1 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION CRIMINAL WRIT PETITION NO. 672 OF 2011 HDFC Securities Limited and Ors. .Petitioners … V/s. State of Maharashtra & anr. ..Respondents … ALONGWITH CRIMINAL WRIT PETITION NO. 767 OF 2011 Mr. Vinod Mohan Koper .Petitioner … V/s. State of Maharashtra & anr. .Respondents … * * * * Mr. Mihir Gheewala i/by. Wadia Ghandy & Co., Advocate for the petitioners in both the petitions. Mr. J.P. Kharge, APP for State-respondent no.1. Mr. P.D. Desai, Advocate for respondent no.2. CORAM :- SMT. R.P. SONDURBALDOTA, J. 16th November, 2011. P.C. : 1. Rule. Rule, made returnable forthwith. By consent, the petitions are taken up for hearing immediately. Since the 2 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 proceedings under challenge in both the petitions are same and since the petitions raise identical questions of law and fact, they are decided by this common order. 2. The petitions filed under Article 227 of the Constitution of India and Section 482 Criminal Procedure Code seek quashing of the private complaint, C.C. No. 143/Misc/2010 pending in the Court of 10th Metropolitan Magistrate, Andheri filed by respondent no.2 for the offences punishable under Sections 409, 420, 465, 467 read with Sections 34, 120(B) Indian Penal Code, as well as, MECR No. 7 of 2011 of Juhu Police Station. 3. Petitioner no.1 in the first petition, HDFC Securities Limited is a public limited company ( the company” for short) “ engaged in the business of dealing in shares and securities on behalf of its constituents and clients in lieu of brokerage charges. It is a member of National Stock Exchange of India Limited and Bombay Stock Exchange Limited. Petitioner no.2 is the Managing Director of petitioner no.1, Petitioner no.3 is the Business Head for branches of petitioner no.1 and petitioner 3 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 no.4 is the Mumbai Regional Head of petitioner no.1, who is managing branches across the Mumbai region. The petitioner in the second petition was at the relevant time working as Dealer/Relationship Manager with HDFC Securities Limited. 4. Respondent no.2 had registered with petitioner no.1 as a constituent/client by opening Securities Trading Account No. 342889 and executing Member-Client Agreement dated 28th June, 2005. She filed the above-mentioned complaint on 10th June, 2010 against the petitioners and one Mr.Rohan Raut alleging as follows :- . She was an imperial customer of HDFC Bank for about 8 years and had invested in various products of HDFC and other investments through the private banking division of HDFC. The advise for the investments, used to be given by one Mrs. Namisha, Private Banking Officer of the Company. After Mrs. Namisha left the Company, Mr. Rohan Raut had started interacting with respondent no.2. Mrs. Namisha and Mr. Rohan Raut regularly had aggressive sales talks telling her that as a constituent of the Company, she would earn high 4 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 rates of profits with no chances of losses. Mrs. Namisha had even visited the residence of respondent no.2. When she was unable to convince respondent no.2, in some investments Namisha introduced Vinod, the petitioner in the second petition to respondent no.2. He tempted respondent no.2 to invest money into the Company. The Head of the Company had told respondent no.2 that Vinod will handle her investment portfolio honestly, efficiently and with her prior instructions. 5. Respondent no.2 alleges that all the petitioners and other accused indulged in unauthorized and fraudulent transactions recorded in her trading account. Vinod in connivance with the other accused, induced respondent no.2 to do transactions in F & O segment without explaining the nature of F & O mechanism, margins, roll-over features of F & O trading segments and merely emphasizing risk free profits. She was given only some sketchy, cryptic and skeletal information of F & O trades which concealed more than what it actually revealed. In addition to F & O trades, the petitioners carried out huge intra-day/delivery based trading in equity shares in 5 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 the complainant’s account. During the period July, 2008 to June, 2009, this trading resulted into huge losses to the extent of Rs.27,28,306.02/- (equity segment) and Rs.14,91,289.20/- (F & O segment). At that time, the total investment of respondent no.2 with the Company was approximately between Rs. 40,00,000/- to Rs.55,00,000/-. 6. During the period 25th January, 2009 to 27th April, 2009 respondent no.2 and her husband, were out of Mumbai most of the time. During this period, a large number of trades including in F & O segment, were executed by Vinod in connivance with other petitioners. The trading was unauthorized and without the consent and knowledge of respondent no.2. She alleges that the trading was carried out with a dishonest intent, resulting in heavy losses to her and wrongful gains to the petitioners as they earned handsome brokerage for the huge business. The trading was abnormal and unusual. The large volume of business was not in consonance with the policies and normal functioning of the Company. While the transactions were being conducted, the 6 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 petitioners had not demanded any payment from respondent no.2. They suddenly sold the portfolio of respondent no.2 and started investing in nifty F & O, without prior instructions from respondent no.2, instead of investing and trading activities on delivery basis in branded equity shares specified by respondent no.2. Further, during his absence from office, Vinod had permitted his colleague officers to invest approximately Rs. 4,00,000/- to Rs.5,00,000/- in scripts not specified by respondent no.2. On resuming office, Vinod admitted his mistake of allowing others to carry out transactions