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IN THE HIGH COURT OF KERALA AT ERNAKULAM
V.G.ARUN, J.
Raman Sharma, S/o M.P. Sharma - appellant
Versus
State Of Kerala - Respondents
Crl.MC No. 1711 of 2024
Decided on : 27-02-2025
(A) Indian Penal Code - Sections 406 and 420 read with Section 34 - Allegations of breach of trust and cheating in a commercial transaction involving a project by a subsidiary company - Petitioners, as Directors, challenged their prosecution on grounds of vicarious liability and absence of specific allegations against them. (Paras 1 - 12 )
(B) Vicarious Liability - Directors of a company cannot be held criminally liable for acts of the company unless specific allegations are made against them - Mere breach of contract does not constitute criminal liability for cheating unless fraudulent intention is established from the inception. (Paras 10 , 11 )
(C) Cognizance of Offences - Requirement of affidavits with complaints as mandated by Apex Court - Absence of affidavit renders proceedings void. (Paras 6 , 12 )
Facts of the case:
The petitioners, Directors of a company, were accused of cheating and breach of trust related to a commercial project that failed to deliver as promised. They argued that the subsidiary company was a separate entity and that they had no direct involvement in the alleged offences.
Findings of Court:
The court found that the allegations did not establish criminal liability against the Directors due to lack of specific intent or wrongdoing.
Issues: Whether the Directors could be prosecuted for the actions of the subsidiary company and the validity of the complaint without an affidavit.
Ratio Decidendi: The court ruled that criminal liability cannot be imposed on Directors without specific allegations and that the absence of an affidavit in the complaint rendered the proceedings void.
Result: Crl.M.Cs are allowed; all further proceedings against the petitioners in the specified cases are quashed.
ORDER :
The petitioners in Crl.M.C.No.1711 of 2024 are accused numbers 1,11,12,14,15 and the petitioners in Crl.M.C.No.3255 of 2024 are accused numbers 6,7,8,9 and 10 in C.C.No.1816 of 2017 pending in the Court of the JFCM-VIII, Ernakulam. The case originated from Crime No.238 of 2015 registered at the Maradu Police Station alleging commission of offences punishable under Sections 406 and 420 read with Section 34 of the Indian Penal Code against three companies namely; 1. Colossal Projects Pvt.Ltd, New Delhi, 2. Unitech Ltd., New Delhi and 3. Unitech Ltd., Kundannoor Branch. The police, after investigation, filed final report alleging commission of the offences under Sections 406 and 420 read with Section 34 of IPC against 15 named accused. Petitioners were arrayed as accused in their capacity as Directors and Officers of the two companies.
2. Crl.M.C.Nos.3230 and 1708 of 2024 are filed by accused numbers 5 to 9 and accused numbers 10,13 to 15 in C.C.No.27 of 2017, pending on the files of the JFCM VIII, Ernakulam. The case originated from Crime No.1664 of 2014 registered at the Ernakulam Town South Police Station.
3. The petitioner in Crl.M.C.No.875 of 2024 is the 2nd accused and the petitioners in Crl.M.C. No.2898 of 2023 are accused numbers 9 and 10 in C.C.No.480 of 2017 pending before the same court, which originated from a private complaint filed by the party respondent against the petitioners and 12 others.
4. The tenor of the common allegations raised against the petitioners are as under;
In the year 2010, Unitech India Ltd. launched a project with the aim of constructing a commercial complex in 7.06 Acres of freehold commercial plot in Maradu village possessed by its subsidiary company named Colossal Projects Pvt.Ltd. Attracted by the brochures and advertisements of the project named 'Great India Palace', complainants entered into Memorandums of Understanding and Agreements for Sale with M/s.Colossal Projects Private Ltd. (hereinafter described as "the Developer”), a wholly owned subsidiary of the Unitech Ltd. (hereinafter described as “the Promoter”), for assignment of specified built-up space in the proposed commercial mall. As per the terms of the MoU and the Agreement, the Mall was to be constructed in 30 months and the Developer also assured to pay rental return @12% of the total sale consideration to the purchasers, after 30 months of signing the MoU and/or the date when 90% of the total sale consideration is realised by the Developer, whichever is later. According to the complainants, contrary to the assurances and promises, neither was the construction completed within time nor the assured rental returns paid. Even the purchase price paid by the complainants was not refunded. Gradually the complainants realised that they had been deceived into paying huge amounts on the false assurance of assigning commercial space within 30 months and monthly returns till allotment of space.
5. Arguments for the petitioners was led by Senior Advocate S.Sreekumar and supplemented by Advocate T.R. Aswas. Public Prosecutors M.C. Ashi and M.K. Pushpalatha along with Advocate V.K. Balachandran advanced counter arguments.
6. Learned Senior Counsel appearing for the petitioners in Crl.M.C Nos. 3230 and 3255 of 2024, as instructed by Adv. Joju Kynady, put forth the following contentions;
The Memorandum of Understanding (MoU) and Agreement for Sale were entered into between the de facto complainants and Colossal Projects Pvt. Ltd. Though Colossal Projects Pvt.Ltd. is a fully owned subsidiary of Unitech Ltd., it is a separate legal entity. As the petitioners are only Independent Directors of the Holding Company, they cannot be prosecuted for the offences alleged to have been committed by a subsidiary company. Even otherwise, Directors/officials of a company cannot be made vicariously liable for the offences committed by the company, without there being specific allegations against them with respect to their individual roles. Support for this arg
Directors cannot be held criminally liable for a company's actions without specific allegations, and failure to include required affidavits in complaints renders proceedings void.
A company can be held criminally liable for offences committed in relation to its business, and the court can impose a sentence of fine on the company even if the prescribed punishment includes impri....
Breaches of commercial agreements do not constitute criminal offenses unless fraudulent intent is established at the outset, reinforcing that civil disputes should not be converted into criminal matt....
The distinction between civil breaches and concurrent criminal liabilities requires investigation to determine the presence of fraudulent intention.
Allegations of dishonest misappropriation and breach of trust in contractual agreements can sustain criminal liability under IPC, irrespective of the civil nature of disputes.
A mere commercial dispute, characterized by lack of initial dishonest intention, cannot constitute criminal offenses of cheating or breach of trust.
Criminal proceedings ought not to be scuttled at the initial stage. Quashing of a complaint should rather be an exception and a rarity than an ordinary rule. Considering the allegations made in the c....
Dishonest or fraudulent intention must be present at the inception of a transaction to establish offences of cheating and criminal breach of trust; mere breach of contract does not constitute a crimi....
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