Rajendra Kumar Gupta and Another vs State of Tamil Nadu

M. Jeyapaul, J.—The petition is filed seeking to quash the criminal proceedings in FIR No. 696 of 2007 dated November 1, 2007, on the

file of the respondent police.

The sum and substance of the first information report lodged by the de facto complainant with the respondent herein is as follows:

The de facto complainant was one among the directors/partners enjoying equal right in respect of hotel business, viz., Picnic Hotels P. Ltd. at

Poonamallee High Road, Chennai. Because of some misunderstanding between the brothers, several civil cases are pending on the file of this High

Court as well as before the Company Law Board. Rajendra Kumar Gupta and Ashok Kumar Gupta, who are the brothers of the de facto

complainant, joined together and created false and fraudulent documents and produced the same before the public authorities and also before the

Company Law Board as if the de facto complainant had resigned from the directorship of Picnic Hotels P. Ltd. when actually he had been

enjoying equal share in the entire business. The above action of the two aforesaid brothers of the de facto complainant amounts to cheating.

On the basis of the aforesaid allegation found in the complaint lodged by the de facto complainant, a case under Sections 465, 468 and 471

read with Section 120B of the Indian Penal Code was registered as against the petitioners herein.

The petitioners would contend that M/s. Picnic Hotels P. Ltd. was run by Rajendra Kumar Gupta, Devendra Kumar Gupta, Ashok Kumar

Gupta and Sanjay Kumar Gupta, sons of late N.D. Gupta as directors and shareholders. M/s. Hotel Picnic, a partnership firm and M/s. Picnic

Plaza another partnership firm were run by N.D. Gupta and his four sons. A memorandum of understanding was entered into between the family

members on May 24, 1998, dividing the entire family members into two groups, viz., Rajendra Kumar Gupta and Ashok Kumar Gupta as the first

group (petitioners herein) and Devendra Kumar Gupta (de facto complainant) and Sanjay Kumar Gupta as the second group. The company Picnic

Hotels P. Ltd. fell to the share of the first group comprising of Rajendra Kumar Gupta and Ashok Kumar Gupta. The partnership firm, viz., Picnic

Plaza fell to the share of the second group comprising of Devendra Kumar Gupta (de facto complainant) and Sanjay Kumar Gupta. The first and

second groups have been dealing with the respective business allotted to them. The second group has converted a part of the partnership business

Hotel Picnic into a company known as Picnic Park Hotels P. Ltd. The restaurant in Picnic Park Hotels P. Ltd. is still being run in the name of the

partnership firm ""Hotel Picnic"". The first group, viz., Rajendra Kumar Gupta and Ashok Kumar Gupta, the petitioners are not partners in the

reconstituted partnership firm of Hotel Picnic nor are they directors or shareholders of Picnic Park Hotels P. Ltd. Hotel Picnic Plaza also was

reconstituted into a new partnership firm by excluding Rajendra Kumar Gupta and Ashok Kumar Gupta. Both the groups effected transfer in the

respective businesses pursuant to the memorandum of understanding entered into in the year 1998. All the parties have acted under the

memorandum of understanding and have effected the division in status in the business. Various disputes and differences had arisen between the

parties culminating in as many as 7 suits before this Court and two company petitions before the Company Law Board. In such circumstances,

there is nothing wrong in filing of returns before the Registrar of Companies showing that Devendra Kumar Gupta and Sanjay Kumar Gupta are no

longer directors or shareholders of Picnic Hotels P. Ltd. The signatures of Devendra Kumar and Sanjay Kumar Gupta were not forged for the

purpose of transferring the shares. Nothing was produced to show that documents were fabricated and forged. The petitioners have been charged

with the aforesaid offences just because they had given effect to the memorandum of understanding dated May 24, 1998, entered into between the

parties. Therefore, the petitioners have contended that the present complaint has been given just to wreak vengeance and harass the petitioners.

