(Prayer: This Criminal Petition is filed U/S 482 Cr.PC praying to quash the complaint, order taking cognizance dated 27.01.2020, and the entire proceedings in Pcr.No.4/2018 and further actions connect with Special C.C.No.69/2020 pending on the file of the court of the XXIII Additional City Civil and Sessions Judge, Special Judge, Bengaluru Urban District (Cch-24) Bengaluru City in the complaint filed by the respondent No.1 against the petitioners for the offences P/U/S 409,34,120b of IPC and Section 13(1)(D) r/w 13(2) of the Prevention of Corruption Act.
This Criminal petition is filed U/S 482 Cr.PC praying to quash the complaint, order taking cognizance dated 27.01.2020 And The Entire Proceedings In PCR No.4/2018 pending on the file of the XXIII Additional City Civil and Sessions Judge, Bengaluru on the complaint filed by the Respondent No.1 against the petitioners for the offences P/U/S 409, 34, 120b of IPC and Section 13(1)(D) r/w 13(2) of the P.C Act.
Through Video Conference:
1. These petitions are directed against the common order passed by the XXIII Additional City Civil and Sessions Judge, Special Judge, Bengaluru Urban District (CCH.24) dated 27.01.2020 in PCR.No.2/2018, PCR.No.3/2018 and PCR.No.4/2018, whereby summons are issued to the petitioners to face trial for the offences punishable under sections 409, 34 and 120-B of Indian Penal Code and section 13(1)(d) read with section 13(2) of the Prevention of Corruption Act, 1988.
2. The outline facts leading to the petitions are as follows:
(i) Respondent No.1 herein namely India Awake for Transparency, Chennai, presented three private complaints (PCR Nos.2/2018, 3/2018 and 4/2018) against the petitioners herein under section 200 Cr.P.C., seeking their prosecution for the above offences. In all the three complaints, accused Nos.1 to 4 are common and accused No.5 in the respective complaints is different.
(ii) The common case of the complainant in all the three private complaints is that, accused No.1 - Mr.Azim Hasham Premji, accused No.2 - Mrs.Yaseem Azim Premji and accused No.3 - Mr.Pagalthivarthi Srinivasan were entrusted with the dominion over the properties and assets of three Companies by name (a) Vidya Investment and Trading Company Private Limited ("Vidya" for short), (b) Regal Investment and Trading Company Private Limited ("Regal" for short) and (c) Napean Trading and Investment Company Private Limited ("Napean" for short) as Directors and they were holding the assets of these three Companies of the total worth of Rs.31,342 Crores in fiduciary capacity, without having any financial interest or ownership therein and that by allowing these assets transferred to a newly constituted Company by name Hasham Investment and Trading Company Private Limited ("Hasham" for short) namely accused No.4, in collusion and connivance with respective accused No.5 who were then occupying the position of public servants as on the date of the alleged transaction, they have committed the offences punishable under sections 409, 34 read with 120B of IPC and section 13(1)(d) read with section 13(2) of the Prevention of Corruption Act, 1988.
3. These allegations were founded on the premise that the aforesaid three Companies (hereinafter referred to as "Transferor Companies") were owned by each other in such manner that 2 of the 3 Companies held 50% of the shares in the other i.e., Regal and Napean held 50% each of the shares of Vidya and similarly, Regal and Vidya each held 50% of the shares of Napean and further Vidya and Napean each held 50% of the shares of Regal. These three Companies had total assets of Rs.51,549.47 Crores. However, by taking advantage of their position as Directors, during 2010-2012, accused Nos.1 to 3 took away Rs.13,602 Crores of assets of the above three Companies by way of gifts and transferred the same to a Private Trust controlled by accused Nos.1 and 2. In respect of the remaining assets of Rs.31,342 Crores, it is alleged that accused persons conspired among themselves and merged the three Companies into fourth accused Company namely Hasham Investment and Trading Company Private Limited - a Company wholly owned by the Private Trust run by accused Nos.1 and 2 without any payment and through this device got control over the entire assets worth Rs.31,342 Crores belonging to the Transferor Companies of which they were the Directors. According to the complainant, the decision to seek the merger of Transferor companies attracted the offence under section 409 IPC and further all the accused persons having entered into a criminal conspiracy with a view to enrich accused Nos.1 to 3 of the huge assets belonging to the Transferor Companies which otherwise would have vested with the Union of India as bona vacantia or escheat have rendered themselves liable for prosecution for the above offences.
4. Learned Special Judge on taking cognizance of the above offences recorded the sworn statement of the complainant and considering the statements made on oath and the large number of documents produced in support of the allegations made in the complaint, issued summons to the petitioners to face trial for the above offences which are impugned in these petitions.
