for quashing, raised by an accused by invoking the power vested in the High Court under Section 482 of the Cr.P.C.:- (i) Step one, whether the material relied upon by the accused is sound, reasonable, and indubitable, i.e., the material is of sterling and impeccable quality? (ii) Step two, whether the material relied upon by the accused, would rule out the assertions contained in the charges levelled against the accused, i.e., the material is sufficient to reject and overrule the factual assertions contained in the complaint, i.e., the material is such, as would persuade a reasonable person to dismiss and condemn the factual basis of the accusations as false. (iii) Step three, whether the material relied upon by the accused, has not been refuted by the prosecution/complainant; and/or the material is such, that it cannot be justifiably refuted by the prosecution/complainant? (iv) Step four, whether proceeding with the trial would result in an abuse of process of the court, and would not serve the ends of justice? If the answer to all the steps is in the affirmative, judicial conscience of the High Court should persuade it to quash such criminal – proceedings, in exercise of power vested in it under Section 482 of the Cr.P.C. Such exercise of power, besides doing justice to the accused, would save precious court time, which would otherwise be wasted in holding such a trial (as well as, proceedings arising therefrom) specially when, it is clear that the same would not conclude in the conviction of the accused.-The Criminal Petitions are allowed and further proceedings in C.C.Nos.124 and 125 of 2013 respectively on the file of Special Judge for Economic Offencescum-Additional Metropolitan Sessions Judge, Hyderabad against the petitioners, who are A6 and A3, are hereby quashed.

SMT JUSTICE T. RAJANI

CRIMINAL PETITION Nos.8618 of 2013

22-12-2017

Shri Kersi H Vachha and another.PETITIONERS

State of A.P., Represented by the Public Prosecutor, High Court of A.P., Hyderabad and another. RESPONDENTS

Counsel for the Petitioners: MR. D. PRAKASH REDDY
For MR. VIKRAM POOSERLA

Counsel for the Respondents: PUBLIC PROSECUTOR(R1)
MR. N. RAJESWARA RAO

<Gist :
>Head Note:
? Cases referred:

1.1997(1) ALD (Crl.) 745 (AP)
2.2013(3) SCC 330

SMT JUSTICE T. RAJANI

CRIMINAL PETITION Nos.8618 and 8835 of 2013
COMMON ORDER:
Criminal Petition No.8618 of 2013 is filed by A6 in
CC.No.124 of 2013, while Criminal Petition No.8835 of 2013 is
field by A3 in CC.No.125 of 2013 seeking for quash of the
proceedings against the petitioners in CC.Nos.124 and 125 of
2013 respectively on the file of Special Judge for Economic
Offencescum-Additional Metropolitan Sessions Judge,
Hyderabad.

2. The grounds, on which the petitions are filed, are almost
the same. Hence, they are taken up for a common consideration
and disposal.

3. A perusal of the complaint in the foremost would be
profitable, in order to understand the allegations against these
petitioners. M/s. Global Trust Bank is Banking Company and
obtained Certificate of Incorporation on 29.10.1993 vide
registration No.01-16502 of 1993-94 issued by the Registrar of
Companies, Hyderabad and the Certificate of Commencement of
Business on 10.11.1993. A1 to A3 are the Directors of the
Company at the relevant point of time and A4 is the Company
Secretary and signatory to the balance sheet of the company, for
the relevant period. The balance sheet in C.C.No.8835/2013
pertains to the year 2002-03 and in C.C.No.8618/2013 it is for
the years 1998 to 2002. A6 in CC.No.124 of 2013 and A3 in
CC.No.125 of 2013 are stated to be the Auditors of the Company
and signatories to the balance sheet at the relevant point of
time.

