The Karnataka High Court dismissed petitions to quash criminal proceedings for cheating and criminal breach of trust, holding that allegations of mortgaging company assets without consent of a debenture-holder constituted a prima facie criminal case not effaced by a subsequent civil settlement.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 14TH DAY OF DECEMBER, 2023
BEFORE
THE HON’BLE MR. JUSTICE R.NATARAJ
CRIMINAL PETITION NO.8070 OF 2013 c/w
WRIT PETITION NO.54186 OF 2017 (GM-RES), WRIT PETITION NO.54221 OF 2017 (GM-RES)
IN CRL.P.NO.8070/2013:
BETWEEN:
…PETITIONERS
(BY SRI. KIRAN S. JAVALI, SENIOR COUNSEL FOR SRI. RAGHU HULIKAL, ADVOCATE)
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AND:
PRAMERICA ASPF II CYPRUS HOLDING LTD., HAVING ITS REGISTERED OFFICE AT 11, FLORINIS STREET, CITY FORUM, 7TH FLOOR, 1065, NICOSIA, CYPRUS, AND ITS CORPORATED OFFICE AT KRONOS BUILDING, FLAT NO.501, 66, ARCHIBISHOP MAKIROS AVENUR III, NICOSIA, PC 1077, CYPRUS THROUGH ITS AUTHORISED SIGNATORY MR.RAJIV DUDEJA.
(BY SRI. DHYAN CHINNAPPA, SENIOR COUNSEL FOR SRI. ARUN SRI KUMAR, ADVOCATE)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF THE CODE OF CRIMINAL PROCEDURE, 1973 PRAYING TO QUASH THE ENTIRE PROCEEDINGS IN C.C.NO.15955/2013 FOR THE OFFENCES PUNISHABLE UNDER SECTION 406, 420 AND 120B OF IPC WHICH IS PENDING ON THE FILE OF THE IV A.C.M.M., BANGALORE CITY, IN SO FAR AS THE PETITIONERS ARE CONCERNED.
IN W.P.NO.54186/2017:
BETWEEN:
SRI. DEEPAK KRISHNAPPA AGED ABOUT 51 YEARS, RESIDING AT PEBBLEBAY APARTMENTS, TOWER 3, APARTMENT 82, 1ST MAIN, R.M.V. 2ND STAGE, 2ND BLOCK, DOLLARS COLONY, BANGALORE-560094
…PETITIONER (BY SRI. D.R.RAVISHANKAR, SENIOR ADVOCATE FOR SRI. SARAVANA S., ADVOCATE)
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AND:
CORPORATE ADDRESS AT: KRONOS BUILDING, FLAT NO.501, 66 ARCHBISHOP MAKIROS AVENUE III, NICOSIA, PC1077, CYPRUS REPRESENTED BY MR. RAJIV DUDEJA
…RESPONDENTS
(BY SRI. VENKAT SATYANARAYAN A., HIGH COURT GOVERNMENT PLEADER FOR RESPONDENT NO.1;
SRI. DHYAN CHINNAPPA, SENIOR ADVOCATE FOR SRI. PRADEEP NAYAK, ADVOCATE RESPONDENT NO.2)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA READ WITH SECTION 482 OF THE CODE OF CRIMINAL PROCEDURE, 1973 PRAYING TO QUASH ALL FURTHER PROCEEDINGS IN PCR NO.6154/2017 IN C.C.NO.15955/2013 ON THE FILE OF THE IV ADDL. CHIEF METROPOLITAN MAGISTRATE, BANGALORE VIDE ANNEXURE-A.
