Shareholder Can't Itself Initiate Proceedings Before Magistrate For Fraud U/S 447 Of Companies Act, 2013: Karnataka High Court
The Karnataka High Court has held that a shareholder, minority or otherwise, cannot initiate proceedings before the Magistrate by himself or herself for an alleged offence of fraud under Section 447 of the Companies Act, 2013. A single judge bench of Justice Suraj Govindaraj said, "Sub-Section (6) of Section 212 of the Act specifically deals with the offences covered under Section 447...
The Karnataka High Court has held that a shareholder, minority or otherwise, cannot initiate proceedings before the Magistrate by himself or herself for an alleged offence of fraud under Section 447 of the Companies Act, 2013.
A single judge bench of Justice Suraj Govindaraj said, "Sub-Section (6) of Section 212 of the Act specifically deals with the offences covered under Section 447 of the Act and makes it clear that no court shall take cognizance unless a complaint is made by the Director, Serious Fraud Investigation Office (SFIO) or the officer of the Central Government authorised by a general or special order in writing in this behalf by that Government."
It added, "Thus, an offence under Section 447 of the Act is given special treatment in terms of Sub-Section (6) of Section 212 of the Act. It is only that procedure which is prescribed under Sub-Section (6) of Section 212 of the Act which would apply."
The court made the observation while allowing a petition filed by one M. Gopal and set aside the cognizance taken by the Magistrate on the private complaint filed by a minority shareholder Ganga Reddy of the company.
Further explaining the remedy available to a shareholder in the event of the shareholder alleging fraud requiring the initiation of proceedings under Section 447 of the Companies Act, 2013, the bench said,
"Such shareholder essentially needs to go through the procedure under Section 213 of the Act and in the event of a report being submitted by the Inspector to the Tribunal (NCLT), if there being a fraud either the shareholder or the tribunal could refer the report to the SFIO who can then follow the procedure provided under Section 212 of the Act and initiate criminal proceedings against the offenders for an offence under Section 447 of the Act."
Finally, on going through the records in the instant case the bench held, "The learned Magistrate without having gone through and appreciated the provisions of Sections 212, 213, 439 and 447 of the Act, the order of cognizance is contrary to the applicable law and therefore, suffers from legal infirmity requiring this Court's interference."
Case Title: M. GOPAL v. GANGA REDDY
Case No: CRIMINAL PETITION NO. 3550 OF 2017
Citation: 2022 LiveLaw (Kar) 424
Date of Order: 21ST DAY OF OCTOBER, 2022
Appearance: V. LAKSHMINARAYANA, SR. COUNSEL A/W SHILPA RANI, ADVOCATE for petitioner.
K.V. SATHISH, ADVOCATE for respondent