4. The facts of the case, as narrated in the complaint,
are that e-GTB, under the Chairmanship of one Ramesh Gelli,
acquired a reputation for aggressive growth. Lending/advances
was made in volatile and risky sectors, including the Capital
Market, often at the cost of prescribed norms, guidelines and
procedures. The stock market scam of 2001, led by one Ketan
Parekh group, further hit at the fundamentals of the Bank.
With the crisis of banking operations coming to a halt,
Mr. Ramesh Gelli, came under increasing fire and was removed
as CMD, to be replaced by Mr. R.S. Hugar. Consequent to
mounting troubles, the bank was placed under moratorium, by
the Reserve Bank of India (RBI) in July 24, 2004 up to October
23, 2004 and subsequently was amalgamated with the Oriental
Bank of Commerce (OBC) in August 2004. Subsequent to the
amalgamation, the OBC came across, in its view, serious
irregularities in the prior working of e-GTB management.
There was an investigation by the Serious Fraud Investigating
Office (SFIO). Prior to the said investigation, e-GTB has been
subject to scrutiny by the various agencies. RBI has conducted
periodical Annual Financial Inspection (AFI) and it observed
number of irregularities. It was found during investigation by
SFIO, that the promoters, along with their relatives and
associates, were found to have concealed material facts. From
the records, it was seen that e-GTB committed various
irregularities. It is evident that RBI, during Annual Financial
Inspection, also noticed several irregularities in A6 and A3 audit
period, such as the Bank not maintaining the real value of the
minimum capital prescribed. The auditors report annexed with
the relevant balance sheet was silent on certain issues, though it
was the duty of the statutory auditor to report such matters in
the auditors report.

5. With the allegation that A6 and A3, being auditors, did not
submit auditors report and that they also signed the balance
sheet, the complaint was filed against them also.

6. Now in these quash petitions, the petitioners counsel
raises several technical grounds which do not permit the
sustenance of the prosecution against A3 and A6. He submits
that A3 is not a signatory to the balance sheet and the same is
admitted and is evident from the balance sheet. He submits that
in spite of A6 being a signatory to the balance sheet, prosecution
cannot be launched against him under the Companies Act (for
short the Act), as Section 211 is not applicable to the Banking
Company.

Section 211 of the Act reads as under:
211. (1) Every balance sheet of a company shall give
a true and fair view of shall, subject to the provisions of this
section, be in the form set out in Part I of Schedule VI, or as
near thereto as circumstances admit or in such other form
as may be approved by the Central Government either
generally or in any particular case; and in preparing the
balance sheet due regard shall be had, as afar as may be, to
the general instructions for preparation of balance sheet
under the heading Notes at the end of that Part:
Provided that nothing contained in this sub-section
shall apply to any insurance or banking company or any
company engaged in the generation or supply of electricity
or to any other class of company for which a form of balance
sheet has been specified in or under the Act governing such
class of company.

The proviso clearly exempts banking company from the
application of sub-section (1) of Section 211. Hence, even if a
balance sheet does not disclose true and fair facts of the state of
affairs of the company, a banking company cannot be
prosecuted under the Companies Act. There is no counter
argument to the said submission made by the petitioners
counsel.

7. The next contention is that Section 628 of the Act does not
apply to the petitioners, as the balance sheet, which is prepared
under Section 211 of the Act, is hit by Section 211 and hence,
the Banking Company having been exempted under the proviso
to Section 211(1), Section 628 of the Act also does not apply to
the petitioners.

8. Section 628 of the Act is a penal provision not only for a
false statement but also for a false report. According to the
complaint, there was an auditors report annexed to the balance
sheet,which contain false particulars. Hence, prima facie, Section
628 of the Act applies. But the counsel raises an objection for
the case to be taken on file, on the ground that there is no
authorisation for the complainant to file complaint against these
petitioners, who are auditors.

9. The other contention is that Section 235 of the Act does
not authorise the ministry of corporate affairs or any member of
SFIO to summon the petitioner to give any evidence.
Section 235 is extracted hereunder for ready reference:
235. (1) the Central Government may, where a
report has been made by the Registrar under sub-
section (6) of the Section 234, or under sub-section
(7) of that section, read with sub-section (6) thereof,
appoint one or more competent persons as inspectors
to investigate the affairs of a company and to report
thereon in such manner as the Central Government
may direct.
(2) Where-
(a) in the case of a company having a share
capital, an application has been received from not less
than two hundred members or from members holding
not less than one-tenth of the total voting power
therein, and
(b) in the case of a company having no share
capital, an application has been received from not less
than one-fifth of the persons on the companys
register of members.
The Tribunal may, after giving the parties an
opportunity of being heard, by order, declare that the
affairs of the company ought to be investigated by an
inspector or inspectors, and on such a declaration
being made, the Central Government shall appoint
one or more competent persons as inspectors to
investigate the affairs of the company and to report
thereon in such manner as the Central Government
may direct.