IN W.P.NO.54221/2017:
BETWEEN:
SMT. SUSHMA ANANDU SRI. DEEPAK KRISHNAPPA, AGED ABOUT 51 YEARS, RESIDING AT PEBBLEBAY APARTMENTS, TOWER 3, APARTMENT 82, 1ST MAIN,
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R.M.V. 2ND STAGE, 2ND BLOCK, DOLLARS COLONY, BANGALORE-560 094
…PETITIONER
(BY SRI. D.R.RAVISHANKAR, SENIOR ADVOCATE FOR SRI. SARAVANA S., ADVOCATE)
AND:
CORPORATE ADDRESS AT: KRONOS BUILDING, FLAT NO.501, 66 ARCHBISHOP MAKIROS AVENUE III, NICOSIA, PC 1077, CYPRUS REPRESENTED BY MR. RAJIV DUDEJA
…RESPONDENTS
(BY SRI. VENKAT SATYANARAYAN A., HIGH COURT GOVERNMENT PLEADER FOR RESPONDENT NO.1; SRI. DHYAN CHINNAPPA, SENIOR ADVOCATE FOR SRI. PRADEEP NAYAK, ADVOCATE RESPONDENT NO.2)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH ALL FURTHER PROCEEDINGS IN C.C.NO.15955/2013 ON THE FILE OF THE IV ADDL. CHIEF METROPOLITAN MAGISTRATE, BENGALURU CITY, ANNEXURE-G TO THE WRIT PETITION.
THESE PETITIONS HAVING BEEN HEARD AND RESERVED FOR ORDER ON 19.09.2023 AND COMING ON FOR PRONOUNCEMENT OF ORDER THIS DAY, THE COURT MADE THE FOLLOWING:-
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ORDER
CRL.P.No.8070/2013 is filed by the petitioners who were arraigned as accused Nos.6, 8 and 9 in C.C.No.15955/2013 pending trial before the IV Additional
Chief Metropolitan Magistrate, Bengaluru City (henceforth referred to as 'Trial Court') for the offences punishable under Sections 406, 420 and 120B of IPC to quash of the proceedings in the aforesaid case.
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Crl.P.No.8070/2013 were accused Nos.6, 8 and 9, petitioner in W.P.No.54186/2017 was accused No.2 and petitioner in W.P.No.54221/2017 was accused No.3. The respondent in Crl.P.No.8070/2013 and respondent No.2 in W.P.No.54186/2017 and W.P.No.54221/2017 was the complainant.
the Director of accused No.1, represented to the complainant that it could make a Foreign Direct Investment of Rs.110,00,00,000/- in accused No.1 for mutual gain. Consequently, several agreements were entered into between the complainant and accused No.1 on 12.02.2009. Pursuant to the said agreements, the Articles of Association of accused No.1 were revised on
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25.02.2009 so that it was in consonance with the Shareholders Agreement. It claimed that many clauses of the Shareholders Agreement were mirrored into the Articles of Association. Consequent thereto, the complainant invested Rs.110,00,00,000/- pursuant to the assurances and commitments made by accused No.2. It alleged that under the Compulsory Convertible Debenture Subscription Agreement, the complainant agreed to subscribe to 2,20,000 Compulsory Convertible Debentures of accused No.1, which were convertible to equity shares of Rs.5,000/- each, after the expiry of 30 months from the date of issuance. The accused No.1 issued the debentures pursuant to a Board Resolution dated 25.02.2009. The complainant claimed that at a meeting of the Board of Directors of accused No.1 held on 17.08.2011, it was agreed that the Compulsory Convertible Debentures would be converted to 15,00,000 equity shares of a face value of Rs.10/- each, at a premium of Rs.723.33 per share. The complainant therefore, contends that it held 75% of the entire shareholding of accused No.1 since 17.08.2011.
