1 IN THE HIGH COURT OF BOMBAY AT GOA CRIMINAL REVISION APPLICATION NO.52 of 2008 and CRIMINAL APPEAL NO. 66 OF 2009 CRIMINAL REVISION APPLICATION NO.52 OF 2008 Santosh Dabholkar, S/o. Shashikant Dabholkar, Indian National, R/o. BH-1, Room No.53, Kendriya Vihar Section, Navi – Mumbai. Presently lodged at Bhuj Central Jail, Bhuj, Gujarat. .. Applicant V/s. STATE, Through CID, CB, Dona Paula, Goa. ..Respondent Shri Nigel Da Costa Frias, Advocate for the applicant. Shri C.A. Ferreira, Public Prosecutor for the respondent. CRIMINAL APPEAL NO. 66 OF 2009 S T A T E Through Police Inspector (CID), Dona Paula – Goa. .. Appellant 2 V/s. Santosh Dabholkar, s/o. Shashikant Dabholkar, Indian National, resident of BH-1, Room No.53, Kendriya Vihar Section, Navi Mumbai, presently lodged at Bhuj Central Jail, Bhuj, Gujarat. .. Respondent Shri C.A. Ferreira, Public Prosecutor for the appellant/Complainant. Shri Nigel Da Costa Frias, Advocate for the respondent/accused. CORAM : N. A. BRITTO, J. DATE : 9TH SEPTEMBER, 2009. ORAL JUDGMENT 1. The Criminal Revision Application as well as the Criminal Appeal arise from Criminal Case No.146/05/B and can be conveniently disposed off by this common Judgment. 2. The Learned Magistrate (JMFC) by Judgment dated 24.8.07 had convicted the petitioner (accused, for short) under Sections 406 and 3 420 IPC. The Learned Additional Sessions Judge acquitted the accused under Section 420 IPC and confirmed the conviction under Section 406 IPC, and, on that count that the State has filed the appeal against the acquittal under Section 420 IPC, and, the accused has filed the revision against Judgment dated 15.4.08 upholding the conviction of the accused under Section 406 IPC. 3. The accused was arrested on 23.9.05 and the Learned Magistrate by impugned Judgment dated 24.8.07 has ordered that the accused be punished under Section 406 IPC to SI of ten months, and under Section 420 IPC to SI for one year and to pay a fine Rs. 500/- and in default to undergo SI for a period of one month. The sentence imposed upon the accused has been undergone by him, but, as submitted by the Learned Counsel, the accused still continues to be under detention in connection with some other cases filed against him and which are pending elsewhere in the country. 4. The accused was one of the promoters alongwith Shashikant Pandit Ahire and Ramakant Shashikant Dabholkar, of a 4 private company known as M/s. Venus Life Marketing (I) Pvt. Ltd. which was incorporated on 6.10.2000 and thereafter it was converted into a Public Limited Company with effect from 1.11.2000 with a changed name as Venus Life Marketing (India) Ltd. It's Board of Directors changed from time to time and at one time, for the first six months of the financial year from 1.4.2002 to 31.3.2003, one Sanjay Sonawane/A-6 was the Chairman and Managing Director. The accused herein was also the Chairman and Managing Director at other times and it is this accused who is the only person prosecuted in the case from which this appeal/revision arises as according to the prosecution, the other Directors of the Company namely A-2 to A-13 were not prosecuted as they were absconding. 5. The said company set up two offices in Goa on or about 1.1.2000 i.e. at Margao and Mapusa and the Mapusa office was then shifted to Panaji. 6. The evidence produced shows that Milind Bhende/Pw1 was the overall incharge of the affairs of the said company in Goa and he was 5 only next to one Suresh Bhait who was in Mumbai. The said Milind Bhende had a network of senior agents under him, particularly Ajit Samant/Pw2, Eknath Shirodkar/Pw20 and Abhijit Sawant/Pw4. This set of agents collected various sums from various investors by issuing them debentures on behalf of the company which were payable after certain periods but when time came for repayment, the investors were requested to reinvest the money and when they did not, the company could not pay back the money due on the said debentures. The money was collected with a promise to pay interest at 11%, as stated by Milind Bhende/Pw1 but as stated by Rosita/Pw6 she was promised 18% interest per year and in fact she has stated that she invested a sum of Rs.80,000/- with a promise of return of Rs.1,10,000/-. Does'nt that mean that Eknath/Pw20 promised her interest over 30% per year? The accused was well known to Milind Bhende/Pw1 while they were working for a company known as Sanchayani. Whatever might have been the objects of the company, the company collected money by issuing debenture certificates from various investors through a net work of agents and through their said offices at Margao and Panaji. Ridhi Sakhardande/Pw17 was incharge of the Margao office until she left the 6 office