REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. OF 2023

(Arising out of SLP (Criminal) No. 3686 of 2021)

PRAKASH AGGARWAL ...APPELLANT(S)

VERSUS

GANESH BENZOPLAST LIMITED

AND ANOTHER ...RESPONDENT(S)

WITH

CRIMINAL APPEAL NO. OF 2023

(Arising out of SLP (Criminal) No. 4094 of 2021)

CRIMINAL APPEAL NOS. OF 2023

(Arising out of SLP (Criminal) Nos. 3707-3708 of 2021)

J U D G M E N T

B.R. GAVAI, J.

1.Leave granted.

2.The present appeals challenge the judgment and order

dated 26

th

April 2021, passed by the High Court of

Judicature at Bombay, thereby dismissing Criminal Writ

Petition Nos. 348, 349 and 357 of 2020 filed by the

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appellants herein seeking quashing of the order dated 22

nd

March 2017 passed by the Metropolitan Magistrate, Railway

Mobile Court, Andheri, Mumbai (hereinafter referred to as

the “trial court”), thereby issuing summons to them. The

High Court allowed Criminal Writ Petition Nos. 127, 128, 129

and 130 of 2020 filed by the complainant/respondent No.1

herein, thereby, upholding the order dated 22

nd

March 2017.

3.The facts, in brief, giving rise to the present appeals are

as under:

3.1.Ganesh Benzoplast Ltd., the original complainant and

respondent No. 1 herein, availed two Inter Corporate Deposit

(hereinafter referred to as “ICD”) facilities, dated 14

th

February 2000 and 7

th

March 2000, from Morgan Securities

and Credits Pvt. Ltd – accused No. 1. The said ICD were for

Rs. 50,00,000/-, each to be repaid by 15

th

May 2000 and 5

th

June 2000. As per the ICD, security cover of 200% of the ICD

amount was to be maintained. Accordingly, the

complainant/respondent No.1 executed a Letter of Pledge (for

short, “LoP”) in favour of accused No.1 Company, pledging

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15,00,000 of its equity shares as security, with each share

valued at Rs. 16/-, thereby amounting to Rs. 2,40,00,000/-.

3.2.Prakash Aggarwal, Meera Goyal and Suresh Chand

Goyal, appellants herein, who were Directors of accused No.

1 Company, were responsible for the management of its day

to day affairs. They were arraigned as accused Nos. 2 to 4 in

the original complaint.

3.3. On 3

rd

May 2000, accused No.1 Company issued a

notice to the complainant/respondent No.1 asking it to

pledge additional shares as the value of the pledged shares

had decreased to Rs. 1,24,50,000/- on account of depression

in the financial market, thereby, resulting in a shortfall of Rs.

75,50,000/- from the agreed security cover i.e. 200% of the

ICD amount.

3.4.Due to financial hardship, the complainant/respondent

No.1 was not in a position to repay the ICD amount on 5

th

June 2000, i.e. the due date, and therefore, it informed

accused No.1 Company that it could sell the pledged shares

to realize the due amount, and remit the excess amount to

the complainant/respondent No.1. Thereafter, accused No.1

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Company assured the complainant/respondent No.1 that, as

and when the shares were sold, the balance amount, if any,

would be remitted to it.

3.5.On 25

th

August 2000, the complainant/respondent No.1

repaid the first ICD and the loan account was closed.

3.6.It is pertinent to note that the interest that was being

charged on ICD was being regularly recovered by accused No.

1 Company uptill 6

th

August 2001. In the meanwhile, the

complainant/respondent No.1 was in constant

communication with the accused No.1 Company, seeking the

details of the sale of shares. However, these requests were

rebuffed, with accused No.1 Company asking the

complainant/respondent No.1 not to confuse the issue of

sale of shares with the issue of interest on ICD.

3.7.On 2

nd

August 2001, accused No.1 Company issued

another notice to the complainant/respondent No.1,

demanding the repayment of the ICD of Rs. 50,00,000/- as

the value of the pledged shares had fallen to Rs. 44,25,000/-,

failing which the pledged shares would be sold.

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3.8.Subsequently, on 14

th

August 2001,

complainant/respondent No.1 proposed to repay Rs.

25,00,000/- initially in five equal monthly installments, with

the first installment to be paid on or before 25

th

August 2001.

However, on the same day, accused No.1 Company invoked

the arbitration clause in the ICD agreement and appointed a

Sole Arbitrator, claiming the outstanding amount due from

the complainant/respondent No.1.

