IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE N.K.BALAKRISHNAN MONDAY, THE 19TH DAY OF DECEMBER 2011/28THAGRAHAYANA 1933 WP(C).No. 13328 of 2011 (M) --------------------------- CRMP.861/2011 of CHIEF JUDL.MAGISTRATE, ERNAKULAM -------------------- PETITIONER(S): ------------- DIPAK BRIJMOHANDAS GUPTA, DIRECTOR, KOTAK MAHINDRA INVESTMENTS LIMITED, 36-38A NARIMAN BHAVAN,227 NARIMAN POINT,MUMBAI 400 021. BY ADV. SRI.M.AJAY RESPONDENT(S): -------------- 1. THE STATE OF KERALA,(REP.BY ITS ADDITIONAL CHIEF SECRETARY & SECRETARY TO GOVERNMENT,HOME DEPARTMENT) THE SECRETARIAT THIRUVANANTHAPURAM 695 001. 2. THE STATION HOUSE OFFICER,ERNAKULAM CENTRAL POLICE STATION,ERNAKULAM 682 018. 3. K.V.JANARDHANA PAI,PARTNER, KNG TEXTILES,XL/5754,GOPALA PRABHU ROAD ERNAKULAM 682 035. R,R3 BY SRI.G.UNNIKRISHNAN R,R3 BY SRI.S.SREEKUMAR (SR.) PUBLIC PROSECUTOR SRI.RAJESH VIJAYAN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 19-12-2011, ALONG WITH WPC. 13335/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: jvt WP(C).No.13328 OF 2011 APPENDIX Petitioner's Exhibits :- Ext.P1 :- Copy of the First Information Report in Crime No.871/11 dated 12.3.11. Ext.P2 :- Copy of the Crl.M.P.861/11 filed by the third respondent before the Hon. Chief Judicial Magistrate, Ernakulam dated 8.3.11. Ext.P3 :- Copy of the Award of the Arbitral Tribunal dated 7.5.09. Ext.P4 :- Copy of the Statement of Claim filed by the third accused against the third respondent herein before the Hon. Arbitrator in Mumbai dated 17.1.09. Respondent's Exhibits :- Ext.R3(a) :- Copy of Member Client Agreement & Application form. Ext.R3(b) :- Copy of complaint sent to SEBI by the 3rd respondent. Ext.R3(c) :- Copy of letter issued by the NSE to the 3rd respondent. Ext.R3(d) :- Copy of Dealing Slips served to the 3rd respondent. Ext.R3(e) :- Copy of award dated 07-05-2009. //True Copy// P.A. to Judge N.K. BALAKRISHNAN, J. ================= W.P.(C) Nos:13328 & 13335 OF 2011 (M ) ============================ Dated this the 19th day of December, 2011 J U D G M E N T The 4th accused in Crime No:871/2011 of Ernakulam Central Police Station is the petitioner in W.P.(C) No: 13328/2011. The 2nd accused in that crime is the petitioner in W.P.(C) No: 13335/2011. The 3rd respondent in this case is the complainant who lodged Exhibit P2 complaint before the learned Chief Judicial Magistrate, Ernakulam. That complaint was forwarded to the Central Police Station, Ernakulam, under section 156(3) of Cr.P.C., whereupon the police registered Exhibit P1-F.I.R., incorporating offences under sections 192, 193, 196, 405, 406, 409, 463, 464, 465, 467, 470, 471, 474 and 120(B) of IPC. That crime is being investigated by the 2nd respondent, Sub Inspector of Police, Central Police Station, Ernakulam. W.P.(C) Nos:13328 & 13335 OF 2011 -: 2 :- 2. The 1st accused is a limited company which is a Trading Member with the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). It was registered as a Depository Participant with the National Securities Depository Limited (NSDL). It was alleged that the 3rd respondent complainant opened an account with the branch office of the 1st accused in Ernakulam to trade in shares of listed companies. The main allegation is that on 22.1.2008 the 1st accused company had illegally and unauthorizedly sold all shares lying in the credit of the 3rd respondent resulting in immense loss of money to the complainant. A complaint was filed by him before the Securities and Exchange Board of India (SEBI) and that complaint was forwarded to National Stock Exchange (NSE) who in turn advised the accused to initiate arbitral proceedings. It was alleged that the 1st accused company had filed an Arbitration Application against the 3rd respondent claiming an amount of `1,09,368/-, as the amount due to it from the W.P.(C) Nos:13328 & 13335 OF 2011 -: 3 :- 3rd respondent. A counter claim was filed by the 3rd respondent before the Arbitral Tribunal claiming `52,71,620/-. 3. In paragraph 10 of Exhibit P2 complaint it was stated that the complainant had purchased and/or deposited certain shares in his account maintained by the 1st accused and as per the agreement the same was entrusted to the 1st accused for the purpose of trading on stock exchange on the instructions of the complainant. It was further stated that the complainant used to place orders of purchase and sale with the 1st accused who in turn used to execute the same on behalf of and as per the instructions of the complainant. But the complainant later came to know that on 22.1.2008 the 1st accused had illegally and unauthorisedly sold all shares lying in the credit of the complainant which resulted in immense loss of money to the complainant. The fact that there was arbitral proceedings was admitted in paragraph 11 of Exhibit P2. W.P.