Calcutta High Court (Appellete Side)
Pinkhem Investment Company Pvt. Ltd. & … vs Manali Properties & Finance Private … on 27 February, 2026
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IN THE HIGH COURT AT CALCUTTA
CRIMINAL REVISIONAL JURISDICTION
APPELLATE SIDE
Present:
The Hon'ble Justice Ananya Bandyopadhyay
C.R.R. 308 of 2013
Pinkhem Investment Company Pvt. Ltd. & Ors.
-Vs-
Manali Properties & Finance Private Limited
For the Petitioners : Mr. Uttiyo Mallick
For the Opposite Party : Mr. Avishek Sinha
Judgment on : 27.02.2026
Ananya Bandyopadhyay, J.:-
1. The instant revisional application has been filed by the petitioner for
quashing of the proceedings of Case No.C-4100 of 2012, pending before the
Learned Judicial Magistrate, 2nd Court, Alipore, under Sections
403/406/418/420/120B of the Indian Penal Code.
2. The petitioner no.1 had been a company incorporated under the Companies
Act, 1956 with its registered office at Mumbai conducting its business
therefrom. Petitioner no.1 company, was represented by Sri Vinod Bhartiya,
had been duly authorized to represent the same through its Board
Resolution dated December 04, 2012.
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3. Petitioner no.2 had been a company incorporated under the Companies Act,
1956, conducting business from its registered office at Mumbai and was
represented by Sri Vinod Bhartiya, who had been duly authorized to
represent the petitioner no.2 company through its Board Resolution dated
December 04, 2012.
4. Petitioner no.3 was the Chief Finance Officer of the petitioner no.1, working
from the office of the petitioner no.1 situated at the address mentioned in the
cause title.
5. Petitioner nos. 4, 5 and 6 were the directors of the petitioner no.1 and
resided at the respective addresses as stated in the cause title. Petitioner
nos. 4 and 5 were also directors of petitioner no.2 company.
6. On or about 23.7.2012 opposite party filed a petition of complaint before the
Court of the Learned Chief Judicial Magistrate, South 24-Parganas at Alipore
alleging commission of offences by the Petitioners punishable under Sections
403/406/418/420/120B of the Indian Penal Code.
7. The Learned Chief Judicial Magistrate, South 24-Parganas at Alipore, by
order dated 23.7.2012, took note of the petition of complaint and transferred
the case to the Court of Learned Judicial Magistrate, 2 nd Court, Alipore for
disposal.
8. The petitioner no.1 company had been arraigned as accused no.1, petitioner
no.2 company had been arraigned as accused No.2 while the petitioner no.3
had been arraigned as accused no.3 and petitioner nos. 4, 5 and 6 as
directors of the petitioner no.1 were arraigned as accused nos.7, 8 and 9
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respectively. Another company which was not related with the petitioner by
the name of Pat Financial Consultants Pvt. Ltd. was arraigned as accused
no.4 and the directors of the accused no.4 had been arraigned as accused
nos.5, 6, 10 and 11.
9. The complaint in question narrated the following allegations:-
a) In or about mid 2011, the complainant/opposite party company was
in urgent need of funds for its business and the accused no. 1
company (Petitioner No. 1 company herein) being aware of the same
through one of its Directors, discussed the possibilities of sanction of
loan in the form of ICD. The accused no. 1 company (Petitioner No. 1
company herein) agreed to provide financial assistance by way of
Inter Corporate Deposit (ICD) of Rs.5,00,00,000/- on the condition
that the opposite party would provide security by way of equity
shares of Falcon Tyres Ltd. in the form of pledge for an amount
equivalent to double the amount of ICD on the market value of such
security.
b) On 02.06.2010 the opposite party pledged 11,77,000 equity shares of
Falcon Tyres Ltd. which was entrusted as security with the accused
no.1 company (Petitioner No.1 company) and a Loan agreement dated
07.06.2011 was executed at the registered address of the opposite
party at Kolkata. It was alleged under no circumstances, the accused
no. 1 company (Petitioner No. 1 company) could have invoked the
said pledge before expiry of the due date i.e. 07.12.2011 because the
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loan was for a period of 184 days commencing from 07.06.2011 till
07.12.2011.
c) It was also stated the opposite party had issued 3 post-dated cheques
in favour of the accused no.1 company (Petitioner No. 1 company
herein), of which two were for an amount of Rs.20, 41,644/- towards
payment of interest and the other was for Rs.5,00,00,000/- towards
repayment of the principal loan amount.
d) Due to fall in price of the security shares, 1,68,000 equity shares of
Falcon Tyres Ltd. were additionally pledged with the accused no.1
(Petitioner No.1 company).
e) The opposite party by its letter dated 25.05.2011 requested the
accused no. 1 (Petitioner No. 1 company) to retain 2,29,000 equity
shares of Falcon Tyres Ltd. for the purpose of topping up the
securities which were required for the Loan Agreement between Ruia
Sons Pvt. Ltd., a group company of the opposite party, and the
accused no. 2 company (Petitioner No. 2 company) and the accused
no. 1 company (Petitioner No. 1 company herein) held back 2,50,000
equity shares of Falcon Tyres Ltd. instead of 2,29,000 shares as
requested. Therefore the accused no.1 company (Petitioner No. 1
company) was entrusted with 15,95,000 shares of Falcon Tyres Ltd.
f) The first cheque of Rs.20,41,644/- was duly encashed by the accused
no.1 company (Petitioner No.1 company) on its due date. It was
alleged that on scrutiny, the opposite party came to know that the
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accused nos.1 and 2 company (Petitioner Nos. 1 & 2 company), in
collusion with each other and other accused, had been trading
substantial quantity of the shares entrusted with them by the
opposite party in the form of pledge, at a very low price amongst their
Group Companies, beneficiaries, men and agents in order to procure
more shares from the opposite party as per the terms of the loan
Agreement by bringing down the market price of the pledged shares.
g) The opposite party belatedly became aware of the fact that the
accused no. 1 (Petitioner No. 1 company) invoked the entire shares,
entrusted to them by way of pledge on 24.08.2011, which was much
before its due date and without prior intimation to the opposite party.
The opposite party also claims to have come to know that the accused
nos. 1 and 2 company (Petitioner Nos. 1 & 2 companies), in
connivance with each other and other accused persons, have
dishonestly transferred 6,14,095 shares of Falcon Tyres Ltd. to the
accused nos. 4, 5 and 6.
10. The Learned Judicial Magistrate, 2nd Court, Alipore, upon receipt of the said
case records, examined representative of the opposite party in terms of the
provisions of Section 200 of the Code of Criminal Procedure on 06.08.2012
and observed a prima facie case under Sections 403, 406, 418, 420 and
120B of the Indian Penal Code against the accused persons and as such,
directed issuance of process in the name of such accused persons. The
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Petitioners have thereafter received summons issued by the Learned
Magistrate.
11. The petitioners claimed complete innocence not being involved in
commission of any criminal offence and the instant proceedings was tainted
with mala fide and was harassive in nature for which the interference of this
High Court was highly solicited.
12. The petitioners had narrated certain facts delineated as follows:-
a) "The Chairman and controlling person of the Complainant, Mr. Pawan
Kumar Ruia ("Pawan Ruia") is the chairman and person in control of
various entities that form a part of the "Ruia Group" which includes the
Complainant, Dunlop India Limited, Falcon Tyres Limited and Ruia
Sons Private Limited. Pawan Ruia approached Petitioner No. 2
company, through a broker viz. Mr. Padam Singhania partner of Enarr
Capital, expressing need for an Inter Corporate Deposit ("ICD") of
Rs.5,00,00,000/- and offered shares of Dunlop India Limited and
Falcon Tyres Limited (both companies controlled by Pawan Ruia) as
security.
b) Pawan Ruia represented that the companies of the Ruia group were
financially sound and being part of the promoter group of two listed
companies, namely Dunlop India Ltd and Falcon Tyres Ltd., were also
in a position to offer substantial security in the form of shares of the
said listed companies towards repayment of amounts.