3.9.During the pendency of the arbitration proceedings,

accused No.1 Company sold the 15,00,000 pledged shares

for an amount of Rs.24,67,631/- to one Doogar and

Associates Ltd., which was later renamed as Morgan

Ventures Ltd. in the year 2004. Importantly, accused Nos. 2

to 4 were also Directors in this transferee Company.

3.10. The complainant/respondent No.1, on 11

th

February 2011, filed a criminal complaint being CC No.

56/SW/2011 against accused Nos.1 to 4, alleging fraud,

cheating and criminal breach of trust, before the trial court.

Vide order dated 11

th

September 2012, the Magistrate issued

process against all the accused for offences punishable under

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Sections 403, 406, 420 and 120-B of Indian Penal Code,

1860 (for short, “IPC”).

3.11. The aforesaid order was challenged by filing a

Criminal Revision Application No. 1276 of 2012 before the

Court of Session for Greater Bombay at Bombay. Vide order

dated 16

th

January 2016, the said criminal revision

application was allowed, and the matter was remanded to the

trial court, who was directed to re-record verification under

Section 200 of the Code of Criminal Procedure,1973.

3.12. In the meantime, on 9

th

December 2015, an

arbitral award was passed in favour of accused No.1

Company and the complainant/respondent No.1 was held

liable to pay the claim amount of Rs.34,59,218/- with

interest at the rate of 36% per annum.

3.13. Pursuant to the remand order dated 16

th

January

2016, the trial court, vide order dated 22

nd

March 2017,

issued process under Sections 406, 420 read with Section 34

of the IPC read with Section 15-HA of the Security Exchange

Board of India Act, 1992 (for short, “SEBI Act”) against

accused Nos. 1 to 4.

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3.14. Aggrieved by the same, the accused filed Criminal

Revision Application being No.128 of 2017 before the Court

of Sessions, Dindoshi, Mumbai. Vide order dated 2

nd

December 2019, the said revision application was partly

allowed. Insofar as the process issued against accused No.1

Company, it was completely quashed and set aside, whereas,

the issuance of process against accused Nos. 2 to 4 was set

aside only under Section 420 of the IPC and Section 15-HA of

the SEBI Act. However, issuance of process against accused

Nos. 2 to 4 for the offences punishable under Section 406

read with Section 34 of the IPC stood confirmed.

3.15. Challenging the aforesaid order, criminal writ

petitions were filed both by the complainant/respondent

No.1 and accused Nos. 2 to 4/appellants herein. The High

Court, vide the impugned judgment dated 26

th

April 2021,

allowed the criminal writ petitions filed by the

complainant/respondent No.1 and dismissed the criminal

writ petitions filed by accused Nos. 2 to 4, thereby affirming

the order of the trial court and confirming the issuance of

process against them under Sections 406 and 420 read with

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Section 34 of IPC. The charges under Section 15-HA of the

SEBI Act were dropped at the instance of the

complainant/respondent No.1, who averred before the High

Court that he would not pursue the application under the

same.

3.16. Hence, the present appeals.

4.We have heard Shri Shyam Divan, learned Senior

Counsel and Shri Vaibhav Malhotra, learned counsel

appearing on behalf of the accused Nos. 2 to 4-appellants,

Dr. Abhishek Manu Singhvi, Mrs. Anjana Prakash, learned

Senior Counsel appearing on behalf of the complainant

/respondent No.1 and Shri Siddharth Dharmadhikari,

learned counsel on behalf of the respondent No.2-State.

5.Shri Divan submitted that the complaint, even taken at

its face value, does not disclose that ingredients of any

offence have been made out. He submits that, along with the

Inter-Corporate Deposit Agreement (hereinafter referred to as

the “ICDA”), the complainant/respondent No.1 had pledged

the shares in question. As per the LoP, the accused No.1

Company was entitled to invoke the pledge at any time in the

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event of default or otherwise. In the LoP, the authority was

also given to sell and dispose of the said securities. He

further submits that, as per the LoP itself, the accused No.1

Company could have sold the shares to themselves.

6.Shri Divan further submits that, with regard to the very

same dispute, the arbitration proceedings were conducted

between the parties. The complainant/respondent No.1 has

participated in the said arbitration proceedings and an

arbitral award is also passed by the learned Arbitral

Tribunal. He submits that the same is challenged by the

complainant/respondent No.1 by a proceeding under Section

34 of the Arbitration and Conciliation Act, 1996 (hereinafter

referred to as the “Arbitration Act”). He further submits that

it could clearly be seen that the dispute between the parties,

if any, is purely of civil nature and continuation of the

criminal proceedings would amount to nothing else but an

abuse of process of law.

