Morgan Securities & Credits Pvt. Ltd. v. State of Delhi & Anr.

(MLL) from petitioner M/s. Morgan Securities and Credits Pvt. Ltd (MSCPL). The complainant company pledged 2,70,000 equity shares ofM/s. Blue Coast Hotels & Resorts Ltd (BCHRL) for securing the said ICD. The borrower M/s. MLL repaid the principal amount and have some dispute overpayment ofinterest and negotiations were going on hetM>een the parties for reconciliation of the interest. During thatperiod, they were shocked to learn that the lender M/s. MSCPL has disposed offthe pledged shares by transferring them to their sister concerns/concerns oj their relatives without their knowledge or.consent. These transfers were done with malafide intention and in collusion with co-accused knowing that such transfers were fraudulently done on apricefar below the actualprice value ^ Page 6of28 ofthe shares in question. No credit was given to borrower for such transfers/sales. These transactions were sham and were made on the basis offalse documents in conspiracy with relative/associate companies ofthe petitioner in or er to cause wrongful gain to them and wrongful loss to the complainant. That on the basis ofthe complaint, above case was registered on 07.09.05 at PS Connaught Place and investigation was taken up by localpolice. That subsequently, the investigation of the case was transferred to Economic Offences Wing vide order NO.53095-105/C&T (AC-lII) dt. 21.10.05 by the PHQ. That the investigation revealed that M/s. MLL obtained an ICD of r 5crores and f 2 crores from the lender M/s. MSCPL in accordance with agreement dt. 19.09.02 and 30.10.02, without securityfor aperiod of120 days. The witnesses belonging to borrower and guarantor companies stated that due to unforeseeable circumstances, the MLL could not repay the ICDs. They were requested by Sh. Suresh Chand Goyal etc. ofthe MSCPLfor pledging as security the 15 lac equity shares ofM/s. Blue Cost Hotel & Resorts Ltd (BCHRL) one of the group company of the borrower. The complainant stated that they were also assured that the said security is requiredfor the purpose of corporate documentations and that the same would not he sold without prior intimation &consent. Therefore, they agreed to pledge the 15 lac shares as security through six associate companies namely Niketan Traders P. Ltd., Petunia Financial P. Ltd., Beckers Traders P. Ltd, Cross Traders P. Ltd., Ebony Traders P. Ltd. &Tendril Financial Sei'yices P. Ltd., holding these shares. Pledge agreements dt. 0/.02.02 were also signed bypledgers &handed over to the MSCPL. Accordingly, schedule ofrepayment was extended. '~Crl.M.C.4603/2005' Mr Snshil Suri, CMD M/s. MIL. the borrower company stood as guarantor The complainant company Petunia pledged 2,17,000 equityshares ofBCHKL out ofthe IS lac shares., That the borrower MLL defaulted and did not make payments as per the schedule. Both the parties negotiated and a Memorandum ofSettlement (MOS) was executed on 27.05.03 in which new schedule ofpayment was agreed upon At that time, late Sh. Arun Suri. CMD. BCHU also became personal guarantor and M/s. BCHRL stood as suretyfor the purpose ofsecuring the due payment On the basis of the MOS, the consent award was passed by the Hon'ble Arbitrator vide order dt. 28.06.03. Thatpursuant to the MOS dt. 27.05.03 and award dt. 28.06.03, the MLL made full andfinal payments towards ICD of f 2crores by 13.03.2004. The payment include an amount ofr[8],94,220/- realizedfrom sale of19,701 pledged shares ofBCHRL. Aletter was sent to MSCPL to this effect, which was duly received by it. However, the MLL could not make payment towards ICD off 5a oi es. That the lender and the borrower resorted to litigation in the courts. Of the various litigations, in Jan. 2004 the petitioner M/s. MSCPL filed two Execution Petitions in the Hon'ble High Courtprayingfor execution of the award On 08.0L04 and 26.03.04, the Hon'ble Court issued attachment warrantsfor recovery of f 6,24.44.250/against the borrower and the guarantors i.e. M/s MLL and M/s. BCHRL. In pursuance ofthe said attachment warrants, few bank accounts of M/s. MLL and M/s. BCIIRI. were attached. That the CMD ofBCHRL late Sh. Arun Suni, Sh. I S Deo, Vice President, BCHRL and Sh. PK Singh, Company Secretarv, MLL stated that on 24.02.04, they approachedSh. Pa^e 8 of28 Snresh Chand Goyal. CMD.

