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TMI Blog2023 (9) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... ners/A5 and A10 and other accused before the learned Additional Chief Metropolitan Magistrate, Chennai, on 14.12.2016, for offences under Sections 68, 628 r/w 211, 211(3C) and 211(1) r/w AS-1,2,18,19,26 & Schedule VI of the Companies Act and Sections 212, 217(2), 217(2AA) and 217(3) and Sections 253 and 266A of Companies Act 1956 and under Sections 177, 187, 34, 227, 233, 403, 405, 406, 409, 420, 464, 465, 471 and 120B of IPC. (ii) The Serious Fraud Investigation Office (in short, 'the SFIO'), during investigation, analyzed the Tri-partite Agreements (i.e.) Share Holders Agreement(SHA) and Share Subscription Agreement(SSA) executed between the Paramount Airways Pvt. Ltd (in short, 'PAPL'), Promoter Group of PAPL and Kotak Mahindra Bank Limited, on behalf of investors India Growth Fund (IGF). As per the agreement, the promoters of PAPL promised the investors that PAPL would incur marginal loss during first year of operations (i.e.) 2005-06 and PAPL would earn profits from the second year onwards and the entire operations would be met with a total equity investment of Rs. 71.20 Crore. The PAPL would be generating sufficient cash to meet the operational requirements. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serve account transferred from ATF fuel expenses, which were not made to lessors and not agreed by them also. Pre-Operative Expenses (in short, 'POE') debited after commencement of commercial operations. There were unconnected debits transferred from many revenue heads like salaries, insurance, interest, commission and catering expenses. There were high variation in revenue and expenditures during 2009-10 compared to previous years, which were not explained. There were improper accounting entries under stocks, maintenance reserve and repairs and maintenance heads. The statutory auditors could not explain the rationale behind these accountings made by PAPL. The Directors, both present and past, were also unable to explain and put the blame on ex-vice president (Corporate Affairs), who passed away. The statements recorded from the ex-employees revealed that M.Thiagarajan, Ex-MD., was the sole deciding authority and he only managed the entire affairs till closure of operations. The Auditors did not make adequate disclosures under AS 18. AS 19, AS 26, AS 2 and AS 1. The promoters of PAPL did not bring in any investment/ additional investment by way of share capital or long term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 / 05.09.2009 (As per filings with ROC, Chennai, filed on 21.01.2011 and 25.06.2011). Later C. Periyakaruppan and E.R.Gurubalachandran became the Directors of PAPL from 29.08.2009 and 05.09.2009. Ex-Directors of PAPL, Lakshmi Murugesan and M.Thiagarajan and present Directors E.R.Gurubalachandran and Periya Karuppan (till liquidation orders) did not comply with the provisions of Section 212 either by filing the financial statements of subsidiaries along with audited financial of PAPL or a statement as required under the Act, if the financial period did not coincide with the FY or Period PAPL. In view of the same, the above Directors are liable for punishment as per sub Section (9) of Section 212 of the Companies Act, 1956. (vii) The Ex-Directors of PAPL Lakshmi Murugesan and M.Thiagarajan and present Directors, till liquidation orders did not comply with the provisions of Section 217 Sub Section 2, 2AA and 3 of the Companies Act, 1956. During the course of investigation, the SFIO team issued summons to M.Thiagarajan and Lakshmi Murugesan. The issued summons were duly served upon them on 7.2.2014 & 6.3.2014. In response to the summons, only M.Thiagarajan, the Ex-Managing Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their statements on oath, including M.Thiagarajan, E.R.Gurubalachandran, present Directors and N. Visvanathan, the statutory Auditors of PAPL. M.Thiagarajan is the promoter Director of PAPL and his statement was recorded on oath, under Section 240 (2) of the Companies Act, 1956, on 10.04.2014, 15.12.2014 to 17.12.2014 and 24.01.2015. During recording of the statement, he informed that T. D.Gopalakrishnan was responsible for managing the day-to-day affairs of the company. The documents collected during investigation established that M.Thiagarajan, had negotiated the investment issues with the Investors as the head of Management team, with the designation Managing Director and every head of the department, was