(C) Nos:13328 & 13335 OF 2011 -: 4 :- 4. It was alleged by the complainant that in the course of arbitral proceedings, the 1st accused relied upon two documents, the dealing slips, alleged to have been signed by the complainant on 21.1.2008 and 22.1.2008 and produced the same along with the letter dated 25.2.2009. The complainant disputed the genuineness of those documents and subsequently pleaded before the Arbitral Tribunal that those documents were fabricated and forged. It was alleged in the complaint that to prove the alleged forgery/fabrication a request was made before the Arbitral Tribunal to call upon the 1st accused to produce similar dealing slips issued by the complainant for such previous transactions. Further, a request was made by the complainant to send the disputed dealing slips to the Forensic Science Laboratory for testing the genuineness of those two documents but that request was disallowed by the Tribunal. 5. It was contended by the complainant that without W.P.(C) Nos:13328 & 13335 OF 2011 -: 5 :- considering the request, award was passed against the complainant. It is also stated that against that award a petition was filed before the High Court of Madras and that matter is now pending before that Court. 6. It was also contended by the complainant that the 1st accused committed criminal breach of trust and dishonestly misappropriated and/or dishonestly disposed of the shares being the property of the complainant in violation of the direction, rules, regulations and bye laws of NSE and also in violation of the terms of the agreement. It was further contended that the amount obtained by such unauthorized sale of shares was clandestinely transferred to the account of the 3rd accused. 7. The learned counsel for the petitioners submits that on going through the complaint, it is seen that, the allegation is that two 'dealing-slips' which were produced before the Arbitral Tribunal were forged documents. But the Arbitral Tribunal found no infirmity in these documents. W.P.(C) Nos:13328 & 13335 OF 2011 -: 6 :- What ever that be, the Arbitral award is now pending in appeal before the High Court of Madras. Therefore, simply by saying that two dealing slips were forged, the complainant cannot contend that the forgery was committed by the petitioners herein. 8. The main thrust of the argument advanced by the learned counsel for the petitioners is that so far as A2 and A4 are concerned, the complainant wants to fasten the criminal liability only on the ground that they are the Directors of the company or its sister concern. It is contended by the learned counsel for the petitioners that A2 is only the Chairman and not the Managing Director. A4 is the Director of the sister concern. According to the petitioner, both are different companies. Even if it is assumed that one is the sister concern of the other, it would not alter the position. The charge levelled against the petitioners is offence of forgery but the Penal Code does not contain any provision making the directors vicariously liable W.P.(C) Nos:13328 & 13335 OF 2011 -: 7 :- for the act if any done by such person on behalf of the company. Simply for the reason that A2 is the Chairman and A4 is the Director of another company, they cannot be held liable., the learned counsel contends. 9. In this connection, the decisions in S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla & Anr [(2005) 8 SCC 89] and Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd. [2010 (4) KLT Suppl.108 (SC)] have been relied upon by the learned counsel. The ratio decided in these cases is that a person cannot be made accused merely by the reason of his official position. In order to launch prosecution against the officers or such persons of a company, the complainant must make specific averments as to the role played by each of the officers accused in the complaint. Paragraphs 4 and 6 of the complaint do not contain any specific averment as to the role played by the aforesaid two accused persons. In Maharastra State Electricy Distribution Co. Ltd's case W.P.