Sundaram Finance Services Ltd. vs Grandtrust Finance Limited

A. Packiaraj, J.—This petition is filed u/s 482 Cr.P.C to quash the private complaint in E.O.C.C.No.128 of 1999, pending on the file of the

learned Additional Chief Metropolitan Magistrate (Economic Offences No.1), Egmore, Chennai, filed by M/s.Granttrust Finance Limited

represented by its Authorised Agent and Credit Officer Mr.M.Prabhakar against the petitioners, along with two other accused, who are not before

this Court, for offences u/s 68 and 628 of the Companies Act, 1956 and under Sections 409, 420 read with 120B of the Indian Penal Code.

At the outset, I may state that neither of the parties have brought to the notice of the court that under what Section the Magistrate has taken

cognizance of the complaint. However, the fact remains that the complaint is only at the initial stage and moreover, this being a private complaint,

evidence has to be recorded and only then charges has to be framed by the Magistrate. Therefore, admittedly witnesses have not been examined

and charges has not been framed yet. At this stage, the petitioner who are A-1 and A-2 have come forward with the present petition.

The gist of the complaint is as follows:

a) The first accused namely the first petitioner M/s.Sundaram Finance Services Limited is the Sponsor for the third accused namely M/s.Vishnu

Forge Industries. In order to expand their business operations, the third accused company required finance and accordingly for the said purpose,

had along with the first accused approached and induced the complainant to subscribe for shares. Accordingly, the complainant believing their

representation to be true subscribed for 50000 equity shares of face value Rs.10 each with a premium of Rs.6/- for each share and in that process,

enclosed therewith a cheque, addressed to the first petitioner along with the cheque for Rs.8,00,000/-. The said cheque no doubt was drawn in

favour of the third accused. Accordingly the first accused received the cheque amount and placed it to the third accused for having received the

said amount.

b) Apart from the above, it was represented to the complainant by the first accused that there is a possibility of the shares being sold for a price not

less than Rs.25/- per share, as the third accused company was going public. It is on the basis of this representation that the complainant purchased

the shares.

c) It is also sunderstood that the first and the third accused entered into a Sponsorship Agreement on 1.9.95 and the very first clause in the

Sponsorship Agreement dated 1.9.95 provides that the first accused shall be the Sponsor and shall arrange to offer the Equity Shares for sale to

the public not later than April 30 1996 and to get them listed at the Over the Counter Exchange of India (OTCEI), on such terms and conditions as

may be decided by the Sponsor in its absolute discretion. It is seen that the copy of the Sponsorship Agreement was also served on the

complainant on the same day.

d) In continuance to the above stated agreement, the first accused and the third accused as one party and the complainant along with the other Co-

investors as another party, entered into a Divestment Agreement on 1.9.95. Clause 15 of the Divestment Agreement dated 1.9.95, runs as follows:

The sponsor shall arrange to offer the Equity Shares for sale to the public not later than April 30, 1996, to get them listed at the OTCEI, on such

terms and conditions as may be decided by the Sponsor in its absolute discretion

e) About three days prior to the last day for the company to go public i.e on 27.4.96, the first and the third accused wanted a few clause to be

amended in the Divestment Agreement already entered into and therefore amended the same and entered into a Supplementary Agreement to the

Divestment Agreement with the same parties, in which the second and the fourth accused being the representatives of the first and the third

accused, signed the agreement. Pursuant to the substituted Clauses in the Divestment Agreement, the following amendments were carried out.

i)The word ""Over The Counter Exchange of India (OTCEI) shall stand altered and be read as ""OTCEI or any other Stock Exchange"".

ii) The meaning of the word ""the shares"" stands altered to mean the shares subscribed by the subscribers and bonus shares, if any, issued to the

investors before the date of offer for sale.

