Former Minister KT Rama Rao Was Prima Facie 'Entrusted' With Formula E Race Funds Which Were Allegedly Misused: Telangana High Court

Dismissing BRS MLA KT Rama Rao's plea for quashing an FIR over the alleged Formula-E race "scam", the Telangana High Court on Tuesday said that Rao as then Urban Development Minister was controlling the Hyderabad Metropolitan Development Authority and thus the body's funds which were allegedly misused, were "prima facie" entrusted with him.

Rejecting Rao's contention that ingredients of Section 409 IPC are not made out as there is no entrustment of public money by elected legislator's, Justice K. Lakshman in his order said, that reliance on Supreme Court's decision in Common Cause v UOI (1999) is not applicable in the present case.

The high court said that Supreme Court had in its reasoning said that a "minister appointed to distribute government property acts as an agent of the government". It had said that such a minister acts in furtherance of a duty imposed on him to ensure smooth functioning and better administration. Therefore, there is no trust created in him to deal with public money.

For context, Section 409 (criminal breach of trust) states that whoever, is entrusted with a property in any manner, or has dominion over the property in his capacity as a "public servant", and commits criminal breach of trust in respect of that property, shall be punished with life imprisonment or imprisonment extending to 10 years and fine.

The high court then observed that Petitioner had allegedly abused his authority to misappropriate Hyderabad Metropolitan Development Authority's (HMDA) money. It thus said:

"Therefore, it cannot be said that the Petitioner was using public money of which there can be no entrustment. HMDA is a body corporate which can own property, enter into contracts, sue and be sued. The allegations in the FIR clearly state that it was HMDA's money which was misused. It is not in dispute that HMDA is under the control of MA & UD Department. The petitioner, being the Minister of MA & UD Department, has control over the HMDA, he has approved note before signing of the agreement. Therefore, prima facie, the funds belongs to HMDA were entrusted with the petitioner".

It further said that in the present case, it was not a general member of the public who has filed a complaint alleging criminal breach of trust against the petitioner and other accused. The court noted that the complainant is a "responsible officer of the Government who alleges that HMDA's money was misappropriated by the Petitioner in conspiracy with the other accused".

"Therefore, this Court cannot accept the contention that there was no 'entrustment'. The other allegations pertaining to dishonest intention and misappropriation are matter of investigation," it said.

With respect to the allegation of criminal misconduct by public servant, the court noted that under Section 13 of Prevention of Corruption Act the essential ingredients of criminal misconduct are fraudulent or dishonest misappropriation or converting the property to one's own use. Further, the court said, that such property needs to be entrusted to the public servant or such property should be in the public servant's control.

"From the facts, it is prima facie clear that HMDA's funds were under the control of the Petitioner. Whether the Petitioner dishonestly misappropriated the same or not is a factual aspect to be investigated. Therefore, a prima facie case is made out against the Petitioner. At this stage, this Court would like to advert to another reason why the allegations in the impugned FIR need to be investigated. Even if the contentions of the Petitioner are accepted and this Court reaches a conclusion that neither Section 409 of the IPC nor Section 13(1)(a) of the PCA are made out, the impugned FIR cannot be quashed. It is relevant to note that the FIR need not disclose any specific offence. The FIR should indicate that prima facie an allegation of commission of an offence exists and such an allegation requires an investigation. In other words, the uncontroverted allegations in the FIR should make out a prima facie case warranting an investigation," the court observed.

The order was passed in Rao's plea for quashing of an FIR and proceedings wherein he has been booked under provisions of the IPC including Section 409 (criminal breach of trust by public servant or by banker, merchant or agent), criminal conspiracy under Section 120(B) as well as Section 13(1)(a) and 13(2) (criminal misconduct by public servant) of Prevention of Corruption Act. The BRS leader moved the high court in plea for quashing of the FIR.

On December 20, the high court had granted him interim protection from arrest to Rao which was extended on December 31, till passing of orders.

Appearing for Rao, Senior advocate Siddharth Dave while relying on the Supreme Court's decision in Common Cause v UOI (1999), had contended that in relation to Section 409 of the IPC that there is no 'entrustment' of 'public money' in an elected legislator like the Petitioner. He contended that Ministers dealing with State largesse / public funds do not act as 'trustees', therefore, the complaint lacks the primary ingredient of criminal breach of trust.

It was also contended that there are no allegations of dishonest intention and misappropriation as required under Section 409 of the IPC. It was contended that the allegations, even if accepted, at best constitute irregular exercise of power de hors the dishonest intention. The same cannot constitute an offence. According to the Petitioner, the uncontroverted allegations in the impugned FIR do not constitute any of the alleged offences. Further, the FIR is politically motivated, malicious and constitutes abuse of process. Further, the Petitioner contends that the allegation that third parties received benefits cannot be accepted as none of them have been named in the FIR. Further, the Government has failed to take any action seeking recovery of the alleged losses. It was also contended that no preliminary inquiry was conducted before lodging the FIR.

As per the facts, in 2022 the State of Telangana entered into a tripartite agreement with m/s Formula E Operations Pvt. Ldt and M/s Ace Next Gen Pvt Ltd for conduct the Formula-E races in Hyderabad in the year 2023. As per the agreement, the State provided a venue and infrastructure for conducting the races, while Ace Next Gen acted as the promoter/sponsor. The Municipal Administration and Urban Development (MA&UD) department was to act as a host and provide all the civic amenities.

That, after season 9 of the races were conducted in 2023, the promoter dropped out and refused to the sponsor the event for the next season, and Hyderabad did not feature in the list of cities hosting season 10.

It has been alleged that the Petitioner had discussions with the officials of Formula E Operations to get the Government of Telangana to act as a promoter/host and conduct an event for Season 10 in Hyderabad. He allegedly 'telephonically' directed the Hyderabad Metropolitan Development Authority (hereinafter 'HMDA') to act as a promoter and host the event and also approved releasing funds amounting to Rs. 50 crores.

The State argued that HMDA was not in a position to release such a huge amount without prior administrative sanction from the State and the Finance Department. That only 10 crores could be released without a sanction, however, the petitioner misusing his position of power, permitted the release of monies. Further, that although HMDA had released the funds, they were not made party to the subsequent agreement for hosting season 10 of Formula E. That subsequently when arbitration proceedings were initiated against the State for Breach of Contract by Formula E Operations, is when the irregularities of the previous government came to light.

The court in its order observed that the allegations indicate that the Petitioner herein without any approval from the State Cabinet or the finance department directed the HMDA to pay huge sums of money to a foreign company. Whether the Petitioner directed the said payments with a dishonest intention to cause gain to himself or third parties is required to be investigated. "The allegations when read together make out a prima facie case of wrong doing and misappropriation of funds of the HMDA. The same are enough to warrant an investigation. Further, investigating agencies need to be given enough opportunity to investigate the allegations," the court underscored.

Observing that it cannot "haste or thwart" the investigation the court dismissed Rao's plea and also vacated its earlier interim orders directing the authorities not to arrest him.

Case title: KT Rama Rao v/s State of Telangana (ACB) and Anr.

Counsel for petitioner: Senior advocate Siddharth Dave representing advocate A Prabhakar Rao

Counsel for respondent 1 State: Advocate General A. Sudharshan Reddy representing Standing Counsel for ACB T.Bala Mohan Reddy

Counsel for respondent 2 complainant: Senior advocate C.V. Mohan Reddy representing Additional Advocate General Tera Rajinikanth Reddy

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