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c) To summarize his assurances, Pawan Ruia showed the Petitioner No. 1
and its officers a website of the Ruia Group which listed out several
companies as well as various business articles in which Pawan Ruia
claimed to have assets in excess of 5,000 Crores.
d) Since the Petitioner No. 2 company did not have any prior dealings
with the opposite party and expressed its hesitation to make such a
large deposit, opposite party and Pawan Ruia requested the Petitioner
No. 2 company to advance a deposit of Rs.5,00,00,000/- for 365 days
and offered to give postdated cheques towards discharge of their
payment obligations. In order to test the financial strength and
commitments of the opposite party and Pawan Ruia and unaware of
their true design, the Petitioner No. 2 company gave an inter corporate
deposit of Rs.5,00,00,000/- to Ruia Sons Private Limited ("Ruia Sons"),
a company controlled by Pawan Rula. Documents in this respect were
entered into by the parties relying on the personal assurances of
Pawan Ruia and shares of Falcon Tyres Ltd and Dunlop Tyres Ltd
pledged by the opposite party. This was done by way of a loan
agreement dated 21.07.2010 for a period of 365 days bearing interest
@15% p.a. Petitioner No. 1 company further on the request of Ruia Sons
Pvt. Ltd. renewed the same amount for 184 days vide a loan
agreement dated 21.07.2011.
e) Ruia Sons in discharge of their legally enforceable debts and liabilities
issued three postdated cheques in favour of petitioner no.2 company,
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two of which were towards payment of interest and third cheque was
towards repayment of the principal amount.
f) The sister concern of the opposite party (Ruia Sons) regularly paid all
interests due on the deposit without any default during the first tenure
of 365 days.
g) In the interregnum, due to fall in the value of security pledged to
Western India Garments Pvt. Ltd, the petitioner no.1 company (whose
one earlier ICD stood repaid and against which the petitioner no.1
company was still holding 6,92,000 shares of Falcon Tyres Limited),
was requested by opposite party on behalf of Ruia Sons by its letter
dated 25.05.2011 to assign part of the shares pledged by it to
Petitioner No.1 Company amounting to 2,29,000 shares of Falcon Tyres
Ltd. as security to Western India Garments Pvt. Ltd. However, due to
further fall in security, additional shares were required totaling to
21,000 shares and accordingly 2,50,000 shares were pledged as
security for the deposit given by Petitioner No. 2 company. The opposite
party issued two letters to this effect of which one has been concealed
in order to make out a false case of retention of valuable security
without authority.
h) On the due date of repayment of the principal amount of the ICD,
cheque dated 21.01.2012 for an amount of Rs.5,00,00,000/- on being
presented on 15.05.2012 was returned on 16.05.2012 with the
remarks "account closed". Since Ruia Sons and Pawan Ruia did not
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honour the cheque even after the issuance of the statutory notice on
25.05.2012, which was duly received by Ruia Sons and Pawan Ruia,
the petitioner no.2 company has initiated criminal proceedings against
Ruia Sons, Pawan Ruia and other Directors of Ruia Sons under Section
138 of the Negotiable Instruments Act, 1881. The said complaint being
Criminal Complaint No.5379 of 2012 was pending adjudication before
the Court of Learned Metropolitan Magistrate at Mazgaon, Mumbai.
i) Around the time that the Petitioner No. 2 extended its ICD by 184 days
in July, 2011, the opposite party in May-June 2011 approached the
Petitioner No.1 through the same broker, for an ICD of
Rs.5,00,00,000/- as the opposite party was once again in need of
funds. Since at that point of time in 2011, the ICD transaction between
Petitioner No. 2 and Ruia Sons was on track, the Petitioner No. 1 not
knowing the malafide intentions of Pawan Ruía and his companies
agreed to place another deposit of Rs.5,00,00,000/- with the opposite
party and Pawan Ruia for deposit tenure of 184 days, which deposit
was secured by 11,77,000 shares of Falcon Tyres Ltd equaling
approximately twice the amount deposited as per the prevalent market
price at the time. The opposite party also undertook to maintain the
security at this level and to pledge additional shares in the event prices
of the shares fell and in the event of a drastic fall, the petitioner no.1
company would be at liberty to invoke the shares and sell the same.
The understanding between the parties as well as the representations
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and undertakings of the opposite party were duly recorded in loan
agreement dated 07.06.2011.
j) Opposite party in discharge of their legally enforceable debts and
liabilities issued three postdated cheques in favour of petitioner no.1
company, two of which were towards payment of interest and third
cheque was towards repayment of the principal amount.
k) The opposite party also undertook in the aforesaid agreement to
provide additional shares without any requirement of notice as the
opposite party and Pawan Ruia, being persons in management and
control of these companies, were well aware of the share prices.
l) Accordingly on a further fall in share prices of Falcon Tyres Ltd within
15 days of making the deposit, the opposite party and Pawan Ruia
without any notice for the same by the Petitioner No. 1 company,
pledged a further quantum of 1,00,000 shares of Falcon Tyres Ltd on
or about 24.06.2011 and another 68,000 shares of Falcon Tyres Ltd on
or about 10.12.2011 to ensure that the value of the security stayed at
twice the amount of the deposit.
m)Sometime in July 2011, the share prices of Falcon Tyres Ltd fell further
such that the market price now fell by more than 30% of the market
price at the time of disbursement.
n) In August, 2011 the share prices of Falcon Tyres Ltd fell further so that
the market price fell by more than 50% of the market price at the time
of disbursement.
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o) Faced with a chronic failure on the part of the opposite party and
Pawan Ruia to pledge additional shares, or make up for the shortfall in
security in cash in accordance with the terms of the contract by way of
prudence and abundant caution, by virtue of the rights granted to it
under the Inter-corporate Deposit Agreement, the Petitioner No. 1
company invoked the pledge on 13,45,000 shares of Falcon Tyres Ltd
and caused the same to be retained in its depository account.
p) In September 2011, even though the opposite party and Pawan Ruia
failed to make good on their assurances to give additional shares as
security, the first cheque dated 07.09.2011 due for interest payable on
deposit was duly credited to the account of the petitioner no.1
company. The opposite party and Pawan Ruia, however stressed on
their assurances of offering additional shares, failed to make good
such promises.
q) Relying upon the assurances of the opposite party and Pawan Ruia,
the Petitioner No. 1 company continued to retain the pledged shares in
its depository account and did not sell the same.
r) In December 2011, despite completion of tenure of the deposit and the
interest thereon becoming due on 08.12.2011, the opposite party and
Mr. Ruia requested the Petitioner No. 1 to hold back on depositing the
cheques and assured the Petitioners that the same would be honored
within three weeks and that the opposite party and Pawan Ruia would
pay additional interest for the period of delay.
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s) Petitioner No. 1 acceded to the said request of the opposite party and
Pawan Ruia. Accordingly, the second cheque towards interest on
08.12.2011 and the third cheque towards the principal amount of the
ICD, dated 08.12.2011 for an amount of Rs.5,00,00,000/- were
presented after three weeks on 28.12.2011. However the same were
returned unpaid on 29.12.2012 with the remarks "payment stopped".
t) Opposite party and Pawan Ruia failed to honour the cheques even
after issuance of statutory notices on 06.01.2012 and 12.01.2012
respectively, which were duly received by opposite party and Pawan
Ruia.
u) On or about 27 February 2012, the petitioner no.1 company has
initiated criminal proceedings against opposite party, Pawan Ruia and
other Directors of opposite party under Section 138 of the Negotiable
Instruments Act, 1881. The said complaint being criminal complaint
no.302 of 2012 and criminal complaint no.156 of 2012 are pending
adjudication before the Court of Learned Metropolitan Magistrate at
Mazgaon, Mumbai.
v) The Opposite Party and Pawan Ruia in reply to the aforesaid notices
on 24.01.2012 and 06.02.2012 for the first time started claiming that
the Petitioner No. 1 had wrongly invoked the pledge and they had dealt
with the shares, both being factually incorrect and illegal statements
and for the first time claiming that, based on the incorrect invocation,
the opposite party and Pawan Ruia directed their bank to stop
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payment on the cheques. Notably, the liability was admitted by the
opposite party and no claim was made that the opposite party or
Pawan Ruia was not responsible.
w) Pawan Ruia despite various directions by the Trial Court, Sessions
Court and High Court at Bombay failed to appear and non bailable
warrants were issued against Pawan Rula on several occasions and
were successfully evaded. It was only after proclamation was issued
against Pawan Ruia that he appeared and took bail.
x) Notably, Pawan Ruia repeatedly sought indulgence and relief from the
courts of Mumbai by filing a criminal revision before the district judge
and before the hon High Court and was denied relief and directed to
join investigation and intentionally avoided/subverted the orders of the
Mumbai courts.
y) On or about 8 May 2012, the Petitioner No. 1 company filed a suit for
recovery against the opposite party and others being companies that
are part of the Ruia Group. All the parties have appeared in the
proceedings through their Counsel. In fact, opposite party has filed
pleadings and regularly appears in the said proceedings. Notably,
during these proceedings opposite party has at no point of time
revealed that it has filed any proceedings of a criminal nature and has
actually engaged in fraudulent concealment with the intention to
mislead the courts of Mumbai."
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13. The Learned Advocate representing the petitioners stated of various
proceedings pending between the parties in Mumbai as follows:-
a) Criminal Complaint Number 302 of 2012 under Sections 138 and
141 of the Negotiable Instruments Act pending before the Learned
Additional Chief Metropolitan Magistrate, Mazgaon, Mumbai.
