If the offence alleged against the accused is proved, then the accused/Directors will have to be sentenced as the Company: Bombay High Court
Courts can always impose a sentence of fine and the sentence of imprisonment can be ignored as it is impossible to be carried out in respect of a company. Thus, if it is observed that the company/accused has committed offences with a dishonest intention then the Courts will impose liability and punishment. This remarkable judgment was passed by the Bombay High Court in the matter of GANESH BENZOPLAST LIMITED V MORGAN SECURITIES CREDITS PRIVATE LIMITED &amp; ANR. [CRIMINAL WRIT PETITION NO.127 OF 2020] by Honourable Justice A. S. Gadkari. This petition was filed under Article 227 of the Constitution of India and under Section 482 of the CrPC. The Petitioner Ganesh Benzoplast Limited is Complainant and respondent, Morgan Securities Credits Pvt. Ltd. is accused. It is the case of the complainant that the complainant is a company incorporated under the provisions of Companies Act, 1956. That, Ganesh Benzoates Pvt. Ltd. is the sister concern company of the complainant and as a Guarantor provided the security to the accused on behalf of complainant against the Inter Corporate Deposit facility. The accused Nos.2 to 4 are the Directors of company and are responsible for day-to-day affairs. In the month of March, 2000 accused No.1 Morgan Securities Credits Pvt. Ltd. agreed to provide an ICD facility to the complainant to the tune of Rs.50 lacs. A Letter of Pledge dated 7th March, 2000 was executed by Ganesh in favour of Morgan and Ganesh pledged 15 lakh Equity Shares and the said shares were pledged with the accused only as a security. Complainant Ganesh faced acute financial hardship and could not repay the ICD and therefore, on the due date asked Morgan to recover ICD dues by selling the pledged shares and remitting the balance sale proceeds to the complainant. The accused invoked clause No.17 of the ICD Agreement and appointed a Sole Arbitrator, claiming balance loan amount against the complainant. The HC observed that, “the accused have committed criminal breach of trust of the complainant and have deceived it thereby committing an act of cheating. As a matter of fact, the complainant has made out a strong prima facie case against the accused for issuance of process. Taking into consideration the aforestated facts, it clearly appears to this Court that, the learned Magistrate has not committed any error while passing the impugned Order.” It was stated, “vicarious liability is being foisted upon it, which the learned counsel wants this Court to test it at the stage of issuance of process. The same is contrary to the settled principles of law. It is well settled that, at the time of issuance of process, the Magistrate is required to conduct an inquiry for the limited purpose of finding out whether a prima facie case for issuance of process has been made out and it is limited only to the ascertainment of the truth or falsehood of the allegations made in the complaint.” The Honourable Bench asserted that, “After applying a ratio laid down by the Hon’ble Supreme Court in the case of Iridium India Telecom Ltd. (Supra), it is clear that, the accused No.1-Morgan is a necessary party for proper adjudication of the complaint. It is to be noted here that, the Letter of Pledge (Agreement) dated 7th March, 2000 is executed by the Authorized Signatory of the complaint on behalf of it, in favour of the accused No.1 company and therefore also impleadment of Morgan (A-No.1) is necessary for proper adjudication of the present complaint. The contention that, the accused No.1 is being foisted with vicarious liability, is the defence and a specious plea raised by the said accused. The accused No.1 will have to prove the said defence at the time of trial by leading cogent and plausible evidence in that behalf.”
 on 26 04 2021 on 27 04 ssm 1 wp127.20gp final.docIN THE HIGH COURT OF JUDICATURE AT BOMBAYCRIMINAL APPELLATE JURISDICTION CRIMINAL WRIT PETITION NO.127 OF 2020WITHINTERIM APPLICATION NO.220 OF 2020INCRIMINAL WRIT PETITION NO. 127 OF 2020Ganesh Benzoplast Limited Through its authorized representative Mr.Ramesh Pilani ….Petitioner.Vs.Morgan Securities Credits Private Limited & Anr. ….Respondents. WITHCRIMINAL WRIT PETITION NO. 128 OF 2020WITHINTERIM APPLICATION NO.221 OF 2020INCRIMINAL WRIT PETITION NO.128 OF 2020Ganesh Benzoplast Limited Through its authorized representative Mr.Ramesh Pilani ….Petitioner.Vs.Prakash Aggarwal & Anr.….Respondents. WITHCRIMINAL WRIT PETITION NO. 129 OF 2020WITHINTERIM APPLICATION NO.222 OF 2020IN1 34 on 26 04 2021 on 27 04 ssm 2 wp127.20gp final.docCRIMINAL WRIT PETITION NO.129 OF 2020Ganesh Benzoplast Limited Through its authorized representative Mr.Ramesh Pilani ….Petitioner.Vs.Meera Goyal & Anr.