REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1213 OF 2016
(Arising out of S.L.P.(Crl.) No.1913 of 2012)
HDFC Securities Ltd. & Ors ... Appellants
:Versus:
State of Maharashtra & Anr. ... Respondents
J U D G M E N T
Pinaki Chandra Ghose, J.
Leave granted.
This appeal has been filed assailing the judgment and order dated 16th
November, 2011, passed by the High Court of Judicature at Bombay in
Criminal Writ Petition No.672 of 2011, whereby the writ petitions filed by
the appellants were dismissed by the High Court on the ground that the
filing of the writ petition was premature and there was no need for
exercising the powers either under Article 227 of the Constitution of India
or under Section 482 Cr.P.C.
Brief facts of the case are as follows: appellant No.1 - HDFC Securities
Ltd., is a public liability company (hereinafter referred to as “the
Company” for short), appellant No.2 is the Managing Director of the
Company, appellant No.3 is Business Head of the Company, and appellant No.4
is the Regional head of Mumbai Region of the Company, respectively.
Respondent No.1 is State of Maharashtra and respondent No.2 is an
individual, who held an account with the Company. The Company is engaged in
the business of dealing in shares and securities on behalf of its
constituents and clients on Brokerage Charge and it is also a member of
National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange of
India Limited (BSE).
Respondent No.2, had registered herself with the Company as a
constituent/client by opening Securities Trading Account vide No.342889 and
was an imperial customer of the Company for about eight years. She executed
a Member-Client Agreement dated 28th June, 2005. On 3rd August, 2009,
respondent No.2, through a legal Notice dated 03.08.2009, requested the
appellants to make good the losses caused to her by indulging in
unauthorized and fraudulent trading in her account by one Vinod Koper
(Relationship Manager of the company-”RM” in short) during the period July,
2008 to June, 2009. This Notice was also sent to RM and one Rohan Raut,
Assistant Vice President of the Company, on 20th October, 2009. Thereafter,
she filed arbitration proceedings before NSE Panel of Arbitrators against
the Company for a sum of Rs.48.99 Lacs and costs of Rs.2.5 Lacs, and chose
the Arbitrators of her choice, being two retired High Court Judges and
sought to call RM as a witness. The Arbitrators passed an award in favour
of the Company on 18th August, 2010, recording a shift in the stand of
respondent No.2, authorizing her husband to trade on her behalf. In the
meantime, as the Police did not take cognizance of the matter, albeit she
filed a complaint on 31st march, 2010, against the appellants, RM and AVP,
on 10th June, 2010, she also filed a criminal complaint under Section
156(3) of the Code of Criminal Procedure, 1973 (hereinafter referred to as
Cr.P.C.) before 10th Metropolitan Magistrate, Andheri, bearing Case
No.143/2010, alleging execution of unauthorized trades in her account
without her consent by the appellants and claimed that she had thereby
suffered losses amounting to Rs.70 Lacs. Specific allegations were levelled
against RM and appellant No.3 as she was introduced to RM by appellant No.3
and was told that RM would handle her investment portfolio honestly and
efficiently with her prior instructions. General allegations of involvement
of other appellants were made. On 25th September, 2010, she preferred an
appeal before NSE Appellate Panel of Arbitrators, being Arbitration REF
No.CM/M-213/2009, wherein she disputed the trades which had taken place
during the period December 2008 to April 2009. Being completely oblivious
of the Arbitration proceedings, the award passed therein and the appeal
preferred by respondent No.2, on 04.01.2011, the learned Metropolitan
Magistrate directed registration of FIR against the appellants and ordered
for a report after investigation.
Pursuant to the order of the learned Metropolitan Magistrate dated
4.01.2011, Juhu Police Station registered the FIR, being MECR No.7 of 2011
dated 30th January, 2011, under Sections 409, 420, 465, 467 read with
Sections 34 and 120-B of the IPC. Meanwhile, the Appellate Tribunal had
decided the appeal against respondent No.2, vide its Award dated 24th
January, 2011. The Appellate tribunal found that respondent No.2 had not
denied the fact of having received all the necessary documents, including
Contract notes, etc. with regard to the transactions undertaken by the
appellants on her behalf, which were required to be issued by the trading
member to the investor immediately after the trade is undertaken.
Thereafter, the appellants filed a writ petition before the Bombay High
Court, being Criminal Writ Petition No.672 of 2011, inter alia praying for
quashing of the said FIR and the same prayer was also made in Criminal Writ
Petition No.767 of 2011, filed by RM before the High Court. The High Court
by its judgment dated 16.11.2011, dismissed both the writ petitions as
according to it, the filing of the writ petitions was premature and there
was no need for exercising the powers either under Article 227 of the
Constitution of India or under Section 482 Cr.P.C. Aggrieved by the
aforesaid judgment of the High Court, the appellants have approached this
Court by filing this appeal by special leave.
The only question that arises for decision in this appeal is whether the
order dated 04.01.2011 passed by the Court of 10th Metropolitan Magistrate,
Andheri, in Private Complaint, C.C. No.143/Misc/2010, filed by respondent
No.2 for the offences punishable under Sections 409, 420, 465, 467 read
with Sections 34, 120(B) IPC, as well as FIR bearing MECR No.7 of 2011
dated 30th January, 2011, registered at Police Station, Juhu, District
Mumbai, are liable to be quashed.
In order to answer this question, it is necessary to first set out the
relevant provisions i.e. Sections 156 and 482 of the Code of Criminal
Procedure, 1973:
“156. Police officer's power to investigate cognizable case.
(1) Any officer in charge of a police station may, without the order of a
Magistrate, investigate any cognizable case which a Court having
jurisdiction over the local area within the limits of such station would
have power to inquire into or try under the provisions of Chapter XIII.
(2) No proceeding of a police officer in any such case shall at any stage
be called in question on the ground that the case was one which such
officer was not empowered under this section to investigate.
(3) Any Magistrate empowered under Section 190 may order such an
investigation as above- mentioned.”
“482. Saving of inherent power of High Court.-
Nothing in this code shall be deemed to limit or effect the inherent powers
of the High Court to make such orders as may be necessary to give effect to
any order under this Code, or to prevent abuse of process of any Court or
otherwise to secure the ends of justice.”