Filed by Petitioner No.1 on 27 February 2012. Non-bailable
warrants issued against Pawan Ruia and bailable warrants issued
against persons in control of opposite party.
b) CRR 225 of 2012 filed by Pawan Kumar Ruia against issue of process
in Criminal Complaint No.302 of 2012.
Filed on or about 25 June 2012 in the court of the district judge. No
relief granted to Pawan Ruia.
c) Criminal Complaint Number 156 of 2012 under Section 138 and 141
of the Negotiable Instruments Act pending before the Learned.
Additional Chief Metropolitan Magistrate, Mazgaon, Mumbai. Filed by
Petitioner No.1 on 17 February 2012.
d) Criminal Complaint No. 5379 of 2012 under Section 138 and 141 of
the Negotiable Instruments Act pending before the Learned.
Additional Chief Metropolitan Magistrate, Mazgaon, Mumbai.
e) Filed by Petitioner No.2 on 10 July 2012.
f) Suit no. 1267 of 2012:-
The Petitioner No. 1 filed a suit for recovery in the Hon'ble High
Court at Mumbai. The said suit, being numbered as 1267 of 2012,
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was filed on 08.05.2012. The opposite party company along with
Soumitra Ghosh and Pawan Kumar Ruia entered appearance on
11.05.2012 and submitted undertakings not to transfer shares held
by them.
Independently, Accused No.4 Company has also initiated civil
proceedings against opposite party as well as Falcon tyres Ltd,
sometime in May 2012. Opposite party appears in the said suit
regularly and was bound by the orders of the Hon'ble Mumbai High
Court.
Notably, in all these proceedings before the Mumbai courts, till
date, opposite party has concealed the fact that it has filed a
complaint petition.
g) After appearing in the aforesaid proceedings, opposite party has now
filed the following two proceedings in Kolkata behind the back of the
Mumbai courts as well as your petitioners, which are:-
i. Suit no. 264 of 2012:- Desperately evading non bailable warrant and
absconding from justice, Soumitra Ghosh and Pawan Kumar Ruia in
a surreptitious and clandestine manner, caused filing of a suit being
Suit No. 264 of 2012, through the opposite party, for declaration and
mandatory injunction seeking to restrain the Petitioner No.. 1 and
others from dealing in the pledged shares and from giving effect to the
invocation of pledge. Notably, the invocation took place on 24th of
August 2011, proceedings in relation to the transaction were initiated
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in January, 2012, criminal complaints lodged in Mumbai in February
2012 and civil proceedings for recovery initiated in May 2012 and a
false and frivolous suit has been brought in Kolkata on 27.08.2012 in
Kolkata. In the suit, in an Illegal attempt to avoid collateral estoppel,
opposite party has willfully suppressed the fact of pendency of
proceedings on the same cause of action in Mumbai.
An application under Section 10 of the Civil Procedure Code has
been moved by your petitioners.
ii. CC number 4100 OF 2012:- Wary of its own illegalities, the opposite
party company also filed a complaint under Section 200 of the Code
of Criminal Procedure being CC No. 4100 of 2012 raising allegations
of alleged criminality in relation to a transaction which was civil in
nature and which transaction was already sub judice in the Courts at
Mumbai. As if not satisfied with these acts of concealment, the
opposite party and others have concealed facts from Mumbai High
court inasmuch as not a whisper was made by them in any of the
proceedings before the High Court at Mumbai about pendency of
these proceedings. It was pertinent to mention that the opposite
party, Mr. Ghosh and Mr. Ruia have appeared before the Mumbai
Courts on 1.9.2012, 4.9.2012, 26.9.2012 and 30.10.2012 and in
none of these proceedings did they disclose that they have filed
proceedings in relation to the same cause of action in Kolkata.
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The instant petition was preferred against the said criminal
complaint proceedings.
14. The Learned Advocate representing the petitioner submitted the disputes
between the parties were civil in nature in terms of the following clauses in
the loan agreements as stated:-
Clause 2. "2. The borrower agrees to keep at all times during the
currency of the ICDs, securities to be approved by the lender of 2 times
the value of loan including interest accrued thereon i.e. security worth
Rs.200/-for every Rs.100/- of the loan amount. In the event that the
share price of M/S Falcon Tyres Limited falls by more than 30%
compared to the share price as at the Disbursement date. i.e.
07.06.2011 all further top ups would necessitate through additional
payment of Cash/Fund only until the pledge margin is restored to 2
times of the ICD within 3 business days. In the event of top up is not
made in accordance to above, the consequences of default will follow
and entire ICD is called off & amount is immediately payable without
any further notice."
Clause 6 - "6. If at any time the value, of the said securities falls so
as to create a deficiency in the coverage required under clause 2
thereof, the Borrower on being asked by the lender shall deposit
Immediately with the lender additional securities which may be
acceptable to the lender or repay short fall amount, failing which the
lender shall be at liberty at its discretion to sell, dispose of or otherwise
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realize any or all of the said securities without being liable for any loss
or damage or diminution in value sustained thereby and adjust the
proceeds towards dues of the lender. In case the sale proceeds of the
securities are not sufficient to liquidate the ICDs and interest thereon
and all charges payable to the lender by the borrower, the borrower
shall remain liable to pay the remaining ICDs amount; interest and
other charges with interest as provided under clause 4 hereinbefore.
The Lender shall be at liberty to invoke pledge without notice, take
the shares into his beneficiary account and sell the pledged shares in
the event of any default in payment of principal amount of the Deposit,
interest or charges connected therewith, or any other default or non-
compliance of the terms & conditions contained herein which inter alia
include the following:-
a) Default in repayment of principal, interest and cost incidental to
ICD/pledge of shares on due date.
b) Shortfall in excess of 10% of the required security margin as
specified herein above (clause 2)
c) If any undertaking or assurance given or the declaration made
herein is found to be incorrect or at any stage the lender has any
reason to believe that in his opinion security given to him or repayment
of amounts due to him under this ICD will be adversely affected.
In the event of default as specified herein, the lender shall, in
addition to his other rights under this agreement, be entitled to have
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the pledged shares transferred in his name or in the name of his
nominee or deal with the said shares in any manner he may deem fit."
The aforesaid clauses 2 and 6 of the loan agreement reveal the
following:-
a) Security (in the form of shares of Falcon Tyres Ltd.) was to be 2 times
the value of the loan and interest taken together.
b) Any shortfall in the security margin, occasioned by a drop in share
prices of Falcon Tyres Ltd., was to be replenished within 3 days.
c) Security shortfall in excess of 10% was categorized as an event of
default, with the ensuing consequence of the loan being recalled
without notice and the borrower being entitled to sale etc. of the
pledged shares towards satisfaction of the loan amount,
d) The aforesaid clauses 2 and 6, relate inter alia to the security of
shares and the margin to be maintained therein and the
consequences of failure to maintain the requisite margin.
e) The aforesaid clauses are additional to clause 7, which provide for the
modalities of the satisfaction of the debt, in the event the same
remains unpaid on the due date. Clause 7 does not relate to shortfall
in the security margin or the consequences thereof.
f) Needless to state, the agreement provides for two eventualities, the
first being a shortfall in the security margin, which if not replenished
within 3 days, shall constitute an event of default.
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g) The second event of default is where the debt remains unsatisfied on
the due date.
h) Both the events of default provide the consequence of the loan being
recalled without notice and the borrower being entitled to sale etc. the
pledged shares towards satisfaction of the loan amount.
In the instant case, the price of shares of Falcon Tyres Ltd. fell
precipitously as a result whereof there was a shortfall in the security
margin much in excess of 10%. The relevant shares price history of
Falcon Tyres Ltd., as annexed hereto, would also demonstrate the
same. It was apparent from the complaint, that the Opposite Party
did not replenish the security margin and it fell much below the 10%
shortage limit, thereby triggering the consequences of default on
24.08.2011.
Thus, the crux of the allegation relates to disputes raised by the
opposite party against the operation of the terms of the loan
agreement. Pertinently, on the one hand the opposite party has taken
the benefit of the loan amount in terms of the loan agreement, and on
the other hand the opposite party has attempted to renege on the
covenants made by it governing the events of default in terms of the
loan agreement and has thereby attempted to avoid the liability under
the loan agreement.