….Respondents. WITHCRIMINAL WRIT PETITION NO. 130 OF 2020WITHINTERIM APPLICATION NO.223 OF 2020INCRIMINAL WRIT PETITION NO. 130 OF 2020Ganesh Benzoplast Limited Through its authorized representative Mr.Ramesh Pilani ….Petitioner.Vs.Suresh Chand Goyal & Anr. ….Respondents. WITHCRIMINAL WRIT PETITION NO. 348 OF 2020Suresh Chand Goyal ….Petitioner.Vs.1 The State Of Maharashtra 2 Ganesh Benzoplast Limited….Respondents. WITHCRIMINAL WRIT PETITION NO. 349 OF 2020Prakash Aggarwal ….Petitioner.Vs.1 The State Of Maharashtra 2 Ganesh Benzoplast Limited ….Respondents. WITHCRIMINAL WRIT PETITION NO. 357 OF 20202 34 on 26 04 2021 on 27 04 ssm 3 wp127.20gp final.docMeera Goyal ….Petitioner.Vs.1 The State Of Maharashtra 2 Ganesh Benzoplast Limited ….Respondents. Mr. M.G. Shukla a w Ms. Chaula Solanki a w Mr. H.H. Nagi i by Nagi &Associates for the Petitioners in Writ Petition Nos.1220 1220 1220 and 1320 and for the Respondent No.2 in Writ PetitionNos.348 2020 3420 and 3520. Mr. Aabad Ponda Senior Advocate a w Mr. Abhishek Gupta and Mr. RaviMishra i by MZM Legal for the Petitioners in WP Nos. 3420 349 of2020 and 3520 and for Respondent accused in Writ Petition Nos.127of 2020 1220 1220 and 1320.Mr. A.R. Patil APP for the Respondent State in all Petitions.CORAM : A. S. GADKARI J.RESERVED ON : 10th MARCH 2021 PRONOUNCED ON : 26th APRIL 2021.JUDGMENT: 1)The aforementioned Petitions are filed under Article 227 of theConstitution of India and under Section 482 of the Code of CriminalProcedure 1973facilityprovided by the accused No.1 to the complainant to the extent of Rs.50lacs. The accused Nos.2 to 4 are the Directors of accused No.1 companyand are responsible for day to day affairs and acts of accused No.1. 4.1)In the month of March 2000 accused No.1 Morgan SecuritiesCredits Pvt. Ltd.agreed to provide an ICD facility to5 34 on 26 04 2021 on 27 04 ssm 6 wp127.20gp final.docthe complainant Ganesh Benzoplast Limitedto thetune of Rs.50 lacs. Accordingly on 7th March 2000 ICD Agreement D.P.Note Letter of Continuity ICD Receipt Personal Guarantee Deed andCorporate Guarantee Deed were executed between the parties. Morganpaid Rs.50 lacs to Ganesh vide cheque No.048526 dated 7th March 2000. 4.2)A Letter of Pledge dated 7th March 2000 was executed byGanesh in favour of Morgan and Ganesh pledged 15 lakh Equity Shares inDemat form owned by it in favour of Morgan. The said shares werepledged with the accused only as a security. At the time of pledging of thesaid shares with accused the value of each share was Rs.16 and 15 lakhshares were worth Rs.2 crore 40 lakhs. The said shares could not be soldand transferred pursuant to the Pledge Agreement and SEBI guidelines. Asudden market depression led to a fall in the value of the pledged shares.Morgan therefore issued notice dated 3rd May 2000 to Ganesh asking it topledge additional shares as the value of pledged shares had decreased toRs.1 24 50 000 resulting in a short fall of Rs.75 50 000 from the agreedsecurity cover i.e. 200% of the ICD amount. At that relevant time the valueof shares was Rs.8.30 to 8.50 per share. 4.3)Complainant Ganesh faced acute financial hardship due toglobal recession and could not repay the ICD and therefore on the duedate of said ICD i.e. on 5th June 2000 asked Morgan to recover ICD dues by6 34 on 26 04 2021 on 27 04 ssm 7 wp127.20gp final.docselling the pledged shares and remitting the balance sale proceeds to thecomplainant. At that time the accused No.1 Morgan assured that as andwhen they would sale Security then they will inform accordingly and givecredit balance amount of sale proceeds. That the accused despite sendingnotice kept assuring that they will give details of shares in due course andkept on recovering interest on ICD and asked complainant not to mix theissue of sale of shares with interest on ICD. The complainant paid intereston ICD from time to time i.e. between 28th September 2000 to 6th August 2001. Morgan issued notice on 2nd August 2001 to GaneshofAccused No.1 company to the extent of Sec.406 r w 34 of the IPC.8)As such the Directorshave filed aforestatedCriminal Writ Petition Nos.348 349 and 3520 challenging theimpugned Order to the extent it upheld the summoning Order underSection 406 read with 34 of the IPC against them. The complainant Ganesh has filed aforestated Writ PetitionNo.1220 challenging complete exoneration of Morganvideimpugned Order dated 2nd December 2019. The complainant Ganesh hasalso filed aforestated Criminal Writ Petition Nos.128 129 and 1320challenging the impugned Orders to the extent it exonerated the Directorsof Morgan for the offences under Section 420 of IPC and under Section 15 HA of SEBI Act. 9)It is to be noted here that at the outset Mr. Shukla the learnedcounsel for the complainant on instructions from its authorizedrepresentative submitted that the complainant is not pressing for11 34 on 26 04 2021 on 27 04 ssm 12 wp127.20gp final.docapplication of Section 15 HA of SEBI Act and the allegations made in thecomplaint to that extent will not be hereinafter further pursued. The saidstatement is accepted.10)Mr. Ponda learned Senior counsel appearing for the accusedpointed out various clauses from the Letter of Pledgedated 7thMarch 2000 executed between the parties and submitted that in view ofthe specific