Partly allowed

K.P. Narasimhan v. the State of Karnataka

Karnataka HC16 Sept 2022CRL.RP/843/2013

Case brief

AI extract

What is this about?

The High Court allowed a criminal revision petition partially, setting aside the framing of charges against petitioners for cheating and criminal breach of trust. The court held that since the offences were alleged against the company, the company must be arraigned as an accused to fasten vicarious liability on the directors.

What did the court decide?

The order framing charges against the petitioners is set aside. The prosecution is given liberty to cure the defect by impleading the company.

K.P. Narasimhan Vs the State of Karnataka — Company and Corporate | Karnataka HC (2022)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 16^TH DAY OF SEPTEMBER 2022

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BEFORE

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THE HON’BLE Dr. JUSTICE H.B.PRABHAKARA SASTRY

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CRIMINAL REVISION PETITION No.843 OF 2013

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BETWEEN:

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K.P. Narasimhan S/o Late K.R. Padmanabha 80 years, No.19, Raja Annamalai Road, Purusawalkam Chennai 600084

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Farooq Dadabhai S/o L.N. Dadabhai 66 years, No.13, 1^st Road Subbarao Avenue Chennai 600006

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.. Petitioners

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(Vide order dated 02.06.2022 petition of petitioner No.1 is abated; Sri S.G. Bhagavan, Advocate for petitioner No.2)

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AND:

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The State of Karnataka By the Inspector of Police Corps of Detectives Bangalore 560 001

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.. Respondent

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(By Sri K. Nageshwarappa, HCGP)

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Crl.R.P.No.843/2013

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This Criminal Revision Petition is filed under Section 397 read with Section 401 of the Code of Criminal Procedure, 1973, praying to allow the petition, set aside the order dated 19^th August, 2013, passed by the Court of the XVII Additional Chief Metropolitan Magistrate (Special Court for CBI Cases, Bangalore, in C.C.No.8257/2001 framing charge against the petitioners and to discharge them from the case to meet the ends of justice.

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This Criminal Revision Petition ( Bengaluru Bench matter ) having been heard through video conferencing hearing and reserved on 07.09.2022 , at the Kalaburagi Bench , coming on for pronouncement of Orders , this day, the Court made the following:

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ORDER

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The respondent-Police have filed a charge sheet against the present petitioners and four other persons alleging that they have committed the offences punishable under Sections 406 and 420 read with Section 34 of the Indian Penal Code, 1860 (hereinafter for brevity, referred to as the 'IPC').

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It is alleged in the charge sheet that the accused persons are the Directors of a company by name M/s. Synergy Financial Exchange Limited with its registered office at Chennai (hereinafter for brevity referred to as the 'Company'). The Company is said to have been incorporated under the Companies Act, 1956.

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It is further alleged that, about in the year 1992, the Company opened its branch office at Bengaluru and collected deposits from several persons, promising them to return the amounts in deposit with good accruals thereupon. However, the amounts were not returned. Cheques were signed and issued by the authorised signatories of the Company. Thus, after conducting an investigation in their station Crime No.252/1999, the respondent – police filed charge sheet against the six accused for the offences mentioned above.

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The Court of the XVII Additional Chief Metropolitan Magistrate (Special Court for CBI Cases), Bengaluru (hereinafter for brevity referred to as the 'Special Court') where the charge sheet was filed in C.C.No.8257/2001, proceeded to frame the charges against the accused, including the petitioners, for the offences punishable under Sections 406 and 420 read with Section 34 of the IPC for fourteen heads purported to have been committed between

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the dates 16.10.1996 and 14.09.1997. Challenging the said framing of charges against them, accused Nos.1 and 5 before the Special Court have preferred the present revision petition.

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The respondent is being represented by the learned High Court Government Pleader.

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Records from the Special Court pertaining to the

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matter were called for and the same are placed before this Court.

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Heard the arguments of learned counsel for the petitioner and the learned High Court Government Pleader for the respondent. Perused the materials placed before this Court.

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After hearing both side, the only point that arise for my consideration in this revision petition is:

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Whether the Special Court was at error in framing the charge against the present petitioners (accused Nos.1 and 5) before it, when the Company - M/s. Synergy Financial Exchange Limited not being arraigned as an accused in the charge sheet?

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The learned counsel for the petitioner, in his very brief argument, submitted that the offence is alleged to have been committed by the Company, however, the said Company has not been arraigned as an accused either in the FIR or in the charge sheet. The accused against whom the charge sheet is filed are only the Directors, as such, without arraigning the Company as one of the accused, no vicarious liability can be fastened and the act of framing of charges, without there being Company as an accused, would not sustain. He also submitted that nowhere in the charge sheet there is an averment of inducement by the Directors who are accused herein.

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In support of his argument, the learned counsel relied upon few judgments of the Hon'ble Apex Court, which would be discussed hereafterwards at the relevant place.

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The learned High Court Government Pleader appearing for the respondent, in his brief argument, submitted that the State can still either implead the Company in the case or can still file an additional charge sheet. Therefore, the framing of the charge cannot be set aside. However, he fairly conceded that the Company was not made a party, though arraigning the Company also as one of the accused was mandatory.

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A perusal of the Special Court's records which

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were summoned and placed before this Court would go to show that the complainant and also the charge sheet witnesses who are said to have lodged the complaint and given their statements before the Investigating Officer respectively, have alleged the act of criminal breach of trust

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and cheating mainly against the Company showing the accused as the Directors of the Company at the relevant point of time. Some of them have mentioned the names of the accused also. However, the fact remains that neither in the FIR nor in the charge sheet, the Company has been arraigned as an accused.