5. The contentions of accused Nos.1 to 4 (petitioners in Criminal Petition Nos.1496/2020, 1499/2020 and 1500/2020) are that the learned Special Judge has proceeded to take cognizance of the matter mechanically without application of mind. She failed to note that the complainant had invoked section 200 Cr.P.C. without taking recourse to section 154(3) of Cr.P.C. Learned Special Judge also failed to appreciate that the amalgamation was accepted by the High Court of Karnataka after issuance of notices and by following due process of law. The Ministry of Corporate Affairs, the Regional Head of the RBI were parties to the proceedings and the scheme was accordingly sanctioned by the High Court. Learned Special Judge, by holding that the reports submitted to the scrutiny of the High Court were fabricated, has virtually cast aspersions on the orders passed by the High Court. The allegations made in the complaints, even if they are taken at their face value and accepted in their entirety, do not prima facie constitute any offences or make out a case against accused Nos.1 to 4. The uncontroverted allegations made in the complaints and the evidence made available in support of the same do not disclose commission of any offences. Learned Special Judge also failed to note that the scheme of amalgamation was sought to be challenged by the complainant on the same set of allegations as contained in the complaints. The NCLT, Bengaluru, dismissed the petition of respondent No.1 / complainant and the complainant took up the same in Appeal before the NCLAT, Delhi. The Hon'ble NCLAT, Delhi was pleased to dismiss the appeal by imposing cost of Rs.2 lakhs. Learned Special Judge also failed to note that the complainant had given a false affidavit to the effect that no complaint has been filed in any other Court touching the subject matter of the complaints eventhough the complainant had filed separate complaints dated 01.11.2016, 14.03.2017 and 28.04.2017 addressed to RBI Governor, Union of India which were followed up through a Writ Petition before the High Court of Delhi. Further the complainant had also filed an application before the High Court of Karnataka to recall the order of amalgamation passed by the High Court and the same is pending consideration of the High Court and hence, initiation of criminal proceedings being manifestly attended with mala fides and are maliciously instituted with an ulterior motive of wreaking vengeance on the petitioners, with a view to spite them due to private and personal grudge, are liable to be quashed.
6. The petitioner in Criminal Petition No.1729/2020 namely accused No.5 in PCR No.2/2018 - Sri.G. Venkateshwara Rao has also set up identical contentions in his petition and in addition has taken up a plea that he was not a public servant and was only providing consultancy services as a Chartered Accountant. There was no employee - employer relationship with the official liquidator/ High Court with the petitioner, as such, the PCR was not maintainable.
7. The petitioner in Criminal Petition No.1643/2020 namely accused No.5 in PCR.No.4/2018 - Sri.M.R.Bhat has urged similar contentions as stated above and in addition has contended that the trial court failed to appreciate the basic tenet of Company Law that a Company is a legal or artificial person capable of holding property in its name and be the owner of yet another company. The Trial Court failed to appreciate that the provisions of Article 296 get attracted only when there are no claimants to a property. The petitioner is a public servant with Union Government and is presently working as the Regional Director, Ministry of Corporate Affairs (Southern Region), Chennai and proceedings could not be initiated against him without previous sanction under section 19 of the PC Act. Hence, the order of cognizance and issuance of process being opposed to facts and circumstances and the law is liable to be quashed.
8. Elaborate arguments are advanced by learned Senior Counsels appearing for the respective petitioners touching the merits of the case as well as the legality of the order passed by learned Special Judge in line with the statement of objections filed into the Court and have referred to large number of authorities in support of their contentions. But the petitioners having invoked the jurisdiction of this Court under section 482 Cr.P.C., the scope of the petitions being limited, I have considered only the relevant material which is necessary for deciding the controversy involved in these petitions.
9. The position of law is well settled that while issuing the process, satisfaction of the Special Judge or the Magistrate is confined to the issue as to whether prima facie case is made out against the accused and not with regard to the sufficiency of evidence to secure conviction of the accused. It is now well settled that the inherent powers under section 482 of Cr.P.C. can be exercised to give effect to an order under the Code to prevent abuse of process of the court or to otherwise secure the ends of justice. The inherent powers under this section should not be exercised to stifle a legitimate prosecution. The High Court should normally refrain from giving a prima facie decision in a case where all the facts are 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 such magnitude that they cannot be seen in their true perspective without full material. In MADHAVRAO JIWAJIRAO SCINDIA vs. SAMBHAJIRAO CHANDROJIRAO ANGRE reported in 1988 Criminal Law Journal 853, it is held that,
"... The legal position is well settled that when a prosecution at the initial stage is asked to quashed, the test to be applied by the Court is as to whether the uncontroverted allegations as made prima facie establish the offence. It is also for the court to take into consideration any special features which appear in a particular case to consider whether it is expedient and in the interest of justice to permit a prosecution to continue."