The High Court dismissed the application filed by the appellants for
quashing and setting aside the order of the Metropolitan Magistrate dated
4th January, 2011, on the ground that the appellants had applied before the
stage of issuance of process so to be issued by the Metropolitan Magistrate
under Section 156(3) of the Criminal Procedure Code. According to the
appellants, the fundamental rights of the appellants would be compromised
if the order so passed by the Magistrate is allowed to be given effect to.
The contention before the High Court on this question is that the order so
passed by the Metropolitan Magistrate is illegal and amounts to abuse of
the process of law. On the contrary, before the High Court it was
submitted on behalf of respondent No.2 that an order under Section 156(3)
of Criminal Procedure Code requiring investigation by the police does not
cause any injury of irreparable nature which requires quashing of the
investigation. It is further stated that the stage of cognizance would
arise after the investigation report is filed. Therefore, the application
filed by the appellants before the High Court is nothing but prematured and
thus there is no need for exercising the powers of the High Court either
under Article 227 of the Constitution of India or under Section 482 of the
Code. Further contention of the respondent before the High Court was that
the inherent powers under Section 482 of the Code should be sparingly used.
The High Court held that the direction given to the police by the
Magistrate under Section 156(3) of the Code for carrying out the
investigation into the complaint and to submit a report, cannot give a
right to the appellants for quashing the same since such an order would be
based absolutely on speculations upon the report not filed. Further, it
would result in prejudging the complaint. In these circumstances, the High
Court dismissed the said application.
Dr. Abhishek Singhvi, learned senior counsel appearing on behalf of the
appellants submitted that the initiation of proceedings in the instant case
is an abuse of process of law and is liable to be quashed. He argued that
it is a settled principle that summoning of an accused in a criminal case
is a serious matter and the criminal law cannot be set in motion as a
matter of course. Therefore, the order of the magistrate must reflect
application of mind to the facts of the case and the law applicable
thereto. In support of this submission, the learned counsel has relied
upon Anil Kumar Vs. M. K. Aiyappa, (2013) 10 SCC 705, paragraph 11, of
which is quoted below:
“11. The scope of Section 156(3) CrPC came up for consideration before this
Court in several cases. This Court in Maksud Saiyed case examined the
requirement of the application of mind by the Magistrate before exercising
jurisdiction under Section 156(3) and held that where jurisdiction is
exercised on a complaint filed in terms of Section 156(3) or Section 200
CrPC, the Magistrate is required to apply his mind, in such a case, the
Special Judge/Magistrate cannot refer the matter under Section 156(3)
against a public servant without a valid sanction order. The application of
mind by the Magistrate should be reflected in the order. The mere statement
that he has gone through the complaint, documents and heard the
complainant, as such, as reflected in the order, will not be sufficient.
After going through the complaint, documents and hearing the complainant,
what weighed with the Magistrate to order investigation under Section
156(3) CrPC, should be reflected in the order, though a detailed expression
of his views is neither required nor warranted. We have already extracted
the order passed by the learned Special Judge which, in our view, has
stated no reasons for ordering investigation.”
Learned Magistrate had passed an order on 04.01.2011 holding that:
“The bare reading of the complaint and the accompanying documents disclose
the cognizable offence. Therefore in view of the judgement of Hon’ble
Supreme Court in case of Srinivas Gunduri & Ors. vs. M. S. SEPCO Electric
Power Construction & Anr. In the matter of criminal appeal No.1377/2010 and
1378/2010 decided on 30.07.2010 when the complaint discloses a cognizable
offence, then the Magistrate instead of applying his mind to the complaint
for deciding whether or not there is sufficient ground for proceedings may
direct the police for investigation.
Therefore, considering all these aspects, the complaint discloses the
commission of cognizable offence. Therefore, considering the nature of
offence it needs to be sent to police for investigation under section
156(3) of CrPC.”
Dr. Abhishek Singhvi, learned senior counsel appearing on behalf of the
appellants has relied upon the following decisions of this Court to assail
the aforesaid order passed by the Magistrate: Devarapall Lakshminarayana
Vs. V. Narayana Reddy & Ors., (1976) 3 SCC 252, and Ram Dev Food Products
Pvt. Ltd. Vs. State of Gujrat, reported in (2015) 6 SCC 439.
Further, it was submitted by the learned counsel for the appellants that
there is no merit in the complainant’s (respondent No.2) contention that
the transactions from her trading account were unauthorized. Trading from
the complainant’s trading account were being carried out by her husband as
admitted by the complainant in the complaint made before the learned
Magistrate, and at the time of opening the trading account with appellant
No.1, she was made aware of all the risks involved and the complainant had
agreed to the same and understood that she would be responsible for all the
risks and consequences of entering into trades. The relevant clause of the
Agreement entered into by complainant is reproduced hereinbelow:
“2.11 The Client agrees and declares as follows: (i) The Client shall be
wholly responsible for all the investment decisions and trades of the
Client; (ii) The Client will pay receive applicable daily margins; (iii)
Payment of margins by the Client does not necessarily imply complete
satisfaction of all dues; (iv) In spite of consistent having paid margins,
the Client may, on the closing of his trade, be obliged to pay (or entitled
to receive) such further sums as the market price or an instrument of
contract may dictate; and (v) The failure of a Client to understand the
risk involved or the failure of the member to explain the risk to the
Client shall not render a contract as void or voidable and the Client shall
be and shall continue to be responsible for all the risks and consequences
for entering into trades in Derivatives.”