The disputes if any, are thus purely civil. Pertinently, the opposite
party had also filed a civil suit, being T.S. 264 of 2012, seeking to
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injunct the petitioner no.1 from dealing in the shares. The interim
order passed initially in the said suit, was subsequently vacated, by
which time the value of the shares had completely eroded and
subsequently SEBI had delisted the shares on 27.11.2015.
i. Complaint did not disclose ingredients of offences:- The actions of
the petitioner no.1 being entirely within the ambit of the admitted
loan agreement dated 07.06.2011, the instant complaint fails to
disclose the ingredients of the alleged offences, as has been
elaborated during the course of the oral submissions and in the
comprehensive written notes.
ii. Vicarious Liability not applicable to Indian Penal Code offences:-
Vicarious liability was not applicable to the penal provisions under
the Indian Penal Code. While petitioner nos. 1 and 2 are juristic
entities, being companies registered under the appropriate laws,
petitioner nos. 3, 4, 5 and 6 are individuals against whom the
petition of complaint as also the statement of the witness does not
disclose any role in the factual matrix of the instant case. As no
person can be made vicariously liable for any offence, therefore the
case against the petitioner nos. 3, 4, 5 and 6 is liable to be quashed
on such score alone.
iii. Instant proceedings a counterblast to the Section 138 of the
Negotiable Instruments Act proceedings:-
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The instant proceeding was engineered by Malice and was a
Counterblast to proceedings under Section 138 of the Negotiable
Instruments Act filed earlier by the petitioner no.1 against the
Opposite Party. The instant proceeding was the defence version of the
opposite party to the proceedings under Section 138 of the N.I. Act.
The opposite party/persons responsible had caused appearance in
the said cases on 08.06.2021 and 23.05.2021 in the respective cases.
The present application was filed much later on 23.07.2012 only to
spite the petitioners in order to avoid legal consequences of their acts.
It was trite law that where the impugned proceeding was a
counterblast and the defence to a proceeding under Section 138 of
the N.I. Act, the same cannot be permitted to stand and was liable to
be quashed by this Hon'ble Court any leverage given or allowing the
prosecution to continue in such cases would only encourage the loan
defaulters and other habitual offenders to abuse the judicial process.
iv. Section 202 Cr.P.C., not complied with:- Process has been issued
in the instant case without complying with the mandatory procedure
of law envisaged under Section 202 of the Code of Criminal
Procedure, 1973. The learned Magistrate neither postponed the
issuance of process in order to conduct an inquiry in terms of Section
202 of the Cr.P.C., nor conducted the inquiry, which was mandatory
as the accused reside beyond the territorial jurisdiction of the
Learned Magistrate.
23
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v. SEBI action against group companies of the complainant:-
Securities and Exchange Board of India (SEBI) has banned the
officials of Falcon Tyres Ltd., one of the sister concerns of Opposite
Party who was the promoter entity, and its officials/Directors from
operating and accessing the security markets due to blatant
manipulations and malpractices of converting loans provided by
group entities into preferential allotments in order to avoid the
minimum public shareholding requirement.
Pertinently, the opposite party had pledged the shares of the same
Falcon Tyres Ltd. win respect of the loan of Rs.5,00,00,000/- taken
by it. It would thus be apparent that while on the one hand the
Opposite party had offered the shares of Falcon Tyres Ltd. as
security, on the other hand it was manipulating its price and
engineering a fall in it. This coupled with the fact that the opposite
party did not repay the loan of Rs.5 crores to the petitioner no.1,
brings out the inherent fraud and deception practised by the
Opposite Party.
15. The Learned Advocate for the petitioner further submitted as follows:-
i. The complaint further did not disclose the roles played by the
directors/employees of the company and directors/employees cannot
be made vicariously liable as a matter of course when the statute did
not provide for the same.
24
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ii. Furthermore, the present case was a counterblast to the Section 138
Negotiable Instruments Act, 1881 proceedings initiated by the
accused company against the opposite party/complainant and
moreover instant malicious proceedings effectively would lead to a
serious impediment for any financial institution to recover its dues
which admittedly in the present case has remained unpaid till date.
Furthermore, it was submitted that a party who consciously enters
into an agreement being completely aware of the consequences
cannot deny its terms and take illegally take aid of malicious
proceedings to avoid the obligations. It was agreed that lender would
give ICDs to borrower up to Rs.5,00,00,000/- (Rupees 5 Crores) @
18% p.a. for the period 7th June 2011 to 7th December 2011 (184
Days) against pledge of 11,77,000 shares of Falcon Tyres subject to,
value of securities pledged with the lender are sufficient to give
coverage of at least 2 times the value of ICD including interest
accrued thereon, at all times during the currency of the ICDs.
It was further agreed to give coverage of at least 2 times the value
of ICD, the borrower provided additional securities of Falcon Tyres
Ltd. (INE511801024) 68,000 shares were pledged on 22 nd June 2011
and Falcon Tyres Itd (INE511801024) 1,00,000 shares were pledged
on 08th August June 2011. As on Dated 8th August 2011, borrower
had pledged total Falcon Tyres Ltd. (INE511801024) 13,45,000 shares
as securities against ICDs.
25
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16. The Learned Advocate representing the opposite party submitted as follows:-
i. The primary allegation contextually stated after entering into the loan
agreement the Accused no.2 being Western India Garments Pvt. Ltd.,
the holding company of accused no.1 Pinkhem Investment Co. Pvt.
Ltd., from whom a group company of the complainant had borrowed
Inter Corporate Deposit of Rs.5,00,00,000/- Crores had been selling
the pledged shares entrusted to them in substantial quantities, in the
market before the maturity even without any intimation to the
Complaint's group company. On such information the Complainant
requested the accused no.1 not to invoke the shares entrusted with
them by the way of pledge before the expiry of the due date under the
loan agreement. On further enquiry it came to the knowledge of the
Complainant that accused no.1 and 2 in collusion with the other
accused persons namely Gyan Prakash Sinha, Minal B Patel, Bharat
Jayantilal Patel, Ajay Girdhari Lal Bhartiya, Shilpa Ajay Bhartiya,
Sushil Girdhari Lal Bhartiya, Prashant Jayanti Lal Patel, Pankaj
Jayanti Lal Patel and PAT Financial Consultants Pvt. Ltd., with mala-
fide intention and ulterior motive with an intention to cause an
undue loss to the complainant had been trading substantial
quantities of shares entrusted with them by the Complainant in the
form of pledge, at very low price amongst themselves/their group
companies, beneficiaries in order to procure more shares to the
Complainant as per terms of the loan agreement by bringing down
26
2022:CHC-AS:53826
the market price of the pledged shares in order to take control by
cornering the shares of Falcon Tyres Ltd which was a blue chip
company and under the control, of the complainant group.
ii. This deliberate and mala-fide intention of lowering the share price of
Falcon Tyres was in itself an offence. The aforesaid steps were taken
cunningly by the accused persons so that resultantly the share price
goes below the threshold limit and the Complainant Company
becomes liable to handover more shares according to the loan
agreement.
iii. From very inception all the accused had the intention to disturb
the affairs of the Falcon Tyres Ltd., through acquiring its shares by
such wrongful illegal invocation and to acquire more such stocks
from the Complainant and from the open market by deceiving the
stock market by keeping the stock price at a very lower side and also
to abstain the prospective speculators/investors from participating in
trading of the said stock.
iv.The statement of the Holding dated 07.05.2012 issued by the
National Securities Depository Limited made it clear that 3,73,475
number of equity shares of the said Falcon Tyres has been
transferred in the favour of PAT financial Consultants Pvt. Ltd., and
2,40,620 number of equity shares had been transferred in the joint
names of Minal B Patel and Bharat Jayantilal Patel.
27
2022:CHC-AS:53826
v. Reference to the specific paragraphs of the loan agreement between
the parties were indicated:-
a) Para 2 of the loan agreement states in the event if the shares of
Falcon Tyres Pvt Ltd falls to more than 30% compared to the share
price at the disbursement date i.e, 07.06.2011, further top ups
would be necessary through additional payment of cash/ funds
until the pledge margin was restored to two times of the ICD within
three business days. In the event of top up was not made in
accordance to above, the consequence of default would follow and
entire ICD was called off and amount was directly payable without
any further notice.
Accordingly, to invoke the aforesaid clause two things were
to be proved. Firstly, that the share prices had gone down by more
than 30% and secondly, the complainant company has failed to
make additional payments as had been required under the
agreement. However, all these issues were questions of fact and as
such could not be considered at this stage invoking Section 482 of
Code of Criminal Procedure without going through the process of
trial.
b) The 3rd clause of the loan agreement stated without prejudice to
the provisions hereinabove, ICD's facilities would be available for a
period of 184 days, i.e., from 07.06.2011 to 07.12.2011 and the
borrower should repay on due date. In view of such aforesaid
28
2022:CHC-AS:53826
clause the Complainant Company was not liable to repay before
184 days. As such invoking the aforesaid clause by the accused
persons much prior to the due date by selling the shares handed
over to them as security at a much lower price and thereby
bringing down the share price of the Falcon Tyres to illegally obtain
more shares of Falcon Tyres was per se a criminal offence.
vi.In addition to the role played by accused companies' specific
averments as well allegations and roles have been attributed against
all the other accused persons besides the juristic persons. Hence the
plea of the accused persons that the rest of the accused were not
vicariously liable and had no legs to stand.
