minal Appeal Nos
375  376 of 1985
From the Judgment and Order dated 1751983 of the Patna High Court in Criminal Misc
193183 and 9240 of 1982
SN Misra Manish Misra and PC Kapur for the Appellants
Mrs K Amareswari CVS Rao ADN Rao and SN Jha for the Respondents
J The appellants on the relevant date were managing director and directors of a Public Limited Company registered as Ms 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 42000 equity shares and 3000 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 702 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 appellant 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
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
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 invoking 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 in default is liable to be punished with a fine which may extend to Rs 5000
In other words the provisions of the Companies Act 703 take care of the investors and they put restrictions on the misbehavior of the promoters and the directors of the Company and for any lapse on their part in such matters they cannot be summoned to stand trial for offenses under the Penal Code
It is true that the Companies Act contains provisions regarding the issuance of prospectus applications for shares and allotment thereof and provides different checks over the misuse of the fund collected from the public for issuance of shares or debentures
But can it be said that where persons issue prospectus and collect moneys from public assuring them that they intend to do business with the public money for their benefit and the benefit of such public but the real intention is to do no business other than collecting the moneys from the public for their personal gain still such persons are immune from the provisions of the Penal Code Originally the concept of a company implied association of persons for some common object having a juristic entity separate from those of its members
In due course the gap between the investors in such companies and those in charge of management was widened
A situation has reached today that in bulk of the companies in which many individuals have property rights as share holders and to the capital of which they have directly or indirectly contributed have no idea how their contributions are being utilised
It can be said that modern share holder in many companies has simply become supplier of capital
The savings and earnings of in dividuals are being utilised by persons behind such corporate bodies but there is no direct contact between them
The promoters of such companies are not even known to many investors in shares of such companies
It is a matter of common experience that in some cases later it transpires to the investors that the promoters had the sole object to form a bogus company and foist it off on the public to the latter s detriment and for their own wrongful gain
In this process the public becomes victim of the evil design of the promoters who enrich themselves by dishonest means without there being any real intention to do any business
From time to time amendments have been introduced in the Companies Act to safeguard the interest of the share holders and to provide regulatory and penal provisions for misuse of the power by those who are in charge of the management of such companies
Butif the promoters or those in charge of managing affairs of the company are found to have committed offenses like cheating criminal breach of trust criminal misappropriation or alike then whether the only 704 remedy to which the investor is entitled is to pursue under and in accordance with the provisions of the Companies Act 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 offenses under the Penal Code if it is established that primary object of the incorporation and existence of the company is to defraud public
But at the same time while taking cognizance of alleged offenses 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
If the screening on this question is not done properly at the stage of initiation of the criminal proceeding in many cases some disgruntled share holders may launch prosecutions against the promoters directors and those in charge of the management of the company concerned and can paralyse the functioning of such company
It need not be impressed that for prosecution for offenses under the Penal Code the complainant has to make out a prima facie case against the individuals concerned regarding their acts and omissions which constitute the different ingredients of the offenses under the Penal Code
It cannot be overlooked that there is a basic difference between the offenses under the Penal Code and acts 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 of contravention such persons become 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
In the facts of the present case itself the prosecution has to prove that the appellants as promoters or directors had dishonest intention since very beginning while collecting the moneys from the applicants for the shares and debentures or that having collected such moneys they dishonestly misappropriated the same
The ingredients of the different offenses under the Penal Code need not be proved only by direct evidence they 705 can be shown from the circumstances of a particular case that the intention of the promoters or the directors was dishonest since very inception or that they developed such intention at some stage for their wrongful gain and causing wrongful loss to the investors
All the circumstances and the materials to prove such a charge have to be collected during investigation and enquiry and ultimately have to be produced before the court at the stage of trial for a verdict as to whether the ingredients of offence in question have been established on behalf of the prosecution
The complaint made by the Deputy Secretary to the Government of India to the CBI mentions different circumstances to show that the appellants did not intend to carry on any business
In spite of the rejection of the
application by the Stock Exchange Calcutta they retained the share moneys of the applicants with dishonest intention
