Paragraph numbers below are the court’s original numbering, recovered from the source text.
9. Propositions of law which emerge from the said deci- sions are: c (1) The High Court ordinarily would not exercise its · inherent jurisdiction to quash a criminal proceeding and, in particular, a First Information Report unless the allegations contained therein, even if given face ·value and taken to be correct in their entirety, . disclosed no cognizable offence. (2) For the said purpose, the Court, save and except in very exceptional circumstances, would not look to any document relied upon by the defence. (3) Such a power should be exercised very sparingly. If the allegations made in the FIR disclose commission of an offence, the court shall not go beyond the same and pass an order in favour of the accused to hold absence of any mens rea or actus rems. (4). If the allegation discloses a civil dispute, the same – by itself may not be a ground to hold that the criminal proceedings should not be allowed to continue.
10. It is furthermore well known that no hard and fast rule can be laid down. Each case has to be considered on its own merits. The Court, while exercising its inherent jurisdiction, al- though would not interfere with a genuine complaint keeping in view the purport and object for which the provisions of Sections · G 482 and 483 of the Code of Criminal Procedure had been in- _.:; ; ~ •. traduced by the Parliament but would not hesitate to exercise '. • .. :.Jts jurisdiction in appropriate cases. One of the paramount du- :· ' ties of the Superior Courts is to see-that a person who is appar- ently innocent is not subjected to persecution and humiliation H – on the basis of a false and wholly untenable complaint.
11. In the aforementioned backdrop, we may now exam- ine as to whether the FIR lodged by the appellant makes out any case for proceeding against the respondent.
12. We may, for the said purpose, notice the ingredients of Section 420 and 406 of the Indian Penal Code. a The ingredients of Section 420 of the Indian Penal Code are as follows: i) Deception of any persons; ii) Fraudulently or dishonestly inducing any person to 0 deliver any property; or iii) to consent that any person shall retain any property and finally intentionally inducing that person to do or omit to do anything which he would not do or omit. Section 406 of the Indian Penal Code reads, thus: D "406. Punishment for criminal breach of trust.-Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both." In Popular Muthiah v. State represented by Inspector of Police [(2006) 7 sec 296], it was opined : "While exercising its appellate power, the jurisdiction of the High Court although is limited but, in our opinion, there F exists a distinction but a significant one being that the High Court can exercise its revisional jurisdiction and/ or inherent jurisdiction not only when an application therefore is filed but also suo motu. It is not in dispute that suo motu power can be exercised by the High Court whi[e exercising G its revisional jurisdiction. There may not, therefore, be an embargo for the High Court to exercise its extraordinary inherent jurisdiction while exercising other jurisdictions Jo~.- . the matter. Keeping in view the intention of the Parliament, · while making the new law the emphasis of the Parliament H being 'a case before the court' in contradistinction from 'a person who is arrayed as an accused before it' when the High Court is seized with the entire case although would , exercise a limited jurisdiction in terms of Section 386 of the Code of Criminal Procedure, the same, in our considered view, cannot be held to limit its other powers and in particular that of Section 482 of the Code of Criminal Procedure in relation to the matter which is not before it."
13. LKP Shares and Securities Ltd. (the Company) is a company registered and incorporated under the Indian Com- e panies Act, 1956. Whereas respondent No.1 is its President, the second respondent is its Branch Coordinator. Both of them are stationed at Bombay which is its headquarters. It has many branches including the one at Chennai. Every branch is said to be an independent entity. ·D
14. Respondent No.3 who has been arrayed as accused No.3 in the FIR was the Branch Manager of the company at . Chennai. Indisputably,. all interactions and transactions by and between the appellant and the company, if any, were made by tt:ie complainant only with the respondent No.3.