clauses in the said Pledge Agreement the accused had givenpower to the complainant to sell the said shares in case of particulareventuality. That as per the clauses of the said Agreement the accusedhad right to sell shares which they exercised and sold the said shares.That the accused can even sell the said shares to its group companies. Hesubmitted that in view thereof there cannot be any breach of trust and orcheating by the accused as alleged by the complainant.10.1)He submitted that at the time of issuance of process Orderdated 22nd March 2017 the arbitration award dated 9th December 2015was declared by the learned Arbitrator and the findings recorded thereinwere not taken into consideration by the Trial Court. That the averments inthe complaint and the objections raised by the accused persons in thearbitration proceedings are similar. That the interpretation of clauses ofthe Pledge Agreement of the accused have been accepted by the Arbitrator.He submitted that the arbitration award dated 9th December 2015 hasbinding effect. That the award mentions that there are no breaches12 34 on 26 04 2021 on 27 04 ssm 13 wp127.20gp final.doccommitted by the accused and therefore in his submission no criminal actalso has been made out by the complainant in his complaint. By relying onparagraph Nos. 25 and 26 of the decision delivered by the Hon’ble SupremeCourt in the case of Hindustan Construction Company Ltd. & Anr. Vs. Unionof India & Ors.No.10719) dated 27thNovember 2019 he submitted that even if the said arbitration award ischallenged under Section 34 of the Arbitration and Conciliation Act 1996 its binding effect does not gets stayed automatically and it holds the fieldtill it is set aside.10.2)Mr. Ponda further submitted that the whole case put forth bythe complainant has to be appreciated in view of the stringent termsincorporated in the said Agreement. That by reading the clauses ofAgreement it can clearly be gathered that accused were having power tosell the said shares to an entity of their choice. That the clauses mentionedin the Letter of Pledgecannot be ignored and ought to havebeen taken into consideration by the Trial Court at the first place whileissuing process against the accused. He submitted that summoning of anaccused in a criminal case is a serious matter. Criminal law cannot be setinto motion as a matter of course. That the allegations made in thecomplaint even if given face value and taken to be correct in its entirety does not disclose an offence. He submitted that the present complaint filedby the accused is filed for causing harassment to the accused. He13 34 on 26 04 2021 on 27 04 ssm 14 wp127.20gp final.docsubmitted that there is no legal evidence connecting the accused with anycrime much less the offences alleged as the materials are not capable ofbeing converted into legal evidence and therefore the proceedings againstthe accused are also liable to be quashed. He submitted that a perusal ofcomplaint would indicate that the complainant has not made specificallegations against accused Nos.2 to 4 and therefore also the presentcomplaint is not maintainable. In support of these contentions Mr. Pondarelied on the following decisions of the Hon’ble Supreme Court. 1Charanjit Singh Chadha & Ors. Vs. Sudhir Mehra MANU SC 0514 2001 : AIR 2001 SC 3721 2International Advanced Research Centre for Powder Metallurgy andNew Materials& Ors. Vs. Nimra Cerglass TechnicsLtd. &Ors. MANU SC 1063 2015 :1 SCC 348 3Pepsi Foods Ltd. & Ors. Vs. Special Judicial Magistrate & Ors. MANU SC 1090 1998 : AIR 1998 SC 128 4All Cargo MoversPvt. Ltd. & Ors. Vs. Dhanesh Badarmal Jain &Ors. MANU SC 8047 2007 : AIR 2008 SC 247 5Suryalakshmi Cotton Mills Ltd. Vs. Rajvir Industries Ltd. & Ors. MANU SC 7050 2008 : AIR 2008 SC 1683 6M. Mohan Vs. The State represented by the Deputy Superintendentof Police MANU SC 0161 2011 : AIR 2011 SC 1238 7The Superintendent & Remembrancer of Legal Affairs West Bengal14 34 on 26 04 2021 on 27 04 ssm 15 wp127.20gp final.docVs. S.K. Roy MANU SC 0229 1974 : AIR 1974 SC 794 8GHCL Employees Stock Option Trust Vs. India Infoline Ltd. MANU SC 0271 2013 : AIR 2013 SC 1433 9Sushil Sethi & Ors. Vs. The State of Arunachal Pradesh & Ors. MANU SC 0119 2020 : AIR 2020 SC 765 10Suresh Vs. Mahadevappa Shivappa Danannava & Ors. MANU SC 0110 2005 : AIR 2005 SC 1047. 10.3)Mr. Ponda further submitted that it is well settled that everybreach of contract would not give rise to an offence of cheating and only onthose cases breach of contract would amount to cheating where there wasany deception played at the very inception. That if the intention to cheathas developed later on the same cannot amount to cheating. In support ofhis contentions he relied on two decisions of the Hon’ble Supreme Courtviz.Uma Shankar Gopalika Vs. State of Bihar & Ors. MANU SC 1233 2004 :10 SCC 336 andVesa Holdings PrivateLimited & Anr. Vs. State of Kerala & Ors. reported in5 SCC 668 2S.K. Alagh Vs. State of U.P. & Ors. MANU SC 7162 2008 : AIR 2008SC 1731 3R. Kalyani Vs. Janak C. Mehta & Ors. MANU SC 8183 2008 :(2009)1 SCC 516 4Sharon Michael & Ors. Vs. State of Tamil Nadu & Ors.MANU SC 8454 2008 :3 SCC 375 5Keki Hormusji Gharda & Ors. Vs. Mehervan Rustom Irani & Ors. MANU SC 0798 2009 : AIR 2009 SC 2594 :7 scc 475 6Sunil Bharti Mittal Vs. Central Bureau of Investigation MANU SC 0016 2015 : AIR 2015 SC 923 7Shiv Kumar Jatia Vs. State of NCT of Delhi MANU SC 1154 2019 :AIR 2019 SC 4463 :17 SCC 193. 