MSCPL and held ameeting to son out the dispute because issuing ofattachment warrants were threat to their business. In the said meetmg, S. Goyal told them that there is no need to rake up the dispute,n the court. He statedthat though Ilac shares approx. have been sold in the open market but assured that remaining shares have been kept/parked in his associate companies under his control. Hefurther assuredthat the same would be returned once the ICD is repaid He also agreed to charge interest @17% p.a. instead ofthe 30% per annum as was done in the ICD of ^2 crores. That on 17.03.04, the MSCPL also filed an urgent application in the Execution Petition No.13/04 prayingfor restraining the BCHRl. from increasing or changing its status of equity shares of the company as it may cause decrease in value of the security held by them. This confirmed the statement of Sh. SC Goyal, CMD, MSCPL made on 24.02.04 to borrower/surety that about 1lac shares have been soldand remaining are parked/transferred by him in his associate companies, which would be returned on repayment ofthe ICD. However, both theparties negotiated and settled the matter amicably. On 05.04.04, the BCITRL filed an undertaking not to increase or change the status of its eauity shares, the MIL withdrew its application asking for details ofsale ofpledged.shares and assured to make repayments of the ICD. In view of the same, the Hon'ble High Courtwithdrew the attachmentwarrants issuedearlier and disposed offthe matter vide order dt. 05.04.04. That accordingly, the borrower M/s. MLL paid the^ principal amount ofr5croresfrom Apr. 2004 to Apr 200d through pay orders drawn at their banks. They have also paid part interest component. The dispute remains on the rate of interest to be paid After paying the complete ' ' Pc/ee 9 of28 Crl.M.C.4603/2005 ^ ' o) nrimipal amount the MIL asked the lender MSCPL to reconcile the rest payment ofinterest and ^-f"' return oftheirpledged shares vide letter dt. 29.06 05. The MSCPL through its letter dt. 02.07.05 asked the MLL topay the remaining debt of Rs. 1.17,59.339/- but did not state about sale ofshares The dispute again arose between both theparties. Both the partiesfiledpetitions in the High Court at Delhi. That thereafter, the witnesses stated that Sh. Arm Suri was informed by Sh. SC Goyal saying that the entities/companies with whom remaining shares were parked, are willing to return the same only at the then current market price. This proposition if accepted would have resulted into unreasonable and unjust loss to t e borrower and gain to the lender and its associates who are Mr Goyal and his relatives/friends because they have acquired these pledged shares at an abnormally beaten downprice of^8/9pershare and the same were quotedat f 100per share approx. at that time. The value ofthese shares became ^15 crores approx. at the thenprevailingprices. That it has been alleged by the borrower, surety and pledgers against the lenders that they have not sold the pledged shares as claimed by them but have been transferred clandestinely into their associate companies or in the companies oftheir relatives at an abnormally beaten down price ofr8/10per share with aill-motive to resell at higher prices to the borrower and to earn illegally in multiple manners. That the complainant, borrower and surety have alleged that dvring litigation before the courts, the lender neither informed them nor the courts at any point of time that they had invoked the pledge and had sold the pledged shares. Further the amount realised towards the saie ^l.M.C.4603/2005 Page!Oof28 'yi proceeds ofthe shares was not adjusted towards repayment of the ICD of f 5crores. They purposely concealed the material informant throughout with malafide intention to misappropriate the shares entrustedas collateralsecurity. That the borrower MIL and the surety BCHRL have stated that the prices of their 15 lac pledged 'hares of BCHRL were lowered down with manipulation by Sh. hL Goyal in connivance and conspiracy with his associates. This reflectedfrom the working ofthe price mechanism m share marketforces. The BCHRL owned Park Hyatt Resort and Spa, Goa which was commercially launched on 01.10.03. The hotel has the potentials to grow and earn income. The quarterly financial results for the quarter ending 31 12.03 &31.03.04 reflected increased earning from the operations ofthe hotel. The assets ofthe company also increased Accordingly, as per the market forces, the share prices were bound to increase in the stock exchange during thisperiod But, contraiy to thefact, the shareprices have come down heavily as shown by the lenders and their associates. Again during the lean period in the hotel industiy, the prices are normally decreased slightly but in the instant transactions, these have been shown risen. After the sale ofpledgedshares completed, theprices continuedto increase thereafter because the hotel is doing well. These facts established that the prices of the shares were manipulated by accused persons while transferring the pledgedshares between 16.12.03 to 25.03.04. That the MSCPL through Sh. PK Gupta filed an application dated 23.08.05 in EP No.13/04 in the Hon'ble High court, Delhi attaching therewith a copy of the sale statement and ledger accounts showing details of sale of shares. The complainant, borrower and surety stated that prior to this date, they, were never informed about sale of of28 shares nor prov.ded details of the sale ofshares, amomt realizedfrom the sale and adjusted towards repayment of the ICD of f 5crores. They repaid complete principal amount of f 5 crores w.e/ Apr. 2004 without gethng adjusted sale proceeds of the pledged shares from the principal amount because they were not informedatom the sale. " On the investigation aspect, the status report is as follows: "That during investigations, it has been revealed that the pledged 15 lac shares (except 9) have been sold by MSCFL bet^veen 16.12.03 to 25.C[3].04. Majority of the shares have been sold through specific and limited number ofbrokers at the BSE. Majority ofthe shares 10,89,400 (73%) were so through M/s. Anand Rathi Securities P. Ltd of which 9,70,0.00 (65%) werepurchased through this very broker on 24.02.04 and 06.03.04 by the Northern Projects Ltd In which co-accused Parkash Aggarwal who is son in law of Sh. SC Goyal andMrs. Meera Goyal is the Director, who is also Director in the seller company i.e. MSCPL, as well as in its holding company M/s. Goyal MG Gases P. Ltd And other group company Morgan Venture Ltd It has been fwther been revealed that Northern Projects Ltd have opened demat account with Anand Rathi Securities P. Ltd for the purpose ofthese transactions only. The seller M/s., MSCPL and its group companies Morgan Venture Ltd. and Pai-veen Electronics Ltd have also regular demat accounts with this broker." The status report concludes as under:- "That thus, out ofthe 15 lac shares 13,89,400 approx (93%; shares have been bought by three companies namely CrI.AlC.4603/2005 •r