reporting to the Managing Director, M.Thiagarajan only. (x). The documents collected from banks also established that M.Thiagarajan was matters relating to loans. The record reveled that T. D. Gopalakrishnan joined PAPL, again as Vice President on, 25.10.2009. The appointment Letter, appointing T.D.Gopalakrishnan as Vice President was signed by M.Thiagarajan, in his capacity as the Managing Director or PAPL. M.Thiagarajan deposed on oath that he attended only two board meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso revealed that only on 23.06.2011, E R. Gurubalachandran was allotted DIN number. E. R. Gurubalachandran did not have DIN, on the date of his appointment, and also from 28.08.2009 to 22.06.2011. However he acted, as a director of PAPL. during this period. E.R.Gurubalachandran acted as director without DIN. PAPL and the promoter directors namely M. Thiagarajan and Lakshml Murugesan had appointed E. R. Gurubalachandran, to act as Director of PAPL, without DIN from 28.08.2009 to till 22.06.2011 and hence violated the provisions of Section 253 of the Companies Act, 1956. Therefore, the company and M. Thiagarajan and Lakshmi Murugesan & E. R. Gurubalachandran being the officers, in default, are liable to be punished under Section 629A of the Companies Act, 1956. (xii) M.Thiagarajan fraudulently sold the current assets of aircraft spares and stocks by way of export and the sale proceeds were received through associate company accounts, namely, PFSPL and PFRPL, and later misappropriated. The sales were made without informing the lending banks with a criminal intention of misappropriating the sale proceeds. M.Thiagarajan, Ex-MD of PAPL and the director of the Paramount Flight Services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... breach of trust, as defined under Section 405 of the Indian Penal Code, 1860 and render themselves liable to be punished under Section 406 of the Indian Penal Code, 1860 r/w Section 120B of the Indian Penal Code, 1860. (xv) On 31.03.2009, the fixed assets, stocks and aircraft spares valued at Rs. 35.53 Crore, but in the Balance Sheet, as on 31.03.2010, reduced to Rs. 1.45 Crore. PAPL not shown income, on the sale of fixed assets. The assets of PAPL were available with PAPL and removed on the instruction of the said M.Thiagarajan, Ex- Managing Director of PAPL. The promoters have disposed of the vehicles, and misappropriated the sale proceeds of the vehicles. The promoters of PAPL exported the stocks and aircraft spares belonging to PAPL, during 2010 to 2012, to the buyers in US and Singapore. However the proceeds were received, in the bank accounts of group companies, namely, PFSPL and PFRPL. The value of the goods was Rs. 0.68 Crore when these goods were exported. The total value of inward remittances received was at Rs. 12.03 Crore in the bank account of the Paramount Flight Services Pvt Ltd and the Paramount Freight Pvt. Ltd. The directors of PFSPL and PFRPL namely M. Thiagar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ending 31.03.2009 was fabricated one. The revenues were managed by the Paramount Group, and they used to provide the number of tickets sold, during the period. The documents obtained from CENT BANK that the reported foreign investor of Rs. 200.00 Crore was Celestial Corporate Investment Limited, one of the subsidiary companies formed by PAPL. The said M.Thiagarajan conspired with N.Visvanathan, Statutory Auditor of PAPL, prepared false and fabricated provisional financial statements of PAPL for the six months period ending 31.03.2008 and Provisional Financial statement of PAPL, for the eighteen months period ending 31.03.2009. The said M.Thiagarajan forged and fabricated provisional financial statements with the help of N. Visvanathan and submitted the same as genuine to the banks and committed an act of forgery these documents were used by the banks, in assessing the financial performance of PAPL, lending money and in sanctioning the credit facilities. Thus, M. Thiagarajan committed an offence under Section 464 and 471 of IPC, 1860, which is punishable under Section 465 and 471 and N. Visvanathan under Section 120B r/w Section 464 and 471 of IPC, 1860, which is punishable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y qualified report based upon the falsified balance sheets for the period 31.03.2006, 01.04.2006-20.09.2007, 01.10.2007-31.03.2009 and 31.03.2010. The Statutory Auditor of PAPL, tried to conceal, the material facts. He feigned ignorance and pleaded to excuse him, for not providing an answer