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Orissa High Court · body

2017 DIGILAW 588 (ORI)

MAHESH SHARMA v. SAGU INDIA HOLDINGS LTD.

2017-05-16

B.K.NAYAK

body2017
JUDGMENT : B. K. Nayak, J. - Petitioners in both the CRLMCs have been implicated as accused persons in 1CC Case No. 26 of 2014 of the Court of the J.M.F.C., Barbil. They challenge the order dated 04.08.2014 passed by the learned J.M.F.C., Barbil in the said complaint case taking cognizance of offences under Sections 418/ 420/34 of IPC and also the order dated 27.12.2014 passed by the learned Additional Sessions Judge, Champus in Criminal Revision No. 12 of 2014 confirming the said order of cognizance. Since both the CRLMCs involve the very same impugned orders, they were heard analogously and are being disposed of by this common judgment. Facts of the case : 2. The complainant, M/s. Sagu India Holdings Limited is a company incorporated under the laws of Mauritius, having its registered office at Multi-consult Limited, Rogers House, President John Kennedy Street, Port Louis, Mauritius and has its office at Raheja Chambers, Nariman Point, Mumbai. The accused persons in both the CRLMCs, namely, Mahesh Sharma and Mr. Ganesh Kumar Sharma and one Rajkumar Upadhyay are the share-holders of M/s. Ganesh Sponge Iron Limited, a company incorporated under the Companies Act, 1956, having is registered office at Joda, Keonjhar in the State of Odisha (herein after referred to as "the Company"). The petitioners and the other accused, Rajkumar Upadhyay are also the directors of two other companies, namely, M/s. Esskay Niwas Private Limited and M/s. Samsung Marketing Private Limited, both having their registered office at Durgapur, Block-L, New Alipore, Kolkata. M/s. Esskay Niwas Private Limited and M/s. Samsung Private Limited are also the shareholders of the Company, M/s. Ganesh Sponge Iron Private Limited. 3. It is alleged by the complainant company that the accused persons with mala fide intention approached and induced the complainant company to make investment in the Company, which is engaged in the business of manufacturing and producing all kinds of sponge iron and steel in the State of Odisha. The accused persons misrepresented several facts with regard to productivity and feasibility of the company and also about its assets, capacity and quality of products etc. The accused persons misrepresented several facts with regard to productivity and feasibility of the company and also about its assets, capacity and quality of products etc. Accused Mahesh Sharma also represented the representative of the complainant company, namely, Deepak Chawla that his late father had applied for mining lease over 1301 hectares in village Deojhar in Keonjhar District and was assured that the lease would be granted in his favour and also a false representation was given by Mahesh Sharma that he had bought two mines having substantial productivity and it was later discovered that their licenses had expired. There was also mis-representation about the valuation of the company and its shares, which was intended to deceive the complainant. Believing the representations in good faith the complainant agreed for making investment in the Company and entered into an Investment Agreement dated 27.07.2011 and Share-holders Agreement dated 27.07.2011. The accused had also represented that with a view to sell a portion of their holdings in the Company to the complaint they have got necessary resolutions from their respective Board of Directors in accordance with their respective articles of association. The accused executed the Agreements on behalf of the Company and other shareholders including on behalf of M/s. Esskay and M/s. Samsung by representing that they have authorization from their shareholders. 4. As per the Agreements executed between the parties, the complainant agreed to acquire majority equity interest and voting rights by way of purchasing a portion of holdings and by making primary investments into the share capital of the Company, as per the terms and conditions and in the manner set out in the Agreements dated 27.07.2011. 