10. According to the above provision, the Central Government
shall appoint one or more competent persons as Inspectors, to
investigate the affairs of the company and report therein in such
a manner as the Central Government may direct.

11. The counsel takes this court through the order of the
Director of Serious Fraud Investigation, wherein it is mentioned
that on the basis of the report submitted by the Inspectors
appointed by the Central Government in exercise of its powers
under Section 235 of the Act, in respect of Global Trust bank
Limited, Ministry of Corporate affairs by virtue of a letter, dated
23.07.2012 authorised Serious Fraud Investigation Office to file
complaints in respect of offences committed by the company and
its Directors under the Act.

12. It is specific that the company and its Directors are the
persons against whom the complaint was directed to be filed.
The letter addressed by the Joint Director, Ministry of Corporate
Affairs, Government of India to the Director of Serious Fraud
Investigation, shows that the RBI is the Regulatory Authority of
the Bank and it has already filed complaint in the Court. It also
shows that it was taken note of, that regarding prosecution
under Section 628 of the Act, Section 211 exempts Banking
Company. SFIO was also advised to forward his findings/charges
to RBI for further necessary action. It was also further advised to
re-examine the issue of prosecution under Section 628 as to how
it was applicable to the company, which was a banking company.

13. While observing as such, SFIO was advised to initiate
prosecution against statutory auditors of relevant period under
Section 227 read with Section 233 and under Section 628 of Act.
But, however, it states that the matter may further also be
referred to the Institute of Chartered Accountants of India to
initiate disciplinary action against the statutory auditors of the
Bank.

14. Section 227 of the Act only lays down the powers and
duties of auditors while Section 233 of the Act is a penal
provision for the auditors report or any document of the
company being signed or authenticated otherwise than in
conformity with the requirement of Sections 227 and 229 of the
Act. The material and the correspondence between the Ministry
of Corporate affairs and the SFIO would show that they were
conscious of the fact that the Act would not apply to the Banking
Company and that the Global Trust Bank is a banking company.
It was also conscious of the fact that Section 211 exempts the
auditors from the application of sub-section (1) of Section 211,
thereby, Section 628 of the Act does not apply, as the
authorization to file the complaint is only with regard to the
company and its directors.