In the light of the Agreement entered into between complainant-respondent
No.2 and the appellants, the learned counsel for the appellants further
averred that criminal prosecution of the appellants could not be allowed to
continue because the criminal prosecution requires a much higher standard
of proof beyond reasonable doubt, whereas civil matters require lower
standard of proof - preponderance of probabilities. He drew our attention
towards a very recent pronouncement in the case of Lalitha Kumari Vs. Govt.
of Uttar Pradesh, reported in (2014) 2 SCC 1, wherein this Court held:
“Therefore, in view of various counter claims regarding registration or non-
registration, what is necessary is only that the information given to the
police must disclose the commission of a cognizable offence. In such a
situation, registration of an FIR is mandatory. However, if no cognizable
offence is made out in the information given, then the FIR need not be
registered immediately and perhaps the police can conduct a sort of
preliminary verification or inquiry for the limited purpose of ascertaining
as to whether a cognizable offence has been committed. But, if the
information given clearly mentions the commission of a cognizable offence,
there is no other option but to register an FIR forthwith. Other
considerations are not relevant at the stage of registration of FIR, such
as, whether the information is falsely given, whether the information is
genuine, whether the information is credible etc. These are the issues that
have to be verified during the investigation of the FIR. At the stage of
registration of FIR, what is to be seen is merely whether the information
given ex facie discloses the commission of a cognizable offence. If, after
investigation, the information given is found to be false, there is always
an option to prosecute the complainant for filing a false FIR.”
We are of the considered opinion that in the present case a fact finding
investigation was directed by the impugned order. Consequently, FIR was
registered against appellants No.2 to 4 and against RM (Vinod Kopar). The
accused under Indian Criminal Legal System, unless proved guilty shall
always be given a reasonable space and liberty to defend himself in
accordance with the law. Further, it is always expected from a person
accused of an offence pleading not guilty that he shall co-operate and
participate in criminal proceedings or proceedings of that nature before a
court of law, or other Tribunal before whom he may be accused of an
‘offence’ as defined in Section 3(38) of the General Clauses Act, i.e., an
act punishable under the Penal Code or any special or local law. At the
same time, courts, taking cognizance of the offence or conducting a trial
while issuing any order, are expected to apply their mind and the order
must be a well reasoned one.
Learned counsel for the appellants has further invited our attention to the
order of the High Court dismissing the writ petitions. According to the
learned counsel for the appellants, the High Court, relying upon the
decision of this Court in Iqbal Singh Marwah & Anr. Vs. Meenakshi Marwah &
Anr., (2005) 4 SCC 370 and Rukhmni Narvekar Vs. Vijya Statardekar and Ors.,
(2008) 14 SCC 1, found that there was no substance in the argument that
respondent No.2 ought to have disclosed the arbitration proceedings and the
outcome thereof in her complaint and that non-disclosure of the same
amounts to suppression of material facts. Learned counsel for the
appellants further submitted that the High Court failed to appreciate that
it was within its inherent jurisdiction under Section 482 Cr.P.C. to
consider the correspondence exchanged as well as the admitted documents
under the arbitration proceedings. In the case of All Cargo Movers (India)
(P.) Limited Vs. Dhanesh Badarwal Jain, (2007) 14 SCC 776, relied upon in
paragraph 17 thereof, it was held by this Court:
“We are of the opinion that the allegations made in the complaint petition,
even if given face value and taken to be correct in its entirety, do not
disclose an offence. For the said purpose, This Court may not only take
into consideration the admitted facts but it is also permissible to look
into the pleadings of the plaintiff-respondent No.1 in the suit. No
allegation whatsoever was made against the appellants herein in the notice.
What was contended was negligence and/or breach of contract on the part of
the carriers and their agent. Breach of contract simplicitor does not
constitute an offence. For the said purpose, allegations in the complaint
petition must disclose the necessary ingredients therefor. Where a civil
suit is pending and the complaint petition has been filed one year after
filing of the civil suit, we may for the purpose of finding out as to
whether the said allegations are prima facie cannot notice the
correspondences exchanged by the parties and other admitted documents. It
is one thing to say that the Court at this juncture would not consider the
defence of the accused but it is another thing to say that for exercising
the inherent jurisdiction of this Court, it is impermissible also to look
to the admitted documents. Criminal proceedings should not be encouraged,
when it is found to be mala fide or otherwise an abuse of the process of
the Court. Superior Courts while exercising this power should also strive
to serve the ends of justice.
Learned counsel for the appellants further relied upon few more judgments
wherein it was well settled that the test to be applied for quashing is,
whether uncontroverted allegations made, prima facie establish the offence.
This is because the Court cannot be utilized for any oblique purpose and
where, in the opinion of the Court, the chances of an ultimate conviction
are bleak, no useful purpose will be served by allowing the criminal
prosecution to continue. He relied upon the decisions of this Court in
Madhavrao Jiwanrao Scindia & Ors. Vs. Sambhajirao Chandrajirao Angre &
Ors., (1998) 1 SCC 692 (para 7-8); State of Haryana Vs. Bhajanlal, 1992
Supp (1) SCC 335 (para 102); Rajiv Thapar & Ors Vs. Madan Lal Kapoor,
(2013) 3 SCC 330 at para 30; Rishi Pal Singh Vs. State of Uttar Pradesh &
Anr. (2014) 7 SCC 215, at para 12-13.
Learned counsel for the respondents have not rebutted this issue in any of
his arguments. With the meticulous understanding of the orders of the
Courts below in the instant case, we can see that general and bald
allegations are made in the context of appellant No.1 who is a juristic
person and not a natural person. The Indian Penal Code, 1860, does not
provide for vicarious liability for any offence alleged to be committed by
a company. If and when a statue contemplates creation of such a legal
fiction, it provides specifically therefor, e.g. Negotiable Instruments
Act, 1881. Further, reliance was made on S.K. Alagh Vs. State of Uttar
Pradesh & Ors., reported in (2008) 5 SCC 662, where at paragraph 16, this
Court observed that “Indian Penal Code, save and except some provisions
specifically providing therefor, does not contemplate any vicarious
liability on the part of a party who is not charged directly for commission
of an offence.” Further in Maksud Saiyed Vs. State of Gujrat & Ors.,
reported in (2008) 5 SCC 668, at paragraph 13, this Court observed that
where a jurisdiction is exercised on a complaint petition filed in terms
of Section 156(3) or Section 200 of the Code of Criminal Procedure, the
Magistrate is required to apply his mind. Indian Penal Code does not
contain any provision for attaching vicarious liability on the part of the
Managing Director or the Directors of the Company when the accused is the
Company. The Learned Magistrate failed to pose unto himself the correct
question viz. as to whether the complaint petition, even if given face
value and taken to be correct in its entirety, would lead to the conclusion
that the respondents herein were personally liable for any offence. The
Bank is a body corporate. Vicarious liability of the Managing Director and
Director would arise provided any provision exists in that behalf in the
statute. Statutes indisputably must contain provision fixing such vicarious
liability. Even for the said purpose, it is obligatory on the part of the
complainant to make requisite allegations which would attract the
provisions constituting vicarious liability. In Thermax Limited & Ors. Vs.
