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If the offence alleged against the accused is proved, then the accused/Directors will have to be sentenced as the Company: Bombay High Court

Courts can always impose a sentence of fine and the sentence of imprisonment can be ignored as it is impossible to be carried out in respect of a company. Thus, if it is observed that the company/accused has committed offences with a dishonest intention then the Courts will impose liability and punishment. This remarkable judgment was passed by the Bombay High Court in the matter of GANESH BENZOPLAST LIMITED V MORGAN SECURITIES CREDITS PRIVATE LIMITED & ANR. [CRIMINAL WRIT PETITION NO.127 OF 2020] by Honourable Justice A. S. Gadkari.

This petition was filed under Article 227 of the Constitution of India and under Section 482 of the CrPC. The Petitioner Ganesh Benzoplast Limited is Complainant and respondent, Morgan Securities Credits Pvt. Ltd. is accused.

It is the case of the complainant that the complainant is a company incorporated under the provisions of Companies Act, 1956. That, Ganesh Benzoates Pvt. Ltd. is the sister concern company of the complainant and as a Guarantor provided the security to the accused on behalf of complainant against the Inter Corporate Deposit facility. The accused Nos.2 to 4 are the Directors of company and are responsible for day-to-day affairs.

In the month of March, 2000 accused No.1 Morgan Securities Credits Pvt. Ltd. agreed to provide an ICD facility to the complainant to the tune of Rs.50 lacs. A Letter of Pledge dated 7th March, 2000 was executed by Ganesh in favour of Morgan and Ganesh pledged 15 lakh Equity Shares and the said shares were pledged with the accused only as a security. Complainant Ganesh faced acute financial hardship and could not repay the ICD and therefore, on the due date asked Morgan to recover ICD dues by selling the pledged shares and remitting the balance sale proceeds to the complainant. The accused invoked clause No.17 of the ICD Agreement and appointed a Sole Arbitrator, claiming balance loan amount against the complainant.

The HC observed that, “the accused have committed criminal breach of trust of the complainant and have deceived it thereby committing an act of cheating. As a matter of fact, the complainant has made out a strong prima facie case against the accused for issuance of process. Taking into consideration the aforestated facts, it clearly appears to this Court that, the learned Magistrate has not committed any error while passing the impugned Order.”

It was stated, “vicarious liability is being foisted upon it, which the learned counsel wants this Court to test it at the stage of issuance of process. The same is contrary to the settled principles of law. It is well settled that, at the time of issuance of process, the Magistrate is required to conduct an inquiry for the limited purpose of finding out whether a prima facie case for issuance of process has been made out and it is limited only to the ascertainment of the truth or falsehood of the allegations made in the complaint.

The Honourable Bench asserted that, “After applying a ratio laid down by the Hon’ble Supreme Court in the case of Iridium India Telecom Ltd. (Supra), it is clear that, the accused No.1-Morgan is a necessary party for proper adjudication of the complaint. It is to be noted here that, the Letter of Pledge (Agreement) dated 7th March, 2000 is executed by the Authorized Signatory of the complaint on behalf of it, in favour of the accused No.1 company and therefore also impleadment of Morgan (A-No.1) is necessary for proper adjudication of the present complaint. The contention that, the accused No.1 is being foisted with vicarious liability, is the defence and a specious plea raised by the said accused. The accused No.1 will have to prove the said defence at the time of trial by leading cogent and plausible evidence in that behalf.”

Thence, it was asserted by the Court that the accused has committed a criminal breach of trust and deceived the complainant, and has committed the act of cheating against it. Thus, the writ petition was disposed of.

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