M.C. Kamaruddin v. Superintendent of Crime Branch, Police Office of the Superintendent of Police-Crime Branch, Kannur and Kasaragod; The Superintendent of Police (Investigating Officer) O/O The Superintendent of Police, Kasaragod; Inspector Police, Chandera Police Station, Chandera, Kasaragod District; Senior Civil Police Officer, Grade-1, Chandera Police Station, Chandera; Padinjare Purayil Mustafa

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE V.G.ARUN** **THURSDAY, THE 12TH DAY OF NOVEMBER 2020 / 21ST KARTHIKA, 1942** ## **Crl.MC.No.4622 OF 2020(G)** **CRIME NO.699/2020 OF Chandera Police Station , Kasargod** ## **PETITIONER/S:** **M.C.KAMARUDDIN AGED 59 YEARS S/O MUHAMMED KUNHI, KARMA, EDACHAKAI, TRIKARPUR, UDINOR, CHANDERA, KASARAGOD DISTRICT, KERALA.** **BY ADV. SRI.S.KRISHNAMOORTHY** ## **RESPONDENT/S:** - **1 THE SUPERINTENDENT OF-CRIME BRANCH, POLICE OFFICE OF THE SUPERINTENDENT OF POLICE-CRIME BRANCH,KANNUR AND KASARAGOD.** - **2 THE SUPERINTENDENT OF POLICE, (INVESTIGATING OFFICER) O/O THE SUPERINTENDENT OF POLICE, KASARAGOD** - **3 INSPECTOR POLICE, CHANDERA POLICE STATION, CHANDERA, KASARAGOD DISTRICT** - **4 SENIOR CIVIL POLICE OFFICER, GRADE-1, CHANDERA POLICE STATION, CHANDERA,** - **5 PADINJARE PURAYIL MUSTAFA, AGED 52 YEARS S/O SULAIMAN, PADINJARE PURAYIL , KAVAI, PAYYANUR, KANNUR DISTRICT.** - **R1-4 BY ADDL.DIRECTOR GENERAL OF PROSECUTION R1-4 BY DIRECTOR GENERAL OF PROSECUTION** ## **OTHER PRESENT:** ## **DGP C.SREEDHARAN NAIR; SR.PP.C.S.HRITHWIK; SR.PP.SUMAN CHAKRAVARTHY** **THIS CRIMINAL MISC. CASE HAVING BEEN FINALLY HEARD ON 12.11.2020, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** _**CRL.MC.4622/2020**_ 2 ## **V.G.ARUN, J. ----------------------------------------------CRL.M.C.No. 4622 of 2020 ----------------------------------------------Dated this the 12[th] day of November, 2020** ## **O R D E R** Petitioner is the 2nd accused in Crime No.699 of 2020, registered at the Chandera Police Station, Kasargod for the offence under Section 420 read with 34 of IPC. The petitioner is arrayed as accused in his alleged capacity as Chairman of a Private Limited Company named 'Fashion Gold International Pvt.Ltd' (hereinafter called, “the Company”). The 1[st] accused in the crime is the Managing Director of the Company. The crime is registered based on Annexure A1 complaint submitted by the 5th respondent, raising the following allegations; The complainant had visited the Company’s outlet at Cheruvathoor in 2018 at which time, he was informed about a scheme providing for payment of dividend on deposit of cash or gold with the Company. The complainant enquired about the scheme with the Managing Director and thereafter, executed Annexure A3 agreement and handed over Rs.5 lakhs to the Managing Director in the presence of the petitioner. In accordance with the terms of the agreement, dividend was paid to the complainant till October, 2019. No payment was received thereafter and on enquiry, it was revealed that the Company had closed down. Even though the complainant approached the Managing Director and the petitioner requesting for refund of his money, the _**CRL.MC.4622/2020**_ 3 deposited amount was not refunded. Later, it came to light that the Company had deceived numerous other depositors. Hence the complaint, followed by registration of the crime. 2. The prayer in the Crl.M.C is to quash the FIR and further proceedings in Crime No.699 of 2020, registered at the instance of othe 5[th] respondent. 3. Heard Sri.S.Krishnamoorthy, learned counsel for the petitioner and Sri.C.S.Hrithwik, learned Senior Public Prosecutor representing the Director General of Prosecution. 4. The following submissions were made by the learned counsel for the petitioner in support of the prayer for quashing the criminal proceedings; Fashion Gold International is a Private Limited Company incorporated in the year 2006, the main object of which is to carry on the business of trading in gold, gold ornaments, precious and semiprecious metals and stones. The authorised share capital of the Company is Rs.1,50,00,000/- divided into 150000 equity shares of Rs.100/- each. The petitioner is one among the seven Directors of the Company. The petitioner is the majority shareholder and is nominated as the Chairman by the Board of Directors. The honorary post of Chairman is only for the purpose of convening the Director Board meetings and the official status of the petitioner is only that of Director. The 5th respondent had invested an amount of Rs.5 lakhs on _**CRL.MC.4622/2020**_ 