Reswin Abdul Rasheed vs Central Bureau Of Investigation Anti Corruption Bureau (Acb), Kaloor P.O

R.Narayana Pisharadi, J

The petitioners are the fourth and the fifth accused in the case registered as Crime No.RC.3(A)/2019/CBI/ACB/Cochin by the Central Bureau of Investigation (CBI) under Section 13(1)(d) read with Section 13(2) of the Prevention of Corruption Act, 1988 (for short 'the Act') and also under Sections 405 read with 406, 420 and 120B of the Indian Penal Code.

There are altogether six accused in the case. The sixth accused in the case is a company by name M/s.Heera Constructions (Private) Limited (hereinafter referred to as 'the company'). The first accused is the Managing Director and the other accused are the Directors of the sixth accused company.

The case was registered on the basis of a complaint made to the CBI by the Regional Manager, State Bank of India, Regional Business Office-I, Thiruvananthapuram. The sum and substance of the allegations in that complaint was that the company availed a project loan of Rs.15 Crores from the Bank by mortgaging the property but the accused made default in repayment of the loan and that they sold the mortgaged property without the consent of the Bank and that they did not deposit the sale proceeds in the loan account and thereby they cheated the Bank.

After conducting the investigation of the case, the CBI filed final report dated 29.06.2020 in the Special Court stating that no evidence could be gathered during the investigation showing the involvement of public servants in the conspiracy to cheat the Bank and that evidence of committing any offence under the Act was not forthcoming.

The Special Court did not accept the above final report. As per Annexure-7 order dated 30.06.2020, the Special Court returned the final report to the investigating officer with a direction to conduct further investigation with regard to the involvement of the employees of the Bank in the conspiracy to defraud the Bank.

Pursuant to Annexure-7 order, the CBI conducted further investigation. Thereafter, the CBI filed three reports dated 05.07.2021 in the Special Court.

In Annexure-11 report dated 05.07.2021, the prayer made by the CBI was to delete the offence under Section 13(1)(d) read with Section 13(2) of the Act from the case. This report was made on the conclusion made by the investigating officer that there was only dereliction of duty and negligence on the part of the bank employees in issuing no objection certificate for sale of the property which was mortgaged to the Bank by the company.

The prayer made in Annexure-12 report dated 05.07.2021 by the investigating officer was to transfer the case to the Court of the Chief Judicial Magistrate, Thiruvananthapuram. This prayer was made on the ground that trial of no offence under the Act had to be conducted before the Special Court.

The prayer in Annexure-13 report dated 05.07.2021 was to delete the names of the petitioners, the fourth and the fifth accused in the case, from the array of accused. This prayer was made on the ground that no evidence could be gathered during the investigation that these accused had played any role in cheating the Bank or in the conspiracy to cheat the Bank.

The Special Court passed a common order (Annexure-14) dated 10.08.2021 on the above three reports, which were numbered as Crl.M.P.Nos.66 of 2021 to 68 of 2021. As per Annexure-14 order, the Special Court did not accept Annexures-11 to 13 reports filed by the investigating officer. The Special Court again directed the CBI to conduct further investigation in the matter.

The petitioners, the fourth and the fifth accused in the case, have filed this application under Section 482 of the Code of Criminal Procedure, 1973 for quashing Annexure-14 order passed against them by the Special Court.

Heard learned senior counsel who appeared for the petitioners and also the learned Central Government Standing Counsel who appeared for the CBI.

In this petition, this Court is not concerned with the direction given by the Special Court, as per Annexure-14 order, to conduct further investigation against the officers of the Bank or into the offences under the Act, if any, committed by them. The question for consideration before this Court in this petition is the legality of Annexure-14 order, only as far as it relates to the petitioners.