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No.3 resigned from the Board of Directors of accused No.1 and accused No.2 disappeared without handing over the records of accused No.1 to the representatives of the complainant. Therefore, the complainant claimed that it could not lay hands on the statutory, non-statutory records of accused No.1. It however, discovered that a part of the property of accused No.1, on which the development was to take place, was mortgaged fraudulently by accused No.2 in favour of accused No.6 by executing 4 Deeds of Mortgage dated 10.11.2009, 19.11.2009, 02.11.2010 and 02.11.2010. The mortgage money was misappropriated and diverted to accused No.4 in which, accused Nos.2, 3 and 5 were Directors. The complainant alleged that accused No.1 neither had the property nor had it developed any property and therefore, the mortgage deeds prejudiced the interest of the complainant. The complainant alleged that all decisions and the affairs of accused No.1 were taken and carried on by accused Nos.2
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and 3. It claimed that upon subscribing to the Fully Convertible Debentures, the complainant was allowed to be represented in the Board of accused No.1, by appointing two Non-Executive Directors, who were expected to acquiesce to the decisions taken by accused Nos.2 and 3. The complainant claimed that this was done to ensure that accused Nos.2 and 3 carried on the business of accused No.1 diligently and in the best interest of the complainant and accused No.1 by protecting the property, funds and assets of accused No.1. The complainant alleged that from the year 2009, accused Nos.2 and 3 were giving false assurances that the investment made by the complainant is safe and is properly utilized for the development of the project. It claimed that on 17.08.2011, accused Nos.2 and 3 created obstacles in the complainant taking control of the company as it held 75% equity shares in the accused No.1. It therefore, alleged that accused Nos.2 and 3 always had a dishonest intention to cause wrongful loss to the complainant and unjustly enrich themselves. It contended that the properties of accused
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No.1 were mortgaged to the accused No.6 without following the procedure provided under the Articles of Association, which mandated that the prior consent of the complainant should be obtained. Therefore, it was alleged that the mortgages in favour of accused No.6 was in violation of the Articles of Association. It also alleged that there were no Board Meetings and the ones mentioned in the mortgage deeds were all fraudulent and tailored by accused No.2 to cheat the complainant and that these deeds of mortgage were not within the notice and knowledge of the complainant. The complainant claimed that there was a clear understanding between it and accused Nos.2 and 3 that no third party rights can be created in respect of the property of accused No.1 without the prior consent of the complainant. Thus, it alleged that the mortgages were made in breach of trust that the complainant reposed in accused Nos.2 and 3. It further alleged that the mortgage money realized from mortgaging the assets of accused No.1 were diverted to accused No.4 in which, accused Nos.2, 3 and 5 were Directors. Further
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thereto, accused Nos.10 and 11, the owners of the land had given away the development rights to accused No.1. As a result of the mortgage deed executed, the funds were diverted for the benefit of accused No.4 and not accused No.1. The complainant alleged that accused No.4 is neither a party nor a beneficiary under the Development Agreement but yet, was a recipient of the funds as a result of a fraudulent mortgage brought about by accused No.1. Therefore, it alleged that accused Nos.1, 2, 3 and 4 are guilty of dishonest misappropriation and fraudulent conversion of money/property, cheating and criminal breach of trust. It alleged that accused Nos.6, 7, 8 and 9 though had the complete knowledge that the complainant held Fully Compulsory Convertible Debentures and though they were aware that the properties of accused No.1 cannot be mortgaged as it was against the Articles of Association of accused No.1 and though they were aware that the mortgage money was diverted for the benefit of accused No.4 yet, created a mortgage of the properties of accused No.1 at a value far below the value of the
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prevalent market price. Therefore, it alleged that they too had abetted the commission of the offences. The complainant claimed that it filed a petition for oppression and mismanagement before the Company Law Board, Chennai seeking various reliefs namely, to recover the Books of Account, for smooth functioning of the management, for breach of the investor agreement and violation of the Articles of Association and also challenging the validity of the Deeds of Mortgage. It therefore, alleged that all the accused had conspired to commit offences against it and hence, prayed the Court to take cognizance and to initiate suitable action.
that there was sufficient material to take cognizance and consequently took cognizance of the offences punishable under Sections 403, 405, 415, 418, 420 read with Sections 34 and 120B of IPC in terms of the order dated 06.04.2013 and issued process.
