Saleh Taher Afimiwala and others v. State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE ZIYAD RAHMAN A.A.** **WEDNESDAY, THE 23[RD] DAY OF FEBRUARY 2022 / 4TH PHALGUNA, 1943 CRL.M.C. NO.288 OF 2019** **TO QUASH THE FINAL REPORT IN FIR NO.534/2016 OF THE CENTRAL POLICE STATION, ERNAKULAM AND ALL FURTHER PROCEEDINGS PURSUANT TO SAME IN C.C.NO.124/2016 PENDING BEFORE THE CHIEF JUDICIAL MAGISTRATE COURT, ERNAKULAM.** ## **PETITIONERS/ACCUSED 6,7 & 10:** **1 SALEH TAHER AFIMIWALA, 104 SILVER CASCADE, MAOUNT MARY ROAD, BANDRA (WEST), MUMBAI, MAHARASHTRA, PIN-400 050, PRESENTLY RESIDING AT 702 LATA SONI, TPS III, 30TH ROAD, BANDRA WEST, MUMBAI-50.** **2 RAJIV MAHESWARI, 503-B, TOWER-2, DHEERAJ GAURAV HEIGHTS, ANDHERI LINK ROAD, ANDHERI, MUMBAI, MAHARASHTRA, PIN-400 053.** - **3 VINODE THOMAS,** **501 JYOTI VIDYA CO.OPERATIVE HOUSING SOCIETY, CST ROAD, KALINA, SANTACRUS (EAST), MUMBAI-400 098, MAHARASHTRA PRESENTLY RESIDING AT 1906 C OBEROI SPLENDOR, JVLR, ANDHERI E, MUMBAI 60.** **BY ADVS. MOHAN JACOB GEORGE SMT.P.V.PARVATHY (P-41) SMT.REENA THOMAS** ## **RESPONDENTS** : **1 STATE OF KERALA REPRESENTED BY ITS PUBLIC PROSECUTOR, (FOR STATION HOUSE OFFICER (SUB INSPECTOR OF POLICE), CENTRAL POLICE STATION, ERNAKULAM).** -2- ## **CRL.M.C. NO.288 OF 2019** ## **ADDL.R2 SADASHIVAN,** **RESIDING AT THATTARUPARAMBIL HOUSE, GANDHI NAGAR, 2ND STREET, PERINGAVU, THRISSUR.** ## **ADDL.R2 BY ADV. RAJESH VIJAYAN** **R1 ADV. SUDHEER GOPALAKRISHANAN, PUBLIC PROSECUTOR** **THIS CRIMINAL MISC. CASE HAVING COME UP FOR ADMISSION ON 23.02.2022, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** -3- ## **CRL.M.C. NO.288 OF 2019** **ZIYAD RAHMAN A.A., J. ------------------------------------------------------Crl.M.C. No.288 of 2019 ------------------------------------------------------Dated this the 23[rd] day of February, 2022** ## **O R D E R** The petitioners are the accused Nos.6, 7 and 10 in C.C. No.124/2016 on the file of the Chief Judicial Magistrate Court, Ernakulam. The aforesaid case arises from Crime No.534/2016 of Central Police Station, Ernakulam, which was registered on the basis of a complaint submitted by the 2[nd] respondent alleging offences punishable under Sections 406 and 420 read with Section 34 of the Indian Penal Code. Annexure A1 is the FIR. In Annexure A1, the petitioners were not made as accused persons. After completing the investigation, police submitted Annexure A2 final report, wherein these petitioners were implicated as accused Nos.6, 7 and 10, presumably because of their official capacity as nominee directors of the 1[st] accused company. -4- ## **CRL.M.C. NO.288 OF 2019** 2. The allegation against the petitioners is that, the 1[st] accused company which is engaged in construction of residential apartments and commercial buildings, had collected amounts from the 2[nd] respondent offering him to hand over an apartment. However, later the said apartment was not handed over and instead the amounts collected from him were diverted for other purposes. The complaint was submitted by the 2[nd] respondent under such circumstances and the same resulted in registration of Annexure A1 FIR and filing of Annexure A2 final report. This Crl.M.C. is filed by the petitioners for quashing all further proceedings against them pursuant to the same. 3. Heard Sri.Mohan Jacob George, the learned counsel appearing for the petitioners, Sri.Sudheer Gopalakrishnan, the learned Public Prosecutor for the 1[st] respondent State and Sri.Rajesh Vijayan, the learned counsel appearing for the 2[nd] respondent. 