10.5)Two contrary submissions were advanced by the learnedcounsel for the Accused i.e.Company cannot be held liable for the actsof its Directors andDirectors cannot be held responsible for the act ofcompany as the Letter of Pledge dated 7th March 2000 was executed in16 34 on 26 04 2021 on 27 04 ssm 17 wp127.20gp final.docfavour of Accused No.1 company. He inter alia contended that none of theaccused persons herein have committed any offence as alleged by thecomplainant.10.6)He submitted that the present complaint is filed in February 2011 for the alleged offence which took place in the year 2001 andtherefore it is hit by delay. He submitted that before issuing the Orderdated 22nd March 2017 thereby issuing process against the accused thelearned Magistrate did not call for fresh report under Section 202 of Cr.P.C..He therefore prayed that the Petition Nos.348 349 and 357 of2020 filed by the accused be allowed and the Petitions filed by thecomplainant may be dismissed summarily. 11)Per contra Mr. Shukla learned counsel for the complainantvehemently opposed the Petitions filed by the accused. He submitted that in view of the specific allegation of the complainant of cheating ascontemplated under Section 420 of Indian Penal Code in the present case limitation would not apply to it and therefore complaint is not hit by delay.He submitted that the alleged delay by the accused persons in filing thepresent complaint has been properly explained by the witnesses of thecomplainant namely Shri. Bhupendra R. Pitale and Shri. Ramesh S. Pilaniwhile recording their verification statement dated 9th February 2016 andevidence after verification dated 12th July 2016 respectively. He submittedthat the facts in the present case are so complex and interwoven that the17 34 on 26 04 2021 on 27 04 ssm 18 wp127.20gp final.docdishonest intention of the accused can be derived at the time of trial only.That the legitimate prosecution initiated by the complainant should not bescuttled at its inception. He submitted that the accused invoked provisionsof Arbitration by giving notice on 14th August 2001 and from 24th August 2001 to 12th September 2009 sold shares of the complainant companyallegedly in open market only to one single buyer i.e. Doogar andAssociates Ltd. and it cannot be termed as a coincidence. That the accusedNos.2 to 4 herein are also the Directors of the said Doogar and AssociatesLtd.1 SCC 74 : LAWS(SC) 2010 10 13. He submittedthat the Revisional Court has committed an error by not taking intoconsideration the ratio laid down by the Hon’ble Supreme Court in the caseof Iridium India Telecom Ltd.while allowing the RevisionApplication No.1217 filed by the accused No.1 Morgan. Hesubmitted that Morgan is equally responsible for the offence committed byother accused persons as the complainant has also alleged conspiracy. Thatthe Trial Court while issuing process by its Order dated 22nd March 2017has applied Section 34 of the Indian Penal Code and therefore also thepresence of accused No.1 Company at the time of final adjudication of thecomplaint is must. 11.2)Mr. Shukla submitted that the accused invoked Arbitrationclause on 14th August 2001 however claimed and accepted interest on thecomplainant upto 6th August 2001. He submitted that the report underSection 202 of Cr.P.C. filed by the police mentions the said fact of repaymentof interest by the complainant. He therefore submitted that it is thus clearthat all the accused persons had intention to commit act of cheating19 34 on 26 04 2021 on 27 04 ssm 20 wp127.20gp final.docagainst the complainant. He submitted that all the ingredients forcommission of offence under Sections 406 420 read with 120 B or 34 ofthe Indian Penal Code have been incorporated in the complaint by thecomplainant and no fault of whatsoever nature can be found out fordeleting Section 420 of the IPC from it. He submitted that the RevisionalCourt has committed an error in setting aside the Order of issuance ofprocess for the offence punishable under Section 420 read with 34 of theIPC against the accused Nos.2 to 4 by its impugned Orders.He therefore prayed that the Writ Petition Nos.127 to 130 of2020 filed by the complainant be allowed in its entirety and Writ Petitionsfiled by the accused be dismissed summarily. 12)It is to be noted here that most of the contentions and orsubmissions advanced by the learned Senior counsel for the accused recorded hereinabove have been answered by the Hon’ble Supreme Courtin its recent decision in the case of Priti Saraf & Anr. Vs. State of NCT ofDelhi & Anr. in Criminal Appeal No(s). 