Mr. Aashay Harlalka vs State Of Karnataka on 25 March, 2026

March 30, 2026

Karnataka High Court

Mr. Aashay Harlalka vs State Of Karnataka on 25 March, 2026

Bench: M.Nagaprasanna

                           1


                                                    R
Reserved on   : 10.03.2026
Pronounced on : 25.03.2026

        IN THE HIGH COURT OF KARNATAKA AT BENGALURU

           DATED THIS THE 25TH DAY OF MARCH, 2026

                          BEFORE

         THE HON'BLE MR. JUSTICE M. NAGAPRASANNA

            CRIMINAL PETITION No.12927 OF 2025

BETWEEN:

MR. AASHAY HARLALKA
S/O MR.SUNIL KUMAR HARLALKA,
AGED ABOUT 32 YEARS,
ACCORDING TO THE IMPUGNED FIR
RESIDING AT
4-G 50, NEW HOUSING BOARD,
SHASTRI NAGAR, BHILWARA,
RAJASTHAN - 311 001.

                                              ... PETITIONER
(BY SRI SURAJ SAMPATH, ADVOCATE )

AND:

1.   STATE OF KARNATAKA
     REPRESENTED BY THE
     WHITEFIELD CEN CRIME POLICE STATION,
     REPRESENTED BY THE S.P.P.,
     HIGH COURT BUILDING,
     AMBEDKAR VEEDI,
     BENGALURU - 560 001.
                             2



2.   MR. SAURABH BHOLA,
     S/O MR.RAVINDER KUMAR BHOLA,
     AGED ABOUT 33 YEARS,
     RESIDING AT FLAT NO. 3065,
     PRESTIGE PARK VIEW,
     HOPE FARM JUNCTION, WHITEFIELD,
     BENGALURU - 560 066.
                                                ... RESPONDENTS

(BY SRI B.N.JAGADEESHA, ADDL.SPP FOR R-1;
SRI ANGAD KAMATH, ADVOCATE FOR R-2)

THIS CRIMINAL PETITION IS FILED UNDER SECTION 528 OF
BNSS, 2023 PRAYING TO QUASH THE IMPUGNED FIR DATED
29.03.2025 BEARING CRIME NO.176/2025 VIDE ANNEXURE B
REGISTERED BY THE 1ST RESPONDENT (WHITEFIELD CEN CRIME
POLICE STATION) FOR THE ALLEGED OFFENCE P/U/S 65 AND 66
OF INFORMATION TECHNOLOGY ACT, 2000 AND SEC.316 AND
318(4) OF BNS 2023, AGAINST THE PETITIONER, WHO HAS BEEN
ARRAYED AS THE SOLE ACCUSED THEREIN, CURRENTLY PENDING
ON THE FILE OF THE HON’BLE 47TH ADDL. CJM BENGALURU
(TRANSFERED FROM THE HON’BLE 45TH ACJM BENGALURU).

SPONSORED

THIS CRIMINAL PETITION HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 10.03.2026, COMING ON FOR
PRONOUNCEMENT THIS DAY, THE COURT MADE THE FOLLOWING:-

CORAM: THE HON’BLE MR JUSTICE M.NAGAPRASANNA

CAV ORDER

The petitioner/sole accused is before the Court calling in

question registration of a crime in Crime No.176 of 2025 registered

for offences punishable under Sections 316 and 318(4) of the BNS

and Sections 65 and 66 of the Information Technology Act, 2000

(hereinafter referred to as ‘the Act’ for short).

2. Heard Sri Suraj Sampath, learned counsel appearing for

the petitioner, Sri B.N.Jagadeesha, learned Additional State Public

Prosecutor for respondent No.1 and Sri Angad Kamath, learned

counsel appearing for respondent No.2.

3. Facts adumbrated are as follows: –

3.1. A Company, M/s Plutus Research Private Limited

(hereinafter referred to as ‘the Company’ for short) is engaged in

the domain of quantitative trading, wherein it leverages advanced

mathematical models, statistical techniques and data driven
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strategies to develop proprietary trading algorithms. The petitioner

claims that he is one of the founding members, Directors,

Promoters and share-holders in the Company, which is registered

under the Companies Act, 2013 and registered before the Registrar

of Companies, Gujarat having its corporate office at Bengaluru. Two

other Directors along with the petitioner are founder Directors and

equal shareholders, one of whom is the 2nd

respondent/complainant. The petitioner further avers in the petition

that in collaboration with the other two Directors he had jointly

conceived and established the Company with a shared vision and

mutual understanding, as all three of them were close friends at

one point in time. The founding members, as noted hereinabove,

are said to have contributed for formation and initial development

of the Company and have equal share holding.

3.2. In the year 2018, it appears, that all the three Directors

enter into identical employment agreements and were

appointed/continued as Directors of the Company for remuneration.

There were no formal working hours for these Directors is what is

averred in the petition. In and around the month of June, 2024
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disputes arose between the founder directors of the Company

owning to various conflicts and disagreements among them. The

other two Directors, one of whom is the complainant, are said to

have tried to remove the petitioner from the control and

management of the Company. Therefore, the petitioner projects

himself to be a whistle blower giving out misdoings of the Company

to the respective Authorities where he began to complain to the

Registrar of Companies, SEBI and other regulatory organizations.

When things stood thus, a complaint come to be registered by the

2nd respondent, one of the founder Directors, alleging several acts

of the petitioner to have become ingredients of cheating and

criminal breach of trust. Investigation ensued pursuant to the

registration of complaint on 29-03-2025 in Crime No.176 of 2025.

The moment the crime is registered and investigation ensued, the

petitioner knocks at the doors of this Court in the subject petition.