(C) Nos:13328 & 13335 OF 2011 -: 8 :- cited supra it was held by the Apex Court: “ A bare perusal of the complaint shows that the gravamen of the allegation is that a fabricated document containing the offending endorsement was tendered in evidence before the Arbitral Tribunal on behalf of MSEB by accused No.6, who was in-charge of Shirpur section. It is evident from the afore- extractrated paragraphs of the complaint that other accused have been named in the complaint because according to the complainant, MSEB-accused No.1 was acting under their control and management. It bears repetition that the only averment made against appellant No.2 is that appellant No.1, i.e. MSEB was acting under the control and management of appellant No.2 along with other three accused. There is no denying the fact that appellant No.2 happened to be the Chairman of MSEB at the relevant time but it is a settled proposition of law that one cannot draw a presumption that a Chairman of a company is responsible for all acts committed by or on behalf of the company. In the entire body of the complaint there is no allegation that appellant No.2 had personally participated in the arbitration proceedings or was monitoring them in his capacity as the Chairman of MSEB and it was at his instance the subject interpolation was made in Exhibit C-64. At this stage, we may refer to the extract of Board resolution, pressed into service by the respondents in support of W.P.(C) Nos:13328 & 13335 OF 2011 -: 9 :- their plea that appellant No.2 was responsible for the conduct of business of appellant No.1. The said resolution merely authorises the Chief-Engineer to file counter claim before the Arbitral Tribunal in proceedings between appellant No.1 and respondent No.1. It rather demonstrates that it was the Chief Engineer who was made responsible for looking after the interest of the appellant No.1 in those proceedings. In this regard, it would be useful to advert to the observations made by a three judge bench of this Court in S.M.S. Pharmaseuticals (supra): 'There is no universal rule that a director of a company is in charge of its everyday affairs. We have discussed about the position of a director in a company in order to illustrate the point that there is no magic as such in a particular word, be it director, manager or secretary. It all depends upon the respective roles assigned to the officers in a company. A company may have managers or secretaries for different departments, which means, it may have more than one manager or secretary.” It was further held in the very same decision: “It is trite law that wherever by a legal fiction the principle of vicarious liability is attracted and a person who is otherwise not personally involved in the W.P.(C) Nos:13328 & 13335 OF 2011 -: 10 :- commission of an offence is made liable for the same, it has to be specifically provided in the statute concerned. In our opinion, neither Section 192 IPC nor Section 199 IPC, incorporate the principle of vicarious liability, and therefore, it was incumbent on the complainant to specifically aver the role of each of the accused in the complaint. It would be profitable to extract the following observations made in S.K. Alagh (supra):- “As, admittedly, drafts were drawn in the name of the Company, even if the appellant was its Managing Director, he cannot be said to have committed an offence under Section 406 of the Penal Code. If and when a statute contemplates creation of such a legal fiction, it provides specifically therefor. In absence of any provision laid down under the statute, a Director of a Company or an employee cannot be held to be vicariously liable for any offence committed by the Company itself”. ” Therefore, unless there is specific averment in the complaint as to the overt act played or the role of those two accused persons, simply by stating that they are the Chairman and the Director of the company, they cannot be W.P.(C) Nos:13328 & 13335 OF 2011 -: 11 :- simply arrayed as accused since there is no presumption that the accused has committed offence under Sections 465 and 468 IPC alleged against them. Similar view was taken by the Apex Court in Maksud Saiyed v. State of Gujarat and others [2008 (5) SCC 668] where it was held thus : “ Where a jurisdiction is exercised on a complaint petition filed in terms of Section 156(3) or Section 200 of the Code of Criminal Procedure, the Magistrate is required to apply his mind. The Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Directors of the Company when the accused is the Company. The learned Magistrate failed to pose unto himself the correct question viz. As to whether the complaint petition, even if given face value and taken to be correct in its entirety, would lead to the conclusion that the respondents herein were personally liable for any offence. The Bank is a body corporate. Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. Statutes indisputably must contain provision fixing such vicarious liabilities. Even for the said purpose, it is obligaory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability.” W.P.(C) Nos:13328 & 13335 OF 2011 -: 12 :- As stated in that case here also no allegation was made against the petitioners herein that they themselves forged dealing- slips which were alleged to have been forged and produced before the Arbitral Tribunal at Chennai. 