2921 dated 10th March 2021. The Hon ble Supreme Court after taking into consideration itsvarious decisions in the field has held that it being a settled principle oflaw that to exercise powers under Section 482 of Cr.P.C. the complaint inits entirety shall have to be examined on the basis of the allegation made inthe complaint FIR charge sheet and the High Court at that stage was notunder an obligation to go into the matter or examined its correctness. That 20 34 on 26 04 2021 on 27 04 ssm 21 wp127.20gp final.docwhatever appears on the face of the complaint FIR charge sheet shall betaken into consideration without any critical examination of the same. Theoffence ought to appear ex facie on the complaint FIR charge sheet andother documentary evidence if any on record. It is further held that it isthus settled that the exercise of inherent power of the High Court is anextra ordinary power which has to be exercised with a great care andcircumspection in deciding whether the case is rarest of rare case to scuttlethe prosecution at its inception. That in the matter of exercise of inherentpower by the High Court the only requirement is to see whethercontinuance of the proceedings would be a total abuse of the process of theCourt. The Cr.P.C. contains a detailed procedure for investigation framingof charge and trial and in the event when the High Court is desirous ofputting a halt to the known procedure of law it must use propercircumspection with great care and caution to interfere in thecomplaint FIR charge sheet in exercise of its inherent jurisdiction. TheHon ble Supreme Court has further observed that we would like to addthat whether the allegations in the complaint are otherwise correct or nothas to be decided on a basis of the evidence to be led during the course oftrial. Simply because there is a remedy provided for breach of contract orarbitral proceedings initiated at the instance of the appellants that does notby itself clothe the court to come to a conclusion that Civil remedy is theonly remedy and the initiation of Criminal proceedings in any manner will21 34 on 26 04 2021 on 27 04 ssm 22 wp127.20gp final.docbe an abuse of the process of the Court for exercising inherent powers ofthe High Court under Section 482 Cr.P.C. for quashing of such proceedings.It is further held that in fact many a times offence of cheating iscommitted in the course of commercial transactions and illustrations havebeen set out under Sections 415 418 and 420 IPC. That so far as initiationof arbitral proceedings is concerned there is no correlation with theCriminal proceedings.13)The Hon’ble Supreme Court has thus made it clear that in fact many a times offence of cheating is committed in the course of commercialtransactions. That initiation of arbitral proceedings has no correlation withthe criminal proceedings. In view thereof the contentions raised by thelearned Senior Counsel and recorded in para Nos.(10)(10.2) and(10.3) hereinabove do not hold any substance in it as the arbitralproceedings initiated by accused has no bearing on the present criminalcase.The criminal complaint filed by the complainant therefore hasto be considered independently.14)It is the settled position of law that at the stage of issuance ofprocess or a challenge to an Order of issuance of process the Court at thisjuncture would not consider the defence of the accused. That ordinarily defence of an accused although appears to be plausible should not be takeninto consideration for exercise of the said jurisdiction. That the High Court22 34 on 26 04 2021 on 27 04 ssm 23 wp127.20gp final.docat that stage would not ordinarily enter into a disputed question of fact.That the Order of Magistrate summoning the accused must reflect that hehas applied his mind to the facts of the case and the law applicable thereto.He has to examine the nature of the allegations made in the complaint andthe evidence both oral and documentary in support thereof.14.1)The complainant has filed a detailed complaint giving all thenecessary facts which constitutes an offence of criminal breach of trustunder Section 406 of IPC and cheating under Section 420 of IPC. It is an admitted fact on record that the complainant availedICD facility from the accused No.1 to the tune of Rs.50 lakhs and amongstother various documents also executed a Letter of Pledgedated 7th March 2000 the complainant pledged 15 lakhsequity shares in demat form owned by it in favour of Morgan. The accusedNo.1 Morgan issued notice dated 3rd May 2000 to complainant asking it topledge additional shares as the value of pledged shares had decreased toRs.1 24 50 000 from the agreed security cover i.e. 200% of the ICDamount. At that relevant time the value of shares was Rs.8.30 to 8.50 pershare. The complainant faced acute financial hardship due to globalrecession and could not repay the ICD and therefore on its due date i.e. on5th June 2000 asked Morgan to recover ICD dues by selling the pledgedshares and remitting the balance sale proceeds to the complainant. The23 34 on 26 04 2021 on 27 04 ssm 24 wp127.20gp final.docrecord clearly