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The Indian Penal Code
Section 482 in The Indian Penal Code
The Indian Evidence Act, 1872
Section 477A in The Indian Penal Code
Section 420 in The Indian Penal Code

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Calcutta High Court
A.K. Khosla And Ors. vs T.S. Venkatesan And Ors. on 3 September, 1991
Equivalent citations: (1992) 1 CALLT 77 HC, 1991 (2) CHN 321, 1994 80 CompCas 81 Cal, 1992 CriLJ 1448
Author: J N Hore
Bench: J N Hore

JUDGMENT

Jyotirindra Nath Hore, J.

1. This is an application under Section 482 of the Code of Criminal Procedure for quashing the proceeding under Sections 420, 467, 471 and 477A of the Indian Penal Code, 1860, read with Section 120B and/or Section 109/114 of the Indian Penal Code, 1860, being Complaint Case No. 1483 of 1990, pending before the learned Metropolitan Magistrate, 12th Court, Calcutta.

2. The General Electric Company plc., London (hereinafter referred to as "GEC plc."), is a well-known public company incorporated in the United Kingdom having its registered office at 1, Stanhope Gate, London. It manufactures electronics, electrical and power generation apparatus and systems. The General Electric Company of India Limited (hereinafter referred to as "GECI") is one of the subsidiaries of GEC plc. in which GEC plc. holds 67 per cent. of its equity shares, registered in India under the Companies Act having its registered office at Magnet House, 6, Chitta-ranjan Avenue, Calcutta. It manufactures sophisticated/high tech electrical equipment. Genelec Limited (hereinafter referred to as "GL") was incorporated in Maharashtra on September 7, 1957, under the name Hindoo Light-ing Industries Pvt. Ltd. which was changed to "Genelec Limited" with effect from January 16, 1978. GECI acquired shares in GL in 1963 when the shareholding was substantially increased and GL became a subsidiary

of GECI in 1965. GL issued capital to the public through prospectus dated March 31, 1982, and through the same prospectus 2,23,461 equity shares of Rs. 10 each of GL then held by GECI were also offered for sale to the public. After such allotments on August 16, 1982, the shareholding of GECI in GL came down to 33 per cent. of GL's paid-up equity share capital. At present GL is a public limited company having its registered office at Magnet House, Narottam Morarji Marg, Ballard Estate, Bombay-400 038, and its head office is located at Second Floor, 6, Chittaranjan Avenue, Calcutta 12, The equity shares of GL are listed both in Calcutta and Bombay Stock Exchanges. GL has about 11,000 shareholders spread all over the country and various public financial institutions hold substantial shares in the company. Shaw Wallace and Co. Ltd. (hereinafter referred to as "SWL") which has filed the complaint against the petitioners is a well known public company. M.R. Chhabria and Mr. K.R. Chhabria are the chairman and managing director of the Shaw Wallace Company respectively. T.S. Venkatesan who has filed the complaint on behalf of the SWL is executive director of SWL.

3. At all material times petitioner No. 1, A.K. Khosla, was and still is a wholetime director and chairman of GECI having his office at New Delhi. Petitioner No. 2, A.G. Williams, is a finance director of GECI. Petitioner No. 3, Hemant Singh, is the managing director of GECI. Petitioner No. 4, P.K. Gupta, is a director of GECI and was a non-executive director of GL, petitioner No. 5, S. Coomar, is the deputy secretary of GECI.

4. The impugned criminal proceeding arises out of sale of 5,37,000 fully paid equity shares of Rs. 10 each of GL held by GECI to the complainant, SWL, for a total consideration of Rs. 3,49,05,000 (rupees three crores forty-nine lakhs and five thousand only). The allegations in the complaint may briefly be summarised as follows :

5. During negotiations, accused Nos. 1, 2, 3, 8, 9, 10 and 11 made the following representations in respect of the sale of the said shares of GL ;

(a) GL is an independent company having its board of directors with its own independent managing director having been delegated substantial powers of management ;

(b) GECI had no detailed knowledge of GL's working and in fact knew only as much as was and is published or made public by GL ;

(c) although GECI, under Article 114 of the articles of association

of GL, had the right to nominate, remove, and substitute such board of

directors in GL as it may think fit not exceeding 30 per cent. of the total members of the board of directors for the time being in GL. GECI has in recent years not exercised its right of nomination under the said article of association of GL although some of the directors and/or employees of GECI have been appointed directors of GL through shareholders' meeting of GL from time to time ;

(d) the board of directors of GL and its shareholders had always appointed its managing director and wholetime directors with substantial power of management to carry on the business of GL ;

(e) GL is managed by its managing director, and wholetime directors supported by a team of experienced and highly qualified executives subject to the supervision by the board of GL independent of GECI. GECI had nothing to do with the management of GL and had no control over the affairs of GL.

6. The said accused persons also made further representations as follows :

All along, GL was a profit making company and the said company was having tremendous future potentialities of growth. GL has all along been paying dividends at substantially high rate. Accused Nos. 1, 2, 3, 8, 10 and 11 and Alan Taylor also gave a very rosy picture about the financial performance of GL and its high potentialities and bright future prospects.

7. On the basis of the aforesaid representations including information supplied by the accused persons, the audited balance-sheet and profit and loss account of GL for the nine months period ending on March 31, 1988, and the various statements, details and information bearing the initials of T.K. Sen Gupta, the then finance director of GL which had been sent and furnished by S. Coomar, deputy secretary of GECI and also the representations regarding performance of GL during the last three years and the forecast of management of GL for the period ending March 31, 1989, sent by S. Coomar, deputy secretary of GECI, and the representation that GL was a company which had been paying good dividends for the past many years and in good faith believing the same to be true, the complainant-company acted on such representations and agreed to buy the equity shares of Rs. 10 each of GL numbering 5,37,000 by way of spot delivery at a price of Rs. 65 (rupees sixty-five only) per share for the total consideration of Rs. 3,49,05,000 (rupees three crores forty-nine lakhs and five thousand only).

8. Accordingly, on December 2, 1988, a written agreement was executed at the Oberoi Grand Hotel, Calcutta, by and between the complainant-company and GECI. A copy of the said agreement is annexed to the complaint and marked as annexure "A".

9. Simultaneously with the execution of the said agreement, the complainant-company paid GECI a sum of Rs. 26,85,000 (rupees twenty-six lakhs eighty-five thousand only) out of the said total consideration of Rs. 3,49,05,000 (rupees three crores forty-nine lakhs and five thousand only) by account payee cheque, which payment has been acknowledged by GECI. in the said agreement. By the said agreement, the complainant-company agreed to pay the balance amount of Rs. 3,22,20,000 (rupees three crores twenty-two lakhs and twenty thousand only). The said agreement constitutes a valuable security.

10. The complainant-company thereafter duly applied to the Central Government for necessary permission for the transfer of the said shares from GECI to the complainant-company. Pursuant to the said application, the Government of India accorded necessary permission. Thereafter, on or about March 13, 1989, SWL paid a further sum of Rs. 3,22,20,000 (rupees three crores twenty-two lakhs and twenty thousand only) in full and final payment of the balance consideration money in respect of the purchase of the said shares.

11. Around the first week of April, 1989, it came to light that there were various inaccuracies, contradictions, discrepancies and some figures were not tallying in GL accounts. Sometime in July, 1989, the complainant got information from B.K. Banerjee, managing director of GL that within two weeks of his joining GL on November 1, 1988, he had come to realise that the company had gone hollow and that the 1988 annual report presented an erroneous picture. Mr. Banerjee suggested that for the year ending on March 31, 1988, there was a shortfall to the tune of Rs. 12.50 crores (rupees 11 crores loss instead of rupees 1.5 crores profit). The complainant further came to learn around the first week of August, 1989, that accused No. 3 also made a statement to the effect that after accused No. 1 took over the chairmanship of the GEC group in India around 1986 including GL, things changed and from that time GL became a division of GECI. He further stated that accused No. 1, A.K. Khosla, assumed the role of managing GL directly along with accused No. 7, P.G. Higgins. Accused No. 3 confessed that all directions for day-to-day management used to come from accused No. 1 who even used to pass on instructions on operational matters directly to operational managers and engineers. He further made a statement that

things really got out of control from then onwards and the sole objective of accused No. 1 and accused No, 7 was to sell the GL's shares (GECI holdings) at a high price by hook or by crook. In order to achieve this objective, Mr. Khosla used to bully GL's staff to get things done according to his whims and fancies which were detrimental to the interest of GL. Mr. Khosla and Mr. Higgins were in constant touch in formulating strategies in order to sell GECl's holding in GL by hook or by crook and also for passing benefits to GECI and GEC plc. at the cost of GL.

