IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 10.07.2009 CORAM: THE HONOURABLE MRS.JUSTICE ARUNA JAGADEESAN Crl.OP.No.25924/2006 1.V.Subramanian 2.Nataraj @ Natarajamurthi 3.Kaveri Ammal 4.Maheswari ..Petitioners Vs State by Inspector of Police Economic Offences Wing 2, Coimbatore ..Respondent Prayer:- This Criminal Original Petition is filed to call for the records in CC.No.52/2006 on the file of the Special Court at Chennai under Tamil Nadu Protection of Interest of Depositors (In Finance Establishments) Act 1997 and quash the proceedings as far as the Petitioners are concerned. For Petitioner : Mr.B.Kumar, SC for Mr.R.Loganathan For Respondents: Mr.S.Senthil Murugan Additional Public Prosecutor ORDER This Criminal Original Petition is filed to quash the proceedings in CC.NO.52/2006 against the Petitioners, who are arrayed as A8, A6, A9 and A10 on the file of the Special Court, Chennai for the offences under the provisions of the Tamil Nadu Protection of Interest of Depositors Act (In Finance Establishments) Act, 1997 (herein after referred to as the Act). 2. The basic facts of the case are as follows:- M/s.Sri Arunachaleswara Mills (herein after referred to as the Mills) is a Partnership Firm and the original partners are A2 to A5 and they were managing the Mills from 1966 onwards. The Mills was collecting deposits from the public from 1988 onwards on a promise to repay the same with interest and whole of these transactions had come to an end by 1996. Thereafter, i.e. from 1996 https://hcservices.ecourts.gov.in/hcservices/ onwards, there were no fresh deposits, but the earlier deposits were being renewed along with the outstanding interest and in pursuance of it, fresh deposit receipts were issued. The deposit receipts were issued in the name of "Sri Arunachala Investment Company", which is only a name lender, under which only the said Mills was transacting the business. In the due course, the Mills became sick with serious attendant financial difficulties and they were not able to make payment even towards the statutory dues, such as wages to workers, electricity charges, employees provident fund, etc. 3. At that stage, an incorporated Company by name M/s.Enson Cotspin (P) Limited along with other persons by name Nataraj/A6 and his wife Kamalaveni took over the Mills, became the partners and erstwhile partners A2 to A5 had retired by them. This partnership deed was duly registered with the Registrar of Firms and changes took place with effect from 28.11.1999. The new management also could not successfully manage the Mills and pay the creditors and the Mills further became sick. At this stage, the Petitioners herein became the partners of the Mills on 25.11.2000, after the previous partners retired. Now, it appears that the Petitioners 3 and 4 also retired from the partnership with effect from 4.2.2002. 4. The FIR in CC.No.27/2002 has been registered on a complaint given by one Kannammal on 25.9.2002 that she had deposited a sum of Rs.1,00,000/- on 16.6.1990 with the Arunachaleswar Investment Company, but the deposit has not been refunded to her. The Petitioners after taking the Mills have themselves invested nearly Rs.60 Lakhs, which had been utilised for making payment towards wages to workers, electricity charges and the employees provident fund. The loan payable to the Indian Bank was also discharged to an extent of Rs.15 lakhs. 5. According to the Petitioners, since they took over the affairs of the Management of the Company from 25.11.2000, they cannot be made responsible for any act done by the erstwhile partners who actually collected the deposits and failed to repay the same. The main contention of the Petitioners is that that they ought not to have been made as accused in the proceedings in CC.No.52/2006 as it cannot be said that they have committed any violation of the provisions of the said Act or committed any offence punishable under Section 420 of IPC. On the above said ground, the Petitioners seek to quash the proceedings in the complaint. 6. Mr.B.Kumar, the learned senior counsel for the Petitioners strenuously contended that the Petitioners, who are arrayed as A8, A6, A9 and A10 became the partners of the Mills only on 25.11.2000, which is evident from the records of the Registrar of Firms and no deposits have been made after 1990 and the entire transaction had been over by the end of 1996 and that the Petitioners cannot be prosecuted for the default committed by the erstwhile https://hcservices.ecourts.gov.in/hcservices/ owners in defaulting to return the deposits on the date of its maturity. The learned senior counsel would submit that the Petitioners took over the Management of the Mills, which had become sick and invested nearly Rs.60 Lakhs, which has been utilised for making payment towards wages to workers, electricity charges and employees provident fund, etc., which would show the bona fide of the Petitioners. It is contended that A2 to A5 are alone responsible for receiving the deposits and non payment of the depositors' money after its maturity and therefore, no criminal liability could be fastened on the Petitioners herein. He would further submit that the Petitioners cannot be construed as the persons responsible for the Management of the affairs at the relevant point of time, when the deposits were collected and default committed, as they have taken over the Management only in the year 2000, i.e. after the deposits became matured. Further, he would submit that none of the ingredients set out under Sections 420, 406 read with 120B of IPC are attracted as against the Petitioners to allow them to face the criminal prosecution. 