In all other respects, the other Clause and Terms and Conditions of Divestment Agreement stood unaltered.

f) Here, it is important to note that Clause 15 of the Divestment Agreement dated 1.9.95, namely, the Sponsor shall arrange to offer the equity

shares for sale to the public not later than 30.04.96, stood unaltered. The complainant only on such representation made by the accused and

further it is only on the basis of these Terms and Conditions in the Sponsorship Agreement and Divestment Agreement, believed the same to be

true and had purchased the shares to the tune of Rs.8,00,000/-.

g) However, contrary to such representations, promises made and the agreements entered into, the first accused failed to arrange to offer the

equity shares for sale to the public by 30.04.96 and moreover, no efforts had been taken by the accused either to list the shares or any thing was

done in the direction of going public.

h) In the meantime, surprisingly, pursuant to the criminal conspiracy between them, the first and the third accused had entered into a Supplementary

Agreement to Sponsorship Agreement among themselves without the knowledge of the investors, including the complainant on 27.4.96 to the

effect that

The sponsor shall arrange to offer the shares for sale to the public and to get them listed at the OTCEI, or any other stock exchange on such

terms, conditions and at such time as may be decided by the sponsor in its discretion

i) Therefore, the complainant is said to have been mislead, or a false promise has been given to the complainant by the Sponsor even at the time of

representing that the shares would be offered for sale on 30.4.96, but did not do so and consequently, the offence mentioned above has been

committed by the accused.

The learned counsel for the petitioner would first argue that the entire transaction would be a civil consequence, in other words, the learned

counsel would say that it is only a breach of agreement, for which the remedy is only in the civil court and the parties cannot seek their vengeance

through the Criminal Courts. In support of his contention, the learned counsel would cite before me a decision of this Court, reported in

R.Ramakrishnan and others Vs. V.S.Dhanasekar 1981 L.W.Crl 178 wherein his Lordship has held that ""the parties should not be encouraged to

resort to criminal Courts in a case, in which the point at issue between them is one, which can more appropriately be decided by a civil Court by

unfolding the panoramic facts and the parties should not be allowed to appease their anger by resorting to criminal proceedings"".

Yet another case has been cited by the learned counsel for the petitioner reported in S.W.Palanitkar and Others Vs. State of Bihar and Another

2002 SCC (Cri) 129 wherein their Lordships have followed an earlier decision of the Supreme Court, reported in Rukmini Amma Saradamma Vs.

Kallyani Sulochana and others, wherein it has been stated that judicial process should not be used as an instrument in the hands of the private

complainant as vendetta to harass the person needlessly.

The learned counsel would further rely upon paragraph 9 of the judgment cited supra in S.W.Palanitkar''s case, wherein, it is held as follows:

The ingredients in order to constitute a criminal breach of trust 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.

The learned counsel for the petitioners would further persuade this Court that what has to be seen is that whether there is any intention of

cheating at the time of making the representation and he would stress that the agreement dated 1.9.95 has alone to be considered and on going

through the agreement, it is seen that there is absolutely no element of cheating and according to the agreement the date mentioned for the company

to go public was on 30.4.96. But due to certain unforeseen circumstance, the said company could not go public and at best, it may only amount to

a breach of an agreement, for which the complainant would be entitled to seek remedies before the civil Court.

The second limb of the argument advanced by the learned counsel is that even assuming that the company did not go public wilfully, the third

accused is the company who has committed an offence and the first accused is also similarly placed as that of the complainant, who has also

invested about Rs.21,00,000/- for having purchased shares and he has also been victimised. In such circumstances, if at all anybody is said to have

been committed an offence, it is only the third and the fourth accused, who may at best be called upon to answer charges and not the petitioners

herein.

The learned counsel for the complainant would place a decision of the Supreme Court reported in Maratt Rubber Ltd. Vs. J.K. Marattukalam,

wherein their Lordships have stated that Section 482 Cr.P.C should be sparingly and cautiously exercised and only when the Court on

consideration comes to a conclusion that otherwise it would be a case of abuse or process of Court or that there will be gross miscarriage of

justice. Further more, the learned Judge has also held that mere pendency of civil proceedings before any civil Court, will not be a ground for

quashing criminal proceedings, or to frame a charge against the accused.