10. The learned counsel for the petitioners would rely upon the aforesaid decisions, to fortify his submission that, summoning of the accused in a criminal case for implicating such innocent person as accused in a case during investigation also is a matter of serious concern and that simply because the names of those persons were mentioned in the complaint, they cannot be implicated as accused since the same has serious consequence. The other argument vehemently advanced by the learned counsel for the petitioners is that except stating that A2 is the Chairman cum Managing Director nothing more has been stated to show prima facie that the criminal liability alleged in the complaint can be fastened on him. Learned counsel submits that it is inconceivable how the Chairman/ W.P.(C) Nos:13328 & 13335 OF 2011 -: 13 :- Managing Director sitting at Mumbai or other places can be vicariously held liable for the forgery alleged to have been committed by an officer or other person of the company in respect of the two dealing slips referred to above. It is pointed out by the learned counsel that there is no whisper that the 2nd accused or the 4th accused committed forgery of the two documents or that the two disputed dealing slips were produced by them before the Tribunal. No doubt, the allegation against the 4th accused is that he is the Director who is in charge of and responsible for the conduct of the 3rd accused company. The learned counsel submits that unlike an offence under the N.I.Act, P.F.A Act or offences under such special statutes, there can be no vicarious liability for the alleged act of forgery which is an offence under the Penal Code. The prosecution has to plead and prove that the accused forged the document or used the forged document knowing it to be forged. There is no allegation that the Chairman-cum-Managing Director of the W.P.(C) Nos:13328 & 13335 OF 2011 -: 14 :- first accused company has used the forged document. What is stated in paragraph 4 of the complaint may satisfy the requirement if as per the statute, the Managing Director or person who was in charge of or responsible for the conduct of the business can be held criminally liable, but not in a case where the offence alleged is forgery or user of forged document. Similar is the case as against the 4th accused also. The allegation in paragraph 15 is to the effect that the sale proceeds obtained by unauthorised sale of the complainant's shares were clandestinely transferred to the account of the 3rd accused which is the sister concern of the first accused company. There is no specific allegation to the effect that A2 or A4 or both had committed forgery or misappropriation of the amount as mentioned in the complaint. In paragraph 22 of the complaint it is stated that the offences in the present complaint were committed within the local jurisdiction of CJM Court, Ernakulam, and therefore those offences could be inquired into and tried by W.P.(C) Nos:13328 & 13335 OF 2011 -: 15 :- that court. The aforesaid statement is vague and imprecise that it cannot confer jurisdiction, the petitioners contend. It is not specifically stated how that court has got jurisdiction over the matter. 11. The other point that has been canvassed by the learned counsel for the petitioner is that the reliefs sought for, in Exhibit P2 complaint, is actually to refer the complaint to the police under section 156(3) Cr.P.C. In the first paragraph of the complaint itself it is stated that the complaint was presented before the Court to invoke the powers vested with the Court under section 156(3) of Cr.P.C. and to forward that complaint to the Central Police Station, Ernakulam. Though in the cause title sections 190 and 200 of the Code are mentioned, in the relief portion what is stated is that the complaint has to be forwarded to the police under section 156(3) of Cr.P.C. 12. Mr. M. Ajay, learned counsel for the petitioner would submit that the learned Magistrate, before whom the W.P.(C) Nos:13328 & 13335 OF 2011 -: 16 :- complaint is filed can either conduct inquiry under section 202 of CrPC or direct investigation by the police under section 156(3) of Cr.P.C., but when the complaint is filed with the sole request to forward the same to the police for investigation under section 156(3), such a complaint cannot be entertained. 