to get married and then one Nelson Noronha came to be incharge of both Margao and Panaji offices. Prior to the said Nelson Noronha, one Mubina Bi was incharge of Panaji office and she has not been examined in the case. 7. As the money was not paid back to the investors on maturity of debentures, the investors appear to have been knocking at the doors of the agents to pay back their money, and the agents found a novel way of forming an association which was registered as Venus Agents and Investors Society on or about 18.5.04. The said Society through the said Milind Bhende filed Special Civil Suit No.46/06/B on or about 4.6.04 which proceeded exparte and an exparte decree dated 17.4.07 has been obtained against the said company as well its Directors, in the sum of Rs. 3,47,82,239/- (Rupees three crores forty seven lacs, eighty two thousand, two hundred thirty nine only). The said Milind Bhende, on behalf of the said Society, filed a complaint dated 30.6.04 – Exh.10 alleging that the said company through its Chairman and Managing Director, the accused, and Mr. Shashikant Ahire and other Directors had promoted a scheme of issuing redeemable preference shares to attract 7 money from investors in the State of Goa but the company right from the beginning had no intention whatsoever to fulfill the contractual obligations and pay the maturity of the investment as represented by them in the promotion literature, etc. and therefore the investors from Goa were cheated collectively to the tune of approximately Rs. 3,00,00,000/- (Rupees Three crores only). 8. Various complaints filed against the said company to the Regional Director of the Ministry of Company Affairs led to an investigation under Section 209-A of the Companies Act 1956, by Shri M. K. Gupta, Assistant Registrar of Companies, and a copy of the said report, interalia shows, that the said company which had its head office at Belapur, Navi Mumbai, had its branch offices in the States of Maharashtra, Karnataka, Goa and Gujarat and it discloses a number of violations under the said Companies Act and further shows that the company had made false promises promising exorbitantly high dividend returns fully knowing that the dividend could not be declared and paid without complying with the provisions of the Act... etc. The Report recommends prosecution of the Company and Directors/Officers for 8 violation of various provisions of the Companies Act, etc. The Report also shows that the Company on 5.8.04 passed a resolution for voluntary winding up, which in the opinion of the said M.K. Gupta, is with a view to avoid civil/criminal liabilities towards the investors. However, the said M. K.Gupta was not examined by the prosecution, inspite of having been given a number of opportunities, and consequently, the case of the prosecution was closed without examining him on 17.8.07. 9. The said complaint dated 30.6.04 came to be investigated by the Economic Cell of Goa Police and a charge sheet was filed against the accused under Sections 406, 420, r/w 34 IPC. 10. The accused was charged and tried with the allegation that between 1.1.2000 to 19.10.2004 the accused alongwith other Directors of the said company with their common intention, dishonestly induced the complainant Shri. Milind Bhende/Pw1 and other agents and investors of the company to deliver cash as deposits by issuing preference shares and collected a total amount of Rs. 3 crores from them and further dishonestly misappropriated the said cash and entrusted to him (to the 9 accused) in the capacity of the Director of the said company and failed to repay the said amount on maturity. The accused was also charged alongwith the said Directors for cheating the said complainant Milind Bhende and other investors by dishonestly inducing them to deposit huge amounts in cash in the company. 11. In support of the case, the prosecution examined 25 witnesses including PI Suresh Goankar/Pw22 who initiated the investigations and Pw23/PI Vernekar who completed them. 12. The case of the accused was that a false case was filed against him. 13. Before proceeding further, it is relevant to note that the prosecution had not examined Mubina Bi who was incharge of the office at Panaji or the said Nelson Noronha who became incharge of both the offices and who had serious grievances against the said Milind Bhende and others. One could only presume that the procedures which were followed in relation to Margao office were also followed in respect of 10 Mapusa/Panaji offices in that the money was collected from the investors in cash and then some of it deposited in the account. The prosecution has not at all shown, in the ultimate analysis, as to what is the amount which was deposited in the Banks either collected through Margao or Mapusa/Panaji offices or what was the amount thereafter which was transferred telegraphically at the behest of the said Shashikant Ahire. This is a yawning gap which has remained in the case of the prosecution without being filled in and which could have been easily filled in, by finding out from the concerned Banks where the company had its accounts as to what was the amount which was deposited, collected from various investors, and what was the amount which was transferred to the head office at the instance of the said Shashikant Ahire. 