Case: Iridium India Telecom Ltd Vs. Motorola Incorporated &amp; Others

of some relevance to the issue under consideration. In this case, the House of Lords examined the duty of those who issued a prospectus inviting investments from the general public and held that they were required to make a true and full disclosure of all the relevant facts. The House of Lords quoted with approval the observations made in the case of New Brunswick and Canada Railway Company Vs. Muggeridge Supra wherein it has been observed as follows :- .........those who issue a prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting them to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge the existence of which might in any degree affect the nature, or extent, or quality of the privileges and advantages which the prospectus holds out as inducements to take shares. The House of Lords went on to observe that it is no answer to a person who has been deceived that he would have known the truth by proper inquiry. It would be apposite to reproduce here the observations made by the House of Lords on this aspect of the matter: But it appears to me that when once it is established that there has been any fraudulent misrepresentation or willful concealment by which a person has been induced to enter into a contract, it is no answer to his claim to be relieved from it to tell him that he might have known the truth by proper inquiry. He has a right to retort upon his objector, You, at least, who have stated what is untrue or have concealed the truth, for the purpose of drawing me into a contract, cannot accuse me of want of caution because I relied implicitly upon your fairness and honesty. I quite agree with the opinion of Lord Lyndhurst, in the case of Small Vs. Attwood (1), that where representations are made with respect to the nature and character of property which is to become the subject of purchase, affecting the value of that property, and those representations afterwards turn out to be incorrect and false, to the knowledge of the party making them, a foundation is laid for maintaining an action in a Court of common law to recover damages for the deceit so practiced; and in a Court of equity a foundation is laid for setting aside the contract which was founded upon that basis. And in the case of Dobell Vs. Stevens (2), to which he refers as an authority in support of the proposition, which was an action for deceit in falsely representing the amount of the business done in a public house, the purchaser was held to be entitled to recover damages, although the books were in the house, and he might have had access to them if he thought proper. Upon the whole case I think the decree of Lords Justices ought to be affirmed, and the appeal dismissed with costs. The aforesaid observations leave no manner of doubt that the appellants were entitled to an opportunity to prove the averments made in the complaint. They were entitled to establish that they have been deliberately induced into making huge investments on the basis of representations made by respondent No.1 and its representatives, which representations subsequently turned out to be completely false and fraudulent. The appellants were entitled to an opportunity to establish that respondent No.1 and its representatives were aware of the falsity of the representations at the time when they were made. The appellants have given elaborate details of the positive assertions made by respondent No.1 which were allegedly false to its knowledge. It is also claimed by the appellants that the respondent No.1 and its representatives willfully concealed facts which were material and ought to have been disclosed, but were intentionally withheld so as to deceive the appellant into advancing and expending a sum of Rs.500 Crores. As noticed earlier, both the appellants and the respondents have much to say in support of their respective view points. Which of the views is ultimately to be accepted, could only be decided when the parties have had the opportunities to place the entire materials before the Court. This Court has repeatedly held that power to quash proceedings at the initial stage have to be exercised sparingly with circumspection and in the rarest of the rare cases. The power is to be exercised ex debito justitiae. Such power can be exercised where a criminal proceeding is manifestly attended with malafide and have been instituted maliciously with ulterior motive. This inherent power ought not to be exercised to stifle a legitimate prosecution. In the present case, the parties are yet to place on the record the entire material in support of their claims. The issues involved are of considerable importance to the parties in particular, and the world of trade and commerce in general. 45. In such circumstances, in our opinion, the High Court ought to have refrained from indulging in detailed analysis of very complicated commercial documents and reaching any definite conclusions. In our opinion, the High Court clearly exceeded its jurisdiction in quashing the criminal proceeding in the peculiar facts and circumstances of this case. The High Court noticed that while exercising jurisdiction under Section 482 Cr.P.C. the complaint in its entirety will have to be examined on the basis of the allegations made therein. But the High Court has no authority or jurisdiction to go into the matter or examine its correctness. The allegations in the complaint will have to be accepted on the face of it and the truth or falsity cannot be entered into by the Court at this stage. Having said so, the High Court proceeded to do exactly the opposite.