5. Northern Projects Ltd.. 65%, Parveen Electronics P Ltd. 20% and Namedi Leasing &Finance Ltd 8%. About 715 shares initially were purchased by Morgan Venture Lt. which is direct under the control ofseller MSCPL Later on. this company acquired about 45.345 (3%) shares as on 30.06.04.". At the hearing, learned senior counsel for the parties assisted by learned counsel for tlie parties were heard and with their able assistance the material on record was perused. The written synopsis and the decisions in Renu Kumari v.Sanjay Kumar &Ors. 2008 [2] JCC J032; Iqbal Singh Marwah & Anr V. Meenakshi Marwah &Anr. 2005 II AD (Cr.) SC. 12; decision ofthis Court in CS (OS) No.2281/2006 rendered on II'" December, 2006; JCailash ChandSharma. v. State &Ors. 2005 [2] JCC 602;.I.R.D. Tata. Chairman, Tata Iron &Steel Company Ltd. And etc. V. Mrs. Payed Kumar and another 1987 CrI.L.J. 447; M/s. A.E.C. Enterprises Ltd. &Anr. V. Ms. Peacock Chemicals Pvt. Ltd &Others 75 (1998) DLT 484; Acharya Arun Dev v. State &Anr. 2005 [2] JC 897,

5. R Sharma, v. National Capital Territory ofDelhi &Ors. 1999 [1] JCC [Delhi] 59; Iqbal Singh Marwah &Anr. V. Meenakshi Marwah &Anr. 2005 n AD (Cr.) SC; KG. Premshankar v. Inspector of Police ana Another 2002 Crl. L.J. 4343; Subhakarn Luharuka &Anr. V. State (Govt OfNCTofDelhi)&Anr. 170 (2010) DLT 516, havebeen also perused.