In the backdrop of the aforesaid discussion it could safely be
concluded that it could not be said that complaint did not disclose
any offence. Further, most of the grounds taken by
accused/petitioners were question of facts and that had to pass the
test of trial. In view of the same it was submitted that it was not a fit
case to invoke inherent jurisdiction of the High Court and as such the
present revisional application should be dismissed.
17. The Hon'ble Supreme Court in the case of DELHI RACE CLUB (1940)
LIMITED AND OTHERS vs. STATE OF UTTAR PRADESH AND ANOTHER1
has observed as follows: -
"Scope of inquiry under Section 202CrPC
1(2024) 10 SCC 690
29
2022:CHC-AS:53826
12. It is by now well-settled that at the stage of issuing process it is
not the duty of the court to find out as to whether the accused will be
ultimately convicted or acquitted. The object of consideration of the
merits of the case at this stage could only be to determine whether
there are sufficient grounds for proceeding further or not. Mere
existence of some grounds which would be material in deciding
whether the accused should be convicted or acquitted does not
generally indicate that the case must necessarily fail. On the other
hand, such grounds may indicate the need for proceeding further in
order to discover the truth after a full and proper investigation.
13. If, however, a bare perusal of a complaint or the evidence led in
support of it shows essential ingredients of the offences alleged are
absent or that the dispute is only of a civil nature or that there are
such patent absurdities in evidence produced that it would be a waste
of time to proceed further, then of course, the complaint is liable to be
dismissed at that stage only.
14. What the Magistrate has to determine at the stage of issue of
process is not the correctness or the probability or improbability of
individual items of evidence on disputable grounds, but the existence
or otherwise of a prima facie case on the assumption that what is
stated can be true unless the prosecution allegations are so fantastic
that they cannot reasonably be held to be true. [See : D.N.
Bhattacharjee v. State of W.B. [D.N. Bhattacharjee v. State of W.B.,
(1972) 3 SCC 414 : 1972 SCC (Cri) 564] ]
15. Further it is also well-settled that at the stage of issuing process a
Magistrate is mainly concerned with the allegations made in the
complaint or the evidence led in support of the same and he is only to
be prima facie satisfied whether there are sufficient grounds for
proceeding against the accused. It is not the province of the Magistrate
to enter into a detailed discussion of the merits or demerits of the case
nor can the High Court go into this matter in its inherent jurisdiction
30
2022:CHC-AS:53826
which is to be sparingly used. The scope of the inquiry under Section
202CrPC is extremely limited -- only to the ascertainment of the truth
or falsehood of the allegations made in the complaint -- (i) on the
materials placed by the complainant before the Court, (ii) for the limited
purpose of finding out whether a prima facie case for issue of process
has been made out, and (iii) for deciding the question purely from the
point of view of the complainant without at all adverting to any defence
that the accused may have.
16. In fact in proceedings under Section 202CrPC, the accused has got
absolutely no locus standi and is not entitled to be heard on the
question whether the process should be issued against him or not. It is
true that in coming to a decision as to whether a process should be
issued the Magistrate can take into consideration inherent
improbabilities appearing on the face of the complaint or in the
evidence led by the complainant in support of the allegations but there
appears to be a very thin line of demarcation between a probability of
conviction of the accused and establishment of a prima facie case
against him. The discretion given to the Magistrate on this behalf has
to be judicially exercised by him. Once the Magistrate has exercised
his discretion, it is not for the High Court or even the Supreme Court to
substitute its own discretion for that of the Magistrate or to examine
the case on merits with a view to find out whether or not the
allegations in the complaint, if proved, would ultimately end in the
conviction of the accused.
17. These considerations are totally foreign to the scope and ambit of
an inquiry under Section 202CrPC which culminates into an order
under Section 204. [See : Nagawwa v. Veeranna Shivalingappa
Konjalgi [Nagawwa v. Veeranna Shivalingappa Konjalgi, (1976) 3 SCC
736 : 1976 SCC (Cri) 507] .] It is no doubt true that in this very decision
this Court has enumerated certain illustrations as to when the order of
the Magistrate issuing process against the accused can be quashed or
31
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set aside. These illustrations are as under : (Nagawwa
case [Nagawwa v. Veeranna Shivalingappa Konjalgi, (1976) 3 SCC
736 : 1976 SCC (Cri) 507] , SCC p. 741, para 5)
"5. ... (1) Where the allegations made in the complaint or the
statements of the witnesses recorded in support of the same taken
at their face value make out absolutely no case against the accused
or the complaint does not disclose the essential ingredients of an
offence which is alleged against the accused;
(2) Where the allegations made in the complaint are patently absurd
and inherently improbable so that no prudent person can ever reach
a conclusion that there is sufficient ground for proceeding against
the accused;
(3) Where the discretion exercised by the Magistrate in issuing
process is capricious and arbitrary having been based either on no
evidence or on materials which are wholly irrelevant or
inadmissible; and
(4) Where the complaint suffers from fundamental legal defects, such
as, want of sanction, or absence of a complaint by legally competent
authority and the like."
"
18. The Hon'ble Supreme Court in the case of UDAI SHANKAR AWASTHI vs.
STATE OF UTTAR PRADESH AND ANOTHER 2 has observed the following: -
"40. The Magistrate had issued summons without meeting the
mandatory requirement of Section 202 CrPC, though the appellants
were outside his territorial jurisdiction. The provisions of Section 202
CrPC were amended vide the Amendment Act, 2005, making
it mandatory to postpone the issue of process where the accused
resides in an area beyond the territorial jurisdiction of the Magistrate
concerned. The same was found necessary in order to protect innocent
2(2013) 2 SCC 435
32
2022:CHC-AS:53826
persons from being harassed by unscrupulous persons and making it
obligatory upon the Magistrate to enquire into the case himself, or to
direct investigation to be made by a police officer, or by such other
person as he thinks fit for the purpose of finding out whether or not,
there was sufficient ground for proceeding against the accused before
issuing summons in such cases. (See also Shivjee Singh v. Nagendra
Tiwary [(2010) 7 SCC 578 : (2010) 3 SCC (Cri) 452 : AIR 2010 SC
2261] , SCC p. 584, para 11 and National Bank of Oman v. Barakara
Abdul Aziz [(2013) 2 SCC 488 : JT (2012) 12 SC 432] .)
19. The Hon'ble Supreme Court in the case of NATIONAL BANK OF OMAN vs.
BARAKARA ABDUL AZIZ AND ANOTHER 3 has observed the following: -
"8. We find no error in the view taken by the High Court that the CJM,
Ahmednagar had not carried out any enquiry or ordered investigation
as contemplated under Section 202 CrPC before issuing the process,
considering the fact that the respondent is a resident of District
Dakshin Kannada, which does not fall within the jurisdiction of the
CJM, Ahmednagar. It was, therefore, incumbent upon him to carry out
an enquiry or order investigation as contemplated under Section 202
CrPC before issuing the process.
9. The duty of a Magistrate receiving a complaint is set out in Section
202 CrPC and there is an obligation on the Magistrate to find out if
there is any matter which calls for investigation by a criminal court.
The scope of enquiry under this section is restricted only to find out the
truth or otherwise of the allegations made in the complaint in order to
determine whether process has to be issued or not. Investigation under
Section 202 CrPC is different from the investigation contemplated in
Section 156 as it is only for holding the Magistrate to decide whether or
not there is sufficient ground for him to proceed further. The scope of
enquiry under Section 202 CrPC is, therefore, limited to the
3(2013) 2 SCC 488
33
2022:CHC-AS:53826
ascertainment of truth or falsehood of the allegations made in the
complaint:
(i) on the materials placed by the complainant before the court;
(ii) for the limited purpose of finding out whether a prima facie case for
issue of process has been made out; and
(iii) for deciding the question purely from the point of view of the
complainant without at all adverting to any defence that the accused
may have.
10. Section 202 CrPC was amended by the Code of Criminal Procedure
(Amendment) Act, 2005 and the following words were inserted:
"and shall, in a case where the accused is residing at a place beyond
the area in which he exercises his jurisdiction,"
The notes on clauses for the abovementioned amendment read as
follows:
"False complaints are filed against persons residing at far off places
simply to harass them. In order to see that innocent persons are not
harassed by unscrupulous persons, this clause seeks to amend sub-
section (1) of Section 202 to make it obligatory upon the Magistrate that
before summoning the accused residing beyond his jurisdiction he
shall enquire into the case himself or direct investigation to be made by
a police officer or by such other person as he thinks fit, for finding out
whether or not there was sufficient ground for proceeding against the
accused."