4. The learned counsel for the petitioners contends that the petitioners were not at all involved in the -5- ## **CRL.M.C. NO.288 OF 2019** day-to-day activities of the 1[st] accused company and they were only nominee directors who were made as directors consequent to certain agreements for investment made by a company in which they were working, in the 1[st] accused company. To substantiate his contention, the learned counsel relies upon Annexure A7 agreement executed between the 1[st] accused company with M/s. IL&FS Trust Company Limited, in which the petitioners herein are the managers. It is also pointed out that the averments in the final report does not contain any specific allegation against the petitioners herein and there are no materials available on record indicating their role in commission of the offences alleged against them. It is pointed out that, in the absence of any specific allegation, the petitioners could not have been implicated as accused persons, as the concept of vicarious liability is alien to the offences under the Indian Penal Code. In such circumstances, the learned counsel seeks for quashing the proceedings. -6- ## **CRL.M.C. NO.288 OF 2019** 5. On the other hand, the learned Public Prosecutor as well as the learned counsel for the 2[nd] respondent oppose the same. It is pointed that contention raised is relating to a factual dispute and the same can only be considered during the course of trial. 6. The question that arises is as to whether there are sufficient materials against the petitioners herein to implicate them in the criminal proceedings which is the subject matter of this Crl.M.C. Going through Annexure A2 final report, it can be seen that they were apparently arraigned as accused persons due to their status as nominee directors of the 1[st] accused company. The gist of the allegations does not contain any specific statement indicating their involvement. The learned counsel for the petitioners brought my attention to Annexure A7 investment agreement executed between the 1[st] accused company and M/s. IL&FS Trust Company Limited as well as M/s. IIRF India Reality XIX Limited. The aforesaid agreement was made between the parties thereon, for the -7- ## **CRL.M.C. NO.288 OF 2019** purpose of making investments at the instance of M/s. IL&FS Trust Company Limited as well as M/s. IIRF India Reality XIX Limited in the projects of the M/s. Dewa Projects Private Limited, which is the 1[st] accused herein. My attention was also brought to Clause 5.3 of the aforesaid agreement which provides for appointment of the nominees of the investors as directors on the Board of Directors of the 1[st] accused company. Clause 18.19 of Annexure A7 provides that the 1[st] accused company and the promoters will ensure that the investors shall not be considered to be classified as promoter of the 1[st] accused company for any reason whatsoever. Further, Clause 21.4 of Annexure A7 provides that nothing in the agreement shall be deemed to constitute a partnership between the parties nor, except as may be expressly provided herein, constitute any party as the agent of another party for any purpose or entitle any party to commit or bind another party in any manner. It was also provided that the -8- ## **CRL.M.C. NO.288 OF 2019** investors shall be purely construed as financial investor of the 1[st] accused company. 7. Consequent to the stipulations in Clause 5.3 of Annexure A7 agreement, by virtue of Annexure A7(a) communication, petitioners 1 and 2, who are accused Nos.6 and 7 were nominated as directors of the 1[st] accused company. Subsequently, as per Annexure A7(b), the nomination of the 2[nd] petitioner/7[th] accused was withdrawn and instead, the 3[rd] petitioner/10[th] accused is seen nominated. It is the case of the petitioners that, the role of the petitioners herein who were acting as nominee directors of the company was only to monitor the funds invested by their company and it does not extend to the day to day activities of the said company. The aforesaid contention seems justified from the terms and conditions contemplated under Annexure A7. It is evident that, even going by the averments contained in Annexure A2 final report also, no specific role is seen assigned to the petitioners herein in commission of crime. Even in the -9- ## **CRL.M.C. NO.288 OF 2019** description of the petitioners in the list of accused persons in Annexure A1 also, they are seen mentioned as nominee directors. It is a well settled position of law that, in the absence of any specific role assigned in commission of crime, prosecution initiated against the directors of a company may not sustainable. This view is more clear when considering the terms and conditions as contained in Annexure A7. A perusal of Annexure A7 would indicate that the role assigned to the petitioners herein were confined to the management of the investment made by their company in the 1[st] accused company and it never extends to the management of the day-to-day affairs of the 1[st] accused company. 