AJN 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION CRIMINAL WRIT PETITION NO.268 OF 2003 1. The First Custodian Fund (India) Limited, having its office at Surya Mahal, Nagindas Master Road, Fort, Mumbai – 400 001. ) ) ) ) 2. Mr. Manish Banthia, Director, the First Custodian Fund (India) Limited, having its office at Surya Mahal, Nagindas Master Road, Fort, Mumbai – 400 001. ) ) ) ) 3. Mr. Surendra Kumar Banthia, Director, the First Custodian Fund (India) Limited, having its office at Surya Mahal, Nagindas Master Road, Fort, Mumbai – 400 001. ) ) ) ) ) ... Petitioners Versus 1. The Nedungadi Bank Limited, Shatabdi Bhawan, Govindapuram, Kozhikode, Kerala. ) ) ) 2. The State of Kerala ) 3. The State of Maharashtra ) ... Respondents ALONG WITH CRIMINAL WRIT PETITION NO.355 OF 2003 Mr. Shrikant G. Mantri, having his office at 2nd floor, Surya Mahal, Nagindas Master Road, Fort, Mumbai – 400 001. ) ) ) ... Petitioner Versus AJN 2 1. The Nedungadi Bank Limited, Shatabdi Bhawan, Govindapuram, Kozhikode, Kerala. ) ) ) 2. The State of Kerala ) 3. The State of Maharashtra ) ... Respondents ALONG WITH CRIMINAL WRIT PETITION NO.356 OF 2003 The Harvest Deal Securities Limited, having its office at 3rd floor, Surya Mahal, Nagindas Master Road, Fort, Mumbai – 400 001. ) ) ) ... Petitioner Versus 1. The Nedungadi Bank Limited, Shatabdi Bhawan, Govindapuram, Kozhikode, Kerala. ) ) ) 2. The State of Kerala ) 3. The State of Maharashtra ) ... Respondents Mr. Shirish Gupte, senior counsel with Mr. Subodh Desai for the petitioner. Mr. Prem Lal for respondents 1 and 2. Mr. S.R. Borulkar, Public Prosecutor for respondent 3. CORAM : SMT. RANJANA DESAI, & D.B. BHOSALE, JJ. DATE ON WHICH THE JUDGMENT RESERVED : 30TH APRIL, 2007. DATE ON WHICH THE JUDGMENT PRONOUNCED : 25TH JUNE, 2007. JUDGEMENT:- (Per Smt. Ranjana Desai, J.) AJN 3 1. The petitioners in these three criminal writ petitions filed under Article 226 of the Constitution of India and under section 482 of the Code of Criminal Procedure (“Code” for short) are the accused in the two complaints filed by respondent 1 - the Nedungadi Bank Limited in the Court of the Judicial Magistrate, First Class, Kozhikode, Kerala. 2. In Criminal Writ Petition No.268 of 2003, the petitioners seek quashing of C.C. No.4 of 2003. The said complaint is filed by respondent 1 against Rajendra Kumar Banthia (accused 1 therein), the First Custodians Fund (India) Limited (accused 2 therein), Manish Banthia (accused 3 therein) and Surendra Kumar Banthia (accused 4 therein). This petition is filed by the First Custodian Fund (India) Limited (accused 2), Manish Banthia (accused 3) and Surendra Kumar Banthia (accused 4). 3. In Criminal Writ Petition No.355 of 2003 and Criminal Writ Petition No.356 of 2003, the petitioners seek quashing of C.C. No.3 of 2003. C.C. No.3 of 2003 is filed by respondent 1 against Rajendra Kumar Banthia (accused 1 therein), Shrikant Mantri (accused 2 therein) and the Harvest Deal Securities Limited (accused 3 therein). Criminal Writ Petition No.355 of 2003 is filed by Shrikant Mantri (accused 2) and Criminal Writ Petition No.356 of 2003 is filed by the Harvest Deal Securities Limited (accused 3). 4. These petitions can be disposed of by a common judgment because both the complaints are based on similar facts. They arise out of similar AJN 4 transactions which according to respondent 1 have adversely affected its business. The accused in both the complaints are intimately connected with each other. It is necessary at this stage to see the nature of the allegations levelled against the accused and in what manner the accused are connected with each other. 5. At the relevant time, respondent 1 being a scheduled bank was doing banking business. As per the affidavit of Mr. More, the Manager of the Punjab National Bank, respondent 1 has since been amalgamated with Punjab National Bank and after the amalgamation, the assets and liabilities, including the rights of respondent 1 have got vested with the Punjab National Bank. 6. The two complaints which are the subject matter of the instant petitions were filed by respondent 1 pursuant to scrutiny report of the share transactions conducted at respondent 1's Mumbai Regional Office by the Reserve Bank of India (for short, “the RBI”). The learned counsel for respondent 1 has made available to us copy of the said report along with the covering letter dated 6/12/2002 of the Chief General Manager in-charge of the RBI addressed to the Chairman of respondent 1. The covering letter states that the scrutiny among others revealed serious irregularities and mala fide intention on the part of the broking firms that is accused First Custodian Fund (India) Limited, accused Shrikant Mantri and accused Harvest Deal Securities Limited, who are closely connected with accused Rajendra Kumar Banthia and, therefore, it will be highly essential to take speedy action in the matter AJN 5 against wrongdoers who have misused public deposits. 