As regards the prayer for deleting the names of the petitioners from the array of accused, in Annexure-13 report, the investigating officer has stated as follows:

"That, investigation revealed that Smt.Surumi Abdul Rasheed and Shri.Reswin Abdul Rasheed were inducted on 05.05.2009 and 02.07.2013 as Directors of M/s.Heera Construction Company Private Limited respectively. However, the evidences collected during investigation do not reveal their active participation in the decisions related to the availing of Heera Lake Front Project Loan, 67257646567 from State Bank of Travancore, Kowdiar Branch. There is no sufficient evidence to prove their role in the conspiracy to cheat State Bank of Travancore by the illegal acts of diversion of funds and illegal liquidation of primary and collateral securities."

With regard to the prayer made by the investigating officer in Annexure-13 report to delete the names of the petitioners from the array of accused, the Special Court has stated in the impugned order as follows:

"7. The reason stated by the Investigating Officer for the deletion of A5 and A6 from the array of the accused is that there is no evidence to show their involvement in the decisions of availing of loan from State Bank of Travancore, Kowdiar for the Heera Lake Front Project.

Smt.Surumi Abdul Rasheed was inducted on 05/05/2009 as Director of M/s.Heera Construction Company Pvt.Ltd. and Reswin Abdul Rasheed was inducted on 02/07/2013 as Director of M/s.Heera Construction Company Pvt.Ltd. The loan transactions were only after their induction in the company as Directors and it is legally axiomatic that the directors are liable for any offence committed by the company. An individual who has perpetrated an offence on behalf of the company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent.

Conversely, an individual sitting on the Board of Directors of a company and playing a role in the running of the company becomes liable for the misdeeds perpetrated by the company. They may be held criminally liable for any of the act committed by the company where he has aided, abetted or procured the commission of such Act.

The extent of the liability of a Director would depend on the nature of his directorship. Nothing is forthcoming to show that A5 and A6 abstained from the Director Board Meeting or that they opposed the resolution of the board to take a loan from State Bank of Travancore, Kowdiar Branch or that they rejected the proposal of the project or that they took a stand in the Director Board against the project. So, these are all matters that can be unearthed only through meticulous investigation.

The finding of the Investigating Officer that there is no sufficient evidence against A5 and A6 to prove their role in the conspiracy to cheat the State Bank of Travancore by illegal acts of diversion of funds and illegal liquidation of property, primary and the collateral securities goes against the grain of her own report and are unsustainable and unacceptable."

The learned senior counsel for the petitioners has challenged Annexure-14 order, as far as it relates to the petitioners, on two grounds. (1) The impugned order does not disclose that the Special Court, before passing that order, had perused the documents and the other materials produced by the investigating officer along with the final report. (2) The observations made by the Special Court with regard to the criminal liability of the petitioners as Directors of the sixth accused company for the acts allegedly committed by the company are against the settled principles of law.

There is considerable force in the contention of the learned senior counsel for the petitioners that the Special Court has passed Annexure-14 order without perusing the documents and the statements of witnesses produced by the investigating officer along with the final report. It is not discernible from the impugned order passed by the Special Court that, before passing that order, the Special Court had considered or examined the documents and the statements of witnesses and other materials produced by the investigating officer along with the final report.

In C.B.I v. Raj Kumar Jain (AIR 1998 SC 2985), the Apex Court considered the legality of an order passed by a Special Judge before whom C.B.I filed final report in respect of a public servant who was alleged to have committed offences under the Prevention of Corruption Act. The C.B.I in the final report stated that the allegations made against the accused were not substantiated. But the Special Judge declined to accept the said report and directed the C.B.I to conduct further investigation. When the matter ultimately reached the Apex Court, it was observed thus:

"As regards the direction for further investigation, it is, of course, true that the Special Judge has power to so direct if he finds, on consideration of the police report, that the opinion formed by the Investigating Officer seeking discharge of the respondent is not based on full and complete investigation, as observed by this Court in Abhinandan Jha v. Dinesh Mishra, AIR 1968 SC 117. Unfortunately, however, in issuing the above direction the Special Judge has not given any reason whatsoever which prompted him to direct further investigation nor does it appear that he has gone through the police report and its accompaniments. After recording the above finding the usual order which we are required to make is to remand the matter to the Special Judge with a direction to look into the report under Section 173(2) Cr.P.C and the documents referred to therein to decide whether further investigation should be ordered or not. But considering the facts, that since the case was registered more than 10 years have elapsed and that such a direction would further delay the matter we have for ourselves looked into these documents and found that a thorough investigation has been made and the opinion expressed by the CBI that no prima facie case was made out against the respondent is just and proper".

