake for Transparency. Whereas in the present case, the case is governed by a Special Act which deals with the procedure to inquire, investigation and inspection and only on a finding recorded by such authorities and the persons are found guilty, he can be prosecuted under section 447 of the Companies Act. Merely on the basis of the petitioner's inferences and presumptions, the entire Directors of the company cannot be prosecuted. The contention of the learned counsel that the shareholders can any time file complaint against the directors is accepted, any minority shareholder and that too without any proof of the alleged mismanagement or oppression or fraud committed by the company can subject the running company into a criminal prosecution. Only in order to prevent such things, such safeguards have been made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of document, electronic record or digital signature was made, signed, sealed, executed, transmitted or affixed by or by the authority of a person by whom or by whose authority he knows that it was not made, signed, sealed, executed or affixed; or Secondly.--Who, without lawful authority, dishonestly or fraudulently, by cancellation or otherwise, alters a document or an electronic record in any material part thereof, after it has been made, executed or affixed with digital signature either by himself or by any other person, whether such person be living or dead at the time of such alternation; or Thirdly.--Who dishonestly or fraudulently causes any person to sign, seal, execute or alter a document or an electronic record or to affix his digital signature on any electronic record knowing that such person by reason of unsoundness of mind or intoxication cannot, or that by reason of deception practiced upon him, he does not know the contents of the document or electronic record or the nature of the alteration. [Note: The words `digital signature' wherever it occurs were substituted by the words `electronic signature' by Amendment Act 10 of 2009]. The condition precedent f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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