The amendment has come into force w.e.f. 23-6-2006 vide Notification
No. S.O. 923(E) dated 21-6-2006.
11. We are of the view that the High Court has correctly held that the
abovementioned amendment was not noticed by the CJM,
Ahmednagar. The CJM had failed to carry out any enquiry or order
investigation as contemplated under the amended Section 202 CrPC.
Since it is an admitted fact that the accused is residing outside the
34
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jurisdiction of the CJM, Ahmednagar, we find no error in the view
taken by the High Court.
12. All the same, the High Court instead of quashing the complaint,
should have directed the Magistrate to pass fresh orders following the
provisions of Section 202 CrPC."
20. The Hon'ble Supreme Court in the case of VIJAY DHANUKA AND OTHERS
VS. NAKIMA MAMTAJ AND OTHERS 4 has observed the following: -
"9. Under Section 200 of the Code, on presentation of the complaint by
an individual, other than public servant in certain contingency, the
Magistrate is required to examine the complainant on solemn
affirmation and the witnesses present, if any. Thereafter, on perusal of
the allegations made in the complaint, the statement of the
complainant on solemn affirmation and the witnesses examined, if
any, various options are available to him. If he is satisfied that the
allegations made in the complaint and statements of the complainant
on oath and the witnesses constitute an offence, he may direct for
issuance of process as contemplated under Section 204 of the Code. In
case, the Magistrate is of the opinion that there is no sufficient ground
for proceeding, the option available to him is to dismiss the complaint
under Section 203 of the Code. If on examination of the allegations
made in the complaint and the statement of the complainant on solemn
affirmation and the witnesses examined, the Magistrate is of the
opinion that there is no sufficient ground for proceeding, the option
available to him is to postpone the issue of process and either inquire
the case himself or direct the investigation to be made by a police
officer or by any other person as he thinks fit. This option is also
available after the examination of the complainant only.
10. However, in a case in which the accused is residing at a place
beyond the area in which the Magistrate exercises his jurisdiction
4(2014) 14 SCC 638
35
2022:CHC-AS:53826
whether it would be mandatory to hold inquiry or the investigation as
he thinks fit for the purpose of deciding whether or not there is
sufficient ground for proceeding, is the question which needs our
determination. In this connection, it is apt to refer to Section 202 of the
Code which provides for postponement of issue of process. The same
reads as follows:
"202.Postponement of issue of process.--(1) Any Magistrate,
on receipt of a complaint of an offence of which he is authorised to
take cognizance or which has been made over to him under Section
192, may, if he thinks fit, and shall, in a case where the accused is
residing at a place beyond the area in which he exercises his
jurisdiction, postpone the issue of process against the accused, and
either inquire into the case himself or direct an investigation to be
made by a police officer or by such other person as he thinks fit, for
the purpose of deciding whether or not there is sufficient ground for
proceeding:
Provided that no such direction for investigation shall be made--
(a) where it appears to the Magistrate that the offence complained of
is triable exclusively by the Court of Session; or
(b) where the complaint has not been made by a court, unless the
complainant and the witnesses present (if any) have been examined
on oath under Section 200.
(2) In an inquiry under sub-section (1), the Magistrate may, if he
thinks fit, take evidence of witnesses on oath:
Provided that if it appears to the Magistrate that the offence
complained of is triable exclusively by the Court of Session, he shall
call upon the complainant to produce all his witnesses and examine
them on oath.
(3) If an investigation under sub-section (1) is made by a person not
being a police officer, he shall have for that investigation all the
36
2022:CHC-AS:53826
powers conferred by this Code on an officer in charge of a police
station except the power to arrest without warrant."
11. Section 202 of the Code, inter alia, contemplates postponement of
the issue of the process "in a case where the accused is residing at a
place beyond the area in which he exercises his jurisdiction" and
thereafter to either inquire into the case by himself or direct an
investigation to be made by a police officer or by such other person as
he thinks fit. In the face of it, what needs our determination is as to
whether in a case where the accused is residing at a place beyond the
area in which the Magistrate exercises his jurisdiction, inquiry is
mandatory or not.
12. The words "and shall, in a case where the accused is residing at a
place beyond the area in which he exercises his jurisdiction" were
inserted by Section 19 of the Code of Criminal Procedure (Amendment)
Act (Central Act 25 of 2005) w.e.f. 23-6-2006. The aforesaid
amendment, in the opinion of the legislature, was essential as false
complaints are filed against persons residing at far off places in order
to harass them. The note for the amendment reads as follows:
"False complaints are filed against persons residing at far off places
simply to harass them. In order to see that innocent persons are not
harassed by unscrupulous persons, this clause seeks to amend sub-
section (1) of Section 202 to make it obligatory upon the Magistrate
that before summoning the accused residing beyond his jurisdiction
he shall enquire into the case himself or direct investigation to be
made by a police officer or by such other person as he thinks fit, for
finding out whether or not there was sufficient ground for
proceeding against the accused."
The use of the expression "shall" prima facie makes the inquiry or the
investigation, as the case may be, by the Magistrate mandatory. The
word "shall" is ordinarily mandatory but sometimes, taking into
account the context or the intention, it can be held to be directory. The
37
2022:CHC-AS:53826
use of the word "shall" in all circumstances is not decisive. Bearing in
mind the aforesaid principle, when we look to the intention of the
legislature, we find that it is aimed to prevent innocent persons from
harassment by unscrupulous persons from false complaints. Hence, in
our opinion, the use of the expression "shall" and the background and
the purpose for which the amendment has been brought, we have no
doubt in our mind that inquiry or the investigation, as the case may be,
is mandatory before summons are issued against the accused living
beyond the territorial jurisdiction of the Magistrate.
13. In view of the decision of this Court in Udai Shankar
Awasthi v. State of U.P. [(2013) 2 SCC 435 : (2013) 1 SCC (Civ) 1121 :
(2013) 2 SCC (Cri) 708] , this point need not detain us any further as in
the said case, this Court has clearly held that the provision aforesaid
is mandatory. It is apt to reproduce the following passage from the
said judgment: (SCC p. 449, para 40)
"40. The Magistrate had issued summons without meeting the
mandatory requirement of Section 202 CrPC, though the appellants
were outside his territorial jurisdiction. The provisions of Section 202
CrPC were amended vide the Amendment Act, 2005, making it [Ed.:
The matter between the two asterisks has been emphasised in
original as well.] mandatory to postpone the issue of process [Ed.:
The matter between the two asterisks has been emphasised in
original as well.] where the accused resides in an area beyond the
territorial jurisdiction of the Magistrate concerned. The same was
found necessary in order to protect innocent persons from being
harassed by unscrupulous persons and making it obligatory upon
the Magistrate to enquire into the case himself, or to direct
investigation to be made by a police officer, or by such other person
as he thinks fit for the purpose of finding out whether or not, there
was sufficient ground for proceeding against the accused before
issuing summons in such cases."
38
2022:CHC-AS:53826
(emphasis supplied)
14. In view of our answer to the aforesaid question, the next question
which falls for our determination is whether the learned Magistrate
before issuing summons has held the inquiry as mandated under
Section 202 of the Code. The word "inquiry" has been defined under
Section 2(g) of the Code, the same reads as follows:
"2. (g) 'inquiry' means every inquiry, other than a trial, conducted
under this Code by a Magistrate or court;"
It is evident from the aforesaid provision, every inquiry other than a
trial conducted by the Magistrate or the court is an inquiry. No specific
mode or manner of inquiry is provided under Section 202 of the Code.
In the inquiry envisaged under Section 202 of the Code, the witnesses
are examined whereas under Section 200 of the Code, examination of
the complainant only is necessary with the option of examining the
witnesses present, if any. This exercise by the Magistrate, for the
purpose of deciding whether or not there is sufficient ground for
proceeding against the accused, is nothing but an inquiry envisaged
under Section 202 of the Code."
21. The address of the petitioners are replicated as follows:-
i. Pinkhem Investment Company Pvt. Ltd., a company incorporated
under the Companies Act, 1956 having its registered office at 5 th
floor, Aryavarta, 351, The Bharat Villa Co-operative Housing Society
Ltd., 351, Narayan Dhabolker Road, Mumbai - 400 006;
ii. Western India Garments Private Limited, a company incorporated
under the Companies Act, 1956 having its Registered Office at Block
No.22(1) Mumbai Cotton Mills Compound, Dattaram, Kalachowki,
Mumbai - 400 033;
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2022:CHC-AS:53826
iii. Gyan Prakash Sinha, Chief Finance Officer, Pinkhem Investment
Company Pvt. Ltd., having its registered office at 5 th floor, Aryavarta,
351, The Bharat Villa Co-operative Housing Society Ltd., 351,
Narayan Dhabolker Road, Mumbai - 400 006;
iv. Ajay Girdharilal Bhartiya,
v. Shilpa Ajay Bhartiya,
Both Common Directors of Pinkhem Investment Company Pvt. Ltd.,
residing at 5, Aryavarta, Narayan Dabholkar Road, Off Nepean Sea
Road, Mumbai - 400 006;
vi. Sushil Girdharilal Bhartiya, Director of Pinkhem Investment Co. Pvt.