immediately. He tried to give wrong or incorrect information, and mislead investigation. A.Jahir Hussain, Madurai Chartered Accountant, audited the financial statements of PAPL for the period 31.03.2011 without complying with the Accounting Standards-18 and furnished its unqualified report based upon the falsified balance sheets for the period 31.03.2011, thus, he failed to comply with the provisions of Section 227(2) of the Companies Act, 1956 as the books of accounts of PAPL were falsifed and does not give a true and fair view of their financial affairs. Similarly, the financial statements of PAPL does not conform to the requirements of Section 211 of the Companies Act, 1956 read with section 628 of the Companies Act, 1956. Thus, N.Visvanathan and A.Jahir Hussain has violated the provisions of Section 227 of the Companies Act, 1956 and is liable for penal action under Section 233 of the Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no overt act attributed against Petitioner/A10, except there are bald allegation stating that A1 had sold fixed assets (Vehicles to the third parties), apart from transferring some vehicles in the name of Associate Companies. Director of Paramount Textile Mills Private Limited had the knowledge of workings of Paramount Airways Private Limited, its borrowings and lien of financing banks over the assets. Despite having knowledge, they permitted the Companies under their control to purchase the assets, to receive the sale proceeds of assets and thereby connived with the Promoter or Directors of Paramount Airways Private Limited. Further Paramount Textile Mills Private Limited was shown as Paramount Mills Private Limited/A12, then also the Petitioner cannot be proceeded with. The Petitioner has been arrayed as accused as Director of Paramount Textile Mills Private limited. In the case of Sharad Kumar Shanghi Vs. Sangeetha Rane, reported in 2015 (12) SCC 781, the Hon'ble Apex Court clearly issued guidelines that unless company is made as accused, the Director for vicarious liability cannot be proceeded. 7. The Petitioner's company is not an accused. Further, the Petitioner in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein, it has been held as follows:- "33. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. The application of mind has to be indicated by disclosure of mind on the satisfaction. Considering the duties on the part of the Magistrate for issuance of summons to accused in a complaint case and that there must be sufficient indication as to the application of mind and observing that the Magistrate is not to act as a post office in taking cognizance of the complaint, in Mehmood Ul Rehman, this Court held as under:- "22. ....the Code of Criminal Procedure requires speaking order to be passed under Section 203 Cr.P.C. when the complaint is dismissed and that too the reasons need to be stated only briefly. In other words, the Magistrate is not to act as a post office in taking cognizance of each and every complaint filed before him and issue process as a matter of course. There must be sufficient indication in the order passed by the Magistrate that he is satisfied that the allegations in the complaint constitute an offence and when considered along with the statements recorded and the resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s irregularities are found like, illegalities, manipulation of Accounts, misappropriation of funds, sale of Air Craft spare parts to foreign entities by PAPL and receipt of proceeds in group/associate companies Accounts by A1 to A12 and on receipt of instruction/ consent from MCA, in compliance, the SFIO filed a complaint before the Chief Metropolitan Magistrate, Egmore (EOI) under Sections 68,628 R/W 211, 211 (3C) & 211 (1) R/W Accounting Standards No. 1, 2, 18, 19, 26 & Schedule VI of the Act Section 212, S: 217 (2), 217 (2AA) & 217 (3), S 240 (3), 629 Section 253 & 266A of Companies Act 1956 & complaint under section 177, 187, 34, 227, 233, 403, 405, 406, 409, 420, 464, 465, 471, 120B of Indian Penal Code, 1860, The learned Magistrate, after prima facie satisfaction, took the complaint on file and issued process. The total assets of the company is Rs. 0.76 crores, whereas, the liabilities is of Rs. 611.82 crores. The company sold the fixed assets (Vehicles) to third parties apart from transferring some vehicles in the name of associate companies. The Directors of the paramount Textile Mill Pvt. Ltd, PHPL, PFSPL and PFRPL were in the knowledge of working of PAPL, its borrowings