Private Complaint For Fraud U/S 447 Of Companies Act Not Maintainable Before Special Court For Economic Offences: Telangana High Court

"If the contention of the complainant that any shareholder can file a complaint for fraud is accepted, it would open flood gates for any person commencing criminal proceedings merely by filing a complaint."

Brief Facts

The petitions were filed by petitioners under Section 482 of the Code of Criminal Procedure to quash the proceedings on the file of Special Judge for Economic Offences. The petitioners, father and daughter by relation, were arrayed as accused No. 1 and 2 respectively.

As per the complaint, the complainant i.e. respondent no. 1 and his late brother incorporated a Company under the name and style of M/s Peregrine Agro Private Ltd., in 1997 under the provisions of the Companies Act. The complainant and his late brother were promoters/directors of the Company. In June 2002, it was claimed that accused No. 1 stayed as a tenant in a portion of the building in Hyderabad which was owned by the family of the complainant.

The complainant claimed to be divorced and living in the same building with his mother and minor daughter from his first marriage. Around 2010, the complainant's brother was diagnosed with colon cancer and the affairs of the Company were getting neglected.

It is alleged that accused No. 1 induced the complainant to induct her as a Director in the Company and promised to look after the company. Believing her representation, the complainant agreed to induct her as an additional director in the Company. For the said purpose, accused no. 1 made the complainant to sign on various documents including blank sheets of papers on the ground that several documents might need his signature.

The brother of complainant resigned as Director of Company in 2010 as he was totally bedridden. In the meanwhile, the complainant and accused no. 1 got married in 2011 and accused no. 1 was appointed as Director of the company. The marriage between the two never worked out and broke down irreparably.

The complainant was out of India most of the time and claimed that the accused No. 1 illegally made major changes in the management, Board Resolutions, Annuals Reports, financial documents and shareholding of the company in collusion with her father i.e. accused No. 2. It was alleged that she also issued 63,000 shared of the Company to herself to render the respondent No. 1 a minority shareholder. Further, it was alleged that she illegally appointed her father as an Additional Director in 2014 and thereafter as a Director in 2015.

Contentions of parties

The contention of the counsel for the petitioner was that under Section 212 (6) of the Companies Act, 2013, the Economic Offences Court could take cognizance of the offence dealing with punishment of fraud under Section 447 of the Companies Act, 2013 only on a complaint filed in writing by the Director, SFIO (Serious Fraud Investigation Office) or to any of the Officer of the Central Government authorized in writing in that behalf by that Government. The Economic Offences Court took cognizance of the complaint even though it was not made by the categories of persons prescribed under Section 212(6) of the Companies Act, 2013 hence, the same was not maintainable.

The contention of the counsel for the respondent No.1 was that Section 212 of the Companies Act, 2013 was applicable only to the investigation into the affairs of the company by SFIO and the assignment of the same by the Central Government. Section 439 of the Companies Act, 2013 dealing with non-cognizable offences, the Court could take cognizance of any offence including Section 447 so long as the SFIO had not been assigned the investigation by the Central Government under Section 212 of the Companies Act, 2013.

Ruling of the court

Justice G. Radha Rani examined Section 212 (6) of the Companies Act, 2013, to hold that it provides a safeguard against frivolous complaints and ensures that a prosecution for fraud can only be launched after due investigation.

The court held that an exception is carved out under Section 439 (1) itself that every offence under the Act except the offences referred to in sub-section (6) of Section 212 of the Act shall be deemed to be non-cognizable. As such, Section 439 of the Companies Act, 2013 is not applicable to offences covered under Section 447 of the said Act. Hence, cognizance of the offence under Section 447 of the Act could not have been taken by the trial Court on a private complaint.

"Under Section 206 of the Companies Act, 2013, the Registrar of Companies based on the information received by him, seek for explanation, call for production of document and conduct enquiry. If the enquiry conducted by the Registrar discloses material for further investigation, he, under Section 210 of the Companies Act, 2013 can report to the Central Government to conduct investigation into the affairs of the company. If the Central Government considers the allegations as true and considering the gravity of the offence that the matter was fit to be investigated by the SFIO, directs the matter to be investigated by the SFIO under Section 212 of the Companies Act, 2013."

"If the complainant/respondent 2 was aggrieved, he should have resorted to the procedure as contemplated under the Act. The Registrar of Companies is a competent person to call for the records, conduct an enquiry and to arrive at an opinion. If there is any material, he would submit a report to the Government for investigation by SFIO. If SFIO is able to collect material sufficient to prosecute then it would file charge sheet after taking necessary sanctions from the Central Government."

Thus, the petitioner could not be prosecuted for the offences under Sections 447, 448 and 451 of the Companies Act, 2013 due to bar of cognizance under Section 212(6) of the Companies Act, when a complaint was not given in writing by the Director, SFIO or any Officer of the Central Government authorized in that behalf by the said Government.

As a consequence, the criminal petition was allowed.

Case Title: Mrs. Sumana Paruchuri v.Jakka Vinod Kumar Reddy

Citation : 2022 LiveLaw (Tel) 51

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