4. A coordinate Bench of this Court grants an interim order of

stay. The interim order granted by the coordinate Bench on

10-09-2025 reads as follows:

“The petitioner, who is a Director and shareholder of the
company, has been charged with offences punishable under
Sections 316 and 318 of the Bharatiya Nyaya Sanhita, 2023,
and Sections 65 and 66 of the Information Technology Act,
2000, allegedly in contravention of the law laid down by the
Hon’ble Supreme Court in Delhi Race Club (1940) Ltd. & Others
v. State of Uttar Pradesh & Another [(2024) 10 SCC 690]. At
the instance of certain other Directors, a crime has been
registered for the aforesaid offences.

This Court finds it necessary to examine the very
maintainability of the criminal proceedings, having regard to the
fact that the dispute appears to pertain to shares of a company
and the confidential data of which the petitioner is an equal
shareholder. The matter, therefore, requires consideration.

Accordingly, further proceedings and investigation in
Crime No.176/2025, registered by respondent No.1 – Whitefield
CEN Crime Police Station, and pending on the file of the XLVII
Additional Chief Judicial Magistrate, Bengaluru, are stayed until
the next date of hearing.

The learned High Court Government Pleader is directed to
accept notice on behalf of respondent No.1.

Issue emergent notice to respondent No.2.

Office is directed to rectify the name of the petitioner’s
counsel as Suraj Sampath.”

The said interim order is in subsistence even today and the

2ndrespondent/complainant has preferred an application seeking

vacation of the interim order. Therefore, the matter is heard on the

application seeking vacation of the interim order finally, with the

consent of parties.

SUBMISSIONS:

PETITIONER:

5. The learned counsel appearing for the petitioner Sri Suraj

Sampath would vehemently contend that the petitioner is one of

the founder Directors of the Company. He is now alleged of stealing

data or bringing disrepute to the Company through the said acts of

stealing data. He would submit that a father cannot be alleged of

kidnapping his own children. When he is an equal shareholder and

founder Director of the Company, it cannot be said that he has

stolen the data. The data belongs to him, like it belongs to other

two partners. Therefore, the very allegation against the petitioner is

unfounded. If on such an allegation investigation is permitted to

continue, it would become an abuse of the process of law. Plethora

of documents are filed by way of memo of documents and

objections to the application seeking vacation of interim order. All

of them should be taken note of and the crime should be

obliterated, is the submission of the learned counsel for the

petitioner. He would also contend that registration of crime for

offences punishable under Sections 406 and 420 of the IPC as
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obtaining under Sections 316 and 318(4) of the BNS cannot go

hand in hand in the light of the judgment of the Apex Court in the

case of DELHI RACE CLUB(1940) LIMITED v. STATE OF UTTAR

PRADESH1.

RESPONDENT NO.2/COMPLAINANT:

6. Per contra, the learned counsel Sri Angad Kamath

appearing for the 2nd respondent/complainant would vehemently

refute the submissions to contend that interference by this Court

under Section 482 of the CrPC/528 of the BNSS at the crime stage

is extremely limited, unless the petitioner is able to demonstrate

prima facie, that what is alleged would not meet the ingredients of

the crime at all. The learned counsel submits that the petitioner is

speaking of ownership of the data. No shareholder can claim

himself to be the owner of the data. Owner of the data is the

Company. If tomorrow the other two Directors would indulge in

stealing data, they would be equally responsible or make

themselves open to penal consequences, as data is not the property

1
(2024) 10 SCC 690
9

of the shareholder of any Company, but it is the Company’s

property. The learned counsel would contend that the act of the

petitioner amounts to insider theft and grave breach of fiduciary

duty. It is not a civil project, as is projected by the petitioner. The

petitioner claims to be a whistle blower only to protect his skin of

further investigation into the matter. These are cyber crimes and

the Court would not lend its hand to quash the proceedings at this

nascent stage.

PETITIONER – REJOINDER:

7. The learned counsel for the petitioner would join issue to

contend that the allegation of loss, economic stoppage or business

damage are all bald allegations. The Company has not suffered any

loss. He would again reiterate that a dispute which is either

financial or purely civil in nature is dressed with a colour of crime

and is said to be investigated into. He also reiterates that Sections

316 and 318(4) of the BNS cannot exist together in the light of the

judgment in DELHI RACE CLUB‘s case.

STATE:

8. The learned Additional State Public Prosecutor Sri B.N.

Jagadeesha would toe the lines of the learned counsel for the

complainant in contending that the crime is registered and

investigation has ensued. The petitioner has approached this Court

and on the strength of the judgment in the case of DELHI RACE

CLUB has obtained an interim order. The matter must be

investigated into and this Court need not entertain the petition at

the stage of crime.

9. I have given my anxious consideration to the submissions

made by the respective learned counsel and have perused the

material on record. In furtherance whereof, the following issues

arise for my consideration:

(i) Whether a complaint alleging theft of data against a

Director and Share holder of a Company is maintainable in

law? and
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(ii) Whether the factual matrix necessitates a full
fledged investigation or warrants obliteration of the alleged
crime at the threshold?

ISSUE NO.1:

(i) Whether a complaint alleging theft of data against a

Director and Share holder of a Company is maintainable in

law?

10. The factual narrative as unfolded, traces the genesis of

the Company, the respective roles of the petitioner and the other

Directors, one of whom is the complainant and the sequence of

events culminating in the registration of the complaint. These

foundational facts are not in serious dispute and form part of the

record. The controversy, however, springs from the allegations

contained in the complaint, which in the considered view of this

Court, merits a closer scrutiny. It is therefore, apposite, to extract

and examine the complaint in some detail. The complaint reads as

follows:

“28th March 2025

To,
Station House Officer,
12

Whitefield Police Station
Bangalore.

Sub: Complaint for registration of FIR and
investigation into commission of
multiple offences by Mr. Aashay
Harlalka

Respected Sir,

The undersigned, Saurabh Bhola, aged 33 years, son of Mr.
Ravinder Kumar Bhola, is a Director of Plutus Research Private
Limited (“Company”). Copy of the Master Data of the Company
the undersigned is enclosed for ready reference at Document

1.