14. Be that as it may, the Learned trial Court after considering the evidence produced on behalf of the prosecution, had noted that as per the evidence of Eknath Shrirodkar/Pw20 the company was handed over to Mr. Sonawane for a short period and it was again taken over by the accused. The Learned trial Court also noted that the specimen signatures of the accused were collected during panchanama conducted 11 on 11.10.05 in the presence of Pw21 but observed that the specimen signatures had no relevance, as the prosecution had not received the report of the handwriting expert till date, as stated by Pw23. One can only presume that the specimen signatures of the accused were taken by the investigating agency and sent to the Government Examiner of Questioned Documents only to prove that the preference share certificates were indeed signed by the accused, but that was never proved. The Learned trial Court also noted that neither the report was produced nor the Government Examiner of Questioned Documents was examined by the prosecution inspite of opportunities given. The Learned trial Court also noted that one Gopal Malu who was subsequently advising the company had stated to him that three Directors of the company namely Kundanlal Dave, Sanjay Sonawane and Ms. Arti Gururaj had misappropriated an amount of Rs.2,00,00,000/- (Rupees Two crores only) and the present accused was advised to file a criminal case against them and the said case was filed bearing No.19/04 before the J.M.F.C., Gandhidham and another case was filed bearing No.77/04 before J.M.F.C., Belapur. The Learned trial Court came to the conclusion that from the entire evidence it was clearly seen that a 12 number of investors and agents in Goa were induced by the Directors of the said company to deliver cash as deposits by means of preference shares and though such acts were not done personally by the Directors, the same were done through the agents appointed to that effect by giving them inducement of spot commission and other incentives on achievement of company's desired targets and the same huge amounts collected by the company from the investors, through the network of agents have been misappropriated by the company through its directors because no amount was paid back on maturity to the investors. The Learned trial Court also observed that the agents had received their commissions, and, it is rightly so and in fact, it appears that the commissions were deducted first by the agents and then only the balance was paid in the hands of the said persons. The Learned trial Court further held that the company through its Directors had cheated the investors as well as the agents and the accused being one of the Directors of the said company was certainly responsible for the said acts of the said company which was done during his tenure as the Director and in which acts he had actively participated and rather he had appealed to the investors and had promised to return their amounts on maturity by 13 particular dates, as mentioned in the Appeal dated 11.6.04 which was published in the local newspapers. At this very stage it may be noted that the defence had taken a plea that the said appeal was published by the agents themselves with a view to deflect the attention from them to the Directors and inspite of that it was not at all proved by the prosecution that the present accused was instrumental in publishing the said appeal on a local newspaper on 11.6.04. 