8. From the above, it is evident that the petitioners were implicated as accused persons in Annexure A2 final report only because of their official position as nominee directors as reflected in the records relating to the 1[st] accused company. In my view, merely because of the reason that, the petitioners were shown as the nominee -10- ## **CRL.M.C. NO.288 OF 2019** directors of the company, they cannot be automatically held responsible for the entire acts of the 1[st] respondent company. This is particularly so, as Annexure A7 would indicate that the role of the petitioners herein was very much limited. The learned counsel placed reliance upon an order passed by this Court in Crl.M.C. No.8/2020 where the question of culpability of directors of the company in respect of a criminal prosecution has been considered. In paragraph 12, it was observed as follows:- “12. In **Ravindranatha Bajpe v. Mangalore Special Economic Zone Ltd. [V(2021) SLT 755]** , the Honourable Supreme Court considered the question of culpability of Directors of the company in respect of the offences punishable under Sections 407, 148, 420, 456, 506 etc. In paragraph No.7.1, it was observed as follows: “7.1 Except the above allegations, there are no further allegations in the complaint. It was not even the case on behalf of the complainant that at the time when the compound wall was demolished and trees were cut, accused nos. 2 to 5 and 7 & 8 were present. Except the bald statement that accused nos. 2 to 5 and 7 & 8 have conspired with common intention to lay -11- ## **CRL.M.C. NO.288 OF 2019** the pipeline within the schedule properties belonging to the complainant, without any lawful authority and right whatsoever and in furtherance they have committed to trespass into the schedule properties of the complainant and demolished the compound wall, there are no other allegations that at that time they were present. Accused nos. 2 to 5 and 7 & 8 are stationed at Hyderabad. There are no further allegations that at the command of A2 to A5 and A7 & A8, the demolition of the compound wall has taken place. All of them are arrayed as an accused as Chairman, Managing Director, Deputy General Manager (Civil & Env.), Planner & Executor, Chairman and Executive Director respectively. Therefore, as such, in absence of any specific allegations and the specific role attributed to them, the learned Magistrate was not justified in issuing process against accused nos. 1 to 8 for the offences punishable under Sections 427, 447, 506 and 120 B read with Section 34 IPC.” ## 9. In **Maksud Sayed v. State of Gujarat and others** ## **[(2008) 5 SCC 668],** it was observed in Para 13 as follows: “13. Where a jurisdiction is exercised on a complaint petition filed in terms of S.156(3) or S.200 of the Code of Criminal Procedure, the Magistrate is required to apply his mind. Indian Penal Code does not contain any -12- ## **CRL.M.C. NO.288 OF 2019** provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company when the accused is the Company. The learned Magistrate failed to pose unto himself the correct question viz. as to whether the complaint petition, even if given face value and taken to be correct in its entirety, would lead to the conclusion that the respondents herein were personally liable for any offence. The Bank is a body corporate. Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. Statutes indisputably must contain provision fixing such vicarious liabilities. Even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability.” 10. Similarly, in **S.M.S. Pharmaceuticals Ltd v.