The Company is registered under the Companies Act, 2013
having its registered offices at B-601 & 611, Paragraph
Khajanchi Business Center, Mondeal Heights, Near Novotel
Hotel, SG Highway, Ahmedabad, Gujarat 380015 and its
corporate offices at Awfis Gold, 12th Floor, Crescent 3, Prestige
Shantiniketan, Whitefield-560048 within the territorial
jurisdiction of this Police Station.

As a Director and Authorised Signatory of the Company, I
hereby seek to bring to your notice the following evidence of
commission of offences in connection with the assets of the
Company, by Mr. Aashay Harlalka, son of Mr. Sunil Harlalka,
residing at 4114, Sobha Habitech Apartments, Channasandra
Main Road, Near Hope Farm Junction, Whitefield, Bangalore,
Karnataka – 560 066, and permanent address at 4-G-50, New
Housing Board, Shastri Nagar, Bhilwara, Rajasthan-311001,
having his PAN No. ALOPH4292A and Aadhar No.
664734443758.

In this regard, your goodself will kindly note:

1. I would like to bring to your kind notice instances of data
theft, unauthorized deletion of the Company’s proprietary
software codes and critical data, causing operational and
financial harm to the Company, by Mr. Aashay Harlalka, a
former employee who was terminated from the Company
on 24.03.2025 due to these actions.

Mr. Harlalka became a shareholder and director of the
Company on 26.03.2018. Separately Mr. Harlalka was
also appointed to the position of Director by way of an
Employment Agreement dated 01.10.2018. His
employment was terminated on 24.03.2025. a copy of
the Employment Agreement and termination email are
enclosed for your ready reference at Document 2.

2. In the course of his employment with the Company, Mr.
Harlalka worked under the Employee Code:

PLUTUS/EMP/0003. Additionally, Mr. Harlalka was also
authorised to use Employee Code: PQR/EMP/003 in the
discharge of work for Ploutos Quant Research Capital Pvt.
Ltd., a subsidiary of the Company. Mr. Harlalka received
salary both from the Company as well as its subsidiary.

3. The Company is engaged in the business of quant trading
in which the company makes proprietary algorithms to
trade in Indian stock markets. The trading activities of the
Company are split across three verticals i.e. High-
Frequency Trading (“HFT”), Medium-Frequency Trading
(“MFT”), and Infra. HFT vertical constitutes developing
algorithms to predict stock price movements in a short
duration of time. MFT vertical constitutes developing
algorithms to trade in derivatives by holding positions for
longer duration which includes overnight positions as well.
Infra vertical constitutes development, maintenance and
research on trading connectivity to the exchange. Mr.
Harlalka was responsible for the operations of MFT. He
operated from the corporate office of the Company.

4. The trading activities within the Company (across all
verticals) are governed by specific parameters embedded
in the company’s codes, with any modifications to these
parameters being automatically logged in the system
(bash_history, tradelogs, etc). These logs record the
nature of the changes made and the identity of the
individual effecting such changes.

We write sophisticated algorithms which are based on the
concepts of financial engineering and mathematics,
machine learning and market analysis. These algorithms
have a variety of parameters which can be tuned to
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optimize the performance and profitability of the
strategies. Such algorithms are back-tested over
historical data (days, weeks, months and years) based on
the nature of strategies. These algorithms, then if
profitable, are used to trade in Indian Stock Markets on
servers located in the Exchange premises. An algorithm
that was quite profitable would make a huge loss if the
parameters that it was tuned to in our
simulations/backtesting to the optimized level is changed
to a subdued value causing it to behave in an undesired
manner – impacting profits and reducing the volumes
considerably thereby. We log every trade that we do in
every segment of the stock market to keep a track on the
performance (profitability and volumes).

5. The codes are software programs, the right, title and
ownership of which is vested in the Company. The codes
and their log records are maintained by the Company on
Atlassian Bitbucket (Application hosting CodeBase
Repositories), Company’s servers, which are guarded and
monitored by the Firewalls through the Company’s
secured VPN connections.

6. Mr. Harlalka had access to the codes of the Company on
Atlassian Bitbucket application with loginid: “aashay” and
email id: “[email protected]” Mr.
Harlalka was responsible for the codes of the Company
for MFT trading. The codes pertaining to HFT and Infra
are distinct and unrelated to the codes of MFT. As per the
Company’s protocol, Mr. Harlalka was not entitled to
access the codes pertaining to the HFT and Infra verticals,
without the approval of Mr. Saurabh Bhola and Mr.
Shivakumar Reddy Chinthala, who were for the
supervisors for the HFT and Infra verticals respectively.

7. On 05.08.2024, it was discovered that Mr. Harlalka
had been intentionally and unauthorizedly altering
the parameters of trading models, causing
significant financial loss to the Company.. To
conceal his actions, Mr. Harlalka also intentionally
and deliberately deleted all the system logs from
multiple servers for the period prior to 26.07.2024
(several months of data) on 02.08.2024. The
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trading parameters and system logs are proprietary
and confidential to the Company. These
unauthorized and fraudulent activities continued
until they were uncovered on 05.08.2024. Upon
being confronted, he apologized and assured that
he would rectify his actions. Consequently, in late
August 2024, he reversed some of the unauthorized
changes; however, by then, the Company had
already suffered substantial damage.

Evidence of these activities by Mr. Harlalka is borne
out from the documents and information at
Document 3.

8. Despite Mr. Harlalka being permitted to access the
codes of the MFT vertical as part of his
responsibilities, and only from the Company’s
permitted computer servers, he has been logging
into the same and copying the codes for the Infra
and HFT trading systems, which are managed by
the undersigned and the other director of the
Company, Mr. Shivakumar Reddy Chinthala during
01.08.2024 to 04.03.2025. Trading strategies in
HFT built over the Infra have contributed to a
significant part of the revenues in the course of the
present financial year itself.