(emphasis supplied)

In Sampat Singh v. State of Haryana : (1993) 1 SCC 561), the Apex Court has held as follows:

"When an investigation culminates into a final report as contemplated under Section 173 of Cr.P.C., then the competent court enjoins a duty within its authority sanctioned by law to scrupulously scrutinize the final report and the accompaniments by applying its judicial mind and take a decision either to accept or reject the final report before he takes a decision to disagree with the opinion of the investigating officer."

(emphasis supplied)

In Biju K.Stephen v. State of Kerala : (2021) 2 KHC 638, this Court followed the above decisions of the Supreme Court and it was held as follows:

"The decisions referred to above would show that, when a closure report or refer report is filed, before the Magistrate takes a decision declining to accept the said report and ordering further investigation, he shall consider the documents and other materials collected during the investigation of the case. Usually, the statements of witnesses and the documents are not filed by the investigating officer along with a refer report. Then, the Magistrate shall direct the investigating officer to produce such materials.

(emphasis supplied)

In the instant case, the impugned order does not show that the learned Special Judge had perused and considered the statements of witnesses recorded and the documents collected during the investigation before ordering further investigation against the petitioners.

With regard to the vicarious liability of the Directors of a company for offences committed by the company, the Special Court has made some general observations. When the Special Court intended to make such observations as the reasons for disagreeing with the report of the investigating officer and for ordering further investigation against the petitioners, it was incumbent upon it to examine the law on the subject but it has not cared to do so.

The principles with regard to criminal liability of the Directors of a company for acts committed by the company have been discussed and laid down by the Supreme Court in the decisions in Radhey Shyam Khemka v. State of Bihar : (1993) 3 SCC 54, Maksud Saiyed v. State of Gujarat : (2008) 5 SCC 668, S. K. Alagh v. State of U.P : AIR 2008 SC 1731, Keki Hormusji Gharda v. Mehervan Rustom Irani : AIR 2009 SC 2594, Sunil Bharti Mittal v. Central Bureau of Investigation : AIR 2015 SC 923 and Shiv Kumar Jatia v. State : AIR 2019 SC 4463.

In  Sunil Bharti Mittal (supra), it has been pointed out, that the principle of "alter ego" would apply where a group of persons that guide the business had criminal intent, that is to be imputed to the body corporate, and not the vice versa. Otherwise, there has to be a specific act attributed to the Director or any other person allegedly in control and management of the company, to the effect that such a person was responsible for the acts committed by or on behalf of the company. It was held thus:

"Here, company is the accused person and the learned Special Magistrate has observed in the impugned order that since the appellants represent the directing mind and will of each company, their state of mind is the state of mind of the company and, therefore, on this premise, acts of the company is attributed and imputed to the appellants. It is difficult to accept it as the correct principle of law. As demonstrated hereinafter, this proposition would run contrary to the principle of vicarious liability detailing the circumstances under which a direction of a company can be held liable".

The discussion above leads to the conclusion that the question of conducting further investigation against the petitioners has to be reconsidered by the Special Court.

Consequently, the petition is allowed in part. Annexure-14 order passed by the Special Court, only as far as it relates to the petitioners, is set aside. The Special Court shall reconsider the question of conducting further investigation against the petitioners in the light of the principles stated in the decisions referred to in this order.

It is made clear that the investigating officer is at liberty to continue the further investigation in the case, except as against the petitioners, pursuant to Annexure-14 order passed by the Special Court. The Registry shall forthwith return the case diary produced by the CBI.