K. M. Johny & Ors., (2011) 13 SCC 412, and in Sunil Bharti Mittal Vs.
Central Bureau of Investigation, (2015) 4 SCC 609, at para 39, this Court
held:
“Apart from the fact that the complaint lacks necessary ingredients
of Sections 405, 406, 420 read with Section 34 IPC, it is to be noted that
the concept of `vicarious liability' is unknown to criminal law. As
observed earlier, there is no specific allegation made against any person
but the members of the Board and senior executives are joined as the
persons looking after the management and business of the appellant-
Company”.
Learned counsel for the appellants has lastly argued in favour of the
partial quashment of the FIR against the appellants on the contention that
there was no criminality on their behalf. It has been further submitted
that the allegations made against them do not amount to disclosure of an
offence and were made with the purpose of harassing the appellants.
Additionally, learned counsel contends that vicarious liability cannot be
attributed to appellant Nos.2 to 4, while relying upon R. Kalyani Vs. Janak
C. Mehta & Ors., (2009) 1 SCC 516, wherein it was held:
“Whereas, thus, no allegation whatsoever has been made against the
respondent No.1, the only allegation against the respondent No.2 was that
he had forwarded the said letter dated 10.1.2002 to National Stock
Exchange. The act of forgery on/or fabrication of the said letter had been
attributed to Respondent No.3.
Respondent Nos.1 and 2 herein were sought to be proceeded against on the
premise that they are vicariously liable for the affairs of the company.
As Mr. Mani had time and again referred to the allegations relating to
forgery of the said document dated 10.1.2002, we may also notice a
disturbing fact. Before lodging the said First Information, a notice was
issued by the appellant against the respondents herein on 15.10.2002,
whereas the address of respondent Nos.1 and 2 were shown as 404, Embassy
Centre, Nariman Point, Mumbai - 400 021 and 302, Veena Chambers, 21, Dalal
Street, Fort, Mumbai - 400 001 respectively. However, in the complaint
petition, they were shown to be residents of Chennai”.
In Sharad Kumar Sanghi Vs. Sangta Rane, reported in (2015) 12 SCC 781 (para
9-11) it is noted by this Court:
“The allegations which find place against the Managing Director in his
personal capacity seem to be absolutely vague. When a complainant intends
to rope in a Managing Director or any officer of a company, it is essential
to make requisite allegation to constitute the vicarious liability.”
Per contra, learned counsel for respondent No.2 submitted that the
complaint has disclosed the commission of an offence which is cognizable in
nature and in the light of Lalitha Kumari’s Case, (supra), registration of
FIR becomes mandatory. We observe that it is clear from the use of the
words "may take cognizance" in the context in which they occur, that the
same cannot be equated with "must take cognizance". The word "may" gives
discretion to the Magistrate in the matter. If on a reading of the
complaint he finds that the allegations therein disclose a cognizable
offence and that the forwarding of the complaint to the police for
investigation under Section 156(3) will be conducive to justice and save
the valuable time of the Magistrate from being wasted in enquiring into a
matter, which was primarily the duty of the police to investigate, he will
be justified in adopting that course as an alternative to taking cognizance
of the offence, himself. It is settled that when a Magistrate receives a
complaint, he is not bound to take cognizance if the facts alleged in the
complaint, do not disclose the commission of an offence.
Learned counsel for the respondents further submitted that there is a
marked difference between the civil nature of the arbitration proceedings
and the Criminal nature of the current proceedings and relieving the RM on
the same day when he had tendered his resignation reflects the conduct
whereby conspiracy could be proved. It was further argued that respondent
No.2 has also sent the legal notice requesting for making good the losses
caused to her by the appellants of which Criminal Court and the Arbitration
Tribunal took notice of. Thus, allegations were already made against all
the appellants. We find no substance in the said submission being
completely opposed to the settled legal principles. Nevertheless, we find
patent illegalities which would result in vitiating the entire
investigation which would result in miscarriage of justice.
Mr. Basava Prabhu Patil, learned senior counsel appearing on behalf of
respondent No.2 submitted that respondent No.2 in her complaint had set
out the conduct of the appellants and alleged that their conduct had caused
wrongful loss to her and wrongful gain to the appellants and other accused.
It is a fact that at the time of summoning of the accused, the Courts must
be careful to scrutinize the evidence brought on record and in elicitation
of answers to find out the truthfulness of the allegations.
It appears to us that the appellants approached the High Court even before
the stage of issuance of process. In particular, the appellants challenged
the order dated 04.01.2011 passed by the learned Magistrate under Section
156(3) of Cr.P.C. The learned counsel appearing on behalf of the appellants
after summarizing their arguments in the matter have emphasized also in the
context of the fundamental rights of the appellants under the Constitution,
that the order impugned has caused grave inequities to the appellants. In
the circumstances, it was submitted that the order is illegal and is an
abuse of the process of law. However, it appears to us that this order
under Section 156(3) of Cr.P.C. requiring investigation by the police,
cannot be said to have caused an injury of irreparable nature which, at
this stage, requires quashing of the investigation. We must keep in our
mind that the stage of cognizance would arise only after the investigation
report is filed before the Magistrate. Therefore, in our opinion, at this
stage the High Court has correctly assessed the facts and the law in this
situation and held that filing of the petitions under Article 227 of the
Constitution of India or under Section 482 of Cr.P.C., at this stage are
nothing but premature. Further, in our opinion, the High Court correctly
came to the conclusion that the inherent powers of the Court under Section
482 of Cr.P.C. should be sparingly used. In these circumstances, we do not
find that there is any flaw in the impugned order or any illegality has
been committed by the High Court in dismissing the petitions filed by the
appellants before the High Court. Accordingly, we affirm the order so
passed by the High Court dismissing the writ petitions. The appeal is
dismissed.
………………………………….J
(Pinaki Chandra Ghose)
………………………………….J
(Amitava Roy)
New Delhi;
December 9, 2016.