6. On behalfofpetitioners, it was contended that this is aclassic case where the borrower after having received the monies is unable to repay the debts and resorts to criminal action to avoid it's habihties under the contract which it had signed without any pressure or coercion. It was Crl.M.C.4m/2005 asserted that the admitted position between the parties is that the Borrower had talcen an Inter Corporate Deposit of? 5crores returnable within 120 days and had defaulted in the repayment leading to additional securities beingprovidedto the lenderthroughthe associate companiesof the BoiTowers in the form of pledge of demated shares by the complainants. Petitioners assert that the consent award was passed and a schedule ofthepaymentwas arrived at andthe borrower also defaulted m the same and itwas only after such defaultthatthe petitioner invoked the pledge and soldthe shares. As perpetitioners, their action was strictly in consonance with the covenants ofthe different ICD Agreements and the Letter ofPledge and the Consent Award passed by the learned Arbitrator and hence cannot be subject matter of acriminal action. It was next submitted that contents ofdifferent impugned FIRs only allege violation of different agreements which cannot ipso facto lead to criminal prosecutionofDirectors ofthe Company againstwhom no specificrole is attributed in the FIR.

7. The basic stand of petitioners is that even if the FIRs in question and the documents relied upon by the complainant/first informant are taken on their face value, still no criminal offence is made out. Pertinently, the precise stand oflearned senior counsel for the contesting respondents-complalnant/firstinformantofFIRs inqiestion isthatselling ofpledged shares does not give rise to criminal offences in question, but it is the selling of[3],10,000 pledged shai'es ofM/s. Niketan Traders Pvt. ' Ltd and 2,70,000 pledged shares of MA. Petunia Financial Services P. Ltd. without mandatory Notice under Section 176 of the Contract Act, 1876 and that to subsidiary companies owned by petitioner-^ Morgan Crl.M.a4603/2005 Page 14of28 2013:DHC:6771,\^o SecuritiesandCreditsPvt. Lid. atmuch lesserpricethan themarketvalue and by not giving credit lor it, mal«s petitioners liable to face the proceedings arising out ofthe FIRs in question.

8. Respondent-complainant also claims that aforesaid Inter Corporate Deposit of? 5crores was returned to petitioner- MA. Morgan Securities and Credits Pvt. Ltd. during the period from April, 2004 upto April, 2005 and very nominal dispute regarding payment of interest is pending. On behalfofrespondent-complainant, it was asserted that fraudulent transfer of shares by petitioners-accused clearly attracts the ingredients of offences ofcriminal breach oftrust, misappropriation, forgery, etc.

9. On the contrary, it was asserted with much vehemence by learned counsel for petitioners that breach of contract is by respondentcomplainani which gives rise to apurely civil dispute and does not entail any criminality. During the course ofhearing, attention oftliis Court was drawn by petitioners' counsel to Clause 4(ill), Clause 7(ii) and Clause 9

(vii) ofPledgeAgreements in question and to the Award alreaay given Dy the Arbitrator, to assertas under: - "a. That in event ofdefault the Lender (petitioner) had unfettered rights to deal with the shares in any manner whatsoever including realizing itself b. That the Award clearlyprovided that in event of default in payments the Lender could take unilateral steps and all the steps for sale of shares were taken by the petitioner in terms ofthe Award and the Letter of Pledge and hence no criminal liability can he foisted on the petitioner. c. That the complairit/F.LR. clearly relates to interpretation and application of the covenants of the CrlM~Jmm05 X Letter ofPledge and the Award which clearly would have a Civil Flavour."

10. Infact, it is the case of tesponieats-comphimnt that they were misled into believing that the pledged shares were not sold and only in the year2005, they cameto toow aboutthe sellingoftire pledgedshares. Thus the stand ofrespondents-compfa/m«/ is that they had no notice of the sale of pledged shares by petitioner-M.. Morgan Securities and Credits Pvt. Ltd To the contrary is the assertion of petitioners, who maintain that the pledged shares in question were sold in open market at stock exchange bet^vecn December, 2003 and March, 2004 after giving due noticeto Kspondents-complainantvideNotice of9'" December, 2003 by registered Post and atthe hearing, attentionofthis Court was drawnto the copies ofaforesaid Notice and the postal receipts.

11. Attention ofthis Court was also drawn to copies of letters sent to petitioner-MA. Morgan Securities ami Credits Pvt. Ltd by respondentsconplainant on 7"' February, 2004, 25'" February, 2004. 4'" March, 2004 and 14'" June, 2004 to point out that respondent/complalnant-M's. Morepen Laboratories Ltd was well aware ofthe sale ofpledged shares as M/s. Morepen Laboratories Ltd had failed to adhere to Memorandum ofSettlement ofll" May, 2003. Thus, according to learned counsel for petitioners, no criminal offence is made out and the liability, ifany, is of purely civil nature.