We discovered on 28.02.2025 that in the past
month he had been logging into the Company’s
private network on several days post-midnight,
which are not the traditional trading hours of the
Company and those are typically the times when
the Company’s other employees and traders are not
logged into the Company’s private network. As
there is no trading activity during such hours, there
was no legitimate reason for him to access the
network at those times. His work pattern was
suspicious, as he consistently avoided working
during actual trading hours (between 9 am to 3:30
pm) during which employees are in office. We sent
multiple emails (enclosed herewith as Document 4)
instructing him to adhere to working hours, but he
willfully ignored them.

This behavior coincided with unauthorized copying
and downloading of the Company codebase not
under his purview. The records suggest that Mr.
Harlalke not only accessed and copied these codes,
but the same were saved onto computer systems,
an action which was not approved by the Company.
The codes of Infra, HFT and MFT trading strategies
maintained by the Company on its code repository,
as well as its internal network, are the property of
the Company. Mr. Harlalka accessed the Company’s
codebase repositories, copied and downloaded the
same to his laptop, without the permission of the
Company and with a dishonest intention, as is
borne out from the stealth and timing of access.
Retention of the codes on a device, other than the
one approved by the Company which is outside of
the Company’s highly secured VPN network, shows
that Mr. Harlalka has sought to steal and
misappropriate the codes of the Company. This
intention is further evidenced by a fact that we
discovered on 26.03.2025, Mr. Harlalka had also
downloaded the codes on 04.03.2024, a day before
proposing the dissolution of the Company, in
response to an email sent by the undersigned,
which sought to address his actions and inactions
regarding his work and conduct to which he had
remained unresponsive. We discovered this on
26.03.2025.

VPN Logs indicating his log in timings are enclosed
at Document 5. Evidence of copying of the codes for
the Infra and HFT trading strategies, and
downloading of the same into devices outside of the
Company’s servers are enclosed at Document 6.
Evidence of downloading the codes on 04.03.2024
are enclosed at Document 7.

9. On 21.03.2024, the Company discovered that Mr.
Harlalka had deliberately deleted critical and confidential
codes, an important IP of the Company, for the MFT
trading strategies (SGSVStrat), both from Bitbucket (i.e.
the platform hosting the Company’s code repository), as
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well as from the servers in the Company’s internal
network. This proprietary code, which had existed since
13.03.2022, was exclusively handled by Mr. Aashay for
revenue generation. Evidence proving Mr. Harlalka’s
deletion of the codes are enclosed at Document 8.

Subsequently, on 21.03.2024, the same day we
discovered that Mr. Harlalka had deleted our code, we
contacted Bitbucket via email, requesting a copy of the
deletion history. A copy of our email dated 21.03.2024 to
Bitbucket is attached as Document 9. In further
investigation with the Bitbucket support on 27.03.2024, it
came to the notice that he has deleted the audit logs of
the Bitbucket application as well for multiple dates
starting from 27.07.2024 to 19.03.2024 to hide his
unauthorised activity on the Bitbucket application to
access the unauthorised repositories. It coincides with the
same date on which he has done log deletions on the
trade server of the dates before that. It also has been
observed that he deleted multiple repositories on
15.07.2024.

As an employee and Director of the Company, Mr.
Harlalka had been entrusted with the password to access
the code repository and internal network of the Company.
In such capacity, Mr. Harlalka acted as an agent of the
Company. However, Mr. Harlalka has misused the trust
reposed in him by the Company, by copying the codes for
his personal use, while deleting the same from the server
of the Company, causing the Company to lose business
and revenue that led to the termination of his
employment on 24.03.2025.

The details of Mr. Harlalka as available with the Company are as
under. Copies of his PAN, Aadhar and Employee ID are enclosed
as Document 10.

Mr. Aashay Harlalka,
4114, Sobha Habitech Apartments,
Channasandra Main Road,
Near Hope Farm Junction,
Whitefield, Bangalore,
Karnataka-560 066.

Email: [email protected]
Phone No.:8861874720, 9784011683

Also at: 4-G-50, New Housing Board,
Shastri Nagar, Bhilwara,
Rajasthan-311001
Email ID: [email protected]

Phone No: 8861874250, 9784011683

In the above circumstances, the Company is constrained to
bring the aforesaid facts to the notice of the jurisdictional police.

It is humbly prayed that this complaint be taken on record and a
FIR be lodged against Mr. Aashay Harlalka, and the matter be
thoroughly investigated and he be restrained from intimidating
or influencing the Company’s employees and also be directed to
return the codes and logs illegally copied and taken by him from
the Company’s servers and repositories. The Company
undertakes to extend any cooperation that the investigating
team of the police may deem fit.

Sincerely

Sd/-

Saurabh Bhola
(DIRECTOR)”

(Emphasis added)

The complaint articulated with considerable particularity

imputes grave allegations against the petitioner. It is

alleged, that though interested with the access to the codes

relating to Medium Frequency Trading (MFD), the petitioner

surreptitiously extended his reach into the domains of High

Frequency Trading (HFT) and Infrastructure verticles, areas
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beyond his authorized limit. These codes it is asserted are

distinct, confidential, compartmentalized within the

Company’s operational architecture. The petitioner’s alleged

intrusion into the domains, without requisite approval, is

said to have breached both protocol and trust.

11. The complaint further narrates that on 05-08-2024,

it came to light that the petitioner had deliberately and

unauthorisedly altered critical parameters of trading models,

thereby inflicting financial detriment upon the Company.