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1213 OF 2016
(Arising out of S.L.P.(Crl.) No.1913 of 2012)
HDFC Securities Ltd. & Ors ... Appellants
:Versus:
State of Maharashtra & Anr. ... Respondents
J U D G M E N T
Pinaki Chandra Ghose, J.
Leave granted.
This appeal has been filed assailing the judgment and order dated 16th
November, 2011, passed by the High Court of Judicature at Bombay in
Criminal Writ Petition No.672 of 2011, whereby the writ petitions filed by
the appellants were dismissed by the High Court on the ground that the
filing of the writ petition was premature and there was no need for
exercising the powers either under Article 227 of the Constitution of India
or under Section 482 Cr.P.C.
Brief facts of the case are as follows: appellant No.1 - HDFC Securities
Ltd., is a public liability company (hereinafter referred to as “the
Company” for short), appellant No.2 is the Managing Director of the
Company, appellant No.3 is Business Head of the Company, and appellant No.4
is the Regional head of Mumbai Region of the Company, respectively.
Respondent No.1 is State of Maharashtra and respondent No.2 is an
individual, who held an account with the Company. The Company is engaged in
the business of dealing in shares and securities on behalf of its
constituents and clients on Brokerage Charge and it is also a member of
National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange of
India Limited (BSE).
Respondent No.2, had registered herself with the Company as a
constituent/client by opening Securities Trading Account vide No.342889 and
was an imperial customer of the Company for about eight years. She executed
a Member-Client Agreement dated 28th June, 2005. On 3rd August, 2009,
respondent No.2, through a legal Notice dated 03.08.2009, requested the
appellants to make good the losses caused to her by indulging in
unauthorized and fraudulent trading in her account by one Vinod Koper
(Relationship Manager of the company-”RM” in short) during the period July,
2008 to June, 2009. This Notice was also sent to RM and one Rohan Raut,
Assistant Vice President of the Company, on 20th October, 2009. Thereafter,
she filed arbitration proceedings before NSE Panel of Arbitrators against
the Company for a sum of Rs.48.99 Lacs and costs of Rs.2.5 Lacs, and chose
the Arbitrators of her choice, being two retired High Court Judges and
sought to call RM as a witness. The Arbitrators passed an award in favour
of the Company on 18th August, 2010, recording a shift in the stand of
respondent No.2, authorizing her husband to trade on her behalf. In the
meantime, as the Police did not take cognizance of the matter, albeit she
filed a complaint on 31st march, 2010, against the appellants, RM and AVP,
on 10th June, 2010, she also filed a criminal complaint under Section
156(3) of the Code of Criminal Procedure, 1973 (hereinafter referred to as
Cr.P.C.) before 10th Metropolitan Magistrate, Andheri, bearing Case
No.143/2010, alleging execution of unauthorized trades in her account
without her consent by the appellants and claimed that she had thereby
suffered losses amounting to Rs.70 Lacs. Specific allegations were levelled
against RM and appellant No.3 as she was introduced to RM by appellant No.3
and was told that RM would handle her investment portfolio honestly and
efficiently with her prior instructions. General allegations of involvement
of other appellants were made. On 25th September, 2010, she preferred an
appeal before NSE Appellate Panel of Arbitrators, being Arbitration REF
No.CM/M-213/2009, wherein she disputed the trades which had taken place
during the period December 2008 to April 2009. Being completely oblivious
of the Arbitration proceedings, the award passed therein and the appeal
preferred by respondent No.2, on 04.01.2011, the learned Metropolitan
Magistrate directed registration of FIR against the appellants and ordered
for a report after investigation.
Pursuant to the order of the learned Metropolitan Magistrate dated
4.01.2011, Juhu Police Station registered the FIR, being MECR No.7 of 2011
dated 30th January, 2011, under Sections 409, 420, 465, 467 read with
Sections 34 and 120-B of the IPC. Meanwhile, the Appellate Tribunal had
decided the appeal against respondent No.2, vide its Award dated 24th
January, 2011. The Appellate tribunal found that respondent No.2 had not
denied the fact of having received all the necessary documents, including
Contract notes, etc. with regard to the transactions undertaken by the
appellants on her behalf, which were required to be issued by the trading
member to the investor immediately after the trade is undertaken.
Thereafter, the appellants filed a writ petition before the Bombay High
Court, being Criminal Writ Petition No.672 of 2011, inter alia praying for
quashing of the said FIR and the same prayer was also made in Criminal Writ
Petition No.767 of 2011, filed by RM before the High Court. The High Court
by its judgment dated 16.11.2011, dismissed both the writ petitions as
according to it, the filing of the writ petitions was premature and there
was no need for exercising the powers either under Article 227 of the
Constitution of India or under Section 482 Cr.P.C. Aggrieved by the
aforesaid judgment of the High Court, the appellants have approached this
Court by filing this appeal by special leave.
The only question that arises for decision in this appeal is whether the
order dated 04.01.2011 passed by the Court of 10th Metropolitan Magistrate,
Andheri, in Private Complaint, C.C. No.143/Misc/2010, filed by respondent
No.2 for the offences punishable under Sections 409, 420, 465, 467 read
with Sections 34, 120(B) IPC, as well as FIR bearing MECR No.7 of 2011
dated 30th January, 2011, registered at Police Station, Juhu, District
Mumbai, are liable to be quashed.
In order to answer this question, it is necessary to first set out the
relevant provisions i.e. Sections 156 and 482 of the Code of Criminal
Procedure, 1973:
“156. Police officer's power to investigate cognizable case.
(1) Any officer in charge of a police station may, without the order of a
Magistrate, investigate any cognizable case which a Court having
jurisdiction over the local area within the limits of such station would
have power to inquire into or try under the provisions of Chapter XIII.
(2) No proceeding of a police officer in any such case shall at any stage
be called in question on the ground that the case was one which such
officer was not empowered under this section to investigate.
(3) Any Magistrate empowered under Section 190 may order such an
investigation as above- mentioned.”
“482. Saving of inherent power of High Court.-
Nothing in this code shall be deemed to limit or effect the inherent powers
of the High Court to make such orders as may be necessary to give effect to
any order under this Code, or to prevent abuse of process of any Court or
otherwise to secure the ends of justice.”
