Case: K. Sitaram &amp; Another Vs. CFL Capital Financial Service Ltd. &amp; Another

a) The complainant-respondent Company borrowed a sum of Rs. 900 lakhs comprising Rs. 180 lakhs through cash credits from the consortium of Banks (of which the State Bank of Travancore was the lead bank) and a sum of Rs. 720 lakhs being working capital demand Loan. Due to non-payment of the loan amount, the account became Non-Performing Asset. In order to recover the amount against the borrower, the State Bank of Travancore filed OA No. 96 of 2003 before the Debts Recovery Tribunal (DRT), Mumbai. On 22.07.2005, the DRT passed a partial decree awarding a sum of Rs. 812.26 lakhs with 12 per cent interest.(b) On 29.03.2006, the State Bank of Travancore assigned the debts due from the complainant-Company to the Kotak Mahindra Bank together with all the securities through an Assignment Deed. On 11.01.2007, the borrower-the respondent Company assigned to Kotak Mahindra Bank the debt due towards it from one Ravishankar Industries Pvt. Ltd. of more than Rs. 32 crores with an agreement that any excess recovery over and above Rs. 90 lakhs from Ravishankar Industries Pvt. Ltd. would be shared equally between the Kotak Mahindra Bank and the complainant-Company. It is pertinent to mention here that the fact of the alleged Assignment Deed came to the notice of the complainant-Company only on 17.01.2007 when the Kotak Mahindra Bank handed over a copy of the application for substituting themselves in place of State Bank of Travancore to the respondent-Company.(c) The Kotak Mahindra Bank initiated process for substituting its name in place of the assignor-State Bank of Travancore in the recovery application and also withdraws two criminal complaints filed by the respondent-Company against Ravishankar Industries Pvt. Ltd. without any information to the respondent-Company. On 28.04.2007, the Kotak Mahindra Bank moved an application before the Recovery Officer-I for appropriating Rs. 67.5 lakhs due towards the complainant-Company, being 50 per cent of the amount of Rs. 135 lakhs received in excess of Rs. 90 lakhs from the Ravishankar Industries Pvt. Ltd., against the claim towards the State Bank of Travancore.(d) On 16.05.2007, the complainant-respondent Company filed a complaint against the Kotak Mahindra Bank and its officers being No. 18/SW/07 before the Metropolitan Magistrate, Bandra, Mumbai under Sections 409, 418, read with 120-B of the Indian Penal Code, 1860 (in short `the IPC). On 25.06.2007, the Additional Chief Metropolitan Magistrate, Bandra, Mumbai issued process against all the accused in the complaint dated 16.05.2007. The accused therein preferred Criminal Revision Applications being Nos. 1024-1026 of 2007 before the Court of Sessions for Greater Bombay. Learned Additional Sessions Judge, vide order dated 03/05.04.2008, allowed the revision applications while setting aside the order of issue of process dated 25.06.2007.(e) A fresh complaint being No. 0800009/SW/08 was filed by the complainant-the respondent Company before the Additional Chief Metropolitan Magistrate, 8th Court, Esplanade, Mumbai under Sections 409, 418, 423 and 425 read with Section 120-B of the IPC against the State Bank of Travancore, Kotak Mahindra Bank Limited and its officers. The Metropolitan Magistrate, I/C ACMM, 8th Court, Esplanade, Mumbai, vide order dated 25.01.2008, issued process against the officers of the State Bank of Travancore and Kotak Mahindra Bank Limited. On 11.05.2008, learned Magistrate excluded the officers of the Kotak Mahindra Bank Limited in view of an application filed by the respondent-Company to withdraw the complaint against them.(f) Being aggrieved, the appellants herein preferred a Criminal Writ Petition being No. 1279 of 2010 before the High Court. On 07.01.2011, learned single Judge of the High Court, dismissed the writ petition filed by the appellants herein for setting aside the order of issue of process by learned Magistrate dated 25.01.2008 against the appellants.(g) Aggrieved by the order dated 07.01.2011, the appellants have preferred this appeal by way of special leave.The present appeal has been filed for quashing of Criminal Case No. 0800009/SW/08 pending in the Court of Additional Chief Metropolitan Magistrate, 8th Court, Esplanade, Mumbai and for setting aside the order dated 25th January 2008, by which process was issued against all the persons accused in the complaint. Appellant No. 1 herein was working as Managing Director with the State Bank of Travancore during the period 11th May 2006 to 30th June 2007. Appellant No. 2 herein worked with the Bank as the Deputy General Manager during the period from January 2005 to November 2006.9. The respondent-Company filed a complaint alleging offence punishable under Sections 409, 418, 423 and 425 read with Section 120-B of the IPC against the appellants herein. The Bank had in December 1995 sanctioned loan of Rs. 180 lakhs by way of cash credit facility and Rs. 720 lakhs by way of working capital demand loan, totaling to Rs. 900/- lakhs and the complainant-Company executed various documents in favour of the Bank. As the respondent-Company was unable to pay its dues to the Bank, the Bank had filed recovery proceedings before the Tribunal wherein a partial decree for a sum of Rs. 812.26 lakhs had been passed.10. In the said proceedings, Kotak Mahindra Bank Limited filed an application for substituting its name in place of State Bank of Travancore claiming all the dues and charge on the immovable properties mortgaged in favour of State Bank of Travancore vide an Assignment Deed dated 29.03.2006. The respondent-Company claimed that no notice of the alleged assignment dated 29.03.2006 had been given to it. On 11.01.2007, the respondent-Company entered into a Deed of Assignment with the Kotak Mahindra Bank Limited, wherein all the dues of Ravishankar Industries Pvt. Ltd. of more than Rs. 32 crores were assigned to the Kotak Mahindra Bank. Under the agreement, it was agreed that any amount received over and above Rs. 90 lakhs from the Company would be shared equally between the respondent-Company and Kotak Mahindra Bank. The Kotak Mahindra Bank withdrew the proceedings filed by the respondent-Company under Section 138 of the Negotiable Instruments Act against the Ravishankar Industries Pvt. Ltd and also settled an amount of Rs. 225 lakhs without giving any information to it as to the terms of settlement and the mode of payment. It is the allegation of the complainant that if the complainant was informed about the alleged Assignment Deed dated 29.03.2006, it would not have entered into the assignment agreement on 11.01.2007 with the Kotak Mahindra Bank. It is alleged that the suppression of facts and surreptitious execution of the deed of assignment dated 29.03.2006 was deliberately done with a dishonest intention to induce the complainant-Company and to make wrongful losses and to deceive it.

