Case: M. A. A. Annamalai Vs. State of Karnataka and Anr

The appellant, who was one of the Directors of R.P.S. Benefit Fund Ltd. submitted his resignation letter on 8.12.1997 which became effective from the date of filing of Form 32 (27.12.1997) with the Registrar of Companies. The said Form has been filed with this petition4. Respondent no.2 filed a complaint with the Indira Nagar Police Station, Bangalore, alleging:- that RPS Benefit Fund had invited deposits from the public vide circular dated 06.12.1998 and that monies had been invested by the Petitioner and his wife in the Pensioners Benefit Fund, pursuant to the approval of the scheme by the Reserve Bank of India;- that the Company had issued letters on 18.05.1999 and 14.06.1999 to the investors not to present their interest warrants and that payments of interests would be made by August 1999;- that the company had since closed its business and the amount due to the Respondent No.2 was about Rs.2,91,778/-;5. The Respondent No.2 lodged a First Information Report on 15.10.1999 with the Indira Nagar Police Station alleging the offence under section 420 Indian Penal Code read with sections 3, 4, 5 and 6 of the Money Circulation and Banning Act, 1978." In the FIR, it was stated that the alleged offences, if any, were committed during the period between 24.05.1998 and 17.09.19996. According to the appellant, he ceased to be a Director of the company from 27.12.1997, therefore, he was not responsible in any manner for what had happened in the company after he had resigned as a Director of the company7. The First Information Report was lodged by respondent no.2 and consequently the then Xth Additional Chief Metropolitan Magistrate, Bangalore issued a non bailable warrants against the appellant8. On Company Petition filed at the instance of the creditors, the Company Court on 23.7.2002 directed the winding up of the company. In the winding up petition, nothing had been mentioned about the appellant because he was not the Director of the company at the relevant point of time9. The Karnataka High Court on 10.6.2004 directed quashing of the entire proceedings in Criminal Petition No.4007 of 2002 regarding the erstwhile Directors of the company. The proceedings before the Xth Additional Chief Metropolitan Magistrate were based on the complaint filed by respondent no.2 stating that he and his wife had invested in the Short Term Deposit Scheme with the company10. The High Court held that some of the Directors of the company had retired in April 1999 and that the non-payment of matured funds and non payment of interest amount had taken place after April 1999. According to the appellant, he is in no manner responsible for companys non payment of either the mature funds and interest amount. The appellant submitted that the petition had been filed for some collateral purposes for unnecessary exerting the pressure on the former Directors11. The learned Judge also held that material ingredients of the offence of cheating had not been made out. The appellant filed a petition before the High Court of Karnataka under section 482 of the Code of Criminal Procedure seeking to quash the proceedings initiated on the basis of the complaint registered as CC 22656 of 2001 arising out of the Crime No.425/1999 pending before the Xth Additional Chief Metropolitan Magistrate, Bangalore12. The appellant submitted that he cannot be held liable or responsible for any of the alleged illegalities committed by the company after he had resigned from the company. The appellants main grievance is that in the impugned judgment, the learned Single Judge has not dealt with this principal argument advanced by the appellant. In the impugned judgment the court observed:-"It is needless to say that there are some documents produced by the petitioner to show that at the relevant point of time he was not the Director of the Company. It is also his case that he also being an investor, the ratio followed by this court in the case of similarly situate persons, applies to his case also. However, it is for the trial court to ascertain as to whether there is investment by the petitioner or not, when he was appointed as a Director, when he resigned and whether the alleged incident has taken place during his directorship and further, to ascertain the preliminary aspect as to whether there is a prima facie case against him and whether he has participated in the proceeding or not as in- charge and managing affairs keeping in view the various decisions and pass orders in accordance with law."13. The court further observed that the petition was disposed of with a direction to the appellant to approach the trial court seeking for order of discharge14. According to the appellant, even according to the averments of the complaint in the First Information Report there were no allegations whatsoever against the appellant, in that event, the High Court ought to have quashed the proceedings against the appellant instead of compelling him to approach the Trial Court for obtaining the order of discharge. The casual approach of the High Court has led to grave miscarriage of justice15. According to the appellant, respondent no.2 had invested in the Pensioners Benefit Fund after approval of the scheme by the Reserve Bank of India and therefore, in any event, the element of cheating as alleged cannot be made out by any stretch of imagination. The complaint and the First Information Report, as aforementioned, do not make out any case against the appellant16. In the facts and circumstances of this case, the High Court was not justified in refusing to quash the complaint against the appellant and compelling him to go to the trial court for seeking an order of discharge.

Court's reasoning:
17. We have heard the learned counsel for the parties. The learned counsel appearing for the State has failed to point out any specific allegation or averment against the appellant. Admittedly, the appellant had resigned from the Board of Directors of the Company with effect from 27.12.1997 and therefore, cannot be held responsible for any activities of the company after he ceased to be a Director of the company. Even, according to the allegation of respondent no.2, no criminal case can be made out against the appellant20. It may be pertinent to mention that respondent no. 2 also filed an affidavit on 16.9.2009 before this Court. In this affidavit, reference has also been made to the affidavit filed before the High Court on 24.6.2009 in which he prayed that all cases against the Company and the Directors be withdrawn as he had already received 55% of the deposit amount from the Official Liquidator, High Court of Madras at Chennai. In the said affidavit filed before this Court, it was also mentioned that the appellant had resigned as Director from RPS Benefit Fund Ltd. on 8.12.1997 but his name had been included as one of the accused by the Investigating Officer. In this connection, he had also mentioned that the deponent was to withdraw the charges of cheating against all the Directors of the RPS Benefit Fund Ltd., including the appellant pending before the 10th Additional Chief Metropolitan Magistrate, Bangalore41. We have carefully considered the rival contentions. It emerges that:In the instant case, the appellant ceased to be a Director of the company from 27.12.1997 whereas the alleged offences, if any, were committed during the period from 24.5.1998 to 17.9.1999b) Admittedly, there are no allegations against the appellant in the First Information Reportc) The company had invited investment from the depositors to invest in the business/benefit funds after receiving due approval of the scheme from the Reserve Bank of India. Therefore, in any event, the element of cheating as alleged cannot be made out by any stretch of imaginationd) The complainant/respondent no.2 submitted in writing to this Court that he does not want to proceed against the appellant because according to him the appellant has been inadvertently included as an accused by the Investigating Officer. He further mentioned in the letter that he had already received 55% of the deposited amount from the Official Liquidator and he did not want to proceed against the appellante) Even assuming that there could have been a vicarious liability thrust on the appellant, even then there cannot be any such vicarious liability in absence of any allegations and material to show that the appellant wase of or responsible for the conduct of the companys business which had given rise to the offence. From any angle of the matter, the appellant cannot be compelled to face the criminal trial in this