15. The Learned Additional Sessions Judge observed that the evidence of Milind Bhende/Pw1 demonstrated that he had played an active role in encouraging the investors to invest in the company. The Learned Additional Sessions Judge also observed that his evidence showed that in respect of the new investors, he would show the brochures and other literature coming from Mumbai office and he used to give talks, demonstration, etc. in order to encourage the investors to invest in the company and that it is he who used to meet the investors and convince them to invest in the company and this supported the inference that there was no intention to deceive on behalf of the accused to collect the money on behalf of the company by issuing redeemable preference 14 shares or in the nature of investment in the shares. The Learned Additional Sessions Judge also referred to the evidence of other witnesses and observed that the evidence did not indicate that they were induced by the accused to deposit the money in the company with the intention to cheat. The Learned Additional Sessions Judge further observed that it was not their case that the interest paid by the company at the rate of 11% to the investors alongwith the commission to be paid to the agents is a mathematical impossibility and the Directors of the company knew for certain that the scheme could not work and that it was also not their case that attractive benefits rendered to all the marketing members by virtue of exhibit 36 on record was impossible from the very nature of the scheme offered by the company and no victim had come forward complaining about cheating. The Learned Additional Sessions Judge further observed that it is not the case of the prosecution that law prohibited collection of money by the company in the form of redeemable preference shares, certificates, as sought to be done by the company and before the offence of cheating could be made out, it had to be shown that the act which the person deceived was induced to do by the deception practiced on him, caused or was likely to cause damage or 15 harm to that person in body, mind, reputation or property and the prosecution had failed to show that there was proximate connection between the deceptions practiced on the complainant and other agents or investors, thereby inducing them to part with some property and that in this case there was no direct relation of cause and effect between them and the denial or refusals to return the misappropriated money does not show that there was necessarily a criminal intent from the beginning so as to attract the provisions of Section 415 IPC. The Learned Additional Sessions Judge observed that the Learned trial Court had not adverted to the necessary ingredients necessary to attract the provisions of Section 415 of IPC and the observation of the Learned trial Court that number of investors and agents were induced by the Directors of the said company to deliver cash as deposits by means of preference/redeemable preference shares in fact is contrary to evidence on record and the same does not find place in the complaint of the complainant or other witnesses and therefore the Learned trial Court was not right in holding that the accused in the capacity of the Director of the said company has cheated the investors and agents of the said company by deliberately inducing them to deposit huge amounts in cash to the company. Nevertheless, the 16 Learned Additional Sessions Judge found that the evidence of Milind Bhende was quite clinching in that he had deposed that it was the accused who was the Chairman of the said company and after collecting huge amounts through investors, the amount in the sum of Rs.3,00,00,000/- (Rupees Three Crores Only) was handed over to the company and the accused had promised the investors to pay the maturity value. The Learned Additional Sessions Judge further held that the evidence of Milind Bhende showed that as far as entrustment/handing over of the money collected by the commission agents from the investors with the accused company was not at all shaken and in his evidence he had given details of the functioning of the company and the office situated in Goa and forwarding the amount collected from the investors to the company. The Learned Additional Sessions Judge referred to the case of State of H.P. V/s. Karanvir (2006 Cri. L.J. 2197) wherein it was held that once entrustment was proved it was for the accused to prove as to how the property entrusted to him was dealt with under Section 405 IPC and in case the respondent failed to produce any material for that purpose, the prosecution should not suffer. It was also observed that the actual manner of misappropriation was not required to 17 be proved by the prosecution. The Learned Additional Sessions Judge therefore held that the Learned trial Court had rightly considered the documentary as well as oral evidence on record and has rightly convicted the accused under Section. 406 IPC. At this stage it may be noted that it is not understood as to how the prosecution had proved the entrustment of any money to the present accused as its Managing Director when there is evidence on record to show that whatever money was deposited through the company's offices in Goa was taken to Mumbai at the company's head office by the said Shashikant Ahire and the prosecution is totally silent as to how he dealt with the said amount. 