10. Tested on the touchstone of this settled legal principle, it only needs to be considered as to whether the allegation made in the above complaints and the material produced in support thereof prima facie make out the ingredients of the offences charged against the petitioners? In that view of the matter, the points that arise for consideration in these petitions are as follows:
(1) Whether the allegations made in the complaints prima facie disclose the ingredients of offences punishable under sections 409, 34, 120-B of IPC and sections 13(1)(d) read with 13(2) of Prevention of Corruption Act, 1988?
(2) Whether the order of taking cognizance by the learned Special Judge amounts to sitting over appeal against the orders passed by the High Court of Karnataka in sanctioning the scheme of amalgamation in Company Petition No.182/2014 connected with Company Petition Nos.183/14, 184/2014 and 185 /2014?
(3) Whether prosecution of accused No.5 in the respective proceedings is bad in law for want of prior sanction under section 19 of the Prevention of Corruption Act, 1988?
11. The essence of the complaints is that the accused persons conspired with each other to enrich accused Nos.1 to 4 of Rs.31,342 Crores of public money which were the assets of the three Companies namely Napean, Vidya and Regal. According to the complainant, these assets were entrusted to accused Nos.1 to 3 in their capacity as Directors of these Companies. None of them had any financial interest, either directly or indirectly, in the assets of these Companies by way of holding any equity shares and therefore, the act of the accused in getting these valuable assets transferred to the fourth accused Company of which accused Nos.1 to 3 were the shareholders, offend the provisions of sections 409, 120-B of IPC as well as section 13(1)(d) of the PC Act.
12. The petitioners do not dispute the fact that accused Nos.1 to 3 were the Directors of the Transferor Companies namely Napean, Vidya and Regal and that the scheme formulated by them for amalgamation of these Companies was approved by this Court in Company Petition Nos.182/2014, 183/2014, 184/2014 and 185/2014 dated 26.03.2015 and accordingly, the Transferor Companies were held dissolved without the process of winding up. The material on record disclose that as on the date of amalgamation, the equity shareholdings with the three Transferor Companies were interlinked/cross held by each of the Companies which means that the ownership of the assets exclusively vested with the three Companies and not with accused Nos.1 to 3.
13. Undeniably, accused Nos.1 to 3 were representing the Transferor Companies as Directors and not as owners thereof. It is also not in dispute that the fourth accused Company is wholly owned and controlled by the Private Trust formed by accused Nos.1 and 2 and accused Nos.1 to 3 are the only Directors of accused No.4 Company. It is recorded by the learned Special Judge in the impugned order that as on 31.03.2014, accused No.4 - Company was under loss of Rs.22.53 Crores and had accumulated further loss of Rs.169.15 Crores and had availed Rs.170 Crores loan from accused Nos.1 and 2 to meet its losses which fact has not been disputed. It is in this background, the merger was proposed by accused Nos.1 to 3 and the same was accepted and sanctioned by this Court by its order dated 26.03.2015.
14. The above facts clearly reveal that three financially robust Companies of which accused Nos.1 to 3 were the Directors have been absorbed / consolidated with accused No.4, a loss making Company, through the process of amalgamation, as a result, huge assets held by the three Transferor Companies have been transferred to accused No.4 - Company without accused No.4 paying any consideration for buying over the assets of the Transferor Companies. By this device or mechanism, the ownership and control of the assets of the Transferor Companies have been effectively taken over by accused Nos.1 to 3. These facts, in my view, clearly fall within the mischief of section 409 of IPC.
15. It is trite that a shareholder is separate from the Company in which he holds share. In the instant case, as on the date of amalgamation, accused Nos.1 to 3 were neither the owners nor the shareholders of the Transferor Companies. The petitioners have virtually conceded the factual position that the equity shares of the Transferor Company No.1 were held equally by the Transferor Company No.2 and the Transferor Company No.3. Likewise equity shares of Transferor Company No.2 and Transferor Company No.3 were cross held equally by other two Transferor Companies. Under the said circumstances, when the corporate vehicle is set up for the purpose of acquiring the control or ownership over the assets of the incorporated Companies to which accused Nos.1 to 3 were not legally entitled, it is necessary to find out the persons and the purpose behind setting up such a corporate vehicle on the guise of amalgamation. Moreover faced with the allegation that the entire transaction was improper and sullied by breach of the obligation cast under law on accused Nos.1 to 3 and the facade of corporate entity has been used to circumvent a statute to achieve or perpetuate monopoly over the assets of an incorporated Company, it is imperative for the Court to tear the web of legal entity by piercing the corporate veil.