12. To repel the contention of learned counsel for respondents complainant ofsale ofpledged shares being asham transaction, attention of this Court was drawn to the Securities Appellate Tribunal's judgment • •••III !•! CrlM.C.4603/2005 ^ of29" August, 2011 in Appeal No.55/2011 relating to PledgeAgreement, Consent Awai'd, etc. to assert that the transaction in question has been •found to be valid as the creditfor the sale ofpledged shares was given by petitioner-Ms. Morgan Securities and Credits Pvt. Ltd. to respondent- M/s. Morepen Laboratories Ltd before the initiation of these cruninal proceedings.

13. To assert that the factum of sale of pledged shares was in the knowledge ofrespondent/complainant-M'i.MorepeH Laboratories Ltd in the year 2004 itself, attention of this Court was drawn to Execution AppUcation No.l29 of2004 wherein it is clearly stated that the pledged shares in question have been sold. Attention ofthis Courtwas also drawn to acopy ofInformation (Annexure-I in Crl.M.C. 4603/05) downloaded from the official website ofNational Stock Exchange to point out that the sale of pledged shares in question took place in December, 2003 and January, 2004 upon invocation of the pledged shares, whose details are given in the above-said Annexure-1.

14. At the hearing, it was contended on behalf of respondentscomplainant that though the offence in question was committed post December, 2003, but petitioners are trying to give it acolour of civil matter and are burdening the court with irrelevant material and these petitions are premature as the question of petitioner-M^. Morgan Securities and Credits Pvt. Ltd sellmg pledged shares without Notice clearly attracts the offence of misappropriation ofthe shares,in question. Not only this, it was asserted on behalf of vespondents-complainant that petitionei-MA. Morgan Securities and Credits Pvt. Ltd mcollusion with •remaining accused had collusively sold the pledged shares at aprice much below the fair marketvalue ofthese shares and since the selling of pledged shares in questionwithoutnotice is per se bad in law m view of the dictum in J.R.D. Tata, (supra) and MA.

15. To contend that when cognizable offence is prima facie made out then FIReamiot be quashed onthe ground thatthematter appears to be of civil nature, reliance is placed upon decisions in S-P.Sharma (supra). Kailash Chand (supra) and Acha.-ya Arun Dev (supra). Reliance was also placed upon decision inRem Kumari (supra) on behalfofrespondents to contend that inherent jurisdiction under Section 482 of Cr.P.C. is to be exercisedupon souna principles and notto stifle alegitimateprosecution.

16. To further contend that civil and criminal proceedings can go on simultaneously^ reliance is placed by respondents' counsel upon decision in Igbal Singh (supra) and on the order in Crl. Rev. P. 808/2006 by this Court made on 17'" July, 2013 in TapanLahiri v. State &Ors.

17. Lastly, it was submitted on behalf of respondents that lactum of sale of pledged shares was not known to respondents and was.result of creation of bogus documents by petitioner-Mi. Morgan Securities and Credits Pvt. Ltd., who entered into sham transactions, whose details can be unearthed only after thorough police investigation. Thus, rejection of these petitions is sought on the ground that they are premature

18. Whereas according to petitioners' counsel, respondent/ complainant-Afe MorepenLaboratories.Ltd had defaultea inpaymentof settled amount in relation to Inter-Corporate Deposit (ICD) in question and in the execution of the Consent Award, to avoid attachment of Crt.M.C4603/200s' "" ''' f various banlc accounts and other properties, etc. of respondent/cornplainant-m Morepen LaboratoriesLtd., ithad launched these criminal proceedings in an attempt to pressurize petitioners.

19. Attention of this Court was also drawn to Section 10 of Depositories Act, 1996 which governs the rights ofdepositories and the Beneficial Owner. The manner of invocation of the pledge is also specified under the SeeuritiesandExchange BoardofIndia (Depositories and Partieipants) Regulations. 1996. During the course of hearing, attention of this Court was drawn to Regulation 58 of aforesaid Regulations to point out that aPledgee is entitledto invoke the pledge in accordance with the pledged document i.e. Shares in question and thereafter, the Pledge would be recorded as the Beneficial Owner. Thus, in the face of letters of 9'" December, 2003 and T' February, 2004 by M/s Morepen Laboratories Ltd, how the sale of pledged shares by petitioner- MA. Morgan Securities and Credits Pvt. Ltd. can attract the offences in question, is the moot pointwhich needs to be addressed and it will clinch the whole issue.