7. The scrutiny report and the complaints filed pursuant thereto reveal that the RBI had permitted scheduled banks like the complainant to invest in securities within stipulated limits. In the Board meeting held on 26/9/1999, it was decided by respondent 1 to take advantage of arbitrage opportunity in the price of shares in the Mumbai Stock Exchange and National Stock Exchange by trading in equities. Accused Shrikant Mantri, accused Harvest Deal Securities Limited and accused First Custodian Fund (India) Limited were recognized as brokers for the said purpose. 8. Accused Rajendra Banthia had acquired substantial number of shares of respondent 1 and is one of its major shareholders. He had high and considerable influence on the Board of Directors and the proceedings of the Board. Accused Shrikant Mantri who is a share broker is also a major shareholder of respondent 1. He is one of the directors of accused Harvest Deal Securities Limited. Brother of accused Rajendra Kumar Banthia is the Chairman and son of accused Rajendra Kumar Banthia is the Director of accused First Custodian Fund (India) Limited. Accused First Custodian Fund (India) Limited, accused Shrikant Mantri and accused Harvest Deal Securities Limited are functioning in the same room at Surya Mahal, Nagindas Master Road, Fort, Mumbai. They have same phone numbers and fax numbers. It was at the instance of accused Rajendra Kumar Banthia who had considerable influence on the Board of Directors of respondent 1, that AJN 6 accused First Custodian Fund (India) Limited, accused Shrikant Mantri and accused Harvest Deal Securities Limited were appointed and authorised by respondent 1 to do trading in shares on its behalf to take advantage of arbitrage opportunity in stock prices. It appears that in the carrying on of arbitrage activity, respondent 1 used to place orders for purchase / sale of shares with the accused. As a consideration for carrying on transactions on the exchange for respondent 1, the accused charged brokerage. 9. The trading in equities / shares are done on Bombay On Live Trading (BOLT) and National Exchange Automated Trading. The brokers have to submit contract notes for the transactions undertaken by them giving details like trade time, quantity of shares traded, names of the companies whose shares are traded, purchase rate, brokerage payable, total amount of transaction, etc. Contract note is the record of the transactions. Thus, respondent 1 would know about the share transactions done by the accused only through the contract notes. No other document was available for that purpose. Respondent 1 had to pay money to the accused on the basis of the contract notes. 10. For the purpose of these petitions, it is not necessary to go deep into all the alleged acts of criminal breach of trust and cheating which according to respondent 1 bank exposed it to high risk. The RBI report gives meticulous details thereof. It is inter alia the case of respondent 1 that the contract notes were submitted by accused Shrikant Mantri, accused Harvest Deal Securities AJN 7 Limited and accused First Custodian Fund (India) Limited with full knowledge of accused Rajendra Kumar Banthia and the other accused as the true record of the “On Line Trading”. As the contract notes constituted valid contract between respondent 1 and the brokers, the accused were legally bound to give true and correct details of the transactions in the contract notes. They made respondent 1 believe, by their representations that the details contained in the contract notes were true and correct. The accused were aware of the fact that respondent 1 would be solely relying and depending on the contract notes for making payments thereunder and also for delivering the shares mentioned as sold on behalf of respondent 1. 11. According to respondent 1 accused Rajendra Kumar Banthia, accused First Custodian Fund (India) Limited and accused Shrikant Mantri are its major shareholders. Accused Rajendra Kumar Banthia, accused Manish Banthia, accused Surendra Kumar Banthia are close relatives. Accused Rajendra Kumar Banthia had his nominees on the Board of respondent 1 and he knew that contract notes submitted by them would be accepted by respondent 1 as true and correct. All of them conspired together and submitted forged contract notes and on the basis of such notes intentionally induced respondent 1 to part with money and valuable securities. During the investigation conducted by the RBI, the officers of the RBI came across 16 specific instances of manipulations committed by the accused. The contract notes submitted by the accused contained inflated quantities of purchase of sale of shares when, in fact, the accused had sold or purchased shockingly AJN 8 low quantities of shares. 