indicates that by a letter communication dated 14th August 2001 the complainant informed Morgan thereby proposing to repayinitially Rs.25 lakhs in five equal monthly installments at Rs.5 lakhs in cashstarting from August 2001. It was also informed to Morgan that the firstinstallment of Rs.5 lakhs will be paid to it on or before 25th August 2001.Despite receipt of the said communication dated 14th August 2001 by theaccused the accused sold the pledged shares of complainant via NSE from24th August 2001 to 12th September 2001 for an amount of Rs.24 67 631 .It is the precise case of the complainant that the accused with dishonestintention misappropriated and converted for its illegal gains and sold thesaid shares when the price of the share was at its minimal in the market.The said shares were sold at the closing hours on those relevant days to theaccused No.1 company’s sister concern namely Doogar and Associates Ltd..The said Doogar and Associates Ltd. subsequently changed its name toMorgan Ventures Ltd. in the year 2004. That the Directors of both the saidcompanies are the same i.e. accused Nos.2 to 4 herein. The accused did notsell shares of complainant company either on 3rd May 2000 or on 5th June 2000 when the price of the said shares were much more higher and wassufficient to square off the ICD amount accepted by the complainant. 14.2)The Senior Inspector of Police Andheri Police Station infurtherance of the Order passed under Section 202 of Cr.P.C. by the learnedMagistrate after conducting investigation into the matter has submitted a24 34 on 26 04 2021 on 27 04 ssm 25 wp127.20gp final.docreport dated 16th March 2012 to it. In the said report he has recorded acategorical finding that the accused have sold the said shares to their ownsister concern for a very minimal rate and subsequently the said Doogar andAssociates Ltd. sold the said shares in open market at much higher price. Itwas revealed to him that the accused have committed criminal breach oftrust and cheating of complainant. 14.3)It is to be further noted here that the complainant in complaintand its witnesses namely Shri. Bhupendra R. Pitale in his verificationstatement dated 9th February 2016 and Mr. Ramesh Pilani in his evidenceafter verification dated 12th July 2016 have explained delay in lodging thepresent complaint. The learned counsel for the complainant submittedthat as an offence under Section 420 of IPC has been alleged against theaccused there is no question of application of limitation in the presentcomplaint. I find substance in the same. 14.4)The facts of the present case as noted hereinabove leave nomanner of doubt that the accused have committed criminal breach of trustof the complainant and have deceived it thereby committing an act ofcheating. As a matter of fact the complainant has made out a strong primafacie case against the accused for issuance of process. Taking intoconsideration the aforestated facts it clearly appears to this Court that thelearned Magistrate has not committed any error while passing theimpugned Order dated 22nd March 2017 below Exh 1 in the said complaint.25 34 on 26 04 2021 on 27 04 ssm 26 wp127.20gp final.doc15)As far as the contention of learned counsel for the accused that before passing Order dated 23rd March 2017 below Exh 1 thereby issuingprocess against the accused the learned Magistrate did not call for freshreport under Section 202 of Cr.P.C. is concerned it is to be noted here that by an Order dated 6th August 2011 the predecessor in title of the presentMagistrate had directed the Police Inspector of Andheri Police station Mumbai to make an inquiry into the matter under Section 202 of Cr.P.C. andto submit report in that behalf. The record indicates that accordingly on16th March 2012 the Senior Police Inspector Andheri Police Station Mumbai has submitted an Inquiry Report before the learned Magistrate. Asper the inquiry conducted by the concerned police it was revealed that theaccused in connivance with each other and in conspiracy committedcriminal breach of trust of the complainant and sold its shares to their ownCompany namely Doogar and Associates Ltd. and particularly when theprice of the shares of complainant Company were fetching very low priceand subsequently the said Doogar and Associates Ltd. further sold it tohigher price in market. As the report under Section 202 of Cr.P.C. hasalready been submitted by the police on record it was and is not at allnecessary for the learned Magistrate to again call for it afresh. The factsinquired into on an earlier occasion have not at all changed and are thesame till today. On an earlier occasion by an Order dated 16th January 2016 the Revisional Court had set aside the Order of Magistrate and26 34 on 26 04 2021 on 27 04 ssm 27 wp127.20gp final.docremanded the complaint back only on the ground that there was technicalerror in recording verification statement under Section 200 of Cr.P.C. of thecomplainant and not for any other reason. It thus appears to this Courtthat there is no technical lapse or illegality