20. Petitioner-Morgan Securities &Credits P. Ltd's letter of 9 December, 2003 sent by registered post to all concerned and respondent- M/sMorepenLaboratoriesLtd.'s letterof/• February, 2004 (AnnexureF Colly) are reproduced for ready reference as under:- December 09, 2003 M/s Tandril FinancialPvt. Ltd. B-202, PlotNo.52 Siikhnagar Apartment I.P.Extension Delhi-110092 -• •r " ^ 79 of28 Crl.M.C.4603/2005 ^ M/s Niketan Traders Pvt. Ltd. 3627, Sector 46D Chandigarh-160019 M/s Ebony Traders Pvt. Ltd 1008, Sector-19B Chandigarh-160019 M/sBecker Traders Pvt. Ltd. 334, Sector-7 Panchkula M/s Cross Trading Pvt. Ltd. B-202, PlotNo.52 Sukhnagar Apartments Delhi-110092 M/s Petunia Financial Services Pvt. Ltd. 31-H, Pocket-L, Sheikh Sarai-II New Delhi-110017 M/s Morepen Laboratories Ltd. 4"' Floor, Antriksh Bhawan

22. K. G.Marg New Delhi-110001 Mr.Sushil Suri S/o Sh. P.L.Puri R/o C-40, Anand Niketan New Delhi Mr. Arun Suri s/o Shri P. L.Suri' R/o E-9/1, Vasant Vihar New Delhi-110057 M/s Blue Coast Hotels &Resorts Ltd Pledger Borrower Guarantor Guarantor Page 20 of28 415-417, AntrikshBhawan 22,K.G.Marg New Delhi-110001 •••• 'Gmrantor Sub: Award dated 28.06.2003 in respect of inter corporate deposit dated19.09.2002forRs.5,00,00,000/- Dear Sirs, We wish to draw your kind attention to the Award dated 28.6.2003 passed by Hon'ble Mr. Justice A.P.Chowhari (Retd.), Sole Arbitrator under Section 30 oj the Arbitration and Conciliation Act, 1996 wherein as per the joint request of the parties the Memorandum oj Settlement dated 27.05.2003 along^vith its Annexures form an integralpart ofthe Award. In terms of clause 3of the Memorandum ofSettlement failure to pay the instalments being the AMOUNT Of DEBT PAYABLE (wholly or in part)' by the dates specified in Annexure B (to the Memorandum of Settlement) shall in each case be an event ofdefault. Asper clause 4ofthe Memorandum ofSettlement, in the event the number ofunpaid instalments (whole or inpart) become three, then there shall be an acceleration and the entire DEBT DUE AND PAYABLE as mentioned in Annexure 'A' (to the Memorandum ofSettlement) shall become due and payable forthwith without requirement of any notice and further without prejudice to ihe executability of the Award in terms thereof On occurrence ofany event ofdefault, without prejudice to other remedies which we are Lender are entitled to. the pledge will become enforceableforthwith which includes the right ofsale ofsharespledged. We hereby notify to you all that M/s Morepen Laboratories Ltd have failed to pay three instalments Page 21 of28 due on 20.09.2003, 20.10.2003 and 20.11.2003 respectively has committed default, the right to remedy default also ceases and the amount being the entire 'DEBTDUE AND PAYABLE' has now becomes due and.payableforthwith. Since the Borrower, Guarantors and Surety have failed and neglected to pay the outstanding amount and/or any part thereof we will be exercising our right under the said Memorandum of Settlement and the Award to sell the shares of M/s Blue Coast Hotel &Resorts ad pledgedwith us on the expiry of4working daysfrom the date ofthis notice. This isfor your kind information. Thanking you, Yoursfaithfully, for Morgan Securities &Credits Pvt. Ltd. sd/- (AuthorisedSignatory) Saturday, February 07, 2004 M/s Morgan Securities Pvt. Ltd. 53, Friends Colony (East) New Delhi Dear Sir, Pending formalization of understanding arrived at between us as mentioned in our letter dated 6' February,