What aggravates the gravity of the allegation is, the

assertion that in the in an attempt to efface traces of such

conduct, the petitioner systematically deleted system logs

across multiple servers. These logs being repositories of

operational history, constitute proprietary and confidential

data of the Company. The complaint also recounts additional

instances of deletion of critical code, intellectual property,

integral to the Company’s revenue generation, both from the

code repository and internal servers. On the strength of these
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allegations, the complaint culminates in the registration of crime in

Crime No. 176 of 2025.

12. The principal defence advanced on behalf of the petitioner

is untenable. The data in question by virtue of his position being the

director and shareholder of the Company belongs to him and

therefore, an allegation of theft is flawed, as it is akin to a father

being accused of kidnapping his own child. The submission, though

imaginative, does not withstand legal scrutiny and is liable to be

rejected at the threshold. Once a Company is incorporated

under the Companies Act, it acquires a distinct juristic

personality, separate and independent of its shareholders

and directors. The property of the Company, whether

tangible or intangible, vests in the Company alone. The

number of shareholders or directors, whether few or many,

would not dilute this foundational principle. To accept the

proposition that each shareholder may lay claim to the

Company’s assets would lead to juridical chaos, eroding the

very edifice of corporate personality. In the present case,
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the petitioner and the complainant are equal shareholders,

yet, such parity does not translate into proprietary

entitlement over the company’s assets. The contention that

the petitioner, by virtue of his shareholding, does possess

ownership over the entirety of the Company’s data is

therefore wholly misconceived.

13. The position of law, in this regard, is no longer res

integra. The Constitution bench of the Apex Court as early as in the

year 1954, in the case of BACHA F.GUZDAR v. COMMISSIONER

OF INCOME-TAX elucidated the nature of the shareholders

interest. The Apex Court holds that a shareholder acquires

merely a right to participate in the profits of the Company

and does not, by any shareholding, obtain proprietary

interests in the assets of the Company. The Company, as a

juristic entity, stands distinct from its shareholders and it

alone is the owner of the property. The Constitution Bench

holds as follows:

“…. …. ….

8. In fact and truth dividend is derived from the
investment made in the shares of the company and the
foundation of it rests on the contractual relations between the
company and the shareholder. Dividend is not derived by a
shareholder by his direct relationship with the land. There can
be no doubt that the initial source which has produced the
revenue is land used for agricultural purposes but to give to the
words “revenue derived from land” the unrestricted meaning,
apart from its direct association or relation with the land, would
be quite unwarranted. For example, the proposition that a
creditor advancing money on interest to an agriculturist and
receiving interest out of the produce of the lands in the hands of
the agriculturist can claim exemption of tax upon the ground
that it is agricultural income within the meaning of Section 4,
sub-section (3)(viii), is hardly statable. The policy of the Act as
gathered from the various sub-clauses of Section 2(1) appears
to be to exempt agricultural income from the purview of the
Income Tax Act. The object appears to be not to subject to tax
either the actual tiller of the soil or any other person getting
land cultivated by others for deriving benefit therefrom, but to
say that the benefit intended to be conferred upon this class of
persons should extend to those into whosoever hands that
revenue falls, however remote the receiver of such revenue may
be, is hardly warranted.

9. It was argued by Mr Kolah on the strength of an
observation made by Lord Anderson
in IRC v. Forrest [IRC v. Forrest, (1924) 8 TC 704 at p. 710]
that an investor buys in the first place a share of the assets of
the industrial concern proportionate to the number of shares he
has purchased and also buys the right to participate in any
profits which the company may make in the future. That a
shareholder acquires a right to participate in the profits of the
company may be readily conceded but it is not possible to
accept the contention that the shareholder acquires any interest
in the assets of the company. The use of the word ‘assets’ in the
passage quoted above cannot be exploited to warrant the
inference that a shareholder, on investing money in the
purchase of shares, becomes entitled to the assets of the
company and has any share in the property of the company. A
shareholder has got no interest in the property of the company
though he has undoubtedly a right to participate in the profits if
and when the company decides to divide them.

10. The interest of a shareholder vis-à-vis the
company was explained in Charanjit Lal
Chowdhury v. Union of India [Charanjit Lal
Chowdhury v. Union of India, 1950 SCC 833 at p. 862 :
1950 SCR 869 at p. 904] . That judgment negatives the
position taken up on behalf of the appellant that a
shareholder has got a right in the property of the
company. It is true that the shareholders of the company
have the sole determining voice in administering the
affairs of the company and are entitled, as provided by
the articles of association, to declare that dividends
should be distributed out of the profits of the company to
the shareholders but the interest of the shareholder
either individually or collectively does not amount to
more than a right to participate in the profits of the
company. The company is a juristic person and is distinct
from the shareholders. It is the company which owns the
property and not the shareholders. The dividend is a
share of the profits declared by the company as liable to
be distributed among the shareholders.

11. Reliance is placed on behalf of the appellant on a
passage in Buckley’s Companies Act, 12th Edn., p. 894, where
the etymological meaning of “dividend” is given as dividendum,
the total divisible sum but in its ordinary sense it means the
sum paid and received as the quotient forming the share of the
divisible sum payable to the recipient. This statement does not
justify the contention that shareholders are owners of a divisible
sum or that they are owners of the property of the company.
The proper approach to the solution of the question is to
concentrate on the plain words of the definition of agricultural
income which connects in no uncertain language revenue with
the land from which it directly springs and a stray observation in
a case which has no bearing upon the present question does not
advance the solution of the question. There is nothing in the
Indian law to warrant the assumption that a shareholder who
buys shares buys any interest in the property of the company
which is a juristic person entirely distinct from the shareholders.
The true position of a shareholder is that on buying shares an
investor becomes entitled to participate in the profits of the
company in which he holds the shares if and when the company
declares, subject to the articles of association, that the profits or
any portion thereof should be distributed by way of dividends
24

among the shareholders. He has undoubtedly a further right to
participate in the assets of the company which would be left
over after winding up but not in the assets as a whole as Lord
Anderson puts it.