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Learned counsel for the petitioners, in his memorandum of petition has relied upon the judgment of the Hon'ble Apex Court in S.K. Alagh vs. State of Uttar Pradesh and others, reported in (2008) 5 SCC 662. With respect to the offences punishable under Sections 405 and 406 of IPC against the Directors of a Company, the Hon'ble Apex Court observed that vicarious liability cannot be fastened on Managing Director, Director or other officers of a Company which is accused of commission of offence punishable under Sections 406. Sections 34, 146 to 149 of IPC does not cast vicarious liability on a party not directly charged for commission of an offence, unless specifically

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provided therefor. In para-19 of its judgment, the Hon'ble Apex Court observed as below:

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"19. As admittedly, drafts were drawn in the name of the Company, even if the appellant was its Managing Director, he cannot be said to have committed an offence under Section 406 of the Penal Code. If and when a statute contemplates creation of such a legal fiction, it provides specifically therefor. In the absence of any provision laid down under the statute, a Director of a Company or an employee cannot be held to be vicariously liable for any offence committed by the Company itself."

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In the second judgment relied upon by the learned counsel for the petitioner, i.e., Maksud Saiyed vs. State of Gujarat and others reported in (2008) 5 SCC 668 regarding vicarious liability of Directors for the charges levelled against the Company, in para-13 of its judgment the Hon'ble Apex Court was pleased to observe as below:

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"13. … The Bank is a body corporate. Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. Statutes indisputably must contain

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provision fixing such vicarious liabilities. Even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability."

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In another judgment relied upon by the petitioners in their memorandum of petition which is R. Kalyani vs. Janak

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C. Mehta and others reported in (2009) 1 SCC 516 , in

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para-41 of its judgment the Hon'ble Apex Court was pleased to observe as below:

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"41. If a person, thus, has to be proceeded with as being vicariously liable for the acts of the company, the company must be made an accused. In any event, it would be a fair thing to do so, as legal fiction is raised both against the company as well as the person responsible for the acts of the company."

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Learned counsel for the petitioner in his argument relied

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upon a judgment of the Hon'ble Apex Court in the case of

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Aneeta Hada vs. Godfather Travels and Tours Private

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Limited and connected matters reported in (2012) 5 SCC

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661 . In the said case, with respect to Section 141 of the Negotiable Instruments Act, 1881, regarding criminal liability for dishonour of cheque drawn by company, the Hon'ble Apex Court at paras-24 and 59 of its judgment was pleased to observe as below:

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"24. Section 141 uses the term "person" and refers it to a company. There is no trace of doubt that the company is a juristic person. The concept of corporate criminal liability is attracted to a corporation and company and it is so luminescent from the language employed under Section 141 of the Act. It is apposite to note that the present enactment is one where the company itself and certain categories of officers in certain circumstances are deemed to be guilty of the offence."

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59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. …"

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11. In Sharad Kumar Sanghi vs. Sangita Rane

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reported in (2015) 12 SCC 781, the Hon'ble Apex Court in a petition seeking quashing of criminal proceeding against the petitioner for the offence punishable under Section 420 IPC was pleased to observe that though the allegations were made against the Company, the Company was not made a party, therefore, the allegations were restricted to the Managing Director. The allegations were vague and in fact the same were principally levelled against the Company. It further observed that there was no specific allegation against the Managing Director. When a Company had not been arrayed as a party, no proceeding could have been initiated against it even where vicarious liability was fastened under certain statutes. When a complainant intends to rope in a Managing Director or any officer of a Company, it would be essential to make requisite allegation to constitute the vicarious liability. Thus, it was observed that where company had not been arrayed as a party to the complaint, the

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criminal proceedings initiated against Managing Director were not maintainable.

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The above judgments clearly go to show that

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when the allegations are against the Company of alleged cheating or criminal breach of trust, in such a circumstance, the registered Company under the Companies Act, 1956 being a juristic person is required to be arraigned as an accused. Independent of the Company arraigning only the Managing Director or Directors of that Company against whom no individual allegations or specific allegations are made, then the said criminal proceedings initiated only against the Managing Director or Directors is not maintainable.

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In the instant case also, as observed above, a perusal of the materials placed before this Court would go to show that the complaint and the statements of the witnesses recorded by the Investigating Officer during the course of the

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investigation only go to show that the alleged depositors have accused the Company. According to them it is based on the representation of the Company they have kept deposit with the Company. Though the Directors may be in the Board of the Company, however, without arraigning the Company, the vicarious liability cannot be fastened on the Directors in the instant case. As such, the order of the Special Court framing charges against the present petitioners under the impugned order deserves to be set aside. However, since according to the learned HCGP the alleged defect is curable, it is for the prosecution to take such remedial course if available to them and in accordance with law, if they feel so. However, considering the fact that the alleged transactions are said to have taken place during the year 1996 and 1997, the matter requires to be expedited by the Special Court. Accordingly, I proceed to pass the following:

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ORDER

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The petition is allowed in part . The order dated 19.08.2013 passed by the XVII Additional Chief Metropolitan Magistrate (Special Court for CBI Cases), Bengaluru in C.C.No.8257/2001, framing the charges against the present petitioner for the offences punishable under Sections 406 and 420 read with Section 34 of the Indian Penal Code, 1860 stands set aside.

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The liberty is reserved to the respondent to cure the alleged defect in their charge sheet, in accordance with law, provided they feel doing so.

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Since the alleged transactions resulting the criminal case in the Special Court are said to have taken place during the years 1996 and 1997, as such, nearly 25 to 26 years old, the Special Court is requested to expedite and dispose of the main case at the earliest.

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Registry to transmit a copy of this order to the

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concerned trial Court along with its records immediately.

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Sd/JUDGE

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swk