12. The complainant after enquiries and collection of fact could ascertain the following facts :

(i) Representations made by the accused persons that GL was managed by its own independent managing director who had been delegated substantial powers of management, were completely false and were made with a motive to induce the complainant to believe that GL was being managed by the managing director and an independent board without being controlled by GECI or GEC plc.

(ii) Though GECI did not officially nominate directors on the board of GL, actually GECI/GEC plc. were in control of the entire affairs of GL and the officers and directors of GL were answerable directly on all major and minor matters and issues to accused Nos. 1, 2, 5, 7, 8, 9, 15 and 16. In fact, GECI was not officially nominating the directors of GL in order to conceal and to facilitate fraud and deception in regard to sale of the said shares at a high price which had no relevance to the intrinsic value of the shares.

(iii) For all practical purposes, GL was being managed as a division of GECI plc. group company and the directors, chief executive and other responsible officers and senior executives of GL were being made to act on the instructions and/or orders of the said accused persons. GECI and GEC plc. maintained full control on day to day affairs and business of GL through the directors of GECI, namely, accused Nos. 1, 2, 5, 9 and 10.

(iv) Sometime in the early part of 1987, the accused, P. G. Higgins, Alan Taylor and other directors of GEC plc. decided in view of the malfunctioning of, and the expected losses to be made by, GL, to dispose of 24.9 per cent. out of the 33 per cent. shares held by GECI in GL. In order to ensure that the price of the shares of GL did not dip down in the market or the price of shares of GL did not collapse, the said accused, P.G. Higgins and Alan Taylor and other directors of GEC plc. went on conspiring with directors of GECI and the then managing director, the

then finance director and other directors and senior executives of GL to dishonestly conceal the true state of affairs of GL in its accounts as also in the published annual accounts and balance-sheets and half-yearly unaudited financial results which were published under the Stock Exchange Regulations.

(v) Various documents, correspondence and reports of GL revealed that the balance-sheet and profit and loss accounts of GL were tailored, manipulated and published in furtherance of such conspiracy to show profits and conceal loss. The said accused persons all entered into criminal conspiracy to deceive the prospective buyers of shares held by GEC in GL.

13. On June 27, 1987, the accused, Pratip Lal Roy, the then managing director of GL, in pursuance of such criminal conspiracy wrote to accused P.G. Higgins and A.K. Khosla, "we agreed to let 'M' know of the Genelec budget for 1987-88. I have had a table below prepared with the object in mind for showing the operating and trading results for the last four years and the one projected for the next year showing all the 'flim flam' 'which is recorded separately'. This meeting for sale of the shares was fixed on July 1, 1987, and the net trading profit of 1987-88 was shown as 5.72 crores. All the accused persons knew that the net trading profit of 1987-88 as agreed by the accused persons would never be realised and yet they agreed to give these figures to induce the prospective buyers of the shares of GL to part with a share price at an artificially high rate dishonestly and fraudulently for the purpose of making wrongful gain for GECI and GEC plc. and for causing wrongful loss for the prospective buyers of such shares of GL. The accused, P.L. Roy, the then managing director of GL, on July 9, 1987, wrote to R. Law, director of GECI and GL and A.K. Khosla, executive chairman of GECI and chairman of GL to the effect that all of us who are connected with the 'M' deal need be absolutely on the same net in regard to figures we will be passing on in connection with the 1987-88 sales and profits budget". He further suggested in the said letter some fictitious figures as a basis for inducing possible buyers of shares during negotiations so that there was no difference in giving the figures to the possible buyers in respect of profitability and potentiality of the company.

14. In order to deceive the potential buyers of the said 24.9 per cent. shares in GL and to conceal and suppress the true state of affairs and poor performance of GL and its critical cash position, the said accused persons along with unknown others in furtherance of such criminal conspiracy prepared falsified accounts of GL as also its budgets, operations report

and trading results in such a manner that they showed good current operations and future prospects and growth potentialities of GL and thereby induced fraudulently and dishonestly the potential buyers to purchase the said 24.9 per cent of the share capital of GL held by GECI as otherwise, if the true state of affairs and actual operating results and true future prospects had been reflected in the balance-sheets and profit and loss accounts of GL as also in its trading results, the price of shares of GL would have collapsed and in that event consideration for the said 24,9 per cent. shares held by GECI in GL would have been much lower than was then prevailing and/or the said shares could not have been sold in the market. In furtherance of such conspiracy, GECI plc., GECI and the said accused persons purported to induce the buyers of shares by preparing and giving fraudulently and dishonestly fabricated, false and tailored trading and operating results and with that end in view the said accused persons along with others went on fabricating false documents, preparing dummy and fictitious bills as bills receivable and showed purported profits from the business knowing fully well and/or having sufficient reasons to believe that those were false and/or fictitious and that such purported profits were made on paper only by falsifying the accounts, making fictitious bills and using forged documents as genuine. On scrutiny of the account papers, vouchers, etc., the complainant came to learn that GL's losses for the year ending on March 31, 1989, would be about Rs. 17 crores and out of such losses about Rs. 11 crores would represent the losses in respect of previous years. The accused persons fraudulently and dishonestly manipulated and falsified such accounts to conceal such prior period losses and cheat the complainant.

15. The chartered accountant firm, M/s. Bansi Mehta and Company, Bombay, had been engaged to make a broad review of the accounts of GL for the year ending on March 31, 1989, and examine the compliance with requirements under the Sick Industrial Companies (Special Provisions) Act, 1985. The said firm, after examination of the accounts, submitted its report on October 28, 1989. It has found gross discrepancies in the matter of maintenance of accounts in GL in respect of earlier years. The said firm making the broad review gave a quantitative summary to the effect that Rs. 993.88 lakhs was the losses suffered by GL in previous years. The accused persons by omissions and commissions fraudulently and dishonestly by falsification of accounts did not reflect the loss in previous years of balance-sheets this was not known to the public and to the complainant.

16. For the purpose of sale of 24.9 per cent. shares in GL, the accused persons resorted to false pretences, false representations in inducting SWL

to enter into the agreement dated December 2, 1988, and/or in selling the said 24.9 per cent. shares in GL and thus cheated the complainant-company in respect of Rs. 3,40,20,000. The complainant would not have agreed to buy the said shares at all and would not have delivered the sum of Rs. 3,49,20,000 unless the complainant was induced to believe that the representations made by the accused persons or on their behalf were true and correct. The accused persons committed offences punishable under Sections 420, 467, 471 and 477A, read with Section 120, Indian Penal Code, and Sections 109 and 114, Indian Penal Code.

17. The learned Chief Metropolitan Magistrate, Calcutta, after taking cognizance transferred the case to the learned Metropolitan Magistrate, 12th Court, who by an order dated April 20, 1990, issued process against the petitioners and other accused persons under Sections 420, 467, 471 and 477A read with, Section 120 of the Indian Penal Code.

18. Mr. Roy Chowdhury, learned counsel for the petitioners, had contended that the allegations in the petition of complaint are patently absurd and inherently improbable and the basic ingredients of the offences alleged are not prima facie made out by the allegations in the complaint and initial evidence produced before the learned Magistrate. It has further been contended that the impugned proceeding is frivolous, vexatious and mala fide which would degenerate into a weapon of harassment or persecution if allowed to continue having regard to the veiled object of the lame prosecution. It has further been contended that the dispute is really of civil nature and the present criminal proceedings has been launched with the oblique motive of exerting pressure upon the petitioners to make some concessions and pecuniary benefits to the complainant-company. It has been contended that further continuance of the impugned proceedings would be an abuse of the process of the court and for the ends of justice, the impugned proceedings should be quashed even at this initial stage. Lastly, it has been contended that in any event the prosecution is not maintainable as against the two companies.

19. Mr. Roy has, on the other hand, contended that the petition of complaint and the initial deposition prima facie disclose commission of the offences alleged and at this initial stage when only process has been issued the impugned proceedings are not liable to be quashed. As the complaint and the initial deposition prima facie reveal the essential ingredients of the offence alleged ; the complainant-opposite party should be allowed to prove the allegations by adducing evidence. It has further been contended that the court cannot at this stage look into the materials

produced by the petitioners and annexed with the petition which were not before the learned Magistrate and the consideration of the court is confined only to the question whether the petition of complaint and the initial deposition taken on their face value, without any addition or subtraction, prima facie made out any offence. As the petition of complaint and initial deposition taken on their face value disclose prima facie commission of the offences alleged the impugned proceedings cannot be quashed at this stage in exercise of the power under Section 482 of the Criminal Procedure Code.