12. The High Court expressed the view that until a
dividend is declared there is no right in a shareholder to
participate in the profits and according to them the declaration
of dividend by the company is the effective source of the
dividend which is subject to tax. This statement of the law we
are unable to accept. Indeed the learned Attorney General
conceded that he was not prepared to subscribe to that
proposition. The declaration of dividend is certainly not the
source of the profit. The right to participation in the profits
exists independently of any declaration by the company with the
only difference that the enjoyment of profits is postponed until
dividends are declared.

13. It was argued that the position of shareholders
in a company is analogous to that of partners inter se.
This analogy is wholly inaccurate. Partnership is merely
an association of persons for carrying on the business of
partnership and in law the firm name is a compendious
method of describing the partners. Such is, however, not
the case of a company which stands as a separate juristic
entity distinct from the shareholders. In Halsbury’s Laws
of England, Vol. 6 (3rd Edn.), p. 234, the law regarding
the attributes of shares is thus stated:

“488. Attributes of shares.–A share is a right to
a specified amount of the share capital of a company
carrying with it certain rights and liabilities while the
company is a going concern and in its winding up. The
shares or other interest of any member in a company
are personal estate transferable in the manner provided
by its articles, and are not of the nature of real estate.””

The Apex Court holds that a shareholder acquires a right to

participate in the profits of the Company, but does not acquire any
25

interest in the assets of the Company. The clarity of the elucidation

brooks no ambiguity. In the contemporary digital age, the

assets of a Company are not confined to physical or movable

property. They extend, in significant measure to data, code

and intellectual propriety. Such digital assets, no less than

physical ones, are owned exclusively by the Company. The

petitioner therefore cannot seek refuge in his status as a

shareholder to negate the allegations of misappropriation.

This is sans countenance and is therefore repelled.

ISSUE NO.2:

(ii) Whether the factual matrix necessitates a full
fledged investigation or warrants obliteration of the alleged
crime at the threshold?

14. The second limb of submission pertains to applicability of

offences to Sections 406 and 420 of the IPC / 316 and 318(4) of

the BNS. It is urged that these provisions cannot co-exist.

Reliance is placed on the decision of the Apex Court in DELHI RACE

CLUB. There can be no qualm with the principle enunciated therein.

However, the factual context in that decision is materially

distinguishable. It arose from a private complaint before the

Magistrate, not from an FIR under investigation by the police. In

the case at hand, the complaint has set the criminal law in motion

through registration of FIR and matter is at the stage of

investigation. The offences invoked are based on allegations

disclosed in the complaint. Whether both offences will ultimately

sustain or whether one may give way to the other, upon

culmination of investigation, is a matter to be determined at a later

stage. At this juncture, it would be premature and indeed

inappropriate, for this Court to interdict investigation on the ground

of alleged overlap in offences.

15. As observed hereinabove, the complaint is registered

before the jurisdictional Police. The jurisdictional Police has chosen

the offences based upon the facts in the complaint. The matter is

still at the stage of investigation. It would be a circumstance where

the Police while filing the final report and if they file a charge sheet,

both the offences under Sections 316/406 and 318(4)/420 may not

be present. Therefore, it is too early for this Court to step in and
27

quash the proceedings, on the score that the police have registered

the crime for both Sections 316/406 and 318(4)/420. For the folly

of the Police in registering both the crimes i.e., for offences

punishable under Sections 316/406 and 318(4)/420, if this Court

would quash the proceedings, the victim will be left remediless.

Therefore, in such cases, the investigation in the least, is a must.

16. The final submission of the petitioner is that this Court

should undertake an exhaustive examination of voluminous

documents running close to hundreds of pages which only

underscores the complexity of the factual disputes involved.

Such an exercise falls squarely within the domain of the

investigating agency. To embark upon an enquiry, at this

stage, would amount to converting these proceedings into a

trial, which is impermissible. Where the case is enmeshed

with serious disputed question of fact, the Court in exercise

of its jurisdiction ought not to assume the role of

Investigating Authority, except in exceptional cases, as held

by the Apex Court in plethora of cases. The invitation to sift
28

through extensive material and to render findings thereon is

therefore found unacceptable.

17. It is apposite to refer to the judgment of the Apex Court

in the case of KAPTAN SINGH v. STATE OF UTTAR PRADESH2,

wherein it has been held as follows:

“…. …. ….

9.1. At the outset, it is required to be noted that in
the present case the High Court in exercise of powers
under Section 482 CrPC has quashed the criminal
proceedings for the offences under Sections 147, 148,
149, 406, 329 and 386 IPC. It is required to be noted that
when the High Court in exercise of powers under Section
482 CrPC quashed the criminal proceedings, by the time
the investigating officer after recording the statement of
the witnesses, statement of the complainant and
collecting the evidence from the incident place and after
taking statement of the independent witnesses and even
statement of the accused persons, has filed the charge-
sheet before the learned Magistrate for the offences
under Sections 147, 148, 149, 406, 329 and 386 IPC and
even the learned Magistrate also took the cognizance.
From the impugned judgment and order [Radhey Shyam
Gupta v. State of U.P., 2020 SCC OnLine All 914] passed by the
High Court, it does not appear that the High Court took into
consideration the material collected during the
investigation/inquiry and even the statements recorded. If the
petition under Section 482 CrPC was at the stage of FIR
in that case the allegations in the FIR/complaint only are
required to be considered and whether a cognizable
offence is disclosed or not is required to be considered.
However, thereafter when the statements are recorded,