7.Dr. Singhvi, on the contrary, submits that the

complainant/respondent No.1 had informed the accused

persons/appellants herein as early on 5

th

June 2000 to sell

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the shares. However, the accused persons/appellants chose

not to sell the shares at that point of time as the market

price was much higher. He submits that the very fact that

the shares were sold by the accused persons/appellants to a

Company wherein accused Nos. 2 and 3 are also Directors,

at a meagre price, clearly exhibits a dishonest intention on

their behalf. He submits that the complainant/respondent

No.1, for the first time, came to know about the illegal act

committed by the accused persons/appellants in the year

2009 and as such, there is no delay in lodging the complaint.

He submits that, in any case, the trial court, the Revisional

Court as well as the High Court have concurrently held that

insofar as the offence punishable under Section 406 of the

IPC is concerned, a case is made out. He therefore submits

that an interference with the concurrent findings of fact

would not be permissible. He, therefore, prays for dismissal

of the complaint.

8.With the assistance of the learned counsel for the

parties, we have perused the documents placed on record.

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9.It is not in dispute that an ICDA came to be entered into

between M/s Ganesh Benzoplast Limited, i.e. the

complainant/respondent No.1 herein and M/s Morgan

Securities & Credits Pvt. Ltd., i.e. accused No. 1, on 7

th

March 2000. Under the said ICDA, accused No.1 Company

had agreed to grant the complainant/respondent No.1 the

said ICD of Rs.50,00,000/- for a period of 90 days at an

interest rate of 26% per annum. It will be relevant to refer to

Clauses 2 and 3 of the terms of the ICDA, which read thus:

“2. The Borrower is aware that the ICD is being

granted by the lender on the basis of securities

agreed to be provided as per the terms of the

sanction.

3. The borrower hereby irrevocably agrees that

it shall arrange to issue an irrevocable

instruction to their dematerialised participant

to mark a lien in favour of the lender till the

ICD and any other dues remains unpaid. All

expenses related to dematerialising of shares

shall be bone by the borrower.”

10.It could thus be seen that the ICD was granted by the

lender on the basis of the securities agreed to be provided as

per the terms of the sanction. The complainant/respondent

No.1 has also irrevocably agreed that it shall arrange to issue

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an irrevocable instruction to its dematerialized participant to

mark a lien in favour of the lender till the ICD and any other

dues remains unpaid. It will further be relevant to refer to

the following part of Clause 9 of the ICDA:

“9. ……….

a) Any installment of interest if any required to

be paid in installment as agreed hereinabove

remains unpaid even after the expiry of 3 days

from the respective due date for payment.

b) Any shortfall in the security pledged vide

Letter of Pledge executed subject to which

facility granted is not replenished even after

giving due Notice as provided therein.

c) …….….

d) ……….

e) ………..

f) …………

h) ………..

i) ………….”

11.It is thus clear that in the event of any of the events

occurring in sub-clauses (a) to (i) of Clause 9 of the ICDA, the

lender would be entitled at its discretion to enforce its rights

as mentioned in the ICDA, Deed of Personal Guarantees,

Corporate Guarantee and LoP. A perusal of sub-clause (a) of

Clause 9 of the ICDA would reveal that, if any installment of

interest required to be paid as per the ICDA remains unpaid

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even after the expiry of 3 days from the respective due date

for payment, accused No.1 Company was entitled to enforce

its rights as mentioned in Clause 9 of the ICDA. Similarly, if

any shortfall in the security pledged vide LoP executed,

subject to which facility was granted, was not replenished

even after giving due Notice, accused No.1 Company was

entitled to invoke Clause 9 of the ICDA.

12.It will further be relevant to refer to Clauses 5 and 8(5)

of the LoP, which read thus:

“5. The Pledgee may invoke the pledge at any

time in the event of default or otherwise for as

many number of shares as the Pledgee/ lender

deems fit in its sole discretion. However, such

invocation of pledge will not amount to sale of

share to the lender and the borrower will not

be entitled to any credit/ adjustment on such

invocation transfer of shares to the lenders

account on that date. The amount which may

be realised against as and when actual sale in

effected by the lender in the market and in

that circumstances only the borrower will be

entitled to adjustment of the sale proceeds so

realised against the ICD dues. Pledger agrees

that it has understood the concept and shall

not create any dispute on the same.