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Nos.1 and 4 utilized the amount received from the accused No.6 and therefore, the private complaint filed was a ruse to escape from the liability. He contended that the Trial Court without looking into the allegations made and also without considering the fact that the private complaint presented a serious dispute between a debenture holder and a company, which was purely civil in nature, blindly entertained the private complaint and took cognizance. He contended that the mortgages were executed pursuant to Board Resolutions of accused No.1, which accused No.6 honestly believed. He therefore, contended that there was no criminality in the accused Nos.6, 8 and 9 in advancing an inter-corporate deposit to accused No.4 for which, accused No.1 provided collateral security by way of mortgage. Thus, he contended that no offences were made out against the accused Nos.6, 8 and 9.
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before the Company Law Board, Chennai, was transferred to National Company Law Tribunal, Bengaluru in C.P.No.7/2013 and C.P.No.9/2015 and the Tribunal in terms of its order dated 26.07.2019, framed the following
issues for consideration :
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parties had entered into a settlement namely, a Share Purchase Agreement, a Memorandum of Understanding, an Escrow Agreement and amendment agreement to the Share Purchase Agreement, which provided that complainant would sell away its shares to a purchaser through an Escrow Account and that accused No.2 as a Director of accused No.1 would execute a General Power of Attorney in favour of the purchaser of plots of land in Schedules 'B', 'C' and 'D' of Share Purchase Agreement. The consideration received from the sale of these plots would be used to fund the purchase of the complainant's share as provided under the Share Purchase Agreement. It noticed that the parties had agreed that the plots shall not be transferred or disposed off in any other manner and accused No.1 would execute an unregistered General Power of Attorney for 3 plots of lands in favour of complainant. It noticed that this Settlement Agreement was subject to compliance of certain conditions mentioned in the Share Purchase Agreement.
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Developers Private Limited by the accused No.4 and the consideration receivable from the proposed sale of plots shall be deposited into the current account of Sharadamba Developers Private Limited and thereafter, transferred to the escrow account. A Memorandum of Understanding was entered into for the purpose of enabling the sale of plots and to secure the interest of the complainant and utilise the sale consideration for the sale of shares by the complainant to Sharadamba Developers Private Limited. Similarly, a irrevocable General Power of Attorney was executed by accused No.4 in favour of Mr. Rajesh Bagwanlal Sen and Mr. Sanjay Dagar as the joint Power of Attorney to do various acts including encumbering the properties. He therefore, submits that the issue between the complainant and accused Nos.1 to 4 was settled in the aforesaid manner and therefore, the complainant could not have pursued the private complaint. He submitted that the complainant is always at liberty to execute the Share Purchase Agreement and other documents. He therefore, submits that the continuation of the criminal proceedings
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against the accused is wholly unwarranted and wasteful exercise of time, as the parties have moved on from the earlier position and the complainant is now not a debenture holder but is a shareholder in the company.
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petition filed by the complainant for oppression and mismanagement, a settlement was entered into in terms of which, accused Nos.1 to 4 had agreed to ensure the conversion of Compulsory Convertible Debentures to equity shares and realize the property interest of accused Nos.1 and 4 to enable the sale of equity shares allotted to the complainant. However, he contends that after Share Purchase Agreement, Memorandum of Understanding and the General Power of Attorney was executed, accused Nos.1 to 4 have illegally transferred the plots to various persons without the notice and knowledge of the complainant. He therefore, contends that accused Nos.1 to 4 have consistently mislead the complainant and have misappropriated the sum of Rs.110,00,00,000/- invested by the complainant. He contends that having regard to the conduct of accused Nos.1 to 4, they deserve to be tried for the offences of which cognizance is taken by the Trial Court.
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has placed on record certain additional documents to indicate that notwithstanding the Share Purchase Agreement, accused No.4 has entered into various transactions with various persons regarding the plots, which were reserved to be sold to enable the purchase of the shares of the complainant and contends that accused Nos.1 to 4 have a continuing intention to cheat the complainant and therefore, the accused deserve to be tried for the offences of which cognizance is taken by the Trial Court. He contended that the judgments of the National Company Law Tribunal, Bengaluru and National Company Law Appellate Tribunal, Chennai are now challenged before the Hon'ble Apex Court in Civil Appeal Nos.58675868/2023, where the Hon'ble Apex Court has granted an interim order that the order passed by the Company Law Board, Chennai Bench, dated 26.03.2013 shall operate till the next of hearing. He submits that the Hon'ble Apex Court had also directed that any transaction for sale brought about by the accused shall be placed on record by
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way of documents along with an affidavit. He therefore, contends that until the Hon'ble Apex Court decides the issue of oppression and mismanagement, the impugned prosecution cannot be stopped.