16. Shri De Costa Frias, the Learned Counsel appearing on behalf of the petitioner submits that the prosecution failed to prove that there was any entrustment of any money to the present accused. Learned Counsel further submits that the said Milind Bhende and other agents might have misappropriated much of the amounts collected on behalf of the said company. Learned Counsel further submits that the notice published on 11.6.04 has not been proved by the prosecution as having been published by the accused. He further submits that Shri. M. 18 K. Gupta who had prepared the report on behalf of the Regional Director from the Ministry of Company Affairs was not examined in support of the said report and in the light of that what is stated in the said report has not been proved by the prosecution. Learned Counsel further submits that Rosita/Pw6 and Seby/Pw15 have implicated Milind Bhende/Pw1 and Abhijit Sawant/Pw4 as being responsible for misappropriation and the case was not investigated at all in the light of the said allegations made against them. Learned Counsel further submits, in reply to the submission of the Learned Public Prosecutor that the accused having signed the certificates shows that the amount was received by the accused, that the certificates have not been proved by the prosecution as having been signed by the accused. Learned Counsel further submits that none of the witnesses examined have been able to say as to whether the accused had signed the said certificates because the said certificates were issued to them either by the agents directly or they received the same from Margao office. Learned Counsel has placed reliance on the case of Janeshwar Das Aggarwal V/s. State of U.P. (AIR 1981 SC 1646) wherein the Apex Court has stated that before conviction under Section 409 can be recorded, the prosecution must prove two essential 19 facts namely (i) the factum of entrustment and (ii) the factum of misappropriation of the entrusted article. To the same effect is the other decision cited by the Learned Counsel in the case of (Roshan Lal Raina V/s. State of J. & K. (AIR 1983 SC 631) wherein the Apex Court has stated that without proof of entrustment, there can be no question of the accused being found guilty of the offence under Section 409 IPC. 17. On the other hand, Shri Ferreira, the Learned Pubic Prosecutor, submits that from the very inception the aim of the accused and other promoters in forming the company was to deceive the investors and this Learned Public Prosecutor submits on the basis of a statement found in the said report under Section 209-A of the Companies Act, which is otherwise not proved by the prosecution, that certain funds collected were invested in companies which were non existent but Learned Public Prosecutor has not been able to demonstrate with any degree of certainty that the said investments were made at the time when the present accused was the Managing Director of the said company. 18. Before proceeding further, the only thing which appears 20 clear from the evidence produced, is that Pw1/Milind Bhende was the whole and sole incharge of the affairs of the company in Goa, whether he was called Marketing Zonal Manager or in some other name and under him there were as many as seven hundred and plus agents who collected money from the investors possibly with a promise to pay interest at the rate of 11%, retained commission of 8% and handed over the rest to the other agents or to him or Nisha Bale or Ridhi Sakhardande/Pw17 from Margao office or Mubina Bi from Panaji office. 19. Pw1/Milind Bhende joined the company alongwith the opening of the offices at Margao and Mapusa on 1.1.02. He stated that money was collected in the form of investments in the shares for a period of one year to five years and the same was collected through the network of agents and the object of the company was to invest the money collected in the super market at Dadar, the construction project in Gujarat, Tea Marketing, etc. and that the company had agreed to pay interest at the rate of 11% to the investors. If that be the case, one fails to understand how Eknath Shirodkar/Pw2 promised Pw6/Rosita Fernandes interest at the rate of 18% as stated by her. Shri Milind 21 Bhende further stated that somewhere in February or March, 2003, when the company stopped paying the maturity amount to the investors, they had a meeting with the accused who was the Chairman of the company in Ratnagiri and Vasi in Mumbai and the Chairman agreed to pay the maturity value through the company's office at Belapur. He further stated that thereafter the company gave a notice on a newspaper stating that the maturity