5. The further allegations are that the agreements contemplated that the complainant would acquire shares representing in aggregate 56.47% of the issued share capital of the Company for a total consideration of Rs. 48,00,07,999/-(Rupees Forty-Eight Crores Seven Thousand Nine Hundred Ninety-Nine only) within 360 days from the date of execution of the said Agreements in three tranche's as follows: (a) Purchase of 1130000 shares owned by Esskay and Samsung in the company representing in aggregate 10.65% of total share holding for a total consideration of Rs. 5,00,59,000/- (Rupees Five Crore Fifty-nine Thousand only); (b) Purchase of further 1127520 shares owned by Esskay and Samsung in the Company representing in aggregate 10.63% for a total consideration of Rs. 5,00,59,000/- (Rupees Five Crore Fifty-nine Thousand only); (b) Purchase of further 1127520 shares owned by Esskay and Samsung in the Company representing in aggregate 10.63% for a total consideration of Rs. 4,99,49,136/- (Rupees Four Crore Ninety-Nine Lakhs Forty-Nine Thousand One Hundred Thirty-Six only); (c) Subscribing to 8577875 shares of the company representing in aggregate 44.71% shares for a total consideration of Rs. 37,99,99,863/- (Rupees Thirty-Seven Crore Ninety-Nine Lakh Ninety-Nine Thousand Eight Hundred Sixty-Three only). It is alleged that in terms of the Agreements the complainant paid USD 1113411.92 equivalent to Rs. 50059000/- (Rupees Five Crore Fifty-Nine Thousand only) to Esskay and Samsung for purchase of 1130000 shares owned by Esskay and Samsung in the Company in the first tranche. The above amount was paid on 10th August, 2011 by way of transfer through RTGS to the accounts of Esskay and Samsung against the sale shares. It is alleged that after receipt of the said payment from the complainant, the accused were under obligation to carryout necessary formalities under the applicable laws in terms of the Agreements by completing transfer and sale of shares in favour of the complainant and necessary entries were required to be made in the register of members of the company by inserting the name of the complainant as the sole legal and beneficial owner of the subscription shares. It was further stipulated in the said Agreements that the accused shall carryout all corporate, secretarial and statutory filings and entries in statutory registers, those are required to be done towards completion of the transaction to the satisfaction of the complainant and in accordance with the applicable law. It was alleged that Clause 4.4 of the Investment Agreement stipulates that the accused shall file a form FC-TRS in relation to the purchase of the relevant number of the sale shares by the complainant from the accused along with all necessary documents required for the purpose of effective filing of such form FC-TRS. It is alleged that the accused failed to do the needful as to filling of form FC-TRS in spite of having the part consideration in terms of the said agreement. 6. It is alleged that the accused failed to do the needful as to filling of form FC-TRS in spite of having the part consideration in terms of the said agreement. 6. It is alleged that having realized the moneys to the accounts of M/s. Esskay and M/s. Samsung towards their share holdings in the company and even after passage of more than two years of such payment, the said shares have not been transferred nor have they been registered in favour of the complainant. The non-performance of the obligations by the accused persons even after receipt of the money towards the first tranche demonstrates the mala fide and criminal intention of the accused persons to deceive the complainant. It is further alleged that the accused also received financial assistance of approximately Rs. 7,00,00,000/- (Rupees Seven Crore only) from M/s. Indus Resources Private Limited (now known as 'Simec' Indus Resources Private Limited), then a sister concern of the complainant against promissory notes issued by them for the purpose of working capital. The said financial assistance has also been paid back, which itself suggests the fraudulent intention of the accused. 7. It is stated that the complainant having no option left, filed winding of petition under Sections 433/434 of the Company Act, 1956 which is pending adjudication in the Orissa High Court vide Company Petition No. 24 of 2012, wherein the Court was pleased to pass interim order in favour of the creditor-complainant restricting the Company to dispose of any move-able and/or immovable property of the company. The complainant's notice dated 17th February, 2012 issued through their advocates and siplicitor's to the accused calling upon the effect and perfect the transfer and register the sale shares in favour of the complainant and simply with all obligations of the accused towards completion of the sale transaction, was replied with vague and incorrect statements contrary to the letter and spirit of the Agreements dated 27.07.2011 refusing transfer of shares or refund of consideration which they have received. 8. It was further alleged that the accused, in collusion with M/s. Weird Industries Limited cheated the complainant and entered into an alleged agreement dated 01.04.2012 with the said M/s. Weird Industries Limited, thereby transferring its 60% share holding in the company to Weird Industries Limited and its associate companies and directors. 