4 the strength of Annexure A3 agreement. As per the terms of the agreement, the 5th respondent is entitled to get dividend for his investment. Petitioner is not a signatory to Annexure A3. The liability to pay dividend is that of the Company, the investment having been made into the business of the Company. Due to certain internal issues, the Company started running on loss from 2016 onwards and had to stop its business during mid 2019. The 5th respondent and similar investors were aware of these developments. The petitioner is the elected Member of the Legislative Assembly, representing Manjeshwaram Constituency and the criminal complaints are filed and crimes registered at the instance of his political rivals. 5. Elaborating on the grounds of challenge, the learned counsel submitted that even if the allegations in Annexure A1 complaint and Annexure A2 FIR are accepted in their entirety, no offence under Section 420 IPC is made out since, for attracting the offence of cheating, intention to deceive should exist from the inception. The admission in the complaint, of dividend having been paid till October, 2019 is indicative of there being no intention to deceive when the 5th respondent made the investment and even thereafter. At best, violation of the terms of Annexure A3 agreement will give rise only to a civil dispute. Other than the averment in the complaint of the petitioner being present at the time when the amount was entrusted with the Managing Director, there is nothing to indicate the petitioner’s _**CRL.MC.4622/2020**_ 5 involvement in the transaction, especially since the petitioner is not even a signatory to Annexure A3. Arraying the Managing Director and the petitioner as accused without implicating the other Directors, proves the malafide behind the criminal proceedings. The attempt of the investigating agency is to make it appear that the Company had received deposits from the complainants, whereas the actual fact is that the 5[th] respondent and others had made investments into the business of the Company. Even though the investors were not made shareholders in the strict legal sense, they were treated as, or at par with, shareholders for all purposes and dividend paid to them. As such, if aggrieved by non-payment of dividend, the complainants should avail statutory remedies under the Companies Act, 2013. The petitioner intends to approach the NCLT, but is prevented from doing so due to his arrest and seizure of the Company’s documents by the police. As per Clause 10 of Annexure A4 Memorandum of Association, the Company is entitled to borrow, raise or secure the payment of money or to receive as deposits any amount, subject to the provisions of the Companies Act. Though the crime was originally registered for the offence punishable under Section 420, subsequently, the offences under Sections 406, 409 of IPC and Section 5 of the Kerala Protection of Interests of Depositors in Financial Establishment Act, 2013 are also incorporated. Malafide is writ large from the manner in which new offences are being incorporated. The statement filed by the _**CRL.MC.4622/2020**_ 6 investigating officer reveals that the petitioner has been arrayed as an accused on the wrong premise that he is the ‘Whole Time Director’ of the Company. As per the definition of 'Whole Time Director' in Section 2(94) of the Companies Act, Whole Time Director includes a Director in the whole time employment of the Company. The petitioner is not a whole time employee and is not even involved in the day-to-day affairs of the Company. 6. The learned counsel placed reliance on the decisions of the Apex Court in _**State of Haryana and Others v. Ch.Bhajan Lal and Others**_ [AIR 1992 SC 604], _**Indian Oil Corporation v. NEPC India Ltd. and Others**_ [(2006) 6 SCC 736], _**Inder Mohan Goswami and Another v. State of Uttaranchal and Others**_ [(2007) 12 SCC 1] and _**Devendra and Others v. State of Uttar Pradesh and Another**_ [(2009) 7 SCC 495] to contend that, there is absolute embargo against quashing of an FIR in exercise of the power under Section 482 Cr.P.C. _**Uma Shankar Gopalika v. State of Bihar**_ [(2010) 5 SCC 336], _**Harmanpreet Singh Ahluwalia v. State of Punjab**_ [(2009) 7 SCC 712] and _**Vesa Holdings Private Ltd. v. State of Kerala and Others**_ [(2015) 8 SCC 293] are cited to buttress the contention that breach of contract would amount to cheating only if intention to cheat existed from the very inception. The decision in _**Sharad Kumar Sanghi v. Sangita Rani**_ [(2015) 12 SCC 781] is cited in support of the contention that criminal proceedings initiated against the Managing _**CRL.MC.4622/2020**_ 7 Director is not maintainable without the Company being arrayed as a party to the complaint. 