a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase is reliable or not." Further, the Supreme Court in the Judgment in Janta Dal V. H. S. Chowdhary & Others reported in (1992 (4) SCC 305) wherein it has been held as follows:- "This inherent power conferred by Section 482 of the Code should not be exercised to stifle a legitimate prosecution. The High Court being the highest Court of a State should normally refrain from giving a premature decision in a case wherein the entire facts are extremely incomplete and hazy, more so when the evidence has not been collected and produced before the Court and the issues involved whether factual or legal are of great magnitude and cannot be seen in their true perspective without sufficient material. Of course, no hard and fast rule can be laid down in regard to the cases in which the High Court will exercise its extraordinary jurisdiction to quashing the proceedings at any stage." 14. The learned Senior Panel Counsel for the respondent further relied on the Judgment of Apex Court in CBI Vs Maninder Singh reported in (2015 (9) SCALE 365) wherein it has been held as follows:- "The inherent power of the High Court Under Section 482 Code of Criminal Procedure should be sparingly used. Only w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers at different stages merely because the counsel would address arguments at all stages, the snail paced progress of proceedings in trial courts would further be slowed down. We are coming across interlocutory orders of Magistrates and Sessions Judges running into several pages. We can appreciate if such a detailed order has been passed for culminating the proceedings before them. But it is quite unnecessary to write detailed orders at other stages, such as issuing process, remanding the accused to custody, framing of charges, passing over to next stages in the trial........." 17. The learned counsel also relied on the Judgment of the Apex Court in Dy.Chief Controller of Imports & Exports Vs. Roshan Lal Agarwal & Ors. reported in (2003) 4 SCC 139, wherein in para no. 9, it has been held as follows: "In determining the question whether any process is to be issued or not, what the Magistrate has to be satisfied is whether there is sufficient ground for proceeding and not whether there is sufficient ground conviction Whether the evidence is adequate for supporting the convictions, can be determined only at the trial and not at the stage of enquiry. At the stage of issuing the proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n place of Messrs Modi Distillery. Although as a pure proposition of law in the abstract the learned Single Judge's view that there can be no vicarious liability of the Chairman, Vice- Chairman, Managing Director and members of the Board of Directors under Sub-section (1) or (2) of Section 47 of the Act unless there was a prosecution against Messrs Modi Industries Limited, the Company owning the industrial unit, can be termed as correct, the objection raised by the Petitioners before the High Court ought to have been viewed not in isolation but in the conspectus of facts and events and not in vacuum. We have already pointed out that the technical flaw in the complaint is attributable to the failure of the industrial unit to furnish the requisite information called for by the Board. Furthermore, the legal infirmity is of such a nature which could be easily cured. Another circumstance which brings out the narrow perspective of the learned Single Judge is his failure to appreciate the fact that the averment in paragraph 2 has to be construed in the light of the averments contained in paragraphs 17, 18 and 19 which are to the effect that the Chairman, Vice- Chairman, Managing Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the proceedings are to be quashed. In a proceeding instituted on a complaint, exercise of inherent powers to quash the proceedings is called for only in a case in which the complaint does not disclose any offence or is frivolous, vexatious or oppressive. There is no need to analyse each and every aspect meticulously before the trial to find out whether the case would end in conviction or acquittal." 