Ltd., residing at 61-8, Jolly Maker Apts No.1, Cuffe Parade, Mumbai -
400 005.
22. Section 202 of the Code of Criminal Procedure states that any Magistrate, on
receipt of a complaint which has been made over to him under Section 192,
shall, in a case where the accused is residing at a place beyond the area in
which he exercises his jurisdiction, postpone the issue of process against the
accused and either inquire into the case himself or direct an investigation to
be made by a police officer or by such other person as he thinks fit, for the
purpose of deciding whether or not there was sufficient ground for
proceeding. It was thus apparent that in cases where the accused persons
reside and/or work outside the territorial jurisdiction of the Court of the
Magistrate, the Learned Magistrate was required to either inquire himself or
to direct investigation by a police officer or any other person deemed fit by
40
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the Magistrate. The said requirement of law needs to be respected and
complied with care and caution and not to be treated as a mere empty
formality. From a perusal of the orders passed by the Learned Magistrate, it
was apparent that the Learned Magistrate recorded the statement of the
complainant/opposite party under Section 200 of the Code of Criminal
Procedure but thereafter did not take any further steps, as envisaged under
Section 202 of the Code of Criminal Procedure. In view of the mandatory
nature of the provisions of Section 202 of the Code of Criminal Procedure
relating to issuance of process against persons residing outside the
jurisdiction of the Court of the Learned inquiring Magistrate, it was apparent
that the issuance of process by the Learned Magistrate was not in
accordance with law.
23. Summoning of an accused in a criminal case was a serious matter. Criminal
Law cannot be set into motion as a matter of course. The order of the learned
Magistrate summoning the accused must reflect that he has applied his
mind to the facts of the case and the law applicable thereto. The learned
Magistrate also has to examine the nature of the allegations made in the
complaint and the evidence both oral and documentary in support thereof
and determine as to whether the same would be sufficient for the
complainant to succeed in bringing home the charge of the accused. The
learned Magistrate also has to carefully scrutinize the evidence brought on
record and then examine if any offence had been committed by any of the
accused.
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24. The Hon'ble Supreme Court in the case of CENTRAL BUREAU OF
INVESTIGATION vs. ARYAN SINGH AND OTHERS5have observed the
following: -
"5. Having gone through the impugned common judgment and
order [Aryan Singh v. CBI, 2022 SCC OnLine P&H 4158] passed by
the High Court quashing the criminal proceedings and discharging
the accused, we are of the opinion that the High Court has
exceeded in its jurisdiction in quashing the entire criminal
proceedings in exercise of the limited powers under Section
482CrPC and/or in exercise of the powers under Article 226 of the
Constitution of India.
6. From the impugned common judgment and order [Aryan
Singh v. CBI, 2022 SCC OnLine P&H 4158] passed by the High
Court, it appears that the High Court has dealt with the
proceedings before it, as if, the High Court was conducting a mini
trial and/or the High Court was considering the applications
against the judgment and order passed by the learned trial court on
conclusion of trial. As per the cardinal principle of law, at the stage
of discharge and/or quashing of the criminal proceedings, while
exercising the powers under Section 482CrPC, the Court is not
required to conduct the mini trial. The High Court in the common
impugned judgment and order has observed that the charges
against the accused are not proved. This is not the stage where the
prosecution/investigating agency is/are required to prove the
charges. The charges are required to be proved during the trial on
the basis of the evidence led by the prosecution/investigating
agency.
7. Therefore, the High Court has materially erred in going in detail
in the allegations and the material collected during the course of the
5
(2023) 18 SCC 399
42
2022:CHC-AS:53826
investigation against the accused, at this stage. At the stage of
discharge and/or while exercising the powers under Section
482CrPC, the Court has a very limited jurisdiction and is required
to consider "whether any sufficient material is available to proceed
further against the accused for which the accused is required to be
tried or not"."
25. The Hon'ble Supreme Court in the case of STATE OF ODISHA vs.
PRATIMA MOHANTY AND OTHERS6 has observed the following: -
"3.1. It is submitted that while quashing the criminal proceedings
against the respondent-accused the High Court has exceeded its
jurisdiction vested under Section 482CrPC.
3.2. It is submitted that the High Court has not at all appreciated and
considered the fact that at the stage of considering the application
under Section 482CrPC, the minute details of the case are not required
to be gone into at all. It is submitted that in the present case it was
found that the allotment of the 10 plots were made by the accused in
connivance with each other arbitrarily and the plots were allotted to
the relatives of the accused--public servants. It is submitted that no
advertisement was issued by the BDA inviting the applications from
intending purchasers. The accused--officers deliberately concealed the
matter from the general public and thus avoided competition. It is
submitted that it was found that on the undated applications the plots
were allotted to the relatives of the accused herein and public servants.
It is submitted that therefore, the first information report was filed by
the Vigilance Cell against the accused for the aforesaid offences. It is
submitted that after a thorough investigation a charge-sheet has been
filed before the learned Special Judge (Vigilance), Bhubaneswar. It is
submitted that having found prima facie case and being satisfied that
a case for the offences under Section 13(2) read with Section 13(1)(d) of
the Act and Section 420 read with Section 120-BIPC was made out, the
6
(2022) 16 SCC 703
43
2022:CHC-AS:53826
learned Special Judge (Vigilance), Bhubaneswar has taken cognizance.
It is submitted therefore the High Court ought not to have exercised the
powers under Section 482CrPC and not ought to have quashed the
criminal proceedings.
3.3. It is submitted that as such the High Court quashed the criminal
proceedings by scrutinising the FIR/material on record in detail as if
the High Court was conducting a mini-trial which is not permissible at
the stage of exercising the powers under Section 482CrPC. It is
submitted that the aforesaid approach is wholly impermissible as per
the law laid down by this Court in a catena of decisions.
.....
8. As held by this Court in State of Haryana v. Bhajan Lal [State of
Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335 : 1992 SCC (Cri) 426] ,
the powers under Section 482CrPC could be exercised either to prevent
an abuse of process of any court and/or otherwise to secure the ends
of justice. In the said decision this Court had carved out the exceptions
to the general rule that normally in exercise of powers under Section
482CrPC the criminal proceedings/FIR should not be quashed.
Exceptions to the above general rule are carved out in para 102
in Bhajan Lal [State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335
: 1992 SCC (Cri) 426] which reads as under : (SCC pp. 378-79)
“102. In the backdrop of the interpretation of the various relevant
provisions of the Code under Chapter XIV and of the principles of
law enunciated by this Court in a series of decisions relating to the
exercise of the extraordinary power under Article 226 or the inherent
powers under Section 482 of the Code which we have extracted and
reproduced above, we give the following categories of cases by way
of illustration wherein such power could be exercised either to
prevent abuse of the process of any court or otherwise to secure the
ends of justice, though it may not be possible to lay down any
precise, clearly defined and sufficiently channelised and inflexible
44
2022:CHC-AS:53826
guidelines or rigid formulae and to give an exhaustive list of myriad
kinds of cases wherein such power should be exercised.
(1) Where the allegations made in the first information report or the
complaint, even if they are taken at their face value and accepted in
their entirety do not prima facie constitute any offence or make out a
case against the accused.
(2) Where the allegations in the first information report and other
materials, if any, accompanying the FIR do not disclose a cognizable
offence, justifying an investigation by police officers under Section
156(1) of the Code except under an order of a Magistrate within the
purview of Section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the FIR or
complaint and the evidence collected in support of the same do not
disclose the commission of any offence and make out a case against
the accused.
(4) Where, the allegations in the FIR do not constitute a cognizable
offence but constitute only a non-cognizable offence, no investigation
is permitted by a police officer without an order of a Magistrate as
contemplated under Section 155(2) of the Code.
(5) Where the allegations made in the FIR or complaint are so absurd
and inherently improbable on the basis of which no prudent person
can ever reach a just conclusion that there is sufficient ground for
proceeding against the accused.
(6) Where there is an express legal bar engrafted in any of the
provisions of the Code or the Act concerned (under which a criminal
proceeding is instituted) to the institution and continuance of the
proceedings and/or where there is a specific provision in the Code or
the Act concerned, providing efficacious redress for the grievance of
the aggrieved party.