The de facto complainant was permitted to intervene in the petition seeking quashment. He has contended that the memorandum of

understanding dated May 24, 1998, was not yet implemented fully. In the absence of compliance with the terms of memorandum of understanding

by all the parties, the accused are not entitled to have complete control over the management of the business Picnic Hotels P. Ltd. The de facto

complainant and his other brothers have got equal right, title and interest in the said hotel business. The Registrar of Companies is contemplating

action by issuing show-cause notice to the petitioners for the submission of returns with false particulars. The de facto complainant continued to be

a lawful director of Picnic Hotels P. Ltd. He continued to enjoy 10,000 shares in the said hotel. It is a case where this Court was pleased to direct

the respondent police to investigate the complaint. Therefore, the de facto complainant has sought to dismiss the petition seeking quashment.

Learned Counsel appearing for the petitioners would submit that the de facto complainant, without producing an iota of material to show prima

facie that the signature of the de facto complainant was forged by the petitioners herein, has simply lodged a complaint to harass the petitioners.

The criminal machinery cannot be used to torment the innocent persons. The petitioners who acted in terms of the memorandum of understanding

has been implicated in this case. Even otherwise, the act of the petitioners herein in submitting returns to the Registrar of Companies would invite

only civil action and not criminal prosecution. Completely suppressing the fact that the de facto complainant has already reconstituted a partnership

firm in terms of the memorandum of understanding, has come out with a false allegation as against these petitioners as though there was a rank

forgery and fabrication of records. The present complaint has been given in the face of very many civil litigations between the parties just to

intimidate the petitioners to toe the line of the de facto complainant. Therefore, the entire criminal proceedings shall be quashed, he would contend.

Learned Government Advocate (Criminal Side) would submit that the respondent police has collected materials to show that the petitioners

herein have stealthily filed returns before the Registrar of Companies completely ignoring the right and title of the de facto complainant over the

shares of the company.

Learned Counsel appearing for the de facto complainant, who was permitted to intervene in this matter, would contend that the very fact that a

return was submitted before the Registrar of Companies as though the de facto complainant was no longer the director of the company would go

to show that the petitioners have fabricated the documents to play fraud not only upon the Registrar of Companies but also upon the de facto

complainant. Availability of civil remedy cannot at all be a reason to stall the criminal prosecution when actually an offence has been committed by

the accused.

There is no dispute to the fact that there was a memorandum of understanding entered into between the parties on May 24, 1998. Terms and

conditions 1 and 2 found incorporated in the aforesaid memorandum of understanding read as follows:

(1) The parties of the second and third parts will, hereafter, be solely entitled to manage, administer and be in-charge of the running of the boarding

and lodging house comprising of about 70 rooms at present existing in the old block under the name ''Picnic Hotels P. Ltd., apart from being

entitled to be vested with the facilities contained in the old block including marriage hall and conference hall exclusively.

(2) The parties of the second and third parts will, hereafter, be also entitled to and exclusively take over the licenced bar which is being run by the

company ''Picnic Hotels P. Ltd.'' and for effectuating the running of the said bar by the parties of the second and third parts, the parties of the first,

fourth and fifth parts would transfer all their shares and interests in the said company in favour of the parties of the second and third parts and the

said transfer of shares is subject to fulfilment of other clauses in this memorandum of understanding/agreement.

The word ""hereafter"" used in both the aforesaid conditions signifies that parties have agreed to put in practice the terms and conditions

adumbrated under the memorandum of understanding. Of course, it has been stated therein that the shares and interests in the company would be

transferred in favour of the other parties subject to the fulfilment of the other clauses found in the memorandum of understanding.

It is found that on the very same day of entering into the memorandum of understanding by the parties, a partnership deed was entered into by

the de facto complainant with others wherein the de facto complainant has shown specifically that the petitioners herein have relinquished their right

in the business earmarked between them under the memorandum of understanding. The above action of the de facto complainant would disclose

that the terms of the memorandum of understanding have been put to practice from day one by the de facto complainant himself. In the petition

seeking quashment, the petitioners have categorically stated that the partnership firm allotted to the share of the de facto complainant and the other

brother as per the memorandum of understanding was reconstituted to suit their convenience. Such a factum was not at all denied in the lengthy

averment found in the petition filed seeking intervention by the de facto complainant. Therefore, the fact remains that the de facto complainant has

chosen to reconstitute the partnership business allotted to him and other brother in accordance with the terms of the memorandum of

understanding. But, his grievance is that the terms of the memorandum of understanding were not fully implemented. The petitioners also do not say

that the memorandum of understanding was fully implemented. The action taken by the petitioners would show that the memorandum of

understanding is still under the process of implementation.