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by accused No.4 and submit a report. Accordingly, the Advocate Commissioner has visited the project area and in his report, he has stated that the plots mentioned in Schedule 'B' of the Share Purchase Agreement were identified and that there were no construction on the said sites.
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lease and deal in real and personal property of all kinds and in particular, land, building, equipment etc., Accused No.1 was in need of Rs.110,00,00,000/- for development of a residential project on the land measuring 72 acres of 3 guntas at Kundana Hobli, Devanahalli Taluk, Bengaluru Rural District. It is also not in dispute that on the strength of representations made by accused No.2, the complainant agreed to make a Foreign Direct Investment of Rs.110,00,00,000/- in accused No.1. Thus, in order to effectuate the investment, a Compulsory Convertible Debenture Subscription Agreement dated 12.02.2009, Shareholders Agreement dated 12.02.2009, Put and Call Option Agreement dated 12.02.2009 and Cash Management Agreement dated 12.02.2009 were executed. As a result, the Articles of Association of accused No.1 dated 23.10.2008 were revised on 25.02.2009 so that it was in sync with the Shareholders Agreement dated 12.02.2009. Consequent thereto, the complainant invested a sum of Rs.110,00,00,000/- and it agreed to subscribe to 2,20,000 Compulsory Convertible Debentures
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of a face value of Rs.5,000/- per debenture. It is also not in dispute that these Compulsory Convertible Debentures were to be issued for an aggregate consideration of Rs.110,00,00,000/- and were to be converted to equity shares after the expiry of 30 months from the date of issuance. It is also not in dispute that Compulsory Convertible Debentures were allotted to the complainant pursuant to a Board Resolution dated 25.02.2009. It was further agreed that the Compulsory Convertible Debentures would be converted to equity shares of face value of Rs.10/- each and thus were converted 15,00,000 equity shares of Rs.10/- each, which were issued at a premium of Rs.723.33 per share. It is also not in dispute that accused No.3 resigned from the Board of Directors of accused No.1 on 07.10.2011 and the same is evident from Form No.32 filed before the Registrar of Companies. It is not in dispute that the Articles of Association of accused No.1 provided that the accused and the complainant shall not directly or indirectly take any steps of any nature to authorise or permit accused No.1 to become bound or
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committed to any such resolution or transaction unless such resolution or transaction was approved at a meeting of the Board by the Directors constituting a majority of the entire Board, which was to include at least one Promoter Director and at least one Investor Director or at a shareholders' meeting by the Investor and either of the Promoters, unless such resolution or transaction was specifically approved by the Investor in writing within a period of 7 days from the date on which, accused No.1 issued a notice to the Investor requiring it to consent or reject any "consensus matter", provided however that if the Investor failed to consent to such consensus matter within the aforesaid 7 days period then the Investor shall be deemed to have rejected such "consensus matter". The areas that required consensus between the Director and the Investor was the acquisition or disposal by the company of any material, land or other immovable property, assets of business or the encumbering in any manner of any material asset of the company whether by mortgage, pledge, hypothecation or otherwise. It is not in
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dispute that accused No.1 represented by accused Nos.2 and 3 executed four mortgage deeds dated 10.11.2009, 19.11.2009, 02.11.2010 and 02.11.2010 respectively mortgaging the development rights that it had in the project for bringing about an inter-corporate deposit in favour of accused No.4 of which, accused No.2 was a Director. The mortgage deeds disclosed that such encumbering development rights was based on certain resolutions brought about by accused Nos.2 and 3 to which the complainant was not a party and no consensus was arrived between them. The development rights that accused No.1 had therefore, stood vested in favour of accused No.6, while the mortgage money was transferred to accused No.4 without the express notice, knowledge and consent of the complainant. This therefore, had all the features of an offence of cheating punishable under Section 420 of IPC.