15. The counsel for R2 contends that the authorisation is given
not only to prosecute the company and its Directors but also
others, as the word etc is used in the said authorisation.
No doubt, the authorisation, in the prologue mentions the word,
etc. But while authorising one D.A. Sampath, who is the
complainant herein, it did not specify that apart from Company
and Directors, others also should be prosecuted. Hence, the
word, etc cannot be understood to mean that prosecution
against others was also intended by virtue of the said
authorisation. Nothing prevents the authorisation to clearly
specify the persons, against whom complaint is directed to be
filed. However, this court was hesitant to allow the petition with
regard to the offence under Section 227 of the Act simply on the
ground that the authorization was not there, with a doubt that
the said error can be rectified subsequently by obtaining proper
authorisation to prosecute the auditors also. No support could be
drawn by either side in support of their respective contentions.
The contention of the petitioners, being that since the very basis
of the complaint is the authorisation, the prosecution gets
vitiated in the absence of any authorisation, the contention of
the respondent is that the lack of authorisation does not vitiate
the prosecution. But however, a ruling of this court could be
picked up by me, which is rendered in Satish & Co., v.
S.R.Traders and Ors. , wherein with a reasoning, which is
satisfactory to this court, it was held that the lack of
authorisation at the time of filing of the complaint cannot be
rectified subsequently. The Court posed to itself the question
whether even in cases where proper authorization letter or
power of attorney was not filed, along with the complaint,
whether the company can ratify such actions later or whether
such authorization letter can be filed later so as to regularize the
irregular proceedings. By observing that the object of law in all
such cases, that the complaint or suit shall be filed by a person
duly authorised, is that, such proceedings will definitely have
financial consequences on the company so as to bind the
company for the actions of such persons, held that even
subsequent authorisation would not regularize the irregularity
which was there at the time of filing the complaint. Here, in this
case, though such interest is not involved in the complainant
department, as is involved in case of a company, there should be
proper authority to file the complaint. When so much of exercise
goes into the decision of prosecuting a person, as has gone in
this case, a complaint cannot be filed casually against a person,
without there being any authorisation. The complainant in this
case is not acting individually and he is acting on behalf of the
department, which has authorised him only to do a certain thing.
The complainant cannot go beyond the authorisation and file the
complaint against those persons, in respect of whom he is not
authorised. Hence, though, the matter dealt with by this High
Court related to a Company, on an analogical plane, it can be
applied to this case.
The material produced by the petitioners is looked into as
it is permitted by the Apex Court in Rajiv Thapar and others vs.
Madan Lal Kapoor . Relevant paragraph reads as follows:
29. The issue being examined in the instant case is the
jurisdiction of the High Court under Section 482 of the Cr.P.C., if it
chooses to quash the initiation of the prosecution against an accused,
at the stage of issuing process, or at the stage of committal, or even
at the stage of framing of charges. These are all stages before the
commencement of the actual trial. The 1same parameters would
naturally be available for later stages as well. The power vested in
the High Court under Section 482 of the Cr.P.C., at the stages
referred to hereinabove, would have far reaching consequences,
inasmuch as, it would negate the prosecutions/complainants case
without allowing the prosecution/complainant to lead evidence. Such
a determination must always be rendered with caution, care and
circumspection. To invoke its inherent jurisdiction under Section –
482 of Cr.P.C. the High Court has to be fully satisfied, that the
material produced by the accused is such, that would lead to the
conclusion, that his/their defence is based on sound, reasonable, and
indubitable facts; the material produced is such, as would rule out
and displace the assertions contained in the charges levelled against
the accused; and the material produced is such, as would clearly
reject and overrule the veracity of the allegations contained in the
accusations levelled by the prosecution/complainant. It should be
sufficient to rule out, reject and discard the accusations levelled by
the prosecution/complainant, without the necessity of recording any
evidence. For this the material relied upon by the defence should not
have been refuted, or alternatively, cannot be justifiably refuted,
being material of sterling and impeccable quality. The material relied
upon by the accused should be such, as would persuade a reasonable
person to dismiss and condemn the actual basis of the accusations as
false. In such a situation, the judicial conscience of the High Court
would persuade it to exercise its power under Section 482 of the
Cr.P.C. to quash such criminal proceedings, for that would prevent
abuse of process of the court, and secure the ends of justice.
30. Based on the factors canvassed in the foregoing
paragraphs, we would delineate the following steps to determine the
veracity of a prayer for quashing, raised by an accused by invoking
the power vested in the High Court under Section 482 of the
Cr.P.C.:-
(i) Step one, whether the material relied upon by the accused
is sound, reasonable, and indubitable, i.e., the material is of sterling
and impeccable quality?
(ii) Step two, whether the material relied upon by the
accused, would rule out the assertions contained in the charges
levelled against the accused, i.e., the material is sufficient to reject
and overrule the factual assertions contained in the complaint, i.e.,
the material is such, as would persuade a reasonable person to
dismiss and condemn the factual basis of the accusations as false.
(iii) Step three, whether the material relied upon by the
accused, has not been refuted by the prosecution/complainant;
and/or the material is such, that it cannot be justifiably refuted by
the prosecution/complainant?
(iv) Step four, whether proceeding with the trial would result
in an abuse of process of the court, and would not serve the ends of
justice?
If the answer to all the steps is in the affirmative, judicial
conscience of the High Court should persuade it to quash such
criminal – proceedings, in exercise of power vested in it under
Section 482 of the Cr.P.C. Such exercise of power, besides doing
justice to the accused, would save precious court time, which would
otherwise be wasted in holding such a trial (as well as, proceedings
arising therefrom) specially when, it is clear that the same would not
conclude in the conviction of the accused.

15. Hence, in view of the above, continuance of further
proceedings in C.C.Nos.124 and 125 of 2013, against the
petitioners, on the file of Special Judge for Economic Offences
cum-Additional Metropolitan Sessions Judge, Hyderabad would
be a futile exercise and would only result in abuse of process of
law.

16. The Criminal Petitions are allowed and further proceedings
in C.C.Nos.124 and 125 of 2013 respectively on the file of
Special Judge for Economic Offencescum-Additional
Metropolitan Sessions Judge, Hyderabad against the petitioners,
who are A6 and A3, are hereby quashed.

As a sequel, the miscellaneous applications, if any pending,
shall stand closed.
_________
T. RAJANI, J
December 22, 2017