8. ……

i)………

ii)………

iii)………..

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iv)………..

v)In order to enable you to sell and dispose

off the said securities under the circumstances

mentioned in clause 7 above, We hereby give

you the authority to undertake all deeds and

acts to dispose off the said shares in adjust the

outstanding amount. We hereby confirm that

we will not dispute or claim any loss on

account of price at which securities are sold by

the lender to himself, its group companies or

to any outsider.”

13.A perusal of Clause 5 of the LoP would reveal that the

Pledgee was entitled to invoke the pledge at any time in the

event of default or otherwise for as many number of shares

as the Pledgee/lender deems fit in its sole discretion. It

further provided that such invocation of pledge would not

amount to sale of shares to the lender and the borrower

would not be entitled to any credit/adjustment on such

invocation/transfer of shares to the lender’s account on that

date. It further provided that the amount which may be

realized against as and when actual sale is effected by the

lender in the market and in that circumstances only the

borrower would be entitled to adjustment of the sale

proceeds so realized against the ICD dues. It would further

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reveal that the Pledger had agreed that it has understood the

concept and shall not create any dispute on the same.

14.A perusal of sub-clause (v) of Clause 8 of the LoP would

reveal that a specific authority has been given by the Pledgee

to sell and dispose of the said securities under the

circumstances mentioned in the LoP. The

complainant/respondent No.1 has also agreed to undertake

all deeds and acts to dispose of the said shares to adjust the

outstanding amount. The complainant/respondent No.1 has

further agreed that it would not question whether accused

No.1 Company had got the best price for the securities.

15.A perusal of the terms of the ICDA as well as the LoP

would clearly reveal that, in the event of any of the events

occurring as provided in Clause 9 of the ICDA, accused No. 1

Company was entitled to sell the shares either to itself, its

group companies or to any outsider. The accused No.1

Company had also agreed not to dispute or claim any loss on

account of the price at which such securities were sold.

16.A perusal of the entire complaint would reveal that the

only allegation is that accused No.1 Company had sold the

15

shares to itself when the market price of the shares had

fallen. The allegation is that “The accused in order to acquire

more shares of complainant waited for further fall in share

price and sold them only in 2001 for Rs. 24,67,531/-. Thus the

accused jointly and severally are liable for unauthorized,

illegal and fraudulent sale and also for breach of trust. The

accused not only misappropriated the shares, but also cheated

the complainant as the securities were handed over only as a

surety in trust and on assurance ·of the accused which later

proved to be false that the same will be dealt as per guidelines

of SEBI.”

17.The aforesaid averments are totally contrary to the

terms agreed between the parties in the ICDA as well as in

the LoP. As already discussed hereinabove, the ICDA as well

as the LoP specifically authorizes the accused

persons/appellants to sell the shares either to themselves or

their group of companies. It is further to be noted that

accused No.1 Company had already invoked the arbitration

clause on 14

th

August 2001. In the arbitration proceedings,

a specific stand was taken by the complainant/respondent

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No.1 that accused No.1 Company should have invoked the

pledge at the stage of the first default, i.e. in May 2000.

However, the accused persons/appellants waited till August-

September, 2001 to sell the pledged shares which had in the

meanwhile depreciated in value. Another allegation made

before the arbitration proceedings was that accused No.1

Company had manipulated the price of the shares. It will be

relevant to refer to Issue No. 2 framed by the learned

Arbitrator, which reads thus:

“2) Whether the 15 lakh equity shares which

were pledged have been sold? If so, when, at

what rate, to whom and to what effect? (OPP).

(The above issue will include the contention

that the Claimant has not sold the shares at

the best available price. This will also cover the

allegation that as to whether the Claimants

were obliged to sell the shares as stated in the

letter of 3rd May, 2000).”

18.It will be relevant to refer to the following observations

of the learned Arbitrator made in his award dated 9

th

December 2005:

“32. Pertinently, the average price at which-the

pledged shares were sold by the Claimant on

24.03.2001 works out to Rs.2.47 per equity

share, as per Respondent No. l’s own assertion

[as mentioned in undated written note referred

17

in para b (supra)). It is also not in1 dispute, as

noted above, that the average market price per

share as on 02.08.2001 was Rs. 2.95 per

share. Such marginal fluctuations in the price

of shares; and that too when the Claimant was

constrained to realize the entire security in the

face of habitual default by Respondent No.1;

with not many takers for the shares; cannot be

described as a consequence of price

manipulation, resulting in any wrongful loss to

the Respondents.