2
(2021) 9 SCC 35
29

evidence is collected and the charge-sheet is filed after
conclusion of the investigation/inquiry the matter stands
on different footing and the Court is required to consider
the material/evidence collected during the investigation.
Even at this stage also, as observed and held by this Court in a
catena of decisions, the High Court is not required to go into the
merits of the allegations and/or enter into the merits of the case
as if the High Court is exercising the appellate jurisdiction
and/or conducting the trial. As held by this Court in Dineshbhai
Chandubhai Patel [Dineshbhai Chandubhai Patel v. State of
Gujarat, (2018) 3 SCC 104 : (2018) 1 SCC (Cri) 683] in order to
examine as to whether factual contents of FIR disclose any
cognizable offence or not, the High Court cannot act like the
investigating agency nor can exercise the powers like an
appellate court. It is further observed and held that that
question is required to be examined keeping in view, the
contents of FIR and prima facie material, if any, requiring no
proof. At such stage, the High Court cannot appreciate
evidence nor can it draw its own inferences from contents
of FIR and material relied on. It is further observed it is
more so, when the material relied on is disputed. It is
further observed that in such a situation, it becomes the
job of the investigating authority at such stage to probe
and then of the court to examine questions once the
charge-sheet is filed along with such material as to how
far and to what extent reliance can be placed on such
material.

9.2. In Dhruvaram Murlidhar Sonar [Dhruvaram Murlidhar
Sonar v. State of Maharashtra, (2019) 18 SCC 191 : (2020) 3
SCC (Cri) 672] after considering the decisions of this Court
in Bhajan Lal [State of Haryana v. Bhajan Lal, 1992 Supp (1)
SCC 335 : 1992 SCC (Cri) 426] , it is held by this Court that
exercise of powers under Section 482 CrPC to quash the
proceedings is an exception and not a rule. It is further
observed that inherent jurisdiction under Section 482
CrPC though wide is to be exercised sparingly, carefully
and with caution, only when such exercise is justified by
tests specifically laid down in the section itself. It is
further observed that appreciation of evidence is not
permissible at the stage of quashing of proceedings in
exercise of powers under Section 482 CrPC. Similar view
30

has been expressed by this Court in Arvind
Khanna [CBI v. Arvind Khanna, (2019) 10 SCC 686 : (2020) 1
SCC (Cri) 94] , Managipet [State of Telangana v. Managipet,
(2019) 19 SCC 87 : (2020) 3 SCC (Cri) 702] and
in XYZ [XYZ v. State of Gujarat, (2019) 10 SCC 337 : (2020) 1
SCC (Cri) 173] , referred to hereinabove.

9.3. Applying the law laid down by this Court in the
aforesaid decisions to the facts of the case on hand, we are of
the opinion that the High Court has exceeded its jurisdiction in
quashing the criminal proceedings in exercise of powers under
Section 482 CrPC.

10. The High Court has failed to appreciate and consider
the fact that there are very serious triable issues/allegations
which are required to be gone into and considered at the time of
trial. The High Court has lost sight of crucial aspects which have
emerged during the course of the investigation. The High Court
has failed to appreciate and consider the fact that the document
i.e. a joint notarised affidavit of Mamta Gupta Accused 2 and
Munni Devi under which according to Accused 2 Ms Mamta
Gupta, Rs 25 lakhs was paid and the possession was transferred
to her itself is seriously disputed. It is required to be noted that
in the registered agreement to sell dated 27-10-2010, the sale
consideration is stated to be Rs 25 lakhs and with no reference
to payment of Rs 25 lakhs to Ms Munni Devi and no reference to
handing over the possession. However, in the joint notarised
affidavit of the same date i.e. 27-10-2010 sale consideration is
stated to be Rs 35 lakhs out of which Rs 25 lakhs is alleged to
have been paid and there is a reference to transfer of
possession to Accused 2. Whether Rs 25 lakhs has been paid or
not the accused have to establish during the trial, because the
accused are relying upon the said document and payment of Rs
25 lakhs as mentioned in the joint notarised affidavit dated 27-
10-2010. It is also required to be considered that the first
agreement to sell in which Rs 25 lakhs is stated to be sale
consideration and there is reference to the payment of Rs 10
lakhs by cheques. It is a registered document. The aforesaid are
all triable issues/allegations which are required to be considered
at the time of trial. The High Court has failed to notice and/or
consider the material collected during the investigation.

11. Now so far as the finding recorded by the High Court
that no case is made out for the offence under Section 406 IPC
is concerned, it is to be noted that the High Court itself has
noted that the joint notarised affidavit dated 27-10-2010 is
seriously disputed, however as per the High Court the same is
required to be considered in the civil proceedings. There the
High Court has committed an error. Even the High Court has
failed to notice that another FIR has been lodged against the
accused for the offences under Sections 467, 468, 471 IPC with
respect to the said alleged joint notarised affidavit. Even
according to the accused the possession was handed over to
them. However, when the payment of Rs 25 lakhs as mentioned
in the joint notarised affidavit is seriously disputed and even one
of the cheques out of 5 cheques each of Rs 2 lakhs was
dishonoured and according to the accused they were handed
over the possession (which is seriously disputed) it can be said
to be entrustment of property. Therefore, at this stage to opine
that no case is made out for the offence under Section 406 IPC
is premature and the aforesaid aspect is to be considered during
trial. It is also required to be noted that the first suit was filed
by Munni Devi and thereafter subsequent suit came to be filed
by the accused and that too for permanent injunction only.
Nothing is on record that any suit for specific performance has
been filed. Be that as it may, all the aforesaid aspects are
required to be considered at the time of trial only.

12. Therefore, the High Court has grossly erred in
quashing the criminal proceedings by entering into the
merits of the allegations as if the High Court was
exercising the appellate jurisdiction and/or conducting
the trial. The High Court has exceeded its jurisdiction in
quashing the criminal proceedings in exercise of powers
under Section 482 CrPC.