9. 8. It was further alleged that the accused, in collusion with M/s. Weird Industries Limited cheated the complainant and entered into an alleged agreement dated 01.04.2012 with the said M/s. Weird Industries Limited, thereby transferring its 60% share holding in the company to Weird Industries Limited and its associate companies and directors. 9. Further allegations are that the complainant filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 in the Court of the District Judge, Keonjhar praying for interim reliefs pending arbitration proceedings and the said Court passed order on 28.07.2012 inter alia restraining the accused from transferring or selling the shares and ownership in the company in any manner. The complainant, as per the terms of the Agreements filed Arbitration Petition No. 10 of 2014 before the Hon'ble Supreme Court of India in which notices have been issued to the accused persons. 10. On the allegations as aforesaid, the complainant lodged an F.I.R. in September, 2012 in Bamebari Police Station, but the Officer-in-Charge of the PS. refused to accept the same, whereupon the complainant preferred criminal writ petition No. 137 of 2013 in the Hon'ble High Court of Orissa and by order dated 11.02.2013 the High Court directed the Superintendent of Police to do the needful. In compliance of such order the police authority advised the complainant to submit the complaint which was again filed by the complainant through its authorised representative in the concerned police station, which was registered as F.I.R. No. 37(5) dated 07.03.2013. The investigating agency without conduct^ proper investigation filed report under Section 173, Cr.P.C. on 31.12.2013 with the observation that the complaint was filed under mistake of law, where after the complainant filed a protest petition before the concerned Magistrate which was treated as complaint and registered as 1CC No. 26 of 2014 and after inquiry the learned J.M.F.C., Barbil took cognizance of offences under Sections 418/420/34 of the I.PC. by his order dated 04.08 2014 and issued summons to the accused persons. The accused persons filed Criminal Revision No. 12 of 2014 before the Additional Sessions Judge, Champua challenging the said order of cognizance which was dismissed by order dated 27.12.2014. Contentions: 11. It was submitted by the learned counsel for the petitioners that the facts alleged by the complainant in the complaint petition do not make out prima facie offences under Sections 418/420 of the IPC. Contentions: 11. It was submitted by the learned counsel for the petitioners that the facts alleged by the complainant in the complaint petition do not make out prima facie offences under Sections 418/420 of the IPC. It was submitted that the dispute between the parties is purely civil n nature arising out of contractual relations created on the execution of the Agreements dated 27.07.2011, and, therefore, no offence can be said to have been made out. It was further submitted that the Agreements provide for resolution of disputes between the parties arising out of the Agreements by arbitration and admittedly the complainant has resorted to the arbitration clause and filed arbitration petition in the Hon'ble Supreme Court and the dispute has already been referred to arbitration by an Hon'ble former Judge of the Supreme Court, which is pending and therefore no prosecution against the petitioners would lie. The further submission was that as per the terms of the Agreements between the parties and the applicable law with regard to foreign investment in India, the complainant, a foreign company, had to file Form FC-TRS in relation to the transaction of sale and purchase of shares of the company and the complainant having not filed the said orm, the accused persons are not responsible for non-performance of the sale of shares of the Company. 12. The learned counsel for the Opposite Party-complainant contended that the dispute between the parties is not purely civil in nature, and even though civil remedy is available, or that as per terms of the Agreements between the parties, the dispute is arbitral, the facts alleged in the protest petition clearly make out false and fraudulent representations and inducements given by the accused persons to the complainant with regard to the productivity and feasibility of the Company and its assets, capacity and quality of products and about its ownership over some mines which are intended to deceive the complainant and that on such representations and inducements the complainant was made to pay USD 1113411.92 equivalent to Rs. 5,00,59,000/- (Rupees Five Crore Fifty-Nine Thousand only) towards the first tranche acquisition of shares of the Company, but the shares were not transferred. 