12. In C.C. No.3 of 2003 loss caused to respondent 1 is stated to be Rs.39,19,75,588.52 and in C.C. No.4 of 2003 the loss caused to respondent 1 is stated to be Rs.87,89,93,597.40. According to respondent 1, therefore, the accused have committed offences punishable under sections 120-B, 418, 420, 467, 468, 471 read with section 34 of the Indian Penal Code (for short, “the IPC”). 13. In these petitions, the accused have denied the allegations of criminal misappropriation, forgery, conspiracy, etc. It is also contended that no cause of action arose within the jurisdiction of the learned Magistrate at Kozhikode. He could not have taken cognizance of the complaints and, hence, the complaints ought to be quashed. 14. Before we began the hearing of these petitions, we had asked the learned counsel for the petitioners Mr. Subhodh Desai, whether the petitioners want to withdraw the petitions and prosecute remedies available to them in law. Mr. Subodh Desai, stated that the petitioners had instructed him not to withdraw the petitions but to proceed with the hearing. We then made it clear that the petitioners will not be allowed to withdraw the petitions at a later stage. On this clear understanding, the hearing began. 15. We heard Mr. Shirish Gupte, the learned senior counsel instructed by AJN 9 Mr. Subhodh Desai for the petitioners at great length. Considerable time was spent by us in hearing arguments of the counsel appearing for both sides on law as well as on facts. At the fag end of the arguments Mr. Gupte, the learned senior counsel requested that the petitioners may be permitted to withdraw the petitions with liberty to adopt appropriate proceedings either in the trial court or in the Kerala High Court. In the aforementioned background, we rejected Mr. Gupte's request. What weighed with us while rejecting Mr. Gupte's request is also the fact that by reason of ad-interim relief granted by this court as back as on 20/2/2003 which was confirmed on 16/6/2003 C.C. No.3 of 2003 has been stayed from February, 2003. C.C. No.4 of 2003 is stayed by reason of ad-interim order passed on 20/2/2003 from 20/2/2003. Warrants issued against the accused have also been stayed. Looking to the serious nature of the allegations, we are of the view that it is high time that the instant petitions are disposed of. 16. When we rejected Mr. Gupte's prayer, he submitted that at present he will only press the point of jurisdiction. He urged that this court may only deal with the point of jurisdiction, but may not express any final opinion on the merits of the case. We find no difficulty in granting this request because at this stage, we cannot express any final opinion on the merits of the case. It is for the trial court to do so. We shall, therefore, proceed to deal with the legal submissions advanced on behalf of the rival parties. We make it clear that nothing said by us in this judgment should be treated as our final expression on the merits of the case. AJN 10 17. Mr. Gupte, the learned senior counsel for the petitioners submitted that the transactions referred to in the complaint were done pursuant to instructions received from the Department of Treasury and Investments of respondent 1 which is situated in Mumbai. The impugned transactions were placed on the Bombay Stock Exchange situated at the office of the accused which is at Mumbai. The contract notes in respect of the impugned transactions were issued to respondent 1 at Mumbai. Respondent 1 accepted them at Mumbai. The transactions resulted in deliveries of shares which were transferred from the demat account of the accused which is at the Mumbai branch of the depository participant – Global Trust Bank, where they maintain and operate their demat account, to the demat account of respondent 1, which was also maintained at and operated from Global Trust Bank at Mumbai. Payments of funds were also made to the bank accounts of respondent 1 in Mumbai and from the bank account of the accused at Mumbai. Mr. Gupte contended that therefore no part of the cause of action can be said to have arisen within the jurisdiction of the learned Magistrate at Kozhikode in terms of section 177 of the Code . 