** ## **Neeta Bhalla and others [AIR 2005 SC 3512],** it was observed in Para 5 as follows; “5. As the points of reference will show, the question for consideration is what should be the averments in a complaint under S.138 and 141. Process on a complaint under S.138 starts normally on basis of a written complaint which is placed before a Magistrate. The Magistrate considers the complaint as per provisions of S.200 to 204 of the Code of Criminal Procedure. The question of requirement of averments in a complaint -13- ## **CRL.M.C. NO.288 OF 2019** has to be considered on the basis of provisions contained in S.138 and 141 of the Negotiable Instruments Act read in the light of powers of a Magistrate referred to in S.200 to 204 of the Code of Criminal Procedure. The fact that a Magistrate has to consider the complaint before issuing process and he has power to reject it at the threshold, suggests that a complaint should make out a case for issue of process. As to what should be the averments in a complaint, assumes importance in view of the fact that, at the stage of issuance of process, the Magistrate will have before him only the complaint and the accompanying documents. A person who is sought to be made accused has no right to produce any documents or evidence in defence at that stage. Even at the stage of framing of charge the accused has no such right and a Magistrate cannot be asked to look into the documents produced by an accused at that stage, State of Orissa v. Debendra Nath Padhi 2005 (1) KLT 80 (SC): 2005 (1) SCC 568. The officers responsible for conducting affairs of companies are generally referred to as Directors, Managers, Secretaries, Managing Directors etc. What is required to be considered is: is it sufficient to simply state in a complaint that a particular person was a director of the Company at the time the offence was committed and nothing more is required to be said? For this, it may be worthwhile to notice the role of a director in a company. The word 'director' is defined in S.2(13) of the Companies Act, 1956 as under: -14- ## **CRL.M.C. NO.288 OF 2019** " "director" includes any person occupying the position of director, by whatever name called"; There is a whole chapter in the Companies Act on directors, which is Chapter II. S.291 to 293 refer to powers of Board of Directors. A perusal of these provisions shows that what a Board of Directors is empowered to do in relation to a particular company depends upon the role and functions assigned to Directors as per the Memorandum and Articles of Association of the company. There is nothing which suggests that simply by being a director in a Company, one is supposed to discharge particular functions on behalf of a company. It happens that a person may be a director in a company but he may not know anything about day to day functioning of the company. As a director he may be attending meetings of the Board of Directors of the Company where usually they decide policy matters and guide the course of business of a company. It may be that a Board of Directors may appoint sub committees consisting of one or two directors out of the Board of the Company who may be made responsible for day to day functions of the Company. These are matters which form part of resolutions of Board of Directors of a Company. Nothing is oral. What emerges from this is that the role of a director in a company is a question of fact depending on the peculiar facts in each case. There is no universal rule that a director of a company is in charge of its everyday affairs. We have discussed about the position -15- ## **CRL.M.C. NO.288 OF 2019** of a Director in a company in order to illustrate the point that there is no magic as such in a particular word, be it Director, Manager or Secretary. It all depends upon respective roles assigned to the officers in a company. A company may have Managers or Secretaries for different departments, which means, it may have more than one Manager or Secretary. These officers may also be authorised to issue cheques under their signatures with respect to affairs of their respective departments. Will it be possible to prosecute a Secretary of Department-B regarding a cheque issued by the Secretary of Department-A which is dishonoured? The Secretary of Department-B may not be