without the permission of respondent no.2 during the meeting held on 18th May, 2009. Despite the fact that there was running debit balance in the ledger account, the petitioners had not demanded any payment in order to hide their fraudulent trading and with the intention of keeping her in the dark. There was intra-day trading done by the petitioners without paying the debit arising out of availing of exposure. They did not even halt the further trading. This was done by the petitioners to show inflated business of their Company by 7 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 causing huge losses to respondent no.2. On 16th May, 2009 Vinod suddenly visited respondent no.2 at her residence and produced statement of her investments showing her total investment value in the scripts of her Demat Account of Rs. 4,00,000/- out of more than Rs.55,00,000/-. The matter was therefore reported to the Regional Manager, petitioner no.4 and to Mr. Rohan Raut, Assistant Vice-President and other petitioners. However, no steps whatsoever taken by any of the petitioners. Respondent no.2 alleges that the total loss caused to her on account of the unauthorized and fraudulent trading, is of about Rs.70,00,000/-. She therefore sent her advocate’s notice dated 3rd August, 2009 and later filed the complaint herein alleging offences punishable under Sections 409, 420, 465, 467 read with 34 and 120(B) Indian Penal Code. 7. The petitioners seek quashing of the proceedings filed by respondent no.2 on the grounds that, (i) it is a false complaint, (ii) respondent no.2 has suppressed material facts in her complaint, (iii) filing of the complaint is an abuse of process of law, (iv) the dispute disclosed in the complaint is purely a civil 8 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 dispute and (v) the complaint is vague, it does not assign specific role to petitioners no.2 and 3. 8. Mr. Gheewala, the learned counsel for the petitioners submits that, while trading in F & O segment, on every purchase of derivative, a client is not required to pay full consideration of the purchase value of the derivative contract. The facility allows him to hold on to the purchase for a specified period ranging from one month to three months contract. The client is required to deposit in his account, the margin money determined by the concerned exchange. Every day, it is the client’s responsibility to ensure that the requisite margin money which is calculated and shown due and payable in his account is paid by him. Therefore, no fault can be found with the petitioners for not making demand for the payment. It is the specific allegation of respondent no.2 in the complaint that she was kept in the dark about the nature of F & O mechanism and other necessary details. Therefore, it would be a matter of evidence whether respondent no.2 was aware that she was required to maintain a certain margin money in her account. 9 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 Besides since the margin money is to be determined by the exchange it would again be a matter of evidence that respondent no.2 was informed from time to time about the quantum of the margin money to be maintained in the account. 9. He next submits that respondent no.2 had invoked arbitration clause in the Member-Client agreement and the dispute was referred to the panel of arbitrators under the bye- laws, Rules and Regulations of National Stock Exchange. The arbitration matter no. CM/M/0213 of 2009 was heard by the arbitrators and award dated 18th August, 2010 passed. The arbitrators held that various claims and allegations made by respondent no.2 were unsubstantiated, not believable, extremely hollow, shallow and insipid. They further held that the allegation that the petitioners had carried out unauthorized trades in her account during the period 25th January, 2009 to 27th April, 2009 was false. The arbitrators had relied upon a C.D. containing conversation between Vinod and husband of respondent no.2, which according to the arbitrators, suggested that the husband of respondent no.2 was an experienced person 10 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 in trading and had given instructions for trading for and/on behalf of respondent no.2. The award was challenged by respondent no. 2 by filing appeal before NSEIL, appellate panel of arbitrators being Arbitration Appeal no. CM/M-213 OF 2009. The appeal was dismissed by the order dated 24th January, 2011. Mr. Gheewalla, submits that after failing in arbitration, respondent no.2 has resorted to the criminal proceedings by suppressing the arbitration proceedings. Therefore, filing of the criminal complaint is clear abuse of process of law by respondent no.2. According to him, institution of the complaint is a malafide act on the part of respondent no.2 with an oblique motive of wreaking personal vendetta on the petitioners. 10. Mr. Gheewala further submits that, had respondent no.2 disclosed the decision in the arbitration proceedings, which was already in her hands at the relevant time, the trial Court would not have issued the order under Section 156(3) Criminal Procedure Code directing registration of FIR and investigation by the police. 