18. Mr. Gupte submitted that as per the Banking Regulation Act, 1949, a branch of a bank functions as an independent entity in respect of the banking business. Reliance is placed on the judgment of the Supreme Court in Agnencia Commercial International Limited & Ors. v. Custodian of the Branches of the Banko Nacional Ultramarino (1982) 2 SCC 482. It is AJN 11 pointed out that in that case, it is held that a bank which operates through its branches, the branches are regarded for many purposes as separate and distinct entities from the Head Office and from each other and, therefore, the branch office of respondent 1 has to be regarded as a separate and distinct entity from the Head Office and, hence, respondent 1 could not have extended the jurisdiction to the learned Magistrate at Kozhikode, Kerala on a spacious ground that the Head Office / Registered Office of respondent 1 is situated at Kozhikode. Mr.Gupte submitted that the learned Magistrate could not have entertained the complaints. 19. Mr. Gupte submitted that Article 226(2) of the Constitution of India empowers a High Court to exercise its powers under Article 226(1) thereof to issue directions, orders or writs in relation to the territories within which the cause of action, wholly or in part, arises for the exercise of such power, notwithstanding that the seat of such government or authority or the residence of such person is not within those territories. Mr. Gupte contended that in this case, the cause of action has wholly arisen within the territorial jurisdiction of this court and hence this court can quash the complaints in exercise of its powers under Article 226(2) of the Constitution of India. Mr. Gupte submitted that in the complaint except stating that respondent 1's Registered Office / Head Office is at Kozhikode and, therefore, the learned Magistrate at Kozhikode has jurisdiction to entertain the complaints, no averments are made to indicate how Kozhikode Court has jurisdiction to entertain the complaints. The Complaints are devoid of necessary averments. Mr. Gupte AJN 12 submitted that therefore this is a fit case where complaints ought to be quashed. 20. In support of his submissions Mr. Gupte relied on the judgments of the Supreme Court in M/s. Swaika Properties & Anr. (1985) 3 SCC 217, Oil & Natural Gas Commission v. Utpal Kumar Basu & Ors. (1994) 4 SCC 711, Navinchandra N. Majithia v. State of Maharashtra & Ors. (2000) 7 SCC 640, Y. Abraham Ajith & Ors. v. Inspector of Police Chennai & Anr. (2004) 8 SCC 100 and Om Prakash Shrivastava v. Union of India (UOI) & Anr. (2006) 6 SCC 207. He also relied on a judgment of this court in Nitin Industrial Associates, Khamgoan v. State of Maharashtra & Ors., AIR 1986 Bom. 298. 21. Mr. Prem Lal, the learned counsel appearing for respondents 1 and 2 contended that accused Rajendra Kumar Banthia being a major shareholder of respondent 1, he used to influence the Board of Directors in major decisions and when RBI permitted banks to invest in shares in stipulated limits accused Rajendra Kumar Banthia used his influence and got his companies appointed as brokers of respondent 1. Mr. Prem Lal laid stress on the close inter connection between the accused and contended that all of them conspired to defraud respondent 1. They submitted fabricated contract notes to the Head Office of respondent 1 at Kozhikode for purchase and sale of shares. But, later on it was found that those contract notes included shares AJN 13 that were not purchased. Mr. Prem Lal contended that the accused made the bank to part with crores of rupees towards value of shares and brokerage for shares that were not purchased. Mr. Prem Lal contended that the accused exposed respondent 1 to high risk. The RBI had to conduct an inquiry. As a result, the Punjab National Bank had to take over respondent 1. Mr. Prem Lal pointed out that the present complaints are filed on the basis of the RBI report. 22. Mr. Prem Lal submitted that the alleged offence is not just trading in the market at Mumbai. The alleged offence is committed by letters, such as over invoicing, over pricing and submitting bills for shares not purchased. Fabricated contract notes used to be sent to respondent 1's offices at Kozhikode to extract money illegally. Thus, the disastrous effect or consequences of the acts of the accused have ensued in the office of respondent 1 at Kozhikode which resulted in closure of the said 100 year old office. Mr. Prem Lal submitted that the Kozhikode court has jurisdiction to entertain the said complaints by virtue of section 177 of the Code read with section 182 thereof. 