(7) Where a criminal proceeding is manifestly attended with mala
fide and/or where the proceeding is maliciously instituted with an
45
2022:CHC-AS:53826
ulterior motive for wreaking vengeance on the accused and with a
view to spite him due to private and personal grudge.”
8.2. It is trite that the power of quashing should be exercised sparingly
and with circumspection and in rare cases. As per the settled
proposition of law while examining an FIR/complaint quashing of
which is sought, the court cannot embark upon any enquiry as to the
reliability or genuineness of allegations made in the FIR/complaint.
Quashing of a complaint/FIR should be an exception rather than any
ordinary rule. Normally the criminal proceedings should not be
quashed in exercise of powers under Section 482CrPC when after a
thorough investigation the charge-sheet has been filed. At the stage of
discharge and/or considering the application under Section 482CrPC
the courts are not required to go into the merits of the allegations
and/or evidence in detail as if conducting the mini-trial. As held by this
Court the powers under Section 482CrPC are very wide, but
conferment of wide power requires the court to be more cautious. It
casts an onerous and more diligent duty on the Court.
….
11. While quashing the criminal proceedings the High Court has not at
all adverted to itself the aforesaid aspects and has embarked upon an
enquiry as to the reliability and genuineness of the evidence collected
during the investigation as if the High Court was conducting the mini-
trial. Therefore, as such the impugned judgment and order [Pratima
Mohanty v. State of Odisha, 2019 SCC OnLine Ori 305] passed by the
High Court quashing the criminal proceedings against the respondents
herein–original Accused 4, 5 and 3, Smt Pratima Mohanty, Shri
Prakash Chandra Patra and Shri Rajendra Kumar Samal is
unsustainable, both, in law and/or facts and the same deserves to be
quashed and set aside.”
46
2022:CHC-AS:53826
26. The Hon’ble Supreme Court in the case of MAHENDRA K C vs. THE
STATE OF KARNATAKA & ANR.7has observed the following: –
“16…. At the stage when the High Court considers a petition for
quashing under Section 482 of the CrPC, the test to be applied is
whether the allegations in the complaint as they stand, without
adding or detracting from the complaint, prima facie establish the
ingredients of the offence alleged. At this stage, the High Court
cannot test the veracity of the allegations nor for that matter can it
proceed in the manner that a judge conducting a trial would, on the
basis of the evidence collected during the course of trial. The High
Court in the present case has virtually proceeded to hold a trial,
substituting its own perception for what it believed should or should
not have been the normal course of human behavior. This is clearly
impermissible. ”
…
27. … “The High Court has evidently travelled far beyond the limits
of its inherent power under Section 482 CrPC since instead of
determining whether on a perusal of the complaint, a prima facie
case is made out, it has analysed the sufficiency of the evidence…”
27. The Hon’ble Supreme Court in the case of NEEHARIKA INFRASTRUCTURE
PVT. LTD. vs. STATE OF MAHARASHTRA AND OTHERS8, has observed
the following: –
“13.5. While examining an FIR/complaint, quashing of which is
sought, the Court cannot embark upon an enquiry as to the
reliability or genuineness or otherwise of the allegations made in the
FIR/complaint.
7
2021 INSC 700
8
(2021) 19 SCC 401
47
2022:CHC-AS:53826
13.6. Criminal proceedings ought not to be scuttled at the initial
stage.
13.7. Quashing of a complaint/FIR should be an exception and a
rarity than an ordinary rule.
…..”
28. The Hon’ble Supreme Court in the case of MUSKAN vs. ISHAAN
KHAN(SATANIYA) AND OTHERS9,has observed the following:-
“22. On the aspect of the powers of the Courts under Section 482 of
the Cr.PC, it is settled that at the stage of quashing, the Court is not
required to conduct a mini trial. Thus, the jurisdiction under Section
482 of the Cr.PC with respect to quashing is somewhat limited as
the Court has to only consider whether any sufficient material is
available to proceed against the accused or not. If sufficient material
is available, the power under Section 482 should not be exercised.”
29. Several issues have been raised by the disputants enumerated as follows:-
a) The opposite party admitted the commercial nature of the
transaction.
b) The opposite party admits to have not repaid money inasmuch as it
has admitted to the existence of pending proceedings under Section
138 of the Negotiable Instruments Act.
c) The opposite party admits that the transaction took place between
two companies and whilst the petition of complaint lay out claims
against individuals, for none of the individuals does the petition of
9
2025 INSC 1287
48
2022:CHC-AS:53826
complaint provide any specific instance of an act in furtherance of
commission of an offence.
d) The petition of complaint does not layout any single fact that
establishes any relationship between the two accused companies and
their Directors.
e) The petition of complaint arrays the accused from the list of directors
without even once identifying which director was responsible for any
particular act, even further, not even a single act has been
identifiably attributed to any director.
f) The allegations of loss caused to the opposite party at the highest can
be was that a loss of control was (supposedly) intended by accused
and that damages (might) will be caused. A loss of control or a claim
for damages cannot be the subject matter of a criminal prosecution
under the Sections invoked by the opposite party.
g) The complaint filed before the Learned Magistrate was accompanied
by an agreement which forms the basis of the opposite party’s case
and this very document was not even signed by the Petitioner No. 1
or its representative and as such, the said document cannot form the
basis of prosecuting the accused persons when cognizance of it was
barred by law as it was not signed by the party against whom it was
asserted.
h) Not a single allegation of any ingredient of an offence has been alleged
against any of the accused, including the Petitioners. In such
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2022:CHC-AS:53826
circumstances, the Learned Magistrate cannot issue summons
against the accused persons when no allegation has been made
against them.
i) When it was an admitted case of the complainant that proceedings
under Section 138 of the Negotiable Instruments Act have been
initiated by the accused companies against the complainant/opposite
party, the Learned Magistrate was obligated to call for an explanation
or to direct that the scores be taken up before the court already
seized of the matter.
j) Whilst the opposite party arrays Petitoner No. 2 company as an
accused (accused no.2), the opposite party does not disclose the fact
that other business dealings have taken place between the parties
and other relevant to the circumstances but are intentionally
concealed in order to create a false scenario.
k) The principle of vicarious liability has no manner of application in
respect of offences under the Indian Penal Code. It was only when an
officer of a company was personally liable for commission of an
offence done in exercise of his official duties that such officer of the
erring company can also be hauled up for commission of such
offence. The petition of complaint as also the statement of the
representative of the opposite party company do not in any manner
reveal any part played by the Petitioner Nos. 3 to 6 which justifies
their arraignment as accused in the instant case.
50
2022:CHC-AS:53826
l) Where dealings between the parties are admittedly of a civil and
commercial nature, courts will not allow a party to abuse criminal
process in furtherance of its commercial interests. In such
circumstances, the proceeding impugned was liable to be quashed.
m) Where specific acts were not pleaded, actus reus, an essential
ingredient of a crime was absent and a complaint lacking such facts
cannot be taken cognizance of. In such circumstances, the
proceeding impugned was liable to be quashed.
n) Where the primary allegations are against the Corporation absent an
enabling provision imposing liability on Directors, no cognizance of
offence against a Director can be taken unless specific facts are
pleaded against such Director. In such circumstances, the proceeding
impugned was liable to be quashed.
o) When admittedly civil proceedings in relation to a cause of action
pending between the parties are pending adjudication before
competent civil courts, criminal proceeding initiated by a party to
such proceeding will generally be quashed in the absence of any
substantial grounds justifying the maintenance of the same. (where
there are multiple documents exchanged.
p) In the light of the growing trend amongst litigants to use criminal
proceeding as a method of extracting benefits, courts will generally
frown upon and discourage criminal proceedings.
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2022:CHC-AS:53826
q) The impugned proceeding was manifestly attended with mala fide
with a view to wreck vengeance on the Petitioners and to spite them
out of private and personal grudge.
30. The facts agitated in the instant revisional application cannot be decided at
this juncture without assessment of evidence being adduced in trial for the
complicity of the petitioners in terms of their liability and indictment. Several
transactions pleaded shall have to be scrutinized and analyzed in terms of
deliberate criminal intent to the detriment penalty and pecuniary loss
caused to the other contradicting the criteria of entrustment of the shares.
31. In view of the above discussions, the instant criminal revisional application
being CRR 308 of 2013 is disposed of.
32. The proceedings of Case No.C-4100 of 2012, pending before the Learned
Judicial Magistrate 2nd Court, Alipore under Sections
403/406/418/420/120B of the Indian Penal Code, are not quashed. The
Learned Magistrate is to invoke Section 202 of the Code of Criminal
Procedure and proceed.
33. There is no order as to costs.
34. Let the copy of this judgment be sent to the Learned Trial Court as well as
the police station concerned for necessary information and compliance.
35. All parties shall act on the server copy of this judgment duly downloaded
from the official website of this court.
(Ananya Bandyopadhyay, J.)