Case: Hdfc Securities Ltd Vs. State Of Maharashtra

appellant No.1 - HDFC Securities Ltd., is a public liability company (hereinafter referred to as "the Company" for short), appellant No.2 is the Managing Director of the Company, appellant No.3 is Business Head of the Company, and appellant No.4 is the Regional head of Mumbai Region of the Company, respectively. Respondent No.1 is State of Maharashtra and respondent No.2 is an individual, who held an account with the Company. The Company is engaged in the business of dealing in shares and securities on behalf of its constituents and clients on Brokerage Charge and it is also a member of National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange of India Limited (BSE).4. Respondent No.2, had registered herself with the Company as a constituent/client by opening Securities Trading Account vide No.342889 and was an imperial customer of the Company for about eight years. She executed a Member-Client Agreement dated 28th June, 2005. On 3rd August, 2009, respondent No.2, through a legal Notice dated 03.08.2009, requested the appellants to make good the losses caused to her by indulging in unauthorized and fraudulent trading in her account by one Vinod Koper (Relationship Manager of the company-"RM" in short) during the period July, 2008 to June, 2009. This Notice was also sent to RM and one Rohan Raut, Assistant Vice President of the Company, on 20th October, 2009. Thereafter, she filed arbitration proceedings before NSE Panel of Arbitrators against the Company for a sum of Rs. 48.99 Lacs and costs of Rs. 2.5 Lacs, and chose the Arbitrators of her choice, being two retired High Court Judges and sought to call RM as a witness. The Arbitrators passed an award in favour of the Company on 18th August, 2010, recording a shift in the stand of respondent No.2, authorizing her husband to trade on her behalf. In the meantime, as the Police did not take cognizance of the matter, albeit she filed a complaint on 31st march, 2010, against the appellants, RM and AVP, on 10th June, 2010, she also filed a criminal complaint under Section 156(3) of the Code of Criminal Procedure, 1973 (hereinafter referred to as Cr.P.C.) before 10th Metropolitan Magistrate, Andheri, bearing Case No.143/2010, alleging execution of unauthorized trades in her account without her consent by the appellants and claimed that she had thereby suffered losses amounting to Rs. 70 Lacs. Specific allegations were levelled against RM and appellant No.3 as she was introduced to RM by appellant No.3 and was told that RM would handle her investment portfolio honestly and efficiently with her prior instructions. General allegations of involvement of other appellants were made. On 25th September, 2010, she preferred an appeal before NSE Appellate Panel of Arbitrators, being Arbitration REF No.CM/M-213/2009, wherein she disputed the trades which had taken place during the period December 2008 to April 2009. Being completely oblivious of the Arbitration proceedings, the award passed therein and the appeal preferred by respondent No.2, on 04.01.2011, the learned Metropolitan Magistrate directed registration of FIR against the appellants and ordered for a report after investigation.5. Pursuant to the order of the learned Metropolitan Magistrate dated 4.01.2011, Juhu Police Station registered the FIR, being MECR No.7 of 2011 dated 30th January, 2011, under Sections 409, 420, 465, 467 read with Sections 34 and 120-B of the IPC. Meanwhile, the Appellate Tribunal had decided the appeal against respondent No.2, vide its Award dated 24th January, 2011. The Appellate tribunal found that respondent No.2 had not denied the fact of having received all the necessary documents, including Contract notes, etc. with regard to the transactions undertaken by the appellants on her behalf, which were required to be issued by the trading member to the investor immediately after the trade is undertaken. Thereafter, the appellants filed a writ petition before the Bombay High Court, being Criminal Writ Petition No.672 of 2011, inter alia praying for quashing of the said FIR and the same prayer was also made in Criminal Writ Petition No.767 of 2011, filed by RM before the High Court. The High Court by its judgment dated 16.11.2011, dismissed both the writ petitions as according to it, the filing of the writ petitions was premature and there was no need for exercising the powers either under Article 227 of the Constitution of India or under Section 482 Cr.P.C. Aggrieved by the aforesaid judgment of the High Court, the appellants have approached this Court by filing this appeal by special leave.The High Court dismissed the application filed by the appellants for quashing and setting aside the order of the Metropolitan Magistrate dated 4th January, 2011, on the ground that the appellants had applied before the stage of issuance of process so to be issued by the Metropolitan Magistrate under Section 156(3) of the Criminal Procedure Code. According to the appellants, the fundamental rights of the appellants would be compromised if the order so passed by the Magistrate is allowed to be given effect to. The contention