5,00,59,000/- (Rupees Five Crore Fifty-Nine Thousand only) towards the first tranche acquisition of shares of the Company, but the shares were not transferred. It was also submitted that in spite of the Agreements for sale of shares of the Company to the complainant and having received the money as aforesaid from the complainant, the accused persons sold sharers of the company to M/s. Weird Industries Limited for lesser price and this also goes to indicate that the accused persons had the intention to cheat the complainant. The further contention of the learned counsel for the complainant is that as per Clause 4.4 of the Investment Agreement it is the accused persons who are required to file Form FC-TRS in relation to the purchase of the shares of the Company by the complainant and that the accused not having filed such Form, they had the clear intention to cheat the complainant. Therefore, the learned J.M.F.C., Barbil has rightly taken cognizance of offences under Sections 418/420/34, IPC which does not suffer from any legal infirmity. Discussion: 13. Every breach of contract may not result in a penal offence of cheating unless there is evidence of a mental act of fraudulent or dishonest inducement of a person by deceiving him. In the case of S. W. Palanitkar and others v. State of Bihar and another (2002) 1 SCC 241 , while considering the scope of a civil wrong vis-a-vis criminal offences of criminal breach of trust and cheating, the Supreme Court held as follows : "9. Before examining respective contentions on their relative merits, we think it is appropriate to notice the legal position. Every breach of trust may not result in a penal offence of criminal breach of trust unless there is evidence of a mental act of fraudulent misappropriation. An act of breach of trust involves a civil wrong in respect of which the persons wronged may seek his redress for damages in a Civil Court but a breach of trust with mens rea gives rikse to a criminal prosecution as well." "11. An act of breach of trust involves a civil wrong in respect of which the persons wronged may seek his redress for damages in a Civil Court but a breach of trust with mens rea gives rikse to a criminal prosecution as well." "11. The ingredients of an offence of cheating are : (i) there should be fraudulent or dishonest inducement of a person by deceiving him, (ii)(a) the persons so deceived should be induced to deliver any property to any persons, or to consent that any persons shall retain any property; or (b) the person so deceived should be intentionally induced to do or omit to do anything which he would not do or omit u 'he were not so deceived; and (iii) in cases covered by (ii) (b), the act of omission should be one which causes or is likely to cause damage or harm to the persons induced in body, mind, reputation or property." "12. One of us (D. P. Mohapatra, J.) speaking for the Bench, in Haridaya Ranjan Prasad Verma & Ors. v. State of Bihar and Anr., 2000 CriLJ 2983 on facts of that case, has expressed thus - In determining the question it has to be kept in mind that the distinction between mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time of inducement which may be judged by his subsequent conduct but for this subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed. Therefore, it is the intention which is gist of the offence. To hold a persons guilty of cheating it is necessary to show that he has fraudulent or dishonest intention at the time of making the promise. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed." 14. To hold a persons guilty of cheating it is necessary to show that he has fraudulent or dishonest intention at the time of making the promise. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed." 14. The question whether existence of arbitration clause in the agreement disentitle a party to the agreement from initiating criminal prosecution against the party committing the breach, the Hon'ble Supreme Court took note of the observations made by it in Trisuns Chemicals Industry v. Rajesh Agarwaland others : 1999 CriLJ 4325 in the aforesaid case of S. W. Palantikar and others (supra) and held as follows : "15. In Trisuns Chemicals Industry v. Rajesh Agarwal & Ors., (1999) CriLJ 4325 dealing with the effect of existence of arbitration clause in the agreement on criminal prosecution on the ground that civil proceedings are also maintainable, this Court has held that quashing of F.I.R. or a complaint exercising power, under Section 482, Cr.P.C. should be limited to a very extreme exception merely because an act has a civil' profile is not enough to stop action on the criminal side. It is further held that a provision made in the agreement for referring the disputes to arbitration is not an effective substitute for a criminal prosecution when the disputed act constitutes a criminal offence." 