16. In this context, it may be useful to refer to the view endorsed by the Hon'ble Supreme Court in BALWANT RAI SALUJA AND ANOTHER vs. AIR INDIA LIMITED & Others, (AIR 2015 SC 375, wherein following the decision in LIFE INSURANCE CORPORATIN OF INDIA vs. ESCORTS LIMITED & Others, AIR 1986 SC 1370, it is held as under:
"66. The doctrine of "piercing the corporate veil" stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligation. It seeks to disregard the separate personality of the company and attribute the acts of the company to those who are allegedly in direct control of its operation. The starting point of this doctrine was discussed in the celebrated case of Salomon v. A Salomon & Co. Ltd. [1897 AC 22]. Lord Halsbury LC (paragraphs 31-33), negating the applicability of this doctrine to the facts of the case, stated that:
'.... a company must be treated like any other independent person with its rights and liabilities [legally] appropriate to itself ... whatever may have been the ideas or schemes of those who brought it into existence.'
67. Most of the cases subsequent to Salomon case [supra], attributed the doctrine of piercing the veil to the fact that the company was a "sham" or a "faade". However, there was yet to be any clarity on applicability of the said doctrine.
68. In recent times, the law has been crystallised around the six principles formulated by Munby, J. in Ben Hashem v. Ali Shayif,  EWHC 2380 (Fam]. The six principles, as found at paras 159-164 of the case are as follows:
(i) Ownership and control of a company were not enough to justify piercing the corporate veil;
(ii) The court cannot pierce the corporate veil, even in the absence of third-party interests in the company, merely because it is thought to be necessary in the interests of justice;
(iii) The corporate veil can be pierced only if there is some impropriety;
(iv) The impropriety in question must be linked to the use of the company structure to avoid or conceal liability;
(v) To justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and
(vi) The company may be a "faade" even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done.
70. The position of law regarding this principle in India has been enumerated in various decisions. A Constitution Bench of this Court in LIC v. Escorts Ltd. [(1986) 1 SCC 264]: (AIR 1986 SC 1370), while discussing the doctrine of corporate veil, held that:
(SCC pp.335-36, para 90): (at p.1418, para 90 of AIR).
'90. ... Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc.""
17. In the backdrop of the above principles, if the provisions of section 409 of IPC under which the petitioners are sought to be charged is analysed, the section reads as under:
409. Criminal breach of trust by public servant, or by banker, merchant or agent.--Whoever, being in any manner entrusted with property, or with any dominion over property in his capacity of a public servant or in the way of his business as a banker, merchant, factor, broker, attorney or agent, commits criminal breach of trust in respect of that property, shall be punished with 1[imprisonment for life], or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.
Section 405 of IPC defines criminal breach of trust as under:
405. Criminal breach of trust.--Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits "criminal breach of trust".
18. As held by the Hon'ble Supreme Court in R.VENKATAKRISHNAN VS CENTRAL BUREAU OF INVESTIGATION, (2009) 11 SCC 737, in para 143,
"The terms of the section are very wide. They apply to one who is in any manner entrusted with property or dominion over property. The section does not require that the trust should be in furtherance of any lawful object. It merely provides, inter alia, that if such a person dishonestly misappropriates or converts to his own use the property entrusted to him; he commits criminal breach of trust."
19. Further, in JAIKRISHNADAS MANOHARDASDESAI vs. THE STATE OF BOMBAY, AIR 1960 SC 889, the Hon'ble Supreme Court, in para 6, has held thus,
"6. ... to establish a charge of criminal breach of trust, the prosecution is not obliged to prove the precise mode of conversion, misappropriation or misapplication by the accused of the property entrusted to him or over which he has dominion. The principal ingredient of the offence being dishonest misappropriation or conversion which may not ordinarily be a matter of direct proof, entrustment of property and failure in breach of an obligation to account for the property entrusted, if proved, may in the light of other circumstances, justifiably lead to an inference of dishonest misappropriation or conversion. Conviction of a person for the offence of criminal breach of trust may not, in all cases, be founded merely on his failure to account for the property entrusted to him, or over which he has dominion, even when a duty to account is imposed upon him, but where he is unable to account or renders an explanation for his failure to account which is untrue, an inference of misappropriation with dishonest intent may readily be made."
20. In CHELLOOR MANKKAL NARAYAN ITTIRAVI NAMBUDIRI vs. STATE OF TRAVANCORE- COCHIN, AIR 1953 SC 478, in para 21, it is observed that,
" ... to constitute an offence of criminal breach of trust it is essential that the prosecution must prove first of all that the accused was entrusted with some property or with any dominion or power over it. It has to be established further that in respect of the property so entrusted, there was dishonest misappropriation or dishonest conversion or dishonest use or disposal in violation of a direction of law or legal contract, by the accused himself or by someone else which he willingly suffered to do."
21. In the instant case, undeniably accused Nos.1 to 3 were only the Directors of the Transferor Companies as on the date of the alleged transaction. As explained in Palmer's Company Law, 20th Edition, page 513, "Directors" are in the eye of law, agents of the Company for which they act, and the general principles of the law of principal and agent regulate in most respects the relationship of the Company and its Directors.