The High Court dismissed the application filed by the appellants for
quashing and setting aside the order of the Metropolitan Magistrate dated
4th January, 2011, on the ground that the appellants had applied before the
stage of issuance of process so to be issued by the Metropolitan Magistrate
under Section 156(3) of the Criminal Procedure Code. According to the
appellants, the fundamental rights of the appellants would be compromised
if the order so passed by the Magistrate is allowed to be given effect to.
The contention before the High Court on this question is that the order so
passed by the Metropolitan Magistrate is illegal and amounts to abuse of
the process of law. On the contrary, before the High Court it was
submitted on behalf of respondent No.2 that an order under Section 156(3)
of Criminal Procedure Code requiring investigation by the police does not
cause any injury of irreparable nature which requires quashing of the
investigation. It is further stated that the stage of cognizance would
arise after the investigation report is filed. Therefore, the application
filed by the appellants before the High Court is nothing but prematured and
thus there is no need for exercising the powers of the High Court either
under Article 227 of the Constitution of India or under Section 482 of the
Code. Further contention of the respondent before the High Court was that
the inherent powers under Section 482 of the Code should be sparingly used.
The High Court held that the direction given to the police by the
Magistrate under Section 156(3) of the Code for carrying out the
investigation into the complaint and to submit a report, cannot give a
right to the appellants for quashing the same since such an order would be
based absolutely on speculations upon the report not filed. Further, it
would result in prejudging the complaint. In these circumstances, the High
Court dismissed the said application.
Dr. Abhishek Singhvi, learned senior counsel appearing on behalf of the
appellants submitted that the initiation of proceedings in the instant case
is an abuse of process of law and is liable to be quashed. He argued that
it is a settled principle that summoning of an accused in a criminal case
is a serious matter and the criminal law cannot be set in motion as a
matter of course. Therefore, the order of the magistrate must reflect
application of mind to the facts of the case and the law applicable
thereto. In support of this submission, the learned counsel has relied
upon Anil Kumar Vs. M. K. Aiyappa, (2013) 10 SCC 705, paragraph 11, of
which is quoted below:
“11. The scope of Section 156(3) CrPC came up for consideration before this
Court in several cases. This Court in Maksud Saiyed case examined the
requirement of the application of mind by the Magistrate before exercising
jurisdiction under Section 156(3) and held that where jurisdiction is
exercised on a complaint filed in terms of Section 156(3) or Section 200
CrPC, the Magistrate is required to apply his mind, in such a case, the
Special Judge/Magistrate cannot refer the matter under Section 156(3)
against a public servant without a valid sanction order. The application of
mind by the Magistrate should be reflected in the order. The mere statement
that he has gone through the complaint, documents and heard the
complainant, as such, as reflected in the order, will not be sufficient.
After going through the complaint, documents and hearing the complainant,
what weighed with the Magistrate to order investigation under Section
156(3) CrPC, should be reflected in the order, though a detailed expression
of his views is neither required nor warranted. We have already extracted
the order passed by the learned Special Judge which, in our view, has
stated no reasons for ordering investigation.”
Learned Magistrate had passed an order on 04.01.2011 holding that:
“The bare reading of the complaint and the accompanying documents disclose
the cognizable offence. Therefore in view of the judgement of Hon’ble
Supreme Court in case of Srinivas Gunduri & Ors. vs. M. S. SEPCO Electric
Power Construction & Anr. In the matter of criminal appeal No.1377/2010 and
1378/2010 decided on 30.07.2010 when the complaint discloses a cognizable
offence, then the Magistrate instead of applying his mind to the complaint
for deciding whether or not there is sufficient ground for proceedings may
direct the police for investigation.
Therefore, considering all these aspects, the complaint discloses the
commission of cognizable offence. Therefore, considering the nature of
offence it needs to be sent to police for investigation under section
156(3) of CrPC.”
Dr. Abhishek Singhvi, learned senior counsel appearing on behalf of the
appellants has relied upon the following decisions of this Court to assail
the aforesaid order passed by the Magistrate: Devarapall Lakshminarayana
Vs. V. Narayana Reddy & Ors., (1976) 3 SCC 252, and Ram Dev Food Products
Pvt. Ltd. Vs. State of Gujrat, reported in (2015) 6 SCC 439.
Further, it was submitted by the learned counsel for the appellants that
there is no merit in the complainant’s (respondent No.2) contention that
the transactions from her trading account were unauthorized. Trading from
the complainant’s trading account were being carried out by her husband as
admitted by the complainant in the complaint made before the learned
Magistrate, and at the time of opening the trading account with appellant
No.1, she was made aware of all the risks involved and the complainant had
agreed to the same and understood that she would be responsible for all the
risks and consequences of entering into trades. The relevant clause of the
Agreement entered into by complainant is reproduced hereinbelow:
“2.11 The Client agrees and declares as follows: (i) The Client shall be
wholly responsible for all the investment decisions and trades of the
Client; (ii) The Client will pay receive applicable daily margins; (iii)
Payment of margins by the Client does not necessarily imply complete
satisfaction of all dues; (iv) In spite of consistent having paid margins,
the Client may, on the closing of his trade, be obliged to pay (or entitled
to receive) such further sums as the market price or an instrument of
contract may dictate; and (v) The failure of a Client to understand the
risk involved or the failure of the member to explain the risk to the
Client shall not render a contract as void or voidable and the Client shall
be and shall continue to be responsible for all the risks and consequences
for entering into trades in Derivatives.”