15. A bare perusal of the First Information clearly goes to show that authorisedly or unauthorisedly, respondent No.3 was operating the appellant's account. It is furthermore not in dis- pute that she and her family members were operating six ac- counts with the com~any, the details whereof are as under : SI. No. Name Account No. 1. 2. 3. 4. 5. 6. Mr. A Sridhar Mr. Dinesh D Mrs. Dhanam Ms. Kalyani R. Jayamani S. M/s. R.S.R. Securities Limited A555 80002 K0004 J0001 R0014
16. It is admitted that the appellant and her husband were 'A Directors of M/s. R.S.R. Securties Ltd. It is furthermore con- ceded that the respondent No.3 and the brother of the appel- lant herein, when the company was in great financial difficul- ties, became the Directors of the said M/s. RSR Securities Ltd. It also stands admitted that the respondent No.3 resigned from.· B the post of Branch Manager on or about 25.10.2002.
17. The records before us also show that Demat Fixed Accounts were being operated by Sridhar, brother of the ap- pellant. It does not appear that any transaction involving pur- chase and sale of any share was entered into by and between C the appellant and the company at any point of time, although the accounts of the RSR Securities had been opened for trad- ing in shares.
18. Apparently, the First Information Report does not con- tain any allegation against the appellant No.1.
19. The principal allegations therein are only against the third respondent which may be enumerated hereinafter : (1) He, without the knowledge and consent of the complainant with mala fide intention, operated the account maintained in her name. (2) He promised to take over the liabilities of the company's account R-14 and at his instance only the appellant and her husband resigned from the company and he and Mr. Sridhar became the Directors. (3) Accused No.3 promised to pay a sum of Rs.9.57 lacs being the balance in the account K-4 and also Rs.11.97 lacs being the value of shares purchased in the account as early as 1999 but not delivered in time, but he failed and or neglected to do so. Paragraph 11 of the said First Information which is mate- rial for our purpose reads as under : "11. The complainant submits that the 3rd accused in R-14 account without the knowledge and consent of the complainant caused liabilities in the said account and even after taking over the said liabilities by the 3rd accused by inducting himself as director of the company now with ulterior intentions, fabricated a letter dated 10.1.2002 · purported to have been written by the complainant by forging signature of the complainant, thereby trying to misappropriate the money due to the complainant from the personal account and also the 1st and 2nd accused c … who are responsible for the day to day management and affairs of the company as responsible persons of the company, liable for the act of 3rd accused who is a manager in their company."
20. It was also alleged therein that the appellant came to D learn that the second accused had forwarded a letter dated 10.1.2002 to the national Stock Exchange which is said to be a r forged and fabricated letter, the contents whereof are : "Pursuant to the discussions my brother Mr. A. Sridharan · had with you regarding settlement of all outstanding payments in the accounts which we were operating. I request you to transfer the credit balance of Rs.9,57 ,037 .16 from my personal account No.K004 to adjust the debit balance of Rs.21,08,420.45 in our co·mpany SRI R.S.R. Securities account No.R104. Any further debit balance after adjustment as above will be recoverable against the – company."
21. Whereas, thus, no allegation whatsoever has been made against the respondent No.1, the only allegation against G the respondent No.2 was that he had forwarded the said letter dated 10.1.2002 to National Stock Exchange. The act of forg- ery on/or fabrication lof the said letter had been attributed to , Respondent No.3. Respondent Nos.1 and 2 ~erein were sought to be pro- -1 ceeded against on the premise that they are vicariously liable A for the affairs of the company.
22. As Mr. Mani had time and again referred to the allega- tions relating to forgery of the said document dated 10.1.2002, we may also notice a disturbing fact. Before lodging the said ' First Information, a notice was issued by the appellant against the respondents herein on 15.10.2002, whereas the address ' of respondent Nos.1 and 2 were shown as 404, Embassy Cen- tre, Nariman Point, Mumbai – 400 021 and 302, Veena Cham- bers, 21, Dalal Street, Fort, Mumbai – 400 001 respectively. However, in the complaint petition, they were shown to be resi- c dents of Chennai.
