IMPORTANT POINT
The court established that a mere loss in investment does not constitute cheating unless there is evidence of dishonest intention at the time of the transaction.

JUDGMENT :

K. Babu, J.

The petitioners who are accused in C.C.No.3094 of 2013 on the file of the Judicial First Class Magistrate Court-I, Chengannur seek to quash all further proceedings in the calendar case. The petitioners and the other accused are alleged to have committed offences punishable under Sections 406, 420 and 120-B r/w Section 34 of the Indian Penal Code.

2. The prosecution case was initiated based on Ext.P6 complaint filed by respondent No.2. Petitioners 1 and 2 are accused Nos.1 and 2, respectively. Accused No.3 is the Branch Manager of petitioner No.1 firm.

3. Accused No.1 is a stock broking firm registered with the National Stock Exchange and Bombay Stock Exchange under the Securities and Exchange Board of India Act, 1992 (for short ‘SEBI Act’). Accused No.2 is the Managing Director of the firm.

4. Accused No.1 provides a platform for transactions in various equities and commodities to clients who open trading accounts with them. The complainant/respondent No.2, on 10.6.2010, entered into an agreement with accused No.1, authorising the former to make investments for and on behalf of her. Accused No.3, the Branch Manager of accused No.1 firm, and the complainant belong to the same village. The complainant used to purchase shares from different companies since 2009. Accused No.3 induced the complainant to invest with accused No.1. She invested a total sum of Rs.4,15,650/-between June, 2010 and March, 2011. She purchased shares of various companies. She also entrusted shares with accused No.1. She suffered a loss in the business, and her debit balance as on 18.2.2013 came to Rs.3259.82.

5. The complainant filed Ext.P6 complaint before the Judicial First Class Magistrate Court, Chengannur, alleging that the accused committed offences punishable under Sections 420, 406 and 120-B r/w Section 34 of the IPC. She alleged cheating and criminal breach of trust against the accused.

6. The learned Magistrate took cognizance of the offences and issued process against them. In this Original Petition, the petitioners/accused Nos.1 and 2 challenge Ext.P6 complaint and all further proceedings initiated against them pursuant to it.

Submissions

7. The learned counsel for the petitioners/accused Nos.1 and 2 submitted as follows:-

(1) The complaint does not reveal the ingredients of the offences alleged.

(2) The pendency of the Calendar Case is an abuse of the process of the Court.

(3) The complainant had an alternative remedy under Section 26 r/w Section 27 of the SEBI Act.

8. The learned counsel for respondent No.2/the complainant submitted as follows:-

(a) The complaint reveals the ingredients of the offences alleged.

(b) The petition filed under Article 227 of the Constitution of India is not maintainable to quash the proceedings in the Calendar Case.

(c) The accused are not protected under the provisions of the SEBI Act from any prosecution which might be brought against them under different penal statutes as the complaint reveals the offences alleged.

(d) The High Court is not competent to quash the proceedings prematurely.

(e) The accused, in a petition seeking quashing of the proceedings before trial, cannot rely on materials other than the one relied on by the prosecution.

(f) The petition seeking quashing of the proceedings is not maintainable in the absence of accused No.3 in the party array.

9. Accused No.1 is “Hedge Equities Ltd.”, a firm registered under the SEBI Act. Accused No.1 is engaged in the share marketing business. Accused No.2 is the Managing Director of Hedge Equities Ltd. Accused No.3 is the Manager of its Adoor Branch. Accused No.3 is a native of the village where the complainant resides. He induced the complainant to invest with ‘Hedge Equities Ltd.’. The complainant had previous experience in share business. She used to purchase shares of different companies from 2009 onwards. She invested a sum of Rs.4,15,650/-in the form of cash and shares worth Rs.5,17,647.25 during 2010 and 2011 with accused No.1. She suffered heavy l