22. In R.K.DALMIA etc., vs. DELHI ADMINISTRATION, AIR 1962 SC 1821, interpreting the expression "dominion over the property", the Hon'ble Supreme Court in para 97 thereof has observed that,
"Both Dalmia and Chokhani being agents of the company the control, if any, they had over the securities and the funds of the company, would be in their capacity as agents of the company and would be in the course of Dalmia's duty as the Chairman and Director or in the course of Chokhani's duty as a duly appointed agent of the company. If they committed any criminal breach of trust with respect to the securities and funds of the company, they would be committing an offence under section 409 IPC."
23. In the light of the above factual and legal position, the impugned order cannot be faulted with. As the allegations made in the complaints prima facie make out the ingredients of the offence under section 409 of IPC and there being clear allegations of conspiracy which are duly supported by the documents marked during the sworn statement of the complainant, the learned Special Judge was justified in issuing summons to the petitioners namely accused Nos.1 to 4 to answer the above charges. At the stage of issuing summons, learned Special Judge is not required to satisfy herself as to the correctness or otherwise of the allegations made against the petitioners nor is she required to record a finding that the material produced by the complainant is sufficient to secure a conviction against the proposed accused. As the material on record prima facie made out the ingredients of the offences alleged against the petitioners, I do not find any reason to interfere with the impugned order insofar as accused Nos.1 to 4 are concerned.
24. The argument of the learned Senior Counsels appearing for the petitioners that the amalgamation having been sanctioned by the High Court, learned Special Judge had no jurisdiction to proceed against the petitioners also does not merit acceptance. Amalgamation, no doubt, is a process in which separate organizations unite to form a larger organisation or a group. The amalgamation of small firms is also permissible under law. But in the instant case, no material has been produced either by accused Nos.1 to 3 or any other accused to show that any of the three Transferor Companies belonged to accused Nos.1 to 3 or that they had any financial stake therein so that they could decide to form a larger group of Companies for whatever purpose. On the other hand, the circumstances alleged in the complaints and the facts borne on the documents produced by the complainant indicate that on the basis of amalgamation, Transferor Companies are completely obliterated and their assets are taken over by accused No.4. It may be that initially accused Nos.1 and 2 themselves had invested in the Transferor Companies, but the subsequent events emerging from the records clearly go to show that accused Nos.1 to 3 ceased to hold any shares in the Transferor Companies ever since 1980. As such, as on the date of the alleged transaction, none of them had any beneficial ownership over the assets of these Companies. Even otherwise, law on the point in clear that "the Company is at law a different person altogether from the subscribers ...; and, though it may be that after incorporation the business is precisely the same as it was before, the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them." See SALOMON vs. SALOMON & COMPANY Ltd., 1987 AC 22.
25. It also needs to be stated that the alleged transaction is not a simple or innocuous amalgamation as sought to be made out by the petitioners; rather the whole exercise as reflected in the voluminous documents produced before the Special Court indicate that the entire transaction was contrived to get hold of the valuable assets of the Transferor Companies camouflaged as amalgamation. But for this amalgamation, in the event of winding up of the Transferor Companies, its assets would have been taken over by its legitimate shareholders and in their absence, the same would have been appropriated by the Union as bona vacantia. Since the allegations proceed on the basis that in order to take over the assets of the Transferor Companies, accused Nos.1 to 3 misused their fiduciary position as agents of the Company and have acted in breach of trust and consequently managed to enrich themselves in collusion with accused No.5 by transferring these assets to accused No.4, which was wholly owned by the Private Trust controlled by accused No.1 and 2, in my view, the facts alleged in the complaints prima facie attract the ingredients of the offences under section 409 read with section 34 and section 120B of IPC entailing prosecution of the petitioners for the above offence.
26. The argument of the learned Senior Counsels that the order passed by the learned Special Judge amounts to judicial impropriety inasmuch it has the effect of sitting in appeal over the orders passed by the Hon'ble High Court is totally misplaced and is liable to be rejected outright. The complainant has not questioned the validity of the amalgamation order passed by the court, rather the accusations spring from the breach of trust committed by accused Nos.1 and 3 in amalgamating the Transferor Companies with accused No.4 and thereby taking over the assets of the Transferor Companies of which they were mere agents or Directors. Merger is not the subject matter of the offence set out in the complaints. Complaints pertain to the breach of trust by accused No.1 to accused No.3 as Directors and their conspiracy with accused No.4 and accused No.5 in committing the offences under section 13(1)(d) of P.C. Act. It may be that as against the orders of the High Court, the complainant has resorted to legal remedy available under law by making an application to recall the order of amalgamation, but that by itself does not debar the Special Court from deciding the allegations constituting the criminal offence arising out of the transaction.