20. I may take up the last contention of Mr. Roy Chowdhury first for consideration. The offences alleged in the complaint under Sections 420, 467, 471 and 477A of the Indian Penal Code, as also the offence under Section 120B of the Indian Penal Code, are all offences having mens rea as one of the essential ingredients thereof. The accused committing the offences must have a guilty mind and as such a juristic person such as a body corporate cannot be prosecuted for the said offences. In Champa Agency v. R. Chowdhury [1974] CRN 403, the question that arose for consideration was whether a company or a corporate body can be prosecuted for an offence under the Indian Penal Code where mens rea is an essential ingredient. It was held by a Division Bench of this court that mens rea is an essential ingredient of the offence of criminal breach of trust including criminal breach of trust by carriers. The accused-petitioner No. 1 being a corporate body cannot be said to have the necessary mens rea and as such it cannot be prosecuted for an offence under Section 407 of the Indian Penal Code. The same view was taken by this High Court in Sunil Chandra Banerjee v. Krishna Chandra Nath [1949] 19 Comp Cas 46 ; AIR 1949 Cal 689. It has been held as follows (at page 49 of 19 Comp Cas) : "The bank is a person, but it is a juridical person and not an actual person. The bank is such that it cannot be said to have mens rea requisite for the offence of cheating. The bank as such cannot be punished for cheating because it has no physical body."

21. Another test was applied in respect of the prosecution of the body corporate in Adding Machines India (P) Ltd. v. State [1987] 1 CHN 359. It was held that in respect of offence where the sentence prescribed is mandatory imprisonment and the court has no discretion to impose any other punishment, such as fine, a company cannot be prosecuted in respect of such an offence.

22. Both the tests, viz., the test of mens rea and the test of mandatory sentence of imprisonment, were applied in the case of Kusum Products Ltd. v. S.K. Sinha . In that case, a company was prosecuted under Section 277 of the Income-tax Act, 1961. It was held that mens rea is an essential ingredient of an offence under Section 277 of the Income-tax Act. Although under Section 2(3) the definition of a "person" is wide enough to include a company or any juristic person, the word "person" could not have been used in Section 277 in the sense given in the definition clause. That this is the intention of Parliament is clear because imprisonment has been made compulsory for an offence under Section 277 of the Act, A company or a juristic person cannot possibly be sent to prison and it is not open to a court to impose a sentence of fine or not to award the punishment if the court finds the company guilty under the section. The same view was taken by another Division Bench of this High Court in East India Jute and Hessian Exchange Ltd. v. Amulya Krishna Mondal [1989] C.Cr.Lr. 171, relying upon the decision in Kusum Products Ltd.'s case ; Here also both the tests of mens rea and mandatory sentence of imprisonment were applied.

23. While all the High Courts of India have been consistently taking the view that the company cannot be prosecuted in respect of the offences involving mens rea and/or involving compulsory punishment of imprisonment, a different view was taken by the Delhi High Court in Municipal Corporation of Delhi v. J.B. Bottling Co. (P) Ltd. [1975] Crl. LJ 1148 [FB]. This view of the Delhi High Court was found to be not acceptable by the Allahabad High Court as it was opposed to the view of the Supreme Court in State of Maharashtra v. Jugmander Lal, , that the expression "shall be punishable with imprisonment" means that the court is bound to pass a sentence consisting both of imprisonment and fine. (Vide Modi Industries Ltd, v. B. C. Goyal . In view of the Division Bench decisions of this High Court and in the absence of a contrary decision of the Supreme Court directly on the point, I am unable to accept the decision of the Delhi High Court.

24. As already stated, mens rea is one of the essential ingredients of the offences under Sections 420, 467, 471 and 477A and Section 120B of the Indian Penal Code. Except the offence under Section 477A all other offences alleged in the complaint are punishable with mandatory imprisonment. By definition Section 477A is not applicable to a company as it applies only to a natural person like clerk, officer or servant, I must, therefore, hold that the impugned prosecution against the two companies is not maintainable.

25. In the light of the contentions raised by the parties, it has to be first determined what is the nature and scope of the inherent power of this court under Section 482 of the Code of Criminal Procedure for quashing a proceeding at this initial stage and what are the materials which the court can look into for exercising such power. Section 482 of the Criminal Procedure Code empowers the High Court to exercise its inherent power to prevent abuse of the process of the court for ends of justice. It is well-settled that the exercise of the inherent power to quash the proceeding instituted on complaint is called for only where the complaint does not disclose any offence or is frivolous, vexatious or oppressive. One of the earliest decisions of the Supreme Court on the scope of Section 561A of the old Code (corresponding to Section 482 of the new Code) is the case of R.P. Kapoor v. State of Punjab, . It has been held that the inherent jurisdiction of the High Court can be exercised to quash proceedings in a proper case either to prevent the abuse of the process of any court or otherwise to secure the ends of justice. Ordinarily, criminal proceedings instituted against an accused person must be tried under the provisions of the Code, and the High Court would be reluctant to interfere with the said proceedings at an interlocutory stage. It is not possible, desirable or expedient to lay down any inflexible rule which would govern the exercise of this inherent jurisdiction.

26. Some of the categories of the cases where the inherent jurisdiction to quash proceedings can and should be exercised are :

(i) where it manifestly appears that there is a legal bar against the institution or continuance of the criminal proceeding in respect of the offence alleged. Absence of the requisite sanction may, for instance, furnish cases under this category ;

(ii) where the allegations in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety, do not constitute the offence alleged ; in such cases no question of appreciating evidence arises ; it is a matter merely of looking at the complaint or the first information report to decide whether the offence alleged is disclosed or not ;

(iii) where the allegations made against the accused person do constitute an offence alleged but there is neither no legal evidence adduced in support of the case or the evidence adduced clearly or manifestly fails to prove the charge. In dealing with this class of cases, it is important to hear in mind the distinction between a case where there is no legal evidence or where there is evidence which is manifestly and clearly

inconsistent with the accusation made and cases where there is legal evidence which on its appreciation may or may not support the accusation in question. In exercising its jurisdiction under Section 561A, the High Court would not embark upon an enquiry as to whether the evidence in question is reliable or not. That is the function of the trial magistrate, and ordinarily it would not be open to any party to invoke the High Court's inherent jurisdiction and contend that on a reasonable appreciation of the evidence the accusation made against the accused would not be sustained. The categories as indicated in this case are not, however, exhaustive.

27. In Smt. Nagawwa v. Veeranna, , the Supreme Court has observed as follows (at page 1948) :

"The scope of the enquiry under Section 202 is extremely limited--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 accused 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 not."

28. It has been observed that at this stage the Magistrate has absolutely no jurisdiction to go into any material or evidence which may be produced by the accused. It has been held that the order issuing process may be set aside or the proceedings may be quashed where the allegations made in the complaint are patently absurd and inherently improbable so that no prudent person can ever reach a conclusion that there is sufficient ground for proceeding against the accused. It is, however, necessary to point out that in this case the Supreme Court was really concerned with the scope of the jurisdiction of the Magistrate under Section 202 of the Code and the observations made by the Supreme Court in paragraph 5 of the said decision are to be understood in that background. The said observations are relevant in the context of the exercise of revisional powers of the High Court relating to the correctness, legality or propriety of the order of the Magistrate. As it appears from paragraph 1 of the said decision, the accused petitioners in that case challenged the order of the Magistrate

issuing process under Section 204(1)(b) of the Code and prayed for setting aside the order of the Magistrate. As such the court was called upon to decide as to whether the Magistrate had been right in issuing process or not and as to whether the High Court while exercising its revisional jurisdiction should have interfered with the discretion of the learned Magistrate in issuing process. It does not appear that the matter was at all considered from the angle of the ends of justice or the prevention of the abuse of the process of the court. When the High Court exercises the revisional powers only to ascertain whether the impugned order of the inferior criminal court is legal, proper or correct, the High Court has to consider the matter only in the context of the power and the jurisdiction of the inferior court. But, when the High Court is called upon to exercise its inherent power the scope is more expansive in that the court can quash a proceeding for the ends of justice, even though the order of the Magistrate may be otherwise legal, proper or correct. In this connection, reference may be made to the case of N.C. Nagpal v. State [1979] 2 CHN 198, where it has been observed that in exercising the inherent power, the scope is much more expansive in that this court can quash a proceeding for the ends of justice or to prevent the abuse of the process of the court. That necessarily means that while exercising inherent power this court need not confine itself to the propriety, illegality or correctness of the order of the Magistrate and for that matter the materials on which such order was passed.