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]32. The contours within which the High Court would exercise its jurisdiction to quash the criminal proceeding has been dilated upon, and well defined by this Court in a catena of judgments. We may make a reference here only to a few representative cases. In the case of Smt. Nagawwa Vs. Veeranna Supra considering the limits within which the Magistrate is required to conduct an inquiry under Section 202 of the Cr.P.C., this Court observed that the scope of such inquiry is (Para 4) extremely limitedlimited only to the ascertainment of the truth or falsehood of the allegations made in the complaint(i) on the materials placed by the complainant before the Court; (ii) for the limited purpose of finding out whether a prima facie case for issue of process has been made out; and (iii) for deciding the question purely from the point of view of the complainant without at all adverting to any defence that the case may have. In fact it is well settled that in proceedings under Section 202, the accused has got absolutely no locus standi and is not entitled to be heard on the question whether the process should be issued against him or not33. Keeping in view the aforesaid principles, we may now examine as to whether the High Court has adopted the correct approach while exercising its inherent power under Section 482 Cr.P.C. The High Court notices in extenso the facts as narrated above. Thereafter the High Court notices the submissions made on behalf of the parties. It was observed by the High Court that a company/corporation will not have the mens rea for commission of the offence under Section 415 IPC. The High Court relied on the observations made by this Court in the case of Kalpanath Rai Vs. State ((1997) 8 SCC 732 ) and distinguished the judgment in the case of M.V. Javali Vs. Mahajan Borewell & Co. ((1997) 8 SCC 72 ). It is held that a company being a juridical person cannot have the intention to deceive, which is the necessary mens rea for the offence of cheating. According to the High court, although a company can be a victim of deception, it can not be the perpetrator of deception. It can only be a natural person who is capable of having mens rea to commit the offence. According to the High Court, the same reasoning would also apply in respect of the offence of conspiracy which involves a guilty mind to do an illegal thing34. The judgments relied upon by the complainant are distinguished by the High Court, as they pertain to special provisions contained in different statutes such as, Income Tax Act, Essential Commodities Act, Food Adulteration Act and TADA Act. It is noticed that in Kalpanath Rai Vs. State Supra this Court was concerned with the provisions of TADA Act. The High Court was further of the opinion that Indian Penal Code does not contain any provision similar to the aforesaid acts. Since the offence of cheating under Section 415 and the offence of conspiracy under Section 120B can only be committed by a natural person, the word whoever cannot include in its sweep, a juridical person like a company. The High Court notices the judgment of the Calcutta High Court in the case of A.K. Khosla Vs. T.S. Venkatesan (1992 Crl. L.J. 1448) wherein it was held that there are two tests in respect of prosecution of a corporate body i.e. first being the test of mens era and the other being the mandatory sentence of imprisonment. However, no opinion has been expressed there upon by the High Court. In view of the aforesaid conclusions, the High Court has held that the complaint would not be maintainable against the respondent35. We are of the considered opinion that there is much substance in the submission of Mr. Jethmalani that virtually in all jurisdictions across the world governed by the rule of law, the companies and corporate houses can no longer claim immunity from criminal prosecution on the ground that they are incapable of possessing the necessary mens rea for the commission of criminal offences. The legal position in England and the United States has now crystallized to leave no manner of doubt that a corporation would be liable for crimes of intent38. From the above it becomes evident that a corporation is virtually in the same position as any individual and may be convicted of common law as well as statutory offences including those requiring mens rea. The criminal liability of a corporation would arise when an offence is committed in relation to the business of the corporation by a person or body of persons in control of its affairs. In such circumstances, it would be necessary to ascertain that the degree and control of the person or body of persons is so intense that a corporation may be said to think and act through the person or the body of persons. The position of law on this issue in Canada is almost the same. Mens rea is attributed to corporations on the principle of alter ego of the company40. These observations leave no manner of doubt that a company / corporation cannot escape liability for a criminal offence, merely because the punishment prescribed is that of imprisonment and fine. We are of the considered opinion that in view of the aforesaid Judgment of this Court, the conclusion reached by the High Court that the respondent could not have the necessary mens rea is clearly erroneous42. A bare perusal of the aforesaid section would show that it can be conveniently divided into two parts. The first part makes it necessary that the deception by the accused of the person deceived, must be fraudulent or dishonest. Such deception must induce the person deceived to: either (a) deliver property to any person; or (b) consent that any person shall retain any property. The second part also requires that the accused must by deception intentionally induce the person deceived either to do or omit to do anything which he would not do or omit, if he was not so deceived. Furthermore, such act or omission must cause or must be likely to cause damage or harm to that person in body, mind, reputation or property. Thus, it is evident that deception is a necessary ingredient for the offences of cheating under both parts of this section. The complainant, therefore, necessarily needs to prove that the inducement had been caused by the deception exercised by the accused. Such deception must necessarily produce the inducement to part with or deliver property, which the complainant would not have parted with or delivered, but for the inducement resulting from deception. The explanation to the section would clearly indicate that there must be no dishonest concealment of facts. In other words,e of relevant information would also be treated as aof facts leading to deceptionIt was, therefore, necessary for the High Court to examine the averments in the complaint in terms of the aforesaid section. The High Court upon detailed examination of the 1992 PPM, the Stock Purchase Agreements and the 1995 PPM concluded that even if the averments made in the complaint are accepted on their face value, it would only disclose a civil dispute between the parties43. Surprisingly, the High Court notices the representations that were made and contrasted the same with the actual realities and yet concluded that the averments made in the complaint