before the High Court on this question is that the order so passed by the Metropolitan Magistrate is illegal and amounts to abuse of the process of law. On the contrary, before the High Court it was submitted on behalf of respondent No.2 that an order under Section 156(3) of Criminal Procedure Code requiring investigation by the police does not cause any injury of irreparable nature which requires quashing of the investigation. It is further stated that the stage of cognizance would arise after the investigation report is filed. Therefore, the application filed by the appellants before the High Court is nothing but prematured and thus there is no need for exercising the powers of the High Court either under Article 227 of the Constitution of India or under Section 482 of the Code. Further contention of the respondent before the High Court was that the inherent powers under Section 482 of the Code should be sparingly used.9. The High Court held that the direction given to the police by the Magistrate under Section 156(3) of the Code for carrying out the investigation into the complaint and to submit a report, cannot give a right to the appellants for quashing the same since such an order would be based absolutely on speculations upon the report not filed. Further, it would result in prejudging the complaint. In these circumstances, the High Court dismissed the said

Court's reasoning:
15. We are of the considered opinion that in the present case a fact finding investigation was directed by the impugned order. Consequently, FIR was registered against appellants No.2 to 4 and against RM (Vinod Kopar). The accused under Indian Criminal Legal System, unless proved guilty shall always be given a reasonable space and liberty to defend himself in accordance with the law. Further, it is always expected from a person accused of an offence pleading not guilty that he shall co-operate and participate in criminal proceedings or proceedings of that nature before a court of law, or other Tribunal before whom he may be accused of an `offence as defined in Section 3(38) of the General Clauses Act, i.e., an act punishable under the Penal Code or any special or local law. At the same time, courts, taking cognizance of the offence or conducting a trial while issuing any order, are expected to apply their mind and the order must be a well reasonedobserve that it is clear from the use of the words "may take cognizance" in the context in which they occur, that the same cannot be equated with "must take cognizance". The word "may" gives discretion to the Magistrate in the matter. If on a reading of the complaint he finds that the allegations therein disclose a cognizable offence and that the forwarding of the complaint to the police for investigation under Section 156(3) will be conducive to justice and save the valuable time of the Magistrate from being wasted in enquiring into a matter, which was primarily the duty of the police to investigate, he will be justified in adopting that course as an alternative to taking cognizance of the offence, himself. It is settled that when a Magistrate receives a complaint, he is not bound to take cognizance if the facts alleged in the complaint, do not disclose the commission of anallegations were already made against all the appellants. We find no substance in the said submission being completely opposed to the settled legal principles. Nevertheless, we find patent illegalities which would result in vitiating the entire investigation which would result in miscarriage of justice.It appears to us that the appellants approached the High Court even before the stage of issuance of process. In particular, the appellants challenged the order dated 04.01.2011 passed by the learned Magistrate under Section 156(3) of Cr.P.C. The learned counsel appearing on behalf of the appellants after summarizing their arguments in the matter have emphasized also in the context of the fundamental rights of the appellants under the Constitution, that the order impugned has caused grave inequities to the appellants. In the circumstances, it was submitted that the order is illegal and is an abuse of the process of law. However, it appears to us that this order under Section 156(3) of Cr.P.C. requiring investigation by the police, cannot be said to have caused an injury of irreparable nature which, at this stage, requires quashing of the investigation. We must keep in our mind that the stage of cognizance would arise only after the investigation report is filed before the Magistrate. Therefore, in our opinion, at this stage the High Court has correctly assessed the facts and the law in this situation and held that filing of the petitions under Article 227 of the Constitution of India or under Section 482 of Cr.P.C., at this stage are nothing but premature. Further, in our opinion, the High Court correctly came to the conclusion that the inherent powers of the Court under Section 482 of Cr.P.C. should be sparingly used.do not find that there is any flaw in the impugned order or any illegality has been committed by the High Court in dismissing the petitions filed by the appellants before the High Court.