It is pertinent to refer to the averment found in the affidavit of the de facto complainant in the civil suits filed before this Court. The de facto

complainant has categorically sworn to in the common affidavit filed by him in C.S. No. 14 of 2007 on the file of this Court as follows:

I further submit that I came out of the business, i.e., Picnic Hotels P. Ltd. on and from the date of memorandum of understanding dated May 29,

1998 and the entire business was taken over by Rajan Gupta and Ashok Gupta physically as per Clause 36 of the memorandum of understanding

dated May 29, 1998.

The de facto complainant, having thus sworn to in the aforesaid affidavit to the effect that he came out of the business of Picnic Hotels P. Ltd.,

has now chosen to contend that he has got a right over the shares in the said company despite the memorandum of understanding entered into

between the parties. Further, it is found that the de facto complainant and his other brother had not attended the board meetings after the

memorandum of understanding was entered into. As per Section 283(1)(g) of the Companies Act, 1956, the office of a director shall become

vacant if he absents himself from three consecutive meetings of the board of directors or from all the meetings of the board for a continuous period

of three months, whichever is longer, without obtaining leave of absence from the board. In such circumstances, there is nothing wrong in filing the

returns to the Registrar of Companies that the de facto complainant and his other brother ceased to be the directors of the company. Even

otherwise, such an action may invite civil consequences and not criminal prosecution as rightly contended by learned Counsel appearing for the

petitioners.

The court also cannot simply ignore the fact that as many as seven suits have been filed by one party or the other after the aforesaid

memorandum of understanding was clinched by the parties. That apart, two company petitions also are pending disposal before the Company Law

Board. The main dispute, it appears, revolves around the division of business in terms of the memorandum of understanding. Such a civil nature of

dispute will have to be litigated only before the civil court. As rightly pointed out by leaned Counsel appearing for the petitioners, no one''s

signature was forged by these petitioners and no iota of material was placed to lay a foundation for such wild allegation made by the de facto

complainant as against these petitioners.

Of course, the Company Law Board has given a show-cause notice to the petitioners on the basis of a strong objection raised by the de facto

complainant as to the suppression of their right in the shares and their holding in the affairs of the company. The petitioners are going to project

their version before the Registrar of Companies who would take appropriate action. But, that cannot be a ground for prosecuting the petitioners

who have acted only in terms of the memorandum of understanding. The direction to register a case based on the allegation found in the complaint

does not provide a leverage for the de facto complainant to contend that the investigation shall not be snapped. When the allegations do not have

any basis on the own saying of the de facto complainant, the court finds that investigation of the case based on such a bald version found in the

complaint would definitely cause irretrievable damage to the reputation of the petitioners herein. The action of the petitioners in terms of the

memorandum of understanding does not amount to forgery of documents or fabrication of records or commission of offence of cheatirg.

The Supreme Court has observed in Inder Mohan Goswami and Another Vs. State of Uttaranchal and Others, , that when facts reveal that a

civil suit was already laid before the civil forum and the dispute is also one of civil in nature, prosecuting a person for offence under Sections 420

and 467 of the Indian Penal Code is liable to be quashed inasmuch as the criminal prosecution cannot be used as an instrument of harassment for

seeking private vendetta or to exert pressure on the accused with an ulterior motive.

In view of the above facts and circumstances, the court finds that the de facto complainant has lodged a complaint as against these petitioners

completely suppressing the memorandum of understanding entered into between the parties just to wreak vengeance on the petitioners abusing the

process of law.

Therefore, the entire proceedings in FIR No. 696 of 2007 dated November 1, 2007, stands quashed and the petition is allowed. The

connected miscellaneous petition is closed.