even if taken at their face value would not lead to the conclusion that the respondent has committed the offence of cheating. In coming to the aforesaid conclusions, the High Court has given elaborate reasons. The High Court negated the submissions of the appellant that 1992 PPM is in the nature of a prospectus or a brochure, which requires that all technical information touching upon the commercial feasibility of the project had to be faithfully and fully disclosed. The submission is rejected with the observation that the 1992 PPM contained the following caution:An investment in Iridium involves certain risks, many of which relate to the factors and developments listed above, prospective investors should carefully consider the disclosures set forth elsewhere in this memorandum, including those under the caption `risk factors(1992 PPM Pg. 5)The High Court also accepted the submissions of the respondent that the 1992 PPM contained a separate chapter titled Risk Factors. This portion related to the most important risk factors which were as follows:New regulated Business Venture. The Company is a new business venture of global scope that will require substantial licensing and authorizations from numerous sovereign nations before its business can be conducted in the manner contemplated by its current business plan. Therefore in deciding whether to invest in Shares, prospective investors must evaluate among other things, the potential feasibility and future performance of the Company based on its business plan without benefit of any operating history, and prior to application for an receipt of such licensing and authorizations. No assurance can be given that any of the necessary licenses and authorizations will be obtained in a timely or at all. (1992 PPM Pg. 72)44. According to the High Court, the respondent No.1 did not keep the investors in dark about the Iridium System and gave them all necessary information in respect of various aspects of the system. In coming to the aforesaid conclusion, the High Court observed that a bare perusal of the complaint shows that there is no reference to the Stock Purchase Agreements of 1993 and 1994. In fact, these two important documents contain acknowledgments of the investors about their capability of evaluating the merits and risks of the purchase of the shares and their relying upon their own advisors. The High Court, therefore, negated the submission that there has not been a complete and candid disclosure of the entire material which has resulted in the deception / inducement of the appellant to make huge investment in the Iridium. This conclusion reached by the High Court did not take notice of the explanation to Section 415. The aforesaid explanation gives a statutory recognition to the legal principles established through various judicial pronouncements that misleading statements which withhold the vital facts for intentionally inducing a person to do or to omit to do something would amount to deception. Further, in case it is found that misleading statement has wrongfully caused damage to the person deceived it would amount to cheating. It would at this stage be appropriate to notice the observations made by the House of Lords in the case of The Director &c. of the Central Railway Company of Venezuela Vs. Joseph Kisch supra which would be of some relevance to the issue under consideration. In this case, the House of Lords examined the duty of those who issued a prospectus inviting investments from the general public and held that they were required to make a true and full disclosure of all the relevant factsThe aforesaid observations leave no manner of doubt that the appellants were entitled to an opportunity to prove the averments made in the complaint. They were entitled to establish that they have been deliberately induced into making huge investments on the basis of representations made by respondent No.1 and its representatives, which representations subsequently turned out to be completely false and fraudulent. The appellants were entitled to an opportunity to establish that respondent No.1 and its representatives were aware of the falsity of the representations at the time when they were made. The appellants have given elaborate details of the positive assertions made by respondent No.1 which were allegedly false to its knowledge. It is also claimed by the appellants that the respondent No.1 and its representatives willfully concealed facts which were material and ought to have been disclosed, but were intentionally withheld so as to deceive the appellant into advancing and expending a sum of Rs.500 Crores. As noticed earlier, both the appellants and the respondents have much to say in support of their respective view points. Which of the views is ultimately to be accepted, could only be decided when the parties have had the opportunities to place the entire materials before the Court. This Court has repeatedly held that power to quash proceedings at the initial stage have to be exercised sparingly with circumspection and in the rarest of the rare cases. The power is to be exercised ex debito justitiae. Such power can be exercised where a criminal proceeding is manifestly attended with malafide and have been instituted maliciously with ulterior motive. This inherent power ought not to be exercised to stifle a legitimate prosecution. In the present case, the parties are yet to place on the record the entire material in support of their claims. The issues involved are of considerable importance to the parties in particular, and the world of trade and commerce in general45. In such circumstances, in our opinion, the High Court ought to have refrained from indulging in detailed analysis of very complicated commercial documents and reaching any definite conclusions. In our opinion, the High Court clearly exceeded its jurisdiction in quashing the criminal proceeding in the peculiar facts and circumstances of this case. The High Court noticed that while exercising jurisdiction under Section 482 Cr.P.C. the complaint in its entirety will have to be examined on the basis of the allegations made therein. But the High Court has no authority or jurisdiction to go into the matter or examine its correctness. The allegations in the complaint will have to be accepted on the face of it and the truth or falsity cannot be entered into by the Court at this stage. Having said so, the High Court proceeded to do exactly the opposite.