7. Refuting the contentions, the learned Senior Public Prosecutor made the following submissions; As on date, more than 71 crimes have been registered against the petitioner. The petitioner is the mastermind behind the scam and the petitioner's position in society, as senior leader of a political party, was utilised for collecting deposits from innocent people. The defalcation by the Fashion Gold Group of Companies in Kasargod District is to the tune of Rs.9.34 crores and 307 grams of gold and in Kannur District, to the tune of Rs.3.86 crores. Considering the magnitude of the scam, which is yet to be fully unearthed, a Special Investigation Team has been constituted. Annexure A3 and similar agreements were executed with the intention of deceiving the depositor, by creating an impression that the depositor was made a shareholder entitled for dividend from the Company's profits. These depositors were not made shareholders or issued with share certificates and the amounts deposited by them is not even entered in the ‘unsecured loans’ of the Company. Hence, the intention to cheat existed from the very inception. The deposited amount was diverted for purposes other than that of the Company's business and Rs.8 crores was invested for purchase of property at Bengaluru in the name of the 1st accused. Along with the offence under Section 420 IPC, _**CRL.MC.4622/2020**_ 8 offences under Sections 406 and 409 IPC, Section 5 of the Kerala Protection of Interests of Depositors in Financial Establishment Act, 2013 and Section 3 read with 5 of the Banning of Unregulated Deposit Scheme Act, 2019 (for short, BUDS Act') have been incorporated. The investigation is in its initial stage and the question of arraying the Company and the other Directors as accused will be decided during the course of investigation. The allegation of the criminal prosecution having been motivated by political enmity is false. Proper, effective and impartial investigation is being conducted by a team headed by an efficient officer. 8. The legal position that the intention to deceive should be in existence from the inception, so as to attract the offence under Section 420 IPC, is too well settled to be reiterated. The moot question is, whether the stage has reached for this Court to arrive at the conclusion of there being no such intention. For answering this question, reference has to be made to Annexure A3 agreement. A perusal of the agreement shows that the amount of Rs.5 lakhs was accepted from the complainant on behalf of the Company and a promise made to pay dividends, as is being paid to other shareholders. It is also stated that after a period of one year from the date of agreement, the complainant would be at liberty to retire voluntarily after giving due notice. The wordings in Annexure A3 creates an impression of the depositor having been made a shareholder of the _**CRL.MC.4622/2020**_ 9 Company. The provisions under Chapter IV of the Companies Act dealing with share capital and debentures do not provide for issuance of shares on the strength of an agreement executed on a hundred rupee stamp paper. Moreover, Annexure A4, the Articles of Association of the Company, specify the manner of issue and allotment of shares. The relevant clauses in Annexure A4 are extracted hereunder; ## _“_ _**ISSUE AND ALLOTMENT OF SHARES**_ _5. The share shall be under the control of the Board of Directors who may allot or otherwise dispose of the same to such persons on such terms and conditions and at such times as the Directors deem fit._ _6. The Board of Directors may allot and issue the shares in the Company in full or in part payment of any property sold or transferred or for services rendered int he conduct of its business sand any shares, which may be so issued, shall be deemed to be fully paid by shares._ _7. Any money due from the Company to a shareholder may with or without the consent of such shareholders be applied by the Company on or towards the payment of any money due whether jointly or severally from him to the Company._ _8. Any application signed by or on behalf of an applicant for shares in the Company followed by an allotment of any share herein shall be an acceptance of shares within the meaning of these Articles and every person who thus or otherwise accepts any