7. The extract from the ledger of the Registrar of Firms is produced, which shows that the Petitioners had joined the Firm with effect from 27.11.2000. The Petitioners 3 and 4 had retired with effect from 4.2.2002. In the counter filed by the Respondent, it is admitted that the petitioners had become the partners of Sri Arunachaleswara Mills at Udumalpet with effect from 27.11.2000 with substantial investment and that the collection of deposits had not been made by the Petitioners, after they took over the Management. It is also admitted that the Mills became sick and had borrowed money from the Indian Bank. The fact that the Mills was in Management of M/s.Enson Cotspin (P) Limited, prior to the taking over by the Petitioners and A2 to A5 were managing the Mills at the time when the deposits were collected is also admitted in the counter. It is also admitted that the investment made by the Petitioners to an extent of Rs.65 Lakhs was utilised to make payment towards wages to workers, electricity charges and employees provident fund. 8. From the above, it is clear that at the time when deposits were collected from the public, the Petitioners were not in the picture and had joined the Company with effect from 27.11.2000. But, in the charge sheet, accusation is made even as against the Petitioners that they have collected deposits in the name of A1 and A2 For, from 1990-98. It is alleged that A3 to A10 conspired together and collected deposits with a fraudulent intention not to refund the amount with interest to the depositors. This accusation as against the Petitioners is baseless, because they have taken over the Management only with effect from 27.11.2000 and therefore, there cannot be any dishonest intention on their part to defraud the depositors. https://hcservices.ecourts.gov.in/hcservices/ 9. The only stipulation that operates against the Petitioners is that they could not return the amount, when the deposits got matured, after they took over the Management. On the said ground, the Petitioners cannot made liable for criminal prosecution, because a mere failure to return the deposits promptly to the depositors after they took over the affairs of the Management is not sufficient to hold that they are liable either under Section 5 of the said Act or under Section 420, 406 of IPC. There was no entrustment of money to the Petitioners within the meaning of Section 405 of IPC and the relationship that has been created after they became the partners was that of the creditors and debtors. None of the ingredients of Section 405 and 415 of IPC are attracted as against the Petitioners. 10. Section 5 of the said Act makes the persons, who were responsible for the Management of the affairs of the financial Establishments criminally liable in case of default committed by them in returning the deposit amount or the interest on the said deposit. Section 5 reads as follows:- "5.Default in repayment of deposits and interests honouring the commitment:- Notwithstanding anythng contained in Chapter II, where any Financial Establishment defaults the return of the deposit or defaults the payment of interest on the deposit, every person responsible for the management of the affairs of the Financial Establishment shall be punished with imprisonment for a term which may extend to ten years and with fine which may extend to one lakh of rupees and such Financial Establishment is also liable for fine which may extent to one lakh of rupees." 11. The words "responsible for the management of affairs of the Financial Establishment" could be interpreted to mean that only those persons, who were responsible for collection of the deposits and failed to return the money or the interest on such deposit, are criminally liable. That is why the word "responsible" is expressed and not the word "management" alone is used. The severity of the punishment with imprisonment for a term, which may extend to 10 years and with fine, which may extend to Rs.1,00,000/- would only refer to those persons, who were responsible in collecting the amounts from the depositors on promise to give higher interest and failed to return the said deposit even after its maturity. 12. In the instant case, though the Petitioners were in Management of the affairs of the Establishment from 27.11.2000, the commission of the offence relates to the period 1990 to 1998, during which the erstwhile partners were in Management and responsible for the affairs of the Management. In such view of the matter, the https://hcservices.ecourts.gov.in/hcservices/ Petitioners cannot be made criminally liable and the proceedings in CC.No.52/2006 against the Petitioners cannot be sustained. 13. In view of the above said reasons, the criminal proceedings in CC.No.52/2006 against the Petitioners is quashed and this Criminal Original Petition is allowed. sd/- Asst.Registrar /true copy/ Sub Asst.Registrar Srcm To 1. The Special Judge, (Tamilnadu Protection of Interest of Depositors, in Finance Establishments) Act 1997, Chennai. 2. The Inspector of Police, Economic Offences Wing-2, Coimbatore. 3. The Public Prosecutor, High Court, Madras. + 1 c.c. to Mr. R. Loganathan, Advocate. S.R.No.30095. Crl.OP.No.25924/2006 MSM (CO) GSK 20.07.2009. https://hcservices.ecourts.gov.in/hcservices/