13. The learned counsel for the petitioner has relied upon the decision in Superintendent of Police vs. State of Kerala reported in [2005 (3) KLT 823] where it was held thus: “The fact that the Magistrate has got a discretion to forward a complaint under S.156(3) does not mean that the complainant has a right or privilege to make a demand to refer the case to the police. The option to refer the complaint to the police for investigation under S.156(3) before cognizance or under S.202(1) after cognizance, is to be exercised by the Magistrate. But that discretion has to be exercised in a judicious manner and not mechanically. A person who is able to exert influence on the police may file a complaint falsely implicating innocent persons with a solitary prayer to forward the same to W.P.(C) Nos:13328 & 13335 OF 2011 -: 17 :- the police. In such cases the only intention of the complainant will be to harass the opponent using police. It is the duty of the Court to punish a person who is guilty of a criminal offence. So, the prayer in the complaint must be to try the accused and to punish him in case he is found guilty of any offence. So when the sole prayer in the complaint is to refer the same to the police, the Magistrate shall approach the matter with care and caution and insist for materials to show a prima facie case. There is also a possibility that a person who is involved in a criminal case may misuse the opportunity to fabricate evidence to be used as defence evidence in the case in which he is an accused. The Magistrate shall not allow an unscrupulous criminal to use the Court as a tool for harassing innocent persons or for fabricating false evidence.” 14. It was also held by this court in V.K. Sreenivasan v. D.G. Nair & Ors., [2005 (2) KLT 396 = 2005 (1) KLJ 788] that the complainant has no right or privilege to require the Court to refer the case to the police. The aforesaid decision was followed by another Bench of this court in Arul V. Nair v. State of Kerala [2007 (4) KLT 921]. Therefore, the learned counsel for the petitioners would submit that the Magistrate cannot act mechanically, W.P.(C) Nos:13328 & 13335 OF 2011 -: 18 :- merely because, the complainant makes a request to refer the case to the police. The learned counsel for the petitioners points out that the specific prayer in the first and last paragraphs of the complaint is to refer the case to the police under Section 156(3) Cr.P.C. Where the complaint discloses a cognizable offence and if the court is of the opinion that materials are to be collected by the investigating officer regarding the commission of the offence, then it would be proper to order investigation into the offence under Section 156(3) Cr.P.C. The learned counsel for the respondent/complainant would submit that, the learned Magistrate has applied his mind to refer the complaint to the police for investigation under Section 156 (3) Cr.P.C. and so the Magistrate cannot be faulted with. The fact that the Magistrate can order investigation under Section 156(3) Cr.P.C., at the pre-cognizance stage is not disputed at all. But in the case on hand, it is seen that, the learned Magistrate has simply forwarded the complaint to W.P.(C) Nos:13328 & 13335 OF 2011 -: 19 :- the police under Section 156(3) Cr.P.C. only because that was the prayer made in the first and last paragraph of the complaint. 15. It is also argued by the learned counsel for the petitioners that a clever complainant with a view to harass the opponent will file a complaint incorporating serious offences and if such complaint is simply forwarded to the police to register FIR and to conduct investigation and if the police officer is hand in gloves with the complainant, then the police officer can make of the FIR registered against the opponent/accused to cause hardship/harassment to him. Pointing out these circumstances, the learned counsel for the petitioners submits that the procedure adopted by the learned Magistrate by simply forwarding the complaint under Section 156(3) Cr.P.C. is illegal and on that ground itself the proceedings initiated and action taken pursuant to the registration of the FIR is to be quashed. 16. Relying upon the aforesaid decisions, the learned W.P.(C) Nos:13328 & 13335 OF 2011 -: 20 :- counsel for the petitioner further submits that the learned Magistrate should have applied his mind before forwarding the complaint to the police under Section 156(3) Cr.P.C. and had the learned Magistrate applied his mind in view of the factors mentioned above, the Magistrate would not have forwarded the complaint to the police under Section 156(3) Cr.P.C. 17. The next ground urged by the learned counsel for the petitioners is that no part of cause of action with regard to the alleged forgery or user of a forged document did arise within the jurisdiction of Central Police Station, Ernakulam or any part of Ernakulam District and so the learned Magistrate lacked jurisdiction to entertain the complaint. In this connection, the learned