29. In Madhu Limaye v. State of Maharashtra, , the Supreme Court pointed out the difference between the revisional jurisdiction of the High Court and its inherent powers under the Code of Criminal Procedure, 1973. Under Section 397(1) of the Code, the revisional power has been conferred on the High Court to call for the record of any proceeding before any inferior criminal court for the purpose of satisfying itself as to the correctness, legality or propriety of any finding, sentence or order recorded or passed and as to the regularity of such proceedings of such inferior court. But, apart from the said revisional power "the High Court possessed and possesses, the inherent powers to be exercised ex debito justitiae to do the real and the substantial justice for the administration of which alone the courts exist". The Supreme Court further held that one such case would be the desirability of the quashing of a criminal proceeding initiated illegally, vexatiously or as being without jurisdiction.

30. In the case of Hareram Satpathy v. Tikaram Agarwala, , the Supreme Court held as follows :

"Now as the Magistrate was

restricted to finding out whether there was a prima facie case or not for proceeding against the accused and could not enter into detailed discussion of the merits or demerits of the case and the scope of the revisional jurisdiction was very limited the High Court could not in our opinion launch on a detailed and meticulous examination of the case on merits."

31. In the case of Drugs Inspector v. Dr. B.K. Krishnaiah, , it was held that in quashing a proceeding the High Court has to see whether the allegations made in the complaint petition if proved, make out a prima facie offence and that the accused has prima facie committed the offence. In Delhi Municipality v. Ram Kishan Rohtagi, , the Supreme Court reiterated this view and held that the proceedings against an accused in the initial stages can be quashed only if on the face of the complaint or the papers accompanying the same no offence is constituted. In other words, the test is that taking the allegations and the complaint as they are, without adding or subtracting anything, if no offence is made out then the High Court will be justified in quashing the proceedings in exercise of its powers under Section 482 of the present Code.

32. In Dhanalakshmi v. R. Prasanna Kumar, , the Supreme Court again considered the nature and scope of the powers of the High Court under Section 482 of the Code and observed as follows:

"Section 482 of the Code of Criminal Procedure empowers the High Court to exercise its inherent powers to prevent abuse of the process of court. In proceedings instituted on a complaint exercise of the inherent power to quash the proceedings is called for only in cases where the complaint does not disclose any offence or is frivolous, vexatious or oppressive. If the allegations set out in the complaint do not constitute the offence of which cognizance is taken by the Magistrate, it is open to the High Court to quash the same in exercise of inherent powers under Section 482. It is not, however, necessary that there should be a meticulous analysis of the case before the trial to find out whether the case would end in conviction or not. The complaint has to be read as a whole. If it appears on a consideration of the allegations, in the light of the statement on oath of the complainant that the ingredients of the offence/offences are disclosed, and there is no material to show that the complaint is mala fide, frivolous or vexatious, in that event there would be no justification for interference by the High Court."

33. In State of Karnataka v. L. Muniswamy, , the Supreme Court has held that in the exercise of the wholesome power under Section 482, the High Court is entitled to quash a proceeding if it

comes to the conclusion that allowing the proceedings to continue would be an abuse of the process of the court or that the ends of justice require that the proceedings ought to be quashed. For the purpose of determining whether there is sufficient ground for proceeding against an accused, the court possesses comparatively wider discretion in the exercise of which it can determine the question whether the material on the record, if unrebutted, is such on the basis of which a conviction can be said reasonably to be possible.

34. In a repent case of Niranjan Singh Karam Singh Punjabi, , the Supreme Court has held that at the stage of framing the charge, the court is required to evaluate the materials and documents on record with a view to finding out if the facts emerging therefrom taken at their face value disclose the existence of all the ingredients constituting the alleged offence. The Supreme Court has further held that the court may for this limited purpose sift the evidence as it cannot be expected even at the initial stage to accept all that the prosecution states as gospel truth even if it is opposed to common sense or the broad probabilities of the case.

35. In Madavrao Jiwaji Rao Scindia v. Sambhajirao Chandrojirao Angre, , the Supreme Court had similarly held that the legal position is well-settled that when a prosecution at the initial stage is asked to be quashed, the test to be applied by the court is as to whether the uncontroverted allegations as made prima facie establish the offence. The Supreme Court has further observed that it is also for the court to take into consideration any special features which appear in a particular case to consider whether it is expedient and in the interest of the justice to permit a prosecution to continue. This is so on the basis that the court cannot be utilised for any oblique purpose and where in the opinion of the court chances of an ultimate conviction are bleak and, therefore, no useful purpose is likely to be served by allowing a criminal prosecution to continue, the court may while taking into consideration the special facts of a case also quash the proceeding even though it will be at a preliminary stage.

36. In State of Haryana v. Bhajanlal , the Supreme Court mentioned by way of illustration seven categories of cases which are by no means exhaustive, in which the High Court would be justified in quashing the criminal proceedings at the initial stage. One of them is where a criminal proceeding is manifestly attended with mala fides and

or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge. It has been specifically observed by the Supreme Court that it is not possible to lay down any precise, clearly defined and sufficiently channelised and inflexible guidelines or rigid formulae and to give an exhaustive list of the myriad kinds of cases where such power should be exercised.

37. In Chandrapal Singh v. Maharaj Singh, , it was observed by the Supreme Court as follows :

"... Chagrined and frustrated litigants should not be permitted to give vent to their frustration by cheaply invoking the jurisdiction of the criminal court. The complainant herein is an advocate. He lost in both courts in the rent control proceedings and has now rushed to the criminal court. This itself speaks volumes. Add to this the fact that another suit between the parties was pending from 1975. The conclusion is inescapable that invoking the jurisdiction of the criminal court in this background is an abuse pf the process of law and the High Court rather glossed over this important fact while declining to exercise its power under Section 482."

38. Reference may be made to a very recent decision of the Supreme Court in Bal Kishan Das v. P.C. Nayar, 1991 AIR SCW 1353 ; . In this case, an application for quashing made by the accused on the ground that the liability is of a civil nature was rejected by the High Court on the ground that reading the complaint petition, it cannot be said that the essential ingredients of Section 406 of the Indian Penal Code, have not been alleged. This could ultimately be a matter to be thrashed out in the trial. When the matter went to the Supreme Court, the Supreme Court in a short judgment held as follows : "After hearing counsel for both the parties and perusing the documents, we are of the opinion that this matter is purely of a civil nature. As pointed out earlier there were arbitration proceedings and further the matter is pending for more than 17 years. Having regard to all the circumstances, particularly that the matter is purely of a civil nature, we feel that it is a fit case in which the proceedings taken by the Chief Judicial Magistrate are to be quashed. Accordingly, the entire proceedings now pending on the file of the Chief Judicial Magistrate, Ganjam, are quashed. The appeal is accordingly allowed."

39. This, decision shows that there, is no hard and fast rule, no strait-jacket formula, no rigid test laid down by the Supreme Court which must invariably apply to every application under Section 482 of the Criminal Procedure Code. In this case, on consideration of documents and all the circumstances the Supreme Court quashed the proceeding on the ground that the dispute was purely of a civil nature even though there were allegations in the complaint as to the ingredients of the offence. This decision also shows that in exercise of the inherent power under Section 482, the High Court may also take into consideration all the attending circumstances appearing from the materials placed before it in order to ascertain whether the impugned proceeding is fit to be quashed.

40. In State of West Bengal v. Swapan Kumar Guha , the Supreme Court has similarly held that in appropriate cases, the court may take into consideration the relevant facts and circumstances of the case. While considering the question whether a first information report giving rise to investigation by the police should be quashed, the Supreme Court observed in paragraph 65 as follows (at page 972 of AIR 1982 SC and at page 153 of 53 Comp Cas) : "In considering whether an offence into which an investigation is made or to be made, is disclosed or not, the court has mainly to take into consideration the complaint or the first information report and the court may in appropriate cases take into consideration the relevant facts and circumstances of the case. On a consideration of all the relevant materials, the court has to come to the conclusion whether an offence is disclosed or not."

41. It would appear from paragraph 67 of the above judgment (at page 154 of 53 Comp Cas) that the court took into consideration not only the allegations in the first information report but also the other materials which were contained in the affidavit filed by the parties as also an article published in the newspaper Business Standard dated November 16, 1980. A copy of the said article was enclosed with an affidavit filed on behalf of the State. It would further appear from paragraph 49 (at page 139 of 53 Comp Cas) of the judgment that the copies of the correspondence between the State Finance Minister, the Union Finance Minister and the Deputy Governor of the Reserve Bank of India which had been disclosed by an affidavit filed on behalf of the Reserve Bank of India were also taken into consideration by the Supreme Court. In this connection, reference may be made to the judgment of the Calcutta High Court in Sanchaita's case, . The decision in the case of Madhav

Rao Jiwaji Rao Scindia, , would also suggest that the High Court may take into consideration materials placed before it which were not before the Magistrate to consider whether it is expedient and in the interest of justice to permit a prosecution to continue and whether the court is sought to be utilised for any oblique purpose and whether chances of ah ultimate conviction are bleak.

