RADHEY SHYAM KHEMKA AND ANR. ETC. versus STATE OF BIHAR AND ANR. ETC.

Citation: [1993] 2 S.C.R. 699 · Decided: 26-03-1993 · Supreme Court of India · Bench: A.S. ANAND · Disposal: Dismissed

Judgment (excerpt)

RADHEY SHYAM KHEMKA AND ANR. ETC. 
A 
v. 
STATE OF BIHAR AND ANR. ETC. 
MARCH 26, 1993 
(DR. A.S. ANAND AND N.P. SINGH, JJ.) 
B 
Code of Criminal Procedure, 1973: 
Section 48i-Quashing of crimintil proceedings against officers of com-
panrfligh Court not to usu!p the jurisdiction of Trial COUit-Not to hold a C 
parallel trial-Remedy available under the provisions of the Companies 
Act-No bar to initiate criminal proceeding,,, 
The appellant, a Public Limited Company issued prospectus inviting 
public subscriptions or equity shares and prererence shares. The prospec- D 
. tus stated that application W..s being made to the Stock Exchange ror 
enlisting the shares or the Company for official quotation. Though the 
application was rejected by the Stock Exchange, the share money collected 
from different investors was held by the appellants and the share holders 
were neither informed or the rejection by the Stock Exchange nor paid back 
the share money. Further, the money was transferred to another account E 
of the Company. The Secretary, Industrial Development and Company 
Affairs lodged a complaint with the CBI against the Company. 
CBI started investigations and submitted a charge-sheet against the 
appellant along with some others for trial for the offence under s.409 !PC. F 
The Special Judicial Magistrate, CBI cases, rejected the prayers made 
before it discharge the appellanis. The validity or the said .order was 
challenged by the appellants by filing an application under S.482 Cr. P.C. 
and the High Court rejected the same. Hence these appeals. It was con• 
tended that the provisions of the Companies Act took care or the investors 
by putting restrictions on the misbehaviour or the promoters and the G 
Directors of the Company for any lapse on their part in such matters jiDd 
they could not be summoned to stand trial for offences under the Penal 
Code. 
Dismissing the appeals, this Court, 
699 
H 
700 
SUPREME COURT REPORTS 
[1993] 2 S.C.R. 
A 
HELD: 1.1. The modern share-holder in many companies has simply 
B 
become supplier or capital. The savings and ~arnings of individuals are 
being utilised by persons behind such corporate bodies, but there is no direct 
contact between them. The promoters or such companies are not even known 
to many investors in shares or such companies. In some cases later it 
transpires to the investors that the promoters had the sole object to form a 
bogus company and foist it off on the public to the latter's detriment and for 
their own wrongful gain. In this process, the public becomes victim orthe evil 
design or the promoters who enrich themselves by dishonest means without 
there being any real intention to do any business. (703 D-G] 
C 
1.2. From time lo time amendments have been introduced in the 
Companies Act lo safeguard the interest or the share-holders and to 
provide regulatory and penal provisions for misuse or the power by those 
who are in charge or the management or such companies. The persons 
managing the affairs ~f such company cannot use the juristic entity and 
D corporate personality of the company as a shield lo evade themselves from 
prosecution for offences under the Penal Code, ir it is established that the · 
primary object of the incorporation and existence or the company is lo 
defraud public. (703 G-H; 704 A-BJ 
2.1. While taking cognizance of alleged offences in connection with 
E the registraiion, issuance or prospectus, collection of moneys from the 
investors and the misappropriation of the fund collected from the share- . 
holders which constitute one or the other offence ·Under the Penal ·code, 
court must be satisfied that prima facie an offence under the Penal Code 
has been disclosed on the materials produced before the court. (704 CJ 
F 
2.2. In the present case, the prosecution has to prove that the 
G 
appellants as promoters or directors h&d dishonest intention since the 
very beginning while collecting the moneys from the applicants for the 
shares and debentures or that having collected such moneys they 
dishonestly misappropriated the same. (704 G) 
2.3. The prosecution pending against the appellants cannot_ be 
quashed only on the ground that it was open to the applicants for shares 
to take recourse to the provisions of the Companies Act. (705 D) 
3. The power under section 482 Cr. P.C. has been vested in the High 
H Court to quash a prosecution which amounts to abuse or the process or 
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RADHEYSHYAM v

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