21. Further, relying on the Judgment of the Delhi High Court in Malvinder Mohan Singh Vs. Enforcement Directorate & Anr reported in (2022 LiveLaw (Del) 445) the learned counsel would submit that the "Economic offences are detrimental not only to the economy of the nation but also the society at large the underprivileged and downtrodden are often at the receiving end of the after-effects of such offences. Extraordinary powers of High Court are not meant to be exercise at the deposal of the affluent accused who do not leave any stone untuned to arm-twist the law of the land and administrative machinery to achieved their scrupulous ends." 22. Thus, the learned counsel submitted that the order dated 11.11.2016 passed by the Ld. ACMM (EO -1), Chennai is correct one and a true exposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant 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. 27. The ingredients, in order to constitute criminal breach of trust, as defined under Section 405, IPC, are: (i) entrusting a person with property or with any dominion over property, (ii) that person entrusted (a) dishonestly misappropriating or converting that property to his own use; or (b) dishonestly using or disposing of that property or wilfully suffering any other person so to do in violation (i) of any direction of law prescribing the mode in which such trust is to be discharged, (ii) of any legal contract made, touching the discharge of such trust. On the other hand, the ingredients of offence of cheating are: (i) there s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mrs.Lakshmi Murugesan, Mr.E.R.Gurubalachandran and Mr.C.Periyakaruppan; Charge No.7, for violation of Section 217 of the Companies Act, against M.Thiagarajan, Mrs.Lakshmi Murugesan, Mr.E.R.Gurubalachandran, and Mr.C.Periyakaruppan; Charge No.8, for violation of Section 248 of the Companies Act, against Mrs.Lakshmi Murugesan, Mrs.Kamala Thiagarajan, Ex-Directors of PFSPL, PFRPL and BBPPL, Mr.Ponnusamy Vijayaraja and Mr.Thangaraj Jeyakumar; Charge No.9, for violation of Section 629 of the Companies Act, against Mr.M.Thiagarajan, Mr.E.R.Gurubalachandran and Mr. N.Visvanathan; Charge No.10, for violation of Section 266-A, against Mr.M.Thiagarajan, Mrs.Lakshmi Murugesan and Mr.E.R.Gurubalachandran, 29. As regards violation of Indian Penal Code, Charge No.11, for offence under Sections 34, 420 r/w 120-B against M.Thiagarajan, Mrs.Lakshmi Murugesan, Mrs.Kamala Thiagarajn, Mr.Ram Murugesan, and Mr.N.Visvanathan, Auditor; Charge No.12, for violation of Sections 403, 405, 406, and 409 against Mr.M.Thiagarajan and Mrs.Lakshmi Murugesan; Charge No.13, for violation of Sections 406, 409 r/w 120-B, against Mr.M.Thiagarajan, Mrs.Lakshmi Murugesan and Mrs.Kamala Thiagarajan; Charge No.14, for vio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of vehicles, a sum of Rs. 12.30 crores siphoned by Thiagarajan of PAPL, through its other group of Companies viz., PFSPL and PFRPL. A5 is proceeded being Director of these two companies and conspired with Thiagarajan, who is none other than the husband of A5. There cannot be conspiracy between husband and wife, more so, when the categorical finding of the enquiry is that it was A1/Thiagarajan, who had complete control of all the Companies, actively taking part in the affairs of the company. It is seen that CBI registered a case in RC.No.220-2016 E0004, dated 13.042016 and finally report has been filed in this case before the Patiala Court, New Delhi, for offence under Sections 120-B, r/w Sections 420, 467, 468 and 471 of IPC., against Paramount Airlines Pvt.Ltd. Thiagarajan, Managing Director, N.Visvanathan, N.Venkatesan and T.Vadivelkannan. 31. In the said case, admittedly, the petitioners are not accused. As an off shoot to the CBI case, the Enforcement Director filed the complaint in O.C.No.1105 of 2019, for money-laundering offence against Thiagarajan and Paramount Airways Pvt. Ltd. Against the attachment of properties, the parties have approached the Hon'ble Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s failure of justice or order passed or sentence imposed by the Magistrate requires correction, it is but the duty of the High Court to have it corrected at the inception lest grave miscarriage of justice would ensue. It is, therefore, to meet the ends of justice or to prevent the abuse of the process that the High Court is preserved with inherent power and would be justified, under such circumstance, to exercise the inherent powers in an appropriate case. 34. 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. The Apex Court in the Judgment in S.W. Palnitkar v. State of Bihar reported in (2001) 1 SCC 241, while referring to the earlier decision in the case of Medchi Chemicals & Pharma (P) Ltd., v. Biological E.Ltd., & Ors, Medchl Chemicals and Pharma (P) Ltd. where it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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