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SUPREME COURT OF INDIA
A.S. Anand and N.P. Singh, JJ.
Redhey Shyam Khemka & Ant. - Appellants
versus
The State of Bihar - Respondent
with
Nand Kishore Tulsian - Appellant
versus
State of Bihar & Anr. - Respondents
Criminal Appeals No. 375 of
1985 and 376 of 1985
Decided on 26.3.1993
IMPORTANT POINT
Where persons issue prospectus and collect money from public to defraud them, they can be prosecuted under Penal Code notwithstanding remedy available under the Companies Act.
Headnote:Indian Penal Code, 1860 - Section 409 Companies Act, 1956 - Sections 69, 73 - Cr .P.C. 1973 - Section 482 - Managing Director & Director of a Ltd. Co. not repaying share subscriptions when application for listing the shares in stock exchange rejected instead transferred amount in the other account for alleged self use - Charge sheet for Criminal Breach of trust filed - Defence that the contraventions, if any, is of companies Act and Penal Prosecution is an abuse of process of court Rejected by Trial Court & High Court - Further appeal to Supreme Court. When the provisions of companies could take care of mis-behaviour of the promotors and directors can they be summoned to stand trial for offence under the Penal Code? (Yes) - Difference between two is presence of mens rea - Trial Court should ensure that there is prima facie commission of the offence - Facts in present show prima facie case - Summons rightly issued & trial should proceed - Appeals dismissed.
Held. The persons managing the affairs of such company cannot use the juristic entity and corporate personality of the company as a shield to evade themselves from prosecution for offences under the Penal Code, if it is established that primary object of the incorporation and existence of the company is to defraud public. (Para 5)
Held however: But, at the same time, while taking cognizance of alleged offences in connection with the registration, issuance of prospectus, collection of moneys from the investors and the misappropriation of the fund collected from the share-holders which constitute one offence or other under the Penal Code, court must be satisfied that prima facie an offence under the Penal Code has been disclosed on the materials produced before the court. (Para 6)
It cannot be overlooked that there is a basic difference between the offences under the Penal Code and act and omissions which have been made punishable under different Acts and statutes which are in nature of social welfare legislations. For framing charges in respect of those' acts and omissions, in many cases, mens rea is not an essential ingredient; the concerned statute imposes a duty on those who are in charge of the management, to follow the statutory provisions and once there is a breach or contravention, such persons he come liable to be punished. But for framing a charge for an offence under the Penal Code, the traditional rule of existence of mens rea is to be followed. (Para 6)
The power under section 482 of the Code has been vested in the High Court to quash a prosecution, which amounts to abuse of the process of the court. But the power cannot be exercised by the High Court to hold a parallel trial, only basis of the statements and documents collected during investigation or enquiry, for purpose of expressing an opinion whether the accused concerned is likely to be punished 'if the trial is allowed to proceed. (Para 8)
Held finally: The appeals are accordingly dismissed. The trial court should proceed with the case in accordance with law. We make it clear that we have not expressed any opinion on the merit of charges leveled against the appellants. (Para 9)
Result: Appeals dismissed.
JUDGMENT
N.P. Singh, J. - The appellants on the relevant date, were managing director and directors of a Public Limited Company registered as M/s. Bihar Cable and Wire Industries Limited (hereinafter referred to as "the Company"). A case was instituted by the Central Bureau of Investigation (hereinafter referred to as "the CBI") against the appellants and others on basis of a complaint made by the then Deputy Secretary, Ministry of Industrial Development and Company affairs, Government of India. It was alleged that after the registration of the company aforesaid as a Public Limited Company, the appellants as managing director and directors issued prospectus inviting public subscriptions of 42,000/- equity shares and 3,000/- preference shares. It was given out by the appellants to the investors that application was being made to the Calcutta Stock Exchange for enlisting the shares of the company for official quotation. Such application which was' made on behalf of the company was rejected by' the stock exchange. In spite of the rejection the share money collected from different investors was held by the appellants and none of the share-holders were either informed or were repaid. It was also alleged that money lying in the bank, on account of the share applications, were transferred to another account of the Company. The circumstances were pointed out in the complaint made to the CBI as to how the acts of the appellants clearly indicated their dishonest intentions to convert the share application money 'for their own benefit, and as such they had committed the offence under section 409 read with section 405 of the Penal Code.
2. After investigation of the allegations made in the complaint aforesaid the CBI submitted a chargesheet against the appellants along with some others for their trial for the offence under section 409 of the Penal Code. When the Special Judicial Magistrate, CBI Cases, Patna, rejected the prayer of the appellants to discharge them, validity of that order was questioned by filing an application under Section 482 of the Code of Criminal Procedure. The High Court rejected the said application.
3. The criminal proceeding pending against the appellants has been challenged saying that it amounted to an abuse of the process of Court because instead of invoicing the different provisions of the Companies Act which are meant to cover such situations and to protect the interest of share-holders, a prosecution has been launched against the appellants before a Criminal Court for offences under the Penal Code. It was pointed out that in view of section 69 of the Companies Act all moneys received from the applicants for shares have to be deposited and kept in an account and in event the shares are not issued the moneys so received have to be repaid with interest. Reference was also made to section 73 of the Act which requires every company intending to offer shares or debentures to the public for subscriptions by the issue of prospectus has to make an application before such issue to one or more recognised stock exchanges, for permission for shares or debentures intended to be so offered to be dealt with in the stock exchange. All moneys received from applicants in pursuance to the prospectus, has to be kept in a separate bank account until the permission is granted and where permission is not granted, such money has to be repaid within time in the manner specified and if default is made in complying with the same the company and every officer of the company who is default is liable to be punished with a fine which may extend to Rs. 5,000/-. In other words, the provisions of the Companies Act take care of the investors and they put restrictions on the misbehaviour of the promotors and the directors of the Company and for any lapse on their part in such matters, they cannot be summoned to stand trial for offences under the Penal Code.
4. It is true that the Companies Act contains provisions regarding the issuance of prosp