23. Mr. Prem Lal further submitted that the accused have not availed of the efficacious remedies available to them and, hence, the present petitions should not be entertained. He submitted that it was open for the accused to file revision application before the Sessions Court under section 397 of the Code. The accused could have filed an application for transfer under section AJN 14 191 of the Code. The accused could have filed writ petition under Article 227 of the Constitution of India and under section 482 of the Code in the Kerala High Court which is the court having the territorial jurisdiction. Mr. Prem Lal submitted that since the accused have failed to avail of the efficacious and alternative remedies, they are not entitled to any relief from this court. 24. Mr. Prem Lal further submitted that the order of issuance of process is subject to revisional jurisdiction of this court and therefore at best the accused could have filed a writ petition under Article 227 of the Constitution. In a given case, inherent jurisdiction of the High Court may be invoked for quashing it. But, in such case, the petition has to be filed in the High Court within whose territorial jurisdiction the court of the learned Magistrate issuing process falls. In the instant case, the petitions could have been filed only in the Kerala High Court. 25. Relying on the judgment of the Supreme Court in Trisuns Chemical Industry v. Rajesh Agarwal & Ors., AIR 1999 SC 3499, Mr. Prem Lal contended that provisions of Chapter XIII of the Code relate to the jurisdiction of the criminal courts. Provisions of the said chapter make it clear that after taking cognizance under section 177 of the Code, the Magistrate may have to decide as to which court has jurisdiction to enquire into or try the offence. He may then make over the case to appropriate court if found necessary as per section 192 of the Code. In the present case, according to Mr. Prem Lal since there is no error apparent on the face of record, the impugned orders merit no AJN 15 interference. Besides, argues Mr. Prem Lal, unless the petitioners prove that the entire cause of action arose within the territorial jurisdiction of this court, writ jurisdiction of this court cannot be invoked. He submitted that whether the cause of action has arisen within the jurisdiction of this court or not can only be decided after the evidence is led. The petitions must, therefore, be dismissed. 26. Mr. Prem Lal drew our attention to the judgment of the Full Bench of the Kerala High Court in Meenakshi Sathish v. Southern Petrochemical Industries, 2007(1) KLT 890, where the Kerala High Court has considered the judgment of the Supreme Court in Majithia' s case (supra) and held that it cannot interfere with the proceedings before a criminal court outside its jurisdiction. He submitted that the present case is covered by the said judgment. Mr. Prem Lal contended that even if this court comes to the conclusion that a petition under Article 226 can be entertained for quashing order issuing process, no case has been made out by the petitioners to invoke extra-ordinary jurisdiction of this court and, hence, no relief should be granted to the petitioners. AJN 16 27. Mr. Borulkar, the learned Public Prosecutor is broadly in agreement with the submissions of Mr. Prem Lal. He placed heavy reliance on the judgment of the Supreme Court in Mosaraf Hussain Khan v. Bhagheeratha Engg. Ltd. & Ors. (2006) 3 SCC 658 and submitted that the petitions deserve to be dismissed. 28. Since the basic prayer of the petitioners is for quashing of the criminal proceedings, it is necessary to refer to Bhajan Lal' s case (supra). In that case, the Supreme Court considered the principles of law enunciated by it in several decisions relating to the exercise of the extraordinary power under Article 226 or the inherent powers under section 482 of the Code and laid down principles underlying the exercise of such power. It was inter alia held that where the allegations in the FIR even if taken at their face value and accepted in their entirety do not prima facie constitute any offence, where the proceedings are manifestly attended with mala fides, where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution or continuance of the proceedings, the extra-ordinary power under Article 226 or the inherent power under section 482 of the Code for quashing the FIR or criminal proceedings initiated against a person can be exercised. The Supreme Court clarified that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarest of rare cases. AJN 17 29. One of the questions raised before us is whether this court has jurisdiction to entertain the present petitions filed under Article 226 of the Constitution and section 482 of the Code, praying that criminal proceedings pending in the court at Kerala be quashed. Mr. Gupte has contended that since the entire cause of action has arisen in the jurisdiction of this court, it can entertain the present petitions. On behalf of the respondents, it is contended that