11 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 11. It is submitted on behalf of respondent no.2 that the purpose of the proceedings before the Arbitrators was entirely different. The purpose was for the recovery of the claim against the petitioners. Therefore, it had no relevance to the criminal complaint filed and the issue raised therein. Therefore, it was not necessary for respondent no.2 to disclose the arbitration proceedings in her complaint. I find substance in the submission. In any case, it is a well established position in law that findings in civil proceedings are not binding in a criminal case on the same facts. The Apex Court in its decision in Iqbal Singh Marwah & another V/s. Meenakshi Marwah and another, reported in (2005) 4 Supreme Court Cases 370, observed as follows : Coming to the last contention that an effort should be “ made to avoid conflict of findings between the civil and criminal courts, it is necessary to point out that the standard of proof required in the two proceedings are entirely different. Civil cases are decided on the basis of preponderance of evidence while in a criminal case, the entire burden lies on the prosecution and proof beyond reasonable doubt has to be given. There is neither any statutory provision nor any legal principle that the findings recorded in one proceeding may be treated as final or binding in the other, as both the cases have to be decided on the basis of the evidence adduced therein”. 12 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 This decision was approved in the subsequent decision in Rukhmni Narvekar V/s. Vijaya Satardekar and others, reported in (2008) 14 Supreme Court Cases page 1. Therefore, I find no substance in the argument that the respondent no.2 ought to have disclosed the arbitration proceedings and the outcome thereof in her complaint and that non disclosure of the same amounts to suppression of material facts. 12. Mr. Gheewala next submits that, the dispute between the petitioners and respondent no.2 is purely a civil dispute as is evidenced by the arbitration proceedings. He points out that the appropriate civil forum i.e. the arbitrators have after detailed examination of the issues held that, there was no unauthorized trade carried in the account of respondent no.2, there was no wrongful loss incurred by respondent no.2 and that the actions of petitioner no.1 were free of malafides. On the background of the decision in arbitration proceedings, Mr. Gheewala submits that, investigation by police into the complaint of respondent no.2 would be a serious threat to the fundamental rights of the petitioner guaranteed under the 13 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 Constitution of India. He further submits that, the petitioners being qualified officers have a good reputation and standing in the Society, being reputed professionals, an unfounded malafide complaint against them will cause serious prejudice to their reputation and career. He draws attention of this Court to the observations of the Apex Court in Pepsi Foods Limited and Another V/s. Special Judicial Magistrate and Others reported in 1998 S.C.C. (Cri.) page 1400 on the seriousness of facing criminal proceedings by any individual. The Apex Court has observed that, summoning of an accused in a criminal case is a serious matter. Criminal Law cannot be set into motion as a matter of course. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. The Magistrate has to carefully scrutinize the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima-facie committed by all or any of the accused. 14 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 13. Perusal of the complaint makes it difficult to accept the submission of Mr. Gheewala that the dispute between the petitioners and respondent no.2 is purely a civil dispute. Respondent no.2 in her complaint has set out the conduct of the applicants and alleged that their conduct has caused wrongful loss to her and wrongful gain to the petitioners and the other accused. 14. Undoubtedly summoning of accused in criminal case is serious matter, therefore the courts are expected to carefully scrutinise the evidence brought on record and take steps in elicitation of answers to find out truthfulness of the allegations and otherwise. In the present case, however, it is seen that the petitioners have approached this Court even before the stage of issuance of process has reached. Perusal of both the petitions, shows that what is essentially challenged by the petitioners therein is the order dated 4th January, 2011 passed by the learned Metropolitan Magistrate under Section 156(3) Criminal Procedure Code. The petitioners, contend in the petition that passing of the order under Section 156(3) has caused grave 15 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 inequities to the petitioners and their fundamental rights under the Constitution of India stand compromised. Therefore, according to them the order is illegal and abuse of process of law. Mr. Desai, the learned Counsel for respondent no.2 submits, relying on decision of Division Bench of this Court in Karnal B.S. Khatri V/s. State of Maharashtra and another reported in 2004 (1) Bombay Cases Reporter page 424, that an order under Section 156(3) of Criminal Procedure Code requiring investigation by police does not cause any injury of irreparable nature which requires quashing of even the investigation. All that has been ordered, is investigation into the complaint. The stage of cognizance would arise after the investigation report is filed. Therefore, filing of the petitions are premature and there is no need for exercising the powers by this Court either under Article 227 of the Constitution of India or under Section 482 Criminal Procedure Code. He further submits that, it has been consistently held by the Apex Court that the inherent powers under Section 482 Criminal Procedure Code should be sparingly used. 16 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011 15. The only order passed in the complaint is of the directions to the Police under Section 156(3) Code of Criminal Procedure for carrying out investigation into the complaint, the police are yet to carry out investigation and submit their report. It will not be correct on the part of anybody to speculate upon the report and file proceedings to quash the complaint. Therefore, the petitions are dismissed. 16. Mr. Gheewala, prays for extension of the interim order. At his request, the interim order of stay is extended for a period of 6 weeks from today. [SMT. R.P. SONDURBALDOTA, J] 17 W.P. 672/2011 a/w. W.P.767/2011 16 Nov, 2011