33. Had the share been priced at something

like Rs. 8 or 10 per share in August, 2001;

then a sale by the Claimant in the region of

Rs.2/- etc. could possibly have attracted an

allegation of price manipulation. However, in

the given circumstances, and for the reasons

stated hereinabove, the allegations levelled by

Respondent No.1 are misconceived and are

liable to be rejected.”

19.It is thus clear that the complainant/respondent No.1

was having knowledge of the sale of shares in the year 2001

itself when the arbitration proceedings were initiated. In the

complaint, it is alleged that, during the pendency of the

arbitration proceedings, the complainant/respondent No.1

became suspicious of the illegalities committed by the

accused persons/appellants and sought for certain

information. However, since the accused persons/appellants

did not give the information, the complainant/respondent

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No.1 applied to Bombay Stock Exchange (for short, “BSE”)

and National Stock Exchange (for short, “NSE”) in the year

2006 for details of sale of its shares by the accused

persons/appellants on 24

th

August 2001, 31

st

August 2001,

3

rd

September 2001 and 12

th

September 2001. It is stated in

the complaint that only thereafter, in the year 2006, the

complainant/respondent No.1 came to know of the fact that

most of the shares were sold at the closing time of the share

market and at the lowest price of the day. It is averred that,

only at that point in time, the complainant/respondent No.1

came to know that the shares were sold by the accused

persons/appellants to their own companies.

20.It could thus be seen that, though the

complainant/respondent No.1 was aware about the sale of

shares as early in the year 2001, he did nothing till the year

2006 when, according to it, it had applied to BSE and NSE

for details. Even after the year 2006, the

complainant/respondent No.1 waited till the year 2011 to

lodge the complaint. Though, it is sought to be urged by the

complainant/respondent No.1 before us that it came to know

19

about the fraudulent act of the accused persons/appellants

in the year 2009, which gave a cause of action to it to file the

complaint, there is no averment to that effect in the

complaint.

21.Insofar as the other contention that the shares were

sold at a lesser price than the market price is concerned,

there is no averment in the complaint in that regard. In any

case, the transactions have been made through the BSE and

NSE. As such, the contention in that regard is without

substance. In any case, a specific finding has been given by

the learned Arbitrator in that regard. As already informed to

us, the said arbitral award is under challenge in the

proceedings under Section 34 of the Arbitration Act. We do

not wish to observe anything about the merits or demerits of

the said award as the competent court is seized of the same.

22.However, it would clearly reveal that the

complainant/respondent No.1 has attempted to turn a purely

contractual dispute between the parties into a criminal case.

Not only that, there is an inordinate delay in lodging the

complaint. Though the complainant/respondent No.1 was

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aware about the sale of the shares in the year 2001, it did

not do anything except filing an application before the

learned Arbitrator. According to the complainant/respondent

No.1, it received the information from the BSE and NSE in

the year 2006, which fortified its suspicion about the fraud

being played. Even thereafter, for a period of 5 years, it was

silent and filed the complaint only in the year 2011. As

already stated hereinabove, though an attempt was made at

the time of hearing to contend that it has only filed the

complaint after it came to know about the fraud in the year

2009, there is no averment to that effect in the complaint.

23.We find that the complaint, taken at its face value, does

not disclose that any of the ingredients of the offence

complained of have been made out. In the totality of the

circumstances, we find that the present complaint is nothing

else but an abuse of process of law. We, therefore, find that

the appeals deserve to be allowed.

24.In the result, we pass the following order:

(i)The appeals are allowed;

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(ii)The impugned judgment dated 26

th

April 2021 passed

by the High Court and the order dated 22

nd

March

2017 passed by the trial court are quashed and set

aside;

(iii)The complaint bearing CC No. 56/SW/2011 filed

before the trial court under Section 403, 406, 420

and 120B of the IPC is dismissed.

25.However, we clarify that nothing observed herein or in

the impugned orders would weigh with the forum seized of

the arbitral award in the proceedings under Section 34 of the

Arbitration Act or in any other proceedings, if taken recourse

to by the appellants, if they are entitled in law.

26.Pending application(s), if any, shall stand disposed of.

…..….......................J.

[B.R. GAVAI]

…….........................J.

[VIKRAM NATH]

NEW DELHI;

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APRIL 28, 2023.

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