23. In the aforementioned factual backdrop, we although do not agree with the approach of the High C_ourt, concur with its conclusion. The allegations contained in the First Information Report, ,0 therefore, do not disclose an offence against the respondent Nos 1 and 2. They have in their individual capacity been charged for commission of offences of cheating, criminal breach of trust and forgery.
24. As there had never been any interaction between the appellant and them, the question of any representation which is one of the main ingredients for constituting an offence of cheat- ing, as contained in Section 415 of the Indian Penal Code, did not and could not arise.
25. Similarly, it has not been alleged that they were en- trusted with or otherwise had dominion over the property of the appellant or they have committed any criminal breach of trust. So far as allegations in regard to commission of the of- fence of forgery are concerned, the same had been made only against the respondent No.3 and not against the respondent No.2. Sending a copy thereof to the National Stock Exchange without there being anything further to show that the respondent No.2 had any knowledge of the fact that the same was a forged and fabricated document cannot constitute offence. [2008) 14 S.C.R. Allegations contained in the FIR are for commission of offences under a general statute. A vicarious liability can be fastened only by reason of a provision of a statute and not oth- erwise. For the said purpose, a legal fiction has to be created. Even under a special statute when the vicarious criminal liabil- ity is fastened on a person on the premise that he was in-charge of the affairs of the company and responsible to it, all the ingre- dients laid down under the statute must be fulfilled.
A legal fie- tion must be confined to the object and purport for which it has been created. c In Sham Sunder& Ors. v. State of Haryana ((1989) 4 SCC 630], this Court held : "9. But we are concerned with a criminal liability under penal provision and not a civil" liability. The penal provision must be strictly construed in the first place. Secondly, there is no vicarious liability in criminal law unless the statute takes that also within its fold. Section 1 O does not provide for such liability. It does not make all the partners liable for the offence whether they do business or not." Yet again, in Radhey Shyam Khemka & Anr. v. State of Bihar ((1993) 3 SCC 54], the law has been laid down by this Court, thus : "6. But, at the same time, while taking cognizance of alleged offences in connection with the registration, issuance of prospectus, collection of moneys from th.e investors and the misappropriation of the fund co'llected from the shar:e- holders which constitute one offence or other under the Penal Code, court must be satisfied that prima facie and offence under the Penal Code has been disclosed on the materials produced before the court.
If the screening on this questi~n is not done properly at the stage of initiation 'f of the criminal proceeding, in many cases, some disgruntled share-holders may launch prosecutions agai!lst the promoters, directors an<;I those in charge of the · · management of the company concerned and can paralyse the functioning of such company. It need not be impressed A that for prosecution for offences under the Penal Code the complainant has to make out a prima fade case against the individuals concerned, regarding their acts and omissions which constitute the different ingredients of the offences under the Penal Code. It cannot be overlooked B that there is a basic difference between the offences under the Penal Code and acts and omissions which have been made punishable under different Acts and statutes which are in nature of social welfare legislations. For framing charges in respect of those acts and omissions, in many c cases,. mens rea is not an essential ingredient; the concerned statue imposes a duty on those who are in charge of the management, to follow the statutory provisions and once there is a breach or contravention, such persons become liable to be punished.
But for D framing a charge for an offence under the Penal Code, the traditional rule of existence of mens rea is to be followed." In Hira Lal Hari Lal Bhagwati v. CBI, New Delhi [(2003) 5 sec 257], it has been held: "32. Likewise the ingredients of Section 420 of the Indian Penal Code are also not made out. There is no reason as to why the appellants must be made to undergo the agony .J of a criminal trial as has been held by this Court in the case of G. Sagar Suri and Anr. v. State of U.P. and Ors. F [(2000) 2 SCC 636]. In this, this Court held that. "Jurisdiction under Section 482 of the Code has to be exercised with great care. In exercise of its jurisdiction the High Court is not to examine the G matter superficially. It is to be seen if a matter, which is essentially of a civil nature, has been given a cloak of criminal offence. Criminal proceedings are not a short cut of other remedies available in law. Before issuing process a criminal court has to exercise a great deal of caution. For the accused, it is a serious matter." 39.