Those allegations were investigated by the CBI and ultimately chargesheet has been submitted
On basis of that chargesheet cognizance has been taken
In such a situation the quashing of the prosecution pending against the appellants only on the ground that it was open to the applicants for shares to take recourse to the provisions of the Companies Act cannot be accepted
It is a futile attempt on the part of the appellants to close the chapter before it has unfolded itself
It will be for the trial court to examine whether on the materials produced on behalf of the prosecution it is established that the appellants had issued the prospectus inviting applications in respect of shares of the Company aforesaid with a dishonest intention or having received the moneys from the applicants they had dishonestly retained or misappropriated the same
That exercise cannot be performed either by the High Court or by this Court
If accepting the allegations made and charges leveled on their face value the Court had come to conclusion that no offence under the Penal Code was disclosed the matter would have been different
This court has repeatedly pointed out that the High Court should not while exercising power under section 482 of the Code usurp the jurisdiction of the trial court
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 that power cannot be exercised by the High Court to hold a parallel trial only on 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
706 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
GN Appeals dismissed


Summary:
The appellant Company issued a letter to its Contractor containing the terms and conditions of a contract of loading packed cement bags from its Packing Plants Into wagons or trucks
Under Clause 12 there was a stipulation that the Contractor shall be paid a sum for his work at a flat rate of 41 paise for each tonne of cement handled In Packing Plant No1 and 30 paise for each tonne of cement handled in Packing Plant No2 Clause 13 thereof which contained a recital that the rate of loading in Clause 12 had been worked out on the basis of daily basic wages of Rs235 paise DA of Rs121 paise and HRA of Rs050 paise per day per worker stipulated a terms of reimbursement by the appellant to the Contractor of the difference in DA over the amount of Rs121 paise and annual increment etc
payable from mouth to month to every worker by him
The Contractor carried out his work and the appellant made payments of the sums payable to him under the contract
But no deductions of tax were made under Section 194C1 of the Income Tax Act 1961
The Income Tax Officer served two notices One in respect of assessment years 1973 74 and 1974 75 and the other for 1974 75 to 1977 78 on the principal officer of the appellant Company to show cause as to why action should not be taken against the appellant for non compliance with Section 194C1The appellant filed a Writ Petition before the High Court of Patna seeking the quashing of the notices but the same was dismissed
In appeal to this Court it was contended on behalf of the appellant 538 539 that 1 the work  for the carrying of which the sum is required to be credited to the account of or paid to a Contractor under Section 194C1 of the Act  is only a works contract  and hence deduction under that sub section could arise only to the extent where the sum credited to the account of or paid to a Contractor for executing such works contract  is comprised of the element of Income of the Contractor 2 that the words on income
comprised therein appearing immediately after the words  deduct an amount equal to two per cent of such sum as income tax in the concluding part of the sub section must be taken to mean the percentage amount deductible on the Income received by the Contractor under the contract and not on the sum credited to the account of or paid to the Contractor
Dismissing the appeal this Court HELD 1
Them is nothing fit sub section 1 of Section 194C to show that the contract to carry out a work or the contract to supply labour to carry out a work should be confined to works contract There is no mason to curtail or to cut down the meaning of plain words used in the Section
Any work  means any work and not works contract  which has a special connotation in the tax law Work  envisaged In the sub section therefore has
a wide import and covers any work  which one or the other of the organisations specified in the sub section can get carried out through a Contractor under a contract and further It includes obtaining by any of such organisations supply of labour under a contract with a Contractor for carrying out its work which would have fallen outside the work  but forks specific inclusion in the sub section
544 B E Brij Bhushan Lal Parduman Kumar etc
vs CI T Haryana Himachal Pradesh and New Delhi 1979 2 SCR 16 distinguished
The words in the sub section on income comprised therein  appearing Immediately after the words deduct an amount equal to two per cent of such sum as income tax  from their purport cannot be understood as the percentage amount deductible from the income of the Contractor out of the sum credited to his account or paid to him in pursuance of the co Moreover the concluding part of the sub section requiring deduction of an amount equal to two per cent of such sum as income tax by use of the words on income comprised therein  makes It obvious that the amount equal to two per cent of the sum required to be deducted Is a 540 deducts at source
Hence on the express language employed in the sub section it is impossible to hold that the amount of the two per cent required to be deducted by the prayer out of the sum credited to the account of or paid to the Contractor has to be confined to his income component out of that sum 545 D G 21
There is also nothing in the language of the sub section which permits exclusion of an amount paid on behalf of the organisaiton to the Contractor according to the termsand conditions ofthe contract in reimbursement of
the amount paidby to workersfrom the sum envisaged therein
545 G H 546 A