In the light of the Agreement entered into between complainant-respondent
No.2 and the appellants, the learned counsel for the appellants further
averred that criminal prosecution of the appellants could not be allowed to
continue because the criminal prosecution requires a much higher standard
of proof beyond reasonable doubt, whereas civil matters require lower
standard of proof - preponderance of probabilities. He drew our attention
towards a very recent pronouncement in the case of Lalitha Kumari Vs. Govt.
of Uttar Pradesh, reported in (2014) 2 SCC 1, wherein this Court held:
“Therefore, in view of various counter claims regarding registration or non-
registration, what is necessary is only that the information given to the
police must disclose the commission of a cognizable offence. In such a
situation, registration of an FIR is mandatory. However, if no cognizable
offence is made out in the information given, then the FIR need not be
registered immediately and perhaps the police can conduct a sort of
preliminary verification or inquiry for the limited purpose of ascertaining
as to whether a cognizable offence has been committed. But, if the
information given clearly mentions the commission of a cognizable offence,
there is no other option but to register an FIR forthwith. Other
considerations are not relevant at the stage of registration of FIR, such
as, whether the information is falsely given, whether the information is
genuine, whether the information is credible etc. These are the issues that
have to be verified during the investigation of the FIR. At the stage of
registration of FIR, what is to be seen is merely whether the information
given ex facie discloses the commission of a cognizable offence. If, after
investigation, the information given is found to be false, there is always
an option to prosecute the complainant for filing a false FIR.”
We are of the considered opinion that in the present case a fact finding
investigation was directed by the impugned order. Consequently, FIR was
registered against appellants No.2 to 4 and against RM (Vinod Kopar). The
accused under Indian Criminal Legal System, unless proved guilty shall
always be given a reasonable space and liberty to defend himself in
accordance with the law. Further, it is always expected from a person
accused of an offence pleading not guilty that he shall co-operate and
participate in criminal proceedings or proceedings of that nature before a
court of law, or other Tribunal before whom he may be accused of an
‘offence’ as defined in Section 3(38) of the General Clauses Act, i.e., an
act punishable under the Penal Code or any special or local law. At the
same time, courts, taking cognizance of the offence or conducting a trial
while issuing any order, are expected to apply their mind and the order
must be a well reasoned one.
Learned counsel for the appellants has further invited our attention to the
order of the High Court dismissing the writ petitions. According to the
learned counsel for the appellants, the High Court, relying upon the
decision of this Court in Iqbal Singh Marwah & Anr. Vs. Meenakshi Marwah &
Anr., (2005) 4 SCC 370 and Rukhmni Narvekar Vs. Vijya Statardekar and Ors.,
(2008) 14 SCC 1, found that there was no substance in the argument that
respondent No.2 ought to have disclosed the arbitration proceedings and the
outcome thereof in her complaint and that non-disclosure of the same
amounts to suppression of material facts. Learned counsel for the
appellants further submitted that the High Court failed to appreciate that
it was within its inherent jurisdiction under Section 482 Cr.P.C. to
consider the correspondence exchanged as well as the admitted documents
under the arbitration proceedings. In the case of All Cargo Movers (India)
(P.) Limited Vs. Dhanesh Badarwal Jain, (2007) 14 SCC 776, relied upon in
paragraph 17 thereof, it was held by this Court:
“We are of the opinion that the allegations made in the complaint petition,
even if given face value and taken to be correct in its entirety, do not
disclose an offence. For the said purpose, This Court may not only take
into consideration the admitted facts but it is also permissible to look
into the pleadings of the plaintiff-respondent No.1 in the suit. No
allegation whatsoever was made against the appellants herein in the notice.
What was contended was negligence and/or breach of contract on the part of
the carriers and their agent. Breach of contract simplicitor does not
constitute an offence. For the said purpose, allegations in the complaint
petition must disclose the necessary ingredients therefor. Where a civil
suit is pending and the complaint petition has been filed one year after
filing of the civil suit, we may for the purpose of finding out as to
whether the said allegations are prima facie cannot notice the
correspondences exchanged by the parties and other admitted documents. It
is one thing to say that the Court at this juncture would not consider the
defence of the accused but it is another thing to say that for exercising
the inherent jurisdiction of this Court, it is impermissible also to look
to the admitted documents. Criminal proceedings should not be encouraged,
when it is found to be mala fide or otherwise an abuse of the process of
the Court. Superior Courts while exercising this power should also strive
to serve the ends of justice.
Learned counsel for the appellants further relied upon few more judgments
wherein it was well settled that the test to be applied for quashing is,
whether uncontroverted allegations made, prima facie establish the offence.
This is because the Court cannot be utilized for any oblique purpose and
where, in the opinion of the Court, the chances of an ultimate conviction
are bleak, no useful purpose will be served by allowing the criminal
prosecution to continue. He relied upon the decisions of this Court in
Madhavrao Jiwanrao Scindia & Ors. Vs. Sambhajirao Chandrajirao Angre &
Ors., (1998) 1 SCC 692 (para 7-8); State of Haryana Vs. Bhajanlal, 1992
Supp (1) SCC 335 (para 102); Rajiv Thapar & Ors Vs. Madan Lal Kapoor,
(2013) 3 SCC 330 at para 30; Rishi Pal Singh Vs. State of Uttar Pradesh &
Anr. (2014) 7 SCC 215, at para 12-13.
Learned counsel for the respondents have not rebutted this issue in any of
his arguments. With the meticulous understanding of the orders of the
Courts below in the instant case, we can see that general and bald
allegations are made in the context of appellant No.1 who is a juristic
person and not a natural person. The Indian Penal Code, 1860, does not
provide for vicarious liability for any offence alleged to be committed by
a company. If and when a statue contemplates creation of such a legal
fiction, it provides specifically therefor, e.g. Negotiable Instruments
Act, 1881. Further, reliance was made on S.K. Alagh Vs. State of Uttar
Pradesh & Ors., reported in (2008) 5 SCC 662, where at paragraph 16, this
Court observed that “Indian Penal Code, save and except some provisions
specifically providing therefor, does not contemplate any vicarious
liability on the part of a party who is not charged directly for commission
of an offence.” Further in Maksud Saiyed Vs. State of Gujrat & Ors.,
reported in (2008) 5 SCC 668, at paragraph 13, this Court observed that
where a jurisdiction is exercised on a complaint petition filed in terms
of Section 156(3) or Section 200 of the Code of Criminal Procedure, the
Magistrate is required to apply his mind. Indian Penal Code does not
contain any provision for attaching vicarious liability on the part of the
Managing Director or the Directors of the Company when the accused is the
Company. The Learned Magistrate failed to pose unto himself the correct
question viz. as to whether the complaint petition, even if given face
value and taken to be correct in its entirety, would lead to the conclusion
that the respondents herein were personally liable for any offence. The
Bank is a body corporate. Vicarious liability of the Managing Director and
Director would arise provided any provision exists in that behalf in the
statute. Statutes indisputably must contain provision fixing such vicarious
liability. Even for the said purpose, it is obligatory on the part of the
complainant to make requisite allegations which would attract the
provisions constituting vicarious liability. In Thermax Limited & Ors. Vs.