27. A transaction may give rise to civil or criminal remedies. It is trite that availability of civil remedy cannot be a ground for quashing criminal prosecution. As held in M/s.INDIAN OIL CORPORATION vs. M/s.NEPC INDIA LIMITED & Others, (2006) 6 SCC 736, "The test is whether the allegations in the complaint disclose a criminal offence or not." For example, if a collusive decree is obtained from a court of law fabricating documents and later the said decree is set aside by the Civil Court, the parties to fabrication and forgery cannot seek to avoid criminal prosecution on the plea that the offending decree has been set aside by a Civil Court when charged with the offence of forgery and falsification of records. Likewise, assuming that the proposal for amalgamation set up by the petitioners was not accepted by the High Court and/or for any reason the High Court which sanctioned amalgamation found it proper to recall its order, even then, it does not afford a defence to the petitioners to contend that their prosecution is illegal, as long as the acts complained against the petitioners prima facie disclose the ingredients of criminal breach of trust. Therefore, I do not find any substance in the submissions canvassed by the learned counsel for the petitioners that in view of the pendency of the recall application filed by the complainant seeking to set at naught the order of amalgamation, the prosecution of the petitioners for the alleged offences is not legally tenable. As the complainant has clearly made out the ingredients of the offences under section 409 read with section 34 of IPC as well as the ingredients of section 120-B IPC insofar as the accused Nos.1 to 4 are concerned, in my view, no fault could be found with the impugned order passed by the learned Special Judge issuing summons to accused Nos.1 to 4 to face trial for the above offences.
28. Coming to the prosecution of accused No.5 in the respective cases is concerned, the specific allegation against accused No.5 in PCR.No.2/2018 (petitioner in Criminal Petition No.1729/2020 Sri.G.Venkateshwara Rao) are that, he was a practicing Chartered Accountant appointed by the Karnataka High Court at Bengaluru to inspect the books and records of the three Companies for the purpose of making the report in terms of the second proviso to section 394 of the Companies Act 1956, as to whether the affairs of the three Companies were conducted in breach of these principles or public interest. It is alleged in the complaint that the petitioner/accused No.5 therein conspired with accused Nos.1 to 4 in commissioning the above offences with a view to take over the assets of the three Companies by accused Nos.1 to 4 of the net worth of Rs.31342 Crores as on 31.03.2004 wholly belonging to the public and for this purpose, conspired to commit the offence within the meaning of section 13(1)(d) of the PC Act read with section 409 IPC. It is further alleged that pursuant to the above conspiracy, accused No.5 allowed the merger to take place by falsely setting out in the report made to the High Court of Karnataka as though the affairs of the Company had not been conducted prejudicial to the interest of the members and further as though the affairs of the three Companies were not conducted against public interest and that none of the Directors of the three Companies namely accused Nos.1 to 3 derived any benefit from these Companies. In paragraph No.32 clauses (a) to (k) of the complaint, the specific instances of false misrepresentations made by accused No.5 have been enumerated and I do not find it necessary to reproduce the same in verbatim. Suffice it to note that each of these allegations are sought to be supported by voluminous documents. These allegations, therefore, cannot be brushed aside as false and baseless as contended by the petitioner. Even otherwise, as already noted above, the power under section 482 Cr.P.C. cannot be exercised at the threshold to stifle legitimate prosecution when the allegations disclose the ingredients of the criminal offence.
29. Though the petitioner in Criminal Petition No.1729/2020 has urged in the petition that he is not a public servant as defined under the provisions of the PC Act, 1988, yet in the course of hearing, learned Senior Counsel appearing for him has fairly conceded that in view of the appointment made by the Hon'ble High court to discharge the duties in connection with the administration of justice, petitioner answered the description of "public servant" within the meaning of section 2(c)(v) and (vi) of PC Act, 1988. However, as on the date of taking cognizance of the alleged offence, the petitioner namely accused No.5 Sri.G.Venkateshwara Rao ceased to be a public servant and therefore, in view of the provisions of the unamended section 19 of the PC Act, 1988, sanction for the prosecution of the petitioner/accused No.5 in PCR.No.2/2018 is not necessary.
