Yerram Vijay Kumar vs The State of Telangana & Anr.

Held: s.447 lays down the punishment for ‘fraud’ in various forms – Thus, punishment section for s.448 (Punishment for false statement) is s.447 and both sections cannot be read in isolation, since they are inextricably linked – In case an allegation of fraud u/s.447 is to be made out, the complaint has to be made by the Director, Serious Fraud Investigation Office or any officer of the Central Government authorized by a written order of the Government – The offence u/s.448 is an ‘offence covered u/s.447’ as mentioned in s.212(6) and therefore, the bar against taking cognizance under the second proviso of s.212(6), unless specific conditions are met, is attracted in the present case – Cognizance, therefore, in such a case, cannot be taken merely by filing of a private complaint by the Complainant – Since, cognizance cannot be taken for s.448 without following the requirements under the second proviso to s. 212(6), cognizance of ‘repeated default’ u/s.451, Companies Act is not made out – Complaint case, the order of the Special Court taking cognizance and all consequential proceedings to the extent of ss.448 and 451 quashed – Impugned judgment set aside – Penal Code, 1860 – ss.420, 406, 426, 468, 470, 471 & 120B – Code of Criminal Procedure, 1973 – s.482 – Companies (Amendment) Act, 2015. [Paras 33, 35, 42, 45-47, 60]

Companies Act, 2013 – ss.213, 447, 448, 451, second proviso to s.212(6):

Held: Punishment section for s.448 (Punishment for false statement) is s.447 and both sections cannot be read in isolation, since they are inextricably linked – In case an allegation of fraud u/s.447 is to be made out, the complaint has to be made by the Director, Serious Fraud Investigation Office or an officer authorized by a written order of the Government – The offence u/s.448 is an ‘offence covered u/s.447’ as mentioned in s.212(6) and therefore, the bar against taking cognizance under the second proviso of s.212(6), unless specific conditions are met, is attracted in the present case – Cognizance, therefore, in such a case, cannot be taken merely by filing of a private complaint by the Complainant – However, the Complainant is not absolutely remediless – The right recourse for a person, who makes an allegation of fraud in the affairs of a company is to file an application u/s.213 before the NCLT upon satisfying the eligibility u/s.213(a) and 213(b). [Para 45] Companies Act, 2013 – s.447 – Invocation of:

Held: Where the Special Court under the Companies Act is taking cognizance of an offence under a section in the Companies Act which, if proved, would make the person(s) ‘liable u/s.447’ or ‘liable for action u/s.447’, it must also invoke s.447 with the corresponding section and in such a case, it must comply with the bar against taking cognizance as specified in the second proviso to s.212(6) – Anything that cannot be done directly, also cannot be done indirectly – Merely because there is a bar under the second proviso to s.212(6) against taking cognizance of the offence u/s.447 unless specific conditions mentioned therein are met, does not mean that cognizance may be taken by the Special Court u/s.448 of the Act without including the punishment section, i.e. s.447 on filing of a private complaint – Non-inclusion of the punishment section u/s.447 since the very inception will also lead to procedural absurdity since ultimately the said s.447 must be invoked in order to impose any punishment after trial is conducted. [Paras 59, 43, 44]

Companies Act, 2013 – ss.447, 448, second proviso to 212(6) – Interpretation – Bar under the second proviso to s.212(6) against taking cognizance by the Special Court in cases involving s.447, a safeguard – Object of, stated – ‘offence covered under Section 447’ introduced by means of a substitution in s.212(6) in the 2015 Amendment Act w.e.f 29.05.2015 vis-à-vis Pre-Amendment – Scheme of the Companies Act, discussed – Companies (Amendment) Act, 2015. [Paras 27-35]

Companies Act, 2013 – ss.447, 448, second proviso to s.212(6) – s.448 not to be read in isolation and must be read along with s.447:

Held: s.447 lays down the punishment for ‘fraud’ in various forms – In the present case, cognizance has been taken by the Special Court u/ss.448 and 451 – s.448 itself does not lay down any punishment for its contravention, it simply lays down the ingredients of the offence of making a false statement and provides that in case such a false statement is made, the ‘person(s)’ shall be liable u/s.447 – That is to say, even if, after trial, an offence u/s.448 is proved to have been committed by a ‘person’, it is only with the aid of s.447 that the punishment for the said offence may be imposed – Therefore, s.448 cannot be read in isolation and must be read along with s.447 – The offence u/s.448 is an offence ‘covered under Section 447’ of the Companies Act mentioned in s.212(6), since the offence u/s.448 is inextricably linked to the punishment for ‘fraud’ as mentioned in s.447 and as such, the second proviso to s.212(6) is attracted – Companies (Amendment) Act, 2015. [Paras 33, 34]

Companies Act, 2013 – s. 436(2) – Penal Code, 1860 – ss.420, 406, 426, 468, 470, 471 & 120B – If the proceedings for the offences u/ss.448 and 451 ought to be quashed, would the criminal proceedings also have to be quashed in respect of the offences under the IPC in light of the provisions as contained in s.436(2) – Plea of the Appellants that in view of s.436(2), if the offences under the Companies Act are quashed, the Special Court may not try the offences under the sections of the IPC under which cognizance was taken:

Held: s.436(2) lays down the pre-requisite that the Special Court should be trying offences under the Companies Act, for it to also try offences under the IPC – Once the offences under the Companies Act are quashed, it is the Court of appropriate territorial jurisdiction which would have jurisdiction to try the private complaint filed by the Respondent No. 2 against the Appellants – The judge of the Special Court where the complaint case is pending shall take steps, in consultation with the Principal District Judge of the district to transfer the complaint case to the appropriate court having territorial jurisdiction to try the complaint case – Further directions issued. [Paras 54, 60]

Code of Criminal Procedure, 1973 – s.482 – Criminal proceedings when ought not to be quashed – Appellants submitted that the complaint case insofar as it relates to offences under the IPC, is abuse of process of law since there are two civil suits and one company petition (filed by the Appellants) pending between the parties – Whether continuation of the criminal proceedings would amount to abuse of process of law, warranting interference u/s.482 of CrPC:

Held: Mere institution or pendency of civil proceedings between the parties cannot be a ground to quash the criminal proceedings instituted by the Respondent No. 2 by filing a complaint case or to conclude that the dispute is purely civil in nature – Respondent No. 2 and the Appellants were in a commercial relationship and the inception of the dispute can be traced to a tussle for control over the Company – The civil suits filed by the Appellants are for seeking a permanent injunction against the Company and the Complainant from violating the terms and conditions of MoU and, a declaration that the agreements to sell executed by the Complainant with respect to the properties of the Company be declared void, respectively, while the Company Petition has been filed before the NCLT challenging the removal of the Appellants from directorship in the Company – Pendency of these proceedings would not absolve the criminality as alleged in the complaint, in the facts and circumstances of this case – No ground to quash the offences under the IPC of which cognizance was taken by the Special Court. [Paras 55-57]