Court's reasoning:
17. The respondent-Company came to know about the Assignment Deed dated 29.03.2006 only on 17.01.2007 when the Kotak Mahindra Bank moved an application for substituting themselves in place of State Bank of Travancore on the basis of that alleged document i.e. Assignment Deed dated 29.03.2006. It is also pertinent to mention here that neither the State Bank of Travancore nor the Kotak Mahindra Bank informed the respondent-Company regarding the alleged Assignment Deed either before or after the alleged assignment. It is also on record that vide agreement dated 01.10.1999, the Kotak Mahindra Bank, which was earlier a financial services Company, entered into an agreement with the respondent-Company to act as an advisor and to provide necessary assistance for the successful restructuring of the respondent-Company and to provide follow up and support services to the complainant-Company in recovery from its various defaulters.18. Under the above terms and conditions, when the Kotak Mahindra Bank was already in an agreement with the respondent-Company in order to safeguard its interest, the fact of the Assignment Deed between the State Bank of Travancore and the Kotal Mahindra Bank with regard to alleged rights of the State Bank of Travancore pertaining to the immovable properties allegedly mortgaged in its favour, must be communicated by the State Bank of Travancore to the respondent-Company. More so, the fact of such assignment deed must also be brought to the notice by the Kotak Mahindra Bank to the respondent-Company when it was responsible to provide necessary assistance to the respondent-Company.The position becomes more clear from the fact that even after the alleged assignment, in a proceeding before the appellate tribunal, none of the representative of the State Bank of Travancore mentioned about the factum of such assignment. The respondent-Company came to know about the alleged Assignment after a lapse of 9 months i.e. on 17.01.2007, when an application was moved by the Kotak Mahindra Bank for substituting its name in place of State Bank of Travancore. In the absence of such knowledge, on 11.01.2007, the respondent-Company entered into a deed of Assignment with the Kotak Mahindra Bank wherein all the dues of a defaulter, viz., Ravishankar Industries Pvt. Ltd., of more than Rs. 32 crores were assigned to the Kotak Mahindra Bank. The Kotak Mahindra Bank was under an obligation to inform the respondent-Company about the earlier Assignment Deed which was not done. More so, the Kotak Mahindra Bank received a sum of Rs. 225 lakhs in March 2007 from Ravishankar Industries Pvt. Ltd. but without giving any information as to the terms of settlement and the mode of payment to the complainant-Company, approached the Recovery Officer-I for appropriating the same.21. With regard to the contention of learned senior counsel for the appellants herein that there can be no vicarious liability attributed to the Director, Deputy Director of a Company unless the Statute specifically creates so, no doubt, a corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman, etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company that too when the criminal act is that of conspiracy. Thus, an individual who has perpetrated the commission of an offence on behalf of the company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Second situation in which an individual can be implicated is in those cases where the statutory regime itself attracts the doctrine of vicarious liability, by specifically invoking such a provision.22. In view of the above, we are of the considered opinion that there was suppression of facts by both the Banks and the State Bank of Travancore was duty bound to inform the respondent-Company about the Assignment dated 29.03.2006. As regards the appellants herein, appellant No.1 herein has claimed to have joined the State Bank of Travancore on 11.05.2006 i.e. subsequent to the assignment deed dated 29.03.2006 whereas appellant No.2 was the signatory to the said deed.23. There is no denying the fact that both the appellants were responsible for day to day functioning of the State Bank of Travancore. Furthermore, admittedly, appellant No.1 was in employment of the State Bank of Travancore at the time of the execution of the deed of assignment and the appellant No.2 was the signatory to it. On a bare perusal of the complaint, it creates an iota of doubt as to why the respondent-Company was kept in dark by the State Bank of Travancore at the time of alleged Assignment Deed dated 29.03.2006.24. However, from the admitted position, it is evident that the complainant-respondent Company in its wisdom had withdrawn the complaint against the two persons, who were the officers of the Kotak Mahindra Bank Ltd. from a common complaint made against four persons. However, we do not find any reason as to why the remaining two persons, being the present appellants, who were the officers of the State Bank of Travancore at the relevant time, are being prosecuted.