42. In the case of N. C. Nagpal [1979] 2 CHN 198, it has been held that, while exercising inherent power for quashing a proceeding, the court can look into the materials besides those which were before the learned Magistrate for issuing process. The court made the following observation :

"While setting aside an order of a Magistrate issuing process in . exercise of the revisional jurisdiction this court has to confine itself to the materials from which he obtained satisfaction that there were sufficient grounds to issue process against the accused ; and those materials necessarily will be the statement of the complainant and the witnesses recorded under Section 202. The High Court exercises revisional powers only to ascertain whether the impugned order of the inferior criminal court is correct, legal or proper and the fact that the record can be and is called for from the concerned court is only indicative of the fact that materials from which the inferior court obtained satisfaction to pass the order were required to be looked into for such ascertainment. But, in exercising inherent power, the scope is much more expansive in that the court can quash a proceeding for the ends of justice or to prevent an abuse of the process of the court. That necessarily means that while exercising inherent powers the court need not confine itself to the propriety, legality or correctness of the order of the Magistrate and for that matter the materials on which such order was passed.

To cite an example. On the basis of a complaint and examination of the complainant under Section 200, the Magistrate issues process against an accused. Against such issuance of process the accused invokes the jurisdiction of this court for exercising both revisional and inherent powers. While so invoking, the accused produces incontrovertible materials before this court to indicate that previously a complaint was filed on the same allegations which after trial ended in acquittal in his favour and contends that the prosecution is barred under Section 300 of the Code. In such a case, if the materials placed before the Magistrate disclose an offence this court by exercising revisional power cannot set aside the order, which is proper, correct and legal. But, in such a case, this court fails in its duty if it does not exercise its inherent power to quash the proceeding relying

on the further materials placed before it regarding the previous complaint. The position, therefore, is clear that while exercising inherent power for quashing a proceeding the court can look into materials, besides those which were before the learned Magistrate for issuing process". The court has further observed "... while exercising its inherent power for quashing a proceeding in which process has only been issued, this court can look into and rely upon materials, besides those on which process was issued, which can be translated into admissible and relevant evidence, but it should not embark upon an enquiry in which an appreciation of the materials may be necessary to support or dislodge the accusation".

43. In Haranath Mukherjee v. State [1988] 2 Crimes 694, a Division Bench of this court in which I was a party quashed a criminal proceeding relating to offences of criminal trespass, intimidation and theft on the ground of complete suppression of the fact of delivery of possession of the suit premises to the petitioner by the court bailiff in execution of the writ of delivery of possession issued by a competent civil court which makes the allegations of trespass, intimidation and theft untenable. In that case, the court relied upon the certified copy of the writ of delivery of possession and the bailiff's return which were produced by the petitioners. Relying upon the same the court has held that the proceeding was a mala fide one based on suppression of a material fact and that the court had been sought to be utilised for an oblique purpose and the chances of an ultimate conviction were bleak and further continuance of the impugned proceeding would be a mere abuse of the process of the court and on that ground quashed the impugned criminal proceeding against the petitioners. Similarly, this court quashed a criminal proceeding under Section 448/427 of the Indian Penal Code, on the ground of suppression of materials within the knowledge of the complainant in the case of Ashutosh Sarkar v. Nathuram Das alias Rajah [1990] C Cr Lr 174 (Cal). Relying upon the materials produced by the petitioners the court held that if these materials were disclosed in the complaint the court would have been slow to issue process. When the materials have been suppressed before the court, the High Court to prevent the abuse of the process of the court can interfere and quash the proceedings as the court would not have issued process against the accused if the said materials were disclosed.

44. From the above, it is clear that while considering whether allegations in the complaint and the initial deposition and the documents relied upon by the complainant prima facie establish the offence alleged the court is

not bound to accept allegations which are even opposed to common sense and broad probabilities. In appropriate cases the High Court may look beyond the complaint and initial deposition of the complainant and his witnesses and the documents relied on by the complainant and take an overall view of all the surrounding and related facts and circumstances on the basis of the materials placed before it in order to ascertain whether the impugned proceedings are lame, frivolous, vexatious or mala fide commenced with a veiled object and whether the proceedings are likely to degenerate into a weapon of harassment and persecution so as to call for interference by the court. Because of the special features in a case, if the court is of the opinion that chances of an ultimate conviction are bleak and no useful purpose is likely to be served by allowing a criminal prosecution to continue, the court while taking into consideration the special facts of a case may quash the proceeding even though at a preliminary stage. The court may also quash a proceeding if the dispute is of civil nature and there is suppression of material facts which, if disclosed, would make the prosecution untenable. The categories of cases in which the High Court can invoke its inherent powers under Section 482 of the Criminal Procedure Code, to quash the proceeding as catalogued in some of the Supreme Court decisions are merely illustrative and not exhaustive. There is no hard and fast rule, no strait-jacket formula and no rigid rest which must apply to every application under Section 482. Every case is to be decided in the context of its peculiar facts and circumstances and the predominant concern of the court is to secure the ends of justice and to prevent an abuse of the process of the court (see Muniswamy's case, ). Though the court may look into the uncontroverted and incontrovertible documents placed before it in order to decide whether the continuation of the criminal proceeding would be an abuse of the process of the court, it cannot embark upon a detailed enquiry by thorough appreciation of evidence which can be done at the stage of trial.

45. Keeping the above in mind let me now consider whether the impugned proceeding is liable to be quashed.

46. Let me first consider the alleged offence of cheating. It is well-settled that the offence of cheating is established only when all the following ingredients are present :

(a) That the representation made by the accused was false ;

(b) that the accused knew that the representation was false at the very time when he made it ;

(c) that he made the false representation with the dishonest intention of deceiving the person to whom it was made ;

(d) that he thereby induced that person to deliver any property or to do something which would otherwise not have been done or omitted.

47. In Mobarik All Ahmed v. State of Bombay, , the Supreme Court held that the question whether the evidence discloses only a breach of civil liability or a criminal offence under Section 420 of the Penal Code, depends upon whether the complainant in parting with his money acted on the representations of the accused and in belief of the truth thereof and whether those representations when made were in fact false to the knowledge of the accused and whether he had a dishonest intention from the outset.

48. In Matilal Chakravarty v. King AIR 1949 Cal 586, 587, 588, it was observed by Harries C. J.:

"In order to constitute an offence under Section 420, it must be shown that the person who parted with the property was cheated and thereby dishonestly induced to deliver the property ... to cheat a person there must be a dishonest and fraudulent intent. A person may be deceived quite innocently, but such deception can never amount to cheating. Where, however, a person is deceived knowingly, then the deception might well amount to cheating. A man may be induced to do something on a false representation made to him. If the person making the representation honestly believed the representation to be true, there can be no question of cheating. But if he knew that the representation was false and he made it with a view that the other person should act upon it, then that would amount to cheating".

49. It is alleged in the complaint that the petitioners made two sets of representations. The first representation of the petitioners that they have no detailed knowledge of the working of GL is inconsistent with the alleged second representation of the petitioners that they gave SWL "a very rosy picture" about "high profits, bright future prospects", "tremendous future potentialities of growth", etc. No reasonable or prudent man would believe in good faith in both the representations. If the petitioners are disowning any detailed knowledge of the financial status of GL how could they at the same time induce SWL by painting a "rosy picture" about the future of GL ?

50. The purchaser SWL was neither a lay man nor an unwary customer. It is a large public limited company enjoying the support and services of financial experts, business managers and professional advisers. The alleged

oral representation painting a "rosy picture" about the future of GL is inconsistent with the terms of the agreement dated December 2, 1988, which is annexure "A" to the complaint. In paragraph 9 of the agreement, it has been clearly stated that SWL on the basis of the audited accounts of GL up to the financial year ending on March 31, 1988, and unaudited statements up to the period September 30, 1988, and after obtaining explanations and information from the managing director and wholetime directors of GL on the assets and liabilities of GL, its needs for funds and its future plans has offered to purchase from GECI out of its holding 5,37,000 fully paid equity shares of Rs. 10 each in GL at a price of Rs. 65 per share. There is no whisper about the alleged second representation within the four corners of the agreement. On November 25, 1988, the officers of SWL asked GECI for detailed information on as many as 23 items including debtors, provisions for doubtful debts, work-in-progress and works contracts of GL (annexure "C" pages 135-137). On November 26, 1988, on the basis of the request made by GECI to the management of GL to furnish the information asked for GL passed on the necessary information in a separate file to GECI (annexure "C" page 138). On November 28, 1988, GECI passed on the information received from GL to SWL under its covering letter (annexure "C" at page 139). On November 26, 1988, S. Ganesh of SWL wrote a letter to GECI asking for certain additional information regarding the affairs of GL (annexure "D" page 140). GL furnished all the information asked for by SWL under a covering letter addressed to GECI (annexure "E" pages 141-142). On November 26, 1988, GECI forwarded the information furnished by GL to SWL under a covering letter (annexure "E" page 143). On November 28, 1988, GECI received a letter from SWL, inter alia, asking for certain further information about the affairs of GL (annexure "F" page 144). On November 29, 1988, further information as asked for by SWL was furnished by GL which was forwarded by GECI to SWL under a covering letter (annexure "F" page 145). It is clear, therefore, that the officers of SWL obtained information, document and reports, made all possible investigation and only thereafter agreed to buy the shares at the price of Rs. 65 per share.