30. The allegations insofar as accused No.5 in PCR.No.4/2018 (petitioner in Criminal Petition No.1643/2020 - Sri.M.R.Bhat) are that he was working as the Registrar of Companies, Karnataka, when the offences set out in the complaint were committed. Presently, he is holding the office as the Regional Director (Southern Region), Ministry of Corporate Affairs, Chennai. He conspired with accused Nos.1 to 4 in commissioning of the alleged offences with a view to take over the assets of the three Companies of the net worth of Rs.31342 Crores by accused Nos.1 to 4, thus committed offences punishable under section 13(1)(d) of the PC Act read with sections 409 and 120-B of IPC. It is alleged in the complaint that notice under section 394A of the Companies Act was issued to the Office of the Regional Director, Ministry of Corporate Affairs, having jurisdiction in respect of the Companies concerned in the merger, with the object of ensuring that all relevant views of the various Government organizations were obtained before the Central Government made its report to the High Court. However, the Regional Director authorized the petitioner/accused No.5, then functioning as the Registrar of Companies, Karnataka, to deal with the requirements of section 394A of the Companies Act. The petitioner however allowed the merger to take place by not setting out the essential facts in respect of the merger. The various instances of misconduct committed by the petitioner namely accused No.5 are detailed in para 31 clauses (a) to (h) and are sought to be substantiated through relevant documents. Therefore, it cannot be said that the prosecution of the petitioner is vindictive and baseless as contended. These allegations prima facie disclose the elements of section 13(1)(d) of the PC Act as well as section 120-B of IPC. Sub-clause (iii) of section 13(1)(d) of PC Act contemplates that, a Public Servant who while holding office, obtains for any person any valuable thing or pecuniary advantage without any public interest would be guilty of criminal misconduct. At the stage of issuing summons to the petitioner, the learned Special Judge was not required to ascertain the veracity of these allegations. Having regard to the nature of the allegations set out in the complaint which are sought to be substantiated through documentary evidence, in my view, learned Special Judge was justified in taking cognizance of the alleged offences and issuing summons to the petitioner to face trial for the said offences.
31. The contention urged on behalf of this petitioner that the prosecution initiated against him is bad in law for want of prior sanction as envisaged under section 19 of the PC Act does not merit acceptance. Sri.Udaya Holla, learned Senior Counsel appearing for the petitioner namely accused No.5 in Criminal Petition No.1643/2020 vehemently submitted that the petitioner is a "public servant" as defined under section 2(c) of the PC Act. As per the amended section 19 of the PC Act, learned Special Judge was debarred from taking cognizance of the offences punishable under sections 7, 11, 13 and 15 against a public servant without proper sanction. The PC Act, 1988 was amended by the Amendment Act, 2018 from 26.07.2018. As on that date, the court had not taken cognizance of the alleged offences. The records indicate that till completion of recording of the sworn statement i.e., on 28.11.2018, there was no credible material before the learned Special Judge to take cognizance of the offences. Hence, as on the date of coming into operation of the amended provisions of section 19 of the PC i.e., 26.07.2018, cognizance of the alleged offence was not taken and therefore, the provisions of the amended section 19 of the PC Act apply to the facts of this case. Developing on this point, the learned counsel would submit that the amendment brought to the PC Act repealed the earlier provisions and in its place, the new provision has been replaced and therefore, learned Special Judge could not have taken cognizance of the alleged offences insofar as petitioner namely accused No.5 is concerned without the previous sanction of the Central Government. In support of this submission, learned Senior Counsel has placed reliance on the decision of the Full Bench decision of this Court in the case of THE HASSAN CO-OPERATIVE MILK PRODUCERS SOCIETIES UNION LIMITED & Others vs. STATE OF KARNATAKA, DEPARTMENT OF CO-OPERATIVE SOCIEITIES & Others, ILR 2014 Karnataka 4257, wherein it is held that, substitution of a provision results in repeal of the earlier provision and its replacement by the new provision. When the Legislature amends the old provision by way of substitution it intends to keep alive the old provision. Referring to the law laid down by the Hon'ble Supreme Court on the issue, the Full Bench of this Court has held that,
"... the amendment which has the effect of substitution of a provision has the effect of replacing the old provision by the substituted provision and in the absence of repugnancy, inconsistency and absurdity, must be construed as if it has been incorporated in the Act right from abinitio. In other words, an amendment by way of substitution has retrospective operation."
32. Repelling the above argument, learned counsel appearing for respondent No.1/ complainant referring to the law laid down in Anthulay's case, reiterated that petitioner namely accused No.5 having ceased to hold the office of the Registrar of Companies which position he was holding as on the date of commission of the alleged offence, there was no requirement of obtaining the prior sanction. Further placing reliance on the exposition of law made by the Hon'ble Supreme Court in NANI GOPAL MITRA vs. STATE OF BIHAR, AIR 1970 SC 1636 (para Nos.5 and 6), learned counsel emphasized that,
As a general rule the amended law relating to procedure operates retrospectively. But there is another equally important principle viz. that a statute should not be so construed as to create new disabilities or obligations or impose new duties in respect of transactions which were complete at the time the amending Act came into force. The same principle is embodied in Section 6 of the General Clauses act which is to the following effect:
"6. Effect of repeal - Where this Act or any Central Act or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not-
(b) affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or
(e) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid;
and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed."
6. The effect of the application of this principle is that pending cases although instituted under the old Act but still pending are governed by the new procedure under the amended law, but whatever procedure was correctly adopted and concluded under the old law cannot be opened again for the purpose of applying the new procedure."