2004. You are requested to stop selling the equity shares If M/s Blue Coast Hotels &Resorts Limited and to maintain the status quo in the matter. CrlM^C.4603/2005 Page 22 of28 / Thanking you, Yoursfaithfully, For Morepen Laboratories Limited Sd/- Authorizedsignatory"

21. Upon in-depth consideration ofthe submissions advanced by both the sides and on careii.[1] perusal ofthe FIRs in question, the material on record and the decisions cited, it emerges that the case of respondentscomplainant has to be taken on its face value andthen, it is to be seen as to whether any criminal offence is made out or not. The crux of respondents' entire case is whether respondent/complainant-A& Morepen Laboratories Ltd. was put to notice prior to the selling ofthe pledged shai-es in question. On this crucial aspect, the stand ofpetitioners is that copy ofInformation (Annexurc-Iin CrlM.C. 4603/05) downloaded from the official website ofNational Stock Exchange pomts out that the sale of pledged shares in question took place in December, 200j and January, 2004 upon invocation ofthe pledged shares, whose details are given m the above-said Anmxure-L Pertinently, respondentscomplainants have not controverted the afore-said stand ofpetitioners.

22. Furthermore, afore-said Information (Annexure-I in CrlM.C. 4603/05) receives ample coiToborationfrom communication of4'" March, 2004 (Amexure P-I to Rejoinder in CrlM.C 2059/07) of respondent/complainant-A//s. Morepen Laboratories Ltd. which reads as under: - "March 4, 2004 Morgan Securities &Credits Pvt. Ltd. J <• 53, Friends Colony (East) New Delhi-l 10065 Sub -.-Balance repaymentfor ICD ofRs.[2] crores Dear Sir, Pursuant to the Memorandum of Understanding signed on May 27, 2003 please find enclosed therewith P.O. no.241092 date March 4, 2004 for Rs.15,23,900/- drawn on State Bank ofIndore in lieu ofcheques earlier issued lo you but not clearedasper detail below: - Cheque No. Cheque Amount Dated Amount Paid 812911 14,18,568/- 15/03/04 14,18,568/- 812910 12,50,000/- 15/02/04 1,05,332/-'' Total 15,23,900/- For cheque no.812910. Shares worth Rs.8,94,668/have been sold by Morgan Securities. Partpayment made of ^.50 lacs was made vide pay order no.241019 dt. 25/02/04. Therefore, balance payment due in lieu of cheque no.812910 is Rs.1,05,332/-. Bypayment the above amount, ICD ofRs.[2] crores availed from Morgan Securities &Credits (P) Ltd. standspaid oft Therefore, we request you to kindly M'ithdraw the petition filedfor the execution ofDecree in Delhi High Court, all cases filed under the Negotiable Instruments Act, 1881 and/or any other Legal proceedings/casesfiled against us in relation to the above mentionedICD. We are highly grateful and thank youfor the cooperation extended. Thankingyou. Yours sincerely. ForMOREPENLABOKATOllES LIMITED ^age24of28 Sd- AUTHORlZED SIGNATORY"

23. Upon a plain reading of the afore-said Information (Annexure -I) and above-said Communication (Annexure P-1), it becomes crystal clear that respondent/complainant-M^. Morepen Laboratories Ltd. had prior notice of the sale of pledged shares. Having found so, it can be certainly said that the decisions in J.R.D. Tata (supra) and M/s. A.E. Enterprises (supra) are ofno avail tothecase ofrespondents-complainant.

24. This Court is conscious of the settled legal position that inherent jurisdiction under Section 482 of Cr.P.C. is to be exercised on sound principles as reiterated by Apex Court in State ofLIaryana v. Bhajan Lai 1992 Supp (1) see 335 and in LJarshendra Kumar D. V. Rebatilata Koley and Others (2011) 3 SCC 351. Keeping in mind the parameters governing exercise of powers under Section 482 of Cr.P.C., I have scanned through the three FIRs in question, in the light of the latest decision oftheApex Court in Chandran Ratnaswami v. K. C. Palanisamy, (2013) 6 SCC 740 reiterating the dictum of Apex Court in Uma Shankar Gopalika v. State ofBihar (2005) 10 SCC 336, which is asunder: - "6. Now the question to he examined by us is as to whether on thefacts disclosed in thepetition of complaint any criminal offence whatsoever is made out much less ojfences under Sections 420/120-B IPC. The only allegation in the complaint petition against the accused persons is that they assured the complainant that when they receive the insurance claim amountingto Rs 4,20,000, they wouldpay a sum of Rs 2,60,000 to the complainant out of that but the same has never been paid. Apartfrom that there is no other allegation in the petition of Crl.M.C.4603/2005 Page 25 of28 nS) complaint. It waspointed out on behalf ofthe complainant that the accused fraudulently persuaded the complainant io agree so that the accusedpersons may take stepsfor moving the Consumer Forum in relation to the claim ofRs 4,20,000. It is well settled that eveiy breach of contract would not give rise to an offence of cheating and only in those cases breach of contract would amount to cheating where there was any deception played at the veiy inception. Ifthe intention to cheat has developed later on, the same cannot amount to cheating. In the present case it has nowhere been stated that at the veiy inception there was any intention on behalf of the accused persons to cheat which is a condition precedentfor an offence under Section 420IPC.