shares and whose name is entered in the register shall be a member for the purpose of these Articles._ _9. The joint holders of a share shall be severally_ _**CRL.MC.4622/2020**_ 10 _as well as jointly liable for the payment of all calls due in respect of such shares._ _10. The certificate of title of shares shall be issued under the seal of the Company and shall be signed by the Managing Director, by any one of the other directors and a person nominated by the board in this behalf or by the Secretary._ _11. If a share certificate issued by the company is defaced, lost or destroyed, it may be reissued on such terms as to evidence of loss and on execution of an indemnity bond and the payment of such fees as may be decided upon by the Board of Directors (including recovery of stamp duty thereon).”_ In this regard it may also be apposite to refer to Section 73 of the Companies Act, which prohibits acceptance of deposits from public. Even under its Memorandum of Association, the Company is authorised to accept deposits subject to the provisions of the Companies Act, the Rules framed there under and subject to such restrictions as may be imposed by the Government, RBI or any other statutory bodies. In such circumstances, the contention that Annexure A3 was executed in lieu of issuance of shares and the status of the depositor/investor is akin to a shareholder cannot be countenanced. On the other hand, the allegation that Annexure A3 was created with the intention of creating an impression that the depositor has become a shareholder, cannot be brushed aside. If so, the suspicion of the intention to deceive having existed from the inception cannot, at this _**CRL.MC.4622/2020**_ 11 point of time, be held unreasonable. The mere fact that some payment, termed as dividend was made, is not sufficient to efface this suspicion, especially in view of the fact that the deposited amount was not repaid in spite of repeated requests. Therefore, the investigation cannot be scuttled at this stage and the complainant relegated to avail his civil remedies. It is settled law that even if a dispute has arisen from breach of contract, for which civil remedy is available, remedy under criminal law is not barred, if the allegations disclose a criminal offence. The question as to whether the petitioner had conspired with the 1st accused in inducing the complainants to make deposits and whether the petitioner was personally present at the time of execution of Annexure A3 are all matters which call for detailed investigation. 9. It has come out that the offences under Sections 406 and 409 IPC as well as Section 5 of the Kerala Protection of Interests of Depositors in Financial Establishment Act, 2013 and Section 5 read with Section 3 of the BUDS Act have also been incorporated. The mere fact that, in the statement filed by the investigating officer, the petitioner is described as a ‘whole time Director’, by itself, is not sufficient to hold the investigation to be illegal, since Section 2(94) of the Companies Act only states that a 'Whole Time Director' includes a Director in the whole time employment of the Company. 10. For the aforementioned reasons, I am not inclined to exercise the inherent jurisdiction vested with this Court under Section 482 of _**CRL.MC.4622/2020**_ 12 Cr.P.C, to quash the FIR and further proceedings in the crime registered against the petitioner. The observations in this order are made only for the limited purpose of considering the challenge raised in this Crl.M.C and are not intended to prejudice the petitioner or to preclude him from approaching this Court at the appropriate stage, if so required. In the result, the Crl.M.C is dismissed. Sd/- ## **V.G.ARUN, JUDGE** _vgs_ _**CRL.MC.4622/2020**_ 13 ## **APPENDIX** ||**APPENDIX**| |---|---| |**PETITIONER'S/S**|**EXHIBITS:**| |**ANNEXURE A1**|**TRUE COPY OF THE COMPLAINT DATED 15.9.2020**| ||**FILED BY P.P.MUSTAFA**| |**ANNEXURE A2**|**TRUE COPY OF THE FIR NO 0699/2002 DATED**| ||**14.9.2020**| |**ANNEXURE A3**|**TRUE COPY OF THE AGREEMENT EXECUTED BY THE**| ||**6TH RESPONDENT AS THE MANAGING DIRECTOR OF**| ||**THE COMPANY DATED 1.9.2018**| |**ANNEXURE A4**|**TRUE COPY OF THE CERTIFICATE OF**| ||**INCORPORATION ALONG WITH THE ARTICLE OF**| ||**ASSOCIATION AND MEMORANDUM OF ASSOCIATION**| ||**OF THE COMPANY REGISTERED WITH THE**| ||**REGISTRAR OF COMPANIES, KOCHI**| |**ANNEXURE A5**|**TRUE COPY OF THE LATEST UPDATE OF THE**| ||**COMPANY MASTER DATA DOWNLOADED FROM THE**| ||**MINISTRY OF COMPANY AFFAIRS (MCA.G.V.IN)**|