committed by the Magistratewhile issuing process against accused by its present Order dated 22ndMarch 2017. This Court therefore finds that there is no substance in theaforenoted contention of the learned counsel for the accused.16)As far as the contention of the learned counsel for the accusedthat the complainant is foisting vicarious liability upon the accused No.1 isconcerned the pleadings in the complaint prima facie discloses that thereis no mention of vicarious liability of Accused No.1 Company in it. It is thedefence of Accused No.1 that ‘vicarious liability’ is being foisted upon it which the learned counsel wants this Court to test it at the stage of issuanceof process. The same is contrary to the settled principles of law. It is wellsettled that at the time of issuance of process the Magistrate is required toconduct an inquiry for the limited purpose of finding out whether a primafacie case for issuance of process has been made out and it is limited only tothe ascertainment of the truth or falsehood of the allegations made in thecomplaint. 17)The aforenoted contention in paragraph No.(10.5) cannot beaccepted and has to be rejected at its threshold. It is the settled principle oflaw that a Company is a juristic person and it can sue or can be sued. No27 34 on 26 04 2021 on 27 04 ssm 28 wp127.20gp final.docdoubt a corporate entity is an artificial person which acts through itsofficers Directors Managing Director Chairman etc.. It’s affairs aregoverned by or conducted by its Directors. If the offence alleged againstthe accused is proved then the accused Directors will have to be sentencedas the Company though being a juristic person cannot be sentenced withcorporal punishment.18)The Hon’ble Apex Court in Iridium India Telecom Ltd.while considering the issue of criminal liability of a Company Corporationin para Nos.63 to 66 has held as under : 63. From the above it becomes evident that acorporation is virtually in the same position as any individual andmay be convicted of common law as well as statutory offencesincluding those requiring mens rea. The criminal liability of acorporation would arise when an offence is committed in relationto the business of the corporation by a person or body of personsin control of its affairs. In such circumstances it would benecessary to ascertain that the degree and control of the person orbody of persons is so intense that a corporation may be said tothink and act through the person or the body of persons. Theposition of law on this issue in Canada is almost the same. Mensrea is attributed to corporations on the principle of “alter ego” ofthe company.64. So far as India is concerned the legal position has beenclearly stated by the Constitution Bench judgment of this Court inStandard Chartered Bank v. Directorate of Enforcement4SCC 530 : 2005 SCC961]. On a detailed consideration of28 34 on 26 04 2021 on 27 04 ssm 29 wp127.20gp final.docthe entire body of case laws in this country as well as otherjurisdictions it has been observed as follows:4 SCC 530 : 2005 SCC961] SCC pp. 548 50 paras27 28 & 30 32)"27.In the case of Penal Code offences forexample under Section 420 of the Penal Code for cheatingand dishonestly inducing delivery of property thepunishment prescribed is imprisonment of eitherdescription for a term which may extend to seven yearsand shall also be liable to fine and for the offence underSection 417 that is simple cheating the punishmentprescribed is imprisonment of either description for a termwhich may extend to one year or with fine or with both. Ifthe appellants plea is accepted then for the offence underSection 417 IPC which is an offence of minor nature acompany could be prosecuted and punished with fine29 34 on 26 04 2021 on 27 04 ssm 30 wp127.20gp final.docwhereas for the offence under Section 420 which is anaggravated form of cheating by which the victim isdishonestly induced to deliver property the companycannot be prosecuted as there is a mandatory sentence ofimprisonment. 28. So also there are several other offences in thePenal Code which describe offences of serious naturewhereunder a corporate body also may be found guilty and the punishment prescribed is mandatory custodialsentence. There are a series of other offences undervarious statutes where the accused are also liable to bepunished with custodial sentence and fine. 30. As the company cannot be sentenced toimprisonment the court has to resort to punishment ofimposition of fine which is also a prescribed punishment.As per the scheme of various enactments and also thePenal Code mandatory custodial sentence is prescribed forgraver offences. If the appellants plea is accepted nocompany or corporate bodies could be prosecuted for thegraver offences whereas they could be prosecuted forminor offences as the sentence prescribed therein iscustodial sentence or fine. ...31. As the company cannot be sentenced toimprisonment the court cannot impose that punishment but when imprisonment and fine is the prescribedpunishment the court can impose the punishment of