knowing anything about issuance of the cheque in question. Therefore, mere use of a particular designation of an officer without more, may not be enough by way of an averment in a complaint. When the requirement in S.141, which extends the liability to officers of a company, is that such a person should be in charge of and responsible to the company for conduct of business of the company, how can a person be subjected to liability of criminal prosecution without it being averred in the complaint that he satisfies those requirements? Not every person connected with a Company is made liable under S.141. Liability is cast on persons who may have something to do with the transaction complained of. A person who is in charge of and responsible for conduct of business of a Company -16- ## **CRL.M.C. NO.288 OF 2019** would naturally know why the cheque in question was issued and why it got dishonoured. The position of a Managing Director or a Joint Managing Director in a company may be different. These persons, as the designation of their office suggests, are in charge of a company and are responsible for the conduct of the business of the company. In order to escape liability such persons may have to bring their case within the proviso to S.141(1), that is, they will have to prove that when the offence was committed they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence.” 11. In the light of the principles laid down by the Honourable Supreme Court as above **,** it is evident that, no person can be implicated for a criminal offence on the basis of vicarious liability unless the statute specifically provides for the same. As far as the offences punishable under the Indian Penal Code are concerned, there is no concept of vicarious liability. Therefore, a specific allegation and materials indicating the role of the director of the company in commission of the crime has to be raised and produced by the prosecution, which is lacking in this case. It is evident that, the petitioners were arraigned as accused, -17- ## **CRL.M.C. NO.288 OF 2019** merely because of the reason that, as per the records, they were found to be nominee Directors of the 1[st] accused Company and in the light of the principles discussed above, that alone is not sufficient, but on the other hand, there must be some specific averments and evidence indicating their role. In such circumstances, I am of the view that the prosecution as against the petitioners herein are clear abuse of process of law. Therefore, invocation of powers of this Court under Section 482 Cr.P.C. is warranted. In the result, this Crl.M.C. is allowed and Annexure A2 final report in Crime No.534/2016 of Central Police Station, Ernakulam and all further proceedings in C.C. No.124/2016 pending before the Chief Judicial Magistrate Court, Ernakulam, as against the petitioners herein, who are accused Nos.6, 7 and 10, are hereby quashed. Sd/- **ZIYAD RAHMAN A.A. JUDGE** bpr -18- ## **CRL.M.C. NO.288 OF 2019** ## **APPENDIX** ## **PETITIONERS' ANNEXURES** |**ANNEXURE A1**|**CERTIFIED COPY OF THE FIR IN CRIME**| |---|---| ||**NO.534/2016 OF THE CENTRAL POLICE**| ||**STATION, ERNAKULAM.**| |**ANNEXURE A2**|**CERTIFIED COPY OF THE FINAL**| ||**REPORT/CHARGE SHEET LAID BY THE POLICE**| ||**IN CRIME NO.534/2016.**| |**ANNEXURE A3**|**CERTIFIED COPY OF THE SEIZURE MAHAZAR**| ||**DATED 20.08.2016.**| |**ANNEXURE A4**|**CERTIFIED COPY OF THE SEIZURE MAHAZAR**| ||**DATED 20.05.2016.**| |**ANNEXURE A5**|**CERTIFIED COPY OF THE SEIZURE MAHAZAR**| ||**DATED 05.04.2016.**| |**ANNEXURE A6**|**CERTIFIED COPY OF THE SEIZURE MAHAZAR**| ||**DATED 13.05.2016.**| |**ANNEXURE A7**|**COPY OF THE SUBSCRIPTION & SHAREHOLDERS**| ||**AGREEMENT DATED 29.10.2010 (INVESTMENT**| ||**AGREEMENT EXECUTED BY IL & FS & ANOTHE**| ||**AS INVESTORS WITH DEWA PROJECTS PRIVATE**| ||**LIMITED.**| |**ANNEXURE A7(a)**|**COPY OF LETTER DATED 21.02.2011 OF IL &**| ||**FS ADDRESSED TO DEWA PROJECTS.**| |**ANNEXURE A7(b)**|**COPY OF LETTER DATED 12.06.2012 OF IL &**| ||**FS ADDRESSED TO DEWA PROJECTS.**| |**ANNEXURE A8**|**COPY OF W.P.(C) NO.14289/2016 WITHOUT**| ||**EXHIBITS.**|