The Bombay High Court recently comprising of a bench of Justice A. S. Gadkari observed that the 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. (Ganesh Benzoplast Limited V Morgan Securities Credits Private Limited & Anr.)
Facts of the Case
The complainant is a company incorporated under the provisions of Companies Act, 1956. 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.
The accused No.1 Morgan Securities Credits Pvt. Ltd. in March, 2000 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.
Therefore, the present 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.
Contention of the Parties
The counsel appearing for the accused pointed out various clauses from the Letter of Pledge (Agreement) dated 7th March, 2000 executed between the parties and submitted that, in view of the specific clauses in the said Pledge Agreement, the accused had given power to the complainant to sell the said shares in case of particular eventuality. That, as per the clauses of the said Agreement, the accused had 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. He submitted that, in view thereof, there cannot be any breach of trust and or cheating by the accused as alleged by the complainant. 10.1)
He submitted that, at the time of issuance of process Order dated 22nd March, 2017, the arbitration award dated 9th December, 2015 was declared by the learned Arbitrator and the findings recorded therein were not taken into consideration by the Trial Court. That, the averments in the complaint and the objections raised by the accused persons in the arbitration proceedings are similar. That, the interpretation of clauses of the Pledge Agreement of the accused have been accepted by the Arbitrator. He submitted that, the arbitration award dated 9th December, 2015 has binding effect.
The learned counsel for the Accused on the contrary submitted that:-
- Company cannot be held liable for the acts of its Directors and
- Directors cannot be held responsible for the act of company as the Letter of Pledge dated 7th March, 2000 was executed in favour of Accused No.1-company. He inter-alia contended that, none of the accused persons herein have committed any offence as alleged by the complainant.
He submitted that, the present complaint is filed in February, 2011 for the alleged offence which took place in the year 2001 and therefore it is hit by delay. He submitted that, before issuing the Order dated 22nd March 2017, thereby issuing process against the accused, the learned 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 of 2020 filed by the accused be allowed and the Petitions filed by the complainant may be dismissed summarily.
The learned counsel for the complainant vehemently opposed the Petitions filed by the accused. He submitted that, in view of the specific allegation of the complainant of cheating as contemplated 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 the present complaint has been properly explained by the witnesses of the complainant namely Shri. Bhupendra R. Pitale and Shri. Ramesh S. Pilani while recording their verification statement dated 9th February, 2016 and evidence after verification dated 12th July, 2016 respectively. He submitted that, the facts in the present case are so complex and interwoven that the dishonest intention of the accused can be derived at the time of trial only. That the legitimate prosecution initiated by the complainant should not be scuttled at its inception.
Courts Observation & Judgment
The HC observed, “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.”
The bench noted, “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 Bench asserted, “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.”
The court hence asserted that the accused has committed a criminal breach of trust and deceived the complainant, and has committed the act of cheating against it.
The bench remarked, “In view of disposal of Writ Petition Nos.127 to 130 of 2020 filed by the complainant, Interim Application Nos.220 to 223 of 2020 filed therein, do not survive and are accordingly disposed off.”
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SOURCE ; .latestlaws.com
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