finewhich could be enforced against the company. Such adiscretion is to be read into the section so far as the juristicperson is concerned. Of course the court cannot exercise30 34 on 26 04 2021 on 27 04 ssm 31 wp127.20gp final.docthe same discretion as regards a natural person. Then thecourt would not be passing the sentence in accordancewith law. As regards company the court can alwaysimpose a sentence of fine and the sentence ofimprisonment can be ignored as it is impossible to becarried out in respect of a company. This appears to be theintention of the legislature and we find no difficulty inconstruing the statute in such a way. We do not think thatthere is a blanket immunity for any company from anyprosecution for serious offences merely because theprosecution would ultimately entail a sentence ofmandatory imprisonment. The corporate bodies such as afirm or company undertake a series of activities that affectthe life liberty and property of the citizens. Large scalefinancial irregularities are done by various corporations.The corporate vehicle now occupies such a large portion ofthe industrial commercial and sociological sectors thatamenability of the corporation to a criminal law is essentialto have a peaceful society with stable economy. 32. We hold that there is no immunity to thecompanies from prosecution merely because the prosecutionis in respect of offences for which the punishment prescribedis mandatory imprisonmentv. Velliappa Textiles Ltd.11SCC 405 : 2004 SCC1214] on this point and answer thereference accordingly. Various other contentions have beenurged in all appeals including this appeal they be posted forhearing before an appropriate Bench." 31 34 on 26 04 2021 on 27 04 ssm 32 wp127.20gp final.doc66. These observations leave no manner of doubt that acompany corporation cannot escape liability for a criminal offencemerely because the punishment prescribed is that of imprisonmentand fine. We are of the considered opinion that in view of theaforesaid judgment of this Court the conclusion reached by theHigh Court that the respondent could not have the necessary mensrea is clearly erroneous.” 19)After applying a ratio laid down by the Hon’ble Supreme Courtin the case of Iridium India Telecom Ltd.it is clear that theaccused No.1 Morgan is a necessary party for proper adjudication of thecomplaint. It is to be noted here that the Letter of Pledgeis necessary for properadjudication of the present complaint. The contention that the accusedNo.1 is being foisted with vicarious liability is the defence and a speciousplea raised by the said accused. The accused No.1 will have to prove thesaid defence at the time of trial by leading cogent and plausible evidence inthat behalf.The aforestated deliberation leads to draw an irresistibleconclusion that the accused No.1 company is a necessary and relevantparty to the said complaint and it cannot be dropped from the presentproceedings at its inception. 32 34 on 26 04 2021 on 27 04 ssm 33 wp127.20gp final.doc20That the accused with dishonest intention have committedcriminal breach of trust deceived the complainant and have committed theact of cheating against it. In view thereof the complainant succeeds. The impugned Orders dated 2nd December 2019 passed inCriminal Revision Application Nos.1217 1617 1617and 1617 filed by the accused are quashed and set aside and theOrder dated 22nd March 2017 passed by the learned MetropolitanMagistrate Railway Mobile Court Andheri Mumbai below Exh 1 in CCNo.56 SW 2011 is upheld and restored to the file. However in view of thestatement made by the complainant in the present proceedings that thecomplainant hereinafter will not pursue application of Section 15 HA of theSEBI Act in the said complaint Section 15 HA of SEBI Act is dropped fromthe Order dated 22nd March 2017 passed below Exh 1 in CCNo.56 SW 2011. The Order dated 22nd March 2017 passed by the learnedMagistrate is modified to that extent only. 21)In view of the above Writ Petition Nos.1220 128 of2020 1220 and 1320 filed by the complainant are allowed.Writ Petition Nos.3420 3420 and 3520 filed by theaccused are accordingly dismissed.In view of disposal of Writ Petition Nos.127 to 1320filed by the complainant Interim Application Nos.220 to 2220 filedtherein do not survive and are accordingly disposed off.33 34 on 26 04 2021 on 27 04 ssm 34 wp127.20gp final.doc22)The present complaint filed in the month of February 2011 bythe complainant is pending on the file of learned Metropolitan Magistrate Railway Mobile Court Andheri Mumbai for last more than 10 years. Inview thereof learned Magistrate seized of the said complaint is directed toexpedite hearing of the said complaint and to make an endeavour todispose off the same within a period of one year from the date of receipt ofpresent Order. It is needless to mention that the period during which thesmooth functioning of the concerned Court is paralyzed or affected due tothe present pandemic situation will be excluded from computation of thesaid period of one year. (A.S. GADKARI J.)34 34 