33. Since the contentions raised by learned Senior Counsel touches the very jurisdiction of the Trial Court, I have given my thoughtful consideration to the submissions and have meticulously examined the records of the Trial Court. On going through the order sheet maintained by the Trial Court and the observations made in para Nos.16 to 18 of the impugned order, I find that the learned Senior Counsel has built up the above argument on the supposition that cognizance of the alleged offence was taken by the learned Special Judge subsequent to the Amendment Act, 2018, but records speak otherwise. Of course it is true that learned Special Judge has not stated in so many words about taking cognizance of the alleged offences, but the law is now well settled as held in CREF FINANCE LTD., vs. SHREE SHANTHI HOMES (P) Ltd. and Another, (2005)7 SCC 467.
"... Cognizance is taken of the offence and not of the offender and, therefore, once the court on perusal of the complai
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nt is satisfied that the complaint discloses the commission of an offence and there is no reason to reject the complaint at that stage, and proceeds further in the matter, it must be held to have taken cognizance of the offence." 34. In the instant case, the order sheet indicates that, on receiving the complaint on 16.12.2017, the same was put up before the learned Special Judge on 18.12.2017. Learned counsel for the complainant was heard-in-part and the matter was adjourned for further hearing and thereafter, the matter was adjourned from time to time and written arguments of the complainant was received on 06.03.2018 and the matter was set down for recording sworn statement of the complainant on 02.08.2018. 35. What is taking cognizance has been explained by the Hon'ble Supreme Court in R.R.CHARI vs. STATE OF UTTAR PRADESH, AIR 1951 SC 207, wherein it is held, "What is taking cognizance has not been defined in the Criminal Procedure Code and I have no desire to attempt to define it. It seems to me clear however that before it can be said that any Magistrate has taken cognizance of any offence under Section 190(1)(a) of the Criminal Procedure Code, he must not only have applied his mind to the contents of the petition but he must have done so for the purpose of proceeding in a particular way as indicated in the subsequent provisions of this Chapter- proceeding under Section 200 and thereafter sending it for inquiry and report under Section 202. When the Magistrate applies his mind not for the purpose of proceeding under the subsequent sections of this Chapter, but for taking action of some other kind e.g. ordering investigation under Section 156(3), or issuing a search warrant for the purpose of the investigation, he cannot be said to have taken cognizance of the offence. The Court further held that "as to when cognizance is taken of an offence will depend upon the facts and circumstances of each case and it is impossible to attempt to define what is meant by taking cognizance." 36. Viewed in the light of the above exposition, the facts noted in the order sheet clearly indicate that the learned Special Judge has applied her mind to the facts of the case right from the date of receiving the complaint and thereafter, decided to proceed in the matter and therefore, it has to be held that cognizance of the alleged offence was taken on 18.12.2017 itself when the complainant was heard-in-part and the learned Special Judge adjourned the matter for proceeding further in the matter. Therefore, learned Special Judge having taken cognizance of the offences much prior to the introduction of the amendment, it is only the law prevailing as on the date of the cognizance is applicable to the facts of the case. Hence, the submission of the learned Senior Counsel that by virtue of the Amendment Act, 2018, the Trial Court has fallen in error in taking cognizance of the alleged offences without prior sanction from the Central Government cannot be accepted. 37. Lastly, the contention urged by learned Senior Counsel Sri.Ravi B.Naik for the petitioners in Criminal Petition Nos.1496/2020, 1499/2020 and 1500/2020 that the impugned order is not in conformity with the directions issued by the Hon'ble Supreme Court in PRIYANKA SRIVASTAVA AND ANOTHER vs. STATE OF UTTAR PRADESH and Others reported in (2015) 6 SCC 287 also cannot be a ground to quash the proceedings. A reading of the complaints indicate that the complainant did not seek reference of the complaints for investigation under section 156(3) Cr.P.C., rather the prayer made in the complaint was to proceed against the petitioners for the alleged offences under section 200 Cr.P.C. In PRIYANKA's case, referred to supra, the Hon'ble Supreme Court has laid down that, there has to be prior applications under Sections 154(1) and 154(3) while filing a petition under Section 156(3) Cr.P.C. In para 31 of the above decision it is observed that, "... Both the aspects should be clearly spelt out in the application and necessary documents to that effect shall be filed. The warrant for giving a direction that an application under Section 156(3) be supported by an affidavit is so that the person making the application should be conscious and also endeavour to see that no false affidavit is made. It is because once an affidavit is found to be false, he will be liable for prosecution in accordance with law. This will deter him to casually invoke the authority of the Magistrate under Section 156(3)." Therefore, even this ground is not available to the petitioners to seek quashment of the proceedings initiated against them. POINT No.3: 38. In the light of the above discussion and for the reasons stated above, I do not find any justifiable ground to interfere in the impugned order. As a result, petitions are liable to dismissed and accordingly, they are dismissed.