51. The undisputed facts prima facie show that the financial condition of the GL was steadily declining. The financial results of GL for the last accounting years show that during 1986-87 (12 months), the sale was to the extent of 74.19 crores and the profit before tax was Rs. 2.54 crores. During 1987-88 (9 months) up to March 31, 1988, the sale declined to Rs. 52.70 crores and the profit before tax was shown as 1.53 crores. The financial results from April, 1988, to September, 1988 (unaudited), show

sales at 19.77 crores and profit before tax (-) 2.79 crores. The director's report for the year 1987-88 at page 10 of the supplementary affidavit paints a gloomy picture. The market price of GL shares quoted in the stock exchanges which at one time had risen to Rs. 245 per share nose-dived to less than Rs. 65 per share by October, 1988. SWL approached GECI through its bankers, namely, Grindlays Bank, with an offer of Rs. 120 per share (annexure "B" page 129) on May 8, 1987. On November 22, 1988, the Chhabrias reduced their offer from Rs. 120 per share to Rs. 80 per share obviously taking into consideration the declining profitability and poor performance of GL (annexure "B"). Thereafter, after intensive investigation into the affairs of the GL between November 25, 1988, to November 29, 1988, already referred to above SWL reduced the offer within 10 days to Rs. 65 per share which was ultimately accepted by and between the parties and the agreement for sale was executed on December 2, 1988. Judged in the context of the above facts and circumstances, the allegation that the accused persons gave a very rosy picture about high profits, bright future prospects and tremendous future potentialities of growth, etc., inducing SWL to purchase the shares at the price of Rs. 65 per share appears to be patently absurd and inherently improbable.

52. Moreover, untrue praise of goods meant for sale does not amount to cheating (W.H. Da Costa v. J. P. Deejholts . In this connection, reference may be made to the comments of Gour as to the case of a tradesman puffing off his goods and thereby inducing the buyer to pay a higher price : "Since such praise is quite common of which every buyer is and/or should be aware, it cannot be said that he is induced to purchase the goods by such deception" (Gour's Penal Law, 10th Edition page 3644). In Muhammad Ibrahim Haji Moula Baksh v. T.C.R. Naitghton, AIR 1941 Sind 198, the complainant, on high hopes being held out by the managing director of a business, entered into partnership with him and invested a large sum of money. The complainant had at all times access to the business books and also participated in the management of the business. The high hopes held out by the directors were not fulfilled and the business ended in considerable loss. On a charge of cheating by the complainant against the accused, it was held that no offence of cheating was committed. In Maung Tin v. Emperor, AIR 1935 Rangoon 426, the doctrine of caveat emptor was applied to quash the charge of attempt to cheat in connection with a case of sale of jewellery.

53. The first representation of the petitioners that GECI and GL are independent companies having no management nexus and that they have

no detailed knowledge of the working of GL is consistent with the written agreement dated December 2, 1988, and MOU dated November 22, 1988. The statements, representations, information on the basis of which SWL agreed to buy the shares are stated in paragraph 11 of the operative part of the agreement at page 107 to be information, statements and representations furnished by the management and officers of GL or available in public domain. In each of the forwarding letters dated November 28, 1988 (page 139), November 28, 1988 (page 143) and November 29, 1988 (page 145), it was stated : "Please also note that GECI was only a minority shareholder in Genelec Ltd. It has no nominee on its board of directors and is not involved in the management of the company. Hence, GECI cannot warrant the completeness or accuracy of the information supplied by the management of Genelec and will not be held liable for any errors or omissions". It is apparent from the agreement that SWL had not entered into agreement with GECI for purchase of shares in reliance upon any statements or representations made by or on behalf of GECI and its directors. In paragraph 11 of the agreement, at page 107, SWL expressly acknowledges that no such information, statements or representations shall give rise to any liability on the part of GECI and its directors whether on the ground of accuracy or completeness or otherwise. Even otherwise GECI shall not be liable unless GECI has received written notice of all claims specifying in reasonable details the nature of the claims and the amount thereof within one year of the date of the agreement. The total liability of GECI shall not exceed 2 per cent. of the total net consideration which will be adjusted against the price (page 108). In view of these specific terms and conditions contained in the agreement, the allegations that SWL was deceived by the false representations made by GECI knowing them to be false are patently absurd and inherently improbable. SWL entirely relied upon its own judgment and skill and not upon any representation on behalf of GECI. The principle of caveat emptor would be clearly applicable. There is, however, warranty of liquidated damages up to the maximum of 2 per cent. of the consideration money. The dispute over purchase of the share, if any, is purely of a civil nature.

54. The entire basis of the complaint is the alleged hidden loss during the year ending on March 31, 1988, thereby causing deception by suppression of the material facts and showing a profit of Rs. 1.05 crores instead of loss of Rs. 10.28 crores. The said allegations are based on the report of M/s. Bansi Mehta and Co. It may be mentioned here that Mr. Bansi Mehta who was entrusted by the board with the task of broadly reviewing the financial results of the company with a view to identifying the major

causes contributing to the losses and whether the same could be attributed to earlier periods, was and is a director of SWL as also of Dunlop, both being companies belonging to the Chhabrias group. At the time of signing of the agreement dated December 2, 1988, only a sum of Rs. 26,85,000 out of the total price of Rs. 3,49,05,000 was paid by SWL. On and from the same date, viz. December 2, 1988, SWL assumed full control of GL by appointing a new board of directors with Mr. M.R. Chhabria as chairman. After being in control of the affairs of the company for about 3 1/2 months, SWL paid the balance of the consideration of Rs. 3,22,20,000 on March 13, 1989, without any objection whatsoever. It is inconceivable that if there had been any hidden loss for the year 1987-88 no part of it would be detected during the actual control and management of the affairs of GL by SWL for about 31/2 months and SWL would make the payment of such a huge amount on March 13, 1989, without any objection. Mr. B.K. Banerjee was appointed managing director on November 1, 1988. Prior to that he was the director of GL as will appear from page 9 of the supplementary affidavit (annual report of GL of the year 1987-88). It is alleged in the complaint that within two weeks of his joining as managing director on November 1, 1988, he had come to realise that the company had gone hollow and that the Annual Report, 1988, presented an erroneous picture. It is further alleged that Mr. Banerjee came to know that for the year ending on March, 1988, there was a shortfall to the tune of Rs. 12.5 crores (Rs. 11 erores loss instead of Rs. 1.05 crores profit). Yet he kept quiet till July, 1989, and did not disclose anything. Mr. Banerjee continued as managing director even under the new board under the chairmanship of Mr. M.R. Chhabria. Not only did Mr. Banerjee have full opportunity to inform the board as to the true financial condition of the company, it was indeed his statutory obligation under Sub-sections (1), (3) and (4) of Section 209 of the Companies Act, 1956, to keep proper books of account with respect to the assets and liabilities of the company in order to give a true and fair view of the state of affairs of the company. Any default in this regard by the managing director is punishable under Section 209(5) read with Section 209(6) of the Companies Act. It is patently absurd and inherently improbable that even though Mr. Banerjee was fully aware of the financial state of GL he did not pass on any information to the' Chhabrias until July, 1989, and quietly watched the completion of the transaction which took place on March 13, 1989, when the consideration amount was paid by SWL to GECI and only in July, 1989, he informed the Chhabrias of what he had come to know on November 15, 1988. Even if it is assumed that Mr. Banerjee had kept quiet till December 2, 1988,

it is inconceivable that he would not reveal the truth even after December

2, 1988, and would allow the Chhabrias to make payment of the prices of the shares on March 13, 1989. Mr. Banerjee is not a party to the alleged conspiracy but is an important prosecution witness.

