The Karnataka High Court allowed two criminal petitions under Section 482 Cr.P.C. and quashed the proceedings in C.C. No. 726/2016 against the petitioners (Accused Nos. 1 and 2) for offences under Sections 417, 418 and 420 IPC.
The complainant alleged that the petitioners, as directors of C.S. Holdings Pvt. Ltd., collected Rs. 5,71,600 from 1995-2002 for Site No. 4, executed a sale agreement in 2007, but later formed M/s Maheshwari Promoters and executed a sale deed for the same site in favour of that firm in December 2007, thereby cheating the complainant's mother.
The court held:
1. Vicarious criminal liability cannot be fastened on directors without a statutory provision or specific allegations of personal involvement. The Penal Code contains no provision for vicarious liability of directors (Maksud Saiyed v. State of Gujarat; Sunil Bharti Mittal v. CBI; Sanjay Dutt v. State of Haryana; Sushil Sethi v. State of Arunachal Pradesh).
2. Where the transaction is between the company and the complainant, and the company's acts are the basis of the alleged fraud, the company must be arraigned as an accused. Without arraigning the company, criminal prosecution against the directors cannot be sustained (Aneeta Hada; Arshad Neyaz Khan v. State of Jharkhand).
3. Against Accused No. 1, specific allegations existed (issuance of receipts), but he disputed the sale agreement's execution and a handwriting expert application was pending in the civil suit. Against Accused No. 2, no specific allegation of receiving money or executing the agreement existed; the allegation was similar to that against Accused No. 3 (mere introduction).
4. The complaint was filed before the civil suit, so the argument that a civil dispute was given a criminal colour was rejected. However, the technical defect of non-arraignment of the company and absence of specific allegations against Accused No. 2 warranted quashing.
5. The civil court's adjudication of the suit for specific performance (O.S. No. 64/2015) shall remain uninfluenced by these observations.
The court exercised its inherent power under Section 482 Cr.P.C. to prevent abuse of process, quashing the proceedings without entering into the merits.