In M/s. Medchl Chemicals and Pharma P. Ltd. Vs. M/s. Biological E. Ltd. and Others, their Lordships have followed a decision of Supreme

Court reported in Nagpur Steel and Alloys Pvt. Ltd V. P.Radhakrishna 1997 SCC (Crl) 1073 wherein it has been stated that merely because the

offence was committed during the course of commercial transaction, would not be sufficient to hold that the complaint did not warrant a trial.

Whether or not the allegations in the complaint were true was to be decided on the basis of evidence to be led at the trial in the complaint case. It

certainly was not a case in which the criminal trial should have been cut short. Their Lordships would further go on to state that the High Court

while exercising its inherent power, the only requirement is to see whether the continuance of the proceeding would be a total abuse of the process

of Court. The Criminal Procedure Code contains a detailed procedure for investigation, charge and trial and in the event, the High Court is

desirous of putting a stop to the known procedure of law, the High Court must use a proper circumspection and as noticed above, very care and

caution to quash the complaint in exercise of its inherent jurisdiction.

At this stage it will not be out of place for me to state as to how a petition u/s 482 Cr.P.C has to be viewed, in the case of a one, which has

been instituted on a Police report as opposed to a private complaint.

A case instituted on a police report is a culmination of an entire investigation and the entire evidence that is sought to be relied on by

prosecution forms part of 173 Cr.P.C records and as such the framing of the charge is based purely on such statements and records and

consequently, the accused is at liberty to put forth his contention on the basis of the materials that are available u/s 173 Cr.P.C and persuade the

Court that the evidence is insufficient to warrant framing of charges. But whereas, in the case of a complaint filed by a private person, there are two

stages, one is the stage of taking cognizance and the other is the stage of framing charges.

At the stage of taking cogniz4ance by the Magistrate the only material before him is the complaint and the documents in support of the same.

He may on certain occasions conduct an enquiry u/s 202 Cr.P.C and then take cognizance or in the absence of the same, if he is satisfied with the

complaint and the sworn statement, he is at liberty to take cognizance. But once cognizance has been taken, he has to follow the next process by

issuing summons or warrant as the case may be to the accused and after the accused appears before the Court, witnesses are examined on behalf

of the prosecution, for the purpose of framing charges. It is only thereafter, the accused is at liberty to cross examine the witnesses and before

framing charges both the sides are entitled to put forth their contentions and it is on this basis, the Magistrate can either frame charges or not.

Therefore, at the risk of repetition I may state that in a case of a private complaint there are two stages, one is taking cognizance and the other

is framing charges. In the present case, we are at the stage of the Magistrate having taken cognizance. So in such circumstances, we have to

consider whether it is necessary for the Magistrate to go deep into the complaint and the documents to see whether there are enough materials to

frame charges and quashing the prosecution at this stage would amount to nipping the bud.

I am afraid that it may not be so, since the Apex Court has stated that if there would be a grave suspicion that the accused would have committed

an offence, it is enough for the Court to frame charges. In the judgments reported in Dilwar Balu Kurane Vs. State of Maharashtra (2002 SCC

(Crl) 210 and in Rajesh Bajaj Vs. State NCT of Delhi and Others, the Supreme Court has held as follows:

It is not necessary that a complainant should verbatim reproduce in the body of his complaint all the ingredients of the offence he is alleging. Nor is

it necessary that the complainant should state in so many words that the intention of the accused was dishonest or fraudulent. Splitting up of the

definition into different components of the offence to make a meticulous scrutiny, whether all the ingredients have been precisely spelled out in the

complaint, is not the need at this stage. If factual foundation for the offence has been laid in the complaint the Court should not hasten to quash

criminal proceedings.

Bearing the above propositions of law in mind, I have to now consider the materials before the Court. The respondent has clearly averred in

his complaint that the first accused is the Sponsor for the third accused company who tried to float the shares and bring in for sale on or before

30.04.96. An agreement had been entered into between the complainant and the accused with regard to the same. But however three days prior

to the expiry of the date i.e on 27.4.96, a Supplementary Agreement has been entered into between the complainant and the third accused in

which only certain amendments had been made and those two amendments are to the effect that the words found in the earlier agreement namely

Over The Counter Exchange of India (OTCEI) would stand altered and be read as ""OTCEI or any other Stock Exchange"" and the second

amendment was to the effect that the words ""the shares"" stands altered to mean the shares subscribed by the subscribers and bonus shares, if any,

issued to the investors before the date of offer for sale. In all other respects, the earlier Divestment agreement stood unaltered, that is to say that

the earlier commitment made by the third accused along with the first accused that the shares shall be brought for sale on or before 30.04.96 shall

stand valid.