55. It also appears that the new management of GL itself acted on the basis that there was no loss during the period 1987-88. Even after the report of M/s. Bansi Mehta and Co. on December 27, 1989, when Mr. M.R. Chhabria was the chairman of the board of directors of GL, a special resolution was moved for the approval of the shareholders for the appointment of Mr. B.K. Banerjee as the executive vice-chairman and the managing director of the company for a period of five years commencing from November 1, 1988, in accordance with Schedule XIII to the Companies Act. The resolution contained in the notice of the annual general meeting is at page 37 of the supplementary affidavit. Schedule XIII provides that no person shall be eligible for appointment as managing or wholetime director unless he satisfies some specified conditions including condition (f), viz., "the company had not suffered any loss during the financial year immediately preceding the financial year in which the appointment is made". The appointment of Mr. Banerjee was made with effect from November 1, 1988, without approval of the Central Government and it is a condition precedent that in the financial year immediately preceding, i.e., 1987-88 ending on March. 31, 1988, the company had not suffered any loss. This resolution was approved by the shareholders. In other words, the shareholders were told that in the year ending on March 31, 1988, there was no hidden loss but in fact, there was a profit of Rs. 1.05 crores as shown in the profit and loss account for the year ending on March 31, 1988 (page 15 of the supplementary affidavit) which has been certified by the statutory auditors, Lovelock and Lewes, as giving a true and fair view of the profit for the year ending on that date, i.e., March 31, 1988. It follows that the new management of GL under the Chhabrias ultimately acted on the basis of the report of the statutory auditors to the effect that there was no prior period loss for the financial year ending on March 31, 1988, and proceeded on that basis in the matter of seeking approval of the shareholders for the appointment of Mr. B.K. Banerjee as managing director according to the procedure laid down in Schedule XIII to the Companies Act, 1956. If the new management had proceeded on the basis of the report of M/s. Bansi Mehta and Co. as to the prior period item, in that event, they could not have proposed a resolution to be moved at the annual general meeting with regard to the approval of the shareholders to the appointment of Mr. B.K. Banerjee as managing director without obtaining the approval of the

Central Government required under Section 269(2) of the Companies Act, 1956.

56. The accounts of the year 1987-88 were duly certified by the statutory auditors of the company, M/s. Lovelock and Lewes, without any qualification (auditors' report, pages 12-13 of the supplementary affidavit) and the profit and loss account for the nine months period ending on March 31, 1988 (page 15 of the supplementary affidavit), shows a, profit of Rs. 1,05,31,857. The audited balance-sheet and the profit and loss account were approved by the shareholders in the annual general meeting and it became final. This was sought to be reopened in the annual report of 1988-89 alleging that there was prior period loss of Rs. 10.28 crores. The statutory auditors did not accept this. They rejected the theory of prior period loss and stated in their report dated November 15, 1989, as under : " In the absence of adequate information and explanation, we are unable to express any opinion whether the estimates of the loss in respect of WIP and the estimate of the provision for bad and doubtful debts amounting to Rs. 461.04 lakhs and Rs. 401.11 lakhs respectively disclosed as per prior period items are appropriate", (pages 41 and 48 of the supplementary affidavit).

57. Even in the annual report in respect of the year 1989-90, the statutory auditors in their report at page 57 (supplementary affidavit) did not accept the contention that there was prior period loss in respect of bad and doubtful debts as referred to in note 8 (page 65 of the supplementary affidavit). Mr. Roy, on behalf of the complainant, has sought to contend that in the said auditors' report relating to the year 1989-90, the auditors did not make any comment with regard to the work-in-progress and this, according to Mr. Roy, indicated that the auditors accepted that there had been prior period loss on account of work in progress in 1987-88. This is entirely misconceived. Since there was no specific note with regard to the "work-in-progress", the auditors have no occasion to comment on "work-in-progress" in their report for the year 1989-90. The auditors' comment was with regard to note 8. In note 8, the only reference was to period loss with regard to bad and doubtful debts. Necessarily, the auditors in their comment on the said note 8 had no occasion to comment on "work-in-progress". It has already been pointed out that in the auditors' report dated November 15, 1989, the prior period loss on account of work-in-progress was also rejected by the statutory auditors. The statutory auditors consistently rejected the alleged prior period loss of Rs. 10.27 crores based on the report of M/s. Bansi Mehta and Co. and it appears that the

management could not produce any papers or give any explanation in support of the alleged prior period loss of Rs. 10.28 crores before the statutory auditors. It appears that the learned Magistrate was misled by the misleading deposition of PW-5 Mr. K.P. Roy to the effect that the accounts prepared by the board of directors for the year ending on March 31, 1989, were certified by the statutory auditors, M/s. Lovelock and Lewes, and that the said accounts disclosed a prior period loss of Rs. 10.28 crores. It was totally suppressed that the statutory auditors in fact had not accepted the prior period items and have a qualified report which in effect rules out the theory of hidden loss.

58. It may be pointed out here that even in the profit and loss account for the year ending on March 31, 1989, profit for the previous year ending on March 31, 1988, has been shown as Rs. 1,05,31,857 (page 43 of the supplementary affidavit).

59. The forwarding letter of GL dated November 26, 1988, shows that some of the information supplied particularly relating to possible doubtful debts and potential losses on projects is necessarily subjective and judgmental in nature. The question whether some debts are bad debts is judgmental in nature. Errors of judgment are not justiciable.

60. The new management of GL reiterated their, faith in their statutory auditors, M/s. Lovelock and Lewes, who are still their statutory auditors and could not suggest that the auditors in not accepting the story of hidden loss had acted improperly or erroneously. On the other hand, Mr. T.S. Venkatesan who filed the complaint on behalf of SWL stated before the BIFR that "they have high opinion about the competence of M/s. Lovelock and Lewes".

61. The high-powered Board for Industrial and Financial Reconstruction ("the BIFR", for short) established under Section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985, also rejected the contention that GL had suffered loss in the previous year. "Sick industrial company" has been defined in Section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985, as an industrial company which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth and has also suffered cash losses in such financial year and the financial year immediately preceding such financial year. So, there must be cash losses in two consecutive financial years. SWL made a reference under Section 15 of the Act contending that there was prior period loss of Rs. 10.28 crores for the year 1987-88 ending on March 31, 1988, though it was not reflected in the accounts of that year and as such GL suffered cash losses for two consecutive years and was, therefore, a sick industrial

company. The contention of SWL was rejected by the BIFR and the appeal against that order was also dismissed. No document was produced in support of the allegation and neither any representative of M/s. Bansi Mehta and company nor Mr. Bansi Mehta himself who also happens to be the director of SWL and Dunlop was present before the BIFR in spite of notice being sent to the said firm. SWL relied upon the report of M/s. Bansi Mehta and Co. The BIFR has held that GL is not a sick industry which amounts to rejection of the contention that the company suffered any loss in the previous year, viz., 1987-88 ending on March 31, 1988.

62. Mr. Roy has contended that the order of the BIFR cannot be looked into in as much as it is not a judgment of a court, and is not relevant under any of the Sections 40, 41, 42 and 43 of the Evidence Act. According to him, the BIFR is only a tribunal with some trappings of a court and its decision is nothing more than an opinion of experts within the meaning of Section 45 of the Evidence Act. Mr. Roy Chowdhury has, on the other hand, contended that the BIFR is a court within the definition of "court" in Section 3 of the Evidence Act which includes judges and Magistrates and all persons except arbitrators, legally authorised to take evidence. Section 13 of the Act of 1985 deals with the procedure to be followed by the BIFR. Sub-section (3) of Section 13 expressly authorises the BIFR to exercise the powers of a civil court under the Civil Procedure Code while trying suits in respect of the matter specified therein including examining any witness on oath. Elaborate regulations have been framed prescribing the procedure to be followed by the BIFR for the purpose of adjudication (the BIFR Regulations, 1987). Mr. Roy Chowdhury has further contended that finality and authoritativeness are the essential tests of a judicial pronouncement. In support of this contention he has relied on the decision of the Supreme Court in Brojnandan Sinha v. Jyoti Narain, , in which the Supreme Court has observed in paragraph 18 (at page 70) : " It is clear, therefore, that in order to constitute a court in the strict sense of the term an essential condition is that the court should have, apart from having some of the trappings of a judicial Tribunal, power to give a decision or a definitive judgment which has finality and authoritativeness which are the essential tests of a judicial pronouncement." According to Mr. Roy Chowdhury, the finding and the order of the BIFR that GL is not a sick company as there have been no prior losses for 1987-88 is within the exclusive competence of the BIFR and under Section 26 of the Sick Industrial Companies Act, 1985, no civil court can entertain a similar issue. As the appeal against the said order has been dismissed, the order of the BIFR has attained finality and it can only be challenged

by an appeal to the Supreme Court under Article 136 of the Constitution of India by way of special leave. According to Mr. Roy Chowdhury, the BIFR is, therefore, a "court" within the meaning of Section 3 of the Evidence Act and as there is complete ouster of the jurisdiction of the civil court under Section 26, the decision of the BIFR on the question of prior period loss is final and conclusive and is relevant under Section 40 of the Evidence Act. Mr. Roy Chowdhury has also contended that the BIFR may be regarded as a court exercising insolvency jurisdiction having regard to the inclusive definition of the word "court". When the BIFR decided the legal status of Genelec as to whether it was a sick company or an insolvency company, the judgment may come under Section 41 of the Evidence Act. At any rate Section 42 of the Evidence Act will certainly be applicable as the judgment relates to matters of a public nature.