7. In our view petition of complaint does not disclose any criminal offence at all much less any offence either under Section 420 or Section 120-B IPC and the present case is a case of purely civil dispute between the parties for which remedy lies before a civil court by filing a properly constituted suit. In our opinion, in view of these facts allowing the police investigation to continue would amount to an abuse ofthe process ofcourt and to prevent the same it M>as just and expedient for the High Court to quash the same by exercising the powers under Section 482 CrPC which it has erroneously refused. " (emphasis supplied)

25. Since it is amply clear that the sale of the pledged shares by petitioner-Morgan Securities and Credits Pvt.. Ltd. was with prior notice to respondent/complainant-M/y. Morepen Laboratories Ltd. and was in consonance with the Pledge Agreements [Annexure-B (Colly.) in Crl.M.C.2059/07], Memorandum ofSettlement of 2?"^ May, 2003 and Crl.M.C.4603/2005 Page 26 of28 \5>^ Consent Award of 28"^ June, 2003 (Annexure -C in Crl.M.C. 2059/07), therefore, in the face of afore-referred Securities Appellate Tribunal's judgment of 29"' August, 2011, finding the transaction in question to be valid, it can be unhesitatingly concluded that neither the offence of criminal breach of trust nor of criminal misappropriation or of being in possession of stolen shares or of forgery, etc. is prima facie made out. Infact, it is nowhere spelt out inthe FIRs in question as to what document has been forged. Rather, the three FIRs inwhich petitioners aresought to be prosecuted, do not disclose the ingredients of the alleged criminal offences.

26. During the course of hearing, it was brought to the notice o! this Court that the civil litigation initiated by respondents-complainant is to get thesale ofpledged shares declared as null and void. The applicability of The Depositories Act, 1996 and the Securities andExchange Board of India (Depositories andParticipants) Regulations, 1996 is quite relevant but it is required to be considered in detail in the civil proceedings and not in these criminal proceedings.

27. No doubt, civil and criminal proceedings can go on simultaneously but, in the instant matters, I have found that the ingredients of the criminal offence alleged are utterly lacking and the dispute between the parties is infact ofpurely civil nature and that civil litigation between the parties is already pending. Thus, this Court is of the considered opinion that from the FIRs in question, even a prima facie case to continue the proceedings arising out of the FIRs in question is not made out and lodging of these three FIRs is nothing but an abuse of the process of the court and the case of petitioners falls in the first illustrative category Crl.M.C.4603/2005 PageJ7of28 }indicated byApex Court inSta/e ofHaiyana v. Bhajan Lai (supra) which is reproduced as under: -" "Where the allegations made in the first information report or the complaint, even if they are taken at theirface value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused."

28. In the ultimate analysis, finding the initiation of criminal proceedings inthe afore-said three FIRs inquestion, to be an abuse ofthe process of the law, FIR No.505/2005 registered at P.S. Defence Colony, Delhi, FIR No.511/5005 registered at P.S. Connaught Place, Delhi and FIR No.108/2005 registered. at P.S. Parwanoo, Himachal Pradesh and proceedings emanating therefrom are hereby quashed while refraining to comment upon the merits of the disputes raised in these criminal proceedings lest it may prejudice either side in the pending civil proceedings. Consequentially, order of 14^'* January, 2011 in Crl.M.C. 279, 280 and 281 of 2011 is also, set aside.

29. The above captioned eight petitions and the applications are accordingly allowed. (SUNIL GAUR) Judge SEPTEMBER 23, 2013