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accused No.1 had initiated proceedings before the Company Law Board, Chennai, which had passed an order dated 26.3.2013. It is undisputed that the said case stood transferred to National Company Law Tribunal, Bengaluru, which passed an order dismissing the petition filed by the complainant. An appeal filed by the complainant before the National Company Law Tribunal, Chennai, also was dismissed. It is not in dispute that an appeal in Civil Appeal Nos.5867-5868/2023 is now pending before the Hon'ble Apex Court, where the Apex Court has passed an order dated 18.09.2023 that the interim order passed by the Company Law Board, Chennai, dated 26.03.2013 shall operate till the next date of hearing. This Civil Appeal Nos.5867-5868/2023 is still pending consideration before the Hon'ble Apex Court.
the dispute between the accused and the complainant, a settlement was arrived at in terms of which, accused Nos.1 and 2 entered into a Share Purchase Agreement involving
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Sharadamba Developers Private Limited, who agreed to purchase 15,00,000 equity shares of the complainant. An Escrow Agreement was entered into between the seller, purchaser and the Escrow Bank to comply the terms of the sale and purchase of the shares held by the complainant. As per this arrangement, the complainant had agreed to sell and deliver the relevant tranche of shares to the purchaser (Sharadamba Developers Private Limited) on ' as is where is basis' free from all encumbrances. The consideration for the purchase of shares was agreed at a sum of Rs.557,505,000/- for 15,00,000 shares. The transfer of these shares would take place only after commensurate saleable block price was available in the Escrow Account. The conditions precedent to execute this Share Purchase Agreement was that accused No.1 and Sharadamba Developers Private Limited had to obtain permission from the Bangalore International Airport Area Planning Authority, nil encumbrance certificates, consent, approval, sanctions from the Government, payment of provident funds dues and split the share certificates in
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distinct share certificates of blocks of 1000 shares each. The conditions subsequent to the execution of the Share Purchase Agreement were that within a period of 10 days from the compliance of the conditions precedent, a General Power of Attorney had to be executed in favour of Mr. Rajesh Sen and Mr. Sanjay Dagar with respect to development and sale of 25 plots as described in Schedule 'B'. Likewise, a General Power of Attorney had to be executed in favour of Mr. Rajesh Bagwanlal Sen and Mr. Sanjay Dagar and a Special Power of Attorney had to be executed in favour Mr. Sanjeev Khatri with respect to development and sale of 3 plots as described in Schedule 'C'. Though the said documents were executed but the documents produced by the complainant disclosed that accused Nos.1 and 2 had brought about various agreements to sell the plots that were the subject matter of the Share Purchase Agreement. Therefore, the conduct of accused Nos.1 and 2 in not trying to resolve the issue but trying to further complicate the case, indicates a further attempt to cheat the complainant. As rightly
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contended by the learned Senior counsel for the complainant, the Share Purchase Agreement and the consequent documents tried to put at rest the civil liability of accused Nos.1 to 4 but it did not efface the criminal liability arising out of their attempt to cheat the complainant. Therefore, accused Nos.1 to 4 are bound to stand trial for the offences of which cognizance is taken by the Trial Court.
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established at the trial and cannot be wished away on the ground that they presented a civil dispute between the parties. If the allegations contained in the private complaint lodged by the complainant are taken at its face value then too, they constituted an offence punishable under Section 420 of IPC.
Sd/JUDGE
PMR
2 issues framed by the court
Whether the criminal proceedings against the petitioners for offences under Sections 406, 420, and 120B IPC should be quashed on the ground that the dispute is civil in nature and has been settled?
Whether the allegations in the complaint, taken at face value, constitute an offence under Section 420 IPC, warranting trial despite a settlement agreement addressing civil liability?
Colour shows how this judgement treated each authority
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