13. Even the High Court has erred in observing that
original complaint has no locus. The aforesaid observation is
made on the premise that the complainant has not placed on
record the power of attorney along with the counter filed before
the High Court. However, when it is specifically stated in the FIR
that Munni Devi has executed the power of attorney and
thereafter the investigating officer has conducted the
investigation and has recorded the statement of the
32

complainant, accused and the independent witnesses, thereafter
whether the complainant is having the power of attorney or not
is to be considered during trial.

14. In view of the above and for the reasons stated
above, the impugned judgment and order [Radhey Shyam
Gupta v. State of U.P., 2020 SCC OnLine All 914] passed by the
High Court quashing the criminal proceedings in exercise of
powers under Section 482 CrPC is unsustainable and the same
deserves to be quashed and set aside and is accordingly
quashed and set aside. Now, the trial is to be conducted and
proceeded further in accordance with law and on its own merits.
It is made clear that the observations made by this Court in the
present proceedings are to be treated to be confined to the
proceedings under Section 482 CrPC only and the trial court to
decide the case in accordance with law and on its own merits
and on the basis of the evidence to be laid and without being
influenced by any of the observations made by us hereinabove.
The present appeal is accordingly allowed.”

18. The Apex Court in the case of STATE OF MADHYA

PRADESH v. KUNWAR SINGH3, has held as follows:

“…. …. ….

8. Having heard the submissions of the learned counsel
appearing on behalf of the appellant and the respondent, we
are of the view that the High Court has transgressed the
limits of its jurisdiction under Section 482 of CrPC by
enquiring into the merits of the allegations at the present
stage. The fact that the respondent was a signatory to the
cheques is not in dispute. This, in fact, has been adverted to
in the judgment of the High Court. The High Court has also
noted that a person who is required to approve a financial
proposal is duty bound to observe due care and responsibility.
There are specific allegations in regard to the irregularities
which have been committed in the course of the work of the

3
2021 SCC OnLine SC 3668
33

‘Janani Mobility Express’ under the National Rural Health
Mission. At this stage, the High Court ought not to be
scrutinizing the material in the manner in which the
trial court would do in the course of the criminal trial
after evidence is adduced. In doing so, the High Court
has exceeded the well-settled limits on the exercise of
the jurisdiction under Section 482 of CrPC. A detailed
enquiry into the merits of the allegations was not
warranted. The FIR is not expected to be an
encyclopedia, particularly, in a matter involving
financial irregularities in the course of the
administration of a public scheme. A final report has
been submitted under Section 173 of CrPC, after
investigation.

19. The Apex Court in the case of SOMJEET MALLICK v.

STATE OF JHARKHAND4, has held as follows:

“…. …. ….

15. Before we proceed to test the correctness of the
impugned order, we must bear in mind that at the stage of
deciding whether a criminal proceeding or FIR, as the
case may be, is to be quashed at the threshold or not,
the allegations in the FIR or the police report or the
complaint, including the materials collected during
investigation or inquiry, as the case may be, are to be
taken at their face value so as to determine whether a
prima facie case for investigation or proceeding against
the accused, as the case may be, is made out. The
correctness of the allegations is not to be tested at this
stage.

16. To commit an offence, unless the penal statute
provides otherwise, mens rea is one of the essential
ingredients. Existence of mens rea is a question of fact
which may be inferred from the act in question as well

4
(2024) 10 SCC 527
34

as the surrounding circumstances and conduct of the
accused. As a sequitur, when a party alleges that the
accused, despite taking possession of the truck on hire,
has failed to pay hire charges for months together,
while making false promises for its payment, a prima
facie case, reflective of dishonest intention on the part
of the accused, is made out which may require
investigation. In such circumstances, if the FIR is
quashed at the very inception, it would be nothing
short of an act which thwarts a legitimate
investigation.

17. It is trite law that FIR is not an encyclopaedia
of all imputations. Therefore, to test whether an FIR
discloses commission of a cognizable offence what is to
be looked at is not any omission in the accusations but
the gravamen of the accusations contained therein to
find out whether, prima facie, some cognizable offence
has been committed or not. At this stage, the court is
not required to ascertain as to which specific offence
has been committed.

18. It is only after investigation, at the time of
framing charge, when materials collected during
investigation are before the court, the court has to
draw an opinion as to for commission of which offence
the accused should be tried. Prior to that, if satisfied, the
court may even discharge the accused. Thus, when the FIR
alleges a dishonest conduct on the part of the accused
which, if supported by materials, would disclose
commission of a cognizable offence, investigation
should not be thwarted by quashing the FIR.

19. No doubt, a petition to quash the FIR does not
become infructuous on submission of a police report
under Section 173(2)CrPC, but when a police report
has been submitted, particularly when there is no stay
on the investigation, the court must apply its mind to
the materials submitted in support of the police report
before taking a call whether the FIR and consequential
proceedings should be quashed or not. More so, when
35

the FIR alleges an act which is reflective of a dishonest
conduct of the accused.”

(Emphasis supplied at each instance)

20. In the light of the judgments of the Apex Court, the

investigation cannot be stifled on the score that the matter is

purely civil in nature and the complainant ought to have

approached the civil Court. The issue is not purely civil in nature, it

has all the hues and forms of cyber crime and not a run on the mill

allegation. It is the allegation of downloading, copying, deletion of

source code, proprietary data and confidential digital assets. All

these are hues and forms of cyber crime and cyber crime

investigations are highly technical and complex involving forensic

reconstitution of data. Therefore, the projection of triviality of the

offence by the petitioner, contending that it is purely civil in nature,

cannot be acceded to, at this juncture. Investigation must ensue

and to enable it, the petition must necessarily meet its dismissal.

21. The petition stands dismissed accordingly.

In the light of dismissal of the petition, pending applications if

any, stand disposed, as a consequence.

SD/-

(M.NAGAPRASANNA)
JUDGE

Bkp
CT:MJ

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Mr. Aashay Harlalka vs State Of Karnataka on 25 March, 2026

Karnataka High Court