It is settled law, by catena of decisions, that for establishing the offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise of representation. From his making failure to keep up promise subsequently, such a culpable intention right at the beginning that is at the time when the promise was made cannot be presumed." c {[See also Vir Prakash Sharma v. Anil Kumar Agarwal & Anr. [(2007) 7 sec 373]}.
26. Although the legal principle that a penal statute must receive strict construction, it is not in doubt or dispute, we may D notice some authorities in this behalf. In Section 263 of the Francis Bennion's Statutory Inter- pretation it is stated : "A principle of statutory interpretation embodies the policy of the law, which is in turn based on public policy. The Court presumes, unless the contrary intention appears, that the legislator intended to conform to this legal policy A principle of statutory interpretation can therefore be described as a principle of legal policy formulated as a guide to legislative intention." Maxwell in The Interpretation of Statutes (12th Edn) says: "The strict construction .of penal statutes seems to manifest itself in four ways: in the requirement of express language for the creation of an offence; in interpreting strictly words setting out the elements of an offence; in requiring the fulfillmentto the letter of statutory conditions precedent to If the infliction of punishment; and in insisting on the strict · observance of technical provisions concerning cciminal procedure and jurisdiction." In Craies and Statute Law (71h Edn.
At p. 529) it is said that A penal statutes must be construed strictly. At page 530 of the said treatise, referring to U.S. v. Wiltberger, [(1820) 2 Wheat (US) 76], it is observed, thus : "The distinction between a strict construction and a more free one has, no doubt, in modern times almost B disappeared, and the question now is, what is the true construction of the statute? I should say that in a criminal statute you must be quite sure that the offence charged is within the letter of the law. This rule is said to be founded on the tenderness of the law for the rights of individuals, c and on the plain principle that the power of punishment is vested in the Legislature, and not in the judicial department, for it is the Legislature, not the Court, which is to define a crime and ordain its punishment" In Tuck v. Priester, [(1887)) 19 QBD 629] which is followed D in London and County Commercial Properties Investments v. Attn Gen., [(1953) 1 WLR 312], it is stated: "We must be very careful in construing that section, because it imposes a penalty. If there is a reasonable E interpretation, which will avoid the penalty in any particular case, we must adopt that construction. Unless penalties are imposed in clear terms they are not enforceable. Also where various interpretations of a section are admissible it is a strong reason against adopting a particular interpretation if it shall appear that F the result would be unreasonable or oppressive." Blackburn, J. in Wills v. Thorp said [(1875) LR 10 QB 383]: "When the Legislature imposes a penalty, the words G imposing it must be clear and distinct."
27. If a person, thus, has to be proceeded with as being variously liable for the acts of the company, the company must be made an accused. In any event, it would be a fair thing to do so, as legal fiction is raised both against the Company as well H as the person responsible for the acts of the Company. – 28. For the reasons aforementioned, we do not find any legal infirmity in the impugned judgment. Before parting with this case, however, we must clarify one aspect of the matter. Respondent No.3, arrayed as accused No.3 in the First Information Report, did not file any application under Section 482 of the Code of Criminal Procedure. We do not know under what Circumstances, the High Court directed service of the no- tice on him. Nowhere in the impugned judgment, High Court c found that the allegations contained in the First Information Re- port against the respondent No.3 also do not disclose commis- sion of any cognizable offence. It is one thing to say that he has not committed the same but it is another thing that the High Court's jurisdiction under Section 482 of the Code of Criminal D Procedure could have been invoked at this stage.
29. In view of our findings aforementioned, we have no other option but to hold that the High Court in its judgment can- not be said to have covered the case of the respondent No.3. The investigation against him, therefore, shall continue. How- E ever, it will be open to him to take appropriate defences at ap- propriate stages as are permissible in law.
30. The appeal is dismissed with the aforementioned ob- servations. D.G. Appeal dismissed. j._ f