63. In my opinion, the judgment of the BIFR is relevant but not conclusive and binding on the criminal court. It certainly does not bar a criminal trial under Section 420 of the Indian Penal Code. The question whether GL is a sick industry is not a relevant issue in the criminal proceedings. The decision of the BIFR that GL is not a sick industry necessarily implies a finding that there was no prior period loss of the year 1987-88. That is no doubt a relevant issue in the criminal trial but the decision of the BIFR on this issue cannot be said to be conclusive and binding upon the criminal court. In criminal trials, the court shall have to determine the question of guilt of the accused and it must do this upon the materials before it without basing its conclusion on a judgment of a civil court. The evidence and the reasonings in the previous judgment are not also admissible in the criminal trial. Though it is not binding on the criminal court, it is relevant and it can certainly be looked into as a piece of evidence. Even according to Mr. Roy, the order of the BIFR may be regarded as expert opinion and hence admissible under Section 45 of the Evidence Act.

64. A judgment other than a judgment referred to in Sections 40 to 42 may be admissible to prove that a right was asserted or denied under Section 13 or to explain or introduce facts in issue or to explain the history of the case. Section 11 of the Evidence Act also makes the judgment of the BIFR relevant in terms of Section 43 of the Evidence Act. Nothing that is inconsistent with the fact in issue or a relevant fact is itself relevant. In the instant case, the finding that there was no prior period loss is totally inconsistent with the main allegations in the complaint that there were hidden losses. Because of such inconsistency it becomes a relevant fact under Section 11 read with Section 43 of the Evidence Act. So, the order of the BIFR is relevant though not conclusive.

65. Let me next deal with the forgery group of offences under Sections 467, 471 and 477A of the Indian Penal Code. "Forgery" has been defined in Section 463 of the Indian Penal Code, 1860, to mean making of a "false document" with any of the intents mentioned therein ; and "false document" has been defined under Section 464 of the Indian Penal Code. Under the first clause of Section 464 which is relevant for our purpose, a person makes a false document if he makes or signs a document--(i) intending it to be believed that it was made or signed or executed by, or by the authority of, some person by whom, or by whose authority, he knows it was not made or signed, or (ii) with the intent that it shall be believed that it was made or signed at a time when he knows it was not so made or signed. To bring the offence within the four corners of the section, the false document must be created with a view to making it appear, that it was made by some other person who, the accused knows, did not make it. As held in J. Ta Zwari v. Indrani Muhherjee [1990] 1 CRN 62, incorporation or inclusion of a false statement in a document would not ipso facto make the document false, for a document to be false, it has to tell a lie about itself. Regarding the offence of forgery of valuable security punishable under Section 467 of the Indian Penal Code, the only allegation is that the agreement dated December 2, 1988, which is a valuable security contains false statements that GL is an independent company having its board of directors with its known independent managing director having been delegated with substantial powers of management and GECI had no detailed knowledge of GL's working and in fact knew only as much as was and is published or made public by GL, etc. It is not disputed that the agreement was executed by and between the parties. The document cannot, therefore, be said to be a forged document. Moreover, the deed of agreement for purchase of shares is not a valuable security. With regard to the alleged offences under Sections 471 and 477A, there are vague allegations that the accused persons fabricated false and tailored trading and operating results and fabricated false documents, dummy and fictitious bills as bills receivable and showed purported profits from the business and such purported profits were made on paper only by falsifying the accounts making fictitious bills and using forged documents as genuine. There is no specific allegation about particular documents manufactured, nor has any such document been produced. The allegations do not satisfy the requirement of the first clause of Section 364 that the accused made the documents with the intent of making them to be believed to have been signed by, or under the authority of someone else

while they knew that they were not so made or authorised to be made by that person. Bald allegations as to forgery or falsification of accounts without the production of the disputed documents cannot be the basis of satisfaction of the Magistrate that the process should be issued. There is not even oral evidence in support of the allegations. The Magistrate before issuing process must be satisfied that there is some legal evidence in support of the allegations. In R.P. Kapur's case, , while laying down the categories of the cases in which the proceeding should be quashed at the initial stage, the Supreme Court pointed out that there may be a category of cases in which even though the allegations made against the accused do constitute an offence alleged there is either no legal evidence adduced in support of the case or evidence adduced clearly or manifestly fails to prove the charge.

66. Except vague allegations lacking in material particulars, there is nothing in the complaint to constitute the offence of conspiracy to which the accused are alleged to be parties. Certain letters have been referred to. But no such letter was produced in course of the initial examination of the complainant and the witnesses. Where the accusations are based on documents, the documents themselves must be produced and mere oral evidence will not be sufficient. There is not even oral evidence about the basic facts from which conspiracy may be inferred. It is not enough for the complainant to merely allege that the offence has been committed. The complainant is required to produce the evidence before the Magistrate at least for the purpose of satisfying the Magistrate that the allegations are not empty accusations but that sufficient evidence is there in support of the accusations which will be proved in course of trial.

67. In the complaint, there is suppression of some material facts. A few instances of such suppression are given below :

(a) The fact that SWL took over management and control of GL on and from December 2, 1988, simultaneously with the execution of the agreement.

(b) The fact that Mr. Bansi Mehta who was entrusted by the board with the task of broadly reviewing the financial results of the company with a view to identifying the major causes contributing to the losses and whether the same could be attributed to earlier periods was and is a director of Shaw Wallace as also of Dunlop, both being companies belonging to the Chhabria group.

(c) The fact of total suppression by PW-5, K.P. Roy that the statutory auditors, in fact, had not accepted the prior items and have a qualified report which in effect rules out the theory of hidden loss.

(d) The appointment of Mr. B.K. Banerjee with effect from November 1, 1988, was approved after the new management of GL had taken over and such approval was obtained under Schedule XIII of the Companies Act, 1956, on the basis that there was no loss in the preceding year viz. 1987-88.

(e) The fact that SWL approached GECI through their banker for purchase of the shares, instead of GECI approaching SWL as alleged in the complaint.

68. The letter of SWL to GECI dated March 9, 1990 (annexure "1" pages 147-149), considered along with the facts mentioned before shows that the impugned criminal proceeding was launched for the oblique purpose of putting pressure on the petitioners with a view to extorting huge sums of money as also other concessions and advantages. In the letter GECI is asked to compensate SWL by keeping a sum of Rs. 5 crores over a period of five years as interest free deposit with Genelec, by allowing SWL to occupy premises in Magnet House, Bombay, by recognising the tenancy rights of GL in various properties owned by GECI, by rescinding property deals with Dunlop and returning to Dunlop the advance payment of Rs. 1.25 crores and also refunding Rs. 1.60 crores to GL which they had taken earlier as a deposit and making other concessions. The last paragraph of the letter (page 149) contains a threat of criminal prosecution if the demands are not met. It is in the following terms : "In consideration of the above SWL can agree to withdraw and/or soft pedal its cases against GEC and will also not file criminal cases against GEC's directors who had a fiduciary responsibility to Genelec." The contents of the letter reveal the blackmailing tactics adopted by SWL to coerce the petitioners to come to terms. It is to be noted that this letter was sent on March 9, 1990, and the complaint was filed on April 19, 1990. As the demand was not met by the petitioners, SWL rushed to the criminal court on April 19, 1990, though it waited quietly for about one year from the date of knowledge of the alleged cheating and falsification of accounts.

69. Thus, the special features and the related facts and circumstances as referred to above would manifestly show that the allegations in the complaint are patently absurd and inherently improbable and that the complainant has failed to make out a prima facie case. The dispute is of civil nature and the impugned criminal proceeding appears to be frivolous.

vexatious and mala fide initiated with the oblique motive of exerting pressure upon the petitioners to pay a huge amount of money and make other concessions for the alleged loss suffered by the complainant by purchase of shares of GECI in GL. Further, continuation of the proceeding would be an abuse of the process of the court and for the ends of justice the impugned proceeding should be quashed.

70. The application is, therefore, allowed and the impugned criminal proceeding against the petitioners is quashed, I make no order as to costs.