15. It is thus clear that a breach of contract though gives rise to a civil remedy, or where as per the term of the contract the dispute is arbitral and the party resorts to arbitration, a criminal prosecution for the offence of cheating is still maintainable if the ingredients of the said offence are made out. Conclusion : 16. In the instant case, apart from the allegations made in the protest petition, during inquiry under Section 202, Cr.P.C. before the J.M.PC., Barbil the complainant apart from the oral statements of witnesses in support of the allegations, relied on several documents including the Investment Agreement and the Share-holders Agreement dated 27.07.2011 between the parties, document with regard to remittance of the money towards the first tranche sale of shares, legal notices and the copy of shareholding agreement dated 01.04.2012 entered into by the accused with Weired Industries. On consideration of such materials the learned J.M.F.C. came to the conclusion about prima facie commission of offences under Sections 418/420/34, IPC by the accused persons. 17. The execution of the Investment Agreement and the Shareholders Agreement dated 27.07.2011 between the parties is not disputed. The receipt by the accused persons of Rs. 5,00,59,000/- (Rupees Five Crore-Fifty Nine Thousand only) on behalf of M/s. Esskay and M/s. Samsung towards sale of shares held by them in the Company is also not disputed. Clause 4.4 of the Investment Agreement dated 27.07.2011 executed between the parties stipulates that on the first completion date and on the second completion date, or as soon reasonably thereafter (from such completion dates) as possible, the sellers shall file a Form FC-TRS in relation to the purchase of the relevant number of the sale of shares by the investor from each seller along with all necessary documents required for the purposes of effective filing of such Form FC-TRS in accordance with the applicable law, which admittedly the accused petitioners as sellers have not bone. Whether the further requirement of the aforesaid Clause 4.4 of the Investment Agreement that the purchaser of the sale shares shall assist the seller, was satisfied by the purchaser-complainant or not, is a matter which has to be considered only at the time of trial and not at the stage of taking cognizance. The materials on record also indicate that even after receipt of the aforesaid Rs. 5,00,59,000/- (Rupees Five Crore Fifty-Nine Thousand only) from the complainant the accused persons did not take further steps for transfer of shares of the Company, but on the other hand sold shares of the company to Weired Industries, without terminating the agreement with the complainant and not returning the money so paid by it. Thus the allegations and the materials on record prima facie indicate the fraudulent inducement and representations given by the accused persons to the complainant with intention to deceive. 18. On the aforesaid analysis this Court comes to the conclusion that the impugned order of cognizance of offences under Sections 418/420/34, IPC passed by the learned J.M.F.C., Barbil and the revisional order of the learned Additional Sessions Judge, Champua confirming the same, do not suffer from any legal infirmity so as to be interfered with. 18. On the aforesaid analysis this Court comes to the conclusion that the impugned order of cognizance of offences under Sections 418/420/34, IPC passed by the learned J.M.F.C., Barbil and the revisional order of the learned Additional Sessions Judge, Champua confirming the same, do not suffer from any legal infirmity so as to be interfered with. Therefore, the mere invocation by the complainant of the arbitration clause in the Agreements cannot be a ground to quash the said order of cognizance. 19. Learned Counsel for the petitioners relied on some decisions of the Hon'ble Supreme Court with regard to the scope and ambit of the inherent power of the High Court under Sections 482, Cr. P.C. for quashing a criminal prosecution or order of cognizance, which are not very much relevant since they do not deal with cases identical to the facts of the instant case. 20. Therefore, I find no merit in these applications and accordingly the CRLMCs are dismissed. Final Result : Dismissed