K. M. Johny & Ors., (2011) 13 SCC 412, and in Sunil Bharti Mittal Vs.
Central Bureau of Investigation, (2015) 4 SCC 609, at para 39, this Court
held:
“Apart from the fact that the complaint lacks necessary ingredients
of Sections 405, 406, 420 read with Section 34 IPC, it is to be noted that
the concept of `vicarious liability' is unknown to criminal law. As
observed earlier, there is no specific allegation made against any person
but the members of the Board and senior executives are joined as the
persons looking after the management and business of the appellant-
Company”.
Learned counsel for the appellants has lastly argued in favour of the
partial quashment of the FIR against the appellants on the contention that
there was no criminality on their behalf. It has been further submitted
that the allegations made against them do not amount to disclosure of an
offence and were made with the purpose of harassing the appellants.
Additionally, learned counsel contends that vicarious liability cannot be
attributed to appellant Nos.2 to 4, while relying upon R. Kalyani Vs. Janak
C. Mehta & Ors., (2009) 1 SCC 516, wherein it was held:
“Whereas, thus, no allegation whatsoever has been made against the
respondent No.1, the only allegation against the respondent No.2 was that
he had forwarded the said letter dated 10.1.2002 to National Stock
Exchange. The act of forgery on/or fabrication of the said letter had been
attributed to Respondent No.3.
Respondent Nos.1 and 2 herein were sought to be proceeded against on the
premise that they are vicariously liable for the affairs of the company.
As Mr. Mani had time and again referred to the allegations relating to
forgery of the said document dated 10.1.2002, we may also notice a
disturbing fact. Before lodging the said First Information, a notice was
issued by the appellant against the respondents herein on 15.10.2002,
whereas the address of respondent Nos.1 and 2 were shown as 404, Embassy
Centre, Nariman Point, Mumbai - 400 021 and 302, Veena Chambers, 21, Dalal
Street, Fort, Mumbai - 400 001 respectively. However, in the complaint
petition, they were shown to be residents of Chennai”.
In Sharad Kumar Sanghi Vs. Sangta Rane, reported in (2015) 12 SCC 781 (para
9-11) it is noted by this Court:
“The allegations which find place against the Managing Director in his
personal capacity seem to be absolutely vague. When a complainant intends
to rope in a Managing Director or any officer of a company, it is essential
to make requisite allegation to constitute the vicarious liability.”
Per contra, learned counsel for respondent No.2 submitted that the
complaint has disclosed the commission of an offence which is cognizable in
nature and in the light of Lalitha Kumari’s Case, (supra), registration of
FIR becomes mandatory. We observe that it is clear from the use of the
words "may take cognizance" in the context in which they occur, that the
same cannot be equated with "must take cognizance". The word "may" gives
discretion to the Magistrate in the matter. If on a reading of the
complaint he finds that the allegations therein disclose a cognizable
offence and that the forwarding of the complaint to the police for
investigation under Section 156(3) will be conducive to justice and save
the valuable time of the Magistrate from being wasted in enquiring into a
matter, which was primarily the duty of the police to investigate, he will
be justified in adopting that course as an alternative to taking cognizance
of the offence, himself. It is settled that when a Magistrate receives a
complaint, he is not bound to take cognizance if the facts alleged in the
complaint, do not disclose the commission of an offence.
Learned counsel for the respondents further submitted that there is a
marked difference between the civil nature of the arbitration proceedings
and the Criminal nature of the current proceedings and relieving the RM on
the same day when he had tendered his resignation reflects the conduct
whereby conspiracy could be proved. It was further argued that respondent
No.2 has also sent the legal notice requesting for making good the losses
caused to her by the appellants of which Criminal Court and the Arbitration
Tribunal took notice of. Thus, allegations were already made against all
the appellants. We find no substance in the said submission being
completely opposed to the settled legal principles. Nevertheless, we find
patent illegalities which would result in vitiating the entire
investigation which would result in miscarriage of justice.
Mr. Basava Prabhu Patil, learned senior counsel appearing on behalf of
respondent No.2 submitted that respondent No.2 in her complaint had set
out the conduct of the appellants and alleged that their conduct had caused
wrongful loss to her and wrongful gain to the appellants and other accused.
It is a fact that at the time of summoning of the accused, the Courts must
be careful to scrutinize the evidence brought on record and in elicitation
of answers to find out the truthfulness of the allegations.
It appears to us that the appellants approached the High Court even before
the stage of issuance of process. In particular, the appellants challenged
the order dated 04.01.2011 passed by the learned Magistrate under Section
156(3) of Cr.P.C. The learned counsel appearing on behalf of the appellants
after summarizing their arguments in the matter have emphasized also in the
context of the fundamental rights of the appellants under the Constitution,
that the order impugned has caused grave inequities to the appellants. In
the circumstances, it was submitted that the order is illegal and is an
abuse of the process of law. However, it appears to us that this order
under Section 156(3) of Cr.P.C. requiring investigation by the police,
cannot be said to have caused an injury of irreparable nature which, at
this stage, requires quashing of the investigation. We must keep in our
mind that the stage of cognizance would arise only after the investigation
report is filed before the Magistrate. Therefore, in our opinion, at this
stage the High Court has correctly assessed the facts and the law in this
situation and held that filing of the petitions under Article 227 of the
Constitution of India or under Section 482 of Cr.P.C., at this stage are
nothing but premature. Further, in our opinion, the High Court correctly
came to the conclusion that the inherent powers of the Court under Section
482 of Cr.P.C. should be sparingly used. In these circumstances, we do not
find that there is any flaw in the impugned order or any illegality has
been committed by the High Court in dismissing the petitions filed by the
appellants before the High Court. Accordingly, we affirm the order so
passed by the High Court dismissing the writ petitions. The appeal is
dismissed.
………………………………….J
(Pinaki Chandra Ghose)
………………………………….J
(Amitava Roy)
New Delhi;
December 9, 2016.