However, the case of the complainant is that on the very same day namely on 27.4.96, without his knowledge, A-1 and A-3 have

clandestinely entered into an Supplementary agreement to Sponsorship Agreement, wherein they have made an amendment in relation to Clause

15 of the Sponsorship Agreement, which reads as follows:

The sponsor shall arrange to offer the equity shares for sale to the public not later than April 30 1996 to get them listed at the OTCEI on such

terms and conditions as may be decided by the Sponsor in its asbolute discretion be altered and read as

The Sponsor shall arrange to offer the shares for sale to the public and to get them listed at the OTCEI or any other stock exchange on such

terms, conditions and at such time as may be decided by the Sponsor in its absolute discretion.

Apart from the above stated amendment, there has also been an amendment with regard to the date, which runs as follows:

The date ""30th April 1996 stands altered and be read as ""date to be decided by the Sponsor in his sole discretion

This clause has been found in the document executed by the first and the third accused which has been signed by the second and the fourth

accused dated 27.4.96. Further, in the said document, neither the complainant was a party nor was he informed about this amendment.

The learned counsel for the petitioner would argue that this document cannot be taken into consideration, since what has to be seen in a case

of cheating is the document that pertains to the earliest representation, on the basis of which the accused had parted with the money and this Court

has to see whether there was any false representation or deception on that date on which such a representation was made and consequently, any

offence is said to have been made out.

True, the court must be satisfied to hold that there was deception at the time of representation. But that cannot be gauged only on the basis of

the earliest representation alone. No one would ever at the first instance itself come forward with any misstatements, enabling the person to fall into

the trap. On the other hand, a sharp-witted cheat would try to make it appear as if he is making a genuine offer at the first instance and lure people

into the transaction and it is only later on, he will bring out his true colours and ultimately cheat him. Therefore, when the matter relates to a chain of

events, we cannot take into consideration the earliest document alone and come to a conclusion that there was an element of cheating at the time of

representation. The subsequent documents which has been entered into especially the two documents in the form of agreements of one relating to

the complainant and the accused herein and the other between the first and the third accused intersee, have been prepared only on 27.4.96 and the

agreement in which the complainant is a party does not contain any amendment, or it does not show that the shares should be brought for sale by

the Sponsor on the date and time as may be decided by the Sponsor in its absolute discretion. However, in the agreement between A-1 and A-3

this amendment has been carried out. This obviously, is to drag on the process of bringing the shares for sale and admittedly, it transpires that the

shares have not yet been brought for sale.

The complainant has filed these two agreements along with the complaint. The details of the entire thing have not been brought to this Court

and it may not be necessary for me to go into those documents at this stage. In these circumstances, I am again reminded of the decision of the

Apex Court reported in Hridaya Ranjan Prasad Verma Vs. State of Bihar 2000 (4) SCC 168 wherein their Lordships have held that the intention

of the accused depends upon the inducement, which may be judged by his subsequent conduct also. The facts of this case reveals that there are

chain of events taking place from the year 1995 to April 1996 and consequently, I find there is sufficient ground for the Magistrate to take

cognizance of the offence as against the accused.

Yet another argument has been advanced by the learned counsel for the petitioners that for the offence under the Companies Act, the

complaint has to be given only by the Registrar. Hereagain, at the risk of repetition, I may state that none of the parties have stated under what

Section the Magistrate had taken cognizance and at any rate, this is a matter which could be raised at the time of framing charges by the

Magistrate.

In the above circumstances, I do not find any reason to quash the complaint. Accordingly, this petition is dismissed. Consequently, connected

Crl.M.Ps are closed.